FORM 10-Q
Securities and Exchange Commission
Washington, D.C. 20549
[ X ] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended March 31, 1998
OR
[ ] Transition Report Pursuant to Section 13 or
15 (d) of the Securities Exchange Act of 1934
For the transition period from _______ to ________.
Commission File Number 1-11998
FAC REALTY TRUST, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MARYLAND 56-1819372
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
11000 Regency Parkway
Third Floor, East Tower
Cary, North Carolina 27511
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(919) 462-8787
(Registrant's telephone number, including area code)
- -------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
------ -------
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date. Date: April 30, 1998
Number of shares outstanding: 14,276,566
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FAC REALTY TRUST, INC.
INDEX
PART I. FINANCIAL INFORMATION
PAGE NO.
ITEM 1. Financial Statements (Unaudited) ........................... 3
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations........................ 14
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings............................................ 24
ITEM 2. Changes in Securities........................................ 24
ITEM 3. Defaults Upon Senior Securities.............................. 24
ITEM 4. Submission of Matters to a Vote of Security Holders.......... 24
ITEM 5. Other Information............................................ 24
ITEM 6. Exhibits and Reports on Form 8-K............................. 24
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PART I
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
INDEX TO UNAUDITED FINANCIAL STATEMENTS
PAGE NO.
Consolidated Balance Sheets as of March 31, 1998 and December 31, 1997 .................................. 4
Consolidated Statements of Operations for the three months ended March 31, 1998 and 1997................. 5
Consolidated Statements of Stockholders' Equity for the three months ended March 31, 1998................ 6
Consolidated Statements of Cash Flows for the three months ended March 31, 1998 and 1997................. 7
Notes to Consolidated Financial Statements............................................................... 8
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FAC REALTY TRUST, INC.
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1998 DECEMBER 31, 1997
(UNAUDITED) (AUDITED)
--------------------------------------------
(IN THOUSANDS)
ASSETS
INCOME PRODUCING PROPERTIES:
Land $ 88,822 $ 81,233
Buildings and improvements 337,887 292,726
Deferred leasing and other charges 21,975 21,366
--------------------------------------------
448,684 395,325
Accumulated depreciation and amortization (53,871) (50,134)
--------------------------------------------
394,813 345,191
Properties under development 6,886 6,456
Properties held for sale 12,454 12,490
--------------------------------------------
414,153 364,137
OTHER ASSETS:
Cash and cash equivalents 11,924 4,872
Restricted cash 2,871 3,858
Tenant and other receivables 7,524 7,167
Deferred charges and other assets 9,988 8,851
Investment in joint ventures 4,438 4,283
Notes receivable 14,602 10,458
--------------------------------------------
$ 465,500 $ 403,626
============================================
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Debt on income properties $ 263,194 $ 232,575
Other unsecured notes 141 197
Capital lease obligations 1,044 1,131
Accounts payable and other liabilities 9,760 6,796
--------------------------------------------
274,139 240,699
COMMITMENTS AND CONTINGENCIES
MINORITY INTEREST IN OPERATING PARTNERSHIP 8,744 -
COMMON STOCK, 2,350,000 shares issued, subject to a limited put option 19,075 -
STOCKHOLDERS' EQUITY:
Convertible preferred stock, Series A, 5,000,000 shares authorized,
800,000 issued and outstanding 19,162 19,162
Stock purchase warrants 9 9
Common stock, $0.01 par value, 45,000,000 shares authorized, 11,926,566
and 11,904,182 issued and outstanding , respectively 119 119
Additional paid-in capital 145,167 145,332
Accumulated deficit (1,517) (1,416)
Deferred compensation - Restricted Stock Plan (398) (279)
--------------------------------------------
163,542 162,927
============================================
$ 465,500 $ 403,626
============================================
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FAC REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED MARCH 31,
1998 1997
---------------------------------------------
RENTAL OPERATIONS: (IN THOUSANDS, EXCEPT PER SHARE DATA)
Revenues:
Base rents $ 9,178 $ 8,723
Percentage rents 151 127
Property operating cost recoveries 3,373 2,941
Other income 1,227 131
---------------------------------------------
13,929 11,922
---------------------------------------------
Property operating costs:
Common area maintenance 1,609 1,280
Utilities 305 304
Real estate taxes 1,391 1,320
Insurance 162 191
Marketing 159 230
Other 523 148
---------------------------------------------
4,149 3,473
Depreciation and amortization 3,973 4,063
---------------------------------------------
8,122 7,536
---------------------------------------------
5,807 4,386
---------------------------------------------
OTHER EXPENSES:
General and administrative 1,527 2,288
Interest 4,381 3,534
---------------------------------------------
5,908 5,822
---------------------------------------------
LOSS BEFORE EXTRAORDINARY ITEM (101) (1,436)
Extraordinary loss on early extinguishment of debt - (986)
---------------------------------------------
NET LOSS $ (101) $ (2,422)
---------------------------------------------
BASIC AND DILUTED LOSS PER COMMON SHARE:
Loss before extraordinary item $ (0.01) $ (0.12)
Extraordinary item - (0.08)
---------------------------------------------
NET LOSS APPLICABLE TO COMMON SHAREHOLDERS $ (0.01) $ (0.20)
=============================================
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING $ 11,954 $ 11,836
=============================================
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SEE ACCOMPANYING NOTES.
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FAC REALTY TRUST, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
THREE MONTHS ENDED MARCH 31, 1998
(UNAUDITED)
(IN THOUSANDS)
CONVERTIBLE STOCK PURCHASE ADDITIONAL PAID
PREFERRED STOCK WARRANTS COMMON STOCK IN CAPITAL
---------------------------------------------------------------------
BALANCE AT JANUARY 1, 1998 $ 19,162 $ 9 $ 119 $ 145,332
Issuance of 6,530 employee stock purchase -- -- -- 39
plan shares
Issuance of 32,560 restricted shares -- -- -- 261
Cancellation of 12,922 restricted shares -- -- -- (106)
Repurchase of 3,784 restricted shares -- -- -- (30)
Compensation under stock plans -- -- -- 261
Reclass of prior years compensation under
stock plans -- -- -- 410
Net loss -- -- -- --
=========
BALANCE AT MARCH 31, 1998 $ 19,162 $ 9 $ 119 $ 146,167
=========
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DEFERRED
COMPENSATION
ACCUMULATED RESTRICTED STOCK
DEFICIT PLAN TOTAL
------------------------------------------------------
BALANCE AT JANUARY 1, 1998 $ (1,416) $ (279) $ 162,927
Issuance of 6,530 employee stock purchase - - 39
plan shares
Issuance of 32,560 restricted shares - (261) 0
Cancellation of 12,922 restricted shares - 106 0
Repurchase of 3,784 restricted shares - - (30)
Compensation under stock plans - 36 297
Reclass of prior years compensation under
stock plans - - 410
Net loss (101) - (101)
======================================================
BALANCE AT MARCH 31, 1998 $ (1,517) $ (398) $ 163,542
======================================================
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FAC REALTY TRUST, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
1998 1997
--------------------------------------------
(IN THOUSANDS)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (101) $ (2,422)
Adjustments to reconcile net loss to net cash provided
by operating activities:
Depreciation and amortization 3,973 4,063
Extraordinary loss on early extinguishment of debt - 986
Amortization of deferred financing costs 357 417
Compensation under stock plans 297 52
Net changes in:
Tenant and other receivables (357) 1,380
Deferred charges and other assets (478) (164)
Accounts payable and other liabilities 3,374 (238)
--------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 7,065 4,074
--------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in income-producing properties (1,917) (3,302)
Note receivable (155) -
Investment in joint venture (4,144) -
Acquisition of income-producing properties, net (2,281) (32,421)
Change in restricted cash 987 (12)
--------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (7,510) (35,735)
--------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt on income properties 76,000 117,000
Repayment of debt on income properties (86,288) (85,036)
Deferred financing charges (1,156) (1,860)
Other debt repayments (143) -
Net proceeds from sale of common stock 19,114 7
Repurchase of restricted stock (30) -
--------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 7,497 30,111
--------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 7,052 (1,550)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 4,872 7,034
--------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 11,924 $ 5,484
============================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for interest (net of interest
capitalized of $269 and $476) $ 2,781 $ 3,765
============================================
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SEE ACCOMPANYING NOTES.
7
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FAC REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998
(UNAUDITED)
1. INTERIM FINANCIAL STATEMENTS
ORGANIZATION
FAC Realty Trust, Inc. (the "Company"), formerly Factory Stores of America,
Inc., was incorporated on March 31, 1993 as a self-administrated and
self-managed real estate investment trust (REIT). The Company is principally
engaged in the acquisition, development, ownership, and operation of community
and outlet shopping centers. The Company's revenues are primarily derived under
real estate leases with national, regional and local retailing companies.
On December 17, 1997, following shareholder approval, the Company changed
its domicile from the State of Delaware to the State of Maryland. The
reincorporation was accomplished through the merger of FAC Realty, Inc. into its
Maryland subsidiary, FAC Realty Trust, Inc. Following the reincorporation on
December 18, 1997, the Company reorganized as an umbrella partnership real
estate investment trust (an "UPREIT"). The Company then contributed to FAC
Properties, L.P., a Delaware limited partnership (the "Operating Partnership")
substantially all of its assets and liabilities, except for legal title to 18
properties which remain in a wholly owned subsidiary of the Company. In exchange
for the Company's assets, the Company received limited partnership interests
("Units") in the Operating Partnership in an amount and designation that
corresponded to the number and designation of outstanding shares of capital
stock of the Company at the time. The Company is the sole general partner of the
Operating Partnership. As additional limited partners are admitted to the
Operating Partnership in exchange for the contribution of properties, the
Company's percentage ownership in the Operating Partnership will decline. As the
Company issues additional shares of capital stock, it will contribute the
proceeds for that capital stock to the Operating Partnership in exchange for a
number of Units equal to the number of shares that the Company issues. The
Company conducts substantially all of its business and owns substantially all of
its assets (either directly or through subsidiaries) through the Operating
Partnership such that a Unit is economically equivalent to a share of the
Company's common stock.
An UPREIT may allow the Company to offer Units in the Operating Partnership
in exchange for ownership interests from tax-motivated sellers. Under certain
circumstances, the exchange of Units for a seller's ownership interest will
enable the Operating Partnership to acquire assets while allowing the seller to
defer the tax liability associated with the sale of such assets. Effectively,
this allows the Company to use Units instead of stock to acquire properties,
which provides an advantage over non-UPREIT entities.
As of March 31, 1998, the properties owned by the Company consist of: (1)
37 community shopping centers in 15 states aggregating approximately 3,969,000
square feet; (2) 10 outlet centers in 9 states aggregating approximately
2,120,000 square feet; (3) two outlet centers aggregating approximately 150,000
square feet that are held for sale and one former factory outlet center which
has been converted to commercial office use with approximately 150,000 square
feet and sold subsequent to March 31, 1998; and (4) approximately 178 acres of
outparcel land located near or adjacent to certain of the Company's centers and
which are being marketed for lease or sale.
As the owner of real estate, the Company is subject to risks arising in
connection with the underlying real estate, including defaults under or
non-renewal of tenant leases, competition, inability to rent unleased space,
failure to generate sufficient income to meet operating expenses, as well as
debt service, capital expenditures and tenant improvements, environmental
matters, financing availability and changes in real estate and zoning laws. The
success of the Company also depends upon certain key personnel, the Company's
ability to maintain its qualification as a REIT, compliance with the terms and
conditions of the debt on its income properties and other debt instruments, and
trends in the national and local economy, including income tax laws,
governmental regulations and legislation and population trends.
8
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FAC REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of
the Company, the Operating Partnership and its majority-owned subsidiaries. All
significant intercompany balances have been eliminated in consolidation.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all the information and notes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (primarily consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three-month period ended March 31, 1998
are not necessarily indicative of results that may be expected for a full fiscal
year. For further information, refer to the audited financial statements and
accompanying footnotes thereto included in the Company's annual report on Form
10-K for the year ended December 31, 1997.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
2. SIGNIFICANT ACCOUNTING POLICIES
BASIC AND DILUTED EARNINGS PER SHARE
The Company has adopted the provisions of SFAS No. 128, "Earnings Per
Share". Under SFAS No. 128, basic earnings per share ("EPS") and diluted EPS
replace primary EPS and fully diluted EPS. Basic EPS is calculated by dividing
the income available to common stockholders by the weighted-average number of
common shares outstanding. Diluted EPS reflects the potential dilution that
could occur if options or warrants to purchase common shares were exercised and
preferred stock was converted into common shares ("potential common shares").
All prior periods presented have been restated. For the quarters ended March 31,
1998 and 1997, basic and diluted EPS are computed based on a weighted-average
number of shares outstanding of 11,954,000 and 11,836,000, respectively.
Potential common shares have been excluded from diluted EPS for the quarters
ended March 31, 1998 and 1997 because the effect would be antidilutive.
DIVIDENDS
There were no accrued dividends as of December 31, 1997 and no dividends
were declared during the three month period ended March 31, 1998.
RECLASSIFICATIONS
Certain 1997 financial statement amounts have been reclassified to
conform with 1998 classifications. These reclassifications had no effect on net
loss as previously reported.
9
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FAC REALTY TRUST, INC.
Notes to Consolidated Financial Statements (continued)
(Unaudited)
3. ACQUISITIONS AND SIGNIFICANT TRANSACTIONS
LAZARD FRERES TRANSACTION
On February 24, 1998, Prometheus Southeast Retail, LLC ("PSR"), a real
estate investment affiliate of Lazard Freres Real Estate Investors, LLC,
entered into a definitive agreement (the "Stock Purchase Agreement") with the
Company to make a $200 million strategic investment in the Company (the
"Transaction"). PSR has committed to purchase $200 million in newly issued
common shares of the Company at a purchase price of $9.50 per share. The
investment can be made in stages, at the Company's option, through March 30,
2000 allowing the Company to obtain capital as needed to fund its future
acquisition and development plans as well as retire debt. Upon completion of
funding, PSR will own an equity interest in the Company of approximately 60%, on
a diluted basis, not including any further issuance of Operating Partnership
Units for transactions under contract or transactions into which the Company may
enter in the future.
As part of the Transaction, three representatives of Lazard will be
nominated to the Company's Board of Directors, which will have a total number of
nine directors.
On March 23, 1998, the Company issued 2,350,000 shares of its common stock
to PSR for a total consideration of $22.3 million (the "Initial Purchase") as
part of the First Closing. 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 PSR's material breach of the Stock
Purchase Agreement), PSR 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 may also be exercised
at any time within two months after the earlier to occur of the date that the
Company fails to receive stockholder approval of the Transaction, 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 PSR to exercise the Put
Option. Therefore, in the event that stockholder approval of the Transaction is
not obtained and PSR does not exercise the Put Option within two months, the
shares of Common Stock issued to PSR in the Initial Purchase will remain
outstanding and the Put Option will expire.
If the stockholders approve the Transaction, PSR would have the right,
pursuant to a Contingent Value Right Agreement, to receive on January 1, 2004
payment of an aggregate amount equal to the lesser of (a) (i) 21,052,632 shares
multiplied by $19 per share ($400 million) less (ii) the dividends paid to PSR
through January 1, 2004 and less (iii) the fair market value of the shares
purchased and (b) 4,500,000 multiplied by the fair market value on such date.
Whether or not the Transaction is fully consummated, the Company will
reimburse PSR for its expenses in connection with the Transaction, including
expenses of monitoring the Company and of performing its duties under the
Transaction Documents. These expenses and Transaction expenses incurred by the
Company are estimated to aggregate approximately $3.3 million, exclusive of a
claim by Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ") of a
"success based" advisory fee. The Company believes that DLJ, which rendered a
fairness opinion to the Company, but was not requested to perform any other
services in connection with the Transaction, is not entitled to any additional
fees or consideration. DLJ, however, has notified the Company that it believes
it is entitled to additional "success based" advisory fees under the terms of
its engagement letter with the Company dated May 23, 1997. As of the date
hereof, there has been no resolution of the disagreement.
Provided that PSR 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 PSR a break-up fee of
$2,250,000 (the "Break-up Fee") in the event that the Stock Purchase Agreement
is terminated any time prior to the Second Closing. The Break-up Fee, therefore,
will be payable to PSR 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 PSR an additional
$3,000,000 (the "Topping Fee").
10
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FAC REALTY TRUST, INC.
Notes to Consolidated Financial Statements (continued)
(Unaudited)
Notwithstanding the foregoing, if a Topping Fee is payable to PSR and PSR
profits on the sale of the shares purchased in the Initial Purchase in
connection with a competing transaction, then PSR must pay the Company the
amount by which such profit, the Break-up Fee and the Topping Fee exceed
$7,750,000.
Each of the Company's and PSR'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; (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, PSR is
not obligated to fund more than $100 million of the Transaction unless a
significant portion of the Konover & Associates South transaction, as described
below, is consummated.
KONOVER & ASSOCIATES SOUTH TRANSACTION
On February 24, 1998, the Company entered into definitive agreements with
affiliates of Konover & Associates South, a privately held real estate
development firm based in Boca Raton, Florida, to acquire 11 community shopping
centers totaling approximately 2.0 million square feet and valued at nearly $100
million. The purchase equates to approximately $24 million in equity, consisting
of the issuance of Units, at $9.50 per Unit, and/or cash, plus the assumption of
approximately $76 million in debt. At closing, $17 million of the equity will be
paid in the form of Units or cash. The remaining $7 million will be paid in cash
over a three-year period with interest at 7.75% per annum.
As part of the transaction, the Company intends to operate under the name
"Konover Property Trust". The Company will remain listed on the New York Stock
Exchange and intends to change its ticker symbol from FAC to KPT, pending formal
approval by the shareholders in July, 1998. The Company will continue to operate
the Konover & Associates South office in Boca Raton, Florida due to its
strategic location in the Southeast.
Simon Konover, founder of both Konover & Associates South and Konover &
Associates, Inc., a $500 million plus real estate company headquartered in West
Hartford, Connecticut, will become Chairman of the Board of the Company upon
completion of the transaction. He will not become an executive officer of the
Company.
RODWELL/KANE PORTFOLIO
On October 7, 1997, the Company entered into agreements to purchase nine
shopping centers located in North Carolina and Virginia, (the "Rodwell/Kane
Properties") totaling 1.0 million square feet, and to assume third-party
management of an additional 1.2 million square feet of community shopping
centers. The centers to be purchased are owned primarily by Roy O. Rodwell,
Chairman and Co-Founder of Atlantic Real Estate Corporation ("ARC"), a privately
held real estate development company based in Durham, North Carolina and John M.
Kane, Chairman of Kane Realty Corporation, a real estate development and
brokerage company based in Raleigh, North Carolina, in a transaction valued at
$63.3 million.
As of March 31, 1998, the acquisition of seven of the nine centers
discussed above had closed. The acquisition of the eighth center closed on May
14, 1998. The ninth and final center will be managed by the Company and is
expected to be acquired in the year 2000. Its acquisition prior to the year 2000
would trigger an onerous loan assumption fee.
In exchange for their equity ownership interests in the community centers,
Mr. Rodwell, Mr. Kane and related parties will receive approximately 1.2 million
Units in the Operating Partnership and approximately $3.0 million in cash. The
number of Units to be issued to the sellers was based on a $9.50 price per share
of the Company's
11
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FAC REALTY TRUST, INC.
Notes to Consolidated Financial Statements (continued)
(Unaudited)
Common Stock. The issuance of approximately 269,000 Units and payment of $0.8
million of cash will be deferred until the completion of certain performance
requirements. As part of the purchase price, the Company will also assume
approximately $48.8 million of fixed-rate debt on the properties to be acquired.
JOINT VENTURES
On September 22, 1997, the Company and ARC jointly created a limited
liability company named Atlantic Realty LLC ("Atlantic") to develop and manage
retail community and neighborhood shopping centers in North Carolina. Atlantic
currently has plans to develop approximately one million square feet, including
outparcels, over the next several years. The Company and ARC will own Atlantic
equally, with the Company serving as managing member overseeing its operations.
As of March 31, 1998, the Company has invested $2.5 million in this joint
venture. The investment in Atlantic will be accounted for under the equity
method of accounting as major decisions must be agreed to by both the Company
and ARC. As of March 31, 1998, Atlantic had total assets of approximately $8.1
million and debt of $5.6 million. The joint venture had no other operations.
During 1997, the Company entered into a joint venture, known as Mount
Pleasant FAC LLC, with AJS Group, to develop a 425,000-square foot
retail/entertainment shopping center in Mount Pleasant, South Carolina.
Construction on the center is expected to begin May 1998, with completion
targeted for May 1999. As of March 31, 1998, the Company has invested $1.3
million in this joint venture. This 50% investment in the joint venture is
accounted for under the equity method of accounting as major decisions must be
agreed to by both the Company and the AJS Group. The joint venture had
approximately $4.8 million of assets and $3.5 of debt at March 31, 1998. The
joint venture had no other operations.
During 1998, the Company entered into a joint venture, known as Wakefield
Commercial LLC, primarily to develop two community shopping centers. The two
retail centers, one approximately 200,000 square feet and the other
approximately 300,000 square feet, will be located on 65 acres within a 500-acre
parcel of land zoned for commercial use. The Company will perform all leasing,
property management and marketing functions for the two centers. The Company
will hold a 50% interest in the venture, which is accounted for under the equity
method of accounting as major decisions must be agreed to by both the Company
and its venture partner. As of March 31, 1998, the Company had invested $0.6
million in this joint venture and had advanced the joint venture $4.7 million.
The advances carry interest at 11% per annum. The joint venture had no other
operations.
The acquisition and development of the above properties are subject to,
among other things, completion of due diligence and various contingencies,
including those inherent in development projects, such as zoning, leasing and
financing. There can be no assurance that all of the above transactions will be
consummated.
OTHER
On January 7, 1998, the Company completed the purchase of a 55,909-square
foot shopping center located in Danville, Virginia. This Food Lion-anchored
center was purchased for $3.1 million in cash, net of $2.3 million in debt
assumed.
4. PRO FORMA INFORMATION
NORTH HILLS PORTFOLIO
On March 27, 1997, the Company purchased five community centers located in
the Raleigh, North Carolina area for $32.4 million. Pro forma results of
operations for the three months ended March 31, 1997 are set forth below and
assume the acquisition of the five properties, aggregating approximately 606,000
square feet of retail and office space, had been completed as of January 1,
1997. The pro forma condensed statements of operations are not necessarily
indicative of what actual results of operations of the Company would have been
assuming such transaction had been completed as of January 1, 1997, nor do they
purport to represent results of operations of future periods (in thousands,
except for per share data).
12
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FAC REALTY TRUST, INC.
Notes to Consolidated Financial Statements (continued)
(Unaudited)
PRO FORMA THREE MONTHS ENDED
MARCH 31, 1997
----------------------------
(Unaudited)
Revenues $ 13,215
Property operating costs 3,809
Depreciation and amortization 4,265
General and administrative 2,313
Interest 4,160
----------------------------
Loss before extraordinary item $ (1,332)
============================
LOSS BEFORE EXTRAORDINARY ITEM PER COMMON SHARE $ (0.09)
============================
RODWELL/KANE PROPERTIES
On March 31, 1998, the Company closed on seven of the nine Rodwell/Kane
Properties described above for a purchase price of approximately $47.6 million
consisting of loan assumption of $38.6 and Operating Partnership Units valued at
$8.7 million. Pro forma results of operations for the three months ended March
31, 1998 and 1997 are set forth below and assume the acquisition of the seven
properties, aggregating approximately 825,000 square feet, had been completed as
of January 1, 1997.
The pro forma condensed statements of operations are not necessarily
indicative of what actual results of operations of the Company would have been
assuming such transaction had been completed as of January 1, 1997, nor do they
purport to represent results of operations of future periods (in thousands
except for per share data).
<TABLE>
<CAPTION>
<S> <C>
PRO FORMA THREE MONTHS ENDED
MARCH 31, 1998 MARCH 31, 1997
----------------------------- ---------------------------
(Unaudited) (Unaudited)
Revenues $ 14,908 $ 13,365
Property operating costs 4,452 3,609
Depreciation and amortization 4,278 4,368
General and administrative 1,536 2,361
Interest 5,048 4,315
---------------------------------------------------------
Loss before extraordinary item $ (406) $ (1,288)
=========================================================
LOSS BEFORE EXTRAORDINARY ITEM PER COMMON SHARE $ (0.03) $ (0.09)
=========================================================
</TABLE>
5. DEBT ON INCOME PROPERTIES
On March 11, 1998, the Company closed on a $75 million, 15-year permanent
credit facility secured by 11 properties previously securing a $150 million
revolving credit facility. The loan is at an effective rate of 7.73% and is
amortized on a 338-month basis. The proceeds were used to pay down certain
balances outstanding on the $150 million Nomura credit facility obtained by the
Company in 1997.
13
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
The following discussion should be read in conjunction with the selected
financial data included in this section and the consolidated financial
statements and notes thereto included in this report. Certain comparisons
between the periods have been made on a percentage basis and on a
weighted-average square-foot basis, which adjusts for square footage added at
different times during the year.
Certain statements under this caption, "Management's Discussion and
Analysis of Financial Condition and Results of Operations," constitute
"forward-looking statements" under the Private Securities Litigation Reform Act
of 1995 (the "Reform Act"). See "Forward-Looking Statements" included under this
section.
GENERAL OVERVIEW
FAC Realty Trust, Inc. (the "Company"), is a self-administered and self
managed real estate investment trust ("REIT"). The Company is vertically
integrated providing acquisition, development, construction, leasing, marketing
and asset management services for community and outlet center properties.
The Company has grown by selectively expanding, developing and acquiring
community and factory outlet shopping centers. At March 31, 1998, the Company
operated 49 shopping centers with 6.4 million square feet of Gross Leasable Area
("GLA") in 22 states, compared to 41 centers and 21 states with 5.5 million
square feet of GLA at March 31, 1997. Weighted average square feet of GLA for
the three months ended March 31, 1998 and 1997 were 5.6 million and 4.9 million,
respectively.
SELECTED FINANCIAL DATA
The following information should be read in conjunction with the
consolidated financial statements and notes thereto included in this report.
Industry analysts generally consider Funds from Operations (AFFO@) an
appropriate measure of performance for an equity REIT. FFO is defined as net
income (computed in accordance with generally accepted accounting principles)
excluding gains or losses from debt restructuring and sales of property plus
depreciation and amortization and adjustments for unusual items. Management
believes that FFO, as defined herein, is an appropriate measure of the Company's
operating performance because reductions for depreciation and amortization
charges are not meaningful in evaluating the operating results of its
properties, which have historically been appreciating assets.
Beginning in 1996 the Company adopted a change in the definition of FFO as
promulgated by the National Association of Real Estate Investment Trusts
(NAREIT). Under the new definition, amortization of deferred financing costs and
depreciation of non-real estate assets, as defined, are not included in the
calculation of FFO.
"EBITDA" is defined as revenues less operating costs, including general and
administrative expenses, before interest, depreciation and amortization and
unusual items. As a REIT, the Company is generally not subject to Federal income
taxes. Management believes that EBITDA provides a meaningful indicator of
operating performance for the following reasons: (i) it is industry practice to
evaluate the performance of real estate properties based on net operating income
("NOI"), which is generally equivalent to EBITDA; and (ii) both NOI and EBITDA
are unaffected by the debt and equity structure of the property owner.
Funds available for Distribution/Reinvestment ("FAD/R") is defined as FFO
less unusual items, capitalized tenant allowances, capitalized leasing costs and
recurring capital expenditures
FFO, EBITDA and FAD/R (i) do not represent cash flow from operations as
defined by generally accepted accounting principles, (ii) are not necessarily
indicative of cash available to fund all cash flow needs and (iii) should not be
considered as an alternative to net income for purposes of evaluating the
Company's operating performance or as an alternative to cash flow as a measure
of liquidity. Other data that management believes is important in understanding
trends in its business and properties are also included in the following table
(in thousands, except per share data).
14
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
FAC REALTY TRUST, INC.
THREE MONTHS ENDED
MARCH 31,
1998 1997
(Unaudited) (Unaudited)
---------------- ---------------
OPERATING DATA:
Rental revenues $ 13,929 $ 11,922
Property operating costs 4,149 3,473
---------------- ---------------
9,780 8,449
Depreciation and amortization 3,973 4,063
General and administrative 1,527 2,288
Interest 4,381 3,534
Extraordinary loss on early extinguishment of debt - 986
---------------- ---------------
Net loss $ (101) $ (2,422)
================ ===============
Per common share data:
Loss before extraordinary item $ (0.01) $ (0.12)
Extraordinary item - (0.08)
---------------- ---------------
Net loss $ (0.01) $ (0.20)
================ ===============
Weighted average common share outstanding 11,954 11,836
================ ===============
OTHER DATA:
EBITDA:
Net loss $ (101) $ (2,422)
Adjustments:
Interest 4,381 3,534
Depreciation and amortization 3,973 4,063
Compensation under stock awards 297 52
Non-recurring administrative costs - 100
Merger termination costs - 1,250
Extraordinary loss on early extinguishment or debt - 986
---------------- ---------------
$ 8,550 $ 7,563
================ ================
FUNDS FROM OPERATIONS:
Net loss $ (101) $ (2,422)
Adjustments:
Straight line rent 460 (114)
Depreciation and amortization 3,833 3,999
Compensation under stock awards 297 52
Unusual items:
Non-recurring administrative costs - 100
Merger termination costs - 1,250
Extraordinary loss on early extinguishment of
debt - 986
---------------- ---------------
$ 4,489 $ 3,851
================ ================
Weighted average shares outstanding - diluted 14,477 14,058
================ ================
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
FAC REALTY TRUST, INC.
THREE MONTHS ENDED
MARCH 31,
1998 1997
----------------------------
FUNDS AVAILABLE FOR DISTRIBUTION / REINVESTMENT:
Funds from Operations $ 4,489 $ 3,851
Adjustments:
Non-recurring administrative costs - (100)
Merger termination costs - (1,250)
Capitalized tenant allowances (248) (243)
Capitalized leasing costs (512) (203)
Recurring capital expenditures (63) (212)
--------------- ------------
$ 3,666 $ 1,843
=============== ============
CASH FLOWS:
Cash flows from operating activities $ 7,065 $ 4,074
Cash flows from investing activities (7,510) (35,735)
Cash flows from financial activities 7,497 30,111
--------------- ------------
Net increase (decrease) in cash and cash equivalents $ 7,052 $ (1,550)
=============== ============
FAC REALTY TRUST, INC.
MARCH 31,
1998 1997
------------------------------
BALANCE SHEET DATA:
Income-producing properties (before accumulated
depreciation and amortization) $ 448,684 $ 387,979
Total assets 465,500 388,055
Debt on income properties 263,194 215,318
Total liabilities 274,139 225,826
Total minority interest and equity 191,361 162,229
PORTFOLIO PROPERTY DATA:
Total GLA (at end of period) 6,392 5,471
Weighted average GLA 5,564 4,872
Number of properties (at end of period) 49 41
Occupancy (at end of period):
Operating, exclusive of assets held for sale 91.2% 89.0%
All operating properties 89.3% 86.3%
</TABLE>
16
<PAGE>
RESULTS OF OPERATION
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THE THREE MONTHS ENDED MARCH 31,
1997.
The Company reported a net loss of $0.1 million, or $0.01 per common share,
for the three months ended March 31, 1998 compared to a net loss of $2.4
million, or $0.20 per common share, for the comparable period in 1997. The
positive factors for 1998 were a $1.3 million in increase in net operating
income (NOI) and a decrease in general and administrative expenses of $0.8
million offset by an increase in interest expense of $0.8 million, as a result
of higher borrowing levels. Additionally, in 1997, the Company incurred an
extraordinary loss on extinguishment of debt of $1.0 million.
Funds from Operations ("FFO") for the three months ended March 31, 1998
increased 17% to $4.5 million as compared to $3.9 million for the same period in
1997. The factor that had a positive impact on 1998 FFO was a $1.9 million in
increased NOI before the adjustment for straight line rent (net $0.6 million).
Factors that had a negative impact on 1998 FFO were: (a) $0.3 million increase
in general and administrative expenses, exclusive of compensation under stock
plan awards for 1998 and 1997, and non-recurring administrative and merger
termination costs incurred in 1997 as described below, and (b) $0.8 million in
higher interest expense.
Earnings before interest, taxes, depreciation and amortization (EBITDA) was
$8.6 million for the three months ended March 31, 1998, an increase of $1.0
million or 13%, from $7.6 million for the same period in 1997. The increase was
due to increased NOI of $1.3 million over 1997, including adjustment for
straight line rent, offset by an increase in general and administrative expenses
of $0.3 million, exclusive of compensation under stock plan awards for 1998 and
1997, and non-recurring administrative and merger termination costs incurred in
1997. Additionally, in 1997 the Company recorded an extraordinary loss on early
extinguishment of debt of $1.0 million.
Base rent increased to $9.2 million for the three months ended March 31,
1998 from $8.7 million for the same period in 1997. Base rent before the
adjustment for straight line rent increased $1.1 million or 13% to $9.7 million
for the three months ended March 31, 1998 when compared to 1997, while the
Company's weighted-average square feet of GLA in operation increased 14%. The
increase in base rent resulted from increased GLA in operation and from
increased occupancy at the operating centers, which was offset by declining
rents on renewals at certain properties and lower average center occupancy
levels in the centers held for sale.
Percentage rent increased 19% to $0.2 million for the three months ended
March 31, 1998 from $0.1 million in 1997. The increase is due primarily to the
percentage rent attributable to the community centers acquired in 1997.
Recoveries from tenants, representing contractual reimbursements from
tenants of certain common area maintenance, real estate taxes and insurance
costs, increased for the three months ended March 31, 1998 to $3.4 million
compared to $2.9 million in 1997. On a weighted-average square-foot basis,
recoveries from tenants increased 2% to $0.61 for the three months ended March
31, 1998 when compared to $0.60 for the same period in 1997. The average
recovery of property operating expenses, exclusive of marketing and other
non-recoverable operating costs, increased from 95% in 1997 to 97% in 1998. With
respect to approximately 16% of the leased GLA, the Company is obligated to pay
all utilities and operating expenses of the applicable center.
Total tenant retail sales and tenant sales on a comparative store basis
were flat for the three months ended March 31, 1998 compared to the same period
in 1997.
Other income increased $1.1 million to $1.2 million in 1998 compared to
$0.1 million in 1997 primarily as a result of increased tenant lease buyouts of
$0.3 million and third party property management fee income of $0.8 million.
Prior to the closing of seven of the nine Rodwell/Kane properties on March 31,
1998, the community centers were managed by the Company. The two remaining
community centers will continue to be managed by the Company.
17
<PAGE>
Property operating costs increased $0.6 million, or 17%, to $4.1 million in
1998 from $3.5 million in 1997. The increase in operating costs was principally
due to the increase in the weighted-average square feet in operation in 1998,
which rose 14% to 5.5 million square feet in 1998 from 4.9 million square feet
in 1997. On a weighted-average square-foot basis, operating expenses increased
6% to $0.75 in 1998 from $0.71 in 1997.
General and administrative expenses for the three months ended March 31,
1998 decreased $0.8 million or 35% to $1.5 million in 1998 from $2.3 million in
1997. General and administrative expenses in 1998 include $0.3 million in
compensation under stock plan awards. General and administrative expenses in
1997 include a charge of $1.3 million related to the settlement of the
termination of agreements entered into in 1995 to acquire the factory outlet
centers owned by Public Employees Retirement System of Ohio (OPERS), $0.1
million in other non-recurring charges and $0.1 million in compensation under
stock plan awards. Exclusive of these charges in 1998 and 1997, general and
administrative expense as a percentage of revenues increased to 8.8% in 1998
from 7.4% in 1997.
Depreciation remained unchanged at $3.1 million for the three months ended
March 31, 1998 and 1997. Amortization of deferred leasing and other charges
decreased $0.1 million in 1998 over 1997.
Interest expense for the three months ended March 31, 1998, net of interest
income of $0.4 million, increased by $0.9 million or 26.0%, to $4.4 million
compared to $3.5 million, net of interest income of $0.02 million, in 1997. This
increase resulted primarily from higher borrowing levels in 1998 due to the
investment in and acquisition of income-producing properties. On a weighted
average basis, debt outstanding and the average interest rate were approximately
$228 million and 7.8%, respectively, in 1998 compared to $186 million and 8.1%,
respectively, in 1997. Amortization of deferred financing cost remained
unchanged at $0.4 million in 1998. The Company capitalized interest costs
associated with its development projects of $0.3 million in 1998 and $0.5
million in 1997.
As part of the Company's ongoing strategic evaluation of its portfolio of
assets, the Company determined in 1995 to pursue the sale of certain properties
that currently are not fully consistent with or essential to the Company's
long-term strategies. Accordingly, in 1995 and 1996 the Company recorded an $8.5
million and $5.0 million adjustment to the carrying value of three assets
ultimately held for disposition. After recording the $13.5 million valuation
adjustment, the net carrying value of such assets at March 31, 1998 is $12.5
million.
For the three months ended March 31, 1998, the properties held for sale
contributed approximately $0.3 million of revenue and incurred a loss of $0.3
million after deducting related interest expense on the debt associated with the
properties. For the three months ended March 31, 1997, these properties
contributed approximately $0.3 million of revenue and incurred a loss of $0.4
million after deducting related interest expense. As of March 31, 1998, one of
these properties was under contract, and subsequently sold in April 1998.
Management periodically evaluates income producing properties for potential
impairment when circumstances indicate that the carrying amount of such assets
may not be recoverable.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents balance at March 31, 1998 was $11.9
million. Restricted cash, as reported in the financial statements, as of such
date, was $2.9 million. In connection with the Company's $95 million rated-debt
securitization, the Company was required to escrow a portion of the loan
proceeds to fund certain environmental and engineering work and to make certain
lease related payments that may be required in connection with the renewal or
termination of certain leases by a tenant at most of the factory outlet centers.
Net cash provided by operating activities was $7.0 million for the three
months ended March 31,1998. Net cash used in investing activities was $7.5
million for the same period in 1998. The primary use of these funds included:
(a) $2.3 million to acquire seven of the nine Rodwell/Kane properties and a
shopping center in Danville, Virginia, net of debt assumed and Operating
Partnership Units issued to the sellers; and (b) $4.1 million invested in joint
ventures, as previously described below. Net cash provided by financing
activities was $7.5 million for the three
18
<PAGE>
months ended March 31, 1998. The source of such funds was new borrowings and the
sale of common stock to an affiliate of Lazard Freres, as described below.
Funds generated through financing activities were offset by debt repayments of
$86.3 million.
CAPITAL RESOURCES. The Company's management anticipates that cash generated
from operating performance will provide the necessary funds for operating
expenses, interest expense on outstanding indebtedness, dividends and
distributions in accordance with REIT federal income tax requirements and to
fund re-tenanting and lease renewal tenant improvement costs, as well as capital
expenditures to maintain the quality of its existing centers. The Company also
believes that it has capital and access to capital resources, including
additional borrowings and issuances of debt or equity securities, sufficient to
pursue its strategic plans.
On March 11, 1998, the Company closed on a $75 million, 15-year permanent
credit facility secured by 11 properties previously securing the $150 million
revolving credit facility. The loan is at an effective rate of 7.73% and is
amortized on a 338-month basis. The proceeds were used to pay down certain
borrowings outstanding on the $150 million Nomura credit facility obtained by
the Company in 1997.
On February 24, 1998, Prometheus Southeast Retail, LLC ("PSR"), a real
estate investment affiliate of Lazard Freres Real Estate Investors, LLC,
entered into a definitive agreement (the "Stock Purchase Agreement") with the
Company to make a $200 million strategic investment in the Company (the
"Transaction"). PSR has committed to purchase $200 million in newly issued
common shares of the Company at a purchase price of $9.50 per share. The
investment can be made in stages, at the Company's option, through March 30,
2000 allowing the Company to obtain capital as needed to fund its future
acquisition and development plans as well as retire debt. Upon completion of
funding, PSR will own an equity interest in the Company of approximately 60%, on
a diluted basis, not including any further issuance of Operating Partnership
Units for transactions under contract or transactions into which the Company may
enter in the future.
As part of the Transaction, three representatives of Lazard will be
nominated to the Company's Board of Directors, which will have a total number of
nine directors.
On March 23, 1998, the Company issued 2,350,000 shares of its common stock
to PSR for a total consideration of $22.3 million (the "Initial Purchase") as
part of the First Closing. 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 PSR's material breach of the Stock
Purchase Agreement), PSR 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 may also be exercised
at any time within two months after the earlier to occur of the date that the
Company fails to receive stockholder approval of the Transaction, 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 PSR to exercise the Put
Option. Therefore, in the event that stockholder approval of the Transaction is
not obtained and PSR does not exercise the Put Option within two months, the
shares of Common Stock issued to PSR in the Initial Purchase will remain
outstanding and the Put Option will expire.
If the stockholders approve the Transaction, PSR would have the right,
pursuant to a Contingent Value Right Agreement, to receive on January 1, 2004
payment of an aggregate amount equal to the lesser of (a) (i) 21,052,632 shares
multiplied by $19 per shares ($400 million) less (ii) the dividends paid to PSR
through January 1, 2004 and less (iii) the fair market value of the shares
purchased and (b) 4,500,000 multiplied by the fair market value on such date.
Whether or not the Transaction is fully consummated, the Company will
reimburse PSR for its expenses in connection with the Transaction, including
expenses of monitoring the Company and of performing its duties under the
Transaction Documents. These expenses and Transaction expenses incurred by the
Company are estimated to aggregate approximately $3.3 million, exclusive of a
claim by Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ") of a
"success based" advisory fee. The Company believes that DLJ, which rendered a
fairness opinion to the Company, but was not requested to perform any other
services in connection with the Transaction, is not entitled to any additional
fees or consideration. DLJ, however, has notified the Company that it believes
it is entitled to
19
<PAGE>
additional "success based" advisory fees under the terms of its engagement
letter with the Company dated May 23, 1997. As of the date hereof, there has
been no resolution of the disagreement.
Provided that PSR 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 PSR a break-up fee of
$2,250,000 (the "Break-up Fee") in the event that the Stock Purchase Agreement
is terminated any time prior to the Second Closing. The Break-up Fee, therefore,
will be payable to PSR 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 PSR an additional
$3,000,000 (the "Topping Fee"). Notwithstanding the foregoing, if a Topping Fee
is payable to PSR and PSR profits on the sale of the shares purchased in the
Initial Purchase in connection with a competing transaction, then PSR must pay
the Company the amount by which such profit, the Break-up Fee and the Topping
Fee exceed $7,750,000.
Each of the Company's and PSR'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; (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, PSR is
not obligated to fund more than $100 million of the Transaction unless a
significant portion of the Konover & Associates South transaction, as described
below, is consummated.
CAPITAL EXPENDITURES. The Company's capital expenditures included
expansions of existing centers, acquisitions of new properties, development of
new properties and investments in development joint ventures.
Management's view of the current state of the shopping center industry and
its future direction is that value-oriented retail concepts are merging; for
example, outlet centers are including off-price tenants as well as outlet
tenants, off-price centers have manufacturers' outlets, community centers have
destination tenants, and other community centers have outlet or off-price
tenants. With this backdrop, management believes that a diversified shopping
center portfolio will provide an opportunity for growth. As part of the
Company's diversification strategy, a portion of the availability under the
Nomura credit facility was used to purchase five community centers in the
Raleigh, North Carolina area on March 27, 1997 for a total purchase price of
$32.4 million. The centers total approximately 606,000 square feet of GLA, are
well-located and feature well-known regional tenants. Management will continue
to pursue similar opportunities for the acquisition of community shopping
centers in the United States, and in particular, the southeastern region of the
country as evidenced by Rodwell/Kane and the announcement of the Konover &
Associates South transaction described below.
On February 24, 1998, the Company entered into definitive agreements with
affiliates of Konover & Associates South, a privately held real estate
development firm based in Boca Raton, Florida, to acquire 11 community shopping
centers totaling approximately 2.0 million square feet and valued at nearly $100
million. The purchase equates to approximately $24 million in equity, consisting
of the issuance of Units, at $9.50 per Unit, and/or cash, plus the assumption of
approximately $76 million in debt. At closing, $17 million of the equity will be
paid in the form of Units or cash. The remaining $7 million will be paid in cash
over a three-year period with interest at 7.75% per annum.
As part of the transaction, the Company intends to operate under the name
"Konover Property Trust". The Company will remain listed on the New York Stock
Exchange and intends to change its ticker symbol from FAC to KPT, pending formal
approval by the shareholders in July, 1998. The Company will continue to operate
the Konover & Associates South office in Boca Raton, Florida due to its
strategic location in the Southeast.
Simon Konover, founder of both Konover & Associates South and Konover &
Associates, Inc., a $500
20
<PAGE>
million plus real estate company headquartered in West Hartford, Connecticut,
will become Chairman of the Board of the Company upon completion of the
transaction. He will not become an executive officer of the Company.
On October 7, 1997, the Company entered into agreements to purchase nine
shopping centers located in North Carolina and Virginia, (the "Rodwell/Kane
Properties") totaling 1.0 million square feet, and to assume third-party
management of an additional 1.2 million square feet of community shopping
centers. The centers to be purchased are owned primarily by Roy O. Rodwell,
Chairman and Co-Founder of Atlantic Real Estate Corporation ("ARC"), a privately
held real estate development company based in Durham, North Carolina and John M.
Kane, Chairman of Kane Realty Corporation, a real estate development and
brokerage company based in Raleigh, North Carolina, in a transaction valued at
$63.3 million.
As of March 31, 1998, the acquisition of seven of the nine centers
discussed above had closed. The acquisition of the eighth center closed on May
14, 1998. The ninth and final center will be managed by the Company and is
expected to be acquired in the year 2000. Its acquisition prior to the year 2000
would trigger an onerous loan assumption fee.
In exchange for their equity ownership interests in the community centers,
Mr. Rodwell, Mr. Kane and related parties will receive approximately 1.2 million
Units in the Operating Partnership and approximately $3.0 million in cash. The
number of Units to be issued to the sellers was based on a $9.50 price per share
of the Company's Common Stock. Of the Units to be issued, approximately 0.3
million Units will remain unissued, as well as the holdback of cash in the
amount of approximately $0.8 million, until the completion of certain
performance requirements. As part of the purchase price, the Company will also
assume approximately $48.8 million of fixed-rate debt on the properties to be
acquired.
During 1997, the Company and Atlantic Real Estate Corporation ("ARC")
jointly created a limited liability company named Atlantic Realty LLC
("Atlantic") to develop and manage retail community and neighborhood shopping
centers in North Carolina. Atlantic currently has plans to develop nearly one
million square feet, including outparcels, over the next several years. The
Company and ARC own Atlantic equally, with the Company serving as managing
member overseeing its operations. As of March 31, 1998, the Company has invested
$2.5 million in this joint venture. The investment in Atlantic will be accounted
for under the equity method of accounting as major decisions must be agreed to
by both the Company and ARC. As of March 31, 1998, Atlantic had total assets of
approximately $8.1 million and debt of $5.6 million. The joint venture had no
other operations.
During 1997, the Company also entered into a joint venture, known as Mount
Pleasant FAC LLC, with AJS Group, to develop a 425,000-square foot
retail/entertainment shopping center in Mount Pleasant, South Carolina.
Construction on the center is expected to begin May 1998, with completion
targeted for May 1999. As of March 31, 1998, the Company has invested $1.3
million in this joint venture. This 50% investment in the joint venture will be
accounted for under the equity method of accounting as major decisions must be
agreed to by both the Company and the AJS Group. The joint venture had
approximately $4.8 million of assets and $3.5 of debt at March 31, 1998. The
joint venture had no other operations.
During 1998, the Company entered into a joint venture, known as Wakefield
Commercial LLC, primarily to develop two community shopping centers. The two
retail centers, one approximately 200,000 square feet and the other
approximately 300,000 square feet, will be located on 65 acres within a 500-acre
parcel of land zoned for commercial use. The Company will perform all leasing,
property management and marketing functions for the two centers. The Company
holds a 50% in the venture, which is accounted for under the equity method of
accounting as major decisions must be agreed to by both the Company and its
venture partners. As of March 31, 1998, the Company had invested $0.6 million in
this joint venture and had advanced the joint venture $4.7 million. The advances
carry interest at 11% per annum. The joint venture had no other operations.
The Company is currently in the pre-development and marketing stage for a
property located Lake Carmel, New York. If appropriate tenant interest is
obtained and the appropriate agreements, permits and approvals are received, the
Company intends to commence construction in the Fall of 1998.
21
<PAGE>
The Company's current acquisition, expansion and development plans are
subject to certain risk and uncertainties; including, but not limited to
economic conditions in the retail industry, future real estate market
conditions; the availability of financing; and the risk associated with the
Company's property development activities, such as the potential for cost
overruns, delays and the lack of predictability with respect to the financial
returns associated with these development activities. There can be no assurance
that the planned development and expansions will occur according to current
schedules or that, once commenced, such development and expansions will be
completed.
Based on current market conditions, the Company believes it will have
access to the capital resources or has adequate financial resources to fund
operating expenses, potential distributions to stockholders, acquisitions and
planned development and construction activities. At March 31, 1998, the Company
has available $87.8 under its $150 million Nomura credit facility following the
retirement of $72.3 million of debt which existed at December 31, 1997.
The Company is in the process of reviewing various financing alternatives
for its planned development of the "power" outlet mall located in Lake Carmel,
New York, including a potential joint venture arrangement. The planned
development of nearly one million square feet of community and neighborhood
shopping centers in North Carolina with ARC, the development of a
retail/entertainment shopping center in Mt. Pleasant, South Carolina, and the
development of two community shopping centers in Wakefield, North Carolina will
be completed in joint ventures and will be financed in part by a traditional
bank construction loan.
The Company previously announced that dividends declared will be equal to
95% of the Company's taxable income, which is the minimum dividend required to
maintain its REIT status. Determination of any dividends will be made annually
following the review of the Company's year-end financial results. The Company's
decision is driven by its goal to increase the total return to its shareholders
through the use of internal cash flow to "self-fund" some of its growth, such as
expansions at existing centers and strategic acquisitions. The Company also will
strive to reduce its borrowing levels and interest expense. The Board of
Directors determined that the Company would not declare a dividend for 1997.
ECONOMIC CONDITIONS
Inflation has remained relatively low during the past three years with
certain segments of the economy experiencing disinflation, such as apparel
pricing, which has slowed the growth of tenant sales and adversely affected the
Company's revenue due to lower percentage and overage rents on some properties.
Additionally, weakness in the overall retail environment as it relates to tenant
sales volumes may have an impact on the Company's ability to renew leases at
current rental rates or to re-lease space to other tenants. Although a decline
in sales does not affect base rental, aside from renewals, such weakness could
result in reduced revenue from percentage rent tenants, as well as overage rent
paid to the Company. Both revenue items are directly impacted by sales volumes
and represented 4.9% of the Company's total revenue for the three months ended
March 31, 1998. Continuance of this trend may affect the Company's operating
centers' (the "Properties") occupancy rate and the rental rates obtained and
concessions, if any, granted on new leases or re-leases of space, which may
cause fluctuations in the cash flow from the operation and performance of the
operating centers. In the event of higher inflation, however, a majority of the
tenants' leases contain provisions designed to protect the Company from the
impact of inflation. Such provisions include clauses enabling the Company to
receive percentage rentals based on tenants' gross sales, which generally
increase as prices rise, and/or escalation clauses, which generally increase
rental rates during the terms of the leases. In addition, many of the leases are
for terms of less than ten years, which may enable the Company to replace
existing leases with new leases at higher base and/or percentage rentals if
rents of the existing leases are below the then-existing market rate.
The majority of the Company's leases, other than those for some anchors,
require the tenants to pay a proportionate share of operating expenses,
including marketing, common area maintenance, real estate taxes and insurance,
thereby reducing the Company's exposure to increases in costs and operating
expenses resulting from inflation. The Company's leases with two of its anchor
tenants, VF Factory Outlet and Carolina Pottery, which were
22
<PAGE>
executed in June 1993, also require the tenants to pay certain operating
expenses and increases in common area maintenance expenses. At March 31, 1998,
16% of the aggregate GLA of its centers was leased to non-anchor tenants under
gross leases, pursuant to which the Company is obligated to pay all utilities
and other operating expenses of the applicable center. The Properties are
subject to operating risks common to commercial real estate in general, any and
all of which may adversely affect occupancy or rental rates. The properties are
subject to increases in operating expenses such as cleaning; electricity;
heating, ventilation and air conditioning; insurance and administrative costs;
and other general costs associated with security, landscaping, repairs and
maintenance. While the Company's tenants generally are currently obligated to
pay a portion of these escalating costs, there can be no assurance that tenants
will agree to pay such costs upon renewal or that new tenants will agree to pay
such costs. If operating expenses increase, the local rental market may limit
the extent to which rents may be increased to meet increased expenses without
decreasing occupancy rates.
Additionally, inflation may have a negative impact on some of the Company's
other operating items. Interest and general and administrative expenses may be
adversely affected by inflation as these specified costs could increase at a
rate higher than rents. Approximately 23.6% of the Company's debt on income
properties and notes payable as of March 31, 1998 bore interest at rates that
adjust periodically based on market conditions. Following the sale of the
remaining common shares to PSR, as described above, the Company's exposure to
floating rate debt will be further reduced or eliminated. Also, for tenant
leases with stated rent increases, inflation may have a negative effect as the
stated rent increases in these leases could be lower than the increase in
inflation at any given time.
Substantially all of the Company's existing tenants have met their lease
obligations and the Company continues to attract and retain quality tenants. The
Company intends to reduce operating and leasing risks by continually improving
its tenant mix, rental rates and lease terms by attracting creditworthy
national, regional and local tenants that offer a wide range of merchandise and
amenities not previously offered.
FORWARD-LOOKING STATEMENTS
Certain statements in this Form 10-Q, in the Company's press releases, and
in oral statements made by or with the approval of an authorized executive
officer constitute "forward-looking statements" under the Reform Act. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors, which may cause the actual results, performance or achievements
of the Company to be materially different from any future results, performance
or achievements expressed or implied by such forward-looking statements. Such
factors include, among others, the following: real estate market conditions;
availability of financing; general economic conditions, including conditions in
the retail segments of the economy, such as inflation, consumer confidence,
unemployment rates and consumer tastes and preferences; the amount of, and rate
of growth in, the Company's ability to reduce, or limit the increase in, such
expenses, and the impact of unusual items resulting from the Company's ongoing
evaluation of its business strategies, portfolio and organizational structure;
difficulties or delays in the completion of expansions of existing projects or
development of new projects; and the effect of competition from other factory
outlet centers. With respect to the Company's expansion and development
activities (including the potential development of a site at Lake Carmel, New
York), such forward looking statements are subject to a number of risks and
uncertainties, including the availability of financing on favorable terms, the
consummation of related property acquisitions, receipt of zoning, land use,
occupancy, government and other approvals, and the timely completion of
construction and leasing activities. With respect to the Company's acquisition
activities, such forward-looking statements are subject to risks and
uncertainties, including accuracy of representations made in connection with
such acquisitions, continuation of occupancy levels, changes in economic
conditions (including interest rate levels) and real estate markets.
23
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PART II
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On March 23, 1998, the Company sold 2,350,000 shares of Common Stock to
Prometheus Southeast Retail, LLC, an affiliate of Lazard Freres Real
Estate Investors, LLC, at $9.50 per share, for an aggregate purchase price
of $22,325,000 (the "Initial Purchase"). The offering was made pursuant to
the exemption from registration set forth at Section 4(2) of the Securities
Act of 1933, as amended. The Company took reasonable steps to assure that
PSR purchased the securities without a view to their distribution.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 (1) Amended and Restated Stock Purchase Agreement, dated as
of March 23, 1998, between the Company and the Investor.
10.2 (1) Stockholders Agreement, dated February 24, 1998, between
the Company and the Investor.
10.3 (1) Registration Rights Agreement, dated February 24, 1998,
between the Company and the Investor.
10.4 (1) Contingent Value Right Agreement, dated February 24,
1998, among the Company and the Investor.
10.5 Master Agreement dated February 24, 1998 by and among FAC
Realty Trust, Inc., FAC Properties LP, and the signatories
to this Master Agreement contained therein.
27 Financial Data Schedule (EDGAR filing only)
(b) Reports on Form 8-K
- ----------------------------
(1) Incorporated by reference from the Company's Form 8-K dated March 23,
1998
The Company filed a Report on Form 8-K (dated March 23, 1998) reporting
under Item 1, that on March 23, 1998, the Company sold 2,350,000 shares of
Common Stock to Prometheus Southeast Retail, LLC, an affiliate of Lazard
Freres Real Estate Investors, LLC, at $9.50 per share, for an
aggregate purchase price of $22,325,000. Under Item 2, the Company reported
the acquisition of seven of the Rodwell/Kane Properties.
24
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SIGNATURES
================================================================================
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
FAC REALTY TRUST, INC.
Date: May 20, 1998 By /S/ Patrick M. Miniutti
-------------------------------------------
Patrick M. Miniutti, Executive Vice
President, Chief Financial Officer
and Director
By /S/ Sona A. Thorburn
--------------------------------------------
Sona A. Thorburn, Vice President and
Chief Accounting Officer
25
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MASTER AGREEMENT
-------------
by and among
FAC Realty Trust, Inc.,
FAC Properties, L.P.,
and the other
signatories to this
Master Agreement
hereinafter contained,
Dated as of February __, 1998
-------------------------------
IN MAKING AN INVESTMENT DECISION, INVESTORS MUST RELY ON THEIR OWN
EXAMINATION OF THE ISSUER AND THE TERMS OF THE OFFERING, INCLUDING THE MERITS
AND RISKS INVOLVED. THESE SECURITIES HAVE NOT BEEN RECOMMENDED BY ANY FEDERAL OR
STATE SECURITIES COMMISSION OR REGULATORY AUTHORITY. FURTHERMORE, THE FOREGOING
AUTHORITIES HAVE NOT CONFIRMED THE ACCURACY OR DETERMINED THE ADEQUACY OF ANY
DOCUMENT USED IN CONNECTION WITH THE OFFERING AND ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND
RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND THE APPLICABLE STATE SECURITIES LAWS,
PURSUANT TO THE REGISTRATION OR EXEMPTION THEREFROM. INVESTORS SHOULD BE AWARE
THAT THEY MAY BE REQUIRED TO BEAR THE FINANCIAL RISK OF THIS INVESTMENT FOR AN
INDEFINITE PERIOD OF TIME.
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TABLE OF CONTENTS
ARTICLE I DEFINITIONS................................................................................................1
ARTICLE II THE TRANSACTIONS..........................................................................................7
2.1 General...............................................................................................7
2.2 Tender of Consideration...............................................................................7
2.3 Lake Point............................................................................................8
ARTICLE III CONSIDERATION............................................................................................8
3.1 Contribution Price....................................................................................8
3.2 Terms of Payment......................................................................................9
3.3 Additional Closing Adjustments........................................................................9
3.4 Cash Holdback........................................................................................11
ARTICLE IV CLOSING..................................................................................................11
4.1 Closing; Condition to Obligations....................................................................11
4.2 Exchange of Documents, Units.........................................................................12
4.3 Extension of Outside Closing Date....................................................................12
4.4 Deliberately Omitted.................................................................................12
4.5 Documents to be Delivered at Closing.................................................................13
4.6 Documents Required to be Delivered by the Operating Partnership and
FAC at Closing.......................................................................................15
ARTICLE V COVENANTS AND AGREEMENTS..................................................................................16
5.1 Operation of Business................................................................................16
5.2 No Brokers...........................................................................................17
5.3 Contributions of Assets..............................................................................17
5.4 Assignment of Warranties.............................................................................17
5.5 Operation of FAC and Operating Partnership ..........................................................17
5.6 Tenant Improvements; Rent Concessions................................................................17
5.7 Security Deposits....................................................................................17
5.8 Outstanding Debt Financing...........................................................................17
5.9 Purchase Option Properties...........................................................................17
5.10 Insurance............................................................................................18
5.11 Books and Records. ..................................................................................18
5.12 Governmental Violations. ...........................................................................18
5.13 Completion of On-Going Work..........................................................................18
5.14 Consents and Approvals...............................................................................18
5.15 Listings and Other Offers............................................................................18
5.16 Reports and Filings..................................................................................18
5.17 Konover Name; Change in Management...................................................................19
ARTICLE VI REPRESENTATIONS AND WARRANTIES OF THE PARTIES............................................................21
6.1 Representations and Warranties.......................................................................21
6.2 Joint and Several Liability..........................................................................21
6.3 Survival of Constituent Parties' Representations.....................................................21
6.4 Survival of Company and Operating Partnership Representations........................................22
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6.5 Indemnification by Contributors or the Company.......................................................22
6.6 Third-Party Claims...................................................................................23
ARTICLE VII INVESTMENT REPRESENTATIONS AND WARRANTIES...............................................................23
Representations and Warranties of Contributors................................................................23
7.4 Acquisition for own Account..........................................................................23
7.5 Reliance by FAC and the Operating Partnership........................................................23
7.6 No Transfer..........................................................................................24
7.7 Accredited Investor..................................................................................24
7.8 Substantial Risk.....................................................................................24
7.9 Legend...............................................................................................24
7.10 Foreign Person.......................................................................................25
ARTICLE VIII CONDITIONS TO CLOSING..................................................................................25
8.1 Conditions to FAC's and the Operating Partnership's Obligations to Close.............................25
8.2 Conditions to the Contributor's and the Constituent Partnerships'
Obligations to Close.................................................................................27
ARTICLE IX ARBITRATION..............................................................................................28
9.1 Arbitration..........................................................................................28
ARTICLE X RESTRICTIONS ON SALE OF THE PROPERTIES....................................................................28
10.1 Restricted Period....................................................................................28
10.2 Limited Exceptions to Restrictions...................................................................29
10.3 Refinancing During the Restricted Period.............................................................30
10.4 Post Restricted Period Transactions..................................................................30
10.5 Traditional Method ..................................................................................31
ARTICLE XI PURCHASE OPTION PROPERTIES...............................................................................30
11.1 Right of First Refusal...............................................................................30
11.2 Put Option...........................................................................................31
ARTICLE XII MANAGEMENT OF THE PROPERTIES............................................................................32
12.1 Assignment of Management Agreements..................................................................32
12.2 Consideration........................................................................................32
12.3 Assignment of Office Lease...........................................................................32
12.4 Conditions to Closing................................................................................33
12.5 Covenants............................................................................................33
12.6 Konover Management Employees.........................................................................33
ARTICLE XIII MISCELLANEOUS..........................................................................................34
13.1 Notices..............................................................................................34
13.2 Counterparts.........................................................................................35
13.3 Severability.........................................................................................35
13.4 Assigns..............................................................................................35
13.5 Public Announcement..................................................................................36
13.6 Confidentiality......................................................................................36
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13.7 Remedies.............................................................................................36
13.8 Construction.........................................................................................37
13.9 Exhibits and Schedules...............................................................................37
13.10 Merger Clause........................................................................................37
13.11 Waiver...............................................................................................37
13.12 Relationship of Parties..............................................................................37
13.13 Deliberately Omitted.................................................................................37
13.14 Governing Law........................................................................................37
13.15 Directors' Liability.................................................................................37
13.16 Constituent Parties' Director Liability..............................................................37
iii
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iv
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MASTER AGREEMENT
This MASTER AGREEMENT (the "Agreement") is made as of the __ day of
February, 1998, by and among FAC REALTY TRUST, INC., a Maryland corporation
(sometimes referred to as "FAC" or the "Company"); FAC PROPERTIES, L.P., a
Delaware limited partnership (the "Operating Partnership"); KONOVER MANAGEMENT
SOUTH CORP. ("Konover Management South"), a Florida corporation; the parties
hereinafter collectively defined as the POP Sellers; and the other signatories
to this Agreement hereinafter contained (each a "Contributor" and collectively
the "Contributors").
WHEREAS, the Operating Partnership is a Delaware limited partnership
having FAC as its sole general partner and FAC has elected to be qualified as a
real estate investment trust under the Code (as defined below); and
WHEREAS, Contributors own the direct and indirect interests in certain
Properties (as defined below) and other real property, improvements,
appurtenances and other rights, interests and privileges appertaining thereto,
set forth with more particularity in the Acquisition Schedule (hereinafter
defined) hereto and, as applicable, in certain partnerships, limited liability
companies or other ownership entities which own interests in the Properties, as
also set forth in the Acquisition Schedule ;
WHEREAS, the Contributors desire to sell, transfer and assign to the
Operating Partnership, and the Operating Partnership desires to acquire, their
interests in exchange for the consideration described with more particularity
hereinbelow;
WHEREAS, Konover Management South desires to sell to the Operating
Partnership Konover Management South's rights to manage the Properties and
certain other properties managed by Konover Management South in exchange for the
consideration described with more particularity hereinbelow;
NOW, THEREFORE, in consideration of the premises herein contained, and
other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
The following capitalized terms shall have the following meanings for
all purposes of this Agreement and such meanings are equally applicable to the
singular and plural forms of the terms defined. The terms "hereof", "hereto",
"herein", "hereunder" and comparable terms refer to the entire agreement with
respect to which such terms are used and not to any particular section,
subsection, paragraph or other subdivision thereof.
"ACQUIRED PARTNERSHIPS" means, collectively, the corporations, trusts,
partnerships and/or limited liability companies listed in the Acquisition
Schedule.
"ACQUISITION SCHEDULE" means the schedule of Acquired Partnerships and
Properties attached hereto as SCHEDULE 1 and incorporated herein by reference.
<PAGE>
"AFFILIATE" means, as to any Person (as defined below), each of the
Persons (i) which directly or indirectly through one or more
intermediaries controls, or is controlled by, or is under common
control with such Person; or (ii) which beneficially owns or holds 10%
or more of any class of the outstanding voting stock (or in the case of
a Person which is not a corporation, 10% or more of the equity
interest) of such Person; or (iii) 10% or more of any class of the
outstanding voting stock (or in the case of a Person which is not a
corporation, 10% or more of the equity interest) of which is
beneficially owned or held by such Person. The term "control" means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of a Person, whether by
ownership of voting stock, by contract, by close family relationships
(i.e., parent, spouse, child or sibling) or otherwise.
"ALLOCATED PROPERTY VALUE" means as defined in Section 3.1(a).
"AVERAGE SHARE PRICE" means, with reference to any day, the average of
the last reported sales price (or, if there is no such price, the
average of the last reported "bid" and "ask" prices) for Shares for the
thirty (30) consecutive business days through and including the last
business day prior to such day.
"AWARD DATE" means as defined in Section 3.4.
"BOARD" means the Board of Directors of FAC.
"BRINGDOWN CERTIFICATE" means, as applicable, a certificate executed by
FAC and the Operating Partnership as to the continuing truth and
accuracy in all material respects as of the Closing Date of each and
all of the respective representations and warranties by such parties,
or a Certificate executed by the applicable Contributors and
Constituent Partnerships owning a Property as to the continuing truth
and accuracy in all material respects as of the Closing Date of each
and all of the representations and warranties of such Contributors and
Constituent Partnerships under this Agreement with respect to
themselves or such Property.
"CLOSING" means, with respect to any Property or Properties, the
closing and consummation of the transactions contemplated by this
Agreement relating to such Property or Properties.
"CLOSING DATE" means, with respect to any Property or Properties, the
date upon which the Closing occurs, upon not less than ten (10) days
notice from the Operating Partnership to the Contributors of the
Property or Properties to which the Closing relates, but in no event
later than the Outside Closing Date.
"CODE" means the Internal Revenue Code of 1986, as amended.
"CONSTITUENT FINANCIAL STATEMENTS" means the periodic income statement
and balance sheets provided to the Operating Partnership (including the
schedules attached thereto) for the Properties and, as applicable, the
Contributors or Constituent Partnerships (i.e. whichever is the direct
contributor of each Property), covering the three (3) most recent
completed fiscal years of the applicable Constituent Party plus any
more recent financial statements which may exist. The parties
acknowledge that the Constituent Financial Statements for the
Contributor of the Property known as South Cobb Festival Centre are
limited to such Property and do not relate to the other assets of such
Contributor.
2
<PAGE>
"CONSTITUENT PARTIES" means collectively the Contributors and the
Constituent Partnerships, without duplication.
"CONSTITUENT PARTNERSHIPS" means, as to those Properties, if any, which
are owned (legally or beneficially) or leased by corporations, trusts,
partnerships, limited liability companies or other entities which are
in turn owned by certain of the Contributors, such corporations,
trusts, partnerships, limited liability companies or other entities
which may be so owned by certain of the Contributors.
"CONTRIBUTION PRICE" means the consideration to be paid by the
Operating Partnership to the Contributors for their Interests in the
Properties as set forth in Section 3.1.
"CONTRIBUTOR COUNSEL" means Weil, Gotshal and Manges LLP, located at
the address provided in the Section of this Agreement entitled
"Notices," counsel to the Constituent Parties.
"ENVIRONMENTAL LAW" means any and all federal, state and local laws,
regulations, ordinances and other requirements relating to pollution or
protection of the environment, including, without limitation, laws,
regulations and requirements relating to the ownership, possession,
storage and control of the Properties (as defined below) and to
emissions, discharges, releases or threatened releases of storm water,
pollutants, contaminants, toxic or hazardous substances, or solid or
hazardous wastes into the environment (including without limitation
ambient air, surface water, groundwater or land), or otherwise relating
to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of pollutants, contaminants, toxic or
hazardous substances, or solid or hazardous wastes. The Environmental
Laws include, without limitation, the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"GAAP" means Generally Accepted Accounting Principles, consistently
applied.
"IMPROVEMENTS" means all buildings, structures, streets, furnishings,
parking lots, landscaping, walls, ponds, culverts, fixtures, utilities,
fences, driveways, loading docks, security systems and other physical
features constructed or assembled on, at, upon or beneath any of the
Properties (whether finished or unfinished).
"INDEBTEDNESS" means, without duplication, any obligations for borrowed
money, whether heretofore, now or hereafter owing, arising, due or
payable to any person and howsoever evidenced, created, incurred,
acquired or owing, whether primary, secondary, direct, contingent,
fixed or otherwise and whether matured or unmatured. Without in any way
limiting the generality of the foregoing, Indebtedness specifically
includes the following: (a) all obligations or liabilities of any
person that are secured by any lien, claim, encumbrance or security
interest upon property; (b) all obligations or liabilities created or
arising under any capital lease of real or personal property, or
conditional sale or other title retention agreement with respect to
property, even though the rights and remedies of the lessor, seller or
lender thereunder are limited to repossession of such property; (c) in
the context of an acquisition hereunder of Interests in a Constituent
Partnership, all obligations to trade creditors and all unfunded
pension fund, employee medical or welfare obligations and liabilities;
(d) deferred taxes; and (e) all obligations under any indemnification
agreements, guaranty agreements, letters of credit or other documents
creating such contingent liabilities.
3
<PAGE>
"INDEPENDENT DIRECTOR" shall have the meaning set forth in the charter
of FAC, as it may be amended from time to time.
"INTERESTS" shall mean, collectively, all direct or indirect equity
interests owned by any Contributor and set forth in the Acquisition
Schedule and any other direct or indirect equity interests such
Contributor may have, whether now owned or hereinafter acquired, in the
Acquired Partnerships or the Properties listed in the Acquisition
Schedule.
"LAZARD STOCK PURCHASE AGREEMENT" shall mean that certain Stock
Purchase Agreement dated as of February , 1998 by and between FAC and
Prometheus Southeast Realty LLC with respect to the Lazard Transaction.
"LAZARD TRANSACTION" shall mean that certain transaction pursuant to
which FAC has agreed to sell to Prometheus Southeast Realty LLC an
aggregate of 21,052,632 shares of FAC stock, subject to the "Contingent
Value Rights," all as more particularly provided in the Lazard Stock
Purchase Agreement.
"LIEN" means any interest in property securing an obligation owed to,
or a claim by, a Person other than the owner of the property, whether
such interest is based on the common law, statute or contract, and
including but not limited to the lien or security interest arising from
a mortgage, encumbrance, pledge, security agreement, conditional sale
or trust receipt or a lease consignment or bailment for security
purposes. The term Lien shall include reservations, exceptions, defects
of any kind or nature, encroachments, easements, rights-of-way,
covenants, conditions, restrictions, leases and other title exceptions
and encumbrances affecting property.
"MATERIAL ADVERSE EFFECT" shall mean a material adverse effect on the
financial condition, results of operations, business or prospects of
the Property in question or the Person in question and its Subsidiaries
(to the extent of the interests of the company in question therein)
taken as a whole.
"NET OPERATING INCOME" shall mean, for any period, all Operating Income
during such period minus all Operating Expenses during such period,
determined in accordance with GAAP provided that, in determining Net
Operating Income, (i) Operating Expenses shall be adjusted (A) to
reflect a normalized allowance for lease rollovers based on the rent
roll for each Property and then current market conditions, including
downtime, tenant improvement costs and leasing commissions, (B) a
reserve for capital expenditures equal to $0.10 per square foot of
rentable space per annum and (C) a vacancy allowance at the actual
vacancy rate (but not less than 5%), and (ii) Operating Income shall be
adjusted (A) to exclude rents from temporary or month-to-month tenants
or tenants operating under bankruptcy protection, (B) to include the
annualized base rent for executed leases with tenants in occupancy
which are open for business and actually paying rent for at least three
months, and (C) to give effect to any mandatory and liquidated rent
adjustments or any cancellation options in any leases which, in each
case, relate to the twelve (12) months following the expiration of such
period;
"NYSE" means the New York Stock Exchange, Inc.
"OPERATING EXPENSES" shall mean, for any period, all expenditures for a
Property as and to the extent required to be expensed or allowed to be
expensed and in fact expensed under GAAP during such period in
connection with the ownership, operation, maintenance, repair or
leasing of each Property, including (i) management fees, calculated at
not less than five percent (5%) of gross rental income, insurance
premiums, bank charges, expenses for accounting, advertising,
marketing, architectural services, utilities, extermination, cleaning,
trash removal, window washing, landscaping and security; and reasonable
and necessary legal expenses incurred in connection with
4
<PAGE>
the operation of each Property; (ii) taxes (other than income taxes);
and (iii) the cost of interior and exterior maintenance, repairs and
minor alterations; PROVIDED that Operating Expenses will not include
non-cash items such as depreciation and amortization or any
non-recurring expenditures or any extraordinary expenditures not
considered operating expenses under GAAP.
"OPERATING INCOME" for any period, all regular on-going revenues
actually received form the operation of each Property during such
period, including (i) rents and (ii) all other amounts received which
in accordance with GAAP are required to be or are included in annual
financial statements as operating income of each Property; PROVIDED,
that Operating Income will not include (1) income from non-recurring
income sources, (2) advance rents or other payments relating to
portions of the term of the lease other than the period in question,
(3) deposits or escrows, (4) any income otherwise includable in
Operating Income but paid to a person other than the owner of the
Property, (5) proceeds of casualty insurance or condemnation awards or
(6) income from a sale, financing or other capital transaction.
"OUTSIDE CLOSING DATE" means June 30, 1998, subject to extension to
December 31, 1998 in accordance with the provisions of Section 4.3
hereof.
"OPERATING PARTNERSHIP AGREEMENT" means the Agreement of Limited
Partnership of FAC Properties, L.P., as amended through the date
hereof, including the amendment to admit the Contributors as limited
partners therein.
"OUTSTANDING DEBT FINANCING" means the secured mortgage Indebtedness of
the Properties described as such on SCHEDULE 6.1A.9 attached hereto
including any indemnifications and guarantees related thereto.
"PERMITTED LIENS" means (i) liens for ad valorem taxes not yet due and
payable; (ii) lease memoranda or notices, restrictions, easements,
covenants, reservations and rights of way of record as do not detract
from the value or interfere with the present use of a parcel of
property; (iii) zoning ordinances, restrictions and other requirements
imposed by governmental authority as do not interfere with the present
use of a parcel of property; and (iv) such imperfections of title,
liens and encumbrances, if any, as do not detract from the value or
interfere with the present use of a parcel of property and which do not
secure obligations for borrowed money or the deferred purchase price of
property.
"PERSON" means any individual, joint venture, corporation, limited
liability company, trust, company, voluntary association, partnership,
trust, joint stock company, unincorporated organization, association,
government, or any agency, instrumentality, or political subdivision
thereof, or any other form of entity.
"PROPERTY" or "PROPERTIES" shall mean, individually, the real property
together with any Improvements thereon and all tangible and intangible
personal property and rights, privileges, easements, licenses, leases,
lettings and interests appurtenant thereto and all of the ownership
interests therein owned by a Contributor or by a Constituent
Partnership or, collectively, by all of the Constituent Partnerships,
which real property is listed as a "Property" on the Acquisition
Schedule.
"PURCHASE OPTION PROPERTIES" means the Properties which are more
particularly described as such on the Acquisition Schedule.
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"REDEMPTION SHARES" means the Shares of FAC into which Units received
by the Contributors in connection with the transactions contemplated
hereby are convertible into under certain circumstances at the election
of FAC upon their tender for redemption as provided in the Operating
Partnership Agreement.
"REGISTRATION RIGHTS AGREEMENT" means that certain Registration Rights
Agreement in the form attached hereto as SCHEDULE 4.6 (IV).
"SEC" means the Securities and Exchange Commission.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SECURITIES LAWS" means the Securities Act, the Exchange Act and the
rules and regulations promulgated thereunder.
"SHARES" means the duly authorized common stock of FAC.
"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.
"TRANSACTIONS" means the transactions contemplated under this Master
Agreement.
"UNIT" OR "PARTNERSHIP UNIT" means an undivided limited partnership
interest of the Operating Partnership, which is exchangeable by the
Unit holder for either cash or Shares, whichever may be elected by FAC,
after one year from the Closing Date in accordance with the Operating
Partnership Agreement.
"WARRANT AGREEMENT" means that certain Warrant Agreement to be executed
at Closing between FAC and Simon Konover and which contains the
material terms provided in Section 5.17 and is otherwise mutually
satisfactory to FAC and Simon Konover.
"WITHHELD CASH" means as defined in Section 3.4.
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ARTICLE II
THE TRANSACTIONS
II.1 General. Subject to the terms, conditions, provisions and
limitations in this Agreement, on the Closing Date, each Contributor does hereby
agree to contribute to the Operating Partnership its Interests and the Operating
Partnership does hereby agree to accept such Interests and issue to each
Contributor, in exchange for such contribution, the Units as provided in Section
2 hereof and the Acquisition Schedule. Notwithstanding anything to the contrary
in this Agreement, but subject to the terms and conditions of Section 8.2(f)
with respect to the Property known as Mobile Festival Centre, the Operating
Partnership shall acquire and the Contributors of all of the Interests in each
Property shall convey to the Operating Partnership title to the Property, by
deed, ground leasehold assignment or other applicable instrument of conveyance
of the assets comprising the Property rather than by transfer of ownership
interests in any Contributor or Constituent Partnership.
II.2 Tender of Consideration. The Operating Partnership shall tender the
consideration to the applicable Contributor as provided in Article III hereof in
respect of the Closings of the Properties under this Agreement such that each
Closing occurs under the terms thereof.
II.3 Lake Point. The parties agree that Lake Point is a "Property" under
this Agreement and it is the intent of the Operating Partnership to acquire, and
the intent of the Contributors owning Interests therein, to convey, either
directly or indirectly, Lake Point. However, the parties acknowledge that such
conveyance and acquisition are subject to the mutual resolution of certain
outstanding issues with respect to such Property, including (i) the Allocated
Property Value with respect thereto, (ii) whether the transfer will consist all
or certain of the Interests in the Constituent Partnership or a transfer of
Title to the Property, and (iii) certain qualifications or modifications of the
representations and warranties as they relate to such Property. Accordingly, the
parties shall have fifteen (15) business days from the date of this Agreement to
agree on such outstanding issues and memorialize such understandings in an
addendum to this Agreement executed by FAC, the Operating Partnership and the
Contributors of Lake Point, or else, upon the expiration of such period, Lake
Point shall be automatically withdrawn from this Agreement without further
liability or obligation of any party with respect thereto.
ARTICLE III
CONSIDERATION
III.1 Contribution Price
(a) Units Issued. The consideration for each Contributor's
Interests shall be the number of Units and the amount of cash as set
forth in the Acquisition Schedule, subject to the provisions of Section
3.4 below. The Units and cash are allocated among the Properties to
derive a value for each Property, based upon a Unit value of $9.50, as
shown in Schedule B (the "Allocated Property Value"). The number of
such Units and the amount of cash are subject to adjustment at Closing
due to (i) prorations and post-closing adjustments as provided herein
and (ii) in respect of the decisions of individual investors in the
Constituent Partnerships to elect Units or cash.
(b) Proposed Distributions. For the first fiscal year (or
other period over which distributions are paid) of the Operating
Partnership ending after the date of Closing, partnership
distributions, if any, attributable to such year (or other period)
payable by the Operating Partnership to Contributor pursuant to
Paragraph 5.1 of the Operating Partnership Agreement shall be prorated
to take into account the period of time during such year (or other
period) that the Contributor or its successors in interest to the Units
is a limited partner in the Operating Partnership. The Contributor
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shall receive, contemporaneously with receipt by the other limited
partners in the Operating Partnership of their respective distributions
for such year (or other period), that portion of a full distribution
otherwise attributable to its Units determined by multiplying the
amount of such full distribution by a fraction the numerator of which
is the number of days during such year (or other period) that the
Contributor is a limited partner in the Operating Partnership and the
denominator of which is the number of days in such year (or other
period). In the event that the Contributor receives a full cash
distribution for such period, it shall reimburse the Operating
Partnership the prorated portion of such distribution within five (5)
days of receipt.
(c) The Lock-Up. Each Contributor hereby agrees that without
the prior written consent of FAC, it will not, directly or indirectly,
sell, offer or contract to sell, grant any option for the sale of, seek
redemption of or otherwise dispose of or transfer (collectively,
"dispose of"), any Partnership Units received hereby except as set
forth in SCHEDULE 3.1(C) hereof.
III.2 Terms of Payment
(a) Generally. At the Closing, each Contributor shall receive
the number of Units and the amount of cash allocated to such
Contributor under the Acquisition Schedule in respect of the Properties
to be acquired.
(b) Pro Rata Expenses. The Contributors shall be responsible
for the aggregate amount of, and each Contributor shall be responsible
for payment of its pro rata portion of, the Constituent Parties' legal
fees associated with this transaction, any contract termination fees
with respect to the Properties or the Constituent Partnerships, and any
prorations chargeable to the Contributors under Section 3.3 hereof. The
legal fees of FAC and the Operating Partnership, and all assumption and
other fees associated with the Outstanding Debt Financing shall be
expenses of the Operating Partnership and paid from resources of the
Operating Partnership existing prior to Closing.
(c) Transfer Taxes. All transfer and documentary stamp and
other similar taxes and fees for the conveyance of the Properties or
Interests in Constituent Partnerships shall be the responsibility of
and paid from resources of the Operating Partnership existing prior to
Closing. Contributors will cooperate with the Operating Partnership, at
no cost or liability to them, in Operating Partnership's reasonable
efforts to conserve the payment of such taxes and fees, including by
distributing certain of the Properties to a limited liability company
or other entity to be formed which is wholly owned by the Contributors
currently owning such Property and conveying the membership interests
in such limited liability company to the Operating Partnership in lieu
of a deed transfer.
III.3 Additional Closing Adjustments
(a) Generally. All real estate taxes, charges and assessments
affecting a Property, all charges for water, sewer, electricity, gas
and all other utilities and operating expenses with respect to a
Property, to the extent not paid or payable by tenants, shall be
apportioned on a per diem basis as of midnight on the date immediately
preceding the Closing Date. All such expenses for the period preceding
the Closing Date shall be deemed expenses of the applicable
Contributors and all such expenses commencing as of the Closing Date
with respect to such Property shall be deemed to be expenses of the
Operating Partnership. Amounts owed under this Section shall be paid to
the party to whom they are owed in cash at the Closing or in the
Post-Closing Adjustment Period (as defined below) in the same manner as
if the underlying real property were being sold. If any real estate
taxes, charges or assessments have not been finally assessed as of the
Closing Date for a Property for the then current calendar tax year,
they shall be adjusted at the Closing based upon the
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greater of (i) the most recently issued bills therefor or (ii) the best
reasonable estimate therefor after consultations with the appropriate
taxing officials.
(b) Rent. Except for delinquent rent, all rent under leases
and other income attributable to a Property shall be apportioned on a
per diem basis as of midnight on the date immediately preceding the
Closing Date. All such rent and other income for the period preceding
the Closing Date shall be deemed to be property of the applicable
Contributors, and all rent and other income for any period commencing
as of the Closing Date and thereafter shall be the property of the
Operating Partnership for the purpose of making the adjustments set
forth herein. Amounts owed under this Section shall be paid to the
party to whom they are owed in cash at the Closing or during the
Post-Closing Adjustment Period (as defined below). Delinquent rent
shall not be prorated, but shall be deemed the property of the
appropriate Contributors. Payments received by the Operating
Partnership from tenants from and after the Closing with respect to a
Property shall be applied first to rents and other amounts then due the
Operating Partnership from such tenant and then to such tenant's
delinquent rent as of the time of apportionment. The Operating
Partnership shall use reasonable efforts to collect delinquent rents
for the benefit of the Contributors but in no event shall be obligated
to evict or sue any tenants in order to collect such rents and shall
cooperate with the Contributors in the collection of any delinquent
amounts; provided, however, that the Contributors shall not have any
rights to evict such tenants for such delinquent amounts. Any amounts
received by Contributors on account of rent or other income for the
period after the Closing Date with respect to the Property and the
related personal property shall be turned over to the Operating
Partnership for application in accordance with the terms of this
Section. All accounts receivable, notes, cash and bank accounts of the
Constituent Parties existing as of the Closing Date and relating to the
Properties shall be transferred at Closing to the Operating
Partnership.
(c) Debt Service. All amounts due and owing under the
Outstanding Debt Financing (other than the outstanding principal
balance thereof which is not then due and payable), including by way of
example accrued and unpaid interest, amortization payments, late
charges and default interest shall be apportioned on a per diem basis
as of midnight on the date immediately preceding the Closing Date.
(d) Leasing Commissions. Except as provided in the next
sentence hereof, Contributors shall be responsible for all outstanding
leasing commissions under leases existing as of the date of this
Agreement and for all commissions pursuant to leases entered into
between the date of this Agreement and Closing without the approval of
FAC and the Operating Partnership. After Closing, the Operating
Partnership shall be responsible for all leasing commissions due
pursuant to leases entered into after the date of this Agreement with
the prior written approval of FAC and the Operating Partnership and on
any renewal terms under existing leases provided that such renewal
terms commence after the Closing Date and such commission obligations
are listed on Schedule 6.1A.20(f).
(e) Service Contracts. The Operating Partnership will assume
the obligations arising after Closing under such service contracts
affecting the Properties in existence on the date of this Agreement as
(i) were disclosed to FAC and the Operating Partnership in writing by
the Contributors prior to the date of this Agreement and (ii) the
Operating Partnership has not directed the Contributors to terminate,
which termination shall be at the sole cost of the applicable
Contributors or Constituent Partnerships. In addition, the Operating
Partnership will assume the obligations arising after Closing under
service contracts entered into between the date of this Agreement and
Closing if such service contracts shall have been approved by FAC and
the Operating Partnership.
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(f) Tenant Improvements and Allowances. Except as provided in
the next following sentence hereof, the Contributors or Constituent
Partnerships, as applicable, shall be responsible for all tenant
improvement obligations and expenses, tenant allowances or rent
abatements ("TI Obligations") under leases in existence on the date
hereof. After Closing, the Operating Partnership shall be responsible
for TI Obligations under leases executed after the date hereof with the
prior written approval of FAC and the Operating Partnership and for all
TI Obligations relating to the period from and after the Closing Date
under the contracts listed on Schedule 6.1A.8. At Closing, the
Contributors or Constituent Partnerships, as applicable, shall assign
to the Operating Partnership and the Operating Partnership shall assume
all obligations under such contracts for TI Obligations listed on
Schedule 6.1A.8, provided that all necessary written consents and
acknowledgments of third parties shall have been obtained by
Contributors or the Constituent Partnerships, as applicable.
(g) Preclosing Expenses and Liabilities. The parties
acknowledge that not all invoices for expenses incurred with respect to
the Properties prior to the Closing Date will be received by the
Closing and that a mechanism needs to be in place so that such invoices
can be paid as received. All of the prorations referred to above will
be done on an interim basis at the Closing and will be subject to final
adjustment in accordance with the provisions hereof within 90 days or
such other agreed upon period of time following Closing Date (the
"Post-Closing Adjustment Period"). Upon receipt by the Operating
Partnership after Closing of an invoice for a Property's expenses which
are attributable in whole or in part to a period prior to the Closing
Date and which were not apportioned at Closing, the Operating
Partnership shall submit for the applicable Contributors a copy of such
invoice with such additional supporting information as Contributors
shall reasonably request. Within 10 days after receipt of such copy,
each of the applicable Contributors shall pay to the Operating
Partnership their pro rata share of an amount equal to the portion of
such invoice attributable to the period ending as of midnight on the
date immediately preceding the Closing Date apportioned on a per diem
basis.
(h) Security Deposits/Tenant Inducements. With respect to the
Property or Properties to be acquired at any Closing, the Constituent
Parties shall pay to the Operating Partnership in cash at such Closing
an amount equal to the sum of (i) the security deposits, if any,
required to be held by the landlord pursuant to the Leases, and (ii)
any other deposits or advances received by the Constituent Parties
relating to services yet to be provided by the Constituent Parties.
(i) Closing Date. The parties acknowledge that the Closing
Date shall be a day of income and expense for the Operating
Partnership.
3.4 Cash Holdback. Contributors hereby acknowledge and agree that the
Operating Partnership has withheld cash of up to $4,250,000 (the "Withheld
Cash") from the Contributors, provided that on each of three "Award Dates," as
defined below, the Operating Partnership shall award to each Contributor one
third of the amount of Withheld Cash specified on the Acquisition Schedule with
respect to such Contributor. The first "Award Date" shall be one year after the
first Closing to occur hereunder, and the second and third Award Dates shall be
on the first two succeeding anniversaries of the first Award Date. Amounts
withheld under this Section 3.4 shall not be subject to setoff.
On each Award Date, the Operating Partnership shall also pay to each
Contributor an amount of cash equal to (i) the amount of Withheld Cash allocable
to such Contributor but which has not been awarded as of such Award Date
(including the amount to be paid on such Award Date, but not including any
amounts awarded on previous Award Dates), multiplied by (ii) seven and three
quarters percent (7.75%) per annum. Interest shall accrue on any Withheld Cash
not paid on the dates when due at the rate of nine and three quarters percent
(9.75) per annum and shall be payable upon demand.
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ARTICLE IV
CLOSING
IV.1 Closing; Condition to Obligations. Closing of the transactions
contemplated hereby shall take place at the offices of FAC and shall take place
simultaneously as to all Properties on or before the Outside Closing Date or,
upon not less than ten (10) days prior written notice, and subject to the
Conditions to Closing set forth in Article VIII below, the Operating Partnership
may accelerate Closing for a particular Property or Properties to a date
specified in such notice, with the reasonable consent of the Contributors of the
Property or Properties so accelerated. Accordingly, the parties hereby
acknowledge and agree that there may be one or more Closings, and that all
references to the "Closing" or the "Closing Date" under this Agreement with
respect to a Property or the Contributors thereof shall mean the Closing and the
Closing Date for such Property, irrespective of the Closing or Closing Dates of
any other Property. It shall not be a condition to the Closing of any Property
that the Closing of any other Property have taken place, and the failure of any
subsequent Closing to take place with respect to any Property shall have no
bearing or effect on a Closing which shall have already occurred. At or before
the Closing with respect to a Property or Properties, the Operating Partnership
and the applicable Contributors will execute all closing documents (the "Closing
Documents") required to be delivered at Closing in accordance with this
Agreement and deposit the same in escrow with FAC or other escrow agent mutually
acceptable to FAC and the Contributors (the "Closing Agent").
4.2 Exchange of Documents, Units. If the Closing occurs:
(i) With respect to each Constituent Partnership or
Property (or portion thereof) acquired, the Operating
Partnership shall cause to be delivered to the Closing Agent
for the benefit of each Contributor the number of Units and
amount of cash set forth on the Acquisition Schedule, as
adjusted pursuant to the terms hereof;
(ii) Upon receipt of the consideration set forth in
clause (i) above, and provided that the Closing Agent shall
have received telephonic authorization from counsel for FAC
and the Operating Partnership and from Contributor Counsel,
the Closing Agent will (A) release the Closing Documents as
provided in this Agreement to the Operating Partnership, to
the Contributors or for recordation, as appropriate and (B)
release the evidence of the Units and cash to the applicable
Contributors; and
(iii) The transactions described or otherwise
contemplated herein or in the Closing Documents with respect
to the applicable Property or Properties will thereupon be
deemed to have been consummated.
4.3 Extension of Outside Closing Date. In the event that the condition
of the Contributors' obligation to close described in Section 8.2(e) shall not
have been satisfied by the Outside Closing Date, then the Outside Closing Date
shall be automatically extended to December 31, 1998.
4.4 Deliberately Omitted
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4.5 Documents to be Delivered at Closing. At or prior to the Closing,
each Contributor and/or Constituent Partnership, as applicable, shall execute,
acknowledge where deemed desirable or necessary by the Operating Partnership,
and deliver to the Closing Agent, in addition to any other documents mentioned
elsewhere herein, the following:
(i) As to Interests for which the Operating Partnership will
receive an assignment of ownership interests constituting such
Interests at Closing, duly executed Assignments of Interest
(the "Assignment"), which assignments (as to partnership or
limited liability company interests) shall be substantially in
the form attached as SCHEDULE 4.5, and as to Interests
consisting of stock or interests in trusts, shall be in form
reasonably satisfactory to the applicable Contributors and the
Operating Partnership. Such assignments shall contain a
representation that such Contributor owns such Contributor's
Interests free and clear of all encumbrances not listed on the
applicable Schedule to this Agreement.
(ii) As to Interests for which the Operating Partnership will
receive a transfer of fee simple or ground leasehold title to
the Property in lieu of a transfer of Contributors' Interests
in the applicable Constituent Partnership, a special warranty
(or equivalent) deed (or assignment of ground leasehold
interests, as applicable), bill of sale and assignments of
leases, contracts and intangibles.
(iii) Any other documents reasonably necessary to assign,
transfer and convey such Contributor's Interests and
effectuate the transactions contemplated hereby, including any
customary affidavits or indemnities required by the title
insurers insuring the Operating Partnership's title to a
Property or the Interests.
(iv) Original counterparts of the Registration Rights
Agreement, executed by all parties thereto other than FAC.
(v) Original counterpart of the Warrant Agreement, executed by
Simon Konover.
(vi) Assignments and/or terminations of all Management and
Leasing Agreements as provided in Section 12.1 hereof.
(vii) Mortgage releases or assumption agreements or consents
of the holders of the Outstanding Debt Financing, as
applicable, reasonably satisfactory in form and substance to
the Operating Partnership and satisfactory to the applicable
mortgagees in their sole discretion, to Operating
Partnership's acquisition and ownership of its Interests in
such Constituent Partnership or Property, without personal
liability of the Operating Partnership or FAC.
(viii) A settlement statement with respect to the Closing,
duly executed by such Contributor.
(ix) Any customary affidavit required by the title company to
remove the standard printed exceptions from the Owner's title
policy and for any applicable endorsement to the loan policy.
Additionally, Constituent Parties shall discharge in full any
and all
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indebtedness underlying such exceptions (exclusive of the
Outstanding Debt Financing) at or before the Closing.
(x) Letters addressed to the tenants and signed by the
Contributors or, if applicable, the Constituent Partnerships,
advising the tenants of the Closing of the Transactions and
the Operating Partnership's right to receive the rents under
their respective Leases.
(xi) All original leases and ground leases and all other
documents pertaining thereto, or certified copies of such
Leases or other documents where the Contributors, using due
diligence, are unable to deliver originals of same.
(xii) All original service contracts, licenses and permits,
and all books and records relating to the Property or the
applicable Contributor or Constituent Partnership ("Books and
Records"), or certified copies of same where the Contributors,
using due diligence, are unable to deliver originals.
(xiii) If the Interests being acquired are the Interests in a
Constituent Partnership, all original organizational
documents, statements of accounts, books and records,
insurance policies and other documentation relating to such
Constituent Partnership.
(xiv) Affidavits and other instruments, including but not
limited to good standing certificates of each Constituent
Party, reasonably requested by the Operating Partnership or
the title company evidencing the power and authority of the
Contributors to enter into this Agreement and any documents to
be delivered hereunder, and the enforceability of same.
(xv) The original tenant estoppel certificates required to be
obtained pursuant to Section 8.1(e) as a condition of Closing
thereunder. as it relates to the Property which is the subject
of the Closing.
(xvi) A list of all cash security deposits and all non-cash
security deposits (including letters of credit) delivered by
tenants of the Property, together with other instruments of
assignment, transfer or consent as may be necessary to permit
the Operating Partnership to realize upon same.
(xvii) The Bringdown Certificate.
(xviii) A rent roll for each Property current as of the
Closing Date, certified by the Contributors or Constituent
Partnership as applicable, as being true and correct in all
material respects.
(xix) All proper instruments as shall be reasonably required
for the conveyance to the Operating Partnership of all right,
title and interest, if any, of the Constituent Parties in and
to any award or payment made, or to be made, (i) for any
taking in condemnation, eminent domain or agreement in lieu
thereof of land adjoining all or any part of the Property,
(ii) for
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damage to the Property, or ground leases or any part thereof
by reason of change of grade or closing of any such street,
road, highway or avenue, and (z) for any taking in
condemnation or eminent domain of any part of the Property or
Ground Leases.
(xx) In order to avoid the imposition of the withholding tax
payment pursuant to Section 1445 of the Code, a certificate
signed by an officer of the Constituent Partnership to the
effect that the Constituent Partnership is not a "foreign
person" as that term is defined in Section 1445(f)(3) of the
Code.
(xxi) All such transfer and other tax declarations and returns
and information returns, duly executed and sworn to by the
Constituent Partnership as may be required of the Constituent
Partnership by law in connection with the conveyance of the
Property to the Operating Partnership, including but not
limited to, Internal Revenue Service forms.
(xxii) Opinion of counsel to the Constituent Parties
reasonably satisfactory to FAC and Operating Partnership in
form and substance.
(xxiii) A tradenames assignment agreement in the form to be
agreed upon by the parties.
(xxiv) Duly executed and acknowledged assignment and
assumption of all Ground Leases substantially in the form
previously agreed to by the parties.
(xxv) Such documents as may be reasonably required by the
mortgagees providing for the restructure or modification of
the Outstanding Debt Financing as provided herein.
(xxvi) Estoppel letters addressed to the respective
Constituent Parties, their successors and assigns from the
lessors under the Ground Leases in form and substance
reasonably acceptable to the Operating Partnership.
(xxvii) Waivers of rights of first refusal, or evidence of the
lapse of said rights, in form reasonable satisfactory to the
Operating Partnership, with respect to any of the Properties
which are subject to said rights.
(xxviii) The Rights of First Refusal referenced in Section
11.1, executed by the applicable POP Sellers, and in form
appropriate for recordation in the appropriate governmental
land records against the Purchase Option Properties.
(xxix) Mutual Indemnification Agreement ("Mutual
Indemnification Agreement") satisfactory in form and substance
to Contributors and FAC and the Operating Partnership pursuant
to which each Contributor shall indemnify FAC and the
Operating Partnership against third party claims, lawsuits and
actions deriving from matters or circumstances arising prior
to the Closing with respect to its Property and FAC and the
Operating Partnership shall indemnify each Contributor against
third party claims, lawsuits and actions arising from matters
or circumstances arising after the Closing with respect to
such Contributor's respective Property.
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(xxx) Any required disclosure under Florida law, or the law of
any other jurisdiction with respect to environmental matters,
including radon.
(xxxi) As to Georgia Properties, evidence that the applicable
Contributor or Constituent Partnership is a Georgia resident
for purposes of O.C.G.A. ss.47-7-28 or that it is otherwise
exempt from the withholding requirements thereunder. Absent
evidence of exemption, the Operating Partnership will withhold
as required by Georgia law.
(xxxii) Such other documents as may be reasonably required or
appropriate to effectuate the consummation of the transactions
contemplated by this Agreement.
4.6 Documents Required to be Delivered by the Operating Partnership and
FAC at Closing. the Operating Partnership and FAC shall deliver to the
Contributors at the Closing, the following:
(i) A copy of the Operating Partnership Agreement.
(ii) The amendment to the Operating Partnership Agreement (the
"Amendment"), in form and substance reasonably satisfactory to
Contributor Counsel, duly executed by FAC and all other
necessary parties, to evidence admission of the Contributors
to the Operating Partnership as limited partners.
(iii) A settlement statement with respect to the Closing, duly
executed by the Operating Partnership.
(iv) Original counterpart of the Registration Rights
Agreement, executed by FAC.
(v) Opinion of counsel to FAC and the Operating Partnership
reasonably satisfactory to Contributor Counsel in form and
substance.
(vi) Original counterpart of the Warrant Agreement executed by
FAC.
(vii) Employment agreement for Fred Steinmark which is
mutually acceptable to FAC and Fred Steinmark.
(viii) The Bringdown Certificate.
(ix) The Mutual Indemnification Agreement.
(x) Such other documents and instruments as may be reasonably
necessary to consummate the transactions with the Contributors
under this Agreement.
ARTICLE V
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COVENANTS AND AGREEMENTS
5.1 Operation of Business. Between the date hereof and the Closing Date,
each Contributor shall, and shall cause each Constituent Partnership to,
maintain and operate the Properties in a manner consistent with current
practices and use reasonable efforts to preserve for the Operating Partnership
relationships with tenants, suppliers and others having ongoing relationships
with the Properties. Contributors will continue any capital expenditure program
currently in place and will not defer taking any actions or spending of funds,
or otherwise manage the Properties differently, due to the transaction
contemplated by this Agreement; provided that, without the consent of FAC and
the Operating Partnership, they shall not enter into, or cause or permit any
Constituent Partnership to enter into, any contracts or other such arrangements
that would be binding upon the Operating Partnership or the Properties after the
Closing Date, unless such contract is terminable without payment of any
termination fee or other penalty on thirty (30) days' notice or less. Between
the date hereof and the Closing Date, neither any Contributor nor any
Constituent Partnership shall consent to any zoning changes or enter into any
covenants or other agreements that would be binding on the Operating Partnership
or the Properties, including without limitation leases or tenant improvement
contracts. Between the date hereof and the Closing Date, the Contributors will
advise the Operating Partnership of any written notice received by Constituent
Parties from any governmental authority relating to the violation of any law or
ordinance regulating the condition or use of the Properties and the Contributors
shall notify the Operating Partnership of any violation of any such law or
ordinance of which the Contributors become aware.
5.2 No Brokers. Each of the Contributors, on one hand, and the Operating
Partnership, on the other hand, covenants, represents and warrants to the other
that, other than Pearson Partners, no broker or finder or agent has been
involved or engaged by it in connection with the transactions contemplated
hereby and, each hereby agrees to indemnify and hold harmless the other from and
against any and all broker's or finder's fees, commissions or similar charges
incurred or alleged to have been incurred by it in connection with the
transactions contemplated hereby, other than Pearson Partners, and any and all
loss, liability, cost or expense (including without limitation reasonable fees
of counsel) arising out of any claim that the indemnifying party incurred any
such fees, commissions or charges. Pearson Partners shall be paid by FAC and the
Operating Partnership pursuant to a separate agreement between them
5.3 Contributions of Assets. All personal property owned by the
Contributors or Constituent Partnerships and used in the operation and
management of the Properties will be transferred to the Operating Partnership in
conjunction with the Closing and as partial consideration for the transactions
otherwise contemplated by this Agreement.
5.4 Assignment of Warranties. Contributors agree, and shall cause the
Constituent Partnerships, to assign, to the extent assignable, all warranties
with respect to the Properties to the Operating Partnership and will use
commercially reasonable efforts to cause the maker of such warranties to consent
to such assignment if necessary for such assignment to be valid.
5.5 Operation of FAC and Operating Partnership. Between the date hereof
and the date Simon Konover becomes Chairman of the Board, or the Outside Closing
Date, whichever first occurs, except as otherwise consented to by Simon Konover
in writing (or, in the event of Simon Konover's death or incapacity, by Fred
Steinmark), each of FAC and the Operating Partnership shall conduct their
respective
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businesses (x) in the ordinary course of business and consistent with past
practices and (y) in a manner which is not in violation of Section 5.3 of the
Lazard Stock Purchase Agreement.
5.6 Tenant Improvements; Rent Concessions. None of the Contributors nor any
of the Constituent Partnerships shall, between the date hereof and the Closing
date, terminate, cancel or accept the surrender of any lease, or grant any
concession, rebate, allowance or free rent.
5.7 Security Deposits. No Contributor or Constituent Partnership shall,
between the date hereof and the Closing Date, apply any security deposits with
respect to any tenant in occupancy on the Closing Date, except in the ordinary
course of business.
5.8 Outstanding Debt Financing. Between the date hereof and the Closing
Date, the Contributors and the Constituent Partnerships will make all required
payments as and when required under any Outstanding Debt Financing.
5.9 Purchase Option Properties. The Contributors and Constituent
Partnerships shall not at any time prior to the expiration of the RFR Period,
cause or permit the Purchase Option Properties, or any interest therein, to be
alienated, mortgaged (except in the ordinary course of business), licensed,
encumbered or otherwise be transferred, without the prior written consent of FAC
and the Operating Partnership.
5.10 Insurance. The Contributors and the Constituent Partnerships agree to
maintain and keep in full force and effect through the Closing Date the hazard,
liability and casualty insurance policies currently maintained on the
Properties.
5.11 Books and Records. The Contributors and the Constituent Partnerships
shall permit FAC and the Operating Partnership and its authorized
representatives to inspect the Books and Records of its operations during normal
business hours upon reasonable notice. For a period of five (5) years after
Closing, the Operating Partnership shall, with respect to Books and Records
delivered to it by the Constituent Parties, and the Constituent Parties shall,
with respect to all Books and Records not delivered to the Operating Partnership
hereunder, maintain such Books and Records, for inspection by the other at the
address for notices to such party as set forth below.
5.12 Governmental Violations. Prior to Closing with respect to any
Property, the Constituent Parties shall have fully remediated or restored, and
paid any penalties or other fees or charges associated with, the governmental
violations and uninsured physical damage as to such Property listed on SCHEDULE
6.1A.20(B).
5.13 Completion of On-Going Work. The Contributors and the Constituent
Partnerships, as applicable, at their sole cost and expense, shall proceed
toward completion, consistent with the requirements of Section 5.1 above, of all
work under construction at the Properties and complete all tenant improvement
work and capital expenditure programs which have been commenced by the
Contributors and the Constituent Partnerships, as applicable, as of the date
hereof, related to all leasing activity and otherwise in accordance with the
obligation giving rise to such work having to be performed, and shall obtain and
deliver to FAC and the Operating Partnership, as soon as practical, all final
certificates of
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completion and occupancy required by applicable law, or other documentation
reasonably satisfactory to FAC and the Operating Partnership, evidencing the
acceptance of said work by all appropriate governmental authorities having
jurisdiction thereover and the party for whom the work is being so performed;
said obligations shall survive Closing.
5.14 Consents and Approvals. Each of FAC, the Operating Partnership, the
Contributors and the Constituent Partnerships shall take all commercially
reasonable action to obtain the requisite consents and approvals from all third
parties, including mortgagees, required to consummate the transactions
contemplated by this Agreement. In furtherance and not in derogation of the
foregoing, the Constituent Parties agree that the Operating Partnership may at
its sole option, elect to cause any mortgage to be prepaid or repaid at Closing
if such mortgagee shall have withheld its consent to the transactions
contemplated by this Agreement, provided that (i) the Operating Partnership
shall be responsible for any prepayment fee or penalty and any other fees or
charges of the mortgagee occasioned by the prepayment and (ii) the Operating
Partnership shall pay to the Contributors of such Property having federal, state
and local income tax payable on account of Built-In Gain recognized because of
such prepayment, the incremental amount of such federal, state and local income
tax liability caused by such prepayment.
5.15 Listings and Other Offers. From and after the date hereof, until the
Closing Date or termination of this Agreement, the Contributors and the
Constituent Partnerships will not solicit or make or accept any offers to sell
any of the Properties, engage in any discussions or negotiations with any third
party with respect to the sale or other disposition of any the Properties, or
enter into any contracts or agreements (whether binding or not) regarding any
disposition of any of the Properties.
5.16 Reports and Filings. The Constituent Parties and each Contributor will
cooperate with the Operating Partnership before and after Closing in providing
such information as the Operating Partnership may reasonably require to prepare
its proxy material and Form 8-K filings and such other reports and filings as
may be required by any governmental authority, NYSE or applicable exchange.
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5.17 Konover Name; Change in Management
(a) Name Change. At Closing (or, if there may be more than
one, the first Closing), the Operating Partnership shall, at its own
expense, effect a change of its name to "Konover Property Trust, L.P."
and prior to Closing, FAC shall, at its own expense, make such filings
and proxy solicitations as are necessary to change its name to "Konover
Property Trust, Inc." or "Konover Realty Trust, Inc." effective as of
the FAC shareholder meeting next following the Closing (or, if there
may be more than one, the first Closing), subject to shareholder
approval; provided, in each case, that such name change is not in
violation of any federal, state or local laws, regulations, ordinances,
rules or restrictions, or of any trademark or other exclusive license,
mark, intellectual property agreement or rights. If FAC shareholders do
not approve of the name changes described herein, FAC shall operate as
a "d/b/a" under a name substantially similar to "Konover/FAC." FAC
shall, subject to availability, trade under the New York Stock Exchange
symbol "KPT" or "KVR." Contributors, individually and on behalf of the
Constituent Partnerships and any Affiliates, each and all hereby convey
any and all right, title and interest they, or any of them, may have in
and to the names, marks or identities to which FAC and the Operating
Partnership are renamed pursuant to this Section, and covenant and
agree not to adopt or use any name, mark or identity which includes the
words "Konover Property Trust," or "Konover Realty Trust". All
derivatives of the "Konover" name other than those utilizing such words
are reserved by Simon Konover. FAC shall not employ the "Konover" name
for itself or in the names of its Affiliates or Subsidiaries except as
includes the words "Konover Property Trust" or "Konover Realty Trust".
(b) Trademark Reassignment Right. Notwithstanding the
foregoing, for a period of five (5) years after the first Closing to
take place hereunder, in the event of (i) the liquidation of FAC, or
(ii) a proposed merger, combination or consolidation of FAC with any
other company, or (iii) the acquisition of more than one half of the
assets of FAC (on a rentable square footage basis) by another company,
or (iv) if the report of independent auditors for any audited annual
financial statements for FAC issued during such period contains a
"going concern" qualification, Simon Konover shall have the right,
exercisable by written notice to FAC within thirty (30) days of Simon
Konover's having received written notice from FAC of such liquidation
or of the identity of the parties and the material terms of such
proposed merger, combination, consolidation or asset transaction, to
require that FAC and the Operating Partnership quitclaim to the
assignor under the tradename assignment agreement all of their
interests in the tradenames assigned thereunder, effective upon the
effective date of such merger, combination, consolidation or asset
combination (the "Tradename Reassignment Right"). Failure to exercise
the Tradename Reassignment Right within such thirty (30) day period
shall conclusively waive such right with respect to the proposed
transaction. The Tradename Reassignment Right is personal to Simon
Konover and cannot be assigned, conveyed, succeeded to or transferred,
except that in the event of Simon Konover's death or incapacity, and
receipt by FAC of written notice thereof, Michael Konover shall succeed
to the Tradename Reassignment Right and shall be entitled to all of the
rights and responsibilities hereunder with respect thereto.
(c) Board of Directors. Because FAC and the Operating
Partnership place significant value on the Konover name and the
services and contributions of Simon Konover to FAC, the parties hereto
have agreed as follows:
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(i) As of the earlier to occur of (i) FAC's reasonable
determination that the election of Simon Konover to the Board will not
result in any obligation under any law or governmental or stock
exchange requirement of Share holder approval, which determination
shall be made not later than the first Closing to occur hereunder, or
(ii) the final Closing to take place hereunder (i.e. after which, as to
all Properties hereunder this Agreement shall have been terminated or
Closing shall have taken place as to all other Properties), but not
later than the Outside Closing Date, as such date may be extended,
Simon Konover's election to the Board shall become effective and he
shall be named Chairman and shall serve in that position on the Board
until the shareholder meeting next following Closing, in connection
with which FAC will nominate and promote and support him for election
to the Board, and if the Board has converted to staggered terms, FAC
shall nominate and promote and support him for election to the longest
term established for Board members. Simon Konover shall be paid
compensation equal to $10,000 per month (prorated for any partial
months) that he serves as a member of the Board, whether or not he is
chairman. In addition, from the date of the first Closing hereunder
until the earlier to occur of the date Simon Konover becomes Chairman
of the Board or the Outside Closing Date (as it may be extended), FAC
shall pay Simon Konover a consulting fee equal to $10,000 per month
(prorated for any partial months).
(ii) As of the Closing (or if there may be more than one, the
first Closing), Fred Steinmark shall be appointed an Executive Vice
President of FAC and shall execute an employment agreement on terms
mutually acceptable to him and to FAC, and shall be a member of the FAC
Management Committee.
(d) Warrants
(i) FAC hereby agrees to issue to Simon Konover on the Closing
Date (or if there is more than one Closing hereunder, on the first
Closing Date hereunder) warrants ("Warrants") to purchase 100,000
Shares at an exercise price of $9.50 per Share pursuant to the Warrant
Agreement, provided that (A) one-fifth (20%) of such Warrants shall
vest on the first anniversary of the Closing Date and one-fifth (20%)
shall vest on each of the next four succeeding anniversary dates
thereof (each a "Vesting Date"), except that if at any time Simon
Konover (or Michael Konover, as his successor) exercises his Tradename
Reassignment Right, any Warrants which shall not theretofore have
vested shall automatically be canceled and shall never vest and shall
under no circumstances be exercisable; and (B) such Warrants as have
not been canceled and have vested shall be exercisable within a ten
(10) year period commencing on the date such Warrants were issued.
(ii) In addition, FAC hereby agrees to issue to Simon Konover
on the Closing Date (or if there is more than one Closing hereunder, on
the first Closing Date hereunder) Warrants to purchase 100,000 Shares
at an exercise price of $12.50 per Share pursuant to the Warrant
Agreement; provided that, as with the Warrants described in subdivision
(d) (i) above, one-fifth (20%) of such Warrants shall vest on the first
Vesting Date and one-fifth (20%) shall vest on each of the next four
succeeding Vesting Dates and in all other
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respects (aside from the exercise price), such Warrants shall be
identical to and subject to the same terms and conditions as set forth
in subdivision (d) (i) above.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF THE PARTIES
6.1 Representations and Warranties. To induce the Operating Partnership and
FAC to enter into this Agreement and the transactions contemplated hereby,
subject to Section 6.2 below, (i) each of the Contributors and Constituent
Partnerships, as applicable, hereby makes the representations and warranties set
forth in SCHEDULE 6.1A hereto and (ii) Konover Management South hereby makes the
representations and warranties set forth in SCHEDULE 6.1B hereto; and to induce
the Contributors to enter into this Agreement and the transactions contemplated
hereby, FAC and the Operating Partnership, jointly and severally, hereby make
the representations and warranties set forth in SCHEDULE 6.1C hereto. Anything
to the contrary in this Agreement notwithstanding, the parties hereby agree that
each and every representation and warranty contained in SCHEDULE 6.1A and
SCHEDULE 6.1B shall be deemed to be qualified to the knowledge of the applicable
Person making such representation or warranty, whether or not such qualification
is expressly contained in such representation and warranty in said Schedule. The
phrase "to the knowledge of" of a Constituent Party or of Konover Management
South shall be limited to the actual knowledge, without inquiry, of Simon
Konover, Fred Steinmark, Maria S. Ashenfelter and Gregory Combs.
6.2 Joint and Several Liability. In each instance in this Agreement in
which a representation, warranty or covenant is made by the "Contributors" or
the "Constituent Parties" or "Constituent Partnerships" as to any or all of such
Persons or as to the Properties, the liability of the party or parties making
such representation, warranty or covenant shall be joint and several among the
Constituent Parties owning interests in the Property or Person as to which such
representation, warranty or covenant is made (subject to the limitation of
liability for Loss and Expense contained in this Agreement), but shall be
several as between such Constituent Parties, on the one hand, and all other
Constituent Parties, on the other hand (i.e., such other Constituent Parties
shall have no liability for such representations, warranties and covenants).
6.3 Survival of Constituent Parties' Representations. Other than the
representations contained in Section (n) on SCHEDULE 6.1A.20 (which shall
survive until the sixth anniversary of the date of the Closing to which they
relate), all representations, warranties and (except as provided by the last
sentence of this Section 6.3) covenants and agreements of any of the Constituent
Parties contained herein, including indemnity or indemnification agreements
contained herein, or in any Schedule, or any certificate, document or other
instrument delivered in connection herewith shall survive the Closing to which
they relate until the earlier to occur of (i) the three year anniversary of the
Closing to which they relate, or (ii) thirteen (13) months after last date upon
which a Subsequent Closing under and as defined in the Lazard Stock Purchase
Agreement may take place; 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 applicable
Constituent Party had actual knowledge of any breach thereof prior to such
Closing. No action or proceeding may be brought with respect to any of the
representations and warranties, or any of the covenants or agreements which
survives Closing, unless written notice thereof, setting forth in
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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
the expiration thereof. Those covenants or agreements that contemplate or may
involve actions to be taken or obligations in effect after the Closing shall
survive Closing unless otherwise provided therein.
6.4 Survival of Company and Operating Partnership Representations. All
representations, warranties, and (except as provided in the last sentence of
this Section 6.4) covenants and agreements of the Company or Operating
Partnership contained herein, including indemnity or indemnification agreements
contained herein, or in any Schedule, or any certificate document or other
instrument delivered in connection herewith shall survive the Closing until the
earlier to occur of (i) the three year anniversary of the Closing to which they
relate, or (ii) thirteen (13) months after last date upon which a Subsequent
Closing under and as defined in the Lazard Stock Purchase Agreement may take
place; 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) FAC and the Operating Partnership had actual
knowledge of any breach thereof prior to such Closing. 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 Closing, 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 the expiration thereof. Those covenants or
agreements that contemplate or may involve actions to be taken or obligations in
effect after the Closing shall survive Closing unless otherwise provided
therein.
6.5 Indemnification by Contributors or the Company
(a) Subject to Section 6.3, from and after the Closing, each
Constituent Party shall indemnify and hold harmless the Company, its Affiliates
and its Subsidiaries and its and their respective directors, officers,
employees, stockholders, partners, members and representatives, and their
respective successors and assigns, from and against any and all damages, claims,
losses, expenses, costs, obligations, and liabilities, including liabilities for
all reasonable attorneys' fees and expenses (including attorney and expert fees
and expenses incurred to enforce the terms of this Agreement) (collectively,
"Loss and Expense") 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 such Constituent
Party in or pursuant to this Agreement, or (ii) any failure by such Constituent
Party 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 6.4 from and after the Closing, the
Company and the Operating Partnership, jointly and severally, shall indemnify
and hold harmless each Constituent Party and its respective directors, officers,
employees, stockholders, partners, members and representatives, and their
respective successors and assigns, from and against any and all Loss and
Expenses, suffered, directly or indirectly, by such Constituent Party 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 or the
Operating Partnership, as applicable, in or pursuant to this Agreement and any
statements made in any
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certificate delivered pursuant to this Agreement, or (ii) any failure by the
Company or the Operating Partnership, as applicable, to perform or fulfill any
of its covenants or agreements set forth therein. 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.
(c) Notwithstanding the foregoing, (i) neither any Constituent
Party nor the Company or the Operating Partnership shall be responsible for any
Loss and Expenses as provided by paragraphs (a) and (b), respectively, of this
Section 6.5 until the cumulative aggregate amount of such Loss and Expenses
suffered by the aggrieved party exceeds $500,000 in which case the party(ies)
responsible for such Loss and Expenses shall be liable for all such Loss and
Expenses, and (ii) the cumulative aggregate indemnity obligation of the Company
and the Operating Partnership, on the one hand, and the Constituent Parties, on
the other hand, shall not exceed $3,000,000. 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 Section.
6.6 Third-Party Claims. If a claim by a third party is made against an
indemnified party and if such party intends to seek indemnity with respect
thereto under this, 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 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 indemnifying party shall have
the right to pay or settle any such claim, provided that in such event it shall
waive any right to indemnify 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 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 therefore pursuant to this Agreement.
ARTICLE VII
INVESTMENT REPRESENTATIONS AND WARRANTIES
Representations and Warranties of Contributors. Each Contributor as to his
or its Interests represents and warrants to the Operating Partnership as
follows:
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7.4 Acquisition for own Account. Such Contributor will be acquiring the
Units to be received by him for his own account and not with the view to the
sale or distribution of the same or any part thereof in violation of the
Securities Act.
7.5 Reliance by FAC and the Operating Partnership. Such Contributor
understands that the Units (or Shares issued upon exchange of the Units) to be
issued to the Contributor will not be registered under the Securities Act, or
the securities laws of any state ("Blue Sky Laws") by reason of a specific
exemption or exemptions from registration under the Securities Act and
applicable Blue Sky Laws and that FAC's and the Operating Partnership's reliance
on such exemptions is predicated in part on the accuracy and completeness of the
representations and warranties of Contributors.
7.6 No Transfer. Such Contributor understands that, for the reasons set
forth in subparagraph (ii) above, the Units (or Shares issued upon exchange of
the Units) may not be offered, sold, transferred, pledged, or otherwise disposed
of by Contributor except (i) pursuant to an effective registration statement
under the Securities Act and any applicable Blue Sky Laws, (ii) pursuant to a
no-action letter issued by the SEC to the effect that a proposed transfer of the
Units (or Shares issued upon exchange of the Units) may be made without
registration under the Securities Act, together with either registration or an
exemption under applicable Blue Sky Laws, or (iii) upon the Operating
Partnership or FAC, as the case may be, receiving an opinion of counsel
knowledgeable in securities law matters and reasonably acceptable to the
Operating Partnership or FAC, as the case may be, to the effect that the
proposed transfer is exempt from the registration requirements of the Act, and
that, accordingly, Contributor must bear the economic risk of an investment in
the Units (and the Shares issued upon exchange of the Units) for an indefinite
period of time;
7.7 Accredited Investor. Such Contributor is an "accredited investor"
within the meaning of Rule 501(a) promulgated under the Securities Act (the
standards for being "Accredited Investor" will vary depending upon the legal
form of the Contributor, but Accredited Investor includes, for individuals, any
natural person whose individual net worth, or joint net worth with that person's
spouse, at the time of the purchase exceeds $1,000,000 or who had an individual
income in excess of $200,000 in each of the two most recent years or joint
income with that person's spouse in excess of $300,000 in each of those years
and has a reasonable expectation of reaching the same income level in the
current year);
7.8 Substantial Risk. Such Contributor understands that an investment in
the Operating Partnership and FAC involves substantial risks; and such
Contributor has had the opportunity to review all documents and information
which it has requested concerning its investment in the Operating Partnership
and FAC and has had the opportunity to ask questions of the management of the
Operating Partnership and FAC, which questions, if any, were answered to its
satisfaction; and
7.9 Legend. Such Contributor understands that any document that evidences
the Units (and any unregistered Shares issued upon exchange of the Units) will
bear a legend substantially to the effect of the following:
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The securities represented by this document have not
been registered under the Securities Act of 1933, as
amended (the "Act"), or the securities laws of any
state. The securities may not be offered, sold,
transferred, pledged or otherwise disposed of without
an effective registration statement under the Act and
under any applicable state securities laws, receipt
of a no-action letter issued by the Securities and
Exchange Commission (together with either
registration or an exemption under applicable state
securities laws) or an opinion of counsel acceptable
to FAC Properties, L.P. that the proposed transaction
will be exempt from registration under the Act and
applicable state securities laws.
and that the Operating Partnership or FAC, as the case may be, reserves the
right to place a stop order against the transfer of the Units (and any
unregistered Shares issued upon exchange of the Units), and to refuse to effect
any transfers thereof, in the absence of satisfying the conditions contained in
the foregoing legend.
7.10 Foreign Person. Each Contributor represents individually and on behalf
of all Constituent Partnerships in which it owns interests that he is not a
"foreign person" within the meaning of Section 1445 of the Code.
ARTICLE VIII
CONDITIONS TO CLOSING
8.1 Conditions to FAC's and the Operating Partnership's Obligations to
Close. In addition to the other conditions to Closing detailed elsewhere in this
Agreement, each of the following shall be a condition to the obligation of FAC
and the Operating Partnership to close the transactions contemplated hereby with
respect to the Properties:
(a) FAC Shareholder Approval. If it is determined by FAC,
based upon facts or circumstances arising from or after the date
hereof, that the completion of the transactions contemplated hereby
requires the approval of FAC's shareholders, then (i) such approval
shall be a condition to close the transactions contemplated hereby and
(ii) FAC agrees that it shall in good faith promptly begin the process
of preparing and filing with the SEC any necessary proxy material and
will call for and hold a shareholder meeting as soon as is reasonably
practicable to vote on such matter. If such approval is required and
the shareholders of FAC do not approve the transactions contemplated
hereby, this Agreement shall be terminated.
(b) Refinancing of Loans. The Operating Partnership and FAC
shall have no obligation to close the transactions contemplated hereby
with respect to any Property (and the number of Units to be issued
shall be adjusted accordingly) if the Operating Partnership determines
that it is unable to obtain the consent of the holders of the
Outstanding Debt Financing for such property to the assignment of the
Interests in or sale of such Property on terms reasonably acceptable to
the Board
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of Directors of FAC, including non-recourse provisions satisfactory to
FAC in FAC's sole discretion.
(c) Management Rights. The Operating Partnership and FAC shall have
no obligation to close the transactions contemplated hereby with
respect to any Property (and the number of Units to be issued shall be
adjusted accordingly) if the Operating Partnership does not have the
unconditional right, as of the Closing Date, to the management and
leasing of such Property.
(d) Representations and Warranties. The Operating Partnership and
FAC shall have no obligation to close the transactions contemplated
hereby with respect to any Constituent Partnership or Property if any
of the representations and warranties of the Contributors hereto with
respect to such Constituent Partnership or Property shall not be true
and correct in all material respects as of the date hereof and the
Closing Date, as reflected in the Bringdown Certificate in respect
thereof, or if such Bringdown Certificate shall not have been
delivered.
(e) Tenant Estoppels. The Operating Partnership and FAC shall have
no obligation to close the transactions contemplated hereby if the
Operating Partnership and FAC shall not have received original executed
tenant estoppel certificates in the form provided by FAC to the
Contributors, without material deviation, from (i) all tenants of the
Properties leasing at least 25,000 square feet of rentable space, (ii)
ninety percent (90%) of the tenants of the Properties leasing more than
10,000 and less than 25,000 square feet of rentable space and (iii)
such tenants, and covering such space, as represent at least seventy
percent (70%) of the Net Operating Income of the Properties in the
aggregate.
(f) Davie Guaranty. The Operating Partnership and FAC shall have no
obligation to close the transactions contemplated hereby with respect
to the Property known as "the Plaza" in Davie, Florida, if the
Contributors of such Property shall not have executed and delivered to
and for the benefit of FAC and the Operating Partnership a Guaranty of
the lease of Xtra Super Food Centers, Inc. and all of the payments and
obligations of the tenant for the remaining term thereunder, exclusive
of renewals, which is substantially in the form of the existing
guaranty and otherwise reasonably satisfactory to FAC and the Operating
Partnership.
(g) Delivery of Documents. The Operating Partnership and FAC shall
have no obligation to close the transactions contemplated hereby unless
the Contributors and the Constituent Partnerships shall have executed
and delivered to FAC and the Operating Partnership all of the documents
provided herein for said delivery, and shall have performed all
covenants and obligations undertaken by the Contributor and the
Constituent Partnerships herein in all material respects and complied
in all material respects with all conditions required by this Agreement
to be performed or complied with by them on or before the Closing Date.
(h) No Pending Actions. The Operating Partnership and FAC shall
have no obligation to close the transactions contemplated hereby with
respect to any Property if there shall exist any pending action, suit
or proceeding with respect to such Property or the Contributors of or
Constituent Partnerships owning such Property, or with respect to this
Agreement, before or by any
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court or administrative agency which seeks to enjoin, restrain or
prohibit this Agreement or the consummation of the transactions
contemplated hereby with respect to such Property.
(i) Material Adverse Change. The Operating Partnership and FAC
shall have no obligation to close the transactions contemplated hereby
with respect to any Property if there exists any material adverse
change in the financial condition, results of operations, business or
operations of the Property in question.
(j) Consents and Approvals. The Operating Partnership and FAC shall
have no obligation to close the transactions contemplated hereby with
respect to any Property unless all applicable consents and approvals
from third parties required to consummate the transactions contemplated
by this Agreement shall have been obtained with respect to such
Property.
(k) Management Agreements. The Operating Partnership and FAC shall
have no obligation to close the transactions contemplated hereby unless
the conditions to the Management Closing set forth in Article XII shall
have been fulfilled with respect to all management and leasing and
similar agreements under which Konover Management South is the manager
or leasing agent ("Management and Leasing Agreements").
8.2 Conditions to the Contributor's and the Constituent Partnerships'
Obligations to Close. In addition to the other conditions of the Constituent
Parties' obligations to close detailed elsewhere in this Agreement, each of the
following shall be a condition as described to the obligation of the Constituent
Parties to close the transactions contemplated hereby with respect to the
Properties:
(a) Representations and Warranties. The Constituent Parties shall
have no obligation to close the transactions contemplated hereby with
respect to any Constituent Partnership or Property if any of the
representations and warranties of FAC and the Operating Partnership
with respect to such Constituent Partnership or Property shall not be
true and correct in all material respects as of the date hereof and the
Closing Date, as reflected in the Bringdown Certificate in respect
thereof, or if such Bringdown Certificate shall not have been
delivered.
(b) Delivery of Documents. The Contributors of any Property
hereunder shall have no obligation to close the transactions
contemplated hereby with respect to such Property unless he Operating
Partnership and FAC shall have executed and delivered to the
Contributors and the Constituent Partnerships all of the documents
provided herein for said delivery, and shall have performed all
covenants and obligations undertaken by the Operating Partnership and
FAC herein in all material respects and complied in all material
respects with all conditions required by this Agreement to be performed
or complied with by them on or before the Closing Date.
(c) REIT Status. FAC shall not have revoked its prior election
pursuant to Section 856(c) (1) of the Code to be taxed as a REIT, and
shall be in compliance with all applicable federal income tax laws,
rules and regulations, including the Code, necessary to permit it to be
taxed as a REIT. FAC 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.
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(d) No Pending Actions. The Constituent Parties contributing a
Property shall have no obligation to close the transactions
contemplated hereby with respect to such Property if there shall exist
any pending action, suit or proceeding with respect to FAC or the
Operating Partnership before or by any court or administrative agency
which seeks to enjoin, restrain or prohibit, or to obtain damages or a
discovery order with respect to, such Property, to this Agreement or
the consummation of the transactions contemplated hereby.
(e) Equity Investment. FAC shall have completed an equity offering,
equity private placement or other equity investment(s) on terms,
considered in the aggregate, not less favorable to FAC than the Lazard
Transaction pursuant to which not less than Seventy-Five Million
Dollars (exclusive of closing adjustments), shall have been provided to
FAC by the Closing Date.
(f) Consents and Approvals. The Contributors of any Property
hereunder shall have no obligation to close the transactions
contemplated hereby with respect to such Property unless all of the
consents and approvals listed in SCHEDULE 6.1A.1 shall have been
obtained, except that none of the consents of any owners of Interests
in any Constituent Partnership or Contributor shall constitute a
condition of any Constituent Party's obligation to close the
transactions hereunder, irrespective of whether such consent may be
listed in SCHEDULE 6.1A.1. In that connection, (i) the Contributor of
the Property commonly known as Mobile Festival Centre hereby agrees to
use good faith efforts to purchase the Interests in such Property owned
by 698813 Alberta Ltd. ("Alberta") at a price which is reasonably
acceptable to such Contributor, and the Operating Partnership agrees to
negotiate in good faith with such Contributor as to a monetary
contribution by the Operating Partnership up to $200,000 toward the
acquisition by such Contributor of such Interests. In the event such
Contributor is unable to purchase the Interests of Alberta, upon the
request of Simon Konover made by written notice to FAC and the
Operating Partnership, the principals of the Contributor of Mobile
Festival Centre (other than Alberta) may elect to transfer to the
Operating Partnership their Interests in Konover Mobile Centre Festival
Limited Partnership ("KMFCLP"), rather than the Property, provided that
(i) FAC and the Operating Partnership have consented thereto, which
consent shall be conditioned upon the agreement of such Contributors of
the Interests in KMFCLP (other than Alberta) jointly and severally to
hold harmless the Operating Partnership and FAC from any and all cost,
expenses and liability (including tax liability) occasioned by the fact
that the transfer consists of Interests in KMFCLP rather than of title
to the Property, including any additional representations, warranties,
covenants and Closing deliveries reasonably requested by FAC and the
Operating Partnership in connection therewith, (ii) the Allocated
Property Value and related amounts of cash and units paid, issued and
withheld are adjusted proportionately and Closing prorations are
appropriately adjusted and (iii) each Contributor of Interests in
KMFCLP shall be required to (A) make customary representations and
warranties as to such Constituent Partnership and (B) provide at the
Contributors' sole expense financial statements for KMFCLP audited by a
certified public accountant and reasonably satisfactory to FAC and the
Operating Partnership covering fiscal years 1995, 1996 and 1997. In the
event of such transfer of Interests in KMFCLP, the principals of KMFCLP
contributing their Interests in KMFCLP shall be Contributors hereunder
and KMFCLP shall be a Constituent Partnership.
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ARTICLE IX
ARBITRATION
9.1 Arbitration. Any dispute, claim or controversy between FAC and/or the
Operating Partnership, on one hand, and any Contributor, on the other, shall be
settled by arbitration in accordance with this Section. Each of the Operating
Partnership and the Contributors (by a vote of majority thereof) shall appoint
an arbitrator, and the two arbitrators so appointed shall promptly select a
third arbitrator. Within thirty (30) days of the completion of such
appointments, the parties shall submit to arbitration in accordance with the
Commercial Arbitration Rules of the American Arbitration Association. The place
of arbitration shall be Washington, D.C. Notwithstanding anything to the
contrary herein, the arbitrators are not empowered to award damages in excess of
compensatory damages and each party hereby irrevocably waives any right to
recover such damages with respect to any dispute or controversy resolved by
arbitration under this Section. Judgment on the award rendered by the
arbitrators may be entered in any court of competent jurisdiction and shall be
binding upon the parties.
ARTICLE X
RESTRICTIONS ON SALE OF THE PROPERTIES
10.1 Restricted Period. A. The Operating Partnership may not sell, assign,
exchange, distribute or otherwise dispose of any of the Properties listed on
SCHEDULE 10.1 (the "Restricted Properties") within the periods (the "Restricted
Period") set forth on SCHEDULE 10.1 with respect to each Restricted Property
without the express written consent of Simon Konover (or if he shall not be
alive, his successor designated by written notice to FAC and the Operating
Partnership) except (i) in connection with a tax-free transaction which does not
result in recognition of Built-in-Gain (as defined below) by any holders of such
Units and which is described in Section 10.1.B; (ii) in the event a taxable sale
or disposition of any of the Restricted Property would not result in recognition
of Built-in-Gain; or (iii) if the Operating Partnership promptly pays to the
holders of the Units received in respect of the Contribution of such Restricted
Property (the "Related Unitholders") an amount equal to the sum of (A) the
federal, state, and local income taxes payable by such Related Unitholders
resulting from the recognition of the Built-in Gain triggered by such sale or
disposition and (B) an additional payment in an amount equal to the amount such
that after payment by the holders of such Units of all taxes (including interest
or penalties) on amounts received under Section 10.1.A(iii)(A) and this Section
10.1.A(iii)(B) the holders of such Units relating to such Restricted Property
retain an amount equal to the amount described in Section 10.1.A(iii)(A). For
purposes of calculating the amounts payable pursuant to clause (iii) of the
preceding sentence, the amount of taxes payable by a holder of Units shall be
calculated by assuming a tax rate equal to the highest combined marginal rate of
federal, state and local tax applicable to an individual in the jurisdiction in
which such holder Units is a taxpayer (and if such taxpayer, either directly or
indirectly, is subject to tax in more than one state or local jurisdiction, the
state or local tax rate to be used in the foregoing combined marginal rate shall
be the highest rate of tax in any such jurisdiction) and by assuming that such
individual has no tax attributes that would otherwise reduce such tax payments.
For purposes of this Agreement, the term "Built-in Gain" for any Restricted
Property shall mean the excess, if any, of the fair market value of such
Restricted Property on the date of contribution thereof over such Restricted
Property's adjusted tax basis for federal income tax purposes immediately prior
to the contribution thereof. Contributors agree to cooperate with FAC and the
Operating Partnership regarding the calculation of the amount of actual Built-in
Gain attributable to
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any Restricted Property recognized upon any transfer. The provisions of this
Section 10.1 shall survive the Closing.
B. A sale or other disposition shall satisfy the requirements of this
Section 10.1.B if (i) such transaction qualifies as a like-kind exchange under
Section 1031 of the Code or an involuntary conversion under Section 1033 of the
Code in which no gain is recognized by the Operating Partnership or the Related
Unitholders as long as the following conditions are satisfied: (x) in the case
of a Section 1031 like-kind exchange, such exchange is not with a "related
party' within the meaning of Section 1031(f)(3) of the Code; (y) the property
received in exchange for the Restricted Property (referred to as the
"Replacement Property") is acquired in the same taxable year of the Operating
Partnership in which the disposition of the Restricted Property occurs and
secures nonrecourse indebtedness (which is not Partner Nonrecourse Debt, as
defined in the Partnership Agreement) in an amount not less than the outstanding
principal amount of the nonrecourse indebtedness secured by the Restricted
Property at the time of the exchange, with a maturity not earlier than and a
principal amortization rate not more rapid than, the maturity and principal
amortization rate of such indebtedness secured by the Restricted Property, and
(z) the Replacement Property is thereafter treated for all purposes of the
restrictions in Sections 10.1 and 10.3 as the Restricted Property and the
indebtedness secured by such Replacement Property is subject to the same
restrictions and agreements as apply with respect to the indebtedness secured by
the Restricted Property; or (ii) such transaction is one in which no gain is
recognized with respect to the Restricted Property by the Operating Partnership
or the Related Unitholders in connection with the transfer of the Restricted
property to another entity; provided that (w) the amount of indebtedness secured
by the Restricted Property is not decreased as a result of the transaction and
the amount of indebtedness secured by the Restricted Property that is a
Nonrecourse Liability (as defined in the Partnership Agreement) is not reduced,
except as permitted by the relevant provisions Section 10.3, (x) the
indebtedness secured by the Restricted Property continues to be taken into
account in determining the partners' basis in their Units under rules similar to
those provided in Section 752 of the Code to the same extent as was the case
prior to such transfer, (y) any property the Operating Partnership receives in
connection which such transfer, the tax basis in which is determined in whole or
in part by reference to the tax basis in the Restricted Property, is thereafter
treated for all purposes of Sections 10.1 and 10.3 as the Restricted Property;
and (z) the entity to which such Restricted Property is transferred thereafter,
being "Transferred Property") agrees, for the benefit of the Related
Unitholders, that all of the restrictions of Sections 10.1 and 10.3 shall apply
to the Transferred Property, and the indebtedness outstanding with respect
thereto in the same manner and to the extent set forth in Sections 10.1 and 10.3
and such agreement is reflected in the partnership agreement (or other
comparable governing instrument) of the entity to which the Transferred Property
is transferred.
10.2 Limited Exceptions to Restrictions. During the Restricted Period, the
Operating Partnership and their subsidiaries (including, without limitation, any
Permitted Assignee), may, subject to the provisos contained in this sentence,
sell any of the Restricted Property at any time in connection with (i) the sale
of all or substantially all of the properties owned by the Operating Partnership
under such terms and conditions which the Board, in its sole judgment,
determines to be in the best interests of FAC and its public stockholders, or
(ii) a sale (including without limitation a transfer to a secured lender in lieu
of foreclosure) which the Board, in its sole judgment, determines is reasonably
necessary (1) to satisfy any material monetary default on any unsecured debt,
judgment or liability of FAC, the Operating Partnership or any subsidiary when
it becomes due (at maturity or otherwise) or (2) to cure or satisfy any material
monetary default on any mortgage, secured by the Restricted Property; provided,
however, that no such
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sales will be made under clause (ii) unless the Operating Partnership is unable
to settle or refinance any such debts, judgments or liabilities, or cure or
satisfy any such defaults, after making commercially reasonable efforts to do so
under then prevailing market conditions; provided that (i) the amount of
federal, state and local income tax payable as a result of the recognition
thereby of Built-In Gain by the Related Unitholders is less than one hundred
thousand dollars ($100,000) or (ii) Simon Konover (or, if he shall not be alive,
his successor designated by written notice to FAC and the Operating Partnership)
shall have consented or been deemed to consent after notice and in the manner
for his consent provided in Section 10.3 below. In the event the Operating
Partnership, after having made the commercially reasonable efforts described in
the preceding sentence, in its sole judgment, determines that it is reasonably
necessary to dispose of any of the Restricted Property to satisfy a material
monetary default on any unsecured debt, judgment or liability of the Operating
Partnership when it becomes due (at maturity or otherwise), the Operating
Partnership covenants and agrees that it shall treat all of its properties
proportionately, including the Restricted Property, in its determination of what
properties to dispose of to satisfy such material debt, judgment or liability
and shall use commercially reasonable efforts to minimize any adverse tax
consequences to such holders of the Units. In the case of any disposition of any
of the Restricted Property pursuant to this Section 10.2, holders of the Units
relating to such Restricted Property may attempt to obtain title to the
Restricted Property in question so long as any equity in the Restricted Property
which the Operating Partnership may otherwise be seeking to preserve is not lost
or jeopardized. Moreover, in the event of an anticipated transfer of any of the
Restricted Property to a secured lender in lieu of foreclosure or foreclosure,
the Operating Partnership shall use commercially reasonable efforts to provide
the Related Unitholders the right to (a) cure the default including the right to
lend the Operating Partnership the funds necessary to cure the default on an
unsecured basis, as well as the right to lend such funds to the Operating
Partnership and to receive security for any such loan from the Operating
Partnership (or its appropriate Affiliate) in the form of a subordinate mortgage
secured solely by such Restricted Property (but only if the lender or lenders
holding any prior mortgage or mortgages on the relevant Restricted Property
expressly consent in writing to the grant of the subordinate mortgage, provided
that neither such loan, whether secured or unsecured by the holders of the Units
nor the granting of any such subordinate mortgage to such holders violates any
covenant in any loan agreement of the Operating Partnership or any of its
affiliates); (b) acquire, for one Unit (if the value of a Unit at the time of
such acquisition is not more than one-thousand ($1,000.00) dollars or, if so,
then for a fraction of a Unit, such fraction's value being equal to one-thousand
($1,000.00) dollars), such Restricted Property from the Operating Partnership
subject to the debt or liability; or (c) permit the Related Unitholders to
exercise the Operating Partnership's right of redemption with respect to such
Restricted Property; PROVIDED, HOWEVER, that the Operating Partnership shall not
have any obligation to grant holders of such Units the rights described in this
sentence until holders of the Units (whose financial position and resources as
determined by the Operating Partnership using commercially reasonable standards
to be satisfactory for the purpose of acting as indemnitors pursuant to this
proviso) have agreed with the Operating Partnership in writing to indemnify and
hold harmless the Operating Partnership, FAC and their affiliates from and
against all costs (including reasonable attorneys fees), expenses, taxes
(including without limitation any deed, mortgage or real estate transfer taxes),
claims, judgments, liabilities or damages incurred or arising from or in
connection with or attributable to or resulting from the grant or exercise of
such rights, or the acquisition of such Restricted Property by holders of the
Units, but only to the extent such costs would not have been incurred otherwise.
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10.3 Refinancing During the Restricted Period. During the Restricted
Period, FAC the Operating Partnership, and their Subsidiaries and affiliates
shall not, without the express written consent of Simon Konover (or, if he shall
not be alive, his successor designated by written notice to FAC and the
Operating Partnership), repay, earlier than one month prior to its stated
maturity, any indebtedness secured by the Restricted Property unless (i) the
amount of federal and state income tax payable as a result of the recognition
thereby of Built-In Gain by the Related Unitholders is less than one hundred
thousand dollars ($100,000) or (ii) such repayment (a) is made in connection
with the refinancing (on a basis that the new debt would be considered a
nonrecourse liability) of such indebtedness for an amount not less than the
principal amount of such indebtedness on the date of such refinancing, with such
refinancing indebtedness providing for the least amount of principal
amortization as is available on commercially reasonable terms, or (b) is made in
connection with an involuntary sale pursuant to foreclosure of the mortgage
secured by the Restricted Property or otherwise, including pursuant to a deed in
lieu of foreclosure (provided that FAC, the Operating Partnership and their
Subsidiaries and affiliates may not execute any deed in lieu of foreclosure
unless the maturity of the indebtedness secured by the Restricted Property has
been accelerated) or a proceeding in connection with a Bankruptcy of the
Operating Partnership, the fee-owning entity or any intermediate Person between
them. For purposes of this Article X, if (i) Simon Konover or his designated
successor shall fail to respond within thirty (30) days of a request for consent
to a proposed transaction for which his consent is required as provided above,
his consent shall be deemed granted, or (ii) Simon Konover shall die and no
successor to his rights under this Section shall have been designated within
fifteen (15) days after request by FAC for such designation which was delivered
to Michael Konover at his most recent address known to FAC, such consent rights
shall terminate.
10.4 Post Restricted Period Transactions. After the expiration of the
Restricted Period, the Operating Partnership may sell or dispose of any of the
Restricted Property at any time in its sole discretion, without regard to the
tax consequences to the Contributors thereof.
10.5 Traditional Method. Until such time as all of the Units issued to
Related Unitholders with respect to a Property (or Constituent Partnership) have
been exchanged for Shares, the Operating Partnership hereby agrees to use the
"traditional method" set forth in Treasury Regulation ss.1.704-3(b) (i.e.
without "curative allocations") with respect to such Property (or Constituent
Partnership).
ARTICLE XI
PURCHASE OPTION PROPERTIES
11.1 Right of First Refusal. If at any time during the one year period
after Closing (or if there may be more than one Closing hereunder, then
commencing upon the first Closing to take place) (the "RFR Period"), any
Constituent Parties owning one or more of the Purchase Option Properties ("POP
Seller"), other than the Purchase Option Property commonly known as Broward
Center, which shall not be subject to the Right of First Refusal in this Section
11.1 but shall be subject to the put option in Section 11.2, shall desire to
sell all or a portion of such Properties, it shall first obtain an offer (the
"Third Party Offer") from the prospective purchaser in writing, which Third
Party Offer shall set forth the terms and conditions upon which the third party
is willing to purchase all or a portion of the Property. POP Seller shall
thereupon forward a copy of such Third Party Offer to the Operating Partnership
and FAC. the Operating Partnership shall have a period of twenty (20) business
days after delivery of notice of the opportunity to exercise the
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right of first refusal and a copy of the Third Party Offer in which to notify
POP Seller if it desires to acquire such portion of the Property under the terms
and conditions of the Third Party Offer, except that the Operating Partnership's
acceptance shall provide that the purchase price shall be (i) at the Operating
Partnership's sole option, paid entirely in cash or entirely in Units at a value
per Unit equal to the Average Share Price determined with reference to the date
that notice of the Third Party Offer and the right of first refusal has been
delivered to the Operating Partnership and FAC and (ii) net of any Outstanding
Debt Financing affecting the Property which shall be assumed or paid by the
Operating Partnership. Any such acceptance of such Third Party Offer by the
Operating Partnership shall be in writing and shall state a closing date not
later than the later of (a) the closing date specified in the Third Party Offer,
or (b) one hundred twenty (120) days from delivery of the notice and Third Party
Offer to the Operating Partnership. If, within said twenty (20) business day
period, the Operating Partnership shall elect not to purchase the Property or if
the Operating Partnership shall make no election within said twenty (20)
business day period, then the Operating Partnership shall have waived the right
of first refusal granted hereby, and POP Seller shall be free to sell such
portion of the Property to such third party in accordance with the terms and
conditions set forth in the Third Party Offer. Upon such sale, this paragraph
shall thereafter be null and void and without any force or effect; provided,
however, in the event that the Operating Partnership fails to exercise such
right of first refusal but such third party fails to close such sale, the
Operating Partnership shall be entitled to exercise such right of first refusal
as to subsequent Third Party Offers. Such Right of First Refusal shall be
contained in a separate agreement between the POP Seller of each such Purchase
Option Property and FAC and the Operating Partnership recorded contemporaneously
with the Closing at the sole cost of the applicable POP Seller.
11.2 Put Option. At any time during the RFR Period, each POP Seller shall
have the option to sell its Purchase Option Property to the Operating
Partnership, and the Operating Partnership shall be required and hereby agrees
to buy such Purchase Option Property at the Adjusted Purchase Price (hereinafter
defined), subject to the terms and conditions hereinafter described:
(i) The Adjusted Purchase Price shall be (A) at the
Operating Partnership's sole option, paid entirely in cash or entirely in Units
at a value per Unit equal to the Average Share Price determined with reference
to the date that notice of POP Seller's exercise of the put option is delivered
to FAC and the Operating Partnership, and (B) adjusted consistent with Section
3.3 of this Agreement and with Closing costs allocated as provided in this
Agreement.
(ii) POP Seller shall exercise its put option by
delivering to FAC and the Operating Partnership written notice on or prior to
the end of the RFR Period of its irrevocable exercise of the put option and
containing POP Seller's calculation of the Adjusted Purchase Price and all
backup materials reasonably relating thereto. The Closing thereunder shall be on
a date specified by the Operating Partnership not later than one hundred twenty
(120) days following receipt of the notice of exercise of the put option. Upon
exercise by POP Seller of its put option, such Purchase Option Property shall
become a "Property" and POP Seller shall be deemed to have made all of the
representations and warranties under this Agreement with respect thereto as of
such date; and the parties shall perform all obligations of Closing and make all
Closing deliveries required under this Agreement, including a Bringdown
Certificate, with the Operating Partnership's obligation to purchase such
Purchase Option Property being conditioned only upon the conditions to Closing
enumerated in Article VIII hereof.
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(iii) The Adjusted Purchase Price shall be equal to (A)
the Net Operating Income of the applicable Purchase Option Property for the
twelve (12) month period ending on the last day of the calendar month preceding
the month in which the put notice was received, divided by eleven percent (.11),
minus (B) the balance of any Outstanding Debt Financing affecting the Purchase
Option Property which is assumed or paid by the Operating Partnership.
(iv) Except as provided in this Section 11.2, no POP
Seller shall have any obligation to sell, and the Operating Partnership shall
have no obligation to buy, any of the Purchase Option Properties.
ARTICLE XII
MANAGEMENT OF THE PROPERTIES
12.1 Assignment of Management Agreements. Subject to the terms and
conditions hereinafter set forth, Konover Management South desires to assign to
the Operating Partnership all of Konover Management South's right, title and
interest, as manager or leasing agent, in and to the Management and Leasing
Agreements, and the Operating Partnership desires to assume the rights,
privileges and responsibilities arising after the first Closing hereunder of
Konover Management South under the Management and Leasing Agreements, as more
particularly described in this Article XII. To effect such assignment and
assumption of the Management and Leasing Agreements, Konover Management South
and the Operating Partnership agree to execute, simultaneous with the Closing of
the first Property to be conveyed to the Operating Partnership (the "Management
Closing," upon the "Management Closing Date"), an assignment and assumption of
agreement mutually satisfactory to the Operating Partnership and Konover
Management South in form and substance which shall include a provision pursuant
to which the Management fees thereunder shall be prorated as of the Management
Closing Date.
12.2 Consideration. In consideration of the assignment of the Management
and Leasing Agreements, the Operating Partnership agrees to pay to Konover
Management South on the Management Closing Date, the amount of One Million
Dollars ($1,000,000). In addition, the Operating Partnership shall pay Konover
Management South One Million Four Hundred Forty Three Thousand Seven Hundred
Fifty Dollars ($1,443,750) on the first anniversary of the Management Closing
Date [i.e., $1,250,000 plus ($2,500,000) (.0775)], and shall pay to Konover
Management South an additional One Million Three Hundred Forty Six Thousand
Eight Hundred Seventy Five Dollars ($1,346,875), on the second anniversary of
the Management Closing Date [i.e., ($1,250,000) (1.0775)].
12.3 Assignment of Office Lease. Provided that the Management Closing
occurs, Konover Management South shall assign and the Operating Partnership
shall assume all of Konover Management South's right, title and interest, as
tenant, in and to that certain office lease (the "Office Lease") for Suite 408,
7000 West Palmetto Park Road, Boca Raton, Florida (the "Premises"). To effect
such assignment and assumption of the Office Lease, Konover Management South and
the Operating Partnership agree to execute an assignment and assumption of the
Office Lease in a form and substance mutually satisfactory to the Operating
Partnership and Konover Management South and appropriate ancillary documentation
to convey all of Konover Management South's interests in and to all furniture,
fixtures and equipment located at or used in connection with the Premises.
Konover Management South agrees to deliver to the Operating Partnership all
books, records, files, keys and other documents related to the properties it
manages, the
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Premises or the Management and Leasing Agreements, but only to the extent such
items are in Konover Management South's possession or control.
12.4 Conditions to Closing. The Management Closing is conditioned upon
satisfaction of the following:
(i) Konover Management South shall have obtained and
delivered to the Operating Partnership all necessary third party
consents to the assignment of the Management and Leasing Agreements
and the Office Lease.
(ii) All of the Management and Leasing Agreements and the
Office Lease shall be in full force and effect and shall not have
been amended modified, supplemented, renewed, except as provided in
Section 12.5 hereof.
(iii) Konover Management South shall not have entered into
any new management and leasing agreements except as provided in
Section 12.5 hereof.
(iv) All of Konover Management South's representations and
warranties shall be true and correct in all material respects as of
the date hereof and the Management Closing Date, as reflected in
the Bringdown Certificate.
12.5 Covenants. Konover Management covenants and agrees that from and after
the date hereof until the Management Closing Date, Konover Management (i) shall
not amend, modify, supplement, assign, renew or terminate any of the Management
and Leasing Agreements, or enter any new management and leasing agreements,
without the Operating Partnership's prior written consent, which shall not be
unreasonably withheld and which shall be deemed granted if no response is given
within ten (10) business days of written request for consent, (ii) shall
continue to perform its obligations under the Management and Leasing Agreements
and the Office Lease, and (iii) will promptly provide the Operating Partnership
with any notices of default given or received by it under the Management and
Leasing Agreements or the Office Lease.
12.6 Konover Management Employees.
(a) As of the Management Closing Date, Konover Management South
shall cause the termination of all its personnel (both full-time and
part-time) (the "Employees").
(b) Konover Management South shall be liable for and shall
indemnify, defend and hold the Operating Partnership harmless against all
Employees salaries, accrued and unused vacation benefits, and other
compensation (including severance compensation and any liabilities resulting
from such termination) through the Management Closing Date. Konover
Management South shall settle any and all claims for wages or other
compensation, which may be due and owing to any employee as of the
Management Closing Date.
(c) The Operating Partnership hereby agrees with Konover
Management South that the Operating Partnership shall offer employment on an
"at will" basis to each and all of the Employees at
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wages not less than those currently paid by Konover Management South, in
accordance with the Schedule thereof provided by Konover Management South,
exclusive of benefits and any other non-salary compensation. Employees
accepting such offer will receive FAC's standard benefits package. The
Operating Partnership does not agree to relocate or pay for the relocation
of any Employees who are hired by the Operating Partnership. During the
first year after Management Closing, FAC will not terminate any of the
Employees without cause unless it shall have obtained the prior written
consent of Simon Konover (or, if he shall not be alive, his successor
designated by written notice to FAC and the Operating Partnership); provided
that no Employee or other Person shall be a third party beneficiary of the
agreements in this Section 12.6 or elsewhere in this Agreement. The
agreements in this Section 12.6(c) are subject to each and all of the
covenants of Konover Management South having been full performed and its
representations and warranties hereunder being true and correct.
(d) From and after the Management Closing Date, Konover Management
South shall have no authority, control or influence regarding the Operating
Partnership's relationship with the Employees. The Operating Partnership
hereby indemnifies and holds Konover Management South harmless against and
from any and all claims, loss, suits, actions, demands, judgments, liens or
damage (including attorneys' fees) of any nature whatsoever, suffered or
incurred by Konover Management South with respect to the Operating
Partnership's employment of the Employees from and after the Management
Closing Date.
(e) Konover Management South hereby indemnifies and holds the
Operating Partnership harmless against and from any and all claims, loss,
suits, actions, demands, judgments, liens or change (including attorneys'
fees) of any nature whatsoever, suffered or incurred by the Operating
Partnership with respect to Konover Management South's employment of the
Employees.
ARTICLE XIII
MISCELLANEOUS
13.1 Notices. All notices and demands which either party is required or
desires to give to the other shall be given in writing by personal delivery,
express courier service, certified mail, return receipt requested, or by
telecopy to the address or telecopy number set forth below for the respective
parties. If notice is by deposit or with an express courier service, it shall be
effective on the next business day following such deposit or, if notice is sent
by certified mail, return receipt requested, it shall be effective upon receipt.
Contributors and c/o Konover & Associates South, Inc.
Konover Management South: 7000 West Palmetto Park Road
Suite 408
Boca Raton, FL 33433
Telecopy No.: (561) 394-6122
With Copy to: Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, New York 10153
Attention: J. Philip Rosen, Esq.
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<PAGE>
Telecopy No: (212) 310-8007
and Shipman & Goodwin, LLP
One American Row
Hartford, Connecticut 06103
Attention: Katherine Lambert
Telecopy No: (860) 251-5199
The Operating Partnership: FAC Properties, L.P.
11000 Regency Parkway
Suite 300
Cary, N.C. 27511
Attn: C. Cammack Morton
Telecopy No.: (919) 462-8799
With copy to: Mayer, Brown & Platt
2000 Pennsylvania Avenue, N.W.
Washington, D.C. 20006
Attn: Keith J. Willner
Telecopy No.: (202) 861-0473
FAC: FAC Realty Trust, Inc.
11000 Regency Parkway
Suite 300
Cary, N.C. 27511
Attn: C. Cammack Morton
Telecopy No.: (919) 462-8799
13.2 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
13.3 Severability. Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision on any
other jurisdiction.
13.4 Assigns. This Agreement may not be amended at any time except by a
writing executed by the Operating Partnership and FAC and any other party or
parties to be charged. No Contributor may assign this Agreement or any interest
herein without the prior written approval of the Operating Partnership and FAC.
This Agreement may not be assigned by FAC or the Operating Partnership except to
a directly or indirectly wholly-owned subsidiary or subsidiaries of FAC or the
Operating Partnership (any such entity, a "Permitted Assignee"), provided that
no such assignment to a Permitted Assignee shall relieve FAC or the Operating
Partnership of its obligations hereunder. Any prohibited assignment or attempted
assignment by any party shall constitute a default by such party hereunder and
shall be deemed null and void and of no force and effect. Notwithstanding
anything to the contrary contained herein, the Operating Partnership
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may assign the right to purchase individual Properties to various entities
provided that each of such entities is a Permitted Assignee. A copy of any
assignment permitted hereunder, together with an agreement of the assignee
assuming all of the terms and conditions of this Agreement to be performed by
the assignee, in form reasonably satisfactory to counsel for the non-assigning
parties, shall be delivered to the attorneys for the non-assigning parties prior
to the Closing, and in any event no such assignment shall relieve the assignor
from its obligations under this Agreement. This Agreement shall be binding upon
and inure to the benefit of any and all of the respective permitted successors,
assigns or other successors in interest of the parties. This Agreement shall not
confer any rights or remedies upon any person or entity other than the Operating
Partnership, FAC, the Contributors and their respective successors and permitted
assigns.
13.5 Public Announcement. Except as otherwise required by law, the
Constituent Parties shall not make public announcements with respect to the
transactions contemplated by this Agreement without the approval of FAC and the
Operating Partnership, which approval shall not be unreasonably withheld. FAC
and the Operating Partnership will provide to and solicit comments from Simon
Konover and Fred Steinmark all written public announcements with respect to the
transactions contemplated by this Agreement prior to making such announcements
public.
13.6 Confidentiality. Each party hereto shall ensure that all confidential
information which such party or any of its respective officers, directors,
employees, counsel, agents or accountants may now possess or may hereafter
create or obtain relating to the financial condition, results of operations,
business, properties, assets, liabilities or future prospects of the other
party, any Affiliate or subsidiary of the other party or any tenant, customer or
supplier of such other party, or any such Affiliate or subsidiary, shall not be
published, disclosed or made accessible by any of them to any other person or
entity at any time or used by any of them, in each case without the prior
written consent of the other party; provided, however, that the restrictions of
this sentence shall not apply: (i) to the extent that disclosure may otherwise
be required by law; (ii) to the extent such information shall have otherwise
become publicly available; or (iii) to disclosure by or on its behalf to its
lender(s) for the purpose of obtaining financing in connection with the
acquisition of the Properties. In the event this Agreement is terminated, each
party promptly will deliver or certify destruction to the other party all
documents, work papers and other material (and any reproductions thereof)
obtained by each party or on its behalf from such other party or its Affiliates
or subsidiaries in connection with the subject transaction, whether so obtained
before or after the execution hereof, and will itself not use any information so
obtained and will use its good faith and diligent efforts to have any
information so obtained kept confidential and not used in any way detrimental to
such other party, subject to the limitations set forth in this Section above.
13.7 Remedies. In the event that any party defaults or fails to perform any
of the covenants and agreements required to be performed by such party under
this Agreement, any other party shall be entitled to exercise any and all rights
and remedies available to it by or pursuant to this Agreement, documents or
instruments contemplated hereby or at law (statutory or common) or in equity
subject to the limitation on liability set forth herein; provided, however, that
in the event of a Closing of the transactions contemplated by this Agreement,
the rights and remedies of each party shall be limited to the rights contained
in Article VIII of this Agreement.
13.8 Construction. The provisions of this Agreement shall be construed as
to their fair meaning, and not for or against any party based upon any
attribution to such party as the source of the language in
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<PAGE>
question. Headings used in this Agreement are for convenience of reference only
and shall not be used in construing this Agreement.
13.9 Exhibits and Schedules. All exhibits and schedules referred to in this
Agreement and attached hereto shall be deemed and construed as part of this
Agreement and for all purposes all such exhibits and schedules are hereby
specifically incorporated herein by reference.
13.10 Merger Clause. This Agreement contain the final, complete and
exclusive statement of the agreement among the parties with respect to the
transactions contemplated herein and therein, and all prior or contemporaneous
oral and all prior written agreements with respect to the subject matter hereof
are merged herein.
13.11 Waiver. No failure of any party to enforce any provisions hereof or
to resort to any remedy or to exercise any one or more of alternate remedies and
no delay in enforcing, resorting to or exercising any remedy shall constitute a
waiver by that party of its right subsequently to enforce the same or any other
provision hereof or to resort to any one or more of such rights or remedies on
account of any such ground then existing or which may subsequently occur.
13.12 Relationship of Parties. The parties agree nothing contained herein
shall constitute either party the agent or legal representative of the other for
any purpose whatsoever, nor shall this Agreement be deemed to create any form of
business organization between the parties hereto, nor is either party granted
any right or authority to assume or create any obligations or responsibility on
behalf of the other party, nor shall either party be in any way liable for any
debt of the other.
13.13 Deliberately Omitted.
13.14 Governing Law. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of Delaware and of the United
States of America.
13.15 Directors' Liability. The obligations of FAC and the Operating
Partnership hereunder are intended to be binding are binding only on the assets
of FAC and the Operating Partnership, respectively, and no Contributor or
Constituent Partnership nor anyone claiming by or through or under such
Contributor or Constituent Partnership shall be entitled to obtain any judgment
creating personal liability on the part of any directors, shareholders, the
officers or partners in or of FAC or the Operating Partnership from time to
time.
13.16 Constituent Parties' Director Liability. The obligations of the
Constituent Parties hereunder are intended to be binding on the assets of the
Constituent Parties only, and neither FAC nor the Operating Partnership nor
anyone claiming by or through or under FAC or the Operating Partnership shall be
entitled to obtain any judgment creating personal liability on the part of any
directors, shareholders, or officers in or at Konover Management South or any of
the Constituent Parties in their capacities as such directors, shareholders, or
officers. However, nothing in this Section shall affect the liability of any
Person in its capacity as a Contributor or Constituent Partnership.
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IN WITNESS WHEREOF, the parties have duly executed this Agreement by their
hands and under seal affixed hereto as of the date and year first above written.
FAC REALTY TRUST, INC.
By:
----------------------------
C. Cammack Morton
President
FAC PROPERTIES, L.P.
By: FAC Realty Trust, Inc.,
General Partner
By:
-------------------
C. Cammack Morton
President
KONOVER MANAGEMENT SOUTH CORP.
By: _______________________
Name:
Title:
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<PAGE>
MASTER AGREEMENT SIGNATURE PAGE
Davie, FL
The undersigned, as a Contributor to that certain Master Agreement by and
among FAC Realty Trust, Inc., FAC Properties, L.P., the undersigned and other
Contributors and parties dated as of February ___, 1998, hereby becomes a party
to such Master Agreement subject to all of the terms and conditions thereof. The
undersigned agrees that this signature page may be attached to any counterpart
of said Master Agreement and shall be effective as of the date of the Master
Agreement.
DAVIE PLAZA LIMITED PARTNERSHIP [SEAL]
By: KONOVER MOBILE, INC. [SEAL]
Its General Partner
ATTEST:
By:
- ------------ ------------------------
Fred P. Steinmark
Its President
- --------------- Duly Authorized
(Corporate Seal)
ATTEST: KONOVER & ASSOCIATES SOUTH, INC. [SEAL]
By:
- -------------- --------------------------
Fred P. Steinmark
Its President
- ----------------- Duly Authorized
(Corporate Seal)
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<PAGE>
MASTER AGREEMENT SIGNATURE PAGE
Durham, NC
The undersigned, as a Contributor to that certain Master Agreement by and
among FAC Realty Trust, Inc., FAC Properties, L.P., the undersigned and other
Contributors and parties dated as of February ___, 1998, hereby becomes a party
to such Master Agreement subject to all of the terms and conditions thereof. The
undersigned agrees that this signature page may be attached to any counterpart
of said Master Agreement and shall be effective as of the date of the Master
Agreement.
KONOVER DURHAM FESTIVAL
CENTRE LIMITED PARTNERSHIP [SEAL]
By: KONOVER MOBILE, INC. [SEAL]
Its General Partner
ATTEST:
By:
- ----------------- ------------------------------
Fred P. Steinmark
Its President
- ------------------- Duly Authorized
(Corporate Seal)
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MASTER AGREEMENT SIGNATURE PAGE
Hollywood, FL
The undersigned, as a Contributor to that certain Master Agreement by and
among FAC Realty Trust, Inc., FAC Properties, L.P., the undersigned and other
Contributors and parties dated as of February ___, 1998, hereby becomes a party
to such Master Agreement subject to all of the terms and conditions thereof. The
undersigned agrees that this signature page may be attached to any counterpart
of said Master Agreement and shall be effective as of the date of the Master
Agreement.
HOLLYWOOD FESTIVAL CENTRE LIMITED
PARTNERSHIP [SEAL]
By: KONOVER MOBILE, INC. [SEAL]
Its General Partner
ATTEST:
By:
- -------------- -------------------------
Fred P. Steinmark
Its President
- -------------- Duly Authorized
(Corporate Seal)
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<PAGE>
MASTER AGREEMENT SIGNATURE PAGE
Jensen Beach, FL
The undersigned, as a Contributor to that certain Master Agreement by and
among FAC Realty Trust, Inc., FAC Properties, L.P., the undersigned and other
Contributors and parties dated as of February ___, 1998, hereby becomes a party
to such Master Agreement subject to all of the terms and conditions thereof. The
undersigned agrees that this signature page may be attached to any counterpart
of said Master Agreement and shall be effective as of the date of the Master
Agreement.
<TABLE>
<CAPTION>
<S> <C>
SQUARE ONE STUART ASSOCIATES LIMITED
PARTNERSHIP [SEAL]
By: SQUARE ONE STUART, INC. [SEAL]
Its General Partner
ATTEST:
By:
- ------------- --------------------------
Fred P. Steinmark
Its President
- ------------ Duly Authorized
(Corporate Seal)
ATTEST: JENSEN REALTY, INC. AS TRUSTEE
By:
- ----------- -----------------------
Gregory Combs
Its President
- ------------------ Duly Authorized
(Corporate Seal)
</TABLE>
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MASTER AGREEMENT SIGNATURE PAGE
Lenoir, NC
The undersigned, as a Contributor to that certain Master Agreement by and
among FAC Realty Trust, Inc., FAC Properties, L.P., the undersigned and other
Contributors and parties dated as of February ___, 1998, hereby becomes a party
to such Master Agreement subject to all of the terms and conditions thereof. The
undersigned agrees that this signature page may be attached to any counterpart
of said Master Agreement and shall be effective as of the date of the Master
Agreement.
LENOIR REALTY ASSOCIATES LIMITED
PARTNERSHIP [SEAL]
By: THREE L COMMERCIAL ASSOCIATES
LIMITED PARTNERSHIP, [SEAL]
Its General Partner
By: KONOVER MANAGEMENT [SEAL]
CORPORATION, Its General Partner
ATTEST:
By:
- ----------- ------------------------------
Fred P. Steinmark
Its Vice President
- ----------- Duly Authorized
(Corporate Seal)
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MASTER AGREEMENT SIGNATURE PAGE
Mobile, AL
The undersigned, as a Contributor to that certain Master Agreement by and
among FAC Realty Trust, Inc., FAC Properties, L.P., the undersigned and other
Contributors and parties dated as of February ___, 1998, hereby becomes a party
to such Master Agreement subject to all of the terms and conditions thereof. The
undersigned agrees that this signature page may be attached to any counterpart
of said Master Agreement and shall be effective as of the date of the Master
Agreement.
KONOVER MOBILE FESTIVAL CENTRE
LIMITED PARTNERSHIP [SEAL]
By: KR MOBILE, INC. [SEAL]
Its General Partner
ATTEST:
By:
- ----------- ------------------------
Fred P. Steinmark
Its President
- ---------- Duly Authorized
(Corporate Seal)
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MASTER AGREEMENT SIGNATURE PAGE
Oakland Park, FL
The undersigned, as a Contributor to that certain Master Agreement by and
among FAC Realty Trust, Inc., FAC Properties, L.P., the undersigned and other
Contributors and parties dated as of February ___, 1998, hereby becomes a party
to such Master Agreement subject to all of the terms and conditions thereof. The
undersigned agrees that this signature page may be attached to any counterpart
of said Master Agreement and shall be effective as of the date of the Master
Agreement.
OAKLAND PARK FESTIVAL CENTRE
LIMITED PARTNERSHIP [SEAL]
By: KONOVER MOBILE, INC. [SEAL]
Its General Partner
ATTEST:
By:
- ---------- --------------------------
Fred P. Steinmark
Its President
- ---------- Duly Authorized
(Corporate Seal)
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<PAGE>
MASTER AGREEMENT SIGNATURE PAGE
Petersburg, VA
The undersigned, as a Contributor to that certain Master Agreement by and
among FAC Realty Trust, Inc., FAC Properties, L.P., the undersigned and other
Contributors and parties dated as of February ___, 1998, hereby becomes a party
to such Master Agreement subject to all of the terms and conditions thereof. The
undersigned agrees that this signature page may be attached to any counterpart
of said Master Agreement and shall be effective as of the date of the Master
Agreement.
<TABLE>
<CAPTION>
<S> <C>
PETERSBURG COMMERCIAL ASSOCIATES [SEAL]
By: PETERSBURG COMMERCIAL ASSOCIATES
LIMITED PARTNERSHIP, [SEAL]
Its Partner
By: KONOVER MANAGEMENT
CORPORATION [SEAL]
Its General Partner
ATTEST:
By:
- --------- ---------------------------------
Fred P. Steinmark
Its Vice President
- --------- Duly Authorized
(Corporate Seal)
AND
ATTEST: By: KONOVER MANAGEMENT
CORPORATION, Its Partner [SEAL]
By:
- --------- ------------------------
Fred P. Steinmark
Its Vice President
- --------- Duly Authorized
(Corporate Seal)
</TABLE>
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MASTER AGREEMENT SIGNATURE PAGE
Smyrna, GA
The undersigned, as a Contributor to that certain Master Agreement by and
among FAC Realty Trust, Inc., FAC Properties, L.P., the undersigned and other
Contributors and parties dated as of February ___, 1998, hereby becomes a party
to such Master Agreement subject to all of the terms and conditions thereof. The
undersigned agrees that this signature page may be attached to any counterpart
of said Master Agreement and shall be effective as of the date of the Master
Agreement.
KONOVER & ROSEN, A General Partnership
By: KR COMMERCIAL ASSOCIATES
LIMITED PARTNERSHIP, Its Partner [SEAL]
By: KONOVER MANAGEMENT
CORPORATION [SEAL]
Its General Partner
ATTEST:
By:
- --------- ----------------------------
Fred P. Steinmark
Its Vice President
- --------- Duly Authorized
(Corporate Seal)
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MASTER AGREEMENT SIGNATURE PAGE
Tampa, FL
The undersigned, as a Contributor to that certain Master Agreement by and
among FAC Realty Trust, Inc., FAC Properties, L.P., the undersigned and other
Contributors and parties dated as of February ___, 1998, hereby becomes a party
to such Master Agreement subject to all of the terms and conditions thereof. The
undersigned agrees that this signature page may be attached to any counterpart
of said Master Agreement and shall be effective as of the date of the Master
Agreement.
TAMPA FESTIVAL CENTRE LIMITED
PARTNERSHIP [SEAL]
By: KONOVER MOBILE, INC. [SEAL]
Its General Partner
ATTEST:
By:
- --------- ------------------------
Fred P. Steinmark
Its President
- --------- Duly Authorized
(Corporate Seal)
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<PAGE>
MASTER AGREEMENT SIGNATURE PAGE
Lake Point Centre
The undersigned, as a Contributor to that certain Master Agreement by and
among FAC Realty Trust, Inc., FAC Properties, L.P., the undersigned and other
Contributors and parties dated as of February ___, 1998, hereby becomes a party
to such Master Agreement subject to all of the terms and conditions thereof. The
undersigned agrees that this signature page may be attached to any counterpart
of said Master Agreement and shall be effective as of the date of the Master
Agreement.
LAKE POINT CENTRE ASSOCIATES,
LTD. [SEAL]
By: K. SOUTH, INC. [SEAL]
Its General Partner
ATTEST:
By:
- ----------- ------------------------
Fred P. Steinmark
Its President
- ---------- Duly Authorized
(Corporate Seal)
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MASTER AGREEMENT SIGNATURE PAGE
Ocala, FL - Purchase Option Property
The undersigned, as a POP Seller under that certain Master Agreement by and
among FAC Realty Trust, Inc., FAC Properties, L.P., the undersigned and other
parties dated as of February ____, 1998, hereby becomes a party to such Master
Agreement subject to all of the terms and conditions thereof. The undersigned
agrees that this signature page may be attached to any counterpart of said
Master Agreement and shall be effective as of the date of the Master Agreement.
OCALA MANUFACTURER'S MALL
LIMITED PARTNERSHIP [SEAL]
By: MANUFACTURER'S MALL
OF OCALA, INC. [SEAL]
Its General Partner
ATTEST:
By:
- ----------- ---------------------
Fred P. Steinmark
Its President
- ----------- Duly Authorized
(Corporate Seal)
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MASTER AGREEMENT SIGNATURE PAGE
Sunrise Center - Purchase Option Property
The undersigned, as a POP Seller under that certain Master Agreement by and
among FAC Realty Trust, Inc., FAC Properties, L.P., the undersigned and other
parties dated as of February ____, 1998, hereby becomes a party to such Master
Agreement subject to all of the terms and conditions thereof. The undersigned
agrees that this signature page may be attached to any counterpart of said
Master Agreement and shall be effective as of the date of the Master Agreement.
KONOVER & ROSEN, A General
Partnership [SEAL]
By: KR COMMERCIAL ASSOCIATES
LIMITED PARTNERSHIP [SEAL]
Its Partner
By: KONOVER MANAGEMENT
CORPORATION [SEAL]
Its General Partner
ATTEST:
By:
- ------------ -----------------------
Fred P. Steinmark
Its Vice President
- ------------- Duly Authorized
(Corporate Seal)
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MASTER AGREEMENT SIGNATURE PAGE
West Palm Beach Commons - Purchase Option Property
The undersigned, as a POP Seller under that certain Master Agreement by and
among FAC Realty Trust, Inc., FAC Properties, L.P., the undersigned and other
parties dated as of February ____, 1998, hereby becomes a party to such Master
Agreement subject to all of the terms and conditions thereof. The undersigned
agrees that this signature page may be attached to any counterpart of said
Master Agreement and shall be effective as of the date of the Master Agreement.
KONOVER & ROSEN, A General
Partnership [SEAL]
By: KR COMMERCIAL ASSOCIATES
LIMITED PARTNERSHIP [SEAL]
Its Partner
By: KONOVER MANAGEMENT
CORPORATION [SEAL]
Its General Partner
ATTEST:
By:
- --------------- -----------------------------
Fred P. Steinmark
Its Vice President
- --------------- Duly Authorized
(Corporate Seal)
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<PAGE>
MASTER AGREEMENT SIGNATURE PAGE
Brunswick, GA -Purchase Option Property
The undersigned, as a POP Seller under that certain Master Agreement by and
among FAC Realty Trust, Inc., FAC Properties, L.P., the undersigned and other
parties dated as of February ____, 1998, hereby becomes a party to such Master
Agreement subject to all of the terms and conditions thereof. The undersigned
agrees that this signature page may be attached to any counterpart of said
Master Agreement and shall be effective as of the date of the Master Agreement.
BRUNSWICK OUTLET PARTNERS,
L.P. [SEAL]
By: BRUNSWICK GEORGIA
COMMERCIAL ASSOCIATES [SEAL]
LIMITED PARTNERSHIP
Its General Partner
By: KONOVER MANAGEMENT
CORPORATION [SEAL]
Its General Partner
ATTEST:
By:
- ----------- ------------------------
Fred P. Steinmark
Its Vice President
- ------------- Duly Authorized
(Corporate Seal)
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<PAGE>
MASTER AGREEMENT SIGNATURE PAGE
College Park, GA - Purchase Option Property
The undersigned, as a POP Seller under that certain Master Agreement by and
among FAC Realty Trust, Inc., FAC Properties, L.P., the undersigned and other
parties dated as of February ____, 1998, hereby becomes a party to such Master
Agreement subject to all of the terms and conditions thereof. The undersigned
agrees that this signature page may be attached to any counterpart of said
Master Agreement and shall be effective as of the date of the Master Agreement.
<TABLE>
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<S> <C>
COLLEGE PARK ASSOCIATES [SEAL]
By: KONOVER MANAGEMENT
CORPORATION [SEAL]
Its General Partner
ATTEST:
By:
- --------------- ------------------------------
Fred P. Steinmark
Its Vice President
- ---------------- Duly Authorized
(Corporate Seal)
AND
By: COLLEGE PARK COMMERCIAL
ASSOCIATES LIMITED PARTNERSHIP
A General Partner [SEAL]
By: KONOVER MANAGEMENT
CORPORATION [SEAL]
Its General Partner
ATTEST:
By:
- ------------- ----------------------------------
Fred P. Steinmark
Its Vice President
- --------------- Duly Authorized
(Corporate Seal)
</TABLE>
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<TABLE>
<CAPTION>
<S> <C>
LIST OF SCHEDULES AND EXHIBITS
Schedule 1 Acquired Partnerships or Properties
Schedule 3.1(c) Partnership Unit Lock-Up Terms
Schedule 4.5 Assignment of Ownership Interests
Schedule 4.5.1 Ownership Interests Assigned
Schedule 4.6(iv) Registration Rights Agreement
Schedule 6.1A. Contributor Representations
Schedule 6.1A.1 Consents
Schedule 6.1A.8 Contracts
Schedule 6.1A.9 Outstanding Debt Financing
Schedule 6.1A.12 Claims or Litigation
Schedule 6.1A.13 Employees
Schedule 6.1A.14 Taxes
Schedule 6.1A.15 Operating Agreements
Schedule 6.1A.16 Material Changes
Schedule 6.1A.20(a) Properties and Addresses
Schedule 6.1A.20(b) Required Certificates, Permits, and Licenses, and List of Government
Violations and Damage
Schedule 6.1A.20(c) Pending Matters
Schedule 6.1A.20(d) Reliance on Off-Property Facilities; Wetlands; Flood Plains
Schedule 6.1A.20(e) Surveys and Reports Regarding ADA Compliance
Schedule 6.1A.20(f) Exceptions: Material Property Leases
Schedule 6.1A.20(g) Commitments and Letters of Intent
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<CAPTION>
<S> <C>
Schedule 6.1A.20(h) Properties Subject to Purchase Options
Schedule 6.1A.20(j) Properties Containing Undeveloped Land
Schedule 6.1A.20(k) Description of Ground Leases
Schedule 6.1A.20(n) Environmental Exceptions
Schedule 6.1A.20(n) Environmental Reports
Schedule 6.1B Representations and Warranties of Konover Management South Corp.
Schedule 6.1B.(b) Consents
Schedule 6.1C FAC and Operating Partnership Representations
Schedule 10.1 Restricted Properties
</TABLE>
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<TABLE>
<CAPTION>
<S> <C>
SCHEDULE 1
ACQUIRED PARTNERSHIPS OR PROPERTIES
- ------------ ------------- ------------- ------------- ----------------------------- -------------------------- ------------
Cash to be
Received at Units to be
Closing Received at Allocated
Constituent Closing Withheld Property
Partnership Cash Contributors Property Name Value
- ------------ ------------- ------------- ------------- ----------------------------- -------------------------- ------------
N/A Konover Mobile Festival Mobile Festival Centre
Centre Limited Partnership
- ------------ ------------- ------------- ------------- ----------------------------- -------------------------- ------------
N/A Davie Plaza, The Plaza Shopping Center
Limited Partnership and
Konover & Associates South,
Inc.
- ------------ ------------- ------------- ------------- ----------------------------- -------------------------- ------------
N/A Square One Stuart Square One Plaza
Associates Limited
Partnership and Jensen
Realty, Inc., as Trustee
- ------------ ------------- ------------- ------------- ----------------------------- -------------------------- ------------
N/A Lenoir Realty Associates Lenoir Festival Centre
Limited Partnership
- ------------ ------------- ------------- ------------- ----------------------------- -------------------------- ------------
N/A Hollywood Festival Centre Hollywood Festival Centre
Limited Partnership
- ------------ ------------- ------------- ------------- ----------------------------- -------------------------- ------------
N/A Tampa Festival Centre Tampa Festival Centre
Limited Partnership
- ------------ ------------- ------------- ------------- ----------------------------- -------------------------- ------------
N/A Oakland Park Festival Oakland Park Festival
Centre Limited Partnership Centre
- ------------ ------------- ------------- ------------- ----------------------------- -------------------------- ------------
N/A Konover Durham Festival Durham Festival Centre
Centre Limited Partnership
- ------------ ------------- ------------- ------------- ----------------------------- -------------------------- ------------
N/A Konover & Rosen, a general South Cobb Festival
partnership Centre
- ------------ ------------- ------------- ------------- ----------------------------- -------------------------- ------------
N/A Petersburg Commercial Food Lion Plaza
Associates
- ------------ ------------- ------------- ------------- ----------------------------- -------------------------- ------------
N/A Lake Point Centre Lake Point Centre
Associates, Ltd.
- ------------ ------------- ------------- ------------- ----------------------------- -------------------------- ------------
- ------------ ------------- ------------- ------------- ----------------------------- -------------------------- ------------
TOTAL $4,250,000
- ------------ ------------- ------------- ------------- ----------------------------- -------------------------- ------------
</TABLE>
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PURCHASE OPTION PROPERTIES
Old National Village, College Park, GA
Broward Center, Broward, FL
West Palm Beach Commons, West Palm Beach, FL
Sunrise Center, Sunrise, FL
Ocala Factory Stores, Ocala, FL
Brunswick Outlet Plaza, Brunswick, GA
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SCHEDULE 3.1(C)
PARTNERSHIP UNIT LOCK-UP TERMS
The Units received hereby in respect of the conveyance of a Property to the
Operating Partnership may not be disposed of by any Contributor until after one
year from the Closing relating to such Property.
Nonetheless, (i) a Contributor may dispose of Units on his or her death
to such Contributor's estate, executor, administrator or personal representative
or to such Contributor's beneficiaries pursuant to a devise or bequest or by the
laws of descent and distribution, (ii) a Contributor may pledge his Units as
security for debt instruments, provided that, in either event, the Units shall
thereafter be subject to the restrictions set forth in the preceding paragraph
for the remainder of the restricted period and (iii) a Contributor which is an
entity may distribute the Units to any shareholders, partners, members or other
holders of equity interests of such entity; provided, however, that any such
transfer, disposition or distribution of Units must be in compliance with all
federal and state securities laws as determined by FAC in its reasonable
discretion and the transferee or transferees must each be an "accredited
investor" within the meaning of Rule 501(a) of Regulation D under the Act, and
as a condition precedent to the effectiveness of such Transfer, the transferor
shall, upon request of the Operating Partnership, provide reasonable evidence,
including an investor questionnaire completed by the transferee, that the
transferee or transferees are such "accredited investors." In the event any
Contributor disposes of Units as described in this Paragraph, such Units shall
remain subject to this lock-up provision and, as a condition of the validity of
such disposition, the transferee shall be required to agree in writing to the
lock-up provisions set forth herein.
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SCHEDULE 4.5
ASSIGNMENT OF OWNERSHIP INTERESTS
THIS ASSIGNMENT OF OWNERSHIP INTERESTS (the "Assignment") in the
partnerships and limited liability companies listed on SCHEDULE 4.5.1 attached
hereto (the "Partnerships") is being executed and delivered pursuant to and in
accordance with the terms and provisions of that certain Master Agreement dated
as of the ____ day of February, 1998, by and among the undersigned (the
"Assignor") herein and FAC Properties, L.P. (the "Assignee") and specifically in
accordance with Section ___ thereof.
For good and valuable consideration, the receipt, adequacy and
sufficiency of which are hereby acknowledged, the Assignor does hereby assign,
transfer and convey to Assignee, all of Assignor's interest(s) (the "Ownership
Interest(s)") in the Partnerships, which Ownership Interest(s) consist(s) of all
of the interest in the profits, losses, distributable cash, and capital together
with any and all right, title and interest in any property, both real and
personal, to which the Ownership Interest relates and any other rights,
interests in, privileges and benefits appertaining thereto, including those
provided by the applicable partnership or operating agreement or state law. From
and after the date of the Closing (as defined in the Master Agreement) the
Assignee shall be entitled to the Assignor's percentage interest in the profits,
losses, capital and distributable cash in each of the Partnerships.
This Assignment is made subject to all of the terms and conditions of
the partnership or operating agreements of each of the Partnerships, as
applicable and as amended (the "Partnership Agreement(s)").
Assignor certifies that he, she or it has full power to make this
Assignment of each of the Ownership Interests, and that this Assignment is being
made in compliance with the applicable Partnership Agreement(s), that the
Ownership Interest(s) now assigned, transferred and conveyed are free and clear
of all encumbrances (including judgments, liens and claims) and that Assignor
owns the listed Ownership Interest(s) and the interest(s) have not otherwise
been conveyed, sold, transferred, encumbered, pledged, hypothecated or assigned.
IN WITNESS WHEREOF, the Assignor has executed this Assignment as of the
_____ day of _________, 1998.
ASSIGNOR:
(SEAL)
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<PAGE>
OWNERSHIP INTERESTS ASSIGNED AS
PROVIDED BY THE ASSIGNMENT
TO WHICH THIS SCHEDULE 4.5.1 IS ATTACHED
NAME OF PARTNERSHIP OR
LIMITED LIABILITY COMPANY INCOME INTEREST %
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<PAGE>
SCHEDULE 6.1A.9
OUTSTANDING DEBT FINANCING
-------------------------------------- -------------------------------
PROPERTIES BALANCE
-------------------------------------- -------------------------------
Mobile Festival Centre $__________
The Plaza $__________
Square One Center $__________
Lenoir Festival $__________
Hollywood Festival $__________
Tampa Festival $__________
Durham Festival $__________
South Cobb Festival $__________
Food Lion Plaza $__________
Old National Village $__________
Broward Center $__________
West Palm Beach Commons $__________
Sunrise Center $__________
Sanhoe $__________
Ocala $__________
Brunswick $__________
Lake Point Centre $__________
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<PAGE>
SCHEDULE 6.1A
CONTRIBUTOR REPRESENTATIONS
1. Consents. Except as set forth in Schedule 6.1A.1 attached hereto, to the
knowledge of each Contributor, (i) no consents, approvals, waivers,
notifications, acknowledgments or permissions which have not been obtained are
required in order for any of the Constituent Parties to fully perform its or his
respective obligations under this Agreement or which, if left unobtained at
Closing and thereafter, would, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect, and (ii) the execution and delivery
of this Agreement by the Contributors and the consummation of the transactions
contemplated hereby, including without limitation the execution of any related
agreements, will not require the consent of, or any prior filing with or notice
to or payment to, any governmental authority or other Person.
2. Disclosure. To the knowledge of each Contributor, the representations
and warranties contained in this Agreement (including Schedules and Exhibits and
documents or instruments delivered in connection herewith) do not and will not
contain any untrue statement of a material fact or omit to state any material
fact necessary to make the statements and information contained herein or
therein, in light of the circumstances in which they are made, not misleading.
3. Absence of Conflicts. To the knowledge of each Contributor, the
execution, delivery and performance of this Agreement by the Contributors and
the consummation of the transactions contemplated hereby, including without
limitation, the execution and delivery by the Contributors or the Constituent
Partnerships, as applicable, of any documents, instruments or agreements
contemplated hereby, will not (after a lapse of time, due notice or otherwise)
(a) conflict with, violate or result in any breach or default under (i) any
provision of any charter, by laws, partnership agreement, operating agreement or
certificate of any of the Constituent Parties; (ii) any law, statute, rule or
regulation of any administrative agency or governmental body, or any judgment,
order, writ, stipulation, injunction, award or decree of any court, arbiter,
administrative agency or governmental body to which the Constituent Parties or
the Properties are subject; or (iii) except as set forth in Schedule 6.1A.1 any
indenture, agreement, instrument or other contract to which the Constituent
Parties may be bound or relating to or affecting their assets; or (b) except as
set forth in Schedule 6.1A.1 result in the acceleration of, create in any party
the right to accelerate, terminate, modify or cancel, or require any notice
under or result in the creation or imposition of any Lien on the Properties or
related assets in accordance with the terms of this Agreement under any
indenture, mortgage, contract, agreement, lease, sublease, license, sublicenses,
franchise, permit, instrument of indebtedness, security agreement or other
undertaking or instrument to which any of the Constituent Parties may be bound
or affected.
4. Certification of Constituent Financial Statements. The Constituent
Financial Statements have been prepared on an income tax accrual basis for 1995
and 1996 and on a cash basis for 1997 and 1998, and fairly present the financial
condition of each of the applicable Constituent Parties.
5. Authorization. Each Contributor represents that the execution and
delivery of this Agreement and the documents required to be executed by such
Contributor, and the performance of such
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<PAGE>
Contributor's obligations under this Agreement and the documents required to be
executed by each such Contributor, will have been duly authorized by all
requisite action, and this Agreement will have been duly executed and delivered
by such Contributor.
6. Pending Actions. To each Contributor's knowledge, there is no existing
or threatened legal action or governmental proceedings of any kind involving
such Contributor, which, if determined adversely to such Contributor, would
interfere with such Contributor's ability to execute or deliver, or perform its
obligations under this Agreement or the documents required to be executed by
such Contributor.
7. Power and Authority of Constituent Parties. Each of the Constituent
Parties, which is not an individual, (i) is a corporation, general or limited
partnership or limited liability company, as the case may be, duly organized or
formed and validly existing under the laws of the State of its organization or
formation and 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 and (ii) has all necessary power and
authority to enter into this Agreement and to enter into and deliver the
documents required to be executed by it pursuant to the terms hereof and to
perform its obligations hereunder and thereunder subject to the matters set
forth in Schedule 6.1A.1. To the knowledge of each Contributor, each partner,
shareholder or member of the Constituent Partnerships has been duly formed and
is validly existing. All ownership interests in each Constituent Party, which is
not an individual, have been validly issued and fully paid. True, correct and
complete copies of each of the partnership agreements, operating agreements and
other organizational documents, as applicable, of the Constituent Parties and
all amendments thereto, and the minutes of any meetings of the shareholders,
partners or members of the Constituent Parties, have been delivered to the
Operating Partnership prior to the date of this Agreement or will be delivered
to the Operating Partnership promptly thereafter. This Agreement and each of the
documents and instruments contemplated hereby and other instruments and
documents to be executed and delivered by the Constituent Parties, hereunder
will, when executed, constitute the legal, valid and binding obligations of the
Contributors and Constituent Partnerships, respectively, enforceable against
them in accordance with their respective terms, subject to the matters set forth
in SCHEDULE 6.1A.1. To the knowledge of each of the Contributors, the Closing
will effectuate the transfer of all of the ownership interests of each of the
Contributors in and to the Properties and, except as set forth in Schedule 2.1,
of each of the Constituent Partnerships in and to the Properties.
8. No Contracts. Except as set forth on Schedule 6.1A.8, no agreements,
undertakings or contracts (the "Contracts") affecting the Properties or the
Constituent Parties, written or oral, will be in existence as of the Closing
other than the Outstanding Debt Financing, leases listed on the Rent Roll,
Permitted Liens and the Management and Leasing Agreements. Copies of all written
Contracts have been provided to the Operating Partnership.
9. Liabilities; Indebtedness; Except for the mortgage indebtedness
identified as the "Outstanding Debt Financing" on SCHEDULE 6.1A.9 and the leases
listed on the Rent Roll, and those liabilities which have been disclosed to the
Operating Partnership in writing, in the amounts and as otherwise described in
SCHEDULE 6.1A.9 hereto, the Constituent Parties have not incurred any
Indebtedness related to the Properties except in each instance for trade
payables and any other customary and ordinary expenses in the ordinary course of
business that will be paid and discharged in full by the Constituent Parties,
respectively, or, if appropriate, except for partner loans, adjusted as of the
Closing.
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<PAGE>
10. Insurance. Each of the Constituent Parties currently maintains or
causes to be maintained all of the public liability, casualty and other
insurance coverage with respect to the Properties and their respective
businesses as has been disclosed to the Operating Partnership and FAC, and such
insurance is of the types and in the amounts customarily carried on properties
similar to the Properties. All such insurance coverage shall be maintained in
full force and effect through the Closing and all premiums due and payable
thereunder have been, and shall be, fully paid when due.
11. Personal Property. All equipment, fixtures and personal property
located at or on any of the Properties, respectively, which is owned or leased
by any Constituent Partnership or its shareholders, partners or members on
behalf of such Constituent Partnership shall remain at the Properties and shall
not be removed prior to the Closing, except for equipment that becomes obsolete
or unusable, which may be disposed of or replaced in the ordinary course of
business.
12. Claims or Litigation. Except as set forth on SCHEDULE 6.1A.12 attached
hereto, none of the Constituent Parties has received notice of any claim,
demand, suit or unfiled lien against the Constituent Parties or the Properties
nor to any of the Contributors' knowledge has any proceeding or litigation of
any kind, pending or outstanding, been filed before any court or administrative,
governmental or regulatory authority, agency or body, domestic or foreign, and,
to the knowledge of any of the Contributors, no order, judgment, injunction or
decree of any court, tribunal or other governmental authority has been filed
against any of the Constituent Parties or any of the Properties or, to the
knowledge of any of the Contributors, threatened, or likely to be made or
instituted, any of the foregoing of which would have a Materially Adverse Effect
or in any way be binding upon the Operating Partnership or affect or limit the
Operating Partnership's full use and enjoyment of any of the Properties.
13. Employees. None of the Constituent Parties presently has any employees
nor have any of the Constituent Parties ever had any such employees except as
described in Schedule 6.1A.13.
14. Taxes. Except as set forth on SCHEDULE 6.1A.14 attached hereto and the
ad valorem taxes assessed on the Properties, (i) all tax or information returns
required to be filed on or before the date hereof by or on behalf of the
Constituent Parties or the Properties have been filed and all such tax or
information returns required to be filed hereafter will be filed on or before
the date due in accordance with all applicable laws prior to the incurrence of
any penalties or interest thereon and all taxes shown to be due on any returns
have been paid or will be paid when due; and (ii) to the knowledge of each of
the Contributors, there is no action, suit or proceeding pending against or
threatened with respect to any Constituent Partnership or any of the Properties
in respect of any tax, nor is any claim for additional tax asserted by any
taxing authority. To the knowledge of the Constituent Parties, none of the
Constituent Partnerships nor any of their respective federal, state and local
income or franchise tax returns are the subject of any audit or examination by
any taxing authority. Except as has been disclosed to the Operating Partnership
in writing, none of the Constituent Partnerships has executed or filed with the
Internal Revenue Service or any other taxing authority any agreement now in
effect extending the period for assessment or collection of any income or other
taxes.
15. Operating Agreements. True, complete and correct copies of all
agreements pertaining to the operation of the Properties as of the date hereof
(collectively, the "Existing Operating Agreements")
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<PAGE>
have been provided or made available to the Operating Partnership. The Existing
Operating Agreements are, to the knowledge of each of the Contributors, in full
force and effect, no Constituent Party is in default of any of its material
obligations under any of such Existing Operating Agreements, and except for the
Management and Leasing Agreements and those set forth on SCHEDULE 6.1A.15
attached hereto, all Existing Operating Agreements are terminable on not more
than thirty (30) days prior written notice and without payment of any penalty.
At the Closing with respect to each of the Properties, true, complete and
correct copies of such Existing Operating Agreements shall have been provided or
made available to the Operating Partnership and, to the knowledge of each of the
Contributors, the Existing Operating Agreements shall be, unless otherwise
described in writing to the Operating Partnership or except as otherwise
provided herein, (i) in full force and effect and (ii) free from any default by
the appropriate Constituent Party of any of its material obligations under any
of them. The Contributors shall advise the Operating Partnership immediately of
any default by any party to an Existing Operating Agreement. The Operating
Partnership does not assume any obligation under any Existing Operating
Agreement for acts or omissions which occur prior to Closing.
16. Absence of Certain Changes. Since December 31, 1996, except as
otherwise set forth in this Agreement, to the knowledge of each of the
applicable Contributors, there has not been with respect to Constituent
Partnerships in which it owns Interests, or with respect to the Properties, as
applicable, except as set forth in SCHEDULE 6.1A.16:
(a) any material adverse change in the financial condition of
such Constituent Partnerships;
(b) any material adverse change in the condition of the
property, business or liabilities of such Constituent
Partnerships, including the Properties, except normal and
usual changes in the ordinary course of business which have
not been materially adverse;
(c) any damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting the Properties
or any other properties or business of any of the Constituent
Partnerships;
(d) any sale, abandonment or other disposition by any of the
Constituent Partnerships of any interest in the Properties, or
of any personal property relating to a Property owned by a
Constituent Party relating to a Property, other than in the
ordinary course of such Constituent Partnerships' business;
(e) any change in the accounting methods or practices by any
of the Constituent Partnerships or in depreciation or
amortization policies theretofore used or adopted;
(f) any material contractual liability incurred by such
Constituent Partnerships, contingent or otherwise, other than
for operating expenses, obligations under executory contracts
incurred for fair consideration and taxes accrued with respect
to operations during such period, all incurred in the ordinary
course of business, other than leases, Outstanding Debt
Financing, Permitted Liens and the other matters set forth in
SCHEDULE 6.1A.9; or
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<PAGE>
(g) any other material adverse change in the business,
operations or liabilities of any of the Constituent
Partnerships or any of the Properties.
17. Tradename. There have never been any Liens or pending or threatened
third-party claims for infringement or unlawful use of any tradename used by any
Constituent Partnership or Property, and to the knowledge of each Contributor,
each of the Constituent parties has the right to sell, transfer, assign and
convey the name of its Property and, if applicable, its Constituent Partnership,
to the Operating Partnership, provided, however, no party has filed for any
protection under federal or state trademark laws and no Constituent Party has
taken any steps other than use to secure any common law proprietary interest in
the tradename.
18. Certain Liens. To the extent due and payable, all labor and services
performed and materials furnished to the Properties have been paid for in full
and to the Contributors' knowledge, there exists no basis for which a
mechanic's, materialman's or similar lien can properly be claimed against the
Properties or any part thereof except for the mechanic's lien on Lake Point
Centre and as alleged in the Square One litigation described in SCHEDULE
6.1A.12, neither of which will be the basis for liens against the respective
Properties at Closing.
19. Deliberately Omitted.
* * *
20. (a) SCHEDULE 6.1A.20(A) sets forth a complete and accurate list and the
address of all of the Properties. The Contributors or Constituent Partnerships,
as applicable, own insurable fee simple (or, if so indicated on SCHEDULE
6.1A.20(A), leasehold) title to each of the 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. To the knowledge of each Constituent Party,
none of the matters described in clauses (i) and (ii) of the immediately
preceding sentence materially interferes with, 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 Properties taken as
a whole, and such matters do not, individually or in the aggregate, have a
Material Adverse Effect. The Contributors have made available, or will make
available promptly after the date of this Agreement, to the Operating
Partnership true and complete copies of all existing fee and leasehold title
insurance policies affecting the Properties and insuring the Constituent
Partnerships (which are to the knowledge of each Constituent Partnership, valid
and in full force and effect, with no claim having been made thereunder) and of
the most recent surveys of the Properties
(b) Except as set forth in SCHEDULE 6.1A.20(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 of
or occupancy of the applicable Property, to the knowledge of the Constituent
Parties owning each applicable Property or interest therein, 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 such Property or agreements,
easements
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<PAGE>
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 Properties or to permit the lawful use and
operation of utility service to any Property or of any existing driveways, roads
or other means of egress and ingress to and from any of the 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 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 Property or otherwise. Except as set forth in
Schedule 6.1A.20(B), the Constituent Parties owning such Property or interest
therein have no knowledge of any uninsured physical damage to any Property in
excess of $300,000 in the aggregate. To the knowledge of the Constituent Parties
owning such Property or interest therein, except for repairs identified in any
applicable capital expenditure budget or in any engineering or structural report
provided to the Operating Partnership or its consultants, each such 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 such Property. The
Constituent Parties have made available to the Operating Partnership true and
complete copies of all engineering reports, inspection reports, maintenance
plans and other documents relating to the condition of the Properties prepared
for or by the Constituent Parties.
(c) Except as set forth in SCHEDULE 6.1A.20(C), there is no (i)
condemnation, eminent domain or rezoning proceeding pending or, to the knowledge
of each Contributor, threatened with respect to any of the Properties, (ii) road
widening or change of grade or any road adjacent to any Property in which such
Contributor has an ownership interest currently underway or that has been
proposed, (iii) proposed change in the assessed valuation of any Property other
than customarily scheduled revaluations, (iv) special assessment that has been
made or threatened against any Property in which such Contributor has an
ownership interest, or (v) Property in which such Contributor has an ownership
interest subject to any so-called "impact fee" or to any agreement with any
government authority to pay for sewer extensions, over sizing 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 Property.
(d) Except as set forth on SCHEDULE 6.1A.20(D), each of the Properties
in which such Contributor has an ownership interest is an independent unit which
does not rely on any facilities located on any property not included in such
Property to fulfill any municipal or governmental requirement or for the
furnishing to such Property of any essential building systems or utilities,
other than facilities the benefit of which inure to the Properties pursuant to
one or more valid easements. Each of such Properties is served by public water
and sanitary or septic systems and all other utilities, and each of such
Properties has lawful access to public roads, in all cases sufficient for the
current use and occupancy of such Property. To the knowledge of such
Contributor, all parcels of land included in such Property that purport to be
contiguous are contiguous and are not separated by strips or gores. Except as
set forth in Schedule 6.1A.20(D), no portion of such Property includes any
wetlands or vegetation or species designated as such by any
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<PAGE>
applicable governmental authority and protected by any applicable laws. Except
as set forth on SCHEDULE 6.1A.20(D) or the Title Policies or surveys, none of
the 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 such Property which lie in a flood plain area, if any, the
Contributors or Constituent Partnerships, as applicable, carry and presently
maintain in full force and effect flood insurance in connection with such
Properties as required by applicable law and as accurately described in SCHEDULE
6.1A.20(D). Except as set forth on SCHEDULE 6.1A.20(D), the improvements on such
Property comply in all material respects with all applicable building codes and
other relevant laws and regulations. No improvements constituting a part of such
Property encroach on real property not constituting a part of such 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 such
Property.
(e) To the knowledge of each of the Constituent Parties, SECTION
6.1A.20(E) contains a complete and accurate list of each survey, study or report
prepared by or for any Constituent Parties or party related thereto, in
connection with any Property's compliance or non-compliance with the
requirements of the Americans with Disabilities Act (the "ADA"), other than
routine correspondence or memoranda. No Property fails to comply with the
requirements of the ADA except for such non-compliance as the Contributors
reasonably believe will not, individually or in the aggregate, have a Material
Adverse Effect.
(f) The Contributors have provided to FAC and the Operating Partnership
an accurate rent roll and delinquency report for each Property as of February
12, 1998 (collectively the "Rent Roll"), which accurately describes each lease
of space in each Property (collectively, the "Leases"). The Constituent Parties
have made available to the Operating Partnership a true and complete copy of
each Lease, including all amendments and modifications thereto. With respect to
each Lease for premises larger than 10,000 square feet of rentable space
(collectively, the "Material Property Leases"), except as set forth in SCHEDULE
6.1A.20(F), (i) each of the Material Property Leases is valid and subsisting and
in full force and effect as against the landlord thereunder and, to the
knowledge of the applicable Constituent Partnership, as against the tenant, and
the information on the Rent Roll with respect to the Material Property Leases is
accurate, (ii) except as set forth on the Rent Roll, the tenant under each of
the Material Property Leases is in actual possession of the premises leased
thereunder, (iii) except as set forth on the Rent Roll, no tenant under any
Material Property Lease is more than 30 days in arrears in the payment of rent,
(iv) none of the Contributors or Constituent Partnerships has received any
written notice from any tenant under any Material Property Lease of its
intention to vacate, (v) none of the Contributors or Constituent Partnerships
has collected payment of rent under any Material Property Lease (other than
security deposits) accruing for a period which is more than one month in
advance, (vi) no notice of default has been sent or received by the landlord
under any Material Property Lease which remains uncured as of the date hereof,
no default by such landlord or the tenant thereunder has occurred under any
Material Property Lease and, to the knowledge of the applicable Constituent
Party no event has occurred and is continuing which, with notice or lapse of
time or both, would constitute a default under any Material Property Lease,
(vii) except as disclosed on SCHEDULE 6.1A.20(F), no tenant under any of the
Material Property 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 Property 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 the
Outstanding Debt Financing, (ix) (A) as of the date
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hereof, except as set forth in SCHEDULE 6.1A.20(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 Property 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 Property Leases or any
extensions or renewals thereof have been incurred in the ordinary course of
business consistent with past practices and market terms, (x) except as set
forth on SCHEDULE 6.1.A.12, no space occupied under a Material Property Lease in
any Property is occupied by a tenant on a totally rent-free basis, (xi) no
tenant under any of the Material Property Leases has asserted any claim in
writing or, to the knowledge of the applicable Constituent Party, 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 Property Leases has any
right to remove improvements or fixtures that have at any time been affixed to
the premises leased thereunder, (xiii) each tenant under the Material Property
Leases is required thereunder to maintain or to cause to be maintained, at its
cost and expense, public liability and property damage insurance with
commercially-reasonable liability limits and (xiv) the landlord under each
Material Property 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 or
other instruments which constitute Permitted Liens, no third party has any right
to occupy or use any portion of any Property.
(g) SCHEDULE 6.1A.20(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 Contributors or Constituent Partnerships as of the date
hereof (x) to lease any space larger than 10,000 rentable square feet at any of
the Properties, (y) to sell, mortgage, pledge or hypothecate any Property or
Properties, or (z) with respect to the Properties, to purchase or to acquire an
option, right of first refusal or similar right in respect of any real property,
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 Contributors will made available
to the Operating Partnership a true and complete copy of each such commitment,
letter of intent or other understanding. SCHEDULE 6.1A.20(G) also sets forth in
a complete and accurate list of all agreements to purchase real property to
which the Contributors or Constituent Partnership is a party.
(h) Except as set forth in Schedule 6.1A.20(H), none of the Properties
is subject to any outstanding purchase options, nor have the Contributors or
Constituent Partnerships 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 Property or (ii) sale, mortgage, pledge, hypothecation, or other
transfer of all or any part of any Property, and no person has any right or
option to acquire, or right of first refusal with respect to Contributors' or
Constituent Partnerships' interests in any Property or any part thereof. Except
as set forth in Schedule 6.1A.20(h) or 6.1A.20(g), none of the Properties has
any outstanding options or rights of first refusal or is the subject of any
outstanding contracts with others for the purchase of such real property.
(i) The Contributors have made available to the Operating Partnership
all capital expenditure budgets which have been prepared by or for each
Constituent Partnership, if any. There are no outstanding or, to the knowledge
of each Contributor with respect to the Property in which it has an
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Interest, threatened requirements by any insurance company which has issued an
insurance policy covering any Property, or by any board of fire underwriters or
other body exercising similar functions, requiring any repairs or alterations to
be made to any Property that would, individually or in the aggregate, reasonably
be expected to result in a Material Adverse Effect.
(j) Schedule 6.1A.20(J) contains a list of each Property which consists
of or includes undeveloped land or which is in the process of being developed or
redeveloped (collectively, the "Contributed Development Properties") and a brief
description of the development or redevelopment intended by the Contributors or
Constituent Partnerships to be carried out or completed thereon (collectively,
the "Contributed Projects"), including any budget and development schedule
therefor prepared by or for the Contributors or Constituent Partnerships
(collectively, the "Property Development Budget and Schedule"). Except as
disclosed in SCHEDULE 6.1A.20(J), each Contributed Development Property is zoned
for the lawful development or redevelopment thereon of the applicable
Contributed Project, and the Contributors or Constituent Partnerships have
obtained all permits, licenses, consents and authorizations required for the
lawful development or redevelopment thereon of such Contributed 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 6.1A.20 (J) all of the existing improvements or
structures located on any of the Contributed Development Properties comply in
all material respects with all applicable building codes, laws, rules or
regulations. Except as set forth in SCHEDULE 6.1A.20(J), to the knowledge of
each Contributor, there are no material impediments to or constrains on the
development or redevelopment of any Property in all material respects within the
time frame and for the cost set forth in the Property Development Budget and
Schedule applicable thereto. Except as set forth in SCHEDULE 6.1A.20 (J) each
Contributed 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. In the case of each Property
the development of which has commenced, the costs and expenses incurred in
connection with such Contributed Development Property and the progress thereof
are, except as set forth in SCHEDULE 6.1A.20(J), consistent and in compliance in
all material respects with the Property Development Budget and schedule
applicable thereto. The Contributors will make available to FAC and the
Operating Partnership all feasibility studies, soil tests, due diligence reports
and other studies, tests or reports performed by or for the Contributors or
Constituent Partnership which relate to the Contributed Development Properties
or the Contributed Projects.
(k) The ground leases underlying the leased Properties referenced in
SCHEDULE 6.1A.20(A) (collectively, the "Contributed Ground Leases") are
accurately described in SCHEDULE 6.1A.20(K). Each of the Contributed Ground
Leases is valid, binding all in full force and effect as against the Constituent
Partnerships and, to the knowledge of each Contributor, as against the landlord
thereunder. Except as indicated in SCHEDULE 6.1A.20(K) or SCHEDULE 6.1A.9, none
of the Contributed 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 Contributed
Ground Leases (including all amendments, modifications and supplements thereto)
have been delivered to FAC and the Operating Partnership prior to the date
hereof or will be delivered promptly after the date of this Agreement. To the
knowledge of each Contributor, except as set forth in SCHEDULE 6.1A.20(K), there
is no pending or threatened proceeding which is reasonable likely to interfere
with the quiet enjoyment of the tenant under any of the Contributed
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Ground Leases. Except as set forth in SCHEDULE 6.1A.20(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 Closing, no payments under any Contributed Ground
Lease are delinquent and no notice of default by the landlord under any
Contributed Ground Lease has been sent or received by the Contributors or any of
the Constituent Partnerships. There does not exist under any of the Contributed
Ground Leases any default and, to the knowledge of each Contributor, there is no
default by the landlord thereunder and no event has occurred which, with notice
or lapse of time or both, would constitute a default by either party thereto.
(l) The Contributors and Constituent Partnerships have good 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 Contributors or any of the Constituent Partnerships 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, reasonable expected to have a Material
Adverse Effect, and Outstanding Debt Financing.
(m) The Contributors have provided to the Operating Partnership
historical operating expense information (the "Historical Expense Information")
for 1995, 1996 and 1997, which has been prepared in the ordinary course of
business. The Historical Expense Information is accurate in all material
respects.
(n) Environmental Matters.
(i) To the knowledge of each of the Constituent Parties, each
Constituent Partnership, has obtained and now maintains as currently valid and
effective, all permits, certificates of financial responsibility and other
governmental authorizations required to be obtained, under the Environmental
Laws (the "Environmental Permits") in connection with the operation of its
businesses and properties. Except as disclosed in the Environmental Reports,
each of the Constituent Parties, and each Property is and has been in compliance
with all terms and conditions of the Environmental Permits and all Environmental
Laws, except as set forth in SCHEDULE 6.1A.20(N) and only to an extent which
would not, individually or in the aggregate, reasonably be expected to result in
a Material Adverse Effect. The Contributors have no knowledge of any
circumstances or conditions that may prevent or interfere with such compliance
in the future.
(ii) Each of the Constituent Parties, has provided or made available to
the Operating Partnership all formal written communications (whether from a
Government Authority, citizens' group, employee or other person), which such
Constituent Party has received regarding (x) alleged or suspected noncompliance
of any of the Properties with any Environmental Laws or Environmental Permits or
(y) alleged or suspected liability of the Constituent Parties, under any
Environmental Laws, which noncompliance or liability would, individually or in
the aggregate, reasonably be expected to result in a Material Adverse Effect.
(iii) To the knowledge of the Constituent Parties, there are no Liens
or other encumbrances on any of the Properties which arose pursuant to or in
connection with any Environmental Law or Environmental Claim and, to the
knowledge of each of the Constituent Parties, no government actions have been
taken or threatened to be taken or are in process which are reasonably likely to
subject any Property to such Liens or other encumbrances.
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(iv) Except as disclosed in SCHEDULE 6.1A.20(N) none of which matters
would, individually or in the aggregate reasonably be expected to have a
Material Adverse Effect), or set forth in the Environmental Reports, no
Environmental Claims have been asserted or, to the knowledge of each Constituent
Parties, threatened that, individually or in the aggregate, may result in
liabilities exceeding $300,000 with respect to the Properties. Except as set
forth in the Environmental Reports or in SCHEDULE 6.1A.20(N), no circumstances,
past or present actions, conditions, events or incidents exist with respect the
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.
(v) Except as disclosed in SCHEDULE 6.1A.20(N) (none of which matters
would, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect), or set forth in the Environmental Reports, (i) none of
the Constituent Parties 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
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
Constituent Parties has Released or arranged for the Release of any Materials of
Environmental Concern at any location to an extent or in a manner which would
reasonably be expected to result in a Material Adverse Effect, (iv) no
underground storage tanks, surface impoundments, disposal areas, pits, ponds,
lagoons, open trenches or disused industrial equipment is present at any
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 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 knowledge of each of the Constituent Parties, no friable asbestos
and no friable asbestos-containing material is present at any 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.
(vi) SCHEDULE 6.1A.20(N)(VI) contains a list of each environmental
report, audit, summary, or similar document prepared for or by the Contributors
or Constituent Partnerships or otherwise in the possession of any of them with
respect to the environmental condition of any Property (collectively, the
"Environmental Reports"). The Contributors has previously delivered or made
available to FAC and the Operating Partnership true and complete copies of each
Environmental Report. None of the matters disclosed by the Environmental Reports
would, individually or in the aggregate, reasonably be likely to have a Material
Adverse Effect.
(vii) For purposes of this Agreement and all of the Schedules thereto,
the terms listed below shall have the following meanings:
(A) "Claim" shall mean all actions, causes of action, suits, judgments,
executions, claims, liabilities and demands whatsoever, in law or equity.
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(B) "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 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.
(C) "Environmental Laws"shall mean, for purposes of Schedules 6.1A and
6.1C, federal, state, and local laws, ordinances, common law, orders, statutes,
and regulations relating to the pollution or protection of the environment or of
flora or fauna or their habitat or of human health and safety, or to the cleanup
or restoration of the environment, including, without limitation, CERCLA, the
Toxic Substances Control Act, as amended, the Hazardous Materials Transportation
Act, as amended, the Resource Conservation and Recovery Act, as amended, the
Clean Water Act, as amended, the Safe Drinking Water Act, as amended, the Clean
Air Act, as amended, the Occupational Safety and Health Act, as amended, and all
analogous laws promulgated or issued by any state or other Government Authority.
(D) "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.
(E) "Release" shall mean any release, spill, emission, leaking,
pumping, injection, deposit, disposal, discharge, dispersal, leaching or
migration.
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SCHEDULE 6.1B
REPRESENTATIONS AND WARRANTIES OF KONOVER MANAGEMENT SOUTH CORP.
In order to induce FAC and the Operating Partnership to enter into this
Agreement and the transactions contemplated hereby, Konover Management South
represents and warrants to FAC and the Operating Partnership as follows:
(a) Organization; Qualification; Authority.
(i) Konover Management South is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Florida. Konover Management South has all requisite corporate power and
authority to manage, operate and lease the Properties and carry on its business
as now conducted, and to enter into this Agreement and to perform its
obligations hereunder.
(ii) Konover Management South is duly qualified to do business
and is in good standing in each jurisdiction in which the management, operation
of leasing of 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.
(iii) The execution, delivery and performance of this
Agreement, except where expressly otherwise provided, have been duly and validly
authorized by all necessary corporate action on the part of Konover Management
South. This Agreement has been duly executed and delivered by Konover Management
South and constitutes the valid and legally binding obligations of Konover
Management South, enforceable against each in accordance with its terms, subject
to applicable and bankruptcy, insolvency, moratorium or other similar laws
relating to creditors' rights or general principles of equity.
(b) Absence of Conflicts. To the knowledge of Konover Management South,
the execution, delivery and performance of this Agreement by Konover Management
South and the consummation of the transactions contemplated hereby, including
without limitation, the execution and delivery by Konover Management South of
any documents, instruments or agreement contemplated hereby, will not (after a
lapse of time, due notice or otherwise) conflict with, violate or result in any
breach or default under (i) any provision of any of its charter bylaws; (ii) any
law, statute, rule or regulation of any administrative agency or governmental
body, or any judgment, order, writ, stipulation, injunction, award or decree of
any court, arbiter, administrative agency or governmental body to which Konover
Management South is subject; or (iii) except as set forth in SCHEDULE 6.1B(B),
any indenture, agreement, instrument or other contract to which Konover
Management South may be bound or relating to or affecting its assets, except in
the case of clause (ii) or (iii) as would not have Material Adverse Effect.
(c) Consents. To the knowledge of Konover Management South, (i) except
as set forth in SCHEDULE 6.1B(B), no consents, approvals, waivers,
notifications, acknowledgments or permissions are
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required in order for Konover Management South to fully perform its obligations
under this Agreement, including, but not limited to, the assignment the
Management and Leasing Agreements to the Operating Partnership or which, if left
unobtained at the Management Closing and thereafter, would have a Material
Adverse Effect on the value, operation, management, occupation, use or
development of any property subject to the Management and Leasing Agreements,
and (ii) the execution and delivery of this Agreement by Konover Management
South, and the consummation of the transactions contemplated hereby, including
without limitation the execution of any related agreements, will not require the
consent of, or any prior filing with or notice to or payment to, any
governmental authority or other Person.
(d) Disclosure. To the knowledge of Konover Management South, the
representations and warranties made by Konover Management South contained in
this Agreement (including Schedules and Exhibits and documents or instruments
delivered in connection herewith) do not contain any untrue statement or a
material fact or omit to state any material fact necessary the statements and
information contained herein or therein, in light of the circumstances in which
they are made, not misleading.
(e) Claims or Litigation. Except as set forth on SCHEDULE 6.1A.12
attached hereto, Konover Management South has not received notice of any claim,
demand, or suit against Konover Management South or the Properties nor, to
Konover Management South's knowledge, has any proceeding or litigation or any
kind, been filed before any court or administrative, governmental or regulatory
authority, agency or body, domestic or foreign, and, to the knowledge of Konover
Management South, no order, judgment, injunction or decree of any court,
tribunal or other governmental authority has been filed against Konover
Management South or any of the Properties or, to the knowledge of Konover
Management South, threatened, which would have a materially adverse affect on
the business or financial condition of Konover Management South or Konover
Management South's right to manage and operate of any of the properties subject
to the Management and Leasing Agreements.
(f) Konover Management South Agreements. The Management and Leasing
Agreements delivered to FAC and the Operating Partnership are true, accurate and
complete. The Management and Leasing Agreements listed in SCHEDULE 6.1B(B) are
all of the agreements under which Konover Management South manages or leases
real property and are valid and bona fide obligations of Konover Management
South and, to Konover Management South's knowledge, of the property owners
thereunder. To Konover Management South's knowledge, no defaults remain uncured
pursuant to notices of default sent to any property owner and no condition
exists which, solely with the passage of time of the giving of notice or both,
will become a default; Konover Management South has not received any notices of
default under the Management and Leasing Agreements and except as listed in
SCHEDULE 6.1A.8, the Management and Leasing Agreements constitute all of the
management and leasing agreements affecting the Properties and the Purchase
Option Properties on the date hereof. Except as listed in SCHEDULE 6.1B(B),
Konover Management South has not previously assigned the Management and Leasing
Agreements, and Konover Management South's interests in the Management and
Leasing Agreements are free and clear of all liens, charges and encumbrances.
(g) Office Lease. The Office Lease delivered to FAC and the Operating
Partnership is true, accurate and complete. The Office Lease is a valid and bona
fide obligation of Konover Management
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South and, to Konover Management South's knowledge of the landlord thereunder.
To Konover Management South's knowledge, no defaults remain uncured pursuant to
notices of default sent to the landlord and no condition exists which, solely
with the passage of time of the giving of notice or both, will become a default.
Konover Management South has not received any notices of default under the
Office Lease. Konover Management South has not previously assigned the Office
Lease and Konover Management South's interests in the Office Lease are free and
clear of all liens, charges and encumbrances.
(h) Employees. There are no agreements to which Konover Management
South is a party relating to any representation, labor or collective bargaining
agreement. Konover Management South has not received any notice from any labor
union or group of employees that such union or group represents or believes or
claims it represents or intends to represent any of the employees of Konover
Management South nor has it received any notice of any claim of unfair labor
practices relating to Konover Management South.
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SCHEDULE 6.1C
FAC AND OPERATING PARTNERSHIP REPRESENTATIONS
NOTE: All references in this SCHEDULE 6.1C to a "Schedule" or "Schedules" shall
mean the corresponding Schedule to the Lazard Stock Purchase Agreement; and the
Company hereby represents and warrants it has provided to Simon Konover and Fred
Steinmark, on behalf of the Contributors, a true, accurate and complete copy of
the Lazard Stock Purchase Agreement, with all Schedules attached.
Section I Organization and Qualification; Subsidiaries.
1.1 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 and to perform its obligations hereunder.
1.2 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.
1.3 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.
1.4 Schedule 3.1(d) sets forth the name of each Subsidiary of the Company
(whether owned, directly or indirectly, through one or more intermediaries). All
of the outstanding shares of capital stock of, or other equity interest in, each
of the Subsidiaries owned by the Company are duly authorized, validly issued,
fully paid and nonassessable, and are owned, directly or indirectly, by the
Company free and clear of all Liens, except as set forth in Schedule 3.1(d). The
following information for each Subsidiary is set forth in 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 II. Authority Relative to Agreements
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The execution, delivery and performance of this Agreement, except where
expressly otherwise provided, have been duly and validly authorized by all
necessary corporate action on the part of the Company. This Agreement has been
duly executed and delivered by the Company and the Operating Partnership and
constitutes the valid and legally binding obligations of the Company and the
Operating Partnership, enforceable against each in accordance with its terms,
subject to applicable bankruptcy, insolvency, moratorium or other similar laws
relating to creditors' rights or general principles of equity.
Section III. Capital Stock.
3.1 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 _______ shares of Company
Common Stock issued and outstanding; to the Company's knowledge, no shares of
Company Excess Stock issued and outstanding; and no shares of Company Preferred
Stock issued and outstanding. 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),
and other than as provided in the Lazard Transaction, 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), and other than as contained in the Lazard Transaction, 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.
3.2 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 material 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 IV. 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, subject to shareholder approval where expressly so provided, will:
4.1 conflict with or result in a breach of any provisions of the Company
Charter or by-laws of the Company;
4.2 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;
4.3 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;
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4.4 subject to the Company obtaining the third party consents set forth in
Schedule 3.4(d), 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
4.5 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 V. SEC and Other Documents; Financial Statements; Undisclosed
Liabilities.
5.1 The Company has delivered or made available to Simon Konover and Fred
Steinmark, on behalf of the Contributors 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.
5.2 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,
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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.
5.3 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 VI. Litigation; Compliance With Law.
VI.1 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. To the
Company's knowledge, without investigation, except as disclosed in Schedule
3.6(a), there are no material 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 which would reasonably be
expected to result in a Material Adverse Effect.
VI.2 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 VII Deliberately Omitted.
Section VIII Tax Matters; REIT and Partnership Status.
VIII.1 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. To the Company's knowledge, based upon the reports of the Company's
auditors, each such Tax Return is complete and accurate in all material
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. To the Company's
knowledge, based upon the reports of the Company's auditors, 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 made available to
representatives of Contributors prior to the date hereof. No claim has been made
in writing or, to the
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Company's knowledge, otherwise by an authority in a jurisdiction where the
Company or any of its Subsidiaries does not file Tax Returns that it is or may
be subject to taxation by that jurisdiction. Except as set forth in Schedule
3.8(a), there is no dispute or claim concerning any Tax liability of the Company
or any of its Subsidiaries, (i) claimed or raised by any taxing authority in
writing or (ii) as to which the Company or any of its Subsidiaries has
knowledge. To the Company's knowledge, as of the date hereof, (i) the Company is
a domestically controlled REIT within the meaning of Section 897(h)(4)(B) of the
Code. Subject to the Lazard Transaction, 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 in 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.
VIII.2 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, and (iii) has not knowingly 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.
VIII.3 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).
VIII.4 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.
VIII.5 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
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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 IX Compliance with Agreements; Material Agreements.
IX.1 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.
IX.2 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 in Schedule 3.9(b), there is no unresolved violation asserted by any
regulatory agency of which the Company has received written notice 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.
IX.3 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 material 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 3.9(c), 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 material 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, with respect to any obligations
thereunder.
IX.4 Each material 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, and no material notice of default thereunder has been
received by the Company or any of its Subsidiaries. To the Company's
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knowledge, the other parties to such agreements are not in material 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.
IX.5 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).
Section X Financial Records; Company Charter and By-laws; Corporate
Records.
X.1 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.
X.2 The Company has previously delivered or made available to Simon Konover
and Fred Steinmark, on behalf of the Contributors, 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).
X.3 The minute books and other records of corporate or partnership
proceedings of the Company and each of its Subsidiaries contain in all material
respects accurate records of all meetings and accurately reflect in all material
respects all other corporate actions of the stockholders and directors and any
committees of the Board and the board of directors of its Subsidiaries which are
corporations and all material actions of the partners of its Subsidiaries which
are partnerships, except for documentation of discussions relating to or in
connection with the transactions contemplated hereby or matters related hereto.
Section XI Properties.
XI.1 Schedule 3.11(a) sets forth a complete and accurate list and the
address of all material 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 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
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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 the Title
Policies are valid and in full force and effect and no claim has been made under
any such policy.
XI.2 Except as set forth in Schedule 3.11(b), and except for matters which
would not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect or to materially and adversely affect the use or
occupancy of the applicable Company Property, to the Company's knowledge, there
are no (i) certificates, permits or licenses that are currently required
(including building permits and certificates of occupancy for tenant spaces)
from any Government Authority having jurisdiction over any Company Property or
agreements, easements or other rights which are necessary to permit the lawful
use, occupancy or operation of the existing buildings, structures or other
improvements which constitute a part of any of the Company Properties or to
permit the lawful use and operation of utility service to any Company Property
or of any existing driveways, roads or other means of egress and ingress to and
from any of the Company Properties that have not been obtained or that are not
in full force and effect, or any pending modification or cancellation of any of
same, or (ii) violations by any 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 the Company 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.
XI.3 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 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 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.
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XI.4 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. 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, all parcels of land included in each
Company Property that purport to be contiguous are contiguous and are not
separated by strips or gores. Except as set forth in Schedule 3.11(d) or any
structural or engineering 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. 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 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.
XI.5 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 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.
XI.6 The Company has made available to Simon Konover and Fred Steinmark, on
behalf of Contributors, an accurate rent roll for each Company Property as of
_________, 1998 (the "Rent Roll"), which accurately describes each lease of
space in each Company Property (collectively, the "Company Leases"). The Company
has made available to Simon Konover and Fred Steinmark, on behalf of
Contributors, profiles of the Company Leases (the "Lease Profiles"), which have
been prepared in the ordinary course of business. The Company will make
available to Simon Konover and Fred Steinmark, 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 in the Rent Roll,
the tenant under each of the Material Company Leases is in actual possession of
the
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premises leased thereunder, (iii) except as otherwise set forth in the Rent
Roll, no tenant under any Material Company Lease is more than 30 days in arrears
in the payment of rent, (iv) neither the Company nor any of its Subsidiaries has
received any written notice from any tenant under any Material Company Lease of
its intention to vacate, (v) neither the Company nor any of its Subsidiaries has
collected payment of rent under any Material Company Lease (other than security
deposits) accruing for a period which is more than one month in advance, (vi) no
notice of default has been sent or received by the landlord under any Material
Company Lease which remains uncured as of the date hereof, no default has
occurred under any Material Company Lease by the landlord thereunder and, to the
Company's knowledge, no default has occurred under any Material Company Lease by
the tenants 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 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 prudent 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 which such Material Company
Lease is a part of, or in the alternative, consistent with commercially
reasonable 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).
XI.7 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,
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which, individually or in the aggregate, are material, or to otherwise enter
into a material transaction in respect of the ownership or financing of any
Company Property, or (z) to purchase or to acquire an option, right of first
refusal or similar right in respect of any real property, which, individually or
in the aggregate, are material, which, in any such case, has not yet been
reduced to a written lease or contract, 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.
XI.8 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 material 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 material 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 material Company Project or any material 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.
XI.9 Schedule 3.11(i) sets forth the Company's or any of its Subsidiary's
capital expenditure budget and schedule for each Company Property, which
describes the capital expenditures which the Company or such Subsidiary has
budgeted for such Company Property for the period running through December 31,
1997 (the "Capital Expenditure Budget and Schedule"), and the Company's or any
of its Subsidiary's preliminary capital expenditure budget and schedule for each
Company Property, which describes the capital expenditures which the Company or
such Subsidiary has budgeted for such Company Property for the period commencing
January 1, 1998 and running through December 31, 1999 (the "1998 and 1999)
Preliminary Capital Expenditure Budgets and Schedules"). Each of the Capital
Expenditure Budget and the 1998, and 1999 Preliminary Capital Expenditure
Budgets and Schedules also describes other capital expenditures as are
necessary, to the Company's knowledge, in order to bring the applicable Company
Property into material compliance with applicable laws, ordinances, codes,
health and safety regulations and insurance requirements (including in respect
of fire sprinklers, compliance with the ADA (except to the extent that (x) a
tenant under any Company Lease is contractually responsible and liable for such
ADA compliance under its Company Lease or (y) with respect to shopping center
properties, any work required to cause such compliance is not material and the
related expenditures are, in the aggregate with all other such expenditures,
less than $300,000), and asbestos containing material) or which the Company
otherwise plans or expects to make in order to cure or remedy any construction,
electrical, mechanical or other defects, to renovate, rehabilitate or modernize
such Company Property, or otherwise, excluding, however, any tenant improvements
required to be made under any Company Lease. To the Company's knowledge, the
costs and time schedules for 1998 and 1999 set forth in the 1998 and 1999
Preliminary Capital Expenditure Budgets and Schedules are reasonable estimates
and projections based upon information available to the Company at the time that
the 1998 and 1999 Preliminary Capital Expenditure Budgets and Schedules were
prepared, and, nothing has come to the attention of the Company since such time
which would indicate that the 1998 and 1999 Preliminary Capital Expenditure
Budgets and Schedules are inaccurate or misleading in any material respect.
Except as set forth in Schedule 3.11(i), there are no outstanding or, to the
Company's knowledge, threatened requirements by any insurance
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company which has issued an insurance policy covering any Company Property, or
by any board of fire underwriters or other body exercising similar functions,
requiring any repairs or alterations to be made to any Company Property that
would, individually or in the aggregate, reasonably be expected to result in a
Material Adverse Effect.
XI.10 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 set forth 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. 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.
XI.11 The ground leases underlying the leased Company Properties referenced
in Schedule 3.11(a) (collectively, the "Ground Leases") are accurately described
in Schedule 3.11(k). Each of the Ground Leases is valid, binding and in full
force and effect as against the Subsidiary and, to the Company's knowledge, as
against the other party thereto. Except as indicated in Schedule 3.11(k) and
except for the Company Leases and Permitted Liens effecting 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 made
available to Simon Konover and Fred Steinmark, on behalf of Contributors, 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
91
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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.
XI.12 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.
XI.13 The Company has made available to Simon Konover and Fred Steinmark,
on behalf of Contributors, 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.
Section XII Environmental Matters.
XII.1 To the Company's knowledge, each of the Company and its Subsidiaries
has obtained, and now maintains as currently valid and effective, all
Environmental Permits, in connection with the operation of its business and
properties. Except as disclosed in the Company Environmental Reports or the
Company Reports, each of the Company and its Subsidiaries and each Company
Property is and has been in compliance with all terms and conditions of the
Environmental Permits and all Environmental Laws, except only to an extent which
would not, individually or in the aggregate, reasonably be expected to result in
a Material Adverse Effect. The Company has no knowledge of any circumstances or
conditions that may prevent or interfere with such compliance in the future.
XII.2 Each of the Company and its Subsidiaries has made available to Simon
Konover and Fred Steinmark, on behalf of the Contributors, 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.
XII.3 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.
XII.4 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,
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<PAGE>
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.
XII.5 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 an Environmental
Claims which, individually or in the aggregate, would reasonably be expected to
result in a Material Adverse Effect, (iii) none of the Company or its
Subsidiaries has Released or arranged for the Release of any Materials of
Environmental Concern at any location to an extent or in a manner which would
reasonably be expected to result in a Material Adverse Effect, (iv) no
underground storage tanks, surface impoundments, disposal areas, pits, ponds,
lagoons, open trenches or disused industrial equipment is present at any Company
Property in a manner or condition that is reasonably likely to give rise to one
or more Environmental Claims, individually or in the aggregate, which 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.
XII.6 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.
Section XIII Deliberately Omitted.
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Section XIV Deliberately Omitted.
Section XV 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 XVI Breach of Representations and Warranties. For purposes of any
representations and warranties in this Schedule, no breach of this Agreement
shall be deemed to have occurred unless such breach results in a Material
Adverse Effect.
Section XVII 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, and Patrick M. Miniutti 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.
Section XVIII 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
Simon Konover and Fred Steinmark, on behalf of the Contributors, 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.
94
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SCHEDULE 10.1
RESTRICTED PROPERTIES
Property Name Restricted Period (from the date of
Closing of the applicable Property) hereunder
Mobile Festival Centre 5 years
The Plaza 5 years
Square One Center 5 years
Lenoir Festival 5 years
Hollywood Festival 5 years
Tampa Festival 5 years
Oakland Park Festival 5 years
Durham Festival 5 years
South Cobb Festival 5 years
Food Lion Plaza 5 years
Lake Point 5 years
95
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
FAR REALTY'S Quarterly report for the period ended March 31, 1998.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 14,795,000
<SECURITIES> 0
<RECEIVABLES> 7,524,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 51,347,000
<PP&E> 468,024,000
<DEPRECIATION> (53,871,000)
<TOTAL-ASSETS> 465,500,000
<CURRENT-LIABILITIES> 9,760,000
<BONDS> 264,379,000
0
19,162,000
<COMMON> 119,000
<OTHER-SE> 171,080,000
<TOTAL-LIABILITY-AND-EQUITY> 465,500,000
<SALES> 12,702,000
<TOTAL-REVENUES> 13,929,000
<CGS> 4,149,000
<TOTAL-COSTS> 8,122,000
<OTHER-EXPENSES> 1,527,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,381,000
<INCOME-PRETAX> (101,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (101,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (101,000)
<EPS-PRIMARY> (0.01)
<EPS-DILUTED> (0.01)
</TABLE>
