AGREEMENT AND PLAN OF MERGER
between
UNITED DOMINION REALTY TRUST, INC.
and
AMERICAN APARTMENT COMMUNITIES II, INC.
Dated September 10, 1998
TABLE OF CONTENTS
Page
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RECITALS 1
ARTICLE I THE MERGER.............................................................................................2
Section 1.1. The Merger..................................................................................2
Section 1.2. Closing.....................................................................................2
Section 1.3. Effective Time..............................................................................2
Section 1.4. Effects of the Merger.......................................................................2
Section 1.5. Articles of Incorporation and Bylaws........................................................2
Section 1.6. No Appraisal Rights.........................................................................3
ARTICLE II MERGER CONSIDERATION; EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT CORPORATIONS.......3
Section 2.1. Effect on Capital Stock.....................................................................3
Section 2.2. Adjustment to Merger and Exchange Consideration.............................................4
Section 2.3. Dividend Distributions......................................................................7
Section 2.4. Withholding Rights..........................................................................7
ARTICLE III REPRESENTATIONS AND WARRANTIES.......................................................................7
Section 3.1. Representations and Warranties of AAC.......................................................7
Section 3.2. Representations and Warranties of the Company..............................................18
ARTICLE IV COVENANTS............................................................................................24
Section 4.1. Conduct of Business by AAC.................................................................24
Section 4.2. Conduct of Business by the Company.........................................................27
Section 4.3. Delivery of Reports by the Company.........................................................27
Section 4.4. Other Actions..............................................................................27
ARTICLE V ADDITIONAL COVENANTS..................................................................................28
Section 5.1. Access to Information; Confidentiality.....................................................28
Section 5.2. Best Efforts; Notification.................................................................28
Section 5.3. Tax Treatment..............................................................................29
Section 5.4. No Solicitation of Transactions............................................................29
Section 5.5. Public Announcements.......................................................................30
Section 5.6. Transfer and Gains Taxes...................................................................30
Section 5.7. Employee Matters...........................................................................30
Section 5.8. Disposition of Benefit Plans...............................................................31
Section 5.9. Company Board of Directors.................................................................31
Section 5.10. Resignations..............................................................................32
Section 5.11. Bulk Sales Compliance.....................................................................32
Section 5.12. Financial Statements......................................................................32
Section 5.13. Executive Clubs...........................................................................32
Section 5.14. AAC Office Leases.........................................................................32
(i)
ARTICLE VI CONDITIONS PRECEDENT.................................................................................33
Section 6.1. Conditions to Each Party's Obligation to Effect the Merger.................................33
Section 6.2. Conditions to Obligations of the Company...................................................33
Section 6.3. Conditions to Obligation of AAC............................................................35
ARTICLE VII TERMINATION, AMENDMENT AND WAIVER...................................................................37
Section 7.1. Termination................................................................................37
Section 7.2. [LEFT BLANK INTENTIONALLY].................................................................38
Section 7.3. Effect of Termination......................................................................38
Section 7.4. Amendment..................................................................................38
Section 7.5. Extension; Waiver..........................................................................38
ARTICLE VIII GENERAL PROVISIONS.................................................................................38
Section 8.1. Nonsurvival of Representations and Warranties..............................................38
Section 8.2. Notices....................................................................................39
Section 8.3. Interpretation.............................................................................40
Section 8.4. Counterparts...............................................................................40
Section 8.5. Entire Agreement; Third Party Beneficiaries................................................40
Section 8.6. Governing Law..............................................................................40
Section 8.7. Assignment.................................................................................41
Section 8.8. Enforcement................................................................................41
Section 8.9. Severability...............................................................................41
Section 8.10. Non-Recourse..............................................................................41
ARTICLE IX CERTAIN DEFINITIONS..................................................................................41
Section 9.1. Certain Definitions........................................................................41
Exhibit A - Amendment of the Articles of Incorporation of the
Company designating the Series D Cumulative
Convertible Preferred Stock
Exhibit B - Form of Partnership Interest Exchange Agreement
Exhibit C - Form of Investment Agreement
Schedule A - Assigned Values of AAC Real Estate Assets
Schedule A-1 - Illustrative Balance Sheet
Schedule B - AAC Partnerships Subject to Rights of First Refusal
(ii)
AGREEMENT AND PLAN OF MERGER (the "Agreement"), dated as of September
10, 1998, between UNITED DOMINION REALTY TRUST, INC., a Virginia corporation
(the "Company"), and AMERICAN APARTMENT COMMUNITIES II, INC., a Maryland
corporation ("AAC").
RECITALS
WHEREAS, certain terms used herein shall have the meanings assigned to
them in Article IX;
WHEREAS, the Boards of Directors of the Company and AAC have determined
that it is advisable and in the best interest of their respective companies and
their stockholders to consummate the strategic business combination involving
AAC and the Company described herein, pursuant to which AAC will merge with the
Company and the Company will be the surviving corporation in such merger (the
"Merger");
WHEREAS, for U. S. Federal income tax purposes, it is intended that the
Merger qualify as a reorganization under Section 368(a) of the Internal Revenue
Code of 1986, as amended (the "Code"); and
WHEREAS, the Merger and the transactions contemplated by the
Partnership Interest Purchase and Exchange Agreement of even date (the "Exchange
Agreement") among American Apartment Communities Operating Partnership, L.P., a
Delaware limited partnership ("AAC OP"), Schnitzer Investment Corp., an Oregon
corporation ("Schnitzer"), Fox Point Ltd., an Ohio limited liability company
("Fox Point") (successor to Xxxxxxxxx II Limited Partnership, an Ohio limited
partnership), Xxxxx X. Xxxxxxxxx ("Xxxxxxxxx"), AAC Management L.L.C., a
Delaware limited liability company ("AAC Management"), United Dominion Realty,
L.P., a Virginia limited partnership (the "Company Operating Partnership"), and
the Company, pursuant to which all of the partnership interests in American
Apartment Communities II, L.P., a Delaware limited partnership ("AACLP"), will
be acquired by the Company and the Company Operating Partnership (the
"Exchange"), are together intended to constitute the acquisition by the Company
of substantially all of the assets and business of AAC and its subsidiaries and
the assumption by the Company of substantially all of their liabilities.
NOW, THEREFORE, in consideration of the representations, warranties,
covenants and agreements contained in this Agreement, and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties agree as follows:
ARTICLE I
THE MERGER
Section 1.1. The Merger.
Upon the terms and subject to the conditions set forth in this
Agreement, and in accordance with the Maryland General Corporation Law (the
"MGCL") and the Virginia Stock Corporation Act (the "VSCA"), AAC shall be merged
with the Company at the Effective Time (as defined herein). Following the
Merger, the separate corporate existence of AAC shall cease and the Company
shall continue as the surviving corporation (the "Surviving Corporation") and
shall succeed to and assume all the rights and obligations of AAC in accordance
with the MGCL and the VSCA.
Section 1.2. Closing.
The closing of the Merger will take place at a mutually agreeable time
and place and on a date to be specified by the parties, which (subject to
satisfaction or waiver of the conditions set forth in Sections 6.2 and 6.3)
shall be no later than the third business day after satisfaction or waiver of
the conditions set forth in Article VI (the "Closing Date").
Section 1.3. Effective Time.
As soon as practicable following the satisfaction or waiver of the
conditions set forth in Article VI, the parties shall file the articles of
merger or other appropriate documents for the Merger (the "Articles of Merger")
and shall make all other filings or recordings required under the MGCL and the
VSCA to effect the Merger. The Merger shall become effective at such time as the
Articles of Merger have been duly filed with the Department of Assessments and
Taxation of the State of Maryland (the "SDAT") and the Virginia State
Corporation Commission (the "VSCC") and the VSCC has issued a certificate of
merger, or at such other time as the Company and AAC shall specify in the
Articles of Merger (the time and the day the Merger becomes effective being,
respectively, the "Effective Time" and the "Effective Day"), it being understood
that the parties shall cause the Effective Time to occur on the Closing Date.
Section 1.4. Effects of the Merger.
The Merger shall have the effects set forth in the VSCA.
Section 1.5. Articles of Incorporation and Bylaws.
The Articles of Incorporation and Bylaws of the Company as in effect at
the Effective Time shall be the Articles of Incorporation and Bylaws of the
Surviving Corporation upon consummation of the Merger, except that the Articles
of Incorporation of the Surviving Corporation shall be amended as set forth in
Exhibit A.
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Section 1.6. No Appraisal Rights.
The holders of AAC Common Stock and AAC Preferred Stock (as defined
below) shall not be entitled to appraisal rights as a result of the Merger.
ARTICLE II
MERGER CONSIDERATION; EFFECT OF THE MERGER ON
THE CAPITAL STOCK OF THE CONSTITUENT CORPORATIONS
Section 2.1. Effect on Capital Stock.
By virtue of the Merger and without any action on the part of the
holders of any shares of AAC Common Stock or AAC Preferred Stock (as defined
below):
(a) Conversion of AAC Common Stock
(i) At the Effective Time, each issued and outstanding share
of Common Stock, $.01 par value, of AAC (the "AAC Common Stock") shall
be converted into $46.1824 in cash (the "Common Cash Consideration")
and 7.812742 shares of Company Series D Preferred Stock, with the
amount of Common Cash Consideration and such number of shares of
Company Series D Preferred Stock to be adjusted appropriately to
reflect the effect of any reverse stock split or combination permitted
pursuant to Section 4.1(a).
(ii) At the Effective Time, all such shares of AAC Common
Stock shall no longer be outstanding and shall automatically be
canceled and retired and all rights with respect thereto shall cease to
exist, and each holder of a certificate representing any such shares of
AAC Common Stock shall cease to have any rights with respect thereto,
except the right to receive cash and shares of Company Series D
Preferred Stock in accordance with this Section 2.1(a) and Section
2.1(c) (the "Common Merger Consideration"), without interest.
(iii) Notwithstanding the foregoing, the parties understand
that the rights of each stockholder of AAC under this Section 2.1(a)
will be subject to the stop transfer and redemption provisions
contained in Article 4 of the Articles of Incorporation of the Company
(the "Company Charter").
(iv) The Common Cash Consideration shall be subject to
adjustment as provided in Section 2.2.
(b) Conversion of AAC Preferred Stock.
(i) At the Effective Time, each issued and outstanding share
of Class A Cumulative Redeemable Preferred Stock, $.01 par value, of
AAC (the "AAC Preferred Stock") shall be converted into $46.1824 in
cash (the "Preferred Cash Consideration" and, together with the Common
Cash Consideration, the "Merger Cash Consideration") and 7.812742
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shares of Company Series D Preferred Stock, with the amount of
Preferred Cash Consideration and such number of shares of Company
Series D Preferred Stock to be adjusted appropriately to reflect the
effect of any reverse stock split or combination permitted pursuant to
Section 4.1(a).
(ii) At the Effective Time, all such shares of AAC Preferred
Stock shall no longer be outstanding and shall automatically be
canceled and retired and all rights with respect thereto shall cease to
exist, and each holder of a certificate representing any such shares of
AAC Preferred Stock shall cease to have any rights with respect
thereto, except the right to receive cash and certificates representing
the shares of Company Series D Preferred Stock in accordance with this
Section 2.1(b) and Section 2.1(c) upon surrender of such certificate
(the "Preferred Merger Consideration" and, together with the Common
Merger Consideration, the "Merger Consideration"), without interest.
(iii) Notwithstanding the foregoing, the parties understand
that the rights of each stockholder of AAC under this Section 2.1(b)
will be subject to the stop transfer and redemption provisions
contained in Article 4 of the Company Charter.
(iv) The Preferred Cash Consideration shall be subject to
adjustment as provided in Section 2.2.
(c) Cash in Lieu of Fractional Shares. Notwithstanding any other
provision hereof, no fractional shares of Company Series D Preferred Stock shall
be issued in connection with the Merger. Instead, each shareholder of AAC having
a fractional interest arising upon the conversion or exchange of such shares in
connection with the Merger shall be paid an amount in cash equal to $25
multiplied by the fraction of a share of Company Series D Preferred Stock to
which such holder would otherwise be entitled. No such holder shall be entitled
to dividends or other distributions, voting rights or any other shareholder
rights in respect of any fractional share.
(d) No Effect on Outstanding Shares of the Company. Each shareholder
of the Company whose shares were outstanding immediately before the Effective
Date will hold the same number of shares of the Surviving Corporation, with
identical designations, preferences, limitations and relative rights,
immediately thereafter.
(e) No Further Transfer of AAC Stock. At and after the Effective
Time, no transfer of any shares of AAC Common Stock and/or AAC Preferred Stock
shall be recorded on the books of AAC. The Company shall not be bound to
recognize for any purpose any transfer or purported transfer of AAC Common Stock
and/or AAC Preferred Stock occurring after the Effective Time.
Section 2.2. Adjustment to Merger and Exchange Consideration.
(a) Closing Balance Sheet. As of the Closing Date, AAC will prepare
and deliver to the Company a closing consolidated balance sheet of AAC and the
AAC Subsidiaries (as defined herein) that will reflect, as of the Closing Date,
appropriate closing adjustments and accruals made in accordance with generally
accepted accounting principles consistently applied ("GAAP"), except as provided
below (the "Closing Balance Sheet"). The Closing Balance Sheet will eliminate
(i) the historical cost of AAC's real estate assets net of accumulated
depreciation, which amount will be replaced by the values assigned to such real
estate assets on Schedule A hereto and (ii) the historical cost of AAC's
minority interest in University Village, which interest will be reflected on the
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Closing Balance Sheet at a value of $2.9 million. Giving effect to such
adjustments, AAC's assets net of its liabilities as reflected on the Closing
Balance Sheet will be referred to as the "Net Asset Value." The Closing Balance
Sheet will (w) exclude deferred financing costs, (x) exclude any intangible
assets which do not have continuing economic value and (y) not reflect any
liability associated with any promotional interests held by third parties with
respect to the AAC Properties listed under Entity Level Properties on Schedule
3.1(p) to the AAC Disclosure Letter and (z) include expenses of AAC in
connection with the Merger and the Exchange (including the fees and expenses of
counsel to AAC and AACLP, any fees and expenses of Lazard Freres & Co. LLC
("Lazard") and the fees and expenses of counsel to Lazard) accrued to the
Closing Date as a liability without recording any corresponding asset. The
Closing Balance Sheet will include the aggregate amount of AAC's indebtedness as
of the Closing Date, but will not be adjusted to reflect any changes to the
valuation of the real estate assets, leasehold interests or minority interests
referred to on Schedule A hereto. Attached hereto as Schedule A-1, by way of
illustration, is the June 30, 1998, consolidated balance sheet of AAC,
indicating in notes thereto the kinds of adjustments to be made pursuant to this
Section 2.2 to create the Closing Balance Sheet. AAC will identify to the
Company the personnel having responsibility for the accounting records utilized
in preparation of the Closing Balance Sheet and will use its best efforts to
make them available to the Company and its representatives in connection with
any review of this process the Company may undertake, for purposes of resolution
of any dispute pursuant to Section 2.2(b) or otherwise.
(b) Disputes. In the event that the Company disputes any item(s) on
the Closing Balance Sheet, the Company shall deliver a detailed statement
describing such objections to AAC within 60 days after receiving the Closing
Balance Sheet. AAC and the Company will use reasonable efforts to resolve any
such objections themselves. If the parties are unable to obtain a final
resolution within 30 days, AAC and the Company will submit any unresolved
objections to Ernst & Young LLP for resolution. The determination of Ernst &
Young LLP shall be conclusive, final and binding on the parties.
(c) Adjustments to Transaction Consideration. The aggregate Merger
Consideration and the aggregate consideration provided for in Section 1 of the
Exchange Agreement (together, the "Aggregate Consideration") will be adjusted as
follows:
(i) If the Net Asset Value, as reflected on the Closing
Balance Sheet as finally determined, is less than $336.5 million, then
the Aggregate Consideration will be decreased in an amount equal to the
excess of $336.5 million over the Net Asset Value as reflected on the
Closing Balance Sheet as finally determined;
(ii) If the Net Asset Value, as reflected on the Closing
Balance Sheet as finally determined, is greater than $336.5 million,
then the Aggregate Consideration will be increased in an amount equal
to the excess of the Net Asset Value as reflected on the Closing
Balance Sheet as finally determined over $336.5 million;
5
(iii) If the Net Asset Value, as reflected on the Closing
Balance Sheet as finally determined, is equal to $336.5 million, then
there will be no adjustment to the Aggregate Consideration pursuant to
this paragraph (c); and
(iv) The amount of any increase or decrease in the Aggregate
Consideration shall be allocated among the holders of partnership
interests in AACLP (the "AACLP Interest Holders") based on Section 5.2
of the Second Amended and Restated Agreement of Limited Partnership of
AACLP, as amended and supplemented (the "AACLP Partnership Agreement").
(No portion of any increase or decrease shall be allocated to the
Redeemable Preferred Capital of AACLP.) The portion of such increase or
decrease allocated to AAC shall increase or decrease, as the case may
be, dollar for dollar the aggregate Merger Cash Consideration and shall
increase or decrease the aggregate Common Cash Consideration and
aggregate Preferred Cash Consideration pro rata, and the increases or
decreases in the aggregate Common Cash Consideration and aggregate
Preferred Cash Consideration shall increase or decrease the per share
Common Cash Consideration and per share Preferred Cash Consideration,
respectively, on the basis of the number of shares of AAC Common Stock
and AAC Preferred Stock, respectively, issued and outstanding on the
Closing Date. The portion of such increase or decrease allocated to the
AACLP Interest Holders other than AAC shall increase or decrease, as
the case may be, the consideration provided for in Section 1 of the
Exchange Agreement as follows. Any increase or decrease allocated to
each such holder shall be applied dollar for dollar to the cash portion
of such consideration with respect to each such AACLP Interest Holder
other than AAC OP. Any increase or decrease allocated to AAC OP shall
increase or decrease the number of UDR Units issuable to AAC OP on the
basis of a UDR Unit value of $14.25.
(d) Adjustments for Rights of First Refusal. In the event that any
third party exercises its right of first refusal in respect of AAC's interests
in any of the AAC Partnerships listed on Schedule B hereto (the "Rights of First
Refusal") and such interests are purchased before the Closing Date for an amount
which exceeds the amount allocated to such AAC Partnership set forth on Schedule
B, then the Aggregate Consideration shall be increased by such excess. Any such
increase shall be allocated in accordance with Section 2.2(c).
(e) Holdback. An aggregate of $3,000,000 of cash shall be withheld
by the Company from the Aggregate Consideration (the "Holdback Amount"). The
Holdback Amount will be used to pay liabilities not disclosed in the Closing
Balance Sheet and the schedules to the AAC Disclosure Letter that are required
to be so disclosed under GAAP. On the 60th day following the Closing Date, the
balance of the Holdback Amount, including any interest which has accrued
thereon, will be distributed to the former shareholders of AAC and the limited
partners of AACLP as directed by a former executive officer of AAC to be
designated by AAC at or before the Closing. Any dispute regarding the propriety
of any deductions to the Holdback Amount will be resolved by the parties
themselves or, if the parties are unable to so agree, by Ernst & Young LLP in
the manner described in Section 2.2(b).
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Section 2.3. Dividend Distributions.
In order to satisfy the requirements of Section 857(a)(1) of the Code
for the taxable year of AAC ending at the Closing Date (and to avoid the payment
of tax with respect to undistributed income), AAC shall declare a dividend on
one or more classes of its outstanding capital stock (the "Final AAC REIT
Dividend"), the record date for which shall be approximately five business days
prior to the Closing Date, in an amount that the Company and AAC shall agree is
equal to the minimum dividend sufficient (taking into account expected revenue
and expenses through the day prior to the Closing Date) to permit AAC to satisfy
such requirements. If AAC determines it necessary to declare the Final AAC REIT
Dividend, it shall notify the Company prior to the Closing Date. The Final AAC
REIT Dividend shall be paid on the close of business on the last business day
prior to the Closing Date.
Section 2.4. Withholding Rights.
The Company shall be entitled to deduct and withhold from any Merger
Consideration otherwise payable pursuant to this Agreement to any holder of
shares of AAC Common Stock or AAC Preferred Stock such amounts as the Company is
required to deduct and withhold with respect to the making of such payment under
the Code, or any provision of state, local or foreign tax law. To the extent
that amounts are so withheld by the Company, such withheld amounts shall be
treated for all purposes of this Agreement as having been paid to the holder of
the shares of AAC Common Stock or AAC Preferred Stock, in respect of which such
deduction and withholding was made by the Company.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
Section 3.1. Representations and Warranties of AAC.
AAC represents and warrants to the Company as follows:
(a) Organization, Standing and Corporate Power of AAC. AAC is a
corporation duly organized and validly existing under the laws of Maryland and
has the requisite corporate power and authority to carry on its business as now
being conducted. AAC 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, leasing of its properties or management of properties for others
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 AAC and the
AAC Entities (as defined herein), taken as a whole (an "AAC Material Adverse
Effect").
(b) (AAC Subsidiaries and Investees.
(i) Schedule 3.1(b)(i)(1) to the AAC Disclosure Letter is a
true and complete list of all corporations with respect to which AAC
7
operates, owns or otherwise controls, directly or indirectly through
one or more subsidiaries, partnerships, joint ventures or other
business associations, a majority of the outstanding voting securities
(the "AAC Subsidiaries"). Schedule 3.1(b)(i)(1) to the AAC Disclosure
Letter accurately sets forth for each AAC Subsidiary (a) its name and
jurisdiction of incorporation, (b) the number of shares of authorized
capital stock of each class of its capital stock, (c) the number of
issued and outstanding shares of each class of its capital stock, the
names of the holders thereof and the number of shares held by each such
holder and (d) the number of shares of its capital stock held in
treasury (if any). Except as set forth on Schedule 3.1(b)(i)(1) to the
AAC Disclosure Letter, all of the issued and outstanding shares of
capital stock of each AAC Subsidiary have been duly authorized and are
validly issued, fully paid and nonassessable. All of the issued and
outstanding shares of capital stock of each AAC Subsidiary are owned of
record and beneficially by AAC and/or by another AAC Subsidiary free
and clear of any and all restrictions on transfer (other than
restrictions under the Securities Act and state securities laws),
taxes, mortgages, liens, encumbrances, charges, pledges, impositions,
security interests, options, warrants, purchase rights, contracts,
commitments, equities, claims and demands ("Liens"). There are no
outstanding or authorized options, warrants, purchase rights,
conversion rights, exchange rights or other contracts or commitments
that could require AAC to sell, transfer or otherwise dispose of any
capital stock of any of the AAC Subsidiaries or that could require any
AAC Subsidiary to issue, sell or otherwise cause to become outstanding
any of its own capital stock. There are no outstanding stock
appreciation, phantom stock, profit participation or similar rights
with respect to any AAC Subsidiary. There are no voting trusts, proxies
or other agreements or understandings with respect to the voting of any
capital stock of any AAC Subsidiary. Each AAC 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. Except
for the AAC Subsidiaries set forth on Schedule 3.1(b)(i)(1) to the AAC
Disclosure Letter, which in the aggregate do not represent a material
percentage of the total value of the AAC Subsidiaries taken as a whole,
each AAC 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, leasing of its properties or management of
properties for others 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 an AAC
Material Adverse Effect. Schedule 3.1(b)(i)(2) to the AAC Disclosure
Letter is a true and complete list of all corporations, other than the
Subsidiaries, with respect to which AAC has owned or otherwise
controlled, within the last five years, a majority of the outstanding
voting securities (the "Former AAC Subsidiaries") and accurately sets
forth for each Former AAC Subsidiary (a) its name and jurisdiction of
incorporation, (b) the nature and extent of AAC's interest in such
Former AAC Subsidiary, (c) the date such interest was disposed of and
(d) the manner of such disposition.
(ii) Schedule 3.1(b)(ii)(3) to the AAC Disclosure Letter is a
true and complete list of all corporations with respect to which AAC
owns or otherwise controls, directly or indirectly through one or more
subsidiaries, partnerships, joint ventures or other business
associations, less than a majority of the outstanding voting securities
(the "AAC Investees"). Schedule 3.1(b)(ii)(3) to the AAC Disclosure
8
Letter accurately sets forth for each AAC Investee (a) its name and
jurisdiction of incorporation, (b) the number of shares of authorized
capital stock of each class of its capital stock and (c) the number of
issued and outstanding shares of each class of its capital stock held
by AAC. All of the issued and outstanding shares of capital stock of
each AAC Investee owned by AAC have been duly authorized and are
validly issued, fully paid and nonassessable. All of the issued and
outstanding shares of capital stock of each AAC Investee are owned of
record and beneficially by AAC and/or by another AAC Subsidiary free
and clear of any and all Liens. There are no outstanding or authorized
options, warrants, purchase rights, conversion rights, exchange rights
or other contracts or commitments that could require AAC to sell,
transfer or otherwise dispose of any capital stock of any of the AAC
Investees. There are no voting trusts, proxies or other agreements or
understandings with respect to the voting of any capital stock of any
AAC Investee owned by AAC. Schedule 3.1(b)(ii)(4) to the AAC Disclosure
Letter is a true and complete list of all corporations, other than the
AAC Investees, with respect to which AAC has owned or otherwise
controlled, within the last five years, less than a majority of the
outstanding voting securities (the "Former AAC Investees") and
accurately sets forth for each Former AAC Investee (a) its name and
jurisdiction of incorporation, (b) the nature and extent of AAC's
interest in such Former AAC Investee, (c) the date such interest was
disposed of and (d) the manner of such disposition.
(c) AAC Partnerships. Schedule 3.1(c)(1) to the AAC Disclosure
Letter is a true and complete list of all of the partnerships, joint ventures,
limited liability entities, trusts and other business associations (the "AAC
Partnerships" and together with AAC and the AAC Subsidiaries, "AAC Entities") in
which AAC and/or any AAC Subsidiary or AAC Partnership is a participant and
accurately sets forth (a) the name and jurisdiction of organization of each AAC
Partnership and (b) the nature and extent of AAC's or any other owner's interest
in each AAC Partnership. Such interests in the AAC Partnerships are owned free
and clear of any Liens. Except for the AAC Partnerships set forth on Schedule
3.1(c)(1) to the AAC Disclosure Letter, which in the aggregate do not represent
a material percentage of the total value of the AAC Partnerships taken as a
whole, each AAC Partnership 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. Except for the Entity
Level Investments set forth on Schedule 3.1(c)(2) to the AAC Disclosure Letter,
there are no outstanding contracts or commitments that could require any of the
AAC Partnerships to admit additional participants or require any AAC Entity to
sell, transfer or otherwise dispose of its interest in any AAC Partnership.
Schedule 3.1(c)(3) to the AAC Disclosure Letter is a true and complete list of
all of the partnerships, joint ventures and other business associations, other
than the AAC Partnerships, in which any AAC Entity has been a participant in the
last five years (the "Former AAC Partnerships") and accurately sets forth for
each Former AAC Partnership (a) the type of entity, (b) its name and
jurisdiction of organization, (c) the nature and extent of any AAC Entity's
interest in such Former AAC Partnership, (d) the date such interest was disposed
of and (e) the manner of such disposition. AAC does not own, and has not within
the last five years owned, any equity interest in any entity except the AAC
Subsidiaries, the Former AAC Subsidiaries, the AAC Investees, the Former AAC
Investees, the AAC Partnerships and the Former AAC Partnerships.
9
(d) Capital Structure. AAC has authority to issue 10,400,100 shares
of capital stock, par value $.01 per share, consisting of 100 shares of Class A
Nonvoting Common Stock, $.01 par value (the "AAC Nonvoting Common Stock"),
10,000,000 shares of AAC Common Stock and 400,000 shares of preferred stock, of
which 300,000 are classified as AAC Preferred Stock and 100,000 are without
class designation. On the date hereof, no shares of Nonvoting AAC Common Stock,
853,968.26 shares of AAC Common Stock and 170,000 shares of AAC Preferred Stock
were issued and outstanding. On the date of this Agreement, except as set forth
above in this Section 3.1 or in a Schedule to the AAC Disclosure Letter referred
to above in this Section 3.1, no shares of capital stock or other voting
securities of AAC or any AAC Subsidiary were issued, reserved for issuance or
outstanding. All outstanding shares of capital stock of AAC are duly authorized,
validly issued, fully paid and nonassessable and not subject to preemptive
rights. Except (A) for the AAC OP Units, (B) as set forth in Schedule 3.1(d) to
the AAC Disclosure Letter, and (C) as otherwise permitted under Section 4.1,
there are no outstanding securities, options, stock appreciation rights,
warrants, calls, rights, commitments, agreements, arrangements or undertakings
of any kind to which AAC or any AAC Subsidiary is a party or by which such
entity is bound, obligating AAC or any AAC Subsidiary to issue, deliver or sell,
or cause to be issued, delivered or sold, additional shares of capital stock,
voting securities or other ownership interests of AAC or any AAC Subsidiary or
obligating AAC or any AAC Subsidiary to issue, grant, extend or enter into any
such security, option, warrant, call, right, commitment, agreement, arrangement
or undertaking.
(e) Authority; Noncontravention; Consents. AAC has the requisite
corporate power and authority to enter into this Agreement and to consummate the
Merger and the other transactions contemplated by this Agreement. The execution
and delivery of this Agreement by AAC and the consummation by AAC of the
transactions contemplated hereby to which AAC is a party have been duly
authorized and approved by the Board of Directors of AAC in the manner required
by AAC's Articles of Incorporation and Bylaws and by applicable law. This
Agreement has been duly executed and delivered by AAC and constitutes a valid
and binding obligation of AAC, enforceable against AAC in accordance with its
terms. Except as set forth in Schedule 3.1(e) to the AAC Disclosure Letter, the
execution and delivery of this Agreement by AAC does not, and the consummation
of the transactions contemplated hereby to which AAC is a party and compliance
by AAC 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 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 AAC or any
AAC Subsidiary under, (i) the charter or bylaws or the comparable charter or
organizational documents or partnership or similar agreement (as the case may
be) of any AAC Entity, each as amended or supplemented to the date of this
Agreement, (ii) any loan or credit agreement, note, bond, mortgage, indenture,
lease or agreement to acquire real property, or any other material contract,
agreement, arrangement or understanding to which any AAC Entity is a party or by
which it or any of its properties is bound, or (iii) subject to the governmental
filings and other matters referred to in the following sentence, any judgment,
decree, statute, law, ordinance, rule, regulation or order of any Governmental
Entity (as defined herein) (collectively, "Laws") applicable to any AAC Entity,
or its respective business, properties, operations or assets, other than, in the
case of clause (ii) or (iii), any such conflicts, violations, defaults, rights
or Liens that individually or in the aggregate would not (x) have an AAC
Material Adverse Effect or (y) prevent the consummation of the Merger or the
other transactions contemplated hereby. No consent, approval, order or
authorization of, or registration, declaration or filing with, any federal,
10
state or local government or any court, administrative or regulatory agency or
commission or other governmental authority or agency (a "Governmental Entity")
is required by or with respect to any AAC Entity in connection with the
execution and delivery of this Agreement by AAC or the consummation by AAC of
any of the transactions contemplated hereby and thereby, except for (i) the
filing of the Articles of Merger with the SDAT and the VSCC, the acceptance for
record of the Articles of Merger by the SDAT and the issuance of a certificate
of merger by the VSCC, (ii) such filings as may be required in connection with
the payment of any Transfer and Gains Taxes (as defined herein) and (iii) such
other consents, approvals, orders, authorizations, registrations, declarations
and filings (A) as are set forth in Schedule 3.1(e) to the AAC Disclosure
Letter, (B) as may be required under federal, state, local or foreign
Environmental Laws (as defined herein), (C) as may be required under the "blue
sky" laws of various states or (D) which, if not obtained or made, would not
prevent or delay in any material respect the consummation of the Merger or the
other transactions contemplated hereby or otherwise prevent AAC from performing
its obligations under this Agreement in any material respect or have,
individually or in the aggregate, an AAC Material Adverse Effect. For purposes
of determining compliance with the Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act
of 1976, as amended (the "HSR Act"), AAC confirms that the conduct of its
business consists solely of investing in, owning, developing and operating real
estate for the benefit of its shareholders.
(f) Financial Statements; Undisclosed Liabilities. The audited
consolidated financial statements and the notes thereto of AAC and of AACLP for
the years ended December 31, 1997 and 1996, the unaudited consolidated financial
statements and the notes thereto for the six months ended June 30, 1998 and the
nine months ended September 30, 1998 if the Closing Date occurs after September
30, 1998, copies of which have been heretofore delivered by AAC and AACLP to the
Company, except as noted therein, have been prepared in accordance with GAAP and
fairly present, in accordance with the applicable requirements of GAAP, the
consolidated financial position of AAC and AACLP, each 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 interim financial statements, to
normal year-end adjustments). The Closing Balance Sheet, except as provided in
Section 2.2(a), will be prepared in accordance with GAAP. Except for liabilities
and obligations set forth in Schedule 3.1(f) to the AAC Disclosure Letter, no
AAC Entity has any liabilities or obligations not reflected in the financial
statements of any nature (whether accrued, contingent or otherwise) required by
GAAP to be set forth on a consolidated balance sheet of AAC or in the notes
thereto and that, individually or in the aggregate, would have an AAC Material
Adverse Effect.
(g) Absence of Certain Changes or Events. Except as disclosed in
Schedule 3.1(g) to the AAC Disclosure Letter, since the date of the most recent
audited financial statements of AAC (the "AAC Financial Statement Date") and to
the date of this Agreement, but not thereafter with respect to clause (a) of
this Section 3.1(g), the AAC Entities have conducted their business only in the
ordinary course and there has not been (a) any material adverse change in the
business, financial condition or results of operations of the AAC Entities taken
as a whole, that has resulted or would result, individually or in the aggregate,
11
in AAC Economic Losses (as defined in Section 6.2(a) below) of $8,000,000 or
more (an "AAC 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 AAC Material Adverse Change, (b) except for regular quarterly
distributions of the AAC Common Stock and the AAC Preferred Stock covering the
period through the Closing Date at a rate not to exceed in the aggregate on an
annual basis 9% of the value of the capital accounts of the AACLP partners, any
declaration, setting aside or payment of any dividend or other distribution
(whether in cash, stock or property) with respect to the AAC Common Stock and
AAC Preferred Stock, (c) any split, combination or reclassification of any AAC
Common Stock and AAC Preferred Stock 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 AAC Entity
except as contemplated by this Agreement, (d) any damage, destruction or loss,
whether or not covered by insurance, that has or would have an AAC Material
Adverse Effect, (e) any change in accounting methods, principles or practices by
any AAC Entity materially affecting its assets, liabilities or business, except
insofar as may have been disclosed in Schedule 3.1(g) to the AAC Disclosure
Letter or required by a change in GAAP, or (f) any amendment of any employment,
consulting, severance, retention or any other agreement between any AAC Entity
and any officer or director of any AAC Entity, other than as provided in Section
4.1(k) of this Agreement.
(h) Litigation. Except as disclosed in Schedule 3.1(h) to the AAC
Disclosure Letter, and other than personal injury and other routine tort
litigation arising from the ordinary course of operations of the AAC Entities
that is covered by adequate insurance, there is no suit, action, claim,
proceeding or governmental investigation pending or threatened against or
affecting any AAC Entity that, individually or in the aggregate, could
reasonably be expected to (i) have an AAC Material Adverse Effect or (ii)
prevent the consummation of the Merger or any of the other transactions
contemplated hereby, nor is there any judgment, decree, injunction, rule or
order of any Governmental Entity or arbitrator outstanding against any AAC
Entity having, or that, insofar as reasonably can be foreseen, in the future
would have, any such effect.
(i) (Absence of Changes in Benefit Plans; ERISA Compliance.
(i) Except as disclosed in Schedule 3.1(i)(i) to the AAC
Disclosure Letter, since the date of the most recent audited financial
statements of AAC, there has not been any adoption or amendment in any
material respect by any AAC Entity 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 AAC or any AAC Subsidiary or
any person affiliated with AAC under Section 414(b), (c), (m) or (o) of
the Code (collectively, "AAC Benefit Plans").
12
(ii) Except as described in Schedule 3.1(i)(ii) to the AAC
Disclosure Letter or as would not have an AAC Material Adverse Change,
(A) all AAC Benefit Plans, 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
with all applicable requirements of law, including ERISA and the Code
and (B) no AAC Entity has any liabilities or obligations with respect
to any such AAC Benefit Plan, whether accrued, contingent or otherwise
(other than obligations to make contributions and pay benefits and
administrative costs incurred in the ordinary course), nor are any such
liabilities or obligations expected to be incurred. Except as set forth
in Schedule 3.1(i)(ii) to the AAC Disclosure Letter, the execution of,
and performance of the Transactions contemplated in, this Agreement
will not (either alone or together with the occurrence of any
additional or subsequent events) constitute an event under any AAC
Benefit Plan, policy, arrangement or agreement, 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 or director. The only severance agreements or severance
policies applicable to the AAC Entities are the agreement and policies
specifically referred to in Schedule 3.1(i)(ii) to the AAC Disclosure
Letter.
(j) (Taxes.
(i) Each AAC Entity has timely filed all Tax Returns (as
defined herein) required to be filed by it (after giving effect to any
filing extension properly granted by a Governmental Entity having
authority to do so). Each such Tax Return is true, correct and complete
in all material respects. Each AAC Entity has paid (or AAC has paid on
its behalf), within the time and manner prescribed by law, all Taxes
(as defined herein) that are due and payable. The most recent financial
statements described in Section 3.1(f) reflect an adequate reserve for
all taxes payable by the Company for all taxable periods and portions
thereof accrued through the date of such Financial Statements. As of
the date hereof, no AAC Entity has received notice that any federal,
state and local income or franchise tax return of such AAC Entity has
been or will be examined by any taxing authority. No AAC Entity has
executed or filed with the Internal Revenue Service or any other taxing
authority any agreement now in effect extending the period for
assessment or collection of any income or other taxes. Except as
disclosed on Schedule 3.1(j)(i) to the AAC Disclosure Letter, no AAC
Entity is a party to any pending action or proceeding by any
governmental authority for assessment or collection of taxes, and no
claim for assessment or collection of taxes has been asserted against
it. True, correct and complete copies of all federal, state and local
income or franchise tax returns filed by each AAC Entity and all
communications relating thereto have been delivered to the Company or
made available to representatives of the Company. As used in this
Agreement, "Taxes" shall mean any federal, state, local or foreign
income, gross receipts, license, payroll, employment withholding,
property, sales, excise or other tax or governmental charges of any
nature whatsoever, together with any penalties, interest or additions
thereto and "Tax Return" shall mean any return, declaration, report,
claim for refund, or information return or statement relating to Taxes,
including any schedule or attachment thereto, and including any
amendment thereof.
13
(ii) AAC (A) for all of its taxable years commencing with the
year ended December 31, 1996 through December 31, 1997, has been
subject to taxation as a real estate investment trust ("REIT") within
the meaning of Section 856 of the Code and has satisfied the
requirements to qualify as a REIT for such years, except with respect
to the filing of AAC's 1997 Federal income tax return and the making of
the applicable elections thereon (B) has operated, and intends to
continue to operate, in such a manner as to qualify as a REIT for its
tax year ending on the Effective Day and (C) has not taken or omitted
to take any action that could reasonably be expected to result in a
challenge to its status as a REIT, and no such challenge is pending or
threatened. AAC has no undistributed earnings and profits allocable to
any taxable period during which it or any predecessor in interest was
subject to taxation as a corporation. AACLP has at all times, and each
other AAC Entity that is a partnership or files Tax Returns as a
partnership for federal income tax purposes has since its acquisition
by AAC, been classified for federal income tax purposes as a
partnership and not as a corporation or as an association taxable as a
corporation. Each of the AAC Subsidiaries that is a corporation for
federal income tax purposes is a "qualified REIT subsidiary" as defined
in Section 856(i) of the Code. No AAC Entity holds any asset (i) the
disposition of which could be subject to rules similar to Section 1374
of the Code as a result of an election under IRS Notice 88-19 or (ii)
that is subject to a consent filed pursuant to Section 341(f) of the
Code and regulations thereunder.
(iii) AAC has no reason to believe that any conditions exist
that could reasonably be expected to prevent the Merger from qualifying
as a reorganization within the meaning of Section 368(a) of the Code.
(k) No Loans or Payments to Employees, Officers or Directors. Except
as set forth in Schedule 3.1(k) to the AAC Disclosure Letter or as otherwise
specifically provided for in this Agreement, there is no (i) loan outstanding
from or to any employee or director, (ii) employment or severance contract or
other arrangement with respect to severance, (iii) other agreement requiring
payments to be made on a change of control or otherwise as a result of the
consummation of the merger or any of the other transactions contemplated hereby
with respect to any employee, officer or director of any AAC Entity or (iv) any
agreement to appoint or nominate any person as a director of any AAC Entity.
(l) Brokers. Other than Lazard, no broker, investment banker,
financial advisor or other person 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
AAC or any AAC Subsidiary.
(m) Compliance with Laws. Except as set forth in Schedule 3.1(m) to
the AAC Disclosure Letter, no AAC Entity has violated or failed to comply in any
material respect with any Law applicable to its business, properties, operations
or assets, except for violations and failures to comply that would not,
individually or in the aggregate, reasonably be expected to result in an AAC
Material Adverse Effect.
14
(n) Contracts; Debt Instruments. No AAC Entity is in violation of or
in default under, in any material respect (nor 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, or any agreement to acquire real property, 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
("Material Contracts"), except as set forth in Schedule 3.1(n) to the AAC
Disclosure Letter and except for violations or defaults that would not,
individually or in the aggregate, result in an AAC Material Adverse Effect.
Schedule 3.1(n) is a true and complete list of all Material Contracts.
(o) Environmental Matters. Except as disclosed in Schedule 3.1(o) to
the AAC Disclosure Letter or in the environmental audits/reports listed thereon,
each AAC Entity has obtained all material licenses, permits, authorizations,
approvals and consents from Governmental Entities that are required in respect
of its business, operations, assets or properties under any applicable
Environmental Law (as defined below) and each AAC Entity is in compliance in all
material respects with the terms and conditions of all such licenses, permits,
authorizations, approvals and consents and with any applicable Law of any
Governmental Entity relating to human health, safety or protection of the
environment ("Environmental Laws"), except for violations and failures to
comply, individually or in the aggregate, that would not have an AAC Material
Adverse Effect.
(p) AAC Properties. Except as listed in Schedule 3.1(p) to the AAC
Disclosure Letter, (i) an AAC Entity owns fee simple title to or has a valid
leasehold interest in each of the real properties identified in Schedule 3.1(p)
to the AAC Disclosure Letter (the "AAC Properties"), which are all of the real
estate properties owned or leased by them; (ii) the AAC Properties are not
subject to any liens, mortgages, deeds of trust, claims against title, security
interests, rights of way, written agreements, laws, ordinances and regulations
affecting building use or occupancy, reservations of an interest in title or
other encumbrances on title (collectively, "Encumbrances"), except for (a)
Encumbrances imposed or promulgated by law or any Governmental Entity with
respect to real property, including zoning regulations, provided they do not
materially adversely affect the current use of the AAC Properties, (b) liens for
real estate taxes that are not yet due and payable, (c) mechanics', carriers',
workmen's, repairmen's liens and similar Encumbrances that have heretofore been
bonded or which individually or in the aggregate do not exceed $100,000, do not
materially detract from the value of or materially interfere with the present
use of any of the AAC Properties subject thereto or affected thereby and do not
otherwise materially impair business operations conducted by the AAC Entities
and which have arisen or been incurred only in its construction activities or in
the ordinary course of business, (d) rights of parties in possession, (e)
15
matters that would be disclosed by an accurate survey, (f) existing mortgages or
deeds of trust and (g) exceptions to title disclosed in the title policies
covering the AAC Properties and any other, easements, rights-of-way,
restrictions (including zoning restrictions), matters of plat, minor defects or
irregularities in title, license or lease agreements for laundry, cable
television, telephone and other similar liens which, in the aggregate, do not
materially reduce the value of the AAC Properties or materially interfere with
the operation and use of, or the ordinary conduct of the business on, the AAC
Properties; (iii) valid policies of title insurance have been issued insuring
the applicable AAC Entity's fee simple title or leasehold estates to the AAC
Properties except as noted therein, and such policies are, at the date hereof,
in full force and effect and no claim has been made against any such policy;
(iv) there is no certificate, permit or license from any Governmental Entity
having jurisdiction over any of the AAC Properties or any agreement, easement or
any other right which is necessary to permit the lawful use and operation of the
buildings and improvements on any of the AAC 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 AAC Properties that has not been
obtained and is not in full force and effect, or any pending threat of
modification or cancellation of any of same, nor any proposed material change in
the route, grade or width of, or otherwise affecting, any street, road or other
means of egress and ingress to or serving any of the AAC Properties that would
not individually or in the aggregate be expected to result in an AAC Material
Adverse Effect; and (v) except as disclosed on Schedule 3.1(p) to the AAC
Disclosure Letter, no AAC Entity has received notice to the effect that (a)
condemnation or rezoning or proceedings are pending or threatened with respect
to any of the AAC Properties or (b) zoning, building or similar laws, codes,
ordinances, orders or regulations are or will be violated by the continued
maintenance, operation or use of any buildings or other improvements on any of
the AAC Properties or by the continued maintenance, operation or use of the
parking areas.
(q) Warranties and Guaranties. Except as listed in Schedule 3.1(q)
to the AAC Disclosure Letter, no AAC Entity has taken any affirmative action to
release or modify any warranties or guarantees, if any, of contractors,
builders, architects, manufacturers, suppliers and installers relating to (i)
the AAC Properties, including all other buildings, improvements, furniture,
fixtures, equipment, machinery and other items of real estate located on the AAC
Properties, (ii) all licenses, permits and approvals required by any
Governmental Entity for the ownership, operation and use of the AAC Properties
or any part thereof as presently being conducted by the AAC Entities, except
where failure to obtain any such license, permit or approval would not have an
AAC Material Adverse Effect, and (iii) all intangible personal property
("Intangible Personal Property") owned by the AAC Entities and used in
connection with the ownership of the AAC Properties, including, without
limitation, general intangibles, business records relating to the AAC
Properties, plans and specifications, surveys and title insurance policies
pertaining to the AAC Properties, all licenses, permits and approvals with
respect to the construction, ownership, operation, leasing, occupancy or
maintenance of the AAC Properties, any unpaid award for taking by condemnation
or any damage to the AAC Properties by reason of a change of grade or location
of or access to any street or highway.
(r) Insurance. All of the AAC Entities' insurance policies are valid
and in full force and effect, all premiums for such policies were paid when due.
None of the AAC Entities has canceled or voluntarily allowed to expire, any of
its respective insurance policies unless such policy was replaced, without any
lapse of coverage, by another policy or policies providing coverage at least as
extensive as the policy or policies being replaced.
16
(s) Employee Matters. Except as disclosed in Schedule 3.1(s) to the
AAC Disclosure Letter, there are no labor disputes pending or threatened as to
the operation or maintenance of the AAC Properties or any part thereof.
(t) Labor Matters. No AAC Entity is a party to, or bound by, any
collective bargaining agreement, contract or other agreement or understanding
with a labor union or labor union organization. No unfair labor practice or
labor arbitration proceeding is pending or threatened against any AAC Entity
relating to their business, except for any such proceedings the aggregate effect
of which would not have an AAC Material Adverse Effect. No organizational
efforts presently exist or are threatened with respect to the formation of a
collective bargaining unit involving employees of any AAC Entity.
(u) Assets. Except as set forth in Schedule 3.1(p) to the AAC
Disclosure Letter, as of the Closing Date, the AAC Entities have good and
marketable title to, a valid leasehold interest in or license for, the
equipment, personal property and assets used by them, including Inventory and
Intangible Personal Property, located on the premises, or shown on the most
recent balance sheet of the financial statements referred to in Section 3.1(f)
or acquired after the date thereof, free and clear of all Liens, except for
properties and assets disposed of in the ordinary course of business since the
date of such the most recent balance sheet.
(v) Tax Advice. The AAC Entities have obtained and have advised
their partners and/or members to obtain, from their own advisors advice
regarding the tax consequences of becoming a partner in the Company Operating
Partnership.
(w) (AACLP.
(i) AAC has delivered to the Company complete and correct
copies of the Agreement of Limited Partnership of AACLP, as amended or
supplemented to the date of this Agreement; and
(ii) AAC, Schnitzer, AAC OP, Fox Point, Xxxxxxxxx and AAC
Management constitute all of the Persons having any and all partnership
interest in AACLP.
(x) (Books and Records.
(i) The books of account and other financial records of each
AAC Entity are in all material respects true, complete and correct,
have been maintained in accordance with good business practices, and
are accurately reflected in all material respects in AAC's financial
statements for AAC and each AAC Subsidiary and in AACLP's financial
statements.
(ii) AAC has previously delivered or made available to the
Company true and correct copies of the charter, bylaws, organizational
documents and partnership agreements of the AAC Entities, and all
amendments thereto. Schedule 3.1(x)(ii) to the AAC Disclosure Letter
contains a true and complete summary of each agreement between an AAC
Partnership and any of its partners that varies in any material manner
the rights and obligations of such AAC Partnership and its partners
provided in such AAC Partnership's partnership agreement.
17
(iii) The minute books and other records of corporate or
partnership proceedings of each AAC Entity that had previously been
made available to the Company, contain in all material respects
accurate records of all meetings and accurately reflect in all material
respects all other corporate action of the stockholders and directors
and any committees of the Board of Directors of each AAC Entity that is
a corporation.
(y) State Takeover Statutes. The AAC Entities have taken all action
necessary to exempt transactions between the Company and the AAC Entities 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.
(z) Investment Company Act of 1940. None of the AAC Entities is, or
at the Effective Time, will be, required to be registered under the Investment
Company Act of 1940, as amended (the "Investment Company Act").
(aa) Leases. The leases with all tenants of the AAC Properties are,
and will be as of the Closing Date, in full force and effect, and no AAC Entity
is, nor will be as of the Closing Date, in default, except for such failures to
be in effect or defaults, individually or in the aggregate, that would not have
an AAC Material Adverse Effect. Except with respect to leases assigned to
mortgage lenders, the Leases for which any AAC Entity is the lessor are, or will
be at Closing, freely assignable by such AAC Entity, and such AAC Entity will
have obtained all necessary consents of any third party.
Section 3.2. Representations and Warranties of the Company.
The Company represents and warrants to AAC as follows:
(a) Organization, Standing and Corporate Power of the Company. The
Company is a corporation duly organized and validly existing under the laws of
Virginia and has the requisite corporate power and authority to carry on its
business as now being conducted. The Company 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
material adverse effect on the business, properties, assets, financial condition
or results of operations of the Company and its Subsidiaries, taken as a whole
(a "Company Material Adverse Effect"). Each Company 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 Company
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
18
as now being conducted. Each Company 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 Company Material Adverse Effect.
(b) Capital Structure. The authorized capital stock of the Company
consists of 150,000,000 shares of Common Stock, $1 par value ("Common Stock"),
and 25,000,000 shares of preferred stock, no par value (the "Company Preferred
Stock"). On the date hereof, (i) 103,192,436 shares of Common Stock and
10,200,000 shares of Company Preferred Stock, consisting of 4,200,000 shares of
9 1/4% Series A Cumulative Redeemable Preferred Stock and 6,000,000 shares of
8.60% Series B Cumulative Redeemable Preferred Stock, were issued and
outstanding and 1,000,000 shares of Series C Cumulative Redeemable Preferred
Stock were authorized but none were outstanding, (ii) 4,876,435 shares of Common
Stock were available for grant under the Company's stock option and stock
purchase and loan plans (the "Company Plans"), and (iii) 9,655,395 shares of
Common Stock were reserved for issuance upon exercise of outstanding stock
options to purchase shares of Common Stock granted under the Company Plans (the
"Company Stock Options"). On the date of this Agreement, except as set forth in
this Section 3.2(b), no shares of capital stock or other voting securities of
the Company were issued, reserved for issuance or outstanding. All outstanding
shares of capital stock of the Company are, and all shares that may be issued
pursuant to this Agreement will be when issued, duly authorized, validly issued,
fully paid and nonassessable and not subject to preemptive rights. Except (A)
for the Company Stock Options, (B) the Company OP Units, (C) as set forth in
Schedule 3.2(b) to the Company Disclosure Letter and (D) as otherwise permitted
under Section 4.2, as of the date of this Agreement there are no outstanding
securities, options, stock appreciation rights, warrants, calls, rights,
commitments, agreements, arrangements or undertakings of any kind to which the
Company or any Company Subsidiary is a party or by which such entity is bound,
obligating the Company or any Company Subsidiary to issue, deliver or sell, or
cause to be issued, delivered or sold, additional shares of capital stock,
voting securities or other ownership interests of the Company or of any Company
Subsidiary or obligating the Company or any Company Subsidiary to issue, grant,
extend or enter into any such security, option, warrant, call, right,
commitment, agreement, arrangement or undertaking.
(c) (Company Operating Partnership.
(i) The Company owns all of its partnership interests in the
Company Operating Partnership free and clear of all Liens;
(ii) The Company has delivered to AAC complete and correct
copies of the Agreement of Limited Partnership of the Company Operating
Partnership, as amended or supplemented to the date of this Agreement
(the "Company OP Partnership Agreement"); and
(iii) As of September 4, 1998, there were 13,415,221
outstanding Company OP Units, of which the Company owned, either
directly or indirectly, 11,296,871 Company OP Units.
19
(d) Authority; Noncontravention; Consents. The Company has the
requisite corporate power and authority to enter into this Agreement and to
consummate the transactions contemplated by this Agreement to which the Company
is a party. The execution and delivery of this Agreement by the Company and the
consummation by the Company of the transactions contemplated hereby to which the
Company is a party have been duly authorized and approved in the manner required
by the Company Charter and the Company's Bylaws, by applicable law or by
applicable regulations of any stock exchange or other regulatory body, and by
the Company's Board of Directors. No approval by the stockholders of the Company
is required to complete the Merger and the other transactions contemplated
hereby, including without limitation, under the rules of the NYSE. This
Agreement has been duly executed and delivered by the Company and constitutes a
valid and binding obligation of the Company, enforceable against the Company in
accordance with its terms. The execution and delivery of this Agreement by the
Company does not, and the consummation of the transactions contemplated hereby
to which the Company is a party and compliance by the Company 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 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 the Company or any Company Subsidiary
under, (i) the Company Charter or Company's Bylaws or the comparable charter or
organizational documents or partnership or similar agreement (as the case may
be) of any Company 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 the Company or any
Company 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 the Company or any Company Subsidiary or their
respective properties or assets, other than, in the case of clause (ii) or
(iii), any such conflicts, violations, defaults, rights or Liens that
individually or in the aggregate would not (x) have a Company Material Adverse
Effect or (y) prevent the consummation of the Merger or the other transactions
contemplated hereby. No consent, approval, order or authorization of, or
registration, declaration or filing with, any Governmental Entity is required by
or with respect to the Company or any Company Subsidiary in connection with the
execution and delivery of this Agreement by the Company or the consummation by
the Company of any of the transactions contemplated hereby and thereby, except
for (i) the filing of the Articles of Merger with the VSCC and the SDAT, (ii)
the filing with the Securities and Exchange Commission (the "SEC") of such
reports under Section 13(a) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), as may be required in connection with this Agreement and
the other transactions contemplated by this Agreement, (iii) such filings as may
be required in connection with the payment of any Transfer and Gains Taxes, (iv)
the acceptance for record of the Articles of Merger by the SDAT and the issuance
of a Certificate of Merger by the VSCC, and (v) such other consents, approvals,
orders, authorizations, registrations, declarations and filings (A) as are set
forth in Schedule 3.2(d) to the Company Disclosure Letter, (B) as may be
required under federal, state or local Environmental Laws, (C) as may be
20
required under the "blue sky" laws of various states or (D) 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 the Company from performing its obligations under this
Agreement in any material respect or have, individually or in the aggregate, a
Company Material Adverse Effect. For purposes of determining compliance with the
HSR Act, the Company confirms that the conduct of its business consists solely
of investing in, owning, developing and operating real estate for the benefit of
its shareholders and the unitholders of the Company Operating Partnership.
(e) SEC Documents; Financial Statements; Undisclosed Liabilities.
The Company has filed all required reports, schedules, forms, statements and
other documents with the SEC since January 1, 1994 through the date hereof (the
"Company SEC Documents"). Except for liabilities and obligations set forth in
the Company SEC Documents, neither the Company nor any of the Company
Subsidiaries has any liabilities or obligations of any nature (whether accrued,
contingent or otherwise) required by GAAP to be set forth on a consolidated
balance sheet of the Company or in the notes thereto and which, individually or
in the aggregate, would have a Company Material Adverse Effect. All of the
Company 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 of 1933, as amended (the "Securities Act"), and the
Exchange Act and, in each case, the rules and regulations promulgated thereunder
applicable to such Company SEC Documents. None of the Company 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 Company SEC Documents filed and publicly
available prior to the date of this Agreement. There is no unresolved violation,
criticism or exception by any Governmental Entity of which the Company has
received written notice with respect to the Company report or statement which,
if resolved in a manner unfavorable to the Company, could have a Company
Material Adverse Effect. The consolidated financial statements of the Company
and the Company Subsidiaries included in the Company 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 interim financial
statements, as permitted by the applicable 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, the consolidated financial position of the Company and the
Company 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 interim financial statements, to normal year-end
adjustments). The Company has no Company Subsidiaries that are not consolidated
for accounting purposes.
(f) Absence of Certain Changes or Events. Except as disclosed in the
Company SEC Documents or in Schedule 3.2(f) to the Company Disclosure Letter,
since the date of the most recent financial statements included in the Company
SEC Documents (the "Company Financial Statement Date") and to the date of this
Agreement, but not thereafter with respect to clause (a) of this Section 3.2(f),
the Company and the Company Subsidiaries have conducted their business only in
the ordinary course and there has not been (a) any material adverse change in
the business, financial condition or results of operations of the Company and
the Company Subsidiaries taken as a whole, that has resulted or would result,
individually or in the aggregate, in Company Economic Losses (as defined in
21
Section 6.3 below) of $30,000,000 or more (a "Company 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 Company Material Adverse Change, (b)
except for regular quarterly distributions not in excess of $.30 per share of
Common Stock (including any corresponding distribution by the Company Operating
Partnership) 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 the Common Stock, (c) any split, combination
or reclassification of any share of Common Stock 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 Common Stock or any issuance of an ownership interest in, any Company
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 Company
Material Adverse Effect or (e) any change in accounting methods, principles or
practices by the Company or any Company Subsidiary materially affecting its
assets, liabilities or business, except insofar as may have been disclosed in
the Company SEC Documents or required by a change in GAAP.
(g) Litigation. Except as disclosed in Schedule 3.2(g) to the
Company Disclosure Letter, and other than personal injury and other routine tort
litigation arising from the ordinary course of operations of the Company and the
Company Subsidiaries that is covered by adequate insurance, there is no suit,
action, claim, proceeding or governmental investigation pending or threatened
against or affecting the Company or any Company Subsidiary that, individually or
in the aggregate, could reasonably be expected to (i) have a Company Material
Adverse Effect or (ii) prevent the consummation of the Merger or any of the
other transactions contemplated hereby, nor is there any judgment, decree,
injunction, rule or order of any Governmental Entity or arbitrator outstanding
against the Company or any Company Subsidiary having, or that, insofar as
reasonably can be foreseen, in the future would have, any such effect.
(h) Properties. (i) The Company or a Company Subsidiary owns fee
simple title or has a valid leasehold interest in each of the real properties
listed in the Company SEC Reports as owned by the Company (the "Company
Properties"), except where failure to own such title would not have a Company
Material Adverse Effect; (ii) the Company Properties are not subject to any
Encumbrances or Property Restrictions that could cause a Company Material
Adverse Effect; (iii) valid policies of title insurance have been issued
insuring the Company's or the applicable Company Subsidiaries' fee simple title
to the Company Properties, except where failure to obtain such title insurance
would not have a Company Material Adverse Effect; (iv) there is no certificate,
permit or license from any Governmental Authority having jurisdiction over any
of the Company Properties that has not been obtained where such failure to
obtain would have a Company Material Adverse Effect, or any pending threat of
modification or cancellation of any of same that would have a Company Material
Adverse Effect; (v) neither the Company nor a Company Subsidiary has received
any written notice of any violation of any federal, state or municipal law,
ordinance, order, regulation or requirement affecting any of the Company
22
Properties issued by any Governmental Authority that would have a Company
Material Adverse Effect; (vi) neither the Company nor a Company Subsidiary has
received any written notice to the effect that (a) condemnation or rezoning
proceedings are pending or threatened with respect to any of the Company
Properties or (b) zoning, building or similar laws, codes, ordinances, orders or
regulations are or will be violated by the continued maintenance, operation or
use of any buildings or other improvements on any of the Company Properties or
by the continued maintenance, operation or use of the parking areas, other than
notices that, in the aggregate, would not have a Company Material Adverse
Effect.
(i) Environmental Matters. The Company and each Company Subsidiary
have obtained all material licenses, permits, authorizations, approvals and
consents from Governmental Entities that are required in respect of their
business, operations, assets or properties under any applicable Environmental
Law and the Company and each Company Subsidiary are in compliance in all
material respects with the terms and conditions of all such licenses, permits,
authorizations, approvals and consents and with any Environmental Laws, except
for violations and failures to comply, individually or in the aggregate, that
would not have a Company Material Adverse Effect.
(j) (Taxes.
(i) The Company and each Company Subsidiary have timely filed
all Tax Returns required to be filed by them (after giving effect to
any filing extension properly granted by a Governmental Entity having
authority to do so). Each such Tax Return is true, correct and complete
in all material respects. The Company and each Company Subsidiary have
paid (or the Company has paid on their behalf), within the time and
manner prescribed by law, all Taxes that are due and payable. The most
recent financial statements contained in the Company SEC Documents
reflect an adequate reserve for all taxes payable by the Company for
all taxable periods and portions thereof accrued through the date of
such financial statements. Neither the Company nor any Company
Subsidiary has received notice that any federal, state and local income
or franchise tax return of the Company or any Company Subsidiary has
been or will be examined by any taxing authority. Neither the Company
nor any Company Subsidiary has executed or filed with the Internal
Revenue Service or any other taxing authority any agreement now in
effect extending the period for assessment or collection of any income
or other taxes. Neither the Company nor any Company Subsidiary is a
party to any pending action or proceeding by any governmental authority
for assessment or collection of taxes, and no claim for assessment or
collection of taxes has been asserted against it, which, individually
or in the aggregate, would not have a Company Material Adverse Effect.
(ii) The Company (A) for all of its taxable years commencing
with the year ended December 31, 1993 through December 31, 1997, has
been subject to taxation as a REIT within the meaning of Section 856 of
the Code and has satisfied the requirements to qualify as a REIT for
such years, (B) has operated, and intends to continue to operate, in
such a manner as to qualify as a REIT for its tax year ending December
31, 1998 and (C) has not taken or omitted to take any action that could
reasonably be expected to result in a challenge to its status as a
REIT, and no such challenge is pending or threatened. The Company
represents that each of its corporate Company Subsidiaries is a
Qualified REIT Subsidiary as defined in Section 856(i) of the Code, and
23
that each partnership, limited liability company, joint venture or
other legal entity in which the Company (either directly or indirectly)
owns any of the capital stock or other equity interests thereof has
been treated since its formation and continues to be treated for
federal income tax purposes as a partnership and not as an association
taxable as a corporation.
(iii) The Company has no reason to believe that any
conditions exist that could reasonably be expected to prevent the
Merger from qualifying as a reorganization within the meaning of
Section 368(a) of the Code.
(k) Brokers. Except for Xxxxxx Xxxxxxx, Xxxx Xxxxxx & Co., no
broker, investment banker, financial advisor or other person 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 the Company or any Company Subsidiary.
(l) Compliance with Laws. Neither the Company nor any Company
Subsidiary has violated or failed to comply with any Law applicable to its
business, properties, operations or assets, except for violations and failures
to comply that would not, individually or in the aggregate, reasonably be
expected to result in a Company Material Adverse Effect.
(m) Contracts; Debt Instruments. Neither the Company nor any Company
Subsidiary is in violation of or in default under, in any material respect (nor
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
Contracts, except for violations or defaults that would not, individually or in
the aggregate, result in a Company Material Adverse Effect.
(n) State Takeover Statutes. The Company has taken all action
necessary to exempt transactions between the Company and the AAC Entities 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.
(o) Investment Company Act of 1940. Neither the Company nor any
Company Subsidiary is, or at the Effective Time, will be, required to be
registered under the Investment Company Act.
(p) Company Not an Interested Shareholder. The Company is not an
"interested stockholder" of AAC or an "affiliate of an interested stockholder"
of AAC within the meaning of Section 3601 of the MGCL.
ARTICLE IV
COVENANTS
Section 4.1. Conduct of Business by AAC.
During the period from the date of this Agreement to the Effective
Time, AAC shall, and shall cause each other AAC Entity to, carry on its business
in the usual, regular and ordinary course in substantially the same manner as
heretofore conducted and, to the extent consistent therewith, use commercially
reasonable efforts to preserve intact its current business organization,
goodwill, ongoing businesses and its status as a REIT within the meaning of the
24
Code. Without limiting the generality of the foregoing, during the period from
the date of this Agreement to the Effective Time, except as otherwise
contemplated by this Agreement or pursuant to the written consent of the
Company, AAC shall not and shall cause the other AAC Entities not to (and not to
authorize or commit or agree to):
(a) (i) declare, set aside or pay any dividends on, or make any
other distributions in respect of, any of AAC's capital stock or AAC OP Units or
stock or ownership interests in any other AAC Entity that are not directly or
indirectly wholly owned by AAC, except that AAC may declare, set aside and pay
the dividends and distributions permitted under Section 2.3 hereof and AAC may
also declare, set aside and pay on record and payment dates for the payment of
regular quarterly distributions of the AAC Common Stock and the AAC Preferred
Stock covering the period through the Closing Date at a rate not to exceed in
the aggregate on an annual basis 9% of the value of the capital accounts of the
AACLP partners (and corresponding distributions to the holder of units of
limited partnership of AACLP), (ii) split, combine or reclassify any capital
stock or partnership interests or issue or authorize the issuance of any other
securities in respect of, in lieu of or in substitution for shares of such
capital stock or partnership interests, except for a 1-for-2 reverse stock split
of the AAC Common Stock and AAC Preferred Stock that results in fractional
shares being redeemed for cash in an amount equal to the Common Merger
Consideration or the Preferred Merger Consideration (valuing the Company Series
D Preferred Stock at its per share liquidation preference) for which such
fractional shares would have been exchanged in the Merger (the parties agreeing
that none of AAC's representations and warranties herein shall be deemed untrue
as a result of such reverse stock split) or (iii) purchase, redeem or otherwise
acquire any shares of capital stock, partnership interests or any other equity
interests in AAC, any AAC Subsidiary or AAC OP Units;
(b) amend the charter, bylaws, partnership agreement or other
comparable organizational documents of any AAC Entity (other than AAC OP, as
described in the AAC Disclosure Letter);
(c) issue, deliver or sell, or grant any option or other right in
respect of, any shares of capital stock or debt securities, any other voting or
redeemable securities or ownership interests in any AAC Entity or any securities
convertible into, or any rights, warrants or options to acquire, any such
shares, voting securities or convertible or redeemable securities or ownership
interests except to AAC or an AAC Subsidiary;
(d) (merge or consolidate with any Person;
(e) (i) change in any material manner any of its methods, principles
or practices of accounting in effect at the AAC Financial Statement Date or (ii)
make or rescind any express or deemed election relating to taxes, settle or
compromise any claim, action, suit, litigation, proceeding, arbitration,
investigation, audit or controversy relating to taxes, except in the case of
settlements or compromises in an amount not to exceed, individually or in the
aggregate, $2,500,000, or change any of its methods of reporting income or
deductions for federal income tax purposes from those employed in the
preparation of its federal income tax return for the taxable year ending
December 31, 1997, except, in the case of clause (i), as may be required by
applicable law or GAAP and with notice thereof to the Company;
25
(f) except as provided in Section 4.1(k) below, enter into or amend
or otherwise modify any agreement or arrangement with persons that are
affiliates or, as of the date hereof, are officers, directors or employees of
any AAC Entity;
(g) except as contemplated by Section 5.13, acquire or enter into a
contract to acquire, sell, transfer, or enter into a contract to sell or
transfer any real property without the consent of the Company, whose consent
shall not unreasonably be withheld;
(h) incur additional indebtedness, including under existing lines of
credit, or encumber any asset to secure indebtedness which in either case is not
prepayable at the principal amount without penalty without the consent of the
Company;
(i) incur any indebtedness, liability or obligation or make any
expenditure (other than with respect to fees payable to Lazard for which a
corresponding adjustment is made in Net Asset Value) if as a result thereof the
ratio of current assets to current liabilities of AAC and its consolidated
Subsidiaries at the Effective Time would be less than 1.0;
(j) fail to (i) collect and/or pay to the appropriate governmental
authorities, as required, except to the extent reasonably disputed in good
faith, all sales taxes, rental taxes or the equivalent, and all interest and
penalties thereon, required to be paid or collected in connection with the
operation of the AAC Properties as of the Closing Date and (ii) file all
necessary returns and petitions required to be filed through the Closing Date;
(k) Notwithstanding the foregoing, prior to the Effective Time, AAC
or AACLP may, without further consent of the Company, (i) transfer and assign to
American Apartment Communities III, L.P. or such entity as AAC or AACLP shall
designate (A) the management agreements set forth on Schedule 4.1(k) to the AAC
Disclosure Letter, (B) all rights and interest in the name "American Apartment
Communities" and (C) certain assets and liabilities of AAC as set forth in
Schedule 4.1(k), (ii) pay in cash to employees of AACLP certain accrued
achievement awards and bonuses which shall be included in the Net Asset Value
Adjustment set forth in Section 2.2 hereof, (iii) terminate the Non-Competition
Agreements dated as of March 15, 1996, by and between AACLP and certain officers
thereof, (iv) terminate the Securityholders' Agreement dated as of March 15,
1996, as amended, by and among AAC and the securityholders listed therein, (v)
to the extent that any Rights of First Refusal are exercised, AACLP may
distribute to the AACLP Interest Holders an amount of cash equal to the net
proceeds of any sales pursuant to such Rights of First Refusal, (vi) terminate
sponsorship of all benefit plans as contemplated by Section 5.8, and (vii)
terminate the provisions of the Second Addendum to Second Amended and Restated
Agreement of Limited Partnership of AACLP, dated as of August 1, 1996, and the
commitment to make capital contributions referenced therein. In addition, the
Company covenants to remove all references to the name "American Apartment
Communities" on all signage, letterhead and other property within 180 days of
the Closing Date.
26
Section 4.2. Conduct of Business by the Company.
During the period from the date of this Agreement to the Effective
Time, the Company shall, and shall cause each of the Company Subsidiaries to,
carry on its business in the usual, regular and ordinary course in substantially
the same manner as heretofore conducted and, to the extent consistent therewith,
use commercially reasonable efforts to preserve intact its current business
organization, goodwill, ongoing businesses and its status as a REIT within the
meaning of the Code. Without limiting the generality of the foregoing, during
the period from the date of this Agreement to the Effective Time, except
pursuant to the prior written consent of AAC, or as otherwise contemplated by
this Agreement, the Company shall not:
(a) amend the Charter or Bylaws of the Company or the Company OP
Partnership Agreement in any way that would be materially adverse to any holder
of AAC Common Stock or AAC Preferred Stock or to any holder of AAC OP Units;
(b) merge or consolidate, nor enter into any agreement to merge or
consolidate, with any Person, except that the Company may merge or consolidate,
or enter into an agreement to merge or consolidate, with any Company Subsidiary;
or
27
(c) except as would not otherwise have a Company Material Adverse
Effect, (i) change in any material manner any of its methods, principles or
practices of accounting in effect at the Company Financial Statement Date,
except as may be required by the SEC, applicable law or GAAP and with notice
thereof to AAC or (ii) make or rescind any express or deemed election relating
to taxes, settle or compromise any claim, action, suit, litigation, proceeding,
arbitration, investigation, audit or controversy relating to taxes, except in
the case of settlements or compromises in an amount not to exceed, individually
or in the aggregate, $30,000,000, or change any of its methods of reporting
income or deductions for federal income tax purposes from those employed in the
preparation of its federal income tax return for the taxable year ending
December 31, 1997.
Section 4.3. Delivery of Reports by the Company.
The Company shall promptly deliver to AAC true and correct copies of
any report, statement or schedule filed with the SEC subsequent to the date of
this Agreement.
Section 4.4. Other Actions.
(a) Each of AAC and the Company shall not and shall cause its
respective Subsidiaries not to take any action that would result in (i) any of
the representations and warranties of such party set forth in this Agreement
that are qualified as to materiality becoming untrue in any material respect,
(ii) any of such representations and warranties that are not so qualified
becoming untrue in any respect or (iii) any of the conditions to the Merger set
forth in Article VI not being satisfied.
(b) Neither the Company nor AAC shall take or omit to take any
action that would cause the Company or AAC to be disqualified as a REIT.
ARTICLE V
ADDITIONAL COVENANTS
Section 5.1. Access to Information; Confidentiality.
Subject to the requirements of confidentiality agreements with third
parties, each of AAC and the Company shall, and shall cause each of its
respective 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 during the
period prior to the Effective Time to all their respective properties, books,
contracts, commitments, personnel and records and, during such period, each of
AAC and the Company shall, and shall cause each of its respective 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 AAC and the Company will hold, and
will cause its respective Subsidiaries' 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
between AAC and the Company dated as of August 6, 1998 (the "Confidentiality
Agreement").
Section 5.2. Best Efforts; Notification.
(a) Upon the terms and subject to the conditions set forth in this
Agreement, each of the Company and AAC agrees to use its best efforts to take,
or cause to be taken, all actions, and to do, or cause to be done, and to assist
and cooperate with the other in doing, all things necessary, proper or advisable
to fulfill all conditions applicable to such party pursuant to this Agreement
and to consummate and make effective, in the most expeditious manner
practicable, the Merger and the other transactions contemplated hereby,
including (i) the obtaining of all necessary actions or nonactions, waivers,
consents and approvals from Governmental Entities and the making of all
necessary registrations and filings and the taking of all reasonable steps as
may be necessary to obtain an approval, waiver or exemption from, or to avoid an
action or proceeding by, any Governmental Entity, (ii) the obtaining of all
necessary consents, approvals, waivers or exemption from shareholders and
non-governmental third parties; provided, however, that if AAC is obliged to pay
or incur any material expenses or other liabilities to obtain the consent of any
non-governmental party, it shall consult reasonably with the Company upon
reasonable notice prior to paying or incurring any such material expenses or
liabilities, and in no event shall AAC pay or incur any such expenses or
liabilities in obtaining such consents without obtaining the prior written
consent of the Company, which consent shall not unreasonably be withheld or
delayed, (iii) the defending of any lawsuits or other legal proceedings, whether
judicial or administrative, challenging the Merger, this Agreement or the
consummation of any of the other transactions contemplated hereby, including
28
seeking to have any stay or temporary restraining order entered by any court or
other Governmental Entity vacated or reversed and (iv) the execution and
delivery of any additional instruments necessary to consummate the transactions
contemplated by and to fully carry out the purposes of, this Agreement;
provided, however, that a party shall not be obligated to take any action
pursuant to the foregoing if the taking of such action or the obtaining of any
waiver, consent, approval or exemption is reasonably likely to result in the
imposition of a condition or restriction of the type referred to in Section
6.1(b). In connection with and without limiting the foregoing, AAC, the Company
and their respective Boards of Directors shall (i) take all action necessary so
that no "fair price," "business combination," "moratorium," "control share
acquisition" or any other anti takeover statute or similar statute enacted under
state or federal laws of the United States or similar statute or regulation (a
"Takeover Statute") is or becomes applicable to the Merger, this Agreement or
any of the other transactions contemplated hereby and (ii) if any Takeover
Statute becomes applicable to the Merger, this Agreement, or any of the other
transactions contemplated hereby, take all action necessary so that the Merger
may be consummated as promptly as practicable on the terms contemplated by this
Agreement and otherwise to minimize the effect of such Takeover Statute on the
Merger or the consummation of any of the other transactions contemplated hereby.
(b) AAC shall give prompt notice to the Company, and the Company
shall give prompt notice to AAC, if (i) any representation or warranty made by
it contained in this Agreement that is qualified as to materiality becomes
untrue or inaccurate in any material respect or any such representation or
warranty that is not so qualified becomes untrue or inaccurate in any respect or
(ii) it fails 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.
Section 5.3. Tax Treatment.
Each of the Company and AAC shall use its reasonable best efforts to
(a) cause the Merger to qualify as a reorganization under Section 368(a) of the
Code and (b) to obtain the opinions of counsel referred to in Section 6.2(e) and
6.3(d).
Section 5.4. No Solicitation of Transactions.
AAC shall not, directly or indirectly, through any officer, director,
employee, agent, investment banker, financial advisor, attorney, accountant,
broker, finder or other representative, initiate, solicit (including by way of
furnishing nonpublic information or assistance) any inquiries or the making of
any proposal that constitutes, or may reasonably be expected to lead to, any
Competing Transaction (as defined herein), or authorize or permit any of its
officers, directors, employees or agents, attorneys, investment bankers,
financial advisors, accountants, brokers, finders or other representatives to
take any such action. AAC shall notify the Company in writing (as promptly as
practicable) of all of the relevant details relating to all inquiries and
proposals which it or any of its Subsidiaries or any such officer, director,
employee, agent, investment banker, financial advisor, attorney, accountant,
broker, finder or other representative may receive relating to any of such
matters and if such inquiry or proposal is in writing, AAC shall deliver to the
other a copy of such inquiry or proposal. For purposes of this Agreement,
"Competing Transaction" shall mean any of the following (other than the
transactions contemplated by this Agreement): (i) any merger, consolidation,
share exchange, business combination, or similar transaction involving AAC (or
any of its Subsidiaries); (ii) any sale, lease, exchange, mortgage, pledge,
transfer or other disposition of 50% or more of the assets of AAC and its
29
Subsidiaries taken as a whole in a single transaction or series of related
transactions, excluding any bona fide financing transactions which do not,
individually or in the aggregate, have as a purpose or effect the sale or
transfer of control of such assets; (iii) any tender offer or exchange offer for
30% or more of the outstanding shares of capital stock of AAC (or any of its
Subsidiaries) or the filing of a registration statement under the Securities Act
in connection therewith; or (iv) any public announcements of a proposal, plan or
intention to do any of the foregoing or any agreement to engage in any of the
foregoing.
Section 5.5. Public Announcements.
The Company and AAC will consult with each other before issuing, and
provide each other the opportunity to review and comment upon, any press release
or other public statements with respect to the Merger or the other transactions
contemplated hereby, and shall not issue any such press release or make any such
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 Merger will be in the
form agreed to by the parties hereto prior to the execution of this Agreement.
Section 5.6. Transfer and Gains Taxes.
The Company and AAC 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 Merger
(together with any related interests, penalties or additions to tax, "Transfer
and Gains Taxes"). AAC shall pay or cause to be paid, without deduction or
withholding from any amounts payable to the holders of shares of AAC Nonvoting
Common Stock, AAC Common Stock and AAC Preferred Stock all Transfer and Gains
Taxes.
Section 5.7. Employee Matters.
AACLP (or the applicable AAC Entity) shall terminate all of its
employees prior to the Closing Date in compliance with (to the extent
applicable) the Worker Adjustment, Retraining and Notification Act of 1988, as
amended, including the giving of any notice thereunder, and under any applicable
state laws requiring the giving of notice of terminations, layoffs, site
closings or other comparable events. AACLP (or the applicable AAC Entity) shall
satisfy all severance pay, vacation pay and other legal obligations with respect
to its employees, including but not limited to any obligations under any
employment contracts or employee benefit plans or programs, to the extent based
on employment service rendered to AAC or any AAC Entity prior to the Closing
Date. The Company shall have no liability or obligation to the AAC Entities or
their employees to employ or offer employment to any employee of the AAC
Entities or any group of employees of the AAC Entities. It is understood,
however, that on or after the Closing Date, the Company may, in its sole and
absolute direction, offer employment to those employees of AAC and the AAC
Subsidiaries who, prior to Closing Date, worked as site employees. Nothing in
this Agreement shall limit the Company from taking any action at any time after
the Closing Date in respect of its employees or the terms and conditions of
their employment.
30
Any former employees of the AAC Entities ("Former AAC Employees") that
are subsequently employed by the Company shall in general receive compensation
on the same basis and subject to same standards as the employees of the Company.
In addition, all Former AAC Employees shall be eligible to participate in the
same manner as other similarly situated employees of the Surviving Corporation
who were formerly employees of the Company in any other benefit programs,
policies and arrangements sponsored or maintained by the Surviving Corporation
after the Effective Time. With respect to each such employee benefit plan,
program, policy or arrangement, service with AAC or any of the AAC Subsidiaries
(as applicable) shall be included for purposes of determining eligibility to
participate, vesting (if applicable) and entitlement to benefits. The medical
plan or plans maintained by the Surviving Corporation after the Effective Time
shall waive all limitation as to preexisting conditions, exclusions and waiting
periods with respect to participation and coverage requirements applicable to
Former AAC Employees.
Section 5.8. Disposition of Benefit Plans.
As of the Closing Date, sponsorship of all AAC Benefit Plans shall be
assumed by American Apartment Communities III, L.P. ("AAC III"), which shall
thereafter be responsible for the administration of such plans. AAC III may
terminate any such plans, provided that it may, in its sole discretion in the
case of the AAC 401(k) Plan, transfer into the corresponding plan or plans of
the Surviving Corporation assets and liabilities attributable to Former AAC
Employees in a manner consistent with Section 414(l) of the Code.
Section 5.9. Company Board of Directors.
At the Effective Time, the Board of Directors of the Company shall be
expanded by two members, and the existing directors of the Company shall elect
Xxxxx X. Xxxxxxxxx and Xxxxxx X. Xxxxxxx as directors to serve until the annual
meeting of shareholders of the Company in 1999. Any shareholder of AAC of record
on the Effective Date (the "Holder") who Beneficially Owns on the record date
for determination of shareholders of the Company entitled to vote at any annual
meeting of shareholders or other meeting at which the Board of Directors is
elected (the "Record Date") shares of Preferred Stock or shares of Common Stock
received upon conversion of Preferred Stock ("Conversion Stock"), or a
combination, having an aggregate Nominal Value, as defined below, of
$150,000,000, shall have the right to nominate two persons for election to the
Company's Board of Directors. In the event that the Holder Beneficially Owns on
the Record Date shares of Preferred Stock or Conversion Stock having a Nominal
Value of less than $150,000,000 but more than $100,000,000, the Holder shall
have the right to nominate one person for election to the Company's Board of
Directors. The Holder shall have the right to nominate the replacement for any
31
director nominated by it who shall not, for any reason, serve the entirety of
his or her term. The Holder shall make its nominations in consultation with the
Company's incumbent Board of Directors, provided that at any time at which the
Holder shall have the right to nominate two persons for election to the Company
Board of Directors, if at such time Xxxxx X. Xxxxxxxxx is nominated for
reelection by the incumbent Board of Directors pursuant to Section 2 of the
Exchange Agreement or otherwise, he shall be deemed one of the persons nominated
by the Holder. "Nominal Value" shall be calculated by valuing each share of
Preferred Stock at its liquidation preference as set forth in the Company's
Articles of Incorporation and each share of Conversion Stock at the liquidation
preference of the number of shares of Preferred Stock, or fraction thereof, from
which such Common Stock was converted. No director nominated by a Holder shall
be required to resign from the Board of Directors solely as a result of a
decline in the Nominal Value of the shares Beneficially Owned by the Holder at
any time during the term of such director.
Section 5.10. Resignations.
On the Closing Date, AAC shall cause the directors and officers of each
of the AAC Subsidiaries to submit their resignations from such positions,
effective as of the Effective Time.
Section 5.11. Bulk Sales Compliance.
The AAC Entities shall indemnify the Company and the Company Operating
Partnership from and against any and all claims, losses or liabilities arising
under any applicable bulk sales law in connection with the transactions
contemplated in this Agreement and the Exchange Agreement.
Section 5.12. Financial Statements.
AAC shall cause to be prepared in a form acceptable to the Company
consolidated financial statements of AAC and of AACLP for the years ended
December 31, 1997 and 1996 (audited) and for the six months ended June 30, 1998
and 1997 and, if the Closing Date occurs after September 30, 1998, the nine
months ended September 30, 1998, except as noted therein, in accordance with
GAAP and fairly presenting, in accordance with the applicable requirements of
GAAP, the consolidated financial position of AAC and AACLP, each 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 interim financial
statements, to normal year-end adjustments).
Section 5.13. Executive Clubs.
Prior to Closing, AAC shall cause AACLP to deal with the properties
known as the Arlington Executive Club and the Alexandria Executive Club in a
manner satisfactory to the Company in its sole discretion.
Section 5.14. AAC Office Leases.
AAC shall or shall cause each other AAC Entity to transfer all leases
of which AAC or any AAC Entity is the lessee of commercial office properties
used in the conduct of their respective business.
32
ARTICLE VI
CONDITIONS PRECEDENT
Section 6.1. Conditions to Each Party's Obligation to Effect the
Merger.
The respective obligation of AAC and the Company to effect the Merger
and to consummate the other transactions contemplated hereby is subject to the
satisfaction or waiver on or prior to the Effective Time of the following
conditions:
(a) Approval of the Merger. This Agreement and the transactions
contemplated hereby shall have been approved by the shareholders of AAC in the
manner required by the Articles of Incorporation and Bylaws of AAC and by
applicable law.
(b) 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.
(c) Certain Actions and Consents. All material actions by or in
respect of or filings with any Governmental Entity required for the consummation
of the Merger or any of the other transactions contemplated hereby shall have
been obtained or made.
(d) Consummation of Exchange Agreement. The Exchange Agreement in
the form attached as Exhibit B shall have been consummated contemporaneously
with the closing of the Merger.
(e) Resolution of Rights of First Refusal. The Rights of First
Refusal shall have been exercised and closed, waived or otherwise finally
disposed of in a manner satisfactory to AAC and the Company.
Section 6.2. Conditions to Obligations of the Company.
The obligations of the Company to effect the Merger and to consummate
the other transactions contemplated hereby are further subject to the following
conditions, any one or more of which may be waived by the Company:
(a) Representations and Warranties. The representations and
warranties of AAC set forth in this Agreement shall be true and correct 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 except to the extent the representation or warranty is rendered
incorrect as a result of the reverse stock split contemplated by Section 4.1(a),
and the Company shall have received a certificate signed on behalf of AAC by the
chief executive officer or the chief financial officer of AAC to such effect.
This condition shall be deemed satisfied notwithstanding any failure of a
representation or warranty of AAC to be true and correct as of the Closing Date
if the aggregate amount of AAC Economic Losses (as defined herein) that would
reasonably be expected to arise as a result of the failures of such
33
representations and warranties to be true and correct as of the Closing Date
does not exceed $8,000,000. "AAC Economic Losses" shall mean any and all net
damage, net loss, net liability or expense suffered by the AAC Entities taken as
a whole.
(b) Financial Statements AAC shall have provided to the Company the
consolidated financial statements of AAC and AACLP, as described in Section
3.1(f), prepared in a form acceptable to the Company and in accordance with GAAP
(audited for each of the years ended December 31, 1997 and 1996) and in
conformity with Regulation S-X of the SEC and otherwise adequate in form and
substance to enable the Company to comply with its reporting obligations under
the Exchange Act with respect to its acquisition of AAC and AACLP.
(c) Performance of Obligations of AAC. AAC shall have performed in
all material respects, other than with respect to the obligation of AAC
described in Section 5.13, all obligations required to be performed by it under
this Agreement at or prior to the Effective Time, and the Company shall have
received a certificate to such effect signed on behalf of AAC by the chief
executive officer or the chief financial officer of AAC.
(d) Opinions Relating to REIT and Partnership Status. The Company
shall have received an opinion dated as of the Closing Date of Porter, Wright,
Xxxxxx & Xxxxxx, based on certificates, letters and assumptions, reasonably
satisfactory to the Company, that (i) commencing with the year ended December
31, 1996 through the Effective Date, AAC has been organized, in conformity with
the requirements for qualification as a REIT under the Code, and its method of
operation has enabled it to meet such requirements, and (ii) AACLP has been
since its year of formation, and each AAC Subsidiary that is a partnership or
limited liability company has been since its formation, treated, for federal
income tax purposes, as a partnership and not as a corporation or an association
taxable as a corporation (with customary exceptions, assumptions and
qualifications and based upon customary representations).
(e) Opinions Relating to Merger. The Company shall have received an
opinion dated as of the Closing Date of Hunton & Xxxxxxxx, based on
certificates, letters and assumptions, reasonably satisfactory to the Company,
that (i) the Merger will be treated for Federal income tax purposes as a
reorganization within the meaning of Section 368(a) of the Code, (ii) the
Company and AAC will each be a party to that reorganization within the meaning
of Section 368(b) of the Code, and (iii) no gain or loss will be recognized for
federal income tax purposes by the Company or AAC, on consummation of the
Merger.
(f) Consents. All consents and waivers from third parties necessary
in connection with the consummation of the Merger and the other 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 AAC Economic Losses of $8,000,000 or more.
(g) Corporate Matters Opinion. The Company shall have received the
opinion of Xxxxxx, Xxxx & Xxxxxxxx LLP ("GD&C"), dated as of the Closing Date,
as to such customary matters as the Company may reasonably request, such opinion
to be reasonably satisfactory to the Company.
34
(h) Comfort Letter. The Company shall have received "comfort"
letters of Xxxxxx Xxxxxxxx LLP, AAC's independent public accountants, dated and
delivered as of the Closing Date, and addressed to the Company, in form and
substance reasonably satisfactory to the Company 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 in
accordance with Statement on Auditing Standards Number 72 including a review in
accordance with Statement on Auditing Standards Number 71 of AAC's 1998 interim
unaudited financial statements.
(i) Investment Agreements. Each shareholder of AAC who receives
Merger Consideration including shares of Preferred Stock shall have executed and
delivered to the Company an investment agreement (the "Investment Agreement") in
substantially the form of Exhibit C.
(j) No Material Adverse Change. From the date of this Agreement
through the Effective Time, no change on the business, properties, assets
financial condition or results of operations of AAC, the AAC Subsidiaries and/or
AACLP shall have occurred that would have or would be reasonably likely to have
an AAC Material Adverse Effect.
(k) Repayment of Indebtedness. All indebtedness of AAC represented
by its promissory note dated December 15, 1997, in the original principal amount
of $10,250,000, payable to Chase Manhattan Bank, as agent for various banks
("Chase"), and its promissory note dated December 23, 1997, in the original
principal amount of $11,900,000, payable to Chase, shall have been repaid.
(l) Surrender of Certificates. Any and all certificates representing
shares of AAC Common Stock and AAC Preferred Stock held by any holder of more
than five shares of AAC Common Stock or five shares of AAC Preferred Stock shall
have been surrendered to the Company.
(m) Reverse Stock Split. AAC shall have completed the reverse stock
split contemplated by Section 4.1(a).
Section 6.3. Conditions to Obligation of AAC.
The obligation of AAC to effect the Merger and to consummate the other
transactions contemplated hereby is further subject to the following conditions,
any one or more of which may be waived by AAC:
(a) Representations and Warranties. The representations and
warranties of the Company set forth in this Agreement shall be true and correct
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 AAC shall have received a certificate signed on behalf of the
Company by the chief executive officer or the chief financial officer of the
Company to such effect. This condition shall be deemed satisfied notwithstanding
any failure of a representation or warranty of the Company to be true and
35
correct as of the Closing Date if the aggregate amount of Company Economic
Losses (as defined herein) that would reasonably be expected to arise as a
result of the failures of such representations and warranties to be true and
correct as of the Closing Date does not exceed $30,000,000. "Company Economic
Losses," as used in this Section 6.3, shall mean any and all net damage, net
loss, net liability or expense suffered by the Company or the Company
Subsidiaries taken as a whole.
(b) Performance of Obligations of the Company. The Company 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 AAC shall have
received a certificate of the Company signed on behalf of the Company by the
chief executive officer or the chief financial officer of such party to such
effect.
(c) Opinions Relating to REIT and Partnership Status. AAC and the
limited partners of AACLP shall have received an opinion dated as of the Closing
Date of Hunton & Xxxxxxxx, based on certificates, letters and assumptions,
reasonably satisfactory to AAC, that (i) commencing with the taxable year ended
December 31, 1993, the Company has been organized and has operated, and its
proposed method of operation following the Merger will permit it to continue to
be organized and operated, in conformity with the requirements for qualification
as a REIT under the Code and (ii) the Company Operating Partnership has been
during and since 1995, and continues to be, treated for 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).
(d) Opinion Related to the Merger. AAC shall have received an opinion
dated as of the Closing Date of GD&C, based on certificates, letters and
assumptions, reasonably satisfactory to AAC, that (i) the Merger will be treated
for Federal income tax purposes as a reorganization within the meaning of
Section 368(a) of the Code, (ii) the Company and AAC will each be a party to
that reorganization within the meaning of Section 368(b) of the Code, (iii) no
gain or loss will be recognized for federal income tax purposes by the Company
or AAC on consummation of the Merger and (iv) the exchange in the Merger of
Preferred Stock (including any fractional share interest) and cash for capital
stock of AAC will give rise to the recognition of gain (but not loss) to the
shareholders of AAC with respect to such exchange to the extent of cash received
in such exchange.
(e) Consents. All consents and waivers from third parties necessary
in connection with the consummation of the other 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 Company Economic Losses of $30,000,000 or more.
(f) Corporate Matters Opinion. AAC shall have received the opinion
of Hunton & Xxxxxxxx, dated as of the Closing Date, as to such customary matters
as AAC may reasonably request, such opinion to be reasonably satisfactory to
AAC.
(g) Investment Agreements. The Company shall have executed and
delivered investment agreements with the shareholders of AAC who receiver Merger
Consideration including shares of Preferred Stock.
(h) No Material Adverse Change. From the date of this Agreement
36
through the Effective Time, no change on the business, properties, assets
financial condition or results of operations of the Company and/or the Company
Operating Partnership has occurred that would have or would be reasonably likely
to have a Company Material Adverse Effect.
(i) Listing. The Company shall have caused the Common Stock issuable
upon the conversion of the Company Series D Preferred Stock and the transactions
contemplated by the Exchange Agreement, respectively, to be approved for listing
on the NYSE, subject to official notice of issuance.
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
Section 7.1. Termination.
This Agreement may be terminated at any time prior to the filing of the
Articles of Merger for each Merger with the SDAT and the VSCC:
(a) by mutual written consent duly authorized by the respective
Boards of Directors of the Company and AAC;
(b) by the Company, upon a material breach of any representation,
warranty, covenant or agreement on the part of AAC set forth in this Agreement,
or if any representation or warranty of AAC shall have become untrue, in either
case such that the conditions set forth in Section 6.2(a) or Section 6.2(c), as
the case may be, would be incapable of being satisfied by December 31, 1998 (as
otherwise extended);
(c) by AAC, upon a material breach of any representation, warranty,
covenant or agreement on the part of the Company set forth in this Agreement, or
if any representation or warranty of the Company shall have become untrue, 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 December 31,
1998 (as otherwise extended);
(d) by either the Company or AAC, 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; and
(e) by either the Company or AAC, if the Merger shall not have been
consummated before December 31, 1998; provided, however, that a party that has
willfully and materially breached a representation, warranty or covenant of such
party set forth in this Agreement shall not be entitled to exercise its right to
terminate under this Section 7.1(e).
37
Section 7.2. [LEFT BLANK INTENTIONALLY]
Section 7.3. Effect of Termination.
In the event of termination of this Agreement by either AAC or the
Company 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 the
Company, or AAC, other than the last sentence of Section 5.1, Section 5.5, this
Section 7.3, Sections 8.2, 8.3, 8.5 through 8.10 and Article IX and except to
the extent that such termination results from a willful breach by a party of any
of its representations, warranties, covenants or agreements set forth in this
Agreement.
Section 7.4. Amendment.
At any time prior to the filing of the Articles of Merger with the SDAT
and the VSCC, this Agreement may be amended by the parties in writing by action
of their respective Boards of Directors, provided that any such amendment
approved by the Board of Directors of AAC after this Agreement has been approved
by the stockholders of AAC must also be approved by such stockholders if such
amendment would modify materially the terms of Section 2.1 or modify any other
provision of this Agreement so as to adversely affect any class of shares of
AAC. The parties agree to amend this Agreement in the manner provided in the
immediately preceding sentence to the extent required to (a) continue the status
of the parties as REITs or (b) preserve the Merger as a tax-free reorganization
under Section 368 of the Code.
Section 7.5. Extension; Waiver.
At any time prior to the Effective Time, each of AAC and the Company
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 VIII
GENERAL PROVISIONS
Section 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 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.
38
Section 8.2. Notices.
All notices, requests, claims, demands and other communications under
this Agreement shall be in writing and shall be deemed given if 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):
(a) (if to the Company, to:
UNITED DOMINION REALTY TRUST, INC.
00 Xxxxx Xxxxx Xxxxxx
Xxxxxxxx, XX 00000-0000
Attn: Xxxx X. XxXxxx, President
Fax: (000) 000-0000
with copies to:
UNITED DOMINION REALTY TRUST, INC.
00 Xxxxx Xxxxx Xxxxxx
Xxxxxxxx, XX 00000-0000
Attn: Xxxxxxxx X. Surface, Senior Vice President
and General Counsel
Fax: (000) 000-0000
and
HUNTON & XXXXXXXX
000 Xxxx Xxxx Xxxxxx
Xxxxxxxx, XX 00000-0000
Attn: Xxxxx X. Xxxxxxxxxxxx, III
Fax: (000) 000-0000
(b) ( if to AAC, to:
39
AMERICAN APARTMENT COMMUNITIES II, INC.
000 Xxxxx Xxxxxx
Xxx Xxxxxxxxx, XX 00000
Attn: Xxxxx X. Xxxxxxxxx, Chief Executive Officer
Fax: (000) 000-0000
with copies to:
AMERICAN APARTMENT COMMUNITIES II, INC.
00 Xxxx Xxxxx Xxxxxx, 00xx Xxxxx
Xxxxxxxx, XX 00000
Attn: Xxxxxx X. Xxxxxxxxx, Esq., General Counsel
Fax: (000) 000-0000
and
XXXXXX, XXXX & XXXXXXXX LLP
000 Xxxxx Xxxxx Xxxxxx
Xxx Xxxxxxx, XX 00000
Attn: Xxxxxxx X. Xxxxx, Esq.
Fax: (000) 000-0000
Section 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."
Section 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 parties.
Section 8.5. Entire Agreement; Third Party Beneficiaries.
This Agreement, the Confidentiality Agreement and the other agreements
entered into in connection with the transactions contemplated hereby (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 for the provisions of Article II
and Section 5.8 are not intended to confer upon any person other than the
parties hereto any rights or remedies; provided, however, that AACLP and its
Limited Partners are intended to be third party beneficiaries of the
representations, warranties and covenants of the Company contained herein.
Section 8.6. Governing Law.
This Agreement shall be governed by, and construed in accordance with,
the laws of the Commonwealth of Virginia, regardless of the laws that might
otherwise govern under applicable principles of conflict of laws thereof.
40
Section 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.
Section 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
Maryland or in any Maryland state court, 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 Maryland or any Maryland 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.
Section 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 broad as to be unenforceable, the provision shall be interpreted to be only
so broad as is enforceable.
Section 8.10. Non-Recourse.
This Agreement shall not create or be deemed to create or permit any
personal liability or obligation on the part of any direct or indirect
shareholder of AAC or the Company, or any of their respective officers,
directors, employees, agents or representatives.
41
ARTICLE IX
CERTAIN DEFINITIONS
Section 9.1. Certain Definitions.
For purposes of this Agreement:
An "affiliate" of any person means another person that directly or
indirectly, through one or more intermediaries, controls, is controlled by, or
is under common control with, such first person.
"AAC Disclosure Letter" means the letter dated September 10, 1998
previously delivered to the Company by AAC disclosing certain information in
connection with this Agreement.
"Beneficially Own" shall be determined in accordance with Rule 13d-3 of
the SEC under the Exchange Act.
"Company Disclosure Letter" means the letter dated September 10, 1998
previously delivered to AAC by the Company disclosing certain information in
connection with this Agreement.
"Company Series D Preferred Stock" means the Series D Cumulative
Convertible Redeemable Preferred Stock, no par value per share, issuable to
shareholders of AAC in the Merger.
"Company OP Units" means units of partnership interest in the Company
Operating Partnership.
"Person" means an individual, corporation, partnership, limited
liability company, joint venture, association, trust, unincorporated
organization or other entity.
"Subsidiary" of any person means any corporation, partnership, limited
liability company, joint venture or other legal entity 50% or more of the voting
stock or other equity interests of which are owned by such person (either
directly or through or together with another Subsidiary of such person).
42
WITNESS WHEREOF, the Company and AAC have caused this Agreement to be
signed by their respective officers thereunto duly authorized, all as of the
date first written above.
UNITED DOMINION REALTY TRUST, INC.
By:
Name:
Title:
AMERICAN APARTMENT COMMUNITIES II, INC.
By:
Name: Xxxxx X. Xxxxxxxxx
Title: Chief Executive Officer
LF Strategic Realty Investors, L.P. joins in this Agreement and Plan of
Merger for the purpose of evidencing its approval of this Agreement and Plan of
Merger as the majority stockholder of American Apartment Communities II, Inc.
and agrees that it will vote all of its shares of American Apartment Communities
II, Inc. in favor of this Agreement and Plan of Merger at any meeting of
stockholders or pursuant to any request for written consent.
LF STRATEGIC REALTY INVESTORS, L.P.
By:
Name:
Title:
43
EXHIBIT A
(d) Series D Cumulative Convertible Preferred Stock.
(1) Designation and Number. A series of the preferred stock,
designated the "Series D Cumulative Convertible Redeemable
Preferred Stock" (the "Series D Preferred"), is hereby
established. The number of shares of the Series D Preferred
shall be 8,000,000.
(2) Relative Seniority. In respect of rights to receive
dividends and to participate in distributions or payments in
the event of any liquidation, dissolution or winding up of the
corporation, the Series D Preferred shall rank on a parity
with the Series A Preferred, the Series B Preferred and the
Series C Preferred and any other class or series of capital
stock of the corporation not constituting Junior Stock
(collectively, "Parity Stock"), and senior to the common stock
and any other class or series of capital stock of the
corporation ranking, as to dividends and upon liquidation,
junior to the Series D Preferred (collectively, "Junior
Stock").
(3) Dividends.
(A) The holders of the then outstanding Series D
Preferred shall be entitled to receive, when and as declared
by the Board of Directors out of any funds legally available
therefor, cumulative preferential cash dividends at the rate
of 7.5% of the Liquidation Preference of the Series D
Preferred (equivalent to $1.875 per share) per annum (subject
to adjustment as provided in subparagraph (F) of this
paragraph (3)), payable quarterly in arrears in cash on the
last day, or the next succeeding Business Day, of January,
April, July and October in each year, beginning November 2,
1998 [February 1, 1999, if the Issue Date is between October
16, 1998, and January 15, 1999], 1998 (each such day being
hereinafter called a "Dividend Payment Date" and each period
beginning on the day next following a Dividend Payment Date
and ending on the next following Dividend Payment Date being
hereinafter called a "Dividend Period"), to shareholders of
record at the close of business on the Friday occurring
between the tenth and fifteenth days of the calendar month in
which the applicable Dividend Payment Date falls on or such
date as shall be fixed by the Board of Directors at the time
of declaration of the dividend (the "Dividend Record Date"),
which shall be not less than 10 nor more than 30 days
preceding the Dividend Payment Date. The amount of any
dividend payable for the initial Dividend Period and for any
other partial Dividend Period shall be computed on the basis
of a 360-day year consisting of twelve 30-day months.
Dividends on the shares of Series D Preferred shall accrue and
be cumulative from and including the date of original issue
thereof (the "Issue Date"), whether or not (i) the corporation
has earnings, (ii) dividends on such shares are declared or
(iii) on any Dividend Payment Date there shall be funds
legally available for the payment of such dividends. When
dividends are not paid in full upon the shares of Series D
Preferred and the shares of any other series of preferred
stock ranking on a parity as to dividends with the Series D
Preferred (or a sum sufficient for such full payment is not
set apart therefor), all dividends declared upon shares of
Series D Preferred and any other series of preferred stock
ranking on a parity as to dividends with the Series D
Preferred shall be declared pro rata so that the amount of
dividends declared per share on the Series D Preferred and
such other series of preferred stock shall in all cases bear
to each other the same ratio that accrued dividends per share
on the shares of Series D Preferred and such other series of
preferred stock bear to each other. "Business Day" shall mean
any day, other than a Saturday or Sunday, that is neither a
legal holiday nor a day on which banking institutions in New
York City, New York are authorized or required by law,
regulation or executive order to close.
(B) Except as provided in subparagraph (A) of this
paragraph (3), unless full cumulative dividends on the Series
D Preferred have been or contemporaneously are declared and
paid or declared and a sum sufficient for the payment thereof
set apart for payment on the Series D Preferred for all past
dividend periods and the then current dividend period, no
dividends (other than in Junior Stock) shall be declared or
paid or set aside for payment or other distribution or shall
be declared or made upon any Parity Stock or Junior Stock, nor
shall any Junior Stock or any Parity Stock be redeemed,
purchased or otherwise acquired for any consideration (or any
moneys be paid to or made available for a sinking fund for the
redemption of any shares of Junior Stock or Parity Stock) by
the corporation or any subsidiary of the corporation (except
by conversion into or exchange for Junior Stock).
(C) Any dividend payment made on shares of the Series
D Preferred shall first be credited against the earliest
accrued but unpaid dividend due with respect to such shares
which remains payable.
The amount of any dividends accrued on any shares of
Series D Preferred at any Dividend Payment Date shall be the
amount of any unpaid dividends accumulated thereon, to and
including such Dividend Payment Date, whether or not earned or
declared, and the amount of dividends accrued on any shares of
Series D Preferred at any date other than a Dividend Payment
Date shall be equal to the sum of the amount of any unpaid
dividends accumulated thereon, to and including the last
preceding Dividend Payment Date, whether or not earned or
declared, plus an amount calculated on the basis of the annual
dividend rate for the period after such last preceding
Dividend Payment Date to and including the date as of which
the calculation is made, based on a 360-day year of twelve
30-day months.
Accrued but unpaid dividends on the Series D
Preferred will not bear interest. Holders of the Series D
Preferred will not be entitled to any dividends in excess of
full cumulative dividends as described above.
2
(D) No dividends on shares of Series D Preferred
shall be declared by the Board of Directors of the corporation
or paid or set apart for payment by the corporation at such
time as the terms and provisions of any agreement of the
corporation, including any agreement relating to its
indebtedness, prohibits such declaration, payment or setting
apart for payment or provides that such declaration, payment
or setting apart for payment would constitute a breach thereof
or a default thereunder, or if such declaration or payment
shall be restricted or prohibited by law.
(E) Except as provided in these Articles, the Series
D Preferred shall not be entitled to participate in the
earnings or assets of the corporation.
(F) In the event that the per share cash dividends
declared on the common stock during any Dividend Period (the
"Current Common Dividend") shall be greater or less than the
per share cash dividends declared on the common stock during
the immediately preceding Dividend Period (the "Prior Common
Dividend"), then the dividend rate of the Series D Preferred
(as it may have previously been adjusted pursuant to this
subparagraph (F)) shall be automatically adjusted in the
proportion that the Current Common Dividend bears to the Prior
Common Dividend, such adjustment to be effective for the
Dividend Period during which the Current Common Dividend is
paid and all subsequent Dividend Periods until again adjusted
in accordance with this paragraph; provided, however, that in
no event shall the adjusted dividend rate of the Series D
Preferred be less than 7.5% of the Liquidation Preference of
the Series D Preferred per annum. No adjustment pursuant to
this subparagraph (F) shall be made on account of any special
common stock dividend or distribution declared for the purpose
of assuring continued qualification of the corporation as a
"real estate investment trust" under the Code.
(4) Liquidation Rights.
(A) Upon the voluntary or involuntary dissolution,
liquidation or winding up of the corporation, the holders of
shares of the Series D Preferred then outstanding shall be
entitled to receive and to be paid out of the assets of the
corporation legally available for distribution to its
shareholders, before any distribution shall be made to the
holders of common stock or any other capital stock of the
corporation ranking junior to the Series D Preferred upon
liquidation, a liquidation preference of $25.00 per share (the
"Liquidation Preference"), plus accrued and unpaid dividends
thereon to the date of payment.
(B) After the payment to the holders of the shares of
the Series D Preferred of the full Liquidation Preference
provided for in this paragraph (4), the holders of the Series
D Preferred as such shall have no right or claim to any of the
remaining assets of the corporation.
3
(C) If, upon any voluntary or involuntary
dissolution, liquidation, or winding up of the corporation,
the amounts payable with respect to the Liquidation Preference
and any other shares of stock of the corporation ranking as to
any such distribution on a parity with the shares of the
Series D Preferred are not paid in full, the holders of the
shares of the Series D Preferred and of such other shares will
share ratably in any such distribution of assets of the
corporation in proportion to the full respective liquidation
preferences to which they are entitled.
(D) Neither the sale, lease, transfer or conveyance
of all or substantially all the property or business of the
corporation, nor the merger or consolidation of the
corporation into or with any other corporation or the merger
or consolidation of any other corporation into or with the
corporation, shall be deemed to be a dissolution, liquidation
or winding up, voluntary or involuntary, for the purposes of
this paragraph (4).
(5) Redemption.
(A) Right of Optional Redemption. The Series D
Preferred is not redeemable prior to the fifth anniversary of
the Issue Date. On and after the fifth anniversary of the
Issue Date, the corporation may, at its option, redeem at any
time all or, from time to time, part of the Series D Preferred
at a price per share (the "Series D Redemption Price"),
payable in cash, of $25.00, together with all accrued and
unpaid dividends to and including the date fixed for
redemption (the "Series D Redemption Date"), without interest;
provided, however, that the corporation may not redeem any
Series D Preferred pursuant to this paragraph (5) unless the
Current Market Price of the common stock on each of the 20
consecutive Trading Days immediately preceding the Series D
Redemption Date shall at least equal the then current
Conversion Price, as defined in paragraph (7). "Current Market
Price" of the common stock or any other class of capital stock
or other security of the corporation or any other issuer for
any day shall mean the last reported sale price, regular way,
on such day or, if no sale takes place on such day, the
average of the reported closing bid and asked prices on such
4
day, regular way, in either case as reported on the New York
Stock Exchange ("NYSE") or, if such security is not listed or
admitted for trading on the NYSE, on the principal national
securities exchange on which such security is listed or
admitted for trading or, if not listed or admitted for trading
on any national securities exchange, on the NASDAQ National
Market or, if such security is not quoted on the NASDAQ
National Market, the average of the closing bid and asked
prices on such day in the over-the-counter market as reported
by NASDAQ or, if bid and asked prices for such security on
such day shall not have been reported through NASDAQ, the
average of the bid and asked prices on such day as furnished
by any NYSE member firm regularly making a market in such
security and selected for such purpose by the Board of
Directors. "Trading Day" in respect of any security shall mean
any day on which such security is traded on the NYSE, or if
such security is not listed or admitted for trading on the
NYSE, on the principal national securities exchange on which
such security is listed or admitted for trading, or if not
listed or admitted for trading on any national securities
exchange, on the NASDAQ National Market or, if such security
is not quoted on the NASDAQ National Market, in the applicable
securities market in which the security is traded.
In case of redemption of less than all shares of
Series D Preferred at the time outstanding, the shares of
Series D Preferred to be redeemed shall be selected pro rata
from the holders of record of such shares in proportion to the
number of shares of Series D Preferred held by such holders
(as nearly as may be practicable without creating fractional
shares) or by any other equitable method determined by the
corporation.
(B) Procedures for Redemption.
(i) Notice of any redemption will be mailed by the
corporation, postage prepaid, not less than 30 nor more than
60 days prior to the Series D Redemption Date, addressed to
the respective holders of record of the Series D Preferred to
be redeemed at their respective addresses as they appear on
the stock transfer records of the corporation. No failure to
give such notice or any defect therein or in the mailing
thereof shall affect the validity of the proceedings for the
redemption of any Series D Preferred except as to the holder
to whom the corporation has failed to give notice or except as
to the holder to whom notice was defective. In addition to any
information required by law, such notice shall state: (a) the
Series D Redemption Date; (b) the Series D Redemption Price;
(c) the number of shares of Series D Preferred to be redeemed;
(d) the place or places where certificates for such shares are
to be surrendered for payment of the Series D Redemption
Price; and (e) that dividends on the shares to be redeemed
will cease to accumulate on the Series D Redemption Date. If
less than all the shares of Series D Preferred held by any
holder are to be redeemed, the notice mailed to such holder
shall also specify the number of shares of Series D Preferred
held by such holder to be redeemed.
(ii) If notice of redemption of any shares of Series
D Preferred has been mailed in accordance with section (i) of
subparagraph (B) of this paragraph (5) above and provided that
on or before the Series D Redemption Date specified in such
notice all funds necessary for such redemption shall have been
irrevocably set aside by the corporation, separate and apart
from its other funds in trust for the benefit of any holders
of the shares of Series D Preferred so called for redemption,
so as to be, and to continue to be available therefor, then,
from and after the Series D Redemption Date, dividends on such
shares of Series D Preferred shall cease to accrue, and such
shares shall no longer be deemed to be outstanding and shall
not have the status of Series D Preferred and all rights of
the holders thereof as shareholders of the corporation (except
5
the right to receive the Series D Redemption Price) shall
terminate. Upon surrender, in accordance with said notice, of
the certificates for any shares of Series D Preferred so
redeemed (properly endorsed or assigned for transfer, if the
corporation shall so require and the notice shall so state),
such shares of Series D Preferred shall be redeemed by the
corporation at the Series D Redemption Price. In case less
than all the shares of Series D Preferred represented by any
such certificate are redeemed, a new certificate or
certificates shall be issued representing the unredeemed
shares of Series D Preferred without cost to the holder
thereof.
(iii) The deposit of funds with a bank or trust
company for the purpose of redeeming Series D Preferred shall
be irrevocable except that:
(a) the corporation shall be entitled to
receive from such bank or trust company the interest
or other earnings, if any, earned on any money so
deposited in trust, and the holders of any shares
redeemed shall have no claim to such interest or
other earnings; and
(b) any balance of moneys so deposited by
the corporation and unclaimed by the holders of the
Series D Preferred entitled thereto at the expiration
of two years from the applicable Series D Redemption
Date shall be repaid, together with any interest or
other earnings earned thereon, to the corporation,
and after any such repayment, the holders of the
shares entitled to the funds so repaid to the
corporation shall look only to the corporation for
payment without interest or other earnings.
(C) Limitations on Redemption
(i) The Series D Redemption Price (other than the
portion thereof consisting of accrued and unpaid dividends)
shall be payable solely out of the sale proceeds of other
capital stock of the corporation and from no other source.
(ii) Unless full cumulative dividends on all shares
of Series D Preferred shall have been or contemporaneously are
declared and paid or declared and a sum sufficient for the
payment thereof set apart for payment for all past Dividend
Periods and the then current Dividend Period, no Series D
Preferred shall be redeemed (unless all outstanding shares of
Series D Preferred are simultaneously redeemed) or purchased
or otherwise acquired directly or indirectly by the
corporation (except by exchange for Junior Stock); provided,
however, that the foregoing shall not prevent the redemption
of Series D Preferred pursuant to Article 4 or the purchase or
acquisition of Series D Preferred pursuant to a purchase or
exchange offer made on the same terms to holders of all
outstanding shares of Series D Preferred.
(iii) The corporation shall not redeem in any period
of 12 consecutive months a number of shares of Series D
Preferred having an aggregate Liquidation Preference of more
than $100,000,000, provided that this restriction shall lapse
and be of no further force or effect if in any such period any
holder of record of such number of shares of Series D
Preferred or shares of common stock issued on conversion of
6
such number of shares of Series D Preferred shall transfer
beneficial ownership of such number of shares of Series D
Preferred or such common stock, or a combination of shares of
Series D Preferred and such common stock representing such
number of shares of Series D Preferred, except (a) in a
distribution of such shares of Series D Preferred and/or
shares of common stock to the security holders of such holder
of record or (b) in a bona fide pledge to a bank or other
financial institution to secure obligations for borrowed
money, or as margin collateral, or upon foreclosure or private
sale under such pledge.
(D) Rights to Dividends on Shares Called for
Redemption. If the Series D Redemption Date is after a
Dividend Record Date and before the related Dividend Payment
Date, the dividend payable on such Dividend Payment Date shall
be paid to the holder in whose name the shares of Series D
Preferred to be redeemed are registered at the close of
business on such Dividend Record Date notwithstanding the
redemption thereof between such Dividend Record Date and the
related Dividend Payment Date or the corporation's default in
the payment of the dividend due. Except as provided in this
paragraph (5), the corporation will make no payment or
allowance for unpaid dividends, whether or not in arrears, on
called Series D Preferred.
(6) Voting Rights. Except as required by the Virginia Stock
Corporation Act and except as otherwise provided in this
paragraph (6), the holders of the Series D Preferred shall not
be entitled to vote at any meeting of the shareholders for
election of directors or for any other purpose or otherwise to
participate in any action taken by the corporation or the
shareholders thereof, or to receive notice of any meeting of
shareholders.
(A) Whenever dividends on any shares of Series D
Preferred shall be in arrears for any Dividend Period, the
holders of such shares of Series D Preferred shall have all
rights to notices and voting entitlements of holders of common
stock under the Virginia Stock Corporation Act and these
Articles, and the Series D preferred and the common stock
shall be a single voting group, until all dividends
accumulated on such shares of Series D Preferred for all past
Dividend Periods and the then current Dividend Period shall
have been fully paid or declared and a sum sufficient for the
payment thereof set aside for payment.
(B) So long as any shares of Series D Preferred
remain outstanding, the corporation shall not, without the
affirmative vote of the holders of at least a majority of the
shares of the Series D Preferred outstanding at the time, (i)
authorize or create, or increase the authorized or issued
amount of, any class or series of capital stock ranking prior
to the Series D Preferred with respect to payment of dividends
or the distribution of assets upon liquidation, dissolution or
winding up or reclassify any authorized capital stock of the
7
corporation into any such shares, or create, authorize or
issue any obligation or security convertible into or
evidencing the right to purchase any such shares; or (ii)
amend, alter or repeal the provisions of these Articles,
whether by merger, consolidation or otherwise, so as to
materially and adversely affect any right, preference,
privilege or voting power of the Series D Preferred or the
holders thereof; provided, however, that any increase in the
amount of the authorized preferred stock or the creation or
issuance of any other series of preferred stock, or any
increase in the amount of authorized shares of such series, in
each case ranking on a parity with or junior to the Series D
Preferred with respect to payment of dividends or the
distribution of assets upon liquidation, dissolution or
winding up, shall not be deemed to materially and adversely
affect such rights, preferences, privileges or voting powers.
(C) The foregoing voting provisions will not apply
if, at or prior to the time when the act with respect to which
such vote would otherwise be required shall be effected, all
outstanding shares of Series D Preferred shall have been
redeemed or called for redemption upon proper notice and
sufficient funds shall have been deposited in trust to effect
such redemption.
(7) Conversion of Series D Preferred.
(A) As used in this paragraph (7), the following
terms shall have the indicated meanings:
"Adjustment Factor," for purposes of any
determination provided for in this paragraph (7) requiring
reference to the Adjustment Factor, shall equal the Conversion
Price in effect on the determination date divided by $16.25.
"Conversion Price" shall mean the conversion price
per share of common stock at which the Series D Preferred is
convertible into common stock, as such Conversion Price may be
adjusted pursuant to subparagraph (E) of this paragraph (7).
The initial Conversion Price shall be $16.25.
"Conversion Rate" shall mean the rate at which the
Series D Preferred is convertible into common stock, as such
Conversion Rate may be adjusted pursuant to subparagraph (E)
of this paragraph (7). The initial Conversion Rate shall be
1.5385 shares of common stock for each share of Series D
Preferred.
"Fair Market Value," in the case of any security or
property not having a market value ascertainable by reference
to any quotation medium or other objective source, shall mean
the fair market value thereof as determined in good faith by
the Board of Directors, which determination shall be final,
conclusive and binding on all persons
8
"Transfer Agent" shall mean ChaseMellon Shareholder
Services, LLC, or such other agent or agents of the
corporation as may be designated by the Board of Directors as
the transfer agent for the Series D Preferred.
(B) Subject to and upon compliance with the
provisions of this paragraph (7), a holder of shares of Series
D Preferred shall have the right (the "Conversion Right"),at
his option, at any time and from time to time, to convert such
shares into the number of shares of fully paid and
nonassessable common stock obtained by dividing the aggregate
Liquidation Preference of such shares of Series D Preferred by
the Conversion Price (as in effect at the time and on the date
provided for in the last paragraph of subparagraph (C) of this
paragraph (7)) by surrendering such shares to be converted,
such surrender to be made in the manner provided in
subparagraph (C) of this paragraph (7); provided, however,
that the right to convert shares called for redemption
pursuant to paragraph (5) shall terminate at the close of
business on the Series D Redemption Date fixed for such
redemption, unless the corporation shall default in making
payment of any amounts payable upon such redemption under
paragraph (5).
(C) In order to exercise the Conversion Right, the
holder of each share of Series D Preferred to be converted
shall surrender the certificate evidencing such share, duly
endorsed or assigned to the corporation or in blank, at the
office of the Transfer Agent, accompanied by written notice to
the corporation that the holder thereof elects to convert such
share of Series D Preferred. Unless the certificate or
certificates for shares of common stock issuable on conversion
are to be registered in the same name as the name in which
such certificate for Series D Preferred is registered, each
certificate surrendered for conversion shall be accompanied by
instruments of transfer, in form satisfactory to the
corporation, duly executed by the holder or such holder's duly
authorized agent and an amount sufficient to pay any transfer
or similar tax (or evidence reasonably satisfactory to the
corporation demonstrating that such taxes have been paid).
Holders of Series D Preferred at the close of
business on a Dividend Record Date shall be entitled to
receive the dividend payable on the corresponding Dividend
Payment Date notwithstanding the conversion thereof following
such Dividend Record Date and prior to such Dividend Payment
Date. However, shares of Series D Preferred surrendered for
conversion during the period beginning with the close of
business on any Dividend Record Date and ending with the
opening of business on the corresponding Dividend Payment Date
(except shares converted after the issuance of a notice of
redemption specifying a Series D Redemption Date occurring
within such period or coinciding with such Dividend Payment
Date, such shares being entitled to such dividend on the
9
Dividend Payment Date) must be accompanied by payment of an
amount equal to the dividend payable on such shares on such
Dividend Payment Date. A holder of shares of Series D
Preferred on a Dividend Record Date who (or whose transferee)
surrenders any such shares for conversion into common stock
after the opening of business on the corresponding Dividend
Payment Date will receive the dividend payable by the
corporation on such Series D Preferred on such date, and the
converting holder need not include payment of the amount of
such dividend upon such surrender. The corporation shall make
further payment or allowance for, and a converting holder
shall be entitled to, unpaid dividends in arrears (excluding
the then-current quarter) on converted shares and for
dividends on the common stock issued upon such conversion.
As promptly as practicable after the surrender of
certificates for Series D Preferred as aforesaid, the
corporation shall issue and shall deliver at such office to
such holder, or on his written order, a certificate or
certificates for the number of full shares of common stock
issuable upon the conversion of such Series D Preferred in
accordance with the provisions of this paragraph (7), and any
fractional interest in respect of common stock arising upon
such conversion shall be settled as provided in subparagraph
(D) of this paragraph (7). Each conversion shall be deemed to
have been effected immediately prior to the close of business
on the date on which the certificates for Series D Preferred
shall have been surrendered and such notice (and if
applicable, payment of an amount equal to the dividend payable
on such shares) received by the corporation as aforesaid, and
the person or persons in whose name or names any certificate
or certificates for common stock shall be issuable upon such
conversion shall be deemed to have become the holder or
holders of record of the shares represented thereby at such
time on such date, and such conversion shall be at the
Conversion Price in effect at such time and on such date,
unless the share transfer books of the corporation shall be
closed on that date, in which event such person or persons
shall be deemed to have become such holder or holders of
record at the opening of business on the next succeeding day
on which such share transfer books are open, but such
conversion shall be at the Conversion Price in effect on the
date on which such certificates for Series D Preferred have
been surrendered and such notice received by the corporation.
(D) No fractional shares or scrip representing
fractions of common stock shall be issued upon conversion of
the Series D Preferred. In lieu of issuing a fractional
interest in common stock that would otherwise be deliverable
upon the conversion of a share of Series D Preferred, the
corporation shall pay to the holder of such share an amount in
cash based upon the Current Market Price of the common stock
on the Trading Day immediately preceding the date of
conversion. If more than one share of Series D Preferred shall
be surrendered for conversion at one time by the same holder,
the number of full shares of common stock issuable upon
conversion thereof shall be computed on the basis of the
aggregate number of shares of Series D Preferred so
surrendered.
(E) The Conversion Rate and Conversion Price shall be
adjusted from time to time as follows:
10
(i) If the corporation shall after the Issue Date (a)
declare and pay a dividend to holders of any class of capital
stock of the corporation payable in common stock, (b)
subdivide its outstanding common stock into a greater number
of shares, (c) combine its outstanding common stock into a
smaller number of shares or (d) reclassify its common stock,
the Conversion Rate shall be adjusted so that the holder of
any Series D Preferred thereafter surrendered for conversion
shall be entitled to receive the number of shares of common
stock that such holder would have owned or have been entitled
to receive after the happening of any of the events described
above had such shares been converted immediately prior to the
record date in the case of a dividend or the effective date in
the case of a subdivision, combination or reclassification. An
adjustment made pursuant to this section (i) shall become
effective immediately after the opening of business on the day
next following the record date (except as provided in
subparagraph (I) below) in the case of a dividend and shall
become effective immediately after the opening of business on
the day next following the effective date in the case of a
subdivision, combination or reclassification. Such
adjustment(s) shall be made successively whenever any of the
events listed above shall occur.
(ii) If the corporation shall issue after the Issue
Date rights, options or warrants to all holders of common
stock entitling them to subscribe for or purchase common stock
(or securities convertible into common stock) at a price per
share (or having a conversion price per share) less than 98%
of the Current Market Price of the common stock determined as
of the record date for the determination of shareholders
entitled to receive such rights, options or warrants, then the
Conversion Price shall be adjusted to equal the price
determined by multiplying (A) the Conversion Price in effect
immediately prior to the close of business on such record date
(B) a fraction, the numerator of which shall be the sum of (I)
the number of shares of common stock outstanding on the close
of business on such record date and (II) the number of shares
of common stock that could be purchased at the Current Market
Price on such record date with the aggregate proceeds to the
corporation from the exercise of such rights, options or
warrants (or the aggregate conversion price of the convertible
securities so offered), and the denominator of which shall be
the sum of (x) the number of shares of common stock
outstanding on the close of business on such record date and
(y) the number of shares of common stock issuable upon
exercise in full of such rights, options or warrants (or into
which the convertible securities so offered are convertible).
Such adjustment shall become effective immediately after the
opening of business on the day next following such record date
(except as provided in subparagraph (I) below). In determining
whether any rights, options or warrants entitle the holders of
common stock to subscribe for or purchase common stock at less
than 98% of the Current Market Price, there shall be taken
into account any consideration received by the corporation
upon issuance and upon exercise of such rights, options or
warrants, the value of such consideration, if other than cash,
to be determined by the Board of Directors, whose decision
shall be final, conclusive, and binding on all persons. Any
adjustment(s) made pursuant to this section (ii) shall be made
successively whenever any of the events listed above shall
occur.
11
(iii) If the corporation shall after the Issue Date
distribute to all holders of its common stock any shares of
capital stock of the corporation (other than common stock) or
evidence of its indebtedness or assets (including securities
or cash, but excluding cash dividends not exceeding in amount
current or accumulated funds from operations at the date of
declaration, determined on the basis of the corporation's most
recent annual or quarterly report to shareholders at the time
of the declaration of such dividends) or rights, options or
warrants to subscribe for or purchase any of its securities
(excluding rights, options or warrants referred to in section
(ii) above) (any of the foregoing being hereinafter in this
section (iii) called the "Securities"), then in each case the
Conversion Price shall be adjusted so that it shall equal the
price determined by multiplying (A) the Conversion Price in
effect immediately prior to the close of business on the
record date fixed for the determination of shareholders
entitled to receive such distribution by (B) a fraction, the
numerator of which shall be (I) the Current Market Price per
share of common stock on such record date or, if applicable,
the deemed record date described in the immediately following
paragraph, less (II) the then Fair Market Value of the
Securities or assets so distributed applicable to one share of
common stock, and the denominator of which shall be the
Current Market Price per share of common stock on such record
date or, if applicable, the record date described in the
immediately following paragraph. Such adjustment shall become
effective immediately at the opening of business on the
Business Day next following (except as provided in
subparagraph (I)) such record date.
For purposes of this section (iii), distribution of a
Security which is distributed not only to the holders of the
common stock on the record date fixed for the determination of
shareholders entitled to such distribution, but is also
delivered with each share of common stock issued upon
conversion of Series D Preferred after such record date, shall
not require an adjustment of the Conversion Price pursuant to
this section (iii); provided that on the date, if any, on
which such Security ceases to be deliverable with common stock
upon conversion of Series D Preferred (other than as a result
of the expiration or termination of all such Securities), a
distribution of such Securities shall be deemed to have
occurred, and the Conversion Price shall be adjusted as
provided in this section (iii) (and such date shall be deemed
for purposes of this section (iii) to be the "record date
fixed for the determination of shareholders entitled to
receive such distribution" and the "record date").
Adjustment(s) made pursuant to this section (iii)
shall be made successively whenever any of the events listed
above shall occur.
12
(iv) If after the Issue Date (i) the corporation
shall merge or consolidate with any other real estate
investment trust, corporation or other business entity and
shall not be the survivor in such transaction (without respect
to the legal structure of the transaction), (ii) the
corporation shall transfer or sell all or substantially all of
its assets other than to an affiliate or subsidiary of the
corporation or (iii) the corporation shall liquidate and
dissolve, and the consideration allocable to each share of
common stock in any such transaction shall not have a Fair
Market Value of at least $15 times the Adjustment Factor, the
Conversion Price in effect at the opening of business on the
date on which such transaction is consummated or effective, if
greater than $15 times the Adjustment Factor, shall be
adjusted effective at the opening of business on such date to
equal $15 times the Adjustment Factor.
(v) If the Current Market Price of the common stock
on at least 20 consecutive Trading Days during the period of
36 consecutive months beginning on the second anniversary of
the Issue Date is not at least $14 times the Adjustment
Factor, and the Conversion Price in effect at the opening of
business on the fifth anniversary of the Issue Date or the
next succeeding Business Day, if such fifth anniversary is not
a Business Day, is greater than $15.25 times the Adjustment
Factor, the Conversion Price shall be adjusted effective at
the opening of business on such fifth anniversary or the next
following Business Day, if such fifth anniversary is not a
Business Day, to equal $15.25 times the Adjustment Factor.
(vi) No adjustment in the Conversion Price shall be
required unless such adjustment would require a cumulative
increase or decrease of at least 1% in such price; provided,
however, that any adjustments that by reason of this section
(vi) are not required to be made shall be carried forward and
taken into account in any subsequent adjustment until made;
and provided, further, that any adjustment shall be required
and made in accordance with the provisions of this paragraph
(7) (other than this section (vi)) not later than such time as
may be required in order to preserve the tax-free nature of a
dividend to the holders of common stock. Notwithstanding any
other provisions of this paragraph (7), the corporation shall
not be required to make any adjustment to the Conversion Price
for the issuance of any common stock pursuant to any plan
providing for the reinvestment of dividends or interest
payable on securities of the corporation and the investment of
additional optional amounts in common stock under such plan.
All calculations under this paragraph (7) shall be made to the
nearest cent (with $.005 being rounded upward) or to the
nearest one-tenth of a share (with .05 of a share being
rounded upward), as the case may be.
(F) If the corporation shall after the Issue Date be
a party to any transaction (including without limitation a
merger, consolidation, statutory share exchange, self tender
offer for all or substantially all of the outstanding common
stock, sale of all or substantially all of the corporation's
assets, recapitalization or reclassification of capital stock,
but excluding any transaction to which section (i) of
subparagraph (E) of this paragraph (7) applies (each of the
foregoing being referred to herein as a "Transaction"), in
13
each case upon consummation of which common stock shall be
converted into the right to receive shares, stock, securities
or other property (including cash) or any combination thereof
("Transaction Consideration"), each share of Series D
Preferred which is not itself converted into the right to
receive Transaction Consideration in connection with such
Transaction shall thereafter be convertible into the kind and
amount of Transaction Consideration payable upon the
consummation of such Transaction with respect to that number
of shares of common stock into which one share of Series D
Preferred was convertible immediately prior to such
Transaction. The corporation shall not be a party to any
Transaction unless the terms of such Transaction are
consistent with this subparagraph (F) and enable the holder of
each share of Series D Preferred that remains outstanding
after consummation of such Transaction to convert such share
at the Conversion Price in effect immediately prior to such
Transaction into the Transaction Consideration payable with
respect to the number of shares of common stock into which
such share of Series D Preferred is then convertible. The
provisions of this subparagraph (F) shall similarly apply to
successive Transactions.
(G) If after the Issue Date:
(i) the corporation shall declare dividends on the
common stock, excluding cash dividends not exceeding in amount
current or accumulated funds from operations at the date of
declaration, determined on the basis of the corporation's most
recent annual or quarterly report to shareholders at the time
of the declaration of such dividends; or
(ii) the corporation shall authorize the granting to
the holders of the common stock of rights, options or warrants
to subscribe for or purchase any shares of any class or any
other rights, options or warrants; or
(iii) there shall be any Transaction for which
approval of any shareholders of the corporation is required or
self tender for all or substantially all of the outstanding
common stock; or
(iv) there shall occur the voluntary or involuntary
liquidation, dissolution or winding up of the corporation;
then the corporation shall cause to be filed with the
Transfer Agent and shall cause to be mailed to the holders of
the Series D Preferred at their addresses as shown on the
share records of the corporation, as promptly as possible, but
at least 15 days prior to the earliest applicable date
hereinafter specified, a notice stating (A) the record date as
of which the holders of common stock entitled to receive such
dividend or grant of rights, options or warrants are to be
determined, provided, however, that no such notification need
be made in respect of a record date for a dividend or grant of
rights, options or warrants unless the corresponding
14
adjustment in the Conversion Price would be an increase or
decrease of at least 1%, or (B) the date on which such
Transaction, self tender, liquidation, dissolution or winding
up is expected to become effective, and the date as of which
it is expected that holders of common stock of record shall be
entitled to exchange their common stock for securities or
other property, if any, deliverable upon such Transaction,
self tender, liquidation, dissolution or winding up. Failure
to give such notice or any defect therein shall not affect the
legality or validity of the proceedings described in this
paragraph (7).
(H) Whenever the Conversion Price is adjusted as
herein provided, the corporation shall promptly file with the
Transfer Agent a certificate of its chief financial or chief
accounting officer setting forth the Conversion Price after
such adjustment and setting forth a brief statement of the
facts requiring such adjustment, which certificate shall be
conclusive evidence of the correctness of such adjustment
absent manifest error. Promptly after delivery of such
certificate, the corporation shall prepare a notice of such
adjustment of the Conversion Price setting forth the adjusted
Conversion Price and the effective date on which such
adjustment becomes effective and shall mail such notice of
such adjustment of the Conversion Price to the holder of each
share of Series D Preferred at such holder's last address of
record.
(I) In any case in which subparagraph (E) of this
paragraph (7) provides that an adjustment shall become
effective on the date next following the record date for an
event, the corporation may defer until the occurrence of such
event (i) issuing to the holder of any Series D Preferred
converted after such record date and before the occurrence of
such event the additional common stock issuable upon such
conversion by reason of the adjustment required by such event
over and above the common stock issuable upon such conversion
before giving effect to such adjustment and (ii)
fractionalizing any share of common stock into which Series D
Preferred is convertible and/or paying to such holder cash in
lieu of such fractional interest pursuant to subparagraph (D)
of this paragraph (7).
(J) There shall be no adjustment of the Conversion
Price in case of the issuance of any shares of capital stock
of the corporation in a reorganization, acquisition or other
similar transaction except as specifically set forth in this
paragraph (7).
(K) The corporation will at all times reserve and
keep available, free from preemptive rights, out of its
authorized but unissued common stock, for the purpose of
effecting conversion of the Series D Preferred, the full
number of shares of common stock deliverable upon the
conversion of all outstanding Series D Preferred not
theretofore converted. For purposes of this subparagraph (K),
the number of shares of common stock deliverable upon the
conversion of all outstanding shares of Series D Preferred
shall be computed as if at the time of computation all such
outstanding shares were held by a single holder.
15
(L) The corporation will pay any and all documentary
stamp or similar issue or transfer taxes payable in respect of
the issue or delivery of common stock or other securities or
property on conversion of the Series D Preferred pursuant
hereto; provided, however, that the corporation shall not be
required to pay any tax that may be payable in respect of any
transfer involved in the issue or delivery of common stock or
other securities or property in a name other than that of the
holder of the Series D Preferred to be converted, and no such
issue or delivery shall be made unless and until the person
requesting such issue or delivery has paid to the corporation
the amount of any such tax or has established, to the
reasonable satisfaction of the corporation, that such tax has
been paid.
In addition to the foregoing adjustments, the
corporation shall be entitled to make such reductions in the
Conversion Price, in addition to those required herein, as it
in its discretion considers to be advisable in order that any
share dividends, subdivisions of shares, reclassification or
combination of shares, dividend of rights, options, warrants
to purchase shares or securities, or a dividend of other
assets (other than cash dividends) will not be taxable or, if
that is not possible, to diminish any income taxes that are
otherwise payable because of such event.
(M) Definitions. Unless the context otherwise clearly
indicates, terms defined in any subdivision of this paragraph
(7) shall have the same meanings wherever used in this
paragraph (7).
00
XXXXXXX X
XXXXXXXXXX XXXXXXXXX
xxxxx
XXXXXX XXXXXXXX REALTY TRUST, INC.
a Virginia corporation
UNITED DOMINION REALTY, L.P.
a Virginia limited partnership
AMERICAN APARTMENT COMMUNITIES II, INC.
a Maryland corporation
AMERICAN APARTMENT COMMUNITIES III, L.P.
a Delaware limited partnership
AMERICAN APARTMENT COMMUNITIES OPERATING PARTNERSHIP, L.P.
a Delaware limited partnership
SCHNITZER INVESTMENT CORP.
an Oregon corporation
AAC MANAGEMENT LLC
a Delaware limited liability company
and
LF STRATEGIC REALTY INVESTORS, L.P.
a New York limited partnership
Dated: September _, 1998
TABLE OF CONTENTS
Page
----
ARTICLE I CERTAIN DEFINITIONS.....................................................................................2
ARTICLE II REPRESENTATIONS AND WARRANTIES.........................................................................5
ARTICLE III LOCK-UP AGREEMENT.....................................................................................6
Section 3.1..............................................................................................6
ARTICLE IV REGISTRATION RIGHTS....................................................................................9
Section 4.1 Registration.................................................................................9
Section 4.2 State Securities Laws.......................................................................12
Section 4.3 Expenses....................................................................................12
Section 4.4 Indemnification by the Company..............................................................12
Section 4.5 Agreements of Transaction Party Affiliates..................................................13
Section 4.6 Suspension of Registration Requirement: Restriction on Sale................................14
Section 4.7 Contribution................................................................................15
Section 4.8 No Other Obligation to Register.............................................................16
Section 4.9 Exchange Act Compliance.....................................................................16
Section 4.10 Breach of Agreement........................................................................16
ARTICLE V STANDSTILL AGREEMENT...................................................................................16
Section 5.1 Standstill..................................................................................16
Section 5.2 Termination of Certain Restrictions.........................................................18
ARTICLE VI GENERAL PROVISIONS....................................................................................20
Section 6.1 Notices.....................................................................................20
Section 6.2 Successors and Assigns......................................................................23
Section 6.3 Counterparts................................................................................23
Section 6.4 Governing Law...............................................................................23
Section 6.5 Severability................................................................................23
Section 6.6 Entire Agreement; Amendment; Waiver.........................................................24
Section 6.7 Interpretation; Absence of Presumption......................................................24
(i)
INVESTMENT AGREEMENT
This Investment Agreement (this "Agreement") is entered into as of
September _, 1998 by and among United Dominion Realty Trust, Inc., a Virginia
corporation (the "Company"), United Dominion Realty, L.P., a Virginia limited
partnership (the "Company Operating Partnership"), American Apartment
Communities II, Inc., a Maryland corporation ("AAC"), American Apartment
Communities III, L.P., a Delaware limited partnership ("AAC III"), American
Apartment Communities Operating Partnership, L.P., a Delaware limited
partnership ("AACOP"), Schnitzer Investment Corp., an Oregon corporation
("Schnitzer"), AAC Management LLC, a Delaware limited liability company ("AACM"
and, collectively with AACOP and Schnitzer, the "UDR Unit Holders"), and LF
Strategic Realty Investors, L.P., a New York limited partnership (the "Preferred
Holder" and, collectively with the UDR Unit Holders, the "Holders").
RECITALS
WHEREAS, pursuant to that certain Partnership Interest Purchase and
Exchange Agreement, dated September 9, 1998 (the "Exchange Agreement"), among
the Company Operating Partnership, AACLP, Schnitzer, AACOP and AACM,
concurrently herewith the Unit Holders are receiving common units of limited
partnership interest in the Company Operating Partnership (the "UDR Units"),
which UDR Units may be redeemed by the holders thereof for cash or, at the
election of the Company, exchanged for shares of common stock of the Company, $1
par value ("Common Stock");
WHEREAS, pursuant to that certain Agreement and Plan of Merger, dated
September 9, 1998 (the "Merger Agreement"), between the Company and AAC
concurrently herewith the Preferred Holder is receiving shares of the Company's
Series D Cumulative Convertible Preferred Stock (the "Preferred Shares"), which
Preferred Shares may be converted into shares of Common Stock;
WHEREAS, AACM proposes to contribute to AAC III certain of the UDR
Units that it will receive pursuant to the Exchange, which contribution has been
consented to by the Company and the Company Operating Partnership provided AAC
III joins in this Agreement as a party hereto; and
WHEREAS, it is a condition precedent to the obligation of the Holders
to consummate the transactions described in the Exchange Agreement and the
Merger Agreement that the Company provide the Holders with the registration
rights set forth in Article IV.
NOW, THEREFORE, in consideration of the foregoing, the mutual promises
and agreements set forth herein, and other valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the parties hereto hereby
agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
As used in this Agreement, in addition to the other terms defined
herein the following capitalized defined terms shall have the following
meanings:
"AAC Affiliate" shall mean any Person who was an "affiliate" of AAC
(within the meaning of paragraph (c) of Rule 145) at the time the Merger was
submitted for the vote or consent of the security holders of AAC.
"AACLP" shall mean American Apartment Communities II, L.P., a Delaware
limited partnership.
"Affiliate" shall have the meaning ascribed to such term in Rule 12b-2
under the Exchange Act.
"Average Market Capitalization" on or as of any date shall mean the
Company's average common equity market capitalization for the ten consecutive
Trading Days prior to but not including such date. The number of shares of
Common Stock into which the Preferred Shares outstanding at the determination
date are convertible shall be taken into account in any determination of Average
Market Capitalization; otherwise, Average Market Capitalization shall not be
determined on a Fully-Diluted Basis.
"Beneficial Ownership" shall be determined in accordance with Rule
13d-3 of the SEC under the Exchange Act. "Beneficially Own" shall have a
correlative meaning.
"Board" shall mean the Board of Directors of the Company.
"Change of Control" shall mean (i) the merger or consolidation of the
Company with any other real estate investment trust, corporation or other
business entity, in which the Company is not the survivor (without respect to
the legal structure of the transaction), (ii) the transfer or sale of all or
substantially all of the assets of the Company other than to an Affiliate or
subsidiary of the Company, (iii) the liquidation of the Company, (iv) the
acquisition by any person or by a group of persons acting in concert, of more
than 50% of the outstanding voting securities of the Company, which results in
the resignation or addition of 50% or more members of the Board or the
resignation or addition of 50% or more independent members of the Board, or (v)
cessation for any reason of those directors of the Company who were elected at
the annual meeting of shareholders of the Company immediately preceding the
determination date (together with any new directors elected after such annual
meeting whose election by the Board or whose nomination for election by the
shareholders of the Company was approved by a vote of 66 2/3% of the directors
who were either elected at such annual meeting or whose election or nomination
for election was previously so approved) to constitute a majority of the Board
in office on the determination date.
2
"Control" shall mean with respect to any Person the power to direct the
management and policies of such Person, directly or indirectly, whether through
ownership of voting securities, by contract or otherwise.
"Controlled" shall have a correlative meaning.
"Conversion Shares" shall mean any shares of Common Stock into which
Preferred Shares are convertible or which may be issued in exchange for UDR
Units upon redemption of such UDR Units.
"Exchange" shall mean the exchange of units of limited partnership in
AACLP for cash and UDR units contemplated by the Exchange Agreement.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Family Member" shall mean any of the following who is at least 18
years of age: a spouse, a child (natural or adopted), a spouse of any child, a
sibling or a lineal descendant of any of the foregoing, or a trust for the
benefit of any of the foregoing, without regard to the age of the beneficiary or
beneficiaries, provided such trust will not terminate in respect of any of the
foregoing who is a beneficiary until such beneficiary attains 18 years of age.
"First-Tier Transferee" shall mean any Permitted Preferred Share
Transferee (as defined in Section 3.1(c)), any security holder of the Preferred
Holder to whom Preferred Shares are distributed and any security holder of a UDR
Unit Holder or Family Member of such security holder to whom UDR Units are
distributed.
"Fully-Diluted Basis" as a qualifier of any determination to be made
pursuant to this Agreement shall mean that number of shares of Common Stock then
outstanding, plus the number of shares of Common Stock issuable upon conversion
or exchange of other securities which are then convertible into or exchangeable
for Common Stock, plus the number of votes which may be cast by holders of other
securities of the Company then outstanding that are entitled to vote with the
holders of the Common Stock as a single voting group shall be taken into account
in making such determination.
"Group" shall mean a "group," as such term is used in Section 13(d)(3)
of the Exchange Act, identified in a Schedule 13D filed or proposed to be filed
with respect to the Company.
"Merger" shall mean the merger of AAC with and into the Company
contemplated by the Merger Agreement.
"NASD" shall mean the National Association of Securities Dealers, Inc.
"NYSE" shall mean the New York Stock Exchange.
"Partnership Agreement" shall mean the agreement of limited
partnership, as amended, of the Company Operating Partnership.
3
"Person" shall mean an individual, partnership, corporation, trust, or
unincorporated organization, or a government or agency or political subdivision
thereof.
"Prospectus" shall mean the prospectus included in a Registration
Statement, including any preliminary prospectus, as amended or supplemented from
time to time, and any documents incorporated by reference therein.
"Registration Expenses" shall mean any and all expenses incident to
performance of or compliance with this Agreement, including, without limitation:
(i) all SEC, stock exchange or NASD registration and filing fees; (ii) all fees
and expenses incurred in connection with compliance with state securities or
"blue sky" laws (including reasonable fees and disbursements of counsel in
connection with "blue sky" qualification of any of the Conversion Shares and the
preparation of a Blue Sky Memorandum) and compliance with the rules of the NASD;
(iii) all expenses of any Persons in preparing or assisting in preparing, word
processing, printing and distributing any Registration Statement, any
Prospectus, certificates and other documents relating to the performance of and
compliance with this Agreement; (iv) all fees and expenses incurred in
connection with the listing, if any, of any of the Conversion Shares on any
securities exchange or exchanges pursuant to Section 4.1(d) hereof; and (v) the
fees and disbursements of counsel for the Company and of the independent public
accountants of the Company, including the expenses of any special audit or "cold
comfort" letters required by or incident to such performance and compliance.
Registration Expenses shall specifically exclude underwriting discounts and
commissions relating to the sale or disposition of Conversion Shares by any
Holder or Transaction Party Affiliate, the fees and disbursements of counsel
representing any Holder or Transaction Party Affiliate, and transfer taxes, if
any, relating to the sale or disposition of Conversion Shares by any Holder or
Transaction Party Affiliate, all of which shall be borne by such Holder or
Transaction Party Affiliate in all cases.
"Registration Statement" shall mean any registration statement of the
Company that covers the issuance of any Conversion Shares and/or the reoffering
thereof by a Transaction Party Affiliate on an appropriate form, and all
amendments and supplements to such registration statement, including
post-effective amendments, in each case including the Prospectus contained
therein, all exhibits thereto and all materials incorporated by reference
therein.
"Rule 144" shall mean Rule 144 under the Securities Act.
"Rule 145" shall mean Rule 145 under the Securities Act.
"SEC" shall mean the Securities and Exchange Commission.
"Securities" shall mean the Preferred Shares and the UDR Units
collectively or, as the context may indicate, either the Preferred Shares or the
UDR Units, and shall include any Conversion Shares or other securities of the
Company issued or issuable upon conversion or exchange thereof.
"Securities Act" shall mean the Securities Act of 1933, as amended.
4
"Trading Day" for purposes of any computation pursuant to this
Agreement in which the market value of any security of the Company is taken into
account, shall mean any day on which such security is traded on the NYSE, or if
such security is not listed or admitted for trading on the NYSE, on the
principal national securities exchange on which such security is listed or
admitted for trading, or if not listed or admitted for trading on any national
securities exchange, on the NASDAQ National Market or, if such security is not
quoted on the NASDAQ National Market, in the applicable securities market in
which the security is traded.
"Transaction Party Affiliate" shall mean any AAC Affiliate or any
Holder or First-Tier Transferee who becomes a UDR Affiliate as a result of the
Merger or the Exchange and shall include any pledgee for whom a Registration
Statement is filed pursuant to Section 4.1(a)(iv) or (v).
"UDR Affiliate" shall mean any Person who is an "affiliate" of the
Company within the meaning of paragraph (a)(1) of Rule 144.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
In order to assure the Company's compliance with applicable securities
laws, each Holder represents and warrants to the Company as of the date of this
Agreement, as follows:
(a) Such Holder is an "accredited investor" as defined in Rule
501(a) of the Securities Act.
(b) Such Holder is aware that the Securities have not been
registered under the Securities Act.
(c) The Securities are being acquired for such Holder's own
account without any intention to distribute or resell the Securities in
violation of the Securities Act or any applicable state securities or "blue sky"
law.
(d) Such Holder has received and thoroughly read and evaluated
the information concerning the Company and the Company Operating Partnership
provided to such Holder by the Company, through the management of AAC, in
connection with the Merger and the Exchange, and has been given the opportunity
to ask questions of, and receive answers from, the Company and its authorized
representatives concerning the terms and conditions of the Merger and the
Exchange and to obtain such additional information from the Company and its
authorized representatives as such Holder has considered appropriate. Such
Holder has assumed the accuracy and completeness of all such information and
that such information did not omit to state a material fact necessary to make
such information not misleading in light of the circumstances.
5
(e) Such Holder has sought such accounting, legal and tax
advice as such Holder has considered necessary to make an informed investment
decision.
(f) Such Holder is experienced in investment and business
matters (or has been advised by an investment advisor who is so experienced),
and understands fully the nature of the risks involved in an investment in the
Securities.
(g) (i) Such Holder's office address as set forth in Section
6.1 hereof is correct; (ii) such Holder is not a foreign Person for purposes of
U.S. income taxation; and (iii) such Holder is not subject to backup withholding
either because Holder has not been notified by the Internal Revenue Service
("IRS") that Holder is subject to backup withholding as a result of a failure to
report all interest or dividends, or because Holder has been notified by the IRS
that Holder is no longer subject to backup withholding.
(h) All information that such Holder has provided to the
Company, directly or indirectly, concerning such Holder's financial position and
such Holder's knowledge of financial and business matters is correct and
complete as of the date hereof, and if there should be any material change in
such information prior to the delivery of the Securities to such Holder, such
Holder will immediately notify the Company.
ARTICLE III
LOCK-UP AGREEMENT
Section 3.1
311(a) (i) The Preferred Holder agrees that until the second
anniversary of the date of original issue of the Securities (the
"Lock-up Period"), except as otherwise provided in this Agreement, the
Preferred Holder will not offer, pledge, sell, contract to sell, grant
any options for the sale of, seek the redemption or exchange of,
transfer, distribute or otherwise dispose of, directly or indirectly
(collectively "Dispose Of"), any of the Preferred Shares or Conversion
Shares into which Preferred Shares have been converted.
(ii) Following the second anniversary of the date of
original issuance of the Preferred Shares and during any 12 month
period thereafter, except as otherwise provided in this Agreement, the
Preferred Holder shall be entitled to Dispose Of Preferred Shares,
Conversion Shares or a combination of Preferred Shares and Conversion
Shares representing up to the greater of (i) 50% of the original number
of Preferred Shares, or their equivalent in Conversion Shares, or a
combination of Preferred Shares and Conversion Shares representing up
to 50% of the original number of Preferred Shares or (ii) the number of
Conversion Shares or equivalent number of Preferred Shares, or a
combination thereof, equaling the number of shares of Common Stock the
total closing sale price of which on the NYSE on the day before the day
on which the Preferred Holder seeks to Dispose Of such Securities is
6
not more than 5% of Average Market Capitalization on such date. For
purposes of this Section 3.1(a)(ii) and Section 3.1(c), a number of
Preferred Shares shall be deemed to be equivalent to the number of
Conversion Shares into which it is convertible at the Conversion Price
provided in the Company's Articles of Incorporation on the
determination date, and a number of Conversion Shares shall be deemed
to be equivalent to the number of Preferred Shares that, if converted
at such Conversion Price, would equal such number of Conversion Shares.
(iii) The restrictions in Sections 3.1(a)(i) and
3.1(a)(ii) shall terminate upon the occurrence of any Standstill
Termination Event. The restrictions in Section 3.1(a)(i) shall
terminate upon any breach by the Company of its obligations under
Article IV.
(b) (i) Each UDR Unit Holder agrees that during the Lock-up
Period, except as otherwise provided in this Agreement, such UDR Unit
Holder will not redeem any of the UDR Units.
(ii) After the first anniversary, and prior to the
second anniversary, of the date of original issue of the Securities,
the UDR Unit Holders may collectively redeem in accordance with the
Partnership Agreement UDR Units having an aggregate value not exceeding
$15,000,000. The ability of the UDR Unit Holders to redeem up to an
aggregate of $15,000,000 pursuant to the preceding sentence shall be
allocated among such UDR Unit Holders pro-rata, based upon the number
of UDR Units issued to each UDR Unit Holder pursuant to the Exchange
Agreement. For purposes of this Section 3.1(b)(ii), the value of the
UDR Units shall be assumed to be equal to the Cash Amount (as defined
in the Partnership Agreement) that the Company Operating Partnership
would be obligated to pay to the UDR Unit Holders upon redemption of
such UDR Units pursuant to Article VIII of the Partnership Agreement.
(iii) The restrictions in Sections 3.1(b)(i) and
3.1(b)(ii) shall terminate upon the occurrence of any Standstill
Termination Event described in Section 5.2(b)(ii), (iii), (iv) or (v).
The restrictions in Section 3.1(b)(i) shall terminate upon any breach
by the Company of its obligations under Article IV. Upon any such
termination pursuant to this Section 3.1(b)(iii), such UDR Unit Holders
may redeem any or all UDR Units thereafter if the UDR Units are then
redeemable under the terms of the Partnership Agreement. Such
termination shall not affect any provision of the Partnership Agreement
restricting or otherwise relating to redemption of UDR Units.
(c) The Preferred Holder may distribute any of its Preferred
Shares and Conversion Shares to its security holders (any such security holder,
a "Permitted Preferred Share Transferee") if before such distribution it shall
deliver to the Company:
7
(i) an opinion of counsel reasonably acceptable to the Company
that such distribution will not constitute or result in a
violation of the registration requirements of the Securities
Act and state "blue sky" laws,
(ii) agreements substantially identical in form and substance
to this Agreement executed by each Permitted Preferred Share
Transferee who will together with the Controlled Affiliates of
such Permitted Preferred Share Transferee Beneficially Own as
a result of such distribution more than 40% of the original
number of Preferred Shares, or their equivalent in Conversion
Shares, or a combination of Preferred Shares and Conversion
Shares representing more than 40% of the original number of
Preferred Shares.
Upon any such distribution, each Permitted Preferred Share Transferee shall
continue to be bound by Section 3.1(a)(i), shall be entitled to all of the
rights of, subject to all limitations and obligations applicable to, the
Preferred Holder under Article IV, and, except as contemplated by Section
3.1(c)(ii), shall not be bound by Section 5.1 but shall be entitled to the
benefits of Section 5.2.
(d) The Company and the Company Operating Partnership will
consider any proposal by any UDR Unit Holder to distribute any of its UDR Units
and Conversion Shares to its security holders and, in the case of any such
security holder who is an individual, such individual's Family Members, in light
of factors relevant at the time of such proposal, including but not limited to
whether such proposed distribution is likely to cause the Company Operating
Partnership to be a "publicly traded partnership" as defined in Section 7704 of
the Internal Revenue Code of 1986, as amended, and whether all participants in
such proposed distribution are "accredited investors" as defined in Rule 501(a)
under the Securities Act. This Section 3.1(d) shall not be construed to require
consent to any such proposal, and any such distribution, if consented to, shall
be subject to all applicable provisions of the Partnership Agreement.
(e) Notwithstanding Sections 3.1(a)(i) and 3.1(a)(ii),
the Preferred Holder may from time to time, in a transaction or transactions
entered into bona fide and not for the purpose of evading any provision of this
Agreement, pledge all or any of the Preferred Shares (i) to a bank or other
financial institution to secure obligations for borrowed money or (ii) as margin
collateral. Upon foreclosure or private sale under any such pledge, neither the
pledgee nor any transferee of the pledgee shall be bound by or entitled to any
benefits or rights under any provision of this Agreement (except this Section
3.1(e) and Article IV). Prior to any such pledge, foreclosure or private sale,
the Company shall receive an opinion of counsel reasonably acceptable to the
Company to the effect that the applicable transaction will not constitute or
result in a violation of the registration requirements of the Securities Act and
state "blue sky" laws.
(f) Notwithstanding Sections 3.1(b)(i) and 3.1(b)(ii),
any UDR Unit Holder may from time to time, in a transaction or transactions
entered into bona fide and not for the purpose of evading any provision of this
Agreement, pledge all or any of its UDR Units (i) to a bank or other financial
institution to secure obligations for borrowed money or (ii) as margin
collateral, provided, however, that the pledgee shall agree that upon any
foreclosure or private sale under such pledge, all such UDR Units will be sold
to not more than one purchaser. Upon any such foreclosure or private sale,
neither the pledgee nor any transferee of the pledgee shall be bound by or
8
entitled to any benefits or rights under any provision of this Agreement (except
this Section 3.1(f) and Article IV). Prior to any such pledge, foreclosure or
private sale, the Company shall receive an opinion of counsel reasonably
acceptable to the Company to the effect that the applicable transaction will not
constitute or result in a violation of the registration requirements of the
Securities Act and state "blue sky" laws. The provisions of Article IX of the
Partnership Agreement shall apply to any such foreclosure or private sale as
though the pledgee were the transferor Limited Partner, as defined in the
Partnership Agreement, referred to therein and the purchaser on foreclosure or
in the private sale were the assignee of such transferor Limited Partner.
ARTICLE IV
REGISTRATION RIGHTS
Section 4.1 Registration.
(a) Filing of Registration Statement. Subject to the
conditions set forth in this Agreement, the Company shall file a Registration
Statement:
(i) with respect to Conversion Shares issuable upon exchange
for UDR Units redeemable in accordance with Section
3.1(b)(ii), not later than 14 days after the first anniversary
of the date of original issue of the Securities,
(ii) with respect to the Conversion Shares issuable upon
conversion of the Preferred Shares, not later than 14 days
after the earlier of (A) the first anniversary of the date of
original issue of the Securities or (B) the occurrence of a
Standstill Termination Event,
(iii) with respect to the Conversion Shares issuable upon
exchange for UDR Units other than those, if any, with respect
to which a Registration Statement has been filed (and
continues to be effective) pursuant to (i) above, not later
than 14 days after the earlier of (A) expiration of the
Lock-up Period or (B) termination of the restrictions in
Section 3.1(b)(i) and 3.1(b)(ii),
(iv) with respect to Conversion Shares issuable on conversion
of Preferred Shares pledged pursuant to Section3.1(e) other
than such Conversion Shares, if any, with respect to which a
Registration Statement has been filed (and continues to be
effective) pursuant to (ii) above, promptly after receipt of
notice from the pledgee of a foreclosure on or private sale of
such Conversion Shares pursuant to such pledge, and
9
(v) with respect to Conversion Shares issuable upon exchange
of UDR Units pledged pursuant to Section3.1(f) other than such
Conversion Shares, if any, with respect to which a
Registration Statement has been filed (and continues to be
effective) pursuant to (i) above, promptly after receipt of
notice from the pledgee of a foreclosure on or private sale of
such Conversion Shares pursuant to such pledge,
and shall cause such Registration Statement to be declared effective by the SEC
as soon as practicable but in no event later than 60 days after filing. The
Company agrees to use reasonable efforts to keep the Registration Statement,
after its date of effectiveness, continuously effective in accordance with
Section 4.1(c). The Company will include in any Registration Statement relating
to Conversion Shares issued to a Transaction Party Affiliate the disclosures
necessary to enable such Transaction Party Affiliate to reoffer such Conversion
Shares in compliance with the Securities Act by delivery of the Prospectus
included therein, unless such use of such Registration Statement is prohibited
by any rule or regulation (including staff interpretation) of the SEC, in which
case the Company shall file simultaneously with such Registration Statement a
separate Registration Statement relating to the reoffer of such Conversion
Shares by such Transaction Party Affiliate (a "Reoffer Registration Statement"),
shall cause such Reoffer Registration Statement to be declared effective by the
SEC as soon as practicable but in no event later than 60 days after filing, and
shall use reasonable efforts to keep such Reoffer Registration Statement, after
its date of effectiveness, continuously effective in accordance with Section
4.1(c). The term "Reoffer Registration Statement" shall include any Registration
Statement applicable to both the issuance of Conversion Shares and the reoffer
of such Conversion Shares by a Transaction Party Affiliate. In the event that
under any rule or regulation (including staff interpretation) of the SEC, a
Registration Statement filed pursuant to this Section 4.1(a) may not be used to
register Conversion Shares for purposes of distribution of such Conversion
Shares to any Holder and/or any First-Tier Transferee, such Registration
Statement shall relate to the reoffer of such Conversion Shares by such Holder
and/or such First-Tier Transferee, such Registration Statement shall be deemed a
Reoffer Registration Statement for purposes of this Article IV, and the Holder
and /or each such First-Tier Transferee shall be deemed a Transaction Party
Affiliate for such purposes. The Company shall not be deemed to be in breach of
this Section 4.1(a) if the SEC refuses to accept or make effective a Reoffer
Registration Statement filed pursuant to (ii) above because the Conversion
Shares to which such Registration Statement relates are subject to the
restrictions in Section 3.1(a)(1), provided the Company refiles such Reoffer
Registration Statement promptly after such restrictions terminate and causes
such Reoffer Registration Statement to be declared effective by the SEC as soon
as practicable but in no event later than 60 days after refiling.
(b) Notification and Distribution of Materials. The
Company shall promptly notify each Transaction Party Affiliate of the
effectiveness of any Reoffer Registration Statement applicable to Conversion
Shares issued to such Transaction Party Affiliate or pledgee and shall furnish
to such Transaction Party Affiliate such number of copies of such Reoffer
Registration Statement (including any amendments, supplements and exhibits), the
Prospectus contained therein (including each preliminary prospectus and all
10
related amendments and supplements) and any documents incorporated by reference
in the Reoffer Registration Statement or such other documents as such
Transaction Party Affiliate may reasonably request in order to facilitate the
reoffer and sale of such Conversion Shares in the manner described in such
Reoffer Registration Statement.
(c) Amendments and Supplements. The Company shall prepare
and file with the SEC from time to time such amendments and supplements to each
Registration Statement and Prospectus used in connection therewith as may be
necessary to keep such Registration Statement effective and, in the case of a
Reoffer Registration Statement, to comply with the provisions of the Securities
Act with respect to the disposition of the Conversion Shares offered by the
Transaction Party Affiliates for which such Reoffer Registration Statement is
filed, until all Conversion Shares have been issued upon conversion of Preferred
Shares and exchange of UDR Units and, in the case of such Reoffer Registration
Statement, until the earlier of (a) the date on which such Transaction Party
Affiliates no longer hold any Conversion Shares or (b) in the case of
Transaction Party Affiliates who are AAC Affiliates, the date on which no such
Transaction Party Affiliates are deemed to be engaged in a distribution by
reason of paragraph (d)(3) of Rule 145, or, in the case of Transaction Party
Affiliates who are UDR Affiliates and Persons who are deemed to be Transaction
Party Affiliates pursuant to the last sentence of Section 4.1(a), the Conversion
Shares held by such Transaction Party Affiliates or deemed Transaction Party
Affiliates become eligible for sale under paragraph (k) of Rule 144 (the
"Reoffer Registration Expiration Date"). Upon 20 business days' notice from a
Transaction Party Affiliate, the Company shall file any supplement or
post-effective amendment to a Reoffer Registration Statement with respect to
such Transaction Party Affiliate's plan of distribution, such Transaction Party
Affiliate's ownership interests in securities of the Company, or other matters
required to be disclosed therein, that is reasonably necessary to permit the
reoffer and sale of such Transaction Party Affiliate's Conversion Shares
pursuant to such Reoffer Registration Statement. The Company shall cause the
Conversion Shares registered under any Registration Statement to be then listed
or quoted on the primary exchange or quotation system on which the Common Stock
is then listed or quoted.
(d) Notice of Certain Events. The Company shall promptly
notify each Transaction Party Affiliate of, and confirm in writing, the filing
of a Reoffer Registration Statement relating to the Conversion Shares of such
Transaction Party Affiliate or any Prospectus, amendment or supplement related
thereto or any post-effective amendment to such Reoffer Registration Statement
and the effectiveness of such Reoffer Registration Statement and any
post-effective amendment.
At any time when a Prospectus included in a Reoffer Registration
Statement is required to be delivered under the Securities Act by a Transaction
Party Affiliate, the Company shall immediately notify each Transaction Party
Affiliate of the happening of any event as a result of which the Prospectus
included in such Reoffer Registration Statement, as then in effect, includes an
untrue statement of a material fact or omits to state any 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. In such event, the
Company shall promptly prepare and furnish to each applicable Transaction Party
11
Affiliate a reasonable number of copies of a supplement to or an amendment of
such Prospectus as may be necessary so that, as thereafter delivered to offerees
of such Transaction Party Affiliate's Conversion Shares, such Prospectus shall
not include 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 are made, not misleading. The
Company will, if necessary, amend the Reoffer Registration Statement of which
such Prospectus is a part to reflect such amendment or supplement.
Section 4.2 State Securities Laws.
Subject to the conditions set forth in this Agreement, the Company
shall, in connection with the filing of any Registration Statement hereunder,
file such documents as may be necessary to register or qualify the Conversion
Shares to which such Registration Statement relates (with respect to the
issuance of such Conversion Shares and, if applicable, the subsequent resale
thereof) under the securities or "blue sky" laws of such states as any
Transaction Party Affiliate offering such Conversion Shares may reasonably
request, and the Company shall use its best efforts to cause such filings to
become effective; provided, however, that the Company shall not be obligated to
qualify as a foreign corporation to do business under the laws of any such state
in which it is not then qualified or to file any general consent to service of
process in any such state. Once effective, the Company shall use its best
efforts to keep such filings effective until the earlier of (a) the Reoffer
Registration Expiration Date or (b) in the case of a particular state, such
Transaction Party Affiliate has notified the Company that it no longer requires
an effective filing in such state in accordance with its original request for
filing.
Section 4.3 Expenses.
The Company shall bear all Registration Expenses incurred in connection
with the registration of the Conversion Shares pursuant to this Agreement.
Section 4.4 Indemnification by the Company.
The Company agrees to indemnify each Transaction Party Affiliate and
its officers, directors, employees, agents, representatives and Transaction
Party Affiliates, and each person or entity, if any, that controls such
Transaction Party Affiliate within the meaning of the Securities Act, and each
other person or entity, if any, subject to liability under the Securities Act
because of his, her or its connection with a Transaction Party Affiliate (each,
an "Indemnitee"), against any and all losses, claims, damages, actions,
liabilities, costs and expenses (including without limitation reasonable fees,
expenses and disbursements of attorneys and other professionals), joint or
several, arising out of or based upon any violation by the Company of any rule
or regulation promulgated under the Securities Act applicable to the Company and
relating to action or inaction required of the Company in connection with any
Reoffer Registration Statement or the related Prospectus relating to Conversion
Shares offered by such Transaction Party Affiliate, or upon any untrue or
alleged untrue statement of material fact contained in such Reoffer Registration
Statement or Prospectus, or any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
12
therein, in light of the circumstances under which they were made, not
misleading; provided, that the Company shall not be liable to such Indemnitee or
any person who participates as an underwriter in the offering or sale of such
Conversion Shares or any other person, if any, who controls such underwriter
within the meaning of the Securities Act, in any such case to the extent that
any such loss, claim, damage, liability (or action or proceeding in respect
thereof) or expense arises out of or is based upon (i) an untrue statement or
alleged untrue statement or omission or alleged omission made in any such
Registration Statement or in any such Prospectus in reliance upon and in
conformity with information regarding such Transaction Party Affiliate or its
plan of distribution that was furnished to the Company for use in connection
with such Reoffer Registration Statement or related Prospectus by such
Transaction Party Affiliate or (ii) such Transaction Party Affiliate's failure
to send or give a copy of the final, amended or supplemented Prospectus
furnished to such Transaction Party Affiliate by the Company at or prior to the
time such action is required by the Securities Act to the person claiming an
untrue statement or alleged untrue statement or omission or alleged omission if
such statement or omission was corrected in such final, amended or supplemented
Prospectus.
Section 4.5 Agreements of Transaction Party Affiliates.
The Company shall have no obligation or liability to any Transaction
Party Affiliate under this Article IV unless such Transaction Party Affiliate
shall have entered into a written agreement with the Company or shall otherwise
be obligated to the Company (a) to cooperate with the Company and to furnish to
the Company all such information concerning its plan of distribution with
respect to its Conversion Shares, its ownership of Company securities and other
matters in connection with the preparation of a Reoffer Registration Statement
with respect to such Conversion Shares as the Company may reasonably request,
(b) to deliver or cause delivery of the Prospectus contained in such Reoffer
Registration Statement to any purchaser of the shares covered by such
Registration Statement from such Transaction Party Affiliate, (c) to indemnify
the Company, its officers, directors, employees, agents, representatives and
Transaction Party Affiliates, and each person, if any, who controls the Company
within the meaning of the Securities Act, and each other person, if any, subject
to liability under the Securities Act because of this connection with the
Company, against any and all losses, claims, damages, actions, liabilities,
costs and expenses arising out of or based upon (i) any untrue statement or
alleged untrue statement of material fact contained in such Reoffer Registration
Statement or the related Prospectus, or any omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein, in the light of the circumstances under which they were
made, not misleading, if and to the extent that such statement or omission
occurs from reliance upon and in conformity with written information regarding
such Transaction Party Affiliate that was furnished to the Company in writing by
such Transaction Party Affiliate specifically for use therein, unless such
13
statement or omission was corrected in writing to the Company not less than
three (3) business days prior to the date of the final Prospectus (as
supplemented or amended, as the case may be) or (ii) the failure of such
Transaction Party Affiliate, through no fault of the Company, to deliver or
cause to be delivered the Prospectus contained in such Reoffer Registration
Statement (as amended or supplemented if applicable) furnished by the Company to
such Transaction Party Affiliate to any purchaser from such Transaction Party
Affiliate of the Conversion Shares to which such Reoffer Registration Statement
relates, (d) if requested by the Company in the case of a Company-initiated
non-underwritten offering, or if requested by the managing underwriter in a
Company-initiated underwritten offering, not to effect any public sale or
distribution of any Conversion Shares, including a sale pursuant to Rule 144,
during the period of 60 days beginning 15 days prior to the proposed offering
date specified in such request; provided, however, that the aggregate of all
periods of restrictions on resale imposed on any Transaction Party Affiliate as
a result of requests under this Section 4.5(d) and of deferral or suspension of
the Company's obligation to cause a Registration Statement for the Conversion
Shares of such Transaction Party Affiliate or to amend or supplement such a
Registration Statement pursuant to Section 4.6(b) shall not exceed 90 days
during any 12 month period, (e) following the effectiveness of any Reoffer
Registration Statement relating to Conversion Shares of such Transaction Party
Affiliate, not to effect any sales of such Conversion Shares pursuant to such
Reoffer Registration Statement at any time after such Transaction Party
Affiliate has received notice from the Company to suspend sales as a result of
the occurrence or existence of any event referred to in Section 4.6(b) or so
that the Company may correct or update such Reoffer Registration Statement,
provided that such Transaction Party Affiliate may recommence effecting sales of
such Conversion Shares pursuant to such Reoffer Registration Statement following
further notice to such effect from the Company, which notice shall be given by
the Company not later than five business days after the cessation of any such
event, and (f) incorporating the provisions of Section 4.7.
Section 4.6 Suspension of Registration Requirement:
Restriction on Sale.
(a) The Company shall promptly notify each Transaction Party
Affiliate, and confirm such notice in writing, of (i) the Company's receipt of
any notification with respect to the suspension of the qualification of such
Transaction Party Affiliate's Conversion Shares for offer or sale in any
jurisdiction or the initiation of any proceedings for that purpose and (ii) the
issuance by the SEC of any stop order suspending the effectiveness of a Reoffer
Registration Statement with respect to such Transaction Party Affiliate's
Conversion Shares or the initiation of any proceedings for that purpose. The
Company shall use its best efforts to obtain the withdrawal of any order
suspending the effectiveness of such Reoffer Registration Statement or the
qualification of such Conversion Shares at the earliest possible moment.
(b) Notwithstanding anything to the contrary set forth in
this Agreement, the Company may defer its obligation to cause a Registration
Statement to become effective or to amend or supplement a Registration Statement
for a period of not more than 60 days in the event of (i) an underwritten
primary offering by the Company if the Company is advised by the managing
underwriter of such offering that the sale of Conversion Shares under such
Registration Statement would impair the pricing or commercial practicality of
such offering, or (ii) pending negotiations relating to, or consummation of, a
transaction or the occurrence of an event that would require additional
disclosure of material information by the Company in such Registration
Statement, as to which the Company has a bona fide business purpose for
14
preserving confidentiality or which renders the Company unable to comply with
SEC requirements and that would in each case make it impractical or inadvisable
to cause such Registration Statement to become effective or to amend or
supplement such Registration Statement; provided, however, that the Company
shall not defer or suspend its obligation under this Agreement to cause a
Registration Statement to become effective or to amend or supplement a
Registration Statement pursuant to this Section 4.6(b) for an aggregate period
of more than 90 days during any 12 month period. The Company shall notify each
Holder of the existence and, in the case of an event referred to in clause (i)
of this Section 4.6 (b), the nature of any such event.
Section 4.7 Contribution.
If the indemnification provided for in Sections 4.4 and 4.5(c) is
unavailable to an indemnified party with respect to any losses, claims, damages,
actions, liabilities, costs or expenses referred to therein or is insufficient
to hold the indemnified party harmless as contemplated therein, then the
indemnifying party, in lieu of indemnifying such indemnified party, shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages, actions, liabilities, costs or expenses in such
proportion as is appropriate to reflect the relative fault of the indemnifying
party, on the one hand, and the indemnified party, on the other hand, in
connection with the statements or omissions that resulted in such losses,
claims, damages, actions, liabilities, costs or expenses as well as any other
relevant equitable considerations. The relative fault of the indemnifying party,
on the one hand, and of the indemnified party on the other hand, shall be
determined by reference to, among other factors, whether the untrue or alleged
untrue statement of a material fact or omission to state a material fact relates
to information supplied by the indemnifying party or by the indemnified party
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission; provided, however,
that in no event shall the obligation of any indemnifying party to contribute
under this Section 4.7 exceed the amount that such indemnifying party would have
been obligated to pay by way of indemnification if the indemnification provided
for under Sections 4.4 or 4.5(c) had been available under the circumstances.
The Company and the Holders agree that it would not be just and
equitable if contribution pursuant to this Section 4.7 were determined by pro
rata allocation or by any other method of allocation that does not take account
of the equitable considerations referred to in the immediately preceding
paragraph.
Notwithstanding the provision of this Section 4.7, no Transaction Party
Affiliate shall be required to contribute any amount in excess of the amount by
which the gross proceeds from the sale of such Transaction Party Affiliate's
Conversion Shares exceeds the amount of any damages that such Transaction Party
Affiliate has otherwise been required to pay by reason of such untrue or alleged
untrue statement or omission. No indemnified party guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any indemnifying party who was not guilty
of such fraudulent misrepresentation.
15
Section 4.8 No Other Obligation to Register.
Except as otherwise expressly provided in this Agreement, the Company
shall have no obligation to the Holders to register the Conversion Shares under
the Securities Act.
Section 4.9 Exchange Act Compliance.
The Company shall maintain registration of the Common Stock under the
Exchange Act and shall timely file all reports required to be filed thereunder
so that the current public information requirements of paragraph (c) of Rule 144
shall continuously be complied with.
Section 4.10 Breach of Agreement
No act or omission to act of the Company in contravention of this
Article IV shall be deemed a breach of the Company's obligations hereunder if
(a) such act or omission is cured within 30 days of receipt of written notice
from any Holder or First-Tier Transferee or (b) in the case of any such act or
omission that cannot be cured within such 30-day period, the Company actively
and diligently attempts to cure such act or omission during such 30-day period
and such act or omission is cured within 30 days thereafter; provided, however,
that this Section 4.10 shall not apply to any failure to file a Registration
Statement within the time limits specified in Sections 4.1(a)(i), (ii) and
(iii).
ARTICLE V
STANDSTILL AGREEMENT
Section 5.1 Standstill.
(a) Each UDR Unit Holder hereby agrees that until the fifth
anniversary of the date of this Agreement, such UDR Unit Holder will not
directly or indirectly:
(i) sell or transfer any Securities to any Person, except (A)
as a participant in a merger, consolidation or other business
combination approved by the Board or (B) in a transaction on
the NYSE or other market in which such Securities are traded,
in which the identity of the buyer or transferee is not known
by the seller or transferor in advance of the transaction, if
such sale or transfer would result in Beneficial Ownership by
the purchaser or transferee, or any Group of which, to the
actual knowledge of such UDR Unit Holder, the purchaser or
transferee is a member, of more than 9.8% of the number of
shares of Common Stock outstanding at the time of such sale or
transfer, determined on a Fully-Diluted Basis;
16
(ii) purchase or acquire Securities or shares of Common Stock
if such purchase or acquisition would result in Beneficial
Ownership by all UDR Unit Holders, including any Group of
which, to the actual knowledge of such UDR Unit Holder, any
UDR Unit Holder is a member, of more than 9.8% of the number
of shares of Common Stock outstanding at the time of such
purchase or acquisition, determined on a Fully-Diluted Basis;
(iii) solicit, propose or effect any business combination,
liquidation or sale of the Company or similar extraordinary
transaction in which the Company would not be the survivor;
(iv) seek representation on the Company's Board (except as
provided in the Exchange Agreement);
(v) solicit, initiate, encourage or participate in any
"solicitation" of "proxies" or become a "participant" in any
"election contest" (as such terms are defined or used in
Regulation 14A under the Exchange Act, disregarding clause
(iv) of Rule 14a-1(l)(2) and including an exempt solicitation
pursuant to Rule 14a-2(b)(1)); or
(vi) contest the validity or enforceability of this Section
5.1, except as a consequence of establishing the occurrence of
any of the events specified in Sections 5.2(b)(ii), (iii),
(iv) or (v).
(b) The Preferred Holder hereby agrees that until the fifth
anniversary of the date of this Agreement, the Preferred Holder will not
directly or indirectly:
(i) sell or transfer any Securities to any Person, except (A)
as a participant in a merger, consolidation or other business
combination approved by the Board or (B) in a transaction on
the NYSE or other market in which such Securities are traded,
in which the identity of the buyer or transferee is not known
by the seller or transferor in advance of the transaction, if
such sale or transfer would result in Beneficial Ownership by
the purchaser or transferee, or any Group of which, to the
actual knowledge of the Preferred Holder, the purchaser or
transferee is a member, of more than 9.8% of the number of
shares of Common Stock outstanding at the time of such sale or
transfer, determined on a Fully-Diluted Basis;
(ii) purchase or acquire Securities or shares of Common Stock
if such purchase or acquisition would result in Beneficial
Ownership by the Preferred Holder and its Controlled
Affiliates in the aggregate of more than 15% of the number of
shares of Common Stock outstanding at the time of such
purchase or acquisition, determined on a Fully-Diluted Basis;
17
(iii) solicit, propose or effect any business combination,
liquidation or sale of the Company or similar extraordinary
transaction in which the Company would not be the survivor;
(iv) seek representation on the Company's Board (except as
provided in the Merger Agreement);
(v) solicit, initiate, encourage or participate in any
"solicitation" of "proxies" or become a "participant" in any
"election contest" (as such terms are defined or used in
Regulation 14A under the Exchange Act, disregarding clause
(iv) of Rule 14a-1(l)(2) and including an exempt solicitation
pursuant to Rule 14a-2(b)(1)); or
(vi) contest the validity or enforceability of this Section
5.1, except as a consequence of establishing the occurrence of
any Standstill Termination Event defined in Section 5.2(b).
Section 5.2 Termination of Certain Restrictions.
(a) The restrictions in Section 5.1(a) shall terminate upon
the occurrence of any of the events specified in Sections 5.2(b)(ii), (iii),
(iv) or (v).
(b) The restrictions in Section 5.1(b) shall terminate upon
any of the following (each a "Standstill Termination Event"):
(i) a quarterly distribution on the Preferred Shares is in
arrears for any quarter for a period exceeding five days,
(ii) the occurrence of a Change of Control,
(iii) the authorization by the Board (with the director or
directors nominated and serving pursuant to Section 5.9 of the
Merger Agreement, if any, voting against) of the direct or
indirect solicitation of offers with respect to any merger,
consolidation, other business combination, liquidation or sale
of the Company or all or substantially all of its assets or
any other similar extraordinary transaction (any of the
foregoing, other than any transaction in which the Company is
the surviving and acquiring entity and in which (A) the only
other parties to the transaction are subsidiaries or
Controlled Affiliates of the Company or (B) the business or
assets acquired do not, or would not reasonably be expected
to, have a value greater than 50% of the assets of the Company
and its subsidiaries, consolidated, prior to such transaction,
a "Covered Transaction"), it being understood that mere
direction by the Board that the officers of the Company or a
committee of the Board review and report on a proposal
originated by any officer or director of the Company or by a
third party that might result in a solicitation of offers
shall not, without more, be deemed a "solicitation of offers,"
18
provided the director or directors nominated and serving
pursuant to Section 5.9 of the Merger Agreement, if any,
receive notice of and have the opportunity to participate in
any meeting of the Board at which such a direction is made or
the report of the officers of the Company or such committee of
the Board is presented,
(iv) the written submission by any person or Group other than
the Preferred Holder of a proposal to the Company (including
the Board and any agent, representative or Affiliate of the
Company) with respect to, or otherwise expressing interest in
pursuing, a Covered Transaction, unless, as soon as
practicable after receipt of any such proposal, the Board
determines that such proposal is not in the best interests of
the Company and its shareholders and continues to reject such
proposal as a result of such determination,
(v) in connection with any actual or proposed Covered
Transaction, the termination of any shareholder rights plan or
amendment of the articles of incorporation or bylaws of the
Company to delete staggered terms of directors, supermajority
voting of the Company's shareholders, "excess share"
provisions, or other similar provisions which would reasonably
be expected to impede the consummation of such Covered
Transaction,
(vi) any breach of Section 5.9 of the Merger Agreement,
(vii) the initiation by the Company or any of its Affiliates
of any action, suit or other legal proceeding against the
Preferred Holder, any of its Affiliates or any of their
respective officers or directors with respect to any matter
unrelated to the express terms of this Agreement and the
related documents and the transactions contemplated thereby,
unless such action, suit or legal proceeding is authorized by
the Board at a meeting of which the director or directors
nominated and serving pursuant to Section 5.9 of the Merger
Agreement, if any, receive notice and in which they have the
opportunity to participate, provided that if there shall be a
final judgment on the merits in favor of the Preferred Holder
or such Affiliate in any such action, suit or legal proceeding
that is so authorized by the Board, a Standstill Termination
Event shall exist even though such judgment may be subject to
further appeal,
(viii) the distribution by the Preferred Holder of all of its
Preferred Shares and Conversion Shares pursuant to Section
3.1(c), provided that such Standstill Termination Event shall
not affect any agreement entered into by a Permitted Preferred
Share Transferee pursuant to Section 3.1(c)(ii), and
(ix) the date on which the Preferred Holder ceases (otherwise
than as a result of a distribution of Preferred Shares and
Conversion Shares pursuant to Section 3.1(c)) to be the
Beneficial Owner of Securities having an aggregate market
value of more than 5% of Average Market Capitalization. For
purposes of this Section 5.2(b) (ix), the "market value" of
Conversion Shares shall be determined by reference to the
closing sale price of the Common Stock on the day preceding
the determination date, and the "market value" of Preferred
Shares shall be the Series D Redemption Price of the Preferred
Shares provided in the Company's Articles of Incorporation on
the determination date.
19
ARTICLE VI
GENERAL PROVISIONS
Section 6.1 Notices.
All notices, requests, claims, demands and other communications under
this Agreement shall be in writing and shall be deemed given if 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), and further provided
that in case of directions to amend the Registration Statement pursuant to
Article IV, the Holder must confirm such notice in writing by overnight express
delivery with confirmation of receipt:
(a) if to the Company, to
UNITED DOMINION REALTY TRUST, INC.
00 Xxxxx Xxxxx Xxxxxx
Xxxxxxxx, XX 00000-0000
Attn: Xxxx X. XxXxxx, President
Fax: (000) 000-0000
with a copy to:
UNITED DOMINION REALTY TRUST, INC.
00 Xxxxx Xxxxx Xxxxxx
Xxxxxxxx, XX 00000-0000
Attn: Xxxxxxxx X. Surface, Senior Vice President
and General Counsel
Fax: (000) 000-0000
and
HUNTON & XXXXXXXX
000 Xxxx Xxxx Xxxxxx
Xxxxxxxx, XX 00000-0000
Attn: Xxxxx X. Xxxxxxxxxxxx, III
Fax: (000) 000-0000
20
(b) if to AAC, to
AMERICAN APARTMENT COMMUNITIES II, INC.
000 Xxxxx Xxxxxx
Xxx Xxxxxxxxx, XX 00000
Attn: Xxxxx X. Xxxxxxxxx, Chief Executive Officer
Fax: (000) 000-0000
with copies to:
AMERICAN APARTMENT COMMUNITIES II, INC.
00 Xxxx Xxxxx Xxxxxx, 00xx Xxxxx
Xxxxxxxx, XX 00000
Attn: Xxxxxx X. Xxxxxxxxx, Esq., General Counsel
Fax: (000) 000-0000
and
XXXXXX, XXXX & XXXXXXXX LLP
000 Xxxxx Xxxxx Xxxxxx
Xxx Xxxxxxx, XX 00000
Attn: Xxxxxxx X. Xxxxx, Esq.
Fax: (000) 000-0000
(c) if to the Preferred Holder, to:
LF STRATEGIC REALTY INVESTORS, L.P.
00 Xxxxxxxxxxx Xxxxx
Xxx Xxxx, XX 00000
Attn: Xxxxxx X. Xxxxxxx, Managing Director
Fax: (000) 000-0000
with a copy to:
Lazard Freres Real Estate Investors, LLC
00 Xxxxxxxxxxx Xxxxx
Xxx Xxxx, XX 00000
Attn: Xxxxxxxx X. Xxxxxxxxxx, Vice President
& General Counsel
Fax: (000) 000-0000
(d) if to Schnitzer, to
SCHNITZER INVESTMENT CORP.
Schnitzer Investment Corp.
0000 XX Xxxx
Xxxxxxxx, XX 00000-0000
Attn: Xxxxxxx X. Xxxxxx, President & Chief
Executive Officer
Fax: (000) 000-0000
21
(e) if to AACOP, to
AMERICAN APARTMENT COMMUNITIES OPERATING
PARTNERSHIP, L.P.
00 Xxxx Xxxxx Xxxxxx, 00xx Xxxxx
Xxxxxxxx, XX 00000
Attn: Xxxxxx X. Xxxxxxxxx, Esq., General Counsel
Fax: (000) 000-0000
with a copy to:
XXXXXX, XXXX & XXXXXXXX LLP
000 Xxxxx Xxxxx Xxxxxx
Xxx Xxxxxxx, XX 00000
Attn: Xxxxxxx X. Xxxxx, Esq.
Fax: (000) 000-0000
(f) if to AACM, to
AAC MANAGEMENT LLC
00 Xxxx Xxxxx Xxxxxx, 00xx Xxxxx
Xxxxxxxx, XX 00000
Attn: Xxxxxx X. Xxxxxxxxx, Esq., General Counsel
Fax: (000) 000-0000
with a copy to:
XXXXXX, XXXX & XXXXXXXX LLP
000 Xxxxx Xxxxx Xxxxxx
Xxx Xxxxxxx, XX 00000
Attn: Xxxxxxx X. Xxxxx, Esq.
Fax: (000) 000-0000
(g) if to AAC III, to
AMERICAN APARTMENT COMMUNITIES III, L.P.
00 Xxxx Xxxxx Xxxxxx, 00xx Xxxxx
Xxxxxxxx, XX 00000
Attn: Xxxxxx X. Xxxxxxxxx, Esq., General Counsel
Fax: (000) 000-0000
22
with a copy to:
XXXXXX, XXXX & XXXXXXXX LLP
000 Xxxxx Xxxxx Xxxxxx
Xxx Xxxxxxx, XX 00000
Attn: Xxxxxxx X. Xxxxx, Esq.
Fax: (000) 000-0000
In addition to the manner of notice permitted above, notices given pursuant to
Sections 4.1, 4.6 and 4.7 hereof may be effected telephonically and confirmed in
writing thereafter in the manner described above.
Section 6.2 Successors and Assigns.
Except as otherwise provided herein, this Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and assigns. Except as otherwise provided herein, this Agreement may
not be assigned by any Holder and any attempted assignment hereof by any Holder
will be void and of no effect and shall terminate all obligations of the Company
hereunder. A purchaser or transferee of any Securities shall not solely by
reason of such purchase or transfer be deemed a successor or assign of the
seller or transferor, and no Person who purchases Securities from any Holder,
Transaction Party Affiliate or First-Tier Transferee in a transaction complying
with the applicable provisions of Rule 144 or Rule 145 or in a transaction
effected after a Registration Statement with respect to such Securities has
become effective shall be bound by any provision of this Agreement.
Section 6.3 Counterparts.
This Agreement may be executed in any number of counterparts and by the
parties hereto in separate counterparts, each of which when so executed shall be
deemed to be an original and all of which taken together shall constitute one
and the same agreement.
Section 6.4 Governing Law.
This Agreement shall be governed by and construed in accordance with
the laws of the State of New York, regardless of the laws that might otherwise
govern under applicable principles of conflict of laws of such State.
Section 6.5 Severability.
In the event that any one or more of the provisions contained herein,
or the application thereof in any circumstances, is held invalid, illegal or
unenforceable in any respect for any reason, the validity, legality and
unenforceable of any such provision in every other respect and of the remaining
provisions contained herein shall not be in any way impaired thereby, it being
intended that all of the rights and privileges of the parties hereto shall be
enforceable to the fullest extent permitted by law.
23
Section 6.6 Entire Agreement; Amendment; Waiver.
This Agreement is intended by the parties as a final expression of
their agreement and intended to be the complete and exclusive statement of the
agreement and understanding of the parties hereto in respect of the subject
matter contained herein. There are no restrictions, promises, warranties or
undertakings, other than those set forth or referred to herein, with respect to
such subject matter. This Agreement supersedes all prior agreements and
understandings between the parties with respect to such subject matter. No
amendment or waiver of any provision hereof shall be effective unless in writing
signed by each party against whom enforcement of such amendment or waiver is
sought. No waiver of any provision of this Agreement or a breach of any such
provision shall be construed as a waiver of any other provision hereof or a
breach of such provision or a subsequent breach of the same or any other
provision.
Section 6.7 Interpretation; Absence of Presumption.
For the purposes hereof, (i) words in the singular shall be held to
include the plural and vice versa and words of one gender shall be held to
include the other gender as the context requires, (ii) the terms "hereof",
"herein" and "herewith", and words of similar import shall, unless otherwise
stated, be construed to refer to this Agreement as a whole and not to any
particular provision of this Agreement, and Article and Section references are
to the Articles and Sections of this Agreement unless otherwise specified, (iii)
the word "including" and words of similar import when used in this Agreement
shall mean "including without limitation," unless the context otherwise requires
or unless otherwise specified, (iv) the word "or" shall not be exclusive and (v)
provisions shall apply, when appropriate, to successive events and transactions.
This Agreement shall be construed without regard to any presumption or rule
requiring construction or interpretation against the party drafting or causing
any instrument to be drafted.
24
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.
UNITED DOMINION REALTY TRUST, INC.
By:
Name:
Title:
UNITED DOMINION REALTY, L.P.
By: United Dominion Realty Trust, Inc.,
General Partner
By:
Name:
Title:
AMERICAN APARTMENT COMMUNITIES II, INC.
By:
Name: Xxxxx X. Xxxxxxxxx
Title: Chief Executive Officer
AMERICAN APARTMENT COMMUNITIES III, L.P.
By American Apartment Communities III, Inc.,
General Partner
By:
Name:
Title:
25
SCHNITZER INVESTMENT CORP.
By:
Name:
Title:
LF STRATEGIC REALTY INVESTORS, L.P.
By:
Name:
Title:
AMERICAN APARTMENT COMMUNITIES OPERATING
PARTNERSHIP, L.P.
By American Apartment Communities, Inc.,
General Partner
By:
Name:
Title:
AAC MANAGEMENT LLC
By:
Name:
Title:
26
