UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13D
Under the Securities Exchange Act of 1934
FAC REALTY TRUST, INC.
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(Name of Issuer)
Common Stock, par value $0.01 per share
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(Title of Class of Securities)
301953 10 5
(CUSIP Number)
Murry N. Gunty
Prometheus Southeast Retail LLC
LF Strategic Realty Investors II L.P.
30 Rockefeller Plaza, 63rd Floor
New York, NY 10020
(212) 632-6000
with a copy to:
R. Ronald Hopkinson, Esq.
Latham & Watkins
885 Third Avenue
New York, New York 10022
(212) 906-1200
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(Name, Address and Telephone Number of Person Authorized to Receive Notices
and Communications)
February 24, 1998
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(Date of Event which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition which is the subject of this Schedule 13D, and is filing this
schedule because of Rule 13d-1(b)(3) or (4), check the following box [ ].
Note: Six copies of this statement, including all exhibits, should be filed with
the Commission. See Rule 13d-1(a) for other parties to whom copies are to be
sent.
*The remainder of this cover page shall be filled out for a reporting person's
initial filing on this form with respect to the subject class of securities, and
for any subsequent amendment containing information which would alter
disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not be deemed
to be "filed" for the purpose of Section 18 of the Securities Exchange Act of
1934 ("Act") or otherwise subject to the liabilities of that section of the Act
but shall be subject to all other provisions of the Act (however, see the
Notes).
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SCHEDULE 13D
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CUSIP No. 301953 10 5 Page 2 of 10
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1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Prometheus Southeast Retail LLC
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2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) [ ]
(b) [X]
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3 SEC USE ONLY
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4 SOURCE OF FUNDS AF (See Item 3)
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5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS
IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e) [ ]
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6 CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
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NUMBER OF 7 SOLE VOTING POWER
SHARES
BENEFICIALLY 21,052,632 (See Item 4)
OWNED BY
EACH
REPORTING
PERSON
WITH
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8 SHARED VOTING POWER
None
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9 SOLE DISPOSITIVE POWER
21,052,632 (See Item 4)
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10 SHARED DISPOSITIVE POWER
None
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11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
21,052,632 (See Item 4)
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12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* [ ]
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13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
63.1%
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14 TYPE OF REPORTING PERSON*
CO (limited liability company)
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*SEE INSTRUCTIONS BEFORE FILLING OUT!
INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEMS 1-7
(INCLUDING EXHIBITS) OF THE SCHEDULE, AND THE SIGNATURE ATTESTATION.
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CUSIP No. 301953 10 5 Page 3 of 10
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1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
LF Strategic Realty Investors II L.P.
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2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) [ ]
(b) [X]
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3 SEC USE ONLY
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4 SOURCE OF FUNDS AF (See Item 3)
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5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS
IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e) [ ]
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6 CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
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NUMBER OF 7 SOLE VOTING POWER
SHARES
BENEFICIALLY 21,052,632 (See Item 4)
OWNED BY
EACH
REPORTING
PERSON
WITH
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8 SHARED VOTING POWER
None
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9 SOLE DISPOSITIVE POWER
21,052,632 (See Item 4)
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10 SHARED DISPOSITIVE POWER
None
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11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
21,052,632 (See Item 4)
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12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* [ ]
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13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
63.1%
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14 TYPE OF REPORTING PERSON*
PN (limited partnership)
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</TABLE>
*SEE INSTRUCTIONS BEFORE FILLING OUT!
INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEMS 1-7
(INCLUDING EXHIBITS) OF THE SCHEDULE, AND THE SIGNATURE ATTESTATION.
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Page 4 of 10
This Schedule 13D (this "Statement"), dated March 6, 1998, of the
Reporting Persons (as defined below) is filed to reflect information required
pursuant to Rule 13d-1 of the General Rules and Regulations under the Securities
Exchange Act of 1934, as amended, relating to the proposed purchase by
Prometheus Southeast Retail LLC ("Prometheus") of 21,052,632 shares of common
stock, par value $0.01 per share (the "Common Stock"), of FAC Realty Trust, Inc.
(the "Company" or the "Issuer") pursuant to the Stock Purchase Agreement, dated
as of February 24, 1998 (the "Stock Purchase Agreement"), by and between the
Company and Prometheus.
Item 1. Security and Issuer
This statement relates to the Reporting Persons deemed beneficial
owners of Common Stock pursuant to the transaction contemplated under the Stock
Purchase Agreement. The Issuer's principal executive offices are located at
11000 Regency Parkway, East Tower, Cary, NC 27511.
Item 2. Identity and Background
(a) This statement is filed by Prometheus and LF Strategic Realty
Investors II L.P., a Delaware limited partnership ("LFSRI II") and sole member
of Prometheus (together, the "Reporting Persons").
(b) The principal business offices of the Reporting Persons are c/o
Lazard Freres Real Estate Investors LLC ("LFREI"), 30 Rockefeller Plaza, 63rd
Floor, New York, New York 10020.
(c) Prometheus is a special purpose vehicle formed to acquire the
Common Stock as contemplated by the Stock Purchase Agreement. LFSRI II is an
investment partnership formed to invest in companies active in the real estate
industry. The sole member of Prometheus is LFSRI II, and the general partner of
LFSRI II is LFREI. LFREI's activities consist principally of acting as general
partner of several real estate investment partnerships that are affiliated with
Lazard Freres & Co. LLC. ("Lazard"). Lazard disclaims beneficial ownership of
any of the shares of Common Stock reported in this Statement. The name, business
address and principal occupation or employment of the executive officers of
LFREI are set forth on Schedule 1 hereto and incorporated by reference herein.
(d) and (e) During the last five years, neither the Reporting Persons
nor, to the best knowledge of the Reporting Persons, any of the persons listed
in Schedule 1 hereto (i) has been convicted in a criminal proceeding (excluding
traffic violations or similar misdemeanors) nor (ii) has been a party to any
civil proceeding of a judicial or administrative body of competent jurisdiction,
and is or was, as a result of such proceeding, subject to a judgment, decree or
final order enjoining future violations of, or prohibiting or mandating
activities subject to, federal or state securities laws, or finding any
violation with respect to such laws.
(f) Each person listed on such Schedule 1 is a citizen of the United
States.
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Page 5 of 10
Item 3. Source and Amount of Funds or Other Consideration.
The consummation of the transactions contemplated by the Stock Purchase
Agreement would require aggregate funds of approximately $200.0 million. The
funds for this transaction are to be made available from capital commitments of
the limited partners of LFSRI II.
Item 4. Purpose of Transaction.
Prometheus entered into the Stock Purchase Agreement for the purpose of
establishing an investment interest in the Issuer and will, subject to the terms
and conditions of the Stock Purchase Agreement, purchase an aggregate of
21,052,632 shares of Common Stock. Subject to the terms and conditions of the
Stock Purchase Agreement, including receipt of the approval of the holders of
the requisite number of shares of outstanding Common Stock of the Company (the
"Stockholder Approval") for the issuance of more than the Initial Number of
Shares (as defined below), the Issuer shall sell to Prometheus an aggregate of
21,052,632 shares of Common Stock (the "Transaction"). In addition to such stock
acquisition, following the receipt of Stockholder Approval, the structure of the
Issuer's board of directors shall be altered pursuant to the Stockholders
Agreement (as defined below) to give Prometheus and its affiliates the right to,
in certain circumstances, appoint one-third of the members of the Board of
Directors.
Following the date of the Stockholder Approval, Prometheus and its
affiliates will have substantial influence over, and could under certain
circumstances exercise effective control of, the direction and management of the
Company and the conduct of its business. Upon consummation of the Transactions,
the Reporting Persons would hold a majority of the Common Stock of the Company,
assuming no other shares of Common Stock are issued by the Company subsequent to
the date hereof. Pursuant to the Stockholders Agreement, under certain
circumstances, Prometheus will have the right to participate in the issuance or
sale by the Company of any shares of its capital stock so that Prometheus can
maintain its proportionate share of outstanding capital stock of the Company. In
addition, pursuant to the Stockholders Agreement, neither the Issuer nor its
subsidiaries may take certain actions (the "Restricted Actions") without the
affirmative vote of over sixty-seven percent of the members of the board of
directors of the Issuer. In the event the requisite number of Investor Directors
(as defined below) are not elected to the Issuer's board of directors as set
forth in the Stockholders Agreement, the Contingent Value Right Agreement (as
defined below) will prohibit the Issuer and its subsidiaries from taking
Restricted Actions without the prior approval of Prometheus.
Following the date of the Stockholder Approval, the Certificate of
Incorporation and Bylaws of the Issuer will be amended (respectively, the
"Certificate Amendments" and the "Bylaws Amendments") in order to adopt the
terms and conditions of the Stockholders Agreement.
The Transaction will be consummated in three or more stages. On a date
that is no later than forty five days of the date of the Stock Purchase
Agreement (or, at the sole discretion of the Company, any date within seventy
five days of the date of the Stock Purchase Agreement) and on which certain
closing conditions are satisfied (the "Initial Closing"), Prometheus will
purchase from the Issuer the number of shares of Common Stock equal to 19.9% of
the aggregate number of outstanding shares of Common Stock on the date of the
Initial Closing (the "Initial Number of Shares").
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Page 6 of 10
On such date that is as soon as practicable after the Stockholder
Approval (the "Second Closing"), Prometheus shall purchase from the Issuer the
number of shares of Common Stock equal to the difference between 10,526,316
shares of Common Stock and the Initial Number of Shares.
Following the Second Closing, the Issuer shall be obligated to sell to
Prometheus at one or more subsequent closings an aggregate of 10,526,316 shares
of Common Stock (the "Subsequent Purchases"). The Issuer shall give Prometheus
at least twenty business days notice of any subsequent closing and shall require
Prometheus to purchase no fewer than 1,052,631 shares of Common Stock at each
such closing. Subject to certain exceptions, the Issuer shall require Prometheus
to make all of the Subsequent Purchases on or before the eighteen month
anniversary of the Second Closing.
The Second Closing and all Subsequent Purchases will be subject to the
following conditions: (1) Stockholder Approval, (2) effectiveness of the
Certificate Amendments and Bylaws Amendments, (3) the waiver of change of
control payment provisions in certain employment agreements of the Company and
(4) the satisfaction of various other customary closing conditions. The Stock
Purchase Agreement also provides for certain payments by the Company to
Prometheus in the event the Second Closing does not occur or the Company enters
into certain Competing Transactions (as defined in the Stock Purchase
Agreement).
The foregoing discussion of the Stock Purchase Agreement and the
Ancillary Agreements (as defined herein) is qualified in its entirety by the
full text of such agreements, a copy of which is attached hereto as Exhibits
hereto and is incorporated herein by reference.
Item 5. Interest in Securities of the Issuer.
(a) Assuming consummation of the sale by the Company of all shares of
Common Stock issuable pursuant to the Stock Purchase Agreement, such 21,052,632
shares would represent approximately 63.1% of the approximately 33,351,523
issued and outstanding shares of the Issuer as of February 24, 1998, as set
forth in the Stock Purchase Agreement.
(b) Prometheus will have the sole power to vote or to direct the vote
of all shares of Common Stock purchased pursuant to the Stock Purchase
Agreement, subject to the terms of the Stockholders Agreement described in Item
6.
(c) Neither Reporting Person nor, to the knowledge of the Reporting
Persons, any of the persons listed on Schedule 1 hereto, have acquired any
shares of Common Stock of the Company during the past sixty days.
(d) Prometheus will have the sole right to receive or the power to
direct the receipt of dividends from, or the proceeds of sale of, the shares of
Common Stock purchased pursuant to the Stock Purchase Agreement.
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Page 7 of 10
Item 6. Contracts, Arrangements, Understandings, or Relationships with Respect
to Securities of the Issuer.
Concurrently with the execution of the Stock Purchase Agreement, on
February 24, 1998, Prometheus and the Issuer entered into (i) a contingent value
right agreement (the "Contingent Value Right Agreement"), (ii) a stockholders
agreement (the "Stockholders Agreement") and (iii) a registration rights
agreement (the "Registration Rights Agreement" and, collectively with the
Contingent Value Right Agreement and the Stockholders Agreement, the "Ancillary
Documents").
The Stockholders Agreement contemplates that the Issuer will take all
actions following the Stockholder Approval necessary to cause the Board to be
structured to consist of no less than nine members and the Issuer will use its
best efforts to cause (i) a minimum of three designees of Prometheus and its
affiliates to be elected Directors of the board of directors (each such
Director, an "Investor Director"), such number of Investor Directors subject to
adjustment based on the stock ownership levels of Prometheus and its affiliates,
and (ii) any increases in the size of the Board to result in an increase in the
number of Investor Directors such that they represent at least one-third of the
votes exercisable by the Board, such number of Investor Directors subject to
adjustment based on the stock ownership levels of Prometheus and its affiliates.
In addition, pursuant to the Stockholders Agreement, the Issuer will take all
actions necessary to cause at least a proportionate number of Investor Directors
to serve on each committee of its board or directors and at least one Investor
Director to serve on the governing body of each of the Issuer's subsidiaries.
The Certificate of Incorporation and Bylaws of the Issuer and its subsidiaries
shall be amended at the time of the Second Closing to give effect to the terms
of the Stockholders Agreement.
Pursuant to the Registration Rights Agreement, the Issuer has granted
Prometheus demand registration rights to facilitate the resale of the Common
Stock owned by it and has also granted Prometheus certain piggyback rights to
sell a portion of its shares in connection with offerings of securities by the
Issuer for its own account.
Pursuant to the Contingent Value Right Agreement, the Issuer has
granted Prometheus contingent value rights which entitle the Prometheus to
certain payments. Prometheus shall not receive payment pursuant to Contingent
Value Right Agreement until January 1, 2004. The Contingent Value Right
Agreement is subject to termination prior to January 1, 2004 upon the occurrence
of certain events.
All references to the Ancillary Documents are qualified in their
entirety by the full text of such agreements, copies of which are attached as
Exhibits hereto and are incorporated by reference herein.
See also Item 4.
Item 7. Material to be Filed as Exhibits.
Exhibit 1. Stock Purchase Agreement, dated as of February 24,
1998, by and between the Issuer and Prometheus
Exhibit 2. Registration Rights Agreement, dated as of
February 24, 1998, by and between the Issuer and
Prometheus
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Page 8 of 10
Exhibit 3. Stockholders Agreement, dated as of February 24,
1998, by and between the Issuer and Prometheus
Exhibit 4. Contingent Value Right Agreement, dated as of
February 24, 1998, by and between the Issuer and
Prometheus
Exhibit 5. Joint Filing Agreement
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SIGNATURE
After reasonable inquiry and to the best of my knowledge and
belief, I certify that the information set forth in this statement is true,
complete and correct.
PROMETHEUS SOUTHEAST RETAIL LLC
By: LF Strategic Realty Investors II
L.P., as sole member
By: Lazard Freres Real Estate Investors
L.L.C., as general partner
By: /s/ Murry N. Gunty
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Name: Murry N. Gunty
Title: Principal
LF STRATEGIC REALTY INVESTORS II L.P.
By: Lazard Freres Real Estate Investors L.L.C.,
as general partner
By: /s/ Murry N. Gunty
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Name: Murry N. Gunty
Title: Principal
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Page 10 of 10
SCHEDULE I
Executive Officers of Prometheus and LFREI
The business address for each of the following
persons is 30 Rockefeller Plaza, 63rd Floor, New
York, NY 10020.
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Name of Officer Present and Principal Occupation
Arthur P. Solomon Principal of LFREI
Anthony E. Meyer Principal of LFREI
Robert P. Freeman Principal of LFREI
Klaus P. Kretschmann Principal of LFREI
Murry N. Gunty Principal of LFREI
Thomas M. Mulroy Senior Vice President of LFREI
Lorenzo L. Lorenzotti Secretary of LFREI
Henry C. Herms Comptroller of LFREI
</TABLE>
EXHIBIT 1
STOCK PURCHASE AGREEMENT
by and between
FAC REALTY TRUST, INC.
and
PROMETHEUS SOUTHEAST RETAIL LLC
dated as of
February 24, 1998
<PAGE>
THIS STOCK PURCHASE AGREEMENT (this "Agreement"), dated as of February 24,
1998, is made by and between FAC Realty Trust, Inc., a Maryland corporation (the
"Company") and Prometheus Southeast Retail LLC ("Buyer"), an affiliate of Lazard
Freres Real Estate Investors, LLC, a Delaware limited liability company
("LFREI").
RECITALS:
WHEREAS, Buyer wishes to purchase from the Company, and the Company wishes
to sell to Buyer, (i) an aggregate of 21,052,632 shares of the Company's common
stock, par value $0.01 per share (the "Company Common Stock"), at a purchase
price of $9.50 per share and (ii) contingent value rights (the "Contingent Value
Rights") of the Company as further described in the Contingent Value Right
Agreement (as defined herein);
WHEREAS, Buyer and the Company are entering into this Agreement to provide
for such purchase and sale and to establish various rights and obligations in
connection therewith; and
WHEREAS, the Company and Buyer believe that the combination in a strategic
alliance of the leadership, expertise and experience in retail development and
operations of the Company and the proven investment and capital markets
expertise and access to capital of Buyer and its affiliates will significantly
enhance the Company's ability to pursue its growth and operating strategies;
NOW, THEREFORE, in consideration of the promises and the representations,
warranties, covenants and agreements contained herein, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, and intending to be legally bound hereby, the parties hereto
hereby agree as follows:
ARTICLE 1
Definitions
As used in this Agreement, the following terms shall have the following
respective meanings:
Section 1.1 "Action" shall mean any action, suit, arbitration, inquiry,
proceeding or investigation by or before any Government Authority.
Section 1.2 "ADA" shall have the meaning set forth in Section 3.11(e).
Section 1.3 "Affiliate" shall have the meaning ascribed thereto in Rule
12b-2 promulgated under the Exchange Act, and as in effect on the date hereof.
Section 1.4 "Agreement" shall have the meaning set forth in the first
paragraph hereof.
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Section 1.5 "Army Corps of Engineers" shall have the meaning set forth in
Section 3.11(d).
Section 1.6 "Benefit Arrangements" shall have the meaning set forth in
Section 3.13(h).
Section 1.7 "Blue Sky Laws" shall have the meaning set forth in Section
3.4(e).
Section 1.8 "Board" shall mean the Board of Directors of the Company.
Section 1.9 "Break-up Fee" shall have the meaning set forth in Section
9.3(b).
Section 1.10 "Business Day" shall mean any day other than a Saturday, a
Sunday or a day on which the New York Stock Exchange is closed.
Section 1.11 "Buyer" shall have the meaning set forth in the first
paragraph hereof.
Section 1.12 "Capital Expenditure Budget and Schedule" shall have the
meaning set forth in Section 3.11(i).
Section 1.13 "CERCLA" shall have the meaning set forth in Section 3.12(e).
Section 1.14 "Claim" shall have the meaning set forth in Section
3.12(g)(i).
Section 1.15 "Closing" shall mean the consummation of any Stock Purchase.
Section 1.16 "Closing Date" shall mean, with respect to the consummation
of any Stock Purchase, the date on which the conditions set forth herein with
respect thereto shall be satisfied or duly waived, or if the Company and Buyer
mutually agree on a different date, the date upon which they have mutually
agreed.
Section 1.17 "Code" shall mean the Internal Revenue Code of 1986, as
amended, and any successor thereto, including all of the rules and regulations
promulgated thereunder.
Section 1.18 "Commitment" shall have the meaning set forth in Section 3.7.
Section 1.19 "Company" shall have the meaning set forth in the first
paragraph hereof.
Section 1.20 "Company Charter" shall mean the Amended and Restated
Articles of Incorporation of FAC Realty Trust, Inc. and any amendment or
supplement thereto, as in effect on the date hereof.
Section 1.21 "Company Common Stock" shall have the meaning set forth in
the second paragraph hereof.
2
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Section 1.22 "Company Environmental Reports" shall have the meaning set
forth in Section 3.12(f).
Section 1.23 "Company Excess Stock" shall have the meaning set forth in
Section 3.3(a).
Section 1.24 "Company Leases" shall have the meaning set forth in Section
3.11(f).
Section 1.25 "Company Plans" shall have the meaning set forth in Section
3.13(b).
Section 1.26 "Company Preferred Stock" shall have the meaning set forth in
Section 3.3(a).
Section 1.27 "Company Properties" shall have the meaning set forth in
Section 3.11(a).
Section 1.28 "Company Registration Statement" shall have the meaning set
forth in Section 3.5(a).
Section 1.29 "Company Reports" shall have the meaning set forth in Section
3.5(a).
Section 1.30 "Company Stock" shall mean, collectively, the Company Common
Stock and any other shares of capital stock of the Company.
Section 1.31 "Company Stock Equivalents" shall have the meaning set forth
in Section 5.3(e).
Section 1.32 "Competing Transaction" shall mean (i) any acquisition in any
manner, directly or indirectly (including through any option, right to acquire
or other beneficial ownership), of more than 15% of the equity securities, on a
Fully Diluted basis, of the Company by a single person or a group of related
persons, or assets representing a material portion of the assets of the Company,
other than any of the transactions contemplated by this Agreement or (ii) any
merger, consolidation, sale of assets, share exchange, recapitalization, other
business combination, liquidation, or other action out of the ordinary course of
business of the Company (it being understood that acquisitions of real property
in exchange for OP Units is in the ordinary course of business), other than any
of the transactions contemplated by this Agreement.
Section 1.33 "Contingent Value Rights" shall have the meaning set forth in
the first paragraph of the recitals hereto.
Section 1.34 "Contingent Value Right Agreement" shall have the meaning set
forth in Section 2.6(a).
Section 1.35 "Controlled Group Liability" shall have the meaning set forth
in Section 3.13(h).
3
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Section 1.36 "Debt Instruments" shall mean all notes, loan agreements,
mortgages, deeds of trust or similar instruments which evidence or secure any
indebtedness owing by the Company or any of its Subsidiaries.
Section 1.37 "Development Budget and Schedule" shall have the meaning set
forth in Section 3.11(j).
Section 1.38 "Development Properties" shall have the meaning set forth in
Section 3.11(j).
Section 1.39 "Employee Benefit Plans" shall have the meaning set forth in
Section 3.13(h).
Section 1.40 "Employees" shall have the meaning set forth in Section
3.13(h).
Section 1.41 "Employment Agreements" shall have the meaning set forth in
Section 3.13(a).
Section 1.42 "Environmental Claim" shall have the meaning set forth in
Section 3.12(g)(ii).
Section 1.43 "Environmental Laws" shall have the meaning set forth in
Section 3.12(g)(iii).
Section 1.44 "Environmental Permits" shall have the meaning set forth in
Section 3.12(a).
Section 1.45 "ERISA" shall mean the Employee Retirement Income Security
Act of 1974, as amended, and any successor thereto.
Section 1.46 "ERISA Affiliates" shall mean any entity which is under
"common control" with the Company, within the meaning of Section 4001(b)(1) of
ERISA.
Section 1.47 "Exchange Act" shall have the meaning set forth in Section
3.4(e).
Section 1.48 "Fair Market Value" shall have the meaning given to it in the
Stockholders Agreement.
Section 1.49 "Final Schedules" shall have the meaning set forth in Section
5.7.
Section 1.50 "Fully Diluted" shall mean, with respect to the Company
Stock, the total number of outstanding shares of Company Stock (for such
purposes, treating as outstanding Company Stock all options or warrants to
purchase and securities convertible into (or exchangeable or redeemable for)
Company Stock including, without limitation, OP Units), outstanding as of the
relevant measurement date, assuming exercise, conversion, exchange or redemption
of such other securities.
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Section 1.51 "GAAP" shall have the meaning set forth in Section 3.5(b).
Section 1.52 "Governing Documents" shall mean this Agreement, the
Registration Rights Agreement, the Stockholders Agreement and the Contingent
Value Right Agreement.
Section 1.53 "Government Authority" shall mean any government or state (or
any subdivision thereof) of or in the United States, or any agency, authority,
bureau, commission, department or similar body or instrumentality thereof, or
any governmental court or tribunal.
Section 1.54 "Ground Leases" shall have the meaning set forth in Section
3.11(k).
Section 1.55 "Indemnified Party" shall mean Buyer or the Company, as the
context may require.
Section 1.56 "Initial Closing" shall mean the first Closing, which shall
occur on the Target Date.
Section 1.57 "Initial Number of Shares" shall mean the number of shares of
Company Common Stock equal to 19.9% of the aggregate number of outstanding
shares of Company Common Stock on the date of the Initial Closing (prior to the
issuance of the Initial Number of Shares of Company Common Stock).
Section 1.58 "Initial Public Offering" shall mean the initial public
offering of the common stock of FAC Realty, Inc.
Section 1.59 "Insurance Policies" shall have the meaning set forth in
Section 3.16.
Section 1.60 "Investor" shall have the meaning giving to it in the
Stockholders Agreement.
Section 1.61 "Investor Nominee" shall have the meaning given to such term
in the Stockholders Agreement.
Section 1.62 "IRS" shall mean the Internal Revenue Service.
Section 1.63 "Kane" shall mean Kane Realty Corporation.
Section 1.64 "Kane and Konover Properties" shall mean the properties to be
purchased after the date hereof by the Company pursuant to the Kane Purchase
Agreement and the Konover Purchase Agreement.
Section 1.65 "Kane and Konover Schedules" shall have the meaning set forth
in Section 5.8.
Section 1.66 "Kane Purchase Agreement" shall mean, collectively, those
certain Exchange Option Agreements, Master Agreements and other related
documents by and among
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FAC Realty Trust, Inc., FAC Properties, L.P., Carolina FAC L.P., Roy O. Rodwell,
Carolyn E. Martin, John M. Kane, Clifford Clark, Mark E. Pitney, Atlantic Realty
LLC, Effell Pembroke, LLC, Park Place FAC LLC and Atlantic RealVest LLC relating
to the acquisition by FAC Properties, L.P. of the partnership or other ownership
interests in the entities which own title to and/or the shopping center real
properties and improvements located at (i) Celebration, Raleigh, NC, (ii)
Shoreside, Kitty Hawk, NC, (iii) Stanton, Greenville, NC, (iv) Parkwest, Durham,
NC, (v) Brookneal, Brookneal, VA, and (vi) Keysville, Keysville, VA.
Section 1.67 "Konover" shall mean Konover Associates South, Inc.
Section 1.68 "Konover Purchase Agreement" shall mean that certain Master
Agreement and other related documents by and among FAC Realty Trust, Inc., FAC
Properties, L.P. and the owners of the properties and interests listed therein
relating to the acquisition by FAC Properties, L.P. of the title to the shopping
center real properties and improvements located at (i) Mobile Festival Centre,
Mobile, AL, (ii) The Plaza Shopping Center, Davie, FL, (iii) Square One Plaza,
Stuart, FL, (iv) Durham Festival Centre, Durham, NC, (v) Hollywood Festival
Centre, Hollywood, FL, (vi) Lenoir Festival Centre, Lenoir, NC, (vii) Oakland
Park Festival Centre, Oakland Park, FL, (viii) Tampa Festival Centre, Tampa, FL,
(ix) Food Lion Plaza, Petersburg, VA and (x) South Cobb Festival Centre, Smyrna,
GA.
Section 1.69 "Kick Out Properties" shall have the meaning set forth in
Section 5.8.
Section 1.70 "Liabilities" shall mean, as to any person, all debts,
adverse claims, liabilities and obligations, direct, indirect, absolute or
contingent of such person, whether known or unknown, accrued, vested or
otherwise, whether in contract, tort, strict liability or otherwise and whether
or not actually reflected, or required by GAAP to be reflected, in such person's
or entity's balance sheets or other books and records, including without
limitation (i) obligations arising from non-compliance with any law, rule or
regulation (including Environmental Laws) of any Government Authority or imposed
(including, without limitation, under any Environmental Laws or in connection
with Environmental Claims) by any court or any arbitrator of any kind, (ii) all
indebtedness or liability of such person for borrowed money, or for the purchase
price of property or services (including trade obligations), (iii) all
obligations of such person as lessee under leases, capital or other, (iv)
liabilities of such person in respect of plans covered by Title IV of ERISA, or
otherwise arising in respect of plans for Employees or former Employees or their
respective families or beneficiaries, (v) reimbursement obligations of such
person in respect of letters of credit, (vi) all obligations of such person
arising under acceptance facilities, (vii) all liabilities of other persons or
entities, directly or indirectly, guaranteed, endorsed (other than for
collection or deposit in the ordinary course of business) or discounted with
recourse by such person or with respect to which the person in question is
otherwise directly or indirectly liable, (viii) all obligations secured by any
Lien on property of such person, whether or not the obligations have been
assumed, and (ix) all other items which have been, or in accordance with GAAP
would be, included in determining total liabilities on the liability side of the
balance sheet.
Section 1.71 "LFREI" shall have the meaning set forth in the first
paragraph hereof.
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Section 1.72 "Liens" shall mean all liens, mortgages, deeds of trust,
deeds to secure debt, security interests, pledges, claims, charges, easements
and other encumbrances of any nature whatsoever.
Section 1.73 "Loss and Expenses" shall have the meaning set forth in
Section 8.2(a).
Section 1.74 "Material Adverse Effect" shall mean a material adverse
effect on the financial condition, results of operations, business or prospects
of the Company and its Subsidiaries (to the extent of the Company's interests
therein) taken as a whole.
Section 1.75 "Material Company Leases" shall have the meaning set forth in
Section 3.11(f).
Section 1.76 "Materials of Environmental Concern" shall have the meaning
set forth in Section 3.12(g)(iv).
Section 1.77 "19.9% Sale Transaction" shall mean the sale by Investor of
the Initial Number of Shares to a person in connection with a Competing
Transaction entered into on any date on or prior to the one year anniversary of
the date this Agreement is terminated.
Section 1.78 "19.9% Sale Transaction Profit" shall mean, on any date, the
dollar amount equal to (i) the Initial Number of Shares multiplied by the price
per share actually paid in cash by another person for the shares of Company
Common Stock pursuant to a 19.9% Sale Transaction, less (ii) $9.50 multiplied by
the Initial Number of Shares.
Section 1.79 "1998 and 1999 Preliminary Capital Expenditure Budgets and
Schedules" shall have the meaning set forth in Section 3.11(i).
Section 1.80 "OP Units" shall mean the limited partnership interests in
FAC Properties, L.P.
Section 1.81 "Other Filings" shall have the meaning set forth in Section
5.1(b).
Section 1.82 "Pension Plans" shall have the meaning set forth in Section
3.13(h).
Section 1.83 "Per Share Purchase Price" shall mean the price of $9.50 per
share for the Company Common Stock.
Section 1.84 "Permitted Liens" shall mean (i) Liens (other than Liens
imposed under ERISA or any Environmental Law or in connection with any
Environmental Claim) for taxes or other assessments or charges of Government
Authorities that are not yet delinquent or that are being contested in good
faith by appropriate proceedings, in each case, with respect to which adequate
reserves are being maintained by the Company or its Subsidiaries to the extent
required by GAAP, (ii) statutory Liens of landlords, carriers, warehousemen,
mechanics, materialmen and other Liens (other than Liens imposed under ERISA or
any Environmental Law or in connection with any Environmental Claim) imposed by
law and created in the ordinary course
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of business for amounts not yet overdue or which are being contested in good
faith by appropriate proceedings, in each case, with respect to which adequate
reserves or other appropriate provisions are being maintained by the Company or
its Subsidiaries to the extent required by GAAP and which, to the extent same do
not relate to work or materials provided for in the Capital Expenditure Budget
and Schedule, the 1998 and 1999 Preliminary Capital Expenditure Budgets and
Schedules or the Development Budget and Schedule, do not exceed $300,000 in the
aggregate (excluding from such calculation, any amounts disclosed in writing by
the Company to Buyer which (a) are fully covered by insurance held by the
Company under which the Company reasonably expects full recovery of such
amounts, or (b) for which an adequate escrow has been established and is, at the
relevant time, maintained), (iii) the Company Leases and any leases entered into
after December 31, 1997 in the ordinary course of business on commercially
reasonable terms, (iv) easements, rights-of-way, covenants, restrictions and
other similar matters which are customary and typical for properties similar to
the Company Properties and which do not (x) interfere materially with the
ordinary conduct of any Company Property or the business of the Company and its
Subsidiaries as a whole or (y) detract materially from the value or usefulness
of the Company Properties to which they apply, (v) the Liens which were granted
by the Company or any of its Subsidiaries to lenders pursuant to credit
agreements in existence on the date hereof which are described in either
Schedule 3.9(c) or the Company Reports, (vi) the other Liens, if any, described
in Schedule 1.84, and (vii) such imperfections of title and encumbrances, if
any, as would not, individually or in the aggregate, reasonably be expected to
result in a Material Adverse Effect.
Section 1.85 "person" shall mean any individual, corporation, partnership,
limited liability company, joint venture, trust, unincorporated organization,
other form of business or legal entity or Government Authority.
Section 1.86 "Pro Forma Balance Sheet" shall have the meaning set forth in
Section 3.5(c).
Section 1.87 "Projects" shall have the meaning set forth in Section
3.11(j).
Section 1.88 "Property Restrictions" shall have the meaning set forth in
Section 3.11(a).
Section 1.89 "Proxy Statement" shall have the meaning set forth in Section
5.1(b).
Section 1.90 "Purchase Price" shall mean the Per Share Purchase Price
multiplied by the number of shares of Company Common Stock to be purchased and
sold at a particular Closing.
Section 1.91 "Purchased Shares" shall have the meaning set forth in
Section 2.1.
Section 1.92 "Registration Rights Agreement" shall have the meaning set
forth in Section 2.6(a).
Section 1.93 "Regulatory Filings" shall have the meaning set forth in
Section 3.4(e).
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Section 1.94 "Repurchase Payment" shall have the meaning set forth in
Section 2.9(a).
Section 1.95 "REIT" shall have the meaning set forth in Section 3.8(b).
Section 1.96 "Release" shall have the meaning set forth in Section
3.12(g)(v).
Section 1.97 "Remaining Equity Ownership" shall mean, for any person and
on any date, the sum of (i) product of (A) the number of shares of Company Stock
held by such person and (B) the Fair Market Value of the Company Stock on such
date and (ii) the product of (A) the number of OP Units held by such person and
(B) the Fair Market Value of the OP Units on such date.
Section 1.98 "Rent Roll" shall have the meaning set forth in Section
3.11(f).
Section 1.99 "SEC" shall have the meaning set forth in Section 3.5(a).
Section 1.100 "Second Closing" shall mean the Closing as soon as
practicable following Stockholder Approval.
Section 1.101 "Securities" means the Purchased Shares and the Contingent
Value Rights.
Section 1.102 "Securities Act" shall have the meaning set forth in Section
3.4(e).
Section 1.103 "Securities Laws" shall have the meaning set forth in
Section 3.5(a).
Section 1.104 "Stock Purchase" shall have the meaning set forth in Section
2.1.
Section 1.105 "Stockholder Approval" shall have the meaning set forth in
Section 7.2(b).
Section 1.106 "Stockholders Agreement" shall have the meaning set forth in
Section 2.6(a).
Section 1.107 "Subsequent Closing" shall mean each Closing of a Subsequent
Purchase.
Section 1.108 "Subsequent Purchase Price" shall mean the Per Share
Purchase Price multiplied by the number of Purchased Shares purchased by Buyer
in a Subsequent Purchase.
Section 1.109 "Subsequent Purchases" shall have the meaning set forth in
Section 2.5(a).
Section 1.110 "Subsidiaries" shall mean with respect to any person, any
corporation, partnership, limited liability company, joint venture, business
trust or other entity, of which such person, directly or indirectly, owns or
controls 50% or more of the securities or other interests entitled to vote in
the election of directors or others performing similar functions with respect to
such corporation or other organization, or to otherwise control such
corporation, partnership, limited liability company, joint venture, business
trust or other entity.
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Section 1.111 "Target Date" shall mean any date within forty five days of
the date hereof, provided, the "Target Date" may, at the sole discretion of the
Company, mean any date within seventy five days of the date hereof.
Section 1.112 "Tax" means any federal, state, local, or foreign income,
gross receipts, license, payroll, employment, excise, severance, stamp,
occupation, premium, windfall profits, environmental (including taxes under
Section 59A of the Code), customs duties, capital stock, franchise, profits,
withholding, social security (or similar), unemployment, disability, real
property, personal property, sales, use, transfer, registration, value added,
alternative or add-on minimum, estimated, or other tax of any kind whatsoever,
including any interest, penalty, or addition thereto, whether disputed or not.
The term "Tax" also includes any amounts payable pursuant to any tax sharing
agreement to which any relevant entity is liable as a successor or pursuant to
contract.
Section 1.113 "Tax Return" means any return, declaration, report, claim
for refund, or information return or statement relating to Taxes, including any
schedule or attachment thereto, and including any amendment thereof.
Section 1.114 "Title Policies" shall have the meaning set forth in Section
3.11(a).
Section 1.115 "Topping Fee" shall have the meaning set forth in Section
9.3(b).
Section 1.116 "Total Equity Commitment" shall mean the amount of
$200,000,000.00.
Section 1.117 "Total Enterprise Value" shall mean, on any date, the
greater of (A) total asset value of the Company (as measured in accordance with
GAAP) and (B) total market capitalization of the Company (based on the Fair
Market Value of the outstanding Common Stock and OP Units and the outstanding
indebtedness of the Company and its Subsidiaries).
Section 1.118 "Transaction Documents" shall have the meaning set forth in
Section 7.1(f).
Section 1.119 "Updated Schedules" shall have the meaning set forth in
Section 5.7.
Section 1.120 "Welfare Plans" shall have the meaning set forth in Section
3.13(h).
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ARTICLE 2
Purchase and Sale of Shares; Closing
Section 2.1 Purchase and Sale. Subject to the terms and conditions hereof,
from time to time after the date hereof, at the Closings, the Company will sell,
convey, assign, transfer, and deliver, and Buyer will purchase and acquire from
the Company, up to an aggregate of 21,052,632 shares of Company Common Stock
(the "Purchased Shares"). Each Closing at which Buyer purchases any Purchased
Shares is herein referred to as a "Stock Purchase."
Section 2.2 Consideration. Subject to the terms and conditions hereof, at
each Closing, Buyer shall deliver to the Company the Purchase Price with respect
to the number of shares of Company Common Stock to be purchased and sold at such
Closing by wire transfer of immediately available funds in U.S. dollars to the
account or accounts specified by the Company.
Section 2.3 Initial Closing. Subject to the terms and conditions hereof,
at the Initial Closing, at which time the applicable conditions set forth in
Sections 7.1, 7.3 and 7.4 shall have been satisfied or duly waived, Buyer will
purchase and acquire from the Company, and the Company will sell, convey,
assign, transfer and deliver to Buyer, the Initial Number of Shares of Company
Common Stock, and Buyer will pay to the Company the Purchase Price for such
shares of Company Common Stock. Concurrently with the Initial Closing, the Buyer
shall be issued the Contingent Value Rights which shall vest in the amounts, and
on the terms, set forth in the Contingent Value Right Agreement.
Section 2.4 Second Closing. Subject to the terms and conditions hereof, on
or before September 30, 1998, at which time the applicable conditions set forth
in Sections 7.2, 7.3 and 7.4 shall have been satisfied or duly waived, Buyer
will purchase and acquire from the Company, and the Company will sell, convey,
assign, transfer and deliver to Buyer, a number of shares of Company Common
Stock equal to the difference between 10,526,316 shares of Company Common Stock
and the Initial Number of Shares, and Buyer will pay to the Company the Purchase
Price for such shares of Company Common Stock.
Section 2.5 Subsequent Purchases and Sales.
(a) Subject to the terms and conditions hereof, following the Second
Closing, the Company shall have the right to require, subject to satisfaction or
waiver of the applicable conditions set forth in Sections 7.3 and 7.4, Buyer to
purchase from the Company from time to time at one or more Subsequent Closings,
an aggregate of 10,526,316 Purchased Shares (each referred to as a "Subsequent
Purchase" and, together, the "Subsequent Purchases"). Subject to the terms and
conditions hereof, the Closing of any Subsequent Purchase shall occur as soon as
possible following the date on which the applicable conditions set forth in
Section 7.3 and 7.4 shall have been satisfied or duly waived.
(b) At least 20 Business Days prior to a Subsequent Purchase, the
Company shall notify (which notice shall be in writing and irrevocable) Buyer of
the anticipated date of
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the Subsequent Closing and the number of Purchased Shares the Company is
requiring Buyer to purchase, which shall not be fewer than 1,052,631 Purchased
Shares (except the final Subsequent Purchase).
(c) If fewer than 3,508,772 of the Purchased Shares shall have been
issued and sold at all Subsequent Closings prior to six months after the Second
Closing, then Buyer shall, subject to the satisfaction or waiver of the
applicable conditions set forth in Sections 7.3 and 7.4, make a Subsequent
Purchase of the number of Purchased Shares equal to 3,508,772 less the number of
Purchased Shares purchased after the Second Closing but prior to such date, from
the Company (and the Company shall sell to Buyer such number of shares) on or
before the date six months after the date of the Second Closing, or as soon
thereafter as all conditions to the parties' obligations to effect the
Subsequent Purchase hereunder shall have been satisfied or waived.
(d) If fewer than 7,017,544 of the Purchased Shares shall have been
issued and sold at all Subsequent Closings prior to twelve months after the
Second Closing, then Buyer shall, subject to the satisfaction or waiver of the
applicable conditions set forth in Sections 7.3 and 7.4, make a Subsequent
Purchase of the number of Purchased Shares equal to 7,017,544 less the number of
Purchased Shares purchased after the Second Closing but prior to such date, from
the Company (and the Company shall sell to Buyer such number of shares) on or
before the date twelve months after the date of Second Closing, or as soon
thereafter as all conditions to the parties' obligations to effect the
Subsequent Purchase hereunder shall have been satisfied or waived.
(e) If fewer than all Purchased Shares shall have been issued and
sold at any and all Closings on or before eighteen months after the Second
Closing, then Buyer shall, subject to the satisfaction or waiver of the
applicable conditions set forth in Sections 7.3 and 7.4, make a Subsequent
Purchase of all such remaining shares from the Company (and the Company shall
sell to Buyer such number of shares) on or before eighteen months after the
Second Closing, or as soon thereafter as all conditions to Buyer's obligation to
effect the Subsequent Purchase hereunder shall have been satisfied or waived.
(f) If the condition set forth in Section 7.3(e) is not satisfied
(which determination shall be made by Buyer, based upon the written advice of
Buyer's counsel, and the cause of such determination is not cured by the Company
prior to the relevant Closing) or waived at any time when a Closing would
otherwise occur, the relevant Closing will be effected as to the number of
Purchased Shares, if any, as will not result in such condition failing to be
satisfied, and Buyer shall acquire any remaining Purchased Shares as soon
thereafter as such condition to Buyer's obligation to effect the Subsequent
Purchase shall have been, as determined in Buyer's sole discretion, satisfied or
waived.
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Section 2.6 Additional Agreements and Closing Deliveries.
(a) On the date of this Agreement, the Company and Buyer shall enter
into a registration rights agreement substantially in the form attached as
Exhibit A (the "Registration Rights Agreement"), a stockholders agreement
substantially in the form attached as Exhibit B (the "Stockholders Agreement")
and a contingent value right agreement substantially in the form attached as
Exhibit C (the "Contingent Value Right Agreement").
(b) In addition to the other things required to be done hereby, at
each Closing, the Company shall deliver, or cause to be delivered, to Buyer the
following: (i) certificates representing the number of shares of Company Common
Stock to be issued and delivered at such Closing, free and clear of all Liens,
with all necessary share transfer and other documentary stamps attached, (ii) a
certificate, dated the relevant Closing Date and validly executed on behalf of
the Company, as contemplated by Section 7.1(a), as to the Initial Closing only,
by Section 7.2(a), as to the Second Closing only, and by Section 7.3(a) as to
other Subsequent Closings, (iii) evidence or copies of any consents, approvals,
orders, qualifications or waivers required pursuant to Section 7.1(c), as to the
Initial Closing only, and pursuant to Section 7.2(c), as to the Second Closing,
(iv) all certificates and other instruments and documents required by this
Agreement to be delivered by the Company to Buyer at or prior to each Closing,
and (v) such other instruments reasonably requested by Buyer, as may be
necessary or appropriate to confirm or carry out the provisions of this
Agreement.
(c) In addition to the delivery of the Purchase Price and the other
things required to be done hereby, at each Closing, Buyer shall deliver, or
cause to be delivered, to the Company the following: (i) a certificate, dated
the relevant Closing Date and validly executed by Buyer, as contemplated by
Section 7.4(a), (ii) if not previously delivered to the Company, all other
certificates, documents, instruments and writings required pursuant hereto to be
delivered by or on behalf of Buyer at or before each Closing, and (iii) such
other instruments reasonably requested by the Company, as may be necessary or
appropriate to confirm or carry out the provisions of this Agreement.
Section 2.7 Time and Place of Closings. Each Closing shall take place at
9:00 a.m. New York City time on the relevant Closing Date at Latham & Watkins,
885 Third Avenue, Suite 1000, New York, New York or at such other place and time
as the Company and Buyer shall mutually agree.
Section 2.8 Right to Assign. Buyer may assign its rights and delegate its
obligations created hereby to purchase Company Common Stock in accordance with
the provisions of Section 10.5.
Section 2.9 Limited Put Option.
(a) In the event that the Second Closing does not occur by September
30, 1998 (other than as a result of Buyer's material breach of any of its
obligations hereunder), Buyer will have the right to require the Company to
repurchase all or any part of the Initial Number of Shares pursuant to the terms
described below at a price in cash equal to the Purchase Price
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thereof plus accrued but unpaid dividends, if any, thereon to the date of
purchase (the "Repurchase Payment"). On any date within two months after the
earlier to occur of (i) the date that the Company fails to receive Stockholder
Approval and (ii) August 31, 1998, Buyer may, at its sole option, exercise such
right to cause the Company to repurchase all or any part of the Initial Number
of Shares by surrendering to the Company the certificates for the shares it is
causing the Company to repurchase.
(b) If Buyer chooses to cause the Company to repurchase some or all
of the Initial Number of Shares, the Company will pay Buyer the Repurchase
Payment within six months after the date on which Buyer exercises its rights
pursuant to Section 2.9(a) of this Agreement.
ARTICLE 3
Representations and Warranties of the Company
The Company hereby represents and warrants to Buyer as follows:
Section 3.1 Organization and Qualification; Subsidiaries.
(a) The Company is a corporation duly incorporated, validly existing
and in good standing under the laws of the State of Maryland. The Company has
all requisite corporate power and authority to own, operate, lease and encumber
its properties and carry on its business as now conducted, and to enter into
this Agreement, the Registration Rights Agreement, the Contingent Value Right
Agreement and the Stockholders Agreement and to perform its obligations
hereunder and thereunder.
(b) Each of the Subsidiaries of the Company is a corporation,
partnership or limited liability company duly organized, validly existing and in
good standing under the laws of the jurisdiction of its incorporation or
organization, and has the corporate, partnership or limited liability company
power and authority to own its properties and to carry on its business as it is
now being conducted.
(c) Each of the Company and its Subsidiaries is duly qualified to do
business and in good standing in each jurisdiction in which the ownership of its
property or the conduct of its business requires such qualification, except for
any failures to be so qualified or to be in good standing as would not,
individually or in the aggregate, reasonably be expected to result in a Material
Adverse Effect.
(d) Schedule 3.1(d) sets forth the name of each Subsidiary of the
Company (whether owned, directly or indirectly, through one or more
intermediaries). All of the outstanding shares of capital stock of, or other
equity interest in, each of the Subsidiaries owned by the Company are duly
authorized, validly issued, fully paid and nonassessable, and are owned,
directly or indirectly, by the Company free and clear of all Liens, except as
set forth in Schedule 3.1(d). The following information for each Subsidiary is
set forth in
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Schedule 3.1(d), if applicable: (i) its name and jurisdiction of incorporation
or organization, (ii) the type of and percentage interest held by the Company in
the Subsidiary and the names of and percentage interest held by the other
interest holders, if any, in the Subsidiary, and (iii) any loans from the
Company to, or priority payments due to the Company from, the Subsidiary, and
the rate of return thereon. Except as contemplated hereby and as set forth on
Schedule 3.1(d), there are no existing options, warrants, calls, subscriptions,
convertible securities or other rights, agreements or commitments which obligate
the Company or any of the Subsidiaries to issue, transfer or sell any shares of
capital stock or equity interests in any of the Subsidiaries.
Section 3.2 Authority Relative to Agreements; Approvals.
(a) The execution, delivery and performance of this Agreement, the
Registration Rights Agreement, the Contingent Value Right Agreement and the
Stockholders Agreement have been duly and validly authorized by all necessary
corporate action on the part of the Company, subject only to the approval of the
issuance of Company Common Stock pursuant to this Agreement and the Company
Charter by the Company's stockholders. This Agreement, the Registration Rights
Agreement, the Contingent Value Right Agreement and the Stockholders Agreement
have been duly executed and delivered by the Company for itself and constitute
the valid and legally binding obligations of the Company, enforceable against
the Company in accordance with their terms, subject to applicable bankruptcy,
insolvency, moratorium or other similar laws relating to creditors' rights or
general principles of equity.
(b) The Board has, as of the date hereof, approved this Agreement,
the Registration Rights Agreement, the Stockholders Agreement, the Contingent
Value Right Agreement and the transactions contemplated hereby and thereby, and
the Board has determined to recommend that the stockholders of the Company vote
in favor of and approve the issuance of Company Common Stock pursuant to this
Agreement, subject to the fiduciary duty provisions of Section 5.4.
(c) The shares of Company Common Stock to be acquired pursuant to
this Agreement have been duly authorized and reserved for issuance, and upon
issuance will be duly and validly issued, fully paid and nonassessable and not
subject to any preemptive or similar rights.
(d) The issue and sale of the shares of Company Common Stock
hereunder will not give any stockholder of the Company the right to demand
payment for its shares under Maryland law or give rise to any preemptive or
similar rights.
Section 3.3 Capital Stock.
(a) The authorized capital stock of the Company as of the date
hereof consists of 45,000,000 shares of Company Common Stock, 25,000,000 shares
of excess stock, par value $0.01 per share (the "Company Excess Stock"), and
5,000,000 shares of preferred stock, par value $25.00 per share (the "Company
Preferred Stock"). As of the date hereof, there are 12,298,891 shares of Company
Common Stock issued and outstanding; to the Company's knowledge, no shares of
Company Excess Stock issued and outstanding; and the shares of
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Company Preferred Stock issued and outstanding as described in the most recent
Company Report. All such issued and outstanding shares of Company Common Stock
are duly authorized, validly issued, fully paid, nonassessable and free of
preemptive or similar rights. Except as set forth on Schedule 3.3(a), the
Company has no outstanding bonds, debentures, notes or other obligations the
holders of which have the right to vote (or which are convertible into or
exercisable for securities the holders of which have the right to vote) with the
stockholders of the Company on any matter. As of the date hereof, except as set
forth in Schedule 3.3(a) to this Agreement, there are no existing options,
warrants, calls, subscriptions, convertible securities, or other rights,
agreements or commitments which obligate the Company to issue, transfer or sell
any shares of capital stock or other equity interests of the Company.
(b) Except for interests in the Subsidiaries of the Company and
except as set forth in Schedule 3.3(b), neither the Company nor any of its
Subsidiaries owns directly or indirectly any interest or investment (whether
equity or debt) in any corporation, partnership, limited liability company,
joint venture, business, trust or entity (other than investments in short-term
investment securities).
Section 3.4 No Conflicts; No Defaults; Required Filings and Consents.
Neither the execution and delivery by the Company hereof nor the consummation by
the Company of the transactions contemplated hereby in accordance with the terms
hereof, will:
(a) conflict with or result in a breach of any provisions of the
Company Charter or by-laws of the Company;
(b) result in a breach or violation of, a default under, or the
triggering of any payment or other obligations pursuant to, or, except as set
forth in Schedule 3.9(g), accelerate vesting under, any compensation plan or any
grant or award made under any of the foregoing;
(c) violate or conflict with in any material respect any material
statute, regulation, judgment, order, writ, decree or injunction applicable to
the Company or its Subsidiaries;
(d) subject to the Company obtaining the third party consents set
forth in Schedule 3.4(d)-A (with respect to the Initial Closing), Schedule
3.4(d)-B (with respect to the Second Closing) and Schedule 3.4(d)-C (with
respect to each Subsequent Closing), violate or conflict with or result in a
breach of any provision of, or constitute a default (or any event which, with
notice or lapse of time or both, would constitute a default) under, or result in
the termination or in a right of termination or cancellation of, or accelerate
the performance required by, or result in the creation of any material Lien upon
any of the properties of the Company or its Subsidiaries under, or result in
being declared void, voidable or without further binding effect, any of the
terms, conditions or provisions of any material note, bond, mortgage, indenture
or deed of trust or any material license, franchise, permit, lease, contract,
agreement or other instrument, commitment or obligation to which the Company or
its Subsidiaries is a party, or by which the Company or its Subsidiaries or any
of their properties is bound or affected; or
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(e) require any material consent, approval or authorization of, or
declaration, filing or registration with, any Government Authority, other than
any filings required under the Securities Act of 1933, as amended (the
"Securities Act"), the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), or state securities laws ("Blue Sky Laws") (collectively, the
"Regulatory Filings"), and any material filings required to be made with the
Secretary of State of Maryland or any national securities exchange on which the
Company Common Stock is listed.
Section 3.5 SEC and Other Documents; Financial Statements; Undisclosed
Liabilities.
(a) The Company has delivered or made available to Buyer the
registration statement of the Company filed with the Securities and Exchange
Commission ("SEC") in connection with the Initial Public Offering, and all
exhibits, amendments and supplements thereto (collectively, the "Company
Registration Statement"), and each registration statement, report, proxy
statement or information statement and all exhibits thereto prepared by it or
relating to its properties since the effective date of the Company Registration
Statement up through the date hereof, each of which are set forth in Schedule
3.5(a) and are in the form (including exhibits and any amendments thereto) filed
with the SEC (collectively, the "Company Reports"). Except as set forth in
Schedule 3.5(a), the Company Reports were filed with the SEC in a timely manner
and constitute all forms, reports and documents required to be filed by the
Company under the Securities Act, the Exchange Act and the rules and regulations
promulgated thereunder (the "Securities Laws"). As of their respective dates,
the Company Reports (i) complied as to form in all material respects with the
applicable requirements of the Securities Laws and (ii) did not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements made therein, in the light
of the circumstances under which they were made, not misleading. There is no
unresolved violation asserted by any Government Authority with respect to any of
the Company Reports.
(b) Each of the balance sheets included in or incorporated by
reference into the Company Reports (including the related notes and schedules)
fairly presented the financial position of the entity or entities to which it
relates as of its date and each of the statements of operations, stockholders'
equity (deficit) and cash flows included in or incorporated by reference into
the Company Reports (including any related notes and schedules) fairly presented
the results of operations, stockholders' equity (deficit) or cash flows, as the
case may be, of the entity or entities to which it relates for the periods set
forth therein, in each case in accordance with United States generally accepted
accounting principles ("GAAP") consistently applied during the periods involved,
except as may be noted therein and except, in the case of the unaudited
statements, normal recurring year-end adjustments which would not, individually
or in the aggregate, reasonably be expected to result in a Material Adverse
Effect.
(c) The Company has delivered to Buyer a balance sheet, dated as of
January 1, 1998, adjusted to give effect to the transactions contemplated by
this Agreement, the Kane Purchase Agreement and the Konover Purchase Agreement
as if such transactions had occurred on January 1, 1998 (the "Pro Forma Balance
Sheet"). The Pro Forma Balance Sheet is based on the consolidated balance sheets
of the Company and its Subsidiaries as of December 31, 1997 which the Company
believes have been prepared in accordance with GAAP; provided, that the columns
labeled "Kane" and "Konover" on the Pro Forma Balance Sheet are based on the
terms
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of the Kane Purchase Agreement and the Konover Purchase Agreement, respectively,
and, where applicable, financial statements prepared by management of Kane and
Konover, respectively. The Pro Forma Balance Sheet fairly presents the pro forma
financial position of the Company as of its date in accordance with GAAP
consistently applied.
(d) Except as and to the extent set forth in the Company Reports and
the Company's financial statements filed with the SEC or in any Schedule hereto,
none of the Company or any of its Subsidiaries has any Liabilities (nor do there
exist any circumstances) that would, individually or in the aggregate,
reasonably be expected to result in a Material Adverse Effect.
Section 3.6 Litigation; Compliance With Law.
(a) Except as set forth on Schedule 3.6, there are no Actions
pending or, to the Company's knowledge, threatened against the Company or any of
its Subsidiaries that would, individually or in the aggregate, reasonably be
expected to result in a Material Adverse Effect, or which question the validity
hereof or any action taken or to be taken in connection herewith. Except as
disclosed in Schedule 3.6(a), there are no continuing orders, injunctions or
decrees of any Government Authority to which the Company or any of its
Subsidiaries is a party or by which any of its properties or assets are bound.
(b) None of the Company or its Subsidiaries is in violation of any
statute, rule, regulation, order, writ, decree or injunction of any Government
Authority or any body having jurisdiction over them or any of their respective
properties which, if enforced, would, individually or in the aggregate,
reasonably be expected to result in a Material Adverse Effect.
Section 3.7 Absence of Certain Changes or Events. Except as disclosed in
the Company Reports filed with the SEC prior to the date hereof or in Schedule
3.7, since November 15, 1997 the Company and each of its Subsidiaries has
conducted its business only in the ordinary course and has acquired real estate
and entered into financing arrangements in connection therewith only in the
ordinary course of such business, and there has not been (a) any change,
circumstance or event that would reasonably be expected to result in a Material
Adverse Effect, (b) any declaration, setting aside or payment of any dividend or
other distribution with respect to the Company Common Stock, except in
accordance with Section 5.3, (c) any material commitment, contractual
obligation, borrowing, capital expenditure or transaction (each, a "Commitment")
entered into by the Company or any of its Subsidiaries or (d) any material
change in the Company's accounting principles, practices or methods.
Section 3.8 Tax Matters; REIT and Partnership Status.
(a) The Company and each of its Subsidiaries has timely filed with
the appropriate taxing authority all Tax Returns required to be filed by it or
has timely requested extensions and any such request has been granted and has
not expired. Each such Tax Return is complete and accurate in all respects. All
Taxes shown as owed by the Company or any of its Subsidiaries on any Tax Return
have been paid or accrued, except for Taxes being contested in good faith and
for which adequate reserves have been taken. The Company and each of its
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Subsidiaries has properly accrued all Taxes for such periods subsequent to the
periods covered by such Tax Returns as required by GAAP. None of the Company or
any of its Subsidiaries has executed or filed with the IRS or any other taxing
authority any agreement now in effect extending the period for assessment or
collection of any Tax. Except as set forth in Schedule 3.8(a), none of the
Company or any of its Subsidiaries is being audited or examined by any taxing
authority with respect to any Tax or is a party to any pending action or
proceedings by any taxing authority for assessment or collection of any Tax, and
no claim for assessment or collection of any Tax has been asserted against it.
True and complete copies of all federal, state and local income or franchise Tax
Returns filed by the Company and each of its Subsidiaries for 1995 and 1996 and
all written communications relating thereto have been delivered to Buyer or made
available to representatives of Buyer prior to the date hereof. No claim has
been made in writing or, to the Company's knowledge, otherwise by an authority
in a jurisdiction where the Company or any of its Subsidiaries does not file Tax
Returns that it is or may be subject to taxation by that jurisdiction. Except as
set forth in Schedule 3.8(a), there is no dispute or claim concerning any Tax
liability of the Company or any of its Subsidiaries, (i) claimed or raised by
any taxing authority in writing or (ii) as to which the Company or any of its
Subsidiaries has knowledge. To the Company's knowledge, as of the date hereof,
(i) the Company is a domestically controlled REIT within the meaning of Section
897(h)(4)(B) of the Code. To the Company's knowledge, except as set forth in
Schedule 3.8(a), no person or entity which would be treated as an "individual"
for purposes of Section 542(a)(2) of the Code (as modified by Section 856(h) of
the Code) owns or would be considered to own (taking into account the
constructive ownership rules of Section 544 of the Code, as modified by Section
856(h) of the Code) in excess of 9.8% of the value of the outstanding equity
interests in the Company. Except as contemplated by this Agreement or as set
forth in Schedule 3.8(a), the Board has not exempted any person from the
Ownership Limit or otherwise waived any of the provisions of Article IV of the
Company Charter (as all capitalized terms used in this sentence are defined in
the Company Charter). The Ownership Limit (as such term is defined in the
Company Charter) has not been modified. Except as set forth on Schedule 3.8(a),
each ownership interest that the Company and each of its Subsidiaries has in an
entity formed as a partnership (or which files federal income tax returns as a
partnership) qualifies, and since the date of its formation qualified, to be
treated as a partnership for federal income tax purposes or as a "qualified REIT
subsidiary" within the meaning of Section 856(i)(2) of the Code.
(b) The Company (i) intends in its federal income tax return for the
tax year that will end on December 31, 1997 to be taxed as a real estate
investment trust within the meaning of Section 856 of the Code ("REIT") and has
complied (or will comply) with all applicable provisions of the Code relating to
a REIT, for 1997, (ii) has operated, and intends to continue to operate, in such
a manner as to qualify as a REIT for 1997, (iii) has not taken or omitted to
take any action which would reasonably be expected to result in a challenge to
its status as a REIT, and, to the Company's knowledge, no such challenge is
pending or threatened, and (iv) to the Company's knowledge, and assuming the
accuracy of Buyer's representations in Sections 4.8 and 4.10 (disregarding the
qualification relating to Buyer's knowledge and assuming no exceptions are set
forth in Schedule 4.10-B), will not be rendered unable to qualify as a REIT for
federal income tax purposes as a consequence of the transactions contemplated
hereby.
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(c) Except as set forth on Schedule 3.8(c), any amount or other
entitlement that could be received (whether in cash or property or the vesting
of property) as a result of any of the transactions contemplated hereby by any
person who is a "disqualified individual" (as such term is defined in proposed
Treasury Regulation Section 1.280G-1) with respect to the Company or any of its
Affiliates would not be characterized as an "excess parachute payment" (as such
term is defined in Section 280G(b)(1) of the Code).
(d) Except as set forth on Schedule 3.8(d), the disallowance of a
deduction under Section 162(m) of the Code for employee remuneration will not
apply to any amount paid or payable by the Company or any of its Subsidiaries
under any contract, stock plan, program, arrangement or understanding currently
in effect.
(e) The Company was eligible to and did validly elect to be taxed as
a REIT for federal income tax purposes for calendar year 1993 and all subsequent
taxable periods and was in compliance with the Code and all applicable rules and
regulations of the Code necessary to permit it to be taxed as a REIT for all
such periods. Each Subsidiary of the Company organized as a partnership (and any
other Subsidiary that files Tax Returns as a partnership for federal income tax
purposes) was and continues to be classified as a partnership for federal income
tax purposes or as a "qualified REIT subsidiary" within the meaning of Section
856(i)(2) of the Code.
Section 3.9 Compliance with Agreements; Material Agreements.
(a) Neither the Company nor any of its Subsidiaries is in default
under or in violation of any provision of the Company Charter, the by-laws of
the Company (or equivalent documents) or any partnership agreement, operating
agreement, joint venture agreement or any other organization or formation
documents to which the Company or any of its Subsidiaries is a party.
(b) The Company and each of its Subsidiaries have filed all material
reports, registrations and statements, together with any amendments required to
be made with respect thereto, that they were required to file with any
Government Authority and all other material reports and statements required to
be filed by them, including any report or statement required to be filed
pursuant to the laws, rules or regulations of the United States, and have paid
all fees or assessments due and payable in connection therewith, except for such
failures to file or pay which would not, individually or in the aggregate,
reasonably be expected to result in a Material Adverse Effect. Except as set
forth on Schedule 3.9(b), there is no unresolved violation asserted by any
regulatory agency with respect to any report or statement relating to an
examination of the Company or any of its Subsidiaries which, if resolved in a
manner unfavorable to the Company or such Subsidiary, would, individually or in
the aggregate, reasonably be expected to result in a Material Adverse Effect.
(c) The Company Reports or Schedule 3.9(c) set forth (i) a
description of all material indebtedness of the Company and each of its
Subsidiaries, whether unsecured, or secured or collateralized by mortgages,
deeds of trust or other security interests in the Company Properties or any
other assets of the Company and each of its Subsidiaries, or otherwise and (ii)
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each Commitment entered into by the Company or any of its Subsidiaries
(including any guarantees of any third party's debt or any obligations in
respect of letters of credit issued for the Company's or any of its Subsidiary's
account) which may result in total payments or liabilities in excess of
$300,000, excluding Commitments made in the ordinary course of business with a
maturity of less than one year or that are terminable on 30 days or less notice.
True and complete copies of the documents relating to the foregoing have been
delivered or made available to Buyer prior to the date hereof. Neither the
Company nor any of its Subsidiaries is in default, and, to the Company's
knowledge, no event has occurred which, with the giving of notice or the lapse
of time or both, would constitute a material default, under any of the documents
described in clause (i) or (ii) of this paragraph or in respect of any payment
obligations thereunder. All joint venture and partnership agreements to which
the Company or any of its Subsidiaries is a party as of the date hereof are set
forth in Schedule 3.1(d), all of which are in full force and effect as against
the Company or such Subsidiary and, to the Company's knowledge, as against the
other parties thereto, and none of the Company or any of its Subsidiaries is in
default, and, to the Company's knowledge, no event has occurred which, with the
giving of notice or the lapse of time or both, would constitute a default, with
respect to any obligations thereunder. To the Company's knowledge, the other
parties to such agreements are not in breach of any of their respective
obligations thereunder. To the Company's knowledge, no event has occurred nor is
the Company aware of the existence of any facts with respect to the Company's
Subsidiaries (including with respect to the partnership agreements for the
Company's Subsidiaries that are partnerships and operating agreements for the
Company's Subsidiaries that are limited liability companies) that would,
individually or in the aggregate, reasonably be expected to result in a Material
Adverse Effect.
(d) Except as disclosed in the Company Reports, Schedule 3.9(d) sets
forth a complete and accurate list of all material agreements entered into by
the Company or any of its Subsidiaries as of the date hereof relating to the
development or construction of, additions or expansions to, or management or
leasing services for retail shopping centers or other real properties which are
currently in effect and under which the Company or any of its Subsidiaries
currently has, or expects to incur, obligations in excess of $300,000. True and
complete copies of such agreements will be made available to Buyer.
(e) Except as disclosed in the Company Reports and except for (i)
agreements made in the ordinary course of business with a maturity of one year
or less or that are terminable on 30 days or less notice, (ii) agreements the
breach or non-fulfillment of which would not, individually or in the aggregate,
reasonably be expected to result in a Material Adverse Effect and (iii)
agreements under which the Company's total benefit or obligations do not exceed
$300,000, Schedule 3.9(e) sets forth a complete and accurate list of all
material agreements entered into by the Company as of the date hereof,
including, without limitation, material Debt Instruments. Each agreement set
forth in Schedule 3.9(e) is in full force and effect as against the Company and,
to the Company's knowledge, as against the other parties thereto, no payments,
if any, thereunder are delinquent, the Company is not in default, in any
material respect, thereunder, and no notice of default thereunder has been sent
or received by the Company or any of its Subsidiaries. To the Company's
knowledge, no event has occurred which, with notice or lapse of time or both,
would constitute a default, in any material respect, by the Company under any
agreement set forth in Schedule 3.9(e). To the Company's
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knowledge, the other parties to such agreements are not in breach of their
respective obligations thereunder, except as would not, individually or in the
aggregate, reasonably be expected to result in a Material Adverse Effect. True
and complete copies of each such agreement have been made available to Buyer
prior to the date hereof.
(f) Schedule 3.9(f) sets forth a complete and accurate list of all
agreements and policies of the Company in effect on the date hereof relating to
transactions with affiliates and potential conflicts of interest. Each agreement
or arrangement set forth in Schedule 3.9(f) is in full force and effect, and the
Company, each of its Subsidiaries, and, to the Company's knowledge, the other
parties thereto are in compliance with such agreements and policies, or such
compliance has been waived by the Board as set forth in Schedule 3.9(f). True
and complete copies of each such agreement or arrangement were made available to
Buyer.
(g) Except as set forth on Schedule 3.9(g), there are no change of
control or similar provisions in any employment, severance, stock option, stock
incentive, Company Plans or similar agreement or arrangement which would be
triggered by the transactions contemplated by this Agreement. Schedule 3.9(g)
identifies the obligations to employees (including any payment or other
obligation, forgiveness of debt, other release from obligations, or acceleration
of vesting) which are created, accelerated or triggered by the execution,
delivery or performance of this Agreement or the consummation of the
transactions contemplated hereby.
Section 3.10 Financial Records; Company Charter and By-laws; Corporate
Records.
(a) The books of account and other financial records of the Company
and each of its Subsidiaries are in all material respects true and complete,
have been maintained in accordance with good business practices, and are
accurately reflected in all material respects in the financial statements
included in the Company Reports.
(b) The Company has previously delivered or made available to Buyer
true and complete copies of the Company Charter and the by-laws of the Company,
as amended to date, and the charter, by-laws, organizational documents,
partnership agreements and joint venture agreements of its Subsidiaries, and all
amendments thereto. All such documents are listed in Schedule 3.10(b).
(c) The minute books and other records of corporate or partnership
proceedings of the Company and each of its Subsidiaries have been made available
to Buyer and its representatives and contain in all material respects accurate
records of all meetings and accurately reflect in all material respects all
other corporate actions of the stockholders and directors and any committees of
the Board and the board of directors of its Subsidiaries which are corporations
and all material actions of the partners of its Subsidiaries which are
partnerships, except for documentation of discussions relating to or in
connection with the transactions contemplated hereby or matters related hereto.
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Section 3.11 Properties.
(a) Schedule 3.11(a) sets forth a complete and accurate list and the
address of all real property owned or leased by the Company or any of its
Subsidiaries or otherwise used by the Company or its Subsidiaries in the conduct
of their business or operations (collectively, and together with the land at
each address referenced in Schedule 3.11(a) and all buildings, structures and
other improvements and fixtures located on or under such land and all easements,
rights and other appurtenances to such land, the "Company Properties"). The
Company and each of its Subsidiaries own insurable fee simple title (or, if so
indicated in Schedule 3.11(a), leasehold title) to each of the Company
Properties, free and clear of any Liens, title defects, contractual restrictions
or covenants, laws, ordinances or regulations affecting use or occupancy
(including zoning regulations and building codes) or reservations of interests
in title (collectively, "Property Restrictions"), except for (i) Permitted Liens
and (ii) Property Restrictions imposed or promulgated by law or by any
Government Authority which are customary and typical for similar properties.
None of the matters described in clauses (i) and (ii) of the immediately
preceding sentence materially interferes with, materially impairs, or is
violated by, the existence of any building or other structure or improvement
which constitutes a part of, or the present use, occupancy or operation of, the
Company Properties taken as a whole, and such matters do not, individually or in
the aggregate, have a Material Adverse Effect. American Land Title Association
policies of title insurance (or marked title insurance commitments having the
same force and effect as title insurance policies or binding irrevocable escrow
instructions to issue such title insurance policies or endorsements to existing
title insurance policies) have been issued by national title insurance companies
insuring the fee simple or leasehold, as applicable, title of the Company or its
Subsidiaries, as applicable, to each of the Company Properties in, to the
Company's knowledge, sufficient amounts to avoid co-insurance statutes, subject
only to the matters set forth therein (the "Title Policies"), and, to the
Company's knowledge, the Title Policies are valid and in full force and effect
and no claim has been made under any such policy. The Company will make
available to Buyer true and complete copies of all such policies and of the most
recent surveys of the Company Properties, and true and complete copies of all
material exceptions referenced in such policies and the most recent title
reports for and surveys (to the extent not previously delivered or made
available to Buyer) of each of the Company Properties available to the Company
or any of its Subsidiaries for inspection by Buyer or its representatives within
five Business Days of Buyer's request therefor.
(b) Except as set forth in Schedule 3.11(b), and except for matters
which would not, individually or in the aggregate, reasonably be expected to
have a Material Adverse Effect or to materially and adversely affect the use or
occupancy of the applicable Company Property, to the Company's knowledge, there
are no (i) certificates, permits or licenses that are currently required
(including building permits and certificates of occupancy for tenant spaces)
from any Government Authority having jurisdiction over any Company Property or
agreements, easements or other rights which are necessary to permit the lawful
use, occupancy or operation of the existing buildings, structures or other
improvements which constitute a part of any of the Company Properties or to
permit the lawful use and operation of utility service to any Company Property
or of any existing driveways, roads or other means of egress and ingress to and
from any of the Company Properties that have not been obtained or that are not
in full force and effect, or any pending modification or cancellation of any of
same, or (ii) violations by any
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Company Property of any federal, state or municipal law, ordinance, order,
regulation or requirement, including any applicable zoning law or building code,
as a result of the use or occupancy of such Company Property or otherwise.
Except as set forth in Schedule 3.11(b), the Company has no knowledge of any
uninsured physical damage to any Company Property in excess of $300,000 in the
aggregate. To the Company's knowledge, except for repairs identified in the
Capital Expenditure Budget and Schedule or in any engineering or structural
report reviewed by Buyer or its consultants, each Company Property, (i) is in
good operating condition and repair and is structurally sound and free of
defects, with no material alterations or repairs being required thereto under
applicable law or insurance company requirements, and (ii) consists of
sufficient land, parking areas, driveways and other improvements and lawful
means of access and utility service and capacity to permit the use thereof in
the manner and for the purposes to which it is presently devoted, except, in
each such case, to the extent that failure to meet such standards would not
materially and adversely affect the use or occupancy of the applicable Company
Property. The Company will make available to Buyer true and complete copies of
all engineering reports, inspection reports, maintenance plans and other
documents relating to the condition of any Company Property prepared for or by
the Company since the Initial Public Offering.
(c) Except as set forth in Schedule 3.11(c), there is no (i)
condemnation, eminent domain or rezoning proceeding pending or, to the Company's
knowledge, threatened with respect to any of the Company Properties, (ii) road
widening or change of grade of any road adjacent to any Company Property
currently underway or that, to the Company's knowledge, has been proposed, (iii)
proposed change in the assessed valuation of any Company Property other than
customarily scheduled revaluations, (iv) special assessment that has been made
or, to the Company's knowledge, threatened against any Company Property, or (v)
Company Property subject to any so-called "impact fee" or to any agreement with
any Government Authority to pay for sewer extensions, oversizing utilities,
lighting or like expenses or charges for work or services by such Government
Authority, except, in the case of each of the foregoing, to the extent that same
would not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect or to materially and adversely affect the use or
occupancy of the applicable Company Property.
(d) Each of the Company Properties is an independent unit which does
not rely on any facilities located on any property not included in such Company
Property to fulfill any municipal or governmental requirement or for the
furnishing to such Company Property of any essential building systems or
utilities, other than facilities the benefit of which inures to the Company
Properties pursuant to one or more valid easements or parking agreements. Each
of the Company Properties is served by public water and sanitary or septic
systems and all other utilities, and each of the Company Properties has lawful
access to public roads, in all cases sufficient for the current use and
occupancy of each Company Property. To the Company's knowledge or as set forth
in the surveys, all parcels of land included in each Company Property that
purport to be contiguous are contiguous and are not separated by strips or
gores. Except as set forth in Schedule 3.11(d) or any surveys or Environmental
Reports relating to any Company Property prepared for or by the Company since
the Initial Public Offering, no portion of any Company Property includes any
wetlands or vegetation or species protected by any applicable laws or, in event
that such surveys or Environmental Reports disclose the existence
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of such wetlands or protected vegetation or species, such items would not
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect on the use or occupancy of the applicable Company Property.
Except as set forth on Schedule 3.11(d) or the Title Policies or surveys, none
of the Company Properties lies in any 100-year flood plain area, as established
by the U.S. Army Corps of Engineers (the "Army Corps of Engineers"). With
respect to the improvements on each Company Property which lie in a flood plain
area, if any, the Company or its Subsidiaries carry and presently maintain in
full force and effect flood insurance in connection with such Company Properties
as required by applicable law and as accurately described in Schedule 3.11(d).
The improvements on each Company Property comply in all material respects with
all applicable building codes and other relevant laws and regulations. No
improvements constituting a part of any Company Property encroach on real
property not constituting a part of such Company Property or such encroachments
would not, individually or in the aggregate, have a Material Adverse Effect or
materially and adversely affect the use or occupancy of the applicable Company
Property.
(e) Schedule 3.11(e) contains a complete and accurate list of each
survey, study or report prepared by or for the Company or any of its
Subsidiaries since the Initial Public Offering, in connection with any Company
Property's compliance or non-compliance with the requirements of the Americans
with Disabilities Act (the "ADA"), other than routine correspondence or
memoranda. Except for matters addressed in the Capital Expenditure Budget and
Schedule, no Company Property fails to comply with the requirements of the ADA
except for such non-compliance as the Company believes will not, individually or
in the aggregate, have a Material Adverse Effect.
(f) The Company has provided to Buyer an accurate rent roll for each
Company Property as of February 19, 1998 (the "Rent Roll"), which accurately
describes each lease of space in each Company Property (collectively, the
"Company Leases"). The Company has delivered to Buyer profiles of the Company
Leases (the "Lease Profiles"), which have been prepared in the ordinary course
of business. The Company will make available to Buyer a true and complete copy
of each Company Lease, including all amendments and modifications thereto. With
respect to each Company Lease for premises larger than 10,000 square feet of
rentable space (collectively, the "Material Company Leases"), except as set
forth in Schedule 3.11(f), (i) each of the Material Company Leases is valid and
subsisting and in full force and effect as against the Company or the
Subsidiary, as applicable, and, to the Company's knowledge, as against the
tenant, and the information on the Rent Roll with respect to the Material
Company Leases is accurate, (ii) except as otherwise set forth on the Rent Roll,
the tenant under each of the Material Company Leases is in actual possession of
the premises leased thereunder, (iii) except as otherwise set forth on the Rent
Roll, no tenant under any Material Company Lease is more than 30 days in arrears
in the payment of rent, (iv) neither the Company nor any of its Subsidiaries has
received any written notice from any tenant under any Material Company Lease of
its intention to vacate, (v) neither the Company nor any of its Subsidiaries has
collected payment of rent under any Material Company Lease (other than security
deposits) accruing for a period which is more than one month in advance, (vi) no
notice of default has been sent or received by the landlord under any Material
Company Lease which remains uncured as of the date hereof, no default has
occurred under any Material Company Lease by the landlord thereunder and, to the
Company's knowledge, no default has occurred under any Material
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Company Lease by the tenant thereunder and, to the Company's knowledge, no event
has occurred and is continuing which, with notice or lapse of time or both,
would constitute a default under any Material Company Lease, (vii) except as
disclosed on the Lease Profiles or Schedule 3.11(f), no tenant under any of the
Material Company Leases has any purchase options or kick-out rights or is
entitled to any concessions, allowances, abatements, setoffs, rebates or
refunds, (viii) none of the Material Company Leases and none of the rents or
other amounts payable thereunder has been mortgaged, assigned, pledged or
encumbered by any party thereto or otherwise, except in connection with
financing secured by the applicable Company Property which is described in
Schedule 3.9(c) or the Company Reports, (ix) (A) as of the date hereof, except
as set forth in Schedule 3.11(f), no brokerage or leasing commission or other
compensation is due or payable to any person with respect to or on account of
any of the Material Company Leases or any extensions or renewals thereof
incurred after the date hereof, and (B) any brokerage or leasing commission or
other compensation due or payable to any person with respect to or on account of
any of the Material Company Leases or any extensions or renewals thereof have
been incurred in the ordinary course of business of the Company consistent with
past practice and market terms, (x) no space occupied under any Material Company
Lease in any Company Property is occupied by a tenant not paying base and/or
percentage rent, (xi) no tenant under any of the Material Company Leases has
asserted any claim in writing or, to the Company's knowledge, orally, which is
likely to affect the collection of rent from such tenant, (xii) other than as
would be customary or consistent with commercially reasonable retail leasing
business practices, no tenant under any of the Material Company Leases has any
right to remove material improvements or fixtures that have at any time been
affixed to the premises leased thereunder, (xiii) each tenant under the Material
Company Leases is required thereunder to maintain or to cause to be maintained,
at its cost and expense, public liability and property damage insurance with
liability limits in amounts at least equal to that maintained by commercially
prudent owners of properties similar to the Company Property to which such
Material Company Lease relates, or in the alternative, consistent with
commercially reasonable prudent retail leasing business practices, tenants may
self-insure or the Company may provide such coverage to tenants and (xiv) the
landlord under each Material Company Lease has fulfilled all of its obligations
thereunder in respect of tenant improvements and capital expenditures consistent
with commercially reasonable prudent retail leasing business practices. Other
than the tenants identified in the Rent Roll and parties to easement agreements
which constitute Permitted Liens, no third party has any right to occupy or use
any portion of any Company Property. Budgets for all material tenant
improvements and similar material work required to be made by the lessor under
each of the Material Company Leases is incorporated in Schedule 3.11(i).
(g) Schedule 3.11(g) sets forth a complete and accurate list of all
material commitments, letters of intent or similar written understandings made
or entered into by the Company or any of its Subsidiaries as of the date hereof
(x) to lease any space larger than 10,000 rentable square feet at any of the
Company Properties, (y) to sell, mortgage, pledge or hypothecate any Company
Property or Properties, which, individually or in the aggregate, are material,
or to otherwise enter into a material transaction in respect of the ownership or
financing of any Company Property, or (z) to purchase or to acquire an option,
right of first refusal or similar right in respect of any real property, which,
individually or in the aggregate, are material, which, in any such case, has not
yet been reduced to a written lease or contract,
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and sets forth with respect to each such commitment, letter of intent or other
understanding the principal terms thereof. The Company will make available to
Buyer a true and complete copy of each such commitment, letter of intent or
other understanding. Schedule 3.11(g) also sets forth a complete and accurate
list of all agreements to purchase real property to which the Company or any of
its Subsidiaries is a party.
(h) Except as set forth in Schedule 3.11(h), none of the Company
Properties is subject to any outstanding purchase options nor has the Company or
any of its Subsidiaries entered into any outstanding contracts with others for
the (i) lease or sublease of space in excess of 10,000 square feet of rentable
space in any Company Property; or (ii) sale, mortgage, pledge, hypothecation or
other transfer of all or any part of any Company Property, and no person has any
right or option to acquire, or right of first refusal with respect to, the
Company's or any of its Subsidiaries' interest in any Company Property or any
part thereof. Except as set forth in Schedule 3.11(h) or 3.11(g), none of the
Company or any of its Subsidiaries has any outstanding options or rights of
first refusal or has entered into any outstanding contracts with others for the
purchase of any real property.
(i) Schedule 3.11(i) sets forth the Company's or any of its
Subsidiary's capital expenditure budget and schedule for each Company Property,
which describes the capital expenditures which the Company or such Subsidiary
has budgeted for such Company Property for the period running through December
31, 1997 (the "Capital Expenditure Budget and Schedule"), and the Company's or
any of its Subsidiary's preliminary capital expenditure budget and schedule for
each Company Property, which describes the capital expenditures which the
Company or such Subsidiary has budgeted for such Company Property for the period
commencing January 1, 1998 and running through December 31, 1999 (the "1998 and
1999 Preliminary Capital Expenditure Budgets and Schedules"). Each of the
Capital Expenditure Budget and the 1998 and 1999 Preliminary Capital Expenditure
Budgets and Schedules also describes other capital expenditures as are
necessary, to the Company's knowledge, in order to bring the applicable Company
Property into material compliance with applicable laws, ordinances, codes,
health and safety regulations and insurance requirements (including in respect
of fire sprinklers, compliance with the ADA (except to the extent that (x) a
tenant under any Company Lease is contractually responsible and liable for such
ADA compliance under its Company Lease or (y) with respect to shopping center
properties, any work required to cause such compliance is not material and the
related expenditures are, in the aggregate with all other such expenditures,
less than $300,000), and asbestos containing material) or which the Company
otherwise plans or expects to make in order to cure or remedy any construction,
electrical, mechanical or other defects, to renovate, rehabilitate or modernize
such Company Property, or otherwise, excluding, however, any tenant improvements
required to be made under any Company Lease. To the Company's knowledge, the
costs and time schedules for 1998 and 1999 set forth in the 1998 and 1999
Preliminary Capital Expenditure Budgets and Schedules are reasonable estimates
and projections based upon information available to the Company at the time that
the 1998 and 1999 Preliminary Capital Expenditure Budgets and Schedules were
prepared, and, nothing has come to the attention of the Company since such time
which would indicate that the 1998 and 1999 Preliminary Capital Expenditure
Budgets and Schedules are inaccurate or misleading in any material respect.
Except as set forth in Schedule 3.11(i), there are no outstanding or, to the
Company's knowledge, threatened requirements by any insurance
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company which has issued an insurance policy covering any Company Property, or
by any board of fire underwriters or other body exercising similar functions,
requiring any repairs or alterations to be made to any Company Property that
would, individually or in the aggregate, reasonably be expected to result in a
Material Adverse Effect.
(j) Schedule 3.11(j) contains a list of each Company Property which
consists of or includes undeveloped land or which is in the process of being
developed or redeveloped (collectively, the "Development Properties") and a
brief description of the development or redevelopment intended by the Company or
any of its Subsidiaries to be carried out or completed thereon (collectively,
the "Projects"), including any budget and development schedule therefor prepared
by or for the Company or any of its Subsidiaries (collectively, the "Development
Budget and Schedule"). Except as disclosed in Schedule 3.11(j), each Development
Property is zoned for the lawful development or redevelopment thereon of the
applicable Project, and the Company or its Subsidiaries have obtained all
permits, licenses, consents and authorizations required for the lawful
development or redevelopment thereon of such Project, except only for such
failure to meet the foregoing standards as would not, individually or in the
aggregate, be reasonably expected to have a Material Adverse Effect. Except as
set forth in Schedule 3.11(j), all of the existing improvements or structures
located on any of the Development Properties comply in all material respects
with all applicable building codes, laws, rules or regulations. Except as set
forth in Schedule 3.11(j), to the Company's knowledge, there are no material
impediments to or constraints on the development or redevelopment of any Project
in all material respects within the time frame and for the cost set forth in the
Development Budget and Schedule applicable thereto. Except as disclosed in
Schedule 3.11(j), each Development Property consists of sufficient land, parking
areas, driveways and other improvements, and lawful means of access and utility
and service and capacity to permit the development and operation of the Project
as intended to be carried out or completed thereon. Except as set forth on
Schedule 3.11(j), the Development Properties are free and clear of any Property
Restrictions, encroachments or other matters (including, any condemnation,
eminent domain or rezoning proceedings (proposed or threatened), special
assessments, taxes or so-called "impact fees") which would individually, or in
the aggregate, be reasonably expected to have a Material Adverse Effect on the
development of the related Development Property. In the case of each Project the
development of which has commenced, to the Company's knowledge, the costs and
expenses incurred in connection with such Project and the progress thereof are,
except as set forth in Schedule 3.11(j), consistent and in compliance in all
material respects with the Development Budget and Schedule applicable thereto.
The Company will make available to Buyer all feasibility studies, soil tests,
due diligence reports and other studies, tests or reports performed by or for
the Company at any time since the Initial Public Offering, which relate to the
Development Properties or the Projects.
(k) The ground leases underlying the leased Company Properties
referenced in Schedule 3.11(a) (collectively, the "Ground Leases") are
accurately described in Schedule 3.11(k). Each of the Ground Leases is valid,
binding and in full force and effect as against the Subsidiary and, to the
Company's knowledge, as against the other party thereto. Except as indicated in
Schedule 3.11(k) and except for any Company Leases and Permitted Liens affecting
the same, none of the Ground Leases is subject to any mortgage, pledge, Lien,
sublease, assignment, license or other agreement granting to any third party any
interest therein,
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collateral or otherwise, or any right to the use or occupancy of any premises
leased thereunder. True and complete copies of the Ground Leases (including all
amendments, modifications and supplements thereto) have been delivered to Buyer
prior to the date hereof. To the Company's knowledge, except as set forth in
Schedule 3.11(k), there is no pending or threatened proceeding which is
reasonably likely to interfere with the quiet enjoyment of the tenant under any
of the Ground Leases. Except as set forth in Schedule 3.11(k), as of the last
day of the month preceding the date hereof and as of the last day of the month
preceding the date of the Initial Closing, no payments under any Ground Lease
are delinquent and no notice of default under any Ground Lease has been sent or
received by the Company or any of its Subsidiaries. There does not exist under
any of the Ground Leases any default, and, to the Company's knowledge, no event
has occurred which, with notice or lapse of time or both, would constitute such
a default.
(l) The Company and each of its Subsidiaries have good and
sufficient title to all the personal and non-real properties and assets
reflected in their books and records as being owned by them (including those
reflected in the balance sheets of the Company and its Subsidiaries as of
December 31, 1997, except as since sold or otherwise disposed of in the ordinary
course of business), free and clear of all Liens, except for Permitted Liens
which are not, individually or in the aggregate, reasonably expected to have a
Material Adverse Effect.
(m) The Company has provided to Buyer historical operating expense
information (the "Historical Expense Information") for each of the last three
years, which has been prepared in the ordinary course of business. The
Historical Expense Information is accurate in all material respects.
(n) Except as set forth on Schedule 3.11(n), neither the Company nor
any of its Subsidiaries is a party to any material third-party property
management or leasing agreements pursuant to which the Company or any of its
Subsidiaries receives a fee or other compensation from a third party for
managing or leasing real property.
Section 3.12 Environmental Matters.
(a) To the Company's knowledge, each of the Company and its
Subsidiaries has obtained, and now maintains as currently valid and effective,
all permits, certificates of financial responsibility and other governmental
authorizations required to be obtained by the Company or any of its Subsidiaries
under the Environmental Laws (the "Environmental Permits") in connection with
the operation of its businesses and properties. Except as disclosed in the
Company Environmental Reports or the Company Reports, each of the Company and
its Subsidiaries and each Company Property is and has been in compliance with
all terms and conditions of the Environmental Permits and all Environmental
Laws, except only to an extent which would not, individually or in the
aggregate, reasonably be expected to result in a Material Adverse Effect. The
Company has no knowledge of any circumstances or conditions that may prevent or
interfere with such compliance in the future.
(b) Each of the Company and its Subsidiaries has provided or made
available to Buyer all formal written communications (whether from a Government
Authority, citizens' group, employee or other person), which the Company has
received regarding (x) alleged or
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suspected noncompliance of any of the Company Properties with any Environmental
Laws or Environmental Permits or (y) alleged or suspected Liability of the
Company or its Subsidiaries under any Environmental Law, which noncompliance or
Liability would, individually or in the aggregate, reasonably be expected to
result in a Material Adverse Effect.
(c) To the Company's knowledge, there are no liens or encumbrances
on any of the Company Properties which arose pursuant to or in connection with
any Environmental Law or Environmental Claim and, to the Company's knowledge, no
government actions have been taken or threatened to be taken or are in process
which are reasonably likely to subject any Company Property to such liens or
other encumbrances.
(d) Except as disclosed in Schedule 3.12(d) or in the Company
Reports (none of which matters would, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect), or set forth in the
Company Environmental Reports, no Environmental Claims have been asserted or, to
the Company's knowledge, threatened that, individually or in the aggregate, may
result in liabilities exceeding $300,000 with respect to the operations or the
businesses of the Company or its Subsidiaries, or with respect to the Company
Properties. To the Company's knowledge, except as set forth on the Company
Environmental Reports or in the Company Reports, no circumstances, past or
present actions, conditions, events or incidents exist with respect to the
Company or any of its Subsidiaries or the Company Properties that would
reasonably be expected to result in the assertion of any Environmental Claims
that, individually or in the aggregate, may result in liabilities exceeding
$300,000, in any such case, against (i) the Company or any of its Subsidiaries,
or (ii) to the Company's knowledge, any person whose liability for any
Environmental Claims the Company or any of its Subsidiaries has or may have
retained or assumed either contractually or by operation of law.
(e) Except as disclosed in Schedule 3.12(e) (none of which matters
would, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect), or set forth in the Company Environmental Reports or
the Company Reports, (i) none of the Company or its Subsidiaries has been
notified or anticipates being notified of potential responsibility in connection
with any site that has been placed on, or proposed to be placed on, the National
Priorities List or its state or foreign equivalents pursuant to the
Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"),
42 U.S.C. ss. 9601 et seq., or analogous state laws, (ii) no Materials of
Environmental Concern are present on, in or under any Company Property in a
manner or condition that is reasonably likely to give rise to Environmental
Claims which, individually or in the aggregate, would reasonably be expected to
result in a Material Adverse Effect, (iii) none of the Company or its
Subsidiaries has Released or arranged for the Release of any Materials of
Environmental Concern at any location to an extent or in a manner which would
reasonably be expected to result in a Material Adverse Effect, (iv) no
underground storage tanks, surface impoundments, disposal areas, pits, ponds,
lagoons, open trenches or disused industrial equipment is present at any Company
Property in a manner or condition that is reasonably likely to give rise to one
or more Environmental Claims which, individually or in the aggregate, would
reasonably be expected to result in a Material Adverse Effect, (v) no
transformers, capacitors or other equipment containing fluid with more than 50
parts per million polychlorinated biphenyls are present at any Company Property
in a manner or condition that is reasonably likely to give rise to one or more
Environmental Claims
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which, individually or in the aggregate, would reasonably be expected to result
in a Material Adverse Effect, except for any such transformers, capacitors or
other equipment owned by any utility company, and (vi) to the Company's
knowledge, no friable asbestos and no friable asbestos-containing material is
present at any Company Property and, to the Company's knowledge, no Employee,
agent, contractor or subcontractor of the Company or its Subsidiaries or any
other person is now or has in the past been exposed to friable asbestos at any
Company Property, except, in the case of each of the matters set forth in this
subpart (vi), for such matters as would not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect.
(f) Schedule 3.12(f) contains a list of each environmental report,
audit, summary, or similar document prepared for or by the Company or any of its
Subsidiaries or otherwise in the possession of any of them with respect to the
environmental condition of any Company Property (collectively, the "Company
Environmental Reports"). The Company has previously delivered or made available
to Buyer true and complete copies of each Company Environmental Report. None of
the matters disclosed by the Company Environmental Reports would, individually
or in the aggregate, reasonably be likely to have a Material Adverse Effect. The
Company has no knowledge of any facts or circumstances relating to the
environmental condition of any property owned, leased or otherwise held by the
Company that is not a Company Property that are reasonably likely to result in a
Material Adverse Effect.
(g) For purposes hereof, the terms listed below shall have the
following meanings:
(i) "Claim" shall mean all actions, causes of action, suits,
judgments, executions, claims, Liabilities and demands whatsoever, in law
or equity.
(ii) "Environmental Claim" shall mean any Claim investigation or
notice by any person alleging potential liability (including potential
liability for investigatory costs, cleanup costs, governmental response
costs, natural resources damages, property damages, personal injuries or
fatalities, or penalties) arising out of, based on or resulting from (A)
the presence, generation, transportation, treatment, use, storage,
disposal or Release of Materials of Environmental Concern or the
threatened Release of Materials of Environmental Concern at any location,
or (B) activities or conditions forming the basis of any violation, or
alleged violation of, or liability or alleged liability under, any
Environmental Law.
(iii) "Environmental Laws" shall mean federal, state, and local
laws, ordinances, common law, orders, statutes, and regulations relating
to the pollution or protection of the environment or of flora or fauna or
their habitat or of human health and safety, or to the cleanup or
restoration of the environment, including, without limitation, CERCLA, the
Toxic Substances Control Act, as amended, the Hazardous Materials
Transportation Act, as amended, the Resource Conservation and Recovery
Act, as amended, the Clean Water Act, as amended, the Safe Drinking Water
Act, as amended, the Clean Air Act, as amended, the Occupational Safety
and Health Act, as amended,
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and all analogous laws promulgated or issued by any state or other
Government Authority.
(iv) "Materials of Environmental Concern" shall mean all chemicals,
pollutants, contaminants, wastes, toxic substances, petroleum or any
fraction thereof, petroleum products and hazardous substances or solid or
hazardous wastes as now defined and regulated under any Environmental
Laws.
(v) "Release" shall mean any release, spill, emission, leaking,
pumping, injection, deposit, disposal, discharge, dispersal, leaching or
migration.
Section 3.13 Employees and Employee Benefit Plans.
(a) Schedule 3.13(a) sets forth a complete and accurate list of all
employment agreements (the "Employment Agreements") between the Company or any
of its Subsidiaries and any employees of the Company or any of its Subsidiaries.
Except for the employees of the Company or its Subsidiaries who are parties to
such Employment Agreements, all of the employees of the Company and each of its
Subsidiaries are employed on an at-will basis (except for restrictions or
limitations on the at-will basis of such employees imposed by law or equity or
general principles of law or equity), other than such employees party to
Employment Agreements that are not, in the aggregate, material to the Company.
(b) The Company Reports or Schedule 3.13(b) set forth a complete and
accurate list of all material Employee Benefit Plans and all material Benefit
Arrangements which cover Employees of the Company or any of its Subsidiaries
with respect to their employment relationship with the Company or any of its
Subsidiaries (the "Company Plans"). With respect to each Company Plan, the
Company has made available to Buyer true and complete copies of: (i) the plans
and related trust documents and all amendments thereto, (ii) the most recent
summary plan descriptions, if any, and the most recent annual report, if any,
(iii) the most recent actuarial valuation (to the extent applicable), and (iv)
the most recent determination letter issued by the IRS with respect to any
Company Plan intended to be qualified under Section 401(a) of the Code.
(c) With respect to each Company Plan, (i) the Company and each of
its Subsidiaries is, and has been since the date of adoption of each Company
Plan, in compliance in all material respects with the terms of each such Company
Plan and with the requirements prescribed by all applicable statutes, orders or
governmental rules or regulations, (ii) the Company and each of its Subsidiaries
has contributed to each Pension Plan included in the Company Plans not less than
the amounts accrued for such plan for all plan periods for which payment is due,
and (iii) neither the Company nor any of its Subsidiaries has any funding
commitment or other accrued liabilities except as set forth on Schedule 3.13(c)
or as reserved for in the financial statements in or incorporated by reference
into the Company Reports, and in the case of each of clauses (i), (ii), and
(iii), except for such matters as would not, individually or in the aggregate,
reasonably be expected to result in a Material Adverse Effect.
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(d) Except as set forth on Schedule 3.13(d), none of the Company or
any of its Subsidiaries has made any commitment to establish any new Employee
Benefit Plan or Benefit Arrangement, to modify any Employee Benefit Plan or
Benefit Arrangement, or to increase benefits or compensation of Employees of the
Company or any of its Subsidiaries (except for normal increases in compensation
consistent with past practices), and, to the Company's knowledge, no intention
to do so has been communicated to Employees of the Company or any of its
Subsidiaries.
(e) Except as set forth on Schedule 3.13(e), there are no pending
or, to the Company's knowledge, anticipated government audits or claims
(excluding claims for benefits incurred in the ordinary course of Company Plan
activities) against or otherwise involving any of the Company Plans or any
fiduciaries thereof with respect to their duties to the Company Plans and no
suit, action or other litigation (excluding claims for benefits incurred in the
ordinary course of Company Plan activities) has been brought against or with
respect to any such Company Plans.
(f) Neither the Company nor any of the ERISA Affiliates has, at any
time after September 25, 1980, contributed to, or been required to contribute
to, any "multiemployer plan" (as defined in Sections 3(37) and 4001(a)(3) of
ERISA).
(g) Except as required by the continuation coverage requirements of
Section 601 et seq. of ERISA and Section 4980B of the Code or requirements of
state law and regulations and except as set forth on Schedule 3.13(g), the
Company and its Subsidiaries do not maintain or contribute to any plan or
arrangement which provides or has any liability to provide life insurance,
medical or other employee welfare benefits described in Section 3(1) of ERISA to
any Employee or former Employee following his retirement or termination of
employment and, to the Company's knowledge, the Company and its Subsidiaries
have never represented, promised or contracted (whether in oral or written form)
to any Employee or former Employee that such benefits would be provided.
(h) For purposes hereof, "Employee Benefit Plans" means each and all
"employee benefit plans" as defined in Section 3(3) of ERISA maintained or
contributed to by the Company or a Subsidiary or in which the Company or a
Subsidiary participates or participated and which provides benefits to
Employees, including (i) any such plans that are "employee welfare benefit
plans" as defined in Section 3(1) of ERISA, including retiree medical and life
insurance plans ("Welfare Plans"), and (ii) any such plans that constitute
"employee pension benefit plans" as defined in Section 3(2) of ERISA ("Pension
Plans"). "Benefit Arrangements" means life and health insurance,
hospitalization, savings, bonus, deferred compensation, incentive compensation,
holiday, vacation, severance pay, sick pay, sick leave, disability, tuition
refund, service award, company car, scholarship, relocation, patent award,
fringe benefit, individual employment, consultancy or severance contracts and
other polices or practices of the Company or a Subsidiary providing employee or
executive compensation or benefits to Employees maintained or contributed to by
the Company or a Subsidiary, other than Employee Benefit Plans. "Employees" mean
all current employees, former employees and retired employees of the Company or
any of its Subsidiaries, including employees on disability, layoff or leave
status. "Controlled Group Liability" means any and all liabilities (other than
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such liabilities that arise solely out of, or relate solely to, the Company
Plans) of the ERISA Affiliates (other than the Company and its Subsidiaries)
under (i) Title IV of ERISA, (ii) Section 302 of ERISA, (iii) Sections 412 and
4971 of the Code, (iv) the continuation coverage requirements of Section 601 et
seq. of ERISA and Section 4980B of the Code, and (v) corresponding or similar
provisions of foreign laws or regulations.
(i) To the Company's knowledge, with respect to each Company Plan
that is subject to Title IV or Section 302 of ERISA or Section 412 or 4971 of
the Code: (i) there does not exist any accumulated funding deficiency within the
meaning of Section 412 of the Code or Section 302 of ERISA, whether or not
waived, (ii) the fair market value of the assets of such plan equals or exceeds
the actuarial present value of all accrued benefits under such plan, on a
termination basis, (iii) no reportable event within the meaning of Section
4043(c) of ERISA has occurred, with respect to which notice has not been waived,
and the consummation of the transactions contemplated by this Agreement will not
result in the occurrence of any such reportable event, and (iv) all premiums due
to the Pension Benefit Guaranty Corporation have been timely paid in full.
(j) There does not now exist, nor do any circumstances exist that
could result in, any Controlled Group Liability that would be a liability of the
Company following the Closing. Without limiting the generality of the foregoing,
neither the Company nor any ERISA Affiliate has engaged in any transaction
described in Section 4069 or Section 4204 of ERISA.
(k) Neither the execution and delivery of this Agreement, the Kane
Purchase Agreement, the Konover Purchase Agreement nor the consummation of the
transactions contemplated hereby or thereby will (either alone or in conjunction
with any other event) result in, cause the accelerated vesting or delivery of,
or increase the amount or value of, any payment or benefit to any employee of
the Company, except as set forth in Schedule 3.13(k) or any automatic extension
of the term of any Employment Agreement.
(l) To the Company's knowledge, neither the Company nor any of its
Subsidiaries nor any plan fiduciary of any Company Plan has engaged in any
transaction in violation of Sections 404 or 406 of ERISA or any "prohibited
transaction," as defined in Section 4975(c)(1) of the Code, for which no
exemption exists under Section 408 of ERISA or Section 4975(c)(2) or (d) of the
Code, or has otherwise violated the provisions of Part 4 of Title I, Subtitle B
of ERISA. Neither the Company nor any Subsidiary has knowingly participated in a
violation of Part 4 of Title I, Subtitle B of ERISA by any plan fiduciary of any
Company Plan and has not been assessed any civil penalty under Section 502(l) of
ERISA.
(m) Schedule 3.13 (m) sets forth a complete and accurate list of all
amounts paid annually pursuant to short-term or long-term disability benefits
under any Company Plan and the number of Employees receiving such payments, as
well as any Employees, to the Company's knowledge, who are participating in, or
may become eligible to participate in, any Company Plan who are suffering from
serious illness or disease.
Section 3.14 Labor Matters. Except as set forth in Schedule 3.14, none of
the Company or any of its Subsidiaries is a party to, or bound by, any
collective bargaining agreement,
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contract or other agreement or understanding with a labor union or labor union
organization. Except for the matters set forth in Schedule 3.14 (none of which
matters would, individually or in the aggregate, reasonably be expected to have
a Material Adverse Effect), there is no unfair labor practice or labor
arbitration proceeding pending or, to the knowledge of the Company, threatened
against the Company or any of its Subsidiaries. To the knowledge of the Company,
there are no organizational efforts with respect to the formation of a
collective bargaining unit presently being made or threatened involving
employees of the Company or any of its Subsidiaries.
Section 3.15 Affiliate Transactions. Schedule 3.15 sets forth a complete
and accurate list of all transactions, series of related transactions or
currently proposed transactions or series of related transactions entered into
by the Company or any of its Subsidiaries since January 1, 1997 which are of the
type required to be disclosed by the Company pursuant to Item 404 of Regulation
S-K of the Securities Laws that are not otherwise disclosed in the Company
Reports. A true and complete copy of all agreements or contracts relating to any
such transaction will be made available to Buyer prior to the date hereof.
Section 3.16 Insurance. The Company maintains insurance policies,
including liability policies, covering the assets, business, equipment,
properties, operations, employees, officers and directors of the Company and
each of its Subsidiaries (collectively, the "Insurance Policies"), which are of
a type and in amounts customarily carried by persons conducting businesses
similar to those of the Company. There is no material claim by the Company or
any of its Subsidiaries pending under any of the material Insurance Policies as
to which coverage has been questioned, denied or disputed by the underwriters of
such policies.
Section 3.17 Proxy Statement. The Proxy Statement and all of the
information included or incorporated by reference therein (other than any
information supplied or to be supplied by Buyer for inclusion or incorporation
by reference therein) will not, as of the date such Proxy Statement is first
mailed to the stockholders of the Company and as of the time of the meeting of
the stockholders of the Company in connection with the transactions contemplated
hereby, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they are made, not
misleading. The Proxy Statement will comply as to form in all material respects
with the provisions of the Exchange Act and the rules and regulations
promulgated by the SEC thereunder.
Section 3.18 Vote Required. The affirmative vote of the holders of a
majority (including Buyer and its Controlled Affiliates (as defined in the
Stockholders Agreement) for purposes of determining a quorum, but not for
purposes of determining a majority) of the outstanding shares of Company Common
Stock entitled to vote hereon and duly present in person or by proxy at a
meeting duly called to vote hereon (and with each share of Company Common Stock
entitled to one vote per share) is the only vote of the holders of any class or
series of Company Stock necessary to approve this Agreement, the Registration
Rights Agreement, the Contingent Value Right Agreement, the Stockholders
Agreement and the transactions contemplated hereby and thereby.
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Section 3.19 Brokers or Finders. Except as set forth in Schedule 3.19, no
agent, broker, investment banker or other firm or person, including any of the
foregoing that is an Affiliate of the Company, is or will be entitled to any
broker's or finder's fee or any other commission or similar fee from the Company
in connection with this Agreement or any of the transactions contemplated hereby
for which Buyer or any of its Affiliates will be responsible.
Section 3.20 Maryland Takeover Law. The terms of Sections 3-602 and 3-702
of the Maryland General Corporation Law will not apply to Buyer, any Stock
Purchase or any other transaction contemplated hereby. The resolutions in the
form of Exhibit D hereto have been adopted by the Company and have not been
rescinded and revoked.
Section 3.21 Kane and Konover Properties. The Company hereby makes the
same representations and warranties with respect to the Kane and Konover
Properties as are made by the sellers under the Kane Purchase Agreement and the
Konover Purchase Agreement to the Company, subject to the knowledge and other
qualifications expressly set forth therein (i.e., for the purpose of this
Section 3.21, the Company's knowledge shall be limited to the knowledge, without
further inquiry, of the individuals named in the Kane Purchase Agreement and the
Konover Purchase Agreement).
Section 3.22 Knowledge Defined. As used herein, the phrase "to the
Company's knowledge" (or words of similar import) means the actual knowledge of
C. Cammack Morton, Patrick M. Miniutti, William H. Neville, Linda M. Swearingen
and Michaela M. Twomey after due inquiry of persons likely to have knowledge of
any relevant facts or circumstances and includes any facts, matters or
circumstances set forth in any written notice from any Government Authority or
any other material written notice received by the Company or any of its
Subsidiaries, and also including any matter of which Buyer informs the Company
in writing.
Section 3.23 Accuracy of Information Furnished. To the Company's
knowledge, no representation or warranty by the Company contained in this
Agreement or the exhibits, schedules, lists or other documents delivered to
Buyer by the Company and referred to herein, and no statement contained in any
certificate furnished or to be furnished by or on behalf of the Company pursuant
hereto, or in connection with the transactions contemplated hereby, contains or
will contain any untrue statement of a material fact, or omits or will omit to
state any material fact that is necessary to make the statements contained
herein or therein not misleading.
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ARTICLE 4
Representations and Warranties of Buyer
Buyer hereby represents and warrants to the Company as follows:
Section 4.1 Organization. Buyer is a limited liability company duly
organized, validly existing and in good standing under the laws of the State of
Delaware. Buyer has all requisite corporate power and authority to own, operate,
lease and encumber its properties and to carry on its business as now conducted,
and to enter into this Agreement, the Registration Rights Agreement, the
Contingent Value Right Agreement and the Stockholders Agreement and to perform
its obligations hereunder and thereunder.
Section 4.2 Due Authorization. The execution, delivery and performance of
this Agreement, the Registration Rights Agreement, the Contingent Value Right
Agreement and the Stockholders Agreement have been duly and validly authorized
by all necessary corporate action on the part of Buyer. This Agreement, the
Registration Rights Agreement, the Contingent Value Right Agreement and the
Stockholders Agreement have been duly executed and delivered by Buyer and
constitute the valid and legally binding obligations of Buyer, enforceable
against Buyer in accordance with their terms, subject to applicable bankruptcy,
insolvency, moratorium or other similar laws relating to creditors' rights or
general principles of equity.
Section 4.3 Conflicting Agreements and Other Matters. Neither the
execution and delivery of this Agreement nor the consummation by Buyer of the
transactions contemplated hereby in accordance with the terms hereof, will
conflict with, result in a breach of the terms, conditions or provisions of,
constitute a default under, result in the creation of any mortgage, security
interest, encumbrance, lien or charge of any kind upon any of the properties or
assets of Buyer pursuant to, or require any consent, approval or other action by
or any notice to or filing with any Government Authority pursuant to, the
organizational documents or agreements of Buyer or any agreement, instrument,
order, judgment, decree, statute, law, rule or regulation by which Buyer is
bound, except for filings after any Closing under Section 13(d) or Section 16 of
the Exchange Act.
Section 4.4 Acquisition for Investment; Sophistication; Source of Funds.
(a) Buyer is acquiring the Securities for its own account for the
purpose of investment and not with a view to or for sale in connection with any
distribution thereof, and Buyer has no present intention or plan to effect any
distribution of shares of Company Common Stock, provided that the disposition of
Company Common Stock owned by Buyer shall at all times be and remain within its
control, subject to the provisions of this Agreement and the Registration Rights
Agreement. The certificate(s) representing the Securities shall bear a prominent
legend with respect to the restrictions on transfer under the Securities Act and
under applicable state securities laws. Prior to any proposed transfer of the
Securities, unless such transfer is made pursuant to an effective registration
statement under the Securities Act, Buyer will deliver to the Company an opinion
of counsel, reasonably satisfactory in form and substance to the Company, to the
effect that the Securities may be sold or otherwise transferred without
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registration under the Securities Act. The Company will remove the legend
relating to Securities Act restrictions from any Securities at any time two
years after issuance if Buyer delivers to the Company an opinion of counsel,
reasonably satisfactory in form and substance to the Company, to the effect that
such Securities are no longer subject to transfer restrictions under the
Securities Act. Upon original issuance thereof, and until such time as the same
shall have been registered under the Securities Act or sold pursuant to Rule 144
promulgated thereunder (or any similar rule or regulation), each stock
certificate for the Securities shall bear any restricted securities legend
required pursuant to the Stockholders Agreement, unless such legend is no longer
required thereunder. Buyer is able to bear the economic risk of the acquisition
of Company Common Stock pursuant hereto and can afford to sustain a total loss
on such investment, and has such knowledge and experience in financial and
business matters that it is capable of evaluating the merits and risks of the
proposed investment.
(b) Buyer is an "accredited investor" as such term is defined in
Regulation D promulgated under the Securities Act.
(c) Buyer has previously delivered to the Company an audited balance
sheet for Buyer as of December 31, 1996, which was certified by an officer of
Buyer and which fairly presented the financial position of Buyer as of its date
in accordance with GAAP. Such balance sheet discloses either on its face or by
footnote, all material liabilities of Buyer required to be disclosed under GAAP.
The Company agrees to keep such information confidential to the same extent that
Buyer is obligated to keep information confidential pursuant to Section 5.2(b).
Section 4.5 Resources. Buyer has requisite cash, cash equivalents, equity
commitments or other sources of financing available to consummate the
transactions contemplated hereby.
Section 4.6 Proxy Statement. None of the information supplied or to be
supplied by Buyer for inclusion or incorporation by reference in the Proxy
Statement will, as of the date the Proxy Statement is first mailed to the
stockholders of the Company and as of the time of the meeting of the
stockholders of the Company in connection with the transactions contemplated
hereby, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they are made, not
misleading.
Section 4.7 Brokers or Finders. No agent, broker, investment banker or
other firm or person, including any of the foregoing that is an Affiliate of
Buyer is or will be entitled to any broker's or finder's fee or any other
commission or similar fee from Buyer in connection with this Agreement or any of
the transactions contemplated hereby for which the Company or any of its
Affiliates will be responsible.
Section 4.8 REIT Qualification Matters. To Buyer's knowledge, no person
who would be treated as an "individual" for purposes of Section 542(a)(2) of the
Code (as modified by Section 856(h) of the Code) and who owns, directly or
indirectly, equity interests in Buyer will own actually or beneficially
(determined through the application of the constructive ownership rules of
Section 544 of the Code, as modified by Section 856(h)(1)(B) of the Code), in
excess
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of 9.8% of the value of the outstanding equity interests in Company as of the
date of the applicable Closing.
Section 4.9 Investment Company Matters. Buyer is not, and after giving
effect to the purchase of Company Common Stock contemplated hereby will not be,
an "investment company" or an entity "controlled" by an "investment company", as
such terms are defined in the Investment Company Act of 1940, as amended.
Section 4.10 Ownership of Tenants. To Buyer's knowledge and except as set
forth in Schedule 4.10-B, Buyer does not own, as of the date of the applicable
Closing, actually or constructively (determined through the application of the
constructive ownership rules of Section 318 of the Code, as modified by Section
856(d)(5) of the Code), any stock, securities, or other ownership interest in
any of the tenants of the Company, as set forth in Schedule 4.10-A. Capitalized
terms used but not defined in this Section 4.10 shall have the meaning assigned
to them in the Company Charter. The Company shall advise Buyer within a
reasonable period of time before any Closing of any material changes to Schedule
4.10-A. The Company may update Schedule 4.10-A from time to time, and Buyer
agrees to promptly notify the Company, to its knowledge, as to its actual and
constructive ownership (determined through the application of the constructive
ownership rules of Section 318 of the Code, as modified by Section 856(d)(5) of
the Code) of any additional tenants of the Company, as may be set forth on such
updated schedule.
ARTICLE 5
Covenants Relating to Closings
Section 5.1 Taking of Necessary Action.
(a) Each party hereto agrees to use its commercially reasonable best
efforts promptly to take or cause to be taken all action and promptly to do or
cause to be done all things necessary, proper or advisable under applicable laws
and regulations to consummate and make effective the transactions contemplated
by this Agreement, the Registration Rights Agreement, the Contingent Value Right
Agreement and the Stockholders Agreement, subject to the terms and conditions
hereof and thereof, including all actions and things necessary to cause all
conditions precedent set forth in Article 7 to be satisfied. Each party
acknowledges that the Company's stockholders' meeting at which the stockholders
will vote on, among other things, the transactions contemplated hereby is
anticipated to occur on May 12, 1998.
(b) As promptly as practicable after the date hereof (it being
understood that the relevant stockholders' meeting is anticipated to occur on
May 12, 1998), the Company shall prepare and file with the SEC a preliminary
proxy statement (the "Proxy Statement") by which the Company's stockholders will
be asked to approve, among other things, the issuance of shares of Company
Common Stock contemplated hereby. The Proxy Statement as initially filed with
the SEC, as it may be amended and refiled with the SEC and as it may be mailed
to the Company's stockholders, shall be in form and substance reasonably
satisfactory to Buyer. The
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Company shall use its reasonable efforts to respond to any comments of the SEC,
and to cause the Proxy Statement to be mailed to the Company's stockholders at
the earliest practicable time. As promptly as practicable after the date hereof,
the Company shall prepare and file any other filings required of the Company or
its Subsidiaries under the Exchange Act, the Securities Act or any other
federal, state or local laws relating to this Agreement and the transactions
contemplated hereby, and state takeover laws (the "Other Filings"). The Company
and Buyer will notify each other promptly of the receipt of any comments from
the SEC or its staff and of any request by the SEC or its staff or any other
government officials for amendments or supplements to the Proxy Statement or any
Other Filing or for additional information and will supply each other with
copies of all correspondence between each of them or any of their respective
representatives, on the one hand, and the SEC or its staff or any other
government officials, on the other hand, with respect to the Proxy Statement or
any Other Filing. The Proxy Statement and any Other Filing shall comply in all
material respects with all applicable requirements of law. Buyer shall provide
the Company all information about Buyer required to be included or incorporated
by reference in the Proxy Statement or any Other Filing and shall otherwise
cooperate with the Company in taking the actions described in this paragraph.
Whenever any event occurs which is required to be set forth in an amendment or
supplement to the Proxy Statement or any Other Filing, the Company or Buyer, as
the case may be, shall promptly inform the other party of such occurrence and
cooperate in filing with the SEC or its staff or any other government officials,
and/or mailing to stockholders of the Company, such amendment or supplement.
Subject to the provisions of Section 5.4, the Proxy Statement shall include the
recommendation of the Board that the stockholders of the Company vote in favor
of and approve the issuance of Company Common Stock pursuant to this Agreement.
(c) The Company shall call a meeting of its stockholders to be held
as promptly as practicable for the purpose of voting upon the transactions
(including the issuance of Company Common Stock) contemplated hereby; provided
that should a quorum not be obtained at such meeting of the stockholders, the
meeting of the stockholders shall be postponed or adjourned in order to permit
additional time for soliciting and obtaining additional proxies or votes.
(d) The Company shall use its commercially reasonable best efforts
to obtain the consents set forth in each of Schedules 3.4(d)-A, 3.4(d)-B and
3.4(d)-C.
Section 5.2 Public Announcements; Confidentiality.
(a) Subject to each party's disclosure obligations imposed by law
and any stock exchange or similar rules and the confidentiality provisions
contained in Section 5.2(b), the Company and Buyer will cooperate with each
other in the development and distribution of all news releases and other public
information disclosures with respect to this Agreement, the Registration Rights
Agreement, the Contingent Value Right Agreement, the Stockholders Agreement and
any of the transactions contemplated hereby or thereby. If a party is required
by law or any stock exchange or similar rule to issue a news release or other
public announcement, it shall advise the other party in advance thereof and use
reasonable best efforts to cause a mutually agreeable release or announcement to
be issued.
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(b) Buyer agrees that all information provided to Buyer or any of
its representatives pursuant to this Agreement shall be kept confidential, and
Buyer shall not (x) disclose such information to any persons other than the
directors, officers, employees, financial advisors, investors, lenders, legal
advisors, accountants, consultants and affiliates of Buyer who reasonably need
to have access to the confidential information and who are advised of the
confidential nature of such information or (y) use such information in a manner
which would be detrimental to the Company; provided, however, the foregoing
obligation of Buyer shall not (i) relate to any information that (1) is or
becomes generally available other than as a result of unauthorized disclosure by
Buyer or by persons to whom Buyer has made such information available, (2) is or
becomes available to Buyer on a non-confidential basis from a third party that
is not, to Buyer's knowledge, bound by any other confidentiality agreement with
the Company, or (ii) prohibit disclosure of any information if required by law,
rule, regulation, court order or other legal or governmental process.
Section 5.3 Conduct of the Business. Except for transactions contemplated
hereby, during the period from the date hereof to the sooner to occur of (A) the
date on which the Investor Nominees (as defined in the Stockholders Agreement)
first become members of the Board, and (B) if the Stockholder Approval vote
fails, the date of the stockholder meeting at which the Stockholder Approval
failed, each of the Company and each of its Subsidiaries, except as otherwise
consented to or approved by Buyer in writing or as permitted or required hereby,
(x) has conducted and will conduct the business and has engaged and will engage
in transactions only in the ordinary course consistent with past practice, and
(y) will not:
(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 Company'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;
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(e) issue Company Stock or options, rights or warrants or other
commitments to purchase or securities convertible into (or exchangeable or
redeemable for) shares of Company Stock, including, without limitation, OP
Units (such options, rights, warrants, other commitments or securities,
"Company Stock Equivalents"); provided, however, Buyer's consent shall not
be required for any issuance of Company Stock or Company Stock Equivalents
as long as the sum of (i) all shares of Company Stock issued by the
Company during the applicable fiscal year and (ii) shares of Company Stock
into which Company Stock Equivalents issued by the Company and each of its
Subsidiaries during the applicable fiscal year are convertible, does not
exceed fifty percent (50%) of all shares of Company 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 Company of Company
Stock or issuance by the Company or any of its Subsidiaries of any Company
Stock Equivalents, Investor shall be entitled, to the extent so provided
in Section 4.1 of the Stockholders Agreement, to a participation right on
the terms set forth in Section 4.1 of the Stockholders Agreement.
Notwithstanding the first sentence of this Section 5.3(e), (i) Company
Stock issued to the Company or a wholly owned Subsidiary thereof and (ii)
Company Stock and Company Stock Equivalents issued to directors or
employees of the Company or a Subsidiary of the Company in connection with
any employee benefit plan approved by the shareholders of the Company,
shall not be subject to Buyer's consent;
(f) change or amend any provision of the Company Charter or the
by-laws of the Company 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 Company, (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 Company to terminate this Agreement
pursuant to Section 9.1(b)(iii) hereof, 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
Buyer, 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.
Section 5.4 No Solicitation of Transactions. Unless and until this
Agreement is terminated in accordance with its terms, neither the Company nor
its Subsidiaries shall, directly or indirectly, through any officer, director,
agent or otherwise, initiate, solicit or knowingly
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encourage (including by way of furnishing non-public information or assistance),
or take any other action to facilitate knowingly, any inquiries or the making of
any proposal that constitutes, or may reasonably be expected to lead to, any
Competing Transaction, or enter into or maintain or continue discussions or
negotiate with any person or entity in furtherance of such inquiries or to
obtain a Competing Transaction, or agree to or endorse any Competing
Transaction, or authorize or knowingly permit any of the officers, directors or
employees of such party or any of its Subsidiaries or any investment banker,
financial advisor, attorney, accountant or other representative retained by such
party or any of such party's Subsidiaries to take any such action, and the
Company shall notify Buyer orally (within one Business Day) and in writing (as
promptly as practicable) of all of the relevant details relating to all
inquiries and proposals which any officer or director of the Company may receive
relating to any of such matters and if such inquiry or proposal is in writing,
the Company shall deliver to Buyer a copy of such inquiry or proposal; provided,
however, that nothing contained in this Section shall prohibit the Board from
complying with Rule 14e-2 promulgated under the Exchange Act with regard to a
tender or exchange offer or prohibit the Board from taking such other actions as
may be required to comply with its fiduciary obligations. If the Board
determines with the advice of counsel that failure to do so could be held to
violate its fiduciary duties, it may provide information in response to an
unsolicited proposal. If the Company receives a bona fide proposal for a
Competing Transaction that the Board determines in good faith (based on the
advice of a nationally recognized financial advisor) may provide greater value
to the Company and its stockholders than this Agreement, it may enter into
negotiations with respect to such proposal. The Company will notify Buyer of any
such superior proposal not less than two Business Days prior to entering into
any definitive agreement with respect to a Competing Transaction; provided,
however, that in no event shall the Company enter into a definitive agreement
with respect to a Competing Transaction less than five Business Days after the
Company's initial notification to Buyer of an inquiry or proposal relating to a
Competing Transaction. Within the two-Business-Day or five-Business-Day period
referred to above, Buyer may propose an improved transaction.
Section 5.5 Information and Access. From the date hereof until the date on
which the Remaining Equity Ownership of Buyer shall be less than $10,000,000.00,
(i) the Company and its Subsidiaries shall afford to Buyer and Buyer's
accountants, counsel and other representatives full and reasonable access during
normal business hours (and at such other times as the parties may mutually
agree) to its properties, books, contracts, commitments, records and personnel
and, during such period, shall furnish promptly to Buyer (1) a copy of each
report, schedule and other document filed or received by it pursuant to the
requirements of the Securities Laws, and (2) all other information concerning
their businesses, personnel and the Company Properties as Buyer may reasonably
request, and (ii) without limiting the generality of the foregoing, Buyer shall
have the right to (1) conduct or cause to be conducted an environmental,
physical, structural, electrical, mechanical and other inspection and review of
any Company Properties, for which inspection Buyer will and hereby does
indemnify and hold the Company harmless from any and all damages whatsoever
caused by such inspection, or (2) request that the Company update any existing
reports, reviews or inspections thereof, in which case the Company shall
promptly so update its reports, reviews and inspections and cause them to be
certified to Buyer by the firm or person who prepared such report or conducted
such review or inspection. Buyer shall pay the expenses of any outside
professional employed by Buyer in
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connection with Buyer's exercise of its rights under this Section 5.5. Buyer and
its accountants, counsel and other representatives shall, in the exercise of the
rights described in this Section, not unduly interfere with the operation of the
businesses of the Company or its Subsidiaries.
Section 5.6 Notification of Certain Matters. Each of Buyer and the Company
shall use its good faith efforts to notify the other party in writing of its
discovery of any matter that would render any of such party's or the other
party's representations and warranties contained herein untrue or incorrect in
any material respect, but the failure of either party to so notify the other
party shall not be deemed a breach of this Agreement.
Section 5.7 Delivery of Final Schedules and the Purchase Agreements. The
Company and Buyer acknowledge that, as of the date hereof, not all of the
Schedules referred to in this Agreement have been completed and that the final
Kane Purchase Agreement and the final Konover Purchase Agreement have not been
delivered to Buyer. The Company shall deliver to Buyer within ten Business Days
of the date hereof final Schedules to this Agreement (the "Final Schedules") and
the final Kane Purchase Agreement and the final Konover Purchase Agreement (to
be attached hereto as Exhibits E and F). Following the delivery of the Final
Schedules, if Buyer does not exercise its right to terminate this Agreement
pursuant to Section 9.1(a)(v), Buyer shall be deemed to have accepted the Final
Schedules. The Company will provide updates to the Schedules within five (5)
Business Days prior to each Closing to reflect new acquisitions or other
material matters (other than the acquisition of the Kane and Konover Properties,
which is governed by Section 5.8 below) arising since completion of the Final
Schedules (the "Updated Schedules"). Except as provided in Section 9.1(a)(vii)
with respect to the Kane and Konover Properties, information relating to new
acquisitions approved by the Board and set forth on Updated Schedules shall not
constitute a failure of a condition to closing as set forth in Article 7, except
to the extent that such new information would result in a Material Adverse
Effect on the Company. Following delivery of any Updated Schedules, if Buyer
does not elect to terminate this Agreement pursuant to 9.1(a)(vi) and
consummates the applicable Closing, Buyer shall be deemed to have accepted such
Updated Schedules (and shall not be permitted to seek indemnification for
representations and warranties that were true and correct when made but are
rendered untrue as a result of new information set forth in such Updated
Schedules relating to events occurring since the date Buyer was deemed to have
accepted the Final Schedules).
Section 5.8 Delivery of Konover and Kane Schedules. For purposes of this
Agreement, all properties acquired under the Kane Purchase Agreement as of the
date hereof have been included in the Final Schedules to the same extent and
with the same force and effect as all other properties currently owned by the
Company. With respect to the Kane and Konover Properties, the Company shall
make, on the date of the Initial Closing, all representations and warranties set
forth herein with respect to the Kane and Konover Properties as if the Company
owned such Kane and Konover Properties as of the date of the Initial Closing,
such that the Company shall be deemed as of the Initial Closing to (a) own all
of the real and personal property, (b) have assumed any contracts, other
agreements, liabilities or other obligations related to such real and personal
property and (c) own any entities, if applicable, to be transferred to the
Company or an Affiliate thereof pursuant to the Kane Purchase Agreement and the
Konover Purchase Agreement. Fifteen (15) Business Days prior to the date of the
Initial Closing, the Company shall provide Buyer with schedules (the "Kane and
Konover Schedules")
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relating to all representations and warranties with respect to the Kane and
Konover Properties to be made on the date of the Initial Closing pursuant to
this Section 5.8. The parties hereto agree that the Company may elect prior to
the Initial Closing to not acquire up to an aggregate of three properties (the
"Kick Out Properties") pursuant to the terms of the Kane Purchase Agreement
and/or the Konover Purchase Agreement, as applicable, if the Company is released
from its obligations to purchase such properties under the terms of the Kane
Purchase Agreement or the Konover Purchase Agreement, as applicable, and in such
case, if the Company has elected not to purchase such properties: (i) any
representations and warranties made pursuant to this Section 5.8 shall be deemed
not to include any representations and warranties with respect to the Kick Out
Properties, (ii) the Company shall not have breached its representations and
warranties hereunder to the extent it does not close on the Kick Out Properties
and (iii) the failure to close on the Kick Out Properties shall not by itself
constitute a Material Adverse Effect or a failure of a closing condition under
Article 7 hereof (it being understood that the failure of the Company to acquire
more than three of the Kane and Konover Properties will constitute a Material
Adverse Effect and the failure of a closing condition under Article 7 hereof).
ARTICLE 6
Certain Additional Covenants
Section 6.1 Resale. Buyer acknowledges and agrees that the Company Common
Stock that Buyer will acquire in any Stock Purchase will not be registered under
the Securities Act and may only be sold or otherwise disposed of in one or more
transactions registered under the Securities Act and, where applicable, relevant
state securities laws or as to which an exemption from the registration
requirements of the Securities Act and, where applicable, such state securities
laws is available, and Buyer agrees that the certificates representing such
Company Common Stock shall bear a legend to that effect and a legend as to its
status as restricted securities.
Section 6.2 REIT Compliance. Buyer will make available to the Company
information known to Buyer regarding the ownership of interests in Buyer as
requested by the Company and reasonably necessary for the Company to review the
accuracy of the representations set forth in Sections 4.8, 4.10 and 4.11.
Section 6.3 REIT Status. From and after the date hereof and so long as
Buyer owns 10% or more of the outstanding Company Common Stock unless the
Directors on the Board nominated by the Buyer consent to doing otherwise, the
Company will elect to be taxed as a REIT in its federal income tax returns, will
comply with all applicable laws, rules and regulations of the Code relating to a
REIT, and will not 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 its status as a REIT for federal income tax purposes.
Section 6.4 Ownership of Assets. From and after the date hereof and as
long as Buyer or an Affiliate thereof owns any Company Common Stock, the Company
shall not own, directly or indirectly, 20% or more of its assets, in the
aggregate, through Persons that are not Subsidiaries.
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ARTICLE 7
Conditions to Closings
Section 7.1 Conditions of Purchase at Initial Closing. The obligation of
Buyer to purchase and pay for the Purchased Shares at the Initial Closing is
subject to satisfaction or waiver of each of the following conditions precedent:
(a) Representations and Warranties; Covenants. The representations
and warranties of the Company contained herein shall have been true and correct
in all respects on and as of the date hereof, and shall be true and correct in
all respects on and as of the date of the Initial Closing (including, without
limitation, the Schedules hereto), with the same effect as though such
representations and warranties had been made on and as of the date of the
Initial Closing (except for representations and warranties that speak as of a
specific date or time other than the date of the Initial Closing (which need
only be true and correct in all respects as of such date or time)), other than,
in all such cases, such failures to be true and/or correct as would not in the
aggregate reasonably be expected to have a Material Adverse Effect; provided,
however, that if any of the representations and warranties is already qualified
in any respect by materiality or as to Material Adverse Effect for purposes of
this Section 7.1(a) such materiality or Material Adverse Effect qualification
will be in all respects ignored (but subject to the overall standard as to
Material Adverse Effect set forth immediately prior to this proviso). The
covenants and agreements of the Company to be performed on or before the date of
the Initial Closing in accordance with this Agreement shall have been duly
performed in all respects. The Company shall have delivered to Buyer at the
Initial Closing a certificate of an appropriate officer in form and substance
reasonably satisfactory to Buyer dated the date of the Initial Closing to such
effect.
In making any determination as to Material Adverse Effect under this
Section 7.1(a), the matters set forth in such Section shall be aggregated and
considered together.
(b) No Material Adverse Change. Since the date hereof, there shall
not have been any change, circumstance or event which has had or would
reasonably be expected to have a Material Adverse Effect.
(c) Consents. The Company shall have obtained the consents set forth
in Schedule 3.4(d)-A.
(d) Ownership Limit Waiver. Buyer's ownership of up to the Initial
Number of Shares shall have been exempted on a continuing basis subject to
continuing validity of the representations and warranties of the Buyer in
Article 4 hereof (disregarding the qualification in Sections 4.8 and 4.10
relating to Buyer's knowledge and assuming no exceptions are set forth in
Schedule 4.10-B) and provided such exemption does not otherwise jeopardize the
Company's tax status as a REIT, from the ownership limit provisions of Article
IV of the Company Charter and the Board shall have taken such action provided
for under Article IV of the Company Charter to grant such exemption to Buyer.
For purposes of this paragraph (d), references to Buyer, shall also be deemed to
be references to any person who would be an Investor within the
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meaning of the Stockholders Agreement, provided such person has made the
representations and warranties of the Buyer in Article 4 hereof.
(e) Opinion of Counsel. Buyer shall have received an opinion of
Alston & Bird LLP that (i) commencing with the Company's taxable year ending
December 31, 1993, the Company has been organized in conformity with the
requirements for qualifications as a REIT and its proposed method of operation,
as described in certain representations of the Company, will enable the Company
to meet the requirements for qualification and taxation as a REIT under the
Code, and (ii) to the extent the Company has met qualifications as a REIT, it
has been a "domestically controlled" REIT.
(f) Employment Agreements. Waivers in connection with each
Employment Agreement shall have been entered into to the extent necessary to
provide (i) that the transactions contemplated by this Agreement, the Kane
Purchase Agreement and the Konover Purchase Agreement (together with this
Agreement and the Kane Purchase Agreement, the "Transaction Documents") will not
trigger any actual or contingent obligation under such Employment Agreement
(including any payment or other obligation, forgiveness of debt, other release
from obligation or acceleration of vesting of restricted stock, stock options or
other awards, but excluding any automatic extension of the term of any
Employment Agreement); and (ii) that the transactions contemplated by the
Transaction Documents will not be taken into account in determining whether any
subsequent transaction or event will trigger any such obligation.
(g) Restricted Stock Plan. Waivers in connection with The Factory
Stores of America, Inc. 1996 Restricted Stock Plan (the "Restricted Stock Plan")
and any award agreements thereunder shall have been entered into to the extent
necessary to provide (i) that the transactions contemplated by the Transaction
Documents will not trigger, directly or indirectly, the acceleration of vesting
of any restricted stock granted under the Restricted Stock Plan; and (ii) that
the transactions contemplated by the Transaction Documents will not be taken
into account in determining whether any subsequent transaction or event will
trigger any such acceleration of vesting.
(h) Stock Option Plan. Waivers in connection with The Factory Stores
of America, Inc. Amended and Restated 1993 Employee Stock Incentive Plan (the
"Stock Incentive Plan") and any award agreements thereunder shall have been
entered into to the extent necessary to provide (i) that the transactions
contemplated by the Transaction Documents will not result in the acceleration of
vesting of any stock options granted under the Stock Incentive Plan; and (ii)
that the transactions contemplated by the Transaction Documents will not be
taken into account in determining whether any subsequent transaction or event
will trigger any such acceleration of vesting.
(i) Title Policies. The Company shall deliver updates of all Title
Policies dated the date of the Initial Closing, in form and substance consistent
in all material respects with the representations and warranties set forth in
Section 3.11(a) of this Agreement.
(j) NYSE Approval. On or prior to the date of the Initial Closing,
the New York Stock Exchange shall have approved this Agreement, the Registration
Rights Agreement,
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the Stockholders Agreement, the Contingent Value Right Agreement and the
transactions contemplated hereby and thereby
Section 7.2 Conditions to Purchase at Second Closing. The obligations of
Buyer to purchase and pay for the Purchased Shares at the Second Closing are
subject to satisfaction or waiver of each of the following conditions precedent:
(a) Representations and Warranties; Covenants. The representations
and warranties of the Company contained herein shall have been true and correct
in all respects on and as of the date hereof, and shall be true and correct in
all respects on and as of the date of the Second Closing (including, without
limitation, the Schedules hereto), with the same effect as though such
representations and warranties had been made on and as of the date of the Second
Closing (except for representations and warranties that speak as of a specific
date or time other than the date of the Second Closing (which need only be true
and correct in all respects as of such date or time)), other than, in all such
cases, such failures to be true and/or correct as would not in the aggregate
reasonably be expected to have a Material Adverse Effect; provided, however,
that if any of the representations and warranties is already qualified in any
respect by materiality or as to Material Adverse Effect for purposes of this
Section 7.2(a) such materiality or Material Adverse Effect qualification will be
in all respects ignored (but subject to the overall standard as to Material
Adverse Effect set forth immediately prior to this proviso). The covenants and
agreements of the Company to be performed on or before the date of the Second
Closing in accordance with this Agreement shall have been duly performed in all
respects. The Company shall have delivered to Buyer at the Second Closing a
certificate of an appropriate officer in form and substance reasonably
satisfactory to Buyer dated the date of the Second Closing to such effect.
(b) Stockholder Approval. The issuance of Company Common Stock
pursuant to this Agreement, the election of three Investor Nominees to the Board
and the amendment of the Company Charter as set forth in Section 3.4 of the
Stockholders Agreement shall have been approved by the majority vote of the
Company's stockholders other than Buyer (the "Stockholder Approval").
(c) Consents. The Company shall have obtained the consents set forth
in Schedule 3.4(d)-B.
(d) Estoppel Certificates. The Company shall have delivered estoppel
certificates for 50% of the tenants at the properties listed on Schedule 7.2(d),
in form and substance satisfactory to Buyer.
Section 7.3 Conditions of Purchase at All Closings. The obligations of
Buyer to purchase and pay for the Purchased Shares at each Closing (including
the Initial Closing, the Second Closing and any Subsequent Closing, except where
otherwise indicated) are subject to satisfaction or waiver of each of the
following conditions precedent:
(a) Representations and Warranties; Covenants. The representations
and warranties of the Company contained herein shall have been true and correct
in all respects on
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and as of the date hereof, and shall be true and correct in all respects on and
as of the relevant Closing Date (including, without limitation, the Schedules
hereto), with the same effect as though such representations and warranties had
been made on and as of such Closing Date (except for representations and
warranties that speak as of a specific date or time other than such Closing Date
(which need only be true and correct in all respects as of such date or time)),
other than, in all such cases, such failures to be true and/or correct as would
not in the aggregate reasonably be expected to have a Material Adverse Effect;
provided, however, that if any of the representations and warranties is already
qualified in any respect by materiality or as to Material Adverse Effect for
purposes of this Section 7.3(a) such materiality or Material Adverse Effect
qualification will be in all respects ignored (but subject to the overall
standard as to Material Adverse Effect set forth immediately prior to this
proviso). The covenants and agreements of the Company to be performed on or
before the relevant Closing Date in accordance with this Agreement shall have
been duly performed in all respects. The Company shall have delivered to Buyer
at the relevant Closing a certificate of an appropriate officer in form and
substance reasonably satisfactory to Buyer dated the relevant Closing Date to
such effect.
(b) No Material Adverse Change. Since the date of the immediately
preceding Closing, there shall not have been any change, circumstance or event
which has had or would reasonably be expected to have a Material Adverse Effect.
(c) No Material Breach. The Company shall be in compliance in all
material respects with its covenants and other obligations under this Agreement,
the Stockholders Agreement, the Contingent Value Right Agreement and the
Registration Rights Agreement. The Company shall have satisfied the conditions
of (i) Section 7.1(a) at the Initial Closing, (ii) Section 7.2(a) at the Second
Closing, and (iii) Section 7.3(a) at all Closings.
(d) No Injunction. There shall not be in effect any final order,
decree or injunction of a court or agency of competent jurisdiction which
enjoins or prohibits consummation of the transactions contemplated hereby and
there shall be no pending Actions which would reasonably be expected to have a
material adverse effect on the ability of the Company to consummate the
transactions contemplated hereby or to issue the Purchased Shares.
(e) REIT Status. The Company shall have elected to be taxed as a
REIT in its most recent federal income tax return, and shall be in compliance
with all applicable laws, rules and regulations, including the Code, necessary
to permit it to be taxed as a REIT, unless the Investor Nominees (as defined in
the Stockholders Agreement) shall have consented to changing such election. The
Company shall not have taken any action or have failed to take any action which
would reasonably be expected to, alone or in conjunction with any other factors,
result in the loss of its status as a REIT for federal income tax purposes,
unless the Investor Nominees (as defined in the Stockholders Agreement) shall
have consented to taking or omitting to take such action.
(f) Domestically Controlled REIT. Assuming the accuracy of the
representations set forth in Section 4.11 (disregarding the qualification
relating to Buyer's knowledge), to the Company's knowledge, the Company is, and
after giving effect to the
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relevant Closing will be, a "domestically-controlled" REIT within the meaning of
Section 897(h)(4)(B) of the Code.
(g) Asset Test. The Board shall have determined that the Company
satisfied the "5% asset test" of Section 856(c)(5) of the Code, or such
successor provision as may be applicable, for the most recently ended calendar
quarter as required by the Code.
(h) Consents. On each Closing other than the Initial Closing and the
Second Closing, the Company shall have obtained the consents, if required, set
forth in Schedule 3.4(d)-C.
(i) Opinion of Counsel. On or prior to the date of each Closing, the
Company shall have delivered to Buyer the opinions of Alston & Bird LLP, counsel
for the Company, in form and substance reasonably acceptable to Buyer.
Section 7.4 Conditions of Sale. The obligation of the Company to issue and
sell any Purchased Shares at any Closing (including the Initial Closing, the
Second Closing and each Subsequent Closing, except where otherwise indicated
below) is subject to satisfaction or waiver of each of the following conditions
precedent:
(a) Representations and Warranties; Covenants. The representations
and warranties of Buyer contained herein shall have been true and correct in all
respects on and as of the date hereof, and shall be true and correct in all
respects on and as of the relevant Closing Date with the same effect as though
such representations and warranties had been made on and as of the relevant
Closing Date (except for representations and warranties that speak as of a
specific date or time other than such Closing Date (which need only be true and
correct in all respects as of such date or time)), other than, in all such
cases, such failures to be true and/or correct as would not in the aggregate
reasonably be expected to have a Material Adverse Effect on the Company or
Buyer's ability to consummate the transactions contemplated hereby; provided,
however, that if any of the representations and warranties is already qualified
in any respect by materiality or as to Material Adverse Effect for purposes of
this Section 7.4(a) such materiality or Material Adverse Effect qualification
will be in all respects ignored (but subject to the overall standard as to
Material Adverse Effect set forth immediately prior to this proviso). The
covenants and agreements of Buyer to be performed on or before the relevant
Closing Date in accordance with this Agreement shall have been duly performed in
all respects, other than (except for Buyer's obligation to pay the relevant
Purchase Price at the relevant Closing as to which the proviso set forth in this
other-than clause shall not apply) for such failures to have been performed as
would not in the aggregate reasonably be expected to have a Material Adverse
Effect on the Company's or Buyer's ability to consummate the transactions
contemplated hereby; provided, however, that if any such covenant or agreement
is already qualified in any respect by materiality or as to Material Adverse
Effect for purposes of determining whether this condition has been satisfied,
such materiality or Material Adverse Effect qualification will be in all
respects ignored and such covenant or agreement shall have been performed in all
respects without regard to such qualification (but subject to the overall
exception as to Material Adverse Effect set forth immediately prior to this
proviso). Buyer shall have delivered to the Company at the relevant Closing a
certificate of an appropriate officer in
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form and substance reasonably satisfactory to the Company dated the relevant
Closing Date to such effect.
(b) Stockholder Approval. Except in the case of the Initial Closing,
the issuance of the Company Common Stock pursuant to this Agreement shall have
received Stockholder Approval.
(c) No Injunction. There shall not be in effect any final order,
decree or injunction of a court or agency of competent jurisdiction which
enjoins or prohibits consummation of the transactions contemplated hereby and
there shall be no pending Actions which would reasonably be expected to have a
material adverse effect on the ability of Buyer to consummate the transactions
contemplated hereby or to acquire the Purchased Shares.
(d) Consents. The Company shall have obtained the consents set forth
in Schedule 3.4(d)-A in the case of the Initial Closing, in Schedule 3.4(d)-B in
the case of the Second Closing, and in Schedule 3.4(d)-C in the case of each
other Subsequent Closing.
ARTICLE 8
Survival; Indemnification
Section 8.1 Survival. Other than the representations contained in Sections
4.8, 4.10, and 4.11 (which shall survive for as long as the Buyer owns Purchased
Shares), the representations contained in Sections 3.2 and 3.3(a) (which shall
survive indefinitely), the representations contained in Section 3.12 (which
shall survive until the sixth anniversary of the date of the Initial Closing)
and the representations contained in 3.8 and 3.13 (which shall survive for a
period equal to the applicable statute of limitations for any taxes or penalties
imposed and payable in breach of such representations and warranties), all
representations, warranties and (except as provided by the last sentence of this
Section 8.1) covenants and agreements of the parties contained herein, including
indemnity or indemnification agreements contained herein, or in any Schedule or
Exhibit hereto, or any certificate, document or other instrument delivered in
connection herewith shall survive the Initial Closing, the Second Closing and
any Subsequent Closing until the twelve month anniversary of the latest of the
Initial Closing, the Second Closing and any Subsequent Closing; provided,
however, that there shall be no termination with respect to any representation
and warranty as to which either (a) a bona fide claim has been asserted prior to
such date or (b) the Company had actual knowledge of any breach thereof prior to
any Closing Date. No Action or proceeding may be brought with respect to any of
the representations and warranties, or any of the covenants or agreements which
survive until such twelve month anniversary, unless written notice thereof,
setting forth in reasonable detail the claimed misrepresentation or breach of
warranty or breach of covenant or agreement, shall have been delivered to the
party alleged to have breached such representation or warranty or such covenant
or agreement prior to such twelve month anniversary; provided, however, that, if
Buyer shall have complied with this Section 8.1, the damages for breach by the
Company of any of the representations and warranties, or any of the covenants or
agreements which survive until such twelve month anniversary, shall be measured
with respect to all of Buyer's purchases of
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Company Common Stock hereunder and not with respect only to Buyer's purchases
hereunder made prior to such twelve month anniversary, but such measurement
shall not in any event include any shares of Company Stock that Buyer may have
purchased other than from the Company. Those covenants or agreements that
contemplate or may involve actions to be taken or obligations in effect after
the Initial Closing shall survive in accordance with their terms.
Section 8.2 Indemnification by Buyer or the Company.
(a) Subject to Section 8.1, from and after any Closing Date, Buyer
shall indemnify and hold harmless the Company, its Affiliates and its
Subsidiaries and its and their respective directors, officers, employees,
stockholders, partners, members and representatives, and their respective
successors and assigns, from and against any and all damages, claims, losses,
expenses, costs, obligations, and liabilities, including liabilities for all
reasonable attorneys' fees and expenses (including attorney and expert fees and
expenses incurred to enforce the terms of this Agreement) (collectively, "Loss
and Expenses") suffered, directly or indirectly, by the Company by reason of, or
arising out of, (i) any breach as of the date made or deemed made or required to
be true of any representation or warranty made by Buyer in or pursuant to this
Agreement, or (ii) any failure by Buyer to perform or fulfill any of its
covenants or agreements set forth herein. Notwithstanding any other provision of
this Agreement to the contrary, in no event shall Loss and Expenses include a
party's incidental or consequential damages.
(b) Subject to Section 8.1, from and after any Closing Date, the
Company shall indemnify and hold harmless Buyer, its Affiliates and its
Subsidiaries and its and their respective directors, officers, employees,
stockholders, partners, members and representatives, and their respective
successors and assigns, from and against any and all Loss and Expenses,
suffered, directly or indirectly, by Buyer by reason of, or arising out of, (i)
any breach as of the date made or deemed made or required to be true of any
representation or warranty made by the Company in or pursuant to this Agreement
and any statements made in any certificate delivered pursuant to this Agreement,
or (ii) any failure by the Company to perform or fulfill any of its covenants or
agreements set forth herein. Notwithstanding any other provision of this
Agreement to the contrary, in no event shall Loss and Expenses include a party's
incidental or consequential damages. Separate and apart from the Company's
obligation to indemnify Buyer pursuant to the terms of this Section 8.2(b), the
Company shall purchase on Buyer's behalf insurance against Environmental
Liabilities in the amount of $2,000,000 annually per each occurrence and
$10,000,000 per annum (exclusive of legal defense costs) of coverage, and shall
pay any deductible applicable thereto, and shall maintain such insurance on
Buyer's behalf for a period of seven years. For purposes hereof, "Environmental
Liabilities" shall include any liability, loss cost or expense arising under
Environmental Laws or from Environmental Claims, including, without limitation,
costs of investigation, cleanup, remedial or response action, the costs
associated with posting financial assurances for the completion of response,
remedial or corrective actions, the preparation of any closure or other
necessary or required plans or analyses, or other reports or analyses submitted
to or prepared by regulating agencies, including the cost of health assessments,
epidemiological studies and the like, retention of engineers and other expert
consultants, legal counsel, capital improvements, operation and maintenance
testing counsel, capital improvements, operation and maintenance testing and
monitoring costs, power
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and utility costs and pumping taxes or fees, and administrative costs incurred
by governmental agencies.
(c) Notwithstanding the foregoing, (i) neither Buyer nor the Company
shall be responsible for any Loss and Expenses as provided by paragraphs (a) and
(b), respectively, of this Section 8.2 until the cumulative aggregate amount of
such Loss and Expenses suffered by Buyer or the Company, as the case may be,
exceeds $500,000, in which case Buyer or the Company, as the case may be, shall
then be liable for all such Loss and Expenses, and (ii) the cumulative aggregate
indemnity obligation of each of Buyer and the Company under this Section 8.2
shall in no event exceed the actual aggregate amount paid by Buyer for the
shares of Company Common Stock and the Contingent Value Rights purchased by it
from the Company pursuant to this Agreement. Except with respect to third-party
claims being defended in good faith or claims for indemnification with respect
to which there exists a good faith dispute, the indemnifying party shall satisfy
its obligations hereunder within 30 days of receipt of a notice of claim under
this Article 8.
Section 8.3 Third-Party Claims. If a claim by a third party is made
against an Indemnified Party and if such Indemnified Party intends to seek
indemnity with respect thereto under this Article, such Indemnified Party shall
promptly notify the indemnifying party in writing of such claims setting forth
such claims in reasonable detail; provided, however, the foregoing
notwithstanding, the failure of any Indemnified Party to give any notice
required to be given hereunder shall not affect such Indemnified Party's right
to indemnification hereunder except to the extent the indemnifying party from
whom such indemnity is sought shall have been prejudiced in its ability to
defend the claim or action for which such indemnification is sought by reason of
such failure. The indemnifying party shall have 20 days after receipt of such
notice to undertake, through counsel of its own choosing and at its own expense,
the settlement or defense thereof, and the Indemnified Party shall cooperate
with it in connection therewith; provided, however, that the Indemnified Party
may participate in such settlement or defense through counsel chosen by such
Indemnified Party, provided that the fees and expenses of such counsel shall be
borne by such Indemnified Party. The Indemnified Party shall not pay or settle
any claim which the indemnifying party is contesting. Notwithstanding the
foregoing, the Indemnified Party shall have the right to pay or settle any such
claim, provided that in such event it shall waive any right to indemnity
therefor by the indemnifying party. If the indemnifying party does not notify
the Indemnified Party within 20 days after the receipt of the Indemnified
Party's notice of a claim of indemnity hereunder that it elects to undertake the
defense thereof, the Indemnified Party shall have the right to contest, settle
or compromise the claim but shall not thereby waive any right to indemnity
therefor pursuant to this Agreement.
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ARTICLE 9
Termination
Section 9.1 Termination. (a) This Agreement may be terminated prior to the
Initial Closing by:
(i) the mutual consent of the Company and Buyer at any time;
(ii) Buyer at any time (if it is not in breach of any of its
material obligations hereunder) in the event of a breach or failure by the
Company that is material in the context of the transactions contemplated
hereby of any representation, warranty, covenant or agreement by the
Company contained herein which has not been, or cannot be, cured within 30
Business Days after written notice of such breach is given to the Company;
(iii) the Company at any time (if it is not in breach of any of its
material obligations hereunder) in the event of a breach or failure by
Buyer that is material in the context of the transactions contemplated
hereby of any representation, warranty, covenant or agreement by Buyer
contained herein which has not been, or cannot be, cured within 30
Business Days after written notice of such breach is given to Buyer;
(iv) either the Company or Buyer at any time, if the Initial Closing
shall not occur on a Target Date, unless the failure of such occurrence
shall be due to the failure of the party seeking to terminate this
Agreement to perform or observe any material covenant or agreement set
forth herein required to be performed or observed by such party on or
before the date of the Initial Closing;
(v) Buyer on or before five Business Days following the date on
which the Final Schedules, the Kane Purchase Agreement (with completed
schedules) and the Konover Purchase Agreement (with completed schedules)
have been delivered by the Company to Buyer if Buyer, in its sole
discretion, believes that the Final Schedules, the Kane Purchase Agreement
or the Konover Purchase Agreement disclose facts that are material and
adversely affect the Company;
(vi) Buyer on or before five Business Days following the date any
Updated Schedules have been delivered by the Company to Buyer if Buyer, in
its sole discretion, believes that the Updated Schedules disclose facts
that are material and adversely affect the Company; or
(vii) Buyer on or before five Business Days following the date on
which the Kane and Konover Schedules have been delivered by the Company to
Buyer, if Buyer reasonably believes that the Kane and Konover Schedules
disclose facts that have a material adverse effect on the value of the
Kane and Konover Properties to the Company.
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(b) This Agreement may be terminated at any time by:
(i) either the Company or Buyer, in the event that the stockholders
of the Company vote upon and fail to approve the issuance of Company
Common Stock contemplated hereby (it being understood that the Initial
Closing shall have occurred prior to the date of the meeting of holders of
shares of Company Stock to so approve); or
(ii) Buyer, (1) if the Board shall have withdrawn, modified or
failed to make or refrained from making its recommendation that the
stockholders of the Company approve the issuance of Company Common Stock
pursuant to this Agreement as provided for in Section 3.2(b) and Section
5.1(b) or (2) if the Board at any time refuses to reaffirm, at Buyer's
request, such recommendation and its determination to make such
recommendation to the stockholders of the Company, except, in each case,
as permitted by Section 5.4, or (3) if no meeting at which the
stockholders of the Company are asked to vote upon the transactions
contemplated by this Agreement shall have duly occurred on or prior to
August 31, 1998.
(iii) the Company, if the Board in compliance with Section 5.4
hereof determines in good faith to terminate in favor of a Competing
Transaction, subject to the Company's obligation to pay Buyer certain fees
pursuant to Section 9.3 hereof.
Notwithstanding anything to the contrary in this Agreement, no provision
of this Agreement shall be construed to permit the Company to prevent Buyer from
purchasing the Initial Number of Shares (other than if the Company terminates
this Agreement prior to the date of the Initial Closing pursuant to Section
9.1(a)(iii)).
Section 9.2 Procedure and Effect of Termination. In the event of
termination of this Agreement by either or both of the Company and Buyer
pursuant to Section 9.1, written notice thereof shall forthwith be given by the
terminating party to the other party hereto, and this Agreement shall thereupon
terminate and become void and have no effect, and the transactions contemplated
hereby shall be abandoned without further action by the parties hereto (other
than the right of Buyer to purchase the Initial Number of Shares as set forth in
the last paragraph of Section 9.1 of this Agreement), except that the provisions
of Sections 5.2 (Public Announcements; Confidentiality), 9.3 (Expenses), 10.2
(Governing Law), and 10.4 (Notices), and, in the event of any termination
following any Closing hereunder, the provisions of Article 8 (Survival;
Indemnification), and any related definitional, interpretive or other provisions
necessary for the logical interpretation of such provisions, shall survive the
termination of this Agreement; provided, however, that such termination shall
not relieve any party hereto of any liability for any breach of this Agreement.
Section 9.3 Expenses.
(a) Whether or not any Stock Purchase is consummated, all reasonable
out-of-pocket legal and other costs and expenses incurred by Buyer in connection
with this Agreement and the transactions contemplated hereby shall be reimbursed
by the Company as of the date
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hereof (by wire transfer of same day funds); provided that Buyer shall not have
breached any of its representations and warranties in any material respect. In
addition, the Company shall promptly reimburse Buyer for all reasonable
out-of-pocket legal and other costs and expenses incurred after the date hereof
in connection with Buyer (i) monitoring the Company and the performance of the
Purchased Shares and (ii) performing its duties under each of the Governing
Documents.
(b) At any time prior to the Initial Closing or, if the Initial
Closing has occurred, at any time prior to the Second Closing, if this Agreement
is terminated, the Company shall pay Buyer a fee in the amount of $2,250,000
(the "Break-up Fee"); provided, that Buyer is not in material default under this
Agreement, that Buyer has not breached any of its representations and warranties
in any material respect, and that Buyer has satisfied in all material respects
its covenants relating to the Initial Closing and contemplated by the terms
hereof to be performed at or prior to the time of the Company's stockholders'
meeting. In addition, in the event the Board, prior to the stockholders meeting
referenced in Section 5.1(b) of this Agreement, is contacted by another person
regarding a Competing Transaction or has information relating to a Competing
Transaction to be proposed by another person, and the Company enters into a
Competing Transaction with such person or any Affiliate of such person on or
prior to the one year anniversary of the date this Agreement is terminated, the
Company shall pay Buyer an additional fee in the amount of $3,000,000 (the
"Topping Fee"). Notwithstanding the foregoing, in the event a Topping Fee is
paid to Buyer and the amount of cash received by Buyer pursuant to (i) the
Break-up Fee plus (ii) the Topping Fee plus (iii) the 19.9% Sale Transaction
Profit exceeds $7,750,000, Buyer shall refund to the Company the amount of such
excess within thirty days.
ARTICLE 10
Miscellaneous
Section 10.1 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement, and
shall become effective when one or more counterparts have been signed by each
party hereto and delivered to the other party. Copies of executed counterparts
transmitted by telecopy, telefax or other electronic transmission service shall
be considered original executed counterparts for purposes of this Section,
provided receipt of copies of such counterparts is confirmed.
Section 10.2 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REFERENCE
TO THE CHOICE OF LAW PRINCIPLES THEREOF.
Section 10.3 Entire Agreement. This Agreement (including agreements
incorporated herein) and the Schedules and Exhibits hereto contain the entire
agreement between the parties with respect to the subject matter hereof and
there are no agreements, understandings, representations or warranties between
the parties other than those set forth or referred to herein.
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<PAGE>
This Agreement is not intended to confer upon any person not a party hereto (and
their successors and assigns) any rights or remedies hereunder.
Section 10.4 Notices. All notices and other communications hereunder shall
be sufficiently given for all purposes hereunder if in writing and delivered
personally, sent by documented overnight delivery service or, to the extent
receipt is confirmed, telecopy, telefax or other electronic transmission service
to the appropriate address or number as set forth below.
Notices to the Company shall be addressed to:
FAC Realty Trust, Inc.
11000 Regency Parkway, 3rd fl.
East Tower
Cary, NC 27511
Attention: C. Cammack Morton
Telecopy: (919) 462-8799
with a copy to:
Alston & Bird LLP
310 UCS Plaza
3605 Glenwood Ave.
P.O. Drawer 31107
Raleigh, North Carolina 27622-1107
Attention: Brad S. Markoff, Esq.
Telecopy: (919) 881-3175
or at such other address and to the attention of such other person as the
Company may designate by written notice to Buyer. Notices to Buyer shall be
addressed to:
Lazard Freres Real Estate Investors, LLC
Thirty Rockefeller Plaza, 63rd Floor
New York, NY 10020
Attention: Arthur P. Solomon and Murry N. Gunty
Telecopy Number: (212) 632-6052
with a copy to:
Latham & Watkins
885 Third Avenue
New York, NY 10022
Attention: R. Ronald Hopkinson, Esq.
Telecopy Number: (212) 751-4864
Section 10.5 Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of the parties hereto and their respective successors.
Except as specifically
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provided hereby, Buyer shall not be permitted to assign any of its rights
hereunder to any third party, other than to one or more Affiliates of LFREI, a
majority of the voting power and the economic interests of which are
Beneficially Owned (as that term is defined in the Stockholders Agreement) by
LFREI, provided that such Affiliates make the representations set forth in
Article 4 hereof and agree to be bound hereby and by the Stockholders Agreement,
and provided that Buyer shall remain liable hereunder, and provided that any
bona fide financial institution to which Buyer or any permitted transferee has
Transferred (as that term is used in the Stockholders Agreement) (including upon
foreclosure of a pledge) shares of Company Stock for the purpose of securing
bona fide indebtedness of Buyer or such permitted transferee and which has
agreed to be bound by this Agreement and the Stockholders Agreement shall also
be entitled to enforce the rights of Buyer hereunder.
Section 10.6 Headings. The Section, Article and other headings contained
in this Agreement are inserted for convenience of reference only and will not
affect the meaning or interpretation of this Agreement. All references to
Sections or Articles contained herein mean Sections or Articles of this
Agreement unless otherwise stated.
Section 10.7 Amendments and Waivers. This Agreement may not be modified or
amended except by an instrument or instruments in writing signed by the party
against whom enforcement of any such modification or amendment is sought. Either
party hereto may, only by an instrument in writing, waive compliance by the
other party hereto with any term or provision hereof on the part of such other
party hereto to be performed or complied with. The waiver by any party hereto of
a breach of any term or provision hereof shall not be construed as a waiver of
any subsequent breach.
Section 10.8 Interpretation; Absence of Presumption.
(a) For the purposes hereof, (i) words in the singular shall be held
to include the plural and vice versa and words of one gender shall be held to
include the other gender as the context requires, (ii) the terms "hereof",
"herein", and "herewith" and words of similar import shall, unless otherwise
stated, be construed to refer to this Agreement as a whole (including all of the
Schedules and Exhibits hereto) and not to any particular provision of this
Agreement, and Article, Section, paragraph, Exhibit and Schedule references are
to the Articles, Sections, paragraphs, Exhibits and Schedules to this Agreement
unless otherwise specified, (iii) the word "including" and words of similar
import when used in this Agreement shall mean "including, without limitation,"
unless the context otherwise requires or unless otherwise specified, (iv) the
word "or" shall not be exclusive, and (v) provisions shall apply, when
appropriate, to successive events and transactions.
(b) This Agreement shall be construed without regard to any
presumption or rule requiring construction or interpretation against the party
drafting or causing any instrument to be drafted.
Section 10.9 Severability. Any provision hereof which is invalid or
unenforceable shall be ineffective to the extent of such invalidity or
unenforceability, without affecting in any way the remaining provisions hereof.
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Section 10.10 Further Assurances. The Company and Buyer agree that, from
time to time, whether before, at or after any Closing Date, each of them will
execute and deliver such further instruments of conveyance and transfer and take
such other action as may be necessary to carry out the purposes and intents
hereof.
Section 10.11 Specific Performance. Buyer and the Company each acknowledge
that, in view of the uniqueness of the parties hereto, the parties hereto would
not have an adequate remedy at law for money damages in the event that this
Agreement were not performed in accordance with its terms, and therefore agree
that the parties hereto shall be entitled to specific enforcement of the terms
hereof in addition to any other remedy to which the parties hereto may be
entitled at law or in equity.
Section 10.12 Interpretation of Schedules. Any matter set forth on any
Schedule shall be deemed to be referred to on all other Schedules to which such
matter logically relates and where such reference would be appropriate and can
reasonably be inferred from the matters disclosed on the first Schedule as if
set forth on such other Schedules.
[signature page follows]
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IN WITNESS WHEREOF, this Agreement has been executed and delivered by the
parties hereto.
PROMETHEUS SOUTHEAST RETAIL LLC
By: LF Strategic Realty Investor II, L.P.,
its sole member
By: Lazard Freres Real Estate Investors, LLC,
its general partner
By: /s/ Murry N. Gunty
________________________
Name: Murry N. Gunty
Title: Principal
FAC REALTY TRUST, INC.
By: /s/ C. Cammack Morton
-----------------------------
Name: C. Cammack Morton
Title: Chief Executive Officer, President
<PAGE>
EXHIBIT A
------------------------------------------------
REGISTRATION RIGHTS AGREEMENT
by and between
FAC REALTY TRUST, INC.
and
PROMETHEUS SOUTHEAST RETAIL LLC
dated as of
February 24, 1998
------------------------------------------------
<PAGE>
REGISTRATION RIGHTS AGREEMENT (the "Agreement"), dated as of
February 24, 1998, by and between FAC Realty Trust, Inc., a Maryland corporation
(the "Company") and Prometheus Southeast Retail LLC ("Buyer"), an affiliate of
Lazard Freres Real Estate Investors, LLC ("LFREI"). Capitalized terms not
otherwise defined herein have the meaning ascribed to them in the Stock Purchase
Agreement (as herein after defined).
WHEREAS, the Company and Buyer have entered into a Stock Purchase
Agreement, dated as of the date hereof (the "Stock Purchase Agreement"), that
provides for the purchase by Buyer and sale by the Company to Buyer of shares of
Company Common Stock and Contingent Value Rights; and
WHEREAS, in order to induce Buyer to enter into the Stock Purchase
Agreement, the Company has agreed to provide the registration rights set forth
herein;
NOW, THEREFORE, in consideration of the premises and the covenants
and agreements contained herein, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, and intending to
be legally bound hereby, the parties hereto hereby agree as follows:
Section 1. Definitions. As used herein, the following terms shall
have the following meanings:
(a) "Agreement" shall have the meaning set forth in the first
paragraph hereof.
(b) "Buyer" shall mean Buyer, and shall also include any Affiliate
of LFREI, a majority or more of the voting power and of the economic
interests of which is Beneficially Owned by LFREI.
(c) "Commencement Date" shall mean the date of the Initial Closing.
(d) "Commission" shall mean the Securities and Exchange Commission,
and any successor thereto.
(e) "Company" shall have the meaning set forth in the first
paragraph hereof.
(f) "Company Registration Expenses" shall mean the fees and
disbursements of counsel and independent public accountants for the
Company incurred in connection with the Company's performance of or
compliance with this Agreement, including the expenses of any special
audits or "cold comfort" letters required by or incident to such
performance and compliance, and any premiums and other costs of policies
of insurance obtained by the Company against liabilities arising out of
the sale of any securities.
(g) "Contingent Value Right Agreement" means that certain Contingent
Value Right Agreement, dated as of the date hereof, between the Company
and Buyer.
(h) "Demand Registration" shall have the meaning set forth in
Section 2(a).
<PAGE>
(i) "Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended, and any successor thereto, and the rules and regulations
thereunder.
(j) "NASD" shall mean the National Association of Securities
Dealers, Inc.
(k) "Registrable Securities" shall mean (i) any and all shares of
Company Common Stock acquired by Buyer pursuant to the Stock Purchase
Agreement, (ii) any and all securities acquired by Buyer pursuant to
Section 4.2 of the Stockholders Agreement, (iii) any and all shares of
Company Common Stock issued, if any, by the Company pursuant to its
payment obligations under the Contingent Value Right Agreement, and (iv)
any securities issued or issuable with respect to any Company Common Stock
or other securities referred to in clause (i), (ii) or (iii) by way of
conversion, exchange, stock dividend or stock split or in connection with
a combination of shares, recapitalization, merger, consolidation or other
reorganization or otherwise. As to any particular Registrable Securities,
once issued such securities shall cease to be Registrable Securities when
(A) a registration statement with respect to the sale of such securities
shall have become effective under the Securities Act and such securities
shall have been disposed of in accordance with such registration
statement, (B) such securities shall have been sold in accordance with
Rule 144 (or any successor provision) under the Securities Act or (C) such
securities are eligible to be resold pursuant to Rule 144(k).
(l) "Registration Expenses" shall mean all registration, filing and
stock exchange or NASD fees, all fees and expenses of complying with
securities or blue sky laws, all printing expenses, messenger and delivery
expenses, any fees and disbursements of any separate counsel retained by
Buyer, and transfer taxes, if any, and any premiums and other costs of
policies of insurance obtained by Buyer against liabilities arising out of
the public offering of securities, including Company Registration
expenses, but specifically excludes any fees and disbursements of
underwriters customarily paid by sellers of securities who are not the
issuers of such securities and all underwriting discounts and commissions.
(m) "Registration Suspension Period" shall have the meaning set
forth in Section 2(b).
(n) "Securities Act" shall mean the Securities Act of 1933, as
amended, and any successor thereto, and the rules and regulations
thereunder.
(o) "Stock Purchase Agreement" shall have the meaning set forth in
the second paragraph hereof.
(p) "Suspension Notice" shall have the meaning set forth in Section
2(b).
(q) "Underwritten/Placed Offering" shall mean a sale of securities
of the Company to an underwriter or underwriters for reoffering to the
public or on behalf of a person other than the Company through an agent
for sale to the public.
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<PAGE>
Section 2. Demand Registration
(a) Obligation to File. At any time following the Commencement Date,
promptly upon the written request of Buyer, the Company will use its best
efforts to file with the Commission a registration statement under the
Securities Act for the offering of all of the Registrable Securities which
Buyer requests to be registered (the "Demand Registration"). The Demand
Registration shall be on an appropriate form and the Demand Registration
and any form of prospectus included therein shall reflect such plan of
distribution or method of sale as Buyer notifies the Company, including
the sale of some or all of the Registrable Securities in a public offering
or, if requested by Buyer, subject to receipt by the Company of such
information (including information relating to purchasers) as the Company
reasonably may require, (i) in a transaction constituting an offering
outside the United States which is exempt from the registration
requirements of the Securities Act in which the seller undertakes to
effect registration after the completion of such offering in order to
permit such shares to be freely tradeable in the United States, (ii) in a
transaction constituting a private placement under Section 4(2) of the
Securities Act in connection with which the seller undertakes to effect a
registration after the conclusion of such placement to permit such shares
to be freely tradeable by the purchasers thereof, or (iii) in a
transaction under Rule 144A of the Securities Act in connection with which
the seller undertakes to effect a registration after the conclusion of
such transaction to permit such shares to be freely tradeable by the
purchasers thereof. The Company shall use its best efforts to cause the
Demand Registration to be declared effective by the Commission within 60
days from the date of receipt of the written request, and, upon the
request of Buyer, keep the Demand Registration effective for up to 90
days, unless the distribution of securities registered thereunder has been
earlier completed; provided, however, that if such Demand Registration
will require the Company to prepare or file audited financial statements
with respect to any fiscal year by a date prior to the date on which the
Company would otherwise be required to prepare and file such audited
financial statements, then Buyer must notify the Company at least 30 days
in advance of the date upon which such audited financial statements will
be required to be filed. During the period during which the Demand
Registration is effective, the Company shall supplement or make amendments
to the Demand Registration, if required by the Securities Act or if
reasonably requested by Buyer or an underwriter of Registrable Securities,
including to reflect any specific plan of distribution or method of sale,
and shall use its best efforts to have such supplements and amendments
declared effective, if required, as soon as practicable after filing.
(b) Black-Out Periods of Buyer. Notwithstanding anything herein to
the contrary, (i) the Company shall have the right from time to time to
require Buyer not to sell under the Demand Registration or to suspend the
effectiveness thereof during the period starting with the date 30 days
prior to the Company's good faith estimate, as certified in writing by an
executive officer of the Company to Buyer, of the proposed date of filing
of a registration statement or a preliminary prospectus supplement
relating to an existing shelf registration statement, in either case,
pertaining to an underwritten public offering of equity securities of the
Company for the account of the Company, and ending on the date 75 days
following the effective date of such registration statement or
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<PAGE>
the date of filing of the final prospectus supplement, and (ii) the
Company shall be entitled to require Buyer not to sell under the Demand
Registration or to suspend the effectiveness thereof (but not for a period
exceeding 75 days in any calendar year), if the Company determines, in its
good faith judgment, that such offering or continued effectiveness would
interfere with any material financing, acquisition, disposition, corporate
reorganization or other material transaction involving the Company or any
of its subsidiaries or public disclosure thereof would be required prior
to the time such disclosure might otherwise be required, or when the
Company is in possession of material information that it deems advisable
not to disclose in a registration statement.
Once any registration statement filed pursuant to this Section 2 or
in which Registrable Securities are included pursuant to Section 3 has
been declared effective, any period during which the Company fails to keep
such registration statement effective and usable for resale of Registrable
Securities for the period required by Section 4(b) shall be referred to as
a "Registration Suspension Period." A Registration Suspension Period shall
commence on and include the date that the Company gives written notice to
Buyer of its determination that such registration statement is no longer
effective or usable for resale of Registrable Securities (the "Suspension
Notice") to and including the date when the Company notifies Buyer that
the use of the prospectus included in such registration statement may be
resumed for the disposition of Registrable Securities.
(c) Number of Demand Registrations. The Company shall be obligated
to effect, under this Section 2, only four Demand Registrations (no more
than two of which may be requested in any two-year period). A Demand
Registration shall not be deemed to have been effected, nor shall it be
sufficient to reduce the number of Demand Registrations available to Buyer
under this Section 2, if such registration cannot be used by Buyer for
more than 60 days as a result of any stop order, injunction or other order
of the Commission or other Government Authority for any reason other than
an act or omission of Buyer and all the Registerable Securities registered
thereunder are not sold.
(d) Size of Demand Registration. The Company shall not be required
to effect a Demand Registration of less than a fair market value, based on
the closing market price on the trading day immediately prior to the date
of notice (as reported in the Wall Street Journal), of $10,000,000, except
that if the fair market value, based on the closing market price on the
trading day immediately prior to the date of notice (as reported in the
Wall Street Journal), of the Registrable Securities outstanding is less
than $10,000,000, then the Company shall be required to effect a Demand
Registration of all of the remaining Registrable Securities outstanding.
(e) Notice. The Company shall give Buyer prompt notice in the event
that the Company has suspended sales of Registrable Securities under
Section 2(b).
(f) Expenses. All Registration Expenses incurred in connection with
the Demand Registrations which may be requested under this Section 2 shall
be borne by the Company, with Buyer only paying underwriting fees and
discounts.
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<PAGE>
(g) Selection of Underwriters. Any and all underwriters or other
agents involved in any sale of Registrable Securities pursuant to a
registration statement contemplated by this Section 2 shall include such
underwriter(s) or other agent(s) as selected by Buyer and approved of by
the Company, which approval shall not be unreasonably withheld; provided
that any Affiliate of Buyer shall in all events be approved by the
Company.
Section 3. Incidental Registrations
(a) Notification and Inclusion. If the Company proposes to register
any of its common equity securities under the Securities Act (other than a
registration relating solely to the sale of securities to participants in
a dividend reinvestment plan, a registration on Form S-4 relating to a
business combination or similar transaction permitted to be registered on
such Form S-4, a registration on Form S-8 relating solely to the sale of
securities to participants in a stock or employee benefit plan, a
registration permitted under Rule 462 under the Securities Act registering
additional securities of the same class as were included in an earlier
registration statement for the same offering, and declared effective, or a
shelf registration statement under the Securities Act covering common
equity securities with an aggregate offering price of less than $50.0
million), whether or not for sale for its own account, the Company shall,
at each such time after the Commencement Date until Buyer no longer holds
Registerable Securities, promptly give written notice of such registration
to Buyer. Upon the written request of Buyer given within 10 days after
receipt of such notice by Buyer, the Company shall seek to include in such
proposed registration such Registrable Securities as Buyer shall request
be so included and shall use its reasonable best efforts to cause a
registration statement covering all of the Registrable Securities that
Buyer has requested to be registered to become effective under the
Securities Act. The Company shall be under no obligation to complete any
offering of securities it proposes to make under this Section 3 and shall
incur no liability to Buyer for its failure to do so. If, at any time
after giving written notice of its intention to register any securities
and prior to the effective date of the registration statement filed in
connection with such registration, the Company shall determine for any
reason not to register or to delay registration of such securities, the
Company may, at its election, give written notice of such determination to
Buyer and, thereupon, (i) in the case of a determination not to register,
the Company shall be relieved of its obligation to register any
Registrable Securities in connection with such registration (but not from
its obligation to pay the Registration Expenses incurred in connection
therewith) and (ii) in the case of a determination to delay registering,
the Company shall be permitted to delay registering any Registrable
Securities for the same period as the delay in registering such other
securities.
(b) Cut-back Provisions. If a registration pursuant to this Section
3 involves an Underwritten/Placed Offering of the securities so being
registered, whether or not solely for sale for the account of the Company,
which securities are to be distributed by or through one or more
underwriters of recognized standing under underwriting terms customary for
such transaction, and the underwriter or the managing underwriter, as the
case may be, of such Underwritten/Placed Offering shall inform the Company
of its
5
<PAGE>
belief that the amount of securities requested to be included in such
registration or offering exceeds the amount which can be sold in (or
during the time of) such offering without delaying or jeopardizing the
success of the offering (including the price per share of the securities
to be sold), then the Company will include in such registration (i) first,
all the securities of the Company which the Company proposes to sell for
its own account or the account of others (other than Buyer) requesting
inclusion in such registration pursuant to rights to registration on
request, and (ii) second, to the extent of the amount which the Company is
so advised can be sold in (or during the time of) such offering,
Registrable Securities and other securities requested to be included in
such registration, pro rata among Buyer and others exercising incidental
registration rights, on the basis of the shares of Company Common Stock
owned by all such persons.
(c) Expenses. The Company shall bear and pay all Company
Registration Expenses incurred in connection with any registration of
Registrable Securities pursuant to this Section 3 for Buyer, and all
Registration Expenses incurred in connection with any registration of any
securities for the Company's own account referred to in the first sentence
of Section 3(a), and Buyer shall bear and pay all underwriting fees and
discounts incurred in connection with any registration of Registrable
Securities pursuant to this Section 3 for Buyer.
(d) Duration of Effectiveness. At the request of Buyer, the Company
shall, subject to Section 2(b), use its reasonable best efforts to keep
any registration statement for which Registrable Securities are included
under this Section 3 effective and usable for up to 90 days (subject to
extension for the length of any Registration Suspension Period), unless
the distribution of securities registered thereunder has been earlier
completed; provided, however, that in no event will the Company be
required to prepare or file audited financial statements with respect to
any fiscal year by a date prior to the date on which the Company would be
so required to prepare and file such audited financial statements if such
registration statement were no longer effective and usable.
Section 4. Registration Procedures. In connection with the filing of
any registration statement as provided in Section 2 or 3, the Company shall use
its reasonable best efforts to, as expeditiously as reasonably practicable:
(a) prepare and file with the Commission the requisite registration
statement (including a prospectus therein) to effect such registration and
use its reasonable best efforts to cause such registration statement to
become effective, provided that before filing such registration statement
or any amendments or supplements thereto, the Company will furnish to the
counsel selected by Buyer copies of all such documents proposed to be
filed, which documents will be subject to the review of such counsel
before any such filing is made, and the Company will comply with any
reasonable request made by such counsel to make changes in any information
contained in such documents relating to Buyer;
(b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be
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<PAGE>
necessary to maintain the effectiveness of such registration and to comply
with the provisions of the Securities Act with respect to the disposition
of all securities covered by such registration statement until the earlier
of such time as all of such securities have been disposed of and the date
which is 90 days after the date of initial effectiveness of such
registration statement;
(c) furnish to Buyer such number of conformed copies of such
registration statement and of each such amendment and supplement thereto
(in each case including all exhibits), such number of copies of the
prospectus contained in such registration statements (including each
complete prospectus and any summary prospectus) and any other prospectus
filed under Rule 424 under the Securities Act, in conformity with the
requirements of the Securities Act, and such other documents, including
documents incorporated by reference, as Buyer may reasonably request;
(d) register or qualify all Registrable Securities under such other
securities or blue sky laws of such jurisdictions as Buyer shall
reasonably request, to keep such registration or qualification in effect
for so long as such registration statement remains in effect, and take any
other action which may be reasonably necessary or advisable to enable
Buyer to consummate the disposition in such jurisdictions of the
securities owned by Buyer, except that the Company shall not for any such
purpose be required to qualify generally to do business as a foreign
corporation in any jurisdiction wherein it would not but for the
requirements of this paragraph be obligated to be so qualified, or to
consent to general service of process in any such jurisdiction, or to
subject the Company to any material tax in any such jurisdiction where it
is not then so subject;
(e) cause all Registrable Securities covered by such registration
statement to be registered with or approved by such other Government
Authority as may be reasonably necessary to enable Buyer to consummate the
disposition of such Registrable Securities;
(f) furnish to Buyer a signed counterpart, addressed to Buyer (and
the underwriters, if any), of
(i) an opinion of counsel for the Company, dated the effective
date of such registration statement (and, if such registration
includes an underwritten public offering, dated the date of the
closing under the underwriting agreement), reasonably satisfactory
in form and substance to Buyer, and
(ii) to the extent permitted by then applicable rules of
professional conduct, a "comfort" letter, dated the effective date
of such registration statement (and, if such registration includes
an underwritten public offering, dated the date of the closing under
the underwriting agreement), signed by the independent public
accountants who have certified the Company's financial statements
included in such registration statement, covering substantially the
same matters with respect to such registration statement (and the
prospectus included therein) and, in the case of the accountants'
letter, with respect to events subsequent to the
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<PAGE>
date of such financial statements, all as are customarily covered in
opinions of issuer's counsel and in accountants' letters delivered
to the underwriters in underwritten public offerings of securities;
(g) immediately notify Buyer at any time when the Company becomes
aware that a prospectus relating thereto is required to be delivered under
the Securities Act, of the happening of any event as a result of which the
prospectus included in such registration statement, as then in effect,
includes an untrue statement of a material fact or omits to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances under
which they were made, and at the request of Buyer promptly prepare and
furnish to Buyer a reasonable number of copies of a supplement to or an
amendment of such prospectus as may be necessary so that, as thereafter
delivered to the purchasers of such securities, such prospectus shall not
include an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances under which they
were made;
(h) comply or continue to comply in all material respects with the
Securities Act and the Exchange Act and with all applicable rules and
regulations of the Commission, and make available to its security holders,
as soon as reasonably practicable, an earnings statement covering the
period of at least 12 months, but not more than 18 months, beginning with
the first full calendar month after the effective date of such
registration statement, which earnings statement shall satisfy the
provisions of Section 11(a) of the Securities Act, and not file any
amendment or supplement to such registration statement or prospectus to
which Buyer shall have reasonably objected on the grounds that such
amendment or supplement does not comply in all material respects with the
requirements of the Securities Act, having been furnished with a copy
thereof at least five Business Days prior to the filing thereof;
(i) provide a transfer agent and registrar for all Registrable
Securities covered by such registration statement not later than the
effective date of such registration statement; and
(j) list all Company Common Stock covered by such registration
statement on any securities exchange on which any of the Company Common
Stock is then listed.
Buyer shall furnish in writing to the Company such information regarding Buyer
(and any of its affiliates), the Registrable Securities to be sold, the intended
method of distribution of such Registrable Securities, and such other
information requested by the Company as is necessary for inclusion in the
registration statement relating to such offering pursuant to the Securities Act
and the rules of the Commission thereunder. Such writing shall expressly state
that it is being furnished to the Company for use in the preparation of a
registration statement, preliminary prospectus, supplementary prospectus, final
prospectus or amendment or supplement thereto, as the case may be.
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Buyer agrees by acquisition of the Registrable Securities that upon
receipt of any notice from the Company of the happening of any event of the kind
described in paragraph (g) of this Section 4, Buyer will forthwith discontinue
its disposition of Registrable Securities pursuant to the registration statement
relating to such Registrable Securities until Buyer's receipt of the copies of
the supplemented or amended prospectus contemplated by paragraph (g) of this
Section 4.
Section 5. Requested Underwritten Offerings. If requested by the
underwriters for any underwritten offerings by Buyer, under a registration
requested pursuant to Section 2(a), the Company will enter into a customary
underwriting agreement with such underwriters for such offering, to contain such
representations and warranties by the Company and such other terms as are
customarily contained in agreements of this type, including indemnities to the
effect and to the extent provided in Section 7. Buyer shall be a party to such
underwriting agreement and may, at its option, require that any or all of the
conditions precedent to the obligations of such underwriters under such
underwriting agreement be conditions precedent to the obligations of Buyer.
Buyer shall not be required to make any representations or warranties to or
agreement with the Company or the underwriters other than representations,
warranties or agreements regarding Buyer and Buyer's intended method of
distribution and any other representation or warranty required by law.
Section 6. Preparation; Reasonable Investigation. In connection with
the preparation and filing of the registration statement under the Securities
Act, the Company will give Buyer, its underwriters, if any, and their respective
counsel, the opportunity to participate in the preparation of such registration
statement, each prospectus included therein or filed with the Commission, and
each amendment thereof or supplement thereto, and will give each of them such
access to its books and records and such opportunities to discuss the business
of the Company with its officers, its counsel and the independent public
accountants who have certified its financial statements as shall be necessary,
in the opinion of Buyer's and such underwriters' respective counsel, to conduct
a reasonable investigation within the meaning of the Securities Act.
Section 7. Indemnification
(a) Indemnification by the Company. In the event of any registration
of any Registrable Securities of the Company under the Securities Act, the
Company will, and hereby does, indemnify and hold harmless (i) Buyer and
each other person who participates as an underwriter in the offering or
sale of such securities, (ii) each person, if any, who controls (within
the meaning of Section 15 of the Securities Act or Section 20 of the
Exchange Act) Buyer or any another person referenced in clause (i) above
(any of the persons referred to in this clause (ii) being hereinafter
referred to as a "controlling person") and (iii) the respective officers,
directors, partners, employees, representatives and agents of Buyer or any
controlling person (any person referred to in clause (i), (ii) or (iii)
may hereinafter be referred to as a "Buyer Indemnitee"), against any
losses, claims, damages or liabilities, joint or several, to which any
Buyer Indemnitee may become subject under the Securities Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions or
proceedings, whether commenced or threatened, in
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<PAGE>
respect thereof) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the
registration statement under which such Registrable Securities were
registered under the Securities Act, any preliminary prospectus, final
prospectus or summary prospectus contained therein, or any amendment or
supplement thereto, or any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading, and the Company will reimburse such Buyer Indemnitee
for any reasonable legal or any other expenses reasonably incurred by them
in connection with investigating or defending any such loss, claim,
liability, action or proceedings; provided, however, that the Company
shall not be liable in any such case to the extent that any such loss,
claim, damage, liability (or action or proceeding in respect thereof) or
expense arises out of or is based upon an untrue statement or alleged
untrue statement or omission or alleged omission made in such registration
statement, any such preliminary prospectus, final prospectus, summary
prospectus, amendment or supplement in reliance upon and in conformity
with written information furnished to the Company by a Buyer Indemnitee
specifically stating that it is for use in the preparation thereof; and
provided, further, that the Company shall not be liable to any person who
participates as an underwriter in the offering or sale of Registrable
Securities or any other person, if any, who controls such underwriter
within the meaning of the Securities Act in any such case to the extent
that any such loss, claim, damage, liability (or action or proceeding in
respect thereof) or expense arises out of such person's failure to send or
give a copy of the final prospectus or supplement to the persons asserting
an untrue statement or alleged untrue statement or omission or alleged
omission at or prior to the written confirmation of the sale of
Registrable Securities to such person if such statement or omission was
corrected in such final prospectus or supplement. Such indemnity shall
remain in full force and effect regardless of any investigation made by or
on behalf of any Buyer Indemnitee and shall survive the transfer of such
securities by Buyer.
(b) Indemnification by Buyer. The Buyer will, and hereby does,
indemnify and hold harmless (in the same manner and to the same extent as
set forth in paragraph (a) of this Section 7) the Company, each director
of the Company, each officer of the Company and each other person, if any,
who controls the Company within the meaning of the Securities Act, and
each other person who participates as an underwriter in the offering or
sale of such securities and each other person who controls any such
underwriter within the meaning of the Securities Act, with respect to any
untrue statement or alleged untrue statement of a material fact in or
omission or alleged omission to state a material fact from such
registration statement, any preliminary prospectus, final prospectus or
summary prospectus contained therein, or any amendment or supplement
thereto, if such untrue statement or alleged untrue statement or omission
or alleged omission was made in reliance upon and in conformity with
written information furnished to the Company by Buyer specifically stating
that it is for use in the preparation of such registration statement,
preliminary prospectus, final prospectus, summary prospectus, amendment or
supplement. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of the Company or
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<PAGE>
any such director, officer, or controlling person and shall survive the
transfer of such securities by Buyer.
(c) Notices of Claims, etc. Promptly after receipt by an indemnified
party of notice of the commencement of any action or proceeding involving
a claim referred to in the preceding paragraphs of this Section 7, such
indemnified party will, if a claim in respect thereof is to be made
against an indemnifying party, give written notice to the latter of the
commencement of such action; provided, however, that the failure of any
indemnified party to give notice as provided herein shall not relieve the
indemnifying party of its obligations under the preceding paragraphs of
this Section 7, except to the extent that the indemnifying party is
actually prejudiced by such failure to give notice. In case any such
action is brought against an indemnified party, unless in such indemnified
party's reasonable judgment a conflict of interest between such
indemnified and indemnifying parties may exist in respect of such claim,
the indemnifying party shall be entitled to participate in and to assume
the defense thereof, jointly with any other indemnifying party similarly
notified to the extent that it may wish, with counsel reasonably
satisfactory to such indemnified party, and after notice from the
indemnifying party to such indemnified party of its election so to assume
the defense thereof, the indemnifying party shall not be liable to the
indemnified party for any legal or other expenses subsequently incurred by
the latter in connection with the defense thereof other than reasonable
costs of investigation.
(d) Other Indemnification. Indemnification similar to that specified
in the preceding paragraphs of this Section 7 (with appropriate
modifications) shall be given by the Company and Buyer with respect to any
required registration or other qualification of securities under any
federal or state law or regulation of Governmental Authority other than
the Securities Act.
(e) Indemnification Payments. The indemnification required by this
Section 7 shall be made by periodic payments of the amount thereof during
the course of the investigation or defense, as and when bills are received
or expense, loss, damage or liability is incurred.
(f) Contribution. If, for any reason, the foregoing indemnity is
unavailable, or is insufficient to hold harmless an indemnified party,
then the indemnifying party shall contribute to the amount paid or payable
by the indemnified party as a result of the expense, loss, damage or
liability, (i) in such proportion as is appropriate to reflect the
relative fault of the indemnifying party on the one hand and the
indemnified party on the other (determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact
or omission relates to information supplied by the indemnifying party or
the indemnified party and the parties' relative intent, knowledge, access
to information and opportunity to correct or prevent such untrue statement
or omission), or (ii) if the allocation provided by clause (i) above is
not permitted by applicable law or provides a lesser sum to the
indemnified party than the amount hereinafter calculated, in the
proportion as is appropriate to reflect not only the relative fault of the
indemnifying party and the indemnified party, but also the relative
benefits
11
<PAGE>
received by the indemnifying party on the one hand and the indemnified
party on the other, as well as any other relevant equitable
considerations. No indemnified party guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities
Act) shall be entitled to contribution from any indemnifying party who was
not guilty of such fraudulent misrepresentation.
Section 8. Covenants Relating to Rule 144. The Company will file in
a timely manner (taking into account any extensions granted by the Commission),
information, documents and reports in compliance with the Exchange Act and will,
at its expense, forthwith upon the request of Buyer, deliver to Buyer a
certificate, signed by the Company's principal financial officer, stating (a)
the Company's name, address and telephone number (including area code), (b) the
Company's Internal Revenue Service identification number, (c) the Company's
Commission file number, (d) the number of shares of Company Common Stock and the
number of shares of Company Preferred Stock outstanding as shown by the most
recent report or statement published by the Company, and (e) whether the Company
has filed the reports required to be filed under the Exchange Act for a period
of at least 90 days prior to the date of such certificate and in addition has
filed the most recent annual report required to be filed thereunder. If at any
time the Company is not required to file reports in compliance with either
Section 13 or Section 15(d) of the Exchange Act, the Company will, at its
expense, forthwith upon the written request of Buyer, make available adequate
current public information with respect to the Company within the meaning of
paragraph (c)(2) of Rule 144 of the General Rules and Regulations promulgated
under the Securities Act.
Section 9. Miscellaneous
(a) Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement,
and shall become effective when one or more counterparts have been signed
by each of the parties and delivered to the other party. Copies of
executed counterparts transmitted by telecopy, telefax or other electronic
transmission service shall be considered original executed counterparts
for purposes of this Section 9(a), provided receipt of copies of such
counterparts is confirmed.
(b) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REFERENCE TO
THE CHOICE OF LAW PRINCIPLES THEREOF.
(c) Entire Agreement. This Agreement (including agreements
incorporated herein) contains the entire agreement between the parties
with respect to the subject matter hereof and there are no agreements or
understandings between the parties other than those set forth or referred
to herein. This Agreement is not intended to confer upon any person not a
party hereto (and their successors and assigns) any rights or remedies
hereunder.
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<PAGE>
(d) Notices. All notices and other communications hereunder shall be
sufficiently given for all purposes hereunder if in writing and delivered
personally, sent by documented overnight delivery service or, to the
extent receipt is confirmed, telecopy, telefax or other electronic
transmission service to the appropriate address or number as set forth
below. Notices to the Company shall be addressed to:
FAC Realty Trust, Inc.
11000 Regency Parkway, 3rd Fl.
East Tower
Cary, NC 27511
Attention: C. Cammack Morton
Telecopy: (919) 462-8799
with a copy to:
Alston & Bird LLP
310 UCS Plaza
3605 Glenwood Ave.
P.O. Drawer 31107
Raleigh, North Carolina 27622-1107
Attention: Brad S. Markoff, Esq.
Telecopy: (919) 881-3175
or at such other address and to the attention of such other person as the
Company may designate by written notice to Buyer. Notices to Buyer shall be
addressed to:
Lazard Freres Real Estate Investors, LLC
30 Rockefeller Plaza, 63rd Floor
New York, NY 10020
Attention: Murry Gunty
Telecopy: (212) 632-6060
with a copy to:
Latham & Watkins
885 Third Avenue, Suite 1000
New York, NY 10022
Attention: R. Ronald Hopkinson, Esq.
Telecopy: (212) 751-4864
(e) Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective
successors. Neither party shall be permitted to assign any of its rights
hereunder to any third party, except that if Buyer transfers any or all
Registrable Securities to another person, such transferee shall be
considered an intended beneficiary hereof and may exercise all rights of
Buyer hereunder (provided that any transferee that holds less than 50% of
all outstanding Registrable
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<PAGE>
Securities shall not be entitled to request a Demand Registration pursuant
to Section 2 hereof).
(f) Headings. The Section and other headings contained in this
Agreement are inserted for convenience of reference only and will not
affect the meaning or interpretation of this Agreement. All references to
Sections or other headings contained herein mean Sections or other
headings of this Agreement unless otherwise stated.
(g) Amendments and Waivers. This Agreement may not be modified or
amended except by an instrument or instruments in writing signed by the
party against whom enforcement of any such modification or amendment is
sought. Either party hereto may, only by an instrument in writing, waive
compliance by the other party hereto with any term or provision hereof on
the part of such other party hereto to be performed or complied with. The
waiver by any party hereto of a breach of any term or provision hereof
shall not be construed as a waiver of any subsequent breach.
(h) Interpretation; Absence of Presumption. For the purposes hereof,
(i) words in the singular shall be held to include the plural and vice
versa and words of one gender shall be held to include the other gender as
the context requires, (ii) the terms "hereof", "herein", and "herewith"
and words of similar import shall, unless otherwise stated, be construed
to refer to this Agreement as a whole and not to any particular provision
of this Agreement, and Section, paragraph or other references are to the
Sections, paragraphs, or other references to this Agreement unless
otherwise specified, (iii) the word "including" and words of similar
import when used in this Agreement shall mean "including, without
limitation," unless the context otherwise requires or unless otherwise
specified, (iv) the word "or" shall not be exclusive, and (v) provisions
shall apply, when appropriate, to successive events and transactions.
This Agreement shall be construed without regard to any presumption
or rule requiring construction or interpretation against the party
drafting or causing any instrument to be drafted.
(i) Severability. Any provision hereof which is invalid or
unenforceable shall be ineffective to the extent of such invalidity or
unenforceability, without affecting in any way the remaining provisions
hereof.
[Signature Page Follows]
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<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed and delivered by the
parties hereto.
PROMETHEUS SOUTHEAST RETAIL LLC
By: LF Strategic Realty Investor II, L.P.,
its sole member
By: Lazard Freres Real Estate Investors, LLC,
its general partner
By: /s/ Murry N. Gunty
________________________
Name: Murry N. Gunty
Title: __________________________
FAC REALTY TRUST, INC.
By: ________________________
Name: C. Cammack Morton
Title: Chief Executive Officer
<PAGE>
EXHIBIT B
------------------------------------------------
STOCKHOLDERS AGREEMENT
by and between
PROMETHEUS SOUTHEAST RETAIL LLC
and
FAC REALTY TRUST, INC.
dated as of
February 24, 1998
------------------------------------------------
<PAGE>
THIS STOCKHOLDERS AGREEMENT (this "Agreement"), dated as of February
24, 1998 is made by and between Prometheus Southeast Retail LLC ("Buyer"), an
affiliate of Lazard Freres Real Estate Investors, LLC ("LFREI"), and FAC Realty
Trust, Inc., a Maryland corporation (the "Company"). Capitalized terms not
otherwise defined herein have the meaning ascribed to them in the Stock Purchase
Agreement (as hereinafter defined).
RECITALS:
WHEREAS, the Company and Buyer have entered into a Stock Purchase
Agreement, dated as of the date hereof (the "Stock Purchase Agreement"),
pursuant to which the Company has agreed to sell, and Buyer has agreed to
purchase, certain shares of common stock, par value $0.01 per share, of the
Company (the "Company Common Stock"), together with Contingent Value Rights,
upon the terms and subject to the conditions set forth therein;
WHEREAS, it is a condition to the transactions contemplated by the
Stock Purchase Agreement and the parties believe it to be in their best
interests that they enter into this Agreement and provide for certain rights and
restrictions with respect to the investment by Investor (as hereinafter defined)
in the Company and the corporate governance of the Company;
WHEREAS, the Company and Buyer believe that the combination in a
strategic partnership of the leadership, expertise and experience in retail
development and operations of the Company and the investment and capital markets
expertise and access to capital of Buyer and its Affiliates will significantly
enhance the Company's ability to pursue its growth and operating strategies; and
NOW, THEREFORE, in consideration of the premises and the covenants
and agreements contained herein and for good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, and intending to be
legally bound hereby, the parties hereto hereby agree as follows:
ARTICLE 1
Definitions
As used in this Agreement, the following terms shall have the
following respective meanings:
Section 1.1 "Affiliate" shall have the meaning ascribed thereto in
Rule 12b-2 promulgated under the 1934 Act, and as in effect on the date hereof.
Section 1.2 "Aggregate Purchase Price" shall mean, on any date, the
amount equal to the aggregate consideration paid by Buyer on and prior to such
date in connection with the purchase of the Purchased Shares pursuant to the
Stock Purchase Agreement.
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<PAGE>
Section 1.3 "Agreement" shall have the meaning set forth in the
first paragraph hereof.
Section 1.4 "Approval Rights Termination Date" shall mean the first
date on which the ratio (expressed as a percentage) of (i) the sum of (A) the
remaining Investment of Investor (and any transferee or assignee of Investor or
any group of transferees or assignees) on such date and (B) the remaining
Commitment to Invest of Investor (or any transferee or assignee of Investor or
group of transferees or assignees) on such date to (ii) the sum of (A) the Fair
Market Value of all Company Stock outstanding, as measured on such date, and (B)
the Fair Market Value of all OP Units outstanding, as measured on such date, is
less than 15%.
Section 1.5 "Beneficially Own" shall mean, with respect to any
security, having direct or indirect (including through any Subsidiary or
Affiliate) "beneficial ownership" of such security, as determined pursuant to
Rule 13d-3 under the 1934 Act, including pursuant to any agreement, arrangement
or understanding, whether or not in writing; provided, however, that all of the
shares of Company Common Stock which Buyer has agreed to purchase under the
Stock Purchase Agreement but which have not yet been purchased shall be deemed
to be Beneficially Owned by Investor until the Remaining Equity Ownership is
zero.
Section 1.6 "Board" shall mean the board of directors of the
Company.
Section 1.7 "Buyer" shall have the meaning set forth in the first
paragraph hereof.
Section 1.8 "Code" shall mean the Internal Revenue Code of 1986, as
amended, and any successor thereto, including all of the rules and regulations
promulgated thereunder.
Section 1.9 "Commitment to Invest" shall mean, for any person and on
any date, the product of (A) the number of shares of Company Common Stock such
person is committed to purchase from the Company under the Stock Purchase
Agreement on or after such date and (B) the Fair Market Value of the Company
Common Stock on such date.
Section 1.10 "Company" shall have the meaning set forth in the first
paragraph hereof.
Section 1.11 "Company Charter" shall have the meaning set forth in
the Stock Purchase Agreement.
Section 1.12 "Company Common Stock" shall have the meaning set forth
in the second paragraph hereof.
Section 1.13 "Company Stock" shall mean, collectively, the Company
Common Stock and other shares of capital stock of the Company.
Section 1.14 "Company Stock Equivalents" shall have the meaning set
forth in Section 3.2(e).
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<PAGE>
Section 1.15 "Control" shall mean with respect to any person, the
power to direct the management and policies of such person, directly or
indirectly, whether through ownership of voting securities, by contract or
otherwise. "Controlled" shall have a correlative meaning.
Section 1.16 "Declaration Date" shall have the meaning set forth in
Section 3.3(b).
Section 1.17 "Director" shall mean a member of the Board.
Section 1.18 "Eligible Securities" shall have the meaning set forth
in Section 3.3.
Section 1.19 "Executive Committee" shall mean the five-member
executive committee of the Board.
Section 1.20 "Exercise Notice" shall have the meaning set forth in
Section 4.1(c).
Section 1.21 "Fair Market Value" shall mean, with respect to Company
Stock on any day, the average of the last reported sales price for such Company
Stock for 60 consecutive calendar days before such date, and, with respect to OP
Units on any day, the average of the last reported sales price for Company
Common Stock for 60 consecutive calendar days before such date. In the event the
"Fair Market Value" for such Company Stock or OP Units cannot be determined as
aforesaid, the "Fair Market Value" for such Company Stock or OP Units, as
applicable, shall be determined by the Independent Directors of the Company as
they, in good faith, consider appropriate. Such determination may be challenged
in good faith by the Investor, and any dispute shall be resolved at the
Company's cost, by an investment banking firm of recognized national standing
selected by the Company and acceptable to Investor and shall be made in good
faith and be conclusive absent manifest error.
Section 1.22 "15% IRR Amount" shall mean, on any day, an aggregate
dollar amount that allows Buyer to realize a 15% internal rate of return on the
Aggregate Purchase Price paid by Buyer as of such date, on a compounded,
annualized basis (inclusive of all cash dividends paid to Buyer with respect to
the Purchased Shares (not including any special fees, expenses or other
consideration payable to Investor, but not to all other stockholders of the
Company)).
Section 1.23 "Final Threshold Date" shall mean the first date on
which the sum of (A) the remaining Investment of Investor (and any transferee or
assignee of Investor or any group of transferees or assignees) on such date and
(B) the remaining Commitment to Invest of Investor (or any transferee or
assignee of Investor or group of transferees or assignees) on such date, is less
than $10,000,000.00.
Section 1.24 "Fully Diluted" shall mean, with respect to the Company
Stock, the total number of outstanding shares of Company Stock (for such
purposes, treating as outstanding Company Stock all options or warrants to
purchase and securities convertible into
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<PAGE>
(or exchangeable or redeemable for) Company Stock, including, without
limitation, OP Units), outstanding as of the relevant measurement date, assuming
exercise, conversion, exchange or redemption of such other securities.
Section 1.25 "Government Authority" shall mean any government or
state (or any subdivision thereof) of or in the United States, or any agency,
authority, bureau, commission, department or similar body or instrumentality
thereof, or any governmental court or tribunal.
Section 1.26 "Group" shall mean a "group" as such term is used in
Section 13(d)(3) of the 1934 Act.
Section 1.27 "Independent Directors" shall have the meaning set
forth in Section 2.1(d).
Section 1.28 "Initial Investor Nominees" shall have the meaning set
forth in Section 2.1(a).
Section 1.29 "Investment" shall mean, for any person and on any
date, the sum of (i) product of (A) the number of shares of Company Stock held
by such person and (B) the Fair Market Value of the Company Stock on such date
and (ii) the product of (A) the number of OP Units held by such person and (B)
the Fair Market Value of the OP Units on such date.
Section 1.30 "Investor" shall mean Buyer, and shall also include any
Affiliate of LFREI, a majority or more of the voting power and economic
interests of which is Beneficially Owned by LFREI, or, for purposes only of the
provisions of the Registration Rights Agreement, any bona fide financial
institution to which any Investor has transferred (including upon foreclosure of
a pledge) shares of Company Stock for the purpose of securing bona fide
indebtedness of any Investor and which has agreed to be bound by this Agreement.
Section 1.31 "Investor Nominees" shall have the meaning set forth in
Section 2.1(a).
Section 1.32 "Key Committees" shall have the meaning set forth in
Section 2.2(a).
Section 1.33 "1933 Act" shall mean the Securities Act of 1933, as
amended.
Section 1.34 "1934 Act" shall mean the Securities Exchange Act of
1934, as amended.
Section 1.35 "Offer Period" shall have the meaning set forth in
Section 3.3(a).
Section 1.36 "Offer Price" shall have the meaning set forth in
Section 3.3.
Section 1.37 "Offer to Purchase" shall have the meaning set forth in
Section 3.3.
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<PAGE>
Section 1.38 "Participation Notice" shall have the meaning set forth
in Section 4.1(c).
Section 1.39 "Person" shall mean any individual, corporation,
partnership, limited liability company, joint venture, trust, unincorporated
organization, other form of business or legal entity or Government Authority.
Section 1.40 "Preliminary Threshold Date" shall mean the first date
on which the sum of (A) the remaining Investment of Investor (and any transferee
or assignee of Investor or any group of transferees or assignees) on such date
and (B) the remaining Commitment to Invest of Investor (or any transferee or
assignee of Investor or group of transferees or assignees) on such date, is less
than $50,000,000.00.
Section 1.41 "Purchase Date" shall have the meaning set forth in
Section 3.3(a).
Section 1.42 "Purchased Shares" shall have the meaning set forth in
the Stock Purchase Agreement.
Section 1.43 "Registrable Securities" shall have the meaning set
forth in the Registration Rights Agreement.
Section 1.44 "Registration Rights Agreement" shall mean the
Registration Rights Agreement, dated as of the date hereof, by and between the
Company and Buyer.
Section 1.45 "Securities Filings" shall have the meaning set forth
in Section 3.1(a)(iii).
Section 1.46 "Stockholder Approval" shall have the meaning set forth
in the Stock Purchase Agreement.
Section 1.47 "Stockholder Approval Date" shall mean the date on
which a duly called and held meeting of shareholders of the Company is held at
which meeting (i) a quorum is present and (ii) Stockholder Approval is obtained.
Section 1.48 "Stock Purchase Agreement" shall have the meaning set
forth in the second paragraph hereof.
Section 1.49 "Supermajority Board Approval" shall have the meaning
set forth in Section 3.2.
Section 1.50 "Second Threshold Date" shall mean the first date on
which the sum of (A) the remaining Investment of Investor (and any transferee or
assignee of Investor or any group of transferees or assignees) on such date and
(B) the remaining Commitment to Invest of Investor (or any transferee or
assignee of Investor or group of transferees or assignees) on such date, is less
than $25,000,000.00.
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Section 1.51 "Total Enterprise Value" shall have the meaning given
to it in the Stock Purchase Agreement.
Section 1.52 "Transfer Agent" shall have the meaning set forth in
Section 3.3(c).
ARTICLE 2
Board of Directors
Section 2.1 Members of the Board
(a) From and after the Stockholder Approval Date, if any, and until
the Preliminary Threshold Date, the Company and Investor shall take all
actions necessary to cause the Board to be structured to consist of no
less than nine members, of which three members will be designees of
Investor (the "Investor Nominees"), two of which shall be chosen at the
sole discretion of Investor (the "Initial Investor Nominees") and one of
which shall be subject to the reasonable approval of the Company, and the
Company and Investor will take all actions necessary to cause such
nominees to become members of the Board as soon as practicable after the
Stockholder Approval Date. If necessary to effectuate the placement of the
Investor Nominees on the Board, the Company shall solicit the resignations
of the appropriate number of Directors to the extent necessary to permit
the Investor Nominees to serve. The Initial Investor Nominees are expected
to be Art Solomon and Murry Gunty; provided, that Investor may at any time
appoint any other person, subject to the provisions of Section 2.1(d) of
this Agreement, as an Initial Investor Nominee without the consent of the
Company. At any time before the Preliminary Threshold Date, if the total
size of the Board is increased, the number of Investor Nominees shall also
be increased such that at least one-third of the members of the Board
shall be Investor Nominees.
(b) From and after the Preliminary Threshold Date and until the
Second Threshold Date, the Company and Investor shall take all actions
necessary to cause the Board to be structured to consist of no less than
nine members, of which at least two members will be Investor Nominees, and
the Company and Investor will take all actions necessary to cause such
nominees to become, or continue to be, members of the Board as soon as
practicable after the Preliminary Threshold Date. At any time before the
Second Threshold Date, if the total size of the Board is increased, the
number of Investor Nominees shall also be increased such that at least
two-ninths of the members of the Board shall be Investor Nominees.
(c) From and after the Second Threshold Date and until the Final
Threshold Date, the Company and Investor shall take all actions necessary
to cause the Board to be structured to consist of no less than nine
members, of which at least one member will be an Investor Nominee, and the
Company and Investor will take all actions necessary to cause such
nominee(s) to become, or continue to be, member(s) of the Board as soon as
practicable after the Second Threshold Date. At any time before the Final
Threshold
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<PAGE>
Date, if the total size of the Board is increased, the number of Investor
Nominees shall also be increased such that at least one-ninth of the
members of the Board shall be Investor Nominees.
(d) Investor will not name any person 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 has 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. Investor shall use its reasonable efforts to afford the
independent directors of the Company (the "Independent Directors") a
reasonable opportunity to meet any individual that Investor is considering
naming as an Investor Nominee.
(e) The Company will support the nomination of and the election of
each Investor Nominee to the Board, and the Company will exercise all
authority under applicable law to cause each Investor Nominee to be
elected to the Board. Without limiting the generality of the foregoing,
with respect to each meeting of shareholders of the Company at which
Directors are to be elected, the Company shall use its reasonable efforts
to solicit from the shareholders of the Company eligible to vote in the
election of Directors proxies in favor of each Investor Nominee.
Section 2.2 Committee Representation; Subsidiary Boards
(a) The Company shall amend its by-laws to (i) establish the
Executive Committee, which shall be delegated the authority to the maximum
extent permitted by law to approve any matter permissible under law for
authorization by an executive committee, and (ii) provide that each of the
Executive Committee, the compensation committee, the audit committee, any
special committee(s) of the Board, and any other committees which shall be
charged with exercising substantial authority on behalf of the Board
(other than any committee charged with the approval of the transactions
contemplated by the Stock Purchase Agreement or this Agreement, or any
committee charged with evaluating any Competing Transaction) (the
foregoing, the "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.
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 be independent of the Company, (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
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arrangement for employee compensation or benefits, that the members of the
committee of the Board charged with responsibility for such plan or
arrangement be "independent" of the Company, "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 Company 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 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) Until the Final Threshold Date, at least one Director who is an
Investor Nominee shall serve as a member of the board of directors or
comparable governing body of each Subsidiary of the Company, if any, that
is a corporation or other person with a board of directors or board of
trustees.
Section 2.3 Vacancies. 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 2.1(b).
ARTICLE 3
Covenants; Transfer Provisions
Section 3.1 Operating Statements; Public Company Status
(a) From and after the date of this Agreement until the Final
Threshold Date, if any, the Company will:
(i) deliver to Investor, as soon as practicable after the end
of each month or other reporting period, any operating and financial
statements and management reports (x) of the Company, and (y) of
each Subsidiary of the Company not consolidated with the Company,
which are regularly provided to the senior management of the
Company, each as, at and for the end of such month or other
reporting period, and such other statements or reports as are
reasonably requested by Investor, all in such form as are prepared
by the Company for internal use by management (including, as
applicable, by e-mail);
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(ii) deliver to Investor copies of all other information
distributed by the Company to the Board, any other equity investor
in the Company or any of the Company's partners in joint ventures;
(iii) deliver to Investor, as promptly as practicable
following filing, a copy of each report, schedule or other document
filed by the Company pursuant to the requirements of any federal or
state securities laws (collectively, the "Securities Filings"); and
(iv) continue to comply in all material respects with the
reporting requirements of Section 13 or 15(d) of the 1934 Act.
(b) Until the Final Threshold Date, the Company and Investor will
afford one another a reasonable opportunity to review any Securities
Filing, any other filing with a Government Authority and any press release
or similar public announcement which refers to, describes or mentions such
other party or any Affiliate of such other party prior to the time that
such filing is filed with or sent to the applicable Government Authority
or such announcement is disseminated.
Section 3.2 Conduct of Actions. From and after the Stockholder
Approval Date until the Approval Rights Termination Date, if any,
notwithstanding the fact that a vote of the Board or the Executive Committee may
not be required under applicable law, the Company 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 Company'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
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make or amend any contract, agreement, understanding, loan, advance or
guarantee with, or for the benefit of, any of its Affiliates;
(e) issue Company Stock or options, rights or warrants or other
commitments to purchase or securities convertible into (or exchangeable or
redeemable for) shares of Company Stock, including, without limitation, OP
Units (such options, rights, warrants, other commitments or securities,
"Company Stock Equivalents"); provided, however, that Supermajority Board
Approval shall not be required for any issuance of Company Stock or
Company Stock Equivalents as long as the sum of (i) all shares of Company
Stock issued by the Company during the applicable fiscal year and (ii)
shares of Company Stock into which Company Stock Equivalents issued by the
Company and each of its Subsidiaries during the applicable fiscal year are
convertible, does not exceed fifty percent (50%) of all shares of Company
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 Company of Company Stock or issuance by the Company or any of its
Subsidiaries of any Company Stock Equivalents, Investor shall be entitled,
to the extent so provided in Section 4.1 of this Agreement, to a
participation right on the terms set forth in Section 4.1 of this
Agreement. Notwithstanding the first sentence of this Section 3.2(e), (i)
Company Stock issued to the Company or a wholly owned Subsidiary thereof
and (ii) Company Stock and Company Stock Equivalents issued to directors
or employees of the Company or a Subsidiary of the Company in connection
with any employee benefit plan approved by the shareholders of the
Company, shall not be subject to Supermajority Board Approval;
(f) change or amend any provision of the Company Charter or the
by-laws of the Company 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 Company, (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 Company to terminate the Stock
Purchase Agreement pursuant to 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 Buyer, becomes the "beneficial owner" (as such term is
defined in Rule 13d-3 and Rule 13d-5 under the Exchange Act),
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directly or indirectly, of stock having more than 15% of the voting power
of the Company.
Section 3.3 Offer to Purchase. At any time prior to December 31,
2003 (after completion of the purchase of all of the Purchased Shares pursuant
to the Stock Purchase Agreement), the Company may make an irrevocable offer to
purchase (the "Offer to Purchase") to all holders of shares of Company Common
Stock that are Registrable Securities (such shares, "Eligible Securities") all
(and not less than all) outstanding shares of Eligible Securities at a per share
offer price (the "Offer Price") in cash equal to (i) the greater of (A) $19.00
multiplied by the number of outstanding shares of Purchased Shares on such date
less the aggregate amount of cash dividends paid (not including any special
fees, expenses or other consideration payable to Investor, but not to all other
stockholders of the Company) on the Purchased Shares between the date of the
Initial Closing and such date and (B) the 15% IRR Amount on such date, divided
by (ii) the number of outstanding shares of Purchased Shares on such date. In
making an Offer to Purchase, the Company shall follow the procedures set forth
below:
(a) The Offer to Purchase shall remain open for a period of 20
Business Days following its commencement and no longer, except to the
extent that a longer period is required by applicable law (the "Offer
Period"). No later than five Business Days after the termination of the
Offer Period (the "Purchase Date"), the Company shall purchase all shares
of Eligible Securities tendered in response to the Offer to Purchase.
Payment for any Eligible Securities so purchased shall be made in the same
manner as dividends are paid.
(b) If the Purchase Date is on or after the date on which dividends
are declared (the "Declaration Date"), any accrued or unpaid dividends
shall be paid to the person in whose name the applicable Eligible Security
is registered at the close of business on the Declaration Date, and no
additional dividends shall be payable to holders of Eligible Securities
pursuant to the Offer to Purchase.
(c) Upon the commencement of an Offer to Purchase, the Company,
within five days of such commencement, shall send, by first class mail, a
notice to the transfer agent for Company Common Stock (the "Transfer
Agent") and each holder of Eligible Securities. The notice shall contain
all instructions and material necessary to enable such holders to tender
Eligible Securities pursuant to the Offer to Purchase. The Offer to
Purchase shall be made to all holders of Eligible Securities. The notice,
which shall govern the terms of the Offer to Purchase, shall state:
(i) that the Offer to Purchase is being made pursuant to
Section 3.3 hereof and the length of time the Offer to Purchase
shall remain open;
(ii) the Offer Price and the Purchase Date;
(iii) that any Eligible Securities not tendered shall remain
outstanding;
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(iv) that, unless the Company fails to make the applicable
payment, any Eligible Securities tendered will cease to be
outstanding;
(v) that holders of Eligible Securities electing to have any
shares purchased shall be required to surrender such shares, with a
validly executed certificate of transfer, or transfer by book-entry
transfer, to the Company or the Transfer Agent at the address
specified in the notice at least three days before the Purchase
Date; and
(vi) that holders of Eligible Securities shall be entitled to
withdraw their election if the Company or the Transfer Agent, as the
case may be, receives, not later than the expiration of the Offer
Period, a telegram, telex, facsimile transmission or letter setting
forth the name of the holder, the number of shares the holder
delivered for purchase and a statement that such holder is
withdrawing his election to have such shares purchased.
For the avoidance of doubt, neither Investor nor any of its
assignees are required to accept an Offer to Purchase. The provisions governing
an Offer to Purchase are set forth in this Agreement for the purpose of
clarifying the terms of the Contingent Value Right Agreement.
Section 3.4 Amendment of Documents. The Company shall take all
actions necessary to amend the Company Charter and the Company's by-laws in
order to give effect to Article 2 and Section 3.2 of this Agreement. Such
amendments to the Company Charter and the Company's by-laws shall be in form and
substance reasonably satisfactory to Buyer and otherwise consistent with the
terms of this Agreement.
Section 3.5 Voting. On any matter that requires a vote of the
stockholders of the Company under the Company's Charter or by-laws or under any
applicable law, Buyer shall vote any Company Common Stock acquired by it
pursuant to Section 4.1(b) hereof pro rata based on the votes of the other
stockholders of the Company.
Section 3.6 Mergers. For a period of five years following the date
of the Initial Closing, Buyer shall not take any action to cause the Company to
consolidate or merge with or into another person if, pursuant to the terms of
such consolidation or merger, the stockholders of the Company (other than Buyer)
shall receive consideration in a form, or in an amount, different from Buyer. In
addition, if on any date Buyer shall, in one or a series of related
transactions, transfer a number of shares of Company Common Stock greater than
50% of the aggregate number of shares of Company Common Stock outstanding on
such date to a person (other than an Affiliate of Buyer) and such person's
Affiliates, such person shall be subject to the limitations set forth in this
Section 3.6 as if such person were a party to this Agreement.
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ARTICLE 4
Participation Rights
Section 4.1 (a) Right to Participate. From and after the date hereof
until the Preliminary Threshold Date, if any, Investor shall be entitled to a
participation right to purchase or subscribe for up to that number of additional
shares of capital stock (including as "capital stock" for purposes of this
Section, any security, option, warrant, call, commitment, subscription, right to
purchase or other agreement of any character that is convertible into or
exchangeable or redeemable for shares of capital stock of the Company or any of
its Subsidiaries, including, without limitation, OP Units (and all references in
this Section to capital stock shall, as appropriate, be deemed to be references
to any such securities), and also including additional shares of capital stock
to be issued pursuant to the conversion, exchange or redemption of any security,
option, warrant, call, commitment, subscription, right to purchase or other
agreement of any character that is convertible into or exchangeable or
redeemable for shares of capital stock, including, without limitation, OP Units,
as if the price at which such additional shares of capital stock is issued
pursuant to any such conversion, exchange or redemption were the market price on
the date of such issuance) to be issued or sold by the Company which represents
the same proportion of the total number of shares of capital stock to be issued
or sold by the Company (including the shares of capital stock to be issued to
Investor upon exercise of its participation rights hereunder; it being
understood and agreed that the Company will accordingly be required to either
increase the number of shares of capital stock to be issued or sold so that
Investor may purchase additional shares to maintain its proportionate interest,
or to reduce the number of shares of capital stock to be issued or sold to
Persons other than Investor) as is represented by the number of shares of
Company Stock and OP Units owned by Investor prior to such sale or issuance (and
including for this purpose any shares of Company Common Stock to be acquired
pursuant to the Stock Purchase Agreement, but not yet issued) relative to the
number of shares of Company Stock and OP Units outstanding prior to such sale or
issuance (and including for this purpose any shares of Company Common Stock to
be acquired pursuant to the Stock Purchase Agreement, but not yet issued);
provided, however, that the provisions of this Section shall not apply to the
issuance or sale by the Company of any of its capital stock issued to the
Company or any of its Subsidiaries or pursuant to options, rights or warrants or
other commitments or securities in effect or outstanding on the date of the
Stock Purchase Agreement (including, without limitation, any options issued or
to be issued pursuant to the Employment Agreements).
(b) Issuance of OP Units. Upon exercise of its participation rights
under this Section 4.1 by Buyer in connection with the issuance by the Company
of OP Units, Buyer shall have the right to purchase, and, upon such exercise,
the Company will be required to issue to Buyer, the number of shares of Company
Common Stock equal to the number of OP Units Buyer is entitled to purchase under
Section 4.1(a) hereof. Such shares of Company Common Stock shall be issued by
the Company in lieu of such number of OP Units Buyer would otherwise be entitled
to purchase under Section 4.1(a) hereof.
(c) Notice. In the event the Company proposes to issue or sell any
shares of capital stock in a transaction giving rise to the participation rights
provided for in this Section,
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the Company shall send a written notice (the "Participation Notice") to Investor
setting forth the number of shares of such capital stock of the Company that the
Company proposes to sell or issue, the price (before any commission or discount)
at which such shares are proposed to be issued (or, in the case of an
underwritten or privately placed offering in which the price is not known at the
time the Participation Notice is given, the method of determining such price and
an estimate thereof), and all other relevant information as to such proposed
transaction as may be necessary for Investor to determine whether or not to
exercise the rights granted in this Section. At any time within 20 days after
its receipt of the Participation Notice, Investor may exercise its participation
rights to purchase or subscribe for shares of such shares of capital stock, as
provided for in this Section, by so informing the Company in writing (an
"Exercise Notice"). Each Exercise Notice shall state the percentage of the
proposed sale or issuance that the Investor elects to purchase. Each Exercise
Notice shall be irrevocable, subject to the conditions to the closing of the
transaction giving rise to the participation right provided for in this Section.
(d) Abandonment of Sale or Issuance. The Company shall have the
right, in its sole discretion, at all times prior to consummation of any
proposed sale or issuance giving rise to the participation right granted by this
Section, to abandon, rescind, annul, withdraw or otherwise terminate such sale
or issuance, whereupon all participation rights in respect of such proposed sale
or issuance pursuant to this Section shall become null and void, and the Company
shall have no liability or obligation to Investor or any Affiliate thereof who
has acquired shares of Company Stock pursuant to the Stock Purchase Agreement or
from Investor with respect thereto by virtue of such abandonment, rescission,
annulment, withdrawal or termination.
(e) Terms of Sale. The purchase or subscription by Investor or an
Affiliate thereof, as the case may be, pursuant to this Section shall be on the
same price and other terms and conditions, including the date of sale or
issuance, as are applicable to the purchasers or subscribers of the additional
shares of capital stock of the Company whose purchases or subscriptions give
rise to the participation rights (except that the price to Investor to make such
purchase or subscription shall be net of an amount equal to fifty percent (50%)
of any underwriting, placement agent or similar fee associated with such
purchase or subscription paid or to be paid in connection with such purchase or
subscription), which price and other terms and conditions shall be substantially
as stated in the relevant Participation Notice (which standard shall be
satisfied if the price, in the case of a negotiated transaction, is not greater
than 110% of the estimated price set forth in the relevant Participation Notice
or, in the case of an underwritten or privately placed offering, is not greater
than the greater of (i) 110% of the estimated price set forth in the relevant
Participation Notice, and (ii) the most recent closing price on or prior to the
date of the pricing of the offering); provided, however, that in the event the
purchases or subscriptions giving rise to the participation rights are effected
by an offering of securities registered under the 1933 Act and in which offering
it is not legally permissible for the securities to be purchased by Investor to
be included, such securities to be purchased by Investor will be purchased in a
concurrent private placement.
(f) Timing of Sale. If, with respect to any Participation Notice,
Investor fails to deliver an Exercise Notice within the requisite time period,
the Company shall have 120 days after the expiration of the time in which the
Exercise Notice is required to be delivered in which
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to sell not more than 110% of the number of shares of capital stock of the
Company described in the Participation Notice (plus, in the event such shares
are to be sold in an underwritten public offering, an additional number of
shares of capital stock of the Company, not in excess of 15% of 110% of the
number of shares of capital stock of the Company described in the Participation
Notice, in respect of any underwriters overallotment option) and not less than
90% of the number of shares of capital stock of the Company described in the
Participation Notice at a price of not less than 90% of the estimated price set
forth in the Participation Notice. If, at the end of 120 days following the
expiration of the time in which the Exercise Notice is required to be delivered,
the Company has not completed the sale or issuance of capital stock of the
Company in accordance with the terms described in the Participation Notice (or
at a price which is at least 90% of the estimated price set forth in the
Participation Notice), or in the event of any contemplated sale or issuance
within such 120-day period but outside such price parameters, the Company shall
again be obligated to comply with the provisions of this Section with respect
to, and provide the opportunity to participate in, any proposed sale or issuance
of shares of capital stock of the Company; provided, however, that
notwithstanding the foregoing, if the price at which such capital stock is to be
sold in an underwritten offering (or a privately placed offering in which the
price is not less than 97% of the most recent closing price at the time of the
pricing of the offering) is not at least 90% of the estimated price set forth in
the Participation Notice, the Company may inform Investor of such fact and
Investor shall be entitled to elect, by written notice delivered within five
Business Days following such notice from the Company, to participate in such
offering in accordance with the provisions of this Section.
ARTICLE 5
Miscellaneous
Section 5.1 Counterparts. This Agreement may be executed in one or
more counterparts, all of which shall be considered one and the same agreement,
and shall become effective when one or more counterparts have been signed by
each of the parties and delivered to the other party. Copies of executed
counterparts transmitted by telecopy, telefax or other electronic transmission
service shall be considered original executed counterparts for purposes of this
Section, provided receipt of copies of such counterparts is confirmed.
Section 5.2 Governing Law. THIS AGREEMENT SHALL BE GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
MARYLAND WITHOUT REFERENCE TO THE CHOICE OF LAW PRINCIPLES
THEREOF.
Section 5.3 Entire Agreement. This Agreement (including agreements
incorporated herein) and the Schedules and Exhibits hereto contain the entire
agreement between the parties with respect to the subject matter hereof and
there are no agreements, understandings, representations or warranties between
the parties other than those set forth or referred to herein. This Agreement is
not intended to confer upon any person not a party hereto (and their successors
and assigns) any rights or remedies hereunder.
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Section 5.4 Expenses. All legal and other costs and expenses
incurred in connection with this Agreement and the transactions contemplated
hereby shall be paid as set forth in the Stock Purchase Agreement. Without
limiting the foregoing, the Company shall pay all costs and expenses incurred in
connection with the solicitation of votes of shareholders of the Company to
approve the transactions contemplated by the Stock Purchase Agreement.
Section 5.5 Notices. All notices and other communications hereunder
shall be sufficiently given for all purposes hereunder if in writing and
delivered personally, sent by documented overnight delivery service or, to the
extent receipt is confirmed, telecopy, telefax or other electronic transmission
service to the appropriate address or number as set forth below.
Notices to the Company shall be addressed to:
FAC Realty Trust, Inc.
11000 Regency Parkway, 3rd fl.
East Tower
Cary, NC 27511
Attention: C. Cammack Morton
Telecopy: (919) 462-8799
with a copy to:
Alston & Bird LLP
310 UCS Plaza
3605 Glenwood Ave.
P.O. Drawer 31107
Raleigh, North Carolina 27622-1107
Attention: Brad S. Markoff, Esq.
Telecopy: (919) 881-3175
or at such other address and to the attention of such other person as the
Company may designate by written notice to Investor. Notices to Buyer or
Investor shall be addressed to:
Lazard Freres Real Estate Investors, LLC
30 Rockefeller Plaza, 63rd Floor
New York, NY 10020
Attention: Murry Gunty
Telecopy: (212) 632-6060
with a copy to:
Latham & Watkins
885 Third Ave, Suite 10000
New York, NY 10022
Attention: R. Ronald Hopkinson, Esq.
Telecopy: (212) 751-4864
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Section 5.6 Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors. Neither party shall be permitted to assign any of its rights
hereunder to any third party without the prior written consent of the other
party, except that any Investor may, without such consent, assign its rights
hereunder, in whole or in part, to the same extent as Buyer is permitted to
assign its rights under the Stock Purchase Agreement, provided that such person
agrees to be bound by this Agreement.
Section 5.7 Headings. The Section, Article and other headings
contained in this Agreement are inserted for convenience of reference only and
will not affect the meaning or interpretation of this Agreement. All references
to Sections or Articles contained herein mean Sections or Articles of this
Agreement unless otherwise stated.
Section 5.8 Amendments and Waivers. This Agreement may not be
modified or amended except by an instrument or instruments in writing signed by
the party against whom enforcement of any such modification or amendment is
sought. Any party hereto may, only by an instrument in writing, waive compliance
by another party hereto with any term or provision hereof on the part of such
other party hereto to be performed or complied with. The waiver by any party
hereto of a breach of any term or provision hereof shall not be construed as a
waiver of any subsequent breach.
Section 5.9 Interpretation; Absence of Presumption
(a) For the purposes hereof, (i) words in the singular shall be held
to include the plural and vice versa and words of one gender shall be held
to include the other gender as the context requires, (ii) the terms
"hereof", "herein", and "herewith" and words of similar import shall,
unless otherwise stated, be construed to refer to this Agreement as a
whole (including all of the Schedules and Exhibits hereto) and not to any
particular provision of this Agreement, and Article, Section, paragraph,
Schedule and Exhibit references are to the Articles, Sections, paragraphs,
Schedules and Exhibits to this Agreement unless otherwise specified, (iii)
the word "including" and words of similar import when used in this
Agreement shall mean "including, without limitation," unless the context
otherwise requires or unless otherwise specified, (iv) the word "or" shall
not be exclusive, and (v) provisions shall apply, when appropriate, to
successive events and transactions.
(b) This Agreement shall be construed without regard to any
presumption or rule requiring construction or interpretation against the
party drafting or causing any instrument to be drafted.
Section 5.10 Severability. Any provision hereof which is invalid or
unenforceable shall be ineffective to the extent of such invalidity or
unenforceability, without affecting in any way the remaining provisions hereof.
Section 5.11 Further Assurances. The Company and Investor agree
that, from time to time, each of them will, and will cause their respective
Affiliates to, execute and deliver
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such further instruments and take such other action as may be necessary to carry
out the purposes and intents hereof.
Section 5.12 Specific Performance. The Company and Investor each
acknowledge that, in view of the uniqueness of arrangements contemplated by this
Agreement, the parties hereto would not have an adequate remedy at law for money
damages in the event that this Agreement were not performed in accordance with
its terms, and therefore agree that the parties hereto shall be entitled to
specific enforcement of the terms hereof in addition to any other remedy to
which the parties hereto may be entitled at law or in equity.
Section 5.13 Investor Breach. In the event Investor shall have
breached (i) its obligation to effect a purchase of Company Common Stock
pursuant to the Stock Purchase Agreement which breach is neither cured nor
desisted from within 30 days of receipt of written notice of such breach, or
(ii) any of its obligations under this Agreement which breach is neither cured
nor desisted from within 30 days of receipt of written notice of such breach and
which would reasonably be expected to materially adversely affect the Company,
the Company shall no longer be required to perform any of its obligations
hereunder.
Section 5.14 Confidentiality. Buyer and Investor agree that all
information provided to any of them or any of their representatives pursuant to
this Agreement shall be kept confidential, and such parties shall not (x)
disclose such information to any persons other than the directors, officers,
employees, financial advisors, legal advisors, accountants, consultants and
affiliates of such parties who reasonably need to have access to the
confidential information and who are advised of the confidential nature of such
information or (y) use such information in a manner which would be detrimental
to the Company; provided, however, the foregoing obligation of such parties
shall not (a) relate to any information that (i) is or becomes generally
available other than as a result of unauthorized disclosure by such parties or
by persons to whom such parties have made such information available, (ii) is or
becomes available to such parties on a non-confidential basis from a third party
that is not, to such parties' knowledge, bound by any other confidentiality
agreement with the Company, or (b) prohibit disclosure of any information if
required by law, rule, regulation, court order or other legal or governmental
process.
Section 5.15 Public Releases and Announcements. The Company agrees
that until a Termination Event, it shall endeavor to provide to Investor advance
copies of, or, in the case of oral announcements, advance notice of, any public
release or announcement concerning the Company to be issued, released or made by
the Company or any of its Affiliates, in each case, if possible, at least one
Business Day prior to such release or announcement.
Section 5.16 Termination. In the event the Stockholder Approval Date
does not occur prior to August 31, 1998, this Agreement shall terminate.
[Signature Page Follows]
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<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed and delivered by the
parties hereto.
PROMETHEUS SOUTHEAST RETAIL LLC
By: LF Strategic Realty Investor II, L.P.,
its sole member
By: Lazard Freres Real Estate Investors, LLC,
its general partner
By: /s/ Murry N. Gunty
________________________
Name: ___________________________
Title: __________________________
FAC REALTY TRUST, INC.
By: ________________________
Name: C. Cammack Morton
Title: Chief Executive Officer
<PAGE>
EXHIBIT C
CONTINGENT VALUE RIGHT AGREEMENT
THIS CONTINGENT VALUE RIGHT AGREEMENT, dated as of February 24, 1998
(this "Agreement"), is made by and between Prometheus Southeast Retail LLC
("Buyer"), an affiliate of Lazard Freres Real Estate Investors, LLC, and FAC
Realty Trust, Inc., a Maryland corporation (the "Company"). Capitalized terms
not otherwise defined herein have the meaning ascribed to them in the Stock
Purchase Agreement (as hereinafter defined):
RECITALS:
WHEREAS, the Company and Buyer have entered into a Stock Purchase
Agreement, dated as of the date hereof (the "Stock Purchase Agreement"),
pursuant to which the Company has agreed to sell, and Buyer has agreed to
purchase, certain shares of common stock, par value $0.01 per share, of the
Company (the "Company Common Stock"), upon the terms and subject to the
conditions set forth therein; and
WHEREAS, it is a condition to the transactions contemplated by the
Stock Purchase Agreement and the parties believe it to be in their best
interests that they enter into this Agreement and provide for certain contingent
value rights for the benefit of Buyer;
NOW, THEREFORE, in consideration of the premises and the covenants
and agreements contained herein and for good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, and intending to be
legally bound hereby, the parties hereto hereby agree as follows:
SECTION 1.
DEFINITIONS
As used in this Agreement, the following terms shall have the
following respective meanings:
Section 1.1 - Adjustment Number
"Adjustment Number" shall mean the number equal to (i) the Make-Whole
Amount divided by (ii) the Fair Market Value on the Determination Date.
<PAGE>
Section 1.2 - Affiliate
"Affiliate" with respect to any entity, shall mean a person or entity
directly or indirectly controlling, controlled by, or under common control with,
such entity, where "control" has the meaning given such term under Rule 405 of
the Securities Act of 1933.
Section 1.3 - Approval Rights Termination Date
"Approval Rights Termination Date" shall have the meaning given to it in
the Stockholders Agreement.
Section 1.4 - Board
"Board" shall mean the board of directors of the Company.
Section 1.5 - Board Member Default
"Board Member Default" shall mean (i) on any day prior to the Preliminary
Threshold Date, the failure of at least one-third of the members of the Board to
consist of Investor Nominees, (ii) on any day prior to the Second Threshold
Date, the failure of at least two-ninths of the members of the Board to consist
of Investor Nominees, and (iii) on any day prior to the Final Threshold Date,
the failure of at least one-ninth of the members of the Board to consist of
Investor Nominees.
Section 1.6 - Contingent Value Right.
"Contingent Value Right" shall mean the right granted under this Agreement
to receive the payments set forth in Section 2.2 hereof, subject to the
limitations and conditions provided in this Agreement.
Section 1.7 - Default Date
"Default Date" shall have the meaning given to it in Section 4.2.
Section 1.8 - Determination Date
"Determination Date" shall mean January 1, 2004.
Section 1.9 - Fair Market Value
"Fair Market Value" shall have the meaning given to it in the Stockholders
Agreement.
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<PAGE>
Section 1.10 - 15% IRR Amount
"15% IRR Amount" shall have the meaning given to it in the Stockholders
Agreement.
Section 1.11 - Final Threshold Date
"Final Threshold Date" shall have the meaning given to it in the
Stockholders Agreement.
Section 1.12 - Investment Value
"Investment Value" shall mean the amount equal to (i) the number of
Purchased Shares multiplied by (ii) the Fair Market Value on the Determination
Date.
Section 1.13 - Investor Nominee
"Investor Nominee" shall have the meaning given to it in the Stockholders
Agreement.
Section 1.14 - Make-Whole Amount
"Make-Whole Amount" shall mean, on the Determination Date, a dollar
amount, never less than 0, equal to the lesser of (a) (i) the greater of (A) the
15% IRR Amount on the Determination Date or (B) the $19.00 Amount on the
Determination Date less (ii) the Investment Value on the Determination Date and
(b) 4,500,000 multiplied by the Fair Market Value on the Determination Date.
Section 1.15 - $19.00 Amount
"$19.00 Amount" shall mean, on any day, the amount equal to (i) $19.00
multiplied by the number of Purchased Shares on such date less (ii) the
aggregate amount of cash dividends paid (not including any special fees,
expenses or other consideration payable to Investor, but not to all stockholders
of the Company) on the Purchased Shares between the date of the Initial Closing
and such date.
Section 1.16 - Offer to Purchase
"Offer to Purchase" shall have the meaning given to it in the Stockholders
Agreement.
Section 1.17 - Payment Date
"Payment Date" shall have the meaning given to it in Section 2.2(b).
3
<PAGE>
Section 1.18 - Preliminary Threshold Date
"Preliminary Threshold Date" shall have the meaning given to it in the
Stockholders Agreement.
Section 1.19 - Purchased Shares
"Purchased Shares" shall have the meaning given to it in the Stock
Purchase Agreement.
Section 1.20 - Second Threshold Date
"Second Threshold Date" shall have the meaning given to it in the
Stockholders Agreement.
Section 1.21 - Stockholders Agreement
"Stockholders Agreement" shall mean that certain Stockholders Agreement,
dated the date hereof, by and between Buyer and the Company.
Section 1.22 - Termination Event
"Termination Event" shall mean the occurrence of (i) the completion of an
Offer to Purchase, (ii) the notification by Buyer to the Company that it will
not accept the Offer to Purchase, (iii) a date, on or after September 1, 2003,
but prior to December 31, 2003, on which the amount equal to (A) the Fair Market
Value on such date multiplied by (B) the number of Purchased Shares equals or
exceeds the amount equal to (A) $21.00 multiplied by the number of Purchased
Shares on such date less (B) the aggregate amount of cash dividends paid (not
including any special fees, expenses or other consideration payable to Investor,
but not to all other stockholders of the Company) on the Purchased Shares
between the date of the Initial Closing and the Determination Date, (iv) the
failure to secure Stockholder Approval by August 31, 1998 and (v) the date
immediately following the Payment Date.
Section 1.23 - Total Enterprise Value
"Total Enterprise Value" shall have the meaning given to it in the
Stockholders Agreement.
4
<PAGE>
SECTION 2.
GRANT OF CONTINGENT VALUE RIGHTS
Section 2.1 - Grant of Contingent Value Rights
In consideration of the investment by Buyer in the Company pursuant to the
Stock Purchase Agreement and for other good and valuable consideration, on the
date hereof the Company grants to Buyer, subject to the terms and conditions set
forth in this Agreement, the Contingent Value Rights.
Section 2.2 - Determination and Method of Payment
(a) Subject to the provisions herein, the Contingent Value Rights shall
entitle Buyer to receive payment of an aggregate amount equal to the Make-Whole
Amount.
(b) The Make-Whole Amount shall be paid within ten days after the
Determination Date (the "Payment Date"), at the election of the Company, either
(i) in cash or (ii) in shares of Company Common Stock. In the event the Company
elects to satisfy its payment obligations under this Agreement in shares of
Company Common Stock, the Company shall issue to Buyer such number of shares of
Company Common Stock equal to the Adjustment Number.
SECTION 3
REPRESENTATIONS, WARRANTIES AND COVENANTS
Section 3.1 - Representations and Warranties
The Company represents and warrants to Buyer that:
(a) the Company has full corporate power and authority to issue, sell and
deliver the Contingent Value Rights to Buyer as provided in this Agreement and
the Stock Purchase Agreement and to carry out all the terms and provisions to be
performed by the Company herein and therein;
(b) the Contingent Value Rights have been duly authorized by the Company
for issuance to Buyer pursuant to this Agreement and the Stock Purchase
Agreement; and
(c) the execution and delivery of this Agreement and the Stock Purchase
Agreement by the Company, the issuance of the Contingent Value Rights to Buyer
pursuant to this Agreement and the Stock Purchase Agreement and the performance
of the obligations of the
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<PAGE>
Company under this Agreement and the Stock Purchase Agreement do not: (i)
violate any federal or Maryland statute, rule or regulation applicable to the
Company, (ii) violate the provisions of the Company's Charter or by-laws, (iii)
result in the breach of or a default under this Agreement, the Stock Purchase
Agreement, the Registration Rights Agreement, the Stockholders Agreement or any
other material agreement to which the Company is a party or any court order
which would materially impair the ability of Buyer to receive the benefits of
the Contingent Value Rights or (iv) require any consents, approvals,
authorizations, registrations, declarations or filings by the Company under any
federal or Maryland statute, rule or regulation applicable to the Company which
would materially impair the ability of Buyer to receive the benefits of the
Contingent Value Rights.
Section 3.2 - Covenants
The Company covenants and agrees with Buyer that, from the date hereof
until the occurrence of a Termination Event, it will not enter into any
indenture, mortgage, deed of trust, sale/leaseback agreement, loan agreement or
other similar financing agreement or instrument or other agreement or instrument
by which the Company, any of its Subsidiaries or any of the property or assets
of the Company or any of its Subsidiaries would be bound that would materially
impair the ability of the Company to fulfill its obligations under this
Agreement.
SECTION 4
TERMINATION
Section 4.1 - Termination
Following a Termination Event, all Contingent Value Rights and this
Agreement shall terminate.
SECTION 5
APPROVAL RIGHTS
Section 5.1 - Approval Rights
From and after the Stockholder Approval Date until the Approval Rights
Termination Date, in the event a Board Member Default occurs, the Company shall
not, and shall not permit any of its Subsidiaries, without the written consent
of Buyer (or any transferee of Buyer that succeeds Buyer in its rights and
obligations under the Stockholders Agreement), to:
6
<PAGE>
(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 Company'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 Company Stock or options, rights or warrants or other
commitments to purchase or securities convertible into (or exchangeable or
redeemable for) shares of Company Stock, including, without limitation, OP Units
(such options, rights, warrants, other commitments or securities, "Company Stock
Equivalents"); provided, however, that Buyer's consent shall not be required for
any issuance of Company Stock or Company Stock Equivalents as long as the sum of
(i) all shares of Company Stock issued by the Company during the applicable
fiscal year and (ii) shares of Company Stock into which Company Stock
Equivalents issued by the Company and each of its Subsidiaries during the
applicable fiscal year are convertible, does not exceed fifty percent (50%) of
all shares of Company 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 Company of Company Stock or issuance by the Company or any of its
Subsidiaries of any Company Stock Equivalents, Investor shall be entitled, to
the extent so provided in Section 4.1 of the Stockholders Agreement, to a
participation right on the terms set forth in Section 4.1 of the Stockholders
Agreement. Notwithstanding the first sentence of this Section 5.1(e), (i)
Company Stock issued to the Company or a wholly owned Subsidiary thereof and
(ii) Company Stock and Company Stock Equivalents issued to directors or
employees of the Company or a Subsidiary of the Company in connection with any
employee benefit plan approved by the shareholders of the Company, shall not be
subject to the consent of Buyer;
7
<PAGE>
(f) change or amend any provision of the Company Charter or the by-laws of
the Company 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 Company, (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 Company to terminate the Stock Purchase
Agreement pursuant to 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 Buyer,
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.
SECTION 6
MISCELLANEOUS
Section 6.1 - Date of Effectiveness
This Agreement shall be effective upon the date of the Initial Closing.
Section 6.2 - Notices
All notices and other communications hereunder shall be sufficiently given
for all purposes hereunder if in writing and delivered personally, sent by
documented overnight delivery service or, to the extent receipt is confirmed,
telecopy, telefax or other electronic transmission service to the appropriate
address or number as set forth below. Notices to the Company shall be addressed
to:
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<PAGE>
FAC Realty Trust, Inc.
11000 Regency Parkway, 3rd fl.
East Tower
Cary, NC 27511
Attention: C. Cammack Morton
Telecopy: (919) 462-8799
with a copy to:
Alston & Bird LLP
310 UCS Plaza
3605 Glenwood Ave.
P.O. Drawer 31107
Raleigh, North Carolina 27622-1107
Attention: Brad S. Markoff, Esq.
Telecopy: (919) 881-3175
or at such other address and to the attention of such other person as the
Company may designate by written notice to Investor. Notices to Buyer or
Investor shall be addressed to:
Lazard Freres Real Estate Investors, LLC
30 Rockefeller Plaza, 63rd Floor
New York, NY 10020
Attention: Murry Gunty
Telecopy: (212) 632-6060
with a copy to:
Latham & Watkins
885 Third Ave, Suite 10000
New York, NY 10022
Attention: R. Ronald Hopkinson, Esq.
Telecopy: (212) 751-4864
Section 6.3 - Severability
Any provision hereof which is invalid or unenforceable shall be
ineffective to the extent of such invalidity or unenforceability, without
affecting in any way the remaining provisions hereof.
9
<PAGE>
Section 6.4 - Amendments and Waivers
This Agreement may not be modified or amended except by an instrument or
instruments in writing signed by the party against whom enforcement of any such
modification or amendment is sought. Any party hereto may, only by an instrument
in writing, waive compliance by another party hereto with any term or provision
hereof on the part of such other party hereto to be performed or complied with.
The waiver by any party hereto of a breach of any term or provision hereof shall
not be construed as a waiver of any subsequent breach.
Section 6.5 - Counterparts
This Agreement may be executed in one or more counterparts, all of which
shall be considered one and the same agreement, and shall become effective when
one or more counterparts have been signed by each of the parties and delivered
to the other party. Copies of executed counterparts transmitted by telecopy,
telefax or other electronic transmission service shall be considered original
executed counterparts for purposes of this Section, provided receipt of copies
of such counterparts is confirmed.
Section 6.6 - Assignment
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors. The Company shall not be
permitted to assign any of its rights hereunder to any third party without the
prior written consent of Buyer. Buyer may, upon written notice to the Company,
assign all, or a portion, of its rights hereunder to any third party without the
prior consent of the Company.
Section 6.7 - Headings
The Section and other headings contained in this Agreement are inserted
for convenience of reference only and will not affect the meaning or
interpretation of this Agreement. All references to Sections contained herein
mean Sections of this Agreement unless otherwise stated.
Section 6.8 - Governing Law
THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF NEW YORK WITHOUT REFERENCE TO THE CHOICE OF LAW PRINCIPLES
THEREOF.
Section 6.9 - Entire Agreement
This Agreement (including agreements incorporated herein) contain the
entire agreement between the parties with respect to the subject matter hereof
and there are no agreements,
10
<PAGE>
understandings, representations or warranties between the parties other than
those set forth or referred to herein. This Agreement is not intended to confer
upon any person not a party hereto (and their successors and assigns) any rights
or remedies hereunder.
Section 6.10 - Expenses
All legal and other costs and expenses incurred in connection with this
Agreement and the transactions contemplated hereby shall be paid as set forth in
the Stock Purchase Agreement. Without limiting the foregoing, the Company shall
pay all costs and expenses incurred in connection with the solicitation of votes
of shareholders of the Company to approve the transactions contemplated by the
Stock Purchase Agreement.
Section 6.11 - Interpretation; Absence of Presumption
(a) For the purposes hereof, (i) words in the singular shall be held to
include the plural and vice versa and words of one gender shall be held to
include the other gender as the context requires, (ii) the terms "hereof",
"herein", and "herewith" and words of similar import shall, unless otherwise
stated, be construed to refer to this Agreement as a whole and not to any
particular provision of this Agreement, (iii) the word "including" and words of
similar import when used in this Agreement shall mean "including, without
limitation," unless the context otherwise requires or unless otherwise
specified, (iv) the word "or" shall not be exclusive, and (v) provisions shall
apply, when appropriate, to successive events and transactions.
(b) This Agreement shall be construed without regard to any presumption or
rule requiring construction or interpretation against the party drafting or
causing any instrument to be drafted.
[signature page follows]
11
EXHIBIT 2
------------------------------------------------
REGISTRATION RIGHTS AGREEMENT
by and between
FAC REALTY TRUST, INC.
and
PROMETHEUS SOUTHEAST RETAIL LLC
dated as of
February 24, 1998
------------------------------------------------
<PAGE>
REGISTRATION RIGHTS AGREEMENT (the "Agreement"), dated as of
February 24, 1998, by and between FAC Realty Trust, Inc., a Maryland corporation
(the "Company") and Prometheus Southeast Retail LLC ("Buyer"), an affiliate of
Lazard Freres Real Estate Investors, LLC ("LFREI"). Capitalized terms not
otherwise defined herein have the meaning ascribed to them in the Stock Purchase
Agreement (as herein after defined).
WHEREAS, the Company and Buyer have entered into a Stock Purchase
Agreement, dated as of the date hereof (the "Stock Purchase Agreement"), that
provides for the purchase by Buyer and sale by the Company to Buyer of shares of
Company Common Stock and Contingent Value Rights; and
WHEREAS, in order to induce Buyer to enter into the Stock Purchase
Agreement, the Company has agreed to provide the registration rights set forth
herein;
NOW, THEREFORE, in consideration of the premises and the covenants
and agreements contained herein, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, and intending to
be legally bound hereby, the parties hereto hereby agree as follows:
Section 1. Definitions. As used herein, the following terms shall
have the following meanings:
(a) "Agreement" shall have the meaning set forth in the first
paragraph hereof.
(b) "Buyer" shall mean Buyer, and shall also include any Affiliate
of LFREI, a majority or more of the voting power and of the economic
interests of which is Beneficially Owned by LFREI.
(c) "Commencement Date" shall mean the date of the Initial Closing.
(d) "Commission" shall mean the Securities and Exchange Commission,
and any successor thereto.
(e) "Company" shall have the meaning set forth in the first
paragraph hereof.
(f) "Company Registration Expenses" shall mean the fees and
disbursements of counsel and independent public accountants for the
Company incurred in connection with the Company's performance of or
compliance with this Agreement, including the expenses of any special
audits or "cold comfort" letters required by or incident to such
performance and compliance, and any premiums and other costs of policies
of insurance obtained by the Company against liabilities arising out of
the sale of any securities.
(g) "Contingent Value Right Agreement" means that certain Contingent
Value Right Agreement, dated as of the date hereof, between the Company
and Buyer.
(h) "Demand Registration" shall have the meaning set forth in
Section 2(a).
<PAGE>
(i) "Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended, and any successor thereto, and the rules and regulations
thereunder.
(j) "NASD" shall mean the National Association of Securities
Dealers, Inc.
(k) "Registrable Securities" shall mean (i) any and all shares of
Company Common Stock acquired by Buyer pursuant to the Stock Purchase
Agreement, (ii) any and all securities acquired by Buyer pursuant to
Section 4.2 of the Stockholders Agreement, (iii) any and all shares of
Company Common Stock issued, if any, by the Company pursuant to its
payment obligations under the Contingent Value Right Agreement, and (iv)
any securities issued or issuable with respect to any Company Common Stock
or other securities referred to in clause (i), (ii) or (iii) by way of
conversion, exchange, stock dividend or stock split or in connection with
a combination of shares, recapitalization, merger, consolidation or other
reorganization or otherwise. As to any particular Registrable Securities,
once issued such securities shall cease to be Registrable Securities when
(A) a registration statement with respect to the sale of such securities
shall have become effective under the Securities Act and such securities
shall have been disposed of in accordance with such registration
statement, (B) such securities shall have been sold in accordance with
Rule 144 (or any successor provision) under the Securities Act or (C) such
securities are eligible to be resold pursuant to Rule 144(k).
(l) "Registration Expenses" shall mean all registration, filing and
stock exchange or NASD fees, all fees and expenses of complying with
securities or blue sky laws, all printing expenses, messenger and delivery
expenses, any fees and disbursements of any separate counsel retained by
Buyer, and transfer taxes, if any, and any premiums and other costs of
policies of insurance obtained by Buyer against liabilities arising out of
the public offering of securities, including Company Registration
expenses, but specifically excludes any fees and disbursements of
underwriters customarily paid by sellers of securities who are not the
issuers of such securities and all underwriting discounts and commissions.
(m) "Registration Suspension Period" shall have the meaning set
forth in Section 2(b).
(n) "Securities Act" shall mean the Securities Act of 1933, as
amended, and any successor thereto, and the rules and regulations
thereunder.
(o) "Stock Purchase Agreement" shall have the meaning set forth in
the second paragraph hereof.
(p) "Suspension Notice" shall have the meaning set forth in Section
2(b).
(q) "Underwritten/Placed Offering" shall mean a sale of securities
of the Company to an underwriter or underwriters for reoffering to the
public or on behalf of a person other than the Company through an agent
for sale to the public.
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<PAGE>
Section 2. Demand Registration
(a) Obligation to File. At any time following the Commencement Date,
promptly upon the written request of Buyer, the Company will use its best
efforts to file with the Commission a registration statement under the
Securities Act for the offering of all of the Registrable Securities which
Buyer requests to be registered (the "Demand Registration"). The Demand
Registration shall be on an appropriate form and the Demand Registration
and any form of prospectus included therein shall reflect such plan of
distribution or method of sale as Buyer notifies the Company, including
the sale of some or all of the Registrable Securities in a public offering
or, if requested by Buyer, subject to receipt by the Company of such
information (including information relating to purchasers) as the Company
reasonably may require, (i) in a transaction constituting an offering
outside the United States which is exempt from the registration
requirements of the Securities Act in which the seller undertakes to
effect registration after the completion of such offering in order to
permit such shares to be freely tradeable in the United States, (ii) in a
transaction constituting a private placement under Section 4(2) of the
Securities Act in connection with which the seller undertakes to effect a
registration after the conclusion of such placement to permit such shares
to be freely tradeable by the purchasers thereof, or (iii) in a
transaction under Rule 144A of the Securities Act in connection with which
the seller undertakes to effect a registration after the conclusion of
such transaction to permit such shares to be freely tradeable by the
purchasers thereof. The Company shall use its best efforts to cause the
Demand Registration to be declared effective by the Commission within 60
days from the date of receipt of the written request, and, upon the
request of Buyer, keep the Demand Registration effective for up to 90
days, unless the distribution of securities registered thereunder has been
earlier completed; provided, however, that if such Demand Registration
will require the Company to prepare or file audited financial statements
with respect to any fiscal year by a date prior to the date on which the
Company would otherwise be required to prepare and file such audited
financial statements, then Buyer must notify the Company at least 30 days
in advance of the date upon which such audited financial statements will
be required to be filed. During the period during which the Demand
Registration is effective, the Company shall supplement or make amendments
to the Demand Registration, if required by the Securities Act or if
reasonably requested by Buyer or an underwriter of Registrable Securities,
including to reflect any specific plan of distribution or method of sale,
and shall use its best efforts to have such supplements and amendments
declared effective, if required, as soon as practicable after filing.
(b) Black-Out Periods of Buyer. Notwithstanding anything herein to
the contrary, (i) the Company shall have the right from time to time to
require Buyer not to sell under the Demand Registration or to suspend the
effectiveness thereof during the period starting with the date 30 days
prior to the Company's good faith estimate, as certified in writing by an
executive officer of the Company to Buyer, of the proposed date of filing
of a registration statement or a preliminary prospectus supplement
relating to an existing shelf registration statement, in either case,
pertaining to an underwritten public offering of equity securities of the
Company for the account of the Company, and ending on the date 75 days
following the effective date of such registration statement or
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<PAGE>
the date of filing of the final prospectus supplement, and (ii) the
Company shall be entitled to require Buyer not to sell under the Demand
Registration or to suspend the effectiveness thereof (but not for a period
exceeding 75 days in any calendar year), if the Company determines, in its
good faith judgment, that such offering or continued effectiveness would
interfere with any material financing, acquisition, disposition, corporate
reorganization or other material transaction involving the Company or any
of its subsidiaries or public disclosure thereof would be required prior
to the time such disclosure might otherwise be required, or when the
Company is in possession of material information that it deems advisable
not to disclose in a registration statement.
Once any registration statement filed pursuant to this Section 2 or
in which Registrable Securities are included pursuant to Section 3 has
been declared effective, any period during which the Company fails to keep
such registration statement effective and usable for resale of Registrable
Securities for the period required by Section 4(b) shall be referred to as
a "Registration Suspension Period." A Registration Suspension Period shall
commence on and include the date that the Company gives written notice to
Buyer of its determination that such registration statement is no longer
effective or usable for resale of Registrable Securities (the "Suspension
Notice") to and including the date when the Company notifies Buyer that
the use of the prospectus included in such registration statement may be
resumed for the disposition of Registrable Securities.
(c) Number of Demand Registrations. The Company shall be obligated
to effect, under this Section 2, only four Demand Registrations (no more
than two of which may be requested in any two-year period). A Demand
Registration shall not be deemed to have been effected, nor shall it be
sufficient to reduce the number of Demand Registrations available to Buyer
under this Section 2, if such registration cannot be used by Buyer for
more than 60 days as a result of any stop order, injunction or other order
of the Commission or other Government Authority for any reason other than
an act or omission of Buyer and all the Registerable Securities registered
thereunder are not sold.
(d) Size of Demand Registration. The Company shall not be required
to effect a Demand Registration of less than a fair market value, based on
the closing market price on the trading day immediately prior to the date
of notice (as reported in the Wall Street Journal), of $10,000,000, except
that if the fair market value, based on the closing market price on the
trading day immediately prior to the date of notice (as reported in the
Wall Street Journal), of the Registrable Securities outstanding is less
than $10,000,000, then the Company shall be required to effect a Demand
Registration of all of the remaining Registrable Securities outstanding.
(e) Notice. The Company shall give Buyer prompt notice in the event
that the Company has suspended sales of Registrable Securities under
Section 2(b).
(f) Expenses. All Registration Expenses incurred in connection with
the Demand Registrations which may be requested under this Section 2 shall
be borne by the Company, with Buyer only paying underwriting fees and
discounts.
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<PAGE>
(g) Selection of Underwriters. Any and all underwriters or other
agents involved in any sale of Registrable Securities pursuant to a
registration statement contemplated by this Section 2 shall include such
underwriter(s) or other agent(s) as selected by Buyer and approved of by
the Company, which approval shall not be unreasonably withheld; provided
that any Affiliate of Buyer shall in all events be approved by the
Company.
Section 3. Incidental Registrations
(a) Notification and Inclusion. If the Company proposes to register
any of its common equity securities under the Securities Act (other than a
registration relating solely to the sale of securities to participants in
a dividend reinvestment plan, a registration on Form S-4 relating to a
business combination or similar transaction permitted to be registered on
such Form S-4, a registration on Form S-8 relating solely to the sale of
securities to participants in a stock or employee benefit plan, a
registration permitted under Rule 462 under the Securities Act registering
additional securities of the same class as were included in an earlier
registration statement for the same offering, and declared effective, or a
shelf registration statement under the Securities Act covering common
equity securities with an aggregate offering price of less than $50.0
million), whether or not for sale for its own account, the Company shall,
at each such time after the Commencement Date until Buyer no longer holds
Registerable Securities, promptly give written notice of such registration
to Buyer. Upon the written request of Buyer given within 10 days after
receipt of such notice by Buyer, the Company shall seek to include in such
proposed registration such Registrable Securities as Buyer shall request
be so included and shall use its reasonable best efforts to cause a
registration statement covering all of the Registrable Securities that
Buyer has requested to be registered to become effective under the
Securities Act. The Company shall be under no obligation to complete any
offering of securities it proposes to make under this Section 3 and shall
incur no liability to Buyer for its failure to do so. If, at any time
after giving written notice of its intention to register any securities
and prior to the effective date of the registration statement filed in
connection with such registration, the Company shall determine for any
reason not to register or to delay registration of such securities, the
Company may, at its election, give written notice of such determination to
Buyer and, thereupon, (i) in the case of a determination not to register,
the Company shall be relieved of its obligation to register any
Registrable Securities in connection with such registration (but not from
its obligation to pay the Registration Expenses incurred in connection
therewith) and (ii) in the case of a determination to delay registering,
the Company shall be permitted to delay registering any Registrable
Securities for the same period as the delay in registering such other
securities.
(b) Cut-back Provisions. If a registration pursuant to this Section
3 involves an Underwritten/Placed Offering of the securities so being
registered, whether or not solely for sale for the account of the Company,
which securities are to be distributed by or through one or more
underwriters of recognized standing under underwriting terms customary for
such transaction, and the underwriter or the managing underwriter, as the
case may be, of such Underwritten/Placed Offering shall inform the Company
of its
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<PAGE>
belief that the amount of securities requested to be included in such
registration or offering exceeds the amount which can be sold in (or
during the time of) such offering without delaying or jeopardizing the
success of the offering (including the price per share of the securities
to be sold), then the Company will include in such registration (i) first,
all the securities of the Company which the Company proposes to sell for
its own account or the account of others (other than Buyer) requesting
inclusion in such registration pursuant to rights to registration on
request, and (ii) second, to the extent of the amount which the Company is
so advised can be sold in (or during the time of) such offering,
Registrable Securities and other securities requested to be included in
such registration, pro rata among Buyer and others exercising incidental
registration rights, on the basis of the shares of Company Common Stock
owned by all such persons.
(c) Expenses. The Company shall bear and pay all Company
Registration Expenses incurred in connection with any registration of
Registrable Securities pursuant to this Section 3 for Buyer, and all
Registration Expenses incurred in connection with any registration of any
securities for the Company's own account referred to in the first sentence
of Section 3(a), and Buyer shall bear and pay all underwriting fees and
discounts incurred in connection with any registration of Registrable
Securities pursuant to this Section 3 for Buyer.
(d) Duration of Effectiveness. At the request of Buyer, the Company
shall, subject to Section 2(b), use its reasonable best efforts to keep
any registration statement for which Registrable Securities are included
under this Section 3 effective and usable for up to 90 days (subject to
extension for the length of any Registration Suspension Period), unless
the distribution of securities registered thereunder has been earlier
completed; provided, however, that in no event will the Company be
required to prepare or file audited financial statements with respect to
any fiscal year by a date prior to the date on which the Company would be
so required to prepare and file such audited financial statements if such
registration statement were no longer effective and usable.
Section 4. Registration Procedures. In connection with the filing of
any registration statement as provided in Section 2 or 3, the Company shall use
its reasonable best efforts to, as expeditiously as reasonably practicable:
(a) prepare and file with the Commission the requisite registration
statement (including a prospectus therein) to effect such registration and
use its reasonable best efforts to cause such registration statement to
become effective, provided that before filing such registration statement
or any amendments or supplements thereto, the Company will furnish to the
counsel selected by Buyer copies of all such documents proposed to be
filed, which documents will be subject to the review of such counsel
before any such filing is made, and the Company will comply with any
reasonable request made by such counsel to make changes in any information
contained in such documents relating to Buyer;
(b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be
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<PAGE>
necessary to maintain the effectiveness of such registration and to comply
with the provisions of the Securities Act with respect to the disposition
of all securities covered by such registration statement until the earlier
of such time as all of such securities have been disposed of and the date
which is 90 days after the date of initial effectiveness of such
registration statement;
(c) furnish to Buyer such number of conformed copies of such
registration statement and of each such amendment and supplement thereto
(in each case including all exhibits), such number of copies of the
prospectus contained in such registration statements (including each
complete prospectus and any summary prospectus) and any other prospectus
filed under Rule 424 under the Securities Act, in conformity with the
requirements of the Securities Act, and such other documents, including
documents incorporated by reference, as Buyer may reasonably request;
(d) register or qualify all Registrable Securities under such other
securities or blue sky laws of such jurisdictions as Buyer shall
reasonably request, to keep such registration or qualification in effect
for so long as such registration statement remains in effect, and take any
other action which may be reasonably necessary or advisable to enable
Buyer to consummate the disposition in such jurisdictions of the
securities owned by Buyer, except that the Company shall not for any such
purpose be required to qualify generally to do business as a foreign
corporation in any jurisdiction wherein it would not but for the
requirements of this paragraph be obligated to be so qualified, or to
consent to general service of process in any such jurisdiction, or to
subject the Company to any material tax in any such jurisdiction where it
is not then so subject;
(e) cause all Registrable Securities covered by such registration
statement to be registered with or approved by such other Government
Authority as may be reasonably necessary to enable Buyer to consummate the
disposition of such Registrable Securities;
(f) furnish to Buyer a signed counterpart, addressed to Buyer (and
the underwriters, if any), of
(i) an opinion of counsel for the Company, dated the effective
date of such registration statement (and, if such registration
includes an underwritten public offering, dated the date of the
closing under the underwriting agreement), reasonably satisfactory
in form and substance to Buyer, and
(ii) to the extent permitted by then applicable rules of
professional conduct, a "comfort" letter, dated the effective date
of such registration statement (and, if such registration includes
an underwritten public offering, dated the date of the closing under
the underwriting agreement), signed by the independent public
accountants who have certified the Company's financial statements
included in such registration statement, covering substantially the
same matters with respect to such registration statement (and the
prospectus included therein) and, in the case of the accountants'
letter, with respect to events subsequent to the
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<PAGE>
date of such financial statements, all as are customarily covered in
opinions of issuer's counsel and in accountants' letters delivered
to the underwriters in underwritten public offerings of securities;
(g) immediately notify Buyer at any time when the Company becomes
aware that a prospectus relating thereto is required to be delivered under
the Securities Act, of the happening of any event as a result of which the
prospectus included in such registration statement, as then in effect,
includes an untrue statement of a material fact or omits to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances under
which they were made, and at the request of Buyer promptly prepare and
furnish to Buyer a reasonable number of copies of a supplement to or an
amendment of such prospectus as may be necessary so that, as thereafter
delivered to the purchasers of such securities, such prospectus shall not
include an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances under which they
were made;
(h) comply or continue to comply in all material respects with the
Securities Act and the Exchange Act and with all applicable rules and
regulations of the Commission, and make available to its security holders,
as soon as reasonably practicable, an earnings statement covering the
period of at least 12 months, but not more than 18 months, beginning with
the first full calendar month after the effective date of such
registration statement, which earnings statement shall satisfy the
provisions of Section 11(a) of the Securities Act, and not file any
amendment or supplement to such registration statement or prospectus to
which Buyer shall have reasonably objected on the grounds that such
amendment or supplement does not comply in all material respects with the
requirements of the Securities Act, having been furnished with a copy
thereof at least five Business Days prior to the filing thereof;
(i) provide a transfer agent and registrar for all Registrable
Securities covered by such registration statement not later than the
effective date of such registration statement; and
(j) list all Company Common Stock covered by such registration
statement on any securities exchange on which any of the Company Common
Stock is then listed.
Buyer shall furnish in writing to the Company such information regarding Buyer
(and any of its affiliates), the Registrable Securities to be sold, the intended
method of distribution of such Registrable Securities, and such other
information requested by the Company as is necessary for inclusion in the
registration statement relating to such offering pursuant to the Securities Act
and the rules of the Commission thereunder. Such writing shall expressly state
that it is being furnished to the Company for use in the preparation of a
registration statement, preliminary prospectus, supplementary prospectus, final
prospectus or amendment or supplement thereto, as the case may be.
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<PAGE>
Buyer agrees by acquisition of the Registrable Securities that upon
receipt of any notice from the Company of the happening of any event of the kind
described in paragraph (g) of this Section 4, Buyer will forthwith discontinue
its disposition of Registrable Securities pursuant to the registration statement
relating to such Registrable Securities until Buyer's receipt of the copies of
the supplemented or amended prospectus contemplated by paragraph (g) of this
Section 4.
Section 5. Requested Underwritten Offerings. If requested by the
underwriters for any underwritten offerings by Buyer, under a registration
requested pursuant to Section 2(a), the Company will enter into a customary
underwriting agreement with such underwriters for such offering, to contain such
representations and warranties by the Company and such other terms as are
customarily contained in agreements of this type, including indemnities to the
effect and to the extent provided in Section 7. Buyer shall be a party to such
underwriting agreement and may, at its option, require that any or all of the
conditions precedent to the obligations of such underwriters under such
underwriting agreement be conditions precedent to the obligations of Buyer.
Buyer shall not be required to make any representations or warranties to or
agreement with the Company or the underwriters other than representations,
warranties or agreements regarding Buyer and Buyer's intended method of
distribution and any other representation or warranty required by law.
Section 6. Preparation; Reasonable Investigation. In connection with
the preparation and filing of the registration statement under the Securities
Act, the Company will give Buyer, its underwriters, if any, and their respective
counsel, the opportunity to participate in the preparation of such registration
statement, each prospectus included therein or filed with the Commission, and
each amendment thereof or supplement thereto, and will give each of them such
access to its books and records and such opportunities to discuss the business
of the Company with its officers, its counsel and the independent public
accountants who have certified its financial statements as shall be necessary,
in the opinion of Buyer's and such underwriters' respective counsel, to conduct
a reasonable investigation within the meaning of the Securities Act.
Section 7. Indemnification
(a) Indemnification by the Company. In the event of any registration
of any Registrable Securities of the Company under the Securities Act, the
Company will, and hereby does, indemnify and hold harmless (i) Buyer and
each other person who participates as an underwriter in the offering or
sale of such securities, (ii) each person, if any, who controls (within
the meaning of Section 15 of the Securities Act or Section 20 of the
Exchange Act) Buyer or any another person referenced in clause (i) above
(any of the persons referred to in this clause (ii) being hereinafter
referred to as a "controlling person") and (iii) the respective officers,
directors, partners, employees, representatives and agents of Buyer or any
controlling person (any person referred to in clause (i), (ii) or (iii)
may hereinafter be referred to as a "Buyer Indemnitee"), against any
losses, claims, damages or liabilities, joint or several, to which any
Buyer Indemnitee may become subject under the Securities Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions or
proceedings, whether commenced or threatened, in
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<PAGE>
respect thereof) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the
registration statement under which such Registrable Securities were
registered under the Securities Act, any preliminary prospectus, final
prospectus or summary prospectus contained therein, or any amendment or
supplement thereto, or any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading, and the Company will reimburse such Buyer Indemnitee
for any reasonable legal or any other expenses reasonably incurred by them
in connection with investigating or defending any such loss, claim,
liability, action or proceedings; provided, however, that the Company
shall not be liable in any such case to the extent that any such loss,
claim, damage, liability (or action or proceeding in respect thereof) or
expense arises out of or is based upon an untrue statement or alleged
untrue statement or omission or alleged omission made in such registration
statement, any such preliminary prospectus, final prospectus, summary
prospectus, amendment or supplement in reliance upon and in conformity
with written information furnished to the Company by a Buyer Indemnitee
specifically stating that it is for use in the preparation thereof; and
provided, further, that the Company shall not be liable to any person who
participates as an underwriter in the offering or sale of Registrable
Securities or any other person, if any, who controls such underwriter
within the meaning of the Securities Act in any such case to the extent
that any such loss, claim, damage, liability (or action or proceeding in
respect thereof) or expense arises out of such person's failure to send or
give a copy of the final prospectus or supplement to the persons asserting
an untrue statement or alleged untrue statement or omission or alleged
omission at or prior to the written confirmation of the sale of
Registrable Securities to such person if such statement or omission was
corrected in such final prospectus or supplement. Such indemnity shall
remain in full force and effect regardless of any investigation made by or
on behalf of any Buyer Indemnitee and shall survive the transfer of such
securities by Buyer.
(b) Indemnification by Buyer. The Buyer will, and hereby does,
indemnify and hold harmless (in the same manner and to the same extent as
set forth in paragraph (a) of this Section 7) the Company, each director
of the Company, each officer of the Company and each other person, if any,
who controls the Company within the meaning of the Securities Act, and
each other person who participates as an underwriter in the offering or
sale of such securities and each other person who controls any such
underwriter within the meaning of the Securities Act, with respect to any
untrue statement or alleged untrue statement of a material fact in or
omission or alleged omission to state a material fact from such
registration statement, any preliminary prospectus, final prospectus or
summary prospectus contained therein, or any amendment or supplement
thereto, if such untrue statement or alleged untrue statement or omission
or alleged omission was made in reliance upon and in conformity with
written information furnished to the Company by Buyer specifically stating
that it is for use in the preparation of such registration statement,
preliminary prospectus, final prospectus, summary prospectus, amendment or
supplement. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of the Company or
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<PAGE>
any such director, officer, or controlling person and shall survive the
transfer of such securities by Buyer.
(c) Notices of Claims, etc. Promptly after receipt by an indemnified
party of notice of the commencement of any action or proceeding involving
a claim referred to in the preceding paragraphs of this Section 7, such
indemnified party will, if a claim in respect thereof is to be made
against an indemnifying party, give written notice to the latter of the
commencement of such action; provided, however, that the failure of any
indemnified party to give notice as provided herein shall not relieve the
indemnifying party of its obligations under the preceding paragraphs of
this Section 7, except to the extent that the indemnifying party is
actually prejudiced by such failure to give notice. In case any such
action is brought against an indemnified party, unless in such indemnified
party's reasonable judgment a conflict of interest between such
indemnified and indemnifying parties may exist in respect of such claim,
the indemnifying party shall be entitled to participate in and to assume
the defense thereof, jointly with any other indemnifying party similarly
notified to the extent that it may wish, with counsel reasonably
satisfactory to such indemnified party, and after notice from the
indemnifying party to such indemnified party of its election so to assume
the defense thereof, the indemnifying party shall not be liable to the
indemnified party for any legal or other expenses subsequently incurred by
the latter in connection with the defense thereof other than reasonable
costs of investigation.
(d) Other Indemnification. Indemnification similar to that specified
in the preceding paragraphs of this Section 7 (with appropriate
modifications) shall be given by the Company and Buyer with respect to any
required registration or other qualification of securities under any
federal or state law or regulation of Governmental Authority other than
the Securities Act.
(e) Indemnification Payments. The indemnification required by this
Section 7 shall be made by periodic payments of the amount thereof during
the course of the investigation or defense, as and when bills are received
or expense, loss, damage or liability is incurred.
(f) Contribution. If, for any reason, the foregoing indemnity is
unavailable, or is insufficient to hold harmless an indemnified party,
then the indemnifying party shall contribute to the amount paid or payable
by the indemnified party as a result of the expense, loss, damage or
liability, (i) in such proportion as is appropriate to reflect the
relative fault of the indemnifying party on the one hand and the
indemnified party on the other (determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact
or omission relates to information supplied by the indemnifying party or
the indemnified party and the parties' relative intent, knowledge, access
to information and opportunity to correct or prevent such untrue statement
or omission), or (ii) if the allocation provided by clause (i) above is
not permitted by applicable law or provides a lesser sum to the
indemnified party than the amount hereinafter calculated, in the
proportion as is appropriate to reflect not only the relative fault of the
indemnifying party and the indemnified party, but also the relative
benefits
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received by the indemnifying party on the one hand and the indemnified
party on the other, as well as any other relevant equitable
considerations. No indemnified party guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities
Act) shall be entitled to contribution from any indemnifying party who was
not guilty of such fraudulent misrepresentation.
Section 8. Covenants Relating to Rule 144. The Company will file in
a timely manner (taking into account any extensions granted by the Commission),
information, documents and reports in compliance with the Exchange Act and will,
at its expense, forthwith upon the request of Buyer, deliver to Buyer a
certificate, signed by the Company's principal financial officer, stating (a)
the Company's name, address and telephone number (including area code), (b) the
Company's Internal Revenue Service identification number, (c) the Company's
Commission file number, (d) the number of shares of Company Common Stock and the
number of shares of Company Preferred Stock outstanding as shown by the most
recent report or statement published by the Company, and (e) whether the Company
has filed the reports required to be filed under the Exchange Act for a period
of at least 90 days prior to the date of such certificate and in addition has
filed the most recent annual report required to be filed thereunder. If at any
time the Company is not required to file reports in compliance with either
Section 13 or Section 15(d) of the Exchange Act, the Company will, at its
expense, forthwith upon the written request of Buyer, make available adequate
current public information with respect to the Company within the meaning of
paragraph (c)(2) of Rule 144 of the General Rules and Regulations promulgated
under the Securities Act.
Section 9. Miscellaneous
(a) Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement,
and shall become effective when one or more counterparts have been signed
by each of the parties and delivered to the other party. Copies of
executed counterparts transmitted by telecopy, telefax or other electronic
transmission service shall be considered original executed counterparts
for purposes of this Section 9(a), provided receipt of copies of such
counterparts is confirmed.
(b) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REFERENCE TO
THE CHOICE OF LAW PRINCIPLES THEREOF.
(c) Entire Agreement. This Agreement (including agreements
incorporated herein) contains the entire agreement between the parties
with respect to the subject matter hereof and there are no agreements or
understandings between the parties other than those set forth or referred
to herein. This Agreement is not intended to confer upon any person not a
party hereto (and their successors and assigns) any rights or remedies
hereunder.
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(d) Notices. All notices and other communications hereunder shall be
sufficiently given for all purposes hereunder if in writing and delivered
personally, sent by documented overnight delivery service or, to the
extent receipt is confirmed, telecopy, telefax or other electronic
transmission service to the appropriate address or number as set forth
below. Notices to the Company shall be addressed to:
FAC Realty Trust, Inc.
11000 Regency Parkway, 3rd Fl.
East Tower
Cary, NC 27511
Attention: C. Cammack Morton
Telecopy: (919) 462-8799
with a copy to:
Alston & Bird LLP
310 UCS Plaza
3605 Glenwood Ave.
P.O. Drawer 31107
Raleigh, North Carolina 27622-1107
Attention: Brad S. Markoff, Esq.
Telecopy: (919) 881-3175
or at such other address and to the attention of such other person as the
Company may designate by written notice to Buyer. Notices to Buyer shall be
addressed to:
Lazard Freres Real Estate Investors, LLC
30 Rockefeller Plaza, 63rd Floor
New York, NY 10020
Attention: Murry Gunty
Telecopy: (212) 632-6060
with a copy to:
Latham & Watkins
885 Third Avenue, Suite 1000
New York, NY 10022
Attention: R. Ronald Hopkinson, Esq.
Telecopy: (212) 751-4864
(e) Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective
successors. Neither party shall be permitted to assign any of its rights
hereunder to any third party, except that if Buyer transfers any or all
Registrable Securities to another person, such transferee shall be
considered an intended beneficiary hereof and may exercise all rights of
Buyer hereunder (provided that any transferee that holds less than 50% of
all outstanding Registrable
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Securities shall not be entitled to request a Demand Registration pursuant
to Section 2 hereof).
(f) Headings. The Section and other headings contained in this
Agreement are inserted for convenience of reference only and will not
affect the meaning or interpretation of this Agreement. All references to
Sections or other headings contained herein mean Sections or other
headings of this Agreement unless otherwise stated.
(g) Amendments and Waivers. This Agreement may not be modified or
amended except by an instrument or instruments in writing signed by the
party against whom enforcement of any such modification or amendment is
sought. Either party hereto may, only by an instrument in writing, waive
compliance by the other party hereto with any term or provision hereof on
the part of such other party hereto to be performed or complied with. The
waiver by any party hereto of a breach of any term or provision hereof
shall not be construed as a waiver of any subsequent breach.
(h) Interpretation; Absence of Presumption. For the purposes hereof,
(i) words in the singular shall be held to include the plural and vice
versa and words of one gender shall be held to include the other gender as
the context requires, (ii) the terms "hereof", "herein", and "herewith"
and words of similar import shall, unless otherwise stated, be construed
to refer to this Agreement as a whole and not to any particular provision
of this Agreement, and Section, paragraph or other references are to the
Sections, paragraphs, or other references to this Agreement unless
otherwise specified, (iii) the word "including" and words of similar
import when used in this Agreement shall mean "including, without
limitation," unless the context otherwise requires or unless otherwise
specified, (iv) the word "or" shall not be exclusive, and (v) provisions
shall apply, when appropriate, to successive events and transactions.
This Agreement shall be construed without regard to any presumption
or rule requiring construction or interpretation against the party
drafting or causing any instrument to be drafted.
(i) Severability. Any provision hereof which is invalid or
unenforceable shall be ineffective to the extent of such invalidity or
unenforceability, without affecting in any way the remaining provisions
hereof.
[Signature Page Follows]
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IN WITNESS WHEREOF, this Agreement has been executed and delivered by the
parties hereto.
PROMETHEUS SOUTHEAST RETAIL LLC
By: LF Strategic Realty Investor II, L.P.,
its sole member
By: Lazard Freres Real Estate Investors, LLC,
its general partner
By: /s/ Murry N. Gunty
________________________
Name: Murry N. Gunty
Title: Principal
FAC REALTY TRUST, INC.
By: /s/ C. Cammack Morton
------------------------------
Name: C. Cammack Morton
Title: Chief Executive Officer, President
<PAGE>
EXHIBIT 3
------------------------------------------------
STOCKHOLDERS AGREEMENT
by and between
PROMETHEUS SOUTHEAST RETAIL LLC
and
FAC REALTY TRUST, INC.
dated as of
February 24, 1998
------------------------------------------------
<PAGE>
THIS STOCKHOLDERS AGREEMENT (this "Agreement"), dated as of February
24, 1998 is made by and between Prometheus Southeast Retail LLC ("Buyer"), an
affiliate of Lazard Freres Real Estate Investors, LLC ("LFREI"), and FAC Realty
Trust, Inc., a Maryland corporation (the "Company"). Capitalized terms not
otherwise defined herein have the meaning ascribed to them in the Stock Purchase
Agreement (as hereinafter defined).
RECITALS:
WHEREAS, the Company and Buyer have entered into a Stock Purchase
Agreement, dated as of the date hereof (the "Stock Purchase Agreement"),
pursuant to which the Company has agreed to sell, and Buyer has agreed to
purchase, certain shares of common stock, par value $0.01 per share, of the
Company (the "Company Common Stock"), together with Contingent Value Rights,
upon the terms and subject to the conditions set forth therein;
WHEREAS, it is a condition to the transactions contemplated by the
Stock Purchase Agreement and the parties believe it to be in their best
interests that they enter into this Agreement and provide for certain rights and
restrictions with respect to the investment by Investor (as hereinafter defined)
in the Company and the corporate governance of the Company;
WHEREAS, the Company and Buyer believe that the combination in a
strategic partnership of the leadership, expertise and experience in retail
development and operations of the Company and the investment and capital markets
expertise and access to capital of Buyer and its Affiliates will significantly
enhance the Company's ability to pursue its growth and operating strategies; and
NOW, THEREFORE, in consideration of the premises and the covenants
and agreements contained herein and for good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, and intending to be
legally bound hereby, the parties hereto hereby agree as follows:
ARTICLE 1
Definitions
As used in this Agreement, the following terms shall have the
following respective meanings:
Section 1.1 "Affiliate" shall have the meaning ascribed thereto in
Rule 12b-2 promulgated under the 1934 Act, and as in effect on the date hereof.
Section 1.2 "Aggregate Purchase Price" shall mean, on any date, the
amount equal to the aggregate consideration paid by Buyer on and prior to such
date in connection with the purchase of the Purchased Shares pursuant to the
Stock Purchase Agreement.
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Section 1.3 "Agreement" shall have the meaning set forth in the
first paragraph hereof.
Section 1.4 "Approval Rights Termination Date" shall mean the first
date on which the ratio (expressed as a percentage) of (i) the sum of (A) the
remaining Investment of Investor (and any transferee or assignee of Investor or
any group of transferees or assignees) on such date and (B) the remaining
Commitment to Invest of Investor (or any transferee or assignee of Investor or
group of transferees or assignees) on such date to (ii) the sum of (A) the Fair
Market Value of all Company Stock outstanding, as measured on such date, and (B)
the Fair Market Value of all OP Units outstanding, as measured on such date, is
less than 15%.
Section 1.5 "Beneficially Own" shall mean, with respect to any
security, having direct or indirect (including through any Subsidiary or
Affiliate) "beneficial ownership" of such security, as determined pursuant to
Rule 13d-3 under the 1934 Act, including pursuant to any agreement, arrangement
or understanding, whether or not in writing; provided, however, that all of the
shares of Company Common Stock which Buyer has agreed to purchase under the
Stock Purchase Agreement but which have not yet been purchased shall be deemed
to be Beneficially Owned by Investor until the Remaining Equity Ownership is
zero.
Section 1.6 "Board" shall mean the board of directors of the
Company.
Section 1.7 "Buyer" shall have the meaning set forth in the first
paragraph hereof.
Section 1.8 "Code" shall mean the Internal Revenue Code of 1986, as
amended, and any successor thereto, including all of the rules and regulations
promulgated thereunder.
Section 1.9 "Commitment to Invest" shall mean, for any person and on
any date, the product of (A) the number of shares of Company Common Stock such
person is committed to purchase from the Company under the Stock Purchase
Agreement on or after such date and (B) the Fair Market Value of the Company
Common Stock on such date.
Section 1.10 "Company" shall have the meaning set forth in the first
paragraph hereof.
Section 1.11 "Company Charter" shall have the meaning set forth in
the Stock Purchase Agreement.
Section 1.12 "Company Common Stock" shall have the meaning set forth
in the second paragraph hereof.
Section 1.13 "Company Stock" shall mean, collectively, the Company
Common Stock and other shares of capital stock of the Company.
Section 1.14 "Company Stock Equivalents" shall have the meaning set
forth in Section 3.2(e).
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Section 1.15 "Control" shall mean with respect to any person, the
power to direct the management and policies of such person, directly or
indirectly, whether through ownership of voting securities, by contract or
otherwise. "Controlled" shall have a correlative meaning.
Section 1.16 "Declaration Date" shall have the meaning set forth in
Section 3.3(b).
Section 1.17 "Director" shall mean a member of the Board.
Section 1.18 "Eligible Securities" shall have the meaning set forth
in Section 3.3.
Section 1.19 "Executive Committee" shall mean the five-member
executive committee of the Board.
Section 1.20 "Exercise Notice" shall have the meaning set forth in
Section 4.1(c).
Section 1.21 "Fair Market Value" shall mean, with respect to Company
Stock on any day, the average of the last reported sales price for such Company
Stock for 60 consecutive calendar days before such date, and, with respect to OP
Units on any day, the average of the last reported sales price for Company
Common Stock for 60 consecutive calendar days before such date. In the event the
"Fair Market Value" for such Company Stock or OP Units cannot be determined as
aforesaid, the "Fair Market Value" for such Company Stock or OP Units, as
applicable, shall be determined by the Independent Directors of the Company as
they, in good faith, consider appropriate. Such determination may be challenged
in good faith by the Investor, and any dispute shall be resolved at the
Company's cost, by an investment banking firm of recognized national standing
selected by the Company and acceptable to Investor and shall be made in good
faith and be conclusive absent manifest error.
Section 1.22 "15% IRR Amount" shall mean, on any day, an aggregate
dollar amount that allows Buyer to realize a 15% internal rate of return on the
Aggregate Purchase Price paid by Buyer as of such date, on a compounded,
annualized basis (inclusive of all cash dividends paid to Buyer with respect to
the Purchased Shares (not including any special fees, expenses or other
consideration payable to Investor, but not to all other stockholders of the
Company)).
Section 1.23 "Final Threshold Date" shall mean the first date on
which the sum of (A) the remaining Investment of Investor (and any transferee or
assignee of Investor or any group of transferees or assignees) on such date and
(B) the remaining Commitment to Invest of Investor (or any transferee or
assignee of Investor or group of transferees or assignees) on such date, is less
than $10,000,000.00.
Section 1.24 "Fully Diluted" shall mean, with respect to the Company
Stock, the total number of outstanding shares of Company Stock (for such
purposes, treating as outstanding Company Stock all options or warrants to
purchase and securities convertible into
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(or exchangeable or redeemable for) Company Stock, including, without
limitation, OP Units), outstanding as of the relevant measurement date, assuming
exercise, conversion, exchange or redemption of such other securities.
Section 1.25 "Government Authority" shall mean any government or
state (or any subdivision thereof) of or in the United States, or any agency,
authority, bureau, commission, department or similar body or instrumentality
thereof, or any governmental court or tribunal.
Section 1.26 "Group" shall mean a "group" as such term is used in
Section 13(d)(3) of the 1934 Act.
Section 1.27 "Independent Directors" shall have the meaning set
forth in Section 2.1(d).
Section 1.28 "Initial Investor Nominees" shall have the meaning set
forth in Section 2.1(a).
Section 1.29 "Investment" shall mean, for any person and on any
date, the sum of (i) product of (A) the number of shares of Company Stock held
by such person and (B) the Fair Market Value of the Company Stock on such date
and (ii) the product of (A) the number of OP Units held by such person and (B)
the Fair Market Value of the OP Units on such date.
Section 1.30 "Investor" shall mean Buyer, and shall also include any
Affiliate of LFREI, a majority or more of the voting power and economic
interests of which is Beneficially Owned by LFREI, or, for purposes only of the
provisions of the Registration Rights Agreement, any bona fide financial
institution to which any Investor has transferred (including upon foreclosure of
a pledge) shares of Company Stock for the purpose of securing bona fide
indebtedness of any Investor and which has agreed to be bound by this Agreement.
Section 1.31 "Investor Nominees" shall have the meaning set forth in
Section 2.1(a).
Section 1.32 "Key Committees" shall have the meaning set forth in
Section 2.2(a).
Section 1.33 "1933 Act" shall mean the Securities Act of 1933, as
amended.
Section 1.34 "1934 Act" shall mean the Securities Exchange Act of
1934, as amended.
Section 1.35 "Offer Period" shall have the meaning set forth in
Section 3.3(a).
Section 1.36 "Offer Price" shall have the meaning set forth in
Section 3.3.
Section 1.37 "Offer to Purchase" shall have the meaning set forth in
Section 3.3.
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Section 1.38 "Participation Notice" shall have the meaning set forth
in Section 4.1(c).
Section 1.39 "Person" shall mean any individual, corporation,
partnership, limited liability company, joint venture, trust, unincorporated
organization, other form of business or legal entity or Government Authority.
Section 1.40 "Preliminary Threshold Date" shall mean the first date
on which the sum of (A) the remaining Investment of Investor (and any transferee
or assignee of Investor or any group of transferees or assignees) on such date
and (B) the remaining Commitment to Invest of Investor (or any transferee or
assignee of Investor or group of transferees or assignees) on such date, is less
than $50,000,000.00.
Section 1.41 "Purchase Date" shall have the meaning set forth in
Section 3.3(a).
Section 1.42 "Purchased Shares" shall have the meaning set forth in
the Stock Purchase Agreement.
Section 1.43 "Registrable Securities" shall have the meaning set
forth in the Registration Rights Agreement.
Section 1.44 "Registration Rights Agreement" shall mean the
Registration Rights Agreement, dated as of the date hereof, by and between the
Company and Buyer.
Section 1.45 "Securities Filings" shall have the meaning set forth
in Section 3.1(a)(iii).
Section 1.46 "Stockholder Approval" shall have the meaning set forth
in the Stock Purchase Agreement.
Section 1.47 "Stockholder Approval Date" shall mean the date on
which a duly called and held meeting of shareholders of the Company is held at
which meeting (i) a quorum is present and (ii) Stockholder Approval is obtained.
Section 1.48 "Stock Purchase Agreement" shall have the meaning set
forth in the second paragraph hereof.
Section 1.49 "Supermajority Board Approval" shall have the meaning
set forth in Section 3.2.
Section 1.50 "Second Threshold Date" shall mean the first date on
which the sum of (A) the remaining Investment of Investor (and any transferee or
assignee of Investor or any group of transferees or assignees) on such date and
(B) the remaining Commitment to Invest of Investor (or any transferee or
assignee of Investor or group of transferees or assignees) on such date, is less
than $25,000,000.00.
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Section 1.51 "Total Enterprise Value" shall have the meaning given
to it in the Stock Purchase Agreement.
Section 1.52 "Transfer Agent" shall have the meaning set forth in
Section 3.3(c).
ARTICLE 2
Board of Directors
Section 2.1 Members of the Board
(a) From and after the Stockholder Approval Date, if any, and until
the Preliminary Threshold Date, the Company and Investor shall take all
actions necessary to cause the Board to be structured to consist of no
less than nine members, of which three members will be designees of
Investor (the "Investor Nominees"), two of which shall be chosen at the
sole discretion of Investor (the "Initial Investor Nominees") and one of
which shall be subject to the reasonable approval of the Company, and the
Company and Investor will take all actions necessary to cause such
nominees to become members of the Board as soon as practicable after the
Stockholder Approval Date. If necessary to effectuate the placement of the
Investor Nominees on the Board, the Company shall solicit the resignations
of the appropriate number of Directors to the extent necessary to permit
the Investor Nominees to serve. The Initial Investor Nominees are expected
to be Art Solomon and Murry Gunty; provided, that Investor may at any time
appoint any other person, subject to the provisions of Section 2.1(d) of
this Agreement, as an Initial Investor Nominee without the consent of the
Company. At any time before the Preliminary Threshold Date, if the total
size of the Board is increased, the number of Investor Nominees shall also
be increased such that at least one-third of the members of the Board
shall be Investor Nominees.
(b) From and after the Preliminary Threshold Date and until the
Second Threshold Date, the Company and Investor shall take all actions
necessary to cause the Board to be structured to consist of no less than
nine members, of which at least two members will be Investor Nominees, and
the Company and Investor will take all actions necessary to cause such
nominees to become, or continue to be, members of the Board as soon as
practicable after the Preliminary Threshold Date. At any time before the
Second Threshold Date, if the total size of the Board is increased, the
number of Investor Nominees shall also be increased such that at least
two-ninths of the members of the Board shall be Investor Nominees.
(c) From and after the Second Threshold Date and until the Final
Threshold Date, the Company and Investor shall take all actions necessary
to cause the Board to be structured to consist of no less than nine
members, of which at least one member will be an Investor Nominee, and the
Company and Investor will take all actions necessary to cause such
nominee(s) to become, or continue to be, member(s) of the Board as soon as
practicable after the Second Threshold Date. At any time before the Final
Threshold
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Date, if the total size of the Board is increased, the number of Investor
Nominees shall also be increased such that at least one-ninth of the
members of the Board shall be Investor Nominees.
(d) Investor will not name any person 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 has 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. Investor shall use its reasonable efforts to afford the
independent directors of the Company (the "Independent Directors") a
reasonable opportunity to meet any individual that Investor is considering
naming as an Investor Nominee.
(e) The Company will support the nomination of and the election of
each Investor Nominee to the Board, and the Company will exercise all
authority under applicable law to cause each Investor Nominee to be
elected to the Board. Without limiting the generality of the foregoing,
with respect to each meeting of shareholders of the Company at which
Directors are to be elected, the Company shall use its reasonable efforts
to solicit from the shareholders of the Company eligible to vote in the
election of Directors proxies in favor of each Investor Nominee.
Section 2.2 Committee Representation; Subsidiary Boards
(a) The Company shall amend its by-laws to (i) establish the
Executive Committee, which shall be delegated the authority to the maximum
extent permitted by law to approve any matter permissible under law for
authorization by an executive committee, and (ii) provide that each of the
Executive Committee, the compensation committee, the audit committee, any
special committee(s) of the Board, and any other committees which shall be
charged with exercising substantial authority on behalf of the Board
(other than any committee charged with the approval of the transactions
contemplated by the Stock Purchase Agreement or this Agreement, or any
committee charged with evaluating any Competing Transaction) (the
foregoing, the "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.
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 be independent of the Company, (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
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arrangement for employee compensation or benefits, that the members of the
committee of the Board charged with responsibility for such plan or
arrangement be "independent" of the Company, "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 Company 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 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) Until the Final Threshold Date, at least one Director who is an
Investor Nominee shall serve as a member of the board of directors or
comparable governing body of each Subsidiary of the Company, if any, that
is a corporation or other person with a board of directors or board of
trustees.
Section 2.3 Vacancies. 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 2.1(b).
ARTICLE 3
Covenants; Transfer Provisions
Section 3.1 Operating Statements; Public Company Status
(a) From and after the date of this Agreement until the Final
Threshold Date, if any, the Company will:
(i) deliver to Investor, as soon as practicable after the end
of each month or other reporting period, any operating and financial
statements and management reports (x) of the Company, and (y) of
each Subsidiary of the Company not consolidated with the Company,
which are regularly provided to the senior management of the
Company, each as, at and for the end of such month or other
reporting period, and such other statements or reports as are
reasonably requested by Investor, all in such form as are prepared
by the Company for internal use by management (including, as
applicable, by e-mail);
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(ii) deliver to Investor copies of all other information
distributed by the Company to the Board, any other equity investor
in the Company or any of the Company's partners in joint ventures;
(iii) deliver to Investor, as promptly as practicable
following filing, a copy of each report, schedule or other document
filed by the Company pursuant to the requirements of any federal or
state securities laws (collectively, the "Securities Filings"); and
(iv) continue to comply in all material respects with the
reporting requirements of Section 13 or 15(d) of the 1934 Act.
(b) Until the Final Threshold Date, the Company and Investor will
afford one another a reasonable opportunity to review any Securities
Filing, any other filing with a Government Authority and any press release
or similar public announcement which refers to, describes or mentions such
other party or any Affiliate of such other party prior to the time that
such filing is filed with or sent to the applicable Government Authority
or such announcement is disseminated.
Section 3.2 Conduct of Actions. From and after the Stockholder
Approval Date until the Approval Rights Termination Date, if any,
notwithstanding the fact that a vote of the Board or the Executive Committee may
not be required under applicable law, the Company 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 Company'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
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make or amend any contract, agreement, understanding, loan, advance or
guarantee with, or for the benefit of, any of its Affiliates;
(e) issue Company Stock or options, rights or warrants or other
commitments to purchase or securities convertible into (or exchangeable or
redeemable for) shares of Company Stock, including, without limitation, OP
Units (such options, rights, warrants, other commitments or securities,
"Company Stock Equivalents"); provided, however, that Supermajority Board
Approval shall not be required for any issuance of Company Stock or
Company Stock Equivalents as long as the sum of (i) all shares of Company
Stock issued by the Company during the applicable fiscal year and (ii)
shares of Company Stock into which Company Stock Equivalents issued by the
Company and each of its Subsidiaries during the applicable fiscal year are
convertible, does not exceed fifty percent (50%) of all shares of Company
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 Company of Company Stock or issuance by the Company or any of its
Subsidiaries of any Company Stock Equivalents, Investor shall be entitled,
to the extent so provided in Section 4.1 of this Agreement, to a
participation right on the terms set forth in Section 4.1 of this
Agreement. Notwithstanding the first sentence of this Section 3.2(e), (i)
Company Stock issued to the Company or a wholly owned Subsidiary thereof
and (ii) Company Stock and Company Stock Equivalents issued to directors
or employees of the Company or a Subsidiary of the Company in connection
with any employee benefit plan approved by the shareholders of the
Company, shall not be subject to Supermajority Board Approval;
(f) change or amend any provision of the Company Charter or the
by-laws of the Company 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 Company, (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 Company to terminate the Stock
Purchase Agreement pursuant to 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 Buyer, becomes the "beneficial owner" (as such term is
defined in Rule 13d-3 and Rule 13d-5 under the Exchange Act),
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directly or indirectly, of stock having more than 15% of the voting power
of the Company.
Section 3.3 Offer to Purchase. At any time prior to December 31,
2003 (after completion of the purchase of all of the Purchased Shares pursuant
to the Stock Purchase Agreement), the Company may make an irrevocable offer to
purchase (the "Offer to Purchase") to all holders of shares of Company Common
Stock that are Registrable Securities (such shares, "Eligible Securities") all
(and not less than all) outstanding shares of Eligible Securities at a per share
offer price (the "Offer Price") in cash equal to (i) the greater of (A) $19.00
multiplied by the number of outstanding shares of Purchased Shares on such date
less the aggregate amount of cash dividends paid (not including any special
fees, expenses or other consideration payable to Investor, but not to all other
stockholders of the Company) on the Purchased Shares between the date of the
Initial Closing and such date and (B) the 15% IRR Amount on such date, divided
by (ii) the number of outstanding shares of Purchased Shares on such date. In
making an Offer to Purchase, the Company shall follow the procedures set forth
below:
(a) The Offer to Purchase shall remain open for a period of 20
Business Days following its commencement and no longer, except to the
extent that a longer period is required by applicable law (the "Offer
Period"). No later than five Business Days after the termination of the
Offer Period (the "Purchase Date"), the Company shall purchase all shares
of Eligible Securities tendered in response to the Offer to Purchase.
Payment for any Eligible Securities so purchased shall be made in the same
manner as dividends are paid.
(b) If the Purchase Date is on or after the date on which dividends
are declared (the "Declaration Date"), any accrued or unpaid dividends
shall be paid to the person in whose name the applicable Eligible Security
is registered at the close of business on the Declaration Date, and no
additional dividends shall be payable to holders of Eligible Securities
pursuant to the Offer to Purchase.
(c) Upon the commencement of an Offer to Purchase, the Company,
within five days of such commencement, shall send, by first class mail, a
notice to the transfer agent for Company Common Stock (the "Transfer
Agent") and each holder of Eligible Securities. The notice shall contain
all instructions and material necessary to enable such holders to tender
Eligible Securities pursuant to the Offer to Purchase. The Offer to
Purchase shall be made to all holders of Eligible Securities. The notice,
which shall govern the terms of the Offer to Purchase, shall state:
(i) that the Offer to Purchase is being made pursuant to
Section 3.3 hereof and the length of time the Offer to Purchase
shall remain open;
(ii) the Offer Price and the Purchase Date;
(iii) that any Eligible Securities not tendered shall remain
outstanding;
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(iv) that, unless the Company fails to make the applicable
payment, any Eligible Securities tendered will cease to be
outstanding;
(v) that holders of Eligible Securities electing to have any
shares purchased shall be required to surrender such shares, with a
validly executed certificate of transfer, or transfer by book-entry
transfer, to the Company or the Transfer Agent at the address
specified in the notice at least three days before the Purchase
Date; and
(vi) that holders of Eligible Securities shall be entitled to
withdraw their election if the Company or the Transfer Agent, as the
case may be, receives, not later than the expiration of the Offer
Period, a telegram, telex, facsimile transmission or letter setting
forth the name of the holder, the number of shares the holder
delivered for purchase and a statement that such holder is
withdrawing his election to have such shares purchased.
For the avoidance of doubt, neither Investor nor any of its
assignees are required to accept an Offer to Purchase. The provisions governing
an Offer to Purchase are set forth in this Agreement for the purpose of
clarifying the terms of the Contingent Value Right Agreement.
Section 3.4 Amendment of Documents. The Company shall take all
actions necessary to amend the Company Charter and the Company's by-laws in
order to give effect to Article 2 and Section 3.2 of this Agreement. Such
amendments to the Company Charter and the Company's by-laws shall be in form and
substance reasonably satisfactory to Buyer and otherwise consistent with the
terms of this Agreement.
Section 3.5 Voting. On any matter that requires a vote of the
stockholders of the Company under the Company's Charter or by-laws or under any
applicable law, Buyer shall vote any Company Common Stock acquired by it
pursuant to Section 4.1(b) hereof pro rata based on the votes of the other
stockholders of the Company.
Section 3.6 Mergers. For a period of five years following the date
of the Initial Closing, Buyer shall not take any action to cause the Company to
consolidate or merge with or into another person if, pursuant to the terms of
such consolidation or merger, the stockholders of the Company (other than Buyer)
shall receive consideration in a form, or in an amount, different from Buyer. In
addition, if on any date Buyer shall, in one or a series of related
transactions, transfer a number of shares of Company Common Stock greater than
50% of the aggregate number of shares of Company Common Stock outstanding on
such date to a person (other than an Affiliate of Buyer) and such person's
Affiliates, such person shall be subject to the limitations set forth in this
Section 3.6 as if such person were a party to this Agreement.
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ARTICLE 4
Participation Rights
Section 4.1 (a) Right to Participate. From and after the date hereof
until the Preliminary Threshold Date, if any, Investor shall be entitled to a
participation right to purchase or subscribe for up to that number of additional
shares of capital stock (including as "capital stock" for purposes of this
Section, any security, option, warrant, call, commitment, subscription, right to
purchase or other agreement of any character that is convertible into or
exchangeable or redeemable for shares of capital stock of the Company or any of
its Subsidiaries, including, without limitation, OP Units (and all references in
this Section to capital stock shall, as appropriate, be deemed to be references
to any such securities), and also including additional shares of capital stock
to be issued pursuant to the conversion, exchange or redemption of any security,
option, warrant, call, commitment, subscription, right to purchase or other
agreement of any character that is convertible into or exchangeable or
redeemable for shares of capital stock, including, without limitation, OP Units,
as if the price at which such additional shares of capital stock is issued
pursuant to any such conversion, exchange or redemption were the market price on
the date of such issuance) to be issued or sold by the Company which represents
the same proportion of the total number of shares of capital stock to be issued
or sold by the Company (including the shares of capital stock to be issued to
Investor upon exercise of its participation rights hereunder; it being
understood and agreed that the Company will accordingly be required to either
increase the number of shares of capital stock to be issued or sold so that
Investor may purchase additional shares to maintain its proportionate interest,
or to reduce the number of shares of capital stock to be issued or sold to
Persons other than Investor) as is represented by the number of shares of
Company Stock and OP Units owned by Investor prior to such sale or issuance (and
including for this purpose any shares of Company Common Stock to be acquired
pursuant to the Stock Purchase Agreement, but not yet issued) relative to the
number of shares of Company Stock and OP Units outstanding prior to such sale or
issuance (and including for this purpose any shares of Company Common Stock to
be acquired pursuant to the Stock Purchase Agreement, but not yet issued);
provided, however, that the provisions of this Section shall not apply to the
issuance or sale by the Company of any of its capital stock issued to the
Company or any of its Subsidiaries or pursuant to options, rights or warrants or
other commitments or securities in effect or outstanding on the date of the
Stock Purchase Agreement (including, without limitation, any options issued or
to be issued pursuant to the Employment Agreements).
(b) Issuance of OP Units. Upon exercise of its participation rights
under this Section 4.1 by Buyer in connection with the issuance by the Company
of OP Units, Buyer shall have the right to purchase, and, upon such exercise,
the Company will be required to issue to Buyer, the number of shares of Company
Common Stock equal to the number of OP Units Buyer is entitled to purchase under
Section 4.1(a) hereof. Such shares of Company Common Stock shall be issued by
the Company in lieu of such number of OP Units Buyer would otherwise be entitled
to purchase under Section 4.1(a) hereof.
(c) Notice. In the event the Company proposes to issue or sell any
shares of capital stock in a transaction giving rise to the participation rights
provided for in this Section,
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the Company shall send a written notice (the "Participation Notice") to Investor
setting forth the number of shares of such capital stock of the Company that the
Company proposes to sell or issue, the price (before any commission or discount)
at which such shares are proposed to be issued (or, in the case of an
underwritten or privately placed offering in which the price is not known at the
time the Participation Notice is given, the method of determining such price and
an estimate thereof), and all other relevant information as to such proposed
transaction as may be necessary for Investor to determine whether or not to
exercise the rights granted in this Section. At any time within 20 days after
its receipt of the Participation Notice, Investor may exercise its participation
rights to purchase or subscribe for shares of such shares of capital stock, as
provided for in this Section, by so informing the Company in writing (an
"Exercise Notice"). Each Exercise Notice shall state the percentage of the
proposed sale or issuance that the Investor elects to purchase. Each Exercise
Notice shall be irrevocable, subject to the conditions to the closing of the
transaction giving rise to the participation right provided for in this Section.
(d) Abandonment of Sale or Issuance. The Company shall have the
right, in its sole discretion, at all times prior to consummation of any
proposed sale or issuance giving rise to the participation right granted by this
Section, to abandon, rescind, annul, withdraw or otherwise terminate such sale
or issuance, whereupon all participation rights in respect of such proposed sale
or issuance pursuant to this Section shall become null and void, and the Company
shall have no liability or obligation to Investor or any Affiliate thereof who
has acquired shares of Company Stock pursuant to the Stock Purchase Agreement or
from Investor with respect thereto by virtue of such abandonment, rescission,
annulment, withdrawal or termination.
(e) Terms of Sale. The purchase or subscription by Investor or an
Affiliate thereof, as the case may be, pursuant to this Section shall be on the
same price and other terms and conditions, including the date of sale or
issuance, as are applicable to the purchasers or subscribers of the additional
shares of capital stock of the Company whose purchases or subscriptions give
rise to the participation rights (except that the price to Investor to make such
purchase or subscription shall be net of an amount equal to fifty percent (50%)
of any underwriting, placement agent or similar fee associated with such
purchase or subscription paid or to be paid in connection with such purchase or
subscription), which price and other terms and conditions shall be substantially
as stated in the relevant Participation Notice (which standard shall be
satisfied if the price, in the case of a negotiated transaction, is not greater
than 110% of the estimated price set forth in the relevant Participation Notice
or, in the case of an underwritten or privately placed offering, is not greater
than the greater of (i) 110% of the estimated price set forth in the relevant
Participation Notice, and (ii) the most recent closing price on or prior to the
date of the pricing of the offering); provided, however, that in the event the
purchases or subscriptions giving rise to the participation rights are effected
by an offering of securities registered under the 1933 Act and in which offering
it is not legally permissible for the securities to be purchased by Investor to
be included, such securities to be purchased by Investor will be purchased in a
concurrent private placement.
(f) Timing of Sale. If, with respect to any Participation Notice,
Investor fails to deliver an Exercise Notice within the requisite time period,
the Company shall have 120 days after the expiration of the time in which the
Exercise Notice is required to be delivered in which
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to sell not more than 110% of the number of shares of capital stock of the
Company described in the Participation Notice (plus, in the event such shares
are to be sold in an underwritten public offering, an additional number of
shares of capital stock of the Company, not in excess of 15% of 110% of the
number of shares of capital stock of the Company described in the Participation
Notice, in respect of any underwriters overallotment option) and not less than
90% of the number of shares of capital stock of the Company described in the
Participation Notice at a price of not less than 90% of the estimated price set
forth in the Participation Notice. If, at the end of 120 days following the
expiration of the time in which the Exercise Notice is required to be delivered,
the Company has not completed the sale or issuance of capital stock of the
Company in accordance with the terms described in the Participation Notice (or
at a price which is at least 90% of the estimated price set forth in the
Participation Notice), or in the event of any contemplated sale or issuance
within such 120-day period but outside such price parameters, the Company shall
again be obligated to comply with the provisions of this Section with respect
to, and provide the opportunity to participate in, any proposed sale or issuance
of shares of capital stock of the Company; provided, however, that
notwithstanding the foregoing, if the price at which such capital stock is to be
sold in an underwritten offering (or a privately placed offering in which the
price is not less than 97% of the most recent closing price at the time of the
pricing of the offering) is not at least 90% of the estimated price set forth in
the Participation Notice, the Company may inform Investor of such fact and
Investor shall be entitled to elect, by written notice delivered within five
Business Days following such notice from the Company, to participate in such
offering in accordance with the provisions of this Section.
ARTICLE 5
Miscellaneous
Section 5.1 Counterparts. This Agreement may be executed in one or
more counterparts, all of which shall be considered one and the same agreement,
and shall become effective when one or more counterparts have been signed by
each of the parties and delivered to the other party. Copies of executed
counterparts transmitted by telecopy, telefax or other electronic transmission
service shall be considered original executed counterparts for purposes of this
Section, provided receipt of copies of such counterparts is confirmed.
Section 5.2 Governing Law. THIS AGREEMENT SHALL BE GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
MARYLAND WITHOUT REFERENCE TO THE CHOICE OF LAW PRINCIPLES
THEREOF.
Section 5.3 Entire Agreement. This Agreement (including agreements
incorporated herein) and the Schedules and Exhibits hereto contain the entire
agreement between the parties with respect to the subject matter hereof and
there are no agreements, understandings, representations or warranties between
the parties other than those set forth or referred to herein. This Agreement is
not intended to confer upon any person not a party hereto (and their successors
and assigns) any rights or remedies hereunder.
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Section 5.4 Expenses. All legal and other costs and expenses
incurred in connection with this Agreement and the transactions contemplated
hereby shall be paid as set forth in the Stock Purchase Agreement. Without
limiting the foregoing, the Company shall pay all costs and expenses incurred in
connection with the solicitation of votes of shareholders of the Company to
approve the transactions contemplated by the Stock Purchase Agreement.
Section 5.5 Notices. All notices and other communications hereunder
shall be sufficiently given for all purposes hereunder if in writing and
delivered personally, sent by documented overnight delivery service or, to the
extent receipt is confirmed, telecopy, telefax or other electronic transmission
service to the appropriate address or number as set forth below.
Notices to the Company shall be addressed to:
FAC Realty Trust, Inc.
11000 Regency Parkway, 3rd fl.
East Tower
Cary, NC 27511
Attention: C. Cammack Morton
Telecopy: (919) 462-8799
with a copy to:
Alston & Bird LLP
310 UCS Plaza
3605 Glenwood Ave.
P.O. Drawer 31107
Raleigh, North Carolina 27622-1107
Attention: Brad S. Markoff, Esq.
Telecopy: (919) 881-3175
or at such other address and to the attention of such other person as the
Company may designate by written notice to Investor. Notices to Buyer or
Investor shall be addressed to:
Lazard Freres Real Estate Investors, LLC
30 Rockefeller Plaza, 63rd Floor
New York, NY 10020
Attention: Murry Gunty
Telecopy: (212) 632-6060
with a copy to:
Latham & Watkins
885 Third Ave, Suite 10000
New York, NY 10022
Attention: R. Ronald Hopkinson, Esq.
Telecopy: (212) 751-4864
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Section 5.6 Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors. Neither party shall be permitted to assign any of its rights
hereunder to any third party without the prior written consent of the other
party, except that any Investor may, without such consent, assign its rights
hereunder, in whole or in part, to the same extent as Buyer is permitted to
assign its rights under the Stock Purchase Agreement, provided that such person
agrees to be bound by this Agreement.
Section 5.7 Headings. The Section, Article and other headings
contained in this Agreement are inserted for convenience of reference only and
will not affect the meaning or interpretation of this Agreement. All references
to Sections or Articles contained herein mean Sections or Articles of this
Agreement unless otherwise stated.
Section 5.8 Amendments and Waivers. This Agreement may not be
modified or amended except by an instrument or instruments in writing signed by
the party against whom enforcement of any such modification or amendment is
sought. Any party hereto may, only by an instrument in writing, waive compliance
by another party hereto with any term or provision hereof on the part of such
other party hereto to be performed or complied with. The waiver by any party
hereto of a breach of any term or provision hereof shall not be construed as a
waiver of any subsequent breach.
Section 5.9 Interpretation; Absence of Presumption
(a) For the purposes hereof, (i) words in the singular shall be held
to include the plural and vice versa and words of one gender shall be held
to include the other gender as the context requires, (ii) the terms
"hereof", "herein", and "herewith" and words of similar import shall,
unless otherwise stated, be construed to refer to this Agreement as a
whole (including all of the Schedules and Exhibits hereto) and not to any
particular provision of this Agreement, and Article, Section, paragraph,
Schedule and Exhibit references are to the Articles, Sections, paragraphs,
Schedules and Exhibits to this Agreement unless otherwise specified, (iii)
the word "including" and words of similar import when used in this
Agreement shall mean "including, without limitation," unless the context
otherwise requires or unless otherwise specified, (iv) the word "or" shall
not be exclusive, and (v) provisions shall apply, when appropriate, to
successive events and transactions.
(b) This Agreement shall be construed without regard to any
presumption or rule requiring construction or interpretation against the
party drafting or causing any instrument to be drafted.
Section 5.10 Severability. Any provision hereof which is invalid or
unenforceable shall be ineffective to the extent of such invalidity or
unenforceability, without affecting in any way the remaining provisions hereof.
Section 5.11 Further Assurances. The Company and Investor agree
that, from time to time, each of them will, and will cause their respective
Affiliates to, execute and deliver
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such further instruments and take such other action as may be necessary to carry
out the purposes and intents hereof.
Section 5.12 Specific Performance. The Company and Investor each
acknowledge that, in view of the uniqueness of arrangements contemplated by this
Agreement, the parties hereto would not have an adequate remedy at law for money
damages in the event that this Agreement were not performed in accordance with
its terms, and therefore agree that the parties hereto shall be entitled to
specific enforcement of the terms hereof in addition to any other remedy to
which the parties hereto may be entitled at law or in equity.
Section 5.13 Investor Breach. In the event Investor shall have
breached (i) its obligation to effect a purchase of Company Common Stock
pursuant to the Stock Purchase Agreement which breach is neither cured nor
desisted from within 30 days of receipt of written notice of such breach, or
(ii) any of its obligations under this Agreement which breach is neither cured
nor desisted from within 30 days of receipt of written notice of such breach and
which would reasonably be expected to materially adversely affect the Company,
the Company shall no longer be required to perform any of its obligations
hereunder.
Section 5.14 Confidentiality. Buyer and Investor agree that all
information provided to any of them or any of their representatives pursuant to
this Agreement shall be kept confidential, and such parties shall not (x)
disclose such information to any persons other than the directors, officers,
employees, financial advisors, legal advisors, accountants, consultants and
affiliates of such parties who reasonably need to have access to the
confidential information and who are advised of the confidential nature of such
information or (y) use such information in a manner which would be detrimental
to the Company; provided, however, the foregoing obligation of such parties
shall not (a) relate to any information that (i) is or becomes generally
available other than as a result of unauthorized disclosure by such parties or
by persons to whom such parties have made such information available, (ii) is or
becomes available to such parties on a non-confidential basis from a third party
that is not, to such parties' knowledge, bound by any other confidentiality
agreement with the Company, or (b) prohibit disclosure of any information if
required by law, rule, regulation, court order or other legal or governmental
process.
Section 5.15 Public Releases and Announcements. The Company agrees
that until a Termination Event, it shall endeavor to provide to Investor advance
copies of, or, in the case of oral announcements, advance notice of, any public
release or announcement concerning the Company to be issued, released or made by
the Company or any of its Affiliates, in each case, if possible, at least one
Business Day prior to such release or announcement.
Section 5.16 Termination. In the event the Stockholder Approval Date
does not occur prior to August 31, 1998, this Agreement shall terminate.
[Signature Page Follows]
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IN WITNESS WHEREOF, this Agreement has been executed and delivered by the
parties hereto.
PROMETHEUS SOUTHEAST RETAIL LLC
By: LF Strategic Realty Investor II, L.P.,
its sole member
By: Lazard Freres Real Estate Investors, LLC,
its general partner
By: /s/ Murry N. Gunty
________________________
Name: Murry N. Gunty
Title: Principal
FAC REALTY TRUST, INC.
By: /s/ C. Cammack Morton
-------------------------------
Name: C. Cammack Morton
Title: Chief Executive Officer, President
<PAGE>
EXHIBIT 4
CONTINGENT VALUE RIGHT AGREEMENT
THIS CONTINGENT VALUE RIGHT AGREEMENT, dated as of February 24, 1998
(this "Agreement"), is made by and between Prometheus Southeast Retail LLC
("Buyer"), an affiliate of Lazard Freres Real Estate Investors, LLC, and FAC
Realty Trust, Inc., a Maryland corporation (the "Company"). Capitalized terms
not otherwise defined herein have the meaning ascribed to them in the Stock
Purchase Agreement (as hereinafter defined):
RECITALS:
WHEREAS, the Company and Buyer have entered into a Stock Purchase
Agreement, dated as of the date hereof (the "Stock Purchase Agreement"),
pursuant to which the Company has agreed to sell, and Buyer has agreed to
purchase, certain shares of common stock, par value $0.01 per share, of the
Company (the "Company Common Stock"), upon the terms and subject to the
conditions set forth therein; and
WHEREAS, it is a condition to the transactions contemplated by the
Stock Purchase Agreement and the parties believe it to be in their best
interests that they enter into this Agreement and provide for certain contingent
value rights for the benefit of Buyer;
NOW, THEREFORE, in consideration of the premises and the covenants
and agreements contained herein and for good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, and intending to be
legally bound hereby, the parties hereto hereby agree as follows:
SECTION 1.
DEFINITIONS
As used in this Agreement, the following terms shall have the
following respective meanings:
Section 1.1 - Adjustment Number
"Adjustment Number" shall mean the number equal to (i) the Make-Whole
Amount divided by (ii) the Fair Market Value on the Determination Date.
<PAGE>
Section 1.2 - Affiliate
"Affiliate" with respect to any entity, shall mean a person or entity
directly or indirectly controlling, controlled by, or under common control with,
such entity, where "control" has the meaning given such term under Rule 405 of
the Securities Act of 1933.
Section 1.3 - Approval Rights Termination Date
"Approval Rights Termination Date" shall have the meaning given to it in
the Stockholders Agreement.
Section 1.4 - Board
"Board" shall mean the board of directors of the Company.
Section 1.5 - Board Member Default
"Board Member Default" shall mean (i) on any day prior to the Preliminary
Threshold Date, the failure of at least one-third of the members of the Board to
consist of Investor Nominees, (ii) on any day prior to the Second Threshold
Date, the failure of at least two-ninths of the members of the Board to consist
of Investor Nominees, and (iii) on any day prior to the Final Threshold Date,
the failure of at least one-ninth of the members of the Board to consist of
Investor Nominees.
Section 1.6 - Contingent Value Right.
"Contingent Value Right" shall mean the right granted under this Agreement
to receive the payments set forth in Section 2.2 hereof, subject to the
limitations and conditions provided in this Agreement.
Section 1.7 - Default Date
"Default Date" shall have the meaning given to it in Section 4.2.
Section 1.8 - Determination Date
"Determination Date" shall mean January 1, 2004.
Section 1.9 - Fair Market Value
"Fair Market Value" shall have the meaning given to it in the Stockholders
Agreement.
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Section 1.10 - 15% IRR Amount
"15% IRR Amount" shall have the meaning given to it in the Stockholders
Agreement.
Section 1.11 - Final Threshold Date
"Final Threshold Date" shall have the meaning given to it in the
Stockholders Agreement.
Section 1.12 - Investment Value
"Investment Value" shall mean the amount equal to (i) the number of
Purchased Shares multiplied by (ii) the Fair Market Value on the Determination
Date.
Section 1.13 - Investor Nominee
"Investor Nominee" shall have the meaning given to it in the Stockholders
Agreement.
Section 1.14 - Make-Whole Amount
"Make-Whole Amount" shall mean, on the Determination Date, a dollar
amount, never less than 0, equal to the lesser of (a) (i) the greater of (A) the
15% IRR Amount on the Determination Date or (B) the $19.00 Amount on the
Determination Date less (ii) the Investment Value on the Determination Date and
(b) 4,500,000 multiplied by the Fair Market Value on the Determination Date.
Section 1.15 - $19.00 Amount
"$19.00 Amount" shall mean, on any day, the amount equal to (i) $19.00
multiplied by the number of Purchased Shares on such date less (ii) the
aggregate amount of cash dividends paid (not including any special fees,
expenses or other consideration payable to Investor, but not to all stockholders
of the Company) on the Purchased Shares between the date of the Initial Closing
and such date.
Section 1.16 - Offer to Purchase
"Offer to Purchase" shall have the meaning given to it in the Stockholders
Agreement.
Section 1.17 - Payment Date
"Payment Date" shall have the meaning given to it in Section 2.2(b).
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Section 1.18 - Preliminary Threshold Date
"Preliminary Threshold Date" shall have the meaning given to it in the
Stockholders Agreement.
Section 1.19 - Purchased Shares
"Purchased Shares" shall have the meaning given to it in the Stock
Purchase Agreement.
Section 1.20 - Second Threshold Date
"Second Threshold Date" shall have the meaning given to it in the
Stockholders Agreement.
Section 1.21 - Stockholders Agreement
"Stockholders Agreement" shall mean that certain Stockholders Agreement,
dated the date hereof, by and between Buyer and the Company.
Section 1.22 - Termination Event
"Termination Event" shall mean the occurrence of (i) the completion of an
Offer to Purchase, (ii) the notification by Buyer to the Company that it will
not accept the Offer to Purchase, (iii) a date, on or after September 1, 2003,
but prior to December 31, 2003, on which the amount equal to (A) the Fair Market
Value on such date multiplied by (B) the number of Purchased Shares equals or
exceeds the amount equal to (A) $21.00 multiplied by the number of Purchased
Shares on such date less (B) the aggregate amount of cash dividends paid (not
including any special fees, expenses or other consideration payable to Investor,
but not to all other stockholders of the Company) on the Purchased Shares
between the date of the Initial Closing and the Determination Date, (iv) the
failure to secure Stockholder Approval by August 31, 1998 and (v) the date
immediately following the Payment Date.
Section 1.23 - Total Enterprise Value
"Total Enterprise Value" shall have the meaning given to it in the
Stockholders Agreement.
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SECTION 2.
GRANT OF CONTINGENT VALUE RIGHTS
Section 2.1 - Grant of Contingent Value Rights
In consideration of the investment by Buyer in the Company pursuant to the
Stock Purchase Agreement and for other good and valuable consideration, on the
date hereof the Company grants to Buyer, subject to the terms and conditions set
forth in this Agreement, the Contingent Value Rights.
Section 2.2 - Determination and Method of Payment
(a) Subject to the provisions herein, the Contingent Value Rights shall
entitle Buyer to receive payment of an aggregate amount equal to the Make-Whole
Amount.
(b) The Make-Whole Amount shall be paid within ten days after the
Determination Date (the "Payment Date"), at the election of the Company, either
(i) in cash or (ii) in shares of Company Common Stock. In the event the Company
elects to satisfy its payment obligations under this Agreement in shares of
Company Common Stock, the Company shall issue to Buyer such number of shares of
Company Common Stock equal to the Adjustment Number.
SECTION 3
REPRESENTATIONS, WARRANTIES AND COVENANTS
Section 3.1 - Representations and Warranties
The Company represents and warrants to Buyer that:
(a) the Company has full corporate power and authority to issue, sell and
deliver the Contingent Value Rights to Buyer as provided in this Agreement and
the Stock Purchase Agreement and to carry out all the terms and provisions to be
performed by the Company herein and therein;
(b) the Contingent Value Rights have been duly authorized by the Company
for issuance to Buyer pursuant to this Agreement and the Stock Purchase
Agreement; and
(c) the execution and delivery of this Agreement and the Stock Purchase
Agreement by the Company, the issuance of the Contingent Value Rights to Buyer
pursuant to this Agreement and the Stock Purchase Agreement and the performance
of the obligations of the
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Company under this Agreement and the Stock Purchase Agreement do not: (i)
violate any federal or Maryland statute, rule or regulation applicable to the
Company, (ii) violate the provisions of the Company's Charter or by-laws, (iii)
result in the breach of or a default under this Agreement, the Stock Purchase
Agreement, the Registration Rights Agreement, the Stockholders Agreement or any
other material agreement to which the Company is a party or any court order
which would materially impair the ability of Buyer to receive the benefits of
the Contingent Value Rights or (iv) require any consents, approvals,
authorizations, registrations, declarations or filings by the Company under any
federal or Maryland statute, rule or regulation applicable to the Company which
would materially impair the ability of Buyer to receive the benefits of the
Contingent Value Rights.
Section 3.2 - Covenants
The Company covenants and agrees with Buyer that, from the date hereof
until the occurrence of a Termination Event, it will not enter into any
indenture, mortgage, deed of trust, sale/leaseback agreement, loan agreement or
other similar financing agreement or instrument or other agreement or instrument
by which the Company, any of its Subsidiaries or any of the property or assets
of the Company or any of its Subsidiaries would be bound that would materially
impair the ability of the Company to fulfill its obligations under this
Agreement.
SECTION 4
TERMINATION
Section 4.1 - Termination
Following a Termination Event, all Contingent Value Rights and this
Agreement shall terminate.
SECTION 5
APPROVAL RIGHTS
Section 5.1 - Approval Rights
From and after the Stockholder Approval Date until the Approval Rights
Termination Date, in the event a Board Member Default occurs, the Company shall
not, and shall not permit any of its Subsidiaries, without the written consent
of Buyer (or any transferee of Buyer that succeeds Buyer in its rights and
obligations under the Stockholders Agreement), to:
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(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 Company'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 Company Stock or options, rights or warrants or other
commitments to purchase or securities convertible into (or exchangeable or
redeemable for) shares of Company Stock, including, without limitation, OP Units
(such options, rights, warrants, other commitments or securities, "Company Stock
Equivalents"); provided, however, that Buyer's consent shall not be required for
any issuance of Company Stock or Company Stock Equivalents as long as the sum of
(i) all shares of Company Stock issued by the Company during the applicable
fiscal year and (ii) shares of Company Stock into which Company Stock
Equivalents issued by the Company and each of its Subsidiaries during the
applicable fiscal year are convertible, does not exceed fifty percent (50%) of
all shares of Company 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 Company of Company Stock or issuance by the Company or any of its
Subsidiaries of any Company Stock Equivalents, Investor shall be entitled, to
the extent so provided in Section 4.1 of the Stockholders Agreement, to a
participation right on the terms set forth in Section 4.1 of the Stockholders
Agreement. Notwithstanding the first sentence of this Section 5.1(e), (i)
Company Stock issued to the Company or a wholly owned Subsidiary thereof and
(ii) Company Stock and Company Stock Equivalents issued to directors or
employees of the Company or a Subsidiary of the Company in connection with any
employee benefit plan approved by the shareholders of the Company, shall not be
subject to the consent of Buyer;
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(f) change or amend any provision of the Company Charter or the by-laws of
the Company 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 Company, (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 Company to terminate the Stock Purchase
Agreement pursuant to 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 Buyer,
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.
SECTION 6
MISCELLANEOUS
Section 6.1 - Date of Effectiveness
This Agreement shall be effective upon the date of the Initial Closing.
Section 6.2 - Notices
All notices and other communications hereunder shall be sufficiently given
for all purposes hereunder if in writing and delivered personally, sent by
documented overnight delivery service or, to the extent receipt is confirmed,
telecopy, telefax or other electronic transmission service to the appropriate
address or number as set forth below. Notices to the Company shall be addressed
to:
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FAC Realty Trust, Inc.
11000 Regency Parkway, 3rd fl.
East Tower
Cary, NC 27511
Attention: C. Cammack Morton
Telecopy: (919) 462-8799
with a copy to:
Alston & Bird LLP
310 UCS Plaza
3605 Glenwood Ave.
P.O. Drawer 31107
Raleigh, North Carolina 27622-1107
Attention: Brad S. Markoff, Esq.
Telecopy: (919) 881-3175
or at such other address and to the attention of such other person as the
Company may designate by written notice to Investor. Notices to Buyer or
Investor shall be addressed to:
Lazard Freres Real Estate Investors, LLC
30 Rockefeller Plaza, 63rd Floor
New York, NY 10020
Attention: Murry Gunty
Telecopy: (212) 632-6060
with a copy to:
Latham & Watkins
885 Third Ave, Suite 10000
New York, NY 10022
Attention: R. Ronald Hopkinson, Esq.
Telecopy: (212) 751-4864
Section 6.3 - Severability
Any provision hereof which is invalid or unenforceable shall be
ineffective to the extent of such invalidity or unenforceability, without
affecting in any way the remaining provisions hereof.
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Section 6.4 - Amendments and Waivers
This Agreement may not be modified or amended except by an instrument or
instruments in writing signed by the party against whom enforcement of any such
modification or amendment is sought. Any party hereto may, only by an instrument
in writing, waive compliance by another party hereto with any term or provision
hereof on the part of such other party hereto to be performed or complied with.
The waiver by any party hereto of a breach of any term or provision hereof shall
not be construed as a waiver of any subsequent breach.
Section 6.5 - Counterparts
This Agreement may be executed in one or more counterparts, all of which
shall be considered one and the same agreement, and shall become effective when
one or more counterparts have been signed by each of the parties and delivered
to the other party. Copies of executed counterparts transmitted by telecopy,
telefax or other electronic transmission service shall be considered original
executed counterparts for purposes of this Section, provided receipt of copies
of such counterparts is confirmed.
Section 6.6 - Assignment
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors. The Company shall not be
permitted to assign any of its rights hereunder to any third party without the
prior written consent of Buyer. Buyer may, upon written notice to the Company,
assign all, or a portion, of its rights hereunder to any third party without the
prior consent of the Company.
Section 6.7 - Headings
The Section and other headings contained in this Agreement are inserted
for convenience of reference only and will not affect the meaning or
interpretation of this Agreement. All references to Sections contained herein
mean Sections of this Agreement unless otherwise stated.
Section 6.8 - Governing Law
THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF NEW YORK WITHOUT REFERENCE TO THE CHOICE OF LAW PRINCIPLES
THEREOF.
Section 6.9 - Entire Agreement
This Agreement (including agreements incorporated herein) contain the
entire agreement between the parties with respect to the subject matter hereof
and there are no agreements,
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understandings, representations or warranties between the parties other than
those set forth or referred to herein. This Agreement is not intended to confer
upon any person not a party hereto (and their successors and assigns) any rights
or remedies hereunder.
Section 6.10 - Expenses
All legal and other costs and expenses incurred in connection with this
Agreement and the transactions contemplated hereby shall be paid as set forth in
the Stock Purchase Agreement. Without limiting the foregoing, the Company shall
pay all costs and expenses incurred in connection with the solicitation of votes
of shareholders of the Company to approve the transactions contemplated by the
Stock Purchase Agreement.
Section 6.11 - Interpretation; Absence of Presumption
(a) For the purposes hereof, (i) words in the singular shall be held to
include the plural and vice versa and words of one gender shall be held to
include the other gender as the context requires, (ii) the terms "hereof",
"herein", and "herewith" and words of similar import shall, unless otherwise
stated, be construed to refer to this Agreement as a whole and not to any
particular provision of this Agreement, (iii) the word "including" and words of
similar import when used in this Agreement shall mean "including, without
limitation," unless the context otherwise requires or unless otherwise
specified, (iv) the word "or" shall not be exclusive, and (v) provisions shall
apply, when appropriate, to successive events and transactions.
(b) This Agreement shall be construed without regard to any presumption or
rule requiring construction or interpretation against the party drafting or
causing any instrument to be drafted.
[signature page follows]
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IN WITNESS WHEREOF, this Agreement has been executed and delivered by the
parties hereto.
PROMETHEUS SOUTHEAST RETAIL LLC
By: LF Strategic Realty Investor II, L.P.,
its sole member
By: Lazard Freres Real Estate Investors, LLC,
its general partner
By: /s/ Murry N. Gunty
________________________
Name: Murry N. Gunty
Title: Principal
FAC REALTY TRUST, INC.
By: /s/ C. Cammack Morton
------------------------------
Name: C. Cammack Morton
Title: Chief Executive Officer, President
<PAGE>
EXHIBIT 5
JOINT FILING AGREEMENT
In accordance with Rule 13d-1(f) promulgated under the
Securities Exchange Act of 1934, as amended, the undersigned hereby agree to the
joint filing with all other Reporting Persons (as such term is defined in the
Schedule 13D referred to below) on behalf of each of them of a statement on
Schedule 13D (including amendments thereto) with respect to the common stock of
beneficial interest, par value $.01 per share, of FAC Realty Trust, Inc., a
Maryland corporation, and that this Agreement may be included as an Exhibit to
such joint filing. This Agreement may be executed in any number of counterparts,
all of which taken together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the undersigned hereby execute this
Agreement as of the sixth day of March 1998.
PROMETHEUS SOUTHEAST RETAIL LLC
By: LF Strategic Realty Investors II L.P.,
as sole member
By: Lazard Freres Real Estate Investors L.L.C.,
as general partner
By: /s/ Murry N. Gunty
--------------------
Name: Murry N. Gunty
Title: Principal
LF STRATEGIC REALTY INVESTORS II L.P.
By: Lazard Freres Real Estate Investors L.L.C.,
as general partner
By: /s/ Murry N. Gunty
-------------------
Name: Murry N. Gunty
Title: Principal
