<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant |X| Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<CAPTION>
<S> <C>
|X| Preliminary Proxy Statement [ ] Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
o Definitive Proxy Statement
o Definitive Additional Materials
o Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
</TABLE>
FAC Realty Trust, Inc.
(Name of Registrant as Specified in its Charter)
(Name of Person(s) Filing Proxy Statement, if other than Registrant)
Payment of Filing Fee (Check the appropriate box):
|X| No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (Set forth
the amount on which the filing fee is calculated and
state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by
registration statement number, or the Form or Schedule and the date
of its filing.
1) Amount Previously Paid:
2) Form, Schedule, or Registration Statement No.:
3) Filing Party:
4) Date Filed:
<PAGE>
__________, 1998
Dear Stockholder:
On behalf of the Board of Directors, I cordially invite you to
attend the Annual Meeting of Stockholders of FAC Realty Trust, Inc. The meeting
will be held on _________, 1998 at 10:00 a.m. local time at the Homewood Suites
Hotel, 100 Macalyson Court, Cary, North Carolina 27511. The formal notice and
proxy statement for this meeting are attached to this letter.
As described in the accompanying Proxy Statement, the Company has
entered into a Stock Purchase Agreement with Prometheus Southeast Retail, LLC
(the "Investor"), an affiliate of Lazard Freres Real Estate Investors, LLC,
providing for the Investor to invest a total of $200 million in the Company (the
"Transaction"). The Board of Directors believes that the Transaction represents
an opportunity to improve long-term stockholder value by providing access to
significant equity capital at an attractive cost and strategic resources not
otherwise readily available to it, thereby improving the Company's ability to
capitalize on opportunities in the retail shopping center sector.
The Company's financial advisor, Donaldson, Lufkin & Jenrette
Securities Corporation, has delivered an opinion to the Board of Directors to
the effect that the consideration to be paid to the Company in the Transaction
is fair to the Company from a financial point of view. A copy of that opinion is
attached to the accompanying Proxy Statement.
As previously announced, the Company has agreed to acquire 11
community shopping centers totaling approximately two million square feet from
entities affiliated with Simon Konover, who has a national reputation in the
real estate and retail shopping center industries. In connection with this
acquisition, the Company has agreed to elect Mr. Konover to serve as Chairman of
the Board of Directors upon consummation of the Konover transaction and seeks
your approval to change the Company's name to "Konover Property Trust, Inc."
At the Annual Meeting, you will be asked to approve the following:
1. the election of six directors;
2. the Transaction;
3. the change of the Company's name to "Konover Property Trust,
Inc.";
4. an amendment to the Company's charter to increase the number of
shares authorized for issuance;
5. an amendment to the Company's 1993 Employee Stock Incentive Plan
to increase the number of shares of Common Stock reserved for
issuance thereunder; and
6. an amendment to the Company's 1995 Outside Directors' Stock
Compensation Plan to increase the number of shares of Common
Stock reserved for issuance thereunder.
Details of the proposals are set forth in the accompanying Proxy
Statement, which I urge you to read carefully.
The matters to be considered and voted upon at the Annual Meeting
are of great importance to your investment and the future growth potential of
the Company. The Board of Directors has determined that the proposals being
submitted for approval by the stockholders at the Annual Meeting are in the best
interests of the Company and its stockholders and recommends that you vote FOR
approval of the proposals.
On behalf of the Board of Directors, I thank you for your
cooperation.
Sincerely,
C. Cammack Morton
President and Chief Executive Officer
<PAGE>
FAC REALTY TRUST, INC.
11000 REGENCY PARKWAY, SUITE 300
CARY, NORTH CAROLINA 27511
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ____________, 1998
NOTICE IS HEREBY GIVEN that the 1998 Annual Meeting of Stockholders
of FAC Realty Trust, Inc., a Maryland corporation (the "Company"), will be held
at the Homewood Suites Hotel, 100 Macalyson Court, Cary, North Carolina 27511,
on _______, __________, 1998, at 10:00 a.m., for the following purposes:
1. To elect six directors to serve until the 1999 annual meeting of
stockholders or until their successors are duly elected and qualified (Proposal
One);
2. To approve the transactions (the "Transaction") contemplated by a
Stock Purchase Agreement between the Company and Prometheus Southeast Retail,
LLC (the "Investor"), an affiliate of Lazard Freres Real Estate Investors, LLC,
including (i) the investment from time to time through March 30, 2000 of an
aggregate of $200,000,000 in the Company by the Investor, to be effected through
the sale by the Company of 21,052,632 shares of common stock, par value $.01 per
share ("Common Stock"), at a purchase price of $9.50 per share, which investment
includes the $22,325,000 investment made by the Investor on March 23, 1998 for
2,350,000 shares of Common Stock; (ii) the agreement to cause three designees of
the Investor (the "Investor Nominees") to serve on the Board of Directors; (iii)
the imposition of a 67% vote requirement for certain significant actions of the
Board of Directors; (iv) the grant to the Investor of certain rights to
information regarding the Company; (v) the grant to the Investor of contingent
value rights as described in the Proxy Statement; (vi) the grant to the Investor
of rights to participate in future issuances of capital stock by the Company so
that the Investor may maintain its ownership interest in the Company as
described in the Proxy Statement; and (vii) the grant to the Investor of certain
registration rights to enable the Investor to resell its shares of the Company's
capital stock to the public under certain conditions (Proposal Two);
3. To amend the Company's charter to change its name to "Konover
Property Trust, Inc." (Proposal Three);
4. To amend the Company's charter to increase the number of
authorized shares of capital stock from 75,000,000 to 130,000,000 (Proposal
Four);
5. To amend the Company's 1993 Employee Stock Incentive Plan to
increase the number of shares of Common Stock reserved for issuance thereunder
from 1,100,000 to 2,800,000 (Proposal Five);
6. To amend the Company's 1995 Outside Directors' Stock Compensation
Plan to increase the number of shares of Common Stock reserved for issuance
thereunder from 25,000 to 150,000 (Proposal Six); and
7. To transact such other business as may properly come before the
meeting and any adjournment thereof.
Only stockholders of record at the close of business on March 23,
1998 will be entitled to notice of and to vote at the meeting or any adjournment
thereof.
By Order of the Board of Directors
Robin W. Malphrus, Esq.
SECRETARY
Dated: __________ , 1998
<PAGE>
YOUR VOTE IS IMPORTANT NO MATTER HOW LARGE OR SMALL YOUR HOLDINGS
MAY BE. THE PROMPT RETURN OF PROXIES WILL SAVE THE COMPANY THE EXPENSE OF
FURTHER PROXY SOLICITATION. PLEASE MAIL YOUR PROXY TODAY.
<PAGE>
FAC REALTY TRUST, INC.
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON _________, 1998
This Proxy Statement is furnished in connection with the
solicitation by the Board of Directors of FAC Realty Trust, Inc., a Maryland
corporation (the "Company"), of proxies from the holders of the Common Stock for
use at the 1998 Annual Meeting of Stockholders to be held at the Homewood Suites
Hotel, 100 Macalyson Court, Cary, North Carolina 27511, on _______, ________,
1998 at 10:00 a.m., and at any adjournments or postponements thereof (the
"Annual Meeting").
At the Annual Meeting, the stockholders will consider and vote upon
the following matters:
1. Election of six directors to serve until the 1999 annual meeting
of stockholders or until their successors are duly elected and qualified
(Proposal One);
2. Approval of the transactions (the "Transaction") contemplated by
a Stock Purchase Agreement between the Company and Prometheus Southeast Retail,
LLC (the "Investor"), an affiliate of Lazard Freres Real Estate Investors, LLC,
including (i) the investment from time to time through March 30, 2000 of an
aggregate of $200,000,000 in the Company by the Investor, to be effected through
the sale by the Company of 21,052,632 shares of common stock, par value $.01 per
share ("Common Stock"), at a purchase price of $9.50 per share, which investment
includes the $22,325,000 investment made by the Investor on March 23, 1998 for
2,350,000 shares of Common Stock; (ii) the agreement to cause three designees of
the Investor (the "Investor Nominees") to serve on the Board of Directors; (iii)
the imposition of a 67% vote requirement for certain significant actions of the
Board of Directors; (iv) the grant to the Investor of certain rights to
information regarding the Company; (v) the grant to the Investor of contingent
value rights as described in the Proxy Statement; (vi) grant to the Investor of
rights to participate in future issuances of capital stock by the Company so
that the Investor may maintain its ownership interest in the Company as
described in the Proxy Statement; and (vii) the grant to the Investor of certain
registration rights to enable the Investor to resell its shares of the Company's
capital stock to the public under certain conditions (Proposal Two);
3. Amendment of the Company's charter to change its name to "Konover
Property Trust, Inc." (Proposal Three);
4. Amendment of the Company's charter to increase the number of
authorized shares from 75,000,000 to 130,000,000 (Proposal Four);
5. Amendment of the 1993 Employee Stock Incentive Plan to increase
the number of shares of Common Stock reserved for issuance thereunder from
1,100,000 to 2,800,000 (Proposal Five);
6. Amendment of the Company's 1995 Outside Directors' Stock
Compensation Plan to increase the number of shares of Common Stock reserved for
issuance thereunder from 25,000 to 150,000 (Proposal Six); and
7. Such other business as may properly come before the meeting and
any adjournment thereof.
This Proxy Statement and the accompanying form of proxy, together
with the Company's 1997 Annual Report to Stockholders, are first being sent to
stockholders on or about ________, 1998.
This solicitation is made on behalf of the Board of Directors of the
Company. Costs of the solicitation will be borne by the Company. Directors,
officers and employees of the Company may also solicit proxies by telephone,
telegraph, fax or personal interview. The Company has retained the services of
Beacon Hill Partners, Inc. for a fee
1
<PAGE>
estimated at $2,500 plus out-of-pocket expenses, to assist in the solicitation
of proxies. The Company will reimburse banks, brokerage firms and other
custodians, nominees and fiduciaries for reasonable expenses incurred by them in
sending proxy material to stockholders.
Holders of record of Common Stock of the Company as of the close of
business on March 23, 1998 are entitled to receive notice of, and to vote at,
the Annual Meeting. The outstanding Common Stock constitutes the only class of
securities of the Company entitled to vote at the Annual Meeting, and each share
of Common Stock entitles the holder thereof to one vote. At the close of
business on March 23, 1998, there were 14,275,820 shares of Common Stock issued
and outstanding.
Unless contrary instructions are indicated on the proxy, all shares
represented by valid proxies received pursuant to this solicitation (and not
revoked before they are voted) will be voted at the Annual Meeting FOR the
proposals. With respect to any other business that may properly come before the
Annual Meeting and be submitted to a vote of stockholders, proxies received by
the Board of Directors will be voted in accordance with the best judgment of the
designated proxy holders. A stockholder may revoke his or her proxy at any time
before exercise by delivering to the Secretary of the Company a written notice
of such revocation, by filing with the Secretary of the Company a duly executed
proxy bearing a later date, or by voting in person at the Annual Meeting.
Proposal One, the election of the directors of the Company, requires
the vote of a plurality of all of the votes cast at the Annual Meeting provided
a quorum is present. For purposes of the election of directors, abstentions will
not be counted as votes cast and will have no effect on the result of the vote,
although they will count toward the presence of a quorum.
Proposal Two, the approval of the Transaction, requires the
affirmative vote of a majority of the votes cast on the proposal, provided that
the total vote cast on the proposal represents over 50% in interest of all
shares of Common Stock entitled to vote on the proposal. The Investor is not
entitled to vote on Proposal Two. For purposes of the votes on Proposals Two, an
abstention or a broker non-vote (i.e., shares held by a broker or nominee which
are represented at the Annual Meeting but with respect to which such broker or
nominee is not empowered to vote on a proposal) will have the effect of a vote
against the proposal, unless holders of more than 50% in interest of all
securities entitled to vote on the proposal cast votes, in which event neither
an abstention nor a broker non-vote will have any effect on the result of the
vote.
Proposal Three, approval of the change of the Company's name, and
Proposal Four, approval of an increase in the number of shares authorized for
issuance, each requires the affirmative vote of a majority of all of the votes
entitled to be cast on the matter. For purposes of the vote on Proposals Three
and Four, abstentions and broker non-votes will have the same effect as votes
against the proposal, although they will count toward the presence of a quorum.
Proposals Five, approval of an increase in the number of shares
authorized for issuance under the Company's 1993 Employee Stock Incentive Plan,
and Proposal Six, approval of an increase in the number of shares authorized for
issuance under the Company's 1995 Outside Directors' Stock Compensation Plan,
each requires the affirmative vote of a majority of the votes cast on the
proposal, provided that the total vote cast on the proposal represents over 50%
in interest of all shares of Common Stock entitled to vote on the proposal. For
purposes of the votes on Proposals Five and Six, an abstention or a broker
non-vote will have the effect of a vote against the proposals, unless holders of
more than 50% in interest of all shares of Common Stock entitled to vote on the
proposals cast votes, in which event neither an abstention nor a broker non-vote
will have any effect on the result of the vote.
2
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
PROPOSAL ONE: ELECTION OF DIRECTORS...............................................................................................6
Information Regarding Meetings and Committees of the Board of Directors................................................7
Audit Committee............................................................................................7
Executive Compensation Committee...........................................................................7
Nominating Committee.......................................................................................8
Compensation of Directors..............................................................................................8
EXECUTIVE OFFICERS OF THE COMPANY..................................................................................................9
EXECUTIVE COMPENSATION............................................................................................................10
Employment Agreements.................................................................................................14
Annual Compensation and Basic Terms.......................................................................14
Long-Term Compensation....................................................................................15
Change in Control Arrangements........................................................................................15
Executive Compensation Committee Report...............................................................................15
Executive Officer Compensation Policies...................................................................15
Base Salaries.............................................................................................16
Bonuses ..............................................................................................16
Stock Options.............................................................................................16
Restricted Stock..........................................................................................16
Chief Executive Officer's Compensation....................................................................17
Section 162(m) of the Internal Revenue Code...............................................................17
Report on Repricing of Options............................................................................17
Compensation Committee Interlocks and Insider Participation...........................................................18
BENEFICIAL OWNERSHIP..............................................................................................................18
INFORMATION REGARDING INDEPENDENT PUBLIC ACCOUNTANTS..............................................................................19
PERFORMANCE GRAPH.................................................................................................................20
PROPOSAL TWO: APPROVAL OF THE TRANSACTION........................................................................................20
Information about the Company.........................................................................................20
Information about the Investor........................................................................................21
Background of the Transaction.........................................................................................21
The Investment........................................................................................................23
Stockholders Agreement................................................................................................24
Management of the Company; Representation on the Board and Certain Board Committees.......................24
Information Rights........................................................................................25
Participation Rights......................................................................................25
Prohibitions on Certain Corporate Actions.................................................................25
Contingent Value Right................................................................................................26
Registration Rights Agreement.........................................................................................26
No Solicitation of Competing Transactions.............................................................................27
Expenses; Break-Up Fee................................................................................................27
Limited Put Option....................................................................................................27
Conditions to Closing.................................................................................................28
Indemnification Provisions............................................................................................28
Amendment or Termination of the Transaction Documents.................................................................28
3
<PAGE>
Potential Beneficial Effects of the Transaction.......................................................................28
Large, Timely Infusion of Capital at Reasonable Cost......................................................28
Association with the Investor.............................................................................29
Improved Future Access to Capital.........................................................................29
Potential Enhancement of Stockholder Value................................................................29
Potential Adverse Effects of the Transaction..........................................................................29
Concentration of Ownership of Common Stock................................................................29
Anti-Takeover Effect of the Transaction...................................................................30
Potential Dilution........................................................................................30
Approval Rights...........................................................................................30
Potential Extinguishing of Claims.........................................................................30
Other Consequences of Failure to Approve the Transaction..................................................30
Certain Federal Income Tax Considerations.............................................................................31
No Recognition of Taxable Gain............................................................................31
Taxation of the Company as a REIT.........................................................................31
Possible Impact of the Transaction on Subsequent Sales of Stock by Non-U.S. Stockholders..................32
Opinion of Financial Advisor..........................................................................................32
Current Capitalization....................................................................................34
Stock Trading History.....................................................................................34
Selected Comparable Company Trading Analysis..............................................................34
Comparative Transactions Analysis.........................................................................35
Premiums Paid Analysis....................................................................................35
Net Asset Valuation Analysis..............................................................................36
Discounted Dividend Analysis..............................................................................36
Accretion / (Dilution) Analysis...........................................................................36
Projected Shareholder Return Analysis.....................................................................37
Contingent Value Right Analysis...........................................................................37
Recommendation of the Board; Factors and Conclusions of the Board Involved in its Determination.......................38
Substantial Stockholder...................................................................................38
Impact on Other Investments...............................................................................38
Required Vote and Related Matters.....................................................................................39
PROPOSAL THREE: AMENDMENT OF CHARTER TO CHANGE THE NAME OF THE COMPANY...........................................................39
PROPOSAL FOUR: CHARTER AMENDMENT TO INCREASE THE NUMBER OF
AUTHORIZED SHARES OF CAPITAL STOCK....................................................................................40
PROPOSAL FIVE: AMENDMENT TO THE COMPANY'S 1993 EMPLOYEE STOCK INCENTIVE PLAN.....................................................41
Reasons for Amendment.................................................................................................41
Summary Plan Description..............................................................................................41
General ..............................................................................................41
Administration............................................................................................41
Eligible Employees........................................................................................42
Grant of Options..........................................................................................42
Exercise ..............................................................................................42
Option Price..............................................................................................42
Transfer and Termination of Options.......................................................................42
Adjustment of Shares......................................................................................43
Termination and Amendment of the Stock Incentive Plan.....................................................43
Federal Tax Consequences..................................................................................43
Options Granted to Date...............................................................................................44
Required Vote.........................................................................................................44
4
<PAGE>
PROPOSAL SIX: AMENDMENT OF THE
1995 OUTSIDE DIRECTORS' STOCK COMPENSATION PLAN.......................................................................44
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE...........................................................................45
OTHER BUSINESS....................................................................................................................46
ADDITIONAL INFORMATION............................................................................................................46
STOCKHOLDER PROPOSALS FOR 1999 ANNUAL MEETING.....................................................................................46
APPENDIX A STOCK PURCHASE AGREEMENT
APPENDIX B STOCKHOLDERS AGREEMENT
APPENDIX C REGISTRATION RIGHTS AGREEMENT
APPENDIX D CONTINGENT VALUE RIGHT AGREEMENT
APPENDIX E DLJ OPINION
</TABLE>
5
<PAGE>
PROPOSAL ONE:
ELECTION OF DIRECTORS
The Company's bylaws authorize the Board of Directors to set the
number of directors at no less than three nor more than fifteen. The number of
directors is currently set at seven. Theodore E. Haigler, Jr., presently a
director of the Company, has advised the Company that he will retire from the
Board as of the date of the Annual Meeting. Six incumbent directors have been
nominated for re-election for one-year terms expiring at the 1999 annual meeting
of stockholders or until their successors are duly elected and qualified. As
discussed under "Proposal Two," assuming approval of the Transaction, the size
of the Board will be increased to nine. The three vacancies will then be filled
by the Board of Directors. The Board is contractually obligated to fill the
vacancies with three Investor Nominees. Information regarding the Investor
Nominees is included at "Proposal Two: Approval of the Transaction --
Stockholders Agreement."
In addition, Mr. __________ has agreed to resign from the Board no
later than the final closing of the Konover Transaction (as defined herein). See
"Proposal Three: Amendment of Charter to Change the Name of the Company" for a
discussion of the Konover Transaction. Pursuant to the terms of the Konover
Transaction, the Board of Directors will fill the vacancy created by Mr.
__________'s resignation by electing Simon Konover as Chairman of the Board. For
information about Mr. Konover, see "Proposal Three."
Unless marked otherwise, proxies received will be voted for the
election of each of the nominees named below. If any nominee becomes unable or
unwilling to serve before the Annual Meeting, the shares represented by proxy
will be voted for a substitute nominee designated by the Board of Directors.
Alternatively, the size of the Board may be reduced accordingly. The Board of
Directors has no reason to believe that any of the nominees will be unwilling or
unable to serve if elected as a director. The nominees for election at the
Annual Meeting are set forth below.
<TABLE>
<CAPTION>
NAME AGE PRINCIPAL OCCUPATION DIRECTOR SINCE
<S> <C> <C>
C. Cammack Morton 46 President and Chief Executive Officer of the 1996
Company
Patrick M. Miniutti 50 Executive Vice President and Chief Financial 1996
Officer of the Company
Robert O. Amick 65 President of The Amick Group 1993
William D. Eberle 74 Chairman of Manchester Associates, Ltd. 1997
J. Richard Futrell, Jr. 67 Former Chairman and Chief Executive Officer 1993
of Centura Banks, Inc.
John W. Gildea 54 Managing Director of Gildea Management 1996
Company and Advisor for The Network Funds
</TABLE>
C. Cammack Morton joined the Company in December 1995 as Chief
Operating Officer and was elected President and a Director in January 1996.
Effective January 1, 1997, Mr. Morton became the Company's Chief Executive
Officer. Prior to his affiliation with the Company, Mr. Morton served as
Managing Director of Rothschild Realty, Inc. ("Rothschild") and President and
Chief Executive Officer of the Charter Oak Group, Ltd. (the "Charter Oak
Group"), a subsidiary of Rothschild engaged in the development and management of
factory outlet centers. He joined Rothschild in 1987 as Vice President, was
promoted to Senior Vice President in 1989 and to Managing Director in 1991. To
resolve certain personal financial matters arising out of a limited partner
obligation to the general partner of a real estate partnership, Mr. Morton filed
a petition for relief under Chapter 11 of the United States Bankruptcy Code in
March 1994. After settling with the general partner, the bankruptcy case was
dismissed in June 1994.
6
<PAGE>
Patrick M. Miniutti joined the Company as Executive Vice President,
Chief Financial Officer and Director in August 1996. Prior to his affiliation
with the Company, Mr. Miniutti served for three years as Executive Vice
President, Chief Financial Officer and Trustee of Crown American Realty Trust, a
public REIT that owns regional shopping malls. Prior thereto, Mr. Miniutti held
senior financial positions for a combined 12 years with New Market Companies,
Inc., Western Development Corporation (predecessor to The Mills Corporation) and
Cadillac Fairview Corporation Limited, which was preceded by ten years in public
accounting, principally with national firms. Mr. Miniutti is a member of the
American Institute of Certified Public Accountants and a former member of its
Real Estate Accounting Committee, which was responsible for promulgating most of
the real estate accounting rules in practice today.
Robert O. Amick is the President of The Amick Group, a financial
consulting firm that he founded in 1992. Mr. Amick served as Vice President and
Controller of J.C. Penney Co., Inc. from 1982 to 1992 and was a director of J.C.
Penney Business Services, Inc. from 1985 to 1992. Mr. Amick also is a director
of Protection Mutual Insurance Company and Park P.M. Company.
William D. Eberle was a founder of Boise Cascade and is Chairman of
Manchester Associates, Ltd., a venture capital and international consulting firm
and Of Counsel to the law firm of Kaye, Scholer, Fierman, Hays & Handler. Mr.
Eberle is also Chairman of the Board of America Service Group Inc., a health
care services company, Showscan Entertainment, Inc., a movie-based software and
technology company, and Barry's Jewelry, Inc., a retail jewelry chain, and is a
director of Ampco-Pittsburgh Corp., a steel fabrication equipment company,
Fiberboard Corporation, a timber manufacturer, Mitchell Energy and Development,
a gas and oil company, and Mid-States PLC, an auto parts distributor
headquartered in Nashville, Tennessee.
J. Richard Futrell, Jr. is the retired Chairman and Chief Executive
Officer of Centura Banks, Inc., a position he held from 1989 to 1993. He
currently serves as a member of Centura's board of directors and its executive
committee.
John W. Gildea has been Managing Director of Gildea Management
Company, an investment advisory firm, and affiliates since 1990. From 1986 to
1990, he was Senior Vice President of Donaldson, Lufkin & Jenrette Securities
Corporation. Mr. Gildea also has been President of Gildea Investment Co., an
investment advisory firm, since 1983. He is a director of America Service Group,
Inc., UNC, Inc., and Barry's Jewelry, Inc.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" ALL
OF THE ABOVE-LISTED NOMINEES FOR ELECTION AS DIRECTORS.
INFORMATION REGARDING MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has an Audit Committee, an Executive
Compensation Committee and a Nominating Committee. During the year ended
December 31, 1997, the Board of Directors held ten meetings, the Audit Committee
held two meetings, the Executive Compensation Committee held three meetings. The
Nominating Committee was formed in 1998. Each director attended at least 75% of
the Board of Directors meetings and assigned committee meetings held during
1997.
AUDIT COMMITTEE. The Audit Committee, which consists of Messrs.
Eberle (Chairman), Amick, Futrell, Gildea and Haigler, makes recommendations
concerning the engagement of independent public accountants, reviews the plans
and results of the audit engagement, approves professional services provided and
fees charged by the independent public accountants, reviews the independence of
the independent public accountants and determines the adequacy of the Company's
internal accounting controls.
EXECUTIVE COMPENSATION COMMITTEE. The Executive Compensation
Committee, which consists of Messrs. Gildea (Chairman), Amick, Eberle, Futrell
and Haigler, determines the compensation of the executive officers and
administers the Company's 1993 Employee Stock Incentive Plan and its 1996
Restricted Stock Plan.
7
<PAGE>
NOMINATING COMMITTEE. The Nominating Committee, which consist of
Messrs. Futrell (Chairman), Amick, Eberle, Gildea and Haigler, determines the
slate of nominees for election to the Board of Directors by vote of the
stockholders.
COMPENSATION OF DIRECTORS
The Company pays an annual fee of $12,000 to directors who are not
employees of the Company, plus a fee of $1,000 for each Board of Directors or
assigned committee meeting attended. The annual fee is payable in equal
installments semi-annually. Under the Company's 1995 Outside Directors' Stock
Compensation Plan, as amended by the Board, up to $20,000 of a director's annual
compensation is paid in shares of Common Stock or options to purchase shares of
Common Stock and the remainder paid in cash, at the direction of the director.
Each non-employee director also is reimbursed for expenses incurred in attending
meetings of the Board of Directors and assigned committees. Employees of the
Company who are directors receive no additional compensation for their service
as directors.
8
<PAGE>
EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth certain information with respect to
the current executive officers of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C>
C. Cammack Morton 46 President and Chief Executive Officer
Patrick M. Miniutti 50 Executive Vice President and Chief
Financial Officer
William H. Neville 53 Executive Vice President and Chief
Operating Officer
Christopher G. Gavrelis 44 Executive Vice President - Management
Connell L. Radcliff 43 Senior Vice President - Development
Linda M. Swearingen 33 Senior Vice President - Finance/Investor
Relations
Sona A. Thorburn 32 Vice President and Chief Accounting
Officer
</TABLE>
See the biographical information for Messrs. Morton and Miniutti
under "Proposal One: Election of Directors."
William H. Neville, has served as Executive Vice President and Chief
Operating Officer since September 1997. Before joining the Company, Mr. Neville
was Regional President of Horizon Group Realty, a real estate investment trust
specializing in outlet centers, from January 1996 to July 1997. Prior to joining
Horizon, Mr. Neville held various positions with Charter Oak Partners, a
privately held outlet center developer, from January 1993 to December 1995, at
which time he was the President of the company.
Christopher G. Gavrelis joined the Company in December 1995. Mr.
Gavrelis was named Senior Vice President in January 1996 and promoted to
Executive Vice President in January 1998. Prior to his affiliation with the
Company, Mr. Gavrelis was Vice President - Property Management of the Charter
Oak Group for approximately four years. From 1989 to 1991, Mr. Gavrelis served
as regional property manager for McArthur/Glen Realty Corp. (now HGI Realty,
Inc.), a company engaged in the development and operation of factory outlet
centers. Mr. Gavrelis is responsible for the Company's management and
administration activities.
Connell L. Radcliff has served as Senior Vice President of
Development since its organization in April 1993. Mr. Radcliff joined
North-South Management Corporation (a predecessor company) as Vice President -
Leasing in 1989. From 1987 to 1989, Mr. Radcliff was a real estate broker for
The Shopping Center Group, a real estate brokerage firm specializing in national
tenant representation. Mr. Radcliff is responsible for the Company's development
activities.
Linda M. Swearingen was promoted from Vice President to Senior Vice
President of Finance/Investor Relations in January 1998. Prior to being named
Vice President in May 1996, Ms. Swearingen was Director of Leasing for the
Company, a position she had held since July 1993. From 1990 to 1993, Ms.
Swearingen served as Assistant Vice President - Commercial Real Estate for Bank
One Dayton.
Sona A. Thorburn has served as Vice President and Chief Accounting
Officer since joining the Company in 1997. Prior to joining the Company, Ms.
Thorburn was a manager with the accounting firm of Ernst & Young LLP,
9
<PAGE>
where she was employed for eight years. At Ernst & Young, Ms. Thorburn
supervised audits for a variety of clients, including the Company.
EXECUTIVE COMPENSATION
The following table sets forth the compensation of the Chief
Executive Officer and the four most highly compensated executive officers other
than the Chief Executive Officer who were serving as executive officers at
December 31, 1997 (collectively, the "Named Executive Officers").
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
ANNUAL LONG-TERM
COMPENSATION COMPENSATION AWARDS
Restricted Securities All Other
Salary Bonus Stock Underlying Compensation
NAME AND PRINCIPAL POSITION Year ($) ($) Awards($) Options(#)(10) ($)
- --------------------------- ---- ----- ----- --------- --------------- ----
<S> <C> <C> <C> <C> <C> <C>
C. Cammack Morton 1997 336,072 (4) 670,538(5) (11) 33,467(12)
President and Chief Executive 1996 287,692 (4) 1,019,250(5) 300,000(11) 3,570(13)
Officer 1995 11,458(1) -- -- -- --
Patrick M. Miniutti 1997 230,871 (4) 346,726(6) (11) 19,000(12)
Executive Vice President and 1996 70,769(2) (4) 819,313(6) 200,000(11) 50,000(13)
Chief Financial Officer -- -- -- -- --
William H. Neville 1997 65,059(3) (4) 205,800(7) 50,000 --
Executive Vice President and 1996 -- -- -- -- --
Chief Operating Officer 1995 -- -- -- -- --
Christopher G. Gavrelis 1997 160,962 (4) 94,163 (11) 11,915(12)
Executive Vice President - 1996 129,742 (4) 214,750(8) 35,000(11) 1,163(13)
Management 1995 5,208(1) -- -- -- --
Connell L. Radcliff 1997 185,555 (4) 101,138 (9) -- 13,712(12)
Senior Vice President - 1996 181,923 (4) 39,750 (9) -- 3,750(13)
Development 1995 158,654 41,250 -- 18,000 3,332(14)
</TABLE>
(1) Messrs. Morton and Gavrelis joined the Company in December 1995 and,
therefore, their salary for 1995 represents only a portion of the
year.
(2) Mr. Miniutti joined the Company in August 1996 and, therefore, his
salary for 1996 represents only a portion of the year.
(3) Mr. Neville joined the Company in September 1997 and, therefore, his
salary for 1997 represents only a portion of the year.
(4) Bonuses for all of the officers of the Company for 1997 and 1996 were
paid in the form of shares of restricted Common Stock ("Restricted
Stock") or options to purchase Restricted Stock based on the market
price of Common Stock on the last day of the applicable calendar year.
The shares of Restricted Stock paid as bonuses vest all at once
("cliff vesting") after three years. In consideration of the
three-year vesting period, Restricted Stock bonus amounts are set at
150% of an equivalent cash bonus determined under the Company's MBO
Plan. See "--Executive Compensation Committee Report."
(5) Mr. Morton receives a portion of his base annual salary, his periodic
increases in base annual salary, his annual bonus and his long-term
incentive compensation in the form of Restricted Stock or options to
purchase Restricted Stock, as follows:
(a) 30,000 shares, with a value of $198,750 ($6.625 per share), were
granted on March 1, 1997, subject to a one-year cliff vest, as
part of Mr. Morton's base annual salary;
(b) 6,000 shares, with a value of $39,750 ($6.625 per share), were
granted on March 1, 1997, subject to a three-year cliff vest, as
an increase in Mr. Morton's base annual salary;
10
<PAGE>
(c) An option to purchase 48,500 shares, with a value of $338,288
($7.75 per share) net of a 10% exercise price, was granted as of
December 31, 1997, subject to a three-year cliff vest, as Mr.
Morton's 1997 bonus;
(d) 18,000 shares, with a value of $119,250 ($6.625 per share), were
granted as of December 31, 1996, subject to a three-year cliff
vest, as Mr. Morton's 1996 bonus;
(e) 90,000 shares, with a value of $900,000 ($10.00 per share), were
granted in 1996 to Mr. Morton as long-term incentive
compensation. These shares were replaced with a grant of 150,000
shares, with a value of $993,750 ($6.625 per share), on March 1,
1997. These restricted shares vest in ten equal installments
commencing March 1, 1997.
(f) On November 11, 1997, Mr. Morton was awarded an additional 21,000
shares of Restricted Stock, and each unvested share of Restricted
Stock then owned by Mr. Morton was exchanged for an option to
repurchase a share of Restricted Stock at an exercise price of
10% of the fair market value of a share of Common Stock on the
date awarded (the "Repurchase Options"). The additional 21,000
shares of Restricted Stock were awarded so that, after taking
into account the exercise price of the Repurchase Options, the
value of such options would equal the value of Mr. Morton's
unvested Restricted Shares prior to the exchange. See "--
Executive Compensation Committee Report-- RESTRICTED STOCK."
During 1997 the Company repurchased, pursuant to provisions in its
1996 Restricted Stock Plan (the "Restricted Plan"), 7,500 shares of
Restricted Stock to cover the income tax liability on Restricted
Stock that vested in 1997. At December 31, 1997, the aggregate
number of Mr. Morton's shares of Restricted Stock and shares
issuable upon exercise of his Repurchase Options was 266,000 with a
value of $1,860,788 ($7.75 per share) net of the cost to exercise.
Dividends or dividend equivalents are payable on such Restricted
Stock and shares underlying such Repurchase Options with the
exception of the unvested portion of the 150,000 Repurchase Options
granted as long-term compensation.
(6) Mr. Miniutti receives a portion of his base annual salary, his
periodic increases in base annual salary, his annual bonus and his
long-term incentive compensation in the form of Restricted Stock or
options to repurchase restricted stock, as follows:
(a) 15,000 shares, with a value of $99,375 ($6.625 per share), were
granted on March 1, 1997, subject to a one-year cliff vest, as
part of Mr. Miniutti's base annual salary;
(b) 4,500 shares, with a value of $29,813 ($6.625 per share), were
granted on March 1, 1997, subject to a three-year cliff vest,
as an increase in Mr. Miniutti's base annual salary;
(c) An option to purchase 28,500 shares, with a value of $198,788
($7.75 per share) net of a 10% exercise price, was granted as
of December 31, 1997, subject to a three-year cliff vest, as
Mr. Miniutti's 1997 bonus;
(d) 6,500 shares, with a value of $43,063 ($6.625 per share), were
granted as of December 31, 1996, subject to a three-year cliff
vest, as Mr. Miniutti's 1996 bonus;
(e) 90,000 shares, with a value of $776,250 ($8.625 per share),
were granted in 1996 to Mr. Miniutti as long-term incentive
compensation. These shares were replaced with a grant of
120,000 shares, with a value of $795,000 ($6.625 per share), on
March 1, 1997. These restricted shares vest in ten equal
installments commencing March 1, 1997.
(f) On November 11, 1997, Mr. Miniutti was awarded an additional
15,000 shares of Restricted Stock, and each unvested share of
Restricted Stock then owned by Mr. Miniutti was exchanged for a
Repurchase Option. The additional 15,000 shares of Restricted
Stock were awarded so that, after taking into account the
exercise price of the Repurchase Options, the value of such
options would equal the value of Mr. Morton's unvested
Restricted Shares prior to the exchange. See "-- Executive
Compensation Committee Report -- RESTRICTED STOCK."
During 1997 the Company repurchased, pursuant to its Restricted
Plan, 6,000 shares of Restricted Stock to cover the income tax
liability on Restricted Stock that vested in 1997. At December 31,
1997, the aggregate number of Mr. Miniutti's shares of Restricted
Stock and shares issuable upon exercise of his Repurchase Options
was 183,500 with a value of $1,283,788 ($7.75 per share) net of the
cost to exercise. Dividends or dividend equivalents are payable on
such Restricted Stock and shares underlying such Repurchase Options
with the exception of the unvested portion of the 120,000 Repurchase
Options granted as long-term compensation.
11
<PAGE>
(7) Mr. Neville receives his annual bonus and his long-term incentive
compensation in the form of restricted stock or an option to
purchase restricted stock, as follows:
(a) An option to purchase 8,000 shares, with a value of $55,800
($7.75 per share) net of a 10% exercise price, was granted as
of December 31, 1997, subject to a three-year cliff vest, as
Mr. Neville's proportionate 1997 bonus;
(b) 20,000 shares, with a value of $150,000 ($7.50 per share), were
granted on September 8, 1997 to Mr. Neville as long-term
incentive compensation. These restricted shares vest in three
equal installments commencing March 1, 1998.
(C) On November 11, 1997, Mr. Neville was awarded an additional
2,250 shares of Restricted Stock, and each unvested share of
Restricted Stock then owned by Mr. Neville was exchanged for a
Repurchase Option. The additional 2,250 shares of Restricted
Stock were awarded so that, after taking into account the
exercise price of the Repurchase Options, the value of such
options would equal the value of Mr. Neville's unvested
Restricted Shares prior to the exchange. See "-- Executive
Compensation Committee Report -- RESTRICTED STOCK."
At December 31, 1997, the aggregate number of shares of Restricted
Stock issuable upon exercise of Mr. Neville's Repurchase Options was
30,250 with a value of $211,550 ($7.75 per share) net of the cost to
exercise. Dividend equivalents are payable on all of the shares
underlying Mr. Neville's Repurchase Options.
(8) Mr. Gavrelis receives his annual bonus and his long-term incentive
compensation in the form of Restricted Stock or options to purchase
Restricted Stock, as follows:
(a) An option to purchase 13,500 shares, with a value of $94,163
($7.75 per share) net of a 10% exercise price, was granted as
of December 31, 1997, subject to a three-year cliff vest, as
Mr. Gavrelis's 1997 bonus;
(b) 6,000 shares, with a value of $39,750 ($6.625 per share), were
granted as of December 31, 1996, subject to a three-year cliff
vest, as Mr. Gavrelis's 1996 bonus;
(c) 16,667 shares, with a value of $175,000 ($10.50 per share),
were granted on February 28, 1996 to Mr. Gavrelis as long-term
incentive compensation. These restricted shares vest in three
equal installments commencing January 1, 1997.
(d) On November 11, 1997, Mr. Gavrelis was awarded an additional
1,350 shares of Restricted Stock, and each unvested share of
Restricted Stock then owned by Mr. Gavrelis was exchanged for
Repurchase Options. The additional 1,350 shares of Restricted
Stock were awarded so that, after taking into account the
exercise price of the Repurchase Options, the value of such
options would equal the value of Mr. Gavrelis' unvested
Restricted Shares prior to the exchange. See "-- Executive
Compensation Committee Report -- RESTRICTED STOCK."
During 1997 the Company repurchased, pursuant to provisions in its
Restricted Plan, 2,778 shares of Restricted Stock to cover the
income tax liability on Restricted Stock that vested in 1997. At
December 31, 1997, the aggregate number of Mr. Gavrelis' shares of
Restricted Stock and shares issuable upon exercise of Repurchase
Options was 34,739 with a value of $249,086 ($7.75 per share) net of
the cost to exercise. Dividends or dividend equivalents are payable
on all of such Restricted Stock and the shares underlying Mr.
Gavrelis' Repurchase Options.
(9) Mr. Radcliff received his annual bonus in the form of Restricted
Stock or an option to purchase Restricted Stock, as follows:
(a) An option to purchase 14,500 shares, with a value of $101,138
($7.75 per share), was granted as of December 31, 1997 net of a
10% exercise price, subject to a three-year cliff vest, as Mr.
Radcliff's 1997 bonus;
(b) 6,000 shares, with a value of $39,750 ($6.625 per share), were
granted as of December 31, 1996, subject to a three-year cliff
vest, as Mr. Radcliff's 1996 bonus.
(C) On November 11, 1997, Mr. Radcliff was awarded an additional
700 shares of Restricted Stock, and each unvested share of
Restricted Stock then owned by Mr. Radcliff was exchanged for
Repurchase Options. The additional 700 shares of Restricted
Stock were awarded so that, after taking into account the
exercise price of the Repurchase Options, the value of such
options would equal the value of Mr. Radcliff's unvested
Restricted Shares prior to the exchange. See "-- Executive
Compensation Committee Report -- RESTRICTED STOCK."
12
<PAGE>
At December 31, 1997, the aggregate number of shares of Restricted
Stock issuable upon exercise of Mr. Radcliff's Repurchase Options
was 21,200 with a value of $148,038 ($7.75 per share) net of the
cost to exercise. Dividend equivalents are payable on all of the
shares underlying Mr. Radcliff's Repurchase Options.
(10) Excludes options to purchase shares of Restricted Stock, which
options have an exercise price equal to 10% of a share's fair market
value on the date of grant. Such options are reported under the
"Restricted Stock Awards" column of the Summary Compensation Table.
(11) Stock options granted in 1996 were canceled in 1997 and new options
for the same number of shares were issued in 1997. See "--Executive
Compensation Committee Report--REPORT ON REPRICING OF OPTIONS" for
additional information.
(12) In 1997 Messrs. Morton, Miniutti, Gavrelis and Radcliff received
distributions from the cancellation of a Split Dollar Insurance Plan
in the amounts of $29,746, $15,000, $10,000 and $10,000,
respectively, as well as matching contributions to the Company's
401(k) Retirement and Savings Plan of $3,721, $4,000, $1,915 and
$3,712, respectively.
(13) In 1996 Messrs. Morton, Gavrelis and Radcliff received matching
contributions to the Company's 401(k) Retirement and Savings Plan of
$3,570, $1,163 and $3,750, respectively. In addition, in 1996, Mr.
Miniutti received an allowance for relocation expenses of $50,000.
(14) In 1995 Mr. Radcliff received matching contributions to the
Company's 401(k) Retirement and Savings Plan of $3,332.
The following table provides information regarding the stock options
granted during 1997 to the Named Executive Officers:
<TABLE>
<CAPTION>
OPTION GRANTS IN LAST FISCAL YEAR(1)
INDIVIDUAL GRANTS
-----------------------------------------------------------------------------------------------------
POTENTIAL REALIZABLE
NUMBER OF VALUE AT ASSUMED
SECURITIES PERCENT OF TOTAL ANNUAL RATES OF STOCK
UNDERLYING OPTIONS GRANTED PRICE APPRECIATION FOR
OPTIONS TO EMPLOYEES EXERCISE OPTION-TERM-($)(2)
GRANTED IN-FISCAL-YEAR PRICE EXPIRATION -----------------------------
NAME (#) (%) ($) DATE 5%($) 10%($)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
C. Cammack Morton 300,000(3) 46.5 $5.625 4/1/07 1,061,260 2,689,44,
Patrick M. Miniutti 200,000(4) 31.0 $5.625 4/1/07 707,506 1,792,960
William H. Neville 50,000(5) 7.8 $7.50 9/7/07 235,835 597,653
Christopher G. Gavrelis 35,000(4) 5.4 $5.625 4/1/07 123,814 313,768
</TABLE>
(1) Excludes Repurchase Options, which options have an exercise price
equal to 10% of a share's fair market value on the date of grant.
Such options are reported under the "Restricted Stock Awards" column
of the Summary Compensation Table.
(2) In accordance with SEC rules, these columns show gains that might
exist for the respective options, assuming the market price of the
Company's Common Stock appreciates from the date of grant over a
period of ten years at annualized rates of five and ten percent,
respectively. The actual value, if any, on stock option exercises
will depend on the future performance of the Company's Common Stock,
as well as the option holders' continued employment through the
four-year vesting period. There can be no assurance that the value,
if any, ultimately realized by the executive will be at or near the
values shown above.
(3) 100,000 option shares vested upon grant with the remainder at 25%
per year. These stock options represent the replacement of option
shares issued in 1996 and canceled in 1997. See "-- Executive
Compensation Committee Report -- REPORT ON REPRICING OF OPTIONS" for
additional information.
13
<PAGE>
(4) 20% vested upon grant with the remainder at 25% per year. These
stock options represent the replacement of option shares issued in
1996 and canceled in 1997. See ""-- Executive Compensation Committee
Report--REPORT ON REPRICING OF OPTIONS" for additional information.
The following table sets forth certain information concerning the
number of shares of Common Stock underlying options held by each of the Named
Executive Officers and the value of such options at December 31, 1997:
<TABLE>
<CAPTION>
FISCAL YEAR-END OPTION VALUES(1)
NUMBER OF VALUE OF UNEXERCISED
SECURITIES UNDERLYING IN-THE-MONEY
UNEXERCISED OPTIONS OPTIONS AT
AT FISCAL FISCAL YEAR-END
YEAR-END (#) ($)
EXERCISABLE/ EXERCISABLE/
NAME UNEXERCISABLE (2) UNEXERCISABLE (3)
- ---- ------------- -------------
<S> <C> <C> <C> <C>
C. Cammack Morton 100,000/200,000 212,500/425,000
Patrick Miniutti 40,000/160,000 85,000/340,000
William H. Neville 10,000/40,000 2,500/10,000
Christopher G. Gavrelis 7,000/28,000 14,875/59,500
Connell L. Radcliff 43,400/19,850 --/--
</TABLE>
(1) Excludes Repurchase Options, which options have an exercise price equal to
10% of a share's fair market value on the date of grant. Such options are
reported under the "Restricted Stock Awards" column of the Summary
Compensation Table.
(2) Future exercisability is subject to vesting and the optionee remaining
employed by the Company.
(3) Value is calculated by subtracting the exercise price from the fair market
value of the securities underlying the option at fiscal year-end and
multiplying the results by the number of in-the-money options held. Fair
market value was based on closing market price of the Common Stock at
December 31, 1997 ($7.75).
EMPLOYMENT AGREEMENTS
ANNUAL COMPENSATION AND BASIC TERMS. The Company is a party to
employment agreements with Messrs. Morton, Miniutti, Gavrelis and Neville. The
agreements with Messrs. Morton, Miniutti and Neville currently continue through
February 29, 2001. The term is automatically extended for an additional year on
March 1, 1999 and each year thereafter, subject to the right of either party to
terminate as of the end of the then-existing three-year term by giving written
notice at least 30 days before the March 1 extension date. The agreement with
Mr. Gavrelis continues through March 1, 1999. If the employment of any executive
is terminated due to the change of control of the Company, an additional two
years will be added to the unexpired term of the respective agreements. Pursuant
to their respective agreements, each executive is required to devote his entire
business time to the Company and is prohibited from competing with the Company
for a period of one year following termination of employment. The employment
agreements provide for base annual cash salaries as follows: Mr. Morton -
$330,000; Mr. Miniutti - $225,000; Mr. Neville - $225,000; and Mr. Gavrelis -
$170,000. In addition, Messrs. Morton and Miniutti receive Restricted Stock as
part of their base annual compensation, based on an equivalent cash value of
approximately $200,000 and $100,000, respectively. The number of restricted
shares issued annually is adjusted on March 1st of each year based on the
previous year-end market price of the stock. Such Restricted Stock is subject to
a one-year cliff vest. The base annual salaries are subject to periodic
increases based upon the performance of the Company and the executive. Messrs.
14
<PAGE>
Morton and Miniutti each agreed to take the raises in their base salaries for
1997 in the form of Restricted Stock, which is subject to a three-year cliff
vest, in the amounts of 6,000 shares and 4,500 shares, respectively. In
addition, they have agreed to take all future raises in the form of Restricted
Stock subject to similar vesting provisions. If the employment of any executive
is terminated without cause (as defined in the respective agreements), such
executive will be entitled to the greater of (i) the base salary payable to the
executive for the remainder of the then existing employment term or one year's
base salary, (ii) in the case of Messrs. Morton, Miniutti and Neville, the
product of the number of years representing the unexpired term of the agreement
and an amount equal to the average bonus paid to such executive over the three
years immediately prior to termination, and in the case of Mr. Gavrelis, a pro
rata portion of any incentive compensation or bonus payable for the years of
termination and (iii) certain other accrued benefits.
LONG-TERM COMPENSATION. As of March 1, 1997, in recognition of the
increases in their responsibilities and after consultation with an independent
executive compensation consultant, the Independent Directors replaced the
previous long-term incentive plan awards of 90,000 shares of Restricted Stock
for Messrs. Morton and Miniutti with grants of 150,000 shares and 120,000
shares, respectively. These grants were issued pursuant to the Company's 1996
Restricted Stock Plan. These restricted shares vest in ten equal annual
installments commencing on March 1, 1997, provided each executive continues to
be employed by the Company. If the Company (i) does not extend the executive's
employment agreement beyond its initial three-year term; or (ii) terminates the
executive without cause (as defined in their respective employment agreements)
all unvested shares of restricted stock will become fully vested. The executives
will be entitled to receive dividends on only the vested shares. Mr. Neville was
awarded 20,000 shares of Restricted Stock, which vests in three equal annual
installments commencing March 1, 1998, provided he continues to be employed by
the Company. Mr. Gavrelis was awarded 16,667 shares of Restricted Stock, which
vest in three equal annual installments commencing December 14, 1996, provided
that he continues to be employed by the Company.
In addition, the employment agreements for Messrs. Morton, Miniutti,
Neville and Gavrelis provide for the grant of options to purchase 300,000,
200,000, 50,000 and 35,000 shares of Common Stock, respectively. For information
regarding such options, see the table captioned "Option Grants in Last Fiscal
Year" above and "-- Executive Compensation Committee Report--REPORT ON REPRICING
OF OPTIONS" below.
CHANGE IN CONTROL ARRANGEMENTS
Under the employment agreements, termination without cause includes
any termination resulting from a change in control of the Company. The term
change in control generally is defined under the employment agreements to
include the first to occur of the following: (i) any person or group owns or
controls 50% or more of the outstanding Common Stock, (ii) any person or group
who owned less than 5% of the outstanding Common Stock on the date of the
agreement owns 20% or more of the outstanding Common Stock or (iii) the
stockholders of the Company approve a business combination that will result in a
change in ownership of 20% or more of the outstanding Common Stock. Upon the
occurrence of a change in control of the Company, all non-vested Restricted
Stock will become immediately vested.
In addition, upon the occurrence of a change in control of the
Company (as defined in the Stock Incentive Plan), all non-vested stock options
granted thereunder become immediately vested and exercisable in full. Change in
control generally is defined under the Stock Incentive Plan to occur at such
time as any person or group beneficially owns at least 25% of the outstanding
Common Stock.
Each of the five executive officers who have employment agreements
with the Company have entered into waivers providing that the Lazard Investment
and the Konover Transaction will not trigger any obligation under their
employment agreements except to the extent that such transactions automatically
extend the term of their employment agreements.
EXECUTIVE COMPENSATION COMMITTEE REPORT
EXECUTIVE OFFICER COMPENSATION POLICIES. The goals of the Executive
Compensation Committee (the "Committee") with respect to the compensation of the
Company's executive officers are to (i) provide a competitive total
15
<PAGE>
compensation package that enables the Company to attract and retain qualified
executives, (ii) align the compensation of such executives with the Company's
overall business strategies and (iii) provide each executive officer with a
significant equity stake in the Company, which serves to align compensation with
the interests of stockholders. To this end, the Committee determines executive
compensation consistent with a philosophy of compensating executive officers
based on their responsibilities and the Company's performance in attaining
financial and non-financial objectives.
The primary components of the Company's executive compensation
program are: (i) base salaries, (ii) performance-based annual bonuses, (iii)
stock options and (iv) restricted stock. The more senior the position the
greater the compensation that varies with performance and the greater the
portion that is in the form of options or restricted stock.
BASE SALARIES. Base salaries for the Company's Named Executive
Officers, as well as changes in such salaries, are based upon recommendations of
the Chief Executive Officer, taking into account such factors as competitive
industry salaries; a subjective assessment of the nature of the position; the
contribution and experience of the officer; and the length of the officer's
service. Under the Chief Executive Officer's direction, the Chief Operating
Officer reviews all salary recommendations with the Committee, which then
approves or disapproves such recommendations. The Chief Executive Officer
reviews any salary recommendations for the Chief Operating Officer with the
Committee. The Committee has engaged a national executive compensation
consultant for the purpose of obtaining comparative information and advice on
each of the components of executive compensation. The Committee believes that
the majority of the Company's executive officers are at or near the average for
base salaries and total compensation as compared to that of the Company's peers.
The Committee would like to increase base salaries to the 75th percentile level
in the future. See "Employment Agreements - Annual Compensation and Basic
Terms."
BONUSES. Annual bonuses are determined under a Management By
Objectives (MBO) plan based on Company and individual performance. The weighting
between Company performance and individual performance is determined on the
basis of position and responsibilities. Performance targets are determined for
both Company performance and individual performance. Achieving the targets would
ordinarily result in bonuses ranging from 5% to 60% of base salary, with maximum
bonuses ranging from 10% to 70% of base salary for performance achievements
greater than the targets. All officers of the Company receive 100% of their
bonus in the form of restricted stock with a three-year cliff vest. In
consideration therefor, each officer receives shares equal to 150% of the value
of the appropriate cash bonus; the number of shares is determined using the
total bonus amount divided by the stock price at the day of issuance.
STOCK OPTIONS. The Company established an Employee Stock Incentive
Plan ( the" Stock Incentive Plan") in 1993 for the purpose of attracting and
retaining the Company's executive officers and other employees. A maximum of
1,100,000 shares of Common Stock are currently reserved for issuance under the
Stock Incentive Plan (see "Proposal Five" below relating to the proposed
increase to 2,800,000 shares). The Stock Incentive Plan allows for the grant of
incentive and nonqualified options (within the meaning of the Internal Revenue
Code) that are exercisable at a price equal to the closing price of the Common
Stock on the New York Stock Exchange on the trading day immediately preceding
the date of grant. All of the Company's executive officers are eligible to
receive options to purchase shares of Common Stock granted under the Stock
Incentive Plan. The Committee believes that stock option grants are a valuable
motivating tool and provide a long-term incentive to management. The Committee
also believes that issuing stock options to executives benefits the Company's
stockholders by encouraging executives to own the Company's stock, thus aligning
executive compensation with stockholder interests. Options for 645,000 shares
were granted during 1997.
(See "Option Grants in Last Fiscal Year" above.)
RESTRICTED STOCK. The Company established a restricted stock plan
(the "Restricted Plan") in 1996, reserving 350,000 shares of Common Stock for
issuance thereunder, to give the Committee more flexibility in designing
equity-based compensation arrangements to attract, motivate and retain
executives and other key employees. Such equity-based compensation is designed
to align more closely the financial interests of management with that of the
stockholders. In 1998 and 1997, the Company reserved in the aggregate an
additional 1,150,000 shares of Common Stock for issuance under the Restricted
Plan. The Restricted Plan, which is administered by the Committee, provides for
the grant of restricted stock awards to any new or existing employee of the
Company, including executive officers.
16
<PAGE>
Awards under the Restricted Plan typically will be subject to various vesting
schedules ranging from one to ten years from the date of grant. The Restricted
Plan permits the Committee to customize the vesting schedule by deferring the
commencement date, lengthening the vesting period and/or conditioning vesting
upon the achievement of specified performance goals. During 1997, the Company
granted 248,752 shares of Restricted Stock, net of replacement shares, to
officers and other key employees.
In 1997, the Company amended the Restricted Plan so that officers
would not have to sell their shares of Restricted Stock to meet their tax
obligations incurred upon the vesting of such shares. The amendment provides
that Restricted Stock may be awarded to certain officers in the form of an
option to purchase Restricted Stock at 10% of the market price of the Common
Stock on the date of grant of the option. Under the Restricted Plan all of the
officers' previously unvested shares of Restricted Stock as of November 11, 1997
were replaced with options to purchase such shares. The options vest on the same
schedules as the shares of Restricted Stock that they replaced. Under the
Restricted Plan, holders of options to purchase Restricted Stock will also be
entitled to cash payments equal to the value of the dividends that would have
been paid on the shares underlying such options. The executives may exercise the
options at any time after vesting and within 15 years of the date of grant. All
future grants to officers under the Restricted Plan will be in the form of an
option to purchase Restricted Stock.
CHIEF EXECUTIVE OFFICER'S COMPENSATION. C. Cammack Morton's
compensation for 1997 as the Company's President and Chief Executive Officer
consisted of an annual base salary of $568,500 ($238,500 of which was paid in
the form of options to purchase Restricted Stock, subject to one-year and
three-year cliff voting), which is subject to periodic increases to be
determined by the Committee in its discretion based upon (i) a qualitative and
quantitative review of the performance of the Company (including consideration
of factors such as funds from operations) and Mr. Morton and (ii) the
compensation of executives with similar responsibilities employed by companies
similar in size and generally considered to be comparable to the Company. In
addition, consistent with the intent of the bonus plan discussed above, the
Committee granted a bonus to Mr. Morton for 1997 in the form of an option to
purchase 48,500 shares of Restricted Stock subject to a three-year cliff vest,
which had a market value at date of grant of $338,288, net of a 10% exercise
price. The bonus was based on the Company's exceeding the target increase in FFO
for 1997.
SECTION 162(M) OF THE INTERNAL REVENUE CODE. The Company does not
expect Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code"), to affect the deductibility for federal income tax purposes of the
compensation of the Company's executive officers in 1997. In the future, the
Company intends to review periodically the applicability of Section 162(m) to
the Company's compensation programs, including its potential impact on stock
options and Restricted Stock awarded to executive officers, and, if considered
appropriate, to develop a policy with respect to the Company's compliance with
Section 162(m).
REPORT ON REPRICING OF OPTIONS. The Executive Compensation Committee
determined that the granting of new stock options to certain senior executives
would promote its goals of aligning executive and stockholder interests and
retaining qualified executives. However, due in part to the issuance of stock
options to former officers, the Company did not have sufficient unreserved
options under the Stock Incentive Plan to grant new stock options. Therefore,
the Company requested that certain officers allow their previously granted stock
options, of which in the aggregate 37% had vested, to be canceled in exchange
for new options. The executive officers accepted the Company's re-issuance offer
although their proportion of vested versus unvested stock options decreased by
28% on average.
<TABLE>
<CAPTION>
LENGTH OF
NUMBER OF ORIGINAL OPTION
SECURITIES MARKET PRICE OF EXERCISE PRICE TERM REMAINING
UNDERLYING STOCK AT TIME AT TIME OF AT DATE OF
OPTIONS REPRICED OF REPRICING OR REPRICING OR NEW EXERCISE REPRICING OR
NAME DATE OR AMENDED (#) AMENDMENT ($) AMENDMENT ($) PRICE ($) AMENDMENT
- ---- ---- -------------- ------------- ------------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
C. Cammack Morton 4/97 300,000 5.625 10.25 5.625 8.8 years
Patrick M. Miniutti 4/97 200,000 5.625 8.625 5.625 9.4 years
17
<PAGE>
LENGTH OF
NUMBER OF ORIGINAL OPTION
SECURITIES MARKET PRICE OF EXERCISE PRICE TERM REMAINING
UNDERLYING STOCK AT TIME AT TIME OF AT DATE OF
OPTIONS REPRICED OF REPRICING OR REPRICING OR NEW EXERCISE REPRICING OR
NAME DATE OR AMENDED (#) AMENDMENT ($) AMENDMENT ($) PRICE ($) AMENDMENT
- ---- ---- -------------- ------------- ------------- --------- ---------
Christopher G. Gavrelis 4/97 35,000 5.625 10.25 5.625 8.8 years
Michaela M. Twomey 4/97 35,000 5.625 8.875 5.625 9.4 years
Susan M. Crusoe 4/97 25,000 5.625 10.25 5.625 8.8 years
</TABLE>
The Executive Compensation Committee is pleased to submit this report to the
stockholders.
John W. Gildea, Chairman
William D. Eberle
J. Richard Futrell, Jr.
Robert O. Amick
Theodore E. Haigler, Jr.
THE FOREGOING REPORT SHOULD NOT BE DEEMED INCORPORATED BY REFERENCE
BY ANY GENERAL STATEMENT INCORPORATING BY REFERENCE THIS PROXY STATEMENT INTO
ANY FILING UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED, EXCEPT TO THE EXTENT THAT THE COMPANY
SPECIFICALLY INCORPORATES THIS INFORMATION BY REFERENCE AND SHALL NOT OTHERWISE
BE DEEMED FILED UNDER SUCH ACTS.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1997, the following individuals (none of whom was or had been
an officer or employee of the Company) served on the Executive Compensation
Committee: Messrs. Gildea, Eberle, Futrell, Amick and Haigler. No member of the
Executive Compensation Committee was or is an officer or employee of the
Company.
BENEFICIAL OWNERSHIP
The following table sets forth certain information regarding the
beneficial ownership of Common Stock of the Company as of March 23, 1998 by: (a)
each Named Executive Officer; (b) each director; (c) current executive officers
and directors as a group; and (d) each person or group known by the Company to
beneficially own more than five percent of the Common Stock. Except as otherwise
described in the notes below, the following beneficial owners have sole voting
power and sole investment power with respect to all shares of Common Stock set
forth opposite their name.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT
BENEFICIAL OWNERSHIP OF CLASS (1)
<S> <C> <C>
C. Cammack Morton........................................... 214,715 1.5%
Patrick M. Miniutti......................................... 118,400 *
William H. Neville.......................................... 17,417 *
Christopher G. Gavrelis..................................... 19,671 *
Connell L. Radcliff......................................... 128,541 *
18
<PAGE>
AMOUNT AND NATURE OF PERCENT
BENEFICIAL OWNERSHIP OF CLASS (1)
Robert O. Amick............................................. 5,544 *
William D. Eberle........................................... 6,095 *
J. Richard Futrell, Jr...................................... 5,044 *
John W. Gildea.............................................. 886,777(2) 5.9%
Theodore E. Haigler, Jr..................................... 5,354 *
All current executive officers and
directors as a group (12)................................... 1,421,229 9.1%
Jeffrey B. Citrin........................................... 807,222(3) 5.4%
Promethus Southeast Retail LLC(4)........................... 2,350,000 16.5%
</TABLE>
(1) An asterisk (*) indicates less than one percent. The total number of
shares outstanding used in calculating this percentage assumes that
(i) no options to purchase shares of Common Stock are exercised;
(ii) no warrants to purchase shares of common stock are exercised
and (iii) no shares of Preferred Stock are converted to shares of
Common Stock; provided that the following shares of Common Stock are
deemed outstanding: (x) those issuable within 60 days upon exercise
of options or warrants held by the persons(s) shown in this table
and (y) those issuable upon conversion of Preferred Stock held by
the person(s) shown in this table.
(2) Includes (i) 4,000 shares held by Mr. Gildea's spouse as custodian
for their children as to which Mr. Gildea has sole voting power only
and as to which he disclaims beneficial ownership, (ii) 111,111
shares of Common Stock presently issuable upon conversion of
Preferred Stock as to which Mr. Gildea has sole voting and
dispositive power, and (iii) 766,666 shares of Common Stock
presently issuable upon conversion of Preferred Stock and warrants
owned by Network Fund III, Ltd. ("Network"), with respect to which
Mr. Gildea has shared dispositive power only. Mr. Gildea is a
director of Network and a Managing Director of Gildea Management
Company, which has an investment advisory agreement with Network.
(3) Includes 547,222 shares issuable upon conversion of outstanding
preferred stock and 260,000 shares issuable upon conversion of
outstanding warrants. Jeffery B. Citrin possesses only investment
control with respect to 272,222 of such shares. Mr. Citrin's address
is 950 Third Avenue, 17th Floor, New York, New York 10022.
Information based on Schedule 13D dated July 22, 1996.
(4) As discussed at "Proposal Two," Investor purchased 2,350,000 shares
on March 23, 1998 pursuant to the Stock Purchase Agreement. If the
Stockholders approve Proposal Two, Investor will be obligated to
purchase an additional 18,602,632 shares of Common Stock. Assuming
no other changes in the number of outstanding shares of Common
Stock, the Investor would then own 62.6% of the outstanding shares
of Common Stock. Investor's address is 30 Rockefeller Plaza, 63rd
Floor, New York, New York 10020.
INFORMATION REGARDING INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors, upon the recommendation of the Audit
Committee, has appointed the accounting firm of Arthur Andersen LLP ("Arthur
Andersen") to serve as independent auditors of the Company for the fiscal year
ending December 31, 1998. Arthur Andersen has served as independent auditors of
the Company since September 1997 and is considered by management of the Company
to be well qualified. The Company has been advised by that firm that neither it
nor any member thereof has any financial interest, direct or indirect, in the
Company or any of its subsidiaries in any capacity. Representatives of Arthur
Andersen will be present at the Annual Meeting, will have the opportunity to
make a statement if they so desire, and will be available to respond to
appropriate questions.
19
<PAGE>
Effective September 9, 1997, the Company retained Arthur Andersen
LLP as its new certifying accountants, replacing its prior certifying
accountants, Ernst & Young LLP ("Ernst & Young").
Ernst & Young's reports on the Company's financial statements during
the two most recent fiscal years contained no adverse opinion or disclaimer of
opinion, nor were qualified or modified as to uncertainty, audit scope or
accounting principles.
During the two most recent fiscal years and all subsequent interim
periods preceding September 9, 1997, there were no disagreements between the
Company and Ernst & Young on any matter of accounting principles or practices,
financial statement disclosure or auditing scope or procedure, which
disagreements, if not resolved to the satisfaction of Ernst & Young, would have
caused Ernst & Young to make reference to the subject matter of disagreement in
connection with Ernst & Young's reports.
PERFORMANCE GRAPH
Set forth below is a line graph comparing the yearly percentage
change in the Company's cumulative total return on the Common Stock with the
cumulative total return of a hypothetical investment in each of the Standard
Poor's Composite - 500 Index (the "S&P Index") and the NAREIT Equity REIT Total
Return Index (the "REIT Index") based on the respective market prices of each
such investment on the dates shown below, assuming an initial investment of $100
in the Common Stock on June 3, 1993 (the date of the Company's initial public
offering) and the reinvestment of dividends.
Sources: Compustaf, NAREIT
Jan-83 Dec-83 Dec-84 Dec-85 Dec-86 Dec-87
------ ------ ------ ------ ------ ------
FAC Realty Trust 180 104 97 68 37 43
S&P 500 100 105 106 146 180 240
NAREIT Equity RBT 100 101 104 120 163 126
THE STOCK PRICE PERFORMANCE GRAPH SHALL NOT BE DEEMED INCORPORATED
BY REFERENCE BY ANY GENERAL STATEMENT INCORPORATING BY REFERENCE THIS PROXY
STATEMENT INTO ANY FILING UNDER THE SECURITIES ACT OF 1933, OR AMENDED, OR UNDER
THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, EXCEPT TO THE EXTENT THAT THE
COMPANY SPECIFICALLY INCORPORATES THIS INFORMATION BY REFERENCE, AND SHALL NOT
OTHERWISE BE DEEMED FILED UNDER SUCH ACTS.
PROPOSAL TWO:
APPROVAL OF THE TRANSACTION
The following discussion summarizes the material aspects of the
Transaction, as set forth in the Amended and Restated Stock Purchase Agreement
between the Company and the Investor dated March 23, 1998 (the "Stock Purchase
Agreement") and the various exhibits thereto, including the Stockholders
Agreement, the Contingent Value Right Agreement and the Registration Rights
Agreement (collectively, the "Transaction Documents"). This summary is not
intended to be a complete description of the Stock Purchase Agreement or the
exhibits thereto and is subject to, and qualified in its entirety by, reference
to the Transaction Documents, copies of which are attached hereto as appendices
and incorporated herein by reference. Capitalized terms used in this section but
not defined herein shall have the meanings assigned in the Transaction
Documents.
INFORMATION ABOUT THE COMPANY
The Company is a self-administered and self-managed real estate
investment trust ("REIT") engaged in the ownership, management, leasing,
acquisition, development and operation of retail shopping centers. The Company's
revenues are primarily derived under real estate leases with national, regional
and local retailing companies. The Company owns, operates or has under contract
to purchase 62 retail shopping centers in 22 states, totaling more than
20
<PAGE>
8.5 million square feet. See "Proposal Four: Amendment of Charter to Change the
Name of the Company" for a discussion of 11 shopping centers under contract to
purchase from entities affiliated with Konover & Associates South.
Substantially all of the Company's assets (or the economic benefits
thereof) are held by, and the Company conducts substantially all of its
operations through, FAC Properties, L.P., a Delaware limited partnership (the
"Operating Partnership"). The Company controls the Operating Partnership as its
sole general partner. Currently, the Company directly or indirectly owns 96% of
the interests (the "Units") in the Operating Partnership.
Other than Units held by the Company, each Unit may be redeemed by
the holder thereof for the cash value of one share of Common Stock or, at the
Company's option, one share (subject to certain adjustments) of Common Stock.
Following the initial issuance of Units to third parties, with each such
exchange, the number of Units owned by the Company and, therefore, the Company's
percentage interest in the Operating Partnership, will increase.
The Company is incorporated in Maryland. Its executive offices are
located at 11000 Regency Parkway, Suite 300, Cary, North Carolina 27511, and its
telephone number is (919) 462-8787.
INFORMATION ABOUT THE INVESTOR
Established in 1848, Lazard Freres & Co., LLC is a leading private
investment bank, with extensive experience in principal investments, real
estate, asset management, mergers and acquisitions and corporate finance.
Operating through affiliated entities in six countries throughout the world,
Lazard Freres & Co., LLC advises numerous corporations, financial institutions
and governments on strategic and financial transactions. Lazard Freres & Co.,
LLC also provides investment management services to institutional and individual
investors worldwide, managing more than $53 billion of capital.
Lazard Freres Real Estate Investors, LLC ("LFREI") is a real estate
investment affiliate of Lazard Freres & Co. LFREI manages several realty
investment funds including the Investor. Since its inception, LFREI and its
affiliates have acquired sizable investment stakes in a select group of leading
real estate operating companies, including Alexander Haagen Properties, Inc.;
American Apartment Communities; RF&P Corporation (renamed Commonwealth Atlantic
Properties); Dermody Properties; Bell Atlantic Properties (renamed Atlantic
American Properties Trust), ARV Assisted Living, Inc.; the Fortress Group;
Kapson Senior Quarters; and The Rubenstein Company.
The Real Estate Investment Banking Group at Lazard Freres & Co., LLC
is a recognized leader in the business of advising real estate companies on the
process of recapitalizing, restructuring and expanding their companies and
portfolios. Selected clients include Corporate Property Investors, Mobil Corp.,
Olympia & York (World Financial Properties), Prudential Insurance Company,
Rockefeller Group, Rodamco, N.V. and Wright Runstad Company.
An affiliate of the Investor currently owns a controlling interest
in Alexander Haagen Properties, Inc. ("Haagen") whose business involves
ownership of unenclosed shopping centers in the western United States. Haagen
could be in competition with the Company for tenants and possible property
acquisitions.
BACKGROUND OF THE TRANSACTION
The Company believes that commercial real estate in the United
States will increasingly be held by publicly traded REITs that are fully
integrated operating companies. It is the Company's view that, as the real
estate securitization process continues, the success of a REIT will be largely
dependent on its ability to access capital markets consistently on favorable
terms and that this access will depend upon the REIT's asset size, management
experience, performance history and operational sophistication.
Since the appointment of Mr. Morton as President of the Company in
January 1996, management has sought to improve the Company's operating
performance and financial structure and to reverse the Company's negative stock
price trend. These efforts, in part, focused on strengthening the Company's
management and resulted in the addition
21
<PAGE>
of several new senior executive officers, including Mr. Miniutti as Chief
Financial Officer in August 1996, and, more recently, Mr. Neville, as Chief
Operating Officer in September 1997.
Beginning in February 1996, management began to look at various
financing options and strategic alliances. Given the drop in the Common Stock
price, management determined that public equity financing alternatives were not
attractive. In 1996 the Company secured $20 million of private equity from
Gildea Management Company and Blackacre Bridge Capital, L.L.C. and hired
Prudential Securities, Inc. ("Prudential") to assist the Company in exploring
strategic alliance opportunities. Over a period of 12 months, with Prudential's
assistance, the Company analyzed various options and had discussions with
several existing REITs, primarily owners of retail outlet properties, regarding
possible strategic alliances. None of these discussions led to viable
opportunities due to a variety of factors, including concerns over the Company's
product mix, the Company's belief that diversification into other forms of
retail real estate was in its best interest and an unwillingness of these
potential partners to place a value on the Company commensurate with what
management believed to be the Company's inherent value.
Soon after Mr. Miniutti joined the Company in August 1996,
management explored strategic options with contacts of Mr. Miniutti. Through
these meetings it became clear that the best strategy for the Company to improve
its operational and financial position was to move forward aggressively with its
diversification strategy. This strategy involved targeting the acquisition and
development of community shopping centers. Management also engaged Donaldson,
Lufkin & Jenrette Securities Corporation ("DLJ") in May 1997 to help the Company
continue to explore strategic opportunities. From February 1997 until November
1997, the Company had various discussions with REITs and other companies,
primarily diversified portfolio REITs and REITs specializing in community
centers, regarding possible alliances. These discussions led to the exchange of
information pursuant to confidentiality agreements with two such REITs. Again,
because of valuation and product mix issues, no viable opportunities were found.
As part of its diversification strategy, beginning in August 1997,
the Company undertook to reorganize itself into an umbrella partnership
structure (an "UPREIT") that would increase its flexibility in acquiring and
developing community shopping center portfolios. See " -- Information about the
Company " above. As a result of this strategy, the Company entered into
agreements to acquire two community center portfolios through its new UPREIT
structure, including its agreement to acquire nine community shopping centers
from affiliates of Messrs. Rodwell and Kane (the "Rodwell/Kane Acquisition").
The Company began discussions regarding the Konover Transation in late 1997,
which ultimately resulted in an executed definitive agreement in February 1998.
Contemporaneous with the decision to adopt an UPREIT structure, the
Board directed management to focus on obtaining a private strategic equity
investment in order to better capitalize the Company. In particular, the Board
desired an active investor with experience in the industry and knowledge of
attractive acquisition opportunities. The Company had discussions with numerous
potential investors, including real estate investment funds, regarding an equity
investment in the Company. No potential investor pursued discussions regarding
an investment in Common Stock; rather, they expressed an interest in a preferred
stock investment of $25 to $50 million. Such investors sought preferred stock
with a mandatory redemption feature and an annual dividend of approximately
eight percent. Although discussed, no potential equity source offered to pay a
premium on convertible preferred stock.
The Company then met with officers of LFREI in early December 1997,
regarding a potential equity investment in the Company. After extensive
discussions, on December 24, the Board of Directors agreed with LFREI to enter
into a letter of intent regarding a potential $200 million Common
Stock investment, subject to due diligence and negotiation of mutually
acceptable terms. The letter of intent provided that the Company could not
solicit offers from or provide information to any person relating to the sale of
capital stock by the Company or a merger or similar significant transaction
until January 31, 1998.
Representatives of LFREI and the Company met several times
throughout the months of January and February 1998 to discuss the transaction.
In January 1998, the Company requested that DLJ provide a fairness opinion in
connection with the financial aspects of the transaction. On February 6, 1998,
the Board of Directors met by telephone to discuss the transaction.
Representatives from DLJ and outside counsel to the Company participated in the
meeting.
22
<PAGE>
The Board discussed the structure and instructed management to continue the
negotiations. Another Board meeting was held on February 9, 1998, attended by
all Board members in person. At that meeting, management summarized the
negotiations and presentations were made by the Company's outside counsel,
Alston & Bird LLP, special Maryland counsel, Ballard Spahr Andrews & Ingersoll,
LLP, and by DLJ. The Board instructed management to continue to negotiate the
final terms of the agreement and to seek modifications regarding certain
protections for the Company's existing stockholders in the event of future
merger or sale transactions that might be instituted by LFREI and to negotiate a
lower break-up fee if the stockholders rejected the LFREI transaction without
any competing bids being made. Management continued to meet with LFREI and its
representatives over the next several days and reached agreement with LFREI,
including the requested changes to the break-up fee and the stockholder
protection provisions.
On February 19, 1998, the Board met again, at which time DLJ
presented its conclusions as to the fairness of the transaction to the Company
from a financial point of view. The Board also heard from management as to its
conclusions regarding the transaction and the results of its continued
negotiations with LFREI. Management believed that the transaction provided the
Company and its stockholders with the best opportunity for growth for several
reasons, including (i) an attractive stock price, which was approximately a 25%
premium to the then-current share price; (ii) the positive effect on the
Company's capital structure of a significant equity investment, and (iii) the
benefit of having LFREI as a strategic partner given LFREI's expertise in real
estate finance and capital markets. Upon additional discussions, the Board
approved entering into the transaction, subject to completion of written
documentation. On February 24, 1998, the parties reached agreement on and
executed the final documents.
On March 23, 1998, the Company and the Investor entered into the
Amended and Restated Stock Purchase Agreement and sold 2,350,000 shares of
Common Stock to the Investor at $9.50 per share (the "Initial Purchase"), for an
aggregate purchase price of $22,325,000. The amendment primarily addressed
certain indemnification obligations with respect to the Company's status as a
"domestically entitled" REIT (described below) and clarified other provisions of
the original agreement.
THE INVESTMENT
Pursuant to the Stock Purchase Agreement, the Company has agreed to
sell an aggregate of 21,052,632 shares of Common Stock to the Investor at a
price of $9.50 per share, for an aggregate purchase price of $200 million.
The purchase price per share was determined as a result of arm's-length
negotiations between the Company and the Investor. On March 23, 1998, the
Company sold 2,350,000 shares to the Investor at $9.50 per share (the "Initial
Purchase"), for an aggregate purchase price of $22,325,000. As of the Record
Date, the Investor owned approximately 16.5% of the outstanding Common Stock.
Subject to stockholder approval, the Stock Purchase Agreement
provides that the Company sell 18,702,632 additional shares of Common Stock from
time to time to the Investor at a price of $9.50 per share, in exchange for
approximately $177 million (the "Remaining Equity Commitment"). Of the Remaining
Equity Commitment, the Company would sell 8,176,316 shares by September 30, 1998
(the "Second Closing"), with the remaining 10,526,316 shares to be sold in
subsequent closings (the "Subsequent Closings") by March 30, 2000. If the
Investor acquired all of the shares represented by the Remaining Equity
Commitment (and assuming no other change in the number of outstanding shares),
the Investor would own approximately 63% of the outstanding Common Stock (59% on
a fully diluted basis).
The net proceeds of the investment by the Investor are expected to
be used to repay certain indebtedness of the Company and to fund the acquisition
and development of additional community shopping center properties primarily in
the southeastern United States. There can be no assurance, however, that the
Company will be able to use the funds for such purposes.
23
<PAGE>
STOCKHOLDERS AGREEMENT
Concurrently with the execution of the Stock Purchase Agreement, the
Investor and the Company entered into the Stockholders Agreement, which grants
certain rights to and imposes certain restrictions on the Investor with respect
to the shares purchased by it pursuant to the Stock Purchase Agreement. Many of
these rights terminate when the value of the Common Stock held by the Investor
plus the dollar amount yet to be purchased under the Stock Purchase Agreement is
less than $10 million (the "Final Threshold Date"). These rights and
restrictions include the following:
MANAGEMENT OF THE COMPANY; REPRESENTATION ON THE BOARD AND CERTAIN
BOARD COMMITTEES. Under the Stockholders Agreement, the three Investor Nominees
would be elected to a nine-member Board as soon as practicable following
stockholder approval of the Transaction. Two of the Investor Nominees would be
chosen at the sole discretion of Investor; the third would be subject to the
reasonable approval of the Company. The Investor has indicated that two of the
Investor Nominees would be Arthur P. Solomon and Murry N. Gunty.
Mr. Solomon, [age], is a managing director of Lazard Freres & Co.
and a senior principal of LFREI. Mr. Solomon joined Lazard Freres & Co. in 1988
to oversee all of its real estate investment and advisory activities. His prior
experience in the real estate industry includes positions as managing director
and head of real estate at Drexel Burnham Lambert; chief executive officer of
Krupp Companies, a national real estate and financial services company; and
executive vice president and chief financial officer of The Federal National
Mortgage Association. Prior to that, Mr. Solomon was a professor of economics
and urban studies at MIT and concurrently headed the Harvard-MIT Joint Center
for Urban Policy. Mr. Solomon holds a BA from Brown University, an MA from
Trinity College, and a Ph.D. in economics from Harvard University. He is a
trustee of the Urban Land Institute, and a member of the International Council
of Shopping Centers and Pension Real Estate Association.
Mr. Gunty, 31, is a principal of LFREI and a senior member of its
investment team. He joined Lazard Freres & Co. in 1995 from J.E. Robert Company,
where he directed the firm's investments in REITs, commercial mortgage-backed
securities and other corporate real estate opportunities. Prior to that, Mr.
Gunty worked at Trammell Crow Ventures, the $3 billion (assets) real estate
investment affiliate of Trammell Crow Company, and at Blackstone Capital
Partners, a $1 billion leveraged buyout fund. He received his A.B. from Harvard
College, and his MBA from the Harvard Business School.
At each annual or special meeting of stockholders of the Company
with respect to which any class of directors is to be elected, the Investor
would have the right (but not the obligation) to nominate directors, such that
the Investor would have on the Board of Directors:
(i) three representatives, two of which would be chosen
at the sole discretion of the Investor and one of which would be
subject to the reasonable approval of the Company, until the date
(the "Preliminary Threshold Date") that the fair market value of the
number of shares of Common Stock purchased (the "Purchased Shares")
and the shares of Common Stock still to be acquired (the
"Acquisition Shares") by the Investor pursuant to the Stock Purchase
Agreement is less than $50 million; provided that if the total size
of the Board were increased at any time before the Preliminary
Threshold Date, the Investor would be entitled to designate its
proportionate one-third share of the Board;
(ii) two representatives or, in the event that the size
of the Board had been increased, two-ninths of the number of members
of the Board, if the Investor does not meet the ownership criteria
of clause (i) above, but the value of the Purchased Shares and the
Acquisition Shares is $25 million or more (the date on which this
threshold is no longer met, the "Second Threshold Date");
(iii) one representative or, in the event that the size
of the Board has been increased, one-ninth of the number of members
of the Board, if the Investor does not meet the ownership criteria
in either of clause (i) or (ii) above, but the value of the
Purchased Shares and the Acquisition Shares is $10 million or more
(the date on which this threshold is no longer met, the "Final
Threshold Date"); and
24
<PAGE>
(iv) no representatives, if the Investor does not meet
any of the ownership criteria in any of clauses (i), (ii) or (iii)
above.
If the Investor's right to nominate directors to the Board is
reduced, the Investor would cause the applicable number of its nominees to
resign immediately (regardless of the remaining term) from the Board. In
addition, in the event that the Board did not include the requisite number of
directors nominated by the Investor, the Company would be subject to certain
limitations on its operations unless it receives the prior written consent of
the Investor. See "Potential Adverse Effects of the Transaction - Approval
Rights."
In addition, the Company has amended its bylaws to (i) establish the
executive committee, which has been delegated authority to the maximum extent
permitted by law, and (ii) provide that for so long as the Investor has the
right to nominate directors to the Board, the Investor has the right to have a
proportionate share of its nominees on each of the Board's audit committee,
compensation committee and executive committee, as well as any other key
committees (the "Key Committees"), to be comprised as follows: (A) until the
Preliminary Threshold Date, at least one-third of such members shall be Investor
Nominees, (B) until the Second Threshold Date, at least two-ninths of such
members shall be Investor Nominees, and (C) until the Final Threshold Date, at
least one-ninth of such members shall be Investor Nominees. However, in the
event that any such Investor Nominee to a Key Committee would compromise such
committee's ability to qualify as independent or disinterested under applicable
law, the Investor Nominee would not be appointed to the Key Committee. To the
extent practicable, any Key Committee on which an Investor Nominee did not sit
would consider only those items that prevent the Investor Nominee from serving
on such Key Committee. Assuming stockholder approval of the Transaction, at
least one Investor Nominee would serve as a member of the board of directors of
each subsidiary of the Company until the Final Threshold Date.
INFORMATION RIGHTS. Until the Final Threshold Date, the Company has
the obligation to provide to the Investor (i) the financial statements and
operating and management information provided to the Company's senior
management, and (ii) copies of all other information distributed by the Company
to the Board, any equity investor of the Company or any of the Company's
partners in joint ventures.
PARTICIPATION RIGHTS. As part of the Transaction, the Company has
granted certain participation rights (the "Participation Rights") to the
Investor. The Stock Purchase Agreement provides that until the Preliminary
Threshold Date, in the event that the Company issues or sells shares of capital
stock (including any security convertible into or redeemable for securities of
capital stock of the Company or any of its subsidiaries, the Investor would be
entitled to a participation right to purchase or subscribe for that proportion
of the total number of securities to be issued equal to the Investor's
proportionate holdings of Common Stock outstanding (assuming the purchase of
21,052,632 shares pursuant to the Stock Purchase Agreement). The Investor has no
right, however, to participate in the issuance by the Company of any of its
capital stock issued to any of the Company's subsidiaries or pursuant to
options, warrants or other securities outstanding on the date of the Stock
Purchase Agreement. The Participating Rights would also enable the Investor to
purchase one share of Common Stock for each Unit issued (other than to the
Company); such shares, however, would be required to be voted in the same manner
and proportion as the votes cast by other stockholders of the Company. All
purchases pursuant to the Participation Rights would be at the same price and on
the same terms and conditions as are applicable to other purchasers of the
additional shares of capital stock of the Company (except that the price to the
Investor to make such purchase would be net of an amount equal to 50% of any
underwriting, placement agent or similar fee associated with such purchase paid
in connection with such purchase).
PROHIBITIONS ON CERTAIN CORPORATE ACTIONS. Until the date (the
"Approval Rights Termination Date") on which the Investor owns (or is obligated
to purchase) less than 15% of the value of all Common Stock and Units (excluding
Units held by the Company), the Company would be subject to certain prohibitions
on its operations unless the prior approval of over 67% of the directors is
first obtained, including restrictions relating to: (i) the acquisition of any
business or assets having an aggregate purchase price in excess of 25% of the
Company's total asset value or total market capitalization (the "Total
Enterprise Value") or the acquisition of an aggregate of businesses and assets
having an aggregate purchase price in excess of the 50% of the Total Enterprise
Value during a fiscal year; (ii) the sale or
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disposition of any assets or stock during any fiscal year having an aggregate
value in excess of 25% of the Total Enterprise Value; (iii) the incurrence of
additional indebtedness such that the ratio of the Company's total indebtedness
to the Total Enterprise Value exceeds 65%; (iv) issuances of capital stock or
options, rights or warrants or other commitments to purchase or other
convertible securities into shares of Common Stock, including Units, in excess
of 50% of all shares of capital stock outstanding, on a fully diluted basis; (v)
the amendment of any provision of the Articles of Incorporation or the by laws
of the Company in a manner that would be materially adverse to the Investor;
(vi) the commencement of any voluntary case in bankruptcy, the consent to the
entry of an order for relief against it in an involuntary case, the consent to
the appointment of a custodian of it or for all or substantially all of its
property, or a general assignment for the benefit of its creditors; (vii) the
consummation of any transaction (including, without limitation, any merger or
consolidation) the result of which would be that any person, other than the
Investor, became the beneficial owner, directly or indirectly, of stock having
more than 15% of the voting power of the Company; (viii) taking certain actions
with, or for the benefit of, any of the Company's affiliates; and (ix)
termination of the federal income tax status of the Company as a REIT.
CONTINGENT VALUE RIGHTS
If the stockholders approve the Transaction, the Investor would have
the right, pursuant to the Contingent Value Right Agreement, to receive on
January 1, 2004 payment of an aggregate amount equal to the lesser of (a)(i) the
greater of (A) the 15% IRR Amount (as defined below) or (B) the $19.00 Amount
(as defined below) less (ii) the fair market value of the number of shares of
Common Stock purchased pursuant to the Stock Purchase Agreement and (b)
4,500,000 multiplied by the fair market value on such date.
Such contingent value rights ("CVRs") expire upon completion of an
offer to purchase as described in the paragraph below or upon the Investor's
refusal to accept such offer. The CVRs also terminate if, during the three
months prior to January 1, 2004, the fair market value of the Purchased Shares
equals or exceeds (A) $21.00 multiplied by the number of Purchased Shares less
(B) the aggregate amount of cash dividends paid on the Purchased Shares
following the Initial Purchase.
At any time prior to December 31, 2003, the Company could make an
irrevocable offer to purchase from the Investor all shares of Common Stock
acquired pursuant to the Transaction. The per share offer price would be the
greater of (A) $19.00 less all dividends paid to the Investor with respect to
such share and (B) the dollar amount that allows the Investor to realize a 15%
internal rate of return on the price paid for such share on a compounded
annualized basis (inclusive of all dividends paid with respect to such share).
The total amount paid hereunder is referred to herein as the "$19 Amount" or the
"15% IRR Amount."
REGISTRATION RIGHTS AGREEMENT
Concurrently with the Stock Purchase Agreement, the Company and the
Investor entered into the Registration Rights Agreement, pursuant to which the
Company is obligated to file up to four demand registration statements (no more
than two of which may be requested in any two-year period) under the Securities
Act for the resale by the Investor of all or a portion of the Company securities
acquired in the Transaction.
The right to a demand registration is further limited in that (i) it
may be invoked in each instance only with respect to a number of shares having a
fair market value equal or greater than $10 million, and (ii) the Company has
the right from time to time to require the Investor not to sell under the demand
registration statement or to postpone or suspend the effectiveness thereof in
certain circumstances. The Investor also will have the right, with respect to
most registrations of Common Stock by the Company for its own account, to
require the Company to include its Company securities in such registration. The
Registration Rights Agreement provides that the Company will pay the expenses,
other than underwriting discounts and fees, relating to the demand registrations
requested by the Investor.
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NO SOLICITATION OF COMPETING TRANSACTIONS
Unless and until the Stock Purchase Agreement is terminated in
accordance with its terms, the Company may not initiate, solicit or encourage
any inquiries involving (i) the acquisition of 15% or more of the Company's
equity securities (excluding Units) by any person or group or (ii) the merger,
consolidation, liquidation or other action out of the ordinary course of
business of the Company (a "Competing Transaction"). The Company must notify the
Investor of all of the relevant details relating to all inquiries that the
Company may receive relating to any such matters; provided, that the Transaction
Documents do not 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 upon the advice of a nationally recognized financial advisor) may
provide greater value to the Company and its stockholders than the Transaction,
the Company may enter into negotiations with respect to such proposal. The
Company must notify the Investor of any such superior proposal not less than two
business days prior to entering into a definitive agreement with respect to a
Competing Transaction; provided, however, that in no event may 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 the Investor of
an inquiry or proposal relating to a Competing Transaction. Within the
two-business-day or five-business-day period referred to above, the Investor may
propose an improved transaction.
EXPENSES; BREAK-UP FEE
Whether or not the Transaction is consummated, the Company will
reimburse the Investor for its expenses in connection with the Transaction,
including expenses of monitoring the Company and of performing its duties under
the Transaction Documents. Provided that the Investor is not in material default
under the Stock Purchase Agreement, has not breached any of its representations
and warranties in any material respect, and has satisfied in all material
respects its covenants relating to the Initial Purchase, the Company will pay
the Investor a break-up fee of $2,250,000 (the "Breakup Fee") in the event that
the Stock Purchase Agreement is terminated at any time prior to the Second
Closing. The Breakup Fee, therefore, will be payable to the Investor if the
stockholders do not approve the Transaction. In addition, in the event that a
Competing Transaction is entered into by the Company on any date on or prior to
the one-year anniversary of the date that the Stock Purchase Agreement is
terminated, the Company will pay the Investor $3,000,000 (the "Topping Fee").
Notwithstanding the foregoing, if a Topping Fee is payable to the Investor and
the Investor profits on the sale of the shares purchased in the Initial Purchase
in connection with the Competing Transaction, then the Investor must pay the
Company the amount by which such profit, the Break-up Fee and the Topping Fee
exceed $7,750,000.
LIMITED PUT OPTION
In the event that the Second Closing does not occur by September 30,
1998 or the Stock Purchase Agreement is terminated prior to the Second Closing
(other than as a result of the Investor's material breach of the Stock Purchase
Agreement), the Investor has an option under the Stock Purchase Agreement to
require that the Company repurchase the shares of Common Stock acquired in the
Initial Purchase at a price equal to the purchase price thereof, together with
any accrued dividends (the "Put Option"). The Put Option must be exercised
within two months after the earlier to occur of the date that the Company fails
to receive stockholder approval, the date the Stock Purchase Agreement is
terminated prior to the Second Closing and August 31, 1998. The Company does not
have the right to require the Investor to exercise the Put Option. Therefore, in
the event that stockholder approval of the Transaction is not obtained and the
Investor does not exercise the Put Option, the shares of Common Stock issued to
the Investor in the Initial Purchase will remain outstanding.
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CONDITIONS TO CLOSING
Each of the Company's and the Investor's obligations to effect the
Second Closing and the Subsequent Closings are subject to various mutual and
unilateral conditions, including, without limitation, the following: (i)
stockholder approval of the Transaction; (ii) the continued qualification of the
Company as a REIT for federal income tax purposes; (iii) the receipt of an
opinion of counsel to the effect that the Company is a "domestically controlled"
REIT as disclosed below at "Certain Federal Income Tax Considerations"; (iv) the
continuing correctness of the representations and warranties in the Stock
Purchase Agreement, (v) the receipt of any consents necessary for the
Transaction, and (vi) various other customary conditions. In addition, the
Investor is not obligated to fund more than $100 million of the Transaction
unless a significant portion of the Konover Transaction is consummated.
INDEMNIFICATION PROVISIONS
The Stock Purchase Agreement provides that each party shall
indemnify the other for breaches of its representations and warranties or the
failure to perform its covenants under the Agreement. Such indemnification
obligations are generally not triggered until the indemnified party has incurred
losses and expenses of $500,000. If the Investor does not receive an opinion of
counsel to the effect that the Company is not a "domestically controlled" REIT
and the Second Closing occurs, the Company has agreed to increase the
indemnification amount by a percentage equal to the Investor's ownership
percentage.
AMENDMENT OR TERMINATION OF THE TRANSACTION DOCUMENTS
Although the Board reserves the right to amend the provisions of the
Stock Purchase Agreement without approval of the stockholders, either before or
after approval by the stockholders of the Transaction, the Company intends to
solicit further approval of the stockholders in the event that any such
amendment would change the Transaction in a manner that would be materially
adverse to stockholders. The Board also reserves the right to terminate the
Stock Purchase Agreement without obtaining further approval of the stockholders.
The Board does not anticipate either the material amendment of the terms of, or
the termination of, the Stock Purchase Agreement.
POTENTIAL BENEFICIAL EFFECTS OF THE TRANSACTION
The Company believes that the Transaction, if consummated,
represents an opportunity to improve long-term stockholder value by providing
the Company with access to significant equity capital at an attractive cost and
strategic resources not otherwise readily available to it, thereby improving the
Company's ability to capitalize on community shopping center acquisition and
development opportunities. In particular, the Company believes that the
Transaction may have a number of beneficial effects on the Company and its
stockholders, including the following:
LARGE, TIMELY INFUSION OF CAPITAL AT REASONABLE COST. The
Transaction is expected to enable the Company to accomplish its financing
objectives for 1998 and 1999 in a single transaction on more favorable terms
than might have been available in the public markets. The purchase price to be
received in the Transaction represents a 25% premium over the 30-day average
closing price prior to announcement of the Transaction. Because the purchase
price for the Common Stock to be acquired by the Investor is fixed, the
Transaction protects the Company against the risks of a decline in the stock
market as a whole and the market for REIT stocks in particular. In addition, the
Company will not pay any underwriting discount or commission in connection with
the sales to the Investor and expects that its out-of-pocket expenses in
connection with such sales will be substantially less than the costs it would
have incurred in selling a similar number of shares in one or more firm
commitment underwritings. Moreover, the Company is not exposed to the risk of a
decline in the market price of its shares that is commonly observed in advance
of such offerings. Additionally, the Transaction will enable management to focus
on managing the Company's existing properties and acquiring and developing
additional properties rather than being required to divert management time and
attention to the process of raising capital.
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ASSOCIATION WITH THE INVESTOR. The Investor is highly regarded as a
sophisticated real estate investor. Three individuals to be nominated by the
Investor will become directors of the Company if the stockholders approve the
Transaction. The Company believes that it will benefit significantly from its
association with the Investor, as well as the Investor Nominees, and their
market knowledge, operating experience and capital market capabilities.
IMPROVED FUTURE ACCESS TO CAPITAL. The Company believes that, as a
result of the Transaction, it will have greater access to the capital markets
and a lower cost of capital because the Transaction will (i) increase its equity
market capitalization and total capitalization; (ii) establish an association
with a highly regarded institutional investor, the Investor, which should
enhance the Company's access and attractiveness to significant institutional
investors; and (iii) through the participation rights granted to the Investor
under the Stockholders Agreement, provide a potential buyer for substantial
portions of future offerings by the Company of its equity securities or debt
securities convertible into equity. Moreover, because of its substantial
investment in the Company, the Investor will have significant incentives to make
available to the Company its resources, experience and advice on accessing
capital markets and to assist the Company in achieving a lower cost of capital.
The Company believes that improved access to the capital markets should enhance
its ability to grow and increase stockholder value.
POTENTIAL ENHANCEMENT OF STOCKHOLDER VALUE. The Transaction will not
result in any direct return to stockholders of cash or other consideration.
However, the Company believes that the Transaction offers stockholders an
opportunity to realize long-term value. The Company intends to use a portion of
the capital raised in the Transaction to reduce its outstanding debt level. In
addition, the Company's strategic plan calls for the application of the
significant capital to be raised in the Transaction to expand the Company for
the purpose of increasing the Company's asset base and cash flow in a controlled
but significant fashion over a relatively short period of time. Management's
goal is to increase funds from operations and cash available for distribution to
stockholders through the strategic deployment of the capital and other resources
to be made available to the Company through its affiliation with the Investor.
It should be noted, however, that there is no assurance that the
Company will realize all or any of the potential benefits described above, which
are forward-looking statements that are subject to numerous risks and
uncertainty. The realization of the potential benefits described above will
depend upon a number of factors, many of which are outside the control of
management, including the following: the availability of attractive acquisition
and development opportunities; the Company's continuing ability to identify,
perform due diligence with respect to, acquire and manage effectively a large
number of retail shopping center properties; the state of the capital markets
generally and prevailing interest rates; uncertainty concerning the Company's
ability to refinance its indebtedness at favorable interest rates as it becomes
due; and risks relating to the ownership of real estate generally, including the
risks of bankruptcy, insolvency or the downturn in business of or failure to
renew leases by the Company's tenants, potential liability for unknown
environmental matters, and the risk of uninsured losses.
POTENTIAL ADVERSE EFFECTS OF THE TRANSACTION
The Company believes that the Transaction, if consummated, could
have certain adverse effects on the Company and its stockholders, including the
following:
CONCENTRATION OF OWNERSHIP OF COMMON STOCK. The Investor would be
entitled to own up to 63% of the Company's Common Stock (59% on a fully diluted
basis), and would be the largest single stockholder of the Company. The Investor
would have the right to nominate up to three directors of the Company's Board.
The Investor would have a substantial influence over the affairs of the Company
as a result of the Transaction. The Investor would be in a position to control
the election of the Board or the outcome of any corporate transaction or other
matter submitted to the stockholders for approval (assuming no other changes in
the number of outstanding shares of Common Stock). This concentration of
ownership in one stockholder could be disadvantageous to other stockholders'
interests.
The Company has limited the ability of the Investor to cause the
Company to consolidate or merge with another entity for a period of five years
unless all stockholders receive the same consideration received by the Investor
in the
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merger. Moreover, if the Investor transfers more than 50% of the
then-outstanding shares of Common Stock to a single person or entity, the
purchaser would be subject to the same limitation until the end of such
five-year period.
ANTI-TAKEOVER EFFECT OF THE TRANSACTION. The Investor's acquisition
of up to 63% of the outstanding Common Stock (59% on a fully diluted basis) and
the director nomination, voting and other rights granted to the Investor under
the Stockholders Agreement and the Contingent Value Right Agreement, in addition
to the provisions requiring 67% Board approval of certain actions, may make it
more difficult for other stockholders to challenge the Company's director
nominees, elect their own nominees as directors, or remove incumbent directors,
and may render the Company a less attractive target for an unsolicited
acquisition by an outsider. In addition, under the Company's charter, a merger
or consolidation requires the affirmative approval of over 50% of the shares
entitled to vote. Accordingly, the Investor would have sufficient voting power
to block any such transaction both as a significant stockholder of the Company
and through the Board membership of the Investor Nominees.
Prior to execution of the Transaction Documents, the Company's Board
of Directors waived the application of the Maryland Business Combination Statute
with respect to all aspects of the Transaction and amended its bylaws to exempt
the Transaction from the Control Share Acquisition Statute. As a result, such
statutes impose no restrictions on the voting of the Investor's shares or on its
ability to enter into a business combination with the Company. See "--Certain
Federal Income Tax Considerations" for a discussion of the waiver by the Board
of the limit on ownership of Common Stock in the Company's charter with respect
to the Transaction.
POTENTIAL DILUTION. Although the Company generally has the ability
to control the timing of the Subsequent Closings and any additional investments
by the Investor, if the proceeds from sales of securities to the Investor are
not invested in a timely or accretive manner, there would be dilution of
earnings per share and funds from operations per share to the existing
stockholders of the Company. The Company does not intend to change its
acquisition criteria, and it may temporarily have excess cash on its balance
sheet if sufficient acquisitions are not completed between the Second Closing
and March 30, 2000 (unless the Company and the Investor agree to extend such
dates).
APPROVAL RIGHTS. Pursuant to the Contingent Value Right Agreement,
from such time as the stockholders approve the Transaction until the Approval
Rights Termination Date, in the event that the requisite percentage of Investor
Nominees do not sit on the Board at any time, the Company has agreed to certain
limitations on its operations unless it shall have first received the written
consent of the Investor, including restrictions relating to (i) the acquisition
of any business or assets having an aggregate purchase price in excess of 25% of
the Total Enterprise Value or the acquisition of an aggregate of businesses and
assets having an aggregate purchase price in excess of the 50% of the Total
Enterprise Value during a fiscal year; (ii) the sale or disposition of any
assets or stock during any fiscal year having an aggregate value in excess of
25% of the Total Enterprise Value; (iii) the incurrence of additional
indebtedness such that the ratio of the Company's total indebtedness to the
Total Enterprise Value exceeds 65%, (iv) issuances of Company Stock or options,
rights or warrants or other commitments to purchase or other convertible
securities into shares of Common Stock, including, without limitation, Units in
excess of 50% of all shares of Company Stock outstanding, on a fully diluted
basis, and (v) termination of the federal income tax status of the Company as a
REIT.
POTENTIAL EXTINGUISHING OF CLAIMS. Approval of the Transaction by
the stockholders will constitute approval of all of the various terms of the
Transaction set forth in the Stock Purchase Agreement, the Stockholders
Agreement, the Contingent Value Right Agreement and the Registration Rights
Agreement and the transactions contemplated thereby and will result in the
election of three new directors to the Board.
Such approval also may serve to extinguish potential claims, if any,
regarding any conduct of members of the Board in connection with the
Transaction, including potential claims, if any, alleging violations of the
Board's duties to stockholders. Under Maryland law, the fully informed
stockholder approval of a transaction may, in certain circumstances, serve to
extinguish certain related fiduciary duty claims against directors.
OTHER CONSEQUENCES OF FAILURE TO APPROVE THE TRANSACTION. The
Konover Transaction, which is discussed under "Proposal Three" MAY fail to close
unless the stockholders approve the Transaction. One of the conditions to the
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obligations of the seller in the Konover Transaction is the Company's having
obtained a $75 million equity investment in 1998 on terms not less favorable to
the Company than those in the Lazard Investment. Failure to approve the
Transaction, therefore, COULD cause the Company to be unable to close the
Konover Transaction if (i) the closing condition is not waived by the seller or
(ii) the Company cannot find a $75 million equity investor on terms as favorable
as those in the Transaction.
Another adverse consequence of the failure of the stockholders to
approve the transaction is the required $2,250,000 Break-up Fee that would be
required upon the termination of the Stock Purchase Agreement.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following discussion summarizes the material federal income tax
considerations resulting from the Transaction that may be relevant to the
Company and the Company's current stockholders. This discussion does not address
the federal income tax considerations resulting from the Transaction that may be
relevant to the Investor or its investors, and does not address the state,
local, or foreign tax considerations resulting from the Transaction that may be
relevant to the Company, the Investor, or their respective investors. This
discussion is based on the current provisions of the Internal Revenue Code (the
"Code"), the applicable Treasury regulations promulgated thereunder,
administrative rulings, court decisions, certain factual assumptions related to
the ownership and operation of the Company, and certain representations made by
the Company and the Investor. No assurance can be given that the legal
authorities on which this discussion is based will not change, perhaps
retroactively, that the factual assumptions and representations underlying this
discussion will continue to be accurate, or that there will not be a change in
the future in the circumstances of the Company or the Investor that would affect
this discussion.
NO RECOGNITION OF TAXABLE GAIN. The Company believes that neither
the Company nor any of the Company's current stockholders will recognize taxable
gain as a result of the Transaction.
TAXATION OF THE COMPANY AS A REIT. The Company made an election to
be taxed as a REIT under sections 856 through 860 of the Code, effective for its
short taxable year ended December 31, 1993. The Company believes that,
commencing with such taxable year, it has been organized and has operated in
such a manner as to qualify for taxation as a REIT under the Code, and the
Company intends to continue to operate in such a manner. Qualification and
taxation as a REIT depends upon the Company's ability to meet on a continuing
basis (through actual annual operating results, distribution levels and
diversity of share ownership) the various qualification tests imposed under the
Code. Accordingly, no assurance can be given that the Company has operated in a
manner so as to qualify, or will operate in a manner so as to continue to
qualify, as a REIT.
As a result of the Transaction, it is expected that the Investor
would own in excess of 50% of the aggregate outstanding Common Stock. Such
ownership would violate the limits on ownership of Common Stock set forth in the
Company's charter, which limits are intended to protect the Company's tax status
as a REIT. It is anticipated that the Company's Board of Directors will grant to
the Investor an exception to the ownership limits, based on certain
representations made by the Investor (to its best knowledge), as to the actual
and constructive ownership of certain interests by the Investor and the
ownership of interests in the Investor. Assuming the facts regarding the
ownership interests set forth in such representations are accurate, the Company
believes that the Transaction will not have an adverse affect on the Company's
ability to qualify for taxation as a REIT. In the event such facts are not
accurate, the Company's charter provides (and the exception to the ownership
limit granted to the Investor will provide) that to the extent necessary shares
of Common Stock held by the Investor would be exchanged for "excess stock" (as
defined in the charter), which shares would be required to be sold in a manner
that did not violate the ownership limits. These provisions are intended to
preserve the Company's tax status as a REIT in the event the ownership of Common
Stock would otherwise jeopardize such status. However, such charter provisions
are untested and no assurance can be given that they will protect the Company's
tax status as a REIT. If the Company were to fail to qualify as a REIT in any
taxable year, the Company would be subject to federal income tax (including any
applicable alternative minimum tax) on its taxable income at regular corporate
rates. Moreover, unless entitled to relief under certain statutory provisions,
the Company also would be disqualified from treatment as a REIT for the four
taxable years following the year during
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which qualification is lost. This treatment would reduce the net earnings of the
Company available for investment or distribution to stockholders of the Company
because of the additional tax liability to the Company for the years involved.
In addition, distributions to stockholders of the Company would no longer be
required to be made.
POSSIBLE IMPACT OF THE TRANSACTION ON SUBSEQUENT SALES OF STOCK BY
NON-U.S. STOCKHOLDERS. Generally, a sale of stock in the Company by a "Non-U.S.
Holder" will not be subject to United States taxation under the Foreign
Investment in Real Property Tax Act of 1980 ("FIRPTA") unless such stock
constitutes a United States real property interest ("USRPI"). As used herein,
the term "Non-U.S. Holder" means a holder of shares of Common Stock who is not
(for United States federal income tax purposes) (i) a citizen or resident of the
United States, (ii) a corporation, partnership, or other entity created or
organized in the United States or under the laws of the United States or of any
state thereof or the District of Columbia, (iii) an estate the income of which
is subject to United States federal income taxation regardless of its source, or
(iv) a trust, if a court within the United States is able to exercise primary
supervision over the administration of the trust and one or more United States
persons have the authority to control all substantial decisions of the trust.
Stock in the Company will not constitute a USRPI if the Company is a
"domestically controlled REIT," defined generally as a REIT in which, at all
times during a specified testing period, less than 50% in value of its stock was
held directly or indirectly by Non-U.S. Holders. In the event that, either at
the time of the Transaction or at any time thereafter, direct or indirect
stockholders of the Company (including owners of interests in the Investor) who
are Non-U.S. Holders own collectively 50% or more, in value, of the outstanding
capital stock of the Company, the Company would cease to be a domestically
controlled REIT.
If the Company does not qualify as a domestically controlled REIT, a
Non-U.S. Holder's sale of stock in the Company generally still will not be
subject to United States tax under FIRPTA, provided that (i) the stock is
"regularly traded" (as defined by applicable Treasury regulations) on an
established securities market, and (ii) the selling Non-U.S. Holder held 5% or
less of the Company's outstanding stock at all times during a specified testing
period. The Company presently believes the Common Stock would be considered to
be "regularly traded" for this purpose.
If gain on the sale of stock in the Company were subject to taxation
under FIRPTA, a Non-U.S. Holder would be subject to the same treatment as a
United States stockholder with respect to such gain (subject to applicable
alternative minimum tax and a special alternative minimum tax in the case of
nonresident alien individuals, and the purchaser of the stock could be required
to withhold 10% of the purchase price and remit such amount to the Internal
Revenue Service).
OPINION OF FINANCIAL ADVISOR
In January of 1998, the Company advised DLJ that it had negotiated
and entered into a letter of intent regarding the Transaction and requested that
DLJ render an opinion as to the fairness, from a financial point of view to the
Company, of the consideration to be paid and received by the Company, in
aggregate, pursuant to the terms of the Stock Purchase Agreement, Stockholders
Agreement and Contingent Value Rights Agreement (collectively, the
"Agreements"). Except for services necessary to enable DLJ to render its
opinion, DLJ was not requested to perform any other services pertaining to the
Transaction, and did not make, any recommendation to the Company's Board of
Directors as to the amount or type of consideration to be paid or received as
provided for in the Agreements, which consideration was determined through
arms-length negotiations between the Company and the Investor.
The Company retained DLJ to act as its advisor based upon DLJ's
prominence as an investment banking and financial advisory firm with experience
in the valuation of businesses and securities in connection with mergers,
acquisitions, underwritings, sales and distributions of listed and unlisted
securities, private placements and valuations for corporate and other purposes
especially with respect to REITs and other real estate companies and because of
DLJ's familiarity with the Company and its operations.
On February 19, 1998, DLJ delivered its oral opinion to the
Company's Board of Directors that the consideration to be received by the
Company in exchange for issuing the Company Common Stock and Contingent Value
Rights pursuant to the Stock Purchase Agreement was in aggregate, fair to the
Company from a financial point
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of view. On March 31, 1998 DLJ delivered its written opinion to the Company's
Board of Directors (the "DLJ Opinion"), to the effect that, as of the date of
such opinion, based upon and subject to the assumptions, limitations and
qualifications set forth in such opinion, the consideration to be received by
the Company in exchange for issuing the Company Common Stock and Contingent
Value Rights pursuant to the Stock Purchase Agreement was, in aggregate, fair
from a financial point of view, to the Company.
A COPY OF THE DLJ OPINION IS ATTACHED HERETO AS APPENDIX E. THE
COMPANY'S SHAREHOLDERS ARE URGED TO READ THE DLJ OPINION IN ITS ENTIRETY FOR
ASSUMPTIONS MADE, PROCEDURES FOLLOWED, OTHER MATTERS CONSIDERED AND LIMITS OF
THE REVIEW BY DLJ.
The DLJ Opinion is directed to the Company's Board of Directors and
addresses only the fairness, from a financial point of view to the Company, of
the consideration to be received by the Company in exchange for issuing the
Company Common Stock and Contingent Value Rights pursuant to the Stock Purchase
Agreement. The DLJ Opinion was rendered to the Company's Board of Directors for
its consideration in determining whether to approve the Transaction. The DLJ
Opinion does not address the relative merits of the Transaction and the other
business strategies considered by the Company's Board of Directors nor does it
address the decision by the Company's Board of Directors to proceed with the
Transaction. DLJ was not requested to, and did not, solicit the interest of any
other party in engaging in a transaction alternative to the Transaction. The DLJ
Opinion does not constitute a recommendation to any shareholder of Company as to
how any such shareholder should vote on the Transaction.
In arriving at its opinion, DLJ reviewed the drafts dated February
24, 1998 of the Agreements and the exhibits thereto. In issuing the DLJ Opinion,
DLJ assumed, with the consent of the Company's management, that the drafts of
the Agreements would conform in all material respects to such documents when in
final form. DLJ reviewed financial and other information that was publicly
available or furnished by the Company including information provided during
discussions with the Company's management. Included in the information provided
during discussions with the Company's management were certain financial
projections of the Company prepared by the management of the Company. In
addition, DLJ compared certain financial and securities data of the Company with
various other companies whose securities are traded in public markets, reviewed
the historical stock prices and trading volumes of the Company's Common Stock,
reviewed prices and premiums paid in certain other transactions and conducted
such other financial studies, analyses and investigations as appropriate for
purposes of the DLJ Opinion. No restrictions or limitations were imposed by the
Company upon DLJ with respect to the investigation made or procedures followed
by DLJ in rendering the DLJ Opinion, except for restrictions imposed under the
December 24, 1997 letter of intent with LFREI and except that, as noted above,
DLJ was not requested to, and did not, solicit the interest of any other party
in engaging in a transaction alternative to the Transaction.
In rendering its opinion, DLJ relied upon and assumed the accuracy
and completeness of all of the financial and other information that was
available to it from public sources, that was provided to it by the Company or
the Company's representatives, or that was otherwise reviewed by it. In
particular, DLJ relied upon the estimates of the management of the Company of
the financial impact of the Transaction on the Company. With respect to the
financial projections supplied to it, DLJ assumed that they were reasonably
prepared on the basis reflecting the best currently available estimates and
judgments of the management of the Company as to the future operating and
financial performance of the Company. In particular, DLJ assumed that the pro
forma adjustments and projections made for certain pending property acquisitions
accurately reflect the future financial performance of such acquisitions. In
addition, DLJ assumed, at the direction of the Company's management, that the
Transaction was not contingent upon the closing of any property acquisitions.
DLJ did not express an opinion as to the fairness of any consideration paid for
any pending or recently completed property acquisitions. DLJ did not make, and
does not assume any responsibility for making, any independent appraisal or
evaluation of any assets or liabilities or for making any independent
verification of any of the information provided or reviewed.
The DLJ Opinion is necessarily based on economic, market, financial
and other conditions as they exist on, and on the information made available to
DLJ, as of the date of the opinion. It should be understood that, although
subsequent developments may affect the DLJ Opinion, DLJ does not have any
obligation to update, revise or reaffirm the opinion. DLJ does not express any
opinion in the DLJ Opinion as to the price at which the Company's Common Stock
will actually trade at any time.
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The following is a summary of the presentation made by DLJ to the
Company's Board of Directors at its February 19, 1998 board meeting in
connection with the preparation of the DLJ Opinion.
CURRENT CAPITALIZATION. DLJ reviewed certain trading information for
the Company and, on the basis thereof, calculated its market capitalization,
dividend yield, debt to total market capitalization ratio and trading multiples
based on a closing price for the Company's Common Stock on February 11, 1998 of
$7.88. For this purpose, DLJ defined "total market capitalization" as market
value of the Company's common equity, pro forma for certain pending
acquisitions, on a fully diluted basis (including operating partnership units
and convertible securities), plus total debt less cash. DLJ based its financial
analysis of the Company on estimates of 1997 and 1998 FFO per share of $1.15 and
$1.25, respectively, based on publicly available estimates of future financial
results published by First Call, a data service that monitors and publishes a
compilation of earnings estimates produced by selected research analysts
regarding companies of interest to institutional investors. With respect to the
Company, DLJ calculated a total market capitalization of $475.6 million, an
annual dividend yield of 0.0%, a debt to total market capitalization ratio of
69.9% and share price to FFO per share multiples of 6.8x and 6.3x for 1997 and
1998 respectively.
STOCK TRADING HISTORY. DLJ reviewed the history of trading prices
and the historical total returns (comprised of cumulative dividends and changes
in stock price) of the Company's Common Stock for the 12 month period ending
February 12, 1998 in relation to the Standard & Poor's 500 Index, an index of
Comparative Factory Outlet Companies and an index of Comparative Community
Center Companies (as defined below). The comparisons to the indices of
Comparative Factory Outlet Companies and Comparative Community Center Companies
was utilized to compare the total returns of the Company's Common Stock to the
total common stock returns of similar public REITs, while the Standard & Poor's
500 Index was used to compare the total returns of the Company's Common Stock to
the total returns of the overall stock market. DLJ noted that the Company
outperformed both comparative company indices and the overall stock market
during the 12 month period ending February 12, 1998. DLJ also analyzed the
historical distribution of trading prices of the Company's Common Stock for the
period from February 11, 1997 to February 11, 1998. DLJ noted that the shares
traded at prices ranging from $5.25 per share to $8.44 per share over such
period. DLJ found that none of the 11.3 million shares traded during this period
(representing the equivalent of 92.4% of the 12.2 million outstanding shares of
Company Common Stock) traded at prices greater than the Transaction Price of
$9.50 per share.
SELECTED COMPARABLE COMPANY TRADING ANALYSIS. Using publicly
available information and estimates of future financial results published by
First Call, DLJ compared selected historical and projected financial, operating
and stock market performance data of the Company to the corresponding data of
certain publicly traded companies that DLJ deemed to be reasonably comparable
(the "Comparative Community Center Companies" and the "Comparative Factory
Outlet Companies"). The Comparative Community Center Companies represented
public REITs focused primarily on the management and ownership of community
shopping center properties. The Comparable Community Center Companies consisted
of Excel Realty Trust Inc., Federal Realty Investment Trust, IRT Property Co.,
Kimco Realty Corporation, Kranzco Realty Trust, Mark Centers Trust, New Plan
Realty Trust and Regency Realty Corporation. The Comparable Factory Outlet
Companies represented public REITs focused on the management and ownership of
factory outlet shopping centers. The Comparable Factory Outlet Companies
consisted of Chelsea GCA Realty, Inc., Horizon Group, Inc., Prime Retail, Inc.
and Tanger Factory Outlet Centers. The Comparative Community Center Companies
and the Comparative Factory Outlet Companies were selected principally based on
the consistency of property types owned with those owned by the Company. The two
periods selected were the years ended December 31, 1997 and 1998. In calculating
the FFO multiples of the Comparative Community Center Companies and the
Comparative Factory Outlet Companies, DLJ used median First Call FFO estimates
or DLJ Research FFO estimates and closing stock prices as of February 11, 1998.
DLJ observed that (i) the FFO multiples for the Comparative Community Center
Companies for the year ended December 31, 1997 ranged from 7.7x to 14.8x, with a
mean of 11.9x, the FFO multiples for the Comparative Factory Outlet Companies
for the same period ranged from 8.0x to 12.3x, with a mean of 10.3x and (ii) the
FFO multiples for the Comparative Community Center Companies for the year ended
December 31, 1998 ranged from 7.3x to 13.5x, with a mean of 10.9x, the FFO
multiples for the Comparative Factory Outlet Companies for the same period
ranged from 7.4x to 10.9x, with a mean of 9.2x. Per share values for the Company
were computed by multiplying the Company's projected FFO per share by the low,
high and mean FFO multiples for the Comparative Community Center Companies and
the Comparative Factory Outlet Companies for the years ended December 31, 1997
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and 1998. The values produced by this method ranged from $8.86 to $17.02 per
share for the year ended December 31, 1997 and $9.13 to $16.86 for the year
ended December 31, 1998. DLJ noted that the Transaction Price of $9.50 per share
is at the low end of the valuation ranges produced by this method. DLJ noted
that the range of implied values reflect, among other factors, the lower
leverage and higher anticipated FFO per share growth of the comparative
companies and that the implied share prices indicated by this methodology using
estimates of the Company's FFO per share on a leverage neutral basis would be
significantly lower. None of the companies utilized in the above analysis for
comparative purposes is, of course, identical to the Company. Accordingly, a
complete analysis of the results of the foregoing calculations cannot be limited
to a quantitative review of such results and involves complex considerations and
judgments concerning differences in the financial and operating characteristics
of the comparative companies and other factors that could affect the public
trading value of the comparative companies as well as that of the Company. In
addition, the multiples of common stock price to projected 1997 FFO per share
and projected 1998 FFO per share for the comparative companies are based on
projections prepared by research analysts using only publicly available
information. Accordingly, such estimates may or may not prove to be accurate.
COMPARATIVE TRANSACTIONS ANALYSIS. DLJ reviewed the financial terms,
to the extent publicly available, of six comparable investments in publicly
traded REITs (the "Selected Transactions"). DLJ calculated the premiums over
market price 1 day prior to the announcement date and 30 days prior to the
announcement date for the Selected Transactions and applied those premiums to
the closing price of the Company Common Stock of $7.88 on February 11, 1998. The
Selected Transactions included the following transactions: (i) Security Capital
U.S. Realty's investment in Carr Realty Corporation, (ii) Security Capital U.S.
Realty's investment in Storage USA, Inc., (iii) Lazard Freres Real Estate
Investors' investment in Alexander Haagen Properties, (iv) Security Capital U.S.
Realty's investment in Regency Realty Corporation, (v) Tiger/Westbrook Real
Estate Fund, L.P.'s investment in Essex Property Trust and (vi) Security Capital
U.S. Realty's investment in Prime Retail, Inc. DLJ noted that the Selected
Transactions were effected at prices compared to the market price one trading
day prior to the public announcement of the transactions ranging from a discount
of 7.8% to a premium of 10.3% (with a mean premium of 0.8%) and prices compared
to the market price thirty trading days prior to the public announcement of the
transactions ranging from a discount of 0.6% to a premium of 11.7% (with a mean
premium of 5.4%). DLJ observed that the indicated range of premiums from the
Comparative Transactions was less than the 20.6% premium indicated by the
Transaction Price of $9.50 per share over the unaffected closing price of the
Company's Common Stock of $7.88 on February 11, 1998. DLJ also calculated the
implied per share value for the Company by applying the mean premium one day and
thirty days prior to the announcement of the Selected Transactions to the
closing price of the Company's Common Stock of $7.88 on February 11, 1998. DLJ
observed that the range of per share values produced by this method was $7.94 to
$8.31 per share and that the Transaction Price of $9.50 per share was above the
range of per share values produced by this method.
PREMIUMS PAID ANALYSIS. DLJ compared the 20.6% premium implied by
the Transaction Price of $9.50 per share over the unaffected closing price of
the Company's Common Stock of $7.88 on February 11, 1998, with the percentage
premium of the offer price over the trading prices one day and seven days prior
to the announcement date of approximately 450 merger and acquisition
transactions involving public company targets with total market capitalizations
less than $750 million. The transactions analyzed consisted of recent
stock-for-stock and cash-for-stock merger or acquisition transactions in which
the target company was a domestic non-financial, publicly traded company and in
which more than 50% of the target company's stock was acquired. The transactions
involve companies not necessarily directly comparable to the Company. The median
premiums for the stock-for-stock transactions over the trading prices, one day
and seven days prior to the announcement dates were 34.6% and 40.5%,
respectively, and the median premiums for all the transactions over the trading
prices, one day and seven days prior to the announcement dates were 30.1% and
35.2%, respectively. DLJ applied the median premiums from all of the merger and
acquisition transactions as well as the median premiums from all of the
stock-for-stock merger and acquisition transactions and applied them to the
unaffected closing price of the Company's Common Stock on February 11, 1998 of
$7.88 to arrive at a range of implied per share values. Based on this analysis,
DLJ arrived at an implied value range of $10.06 to $10.74 per share. Based on
this analysis, the implied premium of 20.4% and the Transaction Price of $9.50
per share were below the range of premiums and range of implied stock prices
indicated by the merger transactions analyzed. DLJ noted that the lower
comparative premium paid in the Transaction may be a result of the stable net
asset value of the underlying real estate properties and the lack of significant
control premiums paid in typical REIT merger and
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acquisition transactions. In addition, DLJ noted that the Company's Common Stock
has lower price volatility than the overall market.
NET ASSET VALUATION ANALYSIS. DLJ performed a net asset valuation
analysis of the Company's operating community center and factory outlet center
properties by subtracting outstanding debt from the gross estimated value of the
properties including, at the direction of the Company's management, certain
pending acquisitions. The gross estimated value for the Company's community
center and factory outlet operating assets was estimated by capitalizing 1998
net operating income for such properties, including an adjustment for market
rate management fees, using a range of capitalization rates. The range of
capitalization rates applied was based on industry surveys published by certain
independent research firms. DLJ applied capitalization rates ranging from 9.5%
to 11.5% for the community center properties and 10.0% to 12.0% for the factory
outlet center properties. In applying the range of capitalization rates, DLJ
took into consideration current market conditions, property characteristics and
the projected financial performance of the assets. The net asset valuation was
further adjusted for construction in progress. DLJ adjusted the debt and common
share equivalents used in the net asset valuation analysis for debt to be
assumed and OP units to be issued for certain pending property acquisitions. The
net asset valuation analysis produced a range of estimated equity value of
approximately $128.3 million to $221.4 million, or $7.06 to $12.19 per share of
Common Stock. DLJ observed that the Transaction Price of $9.50 per share was
within the range of value estimates produced by this method.
DISCOUNTED DIVIDEND ANALYSIS. The discounted dividend valuation
assumes, as a basic premise, that the value of a share of common stock of a
company can be determined with reference to the present value of the projected
dividends to common shareholders over an investment period plus the present
value of the future stock price at the end of such investment period. DLJ used
projections and other information supplied by the Company to estimate the future
quarterly common dividends for the Company (based on the assumption that the
Company will continue to pay the minimum allowable common dividends for REITs).
The present value of common dividends for the five year period beginning January
1, 1998 through December 31, 2002, inclusive, was calculated using discount
rates ranging from 12.5% to 22.5%, based on equity return requirements of
private equity investors in similar real estate transactions.
DLJ estimated the terminal common stock value as of December 31,
2002 by applying FFO multiples of 7.5x to 9.5x to estimated 2002 FFO per share.
DLJ discounted the range of terminal values back to January 1, 1998 at discount
rates ranging from 12.5% to 22.5%, the same discount rates used in calculating
the present value of common dividends. DLJ then added together the range of
present values of the dividends and the range of present values of terminal
common stock value to arrive at a discounted cash flow valuation for the
Company's equity. DLJ observed that the Transaction Price of $9.50 per share was
within the implied per share value range of $6.07 to $12.08 produced by this
method.
ACCRETION / (DILUTION) ANALYSIS. DLJ performed an analysis of the
effect of the Transaction on the Company's FFO per share for 1998 and 1999,
based on projections and other information supplied by the Company's management.
The stand alone base case projections prepared by the Company's management
assume the completion of certain pending acquisitions and developments, the
paydown of debt with excess cash flow, and a targeted stabilized debt-to-market
capitalization ratio of 45% to 50%. DLJ adjusted the projected base case results
of the Company to give effect to the Transaction, including among other things,
a more aggressive acquisition and development program and a targeted stabilized
debt-to-market capitalization ratio of 30% to 35%, to arrive at projected FFO
per share for the Company pro forma for the Transaction. DLJ then compared the
resulting FFO per share pro forma for the Transaction to the Company's stand
alone base case FFO per share. This analysis indicated that the pro forma impact
of the Transaction would be FFO per share dilutive in 1998 and FFO per share
accretive in 1999. DLJ observed that the Transaction would significantly reduce
the Company's debt to market capitalization ratio in comparison to the stand
alone base case scenario (44.1% vs. 60.8% in 1998 and 35.3% vs. 48.9% in 1999).
Based on the assumption that the lower leverage post- Transaction would result
in an expansion of the Company's FFO multiple, DLJ noted that the estimated
share price pro forma for the Transaction was projected to be higher than the
base case estimated share price in both 1998 and 1999. DLJ observed that the
Transaction would be beneficial to the Company with respect to FFO per share
accretion in 1998 and share price accretion and leverage in 1998 and 1999.
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PROJECTED SHAREHOLDER RETURN ANALYSIS. DLJ performed an analysis of
the effect of the Transaction on the Company's projected annualized common
shareholder returns for the 5 year period beginning January 1, 1998 through
December 31, 2002, based on the stand alone base case projections and the
projections pro forma for the Transaction prepared by the Company's Management.
For the base case scenario, assuming internal growth rates ranging from 3.0% to
5.0% and stabilized FFO multiples ranging from 7.5x to 9.5x, DLJ observed
projected 5-year annualized common shareholder returns ranging from 14% to 25%.
Pro forma for the Transaction, assuming internal growth rates ranging from 3.0%
to 5.0% and stabilized FFO multiples ranging from 8.0x to 12.0x, DLJ noted
projected 5-year annualized common shareholder returns ranging from 22% to 38%.
DLJ noted that holders of the Company's Common Stock are projected to receive
higher 5-year annualized common shareholder returns assuming the Transaction is
completed than on stand alone base case basis.
CONTINGENT VALUE RIGHT ANALYSIS. DLJ performed an analysis of the
contingent value right which, under the terms of the Agreements, will be "in the
money" if the annualized return to the Investor from the Transaction through
January 1, 2004, excluding the contingent value right, is less than 15%. DLJ
analyzed the projected annualized return to the Investor based on the financial
projections pro forma for the Transaction prepared by the Company's management.
DLJ performed a sensitivity analysis of the projected annualized returns based
on annual net operating income growth rates ranging from 1.0% to 5.0% and
stabilized FFO multiples ranging from 7.0x to 12.0x. DLJ noted that based on the
sensitivity analysis of Company management projections pro forma for the
Transaction, the contingent value right will not be "in the money" unless the
Company has very low internal growth or minimal multiple expansion.
The summary set forth above does not purport to be a complete
description of the analyses performed by DLJ, but describes, in summary form,
the material elements of the presentation by DLJ to the Company's Board on
February 19, 1997 in connection with its preparation of the DLJ Opinion. The
preparation of a fairness opinion involves various determinations as to the most
appropriate and relevant methods of financial analysis and the application of
these methods to the particular circumstances and, therefore, such an opinion is
not readily susceptible to summary description. Each of the analyses conducted
by DLJ was carried out in order to provide a different perspective on the
Transaction and add to the total mix of information available. DLJ did not form
a conclusion as to whether any individual analysis, considered in isolation,
supported or failed to support an opinion as to fairness from a financial point
of view. Rather, in reaching its conclusion, DLJ considered the results of the
analyses in light of each other and ultimately reached its opinion based on the
results of all analyses taken as a whole. DLJ did not place particular reliance
or weight on any individual analysis, but instead concluded that its analyses,
taken as a whole, supported its determination. Accordingly, notwithstanding the
separate factors summarized above, DLJ believes that its analyses must be
considered as a whole and that selecting portions of its analysis and the
factors considered by it, without considering all analyses and factors, could
create an incomplete or misleading view of the evaluation process underlying its
opinion. In performing its analyses, DLJ made numerous assumptions with respect
to industry performance, business, economic, market and financial conditions and
other matters, including the absence of any material changes in the real estate
markets in which the Company conducts business, U.S. economic conditions
generally and the financial markets and mergers and acquisitions markets in
particular. The analyses performed by DLJ are not necessarily indicative of
actual values or future results, which may be significantly more or less
favorable than suggested by such analyses.
DLJ was paid a fee of $600,000 by the Company for its services in
rendering its opinion. In addition, the Company paid DLJ retainer fees totaling
$100,000 and $_______ as reimbursement for reasonable out of pocket expenses.
The Company has also agreed to indemnify DLJ, its affiliates and their
respective directors, officers, employees, agents and controlling persons
against certain liabilities, including liabilities under federal securities
laws. Although the Company believes that DLJ is not entitled to any additional
fees or consideration in connection with the Transaction, DLJ has notified the
Company that it believes it is entitled to additional fees, including "success
based" advisory fees, under the terms of its engagement letter with the Company
dated May 23, 1997. As of the date hereof there has been no resolution of the
disagreement.
DLJ may actively trade the securities of the Company for its own
account and for the accounts of its customers and, accordingly, DLJ may at any
time hold long or short positions in such securities. Other than the current
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engagement, DLJ has not been paid for providing investment banking or advisory
services to the Company over the past 5 years.
RECOMMENDATION OF THE BOARD; FACTORS AND CONCLUSIONS OF THE BOARD INVOLVED IN
ITS DETERMINATION
The Board of Directors of the Company has approved the Transaction
and has determined that the Transaction is in the best interests of the Company
and its stockholders. THE BOARD RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" APPROVAL
OF THE TRANSACTION.
The Board believes that the Transaction is in the best interests of
the Company and its stockholders because, if consummated, it represents an
opportunity to improve long-term stockholder value by providing the Company with
access to significant equity capital at an attractive cost and strategic
resources not otherwise readily available to it, thereby enhancing the Company's
ability to capitalize on community shopping center opportunities specifically in
the Southeast. See "-- Potential Beneficial Effects of the Transaction" above.
Although the Board believes that the Transaction is in the best
interests of the Company and its stockholders, the consummation of the
Transaction may have certain adverse effects that stockholders should consider.
These considerations include: (i) the substantial amount of Common Stock that
will be concentrated in one stockholder of the Company, as well as certain
rights being granted to the Investor in connection with the Transaction
(including rights with respect to Board representation and information), which
rights will allow the Investor to exercise substantial influence over the
affairs of the Company and might discourage other persons from offering to
acquire a significant interest in the Company, (ii) the possibility that the
Investor will gain control of the Company, and (iii) the possible dilution of
earnings per share to stockholders as a result of the Transaction. See "--
Potential Adverse Effects of the Transaction" above.
In reaching its determination that the Transaction is in the best
interests of the Company and its stockholders, the Board considered the
following material factors in addition to those discussed above under
"--Potential Beneficial Effects of the Transaction" and "--Potential Adverse
Effects of the Transaction."
SUBSTANTIAL STOCKHOLDER. The Board considered that, as a result of
the Transaction, the Investor will be the largest single stockholder of the
Company, owning as much as 63% of the outstanding Common Stock (59% on a fully
diluted basis), while the charter would continue to prohibit certain persons
from owning more than 9.8% by value of the Company's capital stock (subject to
certain exceptions set forth in the charter or approved by the Board) in order
to facilitate the Company's continued qualification as a REIT. The Board
considered that the Investor also would have substantial information rights, the
right to nominate Board members, and numerous other rights as described herein.
Although the Board believes that this concentration of ownership in one
stockholder could potentially be disadvantageous to the other stockholders'
interests, the Board also believes that certain provisions of the Stockholders
Agreement should reduce, to some extent, the impact of such concentration of
ownership by imposing various limitations on the Investor with regard to its
ownership, transfer and voting of Common Stock, including provisions that limit
to three the number of directors nominated to the Company's Board of Directors
by the Investor until the Final Threshold Date. Although the Board recognizes
the potentially negative aspects of the concentration of substantial ownership
in a single stockholder, the Board believes that, on balance, the potentially
negative aspects are outweighed by the potential benefits of obtaining in a
timely way a substantial amount of capital at a reasonable cost, the indirect
affiliation with the Investor and the other potential benefits of the
Transaction.
IMPACT ON OTHER INVESTMENTS. The Board believes that the limitations
on the Company's ability to engage in certain corporate actions without 67%
Board approval, the composition of the Board following the stockholder approval
of the Transaction (and thereafter), the size of the Investor's investment
(notwithstanding related restrictions on the Investor, as discussed above),
certain provisions of the Code limiting ownership of REITs, and certain
provisions of the Code and other countries' tax laws applicable to foreign
investors might discourage other persons from offering to acquire a significant
interest in the Company (or all or a significant interest in the assets of the
Company). As a result,
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the Board considers this to be a negative factor. However, the Board believes
that this factor is outweighed by the positive factors outlined above.
The members of the Board evaluated the factors referred to above in
light of their knowledge of the business and operations of the Company, their
business judgment and the fairness opinion of DLJ. In view of the wide variety
of factors considered in connection with the Board's evaluation of the
Transaction, the Board did not find it practicable to, and did not, quantify or
attempt to assign relative weights to the specific factors considered in
reaching its determination.
REQUIRED VOTE AND RELATED MATTERS
Proposal Two, the approval of the Transaction, requires the
affirmative vote of a majority of the votes cast on the proposal, provided that
the total vote cast on the proposal represents over 50% in interest of all
shares of Common Stock entitled to vote on the proposal. The Investor is not
entitled to vote on Proposal Two. For purposes of the vote on Proposal Two, an
abstention or a broker non-vote (i.e., shares held by a broker or nominee which
are represented at the Annual Meeting but with respect to which such broker or
nominee is not empowered to vote on a proposal) will have the effect of a vote
against the proposal, unless holders of more than 50% in interest of all
securities entitled to vote on the proposal cast votes, in which event neither
an abstention nor a broker non-vote will have any effect on the result of the
vote.
Approval of the Transaction by the requisite vote of the
stockholders of the Company is a condition to consummation of the Transaction
(except for the Initial Purchase by the Investor of 2,350,000 shares on March
23, 1998).
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR"
PROPOSAL TWO.
PROPOSAL THREE:
AMENDMENT OF CHARTER TO CHANGE THE NAME OF THE COMPANY
The Company has entered into definitive agreements with affiliates
of Konover & Associates South, a privately held real estate development firm
based in Boca Raton, Florida, to acquire 11 community shopping centers totaling
approximately 2.0 million square feet, as well as certain affiliated management
and leasing contracts (the "Konover Transaction"). The shopping centers to be
acquired (the "Konover Centers") located in the Company's target markets of
Florida, North Carolina, Alabama, Virginia and Georgia and anchored by such
tenants as Winn-Dixie, Kroger, Eckerd Drug Store, Home Depot and Food Lion. The
purchase price for the Konover Transaction consists of approximately $24 million
in equity, plus the assumption of approximately $76 million in debt. At closing,
$17 million of the equity will be paid, at the seller's election, in the form of
Units and/or cash. The remaining $7 million in equity will be paid in cash over
a three-year period with interest at 7.75% per annum.
As discussed above under "Proposal One: Election of Directors," the
Company has agreed to elect Mr. Konover as Chairman of the Board of Directors no
later than the final closing of the Konover Transaction. The Konover Transaction
is expected to be closed shortly after the Annual Meeting, assuming satisfaction
of closing conditions.
Simon Konover, 76, is the founder of Konover & Associates, a $500
million-plus real estate enterprise located in West Hartford, Connecticut. The
organization includes shopping centers, office buildings, hotels and residential
communities. The shopping center portfolio includes over 100 centers and 11
million square feet. In the mid-1960s, Mr. Konover began developing retail
centers in south Florida and in late 1989 founded Konover & Associates South,
located in Boca Raton, Florida.
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Neither the acquisition of the Konover Centers nor the election of
Mr. Konover to the Chairman of the Board requires the approval of the
stockholders. Assuming satisfaction of the conditions to closing (including the
Lazard Investment or an equity investment of at least $75 million on terms at
least as favorable to the Company as the Lazard Investment), the Company will
acquire the Konover Centers and elect Mr. Konover as Chairman, to serve until
the election of directors at the 1999 annual meeting of the stockholders.
The Board of Directors believes that the Konover Center Transaction
and, even more importantly, the addition of Simon Konover as Chairman of the
Board will greatly enhance the Company's ability to reach its long-term
objectives. Mr. Konover has a national reputation in the real estate and retail
shopping center industries. The Board of Directors believes that the Company can
maximize the benefits of the Konover Transaction by changing its name to
"Konover Property Trust, Inc." and its NYSE-assigned stock symbol to "KPT."
The Board of Directors is seeking stockholder approval to amend the
Company's charter to change its name to "Konover Property Trust, Inc." In the
event stockholder approval of the proposed charter amendment is not obtained,
the Company is contractually obligated under the agreements with Konover to do
business under a name substantially similar to "Konover/FAC."
If the name change is approved, the Company will file a certificate
of amendment to its charter as soon as practicable after the completion of the
Konover Transaction. As amended, Article FIRST of the Charter would read as
follows: "The name of the Corporation is Konover Property Trust, Inc."
Proposal Three, approval of change of the Company's name, requires
the affirmative vote of a majority of all of the votes entitled to be case on
the matter. For purposes of the Vote on Proposal Three, abstentions and broker
non-votes will have the same effect as votes against the proposal, although they
will count toward the presence of a quorum.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR"
PROPOSAL THREE.
PROPOSAL FOUR:
CHARTER AMENDMENT TO INCREASE THE NUMBER OF
AUTHORIZED SHARES OF CAPITAL STOCK
The Company's charter currently authorizes 75,000,000 shares of
capital stock, consisting of 45,000,000 shares of Common Stock, 5,000,000 shares
of preferred stock, par value $25.00 per share (the "Preferred Stock"), and
25,000,000 shares of excess stock, par value $.01 per share (the "Excess
Stock"). The Board of Directors recommends amending the charter to increase the
number of authorized shares of capital stock to 130,000,000, consisting of
100,000,000 shares of Common Stock, 5,000,000 shares of Preferred Stock and
25,000,000 shares of Excess Stock. The charter would continue to provide that
the Board of Directors could reclassify any unissued shares of capital stock.
Although the Company only has 14,275,820 shares of Common Stock
outstanding, approximately 28,000,000 additional shares of Common Stock are
issuable in connection with (i) the Lazard Investment, (ii) the redemption of
outstanding Units and Units to be issued in the Konover Transaction, (iii) the
possible conversion of the outstanding Preferred Stock into shares of Common
Stock, (iv) the exercise of existing stock options and (v) the exercise of
outstanding warrants.
The Board of Directors believes that the proposed increase is
desirable so that the Company will have more flexibility to issue shares of
Common Stock without the expense and delay of a special stockholders' meeting in
connection with acquisitions involving Common Stock or Units, equity financings,
incentive compensation of directors and employees, and for other corporate
purposes for which the issuance of Common Stock may be advisable.
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The increase in authorized capital stock would not have any
immediate effect on the rights of existing stockholders. However, the Board of
Directors would have the authority to issue authorized Common Stock without
requiring future stockholder approval of such issuances, EXCEPT AS MAY BE
REQUIRED BY APPLICABLE LAW OR STOCK EXCHANGE REGULATIONS. (For example,
stockholder approval is required in connection with the Lazard Investment
because of the rules of the New York Stock Exchange.) To the extent that
additional authorized shares are issued in the future, they would decrease the
existing stockholders' percentage equity ownership and, depending upon the price
at which they were issued, could be dilutive to the existing stockholders. The
holders of Common Stock have no preemptive rights.
Proposal Four, approval of an increase in the number of shares
authorized for issuance, requires the affirmative vote of a majority of all of
the votes entitled to be case on the matter. For purposes of the vote on
Proposal Four, abstentions and broker non-votes will have the same effect as
votes against the proposal, although they will count toward the presence of a
quorum.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR"
PROPOSAL FOUR.
PROPOSAL FIVE:
AMENDMENT TO THE COMPANY'S 1993 EMPLOYEE STOCK INCENTIVE PLAN
REASONS FOR AMENDMENT
The Board of Directors proposes that the stockholders approve an
amendment (the "Stock Plan Amendment") to the Company's 1993 Amended and
Restated Employee Stock Incentive Plan (the "Stock Incentive Plan") to increase
the number of shares of Common Stock reserved for issuance thereunder (the "Plan
Shares") from 1,100,000 to 2,800,000. The Plan was previously amended by the
stockholders at the 1996 annual meeting to increase the number of Plan Shares
from 525,000 to 1,100,000. As of March 1, 1998, options to purchase 906,050 Plan
Shares had been granted under the Stock Incentive Plan, inclusive of options to
purchase 190,800 Plan Shares issued to certain former officers of the Company.
Although disputed by such former officers, the Company believes the exercise
period for such options has expired. For a discussion of the repricing of
options issued under the plan, see "Executive Compensation --Executive
Compensation Committee Report on Executive Compensation -- REPORT ON REPRICING
OF OPTIONS." The policy of the Board is to not issue options that would cause
the total number of outstanding options to exceed 7% of the then outstanding
shares of Common Stock. The Board of Directors believes that it is in the best
interests of the Company and its stockholders to approve the Stock Plan
Amendment to enable the Company to continue to grant options in the future to
secure and retain the services of key employees. Moreover, the Board of
Directors believes the additional financial incentive inherent in new or
additional ownership of shares of the Common Stock by its key employees is
beneficial to the Company.
SUMMARY PLAN DESCRIPTION
GENERAL. Stock options intended to qualify as "incentive stock
options" within the meaning of Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code"), and the regulations promulgated thereunder, as well as
"nonqualified stock options," may be granted under the Stock Incentive Plan.
Unless specified to the contrary, the terms "option" and "stock option," when
used in this summary description, refer to both incentive stock options and
nonqualified stock options. The Stock Plan Amendment would increase the
aggregate number of Plan Shares to 2,800,000. The Stock Incentive Plan expires
on March 30, 2003. Any stock option outstanding at the expiration date will
remain outstanding until it has either expired or been exercised.
ADMINISTRATION. The Stock Incentive Plan is administered by the
Executive Compensation Committee (the "Committee"). The Committee has full
authority to determine and designate employees eligible to receive option grants
and to determine the nature and terms of such grants. The interpretation and
construction by the Committee of any
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provision of the Stock Incentive Plan or of any stock option granted under it
and the administration of the Stock Incentive Plan by the Committee is final.
ELIGIBLE EMPLOYEES. The Committee selects the key employees of the
Company who will be granted options under the Stock Incentive Plan. The
approximate number of employees of the Company currently eligible to participate
in the Stock Incentive Plan is 13.
GRANT OF OPTIONS. Subject to certain limitations explained below,
the Committee may grant stock options from time to time during the period that
the Stock Incentive Plan is in effect to such key employees of the Company as in
the opinion of the Committee will best further the interests of the Company and
achieve the purposes of the Stock Incentive Plan. No option under the Stock
Incentive Plan will be granted to any individual who, at the time of grant, is
not an employee of the Company (or has agreed to become an employee). The
Committee may not grant incentive stock options to an employee if the aggregate
fair market value (determined at the time the incentive stock option is granted)
of shares of Common Stock with respect to which incentive stock options are
exercisable for the first time by such employee during any calendar year (under
all option plans of the Company) will exceed $100,000.
EXERCISE. Stock options, to the extent vested, may be exercised in
whole or in part upon payment of the exercise price of the shares to be
acquired. Payment shall be made in cash or, at the discretion of the Committee,
in shares of Common Stock previously acquired by the optionee, or in a
combination of cash and such shares. The fair market value of shares of Common
Stock tendered on exercise of the stock option shall be determined on the date
of exercise.
Stock options may also be exercised in whole or in part by giving an
irrevocable written notice of exercise to the Company. The date on which such
notice is received by the Company shall be the date of exercise of the stock
option, provided that within five business days of delivery of such notice the
funds to pay for the exercise of such option are delivered to the Company by a
broker acting on behalf of the optionee either in connection with the sale of
the shares underlying such stock option or in connection with the making of a
margin loan to the optionee to enable payment of the exercise price of such
stock option.
OPTION PRICE. The option price per share of Common Stock to be paid
upon the exercise of an option will not be less than the fair market value per
share (determined as described below) at the time the option is granted. Such
fair market value will be the closing sale price per share of Common Stock (or
in the event there are no sales, then the average of the opening bid and asked
prices per share of Common Stock) on the New York Stock Exchange on the last
trading day preceding the date on which the option is granted.
TRANSFER AND TERMINATION OF OPTIONS. An option may not be
transferred by the optionee other than by will or the laws of descent and
distribution. An option may be exercised during the optionee's lifetime only by
the optionee or his duly authorized legal representative if the optionee is
unable to exercise his option as a result of the optionee's disability, but only
if and to the extent permitted by Section 422 of the Code, and, after his death,
only by the administrator or executor of the optionee's estate. If an optionee
leaves the Company's employment voluntarily or is released by the Company for
"cause" (as that term is defined in the Stock Incentive Plan), options granted
to that optionee terminate on the effective date of termination of the
optionee's employment. An uninterrupted transfer of an optionee's employment to
or between the Company and/or any parent or subsidiary corporation of the
Company is not deemed to be a termination of employment.
If an optionee becomes permanently and totally disabled (within the
meaning of Section 22(e)(3) of the Code) while employed by the Company, any
option granted to such optionee will be exercisable only for the one year
succeeding cessation of employment due to such disability. If an optionee dies
while employed by the Company, an option granted to such optionee will be
exercisable by his administrator or executor for one year after the optionee's
death. If the optionee is terminated by the Company without "cause," any
incentive stock options held by an optionee must be exercised within three
months of the date of such termination and any other options granted to the
optionee must be exercised within one year following such termination.
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Notwithstanding the foregoing, no option may be exercised after the
expiration of the option period. Upon the occurrence of a change in control of
the Company (as defined in the Stock Incentive Plan), all stock options granted
under the Stock Incentive Plan become immediately vested and exercisable in
full. The Company has obtained waivers from the current participants in the
Stock Incentive Plan to the effect that the Transaction will not result in the
acceleration of the participants' stock options under the plan.
ADJUSTMENT OF SHARES. The Committee will automatically adjust the
number and kind of shares, both in the aggregate and as to each optionee,
available for and subject to options and the option price payable upon exercise
thereof to prevent dilution or enlargement of option rights in the event of a
change in the number or kind of outstanding shares of the Company by reason of
capitalization, merger, consolidation, reorganization, stock split, stock
dividend, combination of shares or any other change in the corporate structure
or shares of stock of the Company.
TERMINATION AND AMENDMENT OF THE STOCK INCENTIVE PLAN. Options may
be granted under the Stock Incentive Plan at any time until and including March
30, 2003, on which date the Stock Incentive Plan will expire except as to
options then outstanding. Options outstanding at the time will remain in effect
until they have been exercised or have expired.
The Board of Directors may alter, amend or revoke the Stock
Incentive Plan in whole or in part at any time; provided, however, that in no
event, without the approval of the stockholders, may any action of the Board of
Directors result in: (i) materially amending, modifying or altering the
eligibility requirements provided in the Stock Incentive Plan; (ii) materially
increasing, except as provided in the Stock Incentive Plan, the maximum number
of shares of Common Stock that may be made subject to grants under the Stock
Incentive Plan; (iii) materially increasing the benefits accruing to
participants under the Stock Incentive Plan; or (iv) reducing the minimum option
price requirements.
FEDERAL TAX CONSEQUENCES. The following is a summary only of the
general tax principles applicable to the Stock Incentive Plan under federal law
as in effect on the date of this Proxy Statement.
There are no tax consequences to the optionee upon the grant of an
incentive stock option pursuant to the Stock Incentive Plan. There are no tax
consequences to the optionee upon exercise of an incentive stock option, except
that the amount by which the fair market value of the shares at the time of
exercise exceeds the option exercise price is a tax preference item possibly
giving rise to alternative minimum tax. If the shares of Common Stock acquired
are not disposed of within two years from the date the option was granted or
within one year after the shares are transferred to the optionee, any gain
realized upon the subsequent disposition of the shares will be characterized as
capital gain and any loss will be characterized as long-term capital loss. If
all requirements other than the above-described holding period requirements are
met, a "disqualifying disposition" occurs and gain in an amount equal to the
fair market value of the shares on the date of exercise minus the option
exercise price (except for certain "wash" sales, gifts or sales to related
persons), is taxed as ordinary income and the Company will be entitled to a
corresponding deduction in an amount equal to the optionee's ordinary income at
that time. The gain in excess of this amount, if any, will be characterized as
capital gain if the optionee held the shares for more than one year. There are
no tax consequences to the Company upon the grant of an incentive stock option
nor upon the exercise of an incentive stock option unless a "disqualifying
disposition" occurs.
There are no tax consequences to the optionee upon the grant of a
nonqualified option pursuant to the Stock Incentive Plan. Upon the exercise of a
nonqualified stock option, taxable ordinary income will be recognized by the
holder in an amount equal to the excess of the fair market value of the shares
purchased as the time of such exercise over the aggregate option price. The
Company will be entitled to a corresponding federal income tax deduction. Upon
any subsequent sale of the shares, the optionee will generally recognize a
taxable capital gain or loss based upon the difference between the per share
fair market value at the time of exercise and the per share selling price at the
time of the subsequent sale of the shares.
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OPTIONS GRANTED TO DATE
The following table shows the aggregate number of Plan Shares
subject to options granted under the Stock Incentive Plan through the Record
Date as to (a) each named executive officer; (b) all current executive officers
as a group and (c) all other employees as a group. As of March 23, 1998, the
closing price of the Common Stock on the New York Stock Exchange was 9 3/16 per
share.
OPTIONS RECEIVED
NAME AND POSITION TO DATE (#)
C. Cammack Morton
President and Chief Executive Officer 300,000
Patrick M. Miniutti
Executive Vice President and Chief
Financial Officer 200,000
William H. Neville
Executive Vice President and Chief
Operating Officer 50,000
Christopher G. Gavrelis
Executive Vice President - Management 35,000
Connell L. Radcliff
Senior Vice President - Development 63,250
All current executive officers as a
group (7)...................................................... 693,250
All employees as a group (200) ................................ 758,250
REQUIRED VOTE
Proposal Five requires the affirmative vote of a majority of the
votes cast on the proposal, provided that the total vote cast on the proposal
represents over 50% in interest of all shares of common stock entitled to vote
on the proposal. For purposes of the vote on Proposal Five, an abstention or a
broker non-vote will have the effect of a vote against the proposals, unless
holders of more than 50% interest of all shares of common stock entitled to vote
on the proposal cast votes, in which event neither an abstention nor a broker
non-vote will have any effect on the result of the vote.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR"
PROPOSAL FIVE.
PROPOSAL SIX:
AMENDMENT OF THE
1995 OUTSIDE DIRECTORS' STOCK COMPENSATION PLAN
The Board of Directors recommends that the stockholders approve an
amendment to the Company's 1995 Outside Directors' Stock Compensation Plan (the
"Directors' Plan") to increase the shares of Common Stock authorized to be
issued under the Directors' Plan from 25,000 to 150,000. The Directors' Plan was
adopted in 1995 by the Company to provide an incentive of increased Common Stock
ownership to the members of the Board of Directors of
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the Company who are not officers or employees of the Company or any of its
subsidiaries ("Outside Directors"). The Directors' Plan is administered by the
executive compensation committee. Information regarding the Directors' Plan is
set forth below.
Outside Directors receive an annual retainer fee of $12,000 that is
paid in equal semi-annual installments (the "Retainer Fee") plus a fee of $1,000
(plus out-of-pocket expenses) for attendance in person at each meeting of the
Board of Directors or a committee (the "Meeting Fee"). Outside Directors may
elect to receive all or a portion of their Retainer Fee and Meeting Fees in
shares of Common Stock or options to purchase Common Stock issued under the
Directors' Plan in lieu of a cash payment. If an Outside Director elects to
receive a portion of his Retainer Fee or Meeting Fee in shares of Common Stock,
the number of shares of Common Stock awarded to Outside Directors in lieu of a
cash payment will be based on the price of the Common Stock on the New York
Stock Exchange on the business day immediately preceding the relevant payment
date. If an Outside Director elects to receive a portion of his Retainer Fee or
Meeting Fee in options to purchase shares of Common Stock, the number of options
awarded will vary with the exercise price such that the difference between the
fair market value of the shares underlying the options and the aggregate
exercise price of the options equals such portion of the cash director fees
foregone. The executive compensation committee may also grant discretionary
awards of options to purchase Common Stock to Outside Directors. In no event,
however, may the total number of shares and options granted to an Outside
Director in any year exceed 5,000, including shares and options issued as
Retainer Fees and Meeting Fees.
The exercise price for each option issued under the Directors' Plan
will be not less than the fair market value of a share of Common Stock on the
date of grant, except that options received in lieu of cash Retainer Fees or
Meeting Fees will have an exercise price of not less than such fair market value
minus the amount of such fees that the director elected to forego.
As of March 1, 1998, 11,376 shares of Common Stock had been issued
or reserved for issuance upon exercise of outstanding options under the
Directors' Plan. The proposed amendment to the Directors' Plan would increase
the number of shares of Common Stock authorized to be issued under the
Directors' Plan from 25,000 to 150,000. The Board of Directors believes this
increase is necessary because each current Outside Director has elected to
receive up to $20,000 of their Retainer Fee and Meeting Fees in shares of Common
Stock in lieu of a cash payment. Moreover, the Board of Directors believes that
the additional financial incentive inherent in new or additional ownership of
shares of Common Stock by its directors is beneficial to the Company.
Proposal Six requires the affirmative vote of a majority of the
votes cast on the proposal, provided that the total vote cast on the proposal
represents over 50% in interest of all shares of Common Stock entitled to vote
on the proposal. For proposes of the vote on Proposal Six, an abstention or a
broker non-vote will have the effect of a vote against the proposals, unless
holders of more than 50% in interest of all shares of Common Stock entitled to
vote on the proposal cast votes, in which event neither an abstention nor a
broker non-vote will have any effect on the result of the vote.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR"
PROPOSAL SIX.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Each director and officer of the Company is required to file with
the Securities and Exchange Commission, by a specified date, reports regarding
his or her transactions involving the Company's Common Stock. To the Company's
knowledge, based solely on the information furnished to the Company and written
representations that no other reports were required, during the fiscal year
ended December 31, 1997, all such filing requirements were complied with, except
that the exchange of unvested shares of Restricted Stock for Repurchase Options
described at "Executive Compensation--Executive Compensation Committee
Report--RESTRICTED STOCK" was reported late by Messrs. Morton, Miniutti,
Neville, Gavrelis and Radcliff and Ms. Thorburn.
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OTHER BUSINESS
Stockholders may obtain without charge a copy of the Company's
annual report on Form 10-K for the fiscal year ended December 31, 1997, filed
with the SEC, including the financial statements and schedules thereto, without
the accompanying exhibits, by writing to Investor Relations, FAC Realty Trust,
Inc., 11000 Regency Parkway, Suite 300, Cary, North Carolina 27511. A list of
exhibits is included in the Form 10-K, and exhibits are available from the
Company upon payment to the Company of the costs of furnishing them.
ADDITIONAL INFORMATION
The Board of Directors knows of no other business to be brought
before the Annual Meeting. If, however, any other business should properly come
before the Annual Meeting, including matters incident to the Annual Meeting, the
persons named in the accompanying proxy will vote proxies as they deem
appropriate with respect to such matters.
STOCKHOLDER PROPOSALS FOR 1999 ANNUAL MEETING
Any stockholder proposals intended to be presented at the Company's
1999 Annual Meeting of Stockholders must be received by the Company at 11000
Regency Parkway, Suite 300, Cary, North Carolina 27511, on or before __________
for inclusion in the Company's proxy statement and form of proxy relating to the
1999 Annual Meeting of Stockholders.
By Order of the Board of Directors
ROBIN W. MALPHRUS, ESQ.
SECRETARY
Dated: ______, 1998
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[EXECUTION COPY]
Appendix A
AMENDED AND RESTATED
STOCK PURCHASE AGREEMENT
by and between
FAC REALTY TRUST, INC.
and
PROMETHEUS SOUTHEAST RETAIL LLC
dated as of
March 23, 1998
<PAGE>
THIS AMENDED AND RESTATED STOCK PURCHASE AGREEMENT (this
"Agreement"), dated as of March 23, 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, the Company and Buyer entered into that certain stock purchase
agreement, dated as of February 24, 1998 (the "First Agreement");
WHEREAS, the Company and Buyer desire to amend and restate in its
entirety the First Agreement as set forth herein;
WHEREAS, the First Agreement, as amended and restated as set forth
herein shall be referred to as the "Agreement";
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); 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).
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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 mean this Stock Purchase Agreement as
amended and restated, together with all schedules and exhibits referenced
herein.
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.
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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.
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.
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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).
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
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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 1.51 "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.
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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 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, and of certain management and leasing agreements of Konover
Management South.
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
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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.
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.
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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 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.
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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).
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).
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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.
Section 1.111 "Target Date" shall mean any date within forty five days
of February 24, 1998, provided, the "Target Date" may, at the sole discretion of
the Company, mean any date within seventy five days of February 24, 1998.
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(e).
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.
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(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 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 February 24, 1998, the Company and Buyer entered 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 or this Agreement is terminated at any time prior to the
Second Closing (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
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described below at a price in cash equal to the Purchase Price 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, (ii)
August 31, 1998 and (iii) the date this Agreement is terminated prior to the
Second Closing, 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
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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
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
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Company Common Stock issued and outstanding; to the Company's knowledge, no
shares of Company Excess Stock issued and outstanding; and the shares of 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
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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 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
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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 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. As of the date hereof, 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
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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.
(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.
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(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)
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
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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 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
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documentation of discussions relating to or in connection with the transactions
contemplated hereby or matters related hereto.
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
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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 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
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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 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
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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
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
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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, 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
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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 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
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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, 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
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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 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
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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 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
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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, 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
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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.
(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
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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 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
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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, 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
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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.
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
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Securities may be sold or otherwise transferred without 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
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544 of the Code, as modified by Section 856(h)(1)(B) of the Code), in excess 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
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stockholders, shall be in form and substance reasonably satisfactory to Buyer.
The 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
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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, 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.
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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 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
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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 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 9.1(b)(iv), 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(b)(vi)
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(b)(v) 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 Second 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 Second Closing,
such that the Company shall be deemed as of the Second 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)
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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 Second
Closing, the Company shall provide Buyer with schedules (the "Kane and Konover
Schedules") relating to all representations and warranties with respect to the
Kane and Konover Properties to be made on the date of the Second Closing
pursuant to this Section 5.8. The parties hereto agree that the Company may
elect prior to the Second 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 if, prior to
the Second Closing, the Company elects not to acquire four or more of the Kane
and Konover Properties, such failure will constitute a Material Adverse Effect
and the failure of a closing condition under Article 7 hereof, and it being
further understood that the failure of the Company to acquire the Kane and
Konover Properties other than the Kick Out Properties, if any, will constitute a
Material Adverse Effect and the failure of a closing condition under Article 7
hereof as to all Subsequent Closings after the Second Closing).
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 and 4.10.
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
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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.
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.
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(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 meaning of the
Stockholders Agreement, provided such person has made the representations and
warranties of the Buyer in Article 4 hereof.
(e) 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.
(f) 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.
(g) 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.
(h) 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.
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(i) NYSE Approval. On or prior to the date of the Initial
Closing, the New York Stock Exchange shall have approved, with respect to
Buyer's ownership of up to the Initial Number of Shares at the Initial Closing,
this Agreement, the Registration Rights Agreement, 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.
(e) Title Policies. The Company shall deliver updates of all
Title Policies with respect to the Kane and Konover Properties.
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(f) NYSE Approval. On or prior to the date of the Second
Closing, the New York Stock Exchange shall have approved this Agreement, the
Registration Rights Agreement, the Stockholders Agreement, the Contingent Value
Right Agreement and the transactions contemplated hereby and thereby.
(g) Opinion of Counsel. Buyer shall have received an opinion
of Alston & Bird LLP, substantially in the form of Exhibit G hereto, 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.
(h) Filing of Tax Return. The Buyer and each of its
Subsidiaries shall have filed with the appropriate taxing authority all Tax
Returns required to be filed by it for the year ended December 31, 1997.
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 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.
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(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 lRegistration 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. To the Company's knowledge,
the Company is, and after giving effect to the 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
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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 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.
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ARTICLE 8
SURVIVAL; INDEMNIFICATION
Section 8.1 Survival. Other than the representations contained in
Sections 4.8 and 4.10 (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, any Subsequent Closing and the termination of this Agreement pursuant
to Section 9.1 hereof (notwithstanding the exercise of Buyer's put option
pursuant to Section 2.9 hereof) until the twelve month anniversary of the latest
of the Initial Closing, the Second Closing, any Subsequent Closing and the
termination of this Agreement pursuant to Section 9.1 hereof; 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 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
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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 (each, an "Indemnified Party"), 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 and utility costs and pumping taxes or fees,
and administrative costs incurred by governmental agencies.
(c) In the event that (i) the closing condition set forth in
Section 7.2(g)(ii) hereof is not satisfied and, notwithstanding the failure of
such closing condition, the Second Closing has occurred, (ii) Buyer has not
exercised its put option pursuant to Section 2.9 hereof and (iii) the Company
indemnifies an Indemnified Party pursuant to the terms of Section 8.2(b) hereof
in connection with the failure of the Company to qualify as a "domestically
controlled REIT" (any payments payable under clause (iii) upon occurrence of the
events set forth in clauses (i) - (iii), the "Indemnified Taxes"), the Company
will be obligated to pay to such Indemnified Party, in addition to any
Indemnified Taxes, an additional amount equal to the sum of (i) the product of
(A) the amount of the Indemnified Taxes and (B) a fraction, the numerator of
which equals the percentage of the outstanding Company Common Stock owned by
Investor as of the date such indemnification arises (expressed as a percentage)
(the "Investor Ownership Percentage") and the denominator of which
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equals the difference between the number one (1) and the Investor Ownership
Percentage and (ii) any Taxes imposed on such Indemnified Party in connection
with the receipt of payments pursuant to this Section 8.2(c) (including any
amounts paid under this clause (ii)). For the avoidance of doubt, this in the
event the closing condition set forth in Section 7.2(g)(ii) hereof is satisfied,
this Section 8.2(c) shall not be applicable.
(d) Notwithstanding the foregoing, (i) neither Buyer nor the
Company shall be responsible for any Loss and Expenses as provided by paragraphs
(a) and (b) (except with respect to the Indemnified Taxes and any amounts
payable pursuant to Section 8.2(c) hereof, which shall not be subject to any
minimum threshold), 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; or
(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.
(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);
(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;
55
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(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;
(iv) 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;
(v) 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;
(vi) 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; or
(vii) Buyer if the Second Closing does not occur by September
30, 1998 (other than as a result of a material breach by Buyer of its
obligations under this Agreement).
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.
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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 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.
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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. 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
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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 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
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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.
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: _______________________
Name: _________________________
Title: _________________________
FAC REALTY TRUST, INC.
By: ________________________
Name: C. Cammack Morton
Title: Chief Executive Officer
<PAGE>
Appendix B
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STOCKHOLDERS AGREEMENT
by and between
PROMETHEUS SOUTHEAST RETAIL LLC
and
FAC REALTY TRUST, INC.
dated as of
February 24, 1998
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<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.
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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.
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.
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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).
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.
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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 (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.
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Section 1.37 "Offer to Purchase" shall have the meaning set
forth in Section 3.3.
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
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<PAGE>
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.
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
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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 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
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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 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
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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);
(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;
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(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 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
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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 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:
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(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;
(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
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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.
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
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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, 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
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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 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.
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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.
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:
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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 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
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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 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
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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: ________________________
Name: ___________________________
Title: __________________________
FAC REALTY TRUST, INC.
By: ________________________
Name: C. Cammack Morton
Title: Chief Executive Officer
<PAGE>
APPENDIX C
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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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 the date of filing of the final
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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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(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 belief that the
amount of securities requested to be included in such registration or offering
exceeds the amount which
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<PAGE>
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 necessary to maintain the effectiveness of such
registration and to comply with the
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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 date of such financial statements, all
as are customarily covered in opinions of issuer's counsel and in
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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.
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
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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
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
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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 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
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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
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
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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.
(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
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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 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
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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: ________________________
Name: ___________________________
Title: __________________________
FAC REALTY TRUST, INC.
By: ________________________
Name: C. Cammack Morton
Title: Chief Executive Officer
<PAGE>
APPENDIX D
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.
Section 1.10 - 15% IRR Amount
- ------------- --------------
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"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 Company under this Agreement and the Stock Purchase
Agreement do not: (i) violate any federal or Maryland statute,
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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:
(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
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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;
(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;
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<PAGE>
(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:
FAC Realty Trust, Inc.
11000 Regency Parkway, 3rd fl.
East Tower
Cary, NC 27511
Attention: C. Cammack Morton
Telecopy: (919) 462-8799
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<PAGE>
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.
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
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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, 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.
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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
<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: ________________________
Name: ___________________________
Title: __________________________
FAC REALTY TRUST, INC.
By: ________________________
Name: C. Cammack Morton
Title: Chief Executive Officer
<PAGE>
APPENDIX E
DONALDSON, LUFKIN & JENRETTE
Donaldson, Lufkin & Jenrette Securities Corporation
277 Park Avenue, New York, New York 10172 - (212) 892-3000
ROBERT I. BRODY
Managing Director
Investment Banking
(212) 892-6846
March 31, 1998
Board of Directors
FAC Realty Trust, Inc.
11000 Regency Parkway, Suite 300
Cary, NC 27511
Dear Sirs:
You have requested our opinion as to the fairness from a financial
point of view to FAC Realty Trust (the "Company") of the consideration to be
received by the Company pursuant to the terms of the draft Stock Purchase
Agreement, dated as of February 12, 1998 (the "Agreement"), by and between the
Company and Prometheus Southeast Realty LLC (the "Investor"), an affiliate of
Lazard Freres Real Estate Investors, LLC, pursuant to which, among other things,
the Investor will invest up to $200 million in the Company (the "Investment") by
purchasing from the Company (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 described in the draft Contingent
Value Right Agreement dated February 12, 1998 by and between the Company and the
Investor (the "Contingent Value Right Agreement").
In arriving at our opinion, we have reviewed the drafts of each of
the Stock Purchase Agreement, Stockholders Agreement dated February 12, 1998 by
and between the Company and the Investor, and Contingent Value Right Agreement
and the exhibits thereto. We also have reviewed financial and other information
provided during discussions with the Company's management. Included in the
information provided during discussions with the Company's management were
certain financial projections of the Company for the period beginning January 1,
1998 and ending December 31, 2002 prepared by the management of the Company. In
addition, we have compared certain financial and securities are traded n public
markets, reviewed the historical stock prices and trading volumes of the Company
Common Stock, reviewed prices and premiums paid in certain other transactions
and conducted such other financial studies, analyzes and investigations as we
deemed appropriate for purposes of this opinion. We have from time to time been
engaged by the Company in connection with potential transactions, including
private entity investments. The Company did not request, however, that we
solicit, nor did we solicit, the interest of any other party in pursuing an
alternative transaction to the Investment in connection with rendering our
opinion herein.
In rendering our opinion, we have relied upon and assumed the
accuracy and completeness of all of the financial and other information that was
available to us from public sources, that was provided to us by the Company or
its representatives, or that was otherwise reviewed by us. In particular, we
have relied upon the estimates of the Company of the financial impact of the
investment on the Company. With respect to the financial projections supplied to
us, we have assumed that they have been reasonably prepared on the basis
reflecting the best currently available estimates and judgments of the
management of the Company as to the future operating and Board of Directors
financial performance of the Company. In particular, we assumed the pro forma
adjustments and projections made for certain pending property acquisitions
accurately reflect the future financial performance of such acquisitions. We
have not made, and do not assume any responsibility for making, any independent
appraisal or evaluation of any assets or liabilities or for making, any
independent appraisal or evaluation of any assets or liabilities or for making
any independent verification of any of the information reviewed by us.
<PAGE>
FAC Realty Trust, Inc.
March 30, 1998
Page 2
We have assumed, with your consent, that the drafts of the Stock
Purchase Agreement, Stockholders Agreement and contingent Value Right Agreement
which we reviewed will conform in all material respects to those documents when
in final form. We have also assumed, at management's direction, that the
Agreement is not contingent on the closing of any pending property acquisitions.
Our opinion is necessarily based on economic, market, financial and
other conditions as they exist on, and on the information made available to us
as of, the date of this letter. It should be understood that, although
subsequent developments may affect this opinion, we do not have any obligation
to update, revise or reaffirm this opinion. We are expressing no opinion herein
as to fairness of any consideration paid for any pending or recently completed
property acquisitions. Our opinion does not address the relative merits of the
Investment and the other business strategies being considered by the Company's
Board of Directors, nor does it address the Board's decision to proceed with the
Investment. Our opinion does not constitute a recommendation to any stockholder
as to how such stockholders should vote on the proposed transaction.
Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ"), as part
of its investment banking services, is regularly engaged in the valuation of
businesses and securities in connection with mergers, acquisitions,
underwriting, sales and distributions of listed and unlisted securities, private
placement and valuations for corporate and other purposes. DLJ has performed
investment banking and other services for the Company in the past and has been
compensated for such services.
Based upon the foregoing and such other factors as we deem relevant,
we are of the opinion that the consideration to be received by the Company in
exchange for issuing the Company Common Stock and Contingent Value Rights
pursuant to the Agreement is fair to the Company from a financial point of view.
Very truly yours,
Donaldson, Lufkin & Jenrette
Securities Corporation
By: /s/ Robert I. Brody
------------------------
Robert I. Brody
Managing Director
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<PAGE>
Appendix
FAC REALTY TRUST, INC.
PROXY
for
Annual Meeting of Stockholders, _______________, 1998
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
The undersigned hereby appoints C. Cammack Morton and Patrick M.
Miniutti, or any of them, with full power of substitution, the attorney and
proxy of the undersigned, to appear and to vote all of the shares of common
stock of FAC Realty Trust, Inc. (the "Company") which the undersigned would be
entitled to vote if personally present at the Annual Meeting of Stockholders of
the Company to be held at the Homewood Suites Hotel, 100 Macalyson Court, Cary,
NC 27511, on _____, ______, 1998, at 10:00 a.m., and any adjournment thereof.
Receipt of copies of the Annual Report to Stockholders, the Notice of the Annual
Meeting of Stockholders and the Proxy Statement dated _______, 1998, is hereby
acknowledged.
THIS PROXY WILL BE VOTED IN ACCORDANCE WITH THE INSTRUCTIONS MARKED
HEREIN, AND IN ACCORDANCE WITH THE RECOMMENDATION OF THE BOARD OF DIRECTORS IF
NO INSTRUCTIONS TO THE CONTRARY ARE MARKED HEREIN. If any other business is
transacted at the Annual Meeting (including matters incident to the conduct of
the Annual Meeting), this Proxy will be voted in the discretion of, and in
accordance with, the best judgment of the proxies (no other business is
currently known).
1. Election of six directors to serve until the 1999 annual meeting
or until their successors are duly elected and qualified (Proposal One);
Nominees: C. Cammack Morton, Patrick M. Miniutti, Robert O. Amick,
William D. Eberle, J. Richard Futrell, Jr. and John W. Gildea.
|_| FOR ALL |_| WITHHOLD AUTHORITY AS TO ALL
(except as noted below)
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, PRINT
THE NOMINEE'S NAME FOR WHICH
AUTHORITY IS WITHHELD BELOW.)
2. Approval of the transactions (the "Transaction") contemplated by
a Stock Purchase Agreement between the Company and Prometheus Southeast Retail,
LLC (the "Investor"), an affiliate of Lazard Freres Real Estate Investors, LLC,
including (i) the investment from time to time through March 30, 2000 of an
aggregate of $200,000,000 in the Company by the Investor, to be effected through
the sale by the Company of 21,052,632 shares of common stock, par value $.01 per
share ("Common Stock"), at a purchase price of $9.50 per share, which investment
includes the $22,325,000 investment made by the Investor on March 23, 1998 for
2,350,000 shares of Common Stock; (ii) the agreement to cause three designees of
the Investor (the "Investor Nominees") to serve on the Board of Directors; (iii)
the imposition of a 67% vote requirement for certain significant actions of the
Board of Directors; (iv) the grant to the Investor of certain rights to
information regarding the Company; (v) the grant to the Investor of contingent
value rights as described in the Proxy Statement; (vi) the grant to the Investor
of rights to participate in future issuances of capital stock by the Company so
that the Investor may maintain its ownership interest in the Company as
described in the Proxy Statement; and (vii) the grant to the Investor of certain
registration rights to enable the Investor to resell its shares of the Company's
capital stock to the public under certain conditions (Proposal Two);
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<PAGE>
3. Amendment of the Company's charter to change its name to "Konover
Property Trust, Inc." (Proposal Three);
|_| FOR |_| AGAINST |_| ABSTAIN
4. Amendment of the Company's charter to increase the number of
authorized shares from 75,000,000 to 130,000,000 (Proposal Four);
|_| FOR |_| AGAINST |_| ABSTAIN
5. Amendment of the Company's 1993 Employee Stock Incentive Plan to
increase the number of shares of Common Stock reserved for issuance thereunder
from 1,100,000 to 2,800,000 (Proposal Five); and
|_| FOR |_| AGAINST |_| ABSTAIN
6. Amendment of the Company's 1995 Outside Directors' Stock Award
Plan to increase the number of shares of Common Stock reserved for issuance
thereunder from 25,000 to 150,000 (Proposal Six).
|_| FOR |_| AGAINST |_| ABSTAIN
Note: Please date and sign exactly as the name appears on this proxy. Joint
owners should each sign. If the signer is a corporation, please sign full
corporate name by a duly authorized officer. Executors, trustees, etc. should
give full title as such.
Dated: ________________________________________
_______________________________________________
Signature
_______________________________________________
Signature
Please mark boxes in blue or black ink. Please
return promptly in the enclosed envelope which
requires no postage if mailed in the U.S.A.
PLEASE MARK, DATE AND SIGN THIS PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED
ENVELOPE SO AS TO ENSURE A QUORUM AT THE MEETING. THIS IS IMPORTANT WHETHER YOU
OWN FEW OR MANY SHARES. DELAY IN RETURNING YOUR PROXY MAY SUBJECT THE COMPANY TO
ADDITIONAL EXPENSE.
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