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 June 30, 1998
OR
[ ] Transition Report Pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934
For the transition period from _______ to ________.
Commission File Number 1-11998
KONOVER PROPERTY TRUST, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MARYLAND 56-1819372
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
11000 Regency Parkway
Suite 300
Cary, North Carolina
(ADDRESS OF PRINCIPAL 27511
EXECUTIVE OFFICES) (ZIP CODE)
(919) 462-8787
(Registrant's telephone number, including area code)
FAC Realty Trust, Inc.
(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: August 14,
1998 Number of shares outstanding: 17,196,723
<PAGE>
KONOVER PROPERTY TRUST, INC.
INDEX
PART I. FINANCIAL INFORMATION
PAGE NO.
--------
ITEM 1. Financial Statements (Unaudited)............................ 3
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations......................... 14
PART II. OTHER INFORMATION
ITEM 1. Legal Proceeding............................................ 25
ITEM 2. Changes in Securities....................................... 25
ITEM 3. Defaults Upon Senior Securities............................. 25
ITEM 4. Submission of Matters to a Vote of Security Holders......... 25
ITEM 5. Other Information........................................... 25
ITEM 6. Exhibits and Reports on Form 8-K............................ 25
2
<PAGE>
PART I
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
INDEX TO UNAUDITED FINANCIAL STATEMENTS
PAGE NO.
--------
Consolidated Balance Sheets as of June 30, 1998 and December 31, 1997... 4
Consolidated Statements of Operations for the three months ended June 30,
1998 and 1997......................................................... 5
Consolidated Statements of Operations for the six months ended June 30,
1998 and 1997......................................................... 6
Consolidated Statements of Stockholders' Equity for the six months ended
June 30, 1998......................................................... 7
Consolidated Statements of Cash Flows for the six months ended June 30,
1998 and 1997........................................................ 8
Notes to Consolidated Financial Statements.............................. 9
3
<PAGE>
KONOVER PROPERTY TRUST, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, 1998 1997
(UNAUDITED) (AUDITED)
------------------------------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
INCOME PRODUCING PROPERTIES:
Land $ 108,075 $ 81,233
Buildings and improvements 417,836 292,726
Deferred leasing and other charges 24,654 21,366
------------------------------
550,565 395,325
Accumulated depreciation and amortization (58,778) (50,134)
------------------------------
491,787 345,191
Properties under development 8,766 6,456
Properties held for sale 6,073 12,490
------------------------------
506,626 364,137
OTHER ASSETS:
Cash and cash equivalents 7,902 4,872
Restricted cash 2,883 3,858
Tenant and other receivables 8,390 7,167
Deferred charges and other assets 11,550 8,851
Investment in joint ventures 13,747 4,283
Notes receivable 17,431 10,458
------------------------------
$ 568,529 $ 403,626
==============================
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Debt on income properties $ 343,072 $ 232,575
Other unsecured notes 120 197
Capital lease obligations 950 1,131
Accounts payable and other liabilities 31,742 6,796
------------------------------
375,884 240,699
COMMITMENTS AND CONTINGENCIES
- -
MINORITY INTEREST IN OPERATING PARTNERSHIP 9,304 -
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, 14,283,566 and 11,904,182 issued
and outstanding, respectively 142 119
Additional paid-in capital 166,661 145,332
Accumulated deficit (2,295) (1,416)
Deferred compensation - Restricted Stock Plan (338) (279)
------------------------------
183,341 162,927
------------------------------
$ 568,529 $ 403,626
==============================
</TABLE>
SEE ACCOMPANYING NOTES.
4
<PAGE>
KONOVER PROPERTY TRUST, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30,
1998 1997
-------------------------------
(IN THOUSANDS, EXCEPT PER
RENTAL OPERATIONS: SHARE DATA)
<S> <C> <C>
Revenues:
Base rents $ 13,611 $ 9,814
Percentage rents 151 126
Property operating cost recoveries 4,138 3,179
Other income 504 356
-------------------------------
18,404 13,475
-------------------------------
Property operating costs:
Common area maintenance 2,044 1,609
Utilities 366 218
Real estate taxes 1,882 1,411
Insurance 243 85
Marketing 156 323
Other 582 108
-------------------------------
5,273 3,754
Depreciation and amortization 5,585 3,637
-------------------------------
10,858 7,391
-------------------------------
7,546 6,084
-------------------------------
OTHER EXPENSES:
General and administrative 1,870 1,740
Interest 6,101 4,225
Loss on sale of real estate 353 -
-------------------------------
8,324 5,965
-------------------------------
(LOSS) INCOME BEFORE EXTRAORDINARY ITEM (778) 119
Extraordinary loss on early extinguishment of
debt - -
--------------------------------
NET (LOSS) INCOME $ (778) $ 119
===============================
BASIC (LOSS) INCOME PER COMMON SHARE:
(Loss) income before extraordinary item $ (0.05) $ 0.01
Extraordinary item - -
-------------------------------
NET (LOSS) INCOME APPLICABLE TO COMMON STOCKHOLDERS $ (0.05) $ 0.01
===============================
WEIGHTED-AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 14,186 11,837
===============================
DILUTED INCOME PER COMMON SHARE:
Income before extraordinary item - $ 0.01
Extraordinary item - -
-------------------------------
NET INCOME APPLICABLE TO COMMON SHAREHOLDERS - $ 0.01
===============================
WEIGHTED-AVERAGE NUMBER OF SHARES OUTSTANDING - 14,082
===============================
</TABLE>
SEE ACCOMPANYING NOTES.
5
<PAGE>
KONOVER PROPERTY TRUST, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
1998 1997
-------------------------------
(IN THOUSANDS, EXCEPT PER
RENTAL OPERATIONS: SHARE DATA)
<S> <C> <C>
Revenues:
Base rents $ 22,789 $ 18,537
Percentage rents 302 253
Property operating cost recoveries 7,511 6,120
Other income 1,731 487
-------------------------------
32,333 25,397
-------------------------------
Property operating costs:
Common area maintenance 3,653 2,889
Utilities 671 522
Real estate taxes 3,273 2,731
Insurance 405 276
Marketing 315 553
Other 1,105 256
-------------------------------
9,422 7,227
Depreciation and amortization 9,558 7,700
-------------------------------
18,980 14,927
-------------------------------
13,353 10,470
-------------------------------
OTHER EXPENSES:
General and administrative 3,397 4,028
Interest 10,482 7,759
Loss on sale of real estate 353
-------------------------------
14,232 11,787
-------------------------------
LOSS BEFORE EXTRAORDINARY ITEM (879) (1,317)
Extraordinary loss on early extinguishment of
debt - (986)
-------------------------------
NET LOSS $ (879) $ (2,303)
-------------------------------
BASIC AND DILUTED LOSS PER COMMON SHARE:
Loss before extraordinary item $ (0.07) $ (0.11)
Extraordinary item - (0.08)
-------------------------------
NET LOSS APPLICABLE TO COMMON STOCKHOLDERS $ (0.07) $ (0.19)
===============================
WEIGHTED-AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 13,076 11,834
===============================
</TABLE>
SEE ACCOMPANYING NOTES.
6
<PAGE>
KONOVER PROPERTY TRUST, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
SIX MONTHS ENDED JUNE 30, 1998
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
DEFERRED
CONVERTIBLE STOCK ADDITIONAL COMPENSATION
PREFERRED PURCHASE COMMON PAID IN ACCUMULATED RESTRICTED
STOCK WARRANTS STOCK CAPITAL DEFICIT STOCK PLAN TOTAL
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1998 $ 19,162 $ 9 $ 119 $ 145,332 $ (1,416) $ (279) $162,927
Issuance of 6,530 employee
stock purchase plan shares - - - 34 - - 34
Issuance of 32,560
restricted shares - - - 261 - (261) 0
Issuance of 2,350,000 shares
of common stock @ $9.50 per
share, net of expenses - - 23 20,153 - - 20,176
Exercise of 7,000 stock
options - - - 39 - - 39
Cancellation of 12,922
restricted shares - - - (106) - 106 0
Repurchase of 3,784
restricted shares - - - (30) - - (30)
Compensation under stock
plans - - - 568 - 96 664
Reclass of prior years
compensation under stock
plans - - - 410 - - 410
Net loss - - - - (879) - (879)
------------------------------------------------------------------------------------
BALANCE AT JUNE 30, 1998 $ 19,162 $ 9 $ 142 $ 166,661 $ (2,295) $ (338) $ 183,341
====================================================================================
</TABLE>
SEE ACCOMPANYING NOTES.
7
<PAGE>
KONOVER PROPERTY TRUST, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
SIX MONTHS ENDED
JUNE 30
1998 1997
---------------------
(IN THOUSANDS)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (879) $ (2,303)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 9,558 7,700
Loss on sale of real estate 353 -
Extraordinary loss on early extinguishment of debt - 986
Amortization of deferred financing costs 173 785
Compensation under stock plans 664 519
Net changes in:
Tenant and other receivables (1,223) 2,109
Deferred charges and other assets (1,882) (247)
Accounts payable and other liabilities 3,464 (2,487)
---------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 10,228 7,062
---------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in income-producing properties (7,098) (7,724)
Proceeds from sale of real estate 5,717 -
Acquisition of income-producing properties, net (5,528) (32,421)
Note receivable (6,973) -
Investment in joint venture (9,464) -
Change in restricted cash 975 (25)
---------------------
NET CASH USED IN INVESTING ACTIVITIES (22,371) (40,170)
---------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt on income properties 82,721 118,555
Repayment of debt on income properties (86,288) (85,538)
Deferred financing charges (1,221) (1,861)
Other debt repayments (258) -
Net proceeds from sale of common stock 20,210 15
Repurchase of restricted stock (30) -
Exercise of stock options 39 -
Purchase of common stock - (343)
---------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 15,173 30,828
---------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 3,030 (2,280)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 4,872 7,034
---------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 7,902 $ 4,754
=====================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for interest
(net of interest capitalized of $546 and $880) $ 9,427 $ 6,951
=====================
SEE ACCOMPANYING NOTES.
8
<PAGE>
KONOVER PROPERTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
1. INTERIM FINANCIAL STATEMENTS
ORGANIZATION
Konover Property Trust, Inc. (the "Company"), formerly FAC Realty Trust,
Inc., was incorporated on March 31, 1993 as a self-administrated and
self-managed real estate investment trust (REIT). The Company is principally
engaged in the acquisition, development, ownership, and operation of community
and outlet shopping centers. The Company's revenues are primarily derived under
real estate leases with national, regional and local retailing companies.
On December 17, 1997, following shareholder approval, the Company changed its
domicile from the State of Delaware to the State of Maryland. The
reincorporation was accomplished through the merger of FAC Realty, Inc. into its
Maryland subsidiary, Konover Property Trust, Inc. (formerly FAC Realty Trust,
Inc.) Following the reincorporation on December 18, 1997, the Company
reorganized as an umbrella partnership real estate investment trust (an
"UPREIT"). The Company then contributed to KPT Properties, L.P. (formerly FAC
Properties, L.P.), a Delaware limited partnership (the "Operating Partnership")
substantially all of its assets and liabilities, except for legal title to 18
properties which remain in a wholly owned subsidiary of the Company. In exchange
for the Company's assets, the Company received limited partnership interests
("Units") in the Operating Partnership in an amount and designation that
corresponded to the number and designation of outstanding shares of capital
stock of the Company at the time. The Company is the sole general partner of the
Operating Partnership. As additional limited partners are admitted to the
Operating Partnership in exchange for the contribution of properties, the
Company's percentage ownership in the Operating Partnership will decline. As the
Company issues additional shares of capital stock, it will contribute the
proceeds for that capital stock to the Operating Partnership in exchange for a
number of Units equal to the number of shares that the Company issues. The
Company conducts substantially all of its business and owns substantially all of
its assets (either directly or through subsidiaries) through the Operating
Partnership such that a Unit is economically equivalent to a share of the
Company's common stock.
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 June 30, 1998, the properties owned by the Company consist of: (1) 47
community shopping centers in 16 states aggregating approximately 5,800,000
square feet; (2) 10 outlet centers in nine states aggregating approximately
2,117,000 square feet; (3) two outlet centers aggregating approximately 167,000
square feet that are held for sale and (4) approximately 178 acres of outparcel
land located near or adjacent to certain of the Company's centers and which are
being marketed for lease or sale.
As the owner of real estate, the Company is subject to risks arising in
connection with the underlying real estate, including defaults under or
non-renewal of tenant leases, competition, inability to rent unleased space,
failure to generate sufficient income to meet operating expenses, as well as
debt service, capital expenditures and tenant improvements, environmental
matters, financing availability and changes in real estate and zoning laws. The
success of the Company also depends upon certain key personnel, the Company's
ability to maintain its qualification as a REIT, compliance with the terms and
conditions of the debt on its income properties and other debt instruments, and
trends in the national and local economy, including income tax laws,
governmental regulations and legislation and population trends.
BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of
the Company, the Operating
9
<PAGE>
KONOVER PROPERTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
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 six-month period ended June 30, 1998
are not necessarily indicative of results that may be expected for a full fiscal
year. For further information, refer to the audited financial statements and
accompanying footnotes thereto included in the Company's annual report on Form
10-K for the year ended December 31, 1997.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
2. SIGNIFICANT ACCOUNTING POLICIES
BASIC AND DILUTED EARNINGS PER SHARE
The Company has adopted the provisions of SFAS No. 128, "Earnings Per Share".
Under SFAS No. 128, basic earnings per share ("EPS") and diluted EPS replace
primary EPS and fully diluted EPS. Basic EPS is calculated by dividing the
income available to common stockholders by the weighted-average number of common
shares outstanding. Diluted EPS reflects the potential dilution that could occur
if options or warrants to purchase common shares were exercised and preferred
stock was converted into common shares ("potential common shares"). All prior
periods presented have been restated. For the three month periods ended June 30,
1998 and 1997, basic and diluted EPS are computed based on a weighted-average
number of shares outstanding of 14,186,000 and 11,837,000, respectively. For the
six months period ended June 30, 1998 and 1997, the weighted-average number of
shares outstanding were 13,076,000 and 11,834,000, respectively. Potential
common shares have been excluded from diluted EPS for the six months ended June
30, 1998 and 1997 and for the three months ended June 1998 because the effect
would be antidilutive. For the three months ended June 30, 1997 the denominator
for diluted earnings per share is calculated as follows:
Denominator for weighted-average shares 11,837
Effect of dilutive securities
Preferred Stock 2,222
Employee Stock Options 23
------
Dilutive potential shares 2,245
------
Denominator-Adjusted-Weighted average shares and assumed conversions 14,082
======
DIVIDENDS
There were no accrued dividends as of December 31, 1997 and no dividends were
declared during the six month period ended June 30, 1998.
3. ACQUISITIONS AND SIGNIFICANT TRANSACTIONS
LAZARD FRERES TRANSACTION
On August 5, 1998, stockholders approved a Stock Purchase Agreement between
Prometheus Southeast Retail, LLC (including its assignee, "PSR"), a real estate
investment affiliate of Lazard Freres Real Estate Investors, LLC, and the
Company pursuant to which PSR will make a $200 million purchase of shares of
Common Stock of the Company at a purchase price of $9.50 per share (the
"Transaction"). The investment will 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, as approved by the stockholders, three
representatives of Lazard were nominated to the Company's Board of Directors,
which currently has a total of nine directors.
10
<PAGE>
KONOVER PROPERTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
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. On August 11, 1998, the Company
issued an additional 2,913,157 shares of its common stock for a total
consideration of $27.7 million. PSR must purchase an additional $50 million in
shares of common stock at $9.50 per share by September 30, 1998 or sooner if
requested by the Company. The Company expects such purchase to occur in August
1998.
Pursuant to the Contingent Value Right Agreement, if PSR has not doubled its
investment (through stock appreciation, dividends, or both) by January 1, 2004,
the Company will pay PSR, in cash or stock, an amount necessary to achieve such
a return, subject to a maximum payment of 4,500,000 shares or the cash value
thereof.
Pursuant to the agreement, the Company will reimburse PSR for its expenses in
connection with the Transaction, including expenses of monitoring the Company
and of performing its duties under the Transaction Documents. These expenses and
Transaction expenses incurred by the Company have totaled approximately $2.2
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.
Each of the Company's and PSR's obligations to effect the final $100 million
of Common Stock purchases (the "Subsequent Closings") are subject to various
mutual and unilateral conditions, including, without limitation the continued
qualification of the Company as a REIT for federal income tax purposes; and the
continuing correctness of the representations and warranties in the Stock
Purchase Agreement.
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. On April 1, 1998, the Company acquired 10 of the Konover & Associates
South community shopping centers for a total purchase price of $89.3 million
consisting of $67.4 million in debt assumption and $21.9 million in equity
payable in a combination of cash and limited partnership Units which will be
determined by the seller by September 30, 1998. This transaction was accounted
for under the purchase method of accounting. The remaining community center out
of the original eleven will not be acquired by the Company.
The Company issued $0.4 million in warrants to the seller in connection with
the above transaction. Of these warrants $0.1 million are valued at $9.50
vesting over five years, $0.1 million at $12.50 vesting over five years, and
$0.2 million at $9.50 which are fully vested.
On August 10, 1998, following stockholder approval, the Company began
operating under the name "Konover Property Trust. " The Company remains listed
on the New York Stock Exchange and changed its ticker symbol from FAC to KPT.
The Company will continue to operate the Konover & Associates South office in
Boca Raton, Florida due to its strategic location in the Southeast.
Simon Konover, founder of both Konover & Associates South and Konover &
Associates, Inc., a $500 million plus real estate company headquartered in West
Hartford, Connecticut, was elected Chairman of the Board of the Company.
11
<PAGE>
KONOVER PROPERTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
RODWELL/KANE TRANSACTION
On March 30, March 31, and May 14, 1998, the Company concluded the
acquisition of eight community shopping centers located in North Carolina and
Virginia from Roy O. Rodwell, Chairman and co-founder of Atlantic Real Estate
Corporation ("ARC"), Mr. John N. Kane, Chairman of Kane Realty Corporation, and
their affiliates. The acquired centers encompass approximately 950,000 square
feet and are, in the aggregate, 96% leased.
The aggregate purchase price for the acquired shopping centers was $57.1
million, consisting of the assumption of $44.3 million of fixed-rate
indebtedness, the payment of $3.5 million in cash and the issuance of 974,347
limited partnership Units of the Operating Partnership. Of the purchase price,
292,447 Units and $0.8million in cash will be issued or paid on a delayed or
contingent basis. The contingencies include the attainment of certain property
performance thresholds and the sale, lease or development of certain outparcels.
The purchase price for the acquisition was determined as a result of arms-length
negotiation between the Company and the sellers, with the Units being valued at
$9.50 per share.
The ninth and final center covered by the Rodwell/Kane acquisition agreement
will be managed by the Company and is expected to be acquired in the year 2000.
Its acquisition prior to the year 2000 would trigger an onerous loan assumption
fee.
JOINT VENTURES
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 own Atlantic
equally, with the Company serving as managing member overseeing its operations.
As of June 30, 1998, the Company has invested $2.8 million in this joint
venture. The investment in Atlantic is being accounted for under the equity
method of accounting. As of June 30, 1998, Atlantic had total assets of
approximately $9.1 million and debt of $6.3 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 in the Fall of 1998, with
completion targeted for Spring/Summer 1999. As of June 30, 1998, the Company has
invested $5.1 million in this joint venture. This 50% investment in the joint
venture is accounted for under the equity method of accounting. The joint
venture had approximately $8.6 million of assets and $3.5 of debt at June 30,
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 50% interest in the venture, which is accounted for under the equity
method of accounting. As of June, 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
12
<PAGE>
KONOVER PROPERTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Danville, Virginia. This Food Lion-anchored center was purchased for $3.1
million in cash, net of $2.3 million in debt assumed.
On April 30, 1998, the Company sold one of its three properties held of sale
known as Lathrop, California for $5.7 million. The sale resulted in a loss of
$0.4 million.
On May 22, 1998, the Company issued a promissory note to evidence a loan made
in the amount of $2.5 to VFP, LLC. The note is secured by a 53.78 acre tract of
land located near Myrtle Beach, South Carolina. The note accrues interest at 10%
and matures November, 1999.
4. PRO FORMA INFORMATION
RODWELL/KANE AND KONOVER PROPERTIES
Pro forma results of operations for the six months ended June 30, 1998 and
1997 are set forth below and assume the Rodwell/Kane and Konover acquisitions
discussed above had been completed as of the beginning of the period. The pro
forma condensed statements of operations are not necessarily indicative of what
actual results of operations of the Company would have been assuming such
transactions had been completed as of the beginning of the period, nor do they
purport to represent results of operations of future periods (in thousands
except for per share data).
ACTUAL ADJUSTMENT PRO FORMA
JUNE 30, ------------------ JUNE 30,
1998 RODWELL/KANE KONOVER 1998
Revenues $32,333 $1,580 $3,272 $37,185
Property operating costs 9,422 302 848 10,572
Depreciation and amortization 9,558 305 520 10,383
General and administrative 3,397 10 179 3,586
Interest 10,482 666 1,575 12,723
Loss on sale of real estate 353 - - 353
----------------------------------------------
(Loss) income before
extraordinary item $ (879) $ 297 $ 150 $(432)
==============================================
(LOSS) INCOME BEFORE
EXTRAORDINARY ITEM PER
COMMON SHARE $(0.07) $ 0.02 $ 0.01 $(0.03)
==============================================
ACTUAL ADJUSTMENT PRO FORMA
JUNE 30, ------------------------- JUNE 30,
1997 RODWELL/KANE KONOVER 1997
Revenues $25,397 $3,496 $6,080 $34,973
Property operating costs 7,227 517 1,351 9,095
Depreciation and amortization 7,700 610 1,335 9,645
General and administrative 4,028 173 208 4,409
Interest 7,759 1,929 2,767 12,455
------------------------------------------------
(Loss) income before
extraordinary item $(1,317) $ 267 $ 419 $(631)
================================================
(LOSS) INCOME BEFORE
EXTRAORDINARY ITEM PER
COMMON SHARE $(0.11) $ 0.02 $ 0.04 $(0.05)
================================================
5. DEBT ON INCOME PROPERTIES
13
<PAGE>
KONOVER PROPERTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
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.
14
<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.
GENERAL OVERVIEW
Konover Property Trust, Inc., formerly FAC Realty Trust, Inc., (the
"Company"), is a self-administered and self-managed real estate investment trust
("REIT"). The Company is vertically integrated providing acquisition,
development, construction, leasing, marketing and asset management services for
community and outlet center properties.
As of June 30, 1998, the properties owned by the Company consist of: (1) 47
community shopping centers in 16 states aggregating approximately 5,800,000
square feet; (2) 10 outlet centers in nine states aggregating approximately
2,117,000 square feet; (3) two outlet centers aggregating approximately 167,000
square feet that are held for sale and (4) approximately 178 acres of outparcel
land located near or adjacent to certain of the Company's centers and which are
being marketed for lease or sale. Weighted-average square feet of GLA for the
six months ended June 30, 1998 and 1997 were 6.8 million and 5.2 million,
respectively. Weighted-average square feet of GLA for the three months ended
June 30, 1998 and 1997 were 8.1 million and 5.5 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).
15
<PAGE>
KONOVER PROPERTY TRUST, INC.
<TABLE>
<CAPTION>
SIX MONTHS ENDED THREE MONTHS ENDED
JUNE 30 JUNE 30
1998 1997 1998 1997
(Unaudited) (Unaudited)(Unaudited) (Unaudited)
------------------------------------------------
<S> <C> <C> <C> <C>
OPERATING DATA:
Rental revenues $32,333 $25,397 $18,404 $13,475
Property operating costs 9,422 7,227 5,273 3,754
------------------------------------------------
22,911 18,170 13,131 9,721
Depreciation and amortization 9,558 7,700 5,585 3,637
General and administrative 3,397 4,028 1,870 1,740
Interest 10,482 7,759 6,101 4,225
Loss on sale of real estate 353 - 353 -
Extraordinary loss on early
extinguishment of debt - 986 - -
------------------------------------------------
Net (loss) income $ (879) $(2,303) $ (778) $ 119
================================================
Per common share data:
(Loss) income before
extraordinary item $(0.07) $(0.11) $(0.05) $ 0.01
Extraordinary item - (0.08) - -
------------------------------------------------
Net (loss) income $(0.07) $(0.19) $(0.05) $ 0.01
================================================
Weighted-average common share
outstanding 13,076 11,834 14,186 11,837
================================================
OTHER DATA:
EBITDA
Net loss (income) $ (879) $(2,303) $ (778) $ 119
Adjustments:
Interest 10,482 7,759 6,101 4,225
Depreciation and amortization 9,558 7,700 5,585 3,637
Compensation under stock awards 664 519 367 467
Loss on sale of real estate 353 - 353 -
Non-recurring administrative
costs - 100 - -
Merger termination costs - 1,250 - -
Extraordinary loss on early
extinguishment
of debt - 986 - -
------------------------------------------------
$20,178 $16,011 $11,628 $ 8,448
================================================
Weighted-average shares outstanding
- - diluted 15,983 14,056 17,472 14,059
================================================
FUNDS FROM OPERATIONS:
Net (loss) income $ (879) $(2,303) $ (778) $ 119
Adjustments:
Straight line rent 448 (233) (12) (119)
Depreciation and amortization 9,260 7,539 5,427 3,540
Compensation under stock awards 664 519 367 467
Loss on sale of real estate 353 - 353 -
Unusual items:
Non recurring
administrative costs - 100 - -
Merger termination costs - 1,250 - -
Extraordinary loss on
early extinguishment of debt - 986 - -
------------------------------------------------
$ 9,846 $ 7,858 $ 5,357 $ 4,007
================================================
Weighted-average shares outstanding
- diluted 15,983 14,056 17,472 14,059
================================================
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
KONOVER PROPERTY TRUST, INC.
SIX MONTHS ENDED THREE MONTHS ENDED
JUNE 30, JUNE 30,
1998 1997 1998 1997
----------------------------------------------
<S> <C> <C> <C> <C>
FUNDS AVAILABLE FOR DISTRIBUTION /
REINVESTMENT:
Funds from Operations $ 9,846 $ 7,858 $ 5,357 $ 4,007
Adjustments:
Non-recurring administrative costs - (100) - -
Merger termination costs - (1,250) - -
Capitalized tenant allowances (1,653) (853) (1,405) (610)
Capitalized leasing costs (1,092) (603) (580) (400)
Recurring capital expenditures (217) (365) (154) (153)
---------------------------------------------
$ 6,884 $ 4,687 $ 3,218 $ 2,844
==============================================
CASH FLOWS:
Cash flows from operating activities $ 10,228 $ 7,062 $ 3,163 $ 2,988
Cash flows from investing activities (22,371) (40,170) (14,861) (4,435)
Cash flows from financial activities 15,173 30,828 7,676 717
----------------------------------------------
Net increase (decrease) in cash and
cash equivalents $ 3,030 $(2,280) $(4,022) $ (730)
==============================================
</TABLE>
KONOVER PROPERTY
TRUST, INC.
JUNE 30
1998 1997
-----------------------
BALANCE SHEET DATA:
Income-producing properties (before
accumulated depreciation and
amortization) $550,565 $407,691
Total assets 568,529 387,041
Debt on income properties 343,072 215,947
Total liabilities 375,884 224,561
Total minority interest 9,304 -
Total stockholders' equity 183,341 162,480
PORTFOLIO PROPERTY DATA:
Total GLA (at end of period) 8,084 5,477
Weighted-average GLA 6,829 5,187
Number of properties (at end of
period) 59 41
Occupancy (at end of period):
Operating, exclusive of assets held
for sale 92.3% 91.0%
All operating properties 91.5% 88.7%
17
<PAGE>
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 1997.
The Company reported a net loss of $0.9 million, or ($0.07) per common share,
for the six months ended June 30, 1998 compared to a net loss of $2.3 million,
or ($0.19) per common share, for the comparable period in 1997. The positive
factors for 1998 were a $4.7 million increase in net operating income (NOI), of
which $4.2 million is attributable to the Rodwell/Kane and Konover acquisitions
and a decrease in general and administrative expenses of $0.6 million. The
positive factors were offset by an increase in interest expense of $2.7 million,
as a result of higher borrowing levels, a loss on sale of property of $0.4
million and an increase in depreciation and amortization of $1.9 million.
Additionally, in 1997, the Company incurred an extraordinary loss on
extinguishment of debt of $1.0 million.
Funds from Operations ("FFO") for the six months ended June 30, 1998
increased 24% to $9.8 million as compared to $7.9 million for the same period in
1997. The factor that had a positive impact on 1998 FFO was a $5.4 million in
increased NOI before the adjustment for straight line rent (net $0.7 million).
Factors that had a negative impact on 1998 FFO were: (a) $2.7 million increase
in interest expense, and (b) a $0.6 million increase in general and
administrative expenses exclusive of compensation under the stock plan award and
non-recurring administrative expenses in 1997.
Earnings before interest, taxes, depreciation and amortization (EBITDA) was
$20.2 million for the six months ended June 30, 1998, an increase of $4.2
million or 26%, from $16.0 million for the same period in 1997. The increase was
due to increased NOI of $4.7 million over 1997, including adjustment for
straight line rent offset by an increase in general and administrative expenses
of $0.6 million exclusive of compensation under stock plan award and
non-recurring administrative and merger costs incurred in 1997.
Base rent increased to $22.8 million for the six months ended June 30, 1998
from $18.5 million for the same period in 1997. Base rent before the adjustment
for straight line rent increased $4.9 million or 27% to $23.2 million for the
six months ended June 30, 1998 when compared to 1997, while the Company's
weighted-average square feet of GLA in operation increased 31%. 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 the sale of an asset in April 1998, discussed below.
Percentage rent remained unchanged at $0.3 million for the six months ended
June 30, 1998 and 1997.
Recoveries from tenants, representing contractual reimbursements from tenants
of certain common area maintenance, real estate taxes and insurance costs,
increased for the six months ended June 30, 1998 to $7.5 million compared to
$6.1 million in 1997. On a weighted-average square-foot basis, recoveries from
tenants decreased 7% to $1.10 for the six months ended June 30, 1998 when
compared to $1.18 for the same period in 1997. The average recovery of property
operating expenses, exclusive of marketing and other non-recoverable operating
costs, decreased to 94% in 1998 from 95% in 1997. With respect to approximately
16% of the leased GLA, the Company is obligated to pay all utilities and
operating expenses of the applicable center.
Other income increased $1.2 million to $1.7 million in 1998 compared to $0.5
million in 1997 primarily as a result of increased tenant lease buyouts of $0.4
million and third-party property management fee income of $0.9 million. Prior to
the closing of the eight Rodwell/Kane properties, the community centers were
managed by the Company. The one remaining Rodwell/Kane community center will
continue to be managed by the Company.
Property operating costs increased $2.2 million, or 31%, to $9.4 million in
1998 from $7.2 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 31% to 6.8 million square feet in 1998 from 5.2 million square feet
in 1997. On a weighted-average square-foot basis, operating expenses remained at
$1.38 for the six months ended June 30, 1998 and 1997.
General and administrative expenses for the six months ended June 30, 1998
decreased $0.6 million or 15% to $3.4 million in 1998 from $4.0 million in 1997.
General and administrative expenses in 1998 include $0.7 million
18
<PAGE>
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 $0.5 million in compensation under
stock plan awards. Exclusive of these charges in 1998 and 1997, general and
administrative expense as a percentage of revenues remained the same at 8.5% in
1998 and 1997.
Depreciation increased to $7.6 million for the six months ended June 30, 1998
compared to $5.9 million in 1997. The increase is due primarily to the
Rodwell/Kane and Konover acquisitions. Amortization of deferred leasing and
other charges decreased $0.1 million to $1.9 million from $1.8 million in 1997.
On a weighted-average square-foot basis, depreciation and amortization decreased
to $1.40 in 1998 from $1.48 in 1997.
Interest expense for the six months ended June 30, 1998, net of interest
income of $1.3 million, increased by $2.7 million or 35%, to $10.5 million
compared to $7.8 million, net of interest income of $0.3 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 $273.2 million and 7.5%, respectively, in 1998 compared to $202.6
million and 8.0%, respectively, in 1997. Amortization of deferred financing cost
decreased to $0.4 million in 1998 compared to $0.8 million in 1997. The Company
capitalized interest costs associated with its development projects of $0.5
million in 1998 and $0.9 million in 1997.
For the six months ended June 30, 1998, the properties held for sale
contributed approximately $0.5 million of revenue and incurred a loss of $1.2
million after deducting related interest expense on the debt associated with the
properties and the $0.4 million loss on sale of property. For the six months
ended June 1997, the properties held for sale contributed approximately $0.6
million of revenue and incurred a loss of $0.6 million after deducting related
interest expenses. As of April 30, 1998, one of the properties held for sale,
located in California was sold for $5.7 million resulting in a loss of $0.4
million.
THREE MONTHS ENDED JUNE 30, 1998 COMPARED TO THE THREE MONTHS ENDED JUNE 30,
1997.
The Company reported a net loss of $0.8 million, or $0.05 per common
share, for the three month ended June 30, 1998, compared to net income of $0.1
million or $0.01 per common share, for comparable period in 1997. The loss for
1998 resulted primarily from $3.4 million in increased NOI offset by: (a) an
increase in general and administrative expenses of $0.1 million as described
below; (b) an increase in depreciation and amortization of $1.9 million as
described below; (c) increased interest expense of $1.9 million as a result of
higher borrowing levels; and (d) a loss on the sale of real estate of $0.4
million in 1998.
FFO for the three months ended June 30, 1998, was $5.4 million, compared
to $4.0 million for the same period in 1997. The factor that had a positive
impact on 1998 FFO was $3.5 million in increased NOI before the adjustment for
straight line rent (net $0.1 million). Factors that had a negative impact on
1998 FFO were: (a) $0.2 million in increased general and administrative expenses
from 1997, exclusive of compensation under stock awards and (b) $1.9 million in
higher interest expense.
Earnings before interest, taxes, depreciation and amortization (EBITDA)
were $11.6 for the three months ended June 30, 1998, an increase of $3.2 million
or 38%, from $8.4 million for the same period in 1997. The increase was due to
increased NOI of $3.4 million over 1997, offset by an increase of $0.2 million
in general and administrative expenses in 1998, exclusive of compensation under
stock awards.
Base rent increased $3.8 million or 39% to $13.6 million for the three
months ended June 30, 1998 from $9.8 million for the same period in 1997. Base
rent before the adjustment for straight line rent increased $3.9 million or 40%
to $13.6 million for the three months ended June 30, 1998 when compared to $9.7
million in 1997, while the Company's weighted-average square feet of GLA in
operation increased 47%. The increase in base rents resulted from increased GLA
in operation and from increased occupancy at the operating and development
centers which was offset by declining rents on renewals at certain properties
and lower average center occupancy levels in the centers held for sale.
19
<PAGE>
Percentage rent increased to $0.2 million for the three months ended June
30, 1998 as compared to $0.1 million for the same period in 1997. Percentage
rent represents amounts due from tenants based on a specified percentage of the
tenants' sales in excess of a sales break point agreed to in the lease.
Recoveries from tenants, representing contractual reimbursements from
tenants of certain common area maintenance, utilities, taxes, insurance and
marketing cost, for the three months ended June 30, 1998 increased $0.9 million
or 28% to $4.1 million compared to $3.2 million in 1997. On a weighted-average
square-foot basis, recoveries from tenants decreased 12% to $0.51 for the three
months ended June 30, 1998 when compared to $0.58 for the same period in 1997.
The average recovery of property operating expenses, exclusive of marketing and
other non-recoverable operating costs, decreased to 91% in 1998 from 96% in
1997. Approximately 16% of the leased GLA is leased whereby the Company is
obligated to pay all utilities and operating expenses of the applicable center.
Other income increased $0.1 million to $0.5 million in 1998 compared to
$0.4 million in 1997 primarily as a result of increased third-party management
fees.
Operating expenses increased $1.5 million, or 39%, to $5.3 million in 1998
from $3.8 million in 1997. The increase in operating expenses was principally
due to the increase in the weighted-average square feet in operation in 1998,
which rose 47% from 5.5 million square feet in 1997 to 8.1 million square feet
in 1998. On a weighted-average square-foot basis, operating expenses, decreased
to $0.65 in 1998 from $0.69 in 1997.
General and administrative expenses for the three months ended June 30,
1998, increased $0.2 million, or 12% to $1.9 million in 1998 from $1.7 million
in 1997. The increase was primarily attributable to the increase in
weighted-average GLA and to the increased staffing during the period necessary
to carry out the strategic growth plans of the Company. General and
administrative expenses, exclusive of compensation under stock awards, as a
percentage of revenues decreased to 8% in 1998 from 9% in 1997.
Depreciation increased $1.7 million to $4.6 million in 1998 from $2.9
million in 1997 primarily as a result of the Rodwell/Kane and Konover
acquisitions in 1998. Amortization of deferred leasing and other charges
increased $0.3 million in 1998 primarily as a result of the refinancing
previously described. On a weighted-average square-foot basis, depreciation and
amortization of income-producing properties increased to $0.69 in 1998 compared
to $0.66 in 1997.
Interest expense for the three months ended June 30, 1998, net of interest
income of $1.0 million, increased by $1.9 million or 44%, to $6.1 million
compared to $4.2 million, net of interest income of $0.1 million in 1997. This
increase resulted from higher borrowing levels in 1998 compared to 1997. On a
weighted-average basis, debt outstanding and the average interest cost were
approximately $346.4 million and 8.2%, respectively, in 1998 compared to $215.4
million and 8%, respectively, in 1997. The Company capitalized interest costs
associated with its development projects of $0.2 million in 1998 and $0.4
million in 1997.
For the three months ended June 30, 1998, the properties held for sale
contributed approximately $0.2 million of revenue and incurred a loss of $0.8
million after deducting related interest expenses on the debt associated with
the properties. For the three months ended June 30, 1997, these properties
contributed approximately $0.3 million of revenue and incurred a loss of $0.2
million after deducting related interest expense. The decrease in revenue and
increase in net loss is principally due to the sale of one property in April
1998 which resulted in a loss of $0.4 million.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOWS. The Company's cash and cash equivalents balance at June 30, 1998 was
$7.9 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 $10.2 million for the six
months ended June 30,1998. Net cash used in investing activities was $22.4
million for the same period in 1998. The primary use of these funds included:
20
<PAGE>
(a) $5.5 million to acquire eight 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; (b) $9.5 million invested in joint
ventures, as described below; and (c) $7.0 million of advances the Company has
made to joint ventures. Net cash provided by financing activities was $15.2
million for the six months ended June 30, 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 operations will provide the necessary funds for operating expenses,
interest expense on outstanding indebtedness, dividends and distributions in
accordance with REIT federal income tax requirements and 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 August 5, 1998, stockholders approved a Stock Purchase Agreement between
Prometheus Southeast Retail, LLC (including its assignee, "PSR"), a real estate
investment affiliate of Lazard Freres Real Estate Investors, LLC, and the
Company pursuant to which PSR will make a $200 million purchase of shares of
Common Stock of the Company at a purchase price of $9.50 per share (the
"Transaction"). The investment will 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.
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. On August 11, 1998, the Company
issued an additional 2,913,157 shares of its common stock for a total
consideration of $27.7 million. PSR must purchase an additional $50 million in
shares of common stock at $9.50 per share by September 30, 1998 or sooner if
requested by the Company. The Company expects such purchase to occur in August
1998.
Pursuant to the Contingent Value Right Agreement, if PSR has not doubled its
investment (through stock appreciation, dividends, or both) by January 1, 2004,
the Company will pay PSR, in cash or stock, an amount necessary to achieve such
a return, subject to a maximum payment of 4,500,000 shares or the cash value
thereof.
Pursuant to the agreement, the Company will reimburse PSR for its expenses in
connection with the Transaction, including expenses of monitoring the Company
and of performing its duties under the Transaction Documents. These expenses and
Transaction expenses incurred by the Company have totaled approximately $2.2
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.
Each of the Company's and PSR's obligations to effect the final $100 million
of common stock purchases (the "Subsequent Closings") are subject to various
mutual and unilateral conditions, including, without limitation the continued
qualification of the Company as a REIT for federal income tax purposes; and the
continuing correctness of the representations and warranties in the Stock
Purchase Agreement.
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.
21
<PAGE>
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. On April 1, 1998, the Company acquired 10 of the Konover & Associates
South community shopping centers for a total purchase price of $89.3 million
consisting of $67.4 million in debt assumption and $21.9 million in equity
payable in a combination of cash and limited partnership Units which will be
determined by the seller by September 30, 1998. This transaction was accounted
for under the purchase method of accounting. The remaining community center out
of the original eleven will not be acquired by the Company.
The Company issued $0.4 million in warrants to the seller in connection with
the above transaction. Of these warrants $0.1 million are valued at $9.50
vesting over five years, $0.1 million at $12.50 vesting over five years, and
$0.2 million at $9.50 which are fully vested.
In connection with the acquisition of eight of the nine Rodwell/Kane
properties, up to 292,447 additional Units and $0.8 million in cash will be
issued or paid on a delayed or contingent basis.
The ninth and final center will be managed by the Company and is expected to
be acquired in the year 2000 for $6.2 million. Its acquisition prior to the year
2000 would trigger an onerous loan assumption fee.
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 June 30, 1998, the Company has invested $2.8 million in this
joint venture. The investment in Atlantic will be accounted for under the equity
method of accounting. As of June 30, 1998, Atlantic had total assets of
approximately $9.1 million and debt of $6.3 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 Fall 1998, with completion
targeted for Spring/Summer 1999. As of June 30, 1998, the Company has invested
$5.1 million in this joint venture. This 50% investment in the joint venture
will be accounted for under the equity method of accounting. The joint venture
had approximately $8.6 million of assets and $3.5 of debt at June 30, 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% interest in the venture, which is accounted for under the equity
method of accounting. As of June 30, 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.
22
<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 June 30, 1998, $69.7 million was
outstanding under the Company's $150 million Nomura credit facility.
The Company's planned development of nearly one million square feet of
community and neighborhood shopping centers in North Carolina with ARC, the
development of a retail/entertainment shopping center in Mt. Pleasant, South
Carolina, and the development of two community shopping centers in Wakefield,
North Carolina will be completed in joint ventures and will be financed in part
by traditional bank construction loans.
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.
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 6% of the Company's total revenue for the six months ended June,
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 executed in June
1993, also require the tenants to pay certain operating expenses and increases
in common area maintenance expenses. At June 30, 1998, 15% 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
23
<PAGE>
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 20% of the Company=s debt on income
properties and notes payable as of June 30, 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 constitute "forward-looking statements."
Such forward-looking statements are indicated by words such as "will", "expect",
"anticipate" and other words of similar import. Forward-looking statements
involve known and unknown risks, uncertainties and other factors, which may
cause the actual results, performance or achievements of the Company to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Such factors include,
among others, the following: real estate market conditions; availability of
financing; general economic conditions, including conditions in the retail
segments of the economy, such as inflation, consumer confidence, unemployment
rates and consumer tastes and preferences; difficulties or delays in the
completion of expansions of existing projects or development of new projects;
and the effect of competition from other 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.
24
<PAGE>
PART II
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
CHANGES IN CONTROL OF THE COMPANY
On March 23, 1998, the Company sold 2,350,000 shares of Common Stock
to PSR at $9.50 per share, for an aggregate purchase price of $22,350,000. On
August 10, 1998, the Company sold an additional 2,913,157 at $9.50 per share,
for an aggregate purchase price of $27,675,000. As a result of the purchases,
PSR owns approximately 30.6% of the Company's outstanding Common Stock. In
addition, PSR is obligated to purchase another 5,263,159 shares upon demand by
the Company (and in no event later than September 30, 1998) and an additional
10,526,316 shares by March 30, 2000. Assuming no other changes in the number of
shares of the Company's outstanding Common Stock, PSR would then own 64% of the
outstanding Common Stock.
The Company believes that PSR used its own funds for the purchase. In
addition to PSR's ownership interest in the Company, PSR also has three nominees
on the Board, certain preemptive rights and other contractual rights regarding
the Company's affairs. The transaction is described in detail in the Company's
definitive proxy statement filed on Schedule 14A with the Securities and
Exchange Commission on July 7, 1998. The information set forth therein under the
caption "Proposal Two: Approval of the Transaction" is hereby incorporated
herein by reference. The transaction was approved by the Company's stockholders
on August 5, 1998.
DEADLINE FOR CERTAIN STOCKHOLDER PROPOSALS
If notice of a shareholder proposal to be presented in connection with the
Company's 1999 annual meeting of shareholders is not received by the Company by
May 22, 1999, then the management proxies may use their discretionary voting
authority when the proposal is raised at the annual meeting.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3.1 Articles of Incorporation (Articles of Amendment filed effective
August 10, 1998 are filed herewith. For a complete copy of the
charter, the attached Articles should be read with the charter
filed as Exhibit 3.1 to the Company's Registration Statement on
Form S-4 (file no.
333-39491), which is incorporated by reference herein.)
3.2 Amended and Restated Bylaws
10.1 Amended and Restated Master Agreement dated June 30, 1998 by and
among FAC Realty Trust, Inc., FAC Properties LP, Konover
Management South Corp. and the other signatories to this
25
<PAGE>
Master Agreement contained therein.
27 Financial Data Schedule (EDGAR filing only)
(b) Reports on Form 8-K
On April 7, 1998, the Company filed a Report on Form 8-K (dated March 23,
1998) reporting under item 1(b) the acquisition of 2,350,000 shares of
Common Stock by PSR and reporting under item 2 the acquisition of the
Rodwell/Kane properties.
On June 3, 1998, the Company filed a Report on Form 8-K/A (dated March 23,
1998), amending the disclosure regarding the Rodwell/Kane property
acquisition and adding the following financial statements: audited
combined statement of revenue and certain expenses for the Rodwell/Kane
properties as well as unaudited pro forma condensed consolidated financial
statements.
On June 4, 1998, the Company filed a Report on From 8-K (dated June 4,
1998), reporting under item 5 the agreement to acquire certain properties
and businesses form Konover Management South and certain affiliates. The
filing included the following financial statements: audited combined
statement of revenue and certain expenses for Konover and Associates South
and unaudited pro forma condensed consolidated financial statements.
26
<PAGE>
SIGNATURES
================================================================================
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
KONOVER PROPERTY TRUST, INC.
Date: August 14, 1998
By: /S/Patrick M. Miniutti
-------------------------
Patrick M. Miniutti, Executive Vice President,
Chief Financial Officer and Director
By: /S/Sona A. Thorburn
--------------------
Sona A. Thorburn, Vice President,
Chief Accounting Officer
27
<PAGE>
ARTICLES OF AMENDMENT
OF
FAC REALTY TRUST, INC.
I
The purpose of these Articles of Amendment is to amend and restate in its
entirety Article I and the first sentence of Article IV of the Amended and
Restated Articles of Incorporation of FAC Realty Trust, Inc. (the
"Corporation").
II
This amendment was advised by the board of directors and approved by the
stockholders.
III
Article I is hereby amended and restated in its entirety as follows:
Name
The name of the Corporation is Konover Property Trust, Inc.
IV
The first sentence of Article IV is hereby amended and restated in its
entirety as follows:
The total number of shares of all classes of capital stock that the
Corporation shall have authority to issue is One Hundred and Thirty
Million (130,000,000) shares. One Hundred Million (100,000,000) of
such shares are initially classified as common stock, $0.01 par value
per share (the "Common Stock"), Five Million (5,000,000) of such
shares are initially classified as preferred stock, $25.00 par value
per share (the "Preferred Stock") and Twenty-Five Million (25,000,000)
of such shares are initially classified as excess stock, $0.01 par
value per share (the "Excess Stock").
V
Immediately prior to the amendment, the Corporation had authority to issue
75,000,000 shares of capital stock, consisting of 45,000,000 shares of Common
Stock, $0.01 par value per share, 5,000,000 shares of Preferred Stock, par value
$25.00 per share, and 25,000,000 shares of Excess
<PAGE>
Stock, par value $.01 per share, with an aggregate par value of $125,700,000. As
the Amended and Restated Articles of Incorporation are amended hereby, the
Corporation has authority to issue 130,000,000 shares of capital stock,
consisting of 100,000,000 shares of Common Stock, $0.01 par value per share,
5,000,000 shares of Preferred Stock, par value $25.00 per share, and 25,000,000
shares of Excess Stock, par value $.01 per share, with an aggregate par value of
$126,250,000.
VI
The preferences, conversion and other rights, voting powers, restrictions,
limitations as to dividends, qualifications, and terms and conditions of
redemption of each class of the Corporation's capital stock were not changed by
this amendment.
VII
These Articles of Amendment shall be effective at 12:01 a.m. on the 10th
day of August, 1998.
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused these Articles of Amendment
to be signed in its name and on its behalf by its President and attested to by
its Executive Vice President on this______ day of August, 1998.
FAC REALTY TRUST, INC.
By: /s/ C. Cammack Morton
---------------------
C. Cammack Morton
President and Chief Executive Officer
ATTEST:
/s/ Patrick M. Miniutti
- ----------------------------------
Patrick M. Miniutti
Executive Vice President and Chief Financial Officer
THE UNDERSIGNED, President and Chief Executive Officer of FAC REALTY TRUST,
INC., who executed on behalf of the Corporation the foregoing Articles of
Amendment of which this certificate is made a part, hereby acknowledges in the
name and on behalf of said Corporation the foregoing Articles of Amendment to be
the corporate act of said Corporation and hereby certifies that to the best of
his knowledge, information and belief the matters and facts set forth therein
with respect to the authorization and approval thereof are true in all material
respects under the penalties of perjury.
/s/ C. Cammack Morton
---------------------
C. Cammack Morton
President and Chief Executive Officer
AMENDED AND RESTATED BYLAWS
OF
KONOVER PROPERTY TRUST, INC.
ARTICLE I
Stockholders
Section 1. MEETINGS OF STOCKHOLDERS.
(a) Annual Meeting. The annual meeting of the stockholders of the
Corporation for the election of directors and the receiving of reports shall be
held at such date and time as shall be determined by the Board of Directors.
Upon due notice, there may also be considered and acted upon at an annual
meeting any matter that could properly be considered and acted upon at a special
meeting.
(b) Special Meetings.
(1) Special meetings of the stockholders of the Corporation for any
purpose may be held on any day when called at any time by the holders of
shares entitling them to exercise a majority of the voting power of the
Corporation entitled to vote at such a meeting, the Board of Directors, the
Chairman of the Board, the President or by a committee of the Board of
Directors that has been duly designated by the Board of Directors and whose
powers and authority, as provided in a resolution of the Board of
Directors, include the power to call such meetings, but special meetings
may not be called by any other person or persons.
(2) In order that the Corporation may determine the stockholders
entitled to request a special meeting, the Board of Directors may fix a
record date to determine the stockholders entitled to make such a request
(the "Request Record Date"). The Request Record Date shall not precede the
date upon which the resolution fixing the Request Record Date is adopted by
the Board of Directors and shall not be more than 10 days after the date
upon which the resolution fixing the Request Record Date is adopted by the
Board of Directors. Any stockholder of record seeking to have stockholders
request a special meeting shall, by sending written notice to the Secretary
of the Corporation by certified or registered mail, return receipt
requested, request the Board of Directors to fix a Request Record Date. The
Board of Directors shall within 10 days after the date on which a valid
request to fix a Request Record Date is received, adopt a resolution fixing
the Request Record Date and shall make a public announcement of such
Request Record Date, the Request Record Date shall be the 10th day after
the first date on which a valid written request to set a Request Record
Date is received by the Secretary. To be valid, such written request shall
set forth the purpose or purposes for which the special meeting is to be
held, shall be signed by one or more stockholders of record (or their duly
authorized proxies or other representatives), shall bear the date of
signature of each such stockholder (or proxy or other representative) and
shall set forth all information relating to such stockholder that is
required to be disclosed in solicitations of proxies for election of
directors in an election contest, or is otherwise required, in each case
pursuant to Regulation 14A under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and Rule 14a-11 thereunder.
(3) In order for a stockholder or stockholders to request a special
meeting, a written request or requests for a special meeting by the holders
of record as of the Request Record Date of at least a majority of the
issued and outstanding shares of stock that would be entitled to vote at
such a meeting must be delivered to the Corporation. To be valid, each
written request by a stockholder for a special meeting shall set forth the
specific purpose or purposes for which the special meeting is to be held
(which purpose or purposes shall be limited to the purpose or purposes set
forth in the written request to set a Request Record Date received by the
Corporation pursuant to paragraph (2) of this Section 1(b)), shall be
signed by one or more persons who
1
<PAGE>
as of the Request Record Date are stockholders of record (or their duly
authorized proxies or other representatives), shall bear the date of
signature of each such stockholder (or proxy or other representative) and
shall set forth the name and address, as they appear in the Corporation's
books, of each stockholder signing such request and the class and number of
shares of the Corporation which are owned of record and beneficially by
each such stockholder, shall be sent to the Secretary by certified or
registered mail, return receipt requested, and shall be received by the
Secretary within 60 days after the Request Record Date.
(4) The Corporation shall not be required to call a special meeting
upon stockholder request unless, in addition to the documents required by
paragraph (3) of this Section 1(b), the Secretary receives a written
agreement signed by each Soliciting Stockholder (as defined below),
pursuant to which each Soliciting Stockholder, jointly and severally,
agrees to pay the Corporation's costs of holding the special meeting,
including the costs of preparing and mailing proxy materials for the
Corporation's own solicitation, provided that if each of the resolutions
introduced by any Soliciting Stockholder at such meeting is adopted, and
each of the individuals nominated by or on behalf of any Soliciting
Stockholder for election as a director at such meeting is elected, then the
Soliciting Stockholders shall not be required to pay such costs. For
purposes of this paragraph (4), the following terms shall have the meanings
set forth below:
(i) "Affiliate" of any Person (as defined herein) shall mean any
Person controlling, controlled by or under common control with such first
Person.
(ii) "Participant" shall have the meaning assigned to such term in
Rule 14a-11 promulgated under the Exchange Act.
(iii) "Person" shall mean any individual, firm, corporation,
partnership, limited liability company, joint venture, association, trust,
unincorporated organization or other entity.
(iv) "Proxy" shall have the meaning assigned to such term in Rule
14a-1 promulgated under the Exchange Act.
(v) "Solicitation" shall have the meaning assigned to such term in
Rule 14a-11 promulgated under the Exchange Act.
(vi) "Soliciting Stockholder" shall mean, with respect to any special
meeting requested by a stockholder or stockholders, any of the following
Persons:
(a) if the number of stockholders signing the request or requests
of meeting delivered to the Corporation pursuant to paragraph (3) of
this Section 1(b) is 10 or fewer, each stockholder signing any such
request;
(b) if the number of stockholders signing the request or requests
of meeting delivered to the Corporation pursuant to paragraph (3) of
this Section 1(b) is more than 10, each Person who either (I) was a
Participant in any Solicitation of such request or requests or (II) at
the time of the delivery to the Corporation of the documents described
in paragraph (3) of this Section 1(b) had engaged or intended to
engage in any Solicitation of Proxies for use at such special meeting
(other than a Solicitation of Proxies on behalf of the Corporation);
or
(c) any Affiliate of a Soliciting Stockholder, if a majority of
the directors then in office determine that such Affiliate should be
required to sign the written notice described in paragraph (3) of this
Section 1(b) and/or the written agreement described in this paragraph
(4) in order to prevent the purposes of this Section 1(b) from being
evaded.
2
<PAGE>
(5) Except as provided in the following sentence, any special meeting
shall be held at such hour and day as may be designated by whichever of the
Board of Directors, Chairman, President or committee shall have called such
meeting. In the case of any special meeting called by the Chairman or the
Secretary upon the request of stockholders (a "Request Special Meeting"),
such meeting shall be held at such hour and day as may by designated by the
Board of Directors; provided, however, that the date of any Request Special
Meeting shall be not more than 60 days after the Meeting Record Date (as
defined in Section 2(c)); and provided further that in the event that the
directors then in office fail to designate an hour and date for a Request
Special Meeting within 10 days after the date that valid written requests
for such meeting by the holders of record as of the Request Record Date of
at least a majority of the issued and outstanding shares of stock that
would be entitled to vote at such meeting are delivered to the Corporation
(the "Delivery Date"), then such meeting shall be held at 2:00 p.m. local
time on the 90th day after the Delivery Date or, if such 90th day is not a
Business Day (as defined below), on the first preceding Business Day. In
fixing a meeting date for any special meeting, the Board of Directors,
Chairman, President or committee may consider such factors as they deem
relevant within the good faith exercise of their business judgment,
including, without limitation, the nature of the action proposed to be
taken, the facts and circumstances surrounding any request of such meeting,
and any plan of the Board of Directors to call an annual meeting or a
special meeting for the conduct of related business.
(6) The Corporation may engage regionally or nationally recognized
independent inspectors of elections to act as an agent of the Corporation
for the purpose of promptly performing a ministerial review of the validity
of any purported written request or requests for a special meeting received
by the Secretary. For the purpose of permitting the inspectors to perform
such review, no purported request shall be deemed to have been delivered to
the Corporation until the earlier of (i) five Business Days following
receipt by the Secretary of such purported request and (ii) such date as
the independent inspectors certify to the Corporation that the valid
requests received by the Secretary represent at least a majority of the
issued and outstanding shares of stock that would be entitled to vote at
such meeting. Nothing contained in this paragraph (6) shall in any way be
construed to suggest or imply that the Board of Directors or any
stockholder shall not be entitled to contest the validity of any request,
whether during or after such five-Business Day period, or to take any other
action (including, without limitation, the commencement, prosecution or
defense of any litigation with respect thereto, and the seeking of
injunctive relief in such litigation).
(7) For purposes of these by-laws, "Business Day" shall mean any day
other than a Saturday, a Sunday or a day on which banking institutions in
the State of North CarolinIa are authorized or obligated by law or
executive order to close.
(c) Place of Meetings. Any meeting of the stockholders may be held at such
place within or without the State of Maryland as may be determined by the Board
of Directors and stated in the notice of said meeting, provided that if the
Board of Directors does not designate a location, such meeting shall be held at
the executive office of the Corporation in Cary, North Carolina.
(d) Notice of Meeting and Waiver of Notice.
(1) Notice. Written notice of the place, date and hour of every
meeting of the stockholders, whether annual or special, shall be given to
each stockholder of record entitled to vote at the meeting not less than 10
nor more than 90 days before the date of the meeting. Every notice of a
special meeting shall state the purpose or purposes thereof. Such notice
shall be given in writing to each stockholder entitled thereto by mail,
addressed to the stockholder at his address as it appears on the records of
the Corporation. Notice shall be deemed to have been given at the time when
it was deposited in the mail.
(2) Record Holder of Shares. The Corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the
owner of shares to receive dividends and to vote as such owner, and
3
<PAGE>
to hold liable for calls and assessments a person registered on its books
as the owner of shares, and shall not be bound to recognize any equitable
or other claims to or interests in such share or shares on the part of any
other person, whether or not the Corporation shall have express or other
notice thereof, except as otherwise provided by the laws of Maryland.
(3) Waiver. Whenever any written notice is required to be given under
the provisions of the Articles of Incorporation, these Bylaws, or by
statute, a waiver thereof in writing, signed by the person or persons
entitled to such notice, whether before or after the time stated therein,
shall be deemed equivalent to the giving of such notice. Neither the
business to be transacted at nor the purpose of any meeting of the
stockholders need be specified in any written waiver of notice of such
meeting. Attendance of a person, either in person or by proxy, at any
meeting, shall constitute a waiver of notice of such meeting, except where
a person attends a meeting for the express purpose of objecting to the
transaction of any business because the meeting was not lawfully called or
convened.
(e) Quorum, Manner of Acting and Adjournment. The holders of record of
shares entitled to cast a majority of the votes entitled to vote at any meeting,
present in person or represented by proxy, shall constitute a quorum for the
transaction of business thereat, except as otherwise provided by statute, by the
Articles of Incorporation, or by these Bylaws. Whether or not a quorum is
present, the holders of shares entitled to cast a majority of the votes present
in person or represented by proxy at the meeting shall have the power to adjourn
the meeting from time to time, without notice other than announcement at the
meeting, until a quorum shall be present or represented. At any such adjourned
meeting at which a quorum shall be present or represented, any business may be
transacted which might have been transacted at the meeting as originally
noticed. If the adjournment is for more than 30 days, or if after the
adjournment a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each stockholder of record entitled to
vote at the meeting. When a quorum is present at any meeting, the vote of a
majority of the votes entitled to be cast by the holders of all issued and
outstanding shares present in person or represented by proxy shall decide any
question brought before such meeting, unless the question is one upon which, by
express provision of the applicable statute or the Articles of Incorporation or
these Bylaws, a different vote is required, in which case such express provision
shall govern. Except upon those questions governed by the aforesaid express
provisions, the stockholders present in person or by proxy at a meeting at which
a quorum is at any time present or represented shall have the power to continue
to do business until adjournment, notwithstanding a subsequent reduction in the
number of shares present or represented to leave less than would constitute a
quorum.
(f) Organization of Meetings.
(1) Presiding Officer. Any "executive officer" of the Corporation, as
that term is defined in section 3(f) of Article III of these Bylaws, may
call meetings of the stockholders to order and act as chairman thereof.
(2) Minutes. The Secretary of the Corporation, or, in his absence or
by his designation, an Assistant Secretary, or, in the absence of both, a
person appointed by the chairman of the meeting, which person need not be
an officer of the Corporation, shall act as secretary of the meeting and
shall make and keep a record of the proceedings thereat.
(3) Stockholders' List. The officer who has charge of the stock ledger
of the Corporation shall prepare and make, at least 10 days before every
meeting of stockholders, a complete list of the stockholders entitled to
vote at the meeting. The list shall be arranged in alphabetical order
showing the address of each stockholder and the number of shares registered
in the name of each stockholder. Such list shall be open to the examination
of any stockholder for any purpose germane to the meeting, during ordinary
business hours, for a period of at least 10 days prior to the meeting
either at a place within the city where the meeting is to be held, which
place shall be specified in the notice of the meeting, or, if not so
specified, at the place where
4
<PAGE>
the meeting is to be held. The list shall also be produced and kept at the
time and place of the meeting during the whole time thereof, and may be
inspected by any stockholder who is present.
(4) Voting Procedures and Inspectors of Elections.
(A) The Board of Directors shall, in advance of any meeting of
stockholders, appoint one or more inspectors to act at the meeting and make
a written report thereof. The Board of Directors may designate one or more
persons as alternate inspectors to replace any inspector who fails to act
at such meeting. If no inspector or alternate is able to act at a meeting
of stockholders, the chairman of the meeting shall appoint one or more
inspectors to act at the meeting. Each inspector, before entering upon the
discharge of his duties, shall take and sign an oath faithfully to execute
the duties of inspector with strict impartiality and according to the best
of his ability.
(B) The inspectors shall (i) determine those stockholders entitled to
vote at the meeting, (ii) ascertain the number of shares outstanding and
the voting power of each, (iii) determine the shares represented at a
meeting and the validity of proxies and ballots, (iv) count all votes and
ballots, (v) determine and retain for a reasonable period a record of the
disposition of any challenges made to any determination by the inspectors,
and (vi) certify their determination of the number of shares represented at
the meeting and their count of all votes and ballots. The inspectors may
appoint or retain other persons or entities to assist the inspectors in the
performance of the duties of the inspectors.
(C) The date and time of the opening and the closing of the polls for
each matter upon which the stockholders will vote at a meeting shall be
announced at the meeting. No ballot, proxies or votes, nor any revocations
thereof or changes thereto, shall be accepted by the inspectors after the
closing of the polls unless judicially determined otherwise upon
application by a stockholder.
(D) In determining the validity and counting of proxies and ballots,
the inspectors shall be limited to an examination of the proxies, any
envelopes submitted with those proxies, ballots and the regular books and
records of the Corporation, except that the inspector may consider other
reliable information for the limited purpose of reconciling proxies and
ballots submitted by or on behalf of banks, brokers, their nominees or
similar persons which represent more votes than the holder of proxy is
authorized by the record owner to cast or more votes than the stockholder
holds of record. If the inspectors consider other reliable information for
the limited purpose permitted herein, the inspectors at the time they make
their certification pursuant to clause (B) (vi) of this subsection 1(f) (4)
shall specify the precise information considered by them, including the
person or persons from whom they obtained the information, when the
information was obtained, the means by which the information was obtained
and the basis for the inspectors' belief that such information is accurate
and reliable.
(E) The provisions of subsections 1(f)(4)(A) through (D) of this
Article I shall not apply at any time that the Corporation does not have a
class of voting stock that is (i) listed on a national securities exchange,
(ii) authorized for quotation on an interdealer quotation system, or (iii)
held of record by more than 2,000 stockholders.
(5) Order of Business. Unless otherwise determined by the Board of
Directors prior to the meeting, the chairman of any meeting of stockholders
shall determine the order of business and shall have the authority in his
discretion to regulate the conduct of any such meeting, including, without
limitation, by imposing restrictions on the persons (other than
stockholders of the Corporation or their duly appointed proxies) who may
attend any such meeting of stockholders, whether any stockholder or his
proxy may be excluded from any stockholders' meeting based upon any
determination by the chairman of the meeting, in his sole discretion, that
any such person has unduly disrupted or is likely to disrupt the
proceedings thereat,
5
<PAGE>
and the circumstances in which any person may make a statement or ask
questions at any meeting of stockholders.
(g) Voting. Except as otherwise provided by statute or the Articles of
Incorporation, every stockholder entitled to vote shall be entitled to cast
the vote per share to which such share is entitled, in person or by proxy,
on each proposal submitted to the meeting for each share held of record by
him on the record date for the determination of the stockholders entitled
to vote at the meeting. At any meeting at which a quorum is present, all
questions and business that may come before the meeting shall be determined
by a majority of votes cast, except when a greater proportion is required
by law, the Articles of Incorporation, or these Bylaws.
(h) Proxies. A person who is entitled to attend a meeting of
stockholders, to vote thereat, and execute consents, waivers and releases,
may be represented at such meeting or vote thereat, and execute consents,
waivers and releases and exercise any of his rights by proxy or proxies
appointed by a legally sufficient writing signed by such person, or by his
duly authorized attorney, as provided by the laws of the State of Maryland.
Section 2. DETERMINATION OF STOCKHOLDERS OF RECORD.
In order that the Corporation may determine the stockholders entitled
to notice of or to vote at any meeting of stockholders or any adjournment
thereof or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights
in respect of any change, conversion or exchange of stock or for the
purpose of any other lawful action, the Board of Directors may fix, in
advance, a record date, which shall not be more than 60 or less than 10
days before the date of such meeting, or more than 60 days prior to any
other action. If no record date is fixed:
(a) The record date for determining stockholders entitled to notice of
or to vote at a meeting of stockholders or entitled to receive payment of
any dividend or other distribution or allotment of any rights, or entitled
to exercise any rights in respect of any change, conversion or exchange of
stock or for the purpose of any other lawful action shall be at the close
of business on the day next preceding the day on which notice is given.
(b) The record date for determining stockholders entitled to notice of
or to vote at a meeting of stockholders shall apply to any adjournment of
the meeting; provided, however, that the Board of Directors may fix a new
record date for the adjourned meeting.
Notwithstanding anything to the contrary in these Bylaws, in the case
of any Request Special Meeting, (i) the record date for such meeting (the
"Meeting Record Date") shall be no later than the 30th day after the
Delivery Date and (ii) if the Board of Directors fails to fix the Meeting
Record Date within 30 days after the Delivery Date, then the close of
business on such 30th day shall be the Meeting Record Date.
ARTICLE II
Directors
Section 1. DEFINITIONS.
For the purpose of this Article II, capitalized terms not otherwise defined
herein shall have the meaning set forth in the Stockholders Agreement by and
between Prometheus Southeast Retail, LLC and the Corporation dated February 24,
1998 (the "Stockholders Agreement").
6
<PAGE>
Section 2. GENERAL POWERS.
The business and affairs, power and authority of the Corporation shall be
exercised, conducted and controlled by the Board of Directors, except where the
law, the Articles of Incorporation, or these Bylaws require any power or action
to be authorized or taken by the stockholders. In addition to the powers and
authorities expressly conferred by these Bylaws, the Board of Directors may do
all such lawful things and acts as are not by statute, the Articles of
Incorporation or these Bylaws directed or required to be done by the
stockholders.
Section 3. NUMBER, NOMINATION AND ELECTION OF DIRECTORS.
(a) Number. The Board of Directors shall consist of not more than fifteen
members and, until the Final Threshold Date, not less than nine members. Until
the Preliminary Threshold Date, at least one-third of the Board of Directors
shall be designees (the "Investor Nominees") of Prometheus Southeast Retail, LLC
or its successor or assignee (the "Investor"). From and after the Preliminary
Threshold Date and until the Second Threshold Date, at least two-ninths of the
Board of Directors shall be Investor Nominees. From and after the Second
Threshold Date and until the Final Threshold Date, at least one-ninth of the
Board of Directors shall be Investor Nominees. The Board of Directors may
increase or decrease the number of the members of the Board of Directors within
the limitations set forth above. No reduction in the number of directors shall
of itself have the effect of shortening the term of any incumbent director.
(b) Election. The directors shall be elected at the annual meeting of
stockholders, or if not so elected, at a special meeting of stockholders called
for that purpose. At any meeting of stockholders at which directors are to be
elected (an "Election Meeting"), only persons nominated as candidates shall be
eligible for election, and the candidates receiving the greatest number of votes
entitled to be cast shall be elected.
(c) Nominations.
(1) Qualification. Directors of the Corporation need not be
stockholders or residents of Maryland. No person shall be appointed or
elected a director of the Corporation unless:
(A) such person is elected to fill a vacancy in the Board of
Directors pursuant to Section 4(c) of this Article II; or
(B) such person is nominated for election as a director of the
Corporation in accordance with this section.
(2) Eligibility to Make Nominations. Nominations of candidates for
election as directors at any Election Meeting may be made by the Board of
Directors or a committee thereof.
(3) Procedure for Nominations. Nominations shall be made not fewer
than 30 days prior to the date of an Election Meeting. At the request of
the Secretary or, in his absence, an Assistant Secretary, each proposed
nominee shall provide the Corporation with such information concerning
himself as is required under the rules of the Securities and Exchange
Commission (the "Commission") to be included in the Corporation's proxy
statement soliciting proxies for the election of such nominee as a
director.
(4) Substitution of Nominees. In the event that a person is validly
designated as a nominee in accordance with these Bylaws and shall
thereafter become unable or unwilling to stand for election to the Board of
Directors, the Board of Directors or a committee thereof may designate a
substitute nominee upon delivery, not fewer than five days prior to the
date of an Election Meeting, of a written notice to the Secretary setting
forth such information regarding such substitute nominee as would have been
required to be delivered to the Secretary pursuant to these Bylaws had such
substitute nominee been initially proposed as a nominee.
7
<PAGE>
Such notice shall include a signed consent to serve as a director of the
Corporation, if elected, of each such substitute nominee.
(5) Investor Nominees. No person shall be named as an Investor Nominee
if (i) such person is not reasonably experienced in business, financial or
real estate matters, (ii) such person has been convicted of, or pled nolo
contendere to, a felony; (iii) the election of such person would violate
any law, or (iv) any event required to be disclosed pursuant to Item 401(f)
of Regulation S-K of the 1934 Act has occurred with respect to such person.
The Board of Directors shall support the nomination of and the election of
each Investor Nominee to the Board of Directors, and the Board of Directors
shall exercise all authority under applicable law to cause each Investor
Nominee to be elected to the Board of Directors.
(6) Compliance with Procedures. If the chairman of the Election
Meeting determines that a nomination of any candidate for election as a
director was not made in accordance with the applicable provisions of these
Bylaws, he shall so declare to the meeting and such nomination shall be
void.
(d) Chairman of the Board of Directors. The Chairman, if any is elected,
shall, subject to the to the provisions of these Bylaws, preside at all meetings
of the stockholders, of the Board of Directors and of the Executive Committee.
Section 4. TERM OF OFFICE OF DIRECTORS.
(a) Term. Each director shall hold office until the annual meeting next
succeeding his election and until his successor is elected and qualified, or
until his earlier resignation, removal from office or death.
(b) Resignation. Any director of the Corporation may resign at any time by
giving written notice to the Chairman or to the President or the Secretary of
the Corporation. A resignation from the Board of Directors shall be deemed to
take effect immediately or at such other time as the director may specify.
(c) Vacancy. If there shall be any vacancy in the Board of Directors for
any reason, including, but not limited to, death, resignation or as provided by
law, the Articles of Incorporation or these Bylaws (including any increase in
the authorized number of directors), the remaining directors shall constitute
the Board of Directors until such vacancy is filled. The remaining directors may
fill any vacancy in the Board of Directors for the unexpired term. In the event
that any Investor Nominee shall cease to serve as a Director for any reason
other than the fact that Investor no longer has a right to nominate a Director,
the vacancy resulting thereby shall be filled by an Investor Nominee designated
by Investor; provided, however, that any Investor Nominee so designated shall
satisfy the qualification requirements set forth in Section 3(c)(5).
Section 5. MEETINGS OF DIRECTORS.
(a) Meetings. Meetings of the Board of Directors may be held at any time
upon call by the Chairman or by the President or by any two directors. Unless
otherwise indicated in the notice thereof, any business may be transacted at any
such meeting.
(b) Place of Meeting. Any meeting of directors may be held at such place
within or without the State of Maryland as may be designated in the notice of
such meeting.
(c) Notice of Meeting and Waiver of Notice. No notice of regular meetings
of the Board of Directors need be given. Special meetings of the Board of
Directors may be called by the Chairman, or by the President on notice to each
director, given either in person or by mail, telephone, telegram, telex or
similar medium of communication; special meetings shall be called on like notice
by the Chairman, the President or the Secretary, on the written request of two
directors. At least 24 hours notice of special meetings shall be given to each
director.
8
<PAGE>
Section 6. QUORUM AND VOTING.
Except as otherwise provided in the Articles of Incorporation, at any
meeting of directors, not less than one-half (1/2) of the directors then in
office (or, in the event that the directors then in office are an uneven number,
the nearest full number of directors less than one-half (1/2) of such number) is
necessary to constitute a quorum for such meeting, except that any meeting duly
called, whether a quorum is present or otherwise, may, by vote of a majority of
the directors present, be adjourned from time to time. At any meeting at which a
quorum is present, all acts, questions and business which may come before the
meeting shall be determined by a majority of votes cast by the directors present
at such meeting, unless the vote of a greater number is required by statute, the
Articles of Incorporation or these Bylaws.
Section 7. ACTION OF BOARD OF DIRECTORS WITHOUT A MEETING.
Any action that may be authorized or taken at a meeting of the Board of
Directors may be authorized or taken without a meeting if approved and
authorized by a writing or writings, signed by all of the directors, which are
filed with the minutes of proceedings of the Board of Directors.
Section 8. COMPENSATION.
The Board of Directors is authorized to fix a reasonable salary for
directors or a reasonable fee for attendance at any meeting of the Board of
Directors, the Executive or Audit Committee, or other committees appointed by
the Board of Directors, or any combination of salary and attendance fee. In
addition, directors may be reimbursed for any expenses incurred by them in
traveling to and from such meetings.
Section 9. COMMITTEES.
(a) Appointment. The Board of Directors, by resolution passed by a majority
of the whole Board of Directors, may, from time to time, appoint one or more of
its members to act as a committee of the Board of Directors, provided, however,
that each of the Executive Committee, the compensation committee, the audit
committee, any special committee(s) of the Board of Directors, and any other Key
Committees shall (A) until the Preliminary Threshold Date, be comprised of
members, at least one-third of whom are Investor Nominees, (B) until the Second
Threshold Date, be comprised of members, at least two-ninths of whom are
Investor Nominees, and (C) until the Final Threshold Date, be comprised of
members, at least one-ninth of whom are Investor Nominees. A committee shall
have and exercise the powers of the Board of Directors in the direction of the
management of the business and affairs of the Corporation to the extent provided
in the resolution appointing such committee. Each committee shall have such name
as may be determined by the Board of Directors. A committee shall keep minutes
of its proceedings and shall report its proceedings to the Board of Directors
when required or when requested by a director to do so. Each such committee and
each member thereof shall serve at the pleasure of the Board of Directors.
Vacancies occurring in any such committee may be filled by the Board of
Directors.
Notwithstanding the foregoing, if none of the Directors who are Investor
Nominees would be considered "independent" of the Company, "disinterested,"
"non-employee directors" and "outside directors" (i) for purposes of any
applicable rule of the New York Stock Exchange or any other securities exchange
or other self-regulating organization (such as the National Association of
Securities Dealers) requiring that members of the audit committee of the Board
of Directors be independent of the Corporation, (ii) for purposes of any law or
regulation that requires in order to obtain or maintain favorable tax,
securities, corporate law or other material legal benefits with respect to any
plan or arrangement for employee compensation or benefits, that the members of
the committee of the Board of Directors charged with responsibility for such
plan or arrangement be "independent" of the Corporation, "disinterested,"
"non-employee directors" or "outside directors," or (iii) for purposes of any
special committee formed in connection with any transaction or potential
transaction involving the Corporation and any of Investor, its Affiliates or any
Group of which Investor is a member or such other transaction or potential
transaction which would involve an actual or potential conflict of interest on
the part of the Directors who are Investor Nominees, then a Director who
9
<PAGE>
is an Investor Nominee shall not be required to be appointed to any such
committee; provided, however, that the committees of the Board of Directors
shall be organized such that, to the extent practicable, the only items to
be considered by a Key Committee on which no Director who is an Investor
Nominee may serve will be those items which prevent the Director who is an
Investor Nominee from serving on such Key Committee. Any members of any Key
Committee who are Investor Nominees shall, in the event of any vacancy in
such membership, be replaced by a Director who is an Investor Nominee
elected by a majority of the Directors who are Investor Nominees.
(b) Executive Committee. Until the Final Threshold Date, there shall
be an Executive Committee of the Board of Directors, the members of which
shall hold office during the pleasure of the Board of Directors, and may be
removed at any time, with or without cause, by action thereof. During the
intervals between meetings of the Board of Directors, the Executive
Committee shall possess and may exercise all of the powers and authority of
the Board of Directors in the management and control of the business and
affairs of the Corporation to the maximum extent permitted by law. All
action taken by the Executive Committee shall be reported to the Board of
Directors. Each of the Chairman and the President shall be a member of the
Executive Committee, unless such person is not a director or shall decline
in writing.
(c) Committee Action. Unless otherwise provided by the Board of
Directors, a majority of the members of any committee appointed by the
Board of Directors pursuant to this section shall constitute a quorum at
any meeting thereof, and the act of a majority of the members present at a
meeting at which a quorum is present shall be the act of such committee.
Action may also be taken by any such committee without a meeting by a
writing or writings, signed by all of its members, which is filed with the
minutes of proceedings of the committee. Any such committee shall appoint
one of its own number as chairman (provided that the Chairman or the
President, if the Chairman declines or is not a member of the Executive
Committee, shall be the chairman of any Executive Committee), who shall
preside at all meetings and may appoint a Secretary (who need not be a
member of the committee) who shall hold office during the pleasure of such
committee. Meetings of any such committee may be held without notice of the
time, place or purposes thereof and may be held at such times and places
within or without the State of Maryland, as the committee may from time to
time determine, at the call of the chairman of the committee or any two
members thereof. Any such committee may prescribe such other rules as it
shall determine for calling and holding meetings and its method of
procedure, subject to any rules prescribed by the Board of Directors.
Section 10. CONFERENCE TELEPHONE MEETINGS.
One or more directors may participate in a meeting of the Board, or of
a committee of the Board of Directors, by means of conference telephone or
similar communications equipment by means of which all persons
participating in the meeting can hear each other. Participation in a
meeting pursuant to this section shall constitute presence in person at
such meeting.
Section 11. SUPERMAJORITY BOARD APPROVAL.
Until the Approval Rights Termination Date, if any, notwithstanding
the fact that a vote of the Board of Directors or the Executive Committee
may not be required under applicable law, the Corporation shall not, and
shall not permit any of its Subsidiaries without the affirmative vote of
over sixty-seven percent (67%) of all of the Directors ("Supermajority
Board Approval") to:
(a) acquire, whether by merger, consolidation, purchase of stock or
assets or other business combination, (i) in a single transaction or group
of related transactions, any business or assets having an aggregate
purchase price in excess of twenty-five percent (25%) of Total Enterprise
Value as measured at the beginning of the fiscal year in which such
acquisition is consummated, or (ii) during any one fiscal year, businesses
or assets having an aggregate purchase price in excess of fifty percent
(50%) of Total Enterprise Value as measured at the beginning of such fiscal
year;
10
<PAGE>
(b) sell or dispose of any assets, whether by merger, consolidation,
sale of stock or assets or other business combination, during any one
fiscal year, having an aggregate value in excess of twenty-five percent
(25%) of Total Enterprise Value as measured at the beginning of such fiscal
year;
(c) directly or indirectly, create, incur, issue, assume, guarantee or
otherwise become directly or indirectly liable, contingently or otherwise,
with respect to, any indebtedness if, after giving pro forma effect to such
indebtedness, the Corporation's ratio of (i) total indebtedness to (ii)
Total Enterprise Value, expressed as a percentage, would be greater than
65%;
(d) make any payment to, or sell, lease, transfer or otherwise dispose
of any of its properties or assets to, or purchase any property or assets
from, or enter into or make or amend any contract, agreement,
understanding, loan, advance or guarantee with, or for the benefit of, any
of its Affiliates;
(e) issue Stock or options, rights or warrants or other commitments to
purchase or securities convertible into (or exchangeable or redeemable for)
shares of Stock, including, without limitation, OP Units (such options,
rights, warrants, other commitments or securities, "Stock Equivalents");
provided, however, that Supermajority Board Approval shall not be required
for any issuance of Stock or Stock Equivalents as long as the sum of (i)
all shares of Stock issued by the Corporation during the applicable fiscal
year and (ii) shares of Stock into which Stock Equivalents issued by the
Corporation and each of its Subsidiaries during the applicable fiscal year
are convertible, does not exceed fifty percent (50%) of all shares of Stock
outstanding, on a Fully Diluted basis, on the first day of such fiscal
year; provided, further, that in connection with any issuance by the
Corporation of Stock or issuance by the Corporation or any of its
Subsidiaries of any Stock Equivalents, Investor shall be entitled, to the
extent so provided in Section 4.1 of the Stock Purchase Agreement, to a
participation right on the terms set forth in Section 4.1 of the Stock
Purchase Agreement. Notwithstanding the first sentence of this Section
11(e), (i) Stock issued to the Corporation or a wholly owned Subsidiary
thereof and (ii) Stock and Stock Equivalents issued to directors or
employees of the Corporation or a Subsidiary of the Corporation in
connection with any employee benefit plan approved by the stockholders of
the Corporation, shall not be subject to Supermajority Board Approval;
(f) change or amend any provision of the Corporation's Charter or
bylaws in a manner that would be materially adverse to Investor;
(g) pursuant to or within the meaning of any bankruptcy law: (i)
commence a voluntary case, (ii) consent to the entry of an order for relief
against it in an involuntary case, (iii) consent to the appointment of a
custodian of it or for all or substantially all of its property; (iv) make
a general assignment for the benefit of its creditors;
(h) in the case of the Corporation, (1) terminate its eligibility for
treatment as a real estate investment trust, as defined in the Code, or (2)
take any action or fail to take any action which would reasonably be
expected to, alone or in conjunction with any other factors, result in the
loss of such eligibility, unless in the case of a failure to take action,
such action is initiated within thirty days and such action is completed
within the period required under the Code in order to maintain such
eligibility; or
(i) subject to the right of the Corporation to terminate the Stock
Purchase Agreement pursuant of Section 9.1(b)(iii) thereof, allow the
consummation of any transaction (including, without limitation, any merger
or consolidation) the result of which is that any "person" (as defined
above), other than Investor, becomes the "beneficial owner" (as such term
is defined in Rule 13d-3 and Rule 13d-5 under the Exchange Act), directly
or indirectly, of stock having more than 15% of the voting power of the
Company.
11
<PAGE>
ARTICLE III
Officers
Section 1. GENERAL PROVISIONS.
The Board of Directors at such time as it determines may elect such
executive officers, as defined in Section 3(f) of this Article III, as the Board
of Directors deems necessary. The Board of Directors may assign such additional
titles to one or more of the officers as they shall deem appropriate. Any two or
more executive offices may be held by the same person. Other officers may be
appointed in the manner provided for in these Bylaws. The election or
appointment of an officer for a given term, or a general provision in the
Articles of Incorporation or in these Bylaws with respect to term of office,
shall not be deemed to create any contract rights.
Section 2. TERM OF OFFICE, REMOVAL, AND VACANCIES.
(a) Term. Each officer of the Corporation shall hold office during the
pleasure of the Board of Directors and until his successor is elected and
qualified, unless he sooner dies or resigns or is removed.
(b) Removal. Subject to the terms of any agreement relating to the
employment or service of any officer of the Corporation, the Board of Directors
by a vote of two-thirds of the members present at a meeting at which a quorum is
present may remove any executive officer at any time, with or without cause, and
the Board of Directors by a vote of a majority of its members present at a
meeting at which a quorum is present may remove any other officer at any time,
with or without cause.
(c) Vacancies. Any vacancy in any executive office may be filled by the
Board of Directors.
Section 3. POWERS AND DUTIES.
(a) In General. Subject to the specific provisions of these Bylaws, all
officers, as between themselves and the Corporation, shall respectively have
such authority and perform such duties as are customarily incident to their
respective offices, and as may be specified from time to time by the Board of
Directors, regardless of whether such authority and duties are customarily
incident to such office. In the absence of any officer of the Corporation, or
for any other reason the Board of Directors may deem sufficient, the Board of
Directors may delegate from time to time the powers or duties of such officer,
or any of them, to any other officer or to any Director.
(b) President. The President shall, in the absence of the Chairman or upon
the determination of the Board of Directors, preside at all meetings of the
stockholders. The President shall be the chief executive officer of the
Corporation and shall have general supervision over its property, business and
affairs, and shall perform all the duties usually incident to such office,
subject to the direction of the Board of Directors. He may execute all
authorized deeds, mortgages, bonds, contracts and other obligations in the name
of the Corporation and, subject to the provisions of these Bylaws, shall have
such other powers and duties as may be prescribed by the Board of Directors.
(c) Vice Presidents. The Vice Presidents shall have such powers, duties and
titles as may be prescribed by the Board of Directors or as may be delegated by
the President.
(d) Secretary. The Secretary shall attend and shall keep the minutes of all
meetings of the stockholders and the Board of Directors (and perform similar
duties for the committees of the Board of Directors when required). He shall
keep such books as may be required by the Board of Directors, shall have charge
of the seal, if any, of the Corporation and shall be permitted, subject to the
provisions of these Bylaws, to give notices of stockholders' and directors'
meetings required by law or by these Bylaws, or otherwise, and have such other
powers and duties as may be prescribed by the Board of Directors.
12
<PAGE>
(e) Treasurer. The Treasurer shall receive and have charge of all money,
bills, notes, bonds, stock in other corporations and similar property belonging
to the Corporation, and shall do with the same as shall be ordered by the Board
of Directors. He shall disburse the funds and pledge the credit of the
Corporation as may be directed by the Board of Directors. He shall keep accurate
financial accounts and hold the same open for inspection and examination by the
directors. On the expiration of his term of office, he shall turn over to his
successors, or the Board of Directors, all property, books, papers and money of
the Corporation in his hands, and shall possess such other powers and duties as
may be prescribed by the Board of Directors.
(f) Executive Officers. The officers referred to in subparagraphs (b), (c),
(d) and (e) of this section, and such other officers as the Board of Directors
may by resolution identify as such shall be executive officers of the
Corporation and may be referred to as such.
(g) Other Officers. The Assistant Vice Presidents, Assistant Secretaries,
Assistant Treasurers, if any, and any other subordinate officers shall be
appointed and removed by the President or the Board of Directors at whose
pleasure each shall serve and shall have such powers and duties as they may
prescribe.
Section 4. COMPENSATION.
The Board of Directors is authorized to determine or to provide the method
of determining the compensation of all officers.
Section 5. BONDS.
If required by the Board of Directors, any and every officer or agent shall
give the Corporation a bond in a sum and with one or more sureties satisfactory
to the Board of Directors for the faithful performance of the duties of his
office and for the restoration to the Corporation, in case of his death,
resignation, retirement or removal from office, of all books, papers, vouchers,
money and other property of whatever kind in his possession or under his control
belonging to the Corporation.
ARTICLE IV
Securities Held by Corporation
Section 1. TRANSFER OF SECURITIES OWNED BY THE CORPORATION.
All endorsements, assignments, transfers, share powers or other instruments
of transfer of securities standing in the name of the Corporation shall be
executed for and in the name of the Corporation by the President or by any Vice
President, or by the Secretary or Treasurer or by any additional person or
Persons as may be thereunto authorized by the Board of Directors.
Section 2. VOTING SECURITIES HELD BY THE CORPORATION.
The President, any Vice President, or the Secretary or Treasurer, in person
or by another person thereunto authorized by the Board of Directors, in person
or by proxy or proxies appointed by him, shall have full power and authority on
behalf of the Corporation to vote, act and execute consents, waivers and
releases with respect to any securities issued by other corporations which the
Corporation may own.
13
<PAGE>
ARTICLE V
Share Certificates
Section 1. TRANSFER AND REGISTRATION OF CERTIFICATES.
The Board of Directors shall have authority to make such rules and
regulations, not inconsistent with law, the Articles of Incorporation or these
Bylaws, as it deems expedient concerning the issuance, transfer and registration
of certificates for shares and the shares represented thereby.
Section 2. CERTIFICATES FOR SHARES.
Each holder of shares is entitled to one or more certificates for shares of
the Corporation in such form not inconsistent with law and the Articles of
Incorporation as shall be approved by the Board of Directors. Each such
certificate shall be signed by the President or any Vice President, and by the
Secretary, an Assistant Secretary, the Treasurer, or an Assistant Treasurer of
the Corporation, which certificate shall certify the number and class of shares
held by such stockholder in the Corporation, but no certificates for shares
shall be executed or delivered until such shares are fully paid. Any or all of
the signatures upon such certificate may be a facsimile, engraved or printed. In
case any officer, transfer agent or registrar who has signed, or whose facsimile
signature has been placed upon, any share certificate shall have ceased to be
such officer, transfer agent or registrar, before the certificate is issued, it
may be issued with the same effect as if he were such officer, transfer agent or
registrar at the date of its issue.
Section 3. TRANSFER AGENTS, REGISTRARS AND DIVIDEND DISBURSING AGENTS.
The Board of Directors may from time to time by resolution appoint one or
more incorporated transfer agents and registrars (which may or may not be the
same corporation) for the shares of the Corporation, and the Board of Directors
from time to time by resolutions may appoint a dividend disbursing agent to
disburse any and all dividends authorized by the Board of Directors payable upon
the shares of the Corporation.
Section 4. TRANSFERS.
Subject to restrictions on the transfer of stock, upon surrender to the
Corporation or the duly appointed transfer agent of the Corporation of a
certificate for shares duly endorsed or accompanied by proper evidence of
succession, assignation or authority to transfer, it shall be the duty of the
Corporation to issue a new certificate to the person entitled thereto, cancel
the old certificate and record the transaction upon its books. No transfer shall
be made which would be inconsistent with the applicable provisions of the
Uniform Commercial Code.
Section 5. LOST, STOLEN OR DESTROYED CERTIFICATES.
The Corporation may issue a new certificate for shares in place of any
certificate or certificates heretofore issued by the Corporation alleged to have
been lost, stolen or destroyed upon the making of an affidavit of that fact by
the person claiming the certificate of stock to have been lost, stolen or
destroyed. When authorizing such issue of a new certificate or certificates, the
Board of Directors or any duly authorized executive officer may, in its or his
discretion, and as a condition precedent to the issuance thereof, require the
owner of such lost, stolen or destroyed certificate or certificates, or his
legal representatives, to attest the same in such manner as it shall require and
to indemnify the Corporation, its directors, officers, employees, agents and
representatives, and in connection therewith to give the Corporation a bond in
such sum and containing such terms as the Board of Directors or such executive
officer may direct, against any claim that may be made against the Corporation
with respect to the certificate or certificates alleged to have been lost,
stolen or destroyed or the issuance of the new certificate.
14
<PAGE>
Section 6. PROTECTION OF THE CORPORATION.
The Corporation may treat a fiduciary as having capacity and authority to
exercise all rights of ownership in respect of shares of record in the name of
the decedent holder, person, firm or corporation in conservation, receivership
or bankruptcy, minor, incompetent person, or person under disability, as the
case may be, for whom he is acting, or a fiduciary acting as such, and the
Corporation, its transfer agent and registrar, upon presentation of evidence of
appointment of such fiduciary shall be under no duty to inquire as to the powers
of such fiduciary and shall not be liable to any firm, person or corporation for
loss caused by any act done or omitted to be done by the Corporation or its
transfer agent or registrar in reliance thereon.
ARTICLE VI
Indemnification of Directors, Officers and Other Authorized Representatives
Section 1. INDEMNIFICATION OF AUTHORIZED REPRESENTATIVES IN THIRD-PARTY
PROCEEDINGS.
The Corporation shall indemnify any person who was or is an "authorized
representative" of the Corporation (which shall mean for purposes of this
Article a director or officer of the Corporation, or a person serving at the
request of the Corporation as a director, officer, employee, agent or trustee,
of another corporation, partnership, joint venture, trust or other enterprise,
including employee benefit plans) and who was or is a "party" (which shall
include, for purposes of this Article, the giving of testimony or similar
involvement) or is threatened to be made a party to any "third-party proceeding"
(which shall mean for purposes of this Article any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative,
or investigative, other than an action by or in the right of the Corporation) by
reason of the fact that such person was or is an authorized representative of
the Corporation, from and against expenses (which shall include, for purposes of
this Article, attorneys' fees), judgments, penalties, fines and amounts paid in
settlement actually and reasonably incurred by such person in connection with
such third-party proceeding if such person acted in good faith and in a manner
such person reasonably believed to be in or not opposed to the best interests of
the Corporation and, with respect to any criminal third-party proceedings (which
could or does lead to a criminal third-party proceeding) had no reasonable cause
to believe such conduct was unlawful. The termination of any third-party
proceeding by judgment, order, settlement, conviction or upon a plea of nolo
contendere or its equivalent, shall not, of itself, create a presumption that
the authorized representative did not act in good faith and in a manner which
such person reasonably believed to be in, or not opposed to, the best interests
of the Corporation, and, with respect to any criminal third-party proceeding,
had reasonable cause to believe that such conduct was unlawful.
Section 2. INDEMNIFICATION OF AUTHORIZED REPRESENTATIVES IN CORPORATE
PROCEEDINGS
The Corporation shall indemnify any person who was or is an authorized
representative of the Corporation and who was or is a party or is threatened to
be made a party to any "corporate proceeding" (which shall mean, for purposes of
this Article, any threatened, pending or completed action or suit by or in the
right of the Corporation to procure a judgment in its favor or investigative
proceeding by the Corporation) by reason of the fact that such person was or is
an authorized representative of the Corporation, against expenses actually and
reasonably incurred by such person in connection with the defense or settlement
of such corporate proceeding if such person acted in good faith and in a manner
such person reasonably believed to be in or not opposed to the best interests of
the Corporation, except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the Corporation unless and only to the extent that the court in which
such corporate proceeding was pending shall determine upon application that,
despite the adjudication of liability but in view of all the circumstances of
the case, such authorized representative is fairly and reasonably entitled to
indemnity for such expenses that such court shall deem proper.
15
<PAGE>
Section 3. MANDATORY INDEMNIFICATION OF AUTHORIZED REPRESENTATIVES.
To the extent that an authorized representative of the Corporation has been
successful on the merits or otherwise in defense of any third-party or corporate
proceedings or in defense of any claim, issue or matter therein, such person
shall be indemnified against expenses actually and reasonably incurred by such
person in connection therewith.
Section 4. DETERMINATION OF ENTITLEMENT TO INDEMNIFICATION.
Any indemnification under Section 1, 2 or 3 of this Article VI (unless
ordered by a court) shall be made by the Corporation only as authorized in the
specific case upon a determination that indemnification of the authorized
representative is proper in the circumstances because such person has either met
the applicable standard of conduct set forth in Section 1 or 2 or has been
successful on the merits or otherwise as set forth in Section 3 and that the
amount requested has been actually and reasonably incurred. Such determination
shall be made:
(1) by the Board of Directors by a majority of a quorum consisting of
directors who were not parties to such third-party or corporate proceedings; or
(2) if such a quorum is not obtainable, or, even if obtainable, a majority
vote of such a quorum so directs, by independent legal counsel in a written
opinion; or
(3) by the stockholders.
Section 5. ADVANCING EXPENSES.
Expenses actually and reasonably incurred in defending a third-party or
corporate proceeding shall be paid on behalf of an authorized representative by
the Corporation in advance of the final disposition of such third-party or
corporate proceeding upon receipt of an undertaking by or on behalf of the
authorized representative to repay such amount if it shall ultimately be
determined that such person is not entitled to be indemnified by the Corporation
as authorized in this Article VI.
Section 6. EMPLOYEE BENEFIT PLANS.
For purposes of this Article, the Corporation shall be deemed to have
requested an authorized representative to serve an employee benefit plan where
the performance by such person of duties to the Corporation also imposes duties
on, or otherwise involves services by, such person to the plan or participants
or beneficiaries of the plan; excise taxes assessed on an authorized
representative with respect to an employee benefit plan pursuant to applicable
law shall be deemed "fines"; and action taken or omitted by such person with
respect to an employee benefit plan in the performance of duties for a purpose
reasonably believed to be in the interest of the participants and beneficiaries
of the plan shall be deemed to be for a purpose that is not opposed to the best
interests of the Corporation.
Section 7. SCOPE OF ARTICLE.
The indemnification of and the advancement of expenses to authorized
representatives, provided by, or granted pursuant to, this Article, shall (i)
not be deemed exclusive of any other rights to which those seeking
indemnification or advancement of expenses may be entitled under any statute,
agreement, vote of stockholders or disinterested directors or otherwise, both as
to action in an official capacity and as to action in other capacities, (ii)
continue as to a person who has ceased to be an authorized representative, and
(iii) inure to the benefit of the heirs, personal representatives, executors,
and administrators of such person.
16
<PAGE>
Section 8. RELIANCE ON PROVISIONS.
Each person who shall act as an authorized representative of the
Corporation shall be deemed to be doing so in reliance upon rights of
indemnification provided by this Article VI.
Section 9. INSURANCE.
The Corporation shall have the power to purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee, trustee or
agent of or for the Corporation, or is or was serving at the request or with the
prior approval of the Corporation as a director, officer, employee, trustee or
agent of another corporation, partnership, joint venture, trust or other
enterprise (including employee benefit plans), against any liability asserted
against him and incurred by him in any capacity or arising out of his status as
such, whether or not the corporation would have the power to indemnify him
against such liability under the provisions of these Bylaws.
ARTICLE VII
General
Section 1. CONTRACTS, CHECKS, ETC.
All contracts, agreements, checks, drafts, notes, bonds, bills of exchange
and orders for the payment of money shall be signed or endorsed by the persons
whom the Board of Directors prescribes therefor.
Section 2. FISCAL YEAR.
The fiscal year of the Corporation shall commence on January 1 of each year
and end on December 31 of the following year, unless otherwise determined by the
Board of Directors.
Section 3. FORM OF NOTICES.
Whenever notice is required to be given to any director or officer or
stockholder, such notice may be given either in person or by mail, telephone or
telegram, facsimile transmission, telex or similar medium of communication,
except as expressly provided otherwise in these Bylaws. Except as provided in
Article II, Section 4(c), if mailed, the notice will be deemed given when
deposited in the United States mail, postage prepaid, addressed to the
stockholder, officer or director at such address as appears on the books of the
Corporation. If given in person or by telephone, notice will be deemed given
when communicated. If given by telegram, facsimile transmission, telex or
similar medium of communication, notice will be deemed given when properly
dispatched.
Section 4. SEAL.
The Corporation may, but shall not be required to, have a corporate seal,
which shall have inscribed thereon the name of the Corporation, the year of its
organization and the words "Incorporated Maryland." The seal may be used by
causing it or a facsimile thereof to be impressed or affixed or reproduced or
otherwise. The Secretary shall have custody of the corporate seal of the
Corporation and shall have authority to affix the same to any instrument
requiring it and when so affixed, it may be attested by the Secretary's
signature. The Board of Directors may give general authority to any other
officer to affix the seal of the Corporation and to attest the affixing by his
signature. Whenever the Corporation is permitted or required to affix its seal
to a document, it shall be sufficient to meet the requirements of any law, rule
or regulation relating to a seal to place the word "(SEAL)" adjacent to the
signature of the person authorized to execute the document on behalf of the
Corporation.
17
<PAGE>
Section 5. CONSISTENCY WITH ARTICLES OF INCORPORATION.
If any provision of these Bylaws shall be inconsistent with the
Corporation's Articles of Incorporation (and as it may be amended from time to
time), the Articles of Incorporation (as so amended at the time) shall govern.
ARTICLE VIII
Amendments
Except as otherwise provided in the Articles of Incorporation, these Bylaws
may be altered, amended, or repealed or new bylaws may be adopted by the
affirmative vote of the directors of the Corporation or by the affirmative vote
of the holders of a majority of the shares of the Corporation entitled to vote
in the election of directors, voting as one class at any regular meeting of the
stockholders or of the Board of Directors or at any special meeting of the
stockholders or of the Board of Directors if notice of such alteration,
amendment, repeal or adoption of new bylaws be contained in the notice of such
special meeting.
ARTICLE IX
Applicability of the Maryland Control Shares Acquisition Statute
The Maryland Control Shares Acquisition Statute shall not apply to the
voting rights of stock acquired pursuant to the Stock Purchase Agreement by and
between the Corporation and Prometheus Southeast Retail LLC dated as of February
24, 1998, and any amendment thereto.
18
AMENDED AND RESTATED
MASTER AGREEMENT
This AMENDED AND RESTATED MASTER AGREEMENT (this "Agreement") is made as of
the June 30, 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; and the other
signatories to this Agreement hereinafter contained (each a "Contributor" and
collectively the "Contributors").
WHEREAS, FAC, the Operating Partnership, Konover Management South, and the
Contributors are parties to that certain Master Agreement dated as of February
24, 1998 (the "Original Master Agreement"); and
WHEREAS, the parties desire to amend certain provisions of the Original
Master Agreement and to restate the Original Master Agreement in its entirety;
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 that the Original Master Agreement
is hereby amended and restated in its entirety 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.
"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,
<PAGE>
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.
"Agreement" means this Amended and Restated Master Agreement.
"Allocated Property Value" means as defined in Section 3.1(a).
"Apportionment Date" means April 1, 1998.
"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
2
<PAGE>
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.
"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 Shipman & Goodwin, 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
3
<PAGE>
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.
"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 Amended and
Restated Stock Purchase Agreement dated as of March 23, 1998 by and between
FAC and Prometheus Southeast Retail LLC with respect to the Lazard
Transaction.
"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, businesses 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
4
<PAGE>
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 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 from 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 December 31, 1998.
"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
5
<PAGE>
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.
"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 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.
6
<PAGE>
"Warrants" means the Warrants to be issued by FAC to Simon Konover or
permitted members of his immediate family and which contain the material
terms provided in Section 5.17 and are otherwise mutually satisfactory to
FAC and Simon Konover.
ARTICLE II
THE TRANSACTIONS
2.1 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 the Properties described in the
Acquisition Schedule and the Operating Partnership does hereby agree to accept
such Properties and issue to each Contributor, in exchange for such
contribution, the Units and/or cash as provided in Section 2 hereof and the
Acquisition Schedule, subject to adjustment in accordance with Section 3.1(a)
hereof. Notwithstanding anything to the contrary in this Agreement, 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.
2.2 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.
2.3 Lake Point. The parties agree that with respect to the conveyance and
acquisition of the Property known as Lake Point Centre in West Palm Beach, FL
(the "Lake Point Property"), the representations and warranties set forth in
paragraph 20(b) of Schedule 6.1A are hereby amended by deleting exceptions (a)
and (b) relating to the Lake Point Property as shown on Schedule 6.1A.20(b) and
substituting the following in lieu thereof:
As to that portion of the Lake Point Property where (a) tenant improvement
construction is to be performed by tenants under the provisions of leases
approved in accordance with the provision of this Agreement and has not
been completed as of the date hereof, or (b) tenant improvement
construction for Karin's, Bay E-2, under a Standard Form of Agreement
between Owner and Contractor with Konover Construction Corporation South,
as amended by change order, has not been completed as of the date hereof
but shall be completed by the applicable Closing Date, or (c) tenant space
is vacant and no lease has been executed nor has any tenant improvement
work commenced (collectively, the "Excluded Property"), the Contributors
and the Constituent Parties cannot represent as of this date:
(i) all certificates, permits or licenses that are currently required
from any governmental authority which are necessary to permit the
lawful use, occupancy or operation of the applicable tenant space have
been obtained; or
7
<PAGE>
(ii) that such tenant space is in good operating condition and repair,
and no material alterations are required.
The Contributor of the Lake Point Property hereby represents and warrants
to the knowledge of Contributor that (A) as of the date hereof, with the
exception of tenant improvements for the Excluded Property, construction of
the Property is completed and in full compliance with the representations
and warranties contained in paragraph 20(b) of Schedule 6.1A, (B) that as
of the Closing Date, at least 85.8% of the rentable square footage of the
Property (representing the entire Property other than the Excluded
Property) shall be in compliance with such representations and warranties,
and (C) the Contributor of the Lake Point Property has no knowledge of any
conditions requiring repair or defects at or in the Property (other that a
warranty repair claim of Winn-Dixie relating to a chair rail in the
vestibule, and repairs to the landscaping, irrigation system, and
fountains, all of which the Contributor agrees to repair or resolve prior
to the applicable Closing). The representations and warranties contained in
this Section 2.3 shall be updated as of the Closing Date in a manner
reasonably satisfactory to the Operating Partnership.
ARTICLE III
CONSIDERATION
3.1 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, and
subject to any reallocation as between cash and Units by individual
Contributors. 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
prorations and post-closing adjustments as provided herein.
(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 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
8
<PAGE>
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.
(d) Conflict with Operating Partnership Agreement; Redemption Right.
The parties hereby agree that in the event of direct conflict between the
express terms of this Agreement and the express terms of the Operating
Partnership Agreement, the express terms of this Master Agreement shall
prevail. In addition, the parties agree that, notwithstanding anything to
the contrary in the Operating Partnership Agreement, if upon exercise of
any Redemption Right under and as defined in the Operating Partnership
Agreement by any Contributor, FAC is unable to issue Shares under its
Charter, then FAC shall either cause the Operating Partnership to redeem
the Contributor's Units for the "Cash Amount," as such term is defined in
the Operating Partnership Agreement, or to purchase such Contributor's
Units for the "Cash Amount."
3.2 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 as
adjusted pursuant to Section 3.1(a) above.
(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, all assumption and other fees
and costs associated with the Outstanding Debt Financing in connection with
the Lake Point Property (with the exception that document, transfer or
intangible taxes relating to the assumption shall be shared equally by the
Contributor of the Lake Point Property and the Operating Partnership), 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 and costs associated with the Outstanding Debt Financing (other
than debt associated with Lake Point Centre) shall be expenses of the
Operating Partnership and paid from resources of the Operating Partnership
existing prior to Closing at the time such fees and costs are incurred.
(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
9
<PAGE>
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. All transfer taxes incurred in connection with the Lake
Point Property shall be borne by the Contributor of the Lake Point
Property; title insurance premiums and recording fees relating to the Lake
Point Property shall be shared equally by the Contributor of the Lake Point
Property and the Operating Partnership.
3.3 Additional Closing Adjustments. Notwithstanding the date on which the
Closing occurs for each of the Properties, the parties intend that, from a
financial perspective, the transfer of the Properties shall be effective as of
the Apportionment Date. Accordingly, at the Closing:
(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
Apportionment Date. All such expenses for the period preceding the
Apportionment Date shall be deemed expenses of the applicable Contributors
and all such expenses commencing as of the Apportionment Date with respect
to such Property shall be deemed to be expenses of the Operating
Partnership and apportioned on a cash basis at the relevant Closing. All
accounts receivable accruing from and after the Apportionment Date which
are not collected as of the relevant Closing shall be credited to the
Contributor at Closing; all accounts payable accruing from and after the
Apportionment Date which are not paid as of the relevant Closing shall be
credited to the Operating Partnership at Closing. 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 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. All collected 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 Apportionment Date. All such
rent and other income for the period preceding the Apportionment Date shall
be deemed to be property of the applicable Contributors, and subject to the
provisions of subparagraph (a), above, all rent and other income for any
period commencing as of the Apportionment 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). Except as provided on
Schedule 3.3(b)(i) attached hereto, delinquent rent, accounts and notes
receivable and other outstanding amounts shall not be prorated, but are
hereby assigned to and shall be deemed the property of the Operating
Partnership. Any amounts received by Contributors on account of rent or
other income after the Apportionment Date with respect to the Property and
the related personal property shall be allocated to the Operating
10
<PAGE>
Partnership at Closing or turned over to the Operating Partnership for
application in accordance with the terms of this Section, as applicable.
At the respective Closings, the Operating Partnership agrees to assume
responsibility for repayment of these security deposits set forth in
Schedule 3.3(b)(ii) attached hereto, which the Contributors represent
hereby represent and warrant that such schedule includes a true and
complete list of all obligations of the landlord under leases affecting the
Properties with regard to security, cleaning or similar tenant deposits
which could become the obligation of the Operating Partnership following
the Closing.
(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 preceding the Apportionment Date, late
charges and default interest shall be apportioned on a per diem basis as of
midnight on the date immediately preceding the Apportionment Date. Reserves
by the holders of Outstanding Debt Financing for TI Obligations shall be
returned to or credited to the Contributors except to the extent such TI
Obligations are the responsibility of the Contributors pursuant to Section
3.3(f) hereof. Any amortization payments made by the Contributors preceding
the Apportionment Date shall be taken into account in determining the Units
and/or cash due to the Contributors as of the Apportionment Date on account
of the Purchase Price. Any amortization payments made by the Contributors
following the Apportionment Date shall be reimbursed to the Contributors at
Closing.
(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 February 24, 1998 and for all
commissions pursuant to leases entered into between February 24, 1998 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 February 24, 1998
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), exclusive of obligations for leasing commissions
due for leases entered into for the premises affected by the Lease Guaranty
(as defined in Section 4.5 (xxviii)), which shall remain the responsibility
of the Contributor in accordance with the provisions of the Lease Guaranty.
(e) Service Contracts. The Operating Partnership will assume the
obligations arising after Closing under such service contracts affecting
the Properties in existence on February 24, 1998 as (i) were disclosed to
FAC and the Operating Partnership in writing by the Contributors prior to
February 24, 1998 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 February 24, 1998 and Closing
if such service contracts shall have been approved by FAC and the Operating
Partnership.
11
<PAGE>
(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 landlord tenant improvement
obligations and expenses, tenant allowances or rent abatements ("TI
Obligations") under leases in existence on February 24, 1998. After
Closing, the Operating Partnership shall be responsible for TI Obligations
under leases executed after February 24, 1998 with the prior written
approval of FAC and the Operating Partnership and for all TI Obligations
relating to the period from and after the Apportionment Date under the
contracts listed on Schedule 6.1A.8, exclusive of TI obligations relating
to the Lake Point Property, which shall remain the responsibility of the
Contributor. 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 (i) all necessary
written consents and acknowledgments of third parties shall have been
obtained by Contributors or the Constituent Partnerships, as applicable,
and (ii) the Contributors shall, on or before the Closing Date, pay any and
all amounts due on account of each of the construction agreements described
in Section 2.3, above.
(g) Preclosing Expenses and Liabilities. The parties acknowledge that
not all invoices for expenses incurred with respect to the Properties prior
to the Apportionment 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 the Closing (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 Apportionment 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 Apportionment 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) Return of Equity. With respect to the Property or Properties to be
acquired at any Closing, the Operating Partnership shall pay to the
Constituent Parties in cash at such Closing an amount equal to the product
of (A) .085, (B) the number of days from the Apportionment Date through the
Closing Date, divided by 365, and (C) the Constituent
12
<PAGE>
Parties' Net Equity (as hereinafter defined) in the subject Property or
Properties. For purposes of this paragraph, "Net Equity" shall mean the
difference between (i) the Allocated Property Value for the Property, and
(ii) the principal amount of any Outstanding Debt Financing relating to
such Property on the Apportionment Date.
(j) Apportionment Date. The parties acknowledge that the Apportionment
Date shall be a day of income and expense for the Operating Partnership.
3.4 Deliberately Omitted.
ARTICLE IV
CLOSING
4.1 Closing; Condition to Obligations. Closing of the transactions
contemplated hereby shall take place as to all Properties as soon as practicable
on or after July 1, 1998, but in any event 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. 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
13
<PAGE>
(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 Deliberately Omitted.
4.4 Deliberately Omitted.
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) Deliberately Omitted.
(ii) 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) Deliberately Omitted.
(vi) Assignments and/or terminations of all Management and Leasing
Agreements (as defined in Section 8.1(k), below), 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
14
<PAGE>
full any and all 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) Deliberately Omitted.
(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 damage to the Property, or ground
leases or any part
15
<PAGE>
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) Deliberately Omitted.
(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) A lease guaranty agreement (the "Lease Guaranty"), in the
form of Schedule 4.5(xxviii) hereto, relating to the Lake Point
Property.
(xxix) a mutual indemnification agreement (the "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
16
<PAGE>
third party claims, lawsuits and actions arising from matters or
circumstances arising after the Closing with respect to such
Contributor's respective Property.
(xxx) Any legally 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.
(xxxiii) A duly executed and acknowledged consent of Arnold Greenberg
and Phyllis Greenberg, in form and substance reasonably acceptable to
the Operating Partnership, evidencing their consent to the execution
and delivery of this Agreement by Lake Point Centre Associates, Ltd.
and the consummation of the transactions contemplated hereby which
relate to the Lake Point Property.
(xxxiv) All final certificates of completion and occupancy required by
applicable law, or other evidence satisfactory to FAC and the
Operating Partnership that all construction work at the Lake Point
Property (including work described in Section 2.3 above) shall have
been completed as of the Closing Date, and that such work is
acceptable to all appropriate governmental authorities having
jurisdiction thereover and the party for whom the work is being so
performed, with the exception of tenant improvement construction (A)
to be performed by tenants under the provisions of leases approved in
accordance with the provisions of this Agreement, or (B) for tenant
space which is vacant and no lease has been executed.
(xxxv) Evidence reasonably satisfactory to FAC, the Operating
Partnership and the Title Company that all conditions of the Ordinance
issued by the City of West Palm Beach and relating to the development
of the Lake Point Property have been satisfied.
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.
17
<PAGE>
(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, including
a REIT qualification opinion similar to the REIT qualification opinion
for FAC in the Lazard Transaction, and reasonably satisfactory to
Contributor Counsel and to counsel for FAC and the Operating
Partnership in form and substance.
(vi) The Warrants.
(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
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.
18
<PAGE>
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 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 Deliberately Omitted.
19
<PAGE>
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 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.
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.
20
<PAGE>
5.17 Konover Name; Change in Management.
(a) Name Change. As soon as practical following the 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 "KPT Properties,
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." 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 FAC name change described herein,
FAC shall operate as a "d/b/a" under a name substantially similar to
"Konover/FAC" or "KPT". FAC shall, subject to availability, trade under the
New York Stock Exchange symbol "KPT". 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.
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 all of the assets 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
of such liquidation or of the issuance of such report of independent
auditors 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 Trade name assignment agreement all of their interests in the
Trade names assigned thereunder, effective upon the effective date of such
merger, combination, consolidation or asset combination (the "Trade name
Reassignment Right"). Failure to exercise the Trade name Reassignment Right
within such thirty (30) day period shall conclusively waive such right with
respect to the proposed transaction. The Trade name 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
21
<PAGE>
Konover shall succeed to the Trade name 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:
(i) At 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 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. In addition, at the first meeting of the Board to occur
following the shareholder's meeting scheduled for August 5, 1998, FAC
shall request that Robert O. Amick agree to resign from the Board, and
shall nominate, promote and support Simon Konover to become a member
of the Board and to be named Chairman as of that date, rather than
waiting until the final Closing. Following his election to the Board,
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, and such compensation shall
continue (whether or not he is then a member of the Board) for a
minimum of three (3) years following the Management Closing Date,
except that such compensation shall terminate in the event that Simon
Konover (A) chooses not to be a member of the Board, (B) is compelled
to resign (or is removed) from the Board for cause, or (C) dies or is
incapacitated. In addition, from the date of the first Closing
hereunder until the earlier to occur of the date Simon Konover becomes
a member 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. On the Closing Date (or if there may be more than one,
the first Closing):
(i) FAC shall issue to Simon Konover or members of his immediate
family (or wholly owned entities) who are "accredited investors"
warrants (the "Warrants") to purchase 100,000 Shares at an exercise
price of $9.50 per Share, provided that (A) one-fifth (20%) of such
Warrants shall vest on the first anniversary of the first 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 Trade
22
<PAGE>
name 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 on or prior to
February 24, 2008.
(ii) In addition, FAC shall issue to Simon Konover or members of
his immediate family (or wholly owned entities) who are "accredited
investors" 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 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.
Each party to whom Warrants are to be issued shall, prior to issuance,
provide customary forms of investor questionnaires and other evidence
reasonably satisfactory to FAC that such party is an "accredited investor".
5.18 Title Matters. At or prior to Closing of the relevant Properties, the
applicable Contributor shall:
(a) Execute, acknowledge and record a Declaration of Agreement and
Easements in the form attached hereto as Schedule 5.18 relating to the
Property known as "Oakland Park Festival Centre" in Oakland Park, FL.
(b) Provide evidence that a document reasonably satisfactory to the
Operating Partnership and the Title Company has been recorded which (A)
demonstrates that the encroachments onto the general utility easement
described on Schedule 6.1A.20(d) as affecting the Lake Point Centre, no
longer exists, in that the easements has been abandoned as to the affected
area, or (B) constitutes a consent to the encroachment.
5.19 Oral Leasing Agreements. All oral leasing agreements relating to goods
or services provided to the Lake Point Property, including those oral agreements
for leasing commission shown as items f and g on Schedule 6.1.A.8, shall be paid
in full prior to Closing, and such agreements shall be terminated prior to
Closing if such agreements would otherwise remain in effect following the
Closing.
5.20 Liabilities; Indebtedness. With respect to matters shown on Schedules
6.1A.1, 6.1A.9 and 6.1A.20(g) of this Agreement, it is acknowledged that prior
to the Closing, the Contributor of the Lake Point Property has consummated a
refinancing transaction whereby the existing construction loan mortgage held by
BankAtlantic with an approximate outstanding principal balance of $7,978,905.50
as of January 1, 1998 (the "BankAtlantic Mortgage") has been replaced by a
renewal mortgage in favor of Teachers Insurance and Annuity Association of
America (the "TIAA Mortgage") in the original principal amount of
$11,175,000.00. Notwithstanding anything to the contrary contained in this
Agreement, so long as the assumption agreement required to be
23
<PAGE>
executed in order to assume the TIAA Mortgage is reasonably satisfactory in form
and substance to the Operating Partnership, the TIAA will be assumed at Closing
and any assumption fees and other charges due in connection therewith (not to
exceed $1,000.00) shall be paid in accordance with the provisions of Section 3.2
hereof.
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 (collectively,
"Constituent Knowledge Parties"); provided that no Constituent Knowledge Parties
shall be liable under this Agreement by virtue of their status as Constituent
Knowledge Parties or their possessing actual knowledge of any facts, it being
the intent of the parties that such liability shall be recourse only to the
assets of the applicable Constituent Parties.
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
24
<PAGE>
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 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,
agreements or restrictions (such as those contained in Article X) that
contemplate or may involve actions to be taken or obligations in effect after
the Closing shall survive Closing for a period of thirteen (13) months following
the specified period during which such covenants, agreements or restrictions
apply 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
25
<PAGE>
set forth herein. Notwithstanding any other provision of this Agreement to the
contrary, in no event shall Loss and Expense 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 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 Expense 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
Expense as provided by paragraphs (a) and (b), respectively, of this Section 6.5
until the cumulative aggregate amount of such Loss and Expense suffered by the
aggrieved party exceeds $500,000 in which case the party(ies) responsible for
such Loss and Expense shall be liable for all such Loss and Expense, 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 indemnified 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
26
<PAGE>
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 who is to
receive Units as to his or its Interests represents and warrants to the
Operating Partnership as follows:
7.1 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.
7.2 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.
7.3 No Transfer. Such Contributor understands that 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.
7.4 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).
7.5 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
27
<PAGE>
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.
7.6 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:
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.
7.7 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:
28
<PAGE>
(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 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 Management Closing Date (as hereinafter defined), to the
management and leasing of all of the properties managed or leased by
Konover Management South, including (without limitation) Port St. Lucie,
FL, Liberty, NY, Monticello, NY and Montague (Tri-State), NJ, but excluding
those leasing obligations described in Schedule 12.1 attached hereto.
(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 February 24, 1998 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 number of 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
aggregate base rent payable by all of the tenants of the Properties.
29
<PAGE>
(f) Deliberately Omitted.
(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 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 since February 24, 1998.
(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
30
<PAGE>
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 the 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.
(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) Deliberately Omitted.
(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
(other than the consent of the Greenbergs described in Section 4.5 (xxxiii)
hereof) 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, the Contributor of
the Property commonly known as "Mobile Festival Centre" in Mobile, AL,
hereby agrees to use good faith efforts to redeem the Interests in such
Property owned by SREIT (Subrealco) Ltd. ("SREIT") at a price of
$5,300,000, and the Operating Partnership makes a monetary contribution by
the Operating Partnership of $226,154 (based on a contribution by such
Contributor of at least $180,000) toward the acquisition by such
Contributor of such Interests. The Operating Partnership shall advance when
required the sum of $50,000 on account of a non-refundable deposit required
in connection with the agreement to redeem SREIT's interests, so long as
(i) the agreement
31
<PAGE>
is in form and content reasonably acceptable to the Operating Partnership,
(ii) the Operating Partnership shall be afforded a reasonable opportunity
to acquire SREIT's interest substantially on the terms provided in the
redemption agreement (as a purchase rather than a redemption) in the event
of any Contributor default, and (iii) the Contributor assigns its interests
under the redemption agreement to the Operating Partnership as security for
any default by the Contributor under the redemption agreement or this
Agreement. In the event such Contributor is unable to purchase the
Interests of SREIT, 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 SREIT) 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 SREIT) 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.
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.
32
<PAGE>
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 or shall be incapacitated, Michael Konover, or if he shall not be alive or
shall be incapacitated, 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 satisfies the requirement of Section 10.1.B;
(ii) in connection with a taxable sale or disposition of any of the Restricted
Property which does 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 Related Unitholder 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 Related Unitholder 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 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
33
<PAGE>
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
or other disposition 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 or other disposition (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
sales or other disposition 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 no sale or other disposition shall be made under clause (i) or (ii) above
unless (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, when
combined with the taxes on Built-in-Gain arising from other sales or
dispositions under this Section 10.2 or loan repayments under Section 10.3, is
less than one hundred thousand dollars ($100,000) in the aggregate, excluding
any taxes on Built-in-Gain attributable to the prepayment at Closing of the
Outstanding Debt Financing relating
34
<PAGE>
to the Property known as "Food Lion Plaza" in Petersburg, VA (the "Petersburg
Property") or (ii) Simon Konover (or, if he shall not be alive or if he is
incapacitated, Michael Konover, or if he shall not be alive or if he is
incapacitated, 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. Notwithstanding
anything to the contrary contained in this Agreement, the parties agree that
based on current tax laws and regulations, the maximum amount of federal, state
and local income tax payable by the Related Unitholders as a result of
Built-
35
<PAGE>
in-Gain in the event of a sale described in this Section 10.2 would not exceed
the amounts set forth with respect to each Property on Schedule 10.2 hereof.
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 or if he is incapacitated, Michael Konover, or if he shall not be
alive or if he is incapacitated, 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, state and local income tax payable as a result of such
repayment by the Related Unitholders, when combined with the taxes on
Built-in-Gain arising from other loan repayments under this Section 10.3 or
sales or dispositions under Section 10.2, is less than one hundred thousand
dollars ($100,000) in the aggregate, excluding any taxes on Built-in-Gain
attributable to the prepayment at Closing of the Outstanding Debt Financing
relating to the Petersburg Property, 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 as defined in the Operating Partnership
Agreement) 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 written 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 and Michael 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. Notwithstanding anything to the contrary
contained in this Agreement, the parties agree that based on current tax laws
and regulations, the maximum amount of federal, state and local income tax
payable by the Related Unitholders as a result of Built-in-Gain in the event of
a prepayment of debt described in this Section 10.3 would not exceed the amounts
set forth with respect to each Property on Schedule 10.2 hereof.
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. Anything to the contrary in the Operating
Partnership Agreement to the contrary notwithstanding, 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 (and cause any transferee of such Property to
agree to use, for such period, as a condition of such transfer) the "traditional
method" set forth in Treasury Regulation
36
<PAGE>
ss.1.704-3(b) (i.e. without "curative allocations") with respect to such
Property (or Constituent Partnership).
10.6 Payment of Outstanding Debt Financing: Terms and Conditions.
Notwithstanding anything to the contrary contained in this Agreement, Simon
Konover and the Constituent Parties hereby consent to the prepayment of the
Outstanding Debt Financing relating to the Properties listed on Schedule 10.6
attached hereto contemporaneously with the applicable Closings.
ARTICLE XI
Deliberately Omitted
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, with the exception of those leasing
obligations described in Schedule 12.1 hereto (the "Excluded Leasing
Obligations"). To effect such assignment and assumption of the Management and
Leasing Agreements, Konover Management South and the Operating Partnership agree
to execute, effective July 1, 1998 (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. Konover
Management South shall retain all commissions and other amounts payable on
account of the Excluded Leasing Obligations, so long as Konover Management South
pays any commissions, bonuses or other compensation due employees (as
hereinafter defined) on account of leasing activities in connection with
Excluded Leasing Obligations.
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 January 1, 1999 the amount of $1,135,625 [i.e., $1,000,000
plus ($3,500,000)(.03875)]. In addition, the Operating Partnership shall pay
Konover Management South $1,443,750 on January 1, 2000 [i.e., $1,250,000 plus
($2,500,000) (.0775)], and shall pay to Konover Management South an additional
$1,346,875 on January 1, 2001 [i.e., ($1,250,000) (1.0775)]. Amounts to be paid
under this Section 12.2 shall not be subject to setoff. Interest shall accrue on
any such amounts not paid when due at the rate of nine and three quarters
percent (9.75%) per annum and shall be payable upon demand.
12.3 Assignment of Office Lease. Provided that the Management Closing
occurs, Konover Management South shall assign or cause to be assigned and the
Operating Partnership shall
37
<PAGE>
assume all of the named tenant'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 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 South covenants and agrees that from and
after the date hereof until the Management Closing Date, Konover Management
South (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.
38
<PAGE>
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"); provided, however, that (i) the Operating Partnership
shall pay Employee salaries from July 1, 1998 through July 15, 1998, and
thereafter, and (ii) at Closing, the Operating Partnership shall reimburse
Konover Management South the sum of $2,322.32 as partial reimbursement of
the cost of benefits paid to employees for the period commencing with and
following the Management Closing Date.
(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 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
39
<PAGE>
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: 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
40
<PAGE>
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 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
41
<PAGE>
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 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
42
<PAGE>
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.
43
<PAGE>
[PAGE INTENTIONALLY OMITTED]
44
<PAGE>
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:
45
<PAGE>
MASTER AGREEMENT SIGNATURE PAGE
Durham, NC
The undersigned, as a Contributor to that certain Amended and Restated
Master Agreement (the "Master Agreement") by and among FAC Realty Trust, Inc.,
FAC Properties, L.P., the undersigned and other Contributors and parties dated
as of June 30, 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 the 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)
46
<PAGE>
MASTER AGREEMENT SIGNATURE PAGE
Hollywood, FL
The undersigned, as a Contributor to that certain Amended and Restated
Master Agreement (the "Master Agreement") by and among FAC Realty Trust, Inc.,
FAC Properties, L.P., the undersigned and other Contributors and parties dated
as of June 30, 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 the 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)
47
<PAGE>
MASTER AGREEMENT SIGNATURE PAGE
Jenson Beach, FL
The undersigned, as a Contributor to that certain Amended and Restated
Master Agreement (the "Master Agreement") by and among FAC Realty Trust, Inc.,
FAC Properties, L.P., the undersigned and other Contributors and parties dated
as of June 30, 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 the Master Agreement and
shall be effective as of the date of the Master Agreement.
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)
48
<PAGE>
MASTER AGREEMENT SIGNATURE PAGE
Lenoir, NC
The undersigned, as a Contributor to that certain Amended and Restated
Master Agreement (the "Master Agreement") by and among FAC Realty Trust, Inc.,
FAC Properties, L.P., the undersigned and other Contributors and parties dated
as of June 30, 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 the 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
Its General Partner
By: KONOVER MANAGEMENT [SEAL]
CORPORATION, Its General Partner
ATTEST:
By:
- -------------------------- --------------------------------
Fred P. Steinmark
Its President
Duly Authorized
- --------------------------
(Corporate Seal)
49
<PAGE>
MASTER AGREEMENT SIGNATURE PAGE
Mobile, AL
The undersigned, as a Contributor to that certain Amended and Restated
Master Agreement (the "Master Agreement") by and among FAC Realty Trust, Inc.,
FAC Properties, L.P., the undersigned and other Contributors and parties dated
as of June 30, 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 the 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)
50
<PAGE>
MASTER AGREEMENT SIGNATURE PAGE
Oakland Park, FL
The undersigned, as a Contributor to that certain Amended and Restated
Master Agreement (the "Master Agreement") by and among FAC Realty Trust, Inc.,
FAC Properties, L.P., the undersigned and other Contributors and parties dated
as of June 30, 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 the 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)
51
<PAGE>
MASTER AGREEMENT SIGNATURE PAGE
Petersburg, VA
The undersigned, as a Contributor to that certain Amended and Restated
Master Agreement (the "Master Agreement") by and among FAC Realty Trust, Inc.,
FAC Properties, L.P., the undersigned and other Contributors and parties dated
as of June 30, 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 the Master Agreement and
shall be effective as of the date of the Master Agreement.
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 President
Duly Authorized
- --------------------------
(Corporate Seal)
AND
ATTEST: By: KONOVER MANAGEMENT
CORPORATION, Its Partner [SEAL]
By:
- -------------------------- --------------------------------
Fred P. Steinmark
Its President
Duly Authorized
- --------------------------
(Corporate Seal)
52
<PAGE>
MASTER AGREEMENT SIGNATURE PAGE
Smyrna, GA
The undersigned, as a Contributor to that certain Amended and Restated
Master Agreement (the "Master Agreement") by and among FAC Realty Trust, Inc.,
FAC Properties, L.P., the undersigned and other Contributors and parties dated
as of June 30, 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 the 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, general partner [SEAL]
By: KONOVER MANAGEMENT
CORPORATION [SEAL]
Its General Partner
ATTEST:
By:
- -------------------------- --------------------------------
Fred P. Steinmark
Its President
Duly Authorized
- --------------------------
(Corporate Seal)
53
<PAGE>
MASTER AGREEMENT SIGNATURE PAGE
Tampa, FL
The undersigned, as a Contributor to that certain Amended and Restated
Master Agreement (the "Master Agreement") by and among FAC Realty Trust, Inc.,
FAC Properties, L.P., the undersigned and other Contributors and parties dated
as of June 30, 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 the 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)
54
<PAGE>
MASTER AGREEMENT SIGNATURE PAGE
Lake Point Centre
The undersigned, as a Contributor to that certain Amended and Restated
Master Agreement (the "Master Agreement") by and among FAC Realty Trust, Inc.,
FAC Properties, L.P., the undersigned and other Contributors and parties dated
as of June 30, 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.
By: K. SOUTH, INC.
Its General Partner
ATTEST:
By:
- -------------------------- --------------------------------
Fred P. Steinmark
Its President
Duly Authorized
- --------------------------
(Corporate Seal)
55
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> Dec-31-1998
<PERIOD-START> Apr-01-1998
<PERIOD-END> Jun-30-1998
<CASH> 10,785
<SECURITIES> 0
<RECEIVABLES> 8,390
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 61,903
<PP&E> 565,404
<DEPRECIATION> (58,778)
<TOTAL-ASSETS> 568,529
<CURRENT-LIABILITIES> 31,742
<BONDS> 344,142
0
19,162
<COMMON> 142
<OTHER-SE> 173,341
<TOTAL-LIABILITY-AND-EQUITY> 568,529
<SALES> 0
<TOTAL-REVENUES> 32,333
<CGS> 0
<TOTAL-COSTS> 18,980
<OTHER-EXPENSES> 3,750
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,482
<INCOME-PRETAX> (879)
<INCOME-TAX> 0
<INCOME-CONTINUING> (879)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (879)
<EPS-PRIMARY> (0.07)
<EPS-DILUTED> (0.07)
</TABLE>
