Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999
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 IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
11000 Regency Parkway
Suite 300
Cary, North Carolina
(ADDRESS OF PRINCIPAL
EXECUTIVE OFFICES)
27511
(ZIP CODE)
(919) 462-8787
(Registrant's telephone
number, including area
code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
APPLICABLE ONLY TO 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 the court. Yes X No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 30,828,640 shares of Common
Stock, $0.01 par value, as of May 14, 1999.
<PAGE>
KONOVER PROPERTY TRUST, INC.
INDEX
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C> <C>
ITEM 1. Financial Statements (Unaudited)........................................................... 3
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................................................... 13
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk................................. 23
PART II. OTHER INFORMATION
ITEM 1. Legal Proceeding........................................................................... 24
ITEM 2. Changes in Securities and Use of Proceeds.................................................. 24
ITEM 3. Defaults Upon Senior Securities............................................................ 24
ITEM 4. Submission of Matters to a Vote of Security Holders........................................ 24
ITEM 5. Other Information.......................................................................... 24
ITEM 6. Exhibits and Reports on Form 8-K........................................................... 24
</TABLE>
2
<PAGE>
PART I
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
INDEX TO UNAUDITED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
Consolidated Balance Sheets as of March 31, 1999 and December 31, 1998................................. 4
Consolidated Statements of Operations for the three months ended March 31, 1999 and 1998............... 5
Consolidated Statements of Stockholders' Equity for the three months ended March 31, 1999.............. 6
Consolidated Statements of Cash Flows for the three months ended March 31, 1999 and 1998............... 7
Notes to Consolidated Financial Statements............................................................. 8
</TABLE>
3
<PAGE>
KONOVER PROPERTY TRUST, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, 1999 DECEMBER 31, 1998
(UNAUDITED) (AUDITED)
---------------------------------------------
(IN THOUSANDS)
ASSETS
<S> <C> <C>
INCOME PRODUCING PROPERTIES:
Land $ 113,561 $ 108,978
Buildings and improvements 464,255 437,932
Deferred leasing and other charges 29,573 28,561
---------------------------------------------
607,389 575,471
Accumulated depreciation and amortization (70,843) (66,108)
---------------------------------------------
536,546 509,363
Properties under development 10,874 7,414
Properties held for sale 5,887 5,946
Investment in joint ventures 44,035 32,138
---------------------------------------------
597,342 554,861
OTHER ASSETS:
Cash and cash equivalents 29,508 72,302
Restricted cash 5,562 6,052
Tenant and other receivables 10,557 12,076
Deferred charges and other assets 14,501 12,622
Notes receivable 22,575 24,536
---------------------------------------------
$ 680,045 $ 682,449
=============================================
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Debt on income properties $ 307,733 $ 304,783
Capital lease obligations 725 774
Accounts payable and other liabilities 13,634 15,305
---------------------------------------------
322,092 320,862
COMMITMENTS AND CONTINGENCIES
MINORITY INTEREST IN OPERATING PARTNERSHIP 12,852 12,246
STOCKHOLDERS' EQUITY:
Convertible preferred stock, Series A, 5,000,000 shares authorized, 792,000
issued and outstanding at March 31, 1999 and December 31, 1998 18,962 18,962
Stock purchase warrants 9 9
Commonstock, $0.01 par value, 100,000,000 shares authorized 30,878,640 and,
31,207,457 issued and outstanding at March 31, 1999 and December 31,
1998, respectively 309 313
Additional paid-in capital 326,210 328,705
Retained earnings - 1,612
Deferred compensation - Restricted Stock Plan (389) (260)
---------------------------------------------
345,101 349,341
---------------------------------------------
$ 680,045 $ 682,449
=============================================
</TABLE>
SEE ACCOMPANYING NOTES.
4
<PAGE>
KONOVER PROPERTY TRUST, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
1999 1998
---------------------------------------------
RENTAL OPERATIONS: (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C>
Revenues:
Base rents $ 14,560 $ 9,728
Percentage rents 161 151
Property operating cost recoveries 3,759 3,100
Other income 683 1,227
---------------------------------------------
19,163 14,206
---------------------------------------------
Property operating costs:
Common area maintenance 2,088 1,609
Utilities 622 582
Real estate taxes 1,928 1,391
Insurance 241 162
Marketing 154 159
Other 661 523
---------------------------------------------
5,694 4,426
Depreciation and amortization 4,941 3,973
---------------------------------------------
10,635 8,399
---------------------------------------------
8,528 5,807
---------------------------------------------
OTHER EXPENSES:
General and administrative 2,382 1,527
Interest, net 3,308 4,381
---------------------------------------------
INCOME (LOSS) FROM OPERATIONS 2,838 (101)
Loss on sales of real estate 192 -
Equity in earnings of unconsolidated ventures 3 -
Minority interest in operating partnership 87 -
---------------------------------------------
NET INCOME (LOSS) $ 2,556 $ (101)
Preferred dividends 275 -
=============================================
NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS $ 2,281 $ (101)
=============================================
BASIC INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS PER SHARE $ 0.07 $ (0.01)
=============================================
WEIGHTED-AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 31,119 11,954
=============================================
DILUTED INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS PER SHARE $ 0.07 $ (0.01)
=============================================
WEIGHTED-AVERAGE NUMBER OF DILUTED SHARES OUTSTANDING 34,646 11,954
=============================================
</TABLE>
SEE ACCOMPANYING NOTES.
5
<PAGE>
KONOVER PROPERTY TRUST, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
THREE MONTHS ENDED MARCH 31, 1999
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
CONVERTIBLE STOCK PURCHASE ADDITIONAL PAID RETAINED
PREFERRED STOCK WARRANTS COMMON STOCK IN CAPITAL EARNINGS
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1999 $ 18,962 $ 9 $ 313 $ 328,705 $ 1,612
Issuance of 6,530 employee stock purchase plan
shares - - - 58 -
Issuance of 31,196 restricted shares - - - 175 -
Repurchase of 423,200 shares of common stock - - (4) (2,514) -
Compensation under stock plans - - - - -
Preferred stock dividends ($0.125 per share) - - - - (275)
Common stock dividends ($0.125 per share) - (214) (3,893)
Net income - - - - 2,556
---------------------------------------------------------------------------
BALANCE AT MARCH 31, 1999 $ 18,962 $ 9 $ 309 $ 326,210 $ -
===========================================================================
<CAPTION>
DEFERRED
COMPENSATION
RESTRICTED STOCK
PLAN TOTAL
---------------------------------
<S> <C> <C>
BALANCE AT JANUARY 1, 1999 $ (260) $ 349,341
Issuance of 6,530 employee stock purchase plan
shares - 58
Issuance of 31,196 restricted shares (175) -
Repurchase of 423,200 shares of common stock - (2,518)
Compensation under stock plans 46 46
Preferred stock dividends ($0.125 per share) - (275)
Common stock dividends ($0.125 per share) - (4,107)
Net income - 2,556
---------------------------------
BALANCE AT MARCH 31, 1999 $ (389) $ 345,101
=================================
</TABLE>
SEE ACCOMPANYING NOTES.
6
<PAGE>
KONOVER PROPERTY TRUST, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1999 1998
--------------------------------
(IN THOUSANDS)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 2,556 $ (101)
Adjustments to reconcile net income (loss) to net cash provided by operating
activities:
Depreciation and amortization 4,941 3,973
Loss on sale of real estate 192 -
Minority interest in Operating Partnership 87 -
Amortization of deferred financing costs 270 357
Compensation under stock plans 400 297
Net changes in:
Tenant and other receivables 1,519 (357)
Deferred charges and other assets (1,576) (478)
Accounts payable and other liabilities (1,375) 3,374
Dividends payable (405) -
--------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 6,609 7,065
--------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in income-producing properties (5,155) (1,917)
Acquisition of income-producing properties, net (26,207) (2,281)
Payments received (advances) on notes receivable, net 1,961 (155)
Investment in joint venture (11,897) (4,144)
Change in restricted cash 490 987
--------------------------------
NET CASH USED IN INVESTING ACTIVITIES (40,808) (7,510)
--------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt on income properties - 76,000
Repayment of debt on income properties (1,143) (86,288)
Net proceeds from sale of common stock - 19,114
Deferred financing charges (836) (1,156)
Other debt repayments (49) (143)
Exercise of stock options - (30)
Issuance of shares under employee stock purchase plan 58 -
Distribution to stockholders (4,107) -
Repurchase of common stock (2,518) -
--------------------------------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (8,595) 7,497
--------------------------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (42,794) 7,052
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 72,302 4,872
--------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 29,508 $ 11,924
================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for interest
(net of interest capitalized of $145 and $269) $ 4,336 $ 2,781
================================
</TABLE>
SEE ACCOMPANYING NOTES.
7
<PAGE>
1. INTERIM FINANCIAL STATEMENTS
ORGANIZATION
Konover Property Trust, Inc. (the "Company"), formerly FAC Realty
Trust, Inc., was incorporated on March 31, 1993 as a self-advised and
self-managed real estate investment trust (REIT). The Company is principally
engaged in the acquisition, development, ownership, and operation of retail
shopping centers. The Company's revenues are primarily derived under real estate
leases with national, regional and local retailing companies.
Over the past five years, the Company has grown from an owner of retail
shopping centers with an aggregate square footage of 4.2 million to an owner of
approximately 8.7 million square feet. On March 31, 1999, the Company-owned
properties consisted of:
1. 52 community shopping centers in 17 states aggregating approximately
6,415,000 square feet;
2. 10 outlet centers in nine states aggregating approximately 2,110,000 square
feet;
3. 2 centers aggregating approximately 167,000 square feet that are held for
sale; and
4. approximately 124 acres of outparcel land located near or adjacent to
certain of the Company's centers and which are being marketed for lease or
sale.
The weighted-average square feet of gross leasable area were 8.2 million square
feet for the three months ended March 31, 1999 and 5.6 million square feet for
the same period in 1998.
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"),
all of its assets and liabilities. 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 and owns a
97% interest as of March 31, 1999. 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 all of its business and owns all of its assets through the
Operating Partnership (either directly or through subsidiaries) 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.
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.
8
<PAGE>
BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts
of the Company and the Operating Partnership. All significant intercompany
balances have been eliminated in consolidation.
Properties owned (at least in part) and controlled by the Operating
Partnership have been consolidated. Control is demonstrated by the ability of
the Operating Partnership to manage, directly or indirectly, day-to-day
operations, refinance debt and sell the assets of the entity that owns the
property without the consent of the other owners and the inability of the other
owners to replace the general partner or manager. Investments in ventures which
represent noncontrolling ownership interests or where control is deemed
temporary are accounted for using the equity method of accounting. These
investments are recorded initially at cost and subsequently adjusted for net
equity in income (loss) and cash contributions and distributions.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all the information and notes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (primarily consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three-month period ended March 31, 1999
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, 1998.
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.
RECLASSIFICATION
Certain amounts from prior years were reclassified to conform with
current-year presentation. These reclassifications had no effect on net loss or
stockholders' equity as previously reported.
2. SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS
The Company considers highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.
BASIC AND DILUTED INCOME 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
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 months ended March 31, 1999, the denominator for diluted
income per share is calculated as follows, (in thousands):
9
<PAGE>
1999
-----------
Denominator for weighted-average shares 31,119
Effect of dilutive securities:
Preferred Stock 2,200
Employee Stock Options 33
Restricted Stock 248
Operating Partnership Units 1,046
-----------
Dilutive potential shares 3,527
-----------
Denominator - Adjusted - weighted-average shares and
assumed conversions 34,646
===========
DIVIDENDS
In February, 1999, the Company declared a $0.125 per share quarterly
dividend to shareholders of record as of March 15, 1999. Common shareholders
were paid on March 31, 1999. Preferred shareholders and Operating Partnership
Unit holders were paid $275,000 and $130,000, respectively, in April 1999. These
amounts are payable at March 31, 1999.
COMPREHENSIVE INCOME
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 130, "Reporting Comprehensive Income",
which has been adopted by the Company. As of March 31, 1999 and 1998, the
Company had no items of other comprehensive income.
3. ACQUISITIONS AND SIGNIFICANT TRANSACTIONS
LAZARD TRANSACTION
On August 5, 1998, the stockholders approved a Stock Purchase Agreement
between Prometheus Southeast Retail, LLC (including its assignee, "PSR"), a real
estate investment affiliate of Lazard Freres Real Estate Investors, LLC,
("Lazard") and the Company pursuant to which PSR made a $200 million purchase of
shares of Common Stock of the Company at a purchase price of $9.50 per share
(the "Transaction"). Upon completion of funding, PSR owned an equity interest in
the Company of approximately 58%, on a diluted basis. As a result of subsequent
stock repurchases by the Company, PSR's ownership interest in the Company is
61%, assuming conversion of outstanding preferred stock and units into shares.
Under the terms of the Transaction agreements, for as long as PSR's investment
in the Company is $50 million or more, PSR has the right to participate in
future equity issuances to preserve its ownership interest.
Pursuant to the Contingent Value Rights Agreement, if PSR has not
doubled its investment (through stock appreciation and dividends) by January 1,
2004, the Company may be required to 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.
KONOVER AND RODWELL/KANE ACQUISITIONS
On February 24, 1998, the Company entered into definitive agreements
with affiliates of Konover & Associates South ("Konover"), a privately held real
estate development firm based in Boca Raton, Florida, to acquire eleven
community shopping centers. The Company acquired nine of the Konover community
shopping centers for a total purchase price of $85.4 million consisting of $55.2
million in debt assumption, $26.7 million in cash and 369,000 of Operating
Partnership Units, valued at $9.50 per share.
10
<PAGE>
For financial reporting purposes, the nine Konover properties were
recorded effective April 1, 1998, since the risks and rewards of ownership had
passed to the Company and there were no significant conditions outstanding. All
of the acquired properties are held directly or indirectly, by KPT Properties,
L.P. Of the original eleven community centers, the remaining two will continue
to be managed by the Company, but will not be acquired.
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 and John N. Kane, ("Rodwell/Kane"). The acquired
centers encompass approximately 950,000 square feet and are, in the aggregate,
94% leased.
The aggregate purchase price for the acquired shopping centers was
$57.1 million, consisting of the assumption of $44.3 million of fixed-rate
indebtedness, the payment of $3.5 million in cash and the issuance of 974,347
limited partnership Units of the Operating Partnership. Of the purchase price,
292,447 Units and $0.8 million in cash will be issued or paid on a delayed or
contingent basis. The contingencies include the attainment of certain property
performance thresholds and the sale, lease or development of certain outparcels.
The purchase price for the acquisition was determined as a result of arms-length
negotiation between the Company and the sellers, with the Units being valued at
$9.50 per share.
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.
A summary of the Company's acquisition activity since 1996 follows (in
thousands):
<TABLE>
<CAPTION>
OP UNITS
STATE PURCHASE ($9.50 PER
LOCATION DATE SQUARE FEET PRICE DEBT ASSUMED CASH SHARE)
----------------- ----------- ------------- ------------- --------------- --------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
1999 TO DATE
Grove Park SC 5/13/99 104 $ 5,700 - $ 5,700 -
Crossroads at Mandarin FL 4/14/99 72 4,500 - 4,500 -
Dare Center NC 3/31/99 114 5,000 - 5,000 -
Braves Village SC 3/31/99 60 4,500 - 4,500 -
Eastgate Plaza FL 3/30/99 182 10,400 - 10,400 -
Dukes Plaza VA 3/1/99 140 6,500 4,100 2,400 -
Robertson Corners SC 1/6/99 48 3,900 - 3,900 -
----------- ------------- ------------- --------------- --------------- -----------
TOTAL 616 40,500 4,100 36,400 -
1998
Waverly Place NC 12/14/98 181 12,800 10,700 2,100 -
University Shoppes SC 8/31/98 54 4,700 3,200 1,500 -
Konover (portfolio) FL, NC, VA, AL 4/1/98 1,518 85,400 55,200 26,700 369
Kane (portfolio) NC, VA 3/31/98 955 57,100 44,300 3,500 974 (1)
Market Square VA 1/7/98 56 3,100 2,300 800 -
----------------- ----------- ------------- ------------- --------------- --------------- -----------
TOTAL 2,764 163,100 115,700 34,600 1,343
1997
North Hills (portfolio) NC 3/31/97 606 32,300 - 32,300 -
1996
N/A - - - - -
============= ============= =============== =============== ===========
TOTAL 3,986 $ 235,900 $ 119,800 $ 103,300 1,343
============= ============= =============== =============== ===========
</TABLE>
(1) Includes 292 units to be issued upon the completion of certain contingencies
contained in the agreement.
11
<PAGE>
JOINT VENTURES
A summary of the Company's investments in venture companies at March
31, 1999 and December 31, 1998, is as follows (all investments are accounted for
under the equity method, in thousands):
<TABLE>
<CAPTION>
Amounts invested
March 31, December 31,
Location Ownership 1999 1998
-------- --------- ---- ----
<S> <C> <C> <C> <C>
Atlantic Realty North Carolina 50% $ 7,521 $ 7,442
Mount Pleasant KPT Mount Pleasant, SC 50% 30,551 18,759
Wakefield Commercial Wake Forest, NC 90% 570 570
Falls KPT Raleigh, NC 50% 5,393 5,367
--------------- ---------------
$44,035 $ 32,138
=============== ===============
</TABLE>
The majority of the properties owned by the venture companies are under
development and have no operations with the exception of two projects with
Atlantic Realty as of March 31, 1999. The acquisition and development of the
above properties are subject to, among other things, completion of due diligence
and various contingencies, including those inherent in development projects,
such as zoning, leasing and financing. There can be no assurance that all of the
above transactions will be consummated. All debt incurred by the ventures is
non-recourse to the Company and is secured by their respective properties and
guaranteed by the Company's respective venture partners.
OTHER
On April 1, 1999, the Company acquired RMC Realty Companies, Ltd.
("RMC"). RMC provides management and/or leasing for 72 centers totaling 7.2
million square feet, primarily in the State of Florida.
For the three months ended March 31, 1999, the Company has repurchased
423,200 shares of its common stock at an average share price of $5.95 for a
total of $2.5 million. As of May 14, 1999, the Company had repurchased a total
of 2,221,800 shares at an average price of $6.92 under its stock repurchase
program. The Company is currently authorized to purchase an additional 1,778,200
shares.
4. PRO FORMA INFORMATION
RODWELL/KANE AND KONOVER PROPERTIES
Pro forma results of operations for the three months ended March 31,
1998 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).
<TABLE>
<CAPTION>
ACTUAL ADJUSTMENT PRO FORMA
---------------- ----------------
1998 KONOVER RODWELL/KANE 1998
---- ------- ------------ ----
<S> <C> <C> <C> <C>
Revenues $ 14,206 $ 2,537 $ 1,580 $ 18,323
Property operating costs 4,426 600 302 5,328
Depreciation and amortization 3,973 438 305 4,716
General and administrative 1,527 80 10 1,617
Interest 4,381 1,155 666 6,202
--------------- ---------------- ---------------- ----------------
Net (loss) income available to common
shareholders $ (101) $ 264 $ 297 $ 460
=============== ================ ================ ================
BASIC (LOSS) INCOME AVAILABLE TO COMMON
SHAREHOLDERS PER SHARE $ (0.01) $ 0.02 $ 0.02 $ 0.04
=============== ================ ================ ================
DILUTED (LOSS) INCOME AVAILABLE TO COMMON
SHAREHOLDERS PER SHARE $ (0.01) $ 0.02 $ 0.02 $ 0.03
=============== ================ ================ ================
</TABLE>
12
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
This discussion should be read with the selected financial data in this
section and the consolidated financial statements and notes in this report.
Certain comparisons between the periods have been made on a percentage basis and
on a weighted-average square-foot basis. Comparisons on a weighted-average
square-foot basis adjust for square-footage added at different times during the
year.
GENERAL OVERVIEW
Konover Property Trust, Inc. (the "Company"), formerly FAC Realty
Trust, Inc., was incorporated on March 31, 1993 as a self-advised and
self-managed real estate investment trust (REIT). The Company is principally
engaged in the acquisition, development, operation, and ownership of retail
shopping centers. The Company's revenues are primarily derived under real estate
leases with national, regional and local retailing companies.
On March 31, 1999, the Company-owned properties consisted of:
(1) 52 community shopping centers in 17 states aggregating approximately
6,415,000 square feet;
(2) 10 outlet centers in nine states aggregating approximately 2,110,000
square feet;
(3) 2 centers aggregating approximately 167,000 square feet that are held
for sale; and
(4) approximately 124 acres of outparcel land located near or adjacent to
certain of the Company's centers and which are being marketed for lease
or sale.
The weighted-average square feet of gross leasable area were 8.2 million square
feet for the three months ended March 31, 1999 and 5.6 million square feet for
the same period in 1998.
SELECTED FINANCIAL DATA
The following information should be read with the consolidated
financial statements and notes thereto included in this report.
Industry analysts generally consider Funds From Operations ("FFO") an
appropriate measure of performance for an equity REIT. FFO means 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.
FFO and EBITDA (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
13
<PAGE>
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).
The income per share amounts comply with Statement of Financial
Accounting Standards No. 128 "Earnings Per Share."
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
--------------- ----------------
1999 1998
--------------- ----------------
<S> <C> <C>
OPERATING DATA:
Rental revenues $ 19,163 $ 14,206
Property operating costs 5,694 4,426
--------------- ----------------
13,469 9,780
Depreciation and amortization 4,941 3,973
General and administrative 2,382 1,527
Interest 3,308 4,381
Loss on sale of real estate 192 -
Equity in earnings of unconsolidated
ventures 3 -
Minority interest in Operating 87 -
Partnership
--------------- ----------------
Net income (loss) $ 2,556 $ (101)
=============== ================
Income (loss) before extraordinary item $ 2,556 $ (101)
Preferred stock dividends 275 -
--------------- ----------------
Income (loss) available to common
shareholders $ 2,281 $ (101)
=============== ================
BASIC INCOME (LOSS) PER COMMON SHARE:
Net income (loss) available to common
shareholders per share $ 0.07 $ (0.01)
=============== ================
Weighted average common shares
outstanding 31,119 11,954
=============== ================
DILUTED INCOME (LOSS) PER COMMON SHARE:
Net income (loss) available to common
shareholders per share $ 0.07 $ (0.01)
=============== ================
Weighted average common shares
outstanding diluted 34,646 (a) 11,954
=============== ================
14
<PAGE>
THREE MONTHS ENDED
MARCH 31,
--------------------------------------------- ------------- ----------------
1999 1998
--------------------------------------------- ------------- ----------------
OTHER DATA:
EBITDA:
Net income (loss) $ 2,556 $ (101)
Adjustments:
Interest 3,308 4,381
Depreciation and amortization 4,941 3,973
Compensation under stock plans 400 297
Loss on sale of assets 192 -
Non-recurring administrative costs 379 -
Minority interest 87 -
Share of depreciation in unconsolidated
ventures 24 -
============= ================
$ 11,887 $ 8,550
============= ================
FUNDS FROM OPERATIONS:
Net income (loss) $ 2,556 $ (101)
Adjustments:
Straight line rent 143 460
Real estate depreciation and
amortization 4,752 3,833
Compensation under restricted stock
award 400 297
Loss on sale of assets 192 -
Share of depreciation in
unconsolidated ventures 24 -
Minority interest 87 -
Unusual items:
Non-recurring administrative
costs 379 -
=============== ==============
$ 8,533 $ 4,489
=============== ==============
WEIGHTED AVERAGE SHARES OUTSTANDING-
DILUTED (A) 34,646 14,477
=============== ==============
FUNDS AVAILABLE FOR
DISTRIBUTION/REINVESTMENT:
Funds from Operations $ 8,533 $ 4,489
=============== ==============
Adjustments:
Non-recurring administrative
costs $ (379) $ -
Capitalized tenant allowances (281) (248)
Capitalized leasing costs (302) (512)
Recurring capital expenditures (64) (63)
=============== ==============
$ 7,507 $ 3,666
=============== ==============
DIVIDENDS DECLARED ON QUARTERLY EARNINGS $ 4,382 $ 0.00
=============== ==============
DIVIDENDS DECLARED ON QUARTERLY EARNINGS
PER SHARE $ 0.125 $ 0.00
=============== ==============
CASH FLOWS:
Cash flows from operating activities $ 6,609 $ 7,065
Cash flows from investing activities (40,808) (7,510)
Cash flows from financing activities (8,595) 7,497
=============== ==============
Net (decrease) increase in cash and cash
equivalents $ (42,794) $ 7,052
=============== ==============
</TABLE>
15
<PAGE>
BALANCE AT MARCH 31,
1999 1998
------------- ------------
BALANCE SHEET DATA:
Income-producing properties (before
depreciation and amortization) $ 607,389 $ 448,684
Total assets 680,045 468,750
Debt on income properties 307,733 263,194
Total liabilities 322,092 274,139
Minority interest 12,852 8,744
Common Stock subject to put option - 22,325
Total stockholders' equity 345,101 163,542
PORTFOLIO PROPERTY DATA:
Total GLA (at end of period) 8,692 6,392
Weighted average GLA 8,247 5,564
Number of properties (at end of period) 64 49
Occupancy (at end of year):
Operating 93.7% 91.2%
Held for sale 46.8% 51.2%
(a) The following table sets forth the computation of the denominator to be
used in calculating the weighted-average shares outstanding based on
Statement of Financial Accounting Standard No. 128, "Earnings Per Share":
MARCH 31,
1999 1998
------------- -------------
DENOMINATOR:
Denominator- weighted average shares 31,119 11,954
Effect of dilutive securities:
Preferred stock 2,200 2,222
Employee stock options 33 33
Restricted stock 248 268
Operating Partnership Units 1,046 -
------------- -------------
Dilutive potential common shares 3,527 2,523
------------- -------------
Denominator- adjusted weighted average
shares and assumed conversions 34,646 14,477
============= =============
16
<PAGE>
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THE THREE MONTHS ENDED MARCH 31,
1998.
NET INCOME
The Company reported a net income available to common shareholders of
$2.3 million, or $0.07 per common share, for the three months ended March 31,
1999. The same period in 1998 saw a net loss available to common shareholders of
$0.1 million, or ($0.01) per common share. The elements having a material impact
on the change are discussed below:
>> The Company's NOI, exclusive of straight-line rent, increased by $3.4
million, or 33%, to $13.6 million from $10.2 million for the same period in
1998. Including the effect of straight-line rent adjustment, ($0.3 million)
NOI increased by $3.7 million. This increase was partly attributable to the
1998 acquisitions below (in millions):
Impact on NOI for the
Three Months Ended
March 31, 1999
(IN THOUSANDS)
--------------------------
Konover $ 2,496
Rodwell/Kane 1,302
-----
$ 3,798
=========
>> The Company's acquisition activity required higher borrowing levels
resulting in increased interest expense by $1.0 million. Investments made
with funds from the proceeds from the sale of common stock in 1998 resulted
in increased interest income of $2.1 million.
>> Through acquisitions, the Company had increased depreciation and
amortization of $1.0 million and increased general and administrative
expenses of $0.9 million. The disposition of certain development projects
resulted in a loss of approximately $0.2 million.
>> The combination of the above items provide a $2.7 million increase in net
income available to common shareholders for the three months ended March
31, 1999 over the same period in 1998.
EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION, AND AMORTIZATION AND FUNDS FROM
OPERATIONS
EBITDA was $11.9 million for the three months ended March 31, 1999, an
increase of $3.3 million or 38%, from $8.6 million for the same period in 1998.
The increase was due to increased NOI of $3.7 million over 1998, including
adjustment for straight line rent (as described above) offset by an increase in
general and administrative expenses of $0.4 million exclusive of compensation
under stock plan awards and non-recurring administrative charges.
Funds from Operations ("FFO") for the three months ended March 31, 1999
increased $4.0 million or 89% to $8.5 million. The Company's FFO for the same
period in 1998 was $4.5 million. FFO increased primarily as a result of the $3.4
million increase in NOI, exclusive of straight-line rent, as described above.
This increase in NOI is combined with:
>> an increase in general and administrative expenses (exclusive of
compensation under stock awards and non-recurring administrative expenses)
of $0.4 million and
>> the decrease in net interest expense of $1.1 million.
TENANT INCOME
Base rent, including straight-line rent, increased to $14.6 million for
the three months ended March 31,
17
<PAGE>
1999 from $9.7 million for the same period in 1998. Base rent before the
adjustment for straight-line rent increased $4.5 million, or 44%, to $14.7
million for the three months ended March 31, 1999 when compared to $10.2 million
in 1998. The increase in base rent for the three months ended March 31, 1999, is
attributable primarily to the following acquisitions (in millions):
Base Rent (*)
Three Months
ended
March 31, 1999
(IN THOUSANDS)
------------------
Konover $2,510
Rodwell/Kane 1,299
------
$3,809
======
(*) Base rent excludes straight-line rent
During this same period, the Company's weighted-average square feet of
gross leasable area in operation increased 46%. Gross leasable area in operation
increased by 2.3 million square feet, primarily because of the acquisition of
the Konover properties with 1.6 million in gross leasable area and Rodwell/Kane
properties with 1.0 million in gross leasable area. These described increases
were partially offset by the sales of properties in California and Kentucky
totaling 0.2 million in gross leasable area.
Recoveries from tenants increased for the three months ended March 31,
1999 to $3.8 million compared to $3.1 million in the same period of 1998. These
recoveries represent contractual reimbursements from tenants of certain common
area maintenance, real estate taxes, and insurance costs. On a weighted-average
square-foot basis, recoveries decreased 18% to $0.46 for the three months ended
March 31, 1999 when compared to $0.56 for the same period in 1998. The average
recovery of property operating expenses, exclusive of marketing and other
non-recoverable operating costs, decreased to 77% in 1999 as compared to 83% in
1998. With respect to approximately 15% of the leased gross leasable area, the
Company is obligated to pay all utilities and operating expenses.
OTHER INCOME
Other income decreased $0.5 million to $0.7 million in 1999 compared to
$1.2 million in 1998 primarily as a result of decreased third-party management
fee income of $0.6 million. The decrease is directly attributable to the fact
that prior to the closing on the eight Rodwell/Kane properties, the Company
managed these community centers, which generated $0.6 million in management
fees. The Company will continue to manage the one remaining Rodwell/Kane
community center.
PROPERTY OPERATING EXPENSES
Property operating costs increased $1.3 million, or 30%, to $5.7
million in 1999 from $4.4 million in the same period of 1998. The increase in
operating costs was principally due to the increase in the weighted-average
square feet in operation in 1999, which rose 46% to 8.2 million square feet in
1999 from 5.6 million square feet in 1998. On a weighted-average square-foot
basis, operating expenses decreased 14% to $0.69 from $0.80 per weighted average
square foot.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses for the three months ended March
31, 1999 increased $0.9 million, or 60%, to $2.4 million in 1999 from $1.5
million in 1998. General and administrative expenses in 1999 include $0.4
million in compensation under stock plan awards and $0.4 million of other
non-recurring charges. General and administrative expenses in 1998 include
compensation under stock awards of $0.3 million. Exclusive of these charges in
1999 and 1998, general and administrative expenses increased $0.4 million, but
decreased as a percentage
18
<PAGE>
of revenues to 8.4% from 8.7% in 1998.
DEPRECIATION
Depreciation increased to $4.9 million for the three months ended March
31, 1999 compared to $4.0 million in the same period of 1998. The increase is
due primarily to the Rodwell/Kane and Konover acquisitions. Absent the impact of
these acquisitions, depreciation increased $0.1 million during first quarter
1999. Amortization of deferred leasing and other charges increased $0.1 million
to $0.9 million. On a weighted-average square-foot basis, depreciation and
amortization decreased to $0.60 in 1999 from $0.71 in 1998.
INTEREST EXPENSE
Interest expense for the three months ended March 31, 1999, net of
interest income of $2.6 million, decreased by $1.1 million, or 25%, to $3.3
million compared to $4.4 million, net of interest income of $0.4 million, in the
first three months of 1998. This decrease resulted primarily from higher
borrowing levels in 1999 due to the investment in and acquisition of
income-producing properties offset by the interest income generated. On a
weighted-average basis, in the first three months of 1999, debt outstanding was
$273 million, and the average interest rate was 7.89%. This compares to $228
million of outstanding debt and a 7.83% average interest rate in 1998. The
Company capitalized $0.1 million of interest costs associated with its
development projects in the first three months of 1999 compared to $0.3 million
in the same period of 1998.
PROPERTIES HELD FOR SALE
For the three months ended March 31, 1999, the properties held for sale
contributed approximately $0.1 million of revenue. After deducting related
interest expense on the debt associated with those properties, the properties
held for sale incurred a loss of $0.1 million. For the three months ended March
31, 1998, the properties held for sale contributed approximately $0.3 million of
revenue and incurred a loss of $0.3 million after deducting related interest
expense.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOWS
The Company's cash and cash equivalents balance at March 31, 1999 was
$29.5 million. Restricted cash, as reported in the financial statements, as of
such date, was $5.6 million. The restricted cash is an amount the Company was
required to escrow in connection with various loans. The escrows are required to
fund taxes, environmental and engineering work, recurring replacement costs and
insurance.
Net cash provided by operating activities was $6.6 million for the
three months ended March 31,1999. Net cash used in investing activities was
$40.8 million in that same period. The primary use of these funds included:
>> $26.2 million of cash to acquire five centers aggregating 0.5 million
square feet located in Florida, North Carolina, South Carolina and Virginia
and
>> $11.9 million invested in ventures.
Net cash used in financing activities was $8.6 million for the three
months ended March 31, 1999. The primary use of these funds included:
>> $4.1 million for dividends paid to common shareholders,
>> $2.5 million for the repurchase of 0.4 million shares of the Company's
common stock, and
>> $1.1 million for debt repayments.
19
<PAGE>
CURRENT AND FUTURE CASH NEEDS
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, 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.
LAZARD TRANSACTION
On August 5, 1998, stockholders approved the Lazard transaction
involving PSR's $200 million purchase of the Company's Common Stock at $9.50 per
share. The investment was made in stages, as follows:
SALE DATE SHARES SOLD PURCHASE PRICE
March 23, 1998 2,350,000 $ 22,325,000
August 10, 1998 2,913,157 $ 27,675,000
August 28, 1998 5,263,158 $ 50,000,000
September 29, 1998 10,526,316 $ 100,000,000
---------- ----------------
21,052,631 $ 200,000,000
========== ================
As of March 31, 1999, the majority of these funds have been used to
fund acquisitions, debt retirement, investments in ventures, common stock
repurchases and development.
As part of the Lazard transaction, the Company signed a Contingent
Value Rights Agreement with PSR. Under this the Contingent Value Rights
Agreement, if PSR has not essentially doubled its investment (through stock
appreciation and dividends) by January 1, 2004, the Company may be required to
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.
FINANCING ACTIVITIES
In December 1998, the Company completed a substitution and
recollateralization of its REMIC facility. This $95 million facility was
originally issued in May 1995 and was secured by 18 properties. The substitution
was the first step in an effort by the Company to gain greater flexibility in
the purchase of assets and the sale of assets that may no longer meet the
Company's ongoing strategy. The REMIC balance as of March 31, 1999 was $89.5
million and is secured by 24 properties. The Company is currently seeking
bondholder approval for ongoing substitution rights based upon predetermined
criteria.
An acquisition line of credit was put in place in early 1997 for $150
million. The availability under this line is based upon a predetermined formula
on the Net Operating Income of the properties securing the facility. The line
originally was secured by 21 properties plus an assignment of the excess cash
flow of the REMIC facility referenced above. During 1998, the security on the
portfolio was reduced to only five properties plus the excess cash flow of the
REMIC in conjunction with both a permanent facility transaction, as described
below, and a paydown. The paydown of $31 million was funded from the issuance of
shares to PSR. The line was renewed for $150 million during the first quarter of
1999 through February 2000. The primary use of the line will be to fund future
acquisitions and developments. The addition of newly acquired properties to the
line would result in increased availability.
In 1998, the Company closed on a $75 million, 15-year permanent credit
facility. The loan has an effective rate of 7.73% and is amortized on a
338-month basis. Eleven properties previously securing the $150 million
revolving credit facility secure this new facility. The proceeds were used to
pay down borrowings outstanding on the $150 million credit facility. The credit
facility balance as of March 31, 1999 was $31.7 million.
20
<PAGE>
DIVIDENDS
In February, 1999, the Company declared a $0.125 per share quarterly
dividend to shareholders of record as of March 15, 1999. Common shareholders
were paid on March 31, 1999. Preferred shareholders and Operating Partnership
Unit holders were paid $275,000 and $130,000, respectively in April 1999. These
amounts are payable at March 31, 1999.
SHARE REPURCHASE
For the three months ended March 31, 1999, the Company has repurchased
423,200 shares of its common stock at an average share price of $5.95 for a
total of $2.5 million. As of May 14, 1999, the Company had repurchased a total
of 2,221,800 shares at an average price of $6.92 under its stock repurchase
program. The Company is currently authorized to purchase an additional 1,778,200
shares.
IMPACT OF YEAR 2000 ISSUE
GENERAL
The Year 2000 compliance issue concerns the inability of computer systems
to accurately calculate, store or use a date after 1999. This could result in a
system failure or miscalculation causing disruptions of operations. The Year
2000 issue affects virtually all companies and all organizations.
The Year 2000 issue, if not corrected, could result in the failure of the
information technology ("IT") systems that the Company uses in its business
operations, such as computer programs related to property management, leasing,
financial reporting and employee benefits. In addition, computerized systems and
microprocessors are embedded in a variety of products used in the Company's
operations and properties, such as HVAC controls, thermostats, lights,
elevators, alarms, smoke detectors, sprinklers and phones.
STATE OF READINESS
The Company's remediation plan has three phases:
>> Assessment (inventory and testing of computer systems and inquiry of Y2K
readiness of material third parties)
>> Renovation (repairing or replacing non-compliant systems) and
>> Validation (testing of repaired or replaced systems).
The following chart shows our progress with respect to our remediation
plan:
<TABLE>
<CAPTION>
Assessment Phase Renovation Phase Validation Phase
------------------------------- ------------------------------- --------------------------------
Expected Expected
Completion Completion Completion
% Complete * Date % Complete * Date % Complete * Date
--------------- --------------- --------------- --------------- ---------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
IT 100% 1Q 99 75% 3Q 99 75% 3Q 99
Non-IT 100% 1Q 99 90% 2Q 99 90% 2Q 99
</TABLE>
* BASED ON LABOR UNDERTAKEN
With respect to Year 2000 issues relating to third parties with whom we
have a material relationship, we have sought representations from all tenants
representing more than 2% of our annualized revenue. (No tenant is expected to
contribute more than 9% of our annualized revenue in 1999.) Such tenants do not
expect to be materially affected by Year 2000 issues. With respect to suppliers
and vendors, the Company's material purchases
21
<PAGE>
are generally from those in competitive fields where others will be able to meet
any Company needs unmet by suppliers or vendors with Year 2000 difficulties.
Although we have no reason to expect a significant interruption of utility
services for our properties, we have not received written assurances from all
utility providers that Y2K issues will not cause an interruption in service.
COSTS
To date, the costs directly associated the Company's Year 2000 efforts
have not been material, and we estimate our future costs to be immaterial as
well.
RISKS ASSOCIATED WITH THE YEAR 2000 ISSUE
We do not expect Year 2000 failures to have a material adverse effect
on our results of operations or liquidity because:
>> We do not rely on a small number of tenants for a significant portion of
our rental revenue and our largest tenants do not expect to be materially
affected by Year 2000 failures.
>> We stand ready to switch vendors or suppliers whose Year 2000 failures
adversely affect their products or services; and
>> Our remediation plan is expected to be complete prior to the Year 2000.
As a result, we do not expect to develop a contingency plan for Y2K failures.
Our assessment of the likely impact of Y2K issues on the Company, which
is a forward-looking statement, depends on numerous factors, such as the
continued provision of utility services and the accuracy of responses from
material third parties as to their Y2K readiness. The Company remains exposed to
the risk of Year 2000 failures. See "Disclosure Regarding Forward-Looking
Statements" below.
This disclosure concerning our Year 2000 issues are intended to
constitute "Year 2000 Readiness Disclosures" as defined in the Year 2000
Information and Readiness Disclosure Act. The Act provides added protection from
liability for certain public and private statements concerning an entity's Year
2000 readiness and the Year 2000 readiness of its products and services. The Act
also potentially provides added protection from liability for certain types of
Year 2000 disclosures made after January 1, 1996, and before the date of
enactment of the Act.
ECONOMIC CONDITIONS
Inflation has remained relatively low during the past three years with
certain segments of the economy experiencing disinflation, such as apparel
sales. Disinflation in this market segment has slowed the growth of tenant
sales, which adversely affects the Company's revenue due to lower percentage and
overage rents on some properties. Additionally, weakness in the overall retail
environment as it relates to tenant sales volumes may have an impact on the
Company's ability to renew leases at current rental rates or to re-lease space
to other tenants. A decline in sales does not affect base rent, aside from
renewals; however, sales declines could result in reduced revenue from
percentage rent tenants, as well as overage rent paid to the Company. Both
revenue items are directly impacted by sales volumes and represented 4% of the
Company's total revenue for the three months ended March 31, 1999 compared to 5%
for the same period in 1998. Continuation of this economic trend may affect the
Company's operating centers' occupancy rate, rental rates, and concessions, if
any, granted on new leases or re-leases of space. This in turn may cause
fluctuations in the cash flow from the operation and performance of the
operating centers.
DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS
Some of the information in this Quarterly Report on Form 10-Q may
contain forward-looking
22
<PAGE>
statements. Such statements include, in particular, statements about our plans,
strategies and prospects under the headings "Management's Discussion and
Analysis of Financial Condition and Results of Operations." You can identify
forward-looking statements by our use of forward-looking terminology such as
"may," "will," "expect," "anticipate," "estimate," "continue," or other similar
words. Although we believe that our plans, projections and expectations
reflected in or suggested by such forward-looking statements are reasonable, we
cannot assure you that our plans, projections or expectations will be achieved.
When considering such forward-looking statements, you should keep in mind the
following important factors that could cause our actual results to differ
materially from those contained in any forward-looking statement:
>> our markets could suffer unexpected increases in development of retail
properties;
>> the financial condition of our tenants could deteriorate;
>> the costs of our development projects could exceed our original estimates;
>> we may not be able to complete development, acquisition or joint venture
projects as quickly or on as favorable terms as anticipated;
>> we may not be able to lease or release space quickly or on as favorable
terms as old leases;
>> we may have incorrectly assessed the environmental condition of our
properties;
>> an unexpected increase in interest rates would increase our debt service
costs;
>> we could lose key executive officers; and
>> our markets may suffer decline in economic growth or increase in
unemployment rates.
Given these uncertainties, we caution you not to place undue reliance
on forward-looking statements. We undertake no obligation to release publicly
the results of any revisions to these forward-looking statements that may be
made to reflect any future events or circumstances or to reflect the occurrence
of unanticipated events.
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
THE EFFECTS OF POTENTIAL CHANGES IN INTEREST RATES ARE DISCUSSED BELOW.
OUR MARKET RISK DISCUSSION INCLUDES "FORWARD-LOOKING STATEMENTS" AND REPRESENTS
AN ESTIMATE OF POSSIBLE CHANGES IN FUTURE EARNINGS THAT WOULD OCCUR ASSUMING
HYPOTHETICAL FUTURE MOVEMENTS IN INTEREST RATES. THESE DISCLOSURES ARE NOT
PRECISE INDICATORS OF EXPECTED FUTURE RESULTS, BUT ONLY INDICATORS OF REASONABLY
POSSIBLE RESULTS. AS A RESULT, ACTUAL FUTURE MAY DIFFER MATERIALLY FROM THOSE
PRESENTED. SEE "MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS -
LIQUIDITY AND CAPITAL RESOURCES," WHICH PROVIDES INFORMATION RELATED TO THESE
FINANCIAL INSTRUMENTS.
To meet in part our long-term liquidity requirements, we borrow funds
at a combination of fixed and variable rates. In addition, the Company has
assumed fixed rate debt in connection with acquiring properties. Our interest
rate risk management objective is to limit the impact of interest rate changes
on earnings and cash flows and to lower our overall borrowing costs. We do not
enter into interest rate hedge contracts. As of March 31, 1999, we had
approximately $32 million of variable rate debt outstanding. If the weighted
average interest rate on this variable rate debt is 100 basis points higher or
lower in 1999, out interest expense would be increased or decreased
approximately $0.3 million for the year ended December 31, 1999. The Company has
no fixed rate debt maturing in 1999.
23
<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
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3.2 Amended and Restated Bylaws
27 Financial Data Schedule (EDGAR filing only)
(b) Reports on Form 8-K
A Form 8-K dated February 22, 1999 reported deadlines for (i) the
inclusion of shareholders proposals in the Company's 1999 proxy
statement and (ii) notice of shareholder proposals for consideration at
the 1999 Annual Meeting.
24
<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: May 14, 1999
By: /S/Patrick M. Miniutti
--------------------------------------------
Patrick M. Miniutti, Executive Vice President,
Chief Financial Officer and Director
By: /S/Sona A. Thorburn
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Sona A. Thorburn, Vice President,
Chief Accounting Officer
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EXHIBIT 3.2
AMENDED AND RESTATED BYLAWS
OF
KONOVER PROPERTY TRUST, INC.
ARTICLE I
SECTION 1. MEETINGS OF STOCKHOLDERS.
(A) ANNUAL MEETING. The annual meeting of the stockholders of the
Corporation for the election of directors and the receiving of reports shall be
held at such date and time as shall be determined by the Board of Directors.
Upon due notice, there may also be considered and acted upon at an annual
meeting any matter that could properly be considered and acted upon at a special
meeting.
(B) SPECIAL MEETINGS.
(1) Special meetings of the stockholders of the Corporation
for any purpose may be held on any day when called at any time by the
holders of shares entitling them to exercise a majority of the voting
power of the Corporation entitled to vote at such a meeting, the
Board of Directors, the Chairman of the Board, the President or by a
committee of the Board of Directors that has been duly designated by
the Board of Directors and whose powers and authority, as provided in
a resolution of the Board of Directors, include the power to call
such meetings, but special meetings may not be called by any other
person or persons.
(2) In order that the Corporation may determine the
stockholders entitled to request a special meeting, the Board of
Directors may fix a record date to determine the stockholders
entitled to make such a request (the "Request Record Date"). The
Request Record Date shall not precede the date upon which the
resolution fixing the Request Record Date is adopted by the Board of
Directors and shall not be more than 10 days after the date upon
which the resolution fixing the Request Record Date is adopted by the
Board of Directors. Any stockholder of record seeking to have
stockholders request a special meeting shall, by sending written
notice to the Secretary of the Corporation by certified or registered
mail, return receipt requested, request the Board of Directors to fix
a Request Record Date. The Board of Directors shall within 10 days
after the date on which a valid request to fix a Request Record Date
is received, adopt a resolution fixing the Request Record Date and
shall make a public announcement of such Request Record Date, the
Request Record Date shall be the 10th day after the first date on
which a valid written request to set a Request Record Date is
received by the Secretary. To be valid, such written request shall
set forth the purpose or purposes for which the special meeting is to
be held, shall be signed by one or more stockholders of record (or
their duly authorized proxies or other representatives), shall bear
the date of signature of each such stockholder (or proxy or other
representative) and shall set forth all information relating to such
stockholder that is required to be disclosed in solicitations of
proxies for election of directors in an election contest, or is
otherwise required, in each case pursuant to Regulation 14A under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and
Rule 14a-11 thereunder.
(3) In order for a stockholder or stockholders to request a
special meeting, a written request or requests for a special meeting
by the holders of record as of the Request Record Date of at least a
majority of the issued and outstanding shares of stock that would be
entitled to vote at such a meeting must be delivered to the
Corporation. To be valid, each written request by a stockholder for a
special meeting shall set forth the specific purpose or purposes for
which the special meeting is to be held (which purpose or purposes
shall be limited to the purpose or purposes set forth in the written
request to set a Request Record Date received by the Corporation
pursuant to paragraph (2) of this Section 1(b)), shall be signed by
one or more persons who as of the Request Record Date are
stockholders of record (or their duly authorized proxies or other
representatives), shall bear the date of signature of each such
stockholder (or proxy or other representative) and shall set forth
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the name and address, as they appear in the Corporation's books, of
each stockholder signing such request and the class and number of
shares of the Corporation which are owned of record and beneficially
by each such stockholder, shall be sent to the Secretary by certified
or registered mail, return receipt requested, and shall be received
by the Secretary within 60 days after the Request Record Date.
(4) The Corporation shall not be required to call a special
meeting upon stockholder request unless, in addition to the documents
required by paragraph (3) of this Section 1(b), the Secretary
receives a written agreement signed by each Soliciting Stockholder
(as defined below), pursuant to which each Soliciting Stockholder,
jointly and severally, agrees to pay the Corporation's costs of
holding the special meeting, including the costs of preparing and
mailing proxy materials for the Corporation's own solicitation,
provided that if each of the resolutions introduced by any Soliciting
Stockholder at such meeting is adopted, and each of the individuals
nominated by or on behalf of any Soliciting Stockholder for election
as a director at such meeting is elected, then the Soliciting
Stockholders shall not be required to pay such costs. For purposes of
this paragraph (4), the following terms shall have the meanings set
forth below:
(i) "Affiliate" of any Person (as defined herein) shall
mean any Person controlling, controlled by or under common control
with such first Person.
(ii) "Participant" shall have the meaning assigned to such
term in Rule 14a-11 promulgated under the Exchange Act.
(iii) "Person" shall mean any individual, firm,
corporation, partnership, limited liability company, joint venture,
association, trust, unincorporated organization or other entity.
(iv) "Proxy" shall have the meaning assigned to such term
in Rule 14a-1 promulgated under the Exchange Act.
(v) "Solicitation" shall have the meaning assigned to such
term in Rule 14a-11 promulgated under the Exchange Act.
(vi) "Soliciting Stockholder" shall mean, with respect to
any special meeting requested by a stockholder or stockholders, any
of the following Persons:
(a) if the number of stockholders signing the
request or requests of meeting delivered to the Corporation
pursuant to paragraph (3) of this Section 1(b) is 10 or
fewer, each stockholder signing any such request;
(b) if the number of stockholders signing the
request or requests of meeting delivered to the Corporation
pursuant to paragraph (3) of this Section 1(b) is more than
10, each Person who either (I) was a Participant in any
Solicitation of such request or requests or (II) at the
time of the delivery to the Corporation of the documents
described in paragraph (3) of this Section 1(b) had engaged
or intended to engage in any Solicitation of Proxies for
use at such special meeting (other than a Solicitation of
Proxies on behalf of the Corporation); or
(c) any Affiliate of a Soliciting Stockholder, if
a majority of the directors then in office determine that
such Affiliate should be required to sign the written
notice described in paragraph (3) of this Section 1(b)
and/or the written agreement described in this paragraph
(4) in order to prevent the purposes of this Section 1(b)
from being evaded.
(5) Except as provided in the following sentence, any
special meeting shall be held at such hour and day as may be
designated by whichever of the Board of Directors, Chairman,
President or committee shall have called such meeting. In the case of
any special meeting called by the Chairman or the Secretary upon the
request of stockholders (a "Request Special Meeting"), such meeting
shall be held at such hour and day as may
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by designated by the Board of Directors; provided, however, that the
date of any Request Special Meeting shall be not more than 60 days
after the Meeting Record Date (as defined in Section 2(c)); and
provided further that in the event that the directors then in office
fail to designate an hour and date for a Request Special Meeting
within 10 days after the date that valid written requests for such
meeting by the holders of record as of the Request Record Date of at
least a majority of the issued and outstanding shares of stock that
would be entitled to vote at such meeting are delivered to the
Corporation (the "Delivery Date"), then such meeting shall be held at
2:00 p.m. local time on the 90th day after the Delivery Date or, if
such 90th day is not a Business Day (as defined below), on the first
preceding Business Day. In fixing a meeting date for any special
meeting, the Board of Directors, Chairman, President or committee may
consider such factors as they deem relevant within the good faith
exercise of their business judgment, including, without limitation,
the nature of the action proposed to be taken, the facts and
circumstances surrounding any request of such meeting, and any plan
of the Board of Directors to call an annual meeting or a special
meeting for the conduct of related business.
(6) The Corporation may engage regionally or nationally
recognized independent inspectors of elections to act as an agent of
the Corporation for the purpose of promptly performing a ministerial
review of the validity of any purported written request or requests
for a special meeting received by the Secretary. For the purpose of
permitting the inspectors to perform such review, no purported
request shall be deemed to have been delivered to the Corporation
until the earlier of (i) five Business Days following receipt by the
Secretary of such purported request and (ii) such date as the
independent inspectors certify to the Corporation that the valid
requests received by the Secretary represent at least a majority of
the issued and outstanding shares of stock that would be entitled to
vote at such meeting. Nothing contained in this paragraph (6) shall
in any way be construed to suggest or imply that the Board of
Directors or any stockholder shall not be entitled to contest the
validity of any request, whether during or after such five-Business
Day period, or to take any other action (including, without
limitation, the commencement, prosecution or defense of any
litigation with respect thereto, and the seeking of injunctive relief
in such litigation).
(7) For purposes of these by-laws, "Business Day" shall
mean any day other than a Saturday, a Sunday or a day on which
banking institutions in the State of North Carolina are authorized or
obligated by law or executive order to close.
(c) PLACE OF MEETINGS. Any meeting of the stockholders may be held at
such place within or without the State of Maryland as may be determined by the
Board of Directors and stated in the notice of said meeting, provided that if
the Board of Directors does not designate a location, such meeting shall be held
at the executive office of the Corporation in Cary, North Carolina.
(d) NOTICE OF MEETING AND WAIVER OF NOTICE.
(1) NOTICE. Written notice of the place, date and hour of
every meeting of the stockholders, whether annual or special, shall
be given to each stockholder of record entitled to vote at the
meeting not less than 10 nor more than 90 days before the date of the
meeting. Every notice of a special meeting shall state the purpose or
purposes thereof. Such notice shall be given in writing to each
stockholder entitled thereto by mail, addressed to the stockholder at
his address as it appears on the records of the Corporation. Notice
shall be deemed to have been given at the time when it was deposited
in the mail.
(2) RECORD HOLDER OF SHARES. The Corporation shall be
entitled to recognize the exclusive right of a person registered on
its books as the owner of shares to receive dividends and to vote as
such owner, and to hold liable for calls and assessments a person
registered on its books as the owner of shares, and shall not be
bound to recognize any equitable or other claims to or interests in
such share or shares on the part of any other person, whether or not
the Corporation shall have express or other notice thereof, except as
otherwise provided by the laws of Maryland.
(3) WAIVER. Whenever any written notice is required to be
given under the provisions of the Articles of Incorporation, these
Bylaws, or by statute, a waiver thereof in writing, signed by the
person or
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persons entitled to such notice, whether before or after the time
stated therein, shall be deemed equivalent to the giving of such
notice. Neither the business to be transacted at nor the purpose of
any meeting of the stockholders need be specified in any written
waiver of notice of such meeting. Attendance of a person, either in
person or by proxy, at any meeting, shall constitute a waiver of
notice of such meeting, except where a person attends a meeting for
the express purpose of objecting to the transaction of any business
because the meeting was not lawfully called or convened.
(e) QUORUM, MANNER OF ACTING AND ADJOURNMENT. The holders of record
of shares entitled to cast a majority of the votes entitled to vote at any
meeting, present in person or represented by proxy, shall constitute a quorum
for the transaction of business thereat, except as otherwise provided by
statute, by the Articles of Incorporation, or by these Bylaws. Whether or not a
quorum is present, the holders of shares entitled to cast a majority of the
votes present in person or represented by proxy at the meeting shall have the
power to adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present or represented. At
any such adjourned meeting at which a quorum shall be present or represented,
any business may be transacted which might have been transacted at the meeting
as originally noticed. If the adjournment is for more than 30 days, or if after
the adjournment a new record date is fixed for the adjourned meeting, a notice
of the adjourned meeting shall be given to each stockholder of record entitled
to vote at the meeting. When a quorum is present at any meeting, the vote of a
majority of the votes entitled to be cast by the holders of all issued and
outstanding shares present in person or represented by proxy shall decide any
question brought before such meeting, unless the question is one upon which, by
express provision of the applicable statute or the Articles of Incorporation or
these Bylaws, a different vote is required, in which case such express provision
shall govern. Except upon those questions governed by the aforesaid express
provisions, the stockholders present in person or by proxy at a meeting at which
a quorum is at any time present or represented shall have the power to continue
to do business until adjournment, notwithstanding a subsequent reduction in the
number of shares present or represented to leave less than would constitute a
quorum.
(f) ORGANIZATION OF MEETINGS.
(1) PRESIDING OFFICER. Any "executive officer" of the
Corporation, as that term is defined in section 3(f) of Article III
of these Bylaws, may call meetings of the stockholders to order and
act as chairman thereof.
(2) MINUTES. The Secretary of the Corporation, or, in his
absence or by his designation, an Assistant Secretary, or, in the
absence of both, a person appointed by the chairman of the meeting,
which person need not be an officer of the Corporation, shall act as
secretary of the meeting and shall make and keep a record of the
proceedings thereat.
(3) STOCKHOLDERS' LIST. The officer who has charge of the
stock ledger of the Corporation shall prepare and make, at least 10
days before every meeting of stockholders, a complete list of the
stockholders entitled to vote at the meeting. The list shall be
arranged in alphabetical order showing the address of each
stockholder and the number of shares registered in the name of each
stockholder. Such list shall be open to the examination of any
stockholder for any purpose germane to the meeting, during ordinary
business hours, for a period of at least 10 days prior to the meeting
either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if
not so specified, at the place where the meeting is to be held. The
list shall also be produced and kept at the time and place of the
meeting during the whole time thereof, and may be inspected by any
stockholder who is present.
(4) VOTING PROCEDURES AND INSPECTORS OF ELECTIONS.
(A) The Board of Directors shall, in advance of any meeting
of stockholders, appoint one or more inspectors to act at the meeting
and make a written report thereof. The Board of Directors may
designate one or more persons as alternate inspectors to replace any
inspector who fails to act at such meeting. If no inspector or
alternate is able to act at a meeting of stockholders, the chairman
of the meeting shall appoint one or more inspectors to act at the
meeting. Each inspector, before entering upon the discharge of his
duties, shall
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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, and the
circumstances in which any person may make a statement or ask
questions at any meeting of stockholders.
(g) VOTING. Except as otherwise provided by statute or the Articles
of Incorporation, every stockholder entitled to vote shall be entitled to cast
the vote per share to which such share is entitled, in person or by proxy, on
each proposal submitted to the meeting for each share held of record by him on
the record date for the determination of the stockholders entitled to vote at
the meeting. At any meeting at which a quorum is present, all questions and
business that may come before the meeting shall be determined by a majority of
votes cast, except when a greater proportion is required by law, the Articles of
Incorporation, or these Bylaws.
(h) PROXIES. A person who is entitled to attend a meeting of
stockholders, to vote thereat, and execute consents, waivers and releases, may
be represented at such meeting or vote thereat, and execute consents, waivers
and releases and exercise any of his rights by proxy or proxies appointed by a
legally sufficient writing signed by such person, or by his duly authorized
attorney, as provided by the laws of the State of Maryland.
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(i) STOCKHOLDER PROPOSALS. For any stockholder proposal to be
presented in connection with an annual meeting of stockholders of the
Corporation, including any proposal relating to the nomination of a director to
be elected to the Board of Directors of the Corporation, the stockholders must
have given timely written notice thereof in writing to the Secretary of the
Corporation. In order for such notice to be timely, such notice must be received
by the Corporation not less than 90 nor more than 180 days prior to the
anniversary of the previous year's annual meeting; provided, however, that in
the event that the date of the annual meeting is advanced by more than 30 days
or delayed by more than 60 days from such anniversary date or if the Corporation
has not previously held an annual meeting, notice by the stockholder to be
timely must be so delivered not earlier than the close of business on the 180th
day prior to such annual meeting and not later than the close of business on the
later of the 90th day prior to such annual meeting and the tenth day following
the day on which public announcement of the date of such meeting is first made
by the Corporation. In no event shall the public announcement of a postponement
or adjournment of an annual meeting to a later date or time commence a new time
period for the giving of a stockholder's notice as described above. Such
stockholder's notice shall set forth (i) as to each person whom the stockholder
proposes to nominate for election or reelection as a director all information
relating to such person 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 Exchange Act
(including such person's written consent to being named in the proxy statement
as a nominee and to serving as a director if elected); (ii) as to any other
business that the stockholder proposes to bring before the meeting, a brief
description of the business desired to be brought before the meeting, the
reasons for conducting such business at the meeting and any material interest in
such business of such stockholder and of the beneficial owner, if any, on whose
behalf the proposal is made; and (iii) as to the stockholder giving the notice
and the beneficial owner, if any, on whose behalf the nomination or proposal is
made, (x) the name and address of such stockholder, as they appear on the
Corporation's books, and of such beneficial owner and (y) the number of shares
of each class of stock of the Corporation which are owned beneficially and of
record by such stockholder and such beneficial owner.
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 90 or less than 10 days before the date of such meeting, or
more than 90 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.
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For the purpose of this Article II, capitalized terms not otherwise
defined herein shall have the meaning set forth in the Stockholders Agreement by
and between Prometheus Southeast Retail, LLC and the Corporation dated February
24, 1998 (the "Stockholders Agreement").
SECTION 2. GENERAL POWERS.
The business and affairs, power and authority of the Corporation
shall be exercised, conducted and controlled by the Board of Directors, except
where the law, the Articles of Incorporation, or these Bylaws require any power
or action to be authorized or taken by the stockholders. In addition to the
powers and authorities expressly conferred by these Bylaws, the Board of
Directors may do all such lawful things and acts as are not by statute, the
Articles of Incorporation or these Bylaws directed or required to be done by the
stockholders.
SECTION 3. NUMBER, NOMINATION AND ELECTION OF DIRECTORS.
(a) NUMBER. The Board of Directors shall consist of not more than
fifteen members and, until the Final Threshold Date, not less than nine members.
Until the Preliminary Threshold Date, at least one-third of the Board of
Directors shall be designees (the "Investor Nominees") of Prometheus Southeast
Retail, LLC or its successor or assignee (the "Investor"). From and after the
Preliminary Threshold Date and until the Second Threshold Date, at least
two-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
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setting forth such information regarding such substitute nominee as
would have been required to be delivered to the Secretary pursuant to
these Bylaws had such substitute nominee been initially proposed as a
nominee. Such notice shall include a signed consent to serve as a
director of the Corporation, if elected, of each such substitute
nominee.
(5) INVESTOR NOMINEES. No person shall be named as an
Investor Nominee if (i) such person is not reasonably experienced in
business, financial or real estate matters, (ii) such person has been
convicted of, or pled nolo contendere to, a felony; (iii) the
election of such person would violate any law, or (iv) any event
required to be disclosed pursuant to Item 401(f) of Regulation S-K of
the 1934 Act has occurred with respect to such person. The Board of
Directors shall support the nomination of and the election of each
Investor Nominee to the Board of Directors, and the Board of
Directors shall exercise all authority under applicable law to cause
each Investor Nominee to be elected to the Board of Directors.
(6) COMPLIANCE WITH PROCEDURES. If the chairman of the
Election Meeting determines that a nomination of any candidate for
election as a director was not made in accordance with the applicable
provisions of these Bylaws, he shall so declare to the meeting and
such nomination shall be void.
(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.
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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 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
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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;
(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,
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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.
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.
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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.
(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.
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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.
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.
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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.
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
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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.
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
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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.
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,
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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.
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.
17
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