CONFORMED COPY
MASTER INVESTMENT AGREEMENT
dated as of August 20, 1997
by and between
AMERICAN REAL ESTATE INVESTMENT CORPORATION
and
THE OTHER PARTIES LISTED ON THE SIGNATURE PAGES HERETO
TABLE OF CONTENTS
Page
No.
ARTICLE I.
THE TRANSACTIONS
1.01 The Transactions................................................... 2
1.02 Closing............................................................ 2
1.03 Further Assurances................................................. 2
ARTICLE II.
PURCHASE PRICE
2.01 Purchase Price..................................................... 3
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
AND THE OPERATING PARTNERSHIP
3.01 Authority.......................................................... 3
3.02 Organization of the Company........................................ 4
3.03 Organization of Subsidiaries....................................... 4
3.04 Capital Stock...................................................... 5
3.05 Non-Contravention; Approvals and Consents.......................... 5
3.06 No Violations or Defaults.......................................... 6
3.07 SEC Reports and Financial Statements; Partnership Agreement........ 7
3.08 Absence of Changes................................................. 7
3.09 Absence of Undisclosed Liabilities................................. 8
3.10 Legal Proceedings.................................................. 8
3.11 Compliance with Licenses, Laws and Orders.......................... 8
3.12 Taxes.............................................................. 8
3.13 REIT Qualification................................................. 9
3.14 Employee Benefit Plans; ERISA...................................... 10
3.15 Labor Matters...................................................... 10
3.16 Title to Property.................................................. 11
3.17 Insurance.......................................................... 11
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Page
No.
3.18 Tangible Personal Property......................................... 12
3.19 Intangible Property................................................ 12
3.20 Registration Rights................................................ 12
3.21 Environmental Matters.............................................. 12
3.22 Investment Company Act............................................. 13
3.23 Brokers............................................................ 13
ARTICLE IV.
COVENANTS RELATING TO CONDUCT OF BUSINESS
4.01 Conduct of Business by the Company................................. 14
4.02 Conduct of Business by the Contributors............................ 16
ARTICLE V.
ADDITIONAL AGREEMENTS
5.01 Sale of Properties; Section 1031 Exchanges of Original Properties.. 18
5.02 Termination of Certain Employment Agreements....................... 18
5.03 Spin-Off........................................................... 19
5.04 Cancellation of Certain Options and Warrants....................... 21
5.05 No Solicitations................................................... 21
5.06 Investor Inquiries................................................. 22
5.07 Investigation...................................................... 22
5.08 Confidentiality.................................................... 23
5.09 Financial Statements and Reports................................... 24
5.10 Registration Statement............................................. 24
5.11 Approval of Stockholders and Board Recommendation.................. 25
5.12 Regulatory and Other Approvals..................................... 26
5.13 Notice and Cure.................................................... 26
5.14 Fulfillment of Conditions.......................................... 27
5.15 Liability and Indemnification of Officers and Directors of the
Company ........................................................... 27
5.16 Refinancing........................................................ 31
5.17 Xxxxxxxx Agreement................................................. 31
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Page
No.
ARTICLE VI.
INDEMNIFICATION
6.01 Indemnification by the Company..................................... 31
6.02 Indemnification by the Investors................................... 31
6.03 Method of Asserting Claims......................................... 33
ARTICLE VII.
CONDITIONS
7.01 Conditions to Each Party's Obligation to Effect the Transactions... 36
7.02 Conditions to Obligations of the Investors......................... 37
7.03 Conditions to Obligations of the Company and the Operating
Partnership 38..................................................... 38
ARTICLE VIII.
SURVIVAL OF REPRESENTATIONS, WARRANTIES,
COVENANTS AND AGREEMENTS
8.01 Survival of Representations, Warranties, Covenants and Agreements.. 40
ARTICLE IX.
TERMINATION, AMENDMENT AND WAIVER
9.01 Termination.......................................................... 40
9.02 Effect of Termination and Abandonment; Termination Fee............. 41
ARTICLE X.
DEFINITIONS
10.01 Definitions......................................................... 43
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ARTICLE XI.
MISCELLANEOUS
11.01 Notices............................................................ 49
11.02 Entire Agreement................................................... 50
11.03 Public Announcements............................................... 50
11.04 Waiver............................................................. 50
11.05 Amendment.......................................................... 50
11.06 No Third Party Beneficiary......................................... 50
11.07 No Assignment; Binding Effect...................................... 50
11.08 Headings........................................................... 51
11.10 Invalid Provisions................................................. 51
11.11 Jurisdiction....................................................... 51
11.12 Governing Law...................................................... 51
11.13 Counterparts....................................................... 51
11.14 No Personal Recourse............................................... 51
This MASTER INVESTMENT AGREEMENT dated as of August 20, 1997
("Agreement") is made and entered into by and among THE XXXXXXX ENTITIES LISTED
ON THE SIGNATURE PAGES HERETO (collectively, "XxXxxxx"), THE FLIP SHAREHOLDERS
LISTED ON THE SIGNATURE PAGES HERETO (collective, the "FLIP Shareholders"),
XXXXXXX XXXXXX ("Xxxxxx"), PENN SQUARE PROPERTIES, INC., a Pennsylvania
corporation ("Penn Square," and together with XxXxxxx and Xxxxxx, the
"Contributors"), XXXXXX BAY PARTNERS, L.P., a Delaware limited partnership
("Xxxxxx Bay," and together with the Contributors, the "Investors"), AMERICAN
REAL ESTATE INVESTMENT, L.P., a Delaware limited partnership (the "Operating
Partnership") and AMERICAN REAL ESTATE INVESTMENT CORPORATION, a Maryland
corporation (the "Company," and together with the Operating Partnership, the
"REIT"). Capitalized terms not otherwise defined herein have the meanings set
forth in Section 10.01.
RECITALS
A. The parties hereto desire to effect the Transactions (as defined
below) pursuant to which, among other things, the Investors and the FLIP
Shareholders will receive shares of common stock, par value $.001 per share, of
the Company ("Common Stock"), partnership interests in the Operating Partnership
("Partnership Units") or a combination of shares of Common Stock and Partnership
Units in exchange for the investment or contribution by such Investors to the
Company or the Operating Partnership of cash and certain assets and properties;
and
B. In order to effect the Transactions, the parties hereto intend to
enter into the Transaction Agreements attached as Exhibits to this Agreement
with respect to the transactions to be entered into by such parties; such
Transaction Agreements will be governed by and subject to the terms and
conditions of this Agreement; and the execution and delivery of each such
Transaction Agreement is a condition to the obligations of the parties to
consummate the Transactions; and
C. The Board of Directors of the Company has approved the execution
and delivery of this Agreement and the Transaction Agreements and have
determined that it is advisable and in the best interests of the stockholders of
the Company to consummate the Transactions to be consummated by the Company or
the Operating Partnership, as the case may be.
AGREEMENT
NOW, THEREFORE, in consideration of the material covenants and
agreements set forth in this Agreement, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereby agree as follows.
ARTICLE I.
THE TRANSACTIONS
1.01 The Transactions. At the Closing Date (as defined below),
each of the parties hereby agrees to consummate each of the transactions to be
consummated by it described below (collectively, the "Transactions"):
(i) the issuance and sale to Xxxxxx Bay of shares of Common
Stock and warrants to purchase Common Stock in exchange for the
contribution of cash by Xxxxxx Bay to the Company, pursuant to the terms
of a Stock Purchase Agreement substantially in the form attached hereto as
Exhibit A (the "Stock Purchase Agreement");
(ii) the issuance and transfer to Xxxxxx of Partnership Units and
warrants to purchase Partnership Units in exchange for the contribution by
Xxxxxx to the Operating Partnership of non-voting preferred stock of Penn
Square, pursuant to the terms of a Contribution Agreement substantially in
the form attached hereto as Exhibit B (the "Management Contribution
Agreement");
(iii) the issuance and transfer to XxXxxxx of Partnership Units
and warrants to purchase Partnership Units and shares of Common Stock in
exchange for the contribution by XxXxxxx to the Operating Partnership
and/or the Company of certain partnership interests and certain
properties, assets (including certain acquisition contracts) and
liabilities, pursuant to the terms of a Contribution Agreement
substantially in the form attached hereto as Exhibit C (the "XxXxxxx
Contribution Agreement"); and
(iv) the issuance to the FLIP Shareholders of Common Stock in
connection with the merger of the Company and FLIP, in which the Company
will be the surviving corporation in the Merger (the "Merger"), pursuant
to the terms of a Merger Agreement substantially in the form attached
hereto as Exhibit D (the "Merger Agreement").
1.02 Closing. The closings of the Transactions shall occur
simultaneously (the "Closing") and will take place at the offices of Xxxxxx &
Xxxxx, 000 Xxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000, or at such other place as the
parties hereto mutually agree, on a date and at a time to be specified by the
parties, which in no event shall be later than 10:00 a.m., local time, on the
third Business Day after the conditions set forth in Article VII and in each of
the Transaction Agreements have been satisfied or, if permissible, waived in
accordance with this Agreement or the Transaction Agreements, or on such other
date as the parties hereto mutually agree (the "Closing Date"). At the Closing
there shall be delivered to the parties hereto and to the Transaction Agreements
the certificates and other documents and instruments required to be delivered
under this Agreement and the Transaction Agreements.
1.03 Further Assurances. Each party hereto will execute such
further documents and instruments (including the Transaction Agreements) and
take such further actions
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as may reasonably be requested by one or more of the others to effect the
Transactions and purposes of this Agreement.
ARTICLE II.
PURCHASE PRICE
2.01 Purchase Price. The purchase price payable for each share of
the Company's Common Stock to be issued and sold pursuant to this Agreement and
the Transaction Agreements (the "Per Share Purchase Price") shall be $11.00 per
share. The purchase price payable for each of the Partnership Units to be issued
and exchanged pursuant to this Agreement and the Transaction Agreements (the
"Per Unit Purchase Price") shall be the same amount as the Per Share Purchase
Price.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
AND THE OPERATING PARTNERSHIP
Except as set forth in the Company SEC Reports filed by the Company
with the SEC prior to the execution and delivery of this Agreement or in the
disclosure letter delivered to the Investors by the Company at or prior to the
execution and delivery of this Agreement (the "Company Disclosure Letter"), the
Company and the Operating Partnership hereby represent and warrant to each
Investor as follows:
3.01 Authority. The Company has full corporate power and authority,
and the Operating Partnership has full partnership power and authority, to
execute and deliver this Agreement and the Transaction Agreements to which it is
a party and to perform its obligations hereunder and thereunder and to
consummate the transactions contemplated hereby and thereby including without
limitation the issuance and sale of the Securities, subject only to the
affirmative vote of the holders of shares of the Company's Common Stock entitled
to cast a majority of all the votes entitled to be cast (the "Company
Stockholder Approval"). The execution and delivery by the Company of this
Agreement and the Transaction Agreements to which it is a party, and the
performance by the Company of its obligations hereunder and thereunder, have
been duly and validly approved by the Board of Directors of the Company, the
Board of Directors of the Company has recommended adoption and approval by the
stockholders of the Company of the transactions contemplated by this Agreement
and the Transaction Agreements and the sale of or Section 1031 Exchanges with
respect to the Properties and directed that this Agreement, the Transaction
Agreements (including the Merger Agreement), the sale of or Section 1031
Exchanges with respect to the Properties and the transactions contemplated
hereby and thereby be submitted to the stockholders of the Company for their
consideration, and no other corporate proceedings on the part of the Company or
its stockholders are necessary to authorize the execution, delivery and
performance by the Company of this Agreement and the Transaction Agreements to
which it is a party and the consummation by the Company of the transactions
contemplated hereby or thereby, other than obtaining the Company Stockholder
Approval. The execution and delivery by the Operating Partnership of this
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Agreement and the Transaction Agreements to which it is a party, and the
performance by the Operating Partnership of its obligations hereunder and
thereunder, have been duly and validly approved by all requisite partnership
action, and no other partnership or corporate proceedings, as the case may be,
on the part of the Operating Partnership or its partners are necessary to
authorize the execution, delivery and performance by the Operating Partnership
of this Agreement and the Transaction Agreements to which it is a party and the
consummation by the Operating Partnership of the transactions contemplated
hereby or thereby. The execution and delivery of the Amended and Restated
Partnership Agreement by the parties thereto has been duly and validly approved
by all requisite partnership action, and no other partnership or corporate
proceedings, as the case may be, on the part of the Operating Partnership or its
partners are necessary to authorize the execution, delivery and performance of
the Amended and Restated Partnership Agreement. Upon the execution and delivery
of the Amended and Restated Partnership by the parties thereto, such Amended and
Restated Partnership Agreement will constitute legal, valid and binding
obligations of the Company thereto enforceable against the Company in accordance
with its terms. This Agreement and the Transaction Agreements to which it is a
party have been duly and validly executed and delivered by each of the Company
and the Operating Partnership and constitute, and upon the execution and
delivery by the Company and the Operating Partnership of the other Transaction
Agreements to which it is a party, such Transaction Agreements will constitute,
legal, valid and binding obligations of the Company and the Operating
Partnership enforceable against the Company and the Operating Partnership in
accordance with their terms.
3.02 Organization of the Company. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Maryland, and has full corporate power and authority to conduct its business as
and to the extent now conducted and to own, use and lease and operate its assets
and properties. The Company is duly qualified, licensed or admitted to do
business and is in good standing in those jurisdictions in which the ownership,
use or leasing of its assets and properties, or the conduct or nature of its
business, makes such qualification, licensing or admission necessary, except for
failures to be so qualified, licensed or admitted and in good standing that
individually or in the aggregate would not result in a Material Adverse Effect.
3.03 Organization of Subsidiaries. Each of the Company's
Subsidiaries has been duly organized and is validly existing as a corporation,
limited partnership, limited liability company or other entity, as the case may
be, in good standing under the laws of the jurisdiction of its incorporation or
organization, as the case may be, has the requisite power and authority to own,
use and lease and operate its assets and properties and to conduct its business
as and to the extent now conducted and is duly qualified as a foreign
corporation, limited partnership or limited liability company or other entity,
as the case may be, to transact business and is in good standing in each
jurisdiction in which such qualification is required, whether by reason of the
ownership or leasing of property or the conduct of business, except for failures
to be so qualified or be in good standing that individually or in the aggregate
would not result in a Material Adverse Effect. All of the issued and outstanding
capital stock of each corporate Subsidiary has been duly authorized and is
validly issued, fully paid and non-assessable and is owned by the Company,
directly or through Subsidiaries, free and clear of any Liens. None of the
outstanding shares of capital stock of the corporate Subsidiaries is subject to
any preemptive or other similar
4
rights arising by operation of law, under the charter or by-laws of any
corporate Subsidiary or under any agreement to which the Company or any
Subsidiary is a party, or otherwise. All of the partnership or membership
interests, as the case may be, of each partnership or limited liability company
Subsidiary, as the case may be, is owned by the Company, directly or through
Subsidiaries, free and clear of all Liens, except that approximately 41.16% of
the limited partnership interests in the Operating Partnership and 0.1% of the
partnership interests in Virginia Street Associates Limited Partnership,
respectively, are owned by Persons other than the Company.
3.04 Capital Stock. The authorized capital stock of the Company
consists solely of (i) 5,000,000 shares of preferred stock, par value $.01 per
share, none of which are issued and outstanding, (ii) 30,000,000 shares of
Common Stock, 1,128,594 of which are issued and outstanding as of the date
hereof and 1,544,621 of which are reserved for issuance upon exercise of stock
options, warrants or exchange of Partnership Units as of the date hereof, and
(iii) 30,000,000 shares of excess stock, none of which are issued and
outstanding as of the date hereof. Immediately prior to or concurrently with the
Closing, the only outstanding options or warrants to purchase Common Stock will
be 61,500 options in the aggregate granted to certain directors of the Company.
Section 3.04 of the Company Disclosure Letter sets forth a true and correct list
of the number of Partnership Units issued and outstanding and the holders
thereof. All of the outstanding shares of Common Stock and all of the
outstanding Partnership Units have been duly authorized and validly issued and
are fully-paid and nonassessable (except, in the case of Partnership Units, as
contemplated by the Delaware Revised Uniform Limited Partnership Act) and have
been offered and sold in compliance with all applicable laws including, without
limitation, federal and state securities laws and none of them was issued in
violation of any preemptive or other similar right. The Securities, when issued
and sold pursuant to this Agreement and the Transaction Agreements, will be duly
authorized and validly issued, fully-paid and nonassessable and none of them
will be issued in violation of any preemptive or other similar right. There is
no outstanding option, warrant or other right calling for the issuance of, and
there is no commitment, plan or arrangement to issue, any shares of capital
stock of the Company or any security convertible into or exercisable or
exchangeable for, such capital stock. The Common Stock and the Securities
conform in all material respects to all statements relating thereto contained in
the Company SEC Reports.
3.05 Non-Contravention; Approvals and Consents.
(a) The execution and delivery by the Company and the Operating
Partnership of this Agreement and the Transaction Agreements to which it is a
party do not, and the performance by the Company and the Operating Partnership
of its obligations hereunder and thereunder and the consummation of the
transactions contemplated hereby and thereby will not, conflict with, result in
a violation or breach of, constitute (with or without notice or lapse of time or
both) a default under, result in or give to any person any right of payment or
reimbursement, termination, cancellation, modification or acceleration of, or
result in the creation or imposition of any Lien upon any of the assets or
properties of the Company or any of its Subsidiaries under, any of the terms,
conditions or provisions of (i) the certificates or articles of incorporation or
bylaws (or other comparable charter documents) of the Company or any of its
Subsidiaries, or (ii) subject to the taking of the actions and obtaining the
approvals
5
described in paragraph (b) of this Section, (x) any statute, law, rule,
regulation or ordinance (together, "Laws"), or any judgment, decree, order,
writ, permit or license (together, "Orders"), of any court, official or other
instrumentality of the United States or any state, county, city or other
political subdivision (a "Governmental or Regulatory Authority"), applicable to
the Company or any of its Subsidiaries or any of their respective assets or
properties, or (y) any agreement or obligation of any kind (together,
"Contracts") to which the Company or any of its Subsidiaries is a party or by
which the Company or any of its Subsidiaries or any of their respective assets
or properties is bound, excluding from the foregoing clauses (x) and (y)
conflicts, violations, breaches, defaults, reimbursements, terminations,
cancellations, modifications, accelerations and creations and impositions of
Liens which, individually or in the aggregate, could not be reasonably expected
to have a Material Adverse Effect or adversely affect in any material respect
the ability of the Company or the Operating Partnership to consummate the
transactions contemplated by this Agreement or the Transaction Agreements to
which it is a party.
(b) Except for (i) the filing of the Form S-4 and the Proxy
Statement/Prospectus with the SEC pursuant to the Securities Act of 1933, as
amended, and the rules and regulations thereunder (the "Securities Act") and the
Securities Exchange Act of 1934, as amended, and the rules and regulations
thereunder (the "Exchange Act"), (ii) filings on Forms 3, 4 or 5, Schedules 13G
or 13D by certain affiliates of the Company pursuant to the Exchange Act, and
filings required to be made with the American Stock Exchange and the National
Association of Securities Dealers, Inc., and (iii) the filing of the
certificates of Merger as provided in the Merger Agreement, no consent, approval
or action of, filing with or notice to any Governmental or Regulatory Authority
is necessary or required for the execution and delivery by each of the Company
and the Operating Partnership of this Agreement or the Transaction Agreements to
which it is a party, the performance by each of the Company and the Operating
Partnership of its obligations hereunder or thereunder or the consummation of
the transactions contemplated hereby or thereby, other than such consents,
approvals, actions, filings and notices which the failure to make or obtain, as
the case may be, individually or in the aggregate, could not be reasonably
expected to have a Material Adverse Effect or adversely affect in any material
respect the ability of the Company or the Operating Partnership to consummate
the transactions contemplated by this Agreement or the Transaction Agreements to
which it is a party.
3.06 No Violations or Defaults.
To the knowledge of the Company, neither the Company nor any of its
Subsidiaries is in violation of its certificate or articles of incorporation,
by-laws, certificates of partnership, partnership agreements, limited liability
company agreements or other similar governing documents, as the case may be, and
none of the Company or any of its Subsidiaries is in default in the performance
or observance of any obligation, agreement, covenant or condition contained in
any Contracts to which such entity is a party or by which such entity may be
bound, or to which any of its properties or assets may be bound or subject,
except for such
6
violations or defaults that individually or in the aggregate would not have a
Material Adverse Effect.
3.07 SEC Reports and Financial Statements; Partnership Agreement.
(a) The Company has filed all forms, reports, schedules,
registration statements, and other documents required to be filed by it with the
SEC since the date of the Company's formation (as such documents have since the
time of their filing been amended or supplemented, the "Company SEC Reports").
As of their respective dates, the Company SEC Reports (i) complied as to form in
all material respects with the requirements of the Securities Act, or the
Exchange Act, as the case may be, and (ii) did not contain any untrue statement
of a material fact or omit to state a 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. The audited
consolidated financial statements and the interim consolidated financial
statements (including, in each case, the notes, if any, thereto) included in the
Company SEC Reports (the "Company Financial Statements") (A) complied as to form
in all material respects with the published rules and regulations of the SEC
with respect thereto, (B) were prepared in accordance with GAAP applied on a
consistent basis during the periods involved (except as may be indicated therein
or in the notes thereto and except with respect to unaudited statements as
permitted by Forms 10-Q and 8-K of the SEC) and (C) fairly present in all
material respects (subject, in the case of the unaudited interim financial
statements, to normal, recurring year-end audit adjustments which are not
expected to be, individually or in the aggregate, materially adverse to the
Company and its Subsidiaries taken as a whole) the consolidated financial
position of the Company and its consolidated subsidiaries as at the respective
dates thereof and the consolidated results of their operations and cash flows
for the respective periods then ended. Each Subsidiary of the Company is treated
as a consolidated subsidiary of the Company in the Company Financial Statements
for all periods covered thereby, except for American Emerald Partners, L.P.,
which is reflected in the Company Financial Statements and the notes thereto as
an equity investment.
(b) The Operating Partnership has delivered to the Investors a true and
correct copy of the Agreement of Limited Partnership of the Operating
Partnership, dated as of November 10, 1993, (the Partnership Agreement"), as
amended through the date hereof. The Partnership Agreement as so amended is in
full force and effect.
3.08 Absence of Changes. Except for the execution and delivery of
this Agreement and the Transaction Agreements, and the transactions to take
place pursuant hereto and thereto on the Closing Date, since December 31, 1996
there has not been any change, event or development having, or that could
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect. Without limiting the foregoing, between December 31, 1996 and
the date hereof (i) the Company and its Subsidiaries have conducted their
respective businesses only in the ordinary course consistent with past practice
and (ii) neither the Company nor any of its Subsidiaries has taken any action
which, if taken after the date hereof, would constitute a breach of any
provision of clause (b) of Section 4.01.
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3.09 Absence of Undisclosed Liabilities. Except for matters
reflected in the consolidated balance sheet of the Company as of December 31,
1996 (or the footnotes thereto) included in the Company Financial Statements,
neither the Company nor any of its Subsidiaries had at such date, or has
incurred since that date, any liabilities or obligations (whether absolute,
accrued, contingent, fixed or otherwise, or whether due or to become due) of any
nature, except liabilities or obligations (i) which were incurred in the
ordinary course of business consistent with past practice since such date, and
(ii) which have not had, and could not be reasonably expected to have,
individually or in the aggregate, a Material Adverse Effect.
3.10 Legal Proceedings. There are no actions, suits, arbitrations or
proceedings pending or, to the knowledge of the Company and its Subsidiaries,
threatened against, relating to or affecting, nor to the knowledge of the
Company and its Subsidiaries are there any Governmental or Regulatory Authority
investigations or audits pending or threatened against, relating to or
affecting, the Company or any of its Subsidiaries or any of their respective
assets and properties which, if determined adversely to the Company or any of
its Subsidiaries, individually or in the aggregate, could be reasonably expected
to have a Material Adverse Effect or adversely affect in any material respect
the ability of the Company or the Operating Partnership to consummate the
transactions contemplated by this Agreement or the Transaction Agreements to
which it is a party. Neither the Company nor any of its Subsidiaries is subject
to any Order of any Governmental or Regulatory Authority which, individually or
in the aggregate, is having or could be reasonably expected to have a Material
Adverse Effect or adversely affect in any material respect the ability of the
Company or the Operating Partnership to consummate the transactions contemplated
by this Agreement or the Transaction Agreements to which it is a party.
3.11 Compliance with Licenses, Laws and Orders. The Company and its
Subsidiaries hold all licenses, permits, authorizations and approvals necessary
for the lawful conduct of their respective businesses (the "Licenses"), except
for failures to hold such Licenses which, individually or in the aggregate, are
not having and could not be reasonably expected to have a Material Adverse
Effect. All of the Licenses are valid and in full force and effect, and the
Company and its Subsidiaries are in compliance with the terms of the Licenses,
except for failures to be in full force and effect or to so comply which,
individually or in the aggregate, are not having and could not be reasonably
expected to have a Material Adverse Effect. The Company and its Subsidiaries are
not in violation of any Law or Order of any Governmental or Regulatory
Authority, except for violations which, individually or in the aggregate, are
not having and could not be reasonably expected to have a Material Adverse
Effect.
3.12 Taxes.
(a) Each of the Company and its Subsidiaries has timely filed all
tax returns and reports required to be filed by it, or requests for extensions
to file such returns or reports have been timely filed and granted and have not
expired, and all such tax returns and reports are complete and accurate in all
material respects. The Company and each of its Subsidiaries have paid (or the
Company has paid on its behalf) all Taxes shown as due on such tax returns
8
and reports. There are no tax liens, other than Permitted Liens, upon the assets
of the Company or any of its Subsidiaries. The most recent financial statements
contained in the Company SEC Reports reflect an adequate reserve for all taxes
payable by the Company and its Subsidiaries for all taxable periods and portions
thereof accrued through the date of such financial statements, and no
deficiencies for any taxes have been proposed, asserted or assessed against the
Company or any of its Subsidiaries that are not adequately reserved for, except
for inadequately reserved taxes and inadequately reserved deficiencies that
would not, individually or in the aggregate, have a Material Adverse Effect.
Since its formation, the Company has incurred no liability for Taxes under
Sections 857(b), 860(c) or 4981 of the Code, and neither the Company nor any of
its Subsidiaries have incurred any liability for Taxes except in the ordinary
course of business. No requests for waivers of the time to assess any taxes
against the Company or any of its Subsidiaries have been granted or are pending,
except for requests with respect to such taxes that have been adequately
reserved for in the most recent financial statements contained in the Company
SEC Reports, or, to the extent not adequately reserved, the assessment of which
would not, individually or in the aggregate, have a Material Adverse Effect.
Except as set forth in Section 3.12 of the Company Disclosure Letter which
provides a description of any tax audit, inquiry or controversy potentially
involving Taxes in excess of $50,000 of the Company or any Subsidiary, to the
knowledge of the Company no event has occurred and no condition or circumstance
exists, which presents a material risk that any Tax will be imposed on the
Company.
(b) As a result of compliance with this Agreement and the matters
referred to herein, neither the Company nor any of its Subsidiaries will be
obligated to make a payment to an individual that would be a "parachute payment"
to a "disqualified individual" as those terms are defined in Section 280G of the
Code.
(c) The Company does not hold any real property primarily for sale
to customers in the ordinary course of business as described in Section 1221(1)
of the Code such that the income derived therefrom would be considered income
from prohibited transactions as defined in Section 857(b)(6) of the Code.
3.13 REIT Qualification. The Company (i) for all of its taxable
years commencing the year ended December 31, 1993 through the year ended
December 31, 1996 has been subject to taxation as a REIT within the meaning of
the Code and has satisfied the requirements to qualify as a REIT for such years,
(ii) has operated and intends to continue to operate, in such a manner as to
qualify as a REIT for its taxable year ending December 31, 1997, and (iii) has
not taken or omitted to take any action which could reasonably be expected to
result in a challenge to its status as a REIT, and to the Company's knowledge,
no such challenge is pending or threatened. The Operating Partnership has at all
times, and each other Subsidiary of the Company which is a partnership or files
Tax returns as a partnership for federal income tax purposes, has since its
acquisition by the Company, been classified for federal income tax purposes as a
partnership and not as a corporation or as an association taxable as a
corporation.
9
3.14 Employee Benefit Plans; ERISA.
(a) Section 3.14 of the Company Disclosure Letter sets forth a true
and complete list of all Benefit Plans with respect to which the Company or any
Company ERISA Affiliate has any obligation to contribute, has any liability
under or is otherwise a party to;
(b) No Benefit Plan is or ever has been subject to Part 3 of
Subtitle B of Title I of ERISA, Title IV of ERISA or Section 412 of the Code,
nor has the Company or any entity which would be a Company ERISA Affiliate at
any relevant time ever maintained, sponsored or had an obligation to contribute
to any plan subject to any such provisions;
(c) To the knowledge of the Company, no prohibited transaction
within the meaning of Section 406 or 407 of ERISA, or Section 4975 of the Code
with respect to any Benefit Plan has occurred which, individually or in the
aggregate, is having or could be reasonably expected to have a Material Adverse
Effect;
(d) Each of the Benefit Plans which is intended to be "qualified"
within the meaning of Section 401(a) of the Code has been determined by the IRS
to be so qualified and such determination has not been modified, revoked or
limited;
(e) Each of the Benefit Plans is, and its administration is and has
been in all material respects in compliance with all applicable laws and orders
and prohibited transaction exemptions, including, without limitation, the
requirements of ERISA, except where failure to comply would not, individually or
in the aggregate, have a Material Adverse Effect;
(f) Except for certain disability and health insurance reimbursement
as set forth in employment agreements, none of the Company or any Company ERISA
Affiliate maintains or is obligated to provide benefits under any life, medical
or health plan which provides benefits to retirees or other terminated employees
other than benefit continuation rights under the Consolidated Omnibus
Reconciliation Act of 1985, as amended; and there has been no violation of
Section 4980B of the Code or Sections 601 through 608 of ERISA with respect to
any Benefit Plan that individually or in the aggregate, is having or could be
reasonably expected to have a Material Adverse Effect; and
(g) Neither the execution and delivery by the Company of this
Agreement or the Transaction Agreements to which it is a party nor the
consummation of the transactions contemplated hereby constitutes or will
constitute an event in respect of which a change in, or acceleration of,
benefits under any Benefit Plan will or may occur.
3.15 Labor Matters. There is no material labor strike, slowdown,
work stoppage, lockout or other labor dispute in effect, or to the knowledge of
the Company, threatened, against or otherwise affecting the Company or any of
its Subsidiaries. To the knowledge of the Company, there are no union
organizational efforts presently being made
10
involving any of the unorganized employees of the Company or any of its
Subsidiaries which in any such case or all such cases together would have a
Material Adverse Effect.
3.16 Title to Property. The Company does not own or hold, directly
or indirectly, any real property, other than the Properties. The Company and/or
its Subsidiaries have good and marketable title to the Properties free and clear
of Liens, except for Permitted Liens. All leases and subleases under which the
Company or any Subsidiary has a leasehold interest in the Properties are in full
force and effect, and neither the Company nor any Subsidiary has received any
notice of any material claim of any sort that has been asserted by anyone
adverse to the rights of the Company or any Subsidiary under any of the leases
or subleases mentioned above, or affecting or questioning the rights of the
Company or such Subsidiary of the continued possession of the leased or
subleased premises under any such lease or sublease. All liens, charges,
encumbrances, claims or restrictions on or affecting any of the Properties and
the assets of the Company and any Subsidiary which are required to be disclosed
in the Company SEC Reports are disclosed therein. No tenant under any of the
leases, pursuant to which the Company or any Subsidiary, as lessor, leases its
Property, has an option or right of first refusal to purchase the premises
demised under such lease, the exercise of which would have a Material Adverse
Effect. To the best of the Company's knowledge, each of the Properties complies
with all applicable codes, laws and regulations (including, without limitation,
building and zoning codes, laws and regulations and laws relating to access to
the Properties), except for such failures to comply that would not individually
or in the aggregate have a Material Adverse Effect. There are no pending and to
the Company's knowledge, no threatened, condemnation proceeding, zoning change,
or other proceeding or action that will in any manner affect the size of, use
of, improvements on, construction on or access to, the Properties, except such
proceedings or actions that would not individually or in the aggregate have a
Material Adverse Effect.
3.17 Insurance.
(a) Either the Company or a Subsidiary has obtained title insurance
on all of the properties owned by each of them in an amount at least equal to
(i) the cost to acquire land and improvements in the case of an acquisition of
improved property or (ii) the cost to acquire land in the case of an acquisition
of unimproved property, and in each case such title insurance is in full force
and effect.
(b) Each of the Company and each Subsidiary is insured by insurers
of recognized financial responsibility against such losses and risks and in such
amounts as are prudent and customary in the businesses in which they are
engaged; and none of the Company and its Subsidiaries has any reason to believe
that it or any of its Subsidiaries will not be able to renew its existing
insurance coverage as and when such coverage expires or to obtain similar
coverage from similar insurers as may be necessary to continue its businesses at
a cost that would not have a Material Adverse Effect.
11
3.18 Tangible Personal Property. The Company and its Subsidiaries
have good title to all tangible personal property reflected on the balance sheet
included in the Company Financial Statements, owned, used or held for use by
them in the conduct of their respective businesses (except for leasehold and
licensed interests) free and clear of any Liens, except for Permitted Liens. All
material items of equipment, machinery, vehicles, furniture, fixtures and other
tangible personal property of every kind and description included in such assets
and properties are in good operating condition, normal wear and tear excepted.
3.19 Intangible Property. The Company and its Subsidiaries own or
have rights to use all material items of Intangible Property used by the Company
or any such Subsidiary. To the knowledge of the Company, such use does not
conflict with any rights of others with respect thereto, except for such
conflicts that have not had and would not have a Material Adverse Effect.
3.20 Registration Rights. Except pursuant to that Registration
Rights Agreement included as an exhibit to the Company's Annual Report on Form
10-KSB for the fiscal year ended December 31, 1996, there are no persons with
registration or other similar rights to have any securities registered by the
Company under the Act.
3.21 Environmental Matters. Each of the Company and its Subsidiaries
has obtained all Licenses which are required in respect of its business,
operations or assets and Properties under applicable Environmental Laws, and
each of the Company and its Subsidiaries is in compliance in all material
respects with the terms and conditions of all such Licenses and with any
applicable Environmental Law, except for such instances of non-compliance as
would not, individually or in the aggregate, have a Material Adverse Effect.
Except as set forth in Section 3.21 of the Company Disclosure Letter and except
in such circumstances as would not, individually or in the aggregate, have a
Material Adverse Effect:
(a) No Order has been issued, no complaint has been filed, no
penalty has been assessed and no investigation or review is pending or, to the
knowledge of the Company, threatened by any Governmental or Regulatory Authority
with respect to any alleged failure by the Company or any Subsidiary to have any
License required in connection with the conduct of the business or operations of
the Company or any of its Subsidiaries or with respect to any treatment,
storage, recycling, transportation, disposal or "release" as defined in 42
U.S.C. ss. 9601(22) ("Release"), of any Hazardous Material at any of the
Properties, and neither the Company, nor any Subsidiary is aware of any facts or
circumstances which could reasonably be expected to form the basis for any such
Order, complaint, penalty or investigation.
(b) None of the Company, any Subsidiary or, to the knowledge of the
Company and its Subsidiaries, any prior owner or lessee of any property now or
previously owned or leased by the Company or any Subsidiary, has handled any
Hazardous Material on any property now or previously owned or leased by the
Company or any Subsidiary; and, without limiting the foregoing, (i) no
polychlorinated biphenyl is or has been present, (ii) no asbestos is or has been
present, (iii) there are no underground storage tanks, active or abandoned, and
12
(iv) no Hazardous Material has been Released in a quantity reportable under, or
in violation of, any Environmental Law, at, on or under any Property now or
previously owned or leased by the Company or any Subsidiary, during any period
that the Company or a Subsidiary owned or leased such Property or, to the
knowledge of the Company, the Company and its Subsidiaries, prior thereto.
(c) Neither the Company nor any Subsidiary has transported or
arranged for the transportation of any Hazardous Material to any location which
is the subject of any Action or Proceeding that could lead to claims against
Purchaser, the Company or any Subsidiary for clean-up costs, remedial work,
damages to natural resources or personal injury claims, including, but not
limited to, claims under CERCLA.
(d) No oral or written notification of a Release of a Hazardous
Material has been filed by or on behalf of the Company or any Subsidiary and no
property now or previously owned or leased by the Company or any Subsidiary is
listed or proposed for listing on the National Priorities List promulgated
pursuant to CERCLA or on any similar state list of sites requiring investigation
or clean-up.
(e) There are no Liens (other than Permitted Liens) arising under or
pursuant to any Environmental Law or Order on any real property owned or leased
by the Company or any Subsidiary, and no action of any Governmental or
Regulatory Authority has been taken or, to the knowledge of the Company, is in
process which could subject any of such properties to such Liens, and neither
the Company nor any Subsidiary would be required to place any notice or
restriction relating to the presence of Hazardous Material at any property owned
by it in any deed to such property.
(f) There have been no environmental investigations, studies,
audits, tests, reviews or other analyses conducted by, or which are in the
possession of, the Company or any Subsidiary in relation to any property or
facility now or previously owned or leased by the Company or any Subsidiary
which have not been delivered to Xxxxxx Bay prior to the execution of this
Agreement.
3.22 Investment Company Act. Neither the Company nor the Operating
Partnership is, and upon the issuance and sale of the Securities and the
application of the net proceeds therefrom, neither the Company nor the Operating
Partnership will be, an "investment company" within the meaning of the
Investment Company Act of 1940, as amended.
3.23 Brokers. Except for Xxxxxxxxx, Lufkin & Xxxxxxxx Securities
Corporation, and certain other brokers in connection with the sale of any or all
of the Properties, all of whose fees, commissions and expenses are the sole
responsibility of the Company, all negotiations relative to this Agreement and
the transactions contemplated hereby have been carried out by the Company
directly with the Investors without the intervention of any Person on behalf of
the Company in such manner as to give rise to any valid claim by any Person
against any Investor, the Company or any Subsidiary for a finder's fee,
brokerage commission or similar payment.
13
ARTICLE IV.
COVENANTS RELATING TO CONDUCT OF BUSINESS
4.01 Conduct of Business by the Company. At all times from and
after the date hereof until the Closing Date, the Company and the Operating
Partnership each covenants and agrees as to itself and each of its Subsidiaries
that (except for the sale of or Section 1031 Exchanges with respect to the
Properties or as expressly contemplated or permitted by this Agreement, and
except to the extent that the Investors otherwise shall consent in writing,
which consent shall not be unreasonably withheld):
(a) The Company and its Subsidiaries shall conduct their respective
businesses only in, and the Company and such Subsidiaries shall not take any
action except in, the ordinary course consistent with past practice.
(b) Without limiting the generality of paragraph (a) of this
Section, and except as otherwise provided in Section 5.01, (i) the Company and
its Subsidiaries shall use all commercially reasonable efforts to preserve
intact in all material respects their present business organizations and
reputation, to keep available the services of their key officers and employees,
to maintain their assets and properties in good working order and condition,
ordinary wear and tear excepted, to maintain insurance on their tangible assets
and businesses in such amounts and against such risks and losses as are
currently in effect, to preserve their relationships with customers and
suppliers and others having significant business dealings with them and to
comply in all material respects with any Law or any Order of any Governmental or
Regulatory Authority applicable to the Company or any of its Subsidiaries, and
(ii) neither the Company nor any of its Subsidiaries shall:
(1) amend or propose to amend its certificate or articles of
incorporation, bylaws, certificate of partnership, partnership agreement,
limited liability company agreement, or other comparable governing
documents, except as contemplated by this Agreement;
(2) (w) declare, set aside or pay any dividends on or make other
distributions in respect of any of its capital stock, except for the
declaration and payment of dividends by a wholly-owned Subsidiary solely
to its parent corporation and except for the declaration and payment of
regular quarterly cash dividends on the Common Stock consistent with past
practice of the Company and in no event less than the amount necessary to
retain the Company's qualification as a REIT; (x) split, combine,
reclassify or take similar action with respect to any of its capital stock
or issue or authorize or propose the issuance of any other securities in
respect of, in lieu of or in substitution for shares of its capital stock;
(y) except as provided in Section 5.01, adopt a plan of complete or
partial liquidation or resolutions providing for or authorizing such
liquidation or a dissolution, merger, consolidation, restructuring,
recapitalization or other
14
reorganization; or (z) directly or indirectly redeem, repurchase or
otherwise acquire any shares of its capital stock or any option with
respect thereto;
(3) except for issuance of shares pursuant to the redemption of the
Operating Partnership's Units, issue, deliver or sell, or authorize or
propose the issuance, delivery or sale of, any Partnership Units, shares
of capital stock or any option with respect thereto other than the
issuance by a wholly-owned Subsidiary of its capital stock to its parent
corporation, or modify or amend any right of any holder of outstanding
Partnership Units, shares of capital stock or options with respect
thereto;
(4) acquire (by merging or consolidating with, or by purchasing a
substantial equity interest in or a substantial portion of the assets of,
or by any other manner) any business or any corporation, partnership,
association or other business organization or division thereof or
otherwise acquire or agree to acquire any material amount of assets;
(5) except as provided in Section 5.01 and other than dispositions
in the ordinary course of its business consistent with past practice of
assets which are not, individually or in the aggregate, material to the
Company and its Subsidiaries taken as a whole (and other than the sale of
the Properties), sell, lease, grant any security interest in or otherwise
dispose of or encumber any of its assets or properties;
(6) except to the extent required by applicable law, (x) permit any
material change in (A) any accounting or financial reporting practice or
policy or any material pricing, marketing, purchasing, investment,
inventory, credit, allowance or tax practice or policy or (B) any method
of calculating any bad debt, contingency or other reserve for accounting,
financial reporting or tax purposes, or (y) make any material tax election
or settle or compromise any material income tax liability with any
Governmental or Regulatory Authority;
(7) (x) incur any indebtedness for borrowed money or guarantee any
such indebtedness, issue or sell any debt securities or warrants or other
rights to acquire any debt securities of the Company or any of its
Subsidiaries, or guarantee any debt securities of another person or enter
into any arrangement having the economic effect of any of the foregoing,
or (y) voluntarily purchase, cancel, prepay or otherwise provide for a
complete or partial discharge in advance of a scheduled repayment date
with respect to, or waive any right under, any indebtedness for borrowed
money;
(8) (x) enter into, adopt, amend in any material respect (except as
may be required by applicable law) or terminate any Benefit Plan or other
agreement, arrangement, plan or policy between the Company or one of its
Subsidiaries and one or more of its directors, officers or employees, (y)
except for normal increases in the ordinary course of business consistent
with past practice that, in the aggregate, do not result in a material
increase in benefits or compensation expense to the Company and its
Subsidiaries taken as a whole, increase in any manner the compensation or
fringe benefits
15
of any director, officer or employee or pay any benefit not required by
any plan or arrangement in effect as of the date hereof, or (z) establish,
adopt, enter into or amend in any material respect or take action to
accelerate any rights or benefits under any collective bargaining
agreement or any stock option, employee benefit plan, agreement or policy
except as contemplated by this Agreement;
(9) enter into any contract or amend or modify any existing
contract, or engage in any new transaction in each case with any affiliate
of the Company or any of its Subsidiaries;
(10) except for the budgeted capital expenditures set forth on
Schedule 4.01(b)(10) and capital expenditures or commitments which in the
aggregate do not exceed $50,000, make any capital expenditures or
commitments for additions to plant, property or equipment constituting
capital assets;
(11) notwithstanding anything to the contrary contained in this
Agreement (other than as expressly provided in the parenthetical language
contained in the introduction to Section 4.01 above or expressly provided
in Section 5.03), use, or permit or cause to be used, any assets,
properties, resources or services of employees in the formation,
organization, capitalization or operations of the Spin-Off Subsidiary to
an extent that would have a Material Adverse Effect or adversely affect
the ability of the Company and the Operating Partnership to consummate the
transactions contemplated by this Agreement or the Transaction Agreements
to which it is a party; or
(12) enter into any contract, agreement, commitment or arrangement to do or
engage in any of the foregoing.
4.02 Conduct of Business by the Contributors. At all times from and
after the date hereof until the Closing Date, each Contributor covenants and
agrees as to itself and its Subsidiaries that (except for the Refinancing and
except as expressly contemplated or permitted by this Agreement or the XxXxxxx
Contribution Agreement or to the extent that the Company shall otherwise consent
in writing, which consent shall not be unreasonably withheld):
(a) Each Contributor and its Subsidiaries shall conduct their
respective Contributed Businesses only in, and shall not take any action with
respect to their respective Contributed Businesses except in, the ordinary
course consistent with past practice.
(b) Without limiting the generality of paragraph (a) of this
Section, (i) each Contributor and its Subsidiaries shall use all commercially
reasonable efforts to preserve intact in all material respects its Contributed
Business' present business organizations and reputation, to keep available the
services of its Contributed Business key officers and employees, to maintain the
assets of its Contributed Business in good working order and condition, ordinary
wear and tear excepted, to maintain insurance on its Contributed Business in
such amounts and against such risks and losses as are currently in effect, to
preserve its Contributed Business'
16
relationships with customers and suppliers and others having significant
business dealings with its Contributed Business and to comply in all material
respects with all Laws and Orders of all Governmental or Regulatory Authorities
applicable to its Contributed Business and (ii) each Contributor and its
Subsidiaries (but only insofar as it relates to conduct of its Contributed
Business) shall not:
(1) except as contemplated by the Acquisition Contracts (as defined
in the Management Contribution Agreement), cause its Contributed Business
to acquire (by merging or consolidating with, or by purchasing a
substantial equity interest in or a substantial portion of the assets of,
or by any other manner) any business or any corporation, partnership,
association or other business organization or division thereof or
otherwise acquire or agree to acquire any assets other than in the
ordinary course of its Contributed Business consistent with past practice;
(2) except as provided in the XxXxxxx Contribution Agreement, other
than dispositions in the ordinary course of its business consistent with
past practice of assets which are not, individually or in the aggregate,
material to its Contributed Business, sell, lease, grant any security
interest in or otherwise dispose of or encumber any of the assets of its
Contributed Business;
(3) with respect to its Contributed Business, except to the extent
required by applicable law, (x) permit any material change in (A) any
accounting or financial reporting practice or policy or any material
pricing, marketing, purchasing, investment, inventory, credit, allowance
or tax practice or policy or (B) any method of calculating any bad debt,
contingency or other reserve for accounting, financial reporting or tax
purposes or (y) make any material tax election or settle or compromise any
material income tax liability with any Governmental or Regulatory
Authority;
(4) with respect to its Contributed Business, enter into any
contract or amend or modify any existing contract, or engage in a new
transaction with any other business unit or division of such Contributor,
any affiliate of such Contributor or any of its Subsidiaries;
(5) make any change in the lines of business in which the Contributed
Business participates or is engaged; or
(6) enter into any contract, agreement, commitment or arrangement to
do or engage in any of the foregoing (except as contemplated herein).
(c) Each Contributor shall use commercially reasonable efforts to
diligently proceed towards consummation of the acquisition of the Acquisition
Properties. Without limiting the generality of the foregoing, the Contributors
(i) shall use commercially reasonable efforts to (x) conduct such due diligence
and other investigations of the Acquisition Properties as they may reasonably
deem necessary in their sole discretion, and (y) maintain the validity, on the
part
17
of the Contributors, of the Acquisition Contracts; and (ii) shall not (x) amend,
terminate or waive the terms of any Acquisition Contract except with the prior
written consent of the Company, which consent shall not be unreasonably withheld
or (y) knowingly default, or knowingly cause any other party to default, under
any Acquisition Contract.
ARTICLE V.
ADDITIONAL AGREEMENTS
5.01 Sale of Properties; Section 1031 Exchanges of Original
Properties. (a) The Company shall use all commercially reasonable efforts to
dispose of the Properties in one or more Section 1031 Exchanges prior to the
Closing Date at the highest price reasonably attainable for such Properties and
shall not sell or dispose of any such Properties (other than the Sedona
apartments and the Company's interests in Emerald Pointe apartments provided,
however, that such properties or interests are sold or disposed of on
substantially the same or more favorable terms contained in that certain
contract for the purchase and sale of Sedona Apartments Complex dated March 20,
1997 by and between American Sedona Partners, L.P. and Xxxxx Real Estate Group,
LLC as assigned on July 2, 1997 to Greentree Village Ltd. and that certain
Mutual Release and Settlement Agreement dated as of April 30, 1997 by and among
Emerald Vista, Inc., Xxxxxxxxx Meringoff Properties, Inc., the Company and the
other parties thereto, respectively) without the prior approval of each of the
Investors (with XxXxxxx considered a single investor, and Xxxxxx and Penn Square
considered a single investor); provided, however, that such approval will
conclusively be deemed to have been given if such Investor fails to notify the
Company of their disapproval within five Business Days after receipt by the
Investors of the notice described below. The Company shall deliver to the
Investors written notice of any proposed sale or disposition of any Property
between the date of this Agreement until the Closing Date, setting forth in
reasonable detail the material terms of such proposed sale or disposition. Prior
to the Closing Date, the Investors shall use commercially reasonable efforts to
cooperate with the Company and the Operating Partnership in their efforts to
timely identify and enter into an agreement to acquire one or more replacement
properties for the Sedona apartments so as to qualify the disposition of the
Sedona apartments and the acquisition of such replacement properties as a
Section 1031 Exchange.
(b) The Company, as general partner of the Operating Partnership,
shall use all commercially reasonable efforts in disposing of any of the
Original Properties to structure such transaction as one or more Section 1031
Exchanges.
(c) The parties hereto agree that the aggregate gross proceeds
(after deducting expenses) from the sale or Section 1031 Exchange of the
Americana Lakewood apartments phases I and II shall be allocated 62% to
Americana Lakewood apartment, phase I (to the Company) and 38% to Americana
Lakewood apartment phase II (to the owners thereof).
5.02 Termination of Certain Employment Agreements. The Company agrees that
effective upon the Closing, it will terminate the employment agreements set
forth on
18
Exhibit 5.02 hereto and pay to the parties thereto the amounts set forth on
Exhibit 5.02 in full satisfaction of the Company's obligations under such
agreements. Notwithstanding the termination of the employment agreement and
payment set forth on Exhibit 5.02 with respect to Xxxx X. Xxxxxx, the Company
agrees to continue to employ Xx. Xxxxxx for a period of three months following
the Closing Date on substantially the same terms and conditions (except with
respect to the grant of warrants or stock options) set forth in the employment
agreement for Xx.
Xxxxxx described on Exhibit 5.02.
5.03 Spin-Off.
(a) The Company agrees that prior to the Closing, it shall form or
cause to be formed a wholly-owned subsidiary (the "Spin-Off Subsidiary"), with
minimal capitalization, for the purposes of ultimately pursuing real estate
investment opportunities other than in the office or industrial sectors in the
United States. The Spin-Off Subsidiary shall be incorporated under the laws of
the State of Maryland unless otherwise directed by Xxx Xxxxxxxxx or Xxxx Xxxxxx.
(b) The Company shall appoint Xxxxxxxxx and Xxxxxx or their
designees as directors of the Spin-Off Subsidiary. The Company agrees that it
shall not remove such persons as directors of the Spin-Off Subsidiary without
cause ("cause" being interpreted pursuant to the corporation law of the
jurisdiction of incorporation of the Spin-Off Subsidiary). The Company further
agrees that no removal of Xxxxxxxxx or Xxxxxx for cause shall affect the rights
of Xxxxxxxxx or Xxxxxx to give the Spin-Off Notice set forth in Section 5.03(c)
below or the obligations of the Company to implement the request set forth in
such Spin-Off Notice.
(c) Subject to the limitations described below, at any time during
the period commencing on the Closing Date and ending on the earlier of (i) the
date that is 12 months after the last of Xxxxxxxxx or Xxxxxx ceases to be a
director of the Company or (ii) the third anniversary of the Closing Date,
Xxxxxxxxx or Xxxxxx may give written notice (the "Spin-Off Notice") to the
Company to request that the Company, in consideration for such assets as may be
contributed to the Spin-Off Subsidiary by Xxxxxxxxx, Xxxxxx or other persons,
transfers to Xxxxxxxxx, Xxxxxx or such other persons identified in the Spin-Off
Notice a percentage of the shares of the Spin-Off Subsidiary's common stock to
be specified in such Spin-Off Notice and to distribute the remaining shares of
common stock to the stockholders of the Company (it currently being anticipated
that only a nominal percentage of the Spin-Off Subsidiary's common stock shall
be so distributed to the Company's stockholders) (the "Spin-Off"). The Company
agrees to take all steps as may reasonably be necessary to implement the request
set forth in such notice and to effectuate the Spin-Off as promptly as
practicable, provided, however, that if the Board of Directors of the Company
determines in its reasonable judgment and in good faith that the Spin-Off would
materially impede, delay or interfere with any pending or planned material
financing, acquisition or corporate reorganization or other material corporate
development involving the Company or any of its Subsidiaries or would require
premature disclosure thereof, then the Company shall be entitled to postpone or
delay such Spin-Off for a reasonable period of time, but not in excess of 90
days. Notwithstanding the foregoing, the Company shall not
19
be obligated to effect the Spin-Off if (i) at the time of the Spin-Off the net
worth of the Spin-Off Subsidiary is less than $1 million or (ii) independent tax
counsel with a national law firm selected by the Company shall have provided the
Company with a written opinion to the effect that the Spin-Off has a realistic
possibility of terminating the Company's election as a real estate investment
trust under Section 856 of the Code if such matter were litigated (such
determination shall not preclude Xxxxxxxxx or Xxxxxx from proposing an alternate
structure).
(d) It is understood and agreed that the Company and its
Subsidiaries (including the Spin-Off Subsidiary prior to the Spin-Off) shall not
incur or bear any costs or expenses associated or in connection with the
Spin-Off, including, without limitation, general, administrative, "start-up," or
operating costs and expenses, attorneys' and accountants' fees and disbursements
or any SEC or other filing fees (collectively, "Spin-Off Costs"), without the
prior written consent of the Investors prior to the Closing or of the Company
after the Closing. Prior to the consummation of the Spin-Off, all Spin-Off Costs
shall be borne and paid directly by Xxxxxxxxx and Xxxxxx or such other persons
designated in the Spin-Off Notice and reasonably satisfactory to the Company,
and Xxxxxxxxx and Xxxxxx promptly shall reimburse, or cause to be reimbursed,
the Company and the Spin-Off Subsidiary for any Spin-Off Costs that are
otherwise incurred by the Company and the Spin-Off Subsidiary prior to the
consummation of the Spin-Off. After the consummation of the Spin-Off, all
Spin-Off Costs shall be borne and paid directly by the Spin-Off Subsidiary, and
the Spin-Off Subsidiary promptly shall reimburse, or cause to be reimbursed, the
Company for any Spin-Off Costs that are otherwise incurred by the Company or
that otherwise were incurred by the Spin-Off Subsidiary prior to the
commencement of the Spin-Off. It is further understood and agreed that, subject
to paragraph (f) below, the costs or expenses of the Spin-Off Subsidiary arising
in the ordinary course of business which are not Spin-Off Costs (e.g., costs of
incorporation) shall be the responsibility of the Spin-Off Subsidiary.
(e) The parties acknowledge that it is their current understanding
that the approval of the shareholders of the Company is not required for the
formation of the Spin-Off Subsidiary or for the Spin-Off.
(f) The parties agree that the Spin-Off Subsidiary shall not conduct
any business (other than matters incidental to its incorporation, any ongoing
reporting obligations, if any, matters in preparation for the Spin-Off referred
to above, and any other related matters) prior to Spin-Off. The Spin-Off
Subsidiary shall provide an indemnity in form and substance reasonably
satisfactory to the Company and substantially in the form attached hereto as
Exhibit 5.03 in respect of and against any and all (i) Spin-Off Costs incurred
by the Spin-Off Subsidiary prior to the consummation of the Spin-Off and by the
Company, (ii) Losses (as defined in Section 6.01) that the Company may incur in
connection with any conduct of business (other than such business as permitted
in the immediately preceding sentence) prior to the Spin-Off by the Spin-Off
Subsidiary and (iii) liabilities or obligations for Taxes that the Company may
incur as the direct and sole result of the Spin-Off.
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(g) The parties intend the Spin-Off Subsidiary ultimately to be an
entity operated and managed independently of the Company with publicly-traded
securities through the Spin-Off as contemplated in this Section 5.03.
5.04 Cancellation of Certain Options and Warrants. Effective upon
the Closing, the Company shall terminate and cancel the warrants and options set
forth on Exhibit 5.04 hereto in consideration for the payments by the Company as
set forth on Exhibit 5.04, as applicable.
5.05 No Solicitations.
(a) Prior to the Closing Date, the Company agrees that neither it
nor any of its Subsidiaries will, and the Company will use its commercially
reasonable efforts to cause their respective Representatives not to, directly or
indirectly, initiate, solicit, encourage, accept or take any other action
knowingly to facilitate, any inquiries or the making of, or participate in any
discussions or negotiations regarding, any proposal or offer from anyone not a
party hereto (a "Third Party") with respect to, or furnish or disclose any
non-public information regarding the Company or its Subsidiaries to any Third
Party in connection with, any Acquisition Proposal (as defined below).
Notwithstanding the foregoing, (x) in response to an unsolicited Acquisition
Proposal, the Company may take and disclose to its stockholders a position
contemplated by Rule 14d-9 or Rule 14e-2 under the Exchange Act, and (y) to the
extent the Board of Directors of the Company (the "Board") is advised by its
counsel that it is required by its fiduciary obligations to do so, at any time
prior to approval by the Company's stockholders of the Transactions: (i) the
Company may, in response to an unsolicited request, furnish non-public
information with respect to the Company or its Subsidiaries to any Third Party
that the Board in good faith determines is reasonably capable of consummating
the transactions (a "Qualified Third Party") pursuant to a customary
confidentiality agreement and discuss that information (but not an Acquisition
Proposal) with the Qualified Third Party and (ii) upon receipt by the Company,
any of its Subsidiaries or any of their respective Representatives of an
Acquisition Proposal from a Qualified Third Party, if (A) the Company has
complied fully and in a timely manner with its obligations under Section 5.05(b)
to notify the Investors of the receipt of the Acquisition Proposal and (B) the
Board has determined in good faith that the transaction contemplated by the
Acquisition Proposal, if consummated, would constitute an Overbid Transaction,
and (C) the Company has delivered an Overbid Notice to the Investors advising
them of the determination by the Board that the transaction contemplated by the
Acquisition Proposal would constitute an Overbid Transaction (which notice will
include a statement of the Overbid Amount involved in that transaction and be
accompanied by copies of any form of definitive agreement or other documentation
the Third Party proposes to enter into in connection with the Acquisition
Proposal), then the Company may participate in discussions and negotiations with
the Qualified Third Party regarding the Acquisition Proposal.
(b) If the Company, any of its Subsidiaries or any of their
respective Representatives directly or indirectly receives a request for
information from a Qualified Third Party or an Acquisition Proposal, the Company
(i) will notify the Investors of the existence of such request or the
Acquisition Proposal within two business days after the Company receives
21
or otherwise learns of it, will state in the notice the identity of such
Qualified Third Party and describe all material terms regarding the request or
Acquisition Proposal, and thereafter keep the Investors reasonably informed of
all facts and material circumstances relating to such request or Acquisition
Proposal and the Company's actions relating thereto, and (ii) promptly advise
such Qualified Third Party or Person making an Acquisition Proposal of the terms
of this Section 5.05.
(c) If prior to the receipt of Company Stockholder Approval (i) the
Company delivers an Overbid Notice to the Investors, (ii) the Investors do not
notify the Company in writing within five Business Days after receipt of the
Overbid Notice that they are willing to amend the terms of this Agreement and
the Transaction Agreements in order to increase the purchase price for the
Securities by at least the Overbid Amount, (iii) the terms of the Acquisition
Proposal are not modified in a manner adverse to the Company or the Operating
Partnerships and (iv) the Company has paid the Termination Fee to the Investors,
then the Company may terminate this Agreement and enter into an agreement with
the Qualified Third Party with respect to the Overbid Transaction described in
the Overbid Notice that the Company delivered to the Investors.
(d) Nothing contained in this Section 5.05 shall apply to any sale
or proposed sale by the Company of the Properties, individually or in the
aggregate.
5.06 Investor Inquiries. If any of the Investors, any of their
Subsidiaries, or any of their respective Representatives directly or indirectly
receives a request for information from a Third Party or an Investor Acquisition
Proposal, such Investor (i) will notify the Company of the existence of such
request or the Investor Acquisition Proposal within one business day after such
Investor receives or otherwise learns of it, will state in the notice the
identity of the Third Party making the request or the Investor Acquisition
Proposal and describe all material terms regarding the request or Investor
Acquisition Proposal and thereafter keep the Company reasonably informed of all
facts and material circumstances relating to such request or Investor
Acquisition Proposal and such Investor's actions relating thereto, and (ii)
promptly advise such Third Party or Person making an Investor Acquisition
Proposal of the terms of this Section 5.06.
5.07 Investigation.
(a) The Company will, and will cause its Subsidiaries to, (i)
provide each Investor (including any Outside Investor, as the case may be) and
any Person who is considering providing financing to such Investor in connection
with transactions contemplated hereby (a "Financing Party") and their respective
officers, directors, employees, agents, counsel, accountants, financial
advisors, consultants and other representatives (together "Representatives")
with full access, upon reasonable prior notice and during normal business hours,
to all officers, employees, agents and accountants of the Company and the
Subsidiaries and their assets and properties and Books and Records, (ii)
deliver, or cause its agent to deliver, on a weekly basis to each Investor a
status report describing the status of the Company's efforts and activities with
22
respect to the marketing or disposition of the Properties, including the
identity of potential buyers contacted and any changes and developments with
respect to any of the foregoing, and (iii) furnish each Investor (including any
Outside Investor, as the case may be) and such other Persons with all such
information and data (including without limitation copies of Contracts, Benefit
Plans and other Books and Records) concerning the business and operations of the
Company and the Subsidiaries as any Investor or any of such other Persons
reasonably may request in connection with such investigation. Notwithstanding
anything to the contrary contained in clause (i) or (iii) above, the Company
shall not be obligated to provide or cause to be provided more than one copy of
materials and documents (including without limitation copies of contracts,
Benefit Plans and other Books and Records) to be furnished to the Investors
hereunder. To the extent any Investor furnishes to any Outside Investor or any
Financing Party any information furnished under Section 5.08, such Investor
shall inform the Company of the identity of the Outside Investor or Financing
Party to whom such information is sent twenty-four hours prior to delivery by
the Investor of such information, and shall inform such recipient that such
information is subject to the confidentiality provisions contained in Section
5.08 below.
(b) Each of the Contributors will, and will cause its Subsidiaries
to, (i) provide the Company and its Representatives with full access, upon
reasonable prior notice and during the normal business hours, to all officers,
employees, agents and accountants of such Contributor and its Subsidiaries and
their assets and properties and books and records, and (ii) furnish the Company
with (x) all such information and data (including without limitation copies of
contracts and benefit plans) concerning the business and operations of such
Contributor and its Subsidiaries as the Company reasonably may request in
connection with such investigation and (y) all information and data that such
Contributor or Subsidiary possesses or obtains with respect to the Acquisition
Contracts or the Acquisition Properties (each as defined in the Management
Contribution Agreement). The Investors shall furnish all such information and
data referred to in clause (ii) above by making such information and data
available in a data room designated by the Investors to which the Company and
its Representatives will be provided with full access, upon reasonable prior
notice and during normal business hours.
5.08 Confidentiality. Each party and its respective Subsidiaries
will hold, and will use its best efforts to cause its and its Subsidiaries'
Representatives, any Outside Investor and persons to whom information is
furnished under Section 5.07, to hold, in strict confidence, unless compelled to
disclose by judicial or administrative process or by other requirements of
applicable Laws of Governmental or Regulatory Authorities (including, without
limitation, in connection with obtaining the necessary approvals of this
Agreement or the transactions contemplated hereby of Governmental or Regulatory
Authorities), all documents and information concerning the other party and its
Subsidiaries furnished to it by such other party or its Representatives in
connection with this Agreement or the transactions contemplated hereby, except
to the extent that such documents or information can be shown to have been (x)
previously known by the Company or the Investors, as the case may be, or its
respective Subsidiaries or its or their Representatives, on a non-confidential
basis, or (y) in the public domain (either prior to or after the furnishing of
such documents or information hereunder) through no fault of the recipient of
the information or its Subsidiaries or its or their
23
Representatives. In the event that this Agreement is terminated without the
transactions contemplated hereby having been consummated, upon the request of
the Company or the Investors, as the case may be, the other party will, and will
cause its respective Subsidiaries and will request its or their Representatives
to, promptly (and in no event later than five business days after such request)
redeliver or cause to be redelivered all copies of documents and information
furnished by the Company or the Investors, as the case may be, its respective
Subsidiaries or its or their Representatives to such party and its
Representatives (and, if applicable, other persons to whom information is
furnished pursuant to Section 5.07) in connection with this Agreement or the
transactions contemplated hereby and destroy or cause to be destroyed all notes,
memoranda, summaries, analyses, compilations and other writings related thereto
or based thereon prepared by the Company or the Investors, as the case may be,
its respective Subsidiaries or its or their Representatives.
5.09 Financial Statements and Reports.
(a) As promptly as practicable and in any event no later than two
Business Days after the date of filing with the SEC, the Company will deliver to
Xxxxxx Bay true and complete copies of the audited (in the case of any fiscal
year ending after the date hereof and before the Closing Date) and the unaudited
(in the case of any fiscal quarter ending after the date hereof and before the
Closing Date) consolidated balance sheet, and the related audited or unaudited
consolidated statements of operations, stockholders' equity and cash flows, of
the Company and its consolidated subsidiaries, in each case as of and for the
fiscal year then ended or as of and for each such fiscal quarter and the portion
of the fiscal year then ended, as the case may be, together with the notes, if
any, relating thereto, which financial statements shall be prepared on a basis
consistent with the Company Financial Statements; provided, however, that the
Company's obligations contained in this Section 5.09(a) shall be satisfied by
delivery to Xxxxxx Bay of copies of the Company's Annual Report on Form 10-K and
Quarterly Reports on Form 10-Q, and any amendments thereto, filed with the SEC.
(b) As promptly as practicable, the Company will deliver to Xxxxxx
Bay true and complete copies of such other financial statements, reports and
analyses as may be filed with the SEC by the Company relating to the business or
operations of the Company or any Subsidiary or as any Investor may otherwise
reasonably request.
5.10 Registration Statement. The Company shall prepare (and the
parties hereto shall cooperate in the preparation of) and file with the SEC as
soon as reasonably practicable after the date hereof a Registration Statement on
Form S-4 (the "Form S-4") under the Securities Act, with respect to the Common
Stock to be issued in connection with the Transactions, a portion of which
Registration Statement shall also serve as the proxy statement with respect to
the meeting of the stockholders of the Company in connection with the
Transactions (as amended or supplemented from time to time, the "Proxy
Statement/Prospectus"). The Company will cause the Proxy Statement/Prospectus
and the Form S-4 to comply as to form in all material respects with the
applicable provisions of the Securities Act and the Exchange Act. The Company
shall use commercially reasonable efforts, and the parties hereto will cooperate
with
24
the Company, to have the Form S-4 declared effective by the SEC as promptly as
practicable and to keep the Form S-4 effective as long as necessary to
consummate the Transactions. The Company shall, as promptly as practicable,
provide copies of any written comments received from the SEC with respect to the
Form S-4 to the parties hereto and advise them of any verbal comments with
respect to the Form S-4 received from the SEC. The Company shall use its best
efforts to obtain, prior to the effective date of the Form S-4, all necessary
state securities law or "blue sky" permits or approvals required to carry out
the transactions contemplated by this Agreement. The Company shall use all
commercially reasonable efforts to obtain "cold comfort" letters from its
independent certified public accountants, dated a date within two business days
before the date on which the Form S-4 shall become effective, in form reasonably
acceptable to the other party and customary in form and substance for letters
delivered by independent certified public accountants in connection with
registration statements similar to the Form S-4. The Company agrees that the
Proxy Statement/Prospectus and each amendment or supplement thereto at the time
of mailing thereof and at the time of the Company Stockholders' Meeting (as
defined below), or, in the case of the Form S-4 and each amendment or supplement
thereto, at the time it is filed or becomes effective, will not include an
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; provided, however,
that the foregoing shall not apply to the extent that any such untrue statement
of a material fact or omission to state a material fact was made by the Company
in reliance upon and in conformity with written information concerning the
Investors hereto furnished to the Company by an Investor specifically for use in
the Proxy Statement/Prospectus. Each Investor agrees that the written
information concerning it provided by it for inclusion in the Proxy
Statement/Prospectus and each amendment or supplement thereto, at the time of
mailing thereof and at the time of the Company Stockholders' Meeting, or, in the
case of written information concerning it provided by it for inclusion in the
Form S-4 or any amendment or supplement thereto, at the time it is filed or
becomes effective, will not include an untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading. No amendment or supplement to the Proxy
Statement/Prospectus will be made by the Company without the reasonable approval
of the Investors. The Company will advise the Investors, promptly after receipt
of notice thereof, of the time when the Form S-4 has become effective or any
supplement or amendment has been filed, the issuance of any stop order, the
suspension of the qualification of the Common Stock issuable in connection with
the Transactions for offering or sale in any jurisdiction, or any request by the
SEC for amendment of the Proxy Statement/Prospectus or the Form S-4 or comments
thereon and responses thereto or requests by the SEC for additional information.
5.11 Approval of Stockholders and Board Recommendation. The Company through
the Board, shall duly call, give notice of, convene and hold a meeting of
its voting on the adoption of the Transactions, this Agreement, the Transaction
Agreements (including the Merger Agreement), the sale of the Properties, and the
transactions contemplated hereby and thereby as soon as reasonably
practicable after the date hereof, subject to the requirements of applicable
laws. The
25
Company shall use its best efforts to solicit from its stockholders proxies,
and, shall take all other action necessary and advisable, to secure the vote of
stockholders required by applicable law to obtain the approval for the
Transactions. The Board shall recommend to its stockholders the adoption of the
Transactions, this Agreement, the Transaction Agreements (including the Merger
Agreement), the sale of the Properties and the transactions contemplated hereby
and thereby; provided, however, that such recommendation may not be made or may
be withdrawn, modified, or amended after the receipt by the Company of an
Acquisition Proposal to the extent the Board shall determine, in good faith,
upon written advice of outside counsel (who may be the Company's regularly
retained outside counsel), that such action is necessary in order for the Board
to act in a manner which is consistent with its fiduciary obligations to
stockholders under applicable law and the Company has satisfied its obligations
under Section 5.05 (including its obligation to pay the Termination Fee).
5.12 Regulatory and Other Approvals. The Company will, and will
cause the Company and the Subsidiaries to, (i) take all commercially reasonable
steps necessary or xxxxx able, and proceed diligently and in good faith and use
all commercially reasonable efforts, as promptly as practicable to obtain all
consents, approvals or actions of, to make all filings with and to give all
notices to Governmental or Regulatory Authorities or any other Person required
of the Company or any Subsidiary of the Company to consummate the transactions
contemplated hereby and by the Transaction Agreements, (ii) provide such other
information and communications to such Governmental or Regulatory Authorities or
other Persons as such Governmental or Regulatory Authorities or other Persons
may reasonably request and (iii) cooperate with the Investors as promptly as
practicable in obtaining all consents, approvals or actions of, making all
filings with and giving all notices to Governmental or Regulatory Authorities or
other Persons required of the Investors to consummate the transactions
contemplated hereby and by the Transaction Agreements. The Company will provide
prompt notification to the Investors when any such consent, approval, action,
filing or notice referred to in clause (i) above is obtained, taken, made or
given, as applicable, and will advise the Investors of any communications (and,
unless precluded by Law, provide copies of any such communications that are in
writing) with any Governmental or Regulatory Authority or other Person regarding
any of the transactions contemplated by this Agreement or any of the Transaction
Agreements.
5.13 Notice and Cure.
(a) The Company will notify the Investors promptly in writing of,
and contemporaneously will provide each Investor with true and complete copies
of any and all information or documents relating to, and will use all
commercially reasonable efforts to cure before the Closing, any event,
transaction or circumstance occurring after the date of this Agreement that
causes or will cause any covenant or agreement of the Company under this
Agreement or any of the Transaction Agreements to be breached or that renders or
will render untrue any representation or warranty of the Company contained in
this Agreement or any of the Transaction Agreements as if the same were made on
or as of the date of such event, transaction or circumstance. The Company also
will notify each Investor promptly in writing
26
of, and will use all commercially reasonable efforts to cure, before the
Closing, any violation or breach of any representation, warranty, covenant or
agreement made by the Company in this Agreement, whether occurring or arising
before, on or after the date of this Agreement. No notice given pursuant to this
Section shall have any effect on the representations, warranties, covenants or
agreements contained in this Agreement or any other Transaction Agreement for
purposes of determining satisfaction of any condition contained herein or shall
in any way limit each Investor's right to seek indemnity under Article VI.
(b) Each Investor will notify the Company promptly in writing of,
and contemporaneously will provide the Company with true and complete copies of
any and all information or documents relating to, and will use all commercially
reasonable efforts to cure before the Closing, any event, transaction or
circumstance occurring after the date of this Agreement that causes or will
cause any covenant or agreement of such Investor under this Agreement or any
Transaction Agreement to which it is a party to be breached or that renders or
will render untrue any representation or warranty of such Investor contained in
this Agreement or any Transaction Agreement to which it is a party as if the
same were made on or as of the date of such event, transaction or circumstance.
Each Investor also will notify the Company promptly in writing of, and will use
all commercially reasonable efforts to cure, before the Closing, any violation
or breach of any representation, warranty, covenant or agreement made by such
Investor in this Agreement or any Transaction Agreement to which it is a party,
whether occurring or arising before, on or after the date of this Agreement. No
notice given pursuant to this Section shall have any effect on the
representations, warranties, covenants or agreements contained in this Agreement
or any other Transaction Agreement for purposes of determining satisfaction of
any condition contained herein or shall in any way limit the Company's right to
seek indemnity under Article VI.
5.14 Fulfillment of Conditions. Subject to the terms and conditions
of this Agreement, each of the parties hereto will use all commercially
reasonable efforts to take or cause to be taken all steps necessary or desirable
and proceed diligently and in good faith to satisfy each condition to the
other's obligations contained in this Agreement and in the Transaction
Agreements and to consummate and make effective the Transactions, and none of
the parties hereto will, nor will they permit any of their Subsidiaries to, take
or fail to take any action that could be reasonably expected to result in the
nonfulfillment of any such condition.
5.15 Liability and Indemnification of Officers and Directors of
the Company.
(a) To the fullest extent permitted by Maryland law, a person who is
now or has been at any time prior to the Closing Date a director or officer of
the Company shall not be personally liable to the Company or the stockholders of
the Company for money damages. Notwithstanding the foregoing, nothing in this
Section 5.15(a) shall restrict or limit the liability of such a director or
officer to the Company or its stockholders: (i) to the extent that it is proved
that such director or officer actually received an improper benefit or profit in
money, property, or services for the amount of the benefit or profit in money,
property, or services actually received; or (ii) to the extent that a judgment
or other final adjudication adverse to such director
27
or officer is entered in a proceeding based on a finding in the proceeding that
such director's or officer's action, or failure to act, was the result of active
and deliberate dishonesty and was material to the cause of action adjudicated in
the proceeding. The foregoing shall not be construed to affect the liability of
a person in any capacity other than the person's capacity as a director or
officer.
(b) The Company shall indemnify, defend and hold harmless each
person who is now or has been at any time prior to the Closing Date a director
or officer of the Company (an "Indemnitee") against all Losses, claims, damages,
costs, reasonable expenses (including attorneys' fees and expenses),
liabilities, judgments, penalties, fines, or amounts that are paid in settlement
of, or otherwise in connection with any threatened, pending or completed action,
suit, or proceeding, whether civil, criminal, administrative, or investigative
(collectively, the "Proceedings"), to which an Indemnitee was made a party based
on, arising out of or by reason of the fact that such Indemnitee is or was a
director or officer of the Company, or is or was serving at the request of the
Company, while a director or officer of the Company, as a director, officer,
partner, trustee, employee, or agent of another foreign or domestic corporation,
partnership, joint venture, trust, other enterprise or employee benefit plan at
or prior to the Closing Date, whether such Proceedings were asserted or claimed
prior to, at or after, the Closing Date ("Indemnified Liabilities"), including
all Indemnified Liabilities based on, or arising out of, or pertaining to this
Agreement, any Transaction Agreement, the Spin-Off or the Transactions, unless
it is established that: (i) the act or omission of the Indemnitee was material
to the matter giving rise to the Proceeding and (x) was committed in bad faith
or (y) was the result of active and deliberate dishonesty; (ii) the Indemnitee
actually received an improper personal benefit in money, property, or services;
or (iii) in the case of any criminal proceeding, the Indemnitee had reasonable
cause to believe that the act or omission was unlawful. Notwithstanding the
foregoing, if the Proceeding was one by or in right of the Company, the Company
shall not provide indemnification hereunder in respect of any Proceeding in
which the Indemnitee shall have been adjudged to be liable to the Company, or
any proceeding charging improper personal benefit to the Indemnitee, whether or
not involving action in the Indemnitee's official capacity, in which the
Indemnitee was adjudged to be liable on the basis that personal benefit was
improperly received. In addition to the indemnification provided above, the
Company shall reimburse reasonable expenses (including reasonable attorneys'
fees) incurred by an Indemnitee in connection with an appearance as a witness in
a Proceeding at a time when the Indemnitee has not been made a named defendant
or respondent in the Proceeding.
Notwithstanding the foregoing paragraph, the Company shall not
provide any indemnification under this Section 5.15(b) unless authorized for a
specific proceeding after a determination has been made that indemnification of
the Indemnitee is permissible in the circumstances because the Indemnitee has
met the standard of conduct set forth in the foregoing paragraph. Such
determination shall be made
(i) By the board of directors by a majority vote of a quorum
consisting of directors not, at the time, parties to the Proceeding, or,
if such a quorum cannot be obtained, then by a majority vote of a
committee of the board consisting solely of two
28
or more directors not, at the time, parties to such Proceeding and who
were duly designated to act in the matter by a majority vote of the full
board in which the designated directors who are parties may participate;
(ii) By special legal counsel selected by the board of directors or a
committee of the board by vote as set forth in clause (i) of this
paragraph, or, if the requisite quorum of the full board cannot be
obtained therefor and the committee cannot be established, by a majority
vote of the full board in which directors who are parties may participate;
or
(iii) By the stockholders; provided, however, that shares held by
directors who are parties to the Proceeding may not be voted on the
subject matter of this paragraph.
Authorization of the indemnification and determination as to reasonableness of
expenses shall be made in the same manner as the determination that
indemnification is permissible. However, if the determination that
indemnification is permissible is made by special legal counsel, authorization
of indemnification and determination as to reasonableness of expenses shall be
made in the manner specified in clause (ii) above for selection of such counsel.
(c) The Company shall indemnify a director or officer of the Company
who has been successful, on the merits or otherwise, in the defense of any
Proceeding against reasonable expenses incurred by such director or officer in
connection with the Proceeding.
(d) The Company shall pay or reimburse the reasonable expenses
expended or incurred by a director or officer of the Company in connection with
any Proceeding in advance of the final disposition of the Proceeding upon
receipt by the Company of (i) a written affirmation of the such director or
officer's good faith belief that the standard of conduct necessary for
indemnification by the Company set forth in the applicable provisions of
Maryland law has been satisfied by such director or officer, and (ii) a written
undertaking by or on behalf of such director or officer to repay the amount
advanced if it shall ultimately be determined that such director or officer has
not satisfied the standard of conduct prescribed by the applicable provisions of
Maryland law, which written undertaking need not be secured and will be accepted
by the Company without reference to the director or officer's ability to make
repayment. The Company shall pay or reimburse such director or officer such
expenses within ten days after receipt by the Company of such affirmation and
undertaking.
(e) Notwithstanding the limitations on indemnification set forth in
Section 5.15(b), an Indemnitee shall be entitled to indemnification if a court
of appropriate jurisdiction, upon application of such Indemnitee and such notice
as the court shall require, shall order indemnification: (i) upon determination
that the Indemnitee is entitled to reimbursement under Section 5.15(c), in which
case the Indemnitee shall be entitled to recover the expenses of securing such
reimbursement; or (ii) upon determination that the Indemnitee is fairly and
reasonably entitled to indemnification in view of all the relevant
circumstances, whether or not the Indemnitee has met the standards of conduct
set forth in the first paragraph of Section
29
5.15(b) or has been adjudged to be liable under the circumstances described in
the penultimate sentence of the first paragraph of Section 5.15(b); provided
that indemnification with respect to any Proceeding by or in the right of the
Company or in which liability shall have been adjudged on the basis that
personal profit was improperly received shall be limited to expenses.
(f) The right to indemnification and the payment of expenses
incurred in defending a Proceeding in advance of its final disposition provided
in this Section 5.15 shall be in addition to, and not be exclusive of, any other
right which an officer or director of the Company may have or hereafter acquire
under any statute, provision of the Articles of Incorporation or Bylaws, each as
amended from time to time, of the Company, agreement, insurance policy, vote of
stockholders or directors or otherwise.
(g) All agreements and obligations of the Company contained in this
Section 5.15 shall continue during the period any person is a director or
officer, as the case may be, of the Company and shall continue thereafter so
long as such person shall be subject to any possible Proceeding by reason of the
fact that such person was a director or officer of the Company.
(h) The provisions of this Section 5.15 are intended to provide the
directors and officers of the Company with the maximum protection and for the
maximum period permitted under Maryland law and shall be construed to give
maximum effect to such intention of the parties. If any provision of this
Section 5.15 is or is held to be illegal, invalid or unenforceable under any
present or future Maryland law, it shall be ineffective only to the extent of
such illegality, invalidity or unenforceability without invalidating the
remaining provisions of this Section 5.15.
(i) The parties acknowledge that all directors and officers of the
Company immediately prior to the Closing Date (including without limitation
Messrs. Xxxx Xxxxxx, Xxx Xxxxxxxxx, Xxxx Xxxxxx, Xxxx Xxxxxx, III, J.
Xxxxxxxxxxx X'Xxxxx and Xxxxxxx Xxxxxxxxx) are third party beneficiaries of this
Section 5.15. This Section 5.15 may not be amended or modified by the parties
hereto without the written consent of each of the directors and officers whose
rights and obligations are or may be adversely affected by such amendment or
modification.
(j) Neither the amendment of this Section 5.15 nor the adoption or
amendment of any provision of the Articles of Incorporation or Bylaws of the
Company inconsistent with this Section 5.15 shall apply to or affect in any
respect the applicability of the provisions of this Section 5.15 with respect to
any act or failure to act of a director or officer of the Company which occurred
prior to such amendment or adoption.
(k) The Company shall obtain and maintain in effect as of the
Closing Date and continuing until the sixth anniversary of the Closing Date
directors and officers liability insurance with a coverage amount and other
terms and conditions comparable to the Company's current directors and officers
liability insurance policy covering the directors and officers of the Company
with respect to their service as such prior to the Closing Date.
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5.16 Refinancing. The Company agrees to use its commercially
reasonable efforts to cooperate with the McBrides in connection with the
Refinancing, including the formation by the Company on or before the Closing
Date of one or more entities that are "qualified REIT subsidiaries" as defined
in Section 856(i)(2) of the Code and that meet any "single purpose entity"
requirements imposed by the lender in the Refinancing, which entities are
anticipated to acquire by merger or otherwise (i) certain Minority Partnership
Interests (as defined in the XxXxxxx Contribution Agreement) and (ii) the assets
held by any subsidiary of FLIP formed as a requirement of the Refinancing.
5.17 Xxxxxxxx Agreement. On or prior to Closing, the Company
shall enter into the brokerage agreement with Xxxx Xxxxxxxx, substantially
in the form of Exhibit 5.17 hereto.
ARTICLE VI.
INDEMNIFICATION
6.01 Indemnification by the Company. (a) Subject to the limitations
set forth in paragraph (b) below, the Company and the Operating Partnership
jointly and severally agree to indemnify each of Xxxxxx Bay, Xxxxxx, the MHB LP,
and the FLIP Shareholders, and their respective shareholders, directors,
employees, agents, partners and Affiliates (all such other Persons being
"Related Indemnified Parties") in respect of, and hold each of them harmless
from and against, any and all losses, liabilities (including punitive or
exemplary damages, fines or penalties and interest thereon), expenses (including
fees and disbursements of counsel and expenses of investigation and defense),
claims or other obligations of any value whatsoever (collectively, "Losses")
suffered, incurred or sustained by any of them or to which any of them becomes
subject, resulting from, arising out of or relating to any breach of or
inaccuracy in any representation or warranty, or nonfulfillment of or failure to
perform or breach of any covenant or agreement on the part of the Company or the
Operating Partnership contained in this Agreement in any Transaction Agreement
to which it or the Operating Partnership is a party.
(b) The joint and several obligations of the Company and the
Operating Partnership to indemnify and hold harmless pursuant to Section 6.01(a)
shall be limited to the payment of indemnity amounts that in the aggregate equal
$22,000,000. In addition, no indemnity amounts shall be payable as a result of
any claim arising under Section 6.01(a) unless and until the Indemnified Parties
thereunder have suffered, incurred, sustained or become subject to Losses equal
to (i) in the case of the MHB LP, the FLIP Shareholders and their Related
Indemnified Parties, $250,000 in the aggregate, (ii) in the case of Xxxxxx and
his Related Indemnified Parties, $150,000 in the aggregate, or (iii) in the case
of Xxxxxx Bay and its Related Indemnified Parties, $250,000 in the aggregate; in
which event such Indemnified Parties shall be entitled to seek indemnification
for the full amount of such Losses.
6.02 Indemnification by the Investors. (a) Subject to the
limitations set forth in paragraphs (b) and (c) below, each of (i) Xxxxxx, (ii)
Xxxxxx Bay and (iii) the MHB LP
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(jointly and severally with each of the FLIP Shareholders, but only to the
extent of the number of shares of Common Stock received as Merger Consideration
in connection with the Merger) (each of the foregoing indemnifying parties in
the foregoing clauses being an "Indemnifying Investor" and collectively, the
"Indemnifying Investors") severally agrees to indemnify the Company and its
officers, directors, employees, agents and Affiliates (including the Operating
Partnership) in respect of, and hold each of them harmless from and against, any
and all Losses suffered, incurred or sustained by any of them or to which any of
them becomes subject, resulting from, arising out of or relating to any breach
of or inaccuracy in any representation or warranty, or nonfulfillment of or
failure to perform or breach of any covenant or agreement on the part of such
Indemnifying Investor contained in this Agreement or in any Transaction
Agreement to which it is a party. It is understood and agreed that the
indemnification obligations of the MHB LP (and the FLIP Shareholders, jointly
and severally with the MHB LP, but only to the extent of the number of shares of
Common Stock received as Merger Consideration in connection with the Merger)
hereunder shall extend to any breach of or inaccuracy in any representation or
warranty, or nonfulfillment of or failure to perform or breach of any covenants
or agreement on the part of FLIP or any FLIP Shareholders contained in the
Merger Agreement.
(b) The obligations to indemnify and hold harmless pursuant to
Section 6.02(a) shall be limited to the payment of indemnity amounts that equal
(i) in the case of the MHB LP (and the FLIP Shareholders, jointly and severally
with the MHB LP, but only to the extent of the number of shares of Common Stock
received as Merger Consideration in connection with the Merger), the lesser of
$25,000,000 in the aggregate or the Total Market Value (as defined below), (ii)
in the case of Xxxxxx, the lesser of $4,000,000 in the aggregate or the Total
Market Value, and (iii) in the case of Xxxxxx Bay, the lesser of $10,000,000 in
the aggregate or the Total Market Value. In addition, no indemnity amounts shall
be payable as a result of any claim arising under Section 6.02(a) unless and
until the Indemnified Parties thereunder have suffered, incurred, sustained or
become subject to Losses in excess of $250,000 in the aggregate, in which event
such Indemnified Parties shall be entitled to seek indemnification for the full
amount of such Losses. For the purposes of this Section 6.02(b), "Total Market
Value" means the amount which is equal to the Market Value (as defined below)
calculated as of the date an indemnity payment otherwise would be made
multiplied by all such Indemnifying Investor's Partnership Units or shares of
Common Stock issued to such Indemnifying Investor in connection with the
transactions contemplated hereby; provided that in the case of MHB LP, such
Indemnifying Investor's Partnership Units shall not include 181,818 Partnership
Units to be issued at Closing.
(c) Any Indemnifying Investor who is otherwise obligated to make an
indemnification payment pursuant to Section 6.02(a) may in lieu of such payment
and in satisfaction of such Indemnifying Investor's obligations thereunder
transfer to the Company such number of Partnership Units (in the case of the MHB
LP, Xxxxxx Bay and Xxxxxx) and/or Common Stock (in the case of the FLIP
Shareholders and Xxxxxx Bay) equal to a fraction the numerator of which is the
dollar amount of the indemnification payment and the denominator of which is the
per share Market Value of the Company's Common Stock. Any transfer of
Partnership Units and/or Common Stock pursuant to this Section 6.02(c) shall be
considered an
32
adjustment to the consideration received by such Indemnifying Investor for
federal income tax purposes.
For the purpose of any computation under this Section 6.02,
"Market Value" of the Common Stock or Partnership Units on any date will be the
average of the last reported sale prices per share of the Common Stock on each
of the 10 consecutive Trading Days (as defined below) preceding the date of the
computation. The last reported sale price of the Common Stock on each day will
be (A) the last reported sale price of the Common Stock on the principal stock
exchange on which the Common Stock is listed, or (B) if the Common Stock is not
listed on a stock exchange, the last reported sale price of the Common Stock on
the principal automated securities price quotation system on which sale prices
of the Common Stock are reported, or (C) if the Common Stock is not listed on a
stock exchange and sale prices of the Common Stock are not reported on an
automated quotation system, the mean of the high bid and low asked price
quotations for the Common Stock as reported by National Quotation Bureau
Incorporated if at least two securities dealers have inserted both bid and asked
quotations for the Common Stock on at least five of the ten preceding Trading
Days. If the Common Stock is not traded or quoted as described in any of clause
(A), (B) or (C), the Market Value of the Common Stock on a day will be the fair
market value of the Common Stock on that day as determined by a member firm of
the New York Stock Exchange, Inc. selected by the Board of Directors of the
Company. The term "Trading Day" means (x) if the Common Stock is listed on at
least one stock exchange, a day on which there is trading on the principal stock
exchange on which the Common Stock is listed, (y) if the Common Stock is not
listed on a stock exchange, but sale prices of the Common Stock are reported on
an automated quotation system, a day on which trading is reported on the
principal automated quotation system on which sales of the Common Stock are
reported, or (z) if the Common Stock is not listed on a stock exchange and sale
prices of the Common Stock are not reported on an automated quotation system, a
day on which quotations are reported by National Quotation Bureau Incorporated.
6.03 Method of Asserting Claims. All claims for indemnification
by any Indemnified Party under this Article VI will be asserted and resolved as
follows:
(a) In the event any claim or demand in respect of which an
Indemnified Party might seek indemnity under Article VI is asserted against or
sought to be collected from such Indemnified Party by a Person other than the
Company, any Subsidiary, any Investor or any Affiliate of the Company or any
Investor (a "Third Party Claim"), the Indemnified Party shall deliver a Claim
Notice with reasonable promptness to the Indemnifying Party. If the Indemnified
Party fails to provide the Claim Notice with reasonable promptness after the
Indemnified Party receives notice of such Third Party Claim, the Indemnifying
Party will not be obligated to indemnify the Indemnified Party with respect to
such Third Party Claim to the extent that the Indemnifying Party's ability to
defend has been irreparably prejudiced by such failure of the Indemnified Party.
The Indemnifying Party will notify the Indemnified Party as soon as practicable
within the Dispute Period whether the Indemnifying Party disputes its liability
to the Indemnified Party under this Article VI and whether the Indemnifying
Party
33
desires, at its sole cost and expense, to defend the Indemnified Party against
such Third Party Claim.
(i) If the Indemnifying Party notifies the Indemnified Party
within the Dispute Period that the Indemnifying Party desires to defend
the Indemnified Party with respect to the Third Party Claim pursuant to
this Section 6.03(a), then the Indemnifying Party will have the right to
defend, with counsel reasonably satisfactory to the Indemnified Party, at
the sole cost and expense of the Indemnifying Party, such Third Party
Claim by all appropriate proceedings, which proceedings will be vigorously
and diligently prosecuted by the Indemnifying Party to a final conclusion
or will be settled at the discretion of the Indemnifying Party (but only
with the consent of the Indemnified Party in the case of any settlement
that provides for any relief other than the payment of monetary damages or
that provides for the payment of monetary damages as to which the
Indemnified Party will not be indemnified in full pursuant to this Article
VI). The In demnifying Party will have full control of such defense and
proceedings, including any compromise or settlement thereof (subject to
the consent of the Indemnified Party in the case of any settlement that
provides for any relief other than the payment of monetary damages or that
provides for the payment of monetary damages as to which the Indemnified
Party will not be indemnified in full pursuant to this Article VI);
provided, however, that the Indemnified Party, at the sole cost and
expense of the Indemnified Party, at any time prior to the Indemnifying
Party's delivery of the notice referred to in the first sentence of this
clause (i), may file any motion, answer or other pleadings or take any
other action that the Indemnified Party reasonably believes to be
necessary or appropriate to protect its interests; and provided further,
that if requested by the Indemnifying Party, the Indemnified Party, at the
sole cost and expense of the Indemnifying Party, will provide reasonable
cooperation to the Indemnifying Party in contesting any Third Party Claim
that the Indemnifying Party elects to contest. The Indemnified Party may
participate in, but not control, any defense or settlement of any Third
Party Claim controlled by the Indemnifying Party pursuant to this clause
(i), and except as provided in the preceding sentence, the Indemnified
Party will bear its own costs and expenses with respect to such
participation. Notwithstanding the foregoing, the Indemnified Party may
take over the control of the defense or settlement of a Third Party Claim
at any time if it irrevocably waives its right to indemnity under this
Article VI with respect to such Third Party Claim.
(ii) If the Indemnifying Party fails to notify the Indemnified
Party within the Dispute Period that the Indemnifying Party desires to
defend the Third Party Claim pursuant to Section 6.03(a), or if the
Indemnifying Party gives such notice but fails to prosecute vigorously and
diligently or settle the Third Party Claim, or if the Indemnifying Party
fails to give any notice whatsoever within the Dispute Period, then the
Indemnified Party will have the right to defend, at the sole cost and
expense of the Indemnifying Party, the Third Party Claim by all
appropriate proceedings, which proceedings will be prosecuted by the
Indemnified Party in a reasonable manner and in good faith or will be
settled at the discretion of the Indemnified Party (subject to the
34
consent of the Indemnifying Party in the case of any settlement that
provides any relief other than the payment of monetary damages; which
consent will not be unreasonably withheld). The Indemnified Party will
have full control of such defense and proceedings, including any
compromise or settlement thereof (subject to the consent of the
Indemnifying Party in the case of any settlement that provides for any
relief other than the payment of monetary damages; which consent will not
be unreasonably withheld); provided, however, that if requested by the
Indemnified Party, the Indemnifying Party will, at the sole cost and
expense of the Indemnifying Party, provide reasonable cooperation to the
Indemnified Party and its counsel in contesting any Third Party Claim
which the Indemnified Party is contesting. Notwithstanding the foregoing
provisions of this clause (ii), if the Indemnifying Party has notified the
Indemnified Party within the Dispute Period that the Indemnifying Party
disputes its liability hereunder to the Indemnified Party with respect to
such Third Party Claim and if such dispute is resolved in favor of the
Indemnifying Party in the manner provided in clause (iii) below, the
Indemnifying Party will not be required to bear the costs and expenses of
the Indemnified Party's defense pursuant to this clause (ii) or of the
Indemnifying Party's participation therein at the Indemnified Party's
request, and the Indemnified Party will reimburse the Indemnifying Party
in full for all reasonable costs and expenses, if any, of its separate
counsel incurred by the Indemnifying Party in connection with such
litigation. The Indemnifying Party may participate in, but not control,
any defense or settlement controlled by the Indemnified Party pursuant to
this clause (ii), and the Indemnifying Party will bear its own costs and
expenses with respect to such participation.
(iii) If the Indemnifying Party notifies the Indemnified Party
that it does not dispute its liability to the Indemnified Party with
respect to the Third Party Claim under this Article VI or fails to notify
the Indemnified Party within the Dispute Period whether the Indemnifying
Party disputes its liability to the Indemnified Party with respect to such
Third Party Claim, the Loss in the amount specified in the Claim Notice
will be conclusively deemed a liability of the Indemnifying Party under
this Article VI and the Indemnifying Party shall pay the amount of such
Loss to the Indemnified Party on demand. If the Indemnifying Party has
timely disputed its liability with respect to such claim, the Indemnifying
Party and the Indemnified Party will proceed in good faith to negotiate a
resolution of such dispute.
(b) In the event any Indemnified Party should have a claim under
this Article VI against any Indemnifying Party that does not involve a Third
Party Claim, the Indemnified Party shall deliver an Indemnity Notice with
reasonable promptness to the Indemnifying Party. The failure by any Indemnified
Party to give the Indemnity Notice shall not impair such party's rights
hereunder except to the extent that an Indemnifying Party demonstrates that it
has been irreparably prejudiced thereby. If the Indemnifying Party notifies the
Indemnified Party that it does not dispute the claim described in such Indemnity
Notice or fails to notify the Indemnified Party within the Dispute Period
whether the Indemnifying Party disputes the claim described in such Indemnity
Notice, the Loss in the amount specified in the Indemnity Notice will be
conclusively deemed a liability of the Indemnifying Party under this Article VI
and the
35
Indemnifying Party shall pay the amount of such Loss to the Indemnified Party on
demand. If the Indemnifying Party has timely disputed its liability with respect
to such claim, the Indemnifying Party and the Indemnified Party will proceed in
good faith to negotiate a resolution of such dispute.
ARTICLE VII.
CONDITIONS
7.01 Conditions to Each Party's Obligation to Effect the
Transactions. The respective obligation of each party to effect the transactions
contemplated by this Agreement and the Transaction Agreements is subject to the
fulfillment, at or prior to the Closing, of each of the following conditions:
(a) Stockholder Approval. The Transactions, this Agreement, the
Transaction Agreements (including the Merger Agreement), the disposition of the
Properties, and the transactions contemplated hereby and thereby shall have been
approved and adopted by the requisite vote of the stockholders of the Company
under applicable law, the Company's Articles of Incorporation and any other
governing instruments.
(b) Form S-4. The Form S-4 shall have become effective and shall be
effective at the Closing Date, and no stop order suspending effectiveness of the
Form S-4 shall have been issued, no action, suit, proceeding or investigation by
the Commission to suspend the effectiveness thereof shall have been initiated
and be continuing, or, to the knowledge of the Company, threatened, and all
necessary approvals under state securities laws relating to the issuance or
trading of the Stock to be issued or reserved in connection with the
Transactions shall have been received.
(c) No Injunctions or Restraints. No court of competent jurisdiction
or other competent Governmental or Regulatory Authority shall have enacted,
issued, promulgated, enforced or entered into any Law or Order (whether
temporary, preliminary or permanent) which is then in effect and has the effect
of making illegal or otherwise restricting, preventing or prohibiting
consummation of the transactions contemplated by this Agreement or the
Transaction Agreements.
(d) Regulatory Consents and Approvals. All consents, approvals and
actions of, filings with and notices to any Governmental or Regulatory Authority
necessary to permit parties to perform their obligations under this Agreement
and the Transaction Agreements and to consummate the transactions contemplated
hereby and thereby (i) shall have been duly obtained, made or given, (ii) shall
not be subject to the satisfaction of any condition that has not been satisfied
or waived and (iii) shall be in full force and effect, and all terminations or
expirations of waiting periods, if any, imposed by any Governmental or
Regulatory Authority necessary for the consummation of the transactions
contemplated by this Agreement and the Transaction Agreements shall have
occurred.
36
7.02 Conditions to Obligations of the Investors. The obligations of
each of the Investors to effect the transactions contemplated hereby and by the
Transaction Agreements are subject to the fulfillment, at or before the Closing,
of each of the following conditions (all or any of which may be waived in whole
or in part by the Investors, acting jointly in their sole discretion):
(a) Satisfaction of Conditions to Transaction Agreements. All
conditions precedent to the consummation of the transactions contemplated by the
Transaction Agreements, including the Transactions (other than the condition
that the transactions contemplated by this Agreement shall have been
consummated) shall have been satisfied or, if permissible, waived.
(b) Representations and Warranties. Each of the representations and
warranties made by the Company and the Operating Partnership in this Agreement
(other than those made as of a specified date earlier than the Closing Date)
shall be true and correct in all material respects on and as of the Closing Date
as though such representation or warranty was made on and as of the Closing
Date, and any representation or warranty made as of a specified date earlier
than the Closing Date shall have been true and correct in all material respects
on and as of such earlier date.
(c) Performance. The Company and the Operating Partnership shall
have performed and complied with, in all material respects, each agreement,
covenant and obligation required by this Agreement to be so performed or
complied with by the Company and the Operating Partnership at or before the
Closing.
(d) Officers' Certificate. The Company shall have delivered to the
Investors a certificate, dated the Closing Date and executed by the Chairman of
the Board, the President or any Executive or Senior Vice President of the
Company, in form and substance satisfactory to the Investors.
(e) American Stock Exchange Listing. The shares of Common Stock
to be issued in connection with the Transactions shall have been approved for
listing on the American Stock Exchange, subject to official notice of issuance.
(f) Third Party Consents. All consents (or in lieu thereof waivers)
to the performance by the Investors and the Company of their respective
obligations under this Agreement and the Transaction Agreements or to the
consummation of the transactions contemplated hereby and thereby as are required
under any Contract to which any Investor, the Company or any Subsidiary of the
Company is a party or by which any of their respective assets and properties are
bound and where the failure to obtain any such consent (or in lieu thereof
waiver) could reasonably be expected, individually or in the aggregate with
other such failures, to have a Material Adverse Effect or adversely affect in
any material respect the ability of any of the Investors to consummate the
transactions contemplated by the Transaction Agreements shall have been
received.
37
(g) Opinion of Counsel. The Investors shall have received the
opinions of Xxxx, Weiss, Rifkind, Xxxxxxx & Xxxxxxxx and Xxxxx and Xxxxxxx,
counsel to the Company, dated the Closing Date, substantially in the form and to
the effect of Exhibit 7.02(g) hereto.
(h) Transaction Agreements. The Company and the Investors shall have
executed and delivered the Transaction Agreements to which they are or will be
parties and the transactions contemplated thereby shall close concurrently
herewith.
(i) Lock-Up Agreements. Each of Xxxxx Xxxxxxxxx and Xxxx Xxxxxx
shall have executed and delivered to the Investors "lock-up" agreements
substantially the in form attached hereto as Exhibit 7.02(i).
(j) Non-Competition Agreements. Each of Xxxx Xxxxxx and Xxxxx
Xxxxxxxxx shall have executed and delivered a non-competition agreement in
substantially the form attached hereto as Exhibit 7.02(j)-1 and the Spin-Off
Subsidiary shall have executed and delivered a non-competition agreement in
substantially the form attached hereto as Exhibit 7.02(j)-2.
(k) Cancellation of Options and Warrants. The Company shall have
delivered to the Investors evidence satisfactory to the Investors of
cancellation of the warrants and options set forth in Exhibit 5.04.
(l) Amended and Restated Partnership Agreement. The amendment and
restatement of the Partnership Agreement substantially in the form attached
hereto as Exhibit 7.02(l) (the "Amended and Restated Partnership Agreement")
shall have been duly and validly adopted and approved by all requisite
partnership action of the Operating Partnership and by all requisite corporate
action of the Company in its capacity as the general partner thereof, shall have
been executed and delivered by the requisite number of limited partners thereof,
and shall be in full force and effect.
(m) Actions. All actions necessary to be taken by the Company and
the Operating Partnership in connection with the consummation of the
transactions contemplated by this Agreement and the Transaction Agreements and
all documents incident thereto shall be reasonably satisfactory in form and
substance to the Investors, and the Investors shall have received copies of all
such documents and other evidences as they may reasonably request in order to
establish the consummation of such transactions and the taking of all such
actions.
7.03 Conditions to Obligations of the Company and the Operating
Partnership. The obligations of the Company and the Operating Partnership to
effect the transactions contemplated by this Agreement and the Transaction
Agreements are subject to the fulfillment, at or before the Closing, of each of
the following conditions (all or any of which may be waived in whole or in part
by the Company in its sole discretion):
(a) Satisfaction of Conditions to Transaction Agreements. All
conditions precedent to the obligations of the Company and the Operating
Partnership to consummate the
38
transactions contemplated by the Transaction Agreements, including the
Transactions, shall have been satisfied, or if permissible, waived.
(b) Representations and Warranties. Each of the representations and
warranties made by the Investors in the Transaction Agreements to which they are
parties (other than those made as of a specified date earlier than the Closing
Date) shall be true and correct in all material respects on and as of the
Closing Date as though such representation or warranty was made on and as of the
Closing Date, and any representation or warranty made as of a specified date
earlier than the Closing Date shall have been true and correct in all material
respects on and as of such earlier date.
(c) Performance. The Investors shall have performed and complied
with, in all material respects, each agreement, covenant and obligation required
by this Agreement to be so performed or complied with by the Investors at or
before the Closing.
(d) Third Party Consents. All consents (or in lieu thereof waivers)
to the performance by the Company of its obligations hereunder and to the
consummation of the transactions contemplated hereby and the Transaction
Agreements as are required under any Contract to which the Company or any
Subsidiary of the Company is a party or by which any of their respective assets
and properties are bound and where the failure to obtain any such consent (or in
lieu thereof waiver) could reasonably be expected, individually or in the
aggregate with other such failures to have a Material Adverse Effect or
adversely affect in any material respect the ability of the Company and the
Operating Partnership to consummate the transactions contemplated by this
Agreement and the Transaction Agreements shall have been received.
(e) Opinions of Counsel. The Company shall have received the
opinions dated the Closing Date, substantially in the form and to the effect of
Exhibit 7.03(e) hereto, of such counsel to the Investors designated on Exhibit
7.03(e) to furnish such opinions.
(f) Transaction Agreements. The Investors shall have executed
and delivered the Transaction Agreements to which they are or will be parties
and the transactions contemplated thereunder shall close concurrently herewith.
(g) Actions. All actions necessary to be taken by the Investors in
connection with the consummation of the transactions contemplated by this
Agreement and the Transaction Agreements and all documents incident thereto
shall be reasonably satisfactory in form and substance to the Company, and the
Company shall have received copies of all such documents and other evidences as
the Company may reasonably request in order to establish the consummation of
such transactions and the taking of all such actions.
ARTICLE VIII.
SURVIVAL OF REPRESENTATIONS, WARRANTIES,
COVENANTS AND AGREEMENTS
39
8.01 Survival of Representations, Warranties, Covenants and
Agreements. The representations, warranties, covenants and agreements of the
Company and the Operating Partnership contained in this Agreement will survive
the Closing until the second anniversary of the Closing Date, or in the case of
any covenant or agreement for which a time period for performance is specified,
for two years following the last date on which such covenant or agreement is to
be performed, except that to the extent any claim for indemnification is made
under this Agreement with respect to any representation, warranty, covenant or
agreement that would otherwise terminate pursuant to this Section 8.01 and a
notice for indemnification shall have been timely given under Article VI on or
prior to such termination date, then such survival period will be extended as it
relates to such related claim until the related claim for indemnification has
been satisfied or otherwise resolved as provided in Article VI. This Section
shall not limit in any way the survival and enforceability of any covenant or
agreement of the parties hereto which by its terms contemplates performance
after the Closing Date, which shall survive for the respective periods set forth
herein.
ARTICLE IX.
TERMINATION, AMENDMENT AND WAIVER
9.01 Termination. Anything contained in this Agreement to the
contrary notwithstanding, this Agreement may be terminated at any time prior to
the Closing Date:
(a) by the mutual agreement of the parties;
(b) by the Company or by any Investor, in the event any of the
Transaction Agreements is terminated pursuant to its terms;
(c) by any of the Investors or by the Company, in the event the
Operating Partnership exercises its right pursuant to the XxXxxxx Contribution
Agreement and/or the Merger Agreement to delete from the contribution
contemplated thereby properties representing 10% or greater of the sum of the
aggregate Allocated Amounts (as defined in the XxXxxxx Contribution Agreement)
and the Allocated Amounts (as defined in the Merger Agreement).
(d) by the Company upon any material breach by the Investors of any
of their representations, warranties or covenants contained in this Agreement or
in any of the Transaction Agreements, which breach has not been cured within 10
days following receipt by the Investors of notice of such breach from the
Company;
(e) by the Investors, acting together, upon any material breach by
the Company of any of its representations, warranties or covenants contained in
this Agreement or in any of the Transaction Agreements, which breach has not
been cured within 10 days following receipt by the Company of notice of such
breach from the Investors;
40
(f) by any Investor or by the Company if Company Stockholder
Approval shall not have been obtained at a meeting duly convened therefor or any
adjournment thereof;
(g) by the Company or by any Investor at any time after March 31,
1998 upon notification by the terminating party to the others if the Closing
shall not have occurred on or before such date and such failure to consummate is
not caused by a breach of this Agreement or any of the Transaction Agreements by
the terminating party;
(h) by the Company if its obligations under Section 5.05 have
been satisfied and the Termination Fee has been fully paid; or
(i) by the Company if the Acquisition Portfolio (as defined in the
XxXxxxx Contribution Agreement) and any Acquisition Property acquired by FLIP
(to be financed with existing cash on hand of approximately $1,700,000) prior to
Closing do not consist of Acquisition Properties or contracts for the
acquisition or purchase of Acquisition Properties (or other comparable
properties in lieu thereof) having an aggregate value of at least $37,000,000.
In the event that this Agreement shall be terminated pursuant to
this Section 9.01, all further obligations of the parties under this Agreement
(other than Sections 5.08, 9.02 and 11.11), shall terminate without further
liability of any party to the others; provided, however, that nothing herein
shall relieve any party from liability for its non-performance or breach of any
provision of this Agreement if performance of or compliance with such provision
was within its reasonable control and nothing herein shall prejudice the ability
of the non-breaching party from seeking damages from any other party for any
willful breach of this Agreement, including without limitation, attorneys' fees
and the right to pursue any remedy at law or in equity (including specific
performance). Notwithstanding the foregoing, (i) the sole remedy of the
Investors for a breach or non-performance by the Company or the Operating
Partnership that is the basis for termination shall be the Termination Fee set
forth in Section 9.02, (ii) to the extent the Company seeks payment of and is
paid the Termination Fee for a breach or non-performance by the Investors that
is the basis for termination, the Company shall be deemed to have waived any and
all rights to seek damages and to pursue any other remedy at law or in equity
(including specific performance) and (iii) to the extent the Company waives its
rights to the Termination Fee for a breach or non-performance by the Investors
that could be a basis for the termination of this Agreement, the Company shall
be entitled to pursue any remedies in equity (including specific performance)
and shall not be entitled to seek money damages. The Investors agree that, if
the Company so waives its right to the Termination Fee, the Company is entitled
to specific performance of the terms hereof to the extent permitted by law.
9.02 Effect of Termination and Abandonment; Termination Fee.
(a) Except as otherwise provided in this Section 9.02, each of the
parties hereto shall bear its own costs and expenses (including, without
limitation, fees and disbursements of its counsel, accountants and other
financial, legal, accounting or other advisors and out-of-pocket expenses)
incurred by it in connection with the preparation, negotiation,
41
execution and delivery of this Agreement, each of the other documents and
instruments executed in connection with or contemplated by this Agreement and
the consummation of the transactions hereby and thereby (collectively,
"Transaction Expenses"); provided, however, that the filing fee in connection
with the filing of the Form S-4 or Proxy Statement/Prospectus with the
Commission, and expenses incurred in connection with preparing, printing and
mailing the Form S-4 and the Proxy Statement/Prospectus, shall be paid by the
Company. In the event that the Transactions are consummated, the Operating
Partnership shall bear or reimburse the other parties hereto (other than the
Operating Partnership) for all of their Transaction Expenses, other than XxXxxxx
Restructuring Expenses. If any XxXxxxx Restructuring Expenses are incurred by
the Company or any of its Subsidiaries, XxXxxxx promptly shall reimburse the
Company or its Subsidiaries for such XxXxxxx Restructuring Expenses.
(b) If this Agreement is terminated by the Company pursuant to
Section 9.01(h), or if terminated by the Investors pursuant to Section 9.01(e),
then the Company shall pay to the Investors a single termination fee of $1.0
million (the "Termination Fee"). The Termination Fee shall be paid no later than
the third Business Day following the date of termination of this Agreement by
wire transfer of immediately available funds to such single account as Xxxxxx
Bay shall designate in a written notice delivered to the Company. It is
understood and agreed by and amongst the Investors that the Termination Fee
delivered by the Company to such account shall be disbursed therefrom as
follows, but only after payment or reimbursement of such Transaction Expenses
that are jointly expenses of the Investors: (i) 21% to Xxxxxx Bay, (ii) 73% to
XxXxxxx, considered a single investor and (iii) 6% to Xxxxxx and Penn Square,
considered a single investor.
(c) If this Agreement is terminated by the Company pursuant to
Section 9.01(d) and the Company elects to receive the Termination Fee, then the
Investor (with XxXxxxx considered a single investor, and Xxxxxx and Penn Square
considered a single investor) whose breach is the basis for termination of this
Agreement by the Company pursuant to Section 9.01(d) shall pay to the Company
the Termination Fee. In the event the breach by more than one Investor (with
XxXxxxx considered a single investor, and Xxxxxx and Penn Square considered a
single investor) is the basis for termination of this Agreement by the Company
pursuant to Section 9.01(d) and the Company elects to receive the Termination
Fee, then such breaching Investors shall be severally liable to the Company to
pay the Termination Fee; provided, however, that the Company shall not be
entitled to receive any amount in excess of the Termination Fee under this
Section 9.02(c). It is understood and agreed by and amongst the Investors that
although such breaching Investors shall be severally liable to the Company to
pay the Termination Fee pursuant to the immediately preceding sentence, such
breaching Investors as amongst themselves shall be liable for an equal share of
such Termination Fee. Payment of the Termination Fee pursuant to this paragraph
(c) shall be made no later than the third Business Day following the date of
termination of this Agreement by wire transfer of immediately available funds to
such account as the Company shall designate in a written notice delivered to the
Investors.
42
ARTICLE X.
DEFINITIONS
10.01 Definitions. (a) As used in this Agreement, the following
defined terms shall have the meanings indicated below:
"Acquisition Property" has the meaning ascribed to it in the
XxXxxxx Contribution Agreement.
"Acquisition Proposal" means a bona fide proposal or offer from a
Qualified Third Party relating to any direct or indirect (i) acquisition or
purchase of fifteen per cent (15%) or more of any of the Company's Common Stock
outstanding, (ii) acquisition or purchase of any equity securities (including
partnership or membership interests or units) of any Subsidiary of the Company,
or (iii) any merger, consolidation, business combination, recapitalization,
liquidation, dissolution or similar transaction involving the Company or any of
its Subsidiaries, or a proposal to acquire the Company or an interest in it
which is conditional upon, or otherwise contemplates, the Company not completing
the transactions which are the subject of this Agreement.
"Affiliate" means any Person that directly, or indirectly through
one of more intermediaries, controls or is controlled by or is under common
control with the Person speci fied. For purposes of this definition, control of
a Person means the power, direct or indirect, to direct or cause the direction
of the management and policies of such Person whether by Contract or otherwise
and, in any event and without limitation of the previous sentence, any Person
owning ten percent (10%) or more of the voting securities of a second Person
shall be deemed to control that second Person.
"Amended and Restated Partnership Agreement" has the meaning
ascribed to it in Section 7.02(l).
"Associate" means, with respect to any Person, any corporation or
other business organization of which such Person is an officer or partner or is
the beneficial owner, directly or indirectly, of ten percent (10%) or more of
any class of equity securities, any trust or estate in which such Person has a
substantial beneficial interest or as to which such Person serves as a trustee
or in a similar capacity and any relative or spouse of such Person, or any
relative of such spouse, who has the same home as such Person.
"Benefit Plan" means any Plan entered into, established, maintained,
contributed to or required to be contributed to, by the Company or any Company
ERISA Affiliate providing benefits to employees, former employees, independent
contractors, former independent contractors of the Company or any Company ERISA
Affiliate, or their dependents or beneficiaries.
43
"Books and Records" means all files, documents, instruments, papers,
books and records relating to the business or condition of the Company or the
Operating Partnership, including without limitation financial statements, tax
returns and related work papers and letters from accountants, budgets, pricing
guidelines, ledgers, journals, deeds, title policies, minute books, stock
certificates and books, stock transfer ledgers, Contracts, Licenses, customer
lists, computer files and programs, retrieval programs, operating data and plans
and environmental studies and plans.
"Business Day" means a day other than Saturday, Sunday or any day on
which banks located in the State of New York and are authorized or obligated to
close.
"CERCLA" means the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended, and the rules and
regulations promulgated thereunder.
"Claim Notice" means written notification of a Third Party Claim,
pursuant to Section 6.03(a), as to which indemnity under Article VI is sought by
an Indemnified Party, enclosing a copy of all papers served, if any; and
specifying the nature of and basis for such Third Party Claim and for the
Indemnified Party's claim against the Indemnifying Party under Article VI,
together with the amount or, if not then reasonably ascertainable, the estimated
amount, determined in good faith, of such Third Party Claim.
"Closing" means the closing of the transactions contemplated by this
Agreement.
"Code" means the Internal Revenue Code of 1986, as amended, and the
rules and regulations promulgated thereunder.
"Company ERISA Affiliate" means an entity required (at any relevant
time) to be aggregated with the Company under Sections 414(b), (c), (m) or (o)
of the Code or Section 4001 of ERISA.
"Contributed Business" means the business, assets and properties
(including the Acquisition Contracts and Acquisition Properties, as each such
term is defined in the Management Contribution Agreement) to be contributed
pursuant to the XxXxxxx Contribution Agreement.
"Dispute Period" means the period ending thirty (30) calendar days
following receipt by an Indemnifying Party of either a Claim Notice or Indemnity
Notice.
"Environmental Law" means any applicable Law relating to the use,
ownership, occupancy or operation of the Properties or any portion thereof, or
any user or occupant thereof, human health, safety or protection of the
environment or to emissions, discharges, releases or threatened releases of
pollutants, contaminants or Hazardous Materials in the environment (including,
without limitation, ambient air, surface water, ground water, land surface or
subsurface strata), or otherwise relating to the treatment, storage, disposal,
transport or handling
44
of any Hazardous Material, including, without limitation, CERCLA, the New Jersey
Spill Compensation and Control Act (N.J.S.A. 58:10-23.11 et seq. and the
Industrial Site Recovery Act (N.J.S.A. 13:1K-6 et seq. and any rules,
regulations, guidelines, directives, orders or the like adopted pursuant to or
implementing any of the above laws.
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended, and the rules and regulations promulgated thereunder.
"FLIP" means Fairlawn Industrial Park, Inc.
"Form S-4" has the meaning ascribed to it in Section 5.10.
"GAAP" means generally accepted accounting principles, consistently
applied throughout the specified period and in the immediately prior comparable
period.
"Hazardous Material" means (A) any petroleum or petroleum products,
radioactive materials, asbestos in any form that is or could become friable,
urea formaldehyde foam insulation and transformers or other equipment that
contain dielectric fluid containing levels of polychlorinated biphenyls (PCBs);
(B) any chemicals, materials, substances or wastes which are now or hereafter
become defined as or included in the definition of "hazardous substances,"
"hazardous wastes," "hazardous materials," "extremely hazardous wastes,"
"restricted hazardous wastes," "toxic substances," "toxic pollutants" or words
of similar import, under any Environmental Law; and (C) any other chemical,
material, substance or waste, exposure to which is now or hereafter prohibited,
limited or regulated by any Governmental or Regulatory Authority.
"Intangible Property" means all patents and patent rights,
trademarks and trademark rights, trade names and trade name rights, service
marks and service xxxx rights, service names and service name rights, brand
names, inventions, processes, formulae, copyrights and copyright rights, trade
dress, business and product names, logos, slogans, trade secrets, industrial
models, processes, designs, methodologies, computer programs (including all
source codes) and related documentation, technical information, manufacturing,
engineering and technical drawings, know-how and all pending applications for
and registrations of patents, trademarks, service marks and copyrights.
"Indemnified Party" means any Person claiming indemnification under
any provision of Article VI, including Related Indemnified Parties.
"Indemnifying Party" means any Person providing indemnification
under any provision of Article VI.
"Indemnity Notice" means written notification pursuant to Section
6.03(b) of a claim for indemnity under Article VI by an Indemnified Party,
specifying the nature of and basis
45
for such claim, together with the amount or, if not then reasonably
ascertainable, the estimated amount, determined in good faith, of such claim.
"Investor Acquisition Proposal" means, with respect to any Investor,
a bona fide proposal or offer from a Third Party relating to any direct or
indirect (i) acquisition or purchase of fifteen per cent (15%) or more of any of
such Investor's equity securities (including partnership or membership interests
or units) outstanding, (ii) acquisition or purchase of any equity securities of
any Subsidiary (including Penn Square in the case of Xxxxxx) of such Investor,
(iii) acquisition or purchase of all or any substantial portion of the assets of
such Investor or any Subsidiary, (iv) acquisition or purchase of any XxXxxxx
Property or Acquisition Property, or (v) any merger, consolidation, business
combination, recapitalization, liquidation, dissolution or similar transaction
involving such Investor or any of its subsidiaries, or a proposal to acquire
such Investor or an interest in it which is conditional upon, or otherwise
contemplates, such Investor not completing the transactions which are the
subject of this Agreement.
"IRS" means the United States Internal Revenue Service.
"knowledge" of the Company, the Operating Partnership or their
respective Subsidiaries, means, with respect to any representation or warranty,
the current, actual knowledge of Xxxxx Xxxxxxxxx, Xxxx Xxxxxx or Xxxx Xxxxxx.
"Licenses" means all licenses, permits, variances, exemptions,
certificates of authority, authorizations, orders, approvals, registrations,
franchises and similar consents granted or issued by any Governmental or
Regulatory Authority.
"Liens" means any liens, claims, mortgages, encumbrances, pledges,
security interests, equities and charges of any kind.
"Material Adverse Effect" means an adverse effect on the condition,
financial or otherwise, or on the earnings, assets, business affairs or business
prospects of the Company, the Operating Partnership or any of their Subsidiaries
which would be material to the Company, the Operating Partnership and their
Subsidiaries, taken as a whole.
"XxXxxxx Property" means any Property as defined in the XxXxxxx
Contribution Agreement and any FLIP Property as defined in the Merger Agreement.
"XxXxxxx Restructuring Expenses" means all costs and expenses,
including without limitation, fees and disbursements of counsel, accountants and
other financial, legal, accounting or other advisors and out-of-pocket expenses
incurred by XxXxxxx, any Subsidiaries of XxXxxxx or any of their respective
Affiliates or Associates in connection with any restructuring, reorganization,
recapitalization, merger or disposition of assets in contemplation of the
Transactions (other than the Transactions themselves) or otherwise; provided,
however, that the following costs incurred by XxXxxxx associated with the
Refinancing shall not be
46
considered XxXxxxx Restructuring Expenses: environmental and engineering
reports, title, survey, and recordation and transfer taxes.
"MHB LP" means XxXxxxx Xxxxxx Bay, L.P., a Delaware limited
partnership.
"Option" with respect to any Person means any security, right,
subscription, warrant, option, "phantom" stock right or other Contract that
gives the right to (i) purchase or otherwise receive or be issued any shares of
capital stock of such Person or any security of any kind convertible into or
exchangeable or exercisable for any shares of capital stock of such Person or
(ii) receive any benefits or rights similar to any rights enjoyed by or accruing
to the holder of shares of capital stock of such Person, including any rights to
participate in the equity, income or election of directors or officers of such
Person.
"Original Properties" means the Americana Lakewood apartments, the
Emerald Pointe apartments, the Sedona apartments and the Quadrangles Village
apartments (or any property the federal income tax basis of which is determined
in whole or in part by reference to the basis of the foregoing).
"Outside Investor" has the meaning ascribed to it in the Stock
Purchase Agreement.
"Overbid Amount" means the minimum amount determined in good faith
by the Board for the purpose of enabling the Investors to exercise their rights
under Section 5.05(c)(ii), after consultation with a financial advisor, by which
the purchase price for the Securities would have to be increased to make the
transactions which are the subject of this Agreement as favorable to the
stockholders of the Company from a financial point of view as the transaction
which is the subject of a particular Acquisition Proposal.
"Overbid Notice" means a notice of the determination of the Board of
the Company that the transaction contemplated by an Acquisition Proposal would
be an Overbid Transaction, which notice contains the information described in
Section 5.05(a)(y)(ii)(C).
"Overbid Transaction" means a transaction which is the subject of an
Acquisition Proposal which the Board in good faith determines would be
reasonably likely to result in a more favorable transaction from a financial
point of view to the stockholders of the Company than the transactions
contemplated by this Agreement.
"Permitted Lien" means (i) any Lien for Taxes not yet due or
delinquent or being contested in good faith by appropriate proceedings for which
adequate reserves have been established in accordance with GAAP, (ii) any
statutory Lien arising in the ordinary course of business by operation of Law
with respect to liabilities or obligations not yet due or delinquent, (iii) any
minor imperfection of title or similar Lien which individually or in the
aggregate with other such Liens does not materially impair the value of the
property subject to such Lien or the
47
use of such property in the conduct of the business of the Company or any
Subsidiary and (iv) any exceptions to title set forth in Section 3.16 of the
Company Disclosure Letter.
"Person" means any natural person, corporation, limited liability
company, general partnership, limited partnership, proprietorship, other
business organization, trust, union, association or Governmental or Regulatory
Authority.
"Plan" means any employment, bonus, incentive compensation, deferred
compensation, pension, profit sharing, retirement, stock purchase, stock option,
stock ownership, stock appreciation rights, phantom stock, leave of absence,
layoff, vacation, day or dependent care, legal services, cafeteria, life,
health, medical, accident, disability, worker's compensation or other insurance,
severance, separation, termination, change of control or other benefit plan,
agreement, practice, policy or arrangement of any kind, whether written or oral,
including, but not limited to, any "employee benefit plan" within the meaning of
Section 3(3) of ERISA.
"Properties" means the assets held through Virginia Street
Associates Limited Partnership, American Emerald Partners, L.P., American
Quadrangles Partners, L.P. or American Sedona Partners, L.P., including without
limitation the Americana Lakewood apartments, the Sedona apartments, the Emerald
Pointe apartments and the Quadrangles Village apartments.
"Proxy Statement/Prospectus" has the meaning ascribed to it in
Section 5.10.
"Refinancing" means the proposed financing facility of approximately
$45,000,000 aggregate principal amount of indebtedness pursuant to that certain
Commitment Letter by and between Nomura Asset Capital Corporation and XxXxxxx
Enterprises, Inc., dated July 21, 1997, or such other similar financing.
"SEC" means the Securities and Exchange Commission.
"Section 0000 Xxxxxxxx" means, with respect to any property, the
exchange of such property for property of like kind in a transaction qualifying
under Section 1031 of the Code in which not more than 10% of the built-in gain
associated with such property is required to be recognized by the partners of
the Operating Partnership for federal income tax purposes.
"Securities" means the shares of Common Stock, warrants, options and
Partnership Units to be issued and sold to the Investors, including shares of
Common Stock issuable upon conversion of Partnership Units to be issued and
sold, pursuant to this Agreement and the Transaction Agreements.
"Subsidiary" means with respect to any party, a corporation,
partnership or other organization, whether incorporated or unincorporated, of
which more than fifty percent (50%)
48
of either the equity interests in, or the voting control of, such corporation,
partnership or other organization is, directly or indirectly through
Subsidiaries or otherwise, beneficially owned by such party. Notwithstanding the
foregoing, "Subsidiary," when used with respect to the Company, includes,
without limitation, the Operating Partnership.
"Taxes" means federal, state, local or foreign income, franchise,
excise, stamp, real property, personal property, sales, use, customs, transfer,
gains or value added tax, tariff, import, fee, duty, levy or other governmental
charge.
"Transaction Agreements" means the Stock Purchase Agreement, the
Merger Agreement, the Management Contribution Agreement, the XxXxxxx
Contribution Agreement and all agreements and documents to be delivered by the
Company and the Operating Partnership, and by the Investors to the Company, in
connection with the transactions contemplated by this Agreement and the
Transaction Agreements.
"Transfer Taxes" means all sales, use, transfer, real property
transfer, recording, gains and other similar taxes and fees arising out of or in
connection with the transactions effected pursuant to this Agreement.
(b) Unless the context of this Agreement otherwise requires, (i)
words of any gender include each other gender; (ii) words using the singular or
plural number also include the plural or singular number, respectively; (iii)
the terms "hereof," "herein," "hereby" and derivative or similar words refer to
this entire Agreement; (iv) the terms "Article" or "Section" refer to the
specified Article or Section of this Agreement; and (v) the phrases "ordinary
course of business" and "ordinary course of business consistent with past
practice" refer to the business and practice of the relevant party. All
accounting terms used herein and not expressly defined herein shall have the
meanings given to them under GAAP.
ARTICLE XI.
MISCELLANEOUS
11.01 Notices. All notices, requests and other communications
hereunder must be in writing and will be deemed to have been duly given only if
delivered personally or by facsimile transmission or mailed (first class postage
prepaid) to the parties at the addresses or facsimile numbers on Annex 1 hereto.
All such notices, requests and other communications will (i) if delivered
personally to the address as provided in this Section, be deemed given upon
delivery, (ii) if delivered by facsimile transmission to the facsimile number as
provided in this Section, be deemed given upon receipt, and (iii) if delivered
by mail in the manner described above to the address as provided in this
Section, be deemed given upon receipt (in each case regardless of whether such
notice, request or other communication is received by any other Person to whom a
copy of such notice is to be delivered pursuant to this Section). Any party
49
from time to time may change its address, facsimile number or other information
for the purpose of notices to that party by giving notice specifying such change
to the other party hereto.
11.02 Entire Agreement. This Agreement and the Transaction
Agreements super sede all prior discussions and agreements between the parties
with respect to the subject matter hereof and thereof and contain the sole and
entire agreement between the parties hereto with respect to the subject matter
hereof and thereof.
11.03 Public Announcements. Except as otherwise required by law or
the rules of any applicable securities exchange or national market system, so
long as this Agreement is in effect, the Company and the Investors will not, and
will not permit any of their respective Subsidiaries and their Representatives
to, issue or cause the publication of any press release or make any other public
announcement with respect to the transactions contemplated by this Agreement
without the consent of the other party, which consent shall not be unreasonably
withheld. The Company and the Investors will cooperate with each other in the
development and distribution of all press releases and other public
announcements with respect to this Agreement and the transactions contemplated
hereby, and will furnish the other with drafts of any such releases and
announcements as far in advance as practicable.
11.04 Waiver. Any term or condition of this Agreement may be waived
at any time by the party that is entitled to the benefit thereof, but no such
waiver shall be effective unless set forth in a written instrument duly executed
by or on behalf of the party waiving such term or condition. No waiver by any
party of any term or condition of this Agreement, in any one or more instances,
shall be deemed to be or construed as a waiver of the same or any other term or
condition of this Agreement on any future occasion. Except as otherwise provided
in this Agreement, all remedies, either under this Agreement or by Law or
otherwise afforded, will be cumulative and not alternative.
11.05 Amendment. This Agreement may be amended, supplemented or
modified only by a written instrument duly executed by or on behalf of each
party hereto.
11.06 No Third Party Beneficiary. The terms and provisions of this
Agreement are intended solely for the benefit of each party hereto and their
respective successors or permitted assigns, and it is not the intention of the
parties to confer third-party beneficiary rights upon any other Person, except
as provided in Section 5.15 and Article VI (which is intended to be to the
benefit of the persons entitled to therein, and may be enforced by any of such
persons).
11.07 No Assignment; Binding Effect. Neither this Agreement nor any
right, interest or obligation hereunder may be assigned by any party hereto
without the prior written consent of the other party hereto and any attempt to
do so will be void, except (a) for assignments and transfers by operation of Law
and (b) except as otherwise provided in the Transaction Agreements. Subject to
the preceding sentence, this Agreement is binding upon,
50
inures to the benefit of and is enforceable by the parties hereto and their
respective successors and assigns.
11.08 Headings. The headings used in this Agreement have been
inserted for convenience of reference only and do not define or limit the
provisions hereof.
11.10 Invalid Provisions. If any provision of this Agreement is held
to be illegal, invalid or unenforceable under any present or future Law, and if
the rights or obligations of any party hereto under this Agreement will not be
materially and adversely affected thereby, (a) such provision will be fully
severable, (b) this Agreement will be construed and enforced as if such illegal,
invalid or unenforceable provision had never comprised a part hereof, (c) the
remaining provisions of this Agreement will remain in full force and effect and
will not be affected by the illegal, invalid or unenforceable provision or by
its severance herefrom and (d) in lieu of such illegal, invalid or unenforceable
provision, there will be added automatically as a part of this Agreement a
legal, valid and enforceable provision as similar in terms to such illegal,
invalid or unenforceable provision as may be possible.
11.11 Jurisdiction. THE PARTIES AGREE THAT ALL DISPUTES BETWEEN ANY
OF THEM ARISING OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE
RELATIONSHIP ESTABLISHED BETWEEN THEM IN CONNECTION WITH THIS AGREEMENT OR ANY
OTHER TRANSACTION AGREEMENT, AND WHETHER ARISING IN LAW OR IN EQUITY OR
OTHERWISE, SHALL BE RESOLVED BY THE FEDERAL OR STATE COURTS LOCATED IN NEW YORK,
NEW YORK. NOTHING HEREIN SHALL AFFECT THE RIGHT OF ANY PARTY TO SERVE PROCESS IN
ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE
PROCEED AGAINST THE OTHER IN ANY OTHER JURISDICTION. IN ADDITION, EACH OF THE
PARTIES HERETO CONSENTS TO SUBMIT TO THE PERSONAL JURISDICTION OF ANY FEDERAL OR
STATE COURT LOCATED IN THE STATE OF NEW YORK IN THE EVENT THAT ANY DISPUTE
ARISES OUT OF THIS AGREEMENT OR ANY OF THE TRANSACTION AGREEMENTS OR ANY OF THE
TRANSACTIONS CONTEMPLATED HEREBY.
11.12 Governing Law. This Agreement shall be governed by and
construed in accordance with the Laws of the State of New York applicable to a
Contract executed and performed in such State without giving effect to the
conflicts of laws principles thereof.
11.13 Counterparts. This Agreement may be executed in any number of
counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same instrument.
11.14 No Personal Recourse. Notwithstanding anything to the
contrary contained in this Agreement or in any of the Transaction Agreements,
except as otherwise specifically set
51
forth in this Agreement with respect to the Termination Fee, (i) only the MHB LP
and the FLIP Shareholders, jointly and severally with the MHB LP, but only to
the extent of the number of shares of Common Stock received as Merger
Consideration in connection with the Merger, (and not any other XxXxxxx or any
partner, shareholder or member of any XxXxxxx) shall be liable for any claims
made by non-XxXxxxx parties under this Agreement or any of the Transaction
Agreements, (ii) the non-XxXxxxx parties to this Agreement and the other
Transaction Agreements shall look only to the Partnership Units held by the MHB
LP (provided that such Partnership Units shall not include 181,818 Partnership
Units to be issued at Closing to MHB LP) and the Common Stock held by the FLIP
Shareholders with respect to any claims that may be made under this Agreement or
any of the Transaction Agreements, and (iii) other than as provided above, no
personal recourse or personal liability for any claims under this Agreement or
any of the Transaction Agreements shall be had against any XxXxxxx (other than
the MHB LP) or any partner, shareholder or member of any XxXxxxx.
52
IN WITNESS WHEREOF the parties hereto have executive this Agreement on
this 20th day of August, 1997
AMERICAN REAL ESTATE INVESTMENT
CORPORATION
By:/s/ XXXX XXXXXX
-------------------------------------
Name: Xxxx Xxxxxx
Title: President
AMERICAN REAL ESTATE INVESTMENT, L.P.
By: American Real Estate Investment Corporation,
its General Partner
By:/s/ XXXX XXXXXX
-------------------------------------
Name: Xxxx Xxxxxx
Title: President
XXXXXX BAY PARTNERS, L.P.
By: Xxxxxx Bay Partners, Incits General Partner
By: /s/ XXXXX X. XXXXXX
-------------------------------------
Name: Xxxxx X. Xxxxxx
Title: President
XXXXXXX XXXXXX
/s/ XXXXXXX XXXXXX
-------------------------------------
00
XXXX XXXXXX PROPERTIES, INC.
By:/s/ XXXXXXX XXXXXX
-------------------------------------
Name: Xxxxxxx Xxxxxx
Title: Principal
XXXXXXX ENTITIES:
XXXXXXX XXXXXX BAY, L.P.
By: Urban Farms Shopping Center, Inc.,
its General Partner
By:/s/ XXXXX X. XxXXXXX
-------------------------------------
Name: Xxxxx X. XxXxxxx
Title: Chief Executive Officer
FAIRLAWN INDUSTRIAL PARK, INC.
By:/s/ XXXXX X. XxXXXXX
Name: Xxxxx X. XxXxxxx
Title: Chief Executive Officer
URBAN FARMS SHOPPING CENTER, INC.
By:/s/ XXXXX X. XxXXXXX
-------------------------------------
Name: Xxxxx X. XxXxxxx
Title: Chief Executive Officer
54
OAKLAND INDUSTRIAL PARK, INC.
By:/s/ XXXXX X. XxXXXXX
-------------------------------------
Name: Xxxxx X. XxXxxxx
Title: Chief Executive Officer
XXXXXXX PROPERTIES
By:/s/ XXXXX X. XxXXXXX
-------------------------------------
Name: Xxxxx X. XxXxxxx
Title: General Partner
NEW JERSEY ASSOCIATES
By:/s/ XXXXX X. XxXXXXX
Name: Xxxxx X. XxXxxxx
Title: General Partner
RAMAPO RIDGE XXXXXXX OFFICE PARK
By:/s/ XXXXX X. XxXXXXX
-------------------------------------
Name: Xxxxx X. XxXxxxx
Title: Attorney-in-Fact for General Partner
FAIRLAWN INVESTMENTS, L.L.C.
By:/s/ XXXXX X. XxXXXXX
-------------------------------------
Name: Xxxxx X. XxXxxxx
Title: Chief Executive Officer
55
FLIP SHAREHOLDERS (but only for the purposes of
the agreements contained in Section 6.02):
XXXXXXX X. XXXXXXX
REVOCABLE TRUST, UID 4/22/96
By:/s/ XXXXXXX X. XxXXXXX, Attorney-in-Fact
-------------------------------------
Name: Xxxxxxxxxx X. XxXxxxx
Title: Trustee
/s/ XXXXXXX X. XxXXXXX, Attorney-in-Fact
----------------------------------------
XXXX X. XXXXXXX
/s/ XXXXXXX X. XxXXXXX, Attorney-in-Fact
----------------------------------------
XXXX X. XXXXXXX
/s/ XXXXXXX X. XxXXXXX
----------------------------------------
XXXXXXX X. XXXXXXX
/s/ XXXXXXX X. XxXXXXX, Attorney-in-Fact
----------------------------------------
XXXXXXX X. XXXXXXX
/s/ XXXXXXX X. XxXXXXX, Attorney-in-Fact
----------------------------------------
XXXXX XXXXXXX XXXXXX
/s/ XXXXXXX X. XxXXXXX, Attorney-in-Fact
----------------------------------------
X. XXXXXX XXXXXXX, JR.
56
/s/ XXXXXXX X. XxXXXXX, Attorney-in-Fact
----------------------------------------
W. XXXXX XXXXXXX
/s/ XXXXXXX X. XxXXXXX, Attorney-in-Fact
----------------------------------------
XXXXX X. XXXXXXX
/s/ XXXXXXX X. XxXXXXX, Attorney-in-Fact
----------------------------------------
XXXXXXX X. XXXXXXX
/s/ XXXXXXX X. XxXXXXX, Attorney-in-Fact
----------------------------------------
XXXXXX XXXXX
/s/ XXXXXXX X. XxXXXXX, Attorney-in-Fact
----------------------------------------
XXXXXXX X. XXXXXXX
/s/ XXXXXXX X. XxXXXXX, Attorney-in-Fact
----------------------------------------
XXXX X. XXXXXXX
57
ANNEX 1 TO
MASTER INVESTOR AGREEMENT
NOTICE PROVISIONS
1. If to XxXxxxx, to them at
XxXxxxx Enterprises, Inc.
000 Xxxx Xxxxxxxx Xxxx
XX Xxx 000
Xxxxxxxx Xxxxx, Xxx Xxxxxx 00000
Attention: Xxxxx XxXxxxx
Chief Executive Officer
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
2. If to Xxxxxxx Xxxxxx or Penn Square Properties, Inc., to them at
The Xxxxxxx Building, Inc.
0 Xxxxx Xxxx Xxxxxx, Xxxxx 000
Xxxxxxxxxxxx, Xxxxxxxxxxxx 00000
Attention: Xxxxxxx Xxxxxx
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
3. If to Xxxxxx Bay Partners, L.P., to it at
000 Xxxx Xxxxxx, Xxxxx 000
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxx Xxxxxx
President
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
If to any of the foregoing Investors, a copy (which shall not constitute
notice) to:
Xxxxxx & Xxxxx
000 Xxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxx X. Xxxx, Xx., Esq.
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
4. If to American Real Estate Investment Corporation or American Real Estate
Investment, L.P., to them at
0000 Xxxxxxxx, Xxxxx 0000
Xxxxxx, XX 00000
Attention: Xxx Xxxxxxxxx, Xxxx Xxxxxx, Xxxx Xxxxxx
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
with a copy (which shall not constitute notice) to:
Xxxx, Weiss, Rifkind, Xxxxxxx & Xxxxxxxx
0000 Xxxxxx xx xxx Xxxxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxx X. Xxxxxxx, Esq.
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
EXHIBIT A
STOCK PURCHASE AGREEMENT
See Attached
EXHIBIT B
MANAGEMENT CONTRIBUTION AGREEMENT
See Attached
EXHIBIT C
XXXXXXX CONTRIBUTION AGREEMENT
See Attached
EXHIBIT D
MERGER AGREEMENT
See Attached
