FORM 10-Q
Securities and Exchange Commission
Washington, D.C. 20549
[ X ] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended September 30, 1998
OR
[ ] Transition Report Pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
For the transition period from _______ to ________.
Commission File Number 1-11998
KONOVER PROPERTY TRUST, INC.
(Exact name of Registrant as specified in its charter)
Maryland 56-1819372
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
11000 Regency Parkway
Suite 300
Cary, North Carolina
(Address of Principal Executive
Offices)
27511
(Zip Code)
(919) 462-8787
(Registrant's telephone number,
including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
---- ----
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. Date October 31, 1998 Number
of shares outstanding: 31,494,791
<PAGE>
KONOVER PROPERTY TRUST, INC.
INDEX
PART I. FINANCIAL INFORMATION
Page No.
--------
Item 1. Financial Statements (Unaudited)............................ 3
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations......................... 15
PART II. OTHER INFORMATION
Item 1. Legal Proceeding............................................ 29
Item 2. Changes in Securities....................................... 29
Item 3. Defaults Upon Senior Securities............................. 29
Item 4. Submission of Matters to a Vote of Security Holders......... 29
Item 5. Other Information........................................... 29
Item 6. Exhibits and Reports on Form 8-K............................ 29
2
<PAGE>
PART I
Item 1. Financial Statements (Unaudited)
Index to Unaudited Financial Statements
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
Consolidated Balance Sheets as of September 30, 1998 and December 31, 1997 ............................ 4
Consolidated Statements of Operations for the three months ended September 30, 1998 and 1997 ......... 5
Consolidated Statements of Operations for the nine months ended September 30, 1998 and 1997 ........... 6
Consolidated Statements of Stockholders' Equity for the nine months ended September 30, 1998 .......... 7
Consolidated Statements of Cash Flows for the nine months ended September 30, 1998 and 1997 ........... 8
Notes to Consolidated Financial Statements ............................................................ 9
</TABLE>
3
<PAGE>
KONOVER PROPERTY TRUST, INC.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
(Unaudited) (Audited)
-------------------------------
(in thousands)
<S> <C> <C>
Assets
Income producing properties:
Land $ 104,397 $ 81,233
Buildings and improvements 427,944 292,726
Deferred leasing and other charges 26,607 21,366
-------------------------------
558,948 395,325
Accumulated depreciation and amortization (63,526) (50,134)
-------------------------------
495,422 345,191
Properties under development 10,234 6,456
Properties held for sale 6,001 12,490
-------------------------------
511,657 364,137
Other assets:
Cash and cash equivalents 98,184 4,872
Restricted cash 1,627 3,858
Tenant and other receivables 9,173 7,167
Deferred charges and other assets 15,802 8,851
Investment in joint ventures 26,045 4,283
Notes receivable 18,419 10,458
-------------------------------
$ 680,907 $ 403,626
=============================
Liabilities and Stockholders' Equity
Liabilities:
Debt on income properties $ 299,330 $ 232,575
Other unsecured notes 99 197
Capital lease obligations 855 1,131
Accounts payable and other liabilities 18,159 6,796
-------------------------------
318,443 240,699
Commitments and contingencies -- --
Minority interest in Operating Partnership 11,804 --
Stockholders' equity:
Convertible preferred stock, Series A, 5,000,000
shares authorized, 800,000
issued and outstanding 19,162 19,162
Stock purchase warrants 9 9
Common stock, $0.01 par value, 100,000,000 shares
authorized, 31,494,791 and 12,222,157 issued and
outstanding, respectively 315 119
Additional paid-in capital 333,579 145,332
Accumulated deficit (2,098) (1,416)
Deferred compensation - Restricted Stock Plan (307) (279)
-------------------------------
350,660 162,927
=============================
$ 680,907 $ 403,626
=============================
</TABLE>
See accompanying notes.
4
<PAGE>
KONOVER PROPERTY TRUST, INC.
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months ended September 30,
1998 1997
-------------------------------
(in thousands, except per
Rental operations: share data)
<S> <C> <C>
Revenues:
Base rents $ 13,582 $ 9,972
Percentage rents 151 127
Property operating cost recoveries 4,124 3,197
Other income 493 318
-------------------------------
18,350 13,614
-------------------------------
Property operating costs:
Common area maintenance 2,198 1,683
Utilities 424 400
Real estate taxes 1,873 1,405
Insurance 247 131
Marketing 153 290
Other 635 87
-------------------------------
5,530 3,996
Depreciation and amortization 4,912 3,908
-------------------------------
10,442 7,904
-------------------------------
7,908 5,710
-------------------------------
Other expenses:
General and administrative 1,933 1,127
Interest 5,778 4,254
-------------------------------
7,711 5,381
-------------------------------
Income before extraordinary item 197 329
Extraordinary loss on early extinguishment of debt - -
===============================
Net income $ 197 $ 329
===============================
Basic income per common share:
Income before extraordinary item $ 0.01 $ 0.03
Extraordinary item - -
-------------------------------
Net income applicable to common stockholders $ 0.01 $ 0.03
===============================
Weighted-average number of common shares outstanding 17,229 11,815
===============================
Diluted income per common shares:
Income before extraordinary item $ 0.01 $ 0.02
Extraordinary item - -
===============================
Net income applicable to common shareholders $ 0.01 $ 0.02
===============================
Weighted-average number of shares outstanding 20,621 14,037
===============================
</TABLE>
See accompanying notes.
5
<PAGE>
KONOVER PROPERTY TRUST, INC.
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Nine Months ended September 30,
1998 1997
-------------------------------
(in thousands, except per
Rental operations: share data)
<S> <C> <C>
Revenues:
Base rents $ 36,371 $ 28,509
Percentage rents 453 380
Property operating cost recoveries 11,635 9,317
Other income 2,224 805
-------------------------------
50,683 39,011
-------------------------------
Property operating costs:
Common area maintenance 5,851 4,832
Utilities 1,095 877
Real estate taxes 5,146 4,136
Insurance 652 407
Marketing 468 843
Other 1,740 163
-------------------------------
14,952 11,258
Depreciation and amortization 14,470 11,608
-------------------------------
29,422 22,866
-------------------------------
21,261 16,145
-------------------------------
Other expenses:
General and administrative 5,330 5,120
Interest 16,260 12,013
Loss on sale of real estate 353 -
-------------------------------
21,943 17,133
-------------------------------
Loss before extraordinary item (682) (988)
Extraordinary loss on early extinguishment of debt - (986)
===============================
Net loss $ (682) $ (1,974)
===============================
Basic and diluted loss per common share:
Loss before extraordinary item $ (0.05) $ (0.09)
Extraordinary item - (0.08)
-------------------------------
Net loss applicable to common stockholders $ (0.05) $ (0.17)
===============================
Weighted-average number of common shares outstanding 14,475 11,828
===============================
</TABLE>
See accompanying notes.
6
<PAGE>
KONOVER PROPERTY TRUST, INC.
Consolidated Statement of Stockholders' Equity
Nine months ended September 30, 1998
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Deferred
Convertible Stock Additional Compensation
Preferred Purchase Common Paid in Accumulated Restricted
Stock Warrants Stock Capital Deficit Stock Plan Total
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1998 $ 19,162 $ 9 $ 119 $ 145,332 $ (1,416) $ (279) $162,927
Issuance of 6,530 employee stock
purchase plan shares - - - 34 - - 34
Issuance of 34,325 restricted
shares - - - 276 - (276) 0
Issuance of 21,052,632 shares of
common stock at $9.50 per share,
net of expenses - - 211 197,352 - - 197,563
Repurchase of 1,456,500 shares of
common stock - - (15) (10,593) - - (10,608)
Exercise of 7,000 stock options - - - 39 - - 39
Cancellation of 12,922 restricted
shares - - - (106) - 106 0
Repurchase of 5,368 restricted
shares - - - (43) - - (43)
Compensation under stock plans - - - 878 - 142 1,020
Reclass of prior years
compensation under stock plans - - - 410 - - 410
Net loss - - - - (682) - (682)
====================================================================================
Balance at September 30, 1998 $ 19,162 $ 9 $ 315 $ 333,579 $ (2,098) $ (307) $ 350,660
====================================================================================
</TABLE>
See accompanying notes.
7
<PAGE>
KONOVER PROPERTY TRUST, INC.
Consolidated Statement of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Nine months ended
September 30
1998 1997
----------------------
(in thousands)
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (682) $ (1,974)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization 14,470 11,608
Loss on sale of real estate 353 -
Extraordinary loss on early extinguishment of debt - 986
Amortization of deferred financing costs 488 1,168
Compensation under stock plans 1,020 686
Net changes in:
Tenant and other receivables (2,006) 2,100
Deferred charges and other assets (6,540) (295)
Accounts payable and other liabilities 4,328 (2,696)
----------------------
Net cash provided by operating activities 11,431 11,583
----------------------
Cash flows from investing activities:
Investment in income-producing properties (12,232) (11,895)
Proceeds from sale of real estate 5,717 -
Acquisition of income-producing properties, net (17,826) (32,421)
Advances under Notes receivable, net (7,961) -
Investment in joint venture (22,903) -
Change in restricted cash 2,231 14
----------------------
Net cash used in investing activities (52,974) (44,302)
----------------------
Cash flows from financing activities:
Proceeds from debt on income properties 82,721 120,590
Repayment of debt on income properties (133,256) (86,070)
Deferred financing charges (1,221) (1,877)
Other debt repayments (374) -
Net proceeds from sale of common stock 197,563 45
Repurchase of restricted stock (43) (113)
Exercise of stock options 39 -
Issuance of shares under employee stock purchase plan 34 -
Repurchase of common stock (10,608) (247)
----------------------
Net cash provided by financing activities 134,855 32,328
----------------------
Net increase (decrease) in cash and cash equivalents 93,312 (391)
Cash and cash equivalents at beginning of period 4,872 7,034
======================
Cash and cash equivalents at end of period $ 98,184 $ 6,643
======================
Supplemental disclosures of cash flow information:
Cash paid during the period for interest
(net of interest capitalized of $912 and $1,224) $ 16,006 $ 10,969
======================
</TABLE>
See accompanying notes.
8
<PAGE>
1. Interim Financial Statements
Organization
Konover Property Trust, Inc. (the "Company"), formerly FAC Realty Trust,
Inc., was incorporated on March 31, 1993 as a self-administrated and
self-managed real estate investment trust (REIT). The Company is principally
engaged in the acquisition, development, ownership, and operation of community
and outlet shopping centers. The Company's revenues are primarily derived under
real estate leases with national, regional and local retailing companies.
On December 17, 1997, following shareholder approval, the Company changed its
domicile from the State of Delaware to the State of Maryland. The
reincorporation was accomplished through the merger of FAC Realty, Inc. into its
Maryland subsidiary, Konover Property Trust, Inc. (formerly FAC Realty Trust,
Inc.). Following the reincorporation on December 18, 1997, the Company
reorganized as an umbrella partnership real estate investment trust (an
"UPREIT"). The Company then contributed to KPT Properties, L.P. (formerly FAC
Properties, L.P.), a Delaware limited partnership, (the "Operating Partnership")
substantially all of its assets and liabilities, except for legal title to 18
properties, which remain in a wholly owned subsidiary of the Company. In
exchange for the Company's assets, the Company received limited partnership
interests ("Units") in the Operating Partnership in an amount and designation
that corresponded to the number and designation of outstanding shares of capital
stock of the Company at the time. The Company is the sole general partner of 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. As the
Company issues additional shares of capital stock, it will contribute the
proceeds for that capital stock to the Operating Partnership in exchange for a
number of Units equal to the number of shares that the Company issues. The
Company conducts substantially all of its business and owns substantially all of
its assets (either directly or through subsidiaries) through the Operating
Partnership such that a Unit is economically equivalent to a share of the
Company's common stock.
The UPREIT allows the Company to offer Units in the Operating Partnership
in exchange for ownership interests from tax-motivated sellers. Under certain
circumstances, the exchange of Units for a seller's ownership interest will
enable the Operating Partnership to acquire assets while allowing the seller to
defer the tax liability associated with the sale of such assets. Effectively,
this allows the Company to use Units instead of stock to acquire properties,
which provides an advantage over non-UPREIT entities.
As of September 30, 1998, the properties owned by the Company consist of: (1)
48 community shopping centers in 17 states aggregating approximately 5,855,000
square feet; (2) 10 outlet centers in nine states aggregating approximately
2,117,000 square feet; (3) two centers aggregating approximately 167,000 square
feet that are held for sale and (4) approximately 178 acres of outparcel land
located near or adjacent to certain of the Company's centers and 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.
Basis of Presentation
The accompanying consolidated financial statements include the accounts of
the Company, the Operating Partnership and its majority-owned subsidiaries. All
significant intercompany balances have been eliminated in consolidation.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article
9
<PAGE>
10 of Regulation S-X. Accordingly, they do not include all the information and
notes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (primarily
consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the nine-month period
ended September 30, 1998 are not necessarily indicative of results that may be
expected for a full fiscal year. For further information, refer to the audited
financial statements and accompanying footnotes thereto included in the
Company's annual report on Form 10-K for the year ended December 31, 1997.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
2. Significant Accounting Policies
Cash and Cash Equivalents
Cash and cash equivalents includes cash in banks and all highly liquid
investments with original maturities of three months or less.
Basic and diluted earnings per share
The Company has adopted the provisions of SFAS No. 128, "Earnings Per Share".
Under SFAS No. 128, basic earnings per share ("EPS") and diluted EPS replace
primary EPS and fully diluted EPS. Basic EPS is calculated by dividing the
income available to common stockholders by the weighted-average number of common
shares outstanding. Diluted EPS reflects the potential dilution that could occur
if options or warrants to purchase common shares were exercised and preferred
stock was converted into common shares ("potential common shares"). All prior
periods presented have been restated. For the three month periods ended
September 30, 1998 and 1997, basic and diluted EPS are computed based on a
weighted-average number of shares outstanding of 17,229,000 and 11,815,000,
respectively. For the nine months ended September 30, 1998 and 1997, the
weighted-average number of shares outstanding were 14,475,000 and 11,828,000,
respectively. Potential common shares have been excluded from diluted EPS for
the nine months ended September 30, 1998 and 1997 because the effect would be
antidilutive.
For the three months ended September 30, 1998 and 1997, the denominator for
diluted earnings per share is calculated as follows, in thousands:
1998 1997
------ ------
Denominator for weighted-average shares 17,229 11,815
Effect of dilutive securities:
Preferred Stock 2,222 2,222
Employee Stock Options 147 --
Restricted Stock 228 --
Operating Partnership Units 795 --
---------------
Dilutive potential shares 3,392 2,222
---------------
Denominator-Adjusted-weighted-average shares and
assumed conversions 20,621 14,037
===============
Dividends
There were no accrued dividends as of December 31, 1997 and no dividends were
declared during the nine month period ended September 30, 1998.
As authorized by the Company's Board of Directors at a September 11, 1998
meeting, the Company intends to reestablish the annual dividend of $0.50 per
common share, payable at the rate of $0.125 per quarter. The first payment is
10
<PAGE>
expected to be declared and payable during the quarter ended March 31, 1999. A
portion of the dividend payment will be a return of capital, as the Company
expects to utilize its tax net loss carryover in 1999. The dividend will
represent a payout ratio of less than 50% of the Company's funds from operations
(FFO).
Comprehensive Income
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income", which
has been adopted by the Company. As of September 30, 1998 and 1997, the Company
had no items of other comprehensive income.
3. Acquisitions and Significant Transactions
Lazard Freres Transaction
On August 5, 1998, stockholders approved a Stock Purchase Agreement between
Prometheus Southeast Retail, LLC (including its assignee, "PSR"), a real estate
investment affiliate of Lazard Freres Real Estate Investors, LLC, ("Lazard") and
the Company pursuant to which PSR made a $200 million purchase of shares of
Common Stock of the Company at a purchase price of $9.50 per share (the
"Transaction"). The investment was made in stages, at the Company's option,
through September 29, 1998, allowing the Company to obtain capital to fund its
future acquisition and development plans as well as retire debt. Upon completion
of funding, PSR owned an equity interest in the Company of approximately 67%, on
a diluted basis, not including any further issuance of Operating Partnership
Units for transactions under contract or transactions into which the Company may
enter in the future.
As part of the Transaction, as approved by the stockholders, three
representatives of Lazard were nominated to the Company's Board of Directors,
which currently has a total of nine directors.
Pursuant to the Contingent Value Rights Agreement, if PSR has not doubled its
investment (through stock appreciation and dividends) by January 1, 2004, the
Company will pay PSR, in cash or stock, an amount necessary to achieve such a
return, subject to a maximum payment of 4,500,000 shares or the cash value
thereof. Since the Company has the right to settle the contingent value rights
in shares of common stock, the issuance of common stock and the contingent value
rights has been classified as stockholders' equity in the accompanying balance
sheets.
Pursuant to the agreement, the Company will reimburse PSR for its expenses in
connection with the Transaction, including expenses of monitoring the Company
and of performing its duties under the Transaction Documents. These expenses and
Transaction expenses incurred and paid by the Company have totaled approximately
$2.4 million, exclusive of a claim by Donaldson, Lufkin & Jenrette Securities
Corporation ("DLJ") of a "success based" advisory fee. The Company believes that
DLJ, which rendered a fairness opinion to the Company, but was not requested to
perform any other services in connection with the Transaction, is not entitled
to any additional fees or consideration. DLJ, however, has notified the Company
that it believes it is entitled to additional "success based" advisory fees
under the terms of its engagement letter with the Company dated May 23, 1997. As
of the date hereof, there has been no resolution of the disagreement.
Konover & Associates South Transaction
On February 24, 1998, the Company entered into definitive agreements with
affiliates of Konover & Associates South, a privately held real estate
development firm based in Boca Raton, Florida, to acquire 11 community shopping
centers. The Company acquired 10 of the Konover & Associates South community
shopping centers for a total purchase price of $89.3 million consisting of $67.4
million in debt assumption and $21.9 million in equity payable in a combination
of cash and limited partnership Units. For financial reporting purposes, the 10
Konover properties were recorded effective April 1, 1998, since the risks and
rewards of ownership had passed to the Company and there were no other
significant conditions outstanding.
11
<PAGE>
Prior to September 30, 1998, the Company closed on five of the Centers. The
aggregate purchase price for the five acquired shopping centers consisted of the
initial assumption of $31.1 million of fixed-rate indebtedness, $12.1 million in
cash and the issuance of 0.3 million limited partnership Units valued at $9.50
per share. The Company subsequently paid $9.2 million of the fixed rate debt
assumed of the acquired properties are held directly or indirectly, by KPT
Properties, L.P.
On October 30, 1998, the Company closed on an additional Konover property in
West Palm Beach, Florida with a total purchase price of $14.5 million which
consisted of $11.2 million in debt and $3.3 million in cash.
The actual transfer of legal title of the remaining four properties to be
acquired will occur at a later date. The remaining community center out of the
original 11 will not be acquired by the Company.
The Company issued 400,000 in warrants to the seller in connection with the
above transaction. Of these warrants 100,000 are exercisable at $9.50 vesting
over five years, 100,000 are exercisable at $12.50 vesting over five years, and
200,000 are exercisable at $9.50 which are fully vested.
On August 10, 1998, following stockholder approval, the Company began
operating under the name "Konover Property Trust. " The Company remains listed
on the New York Stock Exchange and changed its ticker symbol from FAC to KPT.
The Company will continue to operate the Konover & Associates South office in
Boca Raton, Florida due to its strategic location in the Southeast.
Simon Konover, founder of both Konover & Associates South and Konover &
Associates, Inc., a $500 million plus real estate company headquartered in West
Hartford, Connecticut, was elected as a non-executive Chairman of the Board of
the Company.
Rodwell/Kane Transaction
On March 30, March 31, and May 14, 1998, the Company concluded the
acquisition of eight community shopping centers located in North Carolina and
Virginia from Roy O. Rodwell, Chairman and co-founder of Atlantic Real Estate
Corporation ("ARC"), Mr. John N. Kane, Chairman of Kane Realty Corporation, and
their affiliates. The acquired centers encompass approximately 950,000 square
feet and are, in the aggregate, 96% leased.
The aggregate purchase price for the acquired shopping centers was $57.1
million, consisting of the assumption of $44.3 million of fixed-rate
indebtedness, the payment of $3.5 million in cash and the issuance of 974,347
limited partnership Units of the Operating Partnership. Of the purchase price,
292,447 Units and $0.8 million in cash will be issued or paid on a delayed or
contingent basis. The contingencies include the attainment of certain property
performance thresholds and the sale, lease or development of certain outparcels.
The purchase price for the acquisition was determined as a result of arms-length
negotiation between the Company and the sellers, with the Units
being valued at $9.50 per share.
12
<PAGE>
The ninth and final center covered by the Rodwell/Kane acquisition agreement
will be managed by the Company and is expected to be acquired in the year 2000.
Its acquisition prior to the year 2000 would trigger an onerous loan assumption
fee.
Joint Ventures
A summary of the Company's investments in limited liability companies (LLC's)
at September 30, 1998 and December 31, 1997, is as follows (all LLC's are
accounted for under the equity method, in thousands):
<TABLE>
<CAPTION>
Preferred September 30, December 31,
Equity ------------- ------------
Location Ownership Return(%) 1998 1997
-------- --------- --------- ---- ----
<S> <C> <C> <C>
Atlantic Realty North Carolina 50% 9% $ 7,300 $ 2,803
Mount Pleasant FAC Mount Pleasant, SC 50% 11% 10,700 1,480
Wakefield Commercial Wake Forest, NC 90% 11% 2,600 -
Falls FAC Raleigh, NC 50% 10% 5,445 -
------------- -------------
$26,045 $ 4,283
============= =============
</TABLE>
The majority of the properties owned by the LLC's are under development and
have no operations with the exception of one property as of September 30, 1998.
The acquisition and development of the above properties are subject to, among
other things, completion of due diligence and various contingencies, including
those inherent in development projects, such as zoning, leasing and financing.
There can be no assurance that all of the above transactions will be
consummated. All debt incurred by the LLC's is non-recourse to the Company
and is secured by their respective properties and guaranteed by the Company's
respective joint venture partners.
Other
On January 7, 1998, the Company completed the purchase of a
55,909-square-foot shopping center located in Danville, Virginia. This Food
Lion-anchored center was purchased for $3.1 million in cash, net of $2.3 million
in assumed debt.
On April 30, 1998, the Company sold one of its three properties held for sale
known as Lathrop, California for $5.7 million. The sale resulted in a loss of
$0.4 million.
On May 22, 1998, the Company issued a promissory note to evidence a loan made
in the amount of $2.5 million to VFP, LLC. The note is secured by a 53.78 acre
tract of land located near Myrtle Beach, South Carolina. The note accrues
interest at 10% and matures November, 1999.
On August 31, 1998, the Company completed the purchase of a
54,000-square-foot shopping center located in Conway, South Carolina. This Food
Lion-anchored center with a purchase price of $4.7 million was paid for with
$1.5 million in cash and $3.2 million in assumed debt.
As of September 30, 1998, the Company has repurchased a total of 1,456,500
shares of common stock for a total of approximately $10.6 million, or an average
of $7.28 per share. The repurchases have reduced the amount of its currently
outstanding common stock by approximately 4%.
4. Pro Forma Information
Rodwell/Kane and Konover Properties
Pro forma results of operations for the nine months ended September 30, 1998
and 1997 are set forth below and assume the Rodwell/Kane and Konover
acquisitions discussed above had been completed as of the beginning of the
period. The pro forma condensed statements of operations are not necessarily
indicative of what actual results of operations of the Company would have been
assuming such transactions had been completed as of the beginning of
13
<PAGE>
the period, nor do they purport to represent results of operations of future
periods (in thousands except for per share data).
Actual Adjustment Pro forma
Sept 30, ----------------------- Sept 30,
1998 Rodwell/Kane Konover 1998
------- -------------------- --------
Revenues $50,683 $1,580 $3,272 $55,535
Property operating costs 14,952 302 848 16,102
Depreciation and amortization 14,470 305 520 15,295
General and administrative 5,330 10 179 5,519
Interest 16,260 666 1,575 18,501
Loss on sale of real estate 353 - - 353
----------------------------------------------
(Loss) income before
extraordinary item $ (682) $ 297 $ 150 $(235)
==============================================
(Loss) income before
extraordinary item per
common share $(0.05) $ 0.02 $ 0.01 $(0.02)
==============================================
Actual Adjustment Pro forma
Sept 30, ------------------------ Sept 30,
1997 Rodwell/Kane Konover 1997
-------- -------------- ------- -------
Revenues $39,011 $5,218 $9,304 $53,533
Property operating costs 11,258 853 2,382 14,493
Depreciation and amortization 11,608 1,038 1,706 14,352
General and administrative 5,120 187 264 5,571
Interest 12,013 2,715 4,524 19,252
------------------------------------------------
(Loss) income before
extraordinary item $ (988) $ 425 $ 428 $(135)
================================================
(Loss) income before
extraordinary item per
common share $(0.09) $ 0.04 $ 0.04 $(0.01)
================================================
5. Debt on Income Properties
On March 11, 1998, the Company closed on a $75 million, 15-year permanent
credit facility secured by 11 properties previously securing a $150 million
revolving credit facility. The loan is at an effective rate of 7.73% and is
amortized on a 338-month basis. The proceeds were used to pay down certain
balances outstanding on the $150 million Nomura credit facility obtained by the
Company in early 1997, which currently has an outstanding balance of $31.4
million.
6. Year 2000
The Year 2000 compliance issue concerns the inability of computer systems
to accurately calculate, store or use a date after 1999. This could result in a
system failure or miscalculations causing disruptions of operations. The Year
2000 issue affects virtually all companies and all organizations.
The Company has substantially completed an assessment of its core computer
information systems and is now taking the further necessary steps to make such
systems, in those situations in which the Company is required to do so, Year
2000 compliant. In addition, the Company is currently evaluating and assessing
those computer systems that do not relate to information technology (such as
telecommunications, security, HVAC, elevator, fire and safety systems, which
typically include embedded technology such as microcontrollers that may be
harder to test, and may require complete replacement because they cannot be
repaired).
The Company's primary uses of software systems is its corporate accounting
system. The Company's corporate accounting system is widely used in the real
estate industry; however, is not fully Year 2000 compliant.
14
<PAGE>
The Company is replacing its current corporate accounting system with a new
software system which is Year 2000 compliant. This new software is also widely
used in the real estate industry. The implementation of the new software system
started in the second quarter of 1998 and its core modules are expected to go
live January 1, 1999. The replacement of the system is proceeding on schedule.
The Company had previously planned the system conversion, and such changes would
have been undertaken without regard to Year 2000 remediation issues.
Accordingly, the Company has not deferred any planned information or software
projects due to such Year 2000 projects.
Based on its review to date, the Company believes that the primary cost of
Year 2000 compliance will be the cost of the previously planned corporate
accounting system conversion. The Company currently expects that the total
conversion will cost approximately $1.5 million, and as of September 30, 1998,
the Company had spent approximately $0.8 in connection therewith. Because the
Company's Year 2000 assessment is ongoing, the total cost of bringing all
internal systems, equipment and operations into Year 2000 compliance has not
been fully quantified. While these efforts involve additional costs, the Company
believes, based on available information, that these costs will not have a
material adverse effect on its business, financial condition or results of
operations. While the Company believes that it will be Year 2000 compliant by
December 31, 1999, if these efforts are not completed on time, or if the costs
associated with updating or replacing the Company's computer systems
significantly exceed the Company's current estimates, the Year 2000 issue could
have a material impact on the Company's ability to meet its financial and
reporting requirements and/or on its financial results.
The Company leases space to local and national tenants and does not have a
national tenant who is expected to generate more than 9% of total revenue in
1999. In the first quarter of 1999, the Company intends to survey all national
tenants who accounted for more than 2% of revenue in 1998 for Year 2000
compliance. The Company's primary purchases are building-related services (e.g.,
lawn services), which are available from numerous suppliers.
For the foregoing reasons, the Company does not believe that there is a
significant risk related to the failure of tenants, vendors or third-party
service providers to prepare for the Year 2000; however, the costs and timing of
third-party Year 2000 compliance is not within the Company's control and no
assurances can be given with respect to the cost or timing of such efforts or
the potential effects of any failure to comply.
We currently do not have a contingency plan, and upon the completion of
the technology assesment we will determine if such a plan is necessary.
7. Subsequent Events
Subsequent to September 30, 1998, the Company invested $85.0 million into
short-term investments that are classified as held-to-maturity. This amount was
classified as cash and cash equivalents at September 30, 1998.
15
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
This discussion should be read with the selected financial data in this
section and the consolidated financial statements and notes in this report.
Certain comparisons between the periods have been made on a percentage basis and
on a weighted-average square-foot basis. Comparisons on a weighted-average
square-foot basis adjust for square-footage added at different times during the
year.
General Overview
Konover Property Trust, Inc., formerly FAC Realty Trust, Inc., (the
"Company") is a self-administered and self-managed real estate investment trust
("REIT"). The Company is vertically integrated and provides acquisition,
development, construction, leasing, marketing and asset management services for
community and outlet center properties.
On September 30, 1998, the Company-owned properties consisted of:
(1) 48 community shopping centers in 17 states aggregating approximately
5,855,000 square feet;
(2) 10 outlet centers in nine states aggregating approximately 2,117,000
square feet;
(3) 2 centers aggregating approximately 167,000 square feet that are held for
sale; and
(4) approximately 178 acres of outparcel land located near or adjacent to
certain of the Company's centers and which are being marketed for lease or
sale.
The weighted-average square feet of gross leasable area were 7.3 million
square feet for the nine months ended September 30, 1998 and 5.3 million square
feet for the same period in 1997. Weighted-average square feet of gross leasable
area for the three months ended September 30, 1998 and 1997 were 8.1 million and
5.5 million, respectively.
Selected Financial Data
The following information should be read with the consolidated financial
statements and notes thereto included in this report.
Industry analysts generally consider Funds from Operations ("FFO") an
appropriate measure of performance for an equity REIT. The Company defines FFO
as net income (computed in accordance with generally accepted accounting
principles) less gains or losses from debt restructuring and sales of property,
plus depreciation and amortization, plus or minus adjustments for unusual items.
Management does not believe that reductions for depreciation and amortization
charges are meaningful in evaluating the operating results of its properties,
which have historically been appreciating assets. Thus, Management believes that
FFO, as defined, is an appropriate measure of the Company's operating
performance.
Beginning in 1996 the Company adopted a change in its FFO definition to
conform to the National Association of Real Estate Investment Trusts' FFO
definition. Under the new definition, amortization of deferred financing costs
and depreciation of non-real estate assets are not included in the FFO
calculation.
"EBITDA" or Earnings Before Interest, Taxes, Depreciation and Amortization is
defined as revenues less operating costs (including general and administrative
expenses), before interest, depreciation and amortization and unusual items. As
a REIT, the Company is generally not subject to Federal income taxes. Management
believes that EBITDA provides a meaningful indicator of operating performance
because: (1) it is industry practice to evaluate the performance of real estate
properties based on net operating income ("NOI"), which is generally equivalent
to EBITDA; and (2) both NOI and EBITDA are unaffected by the debt and equity
structure of the property owner.
Funds available for Distribution/Reinvestment ("FAD/R") is defined as FFO
less unusual items, capitalized
16
<PAGE>
tenant allowances, capitalized leasing costs and recurring capital expenditures.
FFO, EBITDA and FAD/R do not represent cash flow from operations as defined
by generally accepted accounting principles. Nor are these measures necessarily
indicative of cash available to fund all cash flow needs. They should not be
considered as an alternative to net income for purposes of evaluating the
Company's operating performance nor as an alternative to cash flow as a measure
of liquidity. Other data that management believes is important in understanding
trends in its business and properties are also included in the following table
(in thousands, except per share data and number of properties).
17
<PAGE>
<TABLE>
<CAPTION>
Konover Property Trust, Inc.
Nine months ended Three months ended
September 30 September 30
1998 1997 1998 1997
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
--------------------------------------------------
<S> <C> <C> <C> <C>
Operating Data:
Rental revenues $50,683 $39,011 $18,350 $13,614
Property operating costs 14,952 11,258 5,530 3,996
--------------------------------------------------
35,731 27,753 12,820 9,618
Depreciation and amortization 14,470 11,608 4,912 3,908
General and administrative 5,330 5,120 1,933 1,127
Interest 16,260 12,013 5,778 4,254
Loss on sale of real estate 353 - - -
Extraordinary loss on early
extinguishment of debt - 986 - -
--------------------------------------------------
Net (loss) income $ (682) $(1,974) $ 197 $ 329
==================================================
Basic Per common share data:
(Loss) income before
extraordinary item $(0.05) $(0.09) $ 0.01 $ 0.03
Extraordinary item - (0.08) - 0.00
--------------------------------------------------
Net (loss) income $(0.05) $(0.17) $ 0.01 $ 0.03
==================================================
Basic Weighted-average common shares
outstanding 14,475 11,828 17,229 11,815
==================================================
Other Data:
EBITDA
Net (loss) income $ (682) $(1,974) $ 197 $ 329
Adjustments:
Interest 16,260 12,013 5,778 4,254
Depreciation and amortization 14,470 11,608 4,912 3,908
Compensation under stock awards 1,020 731 356 212
Loss on sale of real estate 353 - - -
Non-recurring administrative
costs 114 100 114 -
Merger termination costs - 1,250 - -
Extraordinary loss on early
extinguishment of debt - 986 - -
--------------------------------------------------
$31,535 $24,714 $11,357 $ 8,703
==================================================
Weighted-average diluted shares 17,546 14,050 20,621 14,037
==================================================
Funds from Operations:
Net (loss) income $ (682) $(1,974) $ 197 $ 329
Adjustments:
Straight line rent 554 (448) 106 (215)
Depreciation and amortization 13,988 11,328 4,728 3,789
Compensation under stock awards 1,020 731 356 212
Loss on sale of real estate 353 10 - (25)
Unusual items:
Non recurring
administrative costs 114 100 114 -
Merger termination costs - 1,250 - -
Extraordinary loss on early
extinguishment of debt - 986 - -
--------------------------------------------------
$15,347 $11,983 $ 5,501 $ 4,090
==================================================
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
Konover Property Trust, Inc.
Nine months ended Three months ended
September 30, September 30,
1998 1997 1998 1997
----------------------------------------------
<S> <C> <C> <C> <C>
Funds available for Distribution/Reinvestment:
Funds from Operations $ 15,347 $ 11,983 $ 5,501 $ 4,090
Adjustments:
Non-recurring administrative costs (114) (100) (114) -
Merger termination costs - (1,250) - -
Capitalized tenant allowances(*) (2,897) (1,127) (1,244) (274)
Capitalized leasing costs (1,642) (824) (550) (221)
Recurring capital expenditures (416) (531) (199) (166)
==============================================
$ 10,278 $ 8,151 $ 3,394 $ 3,429
==============================================
Cash Flows:
Cash flows from operating activities $ 11,431 $ 11,583 $ 1,203 $ 4,521
Cash flows from investing activities (52,974) (44,302) (30,603) (4,149)
Cash flows from financing activities 134,855 32,328 119,682 1,517
==============================================
Net increase (decrease) in cash and
cash equivalents $ 93,312 $ (391) $ 90,282 $ 1,889
==============================================
Konover Property
Trust, Inc.
September 30
1998 1997
-----------------------
Balance Sheet Data:
Income-producing properties (before
accumulated
depreciation and amortization) $558,948 $393,130
Total assets 680,907 388,844
Debt on income properties 299,330 217,576
Total liabilities 318,443 225,855
Total minority interest 11,804 -
Total stockholders' equity 350,660 162,989
Portfolio Property Data:
Total GLA (at end of period) 8,138 5,504
Weighted-average GLA 7,258 5,286
Number of properties (at end of
period) 60 41
Occupancy (at end of period):
Operating, exclusive of assets held
for sale 93.2% 92.5%
All operating properties 92.4% 90.4%
</TABLE>
* Includes $0.4 million of tenant allowances for key tenants whose tenancy is
considered strategic for the centers in which they are located.
19
<PAGE>
Results Of Operations
Nine Months Ended September 30, 1998 Compared to the Nine Months Ended September
30, 1997.
Net Loss
The Company reported a net loss of $0.7 million, or ($0.05) per common
share, for the nine months ended September 30, 1998. The same period in 1997 saw
a net loss of $2.0 million, or ($0.17) per common share. The elements having a
material impact on the change are discussed below:
> The Company's NOI, exclusive of straight-line rent, increased by $9.0
million, or 33%, to $36.3 million from $27.3 million for the same period in
1997. This increase was partly attributable to the 1998 acquisitions below:
Impact on NOI for the
Nine Months Ended
September 30, 1998
(in millions)
Konover Properties $ 5.2
Rodwell/Kane
Properties 3.9
---
$ 9.1
===
> Including the effect of straight-line rent adjustment, ($1.0 million) NOI
increased by $8.0 million. The Companys' acquisition activity required higher
borrowing levels resulting in increased interest expenses of $4.2 million,
increased depreciation and amortization of $2.9 million and increased general
and administrative expenses of $0.2 million . The sale of a California
property in April 1998 resulted in a loss of approximately $0.4 million,
while a $1.0 million extraordinary loss on extinguishment of debt was
incurred in 1997. The combination of the above items provide a $1.3 million
decrease in net loss for the nine months ended September 30, 1998 over the
same period in 1997.
>For the nine months ended September 30, 1998, the net loss pertaining to a
property in Las Vegas, Nevada which is currently being remerchandised from
its current use to better align itself with the existing market demographics
was $0.3 million.
Earnings Before Interest, Taxes, Depreciation, and Amortization and Funds from
Operations
EBITDA was $31.5 million for the nine months ended September 30, 1998, an
increase of $6.8 million or 28%, from $24.7 million for the same period in 1997.
The increase was due to increased NOI of $8.0 million over 1997, including
adjustment for straight line rent (as described above) offset by an increase in
general and administrative expenses of $1.2 million exclusive of compensation
under stock plan award and non-recurring administrative as well as merger costs
incurred in 1997.
Funds from Operations ("FFO") for the nine months ended September 30, 1998
increased 28% to $15.3 million. The Company's FFO for the same period in 1997
was $12.0 million. FFO increased primarily as a result of the $9.0 million
increase in NOI, exclusive of straight-line rent, as described above. This
increase in NOI is offset by: 1) increase in general and administrative expenses
(exclusive of compensation under stock awards and non-recurring administrative
expenses) of $1.2 million; 2) the increase in interest expense of $4.2 million
and 3) a slight increase in non-real estate depreciation of $0.2 million.
Tenant Income
Base rent increased to $36.4 million for the nine months ended September
30, 1998 from $28.5 million for the same period in 1997. Base rent before the
adjustment for straight line rent increased $8.9 million, or 32%, to $36.9
million for the nine months ended September 30, 1998 when compared to 1997. Base
rent for the nine months ended September 30, 1998 attributable to the Konover
and Rodwell/Kane properties was $5.4 million and $3.0 million, respectively.
During this same period, the Company's weighted-average square feet of gross
leasable area in operation increased 37%. Gross leasable area in operation
increased by 2.6 million square feet, primarily because of the acquisition of
the Konover properties with 1.6 million in gross leasable area and Rodwell/Kane
properties with 1.0 million in gross leasable area. These described increases
were partially offset by the sale of the California property of 0.1 million in
gross leasable area.
20
<PAGE>
Recoveries from tenants increased for the nine months ended September 30,
1998 to $11.6 million compared to $9.3 million in the same period of 1997. These
recoveries represent contractual reimbursements from tenants of certain common
area maintenance, real estate taxes, and insurance costs. On a weighted-average
square-foot basis, recoveries decreased 9% to $1.60 for the nine months ended
September 30, 1998 when compared to $1.76 for the same period in 1997. But the
average recovery of property operating expenses, exclusive of marketing and
other non-recoverable operating costs, remained unchanged at 91%. With respect
to approximately 15% of the leased gross leasable area, the Company is obligated
to pay all utilities and operating expenses.
Other Income
Other income increased $1.4 million to $2.2 million in 1998 compared to
$0.8 million in 1997 primarily as a result of increased third-party management
fee income of $1.2 million. As of September 30, 1998, the Company manages nine
centers versus one center for the same period in 1997. In addition, prior to the
closing on the eight Rodwell/Kane properties, the Company managed the community
centers and will continue to manage the one remaining Rodwell/Kane community
center.
Property Operating Expenses
Property operating costs increased $3.7 million, or 33%, to $15.0 million
in 1998 from $11.3 million in the same period of 1997. The increase in operating
costs was principally due to the increase in the weighted-average square feet in
operation in 1998, which rose 37% to 7.3 million square feet in 1998 from 5.3
million square feet in 1997. On a weighted-average square-foot basis, operating
expenses decreased to $2.06 per weighted average square foot, down 3% from the
same period in 1997, as the Company continues to improve operational
efficiencies.
General and Administrative Expenses
General and administrative expenses for the nine months ended September
30, 1998 increased $0.2 million, or 4%, to $5.3 million in 1998 from $5.1
million in 1997. General and administrative expenses in 1998 include $1.0
million in compensation under stock plan awards and $0.1 million of other
non-recurring charges. General and administrative expenses in 1997 include a
charge of $1.3 million related to the settlement of the termination of
agreements entered into in 1995 to acquire the factory outlet centers owned by
Public Employees Retirement System of Ohio (OPERS). Exclusive of the charges in
1998 and 1997, general and administrative expenses as a percentage of revenues
increased by less than 1%.
Depreciation
Depreciation increased to $11.8 million for the nine months ended
September 30, 1998 compared to $8.9 million in the same period of 1997. The
increase is due primarily to the Rodwell/Kane and Konover acquisitions. Absent
the impact of these acquisitions, depreciation increased $0.9 million due to
acquisitions in Danville, Virginia; Conway, South Carolina and the purchase of
computer equipment throughout 1998. Amortization of deferred leasing and other
charges remained consistent at $2.7 million. On a weighted-average square-foot
basis, depreciation and amortization decreased to $1.99 in 1998 from $2.20 in
1997.
Interest Expense
Interest expense for the nine months ended September 30, 1998, net of
interest income of $3.1 million, increased by $4.2 million, or 35%, to $16.2
million compared to $12.0 million, net of interest income of $1.6 million, in
the first nine months of 1997. This increase resulted primarily from higher
borrowing levels in 1998 due to the investment in and acquisition of
income-producing properties. On a weighted-average basis, in the first nine
months of 1998, debt outstanding was $299.0 million, and the average interest
rate was 7.9%. This compares to $218.0 million of outstanding debt and a 7.9%
average interest rate in 1997. The Company capitalized $0.9 million of interest
costs associated with its development projects in the first nine months of 1998
compared to $1.2 million in the same period of 1997.
21
<PAGE>
Properties Held for Sale
For the nine months ended September 30, 1998, the properties held for sale
contributed approximately $0.6 million of revenue. After deducting related
interest expense on the debt associated with those properties and the $0.4
million loss on the sale of one property, the properties held for sale incurred
a loss of $1.4 million. For the nine months ended September 1997, the properties
held for sale contributed approximately $0.9 million of revenue and incurred a
loss of $0.8 million after deducting related interest expenses. On April 30,
1998, the Company sold the California property it was holding for sale for $5.7
million resulting in a loss of $0.4 million.
Three Months Ended September 30, 1998 Compared to the Three Months Ended
September 30, 1997
Net Income
The Company reported net income of $0.2 million, or $0.01 per common
share, for the three months ended September 30, 1998, compared to net income of
$0.3 million or $0.03 per common share, for the comparable period in 1997. The
elements having a material impact on the change are discussed below:
> The Company's NOI, exclusive of straight-line rent, increased by $3.5 million
or 37% to $12.9 million from $9.4 million for the same period in 1997. This
increase was partly attributable to the 1998 acquisitions below:
Impact on NOI for the
Three months ended
September 30, 1998
(in millions)
Konover Properties $2.6
Rodwell/Kane Properties $1.6
---------------------
$4.2
=====================
> Including the effect of straight-line rent adjustment ($0.3 million), NOI
increased by $3.2 million. The Company's acquisition activity required higher
borrowing levels resulting in increased interest expense of $1.5 million,
increased depreciation and amortization of $1.0 million and increased general
and administrative expenses of $0.8 million. The combination of the above
items provide a $0.1 million decrease in net income for the three months
ended September 30, 1998 compared to the same period in 1997.
> For the three months ended September 30, 1998, the net loss pertaining to a
property in Las Vegas, Nevada which is currently being remerchandised from
its current use to better align itself with the existing marketing
demographics was $0.2 million.
Earnings Before Interest, Taxes, Depreciation, and Amortization and Funds From
Operations
EBITDA was $11.4 for the three months ended September 30, 1998. This was
an increase of $2.7 million, or 31%, from the $8.7 million reported for the same
period in 1997. The increase was due to increased NOI of $3.2 million over 1997,
offset by an increase of $0.5 million in general and administrative expenses in
1998, exclusive of compensation under stock awards and non-recurring charges.
FFO for the three months ended September 30, 1998, was $5.5 million, compared to
$4.1 million for the same period in 1997. FFO increased $1.4 million or 34%.
This was primarily a result of the $3.5 million increase in NOI, exclusive of
straight-line rent, offset by: 1) $0.5 million in increased general and
administrative expenses from 1997, exclusive of compensation under stock awards
and non-recurring charges; 2) $1.5 million in increased interest; and 3) a
slight increase in non-real estate depreciation of $0.1 million.
22
<PAGE>
Tenant Income
Base rent increased $3.6 million, or 36%, to $13.6 million for the
three months ended September 30, 1998 from $10.0 million for the same period in
1997. Comparing these same periods, base rent before the adjustment to record
rent on a straight-line basis increased $3.9 million or 40% to $13.7 million
from $10 million. Base rent for the three months ended September 30, 1998
attributable to the Konover and Rodwell/Kane properties was $2.7 million and
$1.6 million respectively. The Company's weighted-average square feet of gross
leasable area in operation increased 47%. Gross leasable area in operation
increased by 2.6 million square feet, primarily because of the acquisition of
the Konover properties with 1.6 million GLA and Rodwell/Kane properties with 1.0
million GLA. These GLA increases were partially offset by the sale of the
California property of 0.1 million GLA.
Recoveries from tenants for the three months ended September 30, 1998
increased $0.9 million, or 29%, to $4.1 million. Recoveries in 1997 were $3.2
million. On a weighted-average square-foot basis, recoveries from tenants
decreased 12% to $0.51 per weighted-average square foot for the three months
ended September 30, 1998 when compared to $0.58 per weighted-average square foot
for the same period in 1997. But the average recovery of property operating
expenses, exclusive of marketing and other non-recoverable operating costs, only
decreased one percent to 87% in 1998 from 88% in 1997. The Company is obligated
to pay all utilities and operating expenses for approximately 15% of the leased
gross leasable area.
Other Income
Other income increased $0.2 million to $0.5 million in 1998 compared to
$0.3 million in 1997 primarily as a result of increased third-party management
fees.
Property Operating Expenses
Operating expenses increased $1.5 million, or 38%, to $5.5 million in
1998 from $4.0 million in 1997. The increase in operating expenses was
principally due to the increase in the weighted-average square feet in operation
in 1998 which rose 47%. On a weighted-average square-foot basis, operating
expenses decreased to $0.68 in 1998 from $0.73 in 1997 as the Company continues
to improve operational efficiencies.
General and Administrative Expenses
General and administrative expenses for the three months ended
September 30, 1998, increased $0.8 million, or 72%, to $1.9 million in 1998 from
$1.1 million in 1997. General and administrative expenses in 1998 include $0.4
million in compensation under stock plan awards and $0.1 million of
non-recurring charges. General and administrative expenses in 1997 include $0.2
million in compensation under stock plan awards. Exclusive of these charges in
1998 and 1997, general and administrative expenses as a percentage of revenues
increased by 1.3% due primarily to the operation of the new office in Boca
Raton.
Depreciation
Depreciation increased $1.1 million to $4.1 million in the third
quarter of 1998 from $3.0 million in the same period of 1997. The Rodwell/Kane
and Konover acquisitions in 1998 were the primary causes of this increase.
Amortization of deferred leasing and other charges decreased $0.1 million to
$0.8 million in 1998 from $0.9 million in 1997. On a weighted-average
square-foot basis, depreciation and amortization of income-producing properties
decreased to $0.61 in the third quarter of 1998 compared to $0.71 in the same
period of 1997.
23
<PAGE>
Interest Expense
Interest expense for the three months ended September 30, 1998, net of
interest income of $1.5 million, increased by $1.5 million, or 36%, to $5.8
million compared to $4.3 million, net of interest income of $0.5 million, in
1997. This increase resulted from higher borrowing levels in 1998 compared to
1997 due to the investment in and acquisition of income-producing properties. On
a weighted-average basis, debt outstanding was $322.3 million and the average
interest rate was 7.9% in 1998 compared to $216.5 million of outstanding debt
and a 7.9% average interest rate in 1997. The Company capitalized $0.4 million
of interest costs associated with its development projects in 1998 and $0.3
million in 1997.
Properties Held for Sale
For the three months ended September 30, 1998, the properties held for
sale contributed approximately $0.1 million of revenue. After deducting related
interest expense on the debt associated with the properties, the properties held
for sale incurred a loss of $0.3 million. For the three months ended September
1997, the properties held for sale contributed approximately $0.3 million of
revenue and incurred a loss of $0.2 million after deducting related interest
expenses. On April 30, 1998, the Company sold the California property it was
holding for sale for $5.7 million resulting in a loss of $0.4 million.
Liquidity and Capital Resources
Cash Flows
The Company's cash and cash equivalents balance at September 30, 1998 was
$98.2 million. Restricted cash, as reported in the financial statements, as of
such date, was $1.6 million. In connection with the Company's $95 million
rated-debt securitization in 1996, the Company was required to escrow a portion
of the loan proceeds. The escrow was required to fund certain environmental and
engineering work and to make certain lease-related payments that may be required
in connection with the renewal or termination of certain leases by a tenant at
most of the factory outlet centers.
Net cash provided by operating activities was $11.4 million for the nine
months ended September 30,1998. Net cash used in investing activities was $53.0
million in that same period. The primary use of these funds included:
(1) $17.8 million of cash to acquire the Rodwell/Kane and Konover
portfolios and the properties in Danville, Virginia and Conway, South
Carolina;
(2) $22.9 million invested in joint ventures, as described below; and
(3) $8.0 million of advances the Company has made to joint ventures.
Net cash provided by financing activities was $134.9 million for the nine
months ended September 30, 1998. The source of such funds was new borrowings in
March 1998 and the sale of common stock to an affiliate of Lazard Freres, both
as described below. Funds generated through financing activities were offset by
debt repayments of $133.3 million.
Capital Resources
General
The Company's management anticipates that cash generated from operations
will provide the necessary funds for operating expenses, interest expense on
outstanding indebtedness, dividends and distributions in accordance with REIT
federal income tax requirements, and funding re-tenanting and lease renewal
tenant improvement costs,
24
<PAGE>
as well as capital expenditures to maintain the quality of its existing centers.
The Company also believes that it has capital and access to capital resources,
including additional borrowings and issuances of debt or equity securities,
sufficient to pursue its strategic plans.
Lazard Transaction
On August 5, 1998, stockholders approved a Stock Purchase Agreement
between the Company and Prometheus Southeast Retail, LLC (including its
assignee, "PSR"), a real estate investment affiliate of Lazard Freres Real
Estate Investors, LLC. Under this agreement, PSR made a $200 million purchase of
the Company's Common Stock at $9.50 per share (the "Lazard Investment"). The
investment was made in stages, as follows:
Sale Date Shares Sold Purchase Price
March 23, 1998 2,350,000 $22,325,000
August 10, 1998 2,913,157 $27,675,000
August 28, 1998 5,263,159 $50,000,000
10,526,316 $100,000,000
---------- ------------
September 29, 1998 21,052,632 $200,000,000
========== ============
As of September 30, 1998, these funds have retired debt of $57.7 million
and the remaining capital has been and will be used to fund acquisitions and
development projects.
Under the Stock Purchase Agreement, the Company will reimburse PSR for its
expenses in connection with the Lazard Investment, including expenses of
monitoring the Company and of performing its duties under the transaction
documents. The Company has incurred and paid expenses of approximately $2.4
million in connection with the Lazard Investment. This figure does not include a
claim by Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ") to a
"success based" advisory fee. DLJ rendered a fairness opinion to the Company but
was not requested to perform any other services in connection with the Lazard
Investment. The Company believes that DLJ is not entitled to any additional fees
or consideration. DLJ, however, has notified the Company that it believes it is
entitled to additional "success based" advisory fees under the terms of its
engagement letter with the Company dated May 23, 1997. As of the date hereof,
there has been no resolution of the disagreement.
As part of the Lazard Investment, the Company signed a Contingent Value
Rights Agreement with PSR. Under this the Contingent Value Rights Agreement, if
PSR has not essentially doubled its investment (through stock appreciation and
dividends) by January 1, 2004, the Company will pay PSR, in cash or stock, an
amount necessary to achieve such a return. But the Contingent Value Rights
Agreement limits the Company's payment to a maximum payment of 4,500,000 shares
or the cash value thereof.
Credit Facility
On March 11, 1998, the Company closed on a $75 million, 15-year permanent
credit facility. Eleven properties previously securing its $150 million
revolving credit facility secured this new facility. The loan has an effective
rate of 7.73% and is amortized on a 338-month basis. The proceeds were used to
pay down certain borrowings outstanding on the $150 million Nomura credit
facility the Company obtained in 1997.
Capital Expenditures
General
The Company's capital expenditures included expansions of existing
centers, acquisitions of new properties, development of new properties and
investments in development joint ventures.
Management's view of the current state of the shopping center industry and
its future direction is that value-oriented retail concepts are merging. For
example, outlet centers are including off-price tenants as well as outlet
tenants. Off-price centers have manufacturers' outlets. Community centers have
destination tenants. And other community centers have outlet or off-price
tenants. With this backdrop, management believes that a diversified
25
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shopping center portfolio will provide an opportunity for growth. As part of the
Company's diversification strategy, the Company has pursued opportunities for
the acquisition of community shopping centers in the United States, and in
particular, the southeastern region of the country as evidenced by Rodwell/Kane
and the Konover & Associates South transactions described below.
The Company's current acquisition, expansion and development plans are
subject to certain risk and uncertainties; including, but not limited to
economic conditions in the retail industry, future real estate market
conditions; the availability of financing; and the risk associated with the
Company's property development activities, such as the potential for cost
overruns, delays and the lack of predictability with respect to the financial
returns associated with these development activities. There can be no assurance
that the planned development and expansions will occur according to current
schedules or that, once commenced, such development and expansions will be
completed.
Konover & Associates South
On February 24, 1998, the Company entered into definitive agreements with
affiliates of Konover & Associates South, a privately held real estate
development firm based in Boca Raton, Florida, to acquire 11 community shopping
centers. The Company acquired 10 of the Konover & Associates South community
shopping centers for a total purchase price of $89.3 million consisting of $67.4
million in debt assumption and $21.9 million in equity payable in a combination
of cash and limited partnership Units. For financial reporting purposes, the ten
Konover properties were recorded effective April 1, 1998, since the risks and
rewards of ownership had passed to the Company and there were no other
significant conditions outstanding.
Prior to September 30, 1998, the Company closed on five of the centers.The
aggregate purchase price for the five acquired shopping centers consisted of the
initial assumption of $31.1 million of fixed-rate indebtedness, $12.2 million in
cash and the issuance of 0.3 million limited partnership Units valued at $9.50
per share. The Company subsequently paid $9.2 million of the fixed-rate debt
assumed. All of the acquired properties are held directly or indirectly, by KPT
Properties, L.P.
On October 30, 1998, the Company closed on an additional Konover property in
West Palm Beach, Florida with a total purchase price of $14.5 million which
consisted of $11.2 million in debt and $3.3 million in cash.
26
<PAGE>
The actual transfer of legal title of the remaining four properties to be
acquired will occur at a later date. The remaining community center out of the
original 11 will not be acquired by the Company.
The Company issued 400,000 in warrants to the seller in connection with the
above transaction. Of these warrants 100,000 are exercisable at $9.50 vesting
over five years, 100,000 are exercisable at $12.50 vesting over five years, and
200,000 are exercisable at $9.50, which are fully vested.
On August 10, 1998, following stockholder approval, the Company began
operating under the name "Konover Property Trust. " The Company remains listed
on the New York Stock Exchange and changed its ticker symbol from FAC to KPT.
The Company will continue to operate the Konover & Associates South office in
Boca Raton, Florida due to its strategic location in the Southeast.
Simon Konover, founder of both Konover & Associates South and Konover &
Associates, Inc., a $500 million plus real estate company headquartered in West
Hartford, Connecticut, was elected Chairman of the Board of the Company.
Rodwell/Kane Transaction
In connection with the acquisition of eight of the nine Rodwell/Kane
properties, up to 292,447 additional Units and $0.8 million in cash may be
issued or paid on a delayed or contingent basis.
The Company will manage the ninth and final center and expects to acquire
it in the year 2000 for $6.2 million. Its acquisition prior to the year 2000
would trigger an onerous loan assumption fee.
Atlantic Real Estate Joint Venture
During 1997, the Company and Atlantic Real Estate Corporation ("ARC")
jointly created a limited liability company named Atlantic Realty LLC
("Atlantic"). Atlantic will develop and manage retail community and neighborhood
shopping centers in North Carolina. Atlantic currently has plans to develop
nearly one million square feet, including outparcels, over the next several
years. The Company and ARC own Atlantic equally, with the Company serving as
managing member overseeing its operations. Through September 30, 1998, the
Company has invested $7.3 million in this joint venture. The Company will
account for its investment in Atlantic under the equity method of accounting. On
September 30, 1998, Atlantic had total assets of approximately $15.1 million and
debt of $7.8 million.
Mount Pleasant Joint Venture
During 1997, the Company also entered into a joint venture, known as Mount
Pleasant FAC LLC, with AJS Group. This joint venture plans to develop a
425,000-square-foot retail/entertainment shopping center in Mount Pleasant,
South Carolina. Construction on the center is expected to begin Fall 1998, with
completion targeted for Spring/Summer 1999. Through September 30, 1998, the
Company has invested $10.7 million in this joint venture. The Company will
account for this 50% investment in the joint venture under the equity method of
accounting. The joint venture had approximately $10.9 million of assets and $0.2
million of debt on September 30, 1998. The joint venture had no other
operations.
Wakefield Joint Venture
During 1998, the Company entered into a joint venture, known as Wakefield
Commercial LLC, primarily to obtain access to two community shopping center
sites. The two retail centers, one approximately 200,000 square feet and the
other approximately 300,000 square feet, will be located on 65 acres within a
500-acre parcel of land zoned for commercial use. The Company will perform all
leasing, property management, and marketing functions for the two centers. In
addition, the joint venture acquired the Company's interest in the Lake Carmel,
New York development site. The site continues to proceed through the approval
process for future development potential. The Company holds a 90% non-voting
interest in the venture, which is accounted for under the equity method of
accounting. Through September 30, 1998, the Company had invested $2.6 million in
this joint venture and had advanced the joint venture $7.0 million. The advances
carry interest at 11% per annum. The joint venture had no other operations.
27
<PAGE>
Joint Venture Financing
The Company's planned development of nearly one million square feet of
community and neighborhood shopping centers in North Carolina with ARC, the
development of a retail/entertainment shopping center in Mt. Pleasant, South
Carolina, and the development of two community shopping centers in Wakefield,
North Carolina will be financed in part by traditional bank construction loans.
Dividends
There were no accrued dividends as of December 31, 1997 and no dividends
were declared during the nine month period ended September 30, 1998.
As authorized by the Company's Board of Directors at a September 11, 1998
meeting, the Company intends to reestablish the annual dividend of $0.50 per
common share, payable at the rate of $0.125 per quarter. The first payment is
expected to be declared and payable during the quarter ended March 31, 1999. A
portion of the dividend payment will be a return of capital, as the Company
expects to utilize its tax net loss carryover in 1999. The dividend will
represent a payout ratio of less than 50% of the Company's funds from operations
(FFO).
Share Repurchase
As authorized by the Company's Board of Directors in 1997, certain
officers of the Company are authorized to repurchase, in the open market or
negotiated transactions, up to 2.0 million shares of common stock of the
Company. At a subsequent Board meeting the limit of shares authorized for
repurchase was increased from 2.0 million to 4.0 million. As of September
30,1998, the Company has repurchased a total of 1.5 million shares at an average
price of $7.28 per share or a total cost of $10.6 million. This repurchase
decreased outstanding common shares by 4% as of September 30, 1998.
Economic Conditions
Inflation has remained relatively low during the past three years with
certain segments of the economy experiencing disinflation, such as apparel
sales. Disinflation in this market segment has slowed the growth of tenant
sales, which adversely affects the Company's revenue due to lower percentage and
overage rents on some properties. Additionally, weakness in the overall retail
environment as it relates to tenant sales volumes may have an impact on the
Company's ability to renew leases at current rental rates or to re-lease space
to other tenants. A decline in sales does not affect base rental, aside from
renewals. But sales declines could result in reduced revenue from percentage
rent tenants, as well as overage rent paid to the Company. Both revenue items
are directly impacted by sales volumes and represented 6% of the Company's total
revenue for the nine months ended September, 1998. Continuation of this trend
may affect the Company's operating centers' (the "Properties") occupancy rate,
rental rates, and concessions, if any, granted on new leases or re-leases of
space. This in turn may cause fluctuations in the cash flow from the operation
and performance of the operating centers. In the event of higher inflation,
however, a majority of the tenants' leases contain provisions designed to
protect the Company from the impact of inflation. Such provisions include
clauses enabling the Company to receive percentage rentals based on tenants'
gross sales, which generally increase as prices rise, and/or escalation clauses,
which generally increase rental rates during the terms of the leases. In
addition, many of the leases are for terms of less than ten years, which may
enable the Company to replace existing leases with new leases at higher base
and/or percentage rentals if rents of the existing leases are below the
then-existing market rate.
The majority of the Company's leases, other than those for some anchors,
require the tenants to pay a proportionate share of operating expenses,
including marketing, common area maintenance, real estate taxes and insurance.
Such provisions reduce the Company's exposure to increases in costs and
operating expenses resulting from inflation. The Company's leases with two of
its anchor tenants, VF Factory Outlet and Carolina Pottery, which were executed
in September 1993, also require the tenants to pay certain operating expenses
and increases in common area maintenance expenses. At September 30, 1998, 4% of
the aggregate gross leasable area of its centers was leased
28
<PAGE>
to non-anchor tenants under gross leases. Under gross leases, the Company is
obligated to pay all utilities and other operating expenses of the applicable
center. The Properties are subject to operating risks common to commercial real
estate in general, any and all of which may adversely affect occupancy or rental
rates. The properties are subject to increases in operating expenses such as
cleaning; electricity; heating, ventilation and air conditioning; insurance and
administrative costs; and other general costs associated with security,
landscaping, repairs and maintenance. While the Company's tenants generally are
currently obligated to pay a portion of these escalating costs, there can be no
assurance that tenants will agree to pay such costs upon renewal or that new
tenants will agree to pay such costs. If operating expenses increase, the local
rental market may limit the extent to which rents may be increased to meet
increased expenses without decreasing occupancy rates.
Additionally, inflation may have a negative impact on some of the
Company's other operating items. Interest and general and administrative
expenses may be adversely affected by inflation as these specified costs could
increase at a rate higher than rents. Approximately 10.5% of the Company's debt
on income properties and notes payable as of September 30, 1998 bore interest at
rates that adjust periodically based on market conditions. Also, for tenant
leases with stated rent increases, inflation may have a negative effect as the
stated rent increases in these leases could be lower than the increase in
inflation at any given time.
Substantially all of the Company's existing tenants have met their lease
obligations and the Company continues to attract and retain quality tenants. The
Company intends to reduce operating and leasing risks by continually improving
its tenant mix, rental rates and lease terms. The Company seeks creditworthy
national, regional and local tenants that offer a wide range of merchandise and
amenities not previously offered.
Year 2000
The Year 2000 compliance issue concerns the inability of computer systems
to accurately calculate, store or use a date after 1999. This could result in a
system failure or miscalculations causing disruptions of operations. The Year
2000 issue affects virtually all companies and all organizations.
The Company has substantially completed an assessment of its core computer
information systems and is now taking the further necessary steps to make such
systems, in those situations in which the Company is required to do so, Year
2000 compliant. In addition, the Company is currently evaluating and assessing
those computer systems that do not relate to information technology (such as
telecommunications, security, HVAC, elevator, fire and safety systems, which
typically include embedded technology such as microcontrollers that may be
harder to test, and may require complete replacement because they cannot be
repaired).
The Company's primary uses of software systems is its corporate accounting
system. The Company's corporate accounting system is widely used in the real
estate industry; however, is not fully Year 2000 compliant. The Company is
replacing its current corporate accounting system with a new software system
which is Year 2000 compliant. This new software is also widely used in the real
estate industry. The implementation of the new software system started in the
second quarter of 1998 and its core modules are expected to go live January 1,
1999. The replacement of the system is proceeding on schedule. The Company had
previously planned the system conversion, and such changes would have been
undertaken without regard to Year 2000 remediation issues. Accordingly, the
Company has not deferred any planned information or software projects due to
such Year 2000 projects.
Based on its review to date, the Company believes that the primary cost of
Year 2000 compliance will be the cost of the previously planned corporate
accounting system conversion. The Company currently expects that the total
conversion will cost approximately $1.5 million, and as of September 30, 1998,
the Company had spent approximately $0.8 in connection therewith. Because the
Company's Year 2000 assessment is ongoing, the total cost of bringing all
internal systems, equipment and operations into Year 2000 compliance has not
been fully quantified. While these efforts involve additional costs, the Company
believes, based on available information, that these costs will not have a
material adverse effect on its business, financial condition or results of
operations. While the Company believes that it will be Year 2000 compliant by
December 31, 1999, if these efforts are not completed on
29
<PAGE>
time, or if the costs associated with updating or replacing the Company's
computer systems significantly exceed the Company's current estimates, the Year
2000 issue could have a material impact on the Company's ability to meet its
financial and reporting requirements and/or on its financial results.
The Company leases space to local and national tenants and does not have a
national tenant who is expected to generate more than 9% of total revenue in
1999. In the first quarter of 1999, the Company intends to survey all national
tenants who accounted for more than 2% of revenue in 1998 for Year 2000
compliance. The Company's primary purchases are building-related services (e.g.,
lawn services), which are available from numerous suppliers.
For the foregoing reasons, the Company does not believe that there is a
significant risk related to the failure of tenants, vendors or third-party
service providers to prepare for the Year 2000; however, the costs and timing of
third-party Year 2000 compliance is not within the Company's control and no
assurances can be given with respect to the cost or timing of such efforts or
the potential effects of any failure to comply.
We currently do not have a contingency plan, and upon the completion of
the technology assesment we will determine if such a plan is necessary.
Forward-Looking Statements
Certain statements in this Form 10-Q constitute "forward-looking
statements." Such forward-looking statements are indicated by words such as
"will", "expect", "anticipate" and other words of similar import.
Forward-looking statements involve known and unknown risks, uncertainties and
other factors, which may cause the actual results, performance or achievements
of the Company to be materially different from any future results, performance
or achievements expressed or implied by such forward-looking statements. Such
factors include, among others, the following: real estate market conditions;
availability of financing; general economic conditions, including conditions in
the retail segments of the economy, such as inflation, consumer confidence,
unemployment rates and consumer tastes and preferences; difficulties or delays
in the completion of expansions of existing projects or development of new
projects; and the effect of competition from other centers. With respect to the
Company's expansion and development activities (including the potential
development of a site at Lake Carmel, New York), such forward looking statements
are subject to a number of risks and uncertainties, including the availability
of financing on favorable terms; the consummation of related property
acquisitions; receipt of zoning, land use, occupancy, government and other
approvals; and the timely completion of construction and leasing activities.
With respect to the Company's acquisition activities, such forward-looking
statements are subject to risks and uncertainties, including accuracy of
representations made in connection with such acquisitions, continuation of
occupancy levels, changes in economic conditions (including interest rate
levels) and real estate markets.
30
<PAGE>
PART II
Item 1. Legal Proceedings
None
Item 2. Changes in Securities and Use of Proceeds
During the quarter ended September 30, 1998, the Company sold 18,702,632
shares of Common Stock to PSR, at $9.50 per share, for an aggregate purchase
price of $177,675,000. The offering was made pursuant to the exemption from
registration set forth at Section 4(2) of the Securities Act of 1933, as
amended. The Company took reasonable steps to assure that PSR purchased the
securities without a view to their distribution.
The investment was made in stages, as follows:
Sale Date Shares Sold Purchase Price
--------- ----------- --------------
August 10, 1998 2,913,157 $ 27,675,000
August 28, 1998 5,263,159 $ 50,000,000
September 29, 1998 10,526,316 $ 100,000,000
----------- -------------
18,702,632 $ 177,675,000
=========== =============
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
3.2 Amended and Restated Bylaws
27 Financial Data Schedule (EDGAR filing only)
(b) Reports on Form 8-K
On July 1, 1998, the Company filed a Report on Form 8-K/A (dated February
24, 1998), amending Item 5 and the Item 7 financial statements. The filing
included the following financial statements: unaudited combined statement
of revenue and certain expenses for Konover and Associates South and
unaudited proforma condensed consolidated balance sheet and statement of
income.
On September 14, 1998, the Company filed a Report on Form 8-K (dated March
23, 1998) reporting the acquisition of 5,263,159 shares of Common Stock by
PSR under Item 1(a).
On October 1, 1998, the Company filed a Report on Form 8-K (dated
September 16, 1998), reporting under item 2 the acquisition of certain
properties from Konover & Associates South and certain affiliates. The
31
<PAGE>
financial statements and proforma information required with regard to the
acquisitions will be filed by an amendment to this Form 8-K by November
30, 1998.
32
<PAGE>
Signatures
================================================================================
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
KONOVER PROPERTY TRUST, INC.
Date: November 16, 1998
By: /S/Patrick M. Miniutti
Patrick M. Miniutti, Executive Vice President,
Chief Financial Officer and Director
By: /S/Sona A. Thorburn
Sona A. Thorburn, Vice President,
Chief Accounting Officer
33
AMENDED AND RESTATED BYLAWS
OF
KONOVER PROPERTY TRUST, INC.
ARTICLE I
Stockholders
Section 1. MEETINGS OF STOCKHOLDERS.
(a) Annual Meeting. The annual meeting of the stockholders of the
Corporation for the election of directors and the receiving of reports shall be
held at such date and time as shall be determined by the Board of Directors.
Upon due notice, there may also be considered and acted upon at an annual
meeting any matter 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
1
<PAGE>
the name and address, as they appear in the Corporation's books, of each
stockholder signing such request and the class and number of shares of the
Corporation which are owned of record and beneficially by each such
stockholder, shall be sent to the Secretary by certified or registered
mail, return receipt requested, and shall be received by the Secretary
within 60 days after the Request Record Date.
(4) The Corporation shall not be required to call a special meeting
upon stockholder request unless, in addition to the documents required by
paragraph (3) of this Section 1(b), the Secretary receives a written
agreement signed by each Soliciting Stockholder (as defined below),
pursuant to which each Soliciting Stockholder, jointly and severally,
agrees to pay the Corporation's costs of holding the special meeting,
including the costs of preparing and mailing proxy materials for the
Corporation's own solicitation, provided that if each of the resolutions
introduced by any Soliciting Stockholder at such meeting is adopted, and
each of the individuals nominated by or on behalf of any Soliciting
Stockholder for election as a director at such meeting is elected, then
the Soliciting Stockholders shall not be required to pay such costs. For
purposes of this paragraph (4), the following terms shall have the
meanings set forth below:
(i) "Affiliate" of any Person (as defined herein) shall mean any
Person controlling, controlled by or under common control with such first
Person.
(ii) "Participant" shall have the meaning assigned to such term in
Rule 14a-11 promulgated under the Exchange Act.
(iii) "Person" shall mean any individual, firm, corporation,
partnership, limited liability company, joint venture, association, trust,
unincorporated organization or other entity.
(iv) "Proxy" shall have the meaning assigned to such term in Rule
14a-1 promulgated under the Exchange Act.
(v) "Solicitation" shall have the meaning assigned to such term in
Rule 14a-11 promulgated under the Exchange Act.
(vi) "Soliciting Stockholder" shall mean, with respect to any
special meeting requested by a stockholder or stockholders, any of the
following Persons:
(a) if the number of stockholders signing the request or
requests of meeting delivered to the Corporation pursuant to
paragraph (3) of this Section 1(b) is 10 or fewer, each stockholder
signing any such request;
(b) if the number of stockholders signing the request or
requests of meeting delivered to the Corporation pursuant to
paragraph (3) of this Section 1(b) is more than 10, each Person who
either (I) was a Participant in any Solicitation of such request or
requests or (II) at the time of the delivery to the Corporation of
the documents described in paragraph (3) of this Section 1(b) had
engaged or intended to engage in any Solicitation of Proxies for use
at such special meeting (other than a Solicitation of Proxies on
behalf of the Corporation); or
(c) any Affiliate of a Soliciting Stockholder, if a majority
of the directors then in office determine that such Affiliate should
be required to sign the written notice described in paragraph (3) of
this Section 1(b) and/or the written agreement described in this
paragraph (4) in order to prevent the purposes of this Section 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
2
<PAGE>
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 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
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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.
(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
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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 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.
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(i) Stockholder Proposals. For any stockholder proposal to be presented
in connection with an annual meeting of stockholders of the Corporation,
including any proposal relating to the nomination of a director to be elected to
the Board of Directors of the Corporation, the stockholders must have given
timely written notice thereof in writing to the Secretary of the Corporation. In
order for such notice to be timely, such notice must be received by the
Corporation not less than 90 nor more than 180 days prior to the anniversary of
the previous year's annual meeting.
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. DEFINITIONS.
For the purpose of this Article II, capitalized terms not otherwise
defined herein shall have the meaning set forth in the Stockholders Agreement by
and between Prometheus Southeast Retail, LLC and the Corporation dated February
24, 1998 (the "Stockholders Agreement").
Section 2. 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 3. NUMBER, NOMINATION AND ELECTION OF DIRECTORS.
(a) Number. The Board of Directors shall consist of not more than fifteen
members and, until the Final Threshold Date, not less than nine members. Until
the Preliminary Threshold Date, at least one-third of the Board of Directors
shall be designees (the "Investor Nominees") of Prometheus Southeast Retail, LLC
or its successor or assignee (the "Investor"). From and after the Preliminary
Threshold Date and until the Second Threshold Date, at least two-
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ninths of the Board of Directors shall be Investor Nominees. From and after the
Second Threshold Date and until the Final Threshold Date, at least one-ninth of
the Board of Directors shall be Investor Nominees. The Board of Directors may
increase or decrease the number of the members of the Board of Directors within
the limitations set forth above. No reduction in the number of directors shall
of itself have the effect of shortening the term of any incumbent director.
(b) Election. The directors shall be elected at the annual meeting of
stockholders, or if not so elected, at a special meeting of stockholders called
for that purpose. At any meeting of stockholders at which directors are to be
elected (an "Election Meeting"), only persons nominated as candidates shall be
eligible for election, and the candidates receiving the greatest number of votes
entitled to be cast shall be elected.
(c) Nominations.
(1) Qualification. Directors of the Corporation need not be
stockholders or residents of 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 4(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) Investor Nominees. No person shall be named as an Investor
Nominee if (i) such person is not reasonably experienced in business,
financial or real estate matters, (ii) such person has been convicted of,
or pled nolo contendere to, a felony; (iii) the election of such person
would violate any law, or (iv) any event required to be disclosed pursuant
to Item 401(f) of Regulation S-K of the 1934 Act has occurred with respect
to such person. The Board of Directors shall support the nomination of and
the election of each Investor Nominee to the Board of Directors, and the
Board of Directors shall exercise all authority under applicable law to
cause each Investor Nominee to be elected to the Board of Directors.
(6) 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.
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(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 4. 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. In the event
that any Investor Nominee shall cease to serve as a Director for any reason
other than the fact that Investor no longer has a right to nominate a Director,
the vacancy resulting thereby shall be filled by an Investor Nominee designated
by Investor; provided, however, that any Investor Nominee so designated shall
satisfy the qualification requirements set forth in Section 3(c)(5).
Section 5. 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 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 6. 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 7. 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.
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Section 8. 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 9. 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, provided,
however, that each of the Executive Committee, the compensation committee, the
audit committee, any special committee(s) of the Board of Directors, and any
other Key Committees shall (A) until the Preliminary Threshold Date, be
comprised of members, at least one-third of whom are Investor Nominees, (B)
until the Second Threshold Date, be comprised of members, at least two-ninths of
whom are Investor Nominees, and (C) until the Final Threshold Date, be comprised
of members, at least one-ninth of whom are Investor Nominees. 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.
Notwithstanding the foregoing, if none of the Directors who are Investor
Nominees would be considered "independent" of the Company, "disinterested,"
"non-employee directors" and "outside directors" (i) for purposes of any
applicable rule of the New York Stock Exchange or any other securities exchange
or other self-regulating organization (such as the National Association of
Securities Dealers) requiring that members of the audit committee of the Board
of Directors be independent of the Corporation, (ii) for purposes of any law or
regulation that requires in order to obtain or maintain favorable tax,
securities, corporate law or other material legal benefits with respect to any
plan or arrangement for employee compensation or benefits, that the members of
the committee of the Board of Directors charged with responsibility for such
plan or arrangement be "independent" of the Corporation, "disinterested,"
"non-employee directors" or "outside directors," or (iii) for purposes of any
special committee formed in connection with any transaction or potential
transaction involving the Corporation and any of Investor, its Affiliates or any
Group of which Investor is a member or such other transaction or potential
transaction which would involve an actual or potential conflict of interest on
the part of the Directors who are Investor Nominees, then a Director who is an
Investor Nominee shall not be required to be appointed to any such committee;
provided, however, that the committees of the Board of Directors shall be
organized such that, to the extent practicable, the only items to be considered
by a Key Committee on which no Director who is an Investor Nominee may serve
will be those items which prevent the Director who is an Investor Nominee from
serving on such Key Committee. Any members of any Key Committee who are Investor
Nominees shall, in the event of any vacancy in such membership, be replaced by a
Director who is an Investor Nominee elected by a majority of the Directors who
are Investor Nominees.
(b) Executive Committee. Until the Final Threshold Date, there shall be an
Executive Committee of the Board of Directors, 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
maximum 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
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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.
Section 10. 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.
Section 11. SUPERMAJORITY BOARD APPROVAL.
Until the Approval Rights Termination Date, if any, notwithstanding the
fact that a vote of the Board of Directors or the Executive Committee may not be
required under applicable law, the Corporation shall not, and shall not permit
any of its Subsidiaries without the affirmative vote of over sixty-seven percent
(67%) of all of the Directors ("Supermajority Board Approval") to:
(a) acquire, whether by merger, consolidation, purchase of stock or assets
or other business combination, (i) in a single transaction or group of related
transactions, any business or assets having an aggregate purchase price in
excess of twenty-five percent (25%) of Total Enterprise Value as measured at the
beginning of the fiscal year in which such acquisition is consummated, or (ii)
during any one fiscal year, businesses or assets having an aggregate purchase
price in excess of fifty percent (50%) of Total Enterprise Value as measured at
the beginning of such fiscal year;
(b) sell or dispose of any assets, whether by merger, consolidation, sale
of stock or assets or other business combination, during any one fiscal year,
having an aggregate value in excess of twenty-five percent (25%) of Total
Enterprise Value as measured at the beginning of such fiscal year;
(c) directly or indirectly, create, incur, issue, assume, guarantee or
otherwise become directly or indirectly liable, contingently or otherwise, with
respect to, any indebtedness if, after giving pro forma effect to such
indebtedness, the Corporation's ratio of (i) total indebtedness to (ii) Total
Enterprise Value, expressed as a percentage, would be greater than 65%;
(d) make any payment to, or sell, lease, transfer or otherwise dispose of
any of its properties or assets to, or purchase any property or assets from, or
enter into or make or amend any contract, agreement, understanding, loan,
advance or guarantee with, or for the benefit of, any of its Affiliates;
(e) issue Stock or options, rights or warrants or other commitments to
purchase or securities convertible into (or exchangeable or redeemable for)
shares of Stock, including, without limitation, OP Units (such options, rights,
warrants, other commitments or securities, "Stock Equivalents"); provided,
however, that Supermajority Board Approval shall not be required for any
issuance of Stock or Stock Equivalents as long as the sum of (i) all shares of
Stock issued by the Corporation during the applicable fiscal year and (ii)
shares of Stock into which Stock Equivalents issued by the Corporation and each
of its Subsidiaries during the applicable fiscal year are convertible, does not
exceed fifty percent (50%) of all shares of Stock outstanding, on a Fully
Diluted basis, on the first day of such fiscal year; provided, further, that in
connection with any issuance by the Corporation of Stock or issuance by the
Corporation or any of its
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Subsidiaries of any Stock Equivalents, Investor shall be entitled, to the extent
so provided in Section 4.1 of the Stock Purchase Agreement, to a participation
right on the terms set forth in Section 4.1 of the Stock Purchase Agreement.
Notwithstanding the first sentence of this Section 11(e), (i) Stock issued to
the Corporation or a wholly owned Subsidiary thereof and (ii) Stock and Stock
Equivalents issued to directors or employees of the Corporation or a Subsidiary
of the Corporation in connection with any employee benefit plan approved by the
stockholders of the Corporation, shall not be subject to Supermajority Board
Approval;
(f) change or amend any provision of the Corporation's Charter or bylaws
in a manner that would be materially adverse to Investor;
(g) pursuant to or within the meaning of any bankruptcy law: (i) commence
a voluntary case, (ii) consent to the entry of an order for relief against it in
an involuntary case, (iii) consent to the appointment of a custodian of it or
for all or substantially all of its property; (iv) make a general assignment for
the benefit of its creditors;
(h) in the case of the Corporation, (1) terminate its eligibility for
treatment as a real estate investment trust, as defined in the Code, or (2) take
any action or fail to take any action which would reasonably be expected to,
alone or in conjunction with any other factors, result in the loss of such
eligibility, unless in the case of a failure to take action, such action is
initiated within thirty days and such action is completed within the period
required under the Code in order to maintain such eligibility; or
(i) subject to the right of the Corporation to terminate the Stock
Purchase Agreement pursuant of Section 9.1(b)(iii) thereof, allow the
consummation of any transaction (including, without limitation, any merger or
consolidation) the result of which is that any "person" (as defined above),
other than Investor, becomes the "beneficial owner" (as such term is defined in
Rule 13d-3 and Rule 13d-5 under the Exchange Act), directly or indirectly, of
stock having more than 15% of the voting power of the Company.
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.
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(a) In General. Subject to the specific provisions of these Bylaws, all
officers, as between themselves and the Corporation, shall respectively have
such authority and perform such duties as are customarily incident to their
respective offices, and as may be specified from time to time by the Board of
Directors, regardless of whether such authority and duties are customarily
incident to such office. In the absence of any officer of the Corporation, or
for any other reason the Board of Directors may deem sufficient, the Board of
Directors may delegate from time to time the powers or duties of such officer,
or any of them, to any other officer or to any Director.
(b) President. The President shall, in the absence of the Chairman or upon
the determination of the Board of Directors, preside at all meetings of the
stockholders. The President shall be the chief executive officer of the
Corporation and shall have general supervision over its property, business and
affairs, and shall perform all the duties usually incident to such office,
subject to the direction of the Board of Directors. He may execute all
authorized deeds, mortgages, bonds, contracts and other obligations in the name
of the Corporation and, subject to the provisions of these Bylaws, shall have
such other powers and duties as may be prescribed by the Board of Directors.
(c) Vice Presidents. The Vice Presidents shall have such powers, duties
and titles as may be prescribed by the Board of Directors or as may be delegated
by the President.
(d) Secretary. The Secretary shall attend and shall keep the minutes of
all meetings of the stockholders and the Board of Directors (and perform similar
duties for the committees of the Board of Directors when required). He shall
keep such books as may be required by the Board of Directors, shall have charge
of the seal, if any, of the Corporation and shall be permitted, subject to the
provisions of these Bylaws, to give notices of stockholders' and directors'
meetings required by law or by these Bylaws, or otherwise, and have such other
powers and duties as may be prescribed by the Board of Directors.
(e) Treasurer. The Treasurer shall receive and have charge of all money,
bills, notes, bonds, stock in other corporations and similar property belonging
to the Corporation, and shall do with the same as shall be ordered by the Board
of Directors. He shall disburse the funds and pledge the credit of the
Corporation as may be directed by the Board of Directors. He shall keep accurate
financial accounts and hold the same open for inspection and examination by the
directors. On the expiration of his term of office, he shall turn over to his
successors, or the Board of Directors, all property, books, papers and money of
the Corporation in his hands, and shall possess such other powers and duties as
may be prescribed by the Board of Directors.
(f) Executive Officers. The officers referred to in subparagraphs (b),
(c), (d) and (e) of this section, and such other officers as the Board of
Directors may by resolution identify as such shall be executive officers of the
Corporation and may be referred to as such.
(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.
12
<PAGE>
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, 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
13
<PAGE>
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 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.
14
<PAGE>
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.
15
<PAGE>
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
16
<PAGE>
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.
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.
ARTICLE IX
Applicability of the Maryland Control Shares Acquisition Statute
The Maryland Control Shares Acquisition Statute shall not apply to the
voting rights of stock acquired pursuant to the Stock Purchase Agreement by and
between the Corpor ation and Prometheus Southeast Retail LLC dated as of
February 24, 1998, and any amendment thereto.
17
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