<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 4, 1997
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
FAC REALTY TRUST, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
MARYLAND 6798 56-1819372
(State or other jurisdiction of (Primary Standard Industrial (IRS Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
11000 REGENCY PARKWAY
SUITE 300
CARY, NORTH CAROLINA 27511
(Address of principal executive offices)
C. CAMMACK MORTON
11000 REGENCY PARKWAY
SUITE 300
CARY, NORTH CAROLINA 27511
(919) 462-8787
(Address, including zip code, and telephone number, including area
code, of agent for service)
------------------------
WITH COPIES TO:
<TABLE>
<S> <C>
MICHAELA M. TWOMEY, ESQ. BRAD S. MARKOFF, ESQ.
SENIOR VICE PRESIDENT & GENERAL COUNSEL ALSTON & BIRD LLP
11000 REGENCY PARKWAY 3605 GLENWOOD AVENUE
SUITE 300 SUITE 310
CARY, NORTH CAROLINA 27511 RALEIGH, NORTH CAROLINA 27612
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the Registration Statement becomes effective.
------------------------
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
CLASSIFICATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) PER UNIT PRICE(2) REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock, par
value $.01 per share.................. 12,224,229 $6.75 $82,513,546 $25,005
</TABLE>
(1) Represents the estimated maximum number of shares of Common Stock to be
issued in exchange for all of the issued and outstanding shares of FAC
Realty, Inc. in connection with its reincorporation in Maryland from
Delaware.
(2) Pursuant to Rule 457(f), the filing fee has been computed based on the
market value of the shares of common stock of FAC Realty, Inc. to be
exchanged in the reincorporation, computed pursuant to Rule 457(c) using the
average of the high and low prices reported in the consolidated reporting
system of such common stock as reported on the New York Stock Exchange on
October 28, 1997.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
ITEM NUMBER/CAPTION HEADINGS IN PROXY STATEMENT/PROSPECTUS
- ------------------------------------------------------------------ ----------------------------------------------------------
<C> <S> <C>
A. Information About the Transaction
1. Forepart of the Registration Statement and Outside Front
Cover Page of Prospectus.................................. Facing Page of the Registration Statement; Cross Reference
Sheet; Outside Front Cover Page of Proxy
Statement/Prospectus.
2. Inside Front and Outside Back Cover Pages of Prospectus... Available Information; Information Incorporated by
Reference; Table of Contents.
3. Risk Factors, Ratio of Earnings to Fixed Charges and Other
Information............................................... The Company; Description of the Proposed Transaction
4. Terms of the Transaction.................................. Description of the Proposed Transaction.
5. Pro Forma Financial Information........................... Not Applicable.
6. Material Contracts With the Company
Being Acquired............................................ Not Applicable.
7. Additional Information Required for Reoffering by Persons
and Parties Deemed to be Underwriters..................... Not Applicable.
8. Interests of Named Experts and Counsel.................... Experts; Legal Matters.
9. Disclosure of Commission Position
on Indemnification........................................ Description of the Proposed Transaction.
B. Information About the Registrant
10. Information With Respect to S-3 Registrants............... Not Applicable.
11. Incorporation of Certain Information by Reference......... Not Applicable.
12. Information With Respect to S-2 or S-3 Registrants........ Available Information; Information Incorporated by
Reference; The Company.
13. Incorporation of Certain Information by Reference......... Not Applicable.
14. Information With Respect to Registrants Other than
S-2 or S-3 Registrants.................................... Not Applicable.
C. Information about the Company Being Acquired
15. Information With Respect to S-3 Companies................. Available Information; Information Incorporated by
Reference; The Company.
16. Information With Respect to S-2 or S-3 Companies.......... Not Applicable.
17. Information With Respect to Companies Other than
S-2 or S-3 Companies...................................... Not Applicable.
D. Voting and Management Information
18. Information if Proxies, Consents or Authorizations are to
be Solicited.............................................. Outside Front Cover Page of Proxy Statement/Prospectus;
Available Information; Information Incorporated by
Reference; Description of the Proposed Transaction;
Federal Income Tax Consequences; Accounting Treatment of
the Merger; Appraisal Rights; Approval Required for
Reincorporation; Recommendation of the Board of Directors.
19. Information if Proxies, Consents or Authorizations are not
to be Solicited, or in an Exchange Offer.................. Not Applicable.
</TABLE>
<PAGE>
FAC REALTY, INC.
11000 REGENCY PARKWAY
SUITE 300
CARY, NORTH CAROLINA 27511
November 7, 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's offices, 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
of the Company into FAC Realty Trust, Inc., a Maryland corporation (the
"Maryland Company"). The Maryland Company is a wholly owned subsidiary of the
Company, which was formed for the sole purpose of effecting the Reincorporation.
As a result of the Reincorporation, 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 Maryland Company intends to
reorganize itself into an umbrella partnership structure (an "UPREIT") through
the contribution of substantially all of its assets into a to-be-formed limited
partnership (the "Operating Partnership"), which will be controlled by the
Maryland Company as its sole general partner. Initially, the Maryland Company
will own, directly or indirectly, all of the interests in the Operating
Partnership.
The Board of Directors believes the Reincorporation, including the UPREIT
conversion, 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
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) An UPREIT structure may enable the Company to acquire
properties under more favorable economic terms.
Details of the proposed Reincorporation and information regarding the
Company are contained in the attached Proxy Statement/Prospectus, 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/Prospectus 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
<PAGE>
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's offices, 11000 Regency Parkway, Suite 300, Cary, North
Carolina 27511, on December 15, 1997 at 10:00 a.m., local time, 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 7, 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.
<PAGE>
FAC REALTY, INC.
PROXY STATEMENT
------------------------
FAC REALTY TRUST, INC.
PROSPECTUS
This Proxy Statement/Prospectus 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.
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
of the Company into FAC Realty Trust, Inc., a wholly owned subsidiary of the
Company formed for the sole purpose of effecting the Reincorporation (the
"Maryland Company"). As a result of the Reincorporation, 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 a
to-be-formed limited partnership (the "Operating Partnership"), which will be
controlled by the Maryland Company as its sole general partner. Initially, the
Maryland Company will own, directly or indirectly, all of the interests in the
Operating Partnership.
The Board of Directors of the Company is seeking your approval of the
Reincorporation because it would reduce the Company's annual tax obligations. In
addition, the UPREIT conversion, which is a part of the Reincorporation
proposal, should further reduce the Company's annual tax obligations and improve
the Company's ability to acquire additional properties on favorable terms.
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.
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. The
affirmative vote of a majority of the outstanding shares of Common Stock
entitled to vote on the proposal is required for approval of the
Reincorporation. At the close of business on October 31, 1997, 12,224,229 shares
of Common Stock were issued and outstanding.
This Proxy Statement/Prospectus also relates to the issuance of 12,224,229
shares of common stock, $.01 par value, of the Maryland Company in exchange for
the shares of Common Stock of the Company.
This Proxy Statement/Prospectus, form of proxy and notice of meeting are
being mailed to stockholders on or about November 7, 1997.
THE SECURITIES TO WHICH THIS PROXY STATEMENT/PROSPECTUS RELATE HAVE NOT
BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION
OR BY ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROXY
STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
The date of this Proxy Statement/Prospectus is November 7, 1997.
<PAGE>
AVAILABLE INFORMATION
The Maryland Company has filed a registration statement on Form S-4
(the "Registration Statement") under the Securities Act of 1933, as
amended ("Securities Act"), with the Securities and Exchange Commission
(the "Commission") covering the shares of common stock to be issued in
connection with the Reincorporation. As permitted by the rules and
regulations of the Commission, this Proxy Statement/Prospectus omits
certain information, exhibits and undertakings contained in the
Registration Statement. For further information pertaining to the
securities offered hereby, reference is made to the Registration
Statement, including the exhibits filed as a part thereof.
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 Commission. Such
reports, proxy statements and other information 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.
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS WHICH ARE NOT
PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS 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.
INFORMATION INCORPORATED BY REFERENCE
IN THIS PROXY STATEMENT/PROSPECTUS
The following documents filed with the Commission by the Company
pursuant to the Exchange Act are hereby incorporated in this Proxy
Statement/Prospectus by reference:
1. Annual report on Form 10-K for the year ended December 31, 1996,
as amended on Form 10-K/A on April 16, 1997;
2. Quarterly report on Form 10-Q for the quarter ended March 31,
1997;
3. Quarterly report on Form 10-Q for the quarter ended June 30,
1997;
4. Current reports on Form 8-K dated February 19, 1997; dated April
11, 1997 (as amended on Form 8-K/A on May 27, 1997); dated May 19, 1997;
and dated September 10, 1997.
5. 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
6. 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.
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/Prospectus to
the extent that a statement contained in this Proxy Statement/Prospectus or
in any other subsequently filed document that also is or is deemed to be
incorporated by reference in this Proxy Statement/Prospectus 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/Prospectus.
2
<PAGE>
TABLE OF CONTENTS
THE COMPANY ................................................................4
RECENT DEVELOPMENTS ........................................................4
Pending Acquisition Activity ........................................4
Pending Development Activity.........................................4
Changes in Management ...............................................5
DESCRIPTION OF THE PROPOSED TRANSACTION.....................................5
General..............................................................5
Merger of FAC Realty, Inc. into Newly Formed Maryland Subsidiary.....6
Certain Consequences of the Reincorporation..........................6
Comparison of Rights of Stockholders of the Company and Stockholders
of the Maryland Company.....................................................7
Reorganization as an UPREIT ........................................10
Anticipated Form of Partnership Agreement of the Operating
Partnership................................................................11
FEDERAL INCOME TAX CONSIDERATIONS..........................................13
Taxation of the Company as a REIT...................................13
Tax Aspects of the Operating Partnership............................14
Recent Legislation .................................................15
CERTAIN MARKET INFORMATION.................................................16
ACCOUNTING TREATMENT OF THE REINCORPORATION................................16
APPRAISAL RIGHTS ..........................................................16
APPROVAL REQUIRED FOR REINCORPORATION......................................16
VOTING PROCEDURES AND COSTS OF PROXY SOLICITATION..........................17
RECOMMENDATION OF THE BOARD OF DIRECTORS...................................17
EXPERTS....................................................................17
LEGAL MATTERS .............................................................18
STOCKHOLDER PROPOSALS FOR 1998 ANNUAL MEETING..............................18
GENERAL ...................................................................18
APPENDIX A AGREEMENT AND PLAN OF MERGER...................................A-1
APPENDIX B AMENDED AND RESTATED ARTICLES OF INCORPORATION OF
FAC REALTY TRUST, INC. .................................................B-1
APPENDIX C AMENDED AND RESTATED BYLAWS OF FAC REALTY TRUST, INC. .........C-1
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION
NOT CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS, 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/PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO
PURCHASE, THE SECURITIES OFFERED BY THIS PROXY STATEMENT/PROSPECTUS, 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/PROSPECTUS NOR ANY
DISTRIBUTION OF THE SECURITIES OFFERED PURSUANT TO THIS PROXY
STATEMENT/PROSPECTUS 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/PROSPECTUS.
3
<PAGE>
THE COMPANY
FAC Realty, Inc. (the "Company"), formerly Factory Stores of America, Inc.,
was incorporated in Delaware 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 that
has been converted to commercial office use with approximately 150,000 square
feet, which is currently under contract to sell; and (v) approximately 156 acres
of outparcel land located near or adjacent to certain of the Company's centers,
which 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/Prospectus, 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 above.
The Company disclaims any duty to update these forward-looking statements.
RECENT DEVELOPMENTS
PENDING 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.
The transaction is valued at $72.1 million. The purchase of two of the shopping
centers is subject to the final approval of two partnerships in which Mr. Kane
and Mr. Rodwell, respectively, are the managing partners.
In exchange for their equity ownership interests in the community centers,
Mr. Rodwell, Mr. Kane and related parties will receive 1.68 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, 391,067 will remain unissued until the completion of certain
performance requirements. As part of the purchase price, the Company will also
assume approximately $56.1 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 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 "Description of the Proposed
Transaction -- Reorganization as an UPREIT."
PENDING DEVELOPMENT ACTIVITY
On September 22, 1997, the Company and ARC jointly created Atlantic Realty
LLC to own, develop and manage retail community and neighborhood shopping
centers in the southeastern United States. The Company and ARC will own Atlantic
4
<PAGE>
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 needed 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
In September of 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
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 COMPANY COMMON
STOCK FOLLOWING THE REINCORPORATION.
GENERAL
The Board of Directors of the Company (the "Board of Directors") has
unanimously approved the proposed transaction to change the Company's state of
incorporation from Delaware to Maryland (the "Reincorporation") 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) An UPREIT structure may enable the Company to acquire
properties under more favorable economic terms.
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 paying Delaware's annual franchise tax beyond 1997. For the year ended
December 31, 1997, the Company expects to pay the State of Delaware a franchise
tax totaling approximately $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.
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. Converting to an UPREIT could enable the Company to acquire
properties at lower prices because of the tax advantages to some sellers of
receiving Units as consideration. 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.
5
<PAGE>
Upon converting to an UPREIT structure, the Company would 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 would transfer
substantially all of its assets to the Operating Partnership upon conversion to
an UPREIT structure, the Company estimates that it would save approximately
$188,000 each year in franchise taxes in those states, provided such states do
not alter their current tax laws. For the year ended 1997, the Company's
estimated savings would 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 other changes will be effected as a result of the
Reincorporation. Such changes are described below under the headings "Certain
Consequences of the Reincorporation" 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 will be approximately $50,000. The Company cannot predict
precisely the cost of converting to an UPREIT at this time because the most
appropriate method of transferring the Company's properties to the Operating
Partnership has not yet been determined. Based on discussions with its advisors,
the Company estimates that the cost of the UPREIT conversion will be
approximately $150,000, consisting primarily of the one-time payment of state
transfer taxes and related legal fees.
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 Appendix A to this Proxy
Statement/Prospectus. The Maryland Company was incorporated in Maryland on
October 10, 1997 specifically for purposes of the Reincorporation and has
conducted no business and has no material assets or liabilities. The
Reincorporation would not result in any change in the Company's business,
policies, assets or liabilities and would not result in any relocation of
management or other employees. The principal executive offices of the Maryland
Company have the same address and telephone number as those of the Company.
CERTAIN CONSEQUENCES OF THE REINCORPORATION
EFFECTIVE TIME. The Reincorporation will take effect on the later of the
time of filing (the "Effective Time") of a Certificate of Ownership and Merger
with the Secretary of State of Delaware and Articles of Merger 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 REINCORPORATION. Immediately after the
Reincorporation, the Board of Directors of the Maryland Company will be composed
of the current members of the Board of Directors of 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 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 and bylaws 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.
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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. Similarly, the Reincorporation will
have no effect on the number of authorized shares of the Company's capital
stock.
FRANCHISE TAX. As a result of the Reincorporation, the Company will not be
subject to Delaware's annual franchise tax after 1997. For the year ended
December 31, 1997, the Company and its subsidiaries expect to pay to the State
of Delaware annual franchise taxes totaling approximately $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.
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.
The Maryland Company also intends to continue the Company's Dividend
Reinvestment Plan following the Reincorporation.
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 Maryland Common Stock.
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 will have the same tax basis in the Maryland Common Stock or the
Maryland Preferred Stock as such holder had in the shares of the Common Stock or
the Preferred Stock prior to the Effective Time. Each stockholder's holding
period with respect to the Maryland Common Stock or the Maryland Preferred Stock
will include the period during which such holder held the corresponding Company
shares provided such shares 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 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.
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 charter (the "Delaware
Charter") and bylaws (the "Delaware Bylaws"), which have been adopted pursuant
to Delaware law. As a Maryland corporation, the Maryland Company is governed by
Maryland law and by its charter (the "Maryland Charter") and bylaws (the
"Maryland Bylaws"). A number of differences between Delaware law and Maryland
law and among these governing 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 charter and bylaws of each
company. The Maryland Charter and Maryland Bylaws as of the Effective Time will
be substantially in the forms attached as Appendices B and C to this Proxy
Statement/Prospectus and the Delaware Charter 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.
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
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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.
REMOVAL OF DIRECTORS. Under the Delaware Bylaws, any director may be
removed from the Board of Directors 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. The Maryland Charter, however, provides that a
director may be removed from the board only for cause by the affirmative vote of
the holders of a majority of the shares of capital stock of the Maryland Company
outstanding and entitled to vote in the election of directors voting together as
a group.
The Maryland Charter defines "cause" as willful and continuous failure of a
director to perform such director's duties for the company (other than any such
failure resulting from temporary incapacity due to physical or mental illness)
or the willful engaging by a director in gross misconduct materially and
demonstrably injurious to the company.
VOTING REQUIREMENTS. The vote required to amend the Delaware Charter or, as
of the Effective Time, the Maryland Charter is a majority of the outstanding
stock entitled to vote, except that the Maryland Charter requires the approval
of two-thirds of the shares of capital stock outstanding and entitled to vote in
order to amend the restrictions on ownership and transfer of capital stock for
REIT qualification purposes.
RESTRICTIONS ON OWNERSHIP AND TRANSFER OF CAPITAL STOCK. The Maryland
Charter will contain at the Effective Time restrictions on the ownership and
transfer of its capital stock primarily intended to enable the Maryland Company
to qualify as a REIT. These provisions are substantially similar to those in the
Delaware Charter.
The charters of both companies prohibit the ownership of more than 9.8% of
the company's outstanding capital stock (common and preferred). Unlike the
Delaware Charter, however, the Maryland Charter also prohibits ownership in
excess of 9.8% of outstanding Common Stock. This provision will have the effect
of reducing the maximum number of shares of Common Stock that may be held by any
person, entity or affiliated group.
LIMITATION OF LIABILITY. Pursuant to Delaware law and the Delaware Charter,
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 Charter, 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 nolo contendere 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.
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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 charter of
a Delaware corporation, any action that may be taken at a stockholder meeting
may be 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.
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 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 is the beneficial owner of ten percent or more of the voting
power of the outstanding voting stock of the corporation (an "Interested
Maryland Stockholder") are generally prohibited for five years after the most
recent date on which such person 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)
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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.
REORGANIZATION AS AN UPREIT
GENERAL. Upon completion of the Reincorporation, the Company plans to
reorganize itself as an UPREIT. The reorganization is expected to be
accomplished through the contribution of substantially all of the assets of the
Company to the Operating Partnership in a tax-free transaction (other than
certain state transfer taxes). 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 will own, directly or indirectly, all of the interests 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
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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.
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 will generally receive
shares of the Company's Common Stock upon redemption of their Units.
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.
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 PROXY
STATEMENT/PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM OF
OPERATING PARTNERSHIP AGREEMENT, WHICH IS FILED AS AN EXHIBIT TO THE
REGISTRATION STATEMENT OF WHICH THIS PROXY STATEMENT/PROSPECTUS IS A PART. 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 to 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
less than substantially all of its properties other than through the Operating
Partnership, 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 the satisfaction of
other conditions, including agreeing to be bound by the terms and conditions of
the Operating Partnership Agreement.
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."
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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 that 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. As additional partnership interests are issued to new partners, 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.
Pursuant to the Operating Partnership Agreement, the Operating Partnership
will assume and pay when due, or reimburse the Company for payment of, all
expenses the Company 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.
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 Operating Partnership
Agreement requires the Company to contribute to the Operating Partnership as
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.
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OTHER. The Operating 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.
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 following the Reincorporation. 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 ending on or prior to December
31, 1997. 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. In order to elect again
to be taxed as a REIT, the
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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 may be 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 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
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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," which 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.
The tax issues and analysis for Atlantic Realty LLC 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. 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.
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.
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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.
CERTAIN MARKET INFORMATION
The last reported sales price of the Company's Common Stock as reported on
the NYSE on October 8, 1997, the day preceding approval of the Reincorporation
by the Company's Board of Directors, was $8 7/16. The last reported sales price
of the Company's Common Stock as reported on the NYSE on November 3, 1997 was
$8.
ACCOUNTING TREATMENT OF THE REINCORPORATION
Upon completion of the Reincorporation, 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. The Company's
accountants for the current year are expected to be present at the Special
Meeting. They will have the opportunity to make a statement if they desire to do
so and are expected to be available to respond to appropriate questions.
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.
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
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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.
VOTING PROCEDURES AND COSTS OF PROXY SOLICITATION
This proxy solicitation is made by the Board of Directors of the Company.
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 expected to exceed $4,000. All costs of solicitation
will be borne by the Company.
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 proposal to be voted upon at the Special Meeting as
set forth in the formal notice attached and as described in this Proxy
Statement/Prospectus.
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.
Abstentions and broker non-voters will have the same effect as votes against the
Reincorporation.
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 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) An UPREIT structure may enable the Company to acquire
properties under more favorable economic terms.
Therefore, the Board of Directors recommends stockholders vote FOR approval
of the Reincorporation. A vote FOR the Reincorporation will constitute approval
of (i) the change in the Company's state of incorporation from Delaware to
Maryland through a merger of the Company into the Maryland Company, (ii) the
Maryland Charter, (iii) the Maryland Bylaws, (iv) the conversion into an UPREIT
structure and (v) all other aspects of the Reincorporation.
EXPERTS
The consolidated financial statements of FAC Realty, Inc. appearing in the
Annual Report (Form 10-K) of FAC Realty, Inc. at December 31, 1996 and 1995 and
for each of the three years in the period ended December 31, 1996, and the
audited Combined Statement of Revenues and Certain Expenses of North Hills for
the year ended December 31, 1996, incorporated herein by reference from its
Current Report on Form 8-K dated April 11, 1997 (as amended on Form 8-K/A dated
May 27, 1997), have been audited by Ernst & Young LLP, independent auditors, as
set forth in their reports thereon included therein and incorporated herein by
reference. Such consolidated financial statements are incorporated herein by
reference in reliance upon such reports given upon the authority of such firm as
experts in accounting and auditing.
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LEGAL MATTERS
Certain legal matters 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 31, 1997
for inclusion in the Company's proxy statement and form of proxy relating to the
1998 Annual Meeting of Stockholders.
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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APPENDIX 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
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 Series A 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 Series A Preferred Stock (the "Maryland Preferred Shares"
and, together with the Maryland Common Shares, the "Maryland Company Shares") of
the Maryland Company. 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) Each share of capital stock of the Maryland Company 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.
ARTICLE V
COVENANTS
5.1 STOCK EXCHANGE LISTING. The Maryland Company shall use its best efforts
to cause the Maryland Common 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 the reasonable expenses of, to the fullest extent permitted by law and
its bylaws, in advance of final disposition of a proceeding, (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 Common Shares, in accordance with applicable
law and the charter and bylaws of the Company.
(B) NYSE LISTING. The Maryland Common Shares issuable to the holders of the
Common Shares 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 Common 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 and Section 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 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.
ATTEST: FAC REALTY, INC.
By: ___________________________________
C. Cammack Morton
President and Chief Executive Officer
ATTEST: FAC REALTY TRUST, INC.
By: ___________________________________
C. Cammack Morton
President and Chief Executive Officer
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APPENDIX 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 office is 11000 Regency Parkway,
Cary, North Carolina 27511. The name of the Corporation's registered agent in
the State of Maryland is The Corporation Trust Company. The address of the
Corporation's resident agent in the State of Maryland is The Corporation Trust
Center, 32 South Street, Baltimore, Maryland 21202.
ARTICLE III
PURPOSE
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. Any of the terms of any class or series of
stock set or changed pursuant to the preceding sentence may be made dependent
upon facts or events ascertainable outside this charter (including
determinations by the Board of Directors or other facts or events within the
control of the Corporation) and may vary among holders thereof, provided that
the manner in which such facts, events or variations shall operate upon the
terms of such class or series of stock is clearly and expressly set forth in the
articles supplementary filed with the State Department of Assessments and
Taxation of Maryland.
The Common Stock, Preferred Stock and Excess Stock shall have the
preferences, qualifications, limitations, restrictions and rights set forth
below:
A. COMMON STOCK.
(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.
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(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; 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, whether the interest in the shares of Capital Stock is held
directly or indirectly (including by a nominee), and shall include
interests that would be treated as owned 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.
"Common Stock Ownership Limit" shall mean 9.8% in value of the
outstanding shares of Common Stock of the Corporation. The value of the
outstanding shares of stock shall be determined by the Board of Directors
of the Corporation in good faith, which determination shall be conclusive
for all purposes hereof.
"Constructive Ownership" shall mean ownership of shares of Capital
Stock by a Person, whether the interest in the shares of Capital Stock is
held directly or indirectly (including by a nominee), and shall include
interests that would be treated as owned 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.
"Equity Stock Ownership Limit" initially shall mean 9.8% in value of
the outstanding shares of Equity Stock of the Corporation.
"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" shall mean either the Common Stock Ownership Limit
or the Equity Stock Ownership Limit.
"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.
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"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.
"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.
(i) From and after the date of the Merger, no Person shall
Beneficially Own or Constructively Own shares of Equity Stock in excess
of the Equity Stock Ownership Limit, and no Person shall Beneficially
Own or Constructively Own shares of Common Stock in excess of the Common
Stock Ownership Limit.
(ii) From and after the effective date of the Merger, any Transfer
that, if effective, would result in any Person Beneficially Owning or
Constructively Owning Equity Stock in excess of the Equity Stock
Ownership Limit or Common Stock in excess of the Common Stock Ownership
Limit shall be void AB INITIO as to the Transfer of such shares that
would be otherwise Beneficially Owned or Constructively Owned by such
Person in excess of the applicable Ownership Limit; and the intended
transferee shall acquire no rights in such shares of Equity Stock.
(iii) 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.
(iv) 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 that 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 in 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)(j), 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 Beneficially Own or Constructively Own Common
Stock or Equity Stock in excess of the applicable Ownership Limit, then
such shares of Common Stock or Equity Stock in excess of the applicable
Ownership Limit or Equity Stock Ownership Limit (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.
(ii) If, notwithstanding the other provisions contained in this
Article IV, but subject to the provisions of subparagraph A(4)(j), 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 that 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.
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(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) or subparagraph A(4)(b)(iv) 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 Stock or 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.
(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)(j), 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) EXCEPTIONS. The Board of Directors, with a ruling from the
Internal Revenue Service or an opinion of counsel, may exempt a Person from
an Ownership Limit if:
(i) 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
Equity Stock will violate an Ownership Limit;
(ii) 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
(iii) such Person agrees that any violation or attempted violation
of such representations or undertakings (or other action that is
contrary to the restrictions contained in this Article IV will result in
such shares of Equity Stock being automatically converted into Excess
Stock in accordance with Subparagraph A(4)(c) of this Article IV.
(j) 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.
(k) ENFORCEMENT. The Corporation is authorized specifically to seek
equitable relief, including injunctive relief, to enforce the provisions of
this Article IV.
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(l) NON-WAIVER. No delay or failure on the part of the Corporation or
the Board of Directors in exercising any right hereunder shall operate as a
waiver of any right of the Corporation or the Board of Directors, as the
case may be, except to the extent specifically waived in writing.
(5) LEGEND. Each certificate for Equity Stock shall bear the following
legend:
The shares represented by this certificate are subject to
restrictions on Beneficial and Constructive Ownership and 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 (the "Code"). Subject to certain further restrictions and
except as expressly provided in the Corporation's charter, (i) no
Person may Beneficially or Constructively Own shares of the
Corporation's Common Stock in excess of 9.8 percent in value of the
outstanding shares of Common Stock of the Corporation; (ii) no Person
may Beneficially or Constructively Own shares of Equity Stock of the
Corporation in excess of 9.8 percent of the value of the total
outstanding shares of Equity Stock of the Corporation; (iii) no Person
may Beneficially or Constructively Own Equity Stock that would result
in the Corporation being "closely held" under Section 856(h) of the
Code or otherwise cause the Corporation to fail to qualify as a REIT;
and (iv) no Person may Transfer shares of Equity Stock if such
Transfer would result in the Equity Stock of the Corporation being
owned by fewer than 100 Persons. Any person who Beneficially or
Constructively Owns or attempts to Beneficially or Constructively Own
shares of Equity Stock which causes or will cause a Person to
Beneficially or Constructively Own shares of Equity Stock in excess or
in violation of the above limitations must immediately notify the
Corporation. If the restrictions on transfer are violated, the shares
represented hereby will be automatically converted into shares of
Excess Stock, which will be held in trust by the Corporation. In
addition, upon the occurrence of certain events, attempted Transfers
in violation of the restrictions described above may be void ab
initio. All capitalized terms in this legend have the meanings defined
in the charter of the Corporation, as the same may be amended from
time to time, a copy of which, including the restrictions on transfer
and ownership, will be furnished to each holder of Capital Stock of
the Corporation on request and without charge.
Instead of the foregoing legend, the certificate may state that the
Corporation will furnish a full statement about certain restrictions on
transferability to a stockholder on request and without charge.
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
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Beneficial Transferee paid for the Equity 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 Equity Stock and such shares of Equity Stock shall be
transferred of record to the transferee of the interest in the Trust if
such Equity 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 B(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 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 this charter, 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.
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(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 this charter.
D. SERIES A CONVERTIBLE PREFERRED STOCK.
(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:
(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
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(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 FAC Realty,
Inc. 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) "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.
(t) "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.
(u) "Trading Day" means any day on which the New York Stock Exchange
is open for business.
(3) RANK. As to rights upon liquidation, winding up or dissolution of the
Corporation, the Series A Preferred Stock shall rank senior and prior to the
Common Stock and to Junior Stock, on a parity with the Parity Stock and junior
to any Senior Stock. As to dividend rights, the Series A Preferred Stock shall
rank on a parity with the Common Stock. Upon liquidation, winding up or
dissolution, the Series A Preferred Stock shall be subordinated and junior to
the prior payment in full of all principal, interest and premium, if any, of all
outstanding indebtedness of the Corporation.
(4) DIVIDENDS. No dividend or distribution shall be declared or paid on the
outstanding shares of Common Stock (including, without limitation, the
distribution of assets or amounts paid on account of any purchase, redemption,
exchange or other retirement of any shares of Common Stock, but excluding
dividends and distributions on the Common Stock that would require an adjustment
in the Conversion Price pursuant to 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:
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(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 Series A 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 Series A 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 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.
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(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 to make its election required by subparagraph D(6)(d).
(d) The Corporation shall, at the election of each Holder of Series A
Preferred Stock either:
(i) make effective provision such that such holder of Series A
Preferred Stock may continue its investment following the consummation
of such transaction on the terms and conditions substantially similar to
those contained in the Corporation's notice given pursuant subparagraph
D(6)(c); or
(ii) purchase, or cause the surviving entity of such transaction to
purchase, such Holder's shares of Series A Preferred Stock for a cash
Purchase price equal to the product of:
(A) the number of shares of Common Stock then issuable on
conversion of the shares of Series A Preferred Stock then held by such
Holder and
(B) an amount equal to 105% of the cash amount or value of other
consideration payable to the holder of a single share of Common Stock
upon the consummation of such transaction.
(e) Each Holder's election under 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 Paragraph D of Article IV or as expressly
required by applicable law in connection with an amendment of any of the
provisions of this charter 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.
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(ii) For purposes of this Paragraph D of Article IV, the
"Conversion Price" shall initially be equal to the conversion price of
the Series A Preferred Stock of FAC Realty, Inc. immediately prior to
the Effective Date of the Merger (as determined by the charter of FAC
Realty, Inc. as then in effect).
(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 10 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.
(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 (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,
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(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 (whether or not any
shares of Series A Preferred Stock are then outstanding) issue any
shares of Common Stock (or any rights, warrants, options or convertible
or exercisable securities entitling the holders thereof to subscribe for
or purchase any shares of Common Stock or any stock appreciation rights
entitling the holders thereof to any interest in an increase in value,
however measured, of shares of Common Stock) for an Effective Purchase
Price per Share less than the Conversion Price in effect immediately
prior to the date of such issuance, then, the Conversion Price shall be
adjusted to equal the ratio of:
(1) the sum of:
a. the product of:
(1) the number of shares of Common Stock outstanding
immediately prior to such issuance and
(2) the Conversion Price in effect immediately prior to such
issuance and
b. the Aggregate Consideration Receivable by the Corporation in
connection with such issuance to
(2) the sum of:
a. the number of shares of Common Stock outstanding immediately
prior to such issuance and
b. the number of additional shares of Common Stock to be so
issued (including the number of shares underlying such rights,
warrants, options or convertible or exercisable securities).
If the Corporation shall at any time (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 that 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,
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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 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.
(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),
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(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
that 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;
(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
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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 that 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) Series A Preferred Stock will not be subject to any sinking fund or
monetary redemption except as provided in Article IV(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
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 VI
REMOVAL OF DIRECTORS
Any director may be removed from office only for cause and only by the
affirmative vote of the holders of a majority of the shares of capital stock of
the Corporation outstanding and entitled to vote in the election of directors
voting together as a group. For purposes of this Article VI, "cause" shall mean
the willful and continuous failure of a director to perform such director's
duties for the Corporation (other than any such failure resulting from temporary
incapacity due to physical or mental illness) or the willful engaging by a
director in gross misconduct materially and demonstrably injurious to the
Corporation.
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 employed by
the Corporation or any subsidiary of the Corporation.
ARTICLE VIII
DETERMINATIONS BY BOARD
The determination as to any of the following matters, made in good faith by
or pursuant to the direction of the Board of Directors consistent with this
charter and in the absence of actual receipt of an improper benefit in money,
property or
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services or active and deliberate dishonesty established by a court, shall be
final and conclusive and shall be binding upon the Corporation and every holder
of shares of its stock: the amount of the net income of the Corporation for any
period and the amount of assets at any time legally available for the payment of
dividends, redemption of its stock or the payment of other distributions on its
stock; the amount of paid-in surplus, net assets, other surplus, annual or other
net profit, net assets in excess of capital, undivided profits or excess of
profits over losses on sales of assets; the amount, purpose, time of creation,
increase or decrease, alteration or cancellation of any reserves or charges and
the propriety thereof (whether or not any obligation or liability for which such
reserves or charges shall have been created shall have been paid or discharged);
the fair value, or any sale, bid or asked price to be applied in determining the
fair value, of any asset owned or held by the Corporation; and any matters
relating to the acquisition, holding and disposition of any assets by the
Corporation.
ARTICLE IX
INDEMNIFICATION
The Corporation shall have the power, to the maximum extent permitted by
Maryland law in effect from time to time, to obligate itself to indemnify, and
to pay or reimburse reasonable expenses in advance of final disposition of a
proceeding to, (a) any individual who is a present or former director or officer
of the Corporation, or (b) any individual who, while a director of the
Corporation and at the request of the Corporation, serves or has served as a
director, officer, partner or trustee of another corporation, real estate
investment trust, partnership, joint venture, trust, employee benefit plan or
any other enterprise from and against any claim or liability to which such
person may become subject or which such person may incur by reason of his status
as a present or former director or officer of the Corporation. The Corporation
shall have the power, with the approval of the Board of Directors, to provide
such indemnification and advancement of expenses to a person who served a
predecessor of the Corporation in any of the capacities described in (a) or (b)
above and to any employee or agent of the Corporation or a predecessor of the
Corporation.
ARTICLE X
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 Maryland law in effect from time to time. No amendment of this
charter 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.
ARTICLE XI
VOTING REQUIREMENTS
Except as specifically provided in this charter, notwithstanding any
provision of law permitting or requiring any action to be taken or authorized by
the affirmative vote of the holders of a greater number of votes, any such
action shall be effective and valid if taken or authorized by the affirmative
vote of holders of shares entitled to cast a majority of all the votes entitled
to be cast on the matter.
ARTICLE XII
AMENDMENTS
The Corporation reserves the right to amend, alter or repeal any provision
contained in this charter in any manner permitted by Maryland law, including any
amendment changing the terms or contract rights, as expressly set forth in its
charter, of any of its outstanding stock by classification, reclassification or
otherwise, upon the vote of the holders of a majority of the shares of capital
stock of the Corporation outstanding and entitled to vote thereon voting
together as a single class; provided that any amendment to this Article XII or
to subparagraphs A(4) and A(5) and paragraphs B and C of Article IV must be
adopted by the vote of the holders of two-thirds of the shares of capital stock
of the Corporation outstanding and entitled to vote thereon voting together as a
single class. All rights conferred upon stockholders herein are subject to this
reservation.
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ARTICLE XIII
GENERAL
In the event any provision (or portion thereof) of this charter shall be
found to be invalid, prohibited, or unenforceable for any reason, the remaining
provisions (or portions thereof) of this charter 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 this charter remain, to
the fullest extent permitted by law, applicable and enforceable as to all
stockholders, notwithstanding any such finding.
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APPENDIX 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 that 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 a majority 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 that 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
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.
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(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 1(b) 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
Board of Directors, Chairman, President or committee 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
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 Board of Directors,
Chairman, President or committee may consider such factors as they deem
relevant within the good faith exercise of their 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
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of (i) five 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 five-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 Maryland 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 90 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 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.
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(F) ORGANIZATION OF MEETINGS.
(1) PRESIDING OFFICER. Any "executive officer" of the Corporation, as
that term is defined in section 3(f) of Article III of these Bylaws, may
call meetings of the stockholders to order and act as chairman thereof.
(2) MINUTES. The Secretary of the Corporation, or, in his absence or
by his designation, an Assistant Secretary, or, in the absence of both, a
person appointed by the chairman of the meeting, which person need not be
an officer of the Corporation, shall act as secretary of the meeting and
shall make and keep a record of the proceedings thereat.
(3) STOCKHOLDERS' LIST. The officer who has charge of the stock ledger
of the Corporation shall prepare and make, at least 10 days before every
meeting of stockholders, a complete list of the stockholders entitled to
vote at the meeting. The list shall be arranged in alphabetical order
showing the address of each stockholder and the number of shares registered
in the name of each stockholder. Such list shall be open to the examination
of any stockholder for any purpose germane to the meeting, during ordinary
business hours, for a period of at least 10 days prior to the meeting
either at a place within the city where the meeting is to be held, which
place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall
also be produced and kept at the time and place of the meeting during the
whole time thereof, and may be inspected by any stockholder who is present.
(4) VOTING PROCEDURES AND INSPECTORS OF ELECTIONS.
(A) The Board of Directors shall, in advance of any meeting of
stockholders, appoint one or more inspectors to act at the meeting and
make a written report thereof. The Board of Directors may designate one
or more persons as alternate inspectors to replace any inspector who
fails to act at such meeting. If no inspector or alternate is able to
act at a meeting of stockholders, the chairman of the meeting shall
appoint one or more inspectors to act at the meeting. Each inspector,
before entering upon the discharge of his duties, shall take and sign an
oath faithfully to execute the duties of inspector with strict
impartiality and according to the best of his ability.
(B) The inspectors shall (i) determine those stockholders entitled
to vote at the meeting, (ii) ascertain the number of shares outstanding
and the voting power of each, (iii) determine the shares represented at
a meeting and the validity of proxies and ballots, (iv) count all votes
and ballots, (v) determine and retain for a reasonable period a record
of the disposition of any challenges made to any determination by the
inspectors, and (vi) certify their determination of the number of shares
represented at the meeting and their count of all votes and ballots. The
inspectors may appoint or retain other persons or entities to assist the
inspectors in the performance of the duties of the inspectors.
(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 judicially determined
otherwise upon application by a stockholder.
(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
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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
that 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 Maryland.
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:
(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.
Notwithstanding anything to the contrary in these Bylaws, in the case of
any Request Special Meeting, (i) the record date for such meeting (the "Meeting
Record Date") shall be no 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 the minimum required by the Maryland General Corporation Law nor more
than fifteen 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
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"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 Maryland. 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(c) of this Article II; or
(B) such person is nominated for election as a director of the
Corporation in accordance with this section.
(2) ELIGIBILITY TO MAKE NOMINATIONS. Nominations of candidates for
election as directors at any Election Meeting may be made by the Board of
Directors or a committee thereof.
(3) PROCEDURE FOR NOMINATIONS. Nominations shall be made not fewer
than 30 days prior to the date of an Election Meeting. At the request of
the Secretary or, in his absence, an Assistant Secretary, each proposed
nominee shall provide the Corporation with such information concerning
himself as is required under the rules of the Securities and Exchange
Commission (the "Commission") to be included in the Corporation's proxy
statement soliciting proxies for the election of such nominee as a
director.
(4) SUBSTITUTION OF NOMINEES. In the event that a person is validly
designated as a nominee in accordance with these Bylaws and shall
thereafter become unable or unwilling to stand for election to the Board of
Directors, the Board of Directors or a committee thereof may designate a
substitute nominee upon delivery, not fewer than five days 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) 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.
(C) 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 Maryland as may be designated in the notice of
such 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
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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 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 that 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 Maryland, 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.
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SECTION 9. CONFERENCE TELEPHONE MEETINGS.
One or more directors may participate in a meeting of the Board, or of a
committee of the Board of Directors, by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other. Participation in a meeting pursuant to this section
shall constitute presence in person at such meeting.
ARTICLE III
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 III, 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 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
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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 IV
SECURITIES HELD BY CORPORATION
SECTION 1. TRANSFER OF SECURITIES OWNED BY THE CORPORATION.
All endorsements, assignments, transfers, share powers or other instruments
of transfer of securities standing in the name of the Corporation shall be
executed for and in the name of the Corporation by the President or by any Vice
President, or by the Secretary or Treasurer or by any additional person or
Persons as may be thereunto authorized by the Board of Directors.
SECTION 2. VOTING SECURITIES HELD BY THE CORPORATION.
The President, any Vice President, or the Secretary or Treasurer, in person
or by another person thereunto authorized by the Board of Directors, in person
or by proxy or proxies appointed by him, shall have full power and authority on
behalf of the Corporation to vote, act and execute consents, waivers and
releases with respect to any securities issued by other corporations which the
Corporation may own.
ARTICLE V
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 or 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,
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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 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 VI
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
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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 that 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.
SECTION 4. DETERMINATION OF ENTITLEMENT TO INDEMNIFICATION.
Any indemnification under Section 1, 2 or 3 of this Article VI (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 VI.
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 that is not opposed to the best
interests of the Corporation.
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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 VI.
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.
ARTICLE VII
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 "Incorporated Maryland." 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. Whenever the Corporation is permitted or required to affix its seal
to a document, it shall be sufficient to meet the requirements of any law, rule
or regulation relating to a seal to place the word "(SEAL)" adjacent to the
signature of the person authorized to execute the document on behalf of the
Corporation.
C-12
<PAGE>
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 VIII
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-13
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The registrant's officers and directors are and will be indemnified against
certain liabilities in accordance with Maryland law, the Articles of
Incorporation and bylaws of the registrant. The Articles of Incorporation
require the registrant to indemnify its directors and officers to the fullest
extent permitted from time to time by Maryland law. Maryland law permits a
corporation to indemnify its directors and officers, among others, against
judgments, penalties, fines, settlements and reasonable expenses actually
incurred by them in connection with any proceeding to which they may be made a
party by reasons of their service in those or other capacities unless it is
established that the act or omission of the director or officer was material to
the matter giving rise to the proceeding and was committed in bad faith or was
the result of active and deliberate dishonesty, or the director or officer
actually received an improper personal benefit in money, property or services,
or in the case of any criminal proceeding, the director or officer had
reasonable cause to believe that the act or omission was unlawful.
Article VI of the registrant's bylaws (as will be in effect at the time of
the Reincorporation) provide, under certain circumstances, for the
indemnification of the registrant's present or former directors, officers,
employees, agents and persons who, at the request of the registrant, are or were
serving in a similar capacity for another corporation or entity. The Articles of
Incorporation and bylaws also allow the Board of Directors to purchase and
maintain insurance on behalf of the registrant's present or former directors,
officers or persons who are or were serving at the request of the registrant as
a director or officer of another corporation or entity.
ITEM 21. EXHIBITS.
<TABLE>
<S> <C>
2 Agreement and Plan of Merger between the Company and the Maryland Company (included as part of Proxy
Statement/Prospectus)
3.1 Amended and Restated Articles of Incorporation of the Registrant as of the Effective Time of the
Reincorporation (included as part of Proxy Statement/Prospectus)
3.2 Amended and Restated Bylaws of Registrant as of the Effective Time of the Reincorporation (included as
part of Proxy Statement/Prospectus)
5 Opinion of Alston & Bird LLP re legality
8 Opinion of Alston & Bird LLP re tax matters
10.1 Amended and Restated Employment Agreement between the Company and J. Dixon Fleming, Jr. (1)
10.2 Second Amended and Restated Employment Agreement between the Company and C. Cammack Morton (1)
10.3 Employment Agreement between the Company and John N. Nelli (1)
10.4 First Amendment to Employment Agreement between the Company and John N. Nelli (1)
10.5 First Amendment to Employment Agreement between the Company and Connell L. Radcliff (1)
10.6 Employment Agreement between the Company and Christopher G. Gavrelis (1)
10.7 Severance Agreement between the Company and David A. Hodson (1)
10.8 Severance Agreement between the Company and John M. Sloccum (1)
10.9 Severance Agreement between the Company and R. Kenneth Langston (1)
10.10 Factory Stores of America, Inc. Amended and Restated 1993 Employee Stock Option Plan (1)
10.11 1995 Directors' Stock Award Plan (1)
10.12 Factory Stores of America, Inc. 1996 Restricted Stock Plan (1)
10.13 Restricted Stock Agreement between the Company and J. Dixon Fleming, Jr. (1)
10.14 Restricted Stock Agreement between the Company and C. Cammack Morton (1)
10.15 Restricted Stock Agreement between the Company and John N. Nelli (1)
10.16 Employment Agreement between the Company and Patrick M. Miniutti (1)
10.17 Employment Agreement between the Company and Michaela M. Twomey (1)
10.18 Restricted Stock Agreement between the Company and Patrick M. Miniuitti (1)
10.19 Restricted Stock Agreement between the Company and Michaela M. Twomey (1)
10.20 Incentive Stock Option Agreement between the Company and Patrick M. Miniutti (1)
10.21 Nonqualified Stock Option Agreement between the Company and Patrick M. Miniutti (1)
10.22 Incentive Stock Option Agreement between the Company and Michaela M. Twomey (1)
10.23 Indenture by and between FCA Finance, Inc., as issuer, Bank One, Columbus, National Association, as
trustee, and Fleet Management and Recovery Corporation, as master servicer (1)
10.24 Master Servicing Agreement by and between FSA Finance, Inc., as issuer, Bank One, Columbus, National
Association, as trustee, and Fleet Management and Recovery Corporation, as master servicer (2)
10.25 Specimen copies of the various types of Class A, B, C and R Notes (2)
10.26 Mortgage Note given by FSA Properties, Inc., as maker, in favor of The Travelers Insurance Company, as
payee (2)
</TABLE>
II-1
<PAGE>
<TABLE>
<S> <C>
10.27 Deed of Trust, Mortgage, Security Agreement, Fixture Filing, Financing Statement and Assignment of Leases
and Rents by and between FSA Properties, Inc., as mortgagor, and The Travelers Insurance Company, as
mortgagee (2)
10.28 Cap Note given by FSA Properties, Inc., as maker, in favor of The Travelers Insurance Company, as payee
(2)
10.29 Mortgage Loan Purchase Agreement by and between The Travelers Insurance Company, as seller, and FSA
Finance, Inc., as purchaser (2)
10.30 Note Purchase Agreement by and among the Company, Blackacre Bridge Capital, L.L.C. ("Blackacre") and
Gildea Management Company ("Gildea"), dated as of April 2, 1996 (3)
10.31 Amendment No. 1 to Note Purchase Agreement by and among the Company, Blackacre and Gildea, dated as of
April 12, 1996 (1)
10.32 Amendment No. 2 to Note Purchase Agreement by and among the Company, Blackacre and Gildea, dated as of
November 12, 1996 (1)
10.33 Addendum to Note Purchase Agreement by and among the Company, Blackacre, Gildea and Network Funds III,
Ltd. (1)
10.34 Addendum to Note Purchase Agreement by and among the Company, Blackacre, Gildea and John W. Gildea (1)
10.35 Addendum to Note Purchase Agreement by and among the Company, Blackacre, Gildea and Blackacre Capital
Group, LLP (1)
10.36 Addendum to Note Purchase Agreement by and among the Company, Blackacre, Gildea and Blackacre Holdings,
LLC (1)
10.37 Addendum to Note Purchase Agreement by and among the Company, Blackacre, Gildea and National Union Fire
Insurance Company of Pittsburgh (1)
10.38 Addendum to Note Purchase Agreement by and among the Company, Blackacre, Gildea and Network Funds III,
Ltd. (1)
10.39 Warrant Agreement between the Company and Blackacre (1)
10.40 Warrant Agreement between the Company and Blackacre (1)
10.41 Warrant Agreement between the Company and National Union Fire Insurance Company of Pittsburgh (1)
10.42 Warrant Agreement between the Company and Network Fund III, Ltd. (1)
10.43 Line of Credit Agreement between FAC Realty, Inc., and Nomura Asset Capital Corporation, dated February
19, 1997 (4)
10.44 Form of Partnership Agreement of the Operating Partnership
23 Consent of Ernst & Young LLP
</TABLE>
- ---------------
(1) Incorporated herein by reference to the Company's Form 10-K, as amended, for
the year ended December 31, 1996.
(2) Incorporated herein by reference to the Company's Current Report on Form 8-K
filed with the Commission on May 31, 1995.
(3) Incorporated herein by reference to the Company's Current Report on Form 8-K
filed with the Commission on July 10, 1996.
(4) Incorporated herein by reference to the Company's Current Report on Form 8-K
filed with the Commission on March 10, 1997.
ITEM 22. UNDERTAKINGS.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of any
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities being offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to trustees, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a trustee, officer or controlling person other registrant in the
successful defense of any action, suit or proceeding) is asserted by such
trustee, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by
II-2
<PAGE>
controlling precedent, submit to a court of appropriate jurisdiction the
question of whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
The undersigned registrant hereby undertakes to respond to request for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Cary, State of North
Carolina on the 3rd day of November, 1997.
By: /s/ C. CAMMACK MORTON
---------------------------------
C. CAMMACK MORTON
CHIEF EXECUTIVE OFFICER AND PRESIDENT
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------------------ -------------------------------------------- -----------------
<S> <C> <C>
/s/ C. CAMMACK MORTON President, chief executive officer and November 3, 1997
---------------------------- director
C. CAMMACK MORTON
/s/ PATRICK M. MINIUTTI Executive vice president, chief financial November 3, 1997
---------------------------- officer (principal accounting officer) and
PATRICK M. MINIUTTI director
</TABLE>
II-4
<PAGE>
EXHIBIT LIST
<TABLE>
<S> <C>
2 Agreement and Plan of Merger between the Company and the Maryland Company (included as part of Proxy
Statement/Prospectus)
3.1 Amended and Restated Articles of Incorporation of the Registrant as of the Effective Time of the
Reincorporation (included as part of Proxy Statement/Prospectus)
3.2 Amended and Restated Bylaws of Registrant as of the Effective Time of the Reincorporation (included as
part of Proxy Statement/Prospectus)
5 Opinion of Alston & Bird LLP re legality
8 Opinion of Alston & Bird LLP re tax matters
10.1 Amended and Restated Employment Agreement between the Company and J. Dixon Fleming, Jr. (1)
10.2 Second Amended and Restated Employment Agreement between the Company and C. Cammack Morton (1)
10.3 Employment Agreement between the Company and John N. Nelli (1)
10.4 First Amendment to Employment Agreement between the Company and John N. Nelli (1)
10.5 First Amendment to Employment Agreement between the Company and Connell L. Radcliff (1)
10.6 Employment Agreement between the Company and Christopher G. Gavrelis (1)
10.7 Severance Agreement between the Company and David A. Hodson (1)
10.8 Severance Agreement between the Company and John M. Sloccum (1)
10.9 Severance Agreement between the Company and R. Kenneth Langston (1)
10.10 Factory Stores of America, Inc. Amended and Restated 1993 Employee Stock Option Plan (1)
10.11 1995 Directors' Stock Award Plan (1)
10.12 Factory Stores of America, Inc. 1996 Restricted Stock Plan (1)
10.13 Restricted Stock Agreement between the Company and J. Dixon Fleming, Jr. (1)
10.14 Restricted Stock Agreement between the Company and C. Cammack Morton (1)
10.15 Restricted Stock Agreement between the Company and John N. Nelli (1)
10.16 Employment Agreement between the Company and Patrick M. Miniutti (1)
10.17 Employment Agreement between the Company and Michaela M. Twomey (1)
10.18 Restricted Stock Agreement between the Company and Patrick M. Miniutti (1)
10.19 Restricted Stock Agreement between the Company and Michaela M. Twomey (1)
10.20 Incentive Stock Option Agreement between the Company and Patrick M. Miniutti (1)
10.21 Nonqualified Stock Option Agreement between the Company and Patrick M. Miniutti (1)
10.22 Incentive Stock Option Agreement between the Company and Michaela M. Twomey (1)
10.23 Indenture by and between FCA Finance, Inc., as issuer, Bank One, Columbus, National Association, as
trustee, and Fleet Management and Recovery Corporation, as master servicer (1)
10.24 Master Servicing Agreement by and between FSA Finance, Inc., as issuer, Bank One, Columbus, National
Association, as trustee, and Fleet Management and Recovery Corporation, as master servicer (2)
10.25 Specimen copies of the various types of Class A, B, C and R Notes (2)
10.26 Mortgage Note given by FSA Properties, Inc., as maker, in favor of The Travelers Insurance Company, as
payee (2)
10.27 Deed of Trust, Mortgage, Security Agreement, Fixture Filing, Financing Statement and Assignment of Leases
and Rents by and between FSA Properties, Inc., as mortgagor, and The Travelers Insurance Company, as
mortgagee (2)
10.28 Cap Note given by FSA Properties, Inc., as maker, in favor of The Travelers Insurance Company, as payee
(2)
10.29 Mortgage Loan Purchase Agreement by and between The Travelers Insurance Company, as seller, and FSA
Finance, Inc., as purchaser (2)
10.30 Note Purchase Agreement by and among the Company, Blackacre Bridge Capital, L.L.C. ("Blackacre") and
Gildea Management Company ("Gildea"), dated as of April 2, 1996 (3)
10.31 Amendment No. 1 to Note Purchase Agreement by and among the Company, Blackacre and Gildea, dated as of
April 12, 1996 (1)
10.32 Amendment No. 2 to Note Purchase Agreement by and among the Company, Blackacre and Gildea, dated as of
November 12, 1996 (1)
10.33 Addendum to Note Purchase Agreement by and among the Company, Blackacre, Gildea and Network Funds III,
Ltd. (1)
10.34 Addendum to Note Purchase Agreement by and among the Company, Blackacre, Gildea and John W. Gildea (1)
10.35 Addendum to Note Purchase Agreement by and among the Company, Blackacre, Gildea and Blackacre Capital
Group, LLP (1)
10.36 Addendum to Note Purchase Agreement by and among the Company, Blackacre, Gildea and Blackacre Holdings,
LLC (1)
10.37 Addendum to Note Purchase Agreement by and among the Company, Blackacre, Gildea and National Union Fire
Insurance Company of Pittsburgh (1)
10.38 Addendum to Note Purchase Agreement by and among the Company, Blackacre, Gildea and Network Funds III,
Ltd. (1)
</TABLE>
II-5
<PAGE>
<TABLE>
<S> <C>
10.39 Warrant Agreement between the Company and Blackacre (1)
10.40 Warrant Agreement between the Company and Blackacre (1)
10.41 Warrant Agreement between the Company and National Union Fire Insurance Company of Pittsburgh (1)
10.42 Warrant Agreement between the Company and Network Fund III, Ltd. (1)
10.43 Line of Credit Agreement between FAC Realty, Inc., and Nomura Asset Capital Corporation, dated February
19, 1997 (4)
10.44 Form of Partnership Agreement of the Operating Partnership
23 Consent of Ernst & Young LLP
</TABLE>
- ---------------
(1) Incorporated herein by reference to the Company's Form 10-K, as amended, for
the year ended December 31, 1996.
(2) Incorporated herein by reference to the Company's Current Report on Form 8-K
filed with the Commission on May 31, 1995.
(3) Incorporated herein by reference to the Company's Current Report on Form 8-K
filed with the Commission on July 10, 1996.
(4) Incorporated herein by reference to the Company's current report on Form 8-K
filed with the Commission on March 10, 1997.
II-6
<PAGE>
****************************************************************************
APPENDIX
****************************************************************************
FAC REALTY, INC.
P R O X Y
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/Prospectus 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 Special Meeting and at any
adjournment(s) thereof.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE FOLLOWING PROPOSALS:
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.
<TABLE>
<S> <C>
[ ] FOR [ ] WITHHOLD AUTHORITY
</TABLE>
(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" proposal one and "FOR" proposal two.
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.
EXHIBIT 5
November 4, 1997
FAC Realty Trust, Inc.
11000 Regency Parkway
Suite 300
Cary, North Carolina 27511
Re: Registration Statement of FAC Realty Trust, Inc. on Form S-4 Relating
to the Merger with FAC Realty, Inc.
Ladies and Gentlemen:
We are acting as counsel for FAC Realty Trust, Inc., a Maryland corporation
(the "Maryland Company"), in connection with the issuance of 12,224,229 shares
(the "Maryland Shares") of common stock, par value $.01 per share, of the
Maryland Company, in exchange for 12,224,229 shares of common stock, par value
$.01 per share, of FAC Realty, Inc., a Delaware corporation (the "Company"), in
connection with the reincorporation of the Company from Delaware to Maryland
pursuant to the Agreement and Plan of Merger contained in the registration
statement on Form S-4 under the Securities Act relating to the Maryland Shares
(the "Registration Statement") and the proxy statement/prospectus contained
therein (the "Proxy Statement/Prospectus").
In connection with rendering this opinion, we have examined the Articles of
Incorporation and Bylaws of the Maryland Company, each as amended to date; the
form of Articles of Incorporation and Bylaws of the Maryland Company to be in
effect at the effective time of the merger (the "Effective Time") and included
in the Registration Statement; such records of the corporate proceedings of the
Maryland Company as we deemed material; the Registration Statement and the Proxy
Statement/Prospectus contained therein; and such other certificates, receipts,
records and documents as we considered necessary for the purposes of this
opinion.
We are attorneys admitted to practice in the State of North Carolina. We
express no opinion concerning the laws of any jurisdiction other than the laws
of the United States of America and the State of North Carolina.
Based upon the foregoing, we are of the opinion that the Maryland Company
will have authority pursuant to its Articles of Incorporation to issue the
Maryland Shares to be registered under the Registration Statement and upon
issuance and delivery of and payment for such shares in the manner contemplated
by the Proxy Statement/Prospectus, such Maryland Shares will be legally issued,
fully paid and nonassessable.
We consent to your filing this opinion as an exhibit to the Registration
Statement and to the reference to our firm under the caption "Legal Matters" in
the Proxy Statement/Prospectus included therein.
Very truly yours,
ALSTON & BIRD LLP
By: /s/ Robert H. Bergdolt
Robert H. Bergdolt
<PAGE>
ALSTON & BIRD LLP
One Atlantic Center
1201 West Peachtree Street
Atlanta, Georgia 30309-3424
404-881-7000
Fax: 404-881-7777
www.alston.com
Pinney L. Atten Direct Dial 404-881-7485
November 4, 1997
FAC Realty Trust, Inc.
11000 Regency Parkway
Suite 300
Cary, North Carolina 27511
Re: Proposed Agreement and Plan of Merger by and between FAC Realty, Inc.
and FAC Realty Trust, Inc.
We have acted as counsel to FAC Realty Trust, Inc. ("FAC"), a
corporation organized and existing under the laws of the State of Maryland, in
connection with the proposed merger of FAC Realty, Inc. ("FAC Realty"), a
corporation organized and existing under the laws of the State of Delaware, with
and into FAC, with FAC as the Surviving Entity (the "Merger"). The Merger will
be effected pursuant to the proposed Agreement and Plan of Merger by and between
FAC Realty and FAC in the form attached as Exhibit A to the registration
statement on Form S-4 filed by FAC on November 4, 1997, (the "Registration
Statement") with the Securities and Exchange Commission under the Securities
Exchange Act of 1933, as amended, including the Proxy Statement/Prospectus for
the special meeting of the stockholders of FAC Realty (the "Agreement"). In our
capacity as counsel to FAC, our opinion has been requested with respect to
certain of the federal income tax consequences of the proposed Merger.
In rendering this opinion, we have examined (i) the Internal Revenue
Code of 1986, as amended (the "Code") and Treasury Regulations, (ii) the
legislative history of applicable sections of the Code, and (iii) appropriate
Internal Revenue Service and court decisional authority. In addition, we have
relied upon certain information made known to us as more fully described below.
All capitalized terms used herein without definition shall have the respective
meanings specified in the Agreement and, unless otherwise specified, all section
references herein are to the Code.
1211 East Morehead Street 3605 Glenwood Avenue 601 Pennsylvania Avenue, N.W.
P. O. Drawer 34009 P. O. Drawer 31107 North Building, Suite 250
Charlotte, NC 28234-4009 Raleigh, NC 27622-1107 Washington, DC 20004-2601
704-331-6000 919-420-2200 202-508-3300
Fax: 704-334-2014 Fax: 919-881-3175 Fax: 202-508-3333
<PAGE>
FAC Realty Trust, Inc.
November 4, 1997
Page 2
INFORMATION RELIED UPON
In rendering the opinions expressed herein, we have examined such
documents as we have deemed appropriate, including:
(1) the Agreement;
(2) the Registration Statement; and
(3) such additional documents as we have considered relevant.
In our examination of such documents, we have assumed, with your
consent, that all documents submitted to us as photocopies faithfully reproduce
the originals thereof, that such originals are authentic, that all such
documents have been or will be duly executed to the extent required, and that
all statements set forth in such documents are accurate.
We also have obtained such additional information and representations
as we have deemed relevant and necessary through consultation with various
officers and representatives of FAC and FAC Realty and through certificates
provided by the management of FAC and the management of FAC Realty.
You have advised us that the proposed transaction is in the best
interests of the parties and will enable the Surviving Entity to realize certain
economic efficiencies. To achieve these goals, the following will occur pursuant
to the Agreement:
(1) Subject to the terms and conditions of the Agreement, at
the Effective Time, FAC Realty shall be merged with and into FAC and the
separate corporate existence of FAC Realty shall thereupon cease. FAC shall be
the Surviving Entity in the Merger and shall continue to be governed by the laws
of the State of Maryland, and the separate existence of FAC with all rights,
privileges, immunities, powers, and franchises shall continue unaffected by the
Merger. The Merger shall have the effects specified in the DGCL and the MGCL.
(2) The Articles of Incorporation of FAC 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.
<PAGE>
FAC Realty Trust, Inc.
November 4, 1997
Page 3
(3) The Bylaws of FAC 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.
(4) The directors and officers of FAC Realty 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.
(5) At the Effective Time, by virtue of the Merger and without
any action on the part of the holder of any capital stock of FAC Realty:
(a) Each share of the common stock, par value $0.01
per share, of FAC Realty (the "FAC Realty Common Shares") 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, of FAC (the "FAC Common Shares"). Each share of the Series A preferred
stock of FAC Realty (the "FAC Realty Preferred Shares" and, together with the
FAC Realty Common Shares, the "FAC Realty Shares") issued and outstanding
immediately prior to the Effective Time shall be converted into one validly
issued, fully paid and nonassessable share of Series A preferred stock of FAC
(the "FAC Preferred Shares" and, together with the FAC Common Shares, the "FAC
Shares"). All FAC Realty Shares shall no longer be outstanding and shall be
canceled and retired and shall cease to exist.
(b) Each FAC Realty Share issued and held in FAC
Realty'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 FAC Share issued and
outstanding immediately prior to the Effective Time shall, virtue of the Merger
and without any action on the part of FAC 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 FAC Realty Shares pursuant to stock option or other
stock-based plans of FAC Realty 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
<PAGE>
FAC Realty Trust, Inc.
November 4, 1997
Page 4
FAC 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.
We also have assumed that the following statements are true on the date
hereof and will be true on the date on which the Merger is consummated:
(1) The fair market value of FAC Shares received by each FAC Realty
shareholder will be, in each instance, approximately equal to the fair market
value of FAC Realty Shares surrendered in the exchange.
(2) To the best of the knowledge of management of FAC Realty, there is
no plan or intention by any of the shareholders of FAC Realty to sell, exchange,
or otherwise dispose of any of the FAC Shares received in the transaction, other
than ordinary purchase and sale transactions in public securities markets of a
nature and volume consistent with prior market activity in the stock of FAC
Realty, which FAC Realty would expect to continue following the transaction.
(3) Immediately following consummation of the transaction, the
shareholders of FAC Realty will own all of the outstanding FAC Shares and will
own such stock solely by reason of their ownership of FAC Realty Shares
immediately prior to the transaction.
(4) FAC has no plan or intention to issue additional shares of its
stock following the transaction other than in connection with the stock options
or other stock-based plans of FAC Realty that were converted into identical
rights to acquire FAC Shares as a result of the Merger.
(5) Immediately following consummation of the transaction, FAC will
possess the same assets and liabilities as those possessed by FAC Realty
immediately prior to the transaction.
(6) All of the FAC Realty warrants, options, convertible securities,
and other types of right pursuant to which any person could acquire stock in FAC
Realty will be converted into and become a corresponding right of FAC with no
other change of the terms thereof.
(7) FAC has no plan or intention to redeem or otherwise reacquire one
percent of more of its stock outstanding as of the date of the transaction.
<PAGE>
FAC Realty Trust, Inc.
November 4, 1997
Page 5
(8) FAC has no plan or intention to sell or otherwise dispose of any of
the assets of FAC Realty acquired in the transaction, except for dispositions
made in the ordinary course of business.
(9) The liabilities of FAC Realty assumed by FAC plus the liabilities,
if any, to which the transferred assets are subject were incurred by FAC Realty
in the ordinary course of its business and are associated with the assets
transferred.
(10) The fair market value of the assets of FAC Realty equals or
exceeds the sum of its liabilities.
(11) Following the transaction, FAC will continue the historic business
of FAC Realty or use a significant portion of FAC Realty's historic business
assets in a business.
(12) FAC, FAC Realty, and the shareholders of FAC Realty will each pay
their own expenses, if any, incurred in connection with the transaction.
(13) FAC Realty is not under the jurisdiction of a court in a case
under Title 11 of the United States Code or a receivership, foreclosure, or
similar proceeding in a federal or state court.
(14) The directors of FAC Realty and the directors and officers of FAC
have no plan or intention to liquidate FAC or to merge FAC with another
corporation.
(15) There is no intercorporate indebtedness existing between FAC
Realty and FAC that was issued, acquired, or will be settled at a discount.
(16) FAC Realty is organized and operated as a real estate investment
trust and, therefore, is an "investment company." FAC Realty, however, does not
have, and will not have at the Effective Time, more than 25 percent of the value
of its total assets invested in the stock and securities of any one issuer and
does not have more than 50 percent of the value of its total assets invested in
the stock or securities of five or fewer issuers. For purposes of this
represenation, an "investment company" is a corporation that is a regulated
investment company, a real estate investment trust, or a corporation fifty
percent (50%) or more of the value of whose total assets are stock and
securities and eighty (80%) or more of the value of whose total assets are
assets held for investment.
(17) FAC does not have, and will not have at the Effective Time, more
than 25 percent of the value of its total assets invested in the stock and
securities of any one issuer and does not have more than 50 percent of the value
of its total assets invested in the
<PAGE>
FAC Realty Trust, Inc.
November 4, 1997
Page 6
stock or securities of five or fewer issuers. Immediately, after the proposed
transaction, FAC will be organized and operated as a real estate investment
trust.
(18) The Agreement represents the entire understanding of FAC Realty
and FAC with respect to the Merger.
OPINION
Based solely on the information submitted and the representations set
forth above, we are of the opinion that:
(1) The proposed Merger of FAC Realty with and into FAC, as described
above, will constitute a mere change in form and place of organization and,
therefore, will qualify as a reorganization within the meaning of Section
368(a)(1)(F). FAC Realty and FAC will each be "a party to a reorganization"
within the meaning of Section 368(b).
(2) No gain or loss will be recognized by FAC Realty on the transfer of
its assets to FAC solely in exchange for FAC Shares and the assumption by FAC of
the liabilities of FAC Realty. Sections 361(a) and 357(a).
(3) No gain or loss will be recognized by FAC upon the receipt of the
assets of FAC Realty in exchange for FAC Shares. Section 1032(a).
(4) The basis of the assets of FAC Realty in the hands of FAC will be
the same as the basis of such assets in the hands of FAC Realty immediately
prior to the exchange. Section 362(b).
(5) The holding period of the assets of FAC Realty acquired by FAC will
include the period during which such assets were held by FAC Realty immediately
prior to the exchange. Section 1223(2).
(6) No gain or loss will be recognized by the shareholders of FAC
Realty upon the receipt of FAC's Shares solely in exchange for FAC Realty
Shares. Section 354(a)(1).
(7) The basis of FAC Shares to be received by the shareholders of FAC
Realty will be, in each instance, the same as the basis of the FAC Realty Shares
surrendered in exchange therefor. Section 358(a)(1).
<PAGE>
FAC Realty Trust, Inc.
November 4,1997
Page 7
(8) The holding period of FAC Shares to be received by the shareholders
of FAC Realty will include the holding period of FAC Realty Shares surrendered
in exchange therefor, provided the shares of stock were held as a capital asset
on the date of the exchange. Section 1223(1).
In addition, we have participated in the preparation of the material
under the caption "Federal Income Tax Considerations" of the Registration
Statement and, based solely on the facts and assumptions set forth in such
Registration Statement and applicable provisions of governing law, we are of the
opinion that the federal income tax treatment described therein is accurate in
all material respects.
The opinions expressed herein are based upon existing statutory,
regulatory, and judicial authority, any of which may be changed at any time with
retroactive effect. In addition, our opinions are based solely on the documents
that we have examined, the additional information obtained, and the statements
set out herein, which we have assumed and you have confirmed to be true on the
date hereof and will be true on the date that the proposed Merger is
consummated. Our opinions cannot be relied upon if any of the facts contained in
such documents or if such additional information is, or later becomes,
inaccurate. Finally, our opinions are limited to the tax matters specifically
covered thereby, and we have not been asked to address, nor have we addressed,
any other tax consequences of the proposed Merger, including, but not limited
to, any state or local tax consequences.
This opinion is being provided solely for the use of FAC.
We hereby consent to the use of this opinion and to the references made
to the firm under the caption "Federal Income Tax Considerations" in the
Proxy/Prospectus constituting part of the Registration Statement on Form S-4 of
FAC.
Very truly yours,
Alston & Bird
By: /s/ Pinney L. Allen
Pinney L. Allen
FIRST AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
FAC REALTY LIMITED PARTNERSHIP
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE 1 DEFINED TERMS...........................................................................................1
ARTICLE 2 ORGANIZATIONAL MATTERS.................................................................................11
Section 2.1 Organization and Continuation..............................................................11
Section 2.2 Name ......................................................................................11
Section 2.3 Registered Office and Agent; Principal Office..............................................11
Section 2.4 Power of Attorney..........................................................................11
Section 2.5 Term ......................................................................................13
ARTICLE 3 PURPOSE................................................................................................13
Section 3.1 Purpose and Business.......................................................................13
Section 3.2 Powers.....................................................................................13
ARTICLE 4 CAPITAL CONTRIBUTIONS..................................................................................14
Section 4.1 Capital Contributions of the Partners......................................................14
Section 4.2 Issuances of Additional Partnership Interests..............................................14
Section 4.3 Contribution of Proceeds of Issuance of REIT Shares........................................15
Section 4.4 No Preemptive Rights.......................................................................16
ARTICLE 5 DISTRIBUTIONS..........................................................................................16
Section 5.1 Requirement and Characterization of Distributions..........................................16
Section 5.2 Amounts Withheld...........................................................................16
Section 5.3 Distributions Upon Liquidation.............................................................16
ARTICLE 6 ALLOCATIONS............................................................................................17
Section 6.1 Allocations For Capital Account Purposes...................................................17
Section 6.2 Other Allocation Rules.....................................................................17
ARTICLE 7 MANAGEMENT AND OPERATIONS OF BUSINESS..................................................................18
Section 7.1 Management.................................................................................18
Section 7.2 Certificate of Limited Partnership.........................................................21
Section 7.3 Restrictions on General Partner Authority..................................................22
Section 7.4 Reimbursement of the General Partner.......................................................22
Section 7.5 Outside Activities of the General Partner..................................................23
Section 7.6 Contracts with Affiliates..................................................................23
Section 7.7 Indemnification............................................................................24
Section 7.8 Liability of the General Partner...........................................................26
Section 7.9 Other Matters Concerning the General Partner...............................................27
Section 7.10 Title to Partnership Assets................................................................27
Section 7.11 Reliance by Third Parties..................................................................28
<PAGE>
ARTICLE 8 RIGHTS AND OBLIGATIONS OF LIMITED PARTNER..............................................................28
Section 8.1 Limitation of Liability....................................................................28
Section 8.2 Management of Business.....................................................................28
Section 8.3 Outside Activities of Limited Partners.....................................................29
Section 8.4 Return of Capital..........................................................................29
Section 8.5 Rights of Limited Partners Relating to the Partnership.....................................29
Section 8.6 Redemption Right...........................................................................30
ARTICLE 9 BOOKS, RECORDS, ACCOUNTING AND REPORTS.................................................................31
Section 9.1 Records and Accounting.....................................................................31
Section 9.2 Partnership Year...........................................................................32
Section 9.3 Reports .................................................................................. 32
ARTICLE 10 TAX MATTERS...........................................................................................32
Section 10.1 Preparation of Tax Returns.................................................................32
Section 10.2 Tax Elections..............................................................................32
Section 10.3 Tax Matters Partner........................................................................33
Section 10.4 Organizational Expenses....................................................................34
Section 10.5 Withholding................................................................................34
ARTICLE 11 TRANSFERS AND WITHDRAWALS.............................................................................35
Section 11.1 Transfer...................................................................................35
Section 11.2 Transfer of General Partner's Partnership Interests........................................35
Section 11.3 Limited Partners' Rights to Transfer.......................................................36
Section 11.4 Substituted Limited Partners...............................................................36
Section 11.5 Assignees..................................................................................37
Section 11.6 General Provisions.........................................................................37
ARTICLE 12 ADMISSION OF PARTNERS.................................................................................38
Section 12.1 Admission of Successor General Partner.....................................................38
Section 12.2 Admission of Additional Limited Partners...................................................38
Section 12.3 Amendment of Agreement and Certificate of Limited Partnership..............................39
ARTICLE 13 DISSOLUTION, LIQUIDATION AND TERMINATION..............................................................39
Section 13.1 Dissolution................................................................................39
Section 13.2 Winding Up.................................................................................40
Section 13.3 Negative Capital Accounts..................................................................41
Section 13.4 Deemed Distribution and Recontribution.....................................................42
Section 13.5 Rights of Limited Partners.................................................................42
Section 13.6 Notice of Dissolution......................................................................42
Section 13.7 Termination of Partnership and Cancellation of Certificate
of Limited Partnership.........................................................42
Section 13.8 Reasonable Time for Winding-Up.............................................................42
Section 13.9 Waiver of Partition........................................................................43
<PAGE>
ARTICLE 14 AMENDMENT OF PARTNERSHIP AGREEMENT; MEETINGS..........................................................43
Section 14.1 Amendments.................................................................................43
Section 14.2 Meetings of the Partners...................................................................44
ARTICLE 15 GENERAL PROVISIONS....................................................................................45
Section 15.1 Addresses and Notice.......................................................................45
Section 15.2 Titles and Captions........................................................................45
Section 15.3 Pronouns and Plurals.......................................................................45
Section 15.4 Further Action.............................................................................45
Section 15.5 Binding Effect.............................................................................46
Section 15.6 Creditors..................................................................................46
Section 15.7 Waiver ....................................................................................46
Section 15.8 Counterparts...............................................................................46
Section 15.9 Applicable Law.............................................................................46
Section 15.10 Invalidity of Provisions..................................................................46
Section 15.11 Entire Agreement..........................................................................46
</TABLE>
EXHIBIT A PARTNERS, CONTRIBUTIONS AND PARTNERSHIP INTERESTS
EXHIBIT B CAPITAL ACCOUNT MAINTENANCE
EXHIBIT C SPECIAL ALLOCATION RULES
EXHIBIT D VALUE OF CONTRIBUTED PROPERTY
EXHIBIT E NOTICE OF REDEMPTION
EXHIBIT F INDEMNIFICATION UNDER SECTION 7.7(I)
<PAGE>
FIRST AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
FAC REALTY LIMITED PARTNERSHIP
THIS FIRST AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF FAC
REALTY LIMITED PARTNERSHIP (the "Agreement"), dated as of ________________,
1997, is entered into by and among FAC Realty Trust, Inc., a Maryland
corporation, as the General Partner, and the Persons whose names are set forth
on Exhibit A attached hereto, as the Limited Partners, together with any other
Persons who become Partners in the Partnership as provided herein (as such terms
are defined hereinafter).
WHEREAS, the Partnership was organized on ______________, 1997 by FAC
Realty Trust, Inc., as general partner, and _____________, as Organizational
Limited Partner;
WHEREAS, the Limited Partners are making certain contributions to the
capital of the Partnership;
NOW THEREFORE, in consideration of the mutual covenants herein
contained, and other valuable consideration, the receipt of which is hereby
acknowledged, the parties hereto do hereby agree as follows:
ARTICLE
1
DEFINED TERMS
The following definitions shall be for all purposes, unless otherwise
clearly indicated to the contrary, applied to the terms used in this Agreement.
"Act" means the Delaware Revised Uniform Limited Partnership Act, as it
may be amended from time to time, and any successor to such statute.
"Additional Limited Partner" means a Person admitted to the Partnership
as a Limited Partner pursuant to Section 12.2 hereof and who is shown as such on
the books and records of the Partnership.
"Adjusted Capital Account" means the Capital Account maintained for
each Partner as of the end of each Partnership Year (i) increased by any amounts
which such Partner is obligated to restore pursuant to any provision of this
Agreement or is deemed to be obligated to restore pursuant to the penultimate
sentences of Regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5), and (ii)
decreased by the items described in Regulations Sections
1.704-1(b)(2)(ii)(d)(4), (5), and (6). The foregoing definition of Adjusted
Capital Account is intended to comply with the
<PAGE>
provisions of Regulations Section 1.704-1(b)(2)(ii)(d) and shall be interpreted
consistently therewith.
"Adjusted Capital Account Deficit" means, with respect to any Partner,
the deficit balance, if any, in such Partner's Adjusted Capital Account as of
the end of the relevant Partnership Year.
"Adjusted Property" means any property the Carrying Value of which has
been adjusted pursuant to Exhibit B hereof. Once an Adjusted Property is deemed
distributed by, and recontributed to, the Partnership for federal income tax
purposes upon a termination thereof pursuant to Section 708 of the Code, such
property shall thereafter constitute a Contributed Property until the Carrying
Value of such property is further adjusted pursuant to Exhibit B hereof.
"Affiliate" means, with respect to any Person, (i) any Person directly
or indirectly controlling, controlled by or under common control with such
Person, (ii) any Person owning or controlling ten percent (10%) or more of the
outstanding voting interests of such Person, (iii) any Person of which such
Person owns or controls ten percent (10%) or more of the voting interests, or
(iv) any officer, director, general partner or trustee of such Person or of any
Person referred to in clauses (i), (ii), (iii) above.
"Agreed Value" means (i) in the case of any Contributed Property set
forth in Exhibit D and as of the time of its contribution to the Partnership,
the Agreed Value of such property as set forth in Exhibit D, which value shall
reflect any liabilities either assumed by the Partnership upon such contribution
or to which such property is subject when contributed, (ii) in the case of any
Contributed Property not set forth in Exhibit D and as of the time of its
contribution to the Partnership, the 704(c) Value of such property, reduced by
any liabilities either assumed by the Partnership upon such contribution or to
which such property is subject when contributed, and (iii) in the case of any
property distributed to a Partner by the Partnership, the Partnership's Carrying
Value of such property at the time such property is distributed, reduced by any
indebtedness either assumed by such Partner upon such distribution or to which
such property is subject at the time of distribution as determined under Section
752 of the Code and the Regulations thereunder.
"Agreement" means this First Amended and Restated Agreement of Limited
Partnership, as it may be amended, supplemented or restated from time to time.
"Articles of Incorporation" means the Amended and Restated Articles of
Incorporation of the General Partner filed in the State of Maryland on
__________________, 1997 and amended or restated from time to time.
"Assignee" means a Person to whom one or more Partnership Units have
been transferred in a manner permitted under this Agreement, but who has not
become a Substituted Limited Partner, and who has the rights set forth in
Section 11.5.
"Available Cash" means, with respect to any period for which such
calculation is being
2
<PAGE>
made, (i) the sum of:
(a) the Partnership's Net Income or Net Loss (as the case may
be) for such period;
(b) Depreciation and all other noncash charges deducted in
determining Net Income or Net Loss for such period;
(c) the amount of any reduction in the reserves of the
Partnership referred to in clause (ii)(f) below (including, without
limitation, reductions resulting because the General Partner determines
such amounts are no longer necessary);
(d) the excess of proceeds from the sale, exchange,
disposition, or refinancing of Partnership property for such period
over the gain, if any, recognized from such sale, exchange,
disposition, or refinancing during such period (excluding Terminating
Capital Transactions); and
(e) all other cash received by the Partnership for such period
that was not included in determining Net Income or Net Loss for such
period;
(ii) less the sum of:
(a) all principal debt payments made by the Partnership during
such period;
(b) capital expenditures made by the Partnership during such
period;
(c) investments in any entity (including loans made thereto)
to the extent that such investments are not otherwise described in
clause (ii)(a) or (ii)(b);
(d) all other expenditures and payments not deducted in
determining Net Income or Net Loss for such period;
(e) any amount included in determining Net Income or Net Loss
for such period that was not received by the Partnership during such
period;
(f) the amount of any increase in reserves during such period
which the General Partner determines to be necessary or appropriate in
its sole and absolute discretion;
(g) the amount of any working capital accounts and other cash
or similar balances which the General Partner determines to be
necessary or appropriate, in its sole and absolute discretion; and
(h) the amount which is not available for distribution due to
regulatory, legal or other restrictions.
3
<PAGE>
Notwithstanding the foregoing, Available Cash shall not include any
cash received or reductions in reserves, or take into account any disbursements
made or reserves established, after commencement of the dissolution and
liquidation of the Partnership.
"Book-Tax Disparities" means, with respect to any item of Contributed
Property or Adjusted Property, as of the date of any determination, the
difference between the Carrying Value of such Contributed Property or Adjusted
Property and the adjusted basis thereof for federal income tax purposes as of
such date. A Partner's share of the Partnership's Book-Tax Disparities in all of
its Contributed Property and Adjusted Property will be reflected by the
difference between such Partner's Capital Account balance as maintained pursuant
to Exhibit B and the hypothetical balance of such Partner's Capital Account
computed as if it had been maintained strictly in accordance with federal income
tax accounting principles.
"Business Day" means any day except a Saturday, Sunday or other day on
which commercial banks in New York, New York are authorized or required by law
to close.
"Capital Account" means the Capital Account maintained for a Partner
pursuant to Exhibit B hereof.
"Capital Contribution" means, with respect to any Partner, any cash,
cash equivalents or the Agreed Value of Contributed Property which such Partner
contributes or is deemed to contribute to the Partnership pursuant to Sections
4.1, 4.2, or 4.3 hereof.
"Carrying Value" means (i) with respect to a Contributed Property or
Adjusted Property, the 704(c) Value of such property, reduced (but not below
zero) by all Depreciation with respect to such Property charged to the Partners'
Capital Accounts following the contribution of or adjustment with respect to
such Property, and (ii) with respect to any other Partnership property, the
adjusted basis of such property for federal income tax purposes, all as of the
time of determination. The Carrying Value of any property shall be adjusted from
time to time in accordance with Exhibit B hereof, and to reflect changes,
additions or other adjustments to the Carrying Value for dispositions and
acquisitions of Partnership properties, as deemed appropriate by the General
Partner.
"Cash Amount" means an amount of cash per Partnership Unit equal to the
Value on the Valuation Date of the REIT Shares Amount.
"Certificate" means the Certificate of Limited Partnership relating to
the Partnership filed in the office of the Delaware Secretary of State, as
amended from time to time in accordance with the terms hereof and the Act.
"Code" means the Internal Revenue Code of 1986, as amended and in
effect from time to time, as interpreted by the applicable regulations
thereunder. Any reference herein to a specific section or sections of the Code
shall be deemed to include a reference to any corresponding provision of future
law.
4
<PAGE>
"Consent" means the consent or approval of a proposed action by a
Partner given in accordance with Section 14.2 hereof.
"Contributed Property" means each property or other asset, in such form as
may be permitted by the Act, but excluding cash, contributed or deemed
contributed to the Partnership (including deemed contributions to the
Partnership on termination and reconstitution thereof pursuant to Section 708 of
the Code). Once the Carrying Value of a Contributed Property is adjusted
pursuant to Exhibit B hereof, such property shall no longer constitute a
Contributed Property for purposes of Exhibit B hereof, but shall be deemed an
Adjusted Property for such purposes.
"Conversion Factor" means 1.0, provided that in the event that the
General Partner (i) declares or pays a dividend on its outstanding REIT Shares
in REIT Shares or makes a distribution to all holders of its outstanding REIT
Shares in REIT Shares; (ii) subdivides its outstanding REIT Shares; or (iii)
combines its outstanding REIT Shares into a smaller number of REIT Shares, the
Conversion Factor shall be adjusted by multiplying the Conversion Factor by a
fraction, the numerator of which shall be the number of REIT Shares issued and
outstanding on the record date for such dividend, distribution, subdivision or
combination assuming for such purpose that such dividend, distribution,
subdivision or combination has occurred as of such time, and the denominator of
which shall be the actual number of REIT Shares (determined without the above
assumption) issued and outstanding on the record date for such dividend,
distribution, subdivision or combination. Any adjustment to the Conversion
Factor shall become effective immediately after the effective date of such event
retroactive to the record date, if any, for such event.
"Depreciation" means, for each Partnership Year an amount equal to the
federal income tax depreciation, amortization, or other cost recovery deduction
allowable with respect to an asset for such year, except that if the Carrying
Value of an asset differs from its adjusted basis for federal income tax
purposes at the beginning of such year or other period, Depreciation shall be an
amount which bears the same ratio to such beginning Carrying Value as the
federal income tax depreciation, amortization, or other cost recovery deduction
for such year bears to such beginning adjusted tax basis; provided, however,
that if the federal income tax depreciation, amortization, or other cost
recovery deduction for such year is zero, Depreciation shall be determined with
reference to such beginning Carrying Value using any reasonable method selected
by the General Partner.
"Dissolution Event" has the meaning set forth in Section 13.1.
"General Partner" means FAC Realty Trust, Inc., in its capacity as the
general partner of the Partnership, or its successors as general partner of the
Partnership.
"General Partner Interest" means a Partnership Interest held by the
General Partner that is a general partnership interest. A General Partner
Interest may be expressed as a number of Partnership Units.
"IRS" means the Internal Revenue Service, which administers the
internal revenue laws of
5
<PAGE>
the United States.
"Immediate Family" means, with respect to any natural Person, such
natural Person's spouse and such natural Person's natural or adoptive parents,
descendants, nephews, nieces, brothers, and sisters.
"Incapacity" or "Incapacitated" means, (i) as to any individual
Partner, death, total physical disability or entry by a court of competent
jurisdiction adjudicating him incompetent to manage his Person or his estate;
(ii) as to any corporation which is a Partner, the filing of a certificate of
dissolution, or its equivalent, for the corporation or the revocation of its
charter; (iii) as to any partnership which is a Partner, the dissolution and
commencement of winding up of the partnership; (iv) as to any estate which is a
Partner, the distribution by the fiduciary of the estate's entire interest in
the Partnership; (v) as to any trustee of a trust which is a Partner, the
termination of the trust (but not the substitution of a new trustee); or (vi) as
to any Partner, the bankruptcy of such Partner. For purposes of this definition,
bankruptcy of a Partner shall be deemed to have occurred when (a) the Partner
commences a voluntary proceeding seeking liquidation, reorganization or other
relief under any bankruptcy, insolvency or other similar law now or hereafter in
effect, (b) the Partner is adjudged as bankrupt or insolvent, or a final and
nonappealable order for relief under any bankruptcy, insolvency or similar law
now or hereafter in effect has been entered against the Partner, (c) the Partner
executes and delivers a general assignment for the benefit of the Partner's
creditors, (d) the Partner files an answer or other pleading admitting or
failing to contest the material allegations of a petition filed against the
Partner in any proceeding of the nature described in clause (b) above, (e) the
Partner seeks, consents to or acquiesces in the appointment of a trustee,
receiver or liquidator for the Partner or for all or any substantial part of the
Partner's properties, (f) any proceeding seeking liquidation, reorganization or
other relief of or against such Partner under any bankruptcy, insolvency or
other similar law now or hereafter in effect has not been dismissed within one
hundred twenty (120) days after the commencement thereof, (g) the appointment
without the Partner's consent or acquiescence of a trustee, receiver or
liquidator has not been vacated or stayed within ninety (90) days of such
appointment, or (h) an appointment referred to in clause (g) which has been
stayed is not vacated within ninety (90) days after the expiration of any such
stay.
"Indemnitee" means (i) any Person made a party to a proceeding by
reason of (A) his status as the General Partner, or a director or officer of the
Partnership or the General Partner, or (B) his or its liabilities, pursuant to a
loan guarantee or otherwise, for any indebtedness of the Partnership or any
Subsidiary of the Partnership (including, without limitation, any indebtedness
which the Partnership or any Subsidiary of the Partnership has assumed or taken
assets subject to), and (ii) such other Persons (including Affiliates of the
General Partner or the Partnership) as the General Partner may designate from
time to time (whether before or after the event giving rise to potential
liability), in its sole and absolute discretion.
"Limited Partner" means the General Partner and any other Person named
as a Limited Partner in Exhibit A attached hereto, as such Exhibit may be
amended from time to time, or any Substituted Limited Partner or Additional
Limited Partner, in such Person's capacity as a Limited Partner in the
Partnership.
6
<PAGE>
"Limited Partner Interest" means a Partnership Interest of a Limited
Partner in the Partnership representing a fractional part of the Partnership
Interests of all Partners and includes any and all benefits to which the holder
of such a Partnership Interest may be entitled as provided in this Agreement,
together with all obligations of such Person to comply with the terms and
provisions of this Agreement. A Limited Partner Interest may be expressed as a
number of Partnership Units.
"Liquidator" has the meaning set forth in Section 13.2.
"Net Income" means, for any Partnership Year or any portion of a
Partnership Year, the excess, if any, of the Partnership's items of income and
gain for such Partnership Year over the Partnership's items of loss and
deduction for such Partnership Year. The items included in the calculation of
Net Income shall be determined in accordance with Exhibit B. Once an item of
income, gain, loss or deduction that has been included in the initial
computation of Net Income is subjected to the special allocation rules in
Exhibit C, Net Income or the resulting Net Loss, whichever the case may be,
shall be recomputed without regard to such item.
"Net Loss" means, for any Partnership Year, the excess, if any, of the
Partnership's items of loss and deduction for such Partnership Year over the
Partnership's items of income and gain for such Partnership Year. The items
included in the calculation of Net Loss shall be determined in accordance
Exhibit B. Once an item of income, gain, loss or deduction that has been
included in the initial computation of Net Loss is subjected to the special
allocation rules in Exhibit C, Net Loss or the resulting Net Income, whichever
the case may be, shall be recomputed without regard to such item.
"New Securities" has the meaning set forth in Section 4.2.B.
"Nonrecourse Built-in Gain" means, with respect to any Contributed
Properties or Adjusted Properties that are subject to a mortgage or negative
pledge securing a Nonrecourse Liability, the amount of any taxable gain that
would be allocated to the Partners pursuant to Section 2.B of Exhibit C if such
properties were disposed of in a taxable transaction in full satisfaction of
such liabilities and for no other consideration.
"Nonrecourse Deductions" has the meaning set forth in Regulations
Section 1.704-2(b)(1), and the amount of Nonrecourse Deductions for a
Partnership Year shall be determined in accordance with the rules of Regulations
Section 1.704-2(c).
"Nonrecourse Liability" has the meaning set forth in
Regulations Section 1.752-l(a)(2).
"Notice of Redemption" means the Notice of Redemption substantially in
the form of Exhibit E to this Agreement.
"Organizational Limited Partner" means _________________.
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"Partner" means a General Partner or a Limited Partner, and "Partners"
means the General Partner and the Limited Partners collectively.
"Partner Minimum Gain" means an amount, with respect to each Partner
Nonrecourse Debt, equal to the Partnership Minimum Gain that would result if
such Partner Nonrecourse Debt were treated as a Nonrecourse Liability,
determined in accordance with Regulations Section 1.704-2(i)(3).
"Partner Nonrecourse Debt" has the meaning set forth in Regulations
Section 1.704-2(b)(4).
"Partner Nonrecourse Deductions" has the meaning set forth in
Regulations Section 1.704-2(i)(2), and the amount of Partner Nonrecourse
Deductions with respect to a Partner Nonrecourse Debt for a Partnership Year
shall be determined in accordance with the rules of Regulations Section
1.704-2(i)(2).
"Partnership" means the limited partnership formed under the Act and
pursuant to this Agreement and any successor thereto.
"Partnership Interest" means an ownership interest in the Partnership
representing a Capital Contribution by either a Limited Partner or the General
Partner and includes any and all benefits to which the holder of such a
Partnership Interest may be entitled as provided in this Agreement, together
with all obligations of such Person to comply with the terms and provisions of
this Agreement. A Partnership Interest may be expressed as a number of
Partnership Units.
"Partnership Minimum Gain" has the meaning set forth in Regulations
Section 1.704-2(b)(2), and the amount of Partnership Minimum Gain, as well as
any net increase or decrease in a Partnership Minimum Gain, for a Partnership
Year shall be determined in accordance with the rules of Regulations Section
1.704-2(d).
"Partnership Record Date" means the record date established by the
General Partner for the distribution of Available Cash pursuant to Section 5.1
hereof, which record date shall be the same as the record date established by
the General Partner for a distribution to its shareholders of some or all of its
portion of such distribution.
"Partnership Unit" means a fractional, undivided share of the
Partnership Interests of all Partners issued pursuant to Sections 4.1, 4.2 and
4.3. The number of Partnership Units outstanding and the Percentage Interest in
the Partnership represented by such Units are set forth in Exhibit A attached
hereto, as such Exhibit may be amended from time to time. The ownership of
Partnership Units shall be evidenced by such form of certificate for Units as
the General Partner adopts from time to time unless the General Partner
determines that the Partnership Units shall be uncertificated securities.
Fractional Units may be held and counted by the General Partner as necessary to
meet the requirements of Section 4.1.
"Partnership Year" means the fiscal year of the Partnership, which
shall be the calendar year.
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"Percentage Interest" means, as to a Partner, its interest in the
Partnership as determined by dividing the Partnership Units owned by such
Partner by the total number of Partnership Units then outstanding and as
specified in Exhibit A attached hereto, as such Exhibit may be amended from time
to time.
"Person" means an individual or a corporation, partnership, limited
liability company, trust, unincorporated organization, association or other
entity.
"Prior Agreement" means the Agreement of Limited Partnership of FAC
Realty Limited Partnership, dated as of ______________, 1997, between FAC Realty
Trust, Inc., as the sole general partner, and ________________, as the sole
limited partner, which Prior Agreement is amended and restated in its entirety
by this Agreement as of the date hereof.
"Recapture Income" means any gain recognized by the Partnership upon
the disposition of any property or asset of the Partnership, which gain is
characterized for federal income tax purposes as ordinary income because it
represents the recapture of deductions previously taken with respect to such
property or asset.
"Redeeming Partner" has the meaning set forth in Section 8.6 hereof.
"Redemption Right" shall have the meaning set forth in Section 8.6
hereof.
"Regulations" means the Income Tax Regulations promulgated under the
Code, as such regulations may be amended from time to time (including
corresponding provisions of succeeding regulations).
"REIT" means a real estate investment trust under Section 856 of the
Code.
"REIT Share" shall mean a share of common stock of the General Partner.
"REIT Shares Amount" shall mean a number of REIT Shares equal to the
product of the number of Partnership Units offered for redemption by a Redeeming
Partner, multiplied by the Conversion Factor, provided that in the event the
General Partner issues to all holders of REIT Shares rights, options, warrants
or convertible or exchangeable securities entitling the shareholders to
subscribe for or purchase REIT Shares, or any other securities or property
(collectively, the "rights"), then the REIT Shares Amount shall also include
such rights that a holder of that number of REIT Shares would be entitled to
receive.
"Residual Gain" or "Residual Loss" means any item of gain or loss, as
the case may be, of the Partnership recognized for federal income tax purposes
resulting from a sale, exchange or other disposition of Contributed Property or
Adjusted Property, to the extent such item of gain or loss is not allocated
pursuant to Section 2.B.l(a) or 2.B.2(a) of Exhibit C to eliminate Book-Tax
Disparities.
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"704(c) Value" of any Contributed Property means the value of such
property as set forth in Exhibit D or if no value is set forth in Exhibit D, the
fair market value of such property or other consideration at the time of
contribution as determined by the General Partner using such reasonable method
of valuation as it may adopt; provided, however, that the 704(c) Value of any
property deemed contributed to the Partnership for federal income tax purposes
upon termination and reconstitution thereof pursuant to Section 708 of the Code
shall be determined in accordance with Exhibit B hereof. Subject to Exhibit B
hereof, the General Partner shall, in its sole and absolute discretion, use such
method as it deems reasonable and appropriate to allocate the aggregate of the
704(c) Values of Contributed Properties in a single or integrated transaction
among the separate properties on a basis proportional to their respective fair
market values.
"Specified Redemption Date" means the tenth (10th) Business Day after
receipt by the General Partner of a Notice of Redemption.
"Subsidiary" means, with respect to any Person, any corporation,
partnership or other entity of which a majority of either (i) the voting power
of the voting equity securities or (ii) the outstanding equity interests is
owned, directly or indirectly, by such Person.
"Substituted Limited Partner" means a Person who is admitted as a
Limited Partner to the Partnership pursuant to Section 11.4.
"Terminating Capital Transaction" means any sale or other disposition
of all or substantially all of the assets of the Partnership or a related series
of transactions that, taken together, result in the sale or other disposition of
all or substantially all of the assets of the Partnership.
"Unrealized Gain" attributable to any item of Partnership property
means, as of any date of determination, the excess, if any, of (i) the fair
market value of such property (as determined under Exhibit B hereof) as of such
date, over (ii) the Carrying Value of such property (prior to any adjustment to
be made pursuant to Exhibit B hereof) as of such date.
"Unrealized Loss" attributable to any item of Partnership property
means, as of any date of determination, the excess, if any, of (i) the Carrying
Value of such property (prior to any adjustment to be made pursuant to Exhibit B
hereof) as of such date, over (ii) the fair market value of such property (as
determined under Exhibit B hereof) as of such date.
"Valuation Date" means the date of receipt by the General Partner of a
Notice of Redemption or, if such date is not a Business Day, the first Business
Day thereafter.
"Value" means, with respect to a REIT Share, the average of the daily
market price for the ten (10) consecutive trading days immediately preceding the
Valuation Date. The market price for each such trading day shall be: (i) if the
REIT Shares are listed or admitted to trading on any securities exchange or the
NASDAQ-National Market System, the closing price, regular way, on such day, or
if no such sale takes place on such day, the average of the closing bid and
asked prices on such day; (ii) if the REIT Shares are not listed or admitted to
trading on any securities
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exchange or the NASDAQ-National Market System, the last reported sale price on
such day or, if no sale takes place on such day, the average of the closing bid
and asked prices on such day, as reported by a reliable quotation source
designated by the General Partner; or (iii) if the REIT Shares are not listed or
admitted to trading on any securities exchange or the NASDAQ-National Market
System and no such last reported sale price or closing bid and asked prices are
available, the average of the reported high bid and low asked prices on such
day, as reported by a reliable quotation source designated by the General
Partner, or if there shall be no bid and asked prices on such day, the average
of the high bid and low asked prices, as so reported, on the most recent day
(not more than ten (10) days prior to the date in question) for which prices
have been so reported; provided that if there are no bid and asked prices
reported during the ten (10) days prior to the date in question, the Value of
the REIT Shares shall be determined by the General Partner acting in good faith
on the basis of such quotations and other information as it considers, in its
reasonable judgment, appropriate. In the event the REIT Shares Amount includes
rights that a holder of REIT Shares would be entitled to receive, then the Value
of such rights shall be determined by the General Partner acting in good faith
on the basis of such quotations and other information as it considers, in its
reasonable judgment, appropriate.
ARTICLE 2
ORGANIZATIONAL MATTERS
Section 2.1 Organization and Continuation
The Partnership is a limited partnership organized pursuant to the
provisions of the Act and upon the terms and conditions set forth in the Prior
Agreement. The Partners hereby continue the Partnership and amend and restate
the Prior Agreement in its entirety as of the date hereof. Except as expressly
provided herein to the contrary, the rights and obligations of the Partners and
the administration and termination of the Partnership shall be governed by the
Act. The Partnership Interest of each Partner shall be personal property for all
purposes.
Section 2.2 Name
The name of the Partnership shall be FAC Realty Limited Partnership.
The Partnership's business may be conducted under any other name or names deemed
advisable by the General Partner, including the name of the General Partner or
any Affiliate thereof. The words "Limited Partnership," "L.P.," "Ltd." or
similar words or letters shall be included in the Partnership's name where
necessary for the purposes of complying with the laws of any jurisdiction that
so requires. The General Partner in its sole and absolute discretion may change
the name of the Partnership at any time and from time to time and shall notify
the Limited Partners of such change in the next regular communication to the
Limited Partners.
Section 2.3 Registered Office and Agent; Principal Office
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The address of the registered office of the Partnership in the State of
Delaware is _____________________________ and the name and address of the
registered agent for service of process on the Partnership in the State of
Delaware is _______________. The principal office of the Partnership shall be
located at 11000 Regency Parkway, Cary, North Carolina 27511, or such other
place as the General Partner may from time to time designate by notice to the
Limited Partners. The Partnership may maintain offices at such other place or
places within or outside the State of North Carolina as the General Partner
deems advisable.
Section 2.4 Power of Attorney
A. Each Limited Partner and each Assignee hereby constitutes and
appoints the General Partner, any Liquidator, and authorized officers and
attorneys-in-fact of each, and each of those acting singly, in each case with
full power of substitution, as its true and lawful agent and attorney-in-fact,
with full power and authority in its name, place and stead to:
(1) execute, swear to, acknowledge, deliver, file and
record in the appropriate public offices (a) all
certificates, documents and other instruments
(including, without limitation, this Agreement and
the Certificate and all amendments or restatements
thereof) that the General Partner or the Liquidator
deems appropriate or necessary to form, qualify or
continue the existence or qualification of the
Partnership as a limited partnership (or a
partnership in which the limited partners have
limited liability) in the State of North Carolina and
in all other jurisdictions in which the Partnership
may or plans to conduct business or own property; (b)
all instruments that the General Partner deems
appropriate or necessary to reflect any amendment,
change, modification or restatement of this Agreement
in accordance with its terms; (c) all conveyances and
other instruments or documents that the General
Partner or the Liquidator deems appropriate or
necessary to reflect the dissolution and liquidation
of the Partnership pursuant to the terms of this
Agreement, including, without limitation, a
certificate of cancellation; (d) all instruments
relating to the admission, withdrawal, removal or
substitution of any Partner pursuant to, or other
events described in, Articles 11, 12 or 13 hereof or
the Capital Contribution of any Partner; and (e) all
certificates, documents and other instruments
relating to the determination of the rights,
preferences and privileges of a Partnership Interest;
and
(2) execute, swear to, seal, acknowledge and file all
ballots, consents, approvals, waivers, certificates
and other instruments appropriate or necessary, in
the sole and absolute discretion of the General
Partner or any Liquidator, to make, evidence, give,
confirm or ratify any vote, consent, approval,
agreement or other action which is made or given by
the Partners hereunder or is consistent with the
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terms of this Agreement or appropriate or necessary,
in the sole discretion of the General Partner or any
Liquidator, to effectuate the terms or intent of this
Agreement.
Nothing contained herein shall be construed as authorizing the General Partner
or any Liquidator to amend this Agreement except in accordance with Article 14
hereof or as may be otherwise expressly provided for in this Agreement.
B. The foregoing power of attorney is hereby declared to be irrevocable
and a power coupled with an interest, in recognition of the fact that each of
the Partners will be relying upon the power of the General Partner and any
Liquidator to act as contemplated by this Agreement in any filing or other
action by it on behalf of the Partnership, and it shall survive and not be
affected by the subsequent Incapacity of any Limited Partner or Assignee and the
transfer of all or any portion of such Limited Partner's or Assignee's
Partnership Units and shall extend to such Limited Partner's or Assignee's
heirs, successors, assigns and personal representatives. Each such Limited
Partner or Assignee hereby agrees to be bound by any representation made by the
General Partner or any Liquidator, acting in good faith pursuant to such power
of attorney, and each such Limited Partner or Assignee hereby waives any and all
defenses which may be available to contest, negate or disaffirm the action of
the General Partner or any Liquidator, taken in good faith under such power of
attorney. Each Limited Partner or Assignee shall execute and deliver to the
General Partner or the Liquidator, within fifteen (15) days after receipt of the
General Partner's or Liquidator's request therefor, such further designation,
powers of attorney and other instruments as the General Partner or the
Liquidator, as the case may be, deems necessary to effectuate this Agreement and
the purposes of the Partnership.
Section 2.5 Term
The term of the Partnership commenced on _____________, 1997, the date
the Certificate was filed in the office of the Secretary of State of Delaware in
accordance with the Act, and shall continue until December 31, 2096, unless the
Partnership is dissolved sooner pursuant to the provisions of Article 13 or as
otherwise provided by law.
ARTICLE 3
PURPOSE
Section 3.1 Purpose and Business
The purpose and nature of the business to be conducted by the
Partnership is (i) to conduct any business that may be lawfully conducted by a
limited partnership organized pursuant to the Act, provided, however, that such
business shall be limited to and conducted in such a manner as to permit the
General Partner at all times to be classified as a REIT, unless the General
Partner ceases to qualify as a REIT for reasons other than the conduct of the
business of the Partnership, (ii) to enter into any partnership, joint venture
or other similar arrangement to engage in any of the foregoing or to own
interests in any entity engaged in any of the foregoing, and (iii) to do
anything necessary or incidental to the foregoing. In connection with the
foregoing, and
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without limiting the General Partner's right, in its sole discretion, to cease
qualifying as a REIT, the Partners acknowledge the General Partner's current
status as a REIT inures to the benefit of all of the Partners and not solely the
General Partner.
Section 3.2 Powers
The Partnership is empowered to do any and all acts and things
necessary, appropriate, proper, advisable, incidental to or convenient for the
furtherance and accomplishment of the purposes and business described herein and
for the protection and benefit of the Partnership, provided that the Partnership
shall not take, or refrain from taking, any action which, in the judgment of the
General Partner, in its sole and absolute discretion, (i) could adversely affect
the ability of the General Partner to continue to qualify as a REIT, (ii) could
subject the General Partner to any additional taxes under Section 857 or Section
4981 of the Code, or (iii) could violate any law or regulation of any
governmental body or agency having jurisdiction over the General Partner or its
securities, unless such action (or inaction) shall have been specifically
consented to by the General Partner in writing.
ARTICLE 4
CAPITAL CONTRIBUTIONS
Section 4.1 Capital Contributions of the Partners
At the time of the execution of this Agreement, the Partners shall make
Capital Contributions set forth in Exhibit A to this Agreement. The Partners
shall own Partnership Units in the amounts set forth for each such Partner in
Exhibit A and shall have a Percentage Interest in the Partnership as set forth
in Exhibit A, which Percentage Interest shall be adjusted in Exhibit A from time
to time by the General Partner to the extent necessary to reflect accurately
redemptions, Capital Contributions, the issuance of additional Partnership
Units, or similar events having an effect on any Partner's Percentage Interest.
The number of Partnership Units held by the General Partner (equal to one
percent (1%) of all outstanding Partnership Units from time to time) shall be
deemed to be the General Partner Interest. Except as provided in Sections 4.2,
7.7(I) and 10.5, the Partners shall have no obligation to make any additional
Capital Contributions or loans to the Partnership. The General Partner shall
maintain the information set forth in Exhibit A to the Agreement, as such
information shall change from time to time, in such form as the General Partner
deems appropriate for the conduct of the Partnership affairs, and Exhibit A
shall be deemed amended from time to time to reflect the information so
maintained by the General Partner, whether or not a formal amendment to the
Agreement has been executed amending such Exhibit A. Such information shall
reflect (and Exhibit A shall be deemed amended from time to time to reflect) the
issuance of any additional Partnership Units to the General Partner or any other
Person, the transfer of Partnership Units and the redemption of any Partnership
Units, all as contemplated in the Agreement.
Section 4.2 Issuances of Additional Partnership Interests
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A. The General Partner is hereby authorized to cause the Partnership
from time to time to issue to the Partners (including the General Partner) or
other Persons additional Partnership Units or other Partnership Interests in one
or more classes, or one or more series of any of such classes, with such
designations, preferences and relative, participating, optional or other special
rights, powers and duties, including rights, powers and duties senior to Limited
Partner Interests, all as shall be determined by the General Partner in its sole
and absolute discretion subject to North Carolina law, including, without
limitation, (i) the allocations of items of Partnership income, gain, loss,
deduction and credit to each such class or series of Partnership Interests; (ii)
the right of each such class or series of Partnership Interests to share in
Partnership distributions; and (iii) the rights of each such class or series of
Partnership Interests upon dissolution and liquidation of the Partnership;
provided that no such additional Partnership Units or other Partnership
Interests shall be issued to the General Partner or an Affiliate of the General
Partner unless either
(a)(1) the additional Partnership Interests are issued in
connection with an issuance of REIT Shares or other shares by the
General Partner, which shares have designations, preferences and other
rights such that the economic interests attributable to such shares are
substantially similar to the designations, preferences and other rights
of the additional Partnership Interests issued to the General Partner
in accordance with this Section 4.2.A, and (2) the General Partner
shall make a Capital Contribution to the Partnership in an amount equal
to the proceeds raised in connection with the issuance of such shares
of the General Partner, or
(b) the additional Partnership Units are issued to all
Partners in proportion to their respective Percentage Interests.
Without limiting the foregoing, the General Partner is expressly authorized to
cause the Partnership to issue Partnership Units for less than fair market
value, so long as the General Partner concludes in good faith that such issuance
is in the best interests of the General Partner and the Partnership (for
example, and not by way of limitation, the issuance of Partnership Units
pursuant to an employee purchase plan providing for employee purchases of
Partnership Units at a discount from fair market value or employee options that
have an exercise price that is less than the fair market value of the
Partnership Units, either at the time of issuance or at the time of exercise).
B. The General Partner shall not issue any additional REIT Shares
(other than REIT Shares issued pursuant to Section 8.6), or rights, options,
warrants or convertible or exchangeable securities containing the right to
subscribe for or purchase REIT Shares (collectively "New Securities") other than
to all holders of REIT Shares unless (i) the General Partner shall cause the
Partnership to issue to the General Partner Partnership Interests or rights,
options, warrants or convertible or exchangeable securities of the Partnership
having designations, preferences and other rights, all such that the economic
interests are substantially similar to those of the New Securities, and (ii) the
General Partner contributes to the Partnership the proceeds from the
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issuance of such New Securities and from the exercise of rights contained in
such New Securities. Without limiting the foregoing, the General Partner is
expressly authorized to issue New Securities for less than fair market value,
and the General Partner is expressly authorized to cause the Partnership to
issue to the General Partner corresponding Partnership Interests, so long as (x)
the General Partner concludes in good faith that such issuance is in the best
interests of the General Partner and the Partnership (for example, and not by
way of limitation, the issuance of REIT Shares and corresponding Units pursuant
to an employee stock purchase plan providing for employee purchases of REIT
Shares at a discount from fair market value or employee stock options that have
an exercise price that is less than the fair market value of the REIT Shares,
either at the time of issuance or at the time of exercise), and (y) the General
Partner contributes all proceeds from such issuance and exercise to the
Partnership.
Section 4.3 Contribution of Proceeds of Issuance of REIT Shares
In connection with any issuance of REIT Shares or New Securities
pursuant to Section 4.2, the General Partner shall contribute to the Partnership
any proceeds (or a portion thereof) raised in connection with such issuance;
provided that if the proceeds actually received by the General Partner are less
than the gross proceeds of such issuance as a result of any underwriter's
discount or other expenses paid or incurred in connection with such issuance,
then the General Partner shall be deemed to have made a Capital Contribution to
the Partnership in the amount equal to the sum of the net proceeds of such
issuance plus the amount of such underwriter's discount and other expenses paid
by the General Partner.
Section 4.4 No Preemptive Rights
No Person shall have any preemptive, preferential or other similar
right with respect to (i) additional Capital Contributions or loans to the
Partnership; or (ii) issuance or sale of any Partnership Units or other
Partnership Interests.
ARTICLE 5
DISTRIBUTIONS
Section 5.1 Requirement and Characterization of Distributions
The General Partner shall distribute at least quarterly an amount equal
to 100% of Available Cash generated by the Partnership during such quarter or
shorter period to the Partners who are Partners on the Partnership Record Date
with respect to such quarter or shorter period in accordance with their
respective Percentage Interests on such Partnership Record Date; provided that
in no event may a Partner receive a distribution of Available Cash with respect
to a Partnership Unit if such Partner is entitled to receive a distribution out
of such Available Cash with respect to a REIT Share for which such Partnership
Unit has been redeemed or exchanged. The General Partner shall take such
reasonable efforts, as determined by it in its sole and absolute discretion and
consistent with its qualification as a REIT, to distribute Available Cash to the
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Limited Partners so as to preclude any such distribution or portion thereof from
being treated as part of a sale of property to the Partnership by a Limited
Partner under Section 707 of the Code or the Regulations thereunder; provided
that the General Partner and the Partnership shall not have liability to a
Limited Partner under any circumstances as a result of any distribution to a
Limited Partner being so treated.
Section 5.2 Amounts Withheld
All amounts withheld pursuant to the Code or any provisions of any
state or local tax law and Section 10.5 hereof with respect to any allocation,
payment or distribution to the General Partner, the Limited Partners or
Assignees shall be treated as amounts distributed to the General Partner,
Limited Partners, or Assignees pursuant to Section 5.1 for all purposes under
this Agreement.
Section 5.3 Distributions Upon Liquidation
Proceeds from a Terminating Capital Transaction and any other cash
received or reductions in reserves made after commencement of the liquidation of
the Partnership shall be distributed to the Partners in accordance with Section
13.2.
ARTICLE 6
ALLOCATIONS
Section 6.1 Allocations For Capital Account Purposes
For purposes of maintaining the Capital Accounts and in determining the
rights of the Partners among themselves, the Partnership's items of income,
gain, loss and deduction (computed in accordance with Exhibit B hereof) shall be
allocated among the Partners in each taxable year (or portion thereof) as
provided hereinbelow.
A. Net Income. After giving effect to the special allocations set forth
in Section 1 of Exhibit C attached hereto, Net Income shall be allocated (i)
first, to the General Partner to the extent that Net Losses previously allocated
to the General Partner pursuant to the last sentence of Section 6.1.B exceed Net
Income previously allocated to the General Partner pursuant to this clause (i)
of Section 6.1.A, and (ii) thereafter, Net Income shall be allocated to the
Partners in accordance with their respective Percentage Interests.
B. Net Losses. After giving effect to the special allocations set forth
in Section 1 of Exhibit C attached hereto, Net Losses shall be allocated to the
Partners in accordance with their respective Percentage Interests; provided,
however, that Net Losses shall not be allocated to any Limited Partner pursuant
to this Section 6.1.B to the extent that such allocation would cause such
Limited Partner to have an Adjusted Capital Account Deficit at the end of such
taxable year (or increase any existing Adjusted Capital Account Deficit). All
Net Losses in excess of the
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limitations set forth in this Section 6.1.B shall be allocated to the General
Partner.
Section 6.2 Other Allocation Rules.
A. Excess Nonrecourse Liabilities. Solely for purposes of determining a
Partner's proportionate share of the "excess nonrecourse liabilities" of the
Partnership within the meaning of Regulations Section 1.752-3(a)(3), such
"excess nonrecourse liabilities" first shall be allocated to those Partners who
have, and in an amount equal to, such Partners' built-in gain under Regulations
Section 1.704-3(a)(3)(ii) less any Nonrecourse Built-in Gain, and then shall be
allocated among the Partners in accordance with their respective Percentage
Interests.
B. Recapture Income. Any taxable gain allocated to the Partners upon
the sale or other taxable disposition of any Partnership asset shall to the
extent possible, after taking into account other required allocations of gain
pursuant to Exhibit C, be characterized as Recapture Income in the same
proportions and to the same extent as such Partners have been allocated any
deductions directly or indirectly giving rise to the treatment of such gains as
Recapture Income.
ARTICLE 7
MANAGEMENT AND OPERATIONS OF BUSINESS
Section 7.1 Management
A. Except as otherwise expressly provided in this Agreement, all
management powers over the business and affairs the Partnership are and shall be
exclusively vested in the General Partner, and no Limited Partner shall have any
right to participate in or exercise control or management power over the
business and affairs of the Partnership. The General Partner may not be removed
by the Limited Partners with or without cause. In addition to the powers now or
hereafter granted to a general partner of a limited partnership under applicable
law or which are granted to the General Partner under any other provision of
this Agreement, the General Partner, subject to Section 7.3 hereof, shall have
full power and authority to do all things deemed necessary or desirable by it to
conduct the business of the Partnership, to exercise all powers set forth in
Section 3.2 hereof and to effectuate the purposes set forth in Section 3.1
hereof, including, without limitation:
(1) the making of any expenditures, the lending or
borrowing of money (including, without limitation,
making prepayments on loans and borrowing money to
permit the Partnership to make distributions to its
Partners in such amounts as will permit the General
Partner (so long as the General Partner qualifies as
a REIT) to avoid the payment of any federal income
tax (including, for this purpose, any excise tax
pursuant to Section 4981 of the Code) and to make
distributions to the General Partner such that the
General Partner can distribute to its shareholders
amounts sufficient to permit the General Partner to
maintain REIT status), the assumption or
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guarantee of, or other contracting for, indebtedness
and other liabilities, the issuance of evidence of
indebtedness (including the securing of same by deed
to secure debt, mortgage, deed of trust or other lien
or encumbrance on the Partnership's assets) and the
incurring of any obligations it deems necessary for
the conduct of the activities of the Partnership;
(2) the making of tax, regulatory and other filings, or
rendering of periodic or other reports to
governmental or other agencies having jurisdiction
over the business or assets of the Partnership;
(3) the acquisition, disposition, mortgage, pledge,
encumbrance, hypothecation or exchange of any assets
of the Partnership (including the exercise or grant
of any conversion, option, privilege or subscription
right or other right available in connection with any
assets at any time held by the Partnership) or the
combination of the Partnership with or into another
entity (all of the foregoing subject to any prior
approval only to the extent required by Section 7.3
hereof);
(4) the use of the assets of the Partnership (including,
without limitation, cash on hand) for any purpose
consistent with the terms of this Agreement and on
any terms it sees fit, including, without limitation,
the financing of the conduct of the operations of the
General Partner, the Partnership or any of the
Partnership's Subsidiaries, the lending of funds to
other Persons (including, without limitation, the
Subsidiaries of the Partnership and/or the General
Partner) and the repayment of obligations of the
Partnership and its Subsidiaries and any other Person
in which it has an equity investment, and the making
of capital contributions to its Subsidiaries;
(5) the management, operation, leasing, landscaping,
repair, alteration, demolition or improvement of any
real property or improvements owned by the
Partnership or any Subsidiary of the Partnership;
(6) the negotiation, execution, and performance of any
contracts, conveyances or other instruments that the
General Partner considers useful or necessary to the
conduct of the Partnership's operations or the
implementation of the General Partner's powers under
this Agreement, including contracting with
contractors, developers, consultants, accountants,
legal counsel, other professional advisors and other
agents and the payment of their expenses and
compensation out of the Partnership's assets;
(7) the distribution of Partnership cash or other
Partnership assets in
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accordance with this Agreement;
(8) holding, managing, investing and reinvesting cash and
other assets of the Partnership;
(9) the collection and receipt of revenues and income
of the Partnership;
(10) the establishment of one or more divisions of the
Partnership, the selection and dismissal of employees
of the Partnership, any division of the Partnership,
or the General Partner (including, without
limitation, employees having titles such as
"president," "vice president," "secretary" and
"treasurer" of the Partnership, any division of the
Partnership, or the General Partner), and agents,
outside attorneys, accountants, consultants and
contractors of the General Partner or the Partnership
or any division of the Partnership, and the
determination of their compensation and other terms
of employment or hiring;
(11) the maintenance of such insurance for the benefit of
the Partnership and the Partners as it deems
necessary or appropriate;
(12) the formation of, or acquisition of an interest in,
and the contribution of property to, any further
limited or general partnerships, joint ventures or
other relationships that it deems desirable
(including, without limitation, the acquisition of
interests in, and the contributions of property to,
its Subsidiaries and any other Person in which it has
an equity investment from time to time);
(13) the control of any matters affecting the rights and
obligations of the Partnership, including the
settlement, compromise, submission to arbitration or
any other form of dispute resolution, or abandonment
of, any claim, cause of action, liability, debt or
damages, due or owing to or from the Partnership, the
commencement or defense of suits, legal proceedings,
administrative proceedings, arbitration or other
forms of dispute, resolution, and the representation
of the Partnership in all suits or legal proceedings,
administrative proceedings, arbitrations or other
forms of dispute resolution, the incurring of legal
expense, and the indemnification of any Person
against liabilities and contingencies to the extent
permitted by law;
(14) the undertaking of any action in connection with the
Partnership's direct or indirect investment in its
Subsidiaries or any other Person (including, without
limitation, the contribution or loan of funds by the
Partnership to such Persons);
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(15) the determination of the fair market value of any
Partnership property distributed in kind using such
reasonable method of valuation as the General Partner
may adopt;
(16) the exercise, directly or indirectly, through any
attorney-in-fact acting under a general or limited
power of attorney, of any right, including the right
to vote, appurtenant to any asset or investment held
by the Partnership;
(17) the exercise of any of the powers of the General
Partner enumerated in this Agreement on behalf of or
in connection with any Subsidiary of the Partnership
or any other Person in which the Partnership has a
direct or indirect interest, or jointly with any such
Subsidiary or other Person;
(18) the exercise of any of the powers of the General
Partner enumerated in this Agreement on behalf of any
Person in which the Partnership does not have an
interest pursuant to contractual or other
arrangements with such Person; and
(19) the making, execution and delivery of any and all
deeds, leases, notes, deeds to secure debt,
mortgages, deeds of trust, security agreements,
conveyances, contracts, guarantees, warranties,
indemnities, waivers, releases or legal instruments
or agreement in writing necessary or appropriate in
the judgment of the General Partner for the
accomplishment of any of the powers of the General
Partner enumerated in this Agreement.
B. Each of the Limited Partners agrees that the General Partner is
authorized to execute, deliver and perform the above-mentioned agreements and
transactions on behalf of the Partnership without any further act, approval or
vote of the Partners, notwithstanding any other provision of this Agreement
(except as provided in Section 7.3), the Act or any applicable law, rule or
regulation, to the fullest extent permitted under the Act or other applicable
law. The execution, delivery or performance by the General Partner or the
Partnership of any agreement authorized or permitted under this Agreement shall
not constitute a breach by the General Partner of any duty that the General
Partner may owe the Partnership or the Limited Partners or any other Persons
under this Agreement or of any duty stated or implied by law or equity.
C. At all times from and after the date hereof, the General Partner may
cause the Partnership to obtain and maintain (i) casualty, liability and other
insurance on the properties of the Partnership and (ii) liability insurance for
the Indemnities hereunder.
D. At all times from and after the date hereof, the General Partner may
cause the Partnership to establish and maintain at any and all times working
capital accounts and other cash
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or similar balances in such amounts as the General Partner, in its sole and
absolute discretion, deems appropriate and reasonable from time to time.
E. In exercising its authority under this Agreement and except as
provided at Section 5.1, the General Partner may, but shall be under no
obligation to, take into account the tax consequences to any Partner of any
action taken by it. The General Partner and the Partnership shall not have
liability to a Limited Partner under any circumstances as a result of an income
tax liability incurred by such Limited Partner as a result of an action (or
inaction) by the General Partner pursuant to its authority under this Agreement.
Section 7.2 Certificate of Limited Partnership
The General Partner has previously filed the Certificate with the
Secretary of State of Delaware as required by the Act. The General Partner shall
use all reasonable efforts to cause to be filed such other certificates or
documents as may be reasonable and necessary or appropriate for the formation,
continuation, qualification and operation of a limited partnership (or a
partnership in which the limited partners have limited liability) in the State
of Delaware and any other state, or the District of Columbia, in which the
Partnership may elect to do business or own property. To the extent that such
action is determined by the General Partner to be reasonable and necessary or
appropriate, the General Partner shall file amendments to and restatements of
the Certificate and do all the things to maintain the Partnership as a limited
partnership (or a partnership in which the limited partners have limited
liability) under the laws of the State of North Carolina and each other state or
the District of Columbia in which the Partnership may elect to do business or
own property. Subject to the terms of Section 8.5.A(4) hereof, the General
Partner shall not be required, before or after filing, to deliver or mail a copy
of the Certificate or any amendment thereto to any Limited Partner.
Section 7.3 Restrictions on General Partner Authority
A. The General Partner may not take any action in contravention of an
express prohibition or limitation of this Agreement without the written Consent
of all of the Limited Partners.
B. The General Partner may not sell, exchange, transfer or otherwise
dispose of all or substantially all of the Partnership's assets in a single
transaction or a series of related transactions (including by way of merger,
consolidation or other combination with any other Person) without the Consent of
Partners holding 50% or more of the Partnership Units.
Section 7.4 Reimbursement of the General Partner
A. Except as provided in this Section 7.4 and elsewhere in this
Agreement (including the provisions of Articles 5 and 6 regarding distributions,
payments, and allocations to which it
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may be entitled), the General Partner shall not be compensated for its services
as general partner of the Partnership.
B. The General Partner shall be reimbursed on a monthly basis, or such
other basis as the General Partner may determine in its sole and absolute
discretion, for all expenses that it incurs relating to the ownership and
operation of, or for the benefit of, the Partnership; provided that the amount
of any such reimbursement shall be reduced by any interest earned by the General
Partner with respect to bank accounts or other instruments or accounts held by
it on behalf of the Partnership as permitted in Section 7.5.A. The Limited
Partners acknowledge that, for purposes of this Section 7.4.B, all expenses of
the General Partner are deemed incurred for the benefit of the Partnership. Such
reimbursements shall be in addition to any reimbursement to the General Partner
as a result of indemnification pursuant to Section 7.7 hereof.
C. As set forth in Section 4.3, the General Partner shall be treated as
having made a Capital Contribution in the amount of all expenses that it incurs
relating to the organization and/or reorganization of the Partnership and the
General Partner, and any other issuance of additional Partnership Interests or
REIT Shares pursuant to Section 4.2 hereof.
D. In the event that the General Partner elects to purchase from the
shareholders of the General Partner REIT Shares for the purpose of delivering
such REIT Shares to satisfy an obligation under any dividend reinvestment
program adopted by the General Partner, any employee stock purchase plan adopted
by the General Partner, or any similar obligation or arrangement undertaken by
the General Partner in the future, the purchase price paid by the General
Partner for such REIT Shares and any other expenses incurred by the General
Partner in connection with such purchase shall be considered expenses of the
Partnership and shall be reimbursed to the General Partner, subject to the
condition that: (i) if such REIT Shares subsequently are to be sold by the
General Partner, the General Partner shall pay to the Partnership any proceeds
received by the General Partner for such REIT Shares (provided that a transfer
of REIT Shares for Units pursuant to Section 8.6 would not be considered a sale
for such purposes); and (ii) if such REIT Shares are not retransferred by the
General Partner within 30 days after the purchase thereof, the General Partner
shall cause the Partnership to cancel a number of Partnership Units held by the
General Partner equal to the product obtained by multiplying the Conversion
Factor by the number of such REIT Shares.
Section 7.5 Outside Activities of the General Partner
A. The General Partner shall not directly or indirectly enter into or
conduct any business other than in connection with the ownership, acquisition
and disposition of Partnership Interests as a General Partner or Limited Partner
and the management of the business of the Partnership, and such activities as
are incidental thereto. Substantially all of the General Partner's assets shall
consist of its Partnership Interests as a General Partner or Limited Partner and
such bank accounts or similar instruments or accounts as it deems necessary to
carry out its responsibilities contemplated under this Agreement and its
organizational documents. The General Partner and any Affiliates of the General
Partner may acquire Limited Partner Interests
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and shall be entitled to exercise all rights of a Limited Partner relating to
such Limited Partner Interests.
B. Except as provided in Section 7.4.D, in the event the General
Partner exercises its rights under Article 6 of its Articles of Incorporation to
purchase REIT Shares, then the General Partner shall cause the Partnership to
purchase from it that number of Partnership Units equal to the product obtained
by multiplying the number of REIT Shares to be purchased by the General Partner
times the Conversion Factor on the same terms and for the same aggregate price
that the General Partner purchased such REIT Shares.
Section 7.6 Contracts with Affiliates
A. The Partnership may lend or contribute funds or other assets to its
Subsidiaries or other Persons in which it has an equity investment and such
Persons may borrow funds from the Partnership, on terms and conditions
established in the sole and absolute discretion of the General Partner. The
foregoing authority shall not create any right or benefit in favor of any
Subsidiary or any other Person.
B. Except as provided in Section 7.5.A, the Partnership may transfer
assets to joint ventures, other partnerships, corporations or other business
entities in which it is or thereby becomes a participant upon such terms and
subject to such conditions consistent with this Agreement and applicable law as
the General Partner, in its sole and absolute discretion, believes are
advisable.
C. Except as expressly permitted by this Agreement, neither the General
Partner nor any of its Affiliates shall sell, transfer or convey any property
to, or purchase any property from, the Partnership, directly or indirectly,
except pursuant to transactions that are determined by the General Partner in
good faith to be fair and reasonable and no less favorable to the Partnership
than would be obtained from an unaffiliated third party.
D. The General Partner, in its sole and absolute discretion and without
the approval of the Limited Partners, may propose and adopt on behalf of the
Partnership employee benefit plans, stock option plans, and similar plans funded
by the Partnership for the benefit of employees of the General Partner, the
Partnership, Subsidiaries of the Partnership or any Affiliate of any of them in
respect of services performed, directly or indirectly, for the benefit of the
Partnership, the General Partner, or any of the Partnership's Subsidiaries.
E. The General Partner is expressly authorized to enter into, in the
name and on behalf of the Partnership, a right of first opportunity arrangement
and other conflict avoidance agreements with various Affiliates of the
Partnership and the General Partner, on such terms as the General Partner, in
its sole and absolute discretion, believes are advisable.
Section 7.7 Indemnification
A. Except as provided at Section 7.7(I), hereof, the Partnership shall
indemnify each
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Indemnitee from and against any and all losses, claims, damages, liabilities,
joint or several, expenses (including, without limitation, attorneys fees and
other legal fees and expenses), judgments, fines, settlements, and other amounts
arising from any and all claims, demands, actions, suits or proceedings, civil,
criminal, administrative or investigative, that relate to the operations of the
Partnership, the General Partner as set forth in this Agreement in which such
Indemnitee may be involved, or is threatened to be involved, as a party or
otherwise, unless it is established that: (i) the act or omission of the
Indemnitee was material to the matter giving rise to the proceeding and either
was committed in bad faith or was the result of active and deliberate
dishonesty; (ii) the Indemnitee actually received an improper personal benefit
in money, property or services; or (iii) in the case of any criminal proceeding,
the Indemnitee had reasonable cause to believe that the act or omission was
unlawful. Without limitation, the foregoing indemnity shall extend to any
liability of any Indemnitee, pursuant to a loan guaranty or otherwise for any
indebtedness of the Partnership or any Subsidiary of the Partnership (including
without limitation, any indebtedness which the Partnership or any Subsidiary of
the Partnership has assumed or taken subject to), and the General Partner is
hereby authorized and empowered, on behalf of the Partnership, to enter into one
or more indemnity agreements consistent with the provisions of this Section 7.7
in favor of any Indemnitee having or potentially having liability for any such
indebtedness. The termination of any proceeding by judgment, order or settlement
does not create a presumption that the Indemnitee did not meet the requisite
standard of conduct set forth in this Section 7.7.A with respect to the subject
matter of such proceeding. The termination of any proceeding by conviction of an
Indemnitee or upon a plea of nolo contendere or its equivalent by an Indemnitee,
or an entry of an order of probation against an Indemnitee prior to judgment,
creates a rebuttable presumption that such Indemnitee acted in a manner contrary
to that specified in this Section 7.7.A. Any indemnification pursuant to this
Section 7.7 shall be made only out of the assets of the Partnership, and neither
the General Partner nor any Limited Partner shall have any obligation to
contribute to the capital of the Partnership or otherwise provide funds, to
enable the Partnership to fund its obligations under this Section 7.7.
B. Reasonable expenses incurred by an Indemnitee who is a party to a
proceeding may be paid or reimbursed by the Partnership in advance of the final
disposition of the proceeding upon receipt by the Partnership of (i) a written
affirmation by the Indemnitee of the Indemnitee's good faith belief that the
standard of conduct necessary for indemnification by the Partnership as
authorized in Section 7.7.A. has been met, and (ii) a written undertaking by or
on behalf of the Indemnitee to repay the amount if it shall ultimately be
determined that the standard of conduct has not been met.
C. The indemnification provided by this Section 7.7 shall be in
addition to any other rights to which an Indemnitee or any other Person may be
entitled under any agreement, pursuant to any vote of the Partners, as a matter
of law or otherwise, and shall continue as to an Indemnitee who has ceased to
serve in such capacity unless otherwise provided in a written agreement pursuant
to which such Indemnitee is indemnified.
D. The Partnership may, but shall not be obligated to, purchase and
maintain insurance, on behalf of the Indemnities and such other Persons as the
General Partner shall determine, against any liability that may be asserted
against or expenses that may be incurred by
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such Person in connection with the Partnership's activities, regardless of
whether the Partnership would have the power to indemnify such Person against
such liability under the provisions of this Agreement.
E. Any liabilities which an Indemnitee incurs as a result of acting on
behalf of the Partnership or the General Partner (whether as a fiduciary or
otherwise) in connection with the operation, administration or maintenance of an
employee benefit plan or any related trust or funding mechanism (whether such
liabilities are in the form of excise taxes assessed by the Internal Revenue
Service, penalties assessed by the Department of Labor, restitutions to such a
plan or trust or other funding mechanism or to a participant or beneficiary of
such plan, trust of other funding mechanism, or otherwise) shall be treated as
liabilities or judgments or fines under this Section 7.7 unless such liabilities
arise as a result of (i) such Indemnitee's intentional misconduct or knowing
violations of the law, or (ii) any transaction in which such Indemnitee received
a personal benefit in violation or breach of any provision of this Agreement or
applicable law.
F. In no event may an Indemnitee subject any of the Partners to
personal liability by reason of the indemnification provisions set forth in this
Agreement.
G. An Indemnitee shall not be denied indemnification in whole or in
part under this Section 7.7 because the Indemnitee had an interest in the
transaction with respect to which the indemnification applies if the transaction
was otherwise permitted by the terms of this Agreement.
H. The provisions of this Section 7.7 are for the benefit of the
Indemnities, their heirs, successors, assigns and administrators and shall not
be deemed to create any rights for the benefit of any other Persons. Any
amendment, modification or repeal of this Section 7.7 or any provision hereof
shall be prospective only and shall not in any way affect the limitations on the
Partnership's liability to any Indemnitee under this Section 7.7 as in effect
immediately prior to such amendment, modification, or repeal with respect to
claims arising from or relating to matters occurring, in whole or in part, prior
to such amendment, modification or repeal, regardless of when such claims may
arise or be asserted.
I. The Partners hereby acknowledge that, in conjunction with the
financing and the refinancing of the property owned by the Partnership, the
General Partner may agree to guarantee part or all of such debt. The Partners
understand that, pursuant to Regulations Section 1.752-(2)(b)(3)(i), such
guaranty obligation would, absent the indemnification provided hereinafter,
serve to increase the General Partner's share of such debt pursuant to
Regulations Section 1.752-2(a). Inasmuch as, notwithstanding such guaranty
obligation, each of the Limited Partners desires to increase his share of such
debt and the General Partner desires to decrease its share of such debt (for
purposes of Regulations Section 1.752-2(a)), each of the Limited Partners, to
the extent provided in Exhibit F, attached hereto, hereby agrees to indemnify
the General Partner in the event and to the extent that the General Partner both
is required to make a payment to the lender under any such guaranty obligation
and is unable to sell any or all of the assets of the Partnership for money or
moneys worth to make the General Partner whole on account of such payment. This
indemnification is effective only at the time, in the event and to the extent
that upon a dissolution and liquidation of the Partnership, the General Partner
is a creditor of the Partnership
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due to its guaranty of Partnership debt and the proceeds of sale in such
dissolution and liquidation are insufficient to reimburse the General Partner
for any amounts paid on such guaranty obligation as contemplated in this Section
7.7(I). As provided in Exhibit F, this indemnification is limited on a per Unit
basis to Units owned by an indemnifying Limited Partner at the time an
indemnification is due to the General Partner as provided by this Section
7.7(I), such that each Limited Partner's obligation is reduced upon a redemption
of Units as provided in Section 8.6 or upon any other transfer or disposition of
Units.
Section 7.8 Liability of the General Partner
A. Notwithstanding anything to the contrary set forth in this
Agreement, the General Partner shall not be liable for monetary damages to the
Partnership, any Partners or any Assignees for losses sustained or liabilities
incurred as a result of errors in judgment or of any act or omission if the
General Partner acted in good faith and with due care and loyalty.
B. The Limited Partners expressly acknowledge that the General Partner
is acting on behalf of the Partnership and the General Partner's shareholders
collectively, that the General Partner is under no obligation, except as
provided at Section 5.1, to consider the separate interests of the Limited
Partners (including, without limitation, the tax consequences to Limited
Partners or Assignees) in deciding whether to cause the Partnership to take (or
decline to take) any actions, and that the General Partner shall not be liable
for monetary damages for losses sustained, liabilities incurred, or benefits not
derived by Limited Partners in connection with such decisions, provided that the
General Partner has acted in good faith.
C. Subject to its obligations and duties as General Partner set forth
in Section 7.1.A hereof, the General Partner may exercise any of the powers
granted to it by this Agreement and perform any of the duties imposed upon it
hereunder either directly or by or through its agents. The General Partner shall
not be responsible for any misconduct or negligence on the part of any such
agent appointed by the General Partner in good faith.
D. Any amendment, modification or repeal of this Section 7.8 or any
provision hereof shall be prospective only and shall not in any way affect the
limitations on the General Partner's liability to the Partnership and the
Limited Partners under this Section 7.8 as in effect immediately prior to such
amendment, modification or repeal with respect to claims arising from or
relating to matters occurring, in whole or in part, prior to such amendment,
modification or repeal, regardless of when such claims may arise or be asserted.
Section 7.9 Other Matters Concerning the General Partner
A. The General Partner may rely and shall be protected in acting or
refraining from acting upon any resolution, certificate, statement, instrument,
opinion, report, notice, request, consent, order, bond, debenture, or other
paper or document believed by it in good faith to be genuine and to have been
signed or presented by the proper party or parties.
B. The General Partner may consult with legal counsel, accountants,
appraisers,
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management consultants, investment bankers, architects, engineers, environmental
consultants and other consultants and advisers selected by it, and any act taken
or omitted to be taken in reliance upon the opinion of such Persons as to
matters which such General Partner reasonably believes to be within such
Person's professional or expert competence shall be conclusively presumed to
have been done or omitted in good faith and in accordance with such opinion.
C. The General Partner shall have the right, in respect of any of its
powers or obligations hereunder, to act through any of its duly authorized
officers and a duly appointed attorney or attorneys-in-fact. Each such attorney
shall, to the extent provided by the General Partner in the power of attorney,
have full power and authority to do and perform all and every act and duty which
is permitted or required to be done by the General Partner hereunder.
D. Notwithstanding any other provisions of this Agreement or the Act,
any action of the General Partner on behalf of the Partnership or any decision
of the General Partner to refrain from acting on behalf of the Partnership,
undertaken in the good faith belief that such action or omission is necessary or
advisable in order (i) to protect the ability of the General Partner to continue
to qualify as a REIT or (ii) to avoid the General Partner incurring any taxes
under Section 857 or Section 4981 of the Code, is expressly authorized under
this Agreement and is deemed approved by all of the Limited Partners.
Section 7.10 Title to Partnership Assets
Title to Partnership assets, whether real, personal or mixed and
whether tangible or intangible, shall be deemed to be owned by the Partnership
as an entity, and no Partner, individually or collectively, shall have any
ownership interest in such Partnership assets or any portion thereof. Title to
any or all of the Partnership assets may be held in the name of the Partnership,
the General Partner or one or more nominees, as the General Partner may
determine, including Affiliates of the General Partner. The General Partner
hereby declares and warrants that any Partnership assets for which legal title
is held in the name of the General Partner or any nominee or Affiliate of the
General Partner shall be held by the General Partner or such nominee or
Affiliate for the use and benefit of the Partnership in accordance with the
provisions of this Agreement; provided, however, that the General Partner shall
use its best efforts to cause beneficial and record title to such assets to be
vested in the Partnership as soon as reasonably practicable. All Partnership
assets shall be recorded as the property of the Partnership in its books and
records, irrespective of the name in which legal title to such Partnership
assets is held.
Section 7.11 Reliance by Third Parties
Notwithstanding anything to the contrary in this Agreement, any Person
dealing with the Partnership shall be entitled to assume that the General
Partner has full power and authority, without consent or approval of any other
Partner or Person, to encumber, sell or otherwise use in any manner any and all
assets of the Partnership and to enter into any contracts on behalf of the
Partnership, and take any and all actions on behalf of the Partnership and such
Person shall be entitled to deal with the General Partner as if the General
Partner were the Partnership's sole party in interest, both legally and
beneficially. Each Limited Partner hereby waives any and all defenses
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or other remedies which may be available against such Person to contest, negate
or disaffirm any action of the General Partner in connection with any such
dealing. In no event shall any Person dealing with the General Partner or its
representatives be obligated to ascertain that the terms of this Agreement have
been complied with or to inquire into the necessity or expedience of any act or
action of the General Partner or its representatives. Each and every
certificate, document or other instrument executed on behalf of the Partnership
by the General Partner or its representatives shall be conclusive evidence in
favor of any and every Person relying thereon or claiming thereunder that (i) at
the time of the execution and delivery of such certificate, document or
instrument, this Agreement was in full force and effect, (ii) the Person
executing and delivering such certificate, document or instrument was duly
authorized and empowered to do so for and on behalf of the Partnership and (iii)
such certificate, document or instrument was duly executed and delivered in
accordance with the terms and provisions of this Agreement and is binding upon
the Partnership.
ARTICLE 8
RIGHTS AND OBLIGATIONS OF LIMITED PARTNERS
Section 8.1 Limitation of Liability
The Limited Partners shall have no liability under this Agreement
except as expressly provided in this Agreement, including Sections 7.7(I) and
10.5 hereof, or under the Act.
Section 8.2 Management of Business
No Limited Partner or Assignee (other than the General Partner, any of
its Affiliates or any officer, director, employee, partner, agent or trustee of
the General Partner, the Partnership or any of their Affiliates, in their
capacity as such) shall take part in the operation, management or control
(within the meaning of the Act) of the Partnership's business, transact any
business in the Partnership's name or have the power to sign documents for or
otherwise bind the Partnership. The transaction of any such business by the
General Partner, any of its Affiliates or any officer, director, employee,
partner, agent or trustee of the General Partner, the Partnership or any of
their Affiliates, in their capacity as such, shall not affect, impair or
eliminate the limitations on the liability of the Limited Partners or Assignees
under this Agreement.
Section 8.3 Outside Activities of Limited Partners
Subject to any agreements entered into pursuant to Section 7.6.E hereof
and any other agreements entered into by a Limited Partner or its Affiliates
with the Partnership or a Subsidiary, any Limited Partner (other than the
General Partner) and any officer, director, employee, agent, trustee, Affiliate
or shareholder of any Limited Partner (other than the General Partner) shall be
entitled to and may have business interests and engage in business activities in
addition to those relating to the Partnership, including business interests and
activities that are in direct competition with the Partnership or that are
enhanced by the activities of the Partnership. Neither the
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Partnership nor any Partners shall have any rights by virtue of this Agreement
in any business ventures of any Limited Partner or Assignee. None of the Limited
Partners (other than the General Partner) nor any other Person shall have any
rights by virtue of this Agreement or the Partnership relationship established
hereby in any business ventures of any other Person (other than the General
Partner to the extent expressly provided herein) and such Person shall have no
obligation pursuant to this Agreement to offer any interest in any such business
ventures to the Partnership, any Limited Partner or any such other Person, even
if such opportunity is of a character which, if presented to the Partnership,
any Limited Partner or such other Person, could be taken by such Person.
Section 8.4 Return of Capital
Except pursuant to the right of redemption set forth in Section 8.6, no
Limited Partner shall be entitled to the withdrawal or return of its Capital
Contribution, except to the extent of distributions made pursuant to this
Agreement or upon termination of the Partnership as provided herein. Except to
the extent provided by Exhibit C hereof or as permitted by Section 4.2.B, or
otherwise expressly provided in this Agreement, no Limited Partner or Assignee
shall have priority over any other Limited Partner or Assignee either as to the
return of Capital Contributions or as to profits, losses or distributions.
Section 8.5 Rights of Limited Partners Relating to the Partnership
A. In addition to other rights provided by this Agreement or by the
Act, and except as limited by Section 8.5.C hereof, each Limited Partner shall
have the right, for a purpose reasonably related to such Limited Partner's
interest as a limited partner in the Partnership, upon written demand with a
statement of the purpose of such demand and at such Limited Partner's own
expense (including such copying and administrative charges as the General
Partner may establish from time to time):
(1) to obtain a copy of the most recent annual and
quarterly reports filed with the Securities and
Exchange Commission by the General Partner pursuant
to the Securities Exchange Act of 1934;
(2) to obtain a copy of the Partnership's federal, state
and local income tax returns for each Partnership
Year;
(3) to obtain a current list of the name and last known
business, residence or mailing address of each
Partner;
(4) to obtain a copy of this Agreement and the
Certificate and all amendments thereto, together with
executed copies of all powers of attorney pursuant to
which this Agreement, the Certificate and all
amendments thereto have been executed; and
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(5) to obtain true and full information regarding the
amount of cash and a description and statement of any
other property or services contributed by each
Partner and which each Partner has agreed to
contribute in the future, and the date on which each
became a Partner.
B. The Partnership shall notify each Limited Partner upon request of
the then current and applicable Conversion Factor.
C. Notwithstanding any other provision of this Section 8.5, the General
Partner may keep confidential from the Limited Partners, for such period of time
as the General Partner determines in its sole and absolute discretion to be
reasonable, any information that (i) the General Partner reasonably believes to
be in the nature of trade secrets or other information the disclosure of which
the General Partner in good faith believes is not in the best interests of the
Partnership or could damage the Partnership or its business or (ii) the
Partnership is required by law or by agreements with an unaffiliated third party
to keep confidential.
Section 8.6 Redemption Right
A. Subject to Sections 8.6.B and 8.6.C, each Limited Partner, other
than the General Partner, shall have the right (the "Redemption Right") to
require the Partnership to redeem on a Specified Redemption Date all or a
portion of the Partnership Units held by such Limited Partner at a redemption
price equal to and in the form of the Cash Amount to be paid by the Partnership.
The Redemption Right shall be exercised pursuant to a Notice of Redemption
delivered to the Partnership (with a copy to the General Partner) by the Limited
Partner who is exercising the redemption right (the "Redeeming Partner");
provided, however, that the Partnership shall not be obligated to satisfy such
Redemption Right if the General Partner elects to purchase the Partnership Units
subject to the Notice of Redemption pursuant to Section 8.6.B. A Limited Partner
may not exercise the Redemption Right for less than one thousand (1,000)
Partnership Units or, if such Limited Partner holds less than one thousand
(1,000) Partnership Units, all of the Partnership Units held by such Partner.
The Redeeming Partner shall have no right, with respect to any Partnership Units
so redeemed, to receive any Partnership distributions paid on or after the
Specified Redemption Date. The Assignee of any Limited Partner may exercise the
rights of such Limited Partner pursuant to this Section 8.6, and such Limited
Partner shall be deemed to have assigned such rights to such Assignee and shall
be bound by the exercise of such rights by such Assignee. In connection with any
exercise of such rights by such Assignee on behalf of such Limited Partner, the
Cash Amount shall be paid by the Partnership directly to such Assignee and not
to such Limited Partner.
B. Notwithstanding the provisions of Section 8.6.A, a Limited Partner
that exercises the Redemption Right shall be deemed to have offered to sell the
Partnership Units described in the Notice of Redemption to the General Partner
and the General Partner may, in its sole and absolute discretion, elect to
purchase directly and acquire such Partnership Units by paying to the Redeeming
Partner either the Cash Amount or the REIT Shares Amount, as elected by the
General Partner (in its sole and absolute discretion), on the Specified
Redemption Date, whereupon the General Partner shall acquire the Partnership
Units offered for redemption by the
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Redeeming Partner and shall be treated for all purposes of this Agreement as the
owner of such Partnership Units. If the General Partner shall elect to exercise
its right to purchase Partnership Units under this Section 8.6.B with respect to
a Notice of Redemption, it shall so notify the Redeeming Partner within five (5)
Business Days after the receipt by the General Partner of such Notice of
Redemption. Unless the General Partner (in its sole and absolute discretion)
shall exercise its right to purchase Partnership Units from the Redeeming
Partner pursuant to its right to purchase Partnership Units under this Section
8.6.B, the General Partner shall not have any obligation to the Redeeming
Partner or the Partnership with respect to the Redeeming Partner's exercise of
the Redemption Right. In the event the General Partner shall exercise its right
to purchase Partnership Units with respect to the exercise of a Redemption Right
in the manner described in the first sentence of this Section 8.6.B, the
Partnership shall have no obligation to pay any amount to the Redeeming Partner
with respect to such Redeeming Partner's exercise of such Redemption Right, and
each of the Redeeming Partner, the Partnership, and the General Partner shall
treat the transaction between the General Partner and the Redeeming Partner for
federal income tax purposes as a sale of the Redeeming Partner's Partnership
Units to the General Partner. Each Redeeming Partner agrees to execute such
documents as the General Partner may reasonably require in connection with the
issuance of REIT Shares upon exercise of the Redemption Right.
C. Notwithstanding the provisions of Section 8.6.A and Section 8.6.B, a
Partner shall not be entitled to exercise the Redemption Right pursuant to
Section 8.6.A if the delivery of REIT Shares to such Partner on the Specified
Redemption Date by the General Partner pursuant to Section 8.6.B (regardless of
whether or not the General Partner would in fact exercise its rights under
Section 8.6.B) would be prohibited under the Articles of Incorporation.
ARTICLE 9
BOOKS, RECORDS, ACCOUNTING AND REPORTS
Section 9.1 Records and Accounting
The General Partner shall keep or cause to be kept at the principal
office of the Partnership those records and documents required to be maintained
by the Act and other books and records deemed by the General Partner to be
appropriate with respect to the Partnership's business, including, without
limitation, all books and records necessary to provide to the Limited Partners
any information, lists and copies of documents required to be provided pursuant
to Sections 8.5.A and 9.3 hereof. Any records maintained by or on behalf of the
Partnership in the regular course of its business may be kept on, or be in the
form of, punch cards, magnetic tape, photographs, micrographics or any other
information storage device, provided that the records so maintained are
convertible into clearly legible written form within a reasonable period of
time. The books of the Partnership shall be maintained, for financial and tax
reporting purposes, on an accrual basis in accordance with generally accepted
accounting principles, or such other basis as the General Partner determines to
be necessary or appropriate.
Section 9.2 Partnership Year
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The fiscal year of the Partnership shall be the calendar year.
Section 9.3 Reports
A. As soon as practicable, but in no event later than one hundred five
(105) days after the close of each Partnership Year, the General Partner shall
cause to be mailed to each Limited Partner, as of the close of the Partnership
Year, an annual report containing financial statements of the Partnership, or of
the General Partner if such statements are prepared solely on a consolidated
basis with the General Partner, for such Partnership Year, presented in
accordance with generally accepted accounting principles, such statements to be
audited by a nationally recognized firm of independent public accountants
selected by the General Partner.
B. As soon as practicable, but in no event later than one hundred five
(105) days after the close of each calendar quarter (except the last calendar
quarter of each year), the General Partner shall cause to be mailed to each
Limited Partner, as of the last day of the calendar quarter, a report containing
unaudited financial statements of the Partnership or of the General Partner, if
such statements are prepared solely on a consolidated basis with the General
Partner, and such other information as may be required by applicable law or
regulation, or as the General Partner determines to be appropriate.
ARTICLE 10
TAX MATTERS
Section 10.1 Preparation of Tax Returns
A. The General Partner shall arrange for the preparation and timely
filing of all returns of Partnership income, gains, deductions, losses and other
items required of the Partnership for federal and state income tax purposes and
shall use all reasonable efforts to furnish, within ninety (90) days of the
close of each taxable year, the tax information reasonably required by Limited
Partners for federal and state income tax reporting purposes.
Section 10.2 Tax Elections
Except as otherwise provided herein, the General Partner shall, in its
sole and absolute discretion, determine whether to make any available election
pursuant to the Code. The General Partner shall have the right to seek to revoke
any such election (including, without limitation, the election under Section 754
of the Code) upon the General Partner's determination in its sole and absolute
discretion that such revocation is in the best interests of the Partners.
Section 10.3 Tax Matters Partner
A. The General Partner shall be the "tax matters partner" of the
Partnership for federal income tax purposes. Pursuant to Section 6230(e) of the
Code, upon receipt of notice from the IRS of the beginning of an administrative
proceeding with respect to the Partnership, the
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tax matters partner shall furnish the IRS with the name, address, taxpayer
identification number, and profit interest of each of the Limited Partners and
the Assignees; provided, however, that such information is provided to the
Partnership by the Limited Partners and the Assignees.
B. The tax matters partner is authorized, but not required:
(1) to enter into any settlement with the IRS with
respect to any administrative or judicial proceedings
for the adjustment of Partnership items required to
be taken into account by a Partner for income tax
purposes (such administrative proceedings being
referred to as a "tax audit" and such judicial
proceedings being referred to as "judicial review"),
and in the settlement agreement the tax matters
partner may expressly state that such agreement shall
bind all Partners, except that such settlement
agreement shall not bind any Partner (i) who (within
the time prescribed pursuant to the Code and
Regulations) files a statement with the IRS providing
that the tax matters partner shall not have the
authority to enter into a settlement agreement on
behalf of such Partner or (ii) who is a "notice
partner" (as defined in Section 6231(a)(8) of the
Code) or a member of a "notice group" (as defined in
Section 6223(b)(2) of the Code);
(2) in the event that a notice of a final administrative
adjustment at the Partnership level of any item
required to be taken into account by a Partner for
tax purposes (a "final adjustment") is mailed to the
tax matters partner, to seek judicial review of such
final adjustment, including the filing of a petition
for readjustment with the Tax Court or the filing of
a complaint for refund with the United States Claims
Court or the District Court of the United States for
the district in which the Partnership's principal
place of business is located;
(3) to intervene in any action brought by any other
Partner for judicial review of a final adjustment;
(4) to file a request for an administrative adjustment
with the IRS and, if any part of such request is not
allowed by the IRS, to file an appropriate pleading
(petition or complaint) for judicial review with
respect to such request;
(5) to enter into an agreement with the IRS to extend the
period for assessing any tax which is attributable to
any item required to be taken into account by a
Partner for tax purposes, or any item affected by
such item; and
(6) to take any other action on behalf of the Partners or
the Partnership in connection with any tax audit or
judicial review proceeding to the extent permitted by
applicable law or regulations.
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The taking of any action and the incurring of any expense by the tax
matters partner in connection with any such proceeding, except to the extent
required by law, is a matter in the sole and absolute discretion of the tax
matters partner and the provisions relating to indemnification of the General
Partner set forth in Section 7.7 of this Agreement shall be fully applicable to
the tax matters partner in its capacity as such.
C. The tax matters partner shall receive no compensation for its
services. All third party costs and expenses incurred by the tax matters partner
in performing its duties as such (including legal and accounting fees and
expenses) shall be borne by the Partnership. Nothing herein shall be construed
to restrict the Partnership from engaging an accounting firm to assist the tax
matters partner in discharging its duties hereunder, so long as the compensation
paid by the Partnership for such services is reasonable.
Section 10.4 Organizational Expenses
The Partnership shall elect to deduct expenses, if any, incurred by it
in organizing the Partnership ratably over a sixty (60) month period as provided
in Section 709 of the Code.
Section 10.5 Withholding
Each Limited Partner hereby authorizes the Partnership to withhold from
or pay on behalf of or with respect to such Limited Partner any amount of
federal, state, local, or foreign taxes that the General Partner determines that
the Partnership is required to withhold or pay with respect to any amount
distributable or allocable to such Limited Partner pursuant to this Agreement,
including, without limitation, any taxes required to be withheld or paid by the
Partnership pursuant to Sections 1441, 1442, 1445, or 1446 of the Code. Any such
amount paid on behalf of or with respect to a Limited Partner shall constitute a
loan by the Partnership to such Limited Partner, which loan shall be repaid by
such Limited Partner within fifteen (15) days after notice from the General
Partner that such repayment must be made, unless (i) the Partnership withholds
such repayment from a distribution which would otherwise be made to the Limited
Partner or (ii) the General Partner determines, in its sole and absolute
discretion, that such repayment may be satisfied out of the available funds of
the Partnership which would, but for such repayment, be distributed to the
Limited Partner. Any amounts withheld pursuant to the foregoing clauses (i) or
(ii) shall be treated as having been distributed to such Limited Partner. Each
Limited Partner hereby unconditionally and irrevocably grants to the Partnership
a security interest in such Limited Partner's Partnership Interest to secure
such Limited Partner's obligation to pay to the Partnership any amounts required
to be paid pursuant to this Section 10.5. In the event that a Limited Partner
fails to pay any amounts owed to the Partnership pursuant to this Section 10.5
when due, the General Partner may, in its sole and absolute discretion, elect to
make the payment to the Partnership on behalf of such defaulting Limited
Partner, and in such event shall be deemed to have loaned such amount to such
defaulting Limited Partner. Without limitation, in such event the General
Partner (i) shall have the right to receive distributions that would otherwise
be distributable to such defaulting Limited Partner until such time as such
loan, together with all interest thereon, has been paid in full, and any such
distributions so received by the General Partner shall be treated as having been
distributed to the defaulting Limited Partner and
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immediately paid by the defaulting Limited Partner to the General Partner in
repayment of such loan and (ii) shall succeed to all rights and remedies of the
Partnership as against such defaulting Limited Partner. Any amounts payable by a
Limited Partner hereunder shall bear interest at the lesser of (A) the base rate
on corporate loans at large United States money center commercial banks, as
published from time to time in the Wall Street Journal, plus four (4) percentage
points, or (B) the maximum lawful rate of interest on such obligation, such
interest to accrue from the date such amount is due (i.e., fifteen (15) days
after demand) until such amount is paid in full. Each Limited Partner shall take
such actions as the Partnership or the General Partner shall request in order to
perfect or enforce the security interest created hereunder.
ARTICLE 11
TRANSFERS AND WITHDRAWALS
Section 11.1 Transfer
A. The term "transfer", when used in this Article 11 with respect to a
Partnership Unit, shall be deemed to refer to a transaction by which the General
Partner purports to assign all or any part of its General Partner Interest to
another Person or by which a Limited Partner purports to assign all or any part
of its Limited Partner Interest to another Person, and includes a sale,
assignment, gift, pledge, encumbrance, hypothecation, mortgage, exchange or any
other disposition by law or otherwise. The term "transfer" when used in this
Article 11 does not include any redemption of Partnership Interests by the
Partnership from a Limited Partner or any acquisition of Partnership Units from
a Limited Partner by the General Partner or from the General Partner pursuant to
Section 8.6.
B. No Partnership Interest shall be transferred, in whole or in part,
except in accordance with the terms and conditions set forth in this Article 11.
Any transfer or purported transfer of a Partnership Interest not made in
accordance with this Article 11 shall be null and void.
Section 11.2 Transfer of General Partner's Partnership Interests
A. The General Partner may not transfer any of its General Partner
Interest or Limited Partner Interests or withdraw as General Partner except as
provided in Section 11.2.B or Article 16.
B. The General Partner may transfer Limited Partner Interests held by
it either to the Partnership in accordance with Section 7.5.B hereof or to a
purported holder of REIT Shares in accordance with the provisions of Article 5
of the Articles of Incorporation.
C. If the General Partner is the surviving entity of a merger, it shall
contribute substantially all of the assets acquired in the merger to the
Partnership as a Capital Contribution in exchange for Partnership Units with a
fair market value, as reasonably determined by the General
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Partner, equal to the 704(c) Value of the assets so contributed.
Section 11.3 Limited Partners' Rights to Transfer
A. Subject to the provisions of Sections 11.3.C, 11.3.D, 11.3.E, 11.4
and 11.5, a Limited Partner may transfer, with or without the consent of the
General Partner, all or any portion of its Partnership Interest, or any of such
Limited Partner's economic rights as a Limited Partner.
B. If a Limited Partner is subject to Incapacity, the executor,
administrator, trustee, committee, guardian, conservator or receiver of such
Limited Partner's estate shall have all the rights of a Limited Partner, but not
more rights than those enjoyed by other Limited Partners, for the purpose of
selling or managing the estate and such power as the Incapacitated Limited
Partner possessed to transfer all or any part of his or its interest in the
Partnership. The Incapacity of a Limited Partner, in and of itself, shall not
dissolve or terminate the Partnership.
C. The General Partner may prohibit any transfer by a Limited Partner
of its Partnership Units if, in the opinion of legal counsel to the Partnership,
such transfer would (i) require filing of a registration statement under the
Securities Act of 1933; (ii) otherwise violate any federal or state securities
laws or regulations applicable to the Partnership or the Partnership Unit; or
(iii) cause the Partnership to register the Partnership Units under Section
12(g) of the Securities Exchange Act of 1934, as amended or any successor
provision.
D. No transfer by a Limited Partner of its Partnership Units may be
made to any Person if (i) in the opinion of legal counsel for the Partnership,
it would result in the Partnership being treated as an association taxable as a
corporation, or (ii) such transfer is effectuated through an "established
securities market" or a "secondary market" (or the substantial equivalent
thereof) within the meaning of Section 7704 of the Code.
E. No transfer of any Partnership Units may be made to a lender to the
Partnership or any Person who is related (within the meaning of Regulations
Section 1.752-4(b)) to any lender to the Partnership whose loan constitutes a
Nonrecourse Liability, without the consent of the General Partner, in its sole
and absolute discretion, provided that as a condition to such consent the lender
will be required to enter into an arrangement with the Partnership and the
General Partner to exchange or redeem for the Cash Amount any Partnership Units
in which a security interest is held simultaneously with the time at which such
lender would be deemed to be a partner in the Partnership for purposes of
allocating liabilities to such lender under Section 752 of the Code.
Section 11.4 Substituted Limited Partners
A. No Limited Partner shall have the right to substitute a transferee
as a Limited Partner in his place. The General Partner shall, however, have the
right to consent to the admission of a transferee of the interest of a Limited
Partner pursuant to this Section 11.4 as a
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Substituted Limited Partner, which consent may be given or withheld by the
General Partner in its sole and absolute discretion. The General Partner's
failure or refusal to permit a transferee of any such interests to become a
Substituted Limited Partner shall not give rise to any cause of action against
the Partnership or any Partner.
B. A transferee who has been admitted as a Substituted Limited Partner
in accordance with this Article 11 shall have all the rights and powers and be
subject to all the restrictions and liabilities of a Limited Partner under this
Agreement.
C. Upon the admission of a Substituted Limited Partner, the General
Partner shall amend Exhibit A to reflect the name, address, number of
Partnership Units, and Percentage Interest of such Substituted Limited Partner
and to eliminate or adjust, if necessary, the name, address and interest of the
predecessor of such Substituted Limited Partner.
Section 11.5 Assignees
If the General Partner, in its sole and absolute discretion, does not
consent to the admission of any permitted transferee under Section 11.3 as a
Substituted Limited Partner, as described in Section 11.4, such transferee shall
be considered an Assignee for purposes of this Agreement. An Assignee shall be
deemed to have had assigned to it, and shall be entitled to receive
distributions from the Partnership and the share of Net Income, Net Losses,
Recapture Income, and any other items, gain, loss deduction and credit of the
Partnership attributable to the Partnership Units assigned to such transferee,
but shall not be deemed to be a holder of Partnership Units for any other
purpose under this Agreement, and shall not be entitled to vote such Partnership
Units in any matter presented to the Limited Partners for a vote (such
Partnership Units being deemed to have been voted on such matter in the same
proportion as all other Partnership Units held by Limited Partners are voted).
In the event any such transferee desires to make a further assignment of any
such Partnership Units, such transferee shall be subject to all the provisions
of this Article 11 to the same extent and in the same manner as any Limited
Partner desiring to make an assignment of Partnership Units.
Section 11.6 General Provisions
A. No Limited Partner may withdraw from the Partnership other than as a
result of a permitted transfer of all of such Limited Partner's Partnership
Units in accordance with this Article 11 or pursuant to redemption of all of its
Partnership Units under Section 8.6.
B. Any Limited Partner who shall transfer all of its Partnership Units
in a transfer permitted pursuant to this Article 11 shall cease to be a Limited
Partner upon the admission of all Assignees of such Partnership Units as
Substituted Limited Partners. Similarly, any Limited Partner who shall transfer
all of its Partnership Units pursuant to a redemption of all of its Partnership
Units under Section 8.6 shall cease to be a Limited Partner.
C. Transfers pursuant to this Article 11 may only be made on the first
day of a fiscal quarter of the Partnership, unless the General Partner otherwise
agrees.
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D. If any Partnership Interest is transferred or assigned during any
quarterly segment of the Partnership Year in compliance with the provisions of
this Article 11 or redeemed or transferred pursuant to Section 8.6, on any day
other than the first day of a Partnership Year, then Net Income, Net Losses,
each item thereof and all other items attributable to such interest for such
Partnership Year shall be divided and allocated between the transferor Partner
and the transferee Partner by taking into account their varying interests during
the Partnership Year in accordance with Section 706(d) of the Code, using the
interim closing of the books method. Solely for purposes of making such
allocations, each of such items for the calendar month in which the transfer or
assignment occurs shall be allocated to the transferee Partner, and none of such
items for the calendar month in which a redemption occurs shall be allocated to
the Redeeming Partner. All distributions of Available Cash attributable to such
Partnership Unit with respect to which the Partnership Record Date is before the
date of such transfer, assignment, or redemption shall be made to the transferor
Partner or the Redeeming Partner, as the case may be, and in the case of a
transfer or assignment other than a redemption, all distributions of Available
Cash thereafter attributable to such Partnership Unit shall be made to the
transferee Partner.
ARTICLE 12
ADMISSION OF PARTNERS
Section 12.1 Admission of Successor General Partner
A successor to all of the General Partner Interest pursuant to Section
11.2 hereof who is proposed to be admitted as a successor General Partner shall
be admitted to the Partnership as the General Partner, effective upon such
transfer. Any such transferee shall carry on the business of the Partnership
without dissolution. In each case, the admission shall be subject to the
successor General Partner executing and delivering to the Partnership an
acceptance of all of the terms and conditions of this Agreement and such other
documents or instruments as may be required to effect the admission. In the case
of such admission on any day other than the first day of a Partnership Year, all
items attributable to the General Partner Interest for such Partnership year
shall be allocated between the transferring General Partner and such successor
as provided in Section 11.6.D hereof.
Section 12.2 Admission of Additional Limited Partners
A. After the admission to the Partnership of the initial Limited
Partners on the date hereof, a Person who makes a Capital Contribution to the
Partnership in accordance with this Agreement shall be admitted to the
Partnership as an Additional Limited Partner only upon furnishing to the General
Partner (i) evidence of acceptance in form satisfactory to the General Partner
of all of the terms and conditions of this Agreement, including, without
limitation, the power of attorney granted in Section 2.4 hereof and (ii) such
other documents or instruments as may be required in the discretion of the
General Partner in order to effect such Person's admission
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as an Additional Limited Partner.
B. Notwithstanding anything to the contrary in this Section 12.2, no
Person shall be admitted as an Additional Limited Partner without the consent of
the General Partner, which consent may be given or withheld in the General
Partner's sole and absolute discretion. The admission of any Person as an
Additional Limited Partner shall become effective on the date upon which the
name of such Person is recorded on the books and records of the Partnership,
following the consent of the General Partner to such admission.
C. If any Additional Limited Partner is admitted to the Partnership on
any day other than the first day of a Partnership Year, then Net Income, Net
Losses, each item thereof and all other items allocable among Partners and
Assignees for such Partnership Year shall be allocated among such Additional
Limited Partner and all other Partners and Assignees by taking into account
their varying interests during the Partnership Year in accordance with Section
706(d) of the Code, using the interim closing of the books method. Solely for
purposes of making such allocations, each of such items for the calendar month
in which an admission of any Additional Limited Partner occurs shall be
allocated among all the Partners and Assigns including such Additional Limited
Partner. All distributions of Available Cash with respect to which the
Partnership Record Date is before the date of such admission shall be made
solely to Partners and Assignees other than the Additional Limited Partner and
all distributions of Available Cash thereafter shall be made to all of the
Partners and Assignees including such Additional Limited Partner.
Section 12.3 Amendment of Agreement and Certificate of Limited
Partnership
For the admission to the Partnership of any Partner, the General
Partner shall take all steps necessary and appropriate under the Act to amend
the records of the Partnership and, if necessary, to prepare as soon as
practical an amendment of this Agreement (including an amendment of Exhibit A)
and, if required by law, shall prepare and file an amendment to the Certificate
and may for this purpose exercise the power of attorney granted pursuant to
Section 2.4 hereof.
ARTICLE 13
DISSOLUTION, LIQUIDATION AND TERMINATION
Section 13.1 Dissolution
The Partnership shall not be dissolved by the admission of Substituted
Limited Partners or Additional Limited Partners or by the admission of a
successor General Partner in accordance with the terms of this Agreement. Upon
the withdrawal of the General Partner, any successor General Partner shall
continue the business of the Partnership. The Partnership shall dissolve, and
its affairs shall be wound up, upon the first to occur of any of the following
("Dissolution Events"):
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A. the expiration of its term as provided in Section 2.5 hereof.
B. an event of withdrawal of the General Partner, as defined in the Act
(other than an event of bankruptcy), unless within ninety (90) days after such
event of withdrawal a majority in interest of the remaining Partners agree in
writing to continue the business of the Partnership and to the appointment,
effective as of the date of withdrawal, of a successor General Partner;
C. from and after the date of this Agreement through December 31, 2046,
an election to dissolve the Partnership made by the General Partner;
D. on or after January 1, 2044 an election to dissolve the Partnership
made by the General
Partner, in its sole and absolute discretion;
E. entry of a decree of judicial dissolution of the Partnership
pursuant to the provisions of the Act;
F. the sale of all or substantially all of the assets and properties of
the Partnership; or
G. a final and non-appealable judgment is entered by a court of
competent jurisdiction ruling that the General Partner is bankrupt or insolvent,
or a final and non-appealable order for relief is entered by a court with
appropriate jurisdiction against the General Partner, in each case under any
federal or state bankruptcy or insolvency laws as now or hereafter in effect,
unless prior to the entry of such order or judgment all of the remaining
Partners agree in writing to continue the business of the Partnership and to the
appointment, effective as of a date prior to the date of such order or judgment,
of a substitute General Partner.
Section 13.2 Winding Up
A. Upon the occurrence of a Dissolution Event or a Terminating Capital
Transaction, the Partnership shall continue solely for the purposes of winding
up its affairs in an orderly manner, liquidating its assets, and satisfying the
claims of its creditors and Partners. No Partner shall take any action that is
inconsistent with, or not necessary to or appropriate for, the winding up of the
Partnership's business and affairs. The General Partner, or, in the event there
is no remaining General Partner, any Person elected by a majority in interest of
the Limited Partners (the General Partner or such other Person being referred to
herein as the "Liquidator"), shall be responsible for overseeing the winding up
and dissolution of the Partnership and shall take full account of the
Partnership's liabilities and property and the Partnership property shall be
liquidated as promptly as is consistent with obtaining the fair value thereof,
and the proceeds therefrom (which may, to the extent determined by the General
Partner, include shares of stock in the General Partner) shall be applied and
distributed in the following order:
(1) First, to the payment and discharge of all of the
Partnership's debts and liabilities to creditors
other than the Partners;
(2) Second, to the payment and discharge of all of the
Partnership's debts and
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liabilities to the General Partner;
(3) Third, to the payment and discharge of all of the
Partnership's debts and liabilities to the other
Partners; and
(4) The balance, if any, after giving effect to all
contributions, distributions, and allocations for all
periods, to those Partners with positive Capital
Account balances, to the extent of such positive
Capital Account balances.
The General Partner shall not receive any additional compensation for any
services performed pursuant to this Article 13.
B. Notwithstanding the provisions of Section 13.2.A hereof which
require liquidation of the assets of the Partnership, but subject to the order
of priorities set forth therein, if prior to or upon dissolution of the
Partnership, the Liquidator determines that an immediate sale of part or all of
the Partnership's assets would be impractical or would cause undue loss to the
Partners, the Liquidator may, in its sole and absolute discretion, defer for a
reasonable time the liquidation of any assets except those necessary to satisfy
liabilities of the Partnership (including those to Partners as creditors) and/or
distribute to the Partners, in lieu of cash, as tenants in common and in
accordance with the provisions of Section 13.2.A hereof, undivided interests in
such Partnership assets as the Liquidator deems not suitable for liquidation.
Any such distributions in kind shall be made only if, in the good faith judgment
of the Liquidator, such distributions in kind are in the best interest of the
Partners, and shall be subject to such conditions relating to the disposition
and management of such properties as the Liquidator deems reasonable and
equitable and to any agreements governing the operation of such properties at
such time. The Liquidator shall determine the fair market value of any property
distributed in kind using such reasonable method of valuation as it may adopt.
C. In the discretion of the Liquidator, a pro rata portion of the
distributions that would otherwise be made to the General Partner and Limited
Partners pursuant to this Article 13 may be:
(1) distributed to a trust established for the benefit of
the General Partner and Limited Partners for the
purposes of liquidating Partnership assets,
collecting amounts owed to the Partnership, and
paying any contingent or unforeseen liabilities or
obligations of the Partnership or the General Partner
arising out of or in connection with the Partnership.
The assets of any such trust shall be distributed to
the General Partner and Limited Partners from time to
time, in the reasonable discretion of the Liquidator,
in the same proportions as the amount distributed to
such trust by the Partnership would otherwise have
been distributed to the General Partner and Limited
Partners pursuant to this Agreement; or
(2) withheld or escrowed to provide a reasonable reserve
for Partnership liabilities (contingent or otherwise)
and to reflect the unrealized portion of
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any installment obligations owed to the Partnership,
provided that such withheld or escrowed amounts shall
be distributed to the General Partner and Limited
Partners in the manner and order of priority set
forth in Section 13.2.A as soon as practicable.
Section 13.3 Negative Capital Accounts
No Partner, General or Limited, shall be liable to the Partnership or
to any other Partner for any negative balance outstanding in each such Partner's
Capital Account, whether such negative Capital Account results from the
allocation of Net Losses or other items of deduction and loss to such Partner or
from distributions to such Partner.
Section 13.4 Deemed Distribution and Recontribution
Notwithstanding any other provision of this Article 13, in the event
the Partnership is considered liquidated within the meaning of Regulations
Section 1.704-l(b)(2)(ii)(g), but no Dissolution Event has occurred, the
Partnership's property shall not be liquidated, the Partnership's liabilities
shall not be paid or discharged, and the Partnership's affairs shall not be
wound up. Instead, for federal income tax purposes and for purposes of
maintaining Capital Accounts pursuant to Exhibit B hereto, the Partnership shall
be deemed to have distributed the property in kind to the General Partner and
Limited Partners, who shall be deemed to have assumed and taken such property
subject to all Partnership liabilities, all in accordance with their respective
Capital Accounts. Immediately thereafter, the General Partner and Limited
Partners shall be deemed to have recontributed the Partnership property in kind
to the Partnership, which shall be deemed to have assumed and taken such
property subject to all such liabilities.
Section 13.5 Rights of Limited Partners
Except as otherwise provided in this Agreement, each Limited Partner
shall look solely to the assets of the Partnership for the return of its Capital
Contributions and shall have no right or power to demand or receive property
other than cash from the Partnership. Except as otherwise provided in this
Agreement, no Limited Partner shall have priority over any other Partner as to
the return of its Capital Contributions, distribution or allocations.
Section 13.6 Notice of Dissolution
In the event a Dissolution Event occurs or an event occurs that would,
but for the provisions of an election or objection by one or more Partners
pursuant to Section 13.1, result in a dissolution of the Partnership, the
General Partner shall provide within thirty (30) days thereafter written notice
thereof to each of the Partners.
Section 13.7 Termination of Partnership and Cancellation of
Certificate of Limited Partnership
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Upon the completion of the liquidation of the Partnership cash and
property as provided in Section 13.2 hereof, the Partnership shall be
terminated, a certificate of cancellation shall be filed, and all qualifications
of the Partnership as a foreign limited partnership in jurisdictions other than
the State of North Carolina shall be canceled and such other actions as may be
necessary to terminate the Partnership shall be taken.
Section 13.8 Reasonable Time for Winding-Up
A reasonable time shall be allowed for the orderly winding-up of the
business and affairs of the Partnership and the liquidation of its assets
pursuant to Section 13.2 hereof, in order to minimize any losses otherwise
attendant upon such winding-up, and the provisions of this Agreement shall
remain in effect between the Partners during the period of liquidation.
Section 13.9 Waiver of Partition
Each Partner hereby waives any right to partition of the Partnership
property.
ARTICLE 14
AMENDMENT OF PARTNERSHIP AGREEMENT; MEETINGS
Section 14.1 Amendments
A. Amendments to this Agreement may be proposed by the General Partner
or by any Limited Partners holding ten percent (10%) or more of the Partnership
Interests. Following such proposal, the General Partner shall submit any
proposed amendment to the Limited Partners. The General Partner shall seek the
written vote of the Partners on the proposed amendment or shall call a meeting
to vote thereon and to transact any other business that it may deem appropriate.
For purposes of obtaining a written vote, the General Partner may require a
response within a reasonable specified time, but not less than fifteen (15)
days, and failure to respond in such time period shall constitute a vote which
is consistent with the General Partner's recommendation with respect to the
proposal. Except as provided in Section 7.3.A, 7.3.B, 13.1.C, 14.1.B, 14.1.C or
14.1.D, a proposed amendment shall be adopted and be effective as an amendment
hereto if it is approved by the General Partner and it receives the Consent of
Partners holding a majority of the Percentage Interests of the Limited Partners
(including Limited Partner Interests held by the General Partner).
B. Notwithstanding Section 14.1.A, the General Partner shall have the
power, without the consent of the Limited Partners, to amend this Agreement as
may be required to facilitate or implement any of the following purposes:
(1) to add to the obligations of the General Partner or
surrender any right or power granted to the General
Partner or any Affiliate of the General Partner for
the benefit of the Limited Partners;
44
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(2) to reflect the admission, substitution, termination,
or withdrawal of Partners in accordance with this
Agreement;
(3) to set forth the designations, rights, powers,
duties, and preferences of the holders of any
additional Partnership Interests issued pursuant to
Section 4.2.A hereof;
(4) to reflect a change that is of an inconsequential
nature and does not adversely affect the Limited
Partners in any material respect, or to cure any
ambiguity, correct or supplement any provision in
this Agreement not inconsistent with law or with
other provisions, or make other changes with respect
to matters arising under this Agreement that will not
be inconsistent with law or with the provisions of
this Agreement; and
(5) to satisfy any requirements, conditions, or
guidelines contained in any order, directive,
opinion, ruling or regulation of a federal or state
agency or contained in federal or state law.
The General Partner shall provide notice to the Limited Partners when any action
under this Section 14.1.B is taken.
C. Notwithstanding Section 14.1.A and 14.1.B hereof, this Agreement
shall not be amended without the Consent of each Partner adversely affected if
such amendment would (i) convert a Limited Partner's interest in the Partnership
into a General Partner Interest, (ii) modify the limited liability of a Limited
Partner in a manner adverse to such Limited Partner, (iii) alter rights of the
Partner to receive distributions pursuant to Article 5 or Article 13, or the
allocations specified in Article 6 (except as permitted pursuant to Section 4.2
and Section 14.1.B(3) hereof), (iv) alter or modify the Redemption Right and
REIT Shares Amount as set forth in Section 8.6, and the related definitions, in
a manner adverse to such Partner, (v) cause the termination of the Partnership
prior to the time set forth in Sections 2.5 or 13.1, or (vi) amend this Section
14.1.C. Further, no amendment may alter the restrictions on the General
Partner's authority set forth in Section 7.3 without the Consent specified in
that section.
D. Notwithstanding Section 14.1.A or Section 14.1.B hereof, the General
Partner shall not amend Sections 4.2.A, 7.5, 7.6, 11.2, 14.1.A or 14.2 without
the Consent of 75% of the Percentage Interests of the Limited Partners excluding
Limited Partners Interests held by the General Partner.
Section 14.2 Meetings of the Partners
A. Meetings of the Partners may be called by the General Partner and
shall be called upon the receipt by the General Partner of a written request by
Limited Partners holding twenty percent (20) or more of the Percentage
Interests. The call shall state the nature of the business to be transacted and
notice of any such meeting shall be given to all Partners not less than seven
(7)
45
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days nor more than thirty (30) days prior to the date of such meeting. Partners
may vote in person or by proxy at such meeting. Whenever the vote or Consent of
the Partners is permitted or required under this Agreement, such vote or Consent
may be given at a meeting of the Partners or may be given in accordance with the
procedure prescribed in Section 14.1A hereof. Except as otherwise expressly
provided in this Agreement, the Consent of holders of a majority of the
Percentage Interests held by Limited Partners (including Limited Partnership
Interests held by the General Partner) shall control.
B. Any action required or permitted to be taken at a meeting of the
Partners may be taken without a meeting if a written consent setting forth the
action so taken is signed by 75% of the Percentage Interests of the Partners (or
such other percentage as is expressly required by this Agreement). Such consent
may be in one instrument or in several instruments and shall have the same force
and effect as a vote of 75% of the Percentage Interests of the Partners (or such
other percentage as is expressly required by this Agreement). Such consent shall
be filed with the General Partner. An action so taken shall be deemed to have
been taken at a meeting held on the effective date so certified.
C. Each Limited Partner may authorize any Person or Persons to act for
him by proxy on all matters in which a Limited Partner is entitled to
participate, including waiving notice of any meeting, or voting or participating
at a meeting. Every proxy must be signed by the Limited Partner or his
attorney-in-fact. No proxy shall be valid after the expiration of eleven (11)
months from the date thereof unless otherwise provided in the proxy. Every proxy
shall be revocable at the pleasure of the Limited Partner executing it, such
revocation to be effective upon the Partnership's receipt of written notice of
such revocation from the Limited Partner executing such proxy.
D. Each meeting of the Partners shall be conducted by the General
Partner or such other Person as the General Partner may appoint pursuant to such
rules for the conduct of the meeting as the General Partner or such other Person
deems appropriate. Without limitation, meetings of Partners may be conducted in
the same manner as meetings of the shareholders of the General Partner and may
be held at the same time, and as part of, meetings of the shareholders of the
General Partner.
ARTICLE 15
GENERAL PROVISIONS
Section 15.1 Addresses and Notice
Any notice, demand, request or report required or permitted to be given
or made to a Partner or Assignee under this Agreement shall be in writing and
shall be deemed given or made when delivered in person or when sent by first
class United States mail or by other means of written communication to the
Partner or Assignee at the address set forth in Exhibit A or such other address
of which the Partner shall notify the General Partner in writing.
Section 15.2 Titles and Captions
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All article or section titles or captions in this Agreement are for
convenience only. They shall not be deemed part of this Agreement and in no way
define, limit, extend or describe the scope or intent of any provisions hereof.
Except as specifically provided otherwise, references to "Articles" and
"Sections" are to Articles and Sections of this Agreement.
Section 15.3 Pronouns and Plurals
Whenever the context may require, any pronoun used in this Agreement
shall include the plural and vice versa.
Section 15.4 Further Action
The parties shall execute and deliver all documents, provide all
information and take or refrain from taking action as may be necessary or
appropriate to achieve the purpose of this Agreement.
Section 15.5 Binding Effect
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their heirs, executors, administrators, successors, legal
representatives and permitted assigns.
Section 15.6 Creditors
Other than as expressly set forth herein with respect to the
Indemnities, none of the provisions of this Agreement shall be for the benefit
of, or shall be enforceable by, any creditors of the Partnership.
Section 15.7 Waiver
No failure by any party to insist upon the strict performance of any
covenant, duty, agreement or condition of this Agreement or to exercise any
right or remedy consequent upon a breach thereof shall constitute waiver of any
such breach or any other covenant, duty, agreement or condition.
Section 15.8 Counterparts
This Agreement may be executed in counterparts, all of which together
shall constitute one agreement binding on all the parties hereto,
notwithstanding that all such parties are not signatories to the original or the
same counterpart. Each party shall become bound by this Agreement immediately
upon affixing its signature hereto.
Section 15.9 Applicable Law
This Agreement shall be construed and enforced in accordance with and
governed by the laws of the State of Delaware, without regard to the principles
of conflicts of law.
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Section 15.10 Invalidity of Provisions
If any provision of this Agreement is or becomes invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained herein shall not be affected thereby.
Section 15.11 Entire Agreement
This Agreement contains the entire understanding and agreement among
the Partners with respect to the subject matter hereof and supersedes the Prior
Agreement and any other prior written or oral understandings or agreement among
them with respect thereto.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.
GENERAL PARTNER:
FAC REALTY TRUST, INC.
By:
-------------------
Title:
-------------------
[CORPORATE SEAL]
ORGANIZATIONAL LIMITED PARTNER
--------------------------------
LIMITED PARTNERS:
By:
----------------------------------
By:
----------------------------------
By:
----------------------------------
By:
----------------------------------
By:
----------------------------------
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By:
----------------------------------
By:
----------------------------------
50
<PAGE>
EXHIBIT A
PARTNERS, CONTRIBUTIONS AND PARTNERSHIP INTERESTS
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------------
Name and Address Cash Agreed Value of Total Partnership Percentage
of Partners Contribution Contributed Property Contribution Units Units Interest
- ------------------------- ------------ -------------------- ------------ ----- ------
<S> <C> <C> <C> <C> <C> <C>
---------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------------
General Partner
--------------------------------------------------------------------------------------------------------------------------------
FAC Realty Trust, Inc.
11000 Regency Parkway
Suite 300
Cary, North Carolina 27511
---------------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------------
Limited Partners
-----------------------
------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
EXHIBIT B
CAPITAL ACCOUNT MAINTENANCE
1. Capital Accounts of the Partners
A. The Partnership shall maintain for each Partner a separate Capital
Account in accordance with the rules of Regulations Section 1.704-l(b)(2)(iv).
Such Capital Account shall be increased by (i) the amount of all Capital
Contributions and any other deemed contributions made by such Partner to the
Partnership pursuant to this Agreement and (ii) all items of Partnership income
and gain (including income and gain exempt from tax) computed in accordance with
Section 1.B hereof and allocated to such Partner pursuant to Section 6.1.A of
the Agreement and Exhibit C hereof, and decreased by (x) the amount of cash or
Agreed Value of all actual and deemed distributions of cash or property made to
such Partner pursuant to this Agreement and (y) all items of Partnership
deduction and loss computed in accordance with Section 1.B hereof and allocated
to such Partner pursuant to Section 6.1.B of the Agreement and Exhibit C hereof.
B. For purposes of computing the amount of any item of income, gain,
deduction or loss to be reflected in the Partners' Capital Accounts, unless
otherwise specified in this Agreement, the determination, recognition and
classification of any such item shall be the same as its determination,
recognition and classification for federal income tax purposes determined in
accordance with Section 703(a) of the Code (for this purpose all items of
income, gain, loss or deduction required to be stated separately pursuant to
Section 703(a)(1) of the Code shall be included in taxable income or loss), with
the following adjustments:
(1) Except as otherwise provided in Regulations Section
1.704-l(b)(2)(iv)(m), the computation of all items of
income, gain, loss and deduction shall be made
without regard to any election under Section 754 of
the Code which may be made by the Partnership,
provided that the amounts of any adjustments to the
adjusted bases of the assets of the Partnership made
pursuant to Section 734 of the Code as a result of
the distribution of property by the Partnership to a
Partner (to the extent that such adjustments have not
previously been reflected in the Partners' Capital
Accounts) shall be reflected in the Capital Accounts
of the Partners in the manner and subject to the
limitations prescribed in Regulations Section
1.704-1(b)(2)(iv)(m)(4).
(2) The computation of all items of income, gain, and
deduction shall be made without regard to the fact
that items described in Section 705(a)(2)(B) of the
Code are not includible in gross income or are
neither currently deductible nor capitalized for
federal income tax purposes.
(3) Any income, gain or loss attributable to the taxable
disposition of any Partnership property shall be
determined as if the adjusted basis of such property
as of such date of disposition were equal in amount
to the Partnership's Carrying Value with respect to
such property as of such date.
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<PAGE>
(4) In lieu of the depreciation, amortization and other
cost recovery deductions taken into account in
computing such taxable income or loss, there shall be
taken into account Depreciation for such fiscal year.
(5) In the event the Carrying Value of any Partnership
Asset is adjusted pursuant to Section 1.D hereof, the
amount of any such adjustment shall be taken into
account as gain or loss from the disposition of such
asset.
(6) Any items specifically allocated under Section 2 of
Exhibit C hereof shall not be taken into account.
---------
C. Generally, a transferee (including an Assignee) of a Partnership
Unit shall succeed to a pro rata portion of the Capital Account of the
transferor; provided, however, that, if the transfer causes a termination of the
Partnership under Section 708(b)(1)(B) of the Code, the Partnership's properties
shall be deemed, solely for federal income tax purposes, to have been
distributed in liquidation of the Partnership to the holders of Partnership
Units (including such transferee) and recontributed by such Persons in
reconstitution of the Partnership. In such event, the Carrying Values of the
Partnership properties shall be adjusted immediately prior to such deemed
distribution pursuant to Section 1.D(2) hereof. The Capital Accounts of such
reconstituted Partnership shall be maintain in accordance with the principles of
this Exhibit B.
D. (1) Consistent with the provisions of Regulations
Section 1.704-l(b)(2)(iv)(f), and as provided in
Section l.D(2), the Carrying Value of all Partnership
assets shall be adjusted upward or downward to
reflect any Unrealized Gain or Unrealized Loss
attributable to such Partnership property, as of the
times of the adjustments provided in Section l.D(2)
hereof, as if such Unrealized Gain or Unrealized Loss
had been recognized on an actual sale of each such
property and allocated pursuant to Section 6.1 of the
Agreement.
(2) Such adjustments shall be made as of the following
times: (a) immediately prior to the acquisition of an
additional interest in the Partnership by any new or
existing Partner in exchange for more than a de
minimis Capital Contribution; (b) immediately prior
to distribution by the Partnership to a Partner of
more than a de minimis amount of property as
consideration for an interest in the Partnership; and
(c) immediately prior to the liquidation of the
Partnership within the meaning of Regulations Section
1.704-1(b)(2)(ii)(g), provided, however, that
adjustments pursuant to clauses (a) and (b) above
shall be made only if the General Partner determines
that such adjustments are necessary or appropriate to
reflect the relative economic interests of the
Partners in the Partnership.
(3) In accordance with Regulations Section
1.704-l(b)(2)(iv)(e), the Carrying
<PAGE>
Value of Partnership assets distributed in kind shall
be adjusted upward or downward to reflect any
Unrealized Gain or Unrealized Loss attributable to
such Partnership property, as of the time any such
asset is distributed.
(4) In determining Unrealized Gain or Unrealized Loss for
purposes of this Exhibit B, the aggregate cash amount
and fair market value of all Partnership assets
(including cash or cash equivalents) shall be
determined by the General Partner using such
reasonable method of valuation as it may adopt, or in
the case of a liquidating distribution pursuant to
Article 13 of the Agreement, shall be determined and
allocated by the Liquidator using such reasonable
methods of valuation as it may adopt. The General
Partner, or the Liquidator, as the case may be, shall
allocate such aggregate value among the assets of the
Partnership (in such manner as it determines in its
sole and absolute discretion to arrive at a fair
market value for individual properties).
E. The provisions of this Agreement (including this Exhibit B and other
Exhibits to this Agreement) relating to the maintenance of Capital Accounts are
intended to comply with Regulations Section 1.704-1(b), and shall be interpreted
and applied in a manner consistent with such Regulations. In the event the
General Partner shall determine that it is prudent to modify the manner in which
the Capital Accounts, or any debits or credits thereto (including, without
limitation, debits or credits relating to liabilities which are secured by
contributed or distributed property or which are assumed by the Partnership, the
General Partner, or the Limited Partners) are computed in order to comply with
such Regulations, the General Partner may make such modification without regard
to Article 14 of the Agreement, provided that it is not likely to have a
material effect on the amounts distributable to any Person pursuant to Article
13 of the Agreement upon the dissolution of the Partnership. The General Partner
also shall (i) make any adjustments that are necessary or appropriate to
maintain equality between the Capital Accounts of the Partners and the amount of
Partnership capital reflected on the Partnership's balance sheet, as computed
for book purposes in accordance with Regulations Section 1.704-1(b)(2)(iv)(q),
and (ii) make any appropriate modifications in the event unanticipated events
might otherwise cause this Agreement not to comply with Regulations Section
1.704-1(b).
2. No Interest
No interest shall be paid by the Partnership on Capital Contributions
or on balances in Partners' Capital Accounts.
3. No Withdrawal
No Partner shall be entitled to withdraw any part of his Capital
Contribution or his Capital Account or to receive any distribution from the
Partnership, except as provided in Articles 4, 5, 7 and 13 of the Agreement.
3
<PAGE>
EXHIBIT C
SPECIAL ALLOCATION RULES
1. Special Allocation Rules
Notwithstanding any other provision of the Agreement or this Exhibit C,
the following special allocations shall be made in the following order:
A. Minimum Gain Chargeback. Notwithstanding the provisions of Section
6.1 of the Agreement or any other provisions of this Exhibit C, if there is a
net decrease in Partnership Minimum Gain during any Partnership Year, each
Partner shall be specially allocated items of Partnership income and gain for
such year (and, if necessary, subsequent years) in an amount equal to such
Partner's share of the net decrease in Partnership Minimum Gain, as determined
under Regulations Section 1.704-2(g). Allocations pursuant to the previous
sentence shall be made in proportion to the respective amounts required to be
allocated to each Partner pursuant thereto. The items to be so allocated shall
be determined in accordance with Regulations Section 1.704-2(f)(6). This Section
1.A is intended to comply with the minimum gain chargeback requirements in
Regulations Section 1.704-2(f) and shall be interpreted consistently therewith.
Solely for purposes of this Section 1.A, each Partner's Adjusted Capital Account
Deficit shall be determined prior to any other allocations pursuant to Section
6.1 during such Partnership Year.
B. Partner Minimum Gain Chargeback. Notwithstanding any other provision
of Section 6.1 of this Agreement or any other provisions of this Exhibit C
(except Section l.A hereof), if there is a net decrease in Partner Minimum Gain
attributable to a Partner Nonrecourse Debt during any Partnership Year, each
Partner who has a share of the Partner Minimum Gain attributable to such Partner
Nonrecourse Debt, determined in accordance with Regulations Section
1.704-2(i)(5), shall be specially allocated items of Partnership income and gain
for such year (and, if necessary, subsequent years) in an amount equal to such
Partner's share of the net decrease in Partner Minimum Gain attributable to such
Partner Nonrecourse Debt, determined in accordance with Regulations Section
1.704-2(i)(5). Allocations pursuant to the previous sentence shall be made in
proportion to the respective amounts required to be allocated to each Partner
pursuant thereto. The items to be so allocated shall be determined in accordance
with Regulations Section 1.704-2(i)(4). This Section 1.B is intended to comply
with the minimum gain chargeback requirement in such Section of the Regulations
and shall be interpreted consistently therewith. Solely for purposes of this
Section l.B, each Partner's Adjusted Capital Account Deficit shall be determined
prior to any other allocations pursuant to Section 6.1 of the Agreement or this
Exhibit with respect to such Partnership Year, other than allocations pursuant
to Section l.A hereof.
C. Qualified Income Offset. In the event any Partner unexpectedly
receives any adjustments, allocations or distributions described in Regulations
Sections 1.704-1(b)(2)(ii)(d)(4), 1.704-l(b)(2)(ii)(d)(5) or
1.704-1(b)(2)(ii)(d)(6), and after giving effect to the allocations required
under Sections l.A and l.B hereof, such Partner has an Adjusted Capital Account
Deficit, items of
<PAGE>
Partnership income and gain (consisting of a pro rata portion of each item of
Partnership income, including gross income and gain for the Partnership Year)
shall be specifically allocated to such Partner in an amount and manner
sufficient to eliminate, to the extent required by the Regulations, its Adjusted
Capital Account Deficit created by such adjustments, allocations or
distributions as quickly as possible.
D. Nonrecourse Deductions. Nonrecourse Deductions for any Partnership
Year shall be allocated to the Partners in accordance with their respective
Percentage Interests. If the General Partner determines in its good faith
discretion that the Partnership's Nonrecourse Deductions must be allocated in a
different ratio to satisfy the safe harbor requirements of the Regulations
promulgated under Section 704(b) of the Code, the General Partner is authorized,
upon notice to the Limited Partners, to revise the prescribed ratio to the
numerically closest ratio for such Partnership Year which would satisfy such
requirements.
E. Partner Nonrecourse Deductions. Any Partner Nonrecourse Deductions
for any Partnership Year shall be specially allocated to the Partner who bears
the economic risk of loss with respect to the Partner Nonrecourse Debt to which
such Partner Nonrecourse Deductions are attributable in accordance with
Regulations Section 1.704-2(i).
F. Code Section 754 Adjustments. To the extent an adjustment to the
adjusted tax basis of any Partnership asset pursuant to Section 734(b) or 743(b)
of the Code is required, pursuant to Regulations Section 1.704-1(b)(2)(iv)(m),
to be taken into account in determining Capital Accounts, the amount of such
adjustment to the Capital Accounts shall be treated as an item of gain (if the
adjustment increases the basis of the asset) or loss (if the adjustment
decreases such basis), and such item of gain or loss shall be specially
allocated to the Partners in a manner consistent with the manner in which their
Capital Accounts are required to be adjusted pursuant to such Section of the
Regulations.
2. Allocations for Tax Purposes
A. Except as otherwise provided in this Section 2, for federal income
tax purposes, each item of income, gain, loss and deduction shall be allocated
among the Partners in the same manner as its correlative item of "book" income,
gain, loss or deduction is allocated pursuant to Section 6.1 of the Agreement
and Section 1 of this Exhibit C.
B. In an attempt to eliminate Book-Tax Disparities attributable to a
Contributed Property or Adjusted Property, items of income, gain, loss, and
deduction shall be allocated for federal income tax purposes among the Partners
as follows:
(1) (a) In the case of a Contributed Property, such
items attributable thereto shall be
allocated among the Partners consistent with
the principles of Section 704(c) of the Code
to take into account the variation between
the 704(c) Value of such property and its
adjusted basis at the time of contribution;
and
2
<PAGE>
(b) any item of Residual Gain or Residual Loss
attributable to a Contributed Property shall
be allocated among the Partners in the same
manner as its correlative item of "book"
gain or loss is allocated pursuant to
Section 6.1 of the Agreement and Section 1
of this Exhibit C.
(2) (a) In the case of an Adjusted Property, such
items shall
(1) first, be allocated among the
Partners in a manner consistent with
the principles of Section 704(c) of
the Code to take into account the
Unrealized Gain or Unrealized Loss
attributable to such property and
the allocations thereof pursuant to
Exhibit B, and
(2) second, in the event such property
was originally a Contributed
Property, be allocated among the
Partners in a manner consistent with
Section 2.B(1) of this Exhibit C;
and
(b) any item of Residual Gain or Residual Loss
attributable to an Adjusted Property shall
be allocated among the Partners in the same
manner its correlative item of "book" gain
or loss is allocated pursuant to Section 6.1
of the Agreement and Section 1 of this
Exhibit C.
(3) all other items of income, gain loss and deduction
shall be allocated among the Partners the same manner
as their correlative item of "book" gain or loss is
allocated pursuant to Section 6.1 of the Agreement
and Section 1 of the Exhibit C.
C. The Partnership shall use the "Traditional Method" of making Section
704(c) allocations as provided by Regulations Section 1.704-3(b) to eliminate
the disparities between the Carrying Value of property and its adjusted basis.
3. No Withdrawal
No Partner shall be entitled to withdraw any part of his Capital
Contribution or his Capital Account or to receive any distribution from the
Partnership, except as provided in Articles 4, 5, 8 and 13 of the Agreement.
3
<PAGE>
EXHIBIT D
VALUE OF CONTRIBUTED PROPERTY
Underlying Property 704(c) Value Agreed Value
<PAGE>
EXHIBIT E
NOTICE OF REDEMPTION
The undersigned Limited Partner hereby irrevocably (i) redeems Limited
Partnership Units in FAC Realty Limited Partnership in accordance with the terms
of the Amended and Restated Agreement of Limited Partnership of FAC Realty
Limited Partnership and the Redemption Right referred to therein, (ii)
surrenders such Limited Partnership Units and all right, title and interest
therein, and (iii) directs that the Cash Amount of REIT Shares Amount (as
determined by the General Partner) deliverable upon exercise of the Redemption
Right be delivered to the address specified below, and if REIT Shares are to be
delivered, such REIT Shares be registered or placed in the name(s) and at the
address(es) specified below. The undersigned hereby, represents, warrants, and
certifies that the undersigned (a) has marketable and unencumbered title to such
Limited Partnership Units, free and clear of the rights or interests of any
other person or entity, (b) has the full right, power, and authority to redeem
and surrender such Limited Partnership Units as provided herein, and (c) has
obtained the consent or approval of all person or entities, if any, having the
right to consent or approve such redemption and surrender.
Dated:__________________________
Name of Limited Partner:___________________________________
Please Print
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(Signature of Limited Partner)
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(Street Address)
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(City) (State) (Zip Code)
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Signature Guaranteed by:
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If REIT Shares are to be issued, issue to:
Name:_____________________________________
Please insert social security or identifying number:____________
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EXHIBIT F
INDEMNIFICATION UNDER SECTION 7.7(I)
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Maximum
Limited Partner Indemnification Indemnification
Per Unit Obligation
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EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement and related Prospectus of FAC Realty, Inc. for the
registration of 12,224,229 shares of its common stock and to the incorporation
by reference therein of our reports dated January 31, 1997, with respect to the
consolidated financial statements and schedule of FAC Realty, Inc., included in
its Annual Report (Form 10-K) for the year ended December 31, 1996, and dated
March 7, 1997 with respect to the audited Combined Statement of Revenues and
Certain Expenses of North Hills for the year ended December 31, 1996, included
in its Current Report on Form 8-K dated April 11, 1997 (as amended on Form 8-K/A
dated May 27, 1997), both filed with the Securities and Exchange Commission.
/s/ Ernst & Young LLP
ERNST & YOUNG LLP
Raleigh, North Carolina
October 30, 1997
