EXHIBIT 2.1
AGREEMENT AND PLAN OF MERGER
among
COLONIAL PROPERTIES TRUST,
CLNL ACQUISITION SUB LLC, and
CORNERSTONE REALTY INCOME TRUST, INC.
Dated as of October 25, 2004
TABLE OF CONTENTS
Page
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ARTICLE 1 THE MERGER................................................................................ 2
1.1 The Merger............................................................................ 2
1.2 Closing............................................................................... 2
1.3 Effective Time........................................................................ 2
1.4 Effect of Merger on Certificate of Formation and Operating Agreement of Colonial
Merger Sub............................................................................ 3
1.5 Officers and Managers of Colonial Merger Sub; Additional Trustee of Colonial.......... 3
1.6 Effect on Capital Stock and Membership Interest; Colonial Articles Supplementary...... 3
1.7 Colonial Partnership Amendment........................................................ 3
1.8 Merger Consideration.................................................................. 4
1.9 Election by Holders of Cornerstone Common Shares to Receive Colonial Common
Shares or Colonial Series E Preferred Depositary Shares............................... 5
1.10 Proration............................................................................. 7
1.11 Partner Approval...................................................................... 8
1.12 Appraisal or Dissenters Rights........................................................ 8
1.13 Exchange of Certificates; Pre-Closing Dividends; Fractional Shares.................... 8
1.14 Post-Merger Reorganization............................................................ 12
1.15 Cornerstone LP Acquisition Transaction................................................ 12
ARTICLE 2 REPRESENTATIONS AND WARRANTIESS OF
CORNERSTONE.................................................................................... 13
2.1 Organization, Standing and Power...................................................... 13
2.2 Cornerstone Subsidiaries.............................................................. 13
2.3 Capital Structure..................................................................... 15
2.4 Other Interests....................................................................... 17
2.5 Authority; Noncontravention; Consents................................................. 17
2.6 SEC Documents; Financial Statements; Undisclosed Liabilities.......................... 18
2.7 Absence of Certain Changes or Events.................................................. 19
2.8 Litigation............................................................................ 20
2.9 Properties............................................................................ 20
2.10 Environmental Matters................................................................. 23
2.11 Related Party Transactions............................................................ 24
2.12 Employee Benefits..................................................................... 25
2.13 Employee Policies..................................................................... 27
2.14 Taxes................................................................................. 27
2.15 No Payments to Employees, Officers or Directors....................................... 29
2.16 Broker; Schedule of Fees and Expenses................................................. 29
2.17 Compliance with Laws.................................................................. 29
2.18 Contracts; Debt Instruments........................................................... 30
2.19 Opinion of Financial Advisor.......................................................... 32
2.20 State Takeover Statutes............................................................... 32
2.21 Investment Company Act of 1940........................................................ 32
2.22 Definition of......................................................................... 32
2.23 Required Shareholder Approval......................................................... 32
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF COLONIAL
AND COLONIAL MERGER SUB........................................................................ 33
3.1 Organization, Standing and Power of Colonial.......................................... 33
3.2 Colonial Subsidiaries................................................................. 33
3.3 Capital Structure..................................................................... 34
3.4 Other Interests....................................................................... 37
3.5 Authority; Noncontravention; Consents................................................. 37
3.6 SEC Documents; Financial Statements; Undisclosed Liabilities.......................... 38
3.7 Absence of Certain Changes or Events.................................................. 39
3.8 Litigation............................................................................ 40
3.9 Properties............................................................................ 40
3.10 Environmental Matters................................................................. 41
3.11 Employee Benefits..................................................................... 42
3.12 Taxes................................................................................. 44
3.13 Brokers; Schedule of Fees and Expenses................................................ 45
3.14 Compliance with Laws.................................................................. 45
3.15 Contracts; Debt Instruments........................................................... 46
3.16 Opinion of Financial Advisor.......................................................... 46
3.17 State Takeover Statutes............................................................... 46
3.18 Investment Company Act of 1940........................................................ 46
3.19 Definition of......................................................................... 46
3.20 Required Shareholder Approval......................................................... 46
ARTICLE 4 COVENANTS................................................................................. 47
4.1 Conduct of Cornerstone's Business Pending Merger...................................... 47
4.2 Conduct of Colonial's and Colonial Merger Sub's Business Pending Merger............... 50
4.3 No Solicitation....................................................................... 54
4.4 Affiliates............................................................................ 56
4.5 Other Actions......................................................................... 57
ARTICLE 5 ADDITIONAL COVENANTS...................................................................... 57
5.1 Preparation of the Form S-4 and the Joint Proxy Statement; Cornerstone
Shareholders Meeting and Colonial Shareholders Meeting................................ 57
5.2 Access to Information; Confidentiality................................................ 60
5.3 Commercially Reasonable Efforts; Notification......................................... 60
5.4 Tax Matters........................................................................... 61
5.5 Public Announcements.................................................................. 61
5.6 Listing............................................................................... 61
5.7 Transfer and Gains Taxes.............................................................. 62
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5.8 Benefit Plans and Other Employee Arrangements......................................... 62
5.9 Indemnification....................................................................... 63
5.10 Declaration of Dividends and Distributions............................................ 66
5.11 Notices............................................................................... 68
5.12 Resignations and Existing Agreements with Certain Cornerstone Executives.............. 68
5.13 Pre-Closing Reorganization Transactions............................................... 68
5.14 [Intentionally omitted.].............................................................. 69
5.15 Redemption of Cornerstone Series A Preferred Shares................................... 69
5.16 IRS Agreements........................................................................ 69
ARTICLE 6 CONDITIONS................................................................................ 70
6.1 Conditions to Each Party's Obligation to Effect the Merger............................ 70
6.2 Conditions to Obligations of Colonial and Colonial Merger Sub......................... 71
6.3 Conditions to Obligations of Cornerstone.............................................. 73
ARTICLE 7 TERMINATION, AMENDMENT AND WAIVER......................................................... 74
7.1 Termination........................................................................... 74
7.2 Certain Fees and Expenses............................................................. 76
7.3 Effect of Termination................................................................. 79
7.4 Amendment............................................................................. 79
7.5 Extension; Waiver..................................................................... 79
ARTICLE 8 GENERAL PROVISIONS........................................................................ 80
8.1 Nonsurvival of Representations and Warranties......................................... 80
8.2 Notices............................................................................... 80
8.3 Interpretation........................................................................ 81
8.4 Counterparts.......................................................................... 81
8.5 Entire Agreement; No Third-Party Beneficiaries........................................ 81
8.6 Governing Law......................................................................... 81
8.7 Assignment............................................................................ 81
8.8 Enforcement........................................................................... 81
8.9 Severability.......................................................................... 82
8.10 Exculpation........................................................................... 82
8.11 Joint and Several Obligations......................................................... 82
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EXHIBITS
Exhibit A - Form of Delaware Certificate of Merger
Exhibit B - Form of Virginia Articles of Merger
Exhibit C - Form of Colonial Articles Supplementary
Exhibit D - Form of Nonsolicitation Agreement
- iv -
INDEX OF DEFINED TERMS
Acquisition Proposal............................................................................. 4.3(a)(i)
Affiliate........................................................................................ 2.11
Agreement........................................................................................ Preamble
AICPA Statement.................................................................................. 5.1(b)
Alabama REIT Law................................................................................. 1.6
Assumed Option................................................................................... 5.8(c)(i)
Average Closing Price............................................................................ 1.8(a)(ii)
Base Amount...................................................................................... 7.2
Break-Up Expenses................................................................................ 7.2
Break-Up Fee..................................................................................... 7.2
Break-Up Fee Tax Opinion......................................................................... 7.2
CERCLA .......................................................................................... 2.10(a)
Certificate...................................................................................... 1.8(b)
Change in Control................................................................................ 5.12(b)
CIC Agreements................................................................................... 5.12(b)
Closing ......................................................................................... 1.2
Closing Adjustment Amount........................................................................ 1.8(a)(ii)
Closing Adjustment Factor........................................................................ 1.8(a)(ii)
Closing Date..................................................................................... 1.2
Closing Deficiency Dividend...................................................................... 5.10
Closing Deficiency Dividend Amount............................................................... 5.10
Code ............................................................................................ E
Colonial ........................................................................................ Preamble
Colonial Articles Supplementary.................................................................. 1.6
Colonial Bylaws.................................................................................. 3.1
Colonial Common Share............................................................................ 1.8(a)(ii)
Colonial Controlled Group Member ................................................................ 3.11
Colonial Counter Proposal........................................................................ 4.3(c)
Colonial Declaration of Trust.................................................................... 1.6
Colonial Declaration of Trust Amendment.......................................................... 5.1(a)
Colonial Disclosure Letter....................................................................... Art. 3
Colonial Employee Plan .......................................................................... 3.11
Colonial Financial Statement Date................................................................ 3.7
Colonial Material Adverse Effect................................................................. 3.1
Colonial Merger Sub.............................................................................. Preamble
Colonial Merger Sub LLC Units.................................................................... 1.6
Colonial Options................................................................................. 3.3(b)
Colonial OP Units................................................................................ 1.10(a)
Colonial Other Interests......................................................................... 3.4
Colonial Partner Approval........................................................................ 1.11
Colonial Partnership............................................................................. D
Colonial Partnership Agreement................................................................... 1.7
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Colonial Partnership Amendment................................................................... 1.7
Colonial Pension Plan ........................................................................... 3.11
Colonial Preferred OP Units...................................................................... 3.3(e)
Colonial Preferred Shares........................................................................ 3.3(a)
Colonial Properties.............................................................................. 3.9(a)
Colonial Right................................................................................... 1.8(a)(ii)
Colonial Rights Agreement........................................................................ 1.8(a)(ii)
Colonial SEC Documents........................................................................... 3.6
Colonial Series B Preferred OP Units............................................................. 3.3(e)
Colonial Series B Preferred Shares............................................................... 3.3(a)
Colonial Series C Preferred OP Units............................................................. 3.3(e)
Colonial Series C Preferred Shares............................................................... 3.3(a)
Colonial Series D Preferred OP Units............................................................. 3.3(e)
Colonial Series D Preferred Shares............................................................... 3.3(a)
Colonial Series E Preferred Depositary Share..................................................... 1.8(a)(i)
Colonial Series E Preferred OP Units............................................................. 1.7
Colonial Series E Preferred Shares............................................................... 1.8(a)(i)
Colonial Series 1998 Preferred Shares............................................................ 3.3(a)
Colonial Shareholder Approval.................................................................... 3.5(a)
Colonial Shareholders Meeting.................................................................... 5.1(c)
Colonial Subsidiaries............................................................................ 3.1
Colonial Welfare Plan ........................................................................... 3.11
Colonial Voting Agreement........................................................................ I
Commitment....................................................................................... 4.1(j)
Common Election.................................................................................. 1.9(a)
Common Fraction.................................................................................. 1.10(b)
Common Share Conversion Rate..................................................................... 1.8(a)(ii)
Confidentiality Agreement........................................................................ 2.18(k)
Controlled Group Member.......................................................................... 2.12
Cornerstone...................................................................................... Preamble
Cornerstone Acquisition Agreement................................................................ 7.2
Cornerstone Articles............................................................................. 2.1
Cornerstone Bylaws............................................................................... 2.1
Cornerstone Common Share......................................................................... 1.8(a)(i)
Cornerstone Disclosure Letter.................................................................... Art. 2
Cornerstone Financial Statement Date............................................................. 2.7
Cornerstone GP OP Units.......................................................................... 2.3(e)
Cornerstone LP Acquisition Transaction........................................................... 1.15
Cornerstone LP OP Units.......................................................................... 2.3(e)
Cornerstone Material Adverse Effect.............................................................. 2.1
Cornerstone Non-Preferred Units.................................................................. 2.3(e)
Cornerstone OP Units............................................................................. 2.3(e)
Cornerstone Other Interests...................................................................... 2.4
Cornerstone Partnership.......................................................................... 1.13(d)(i)
Cornerstone Partnership Agreement................................................................ 1.13(d)(i)
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Cornerstone Preferred Units...................................................................... 2.3(e)
Cornerstone Preferred Shares..................................................................... 2.3(a)
Cornerstone Properties........................................................................... 2.9(a)
Cornerstone Rent Roll............................................................................ 2.9(e)
Cornerstone Representative....................................................................... 4.3(a)(ii)
Cornerstone SEC Documents........................................................................ 2.6
Cornerstone Series A Preferred Shares............................................................ 2.3(a)
Cornerstone Series A Redemption Date............................................................. 5.15
Cornerstone Series B Preferred Shares............................................................ 2.3(a)
Cornerstone Shareholder Approval................................................................. 2.5(a)
Cornerstone Shareholders Meeting................................................................. 5.1(d)
Cornerstone Space Lease.......................................................................... 2.9(e)
Cornerstone Stock Options........................................................................ 2.3(b)
Cornerstone Share Rights......................................................................... 2.3(b)
Cornerstone Subsidiaries......................................................................... 2.2(a)
Cornerstone Voting Agreement .................................................................... H
Corresponding Colonial Dividends and Distributions............................................... 1.13(d)(ii)
Deficiency Dividend.............................................................................. 5.10
Deficiency Dividend Amount....................................................................... 5.10
Delaware Certificate of Merger .................................................................. B
Delaware Secretary............................................................................... 1.3
DE LLC Act....................................................................................... 1.1
Depositary Receipts.............................................................................. 1.8(a)(i)
Effective Time................................................................................... 1.3
Election ........................................................................................ 1.9(a)
Election Date.................................................................................... 1.9(d)
Employee Plan.................................................................................... 2.12
Employment Agreements............................................................................ 5.12(b)
Encumbrances..................................................................................... 2.9(a)
Environmental Law................................................................................ 2.10(a)
Environmental Mitigation......................................................................... 2.9(d)
Environmental Permits............................................................................ 2.10(b)(iii)
ERISA ........................................................................................ 2.12
Exchange Act..................................................................................... 2.6
Exchange Agent................................................................................... 1.13(a)
Exchange Fund.................................................................................... 1.13(b)
Final Cornerstone Dividend....................................................................... 1.13(d)(i)
Final Cornerstone Partnership Distribution....................................................... 1.13(d)(i)
Former Colonial Properties ...................................................................... 3.10(a)
Former Cornerstone Properties.................................................................... 2.10(b)(i)
Form of Election................................................................................. 1.9(b)
Form S-4 ........................................................................................ 5.1(a)
GAAP ........................................................................................ 2.6
Governmental Entity.............................................................................. 2.5(b)
Hazardous Materials.............................................................................. 2.10(a)
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HSR Act ......................................................................................... 2.5(b)
Indebtedness..................................................................................... 2.18(b)
Indemnified Parties.............................................................................. 5.9(a)
Indemnifying Parties............................................................................. 5.9(a)
IRS Agreement.................................................................................... 5.16(a)
Joint Proxy Statement............................................................................ 5.1(a)
Knowledge of Colonial............................................................................ 3.19
Knowledge of Cornerstone......................................................................... 2.22
Laws ............................................................................................ 2.5(b)
Liens ........................................................................................... 2.2(b)
Maximum Amount................................................................................... 7.2
Maximum Preferred Depositary Share Adjustment Amount............................................. 1.10(b)
Maximum Preferred Depositary Share Amount........................................................ 1.10(b)
Merger Consideration............................................................................. 1.13(a)
Merger ........................................................................................ A
Net Cornerstone Option Shares.................................................................... 1.8(a)(ii)
Non-Electing Shares.............................................................................. 1.10(a)
NYSE ............................................................................................ 1.8(a)(ii)
Outside Date..................................................................................... 7.1(l)
Payor ........................................................................................... 7.2
Pension Plan..................................................................................... 2.12
Permitted Title Exceptions....................................................................... 2.9(a)
Person ........................................................................................ 2.2(a)
Post-Merger Reorganization....................................................................... 1.14
Pre-Closing Reorganization Transactions.......................................................... 5.13(d)
Preferred Depositary Share Conversion Rate....................................................... 1.8(a)(i)
Preferred Election............................................................................... 1.9(a)
Preferred Fraction............................................................................... 1.10(b)
Property Restrictions............................................................................ 2.9(a)
Qualifying Income................................................................................ 7.2
Recipient........................................................................................ 7.2
REIT ............................................................................................ 2.14(b)
REIT Requirements................................................................................ 7.2
Release ......................................................................................... 2.10(a)
Rule 145 Affiliates.............................................................................. 4.4
SEC ............................................................................................. 2.5(b)
Section 5.16 Expenses............................................................................ 5.16(b)
Section 5.16 Expenses Amount..................................................................... 5.16(b)
Section 5.16 Interest/Penalties.................................................................. 5.16(c)
Section 5.16 Interest/Penalties Amount........................................................... 5.16(c)
Securities Act................................................................................... 2.3(g)
Shareholder Approvals............................................................................ 3.5(a)
Subsidiary....................................................................................... 2.2(a)
Superior Acquisition Proposal.................................................................... 4.3(d)
Takeover Statute................................................................................. 2.20
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Taxes ........................................................................................... 2.14(a)
Tax Protection Agreement......................................................................... 2.18(j)
Third Party Provisions........................................................................... 8.5
Top-Up Amount.................................................................................... 7.1(j)
Top-Up Notice.................................................................................... 7.1(j)
Trading Day...................................................................................... 1.8(a)(ii)
Transfer ........................................................................................ 4.3(a)(i)
Transfer and Gains Taxes......................................................................... 5.7
Virginia Articles of Merger...................................................................... C
Virginia Commission.............................................................................. 1.3
Virginia Corporation Act......................................................................... 1.1
Voting Agreements................................................................................ I
Welfare Plan..................................................................................... 2.12
1940 Act ........................................................................................ 2.21
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AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated as of October
25, 2004, by and among COLONIAL PROPERTIES TRUST, an Alabama real estate
investment trust ("Colonial"), CLNL ACQUISITION SUB LLC, a Delaware limited
liability company ("Colonial Merger Sub"), and CORNERSTONE REALTY INCOME TRUST,
INC., a Virginia corporation ("Cornerstone").
R E C I T A L S:
A. The Board of Trustees of Colonial and the Board of Directors of
Cornerstone deem it advisable and in the best interests of their respective
shareholders, upon the terms and subject to the conditions contained herein,
that Cornerstone shall merge with and into Colonial Merger Sub, a wholly owned
subsidiary of Colonial that is disregarded as an entity separate from Colonial
for federal income tax purposes (the "Merger").
B. Upon the terms and subject to the conditions set forth herein, Colonial
Merger Sub and Cornerstone shall execute a Certificate of Merger (the "Delaware
Certificate of Merger") in substantially the form attached hereto as Exhibit A
and shall file such Delaware Certificate of Merger in accordance with Delaware
law to effectuate the Merger.
C. Upon the terms and subject to the conditions set forth herein, Colonial
Merger Sub and Cornerstone shall also execute Articles of Merger (the "Virginia
Articles of Merger") in substantially the form attached hereto as Exhibit B and,
concurrently with the filing of the Delaware Certificate of Merger, shall file
such Virginia Articles of Merger in accordance with Virginia law to effectuate
the Merger.
D. Immediately following consummation of the Merger, Colonial shall
contribute to Colonial Realty Limited Partnership, a Delaware limited
partnership ("Colonial Partnership"), in exchange for additional interests
therein, all of the outstanding limited liability company membership interests
in Colonial Merger Sub, with the result that Colonial Merger Sub will become a
wholly owned subsidiary of Colonial Partnership that is disregarded as an entity
separate from Colonial Partnership for federal income tax purposes.
E. For federal income tax purposes, it is intended that the Merger shall
qualify as a reorganization under Section 368(a)(1)(A) of the Internal Revenue
Code of 1986, as amended (the "Code"), with Cornerstone being treated as having
merged into Colonial for federal income tax purposes, and that this Agreement
shall constitute a plan of reorganization under Section 368(a) of the Code.
F. Colonial and Cornerstone have each received a fairness opinion
relating to the transactions contemplated hereby as more fully described herein.
G. Colonial, Colonial Merger Sub and Cornerstone desire to make certain
representations, warranties, covenants and agreements in connection with the
Merger.
H. As an inducement to Colonial and Colonial Merger Sub to enter into this
Agreement, Xxxxx X. Xxxxxx and certain entities controlled by Xxxxx X. Xxxxxx
have entered into a voting agreement (the "Cornerstone Voting Agreement"),
pursuant to which such person or entity has agreed, among other things, to vote
his or its Cornerstone Common Shares (as defined herein) to approve this
Agreement, the Merger and any other matter which requires his or its vote in
connection with the transactions contemplated by this Agreement.
I. As an inducement to Cornerstone to enter into this Agreement, Xxxxxx X.
Xxxxxx and certain entities controlled by Xxxxxx X. Xxxxxx have entered into a
voting agreement (the "Colonial Voting Agreement," and together with the
Cornerstone Voting Agreement, the "Voting Agreements"), pursuant to which such
person or entity has agreed, among other things, to vote his or its shares of
beneficial interest of Colonial to approve this Agreement, the Merger and any
other matter which requires his or its vote in connection with the transactions
contemplated by this Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual
representations, warranties, covenants and agreements contained herein, the
parties hereto hereby agree as follows:
ARTICLE I
THE MERGER
1.1 The Merger. Upon the terms and subject to the conditions set
forth in this Agreement, and in accordance with Title 6, Chapter 18 of the
Delaware Code Annotated, as amended (the "DE LLC Act") and Title 13.1, Chapter 9
of the Code of Virginia, as amended (the "Virginia Corporation Act"),
Cornerstone shall be merged with and into Colonial Merger Sub, with Colonial
Merger Sub surviving as a limited liability company.
1.2 Closing. The closing of the Merger (the "Closing") will take
place commencing at 9:00 a.m., local time, on the date to be specified by the
parties, which shall be no later than the third business day after satisfaction
or waiver of the conditions set forth in Article 6 (the "Closing Date"), at the
offices of Xxxxx & Xxxxxxx L.L.P., Columbia Square, 000 Xxxxxxxxxx Xxxxxx, XX
Xxxxxxxxxx X.X. 00000, unless another date or place is agreed to in writing by
the parties; provided that, in the event that Cornerstone has delivered a notice
of termination pursuant to Section 7.1(j), the "Closing Date" shall be the third
business day after delivery of the Top-Up Notice (as defined herein), if any,
pursuant to Section 7.1(j).
1.3 Effective Time. On the Closing Date, Colonial Merger Sub and
Cornerstone shall execute and file the Delaware Certificate of Merger, executed
in accordance with the DE LLC Act, with the Office of the Secretary of State of
the State of Delaware (the "Delaware Secretary"), and the Virginia Articles of
Merger, executed in accordance with the Virginia Corporation Act, with the State
Corporation Commission of the Commonwealth of
2
Virginia (the "Virginia Commission") and shall make all other filings and
recordings required under the DE LLC Act and the Virginia Corporation Act. The
Merger shall become effective (the "Effective Time") at such time as Colonial
and Cornerstone shall agree should be specified in the Delaware Certificate of
Merger and the Virginia Articles of Merger (not to exceed thirty (30) days after
the Delaware Certificate of Merger is accepted for record by the Delaware
Secretary). Unless otherwise agreed, the parties shall cause the Effective Time
to occur on the Closing Date.
1.4 Effect of Merger on Certificate of Formation and Operating
Agreement of Colonial Merger Sub. The Articles of Organization, as amended, of
Colonial Merger Sub and the Limited Liability Company Operating Agreement, as
amended, of Colonial Merger Sub, as in effect immediately prior to the Effective
Time of the Merger, shall continue in full force and effect after the Merger
until further amended in accordance with applicable Delaware law.
1.5 Officers and Managers of Colonial Merger Sub; Additional Trustee
of Colonial. The officers and members of the Board of Managers of Colonial
Merger Sub following the Merger shall consist of the officers and members of the
Board of Managers of Colonial Merger Sub immediately prior to the Effective Time
of the Merger, who shall continue to serve for the balance of their unexpired
terms or their earlier death, resignation or removal. Colonial shall cause Xxxxx
X. Xxxxxx to be appointed as an additional member of the Board of Trustees of
Colonial, effective as of midnight on the Closing Date. Colonial then shall
include and recommend Xxxxx X. Xxxxxx in the management slate of nominees for
election to the Board of Trustees of Colonial at each annual meeting or special
meeting of Colonial until at least the third anniversary of the Effective Time.
1.6 Effect on Capital Stock and Membership Interest; Colonial
Articles Supplementary. The effect of the Merger on the shares of capital stock
of Cornerstone shall be as provided in the Delaware Certificate of Merger, the
Virginia Articles of Merger and in Section 1.8. The Merger shall not change the
shares of beneficial interest of Colonial outstanding immediately prior to the
Effective Time of the Merger. At the Effective Time of the Merger, the 100%
limited liability company membership interest of Colonial Merger Sub outstanding
immediately prior to the Effective Time of the Merger (all of which shall be
owned by Colonial at such time) shall be converted into a number of units of
limited liability company membership interest of Colonial Merger Sub ("Colonial
Merger Sub LLC Units") equal to the number of Cornerstone Common Shares
outstanding immediately prior to the Effective Time of the Merger. Prior to or
as of the Effective Time, the Declaration of Trust, as amended, of Colonial (the
"Colonial Declaration of Trust") shall be amended, in accordance with Title 10,
Chapter 3 of the Alabama Code, as amended (the "Alabama REIT Law"), and the
terms of the Colonial Declaration of Trust, by the adoption of articles
supplementary substantially in the form set forth on Exhibit C (the "Colonial
Articles Supplementary") to provide for the creation of the Colonial Series E
Preferred Shares (as defined herein).
1.7 Colonial Partnership Amendment. Prior to or as of the Effective
Time, the Third Amended and Restated Agreement of Limited Partnership, as
amended, of Colonial Partnership (the "Colonial Partnership Agreement") shall be
amended, in accordance with Title 6, Chapter 17 of the Delaware Code Annotated,
as amended, and the terms of the Colonial
3
Partnership Agreement, by the adoption of an amendment in accordance with
Section 4.2.B thereof (the "Colonial Partnership Amendment") to provide for the
creation of 7.62% Series E Preferred Units of Colonial Partnership to be owned
by Colonial and having terms substantially similar to the Colonial Series E
Preferred Shares (as defined herein)) (the "Colonial Series E Preferred OP
Units").
1.8 Merger Consideration.
(a) Merger Consideration. (i) Each common share, no par value,
of Cornerstone ("Cornerstone Common Share") issued and outstanding immediately
prior to the Effective Time of the Merger, which under the terms of Section 1.10
is to be converted solely into Depositary Shares of Colonial (each having a
liquidation preference of $25.00 per Depositary Share) (each a "Colonial Series
E Preferred Depositary Share") representing 1/100th of a 7.62% Series E
Cumulative Redeemable Preferred Share of Beneficial Interest, $.01 par value per
share, of Colonial (each having a liquidation preference of $2,500.00 per share)
(each a "Colonial Series E Preferred Share"), shall be converted into the right
to receive a number of validly issued, fully paid and nonassessable Colonial
Series E Preferred Depositary Shares (evidenced by Depositary Receipts of
Colonial ("Depositary Receipts")) equal to the Preferred Depositary Share
Conversion Rate (as defined herein). As used herein, "Preferred Depositary Share
Conversion Rate" shall mean (I) 0.4200 multiplied by (II) an amount equal to the
difference obtained by subtracting (x) one (1) minus (y) the Closing Adjustment
Factor (as defined herein).
(ii) Each Cornerstone Common Share issued and outstanding
immediately prior to the Effective Time of the Merger (other than Cornerstone
Common Shares to be converted into the right to receive Colonial Series E
Preferred Depositary Shares pursuant to Section 1.8(a)(i) and Section 1.10)
shall be converted into the right to receive (A) a number of validly issued,
fully paid and nonassessable common shares of beneficial interest, $.01 par
value per share, of Colonial (each a "Colonial Common Share") equal to the
Common Share Conversion Rate (as defined herein) (with each such Colonial Common
Share being issued with the related Colonial Right (as defined herein)) and (B)
if (and only if) a Top-Up Notice shall have been delivered pursuant to Section
7.1(j), (y) if the Top-Up Amount is payable all or in part with Colonial Common
Shares, an additional number of validly issued, fully paid and nonassessable
Colonial Common Shares equal to the product of the Common Share Conversion Rate
times a fraction, the numerator of which is the portion of the Top-Up Amount
(expressed in dollars) payable in Colonial Common Shares (as specified in the
Top-Up Notice) and the denominator of which is the Average Closing Price (as
defined herein) (with each such Colonial Common Share being issued with the
related Colonial Right), or (z) if the Top-Up Amount is payable all or in part
in cash, an amount of cash equal to the product of the Common Share Conversion
Rate times the portion of the Top-Up Amount (expressed in dollars) payable in
cash. As used herein, "Common Share Conversion Rate" shall mean (I) 0.2584
multiplied by (II) an amount equal to the difference obtained by subtracting (x)
one (1) minus (y) the Closing Adjustment Factor. "Closing Adjustment Factor"
shall mean a fraction obtained by dividing (I) the Closing Adjustment Amount by
(II) the product of (x) the sum of the total number of Cornerstone Common Shares
outstanding immediately prior to the Effective Time plus the total number of Net
Cornerstone Option Shares (as defined herein) determined based on the
Cornerstone Stock Options (as defined herein) outstanding immediately
4
prior to the Effective Time and (y) $10.80. "Closing Adjustment Amount" shall
mean the sum of (I) the Closing Dividend Deficiency Amount (as defined herein),
(II) the Section 5.16 Expenses Amount (as defined herein) (but not to exceed
$2,000,000), and (III) the Section 5.16 Interest/Penalties Amount (as defined
herein). "Average Closing Price" shall mean the average of the closing prices as
reported in The Wall Street Journal for each of the 20 consecutive Trading Days
(as defined herein) in the period ending ten Trading Days prior to the Closing
Date. "Trading Day" shall mean a day on which the New York Stock Exchange
("NYSE") is open for trading. "Colonial Right" shall mean a "Right" issued
pursuant to Colonial's Rights Agreement, dated November 2, 1998 (the "Colonial
Rights Agreement"), between Colonial and BankBoston, N.A., as Rights Agent. "Net
Cornerstone Option Shares" shall be equal to (x) the number of Cornerstone
Common Shares issuable under Cornerstone Stock Options outstanding immediately
prior to the Effective Time with exercise prices of less than $10.80 minus (y)
the number of Cornerstone Common Shares that could be purchased at a price of
$10.80 per share using the aggregate proceeds that would be received by
Cornerstone if all of the in-the-money Cornerstone Stock Options described in
clause (x) were exercised in full.
(b) Cancelled Status of Cornerstone Common Shares. Each
Cornerstone Common Share, when so converted as provided in Section 1.8(a)(i) or
(ii) or Section 1.10(b), shall no longer be outstanding and shall automatically
be cancelled and retired and shall cease to exist, and each holder of a
certificate (a "Certificate") theretofore representing such Cornerstone Common
Share shall cease to have any rights with respect thereto, except the right to
receive, upon the surrender of such Certificate in accordance with Section
1.13(c), as applicable, (A) any dividends and other distributions in accordance
with Section 1.13(d), (B) certificates representing the Colonial Common Shares
into which such Cornerstone Common Shares are converted pursuant to Section
1.8(a)(ii) or Section 1.10(b) (if any), (C) Depositary Receipts representing the
Colonial Series E Preferred Depositary Shares into which such Cornerstone Common
Shares are converted pursuant to Section 1.8(a)(i) or Section 1.10(b), and (D)
any cash, without interest, in lieu of fractional Colonial Common Shares or
Colonial Series E Preferred Depositary Shares to be issued or paid in
consideration for Cornerstone Common Shares upon the surrender of such
Certificate in accordance with Sections 1.13(c) and 1.13(g) or payable as part
of any Top-Up Amount pursuant to Section 1.8(a)(ii).
1.9 Election by Holders of Cornerstone Common Shares to Receive
Colonial Common Shares or Colonial Series E Preferred Depositary Shares. Each
holder of Cornerstone Common Shares shall have the right to submit a Form of
Election (as defined herein) specifying the number of Cornerstone Common Shares
which such holder desires to have converted into the right to receive Colonial
Common Shares in the Merger pursuant to Section 1.8(a)(ii) and the number which
such holder desires to have converted into the right to receive Colonial Series
E Preferred Depositary Shares in the Merger pursuant to Section 1.8(a)(i) in
accordance with the following procedures:
(a) Each holder of Cornerstone Common Shares may specify in a
request made in accordance with the provisions of this Section 1.9 (an
"Election") (i) the number of such Cornerstone Common Shares which such holder
desires to have converted into the right to receive Colonial Series E Preferred
Depositary Shares in the Merger pursuant to Section 1.8(a)(i) (a "Preferred
Election") and (ii) the number of such Cornerstone Common
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Shares which such holder desires to have converted into the right to receive
Colonial Common Shares in the Merger pursuant to Section 1.8(a)(ii) (a "Common
Election").
(b) Colonial and Cornerstone shall prepare, for use by holders
of Cornerstone Common Shares in surrendering Certificates representing
Cornerstone Common Shares, a form of election (the "Form of Election") pursuant
to which each holder of Cornerstone Common Shares may make Elections. The Form
of Election shall be mailed to holders of record of Cornerstone Common Shares as
of the record date for the Cornerstone Shareholders Meeting (as defined herein)
and shall accompany the Joint Proxy Statement (as defined herein).
(c) Cornerstone shall use commercially reasonable efforts to
make the Form of Election available to all Persons (as defined herein) who
become holders of record of Cornerstone Common Shares during the period between
such record date and the Election Date (as defined herein).
(d) An Election shall have been properly made only if the
Exchange Agent (as defined herein) shall have received, by 5:00 p.m., Eastern
Time, on the second business day (such time on such day being referred to herein
as the "Election Date") preceding the date of the Cornerstone Shareholders
Meeting, a Form of Election properly completed and signed (and not revoked) and
accompanied by the Certificate or Certificates representing Cornerstone Common
Shares to which such Form of Election relates, duly endorsed in blank or
otherwise in form acceptable for transfer on the books of Cornerstone (or by an
appropriate guarantee of delivery of such Certificate or Certificates as set
forth in such Form of Election from a member of any registered national
securities exchange or of the National Association of Securities Dealers, Inc.
or a commercial bank or trust company having an office or correspondent in the
United States, provided such Certificate or Certificates are in fact delivered
by the time set forth in such guarantee of delivery).
(e) Any holder of record of Cornerstone Common Shares may at
any time prior to the Election Date change such holder's Election by written
notice received by the Exchange Agent at or prior to the Election Date
accompanied by a properly completed Form of Election. Colonial and Cornerstone
shall have the right in their sole discretion and by mutual agreement to permit
changes in Elections after the Election Date.
(f) Any holder of record of Cornerstone Common Shares may at
any time prior to the Election Date revoke such holder's Election by written
notice received by the Exchange Agent at or prior to the Election Date or by
withdrawal prior to the Election Date of such holder's Certificates previously
deposited with the Exchange Agent. Any revocation of an Election may be
withdrawn by notice of such withdrawal delivered at or prior to the Election
Date. Any such holder who shall have deposited Certificates with the Exchange
Agent shall have the right to withdraw such Certificates by written notice
received by the Exchange Agent and thereby revoke such holder's Election as of
the Election Date at any time after the expiration of the period of 60 days
following the Election Date if the Merger shall not have been consummated prior
thereto. Colonial shall obtain from the Exchange Agent an agreement to return
each Form of Election and accompanying Certificates to the holders of
Cornerstone Common Shares submitting the same in the event this Agreement shall
be terminated in accordance with its terms.
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(g) Colonial and Cornerstone by mutual agreement shall have
the right to make rules, not inconsistent with the terms of this Agreement,
governing the validity of the Form of Election, the manner and extent to which
Elections are to be taken into account in making the determinations prescribed
by Section 1.10, the issuance and delivery of certificates for Colonial Common
Shares and Colonial Series E Preferred Depositary Shares into which Cornerstone
Common Shares are converted in the Merger and the treatment of Colonial Common
Shares and Cornerstone Common Shares held through brokers or other market
participants (i.e., in street name).
1.10 Proration. The determination of whether Cornerstone Common
Shares shall be converted in the Merger into Colonial Common Shares in
accordance with Section 1.8(a)(ii) or Colonial Series E Preferred Depositary
Shares in accordance with Section 1.8(a)(i), or the right to receive a
combination of Colonial Series E Preferred Depositary Shares and Colonial Common
Shares shall be made as set forth in this Section 1.10.
(a) Each Cornerstone Common Share for which a Common Election
is received and each Non-Electing Share (as defined herein) shall be converted
into Colonial Common Shares in accordance with Section 1.8(a)(ii). For purposes
of this Section 1.10, outstanding Cornerstone Common Shares as to which an
election is not in effect at the Election Date and shares as to which an
Election has been withdrawn after the 60-day period following the Election Date
and prior to the Effective Time of the Merger shall be called "Non-Electing
Shares." If Colonial and Cornerstone shall determine for any reason that any
Election was not properly made with respect to Cornerstone Common Shares, such
Election shall be deemed ineffective and Cornerstone Common Shares covered by
such Election shall, for purposes hereof, be deemed to be Non-Electing Shares.
(b) Except as provided in the immediately following sentence,
each Cornerstone Common Share for which a Preferred Election is received shall
be converted into Colonial Series E Preferred Depositary Shares in accordance
with Section 1.8(a)(i). If Preferred Elections are received for a number of
Cornerstone Common Shares which is greater than the Maximum Preferred Depositary
Share Amount (as defined herein), each Cornerstone Common Share for which a
Preferred Election has been received shall be converted in the Merger into the
right to receive (i) a number of Colonial Series E Preferred Depositary Shares
equal to the product of (w) the Preferred Depositary Share Conversion Rate and
(x) a fraction (the "Preferred Fraction") the numerator of which shall be the
Maximum Preferred Depositary Share Amount and the denominator of which shall be
the aggregate number of Cornerstone Common Shares covered by all Preferred
Elections, and (ii) a number of Colonial Common Shares equal to the product of
(y) the Common Share Conversion Rate and (z) a fraction (the "Common Fraction")
equal to one minus the Preferred Fraction and (iii) if (and only if) a Top-Up
Notice shall have been delivered pursuant to Section 7.1(j), additional
consideration in an amount and form equal to the Common Fraction times the
amount of Colonial Common Shares and cash payable with respect to a Cornerstone
Common Share for which a Common Election is received pursuant to clause (B) of
Section 1.8(a)(ii). As used herein, "Maximum Preferred Depositary Share Amount"
shall mean 14,080,954 minus the Maximum Preferred Depositary Share Adjustment
Amount. "Maximum Preferred Depositary Share Adjustment Amount" shall be an
amount
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(rounded to the nearest whole number) equal to the quotient obtained by dividing
(I) the Closing Adjustment Amount by (II) $10.50.
1.11 Partner Approval. Through its approval of the Colonial
Partnership Amendment as general partner of Colonial Partnership, Colonial has
obtained the requisite approval of the partners of Colonial Partnership of the
Colonial Partnership Amendment (the "Colonial Partner Approval").
1.12 Appraisal or Dissenters Rights. The holders of Cornerstone
Common Shares and Colonial Common Shares are not entitled under applicable law
to appraisal, dissenters or similar rights as a result of the Merger.
1.13 Exchange of Certificates; Pre-Closing Dividends; Fractional
Shares.
(a) Exchange Agent; Depositary. Prior to the Effective Time,
Colonial shall appoint EquiServe Trust Company as the exchange agent, or another
bank or trust company reasonably acceptable to Cornerstone, to act as exchange
agent (the "Exchange Agent") for the exchange of the consideration to be paid in
the Merger pursuant to Section 1.8 and Section 1.10 (the "Merger Consideration")
upon surrender of certificates representing issued and outstanding Cornerstone
Common Shares. In addition, prior to the Effective Time, Colonial shall appoint
Equiserve Trust Company as the depositary for the Colonial Series E Preferred
Depositary Shares, or another bank or trust company reasonably acceptable to
Cornerstone, pursuant to a Depositary Agreement in form and substance reasonably
acceptable to Cornerstone.
(b) Colonial to Provide Merger Consideration; Cornerstone to
Provide Funds for Final Cornerstone Dividend. Colonial shall provide to the
Exchange Agent at or before the Effective Time of the Merger, for the benefit of
the holders of Cornerstone Common Shares, the Merger Consideration issuable in
exchange for the issued and outstanding Cornerstone Common Shares pursuant to
Section 1.8 and Section 1.10, together with any cash required to make payments
in lieu of any fractional shares pursuant to Section 1.13(g) (the "Exchange
Fund"). The Exchange Agent (or other depository acting for the benefit of the
Exchange Agent) shall invest any cash included in the Exchange Fund as directed
by Colonial, on a daily basis. Any interest or other income resulting from such
investments shall be paid to Colonial. Cornerstone shall provide to the Exchange
Agent not later than three business days prior to the Effective Time of the
Merger, for the benefit of the holders of Cornerstone Common Shares, cash
payable in respect of any dividends required pursuant to Section 1.13(d)(i).
Such cash shall be invested in accordance with written directions delivered by
Cornerstone to the Exchange Agent (or other depository) not later than three
business days prior to the Effective Time of the Merger, with any interest or
other income earned on such investments to be paid to Colonial as the successor
to Cornerstone in the Merger.
(c) Exchange Procedure. As soon as reasonably practicable
after the Effective Time, Colonial shall use commercially reasonable efforts to
cause the Exchange Agent to mail to each holder of record of a Certificate or
Certificates which immediately prior to the Effective Time represented
outstanding Cornerstone Common Shares (other than to holders of Cornerstone
Common Shares who previously surrendered with their Form of Election their
8
Certificates for Cornerstone Common Shares) whose shares were converted into the
right to receive the Merger Consideration pursuant to Section 1.8(a) and Section
1.10, (i) a letter of transmittal (which shall specify that delivery shall be
effected, and risk of loss and title to the Certificates shall pass, only upon
delivery of the Certificates to the Exchange Agent and shall be in a form and
have such other provisions as Colonial may reasonably specify) and (ii)
instructions for use in effecting the surrender of the Certificates in exchange
for the Merger Consideration. To the extent not previously surrendered with a
Form of Election, upon surrender of a Certificate for cancellation to the
Exchange Agent or to such other agent or agents as may be appointed by Colonial,
together with such letter of transmittal, duly executed, and such other
documents as may reasonably be required by the Exchange Agent, the holder of
such Certificate shall be entitled to receive in exchange therefor the Merger
Consideration into which the Cornerstone Common Shares theretofore represented
by such Certificate shall have been converted pursuant to Section 1.8(a) and
Section 1.10, together with cash, if any, payable in lieu of fractional shares
pursuant to Section 1.13(g), to be mailed (or made available for collection by
hand if so elected by the surrendering holder) within five business days of
receipt thereof, and the Certificate so surrendered shall forthwith be canceled.
In the event of a transfer of ownership of Cornerstone Common Shares which is
not registered in the transfer records of Cornerstone, payment may be made to a
Person other than the Person in whose name the Certificate so surrendered is
registered if such Certificate shall be properly endorsed or otherwise be in
proper form for transfer and the Person requesting such payment either shall pay
any transfer or other Taxes required by reason of such payment being made to a
Person other than the registered holder of such Certificate or establish to the
satisfaction of Colonial that such Tax or Taxes have been paid or are not
applicable. Until surrendered as contemplated by this Section 1.13, each
Certificate shall be deemed at any time after the Effective Time to represent
only the right to receive upon such surrender the Merger Consideration, without
interest, into which the Cornerstone Common Shares theretofore represented by
such Certificate shall have been converted pursuant to Section 1.8 and Section
1.10, and any cash payable in lieu of fractional shares pursuant to Section
1.13(g). No interest will be paid or will accrue on the Merger Consideration
upon the surrender of any Certificate or on any cash payable pursuant to Section
1.13(d) or Section 1.13(g). Colonial or the Exchange Agent, as applicable, shall
be entitled, in its sole and absolute discretion, to deduct and withhold from
the cash, Colonial Common Shares or Colonial Series E Preferred Depositary
Shares, or any combination thereof, that otherwise is payable pursuant to this
Agreement to any holder of Cornerstone Common Shares such amounts as Colonial or
the Exchange Agent is required to deduct and withhold with respect to the making
of such payment under the Code or under any provision of federal, state, local
or foreign Tax law. For this purpose, (x) any Colonial Common Shares deducted
and withheld by Colonial shall be valued at the last trading price of the
Colonial Common Shares on the NYSE on the Effective Date of the Merger and (y)
any Colonial Series E Preferred Depositary Shares deducted and withheld by
Colonial shall be valued at $25.00 (i.e., 1/100th of the liquidation preference
of a Colonial Series E Preferred Share). To the extent that amounts are so
withheld by Colonial or the Exchange Agent, such withheld amounts shall be
treated for all purposes of this Agreement as having been paid to the holder of
Cornerstone Common Shares in respect of which such deduction and withholding was
made by Colonial or the Exchange Agent.
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(d) Record Dates for Final Dividends; Distributions with
Respect to Unexchanged Shares.
(i) If and to the extent necessary for Cornerstone to
satisfy the requirements of Section 857(a)(1) of the Code for the taxable year
of Cornerstone ending at the Effective Time of the Merger (and to avoid the
payment of any Tax with respect to undistributed income or gain), Cornerstone
shall declare a dividend (the "Final Cornerstone Dividend") to holders of
Cornerstone Common Shares, the record date for which shall be the close of
business no later than the sixth business day prior to the Effective Time of the
Merger, in an amount equal to the minimum dividend sufficient to permit
Cornerstone to satisfy such requirements. Any dividends payable hereunder to
holders of Cornerstone Common Shares shall be paid on the third business day
immediately preceding the Closing Date. The Final Cornerstone Dividend shall not
include any dividend or distribution in satisfaction of the Dividend Deficiency
Amount (as defined herein). In the event that any prior or contemporaneous
dividends or distributions of Cornerstone are or have been treated as being in
satisfaction of the Dividend Deficiency Amount and Cornerstone would be required
to pay a Final Cornerstone Dividend, then an amount equal to the lesser of such
Final Cornerstone Dividend or the amount of prior or contemporaneous
distributions of Cornerstone that are or have been treated as being in
satisfaction of the Dividend Deficiency Amount shall be treated as a Closing
Deficiency Dividend Amount and not a Final Cornerstone Dividend. In the event
that Cornerstone is required to declare a Final Cornerstone Dividend with
respect to the Cornerstone Common Shares, Cornerstone shall cause Cornerstone NC
Operating Limited Partnership, a Virginia limited partnership ("Cornerstone
Partnership"), to simultaneously declare any related distribution (the "Final
Cornerstone Partnership Distribution") required under the Agreement of Limited
Partnership of Cornerstone Partnership, as amended (the "Cornerstone Partnership
Agreement"), the record date for which shall correspond to the record date for
the Final Cornerstone Dividend. Such distribution shall be payable on the third
business day immediately preceding the Closing Date.
(ii) If Cornerstone determines that it is necessary to
declare the Final Cornerstone Dividend, Cornerstone shall notify Colonial at
least 20 days prior to the date for the Cornerstone Shareholders Meeting, and
Colonial shall be entitled to declare a dividend per share payable to holders of
shares of Colonial Common Shares (in which event Colonial shall cause Colonial
Partnership to declare a distribution per unit payable to holders of Colonial OP
Units (as defined herein) if a distribution has been declared on the Colonial
Common Shares), the record dates for which shall correspond to the record date
for the Final Cornerstone Dividend, in an amount per Colonial Common Share (and
Colonial OP Unit) equal to the quotient obtained by dividing (A) the Final
Cornerstone Dividend paid by Cornerstone with respect to each Cornerstone Common
Share by (B) the Common Share Conversion Rate (the "Corresponding Colonial
Dividends and Distributions"). If, and to the extent, the terms of any series of
Colonial Preferred Shares (as defined herein) or Colonial Preferred OP Units (as
defined herein) require the payment of a dividend or distribution by reason of
the payment of the Corresponding Colonial Dividends and Distributions, Colonial
shall (and shall cause Colonial Partnership to) declare and pay any such
required dividends and distributions. Any dividends payable hereunder to holders
of Colonial Common Shares (and Colonial OP Units) shall be paid on the third
business day immediately preceding the Closing Date.
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(e) No Further Ownership Rights in Cornerstone Common Shares.
All Merger Consideration paid upon the surrender of Certificates in accordance
with the terms of this Section 1.13 (including any cash paid pursuant to Section
1.13(g)) shall be deemed to have been paid in full satisfaction of all rights
pertaining to the Cornerstone Common Shares theretofore represented by such
Certificates; provided, however, that Cornerstone shall transfer to the Exchange
Agent cash sufficient to pay any dividends or make any other distributions with
a record date prior to the Effective Time which may have been declared or made
by Cornerstone on such Cornerstone Common Shares in accordance with the terms of
this Agreement or prior to the date of this Agreement and which remain unpaid at
the Effective Time and have not been paid prior to such surrender, and there
shall be no further registration of transfers on the stock transfer books of
Cornerstone of the Cornerstone Common Shares which were outstanding immediately
prior to the Effective Time. If, after the Effective Time, Certificates are
presented to Colonial for any reason, they shall be canceled and exchanged as
provided in this Section 1.13.
(f) No Liability. None of Cornerstone, Colonial, Colonial
Merger Sub or the Exchange Agent shall be liable to any Person in respect of any
Merger Consideration or dividends delivered to a public official pursuant to any
applicable abandoned property, escheat or similar law. Any portion of the
Exchange Fund delivered to the Exchange Agent pursuant to this Agreement that
remains unclaimed for 12 months after the Effective Time shall be redelivered by
the Exchange Agent to Colonial, upon demand, and any holders of Certificates who
have not theretofore complied with Section 1.13(c) shall thereafter look only to
Colonial for delivery of the Merger Consideration, any cash payable in lieu of
fractional shares pursuant to Section 1.13(g) and any unpaid dividends, subject
to applicable escheat and other similar laws.
(g) No Fractional Shares.
(i) No certificates, scrip or Depositary Receipts
representing fractional Colonial Common Shares or Colonial Series E Preferred
Depositary Shares shall be issued upon the surrender for exchange of
Certificates, and such fractional share interests will not entitle the owner
thereof to vote, to receive dividends or to any other rights of a shareholder of
Colonial.
(ii) No fractional Colonial Common Shares or Colonial
Series E Preferred Depositary Shares shall be issued pursuant to this Agreement.
In lieu of the issuance of any fractional Colonial Common Shares pursuant to
this Agreement, each holder of Cornerstone Common Shares shall be paid an amount
in cash (without interest), rounded to the nearest cent (with .5 of a cent
rounded up), determined by multiplying (A) the average closing price of one
Colonial Common Share on the NYSE on the five trading days immediately preceding
the Closing Date by (B) the fraction of a Colonial Common Share which such
holder would otherwise be entitled to receive under this Section 1.13. In lieu
of the issuance of any fractional Colonial Series E Preferred Depositary Shares
pursuant to this Agreement, each holder of Cornerstone Common Shares shall be
paid an amount in cash (without interest), rounded to the nearest cent (with .5
of a cent rounded up), determined by multiplying (A) $25.00 (i.e., 1/100th of
the liquidation preference of a Colonial Series E Preferred Share) by (B) the
fraction of a Colonial Series E Preferred Depositary Share which such holder
would otherwise be entitled to receive under this Section 1.13.
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(h) Lost Certificates. If any Certificate shall have been
lost, stolen or destroyed, upon the making of an affidavit of that fact by the
Person claiming such Certificate to be lost, stolen or destroyed and, if
required by Colonial or the Exchange Agent, the posting by such Person of a bond
in such reasonable amount as Colonial or the Exchange Agent may direct (but
consistent with the practices Colonial applies to its own shareholders) as
indemnity against any claim that may be made against them with respect to such
Certificate, the Exchange Agent will issue in exchange for such lost, stolen or
destroyed Certificate the cash, Colonial Common Shares and/or Colonial Series E
Preferred Depositary Shares to which the holders thereof are entitled pursuant
to Section 1.8, any cash payable pursuant to Section 1.13(g) to which the
holders thereof are entitled and any dividends or other distributions to which
the holders thereof are entitled pursuant to Section 1.13(d).
1.14 Post-Merger Reorganization. No later than one day following the
Closing Date, Colonial shall contribute to Colonial Partnership all of the
outstanding Colonial Merger Sub LLC Units in exchange for additional Colonial OP
Units (such transaction, the "Post-Merger Reorganization"). As a result of the
Post-Merger Reorganization, Colonial Merger Sub shall become a wholly owned
subsidiary of Colonial Partnership.
1.15 Cornerstone LP Acquisition Transaction. Notwithstanding
anything to the contrary contained herein (but subject to the last sentence of
this Section 1.15), Colonial shall be permitted to enter into and consummate, or
cause any Colonial Subsidiary (as defined herein) to enter into and consummate,
any transaction or series of related transactions for the purpose of acquiring
the Cornerstone LP OP Units (as defined herein) from the holders thereof (any
such transaction, a "Cornerstone LP Acquisition Transaction"). If a Cornerstone
LP Acquisition Transaction is to be consummated concurrently with or following
the Closing Date, the terms and conditions (including consideration payable and
structure) of such Cornerstone LP Acquisition Transaction shall be determined by
Colonial in its sole discretion. If a Cornerstone LP Acquisition Transaction is
to be consummated prior to the Closing Date, the terms and conditions (including
consideration payable and structure) of any Cornerstone LP Acquisition
Transaction shall be determined by Colonial, subject to the reasonable approval
of Cornerstone. Cornerstone shall (a) use all reasonable efforts to take, or
cause to be taken, all reasonable actions and do, or cause to be done, all
things reasonably necessary to consummate and make effective any Cornerstone LP
Acquisition Transaction and (b) execute such consents, approvals and other
documents and instruments as shall be necessary under the Cornerstone
Partnership Agreement or otherwise to consummate and make effective any
Cornerstone LP Acquisition Transaction. The entering into or consummation of any
Cornerstone LP Acquisition Transaction, or any related action taken by Colonial,
shall not constitute a circumstance, event, occurrence, change or effect that
would constitute a Cornerstone Material Adverse Effect. Colonial shall not, and
shall not permit any Colonial Subsidiary (as defined herein) to, enter into or
consummate any Cornerstone LP Acquisition Transaction that could cause the
Merger not to qualify, for federal income tax purposes, as a reorganization
under Section 368(a)(1)(A) of the Code.
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ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF CORNERSTONE
Except as specifically set forth in the disclosure letter to this
Agreement delivered to Colonial prior to the execution hereof (the "Cornerstone
Disclosure Letter") (each section of which qualifies the correspondingly
numbered representation and warranty or covenant to the extent specified
therein, provided that any disclosure set forth with respect to any particular
section shall be deemed to be disclosed in reference to all other applicable
sections of this Agreement if the disclosure in respect of the particular
section is sufficient on its face without further inquiry reasonably to inform
the other parties to this Agreement of the information required to be disclosed
in respect of the other sections to avoid a breach under the representation and
warranty or covenant corresponding to such other sections), Cornerstone
represents and warrants to Colonial and Colonial Merger Sub as follows:
2.1 Organization, Standing and Power. Cornerstone is a corporation
duly incorporated, validly existing and in good standing under the laws of
Virginia. Cornerstone has all requisite corporate power and authority to own,
operate, lease and encumber its properties and carry on its business as now
being conducted. The Amended and Restated Articles of Incorporation, as amended
and supplemented, of Cornerstone (the "Cornerstone Articles") are in effect, and
no dissolution, revocation or forfeiture proceedings regarding Cornerstone have
been commenced. Cornerstone is duly qualified or licensed to do business as a
foreign corporation and is in good standing in each jurisdiction in which the
nature of its business or the ownership or leasing of its properties makes such
qualification or licensing necessary, other than in such jurisdictions where the
failure to be so qualified or licensed, individually or in the aggregate, would
not reasonably be expected to have a Cornerstone Material Adverse Effect (as
defined herein). As used in this Agreement, a "Cornerstone Material Adverse
Effect" means any circumstance, event, occurrence, change or effect that is
materially adverse to the business, properties, assets (tangible or intangible),
financial condition or results of operations of Cornerstone, Cornerstone
Partnership and the Cornerstone Subsidiaries (as defined herein), taken as a
whole, other than effects, events or changes arising out of or resulting from
(a) changes in conditions in the United States or global economy or capital or
financial markets generally, including changes in interest or exchange rates,
(b) changes in general legal, regulatory, political, economic or business
conditions or changes in GAAP (as defined herein) that, in each case, generally
affect the real estate industry and that do not affect Cornerstone, Cornerstone
Partnership or the Cornerstone Subsidiaries materially disproportionately
relative to other participants in the real estate industry or (c) the
negotiation, execution, announcement or performance of this Agreement or the
consummation of the transactions contemplated by this Agreement. Cornerstone has
delivered to Colonial complete and correct copies of the Cornerstone Articles
and the Bylaws of Cornerstone (the "Cornerstone Bylaws"), in each case, as
amended or supplemented to the date of this Agreement.
2.2 Cornerstone Subsidiaries.
(a) Schedule 2.2(a) to the Cornerstone Disclosure Letter sets
forth (i) each Subsidiary (as defined herein) of Cornerstone (the "Cornerstone
Subsidiaries") and each
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other Person in which Cornerstone owns, directly or indirectly through a
Cornerstone Subsidiary, 10% or more of the capital stock, voting securities or
other equity interests, (ii) the ownership interest therein of Cornerstone,
(iii) if not directly or indirectly wholly owned by Cornerstone, the identity
and ownership interest of each of the other owners of each Cornerstone
Subsidiary, (iv) each property owned by such Cornerstone Subsidiary and such
other Person and each other asset material to such Cornerstone Subsidiary or
such other Person, and (v) if not wholly owned by such Cornerstone Subsidiary or
such other Person, the identity and ownership interest of each of the other
owners of such property. As used in this Agreement, "Subsidiary" of any Person
(as defined herein) means any corporation, partnership, limited liability
company, joint venture, trust or other legal entity of which such Person owns
(either directly or through or together with another Subsidiary of such Person)
either (i) a general partner, managing member or other similar interest, or (ii)
50% (or in the case of Section 2.14(b) and Section 3.12(b), 10%) or more of the
capital stock or other equity interests of such corporation, partnership,
limited liability company, joint venture or other legal entity. As used herein,
"Person" means an individual, corporation, partnership, limited liability
company, joint venture, association, trust, unincorporated organization or other
entity. Schedule 2.2(a) of the Cornerstone Disclosure Letter sets forth a true
and complete list of the equity securities owned by Cornerstone or any
Cornerstone Subsidiary, in any corporation, partnership, limited liability
company, joint venture, trust or other legal entity that is not a Cornerstone
Subsidiary.
(b) Except as set forth in Schedule 2.2(b) to the Cornerstone
Disclosure Letter, (i) all of the outstanding shares of capital stock of each
Cornerstone Subsidiary that is a corporation have been duly authorized, validly
issued and are (A) fully paid and nonassessable and not subject to preemptive or
similar rights, and (B) in the case of capital stock owned by Cornerstone or a
Cornerstone Subsidiary, owned free and clear of all pledges, claims, liens,
charges, encumbrances and security interests of any kind or nature whatsoever
(collectively, "Liens") and (ii) all equity interests in each Cornerstone
Subsidiary that is a partnership, joint venture, limited liability company or
trust which are owned by Cornerstone or a Cornerstone Subsidiary are owned free
and clear of all Liens other than pledges, if any, contained in organizational
documents of such Cornerstone Subsidiary and given to secure performance
thereunder. Each Cornerstone Subsidiary that is a corporation is duly
incorporated, validly existing and in good standing under the laws of its
jurisdiction of incorporation and has the requisite corporate power and
authority to own, operate, lease and encumber its properties and carry on its
business as now being conducted, and each Cornerstone Subsidiary that is a
partnership, limited liability company or trust is duly organized, validly
existing and in good standing under the laws of its jurisdiction of organization
and has the requisite power and authority to own, operate, lease and encumber
its properties and carry on its business as now being conducted. Each
Cornerstone Subsidiary is duly qualified or licensed to do business and is in
good standing in each jurisdiction in which the nature of its business or the
ownership or leasing of its properties makes such qualification or licensing
necessary, other than in such jurisdictions where the failure to be so qualified
or licensed, individually or in the aggregate, would not reasonably be expected
to have a Cornerstone Material Adverse Effect. Complete and correct copies of
the articles of incorporation, bylaws, organization documents and partnership,
joint venture and operating agreements of each Cornerstone Subsidiary, as
amended to the date
14
of this Agreement, have been previously delivered or made available to Colonial.
No amendment has been made to the Cornerstone Partnership Agreement since March
11, 2004.
2.3 Capital Structure.
(a) The authorized shares of capital stock of Cornerstone on
the date hereof consist of 125,000,000 shares of capital stock, of which
100,000,000 are classified as Common Shares (previously defined herein as
"Cornerstone Common Shares"), and 25,000,000 are classified as preferred shares,
without par value (the "Cornerstone Preferred Shares"). 12,700,000 of the
Cornerstone Preferred Shares have been designated as Series A Convertible
Preferred Shares ("Cornerstone Series A Preferred Shares") and 607,000 of the
Cornerstone Preferred Shares have been designated as Series B Convertible
Preferred Shares ("Cornerstone Series B Preferred Shares"). 56,323,817.1326
Cornerstone Common Shares are issued and outstanding on the date of this
Agreement. 127,380 Cornerstone Series A Preferred Shares are issued and
outstanding on the date of this Agreement. No Cornerstone Series B Preferred
Shares or other Cornerstone Preferred Shares are issued and outstanding on the
date of this Agreement.
(b) Set forth in Schedule 2.3(b) to the Cornerstone Disclosure
Letter is a true and complete list of the following: (i) each qualified or
nonqualified option to purchase Cornerstone Common Shares or Cornerstone OP
Units granted under either Cornerstone's 1992 Non-Employee Directors Stock
Option Plan, as amended, Cornerstone's 1992 Incentive Plan, as amended, or any
other formal or informal arrangement (collectively, the "Cornerstone Stock
Options"); and (ii) except for the Cornerstone Series A Preferred Shares and the
Cornerstone Preferred Units, all other warrants or other rights to acquire
Cornerstone's shares of capital stock, all stock appreciation rights, restricted
stock, dividend equivalents, deferred compensation accounts, performance awards,
restricted stock unit awards and other awards which are outstanding on the date
of this Agreement ("Cornerstone Share Rights"). Schedule 2.3(b) to the
Cornerstone Disclosure Letter sets forth for each Cornerstone Stock Option and
Cornerstone Share Right (other than Cornerstone Preferred Units and Cornerstone
Series A Preferred Shares) the name of the grantee, the date of the grant, the
type of grant, the status of the option grants as qualified or nonqualified
under Section 422 of the Code, the number of Cornerstone Common Shares or other
shares subject to each option or other award, the number and type of shares
subject to options or awards that are currently exercisable, the exercise price
per share, and the number and type of such shares subject to stock appreciation
rights. On the date of this Agreement, except as set forth in this Section 2.3
or as set forth in Schedule 2.3(b) to the Cornerstone Disclosure Letter, no
shares of Cornerstone were outstanding or reserved for issuance (except for the
Cornerstone Common Shares reserved for issuance upon redemption of Cornerstone
Preferred Units or conversion of Cornerstone Series A Preferred Shares).
(c) All outstanding Cornerstone Common Shares are duly
authorized, validly issued, fully paid and nonassessable and not subject to
preemptive or similar rights under applicable law or the Cornerstone Articles or
Cornerstone Bylaws, or any contract or instrument to which Cornerstone is a
party or by which it is bound. There are no bonds, debentures, notes or other
indebtedness of Cornerstone having the right to vote (or convertible into, or
exchangeable or exercisable for, securities having the right to vote) on any
matters on which shareholders of Cornerstone may vote.
15
(d) Except (i) as set forth in this Section 2.3 or in Schedule
2.3(b) to the Cornerstone Disclosure Letter, (ii) Cornerstone Preferred Units,
which may be converted into Cornerstone Common Shares at a rate of one
Cornerstone Common Share for each Cornerstone Preferred Unit or, under the
circumstances described in the Cornerstone Partnership Agreement, into cash or a
combination of cash and Cornerstone Common Shares, (iii) Cornerstone
Non-Preferred Units, which may be exchanged for Cornerstone Preferred Units at a
rate of one Cornerstone Preferred Unit for each Cornerstone Non-Preferred Unit
under the circumstances described in the Cornerstone Partnership Agreement, and
(iv) Cornerstone Common Shares issuable, and reserved for issuance, upon the
conversion of the Cornerstone Series A Preferred Shares, there are no
outstanding securities, options, warrants, calls, rights, commitments,
agreements, arrangements or undertakings of any kind to which Cornerstone or any
Cornerstone Subsidiary is a party or by which such entity is bound, obligating
Cornerstone or any Cornerstone Subsidiary to issue, deliver or sell, or cause to
be issued, delivered or sold, additional shares of capital stock, voting
securities or other ownership interests of Cornerstone or any Cornerstone
Subsidiary or obligating Cornerstone or any Cornerstone Subsidiary to issue,
grant, extend or enter into any such security, option, warrant, call, right,
commitment, agreement, arrangement or undertaking (other than to Cornerstone or
a Cornerstone Subsidiary).
(e) As of the date of this Agreement, 11,189,492 Partnership
Units (as defined in the Cornerstone Partnership Agreement) ("Cornerstone OP
Units"), consisting of 9,362,347 Cornerstone OP Units constituting General
Partner Interests (as defined in the Cornerstone Partnership Agreement)
("Cornerstone GP OP Units"), 1,807,145 Preferred Partnership Units (as defined
in the Cornerstone Partnership Agreement) (the "Cornerstone Preferred Units"),
and 20,000 Non-Preferred Partnership Units (as defined in the Cornerstone
Partnership Agreement) (the "Cornerstone Non-Preferred Units" and, together with
the Cornerstone Preferred Units, the "Cornerstone LP OP Units"), are validly
issued and outstanding, fully paid and nonassessable and not subject to
preemptive or similar rights under law or the Cornerstone Partnership Agreement,
or any contract or instrument to which Cornerstone or Cornerstone Partnership is
a party or by which either is bound. Schedule 2.3(e) to the Cornerstone
Disclosure Letter sets forth the name of each holder of Cornerstone OP Units and
the number and classification of Cornerstone OP Units owned by each such holder
as of the date of this Agreement. Except as provided in the Cornerstone
Partnership Agreement, the Cornerstone OP Units are not subject to any
restrictions. Except as set forth in Schedule 2.3(e) to the Cornerstone
Disclosure Letter, Cornerstone Partnership has not issued or granted and is not
a party to any outstanding commitments of any kind relating to, or any
agreements or understandings with respect to, the issuance or sale of interests
in Cornerstone Partnership, whether issued or unissued, or securities
convertible into or exchangeable or exercisable for interests in Cornerstone
Partnership.
(f) All dividends on Cornerstone Common Shares and Cornerstone
Preferred Shares and all distributions on Cornerstone OP Units, which have been
declared prior to the date of this Agreement, have been paid in full.
(g) Set forth on Schedule 2.3(g) to the Cornerstone Disclosure
Letter is a list of each registration rights agreement or other agreement
between Cornerstone and/or Cornerstone Partnership, on the one hand, and one or
more other parties, on the other hand,
16
which sets forth the rights of any such other party or parties to cause the
registration of any securities of Cornerstone and/or Cornerstone Partnership
pursuant to the Securities Act of 1933, as amended (the "Securities Act").
2.4 Other Interests. Except for interests in the Cornerstone
Subsidiaries and the other entities as set forth in Schedule 2.2(a) or Schedule
2.4 to the Cornerstone Disclosure Letter (the "Cornerstone Other Interests"),
neither Cornerstone nor any Cornerstone Subsidiary owns directly or indirectly
any interest or investment (whether equity or debt) in any corporation,
partnership, joint venture, business, trust, limited liability company or other
entity (other than investments in short-term investment securities). With
respect to the Cornerstone Other Interests, Cornerstone or the applicable
Cornerstone Subsidiary is a partner, member or shareholder in good standing, and
owns such interests free and clear of all Liens. Neither Cornerstone nor any
Cornerstone Subsidiary is in material breach of any agreement, document or
contract which is of a material nature governing its rights in or to the
Cornerstone Other Interests, all of which agreements, documents and contracts
are (a) listed in Schedule 2.4 to the Cornerstone Disclosure Letter, (b)
unmodified except as described therein and (c) in full force and effect. To the
Knowledge of Cornerstone (as defined herein), the other parties to any such
agreement, document or contract which is of a material nature are not in
material breach of any of their respective obligations under such agreements,
documents or contracts.
2.5 Authority; Noncontravention; Consents.
(a) Cornerstone has the requisite corporate power and
authority to enter into this Agreement and, subject to the requisite Cornerstone
shareholder approval of this Agreement and the Merger (the "Cornerstone
Shareholder Approval"), to consummate the transactions contemplated by this
Agreement to which Cornerstone is a party. The execution and delivery of this
Agreement by Cornerstone and the consummation by Cornerstone of the transactions
contemplated by this Agreement to which Cornerstone is a party have been duly
authorized by all necessary action on the part of Cornerstone, except for and
subject to the Cornerstone Shareholder Approval. This Agreement has been duly
executed and delivered by Cornerstone and constitutes a valid and binding
obligation of Cornerstone, enforceable against Cornerstone in accordance with
and subject to its terms, subject to applicable bankruptcy, insolvency,
moratorium or other similar laws relating to creditors' rights and general
principles of equity.
(b) Except as set forth in Schedule 2.5(b)(1) to the
Cornerstone Disclosure Letter, the execution and delivery of this Agreement by
Cornerstone do not, and, subject to receipt of the Cornerstone Shareholder
Approval, the consummation of the transactions contemplated by this Agreement to
which Cornerstone is a party and compliance by Cornerstone with the provisions
of this Agreement will not, conflict with, or result in any violation of, or
default (with or without notice or lapse of time, or both) under, or give rise
to a right of termination, cancellation or acceleration of any material
obligation or to loss of a material benefit under, or result in the creation of
any Lien upon any of the properties or assets of Cornerstone or any Cornerstone
Subsidiary under, (i) the Cornerstone Articles or Cornerstone Bylaws or the
comparable charter or organizational documents or partnership, operating, or
similar agreement (as the case may be) of any Cornerstone Subsidiary, each as
amended or
17
supplemented to the date of this Agreement, (ii) any loan or credit agreement,
note, bond, mortgage, indenture, merger or other acquisition agreement,
shareholder rights plan, reciprocal easement agreement, lease or other
agreement, instrument, permit, concession, franchise or license applicable to
Cornerstone or any Cornerstone Subsidiary or their respective properties or
assets or (iii) subject to the governmental filings and other matters referred
to in the following sentence, any judgment, order, decree, statute, law,
ordinance, rule or regulation (collectively, "Laws") applicable to Cornerstone
or any Cornerstone Subsidiary, or their respective properties or assets, other
than, in the case of clause (ii) or (iii), any such conflicts, violations,
defaults, rights, loss or Liens that individually or in the aggregate would not
reasonably be expected to (x) have a Cornerstone Material Adverse Effect or (y)
prevent or materially impair the ability of Cornerstone or Cornerstone
Partnership to perform any of its obligations hereunder or prevent or materially
threaten or impede the consummation of the transactions contemplated by this
Agreement. No consent, approval, order or authorization of, or registration,
declaration or filing with, any federal, state or local government or any court,
administrative or regulatory agency or commission or other governmental
authority or agency, domestic or foreign (a "Governmental Entity"), is required
by or with respect to Cornerstone or any Cornerstone Subsidiary in connection
with the execution and delivery of this Agreement by Cornerstone and Cornerstone
Partnership or the consummation by Cornerstone or any Cornerstone Subsidiary of
the transactions contemplated by this Agreement, except for (i) the filing with
the Securities and Exchange Commission (the "SEC") of (x) the Joint Proxy
Statement, and (y) such reports and filings under the Securities Act and the
Exchange Act (as defined herein) as may be required in connection with this
Agreement and the transactions contemplated by this Agreement, (ii) the filing
of the Delaware Certificate of Merger with the Delaware Secretary, (iii) the
filing of the Virginia Articles of Merger with the Virginia Commission and (iv)
such other consents, approvals, orders, authorizations, registrations,
declarations and filings (A) as are set forth in Schedule 2.5(b)(2) to the
Cornerstone Disclosure Letter, (B) as may be required under (w) the
Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), (x) laws requiring transfer, recordation or gains tax filings, (y)
federal, state or local environmental laws or (z) the "blue sky" laws of various
states, to the extent applicable, or (C) which, if not obtained or made, would
not prevent or delay in any material respect the consummation of any of the
transactions contemplated by this Agreement or otherwise prevent Cornerstone
from performing its obligations under this Agreement in any material respect or
reasonably be expected to have, individually or in the aggregate, a Cornerstone
Material Adverse Effect.
2.6 SEC Documents; Financial Statements; Undisclosed Liabilities.
Cornerstone has furnished or filed all reports, schedules, forms, statements and
other documents required to be furnished or filed with the SEC since December
31, 1997 through the date of this Agreement (the "Cornerstone SEC Documents").
All of the Cornerstone SEC Documents (other than preliminary material), as of
their respective filing dates, complied in all material respects with all
applicable requirements of the Securities Act and the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and, in each case, the rules and
regulations promulgated thereunder applicable to such Cornerstone SEC Documents.
None of the Cornerstone SEC Documents at the time of filing contained, nor will
any report, schedule, form, statement or other document filed by Cornerstone
after the date hereof and prior to the Effective Time contain, any untrue
statement of a material fact or omitted to state any material fact required to
be stated
18
therein or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. The consolidated
financial statements of Cornerstone included in the Cornerstone SEC Documents
complied, as to form in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC with respect
thereto, have been prepared in accordance with generally accepted accounting
principles ("GAAP") (except, in the case of unaudited statements, as permitted
by the applicable rules and regulations of the SEC) applied on a consistent
basis during the periods involved (except as may be indicated in the notes
thereto) and fairly presented, in all material respects in accordance with the
applicable requirements of GAAP and the applicable rules and regulations of the
SEC, the consolidated financial position of Cornerstone and its Subsidiaries, as
the case may be, in each case, taken as a whole, as of the dates thereof and the
consolidated results of operations and cash flows for the periods then ended
(except, in the case of unaudited statements, as permitted by Form 10-Q under
the Exchange Act). Except as set forth in Schedule 2.6 to the Cornerstone
Disclosure Letter, Cornerstone has no Subsidiaries which are not consolidated
for accounting purposes. Except for liabilities and obligations set forth in the
Cornerstone SEC Documents or in Schedule 2.6 to the Cornerstone Disclosure
Letter, neither Cornerstone nor any Cornerstone Subsidiary has any liabilities
or obligations of any nature (whether accrued, absolute, contingent or
otherwise) required by GAAP to be set forth on a consolidated balance sheet of
Cornerstone or in the notes thereto and which, individually or in the aggregate,
would reasonably be expected to have a Cornerstone Material Adverse Effect.
2.7 Absence of Certain Changes or Events. Except as disclosed in the
Cornerstone SEC Documents or in Schedule 2.7 to the Cornerstone Disclosure
Letter, since December 31, 2003 (the "Cornerstone Financial Statement Date"),
Cornerstone and its Subsidiaries have conducted their business only in the
ordinary course (taking into account prior practices, including the acquisition
and disposition of properties and issuance of securities) and there has not been
(a) any circumstance, event, occurrence, change or effect that has had a
Cornerstone Material Adverse Effect, nor has there been any circumstance, event,
occurrence, change or effect that with the passage of time would reasonably be
expected to result in a Cornerstone Material Adverse Effect, (b) except for
regular quarterly distributions not in excess of $0.20 per Cornerstone Common
Share or Cornerstone OP Unit (subject to changes pursuant to Section 5.10 and to
any Final Cornerstone Dividend payable pursuant to Section 1.13(d)(i)) and
$0.5938 per Cornerstone Series A Preferred Share (or, in each case, with respect
to the period commencing on the date hereof and ending on the Closing Date,
distributions as necessary to maintain REIT (as defined herein) status), in each
case with customary record and payment dates, any authorization, declaration,
setting aside or payment of any dividend or other distribution (whether in cash,
stock or property) with respect to the Cornerstone Common Shares, the
Cornerstone OP Units or the Cornerstone Series A Preferred Shares, (c) any
split, combination or reclassification of, or any issuance or the authorization
of, or any issuance of any other securities in respect of, in lieu of or in
substitution for, or giving the right to acquire by exchange or exercise, shares
of stock of Cornerstone or partnership interests in Cornerstone Partnership or
any issuance of an ownership interest in, any Cornerstone Subsidiary, (d) any
damage, destruction or loss, whether or not covered by insurance, that has had
or would reasonably be expected to have a Cornerstone Material Adverse Effect,
(e) any change made prior to the date of this Agreement in accounting methods,
principles or practices by Cornerstone or any of its
19
Subsidiaries or Cornerstone Partnership or any of its Subsidiaries materially
affecting its assets, liabilities or business, except insofar as may have been
disclosed in Cornerstone SEC Documents or required by a change in GAAP, or (f)
any amendment of any employment, consulting, severance, retention or any other
agreement between Cornerstone or any Cornerstone Subsidiary and any officer or
director of Cornerstone or any Cornerstone Subsidiary.
2.8 Litigation. Except as disclosed in Schedule 2.8 to the
Cornerstone Disclosure Letter, and other than personal injury and other routine
tort litigation arising from the ordinary course of operations of Cornerstone
and the Cornerstone Subsidiaries (a) which are covered by adequate insurance or
(b) for which all material costs and liabilities arising therefrom are
reimbursable pursuant to common area maintenance or similar agreements, there is
no suit, action or proceeding pending (in which service of process has been
received by an employee of Cornerstone or a Cornerstone Subsidiary) or, to the
Knowledge of Cornerstone (as defined herein), threatened in writing against or
affecting Cornerstone or any Cornerstone Subsidiary that, individually or in the
aggregate, would reasonably be expected to (i) have a Cornerstone Material
Adverse Effect or (ii) prevent or materially impair the ability of Cornerstone
to perform any of its obligations hereunder or prevent or materially threaten or
impair the consummation of any of the transactions contemplated by this
Agreement, nor is there any judgment, decree, injunction, rule or order of any
court or Governmental Entity or arbitrator outstanding against Cornerstone or
any Cornerstone Subsidiary having, or which, insofar as reasonably can be
foreseen, in the future would have, any such effect. Notwithstanding the
foregoing, (y) Schedule 2.8 to the Cornerstone Disclosure Letter sets forth each
and every material uninsured claim, equal employment opportunity claim and claim
relating to sexual harassment and/or discrimination pending or, to the Knowledge
of Cornerstone, threatened as of the date hereof, in each case with a brief
summary of such claim or threatened claim, and (z) no claim has been made under
any directors' and officers' liability insurance policy maintained at any time
by Cornerstone or any of the Cornerstone Subsidiaries.
2.9 Properties.
(a) Except as provided in Schedule 2.2 or Schedule 2.9(a) to
the Cornerstone Disclosure Letter, Cornerstone or the Cornerstone Subsidiary set
forth on Schedule 2.2 to the Cornerstone Disclosure Letter owns fee simple title
to each of the real properties identified in Schedule 2.2 to the Cornerstone
Disclosure Letter (the "Cornerstone Properties"), which are all of the real
estate properties owned or leased by them, in each case (except for the
Permitted Title Exceptions (as defined herein)) free and clear of liens,
mortgages or deeds of trust, claims against title, charges which are liens,
security interests or other encumbrances on title ("Encumbrances"). Except as
set forth in Schedule 2.2 to the Cornerstone Disclosure Letter, no other Person
has any ownership interest in any of the Cornerstone Properties and any such
ownership interest so scheduled does not materially detract from the value of
Cornerstone's or the Cornerstone Subsidiary's (as the case may be) interest in,
or materially interfere with the present use of, any of the Cornerstone
Properties subject thereto or affected thereby. Except as set forth in Schedule
2.9(a) to the Cornerstone Disclosure Letter, no Cornerstone Property is subject
to any restriction on the sale or other disposition thereof or on the financing
or release of financing thereon. No Cornerstone Property is subject to any
rights of way, agreements, laws, ordinances and regulations affecting building
use or occupancy, or
20
reservations of an interest in title (collectively, "Property Restrictions") or
Encumbrances, except for the following (collectively, the "Permitted Title
Exceptions") (i) Property Restrictions and Encumbrances set forth in Schedule
2.9(a) of the Cornerstone Disclosure Letter, (ii) Property Restrictions imposed
or promulgated by law or any governmental body or authority with respect to real
property, including zoning regulations, which do not materially adversely affect
the current use of such Cornerstone Property, (iii) Property Restrictions and
Encumbrances disclosed on existing title reports or policies or existing
surveys, in each case as previously made available to Colonial, or subsequently
granted by Cornerstone or the applicable Cornerstone Subsidiary (which
subsequently granted Property Restrictions and Encumbrances, in any event, do
not materially detract from the value of, or materially interfere with the
present use of, such Cornerstone Property) and (iv) liens for real estate taxes
not yet due and payable, mechanics', carriers', workmen's, repairmen's liens and
other Encumbrances and Property Restrictions, if any, which, individually or in
the aggregate, do not materially detract from the value of or materially
interfere with the present use of such Cornerstone Property. With respect to the
existing title reports or policies or existing surveys previously provided to
Colonial, there has been no material change with respect to any Cornerstone
Property that would affect title or survey matters from the date of the
information provided to the date hereof. Schedule 2.9(a) to the Cornerstone
Disclosure Letter lists each of the Cornerstone Properties which are under
development as of the date of this Agreement and describes the status of such
development as of the date hereof.
(b) Except as provided in Schedule 2.2 or Schedule 2.9(b) to
the Cornerstone Disclosure Letter, valid policies of title insurance have been
issued insuring Cornerstone's or the applicable Cornerstone Subsidiary's fee
simple title or leasehold estate, as the case may be, to the Cornerstone
Properties owned by it in amounts which are at least equal to the purchase price
therefor paid by Cornerstone or such Cornerstone Subsidiary, subject only to the
Permitted Title Exceptions. Such policies are, at the date hereof, in full force
and effect and no material claim has been made against any such policy.
(c) Except as provided in Schedule 2.9(c) to the Cornerstone
Disclosure Letter, Cornerstone has no Knowledge (i) that, any certificate,
permit or license from any governmental authority having jurisdiction over any
of the Cornerstone Properties or any agreement, easement or other right which is
necessary to permit the lawful use and operation of the buildings and
improvements on any of the Cornerstone Properties or which is necessary to
permit the lawful use and operation of all driveways, roads and other means of
egress and ingress to and from any of the Cornerstone Properties has not been
obtained and is not in full force and effect, or of any pending threat of
modification or cancellation of any of the same, which would have a material
adverse effect on such Cornerstone Property, (ii) of any written notice of any
violation of any federal, state or municipal law, ordinance, order, regulation
or requirement affecting any of the Cornerstone Properties issued by any
governmental authority which would have a material adverse effect on such
Cornerstone Property, (iii) of any existing structural defects relating to any
Cornerstone Property which would have a material adverse effect on such
Cornerstone Property, (iv) of any Cornerstone Property whose building systems
are not in working order so as to have a material adverse effect on such
Cornerstone Property, or (v) of any physical damage to any Cornerstone Property
which would have a material adverse effect on
21
such Cornerstone Property for which there is not insurance in effect covering
the cost of the restoration and the loss of rent.
(d) To the Knowledge of Cornerstone, there is no (and neither
Cornerstone nor any of the Cornerstone Subsidiaries has received any written or
published notice of) (i) any condemnation or rezoning proceedings pending or
threatened with respect to any of the Cornerstone Properties or (ii) any zoning,
building or similar law, code, ordinance, order or regulation that is or will be
violated by the continued maintenance, operation or use of any buildings or
other improvements on any of the Cornerstone Properties or by the continued
maintenance, operation or use of the parking areas which would have a material
adverse effect on such Cornerstone Property. Except as set forth in Schedule
2.9(d) to the Cornerstone Disclosure Letter, (i) to the Knowledge of
Cornerstone, all work required to be performed, payments required to be made and
actions required to be taken prior to the date hereof pursuant to any agreement
entered into with a governmental body or authority in connection with a site
approval, zoning reclassification or other similar action relating to any
Cornerstone Properties (e.g., Local Improvement District, Road Improvement
District, Environmental Mitigation (as defined herein)) has been performed, paid
or taken, as the case may be, and (ii) Cornerstone has no Knowledge of any
planned or proposed work, payments or actions that may be required after the
date hereof pursuant to such agreements, in each case except as set forth in
development or operating budgets for such Cornerstone Properties delivered to
Colonial and Colonial Partnership prior to the date hereof and other than any
work, payments or actions which would not reasonably be expected to have a
Cornerstone Material Adverse Effect. As used in this Agreement, "Environmental
Mitigation" means investigation, clean-up, removal action, remedial action,
restoration, repair, response action, corrective action, monitoring, sampling
and analysis, installation, reclamation, closure or post-closure in response to
any Release or actual or suspected environmental condition or Hazardous
Materials.
(e) The rent rolls previously provided by Cornerstone to
Colonial (the "Cornerstone Rent Roll") set forth a list of each Cornerstone
Space Lease (as defined herein) in effect as of the dates set forth therein. All
information set forth in the Cornerstone Rent Roll is true, correct and complete
with respect to each Cornerstone Property in all material respects as of the
date thereof. "Cornerstone Space Lease" means each lease or other right of
occupancy affecting or relating to a property in which Cornerstone or any
Cornerstone Subsidiary is the landlord, either pursuant to the terms of the
lease agreement or as successor to any prior landlord, but excluding any ground
lease. Except as set forth in a delinquency report made available to Colonial,
neither Cornerstone nor any Cornerstone Subsidiary, on the one hand, nor, to the
knowledge of Cornerstone or Cornerstone Partnership, any other party, on the
other hand, is in monetary default under any Cornerstone Space Lease as of the
date of delinquency report, except for such defaults that would not reasonably
be expected to materially adversely affect the applicable Cornerstone Property.
(f) Schedule 2.9(f) contains a true and complete list, by type
of insurance, carrier, coverages (including limits) and term, of all material
policies of casualty, liability and other types of insurance (except title
insurance) carried by Cornerstone or any Cornerstone Subsidiary. All such
policies are in full force and effect and neither Cornerstone nor any
Cornerstone Subsidiary has received from any insurance company notice of any
material
22
defects or deficiencies affecting the insurability of Cornerstone or any
Cornerstone Subsidiary or any of their respective assets thereunder.
2.10 Environmental Matters.
(a) "Environmental Law" shall mean all applicable Laws relating to
the environment, and including, without limitation, Laws relating to the use,
manufacturing, production, generation, installation, recycling, reuse, sale,
storage, handling, transport, treatment, release, threatened release or disposal
of any Hazardous Materials (including the Comprehensive Environmental Response,
Compensation, and Liability Act, as amended, 42 U.S.C. Sections 9601 et seq.
("CERCLA")). "Hazardous Materials" shall mean substances, wastes, radiation or
materials (whether solids, liquids or gases) (i) which are hazardous, toxic,
infectious, explosive, radioactive, carcinogenic, or mutagenic, (ii) which are
listed, regulated or defined under any Environmental Law, and shall include
"hazardous wastes," "hazardous substances," "hazardous materials," "pollutants,"
"contaminants," "chemical substances," "radioactive materials" or "solid
wastes," (iii) the presence of which on the property cause or threaten to cause
a nuisance pursuant to applicable statutory or common law upon the property or
to adjacent properties, (iv) which contain without limitation polychlorinated
biphenyls (PCBs), toxic mold, asbestos or asbestos-containing materials,
lead-based paints, urea-formaldehyde foam insulation, or petroleum or petroleum
products (including, without limitation, crude oil or any fraction thereof) or
(v) which pose a hazard to human health, safety, natural resources, industrial
hygiene, or the environment, or an impediment to working conditions. "Release"
shall mean any emission, spill, seepage, leak, escape, leaching, discharge,
injection, pumping, pouring, emptying, dumping, disposal, migration, or release
of Hazardous Materials into or upon the environment, including the air, soil,
improvements, surface water, groundwater, the sewer, septic system, storm drain,
publicly owned treatment works, or waste treatment, storage, or disposal
systems.
(b) (i) Except as set forth on Schedule 2.10(b) to the
Cornerstone Disclosure Letter, there have been no Releases of Hazardous
Materials (and, to the Knowledge of Cornerstone, there has been no presence of
Hazardous Materials) at, on, under or from (A) any real property owned, operated
or leased by Cornerstone or any Cornerstone Subsidiary or (B) any real property
formerly owned, operated or leased by Cornerstone or any Cornerstone Subsidiary
(the "Former Cornerstone Properties") during the period of such ownership,
operation or tenancy which would, individually or in the aggregate, reasonably
be expected to have a Cornerstone Material Adverse Effect.
(ii) Cornerstone and the Cornerstone Subsidiaries have
not failed to comply with any Environmental Law, and neither Cornerstone nor any
of the Cornerstone Subsidiaries has any liability under the Environmental Laws,
except to the extent that any such failure to comply or any such liability,
individually or in the aggregate, would not reasonably be expected to have a
Cornerstone Material Adverse Effect.
(iii) Cornerstone and the Cornerstone Subsidiaries have
been duly issued and maintain all permits, licenses, certificates and approvals
required under any Environmental Law (collectively, the "Environmental Permits")
necessary to operate their businesses as currently operated except where the
failure to obtain and maintain such
23
Environmental Permits would not, individually or in the aggregate, reasonably be
expected to have a Cornerstone Material Adverse Effect. Cornerstone and the
Cornerstone Subsidiaries have timely filed applications for all Environmental
Permits except where the failure to so timely file such applications would not,
individually or in the aggregate, reasonably be expected to have a Cornerstone
Material Adverse Effect. All of the Environmental Permits maintained by
Cornerstone and the Cornerstone Subsidiaries are listed on Schedule 2.10.
(iv) Cornerstone and the Cornerstone Subsidiaries have
not arranged, by contract, agreement, or otherwise, for the transportation,
disposal or treatment of Hazardous Materials at any location such that they are
or could be liable for Environmental Mitigation of such location pursuant to
Environmental Laws, except as would not, individually or in the aggregate,
reasonably be expected to have a Cornerstone Material Adverse Effect.
(v) There are no facts, circumstances or conditions
existing, initiated or occurring prior to the Effective Time, which will result
in liability under Environmental Laws to Cornerstone or the Cornerstone
Subsidiaries, except as would not, individually or in the aggregate, reasonably
be expected to have a Cornerstone Material Adverse Effect.
(vi) Except as set forth on Schedule 2.10 to the
Cornerstone Disclosure Letter, neither Cornerstone, nor any Cornerstone
Subsidiary has installed any underground storage tanks or associated piping used
currently or in the past for the management of Hazardous Materials on any real
property owned, operated or leased by Cornerstone or any Cornerstone
Subsidiaries, and to the Knowledge of Cornerstone, no such underground storage
tanks are located on any real property owned, operated or leased by Cornerstone
or any Cornerstone Subsidiary. Except as set forth on Schedule 2.10 to the
Cornerstone Disclosure Letter, to the Knowledge of Cornerstone, neither
Cornerstone, nor any Cornerstone Subsidiary is using or has used any real
property owned, operated or leased by Cornerstone or any Cornerstone Subsidiary
as a dump or landfill nor does any real property owned, operated or leased by
Cornerstone or any Cornerstone Subsidiary consist of or contain filled in land,
wetlands, asbestos-containing materials, PCBs or toxic mold.
(c) Cornerstone has previously delivered or made available to
Colonial complete copies of all material information, documents and reports,
including, without limitation, environmental investigations and testing or
analysis, which relate to compliance with Environmental Laws by Cornerstone and
the Cornerstone Subsidiaries or to the past or current environmental condition
of any of the real property owned, operated or leased by Cornerstone or any
Cornerstone Subsidiary or Former Cornerstone Properties that are in the
possession or control of any of Cornerstone and the Cornerstone Subsidiaries.
2.11 Related Party Transactions. Set forth in Schedule 2.11 to the
Cornerstone Disclosure Letter or in the Cornerstone SEC Documents is a list of
all arrangements, agreements and contracts entered into by Cornerstone or any
Cornerstone Subsidiary which are in effect and which are with (a) any investment
banker or financial advisor or (b) any Person who is an officer, director or
Affiliate (as defined herein) of Cornerstone or any Cornerstone Subsidiary, any
relative of any of the foregoing or any entity of which any of the foregoing is
an Affiliate and, in
24
the case of arrangements, agreement and contracts referred to in this clause
(b), are required to be described in Item 404 of Regulation S-K under the
Securities Act. Such documents, copies of all of which have previously been
delivered or made available to Colonial, are listed in Schedule 2.11 to the
Cornerstone Disclosure Letter. As used in this Agreement, the term "Affiliate"
shall have the same meaning as such term is defined in Rule 405 promulgated
under the Securities Act.
2.12 Employee Benefits. As used herein, the term "Employee Plan"
includes any pension, retirement, savings, disability, medical, dental, health,
fringe benefit, life, death benefit, group insurance, profit sharing, deferred
compensation, stock option, bonus, incentive, vacation pay, tuition
reimbursement, severance pay, or other employee benefit plan, trust, agreement,
contract, agreement, policy or commitment (including, without limitation, any
pension plan, as defined in Section 3(2) of the Employee Retirement Income
Security Act of 1974, as amended, and the rules and regulations promulgated
thereunder ("ERISA") ("Pension Plan"), and any welfare plan as defined in
Section 3(1) of ERISA ("Welfare Plan")), whether any of the foregoing is funded,
insured or self-funded, written or oral, (i) sponsored or maintained by
Cornerstone or any entity that, together with Cornerstone, is required to be
treated as a single employer under Section 414(b), (c), (m) or (o) of the Code
(each, a "Controlled Group Member") and covering any Controlled Group Member's
active or former employees (or their beneficiaries), (ii) to which any
Controlled Group Member is a party or by which any Controlled Group Member (or
any of the rights, properties or assets thereof) is bound or (iii) with respect
to which any current Controlled Group Member may otherwise have any material
liability (whether or not such Controlled Group Member still maintains such
Employee Plan). Each Employee Plan is listed on Schedule 2.12 to the Cornerstone
Disclosure Letter. Except as disclosed in Schedule 2.12 to the Cornerstone
Disclosure Letter, with respect to the Employee Plans:
(a) No Controlled Group Member has any continuing liability
under any Welfare Plan which provides for continuing benefits or coverage for
any participant or any beneficiary of a participant after such participant's
termination of employment, except as may be required by Section 4980B of the
Code or Section 601 (et seq.) of ERISA, or under any applicable state law, and
at the expense of the participant or the beneficiary of the participant.
(b) Each Employee Plan complies in all material respects with
the applicable requirements of ERISA, the Code and any other applicable law
governing such Employee Plan, and, to the Knowledge of Cornerstone, each
Employee Plan has at all times been properly administered in all material
respects in accordance with all such requirements of law, and in accordance with
its terms and the terms of any applicable collective bargaining agreement to the
extent consistent with all such requirements of law. Each Pension Plan which is
intended to be qualified is qualified under Section 401(a) of the Code, has
received a favorable determination letter from the IRS stating that such plan
meets the requirements of Section 401(a) of the Code and, to the Knowledge of
Cornerstone, no event has occurred which would jeopardize the qualified status
of any such plan or the tax exempt status of any such trust under Section 401(a)
and Section 501(a) of the Code, respectively. No lawsuits, claims (other than
routine claims for benefits) or complaints to, or by, any Person or Governmental
Entity have been filed, are pending or, to the Knowledge of Cornerstone,
threatened with respect to any Employee Plan and, to the Knowledge of
Cornerstone, there is no fact or contemplated event which would
25
be expected to give rise to any such lawsuit, claim (other than routine claims
for benefits) or complaint with respect to any Employee Plan. Without limiting
the foregoing, the following are true with respect to each Employee Plan:
(i) all Controlled Group Members have complied in all
material respects with the applicable reporting and disclosure
requirements of ERISA, the Code, or both, with respect to each
Employee Plan and no Controlled Group Member has incurred any
material liability in connection with such reporting or disclosure;
(ii) all contributions and payments with respect to
Employee Plans that are required to be made by a Controlled Group
Member with respect to periods ending on or before the Closing Date
(including periods from the first day of the current plan or policy
year to the Closing Date) have been, or will be, made or accrued
before the Closing Date in accordance with the appropriate plan
document, actuarial report, collective bargaining agreements or
insurance contracts or arrangements or as otherwise required by
ERISA or the Code; and
(iii) with respect to each such Employee Plan, to the
extent applicable, Cornerstone has delivered to or has made
available to Colonial true and complete copies of (A) current plan
documents and any amendments thereto, or any and all other documents
that establish the existence of the plan, trust, arrangement,
contract, policy or commitment and all amendments thereto, (B) the
most recent summary plan description and the subsequent summaries of
material modifications, (C) all rulings, opinions or advice issued
by the U.S. Department of Labor, the IRS or the Pension Benefit
Guaranty Corporation, (D) the most recent determination letter, if
any, received from the IRS, (E) the three most recent Form 5500
Annual Reports (and all schedules and reports relating thereto) and
actuarial reports and (F) all related trust agreements, insurance
contracts or other funding agreements that implement each such
Employee Plan.
(c) With respect to each Employee Plan, to the Knowledge of
Cornerstone, there has not occurred, and no Person is contractually bound to
enter into, (i) any "prohibited transaction" within the meaning of Section
4975(c) of the Code or Section 406 of ERISA, which transaction is not exempt
under Section 4975(d) of the Code or Section 408 of ERISA or (ii) any breach of
responsibilities or obligations imposed upon fiduciaries under Title I of ERISA
and which in the case of either (i) or (ii) could subject Cornerstone or any
Controlled Group Member to material liability.
(d) No Controlled Group Member has ever maintained or
participated in been otherwise obligated to contribute to (i) any Employee Plan
subject to Code Section 412 or Title IV of ERISA or (ii) any "multiemployer
plan", as such term is defined in ERISA Section 3(37). No Employee Plan subject
to Code Section 412 or Title IV of ERISA has been terminated.
26
(e) With respect to each Pension Plan maintained by any
Controlled Group Member, such plan provides the plan sponsor the authority to
amend or terminate the Plan at any time, subject to applicable requirements of
ERISA and the Code.
(f) No Employee Plan is (i) an "employee stock ownership
plan", as defined by Code Section 4975(e)(7), or otherwise invests in employer
securities, as defined by Code Section 409(l) or (ii) a "voluntary employees'
beneficiary association", as defined by Code Section 501(c)(9).
(g) Except as set forth on Schedule 2.12(g) to the Cornerstone
Disclosure Letter, the consummation of the transaction contemplated by this
Agreement will not (i) result in any material payment becoming due pursuant to
an Employee Plan to any current or former employee or other service provider of
any Controlled Group Member or (ii) accelerate the vesting or timing of the
payment of material benefits or compensation payable pursuant to any Employee
Plan to any current or former employee or other service provider of any
Controlled Group Member.
(h) Except as set forth on Schedule 2.12(h) to the Cornerstone
Disclosure Letter, no amount required to be paid or payable to or with respect
to any employee or other service provider of any Controlled Group Member in
connection with the transaction contemplated by this Agreement will be an
"excess parachute payment" as defined by Code Section 280G.
2.13 Employee Policies. The employee handbooks of Cornerstone and
the Cornerstone Subsidiaries currently in effect have been delivered to Colonial
and fairly and accurately summarize in all material respects the employee
policies, vacation policies and payroll policies.
2.14 Taxes.
(a) Each of Cornerstone and the Cornerstone Subsidiaries (i)
has filed all Tax returns and reports required to be filed by it (after giving
effect to any filing extension properly granted by a Governmental Entity having
authority to do so) and all such returns and reports are accurate and complete
in all material respects, (ii) has paid (or Cornerstone has paid on its behalf)
all Taxes (as defined herein) shown on such returns and reports as required to
be paid by it, and (iii) has complied in all material respects with all
applicable laws, rules and regulations relating to the payment and withholding
of Taxes (including, without limitation, withholding of Taxes pursuant to
Sections 1441, 1442, 1445, 1446, 3121, 3402 and 3406 of the Code) and has,
within the time period prescribed by law, withheld and paid over to the proper
governmental entities all amounts required to be so withheld and paid over under
applicable laws and regulations, except, with respect to all of the foregoing,
where the failure to file such tax returns and reports or failure to pay such
Taxes or failure to comply with such withholding requirements would not
reasonably be expected to have a Cornerstone Material Adverse Effect. The most
recent audited financial statements contained in the Cornerstone SEC Documents
reflect an adequate reserve for all material Taxes payable by Cornerstone and
the Cornerstone Subsidiaries for all taxable periods and portions thereof
through the date of such financial
27
statements. Since the Cornerstone Financial Statement Date, Cornerstone has
incurred no liability for Taxes under Sections 857(b), 860(c) or 4981 of the
Code, including without limitation any Tax arising from a prohibited transaction
described in Section 857(b)(6) of the Code, and neither Cornerstone nor any
Cornerstone Subsidiary has incurred any material liability for Taxes other than
in the ordinary course of business. No event has occurred, and no condition or
circumstance exists, which presents a material risk that any material Tax
described in the preceding sentences will be imposed upon Cornerstone or any
Cornerstone Subsidiary. Neither Cornerstone nor any Cornerstone Subsidiary is
the subject of any audit, examination, or other proceeding in respect of federal
income Taxes, and to Cornerstone's Knowledge, no audit, examination or other
proceeding in respect of federal income Taxes involving Cornerstone or any
Cornerstone Subsidiary is being considered by any Tax authority. To the
Knowledge of Cornerstone, no deficiencies for any Taxes have been proposed,
asserted or assessed against Cornerstone or any Cornerstone Subsidiary, and no
requests for waivers of the time to assess any such Taxes are pending. As used
in this Agreement, "Taxes" shall include all taxes, charges, fees, levies and
other assessments, including, without limitation, income, gross receipts,
excise, property, sales, withholding (including, without limitation, dividend
withholding and withholding required pursuant to Sections 1445 and 1446 of the
Code), social security, occupation, use, service, license, payroll, franchise,
transfer and recording taxes, fees and charges, including estimated taxes,
imposed by the United States or any taxing authority (domestic or foreign),
whether computed on a separate, consolidated, unitary, combined or any other
basis, and any interest, fines, penalties or additional amounts attributable to,
or imposed upon, or with respect to any such taxes, charges, fees, levies or
other assessments.
(b) Cornerstone (i) for all taxable years for which the
Internal Revenue Service could assert a tax liability, has been subject to
taxation as a real estate investment trust (a "REIT") within the meaning of
Section 856 of the Code and has satisfied all requirements to qualify as a REIT
for all such years, (ii) has operated since December 31, 2003 to the date of
this representation, and intends to continue to operate, in such a manner as to
qualify as a REIT for the taxable year ending on the earlier of December 31,
2004 or the Closing Date and, if later, for the taxable year of Cornerstone
ending on the Closing Date, and (iii) has not taken or omitted to take any
action which would reasonably be expected to result in a challenge to its status
as a REIT and, to Cornerstone's Knowledge, no such challenge is pending or
threatened. Except as set forth on Schedule 2.14(b), each Cornerstone Subsidiary
which is a partnership, joint venture or limited liability company has been
since the later of its formation or the acquisition by Cornerstone of a direct
or indirect interest therein, and continues to be treated for federal income tax
purposes as a partnership or as an entity that is disregarded for federal income
tax purposes and not as a corporation or an association taxable as a
corporation. In addition, each Cornerstone Subsidiary which is a partnership,
joint venture or limited liability company has not since the later of its
formation or the acquisition by Cornerstone of a direct or indirect interest
therein, owned any assets (including, without limitation, securities) that would
cause Cornerstone to violate Section 856(c)(4) of the Code. Cornerstone
Partnership is not a publicly traded partnership within the meaning of Section
7704(b) of the Code that is taxable as a corporation pursuant to Section 7704(a)
of the Code. For all taxable years for which the Internal Revenue Service either
could assert a Tax liability or could assert that Cornerstone failed to qualify
as a REIT, each Cornerstone Subsidiary which is a corporation (for federal
income tax purposes) has
28
been either, at all times during which Cornerstone has owned an interest in such
corporation representing more than 10% of the value of the outstanding
securities of such corporation or more than 10% of the outstanding voting
securities of such corporation, a qualified REIT subsidiary under Section 856(i)
of the Code, a taxable REIT subsidiary of Cornerstone under Section 856(l) of
the Code, or a corporation which qualifies under the transitional rules set
forth in Section 546(b) of the Tax Relief Extension Act of 1999. Each
Cornerstone Subsidiary that is a "qualified REIT subsidiary" under Section
856(i) of the Code is set forth on Schedule 5.13 to the Cornerstone Disclosure
Letter. Neither Cornerstone nor any Cornerstone Subsidiary holds any asset the
disposition of which would be subject to rules similar to Section 1374 of the
Code as a result of an election under IRS Notice 88-19, Temporary Treas. Reg.
Section 1.337(d)-5T, Treas. Reg. Section 1.337(d)-5, Treas. Reg. Section
1.337(d)-6 or the application of Treas. Reg. Section 1.337(d)-7 except as set
forth on Schedule 2.14(b).
(c) To Cornerstone's knowledge, as of the date hereof,
Cornerstone is a "domestically-controlled REIT" within the meaning of Section
897(h)(4)(B) of the Code.
2.15 No Payments to Employees, Officers or Directors. Schedule 2.15
to the Cornerstone Disclosure Letter contains a true and complete list of all
arrangements, agreements or plans pursuant to which cash and non-cash payments
which will become payable (and the maximum aggregate amount which may be payable
thereunder) to each employee, officer or director of Cornerstone or any
Cornerstone Subsidiary as a result of the Merger or a termination of service
subsequent to the consummation of the Merger. Except as described in Schedule
2.15 to the Cornerstone Disclosure Letter, or as otherwise provided for in this
Agreement, there is no employment or severance contract, or other agreement
requiring payments, cancellation of indebtedness or other obligations or lapse
of vesting requirements or other restrictions to be made on a change of control
or otherwise as a result of the consummation of any of the transactions
contemplated by this Agreement or as a result of a termination of service
subsequent to the consummation of any of the transactions contemplated by this
Agreement, with respect to any employee, officer or director of Cornerstone or
any Cornerstone Subsidiary. Except as set forth on Schedule 2.15 to the
Cornerstone Disclosure Letter, there is no agreement or arrangement with any
employee, officer or other service provider under which Cornerstone or any
Cornerstone Subsidiary has agreed to pay any tax that might be owed under
Section 4999 of the Code with respect to payments to such individuals.
2.16 Broker; Schedule of Fees and Expenses. No broker, investment
banker, financial advisor or other Person, other than Wachovia Securities, the
fees and expenses of which are described in the engagement letter dated June 16,
2004, between Wachovia Securities and Cornerstone, a true, correct and complete
copy of which has previously been given to Colonial, is entitled to any
broker's, finder's, financial advisor's or other similar fee or commission in
connection with the transactions contemplated hereby based upon arrangements
made by or on behalf of Cornerstone or any Cornerstone Subsidiary.
2.17 Compliance with Laws. Neither Cornerstone nor any Cornerstone
Subsidiary has violated or failed to comply with any statute, law, ordinance,
regulation, rule, judgment, decree or order of any Governmental Entity
applicable to its business, properties or
29
operations, except to the extent that such violation or failure would not
reasonably be expected to have a Cornerstone Material Adverse Effect.
2.18 Contracts; Debt Instruments.
(a) Neither Cornerstone nor any Cornerstone Subsidiary has
received a written notice that it is in violation of or in default under (nor to
the Knowledge of Cornerstone does there exist any condition which upon the
passage of time or the giving of notice or both would cause such a violation of
or default under) any material loan or credit agreement, note, bond, mortgage,
indenture, lease, permit, concession, franchise, license or any other material
contract, agreement, arrangement or understanding, to which it is a party or by
which it or any of its properties or assets is bound, nor to the Knowledge of
Cornerstone does such a violation or default exist, except to the extent that
such violation or default, individually or in the aggregate, would not
reasonably be expected to have a Cornerstone Material Adverse Effect.
(b) Schedule 2.18(b) to the Cornerstone Disclosure Letter sets
forth a list of each material loan or credit agreement, note, bond, mortgage,
indenture and any other agreement or instrument pursuant to which any
Indebtedness (as defined herein) in excess of $1,000,000 of Cornerstone or any
Cornerstone Subsidiary, other than Indebtedness payable to Cornerstone or a
Cornerstone Subsidiary, is outstanding or may be incurred. For purposes of this
Section 2.18, "Indebtedness" shall mean (i) indebtedness for borrowed money,
whether secured or unsecured, (ii) obligations under conditional sale or other
title retention agreements relating to property purchased by such Person, (iii)
capitalized lease obligations, (iv) obligations under interest rate cap, swap,
collar or similar transaction or currency hedging transactions (valued at the
termination value thereof) and (v) guarantees of any such indebtedness of any
other Person.
(c) To the extent not set forth in response to the
requirements of Section 2.18(b), Schedule 2.18(c) to the Cornerstone Disclosure
Letter sets forth each interest rate cap, interest rate collar, interest rate
swap, currency hedging transaction, and any other agreement relating to a
similar transaction to which Cornerstone or any Cornerstone Subsidiary is a
party or an obligor with respect thereto and which has a notional amount in
excess of $1,000,000.
(d) [Intentionally omitted.]
(e) Except as set forth on Schedule 2.18(e) of the Cornerstone
Disclosure Letter, neither Cornerstone nor any Cornerstone Subsidiary is a party
to any agreement relating to the management of any Cornerstone Property by any
Person other than Cornerstone or a Cornerstone Subsidiary.
(f) Except as set forth on Schedule 2.18(f) to the Cornerstone
Disclosure Letter, neither Cornerstone nor any Cornerstone Subsidiary is a party
to any agreement pursuant to which Cornerstone or any Cornerstone Subsidiary
manages or provides services with respect to any real properties other than
Cornerstone Properties.
30
(g) Cornerstone has delivered to Colonial prior to the date of
this Agreement a true and complete capital budget for the year 2004 relating to
budgeted capital improvements and development. Schedule 2.18(g) to the
Cornerstone Disclosure Letter lists all material agreements entered into by
Cornerstone or any of the Cornerstone Subsidiaries relating to the development
or construction of, or additions or expansions to, any Cornerstone Properties
(or any properties with respect to which Cornerstone or any Cornerstone
Subsidiary has executed as of the date of this Agreement a purchase agreement or
other similar agreement) which are currently in effect and under which
Cornerstone or any of the Cornerstone Subsidiaries currently has, or expects to
incur, an obligation in excess of $250,000 per agreement. True, correct and
complete copies of such agreements have previously been delivered or made
available to Colonial.
(h) Schedule 2.18(h) to the Cornerstone Disclosure Letter
lists all agreements entered into by Cornerstone or any Cornerstone Subsidiary
providing for the sale of, or option to sell, any Cornerstone Properties or the
purchase of, or option to purchase, by Cornerstone or any Cornerstone
Subsidiary, on the one hand, or the other party thereto, on the other hand, any
real estate not yet consummated as of the date hereof.
(i) Except as set forth in Schedule 2.18(i) to the Cornerstone
Disclosure Letter, neither Cornerstone nor any Cornerstone Subsidiary has any
material continuing contractual liability (A) for indemnification or otherwise
under any agreement relating to the sale of real estate previously owned,
whether directly or indirectly by Cornerstone, or any Cornerstone Subsidiary or
(B) to pay any additional purchase price for any of the Cornerstone Properties.
(j) Except as set forth in Schedule 2.18(j) to the Cornerstone
Disclosure Letter, neither Cornerstone nor any Cornerstone Subsidiary has
entered into or is subject, directly or indirectly, to any Tax Protection
Agreements. As used herein, a "Tax Protection Agreement" is an agreement, oral
or written, entered into between (x) either Cornerstone or a Cornerstone
Subsidiary and (y) a Person other than Cornerstone or a Cornerstone Subsidiary
and (A) that has as one of its purposes to permit a Person to take the position
that such Person could defer federal taxable income that otherwise might have
been recognized upon a transfer of property to the Cornerstone Partnership or
any other Cornerstone Subsidiary that is treated as a partnership for federal
income tax purposes, and that (i) prohibits or restricts in any manner the
disposition of any assets of Cornerstone or any Cornerstone Subsidiary, (ii)
requires that Cornerstone or any Cornerstone Subsidiary maintain, put in place,
or replace, indebtedness, whether or not secured by one or more of the
Cornerstone Properties, or (iii) requires that Cornerstone or any Cornerstone
Subsidiary offer to any Person at any time the opportunity to guarantee or
otherwise assume, directly or indirectly (including, without limitation, through
a "deficit restoration obligation," guarantee (including, without limitation, a
"bottom" guarantee), indemnification agreement or other similar arrangement),
the risk of loss for federal income tax purposes for indebtedness or other
liabilities of Cornerstone or any Cornerstone Subsidiary, (B) that specifies or
relates to a method of taking into account book-tax disparities under Section
704(c) of the Code with respect to one or more assets of Cornerstone or a
Cornerstone Subsidiary, or (C) that requires a particular method for allocating
one or more liabilities of Cornerstone or any Cornerstone Subsidiary under
Section 752 of the Code. Neither
31
Cornerstone nor any Cornerstone Subsidiary is in violation of or in default
under any Tax Protection Agreement (or similar agreement concerning action that
would affect the tax liability of any person) that it is or has been a party to,
and neither Cornerstone nor any Cornerstone Subsidiary has any outstanding tax
liability to any person under any such agreement.
(k) Except as set forth in Schedule 2.18(k) to the Cornerstone
Disclosure Letter and for the Confidentiality Agreement, dated July 15, 2004
between Cornerstone and Colonial (the "Confidentiality Agreement"), neither
Cornerstone nor any Cornerstone Subsidiary is a party to any (A) standstill,
lock-up, financial advisory or voting agreement or (B) confidentiality agreement
related to any of the types of transactions described in clauses (A), (B) or (C)
of Section 4.3(a)(i) (but substituting 50% for each instance where 10% appears).
(l) Cornerstone does not have any shareholder rights plan or
similar arrangement in effect.
2.19 Opinion of Financial Advisor. Cornerstone has received the
opinion of Wachovia Securities, Cornerstone's financial advisor, to the effect
that, as of the date thereof, the aggregate Merger Consideration to be received
by the holders of Cornerstone Common Shares pursuant to the Merger is fair to
such holders from a financial point of view. Within 15 days after the date
hereof, Cornerstone will have received the written opinion of Wachovia
Securities to such effect.
2.20 State Takeover Statutes. Cornerstone has taken all action
necessary to exempt the transactions contemplated by this Agreement between
Colonial and Cornerstone and its Affiliates from the operation of any "fair
price," "moratorium," "control share acquisition" or any other anti-takeover
statute or similar statute enacted under the laws of the state or federal laws
of the United States or similar statute or regulation (a "Takeover Statute").
2.21 Investment Company Act of 1940. Neither Cornerstone nor any
Cornerstone Subsidiary is required to be registered under the Investment Company
Act of 1940, as amended (the "1940 Act").
2.22 Definition of "Knowledge of Cornerstone". As used in this
Agreement, the phrase "Knowledge of Cornerstone" (or words of similar import)
means the actual knowledge of those individuals identified in Schedule 2.22 to
the Cornerstone Disclosure Letter.
2.23 Required Shareholder Approval. Assuming the redemption of the
Cornerstone Series A Preferred Shares as provided for in Section 5.15, the
affirmative vote of the holders of at least two-thirds of the outstanding
Cornerstone Common Shares is the only vote or approval of the holders of any
class or series of Cornerstone capital shares necessary or required under
applicable law to approve the Merger and this Agreement.
32
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF COLONIAL
AND COLONIAL MERGER SUB
Except as specifically set forth in the disclosure letter to this
Agreement delivered to Cornerstone prior to the execution hereof (the "Colonial
Disclosure Letter") (each section of which qualifies the correspondingly
numbered representation and warranty or covenant to the extent specified
therein, provided that any disclosure set forth with respect to any particular
section shall be deemed to be disclosed in reference to all other applicable
sections of this Agreement if the disclosure in respect of the particular
section is sufficient on its face without further inquiry reasonably to inform
the other parties to this Agreement of the information required to be disclosed
in respect of the other sections to avoid a breach under the representation and
warranty or covenant corresponding to such other sections), Colonial and
Colonial Merger Sub represent and warrant to Cornerstone as follows:
3.1 Organization, Standing and Power of Colonial. Colonial is a real
estate investment trust duly organized, validly existing and in good standing
under the laws of Alabama. Colonial has all requisite power and authority to
own, operate, lease and encumber its properties and carry on its business as now
being conducted. The Colonial Declaration of Trust is in effect, and no
dissolution, revocation or forfeiture proceedings regarding Colonial have been
commenced. Colonial is duly qualified or licensed to do business as a foreign
trust and is in good standing in each jurisdiction in which the nature of its
business or the ownership or leasing of its properties makes such qualification
or licensing necessary, other than in such jurisdictions where the failure to be
so qualified or licensed, individually or in the aggregate, would not reasonably
be expected to have a Colonial Material Adverse Effect (as defined herein). As
used in this Agreement, a "Colonial Material Adverse Effect" means any
circumstance, event, occurrence, change or effect that is materially adverse to
the business, properties, assets (tangible or intangible), financial condition
or results of operations of Colonial, Colonial Partnership and the Subsidiaries
of Colonial (collectively, "Colonial Subsidiaries"), taken as a whole, other
than effects, events or changes arising out of or resulting from (a) changes in
conditions in the United States or global economy or capital or financial
markets generally, including changes in interest or exchange rates, (b) changes
in general legal, regulatory, political, economic or business conditions or
changes in GAAP (as defined herein) that, in each case, generally affect the
real estate industry and that do not affect Colonial, Colonial Partnership or
the Colonial Subsidiaries materially disproportionately relative to other
participants in the real estate industry or (c) the negotiation, execution,
announcement or performance of this Agreement or the consummation of the
transactions contemplated by this Agreement. Colonial has delivered to
Cornerstone complete and correct copies of the Colonial Declaration of Trust and
the Bylaws of Colonial (the "Colonial Bylaws"), as amended or supplemented to
the date of this Agreement.
3.2 Colonial Subsidiaries.
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(a) Schedule 3.2(a) to the Colonial Disclosure Letter sets
forth (i) each Colonial Subsidiary and each other Person in which Colonial owns,
directly or indirectly through a Colonial Subsidiary, 10% or more of the capital
stock, voting securities or other equity interests, (ii) the ownership interest
therein of Colonial, (iii) if not directly or indirectly wholly owned by
Colonial, the identity and ownership interest of each of the other owners of
each Colonial Subsidiary, (iv) each property owned by such Colonial Subsidiary
or such other Person and each other asset material to such Colonial Subsidiary
or such other Person, and (v) if not wholly owned by such Colonial Subsidiary or
such other Person, the identity and ownership interest of each of the other
owners of such property.
(b) Except as set forth in Schedule 3.2(b) to the Colonial
Disclosure Letter, (i) all the outstanding shares of capital stock of each
Colonial Subsidiary that is a corporation have been duly authorized, validly
issued and are (A) fully paid and nonassessable and not subject to preemptive or
similar rights and (B) in the case of capital stock owned by Colonial or a
Colonial Subsidiary, owned free and clear of all Liens and (ii) all equity
interests in each Colonial Subsidiary that is a partnership, joint venture,
limited liability company or trust which are owned by Colonial or a Colonial
Subsidiary are owned free and clear of all Liens. Each Colonial Subsidiary that
is a corporation is duly incorporated, validly existing and in good standing
under the laws of its jurisdiction of incorporation and has the requisite
corporate power and authority to own, operate, lease and encumber its properties
and carry on its business as now being conducted, and each Colonial Subsidiary
that is a partnership, limited liability company or trust is duly organized,
validly existing and in good standing under the laws of its jurisdiction of
organization and has the requisite power and authority to own, operate, lease
and encumber its properties and carry on its business as now being conducted.
Each Colonial Subsidiary is duly qualified or licensed to do business and is in
good standing in each jurisdiction in which the nature of its business or the
ownership or leasing of its properties makes such qualification or licensing
necessary, other than in such jurisdictions where the failure to be so qualified
or licensed, individually or in the aggregate, would not reasonably be expected
to have a Colonial Material Adverse Effect. Complete and correct copies of the
Articles of Incorporation, Bylaws, organization documents and partnership, joint
venture and operating agreements of each Colonial Subsidiary, as amended to the
date of this Agreement, have been previously delivered or made available to
Cornerstone. No effective amendment has been made to the Colonial Partnership
Agreement since February 18, 2004 (except to provide for redemptions of Colonial
OP Units in the ordinary course of business).
3.3 Capital Structure.
(a) The authorized shares of beneficial interest of Colonial
on the date hereof consist of 75,000,000 shares of beneficial interest, of which
65,000,000 are classified as common shares of beneficial interest, par value
$0.01 per share (previously defined herein as "Colonial Common Shares"), and
10,000,000 are classified as preferred shares of beneficial interest, par value
$0.01 per share (the "Colonial Preferred Shares"). 2,000,000 of the Colonial
Preferred Shares have been designated as 7.25% Series B Cumulative Redeemable
Perpetual Preferred Shares of Beneficial Interest, par value $0.01 per share
("Colonial Series B Preferred Shares"), 2,000,000 of the Colonial Preferred
Shares have been designated as 9.25% Series C Cumulative Redeemable Preferred
Shares of Beneficial Interest, par value $0.01 per share
34
("Colonial Series C Preferred Shares"), 500,000 of the Colonial Preferred Shares
have been designated as 8 1/8% Series D Cumulative Redeemable Preferred Shares
of Beneficial Interest, par value $0.01 per share ("Colonial Series D Preferred
Shares"), 70,000 of the Colonial Preferred Shares have been designated as 7.62%
Series E Cumulative Redeemable Preferred Shares of Beneficial Interest, par
value $0.01 per share (previously defined herein as "Colonial Series E Preferred
Shares") and 6,500 of the Colonial Preferred Shares have been designated as
Series 1998 Junior Participating Preferred Shares of Beneficial Interest (the
"Colonial Series 1998 Preferred Shares"). 27,388,192 Colonial Common Shares are
issued and outstanding on the date of this Agreement (such amount does not
include 5,623,150 Colonial Common Shares held as treasury shares). No Colonial
Series B Preferred Shares are issued and outstanding on the date of this
Agreement. 2,000,000 Colonial Series C Preferred Shares and 500,000 Colonial
Series D Preferred Shares are issued and outstanding on the date of this
Agreement. No Colonial Series E Preferred Shares are issued and outstanding on
the date of this Agreement. No Colonial Series 1998 Preferred Shares are issued
and outstanding on the date of this Agreement. No other Colonial Preferred
Shares are issued and outstanding on the date of this Agreement.
(b) Set forth in Schedule 3.3(b) to the Colonial Disclosure
Letter is a true and complete list of the following: (i) each qualified or
nonqualified option to purchase Colonial's shares of beneficial interest granted
under either Colonial's Second Amended and Restated Employee Share Option and
Restricted Share Plan, as amended, Colonial's Non-Employee Trustee Share Option
Plan, as amended, or any other formal or informal arrangement (collectively, the
"Colonial Options"); and (ii) except for the Colonial OP Units, the Colonial
Series B OP Units (as defined herein) and the Colonial Series 1998 Preferred
Shares, all other warrants or other rights to acquire Colonial's shares of
beneficial interest, all share appreciation rights, all restricted shares,
phantom shares, dividend equivalents, performance units and performance shares
which are outstanding on the date of this Agreement. Schedule 3.3(b) to the
Colonial Disclosure Letter sets forth the Colonial Options granted to Colonial's
Chief Executive Officer and four other most highly compensated officers, the
date of each grant, the status of each Colonial Option as qualified or
nonqualified under Section 422 of the Code, the number of Colonial Common Shares
subject to each Colonial Option, the number and type of Colonial Common Shares
or other shares subject to Colonial Options that are currently exercisable, the
exercise price per share, and the number and type of such shares subject to
share appreciation rights. On the date of this Agreement, except as set forth in
this Section 3.3 or in Schedule 3.3(b) or 3.3(d) to the Colonial Disclosure
Letter, no shares of beneficial interest of Colonial were outstanding or
reserved for issuance (except for (x) Colonial Common Shares reserved for
issuance upon redemption of Colonial OP Units and exercise of Colonial Options,
(y) Colonial Series B Preferred Shares reserved for issuance upon redemption of
Colonial Series B Preferred OP Units and (z) Colonial Series 1998 Preferred
Shares issuable upon the exercise of Colonial Rights).
(c) All outstanding shares of beneficial interest of Colonial
are duly authorized, validly issued, fully paid and nonassessable and not
subject to preemptive or similar rights under law or the Colonial Declaration of
Trust or Colonial Bylaws, or any contract or instrument to which Colonial is a
party or by which it is bound. There are no bonds, debentures, notes or other
indebtedness of Colonial having the right to vote (or convertible into, or
35
exchangeable or exercisable for, securities having the right to vote) on any
matters on which shareholders of Colonial may vote.
(d) Except (i) as set forth in this Section 3.3 or in Schedule
3.3(b) or 3.3(d) to the Colonial Disclosure Letter, (ii) Colonial OP Units and
Colonial Series B Preferred OP Units, which may be redeemed for Colonial Common
Shares and Colonial Series B Preferred Shares, respectively, and (iii) Colonial
Rights which may be exercised for Series 1998 Preferred Shares or Colonial
Common Shares pursuant to the Rights Agreement, as of the date of this
Agreement, there are no outstanding securities, options, warrants, calls,
rights, commitments, agreements, arrangements or undertakings of any kind to
which Colonial or any Colonial Subsidiary is a party or by which such entity is
bound, obligating Colonial or any Colonial Subsidiary to issue, deliver or sell,
or cause to be issued, delivered or sold, additional shares of beneficial
interest, voting securities or other ownership interests of Colonial or any
Colonial Subsidiary or obligating Colonial or any Colonial Subsidiary to issue,
grant, extend or enter into any such security, option, warrant, call, right,
commitment, agreement, arrangement or undertaking (other than to Colonial or a
Colonial Subsidiary).
(e) As of the date of this Agreement, 37,714,052 Class A Units
(as defined in the Colonial Partnership Agreement) ("Colonial OP Units"),
2,000,000 7.25% Series B Cumulative Redeemable Preferred Units ("Colonial Series
B Preferred OP Units"), 2,000,000 9.25% Series C Cumulative Redeemable Preferred
Units ("Colonial Series C Preferred OP Units"), 500,000 8 1/8% Series D
Cumulative Redeemable Preferred Units ("Colonial Series D Preferred OP Units"
and, together with the Colonial Series B Preferred OP Units, the Colonial Series
C Preferred OP Units, the Colonial Series E Preferred OP Units and the Colonial
Series F Preferred OP Units, the "Colonial Preferred OP Units"), no Colonial
Series E Preferred OP Units and no Colonial Series F Preferred Units are validly
issued and outstanding, fully paid and nonassessable and not subject to
preemptive or similar rights under law or the Colonial Partnership Agreement, or
any contract or instrument to which Colonial or Colonial Partnership is a party
or by which either is bound. Except as provided in the Colonial Partnership
Agreement, the Colonial OP Units are not subject to any restrictions. Except as
set forth in Schedule 3.3(e) to the Colonial Disclosure Letter, Colonial
Partnership has not issued or granted and is not a party to any outstanding
commitments of any kind relating to, or any agreements or understandings with
respect to, interests in Colonial Partnership, whether issued or unissued, or
securities convertible into or exchangeable or exercisable for interests in
Colonial Partnership.
(f) All dividends on Colonial Common Shares and Colonial
Preferred Shares and all distributions on Colonial OP Units and Colonial
Preferred OP Units, which have been declared prior to the date of this
Agreement, have been paid in full, except as set forth in Schedule 3.3(f).
(g) The Colonial Common Shares to be issued by Colonial, and
the Colonial OP Units to be issued by the Colonial Partnership, pursuant to this
Agreement have been duly authorized for issuance, and upon issuance will be duly
and validly issued, fully paid and nonassessable.
36
3.4 Other Interests. Except for interests in the Colonial
Subsidiaries and the other entities as set forth in Schedule 3.2(a) or Schedule
3.4 to the Colonial Disclosure Letter (the "Colonial Other Interests"), neither
Colonial nor any Colonial Subsidiary owns directly or indirectly any interest or
investment (whether equity or debt) in any corporation, limited liability
company, partnership, joint venture, business, trust or other entity (other than
investments in short-term investment securities). With respect to the Colonial
Other Interests, Colonial or the applicable Colonial Subsidiary is a partner,
member or shareholder in good standing, and owns such interests free and clear
of all Liens. None of Colonial nor any Colonial Subsidiary is in material breach
of any agreement, document or contract which is of a material nature governing
its rights in or to the Colonial Other Interests, all of which agreements,
documents and contracts are (a) listed in Schedule 3.4 to the Colonial
Disclosure Letter, (b) unmodified except as described therein and (c) in full
force and effect. To the Knowledge of Colonial (as defined herein), the other
parties to any such agreement, document or contract which is of a material
nature are not in breach of any of their respective obligations under such
agreements, documents or contracts.
3.5 Authority; Noncontravention; Consents.
(a) Colonial has the requisite power and authority to enter
into this Agreement and, subject to the requisite Colonial shareholder approval
of the issuance of Colonial Common Shares contemplated by the Merger under the
listing standards of the NYSE (the "Colonial Shareholder Approval" and, together
with the Cornerstone Shareholder Approval, the "Shareholder Approvals"), to
consummate the transactions contemplated by this Agreement to which Colonial is
a party. The execution and delivery of this Agreement by Colonial and the
consummation by Colonial of the transactions contemplated by this Agreement to
which Colonial is a party have been duly authorized by all necessary action on
the part of Colonial, except for and subject to the Colonial Shareholder
Approval. This Agreement has been duly executed and delivered by Colonial and
constitutes a valid and binding obligation of Colonial, enforceable against
Colonial in accordance with and subject to its terms, subject to applicable
bankruptcy, insolvency, moratorium or other similar laws relating to creditors'
rights and general principles of equity.
(b) Colonial Merger Sub has the requisite corporate or limited
liability company power and authority to enter into this Agreement and to
consummate the transactions contemplated by this Agreement to which Colonial
Merger Sub is a party. The execution and delivery of this Agreement by Colonial
Merger Sub and the consummation by Colonial Merger Sub of the transactions
contemplated by this Agreement have been duly authorized by all necessary action
on the part of Colonial Merger Sub. This Agreement has been duly executed and
delivered by Colonial Merger Sub and constitutes a valid and binding obligation
of Colonial Merger Sub, enforceable against Colonial Merger Sub in accordance
with and subject to its terms, subject to applicable bankruptcy, insolvency,
moratorium or other similar laws relating to creditors' rights and general
principles of equity.
(c) Except as set forth in Schedule 3.5(c)(1) to the Colonial
Disclosure Letter, the execution and delivery of this Agreement by Colonial and
Colonial Merger Sub do not, and, subject to receipt of the Colonial Shareholder
Approval, the consummation of the
37
transactions contemplated by this Agreement to which Colonial or Colonial Merger
Sub is a party and compliance by Colonial or Colonial Merger Sub with the
provisions of this Agreement will not, conflict with, or result in any violation
of or default (with or without notice or lapse of time, or both) under, or give
rise to a right of termination, cancellation or acceleration of any material
obligation or to loss of a material benefit under, or result in the creation of
any Lien upon any of the properties or assets of Colonial or any Colonial
Subsidiary under, (i) the Colonial Declaration of Trust or the Colonial Bylaws
or the comparable charter or organizational documents or partnership, operating
or similar agreement (as the case may be) of any Colonial Subsidiary, each as
amended or supplemented to the date of this Agreement, (ii) any loan or credit
agreement, note, bond, mortgage, indenture, merger or other acquisition
agreement, shareholder rights plan, reciprocal easement agreement, lease or
other agreement, instrument, permit, concession, franchise or license applicable
to Colonial or any Colonial Subsidiary or their respective properties or assets
or (iii) subject to the governmental filings and other matters referred to in
the following sentence, any Laws applicable to Colonial or any Colonial
Subsidiary or their respective properties or assets, other than, in the case of
clause (ii) or (iii), any such conflicts, violations, defaults, rights, loss or
Liens that individually or in the aggregate would not reasonably be expected to
(x) have a Colonial Material Adverse Effect or (y) prevent or materially impair
the ability of Colonial or Colonial Merger Sub to perform any of its obligations
hereunder or prevent or materially threaten or impede the consummation of the
transactions contemplated by this Agreement. No consent, approval, order or
authorization of, or registration, declaration or filing with, any Governmental
Entity is required by or with respect to Colonial or any Colonial Subsidiary in
connection with the execution and delivery of this Agreement by Colonial and
Colonial Merger Sub or the consummation by Colonial and Colonial Merger Sub of
any of the transactions contemplated by this Agreement, except for (i) the
filing with the SEC of (x) the Form S-4 (as defined herein) and (y) such reports
and filings under the Securities Act and the Exchange Act as may be required in
connection with this Agreement and the transactions contemplated by this
Agreement, (ii) the filing of the Delaware Certificate of Merger with the
Delaware Secretary, (iii) the filing of the Virginia Articles of Merger with the
Virginia Commission, (iv) such filings as may be required in connection with the
payment of any transfer and gains taxes and (v) such other consents, approvals,
orders, authorizations, registrations, declarations and filings (A) as are set
forth in Schedule 3.5(c)(2) to the Colonial Disclosure Letter or (B) as may be
required under (w) the HSR Act, (x) federal, state or local environmental laws
or (y) the "blue sky" laws of various states, to the extent applicable, or (C)
which, if not obtained or made, would not prevent or delay in any material
respect the consummation of any of the transactions contemplated by this
Agreement or otherwise prevent Colonial from performing its obligations under
this Agreement in any material respect or reasonably be expected to have,
individually or in the aggregate, a Colonial Material Adverse Effect.
3.6 SEC Documents; Financial Statements; Undisclosed Liabilities.
Colonial and Colonial Partnership have furnished or filed all reports,
schedules, forms, statements and other documents required to be furnished or
filed with the SEC since December 31, 1997 through the date of this Agreement
(the "Colonial SEC Documents"). All of the Colonial SEC Documents (other than
preliminary material), as of their respective filing dates, complied in all
material respects with all applicable requirements of the Securities Act and the
Exchange Act and, in each case, the rules and regulations promulgated thereunder
applicable to such Colonial
38
SEC Documents. None of the Colonial SEC Documents at the time of filing
contained, nor will any report, schedule, form, statement or other document
filed by Colonial or Colonial Partnership after the date hereof and prior to the
Effective Time contain, any untrue statement of a material fact or omitted to
state any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading. The consolidated financial statements of Colonial and
Colonial Partnership included in the Colonial SEC Documents complied, as to form
in all material respects with applicable accounting requirements and the
published rules and regulations of the SEC with respect thereto, have been
prepared in accordance with GAAP (except, in the case of unaudited statements,
as permitted by the applicable rules and regulations of the SEC) applied on a
consistent basis during the periods involved (except as may be indicated in the
notes thereto) and fairly presented, in all material respects in accordance with
the applicable requirements of GAAP and the applicable rules and regulations of
the SEC, the consolidated financial position of Colonial and its Subsidiaries,
as applicable, taken as a whole, as of the dates thereof and the consolidated
results of operations and cash flows for the periods then ended (except, in the
case of unaudited statements, as permitted by Form 10-Q under the Exchange Act).
Except for liabilities and obligations set forth in the Colonial SEC Documents
or in Schedule 3.6 to the Colonial Disclosure Letter, neither Colonial nor any
Colonial Subsidiary has any liabilities or obligations of any nature (whether
accrued, absolute, contingent or otherwise) required by GAAP to be set forth on
a consolidated balance sheet of Colonial or Colonial Partnership or in the notes
thereto and which, individually or in the aggregate, would reasonably be
expected to have a Colonial Material Adverse Effect.
3.7 Absence of Certain Changes or Events. Except as disclosed in the
Colonial SEC Documents or in Schedule 3.7 to the Colonial Disclosure Letter,
since December 31, 2003 (the "Colonial Financial Statement Date"), Colonial and
its Subsidiaries have conducted their business only in the ordinary course
(taking into account prior practices, including the acquisition of properties
and issuance of securities) and there has not been (a) any circumstance, event,
occurrence, change or effect that has had a Colonial Material Adverse Effect,
nor has there been any circumstance, event, occurrence, change or effect that
with the passage of time would reasonably be expected to result in a Colonial
Material Adverse Effect, (b) except for regular quarterly distributions not in
excess of $0.675 per Colonial Common Share or Colonial OP Unit (subject to
changes pursuant to Section 5.10 and to any Corresponding Colonial Dividends and
Distributions paid pursuant to Section 1.13(d)(ii)), or the stated distribution
rate for each Colonial Preferred Share or Colonial Preferred OP Unit (or, in
each case, with respect to the period commencing on the date hereof and ending
on the Closing Date, distributions as necessary to maintain REIT status), in
each case with customary record and payment dates, any authorization,
declaration, setting aside or payment of any dividend or other distribution
(whether in cash, shares or property) with respect to Colonial Common Shares,
Colonial OP Units, Colonial Preferred Shares or Colonial Preferred OP Units, (c)
any split, combination or reclassification of, or any issuance or the
authorization of , or any issuance of any other securities in respect of, in
lieu of or in substitution for, or giving the right to acquire by exchange or
exercise, shares of stock of Colonial or partnership interests in Colonial
Partnership or any issuance of an ownership interest in, any Colonial
Subsidiary, (d) any damage, destruction or loss, whether or not covered by
insurance, that has had or would reasonably be expected to
39
have a Colonial Material Adverse Effect or (e) any change made prior to the date
of this Agreement in accounting methods, principles or practices by Colonial or
any of its Subsidiaries or Colonial Partnership or any of its Subsidiaries
materially affecting its assets, liabilities or business, except insofar as may
have been disclosed in the Colonial SEC Documents or required by a change in
GAAP.
3.8 Litigation. Except as disclosed in Schedule 3.8 to the Colonial
Disclosure Letter, and other than personal injury and other routine tort
litigation arising from the ordinary course of operations of Colonial and the
Colonial Subsidiaries (a) which are covered by adequate insurance or (b) for
which all material costs and liabilities arising therefrom are reimbursable
pursuant to common area maintenance or similar agreements, there is no suit,
action or proceeding pending (in which service of process has been received by
an employee of Colonial or a Colonial Subsidiary) or, to the Knowledge of
Colonial, threatened in writing against or affecting Colonial or any Colonial
Subsidiary that, individually or in the aggregate, would reasonably be expected
to (i) have a Colonial Material Adverse Effect or (ii) prevent or materially
impair the ability of Colonial to perform any of its obligations hereunder or
prevent or materially threaten or impair the consummation of any of the
transactions contemplated by this Agreement, nor is there any judgment, decree,
injunction, rule or order of any Governmental Entity or arbitrator outstanding
against Colonial or any Colonial Subsidiary having, or which, insofar as
reasonably can be foreseen, in the future would have, any such effect.
3.9 Properties.
(a) Except as set forth in Schedule 3.9(a) to the Colonial
Disclosure Letter, Colonial or one of the Colonial Subsidiaries owns fee simple
title to each of the real properties listed in the Colonial SEC Filings as owned
by it (the "Colonial Properties"), except where the failure to own such title
would not have a Colonial Material Adverse Effect.
(b) Except as disclosed in the Colonial SEC Documents, the
Colonial Properties are not subject to any Encumbrances or Property Restrictions
which reasonably could be expected to cause a Colonial Material Adverse Effect.
(c) Valid policies of title insurance have been issued
insuring Colonial's or the applicable Colonial Subsidiary's fee simple title or
leasehold estate, as the case may be, to the Colonial Properties in amounts
which are at least equal to the purchase price thereof paid by Colonial or the
applicable Colonial Subsidiaries therefor at the time of acquisition, except
where the failure to obtain such title insurance would not reasonably be
expected to have a Colonial Material Adverse Effect.
(d) Colonial has no Knowledge (i) that it has failed to obtain
a certificate, permit or license from any governmental authority having
jurisdiction over any of the Colonial Properties where such failure would
reasonably be expected to have a Colonial Material Adverse Effect or of any
pending threat of modification or cancellation of any of the same which would
reasonably be expected to have a Colonial Material Adverse Effect, (ii) of any
written notice of any violation of any federal, state or municipal law,
ordinance, order, rule, regulation or requirement affecting any of the Colonial
Properties issued by any governmental authorities
40
which would reasonably be expected to have a Colonial Material Adverse Effect or
(iii) of any structural defects relating to Colonial Properties, Colonial
Properties whose building systems are not in working order, physical damage to
any Colonial Property for which there is not insurance in effect covering the
cost of the restoration and the lost revenue (subject to a reasonable deduction
or retention limit), except such structural defects, building systems not in
working order and physical damage, which, in the aggregate, would not reasonably
be expected to have a Colonial Material Adverse Effect.
(e) Except as set forth on Schedule 3.9(e) to the Colonial
Disclosure Letter, neither Colonial nor any of the Colonial Subsidiaries has
received any written or published notice to the effect that (i) any condemnation
or rezoning proceedings are pending or threatened with respect to any of the
Colonial Properties or (ii) any zoning, building or similar law, code,
ordinance, order or regulation is or will be violated by the continued
maintenance, operation or use of any buildings or other improvements on any of
the Colonial Properties or by the continued maintenance, operation or use of the
parking areas, other than such notices which, in the aggregate, would not
reasonably be expected to have a Colonial Material Adverse Effect.
(f) To the Knowledge of Colonial, all work to be performed,
payments to be made and actions to be taken by Colonial or the Colonial
Subsidiaries prior to the date hereof pursuant to any agreement entered into
with a governmental body or authority in connection with a site approval, zoning
reclassification or similar action relating to any Colonial Properties (e.g.,
Local Improvement District, Road Improvement District, Environmental
Mitigation), has been performed, paid or taken, as the case may be, and Colonial
has no Knowledge of any planned or proposed work, payments or actions that may
be required after the date hereof pursuant to such agreements, in each case
except where the failure to do so would, in the aggregate, not reasonably be
expected to have a Colonial Material Adverse Effect.
3.10 Environmental Matters. Except as disclosed in Schedule 3.10 to
the Colonial Disclosure Letter:
(a) There have been no Releases of Hazardous Materials (and,
to the Knowledge of Colonial, there has been no presence of Hazardous Materials)
at, on, under or from (i) any real property owned, operated or leased by
Colonial or any Colonial Subsidiary, or (ii) any real property formerly owned,
operated or leased by Colonial or any Colonial Subsidiary (the "Former Colonial
Properties") during the period of such ownership, operation or tenancy which
would, individually or in the aggregate, reasonably be expected to have a
Colonial Material Adverse Effect.
(b) Colonial and the Colonial Subsidiaries have not failed to
comply with any Environmental Laws, and neither Colonial nor any of the Colonial
Subsidiaries has any liability under the Environmental Laws, except to the
extent such failure to comply or any such liability, individually or in the
aggregate, would not reasonably be expected to have a Colonial Material Adverse
Effect.
(c) Colonial and the Colonial Subsidiaries have been duly
issued, and maintain all Environmental Permits except where the failure to
obtain and maintain such
41
Environmental Permits would not, individually or in the aggregate, reasonably be
expected to have a Colonial Material Adverse Effect. Colonial and the Colonial
Subsidiaries have timely filed applications for all Environmental Permits.
(d) Colonial and the Colonial Subsidiaries have not arranged,
by contract, agreement, or otherwise, for the transportation, disposal or
treatment of Hazardous Materials at any location such that they are or could be
liable for Environmental Mitigation of such location pursuant to Environmental
Laws, except as would not, individually or in the aggregate, reasonably be
expected to have a Colonial Material Adverse Effect.
(e) There are no facts, circumstances or conditions existing,
initiated or occurring prior to the Effective Time, which will result in
liability under Environmental Laws to Colonial or the Colonial Subsidiaries,
except as would not, individually or in the aggregate, reasonably be expected to
have a Colonial Material Adverse Effect.
3.11 Employee Benefits. As used herein, the term "Colonial Employee
Plan" includes any pension, retirement, savings, disability, medical, dental,
health, fringe benefit, life, death benefit, group insurance, profit sharing,
deferred compensation, stock option, bonus, incentive, vacation pay, tuition
reimbursement, severance pay, or other employee benefit plan, trust, agreement,
contract, agreement, policy or commitment (including, without limitation, any
pension plan, as defined in Section 3(2) of ERISA ("Colonial Pension Plan"), and
any welfare plan as defined in Section 3(1) of ERISA ("Colonial Welfare Plan"),
whether any of the foregoing is funded, insured or self-funded, written or oral,
(i) sponsored or maintained by Colonial or any entity that, together with
Colonial, is required to be treated as a single employer under Section 414(b),
(c), (m) or (o) of the Code (each, a "Colonial Controlled Group Member") and
covering any Colonial Controlled Group Member's active or former employees (or
their beneficiaries), (ii) to which any Colonial Controlled Group Member is a
party or by which any Colonial Controlled Group Member (or any of the rights,
properties or assets thereof) is bound or (iii) with respect to which any
current Colonial Controlled Group Member may otherwise have any material
liability (whether or not such Colonial Controlled Group Member still maintains
such Colonial Employee Plan). Each Colonial Employee Plan is listed on Schedule
3.11 to the Colonial Disclosure Letter. Except as disclosed in Schedule 3.11 to
the Colonial Disclosure Letter, with respect to the Colonial Employee Plans:
(a) No Colonial Controlled Group Member has any continuing
liability under any Colonial Welfare Plan which provides for continuing benefits
or coverage for any participant or any beneficiary of a participant after such
participant's termination of employment, except as may be required by Section
4980B of the Code or Section 601 (et seq.) of ERISA, or under any applicable
state law, and at the expense of the participant or the beneficiary of the
participant.
(b) Each Colonial Employee Plan complies in all material
respects with the applicable requirements of ERISA, the Code and any other
applicable law governing such Colonial Employee Plan, and, to the Knowledge of
Colonial, each Colonial Employee Plan has at all times been properly
administered in all material respects in accordance with all such requirements
of law, and in accordance with its terms and the terms of any applicable
collective
42
bargaining agreement to the extent consistent with all such requirements of law.
Each Colonial Pension Plan which is intended to be qualified is qualified under
Section 401(a) of the Code, has received a favorable determination letter from
the IRS stating that such Plan meets the requirements of Section 401(a) of the
Code and, to the Knowledge of Colonial, no event has occurred which would
jeopardize the qualified status of any such plan or the tax exempt status of any
such trust under Section 401(a) and Section 501(a) of the Code, respectively. No
lawsuits, claims (other than routine claims for benefits) or complaints to, or
by, any Person or Governmental Entity have been filed, are pending or, to the
Knowledge of Colonial, threatened with respect to any Colonial Employee Plan
and, to the Knowledge of Colonial, there is no fact or contemplated event which
would be expected to give rise to any such lawsuit, claim (other than routine
claims for benefits) or complaint with respect to any Colonial Employee Plan.
Without limiting the foregoing, the following are true with respect to each
Colonial Employee Plan:
(i) all Colonial Controlled Group Members have complied
in all material respects with the applicable reporting and
disclosure requirements of ERISA, the Code, or both, with respect to
each Colonial Employee Plan and no Colonial Controlled Group Member
has incurred any material liability in connection with such
reporting or disclosure;
(ii) all contributions and payments with respect to
Colonial Employee Plans that are required to be made by a Colonial
Controlled Group Member with respect to periods ending on or before
the Closing Date (including periods from the first day of the
current plan or policy year to the Closing Date) have been, or will
be, made or accrued before the Closing Date in accordance with the
appropriate plan document, actuarial report, collective bargaining
agreements or insurance contracts or arrangements or as otherwise
required by ERISA or the Code; and
(iii) with respect to each such Colonial Employee Plan,
to the extent applicable, Colonial has delivered to or has made
available to Cornerstone true and complete copies of (A) current
plan documents and any amendments thereto, or any and all other
documents that establish the existence of the plan, trust,
arrangement, contract, policy or commitment and all amendments
thereto, (B) the most recent summary plan description and the
subsequent summaries of material modifications, (C) all rulings,
opinions or advice issued by the U.S. Department of Labor, the IRS
or the Pension Benefit Guaranty Corporation, (D) the most recent
determination letter, if any, received from the IRS, (E) the three
most recent Form 5500 Annual Reports (and all schedules and reports
relating thereto) and actuarial reports and (F) all related trust
agreements, insurance contracts or other funding agreements that
implement each such Colonial Employee Plan.
(c) With respect to each Colonial Employee Plan, to the
Knowledge of Colonial, there has not occurred, and no Person is contractually
bound to enter into, (i) any "prohibited transaction" within the meaning of
Section 4975(c) of the Code or Section 406 of
43
ERISA, which transaction is not exempt under Section 4975(d) of the Code or
Section 408 of ERISA or (ii) any breach of responsibilities or obligations
imposed upon fiduciaries under Title I of ERISA and which in the case of either
(i) or (ii) could subject Colonial or any Colonial Controlled Group Member to
material liability.
(d) No Colonial Controlled Group Member has ever maintained or
participated in been otherwise obligated to contribute to (i) any Colonial
Employee Plan subject to Code Section 412 or Title IV of ERISA or (ii) any
"multiemployer plan", as such term is defined in ERISA Section 3(37). No
Colonial Employee Plan subject to Code Section 412 or Title IV of ERISA has been
terminated.
3.12 Taxes.
(a) Each of Colonial and the Colonial Subsidiaries (i) has
filed all Tax returns and reports required to be filed by it (after giving
effect to any filing extension properly granted by a Governmental Entity having
authority to do so), and all such returns and reports are accurate and complete
in all material respects, (ii) has paid (or Colonial has paid on its behalf) all
Taxes shown on such returns and reports as required to be paid by it and (iii)
has complied in all material respects with all applicable laws, rules and
regulations relating to the payment and withholding of Taxes (including, without
limitation, withholding of Taxes pursuant to Sections 1441, 1442, 1445, 1446,
3121, 3402 and 3406 of the Code) and has, within the time period prescribed by
law, withheld and paid over to the proper governmental entities all amounts
required to be so withheld and paid under applicable laws and regulations,
except, with respect to all of the foregoing, where the failure to file such tax
returns or reports or failure to pay such Taxes or failure to comply with such
requirements would not reasonably be expected to have a Colonial Material
Adverse Effect. The most recent audited financial statements contained in the
Colonial SEC Documents reflect an adequate reserve for all material Taxes
payable by Colonial and the Colonial Subsidiaries for all taxable periods and
portions thereof through the date of such financial statements. Since the
Colonial Financial Statement Date, Colonial has incurred no liability for Taxes
under Sections 857(b), 860(c) or 4981 of the Code, including without limitation
any Tax arising from a prohibited transaction described in Section 857(b)(6) of
the Code, and neither Colonial nor any Colonial Subsidiary has incurred any
material liability for Taxes other than in the ordinary course of business. No
event has occurred, and no condition or circumstance exists, which presents a
material risk that any material Tax described in the preceding sentence will be
imposed upon Colonial or any Colonial Subsidiary. Neither Colonial nor any
Colonial Subsidiary is the subject of any audit, examination, or other
proceeding in respect of Taxes, and to Colonial's Knowledge, no audit,
examination or other proceeding in respect of Taxes involving Colonial or any
Colonial Subsidiary is being considered by any Tax authority. To the Knowledge
of Colonial, except as set forth on Schedule 3.12(a), no deficiencies for any
Taxes have been proposed, asserted or assessed against Colonial or any of the
Colonial Subsidiaries, and no requests for waivers of the time to assess any
such Taxes are pending.
(b) Colonial (i) for all taxable years for which the Internal
Revenue Service could assert a tax liability, has been subject to taxation as a
REIT within the meaning of Section 856 of the Code and has satisfied all
requirements to qualify as a REIT for all such years,
44
(ii) has operated since December 31, 2003 to the date of this representation,
and intends to continue to operate, in such a manner as to qualify as a REIT for
the taxable year that includes the Closing Date and (iii) has not taken or
omitted to take any action which would reasonably be expected to result in a
challenge to its status as a REIT and, to Colonial's Knowledge, no such
challenge is pending or threatened. Each Colonial Subsidiary which is a
partnership, joint venture or limited liability company has been since the later
of its formation or the acquisition by Colonial of a direct or indirect interest
therein, and continues to be treated for federal income tax purposes as a
partnership or as an entity that is disregarded for federal income tax purposes
and not as a corporation or an association taxable as a corporation. In
addition, each Colonial Subsidiary which is a partnership, joint venture or
limited liability company has not since the later of its formation or the
acquisition by Colonial of a direct or indirect interest therein, owned any
assets (including, without limitation, securities) that would cause Colonial to
violate Section 856(c)(4) of the Code. Colonial Partnership is not a publicly
traded partnership within the meaning of Section 7704(b) of the Code that is
taxable as a corporation pursuant to Section 7704(a) of the Code. Each Colonial
Subsidiary which is a corporation (for federal income tax purposes) has been
either, at all times during which Colonial has owned an interest in such
corporation representing more than 10% of the value of the outstanding
securities of such corporation or more than 10% of the outstanding voting
securities of such corporation, a qualified REIT subsidiary under Section 856(i)
of the Code or a taxable REIT subsidiary under Section 865(l) of the Code.
Except as set forth in Schedule 3.12(b) to the Colonial Disclosure Letter,
neither Colonial nor any Colonial Subsidiary holds any asset the disposition of
which would be subject to rules similar to Section 1374 of the Code as a result
of an election under IRS Notice 88-19, Temporary Treas. Reg. Section
1.337(d)-5T, Treas. Reg. Section 1.337(d)-5, Treas. Reg. Section 1.337(d)-6 or
the application of Treas. Reg. Section 1.337(d)-7.
(c) To Colonial's knowledge, as of the date hereof, Colonial
is a "domestically-controlled REIT" within the meaning of Section 897(h)(4)(B)
of the Code.
(d) Colonial (i) as a partner of Colonial Partnership, has
active and substantial management functions with respect to the business of
Colonial Partnership within the meaning of Treas. Reg. Section
1.368-1(d)(4)(iii)(B)(2); and (ii) owns an interest in Colonial Partnership
representing a significant interest in the business of Colonial Partnership
within the meaning of Treas. Reg. Section 1.368-1(d)(4)(iii)(B)(1). In addition,
the Post-Merger Reorganization will not cause the foregoing representation and
warranty to be untrue or incorrect following the Merger.
3.13 Brokers; Schedule of Fees and Expenses. No broker, investment
banker, financial advisor or other Person, other than Banc of America
Securities, the fees and expenses of which will be paid by Colonial and are
described in the engagement letter dated September 23, 2004, between Banc of
America Securities and Colonial, a true, correct and complete copy of which has
previously been given to Cornerstone, is entitled to any broker's, finder's,
financial advisor's or other similar fee or commission in connection with the
transactions contemplated hereby based upon arrangements made by or on behalf of
Colonial or any Colonial Subsidiary.
3.14 Compliance with Laws. Neither Colonial nor any of the Colonial
Subsidiaries has violated or failed to comply with any statute, law, ordinance,
regulation, rule,
45
judgment, decree or order of any Governmental Entity applicable to its business,
properties or operations, except to the extent that such violation or failure
would not reasonably be expected to have a Colonial Material Adverse Effect.
3.15 Contracts; Debt Instruments. Neither Colonial nor any Colonial
Subsidiary has received a written notice that it is in violation of or in
default under (nor to the Knowledge of Colonial does there exist any condition
which upon the passage of time or the giving of notice or both would cause such
a violation of or default under) any material loan or credit agreement, note,
bond, mortgage, indenture, lease, permit, concession, franchise, license or any
other material contract, agreement, arrangement or understanding, to which it is
a party or by which it or any of its properties or assets is bound, nor to the
Knowledge of Colonial does such a violation or default exist, except to the
extent such violation or default, individually or in the aggregate, would not
reasonably be expected to have a Colonial Material Adverse Effect.
3.16 Opinion of Financial Advisor. Colonial has received the opinion
of Banc of America Securities LLC, Colonial's financial advisor, to the effect
that as of the date of the opinion the Merger Consideration to be paid by
Colonial in connection with the Merger is fair, from a financial point of view
to Colonial. Within 15 days after the date hereof, Colonial will have received
the written opinion of Banc of America Securities LLC to such effect.
3.17 State Takeover Statutes. Colonial has taken all action
necessary to exempt the transactions contemplated by this Agreement between
Colonial and Cornerstone and its Affiliates from the operation of Takeover
Statutes.
3.18 Investment Company Act of 1940. Neither Colonial nor any of the
Colonial Subsidiaries is required to be registered under the 0000 Xxx.
3.19 Definition of "Knowledge of Colonial". As used in this
Agreement, the phrase "Knowledge of Colonial" (or words of similar import) means
the actual knowledge of those individuals identified in Schedule 3.19 to the
Colonial Disclosure Letter.
3.20 Required Shareholder Approval. The affirmative vote of the
holders of not less than a majority of all votes cast by holders of Colonial
Common Shares (provided the votes cast constitute over 50% of the then
outstanding Colonial Common Shares) is the only vote or approval of the holders
of any class or series of Colonial capital shares necessary or required under
applicable law to approve the issuance of Colonial Common Shares, Colonial
Series E Preferred Depositary Shares and related Colonial Series E Preferred
Shares contemplated by the Merger. The approval of Colonial, as general partner,
is the only vote or approval of the holders of any class or series of Colonial
Partnership's partnership interests necessary or required under the Colonial
Partnership Agreement or under applicable law to approve the issuance of the
Colonial Series E Preferred OP Units contemplated by the Merger. The approval of
Colonial, as general partner, has been obtained.
46
ARTICLE 4
COVENANTS
4.1 Conduct of Cornerstone's Business Pending Merger. During the
period from the date of this Agreement to the Effective Time, except as
consented to in writing by Colonial (it being understood that Colonial shall
promptly respond to Cornerstone's communications requesting such consent) or as
expressly provided for in this Agreement, Cornerstone shall, and shall cause
each of the Cornerstone Subsidiaries to:
(a) conduct its business only in the usual, regular and
ordinary course and in substantially the same manner as heretofore conducted
(except, with respect to any matter that is the subject of a particular
subsection of this Section 4.1, as otherwise permitted by such subsection);
(b) use commercially reasonable efforts to preserve intact its
business organizations and goodwill and, provided it does not require additional
compensation, keep available the services of its officers and employees;
(c) confer on a regular basis with one or more representatives
of Colonial to report operational matters of materiality and, subject to Section
4.3, any proposals to engage in material transactions;
(d) promptly notify Colonial of any material emergency or
other material change in the condition (financial or otherwise), business,
properties, assets, liabilities or the normal course of its businesses or in the
operation of its properties, or of any material governmental complaints,
investigations or hearings (or communications indicating that the same may be
contemplated);
(e) promptly deliver to Colonial true and correct copies of
any report, statement, schedule or other document filed with the SEC subsequent
to the date of this Agreement;
(f) maintain its books and records in accordance with GAAP
consistently applied and not change in any material manner any of its methods,
principles or practices of accounting in effect at the Cornerstone Financial
Statement Date, except as may be required by the SEC, applicable law or GAAP;
(g) duly and timely file all reports, tax returns and other
documents required to be filed with federal, state, local and other authorities,
subject to extensions permitted by law, provided Cornerstone notifies Colonial
that it is availing itself of such extensions and provided such extensions do
not adversely affect Cornerstone's status as a qualified REIT under the Code,
and timely pay all material Taxes;
(h) maintain in full force and effect insurance coverage
substantially similar to insurance coverage maintained on the date hereof;
47
(i) not (i) make or rescind any express or deemed election
relative to Taxes (unless such election or rescission is required by law or
necessary (1) to preserve Cornerstone's status as a REIT, or (2) to qualify or
preserve the status of any Cornerstone Subsidiary as a partnership for federal
income tax purposes, as a qualified REIT subsidiary under Section 856(i) of the
Code, or as a taxable REIT subsidiary under Section 856(l) of the Code, as the
case may be (in which event Cornerstone or the applicable Cornerstone Subsidiary
shall not fail to make such election in a timely manner)) and (ii) fail to take
any and all actions with respect to the income, assets and operations of
Cornerstone for the period from the date hereof to the Effective Time necessary
for Cornerstone to satisfy the requirements to qualify as a REIT;
(j) not (i) except as set forth on Schedule 4.1(j) to the
Cornerstone Disclosure Letter, acquire, enter into any option to acquire, or
exercise an option or other right or election or enter into any other commitment
or contractual obligation (each, a "Commitment") for the acquisition, whether by
merger, consolidation, asset acquisition, like-kind exchange or otherwise, of
any real property or, except as permitted in a capital expenditures budget or
other budget approved in writing by Colonial, other transaction involving in
excess of $100,000, (ii) encumber assets or commence construction of, or enter
into any Commitment to develop or construct other real estate projects, except
in the ordinary course of its business, including leasing activities in the
ordinary course of business and consistent with past practice, (iii) incur or
enter into any Commitment to incur additional indebtedness (secured or
unsecured) except for (A) incurrences under its revolving line of credit for
working capital and the other uses set forth on Schedule 4.1(j) to the
Cornerstone Disclosure Letter and (B) Commitments for indebtedness for the
purposes and not in excess of the amounts described on Schedule 4.1(j) to the
Cornerstone Disclosure Letter or (iv) modify, amend or terminate, or enter into
any Commitment to modify, amend or terminate, any indebtedness (secured or
unsecured) in existence as of the date hereof;
(k) not amend the Cornerstone Articles or the Cornerstone
Bylaws, or the articles or certificate of incorporation, bylaws, code of
regulations, partnership agreement, operating agreement or joint venture
agreement or comparable charter or organization document of any Cornerstone
Subsidiary;
(l) not classify or re-classify any unissued shares of capital
stock;
(m) not issue, sell, pledge, dispose of, grant or encumber
shares of capital stock of Cornerstone or securities convertible into shares of
capital stock of Cornerstone or authorize or make any change in the number
(including by reclassification, combination, split, subdivision or redemption)
of shares of capital stock, membership interests or units of limited partnership
interest issued and outstanding, other than pursuant to (i) the exercise of
options disclosed in Schedule 2.3(b) to the Cornerstone Disclosure Letter, (ii)
the exchange of Cornerstone Non-Preferred Units for Cornerstone Preferred Units
under the Partnership Agreement, (iii) the redemption of Cornerstone Preferred
Units under the Cornerstone Partnership Agreement solely for Cornerstone Common
Shares, unless, and only to the extent that, such redemption solely for
Cornerstone Common Shares would reasonably be expected to cause Cornerstone not
to qualify as a REIT for federal income tax purposes, (iv) issuances of
Cornerstone Common Shares pursuant to Cornerstone's existing dividend
reinvestment plan (but only in connection with the reinvestment of Cornerstone
dividends), or (v) Section 5.15;
48
(n) grant no options or other right or commitment relating to
its shares of capital stock, membership interests or units of limited
partnership interest or any security convertible into its shares of capital
stock, membership interests or units of limited partnership interest, or any
security the value of which is measured by shares of capital stock, membership
interests or units of limited partnership interest, or any security subordinated
to the claim of its general creditors and not amend or waive any rights under
any of the Cornerstone Stock Options;
(o) except as provided in Section 1.13(d)(i), Section 5.10, or
Section 5.15 or in connection with the use of Cornerstone Common Shares to pay
the exercise price or tax withholding in connection with equity-based employee
benefit plans by the participants therein, not (i) authorize, declare, set aside
or pay any dividend or make any other distribution or payment with respect to
any Cornerstone Common Share, Cornerstone Preferred Share or Cornerstone
Preferred Unit or (ii) directly or indirectly redeem, purchase or otherwise
acquire any shares of capital stock, membership interests or units of
partnership interest or any option, warrant or right to acquire, or security
convertible into, shares of capital stock, membership interests or units of
partnership interest of Cornerstone or any Cornerstone Subsidiary, except for
(iii) exchanges of Cornerstone Non-Preferred Units for Cornerstone Preferred
Units under the Cornerstone Partnership Agreement or (iv) redemptions of
Cornerstone Preferred Units under the Cornerstone Partnership Agreement in which
solely Cornerstone Common Shares are utilized;
(p) not sell, lease, mortgage, subject to Lien (or, in the
case of an involuntary Lien, fail to have such Lien removed within 30 days of
the creation thereof) or otherwise dispose of any of the Cornerstone Properties,
except in connection with a transaction that is permitted by Section 4.1(j),
that is made in the ordinary course of business and is the subject of a binding
contract in existence on the date of this Agreement and disclosed in Schedule
2.18 to the Cornerstone Disclosure Letter or in connection with leasing
activities in the ordinary course of business and consistent with past practice;
(q) not sell, lease, mortgage, subject to Lien or otherwise
dispose of any of its personal property or intangible property, except in the
ordinary course of business and with respect to property that is not material,
individually or in the aggregate;
(r) not make any loans, advances or capital contributions to,
or investments in, any other Person, other than loans, advances and capital
contributions to Cornerstone Subsidiaries in existence on the date hereof and
ordinary course expense advances to employees and except in connection with a
transaction permitted by Section 4.1(j) or a transaction set forth on Schedule
4.1(r) to the Cornerstone Disclosure Letter;
(s) except as set forth in Schedule 4.1(s) to the Cornerstone
Disclosure Letter, not pay, discharge or satisfy any claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge or satisfaction, in the ordinary
course of business consistent with past practice or in accordance with their
terms, of liabilities reflected or reserved against in, or contemplated by, the
most recent consolidated financial statements (or the notes thereto) furnished
to Colonial or incurred in the ordinary course of business consistent with past
practice;
49
(t) not guarantee the indebtedness of another Person, enter
into any "keep well" or other agreement to maintain any financial statement
condition of another Person or enter into any arrangement having the economic
effect of any of the foregoing;
(u) not enter into any Commitment with any officer, director
or Affiliate of Cornerstone or any of the Cornerstone Subsidiaries or any
material Commitment with any consultant;
(v) not increase any compensation, award or pay any bonus or
enter into or amend any employment, severance or other arrangement with any of
its officers or directors or any of its employees, except (i) with respect to
any officer, director or employee (other than property-level employees), as set
forth under the arrangements with respect to officers, directors and employees
(other than property-level employees) on Schedule 4.1(v) to the Cornerstone
Disclosure Letter, or (ii) with respect to any property-level employee, as set
forth under the plan with respect to property-level employees described on
Schedule 4.1(v) to the Cornerstone Disclosure Letter;
(w) not adopt any new employee benefit plan or amend any
existing plans or rights;
(x) not settle any shareholder derivative or class action
claims arising out of or in connection with any of the transactions contemplated
by this Agreement;
(y) except as set forth in Schedule 4.1(y) to the Cornerstone
Disclosure Letter, not change its ownership of any of its Subsidiaries, except
changes which arise as a result of the acquisition of Cornerstone Preferred
Units in exchange for Cornerstone Common Shares pursuant to exercise of the
Cornerstone Preferred Unit redemption right under the Cornerstone Partnership
Agreement;
(z) not accept a promissory note in payment of the exercise
price payable under any option to purchase Cornerstone Common Shares;
(aa) not enter into any Tax Protection Agreement;
(bb) not settle or compromise any material federal, state,
local or foreign tax liability; and
(cc) not authorize, recommend, propose or announce an
intention to do any of the foregoing prohibited actions, or enter into any
contract, agreement, commitment or arrangement to do any of the foregoing
prohibited actions.
4.2 Conduct of Colonial's and Colonial Merger Sub's Business Pending
Merger. During the period from the date of this Agreement to the Effective Time,
except as consented to in writing by Cornerstone (it being understood that
Cornerstone shall promptly respond to Colonial's communications requesting such
consent) or as expressly contemplated in this Agreement, Colonial and Colonial
Merger Sub shall, and shall cause each of the Colonial Subsidiaries to:
50
(a) conduct its business only in the usual, regular and
ordinary course and in substantially the same manner as heretofore conducted
(except, with respect to any particular matter that is the subject of a
particular subsection of this Section 4.2, as otherwise permitted by such
subsection);
(b) use commercially reasonable efforts to preserve intact its
business organizations and goodwill and, provided it does not require additional
compensation, keep available the services of its officers and employees;
(c) confer on a regular basis with one or more representatives
of Cornerstone to report operational matters of materiality which would
reasonably be expected to have a Colonial Material Adverse Effect;
(d) promptly notify Cornerstone of any material emergency or
other material change in the condition (financial or otherwise), business,
properties, assets, liabilities, prospects or the normal course of its business
or in the operation of its properties, or of any material governmental
complaints, investigations or hearings (or communications indicating that the
same may be contemplated);
(e) promptly deliver to Cornerstone true and correct copies of
any report, statement, schedule or other document filed with the SEC subsequent
to the date of this Agreement;
(f) maintain its books and records in accordance with GAAP
consistently applied and not change in any material manner any of its methods,
principles or practices of accounting in effect at the Colonial Financial
Statement Date, except as may be required by the SEC, applicable law or GAAP;
(g) duly and timely file all reports, tax returns and other
documents required to be filed with federal, state, local and other authorities,
subject to extensions permitted by law, provided such extensions do not
adversely affect Colonial's status as a qualified REIT under the Code, and
timely pay all material Taxes;
(h) maintain in full force and effect insurance coverage
substantially similar to insurance coverage maintained on the date hereof;
(i) not (i) make or rescind any express or deemed election
relative to Taxes (unless such election or rescission is required by law or
necessary (1) to preserve Colonial's status as a REIT, or (2) to qualify or
preserve the status of any Colonial Subsidiary as a partnership for federal
income tax purposes, as a qualified REIT subsidiary under Section 856(i) of the
Code, or as a taxable REIT subsidiary under Section 856(l) of the Code, as the
case may be (in which event Colonial or the applicable Colonial Subsidiary shall
not fail to make such election in a timely manner)) and (ii) fail to take any
and all actions with respect to the income, assets and operations of Colonial
for the period from the date hereof to the Effective Time necessary for Colonial
to satisfy the requirements to qualify as a REIT;
51
(j) not (i) acquire or enter into or exercise any Commitment
for the acquisition, whether by merger, consolidation, asset acquisition,
like-kind exchange or otherwise, of any real property, except for (A) proposed
acquisitions or Commitments described in Schedule 4.2(j) to the Colonial
Disclosure Letter, (B) additional acquisitions or Commitments that do not, in
the aggregate, exceed the sum of (I) $430,000,000 in total consideration payable
by Colonial, Colonial Partnership or any other Colonial Subsidiary and (II) the
amount of any proposed acquisitions or Commitments described on Schedule 4.2(j)
that have been abandoned by Colonial (such amount for any proposed acquisition
or Commitment being specified on such Schedule 4.2(j)) and (C) any Cornerstone
LP Acquisition Transaction meeting the requirements of Section 1.15 (provided
that any such acquisitions or Commitments would not, in the judgment of
Colonial, after consultation with Cornerstone, require Colonial or Cornerstone
to recirculate to their respective shareholders the Joint Proxy Statement that
forms a part of the Form S-4 after the initial mailing thereof), or (ii) incur,
or enter into any contractual obligation to incur, additional Indebtedness
(secured or unsecured) that, if incurred, would cause Colonial, Colonial
Partnership or any other Colonial Subsidiary to violate a covenant or result in
an event of default under Colonial Partnership's revolving credit facility or
senior notes indenture;
(k) not amend the Colonial Declaration of Trust, the Colonial
Bylaws or the Colonial Partnership Agreement, except for (i) the Colonial
Declaration of Trust Amendment (as defined herein), (ii) the Colonial
Partnership Amendment, (iii) amendments in connection with additional issuances
of Colonial Common Shares or Colonial Preferred Shares permitted under Section
4.2(m), and (iv) to the extent necessary to reflect the admission of additional
limited partners and other amendments in connection therewith that can be made
by Colonial without a vote of limited partners and that will not, individually
or in the aggregate, materially adversely affect the rights or obligations of
holders of Colonial OP Units;
(l) not classify or reclassify any unissued shares of
beneficial interest of Colonial other than in connection with any issuance of
any equity securities permitted under this Section 4.2;
(m) not issue, sell, pledge, dispose of, grant or encumber
shares of beneficial interest of Colonial or securities convertible into shares
of beneficial interest of Colonial or authorize or make any change in the number
(including by reclassification, combination, split, subdivision or redemption)
of shares of beneficial interest, capital stock, membership interests or units
of limited partnership interest issued and outstanding, other than pursuant to
(i) the exercise of options disclosed in Schedule 3.3(b) to the Colonial
Disclosure Letter or the grant of options permitted by Section 4.2(n), (ii) the
issuance of shares of beneficial interest of Colonial or units of limited
partnership of Colonial Partnership in one or more offerings for cash that do
not, in the aggregate, exceed $300,000,000 in total offering value, (iii) the
issuance of shares of beneficial interest of Colonial or units of limited
partnership interest of Colonial Partnership in connection with any acquisition
permitted by Section 4.2(j), (iv) the redemption of Colonial OP Units and
Colonial Series B Preferred OP Units under the Colonial Partnership Agreement
solely for Colonial Common Shares and Colonial Series B Preferred Shares,
respectively, unless, and only to the extent that, such redemption solely for
Colonial Common Shares and Colonial Series B Preferred Shares would reasonably
be expected to cause Colonial not to qualify as a REIT for federal income tax
purposes, (v) the issuance of restricted
52
shares granted to trustees and officers under Colonial's Second Amended and
Restated Employee Share Option and Restricted Share Plan, as amended, or (vi)
the issuance of shares of beneficial interest of Colonial or units of limited
partnership interest of Colonial Partnership in connection with any Cornerstone
LP Acquisition Transaction meeting the requirements of Section 1.15;
(n) except for Colonial Options granted to trustees, officers
and employees under Colonial's Second Amended and Restated Employee Share Option
and Restricted Share Plan, as amended, grant no options or other right or
commitment relating to its shares of beneficial interest, capital stock,
membership interests or units of limited partnership interest or any security
convertible into its shares of beneficial interest, capital stock, membership
interests or units of limited partnership interest, or any security the value of
which is measured by shares of beneficial interest, capital stock, membership
interests or units of limited partnership interest, or any security subordinated
to the claim of its general creditors and not amend or waive any rights under
any of the Colonial Options;
(o) except as provided in Section 1.13(d)(ii) or Section 5.10
hereof or in connection with the use of Colonial Common Shares to pay the
exercise price or tax withholding in connection with equity-based employee
benefit plans by the participants therein, not (i) authorize, declare, set aside
or pay any dividend or make any other distribution or payment with respect to
any Colonial Common Shares, Colonial Preferred Shares or Colonial OP Units or
(ii) directly or indirectly redeem, purchase or otherwise acquire any shares of
capital stock, membership interests or units of partnership interest or any
option, warrant or right to acquire, or security convertible into, shares of
capital stock, membership interests, or units of partnership interest of
Colonial or any Colonial Subsidiary, except for (A) purchases of Colonial Excess
Shares (as defined in the Colonial Declaration of Trust) provided for under
Section 6.4(f) of the Colonial Declaration of Trust in order to preserve the
status of Colonial as a REIT under the Code, (B) redemptions of Colonial OP
Units, whether or not outstanding on the date of this Agreement, under the
Colonial Partnership Agreement in which Colonial Common Shares are utilized, and
(C) acquisitions of Partnership Interests in the Colonial Partnership pursuant
to Section 4.2A of the Colonial Partnership Agreement in connection with
additional issuances of Colonial Common Shares or Colonial Preferred Shares;
(p) not sell, mortgage, voluntarily subject to Lien or
otherwise dispose of any of the material Colonial Properties, individually or in
the aggregate, outside the ordinary course of business, except for (i) the
dispositions set forth on Schedule 4.2(p) to the Colonial Disclosure Letter and
(ii) such other dispositions of Colonial Properties or interests therein that do
not, in the aggregate, exceed the sum of (A) $300,000,000 in value and (B) the
amount of any dispositions described in Schedule 4.2(p) that have been abandoned
by Colonial (the amount of any such abandoned disposition being specified on
Schedule 4.2(p)) (provided that any such dispositions would not, in the judgment
of Colonial, after consultation with Cornerstone, require Colonial or
Cornerstone to recirculate to their respective shareholders the Joint Proxy
Statement that forms a part of the Form S-4 after the initial mailing thereof);
(q) not settle any shareholder derivative or class action
claims arising out of or in connection with any of the transactions contemplated
by this Agreement; and
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(r) not authorize, recommend, propose or announce an intention
to do any of the foregoing prohibited actions, or enter into any contract,
agreement, commitment or arrangement to do any of the foregoing prohibited
actions.
4.3 No Solicitation.
(a) (i) Cornerstone shall not, and shall not permit any
Cornerstone Subsidiary to, invite, initiate, solicit or knowingly encourage,
directly or indirectly, any inquiries, proposals, discussions or negotiations or
the making or implementation of any proposal or offer (including, without
limitation, any proposal or offer to its shareholders) with respect to any
direct or indirect (A) merger, consolidation, business combination,
reorganization, recapitalization, liquidation, dissolution or similar
transaction, (B) sale, acquisition, tender offer, exchange offer (or the filing
of a registration statement under the Securities Act in connection with such an
exchange offer), share exchange or other transaction or series of related
transactions that, if consummated, would result in the issuance of securities
representing, or the sale, exchange or transfer of, 10% or more of the
outstanding voting equity securities of Cornerstone or outstanding partnership
interests of Cornerstone Partnership, or (C) sale, lease, exchange, mortgage,
pledge, transfer or other disposition ("Transfer") of any assets of Cornerstone
or Cornerstone Partnership, or any other Cornerstone Subsidiary, in one or a
series of related transactions that, if consummated, would result in the
Transfer of more than 10% of the assets directly and indirectly owned by
Cornerstone and Cornerstone Partnership, other than the Merger (any such
proposal or offer being hereinafter referred to as an "Acquisition Proposal"),
or engage in any discussions or negotiations with or provide any confidential or
non-public information or data to, or afford access to properties, books or
records to, any Person relating to, or that would reasonably be expected to lead
to, an Acquisition Proposal, or enter into any letter of intent, agreement in
principle or agreement relating to an Acquisition Proposal, or propose publicly
to agree to do any of the foregoing, or otherwise facilitate any effort or
attempt to make or implement an Acquisition Proposal.
(ii) Cornerstone shall not, and shall not permit any
Cornerstone Subsidiary to, permit any officer, director, employee, affiliate,
agent, investment banker, financial advisor, attorney, accountant, broker,
finder, consultant or other agent or representative of Cornerstone, Cornerstone
Partnership or any Cornerstone Subsidiary (each, a "Cornerstone Representative")
to engage in any of the activities described in Section 4.3(a)(i).
(iii) (A) Cornerstone shall, and shall cause each
Cornerstone Subsidiary to, immediately cease and cause to be terminated any
existing activities specified in Section 4.3(a)(i) and take commercially
reasonable actions to inform each Cornerstone Representative, and each of the
Persons referred to in Section 4.3(b), of the obligations undertaken in this
Section 4.3 and to cause each Cornerstone Representative to comply with such
obligations, and (B) Cornerstone shall, and shall cause each Cornerstone
Subsidiary to, promptly request each Person, if any, that has executed a
confidentiality agreement within the twelve (12) months prior to the date hereof
in connection with its consideration of any Acquisition Proposal to return or
destroy all confidential information heretofore furnished to such Person by or
on behalf of Cornerstone or the Cornerstone Subsidiaries.
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(iv) Cornerstone shall, and shall cause each Cornerstone
Subsidiary to, (A) notify Colonial promptly (but in any event within twenty-four
(24) hours), orally and in writing, if Cornerstone, Cornerstone Partnership, any
other Cornerstone Subsidiary or any Cornerstone Representative receives (1) an
Acquisition Proposal or any material amendment or change in any previously
received Acquisition Proposal, (2) any inquiries or proposals from, or any
request for discussions or negotiations made by, any Person which reasonably
indicates to the recipient that such Person intends to make an Acquisition
Proposal, (3) any request for confidential or nonpublic information or data
relating to, or for access to the properties, books or records of, Cornerstone,
Cornerstone Partnership or any Cornerstone Subsidiary by any Person that has
made, or to such party's knowledge may be considering making, an Acquisition
Proposal (unless, in the case of this clause (3), notice to Colonial of such
Acquisition Proposal has already been given), or (4) any oral or written
expression that any such activities, discussions or negotiations are sought to
be initiated or continued with it, and, as applicable, include in such notice
the identity of the Person making such Acquisition Proposal, indication or
request, the material terms of such Acquisition Proposal, indication or request
and, if in writing, shall promptly deliver to Colonial copies of any proposals,
indications of interest, indication or request along with all other related
documentation and correspondence; and (B) keep Colonial informed of the status
and material terms of (including all changes to the status or material terms of)
any such Acquisition Proposal, indication or request.
(b) Notwithstanding Section 4.3(a), the Board of Directors of
Cornerstone (including with respect to Cornerstone's capacity as the sole
general partner of Cornerstone Partnership) shall not be prohibited from
furnishing information to or entering into discussions or negotiations with, any
Person that makes a bona fide written Acquisition Proposal to the Board of
Directors of Cornerstone after the date hereof which was not invited, initiated,
solicited or knowingly encouraged, directly or indirectly, by Cornerstone,
Cornerstone Partnership, any other Cornerstone Subsidiary or any Cornerstone
Representative on or after the date hereof, if, and only to the extent that (i)
a majority of the Board of Directors of Cornerstone determines in good faith,
after consultation with its financial advisors of nationally recognized
reputation and outside legal counsel, that such Acquisition Proposal is
reasonably likely to result in a Superior Acquisition Proposal (as defined
herein), (ii) Cornerstone complies in all material respects with all of its
obligations under this Section 4.3, (iii) prior to initially furnishing any
information to, or entering into discussions or negotiations with, such Person,
Cornerstone provides written notice to Colonial to the effect that it is
furnishing information to, or entering into discussions with such Person and
(iv) Cornerstone enters into a confidentiality agreement with such Person the
material terms of which are (without regard to the terms of such Acquisition
Proposal) in all material respects no less favorable to Cornerstone, and no less
restrictive to the Person making such Acquisition Proposal, than those contained
in the Confidentiality Agreement (other than those relating to the standstill
provisions contained therein).
(c) Notwithstanding anything to the contrary set forth in
Section 4.3(a) or 4.3(b), in the event that an Acquisition Proposal constitutes
a Superior Acquisition Proposal, nothing contained in this Section 4.3 shall
prohibit the Board of Directors of Cornerstone from withdrawing, modifying,
amending or qualifying its recommendation of this Agreement and the Merger as
required under Section 5.1(d) hereof and recommending such Superior Acquisition
Proposal to its shareholders: (i) if but only if, Cornerstone: (A) complies in
all material respects
55
with this Section 4.3 and (B) provides Colonial with at least three (3) business
days' prior written notice of its intent to withdraw, modify, amend or qualify
its recommendation of this Agreement or the Merger, (ii) if, in the event that
during such three (3) business days Colonial makes a counter proposal to such
Superior Acquisition Proposal (any such counter proposal being referred to in
this Agreement as the "Colonial Counter Proposal"), Cornerstone's Board of
Directors in good faith, taking into account the advice of its outside financial
advisors of nationally recognized reputation, determines that (A) the Colonial
Counter Proposal is not at least as favorable to Cornerstone's shareholders as
the Superior Acquisition Proposal, from a financial point of view, and (B) the
Colonial Counter Proposal is not at least as favorable generally to
Cornerstone's shareholders (taking into account all financial and strategic
considerations and other relevant factors, including relevant legal, financial,
regulatory and other aspects of such proposals, and the conditions, prospects
and time required for completion of such proposal), and (iii) if Cornerstone
shall have concurrently terminated this Agreement in accordance with Section
7.1(h).
(d) For all purposes of this Agreement, "Superior Acquisition
Proposal" means a bona fide written proposal made by a third party to acquire,
directly or indirectly, Cornerstone and/or Cornerstone Partnership pursuant to a
tender or exchange offer, merger, share exchange, consolidation or sale of all
or substantially all of the assets of Cornerstone, Cornerstone Partnership, and
the Cornerstone Subsidiaries or otherwise (i) on terms which a majority of the
Board of Directors of Cornerstone determines in good faith, after consultation
with Cornerstone's financial advisors of nationally recognized reputation, to be
more favorable generally to Cornerstone's shareholders (taking into account all
financial and strategic considerations and other relevant factors, including
relevant legal, financial, regulatory and other aspects of such proposals, and
the conditions, prospects and time required for completion of such proposal) and
(ii) which the Board of Directors of Cornerstone determines in good faith is
reasonably capable of being consummated.
(e) Any action taken or disclosure that Cornerstone may be
compelled to make with respect to the receipt of an Acquisition Proposal in
order to comply with its duties to shareholders imposed by applicable law or
Rule 14d-9 or 14e-2 of the Exchange Act will not constitute a violation of this
Section 4.3.
(f) Nothing in this Section 4.3 shall (i) permit either party
to terminate this Agreement (except as expressly provided in Article 7) or (ii)
affect any other obligations of such party under this Agreement.
4.4 Affiliates. Prior to the Effective Time of the Merger,
Cornerstone shall cause to be prepared and delivered to Colonial a list
(reasonably satisfactory to counsel for Colonial) identifying all Persons who,
at the time of the Cornerstone Shareholders Meeting and the Colonial
Shareholders Meeting, may be deemed to be "affiliates" of Cornerstone as that
term is used in paragraphs (c) and (d) of Rule 145 under the Securities Act (the
"Rule 145 Affiliates"). Cornerstone shall use its commercially reasonable
efforts to cause each Person who is identified as a Rule 145 Affiliate in such
list to deliver to Colonial on or prior to the Effective Time a written
agreement, in the form previously approved by the parties hereto, that such Rule
145 Affiliate will not sell, pledge, transfer or otherwise dispose of any
Colonial Common Shares or
56
Colonial Series E Preferred Depositary Shares issued to such Rule 145 Affiliate
pursuant to the Merger, except pursuant to an effective registration statement
under the Securities Act or in compliance with paragraph (d) of Rule 145 or as
otherwise permitted by the Securities Act. Colonial shall be entitled to place
legends as specified in such written agreements on the certificates representing
any Colonial Common Shares or Colonial Series E Preferred Depositary Shares to
be received pursuant to the terms of this Agreement by such Rule 145 Affiliates
who have executed such agreements and to issue appropriate stop transfer
instructions to the transfer agent for the Colonial Common Shares and Colonial
Series E Preferred Depositary Shares issued to such Rule 145 Affiliates,
consistent with the terms of such agreements. Colonial shall timely file the
reports required to be filed by it under the Exchange Act and the rules and
regulations adopted by the SEC thereunder, and it will take such further action
as any Rule 145 Affiliate may reasonably request, all to the extent required
from time to time to enable such Rule 145 Affiliate to sell Colonial Common
Shares and Colonial Series E Preferred Depositary Shares received by such Rule
145 Affiliate in the Merger without registration under the Securities Act
pursuant to (i) Rule 145(d)(1) under the Securities Act, as such rule may be
amended from to time, or (ii) any successor rule or regulation hereafter adopted
by the SEC.
4.5 Other Actions. Cornerstone, on the one hand, and Colonial, on
the other hand, shall not take, and shall cause their respective Subsidiaries
not to take, any action that would result in (i) any of the representations and
warranties of such party (without giving effect to any "knowledge"
qualification) set forth in this Agreement that are qualified as to materiality
becoming untrue, (ii) any of such representations and warranties (without giving
effect to any "knowledge" qualification) that are not so qualified becoming
untrue in any material respect or (iii) except as contemplated by Section 4.3,
any of the conditions to the Merger set forth in Article 6 not being satisfied.
ARTICLE 5
ADDITIONAL COVENANTS
5.1 Preparation of the Form S-4 and the Joint Proxy Statement;
Cornerstone Shareholders Meeting and Colonial Shareholders Meeting.
(a) As promptly as practicable after execution of this
Agreement, (i) each of Cornerstone and Colonial shall prepare and file with the
SEC under the Exchange Act, one or more joint proxy statements/prospectuses,
forms of proxies and information statements (such joint proxy
statement(s)/prospectus(es) and information statements together with any
amendments to supplements thereto, the "Joint Proxy Statement") relating to the
Cornerstone Shareholders Meeting and the Colonial Shareholders Meeting, the vote
of the shareholders of Cornerstone with respect to the Cornerstone Shareholder
Approval and the vote of shareholders of Colonial with respect to the Colonial
Shareholder Approval and (ii) in connection with the clearance by the SEC of the
Joint Proxy Statement, Colonial and Cornerstone shall prepare and file with the
SEC under the Securities Act one or more registration statements on Form S-4
(such registration statements, together with any amendments or supplements
thereto, the "Form S-4"), in which the Joint Proxy Statement will be included,
as one or more prospectuses in connection with the registration under the
Securities Act of the Colonial Common Shares and Colonial
57
Series E Preferred Depositary Shares to be issued to the holders of Cornerstone
Common Shares in the Merger. The respective parties will cause the Joint Proxy
Statement and the Form S-4 to comply as to form in all material respects with
the applicable provisions of the Securities Act, the Exchange Act and the rules
and regulations thereunder. Each of Cornerstone and Colonial shall furnish all
information about itself and its business and operations and all necessary
financial information to the other as the other may reasonably request in
connection with the preparation of the Joint Proxy Statement and the Form S-4.
Each of Colonial and Cornerstone, if applicable, shall use its commercially
reasonable efforts, and Cornerstone will cooperate with Colonial, to have the
Form S-4 declared effective by the SEC as promptly as practicable (including
clearing the Joint Proxy Statement with the SEC). Cornerstone, on the one hand,
and Colonial, on the other hand, agree promptly to correct any information
provided by them for use in the Joint Proxy Statement and the Form S-4 if and to
the extent that such information shall have become false or misleading in any
material respect, and each of the parties hereto further agrees to take all
steps necessary to amend or supplement the Joint Proxy Statement and the Form
S-4 and to cause the Joint Proxy Statement and the Form S-4 as amended or
supplemented to be filed with the SEC and to be disseminated to their respective
shareholders and partners, in each case as and to the extent required by
applicable federal and state securities laws. Cornerstone and Colonial agree
that the information provided by it for inclusion in the Joint Proxy Statement
or the Form S-4 and each amendment or supplement thereto, at the time of mailing
thereof and at the time of the respective meetings of shareholders of
Cornerstone and Colonial, 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. Colonial will advise and deliver copies (if any) to
Cornerstone, promptly after it receives notice thereof, of any request by the
SEC for amendment of the Joint Proxy Statement or the Form S-4 or comments
thereon and responses thereto or requests by the SEC for additional information
(regardless of whether such requests relate to Colonial, on the one hand, or
Cornerstone, on the other hand), and Colonial shall promptly notify Cornerstone,
and Cornerstone shall promptly notify Colonial, if applicable, of (i) the time
when the Form S-4 has become effective, (ii) the filing of any supplement or
amendment thereto, (iii) the issuance of any stop order, and (iv) the suspension
of the qualification and registration of the Colonial Common Shares or Colonial
Series E Preferred Depositary Shares issuable in connection with the Merger.
Notwithstanding anything to the contrary contained herein, Colonial, in its
discretion, shall be entitled to include in the Joint Proxy Statement a proposal
to its shareholders to (i) amend the Colonial Declaration of Trust, in
accordance with the Alabama REIT Law, to provide for an increase in the number
of authorized Colonial Common Shares to 125,000,000 and an increase in the
number of authorized Colonial Preferred Shares to 20,000,000 (any such
amendment, the "Colonial Declaration of Trust Amendment") and (ii) authorize the
issuance of up to 15,000,000 additional Colonial Preferred Shares.
(b) Each of Cornerstone and Colonial shall use its
commercially reasonable efforts to timely mail the Joint Proxy Statement to its
shareholders. It shall be a condition to the mailing of such Joint Proxy
Statement that (i) Colonial shall have received a "comfort" letter from Ernst &
Young LLP, independent public accountants for Cornerstone and Cornerstone
Partnership, of the kind contemplated by the Statement of Auditing Standards
with respect to Letters to Underwriters promulgated by the American Institute of
Certified Public
58
Accountants (the "AICPA Statement"), dated as of the date on which the Form S-4
shall become effective and as of the Effective Time, addressed to Colonial, in
form and substance reasonably satisfactory to Colonial, concerning the
procedures undertaken by Ernst & Young LLP, with respect to the financial
statements and information of Cornerstone and its Subsidiaries contained in the
Form S-4 and the other matters contemplated by the AICPA Statement and otherwise
customary in scope and substance for letters delivered by independent public
accountants in connection with transactions such as those contemplated by this
Agreement and (ii) Cornerstone shall have received a "comfort" letter from
PricewaterhouseCoopers LLP, independent public accountants for Colonial and
Colonial Partnership, of the kind contemplated by the AICPA Statement, dated as
of the date on which the Form S-4 shall become effective and as of the Effective
Time, addressed to Cornerstone, in form and substance reasonably satisfactory to
Cornerstone, concerning the procedures undertaken by PricewaterhouseCoopers LLP,
with respect to the financial statements and information of Colonial and its
Subsidiaries contained in the Form S-4 and the other matters contemplated by the
AICPA Statement and otherwise customary in scope and substance for letters
delivered by independent public accountants in connection with transactions such
as those contemplated by this Agreement. Cornerstone also shall use commercially
reasonable efforts to cause McGuireWoods LLP or other counsel reasonably
satisfactory to Colonial to have delivered an opinion, which opinion shall be
filed as an exhibit to the Form S-4, as to the federal income tax matters
described in clause (i) of Section 6.2(d) and Section 6.3(e) and such other
federal income tax matters as are required to be addressed in the Form S-4 and
the Joint Proxy Statement under the applicable rules of the SEC. Colonial shall
use commercially reasonable efforts to cause Xxxxx & Xxxxxxx L.L.P. or other
counsel reasonably satisfactory to Cornerstone to have delivered an opinion,
which opinion shall be filed with the SEC as an exhibit to the Form S-4, as to
the federal income tax matters described in clause (ii) of Section 6.2(d),
Section 6.2(e) and Section 6.3(d). Such opinions shall contain customary
exceptions, assumptions and qualifications and be based upon customary
representations.
(c) Colonial will duly call and give notice of and, as soon as
practicable following the date of this Agreement (but in no event sooner than 20
business days following the date the Joint Proxy Statement is mailed to the
shareholders of Colonial), convene and hold a meeting of its shareholders (the
"Colonial Shareholders Meeting") for the purpose of obtaining the Colonial
Shareholder Approval. Colonial shall, through its Board of Trustees, recommend
to its shareholders approval of the issuance of Colonial Common Shares
contemplated by the Merger.
(d) Cornerstone will duly call and give notice of and, as soon
as practicable following the date of this Agreement (but in no event sooner than
20 business days following the date the Joint Proxy Statement is mailed to the
shareholders of Cornerstone), convene and hold a meeting of its shareholders
(the "Cornerstone Shareholders Meeting") for the purpose of obtaining the
Cornerstone Shareholder Approval. Cornerstone shall, through its Board of
Directors, recommend to its shareholders approval of this Agreement and the
Merger and include such recommendation in the Joint Proxy Statement; provided,
however, that prior to the Cornerstone Shareholders Meeting, such recommendation
may be withdrawn, modified, amended or qualified if and only to the extent
permitted by Section 4.3(c) hereof.
59
(e) Colonial and Cornerstone shall use their commercially
reasonable efforts to convene their respective shareholder meetings on the same
day, which day, subject to the provisions of Sections 5.1(c), 5.1(d) and 5.3,
shall be a day not later than 60 days after the date the Joint Proxy Statement
is mailed.
(f) If on the date for the Colonial Shareholders Meeting and
Cornerstone Shareholders Meeting established pursuant to Section 5.1(e) of this
Agreement, either Colonial or Cornerstone has not received duly executed proxies
for a sufficient number of votes to obtain the Colonial Shareholder Approval or
the Cornerstone Shareholder Approval, as applicable, then both parties shall
recommend the adjournment of their respective shareholders meetings until one or
more dates not later than the date 10 days after the originally scheduled date
of the shareholders meetings.
5.2 Access to Information; Confidentiality. Subject to the
requirements of confidentiality agreements with third parties in existence on
the date hereof, each of the parties shall, and shall cause each of its
Subsidiaries to, afford to the other parties and to the officers, employees,
accountants, counsel, financial advisors and other representatives of such other
parties, upon reasonable prior notice, during mutually agreeable time during
normal business hours prior to the Effective Time, reasonable access to all
their respective properties, books, contracts, commitments, personnel and
records and, during such period, each of the parties shall, and shall cause each
of its Subsidiaries to, furnish promptly to the other parties (a) a copy of each
report, schedule, registration statement and other document filed by it during
such period pursuant to the requirements of federal or state securities laws and
(b) all other information concerning its business, properties and personnel as
such other party may reasonably request. Each of the parties shall, and shall
cause its Subsidiaries to, use commercially reasonable efforts to cause its
officers, employees, accountants, counsel, financial advisors and other
representatives and affiliates to, hold any nonpublic information in confidence
in accordance with the Confidentiality Agreement, which shall remain in full
force and effect pursuant to the terms thereof, notwithstanding the execution
and delivery of this Agreement or the termination hereof.
5.3 Commercially Reasonable Efforts; Notification.
(a) Subject to the terms and conditions herein provided, each
of the parties shall: (i) use commercially reasonable efforts to cooperate with
one another in (A) determining which filings are required to be made prior to
the Effective Time with, and which consents, approvals, permits or
authorizations are required to be obtained prior to the Effective Time from,
governmental or regulatory authorities of the United States, the several states
and foreign jurisdictions and any third parties in connection with the execution
and delivery of this Agreement, and the consummation of the transactions
contemplated hereby, including, without limitation, any filing under the HSR
Act, and (B) timely making all such filings and timely seeking all such
consents, approvals, permits and authorizations; (ii) use commercially
reasonable efforts (other than the payment of money which is not contractually
required to be paid) to obtain in writing any consents required from third
parties to effectuate the Merger, such consents to be in form reasonably
satisfactory to each of the parties; and (iii) use commercially reasonable
efforts to take, or cause to be taken, all other action and do, or cause to be
done, all
60
other things necessary, proper or appropriate to consummate and make effective
the transactions contemplated by this Agreement. If at any time after the
Effective Time any further action is necessary or desirable to carry out the
purpose of this Agreement, each party shall take all such necessary action.
(b) Cornerstone shall use commercially reasonable efforts to
obtain from Ernst & Young LLP access to all work papers relating to audits of
Cornerstone and Cornerstone Partnership performed by Ernst & Young LLP, and the
continued cooperation of Ernst & Young LLP with regard to the preparation of
consolidated financial statements for Colonial and Colonial Partnership from and
after the Effective Time. Cornerstone shall use commercially reasonable efforts
to obtain from Ernst & Young LLP and Deloitte & Touche LLP access to all work
papers relating to preparation of Tax returns of Cornerstone and Cornerstone
Partnership performed by Ernst & Young LLP and Deloitte & Touche LLP, and the
continued cooperation of Ernst & Young LLP and Deloitte & Touche LLP with regard
to preparation of Tax returns for Colonial and Colonial Partnership from and
after the Effective Time.
(c) Cornerstone shall give prompt notice to Colonial, and
Colonial shall give prompt notice to Cornerstone, (i) if any representation or
warranty made by it contained in this Agreement that is qualified as to
materiality becomes untrue or inaccurate in any respect or any such
representation or warranty that is not so qualified becomes untrue or inaccurate
in any material respect or (ii) of the failure by it to comply with or satisfy
in any material respect any covenant, condition or agreement to be complied with
or satisfied by it under this Agreement; provided, however, that no such
notification shall affect the representations, warranties, covenants or
agreements of the parties or the conditions to the obligations of the parties
under this Agreement.
5.4 Tax Matters.
Each of Colonial and Cornerstone shall use its commercially
reasonable efforts before and after the Effective Time to cause the Merger to
qualify as a reorganization under the provisions of Sections 368(a) of the Code
and to obtain the opinions of counsel referred to in Sections 6.2(e) and 6.3(e).
5.5 Public Announcements. The initial press release to be issued
with respect to the transactions contemplated by this Agreement will be in the
form agreed to by the parties prior to the execution of this Agreement. Each
party will consult with the other party before issuing, and provide such other
party the opportunity to review and comment upon, any material press release or
other written public statement, including, without limitation, any press release
or other written public statement which addresses in any manner the transactions
contemplated by this Agreement, and shall not issue any such press release or
make any such written public statement prior to such consultation, except as may
be required by applicable law, court process or by obligations pursuant to any
listing agreement with any national securities exchange.
5.6 Listing. Colonial shall use reasonable best efforts, including
timely submission of all required applications and filings, to cause the
Colonial Common Shares and Colonial Series E Preferred Depositary Shares to be
issued in the Merger and the Colonial
61
Common Shares to be issued upon exercise of the Assumed Options, to be approved
for listing on the NYSE, subject to official notice of issuance, prior to the
Effective Time. Such reasonable best efforts shall also include making payment
of all required fees and expenses in connection with such listing activities.
5.7 Transfer and Gains Taxes. Each party shall cooperate in the
preparation, execution and filing of all returns, questionnaires, applications
or other documents regarding any real property transfer or gains, sales, use,
transfer, value added stock transfer and stamp taxes, any transfer, recording,
registration and other fees and any similar taxes which become payable in
connection with the transactions contemplated by this Agreement (together with
any related interests, penalties or additions to tax, "Transfer and Gains
Taxes"). From and after the Effective Time, Colonial shall pay or cause Colonial
Partnership, as appropriate, to pay or cause to be paid, without deduction or
withholding from any amounts payable to the holders of Colonial Common Shares or
Colonial Series E Preferred Depositary Shares, as applicable, all Transfer and
Gains Taxes (which term shall not in any event be construed to include for these
purposes any Tax imposed under the Code).
5.8 Benefit Plans and Other Employee Arrangements.
(a) Benefit Plans. After the Effective Time, all employees of
Cornerstone or any Cornerstone Subsidiary who are employed by Colonial or any
Colonial Subsidiary shall, at the option of Colonial, either continue to be
eligible to participate in an Employee Plan of Cornerstone which is, at the
option of Colonial, continued by Colonial, or alternatively shall be eligible to
participate in the same manner as other similarly situated employees of Colonial
or any Colonial Subsidiary in any Colonial Employee Plan sponsored or maintained
by Colonial or any Colonial Subsidiary after the Effective Time. With respect to
each such Employee Plan, service with Cornerstone or any Cornerstone Subsidiary
(as applicable) and the predecessor of any of them shall be included for
purposes, including without limitation of determining eligibility to
participate, vesting (if applicable) and entitlement to benefits.
(b) Stock Option and Restricted Stock Plans. The stock option
plans or programs of Cornerstone and the restricted stock plans or programs of
Cornerstone or any Cornerstone Subsidiary, as set forth on Schedule 2.12, shall
be terminated as of the Effective Time.
(c) Cornerstone Stock Options.
(i) As of the Effective Time, each outstanding
Cornerstone Stock Option shall be assumed by Colonial and shall thereby be
converted into an option to purchase the number of Colonial Common Shares (an
"Assumed Option") (rounded to the nearest full share, with .5 share being
rounded up) determined by multiplying (A) the number of Cornerstone Common
Shares subject to such Cornerstone Stock Option immediately prior to the
Effective Time by (B) the Common Share Conversion Rate (or, if a Top-Up Notice
has been delivered pursuant to Section 7.1(j), the product of (1) the Common
Share Conversion Rate and (2) the sum of (x) one (1) plus (y) the Top-Up
Adjustment Factor (as defined herein)), at an exercise price per Colonial Common
Share (rounded to the nearest whole cent, with .5 cent being rounded up) equal
to the exercise price per Cornerstone Common Share divided by the Common Share
Conversion Rate (or, if a Top-Up Notice has been delivered, the product of (1)
the Common Share Conversion Rate and (2) the sum of (x) one (1) plus (y) the
Top-Up Adjustment Factor). Except
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as contemplated by this Section 5.8(c), all the terms and conditions in effect
for each Assumed Option immediately prior to the Effective Time, including the
vesting thereof, shall continue in effect following the assumption of such
Cornerstone Stock Option in accordance with this Agreement. "Top-Up Adjustment
Factor" shall mean a fraction obtained by dividing (A) the Top-Up Amount
(expressed in dollars) by (B) the Average Closing Price.
(ii) Colonial shall take all corporate actions
necessary to reserve for issuance a sufficient number of Colonial Common Shares
for delivery upon the exercise of the Assumed Options. As soon as practicable
after the Effective Time, Colonial shall deliver to the holders of Cornerstone
Stock Options appropriate notices setting forth such holders' rights pursuant to
Colonial's stock option plans and the agreements evidencing the grants of such
Assumed Options and that such Assumed Options shall continue in effect on the
same terms and conditions as the Cornerstone Stock Options (subject to the
adjustment set forth in this Section 5.8(c)). Colonial shall, within ten days
following the Effective Time, file or shall have filed, and shall keep current a
Registration Statement on Form S-8 or other appropriate registration statement
for so long as any of the Assumed Options remain outstanding.
(d) Withholding. To the extent required by applicable law,
Cornerstone shall require each employee who exercises a Cornerstone Stock Option
or who receives Cornerstone Common Shares pursuant to any existing commitment to
pay to Cornerstone in cash or Cornerstone Common Shares an amount sufficient to
satisfy in full Cornerstone's obligation to withhold Taxes incurred by reason of
such exercise or issuance (unless and to the extent such withholding is
satisfied pursuant to the provision regarding withholding in Section 1.13(c)).
5.9 Indemnification.
(a) From and after the Effective Time, Colonial and Colonial
Partnership (collectively, the "Indemnifying Parties") shall provide exculpation
and indemnification for each individual who is now or has been at any time prior
to the date hereof or who becomes prior to the Effective Time of the Merger, an
officer or director of Cornerstone or any Cornerstone Subsidiary (the
"Indemnified Parties") which is the same as the exculpation and indemnification
(including any applicable provisions for payment) provided to the Indemnified
Parties by Cornerstone and the Cornerstone Subsidiaries immediately prior to the
Effective Time of the Merger in its charter, bylaws or in its partnership,
operating or similar agreement, as in effect on the date hereof. Immediately
prior to the Effective Time of the Merger, Colonial shall cause Colonial
Partnership to execute an irrevocable assumption of its obligations (in form and
substance reasonably satisfactory to Cornerstone) as an Indemnifying Party set
forth in this Section 5.9.
(b) In addition to the rights provided in Section 5.9(a)
above, in the event of any threatened or actual claim, action, suit, proceeding
or investigation, whether civil, criminal or administrative, including, without
limitation, any action by or on behalf of any or all security holders of
Cornerstone or Colonial, or by or in the right of Cornerstone or Colonial, or
any claim, action, suit, proceeding or investigation in which any individual who
is now, or has been, at any time prior to the date hereof, or who becomes prior
to the Effective Time of the Merger, an Indemnified Party is, or is threatened
to be, made a party based in whole or in part on,
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or arising in whole or in part out of, or pertaining to (i) the fact that he is
or was an officer or director of Cornerstone or any of the Cornerstone
Subsidiaries or any action or omission by such individual in his capacity as an
officer or director, or (ii) the negotiation, execution or performance of this
Agreement, any agreement or document contemplated hereby or delivered in
connection herewith or the transactions contemplated hereby or thereby, whether
in any case asserted or arising before or after the Effective Time of the
Merger, the Indemnifying Parties shall, from and after the Effective Time of the
Merger, indemnify and hold harmless, as and to the full extent permitted by
applicable law, each Indemnified Party against any losses, claims, liabilities,
expenses (including reasonable attorneys' fees and expenses), judgments, fines
and amounts paid in settlement in accordance herewith in connection with any
such threatened or actual claim, action, suit, proceeding or investigation. Any
Indemnified Party proposing to assert the right to be indemnified under this
Section 5.9(b) shall, promptly after receipt of notice of commencement of any
action against such Indemnified Party in respect of which a claim is to be made
under this Section 5.9(b) against the Indemnifying Parties, notify the
Indemnifying Parties of the commencement of such action, enclosing a copy of all
papers served; provided, however, that the failure to provide such notice shall
not affect the obligations of the Indemnifying Parties except to the extent such
failure to notify materially prejudices the Indemnifying Parties' ability to
defend such claim, action, suit, proceeding or investigation; and provided
further, however, that, in the case of any action that is known by an
Indemnified Party to be pending prior to the Effective Time of the Merger,
notification pursuant to this Section 5.9(b) shall be given by such Indemnified
Party to Colonial prior to such Effective Time. If any such action is brought
against any of the Indemnified Parties and such Indemnified Party notifies the
Indemnifying Parties of its commencement, the Indemnifying Parties will be
entitled to participate in and, to the extent that they elect by delivering
written notice to such Indemnified Parties promptly after receiving notice of
the commencement of the action from the Indemnified Parties, to assume the
defense of the action and after notice from the Indemnifying Parties to the
Indemnified Parties of their election to assume the defense, the Indemnifying
Parties will not be liable to the Indemnified Parties for any legal or other
expenses except as provided below. If the Indemnifying Parties assume the
defense, the Indemnifying Parties shall have the right to settle such action
without the consent of the Indemnified Parties; provided, however, that the
Indemnifying Parties shall be required to obtain such consent (which consent
shall not be unreasonably withheld) if the settlement includes any admission of
wrongdoing on the part of the Indemnified Parties or any decree or restriction
on the Indemnified Parties; provided further, however, that no Indemnifying
Parties, in the defense of any such action shall, except with the consent of the
Indemnified Parties (which consent shall not be unreasonably withheld), consent
to entry of any judgment or enter into any settlement that does not include as
an unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability with respect to such action.
The Indemnified Parties will have the right to employ their own counsel in any
such action, but the fees, expenses and other charges of such counsel will be at
the expense of such Indemnified Parties unless (i) the employment of counsel by
the Indemnified Parties has been authorized in writing by the Indemnifying
Parties, (ii) the Indemnified Parties have reasonably concluded (based on
written advice of counsel to the Indemnified Parties) that there may be legal
defenses available to them that are different from or in addition to and
inconsistent with those available to the Indemnifying Parties, (iii) a conflict
or potential conflict exists (based on written advice of counsel to the
Indemnified Parties) between the Indemnified Parties and the Indemnifying
Parties
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(in which case the Indemnifying Parties will not have the right to direct the
defense of such action on behalf of the Indemnified Parties) or (iv) the
Indemnifying Parties have not in fact employed counsel to assume the defense of
such action within a reasonable time after receiving notice of the commencement
of the action from the Indemnified Parties, in each of which cases the
reasonable fees, disbursements and other charges of counsel will be at the
expense of the Indemnifying Parties and shall promptly be paid by each
Indemnifying Party as they become due and payable in advance of the final
disposition of the claim, action, suit, proceeding or investigation to the
fullest extent and in the manner permitted by law; provided, however, that in no
event shall any contingent fee arrangement be considered reasonable.
Notwithstanding the foregoing, the Indemnifying Parties shall not be obligated
to advance any expenses or costs prior to receipt of an undertaking by or on
behalf of the Indemnified Party to repay any expenses advanced if it shall
ultimately be determined by a court of competent jurisdiction that the
Indemnified Party is not entitled to be indemnified against such expense because
such indemnification is prohibited by applicable law, and such determination
shall have become final and non-appealable. It is understood that the
Indemnifying Parties shall not, in connection with any proceeding or related
proceedings in the same jurisdiction, be liable for the reasonable fees,
disbursements and other charges of more than one separate firm admitted to
practice in such jurisdiction at any one time for all such Indemnified Parties
unless (a) the employment of more than one counsel has been authorized in
writing by the Indemnifying Parties, (b) any of the Indemnified Parties have
reasonably concluded (based on written advice of counsel to the Indemnified
Parties) that there may be legal defenses available to them that are different
from or in addition to and inconsistent with those available to other
Indemnified Parties or (c) a conflict or potential conflict exists (based on
written advice of counsel to the Indemnified Parties) between any of the
Indemnified Parties and the other Indemnified Parties, in each case of which the
Indemnifying Parties shall be obligated to pay the reasonable fees and expenses
of such additional counsel or counsels. Notwithstanding anything to the contrary
set forth in this Agreement, the Indemnifying Parties (i) shall not be liable
for any settlement effected without their prior written consent and (ii) shall
not have any obligation hereunder to any Indemnified Party to the extent that a
court of competent jurisdiction shall determine in a final and non-appealable
order that such indemnification is prohibited by applicable law. In the event of
a final and non-appealable determination by a court that any payment of expenses
is prohibited by applicable law, the Indemnified Parties shall promptly refund
to the Indemnifying Parties the amount of all such expenses theretofore advanced
pursuant hereto.
(c) Prior to the Effective Time of the Merger, Cornerstone
shall purchase a non-cancelable extended reporting period endorsement under
Cornerstone's existing directors' and officers' liability insurance coverage for
Cornerstone's directors and officers in the substantially the same form as
presently maintained by Cornerstone, which shall provide such directors and
officers with coverage for six (6) years following the Effective Time of not
less than the existing coverage under, and have other terms not less favorable
to, the insured persons than the directors' and officers' liability insurance
coverage presently maintained by Cornerstone.
(d) This Section 5.9 is intended for the irrevocable benefit
of, and to grant third-party rights to, the Indemnified Parties, the Indemnified
Parties and their successors, assigns and heirs and shall be binding on all
successors and assigns of Colonial and Colonial Partnership. Each of the
Indemnified Parties and the Indemnified Parties shall be entitled to
65
enforce the covenants contained in this Section 5.9 and Colonial and Colonial
Partnership acknowledge and agree that each Indemnified Party and Indemnified
Party would suffer irreparable harm and that no adequate remedy at law exists
for a breach of such covenants and such Indemnified Party or such Indemnified
Party shall be entitled to injunctive relief and specific performance in the
event of any breach of any provision in this Section 5.9.
(e) If Colonial or Colonial Partnership or any of its
respective successors or assigns (i) consolidates with or merges into any other
Person and shall not be the continuing or surviving corporation or entity of
such consolidation or merger or (ii) transfers all or substantially all of its
properties and assets to any Person, then, and in each such case the successors
and assigns of such entity shall assume the obligations set forth in this
Section 5.9, which obligations are expressly intended to be for the irrevocable
benefit of, and shall be enforceable by, each director and officer covered
hereby.
5.10 Declaration of Dividends and Distributions. From and after the
date of this Agreement, neither Cornerstone nor Colonial shall make any dividend
or distribution to its respective shareholders without the prior written consent
of the other party; provided, however, the written consent of the other party
shall not be required for the authorization and payment of (a) distributions at
their respective stated dividend or distribution rates with respect to Colonial
Preferred Shares or Cornerstone Series A Preferred Shares, (b) subject to the
immediately following paragraph, quarterly distributions with respect to the
Cornerstone Common Shares of up to $0.20 per share during the quarter ending
March 31, 2005 and for each quarter thereafter, and (c) quarterly distributions
with respect to the Colonial Common Shares of up to $0.67 per share during the
quarter ending December 31, 2004 and up to $0.675 per share during each quarter
thereafter; provided, however, the record date for each distribution with
respect to the Cornerstone Common Shares shall be the same date as the record
date for the quarterly distribution for the Colonial Common Shares, as provided
to Cornerstone by notice not less than twenty (20) days prior to the record date
for any quarterly Colonial distribution. From and after the date of this
Agreement, Cornerstone Partnership shall not make any distribution to the
holders of Cornerstone OP Units except distributions required under the
Cornerstone Partnership Agreement based on the dividend per share of Cornerstone
Common Shares permitted pursuant to this Section 5.10, with the same record and
payment dates as such dividend on the Cornerstone Common Shares.
Unless Cornerstone shall have advised Colonial in writing that
no IRS Agreement (as defined herein) shall be requested pursuant to Section 5.16
(and that an opinion as to the qualification of Cornerstone as a REIT satisfying
the conditions of Section 6.2(d) herein is contemporaneously delivered to
Colonial), then, notwithstanding anything to contrary contained in this Section
5.10, Cornerstone shall not make any dividend or distribution to its holders of
Cornerstone Common Shares, except as set forth below to satisfy the Deficiency
Dividend Amount (as defined below), until Cornerstone shall have obtained the
IRS Agreement contemplated by Section 5.16 and all matters covered by the
request for such IRS Agreement shall have been resolved in such IRS Agreement.
If Cornerstone shall have obtained an IRS Agreement that requires the payment of
a "deficiency dividend" (within the meaning of Section 860 of the Code) (a
"Deficiency Dividend," and the amount of all Deficiency Dividends under the IRS
Agreement, the "Deficiency Dividend Amount"), whether or not such IRS Agreement
66
resolves all matters covered by such request, then Cornerstone shall (i) not
make any dividend or distribution to its holders of Cornerstone Common Shares,
except as provided in clause (ii) below, and (ii)(A) first, to the extent not
already contemplated by such IRS Agreement, seek an additional IRS Agreement to
have distributions paid to holders of Cornerstone Common Shares during the year
ended December 31, 2004 that otherwise would not be treated as dividends for
federal income tax purposes recharacterized by the IRS as a "deficiency
dividend" in satisfaction of the Deficiency Dividend Amount, unless Cornerstone,
after good faith consultation with Colonial, reasonably determines that it is
likely that such additional IRS Agreement cannot be obtained, (B) second, to the
extent the preceding clause (A) does not satisfy the Deficiency Dividend Amount,
declare and make quarterly distributions to holders of Cornerstone Common Shares
of up to $0.20 per share for each quarter after the quarter ending December 31,
2004 in satisfaction of the Deficiency Dividend Amount (provided that, no
portion of the quarterly distribution shall be treated as having satisfied the
Deficiency Dividend Amount if, and to the extent, that such treatment would
result in Cornerstone being required to pay a Final Closing Dividend (that is, a
dividend either to satisfy the requirements of Section 857(a)(1) of the Code for
the taxable year of Cornerstone ending at the Effective Time of the Merger
and/or December 31, 2004 and/or a dividend to avoid the payment of any Tax with
respect to undistributed income or gain for either such year)), and (C) third,
to the extent the preceding clause (B) does not satisfy the Deficiency Dividend
Amount, declare and make a distribution (the "Closing Deficiency Dividend") to
holders of Cornerstone Common Shares, the record date for which shall be no
later than the close of business on the sixth business day prior to the
Effective Time of the Merger, in an amount equal to the Deficiency Dividend
Amount not satisfied by the preceding clauses (A) and (B) (such amount, the
"Closing Dividend Deficiency Amount") (any distributions payable under this
clause (C) to holders of Cornerstone Common Shares shall be paid on the third
business day immediately preceding the Closing Date, unless otherwise required
by the IRS Agreement). For any distribution required by the preceding clause
(B), the record date for each distribution with respect to the Cornerstone
Common Shares shall be the same date as the record date for the quarterly
distribution for the Colonial Common Shares, as provided to Cornerstone by
notice not less than twenty (20) days prior to the record date for any quarterly
Colonial distribution; provided, however, that if Cornerstone shall have
deferred the payment of any regular quarterly distribution pursuant to this
paragraph and Colonial shall have made a distribution for the corresponding
quarter, then Cornerstone shall be permitted to make the record date for its
quarterly distribution described in the preceding clause (B) prior to the record
date for the next succeeding Colonial quarterly distribution.
The foregoing restrictions shall not apply, however, to the
extent a distribution (or an increase in a distribution) by Cornerstone or
Colonial is necessary for Cornerstone or Colonial to maintain REIT status, avoid
the incurrence of any taxes under Section 857 of the Code, avoid the imposition
of any excise taxes under Section 4981 of the Code, or avoid the need to make
one or more extraordinary or disproportionately larger distributions to meet any
of the three preceding objectives. Notwithstanding the foregoing, in the event
that any prior dividends or distributions of Cornerstone have been treated as
being in satisfaction of the Dividend Deficiency Amount but not as part of the
Closing Deficiency Dividend Amount and Cornerstone would be required to pay a
dividend or distribution that is described in the preceding sentence, then an
amount equal to the lesser of such dividend or
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distribution described in the preceding sentence or the amount of prior
dividends or distributions of Cornerstone that have been treated as being in
satisfaction of the Dividend Deficiency Amount shall be treated as a Closing
Deficiency Dividend Amount and not as a dividend or distribution within the
scope of the preceding sentence.
5.11 Notices. Colonial shall provide such notice to its preferred
shareholders of the Merger as may be required under Alabama law or the Colonial
Declaration of Trust.
5.12 Resignations and Existing Agreements with Certain Cornerstone
Executives.
(a) On the Closing Date, Cornerstone shall cause the directors
and officers of Cornerstone and of each of the Cornerstone Subsidiaries to
submit their resignations from such positions, effective as of the Effective
Time of the Merger, provided, however, that in no event shall any such
resignations be deemed to be a termination of employment as a common-law
employee of Cornerstone for purposes of any severance, stock option, change in
control, or other Employee Plan, contract entitlement or arrangement, except as
provided in Section 5.12(b) of the Agreement.
(b) Colonial and Colonial Merger Sub hereby acknowledge and
agree that (i) the Closing will be considered a "Change in Control" under the
Change in Control Agreements between Cornerstone and Messrs. Knight, Olander,
Remppies and Xxxxxxx (the "CIC Agreements"), and (ii) for all purposes under the
CIC Agreements and the Employment Agreements between Cornerstone and Messrs.
Knight and Xxxxxxx (the "Employment Agreements"), the resignations of Messrs.
Knight, Olander, Remppies and Xxxxxxx as set forth in Section 5.12(a) of the
Agreement will be considered a termination by the Company other than for cause
(as those terms are defined under the CIC Agreements and the Employment
Agreements). Effective as of the Effective Time, Colonial Merger Sub hereby
assumes the CIC Agreements with Messrs. Knight, Olander, Remppies and Xxxxxxx.
Messrs. Knight, Olander, Remppies and Xxxxxxx shall be entitled to all rights
and benefits under their respective CIC Agreements, and, as of the Closing Date,
Cornerstone will pay a lump sum amount to each of Messrs. Knight and Xxxxxxx
equal to their salaries under their respective Employment Agreements for the
period between the Closing Date and the end of the term of each such Employment
Agreement for settlement of Cornerstone's obligations under such Employment
Agreement.
5.13 Pre-Closing Reorganization Transactions.
(a) Cornerstone shall cause Cornerstone Partnership to
distribute to Cornerstone all of Cornerstone Partnership's ownership interests
in CRIT-Legacy, Inc. and shall cause CRIT-Legacy, Inc. to convert or merge into
a limited liability company that will be disregarded as an entity separate from
its owner for federal income tax purposes within the meaning of Treas. Reg.
Section 301.7701-3.
(b) Cornerstone shall sell, transfer or otherwise dispose of
(but not liquidate) all of its interest in Apple Residential Management Group,
Inc. and Apple Residential Advisors, Inc.
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(c) Cornerstone shall cause each of the "qualified REIT
subsidiaries" and other entities listed on Schedule 5.13 to the Cornerstone
Disclosure Letter either (i) to be converted or merged into a limited liability
company in which Cornerstone is the sole member and that will be disregarded as
an entity separate from its owner for federal income tax purposes within the
meaning of Treas. Reg. Section 301.7701-3 or (ii) to be liquidated. Cornerstone
shall allow Colonial to choose whether to apply clause (i) or clause (ii) of the
preceding sentence to any particular entity. Such choice shall be made in the
sole and absolute discretion of Colonial.
(d) Consistent with Cornerstone's obligations under Section
5.3(a), Cornerstone shall use commercially reasonable efforts to obtain all
consents necessary to consummate the transactions referred to in Sections
5.13(a), 5.13(b) and 5.13(c) (such transactions are referred to herein as the
"Pre-Closing Reorganization Transactions") prior to the Effective Time. In the
event that all such consents shall not have been obtained prior to the Effective
Time, then (i) Cornerstone shall, upon the written request of Colonial,
nevertheless cause each of the Pre-Closing Reorganization Transactions to be
consummated within the two business days prior to the Closing Date and (ii) if
Colonial shall have provided the written request of Colonial set forth in clause
(i), the failure to obtain all consents necessary to consummate the Pre-Closing
Reorganization Transactions may not be asserted by Cornerstone as the factual
basis for any of the conditions set forth in Sections 6.3(a), 6.3(c) and 6.3(f)
or by Colonial as the factual basis for any of the conditions set forth in
Sections 6.2(a), 6.2(c) or 6.2(g).
5.14 [Intentionally omitted].
5.15 Redemption of Cornerstone Series A Preferred Shares. As soon as
reasonably practicable following the date hereof, Cornerstone shall mail a
notice of redemption to all holders of record of Cornerstone Series A Preferred
Shares which fixes a date not less than 30 days from the date of such mailing on
which Cornerstone will redeem all outstanding Cornerstone Series A Preferred
Shares in accordance with Section 9.4 of the Cornerstone Articles (the
"Cornerstone Series A Redemption Date"). On the Cornerstone Series A Redemption
Date, Cornerstone shall redeem all outstanding Cornerstone Series A Preferred
Shares at the cash redemption price set forth in, and otherwise in accordance
with, the terms of Section 9.4 of the Cornerstone Articles.
5.16 IRS Agreements.
(a) Cornerstone shall use commercially reasonable efforts to
seek an appropriate closing agreement, private letter ruling, determination
letter or such other agreement described in Treas. Reg. Sec. 1.860-2(b)(1)(ii)
from the IRS (an "IRS Agreement") resolving those matters identified on Schedule
5.16 of the Cornerstone Disclosure Schedule and any other matters heretofore or
hereafter identified by Cornerstone as requiring resolution through an IRS
Agreement in order for (x) Cornerstone to comply with (or, in the case of a
condition, satisfy) Sections 2.6, 2.14, 4.1(f), 4.1(g), 4.1(i), 5.1(b) and
6.2(d)(i) or (y) Colonial to comply with its obligations set forth in Section
5.1(b)(ii). Cornerstone shall (and shall cause the counsel representing
Cornerstone in such matter to) (i) consult with Colonial regarding the
application for and negotiation of such IRS Agreement, (ii) use commercially
reasonable efforts to permit Colonial's designated counsel to attend meetings or
telephone calls with the IRS scheduled by
69
the IRS or Cornerstone (or Cornerstone's counsel) regarding any such IRS
Agreement, and (iii) provide Colonial with copies of, and the right to comment
on, any written materials regarding such IRS Agreement prior to submission to
the IRS; provided, however, that Colonial's rights under this Section 5.16 shall
not be permitted to unduly delay or impede Cornerstone from obtaining such IRS
Agreement. Notwithstanding anything to the contrary contained herein,
Cornerstone shall not, without the prior written consent of Colonial, enter into
any IRS Agreement providing for any obligation of Cornerstone or any Cornerstone
Subsidiary other than the payment in cash of a Deficiency Dividend to holders of
Cornerstone Common Shares or of amounts that would constitute Section 5.16
Expenses or Section 5.16 Interest/Penalties. The seeking of or entering into any
IRS Agreement meeting the requirements of this Section 5.16 (or any resulting
Dividend Deficiency Amount, Section 5.16 Expenses Amount or Section 5.16
Interest/Penalties Amount) shall not constitute a circumstance, event,
occurrence, change or effect that would constitute a Cornerstone Material
Adverse Effect.
(b) Cornerstone and Colonial shall each maintain accurate
records of all third party costs and expenses required in connection with the
matters described in this Section 5.16 (including (i) all incremental costs and
expenses attributable to the matters that are the subject of this Section 5.16
incurred in connection with this Agreement, the Form S-4 and any Form 8-K's or
other public communications in connection herewith and (ii) all costs and
expenses described in this sentence incurred by Cornerstone and Colonial prior
to the date hereof) (collectively, the "Section 5.16 Expenses"). Cornerstone and
Colonial shall each provide to the other (i) an itemized calculation of all
Section 5.16 Expenses incurred by such party as of a date not more than three
days prior to the effectiveness of the Form S-4 and (ii) its reasonable estimate
of the remaining Section 5.16 Expenses it will incur in connection with the
resolution of any request for an IRS Agreement. The aggregate amount of all
Section 5.16 Expenses of both Cornerstone and Colonial is referred to herein as
the "Section 5.16 Expenses Amount."
(c) If Cornerstone shall have obtained an IRS Agreement
pursuant to this Section 5.16 requiring the payment of any amount to the IRS,
whether denominated as taxes, a payment in lieu of taxes, a penalty, or interest
(including, without limitation, the interest payment required under Section 860
of the Code) (collectively, the "Section 5.16 Interest/Penalties"), Cornerstone
shall pay such Section 5.16 Interest/Penalties in accordance with the IRS
Agreement and provide Colonial evidence of such payment. Without limiting the
foregoing, the Section 5.16 Interest/Penalties also shall include any amount
payable to any state or local taxing authority as a result of the matters
covered by the IRS Agreement. The aggregate amount of all Section 5.16
Interest/Penalties is referred to herein as the "Section 5.16 Interest/Penalties
Amount."
ARTICLE 6
CONDITIONS
6.1 Conditions to Each Party's Obligation to Effect the Merger. The
obligations of each party to effect the Merger and to consummate the other
transactions contemplated by this Agreement to occur on the Closing Date shall
be subject to the fulfillment at or prior to the Closing Date of the following
conditions:
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(a) Shareholder Approvals. The Shareholder Approvals shall
have been obtained.
(b) HSR Act. The waiting period (and any extension thereof)
applicable to the Merger, under the HSR Act, if applicable to the Merger, shall
have expired or been terminated.
(c) Listing of Shares. The NYSE shall have approved for
listing the Colonial Common Shares and Colonial Series E Preferred Depositary
Shares to be issued in the Merger and the Colonial Common Shares to be issued
upon exercise of the Assumed Options, in each case subject to official notice of
issuance.
(d) Form S-4. The Form S-4 shall have become effective under
the Securities Act and shall not be the subject of any stop order or proceedings
by the SEC seeking a stop order.
(e) No Injunctions or Restraints. No temporary restraining
order, preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing the
consummation of the Merger or any of the other transactions contemplated hereby
shall be in effect.
(f) Blue Sky Laws. Colonial shall have received all state
securities or "blue sky" permits and other authorizations necessary to issue the
Colonial Common Shares and Colonial Series E Preferred Depositary Shares
issuable in the Merger.
6.2 Conditions to Obligations of Colonial and Colonial Merger Sub.
The obligations of Colonial and Colonial Merger Sub to effect the Merger and to
consummate the other transactions contemplated to occur on the Closing Date are
further subject to the following conditions, any one or more of which may be
waived by Colonial:
(a) Representations and Warranties. Each of the
representations and warranties of Cornerstone set forth in this Agreement,
disregarding all qualifications and exceptions contained therein relating to
materiality or Cornerstone Material Adverse Effect, shall be true and correct as
of the date of this Agreement and as of the Closing Date as though made on and
as of the Closing Date (except to the extent that such representations and
warranties are expressly limited by their terms to another date, in which case
such representations and warranties shall be true and correct as of such other
date), except where the failure of such representations and warranties to be
true and correct would not, individually or in the aggregate, reasonably be
expected to have a Cornerstone Material Adverse Effect; and Colonial shall have
received a certificate (which certificate may be qualified by "knowledge" to the
same extent as the representations and warranties of Cornerstone contained
herein are so qualified) signed on behalf of Cornerstone by the chief executive
officer or the chief financial officer of Cornerstone, in such capacity, to such
effect.
(b) Performance of Obligations of Cornerstone. Cornerstone
shall have performed in all material respects all obligations required to be
performed by them under
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this Agreement at or prior to the Effective Time, and Colonial shall have
received a certificate signed on behalf of Cornerstone by the chief executive
officer or the chief financial officer of Cornerstone, in such capacity, to such
effect.
(c) Material Adverse Effect. Since the date of this Agreement,
there shall have been no Cornerstone Material Adverse Effect and Colonial shall
have received a certificate of the chief executive officer or chief financial
officer of Cornerstone, in such capacity, certifying to such effect.
(d) Tax Opinions Relating to REIT Status and Partnership
Status. Colonial shall have received (i) an opinion of McGuireWoods LLP or other
counsel to Cornerstone reasonably satisfactory to Colonial, dated as of the
Closing Date, to the effect that, commencing with its taxable year ended
December 31, 1999, Cornerstone was organized and has operated in conformity with
the requirements for qualification as a REIT under the Code (with customary
exceptions, assumptions and qualifications and based upon customary
representations, and with such additional exceptions, assumptions,
qualifications and representations as are set forth in writing and are
reasonably satisfactory to Colonial), and (ii) an opinion of Xxxxx & Xxxxxxx
L.L.P. or other counsel to Colonial reasonably satisfactory to Cornerstone,
dated as of the Closing Date, to the effect that, commencing with its taxable
year ended December 31, 1999, Colonial was organized and has operated in
conformity with the requirements for qualification as a REIT under the Code and
that, after giving effect to the Merger, Colonial's proposed method of operation
will enable it to continue to meet the requirements for qualification and
taxation as a REIT under the Code (with customary exceptions, assumptions and
qualifications and based upon customary representations, and with such
additional exceptions, assumptions, qualifications and representations as are
set forth in writing and are reasonably satisfactory to Colonial).
(e) Tax Opinion Relating to the Merger. Colonial shall have
received an opinion dated the Closing Date from Xxxxx & Xxxxxxx L.L.P. or other
counsel reasonably satisfactory to Colonial, based upon customary exceptions,
assumptions, qualifications, certificates and letters, which customary
exceptions, assumptions, qualifications, letters and certificates are to be in a
form to be agreed upon by the parties and dated the Closing Date, to the effect
that the Merger will qualify as a reorganization under the provisions of Section
368(a) of the Code (but such opinion need not conclude that the receipt of the
Colonial Series E Preferred Depositary Shares in the Merger will qualify for the
nonrecognition of gain).
(f) Nonsolicitation Agreements. Each of Xxxxx X. Xxxxxx, X.X.
Xxxxxxx, Xx. and Xxxxx X. Xxxxxxx shall have entered into nonsolicitation
agreements substantially in the form set forth on Exhibit D.
(g) Consents. All consents and waivers (including, without
limitation, waivers of rights of first refusal) from third parties necessary in
connection with the consummation of the transactions contemplated by this
Agreement shall have been obtained, other than such consents and waivers from
third parties, which, if not obtained, would not reasonably be expected to
result, individually or in the aggregate, in a Colonial Material Adverse Effect
(after giving effect to the Merger) or a Cornerstone Material Adverse Effect.
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(h) Redemption. Cornerstone shall have redeemed all
outstanding Cornerstone Series A Preferred Shares for the redemption price set
forth in the Cornerstone Articles, and there shall be no Cornerstone Series A
Preferred Shares outstanding.
(i) Pre-Closing Reorganization Transactions. The Pre-Closing
Reorganization Transactions shall have been consummated.
(j) IRS Agreement. Cornerstone shall have submitted to the IRS
a request for an IRS Agreement pursuant to Section 5.16 and shall have obtained
such IRS Agreement, and all matters covered by such request shall have been
resolved in such IRS Agreement in a manner that is reasonably satisfactory to
Colonial.
6.3 Conditions to Obligations of Cornerstone. The obligations of
Cornerstone to effect the Merger and to consummate the other transactions
contemplated to occur on the Closing Date is further subject to the following
conditions, any one or more of which may be waived by Cornerstone:
(a) Representations and Warranties. Each of the
representations and warranties of Colonial and Colonial Merger Sub set forth in
this Agreement, disregarding all qualifications and exceptions contained therein
relating to materiality or Colonial Material Adverse Effect, shall be true and
correct as of the date of this Agreement and as of the Closing Date as though
made on and as of the Closing Date (except to the extent that such
representations and warranties are expressly limited by their terms to another
date, in which case such representations and warranties shall be true and
correct as of such other date), except where the failure of such representations
and warranties to be true and correct would not, individually or in the
aggregate, reasonably be expected to have a Colonial Material Adverse Effect;
and Cornerstone shall have received a certificate (which certificate may be
qualified by "knowledge" to the same extent as the representations and
warranties of Colonial and Colonial Merger Sub contained herein are so
qualified) signed on behalf of Colonial by the chief executive officer or the
chief financial officer of Colonial, in such capacity, to such effect.
(b) Performance of Obligations of Colonial. Colonial and
Colonial Merger Sub shall have performed in all material respects all
obligations required to be performed by them under this Agreement at or prior to
the Effective Time, and Cornerstone shall have received a certificate of
Colonial signed on behalf of Colonial by the chief executive officer or the
chief financial officer of Colonial, in such capacity, to such effect.
(c) Material Adverse Effect. Since the date of this Agreement,
there shall have been no Colonial Material Adverse Effect and Cornerstone shall
have received a certificate of the chief executive officer or the chief
financial officer of Colonial, in such capacity, certifying to such effect.
(d) Tax Opinions Relating to REIT Status. Cornerstone shall
have received the opinion of Xxxxx & Xxxxxxx L.L.P. or other counsel to Colonial
reasonably satisfactory to Cornerstone, dated as of the Closing Date, that,
commencing with its taxable year ended December 31, 1999, Colonial was organized
and has operated in conformity with the
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requirements for qualification as a REIT under the Code and that, after giving
effect to the Merger, Colonial's proposed method of operation will enable it to
continue to meet the requirements for qualification and taxation as a REIT under
the Code (with customary exceptions, assumptions and qualifications and based
upon customary representations, and with such additional exceptions,
assumptions, qualifications and representations as are set forth in writing and
are reasonably satisfactory to Cornerstone).
(e) Tax Opinion Relating to the Merger. Cornerstone shall have
received an opinion dated the Closing Date from McGuireWoods LLP or other
counsel reasonably satisfactory to Cornerstone, based upon customary exceptions,
assumptions, qualifications, certificates and letters, which customary
exceptions, assumptions, qualifications, letters and certificates are to be in a
form to be agreed upon by the parties and dated the Closing Date, to the effect
that the Merger will qualify as a reorganization under the provisions of Section
368(a) of the Code (but such opinion need not conclude that the receipt of the
Colonial Series E Preferred Depositary Shares in the Merger will qualify for the
nonrecognition of gain).
(f) Consents. All consents and waivers (including, without
limitation, waivers or rights of first refusal) from third parties necessary in
connection with the consummation of the transactions contemplated hereby shall
have been obtained, other than such consents and waivers from third parties,
which, if not obtained, would not result, individually or in the aggregate, in a
Colonial Material Adverse Effect (after giving effect to the Merger).
ARTICLE 7
TERMINATION, AMENDMENT AND WAIVER
7.1 Termination. This Agreement may be terminated at any time prior
to the Effective Time of the Merger, whether such action occurs before or after
the Shareholder Approvals are obtained:
(a) by mutual written consent duly authorized by the Board of
Trustees of Colonial and the Board of Directors of Cornerstone;
(b) by Colonial, (i) upon a breach of or failure to perform
any covenant, obligation or agreement on the part of Cornerstone set forth in
this Agreement, or (ii) upon a breach of or in the event that any representation
or warranty of Cornerstone is or shall have become untrue, in either case such
that the conditions set forth in Section 6.2(a) or Section 6.2(b), as the case
may be, would be incapable of being satisfied by the Outside Date (as defined
herein) (or as otherwise extended);
(c) by Cornerstone, (i) upon a breach of or failure to perform
any covenant, obligation or agreement on the part of Colonial set forth in this
Agreement, or (ii) upon a breach of or in the event that any representation or
warranty of Colonial or Colonial Merger Sub is or shall have become untrue, in
either case such that the conditions set forth in Section 6.3(a) or Section
6.3(b), as the case may be, would be incapable of being satisfied by the Outside
Date (or as otherwise extended);
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(d) by either Colonial or Cornerstone, if any judgment,
injunction, order, decree or action by any Governmental Entity of competent
authority preventing the consummation of the Merger shall have become final and
non-appealable;
(e) by either Colonial or Cornerstone, if the Merger shall not
have been consummated before the Outside Date; provided, however, that a party
may not terminate pursuant to this clause (e) if the terminating party shall
have breached in any material respect its obligations under this Agreement in
any manner that shall have caused the Merger not to have been consummated by
such date;
(f) by either Colonial or Cornerstone (unless Cornerstone is
in breach in any material respect of its obligations under Section 5.1) if, upon
a vote at a duly held Cornerstone Shareholders Meeting or any adjournment
thereof, the Cornerstone Shareholder Approval shall not have been obtained as
contemplated by Section 5.1;
(g) by either Cornerstone or Colonial (unless Colonial is in
breach in any material respect of its obligations under Section 5.1) if, upon a
vote at a duly held Colonial Shareholders Meeting or any adjournment thereof,
the Colonial Shareholder Approval shall not have been obtained as contemplated
by Section 5.1;
(h) by Cornerstone (i) if the Board of Directors of
Cornerstone shall have withdrawn, modified, amended or qualified, or proposed
publicly not to recommend or to withdraw, modify, amend or qualify, in any
manner adverse to Colonial its approval or recommendation of the Merger or this
Agreement in connection with, or approved or recommended, any Superior
Acquisition Proposal, or, (ii) in order to enter into a binding written
agreement with respect to a Superior Acquisition Proposal, provided that, in
each case, Cornerstone shall not be in material breach of the terms of Section
4.3 and termination pursuant to this Section 7.1(h) shall not be effective until
such time as Cornerstone shall have paid to Colonial Partnership the Break-Up
Fee (as defined herein) as provided by Section 7.2 hereof;
(i) by Colonial, if (i) the Board of Directors of Cornerstone
shall have failed to recommend or withdrawn, modified, amended or qualified, or
proposed publicly not to recommend or to withdraw, modify, amend or qualify, in
any manner adverse to Colonial its approval or recommendation of the Merger or
this Agreement in connection with, or approved or recommended, any Superior
Acquisition Proposal or (ii) following the announcement or receipt of an
Acquisition Proposal, Cornerstone shall have failed to call the Cornerstone
Shareholders Meeting in accordance with Section 5.1(b) or failed to prepare and
mail to its shareholders the Joint Proxy Statement in accordance with Section
5.1(a) or 5.1(b);
(j) by Cornerstone, if the Average Closing Price of Colonial
Common Shares is less than $31.00 and Cornerstone shall have given Colonial,
within three business days after the end of the 20-Trading Day period during
which the Average Closing Price is determined, written notice of Cornerstone's
election to terminate this Agreement pursuant to this Section 7.1(j), which
election shall be irrevocable (unless Colonial shall have consented otherwise in
writing) and shall be effective on the fifth business day following receipt by
Colonial of such termination notice, unless during such five business day period
Colonial shall
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have elected by notice in writing to Cornerstone (the "Top-Up Notice") to pay
additional consideration (the "Top-Up Amount") consisting of cash, Colonial
Common Shares, or a combination thereof, as specified in the Top-Up Notice,
equal in value to $31.00 minus the Average Closing Price of Colonial Common
Shares (with the value of any Colonial Common Shares included in the Top-Amount
being equal to the Average Closing Price) with respect to each Colonial Common
Share issuable in exchange for Cornerstone Common Shares in the Merger pursuant
to Section 1.8(a)(ii) or 1.10(b);
(k) by Colonial, if the Average Closing Price of Colonial
Common Shares is greater than $49.00; and
(l) by Colonial, if the Closing Adjustment Amount (excluding
any portion of the Section 5.16 Expenses Amount incurred by Colonial) exceeds
$60,000,000.
For purposes of this Section 7.1, the term "Outside Date" shall mean April 30,
2005; provided that the Outside Date shall be extended by the number of days
after January 1, 2005 until the date on which both of the following shall have
occurred: (x) Cornerstone shall have received an IRS Agreement meeting the
condition set forth in Section 6.2(j) and (y) the parties shall have received
all necessary consents for the filing of the Form S-4; provided, further, that
the Outside Date shall be no later than June 30, 2005.
7.2 Certain Fees and Expenses. If this Agreement shall be terminated
(i) pursuant to Section 7.1(h) or 7.1(i)(i), then Cornerstone theretofore or
thereupon shall pay to Colonial Partnership a fee equal to the Break-Up Fee, or
(ii) pursuant to Section 7.1(b), 7.1(e) (if, at the time of such termination,
the condition set forth in Section 6.2(j) shall not have been satisfied), 7.1(f)
and 7.1(l), then Cornerstone shall pay to Colonial Partnership (provided that
Cornerstone was not entitled to terminate this Agreement pursuant to Section
7.1(c) at the time of such termination) an amount equal to the Break-Up Expenses
(as defined herein). If this Agreement shall be terminated pursuant to Section
7.1(c), 7.1(g) or 7.1(k), then Colonial shall pay to Cornerstone (provided that
Colonial was not entitled to terminate this Agreement pursuant to Section 7.1(b)
at the time of such termination) an amount equal to the Break-Up Expenses. If
this Agreement shall be terminated pursuant to Section 7.1(b), 7.1(d) (if
primarily resulting from any action or inaction of Cornerstone or any
Cornerstone Subsidiary), 7.1(e) (if such termination is by Cornerstone), 7.1(f)
or 7.1(i)(ii) and prior to the time of such termination an Acquisition Proposal
(but substituting 25% for 10% in the definition thereof) has been received by
Cornerstone, and either prior to the termination of this Agreement or within
twelve (12) months thereafter, Cornerstone (or Cornerstone Partnership or any
Cornerstone Subsidiary) enters into any written agreement to consummate a
transaction or series of transactions which, had such agreement been proposed or
negotiated during the term of this Agreement, would have constituted an
Acquisition Proposal (but substituting 25% for 10% in the definition thereof)
pursuant to Section 4.3 (each, a "Cornerstone Acquisition Agreement"), which is
subsequently consummated (and which, (x) in the case of a termination pursuant
to Section 7.1(e) or 7.1(f), relates to the same Acquisition Proposal that had
been received at the time of termination of this Agreement and (y) in the case
of a termination pursuant to Section 7.1(b), 7.1(d) or 7.1(i)(ii), relates to
any Acquisition Proposal, whether or not such Acquisition Proposal is the
Acquisition Proposal that had been received at the time of the termination of
this Agreement), then Cornerstone shall pay the Break-Up Fee to Colonial
Partnership.
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Notwithstanding anything to the contrary in this Agreement, the
parties hereto expressly acknowledge and agree that, with respect to any
termination of this Agreement in circumstances where the Break-Up Fee is payable
in accordance with this Section 7.2 (other than a termination by Colonial
pursuant to Section 7.1(b) by reason of a willful or intentional breach of this
Agreement by Cornerstone), the payment of the Break-Up Fee shall, in light of
the difficulty of accurately determining actual damages, constitute liquidated
damages with respect to any claim for damages or any other claim which Colonial
and Colonial Merger Sub would otherwise be entitled to assert against
Cornerstone or any of their respective assets, or against any of their
respective directors, officers, employees, partners, managers, members or
shareholders, with respect to this Agreement and the transactions contemplated
hereby and shall constitute the sole and exclusive remedy available to Colonial
or Colonial Merger Sub. Except for nonpayment of the amounts set forth in
Section 7.2, the parties hereby agree that, upon termination of this Agreement
in circumstances where the Break-Up Fee is payable in accordance with this
Section 7.2 (other than a termination by Colonial pursuant to Section 7.1(b) by
reason of a willful or intentional breach of this Agreement by Cornerstone), in
no event shall Colonial or Colonial Merger Sub (i) seek to obtain any recovery
or judgment against Cornerstone or any of their respective assets, or against
any of their respective directors, officers, employees, partners, managers,
members or shareholders, or (ii) be entitled to seek or obtain any other damages
of any kind, including, without limitation, consequential, indirect or punitive
damages.
The Break-Up Fee shall be paid by Cornerstone to Colonial
Partnership, or the Break-Up Expenses shall be paid by Cornerstone to Colonial
Partnership or Colonial to Cornerstone (as applicable), in immediately available
funds within two (2) business days after the date the event giving rise to the
obligation to make such payment occurred (except as otherwise provided in
Section 7.1(h)). The parties hereto acknowledge that the agreements contained in
this Section 7.2 are integral parts of this Agreement; accordingly, if (i)
Cornerstone fails to promptly pay the Break-Up Fee or Break-Up Expenses due
pursuant to this Section 7.2 and, in order to obtain payment, Colonial commences
a suit which results in a judgment against Cornerstone for any amounts owed
pursuant to this Section 7.2, Cornerstone shall pay to Colonial its costs and
expenses (including reasonable attorneys' fees and expenses) in connection with
such suit, together with interest on the amount owed at the rate on six-month
U.S. Treasury obligations in effect on the date such payment was required to be
made plus 300 basis points, or (ii) Colonial fails to promptly pay the Break-Up
Expenses due pursuant to this Section 7.2 and, in order to obtain payment,
Cornerstone commences a suit which results in a judgment against Colonial for
any amounts owed pursuant to this Section 7.2, Colonial shall pay to Cornerstone
its costs and expenses (including reasonable attorneys' fees and expenses) in
connection with such suit, together with interest on the amount owed at the rate
on six-month U.S. Treasury obligations in effect on the date such payment was
required to be made plus 300 basis points.
As used in this Agreement, "Break-Up Fee" shall be an amount equal
to the lesser of (i) $20 million less Break-Up Expenses paid or payable under
this Section 7.2 (the "Base Amount") and (ii) the sum of (A) the maximum amount
that can be paid to Colonial Partnership without causing Colonial to fail to
meet the requirements of Sections 856(c)(2) and (3) of the Code determined as if
the payment of such amount did not constitute income described in Sections
856(c)(2)(A)-(H) and 856(c)(3)(A)-(I) of the Code ("Qualifying Income"), as
determined by independent accountants to Colonial, and (B) in the event Colonial
receives a
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letter from outside counsel (the "Break-Up Fee Tax Opinion") indicating that
Colonial has received a ruling from the IRS holding that Colonial Partnership's
receipt of the Base Amount would either constitute Qualifying Income or would be
excluded from gross income of Colonial within the meaning of Sections 856(c)(2)
and (3) of the Code (the "REIT Requirements") or that the receipt by Colonial
Partnership of the remaining balance of the Base Amount following the receipt of
and pursuant to such ruling would not be deemed constructively received prior
thereto, the Base Amount less the amount payable under clause (A) above.
Cornerstone's obligation to pay any unpaid portion of the Break-Up Fee shall
terminate three years from the date of this Agreement. In the event that
Colonial Partnership is not able to receive the full Base Amount, Cornerstone
shall place the unpaid amount in escrow and shall not release any portion
thereof to Colonial Partnership unless and until Cornerstone receives one or
both of the following: (i) a letter from Colonial's independent accountants
indicating the maximum amount that can be paid at that time to Colonial
Partnership without causing Colonial to fail to meet the REIT Requirements or
(ii) a Break-Up Fee Tax Opinion, in either of which events Cornerstone shall pay
to Colonial Partnership the unpaid Base Amount or, if less and either there is
no Break-up Fee Tax Opinion or the ruling described in the Break-Up Fee Tax
Opinion does not hold that the Base Amount either would constitute Qualifying
Income or would be excluded from gross income for purposes of the REIT
Requirements, the maximum amount stated in the letter referred to in (i) above.
Subject to satisfaction of the conditions set forth in the immediately preceding
sentence, there is no limitation on the number of distributions that can be made
from the escrow prior to the third anniversary of the date of this Agreement.
The "Break-Up Expenses" payable to Colonial Partnership or
Cornerstone, as the case may be (the "Recipient"), shall be an amount equal to
the lesser of (i) $3 million or (ii) the Recipient's out-of-pocket expenses
incurred in connection with this Agreement and the transactions contemplated
hereby (including, without limitation, all attorneys', accountants' and
investment bankers' fees and expenses); provided, however that if this Agreement
is terminated pursuant to (x) Section 7.1(e) and, at the time of such
termination, the condition set forth in Section 6.2(j) shall not have been
satisfied, or (y) Section 7.1(l), then (in either case) "Break-Up Expenses"
shall be calculated with $7.5 million replacing $3 million as the maximum amount
of the Break-Up Expenses set forth in clause (i). If the Break-Up Expenses
payable to the Recipient exceed the maximum amount that can be paid to the
Recipient without causing the Recipient to fail to meet the requirements of
Sections 856(c)(2) and (3) of the Code determined as if the payment of such
amount did not constitute Qualifying Income, as determined by independent
accountants to the Recipient (the "Maximum Amount"), the amount initially
payable to the Recipient shall be limited to the Maximum Amount. If, however,
within the three-year period commencing on the date of this Agreement, the
Recipient receives a Break-Up Fee Tax Opinion indicating that it has received a
ruling from the IRS holding that the Recipient's receipt of the Break-Up
Expenses would either constitute Qualifying Income or would be excluded from
gross income of the Recipient within the meaning of the REIT Requirements or
that receipt by the Recipient of the balance of the Break-Up Expenses above the
Maximum Amount following the receipt of and pursuant to such ruling would not be
deemed constructively received prior thereto, the Recipient shall be entitled to
have payable to it the full amount of the Break-Up Expenses. The obligation of
Colonial or Cornerstone, as applicable ("Payor"), to pay any unpaid portion of
the Break-Up Expenses shall terminate three years from the date of this
Agreement. In the event
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that the Recipient is not able to receive the full Break-Up Expenses, the Payor
shall place the unpaid amount in escrow and shall not release any portion
thereof to the Recipient unless and until the Payor receives either one or both
of the following: (i) a letter from the independent accountants of Colonial or
Cornerstone, as the case may be, indicating the maximum amount that can be paid
at that time to the Recipient without causing it to fail to meet the REIT
Requirements or (ii) a Break-Up Expense Tax Opinion, in either of which events
the Payor shall pay to the Recipient the unpaid Break-Up Expenses or, if less
and either there is no Break-Up Expense Tax Opinion or the ruling described in
the Break-Up Expense Tax Opinion does not hold that the Base Amount either would
constitute Qualifying Income or would be excluded from gross income for purposes
of the REIT Requirements, the maximum amount stated in the letter referred to in
(i) above. Subject to satisfaction of the conditions set forth in the
immediately preceding sentence, there is no limitation on the number of
distributions that can be made from the escrow prior to the third anniversary of
the date of this Agreement. Colonial Partnership is an intended third party
beneficiary of this Section 7.2.
7.3 Effect of Termination. In the event of termination of this
Agreement by either Cornerstone or Colonial as provided in Section 7.1, this
Agreement shall forthwith become void and have no effect, without any liability
or obligation on the part of Colonial, Colonial Merger Sub or Cornerstone, other
than the last sentence of Section 5.2, Section 7.2, this Section 7.3 and Article
8, and except to the extent that such termination results from a material breach
by any party of any of its representations, warranties, covenants or agreements
set forth in this Agreement.
7.4 Amendment. This Agreement may be amended by the parties in
writing by action of the respective Board of Trustees or Board of Directors of
Colonial and Cornerstone at any time before or after any Shareholder Approvals
are obtained and prior to the filing of the Virginia Articles of Merger and
Delaware Certificate of Merger; provided, however, that, after the Shareholder
Approvals are obtained, no such amendment, modification or supplement shall be
made which by law requires the further approval of shareholders without
obtaining such further approval. The parties agree to amend this Agreement in
the manner provided in the immediately preceding sentence to the extent required
to (a) continue the status of each party as a REIT or (b) preserve the Merger as
a reorganization under Section 368(a) of the Code.
7.5 Extension; Waiver. At any time prior to the Effective Time, the
parties may (a) extend the time for the performance of any of the obligations or
other acts of the other party, (b) waive any inaccuracies in the representations
and warranties of the other party contained in this Agreement or in any document
delivered pursuant to this Agreement or (c) subject to the proviso of Section
7.4, waive compliance with any of the agreements or conditions of the other
party contained in this Agreement. Any agreement on the part of a party to any
such extension or waiver shall be valid only if set forth in an instrument in
writing signed on behalf of such party. The failure of any party to this
Agreement to assert any of its rights under this Agreement or otherwise shall
not constitute a waiver of those rights.
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ARTICLE 8
GENERAL PROVISIONS
8.1 Nonsurvival of Representations and Warranties. None of the
representations and warranties in this Agreement or in any instrument delivered
pursuant to this Agreement confirming the representations and warranties in this
Agreement shall survive the Effective Time. This Section 8.1 shall not limit any
covenant or agreement of the parties which by its terms contemplates performance
after the Effective Time.
8.2 Notices. All notices, requests, claims, demands and other
communications under this Agreement shall be in writing and shall be delivered
personally, sent by overnight courier (providing proof of delivery) to the
parties or sent by telecopy (providing confirmation of transmission) at the
following addresses or telecopy numbers (or at such other address or telecopy
number for a party as shall be specified by like notice):
(a) if to Colonial or Colonial Merger Sub, to:
Colonial Properties Trust
0000 0xx Xxxxxx Xxxxx
Xxxxx 000
Xxxxxxxxxx, XX 00000
Attention: Xxxxxx X. Xxxxxx
Fax No.: 000-000-0000
with a copy (which shall not constitute notice) to:
Xxxxx & Xxxxxxx L.L.P.
000 Xxxxxxxxxx Xxxxxx, X.X.
Xxxxxxxxxx, X.X. 00000-0000
Attention: J. Xxxxxx Xxxxxxx, Xx.
Xxxxx X. Xxxxxxxxx
Xxxxxx X. Xxxxx
Fax No.: (000) 000-0000
(b) if to Cornerstone, to:
Cornerstone Realty Income Trust, Inc.
000 X. Xxxx Xx.
Xxxxxxxx, XX 00000
Attention: Xxxxx X. Xxxxxx
Fax No.: (000) 000-0000
with a copy (which shall not constitute notice) to:
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McGuireWoods LLP
000 Xxxx Xxxx Xxxxxx
Xxxxxxxx, XX 00000
Attention: Xxxxx X. Xxxxxxxxx
Fax No.: (000) 000-0000
All notices shall be deemed given only when actually received.
8.3 Interpretation. When a reference is made in this Agreement to a
Section, such reference shall be to a Section of this Agreement unless otherwise
indicated. The table of contents and headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. Whenever the words "include", "includes" or
"including" are used in this Agreement, they shall be deemed to be followed by
the words "without limitation."
8.4 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other party.
8.5 Entire Agreement; No Third-Party Beneficiaries. This Agreement,
the Cornerstone Disclosure Letter, the Colonial Disclosure Letter, the
Confidentiality Agreement, the Voting Agreements and the other agreements
entered into in connection with the Merger (a) constitute the entire agreement
and supersede all prior agreements and understandings, both written and oral
between the parties with respect to the subject matter of this Agreement and (b)
except as provided in Section 5.9, Section 5.12 and Section 7.2 ("Third Party
Provisions"), are not intended to confer upon any Person other than the parties
hereto any rights or remedies.
8.6 Governing Law. THE MERGER SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATES OF DELAWARE AND VIRGINIA, AS APPLICABLE,
REGARDLESS OF THE LAWS THAT MIGHT OTHERWISE GOVERN UNDER APPLICABLE PRINCIPLES
OF CONFLICT OF LAWS THEREOF. EXCEPT AS PROVIDED IN THE IMMEDIATELY PRECEDING
SENTENCE, THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF VIRGINIA, REGARDLESS OF THE LAWS THAT MIGHT OTHERWISE
GOVERN UNDER APPLICABLE PRINCIPLES OF CONFLICT OF LAWS THEREOF.
8.7 Assignment. Neither this Agreement nor any of the rights,
interests or obligations under this Agreement shall be assigned or delegated, in
whole or in part, by operation of law or otherwise by any of the parties without
the prior written consent of the other parties. Subject to the preceding
sentence, this Agreement will be binding upon, inure to the benefit of, and be
enforceable by, the parties and their respective successors and assigns.
8.8 Enforcement. The parties agree that irreparable damage would
occur in the event that any of the provisions of this Agreement were not
performed in accordance with
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their specific terms or were otherwise breached. It is accordingly agreed that
the parties shall be entitled to an injunction or injunctions to prevent
breaches of this Agreement and to enforce specifically the terms and provisions
of this Agreement in any federal court located in Virginia or in any state court
located in the Commonwealth of Virginia this being in addition to any other
remedy to which they are entitled at law or in equity. In addition, each of the
parties hereto (a) consents to submit itself (without making such submission
exclusive) to the personal jurisdiction of any federal court located in Virginia
or any state court located in the Commonwealth of Virginia in the event any
dispute arises out of this Agreement or any of the transactions contemplated by
this Agreement and (b) agrees that it will not attempt to deny or defeat such
personal jurisdiction by motion or other request for leave from any such court.
8.9 Severability. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of this
Agreement is so broad as to be unenforceable, the provision shall be interpreted
to be only so broad as is enforceable.
8.10 Exculpation. This Agreement shall not impose any personal
liability on any shareholder, trustee, trust manager, director, officer,
employee or agent of Colonial or Cornerstone, and all Persons shall look solely
to the property of Colonial or Cornerstone for the payment of any claim
hereunder or for the performance of this Agreement.
8.11 Joint and Several Obligations. In each case where Colonial and
Colonial Merger Sub are obligated to perform the same obligation hereunder, such
obligation shall be joint and several.
82
IN WITNESS WHEREOF, Colonial, Colonial Merger Sub and Cornerstone
have caused this Agreement to be signed by their respective officers (or general
partners) thereunto duly authorized all as of the date first written above.
COLONIAL PROPERTIES TRUST
By: /s/ Xxxxxx X. Xxxxxx
-------------------------------
Name: Xxxxxx X. Xxxxxx
Title: Chairman of the Board,
President and Chief Executive
Officer
CLNL ACQUISITION SUB LLC
By: /s/ Xxxxxx X. Xxxxxx
-------------------------------
Name: Xxxxxx X. Xxxxxx
Title: President and Chief
Executive Officer
CORNERSTONE REALTY INCOME TRUST,
INC.
By: /s/ Xxxxx X. Xxxxxx
-------------------------------
Name: Xxxxx X. Xxxxxx
Title: Chairman & CEO
Exhibit A
FORM OF DELAWARE CERTIFICATE OF MERGER
CERTIFICATE OF MERGER
OF
CORNERSTONE REALTY INCOME TRUST, INC.
WITH AND INTO
CLNL ACQUISITION SUB LLC
Pursuant to Section 18-209 of the Delaware Limited Liability Company Act
(the "DE LLC ACT"), CLNL Acquisition Sub LLC, a Delaware limited liability
company ("COLONIAL MERGER SUB"), does hereby certify to the following facts
relating to the merger of Cornerstone Realty Income Trust, Inc., a Virginia
corporation ("CORNERSTONE") with and into Colonial Merger Sub (the "MERGER"):
FIRST: The name and jurisdiction of formation of each business entity that
is a party to the Merger is as follows:
Name Jurisdiction of Formation
---- -------------------------
Cornerstone Realty Income Trust, Inc. Virginia
CLNL Acquisition Sub LLC Delaware
SECOND: An Agreement and Plan of Merger, dated as of October 25, 2004, by
and among Colonial Properties Trust, an Alabama real estate investment trust,
Colonial Merger Sub and Cornerstone (the "AGREEMENT AND PLAN OF MERGER"), has
been approved and executed by each of the constituent business entities, in
accordance with the requirements of Section 18-209 of the DE LLC Act, in the
case of Colonial Merger Sub, and in accordance with the respective laws of the
jurisdictions under which the other business entities are formed, organized or
incorporated.
THIRD: Pursuant to the Agreement and Plan of Merger, Colonial Merger Sub
will be the surviving limited liability company in the Merger (the "SURVIVING
LLC"), and the Surviving LLC shall continue its existence under its present
name, "Colonial Merger Sub LLC."
FOURTH: The effective date and time of the Merger will be _________, 2005.
FIFTH: The executed Agreement and Plan of Merger is on file at the
principal place of business of the Surviving LLC at the following address:
______________________________
______________________________
______________________________
SIXTH: A copy of the Agreement and Plan of Merger will be furnished by the
Surviving LLC, on request and without cost, to any member of any domestic
limited liability company or any person holding an interest in any other
business entity which is to merge in the Merger.
IN WITNESS WHEREOF, this Certificate of Merger has been duly executed, on
this __ day of _________, 2005.
CLNL ACQUISITION SUB LLC
By: ________________________________
Name:
Title:
Exhibit B
FORM OF VIRGINIA ARTICLES OF MERGER
ARTICLES OF MERGER
MERGING
CORNERSTONE REALTY INCOME TRUST, INC.
A VIRGINIA CORPORATION,
WITH AND INTO
CLNL ACQUISITION SUB LLC
A DELAWARE LIMITED LIABILITY COMPANY
The undersigned entities, pursuant to Section 13.1-720 and Section
13.1-722 of the Virginia Stock Corporation Act, hereby execute and adopt the
following articles of merger:
1. The Agreement and Plan of Merger (the "PLAN OF MERGER") is
attached hereto as Exhibit A, and the terms of such Plan of Merger are
incorporated by reference herein in their entirety.
2. Cornerstone Trust, Inc., a Virginia corporation ("CORNERSTONE"),
shall be merged with and into CLNL Acquisition Sub LLC, a Delaware limited
liability company ("COLONIAL MERGER SUB") (the "MERGER"). Colonial Merger Sub
shall be the surviving limited liability company.
3. The Merger is permitted by the state under whose law Colonial
Merger Sub is organized and Colonial Merger Sub has complied with that law in
effecting the Merger.
4. The Plan of Merger was submitted to the shareholders of
Cornerstone by the board of directors of Cornerstone in accordance with the
Virginia Stock Corporation Act. There were _______ of Cornerstone's common
shares of beneficial interest, no par value ("COMMON SHARES"), outstanding as of
____________, 2005, the record date for the special meeting held on __________,
2005 at which the Plan of Merger was considered (the "SPECIAL MEETING"). Common
shares represented the only class of securities entitled to vote at the Special
Meeting, and each share thereof entitled its holder to one vote. Of the ______
votes entitled to be cast, ________ were indisputably represented at the Special
Meeting. The total number of undisputed votes cast FOR the Plan of Merger at the
Special Meeting was ________, which number was sufficient for the approval of
the Plan of Merger by the holders of Common Shares.
IN WITNESS WHEREOF, each of the undersigned has caused these
Articles of Merger to be duly executed and delivered in its name as of the ____
day of ______________, 2005.
CORNERSTONE TRUST, INC.
By: ______________________________
Name:
Title:
CLNL ACQUISITION SUB LLC
By: ______________________________
Name:
Title:
Exhibit C
FORM OF COLONIAL ARTICLES SUPPLEMENTARY
ARTICLES SUPPLEMENTARY OF
7.62% SERIES E CUMULATIVE REDEEMABLE PREFERRED SHARES
OF BENEFICIAL INTEREST OF
COLONIAL PROPERTIES TRUST
Pursuant to Section 10-13-7 of the
Code of Alabama 1975
Colonial Properties Trust, an Alabama real estate investment trust (the
"Company"), hereby certifies that on October 21, 2004, pursuant to authority
conferred by Sections 3.2(e) and 6.3 of the Charter (as defined below) and in
accordance with Section 10-13-7 of the Code of Alabama 1975, the Board of
Trustees duly classified unissued Preferred Shares (as defined below) of the
Company, and the description of such Preferred Shares (as defined below),
including the number, designation, preferences, conversion and other rights,
voting powers, restrictions, limitations as to dividends, qualifications, and
terms and conditions of redemption thereof, as set by the Board of Trustees, are
as follows:
Section 1. Number of Shares and Designation. This series of Preferred
Shares shall be designated as 7.62% Series E Cumulative Redeemable Preferred
Shares of Beneficial Interest, par value $.01 per share (the "Series E Preferred
Shares"). The number of Preferred Shares constituting the Series E Preferred
Shares is 70,000.
Section 2. Definitions. The following terms shall have the following
meanings herein:
(a) "Articles" shall mean these Articles Supplementary of 7.62%
Series E Cumulative Redeemable Preferred Shares of Beneficial Interest of
Colonial Properties Trust.
(b) "Board of Trustees" shall mean the Board of Trustees of the
Company or any committee authorized by the Board of Trustees to perform any of
its responsibilities with respect to the Series E Preferred Shares.
(c) "Business Day" shall mean any day other than a Saturday, Sunday
or day on which state or federally chartered banking institutions in New York
City, New York are not required to be open.
(d) "Call Date" shall have the meaning set forth in Section 6(b).
(e) "Capital Gains Amount" shall have the meaning set forth in
Section 3(d).
(f) "Charter" means the Declaration of Trust of the Company, as
amended to the date hereof and as the same may be amended hereafter from time to
time.
(g) "Code" shall mean the Internal Revenue Code of 1986, as amended,
or any successor statute thereto.
(h) "Common Shares" shall mean the Company's common shares of
beneficial interest, par value $.01 per share.
(i) "Dividend Payment Date" shall mean the last day (or, if such day
is not a Business Day, the succeeding Business Day) of each March, June,
September and December, commencing on __ [1], 2005.
(j) "Dividend Periods" shall mean quarterly dividend periods
commencing on, and including, January 1, April 1, July 1 and October 1 of each
year and ending on and including the next succeeding Dividend Payment Date
(other than the initial Dividend Period, which shall commence on the Initial
Dividend Accrual Date, and other than the Dividend Period during which any
Series E Preferred Shares shall be redeemed pursuant to Section 6, which shall
end on and include the Call Date with respect to the Series E Preferred Shares
being redeemed).
(k) "Fully Junior Shares" shall mean the Common Shares, the Series
1998 Junior Participating Preferred Shares and any other class or series of
shares of beneficial interest of the Company now or hereafter issued and
outstanding over which the Series E Preferred Shares have preference or priority
in both (i) the payment of dividends and (ii) the distribution of assets on any
liquidation, dissolution or winding up of the Company.
(l) "Initial Dividend Accrual Date" shall mean __, 200__[2].
(m) "Issue Date" shall mean the first date on which the pertinent
Series E Preferred Shares are issued.
(n) "Junior Shares" shall mean the Common Shares, the Series 1998
Junior Participating Preferred Shares and any other class or series of shares of
beneficial interest of the Company now or hereafter issued and outstanding over
which the Series E Preferred Shares have preference or priority in the payment
of dividends or in the distribution of assets on any liquidation, dissolution or
winding up of the Company.
(o) "Market Price," with respect to a Common Share as of any date of
determination, shall mean the average of the closing prices of the Common Shares
for the 10 consecutive Trading Days ending on date of determination on the New
York Stock Exchange (or such other national securities exchange or automated
quotation system on which the Common Shares are then listed or
------------------
[1] The Company shall insert the month and date of the applicable quarter end
after the Closing Date.
[2] The Company shall insert the most recent record date for payment of
regular quarterly dividends on Cornerstone Common Shares prior to the
Issue Date.
authorized for quotation or, if the Common Shares are not so listed or
authorized for quotation, an amount determined in good faith by the Board of
Trustees to be the fair value of the Common Shares).
(p) "Parity Shares" shall have the meaning set forth in Section
9(b).
(q) "Person" means an individual, a corporation, an association, a
partnership, a limited liability company, a joint venture, a joint stock
company, a trust, an unincorporated organization or any other entity or
organization, a government or political subdivision or an agency or
instrumentality thereof.
(r) "Preferred Shares" shall mean the Company's preferred shares of
beneficial interest, par value $.01 per share.
(s) "Series E Preferred Shares" shall have the meaning set forth in
Section 1.
(t) "set apart for payment" shall be deemed to include, without any
action other than the following, the recording by the Company in its accounting
ledgers of any accounting or bookkeeping entry which indicates, pursuant to a
declaration of dividends or other distribution by the Board of Trustees, the
allocation of funds to be so paid on any series or class of shares of beneficial
interest of the Company; provided, however, that if any funds for any class or
series of Junior Shares or Fully Junior Shares or any class or series of shares
of beneficial interest ranking on a parity with the Series E Preferred Shares as
to the payment of dividends are placed in a separate account of the Company or
delivered to a disbursing, paying or other similar agent, then "set apart for
payment" with respect to the Series E Preferred Shares shall mean placing such
funds in such separate account or delivering such funds to a disbursing, paying
or other similar agent.
(u) "Subsidiary" shall mean, with respect to any Person, (a) any
corporation, association or other business entity of which more than fifty
percent (50%) of the total voting power of shares of capital stock or other
equity interests entitled (without regard to the occurrence of any contingency)
to vote generally in the election of directors, managers or trustees thereof is
at the time owned or controlled, directly or indirectly, by such Person or one
or more of the other Subsidiaries of that Person (or a combination thereof) and
(b) any partnership, (i) the sole general partner or the managing general
partner of which is such Person or a Subsidiary of such Person or (ii) the only
general partners of which are such Person or one or more Subsidiaries of such
Person (or any combination thereof).
(v) "Total Dividends" shall have the meaning set forth in Section
3(d).
(w) "Trading Day" means a day during which trading in securities
generally occurs on the New York Stock Exchange or, if the applicable security
is not listed on the New York Stock Exchange, on the principal other national or
regional securities exchange on which the applicable security is then listed or,
if the applicable security is not listed on a national or regional securities
exchange, on Nasdaq or, if the applicable security is not quoted on Nasdaq, on
the principal other market on which the applicable security is then traded.
(x) "Transfer Agent" means EquiServe Trust Company, N.A., or such
other agent or agents of the Company as may be designated by the Board of
Trustees or their designee as the transfer agent, registrar and dividend
disbursing agent for the Series E Preferred Shares.
Section 3. Dividends.
(a) The holders of Series E Preferred Shares shall be entitled to receive,
when, as and if declared by the Board of Trustees out of funds legally available
for that purpose, cumulative preferential dividends payable on each Dividend
Payment Date in cash in an amount equal to the sum of (i) $47.625 per share plus
(ii) if the sum of all dividends paid on one Common Share during the preceding
Dividend Period (i.e., the Dividend Period ending on the immediately preceding
Dividend Payment Date) (such sum, the "Prior Period Dividends") exceeds the
Common Dividend Threshold Amount (as defined below), an amount equal to the
product of (x) 50% times (y) the excess of the Prior Period Dividends over the
Common Dividend Threshold Amount times (z) the Equalization Factor (as defined
below). Such dividends shall begin to accrue and shall be fully cumulative from
and including the Initial Dividend Accrual Date, whether or not in any Dividend
Period or Periods there shall be funds of the Company legally available for the
payment of such dividends, and shall be payable quarterly, when, as and if
declared by the Board of Trustees, in arrears on Dividend Payment Dates,
commencing on the first Dividend Payment Date after the Issue Date. Such
dividends shall be payable in arrears to the holders of record of Series E
Preferred Shares, as they appear on the share records of the Company at the
close of business on the record date, which shall be the 15th day of the
calendar month in which the applicable Dividend Payment Date falls or such other
date designated by the Board of Trustees that is not more than 30 nor less than
10 days preceding the relevant Dividend Payment Date. Accrued and unpaid
dividends for any past Dividend Periods may be declared and paid on any date and
for such interim periods, without reference to any regular Dividend Payment
Date, to holders of record on such date, not more than 30 nor less than 10 days
preceding the payment date thereof, as may be fixed by the Board of Trustees.
Any dividend payment made on the Series E Preferred Shares shall first be
credited against the earliest accrued but unpaid dividend due with respect to
the Series E Preferred Shares which remains payable.
(b) The amount of dividends payable for the initial Dividend Period and
for any Dividend Period shorter than a full Dividend Period for the Series E
Preferred Shares shall be computed on the basis of a 360-day year consisting of
twelve 30-day months. Holders of Series E Preferred Shares shall not be entitled
to any dividends, whether payable in cash, property or shares of stock, in
excess of cumulative dividends, as herein provided, on the Series E Preferred
Shares. No interest, or sum of money in lieu of interest, shall be payable in
respect of any dividend payment or payments on the Series E Preferred Shares
that may be in arrears.
(c) If the Company, or any of its Subsidiaries, shall, after the Issue
Date consummate a tender or exchange offer for all or any portion of the
Company's Common Shares that involves an aggregate consideration per share in
excess of the Market Price per Common Share as of the date immediately preceding
the date notice is first given to the public or the holders of Common Shares of
such tender or exchange offer (the "Tender Notice Date"), then the amount of the
Prior Period Dividends for the Dividend Period ending on or after the closing
date of such tender or exchange offer, shall include an amount equal to the fair
market value (to be determined in good
faith by the Board of Directors to be the fair market value) of the
consideration paid in such tender or exchange for each share so tendered less
the Market Price per Common Share on the date immediately preceding the Tender
Notice Date.
(d) Dividends on Series E Preferred Shares will accrue whether or not the
Company has earnings, whether or not there are funds legally available for the
payment of such dividends and whether or not such dividends are declared.
(e) If, for any taxable year, the Company elects to designate as "capital
gain dividends" (as defined in Section 857 of the Code), any portion (the
"Capital Gains Amount") of the total dividends paid or made available for the
year to holders of all classes of capital stock (the "Total Dividends"), then
the portion of the Capital Gains Amount that shall be allocable to holders of
Series E Preferred Shares shall be in the same portion that the Total Dividends
paid or made available to the holders of Series E Preferred Shares for the year
bears to the Total Dividends.
(f) So long as any Series E Preferred Shares are outstanding, no
dividends, except as described in the immediately following sentence, shall be
declared or paid or set apart for payment on any class or series of Parity
Shares for any period unless full cumulative dividends have been or
contemporaneously are declared and paid or declared and a sum sufficient for the
payment thereof set apart for such payment on the Series E Preferred Shares for
all Dividend Periods terminating on or prior to the dividend payment date for
such class or series of Parity Shares. When dividends are not paid in full or a
sum sufficient for such payment is not set apart, as aforesaid, all dividends
declared upon Series E Preferred Shares and all dividends declared upon any
other class or series of Parity Shares shall be declared ratably in proportion
to the respective amounts of dividends accumulated and unpaid on the Series E
Preferred Shares and accumulated and unpaid on such Parity Shares.
(g) So long as any Series E Preferred Shares are outstanding, no dividends
(other than dividends or distributions paid solely in, or options, warrants or
rights to subscribe for or purchase, Fully Junior Shares) shall be declared or
paid or set apart for payment or other distribution declared or made upon Junior
Shares or Fully Junior Shares, nor shall any Junior Shares or Fully Junior
Shares be redeemed, purchased or otherwise acquired (other than a redemption,
purchase or other acquisition of Common Shares made for purposes of any employee
incentive or benefit plan of the Company or any subsidiary) for any
consideration (or any moneys be paid to or made available for a sinking fund for
the redemption of any such shares) by the Company, directly or indirectly
(except by conversion into or exchange for Fully Junior Shares), unless in each
case (i) the full cumulative dividends on all outstanding Series E Preferred
Shares and any Parity Shares shall have been or contemporaneously are declared
and paid or declared and set apart for payment for all past Dividend Periods
with respect to the Series E Preferred Shares and all past dividend periods with
respect to such Parity Shares and (ii) sufficient funds shall have been or
contemporaneously are declared and paid or declared and set apart for the
payment of the dividend for the current Dividend Period with respect to the
Series E Preferred Shares and the current dividend period with respect to such
Parity Shares.
(h) No dividends on Series E Preferred Shares shall be declared by the
Board of Trustees or paid or set apart for payment by the Company at such time
as the terms and provisions of any agreement of the Company, including any
agreement relating to its indebtedness, prohibits such declaration, payment or
setting apart for payment or provides that such declaration, payment or setting
apart for payment would constitute a breach thereof or a default thereunder, or
if such declaration or payment shall be restricted or prohibited by law.
(i) For purposes of this Section 3, the following terms shall have the
meanings set forth below:
(i) "Common Dividend Threshold Amount" shall initially mean $0.790;
provided that if the Company shall, after the Issue Date, (A) pay a
distribution or make a distribution on its Common Shares in Common Shares,
(B) subdivide its outstanding Common Shares into a greater number of
Common Shares, (C) combine its outstanding Common Shares into a smaller
number of Common Shares or (D) issue any Common Shares by reclassification
of its Common Shares, the Common Dividend Threshold Amount in effect (x),
in the case of any such distribution, at the opening of business on the
day following the date fixed for the determination of holders entitled to
receive such distribution or (y), in the case of any such subdivision,
combination, or recapitalization, at the opening of business on the
Business Day next following the day on which such subdivision, combination
or reclassification becomes effective, shall be adjusted by multiplying
(1) the Common Dividend Threshold Amount in effect immediately prior to
such record date in the case of a distribution or such effective date in
the case of a subdivision, combination or reclassification by (2) the
Adjustment Factor. So long as any Series E Preferred Shares are
outstanding, the Company shall not pay or make a distribution on its
Common Shares in any Junior Shares, Fully Junior Shares, Parity Shares or
any other securities, other than Common Shares. The Company shall be
entitled, to the extent permitted by law, to make such reductions in the
Common Dividend Threshold Amount, in addition to those set forth above, as
it in its discretion shall determine to be advisable in order that any
share distributions, subdivision of shares, reclassification or
combination of shares hereafter made by the Company to its holders shall
not be taxable. All calculations of the Common Dividend Threshold Amount
shall be made to the nearest $0.001 (with $.0005 being rounded upward).
(ii) "Equalization Factor" shall initially mean 60.2991; provided
that if the Company shall, after the Issue Date, (A) pay a distribution or
make a distribution on its Common Shares in Common Shares, (B) subdivide
its outstanding Common Shares into a greater number of Common Shares, (C)
combine its outstanding Common Shares into a smaller number of Common
Shares or (D) issue any Common Shares by reclassification of its Common
Shares, the Equalization Factor in effect (x), in the case of any such
distribution, at the opening of business on the day following the date
fixed for the determination of holders entitled to receive such
distribution or (y), in the case of any such subdivision, combination, or
recapitalization, at the opening of business on the Business Day next
following the day on which such subdivision, combination or
reclassification becomes effective, shall be adjusted by dividing (1) the
Equalization Factor in effect immediately prior to such record date in the
case of a distribution or such
effective date in the case of a subdivision, combination or
reclassification by (2) the Adjustment Factor. All calculations of the
Equalization Factor shall be made to the nearest .0001 (with 0.00005 being
rounded upward).
(iii) "Adjustment Factor" shall mean the quotient obtained by
dividing (A) the number of Common Shares outstanding immediately prior to
(x) the record date, in the case of a distribution of Common Shares for
which an adjustment is to be made hereunder, or (y) the effective date, in
the case of a subdivision, combination or reclassification for which an
adjustment is to be made hereunder, by (B) (x) in the case of any such
distribution, the sum of the number of Common Shares outstanding
immediately prior to the record date for such distribution plus the number
of Common Shares distributed in such distribution or (y) in the case of
any such subdivision, combination or reclassification, the number of
Common Shares outstanding at the opening of business on the Business Day
next following the day on which such subdivision, combination or
reclassification becomes effective.
Section 4. Liquidation Rights.
(a) In the event of any liquidation, dissolution or winding up of the
Company, whether voluntary or involuntary, before any payment or distribution of
the assets of the Company (whether capital or surplus) shall be made to or set
apart for the holders of Junior Shares, the holders of the Series E Preferred
Shares shall be entitled to receive Two Thousand Five Hundred Dollars
($2,500.00) per Series E Preferred Share plus an amount equal to all dividends
(whether or not earned or declared) accrued and unpaid thereon to the date of
such liquidation, dissolution or winding up, but such holders shall not be
entitled to any further payment. If, upon any liquidation, dissolution or
winding up of the Company, the assets of the Company, or proceeds thereof,
distributable among the holders of the Series E Preferred Shares shall be
insufficient to pay in full the preferential amount aforesaid and liquidating
payments on any other shares of any class or series of Parity Shares, then such
assets, or the proceeds thereof, shall be distributed among the holders of the
Series E Preferred Shares and any such Parity Shares ratably in accordance with
the respective amounts that would be payable on such Series E Preferred Shares
and any such Parity Shares if all amounts payable thereon were paid in full. For
the purposes of this Section 4, (i) a consolidation or merger of the Company
with one or more corporations, real estate investment trusts, or other entities
and (ii) a sale, lease or transfer of all or substantially all of the Company's
assets shall not be deemed to be a liquidation, dissolution or winding up,
voluntary or involuntary, of the Company.
(b) Subject to the rights of the holders of any series or class or classes
of shares of beneficial interest ranking on a parity with or prior to the Series
E Preferred Shares upon liquidation, dissolution or winding up, upon any
liquidation, dissolution or winding up of the Company, after payment shall have
been made in full to the holders of the Series E Preferred Shares, as provided
in this Section 4, any other series or class or classes of Junior Shares or
Fully Junior Shares shall, subject to the respective terms and provisions (if
any) applying thereto, be entitled to receive any and all assets remaining to be
paid or distributed, and the holders of the Series E Preferred Shares shall not
be entitled to share therein.
Section 5. Conversion. The Series E Preferred Shares are not convertible
into or exchangeable for any other property or securities of the Company.
Section 6. Redemption at the Option of the Company.
(a) The Company, at its option, may redeem the Series E Preferred Shares,
in whole or in part, at any time or from time to time, for cash at a redemption
price of Two Thousand Five Hundred Dollars ($2,500.00) per Series E Preferred
Share, plus the amounts indicated in Section 6(b). If the Company, at any time,
chooses to redeem the Series E Preferred Shares, in part and not in whole, the
Company may not redeem in the aggregate more than 60,000 of the Series E
Preferred Shares without redeeming all of the Series E Preferred Shares that are
then outstanding.
(b) Upon any redemption of the Series E Preferred Shares pursuant to this
Section 6, the Company shall pay all accrued and unpaid dividends, if any,
thereon ending on or prior to the date of such redemption (the "Call Date"),
without interest. If the Call Date falls after a dividend payment record date
and prior to the corresponding Dividend Payment Date, then each holder of Series
E Preferred Shares at the close of business on such dividend payment record date
shall be entitled to the dividend payable on such shares on the corresponding
Dividend Payment Date notwithstanding the redemption of such shares before such
Dividend Payment Date. Except as provided above, the Company shall make no
payment or allowance for unpaid dividends, whether or not in arrears, on Series
E Preferred Shares called for redemption.
(c) If full cumulative dividends on the Series E Preferred Shares and any
class or series of Parity Shares of the Company have not been declared and paid
or declared and set apart for payment, the Series E Preferred Shares or Parity
Shares may not be redeemed under this Section 6 in part and the Company may not
purchase or otherwise acquire any Series E Preferred Shares or any Parity
Shares, otherwise than pursuant to a purchase or exchange offer made on the same
terms to all holders of Series E Preferred Shares or Parity Shares, as the case
may be; provided, however, that the foregoing shall not prevent the redemption,
purchase or acquisition of Series E Preferred Shares by the Company in
accordance with the terms of Article VI of the Charter or otherwise in order to
ensure that the Company remains qualified as a real estate investment trust
("REIT") for United States federal income tax purposes.
(d) Notice of the redemption of any Series E Preferred Shares under this
Section 6 shall be given by the Company by first-class mail, postage prepaid, by
the registrar to each holder of record of Series E Preferred Shares to be
redeemed at the address of each such holder as shown on the share transfer books
of the Company, not less than 30 nor more than 60 days prior to the Call Date,
or by publication in a newspaper of general circulation in the City of New York,
such publication to be made once a week for two successive weeks commencing not
less than 30 nor more than 60 days prior to the Call Date. No failure to give
any notice required by this Section 6(d), nor any defect therein or in the
mailing thereof, to any particular holder, shall affect the sufficiency of the
notice or the validity of the proceedings for redemption with respect to the
other holders. Any notice which was mailed in the manner herein provided shall
be conclusively presumed to have been duly given on the date mailed whether or
not the holder receives the notice. Each notice shall state: (i) the Call Date,
(ii) the number of Series E Preferred Shares to be redeemed and, if fewer than
all the shares held by such holder are to be redeemed, the number
of such shares to be redeemed from such holder, (iii) the redemption price per
share, (iv) the place or places at which certificates for such shares are to be
surrendered for payment of the redemption price, and (v) that dividends on the
shares to be redeemed shall cease to accrue on such Call Date. Notice having
been given as aforesaid, from and after the Call Date, (1) dividends on the
Series E Preferred Shares so called for redemption shall cease to accrue, (2)
such Series E Preferred Shares shall no longer be deemed to be outstanding, and
(3) all rights of the holders thereof as holders of Series E Preferred Shares of
the Company (except the right to receive the cash redemption price payable upon
such redemption, without interest thereon, upon surrender and endorsement of
their certificates if so required and to receive any dividends payable thereon)
shall cease and terminate and such shares shall not thereafter be transferred
(except with the consent of the Company) on the Company's books.
(e) On or before the Call Date, the Company may elect to deposit with a
bank or trust company (which may be an affiliate of the Company) or an affiliate
of a bank or trust company, the amount of cash necessary for such redemption, in
trust, with irrevocable instructions that such cash be applied to the redemption
of the Series E Preferred Shares so called for redemption. No interest shall
accrue for the benefit of the holders of Series E Preferred Shares to be
redeemed on any cash so set aside by the Company. If the Company elects to so
deposit the cash necessary for the redemption of the called Series E Preferred
Shares, any notice to the holders of Series E Preferred Shares called for
redemption required by this Section 6(e) shall (x) specify the office of such
bank or trust company as the place of payment of the redemption price and (y)
call upon such holders to surrender the share certificates representing such
shares at such place on or about the date fixed in such notice (which shall not
be later than the Call Date) against payment of the redemption price (including
all accrued and unpaid dividends up to the Call Date). Subject to applicable
escheat laws, any cash so deposited which remains unclaimed at the end of two
years from the Call Date shall revert to the general funds of the Company, after
which reversion, again subject to applicable escheat laws, the holders of such
shares so called for redemption shall look only to the general funds of the
Company for the payment of such cash.
As promptly as practicable after the surrender in accordance with said
notice of the certificates for any such shares so redeemed (properly endorsed or
assigned for transfer, if the Company shall so require and if the notice shall
so state), such shares shall be exchanged for any cash (without interest
thereon) for which such shares have been redeemed. If fewer than all the
outstanding Series E Preferred Shares are to be redeemed, the shares to be
redeemed shall be determined pro rata (as nearly as practicable without creating
fractional shares) or by lot or in such other equitable manner as prescribed by
the Company's Board of Trustees in its sole discretion to be equitable. If fewer
than all the Series E Preferred Shares represented by any certificate are
redeemed, then new certificates representing the unredeemed shares shall be
issued without cost to the holder thereof.
Section 7. Mandatory Redemption Upon Change of Control.
(a) If a Change of Control (as defined below) shall occur at any time
after the Issue Date, the Company shall be required to redeem all of the
outstanding Series E Preferred Shares on the date (the "Change of Control
Redemption Date") that is 30 calendar days after the date that the Company has
mailed written notice of such Change of Control to holders of the Series E
Preferred Shares as set forth in Section 7(c), subject to the conditions set
forth in Section 7(e) and otherwise in accordance with the provisions of this
Section 7. If such 30th calendar day is not a Business Day, the Change of
Control Redemption Date will be the next succeeding Business Day. The Company
shall redeem the Series F Preferred Shares in exchange for payment, in cash, of
$2,500 per share plus the amounts specified in Section 7(b).
As used herein, a "Change of Control" shall be deemed to have occurred
upon the occurrence of any of the following events after the Issue Date:
(i) any "person" or "group" (within the meaning of Section 13(d) of the
Exchange Act) other than the Company, its Subsidiaries or any
employee bene?t plan of the Company or any of its Subsidiaries files
a Schedule TO, Schedule 13D or any schedule, form or report under
the Exchange Act disclosing that such person or group has become the
direct or indirect ultimate "beneficial owner" (as defined in Rule
13d-3 under the Exchange Act) of shares of Common Shares
representing more than 50% of the voting power of the Common Shares
entitled to vote generally in the election of trustees or directors;
or
(ii) consummation of any share exchange, consolidation or merger of the
Company pursuant to which the Common Shares will be converted into
cash, securities or other property or any sale, lease or transfer in
one transaction or a series of transactions of all or substantially
all of the consolidated assets of the Company and its Subsidiaries,
taken as a whole, to any Person other than the Company or one or
more of its Subsidiaries; provided, however, that a transaction
where the Company is the surviving entity and the holders of the
Common Shares immediately prior to such transaction have, directly
or indirectly, more than 50% of the aggregate voting power of the
voting stock of the Company entitled to vote generally in the
election of trustees or directors immediately after such event shall
not be a Change of Control; or
(iii) the Company or a wholly owned Subsidiary of the Company shall cease
to be the sole general partner of Colonial Realty Limited
Partnership.
(b) Upon any redemption of the Series E Preferred Shares pursuant to this
Section 7, the Company shall pay all accrued and unpaid dividends, if any,
thereon ending on or prior to the Change of Control Redemption Date, without
interest. If the Change of Control Redemption Date falls after a dividend
payment record date and prior to the corresponding Dividend Payment Date, then
each holder of Series E Preferred Shares at the close of business on such
dividend payment record date shall be entitled to the dividend payable on such
shares on the corresponding Dividend Payment Date notwithstanding the redemption
of such shares before such Dividend Payment Date. Except as provided above, the
Company shall make no payment or allowance for unpaid dividends, whether or not
in arrears, on Series E Preferred Shares called for redemption.
(c) Notice of the occurrence of a Change of Control and redemption of the
Series E Preferred Shares under this Section 7 shall be given by the Company by
first-class mail, postage
prepaid, by the registrar to each holder of record of Series E Preferred Shares
at the address of each such holder as shown on the share transfer books of the
Company, within 15 days after the occurrence of the Change of Control. No
failure to give any notice required by this Section 7(c), nor any defect therein
or in the mailing thereof, to any particular holder, shall affect the
sufficiency of the notice or the validity of the proceedings for redemption with
respect to the other holders. Any notice which was mailed in the manner herein
provided shall be conclusively presumed to have been duly given on the date
mailed whether or not the holder receives the notice. Each notice shall state:
(i) the Change of Control Redemption Date, (ii) the redemption price per share,
(iii) the place or places at which certificates for such shares are to be
surrendered for payment of the redemption price, and (iv) that dividends on the
shares to be redeemed shall cease to accrue on the Change of Control Redemption
Date. Notice having been given as aforesaid, from and after the Change of
Control Redemption Date, (x) dividends on the Series E Preferred Shares shall
cease to accrue, (y) the Series E Preferred Shares shall no longer be deemed to
be outstanding, and (z) all rights of the holders thereof as holders of Series E
Preferred Shares of the Company (except the right to receive the cash redemption
price payable upon such redemption, without interest thereon, upon surrender and
endorsement of their certificates if so required and to receive any dividends
payable thereon) shall cease and terminate and such shares shall not thereafter
be transferred (except with the consent of the Company) on the Company's books.
(d) On or before the Change of Control Redemption Date, the Company may
elect to deposit with a bank or trust company (which may be an affiliate of the
Company) or an affiliate of a bank or trust company, the amount of cash
necessary for such redemption, in trust, with irrevocable instructions that such
cash be applied to the redemption of the Series E Preferred Shares so called for
redemption. No interest shall accrue for the benefit of the holders of Series E
Preferred Shares to be redeemed on any cash so set aside by the Company. If the
Company elects to so deposit the cash necessary for the redemption of the called
Series E Preferred Shares, any notice to the holders of Series E Preferred
Shares called for redemption required by this Section 7(d) shall (x) specify the
office of such bank or trust company as the place of payment of the redemption
price and (y) call upon such holders to surrender the share certificates
representing such shares at such place on or about the date fixed in such notice
(which shall not be later than the Change of Control Redemption Date) against
payment of the redemption price (including all accrued and unpaid dividends up
to the Change of Control Redemption Date). Subject to applicable escheat laws,
any cash so deposited which remains unclaimed at the end of two years from the
Change of Control Redemption Date shall revert to the general funds of the
Company, after which reversion, again subject to applicable escheat laws, the
holders of such shares so called for redemption shall look only to the general
funds of the Company for the payment of such cash. As promptly as practicable
after the surrender in accordance with such notice of the certificates for any
Series E Preferred Shares (properly endorsed or assigned for transfer, if the
Company shall so require and if the notice shall so state), such shares shall be
exchanged for cash (without interest thereon) in the amount of the redemption
price for the applicable shares represented by each such certificate; provided
that, if the Company shall default in the payment of the mandatory redemption
amount to the holders of the Series E Preferred Shares as set forth in this
Section 7, the Series E Preferred Shares shall be deemed to
remain outstanding and the holders of the Series E Preferred Shares shall have
all the rights provided in these Articles until such time as such default shall
no longer be outstanding.
(e) The obligation of the Company to redeem the Series E Preferred Shares
shall be subject to the rights of any class or series of Parity Shares or Senior
Shares and compliance with the provisions of any material debt agreement to
which the Company or any Subsidiary of the Company is a party that would
prohibit such redemption or under which such redemption would constitute an
event of default. In the event that the Company shall be prohibited from
redeeming the Series E Preferred Shares for any of the reasons set forth in the
previous sentence, (i) no dividends (other than dividends or distributions paid
solely in, or options, warrants or rights to subscribe for or purchase, Fully
Junior Shares) shall be declared or paid or set apart for payment or other
distribution declared or made upon Junior Shares or Fully Junior Shares, nor
shall any Junior Shares or Fully Junior Shares be redeemed, purchased or
otherwise acquired (other than a redemption, purchase or other acquisition of
Common Shares made for purposes of any employee incentive or benefit plan of the
Company or any subsidiary) for any consideration (or any moneys be paid to or
made available for a sinking fund for the redemption of any such shares) by the
Company, directly or indirectly (except by conversion into or exchange for Fully
Junior Shares), in each case until the Company shall have paid the mandatory
redemption price for the Series E Preferred Shares in full; and (ii) the Company
shall be obligated to redeem the Series E Preferred Shares on the date not later
than 45 days following the date on which it is first able to redeem the Series E
Preferred Shares by delivering a notice of such redemption in accordance with
Section 7(c) within 15 days following such date, in which event the Change of
Control Redemption Date shall be the date 30 days after the date of such notice
or, if such 30th calendar day is not a Business Day, the Change of Control
Redemption Date will be the next succeeding Business Day.
(f) The Company's obligation to redeem the Series E Preferred Shares under
this Section 7 shall be satisfied if a third party purchases all Series E
Preferred Shares presented for redemption in exchange for payment of the
redemption price in cash and otherwise complies with the obligations of the
Company in connection herewith.
Section 8. Shares to be Retired. If and when approved by the Board of
Trustees, all Series E Preferred Shares which shall have been issued and
reacquired in any manner by the Company shall be restored to the status of
authorized but unissued Preferred Shares of the Company, without designation as
to class or series.
Section 9. Ranking. Any class or series of shares of beneficial interest
of the Company shall be deemed to rank:
(a) prior to the Series E Preferred Shares, as to the payment of dividends
and as to distribution of assets upon liquidation, dissolution or winding up, if
the holders of such class or series of shares of beneficial interest shall be
entitled to the receipt of dividends or of amounts distributable upon
liquidation, dissolution or winding up, as the case may be, in preference or
priority to the holders of Series E Preferred Shares;
(b) on a parity with the Series E Preferred Shares, as to the payment of
dividends and as to distribution of assets upon liquidation, dissolution or
winding up, whether or not the dividend rates, dividend payment dates or
redemption or liquidation prices per share thereof be different from those of
the Series E Preferred Shares, if the holders of such class or series of shares
of beneficial interest and the Series E Preferred Shares shall be entitled to
the receipt of dividends and of amounts distributable upon liquidation,
dissolution or winding up in proportion to their respective amounts of accrued
and unpaid dividends per share or liquidation preferences, without preference or
priority one over the other ("Parity Shares"); as of the date hereof, the Series
B Preferred Shares, the Series C Preferred Shares and the Series D Preferred
Shares constitute Parity Shares;
(c) junior to the Series E Preferred Shares, as to the payment of
dividends or as to the distribution of assets upon liquidation, dissolution or
winding up, if such shares of beneficial of interest shall be Junior Shares; and
(d) junior to the Series E Preferred Shares, as to the payment of
dividends and as to the distribution of assets upon liquidation dissolution or
winding up, if such shares of stock shall be Fully Junior Shares.
Section 10. Voting.
(a) If and whenever dividends on the Series E Preferred Shares are in
arrears (which shall, with respect to any such quarterly dividend, mean that any
such dividend has not been paid in full) for six or more quarterly periods,
whether or not such quarterly periods are consecutive, the number of Trustees
then constituting the Board of Trustees shall be increased by two, and the
holders of Series E Preferred Shares, together with the holders of shares of
every series of Parity Shares upon which like voting rights have been conferred
and are exercisable, voting as a single class regardless of series, shall be
entitled to elect the two additional Trustees to serve on the Board of Trustees
at any annual meeting of shareholders or special meeting held in place thereof,
or at a special meeting of the holders of the Series E Preferred Shares and such
Parity Shares called as hereinafter provided. Whenever all arrears in dividends
on the Series E Preferred Shares and such Parity Shares then outstanding shall
have been paid and dividends thereon for the current quarterly dividend period
shall have been paid or declared and set apart for payment, then the right of
the holders of the Series E Preferred Shares and such Parity Shares to elect
such additional two Trustees shall immediately cease (but subject always to the
same provision for the vesting of such voting rights in the case of any similar
future arrearages), and the terms of office of all persons elected as Trustees
by the holders of the Series E Preferred Shares and such Parity Shares shall
immediately terminate and the number of the Board of Trustees shall be reduced
accordingly. At any time after such voting rights shall have been so vested in
the holders of Series E Preferred Shares and such Parity Shares, the secretary
of the Company may, and upon the written request of the holders of record of at
least 10% of the outstanding Series E Preferred Shares and the holders of Parity
Shares (addressed to the secretary at the principal office of the Company)
shall, call a special meeting of the holders of the Series E Preferred Shares
and of such Parity Shares for the election of the two Trustees to be elected by
them as herein provided, such call to be made by notice similar to that provided
in the Bylaws of the Company for a special meeting of the shareholders or as
required by law. The Trustees elected at any such special
meeting shall hold office until the next annual meeting of the shareholders or
special meeting held in lieu thereof if such office shall not have previously
terminated as above provided. If any vacancy shall occur among the Trustees
elected by the holders of the Series E Preferred Shares and such Parity Shares,
a successor shall be elected by the Board of Trustees, upon the nomination of
the then-remaining Trustee elected by the holders of the Series E Preferred
Shares and such Parity Shares or the successor of such remaining Trustee, to
serve until the next annual meeting of the shareholders or special meeting held
in place thereof if such office shall not have previously terminated as provided
above.
(b) So long as any Series E Preferred Shares remain outstanding, the
Company will not, without the affirmative vote or consent of the holders of at
least two-thirds of the Series E Preferred Shares outstanding at the time, given
in person or by proxy, either in writing or at a meeting (such series voting
separately as a class), (i) authorize or create, or increase the authorized or
issued amount of, any class or series of capital shares ranking prior to the
Series E Preferred Shares with respect to the payment of dividends or the
distribution of assets upon liquidation, dissolution or winding up or reclassify
any authorized shares of the Company into such shares, or create, authorize or
issue any obligation or security convertible into or evidencing the right to
purchase any such shares; or (ii) amend, alter or repeal the provisions of the
Charter, including these Articles Supplementary, whether by merger,
consolidation, or transfer or conveyance of substantially all of the Company's
assets or otherwise (an "Event"), so as to materially and adversely affect any
right, preference, privilege or voting power of the Series E Preferred Shares or
the holders thereof; provided, however, with respect to the occurrence of any of
the Events set forth in (ii) above, that so long as the Series E Preferred
Shares remain outstanding with the terms thereof materially unchanged, taking
into account that upon the occurrence of an Event, the Company may not be the
surviving entity, the occurrence of any such Event shall not be deemed to
materially and adversely affect such rights, preferences, privileges or voting
power of holders of Series E Preferred Shares and provided further that (x) any
increase in the amount of the authorized Preferred Shares or the creating or
issuance of any other series of Preferred Shares, or (y) any increase in the
amount of authorized Series E Preferred Shares or any other series of Preferred
Shares, in each case ranking on a parity with or junior to the Series E
Preferred Shares with respect to payment of dividends or the distribution of
assets upon liquidation, dissolution or winding up, shall not be deemed to
materially and adversely affect such rights, preferences, privileges or voting
powers. The voting provisions set forth in this paragraph (b) will not apply if,
at or prior to the time when the act with respect to which such vote would
otherwise be required shall be effected, all outstanding Series E Preferred
Shares shall have been redeemed or called for redemption and sufficient funds
shall have been deposited in trust to effect such redemption.
(c) For purposes of the foregoing provisions of this Section 10, each
Series E Preferred Share shall have one (1) vote per share. Except as otherwise
required by applicable law or as set forth herein, the Series E Preferred Shares
shall not have any relative, participating, optional or other special voting
rights and powers, and the consent of the holders thereof shall not be required
for the taking of any corporate action.
Section 11. Record Holders. The Company and the Transfer Agent may deem
and treat the record holder of any Series E Preferred Shares as the true and
lawful owner thereof for
all purposes, and neither the Company nor the Transfer Agent shall be affected
by any notice to the contrary.
Section 12. Sinking Fund. The Series E Preferred Shares shall not be
entitled to the benefits of any retirement or sinking fund.
Section 13. Restrictions on Ownership and Transfer. The beneficial
ownership and transfer of the Series E Preferred Shares shall in all respects be
subject to the applicable provisions of Section 6.7 of the Charter.
Section 14. Listing on New York Stock Exchange. The Company shall (i) use
reasonable best efforts, including timely submission of all required
applications and filings and payment of required fees and expenses, to cause the
Series E Preferred Shares to be approved for listing on the New York Stock
Exchange, subject to official notice of issuance, prior to the Issue Date, and
(ii) use reasonable best efforts to maintain the listing of the Series E
Preferred Shares on the New York Stock Exchange so long as any Series E
Preferred Shares are outstanding.
IN WITNESS WHEREOF, the Company has caused these Articles Supplementary to
be signed in its name and on its behalf by its Chief Financial Officer as of
__, 2005.
COLONIAL PROPERTIES TRUST
By: _________________________________
Name: Xxxxxx X. Xxxxxxx
Title: Executive Vice President and
Chief Financial Officer
Exhibit D
FORM OF NONSOLICITATION AGREEMENT
THIS NONSOLICITATION AGREEMENT (this "AGREEMENT") is made and
entered into as of ________ __, 2004 by and among Colonial Properties Trust, an
Alabama real estate investment trust ("COLONIAL") and ________________
("[NAME]").
WHEREAS, Colonial and Cornerstone Realty Income Trust, Inc.
("CORNERSTONE") have entered into an Agreement and Plan of Merger dated as of
October 25, 2004 (the "MERGER AGREEMENT"), pursuant to which Cornerstone will be
merged with and into a wholly owned subsidiary of Colonial ("COLONIAL MERGER
SUB"), with Colonial Merger Sub as the surviving limited liability company (the
"MERGER"), upon the terms and subject to the conditions set forth in the Merger
Agreement;
WHEREAS, [NAME] serves as [TITLE(S)] of Cornerstone;
WHEREAS, Cornerstone and its subsidiaries (collectively, the
"CORNERSTONE ENTITIES") are engaged in the businesses of owning, operating,
investing in, constructing, managing, developing, re-developing and leasing
multifamily properties and providing various services with respect thereto;
WHEREAS, Colonial and its subsidiaries (collectively, the "COLONIAL
ENTITIES") are engaged in, or intend to engage in following the closing of the
Merger (the "CLOSING"), substantially similar businesses;
[WHEREAS, [NAME] is currently party to an Employment Agreement dated
as of October 1, 2001 with Cornerstone;]
WHEREAS, effective as of the Closing, Colonial has caused [NAME] to
resign in accordance with the Merger Agreement; and
WHEREAS, in an effort to protect the legitimate business interests
of Colonial and in order to induce Colonial to enter into the Merger Agreement,
the execution and delivery of this Agreement by the parties hereto was made a
condition to the obligations of Colonial under the Merger Agreement to
consummate the Merger.
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt and sufficiency of which hereby are
acknowledged, the parties hereto hereby agree, intending to be legally bound
hereby, as follows:
1. Nonsolicitation of Employees. During the Restricted Period (as
defined below), [NAME] shall not solicit any employee of any of the Colonial
Entities or any of the Cornerstone Entities (or any successor to any of the
Colonial Entities or Cornerstone Entities or any entity through which any of the
Colonial Entities or Cornerstone Entities may conduct business in the future)
(collectively, the "COMPANIES") for the purpose of causing such employee
to leave the employment of any of the Companies, nor shall [NAME], directly or
indirectly, hire any such employee; provided, however, that, if (i) Colonial
indicates in writing its intention to terminate the employment of any employee
of any of the Companies (i.e., with respect to all and not less than all of such
employee's positions at all of the Companies), (ii) Colonial terminates the
employment of any employee of any of the Companies (i.e., with respect to all
and not less than all of such employee's positions at all of the Companies), or
(iii) an employee terminates his positions at all of the Companies voluntarily
and not as a result of solicitation by [NAME], then [NAME] may solicit such
employee or, directly or indirectly, hire any such employee. In addition, from
and after the date that is one year following the date hereof, [NAME] may, after
providing Colonial ten days advance written notice, solicit or hire any employee
of the Companies if such employee is the child, stepchild, grandchild, parent,
stepparent, grandparent, spouse, sibling, mother-in-law, father-in-law,
son-in-law, daughter-in-law, brother-in-law, sister-in-law, niece, nephew, uncle
or aunt (including adoptive relationships) of [NAME]. For purposes of this
Agreement, the term "RESTRICTED PERIOD" means the period covering twenty-four
(24) months after the date of the Closing. "SOLICITATION" shall not be deemed to
include advertisements made to the public.
2. Reasonable and Necessary Restrictions. [NAME] acknowledges that
the restrictions, prohibitions and other provisions hereof, including, without
limitation, the Restricted Period, are reasonable, fair and equitable in terms
of duration and scope, are necessary to protect the legitimate business
interests of Colonial (including the interest of Colonial in the goodwill of the
Cornerstone Entities acquired by Colonial in the Merger), and are a material
inducement to Colonial to enter into the transactions contemplated by the Merger
Agreement.
3. Specific Performance. [NAME] acknowledges that the obligations
undertaken pursuant to this Agreement are unique and that Colonial will have no
adequate remedy at law if [NAME] fails to perform any of his obligations
hereunder. [NAME] therefore confirms that the right of Colonial to specific
performance of the terms of this Agreement is essential to protect the rights
and interests of Colonial. Accordingly, in addition to any other remedies that
Colonial may have at law or in equity, Colonial shall have the right to have all
obligations, covenants, agreements and other provisions of this Agreement
specifically performed by [NAME], and each of Colonial shall have the right to
obtain preliminary and permanent injunctive relief to secure specific
performance and to prevent a breach or contemplated breach of this Agreement by
[NAME]. Further, [NAME] submits to the jurisdiction of the courts of the State
described in Section 4(f) for this purpose. If any litigation with respect to
the obligations of the parties under this Agreement results in a final
nonappealable order of a court of competent jurisdiction that results in a final
disposition of such litigation, the prevailing party, as determined by the court
ordering such disposition, shall be entitled to reasonable attorneys' fees as
shall be determined by such court. Contingent or other percentage compensation
arrangements shall not be considered reasonable attorneys' fees.
4. Miscellaneous Provisions.
(a) Binding Effect. Subject to any provisions hereof
restricting assignment, all covenants and agreements in this Agreement by or on
behalf of any of the parties
hereto shall bind and inure to the benefit of their respective successors,
assigns, heirs, and personal representatives.
(b) Assignment. None of the parties hereto may assign any of
his or its rights under this Agreement or attempt to have any other individual
or entity assume any of his or its obligations hereunder.
(c) Integration; Amendment. This Agreement constitutes the
entire agreement between the parties hereto with respect to the matters set
forth herein and supersede and render of no force and effect all prior oral or
written agreements, commitments and understandings between the parties with
respect to the matters set forth herein. Except as otherwise expressly provided
in this Agreement, no amendment, modification or discharge of this Agreement
shall be valid or binding unless set forth in writing and duly executed by each
of the parties hereto.
(d) Waivers. No waiver by a party hereto shall be effective
unless made in a written instrument duly executed by the party against whom such
waiver is sought to be enforced, and only to the extent set forth in such
instrument. Neither the waiver by either of the parties hereto of a breach or a
default under any of the provisions of this Agreement, nor the failure of either
of the parties, on one or more occasions, to enforce any of the provisions of
this Agreement or to exercise any right or privilege hereunder, shall thereafter
be construed as a waiver of any subsequent breach or default of a similar
nature, or as a waiver of any such provisions, rights or privileges hereunder.
(e) Severability. The parties agree that if fulfillment of any
provision of this Agreement, at the time such fulfillment shall be due, shall
transcend the limit of validity prescribed by law, then the court making such
determination of invalidity shall reduce such provision and shall enforce it to
the maximum extent permitted by law. The parties further agree that if any
clause or provision contained in this Agreement operates or would operate to
invalidate this Agreement, in whole or in part, then such clause or provision
only shall be held ineffective, as though not herein contained, and the
remainder of this Agreement shall remain operative and in full force and effect.
(f) Governing Law; Jurisdiction. This Agreement, the rights
and obligations of the parties hereto, and any claims or disputes relating
thereto, shall be governed by and construed in accordance with the laws of the
Commonwealth of Virginia, but not including the choice-of-law rules thereof.
(g) Headings. Section and subsection headings contained in
this Agreement are inserted for convenience of reference only, shall not be
deemed to be a part of this Agreement for any purpose, and shall not in any way
define or affect the meaning, construction or scope of any of the provisions
hereof.
(h) Pronouns. All pronouns and any variations thereof shall be
deemed to refer to the masculine, feminine, neuter, singular or plural, as the
identity of the individual or entity may require.
(i) Execution in Counterparts. To facilitate execution, this
Agreement may be executed in as many counterparts as may be required. It shall
not be necessary that the signature of or on behalf of each party appears on
each counterpart, but it shall be sufficient that the signature of or on behalf
of each party appears on one or more of the counterparts. All counterparts shall
collectively constitute a single agreement.
(j) Notices. All notices called for under this Agreement shall
be in writing and shall be deemed given upon receipt if delivered personally and
followed promptly by mail, or if mailed by registered or certified mail (return
receipt requested), postage prepaid, or if sent by facsimile and followed
promptly by mail, to Colonial at the following address and to [NAME] at the
address set forth under his signature hereto.
Colonial Properties Trust
[ADDRESS]
[ADDRESS]
[ADDRESS]
Attn: [NAME]
Telephone:
Fax:
or to any other address or addressee as any party entitled to receive notice
under this Agreement shall designate, from time to time, to others in the manner
provided in this Section 4(j) for the service of notices; provided, however,
that notices of a change of address shall be effective only upon receipt
thereof.
Any notice delivered to the party hereto to whom it is addressed
shall be deemed to have been given and received on the day it was received;
provided, however, that if such day is not a business day then the notice shall
be deemed to have been given and received on the business day next following
such day. Any notice sent by facsimile transmission shall be deemed to have been
given and received on the business day next following the transmission.
[signature page follows]
IN WITNESS WHEREOF, each of the undersigned has executed
this Nonsolicitation Agreement, or caused this Nonsolicitation Agreement to be
duly executed on its behalf, as of the date first set forth above.
COLONIAL PROPERTIES TRUST:
By:__________________________________
Name:
Title:
[FULL NAME]:
_____________________________________
[FULL NAME]
[ADDRESS]
[ADDRESS]
Attn:
Telephone
