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AGREEMENT AND PLAN OF MERGER
BETWEEN
EQUITY RESIDENTIAL PROPERTIES TRUST
AND
WELLSFORD RESIDENTIAL PROPERTY TRUST
Dated as of January 16, 1997
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TABLE OF CONTENTS
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ARTICLE PAGE
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1 THE MERGER............................................................. 2
1.1 The Merger....................................................... 2
1.2 Newco Transactions............................................... 2
1.3 Closing.......................................................... 3
1.4 Effective Time................................................... 3
1.5 Amendments and Restatements of Wellsford's Declaration of Trust.. 3
1.6 Amendment and Restatement of Wellsford's Bylaws.................. 3
1.7 Trustees......................................................... 3
1.8 Effect on Shares of Beneficial Interest and Options.............. 3
1.9 Exchange Ratio................................................... 4
1.10 Completion of Contribution Agreement............................. 4
1.11 Reversal of Direction of Merger.................................. 5
1.12 Change in Number of Spin-Off Shares.............................. 5
2 REPRESENTATIONS AND WARRANTIES OF Wellsford............................ 6
2.1 Organization, Standing and Power of Wellsford.................... 6
2.2 Wellsford Subsidiaries........................................... 6
2.3 Capital Structure................................................ 7
2.4 Authority; Noncontravention; Consents............................ 9
2.5 SEC Documents; Financial Statements; Undisclosed Liabilities..... 10
2.6 Absence of Certain Changes or Events............................. 11
2.7 Litigation....................................................... 11
2.8 Properties....................................................... 12
2.9 Environmental Matters............................................ 14
2.10 Related Party Transactions....................................... 14
2.11 Absence of Changes in Benefit Plans; ERISA Compliance............ 14
2.12 Employee Policies................................................ 15
2.13 Taxes............................................................ 15
2.14 No Payments to Employees, Officers, Trustees or Directors........ 16
2.15 Brokers; Schedule of Fees and Expenses........................... 16
2.16 Compliance with Laws............................................. 17
2.17 Contracts; Debt Instruments...................................... 17
2.18 Opinion of Financial Advisor..................................... 18
2.19 State Takeover Statutes.......................................... 18
2.20 Registration Statement........................................... 18
2.21 Development Properties........................................... 18
2.22 EQR Shares of Beneficial Interest................................ 18
2.23 Investment Company Act of 1940................................... 18
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ARTICLE PAGE
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2.24 Intentionally Omitted............................................ 18
2.25 Definition of Knowledge of Wellsford............................. 18
3 REPRESENTATIONS AND WARRANTIES OF EQR.................................. 19
3.1 Organization, Standing and Power of EQR.......................... 19
3.2 Capital Structure................................................ 19
3.3 Organization, Standing and Power of ERP
Operating Partnership............................................ 20
3.4 Capital Structure of ERP Operating Partnership................... 21
3.5 Authority; Noncontravention; Consents............................ 21
3.6 SEC Documents; Financial Statements; Undisclosed Liabilities..... 22
3.7 Absence of Certain Changes or Events............................. 23
3.8 Litigation....................................................... 23
3.9 Properties....................................................... 24
3.10 Environmental Matters............................................ 25
3.11 Taxes............................................................ 25
3.12 Brokers; Schedule of Fees and Expenses........................... 26
3.13 Compliance with Laws............................................. 26
3.14 Contracts; Debt Instruments...................................... 26
3.15 Opinion of Financial Advisor..................................... 26
3.16 State Takeover Statutes.......................................... 26
3.17 Registration Statement........................................... 27
3.18 Wellsford Shares of Beneficial Interest.......................... 27
3.19 Intentionally Omitted............................................ 27
3.20 Investment Company Act of 1940................................... 27
3.21 Definition of Knowledge of EQR................................... 27
4 COVENANTS.............................................................. 27
4.1 Acquisition Proposals............................................ 27
4.2 Conduct of Wellsford's Business Pending Merger................... 28
4.3 Conduct of EQR's Business Pending Merger......................... 33
4.4 Covenant of EQR.................................................. 34
4.5 Other Actions.................................................... 34
4.6 Filing of Certain Reports........................................ 34
5 ADDITIONAL COVENANTS................................................... 34
5.1 Preparation of the Registration Statement and the Proxy Statement;
Wellsford Shareholders Meeting and EQR Shareholders Meeting...... 34
5.2 Access to Information: Confidentiality........................... 36
5.3 Best Efforts; Notification....................................... 36
5.4 Costs of Transaction............................................. 37
5.5 Tax Treatment.................................................... 37
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ARTICLE PAGE
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5.6 Public Announcements............................................. 37
5.7 Listing.......................................................... 37
5.8 Letters of Accountants........................................... 38
5.9 Transfer and Gains Taxes......................................... 38
5.10 Benefit Plans and Other Employee Arrangements.................... 38
5.11 Indemnification.................................................. 40
5.12 Contribution Agreement........................................... 41
5.13 Declaration of Dividends and Distributions....................... 41
5.14 Consulting Agreements............................................ 41
5.15 Transfer of Management Company Shares............................ 42
5.16 Transfer of Wellsford Assets After Effective Time................ 42
5.17 Notices.......................................................... 42
5.18 Resignations..................................................... 42
5.19 Third Party Management Agreements................................ 42
5.20 Repayment of Certain Indebtedness................................ 43
6 CONDITIONS............................................................. 44
6.1 Conditions to Each Party's Obligation to Effect the Merger....... 44
6.2 Conditions to Obligations of EQR................................. 45
6.3 Conditions to Obligations of Wellsford........................... 48
7 TERMINATION, AMENDMENT AND WAIVER...................................... 50
7.1 Termination...................................................... 50
7.2 Certain Fees and Expenses........................................ 51
7.3 Effect of Termination............................................ 52
7.4 Amendment........................................................ 53
7.5 Extension; Waiver................................................ 53
8 GENERAL PROVISIONS..................................................... 53
8.1 Nonsurvival of Representations and Warranties.................... 53
8.2 Notices.......................................................... 53
8.3 Interpretation................................................... 54
8.4 Counterparts..................................................... 54
8.5 Entire Agreement; No Third-Party Beneficiaries................... 55
8.6 Governing Law.................................................... 55
8.7 Assignment....................................................... 55
8.8 Enforcement...................................................... 55
8.9 Severability..................................................... 55
8.10 Non-Recourse..................................................... 56
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EXHIBITS
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Exhibit "A" - Articles of Merger
Exhibit "B" - Contribution Agreement
Exhibit "C" - Newco Stock Purchase Agreement
Exhibit "D" - Palomino Agreement
Exhibit "E" - Palomino Credit Enhancement Agreement
Exhibit "F" - Sonterra Right of First Offer Agreement
Exhibit "G" - Adjustment to Exchange Ratio
Exhibit "H" - Transaction Costs Agreement
Exhibit "I" - Retention Program Letter
Exhibit "J" - Key Executives
Exhibit "K" - Form of Consulting Agreement
Exhibit "L" - Form of Letter for EQR Tax Opinion
Exhibit "M" - Opinion of Counsel to Wellsford
Exhibit "N" - Form of Letter for Wellsford Tax Opinion
Exhibit "O" - Opinion of Counsel to EQR
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INDEX OF DEFINED TERMS
----------------------
DEFINED TERM SECTION
------------ -------
Acquisition Proposal 4.1(a)
Affiliate 2.10
Agreement Preamble
Articles of Merger Recital C
Average Closing Price 1.9
Base Amount 7.2
Break-Up Expenses 7.2
Break-Up Fee 7.2
Break-Up Fee Tax Opinion 7.2
Change in Control Share Grants 2.3(b)
Closing 1.3
Closing Date 1.3
Code Recital E
Commitment 4.2(q)
Confidentiality Agreement 5.2
Contribution Agreement Recital D
Denver Lease 5.22
Department 1.4
Effective Time 1.4
employee benefit plan 2.11(b)
Encumbrances 2.8(a)
EQR Preamble
EQR Common Shares 1.9
EQR Disclosure Letter Article 3
EQR Employee Share Plans 3.2(a)
EQR Financial Statement Date 3.7
EQR Material Adverse Change 3.7
EQR Material Adverse Effect 3.1
EQR Options 3.2(a)
EQR Preferred Shares 3.2(a)
EQR Properties 3.9
EQR SEC Documents 3.6
EQR Series A Preferred Shares 3.2(a)
EQR Series B Preferred Shares 3.2(a)
EQR Series C Preferred Shares 3.2(a)
EQR Shareholder Approvals 3.5(a)
EQR Shareholders Meeting 5.1(b)
EQR Subsidiaries 3.1
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DEFINED TERM SECTION
------------- -------
EQR Units 3.2(c)
ERISA 2.11(b)
ERP Operating Partnership 1.2
ERP Operating Partnership Agreement 3.2(a)
Exchange Act 2.4(b)
Exchange Ratio 1.9
GAAP 2.5
Governmental Entity 2.4(b)
Hazardous Materials 2.9
include, includes or including 8.3
Indebtedness 2.7(b)
Indemnified Parties 5.11(a)
IRS 1.11
Laws 2.4(b)
Liens 2.2(b)
Management Corp. 5.15
Merger Recital B
New York Stock Exchange Composite Transactions 1.9
Newco Recital D
Newco Stock Purchase Agreement 1.2(b)
NYSE 2.4(b)
1940 Act 2.23
Palomino Agreement 1.2(c)
Palomino Credit Enhancement Agreement 1.2(d)
Palomino Development Agreements 4.2(i)
Payor 7.2
Person 2.2(a)
Property Restrictions 2.8(a)
Proxy Statement 2.4(b)
Qualifying Income 7.2
Recipient 7.2
Registration Statement 5.1(a)
REIT 2.13(b)
REIT Requirements 7.2
Restricted Share Grants 2.3(b)
Retention Program 5.10(c)
Revolver Rate 4.2
Retention Program Letter 5.10(c)
Schedule 5.10 Employees 5.10(c)
SEC 2.4(b)
Securities Act 2.4(b)
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DEFINED TERM SECTION
------------- -------
Share Loan and Acquisition Agreements 2.3(b)
Shareholder Approvals 3.5(a)
Sonterra Right of First Offer Agreement 1.2(e)
Spin-Off 1.2
Springing Shares 2.3(b)
Subsidiary 2.2(a)
Superior Acquisition Proposal 4.1
Surviving Trust 1.1
Takeover Statute 2.19
Taxes 2.13(a)
Third Party Management Agreements 2.17(d)
Title 8 1.1
to the Knowledge of EQR 3.21
to the Knowledge of Wellsford 2.25
Transaction Costs Agreement 5.4
Transfer and Gains Taxes 5.9
Wellsford Preamble
Wellsford Benefit Plans 2.11(a)
Wellsford Common Shares 1.2(f)
Wellsford Disclosure Letter Article 2
Wellsford Financial Statement Date 2.6
Wellsford Material Adverse Change 2.6
Wellsford Material Adverse Effect 2.1
Wellsford Options 2.3(b)
Wellsford Properties 2.8(a)
Wellsford SEC Documents 2.5
Wellsford Series A Preferred Shares 2.3(a)
Wellsford Series B Preferred Shares 2.3(a)
Wellsford Shareholder Approvals 2.4(a)
Wellsford Shareholder Meeting 5.1(c)
Wellsford Subsidiaries 2.2
WPHC 1.10
WPHC Non-Voting Shares 5.24
WPHC Voting Shares 5.24
vii
AGREEMENT AND PLAN OF MERGER
----------------------------
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") dated as of January
16, 1997 by and between EQUITY RESIDENTIAL PROPERTIES TRUST, a Maryland real
estate investment trust ("EQR"), and WELLSFORD RESIDENTIAL PROPERTY TRUST, a
Maryland real estate investment trust ("Wellsford").
R E C I T A L S:
---------------
A. The Boards of Trustees of EQR and Wellsford deem it advisable and in
the best interests of their respective shareholders, subject to the conditions
and other provisions contained herein, that EQR acquire the assets and business
of Wellsford and operate the business under the name "Equity Residential
Properties Trust."
B. The acquisition of the assets and business of Wellsford shall be
effected by the merger of EQR and Wellsford (the "Merger").
C. Upon the terms and conditions set forth herein, EQR and Wellsford
shall execute Articles of Merger in substantially the form attached hereto as
Exhibit "A" (the "Articles of Merger") and shall file such articles in
accordance with Maryland law to effectuate the Merger.
D. Immediately prior to the Merger, it is contemplated that Wellsford
shall contribute certain of its assets to Wellsford Real Properties, Inc., a
Maryland corporation ("Newco"), and that Newco shall assume certain obligations
of Wellsford, all as provided in the Contribution and Distribution Agreement in
substantially the form attached hereto as Exhibit "B" (the "Contribution
Agreement").
E. Immediately prior to the Merger, it is contemplated that Wellsford
shall distribute to its common shareholders all the outstanding shares of Newco
owned by it in a distribution subject to income tax under the Internal Revenue
Code of 1986, as amended (the "Code").
F. For federal income tax purposes, it is intended that the Merger
shall qualify as a tax-free reorganization within the meaning of Section 368(a)
of the Code.
G. EQR and Wellsford have each received a fairness opinion relating
to the transactions contemplated hereby as more fully described herein.
H. EQR and Wellsford desire to make certain representations,
warranties and agreements in connection with the Merger.
NOW, THEREFORE, in consideration of the premises, and the mutual
representations, warranties, covenants and agreements contained herein, the
parties hereto hereby agree as follows:
ARTICLE 1
---------
THE MERGER
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1.1 THE MERGER. Upon the terms and subject to the conditions of this
Agreement, and in accordance with Title 8 of the Corporations and Associations
Article of the Annotated Code of Maryland, as amended ("Title 8"), EQR shall be
merged with and into Wellsford, with Wellsford as the surviving real estate
investment trust (the "Surviving Trust").
1.2 NEWCO TRANSACTIONS. Wellsford, on January 8, 1997, formed Newco.
Immediately prior to the time of effectiveness of the Merger:
(a) Wellsford shall, and shall cause Newco to, execute and deliver the
Contribution Agreement and consummate the transactions contemplated
thereby;
(b) EQR will cause ERP Operating Limited Partnership, an Illinois
limited partnership of which EQR is the sole general partner (the "ERP
Operating Partnership"), to execute and deliver, and Wellsford shall cause
Newco to execute and deliver, the Common Stock and Preferred Stock Purchase
Agreement in substantially the form annexed hereto as Exhibit "C" (the
"Newco Stock Purchase Agreement");
(c) EQR will cause ERP Operating Partnership to execute and deliver,
and Wellsford shall cause Newco to execute and deliver, the Agreement
Regarding Palomino Park in substantially the form annexed hereto as Exhibit
"D" (the "Palomino Agreement");
(d) EQR will cause ERP Operating Partnership to execute and deliver,
and Wellsford shall cause Newco to execute and deliver, the Credit
Enhancement Agreement in substantially the form annexed hereto as Exhibit
"E" (the "Palomino Credit Enhancement Agreement");
(e) EQR will cause ERP Operating Partnership to execute and deliver,
and Wellsford shall cause Newco to execute and deliver, the Sonterra Right
of First Offer Agreement in substantially the form annexed hereto as
Exhibit "F" (the "Sonterra Right of First Offer Agreement"); and
(f) Wellsford will distribute to its common shareholders, as a
distribution taxable under Code Section 301, all the outstanding shares of
Newco owned by Wellsford
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as further described in the Contribution Agreement, so that each holder of
common shares of beneficial interest of Wellsford, $0.01 par value per
share ("Wellsford Common Shares"), receives one common share of Newco for
each Wellsford Common Share held by such holder
(such transactions being referred to collectively as the "Spin-Off").
Immediately after the Effective Time (as defined below), the transactions
contemplated by the Newco Stock Purchase Agreement, the Palomino Agreement and
the Palomino Credit Enhancement Agreement which are to occur on the Closing Date
(as defined below) shall be consummated.
1.3 CLOSING. The closing of the Merger ("Closing") will take place at
10:00 a.m. on the date to be specified by the parties, which (subject to
satisfaction or waiver of the conditions set forth in Article 6) shall be no
later than the third business day after satisfaction or waiver of the conditions
set forth in Section 6.1(a) (the "Closing Date"), at the offices of Xxxxxxx &
Xxxxx, 000 Xxxxx XxXxxxx Xxxxxx, Xxxxxxx, Xxxxxxxx 00000, unless another date or
place is agreed to in writing by the parties.
1.4 EFFECTIVE TIME. As soon as practicable following the satisfaction or
waiver of the conditions set forth in Article 6, the parties shall execute and
file the Articles of Merger, executed in accordance with Title 8, with the State
Department of Assessments and Taxation of Maryland (the "Department"), and shall
make all other filings and recordings required under Title 8. The Merger shall
become effective ("Effective Time") at such time as the Department accepts the
Articles of Merger for record, or at such time as EQR and Wellsford shall agree
should be specified in the Articles of Merger (not to exceed thirty (30) days
after the Articles of Merger are accepted for record by the Department). Unless
otherwise agreed, the parties shall cause the Effective Time to occur on the
Closing Date.
1.5 AMENDMENTS AND RESTATEMENTS OF WELLSFORD'S DECLARATION OF TRUST. The
Amended and Restated Declaration of Trust, as amended, of Wellsford shall be
amended and restated at the Effective Time as provided in the Articles of
Merger.
1.6 AMENDMENT AND RESTATEMENT OF WELLSFORD'S BYLAWS. From and after the
Effective Time, the Bylaws of the Surviving Trust shall be the Bylaws of EQR as
in effect immediately prior to the Merger, until further amended or restated in
accordance therewith and Title 8.
1.7 TRUSTEES. The trustees of the Surviving Trust shall be the persons
named in the Articles of Merger, each of whom shall serve for the term specified
in the Articles of Merger.
1.8 EFFECT ON SHARES OF BENEFICIAL INTEREST AND OPTIONS. The effect of
the Merger on the shares of beneficial interest, options to purchase shares of
beneficial interest and restricted share awards of each of EQR and Wellsford
shall be as provided in the Articles of Merger.
3
1.9 EXCHANGE RATIO. The exchange ratio to be set forth in the Articles of
Merger ("Exchange Ratio") shall be 0.625 of a common share of beneficial
interest of the Surviving Trust, $0.01 par value per share, for each Wellsford
Common Share outstanding immediately prior to the Effective Time. In the event
that the Average Closing Price (as defined below) is less than $40.00 per share,
the Exchange Ratio shall be the rate per share specified in Exhibit "G" hereto.
For the purposes of this Agreement, "Average Closing Price" shall mean the
average of the daily closing prices of a common share of beneficial interest of
EQR, $0.01 par value per share ("EQR Common Share"), reported as "New York Stock
Exchange Composite Transactions" by The Wall Street Journal (Midwest Edition)
during the consecutive twenty (20) trading day period ending at the end of the
fifth (5th) trading day prior to the date which the proxy statements required by
Section 5.1 hereof are dated.
1.10 COMPLETION OF CONTRIBUTION AGREEMENT. At the time the Contribution
Agreement is executed, the parties shall complete the blank presently in the
Contribution Agreement for the amount of Contribution Funds (as defined in the
Contribution Agreement). The amount of the Contribution Funds shall be
$13,355,600, adjusted as follows:
(a) such amount shall be decreased by:
(i) 80% of any cash (excluding loans) invested by Wellsford or
any of its Subsidiaries in Wellsford Park Highlands Corp., a
Colorado corporation ("WPHC"), and its Subsidiaries after
September 30, 1996 and prior to the Spin-Off;
(ii) 100% of any accrued interest on the Promissory Note dated
June 28, 1996 made by Specified Properties VIII, L.P., a
Texas limited partnership, to Wellsford remaining unpaid as
of the Closing Date; and
(iii) $2.50 for each share of Newco distributed to the
shareholders of Wellsford in the Spin-Off less than
17,104,359 shares; and
(b) such amount shall be increased by:
(i) 80% of the accrued interest on the Bonds (as defined in the
Credit Enhancement Agreement) which remains unpaid as of the
Closing Date;
(ii) $2.50 for each share of Newco distributed to the
shareholders of Wellsford in the Spin-Off in excess of
17,104,359 shares; and
4
(iii) the amount, if any, provided for in Section 1(b) of the
Transaction Costs Agreement (as defined in Section 5.4).
1.11 REVERSAL OF DIRECTION OF MERGER. In order to allow counsel
to opine that the Merger, for federal income tax purposes, will qualify as a
tax-free reorganization within the meaning of the Code, the parties have agreed
that EQR shall be merged into Wellsford and that Wellsford shall be the
Surviving Trust. The parties will jointly file a request for a private letter
ruling with the Internal Revenue Service ("IRS"), as soon as practicable after
the date hereof, to obtain a private letter ruling from the IRS to the effect
that a merger of Wellsford into EQR with EQR being the Surviving Trust will not
adversely affect the tax-free nature of the reorganization. If such a private
letter ruling is received or in the event the IRS publishes a revenue ruling or
other published announcement (including the promulgation of a Treasury
regulation) to the effect that, and counsel for the parties are reasonably
willing to opine that, a merger of Wellsford into EQR with EQR being the
Surviving Trust will not adversely affect the tax-free nature of the
reorganization, the parties will amend this Agreement, the Articles of Merger
and all other agreements as may be necessary or desirable solely for the
purposes of providing for the merger of Wellsford into EQR with EQR being the
Surviving Trust; provided, however, that such amendments shall not modify the
substantive provisions or economic terms of this Agreement and the transactions
contemplated hereby; and further provided that both the Merger and the merger of
Wellsford into EQR with EQR being the Surviving Trust are submitted to and
approved by the shareholders of EQR and Wellsford in the manner required by
applicable law. Any such amendment may be made before or after the approval of
the Merger by the respective shareholders of EQR and Wellsford. The costs and
expenses of seeking and obtaining any private letter ruling as contemplated by
this Section 1.11 shall be borne by EQR.
Any conditions to the Merger set forth in Article 6 that would be
satisfied but for the reversal of direction of the Merger shall be deemed
satisfied.
1.12 CHANGE IN NUMBER OF SPIN-OFF SHARES. If for any reason
Wellsford shall determine to distribute in the Spin-Off less than one common
share of Newco for each outstanding Wellsford Common Share, the parties will
amend this Agreement and all other agreements contemplated hereby solely for the
purpose of appropriately adjusting all numbers and dollar amounts which were
based on one common share of Newco being distributed in the Spin-Off for each
outstanding Wellsford Common Share.
5
ARTICLE 2
---------
REPRESENTATIONS AND WARRANTIES OF WELLSFORD
-------------------------------------------
Except as set forth in the letter of even date herewith signed by the
Chairman of the Board or President of Wellsford in his capacity as such and
delivered to EQR prior to the execution hereof (the "Wellsford Disclosure
Letter"), Wellsford represents and warrants to EQR as follows:
2.1 ORGANIZATION, STANDING AND POWER OF WELLSFORD. Wellsford is a
real estate investment trust duly organized and validly existing under the laws
of Maryland and has the requisite power and authority to carry on its business
as now being conducted. Wellsford is duly qualified or licensed to do business
as a foreign trust and is in good standing in each jurisdiction in which the
nature of its business or the ownership or leasing of its properties makes such
qualification or licensing necessary, other than in such jurisdictions where the
failure to be so qualified or licensed, individually or in the aggregate, would
not have a material adverse effect on the business, properties, assets,
financial condition or results of operations of Wellsford and the Wellsford
Subsidiaries (as defined below), taken as a whole (a "Wellsford Material Adverse
Effect"). Wellsford has delivered to EQR complete and correct copies of its
Amended and Restated Declaration of Trust (including all Articles Supplementary
thereto) and Amended and Restated Bylaws, in each case, as amended to the date
of this Agreement.
2.2 WELLSFORD SUBSIDIARIES.
(a) Schedule 2.2 to the Wellsford Disclosure Letter sets forth (i)
each Subsidiary of Wellsford (the "Wellsford Subsidiaries"), (ii) the ownership
interest therein of Wellsford, (iii) if not wholly-owned by Wellsford, the
identity and ownership interest of other owners of such Wellsford Subsidiary,
and (iv) each apartment community owned by such Subsidiary. As used in this
Agreement, "Subsidiary" of any Person means any corporation, partnership,
limited liability company, joint venture or other legal entity of which such
Person (either directly or through or together with another Subsidiary of such
Person) owns any of the capital stock or other equity interests of such
corporation, partnership, limited liability company, joint venture or other
legal entity. As used herein, "Person" means an individual, corporation,
partnership, limited liability company, joint venture, association, trust,
unincorporated organization or other entity.
(b) Except as set forth in Schedule 2.2 to the Wellsford Disclosure
Letter, (i) all the outstanding shares of capital stock of each Wellsford
Subsidiary that is a corporation have been validly issued and are (A) fully paid
and nonassessable, (B) owned by Wellsford or by another Wellsford Subsidiary,
and (C) owned free and clear of all pledges, claims, liens, charges,
encumbrances and security interests of any kind or nature whatsoever
(collectively, "Liens"), and (ii) all equity interests in each Wellsford
Subsidiary that is a partnership, joint
6
venture, limited liability company or trust which are owned by Wellsford, by
another Wellsford Subsidiary or by Wellsford and another Wellsford Subsidiary
are owned free and clear of all Liens. Each Wellsford Subsidiary that is a
corporation is duly incorporated and validly existing under the laws of its
jurisdiction of incorporation and has the requisite corporate power and
authority to carry on its business as now being conducted, and each Wellsford
Subsidiary that is a partnership, limited liability company or trust is duly
organized and validly existing under the laws of its jurisdiction of
organization and has the requisite power and authority to carry on its business
as now being conducted. Each Wellsford Subsidiary is duly qualified or licensed
to do business and is in good standing in each jurisdiction in which the nature
of its business or the ownership or leasing of its properties makes such
qualification or licensing necessary, other than in such jurisdictions where the
failure to be so qualified or licensed, individually or in the aggregate, would
not have a Wellsford Material Adverse Effect. Copies of the Articles of
Incorporation, Bylaws, organization documents and partnership, joint venture and
operating agreements of each Wellsford Subsidiary, as amended to the date of
this Agreement, have been previously delivered or made available to EQR.
2.3 CAPITAL STRUCTURE.
(a) The authorized shares of beneficial interest of Wellsford consist
of 100,000,000 shares of beneficial interest, of which 4,600,000 are Series A
Cumulative Convertible Preferred Shares of Beneficial Interest, $.01 par value
per share ("Wellsford Series A Preferred Shares"), and 2,300,000 are Series B
Cumulative Redeemable Preferred Shares of Beneficial Interest, $.01 par value
per share ("Wellsford Series B Preferred Shares"). On January 14, 1997, (i)
17,111,937 Wellsford Common Shares, 3,999,800 Wellsford Series A Preferred
Shares and 2,300,000 Wellsford Series B Preferred Shares were issued and
outstanding, (ii) 1,000,000 Wellsford Common Shares have been reserved for the
Dividend Reinvestment and Share Purchase Plan of Wellsford, (iii) 979,325
Wellsford Common Shares were issuable upon exercise of outstanding options to
purchase Wellsford Common Shares, (iv) 582,900 Wellsford Common Shares were
reserved for issuance upon the exercise of options which may be granted under
the 1992 Share Option Plan, (v) 750,000 Wellsford Common Shares were reserved
for issuance under the Long-Term Management Incentive Plan of Wellsford, and
(vi) a sufficient number of Wellsford Common Shares were reserved for issuance
to permit the conversion of the then outstanding Wellsford Series A Preferred
Shares.
(b) Set forth in Schedule 2.3 of the Wellsford Disclosure Letter is a
true and complete list of the following: (i) each qualified or nonqualified
option to purchase Wellsford Common Shares granted under the 1992 Share Option
Plan, Long-Term Management Incentive Plan, or any other formal or informal
arrangement ("Wellsford Options"); (ii) each grant of Wellsford Common Shares to
employees which are subject to any risk of forfeiture ("Restricted Share
Grants"); (iii) any obligation of Wellsford to issue Wellsford Common Shares as
a result of the transactions contemplated hereby ("Change in Control Share
Grants"); and (iv) each loan made by Wellsford with respect to the purchase of
Wellsford Common Shares which will be forgiven as a result of the transactions
contemplated by this Agreement (the "Share Loan and
7
Acquisition Agreements"). The Restricted Share Grants are included in the
number of outstanding Wellsford Common Shares set forth in Section 2.3(a). For
each Wellsford Option held by the executive officers of Wellsford, Schedule 2.3
of the Wellsford Disclosure Letter sets forth the name of the grantee, the date
of the grant, status of the option as qualified or nonqualified under Section
422 of the Code, the number of Wellsford Common Shares subject to such option,
the number of shares subject to options that are currently exercisable, the
exercise price per share, those options granting reload options, and the number
of such shares subject to share appreciation rights. For each option to
purchase Wellsford Common Shares held by employees of Wellsford or any of the
Wellsford Subsidiaries who are not executive officers of Wellsford, Schedule 2.3
to the Wellsford Disclosure Letter sets forth the name of the grantee, the date
of the grant, the number of Wellsford Common Shares subject to such option and
the exercise price per share. For each Restricted Share Grant, Schedule 2.3 of
the Wellsford Disclosure Letter sets forth the name of the grantee, the date of
the grant and the number of Wellsford Common Shares granted. For each Change in
Control Share Grant, Schedule 2.3 to the Wellsford Disclosure Letter sets forth
the aggregate number of Wellsford Common Shares to be issued immediately prior
to the Spin-Off and the Merger. For each Share Loan and Acquisition Agreement,
Schedule 2.3 of the Wellsford Disclosure Letter sets forth the name of the
borrower, the date of the loan, the aggregate principal amount of the loan, the
number of shares originally pledged as security for each loan the number of
shares that have been released from such pledge and the outstanding loan balance
as of the date of the Wellsford Disclosure Letter. On the date of this
Agreement, except as set forth in this Section 2.3 or Schedule 2.3 of the
Wellsford Disclosure Letter, no shares of beneficial interest or other voting
securities of Wellsford were issued, reserved for issuance, or outstanding.
(c) All outstanding shares of beneficial interest of Wellsford are
duly authorized, validly issued, fully paid and nonassessable and not subject to
preemptive rights, except that the shareholders may be subject to further
assessment with respect to certain claims for tort, contract, taxes, statutory
liability and otherwise in some jurisdictions to the extent such claims are not
satisfied by Wellsford. There are no bonds, debentures, notes or other
indebtedness of Wellsford having the right to vote (or convertible into, or
exchangeable for, securities having the right to vote) on any matters on which
shareholders of Wellsford may vote.
(d) Except as set forth in this Section 2.3 or in Schedule 2.3 of the
Wellsford Disclosure Letter, as of the date of this Agreement there are no
outstanding securities, options, warrants, calls, rights, commitments,
agreements, arrangements or undertakings of any kind to which Wellsford or any
Wellsford Subsidiary is a party or by which such entity is bound, obligating
Wellsford or any Wellsford Subsidiary to issue, deliver or sell, or cause to be
issued, delivered or sold, additional shares of beneficial interest, voting
securities or other ownership interests of Wellsford or any Wellsford Subsidiary
or obligating Wellsford or any Wellsford Subsidiary to issue, grant, extend or
enter into any such security, option, warrant, call, right, commitment,
agreement, arrangement or undertaking (other than to Wellsford or a Wellsford
Subsidiary).
8
2.4 AUTHORITY; NONCONTRAVENTION; CONSENTS.
(a) Wellsford has the requisite power and authority to enter into this
Agreement and, subject to the requisite shareholder approval of the Merger (the
"Wellsford Shareholder Approvals"), to consummate the transactions contemplated
by this Agreement to which Wellsford is a party. The execution and delivery of
this Agreement by Wellsford and the consummation by Wellsford of the
transactions contemplated by this Agreement to which Wellsford is a party have
been duly authorized by all necessary action on the part of Wellsford, subject
to the Wellsford Shareholder Approvals. This Agreement has been duly executed
and delivered by Wellsford and constitutes a valid and binding obligation of
Wellsford, enforceable against Wellsford in accordance with its terms, subject
to applicable bankruptcy, insolvency, moratorium or other similar laws relating
to creditors' rights and general principles of equity.
(b) Except as set forth in Schedule 2.4 to the Wellsford Disclosure
Letter, the execution and delivery of this Agreement by Wellsford do not, and
the consummation of the transactions contemplated by this Agreement to which
Wellsford is a party and compliance by Wellsford with the provisions of this
Agreement will not, conflict with, or result in any violation of, or default
(with or without notice or lapse of time, or both) under, or give rise to a
right of termination, cancellation or acceleration of any material obligation or
to loss of a material benefit under, or result in the creation of any Lien upon
any of the properties or assets of Wellsford or any Wellsford Subsidiary under,
(i) the Amended and Restated Declaration of Trust or the Amended and Restated
Bylaws of Wellsford or the comparable charter or organizational documents or
partnership or similar agreement (as the case may be) of any Wellsford
Subsidiary, each as amended or supplemented to the date of this Agreement, (ii)
any loan or credit agreement, note, bond, mortgage, indenture, reciprocal
easement agreement, lease or other agreement, instrument, permit, concession,
franchise or license applicable to Wellsford or any Wellsford Subsidiary or
their respective properties or assets or (iii) subject to the governmental
filings and other matters referred to in the following sentence, any judgment,
order, decree, statute, law, ordinance, rule or regulation (collectively,
"Laws") applicable to Wellsford or any Wellsford Subsidiary, or their respective
properties or assets, other than, in the case of clause (ii) or (iii), any such
conflicts, violations, defaults, rights, loss or Liens that individually or in
the aggregate would not (x) have a Wellsford Material Adverse Effect or (y)
prevent the consummation of the transactions contemplated by this Agreement. No
consent, approval, order or authorization of, or registration, declaration or
filing with, any federal, state or local government or any court, administrative
or regulatory agency or commission or other governmental authority or agency,
domestic or foreign (a "Governmental Entity"), is required by or with respect to
Wellsford or any Wellsford Subsidiary in connection with the execution and
delivery of this Agreement by Wellsford or the consummation by Wellsford of the
transactions contemplated by this Agreement, except for (i) the filing with the
Securities and Exchange Commission (the "SEC") of (x) a joint proxy statement
relating to the approval by Wellsford's shareholders and EQR's shareholders of
the transactions contemplated by this Agreement (as amended or supplemented from
time to time, the "Proxy Statement"), (y) registration statements on appropriate
forms under the Securities Act of 1933, as amended
9
(the "Securities Act"), and the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and (z) such reports under Section 13(a) of the Exchange Act as
may be required in connection with this Agreement and the transactions
contemplated by this Agreement, (ii) the filing of listing applications with the
New York Stock Exchange Inc. ("NYSE") with respect to the shares of beneficial
interest of the Surviving Trust to be issued in the Merger, (iii) the filing of
the Articles of Merger with the Department and (iv) such other consents,
approvals, orders, authorizations, registrations, declarations and filings (A)
as are set forth in Schedule 2.4 to the Wellsford Disclosure Letter, (B) as may
be required under (y) federal, state or local environmental laws, or (z) the
"blue sky" laws of various states, to the extent applicable, or (C) which, if
not obtained or made, would not prevent or delay in any material respect the
consummation of any of the transactions contemplated by this Agreement or
otherwise prevent Wellsford from performing its obligations under this Agreement
in any material respect or have, individually or in the aggregate, a Wellsford
Material Adverse Effect.
(c) For purposes of determining compliance with the Xxxx-Xxxxx-Xxxxxx
Antitrust Improvements Act of 1976, as amended, Wellsford confirms that the
conduct of its business consists solely of investing in, owning and operating
real estate for the benefit of its shareholders.
2.5 SEC DOCUMENTS; FINANCIAL STATEMENTS; UNDISCLOSED LIABILITIES.
Wellsford has filed all required reports, schedules, forms, statements and other
documents with the SEC since November 27, 1992 through the date hereof (the
"Wellsford SEC Documents"). Schedule 2.5 of the Wellsford Disclosure Letter
contains a complete list of all Wellsford SEC Documents filed by Wellsford with
the SEC since January 1, 1996 and on or prior to the date of this Agreement.
All of the Wellsford SEC Documents (other than preliminary material), as of
their respective filing dates, complied in all material respects with all
applicable requirements of the Securities Act and the Exchange Act and, in each
case, the rules and regulations promulgated thereunder applicable to such
Wellsford SEC Documents. None of the Wellsford SEC Documents at the time of
filing contained any untrue statement of a material fact or omitted to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading, except to the extent such statements have been modified or
superseded by later Wellsford SEC Documents filed and publicly available prior
to the date of this Agreement. The consolidated financial statements of
Wellsford included in the Wellsford SEC Documents complied as to form in all
material respects with applicable accounting requirements and the published
rules and regulations of the SEC with respect thereto, have been prepared in
accordance with generally accepted accounting principles ("GAAP") (except, in
the case of unaudited statements, as permitted by the applicable rules and
regulations of the SEC) applied on a consistent basis during the periods
involved (except as may be indicated in the notes thereto) and fairly presented,
in accordance with the applicable requirements of GAAP and the applicable rules
and regulations of the SEC, the consolidated financial position of Wellsford and
the Wellsford Subsidiaries, taken as a whole, as of the dates thereof and the
consolidated results of operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit
adjustments). Wellsford
10
has no Subsidiaries which are not consolidated for accounting purposes. Except
for liabilities and obligations set forth in the Wellsford SEC Documents or in
Schedule 2.5 to the Wellsford Disclosure Letter, neither Wellsford nor any of
the Wellsford Subsidiaries has any liabilities or obligations of any nature
(whether accrued, absolute, contingent or otherwise) required by GAAP to be set
forth on a consolidated balance sheet of Wellsford or in the notes thereto and
which, individually or in the aggregate, would have a Wellsford Material Adverse
Effect. Management Corp. (as defined in Section 5.15) has assets of less than
$1,000. On the date of this Agreement, Newco has no material assets.
2.6 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed in the
Wellsford SEC Documents or the Wellsford Disclosure Letter, since the date of
the most recent audited financial statements included in Wellsford SEC Documents
(the "Wellsford Financial Statement Date") Wellsford and the Wellsford
Subsidiaries have conducted their business only in the ordinary course (taking
into account prior practices, including the acquisition of properties and
issuance of securities) and there has not been (a) any material adverse change
in the business, financial condition or results of operations of Wellsford and
the Wellsford Subsidiaries taken as a whole (a "Wellsford Material Adverse
Change"), nor has there been any occurrence or circumstance that with the
passage of time would reasonably be expected to result in a Wellsford Material
Adverse Change, (b) except for regular quarterly distributions (in the case of
Wellsford) not in excess of $0.485 per Wellsford Common Share, $0.4375 per
Wellsford Series A Preferred Share, and $0.603125 per Wellsford Series B
Preferred Share, in each case with customary record and payment dates, any
declaration, setting aside or payment of any dividend or other distribution
(whether in cash, stock or property) with respect to any of Wellsford's shares
of beneficial interest, (c) any split, combination or reclassification of any of
Wellsford's shares of beneficial interest or any issuance or the authorization
of any issuance of any other securities in respect of, in lieu of or in
substitution for, or giving the right to acquire by exchange or exercise, shares
of its beneficial interest or any issuance of an ownership interest in, any
Wellsford Subsidiary except as contemplated by this Agreement, (d) any damage,
destruction or loss, whether or not covered by insurance, that has or would have
a Wellsford Material Adverse Effect or (e) any change in accounting methods,
principles or practices by Wellsford or any Wellsford Subsidiary materially
affecting its assets, liabilities or business, except insofar as may have been
disclosed in Wellsford SEC Documents or required by a change in GAAP or (f) any
amendment of any employment, consulting, severance, retention or any other
agreement between Wellsford and any officer or trustee of Wellsford. There are
no distributions in arrears which have been scheduled for payment or unpaid
distributions with respect to the Wellsford Series A Preferred Shares and
Wellsford Series B Preferred Shares.
2.7 LITIGATION. Except as disclosed in the Wellsford SEC Documents or in
Schedule 2.7 to the Wellsford Disclosure Letter, and other than personal injury
and other routine tort litigation arising from the ordinary course of operations
of Wellsford and the Wellsford Subsidiaries (a) which are covered by adequate
insurance or (b) for which all material costs and liabilities arising therefrom
are reimbursable pursuant to common area maintenance or similar agreements,
there is no suit, action or proceeding pending or, to the Knowledge of
Wellsford,
11
threatened in writing against or affecting Wellsford or any Wellsford Subsidiary
that, individually or in the aggregate, could reasonably be expected to (i) have
a Wellsford Material Adverse Effect or (ii) prevent the consummation of any of
the transactions contemplated by this Agreement, nor is there any judgment,
decree, injunction, rule or order of any Governmental Entity or arbitrator
outstanding against Wellsford or any Wellsford Subsidiary having, or which,
insofar as reasonably can be foreseen, in the future would have, any such
effect. Notwithstanding the foregoing, Schedule 2.7 to the Wellsford Disclosure
Letter sets forth each and every uninsured claim, equal employment opportunity
claim and claim relating to sexual harassment and/or discrimination pending or,
to the Knowledge of Wellsford, threatened as of the date hereof, in each case
with a brief summary of such claim or threatened claim.
2.8 PROPERTIES.
(a) Except as provided in Schedule 2.8 of the Wellsford Disclosure
Letter, Wellsford or the Wellsford Subsidiary set forth on Schedule 2.2 of the
Wellsford Disclosure Letter owns fee simple title to each of the real properties
identified in Schedule 2.8 of the Wellsford Disclosure Letter (the "Wellsford
Properties"), which are all of the real estate properties owned by them, in each
case (except as provided below) free and clear of liens, mortgages or deeds of
trust, claims against title, charges which are liens, security interests or
other encumbrances on title ("Encumbrances"). Except as set forth in Schedule
2.2 or Schedule 2.8 of the Wellsford Disclosure Letter, no other Person has any
ownership interest in any of the Wellsford Properties, and any such ownership
interest so scheduled does not materially detract from the value of, or
materially interfere with the present use of, any of the Wellsford Properties
subject thereto or affected thereby. The Wellsford Properties are not subject
to any rights of way, written agreements, laws, ordinances and regulations
affecting building use or occupancy, or reservations of an interest in title
(collectively, "Property Restrictions"), except for (i) Encumbrances and
Property Restrictions set forth in the Wellsford Disclosure Letter, (ii)
Property Restrictions imposed or promulgated by law or any governmental body or
authority with respect to real property, including zoning regulations, provided
they does not materially adversely affect the current use of any Wellsford
Property, (iii) Encumbrances and Property Restrictions disclosed on existing
title reports or existing surveys (in either case copies of which title reports
and surveys have been delivered or made available to EQR and listed in the
Wellsford Disclosure Letter), which Encumbrances and Property Restrictions, in
any event, do not materially detract from the value of, or materially interfere
with the present use of, any of the Wellsford Properties subject thereto or
affected thereby, and (iv) mechanics', carriers', workmen's, repairmen's liens
and other Encumbrances, Property Restrictions and other limitations of any kind,
if any, which, individually or in the aggregate, do not materially detract from
the value of or materially interfere with the present use of any of the
Wellsford Properties subject thereto or affected thereby, and do not otherwise
materially impair business operations conducted by Wellsford and the Wellsford
Subsidiaries. Except as provided in Schedule 2.8 of the Wellsford Disclosure
Letter, no portion of any of the Wellsford Properties is located in a flood zone
area "V".
12
(b) Except as provided in Schedule 2.8 of the Wellsford Disclosure
Letter, valid policies of title insurance have been issued insuring Wellsford's
or the applicable Wellsford Subsidiaries' fee simple title to the Wellsford
Properties in amounts at least equal to the purchase price thereof paid by
Wellsford therefor, subject only to the matters disclosed above and on the
Wellsford Disclosure Letter, and such policies are, at the date hereof, in full
force and effect and no claim has been made against any such policy.
(c) Except as provided in Schedule 2.8 of the Wellsford Disclosure
Letter, Wellsford has no Knowledge (as defined in Section 2.25) (i) that, any
certificate, permit or license from any governmental authority having
jurisdiction over any of the Wellsford Properties or any agreement, easement or
other right which is necessary to permit the lawful use and operation of the
buildings and improvements on any of the Wellsford Properties or which is
necessary to permit the lawful use and operation of all driveways, roads and
other means of egress and ingress to and from any of the Wellsford Properties
has not been obtained and is not in full force and effect, or of any pending
threat of modification or cancellation of any of same; (ii) of any written
notice of any violation of any federal, state or municipal law, ordinance,
order, regulation or requirement materially and adversely affecting any of the
Wellsford Properties issued by any governmental authority; (iii) of any material
structural defects relating to any Wellsford Property which costs more than
$100,000 to repair; (iv) of any Wellsford Property whose building systems are
not in working order in any material respect and costs more than $100,000 to
repair; (v) of any physical damage to any Wellsford Property in excess of
$100,000 for which there is no insurance in effect covering the cost of the
restoration; (vi) of any current renovation or uninsured restoration to any
Wellsford Property the cost of which exceeds $100,000; or (vii) of items
referred to in Section 2.8(c)(iii)-(vi) which aggregate for Wellsford and its
Subsidiaries more than $5,000,000.
(d) Neither Wellsford nor any of the Wellsford Subsidiaries has
received any written notice to the effect that (i) any condemnation or rezoning
proceedings are pending or threatened with respect to any of the Wellsford
Properties or (ii) any zoning, building or similar law, code, ordinance, order
or regulation is or will be violated by the continued maintenance, operation or
use of any buildings or other improvements on any of the Wellsford Properties or
by the continued maintenance, operation or use of the parking areas. All work
to be performed, payments to be made and actions to be taken by Wellsford or the
Wellsford Subsidiaries prior to the date hereof pursuant to any agreement
entered into with a governmental body or authority in connection with a site
approval, zoning reclassification or other similar action relating to any
Wellsford Properties (e.g., Local Improvement District, Road Improvement
District, Environmental Mitigation) has been performed, paid or taken, as the
case may be, and Wellsford has no Knowledge of any planned or proposed work,
payments or actions that may be required after the date hereof pursuant to such
agreements.
(e) Except as set forth in Schedule 2.8 of the Wellsford Disclosure
Letter, all of the Wellsford Properties are managed by Wellsford or a wholly-
owned Wellsford Subsidiary.
13
2.9 ENVIRONMENTAL MATTERS. None of Wellsford, any of the Wellsford
Subsidiaries or, to Wellsford's Knowledge, any other Person has caused or
permitted (a) the unlawful presence of any hazardous substances, hazardous
materials, toxic substances or waste materials (collectively, "Hazardous
Materials") on any of the Wellsford Properties, or (b) any unlawful spills,
releases, discharges or disposal of Hazardous Materials to have occurred or be
presently occurring on or from the Wellsford Properties as a result of any
construction on or operation and use of such properties, which presence or
occurrence would, individually or in the aggregate, have a Wellsford Material
Adverse Effect; and in connection with the construction on or operation and use
of the Wellsford Properties, Wellsford and the Wellsford Subsidiaries have not
failed to comply in any material respect with all applicable local, state and
federal environmental laws, regulations, ordinances and administrative and
judicial orders relating to the generation, recycling, reuse, sale, storage,
handling, transport and disposal of any Hazardous Materials, except to the
extent such failure to comply, individually or in the aggregate, would not have
a Wellsford Material Adverse Effect.
2.10 RELATED PARTY TRANSACTIONS. Set forth in Schedule 2.10 of the
Wellsford Disclosure Letter is a list of all arrangements, agreements and
contracts entered into by Wellsford or any of the Wellsford Subsidiaries with
(a) any consultant, (b) any person who is an officer, trustee, director or
Affiliate (as defined below) of Wellsford or any of the Wellsford Subsidiaries,
any relative of any of the foregoing or any entity of which any of the foregoing
is an Affiliate or (c) any person who acquired Wellsford Common Shares in a
private placement, except those of a type available to Wellsford employees
generally. Such documents, copies of all of which have previously been
delivered or made available to EQR, are listed in Schedule 2.10 of the Wellsford
Disclosure Letter. As used in this Agreement, the term "Affiliate" shall have
the same meaning as such term is defined in Rule 405 promulgated under the
Securities Act.
2.11 ABSENCE OF CHANGES IN BENEFIT PLANS; ERISA COMPLIANCE.
(a) Except as disclosed in the Wellsford SEC Documents or in Schedule
2.11 to the Wellsford Disclosure Letter and except as contemplated by this
Agreement, since the date of the most recent audited financial statements
included in the Wellsford SEC Documents, there has not been any adoption or
amendment in any respect by Wellsford or any Wellsford Subsidiary of any bonus,
pension, profit sharing, deferred compensation, incentive compensation, stock
ownership, stock purchase, stock option, phantom stock, retirement, vacation,
severance, disability, death benefit, hospitalization, medical or other employee
benefit plan, arrangement or understanding (whether or not legally binding)
providing benefits to any current or former employee, officer or director of
Wellsford, any Wellsford Subsidiary, or any person Affiliated with Wellsford
under Section 414 (b), (c), (m) or (o) of the Code (collectively, "Wellsford
Benefit Plans").
14
(b) Except as described in the Wellsford SEC Documents or in Schedule
2.11 to the Wellsford Disclosure Letter, (i) all Wellsford Benefit Plans of
Wellsford and the Wellsford Subsidiaries, including any such plan that is an
"employee benefit plan" as defined in Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), are in compliance in all
material respects with all applicable requirements of law, including but not
limited to ERISA and the Code, and (ii) neither Wellsford nor any Wellsford
Subsidiary has any material liabilities or obligations with respect to any such
Wellsford Benefit Plan, whether accrued, contingent or otherwise. Except as set
forth in Schedule 2.11 to the Wellsford Disclosure Letter, the execution of, and
performance of the transactions contemplated in, this Agreement will not (either
alone or upon the occurrence of any additional or subsequent events) constitute
an event under any Wellsford Benefit Plan, policy, arrangement or agreement or
any trust or loan that will or may result in any payment (whether of severance
pay or otherwise), acceleration, forgiveness of indebtedness, vesting,
distribution, increase in benefits or obligation to fund benefits with respect
to any employee, trustee or director. The only severance agreements or severance
policies applicable to employees of Wellsford or any of the Wellsford
Subsidiaries are the agreements and policies specifically referred to in
Schedule 2.11 to the Wellsford Disclosure Letter and the severance program
referred to in Section 5.10(c).
2.12 EMPLOYEE POLICIES. Schedule 2.12 of the Wellsford Disclosure
Letter lists the employee handbooks of Wellsford and each of the Wellsford
Subsidiaries currently in effect. A copy of each such employee handbook has
previously been made available to EQR. Except as set forth in Schedule 2.12 of
the Wellsford Disclosure Letter, such handbooks fairly and accurately summarize
all material employee policies, vacation policies and payroll practices of
Wellsford and the Wellsford Subsidiaries.
2.13 TAXES.
(a) Each of Wellsford and the Wellsford Subsidiaries has filed all tax
returns and reports required to be filed by it (after giving effect to any
filing extension properly granted by a Governmental Entity having authority to
do so) and has paid (or Wellsford has paid on its behalf) all Taxes (as defined
below) shown on such returns and reports as required to be paid by it except (i)
as set forth in Schedule 2.13 of the Wellsford Disclosure Letter, or (ii) real
estate taxes that are being contested in good faith by appropriate proceedings
and for which Wellsford or the applicable Wellsford Subsidiary shall have set
aside on its books adequate reserves. The most recent audited financial
statements contained in the Wellsford SEC Documents reflect an adequate reserve
for all material Taxes payable by Wellsford and the Wellsford Subsidiaries for
all taxable periods and portions thereof through the date of such financial
statements. Since the Wellsford Financial Statement Date, Wellsford has
incurred no liability for taxes under Sections 857(b), 860(c) or 4981 of the
Code, including without limitation any tax arising from a prohibited transaction
described in Section 857(b)(6) of the Code, and neither Wellsford nor any
Wellsford Subsidiary has incurred any liability for taxes other than in the
ordinary course of business. No event has occurred, and no condition or
circumstance exists, which presents a material risk that any material Tax
described in the preceding sentence will be imposed upon
15
Wellsford. To the Knowledge of Wellsford, no deficiencies for any Taxes have
been proposed, asserted or assessed against Wellsford or any of the Wellsford
Subsidiaries, and no requests for waivers of the time to assess any such Taxes
are pending. As used in this Agreement, "Taxes" shall include all federal,
state, local and foreign income, property, sales, franchise, employment, excise
and other taxes, tariffs or governmental charges of any nature whatsoever,
together with penalties, interest or additions to Tax with respect thereto.
(b) Wellsford (i) for all taxable years commencing with 1993 through
the most recent December 31, has been subject to taxation as a real estate
investment trust (a "REIT") within the meaning of Section 856 of the Code and
has satisfied all requirements to qualify as a REIT for such years, (ii) has
operated, and intends to continue to operate, in such a manner as to qualify as
a REIT for the taxable year ending December 31, 1997, and (iii) has not taken or
omitted to take any action which would reasonably be expected to (A) result in
any rents paid by the tenants of the Properties to be excluded from the
definition of "rents from real property" under Section 856(d)(2)(C) of the Code,
or (B) otherwise result in a challenge to its status as a REIT, and to
Wellsford's Knowledge, no such challenge is pending or threatened. Each
Wellsford Subsidiary which is a partnership, joint venture or limited liability
company (i) has been since its formation and continues to be treated for federal
income tax purposes as a partnership and not as a corporation or an association
taxable as a corporation, and (ii) has not since its formation owned any assets
(including, without limitation, securities) that would cause Wellsford to
violate Section 856(b)(5) of the Code. Each Wellsford Subsidiary which is a
corporation has been since its formation a qualified REIT subsidiary under
Section 856(i) of the Code.
2.14 NO PAYMENTS TO EMPLOYEES, OFFICERS, TRUSTEES OR DIRECTORS. Set
forth in Exhibit "J" to this Agreement (and the Exhibits referenced therein) and
Schedule 2.3 of the Wellsford Disclosure Letter is a true and complete list of
all cash and non-cash payments which will become payable to each employee,
officer, trustee or director of Wellsford or any Wellsford Subsidiary as a
result of the Spin-Off and Merger. Except as described in Exhibit "J" to this
Agreement (and the Exhibits referenced therein) and in Schedule 2.3 to the
Wellsford Disclosure Letter, or as otherwise provided for in this Agreement,
there is no employment or severance contract, or other agreement requiring
payments, cancellation of indebtedness or other obligation to be made on a
change of control or otherwise as a result of the consummation of any of the
transactions contemplated by this Agreement, with respect to any employee,
officer, trustee or director of Wellsford or any Wellsford Subsidiary.
2.15 BROKERS; SCHEDULE OF FEES AND EXPENSES. No broker, investment
banker, financial advisor or other person, other xxxx Xxxxxxx Xxxxx & Co. and
Xxxxxxx Xxxxxxx, the fees and expenses of which have previously been disclosed
to EQR, is entitled to any broker's, finder's, financial advisor's or other
similar fee or commission in connection with the transactions contemplated
hereby based upon arrangements made by or on behalf of Wellsford or any
Wellsford Subsidiary.
16
2.16 COMPLIANCE WITH LAWS. Except as disclosed in the Wellsford SEC
Documents, neither Wellsford nor any of the Wellsford Subsidiaries has violated
or failed to comply with any statute, law, ordinance, regulation, rule,
judgment, decree or order of any Governmental Entity applicable to its business,
properties or operations, except to the extent that such violation or failure
would not have a Wellsford Material Adverse Effect.
2.17 CONTRACTS; DEBT INSTRUMENTS.
(a) Neither Wellsford nor any Wellsford Subsidiary has received a
written notice that Wellsford or any Wellsford Subsidiary is in violation of or
in default under (nor to the Knowledge of Wellsford does there exist any
condition which upon the passage of time or the giving of notice or both would
cause such a violation of or default under) any material loan or credit
agreement, note, bond, mortgage, indenture, lease, permit, concession,
franchise, license or any other material contract, agreement, arrangement or
understanding, to which it is a party or by which it or any of its properties or
assets is bound, except as set forth in Schedule 2.17 to the Wellsford
Disclosure Letter, nor to the Knowledge of Wellsford does such a violation or
default exist, except to the extent that such violation or default, individually
or in the aggregate, would not have a Wellsford Material Adverse Effect.
(b) Except for any of the following expressly identified in Wellsford
SEC Documents, Schedule 2.17 to the Wellsford Disclosure Letter sets forth a
list of each loan or credit agreement, note, bond, mortgage, indenture and any
other agreement and instrument pursuant to which any indebtedness of Wellsford
or any of Wellsford Subsidiaries, other than indebtedness payable to Wellsford
or a Wellsford Subsidiary, in an aggregate principal amount in excess of
$250,000 per item is outstanding or may be incurred. For purposes of this
Section 2.17, "Indebtedness" shall mean, with respect to any Person, without
duplication, (A) all indebtedness of such person for borrowed money, whether
secured or unsecured, (B) all obligations of such person under conditional sale
or other title retention agreements relating to property purchased by such
person, (C) all capitalized lease obligations of such person, (D) all
obligations of such person under interest rate cap, swap, collar or similar
transaction or currency hedging transactions (valued at the termination value
thereof) and (E) all guarantees of such person of any such indebtedness of any
other person.
(c) To the extent not set forth in response to the requirements of
Paragraph 2.17(b), Schedule 2.17 to the Wellsford Disclosure Letter sets forth
each interest rate cap, interest rate collar, interest rate swap, currency
hedging transaction, and any other agreement relating to a similar transaction
to which Wellsford or any Wellsford Subsidiary is a party or an obligor with
respect thereto.
(d) Neither Wellsford nor any of the Wellsford Subsidiaries is a party
to any agreement relating to the management of any of the Wellsford Properties
by any Person other than a wholly-owned Wellsford Subsidiary, except the
agreements described in Schedule 2.17 to the Wellsford Disclosure Letter (the
"Third Party Management Agreements"). True and
17
complete copies of the Third Party Management Agreements have previously been
furnished to EQR.
2.18 OPINION OF FINANCIAL ADVISOR. Wellsford has received the opinion of
Xxxxxxx Xxxxx & Co., dated January 16, 1997, satisfactory to Wellsford, a signed
copy of which has been provided to EQR, to the effect that the proposed
consideration to be received by the holders of common shares of beneficial
interest of Wellsford pursuant to the Merger and Spin-Off is fair to such
holders from a financial point of view.
2.19 STATE TAKEOVER STATUTES. Wellsford has taken all action necessary
to exempt the transactions contemplated by this Agreement between EQR and
Wellsford and its Affiliates from the operation of any "fair price,"
"moratorium," "control share acquisition" or any other anti-takeover statute or
similar statute enacted under the state or federal laws of the United States or
similar statute or regulation (a "Takeover Statute").
2.20 REGISTRATION STATEMENT. The information relating to Wellsford and
the Wellsford Subsidiaries included in the Registration Statement (as defined in
Section 5.1) will not, as of the effective date of the Registration Statement,
contain an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading.
2.21 DEVELOPMENT PROPERTIES. Schedule 2.21 of the Wellsford Disclosure
Letter lists all agreements entered into by Wellsford or any of the Wellsford
Subsidiaries relating to the development or construction of, or additions or
expansions to, any real properties which are currently in effect and under which
Wellsford or any of the Wellsford Subsidiaries currently has, or expects to
incur, an obligation in excess of $250,000. True and correct copies of such
agreements have previously been delivered or made available to EQR.
2.22 EQR SHARES OF BENEFICIAL INTEREST. Neither Wellsford nor any of
Wellsford Subsidiaries owns any shares of beneficial interest of EQR or other
securities convertible into shares of beneficial interest of EQR.
2.23 INVESTMENT COMPANY ACT OF 1940. Neither Wellsford nor any of
Wellsford Subsidiaries is, or at the Effective Time will be, required to be
registered under the Investment Company Act of 1940, as amended (the "1940
Act").
2.24 INTENTIONALLY OMITTED.
2.25 DEFINITION OF KNOWLEDGE OF WELLSFORD. As used in this Agreement,
the phrase "to the Knowledge of Wellsford" (or words of similar import) means
the knowledge of those individuals identified in Schedule 2.25 of the Wellsford
Disclosure Letter.
18
ARTICLE 3
---------
REPRESENTATIONS AND WARRANTIES OF EQR
-------------------------------------
Except as set forth in the letter of even date herewith signed by the
President of EQR and delivered to Wellsford prior to the execution hereof (the
"EQR Disclosure Letter"), EQR represents and warrants to Wellsford as follows:
3.1 ORGANIZATION, STANDING AND POWER OF EQR. EQR is a real estate
investment trust duly organized and validly existing under the laws of Maryland
and has the requisite power and authority to carry on its business as now being
conducted. EQR is duly qualified or licensed to do business as a foreign trust
and is in good standing in each jurisdiction in which the nature of its business
or the ownership or leasing of its properties makes such qualification or
licensing necessary, other than in such jurisdictions where the failure to be so
qualified or licensed, individually or in the aggregate, would not have a
material adverse effect on the business, properties, assets, financial condition
or results of operations of EQR and the Subsidiaries of EQR ("EQR
Subsidiaries"), taken as a whole ("EQR Material Adverse Effect"). EQR has
delivered to Wellsford complete and correct copies of its Amended and Restated
Declaration of Trust and Amended and Restated Bylaws as amended or supplemented
to the date of this Agreement.
3.2 CAPITAL STRUCTURE.
(a) The authorized shares of beneficial interest of EQR consist of
100,000,000 EQR Common Shares, and 10,000,000 preferred shares of beneficial
interest ("EQR Preferred Shares"), of which 6,120,000 EQR Preferred Shares have
been designated as 9-3/8% Series A Cumulative Redeemable Preferred Shares of
Beneficial Interest, $0.01 par value per share (the "EQR Series A Preferred
Shares"), 500,000 EQR Preferred Shares have been designated as 9-1/8% Series B
Cumulative Redeemable Preferred Shares of Beneficial Interest, $0.01 par value
per share, that are represented by 5,000,000 depository shares (the "EQR Series
B Preferred Shares"), and 460,000 EQR Preferred Shares have been designated as
9-1/8% Series C Cumulative Redeemable Preferred Shares of Beneficial Interest,
$0.01 par value per share, that are represented by 4,600,000 depository shares
(the "EQR Series C Preferred Shares"). As of January 14, 1997, (a) 51,155,813
EQR Common Shares, 6,120,000 EQR Series A Preferred Shares, 500,000 EQR Series B
Preferred Shares (represented by 5,000,000 depositary shares) and 460,000 EQR
Series C Preferred Shares (represented by 4,600,000 depositary shares) were
outstanding, (b) 960,542 EQR Common Shares were available for issuance under
EQR's 1996 Non-Qualified Employee Share Purchase Plan (the "EQR Employee Share
Plans"), (c) 2,328,715 EQR Common Shares were issuable upon exercise of
outstanding share options (the "EQR Options") to purchase EQR Common Shares, and
975,353 EQR Common Shares were available for grant, under EQR's Second Amended
and Restated 1993 Share Option and Share Award Plan (the "Employee Share Award
and Option Plan"), (d) 21,541 EQR Common Shares are restricted
19
and subject to forfeiture, and (e) 7,857,933 EQR Common Shares were reserved for
issuance upon exchange of EQR Units (as defined below) for EQR Common Shares
pursuant to the Fourth Amended and Restated Agreement of Limited Partnership
(the "ERP Operating Partnership Agreement") of the ERP Operating Partnership.
On January 14, 1997, except as set forth in this Section 3.2, no shares of
beneficial interest or other voting securities of EQR were issued, reserved for
issuance or outstanding.
(b) All outstanding shares of beneficial interest of EQR are duly
authorized, validly issued, fully paid and nonassessable and not subject to
preemptive rights, except that the shareholders may be subject to further
assessment with respect to certain claims for tort, contract, taxes, statutory
liability and otherwise in some jurisdictions to the extent such claims are not
satisfied by EQR. There are no bonds, debentures, notes or other indebtedness
of EQR having the right to vote (or convertible into, or exchangeable for,
securities having the right to vote) on any matters on which shareholders of EQR
may vote.
(c) Except (i) for the EQR Options, (ii) for the units ("EQR Units")
of partnership interest held by partners in the ERP Operating Partnership
(which, subject to certain restrictions, may be exchanged by the holders thereof
for either EQR Common Shares on a one-for-one basis or, at EQR's option, cash),
as are disclosed in Schedule 3.2 to the EQR Disclosure Letter or (iii) as set
forth in Schedule 3.2 to the EQR Disclosure Letter, as of the date of this
Agreement there are no outstanding securities, options, warrants, calls, rights,
commitments, agreements, arrangements or undertakings of any kind to which EQR
or any EQR Subsidiary is a party or by which such entity is bound, obligating
EQR or any EQR Subsidiary to issue, deliver or sell, or cause to be issued,
delivered or sold, additional shares of beneficial interest, voting securities
or other ownership interests of EQR or of any EQR Subsidiary or obligating EQR
or any EQR Subsidiary to issue, grant, extend or enter into any such security,
option, warrant, call, right, commitment, agreement, arrangement or undertaking
(other than to EQR or an EQR Subsidiary). Except as set forth on Schedule 3.2
to the EQR Disclosure Letter or as required under the ERP Operating Partnership
Agreement, there are no outstanding contractual obligations of EQR or any EQR
Subsidiary to repurchase, redeem or otherwise acquire any shares of beneficial
interest of EQR or any capital stock, voting securities, or other ownership
interests in any EQR Subsidiary or make any material investment (in the form of
a loan, capital contribution or otherwise) in any person (other than an EQR
Subsidiary).
(d) EQR owns all of its partnership interests in ERP Operating
Partnership free and clear of all Liens.
3.3 ORGANIZATION, STANDING AND POWER OF ERP OPERATING PARTNERSHIP. ERP
Operating Partnership is a limited partnership duly organized and validly
existing under the laws of Illinois and has the requisite power and authority to
carry on its business as now being conducted. ERP Operating Partnership is duly
qualified or licensed to do business and is in good standing in each
jurisdiction in which the nature of its business or the ownership or leasing of
its properties makes such qualification or licensing necessary, other than in
such jurisdictions
20
where the failure to be so qualified or licensed, individually or in the
aggregate, would not have an EQR Material Adverse Effect. EQR has delivered to
Wellsford complete and correct copies of its Fourth Amended and Restated
Agreement of Limited Partnership as amended or supplemented to the date of this
Agreement.
3.4 CAPITAL STRUCTURE OF ERP OPERATING PARTNERSHIP. As of January 14,
1997, the number of outstanding units of partnership interest in ERP Operating
Partnership consists of (a) 51,155,813 units of general partnership interest,
(b) 7,857,933 units of limited partnership interest, (c) 6,120,000 9-3/8% Series
A Cumulative Redeemable Preference Units, (d) 500,000 9-1/8% Series B Cumulative
Redeemable Preference Units, and (e) 460,000 9-1/8% Series C Cumulative
Redeemable Preference Units. Except for the units of limited partnership
interest, all of the units of partnership interest in ERP Operating Partnership
are owned by EQR free and clear of all Liens.
3.5 AUTHORITY; NONCONTRAVENTION; CONSENTS.
(a) EQR has the requisite power and authority to enter into this
Agreement, and subject to the requisite shareholder approval of the Merger (the
"EQR Shareholder Approvals" and, together with the Wellsford Shareholder
Approvals, the "Shareholder Approvals") to consummate the transactions
contemplated by this Agreement to which EQR is a party. The execution and
delivery of this Agreement by EQR and the consummation by EQR of the
transactions contemplated by this Agreement to which EQR is a party have been
duly authorized by all necessary action on the part of EQR, subject to the EQR
Shareholder Approvals. This Agreement has been duly executed and delivered by
EQR and constitutes a valid and binding obligation of EQR, enforceable against
EQR in accordance with its terms, subject to applicable bankruptcy, insolvency,
moratorium or other similar laws relating to creditors' rights and general
principles of equity.
(b) Except as set forth in Schedule 3.5 to the EQR Disclosure Letter,
the execution and delivery of this Agreement by EQR do not, and the consummation
of the transactions contemplated by this Agreement to which EQR is a party and
compliance by EQR with the provisions of this Agreement will not, conflict with,
or result in any violation of or default (with or without notice or lapse of
time, or both) under, or give rise to a right of termination, cancellation or
acceleration of any material obligation or to loss of a material benefit under,
or result in the creation of any Lien upon any of the properties or assets of
EQR or any EQR Subsidiary under, (i) the Amended and Restated Declaration of
Trust or Amended and Restated Bylaws of EQR or the comparable charter or
organizational documents or partnership or similar agreement (as the case may
be) of any other EQR Subsidiary, each as amended or supplemented to the date of
this Agreement, (ii) any loan or credit agreement, note, bond, mortgage,
indenture, reciprocal easement agreement, lease or other agreement, instrument,
permit, concession, franchise or license applicable to EQR or any EQR Subsidiary
or their respective properties or assets or (iii) subject to the governmental
filings and other matters referred to in the following sentence, any Laws
applicable to EQR or any EQR
21
Subsidiary or their respective properties or assets, other than, in the case of
clause (ii) or (iii), any such conflicts, violations, defaults, rights, loss or
Liens that individually or in the aggregate would not (x) have an EQR Material
Adverse Effect or (y) prevent the consummation of the transactions contemplated
by this Agreement. No consent, approval, order or authorization of, or
registration, declaration or filing with, any Governmental Entity is required by
or with respect to EQR or any EQR Subsidiary in connection with the execution
and delivery of this Agreement or the consummation by EQR of any of the
transactions contemplated by this Agreement, except for (i) the filing with the
SEC of (x) the Proxy Statement and (y) such reports under Section 13 (a) of the
Exchange Act as may be required in connection with this Agreement and the
transactions contemplated by this Agreement, (ii) the filing of the Articles of
Merger with the Department, (iii) such filings as may be required in connection
with the payment of any transfer and gains taxes and (iv) such other consents,
approvals, orders, authorizations, registrations, declarations and filings (A)
as are set forth in Schedule 3.5 to the EQR Disclosure Letter or (B) as may be
required under (x) federal, state or local environmental laws or (y) the
securities laws of the State of Maryland or (C) which, if not obtained or made,
would not prevent or delay in any material respect the consummation of any of
the transactions contemplated by this Agreement or otherwise prevent EQR from
performing its obligations under this Agreement in any material respect or have,
individually or in the aggregate, an EQR Material Adverse Effect.
(c) For purposes of determining compliance with the Xxxx-Xxxxx-Xxxxxx
Antitrust Improvements Act of 1976, as amended, EQR confirms that the conduct of
its business consists solely of investing in, owning and operating real estate
for the benefit of its shareholders.
3.6 SEC DOCUMENTS; FINANCIAL STATEMENTS; UNDISCLOSED LIABILITIES. EQR
and ERP Operating Partnership have filed all required reports, schedules, forms,
statements and other documents with the SEC since August 18, 1993 through the
date hereof (the "EQR SEC Documents"). Schedule 3.6 of the EQR Disclosure
Letter contains a complete list of all EQR SEC Documents filed by EQR under the
Exchange Act since January 1, 1996 and on or prior to the date of this
Agreement. All of the EQR SEC Documents (other than preliminary material), as
of their respective filing dates, complied in all material respects with all
applicable requirements of the Securities Act and the Exchange Act and, in each
case, the rules and regulations promulgated thereunder applicable to such EQR
SEC Documents. None of the EQR SEC Documents at the time of filing contained
any untrue statement of a material fact or omitted to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading, except to the extent such statements have been modified or
superseded by later EQR SEC Documents filed and publicly available prior to the
date of this Agreement. The consolidated financial statements of EQR and the
EQR Subsidiaries included in the EQR SEC Documents complied as to form in all
material respects with applicable accounting requirements and the published
rules and regulations of the SEC with respect thereto, have been prepared in
accordance with GAAP (except, in the case of unaudited statements, as permitted
by the applicable rules and regulations of the SEC) applied on a consistent
basis during the periods
22
involved (except as may be indicated in the notes thereto) and fairly presented,
in accordance with the applicable requirements of GAAP and the applicable rules
and regulations of the SEC, the consolidated financial position of EQR and the
EQR Subsidiaries, taken as a whole, as of the dates thereof and the consolidated
results of operations and cash flows for the periods then ended (subject, in the
case of unaudited statements, to normal year-end audit adjustments). Except for
liabilities and obligations set forth in the EQR SEC Documents or in Schedule
3.6 to the EQR Disclosure Letter, neither EQR nor any EQR Subsidiary has any
liabilities or obligations of any nature (whether accrued, absolute, contingent
or otherwise) required by GAAP to be set forth on a consolidated balance sheet
of EQR or in the notes thereto and which, individually or in the aggregate,
would have an EQR Material Adverse Effect.
3.7 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed in the EQR
SEC Documents or in Section 3.7 to the EQR Disclosure Letter, since the date of
the most recent audited financial statements included in the EQR SEC Documents
(the "EQR Financial Statement Date"), EQR and the EQR Subsidiaries have
conducted their business only in the ordinary course (taking into account prior
practices, including the acquisition of properties and issuance of securities)
and there has not been (a) any material adverse change in the business,
financial condition or results of operations of EQR and the EQR Subsidiaries
taken as a whole (a "EQR Material Adverse Change"), nor has there been any
occurrence or circumstance that with the passage of time would reasonably be
expected to result in an EQR Material Adverse Change, (b) except for regular
quarterly distributions (in the case of EQR) not in excess of $.625 per EQR
Common Share, $.5859 per EQR Series A Preferred Share, $5.703 per EQR Series B
Preferred Share and $5.703 per EQR Series C Preferred Share, in each case
subject to rounding adjustments as necessary and with customary record and
payment dates, any declaration, setting aside or payment of any dividend or
other distribution (whether in cash, stock or property) with respect to any of
EQR's shares of beneficial interest, (c) any split, combination or
reclassification of any of EQR's shares of beneficial interest, (d) any damage,
destruction or loss, whether or not covered by insurance, that has or would have
an EQR Material Adverse Effect, or (e) any change made prior to the date of this
Agreement in accounting methods, principles or practices by EQR or any EQR
Subsidiary materially affecting its assets, liabilities or business, except
insofar as may have been disclosed in the EQR SEC Documents or required by a
change in GAAP. EQR is not in default in the payment of distributions on the EQR
Series A Preferred Shares, EQR Series B Preferred Shares or EQR Series C
Preferred Shares.
3.8 LITIGATION. Except as disclosed in the EQR SEC Documents or in
Schedule 3.8 to the EQR Disclosure Letter, and other than personal injury and
other routine tort litigation arising from the ordinary course of operations of
EQR and the EQR Subsidiaries (a) which are covered by adequate insurance, or (b)
for which all material costs and liabilities arising therefrom are reimbursable
pursuant to common area maintenance or similar agreements, there is no suit,
action or proceeding pending or, to the Knowledge of EQR, threatened in writing
against or affecting EQR or any EQR Subsidiary that, individually or in the
aggregate, could reasonably be expected to (i) have an EQR Material Adverse
Effect, or (ii) prevent the consummation of any of the transactions contemplated
by this Agreement, nor is there any
23
judgment, decree, injunction, rule or order of any Governmental Entity or
arbitrator outstanding against EQR or any EQR Subsidiary having, or which,
insofar as reasonably can be foreseen, in the future would have, any such
effect.
3.9 PROPERTIES.
(a) EQR or one of the EQR Subsidiaries owns fee simple title to each
of the real properties listed in the EQR SEC Filings as owned by it (the "EQR
Properties"), except where the failure to own such title would not have an EQR
Material Adverse Effect.
(b) The EQR Properties are not subject to any Encumbrances or Property
Restrictions which could cause an EQR Material Adverse Affect.
(c) Valid policies of title insurance have been issued insuring EQR's
or the applicable EQR Subsidiaries' fee simple title to the EQR Properties in
amounts at least equal to the purchase price thereof paid by EQR or the
applicable EQR Subsidiaries therefor, except where the failure to obtain such
title insurance would not have an EQR Material Adverse Effect.
(d) EQR has no Knowledge (i) that it has failed to obtain a
certificate, permit or license from any governmental authority having
jurisdiction over any of the EQR Properties where such failure would have an EQR
Material Adverse Effect, or of any pending threat of modification or
cancellation of any of the same which would have an EQR Material Adverse Effect,
(ii) of any written notice of any violation of any federal, state or municipal
law, ordinance, order, rule, regulation or requirement affecting any of the EQR
Properties issued by any governmental authorities which would have an EQR
Material Adverse Effect, or (iii) of any structural defects relating to EQR
Properties, EQR Properties whose building systems are not in working order,
physical damage to any EQR Property for which there is no insurance in effect
covering the cost of restoration, any current renovation or uninsured
restoration, except such structural defects, building systems not in working
order, physical damage, renovation and restoration which, in the aggregate,
would not have an EQR Material Adverse Effect.
(e) Neither EQR nor any of the EQR Subsidiaries has received any
written notice to the effect that (i) any condemnation or rezoning proceedings
are pending or threatened with respect to any of the EQR Properties, or (ii) any
zoning, building or similar law, code, ordinance, order or regulation is or will
be violated by the continued maintenance, operation or use of any buildings or
other improvements on any of the EQR Properties or by the continued maintenance,
operation or use of the parking areas, other than such notices which, in the
aggregate, would not have an EQR Material Adverse Effect.
(f) All work to be performed, payments to be made and actions to be
taken by EQR or the EQR Subsidiaries prior to the date hereof pursuant to any
agreement entered into with a governmental body or authority in connection with
a site approval, zoning reclassification or similar action relating to any EQR
Properties (e.g., Local Improvement District, Road
24
Improvement District, Environmental Mitigation), has been performed, paid or
taken, as the case may be, except where the failure to do so would, in the
aggregate, not have an EQR Material Adverse Effect, and EQR has no Knowledge of
any planned or proposed work, payments or actions that may be required after the
date hereof pursuant to such agreements which would have an EQR Material Adverse
Effect.
3.10 ENVIRONMENTAL MATTERS. None of EQR, any of the EQR Subsidiaries or,
to EQR's Knowledge, any other Person has caused or permitted (a) the unlawful
presence of any hazardous substances, hazardous materials, toxic substances or
waste materials (collectively, "Hazardous Materials") on any of the EQR
Properties, or (b) any unlawful spills, releases, discharges or disposal of
Hazardous Materials to have occurred or be presently occurring on or from the
EQR Properties as a result of any construction on or operation and use of such
properties, which presence or occurrence would, individually or in the
aggregate, have an EQR Material Adverse Effect; and in connection with the
construction on or operation and use of the EQR Properties, EQR and the EQR
Subsidiaries have not failed to comply in any material respect with all
applicable local, state and federal environmental laws, regulations, ordinances
and administrative and judicial orders relating to the generation, recycling,
reuse, sale, storage, handling, transport and disposal of any Hazardous
Materials, except to the extent such failure to comply, individually or in the
aggregate, would not have an EQR Material Adverse Effect.
3.11 TAXES.
(a) Each of EQR and the EQR Subsidiaries has filed all tax returns and
reports required to be filed by it (after giving effect to any filing extension
properly granted by a Governmental Entity having authority to do so) and has
paid (or EQR has paid on its behalf) all Taxes shown on such returns and reports
as required to be paid by it except where the failure to file such tax returns
or reports and failure to pay such Taxes would not have an EQR Material Adverse
Effect. The most recent audited financial statements contained in the EQR SEC
Documents reflect an adequate reserve for all material Taxes payable by EQR and
the EQR Subsidiaries for all taxable periods and portions thereof through the
date of such financial statements. Since the EQR Financial Statement Date, EQR
has incurred no liability for taxes under Sections 857(b), 860(c) or 4981 of the
Code, including without limitation any tax arising from a prohibited transaction
described in Section 857(b)(6) of the Code, and neither EQR nor any EQR
Subsidiary has incurred any liability for taxes other than in the ordinary
course of business. No event has occurred, and no condition or circumstance
exists, which presents a material risk that any material Tax described in the
preceding sentence will be imposed upon EQR. To the Knowledge of EQR, no
deficiencies for any Taxes have been proposed, asserted or assessed against EQR
or any of the EQR Subsidiaries, and no requests for waivers of the time to
assess any such Taxes are pending.
(b) EQR (i) for all taxable years commencing with 1993 through the
most recent December 31, has been subject to taxation as a REIT within the
meaning of Section 856 of the Code and has satisfied all requirements to qualify
as a REIT for such years, (ii) has
25
operated, and intends to continue to operate, in such a manner as to qualify as
a REIT for the tax year ending December 31, 1997, and (iii) has not taken or
omitted to take any action which would reasonably be expected to (A) result in
any rents paid by tenants to the EQR Properties to be excluded from the
definition of "rents from real property" under Section 856(d)(2) of the Code, or
(B) otherwise result in a challenge to its status as a REIT, and to EQR's
Knowledge, no such challenge is pending or threatened. Each EQR Subsidiary
which is a partnership, joint venture or limited liability company has been
treated since its formation and continues to be treated for federal income tax
purposes as a partnership and not as a corporation or as an association taxable
as a corporation.
3.12 BROKERS; SCHEDULE OF FEES AND EXPENSES. No broker, investment
banker, financial advisor or other person, other than X.X. Xxxxxx Securities,
Inc., the fees and expenses of which have previously been disclosed to Wellsford
and will be paid by EQR, is entitled to any broker's, finder's, financial
advisor's or other similar fee or commission in connection with the transactions
contemplated hereby based upon arrangements made by or on behalf of EQR or any
EQR Subsidiary.
3.13 COMPLIANCE WITH LAWS. Except as disclosed in the EQR SEC Documents,
neither EQR nor any of the EQR Subsidiaries has violated or failed to comply
with any statute, law, ordinance, regulation, rule, judgment, decree or order of
any Governmental Entity applicable to its business, properties or operations,
except to the extent that such violation or failure would not have an EQR
Material Adverse Effect.
3.14 CONTRACTS; DEBT INSTRUMENTS. Neither EQR nor any EQR Subsidiary has
received a written notice that EQR or any EQR Subsidiary is in violation of or
in default under (nor to the Knowledge of EQR does there exist any condition
which upon the passage of time or the giving of notice or both would cause such
a violation of or default under) any material loan or credit agreement, note,
bond, mortgage, indenture, lease, permit, concession, franchise, license or any
other material contract, agreement, arrangement or understanding, to which it is
a party or by which it or any of its properties or assets is bound, nor to the
Knowledge of EQR does such a violation or default exist, except to the extent
such violation or default, individually or in the aggregate, would not have an
EQR Material Adverse Effect, except as set forth in Schedule 3.14 to the EQR
Disclosure Letter.
3.15 OPINION OF FINANCIAL ADVISOR. EQR has received the opinion of X. X.
Xxxxxx Securities, Inc., dated January 15, 1997, satisfactory to EQR, a signed
copy of which has been provided to Wellsford, to the effect that the
consideration to be paid by EQR in connection with the Merger is fair, from a
financial point of view, to EQR.
3.16 STATE TAKEOVER STATUTES. EQR has taken all action necessary to
exempt transactions between EQR and Wellsford and its Affiliates from the
operation of Takeover Statutes.
26
3.17 REGISTRATION STATEMENT. The information with respect to EQR and the
EQR Subsidiaries included in the Registration Statement will not, as of the
effective date of the Registration Statement, contain an untrue statement of a
material fact or omit to state a material fact required to be stated therein, or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading.
3.18 WELLSFORD SHARES OF BENEFICIAL INTEREST. Neither EQR nor any of the
EQR Subsidiaries owns any shares of beneficial interest of Wellsford or other
securities convertible into shares of beneficial interest of Wellsford.
3.19 INTENTIONALLY OMITTED.
3.20 INVESTMENT COMPANY ACT OF 1940. Neither EQR nor any of the EQR
Subsidiaries is, or at the Effective Time will be, required to be registered
under the 0000 Xxx.
3.21 DEFINITION OF KNOWLEDGE OF EQR. As used in this Agreement, the
phrase "to the Knowledge of EQR" (or words of similar import) means the
knowledge of those individuals identified in Schedule 3.21 of the EQR Disclosure
Letter.
ARTICLE 4
---------
COVENANTS
---------
4.1 ACQUISITION PROPOSALS. Except as set forth in the Wellsford
Disclosure Letter, prior to the Effective Time, Wellsford agrees that:
(a) neither it nor any of the Wellsford Subsidiaries shall initiate,
solicit or encourage, directly or indirectly, any inquiries or the making
or implementation of any proposal or offer (including, without limitation,
any proposal or offer to its shareholders) with respect to a merger,
acquisition, tender offer, exchange offer, consolidation, sale of assets or
similar transaction involving all or any significant portion of the assets
or any equity securities of, Wellsford or any of the Wellsford
Subsidiaries, other than the transactions contemplated by this Agreement
(any such proposal or offer being hereinafter referred to as an
"Acquisition Proposal") or engage in any negotiations concerning or provide
any confidential information or data to, or have any discussions with, any
person relating to an Acquisition Proposal, or otherwise facilitate any
effort or attempt to make or implement an Acquisition Proposal;
(b) it will use its best efforts not to permit any of its officers,
trustees, employees, agents or financial advisors to engage in any of the
activities described in Section 4.1(a);
27
(c) it will immediately cease and cause to be terminated any existing
activities, discussions or negotiations with any parties conducted
heretofore with respect to any of the foregoing and will take the necessary
steps to inform the individuals or entities referred to in Section 4.1(b)
of the obligations undertaken in this Section 4.1; and
(d) it will notify EQR immediately if Wellsford receives any such
inquiries or proposals, or any requests for such information, or if any
such negotiations or discussions are sought to be initiated or continued
with it;
provided, however, that nothing contained in this Section 4.1 shall prohibit the
Board of Trustees of Wellsford from (i) furnishing information to or entering
into discussions or negotiations with, any person or entity that makes an
unsolicited Acquisition Proposal, if, and only to the extent that (A) the Board
of Trustees of Wellsford determines in good faith that such action is required
for the Board of Trustees to comply with its duties to shareholders imposed by
law, (B) prior to furnishing such information to, or entering into discussions
or negotiations with, such person or entity, Wellsford provides written notice
to EQR to the effect that it is furnishing information to, or entering into
discussions with, such person or entity, and (C) subject to any confidentiality
agreement with such person or entity (which Wellsford determined in good faith
was required to be executed in order for the Board of Trustees to comply with
its duties to shareholders imposed by law), Wellsford keeps EQR informed of the
status (not the terms) of any such discussions or negotiations; and (ii) to the
extent applicable, complying with Rule 14e-2 promulgated under the Exchange Act
with regard to an Acquisition Proposal. Nothing in this Section 4.1 shall (x)
permit Wellsford to terminate this Agreement (except as specifically provided in
Article 7 hereof), (y) permit Wellsford to enter into an agreement with respect
to an Acquisition Proposal during the term of this Agreement (it being agreed
that during the term of this Agreement, Wellsford shall not enter into an
agreement with any Person that provides for, or in any way facilitates, an
Acquisition Proposal (other than a confidentiality agreement in customary form
executed as provided above)) or (z) affect any other obligation of Wellsford
under this Agreement; provided, however, that the Board of Trustees of Wellsford
may approve and recommend a Superior Acquisition Proposal and, in connection
therewith, withdraw or modify its approval or recommendation of this Agreement
and the Merger. As used herein, "Superior Acquisition Proposal" means a bona
fide Acquisition Proposal made by a third party which a majority of the members
of the Board of Trustees of Wellsford determines in good faith to be more
favorable to Wellsford's shareholders from a financial point of view than the
Merger and which the Board of Trustees of Wellsford determines is reasonably
capable of being consummated.
4.2 CONDUCT OF WELLSFORD'S BUSINESS PENDING MERGER. Prior to the
Effective Time, except as (i) contemplated by this Agreement, (ii) necessary to
accomplish the Spin-Off, (iii) disclosed in the Wellsford Disclosure Letter or
Exhibit "J" or (iv) consented to in writing by EQR, Wellsford shall, and shall
cause each of the Wellsford Subsidiaries to:
28
(a) conduct its business only in the usual, regular and ordinary
course and in substantially the same manner as heretofore;
(b) use its reasonable efforts to preserve intact its business
organizations and goodwill and keep available the services of its officers
and employees;
(c) confer on a regular basis with one or more representatives of EQR
to report operational matters of materiality and, subject to Section 4.1,
any proposals to engage in material transactions;
(d) promptly notify EQR of any material emergency or other material
change in the condition (financial or otherwise), business, properties,
assets, liabilities, prospects or the normal course of its businesses or in
the operation of its properties, or of any material governmental
complaints, investigations or hearings (or communications indicating that
the same may be contemplated);
(e) promptly deliver to EQR true and correct copies of any report,
statement or schedule filed with the SEC subsequent to the date of this
Agreement;
(f) maintain its books and records in accordance with GAAP
consistently applied and not change in any material manner any of its
methods, principles or practices of accounting in effect at the Financial
Statement Date, except as may be required by the SEC, applicable law or
GAAP;
(g) duly and timely file all reports, tax returns and other documents
required to be filed with federal, state, local and other authorities,
subject to extensions permitted by law, provided Wellsford notifies EQR
that it is availing itself of such extensions and provided such extensions
do not adversely affect Wellsford's status as a qualified REIT under the
Code;
(h) not make or rescind any express or deemed election relative to
Taxes (unless required by law or necessary to preserve Wellsford's status
as a REIT or the status of any Wellsford Subsidiary as a partnership for
federal income tax purposes or as a qualified REIT subsidiary under Section
856(i) of the Code, as the case may be);
(i) not acquire, enter into any option to acquire, or exercise an
option or contract to acquire, additional real property, incur additional
indebtedness except for working capital under its revolving line(s) of
credit, encumber assets or commence construction of, or enter into any
agreement or commitment to develop or construct, other real estate
projects, except in the ordinary course of the multi-family apartment
business, which shall include all activities necessary to proceed with the
acquisition, ownership and construction of Phases I, II and III of the
multi-family residential project in Xxxxxxx County, Colorado referred to as
"Palomino Park" in accordance with the
29
agreements in existence on the date of this Agreement and previously
furnished to EQR (the "Palomino Development Agreements");
(j) not amend its Amended and Restated Declaration of Trust, Articles
or Certificate of Incorporation, Bylaws, code of regulations or partnership
agreement or comparable charter or organizational document or the articles
of incorporation, by-laws, partnership agreement, joint venture agreement
or comparable charter or organization document of any Wellsford Subsidiary
without EQR's prior written consent, which shall not be unreasonably
withheld or delayed;
(k) make no change in the number of shares of beneficial interest or
capital stock, membership interests or units of limited partnership
interest issued and outstanding, other than pursuant to (i) the exercise of
options disclosed in Schedule 2.3 to the Wellsford Disclosure Letter and
the issuance of shares and options described in Exhibit "J" to this
Agreement, (ii) the conversion of Wellsford Series A Preferred Shares
pursuant to the terms of the Articles Supplementary for the Wellsford
Series A Preferred Shares, (iii) options to purchase Wellsford Common
Shares which are issued, and (iv) the Dividend Reinvestment and Share
Purchase Plan of Wellsford;
(l) grant no options or other right or commitment relating to its
shares of beneficial interest or capital stock, membership interests or
units of limited partnership interest or any security convertible into its
shares of beneficial interest or capital stock, membership interests or
units of limited partnership interest, or any security the value of which
is measured by shares of beneficial interest, or any security subordinated
to the claim of its general creditors;
(m) except as provided in Section 5.13 hereof and in connection with
the use of shares of beneficial interest of Wellsford to pay the exercise
price or tax withholding in connection with equity-based employee benefit
plans by the participants therein, not (i) authorize, declare, set aside or
pay any dividend or make any other distribution or payment with respect to
any shares of its beneficial interest or capital stock, or (ii) directly or
indirectly redeem, purchase or otherwise acquire any shares of beneficial
interest, shares of capital stock, membership interests or units of
partnership interest or any option, warrant or right to acquire, or
security convertible into, shares of beneficial interest, shares of capital
stock, membership interests, or units of partnership interest;
(n) not sell, lease, mortgage, subject to Lien or otherwise dispose of
any material part of its assets, individually or in the aggregate, except
in the ordinary course of business;
(o) not make any loans, advances or capital contributions to, or
investments in, any other Person, other than (i) loans, advances and
capital contributions to Wellsford Subsidiaries in existence on the date
hereof (other than Newco and Subsidiaries of
30
Newco), and (ii) loans to Newco and Subsidiaries of Newco bearing interest
at a rate per annum equal to the rate of interest payable under the Second
Amended and Restated Revolving Credit Agreement dated June 30, 1995 between
Wellsford and First National Bank of Boston, as agent for itself and other
banks ("Revolver Rate"), which loans to Newco and its Subsidiaries shall
become due and payable in full on the Closing Date; provided the proceeds
of such loans are not applied to activities which are not permitted under
this Section 4.2;
(p) not pay, discharge or satisfy any claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge or satisfaction, in the
ordinary course of business consistent with past practice or in accordance
with their terms, of liabilities reflected or reserved against in, or
contemplated by, the most recent consolidated financial statements (or the
notes thereto) furnished to EQR or incurred in the ordinary course of
business consistent with past practice;
(q) not enter into any commitment, contractual obligation, capital
expenditure or transaction (each, a "Commitment") which may result in total
payments or liability by or to it in excess of $1,000,000 or aggregate
Commitments in excess of $5,000,000;
(r) not guarantee the indebtedness of another Person, enter into any
"keep well" or other agreement to maintain any financial statement
condition of another Person or enter into any arrangement having the
economic effect of any of the foregoing, other than guarantees of
indebtedness of Newco and Subsidiaries of Newco; provided, that on the
Closing Date, the Surviving Trust is unconditionally and irrevocably
released from any obligations with respect to such guarantees or the
indebtedness so guaranteed is paid in full without the payment of any
consideration by the Surviving Trust and its Subsidiaries;
(s) not enter into any Commitment with any officer, trustee,
consultant or Affiliate of Wellsford or any of the Wellsford Subsidiaries;
(t) not increase any compensation or enter into or amend any
employment agreement with any of its officers, directors or employees
earning more than $50,000 per annum, other than waivers by employees of
benefits under such agreements;
(u) not adopt any new employee benefit plan or amend any existing
plans or rights, except for changes which are required by law and changes
which are not more favorable to participants than provisions presently in
effect;
(v) not settle any shareholder derivative or class action claims
arising out of or in connection with any of the transactions contemplated
by this Agreement;
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(w) not change the ownership of any of its Subsidiaries except
pursuant to the Contribution Agreement on the Closing Date; and
(x) not accept a promissory note in payment of the exercise price
payable under any option to purchase Wellsford Common Shares.
For purposes of this Section 4.2 only, any contract, transaction or other event
shall be deemed to be material if it would result or is expected to result in a
net impact on Wellsford's consolidated income statement in excess of $1,000,000,
or on Wellsford's consolidated balance sheet in excess of $1,000,000.
Notwithstanding anything to the contrary herein contained, prior to the
Effective Time, Newco and its Subsidiaries shall not be bound by the
restrictions which would otherwise be applicable under Sections 4.2(a), (b),
(c), (d), (i), (j), (k), (l), (m)(ii), (n), (o), (p), (q), (r), (s), (t), (u),
or (w); provided, however, that in no event may Newco:
(i) issue any of its shares to any Person other than Wellsford
prior to the Spin-Off for less than fair value;
(ii) take any action or fail to take any action which would
reasonably be expected to result in the termination of or a
challenge to Wellsford's status as a REIT within the meaning
of Section 856 of the Code, or result in a Wellsford
Material Adverse Effect;
(iii) enter into any contract which creates or imposes any
obligation on, or otherwise purports to bind, Wellsford or
any of the other Wellsford Subsidiaries;
(iv) take any action or omit to take any action which causes a
default under any loan agreement to which Wellsford is a
party;
(v) amend its Articles of Incorporation or By-laws in any manner
which is inconsistent with the provisions of the Newco Stock
Purchase Agreement.
Notwithstanding anything to the contrary herein contained, prior to the
Effective Time, WPHC and its Subsidiaries may:
(A) amend the existing operating agreements of the Subsidiaries of WPHC in
a manner which is not adverse to the interests of WPHC in such
Subsidiaries;
32
(B) purchase the interest of Xx Xxxx in the Subsidiaries of WPHC in
accordance with the agreements granting such right in effect on the
date of this Agreement and previously furnished to EQR; and
(C) fulfill their respective obligations under the Palomino Development
Agreements.
4.3 CONDUCT OF EQR'S BUSINESS PENDING MERGER. Prior to the Effective
Time, except as (i) contemplated by this Agreement, or (ii) consented to in
writing by Wellsford, EQR shall, and shall cause each of the EQR Subsidiaries
to:
(a) use its reasonable efforts to preserve intact its business
organizations and goodwill and keep available the services of its officers
and employees;
(b) confer on a regular basis with one or more representatives of
Wellsford to report operational matters of materiality which would have an
EQR Material Adverse Effect;
(c) promptly notify Wellsford of any material emergency or other
material change in the condition (financial or otherwise), business,
properties, assets, liabilities, prospects or the normal course of its
businesses or in the operation of its properties, or of any material
governmental complaints, investigations or hearings (or communications
indicating that the same may be contemplated);
(d) promptly deliver to Wellsford true and correct copies of any
report, statement or schedule filed with the SEC subsequent to the date of
this Agreement;
(e) maintain its books and records in accordance with GAAP
consistently applied; and
(f) duly and timely file all reports, tax returns and other documents
required to be filed with federal, state, local and other authorities.
For purposes of this Section 4.3 only, an emergency, change, complaint,
investigation or hearing shall be deemed material if it would reasonably be
expected to have an EQR Material Adverse Effect.
In addition, during the period beginning the day after the fifth (5th)
trading day prior to the date which the proxy statements required by Section 5.1
hereof are dated and ending on (but including) the Closing Date, EQR will not
(a) issue any EQR Common Shares or other securities convertible into EQR Common
Shares in any single transaction or series of transactions having an aggregate
issuance price in excess of $250,000,000, or (b) announce any merger with or
acquisition of all or substantially all the assets of another entity which has
net assets in excess of $250,000,000.
33
4.4 COVENANT OF EQR. If EQR enters into negotiations with another Person
who has a class of equity securities registered under the Exchange Act regarding
the acquisition of such Person (whether effected through a merger,
consolidation, share exchange, tender offer or other form), then at least three
(3) business days prior to executing any definitive agreement with such Person
with respect to such acquisition or making a tender offer for the shares or
other ownership interests of such Person, EQR shall notify Wellsford of such
transaction and consult with Wellsford with respect thereto, it being
understood, however, that Wellsford shall have no approval rights with respect
thereto.
4.5 OTHER ACTIONS. Each of Wellsford on the one hand and EQR on the other
hand shall not, and shall use commercially reasonable efforts to cause their
Subsidiaries not to take, any action that would result in (i) any of the
representations and warranties of such party (without giving effect to any
"knowledge" qualification) set forth in this Agreement that are qualified as to
materiality becoming untrue, (ii) any of such representations and warranties
(without giving effect to any "knowledge" qualification) that are not so
qualified becoming untrue in any material respect or (iii) except as
contemplated by Section 4.1, any of the conditions to the Merger set forth in
Article 6 not being satisfied.
4.6 FILING OF CERTAIN REPORTS. The Surviving Trust shall file the reports
required to be filed by it under the Exchange Act and the rules and regulations
adopted by the SEC thereunder, and it will take such further action as any
Affiliate of Wellsford or EQR may reasonably request, all to the extent required
from time to time to enable such Affiliate to sell shares of beneficial interest
of the Surviving Trust received by such Affiliate in the Merger without
registration under the Securities Act pursuant to (i) Rule 145(d)(1) under the
Securities Act, as such Rule may be amended from to time, or (ii) any successor
rule or regulation hereafter adopted by the SEC.
ARTICLE 5
---------
ADDITIONAL COVENANTS
--------------------
5.1 PREPARATION OF THE REGISTRATION STATEMENT AND THE PROXY STATEMENT;
WELLSFORD SHAREHOLDERS MEETING AND EQR SHAREHOLDERS MEETING.
(a) As soon as practicable following the date of this Agreement,
Wellsford and EQR shall prepare and file with the SEC a preliminary Proxy
Statement in form and substance satisfactory to each of EQR and Wellsford and
such registration statements under the Securities Act and Exchange Act as may be
required (collectively, the "Registration Statement"). To the extent
practicable, the parties shall utilize one document for transmittal to their
respective shareholders to meet applicable legal requirements. Each of
Wellsford and EQR shall use its reasonable best efforts to (i) respond to any
comments of the SEC and (ii) have the Registration
34
Statement declared effective under the Securities Act and the rules and
regulations promulgated thereunder as promptly as practicable after such filing
and to keep the Registration Statement effective as long as is necessary to
consummate the Merger. Each of Wellsford and EQR will use its reasonable best
efforts to cause the Proxy Statement to be mailed to Wellsford's shareholders
and EQR's shareholders, respectively, as promptly as practicable after the
Registration Statement is declared effective under the Securities Act. Each
party agrees to date its Proxy Statement as of the same date, which shall be the
approximate date of mailing to the shareholders of the respective parties. Each
party will notify the other promptly of the receipt of any comments from the SEC
and of any request by the SEC for amendments or supplements to the Registration
Statement or the Proxy Statement or for additional information and will supply
the other with copies of all correspondence between such party or any of its
representatives and the SEC, with respect to the Registration Statement or the
Proxy Statement. The Registration Statement and the Proxy Statement shall
comply in all material respects with all applicable requirements of law. Prior
to mailing the Proxy Statement to their respective shareholders, EQR and
Wellsford shall have received the letters from their respective accountants
provided for by Section 5.8. Whenever any event occurs which is required to be
set forth in an amendment or supplement to the Registration Statement or the
Proxy Statement, EQR or Wellsford, as the case may be, shall promptly inform the
other of such occurrences and cooperate in filing with the SEC and/or mailing to
the shareholders of EQR and the shareholders of Wellsford such amendment or
supplement to the Proxy Statement. Wellsford or EQR, whichever shall become the
Surviving Trust, also shall take any action required to be taken under any
applicable state securities or "blue sky" laws in connection with the issuance
of shares of beneficial interest of the Surviving Trust pursuant to the Merger,
and the other party shall furnish all information concerning such party and the
holders of the shares of beneficial interest of such party and rights to acquire
shares of beneficial interest as may be reasonably requested in connection with
any such action.
(b) EQR will, as soon as practicable following the date of this
Agreement (but in no event sooner than 20 business days following the date the
Proxy Statement is mailed to the shareholders of Wellsford), duly call, give
notice of, convene and hold a meeting of its shareholders (the "EQR Shareholders
Meeting") for the purpose of obtaining the EQR Shareholder Approvals. EQR will,
through its Board of Trustees, recommend to its shareholders approval of this
Agreement, the Merger, and the transactions contemplated by this Agreement.
(c) Wellsford will, as soon as practicable following the date of this
Agreement (but in no event sooner than 20 business days following the date the
Proxy Statement is mailed to the shareholders of Wellsford), duly call, give
notice of, convene and hold a meeting of its shareholders (the "Wellsford
Shareholders Meeting") for the purpose of obtaining Wellsford Shareholder
Approvals. Wellsford will, through its Board of Trustees, recommend to its
shareholders approval of this Agreement, the Merger and the transactions
contemplated by this Agreement; provided, that prior to the Wellsford
Shareholders Meeting, such recommendation may be withdrawn, modified or amended
to the extent that, as a result of the commencement or receipt of a proposal
constituting a Superior Acquisition Proposal, the Board of Trustees of
35
Wellsford determines in good faith that such withdrawal, modification or
amendment is appropriate.
(d) EQR and Wellsford shall use their best efforts to hold their
respective shareholder meetings on the same day, which day, subject to the
provisions of Sections 5.1(b) and 5.1(c), shall be a day not later than 45 days
after the date the Proxy Statement is mailed.
(e) If on the date for the EQR Shareholders Meeting and Wellsford
Shareholders Meeting established pursuant to Section 5.1(d) of this Agreement,
either EQR or Wellsford has not received a sufficient number of proxies to
approve the Merger (but less than 1/3rd of the outstanding common shares of
beneficial interest of such party have voted against the Merger), then both
parties shall adjourn their respective shareholders meetings until the first to
occur of (i) the date ten (10) days after the originally scheduled date of the
shareholders meetings or (ii) the date on which the requisite number of proxies
approving the Merger has been obtained or proxies have been received
representing more than one-third of its outstanding common shares of beneficial
interest which voted against the Merger.
5.2 ACCESS TO INFORMATION: CONFIDENTIALITY. Subject to the requirements
of confidentiality agreements with third parties, each of Wellsford and EQR
shall, and shall cause each of its Subsidiaries to, afford to the other party
and to the officers, employees, accountants, counsel, financial advisors and
other representatives of such other party, reasonable access during normal
business hours prior to the Effective Time to all their respective properties,
books, contracts, commitments, personnel and records and, during such period,
each of Wellsford and EQR shall, and shall cause each of its Subsidiaries to,
furnish promptly to the other party (a) a copy of each report, schedule,
registration statement and other document filed by it during such period
pursuant to the requirements of federal or state securities laws and (b) all
other information concerning its business, properties and personnel as such
other party may reasonably request. Each of Wellsford and EQR, shall cause its
Subsidiaries to, and shall use commercially reasonable efforts to cause its
officers, employees, accountants, counsel, financial advisors and other
representatives and affiliates to, hold any nonpublic information in confidence
to the extent required by, and in accordance with, and will comply with the
provisions of the letter agreement dated as of October 9, 1996 between Wellsford
and EQR (the "Confidentiality Agreement").
5.3 BEST EFFORTS; NOTIFICATION.
(a) Subject to the terms and conditions herein provided, Wellsford and
EQR shall: (i) use all reasonable best efforts to cooperate with one another in
(A) determining which filings are required to be made prior to the Effective
Time with, and which consents, approvals, permits or authorizations are required
to be obtained prior to the Effective Time from, governmental or regulatory
authorities of the United States, the several states and foreign jurisdictions
and any third parties in connection with the execution and delivery of this
Agreement, and the consummation of the transactions contemplated by such
agreements and (B)
36
timely making all such filings and timely seeking all such consents, approvals,
permits and authorizations; (ii) use all reasonable best efforts to obtain in
writing any consents required from third parties to effectuate the Merger, such
consents to be in form reasonably satisfactory to Wellsford and EQR; and (iii)
use all reasonable best efforts to take, or cause to be taken, all other action
and do, or cause to be done, all other things necessary, proper or appropriate
to consummate and make effective the transactions contemplated by this
Agreement. If, at any time after the Effective Time, any further action is
necessary or desirable to carry out the purpose of this Agreement, the proper
officers and trustees of Wellsford and EQR shall take all such necessary action.
(b) Wellsford shall give prompt notice to EQR, and EQR shall give
prompt notice to Wellsford, (i) if any representation or warranty made by it
contained in this Agreement that is qualified as to materiality becomes untrue
or inaccurate in any respect or any such representation or warranty that is not
so qualified becomes untrue or inaccurate in any material respect or (ii) of the
failure by it to comply with or satisfy in any material respect any covenant,
condition or agreement to be complied with or satisfied by it under this
Agreement; provided, however, that no such notification shall affect the
representations, warranties, covenants or agreements of the parties or the
conditions to the obligations of the parties under this Agreement.
5.4 COSTS OF TRANSACTION. On the Closing Date, Wellsford and EQR shall
execute, and Wellsford shall cause Newco to execute, the Transaction and
Termination Costs Agreement in substantially in the form attached as Exhibit "H"
hereto (the "Transaction Costs Agreement").
5.5 TAX TREATMENT. Each of EQR and Wellsford shall use its reasonable
best efforts to cause the Merger to qualify as a reorganization under the
provisions of Sections 368(a) of the Code and to obtain the opinions of counsel
referred to in Sections 6.2(e) and 6.3(f).
5.6 PUBLIC ANNOUNCEMENTS. EQR and Wellsford will consult with each other
before issuing, and provide each other the opportunity to review and comment
upon, any press release or other written public statements with respect to the
transactions contemplated by this Agreement, including the Merger and the Spin-
Off, and shall not issue any such press release or make any such written public
statement prior to such consultation, except as may be required by applicable
law, court process or by obligations pursuant to any listing agreement with any
national securities exchange. The parties agree that the initial press release
to be issued with respect to the transactions contemplated by this Agreement
will be in the form agreed to by the parties hereto prior to the execution of
this Agreement.
5.7 LISTING. Prior to the Effective Time, EQR or Wellsford (whichever
shall be the Surviving Trust), shall use its best efforts to have the NYSE
approve for listing, upon official notice of issuance, the shares of beneficial
interest to be issued in the Merger.
37
5.8 LETTERS OF ACCOUNTANTS.
(a) Wellsford shall use its reasonable best efforts to cause to be
delivered to EQR the "comfort" letter of Ernst & Young, Wellsford's independent
public accountants, dated and delivered the date on which the Registration
Statement shall become effective and as of the Effective Time, and addressed to
EQR, in form and substance reasonably satisfactory to EQR and reasonably
customary in scope and substance for letters delivered by independent public
accountants in connection with transactions such as those contemplated by this
Agreement.
(b) EQR shall use its reasonable best efforts to cause to be delivered
to Wellsford the "comfort" letter of Ernst & Young, EQR's independent public
accountants, dated the date on which the Registration Statement shall become
effective and as of the Effective Time, and addressed to Wellsford, in form and
substance reasonably satisfactory to Wellsford and reasonably customary in scope
and substance for letters delivered by independent public accountants in
connection with transactions such as those contemplated by this Agreement.
5.9 TRANSFER AND GAINS TAXES. EQR and Wellsford shall cooperate in the
preparation, execution and filing of all returns, questionnaires, applications
or other documents regarding any real property transfer or gains, sales, use,
transfer, value added stock transfer and stamp taxes, any transfer, recording,
registration and other fees and any similar taxes which become payable in
connection with the transactions contemplated by this Agreement (together with
any related interests, penalties or additions to tax, "Transfer and Gains
Taxes"). From and after the Effective Time, the Surviving Trust shall, or shall
cause ERP Operating Partnership, as appropriate, to pay or cause to be paid,
without deduction or withholding from any amounts payable to the holders of
beneficial interests in the Surviving Trust, all Transfer and Gains Taxes.
5.10 BENEFIT PLANS AND OTHER EMPLOYEE ARRANGEMENTS.
(a) BENEFIT PLANS. After the Effective Time, all employees of
Wellsford who are employed by the Surviving Trust shall, at the option of the
Surviving Trust, either continue to be eligible to participate in an "employee
benefit plan", as defined in Section 3(3) of ERISA, of Wellsford which is, at
the option of the Surviving Trust, continued by the Surviving Trust, or
alternatively shall be eligible to participate in the same manner as other
similarly situated employees of the Surviving Trust who were formerly employees
of EQR in any "employee benefit plan," as defined in Section 3(3) of ERISA,
sponsored or maintained by the Surviving Trust after the Effective Time. With
respect to each such employee benefit plan, service with EQR or any EQR
Subsidiary or with Wellsford or any Wellsford Subsidiary (as applicable) shall
be included for purposes of determining eligibility to participate, vesting (if
applicable) and entitlement to benefits. With respect to medical benefits
provided by the Surviving Trust on and after the Closing Date, coverage that
would otherwise be denied due to a preexisting illness shall be provided to
those employees who were covered by a plan sponsored by EQR, Wellsford or
38
any of their Subsidiaries before the Closing Date, but only to the extent that
such illness was covered under such a plan before the Closing Date.
(b) SHARE INCENTIVE PLANS. The share incentive plans of Wellsford and
EQR, respectively, shall be terminated or continued, as specifically set forth
in the Articles of Merger.
(c) RETENTION PROGRAM. As of the Effective Time, the Surviving Trust
shall adopt a severance and retention program (the "Retention Program") with
respect to those employees of Wellsford and the Wellsford Subsidiaries set forth
in Schedule 5.10 to the Wellsford Disclosure Letter (the "Schedule 5.10
Employees") by issuing to such Schedule 5.10 Employees a letter substantially in
the form attached hereto as Exhibit "I" (the "Retention Program Letter");
provided, however, that in no event may the aggregate obligations of Wellsford
and the Surviving Trust under the Retention Program exceed $544,575. The
Surviving Trust shall maintain the Retention Program in accordance with the
terms thereof. In no event shall Wellsford adopt or agree to any other
severance or retention program in addition to the Retention Program, except as
otherwise specifically set forth in this Agreement. Neither the Retention
Program nor any other term of this Agreement shall require the Surviving Trust
to continue the employment of any employee of Wellsford after the Effective
Time. The Surviving Trust shall pay the amount set forth in Schedule 5.10 to
the Wellsford Disclosure Letter to each Schedule 5.10 Employee whose employment
is involuntarily terminated by the Surviving Trust without cause prior to such
employee's receipt of the Retention Program Letter.
(d) AGREEMENT OF OPTIONEES. Prior to the Closing, Wellsford shall use
its best efforts to obtain the written agreement of each employee (other than
the Executives of Wellsford as set forth in Exhibit "J" to this Agreement)
holding an option to purchase Wellsford Common Shares described in Schedule 2.3
to the Wellsford Disclosure Letter and of Xxxxx Xxxxxx to the cancellation of
such option at the Effective Time for cash in an amount equal to the difference
between $27.50 and the applicable exercise price set forth in such option,
multiplied by the number of Wellsford Common Shares subject to such option.
(e) RELEASE OF SURVIVING TRUST. At the Closing, each of (i) Xxxxxxx
X. Xxxxxxx, (ii) Xxxxxx Xxxxxxxxx, and (iii) each of the other Key Executives
set forth in Exhibit "J" who have agreed to the conversion of their options to
purchase Wellsford Common Shares into options to purchase common shares of
Newco, shall release the Surviving Trust from any obligations of Wellsford to
him under options to purchase Wellsford Common Shares which are exchanged for or
converted into options to purchase common shares of Newco.
(f) WITHHOLDING. Wellsford shall require each employee who exercises
an option to purchase Wellsford Common Shares or who receives Wellsford Common
Shares pursuant to any existing commitment to pay to Wellsford in cash or
Wellsford Common Shares an amount sufficient to satisfy in full Wellsford's
obligation to withhold Taxes incurred by reason of such exercise or issuance.
39
(g) EXECUTIVES. The compensation, benefits, payments, accelerations,
share options and share appreciation rights of the "Executives" and the trustees
of Wellsford, as set forth in Exhibit "J" to this Agreement, shall be satisfied
at the Effective Time in accordance with the terms set forth in Exhibit "J" and
Schedule 5.10(g) to the Wellsford Disclosure Letter. For purposes of valuing
all existing options to be converted into options to purchase common shares of
Newco, Wellsford has utilized the Xxxxxxx Xxxxx trading desk formula pricing
model and take into account the number of options held, the exercise price and
duration thereof, the volatility of the market price of the shares involved, and
other required factors.
(h) COMMITTEE ACTION. Wellsford shall cause the appropriate committee
to take the appropriate action under Wellsford's 1992 Share Option Plan and
under its Long-Term Management Incentive Plan to cause each option to purchase
Wellsford Common Shares which remains unexercised as of the Effective Time to be
amended to adjust the number of shares for which such option is thereafter
exercisable and the exercise price by the Exchange Ratio, as provided for in the
Articles of Merger.
5.11 INDEMNIFICATION.
(a) From and after the Effective Time, the Surviving Trust shall
provide exculpation and indemnification for each person who is now or has been
at any time prior to the date hereof or who becomes prior to the Effective Time,
an officer or trustee of Wellsford or any Wellsford Subsidiary (the "Indemnified
Parties") which is the same as the exculpation and indemnification provided to
the Indemnified Parties by Wellsford and the Wellsford Subsidiaries immediately
prior to the Effective Time in its Amended and Restated Declaration of Trust and
Bylaws, as in effect on the date hereof; provided, that such exculpation and
indemnification covers actions on or prior to the Effective Time, including,
without limitation, all transactions contemplated by this Agreement. In no
event shall the Surviving Trust be obligated to provide directors' and officers'
liability insurance. If the Surviving Trust has directors and officers'
insurance, such insurance shall apply to all directors and officers of the
Surviving Trust serving as such during the period such coverage is in effect.
(b) The Surviving Trust shall continue in force and effect after the
Effective Time each Indemnification Agreement between EQR and any Person which
was in force and effect immediately prior to the Effective Time.
(c) The provisions of this Section 5.11 are intended to be for the
benefit of, and shall be enforceable by, each Indemnified Party, his or her
heirs and his or her personal representatives and shall be binding on all
successors and assigns of EQR and Wellsford.
(d) In the event that the Surviving Trust or any of its respective
successors or assigns (i) consolidates with or merges into any other person and
shall not be the continuing or surviving corporation or entity of such
consolidation or merger or (ii) transfers all or
40
substantially all of its properties and assets to any person, then, and in each
such case the successors and assigns of such entity shall assume the obligations
set forth in this Section 5.11, which obligations are expressly intended to be
for the irrevocable benefit of, and shall be enforceable by, each trustee and
officer covered hereby.
5.12 CONTRIBUTION AGREEMENT. Wellsford shall cause Newco to execute the
Contribution Agreement and any other agreement related to the transactions
contemplated hereby to which Newco is a party provided that Wellsford has
obtained all material consents required to be obtained by Wellsford and the
Wellsford Subsidiaries from third parties in order to perform their respective
obligations under the Contribution Agreement and the other agreements
contemplated hereby to which Newco is a party. Wellsford shall diligently seek
and use its best efforts to obtain such consents prior to the Closing Date.
Wellsford shall keep EQR currently apprised of its progress in obtaining such
consents. Wellsford shall inform EQR promptly if it appears unlikely that any
given consent will be obtained. Wellsford shall cooperate with EQR in taking
any action to either obtain such consents or to put Wellsford and the Wellsford
Subsidiaries in a position so that such consents are no longer required;
provided such action does not cost Wellsford a material amount or materially
adversely affect Wellsford and the Wellsford Subsidiaries.
5.13 DECLARATION OF DIVIDENDS AND DISTRIBUTIONS. From and after the date
of this Agreement, Wellsford shall not make any dividend or distribution to its
shareholders without the prior written consent of EQR; provided, however, the
written consent of EQR shall not be required for the distribution of Newco
shares pursuant to the Spin-Off and for the authorization and payment of
quarterly distributions with respect to the Wellsford Common Shares of up to
$0.485 per share, the Wellsford Series A Preferred Shares of up to $0.4375 per
share and the Wellsford Series B Preferred Shares of up to $0.603125 per share;
provided, however, the record date for each distribution with respect to the
Wellsford Common Shares shall be the same date as the record date for the
quarterly distribution for the Common Shares of EQR as provided to Wellsford by
notice not less than twenty (20) business days prior to the record date for any
quarterly EQR distribution; provided, however, in the event EQR has not notified
Wellsford of the record date for a quarterly distribution with respect to the
EQR Common Shares for any quarter prior to the last twenty (20) business days of
such quarter, Wellsford may authorize a distribution on the Wellsford Common
Shares, subject to the terms and conditions of this Section 5.13.
Notwithstanding the foregoing, if EQR is to be the Surviving Trust, Wellsford
may make distributions to its shareholders in excess of the foregoing amounts
without the consent of EQR but only to the extent such distributions are
required to comply with the minimum distribution requirements set forth in
Section 857(b) of the Code.
5.14 CONSULTING AGREEMENTS. ERP Operating Partnership shall enter into a
consulting agreement with each of Xxxxxxx X. Xxxxxxx and Xxxxxx Xxxxxxxxx which
shall become effective as of the Effective Time and shall be in substantially
the forms attached hereto as Exhibit "K".
41
5.15 TRANSFER OF MANAGEMENT COMPANY SHARES. At the Closing, Wellsford
shall cause the owners (other than Wellsford or a wholly-owned subsidiary of
Wellsford) to transfer to such person or persons as EQR shall designate by
written notice delivered to Wellsford prior to the Closing, all of the shares of
Wellsford Xxxxx Management Inc. ("Management Corp.") owned by them, constituting
all the outstanding shares of the Management Corp. which are not owned by
Wellsford or a wholly-owned subsidiary of Wellsford for an aggregate
consideration of $1.00, unless Management Corp. was dissolved prior to the
Closing Date.
5.16 TRANSFER OF WELLSFORD ASSETS AFTER EFFECTIVE TIME. Wellsford
acknowledges that immediately after the Effective Time, the real properties
owned by Wellsford and the Wellsford Subsidiaries and the equity interests in
certain of the Wellsford Subsidiaries shall be transferred to ERP Operating
Partnership, subject to all liabilities of Wellsford and the Wellsford
Subsidiaries, as a capital contribution in exchange for a number of units and
preferred units of ERP Operating Partnership equal to the number of common
shares of beneficial interest and preferred shares of beneficial interest of the
Surviving Trust issued in the Merger to the owners of the shares of beneficial
interest of Wellsford in the Merger; provided, however, that Wellsford makes no
representation or warranty regarding EQR's ability to accomplish the foregoing,
the costs that would be incurred in connection therewith or any consents or
approvals that may be required therefor.
5.17 NOTICES.
(a) Within the time period provided for in the Amended and Restated
Declaration of Trust of the Surviving Trust, the Surviving Trust shall notify
the holders of Wellsford Series A Preferred Shares (which have been converted
into Series D Preferred Shares of the Surviving Trust) of the conversion rate
applicable to such shares after giving effect to the Merger.
(b) Each party shall provide such notice to its shareholders of the
Merger as is required under Maryland law.
5.18 RESIGNATIONS. On the Closing Date, Wellsford shall cause the
trustees, directors and officers of Wellsford and each of the Wellsford
Subsidiaries (excluding Newco and its Subsidiaries) to submit their resignations
from such positions, effective as of the Effective Time.
5.19 THIRD PARTY MANAGEMENT AGREEMENTS. Wellsford shall not amend the
existing Third Party Management Agreement which provides that such agreement may
be cancelled by Wellsford on thirty days' notice or less without any charge,
penalty or other cost for such cancellation. Wellsford shall not renew the
other existing Third Party Management Agreement which expires in April, 1997
except on terms which permit its cancellation by Wellsford on thirty days'
notice or less without any charge, penalty or other cost for such cancellation,
and shall not thereafter amend such terms.
42
5.20 REPAYMENT OF CERTAIN INDEBTEDNESS. Wellsford covenants that on the
Closing Date it shall cause Newco and its Subsidiaries to repay all loans made
to any of them by Wellsford or the other Wellsford Subsidiaries and to procure
on the Closing Date the unconditional and irrevocable release of Wellsford and
such other Wellsford Subsidiaries from any guaranties of the obligations of
Newco and its Subsidiaries (whether effected directly or indirectly through the
repayment of the indebtedness so guaranteed), other than the guaranties
contemplated under the Credit Enhancement Agreement and the Palomino Agreement.
Wellsford covenants that it shall cause Newco to apply the Contribution Funds
(as defined in the Contribution Agreement) and shall cause Newco to request
purchases of shares of Newco under the Newco Stock Purchase Agreement to the
extent that Newco does not repay such indebtedness from other sources and obtain
such releases by other means.
5.21 10B-17 NOTICE. Wellsford shall give any notice required under Rule
10b-17 promulgated under the Exchange Act of the record date for determining the
holders of Wellsford Common Shares entitled to receive the distribution of the
shares of Newco owned by Wellsford. The parties shall co-operate in
establishing the date for the Closing Date in order to facilitate compliance
with said Rule.
5.22 DENVER LEASE. Prior to the Closing Date, Wellsford may sublease the
office space in Denver, Colorado currently leased by Wellsford (the "Denver
Space") to a subtenant with EQR's prior consent, which consent shall not be
withheld if such prospective tenant is financially capable of making the rental
payments under the sublease. If the Denver Space has not been subleased by
Wellsford by the Closing Date, the Surviving Trust shall use reasonable
commercial efforts to sublease the Denver Space; provided that the Surviving
Trust shall not be required to sublease such space to any Person which is not
financially capable of making the payments required under the sublease. Newco
may refer potential tenants to the Surviving Trust and may sublease the Denver
Space itself. If the Denver Space is not subleased by the Closing Date, but is
thereafter subleased by the Surviving Trust, the Surviving Trust shall pay to
Newco the present value (determined using an interest rate of 8%) of all base
rent payable under such sublease (net of third party brokers' commissions)
promptly after such sublease is executed by the parties.
5.23 NEW YORK LEASE. If prior to the Effective Time Wellsford is unable
to obtain the consent of the landlord under the lease of the office space in New
York, New York currently leased by Wellsford (the "New York Lease") to either
(a) the assignment of the New York Lease to Newco and the release of the
Surviving Trust from all liability under the New York Lease, or (ii) the
sublease to Newco of the space leased under the New York Lease, then the
Surviving Trust will reasonably co-operate with Newco to provide Newco with the
benefits of the New York Lease, including becoming a 50% joint venture partner
with Newco in an entity formed to sublease such space.
43
5.24 AMENDMENT TO ARTICLES OF WPHC. Prior to the Closing Date, Wellsford
shall cause: (a) the Articles of Incorporation of WPHC to be amended so as to
provide (i) for two classes of common shares which shall be identical in all
respects except that (A) one class shall be voting (the "WPHC Voting Shares")
and one class shall be non-voting (the "WPHC Non-Voting Shares"), and (B) each
WPHC Non-Voting Share shall be convertible at any time into one WPHC Voting
Share, and (ii) that no dividend may be declared or paid on the outstanding
shares of either class of common shares of WPHC unless the same dividend is
declared on both classes of common shares of WPHC, except that any stock
dividend payable solely in common shares of WPHC shall be paid in WPHC Voting
Shares, as to such dividends on WPHC Voting Shares, or WPHC Non-Voting Shares,
as to dividends on WPHC Non-Voting Shares, and (b) the shares of WPHC owned by
Wellsford to be converted or exchanged for 80 WPHC Voting Shares, which shall be
contributed to Newco pursuant to the Contribution Agreement, and 20 WPHC Non-
Voting Shares, which shall continue to be owned by the Surviving Trust after the
Effective Time.
5.25 COMPLETION OF ARTICLES OF MERGER. If the Closing Date occurs on or
after the annual meeting of the shareholders of EQR for 1997, Exhibit "B" to the
Articles of Merger shall be completed prior to the execution thereof by the
parties in such a manner so that each of Xxxxxxx X. Xxxxxxx and Xxxxxx Xxxxxxxxx
shall be designated as trustees whose terms expire at the annual meeting of the
shareholders of the Surviving Trust held in 2000. If the Closing Date occurs
before the annual meeting of the shareholders of EQR for 1997, (a) Exhibit "B"
to the Articles of Merger shall be completed prior to the execution thereof by
the parties in such a manner so that each of Xxxxxxx X. Xxxxxxx and Xxxxxx
Xxxxxxxxx shall be designated as trustees whose terms expire at the annual
meeting of the shareholders of the Surviving Trust held in 1998, and (b) Xxxxx
X. Xxxxxxx and Xxxxxx Xxxxxxxxx shall be designated as management's designees in
the Surviving Trust's proxy material for its annual meeting of shareholders held
in 1998 to serve as trustees of the Surviving Trust with terms expiring at the
annual meeting of shareholders of the Surviving Trust held in 2000. The terms
of the remaining trustees of the Surviving Trust shall be completed in Exhibit
"B" in the manner designated by EQR.
ARTICLE 6
---------
CONDITIONS
----------
6.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER. The
obligations of each party to effect the Merger shall be subject to the
fulfillment at or prior to the Closing Date of the following conditions:
(a) SHAREHOLDER APPROVALS. This Agreement, the Merger and the
transactions contemplated by this Agreement shall have been approved and
adopted by the Shareholder Approvals.
44
(b) LISTING OF SHARES. The NYSE shall have approved for listing the
shares of beneficial interest of the Surviving Trust to be issued in the
Merger, subject in each case to official notice of issuance.
(c) REGISTRATION STATEMENT. The Registration Statement shall have
become effective under the Securities Act and shall not be the subject of
any stop order or proceedings by the SEC seeking a stop order.
(d) NO INJUNCTIONS OR RESTRAINTS. No temporary restraining order,
preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing
the consummation of the Merger or any of the other transactions
contemplated hereby shall be in effect.
(e) BLUE SKY LAWS. The Surviving Trust shall have received all state
securities or "blue sky" permits and other authorizations necessary to
issue shares of beneficial interest to the shareholders of EQR and
Wellsford.
(f) OPINION OF MARYLAND COUNSEL. EQR and Wellsford shall have
received the opinion of Xxxxxxx Xxxxx Xxxxxxx & Xxxxxxxxx to the effect
that this Agreement and the Articles of Merger are enforceable under
Maryland law, that all requisite approval of the Merger by the shareholders
of EQR and Wellsford has been obtained, and as to such other matters as are
customary in a transaction such as the Merger.
6.2 CONDITIONS TO OBLIGATIONS OF EQR. The obligations of EQR to effect the
Merger and to consummate the other transactions contemplated to occur on the
Closing Date are further subject to the following conditions, any one or more of
which may be waived by EQR:
(a) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Wellsford set forth in this Agreement shall be true and
correct as of the Closing Date (other than changes thereto which occurred
solely by reason of the Spin-Off), as though made on and as of the Closing
Date, except to the extent the representation or warranty is expressly
limited by its terms to another date, and EQR shall have received a
certificate (which certificate may be qualified by Knowledge to the same
extent as the representations and warranties of Wellsford contained herein
are so qualified) signed on behalf of Wellsford by the chief executive
officer or the chief financial officer of Wellsford, in such capacity, to
such effect; provided, however, that no representation or warranty shall be
deemed to have been breached as a result of any act of Newco and its
Subsidiaries taken or omitted to be taken after the date of this Agreement,
if such act or omission was taken or omitted to be taken without causing
Newco to breach Section 4.2 of this Agreement. For the purposes of Section
6.2(a), the representations and warranties of Wellsford shall be deemed
true and correct unless the breach of such representations
45
and warranties, in the aggregate, could reasonably be expected to have a
Wellsford Material Adverse Effect.
(b) PERFORMANCE OF OBLIGATIONS OF WELLSFORD. Wellsford shall have
performed in all material respects all obligations required to be performed
by it under this Agreement at or prior to the Effective Time, and EQR shall
have received a certificate signed on behalf of Wellsford by the chief
executive officer or the chief financial officer of Wellsford, in such
capacity, to such effect. For purposes of this Agreement, the inability of
Newco to (i) repay all of the loans and advances made to it by Wellsford or
any of the other Wellsford Subsidiaries, after giving effect to all cash to
be received by Newco on the Closing Date (including any amounts to be
received under the Newco Stock Purchase Agreement), shall be deemed to be a
material default, and (ii) the inability of Newco to obtain the
unconditional and irrevocable release from any obligations of Newco and its
Subsidiaries issued after the date of this Agreement (whether directly
through a release or indirectly through the payment of the indebtedness so
guaranteed) shall be deemed to be a material default. Notwithstanding the
foregoing, if Newco is unable to repay such indebtedness to Wellsford on
the Closing Date, after giving effect to all cash to be received by Newco
on the Closing Date (including any amounts to be received under the Newco
Stock Purchase Agreement), EQR may, at its option, and in lieu of
terminating this Agreement, require Newco to execute and deliver to the
Surviving Trust a promissory note in the amount of such indebtedness which
Newco is unable to pay, payable in twelve (12) equal consecutive monthly
installments on the last day of each month, commencing with the month next
following the month in which the Merger occurs, together with interest
thereon at a rate equal to the Revolver Rate plus 2%, payable with each
installment of principal.
(c) MATERIAL ADVERSE CHANGE. Since the date of this Agreement, there
shall have been no Wellsford Material Adverse Change and EQR shall have
received a certificate of the chief executive officer or chief financial
officer of Wellsford, in such capacity, certifying to such effect.
(d) OPINIONS RELATING TO REIT AND PARTNERSHIP STATUS. EQR shall have
received an opinion of counsel to Wellsford, reasonably satisfactory to
EQR, that, commencing with its taxable year ended December 31, 1993,
Wellsford was organized and has operated in conformity with the
requirements for qualification as a REIT under the Code (with customary
exceptions, assumptions and qualifications and based upon customary
representations).
(e) OTHER TAX OPINION. EQR shall have received an opinion dated the
Closing Date from counsel to EQR, based upon certificates and letters,
which letters and certificates are substantially in the form set forth in
Exhibit "L" hereto and dated the
46
Closing Date, to the effect that the Merger will qualify as a
reorganization under the provisions of Section 368(a) of the Code.
(f) COMFORT LETTER. EQR shall have received the letter from the
accountants for Wellsford required by Section 5.8 hereof.
(g) OPINION OF COUNSEL. EQR shall have received an opinion from
Xxxxxxxx Xxxxxxxxx Xxxxxx Xxxxxxxx & Xxxxxx LLP or other counsel to
Wellsford reasonably satisfactory to EQR dated the Closing Date in form and
substance reasonably satisfactory to EQR addressing the matters set forth
in Exhibit "M" hereto.
(h) CONSENTS. All consents and waivers (including, without
limitation, waivers of rights of first refusal) from third parties
necessary in connection with the consummation of the transactions
contemplated by this Agreement shall have been obtained, other than such
consents and waivers from third parties, which, if not obtained, would not
result, individually or in the aggregate, in an EQR Material Adverse Effect
or a Wellsford Material Adverse Effect.
(i) CONSULTING AGREEMENTS. Xxxxxxx X. Xxxxxxx and Xxxxxx Xxxxxxxxx
shall have executed and delivered their respective Consulting Agreements.
(j) SHARES OF MANAGEMENT CORP. Unless Management Corp. was dissolved
before the Closing Date, the voting shares of Management Corp. shall have
been transferred to EQR's designees in accordance with Section 5.15.
(k) RELEASES. The Key Executives shall have executed the releases
described in Section 5.10(e).
(l) WPHC ARTICLES. The Articles of Incorporation of WPHC shall have
been amended as provided in Section 5.24 and immediately prior to the Spin-
off, Wellsford's ownership interest in WPHC shall consist solely of 80 WPHC
Voting Shares and 20 WPHC Non-Voting Shares.
(m) CONTRIBUTION AGREEMENT. Wellsford and Newco shall have entered
into the Contribution Agreement and each of the transactions contemplated
thereby shall have been completed to the extent required to be completed
thereunder as of such time.
(n) NEWCO STOCK PURCHASE AGREEMENT. Newco shall have executed and
delivered the Newco Stock Purchase Agreement.
(o) PALOMINO CREDIT ENHANCEMENT AGREEMENT. Newco shall have executed
and delivered the Palomino Credit Enhancement Agreement.
47
(p) PALOMINO AGREEMENT. Newco shall have executed and delivered the
Palomino Agreement.
(q) SONTERRA RIGHT OF FIRST OFFER. Newco shall have executed and
delivered the Sonterra Right of First Offer Agreement.
(r) TRANSACTION COSTS AGREEMENT. Each of Wellsford and Newco shall
have executed and delivered the Transaction Costs Agreement.
6.3 CONDITIONS TO OBLIGATIONS OF WELLSFORD. The obligation of Wellsford
to effect the Merger and to consummate the other transactions contemplated to
occur on the Closing Date is further subject to the following conditions, any
one or more of which may be waived by Wellsford:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of EQR set forth in this Agreement shall be true and correct as of the date
of this Agreement and as of the Closing Date, as though made on and as of
the Closing Date, except to the extent the representation or warranty is
expressly limited by its terms to another date, and Wellsford shall have
received a certificate (which certificate may be qualified by Knowledge to
the same extent as the representations and warranties of EQR contained
herein are so qualified) signed on behalf of EQR by the chief executive
officer and the chief financial officer of such party to such effect. For
the purposes of this Section 6.3(a), the representations and warranties of
EQR shall be deemed true and correct unless the breach of such
representations and warranties, in the aggregate, could reasonably be
expected to have an EQR Material Adverse Effect.
(b) PERFORMANCE OF OBLIGATIONS OF EQR. EQR shall have performed in
all material respects all obligations required to be performed by it under
this Agreement at or prior to the Effective Time, and Wellsford shall have
received a certificate of EQR signed on behalf of EQR by the chief
executive officer or the chief financial officer of EQR, in such capacity,
to such effect.
(c) MATERIAL ADVERSE CHANGE. Since the date of this Agreement, there
shall have been no EQR Material Adverse Change and Wellsford shall have
received a certificate of the chief executive officer or chief financial
officer of EQR, in such capacity, certifying to such effect.
(d) COMFORT LETTER. Wellsford shall have received the letter from the
accountants for EQR required by Section 5.8 hereof.
(e) OPINION RELATING TO REIT STATUS AND PARTNERSHIP STATUS. Wellsford
shall have received an opinion of counsel to EQR, reasonably satisfactory
to Wellsford,
48
that, commencing with its taxable year ended December 31, 1993, (A) EQR was
organized and has operated in conformity with the requirements for
qualification as a REIT under the Code and (B) ERP Operating Partnership
has been during and since 1993 and continues to be, treated of federal
income tax purposes as a partnership, and not as a corporation or
association taxable as a corporation (with customary exceptions,
assumptions and qualifications and based upon customary representations).
(f) OTHER TAX OPINION. Wellsford shall have received an opinion dated
the Closing Date from counsel to Wellsford, based upon certificates and
letters, which letters and certificates are substantially in the form set
forth in Exhibit "N" hereto and dated the Closing Date, to the effect that
the Merger will qualify as a reorganization under the provisions of Section
368(a) of the Code.
(g) OPINION OF COUNSEL. Wellsford shall have received an opinion from
Xxxxxxx & Xxxxx or other counsel to EQR reasonably satisfactory to
Wellsford dated the Closing Date in form and substance reasonably
satisfactory to Wellsford addressing the matters set forth in Exhibit "O"
hereto dated the Closing Date.
(h) CONSENTS. All consents and waivers (including, without
limitation, waivers or rights of first refusal) from third parties
necessary in connection with the consummation of the transactions
contemplated hereby shall have been obtained, other than such consents and
waivers from third parties, which, if not obtained, would not result,
individually or in the aggregate, in an EQR Material Adverse Effect or a
Wellsford Material Adverse Effect.
(i) CONSULTING AGREEMENT. ERP Operating Partnership shall have
executed the Consulting Agreements with each of Xxxxxxx X. Xxxxxxx and
Xxxxxx Xxxxxxxxx.
(j) NEWCO STOCK PURCHASE AGREEMENT. ERP Operating Partnership shall
have executed and delivered the Newco Stock Purchase Agreement.
(k) PALOMINO CREDIT ENHANCEMENT AGREEMENT. ERP Operating Partnership
shall have executed and delivered the Palomino Credit Enhancement
Agreement.
(l) PALOMINO AGREEMENT. ERP Operating Partnership shall have executed
and delivered the Palomino Agreement.
(m) SONTERRA RIGHT OF FIRST OFFER. ERP Operating Partnership shall
have executed and delivered the Sonterra Right of First Offer Agreement.
(n) TRANSACTION COSTS AGREEMENT. EQR shall have executed and
delivered the Transaction Costs Agreement.
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ARTICLE 7
---------
TERMINATION, AMENDMENT AND WAIVER
---------------------------------
7.1 TERMINATION. This Agreement may be terminated at any time prior to
the filing of the Articles of Merger with the Department, whether before or
after either of the Shareholder Approvals are obtained:
(a) by mutual written consent duly authorized by the respective Boards
of Trustees of EQR and Wellsford;
(b) by EQR, upon a breach of any representation, warranty, covenant,
obligation or agreement on the part of Wellsford set forth in this
Agreement, in either case such that the conditions set forth in Section
6.2(a) or Section 6.2(b), as the case may be, would be incapable of being
satisfied by August 1, 1997 (or as otherwise extended);
(c) by Wellsford, upon a breach of any representation, warranty,
covenant obligation or agreement on the part of EQR set forth in this
Agreement, in either case such that the conditions set forth in Section
6.3(a) or Section 6.3(b), as the case may be, would be incapable of being
satisfied by August 1, 1997 (or as otherwise extended);
(d) by either EQR or Wellsford, if any judgment, injunction, order,
decree or action by any Governmental Entity of competent authority
preventing the consummation of the Merger shall have become final and
nonappealable;
(e) by either EQR or Wellsford, if the Merger shall not have been
consummated before August 1, 1997; provided, in the case of termination
pursuant to this Section 7.1(e), the terminating party shall not have
breached in any material respect its obligations under this Agreement in
any manner that shall have proximately contributed to the occurrence of the
failure referred to in this Section;
(f) by either EQR or Wellsford if, upon a vote at a duly held
Wellsford Shareholders Meeting or any adjournment thereof, Wellsford
Shareholder Approvals shall not have been obtained as contemplated by
Section 5.1;
(g) by either EQR or Wellsford if, upon a vote at a duly held EQR
Shareholders Meeting or any adjournment thereof, the EQR Shareholder
Approvals shall not have been obtained as contemplated by Section 5.1;
(h) by Wellsford, if prior to the Wellsford Shareholders Meeting, the
Board of Trustees of Wellsford shall have withdrawn or modified its
approval or
50
recommendation of the Merger or this Agreement in connection with, or
approved or recommended, a Superior Acquisition Proposal;
(i) by EQR if (i) prior to the Wellsford Shareholders Meeting, the
Board of Trustees of Wellsford shall have withdrawn or modified in any
manner adverse to EQR its approval or recommendation of the Merger or this
Agreement in connection with, or approved or recommended, any Superior
Acquisition Proposal, or (ii) Wellsford shall have entered into a
definitive agreement with respect to any Acquisition Proposal; and
(j) by Wellsford or EQR if the Average Closing Price is less than
$37.00 per share; provided, however, any notice of termination given
pursuant to this Section 7.1(j) shall be given within three (3) business
days after the date that such right of termination accrues.
7.2 CERTAIN FEES AND EXPENSES. If this Agreement shall be terminated (i)
pursuant to Section 7.1(h) or 7.1(i), then Wellsford will pay EQR (provided
Wellsford was not entitled to terminate this Agreement pursuant to Section
7.1(c) at the time of such termination) a fee equal to the Break-Up Fee (as
defined below), (ii) pursuant to Section 7.1(b) or 7.1(f), then Wellsford will
pay EQR (provided Wellsford was not entitled to terminate this Agreement
pursuant to Section 7.1(c) at the time of such termination) an amount equal to
the Break-Up Expenses (as defined below). If this Agreement shall be terminated
pursuant to Section 7.1(c) or 7.1(g), then EQR will pay Wellsford (provided EQR
was not entitled to terminate this Agreement pursuant to Section 7.1(b) at the
time of such termination), an amount equal to the Break-Up Expenses. If the
Merger is not consummated (other than due to the termination of this Agreement
pursuant to Section 7.1(a), 7.1(g) or 7.1(j) or EQR's failure to perform its
obligations under this Agreement in such a manner so as to entitle Wellsford to
terminate this Agreement pursuant to Section 7.1(c)) and at the time of the
termination of this Agreement an Acquisition Proposal has been received by
Wellsford, and either prior to the termination of this Agreement or within
twelve (12) months thereafter Wellsford or any Wellsford Subsidiary enters into
any written Acquisition Proposal which is subsequently consummated (whether or
not such Acquisition Proposal is the same Acquisition Proposal which had been
received at the time of the termination of this Agreement), then Wellsford shall
pay the Break-Up Fee to EQR. The payment of the Break Up Fee shall be
compensation and liquidated damages for the loss suffered by EQR as a result of
the failure of the Merger to be consummated and to avoid the difficulty of
determining damages under the circumstances and neither party shall have any
other liability to the other after the payment of the Break-Up Fee. The Break-
Up Fee shall be paid by Wellsford to EQR, or the Break-Up Expenses shall be paid
by Wellsford to EQR or EQR to Wellsford (as applicable), in immediately
available funds within fifteen (15) days after the date the event giving rise to
the obligation to make such payment occurred. As used in this Agreement,
"Break-Up Fee" shall be an amount equal to the lesser of (i) $14,000,000 plus
Break-Up Expenses (the "Base Amount") and (ii) the sum of (A) the maximum amount
that can be paid to EQR without causing it to fail to meet the requirements of
Sections 856(c)(2) and (3) of the Code determined as if the payment of such
amount did not constitute income described
51
in Sections 856(c)(2)(A)-(H) and 856(c)(3)(A)-(I) of the Code ("Qualifying
Income"), as determined by independent accountants to EQR, and (B) in the event
EQR receives a letter from outside counsel (the "Break-Up Fee Tax Opinion")
indicating that EQR has received a ruling from the IRS holding that EQR's
receipt of the Base Amount would either constitute Qualifying Income or would be
excluded from gross income within the meaning of Sections 856(c)(2) and (3) of
the Code (the "REIT Requirements") or that the receipt by EQR of the remaining
balance of the Base Amount following the receipt of and pursuant to such ruling
would not be deemed constructively received prior thereto, the Base Amount less
the amount payable under clause (A) above. Wellsford's obligation to pay any
unpaid portion of the Break-Up Fee shall terminate three years from the date of
this Agreement. In the event that EQR is not able to receive the full Base
Amount, Wellsford shall place the unpaid amount in escrow and shall not release
any portion thereof to EQR unless and until Wellsford receives any one or
combination of the following: (i) a letter from EQR's independent accountants
indicating the maximum amount that can be paid at that time to EQR without
causing EQR to fail to meet the REIT Requirements or (ii) a Break-Up Fee Tax
Opinion, in which event Wellsford shall pay to EQR the lesser of the unpaid Base
Amount or the maximum amount stated in the letter referred to in (i) above. The
"Break-Up Expenses" payable to EQR or Wellsford, as the case may be (the
"Recipient"), shall be an amount equal to the lesser of (i) $2,500,000, (ii) the
Recipient's out-of-pocket expenses incurred in connection with this Agreement
and the transactions contemplated hereby (including, without limitation, all
attorneys', accountants' and investment bankers' fees and expenses) and (iii)
the sum of (A) the maximum amount that can be paid to the Recipient without
causing it to fail to meet the requirements of Sections 856(c)(2) and (3) of the
Code determined as if the payment of such amount did not constitute Qualifying
Income, as determined by independent accountants to the Recipient, and (B) in
the event the Recipient receives a Break Up Fee Tax Opinion indicating that the
Recipient has received a ruling from the IRS holding that the Recipient's
receipt of the Expense Fee would either constitute Qualifying Income or would be
excluded from gross income within the meaning of the REIT Requirements or that
receipt by the Recipient of the remaining balance of the Expense Fee following
the receipt of and pursuant to such ruling would not be deemed constructively
received prior thereto, the Expense Fee less the amount payable under clause (A)
above. The obligation of EQR or Wellsford, as applicable ("Payor"), to pay any
unpaid portion of the Break Up Expenses shall terminate three years from the
date of this Agreement. In the event that the Recipient is not able to receive
the full Expense Fee, the Payor shall place the unpaid amount in escrow and
shall not release any portion thereof to the Recipient unless and until the
Payor receives any one or combination of the following: (i) a letter from the
Recipient's independent accountants indicating the maximum amount that can be
paid at that time to the Recipient without causing the Recipient to fail to meet
the REIT Requirements or (ii) a Break-Up Fee Tax Opinion, in which event the
Payor shall pay to the Recipient the lesser of the unpaid Expense Fee or the
maximum amount stated in the letter referred to in (i) above.
7.3 EFFECT OF TERMINATION. In the event of termination of this Agreement
by either Wellsford or EQR as provided in Section 7.1, this Agreement shall
forthwith become void and have no effect, without any liability or obligation on
the part of EQR, or Wellsford, other than
52
the last sentence of Section 5.2, Section 7.2, this Section 7.3 and Article 8;
provided that (a) if this Agreement is terminated by EQR pursuant to Section
7.1(b), Wellsford shall not be entitled to any of the benefits of Section 7.2,
or (b) if this Agreement is terminated by Wellsford pursuant to Section 7.1(c),
EQR shall not be entitled to any of the benefits of Section 7.2.
7.4 AMENDMENT. This Agreement may be amended by the parties in writing by
action of their respective Boards of Trustees at any time before or after any
Shareholder Approvals are obtained and prior to the filing of the Articles of
Merger with the Department; provided, however, that, after the Shareholder
Approvals are obtained, no such amendment, modification or supplement shall be
made which by law requires the further approval of shareholders without
obtaining such further approval.
7.5 EXTENSION; WAIVER. At any time prior to the Effective Time, the
parties may (a) extend the time for the performance of any of the obligations or
other acts of the other party, (b) waive any inaccuracies in the representations
and warranties of the other party contained in this Agreement or in any document
delivered pursuant to this Agreement or (c) subject to the proviso of Section
7.4, waive compliance with any of the agreements or conditions of the other
party contained in this Agreement. Any agreement on the part of a party to any
such extension or waiver shall be valid only if set forth in an instrument in
writing signed on behalf of such party. The failure of any party to this
Agreement to assert any of its rights under this Agreement or otherwise shall
not constitute a waiver of those rights.
ARTICLE 8
---------
GENERAL PROVISIONS
------------------
8.1 NONSURVIVAL OF REPRESENTATIONS AND WARRANTIES. None of the
representations and warranties in this Agreement or in any instrument delivered
pursuant to this Agreement confirming the representations and warranties in this
Agreement shall survive the Effective Time. This Section 8.1 shall not limit
any covenant or agreement of the parties which by its terms contemplates
performance after the Effective Time.
8.2 NOTICES. All notices, requests, claims, demands and other
communications under this Agreement shall be in writing and shall be delivered
personally, sent by overnight courier (providing proof of delivery) to the
parties or sent by telecopy (providing confirmation of transmission) at the
following addresses or telecopy numbers (or at such other address or telecopy
number for a party as shall be specified by like notice):
53
(a) if to EQR, to: Equity Residential Properties Trust
Xxx Xxxxx Xxxxxxxxx Xxxxx, Xxxxx 000
Xxxxxxx, Xxxxxxxx 00000
Attention: President
Fax No. (000) 000-0000
with a copy to: Equity Residential Properties Trust
Xxx Xxxxx Xxxxxxxxx Xxxxx, Xxxxx 000
Xxxxxxx, Xxxxxxxx 00000
Attention: Xxxxx X. Xxxxxx, Esq.
Fax No. (000) 000-0000
Xxxxxxx & Xxxxx
000 X. XxXxxxx Xx., Xxxxx 0000
Xxxxxxx, Xxxxxxxx 00000
Attention: Xxxxx X. Xxxxxxxx, Esq.
Fax No. (000) 000-0000
(b) if to Wellsford, to: Wellsford Residential Property Trust
000 Xxxxx Xxxxxx, 0xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: President
Fax No. (000) 000-0000
with a copy to: Xxxxxxxx Xxxxxxxxx Xxxxxx Xxxxxxxx &
Xxxxxx LLP
1290 Avenue of the Americas
Xxx Xxxx, Xxx Xxxx 00000-0000
Attention: Xxxx X. Xxxxxx, Esq.
Fax No. (000) 000-0000
All notices shall be deemed given only when actually received.
8.3 INTERPRETATION. When a reference is made in this -Agreement to a
Section, such reference shall be to a Section of this Agreement unless otherwise
indicated. The table of contents and headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. Whenever the words "include", "includes" or
"including" are used in this Agreement, they shall be deemed to be followed by
the words "without limitation."
8.4 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other party.
54
8.5 ENTIRE AGREEMENT; NO THIRD-PARTY BENEFICIARIES. This Agreement, the
Wellsford Disclosure Letter, the EQR Disclosure Letter, the Confidentiality
Agreement and the other agreements entered into in connection with the
Transactions (a) constitute the entire agreement and supersede all prior
agreements and understandings, both written and oral, between the parties with
respect to the subject matter of this Agreement and (b) except as provided in
Section 5.10 (with respect to the Schedule 5.10 Employees who do not receive
Retention Program Letters) and Section 5.11 ("Third Party Provisions"), are not
intended to confer upon any person other than the parties hereto any rights or
remedies. The Third Party Provisions may be enforced by the beneficiaries
thereof or on behalf of the beneficiaries thereof by the trustees of Wellsford
who had been trustees of Wellsford prior to the Effective Time.
8.6 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF MARYLAND, REGARDLESS OF THE LAWS THAT
MIGHT OTHERWISE GOVERN UNDER APPLICABLE PRINCIPLES OF CONFLICT OF LAWS THEREOF.
8.7 ASSIGNMENT. Neither this Agreement nor any of the rights, interests
or obligations under this Agreement shall be assigned or delegated, in whole or
in part, by operation of law or otherwise by any of the parties without the
prior written consent of the other parties. Subject to the preceding sentence,
this Agreement will be binding upon, inure to the benefit of, and be enforceable
by, the parties and their respective successors and assigns.
8.8 ENFORCEMENT. The parties agree that irreparable damage would
occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached.
It is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement in any court of the United States
located in the State of Illinois or New York or in any Illinois or New York
State court located in Illinois or New York, this being in addition to any other
remedy to which they are entitled at law or in equity. In addition, each of the
parties hereto (a) consents to submit itself (without making such submission
exclusive) to the personal jurisdiction of any federal court located in the
State of Illinois or New York or any Illinois or New York State court in the
event any dispute arises out of this Agreement or any of the transactions
contemplated by this Agreement and (b) agrees that it will not attempt to deny
or defeat such personal jurisdiction by motion or other request for leave from
any such court.
8.9 SEVERABILITY. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of
this Agreement is so
55
broad as to be unenforceable, the provision shall be interpreted to be only so
broad as is enforceable.
8.10 NON-RECOURSE.
(a) This Agreement and all documents, agreements, understandings and
arrangements relating hereto have been entered into or executed on behalf of
Wellsford by the undersigned in his capacity as a trustee or officer of
Wellsford, which has been formed as a Maryland real estate investment trust
pursuant to an Amended and Restated Declaration of Trust of Wellsford dated as
of November 2, 1992, as amended and restated, and not individually, and neither
the trustees, officers nor shareholders of Wellsford shall be personally bound
or have any personal liability hereunder. EQR shall look solely to the assets
of Wellsford for satisfaction of any liability of Wellsford with respect to this
Agreement and any other agreements to which it is a party. EQR will not seek
recourse or commence any action against any of the shareholders of Wellsford or
any of their personal assets, and will not commence any action for money
judgments against any of the trustees or officers of Wellsford or seek recourse
against any of their personal assets, for the performance or payment of any
obligation of Wellsford hereunder or thereunder.
(b) This Agreement and all documents, agreements, understandings and
arrangements relating hereto have been entered into or executed on behalf of EQR
by the undersigned in his capacity as a trustee or officer of EQR, which has
been formed as a Maryland real estate investment trust pursuant to an Amended
and Restated Declaration of Trust of EQR dated as of August 10, 1993, as amended
and restated, and not individually, and neither the trustees, officers nor
shareholders of EQR shall be personally bound or have any personal liability
hereunder. Wellsford shall look solely to the assets of EQR for satisfaction of
any liability of EQR with respect to this Agreement and any other agreements to
which it is a party. Wellsford will not seek recourse or commence any action
against any of the shareholders of EQR or any of their personal assets, and will
not commence any action for money judgments against any of the trustees or
officers of EQR or seek recourse against any of their personal assets, for the
performance or payment of any obligation of EQR hereunder or thereunder.
56
IN WITNESS WHEREOF, EQR and Wellsford have caused this Agreement to be
signed by their respective officers thereunto duly authorized all as of the date
first written above.
EQUITY RESIDENTIAL PROPERTIES
TRUST
By:/s/ Xxxxxxx X. Xxxxxxx XX
------------------------------------------
Name: Xxxxxxx X. Xxxxxxx XX
-------------------------------------
Title: Chief Executive Officer & President
------------------------------------
WELLSFORD RESIDENTIAL PROPERTY
TRUST
By:/s/ Xxxxxx Xxxxxxxxx
------------------------------------------
Name: Xxxxxx Xxxxxxxxx
-------------------------------------
Title: President
------------------------------------
57
EXHIBIT "G"
-----------
ADJUSTMENT TO EXCHANGE RATIO
----------------------------
IF AVERAGE PRICE IS: EXCHANGE RATIO IS:
-------------------- ------------------
$40.000 0.625
$39.875 0.627
$39.750 0.629
$39.625 0.631
$39.500 0.633
$39.375 0.635
$39.250 0.637
$39.125 0.639
$39.000 0.641
$38.875 0.643
$38.750 0.645
$38.625 0.647
$38.500 0.649
$38.375 0.651
$38.250 0.654
$38.125 0.656
$38.000 0.658
$37.875 0.659
$37.750 0.660
$37.625 0.661
$37.500 0.662
$37.375 0.663
$37.250 0.664
$37.125 0.665
$37.000 0.666
G-1
