CONTINGENT VALUE RIGHT AGREEMENT
THIS CONTINGENT VALUE RIGHT AGREEMENT, dated as of
February 24, 1998 (this "Agreement"), is made by and between Prometheus
Southeast Retail LLC ("Buyer"), an affiliate of Lazard Freres Real Estate
Investors, LLC, and FAC Realty Trust, Inc., a Maryland corporation (the
"Company"). Capitalized terms not otherwise defined herein have the meaning
ascribed to them in the Stock Purchase Agreement (as hereinafter defined):
RECITALS:
WHEREAS, the Company and Buyer have entered into a Stock
Purchase Agreement, dated as of the date hereof (the "Stock Purchase
Agreement"), pursuant to which the Company has agreed to sell, and Buyer has
agreed to purchase, certain shares of common stock, par value $0.01 per share,
of the Company (the "Company Common Stock"), upon the terms and subject to the
conditions set forth therein; and
WHEREAS, it is a condition to the transactions contemplated by
the Stock Purchase Agreement and the parties believe it to be in their best
interests that they enter into this Agreement and provide for certain contingent
value rights for the benefit of Buyer;
NOW, THEREFORE, in consideration of the premises and the
covenants and agreements contained herein and for good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, and
intending to be legally bound hereby, the parties hereto hereby agree as
follows:
SECTION 1.
DEFINITIONS
As used in this Agreement, the following terms shall have the
following respective meanings:
Section 1.1 - Adjustment Number
"Adjustment Number" shall mean the number equal to (i) the Make-Whole
Amount DIVIDED BY (ii) the Fair Market Value on the Determination Date.
Section 1.2 - Affiliate
"Affiliate" with respect to any entity, shall mean a person or entity
directly or indirectly controlling, controlled by, or under common control with,
such entity, where "control" has the meaning given such term under Rule 405 of
the Securities Act of 1933.
Section 1.3 - Approval Rights Termination Date
"Approval Rights Termination Date" shall have the meaning given to it
in the Stockholders Agreement.
Section 1.4 - Board
"Board" shall mean the board of directors of the Company.
Section 1.5 - Board Member Default
"Board Member Default" shall mean (i) on any day prior to the
Preliminary Threshold Date, the failure of at least one-third of the members of
the Board to consist of Investor Nominees, (ii) on any day prior to the Second
Threshold Date, the failure of at least two-ninths of the members of the Board
to consist of Investor Nominees, and (iii) on any day prior to the Final
Threshold Date, the failure of at least one-ninth of the members of the Board to
consist of Investor Nominees.
Section 1.6 - Contingent Value Right.
"Contingent Value Right" shall mean the right granted under this
Agreement to receive the payments set forth in Section 2.2 hereof, subject to
the limitations and conditions provided in this Agreement.
Section 1.7 - Default Date
"Default Date" shall have the meaning given to it in Section 4.2.
Section 1.8 - Determination Date
"Determination Date" shall mean January 1, 2004.
Section 1.9 - Fair Market Value
"Fair Market Value" shall have the meaning given to it in the
Stockholders Agreement.
Section 1.10 - 15% IRR Amount
------------- --------------
2
"15% IRR Amount" shall have the meaning given to it in the Stockholders
Agreement.
Section 1.11 - Final Threshold Date
"Final Threshold Date" shall have the meaning given to it in the
Stockholders Agreement.
Section 1.12 - Investment Value
"Investment Value" shall mean the amount equal to (i) the number of
Purchased Shares MULTIPLIED BY (ii) the Fair Market Value on the Determination
Date.
Section 1.13 - Investor Nominee
"Investor Nominee" shall have the meaning given to it in the
Stockholders Agreement.
Section 1.14 - Make-Whole Amount
"Make-Whole Amount" shall mean, on the Determination Date, a dollar
amount, never less than 0, equal to the lesser of (a) (i) the greater of (A) the
15% IRR Amount on the Determination Date or (B) the $19.00 Amount on the
Determination Date LESS (ii) the Investment Value on the Determination Date and
(b) 4,500,000 MULTIPLIED BY the Fair Market Value on the Determination Date.
Section 1.15 - $19.00 Amount
"$19.00 Amount" shall mean, on any day, the amount equal to (i) $19.00
MULTIPLIED BY the number of Purchased Shares on such date LESS (ii) the
aggregate amount of cash dividends paid (not including any special fees,
expenses or other consideration payable to Investor, but not to all stockholders
of the Company) on the Purchased Shares between the date of the Initial Closing
and such date.
Section 1.16 - Offer to Purchase
"Offer to Purchase" shall have the meaning given to it in the
Stockholders Agreement.
Section 1.17 - Payment Date
"Payment Date" shall have the meaning given to it in Section 2.2(b).
3
Section 1.18 - Preliminary Threshold Date
"Preliminary Threshold Date" shall have the meaning given to it in the
Stockholders Agreement.
Section 1.19 - Purchased Shares
"Purchased Shares" shall have the meaning given to it in the Stock
Purchase Agreement.
Section 1.20 - Second Threshold Date
"Second Threshold Date" shall have the meaning given to it in the
Stockholders Agreement.
Section 1.21 - Stockholders Agreement
"Stockholders Agreement" shall mean that certain Stockholders
Agreement, dated the date hereof, by and between Buyer and the Company.
Section 1.22 - Termination Event
"Termination Event" shall mean the occurrence of (i) the completion of
an Offer to Purchase, (ii) the notification by Buyer to the Company that it will
not accept the Offer to Purchase, (iii) a date, on or after September 1, 2003,
but prior to December 31, 2003, on which the amount equal to (A) the Fair Market
Value on such date MULTIPLIED BY (B) the number of Purchased Shares equals or
exceeds the amount equal to (A) $21.00 MULTIPLIED BY the number of Purchased
Shares on such date LESS (B) the aggregate amount of cash dividends paid (not
including any special fees, expenses or other consideration payable to Investor,
but not to all other stockholders of the Company) on the Purchased Shares
between the date of the Initial Closing and the Determination Date, (iv) the
failure to secure Stockholder Approval by August 31, 1998 and (v) the date
immediately following the Payment Date.
Section 1.23 - Total Enterprise Value
"Total Enterprise Value" shall have the meaning given to it in the
Stockholders Agreement.
4
SECTION 2.
GRANT OF CONTINGENT VALUE RIGHTS
Section 2.1 - Grant of Contingent Value Rights
In consideration of the investment by Buyer in the Company pursuant to
the Stock Purchase Agreement and for other good and valuable consideration, on
the date hereof the Company grants to Buyer, subject to the terms and conditions
set forth in this Agreement, the Contingent Value Rights.
Section 2.2 - Determination and Method of Payment
(a) Subject to the provisions herein, the Contingent Value Rights shall
entitle Buyer to receive payment of an aggregate amount equal to the Make-Whole
Amount.
(b) The Make-Whole Amount shall be paid within ten days after the
Determination Date (the "Payment Date"), at the election of the Company, either
(i) in cash or (ii) in shares of Company Common Stock. In the event the Company
elects to satisfy its payment obligations under this Agreement in shares of
Company Common Stock, the Company shall issue to Buyer such number of shares of
Company Common Stock equal to the Adjustment Number.
SECTION 3
REPRESENTATIONS, WARRANTIES AND COVENANTS
Section 3.1 - Representations and Warranties
The Company represents and warrants to Buyer that:
(a) the Company has full corporate power and authority to issue, sell
and deliver the Contingent Value Rights to Buyer as provided in this Agreement
and the Stock Purchase Agreement and to carry out all the terms and provisions
to be performed by the Company herein and therein;
(b) the Contingent Value Rights have been duly authorized by the
Company for issuance to Buyer pursuant to this Agreement and the Stock Purchase
Agreement; and
(c) the execution and delivery of this Agreement and the Stock Purchase
Agreement by the Company, the issuance of the Contingent Value Rights to Buyer
pursuant to this Agreement and the Stock Purchase Agreement and the performance
of the obligations of the Company under this Agreement and the Stock Purchase
Agreement do not: (i) violate any federal or Maryland statute,
5
rule or regulation applicable to the Company, (ii) violate the provisions of the
Company's Charter or by-laws, (iii) result in the breach of or a default under
this Agreement, the Stock Purchase Agreement, the Registration Rights Agreement,
the Stockholders Agreement or any other material agreement to which the Company
is a party or any court order which would materially impair the ability of Buyer
to receive the benefits of the Contingent Value Rights or (iv) require any
consents, approvals, authorizations, registrations, declarations or filings by
the Company under any federal or Maryland statute, rule or regulation applicable
to the Company which would materially impair the ability of Buyer to receive the
benefits of the Contingent Value Rights.
Section 3.2 - Covenants
The Company covenants and agrees with Buyer that, from the date hereof
until the occurrence of a Termination Event, it will not enter into any
indenture, mortgage, deed of trust, sale/leaseback agreement, loan agreement or
other similar financing agreement or instrument or other agreement or instrument
by which the Company, any of its Subsidiaries or any of the property or assets
of the Company or any of its Subsidiaries would be bound that would materially
impair the ability of the Company to fulfill its obligations under this
Agreement.
SECTION 4
TERMINATION
Section 4.1 - Termination
Following a Termination Event, all Contingent Value Rights and this
Agreement shall terminate.
SECTION 5
APPROVAL RIGHTS
Section 5.1 - Approval Rights
From and after the Stockholder Approval Date until the Approval Rights
Termination Date, in the event a Board Member Default occurs, the Company shall
not, and shall not permit any of its Subsidiaries, without the written consent
of Buyer (or any transferee of Buyer that succeeds Buyer in its rights and
obligations under the Stockholders Agreement), to:
(a) acquire, whether by merger, consolidation, purchase of stock or
assets or other business combination, (i) in a single transaction or group of
related transactions, any business or
6
assets having an aggregate purchase price in excess of twenty-five percent (25%)
of Total Enterprise Value as measured at the beginning of the fiscal year in
which such acquisition is consummated, or (ii) during any one fiscal year,
businesses or assets having an aggregate purchase price in excess of fifty
percent (50%) of Total Enterprise Value as measured at the beginning of such
fiscal year;
(b) sell or dispose of any assets, whether by merger, consolidation,
sale of stock or assets or other business combination, during any one fiscal
year, having an aggregate value in excess of twenty-five percent (25%) of Total
Enterprise Value as measured at the beginning of such fiscal year;
(c) directly or indirectly, create, incur, issue, assume, guarantee or
otherwise become directly or indirectly liable, contingently or otherwise, with
respect to, any indebtedness if, after giving pro forma effect to such
indebtedness, the Company's ratio of (i) total indebtedness to (ii) Total
Enterprise Value, expressed as a percentage, would be greater than 65%;
(d) make any payment to, or sell, lease, transfer or otherwise dispose
of any of its properties or assets to, or purchase any property or assets from,
or enter into or make or amend any contract, agreement, understanding, loan,
advance or guarantee with, or for the benefit of, any of its Affiliates;
(e) issue Company Stock or options, rights or warrants or other
commitments to purchase or securities convertible into (or exchangeable or
redeemable for) shares of Company Stock, including, without limitation, OP Units
(such options, rights, warrants, other commitments or securities, "Company Stock
Equivalents"); provided, however, that Buyer's consent shall not be required for
any issuance of Company Stock or Company Stock Equivalents as long as the sum of
(i) all shares of Company Stock issued by the Company during the applicable
fiscal year and (ii) shares of Company Stock into which Company Stock
Equivalents issued by the Company and each of its Subsidiaries during the
applicable fiscal year are convertible, does not exceed fifty percent (50%) of
all shares of Company Stock outstanding, on a Fully Diluted basis, on the first
day of such fiscal year; provided, further, that in connection with any issuance
by the Company of Company Stock or issuance by the Company or any of its
Subsidiaries of any Company Stock Equivalents, Investor shall be entitled, to
the extent so provided in Section 4.1 of the Stockholders Agreement, to a
participation right on the terms set forth in Section 4.1 of the Stockholders
Agreement. Notwithstanding the first sentence of this Section 5.1(e), (i)
Company Stock issued to the Company or a wholly owned Subsidiary thereof and
(ii) Company Stock and Company Stock Equivalents issued to directors or
employees of the Company or a Subsidiary of the Company in connection with any
employee benefit plan approved by the shareholders of the Company, shall not be
subject to the consent of Buyer;
(f) change or amend any provision of the Company Charter or the by-laws
of the Company in a manner that would be materially adverse to Investor;
7
(g) pursuant to or within the meaning of any bankruptcy law: (i)
commence a voluntary case, (ii) consent to the entry of an order for relief
against it in an involuntary case, (iii) consent to the appointment of a
custodian of it or for all or substantially all of its property, (iv) make a
general assignment for the benefit of its creditors;
(h) in the case of the Company, (1) terminate its eligibility for
treatment as a real estate investment trust, as defined in the Code, or (2) take
any action or fail to take any action which would reasonably be expected to,
alone or in conjunction with any other factors, result in the loss of such
eligibility, unless in the case of a failure to take action, such action is
initiated within thirty days and such action is completed within the period
required under the Code in order to maintain such eligibility; or
(i) subject to the right of the Company to terminate the Stock Purchase
Agreement pursuant to Section 9.1(b)(iii) thereof, allow the consummation of any
transaction (including, without limitation, any merger or consolidation) the
result of which is that any "person" (as defined above), other than Buyer,
becomes the "beneficial owner" (as such term is defined in Rule 13d-3 and Rule
13d-5 under the Exchange Act), directly or indirectly, of stock having more than
15% of the voting power of the Company.
SECTION 6
MISCELLANEOUS
Section 6.1 - Date of Effectiveness
This Agreement shall be effective upon the date of the Initial Closing.
Section 6.2 - Notices
All notices and other communications hereunder shall be sufficiently
given for all purposes hereunder if in writing and delivered personally, sent by
documented overnight delivery service or, to the extent receipt is confirmed,
telecopy, telefax or other electronic transmission service to the appropriate
address or number as set forth below. Notices to the Company shall be addressed
to:
FAC Realty Trust, Inc.
00000 Xxxxxxx Xxxxxxx, 0xx fl.
Xxxx Xxxxx
Xxxx, XX 00000
Attention: X. Xxxxxxx Xxxxxx
Telecopy: (000) 000-0000
8
with a copy to:
Xxxxxx & Bird LLP
000 XXX Xxxxx
0000 Xxxxxxxx Xxx.
P.O. Drawer 31107
Raleigh, North Carolina 27622-1107
Attention: Xxxx X. Xxxxxxx, Esq.
Telecopy: (000) 000-0000
or at such other address and to the attention of such other person as the
Company may designate by written notice to Investor. Notices to Buyer or
Investor shall be addressed to:
Lazard Freres Real Estate Investors, LLC
00 Xxxxxxxxxxx Xxxxx, 00xx Xxxxx
Xxx Xxxx, XX 00000
Attention: Xxxxx Xxxxx
Telecopy: (000) 000-0000
with a copy to:
Xxxxxx & Xxxxxxx
000 Xxxxx Xxx, Xxxxx 00000
Xxx Xxxx, XX 00000
Attention: R. Xxxxxx Xxxxxxxxx, Esq.
Telecopy: (000) 000-0000
Section 6.3 - Severability
Any provision hereof which is invalid or unenforceable shall be
ineffective to the extent of such invalidity or unenforceability, without
affecting in any way the remaining provisions hereof.
Section 6.4 - Amendments and Waivers
This Agreement may not be modified or amended except by an instrument
or instruments in writing signed by the party against whom enforcement of any
such modification or amendment is sought. Any party hereto may, only by an
instrument in writing, waive compliance by another party hereto with any term or
provision hereof on the part of such other party hereto to be performed or
complied with. The waiver by any party hereto of a breach of any term or
provision hereof shall not be construed as a waiver of any subsequent breach.
Section 6.5 - Counterparts
9
This Agreement may be executed in one or more counterparts, all of
which shall be considered one and the same agreement, and shall become effective
when one or more counterparts have been signed by each of the parties and
delivered to the other party. Copies of executed counterparts transmitted by
telecopy, telefax or other electronic transmission service shall be considered
original executed counterparts for purposes of this Section, provided receipt of
copies of such counterparts is confirmed.
Section 6.6 - Assignment
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors. The Company shall not be
permitted to assign any of its rights hereunder to any third party without the
prior written consent of Buyer. Buyer may, upon written notice to the Company,
assign all, or a portion, of its rights hereunder to any third party without the
prior consent of the Company.
Section 6.7 - Headings
The Section and other headings contained in this Agreement are inserted
for convenience of reference only and will not affect the meaning or
interpretation of this Agreement. All references to Sections contained herein
mean Sections of this Agreement unless otherwise stated.
Section 6.8 - Governing Law
THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK WITHOUT REFERENCE TO THE CHOICE OF LAW
PRINCIPLES THEREOF.
Section 6.9 - Entire Agreement
This Agreement (including agreements incorporated herein) contain the
entire agreement between the parties with respect to the subject matter hereof
and there are no agreements, understandings, representations or warranties
between the parties other than those set forth or referred to herein. This
Agreement is not intended to confer upon any person not a party hereto (and
their successors and assigns) any rights or remedies hereunder.
Section 6.10 - Expenses
All legal and other costs and expenses incurred in connection with this
Agreement and the transactions contemplated hereby shall be paid as set forth in
the Stock Purchase Agreement. Without limiting the foregoing, the Company shall
pay all costs and expenses incurred in connection with the solicitation of votes
of shareholders of the Company to approve the transactions contemplated by the
Stock Purchase Agreement.
10
Section 6.11 - Interpretation; Absence of Presumption
(a) For the purposes hereof, (i) words in the singular shall be held to
include the plural and vice versa and words of one gender shall be held to
include the other gender as the context requires, (ii) the terms "hereof",
"herein", and "herewith" and words of similar import shall, unless otherwise
stated, be construed to refer to this Agreement as a whole and not to any
particular provision of this Agreement, (iii) the word "including" and words of
similar import when used in this Agreement shall mean "including, without
limitation," unless the context otherwise requires or unless otherwise
specified, (iv) the word "or" shall not be exclusive, and (v) provisions shall
apply, when appropriate, to successive events and transactions.
(b) This Agreement shall be construed without regard to any presumption
or rule requiring construction or interpretation against the party drafting or
causing any instrument to be drafted.
[signature page follows]
11
IN WITNESS WHEREOF, this Agreement has been executed and delivered by
the parties hereto.
PROMETHEUS SOUTHEAST RETAIL LLC
By: LF Strategic Realty Investor II, L.P.,
its sole member
By: Lazard Freres Real Estate Investors, LLC,
its general partner
By: ________________________
Name: ___________________________
Title: __________________________
FAC REALTY TRUST, INC.
By: ________________________
Name: X. Xxxxxxx Xxxxxx
Title: Chief Executive Officer
