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
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..................................................25
Section 4.1. Conduct of Business by AAC.............................25
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..........................................28
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........................30
Section 5.5. Public Announcements...................................30
Section 5.6. Transfer and Gains Taxes...............................30
Section 5.7. Employee Matters.......................................31
Section 5.8. Disposition of Benefit Plans...........................31
Section 5.9. Company Board of Directors.............................32
Section 5.10. Resignations..........................................32
Section 5.11. Bulk Sales Compliance.................................32
Section 5.12. Financial Statements..................................32
Section 5.13. Executive Clubs.......................................33
Section 5.14. AAC Office Leases.....................................33
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...............34
Section 6.3. Conditions to Obligation of AAC........................36
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......................................39
ARTICLE VIII GENERAL PROVISIONS.......................................39
Section 8.1. Nonsurvival of Representations and Warranties..........39
Section 8.2. Notices................................................39
Section 8.3. Interpretation.........................................40
Section 8.4. Counterparts...........................................41
Section 8.5. Entire Agreement; Third Party Beneficiaries............41
Section 8.6. Governing Law..........................................41
Section 8.7. Assignment.............................................41
Section 8.8. Enforcement............................................41
Section 8.9. Severability...........................................42
Section 8.10. Non-Recourse..........................................42
ARTICLE IX CERTAIN DEFINITIONS........................................42
Section 9.1. Certain Definitions....................................42
Exhibit A - Amendment of the Articles of Incorporation of the Company
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
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.
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 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 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;
(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).
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 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 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.
(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,
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, 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").
(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.
(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.
(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) 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.
(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.
(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 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.
(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 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 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 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 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 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;
(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.
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
(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 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
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.
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 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.
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
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.
(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 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
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)).
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.
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:
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.
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.
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).
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:/s/ Xxxx X. XxXxxx
--------------------------------
Name: Xxxx X. XxXxxx
Title: President
AMERICAN APARTMENT COMMUNITIES II, INC.
By:/s/ Xxxxx X. Xxxxxxxxx
--------------------------------
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: /s/ Xxxxxx X. Xxxxxxx
--------------------------------
Name: Xxxxxx X. Xxxxxxx
Title: Principal
