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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13D
Under the Securities Exchange Act of 1934
United Dominion Realty Trust, Inc.
(Name of Company)
Common Stock, $1.00 Par Value
(Title of Class of Securities)
910197102
(CUSIP Number)
Robert P. Freeman
LF Strategic Realty Investors L.P.
30 Rockefeller Plaza, 63rd Floor
New York, NY 10020
(212) 632-6000
with a copy to:
Kevin Grehan, Esq.
Cravath, Swaine & Moore
825 Eighth Avenue
New York, NY 10019
(212) 474-1490
----------------------------------------------
(Name, Address and Telephone Number of Person Authorized
to Receive Notices and Communications)
September 10, 1998
(Date of Event which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G to
report the acquisition which is the subject of this Schedule 13D, and is
filing this schedule because of Rule 13d-1(b)(3) or (4), check the
following box [ ].
Note: six copies of this statement, including all exhibits, should be filed
with the Commission. See Rule 13d-1(a) for other parties to whom copies are
to be sent.
*The remainder of this cover page shall be filled out for a reporting
person's initial filing on this form with respect to the subject class of
securities, and for any subsequent amendment containing information which
would alter disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not be
deemed to be "filed" for the purpose of Section 18 of the Securities
Exchange Act of 1934 ("Act") or otherwise subject to the liabilities of
that section of the Act but shall be subject to all other provisions of the
Act (however, see the Notes).
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Page 1 of 9
<PAGE>
SCHEDULE 13D
CUSIP No. 910197102 Page 2 of 10 Pages
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1 NAME OF REPORTING PERSON
SS OR IRS IDENTIFICATION NO OF ABOVE PERSON
LF Strategic Realty Investors, L.P.
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2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [ ]
(b) [ ]
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3 SEC USE ONLY
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4 SOURCE OF FUNDS*
00
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5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS
REQUIRED PURSUANT TO ITEMS 2(d) OR 2(E) [ ]
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6 CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
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NUMBER OF 7 SOLE VOTING POWER
SHARES 12,307,692*
BENEFICIALLY
OWNED BY EACH 8 SHARED VOTING POWER
REPORTING -0-
PERSON WITH
9 SOLE DISPOSITIVE POWER
12,307,692*
10 SHARED DISPOSITIVE POWER
-0-
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11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
12,307,692 shares of Common Stock*
*Approximation assuming (i) the closing of the Merger described in the
Merger Agreement attached as an exhibit hereto and (ii) the conversion of
all shares of Class D Preferred Stock of the Company received by
the Fund in the Merger into Common Stock.
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12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN [ ]
SHARES*
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13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
10.4%, based on the assumptions set forth in Item 11 above and the
number of shares of Common Stock outstanding on September 10, 1998.
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14 TYPE OF REPORTING PERSON*
OO
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*SEE INSTRUCTIONS BEFORE FILLING OUT!
Page 2 of 9
<PAGE>
SCHEDULE 13D
CUSIP No. 910197102 Page 3 of 10 Pages
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1 NAME OF REPORTING PERSON
SS OR IRS IDENTIFICATION NO OF ABOVE PERSON
Lazard Freres Real Estate Investors L.L.C.
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2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [ ]
(b) [ ]
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3 SEC USE ONLY
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4 SOURCE OF FUNDS*
00
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5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS
REQUIRED PURSUANT TO ITEMS 2(d) OR 2(E) [ ]
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6 CITIZENSHIP OR PLACE OF ORGANIZATION
New York
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NUMBER OF 7 SOLE VOTING POWER
SHARES 12,307,692*
BENEFICIALLY
OWNED BY EACH 8 SHARED VOTING POWER
REPORTING -0-
PERSON WITH
9 SOLE DISPOSITIVE POWER
12,307,692*
10 SHARED DISPOSITIVE POWER
-0-
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11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
12,307,692 shares of Common Stock*
*Approximation assuming (i) the closing of the Merger described in the
Merger Agreement attached as an exhibit hereto and (ii) the conversion of
all shares of Class D Preferred Stock of the Company received by the
Fund in the Merger into Common Stock.
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12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN [ ]
SHARES*
- ---------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
10.4%, based on the assumptions set forth in Item 11 above and the
number of shares of Common Stock outstanding on September 10, 1998.
- ---------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON*
OO
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*SEE INSTRUCTIONS BEFORE FILLING OUT!
Page 3 of 9
<PAGE>
Item 1. Security and Company
This statement on Schedule 13D (this "Statement") relates to the
common stock, par value $1.00 per share (the "Common Stock"), of United
Dominion Realty Trust, Inc., a Virginia corporation (the "Company"). The
principal executive offices of the Company are located at 10 South Sixth
Street, Richmond, Virginia 23219-3802.
Item 2. Identity and Background
(a), (b), (c) and (f). This Statement is filed by LF Strategic
Realty Investors (the "Fund") and Lazard Freres Real Estate Investors
L.L.C. ("LFREI" and, together with the Fund, the "Reporting Persons"). The
principal business office of each of the Reporting Persons is at 30
Rockefeller Plaza, 63rd Floor, New York, New York, 10020.
The Fund, a Delaware limited partnership comprised of
institutional investors, engages primarily in the business of investing in
real estate related companies. LFREI, a New York limited liability company,
is the general partner of the Fund. LFREI's activities consist principally
of acting as general partner of several real estate investment partnerships
that are affiliated with Lazard Freres & Co. LLC. ("Lazard"). Lazard
disclaims beneficial ownership of any of the shares of Common Stock
reported in this Statement. The name, business address and principal
occupation or employment of the executive officers of LFREI are set forth
on Schedule 1 hereto and incorporated by reference herein. Each person
listed on such Schedule 1 is a citizen of the United States.
(d) and (e). During the last five years, neither the Reporting
Persons nor, to the best knowledge of the Reporting Persons, any of the
persons listed on Schedule 1 (i) has been convicted in a criminal
proceeding (excluding traffic violations or similar misdemeanors) nor (ii)
has been a party to any civil proceeding of a judicial or administrative
body of competent jurisdiction, and is or was, as a result of such
proceeding, subject to a judgment, decree or final order enjoining future
violations of, or prohibiting or mandating activities subject to, federal
or state securities laws, or finding any violation with respect to such
laws.
Item 3. Source and Amount of Funds or Other Consideration
The consideration for the acquisition of the shares of Common
Stock that are the subject of this
Page 4 of 9
<PAGE>
Statement consist of 852,868.26 shares of Common Stock, par value $.01 per
share (the "AAC Common Stock") of American Apartment Communities II, Inc.,
a Maryland corporation ("AAC") and 169,900 shares of Class A Redeemable
Preferred Stock, par value $.01 per share (the "AAC Preferred Stock"), of
AAC, which shares are to be exchanged in the Merger described in Item 4.
Item 4. Purpose of Transaction
On September 10, 1998, the Company and AAC entered into an
Agreement and Plan of Merger (the "Merger Agreement") wherein the parties
agreed that, subject to certain conditions being met, AAC would be merged
(the "Merger") with and into the Company with the Company being the
surviving corporation. The Merger proceeds will consist of (i) cash and
(ii) 7.812742 shares of Series D Cumulative Convertible Preferred Stock of
the Company (the "Series D Preferred Stock") per share of AAC Common Stock
and AAC Preferred Stock exchanged in the Merger. Pursuant to the terms of
the Series D Preferred Stock, the Series D Preferred Stock is immediately
convertible into shares of Common Stock in accordance with such terms.
While the Fund has not obtained actual record ownership of the
shares of Common Stock reported by this Statement, the Fund may be deemed
to have acquired beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Securities Exchange Act of 1934) of such shares upon
the signing of the Merger Agreement as a result of AAC's binding commitment
to consummate the Merger, subject only to the conditions set forth in the
Merger Agreement, and the ability of the Fund to immediately convert the
shares of Series D Preferred Stock it receives in connection with the
Merger into shares of Common Stock.
Pursuant to the Merger Agreement, at the effective time of the
Merger (the "Effective Time"), the board of directors of the Company (the
"Board") shall be expanded by two members, and the existing directors of
the Company shall elect James D. Klingbeil and Robert P. Freeman as
directors of the Company to serve until the annual meeting of shareholders
of the Company in 1999. Mr. Freeman is a Principal of LFREI. In addition,
following the Effective Time, any shareholder of AAC who Beneficially Owns
(as defined in the Merger Agreement) on the record date for determination
of shareholders of the Company entitled to vote at any annual meeting of
shareholders or other meeting at which the Board is elected (the "Record
Date") shares of preferred stock of the Company, or shares of Common Stock
received upon conversion thereof ("Conversion Stock") or a combination
thereof, having an aggregate Nominal Value (as defined in the Merger
Agreement) of $150,000,000 shall have
Page 5 of 9
<PAGE>
the right to nominate two persons for election to the Board, and in the
event any shareholder of AAC Beneficially Owns preferred stock of the
Company or Conversion Stock with an aggregate Nominal Value of less than
$150,000,000 but more than $100,000,000, such person shall have the right
to nominate one person for election to the Board. Such nominations will be
made in consultation with the Board, provided that at any time at which
such a person shall have the right to nominate two persons for election to
the Board, if at such time James D. Klingbeil is nominated for reelection
by the incumbent members of the Board he shall be deemed one of the persons
nominated.
Pursuant to the Merger Agreement, at the Effective Time the
articles of incorporation of the Company will be amended to include the
terms of the Series D Preferred Stock. The terms of the Series D Preferred
Stock are attached to this Statement as Exhibit 2.
Except as set forth herein, the Reporting Persons have no plans
or proposals of the type referred to in clauses (a) through (j) of Item 4
of Schedule 13D.
The foregoing discussion of the Merger Agreement is qualified in
its entirety to the full text of such agreement, a copy of which is
attached as Exhibits 1 through 4 and is incorporated herein by reference.
The foregoing discussion of the terms of the Series D Preferres Stock is
qualified in its entirety to the full text of such terms, a copy of which
is attached as Exhibit 2 and incorporated herein by reference.
Item 5. Interest in Securities of the Company
(a) At the date of this statement, the Reporting Persons may be
deemed to have Beneficial Ownership of approximately 12,307,692 shares of
Common Stock, or 10.4% of the shares of Common Stock issued and outstanding
on September 10, 1998 (including for the computation of such percentage
Common Stock issuable upon the conversion of Series D Preferred Stock
received by the Fund). The Reporting Persons have no other ownership
interest in the Company except as set forth above.
(b) The Reporting Persons have the sole power to vote and direct
the vote, and the sole power to dispose and direct the disposition of, the
12,307,692 shares of Common Stock that are the subject of this Statement,
subject to the terms of the Investment Agreement described in Item 6 to be
entered into by the Fund in connection with the closing of the Merger.
(c) Neither the Reporting Persons nor, to the knowledge of the
Reporting Persons, any of the other parties listed on Schedule 1 have
acquired any shares of Common
Page 6 of 9
<PAGE>
Stock during the past sixty days, other than as set forth herein.
(d) Not applicable.
(e) Not applicable.
Item 6. Contracts, Arrangements, Understandings or
Relationships with Respect to Securities of the
Company.
As a condition to the Company's obligation to consummate the
Merger, the Fund and certain other persons are required to enter into an
Investment Agreement (the "Investment Agreement") with the Company in the
form of the Investment Agreement attached as Exhibit C to the Merger
Agreement, which form of Investment Agreement is attached to this Statement
as Exhibit 4 and incorporated herein by reference. The Investment Agreement
contains, among other things, restrictions on the transferability of the
Series D Preferred Stock and/or the shares of Common Stock received upon
the conversion thereof, restrictions on acquisitions of Common Stock,
Series D Preferred Stock or other securities convertible into Common Stock
and registration rights with respect to the Common Stock issued upon
conversion of the Series D Preferred Stock.
Item 7. Material to be Filed as Exhibits
Exhibit 1: Agreement and Plan of Merger dated as
September 10, 1998 among the Company and
AAC
Exhibit 2: Amendment of the Articles of
Incorporation of the Company designating
the Series D Cumulative Convertible
Preferred Stock (Exhibit A to the Merger
Agreement)
Exhibit 3: Form of Partnership Interest Exchange
Agreement (Exhibit B to the Merger
Agreement)
Exhibit 4: Form of Investment Agreement (Exhibit C
to the Merger Agreement)
Page 7 of 9
<PAGE>
After reasonable inquiry and to the best of my knowledge and
belief, I certify that the information set forth in this statement is true,
complete and correct.
LF STRATEGIC REALTY INVESTORS
II, L.P.,
by LAZARD FRERES REAL ESTATE
INVESTORS L.L.C., its
general partner,
by /s/ Robert P. Freeman
---------------------------
Name: Robert P. Freeman
Title: Principal
LAZARD FRERES REAL ESTATE
INVESTORS L.L.C.
by /s/ Robert P. Freeman
-----------------------------------
Name: Robert P. Freeman
Title: Principal
Page 8 of 9
<PAGE>
SCHEDULE 1
Officers of Lazard Freres Real Estate Investors L.L.C. The
business address for each of the following persons is 30 Rockefeller Plaza,
63rd Floor, New York, NY 10020.
Name Present and Principal Occupation
Arthur P. Solomon Senior Principal of LFREI and
Managing Director of Lazard
Robert P. Freeman Principal of LFREI and Managing
Director of Lazard
Anthony E. Meyer Principal of LFREI and Managing
Director of Lazard
Murry N. Gunty Principal of LFREI
Klaus P. Kretschmann Principal of LFREI
John A. Moore Principal and Chief Financial
Officer of LFREI
Douglas T. Healy Principal of LFREI
Marjorie L. Reifenberg Vice President, General Counsel
and Secretary of LFREI
Henry C. Herms Controller of LFREI
Douglas N. Wells Vice President of LFREI
Page 9 of 9
AGREEMENT AND PLAN OF MERGER
between
UNITED DOMINION REALTY TRUST, INC.
and
AMERICAN APARTMENT COMMUNITIES II, INC.
Dated September 10, 1998
<PAGE>
TABLE OF CONTENTS
Page
RECITALS 1
ARTICLE I THE MERGER...................................................2
Section 1.1. The Merger..............................................2
Section 1.2. Closing.................................................2
Section 1.3. Effective Time..........................................2
Section 1.4. Effects of the Merger...................................2
Section 1.5. Articles of Incorporation and Bylaws....................2
Section 1.6. No Appraisal Rights.....................................3
ARTICLE II MERGER CONSIDERATION; EFFECT OF THE MERGER ON THE
CAPITAL STOCK OF THE CONSTITUENT CORPORATIONS........................3
Section 2.1. Effect on Capital Stock.................................3
Section 2.2. Adjustment to Merger and Exchange Consideration.........4
Section 2.3. Dividend Distributions..................................7
Section 2.4. Withholding Rights......................................7
ARTICLE III REPRESENTATIONS AND WARRANTIES.............................7
Section 3.1. Representations and Warranties of AAC...................7
Section 3.2. Representations and Warranties of the Company..........18
ARTICLE IV COVENANTS..................................................25
Section 4.1. Conduct of Business by AAC.............................25
Section 4.2. Conduct of Business by the Company.....................27
Section 4.3. Delivery of Reports by the Company.....................27
Section 4.4. Other Actions..........................................28
ARTICLE V ADDITIONAL COVENANTS........................................28
Section 5.1. Access to Information; Confidentiality.................28
Section 5.2. Best Efforts; Notification.............................28
Section 5.3. Tax Treatment..........................................29
Section 5.4. No Solicitation of Transactions........................30
Section 5.5. Public Announcements...................................30
Section 5.6. Transfer and Gains Taxes...............................30
Section 5.7. Employee Matters.......................................31
Section 5.8. Disposition of Benefit Plans...........................31
Section 5.9. Company Board of Directors.............................32
Section 5.10. Resignations..........................................32
Section 5.11. Bulk Sales Compliance.................................32
Section 5.12. Financial Statements..................................32
Section 5.13. Executive Clubs.......................................33
<PAGE>
Section 5.14. AAC Office Leases.....................................33
ARTICLE VI CONDITIONS PRECEDENT.......................................33
Section 6.1. Conditions to Each Party's Obligation to
Effect the Merger......................................33
Section 6.2. Conditions to Obligations of the Company...............34
Section 6.3. Conditions to Obligation of AAC........................36
ARTICLE VII TERMINATION, AMENDMENT AND WAIVER.........................37
Section 7.1. Termination............................................37
Section 7.2. [LEFT BLANK INTENTIONALLY].............................38
Section 7.3. Effect of Termination..................................38
Section 7.4. Amendment..............................................38
Section 7.5. Extension; Waiver......................................39
ARTICLE VIII GENERAL PROVISIONS.......................................39
Section 8.1. Nonsurvival of Representations and Warranties..........39
Section 8.2. Notices................................................39
Section 8.3. Interpretation.........................................40
Section 8.4. Counterparts...........................................41
Section 8.5. Entire Agreement; Third Party Beneficiaries............41
Section 8.6. Governing Law..........................................41
Section 8.7. Assignment.............................................41
Section 8.8. Enforcement............................................41
Section 8.9. Severability...........................................42
Section 8.10. Non-Recourse..........................................42
ARTICLE IX CERTAIN DEFINITIONS........................................42
Section 9.1. Certain Definitions....................................42
Exhibit A - Amendment of the Articles of Incorporation of the Company
Cumulative Convertible Preferred Stock
Exhibit B - Form of Partnership Interest Exchange Agreement
Exhibit C - Form of Investment Agreement
Schedule A - Assigned Values of AAC Real Estate Assets
Schedule A-1 - Illustrative Balance Sheet
Schedule B - AAC Partnerships Subject to Rights of First Refusal
<PAGE>
AGREEMENT AND PLAN OF MERGER (the "Agreement"), dated as of
September 10, 1998, between UNITED DOMINION REALTY TRUST, INC., a Virginia
corporation (the "Company"), and AMERICAN APARTMENT COMMUNITIES II, INC., a
Maryland corporation ("AAC").
RECITALS
WHEREAS, certain terms used herein shall have the meanings
assigned to them in Article IX;
WHEREAS, the Boards of Directors of the Company and AAC have
determined that it is advisable and in the best interest of their
respective companies and their stockholders to consummate the strategic
business combination involving AAC and the Company described herein,
pursuant to which AAC will merge with the Company and the Company will be
the surviving corporation in such merger (the "Merger");
WHEREAS, for U. S. Federal income tax purposes, it is intended
that the Merger qualify as a reorganization under Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code"); and
WHEREAS, the Merger and the transactions contemplated by the
Partnership Interest Purchase and Exchange Agreement of even date (the
"Exchange Agreement") among American Apartment Communities Operating
Partnership, L.P., a Delaware limited partnership ("AAC OP"), Schnitzer
Investment Corp., an Oregon corporation ("Schnitzer"), Fox Point Ltd., an
Ohio limited liability company ("Fox Point") (successor to Klingbeil II
Limited Partnership, an Ohio limited partnership), James D. Klingbeil
("Klingbeil"), AAC Management L.L.C., a Delaware limited liability company
("AAC Management"), United Dominion Realty, L.P., a Virginia limited
partnership (the "Company Operating Partnership"), and the Company,
pursuant to which all of the partnership interests in American Apartment
Communities II, L.P., a Delaware limited partnership ("AACLP"), will be
acquired by the Company and the Company Operating Partnership (the
"Exchange"), are together intended to constitute the acquisition by the
Company of substantially all of the assets and business of AAC and its
subsidiaries and the assumption by the Company of substantially all of
their liabilities.
NOW, THEREFORE, in consideration of the representations,
warranties, covenants and agreements contained in this Agreement, and other
good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties agree as follows:
<PAGE>
ARTICLE I
THE MERGER
Section 1.1. The Merger.
Upon the terms and subject to the conditions set forth in this
Agreement, and in accordance with the Maryland General Corporation Law (the
"MGCL") and the Virginia Stock Corporation Act (the "VSCA"), AAC shall be
merged with the Company at the Effective Time (as defined herein).
Following the Merger, the separate corporate existence of AAC shall cease
and the Company shall continue as the surviving corporation (the "Surviving
Corporation") and shall succeed to and assume all the rights and
obligations of AAC in accordance with the MGCL and the VSCA.
Section 1.2. Closing.
The closing of the Merger will take place at a mutually agreeable
time and place and on a date to be specified by the parties, which (subject
to satisfaction or waiver of the conditions set forth in Sections 6.2 and
6.3) shall be no later than the third business day after satisfaction or
waiver of the conditions set forth in Article VI (the "Closing Date").
Section 1.3. Effective Time.
As soon as practicable following the satisfaction or waiver of
the conditions set forth in Article VI, the parties shall file the articles
of merger or other appropriate documents for the Merger (the "Articles of
Merger") and shall make all other filings or recordings required under the
MGCL and the VSCA to effect the Merger. The Merger shall become effective
at such time as the Articles of Merger have been duly filed with the
Department of Assessments and Taxation of the State of Maryland (the
"SDAT") and the Virginia State Corporation Commission (the "VSCC") and the
VSCC has issued a certificate of merger, or at such other time as the
Company and AAC shall specify in the Articles of Merger (the time and the
day the Merger becomes effective being, respectively, the "Effective Time"
and the "Effective Day"), it being understood that the parties shall cause
the Effective Time to occur on the Closing Date.
Section 1.4. Effects of the Merger.
The Merger shall have the effects set forth in the VSCA.
Section 1.5. Articles of Incorporation and Bylaws.
The Articles of Incorporation and Bylaws of the Company as in
effect at the Effective Time shall be the Articles of Incorporation and
Bylaws of the Surviving Corporation upon consummation of the Merger, except
that the Articles of Incorporation of the Surviving Corporation shall be
amended as set forth in Exhibit A.
<PAGE>
Section 1.6. No Appraisal Rights.
The holders of AAC Common Stock and AAC Preferred Stock (as
defined below) shall not be entitled to appraisal rights as a result of the
Merger.
ARTICLE II
MERGER CONSIDERATION; EFFECT OF THE MERGER ON
THE CAPITAL STOCK OF THE CONSTITUENT CORPORATIONS
Section 2.1. Effect on Capital Stock.
By virtue of the Merger and without any action on the part of the
holders of any shares of AAC Common Stock or AAC Preferred Stock (as
defined below):
(a) Conversion of AAC Common Stock
(i) At the Effective Time, each issued and outstanding share
of Common Stock, $.01 par value, of AAC (the "AAC Common Stock")
shall be converted into $46.1824 in cash (the "Common Cash
Consideration") and 7.812742 shares of Company Series D Preferred
Stock, with the amount of Common Cash Consideration and such
number of shares of Company Series D Preferred Stock to be
adjusted appropriately to reflect the effect of any reverse stock
split or combination permitted pursuant to Section 4.1(a).
(ii) At the Effective Time, all such shares of AAC Common
Stock shall no longer be outstanding and shall automatically be
canceled and retired and all rights with respect thereto shall
cease to exist, and each holder of a certificate representing any
such shares of AAC Common Stock shall cease to have any rights
with respect thereto, except the right to receive cash and shares
of Company Series D Preferred Stock in accordance with this
Section 2.1( (a)) and Section 2.1( (c)) (the "Common Merger
Consideration"), without interest.
(iii) Notwithstanding the foregoing, the parties understand
that the rights of each stockholder of AAC under this Section
2.1( (a)) will be subject to the stop transfer and redemption
provisions contained in Article 4 of the Articles of
Incorporation of the Company (the "Company Charter").
(iv) The Common Cash Consideration shall be subject to
adjustment as provided in Section 2.2.
(b) Conversion of AAC Preferred Stock.
(i) At the Effective Time, each issued and outstanding share
of Class A Cumulative Redeemable Preferred Stock, $.01 par value,
of AAC (the "AAC Preferred Stock") shall be converted into
$46.1824 in cash (the "Preferred Cash Consideration"
<PAGE>
and, together with the Common Cash Consideration, the "Merger
Cash Consideration") and 7.812742 shares of Company Series D
Preferred Stock, with the amount of Preferred Cash Consideration
and such number of shares of Company Series D Preferred Stock to
be adjusted appropriately to reflect the effect of any reverse
stock split or combination permitted pursuant to Section 4.1(a).
(ii) At the Effective Time, all such shares of AAC Preferred
Stock shall no longer be outstanding and shall automatically be
canceled and retired and all rights with respect thereto shall
cease to exist, and each holder of a certificate representing any
such shares of AAC Preferred Stock shall cease to have any rights
with respect thereto, except the right to receive cash and
certificates representing the shares of Company Series D
Preferred Stock in accordance with this Section 2.1( (b)) and
Section 2.1(c) upon surrender of such certificate (the "Preferred
Merger Consideration" and, together with the Common Merger
Consideration, the "Merger Consideration"), without interest.
(iii) Notwithstanding the foregoing, the parties understand
that the rights of each stockholder of AAC under this Section
2.1( (b)) will be subject to the stop transfer and redemption
provisions contained in Article 4 of the Company Charter.
(iv) The Preferred Cash Consideration shall be subject to
adjustment as provided in Section 2.2.
(c) Cash in Lieu of Fractional Shares. Notwithstanding any other
provision hereof, no fractional shares of Company Series D Preferred Stock
shall be issued in connection with the Merger. Instead, each shareholder of
AAC having a fractional interest arising upon the conversion or exchange of
such shares in connection with the Merger shall be paid an amount in cash
equal to $25 multiplied by the fraction of a share of Company Series D
Preferred Stock to which such holder would otherwise be entitled. No such
holder shall be entitled to dividends or other distributions, voting rights
or any other shareholder rights in respect of any fractional share.
(d) No Effect on Outstanding Shares of the Company. Each
shareholder of the Company whose shares were outstanding immediately before
the Effective Date will hold the same number of shares of the Surviving
Corporation, with identical designations, preferences, limitations and
relative rights, immediately thereafter.
(e) No Further Transfer of AAC Stock. At and after the Effective
Time, no transfer of any shares of AAC Common Stock and/or AAC Preferred
Stock shall be recorded on the books of AAC. The Company shall not be bound
to recognize for any purpose any transfer or purported transfer of AAC
Common Stock and/or AAC Preferred Stock occurring after the Effective Time.
Section 2.2. Adjustment to Merger and Exchange Consideration.
(a) Closing Balance Sheet. As of the Closing Date, AAC will
prepare and deliver to the Company a closing consolidated balance sheet of
AAC and the AAC Subsidiaries (as defined
<PAGE>
herein) that will reflect, as of the Closing Date, appropriate closing
adjustments and accruals made in accordance with generally accepted
accounting principles consistently applied ("GAAP"), except as provided
below (the "Closing Balance Sheet"). The Closing Balance Sheet will
eliminate (i) the historical cost of AAC's real estate assets net of
accumulated depreciation, which amount will be replaced by the values
assigned to such real estate assets on Schedule A hereto and (ii) the
historical cost of AAC's minority interest in University Village, which
interest will be reflected on the Closing Balance Sheet at a value of $2.9
million. Giving effect to such adjustments, AAC's assets net of its
liabilities as reflected on the Closing Balance Sheet will be referred to
as the "Net Asset Value." The Closing Balance Sheet will (w) exclude
deferred financing costs, (x) exclude any intangible assets which do not
have continuing economic value and (y) not reflect any liability associated
with any promotional interests held by third parties with respect to the
AAC Properties listed under Entity Level Properties on Schedule 3.1(p) to
the AAC Disclosure Letter and (z) include expenses of AAC in connection
with the Merger and the Exchange (including the fees and expenses of
counsel to AAC and AACLP, any fees and expenses of Lazard Freres & Co. LLC
("Lazard") and the fees and expenses of counsel to Lazard) accrued to the
Closing Date as a liability without recording any corresponding asset. The
Closing Balance Sheet will include the aggregate amount of AAC's
indebtedness as of the Closing Date, but will not be adjusted to reflect
any changes to the valuation of the real estate assets, leasehold interests
or minority interests referred to on Schedule A hereto. Attached hereto as
Schedule A-1, by way of illustration, is the June 30, 1998, consolidated
balance sheet of AAC, indicating in notes thereto the kinds of adjustments
to be made pursuant to this Section 2.2 to create the Closing Balance
Sheet. AAC will identify to the Company the personnel having responsibility
for the accounting records utilized in preparation of the Closing Balance
Sheet and will use its best efforts to make them available to the Company
and its representatives in connection with any review of this process the
Company may undertake, for purposes of resolution of any dispute pursuant
to Section 2.2(b) or otherwise.
(b) Disputes. In the event that the Company disputes any item(s)
on the Closing Balance Sheet, the Company shall deliver a detailed
statement describing such objections to AAC within 60 days after receiving
the Closing Balance Sheet. AAC and the Company will use reasonable efforts
to resolve any such objections themselves. If the parties are unable to
obtain a final resolution within 30 days, AAC and the Company will submit
any unresolved objections to Ernst & Young LLP for resolution. The
determination of Ernst & Young LLP shall be conclusive, final and binding
on the parties.
(c) Adjustments to Transaction Consideration. The aggregate
Merger Consideration and the aggregate consideration provided for in
Section 1 of the Exchange Agreement (together, the "Aggregate
Consideration") will be adjusted as follows:
(i) If the Net Asset Value, as reflected on the Closing
Balance Sheet as finally determined, is less than $336.5 million,
then the Aggregate Consideration will be decreased in an amount
equal to the excess of $336.5 million over the Net Asset Value as
reflected on the Closing Balance Sheet as finally determined;
<PAGE>
(ii) If the Net Asset Value, as reflected on the Closing
Balance Sheet as finally determined, is greater than $336.5
million, then the Aggregate Consideration will be increased in an
amount equal to the excess of the Net Asset Value as reflected on
the Closing Balance Sheet as finally determined over $336.5
million;
(iii) If the Net Asset Value, as reflected on the Closing
Balance Sheet as finally determined, is equal to $336.5 million,
then there will be no adjustment to the Aggregate Consideration
pursuant to this paragraph (c); and
(iv) The amount of any increase or decrease in the Aggregate
Consideration shall be allocated among the holders of partnership
interests in AACLP (the "AACLP Interest Holders") based on
Section 5.2 of the Second Amended and Restated Agreement of
Limited Partnership of AACLP, as amended and supplemented (the
"AACLP Partnership Agreement"). (No portion of any increase or
decrease shall be allocated to the Redeemable Preferred Capital
of AACLP.) The portion of such increase or decrease allocated to
AAC shall increase or decrease, as the case may be, dollar for
dollar the aggregate Merger Cash Consideration and shall increase
or decrease the aggregate Common Cash Consideration and aggregate
Preferred Cash Consideration pro rata, and the increases or
decreases in the aggregate Common Cash Consideration and
aggregate Preferred Cash Consideration shall increase or decrease
the per share Common Cash Consideration and per share Preferred
Cash Consideration, respectively, on the basis of the number of
shares of AAC Common Stock and AAC Preferred Stock, respectively,
issued and outstanding on the Closing Date. The portion of such
increase or decrease allocated to the AACLP Interest Holders
other than AAC shall increase or decrease, as the case may be,
the consideration provided for in Section 1 of the Exchange
Agreement as follows. Any increase or decrease allocated to each
such holder shall be applied dollar for dollar to the cash
portion of such consideration with respect to each such AACLP
Interest Holder other than AAC OP. Any increase or decrease
allocated to AAC OP shall increase or decrease the number of UDR
Units issuable to AAC OP on the basis of a UDR Unit value of
$14.25.
(d) Adjustments for Rights of First Refusal. In the event that
any third party exercises its right of first refusal in respect of AAC's
interests in any of the AAC Partnerships listed on Schedule B hereto (the
"Rights of First Refusal") and such interests are purchased before the
Closing Date for an amount which exceeds the amount allocated to such AAC
Partnership set forth on Schedule B, then the Aggregate Consideration shall
be increased by such excess. Any such increase shall be allocated in
accordance with Section 2.2(c).
(e) Holdback. An aggregate of $3,000,000 of cash shall be
withheld by the Company from the Aggregate Consideration (the "Holdback
Amount"). The Holdback Amount will be used to pay liabilities not disclosed
in the Closing Balance Sheet and the schedules to the AAC Disclosure Letter
that are required to be so disclosed under GAAP. On the 60th day following
the Closing Date, the balance of the Holdback Amount, including any
interest which has accrued thereon, will be distributed to the former
shareholders of AAC and the limited partners of AACLP as directed by a
former executive officer of AAC to be designated by AAC at or before
<PAGE>
the Closing. Any dispute regarding the propriety of any deductions to the
Holdback Amount will be resolved by the parties themselves or, if the
parties are unable to so agree, by Ernst & Young LLP in the manner
described in Section 2.2(b).
Section 2.3. Dividend Distributions.
In order to satisfy the requirements of Section 857(a)(1) of the
Code for the taxable year of AAC ending at the Closing Date (and to avoid
the payment of tax with respect to undistributed income), AAC shall declare
a dividend on one or more classes of its outstanding capital stock (the
"Final AAC REIT Dividend"), the record date for which shall be
approximately five business days prior to the Closing Date, in an amount
that the Company and AAC shall agree is equal to the minimum dividend
sufficient (taking into account expected revenue and expenses through the
day prior to the Closing Date) to permit AAC to satisfy such requirements.
If AAC determines it necessary to declare the Final AAC REIT Dividend, it
shall notify the Company prior to the Closing Date. The Final AAC REIT
Dividend shall be paid on the close of business on the last business day
prior to the Closing Date.
Section 2.4. Withholding Rights.
The Company shall be entitled to deduct and withhold from any
Merger Consideration otherwise payable pursuant to this Agreement to any
holder of shares of AAC Common Stock or AAC Preferred Stock such amounts as
the Company is required to deduct and withhold with respect to the making
of such payment under the Code, or any provision of state, local or foreign
tax law. To the extent that amounts are so withheld by the Company, such
withheld amounts shall be treated for all purposes of this Agreement as
having been paid to the holder of the shares of AAC Common Stock or AAC
Preferred Stock, in respect of which such deduction and withholding was
made by the Company.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
Section 3.1. Representations and Warranties of AAC.
AAC represents and warrants to the Company as follows:
(a) Organization, Standing and Corporate Power of AAC. AAC is a
corporation duly organized and validly existing under the laws of Maryland
and has the requisite corporate power and authority to carry on its
business as now being conducted. AAC is duly qualified or licensed to do
business and is in good standing in each jurisdiction in which the nature
of its business or the ownership, leasing of its properties or management
of properties for others makes such qualification or licensing necessary,
other than in such jurisdictions where the failure to be so qualified or
licensed, individually or in the aggregate, would not have a material
adverse effect on the business, properties, assets, financial condition or
results of operations of AAC and the AAC Entities (as defined herein),
taken as a whole (an "AAC Material Adverse Effect").
<PAGE>
(b) AAC Subsidiaries and Investees.
(i) Schedule 3.1( (b))((i))(1) to the AAC Disclosure Letter
is a true and complete list of all corporations with respect to
which AAC operates, owns or otherwise controls, directly or
indirectly through one or more subsidiaries, partnerships, joint
ventures or other business associations, a majority of the
outstanding voting securities (the "AAC Subsidiaries"). Schedule
3.1( (b))((i))(1) to the AAC Disclosure Letter accurately sets
forth for each AAC Subsidiary (a) its name and jurisdiction of
incorporation, (b) the number of shares of authorized capital
stock of each class of its capital stock, (c) the number of
issued and outstanding shares of each class of its capital stock,
the names of the holders thereof and the number of shares held by
each such holder and (d) the number of shares of its capital
stock held in treasury (if any). Except as set forth on Schedule
3.1( (b))((i))(1) to the AAC Disclosure Letter, all of the issued
and outstanding shares of capital stock of each AAC Subsidiary
have been duly authorized and are validly issued, fully paid and
nonassessable. All of the issued and outstanding shares of
capital stock of each AAC Subsidiary are owned of record and
beneficially by AAC and/or by another AAC Subsidiary free and
clear of any and all restrictions on transfer (other than
restrictions under the Securities Act and state securities laws),
taxes, mortgages, liens, encumbrances, charges, pledges,
impositions, security interests, options, warrants, purchase
rights, contracts, commitments, equities, claims and demands
("Liens"). There are no outstanding or authorized options,
warrants, purchase rights, conversion rights, exchange rights or
other contracts or commitments that could require AAC to sell,
transfer or otherwise dispose of any capital stock of any of the
AAC Subsidiaries or that could require any AAC Subsidiary to
issue, sell or otherwise cause to become outstanding any of its
own capital stock. There are no outstanding stock appreciation,
phantom stock, profit participation or similar rights with
respect to any AAC Subsidiary. There are no voting trusts,
proxies or other agreements or understandings with respect to the
voting of any capital stock of any AAC Subsidiary. Each AAC
Subsidiary that is a corporation is duly incorporated and validly
existing under the laws of its jurisdiction of incorporation and
has the requisite corporate power and authority to carry on its
business as now being conducted. Except for the AAC Subsidiaries
set forth on Schedule 3.1( (b))((i))(1) to the AAC Disclosure
Letter, which in the aggregate do not represent a material
percentage of the total value of the AAC Subsidiaries taken as a
whole, each AAC Subsidiary is duly qualified or licensed to do
business and is in good standing in each jurisdiction in which
the nature of its business or the ownership, leasing of its
properties or management of properties for others makes such
qualification or licensing necessary, other than in such
jurisdictions where the failure to be so qualified or licensed,
individually or in the aggregate, would not have an AAC Material
Adverse Effect. Schedule 3.1( (b))((i))(2) to the AAC Disclosure
Letter is a true and complete list of all corporations, other
than the Subsidiaries, with respect to which AAC has owned or
otherwise controlled, within the last five years, a majority of
the outstanding voting securities (the "Former AAC Subsidiaries")
and accurately sets forth for each Former AAC Subsidiary (a) its
name and jurisdiction of incorporation, (b) the nature and extent
of AAC's interest in such Former AAC Subsidiary, (c) the date
such interest was disposed of and (d) the manner of such
disposition.
<PAGE>
(ii) Schedule 3.1( (b))((ii))(3) to the AAC Disclosure
Letter is a true and complete list of all corporations with
respect to which AAC owns or otherwise controls, directly or
indirectly through one or more subsidiaries, partnerships, joint
ventures or other business associations, less than a majority of
the outstanding voting securities (the "AAC Investees"). Schedule
3.1( (b))((ii))(3) to the AAC Disclosure Letter accurately sets
forth for each AAC Investee (a) its name and jurisdiction of
incorporation, (b) the number of shares of authorized capital
stock of each class of its capital stock and (c) the number of
issued and outstanding shares of each class of its capital stock
held by AAC. All of the issued and outstanding shares of capital
stock of each AAC Investee owned by AAC have been duly authorized
and are validly issued, fully paid and nonassessable. All of the
issued and outstanding shares of capital stock of each AAC
Investee are owned of record and beneficially by AAC and/or by
another AAC Subsidiary free and clear of any and all Liens. There
are no outstanding or authorized options, warrants, purchase
rights, conversion rights, exchange rights or other contracts or
commitments that could require AAC to sell, transfer or otherwise
dispose of any capital stock of any of the AAC Investees. There
are no voting trusts, proxies or other agreements or
understandings with respect to the voting of any capital stock of
any AAC Investee owned by AAC. Schedule 3.1( (b))((ii))(4) to the
AAC Disclosure Letter is a true and complete list of all
corporations, other than the AAC Investees, with respect to which
AAC has owned or otherwise controlled, within the last five
years, less than a majority of the outstanding voting securities
(the "Former AAC Investees") and accurately sets forth for each
Former AAC Investee (a) its name and jurisdiction of
incorporation, (b) the nature and extent of AAC's interest in
such Former AAC Investee, (c) the date such interest was disposed
of and (d) the manner of such disposition.
(c) AAC Partnerships. Schedule 3.1( (c))(1) to the AAC Disclosure
Letter is a true and complete list of all of the partnerships, joint
ventures, limited liability entities, trusts and other business
associations (the "AAC Partnerships" and together with AAC and the AAC
Subsidiaries, "AAC Entities") in which AAC and/or any AAC Subsidiary or AAC
Partnership is a participant and accurately sets forth (a) the name and
jurisdiction of organization of each AAC Partnership and (b) the nature and
extent of AAC's or any other owner's interest in each AAC Partnership. Such
interests in the AAC Partnerships are owned free and clear of any Liens.
Except for the AAC Partnerships set forth on Schedule 3.1(c)(1) to the AAC
Disclosure Letter, which in the aggregate do not represent a material
percentage of the total value of the AAC Partnerships taken as a whole,
each AAC Partnership is duly organized and validly existing under the laws
of its jurisdiction of organization and has the requisite power and
authority to carry on its business as now being conducted. Except for the
Entity Level Investments set forth on Schedule 3.1( (c))(2) to the AAC
Disclosure Letter, there are no outstanding contracts or commitments that
could require any of the AAC Partnerships to admit additional participants
or require any AAC Entity to sell, transfer or otherwise dispose of its
interest in any AAC Partnership. Schedule 3.1( (c))(3) to the AAC
Disclosure Letter is a true and complete list of all of the partnerships,
joint ventures and other business associations, other than the AAC
Partnerships, in which any AAC Entity has been a participant in the last
five years (the "Former AAC Partnerships") and accurately sets forth for
each Former AAC Partnership (a) the type of entity, (b) its name and
jurisdiction of organization, (c) the nature and extent of
<PAGE>
any AAC Entity's interest in such Former AAC Partnership, (d) the date such
interest was disposed of and (e) the manner of such disposition. AAC does
not own, and has not within the last five years owned, any equity interest
in any entity except the AAC Subsidiaries, the Former AAC Subsidiaries, the
AAC Investees, the Former AAC Investees, the AAC Partnerships and the
Former AAC Partnerships.
(d) Capital Structure. AAC has authority to issue 10,400,100
shares of capital stock, par value $.01 per share, consisting of 100 shares
of Class A Nonvoting Common Stock, $.01 par value (the "AAC Nonvoting
Common Stock"), 10,000,000 shares of AAC Common Stock and 400,000 shares of
preferred stock, of which 300,000 are classified as AAC Preferred Stock and
100,000 are without class designation. On the date hereof, no shares of
Nonvoting AAC Common Stock, 853,968.26 shares of AAC Common Stock and
170,000 shares of AAC Preferred Stock were issued and outstanding. On the
date of this Agreement, except as set forth above in this Section 3.1 or in
a Schedule to the AAC Disclosure Letter referred to above in this Section
3.1, no shares of capital stock or other voting securities of AAC or any
AAC Subsidiary were issued, reserved for issuance or outstanding. All
outstanding shares of capital stock of AAC are duly authorized, validly
issued, fully paid and nonassessable and not subject to preemptive rights.
Except (A) for the AAC OP Units, (B) as set forth in Schedule 3.1( (d)) to
the AAC Disclosure Letter, and (C) as otherwise permitted under Section
4.1, there are no outstanding securities, options, stock appreciation
rights, warrants, calls, rights, commitments, agreements, arrangements or
undertakings of any kind to which AAC or any AAC Subsidiary is a party or
by which such entity is bound, obligating AAC or any AAC Subsidiary to
issue, deliver or sell, or cause to be issued, delivered or sold,
additional shares of capital stock, voting securities or other ownership
interests of AAC or any AAC Subsidiary or obligating AAC or any AAC
Subsidiary to issue, grant, extend or enter into any such security, option,
warrant, call, right, commitment, agreement, arrangement or undertaking.
(e) Authority; Noncontravention; Consents. AAC has the requisite
corporate power and authority to enter into this Agreement and to
consummate the Merger and the other transactions contemplated by this
Agreement. The execution and delivery of this Agreement by AAC and the
consummation by AAC of the transactions contemplated hereby to which AAC is
a party have been duly authorized and approved by the Board of Directors of
AAC in the manner required by AAC's Articles of Incorporation and Bylaws
and by applicable law. This Agreement has been duly executed and delivered
by AAC and constitutes a valid and binding obligation of AAC, enforceable
against AAC in accordance with its terms. Except as set forth in Schedule
3.1( (e)) to the AAC Disclosure Letter, the execution and delivery of this
Agreement by AAC does not, and the consummation of the transactions
contemplated hereby to which AAC is a party and compliance by AAC with the
provisions of this Agreement will not, conflict with, or result in any
violation of, or default (with or without notice or lapse of time, or both)
under, or give rise to a right of termination, cancellation or acceleration
of any obligation or to loss of a material benefit under, or result in the
creation of any Lien upon any of the properties or assets of AAC or any AAC
Subsidiary under, (i) the charter or bylaws or the comparable charter or
organizational documents or partnership or similar agreement (as the case
may be) of any AAC Entity, each as amended or supplemented to the date of
this Agreement, (ii) any loan or credit agreement, note, bond, mortgage,
indenture, lease or agreement to acquire real property, or any
<PAGE>
other material contract, agreement, arrangement or understanding to which
any AAC Entity is a party or by which it or any of its properties is bound,
or (iii) subject to the governmental filings and other matters referred to
in the following sentence, any judgment, decree, statute, law, ordinance,
rule, regulation or order of any Governmental Entity (as defined herein)
(collectively, "Laws") applicable to any AAC Entity, or its respective
business, properties, operations or assets, other than, in the case of
clause (ii) or (iii), any such conflicts, violations, defaults, rights or
Liens that individually or in the aggregate would not (x) have an AAC
Material Adverse Effect or (y) prevent the consummation of the Merger or
the other transactions contemplated hereby. No consent, approval, order or
authorization of, or registration, declaration or filing with, any federal,
state or local government or any court, administrative or regulatory agency
or commission or other governmental authority or agency (a "Governmental
Entity") is required by or with respect to any AAC Entity in connection
with the execution and delivery of this Agreement by AAC or the
consummation by AAC of any of the transactions contemplated hereby and
thereby, except for (i) the filing of the Articles of Merger with the SDAT
and the VSCC, the acceptance for record of the Articles of Merger by the
SDAT and the issuance of a certificate of merger by the VSCC, (ii) such
filings as may be required in connection with the payment of any Transfer
and Gains Taxes (as defined herein) and (iii) such other consents,
approvals, orders, authorizations, registrations, declarations and filings
(A) as are set forth in Schedule 3.1( (e)) to the AAC Disclosure Letter,
(B) as may be required under federal, state, local or foreign Environmental
Laws (as defined herein), (C) as may be required under the "blue sky" laws
of various states or (D) which, if not obtained or made, would not prevent
or delay in any material respect the consummation of the Merger or the
other transactions contemplated hereby or otherwise prevent AAC from
performing its obligations under this Agreement in any material respect or
have, individually or in the aggregate, an AAC Material Adverse Effect. For
purposes of determining compliance with the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act"), AAC confirms that the
conduct of its business consists solely of investing in, owning, developing
and operating real estate for the benefit of its shareholders.
(f) Financial Statements; Undisclosed Liabilities. The audited
consolidated financial statements and the notes thereto of AAC and of AACLP
for the years ended December 31, 1997 and 1996, the unaudited consolidated
financial statements and the notes thereto for the six months ended June
30, 1998 and the nine months ended September 30, 1998 if the Closing Date
occurs after September 30, 1998, copies of which have been heretofore
delivered by AAC and AACLP to the Company, except as noted therein, have
been prepared in accordance with GAAP and fairly present, in accordance
with the applicable requirements of GAAP, the consolidated financial
position of AAC and AACLP, each taken as a whole, as of the dates thereof
and the consolidated results of operations and cash flows for the periods
then ended (subject, in the case of interim financial statements, to normal
year-end adjustments). The Closing Balance Sheet, except as provided in
Section 2.2(a), will be prepared in accordance with GAAP. Except for
liabilities and obligations set forth in Schedule 3.1( (f)) to the AAC
Disclosure Letter, no AAC Entity has any liabilities or obligations not
reflected in the financial statements of any nature (whether accrued,
contingent or otherwise) required by GAAP to be set forth on a consolidated
balance sheet of AAC or in the notes thereto and that, individually or in
the aggregate, would have an AAC Material Adverse Effect.
<PAGE>
(g) Absence of Certain Changes or Events. Except as disclosed in
Schedule 3.1( (g)) to the AAC Disclosure Letter, since the date of the most
recent audited financial statements of AAC (the "AAC Financial Statement
Date") and to the date of this Agreement, but not thereafter with respect
to clause (a) of this Section 3.1( (g)), the AAC Entities have conducted
their business only in the ordinary course and there has not been (a) any
material adverse change in the business, financial condition or results of
operations of the AAC Entities taken as a whole, that has resulted or would
result, individually or in the aggregate, in AAC Economic Losses (as
defined in Section 6.2(a) below) of $8,000,000 or more (an "AAC Material
Adverse Change"), nor has there been any occurrence or circumstance that
with the passage of time would reasonably be expected to result in an AAC
Material Adverse Change, (b) except for regular quarterly distributions of
the AAC Common Stock and the AAC Preferred Stock covering the period
through the Closing Date at a rate not to exceed in the aggregate on an
annual basis 9% of the value of the capital accounts of the AACLP partners,
any declaration, setting aside or payment of any dividend or other
distribution (whether in cash, stock or property) with respect to the AAC
Common Stock and AAC Preferred Stock, (c) any split, combination or
reclassification of any AAC Common Stock and AAC Preferred Stock or any
issuance or the authorization of any issuance of any other securities in
respect of, in lieu of or in substitution for, or giving the right to
acquire by exchange or exercise, shares of its beneficial interest or any
issuance of an ownership interest in, any AAC Entity except as contemplated
by this Agreement, (d) any damage, destruction or loss, whether or not
covered by insurance, that has or would have an AAC Material Adverse
Effect, (e) any change in accounting methods, principles or practices by
any AAC Entity materially affecting its assets, liabilities or business,
except insofar as may have been disclosed in Schedule 3.1( (g)) to the AAC
Disclosure Letter or required by a change in GAAP, or (f) any amendment of
any employment, consulting, severance, retention or any other agreement
between any AAC Entity and any officer or director of any AAC Entity, other
than as provided in Section 4.1(k) of this Agreement.
(h) Litigation. Except as disclosed in Schedule 3.1( (h)) to the
AAC Disclosure Letter, and other than personal injury and other routine
tort litigation arising from the ordinary course of operations of the AAC
Entities that is covered by adequate insurance, there is no suit, action,
claim, proceeding or governmental investigation pending or threatened
against or affecting any AAC Entity that, individually or in the aggregate,
could reasonably be expected to (i) have an AAC Material Adverse Effect or
(ii) prevent the consummation of the Merger or any of the other
transactions contemplated hereby, nor is there any judgment, decree,
injunction, rule or order of any Governmental Entity or arbitrator
outstanding against any AAC Entity having, or that, insofar as reasonably
can be foreseen, in the future would have, any such effect.
(i) Absence of Changes in Benefit Plans; ERISA Compliance.
(i) Except as disclosed in Schedule 3.1( (i))((i)) to the
AAC Disclosure Letter, since the date of the most recent audited
financial statements of AAC, there has not been any adoption or
amendment in any material respect by any AAC Entity of any bonus,
pension, profit sharing, deferred compensation, incentive
compensation, stock ownership, stock purchase, stock option,
phantom stock, retirement, vacation, severance, disability, death
benefit, hospitalization, medical or other employee benefit plan,
<PAGE>
arrangement or understanding (whether or not legally binding)
providing benefits to any current or former employee, officer or
director of AAC or any AAC Subsidiary or any person affiliated
with AAC under Section 414(b), (c), (m) or (o) of the Code
(collectively, "AAC Benefit Plans").
(ii) Except as described in Schedule 3.1( (i))((ii)) to the
AAC Disclosure Letter or as would not have an AAC Material
Adverse Change, (A) all AAC Benefit Plans, including any such
plan that is an "employee benefit plan" as defined in Section
3(3) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), are in compliance with all applicable
requirements of law, including ERISA and the Code and (B) no AAC
Entity has any liabilities or obligations with respect to any
such AAC Benefit Plan, whether accrued, contingent or otherwise
(other than obligations to make contributions and pay benefits
and administrative costs incurred in the ordinary course), nor
are any such liabilities or obligations expected to be incurred.
Except as set forth in Schedule 3.1( (i))((ii)) to the AAC
Disclosure Letter, the execution of, and performance of the
Transactions contemplated in, this Agreement will not (either
alone or together with the occurrence of any additional or
subsequent events) constitute an event under any AAC Benefit
Plan, policy, arrangement or agreement, trust or loan that will
or may result in any payment (whether of severance pay or
otherwise), acceleration, forgiveness of indebtedness, vesting,
distribution, increase in benefits or obligation to fund benefits
with respect to any employee or director. The only severance
agreements or severance policies applicable to the AAC Entities
are the agreement and policies specifically referred to in
Schedule 3.1( (i))((ii)) to the AAC Disclosure Letter.
(j) Taxes.
(i) Each AAC Entity has timely filed all Tax Returns (as
defined herein) required to be filed by it (after giving effect
to any filing extension properly granted by a Governmental Entity
having authority to do so). Each such Tax Return is true, correct
and complete in all material respects. Each AAC Entity has paid
(or AAC has paid on its behalf), within the time and manner
prescribed by law, all Taxes (as defined herein) that are due and
payable. The most recent financial statements described in
Section 3.1( (f)) reflect an adequate reserve for all taxes
payable by the Company for all taxable periods and portions
thereof accrued through the date of such Financial Statements. As
of the date hereof, no AAC Entity has received notice that any
federal, state and local income or franchise tax return of such
AAC Entity has been or will be examined by any taxing authority.
No AAC Entity has executed or filed with the Internal Revenue
Service or any other taxing authority any agreement now in effect
extending the period for assessment or collection of any income
or other taxes. Except as disclosed on Schedule 3.1( (j))((i)) to
the AAC Disclosure Letter, no AAC Entity is a party to any
pending action or proceeding by any governmental authority for
assessment or collection of taxes, and no claim for assessment or
collection of taxes has been asserted against it. True, correct
and complete copies of all federal, state and local income or
franchise tax returns filed by each AAC Entity and all
communications relating thereto have been delivered to the
Company or made available to representatives of the Company. As
used in this
<PAGE>
Agreement, "Taxes" shall mean any federal, state, local or
foreign income, gross receipts, license, payroll, employment
withholding, property, sales, excise or other tax or governmental
charges of any nature whatsoever, together with any penalties,
interest or additions thereto and "Tax Return" shall mean any
return, declaration, report, claim for refund, or information
return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
(ii) AAC (A) for all of its taxable years commencing with
the year ended December 31, 1996 through December 31, 1997, has
been subject to taxation as a real estate investment trust
("REIT") within the meaning of Section 856 of the Code and has
satisfied the requirements to qualify as a REIT for such years,
except with respect to the filing of AAC's 1997 Federal income
tax return and the making of the applicable elections thereon (B)
has operated, and intends to continue to operate, in such a
manner as to qualify as a REIT for its tax year ending on the
Effective Day and (C) has not taken or omitted to take any action
that could reasonably be expected to result in a challenge to its
status as a REIT, and no such challenge is pending or threatened.
AAC has no undistributed earnings and profits allocable to any
taxable period during which it or any predecessor in interest was
subject to taxation as a corporation. AACLP has at all times, and
each other AAC Entity that is a partnership or files Tax Returns
as a partnership for federal income tax purposes has since its
acquisition by AAC, been classified for federal income tax
purposes as a partnership and not as a corporation or as an
association taxable as a corporation. Each of the AAC
Subsidiaries that is a corporation for federal income tax
purposes is a "qualified REIT subsidiary" as defined in Section
856(i) of the Code. No AAC Entity holds any asset (i) the
disposition of which could be subject to rules similar to Section
1374 of the Code as a result of an election under IRS Notice
88-19 or (ii) that is subject to a consent filed pursuant to
Section 341(f) of the Code and regulations thereunder.
(iii) AAC has no reason to believe that any conditions exist
that could reasonably be expected to prevent the Merger from
qualifying as a reorganization within the meaning of Section
368(a) of the Code.
(k) No Loans or Payments to Employees, Officers or Directors.
Except as set forth in Schedule 3.1( (k)) to the AAC Disclosure Letter or
as otherwise specifically provided for in this Agreement, there is no (i)
loan outstanding from or to any employee or director, (ii) employment or
severance contract or other arrangement with respect to severance, (iii)
other agreement requiring payments to be made on a change of control or
otherwise as a result of the consummation of the merger or any of the other
transactions contemplated hereby with respect to any employee, officer or
director of any AAC Entity or (iv) any agreement to appoint or nominate any
person as a director of any AAC Entity.
(l) Brokers. Other than Lazard, no broker, investment banker,
financial advisor or other person is entitled to any broker's, finder's,
financial advisor's or other similar fee or commission in connection with
the transactions contemplated hereby based upon arrangements made by or on
behalf of AAC or any AAC Subsidiary.
<PAGE>
(m) Compliance with Laws. Except as set forth in Schedule 3.1(
(m)) to the AAC Disclosure Letter, no AAC Entity has violated or failed to
comply in any material respect with any Law applicable to its business,
properties, operations or assets, except for violations and failures to
comply that would not, individually or in the aggregate, reasonably be
expected to result in an AAC Material Adverse Effect.
(n) Contracts; Debt Instruments. No AAC Entity is in violation of
or in default under, in any material respect (nor does there exist any
condition which upon the passage of time or the giving of notice or both
would cause such a violation of or default under), any material loan or
credit agreement, note, bond, mortgage, indenture, lease, or any agreement
to acquire real property, or any other material contract, agreement,
arrangement or understanding, to which it is a party or by which it or any
of its properties or assets is bound ("Material Contracts"), except as set
forth in Schedule 3.1( (n)) to the AAC Disclosure Letter and except for
violations or defaults that would not, individually or in the aggregate,
result in an AAC Material Adverse Effect. Schedule 3.1( (n)) is a true and
complete list of all Material Contracts.
(o) Environmental Matters. Except as disclosed in Schedule 3.1(
(o)) to the AAC Disclosure Letter or in the environmental audits/reports
listed thereon, each AAC Entity has obtained all material licenses,
permits, authorizations, approvals and consents from Governmental Entities
that are required in respect of its business, operations, assets or
properties under any applicable Environmental Law (as defined below) and
each AAC Entity is in compliance in all material respects with the terms
and conditions of all such licenses, permits, authorizations, approvals and
consents and with any applicable Law of any Governmental Entity relating to
human health, safety or protection of the environment ("Environmental
Laws"), except for violations and failures to comply, individually or in
the aggregate, that would not have an AAC Material Adverse Effect.
(p) AAC Properties. Except as listed in Schedule 3.1( (p)) to the
AAC Disclosure Letter, (i) an AAC Entity owns fee simple title to or has a
valid leasehold interest in each of the real properties identified in
Schedule 3.1( (p)) to the AAC Disclosure Letter (the "AAC Properties"),
which are all of the real estate properties owned or leased by them; (ii)
the AAC Properties are not subject to any liens, mortgages, deeds of trust,
claims against title, security interests, rights of way, written
agreements, laws, ordinances and regulations affecting building use or
occupancy, reservations of an interest in title or other encumbrances on
title (collectively, "Encumbrances"), except for (a) Encumbrances imposed
or promulgated by law or any Governmental Entity with respect to real
property, including zoning regulations, provided they do not materially
adversely affect the current use of the AAC Properties, (b) liens for real
estate taxes that are not yet due and payable, (c) mechanics', carriers',
workmen's, repairmen's liens and similar Encumbrances that have heretofore
been bonded or which individually or in the aggregate do not exceed
$100,000, do not materially detract from the value of or materially
interfere with the present use of any of the AAC Properties subject thereto
or affected thereby and do not otherwise materially impair business
operations conducted by the AAC Entities and which have arisen or been
incurred only in its construction activities or in the ordinary course of
business, (d) rights of parties in possession, (e) matters that would be
disclosed by an accurate survey, (f) existing mortgages or deeds of trust
and (g) exceptions to title disclosed in the title
<PAGE>
policies covering the AAC Properties and any other, easements,
rights-of-way, restrictions (including zoning restrictions), matters of
plat, minor defects or irregularities in title, license or lease agreements
for laundry, cable television, telephone and other similar liens which, in
the aggregate, do not materially reduce the value of the AAC Properties or
materially interfere with the operation and use of, or the ordinary conduct
of the business on, the AAC Properties; (iii) valid policies of title
insurance have been issued insuring the applicable AAC Entity's fee simple
title or leasehold estates to the AAC Properties except as noted therein,
and such policies are, at the date hereof, in full force and effect and no
claim has been made against any such policy; (iv) there is no certificate,
permit or license from any Governmental Entity having jurisdiction over any
of the AAC Properties or any agreement, easement or any other right which
is necessary to permit the lawful use and operation of the buildings and
improvements on any of the AAC Properties or which is necessary to permit
the lawful use and operation of all driveways, roads and other means of
egress and ingress to and from any of the AAC Properties that has not been
obtained and is not in full force and effect, or any pending threat of
modification or cancellation of any of same, nor any proposed material
change in the route, grade or width of, or otherwise affecting, any street,
road or other means of egress and ingress to or serving any of the AAC
Properties that would not individually or in the aggregate be expected to
result in an AAC Material Adverse Effect; and (v) except as disclosed on
Schedule 3.1( (p)) to the AAC Disclosure Letter, no AAC Entity has received
notice to the effect that (a) condemnation or rezoning or proceedings are
pending or threatened with respect to any of the AAC Properties or (b)
zoning, building or similar laws, codes, ordinances, orders or regulations
are or will be violated by the continued maintenance, operation or use of
any buildings or other improvements on any of the AAC Properties or by the
continued maintenance, operation or use of the parking areas.
(q) Warranties and Guaranties. Except as listed in Schedule 3.1(
(q)) to the AAC Disclosure Letter, no AAC Entity has taken any affirmative
action to release or modify any warranties or guarantees, if any, of
contractors, builders, architects, manufacturers, suppliers and installers
relating to (i) the AAC Properties, including all other buildings,
improvements, furniture, fixtures, equipment, machinery and other items of
real estate located on the AAC Properties, (ii) all licenses, permits and
approvals required by any Governmental Entity for the ownership, operation
and use of the AAC Properties or any part thereof as presently being
conducted by the AAC Entities, except where failure to obtain any such
license, permit or approval would not have an AAC Material Adverse Effect,
and (iii) all intangible personal property ("Intangible Personal Property")
owned by the AAC Entities and used in connection with the ownership of the
AAC Properties, including, without limitation, general intangibles,
business records relating to the AAC Properties, plans and specifications,
surveys and title insurance policies pertaining to the AAC Properties, all
licenses, permits and approvals with respect to the construction,
ownership, operation, leasing, occupancy or maintenance of the AAC
Properties, any unpaid award for taking by condemnation or any damage to
the AAC Properties by reason of a change of grade or location of or access
to any street or highway.
(r) Insurance. All of the AAC Entities' insurance policies are
valid and in full force and effect, all premiums for such policies were
paid when due. None of the AAC Entities has canceled or voluntarily allowed
to expire, any of its respective insurance policies unless such
<PAGE>
policy was replaced, without any lapse of coverage, by another policy or
policies providing coverage at least as extensive as the policy or policies
being replaced.
(s) Employee Matters. Except as disclosed in Schedule 3.1( (s))
to the AAC Disclosure Letter, there are no labor disputes pending or
threatened as to the operation or maintenance of the AAC Properties or any
part thereof.
(t) Labor Matters. No AAC Entity is a party to, or bound by, any
collective bargaining agreement, contract or other agreement or
understanding with a labor union or labor union organization. No unfair
labor practice or labor arbitration proceeding is pending or threatened
against any AAC Entity relating to their business, except for any such
proceedings the aggregate effect of which would not have an AAC Material
Adverse Effect. No organizational efforts presently exist or are threatened
with respect to the formation of a collective bargaining unit involving
employees of any AAC Entity.
(u) Assets. Except as set forth in Schedule 3.1( (p)) to the AAC
Disclosure Letter, as of the Closing Date, the AAC Entities have good and
marketable title to, a valid leasehold interest in or license for, the
equipment, personal property and assets used by them, including Inventory
and Intangible Personal Property, located on the premises, or shown on the
most recent balance sheet of the financial statements referred to in
Section 3.1( (f)) or acquired after the date thereof, free and clear of all
Liens, except for properties and assets disposed of in the ordinary course
of business since the date of such the most recent balance sheet.
(v) Tax Advice. The AAC Entities have obtained and have advised
their partners and/or members to obtain, from their own advisors advice
regarding the tax consequences of becoming a partner in the Company
Operating Partnership.
(w) AACLP.
(i) AAC has delivered to the Company complete and correct
copies of the Agreement of Limited Partnership of AACLP, as
amended or supplemented to the date of this Agreement; and
(ii) AAC, Schnitzer, AAC OP, Fox Point, Klingbeil and AAC
Management constitute all of the Persons having any and all
partnership interest in AACLP.
(x) Books and Records.
(i) The books of account and other financial records of each
AAC Entity are in all material respects true, complete and
correct, have been maintained in accordance with good business
practices, and are accurately reflected in all material respects
in AAC's financial statements for AAC and each AAC Subsidiary and
in AACLP's financial statements.
(ii) AAC has previously delivered or made available to the
Company true and correct copies of the charter, bylaws,
organizational documents and partnership
<PAGE>
agreements of the AAC Entities, and all amendments thereto.
Schedule 3.1( (x))((ii)) to the AAC Disclosure Letter contains a
true and complete summary of each agreement between an AAC
Partnership and any of its partners that varies in any material
manner the rights and obligations of such AAC Partnership and its
partners provided in such AAC Partnership's partnership
agreement.
(iii) The minute books and other records of corporate or
partnership proceedings of each AAC Entity that had previously
been made available to the Company, contain in all material
respects accurate records of all meetings and accurately reflect
in all material respects all other corporate action of the
stockholders and directors and any committees of the Board of
Directors of each AAC Entity that is a corporation.
(y) State Takeover Statutes. The AAC Entities have taken all
action necessary to exempt transactions between the Company and the AAC
Entities from the operation of any "fair price," "moratorium," "control
share acquisition" or any other anti-takeover statute or similar statute
enacted under the state or federal laws of the United States or similar
statute or regulation.
(z) Investment Company Act of 1940. None of the AAC Entities is,
or at the Effective Time, will be, required to be registered under the
Investment Company Act of 1940, as amended (the "Investment Company Act").
(aa) Leases. The leases with all tenants of the AAC Properties
are, and will be as of the Closing Date, in full force and effect, and no
AAC Entity is, nor will be as of the Closing Date, in default, except for
such failures to be in effect or defaults, individually or in the
aggregate, that would not have an AAC Material Adverse Effect. Except with
respect to leases assigned to mortgage lenders, the Leases for which any
AAC Entity is the lessor are, or will be at Closing, freely assignable by
such AAC Entity, and such AAC Entity will have obtained all necessary
consents of any third party.
Section 3.2. Representations and Warranties of the Company.
The Company represents and warrants to AAC as follows:
(a) Organization, Standing and Corporate Power of the Company.
The Company is a corporation duly organized and validly existing under the
laws of Virginia and has the requisite corporate power and authority to
carry on its business as now being conducted. The Company is duly qualified
or licensed to do business and is in good standing in each jurisdiction in
which the nature of its business or the ownership or leasing of its
properties makes such qualification or licensing necessary, other than in
such jurisdictions where the failure to be so qualified or licensed,
individually or in the aggregate, would not have a material adverse effect
on the business, properties, assets, financial condition or results of
operations of the Company and its Subsidiaries, taken as a whole (a
"Company Material Adverse Effect"). Each Company Subsidiary that is a
corporation is duly incorporated and validly existing under the laws of its
jurisdiction of incorporation and has the requisite corporate power and
authority to carry on its business as now being conducted and each Company
Subsidiary that is a partnership, limited
<PAGE>
liability company or trust is duly organized and validly existing under the
laws of its jurisdiction of organization and has the requisite power and
authority to carry on its business as now being conducted. Each Company
Subsidiary is duly qualified or licensed to do business and is in good
standing in each jurisdiction in which the nature of its business or the
ownership or leasing of its properties makes such qualification or
licensing necessary, other than in such jurisdictions where the failure to
be so qualified or licensed individually or in the aggregate, would not
have a Company Material Adverse Effect.
(b) Capital Structure. The authorized capital stock of the
Company consists of 150,000,000 shares of Common Stock, $1 par value
("Common Stock"), and 25,000,000 shares of preferred stock, no par value
(the "Company Preferred Stock"). On the date hereof, (i) 103,192,436 shares
of Common Stock and 10,200,000 shares of Company Preferred Stock,
consisting of 4,200,000 shares of 9 1/4% Series A Cumulative Redeemable
Preferred Stock and 6,000,000 shares of 8.60% Series B Cumulative
Redeemable Preferred Stock, were issued and outstanding and 1,000,000
shares of Series C Cumulative Redeemable Preferred Stock were authorized
but none were outstanding, (ii) 4,876,435 shares of Common Stock were
available for grant under the Company's stock option and stock purchase and
loan plans (the "Company Plans"), and (iii) 9,655,395 shares of Common
Stock were reserved for issuance upon exercise of outstanding stock options
to purchase shares of Common Stock granted under the Company Plans (the
"Company Stock Options"). On the date of this Agreement, except as set
forth in this Section 3.2( (b)), no shares of capital stock or other voting
securities of the Company were issued, reserved for issuance or
outstanding. All outstanding shares of capital stock of the Company are,
and all shares that may be issued pursuant to this Agreement will be when
issued, duly authorized, validly issued, fully paid and nonassessable and
not subject to preemptive rights. Except (A) for the Company Stock Options,
(B) the Company OP Units, (C) as set forth in Schedule 3.2( (b)) to the
Company Disclosure Letter and (D) as otherwise permitted under Section 4.2,
as of the date of this Agreement there are no outstanding securities,
options, stock appreciation rights, warrants, calls, rights, commitments,
agreements, arrangements or undertakings of any kind to which the Company
or any Company Subsidiary is a party or by which such entity is bound,
obligating the Company or any Company Subsidiary to issue, deliver or sell,
or cause to be issued, delivered or sold, additional shares of capital
stock, voting securities or other ownership interests of the Company or of
any Company Subsidiary or obligating the Company or any Company Subsidiary
to issue, grant, extend or enter into any such security, option, warrant,
call, right, commitment, agreement, arrangement or undertaking.
(c) Company Operating Partnership.
(i) The Company owns all of its partnership interests in the
Company Operating Partnership free and clear of all Liens;
(ii) The Company has delivered to AAC complete and correct
copies of the Agreement of Limited Partnership of the Company
Operating Partnership, as amended or supplemented to the date of
this Agreement (the "Company OP Partnership Agreement"); and
<PAGE>
(iii) As of September 4, 1998, there were 13,415,221
outstanding Company OP Units, of which the Company owned, either
directly or indirectly, 11,296,871 Company OP Units.
(d) Authority; Noncontravention; Consents. The Company has the
requisite corporate power and authority to enter into this Agreement and to
consummate the transactions contemplated by this Agreement to which the
Company is a party. The execution and delivery of this Agreement by the
Company and the consummation by the Company of the transactions
contemplated hereby to which the Company is a party have been duly
authorized and approved in the manner required by the Company Charter and
the Company's Bylaws, by applicable law or by applicable regulations of any
stock exchange or other regulatory body, and by the Company's Board of
Directors. No approval by the stockholders of the Company is required to
complete the Merger and the other transactions contemplated hereby,
including without limitation, under the rules of the NYSE. This Agreement
has been duly executed and delivered by the Company and constitutes a valid
and binding obligation of the Company, enforceable against the Company in
accordance with its terms. The execution and delivery of this Agreement by
the Company does not, and the consummation of the transactions contemplated
hereby to which the Company is a party and compliance by the Company with
the provisions of this Agreement will not, conflict with, or result in any
violation of, or default (with or without notice or lapse of time, or both)
under, or give rise to a right of termination, cancellation or acceleration
of any obligation or to loss of a material benefit under, or result in the
creation of any Lien upon any of the properties or assets of the Company or
any Company Subsidiary under, (i) the Company Charter or Company's Bylaws
or the comparable charter or organizational documents or partnership or
similar agreement (as the case may be) of any Company Subsidiary, each as
amended or supplemented to the date of this Agreement, (ii) any loan or
credit agreement, note, bond, mortgage, indenture, reciprocal easement
agreement, lease or other agreement, instrument, permit, concession,
franchise or license applicable to the Company or any Company Subsidiary or
their respective properties or assets or (iii) subject to the governmental
filings and other matters referred to in the following sentence, any Laws
applicable to the Company or any Company Subsidiary or their respective
properties or assets, other than, in the case of clause (ii) or (iii), any
such conflicts, violations, defaults, rights or Liens that individually or
in the aggregate would not (x) have a Company Material Adverse Effect or
(y) prevent the consummation of the Merger or the other transactions
contemplated hereby. No consent, approval, order or authorization of, or
registration, declaration or filing with, any Governmental Entity is
required by or with respect to the Company or any Company Subsidiary in
connection with the execution and delivery of this Agreement by the Company
or the consummation by the Company of any of the transactions contemplated
hereby and thereby, except for (i) the filing of the Articles of Merger
with the VSCC and the SDAT, (ii) the filing with the Securities and
Exchange Commission (the "SEC") of such reports under Section 13(a) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), as may be
required in connection with this Agreement and the other transactions
contemplated by this Agreement, (iii) such filings as may be required in
connection with the payment of any Transfer and Gains Taxes, (iv) the
acceptance for record of the Articles of Merger by the SDAT and the
issuance of a Certificate of Merger by the VSCC, and (v) such other
consents, approvals, orders, authorizations, registrations, declarations
and filings (A) as are set forth in Schedule 3.2( (d)) to
<PAGE>
the Company Disclosure Letter, (B) as may be required under federal, state
or local Environmental Laws, (C) as may be required under the "blue sky"
laws of various states or (D) which, if not obtained or made, would not
prevent or delay in any material respect the consummation of any of the
transactions contemplated by this Agreement or otherwise prevent the
Company from performing its obligations under this Agreement in any
material respect or have, individually or in the aggregate, a Company
Material Adverse Effect. For purposes of determining compliance with the
HSR Act, the Company confirms that the conduct of its business consists
solely of investing in, owning, developing and operating real estate for
the benefit of its shareholders and the unitholders of the Company
Operating Partnership.
(e) SEC Documents; Financial Statements; Undisclosed Liabilities.
The Company has filed all required reports, schedules, forms, statements
and other documents with the SEC since January 1, 1994 through the date
hereof (the "Company SEC Documents"). Except for liabilities and
obligations set forth in the Company SEC Documents, neither the Company nor
any of the Company Subsidiaries has any liabilities or obligations of any
nature (whether accrued, contingent or otherwise) required by GAAP to be
set forth on a consolidated balance sheet of the Company or in the notes
thereto and which, individually or in the aggregate, would have a Company
Material Adverse Effect. All of the Company SEC Documents (other than
preliminary material), as of their respective filing dates, complied in all
material respects with all applicable requirements of the Securities Act of
1933, as amended (the "Securities Act"), and the Exchange Act and, in each
case, the rules and regulations promulgated thereunder applicable to such
Company SEC Documents. None of the Company SEC Documents at the time of
filing contained any untrue statement of a material fact or omitted to
state any material fact required to be stated therein or necessary in order
to make the statements therein, in light of the circumstances under which
they were made, not misleading, except to the extent such statements have
been modified or superseded by later Company SEC Documents filed and
publicly available prior to the date of this Agreement. There is no
unresolved violation, criticism or exception by any Governmental Entity of
which the Company has received written notice with respect to the Company
report or statement which, if resolved in a manner unfavorable to the
Company, could have a Company Material Adverse Effect. The consolidated
financial statements of the Company and the Company Subsidiaries included
in the Company SEC Documents complied as to form in all material respects
with applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto, have been prepared in
accordance with GAAP (except, in the case of interim financial statements,
as permitted by the applicable regulations of the SEC) applied on a
consistent basis during the periods involved (except as may be indicated in
the notes thereto) and fairly presented, in accordance with the applicable
requirements of GAAP, the consolidated financial position of the Company
and the Company Subsidiaries, taken as a whole, as of the dates thereof and
the consolidated results of operations and cash flows for the periods then
ended (subject, in the case of interim financial statements, to normal
year-end adjustments). The Company has no Company Subsidiaries that are not
consolidated for accounting purposes.
(f) Absence of Certain Changes or Events. Except as disclosed in
the Company SEC Documents or in Schedule 3.2( (f)) to the Company
Disclosure Letter, since the date of the most recent financial statements
included in the Company SEC Documents (the "Company Financial
<PAGE>
Statement Date") and to the date of this Agreement, but not thereafter with
respect to clause (a) of this Section 3.2( (f)), the Company and the
Company Subsidiaries have conducted their business only in the ordinary
course and there has not been (a) any material adverse change in the
business, financial condition or results of operations of the Company and
the Company Subsidiaries taken as a whole, that has resulted or would
result, individually or in the aggregate, in Company Economic Losses (as
defined in Section 6.3 below) of $30,000,000 or more (a "Company Material
Adverse Change"), nor has there been any occurrence or circumstance that
with the passage of time would reasonably be expected to result in a
Company Material Adverse Change, (b) except for regular quarterly
distributions not in excess of $.30 per share of Common Stock (including
any corresponding distribution by the Company Operating Partnership) with
customary record and payment dates, any declaration, setting aside or
payment of any dividend or other distribution (whether in cash, stock or
property) with respect to any of the Common Stock, (c) any split,
combination or reclassification of any share of Common Stock or any
issuance or the authorization of any issuance of any other securities in
respect of, in lieu of or in substitution for, or giving the right to
acquire by exchange or exercise, shares of Common Stock or any issuance of
an ownership interest in, any Company Subsidiary except as contemplated by
this Agreement, (d) any damage, destruction or loss, whether or not covered
by insurance, that has or would have a Company Material Adverse Effect or
(e) any change in accounting methods, principles or practices by the
Company or any Company Subsidiary materially affecting its assets,
liabilities or business, except insofar as may have been disclosed in the
Company SEC Documents or required by a change in GAAP.
(g) Litigation. Except as disclosed in Schedule 3.2( (g)) to the
Company Disclosure Letter, and other than personal injury and other routine
tort litigation arising from the ordinary course of operations of the
Company and the Company Subsidiaries that is covered by adequate insurance,
there is no suit, action, claim, proceeding or governmental investigation
pending or threatened against or affecting the Company or any Company
Subsidiary that, individually or in the aggregate, could reasonably be
expected to (i) have a Company Material Adverse Effect or (ii) prevent the
consummation of the Merger or any of the other transactions contemplated
hereby, nor is there any judgment, decree, injunction, rule or order of any
Governmental Entity or arbitrator outstanding against the Company or any
Company Subsidiary having, or that, insofar as reasonably can be foreseen,
in the future would have, any such effect.
(h) Properties. (i) The Company or a Company Subsidiary owns fee
simple title or has a valid leasehold interest in each of the real
properties listed in the Company SEC Reports as owned by the Company (the
"Company Properties"), except where failure to own such title would not
have a Company Material Adverse Effect; (ii) the Company Properties are not
subject to any Encumbrances or Property Restrictions that could cause a
Company Material Adverse Effect; (iii) valid policies of title insurance
have been issued insuring the Company's or the applicable Company
Subsidiaries' fee simple title to the Company Properties, except where
failure to obtain such title insurance would not have a Company Material
Adverse Effect; (iv) there is no certificate, permit or license from any
Governmental Authority having jurisdiction over any of the Company
Properties that has not been obtained where such failure to obtain would
have a Company Material Adverse Effect, or any pending threat of
modification or cancellation of any of same that would have a Company
Material Adverse Effect; (v) neither the
<PAGE>
Company nor a Company Subsidiary has received any written notice of any
violation of any federal, state or municipal law, ordinance, order,
regulation or requirement affecting any of the Company Properties issued by
any Governmental Authority that would have a Company Material Adverse
Effect; (vi) neither the Company nor a Company Subsidiary has received any
written notice to the effect that (a) condemnation or rezoning proceedings
are pending or threatened with respect to any of the Company Properties or
(b) zoning, building or similar laws, codes, ordinances, orders or
regulations are or will be violated by the continued maintenance, operation
or use of any buildings or other improvements on any of the Company
Properties or by the continued maintenance, operation or use of the parking
areas, other than notices that, in the aggregate, would not have a Company
Material Adverse Effect.
(i) Environmental Matters. The Company and each Company
Subsidiary have obtained all material licenses, permits, authorizations,
approvals and consents from Governmental Entities that are required in
respect of their business, operations, assets or properties under any
applicable Environmental Law and the Company and each Company Subsidiary
are in compliance in all material respects with the terms and conditions of
all such licenses, permits, authorizations, approvals and consents and with
any Environmental Laws, except for violations and failures to comply,
individually or in the aggregate, that would not have a Company Material
Adverse Effect.
(j) Taxes.
(i) The Company and each Company Subsidiary have timely
filed all Tax Returns required to be filed by them (after giving
effect to any filing extension properly granted by a Governmental
Entity having authority to do so). Each such Tax Return is true,
correct and complete in all material respects. The Company and
each Company Subsidiary have paid (or the Company has paid on
their behalf), within the time and manner prescribed by law, all
Taxes that are due and payable. The most recent financial
statements contained in the Company SEC Documents reflect an
adequate reserve for all taxes payable by the Company for all
taxable periods and portions thereof accrued through the date of
such financial statements. Neither the Company nor any Company
Subsidiary has received notice that any federal, state and local
income or franchise tax return of the Company or any Company
Subsidiary has been or will be examined by any taxing authority.
Neither the Company nor any Company Subsidiary has executed or
filed with the Internal Revenue Service or any other taxing
authority any agreement now in effect extending the period for
assessment or collection of any income or other taxes. Neither
the Company nor any Company Subsidiary is a party to any pending
action or proceeding by any governmental authority for assessment
or collection of taxes, and no claim for assessment or collection
of taxes has been asserted against it, which, individually or in
the aggregate, would not have a Company Material Adverse Effect.
(ii) The Company (A) for all of its taxable years commencing
with the year ended December 31, 1993 through December 31, 1997,
has been subject to taxation as a REIT within the meaning of
Section 856 of the Code and has satisfied the requirements to
qualify as a REIT for such years, (B) has operated, and intends
to continue to operate,
<PAGE>
in such a manner as to qualify as a REIT for its tax year ending
December 31, 1998 and (C) has not taken or omitted to take any
action that could reasonably be expected to result in a challenge
to its status as a REIT, and no such challenge is pending or
threatened. The Company represents that each of its corporate
Company Subsidiaries is a Qualified REIT Subsidiary as defined in
Section 856(i) of the Code, and that each partnership, limited
liability company, joint venture or other legal entity in which
the Company (either directly or indirectly) owns any of the
capital stock or other equity interests thereof has been treated
since its formation and continues to be treated for federal
income tax purposes as a partnership and not as an association
taxable as a corporation.
(iii) The Company has no reason to believe that any
conditions exist that could reasonably be expected to prevent the
Merger from qualifying as a reorganization within the meaning of
Section 368(a) of the Code.
(k) Brokers. Except for Morgan Stanley, Dean Witter & Co., no
broker, investment banker, financial advisor or other person is entitled to
any broker's, finder's, financial advisor's or other similar fee or
commission in connection with the transactions contemplated hereby based
upon arrangements made by or on behalf of the Company or any Company
Subsidiary.
(l) Compliance with Laws. Neither the Company nor any Company
Subsidiary has violated or failed to comply with any Law applicable to its
business, properties, operations or assets, except for violations and
failures to comply that would not, individually or in the aggregate,
reasonably be expected to result in a Company Material Adverse Effect.
(m) Contracts; Debt Instruments. Neither the Company nor any
Company Subsidiary is in violation of or in default under, in any material
respect (nor does there exist any condition which upon the passage of time
or the giving of notice or both would cause such a violation of or default
under), any Material Contracts, except for violations or defaults that
would not, individually or in the aggregate, result in a Company Material
Adverse Effect.
(n) State Takeover Statutes. The Company has taken all action
necessary to exempt transactions between the Company and the AAC Entities
from the operation of any "fair price," "moratorium," "control share
acquisition" or any other anti-takeover statute or similar statute enacted
under the state or federal laws of the United States or similar statute or
regulation.
(o) Investment Company Act of 1940. Neither the Company nor any
Company Subsidiary is, or at the Effective Time, will be, required to be
registered under the Investment Company Act.
(p) Company Not an Interested Shareholder. The Company is not an
"interested stockholder" of AAC or an "affiliate of an interested
stockholder" of AAC within the meaning of Section 3601 of the MGCL.
<PAGE>
ARTICLE IV
COVENANTS
Section 4.1. Conduct of Business by AAC.
During the period from the date of this Agreement to the
Effective Time, AAC shall, and shall cause each other AAC Entity to, carry
on its business in the usual, regular and ordinary course in substantially
the same manner as heretofore conducted and, to the extent consistent
therewith, use commercially reasonable efforts to preserve intact its
current business organization, goodwill, ongoing businesses and its status
as a REIT within the meaning of the Code. Without limiting the generality
of the foregoing, during the period from the date of this Agreement to the
Effective Time, except as otherwise contemplated by this Agreement or
pursuant to the written consent of the Company, AAC shall not and shall
cause the other AAC Entities not to (and not to authorize or commit or
agree to):
(a) (i) declare, set aside or pay any dividends on, or make any
other distributions in respect of, any of AAC's capital stock or AAC OP
Units or stock or ownership interests in any other AAC Entity that are not
directly or indirectly wholly owned by AAC, except that AAC may declare,
set aside and pay the dividends and distributions permitted under Section
2.3 hereof and AAC may also declare, set aside and pay on record and
payment dates for the payment of regular quarterly distributions of the AAC
Common Stock and the AAC Preferred Stock covering the period through the
Closing Date at a rate not to exceed in the aggregate on an annual basis 9%
of the value of the capital accounts of the AACLP partners (and
corresponding distributions to the holder of units of limited partnership
of AACLP), (ii) split, combine or reclassify any capital stock or
partnership interests or issue or authorize the issuance of any other
securities in respect of, in lieu of or in substitution for shares of such
capital stock or partnership interests, except for a 1-for-2 reverse stock
split of the AAC Common Stock and AAC Preferred Stock that results in
fractional shares being redeemed for cash in an amount equal to the Common
Merger Consideration or the Preferred Merger Consideration (valuing the
Company Series D Preferred Stock at its per share liquidation preference)
for which such fractional shares would have been exchanged in the Merger
(the parties agreeing that none of AAC's representations and warranties
herein shall be deemed untrue as a result of such reverse stock split) or
(iii) purchase, redeem or otherwise acquire any shares of capital stock,
partnership interests or any other equity interests in AAC, any AAC
Subsidiary or AAC OP Units;
(b) amend the charter, bylaws, partnership agreement or other
comparable organizational documents of any AAC Entity (other than AAC OP,
as described in the AAC Disclosure Letter);
(c) issue, deliver or sell, or grant any option or other right in
respect of, any shares of capital stock or debt securities, any other
voting or redeemable securities or ownership interests in any AAC Entity or
any securities convertible into, or any rights, warrants or options to
acquire, any such shares, voting securities or convertible or redeemable
securities or ownership interests except to AAC or an AAC Subsidiary;
<PAGE>
(d) merge or consolidate with any Person;
(e) (i) change in any material manner any of its methods,
principles or practices of accounting in effect at the AAC Financial
Statement Date or (ii) make or rescind any express or deemed election
relating to taxes, settle or compromise any claim, action, suit,
litigation, proceeding, arbitration, investigation, audit or controversy
relating to taxes, except in the case of settlements or compromises in an
amount not to exceed, individually or in the aggregate, $2,500,000, or
change any of its methods of reporting income or deductions for federal
income tax purposes from those employed in the preparation of its federal
income tax return for the taxable year ending December 31, 1997, except, in
the case of clause (i), as may be required by applicable law or GAAP and
with notice thereof to the Company;
(f) except as provided in Section 4.1(k) below, enter into or
amend or otherwise modify any agreement or arrangement with persons that
are affiliates or, as of the date hereof, are officers, directors or
employees of any AAC Entity;
(g) except as contemplated by Section 5.13, acquire or enter into
a contract to acquire, sell, transfer, or enter into a contract to sell or
transfer any real property without the consent of the Company, whose
consent shall not unreasonably be withheld;
(h) incur additional indebtedness, including under existing lines
of credit, or encumber any asset to secure indebtedness which in either
case is not prepayable at the principal amount without penalty without the
consent of the Company;
(i) incur any indebtedness, liability or obligation or make any
expenditure (other than with respect to fees payable to Lazard for which a
corresponding adjustment is made in Net Asset Value) if as a result thereof
the ratio of current assets to current liabilities of AAC and its
consolidated Subsidiaries at the Effective Time would be less than 1.0;
(j) fail to (i) collect and/or pay to the appropriate
governmental authorities, as required, except to the extent reasonably
disputed in good faith, all sales taxes, rental taxes or the equivalent,
and all interest and penalties thereon, required to be paid or collected in
connection with the operation of the AAC Properties as of the Closing Date
and (ii) file all necessary returns and petitions required to be filed
through the Closing Date;
(k) Notwithstanding the foregoing, prior to the Effective Time,
AAC or AACLP may, without further consent of the Company, (i) transfer and
assign to American Apartment Communities III, L.P. or such entity as AAC or
AACLP shall designate (A) the management agreements set forth on Schedule
4.1( (k)) to the AAC Disclosure Letter, (B) all rights and interest in the
name "American Apartment Communities" and (C) certain assets and
liabilities of AAC as set forth in Schedule 4.1( (k)), (ii) pay in cash to
employees of AACLP certain accrued achievement awards and bonuses which
shall be included in the Net Asset Value Adjustment set forth in Section
2.2 hereof, (iii) terminate the Non-Competition Agreements dated as of
March 15, 1996, by and between AACLP and certain officers thereof, (iv)
terminate the Securityholders' Agreement dated as of March 15, 1996, as
amended, by and among AAC and the securityholders listed therein, (v) to
the extent that any Rights of First Refusal are exercised,
<PAGE>
AACLP may distribute to the AACLP Interest Holders an amount of cash equal
to the net proceeds of any sales pursuant to such Rights of First Refusal,
(vi) terminate sponsorship of all benefit plans as contemplated by Section
5.8, and (vii) terminate the provisions of the Second Addendum to Second
Amended and Restated Agreement of Limited Partnership of AACLP, dated as of
August 1, 1996, and the commitment to make capital contributions referenced
therein. In addition, the Company covenants to remove all references to the
name "American Apartment Communities" on all signage, letterhead and other
property within 180 days of the Closing Date.
Section 4.2. Conduct of Business by the Company.
During the period from the date of this Agreement to the
Effective Time, the Company shall, and shall cause each of the Company
Subsidiaries to, carry on its business in the usual, regular and ordinary
course in substantially the same manner as heretofore conducted and, to the
extent consistent therewith, use commercially reasonable efforts to
preserve intact its current business organization, goodwill, ongoing
businesses and its status as a REIT within the meaning of the Code. Without
limiting the generality of the foregoing, during the period from the date
of this Agreement to the Effective Time, except pursuant to the prior
written consent of AAC, or as otherwise contemplated by this Agreement, the
Company shall not:
(a) amend the Charter or Bylaws of the Company or the Company OP
Partnership Agreement in any way that would be materially adverse to any
holder of AAC Common Stock or AAC Preferred Stock or to any holder of AAC
OP Units;
(b) merge or consolidate, nor enter into any agreement to merge
or consolidate, with any Person, except that the Company may merge or
consolidate, or enter into an agreement to merge or consolidate, with any
Company Subsidiary; or
(c) except as would not otherwise have a Company Material Adverse
Effect, (i) change in any material manner any of its methods, principles or
practices of accounting in effect at the Company Financial Statement Date,
except as may be required by the SEC, applicable law or GAAP and with
notice thereof to AAC or (ii) make or rescind any express or deemed
election relating to taxes, settle or compromise any claim, action, suit,
litigation, proceeding, arbitration, investigation, audit or controversy
relating to taxes, except in the case of settlements or compromises in an
amount not to exceed, individually or in the aggregate, $30,000,000, or
change any of its methods of reporting income or deductions for federal
income tax purposes from those employed in the preparation of its federal
income tax return for the taxable year ending December 31, 1997.
Section 4.3. Delivery of Reports by the Company.
The Company shall promptly deliver to AAC true and correct copies
of any report, statement or schedule filed with the SEC subsequent to the
date of this Agreement.
<PAGE>
Section 4.4. Other Actions.
(a) Each of AAC and the Company shall not and shall cause its
respective Subsidiaries not to take any action that would result in (i) any
of the representations and warranties of such party set forth in this
Agreement that are qualified as to materiality becoming untrue in any
material respect, (ii) any of such representations and warranties that are
not so qualified becoming untrue in any respect or (iii) any of the
conditions to the Merger set forth in Article VI not being satisfied.
(b) Neither the Company nor AAC shall take or omit to take any
action that would cause the Company or AAC to be disqualified as a REIT.
ARTICLE V
ADDITIONAL COVENANTS
Section 5.1. Access to Information; Confidentiality.
Subject to the requirements of confidentiality agreements with
third parties, each of AAC and the Company shall, and shall cause each of
its respective Subsidiaries to, afford to the other party and to the
officers, employees, accountants, counsel, financial advisors and other
representatives of such other party, reasonable access during normal
business hours during the period prior to the Effective Time to all their
respective properties, books, contracts, commitments, personnel and records
and, during such period, each of AAC and the Company shall, and shall cause
each of its respective Subsidiaries to, furnish promptly to the other party
(a) a copy of each report, schedule, registration statement and other
document filed by it during such period pursuant to the requirements of
federal or state securities laws and (b) all other information concerning
its business, properties and personnel as such other party may reasonably
request. Each of AAC and the Company will hold, and will cause its
respective Subsidiaries' officers, employees, accountants, counsel,
financial advisors and other representatives and affiliates to hold, any
nonpublic information in confidence to the extent required by, and in
accordance with, and will comply with the provisions of the letter
agreement between AAC and the Company dated as of August 6, 1998 (the
"Confidentiality Agreement").
Section 5.2. Best Efforts; Notification.
(a) Upon the terms and subject to the conditions set forth in
this Agreement, each of the Company and AAC agrees to use its best efforts
to take, or cause to be taken, all actions, and to do, or cause to be done,
and to assist and cooperate with the other in doing, all things necessary,
proper or advisable to fulfill all conditions applicable to such party
pursuant to this Agreement and to consummate and make effective, in the
most expeditious manner practicable, the Merger and the other transactions
contemplated hereby, including (i) the obtaining of all necessary actions
or nonactions, waivers, consents and approvals from Governmental Entities
and the making of all necessary registrations and filings and the taking of
all reasonable steps as may be necessary to obtain an approval, waiver or
exemption from, or to avoid an action or
<PAGE>
proceeding by, any Governmental Entity, (ii) the obtaining of all necessary
consents, approvals, waivers or exemption from shareholders and
non-governmental third parties; provided, however, that if AAC is obliged
to pay or incur any material expenses or other liabilities to obtain the
consent of any non-governmental party, it shall consult reasonably with the
Company upon reasonable notice prior to paying or incurring any such
material expenses or liabilities, and in no event shall AAC pay or incur
any such expenses or liabilities in obtaining such consents without
obtaining the prior written consent of the Company, which consent shall not
unreasonably be withheld or delayed, (iii) the defending of any lawsuits or
other legal proceedings, whether judicial or administrative, challenging
the Merger, this Agreement or the consummation of any of the other
transactions contemplated hereby, including seeking to have any stay or
temporary restraining order entered by any court or other Governmental
Entity vacated or reversed and (iv) the execution and delivery of any
additional instruments necessary to consummate the transactions
contemplated by and to fully carry out the purposes of, this Agreement;
provided, however, that a party shall not be obligated to take any action
pursuant to the foregoing if the taking of such action or the obtaining of
any waiver, consent, approval or exemption is reasonably likely to result
in the imposition of a condition or restriction of the type referred to in
Section 6.1( (b)). In connection with and without limiting the foregoing,
AAC, the Company and their respective Boards of Directors shall (i) take
all action necessary so that no "fair price," "business combination,"
"moratorium," "control share acquisition" or any other anti takeover
statute or similar statute enacted under state or federal laws of the
United States or similar statute or regulation (a "Takeover Statute") is or
becomes applicable to the Merger, this Agreement or any of the other
transactions contemplated hereby and (ii) if any Takeover Statute becomes
applicable to the Merger, this Agreement, or any of the other transactions
contemplated hereby, take all action necessary so that the Merger may be
consummated as promptly as practicable on the terms contemplated by this
Agreement and otherwise to minimize the effect of such Takeover Statute on
the Merger or the consummation of any of the other transactions
contemplated hereby.
(b) AAC shall give prompt notice to the Company, and the Company
shall give prompt notice to AAC, if (i) any representation or warranty made
by it contained in this Agreement that is qualified as to materiality
becomes untrue or inaccurate in any material respect or any such
representation or warranty that is not so qualified becomes untrue or
inaccurate in any respect or (ii) it fails to comply with or satisfy in any
material respect any covenant, condition or agreement to be complied with
or satisfied by it under this Agreement; provided, however, that no such
notification shall affect the representations, warranties, covenants or
agreements of the parties or the conditions to the obligations of the
parties under this Agreement.
Section 5.3. Tax Treatment.
Each of the Company and AAC shall use its reasonable best efforts
to (a) cause the Merger to qualify as a reorganization under Section 368(a)
of the Code and (b) to obtain the opinions of counsel referred to in
Section 6.2( (e)) and 6.3( (d)).
<PAGE>
Section 5.4. No Solicitation of Transactions.
AAC shall not, directly or indirectly, through any officer,
director, employee, agent, investment banker, financial advisor, attorney,
accountant, broker, finder or other representative, initiate, solicit
(including by way of furnishing nonpublic information or assistance) any
inquiries or the making of any proposal that constitutes, or may reasonably
be expected to lead to, any Competing Transaction (as defined herein), or
authorize or permit any of its officers, directors, employees or agents,
attorneys, investment bankers, financial advisors, accountants, brokers,
finders or other representatives to take any such action. AAC shall notify
the Company in writing (as promptly as practicable) of all of the relevant
details relating to all inquiries and proposals which it or any of its
Subsidiaries or any such officer, director, employee, agent, investment
banker, financial advisor, attorney, accountant, broker, finder or other
representative may receive relating to any of such matters and if such
inquiry or proposal is in writing, AAC shall deliver to the other a copy of
such inquiry or proposal. For purposes of this Agreement, "Competing
Transaction" shall mean any of the following (other than the transactions
contemplated by this Agreement): (i) any merger, consolidation, share
exchange, business combination, or similar transaction involving AAC (or
any of its Subsidiaries); (ii) any sale, lease, exchange, mortgage, pledge,
transfer or other disposition of 50% or more of the assets of AAC and its
Subsidiaries taken as a whole in a single transaction or series of related
transactions, excluding any bona fide financing transactions which do not,
individually or in the aggregate, have as a purpose or effect the sale or
transfer of control of such assets; (iii) any tender offer or exchange
offer for 30% or more of the outstanding shares of capital stock of AAC (or
any of its Subsidiaries) or the filing of a registration statement under
the Securities Act in connection therewith; or (iv) any public
announcements of a proposal, plan or intention to do any of the foregoing
or any agreement to engage in any of the foregoing.
Section 5.5. Public Announcements.
The Company and AAC will consult with each other before issuing,
and provide each other the opportunity to review and comment upon, any
press release or other public statements with respect to the Merger or the
other transactions contemplated hereby, and shall not issue any such press
release or make any such public statement prior to such consultation,
except as may be required by applicable law, court process or by
obligations pursuant to any listing agreement with any national securities
exchange. The parties agree that the initial press release to be issued
with respect to the Merger will be in the form agreed to by the parties
hereto prior to the execution of this Agreement.
Section 5.6. Transfer and Gains Taxes.
The Company and AAC shall cooperate in the preparation, execution
and filing of all returns, questionnaires, applications or other documents
regarding any real property transfer or gains, sales, use, transfer, value
added, stock transfer and stamp taxes, any transfer, recording,
registration and other fees and any similar taxes which become payable in
connection with the Merger (together with any related interests, penalties
or additions to tax, "Transfer and Gains Taxes"). AAC shall pay or cause to
be paid, without deduction or withholding from any
<PAGE>
amounts payable to the holders of shares of AAC Nonvoting Common Stock, AAC
Common Stock and AAC Preferred Stock all Transfer and Gains Taxes.
Section 5.7. Employee Matters.
AACLP (or the applicable AAC Entity) shall terminate all of its
employees prior to the Closing Date in compliance with (to the extent
applicable) the Worker Adjustment, Retraining and Notification Act of 1988,
as amended, including the giving of any notice thereunder, and under any
applicable state laws requiring the giving of notice of terminations,
layoffs, site closings or other comparable events. AACLP (or the applicable
AAC Entity) shall satisfy all severance pay, vacation pay and other legal
obligations with respect to its employees, including but not limited to any
obligations under any employment contracts or employee benefit plans or
programs, to the extent based on employment service rendered to AAC or any
AAC Entity prior to the Closing Date. The Company shall have no liability
or obligation to the AAC Entities or their employees to employ or offer
employment to any employee of the AAC Entities or any group of employees of
the AAC Entities. It is understood, however, that on or after the Closing
Date, the Company may, in its sole and absolute direction, offer employment
to those employees of AAC and the AAC Subsidiaries who, prior to Closing
Date, worked as site employees. Nothing in this Agreement shall limit the
Company from taking any action at any time after the Closing Date in
respect of its employees or the terms and conditions of their employment.
Any former employees of the AAC Entities ("Former AAC Employees")
that are subsequently employed by the Company shall in general receive
compensation on the same basis and subject to same standards as the
employees of the Company. In addition, all Former AAC Employees shall be
eligible to participate in the same manner as other similarly situated
employees of the Surviving Corporation who were formerly employees of the
Company in any other benefit programs, policies and arrangements sponsored
or maintained by the Surviving Corporation after the Effective Time. With
respect to each such employee benefit plan, program, policy or arrangement,
service with AAC or any of the AAC Subsidiaries (as applicable) shall be
included for purposes of determining eligibility to participate, vesting
(if applicable) and entitlement to benefits. The medical plan or plans
maintained by the Surviving Corporation after the Effective Time shall
waive all limitation as to preexisting conditions, exclusions and waiting
periods with respect to participation and coverage requirements applicable
to Former AAC Employees.
Section 5.8. Disposition of Benefit Plans.
As of the Closing Date, sponsorship of all AAC Benefit Plans
shall be assumed by American Apartment Communities III, L.P. ("AAC III"),
which shall thereafter be responsible for the administration of such plans.
AAC III may terminate any such plans, provided that it may, in its sole
discretion in the case of the AAC 401(k) Plan, transfer into the
corresponding plan or plans of the Surviving Corporation assets and
liabilities attributable to Former AAC Employees in a manner consistent
with Section 414(l) of the Code.
<PAGE>
Section 5.9. Company Board of Directors.
At the Effective Time, the Board of Directors of the Company
shall be expanded by two members, and the existing directors of the Company
shall elect James D. Klingbeil and Robert P. Freeman as directors to serve
until the annual meeting of shareholders of the Company in 1999. Any
shareholder of AAC of record on the Effective Date (the "Holder") who
Beneficially Owns on the record date for determination of shareholders of
the Company entitled to vote at any annual meeting of shareholders or other
meeting at which the Board of Directors is elected (the "Record Date")
shares of Preferred Stock or shares of Common Stock received upon
conversion of Preferred Stock ("Conversion Stock"), or a combination,
having an aggregate Nominal Value, as defined below, of $150,000,000, shall
have the right to nominate two persons for election to the Company's Board
of Directors. In the event that the Holder Beneficially Owns on the Record
Date shares of Preferred Stock or Conversion Stock having a Nominal Value
of less than $150,000,000 but more than $100,000,000, the Holder shall have
the right to nominate one person for election to the Company's Board of
Directors. The Holder shall have the right to nominate the replacement for
any director nominated by it who shall not, for any reason, serve the
entirety of his or her term. The Holder shall make its nominations in
consultation with the Company's incumbent Board of Directors, provided that
at any time at which the Holder shall have the right to nominate two
persons for election to the Company Board of Directors, if at such time
James D. Klingbeil is nominated for reelection by the incumbent Board of
Directors pursuant to Section 2 of the Exchange Agreement or otherwise, he
shall be deemed one of the persons nominated by the Holder. "Nominal Value"
shall be calculated by valuing each share of Preferred Stock at its
liquidation preference as set forth in the Company's Articles of
Incorporation and each share of Conversion Stock at the liquidation
preference of the number of shares of Preferred Stock, or fraction thereof,
from which such Common Stock was converted. No director nominated by a
Holder shall be required to resign from the Board of Directors solely as a
result of a decline in the Nominal Value of the shares Beneficially Owned
by the Holder at any time during the term of such director.
Section 5.10. Resignations.
On the Closing Date, AAC shall cause the directors and officers
of each of the AAC Subsidiaries to submit their resignations from such
positions, effective as of the Effective Time.
Section 5.11. Bulk Sales Compliance.
The AAC Entities shall indemnify the Company and the Company
Operating Partnership from and against any and all claims, losses or
liabilities arising under any applicable bulk sales law in connection with
the transactions contemplated in this Agreement and the Exchange Agreement.
Section 5.12. Financial Statements.
AAC shall cause to be prepared in a form acceptable to the
Company consolidated financial statements of AAC and of AACLP for the years
ended December 31, 1997 and 1996 (audited) and for the six months ended
June 30, 1998 and 1997 and, if the Closing Date occurs
<PAGE>
after September 30, 1998, the nine months ended September 30, 1998, except
as noted therein, in accordance with GAAP and fairly presenting, in
accordance with the applicable requirements of GAAP, the consolidated
financial position of AAC and AACLP, each taken as a whole, as of the dates
thereof and the consolidated results of operations and cash flows for the
periods then ended (subject, in the case of interim financial statements,
to normal year-end adjustments).
Section 5.13. Executive Clubs.
Prior to Closing, AAC shall cause AACLP to deal with the
properties known as the Arlington Executive Club and the Alexandria
Executive Club in a manner satisfactory to the Company in its sole
discretion.
Section 5.14. AAC Office Leases.
AAC shall or shall cause each other AAC Entity to transfer all
leases of which AAC or any AAC Entity is the lessee of commercial office
properties used in the conduct of their respective business.
ARTICLE VI
CONDITIONS PRECEDENT
Section 6.1. Conditions to Each Party's Obligation to Effect the
Merger.
The respective obligation of AAC and the Company to effect the
Merger and to consummate the other transactions contemplated hereby is
subject to the satisfaction or waiver on or prior to the Effective Time of
the following conditions:
(a) Approval of the Merger. This Agreement and the transactions
contemplated hereby shall have been approved by the shareholders of AAC in
the manner required by the Articles of Incorporation and Bylaws of AAC and
by applicable law.
(b) No Injunctions or Restraints. No temporary restraining order,
preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing
the consummation of the Merger or any of the other transactions
contemplated hereby shall be in effect.
(c) Certain Actions and Consents. All material actions by or in
respect of or filings with any Governmental Entity required for the
consummation of the Merger or any of the other transactions contemplated
hereby shall have been obtained or made.
(d) Consummation of Exchange Agreement. The Exchange Agreement in
the form attached as Exhibit B shall have been consummated
contemporaneously with the closing of the Merger.
<PAGE>
(e) Resolution of Rights of First Refusal. The Rights of First
Refusal shall have been exercised and closed, waived or otherwise finally
disposed of in a manner satisfactory to AAC and the Company.
Section 6.2. Conditions to Obligations of the Company.
The obligations of the Company to effect the Merger and to
consummate the other transactions contemplated hereby are further subject
to the following conditions, any one or more of which may be waived by the
Company:
(a) Representations and Warranties. The representations and
warranties of AAC set forth in this Agreement shall be true and correct as
of the Closing Date, as though made on and as of the Closing Date, except
to the extent the representation or warranty is expressly limited by its
terms to another date and except to the extent the representation or
warranty is rendered incorrect as a result of the reverse stock split
contemplated by Section 4.1(a), and the Company shall have received a
certificate signed on behalf of AAC by the chief executive officer or the
chief financial officer of AAC to such effect. This condition shall be
deemed satisfied notwithstanding any failure of a representation or
warranty of AAC to be true and correct as of the Closing Date if the
aggregate amount of AAC Economic Losses (as defined herein) that would
reasonably be expected to arise as a result of the failures of such
representations and warranties to be true and correct as of the Closing
Date does not exceed $8,000,000. "AAC Economic Losses" shall mean any and
all net damage, net loss, net liability or expense suffered by the AAC
Entities taken as a whole.
(b) Financial Statements AAC shall have provided to the Company
the consolidated financial statements of AAC and AACLP, as described in
Section 3.1( (f)), prepared in a form acceptable to the Company and in
accordance with GAAP (audited for each of the years ended December 31, 1997
and 1996) and in conformity with Regulation S-X of the SEC and otherwise
adequate in form and substance to enable the Company to comply with its
reporting obligations under the Exchange Act with respect to its
acquisition of AAC and AACLP.
(c) Performance of Obligations of AAC. AAC shall have performed
in all material respects, other than with respect to the obligation of AAC
described in Section 5.13, all obligations required to be performed by it
under this Agreement at or prior to the Effective Time, and the Company
shall have received a certificate to such effect signed on behalf of AAC by
the chief executive officer or the chief financial officer of AAC.
(d) Opinions Relating to REIT and Partnership Status. The Company
shall have received an opinion dated as of the Closing Date of Porter,
Wright, Morris & Arthur, based on certificates, letters and assumptions,
reasonably satisfactory to the Company, that (i) commencing with the year
ended December 31, 1996 through the Effective Date, AAC has been organized,
in conformity with the requirements for qualification as a REIT under the
Code, and its method of operation has enabled it to meet such requirements,
and (ii) AACLP has been since its year of formation, and each AAC
Subsidiary that is a partnership or limited liability company has been
since its formation, treated, for federal income tax purposes, as a
partnership
<PAGE>
and not as a corporation or an association taxable as a corporation (with
customary exceptions, assumptions and qualifications and based upon
customary representations).
(e) Opinions Relating to Merger. The Company shall have received
an opinion dated as of the Closing Date of Hunton & Williams, based on
certificates, letters and assumptions, reasonably satisfactory to the
Company, that (i) the Merger will be treated for Federal income tax
purposes as a reorganization within the meaning of Section 368(a) of the
Code, (ii) the Company and AAC will each be a party to that reorganization
within the meaning of Section 368(b) of the Code, and (iii) no gain or loss
will be recognized for federal income tax purposes by the Company or AAC,
on consummation of the Merger.
(f) Consents. All consents and waivers from third parties
necessary in connection with the consummation of the Merger and the other
transactions contemplated hereby shall have been obtained, other than such
consents and waivers from third parties, which, if not obtained, would not
result, individually or in the aggregate, in AAC Economic Losses of
$8,000,000 or more.
(g) Corporate Matters Opinion. The Company shall have received
the opinion of Gibson, Dunn & Crutcher LLP ("GD&C"), dated as of the
Closing Date, as to such customary matters as the Company may reasonably
request, such opinion to be reasonably satisfactory to the Company.
(h) Comfort Letter. The Company shall have received "comfort"
letters of Arthur Andersen LLP, AAC's independent public accountants, dated
and delivered as of the Closing Date, and addressed to the Company, in form
and substance reasonably satisfactory to the Company and reasonably
customary in scope and substance for letters delivered by independent
public accountants in connection with transactions such as those
contemplated by this Agreement in accordance with Statement on Auditing
Standards Number 72 including a review in accordance with Statement on
Auditing Standards Number 71 of AAC's 1998 interim unaudited financial
statements.
(i) Investment Agreements. Each shareholder of AAC who receives
Merger Consideration including shares of Preferred Stock shall have
executed and delivered to the Company an investment agreement (the
"Investment Agreement") in substantially the form of Exhibit C.
(j) No Material Adverse Change. From the date of this Agreement
through the Effective Time, no change on the business, properties, assets
financial condition or results of operations of AAC, the AAC Subsidiaries
and/or AACLP shall have occurred that would have or would be reasonably
likely to have an AAC Material Adverse Effect.
(k) Repayment of Indebtedness. All indebtedness of AAC
represented by its promissory note dated December 15, 1997, in the original
principal amount of $10,250,000, payable to Chase Manhattan Bank, as agent
for various banks ("Chase"), and its promissory note dated December 23,
1997, in the original principal amount of $11,900,000, payable to Chase,
shall have been repaid.
<PAGE>
(l) Surrender of Certificates. Any and all certificates
representing shares of AAC Common Stock and AAC Preferred Stock held by any
holder of more than five shares of AAC Common Stock or five shares of AAC
Preferred Stock shall have been surrendered to the Company.
(m) Reverse Stock Split. AAC shall have completed the reverse
stock split contemplated by Section 4.1(a).
Section 6.3. Conditions to Obligation of AAC.
The obligation of AAC to effect the Merger and to consummate the
other transactions contemplated hereby is further subject to the following
conditions, any one or more of which may be waived by AAC:
(a) Representations and Warranties. The representations and
warranties of the Company set forth in this Agreement shall be true and
correct as of the Closing Date, as though made on and as of the Closing
Date, except to the extent the representation or warranty is expressly
limited by its terms to another date, and AAC shall have received a
certificate signed on behalf of the Company by the chief executive officer
or the chief financial officer of the Company to such effect. This
condition shall be deemed satisfied notwithstanding any failure of a
representation or warranty of the Company to be true and correct as of the
Closing Date if the aggregate amount of Company Economic Losses (as defined
herein) that would reasonably be expected to arise as a result of the
failures of such representations and warranties to be true and correct as
of the Closing Date does not exceed $30,000,000. "Company Economic Losses,"
as used in this Section 6.3, shall mean any and all net damage, net loss,
net liability or expense suffered by the Company or the Company
Subsidiaries taken as a whole.
(b) Performance of Obligations of the Company. The Company shall
have performed in all material respects all obligations required to be
performed by it under this Agreement at or prior to the Effective Time, and
AAC shall have received a certificate of the Company signed on behalf of
the Company by the chief executive officer or the chief financial officer
of such party to such effect.
(c) Opinions Relating to REIT and Partnership Status. AAC and the
limited partners of AACLP shall have received an opinion dated as of the
Closing Date of Hunton & Williams, based on certificates, letters and
assumptions, reasonably satisfactory to AAC, that (i) commencing with the
taxable year ended December 31, 1993, the Company has been organized and
has operated, and its proposed method of operation following the Merger
will permit it to continue to be organized and operated, in conformity with
the requirements for qualification as a REIT under the Code and (ii) the
Company Operating Partnership has been during and since 1995, and continues
to be, treated for federal income tax purposes as a partnership and not as
a corporation or association taxable as a corporation (with customary
exceptions, assumptions and qualifications and based upon customary
representations).
(d) Opinion Related to the Merger. AAC shall have received an
opinion dated as of the Closing Date of GD&C, based on certificates,
letters and assumptions, reasonably
<PAGE>
satisfactory to AAC, that (i) the Merger will be treated for Federal income
tax purposes as a reorganization within the meaning of Section 368(a) of
the Code, (ii) the Company and AAC will each be a party to that
reorganization within the meaning of Section 368(b) of the Code, (iii) no
gain or loss will be recognized for federal income tax purposes by the
Company or AAC on consummation of the Merger and (iv) the exchange in the
Merger of Preferred Stock (including any fractional share interest) and
cash for capital stock of AAC will give rise to the recognition of gain
(but not loss) to the shareholders of AAC with respect to such exchange to
the extent of cash received in such exchange.
(e) Consents. All consents and waivers from third parties
necessary in connection with the consummation of the other transactions
contemplated hereby shall have been obtained, other than such consents and
waivers from third parties, which, if not obtained, would not result,
individually or in the aggregate, in Company Economic Losses of $30,000,000
or more.
(f) Corporate Matters Opinion. AAC shall have received the
opinion of Hunton & Williams, dated as of the Closing Date, as to such
customary matters as AAC may reasonably request, such opinion to be
reasonably satisfactory to AAC.
(g) Investment Agreements. The Company shall have executed and
delivered investment agreements with the shareholders of AAC who receiver
Merger Consideration including shares of Preferred Stock.
(h) No Material Adverse Change. From the date of this Agreement
through the Effective Time, no change on the business, properties, assets
financial condition or results of operations of the Company and/or the
Company Operating Partnership has occurred that would have or would be
reasonably likely to have a Company Material Adverse Effect.
(i) Listing. The Company shall have caused the Common Stock
issuable upon the conversion of the Company Series D Preferred Stock and
the transactions contemplated by the Exchange Agreement, respectively, to
be approved for listing on the NYSE, subject to official notice of
issuance.
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
Section 7.1. Termination.
This Agreement may be terminated at any time prior to the filing
of the Articles of Merger for each Merger with the SDAT and the VSCC:
(a) by mutual written consent duly authorized by the respective
Boards of Directors of the Company and AAC;
<PAGE>
(b) by the Company, upon a material breach of any representation,
warranty, covenant or agreement on the part of AAC set forth in this
Agreement, or if any representation or warranty of AAC shall have become
untrue, in either case such that the conditions set forth in Section 6.2(
(a)) or Section 6.2( (c)), as the case may be, would be incapable of being
satisfied by December 31, 1998 (as otherwise extended);
(c) by AAC, upon a material breach of any representation,
warranty, covenant or agreement on the part of the Company set forth in
this Agreement, or if any representation or warranty of the Company shall
have become untrue, in either case such that the conditions set forth in
Section 6.3( (a)) or Section 6.3( (b)) as the case may be, would be
incapable of being satisfied by December 31, 1998 (as otherwise extended);
(d) by either the Company or AAC, if any judgment, injunction,
order, decree or action by any Governmental Entity of competent authority
preventing the consummation of the Merger shall have become final and
nonappealable; and
(e) by either the Company or AAC, if the Merger shall not have
been consummated before December 31, 1998; provided, however, that a party
that has willfully and materially breached a representation, warranty or
covenant of such party set forth in this Agreement shall not be entitled to
exercise its right to terminate under this Section 7.1( (e)).
Section 7.2. [LEFT BLANK INTENTIONALLY]
Section 7.3. Effect of Termination.
In the event of termination of this Agreement by either AAC or
the Company as provided in Section 7.1, this Agreement shall forthwith
become void and have no effect, without any liability or obligation on the
part of the Company, or AAC, other than the last sentence of Section 5.1,
Section 5.5, this Section 7.3, Sections 8.2, 8.3, 8.5 through 8.10 and
Article IX and except to the extent that such termination results from a
willful breach by a party of any of its representations, warranties,
covenants or agreements set forth in this Agreement.
Section 7.4. Amendment.
At any time prior to the filing of the Articles of Merger with
the SDAT and the VSCC, this Agreement may be amended by the parties in
writing by action of their respective Boards of Directors, provided that
any such amendment approved by the Board of Directors of AAC after this
Agreement has been approved by the stockholders of AAC must also be
approved by such stockholders if such amendment would modify materially the
terms of Section 2.1 or modify any other provision of this Agreement so as
to adversely affect any class of shares of AAC. The parties agree to amend
this Agreement in the manner provided in the immediately preceding sentence
to the extent required to (a) continue the status of the parties as REITs
or (b) preserve the Merger as a tax-free reorganization under Section 368
of the Code.
<PAGE>
Section 7.5. Extension; Waiver.
At any time prior to the Effective Time, each of AAC and the
Company may (a) extend the time for the performance of any of the
obligations or other acts of the other party, (b) waive any inaccuracies in
the representations and warranties of the other party contained in this
Agreement or in any document delivered pursuant to this Agreement or (c)
subject to the proviso of Section 7.4, waive compliance with any of the
agreements or conditions of the other party contained in this Agreement.
Any agreement on the part of a party to any such extension or waiver shall
be valid only if set forth in an instrument in writing signed on behalf of
such party. The failure of any party to this Agreement to assert any of its
rights under this Agreement or otherwise shall not constitute a waiver of
those rights.
ARTICLE VIII
GENERAL PROVISIONS
Section 8.1. Nonsurvival of Representations and Warranties.
None of the representations and warranties in this Agreement or
in any instrument delivered pursuant to this Agreement shall survive the
Effective Time. This Section 8.1 shall not limit any covenant or agreement
of the parties which by its terms contemplates performance after the
Effective Time.
Section 8.2. Notices.
All notices, requests, claims, demands and other communications
under this Agreement shall be in writing and shall be deemed given if
delivered personally, sent by overnight courier (providing proof of
delivery) to the parties or sent by telecopy (providing confirmation of
transmission) at the following addresses or telecopy numbers (or at such
other address or telecopy number for a party as shall be specified by like
notice):
(a) if to the Company, to:
UNITED DOMINION REALTY TRUST, INC.
10 South Sixth Street
Richmond, VA 23219-3802
Attn: John P. McCann, President
Fax: (804) 343-1912
<PAGE>
with copies to:
UNITED DOMINION REALTY TRUST, INC.
10 South Sixth Street
Richmond, VA 23219-3802
Attn: Katheryn E. Surface, Senior Vice President
and General Counsel
Fax: (804) 788-4607
and
HUNTON & WILLIAMS
951 East Byrd Street
Richmond, VA 23219-4074
Attn: James W. Featherstone, III
Fax: (804) 788-8212
(b) if to AAC, to:
AMERICAN APARTMENT COMMUNITIES II, INC.
615 Front Street
San Francisco, CA 94111
Attn: James D. Klingbeil, Chief Executive Officer
Fax: (415) 362-5805
with copies to:
AMERICAN APARTMENT COMMUNITIES II, INC.
21 West Broad Street, 11th Floor
Columbus, OH 43215
Attn: George R. Nickerson, Esq., General Counsel
Fax: (614) 220-8912
and
GIBSON, DUNN & CRUTCHER LLP
333 South Grand Avenue
Los Angeles, CA 90071
Attn: Kenneth M. Doran, Esq.
Fax: (213) 229-7520
Section 8.3. Interpretation.
When a reference is made in this Agreement to a Section, such
reference shall be to a Section of this Agreement unless otherwise
indicated. The table of contents and headings contained in this Agreement
are for reference purposes only and shall not affect in any way the
<PAGE>
meaning or interpretation of this Agreement. Whenever the words "include,"
"includes" or "including" are used in this Agreement, they shall be deemed
to be followed by the words "without limitation."
Section 8.4. Counterparts.
This Agreement may be executed in one or more counterparts, all
of which shall be considered one and the same agreement and shall become
effective when one or more counterparts have been signed by each of the
parties and delivered to the other parties.
Section 8.5. Entire Agreement; Third Party Beneficiaries.
This Agreement, the Confidentiality Agreement and the other
agreements entered into in connection with the transactions contemplated
hereby (a) constitute the entire agreement and supersede all prior
agreements and understandings, both written and oral, between the parties
with respect to the subject matter of this Agreement and (b) except for the
provisions of Article II and Section 5.8 are not intended to confer upon
any person other than the parties hereto any rights or remedies; provided,
however, that AACLP and its Limited Partners are intended to be third party
beneficiaries of the representations, warranties and covenants of the
Company contained herein.
Section 8.6. Governing Law.
This Agreement shall be governed by, and construed in accordance
with, the laws of the Commonwealth of Virginia, regardless of the laws that
might otherwise govern under applicable principles of conflict of laws
thereof.
Section 8.7. Assignment.
Neither this Agreement nor any of the rights, interests or
obligations under this Agreement shall be assigned or delegated, in whole
or in part, by operation of law or otherwise by any of the parties without
the prior written consent of the other parties. Subject to the preceding
sentence, this Agreement will be binding upon, inure to the benefit of, and
be enforceable by, the parties and their respective successors and assigns.
Section 8.8. Enforcement.
The parties agree that irreparable damage would occur in the
event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce
specifically the terms and provisions of this Agreement in any court of the
United States located in the State of Maryland or in any Maryland state
court, this being in addition to any other remedy to which they are
entitled at law or in equity. In addition, each of the parties hereto (a)
consents to submit itself (without making such submission exclusive) to the
personal jurisdiction of any federal court located in the State of Maryland
or any Maryland state court in the event any dispute arises out
<PAGE>
of this Agreement or any of the Transactions contemplated by this Agreement
and (b) agrees that it will not attempt to deny or defeat such personal
jurisdiction by motion or other request for leave from any such court.
Section 8.9. Severability.
Any term or provision of this Agreement which is invalid or
unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of
this Agreement or affecting the validity or enforceability of any of the
terms or provisions of this Agreement in any other jurisdiction. If any
provision of this Agreement is so broad as to be unenforceable, the
provision shall be interpreted to be only so broad as is enforceable.
Section 8.10. Non-Recourse.
This Agreement shall not create or be deemed to create or permit
any personal liability or obligation on the part of any direct or indirect
shareholder of AAC or the Company, or any of their respective officers,
directors, employees, agents or representatives.
ARTICLE IX
CERTAIN DEFINITIONS
Section 9.1. Certain Definitions.
For purposes of this Agreement:
An "affiliate" of any person means another person that directly
or indirectly, through one or more intermediaries, controls, is controlled
by, or is under common control with, such first person.
"AAC Disclosure Letter" means the letter dated September 10, 1998
previously delivered to the Company by AAC disclosing certain information
in connection with this Agreement.
"Beneficially Own" shall be determined in accordance with Rule
13d-3 of the SEC under the Exchange Act.
"Company Disclosure Letter" means the letter dated September 10,
1998 previously delivered to AAC by the Company disclosing certain
information in connection with this Agreement.
"Company Series D Preferred Stock" means the Series D Cumulative
Convertible Redeemable Preferred Stock, no par value per share, issuable to
shareholders of AAC in the Merger.
<PAGE>
"Company OP Units" means units of partnership interest in the
Company Operating Partnership.
"Person" means an individual, corporation, partnership, limited
liability company, joint venture, association, trust, unincorporated
organization or other entity.
"Subsidiary" of any person means any corporation, partnership,
limited liability company, joint venture or other legal entity 50% or more
of the voting stock or other equity interests of which are owned by such
person (either directly or through or together with another Subsidiary of
such person).
<PAGE>
WITNESS WHEREOF, the Company and AAC have caused this Agreement
to be signed by their respective officers thereunto duly authorized, all as
of the date first written above.
UNITED DOMINION REALTY TRUST, INC.
By:/s/ John P. McCann
--------------------------------
Name: John P. McCann
Title: President
AMERICAN APARTMENT COMMUNITIES II, INC.
By:/s/ James D. Klingbeil
--------------------------------
Name: James D. Klingbeil
Title: Chief Executive Officer
LF Strategic Realty Investors, L.P. joins in this Agreement and
Plan of Merger for the purpose of evidencing its approval of this Agreement
and Plan of Merger as the majority stockholder of American Apartment
Communities II, Inc. and agrees that it will vote all of its shares of
American Apartment Communities II, Inc. in favor of this Agreement and Plan
of Merger at any meeting of stockholders or pursuant to any request for
written consent.
LF STRATEGIC REALTY INVESTORS, L.P.
By: /s/ Robert P. Freeman
--------------------------------
Name: Robert P. Freeman
Title: Principal
(d) Series D Cumulative Convertible Preferred Stock.
(1) Designation and Number. A series of the preferred stock,
designated the "Series D Cumulative Convertible Redeemable
Preferred Stock" (the "Series D Preferred"), is hereby
established. The number of shares of the Series D Preferred
shall be 8,000,000.
(2) Relative Seniority. In respect of rights to receive
dividends and to participate in distributions or payments in
the event of any liquidation, dissolution or winding up of
the corporation, the Series D Preferred shall rank on a
parity with the Series A Preferred, the Series B Preferred
and the Series C Preferred and any other class or series of
capital stock of the corporation not constituting Junior
Stock (collectively, "Parity Stock"), and senior to the
common stock and any other class or series of capital stock
of the corporation ranking, as to dividends and upon
liquidation, junior to the Series D Preferred (collectively,
"Junior Stock").
(3) Dividends.
(A) The holders of the then outstanding Series D
Preferred shall be entitled to receive, when and as declared
by the Board of Directors out of any funds legally available
therefor, cumulative preferential cash dividends at the rate
of 7.5% of the Liquidation Preference of the Series D
Preferred (equivalent to $1.875 per share) per annum
(subject to adjustment as provided in subparagraph (F) of
this paragraph (3)), payable quarterly in arrears in cash on
the last day, or the next succeeding Business Day, of
January, April, July and October in each year, beginning
November 2, 1998 [February 1, 1999, if the Issue Date is
between October 16, 1998, and January 15, 1999], 1998 (each
such day being hereinafter called a "Dividend Payment Date"
and each period beginning on the day next following a
Dividend Payment Date and ending on the next following
Dividend Payment Date being hereinafter called a "Dividend
Period"), to shareholders of record at the close of business
on the Friday occurring between the tenth and fifteenth days
of the calendar month in which the applicable Dividend
Payment Date falls on or such date as shall be fixed by the
Board of Directors at the time of declaration of the
dividend (the "Dividend Record Date"), which shall be not
less than 10 nor more than 30 days preceding the Dividend
Payment Date. The amount of any dividend payable for the
initial Dividend Period and for any other partial Dividend
Period shall be computed on the basis of a 360-day year
consisting of twelve 30-day months. Dividends on the shares
of Series D Preferred shall accrue and be cumulative from
and including the date of original issue thereof (the "Issue
Date"), whether or not (i) the corporation has earnings,
(ii) dividends on such shares are declared or (iii) on any
Dividend Payment Date there shall be funds legally available
for the payment of such dividends. When dividends are not
paid in full upon the shares of Series D Preferred and the
shares of any other series of preferred stock ranking on a
parity
<PAGE>
as to dividends with the Series D Preferred (or a sum
sufficient for such full payment is not set apart therefor),
all dividends declared upon shares of Series D Preferred and
any other series of preferred stock ranking on a parity as
to dividends with the Series D Preferred shall be declared
pro rata so that the amount of dividends declared per share
on the Series D Preferred and such other series of preferred
stock shall in all cases bear to each other the same ratio
that accrued dividends per share on the shares of Series D
Preferred and such other series of preferred stock bear to
each other. "Business Day" shall mean any day, other than a
Saturday or Sunday, that is neither a legal holiday nor a
day on which banking institutions in New York City, New York
are authorized or required by law, regulation or executive
order to close.
(B) Except as provided in subparagraph (A) of this
paragraph (3), unless full cumulative dividends on the
Series D Preferred have been or contemporaneously are
declared and paid or declared and a sum sufficient for the
payment thereof set apart for payment on the Series D
Preferred for all past dividend periods and the then current
dividend period, no dividends (other than in Junior Stock)
shall be declared or paid or set aside for payment or other
distribution or shall be declared or made upon any Parity
Stock or Junior Stock, nor shall any Junior Stock or any
Parity Stock be redeemed, purchased or otherwise acquired
for any consideration (or any moneys be paid to or made
available for a sinking fund for the redemption of any
shares of Junior Stock or Parity Stock) by the corporation
or any subsidiary of the corporation (except by conversion
into or exchange for Junior Stock).
(C) Any dividend payment made on shares of the Series D
Preferred shall first be credited against the earliest
accrued but unpaid dividend due with respect to such shares
which remains payable.
The amount of any dividends accrued on any shares of
Series D Preferred at any Dividend Payment Date shall be the
amount of any unpaid dividends accumulated thereon, to and
including such Dividend Payment Date, whether or not earned
or declared, and the amount of dividends accrued on any
shares of Series D Preferred at any date other than a
Dividend Payment Date shall be equal to the sum of the
amount of any unpaid dividends accumulated thereon, to and
including the last preceding Dividend Payment Date, whether
or not earned or declared, plus an amount calculated on the
basis of the annual dividend rate for the period after such
last preceding Dividend Payment Date to and including the
date as of which the calculation is made, based on a 360-day
year of twelve 30-day months.
Accrued but unpaid dividends on the Series D Preferred
will not bear interest. Holders of the Series D Preferred
will not be entitled to any dividends in excess of full
cumulative dividends as described above.
<PAGE>
(D) No dividends on shares of Series D Preferred shall
be declared by the Board of Directors of the corporation or
paid or set apart for payment by the corporation at such
time as the terms and provisions of any agreement of the
corporation, including any agreement relating to its
indebtedness, prohibits such declaration, payment or setting
apart for payment or provides that such declaration, payment
or setting apart for payment would constitute a breach
thereof or a default thereunder, or if such declaration or
payment shall be restricted or prohibited by law.
(E) Except as provided in these Articles, the Series D
Preferred shall not be entitled to participate in the
earnings or assets of the corporation.
(F) In the event that the per share cash dividends
declared on the common stock during any Dividend Period (the
"Current Common Dividend") shall be greater or less than the
per share cash dividends declared on the common stock during
the immediately preceding Dividend Period (the "Prior Common
Dividend"), then the dividend rate of the Series D Preferred
(as it may have previously been adjusted pursuant to this
subparagraph (F)) shall be automatically adjusted in the
proportion that the Current Common Dividend bears to the
Prior Common Dividend, such adjustment to be effective for
the Dividend Period during which the Current Common Dividend
is paid and all subsequent Dividend Periods until again
adjusted in accordance with this paragraph; provided,
however, that in no event shall the adjusted dividend rate
of the Series D Preferred be less than 7.5% of the
Liquidation Preference of the Series D Preferred per annum.
No adjustment pursuant to this subparagraph (F) shall be
made on account of any special common stock dividend or
distribution declared for the purpose of assuring continued
qualification of the corporation as a "real estate
investment trust" under the Code.
(4) Liquidation Rights.
(A) Upon the voluntary or involuntary dissolution,
liquidation or winding up of the corporation, the holders of
shares of the Series D Preferred then outstanding shall be
entitled to receive and to be paid out of the assets of the
corporation legally available for distribution to its
shareholders, before any distribution shall be made to the
holders of common stock or any other capital stock of the
corporation ranking junior to the Series D Preferred upon
liquidation, a liquidation preference of $25.00 per share
(the "Liquidation Preference"), plus accrued and unpaid
dividends thereon to the date of payment.
(B) After the payment to the holders of the shares of
the Series D Preferred of the full Liquidation Preference
provided for in this paragraph (4), the holders of the
Series D Preferred as such shall have no right or claim to
any of the remaining assets of the corporation.
<PAGE>
(C) If, upon any voluntary or involuntary dissolution,
liquidation, or winding up of the corporation, the amounts
payable with respect to the Liquidation Preference and any
other shares of stock of the corporation ranking as to any
such distribution on a parity with the shares of the Series
D Preferred are not paid in full, the holders of the shares
of the Series D Preferred and of such other shares will
share ratably in any such distribution of assets of the
corporation in proportion to the full respective liquidation
preferences to which they are entitled.
(D) Neither the sale, lease, transfer or conveyance of
all or substantially all the property or business of the
corporation, nor the merger or consolidation of the
corporation into or with any other corporation or the merger
or consolidation of any other corporation into or with the
corporation, shall be deemed to be a dissolution,
liquidation or winding up, voluntary or involuntary, for the
purposes of this paragraph (4).
(5) Redemption.
(A) Right of Optional Redemption. The Series D
Preferred is not redeemable prior to the fifth anniversary
of the Issue Date. On and after the fifth anniversary of the
Issue Date, the corporation may, at its option, redeem at
any time all or, from time to time, part of the Series D
Preferred at a price per share (the "Series D Redemption
Price"), payable in cash, of $25.00, together with all
accrued and unpaid dividends to and including the date fixed
for redemption (the "Series D Redemption Date"), without
interest; provided, however, that the corporation may not
redeem any Series D Preferred pursuant to this paragraph (5)
unless the Current Market Price of the common stock on each
of the 20 consecutive Trading Days immediately preceding the
Series D Redemption Date shall at least equal the then
current Conversion Price, as defined in paragraph (7).
"Current Market Price" of the common stock or any other
class of capital stock or other security of the corporation
or any other issuer for any day shall mean the last reported
sale price, regular way, on such day or, if no sale takes
place on such day, the average of the reported closing bid
and asked prices on such day, regular way, in either case as
reported on the New York Stock Exchange ("NYSE") or, if such
security is not listed or admitted for trading on the NYSE,
on the principal national securities exchange on which such
security is listed or admitted for trading or, if not listed
or admitted for trading on any national securities exchange,
on the NASDAQ National Market or, if such security is not
quoted on the NASDAQ National Market, the average of the
closing bid and asked prices on such day in the
over-the-counter market as reported by NASDAQ or, if bid and
asked prices for such security on such day shall not have
been reported through NASDAQ, the average of the bid and
asked prices on such day as furnished by any NYSE member
firm regularly making a market in such security and selected
for such purpose by the Board of Directors. "Trading Day" in
respect of any security shall mean any day on which such
security is traded on the NYSE, or if
<PAGE>
such security is not listed or admitted for trading on the
NYSE, on the principal national securities exchange on which
such security is listed or admitted for trading, or if not
listed or admitted for trading on any national securities
exchange, on the NASDAQ National Market or, if such security
is not quoted on the NASDAQ National Market, in the
applicable securities market in which the security is
traded.
In case of redemption of less than all shares of Series
D Preferred at the time outstanding, the shares of Series D
Preferred to be redeemed shall be selected pro rata from the
holders of record of such shares in proportion to the number
of shares of Series D Preferred held by such holders (as
nearly as may be practicable without creating fractional
shares) or by any other equitable method determined by the
corporation.
(B) Procedures for Redemption.
(i) Notice of any redemption will be mailed by the
corporation, postage prepaid, not less than 30 nor more than
60 days prior to the Series D Redemption Date, addressed to
the respective holders of record of the Series D Preferred
to be redeemed at their respective addresses as they appear
on the stock transfer records of the corporation. No failure
to give such notice or any defect therein or in the mailing
thereof shall affect the validity of the proceedings for the
redemption of any Series D Preferred except as to the holder
to whom the corporation has failed to give notice or except
as to the holder to whom notice was defective. In addition
to any information required by law, such notice shall state:
(a) the Series D Redemption Date; (b) the Series D
Redemption Price; (c) the number of shares of Series D
Preferred to be redeemed; (d) the place or places where
certificates for such shares are to be surrendered for
payment of the Series D Redemption Price; and (e) that
dividends on the shares to be redeemed will cease to
accumulate on the Series D Redemption Date. If less than all
the shares of Series D Preferred held by any holder are to
be redeemed, the notice mailed to such holder shall also
specify the number of shares of Series D Preferred held by
such holder to be redeemed.
(ii) If notice of redemption of any shares of Series D
Preferred has been mailed in accordance with section (i) of
subparagraph (B) of this paragraph (5) above and provided
that on or before the Series D Redemption Date specified in
such notice all funds necessary for such redemption shall
have been irrevocably set aside by the corporation, separate
and apart from its other funds in trust for the benefit of
any holders of the shares of Series D Preferred so called
for redemption, so as to be, and to continue to be available
therefor, then, from and after the Series D Redemption Date,
dividends on such shares of Series D Preferred shall cease
to accrue, and such shares shall no longer be deemed to be
outstanding and shall not have the status of Series D
Preferred and all rights of the holders thereof as
shareholders of the corporation (except the right to receive
<PAGE>
the Series D Redemption Price) shall terminate. Upon
surrender, in accordance with said notice, of the
certificates for any shares of Series D Preferred so
redeemed (properly endorsed or assigned for transfer, if the
corporation shall so require and the notice shall so state),
such shares of Series D Preferred shall be redeemed by the
corporation at the Series D Redemption Price. In case less
than all the shares of Series D Preferred represented by any
such certificate are redeemed, a new certificate or
certificates shall be issued representing the unredeemed
shares of Series D Preferred without cost to the holder
thereof.
(iii) The deposit of funds with a bank or trust company
for the purpose of redeeming Series D Preferred shall be
irrevocable except that:
(a) the corporation shall be entitled to receive
from such bank or trust company the interest or other
earnings, if any, earned on any money so deposited in
trust, and the holders of any shares redeemed shall
have no claim to such interest or other earnings; and
(b) any balance of moneys so deposited by the
corporation and unclaimed by the holders of the Series
D Preferred entitled thereto at the expiration of two
years from the applicable Series D Redemption Date
shall be repaid, together with any interest or other
earnings earned thereon, to the corporation, and after
any such repayment, the holders of the shares entitled
to the funds so repaid to the corporation shall look
only to the corporation for payment without interest or
other earnings.
(C) Limitations on Redemption
(i) The Series D Redemption Price (other than the
portion thereof consisting of accrued and unpaid dividends)
shall be payable solely out of the sale proceeds of other
capital stock of the corporation and from no other source.
(ii) Unless full cumulative dividends on all shares of
Series D Preferred shall have been or contemporaneously are
declared and paid or declared and a sum sufficient for the
payment thereof set apart for payment for all past Dividend
Periods and the then current Dividend Period, no Series D
Preferred shall be redeemed (unless all outstanding shares
of Series D Preferred are simultaneously redeemed) or
purchased or otherwise acquired directly or indirectly by
the corporation (except by exchange for Junior Stock);
provided, however, that the foregoing shall not prevent the
redemption of Series D Preferred pursuant to Article 4 or
the purchase or acquisition of Series D Preferred pursuant
to a purchase or exchange offer made on the same terms to
holders of all outstanding shares of Series D Preferred.
(iii) The corporation shall not redeem in any period of
12 consecutive months a number of shares of Series D
Preferred having an aggregate Liquidation
<PAGE>
Preference of more than $100,000,000, provided that this
restriction shall lapse and be of no further force or effect
if in any such period any holder of record of such number of
shares of Series D Preferred or shares of common stock
issued on conversion of such number of shares of Series D
Preferred shall transfer beneficial ownership of such number
of shares of Series D Preferred or such common stock, or a
combination of shares of Series D Preferred and such common
stock representing such number of shares of Series D
Preferred, except (a) in a distribution of such shares of
Series D Preferred and/or shares of common stock to the
security holders of such holder of record or (b) in a bona
fide pledge to a bank or other financial institution to
secure obligations for borrowed money, or as margin
collateral, or upon foreclosure or private sale under such
pledge.
(D) Rights to Dividends on Shares Called for
Redemption. If the Series D Redemption Date is after a
Dividend Record Date and before the related Dividend Payment
Date, the dividend payable on such Dividend Payment Date
shall be paid to the holder in whose name the shares of
Series D Preferred to be redeemed are registered at the
close of business on such Dividend Record Date
notwithstanding the redemption thereof between such Dividend
Record Date and the related Dividend Payment Date or the
corporation's default in the payment of the dividend due.
Except as provided in this paragraph (5), the corporation
will make no payment or allowance for unpaid dividends,
whether or not in arrears, on called Series D Preferred.
(6) Voting Rights. Except as required by the Virginia Stock
Corporation Act and except as otherwise provided in this
paragraph (6), the holders of the Series D Preferred shall
not be entitled to vote at any meeting of the shareholders
for election of directors or for any other purpose or
otherwise to participate in any action taken by the
corporation or the shareholders thereof, or to receive
notice of any meeting of shareholders.
(A) Whenever dividends on any shares of Series D
Preferred shall be in arrears for any Dividend Period, the
holders of such shares of Series D Preferred shall have all
rights to notices and voting entitlements of holders of
common stock under the Virginia Stock Corporation Act and
these Articles, and the Series D preferred and the common
stock shall be a single voting group, until all dividends
accumulated on such shares of Series D Preferred for all
past Dividend Periods and the then current Dividend Period
shall have been fully paid or declared and a sum sufficient
for the payment thereof set aside for payment.
(B) So long as any shares of Series D Preferred remain
outstanding, the corporation shall not, without the
affirmative vote of the holders of at least a majority of
the shares of the Series D Preferred outstanding at the
time, (i) authorize or create, or increase the authorized or
issued amount of, any class or series of capital stock
ranking prior to the Series D Preferred with respect to
payment of dividends or the distribution of assets upon
liquidation, dissolution or
<PAGE>
winding up or reclassify any authorized capital stock of the
corporation into any such shares, or create, authorize or
issue any obligation or security convertible into or
evidencing the right to purchase any such shares; or (ii)
amend, alter or repeal the provisions of these Articles,
whether by merger, consolidation or otherwise, so as to
materially and adversely affect any right, preference,
privilege or voting power of the Series D Preferred or the
holders thereof; provided, however, that any increase in the
amount of the authorized preferred stock or the creation or
issuance of any other series of preferred stock, or any
increase in the amount of authorized shares of such series,
in each case ranking on a parity with or junior to the
Series D Preferred with respect to payment of dividends or
the distribution of assets upon liquidation, dissolution or
winding up, shall not be deemed to materially and adversely
affect such rights, preferences, privileges or voting
powers.
(C) The foregoing voting provisions will not apply if,
at or prior to the time when the act with respect to which
such vote would otherwise be required shall be effected, all
outstanding shares of Series D Preferred shall have been
redeemed or called for redemption upon proper notice and
sufficient funds shall have been deposited in trust to
effect such redemption.
(7) Conversion of Series D Preferred.
(A) As used in this paragraph (7), the following terms
shall have the indicated meanings:
"Adjustment Factor," for purposes of any determination
provided for in this paragraph (7) requiring reference to
the Adjustment Factor, shall equal the Conversion Price in
effect on the determination date divided by $16.25.
"Conversion Price" shall mean the conversion price per
share of common stock at which the Series D Preferred is
convertible into common stock, as such Conversion Price may
be adjusted pursuant to subparagraph (E) of this paragraph
(7). The initial Conversion Price shall be $16.25.
"Conversion Rate" shall mean the rate at which the
Series D Preferred is convertible into common stock, as such
Conversion Rate may be adjusted pursuant to subparagraph (E)
of this paragraph (7). The initial Conversion Rate shall be
1.5385 shares of common stock for each share of Series D
Preferred.
"Fair Market Value," in the case of any security or
property not having a market value ascertainable by
reference to any quotation medium or other objective source,
shall mean the fair market value thereof as determined in
good faith by the Board of Directors, which determination
shall be final, conclusive and binding on all persons
<PAGE>
"Transfer Agent" shall mean ChaseMellon Shareholder
Services, LLC, or such other agent or agents of the
corporation as may be designated by the Board of Directors
as the transfer agent for the Series D Preferred.
(B) Subject to and upon compliance with the provisions
of this paragraph (7), a holder of shares of Series D
Preferred shall have the right (the "Conversion Right"),at
his option, at any time and from time to time, to convert
such shares into the number of shares of fully paid and
nonassessable common stock obtained by dividing the
aggregate Liquidation Preference of such shares of Series D
Preferred by the Conversion Price (as in effect at the time
and on the date provided for in the last paragraph of
subparagraph (C) of this paragraph (7)) by surrendering such
shares to be converted, such surrender to be made in the
manner provided in subparagraph (C) of this paragraph (7);
provided, however, that the right to convert shares called
for redemption pursuant to paragraph (5) shall terminate at
the close of business on the Series D Redemption Date fixed
for such redemption, unless the corporation shall default in
making payment of any amounts payable upon such redemption
under paragraph (5).
(C) In order to exercise the Conversion Right, the
holder of each share of Series D Preferred to be converted
shall surrender the certificate evidencing such share, duly
endorsed or assigned to the corporation or in blank, at the
office of the Transfer Agent, accompanied by written notice
to the corporation that the holder thereof elects to convert
such share of Series D Preferred. Unless the certificate or
certificates for shares of common stock issuable on
conversion are to be registered in the same name as the name
in which such certificate for Series D Preferred is
registered, each certificate surrendered for conversion
shall be accompanied by instruments of transfer, in form
satisfactory to the corporation, duly executed by the holder
or such holder's duly authorized agent and an amount
sufficient to pay any transfer or similar tax (or evidence
reasonably satisfactory to the corporation demonstrating
that such taxes have been paid).
Holders of Series D Preferred at the close of business
on a Dividend Record Date shall be entitled to receive the
dividend payable on the corresponding Dividend Payment Date
notwithstanding the conversion thereof following such
Dividend Record Date and prior to such Dividend Payment
Date. However, shares of Series D Preferred surrendered for
conversion during the period beginning with the close of
business on any Dividend Record Date and ending with the
opening of business on the corresponding Dividend Payment
Date (except shares converted after the issuance of a notice
of redemption specifying a Series D Redemption Date
occurring within such period or coinciding with such
Dividend Payment Date, such shares being entitled to such
dividend on the Dividend Payment Date) must be accompanied
by payment of an amount equal to the dividend payable on
such shares on such Dividend Payment Date. A holder of
shares of Series D Preferred on a Dividend Record Date who
(or whose transferee) surrenders any such shares for
conversion into common
<PAGE>
stock after the opening of business on the corresponding
Dividend Payment Date will receive the dividend payable by
the corporation on such Series D Preferred on such date, and
the converting holder need not include payment of the amount
of such dividend upon such surrender. The corporation shall
make further payment or allowance for, and a converting
holder shall be entitled to, unpaid dividends in arrears
(excluding the then-current quarter) on converted shares and
for dividends on the common stock issued upon such
conversion.
As promptly as practicable after the surrender of
certificates for Series D Preferred as aforesaid, the
corporation shall issue and shall deliver at such office to
such holder, or on his written order, a certificate or
certificates for the number of full shares of common stock
issuable upon the conversion of such Series D Preferred in
accordance with the provisions of this paragraph (7), and
any fractional interest in respect of common stock arising
upon such conversion shall be settled as provided in
subparagraph (D) of this paragraph (7). Each conversion
shall be deemed to have been effected immediately prior to
the close of business on the date on which the certificates
for Series D Preferred shall have been surrendered and such
notice (and if applicable, payment of an amount equal to the
dividend payable on such shares) received by the corporation
as aforesaid, and the person or persons in whose name or
names any certificate or certificates for common stock shall
be issuable upon such conversion shall be deemed to have
become the holder or holders of record of the shares
represented thereby at such time on such date, and such
conversion shall be at the Conversion Price in effect at
such time and on such date, unless the share transfer books
of the corporation shall be closed on that date, in which
event such person or persons shall be deemed to have become
such holder or holders of record at the opening of business
on the next succeeding day on which such share transfer
books are open, but such conversion shall be at the
Conversion Price in effect on the date on which such
certificates for Series D Preferred have been surrendered
and such notice received by the corporation.
(D) No fractional shares or scrip representing
fractions of common stock shall be issued upon conversion of
the Series D Preferred. In lieu of issuing a fractional
interest in common stock that would otherwise be deliverable
upon the conversion of a share of Series D Preferred, the
corporation shall pay to the holder of such share an amount
in cash based upon the Current Market Price of the common
stock on the Trading Day immediately preceding the date of
conversion. If more than one share of Series D Preferred
shall be surrendered for conversion at one time by the same
holder, the number of full shares of common stock issuable
upon conversion thereof shall be computed on the basis of
the aggregate number of shares of Series D Preferred so
surrendered.
(E) The Conversion Rate and Conversion Price shall be
adjusted from time to time as follows:
<PAGE>
(i) If the corporation shall after the Issue Date (a)
declare and pay a dividend to holders of any class of
capital stock of the corporation payable in common stock,
(b) subdivide its outstanding common stock into a greater
number of shares, (c) combine its outstanding common stock
into a smaller number of shares or (d) reclassify its common
stock, the Conversion Rate shall be adjusted so that the
holder of any Series D Preferred thereafter surrendered for
conversion shall be entitled to receive the number of shares
of common stock that such holder would have owned or have
been entitled to receive after the happening of any of the
events described above had such shares been converted
immediately prior to the record date in the case of a
dividend or the effective date in the case of a subdivision,
combination or reclassification. An adjustment made pursuant
to this section (i) shall become effective immediately after
the opening of business on the day next following the record
date (except as provided in subparagraph (I) below) in the
case of a dividend and shall become effective immediately
after the opening of business on the day next following the
effective date in the case of a subdivision, combination or
reclassification. Such adjustment(s) shall be made
successively whenever any of the events listed above shall
occur.
(ii) If the corporation shall issue after the Issue
Date rights, options or warrants to all holders of common
stock entitling them to subscribe for or purchase common
stock (or securities convertible into common stock) at a
price per share (or having a conversion price per share)
less than 98% of the Current Market Price of the common
stock determined as of the record date for the determination
of shareholders entitled to receive such rights, options or
warrants, then the Conversion Price shall be adjusted to
equal the price determined by multiplying (A) the Conversion
Price in effect immediately prior to the close of business
on such record date (B) a fraction, the numerator of which
shall be the sum of (I) the number of shares of common stock
outstanding on the close of business on such record date and
(II) the number of shares of common stock that could be
purchased at the Current Market Price on such record date
with the aggregate proceeds to the corporation from the
exercise of such rights, options or warrants (or the
aggregate conversion price of the convertible securities so
offered), and the denominator of which shall be the sum of
(x) the number of shares of common stock outstanding on the
close of business on such record date and (y) the number of
shares of common stock issuable upon exercise in full of
such rights, options or warrants (or into which the
convertible securities so offered are convertible). Such
adjustment shall become effective immediately after the
opening of business on the day next following such record
date (except as provided in subparagraph (I) below). In
determining whether any rights, options or warrants entitle
the holders of common stock to subscribe for or purchase
common stock at less than 98% of the Current Market Price,
there shall be taken into account any consideration received
by the corporation upon issuance and upon exercise of such
rights, options or warrants, the value of such
consideration, if other than cash, to be determined by the
Board of Directors, whose decision shall be final,
conclusive, and binding on all persons. Any
<PAGE>
adjustment(s) made pursuant to this section (ii) shall be
made successively whenever any of the events listed above
shall occur.
(iii) If the corporation shall after the Issue Date
distribute to all holders of its common stock any shares of
capital stock of the corporation (other than common stock)
or evidence of its indebtedness or assets (including
securities or cash, but excluding cash dividends not
exceeding in amount current or accumulated funds from
operations at the date of declaration, determined on the
basis of the corporation's most recent annual or quarterly
report to shareholders at the time of the declaration of
such dividends) or rights, options or warrants to subscribe
for or purchase any of its securities (excluding rights,
options or warrants referred to in section (ii) above) (any
of the foregoing being hereinafter in this section (iii)
called the "Securities"), then in each case the Conversion
Price shall be adjusted so that it shall equal the price
determined by multiplying (A) the Conversion Price in effect
immediately prior to the close of business on the record
date fixed for the determination of shareholders entitled to
receive such distribution by (B) a fraction, the numerator
of which shall be (I) the Current Market Price per share of
common stock on such record date or, if applicable, the
deemed record date described in the immediately following
paragraph, less (II) the then Fair Market Value of the
Securities or assets so distributed applicable to one share
of common stock, and the denominator of which shall be the
Current Market Price per share of common stock on such
record date or, if applicable, the record date described in
the immediately following paragraph. Such adjustment shall
become effective immediately at the opening of business on
the Business Day next following (except as provided in
subparagraph (I)) such record date.
For purposes of this section (iii), distribution of a
Security which is distributed not only to the holders of the
common stock on the record date fixed for the determination
of shareholders entitled to such distribution, but is also
delivered with each share of common stock issued upon
conversion of Series D Preferred after such record date,
shall not require an adjustment of the Conversion Price
pursuant to this section (iii); provided that on the date,
if any, on which such Security ceases to be deliverable with
common stock upon conversion of Series D Preferred (other
than as a result of the expiration or termination of all
such Securities), a distribution of such Securities shall be
deemed to have occurred, and the Conversion Price shall be
adjusted as provided in this section (iii) (and such date
shall be deemed for purposes of this section (iii) to be the
"record date fixed for the determination of shareholders
entitled to receive such distribution" and the "record
date").
Adjustment(s) made pursuant to this section (iii) shall
be made successively whenever any of the events listed above
shall occur.
(iv) If after the Issue Date (i) the corporation shall
merge or consolidate with any other
<PAGE>
real estate investment trust, corporation or other business
entity and shall not be the survivor in such transaction
(without respect to the legal structure of the transaction),
(ii) the corporation shall transfer or sell all or
substantially all of its assets other than to an affiliate
or subsidiary of the corporation or (iii) the corporation
shall liquidate and dissolve, and the consideration
allocable to each share of common stock in any such
transaction shall not have a Fair Market Value of at least
$15 times the Adjustment Factor, the Conversion Price in
effect at the opening of business on the date on which such
transaction is consummated or effective, if greater than $15
times the Adjustment Factor, shall be adjusted effective at
the opening of business on such date to equal $15 times the
Adjustment Factor.
(v) If the Current Market Price of the common stock on
at least 20 consecutive Trading Days during the period of 36
consecutive months beginning on the second anniversary of
the Issue Date is not at least $14 times the Adjustment
Factor, and the Conversion Price in effect at the opening of
business on the fifth anniversary of the Issue Date or the
next succeeding Business Day, if such fifth anniversary is
not a Business Day, is greater than $15.25 times the
Adjustment Factor, the Conversion Price shall be adjusted
effective at the opening of business on such fifth
anniversary or the next following Business Day, if such
fifth anniversary is not a Business Day, to equal $15.25
times the Adjustment Factor.
(vi) No adjustment in the Conversion Price shall be
required unless such adjustment would require a cumulative
increase or decrease of at least 1% in such price; provided,
however, that any adjustments that by reason of this section
(vi) are not required to be made shall be carried forward
and taken into account in any subsequent adjustment until
made; and provided, further, that any adjustment shall be
required and made in accordance with the provisions of this
paragraph (7) (other than this section (vi)) not later than
such time as may be required in order to preserve the
tax-free nature of a dividend to the holders of common
stock. Notwithstanding any other provisions of this
paragraph (7), the corporation shall not be required to make
any adjustment to the Conversion Price for the issuance of
any common stock pursuant to any plan providing for the
reinvestment of dividends or interest payable on securities
of the corporation and the investment of additional optional
amounts in common stock under such plan. All calculations
under this paragraph (7) shall be made to the nearest cent
(with $.005 being rounded upward) or to the nearest
one-tenth of a share (with .05 of a share being rounded
upward), as the case may be.
(F) If the corporation shall after the Issue Date be a
party to any transaction (including without limitation a
merger, consolidation, statutory share exchange, self tender
offer for all or substantially all of the outstanding common
stock, sale of all or substantially all of the corporation's
assets, recapitalization or reclassification of capital
stock, but excluding any transaction to which section (i) of
subparagraph (E) of this paragraph (7) applies (each of the
foregoing being
<PAGE>
referred to herein as a "Transaction"), in each case upon
consummation of which common stock shall be converted into
the right to receive shares, stock, securities or other
property (including cash) or any combination thereof
("Transaction Consideration"), each share of Series D
Preferred which is not itself converted into the right to
receive Transaction Consideration in connection with such
Transaction shall thereafter be convertible into the kind
and amount of Transaction Consideration payable upon the
consummation of such Transaction with respect to that number
of shares of common stock into which one share of Series D
Preferred was convertible immediately prior to such
Transaction. The corporation shall not be a party to any
Transaction unless the terms of such Transaction are
consistent with this subparagraph (F) and enable the holder
of each share of Series D Preferred that remains outstanding
after consummation of such Transaction to convert such share
at the Conversion Price in effect immediately prior to such
Transaction into the Transaction Consideration payable with
respect to the number of shares of common stock into which
such share of Series D Preferred is then convertible. The
provisions of this subparagraph (F) shall similarly apply to
successive Transactions.
(G) If after the Issue Date:
(i) the corporation shall declare dividends on the
common stock, excluding cash dividends not exceeding in
amount current or accumulated funds from operations at the
date of declaration, determined on the basis of the
corporation's most recent annual or quarterly report to
shareholders at the time of the declaration of such
dividends; or
(ii) the corporation shall authorize the granting to
the holders of the common stock of rights, options or
warrants to subscribe for or purchase any shares of any
class or any other rights, options or warrants; or
(iii) there shall be any Transaction for which approval
of any shareholders of the corporation is required or self
tender for all or substantially all of the outstanding
common stock; or
(iv) there shall occur the voluntary or involuntary
liquidation, dissolution or winding up of the corporation;
then the corporation shall cause to be filed with the
Transfer Agent and shall cause to be mailed to the holders
of the Series D Preferred at their addresses as shown on the
share records of the corporation, as promptly as possible,
but at least 15 days prior to the earliest applicable date
hereinafter specified, a notice stating (A) the record date
as of which the holders of common stock entitled to receive
such dividend or grant of rights, options or warrants are to
be determined, provided, however, that no such notification
need be made in respect of a record date for a dividend or
grant of rights, options or warrants unless the
<PAGE>
corresponding adjustment in the Conversion Price would be an
increase or decrease of at least 1%, or (B) the date on
which such Transaction, self tender, liquidation,
dissolution or winding up is expected to become effective,
and the date as of which it is expected that holders of
common stock of record shall be entitled to exchange their
common stock for securities or other property, if any,
deliverable upon such Transaction, self tender, liquidation,
dissolution or winding up. Failure to give such notice or
any defect therein shall not affect the legality or validity
of the proceedings described in this paragraph (7).
(H) Whenever the Conversion Price is adjusted as herein
provided, the corporation shall promptly file with the
Transfer Agent a certificate of its chief financial or chief
accounting officer setting forth the Conversion Price after
such adjustment and setting forth a brief statement of the
facts requiring such adjustment, which certificate shall be
conclusive evidence of the correctness of such adjustment
absent manifest error. Promptly after delivery of such
certificate, the corporation shall prepare a notice of such
adjustment of the Conversion Price setting forth the
adjusted Conversion Price and the effective date on which
such adjustment becomes effective and shall mail such notice
of such adjustment of the Conversion Price to the holder of
each share of Series D Preferred at such holder's last
address of record.
(I) In any case in which subparagraph (E) of this
paragraph (7) provides that an adjustment shall become
effective on the date next following the record date for an
event, the corporation may defer until the occurrence of
such event (i) issuing to the holder of any Series D
Preferred converted after such record date and before the
occurrence of such event the additional common stock
issuable upon such conversion by reason of the adjustment
required by such event over and above the common stock
issuable upon such conversion before giving effect to such
adjustment and (ii) fractionalizing any share of common
stock into which Series D Preferred is convertible and/or
paying to such holder cash in lieu of such fractional
interest pursuant to subparagraph (D) of this paragraph (7).
(J) There shall be no adjustment of the Conversion
Price in case of the issuance of any shares of capital stock
of the corporation in a reorganization, acquisition or other
similar transaction except as specifically set forth in this
paragraph (7).
(K) The corporation will at all times reserve and keep
available, free from preemptive rights, out of its
authorized but unissued common stock, for the purpose of
effecting conversion of the Series D Preferred, the full
number of shares of common stock deliverable upon the
conversion of all outstanding Series D Preferred not
theretofore converted. For purposes of this subparagraph
(K), the number of shares of common stock deliverable upon
the conversion of all outstanding shares of Series D
Preferred shall be computed as if at the time of computation
all such outstanding shares were held by a single holder.
<PAGE>
(L) The corporation will pay any and all documentary
stamp or similar issue or transfer taxes payable in respect
of the issue or delivery of common stock or other securities
or property on conversion of the Series D Preferred pursuant
hereto; provided, however, that the corporation shall not be
required to pay any tax that may be payable in respect of
any transfer involved in the issue or delivery of common
stock or other securities or property in a name other than
that of the holder of the Series D Preferred to be
converted, and no such issue or delivery shall be made
unless and until the person requesting such issue or
delivery has paid to the corporation the amount of any such
tax or has established, to the reasonable satisfaction of
the corporation, that such tax has been paid.
In addition to the foregoing adjustments, the
corporation shall be entitled to make such reductions in the
Conversion Price, in addition to those required herein, as
it in its discretion considers to be advisable in order that
any share dividends, subdivisions of shares,
reclassification or combination of shares, dividend of
rights, options, warrants to purchase shares or securities,
or a dividend of other assets (other than cash dividends)
will not be taxable or, if that is not possible, to diminish
any income taxes that are otherwise payable because of such
event.
(M) Definitions. Unless the context otherwise clearly
indicates, terms defined in any subdivision of this
paragraph (7) shall have the same meanings wherever used in
this paragraph (7).
SIGNATURE COPY
PARTNERSHIP INTEREST
PURCHASE AND EXCHANGE AGREEMENT
This Partnership Interest Purchase and Exchange Agreement (the
"Agreement") is made and entered into as of September 10, 1998 by and among
the persons and entities listed on Exhibit A hereto (the "Contributors"),
the persons listed on Exhibit B hereto (the "Sellers" and, collectively
with the Contributors, the "Transferors"), United Dominion Realty Trust,
Inc., a Virginia corporation (the "Company") and United Dominion Realty,
L.P., a Virginia limited partnership (the "Company Operating Partnership").
RECITALS
WHEREAS, the Transferors are the legal and beneficial owners of
all of the limited partnership interests (the "AACLP Partnership
Interests") in American Apartment Communities II, L.P., a Delaware limited
partnership ("AACLP"), which owns and operates, directly and indirectly the
apartment communities set forth on Schedule 5A hereto (the "AAC
Properties");
WHEREAS, as an inducement to the Company to enter into an
Agreement and Plan of Merger (the "Merger Agreement") with American
Apartment Communities II, Inc., a Maryland corporation ("AAC"), whereby AAC
will merge with and into the Company (the "Merger") and thus benefit the
Contributors, the Contributors have agreed to contribute their respective
AACLP Partnership Interests to the Company Operating Partnership, and the
Company Operating Partnership desires to acquire the AACLP Partnership
Interests from the Contributors, as provided herein;
WHEREAS, in connection with the Merger, the Sellers have agreed
to sell their respective AACLP Partnership Interests to the Company for
cash, and the Company desires to acquire the AACLP Partnership Interests
from the Sellers, as provided herein;
WHEREAS, together with AAC, the Transferors own all of the
partnership interests in AACLP;
WHEREAS, the parties intend to provide certain protections for
the tax position of the Contributors pursuant to Section 5(c) hereof,
including American Apartment Communities Operating Partnership, L.P.,
Schnitzer Investment Corp. and AAC Management LLC (collectively, the "Tax
Partners"); and
WHEREAS, Section 3.2 of the Merger Agreement provides certain
assurances given to induce the Transferors to enter in this Agreement.
NOW, THEREFORE, in consideration of the foregoing, the mutual
agreements contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged by the parties
hereto, the parties hereto do hereby agree as follows:
<PAGE>
1. Contribution and Sale. (a) Pursuant to the terms hereof, the
Contributors hereby agree to contribute AACLP Partnership Interests to the
Company Operating Partnership free and clear of any and all restrictions on
transfer (other than restrictions under the Securities Act and state
securities laws), taxes, mortgages, liens, encumbrances, charges, pledges,
impositions, security interests, options, warrants, purchase rights, rights
of first refusal, contracts, commitments, equities, claims and demands
("Liens"), and the Company Operating Partnership hereby agrees to accept
such AACLP Partnership Interests from the Contributors, in exchange for an
aggregate amount of units of limited partnership interest in the Company
Operating Partnership (the "UDR Units") as set forth on Exhibit A (the
"Exchange Equity Consideration"). Any Contributor who receives UDR Units in
such exchange (a "UDR Unit Holder") shall, upon the issuance of such UDR
Units, be admitted as a limited partner of the Company Operating
Partnership and shall sign the Third Amended and Restated Agreement of
Limited Partnership of the Company Operating Partnership, in substantially
the form attached hereto as Exhibit D (the "Partnership Agreement").
(b) Pursuant to the terms hereof, the Sellers hereby agree to
sell AACLP Partnership Interests to the Company free and clear of any and
all Liens, and the Company hereby agrees to purchase such AACLP Partnership
Interests from the Sellers, for an aggregate amount of cash as set forth on
Exhibit B (the "Exchange Cash Consideration," and, together with the
Exchange Equity Consideration, the "Exchange Consideration"), subject to
adjustment as provided in Section 1(c) below.
(c) The Exchange Consideration shall be adjusted in accordance
with the provisions of Section 2.2 of the Merger Agreement. The allocation
of the Exchange Consideration among the Transferors shall be determined by
AACLP and AACLP shall provide such allocations to the Company on or before
the Closing Date.
2. Board Seat. Until the earlier of such time as: (a) James D.
Klingbeil and his affiliates (including American Apartment Communities
Operating Partnership, L.P. and AAC Management, L.L.C.) no longer own at
least 50% of the aggregate UDR Units issued to such persons pursuant to
this Agreement or (b) Mr. Klingbeil reaches age 70, Mr. Klingbeil shall be
nominated for election to the Board of Directors of the Company. For the
purpose of the preceding sentence, any common stock of UDR issued upon
redemption of UDR Units by Mr. Klingbeil or his affiliates (and held by
such person on the date of determination) shall be counted toward the
number of UDR Units held by such persons. For so long as Mr. Klingbeil
continues to be nominated pursuant to this Section 2, he shall be deemed
for purposes of Section 5.8 of the Merger Agreement a nominee of the Holder
referred to therein.
3. Contributors' and Sellers' Representations and Warranties. Each
Transferor, severally and not jointly, hereby represents and warrants to
the Company and the Company Operating Partnership, as of the date hereof
and as of the Closing Date (as defined), with respect to the AACLP
Partnership Interests owned by such Transferor, respectively, as follows:
(a) With respect to each Transferor who is not an individual,
such Transferor (i) is a corporation/limited partnership/limited
liability company (as applicable) duly
<PAGE>
formed, validly existing and in good standing under the laws of its
state of organization, (ii) has all requisite powers and all licenses,
authorizations, consents and approvals necessary to carry on its
business as now conducted, to own, lease and operate its properties,
to execute and deliver this Agreement and any document or instrument
required to be executed and delivered on behalf of such Transferor
hereunder, to perform its obligations under this Agreement and any
such other documents or instruments and to consummate the transactions
contemplated hereby, (iii) has duly executed and delivered this
Agreement and this Agreement constitutes a valid and binding
obligation of such Transferor, enforceable against such Transferor in
accordance with its terms and (iv) is the sole legal and beneficial
owner of its AACLP Partnership Interests, as applicable, and has the
full power and authority to contribute or sell such AACLP Partnership
Interests to the Company Operating Partnership or the Company, as the
case may be, pursuant to this Agreement.
(b) With respect to each Transferor who is an individual, such
person (i) has full legal right, power and authority to execute and
deliver this Agreement and any document or instrument required to be
executed and delivered on behalf of such Transferor hereunder, to
perform his or her obligations under this Agreement and any such other
documents or instruments and to consummate the transactions
contemplated hereby, (ii) has duly executed and delivered this
Agreement and this Agreement constitutes a valid and binding
obligation of such Transferor, enforceable against such Transferor in
accordance with its terms and (iii) is the sole legal and beneficial
owner of his AACLP Partnership Interests and has the full power and
authority to sell such AACLP Partnership Interests to the Company
pursuant to this Agreement.
(c) The AACLP Partnership Interests to be transferred pursuant to
this Agreement constitute any and all of such Transferor's interest in
AACLP, such Transferor owns such AACLP Partnership Interests free and
clear of any and all Liens, and the Transferors listed on Exhibits A
and B and AAC are the only equity owners of AACLP.
(d) There are no judgments of record or inchoate tax liens
against or relating to such Transferor or the AACLP Partnership
Interests; no acts of bankruptcy; nor any litigation or other
proceedings pending or threatened against or relating to such
Transferor or the AACLP Partnership Interests that would prevent the
consummation of the transactions contemplated by this Agreement.
(e) Such Transferor is not subject to any restriction, agreement,
law, judgment or decree that would prohibit or be violated by the
execution and delivery of this Agreement or by the consummation of the
transaction contemplated hereby.
(f) Such Transferor has obtained and has advised its partners or
members, as applicable, to obtain, from its and their own advisors
advice regarding the tax consequences of the transactions contemplated
by this Agreement and, in the case of Contributors, such Contributor
becoming a limited partner of the Company Operating
<PAGE>
Partnership, and such Transferor has not relied on the Company, the
Company Operating Partnership or their advisors for such advice.
(g) Neither such Transferor nor any of the partners or members of
such Transferor is a "foreign person" within the meaning of Section
1445(b)(2) of the Internal Revenue Code of 1986, as amended (the
"Code").
(h) No Transferor has retained any real estate broker, business
broker, finder or other person entitled to a commission or other
compensation in connection with this transaction, except as set forth
in the Merger Agreement.
4. The Company's and the Company Operating Partnership's
Representations and Warranties. The Company and the Company Operating
Partnership hereby represent and warrant to the Contributors, as of the
date hereof and as of the Closing Date (as defined), that (a) each of the
Company and the Company Operating Partnership have the right and the power
to execute and deliver this Agreement and to perform their respective
obligations hereunder, and all necessary corporate and partnership action
with respect thereto has been duly and validly taken; each of the Company
and the Company Operating Partnership has duly executed and delivered this
Agreement and this Agreement constitutes a valid and binding obligation of
each of the Company and the Company Operating Partnership, enforceable
against each such entity in accordance with its terms; (b) subject to the
terms of the Investment Agreement in the form attached hereto as Exhibit C
and the terms of the Partnership Agreement, the UDR Units issued hereunder
shall be redeemable by the holders thereof for cash or, at the election of
the Company, exchangeable for Common Stock of the Company; and (c) neither
the Company nor the Company Operating Partnership has retained any real
estate broker, business broker, finder or other person entitled to a
commission or other compensation in connection with this transaction,
except as set forth in the Merger Agreement.
5. Covenants of the Company and the Company Operating Partnership. The
Company and the Company Operating Partnership hereby covenant with the
Contributors that for so long as at least 10% of the UDR Units issued to
the Contributors pursuant to this Agreement are outstanding and held by any
Contributor or a transferee of such Contributor in a substituted basis
transaction for federal income tax purposes (a "Permitted Transferee"), and
notwithstanding anything to the contrary in the Partnership Agreement, as
presently in effect or as amended from time to time,
(a) Section 704(c) Allocations. The Company and the Company Operating
Partnership will elect to use the "traditional method" described in
Treasury regulations Section 1.704-3(b) of making allocations under
Section 704(c) of the Code, with respect to the AAC Properties
identified in Schedule 5A.
(b) AAC Property Sales. (i) During the period ending on the twelfth
anniversary of the Closing Date, none of the AAC Properties identified
on Schedule 5B (or any property acquired in a like-kind exchange under
Section 1031 or 1033 of the Code in replacement thereof) ("Schedule 5B
Properties") will be sold, transferred or otherwise disposed of other
than in a transaction described in Section 1031 or Section 1033 of the
Code, or
<PAGE>
other applicable non-recognition Code provision, in which no gain or
loss is recognized for federal income tax purposes (a "Non-Recognition
Transaction") and (ii) none of the AAC Properties identified in
Schedule 5C (or any property acquired in a like-kind exchange under
Section 1031 or 1033 of the Code in replacement thereof) ("Schedule 5C
Properties") will be sold, transferred or otherwise disposed of other
than in a Non-Recognition Transaction.
(c) AAC Property Refinancings.
(i) Except as otherwise provided in Sections 5(c)(ii) and
5(c)(iii), during the period ending on the twelfth anniversary of
the Closing Date with respect to the Schedule 5B Properties
(excluding Grandview Terrace, Sunset Village, Tivoli of Columbus,
and Mountain View), and indefinitely with respect to the Schedule
5C Properties ("Refinancing Period") (A) the existing mortgage
indebtedness encumbering such AAC Properties ("Existing
Indebtedness") or any replacement indebtedness assumed or taken
subject to in a Section 1031 Transaction ("Replacement
Indebtedness") will not be prepaid, (B) any Replacement
Indebtedness will be nonrecourse and secured solely by the
replacement property and (C) the Existing Indebtedness or
Replacement Indebtedness will not be converted from nonrecourse
indebtedness to recourse indebtedness, except that (I) regularly
scheduled periodic principal payments on Existing Indebtedness or
Replacement Indebtedness may be made and (II) Existing
Indebtedness or Replacement Indebtedness may be refinanced
provided the refinancing indebtedness ("Refinancing
Indebtedness") is (X) nonrecourse; (Y) does not require principal
repayments during such period which are greater than the payments
required on Existing Indebtedness during such period; and (Z) is
secured solely by the AAC Property or Properties which secure the
Existing Indebtedness or the Replacement Indebtedness which is
being refinanced. In addition, any Refinancing Indebtedness may
be refinanced provided any indebtedness which refinances
Refinancing Indebtedness shall satisfy all the requirements of
this Section 5(c)(i). The determination of whether indebtedness
is recourse or nonrecourse shall be determined under Section 752
of the Code.
(ii) If, during the Refinancing Period, the Company decides to
refinance or prepay the Existing Indebtedness or the Replacement
Indebtedness in a manner that is not in compliance with Section
5(c)(i), the Company will give written notice ("Refinancing
Notice") to each Tax Partner at least 60 days prior to such
refinancing or prepayment. Such Refinancing Notice must be given
with respect to each proposed refinancing or prepayment
transaction on a property-by-property basis. The Refinancing
Notice will describe which Existing Indebtedness or Replacement
Indebtedness is scheduled to be refinanced or prepaid, how much
of such Existing Indebtedness or Replacement Indebtedness is
scheduled to be refinanced or prepaid, and approximately when the
refinancing or prepayment is scheduled to occur. Upon receipt of
the Refinancing Notice, each
<PAGE>
Tax Partner shall have the option (A) to guarantee debt of the
Company Operating Partnership (or enter into a reimbursement
agreement with the Company with respect to debt of the Company
Operating Partnership) in an amount that prevents such Tax
Partner from recognizing income or gain for federal income tax
purposes as a result of such refinancing or prepayment and/or (B)
to exercise immediately its Redemption Rights for the Cash
Amount, instead of the REIT Shares Amount (as those terms are
defined in the Partnership Agreement), with respect to a number
of UDR Units necessary to pay the federal and state income tax
liability associated with the income or gain that is recognized
as a result of such refinancing or prepayment. If such Tax
Partner elects to guarantee debt as described in this Section
5(c)(ii), the Company, the Company Operating Partnership and each
such Tax Partner agree to negotiate in good faith a guaranty
agreement or reimbursement agreement that is satisfactory to all
parties, provided, however, that the Company shall be required to
ensure that (i) such guaranty covers only the last dollars of
liability with respect to such debt ("bottom guarantee") and (ii)
there is a sufficient level of debt such that the bottom
guarantee will put such Tax Partner in the same position for
federal income tax purposes that it would have been in if the
refinancing or prepayment were not effected. If (A) the Company
does not receive written notice from a Tax Partner of its
election to guarantee debt or to exercise its Redemption Rights
as described in this Section 5(c)(ii) within 30 days after such
Tax Partner's receipt of the Refinancing Notice or (B) a Tax
Partner elects to exercise its Redemption Rights as described in
this Section 5(c)(ii), the Company's and the Company Operating
Partnership's obligations under Section 5(c)(i) with respect to
the Existing Indebtedness or the Replacement Indebtedness that is
scheduled to be refinanced or prepayment shall terminate;
provided, however, that under no circumstances may a Tax
Partner's action or inaction with respect to a Refinancing Notice
be deemed to be a waiver of, or consent with respect to, any
future Refinancing Notice relating to any future proposed
refinancing or prepayment transaction. Furthermore, a new
Refinancing Notice must be given with respect to each proposed
refinancing or prepayment transaction on each property
notwithstanding the fact that a prior refinancing or prepayment
transaction had taken place with respect to any indebtedness (or
portion of any indebtedness) secured by that property.
(iii) With respect to the Grandview Terrace, Sunset Village,
Tivoli of Columbus, and Mountain View AAC Properties, each Tax
Partner shall have the option on the Closing Date (A) to
guarantee debt of the Company Operating Partnership (or enter
into a reimbursement agreement with the Company with respect to
debt of the Company Operating Partnership) in an amount that
prevents any Tax Partner from recognizing income or gain for
federal income tax purposes as a result of the repayment of the
mortgage indebtedness encumbering such properties and/or (B) to
exercise immediately its Redemption Rights for the Cash Amount,
instead of the REIT Shares Amount (as those terms are defined in
the Partnership Agreement), with respect to a number of UDR Units
necessary to pay
<PAGE>
the federal and state income tax liability associated with the
income or gain that is recognized as a result of such repayment.
If a Tax Partner elects to guarantee debt as described in this
Section 5(c)(iii), the Company, the Company Operating Partnership
and such Tax Partner agree to negotiate in good faith a guaranty
agreement or reimbursement agreement that is satisfactory to all
parties, provided, however, that the Company shall be required to
ensure that (i) such guaranty is a the bottom guarantee and (ii)
there is a sufficient level of debt such that the bottom
guarantee of which will put such Tax Partner in the same position
for federal income tax purposes that it would have been in if the
refinancing or prepayment were not effected.
(iv) Notwithstanding the foregoing, at any time in their sole
discretion, the partners or interest holders of any Tax Partner
may replace a reimbursement agreement with the Company with a
direct guaranty on substantially the same terms as such
reimbursement agreement.
(v) Notwithstanding anything to the contrary in this Agreement,
any Tax Partner may, in its sole discretion, at any time or from
time to time, and the Company shall provide such Tax Partner with
the opportunity to bottom guarantee debt of the Company Operating
Partnership (or enter into a reimbursement agreement with the
Company with respect to debt of the Company Operating
Partnership) in an amount that prevents such Tax Partner from
recognizing income or gain for federal income tax purposes.
(vi) Notwithstanding anything to the contrary in this Agreement,
the aggregate amount of indebtedness that the Company Operating
Partnership shall be required to make available for the Tax
Partners to bottom guarantee shall not exceed $200,000,000.
(d) Approval of Fundamental Transactions. Except pursuant to the prior
written consent of the holders of at least 66.66% of the
then-outstanding UDR Units issued to the Contributors pursuant to this
Agreement, neither the Company nor the Company Operating Partnership
may merge, consolidate or otherwise combine with or into any other
person, effect any reclassification, any recapitalization or change
its outstanding equity interests (other than a change in par value, or
from par value to no par value, or as a result of a subdivision or
combination of REIT Shares), or sell all or substantially all of its
assets (a "Fundamental Transaction") unless: (i) under the terms of
the Fundamental Transaction, the UDR Unit Holders will not recognize
any income or gain for Federal income tax purposes, either directly or
through allocation of such income or gain from the Company Operating
Partnership or any surviving entity; (ii) the UDR Unit Holders own a
percentage interest of the Company Operating Partnership or another
limited partnership or limited liability company that is the survivor
of the Fundamental Transaction with the Company Operating Partnership
(in each case, the "Surviving Partnership") based on the relative fair
market value of the net assets of the Company Operating Partnership
and the other net assets of the Surviving Partnership immediately
<PAGE>
prior to the consummation of such Fundamental Transaction; and (iii)
the rights, preferences and privileges of the UDR Unit Holders in the
Surviving Partnership (including with respect to registration rights)
are at least as favorable as those in effect immediately prior to the
consummation of such Fundamental Transaction and as those applicable
to any other limited partners or non-managing members of the Surviving
Partnership and at least include the right to redeem their interests
in the Surviving Partnership for the Maximum Transaction Consideration
or an amount of cash equal to at least the value of the Maximum
Transaction Consideration. "Maximum Transaction Consideration" shall
mean an amount of cash, securities, or other property (or a
partnership interest or other security readily convertible into such
cash, securities, or other property) no less than the product of the
REIT Shares Amount (as defined in the Partnership Agreement) and the
greatest amount of cash, securities or other property (expressed as an
amount per REIT Share (as defined in the Partnership Agreement)) paid
in the Fundamental Transaction to the holder of one REIT Share in
consideration for one REIT Share; provided, that if, in connection
with the Fundamental Transaction, a purchase, tender or exchange offer
("Offer") shall have been made to and accepted by the holders of more
than 50 percent of the outstanding REIT Shares, "Maximum Transaction
Consideration" shall mean no less than the greatest amount of cash,
securities or other property they would have received had they (Y)
exercised their Redemption Right and (Z) sold, tendered or exchanged
pursuant to the Offer the REIT Shares received upon exercise of the
Redemption Right immediately prior to the expiration of the Offer.
The covenants of the Company and the Company Operating Partnership in this
Section 5 shall survive consummation of the transactions contemplated by
this Agreement and the Merger Agreement, any future transaction to which
the Company or the Company Operating Partnership is a party, including
without limitation, any Fundamental Transaction and any future transaction
of the kind referred to in the definition of "Change of Control" in Article
I of the Investment Agreement, whether or not such transaction results in a
"Change of Control," as so defined.
6. Investment Agreement. Concurrently with the execution and delivery
of this Agreement, each Contributor is executing and delivering to the
Company Operating Partnership an Investment Agreement in substantially the
form attached as Exhibit C.
7. Closing. The closing of the transaction contemplated hereby (the
"Closing") shall occur as soon as practicable after the Effective Time (as
defined in the Merger Agreement) on the date of the consummation of the
Merger (the "Closing Date"). At the Closing, each Transferor shall deliver
to the Company Operating Partnership, or the Company, as the case may be, a
duly-executed assignment, in form and substance satisfactory to the Company
Operating Partnership, to convey the AACLP Partnership Interests owned by
it to the Company Operating Partnership or the Company, as the case may be.
8. The Company's and Company Operating Partnership's Conditions to
Closing. Notwithstanding any other provision hereof, the obligations of the
Company and the
<PAGE>
Company Operating Partnership to consummate the transactions contemplated
hereby shall be subject to the conditions, unless waived in writing, as of
the Closing, that i)" (i) each of the representations and warranties of
each of the Transferors contained herein shall remain true and correct as
of the date of this Agreement and the Closing Date, as though made on and
as of the Closing Date, ii)" (ii) each UDR Unit Holder shall have executed
an Investment Agreement substantially in the form attached as Exhibit C
hereto to the benefit of the Company Operating Partnership and iii)" (iii)
the Effective Time shall have occurred, (iv) each Contributor shall have
duly executed and delivered the Partnership Agreement substantially in the
form attached hereto as Exhibit D, (v) the Company and the Company
Operating Partnership shall acquire all of the AACLP Partnership Interests
and (vi) each Transferor shall have delivered to the Company and the
Company Operating Partnership a duly executed certificate setting forth
such Transferor's address and federal tax identification number and
certifying that such Transferor is not a "foreign person" within the
meaning of Section 1445(b)(2) of the Code.
9. Transferors' Conditions to Closing. Notwithstanding any other
provisions hereof, the obligation of the Transferors to proceed to
consummate the transaction contemplated hereby shall be subject to the
conditions, unless waived in writing, as of the Closing, that i)" (i) each
of the representations and warranties of the Company and the Company
Operating Partnership contained herein shall remain true and correct as of
the date of this Agreement and the Closing Date, as though made on and as
of the Closing Date, ii)" (ii) the Company Operating Partnership shall have
executed an Investment Agreement in the form attached as Exhibit C hereto
to the benefit of each UDR Unit Holder, iii)" (iii) each party to the
Partnership Agreement other than the Contributors shall have duly executed
and delivered the Partnership Agreement substantially in the form attached
hereto as Exhibit D and iv)" (iv) the Effective Time shall have occurred.
10. Indemnification. The warranties and representations set forth in
Sections 3 and 4 hereof shall survive the Closing. The Company and the
Company Operating Partnership, on one hand, and the Transferors, on the
other, hereby agree to indemnify, defend and hold each other harmless from
and against any and all loss, cost, damage, liability or expense
(including, without limitation, reasonable attorneys fees, court costs and
reasonable litigation expenses) that the other party may suffer, sustain or
incur as a result of, arising under or in connection with any breach of
warranty or agreement contained herein or any failure of performance
hereunder. The Transferors shall be severally and not jointly liable for
any amounts owed the Company or the Company Operating Partnership pursuant
to this Section 10. Further, except in the event of a breach of a covenant
set forth in Section 5 hereof by the Company or the Company Operating
Partnership, each Transferor, severally and not jointly, shall indemnify,
defend and save harmless the Company and the Company Operating Partnership
from and against all claims, liabilities and expenses which may be asserted
against either or either may incur and which are based upon or arise out of
the federal income tax consequences to such Transferor of the contribution
and/or sale of the AACLP Partnership Interests for UDR Units and/or cash or
any subsequent transaction effected by the Transferors relating to such UDR
Units or cash. The Transferors have no responsibility to indemnify the
Company or the Company Partnership for the consequence to the Company or
the Company Partnership of the transactions contemplated hereby.
<PAGE>
11. Termination. This Agreement shall terminate and neither party
shall have any further liability hereunder at such time if the Merger
Agreement shall be terminated pursuant to Article VII thereof.
12. Notices. All notices, requests, claims, demands and other
communications under this Agreement shall be in writing and shall be deemed
given if delivered personally, sent by overnight courier (providing proof
of delivery) to the parties or sent by telecopy (providing confirmation of
transmission) at the following addresses or telecopy numbers (or at such
other address or telecopy number for a party as shall be specified by like
notice):
a. if to the Company or the Company Operating Partnership, to:
10 South Sixth Street
Richmond, VA 23219-3802
Attn: James Dolphin, Executive Vice President
Fax: (804) 343-1912
with copies to:
10 South Sixth Street
Richmond, VA 23219-3802
Attn: Katheryn E. Surface, Senior Vice President and
General Counsel
Fax: (804) 788-4607
and
HUNTON & WILLIAMS
951 East Byrd Street
Richmond, VA 23219-4074
Attn: James W. Featherstone, III
Fax: (804) 788-8212
b. if to the Transferors, to:
<PAGE>
AMERICAN APARTMENT COMMUNITIES
OPERATING PARTNERSHIP, L.P.
615 Front Street
San Francisco, CA 94111
Attn: James D. Klingbeil, Chief Executive Officer
Fax: (415) 362-5805
with copies to:
AMERICAN APARTMENT COMMUNITIES
OPERATING PARTNERSHIP, L.P.
21 West Broad Street, 11th Floor
Columbus, OH 43215
Attn: George R. Nickerson, Esq., General Counsel
Fax: (614) 220-8912
and
GIBSON, DUNN & CRUTCHER LLP
333 South Grand Avenue
Los Angeles, CA 90071
Attn: Kenneth M. Doran, Esq.
Fax: (213) 229-7520
and
SCHNITZER INVESTMENT CORP.
3200 Nw Yeon
Portland, OR 97210-1524
Attn: Kenneth M. Novack
Fax: (503) 323-2793
13. Benefit. The rights and obligations of the parties hereto shall be
binding upon and shall inure to the benefit of such parties and their
respective heirs, executors, administrators, legal representatives,
successors and assigns.
14. Entire Agreement. This Agreement, along with the Merger Agreement
and the Investment Agreement, contain the entire agreement between the
parties hereto with respect to the subject matter hereof, and all prior
negotiations, understandings and agreements are merged herein. This
Agreement may not be modified or rescinded except pursuant to a written
instrument signed by the party against whom enforcement is sought.
<PAGE>
15. Governing Law. This Agreement and the rights and obligations of
the parties hereto shall be governed by and construed in accordance with
the laws of the Commonwealth of Virginia, without regard to its conflicts
of laws provisions.
16. Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement
and shall become effective when one or more counterparts have been signed
by each of the parties and delivered to the other parties.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Partnership
Interest Purchase and Exchange Agreement as of the day and year first above
written.
THE COMPANY OPERATING PARTNERSHIP:
UNITED DOMINION REALTY, L.P.
BY: United Dominion Realty Trust, Inc.,
its General Partner
By:
-----------------------------------
Name:
Title:
THE COMPANY:
UNITED DOMINION REALTY TRUST, INC.:
By:
-----------------------------------
Name:
Title:
TRANSFERORS:
AMERICAN APARTMENT COMMUNITIES
OPERATING PARTNERSHIP, L.P., a
Delaware limited partnership
BY: American Apartment Communities, Inc.,
its General Partner
By:
-----------------------------------
Name:
Title:
<PAGE>
AAC MANAGEMENT LLC, a Delaware
limited liability company
By:
-----------------------------------
Name:
Title:
FOX POINT LTD., an Ohio limited liability
company and successor to Klingbeil II
Limited Partnership, an Ohio limited
partnership
By:
-----------------------------------
Name:
Title:
SCHNITZER INVESTMENT CORP., an
Oregon corporation
By:
-----------------------------------
Name:
Title:
JAMES D. KLINGBEIL, an individual
----------------------------------------
<PAGE>
SIGNATURE COPY
EXHIBIT A
CONTRIBUTORS AND AGGREGATE UNIT CONSIDERATION
Contributors
- ------------------------
American Apartment
Communities Operating
Partnership, L.P.
AAC Management LLC
Schnitzer Investment Corp.
Aggregate
Number of
UDR Units
to be Received
- -------------------------
5,614,035
<PAGE>
SIGNATURE COPY
EXHIBIT B
SELLERS AND AGGREGATE CASH CONSIDERATION
Sellers
- ------------------------------------
Fox Point Ltd.
Schnitzer Investment Corp.
James D. Klingbeil
AAC Management LLC
Aggregate
Cash
to be Received
- ---------------------------
$9,210,678
<PAGE>
SIGNATURE COPY
SCHEDULE 5A
All AAC Properties
1. Foothills Tennis Village
2. Pine Avenue
3. Silk Oak
4. Windward Point
5. Greensview
6. Doubletree
7. Clocktower
8. Crown Pointe
9. Hilltop
10. Hickory Creek
11. Regency Park South
12. Cold Springs Manor
13. 2900 Place
14. Lakewood
15. Nemoke Trail
16. Kings Gate
17. Ashton Pines
18. American Heritage
19. Parker's Landing
20. Polo Chase
21. University Village
22. The Pointe at Northridge
23. The Pointe at Westlake
24. Heather Plaza
25. Pine Grove
26. Boronda Manor
27. Capri
28. Laurel Tree
29. Old San Pablo
30. New San Pablo
31. Valli Hi
32. Harding Park Townhomes
33. Garden Court
34. Santanna
35. Glenridge
36. The Claremont
37. Lancaster Lakes
38. The Pointe at Harden Ranch
39. The Grand Resort
40. Sugar Mill Creek
41. Brandywine
<PAGE>
42. Fountainhead
43. Grandview Terrance
44. Sunset Village
45. Tivoli of Columbus
46. Mountain View
47. Lancaster Commons
48. Marina Playa
49. Birch Creek
50. Woodlake Village
51. International Village
52. University Park
53. Tualatin Heights
54. Governour's Square
55. Jamestown of St. Matthews
56. Jamestown of Toledo
57. Northbay (Highlands of Marin)
58. Winterland (2000 Post)
59. Alexandria Executive Club*
60. Arlington Executive Club*
- -------------------------
* Subject to Section 5.13 of the Merger Agreement
* Subject to Section 5.13 of the Merger Agreement
<PAGE>
SIGNATURE COPY
SCHEDULE 5B
12 Year Properties
1. Fountainhead
2. Grandview Terrace
3. Sunset Village
4. Tivoli of Columbus
5. Mountain View
6. Lancaster Commons
7. Marina Playa
8. Birch Creek
9. Woodlake Village
10. International Village
11. University Park
12. Tualatin Heights
<PAGE>
SIGNATURE COPY
SCHEDULE 5C
Other AAC Properties
1. Governour's Square
2. Jamestown of St. Matthews
3. Jamestown of Toledo
4. Northbay (Highlands of Marin)
5. Winterland (2000 Post)
6. Alexandria Executive Club*
7. Arlington Executive Club*
<PAGE>
SIGNATURE COPY
EXHIBIT C
[Form of Investment Agreement]
<PAGE>
SIGNATURE COPY
EXHIBIT D
[Form of Third Amended and Restated Partnership Agreement]
INVESTMENT AGREEMENT
among
UNITED DOMINION REALTY TRUST, INC.
a Virginia corporation
UNITED DOMINION REALTY, L.P.
a Virginia limited partnership
AMERICAN APARTMENT COMMUNITIES II, INC.
a Maryland corporation
AMERICAN APARTMENT COMMUNITIES III, L.P.
a Delaware limited partnership
AMERICAN APARTMENT COMMUNITIES OPERATING PARTNERSHIP, L.P.
a Delaware limited partnership
SCHNITZER INVESTMENT CORP.
an Oregon corporation
AAC MANAGEMENT LLC
a Delaware limited liability company
and
LF STRATEGIC REALTY INVESTORS, L.P.
a New York limited partnership
Dated: September , 1998
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I CERTAIN DEFINITIONS........................................ 2
ARTICLE II REPRESENTATIONS AND WARRANTIES............................ 5
ARTICLE III LOCK-UP AGREEMENT........................................ 6
Section 3.1.................................................. 6
ARTICLE IV REGISTRATION RIGHTS....................................... 9
Section 4.1 Registration..................................... 9
Section 4.2 State Securities Laws............................ 12
Section 4.3 Expenses......................................... 12
Section 4.4 Indemnification by the Company................... 12
Section 4.5 Agreements of Transaction Party Affiliates....... 13
Section 4.6 Suspension of Registration Requirement:
Restriction on Sale............................ 14
Section 4.7 Contribution..................................... 15
Section 4.8 No Other Obligation to Register.................. 16
Section 4.9 Exchange Act Compliance.......................... 16
Section 4.10 Breach of Agreement............................. 16
ARTICLE V STANDSTILL AGREEMENT....................................... 17
Section 5.1 Standstill....................................... 17
Section 5.2 Termination of Certain Restrictions.............. 18
ARTICLE VI GENERAL PROVISIONS........................................ 20
Section 6.1 Notices.......................................... 20
Section 6.2 Successors and Assigns........................... 23
Section 6.3 Counterparts..................................... 24
Section 6.4 Governing Law.................................... 24
Section 6.5 Severability..................................... 24
Section 6.6 Entire Agreement; Amendment; Waiver.............. 24
Section 6.7 Interpretation; Absence of Presumption........... 24
<PAGE>
INVESTMENT AGREEMENT
This Investment Agreement (this "Agreement") is entered into as
of September _, 1998 by and among United Dominion Realty Trust, Inc., a
Virginia corporation (the "Company"), United Dominion Realty, L.P., a
Virginia limited partnership (the "Company Operating Partnership"),
American Apartment Communities II, Inc., a Maryland corporation ("AAC"),
American Apartment Communities III, L.P., a Delaware limited partnership
("AAC III"), American Apartment Communities Operating Partnership, L.P., a
Delaware limited partnership ("AACOP"), Schnitzer Investment Corp., an
Oregon corporation ("Schnitzer"), AAC Management LLC, a Delaware limited
liability company ("AACM" and, collectively with AACOP and Schnitzer, the
"UDR Unit Holders"), and LF Strategic Realty Investors, L.P., a New York
limited partnership (the "Preferred Holder" and, collectively with the UDR
Unit Holders, the "Holders").
RECITALS
WHEREAS, pursuant to that certain Partnership Interest Purchase
and Exchange Agreement, dated September 9, 1998 (the "Exchange Agreement"),
among the Company Operating Partnership, AACLP, Schnitzer, AACOP and AACM,
concurrently herewith the Unit Holders are receiving common units of
limited partnership interest in the Company Operating Partnership (the "UDR
Units"), which UDR Units may be redeemed by the holders thereof for cash
or, at the election of the Company, exchanged for shares of common stock of
the Company, $1 par value ("Common Stock");
WHEREAS, pursuant to that certain Agreement and Plan of Merger,
dated September 9, 1998 (the "Merger Agreement"), between the Company and
AAC concurrently herewith the Preferred Holder is receiving shares of the
Company's Series D Cumulative Convertible Preferred Stock (the "Preferred
Shares"), which Preferred Shares may be converted into shares of Common
Stock;
WHEREAS, AACM proposes to contribute to AAC III certain of the
UDR Units that it will receive pursuant to the Exchange, which contribution
has been consented to by the Company and the Company Operating Partnership
provided AAC III joins in this Agreement as a party hereto; and
WHEREAS, it is a condition precedent to the obligation of the
Holders to consummate the transactions described in the Exchange Agreement
and the Merger Agreement that the Company provide the Holders with the
registration rights set forth in Article IV.
NOW, THEREFORE, in consideration of the foregoing, the mutual
promises and agreements set forth herein, and other valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties
hereto hereby agree as follows:
<PAGE>
ARTICLE I
CERTAIN DEFINITIONS
As used in this Agreement, in addition to the other terms defined
herein the following capitalized defined terms shall have the following
meanings:
"AAC Affiliate" shall mean any Person who was an "affiliate" of
AAC (within the meaning of paragraph (c) of Rule 145) at the time the
Merger was submitted for the vote or consent of the security holders of
AAC.
"AACLP" shall mean American Apartment Communities II, L.P., a
Delaware limited partnership.
"Affiliate" shall have the meaning ascribed to such term in Rule
12b-2 under the Exchange Act.
"Average Market Capitalization" on or as of any date shall mean
the Company's average common equity market capitalization for the ten
consecutive Trading Days prior to but not including such date. The number
of shares of Common Stock into which the Preferred Shares outstanding at
the determination date are convertible shall be taken into account in any
determination of Average Market Capitalization; otherwise, Average Market
Capitalization shall not be determined on a Fully-Diluted Basis.
"Beneficial Ownership" shall be determined in accordance with
Rule 13d-3 of the SEC under the Exchange Act. "Beneficially Own" shall have
a correlative meaning.
"Board" shall mean the Board of Directors of the Company.
"Change of Control" shall mean (i) the merger or consolidation of
the Company with any other real estate investment trust, corporation or
other business entity, in which the Company is not the survivor (without
respect to the legal structure of the transaction), (ii) the transfer or
sale of all or substantially all of the assets of the Company other than to
an Affiliate or subsidiary of the Company, (iii) the liquidation of the
Company, (iv) the acquisition by any person or by a group of persons acting
in concert, of more than 50% of the outstanding voting securities of the
Company, which results in the resignation or addition of 50% or more
members of the Board or the resignation or addition of 50% or more
independent members of the Board, or (v) cessation for any reason of those
directors of the Company who were elected at the annual meeting of
shareholders of the Company immediately preceding the determination date
(together with any new directors elected after such annual meeting whose
election by the Board or whose nomination for election by the shareholders
of the Company was approved by a vote of 66 2/3% of the directors who were
either elected at such annual meeting or whose election or nomination for
election was previously so approved) to constitute a majority of the Board
in office on the determination date.
<PAGE>
"Control" shall mean with respect to any Person the power to
direct the management and policies of such Person, directly or indirectly,
whether through ownership of voting securities, by contract or otherwise.
"Controlled" shall have a correlative meaning.
"Conversion Shares" shall mean any shares of Common Stock into
which Preferred Shares are convertible or which may be issued in exchange
for UDR Units upon redemption of such UDR Units.
"Exchange" shall mean the exchange of units of limited
partnership in AACLP for cash and UDR units contemplated by the Exchange
Agreement.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Family Member" shall mean any of the following who is at least
18 years of age: a spouse, a child (natural or adopted), a spouse of any
child, a sibling or a lineal descendant of any of the foregoing, or a trust
for the benefit of any of the foregoing, without regard to the age of the
beneficiary or beneficiaries, provided such trust will not terminate in
respect of any of the foregoing who is a beneficiary until such beneficiary
attains 18 years of age.
"First-Tier Transferee" shall mean any Permitted Preferred Share
Transferee (as defined in Section 3.1(c)), any security holder of the
Preferred Holder to whom Preferred Shares are distributed and any security
holder of a UDR Unit Holder or Family Member of such security holder to
whom UDR Units are distributed.
"Fully-Diluted Basis" as a qualifier of any determination to be
made pursuant to this Agreement shall mean that number of shares of Common
Stock then outstanding, plus the number of shares of Common Stock issuable
upon conversion or exchange of other securities which are then convertible
into or exchangeable for Common Stock, plus the number of votes which may
be cast by holders of other securities of the Company then outstanding that
are entitled to vote with the holders of the Common Stock as a single
voting group shall be taken into account in making such determination.
"Group" shall mean a "group," as such term is used in Section
13(d)(3) of the Exchange Act, identified in a Schedule 13D filed or
proposed to be filed with respect to the Company.
"Merger" shall mean the merger of AAC with and into the Company
contemplated by the Merger Agreement.
"NASD" shall mean the National Association of Securities Dealers,
Inc.
"NYSE" shall mean the New York Stock Exchange.
"Partnership Agreement" shall mean the agreement of limited
partnership, as amended, of the Company Operating Partnership.
<PAGE>
"Person" shall mean an individual, partnership, corporation,
trust, or unincorporated organization, or a government or agency or
political subdivision thereof.
"Prospectus" shall mean the prospectus included in a Registration
Statement, including any preliminary prospectus, as amended or supplemented
from time to time, and any documents incorporated by reference therein.
"Registration Expenses" shall mean any and all expenses incident
to performance of or compliance with this Agreement, including, without
limitation: (i) all SEC, stock exchange or NASD registration and filing
fees; (ii) all fees and expenses incurred in connection with compliance
with state securities or "blue sky" laws (including reasonable fees and
disbursements of counsel in connection with "blue sky" qualification of any
of the Conversion Shares and the preparation of a Blue Sky Memorandum) and
compliance with the rules of the NASD; (iii) all expenses of any Persons in
preparing or assisting in preparing, word processing, printing and
distributing any Registration Statement, any Prospectus, certificates and
other documents relating to the performance of and compliance with this
Agreement; (iv) all fees and expenses incurred in connection with the
listing, if any, of any of the Conversion Shares on any securities exchange
or exchanges pursuant to Section 4.1(d) hereof; and (v) the fees and
disbursements of counsel for the Company and of the independent public
accountants of the Company, including the expenses of any special audit or
"cold comfort" letters required by or incident to such performance and
compliance. Registration Expenses shall specifically exclude underwriting
discounts and commissions relating to the sale or disposition of Conversion
Shares by any Holder or Transaction Party Affiliate, the fees and
disbursements of counsel representing any Holder or Transaction Party
Affiliate, and transfer taxes, if any, relating to the sale or disposition
of Conversion Shares by any Holder or Transaction Party Affiliate, all of
which shall be borne by such Holder or Transaction Party Affiliate in all
cases.
"Registration Statement" shall mean any registration statement of
the Company that covers the issuance of any Conversion Shares and/or the
reoffering thereof by a Transaction Party Affiliate on an appropriate form,
and all amendments and supplements to such registration statement,
including post-effective amendments, in each case including the Prospectus
contained therein, all exhibits thereto and all materials incorporated by
reference therein.
"Rule 144" shall mean Rule 144 under the Securities Act.
"Rule 145" shall mean Rule 145 under the Securities Act.
"SEC" shall mean the Securities and Exchange Commission.
"Securities" shall mean the Preferred Shares and the UDR Units
collectively or, as the context may indicate, either the Preferred Shares
or the UDR Units, and shall include any Conversion Shares or other
securities of the Company issued or issuable upon conversion or exchange
thereof.
<PAGE>
"Securities Act" shall mean the Securities Act of 1933, as
amended.
"Trading Day" for purposes of any computation pursuant to this
Agreement in which the market value of any security of the Company is taken
into account, shall mean any day on which such security is traded on the
NYSE, or if such security is not listed or admitted for trading on the
NYSE, on the principal national securities exchange on which such security
is listed or admitted for trading, or if not listed or admitted for trading
on any national securities exchange, on the NASDAQ National Market or, if
such security is not quoted on the NASDAQ National Market, in the
applicable securities market in which the security is traded.
"Transaction Party Affiliate" shall mean any AAC Affiliate or any
Holder or First-Tier Transferee who becomes a UDR Affiliate as a result of
the Merger or the Exchange and shall include any pledgee for whom a
Registration Statement is filed pursuant to Section 4.1(a)(iv) or (v).
"UDR Affiliate" shall mean any Person who is an "affiliate" of
the Company within the meaning of paragraph (a)(1) of Rule 144.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
In order to assure the Company's compliance with applicable
securities laws, each Holder represents and warrants to the Company as of
the date of this Agreement, as follows:
(a) Such Holder is an "accredited investor" as defined in
Rule 501(a) of the Securities Act.
(b) Such Holder is aware that the Securities have not been
registered under the Securities Act.
(c) The Securities are being acquired for such Holder's own
account without any intention to distribute or resell the Securities in
violation of the Securities Act or any applicable state securities or "blue
sky" law.
(d) Such Holder has received and thoroughly read and
evaluated the information concerning the Company and the Company
Operating Partnership provided to such Holder by the Company, through
the management of AAC, in connection with the Merger and the Exchange,
and has been given the opportunity to ask questions of, and receive
answers from, the Company and its authorized representatives
concerning the terms and conditions of the Merger and the Exchange and
to obtain such additional information from the Company and its
authorized representatives as such Holder has considered appropriate.
Such Holder has assumed the accuracy and completeness of all such
information and that such information did not omit to
<PAGE>
state a material fact necessary to make such information not
misleading in light of the circumstances.
(e) Such Holder has sought such accounting, legal and
tax advice as such Holder has considered necessary to make an informed
investment decision.
(f) Such Holder is experienced in investment and
business matters (or has been advised by an investment advisor who is
so experienced), and understands fully the nature of the risks
involved in an investment in the Securities.
(g) (i) Such Holder's office address as set forth in
Section 6.1 hereof is correct; (ii) such Holder is not a foreign
Person for purposes of U.S. income taxation; and (iii) such Holder is
not subject to backup withholding either because Holder has not been
notified by the Internal Revenue Service ("IRS") that Holder is
subject to backup withholding as a result of a failure to report all
interest or dividends, or because Holder has been notified by the IRS
that Holder is no longer subject to backup withholding.
(h) All information that such Holder has provided to
the Company, directly or indirectly, concerning such Holder's
financial position and such Holder's knowledge of financial and
business matters is correct and complete as of the date hereof, and if
there should be any material change in such information prior to the
delivery of the Securities to such Holder, such Holder will
immediately notify the Company.
ARTICLE III
LOCK-UP AGREEMENT
Section 3.10
(a) (i) The Preferred Holder agrees that until the
second anniversary of the date of original issue of the
Securities (the "Lock-up Period"), except as otherwise
provided in this Agreement, the Preferred Holder will not
offer, pledge, sell, contract to sell, grant any options for
the sale of, seek the redemption or exchange of, transfer,
distribute or otherwise dispose of, directly or indirectly
(collectively "Dispose Of"), any of the Preferred Shares or
Conversion Shares into which Preferred Shares have been
converted.
(ii) Following the second anniversary of the date of
original issuance of the Preferred Shares and during any 12
month period thereafter, except as otherwise provided in
this Agreement, the Preferred Holder shall be entitled to
Dispose Of Preferred Shares, Conversion Shares or a
combination of Preferred Shares and Conversion Shares
representing up to the greater of (i) 50% of the original
number of
<PAGE>
Preferred Shares, or their equivalent in Conversion Shares,
or a combination of Preferred Shares and Conversion Shares
representing up to 50% of the original number of Preferred
Shares or (ii) the number of Conversion Shares or equivalent
number of Preferred Shares, or a combination thereof,
equaling the number of shares of Common Stock the total
closing sale price of which on the NYSE on the day before
the day on which the Preferred Holder seeks to Dispose Of
such Securities is not more than 5% of Average Market
Capitalization on such date. For purposes of this Section
3.1(a)(ii) and Section 3.1(c), a number of Preferred Shares
shall be deemed to be equivalent to the number of Conversion
Shares into which it is convertible at the Conversion Price
provided in the Company's Articles of Incorporation on the
determination date, and a number of Conversion Shares shall
be deemed to be equivalent to the number of Preferred Shares
that, if converted at such Conversion Price, would equal
such number of Conversion Shares.
(iii) The restrictions in Sections 3.1(a)(i) and
3.1(a)(ii) shall terminate upon the occurrence of any
Standstill Termination Event. The restrictions in Section
3.1(a)(i) shall terminate upon any breach by the Company of
its obligations under Article IV.
(b) (i) Each UDR Unit Holder agrees that during the
Lock-up Period, except as otherwise provided in this
Agreement, such UDR Unit Holder will not redeem any of the
UDR Units.
(ii) After the first anniversary, and prior to the
second anniversary, of the date of original issue of the
Securities, the UDR Unit Holders may collectively redeem in
accordance with the Partnership Agreement UDR Units having
an aggregate value not exceeding $15,000,000. The ability of
the UDR Unit Holders to redeem up to an aggregate of
$15,000,000 pursuant to the preceding sentence shall be
allocated among such UDR Unit Holders pro-rata, based upon
the number of UDR Units issued to each UDR Unit Holder
pursuant to the Exchange Agreement. For purposes of this
Section 3.1(b)(ii), the value of the UDR Units shall be
assumed to be equal to the Cash Amount (as defined in the
Partnership Agreement) that the Company Operating
Partnership would be obligated to pay to the UDR Unit
Holders upon redemption of such UDR Units pursuant to
Article VIII of the Partnership Agreement.
(iii) The restrictions in Sections 3.1(b)(i) and
3.1(b)(ii) shall terminate upon the occurrence of any
Standstill Termination Event described in Section
5.2(b)(ii), (iii), (iv) or (v). The restrictions in Section
3.1(b)(i) shall terminate upon any breach by the Company of
its obligations under Article IV. Upon any such termination
pursuant to this Section 3.1(b)(iii), such UDR Unit Holders
may redeem any or all UDR Units thereafter if the UDR Units
are then redeemable under the terms of the Partnership
Agreement. Such termination shall not affect any provision
of the Partnership Agreement restricting or otherwise
relating to redemption of UDR Units.
<PAGE>
(c) The Preferred Holder may distribute any of its Preferred
Shares and Conversion Shares to its security holders (any such
security holder, a "Permitted Preferred Share Transferee") if before
such distribution it shall deliver to the Company:
(i) an opinion of counsel reasonably acceptable to the
Company that such distribution will not constitute or result
in a violation of the registration requirements of the
Securities Act and state "blue sky" laws,
(ii) agreements substantially identical in form and
substance to this Agreement executed by each Permitted
Preferred Share Transferee who will together with the
Controlled Affiliates of such Permitted Preferred Share
Transferee Beneficially Own as a result of such distribution
more than 40% of the original number of Preferred Shares, or
their equivalent in Conversion Shares, or a combination of
Preferred Shares and Conversion Shares representing more
than 40% of the original number of Preferred Shares.
Upon any such distribution, each Permitted Preferred Share Transferee
shall continue to be bound by Section 3.1(a)(i), shall be entitled to
all of the rights of, subject to all limitations and obligations
applicable to, the Preferred Holder under Article IV, and, except as
contemplated by Section 3.1(c)(ii), shall not be bound by Section 5.1
but shall be entitled to the benefits of Section 5.2.
(d) The Company and the Company Operating Partnership
will consider any proposal by any UDR Unit Holder to
distribute any of its UDR Units and Conversion Shares to its
security holders and, in the case of any such security
holder who is an individual, such individual's Family
Members, in light of factors relevant at the time of such
proposal, including but not limited to whether such proposed
distribution is likely to cause the Company Operating
Partnership to be a "publicly traded partnership" as defined
in Section 7704 of the Internal Revenue Code of 1986, as
amended, and whether all participants in such proposed
distribution are "accredited investors" as defined in Rule
501(a) under the Securities Act. This Section 3.1(d) shall
not be construed to require consent to any such proposal,
and any such distribution, if consented to, shall be subject
to all applicable provisions of the Partnership Agreement.
(e) Notwithstanding Sections 3.1(a)(i) and 3.1(a)(ii),
the Preferred Holder may from time to time, in a transaction
or transactions entered into bona fide and not for the
purpose of evading any provision of this Agreement, pledge
all or any of the Preferred Shares (i) to a bank or other
financial institution to secure obligations for borrowed
money or (ii) as margin collateral. Upon foreclosure or
private sale under any such pledge, neither the pledgee nor
any transferee of the pledgee shall be bound by or entitled
to any benefits or rights under any provision of this
Agreement (except this Section 3.1(e) and Article IV). Prior
to any such pledge, foreclosure or private sale, the Company
shall receive an opinion of counsel reasonably acceptable to
the Company to the effect that the applicable transaction
will not constitute or
<PAGE>
result in a violation of the registration requirements of the
Securities Act and state "blue sky" laws.
(f) Notwithstanding Sections 3.1(b)(i) and 3.1(b)(ii),
any UDR Unit Holder may from time to time, in a transaction
or transactions entered into bona fide and not for the
purpose of evading any provision of this Agreement, pledge
all or any of its UDR Units (i) to a bank or other financial
institution to secure obligations for borrowed money or (ii)
as margin collateral, provided, however, that the pledgee
shall agree that upon any foreclosure or private sale under
such pledge, all such UDR Units will be sold to not more
than one purchaser. Upon any such foreclosure or private
sale, neither the pledgee nor any transferee of the pledgee
shall be bound by or entitled to any benefits or rights
under any provision of this Agreement (except this Section
3.1(f) and Article IV). Prior to any such pledge,
foreclosure or private sale, the Company shall receive an
opinion of counsel reasonably acceptable to the Company to
the effect that the applicable transaction will not
constitute or result in a violation of the registration
requirements of the Securities Act and state "blue sky"
laws. The provisions of Article IX of the Partnership
Agreement shall apply to any such foreclosure or private
sale as though the pledgee were the transferor Limited
Partner, as defined in the Partnership Agreement, referred
to therein and the purchaser on foreclosure or in the
private sale were the assignee of such transferor Limited
Partner.
ARTICLE IV
REGISTRATION RIGHTS
Section 4.10...Registration.
(a) Filing of Registration Statement. Subject to the
conditions set forth in this Agreement, the Company shall file a
Registration Statement:
(i) with respect to Conversion Shares issuable upon exchange
for UDR Units redeemable in accordance with Section
3.1(b)(ii), not later than 14 days after the first
anniversary of the date of original issue of the Securities,
(ii) with respect to the Conversion Shares issuable upon
conversion of the Preferred Shares, not later than 14 days
after the earlier of (A) the first anniversary of the date
of original issue of the Securities or (B) the occurrence of
a Standstill Termination Event,
(iii) with respect to the Conversion Shares issuable upon
exchange for UDR Units other than those, if any, with
respect to which a Registration Statement has been filed
(and continues to be effective) pursuant to (i) above, not
later than 14 days after the earlier of (A) expiration of
the Lock-up Period or (B) termination of the restrictions in
Section 3.1(b)(i) and 3.1(b)(ii),
<PAGE>
(iv) with respect to Conversion Shares issuable on
conversion of Preferred Shares pledged pursuant to
Section3.1(e) other than such Conversion Shares, if any,
with respect to which a Registration Statement has been
filed (and continues to be effective) pursuant to (ii)
above, promptly after receipt of notice from the pledgee of
a foreclosure on or private sale of such Conversion Shares
pursuant to such pledge, and (v) with respect to Conversion
Shares issuable upon exchange of UDR Units pledged pursuant
to Section3.1(f) other than such Conversion Shares, if any,
with respect to which a Registration Statement has been
filed (and continues to be effective) pursuant to (i) above,
promptly after receipt of notice from the pledgee of a
foreclosure on or private sale of such Conversion Shares
pursuant to such pledge,
and shall cause such Registration Statement to be declared effective
by the SEC as soon as practicable but in no event later than 60 days
after filing. The Company agrees to use reasonable efforts to keep the
Registration Statement, after its date of effectiveness, continuously
effective in accordance with Section 4.1(c). The Company will include
in any Registration Statement relating to Conversion Shares issued to
a Transaction Party Affiliate the disclosures necessary to enable such
Transaction Party Affiliate to reoffer such Conversion Shares in
compliance with the Securities Act by delivery of the Prospectus
included therein, unless such use of such Registration Statement is
prohibited by any rule or regulation (including staff interpretation)
of the SEC, in which case the Company shall file simultaneously with
such Registration Statement a separate Registration Statement relating
to the reoffer of such Conversion Shares by such Transaction Party
Affiliate (a "Reoffer Registration Statement"), shall cause such
Reoffer Registration Statement to be declared effective by the SEC as
soon as practicable but in no event later than 60 days after filing,
and shall use reasonable efforts to keep such Reoffer Registration
Statement, after its date of effectiveness, continuously effective in
accordance with Section 4.1(c). The term "Reoffer Registration
Statement" shall include any Registration Statement applicable to both
the issuance of Conversion Shares and the reoffer of such Conversion
Shares by a Transaction Party Affiliate. In the event that under any
rule or regulation (including staff interpretation) of the SEC, a
Registration Statement filed pursuant to this Section 4.1(a) may not
be used to register Conversion Shares for purposes of distribution of
such Conversion Shares to any Holder and/or any First-Tier Transferee,
such Registration Statement shall relate to the reoffer of such
Conversion Shares by such Holder and/or such First-Tier Transferee,
such Registration Statement shall be deemed a Reoffer Registration
Statement for purposes of this Article IV, and the Holder and /or each
such First-Tier Transferee shall be deemed a Transaction Party
Affiliate for such purposes. The Company shall not be deemed to be in
breach of this Section 4.1(a) if the SEC refuses to accept or make
effective a Reoffer Registration Statement filed pursuant to (ii)
above because the Conversion Shares to which such Registration
Statement relates are subject to the restrictions in Section
3.1(a)(1), provided the Company refiles such Reoffer Registration
Statement promptly after such restrictions terminate and causes such
<PAGE>
Reoffer Registration Statement to be declared effective by the SEC as
soon as practicable but in no event later than 60 days after refiling.
(b) Notification and Distribution of Materials. The Company
shall promptly notify each Transaction Party Affiliate of the
effectiveness of any Reoffer Registration Statement applicable to
Conversion Shares issued to such Transaction Party Affiliate or
pledgee and shall furnish to such Transaction Party Affiliate such
number of copies of such Reoffer Registration Statement (including any
amendments, supplements and exhibits), the Prospectus contained
therein (including each preliminary prospectus and all related
amendments and supplements) and any documents incorporated by
reference in the Reoffer Registration Statement or such other
documents as such Transaction Party Affiliate may reasonably request
in order to facilitate the reoffer and sale of such Conversion Shares
in the manner described in such Reoffer Registration Statement.
(c) Amendments and Supplements. The Company shall prepare
and file with the SEC from time to time such amendments and
supplements to each Registration Statement and Prospectus used in
connection therewith as may be necessary to keep such Registration
Statement effective and, in the case of a Reoffer Registration
Statement, to comply with the provisions of the Securities Act with
respect to the disposition of the Conversion Shares offered by the
Transaction Party Affiliates for which such Reoffer Registration
Statement is filed, until all Conversion Shares have been issued upon
conversion of Preferred Shares and exchange of UDR Units and, in the
case of such Reoffer Registration Statement, until the earlier of (a)
the date on which such Transaction Party Affiliates no longer hold any
Conversion Shares or (b) in the case of Transaction Party Affiliates
who are AAC Affiliates, the date on which no such Transaction Party
Affiliates are deemed to be engaged in a distribution by reason of
paragraph (d)(3) of Rule 145, or, in the case of Transaction Party
Affiliates who are UDR Affiliates and Persons who are deemed to be
Transaction Party Affiliates pursuant to the last sentence of Section
4.1(a), the Conversion Shares held by such Transaction Party
Affiliates or deemed Transaction Party Affiliates become eligible for
sale under paragraph (k) of Rule 144 (the "Reoffer Registration
Expiration Date"). Upon 20 business days' notice from a Transaction
Party Affiliate, the Company shall file any supplement or
post-effective amendment to a Reoffer Registration Statement with
respect to such Transaction Party Affiliate's plan of distribution,
such Transaction Party Affiliate's ownership interests in securities
of the Company, or other matters required to be disclosed therein,
that is reasonably necessary to permit the reoffer and sale of such
Transaction Party Affiliate's Conversion Shares pursuant to such
Reoffer Registration Statement. The Company shall cause the Conversion
Shares registered under any Registration Statement to be then listed
or quoted on the primary exchange or quotation system on which the
Common Stock is then listed or quoted.
(d) Notice of Certain Events. The Company shall promptly
notify each Transaction Party Affiliate of, and confirm in writing,
the filing of a Reoffer Registration Statement relating to the
Conversion Shares of such Transaction Party Affiliate or any
Prospectus, amendment or supplement related thereto or any
post-effective amendment to such Reoffer Registration Statement and
the effectiveness of such
<PAGE>
Reoffer Registration Statement and any post-effective amendment.
At any time when a Prospectus included in a Reoffer
Registration Statement is required to be delivered under the
Securities Act by a Transaction Party Affiliate, the Company shall
immediately notify each Transaction Party Affiliate of the happening
of any event as a result of which the Prospectus included in such
Reoffer Registration Statement, as then in effect, includes an untrue
statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading. In such event, the Company shall promptly prepare and
furnish to each applicable Transaction Party Affiliate a reasonable
number of copies of a supplement to or an amendment of such Prospectus
as may be necessary so that, as thereafter delivered to offerees of
such Transaction Party Affiliate's Conversion Shares, such Prospectus
shall not include an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which
they are made, not misleading. The Company will, if necessary, amend
the Reoffer Registration Statement of which such Prospectus is a part
to reflect such amendment or supplement.
Section 4.20 State Securities Laws.
Subject to the conditions set forth in this Agreement, the
Company shall, in connection with the filing of any Registration
Statement hereunder, file such documents as may be necessary to
register or qualify the Conversion Shares to which such Registration
Statement relates (with respect to the issuance of such Conversion
Shares and, if applicable, the subsequent resale thereof) under the
securities or "blue sky" laws of such states as any Transaction Party
Affiliate offering such Conversion Shares may reasonably request, and
the Company shall use its best efforts to cause such filings to become
effective; provided, however, that the Company shall not be obligated
to qualify as a foreign corporation to do business under the laws of
any such state in which it is not then qualified or to file any
general consent to service of process in any such state. Once
effective, the Company shall use its best efforts to keep such filings
effective until the earlier of (a) the Reoffer Registration Expiration
Date or (b) in the case of a particular state, such Transaction Party
Affiliate has notified the Company that it no longer requires an
effective filing in such state in accordance with its original request
for filing.
Section 4.30 Expenses.
The Company shall bear all Registration Expenses incurred in
connection with the registration of the Conversion Shares pursuant to
this Agreement.
Section 4.40 Indemnification by the Company.
The Company agrees to indemnify each Transaction Party
Affiliate and its officers, directors, employees, agents,
representatives and Transaction Party Affiliates, and each person or
entity, if any, that controls such Transaction Party Affiliate within
the meaning of the Securities
<PAGE>
Act, and each other person or entity, if any, subject to liability
under the Securities Act because of his, her or its connection with a
Transaction Party Affiliate (each, an "Indemnitee"), against any and
all losses, claims, damages, actions, liabilities, costs and expenses
(including without limitation reasonable fees, expenses and
disbursements of attorneys and other professionals), joint or several,
arising out of or based upon any violation by the Company of any rule
or regulation promulgated under the Securities Act applicable to the
Company and relating to action or inaction required of the Company in
connection with any Reoffer Registration Statement or the related
Prospectus relating to Conversion Shares offered by such Transaction
Party Affiliate, or upon any untrue or alleged untrue statement of
material fact contained in such Reoffer Registration Statement or
Prospectus, or any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they
were made, not misleading; provided, that the Company shall not be
liable to such Indemnitee or any person who participates as an
underwriter in the offering or sale of such Conversion Shares or any
other person, if any, who controls such underwriter within the meaning
of the Securities Act, in any such case to the extent that any such
loss, claim, damage, liability (or action or proceeding in respect
thereof) or expense arises out of or is based upon (i) an untrue
statement or alleged untrue statement or omission or alleged omission
made in any such Registration Statement or in any such Prospectus in
reliance upon and in conformity with information regarding such
Transaction Party Affiliate or its plan of distribution that was
furnished to the Company for use in connection with such Reoffer
Registration Statement or related Prospectus by such Transaction Party
Affiliate or (ii) such Transaction Party Affiliate's failure to send
or give a copy of the final, amended or supplemented Prospectus
furnished to such Transaction Party Affiliate by the Company at or
prior to the time such action is required by the Securities Act to the
person claiming an untrue statement or alleged untrue statement or
omission or alleged omission if such statement or omission was
corrected in such final, amended or supplemented Prospectus.
Section 4.50 Agreements of Transaction Party Affiliates.
The Company shall have no obligation or liability to any
Transaction Party Affiliate under this Article IV unless such
Transaction Party Affiliate shall have entered into a written
agreement with the Company or shall otherwise be obligated to the
Company (a) to cooperate with the Company and to furnish to the
Company all such information concerning its plan of distribution with
respect to its Conversion Shares, its ownership of Company securities
and other matters in connection with the preparation of a Reoffer
Registration Statement with respect to such Conversion Shares as the
Company may reasonably request, (b) to deliver or cause delivery of
the Prospectus contained in such Reoffer Registration Statement to any
purchaser of the shares covered by such Registration Statement from
such Transaction Party Affiliate, (c) to indemnify the Company, its
officers, directors, employees, agents, representatives and
Transaction Party Affiliates, and each person, if any, who controls
the Company within the meaning of the Securities Act, and each other
person, if any, subject to liability under the Securities Act because
of this connection with the Company, against any and all losses,
claims, damages, actions, liabilities, costs and expenses arising out
of or based upon (i) any untrue
<PAGE>
statement or alleged untrue statement of material fact contained in
such Reoffer Registration Statement or the related Prospectus, or any
omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not
misleading, if and to the extent that such statement or omission
occurs from reliance upon and in conformity with written information
regarding such Transaction Party Affiliate that was furnished to the
Company in writing by such Transaction Party Affiliate specifically
for use therein, unless such statement or omission was corrected in
writing to the Company not less than three (3) business days prior to
the date of the final Prospectus (as supplemented or amended, as the
case may be) or (ii) the failure of such Transaction Party Affiliate,
through no fault of the Company, to deliver or cause to be delivered
the Prospectus contained in such Reoffer Registration Statement (as
amended or supplemented if applicable) furnished by the Company to
such Transaction Party Affiliate to any purchaser from such
Transaction Party Affiliate of the Conversion Shares to which such
Reoffer Registration Statement relates, (d) if requested by the
Company in the case of a Company-initiated non-underwritten offering,
or if requested by the managing underwriter in a Company-initiated
underwritten offering, not to effect any public sale or distribution
of any Conversion Shares, including a sale pursuant to Rule 144,
during the period of 60 days beginning 15 days prior to the proposed
offering date specified in such request; provided, however, that the
aggregate of all periods of restrictions on resale imposed on any
Transaction Party Affiliate as a result of requests under this Section
4.5(d) and of deferral or suspension of the Company's obligation to
cause a Registration Statement for the Conversion Shares of such
Transaction Party Affiliate or to amend or supplement such a
Registration Statement pursuant to Section 4.6(b) shall not exceed 90
days during any 12 month period, (e) following the effectiveness of
any Reoffer Registration Statement relating to Conversion Shares of
such Transaction Party Affiliate, not to effect any sales of such
Conversion Shares pursuant to such Reoffer Registration Statement at
any time after such Transaction Party Affiliate has received notice
from the Company to suspend sales as a result of the occurrence or
existence of any event referred to in Section 4.6(b) or so that the
Company may correct or update such Reoffer Registration Statement,
provided that such Transaction Party Affiliate may recommence
effecting sales of such Conversion Shares pursuant to such Reoffer
Registration Statement following further notice to such effect from
the Company, which notice shall be given by the Company not later than
five business days after the cessation of any such event, and (f)
incorporating the provisions of Section 4.7.
Section 4.60 Suspension of Registration Requirement:
Restriction on Sale.
(a) The Company shall promptly notify each Transaction Party
Affiliate, and confirm such notice in writing, of (i) the Company's
receipt of any notification with respect to the suspension of the
qualification of such Transaction Party Affiliate's Conversion Shares
for offer or sale in any jurisdiction or the initiation of any
proceedings for that purpose and (ii) the issuance by the SEC of any
stop order suspending the effectiveness of a Reoffer Registration
Statement with respect to such Transaction Party Affiliate's
Conversion Shares or the initiation of any proceedings for that
purpose. The Company shall use its best efforts to obtain the
<PAGE>
withdrawal of any order suspending the effectiveness of such Reoffer
Registration Statement or the qualification of such Conversion Shares
at the earliest possible moment.
(b) Notwithstanding anything to the contrary set forth in
this Agreement, the Company may defer its obligation to cause a
Registration Statement to become effective or to amend or supplement a
Registration Statement for a period of not more than 60 days in the
event of (i) an underwritten primary offering by the Company if the
Company is advised by the managing underwriter of such offering that
the sale of Conversion Shares under such Registration Statement would
impair the pricing or commercial practicality of such offering, or
(ii) pending negotiations relating to, or consummation of, a
transaction or the occurrence of an event that would require
additional disclosure of material information by the Company in such
Registration Statement, as to which the Company has a bona fide
business purpose for preserving confidentiality or which renders the
Company unable to comply with SEC requirements and that would in each
case make it impractical or inadvisable to cause such Registration
Statement to become effective or to amend or supplement such
Registration Statement; provided, however, that the Company shall not
defer or suspend its obligation under this Agreement to cause a
Registration Statement to become effective or to amend or supplement a
Registration Statement pursuant to this Section 4.6(b) for an
aggregate period of more than 90 days during any 12 month period. The
Company shall notify each Holder of the existence and, in the case of
an event referred to in clause (i) of this Section 4.6 (b), the nature
of any such event.
Section 4.70 Contribution.
If the indemnification provided for in Sections 4.4 and
4.5(c) is unavailable to an indemnified party with respect to any
losses, claims, damages, actions, liabilities, costs or expenses
referred to therein or is insufficient to hold the indemnified party
harmless as contemplated therein, then the indemnifying party, in lieu
of indemnifying such indemnified party, shall contribute to the amount
paid or payable by such indemnified party as a result of such losses,
claims, damages, actions, liabilities, costs or expenses in such
proportion as is appropriate to reflect the relative fault of the
indemnifying party, on the one hand, and the indemnified party, on the
other hand, in connection with the statements or omissions that
resulted in such losses, claims, damages, actions, liabilities, costs
or expenses as well as any other relevant equitable considerations.
The relative fault of the indemnifying party, on the one hand, and of
the indemnified party on the other hand, shall be determined by
reference to, among other factors, whether the untrue or alleged
untrue statement of a material fact or omission to state a material
fact relates to information supplied by the indemnifying party or by
the indemnified party and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such
statement or omission; provided, however, that in no event shall the
obligation of any indemnifying party to contribute under this Section
4.7 exceed the amount that such indemnifying party would have been
obligated to pay by way of indemnification if the indemnification
provided for under Sections 4.4 or 4.5(c) had been available under the
circumstances.
<PAGE>
The Company and the Holders agree that it would not be just
and equitable if contribution pursuant to this Section 4.7 were
determined by pro rata allocation or by any other method of allocation
that does not take account of the equitable considerations referred to
in the immediately preceding paragraph.
Notwithstanding the provision of this Section 4.7, no
Transaction Party Affiliate shall be required to contribute any amount
in excess of the amount by which the gross proceeds from the sale of
such Transaction Party Affiliate's Conversion Shares exceeds the
amount of any damages that such Transaction Party Affiliate has
otherwise been required to pay by reason of such untrue or alleged
untrue statement or omission. No indemnified party guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any
indemnifying party who was not guilty of such fraudulent
misrepresentation.
Section 4.80 No Other Obligation to Register.
Except as otherwise expressly provided in this Agreement,
the Company shall have no obligation to the Holders to register the
Conversion Shares under the Securities Act.
Section 4.90 Exchange Act Compliance.
The Company shall maintain registration of the Common Stock
under the Exchange Act and shall timely file all reports required to
be filed thereunder so that the current public information
requirements of paragraph (c) of Rule 144 shall continuously be
complied with.
Section 4.10 Breach of Agreement
No act or omission to act of the Company in contravention of
this Article IV shall be deemed a breach of the Company's obligations
hereunder if (a) such act or omission is cured within 30 days of
receipt of written notice from any Holder or First-Tier Transferee or
(b) in the case of any such act or omission that cannot be cured
within such 30-day period, the Company actively and diligently
attempts to cure such act or omission during such 30-day period and
such act or omission is cured within 30 days thereafter; provided,
however, that this Section 4.10 shall not apply to any failure to file
a Registration Statement within the time limits specified in Sections
4.1(a)(i), (ii) and (iii).
<PAGE>
ARTICLE V
STANDSTILL AGREEMENT
Section 5.10 Standstill.
(a) Each UDR Unit Holder hereby agrees that until the fifth
anniversary of the date of this Agreement, such UDR Unit Holder will
not directly or indirectly:
(i) sell or transfer any Securities to any Person,
except (A) as a participant in a merger, consolidation
or other business combination approved by the Board or
(B) in a transaction on the NYSE or other market in
which such Securities are traded, in which the identity
of the buyer or transferee is not known by the seller
or transferor in advance of the transaction, if such
sale or transfer would result in Beneficial Ownership
by the purchaser or transferee, or any Group of which,
to the actual knowledge of such UDR Unit Holder, the
purchaser or transferee is a member, of more than 9.8%
of the number of shares of Common Stock outstanding at
the time of such sale or transfer, determined on a
Fully-Diluted Basis;
(ii) purchase or acquire Securities or shares of Common
Stock if such purchase or acquisition would result in
Beneficial Ownership by all UDR Unit Holders, including
any Group of which, to the actual knowledge of such UDR
Unit Holder, any UDR Unit Holder is a member, of more
than 9.8% of the number of shares of Common Stock
outstanding at the time of such purchase or
acquisition, determined on a Fully-Diluted Basis;
(iii) solicit, propose or effect any business
combination, liquidation or sale of the Company or
similar extraordinary transaction in which the Company
would not be the survivor;
(iv) seek representation on the Company's Board (except
as provided in the Exchange Agreement);
(v) solicit, initiate, encourage or participate in any
"solicitation" of "proxies" or become a "participant"
in any "election contest" (as such terms are defined or
used in Regulation 14A under the Exchange Act,
disregarding clause (iv) of Rule 14a-1(l)(2) and
including an exempt solicitation pursuant to Rule
14a-2(b)(1)); or
(vi) contest the validity or enforceability of this
Section 5.1, except as a consequence of establishing
the occurrence of any of the events specified in
Sections 5.2(b)(ii), (iii), (iv) or (v).
<PAGE>
(b) The Preferred Holder hereby agrees that until the fifth
anniversary of the date of this Agreement, the Preferred Holder will
not directly or indirectly:
(i) sell or transfer any Securities to any Person,
except (A) as a participant in a merger, consolidation
or other business combination approved by the Board or
(B) in a transaction on the NYSE or other market in
which such Securities are traded, in which the identity
of the buyer or transferee is not known by the seller
or transferor in advance of the transaction, if such
sale or transfer would result in Beneficial Ownership
by the purchaser or transferee, or any Group of which,
to the actual knowledge of the Preferred Holder, the
purchaser or transferee is a member, of more than 9.8%
of the number of shares of Common Stock outstanding at
the time of such sale or transfer, determined on a
Fully-Diluted Basis;
(ii) purchase or acquire Securities or shares of Common
Stock if such purchase or acquisition would result in
Beneficial Ownership by the Preferred Holder and its
Controlled Affiliates in the aggregate of more than 15%
of the number of shares of Common Stock outstanding at
the time of such purchase or acquisition, determined on
a Fully-Diluted Basis;
(iii) solicit, propose or effect any business
combination, liquidation or sale of the Company or
similar extraordinary transaction in which the Company
would not be the survivor;
(iv) seek representation on the Company's Board (except
as provided in the Merger Agreement);
(v) solicit, initiate, encourage or participate in any
"solicitation" of "proxies" or become a "participant"
in any "election contest" (as such terms are defined or
used in Regulation 14A under the Exchange Act,
disregarding clause (iv) of Rule 14a-1(l)(2) and
including an exempt solicitation pursuant to Rule
14a-2(b)(1)); or
(vi) contest the validity or enforceability of this
Section 5.1, except as a consequence of establishing
the occurrence of any Standstill Termination Event
defined in Section 5.2(b).
Section 5.20 Termination of Certain Restrictions.
(a) The restrictions in Section 5.1(a) shall terminate upon
the occurrence of any of the events specified in Sections 5.2(b)(ii),
(iii), (iv) or (v).
(b) The restrictions in Section 5.1(b) shall terminate upon
any of the following (each a "Standstill Termination Event"):
<PAGE>
(i) a quarterly distribution on the Preferred Shares is
in arrears for any quarter for a period exceeding five
days,
(ii) the occurrence of a Change of Control,
(iii) the authorization by the Board (with the director
or directors nominated and serving pursuant to Section
5.9 of the Merger Agreement, if any, voting against) of
the direct or indirect solicitation of offers with
respect to any merger, consolidation, other business
combination, liquidation or sale of the Company or all
or substantially all of its assets or any other similar
extraordinary transaction (any of the foregoing, other
than any transaction in which the Company is the
surviving and acquiring entity and in which (A) the
only other parties to the transaction are subsidiaries
or Controlled Affiliates of the Company or (B) the
business or assets acquired do not, or would not
reasonably be expected to, have a value greater than
50% of the assets of the Company and its subsidiaries,
consolidated, prior to such transaction, a "Covered
Transaction"), it being understood that mere direction
by the Board that the officers of the Company or a
committee of the Board review and report on a proposal
originated by any officer or director of the Company or
by a third party that might result in a solicitation of
offers shall not, without more, be deemed a
"solicitation of offers," provided the director or
directors nominated and serving pursuant to Section 5.9
of the Merger Agreement, if any, receive notice of and
have the opportunity to participate in any meeting of
the Board at which such a direction is made or the
report of the officers of the Company or such committee
of the Board is presented,
(iv) the written submission by any person or Group
other than the Preferred Holder of a proposal to the
Company (including the Board and any agent,
representative or Affiliate of the Company) with
respect to, or otherwise expressing interest in
pursuing, a Covered Transaction, unless, as soon as
practicable after receipt of any such proposal, the
Board determines that such proposal is not in the best
interests of the Company and its shareholders and
continues to reject such proposal as a result of such
determination,
(v) in connection with any actual or proposed Covered
Transaction, the termination of any shareholder rights
plan or amendment of the articles of incorporation or
bylaws of the Company to delete staggered terms of
directors, supermajority voting of the Company's
shareholders, "excess share" provisions, or other
similar provisions which would reasonably be expected
to impede the consummation of such Covered Transaction,
(vi) any breach of Section 5.9 of the Merger Agreement,
(vii) the initiation by the Company or any of its
Affiliates of any action, suit or other legal
proceeding against the Preferred Holder, any of
<PAGE>
its Affiliates or any of their respective officers or
directors with respect to any matter unrelated to the
express terms of this Agreement and the related documents
and the transactions contemplated thereby, unless such
action, suit or legal proceeding is authorized by the Board
at a meeting of which the director or directors nominated
and serving pursuant to Section 5.9 of the Merger Agreement,
if any, receive notice and in which they have the
opportunity to participate, provided that if there shall be
a final judgment on the merits in favor of the Preferred
Holder or such Affiliate in any such action, suit or legal
proceeding that is so authorized by the Board, a Standstill
Termination Event shall exist even though such judgment may
be subject to further appeal,
(viii) the distribution by the Preferred Holder of all
of its Preferred Shares and Conversion Shares pursuant
to Section 3.1(c), provided that such Standstill
Termination Event shall not affect any agreement
entered into by a Permitted Preferred Share Transferee
pursuant to Section 3.1(c)(ii), and
(ix) the date on which the Preferred Holder ceases
(otherwise than as a result of a distribution of
Preferred Shares and Conversion Shares pursuant to
Section 3.1(c)) to be the Beneficial Owner of
Securities having an aggregate market value of more
than 5% of Average Market Capitalization. For purposes
of this Section 5.2(b) (ix), the "market value" of
Conversion Shares shall be determined by reference to
the closing sale price of the Common Stock on the day
preceding the determination date, and the "market
value" of Preferred Shares shall be the Series D
Redemption Price of the Preferred Shares provided in
the Company's Articles of Incorporation on the
determination date.
ARTICLE VI
GENERAL PROVISIONS
Section 6.10 Notices.
All notices, requests, claims, demands and other
communications under this Agreement shall be in writing and shall be
deemed given if delivered personally, sent by overnight courier
(providing proof of delivery) to the parties or sent by telecopy
(providing confirmation of transmission) at the following addresses or
telecopy numbers (or at such other address or telecopy number for a
party as shall be specified by like notice), and further provided that
in case of directions to amend the Registration Statement pursuant to
Article IV, the Holder must confirm such notice in writing by
overnight express delivery with confirmation of receipt:
(a) if to the Company, to
UNITED DOMINION REALTY TRUST, INC.
10 South Sixth Street
<PAGE>
Richmond, VA 23219-3802
Attn: John P. McCann, President
Fax: (804) 343-1912
with a copy to:
UNITED DOMINION REALTY TRUST, INC.
10 South Sixth Street
Richmond, VA 23219-3802
Attn: Katheryn E. Surface, Senior Vice President
and General Counsel
Fax: (804) 788-4607
and
HUNTON & WILLIAMS
951 East Byrd Street
Richmond, VA 23219-4074
Attn: James W. Featherstone, III
Fax: (804) 788-8212
(b) if to AAC, to
AMERICAN APARTMENT COMMUNITIES II, INC.
615 Front Street
San Francisco, CA 94111
Attn: James D. Klingbeil, Chief Executive Officer
Fax: (415) 362-5805
with copies to:
AMERICAN APARTMENT COMMUNITIES II, INC.
21 West Broad Street, 11th Floor
Columbus, OH 43215
Attn: George R. Nickerson, Esq., General Counsel
Fax: (614) 220-8912
and
GIBSON, DUNN & CRUTCHER LLP
333 South Grand Avenue
Los Angeles, CA 90071
Attn: Kenneth M. Doran, Esq.
Fax: (213) 229-7520
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(c) if to the Preferred Holder, to:
LF STRATEGIC REALTY INVESTORS, L.P.
30 Rockefeller Plaza
New York, NY 10020
Attn: Robert P. Freeman, Managing Director
Fax: (212) 332-5980
with a copy to:
Lazard Freres Real Estate Investors, LLC
30 Rockefeller Plaza
New York, NY 10020
Attn: Marjorie L. Reifenberg, Vice President & General Counsel
Fax: (212) 332-5980
(d) if to Schnitzer, to
SCHNITZER INVESTMENT CORP.
Schnitzer Investment Corp.
3200 NW Yeon
Portland, OR 97210-1524
Attn: Kenneth M. Novack, President & Chief Executive Officer
Fax: (503) 323-2793
(e) if to AACOP, to
AMERICAN APARTMENT COMMUNITIES OPERATING
PARTNERSHIP, L.P.
21 West Broad Street, 11th Floor
Columbus, OH 43215
Attn: George R. Nickerson, Esq., General Counsel
Fax: (614) 220-8912
with a copy to:
GIBSON, DUNN & CRUTCHER LLP
333 South Grand Avenue
Los Angeles, CA 90071
Attn: Kenneth M. Doran, Esq.
Fax: (213) 229-7520
(f) if to AACM, to
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AAC MANAGEMENT LLC
21 West Broad Street, 11th Floor
Columbus, OH 43215
Attn: George R. Nickerson, Esq., General Counsel
Fax: (614) 220-8912
with a copy to:
GIBSON, DUNN & CRUTCHER LLP
333 South Grand Avenue
Los Angeles, CA 90071
Attn: Kenneth M. Doran, Esq.
Fax: (213) 229-7520
(g) if to AAC III, to
AMERICAN APARTMENT COMMUNITIES III, L.P.
21 West Broad Street, 11th Floor
Columbus, OH 43215
Attn: George R. Nickerson, Esq., General Counsel
Fax: (614) 220-8912
with a copy to:
GIBSON, DUNN & CRUTCHER LLP
333 South Grand Avenue
Los Angeles, CA 90071
Attn: Kenneth M. Doran, Esq.
Fax: (213) 229-7520
In addition to the manner of notice permitted above, notices given
pursuant to Sections 4.1, 4.6 and 4.7 hereof may be effected
telephonically and confirmed in writing thereafter in the manner
described above.
Section 6.2 Successors and Assigns.
Except as otherwise provided herein, this Agreement shall be
binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns. Except as otherwise provided
herein, this Agreement may not be assigned by any Holder and any
attempted assignment hereof by any Holder will be void and of no
effect and shall terminate all obligations of the Company hereunder. A
purchaser or transferee of any Securities shall not solely by reason
of such purchase or transfer be deemed a successor or assign of the
seller or transferor, and no Person who purchases Securities from any
Holder, Transaction Party Affiliate or First-
<PAGE>
Tier Transferee in a transaction complying with the applicable
provisions of Rule 144 or Rule 145 or in a transaction effected after
a Registration Statement with respect to such Securities has become
effective shall be bound by any provision of this Agreement.
Section 6.3 Counterparts.
This Agreement may be executed in any number of counterparts
and by the parties hereto in separate counterparts, each of which when
so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
Section 6.4 Governing Law.
This Agreement shall be governed by and construed in
accordance with the laws of the State of New York, regardless of the
laws that might otherwise govern under applicable principles of
conflict of laws of such State.
Section 6.5 Severability.
In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstances, is
held invalid, illegal or unenforceable in any respect for any reason,
the validity, legality and unenforceable of any such provision in
every other respect and of the remaining provisions contained herein
shall not be in any way impaired thereby, it being intended that all
of the rights and privileges of the parties hereto shall be
enforceable to the fullest extent permitted by law.
Section 6.6 Entire Agreement; Amendment; Waiver.
This Agreement is intended by the parties as a final
expression of their agreement and intended to be the complete and
exclusive statement of the agreement and understanding of the parties
hereto in respect of the subject matter contained herein. There are no
restrictions, promises, warranties or undertakings, other than those
set forth or referred to herein, with respect to such subject matter.
This Agreement supersedes all prior agreements and understandings
between the parties with respect to such subject matter. No amendment
or waiver of any provision hereof shall be effective unless in writing
signed by each party against whom enforcement of such amendment or
waiver is sought. No waiver of any provision of this Agreement or a
breach of any such provision shall be construed as a waiver of any
other provision hereof or a breach of such provision or a subsequent
breach of the same or any other provision.
Section 6.7 Interpretation; Absence of Presumption.
For the purposes hereof, (i) words in the singular shall be
held to include the plural and vice versa and words of one gender
shall be held to include the other gender as the context requires,
(ii) the terms "hereof", "herein" and "herewith", and words of similar
import shall,
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unless otherwise stated, be construed to refer to this Agreement as a
whole and not to any particular provision of this Agreement, and
Article and Section references are to the Articles and Sections of
this Agreement unless otherwise specified, (iii) the word "including"
and words of similar import when used in this Agreement shall mean
"including without limitation," unless the context otherwise requires
or unless otherwise specified, (iv) the word "or" shall not be
exclusive and (v) provisions shall apply, when appropriate, to
successive events and transactions. This Agreement shall be construed
without regard to any presumption or rule requiring construction or
interpretation against the party drafting or causing any instrument to
be drafted.
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IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first written above.
UNITED DOMINION REALTY TRUST, INC.
By:
----------------------------------
Name:
Title:
UNITED DOMINION REALTY, L.P.
By: United Dominion Realty Trust, Inc.,
General Partner
By:
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Name:
Title:
AMERICAN APARTMENT COMMUNITIES
II, INC.
By:
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Name: James D. Klingbeil
Title: Chief Executive Officer
AMERICAN APARTMENT COMMUNITIES
III, L.P.
By American Apartment Communities III, Inc.,
General Partner
By:
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Name:
Title:
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SCHNITZER INVESTMENT CORP.
By:
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Name:
Title:
LF STRATEGIC REALTY INVESTORS, L.P.
By:
----------------------------------
Name:
Title:
AMERICAN APARTMENT COMMUNITIES
OPERATING PARTNERSHIP, L.P.
By American Apartment Communities, Inc.,
General Partner
By:
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Name:
Title:
AAC MANAGEMENT LLC
BY:
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Name:
Title:
