As filed with the Securities and Exchange Commission on September 25, 1998
Registration No. 333-_________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-----------------------
UNITED DOMINION REALTY TRUST, INC.
(Exact name of registrant as specified in its charter)
VIRGINIA 54-0857512
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10 South 6th Street
Richmond, Virginia 23219-3802
(804) 780-2691
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
Katheryn E. Surface
Senior Vice President and General Counsel
United Dominion Realty Trust, Inc.
10 South 6th Street
Richmond, Virginia 23219-3802
(804) 780-2691
(Name, address, including zip code, and telephone
number, including area code, of agent for service)
Copy to:
James W. Featherstone, III
Randall S. Parks
Hunton & Williams
Riverfront Plaza, East Tower
951 East Byrd Street
Richmond, Virginia 23219-4074
Approximate date of commencement of proposed sale to the public: From time to
time after the effective date of this Registration Statement.
If the only securities being registered on this form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box.[ ]
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box.[X]
If this form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
Securities Act registration statement number of earlier effective registration
statement for the same offering.[ ]
If this form is a post effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering.[ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box.[ ]
<TABLE>
<S> <C>
CALCULATION OF REGISTRATION FEE
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Title of Each Class of Amount Proposed Maximum Offering Proposed Maximum Aggregate Amount of
Securities to be Registered to be Registered Price Per Unit (1) Offering Price (1) Registration Fee
- -----------------------------------------------------------------------------------------------------------------------------
Common Stock,
$1.00 par value 572,366 shares $11.0625 $6,331,798.88 $1,867.88
=============================================================================================================================
Rights to Purchase Series C
Junior Participating 572,366 rights N/A N/A N/A
Redeemable Preferred Stock,
no par value (2)
=============================================================================================================================
(1) Determined pursuant to Rule 457(c).
(2) The rights will be attached to and trade with the Common Stock.
</TABLE>
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until this registration statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
<PAGE>
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Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
- -------------------------------------------------------------------------------
SUBJECT TO COMPLETION, DATED September 25 1998
572,366 Shares
UNITED DOMINION REALTY TRUST, INC.
Common Stock
This Prospectus relates to the possible issuance by United Dominion
Realty Trust, Inc. (the "Company") of up to 572,366 shares of Common Stock (the
"Redemption Shares") to certain individuals and entities (the "Unitholders") who
sold 1,125 multi-family apartment homes to the Company on September 26, 1997. As
partial consideration for their properties, the Unitholders received 572,366
units of limited partnership interest ("Units") in United Dominion Realty, L.P.
(the "Partnership"). The Company will issue the Redemption Shares to the
Unitholders, if the Unitholders tender their Units for redemption to the
Partnership, and the Company, as the Partnership's general partnership, elects
to purchase the Units for shares of Common Stock. See "Redemption of Units" and
"Plan of Distribution."
The Common Stock is traded on the New York Stock Exchange under the
symbol "UDR." To ensure compliance with certain requirements related to the
Company's qualification as a real estate investment trust ("REIT") under the
Internal Revenue Code of 1986, as amended, the Company's Amended and Restated
Articles of Incorporation permits the Company's Board of Directors to limit the
number of shares of Common Stock that may be owned by any single person or
affiliated group and to restrict the transferability of shares of Common Stock
if the purported transfer would prevent the Company from qualifying as a REIT.
See "Restrictions on Transfer of Capital Stock."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
The date of this Prospectus is September___, 998.
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by the Company with the Commission can be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
its Regional Offices at Suite 1400, Northwestern Atrium Center, 500 West Madison
Street, Chicago, Illinois 60661 and Suite 1300, 7 World Trade Center, New York,
New York 10048, and can also be inspected and copied at the offices of the New
York Stock Exchange, 20 Broad Street, New York, New York 10005. Copies of such
material can be obtained from the Public Reference Section of the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549, upon payment of the prescribed
fees or from the Commission's site on the World Wide Web at http://www.sec.gov.
This Prospectus is part of a registration statement on Form S-3
(together with all amendments and exhibits thereto, the "Registration
Statement"), filed by the Company with the Commission under the Securities Act
of 1933, as amended (the "Securities Act"). This Prospectus does not contain all
of the information set forth in the Registration Statement, certain parts of
which are omitted in accordance with the rules of the Commission. For further
information, reference is made to the Registration Statement.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission
(Commission File No. 1-10524) under the Exchange Act are hereby incorporated by
reference in this Prospectus: (i) the Company's Annual Report on Form 10-K for
the year ended December 31, 1997; (ii) the Company's Quarterly Report on Form
10-Q for the quarter ended March 31, 1998, filed on May 15, 1998; (iii) the
Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1998,
filed on August 14, 1998; (iv) the Company's current report on Form 8-K dated
January 27, 1998, filed on February 4, 1998; (v) the Company's current report on
Form 8-K dated February13, 1998, filed on February 13, 1998; (vi) the Company's
current report on Form 8-K dated February 17, 1998, filed on February 17, 1998;
(vii) the Company's current report on Form 8-K dated March 27, 1998, filed on
April 13, 1998, as amended by Amendment No. 1 on Form 8-K/A dated and filed on
June 12,1998; (viii) the Company's current report on Form 8-K dated June 9,
1998, filed on June 24, 1998, as amended by Amendment No. 1 on Form 8-K/A dated
and filed on August 13, 1998; and (ix) the description of the Company's Common
Stock and Preferred Stock contained in the Company's registration statements on
Form 8-A dated April 19, 1990, May 1, 1995, June 10, 1997 and February 4, 1998,
filed under the Exchange Act, including any amendment or reports filed for the
purpose of updating such descriptions. All documents filed by the Company
pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act prior to the
termination of the offering of all of the Redemption Shares shall be deemed to
be incorporated by reference herein.
Any statement contained herein or in a document incorporated or deemed
to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein or in any other subsequently filed document, as the case may
be, which also is or is deemed to be incorporated by reference herein, modifies
or supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
The Company will provide on request and without charge to each person
to whom this Prospectus is delivered a copy (without exhibits) of any or all
documents incorporated by reference into this Prospectus. Requests for such
copies should be directed to United Dominion Realty Trust, Inc., 10 South 6th
Street, Richmond, Virginia 23219-3802, Attention: Investor Relations (telephone
804/780-2691).
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<PAGE>
THE COMPANY
United Dominion Realty Trust, Inc. (the "Company"), a Virginia
corporation headquartered in Richmond, Virginia, is a self-administered equity
real estate investment trust ("REIT"), whose business is the ownership and
operation of apartment communities located throughout the United States. The
Company is a fully integrated real estate company with acquisition, development
and property management capabilities. At September 15, 1998, the Company's
portfolio consisted of 270 apartment communities containing 72,394 apartment
homes. The Company's apartment portfolio also included six communities
containing 1,806 apartment homes under development (of which 103 were completed)
and two additions to existing communities containing 276 apartment homes (of
which 112 were completed). The Company had approximately 2,600 employees as of
September 15, 1998.
The Company operates as a REIT under the applicable provisions of the
Internal Revenue Code of 1986, as amended (the "Code"). To qualify, the Company
must meet certain tests which, among other things, require that (i) its assets
consist primarily of real estate, (ii) its income be derived primarily from real
estate and (iii) at least 95% of its taxable income be distributed to its common
shareholders. Because the Company qualifies as a REIT, it is generally not
subject to federal income taxes.
RECENT DEVELOPMENTS
ASR Merger. Effective as of the close of business on March 27, 1998,
the Company completed the merger (the "ASR Merger") of ASR Investments
Corporation ("ASR"), a publicly traded, Tucson-based, multifamily REIT that
owned and operated 39 communities with 7,550 apartment homes. Pursuant to the
ASR Merger Agreement, each share of ASR's common stock was exchanged for 1.575
shares of the Company's Common Stock. The ASR Merger was structured as a
tax-free transaction and was treated as a purchase for accounting purposes. In
connection with the ASR Merger, the Company acquired primarily real estate
assets totaling $313.7 million. Consideration given by the Company included
7,742,839 shares of Common Stock valued at $14 per share for an aggregate equity
value of $108.4 million plus the assumption of 1,529,990 operating partnership
units valued at $21.4 million. In addition, the Company assumed, at fair value,
mortgage debt totaling $179.4 million and other liabilities of $13.6 million.
AAC Merger. On September 11, 1998, the Company announced an agreement
to acquire American Apartment Communities ("AAC"), a San Francisco-based private
REIT, from a fund managed by Lazard Freres Real Estate Investors LLC ("LFREI")
and other investors (the "AAC Merger"). The AAC Merger includes 54 properties
with 14,141 apartment homes, and allows the Company to enter the growing
California markets, add size in the Seattle, Columbus, Tampa and South Florida
markets, and position itself in Oregon, Colorado, Michigan and Indiana. The AAC
Merger has been structured as a tax-free merger and exchange of operating
partnership units and will be treated as a purchase for accounting purposes. In
connection with the AAC Merger, the Company will acquire primarily real estate
assets. The aggregate purchase price, consisting of (i) 8,000,000 shares of a
new series of Preferred Stock having a nominal value of $25 per share and
convertible into Common Stock at an initial conversion price of $16.25 per
share, (ii) 5,614,035 units of limited partnership in the Company's operating
partnership, (iii) approximately $56.5 million in cash and (iv) the assumption
of existing secured debt, is estimated to be approximately $800 million. With
the acquisition, the Company will own 86,000 completed apartments and operate
nationally in 35 major U.S. markets.
All due diligence has been completed, and AAC's and the Company's Boards
of Directors and other interested parties have approved the transaction. Company
shareholder approval is not required. The transaction is expected to close in
October 1998.
Other Acquisitions. In addition to the ASR Merger, the Company has
acquired 24 apartment communities containing 6,959 apartment homes at a total
cost of approximately $315.1 million, including closing costs, since January 1,
1998.
Development Activity. At September 15, 1998, the Company had six
communities (1,806 apartment homes) under development and two additions (276
apartment homes) to existing communities under development, of which 215
apartment homes were completed.
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<PAGE>
There can be no assurance that these proposed developments and
additions will be completed as planned.
Dispositions. Since January 1, 1998, the Company has sold 17 apartment
communities containing 4,948 apartment homes and one shopping center at an
aggregate sales price of $144.7 million.
Financings. During the first six months of 1998, the Company entered
into two separate transactions to sell Common Stock to a unit investment trust
("UIT"). A UIT purchases newly issued common shares from a group of
participating REITs and sells units in the UIT to investors. In February 1998,
the Company issued 1.7 million shares of Common Stock at a gross sales price of
$14.31 per share to a UIT. In March 1998, the Company issued 1.1 million shares
of Common Stock at a gross sales price of $14.19 to a second UIT. The net
proceeds from the two UIT sales, aggregating $38.0 million, were used primarily
to curtail bank debt.
In addition, the Company has sold 2,450,344 shares of Common Stock and
received proceeds of $32.7 million under its Dividend Reinvestment and Stock
Purchase Plan (the "Plan") since January 1, 1998. The proceeds included $23.1
million in optional cash investments and $9.6 million of reinvested dividends.
DESCRIPTION OF CAPITAL STOCK
General
The Company is authorized to issue 150,000,000 shares of Common Stock,
$1.00 par value, and 25,000,000 shares of Preferred Stock, no par value (the
"Preferred Stock"). At September 8, 1998, there were outstanding 103,196,547
shares of Common Stock and 10,200,000 shares of Preferred Stock, consisting of
4,200,000 shares of the Company's 9 1/4% Series A Cumulative Redeemable
Preferred Stock (the "Series A Preferred"), 6,000,000 shares of the Company's
8.60 % Series B Cumulative Redeemable Preferred Stock (the "Series B Preferred")
and 0 shares of the Company's Series C Junior Participating Cumulative
Redeemable Preferred Stock (the "Series C Preferred). The following statements
with respect to the capital stock of the Company are subject to the detailed
provisions of the Company's Restated Articles of Incorporation, as amended (the
"Articles"), and bylaws (the "Bylaws") as currently in effect. These statements
do not purport to be complete, or to give full effect to the terms of the
provisions of statutory or common law, and are subject to, and are qualified in
their entirety by reference to, the terms of the Articles and Bylaws, which are
filed as exhibits to the Registration Statement.
Common Stock
Holders of Common Stock are entitled to receive dividends when and as
declared by the Board of Directors after payment of, or provision for, full
cumulative dividends on and any required redemptions of shares of Preferred
Stock then outstanding. Holders of Common Stock have one vote per share and
non-cumulative voting rights, which means that holders of more than 50% of the
shares voting can elect all of the directors if they choose to do so, and, in
such event, the holders of the remaining shares will not be able to elect any
directors. In the event of any voluntary or involuntary liquidation or
dissolution of the Company, holders of Common Stock are entitled to share
ratably in the distributable assets of the Company remaining after satisfaction
of the prior preferential rights of the Preferred Stock and the satisfaction of
all debts and liabilities of the Company. Holders of Common Stock do not have
preemptive rights. The dividend and liquidation rights of holders of the Common
Stock are specifically limited by the terms of the Series A Preferred, the
Series B Preferred and the Series C Preferred as described in the description of
the Company's Preferred Stock contained in the Company's registration statements
on Form 8-A, as amended, filed pursuant to Section 12 of the Exchange Act on May
1, 1995, June 11, 1997 and February 4, 1998. The transfer agent for the Common
Stock is Chase Mellon Shareholder Services, L.L.C., Ridgefield Park, New Jersey.
Preferred Stock
The Preferred Stock is described in the Company's registration
statements on Form 8-A, as amended, filed pursuant to Section 12 of the Exchange
Act on May 1, 1995, June 11, 1997 and February 4, 1998.
On the date of closing of the AAC Merger, the Company will issue shares
of the Company's Series D Cumulative Convertible Preferred Stock (the "Series D
Preferred"). The terms of the Series D Preferred are attached as an exhibit to
this registration statement.
4
<PAGE>
RESTRICTIONS ON TRANSFER OF CAPITAL STOCK
For the Company to qualify as a REIT under the Internal Revenue Code of
1986, as amended (the "Code"), shares of capital stock must be held by a minimum
of 100 persons for at least 335 days in each taxable year following its 1994
taxable year or during a proportionate part of a shorter taxable year. In
addition, at all times during the second half of each taxable year following its
1994 taxable year, no more than 50% in value of the shares of capital stock of
the Company may be owned, directly or indirectly and by applying certain
constructive ownership rules, by five or fewer individuals (the "5/50 Rule").
Because the Board of Directors believes it is essential for the Company to
continue to qualify as a REIT, the Articles permit the Board of Directors to
prevent an individual or individuals from directly or indirectly owning shares
to the extent that such ownership would disqualify the Company as a REIT.
If the Board of Directors, in its good faith, determines that an
individual's or individuals' ownership of stock may disqualify the Company as a
REIT, the Board of Directors may call for a redemption (by lot or other
equitable means) to redeem a number of shares sufficient to maintain the
Company's REIT status. The redemption price per share shall be the closing sale
price on the NYSE as of the business day preceding the day on which notice of
redemption is given. In addition, the Company may stop any acquisition or
transfer of shares that would jeopardize the Company's REIT status.
REDEMPTION OF UNITS
Redemption Rights for Limited Partnership Units
Pursuant to the Seconded Amended and Restated Agreement of Limited
Partnership of the Partnership (the "Partnership Agreement"), the limited
partners of the Partnership (the "Limited Partners") generally have the right to
cause the redemption (the "Redemption Rights") of their interests in the
Partnership. Each Limited Partner may, subject to certain limitations, require
that the Partnership redeem all or a portion of his Units at any time after one
year from the date the Units were acquired by delivering a notice of exercise of
redemption right to the Partnership and the Company. The form of notice is an
exhibit to the Partnership Agreement. A Limited Partner must request the
redemption of at least 1,000 Units (or all of the Units held by such holder, if
less than 1,000 are so held).
Upon redemption, each Limited Partner will receive from the Partnership
cash in an amount equal to the cash value of Units being redeemed. The cash
value of each Unit will be assumed to be equal to the market value of one share
of Common Stock. The market value of the Common Stock for this purpose will be
equal to the average of the closing trading prices of the Common Stock (or
substitute information, if no such closing prices are available) for the ten
consecutive trading days before the day on which the redemption notice was
received by the Company.
Instead of the Partnership redeeming the Units, the Company, in its
sole discretion, may elect to purchase the Units directly by paying to the
Limited Partner either (i) a number of shares of Common Stock equal to the
number of Units being redeemed, or (ii) cash in an amount equal to the cash
value of the Units, as determined pursuant to the preceding paragraph. If the
Company exercises its right to purchase the Units, then the Partnership has no
obligation to redeem the Units.
The Company anticipates that it generally will elect to purchase Units
through the issuance of the Redemption Shares pursuant to this Prospectus. Such
an acquisition will be treated as a sale of the Units to the Company for federal
income tax purposes. See "-- Tax Consequences of Redemption." Upon redemption, a
Limited Partner's right to receive distributions with respect to the Units
redeemed will cease.
A Limited Partner may not redeem his Units if receipt of Common Stock
in exchange for those Units would (i) result in such partner or any other person
owning, directly or indirectly, more than 9.8% of the outstanding Common Stock,
(ii) result in Common Stock being owned by fewer than 100 persons (determined
without reference to any rules of attribution), (iii) result in the Company
being "closely held" within the meaning of Section 856(h) of the Internal
Revenue Code of 1986, as amended (the "Code"), (iv) cause the Company to own,
actually or constructively, 10% or more of the ownership interests in a tenant
of the Company's or the Partnership's real property, within the meaning of
Section 856(d)(2)(B) of the Code, or (v) cause the acquisition of Common Stock
by such partner to be "integrated" with any other distribution of Common Stock
for purposes of complying with the registration provisions of the Securities Act
of 1933, as amended. The Company, in its sole discretion, may waive this
restriction and permit a Limited Partner to exercise its Redemption Rights, but
only if the Limited Partner receives cash in exchange for the Units.
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The Company may also restrict the Limited Partners' Redemption Rights
if such restrictions are necessary to ensure that the Partnership does not
constitute a "publicly traded partnership" under Section 7704 of the Code.
Tax Consequences of Redemption
The following discussion summarizes certain federal income tax
considerations that may be relevant to a Limited Partner who exercises his right
to require the redemption of his Units.
Tax Treatment of Redemption of Units. Instead of the Partnership
redeeming Units from a Limited Partner, the Company may elect to purchase the
Units. See "--- Redemption Rights for Limited Partnership Units." In that event,
such sale will be fully taxable to the redeeming Limited Partner and such
redeeming Limited Partner will be treated as realizing for tax purposes an
amount equal to the sum of the cash or the value of the Common Stock received in
connection with the purchase plus the amount of any Partnership liabilities
allocable to the redeemed Units at the time of the redemption. If the Company
does not elect to purchase a Limited Partner's Units and the Partnership redeems
such Units for cash that the Company contributes to the Partnership to effect
such redemption, the redemption likely would be treated for tax purposes as a
sale of such Units in a fully taxable transaction, although the matter is not
free from doubt. In that event, the redeeming Limited Partner would be treated
as realizing an amount equal to the sum of the cash received in connection with
the redemption plus the amount of any Partnership liabilities allocable to the
redeemed Units at the time of the redemption. The determination of the amount of
gain or loss in the event of sale treatment is discussed more fully below.
If the Partnership chooses to redeem a Limited Partner's Units for cash
that is not contributed by the Company to effect the redemption, the tax
consequences would be the same as described in the previous paragraph, except
that if the Partnership redeems less than all of the Units held by a Limited
Partner, the Limited Partner would not be permitted to recognize any loss
occurring on the transaction and would recognize taxable gain only to the extent
that the cash, plus the amount of any Partnership liabilities allocable to the
redeemed Units, exceeded the Limited Partner's adjusted basis in all of such
Limited Partner's Units immediately before the redemption.
Tax Treatment of Disposition of Units by Limited Partner Generally. If
a Unit is redeemed in a manner that is treated as a sale of the Unit, or a
Limited Partner otherwise disposes of a Unit (other than in a transaction that
is treated as a redemption for tax purposes), the determination of gain or loss
from such sale or other disposition will be based on the difference between the
amount considered realized for tax purposes and the tax basis in such Unit. See
"-- Basis of Units." Upon the sale of a Unit, the "amount realized" will be
measured by the sum of the cash and fair market value of other property (e.g.,
Redemption Shares) received plus the amount of any Partnership liabilities
allocable to the Unit sold. To the extent that the amount realized exceeds the
Limited Partner's basis in the Unit disposed of, such Limited Partner will
recognize gain. It is possible that the amount of gain recognized or even the
tax liability resulting from such gain could exceed the amount of cash and the
value of any other property (e.g., Redemption Shares) received upon such
disposition.
Except as described below, any gain recognized upon a sale or other
disposition of Units will be treated as gain attributable to the sale or
disposition of a capital asset. To the extent, however, that the amount realized
upon the sale of a Unit that is attributable to a Limited Partner's share of
"unrealized receivables" of the Partnership (as defined in Section 751 of the
Code) exceeds the basis attributable to those assets, such excess will be
treated as ordinary income. Unrealized receivables include, to the extent not
previously included in Partnership income, any rights to payment for services
rendered or to be rendered. Unrealized receivables also include amounts that
would be subject to recapture as ordinary income if the Partnership had sold its
assets at their fair market value at the time of the transfer of a Unit.
Basis of Units. In general, a Limited Partner who was deemed at the
time of the transactions resulting in the issuance of the Units to have received
his Units upon liquidation of a partnership will have an initial tax basis in
his Units ("Initial Basis") equal to his basis in his partnership interest at
the time of such liquidation. Similarly, in general, a Limited Partner who at
the time of the transactions resulting in the issuance of the Units contributed
a partnership interest or other property to the Partnership in exchange for
Units will have an Initial Basis in the Units equal to his basis in the
contributed partnership interest or other property. A Limited Partner's Initial
Basis in his Units generally is increased by (i) such Limited Partner's share of
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Partnership taxable income and (ii) increases in his share of liabilities of the
Partnership (including any increase in his share of liabilities occurring in
connection with the transactions resulting in the issuance of the Units).
Generally, such Limited Partner's basis in his Units is decreased (but not below
zero) by (A) his share of Partnership distributions, (B) decreases in his share
of liabilities of the Partnership (including any decrease in his share of
liabilities of the Partnership occurring in connection with the transactions
resulting in the issuance of the Units), (C) his share of losses of the
Partnership and (D) his share of nondeductible expenditures of the Partnership
that are not chargeable to capital.
Potential Application of Disguised Sale Regulations to a Redemption of
Units. There is a risk that a redemption of Units may cause the original
transfer of property to the Partnership in exchange for Units to be treated as a
"disguised sale" of property. The Code and the Treasury Regulations thereunder
(the "Disguised Sale Regulations") generally provide that, unless one of the
prescribed exceptions is applicable, a partner's contribution of property to a
partnership and a simultaneous or subsequent transfer of money or other
consideration (including the assumption of or taking subject to a liability)
from the partnership to the partner will be presumed to be a sale, in whole or
in part, of such property by the partner to the partnership. Further, the
Disguised Sale Regulations provide generally that, in the absence of an
applicable exception, if money or other consideration is transferred by a
partnership to a partner within two years of the partner's contribution of
property to the partnership, the transactions will be, when viewed together,
presumed to be a sale of the contributed property unless the facts and
circumstances clearly establish that the transfers do not constitute a sale. The
Disguised Sale Regulations also provide that if two years have passed between
the transfer of money or other consideration from a partnership to a partner and
the contribution of property, the transactions will be presumed not to be a sale
unless the facts and circumstances clearly establish that the transfers
constitute a sale.
Accordingly, if a Unit is redeemed by the Partnership, the Internal
Revenue Service (the "Service") could contend that the Disguised Sale
Regulations apply because the redeeming Limited Partner will receive cash or
shares of Common Stock subsequent to his previous contribution of property to
the Partnership. If the Service were to make successfully such an assertion, the
transactions in connection with the issuance of the Units themselves could be
taxable as a disguised sale under the Disguised Sale Regulations. Any gain
recognized thereby may be eligible for installment reporting under Section 453
of the Code, subject to certain limitations.
Comparison of Ownership of Units and Shares of Common Stock
The information below highlights a number of the significant
differences between the Partnership and the Company and compares certain legal
rights associated with the ownership of Units and Common Stock, respectively.
These comparisons are intended to assist Limited Partners of the Partnership in
understanding how their investment will be changed if their Units are redeemed
for Common Stock. This discussion is summary in nature and does not constitute a
complete discussion of these matters. Holders of Units should carefully review
the balance of this Prospectus and the registration statement of which this
Prospectus is a part for additional important information about the Company.
Form of Organization and Assets Owned. The Partnership is organized as
a Virginia limited partnership. The Company is a Virginia corporation. The
Company elected to be taxed as a REIT under the Code effective for its taxable
year ended December 31, 1972 and intends to maintain its qualification as a
REIT.
Length of Investment. The Partnership has a stated termination date of
December 31, 2051, although it may be terminated earlier under certain
circumstances. The Company has a perpetual term and intends to continue its
operations for an indefinite time period.
Additional Equity. The Partnership is authorized to issue Units and
other partnership interests to the partners or to other persons for such
consideration and on such terms and conditions as the Company, in its sole
discretion, may deem appropriate. In addition, the Company may cause the
Partnership to issue additional Units, or other partnership interests in one or
more different series or classes which may be senior to the Units, to the
Company. Consideration for additional partnership interests may be cash or other
property or other assets permitted by Virginia law.
Under the Articles, the total number of shares of all classes of stock
that the Company has the authority to issue is 150,000,000 shares of Common
Stock and 25,000,000 shares of Preferred Stock. As of the date of this
Prospectus, 10,200,000 shares of Preferred Stock are outstanding.
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Management and Control. All management and control over the business of
the Partnership are vested in the Company, as general partner of the
Partnership, and no Limited Partner of the Partnership has any right to
participate in or exercise management or control over the business of the
Partnership. Upon the occurrence of an event of bankruptcy or the dissolution of
the Company, the Company shall be deemed to be removed automatically; otherwise,
the Company may not be removed by the Limited Partners with or without cause.
The Board of Directors has exclusive control over the Company's
business and affairs subject to the restrictions in the Articles and Bylaws. The
Board of Directors has adopted certain policies with respect to acquisition,
development, investing, financing and conflict of interest, but these policies
may be altered or eliminated without a vote of the shareholders. Accordingly,
except for their vote in the elections of directors, shareholders have no
control over the ordinary business policies of the Company.
Fiduciary Duties. Under Virginia law, the Company is accountable to the
Partnership as a fiduciary and, consequently, is required to exercise good faith
in all of its dealings with respect to partnership affairs. However, under the
Partnership Agreement, the Company is under no obligation to take into account
the tax consequences to any Limited Partner of any action taken by it, and the
Company will have no liability to a Limited Partner as a result of any
liabilities or damages incurred or suffered by or benefits not derived by a
Limited Partner as a result of an action or inaction of the Company so long as
the Company acted in good faith.
Under Virginia law, the Company's directors must perform their duties
in good faith, in a manner that they believe to be in the best interests of the
Company and with the care an ordinarily prudent person in a like situation would
exercise under similar circumstances. Directors of the Company who act in such a
manner generally will not be liable to the Company for monetary damages arising
from their activities.
Management Limitation of Liability and Indemnification. The Partnership
Agreement generally provides that the Company will incur no liability for
monetary damages to the Partnership or any Limited Partner for losses sustained
or liabilities incurred as a result of errors in judgment or of any act or
omission if the Company acted in good faith. In addition, the Company is not
responsible for any misconduct or negligence on the part of its agents provided
the Company appointed such agents in good faith. The Partnership Agreement also
provides for indemnification of the Company, the directors and officers of the
Company, and such other persons as the Company may from time to time designate,
against any and all losses, claims, damages, liabilities (joint or several),
expenses (including reasonable legal fees and expenses), judgments, fines,
settlements, and other amounts arising from any and all claims, demands,
actions, suits or proceedings, whether civil, criminal, administrative or
investigative, that relate to the operations of the Partnership in which such
person may be involved, or is threatened to be involved, provided that the
Partnership shall not indemnify any such person (i) for an act or omission of
such person that was material to the matter giving rise to the proceeding and
either was committed in bad faith or was the result of active and deliberate
dishonesty, (ii) if such person actually received an improper benefit in money,
property or services or (iii) in the case of any criminal proceeding, if such
person had reasonable cause to believe that the act or omission was unlawful.
Any indemnification will be made only out of assets of the Partnership.
The Company's Articles obligate it to indemnify and advance expenses to
present and former directors and officers to the maximum extent permitted by
Virginia law. The Virginia Stock Corporation Act ("VSCA") permits a corporation
to indemnify its present and former directors and officers, among others,
against judgments, settlements, penalties, fines or reasonable expenses incurred
with respect to a proceeding to which they may be made a party by reason of
their service in those or other capacities if (i) such persons conducted
themselves in good faith, (ii) they reasonably believed, in the case of conduct
in their official capacities with the corporation, that their conduct was in its
best interests and, in all other cases, that their conduct was at least not
opposed to its best interests, and (iii) in the case of any criminal proceeding,
they had no reasonable cause to believe that their conduct was unlawful. Any
indemnification by the Company pursuant to the provisions of the Articles
described above will be paid out of the assets of the Company and will not be
recoverable from the shareholders.
The VSCA permits the charter of a Virginia corporation to include a
provision eliminating or limiting the personal liability of its directors to the
corporation or its shareholders for monetary damages for breach of fiduciary
duty as a director, except that such provision cannot eliminate or limit the
liability of a director (i) for any breach of the director's duty of loyalty to
the corporation or its shareholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of the law,
or (iii) for unlawful distributions that exceed what could have been distributed
without violating the VSCA or the corporation's charter. The Company's Articles
contain a provision eliminating the personal liability of its directors or
officers to the Company or its shareholders for money damages to the maximum
extent permitted by Virginia law from time to time.
Anti-Takeover Provisions. Except in limited circumstances, the Company
has exclusive management power over the business and affairs of the Partnership.
The Company may not be removed by the Limited Partners with or without cause.
Under the Partnership Agreement, the Company may, in its sole discretion,
prevent a Limited Partner from transferring his interest or any rights as a
Limited Partner . The Company may exercise this right of approval to deter,
delay or hamper attempts by persons to acquire a controlling interest in the
Partnership.
As described above under "Restrictions on Transfer of Capital Stock,"
the Company's Articles contain provisions restricting acquisition of shares of
Common Stock.
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In addition, Virginia has enacted several statutory provisions to deter
takeovers of Virginia corporations. The VSCA generally requires that any merger,
share exchange or sale of substantially all of the assets of a corporation not
in the ordinary course of business be approved by at least two-thirds of the
votes entitled to be cast by each voting group entitled to vote, unless the
articles of incorporation provide for a greater or lesser vote (but in no event
less than a majority of votes cast by each such voting group at a meeting at
which a quorum of the voting group exists). The Company's Articles and Bylaws do
not provide for a greater or lesser vote for the approval of extraordinary
transactions.
The VSCA also contains provisions governing "Affiliated Transactions."
These provisions, with several exceptions discussed below, require approval of
material acquisition transactions between a Virginia corporation and any holder
of more than 10% of any class of its outstanding voting shares (an "Interested
Shareholder") by the holders of at least two-thirds of the remaining voting
shares. Affiliated Transactions subject to this approval requirement include
mergers, share exchanges, material dispositions of corporate assets not in the
ordinary course of business, any dissolution of the corporation proposed by or
on behalf of an Interested Shareholder, or any reclassification, including
reverse stock splits, recapitalization or merger of the corporation with its
subsidiaries which increases the percentage of voting shares owned beneficially
by an Interested Shareholder by more than five percent.
For three years following the time that an Interested Shareholder
becomes an owner of 10% of the outstanding voting shares, a Virginia corporation
cannot engage in an Affiliated Transaction with such Interested Shareholder
without approval of two-thirds of the voting shares other than those shares
beneficially owned by the Interested Shareholder, and majority approval of the
"Disinterested Directors." A Disinterested Director means, with respect to a
particular Interested Shareholder, a member of the board of directors who was
(a) a member on the date on which an Interested Shareholder became an Interested
Shareholder and (b) recommended for election by, or was elected to fill a
vacancy and received the affirmative vote of, a majority of the Disinterested
Directors then on the board. At the expiration of the three-year period, the
statute requires approval of Affiliated Transactions by two-thirds of the voting
shares other than those beneficially owned by the Interested Shareholder.
The principal exceptions to the special voting requirement apply to
transactions proposed after the three-year period has expired and require either
that the transaction be approved by a majority of the corporation's
Disinterested Directors or that the transaction satisfy the fair-price
requirements of the statute. In general, the fair-price requirement provides
that in a two-step acquisition transaction, the Interested Shareholder must pay
the shareholders in the second step either the same amount of cash or the same
amount and type of consideration paid to acquire the Virginia corporation's
shares in the first step.
None of the foregoing limitations and special voting requirements
applies to a transaction with an Interested Shareholder (a) whose acquisition of
shares making such person an Interested Shareholder was approved by a majority
of the Virginia corporation's Disinterested Directors or (b) who was an
Interested Shareholder on the date the corporation became subject to these
provisions by virtue of its having 300 shareholders of record.
In addition, the statute provides that, by affirmative vote of a
majority of the voting shares other than shares owned by any Interested
Shareholder, a corporation can adopt an amendment to its articles of
incorporation or bylaws providing that the Affiliated Transactions provisions
shall not apply to the corporation. The Company has not "opted out" of the
Affiliated Transactions provisions.
The VSCA also contains provisions regulating certain "control share
acquisitions," which are transactions causing the voting strength of any person
acquiring beneficial ownership of shares of a public corporation in Virginia to
meet or exceed certain threshold percentages (20%, 33 1/3% or 50%) of the total
votes entitled to be cast for the election of directors. Shares acquired in a
control share acquisition have no voting rights unless (a) the voting rights are
granted by a majority vote of all outstanding shares other than those held by
the acquiring person or any officer or employee director of the corporation, or
(b) the articles of incorporation or bylaws of the corporation provide that
these Virginia law provisions do not apply to acquisitions of its shares. The
acquiring person may require that a special meeting of the shareholders be held
to consider the grant of voting rights to the shares acquired in the control
share acquisition. The Company has not adopted an amendment to its Articles or
Bylaws making these provisions inapplicable to acquisition of its shares.
Voting Rights. Under the Partnership Agreement, the Limited Partners
have voting rights only as to the continuation of the Partnership in certain
circumstances and certain amendments of the Partnership Agreement, as described
more fully below. Otherwise, all decisions relating to the operation and
management of the Partnership are made by the Company. At September 15, 1998,
the Company held approximately 84.2% of the outstanding interests in the
Partnership. As Units held by Limited Partners are redeemed, the Company's
percentage ownership of the Partnership will increase. If additional Units are
issued to third parties, the Company's percentage ownership of the Partnership
will decrease.
Shareholders of the Company have the right to vote on, among other
things, a merger or sale of substantially all of the assets of the Company,
certain amendments to the Articles and dissolution of the Company. All shares of
Common Stock have one vote, and the Articles permit the Board of Directors to
classify and issue Preferred Stock in one or more series having voting power
which may differ from that of the Common Stock. See "Description of Capital
Stock."
Amendment of the Partnership Agreement or the Articles. The Partnership
Agreement may be amended by the Company without the consent of the Limited
Partners in any respect, except that certain amendments affecting the
fundamental rights of a Limited Partner must be approved by consent of Limited
Partners (other than the Company or any subsidiary of the Company) holding more
than 50% of the Units. Such consent is required for any amendment that would (i)
affect the Redemption Rights, (ii) adversely affect the rights of Limited
Partners to receive distributions payable to them under the Partnership
Agreement, (iii) alter the Partnership's profit and loss allocations, (iv) alter
the provisions relating to the amendment of the Partnership Agreement, or (v)
impose any obligation upon the Limited Partners to make additional capital
contributions to the Partnership.
The Articles may be amended by the affirmative vote of the holders of a
majority of the shares of each voting group entitled to vote on the amendment.
The Company's Bylaws may be amended by the Board of Directors or by vote of the
holders of a majority of the outstanding shares.
Vote Required to Dissolve the Partnership or the Company. At any time
prior to December 31, 2051 (upon which date the Partnership shall terminate),
the Company may elect to dissolve the Partnership in its sole discretion. Such
dissolution shall also occur upon (i) the bankruptcy, dissolution or withdrawal
of the Company (unless the Limited Partners unanimously elect to continue the
Partnership), (ii) the passage of 90 days after the sale or other disposition of
all or substantially all the assets of the Partnership or (iii) the redemption
of all of the outstanding Units (other than those held by the Company or any
subsidiary of the Company, if any).
Under Virginia law, the Board of Directors generally must recommend and
the holders of a majority of the outstanding Common Stock entitled to vote must
approve any proposal in order to dissolve the Company.
Vote Required to Sell Assets or Merge. Under the Partnership Agreement,
the sale, exchange, transfer or other disposition of all or substantially all of
the Partnership's assets or merger or consolidation of the Partnership requires
only the consent of the Company. Under Virginia law, any merger or share
exchange of the Company requires the separate approval of the Board of Directors
and each group of shareholders entitled to vote on such matter by a majority of
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all votes entitled to be cast by such group. Under Virginia law, the sale of all
or substantially all of the assets of the Company otherwise than in the normal
course of business requires the approval of the Board of Directors and holders
of a majority of the outstanding shares of Common Stock. No approval of the
shareholders is required for the sale of the Company's assets in the usual and
regular course of business.
Compensation, Fees and Distributions. The Company does not receive any
compensation for its services as general partner of the Partnership. As a
partner in the Partnership, however, the Company has the same right to
allocations and distributions as other partners of the Partnership. In addition,
the Partnership will reimburse the Company for all expenses incurred relating to
the ongoing operation of the Partnership and any offering of partnership
interests in the Partnership or capital stock of the Company.
Liability of Investors. Under the Partnership Agreement and applicable
state law, the liability of the Limited Partners for the Partnership's debts and
obligations is generally limited to the amount of their investment in the
Partnership and Limited Partners are generally not liable for any debts,
liabilities, contracts or obligations of the Partnership.
Under Virginia law, the Company's shareholders are not personally
liable for the debts or obligations of the Company.
Nature of Investments. The Units constitute equity interests entitling
each Limited Partner to his pro rata share of cash distributions made to the
Limited Partners of the Partnership. The Partnership generally intends to retain
and reinvest in its business proceeds of the sale of property or excess
refinancing proceeds.
The shares of Common Stock constitute equity interests in the Company.
The Company is entitled to receive its pro rata share of distributions made by
the Partnership with respect to the Units, and each shareholder will be entitled
to his pro rata share of any dividends or distributions paid with respect to the
Common Stock. The dividends payable to the shareholders are not fixed in amount
and are only paid if, when and as declared by the Board of Directors. In order
to qualify as a REIT, the Company must distribute at least 95% of its annual
taxable income (excluding capital gains), and any taxable income (including
capital gains) not distributed will be subject to corporate income tax.
Potential Dilution of Rights. The Company is authorized, in its sole
discretion and without the consent of the Limited Partners, to cause the
Partnership to issue additional limited partnership interests and other equity
securities for any partnership purpose at any time to the Limited Partners or to
other persons on terms and conditions established by the Company.
The Board of Directors of the Company may issue, in its discretion,
additional shares of Common Stock and a variety of other equity securities of
the Company with such powers, preferences and rights as the Board of Directors
may designate. The issuance of additional shares of either Common Stock or other
similar or senior equity securities may result in the dilution of the interests
of the shareholders.
Liquidity. Subject to certain exceptions, a Limited Partner may not
transfer all or any portion of his Units without (i) obtaining the prior written
consent of the Company, which consent may be withheld in the sole and absolute
discretion of the Company, and (ii) meeting certain other requirements set forth
in the Partnership Agreement. Limited Partners should expect to hold their Units
until they redeem them for cash or shares of Common Stock, or until the
Partnership terminates. The right of a transferee to become a substituted
Limited Partner also is subject to the consent of the Company, which consent may
be withheld in its sole and absolute discretion. If the Company does not consent
to the admission of a transferee, the transferee will succeed to all economic
rights and benefits attributable to such Units but will not become a Limited
Partner or possess any other rights of Limited Partners (including the right to
vote on or consent to actions of the Partnership). The Company has the right to
redeem any Units held by a transferee who does not become a substituted Limited
Partner within 20 business days of the transfer. The Company may require, as a
condition of any transfer, that the transferring Limited Partner assume all
costs incurred by the Partnership in connection with such transfer.
Federal Income Taxation. The Partnership is not subject to federal
income taxes. Instead, each holder of an interest in the Partnership takes into
account its allocable share of the Partnership's taxable income or loss in
determining its federal income tax liability. As of September 1, 1998, the
maximum federal income tax rate for individuals was 39.6%. Income and loss from
the Partnership generally is subject to the "passive activity" limitations.
Under the "passive activity" rules, income and loss from the Partnership that is
considered "passive" income or loss generally can be offset against income and
loss (including passive loss carry-forwards from prior years) from other
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investments that constitute "passive activities" (unless the Partnership is
considered a "publicly traded partnership," in which case income and loss from
the Partnership can only be offset against other income and loss from the
Partnership). Income of the Partnership, however, that is attributable to
dividends or interest does not qualify as passive income and cannot be offset
with losses and deductions from a "passive activity." Cash distributions from
the Partnership are not taxable to a holder of Units except to the extent they
exceed such holder's basis in its Units (which will include such holder's
allocable share of the Partnership's debt). Each year, holders of Units will
receive a Schedule K-1 tax form containing detailed tax information for
inclusion in preparing their federal income tax returns. Holders of Units are
required in some cases to file state income tax returns and/or pay state income
taxes in the states in which the Partnership owns property, even if they are not
residents of those states, and in some such states the Partnership is required
to remit a withholding tax with respect to distributions to such nonresidents.
The Company elected to be taxed as a REIT effective for its taxable
year ended December 31, 1972. So long as it qualifies as a REIT, the Company
generally will be permitted to deduct distributions paid to its shareholders,
which effectively will reduce (or eliminate) the "double taxation" that
typically results when a corporation earns income and distributes that income to
its shareholders in the form of dividends. A REIT, however, is subject to
federal income tax on income that is not distributed and also may be subject to
federal income and excise taxes in certain circumstances. The maximum federal
income tax rate for corporations currently is 35% and for individuals is 39.6%.
Dividends paid by the Company will be treated as "portfolio" income and cannot
be offset with losses from "passive activities." Distributions made by the
Company to its taxable domestic shareholders out of current or accumulated
earnings and profits will be taken into account by them as ordinary income.
Distributions that are designated as capital gain dividends generally will be
taxed as long-term capital gain, subject to certain limitations. Distributions
in excess of current and accumulated earnings and profits will be treated as a
non-taxable return of capital to the extent of a shareholder's adjusted basis in
its Common Stock, and the excess over a shareholder's adjusted basis will be
taxed as capital gain. Each year, shareholders of the Company (other than
certain types of institutional investors) will receive IRS Form 1099, which is
used by corporations to report dividends paid to their shareholders.
Shareholders who are individuals generally should not be required to file state
income tax returns and/or pay state income taxes outside of their state of
residence with respect to the Company's operations and distributions. The
Company may be required to pay state income and/or franchise taxes in certain
states.
FEDERAL INCOME TAX CONSIDERATIONS
The following summary of material federal income tax considerations
that may be relevant to a prospective holder of the Common Stock is based on
current law, is for general information only, and is not tax advice. The
discussion contained herein does not purport to deal with all aspects of
taxation that may be relevant to particular shareholders in light of their
personal investment or tax circumstances, or to certain types of shareholders
(including insurance companies, tax exempt organizations (except as described
below), financial institutions or broker-dealers, and, except as described
below, foreign corporations and persons who are not citizens or residents of the
United States) subject to special treatment under the federal income tax laws.
The statements in this discussion are based on current provisions of
the Code, existing, temporary, and currently proposed Treasury regulations
promulgated under the Code (the "Treasury Regulations"), the legislative history
of the Code, existing administrative rulings and practices of the Service, and
judicial decisions. No assurance can be given that future legislative, judicial,
or administrative actions or decisions, which may be retroactive in effect, will
not affect the accuracy of any statements in this Prospectus with respect to the
transactions entered into or contemplated prior to the effective date of such
changes. Unless otherwise provided in this discussion, the term "Partnership"
includes all of the Company's subsidiary partnerships.
EACH PROSPECTIVE PURCHASER SHOULD CONSULT HIS OWN TAX ADVISOR REGARDING
THE SPECIFIC TAX CONSEQUENCES TO HIM OF THE PURCHASE, OWNERSHIP, AND SALE OF THE
COMMON STOCK AND OF THE COMPANY'S ELECTION TO BE TAXED AS A REIT, INCLUDING THE
FEDERAL, STATE, LOCAL, FOREIGN, AND OTHER TAX CONSEQUENCES OF SUCH PURCHASE,
OWNERSHIP, SALE, AND ELECTION, AND OF POTENTIAL CHANGES IN APPLICABLE TAX LAWS.
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Taxation of the Company
The Company made an election to be taxed as a REIT under sections 856
through 860 of the Code, effective for its taxable year ended December 31, 1972.
The Company believes that, commencing with such taxable year, it has been
organized and has operated in such a manner as to qualify for taxation as a REIT
under the Code, and the Company intends to continue to operate in such a manner,
but no assurance can be given that the Company will operate in a manner so as to
qualify or remain qualified as a REIT.
The sections of the Code relating to qualification and operation as a
REIT are highly technical and complex. The following discussion sets forth the
material aspects of the Code sections that govern the federal income tax
treatment of a REIT and its shareholders. The discussion is qualified in its
entirety by the applicable Code provisions, Treasury Regulations, and
administrative and judicial interpretations thereof, all of which are subject to
change prospectively or retrospectively.
If the Company qualifies for taxation as a REIT, it generally will not
be subject to federal corporate income tax on its net income that is distributed
currently to its shareholders. That treatment substantially eliminates the
"double taxation" (i.e., taxation at both the corporate and shareholder levels)
that generally results from investment in a corporation. However, the Company
will be subject to federal income tax in the following circumstances. First, the
Company will be taxed at regular corporate rates on any undistributed REIT
taxable income, including undistributed net capital gains. Second, under certain
circumstances, the Company may be subject to the "alternative minimum tax" on
its undistributed items of tax preference. Third, if the Company has (i) net
income from the sale or other disposition of "foreclosure property" that is held
primarily for sale to customers in the ordinary course of business or (ii) other
nonqualifying income from foreclosure property, it will be subject to tax at the
highest corporate rate on such income. Fourth, if the Company has net income
from prohibited transactions (which are, in general, certain sales or other
dispositions of property (other than foreclosure property) held primarily for
sale to customers in the ordinary course of business), such income will be
subject to a 100% tax. Fifth, if the Company should fail to satisfy the 75%
gross income test or the 95% gross income test (as discussed below), and has
nonetheless maintained its qualification as a REIT because certain other
requirements have been met, it will be subject to a 100% tax on the gross income
attributable to the greater of the amounts by which the Company fails the 75%
and 95% gross income tests, multiplied by a fraction intended to reflect the
Company's profitability. Sixth, if the Company should fail to distribute during
each calendar year at least the sum of (i) 85% of its REIT ordinary income for
such year, (ii) 95% of its REIT capital gain net income for such year, and (iii)
any undistributed taxable income from prior periods, the Company would be
subject to a 4% excise tax on the excess of such required distribution over the
amounts actually distributed. Seventh, if the Company acquires any asset from a
C corporation (i.e., a corporation generally subject to full corporate-level
tax) in a transaction in which the basis of the asset in the Company's hands is
determined by reference to the basis of the asset (or any other asset) in the
hands of the C corporation and the Company recognizes gain on the disposition of
such asset during the 10-year period beginning on the date on which such asset
was acquired by the Company, then to the extent of such asset's "built-in gain"
(i.e., the excess of the fair market value of such asset at the time of
acquisition by the Company over the adjusted basis in such asset at such time),
the Company will be subject to tax at the highest regular corporate rate
applicable (as provided in Treasury Regulations that have not yet been
promulgated). The results described above with respect to the recognition of
"built-in gain" assume that the Company would make an election pursuant to IRS
Notice 88-19 if it were to make any such acquisition.
Requirements for Qualification
The Code defines a REIT as a corporation, trust or association (i) that
is managed by one or more trustees or directors; (ii) the beneficial ownership
of which is evidenced by transferable shares, or by transferable certificates of
beneficial interest; (iii) that would be taxable as a domestic corporation, but
for sections 856 through 860 of the Code; (iv) that is neither a financial
institution nor an insurance company subject to certain provisions of the Code;
(v) the beneficial ownership of which is held by 100 or more persons; (vi) not
more than 50% in value of the outstanding stock of which is owned, directly or
indirectly, by five or fewer individuals (as defined in the Code to include
certain entities) during the last half of each taxable year (the "5/50 Rule");
(vii) that makes an election to be a REIT (or has made such election for a
previous taxable year) and satisfies all relevant filing and other
administrative requirements established by the Service that must be met in order
to elect and to maintain REIT status; (viii) that uses a calendar year for
federal income tax purposes and complies with the recordkeeping requirements of
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the Code and Treasury Regulations; and (ix) that meets certain other tests,
described below, regarding the nature of its income and assets. The Code
provides that conditions (i) to (iv), inclusive, must be met during the entire
taxable year and that condition (v) must be met during at least 335 days of a
taxable year of 12 months, or during a proportionate part of a taxable year of
less than 12 months. The Company believes that it has issued sufficient shares
of Common Stock with sufficient diversity of ownership to allow it to satisfy
requirements (v) and (vi). In addition, the Company's Articles provide for
restrictions regarding ownership and transfer of the Common Stock that are
intended to assist the Company in continuing to satisfy the stock ownership
requirements described in (v) and (vi) above. Such transfer restrictions are
described above under "Restrictions on Transfer of Capital Stock."
For purposes of determining stock ownership under the 5/50 Rule, a
supplemental unemployment compensation benefits plan, a private foundation, or a
portion of a trust permanently set aside or used exclusively for charitable
purposes generally is considered an individual. A trust that is a qualified
trust under Code section 401(a), however, generally is not considered an
individual and the beneficiaries of such trust are treated as holding shares of
a REIT in proportion to their actuarial interests in the trust for purposes of
the 5/50 Rule.
The Company currently has several direct corporate subsidiaries and may
have additional corporate subsidiaries in the future. Code section 856(i)
provides that a corporation that is a "qualified REIT subsidiary" will not be
treated as a separate corporation, and all assets, liabilities, and items of
income, deduction, and credit of a qualified REIT subsidiary will be treated as
assets, liabilities, and items of income, deduction, and credit of the REIT. A
"qualified REIT subsidiary" is a corporation, all of the capital stock of which
is held by the REIT. Thus, in applying the requirements described herein, any
qualified REIT subsidiaries of the Company are ignored, and all assets,
liabilities, and items of income, deduction, and credit of such subsidiaries are
treated as assets, liabilities, and items of income, deduction, and credit of
the Company. The Company's corporate subsidiaries are qualified REIT
subsidiaries. Such subsidiaries, therefore, are not subject to federal corporate
income taxation, although they may be subject to state and local taxation.
In the case of a REIT that is a partner in a partnership, Treasury
Regulations provide that the REIT will be deemed to own its proportionate share
of the assets of the partnership and will be deemed to be entitled to the gross
income of the partnership attributable to such share. In addition, the assets
and gross income of the partnership will retain the same character in the hands
of the REIT for purposes of section 856 of the Code, including satisfying the
gross income and asset tests described below. Thus, the Company's proportionate
share of the assets, liabilities, and items of income of the Partnership and of
any other partnership in which the Company has acquired or will acquire an
interest, directly or indirectly (a "Subsidiary Partnership"), are treated as
assets and gross income of the Company for purposes of applying the requirements
described herein.
Income Tests
In order for the Company to maintain its qualification as a REIT, there
are two requirements relating to the Company's gross income that must be
satisfied annually. First, at least 75% of the Company's gross income (excluding
gross income from prohibited transactions) for each taxable year must consist of
defined types of income derived directly or indirectly from investments relating
to real property or mortgages on real property (including "rents from real
property" and, in certain circumstances, interest) or temporary investment
income. Second, at least 95% of the Company's gross income (excluding gross
income from prohibited transactions) for each taxable year must be derived from
such real property or temporary investments, and from dividends, other types of
interest, and gain from the sale or disposition of stock or securities, or from
any combination of the foregoing.
Rent received by the Company will qualify as "rents from real property"
in satisfying the gross income requirements for a REIT described above only if
several conditions are met. First, the amount of rent must not be based in whole
or in part on the income or profits of any person. However, an amount received
or accrued generally will not be excluded from the term "rents from real
property" solely by reason of being based on a fixed percentage or percentages
of receipts or sales. Second, the Code provides that rents received from a
tenant will not qualify as "rents from real property" in satisfying the gross
income tests if the Company, or an owner of 10% or more of the Company, directly
or constructively owns 10% or more of such tenant (a "Related Party Tenant").
Third, if rent attributable to personal property, leased in connection with a
lease of real property, is greater than 15% of the total rent received under the
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lease, then the portion of rent attributable to such personal property will not
qualify as "rents from real property." Finally, for rents received to qualify as
"rents from real property," the Company generally must not operate or manage the
property or furnish or render services to the tenants of such property, other
than through an "independent contractor" who is adequately compensated and from
whom the Company derives no revenue. The "independent contractor" requirement,
however, does not apply to the extent the services provided by the Company are
customarily furnished or rendered in connection with the rental of real property
for occupancy only and are not otherwise considered "rendered to the occupant."
In addition, the Company may provide noncustomary services other than through an
"independent contractor" if the value of such services does not exceed 1% of the
Company's gross income from the property where such services are provided. For
that purpose, such services may not be valued at less than 150% of the Company's
direct cost of providing the services.
The Company does not receive any rent that is based on the income or
profits of any person. In addition, the Company does not own, directly or
indirectly, 10% or more of any tenant. Furthermore, the Company believes that
any personal property leased in connection with a lease of its real property is
well within the 15% restriction. Finally, the Company does not provide services
(other than within the 1% de minimis exception described above) to its tenants
that are not customarily furnished or rendered in connection with the rental of
space for occupancy only, other than through an independent contractor.
If any portion of the rent does not qualify as "rents from real
property" because the rent attributable to personal property leased in
connection with any lease of real property exceeds 15% of the total rent
received under the lease for a taxable year, the portion of the rent that is
attributable to personal property will not be qualifying income for purposes of
either the 75% or 95% gross income test. Thus, if the rent attributable to
personal property, plus any other income received by the Company during a
taxable year that is not qualifying income for purposes of the 95% gross income
test, exceeds 5% of its gross income during such year, the Company likely would
lose its REIT status. If, however, any portion of the rent received under a
lease does not qualify as "rents from real property" because either (i) the rent
is considered based on the income or profits of any person or (ii) the tenant is
a Related Party Tenant, none of the rent received by the Company under such
lease would qualify as "rents from real property." In that case, if the rent
received by the Company under such lease, plus any other income received by it
during the taxable year that is not qualifying income for purposes of the 95%
gross income test, exceeds 5% of its gross income for such year, the Company
likely would lose its REIT status. Finally, if any portion of the rent does not
qualify as "rents from real property" because the Company furnishes (other than
within the 1% de minimis rule described above) noncustomary services with
respect to a property other than through a qualifying independent contractor,
none of the rent received by it with respect to the such property would qualify
as "rents from real property." In that case, if the rent received by the Company
with respect to such property, plus any other income received by it during the
taxable year that is not qualifying income for purposes of the 95% gross income
test, exceeds 5% of its gross income for such year, the Company would lose its
REIT status.
From time to time, the Company has entered into hedging transactions
with respect to one or more of its assets or liabilities. Such hedging
transactions include or may include interest rate swap contracts, interest rate
cap or floor contracts, futures or forward contracts, and options. To the extent
that the Company or the Partnership enters into an interest rate swap or cap
contract , option, futures contract, forward rate agreement, or similar
financial instrument to hedge the interest rate risk with respect to
indebtedness incurred or to be incurred to acquire or carry real estate assets,
any periodic income or gain from the disposition of such contract should be
qualifying income for purposes of the 95% gross income test, but not the 75%
gross income test. To the extent that the Company or the Partnership hedges with
other types of financial instruments or in other situations, it may not be
entirely clear how the income from those transactions will be treated for
purposes of the various income tests that apply to REITs under the Code. The
Company intends to structure any hedging transactions in a manner that does not
jeopardize its status as a REIT.
If the Company fails to satisfy one or both of the 75% or 95% gross
income tests for any taxable year, it may nevertheless qualify as a REIT for
such year if it is entitled to relief under certain provisions of the Code.
Those relief provisions generally will be available if (i) the Company's failure
to meet such tests is due to reasonable cause and not due to willful neglect,
(ii) the Company attaches a schedule of the sources of its income to its return,
and (iii) any incorrect information on the schedule was not due to fraud with
intent to evade tax. It is not possible, however, to state whether in all
circumstances the Company would be entitled to the benefit of those relief
provisions. As discussed above in "Federal Income Tax Considerations-Taxation of
the Company," even if those relief provisions apply, a 100% tax would be imposed
with respect to the gross income attributable to the greater of the amounts by
which the Company fails the 75% and 95% income tests, multiplied by a fraction
intended to reflect the Company's profitability.
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Asset Tests
The Company, at the close of each quarter of each taxable year, also
must satisfy two tests relating to the nature of its assets. First, at least 75%
of the value of the Company's total assets must be represented by cash or cash
items (including certain receivables), government securities, or "real estate
assets," including, in cases where the Company raises new capital through stock
or long-term (at least five-year) debt offerings, stock or debt instruments
attributable to the temporary investment of such new capital during the one-year
period following the Company's receipt of such capital. The term "real estate
assets" also includes real property (including interests in real property and
interests in mortgages on real property) and shares of other REITs. For purposes
of the 75% asset test, the term "interest in real property" includes an interest
in land or improvements thereon, such as buildings or other inherently permanent
structures (including items that are structural components of such buildings or
structures), a leasehold in land or improvements thereon, and an option to
acquire land or improvements thereon (or a leasehold in land or improvements
thereon). Second, of the investments not included in the 75% asset class, the
value of any one issuer's securities owned by the Company (other than its
ownership interest in the Partnership and any qualified REIT subsidiary) may not
exceed 5% of the value of the Company's total assets, and the Company may not
own more than 10% of any one issuer's outstanding voting securities (except for
its ownership interest in the Partnership and any qualified REIT subsidiary).
For purposes of the asset tests, the Company is deemed to own its
proportionate share of the assets of the Partnership, rather than its interest
in the Partnership. The Company has operated and will continue to operate so
that it has not acquired or disposed, and in the future will not acquire or
dispose, of assets in a way that would cause it to violate either asset test.
If the Company should fail to satisfy the asset tests at the end of a
calendar quarter, such a failure would not cause it to lose its REIT status if
(i) it satisfied all of the asset tests at the close of the preceding calendar
quarter and (ii) the discrepancy between the value of the Company's assets and
the asset test requirements arose from changes in the market values of its
assets and was not wholly or partly caused by an acquisition of one or more
nonqualifying assets. If the condition described in clause (ii) of the preceding
sentence were not satisfied, the Company still could avoid disqualification by
eliminating any discrepancy within 30 days after the close of the quarter in
which it arose.
Distribution Requirements
The Company, in order to qualify as a REIT, is required to distribute
dividends (other than capital gain dividends and retained capital gain) to its
shareholders in an amount at least equal to (i) the sum of (A) 95% of its "REIT
taxable income" (computed without regard to the dividends paid deduction and its
net capital gain) and (B) 95% of the net income (after tax), if any, from
foreclosure property, minus (ii) the sum of certain items of noncash income.
Such distributions must be paid in the taxable year to which they relate, or in
the following taxable year if declared before the Company timely files its tax
return for such year and if paid on or before the first regular dividend payment
date after such declaration. To the extent that the Company does not distribute
all of its net capital gain or distributes at least 95%, but less than 100%, of
its REIT taxable income, as adjusted, it will be subject to tax thereon at
regular ordinary and capital gains corporate tax rates. Furthermore, if the
Company should fail to distribute during each calendar year at least the sum of
(i) 85% of its REIT ordinary income for such year, (ii) 95% of its REIT capital
gain income for such year, and (iii) any undistributed taxable income from prior
periods, the Company would be subject to a 4% nondeductible excise tax on the
excess of such required distribution over the amounts actually distributed. The
Company may elect to retain and pay income tax on its net long-term capital
gains. Any such retained amounts would be treated as having been distributed by
the Company for purposes of the 4% excise tax. The Company has made, and will
continue to make, timely distributions sufficient to satisfy all annual
distribution requirements.
Under certain circumstances, the Company may be able to rectify a
failure to meet the distribution requirement for a year by paying "deficiency
dividends" to its shareholders in a later year, which may be included in the
Company's deduction for dividends paid for the earlier year. Although the
Company may be able to avoid being taxed on amounts distributed as deficiency
dividends, it will be required to pay to the Service interest based upon the
amount of any deduction taken for deficiency dividends.
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Recordkeeping Requirement
Pursuant to applicable Treasury Regulations, the Company must maintain
certain records and request on an annual basis certain information from its
shareholders designed to disclose the actual ownership of its outstanding stock.
The Company has complied, and will continue to comply, with such requirements.
Failure to Qualify
If the Company fails to qualify for taxation as a REIT in any taxable
year and the relief provisions do not apply, the Company will be subject to tax
(including any applicable alternative minimum tax) on its taxable income at
regular corporate rates. Distributions to the shareholders in any year in which
the Company fails to qualify will not be deductible by the Company nor will they
be required to be made. In such event, to the extent of current and accumulated
earnings and profits, all distributions to shareholders will be taxable as
ordinary income and, subject to certain limitations of the Code, corporate
distributees may be eligible for the dividends received deduction. Unless
entitled to relief under specific statutory provisions, the Company also will be
disqualified from taxation as a REIT for the four taxable years following the
year during which the Company ceased to qualify as a REIT. It is not possible to
state whether in all circumstances the Company would be entitled to such
statutory relief.
Taxation of Taxable U.S. Shareholders
As long as the Company qualifies as a REIT, distributions made to the
Company's taxable U.S. Shareholders out of current or accumulated earnings and
profits (and not designated as capital gain dividends or retained capital gains)
will be taken into account by such U.S. Shareholders as ordinary income and will
not be eligible for the dividends received deduction generally available to
corporations. As used herein, the term "U.S. Shareholder" means a holder of
Common Stock that for U.S. federal income tax purposes is (i) a citizen or
resident of the United States, (ii) a corporation, partnership, or other entity
created or organized in or under the laws of the United States or of any
political subdivision thereof, (iii) an estate whose income from sources without
the United States is subject to U.S. federal income taxation regardless of its
connection with the conduct of a trade or business within the United States, or
(iv) a trust with respect to which (A) a U.S. court is able to exercise primary
supervision over the administration of the trust and (B) one or more U.S.
persons have the authority to control all substantial decisions of the trust.
Distributions that are designated as capital gain dividends will be
taxed as long-term capital gains (to the extent they do not exceed the Company's
actual net capital gain for the taxable year) without regard to the period for
which the U.S. Shareholder has held his Common Stock. However, corporate U.S.
Shareholders may be required to treat up to 20% of certain capital gain
dividends as ordinary income. The Company may elect to retain and pay income tax
on its net long-term capital gains. In that case, the Company's U.S.
Shareholders would include in income their proportionate share of the Company's
undistributed long-term capital gain. In addition, the U.S. Shareholders would
be deemed to have paid their proportionate share of the tax paid by the Company,
which would be credited or refunded to the U.S. Shareholders. Each U.S.
Shareholder's basis in his shares would be increased by the amount of the
undistributed long-term capital gain included in the U.S. Shareholder's income,
less the U.S. Shareholder's share of the tax paid by the Company.
Distributions in excess of current and accumulated earnings and profits
will not be taxable to a U.S. Shareholder to the extent that they do not exceed
the adjusted basis of the U.S. Shareholder's Common Stock, but rather will
reduce the adjusted basis of such stock. To the extent that distributions in
excess of current and accumulated earnings and profits exceed the adjusted basis
of a U.S. Shareholder's Common Stock, such distributions will be included in
income as long-term capital gain (or short-term capital gain if the Common Stock
has been held for one year or less) assuming the Common Stock is a capital asset
in the hands of the U.S. Shareholder. In addition, any distribution declared by
the Company in October, November, or December of any year and payable to a U.S.
Shareholder of record on a specified date in any such month shall be treated as
both paid by the Company and received by the U.S. Shareholder on December 31 of
such year, provided that the distribution is actually paid by the Company during
January of the following calendar year.
U.S. Shareholders may not include in their individual income tax
returns any net operating losses or capital losses of the Company. Instead, such
losses would be carried over by the Company for potential offset against its
future income (subject to certain limitations). Taxable distributions from the
Company and gain from the disposition of the Common Stock will not be treated as
passive activity income and, therefore, U.S. Shareholders generally will not be
able to apply any "passive activity losses" (such as losses from certain types
of limited partnerships in which the U.S. Shareholder is a limited partner)
against such income. In addition, taxable distributions from the Company
generally will be treated as investment income for purposes of the investment
interest limitations. Capital gains from the disposition of the Common Stock,
however, will be treated as investment income only if the U.S. Shareholder so
elects, in which case such capital gains will be taxed at ordinary income rates.
The Company will notify U.S. Shareholders after the close of the Company's
taxable year as to the portions of the distributions attributable to that year
that constitute ordinary income, return of capital, and capital gain.
Taxation of Shareholders on the Disposition of the Common Stock
In general, any gain or loss realized upon a taxable disposition of the
Common Stock by a U.S. Shareholder who is not a dealer in securities will be
treated as long-term capital gain or loss if the Common Stock has been held for
more than one year and otherwise as short-term capital gain or loss. However,
any loss upon a sale or exchange of Common Stock by a U.S. Shareholder who has
held such stock for six months or less (after applying certain holding period
rules), will be treated as a long-term capital loss to the extent of
distributions from the Company required to be treated by such U.S. Shareholder
as long-term capital gain. All or a portion of any loss realized upon a taxable
disposition of the Common Stock may be disallowed if other Common Stock is
purchased within 30 days before or after the disposition.
Capital Gains and Losses
A capital asset generally must be held for more than one year in order
for gain or loss derived from its sale or exchange to be treated as long-term
capital gain or loss. The highest marginal individual income tax rate is 39.6%.
The maximum tax rate on net capital gains applicable to noncorporate taxpayers
is 20% for sales and exchanges of assets held for more than one year. The
maximum tax rate on long-term capital gain from the sale or exchange of "section
1250 property" (i.e., depreciable real property) is 25% to the extent that such
gain would have been treated as ordinary income if the property were "section
1245 property." With respect to distributions designated by the Company as
capital gain dividends and any retained capital gains that the Company is deemed
to distribute, the Company may designate (subject to certain limits) whether
such a dividend or distribution is taxable to its noncorporate stockholders at a
20% or 25% rate. Thus, the tax rate differential between capital gain and
ordinary income for noncorporate taxpayers may be significant. In addition, the
characterization of income as capital or ordinary may affect the deductibility
of capital losses. Capital losses not offset by capital gains may be deducted
against an individual's ordinary income only up to a maximum annual amount of
$3,000. Unused capital losses may be carried forward. All net capital gain of a
corporate taxpayer is subject to tax at ordinary corporate rates. A corporate
taxpayer can deduct capital losses only to the extent of capital gains, with
unused losses being carried back three years and forward five years.
Information Reporting Requirements and Backup Withholding
The Company will report to its U.S. Shareholders and to the Service the
amount of distributions paid during each calendar year, and the amount of tax
withheld, if any. Under the backup withholding rules, a U.S. Shareholder may be
subject to backup withholding at the rate of 31% with respect to distributions
paid unless such holder (i) is a corporation or comes within certain other
exempt categories and, when required, demonstrates this fact or (ii) provides a
taxpayer identification number, certifies as to no loss of exemption from backup
withholding, and otherwise complies with the applicable requirements of the
backup withholding rules. A U.S. Shareholder who does not provide the Company
with his correct taxpayer identification number also may be subject to penalties
imposed by the Service. Any amount paid as backup withholding will be creditable
against the U.S. Shareholder's income tax liability. In addition, the Company
may be required to withhold a portion of capital gain distributions to any U.S.
Shareholders who fail to certify their nonforeign status to the Company. The
Service has issued final regulations regarding the backup withholding rules as
applied to Non-U.S. Shareholders (as hereinafter defined). Those regulations
alter the technical requirements relating to backup withholding compliance and
are effective for distributions made after December 31, 1999. See "Federal
Income Tax Considerations - Taxation of Non-U.S. Shareholders."
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Taxation of Tax-Exempt Shareholders
Tax-exempt entities, including qualified employee pension and profit
sharing trusts and individual retirement accounts ("Exempt Organizations"),
generally are exempt from federal income taxation. However, they are subject to
taxation on their unrelated business taxable income ("UBTI"). While many
investments in real estate generate UBTI, the Service has issued a published
ruling that dividend distributions by a REIT to an exempt employee pension trust
do not constitute UBTI, provided that the shares of the REIT are not otherwise
used in an unrelated trade or business of the exempt employee pension trust.
Based on that ruling, amounts distributed by the Company to Exempt Organizations
generally should not constitute UBTI. However, if an Exempt Organization
finances its acquisition of the Common Stock with debt, a portion of its income
from the Company will constitute UBTI pursuant to the "debt-financed property"
rules. Furthermore, social clubs, voluntary employee benefit associations,
supplemental unemployment benefit trusts, and qualified group legal services
plans that are exempt from taxation under paragraphs (7), (9), (17), and (20),
respectively, of Code section 501(c) are subject to different UBTI rules, which
generally will require them to characterize distributions from the Company as
UBTI. In addition, in certain circumstances a pension trust that owns more than
10% of the Company's stock is required to treat a percentage of the dividends
from the Company as UBTI (the "UBTI Percentage"). The UBTI Percentage is the
gross income derived from an unrelated trade or business (determined as if the
Company were a pension trust) divided by the gross income of the Company for the
year in which the dividends are paid. The UBTI rule applies to a pension trust
holding more than 10% of the Company's stock only if (i) the UBTI Percentage is
at least 5%, (ii) the Company qualifies as a REIT by reason of the modification
of the 5/50 Rule that allows the beneficiaries of the pension trust to be
treated as holding stock of the Company in proportion to their actuarial
interests in the pension trust, and (iii) either (A) one pension trust owns more
than 25% of the value of the Company's stock or (B) a group of pension trusts
individually holding more than 10% of the value of the Company's stock
collectively owns more than 50% of the value of the Company's stock.
Taxation of Non-U.S. Shareholders
The rules governing U.S. federal income taxation of nonresident alien
individuals, foreign corporations, foreign partnerships, and other foreign
shareholders (collectively, "Non-U.S. Shareholders") are complex and no attempt
will be made herein to provide more than a summary of such rules. PROSPECTIVE
NON-U.S. SHAREHOLDERS SHOULD CONSULT WITH THEIR OWN TAX ADVISORS TO DETERMINE
THE IMPACT OF FEDERAL, STATE, AND LOCAL INCOME TAX LAWS WITH REGARD TO AN
INVESTMENT IN THE COMMON STOCK, INCLUDING ANY REPORTING REQUIREMENTS.
Distributions to Non-U.S. Shareholders that are not attributable to
gain from sales or exchanges by the Company of U.S. real property interests and
are not designated by the Company as capital gains dividends or retained capital
gains will be treated as dividends of ordinary income to the extent that they
are made out of current or accumulated earnings and profits of the Company. Such
distributions ordinarily will be subject to a withholding tax equal to 30% of
the gross amount of the distribution unless an applicable tax treaty reduces or
eliminates that tax. However, if income from the investment in the Common Stock
is treated as effectively connected with the Non-U.S. Shareholder's conduct of a
U.S. trade or business, the Non-U.S. Shareholder generally will be subject to
federal income tax at graduated rates, in the same manner as U.S. Shareholders
are taxed with respect to such distributions (and also may be subject to the 30%
branch profits tax in the case of a Non-U.S. Shareholder that is a foreign
corporation). The Company expects to withhold U.S. income tax at the rate of 30%
on the gross amount of any such distributions made to a Non-U.S. Shareholder
unless (i) a lower treaty rate applies and any required form evidencing
eligibility for that reduced rate is filed with the Company or (ii) the Non-U.S.
Shareholder files an IRS Form 4224 with the Company claiming that the
distribution is effectively connected income. The Service has issued final
regulations that modify the manner in which the Company complies with the
withholding requirements. Those regulations are effective for distributions made
after December 31, 1999.
Distributions in excess of current and accumulated earnings and profits
of the Company will not be taxable to a shareholder to the extent that such
distributions do not exceed the adjusted basis of the shareholder's Common
Stock, but rather will reduce the adjusted basis of such stock. To the extent
that distributions in excess of current and accumulated earnings and profits
exceed the adjusted basis of a Non-U.S. Shareholder's Common Stock, such
distributions will give rise to tax liability if the Non-U.S. Shareholder would
otherwise be subject to tax on any gain from the sale or disposition of his
Common Stock, as described below. Because it generally cannot be determined at
the time a distribution is made whether or not such distribution will be in
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excess of current and accumulated earnings and profits, the entire amount of any
distribution normally will be subject to withholding. However, amounts so
withheld are refundable to the extent it is determined subsequently that such
distribution was, in fact, in excess of the current and accumulated earnings and
profits of the Company.
The Company is required to withhold 10% of any distribution in excess
of the Company's current and accumulated earnings and profits. Consequently,
although the Company intends to withhold at a rate of 30% on the entire amount
of any distribution, to the extent that the Company does not do so, any portion
of a distribution not subject to withholding at a rate of 30% will be subject to
withholding at a rate of 10%.
For any year in which the Company qualifies as a REIT, distributions
that are attributable to gain from sales or exchanges by the Company of U.S.
real property interests will be taxed to a Non-U.S. Shareholder under the
provisions of the Foreign Investment in Real Property Tax Act of 1980
("FIRPTA"). Under FIRPTA, distributions attributable to gain from sales of U.S.
real property interests are taxed to a Non-U.S. Shareholder as if such gain were
effectively connected with a U.S. business. Non-U.S. Shareholders thus would be
taxed at the normal capital gain rates applicable to U.S. Shareholders (subject
to applicable alternative minimum tax and a special alternative minimum tax in
the case of nonresident alien individuals). Distributions subject to FIRPTA also
may be subject to a 30% branch profits tax in the hands of a foreign corporate
shareholder not entitled to treaty relief or exemption. The Company is required
by currently applicable Treasury Regulations to withhold 35% of any distribution
that could be designated by the Company as a capital gains dividend. The amount
withheld is creditable against the Non-U.S. Shareholder's FIRPTA tax liability.
Gain recognized by a Non-U.S. Shareholder upon a sale of his Common
Stock generally will not be taxed under FIRPTA if the Company is a "domestically
controlled REIT," defined generally as a REIT in which at all times during a
specified testing period less than 50% in value of the stock was held directly
or indirectly by foreign persons. The Company believes that it is a
"domestically controlled REIT" and, therefore, the sale of the Common Stock will
not be subject to taxation under FIRPTA. However, because the Common Stock is
publicly traded, no assurance can be given that the Company is or will continue
to be a "domestically controlled REIT." Nevertheless, a Non-U.S. Shareholder
that owned, actually or constructively, 5% or less of the Common Stock at all
times during a specified testing period will not be subject to taxation under
FIRPTA if the Common Stock is regularly traded on an established securities
market. Notwithstanding the foregoing, gain from the sale or exchange of the
Common Stock that is not otherwise subject to FIRPTA will be taxable to a
Non-U.S. Shareholder if (i) investment in the Common Stock is effectively
connected with the Non-U.S. Shareholder's U.S. trade or business, in which case
the Non-U.S. Shareholder will be subject to the same treatment as U.S.
Shareholders with respect to such gain, or (ii) the Non-U.S. Shareholder is a
nonresident alien individual who was present in the United States for 183 days
or more during the taxable year and has a "tax home" in the United States, in
which case the nonresident alien individual will be subject to a 30% tax on the
individual's capital gains. If the gain on the sale of the Common Stock were to
be subject to taxation under FIRPTA, the Non-U.S. Shareholder would be subject
to the same treatment as U.S. Shareholders with respect to such gain (subject to
applicable alternative minimum tax, a special alternative minimum tax in the
case of nonresident alien individuals, and the possible application of the 30%
branch profits tax in the case of Non-U.S. corporations).
Other Tax Consequences
State and Local Taxes
The Company, the Partnership, a Subsidiary Partnership, or the
Company's shareholders may be subject to state or local taxation in various
state or local jurisdictions, including those in which it or they own property,
transact business, or reside. The state and local tax treatment of the Company
and its shareholders may not conform to the federal income tax consequences
discussed above. In addition, the Company, the Partnership, or a Subsidiary
Partnership may be subject to certain state and local taxes imposed on owners of
property, such as ad valorem property taxes, transfer taxes, and rent taxes.
CONSEQUENTLY, PROSPECTIVE SHAREHOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS
REGARDING THE EFFECT OF STATE AND LOCAL TAX LAWS ON AN INVESTMENT IN THE
COMPANY.
PLAN OF DISTRIBUTION
This Prospectus relates to the possible issuance by the Company of the
Redemption Shares if, and to the extent that, the Unitholders tender such Units
for redemption and the Company elects to purchase the Units for shares of Common
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Stock. The Company is registering the issuance of the Redemption Shares to make
it possible to provide the Unit holders with freely tradeable securities upon
redemption of their Units. However, registration of such shares does not
necessarily mean that any of such shares will be issued by the Company or
offered or sold by such Unit holder.
The Company may from time to time issue Redemption Shares upon purchase
of Units tendered for redemption. The Company will acquire the Units in exchange
for each Redemption Share that the Company issues in connection with these
acquisitions. Consequently, with each such redemption, the Company's interest in
the Partnership will increase.
EXPERTS
The consolidated financial statements and schedule of the Company
appearing in the annual report (Form 10-K) of United Dominion Realty Trust, Inc.
for the year ended December 31, 1997 have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report thereon included therein and
incorporated herein by reference. Such consolidated financial statements and
schedule are incorporated herein by reference in reliance upon such report given
upon the authority of such firm as experts in accounting and auditing.
The consolidated financial statements and schedule of ASR appearing in
the annual report (Form 10-K) of ASR Investments Corporation for the year ended
December 31, 1997 have been audited by Deloitte & Touche LLP, independent
auditors, as set forth in their report thereon included therein and incorporated
herein by reference. Such consolidated financial statements and schedule are
incorporated herein by reference in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
The statement of rental operations of Dogwood Creek Apartments and the
combined statement of rental operations of Trails at Mount Moriah Apartments,
Trails at Kirby Parkway Apartments, Cinnamon Trails Apartments, Audubon
Apartments, Carmel Apartments, Cimarron City Apartments, Grand Cypress
Apartments, Kenton Apartments, Peppermill Apartments, The Crest Apartments, and
Villages of Thousand Oaks Apartments, included in the Company's current report
on Form 8-K dated June 9, 1998, filed on June 24, 1998, as amended by Amendment
No. 1 on Form 8-K/A dated and filed on August 13, 1998, 1998, incorporated by
reference herein, has been incorporated herein in reliance upon the reports
dated May 1, 1998, May 8, 1998 and June 29, 1998 of L. P. Martin & Company,
P.C., independent auditors, also incorporated by reference herein, and upon the
authority of such firm as experts in accounting and auditing.
LEGAL MATTERS
The validity of the issuance of the shares of Common Stock offered
pursuant to this Prospectus will be passed upon for the Company by Hunton &
Williams.
19
<PAGE>
<TABLE>
<S> <C>
=============================================================== ==============================================================
No dealer, salesperson or other individual has been authorized
to give any information or to make any representations other
than those contained in this Prospectus in connection with the
offering covered by this Prospectus. If given or made, such UNITED DOMINION REALTY TRUST, INC.
information or representations must not be relied upon as
having been authorized by the Company. This Prospectus does not
constitute an offer to sell, or a solicitation of an offer to
buy, the Common Stock, in any jurisdiction where, or to any 572,366 Shares
person to whom, it is unlawful to make any such offer or
solicitation. Neither the delivery of this Prospectus nor any
offer or sale made hereunder shall, under any circumstances,
create an implication that there has not been any change in the
facts set forth in this Prospectus or in the affairs of the Common Stock
Company since the date hereof.
---------------------
TABLE OF CONTENTS
---------------------
Page
AVAILABLE INFORMATION...................................... 2 --------------
INCORPORATION OF CERTAIN DOCUMENTS
BY REFERENCE............................................... 2
PROSPECTUS
THE COMPANY................................................ 3
RECENT DEVELOPMENTS........................................ 3 --------------
DESCRIPTION OF CAPITAL STOCK............................... 4
RESTRICTIONS ON TRANSFER OF CAPITAL STOCK.................. 5
REDEMPTION OF UNITS........................................ 5
FEDERAL INCOME TAX CONSIDERATIONS.......................... 12
September , 1998
PLAN OF DISTRIBUTION....................................... 21
EXPERTS.................................................... 21
LEGAL MATTERS.............................................. 22
----------------
=============================================================== ==============================================================
</TABLE>
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution
The estimated expenses in connection with the offering are as follows:
Securities and Exchange Commission registration fee .... $ 1,799.29
Accounting fees and expenses............................ 5,000.00
Legal fees and expenses ................................ 2,500.00
Printing and postage expenses........................... 500.00
Miscellaneous........................................... 0.00
TOTAL ......................................... $9799.29
Item 15. Indemnification of Officers and Directors
Directors and officers of the Company may be indemnified against
liabilities, fines, penalties, and claims imposed upon or asserted against them
as provided in the Virginia Stock Corporation Act and the Articles. Such
indemnification covers all costs and expenses reasonably incurred by a Director
or officer. The Board of Directors, by a majority vote of a quorum of
disinterested Directors or, under certain circumstances, independent counsel
appointed by the Board of Directors, must determine that the Director or officer
seeking indemnification was not guilty of willful misconduct or a knowing
violation of the criminal law. In addition, the Virginia Stock Corporation Act
and the Company's Articles may under certain circumstances eliminate the
liability of Directors and officers in a shareholder or derivative proceeding.
If the person involved is not a Director or officer of the Company, the
Board of Directors may cause the Company to indemnify to the same extent allowed
for Directors and officers of the Company such person who was or is a party to a
proceeding, by reason of the fact that he is or was an employee or agent of the
Company, or is or was serving at the request of the Company as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise.
Item 16. Exhibits
2(a) -- Agreement and Plan of Merger dated as of December 19, 1997,
between the Company, ASR Investments Corporation and ASR
Acquisition Sub, Inc. (filed as Exhibit 2(a) to the Company's
Form S-4 Registration Statement, filed with the Commission on
January 30, 1998 (File No. 333-45305), and incorporated by
reference herein)
2(b) -- Agreement and Plan of Merger dated as of October 1, 1996,
between the Company, United Sub, Inc. and South West Property
Trust Inc. (filed as Exhibit 2(a) to the Company's Form S-4
Registration Statement, filed with the Commission on October
9, 1996 (File No. 333-13745), and incorporated by reference
herein)
2(c) -- Agreement and Plan of Merger dated as of September 10,
1998, between the Company and American Apartment Communities
II, Inc. including as exhibits thereto the proposed terms of
the Series D Preferred Stock and the proposed form of
Investment Agreement between the Company, United Dominion
Realty, L.P., American Apartment Communities II, Inc.,
American Apartment Communities II, L.P., American Apartment
Communities Operating Partnership, L.P., Schnitzer Investment
Corp., AAC Management LLC and LF Strategic realty Investors,
L.P..
2(d) -- Partnership Interest Purchase and Exchange Agreement dated
as of September 10, 1998, between the Company, United Dominion
Realty, L.P., American Apartment Communities Operating
Partnership, L.P., AAC Management LLC, Schnitzer Investment
Corp, Fox Point Ltd. and James D. Klingbeil including as an
exhibit thereto the proposed form of the Third Amended and
Restated Limited Partnership Agreement of United Dominion
Realty, L.P.
4(a) -- Restated Articles of Incorporation of the Company (filed as
Exhibit 4(b) to the Company's Form S-3 Registration Statement,
filed with the Commission on January 16, 1998 (File No.
333-44463), and incorporated by reference herein)
II-1
<PAGE>
4(a)(i) -- Amendment of Articles of Incorporation of the Company
(filed as Exhibit 3 to the Company's Form 8-A Registration
Statement dated February 4, 1998 (File No. 1-10524), and
incorporated by reference herein)
4(b) -- Restated Bylaws of the Company (filed as Exhibit 3(b) to
the Company's quarterly report on Form 10-Q for the quarter
ended March 31, 1997 (File No. 1-10524), and incorporated by
reference herein)
4(c) -- Specimen United Dominion Common Stock certificate (filed as
Exhibit 4(i) to the Company's Annual Report on Form 10-K for
the year ended December 31, 1993 (File No. 1-10524), and
incorporated by reference herein)
4(d)(i) -- Loan Agreement dated as of November 7, 1993, between the
Company and Aid Association for Lutherans (filed as Exhibit
6(c)(1) to the Company's Form 8-A Registration Statement dated
April 19, 1990 (File No. 10524), and incorporated by reference
herein)
4(d)(ii) -- Note Purchase Agreement dated as of January 15, 1993,
between the Company and CIGNA Property and Casualty Insurance
Company, Connecticut General Life Insurance Company,
Connecticut General Life Insurance Company on behalf of one or
more separate accounts, Insurance Company of North America,
Principal Mutual Life Insurance Company, and Aid Association
for Lutherans (filed as Exhibit 6(c)(5) to the Company's Form
8-A Registration Statement dated April 19, 1990 (File No.
1-10524), and incorporated by reference herein)
4(e) -- Rights Agreement dated as of January 27, 1998, between the
Company and ChaseMellon Shareholder Services, L.L.C., as
Rights Agent (filed as Exhibit 1 to the Company's Form 8-A
Registration Statement dated February 4, 1998 (File No.
1-10524) and incorporated by reference herein)
4(f) -- Form of Rights Certificate (included in Exhibit 4(e))
5 -- Opinion of Hunton & Williams
23(a) -- Consent of Ernst & Young LLP (to be filed by amendment)
23(b) -- Consent of L.P. Martin & Company, P.C. (to be filed by amendment)
23(c) -- Consent of Deloitte & Touch LLP (to be filed by amendment)
23(d) -- Consent of Hunton & Williams (included in Exhibit 5)
24 -- Power of Attorney (see signature page)
Item 17. Undertakings
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this Registration
Statement:
(i) To include any prospectus required by Section
10(a)(3) of the Securities Act;
(ii) To reflect in the prospectus any facts or
events arising after the effective date of the
Registration Statement (or the most recent
post-effective amendment thereof) which,
individually or in the aggregate, represent a
fundamental change in the information set forth in
the Registration Statement;
(iii) To include any material information with
respect to the plan of distribution not previously
disclosed in the Registration Statement or any
material change to such information in the
Registration Statement;
Provided, however, that paragraphs (a)(1)(i)
and (a)(1)(ii) do not apply if the information
required to be included in a post-effective
amendment by those paragraphs is contained in
periodic reports filed by the registrant pursuant
to Section 13 or Section 15(d) of the Exchange Act
that are incorporated by reference in the
Registration Statement.
II-2
<PAGE>
(2) That, for the purpose of determining any liability under
the Securities Act, each such post-effective amendment shall
be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain
unsold at the termination of the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Exchange Act (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to Section 15(d) of the Exchange Act) that is
incorporated by reference in this registration statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the registrant pursuant to the provisions of the Virginia Code, the Articles
of Incorporation or By-laws of the registrant or resolutions of the Board of
Directors of the registrant adopted pursuant thereto, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act, and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
II-3
<PAGE>
<TABLE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this pre-effective amendment to the Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Richmond, Commonwealth of Virginia on the 24th day of
September, 1998.
UNITED DOMINION REALTY TRUST, INC.
By /s/ John P. McCann
----------------------------
John P. McCann
President and Chief Executive Officer
Power of Attorney
Know All Men and Women By These Presents that each individual whose
signature appears below constitutes and appoints John P. McCann, James Dolphin
and Katheryn E. Surface, and each of them, such individual's true and lawful
attorneys-in-fact and agents with full power of substitution, for such
individual and in his or her name, place and stead, in any and all capacities,
to sign any and all amendments (including post-effective amendments) to this
registration statement and any registration statement related to the offering
contemplated by this registration statement that is to be effective upon filing
pursuant to Rule 462(b) under the Securities Act of 1933, as amended, and to
file the same, with all exhibits thereto, and all documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he or she might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or either of them, or their or his or her
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
pre-effective amendment to the registration statement has been signed by the
following persons in the capacities indicated on September 24, 1998.
<CAPTION>
Signature Title & Capacity
--------- ----------------
<S> <C>
/s/ John P.McCann President, Chairman, Chief Executive Officer (Principal
- ----------------------------------------- Executive Officer) and Director
John P. McCann
Executive Vice President, Chief Financial Officer
/s/ James Dolphin (Principal Financial Officer) and Director
- -----------------------------------------
James Dolphin Principal Accounting Officer
/s/ Robin R. Flanagan Director
- -----------------------------------------
Robin R. Flanagan
/s/ Jeff C. Bane Director
- -----------------------------------------
Jeff C. Bane
/s/ R. Toms Dalton Director
- -----------------------------------------
R. Toms Dalton, Jr.
Director
- -----------------------------------------
Jon A. Grove
/s/ Barry M. Kornblau Director
- -----------------------------------------
Barry M. Kornblau
/s/ H. Franklin Minor Director
- -----------------------------------------
H. Franklin Minor
Director
- -----------------------------------------
Lynne B. Sagalyn
/s/ Mark J. Sandler Director
- -----------------------------------------
Mark J. Sandler
/s/ Robert W. Scharar Director
- -----------------------------------------
Robert W. Scharar
/s/ John S. Schneider Director
- -----------------------------------------
John S. Schneider
/s/ C. Harmon Williams, Jr. Director
- -----------------------------------------
C. Harmon Williams, Jr.
</TABLE>
<PAGE>
EXHIBIT INDEX
Exhibit Document
- ------- --------
2(a) -- Agreement and Plan of Merger dated as of December 19, 1997,
between the Company, ASR Investments Corporation and ASR
Acquisition Sub, Inc. (filed as Exhibit 2(a) to the Company's
Form S-4 Registration Statement, filed with the Commission on
January 30, 1998 (File No. 333-45305), and incorporated by
reference herein)
2(b) -- Agreement and Plan of Merger dated as of October 1, 1996,
between the Company, United Sub, Inc. and South West Property
Trust Inc. (filed as Exhibit 2(a) to the Company's Form S-4
Registration Statement, filed with the Commission on October
9, 1996 (File No. 333-13745), and incorporated by reference
herein)
2(c) -- Agreement and Plan of Merger dated as of September 10,
1998, between the Company and American Apartment Communities
II, Inc. including as exhibits thereto the proposed terms of
the Series D Preferred Stock and the proposed form of
Investment Agreement between the Company, United Dominion
Realty, L.P., American Apartment Communities II, Inc.,
American Apartment Communities II, L.P., American Apartment
Communities Operating Partnership, L.P., Schnitzer Investment
Corp., AAC Management LLC and LF Strategic realty Investors,
L.P..
2(d) -- Partnership Interest Purchase and Exchange Agreement dated
as of September 10, 1998, between the Company, United Dominion
Realty, L.P., American Apartment Communities Operating
Partnership, L.P., AAC Management LLC, Schnitzer Investment
Corp, Fox Point Ltd. and James D. Klingbeil including as an
exhibit thereto the proposed form of the Third Amended and
Restated Limited Partnership Agreement of United Dominion
Realty, L.P.
4(a) -- Restated Articles of Incorporation of the Company (filed as
Exhibit 4(b) to the Company's Form S-3 Registration Statement,
filed with the Commission on January 16, 1998 (File No.
333-44463), and incorporated by reference herein)
4(a)(i) -- Amendment of Articles of Incorporation of the Company
(filed as Exhibit 3 to the Company's Form 8-A Registration
Statement dated February 4, 1998 (File No. 1-10524), and
incorporated by reference herein)
4(b) -- Restated Bylaws of the Company (filed as Exhibit 3(b) to
the Company's quarterly report on Form 10-Q for the quarter
ended March 31, 1997 (File No. 1-10524), and incorporated by
reference herein)
4(c) -- Specimen United Dominion Common Stock certificate (filed as
Exhibit 4(i) to the Company's Annual Report on Form 10-K for
the year ended December 31, 1993 (File No. 1-10524), and
incorporated by reference herein)
4(d)(i) -- Loan Agreement dated as of November 7, 1993, between the
Company and Aid Association for Lutherans (filed as Exhibit
6(c)(1) to the Company's Form 8-A Registration Statement dated
April 19, 1990 (File No. 10524), and incorporated by reference
herein)
4(d)(ii) -- Note Purchase Agreement dated as of January 15, 1993,
between the Company and CIGNA Property and Casualty Insurance
Company, Connecticut General Life Insurance Company,
Connecticut General Life Insurance Company on behalf of one or
more separate accounts, Insurance Company of North America,
Principal Mutual Life Insurance Company, and Aid Association
for Lutherans (filed as Exhibit 6(c)(5) to the Company's Form
8-A Registration Statement dated April 19, 1990 (File No.
1-10524), and incorporated by reference herein)
4(e) -- Rights Agreement dated as of January 27, 1998, between the
Company and ChaseMellon Shareholder Services, L.L.C., as
Rights Agent (filed as Exhibit 1 to the Company's Form 8-A
Registration Statement dated February 4, 1998 (File No.
1-10524) and incorporated by reference herein)
4(f) -- Form of Rights Certificate (included in Exhibit 4(e))
5 -- Opinion of Hunton & Williams
23(a) -- Consent of Ernst & Young LLP (to be filed by amendment)
23(b) -- Consent of L.P. Martin & Company, P.C. (to be filed by amendment)
23(c) -- Consent of Deloitte & Touch LLP (to be filed by amendment)
23(d) -- Consent of Hunton & Williams (included in Exhibit 5)
24 -- Power of Attorney (see signature page)
AGREEMENT AND PLAN OF MERGER
between
UNITED DOMINION REALTY TRUST, INC.
and
AMERICAN APARTMENT COMMUNITIES II, INC.
Dated September 10, 1998
<PAGE>
<TABLE>
TABLE OF CONTENTS
Page
----
<S> <C>
RECITALS 1
ARTICLE I THE MERGER.............................................................................................2
Section 1.1. The Merger..................................................................................2
Section 1.2. Closing.....................................................................................2
Section 1.3. Effective Time..............................................................................2
Section 1.4. Effects of the Merger.......................................................................2
Section 1.5. Articles of Incorporation and Bylaws........................................................2
Section 1.6. No Appraisal Rights.........................................................................3
ARTICLE II MERGER CONSIDERATION; EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT CORPORATIONS.......3
Section 2.1. Effect on Capital Stock.....................................................................3
Section 2.2. Adjustment to Merger and Exchange Consideration.............................................4
Section 2.3. Dividend Distributions......................................................................7
Section 2.4. Withholding Rights..........................................................................7
ARTICLE III REPRESENTATIONS AND WARRANTIES.......................................................................7
Section 3.1. Representations and Warranties of AAC.......................................................7
Section 3.2. Representations and Warranties of the Company..............................................18
ARTICLE IV COVENANTS............................................................................................24
Section 4.1. Conduct of Business by AAC.................................................................24
Section 4.2. Conduct of Business by the Company.........................................................27
Section 4.3. Delivery of Reports by the Company.........................................................27
Section 4.4. Other Actions..............................................................................27
ARTICLE V ADDITIONAL COVENANTS..................................................................................28
Section 5.1. Access to Information; Confidentiality.....................................................28
Section 5.2. Best Efforts; Notification.................................................................28
Section 5.3. Tax Treatment..............................................................................29
Section 5.4. No Solicitation of Transactions............................................................29
Section 5.5. Public Announcements.......................................................................30
Section 5.6. Transfer and Gains Taxes...................................................................30
Section 5.7. Employee Matters...........................................................................30
Section 5.8. Disposition of Benefit Plans...............................................................31
Section 5.9. Company Board of Directors.................................................................31
Section 5.10. Resignations..............................................................................32
Section 5.11. Bulk Sales Compliance.....................................................................32
Section 5.12. Financial Statements......................................................................32
Section 5.13. Executive Clubs...........................................................................32
Section 5.14. AAC Office Leases.........................................................................32
(i)
<PAGE>
ARTICLE VI CONDITIONS PRECEDENT.................................................................................33
Section 6.1. Conditions to Each Party's Obligation to Effect the Merger.................................33
Section 6.2. Conditions to Obligations of the Company...................................................33
Section 6.3. Conditions to Obligation of AAC............................................................35
ARTICLE VII TERMINATION, AMENDMENT AND WAIVER...................................................................37
Section 7.1. Termination................................................................................37
Section 7.2. [LEFT BLANK INTENTIONALLY].................................................................38
Section 7.3. Effect of Termination......................................................................38
Section 7.4. Amendment..................................................................................38
Section 7.5. Extension; Waiver..........................................................................38
ARTICLE VIII GENERAL PROVISIONS.................................................................................38
Section 8.1. Nonsurvival of Representations and Warranties..............................................38
Section 8.2. Notices....................................................................................39
Section 8.3. Interpretation.............................................................................40
Section 8.4. Counterparts...............................................................................40
Section 8.5. Entire Agreement; Third Party Beneficiaries................................................40
Section 8.6. Governing Law..............................................................................40
Section 8.7. Assignment.................................................................................41
Section 8.8. Enforcement................................................................................41
Section 8.9. Severability...............................................................................41
Section 8.10. Non-Recourse..............................................................................41
ARTICLE IX CERTAIN DEFINITIONS..................................................................................41
Section 9.1. Certain Definitions........................................................................41
</TABLE>
Exhibit A - Amendment of the Articles of Incorporation of the
Company designating the Series D Cumulative
Convertible Preferred Stock
Exhibit B - Form of Partnership Interest Exchange Agreement
Exhibit C - Form of Investment Agreement
Schedule A - Assigned Values of AAC Real Estate Assets
Schedule A-1 - Illustrative Balance Sheet
Schedule B - AAC Partnerships Subject to Rights of First Refusal
(ii)
<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.
2
<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" and, together with the Common
Cash Consideration, the "Merger Cash Consideration") and 7.812742
3
<PAGE>
shares of Company Series D Preferred Stock, with the amount of
Preferred Cash Consideration and such number of shares of Company
Series D Preferred Stock to be adjusted appropriately to reflect the
effect of any reverse stock split or combination permitted pursuant to
Section 4.1(a).
(ii) At the Effective Time, all such shares of AAC Preferred
Stock shall no longer be outstanding and shall automatically be
canceled and retired and all rights with respect thereto shall cease to
exist, and each holder of a certificate representing any such shares of
AAC Preferred Stock shall cease to have any rights with respect
thereto, except the right to receive cash and certificates representing
the shares of Company Series D Preferred Stock in accordance with this
Section 2.1(b) and Section 2.1(c) upon surrender of such certificate
(the "Preferred Merger Consideration" and, together with the Common
Merger Consideration, the "Merger Consideration"), without interest.
(iii) Notwithstanding the foregoing, the parties understand
that the rights of each stockholder of AAC under this Section 2.1(b)
will be subject to the stop transfer and redemption provisions
contained in Article 4 of the Company Charter.
(iv) The Preferred Cash Consideration shall be subject to
adjustment as provided in Section 2.2.
(c) Cash in Lieu of Fractional Shares. Notwithstanding any other
provision hereof, no fractional shares of Company Series D Preferred Stock shall
be issued in connection with the Merger. Instead, each shareholder of AAC having
a fractional interest arising upon the conversion or exchange of such shares in
connection with the Merger shall be paid an amount in cash equal to $25
multiplied by the fraction of a share of Company Series D Preferred Stock to
which such holder would otherwise be entitled. No such holder shall be entitled
to dividends or other distributions, voting rights or any other shareholder
rights in respect of any fractional share.
(d) No Effect on Outstanding Shares of the Company. Each shareholder
of the Company whose shares were outstanding immediately before the Effective
Date will hold the same number of shares of the Surviving Corporation, with
identical designations, preferences, limitations and relative rights,
immediately thereafter.
(e) No Further Transfer of AAC Stock. At and after the Effective
Time, no transfer of any shares of AAC Common Stock and/or AAC Preferred Stock
shall be recorded on the books of AAC. The Company shall not be bound to
recognize for any purpose any transfer or purported transfer of AAC Common Stock
and/or AAC Preferred Stock occurring after the Effective Time.
Section 2.2. Adjustment to Merger and Exchange Consideration.
(a) Closing Balance Sheet. As of the Closing Date, AAC will prepare
and deliver to the Company a closing consolidated balance sheet of AAC and the
AAC Subsidiaries (as defined herein) that will reflect, as of the Closing Date,
appropriate closing adjustments and accruals made in accordance with generally
accepted accounting principles consistently applied ("GAAP"), except as provided
below (the "Closing Balance Sheet"). The Closing Balance Sheet will eliminate
(i) the historical cost of AAC's real estate assets net of accumulated
depreciation, which amount will be replaced by the values assigned to such real
estate assets on Schedule A hereto and (ii) the historical cost of AAC's
minority interest in University Village, which interest will be reflected on the
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Closing Balance Sheet at a value of $2.9 million. Giving effect to such
adjustments, AAC's assets net of its liabilities as reflected on the Closing
Balance Sheet will be referred to as the "Net Asset Value." The Closing Balance
Sheet will (w) exclude deferred financing costs, (x) exclude any intangible
assets which do not have continuing economic value and (y) not reflect any
liability associated with any promotional interests held by third parties with
respect to the AAC Properties listed under Entity Level Properties on Schedule
3.1(p) to the AAC Disclosure Letter and (z) include expenses of AAC in
connection with the Merger and the Exchange (including the fees and expenses of
counsel to AAC and AACLP, any fees and expenses of Lazard Freres & Co. LLC
("Lazard") and the fees and expenses of counsel to Lazard) accrued to the
Closing Date as a liability without recording any corresponding asset. The
Closing Balance Sheet will include the aggregate amount of AAC's indebtedness as
of the Closing Date, but will not be adjusted to reflect any changes to the
valuation of the real estate assets, leasehold interests or minority interests
referred to on Schedule A hereto. Attached hereto as Schedule A-1, by way of
illustration, is the June 30, 1998, consolidated balance sheet of AAC,
indicating in notes thereto the kinds of adjustments to be made pursuant to this
Section 2.2 to create the Closing Balance Sheet. AAC will identify to the
Company the personnel having responsibility for the accounting records utilized
in preparation of the Closing Balance Sheet and will use its best efforts to
make them available to the Company and its representatives in connection with
any review of this process the Company may undertake, for purposes of resolution
of any dispute pursuant to Section 2.2(b) or otherwise.
(b) Disputes. In the event that the Company disputes any item(s) on
the Closing Balance Sheet, the Company shall deliver a detailed statement
describing such objections to AAC within 60 days after receiving the Closing
Balance Sheet. AAC and the Company will use reasonable efforts to resolve any
such objections themselves. If the parties are unable to obtain a final
resolution within 30 days, AAC and the Company will submit any unresolved
objections to Ernst & Young LLP for resolution. The determination of Ernst &
Young LLP shall be conclusive, final and binding on the parties.
(c) Adjustments to Transaction Consideration. The aggregate Merger
Consideration and the aggregate consideration provided for in Section 1 of the
Exchange Agreement (together, the "Aggregate Consideration") will be adjusted as
follows:
(i) If the Net Asset Value, as reflected on the Closing
Balance Sheet as finally determined, is less than $336.5 million, then
the Aggregate Consideration will be decreased in an amount equal to the
excess of $336.5 million over the Net Asset Value as reflected on the
Closing Balance Sheet as finally determined;
(ii) If the Net Asset Value, as reflected on the Closing
Balance Sheet as finally determined, is greater than $336.5 million,
then the Aggregate Consideration will be increased in an amount equal
to the excess of the Net Asset Value as reflected on the Closing
Balance Sheet as finally determined over $336.5 million;
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(iii) If the Net Asset Value, as reflected on the Closing
Balance Sheet as finally determined, is equal to $336.5 million, then
there will be no adjustment to the Aggregate Consideration pursuant to
this paragraph (c); and
(iv) The amount of any increase or decrease in the Aggregate
Consideration shall be allocated among the holders of partnership
interests in AACLP (the "AACLP Interest Holders") based on Section 5.2
of the Second Amended and Restated Agreement of Limited Partnership of
AACLP, as amended and supplemented (the "AACLP Partnership Agreement").
(No portion of any increase or decrease shall be allocated to the
Redeemable Preferred Capital of AACLP.) The portion of such increase or
decrease allocated to AAC shall increase or decrease, as the case may
be, dollar for dollar the aggregate Merger Cash Consideration and shall
increase or decrease the aggregate Common Cash Consideration and
aggregate Preferred Cash Consideration pro rata, and the increases or
decreases in the aggregate Common Cash Consideration and aggregate
Preferred Cash Consideration shall increase or decrease the per share
Common Cash Consideration and per share Preferred Cash Consideration,
respectively, on the basis of the number of shares of AAC Common Stock
and AAC Preferred Stock, respectively, issued and outstanding on the
Closing Date. The portion of such increase or decrease allocated to the
AACLP Interest Holders other than AAC shall increase or decrease, as
the case may be, the consideration provided for in Section 1 of the
Exchange Agreement as follows. Any increase or decrease allocated to
each such holder shall be applied dollar for dollar to the cash portion
of such consideration with respect to each such AACLP Interest Holder
other than AAC OP. Any increase or decrease allocated to AAC OP shall
increase or decrease the number of UDR Units issuable to AAC OP on the
basis of a UDR Unit value of $14.25.
(d) Adjustments for Rights of First Refusal. In the event that any
third party exercises its right of first refusal in respect of AAC's interests
in any of the AAC Partnerships listed on Schedule B hereto (the "Rights of First
Refusal") and such interests are purchased before the Closing Date for an amount
which exceeds the amount allocated to such AAC Partnership set forth on Schedule
B, then the Aggregate Consideration shall be increased by such excess. Any such
increase shall be allocated in accordance with Section 2.2(c).
(e) Holdback. An aggregate of $3,000,000 of cash shall be withheld
by the Company from the Aggregate Consideration (the "Holdback Amount"). The
Holdback Amount will be used to pay liabilities not disclosed in the Closing
Balance Sheet and the schedules to the AAC Disclosure Letter that are required
to be so disclosed under GAAP. On the 60th day following the Closing Date, the
balance of the Holdback Amount, including any interest which has accrued
thereon, will be distributed to the former shareholders of AAC and the limited
partners of AACLP as directed by a former executive officer of AAC to be
designated by AAC at or before the Closing. Any dispute regarding the propriety
of any deductions to the Holdback Amount will be resolved by the parties
themselves or, if the parties are unable to so agree, by Ernst & Young LLP in
the manner described in Section 2.2(b).
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Section 2.3. Dividend Distributions.
In order to satisfy the requirements of Section 857(a)(1) of the Code
for the taxable year of AAC ending at the Closing Date (and to avoid the payment
of tax with respect to undistributed income), AAC shall declare a dividend on
one or more classes of its outstanding capital stock (the "Final AAC REIT
Dividend"), the record date for which shall be approximately five business days
prior to the Closing Date, in an amount that the Company and AAC shall agree is
equal to the minimum dividend sufficient (taking into account expected revenue
and expenses through the day prior to the Closing Date) to permit AAC to satisfy
such requirements. If AAC determines it necessary to declare the Final AAC REIT
Dividend, it shall notify the Company prior to the Closing Date. The Final AAC
REIT Dividend shall be paid on the close of business on the last business day
prior to the Closing Date.
Section 2.4. Withholding Rights.
The Company shall be entitled to deduct and withhold from any Merger
Consideration otherwise payable pursuant to this Agreement to any holder of
shares of AAC Common Stock or AAC Preferred Stock such amounts as the Company is
required to deduct and withhold with respect to the making of such payment under
the Code, or any provision of state, local or foreign tax law. To the extent
that amounts are so withheld by the Company, such withheld amounts shall be
treated for all purposes of this Agreement as having been paid to the holder of
the shares of AAC Common Stock or AAC Preferred Stock, in respect of which such
deduction and withholding was made by the Company.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
Section 3.1. Representations and Warranties of AAC.
AAC represents and warrants to the Company as follows:
(a) Organization, Standing and Corporate Power of AAC. AAC is a
corporation duly organized and validly existing under the laws of Maryland and
has the requisite corporate power and authority to carry on its business as now
being conducted. AAC is duly qualified or licensed to do business and is in good
standing in each jurisdiction in which the nature of its business or the
ownership, leasing of its properties or management of properties for others
makes such qualification or licensing necessary, other than in such
jurisdictions where the failure to be so qualified or licensed, individually or
in the aggregate, would not have a material adverse effect on the business,
properties, assets, financial condition or results of operations of AAC and the
AAC Entities (as defined herein), taken as a whole (an "AAC Material Adverse
Effect").
(b) (AAC Subsidiaries and Investees.
(i) Schedule 3.1(b)(i)(1) to the AAC Disclosure Letter is a
true and complete list of all corporations with respect to which AAC
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operates, owns or otherwise controls, directly or indirectly through
one or more subsidiaries, partnerships, joint ventures or other
business associations, a majority of the outstanding voting securities
(the "AAC Subsidiaries"). Schedule 3.1(b)(i)(1) to the AAC Disclosure
Letter accurately sets forth for each AAC Subsidiary (a) its name and
jurisdiction of incorporation, (b) the number of shares of authorized
capital stock of each class of its capital stock, (c) the number of
issued and outstanding shares of each class of its capital stock, the
names of the holders thereof and the number of shares held by each such
holder and (d) the number of shares of its capital stock held in
treasury (if any). Except as set forth on Schedule 3.1(b)(i)(1) to the
AAC Disclosure Letter, all of the issued and outstanding shares of
capital stock of each AAC Subsidiary have been duly authorized and are
validly issued, fully paid and nonassessable. All of the issued and
outstanding shares of capital stock of each AAC Subsidiary are owned of
record and beneficially by AAC and/or by another AAC Subsidiary free
and clear of any and all restrictions on transfer (other than
restrictions under the Securities Act and state securities laws),
taxes, mortgages, liens, encumbrances, charges, pledges, impositions,
security interests, options, warrants, purchase rights, contracts,
commitments, equities, claims and demands ("Liens"). There are no
outstanding or authorized options, warrants, purchase rights,
conversion rights, exchange rights or other contracts or commitments
that could require AAC to sell, transfer or otherwise dispose of any
capital stock of any of the AAC Subsidiaries or that could require any
AAC Subsidiary to issue, sell or otherwise cause to become outstanding
any of its own capital stock. There are no outstanding stock
appreciation, phantom stock, profit participation or similar rights
with respect to any AAC Subsidiary. There are no voting trusts, proxies
or other agreements or understandings with respect to the voting of any
capital stock of any AAC Subsidiary. Each AAC Subsidiary that is a
corporation is duly incorporated and validly existing under the laws of
its jurisdiction of incorporation and has the requisite corporate power
and authority to carry on its business as now being conducted. Except
for the AAC Subsidiaries set forth on Schedule 3.1(b)(i)(1) to the AAC
Disclosure Letter, which in the aggregate do not represent a material
percentage of the total value of the AAC Subsidiaries taken as a whole,
each AAC Subsidiary is duly qualified or licensed to do business and is
in good standing in each jurisdiction in which the nature of its
business or the ownership, leasing of its properties or management of
properties for others makes such qualification or licensing necessary,
other than in such jurisdictions where the failure to be so qualified
or licensed, individually or in the aggregate, would not have an AAC
Material Adverse Effect. Schedule 3.1(b)(i)(2) to the AAC Disclosure
Letter is a true and complete list of all corporations, other than the
Subsidiaries, with respect to which AAC has owned or otherwise
controlled, within the last five years, a majority of the outstanding
voting securities (the "Former AAC Subsidiaries") and accurately sets
forth for each Former AAC Subsidiary (a) its name and jurisdiction of
incorporation, (b) the nature and extent of AAC's interest in such
Former AAC Subsidiary, (c) the date such interest was disposed of and
(d) the manner of such disposition.
(ii) Schedule 3.1(b)(ii)(3) to the AAC Disclosure Letter is a
true and complete list of all corporations with respect to which AAC
owns or otherwise controls, directly or indirectly through one or more
subsidiaries, partnerships, joint ventures or other business
associations, less than a majority of the outstanding voting securities
(the "AAC Investees"). Schedule 3.1(b)(ii)(3) to the AAC Disclosure
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Letter accurately sets forth for each AAC Investee (a) its name and
jurisdiction of incorporation, (b) the number of shares of authorized
capital stock of each class of its capital stock and (c) the number of
issued and outstanding shares of each class of its capital stock held
by AAC. All of the issued and outstanding shares of capital stock of
each AAC Investee owned by AAC have been duly authorized and are
validly issued, fully paid and nonassessable. All of the issued and
outstanding shares of capital stock of each AAC Investee are owned of
record and beneficially by AAC and/or by another AAC Subsidiary free
and clear of any and all Liens. There are no outstanding or authorized
options, warrants, purchase rights, conversion rights, exchange rights
or other contracts or commitments that could require AAC to sell,
transfer or otherwise dispose of any capital stock of any of the AAC
Investees. There are no voting trusts, proxies or other agreements or
understandings with respect to the voting of any capital stock of any
AAC Investee owned by AAC. Schedule 3.1(b)(ii)(4) to the AAC Disclosure
Letter is a true and complete list of all corporations, other than the
AAC Investees, with respect to which AAC has owned or otherwise
controlled, within the last five years, less than a majority of the
outstanding voting securities (the "Former AAC Investees") and
accurately sets forth for each Former AAC Investee (a) its name and
jurisdiction of incorporation, (b) the nature and extent of AAC's
interest in such Former AAC Investee, (c) the date such interest was
disposed of and (d) the manner of such disposition.
(c) AAC Partnerships. Schedule 3.1(c)(1) to the AAC Disclosure
Letter is a true and complete list of all of the partnerships, joint ventures,
limited liability entities, trusts and other business associations (the "AAC
Partnerships" and together with AAC and the AAC Subsidiaries, "AAC Entities") in
which AAC and/or any AAC Subsidiary or AAC Partnership is a participant and
accurately sets forth (a) the name and jurisdiction of organization of each AAC
Partnership and (b) the nature and extent of AAC's or any other owner's interest
in each AAC Partnership. Such interests in the AAC Partnerships are owned free
and clear of any Liens. Except for the AAC Partnerships set forth on Schedule
3.1(c)(1) to the AAC Disclosure Letter, which in the aggregate do not represent
a material percentage of the total value of the AAC Partnerships taken as a
whole, each AAC Partnership is duly organized and validly existing under the
laws of its jurisdiction of organization and has the requisite power and
authority to carry on its business as now being conducted. Except for the Entity
Level Investments set forth on Schedule 3.1(c)(2) to the AAC Disclosure Letter,
there are no outstanding contracts or commitments that could require any of the
AAC Partnerships to admit additional participants or require any AAC Entity to
sell, transfer or otherwise dispose of its interest in any AAC Partnership.
Schedule 3.1(c)(3) to the AAC Disclosure Letter is a true and complete list of
all of the partnerships, joint ventures and other business associations, other
than the AAC Partnerships, in which any AAC Entity has been a participant in the
last five years (the "Former AAC Partnerships") and accurately sets forth for
each Former AAC Partnership (a) the type of entity, (b) its name and
jurisdiction of organization, (c) the nature and extent of any AAC Entity's
interest in such Former AAC Partnership, (d) the date such interest was disposed
of and (e) the manner of such disposition. AAC does not own, and has not within
the last five years owned, any equity interest in any entity except the AAC
Subsidiaries, the Former AAC Subsidiaries, the AAC Investees, the Former AAC
Investees, the AAC Partnerships and the Former AAC Partnerships.
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(d) Capital Structure. AAC has authority to issue 10,400,100 shares
of capital stock, par value $.01 per share, consisting of 100 shares of Class A
Nonvoting Common Stock, $.01 par value (the "AAC Nonvoting Common Stock"),
10,000,000 shares of AAC Common Stock and 400,000 shares of preferred stock, of
which 300,000 are classified as AAC Preferred Stock and 100,000 are without
class designation. On the date hereof, no shares of Nonvoting AAC Common Stock,
853,968.26 shares of AAC Common Stock and 170,000 shares of AAC Preferred Stock
were issued and outstanding. On the date of this Agreement, except as set forth
above in this Section 3.1 or in a Schedule to the AAC Disclosure Letter referred
to above in this Section 3.1, no shares of capital stock or other voting
securities of AAC or any AAC Subsidiary were issued, reserved for issuance or
outstanding. All outstanding shares of capital stock of AAC are duly authorized,
validly issued, fully paid and nonassessable and not subject to preemptive
rights. Except (A) for the AAC OP Units, (B) as set forth in Schedule 3.1(d) to
the AAC Disclosure Letter, and (C) as otherwise permitted under Section 4.1,
there are no outstanding securities, options, stock appreciation rights,
warrants, calls, rights, commitments, agreements, arrangements or undertakings
of any kind to which AAC or any AAC Subsidiary is a party or by which such
entity is bound, obligating AAC or any AAC Subsidiary to issue, deliver or sell,
or cause to be issued, delivered or sold, additional shares of capital stock,
voting securities or other ownership interests of AAC or any AAC Subsidiary or
obligating AAC or any AAC Subsidiary to issue, grant, extend or enter into any
such security, option, warrant, call, right, commitment, agreement, arrangement
or undertaking.
(e) Authority; Noncontravention; Consents. AAC has the requisite
corporate power and authority to enter into this Agreement and to consummate the
Merger and the other transactions contemplated by this Agreement. The execution
and delivery of this Agreement by AAC and the consummation by AAC of the
transactions contemplated hereby to which AAC is a party have been duly
authorized and approved by the Board of Directors of AAC in the manner required
by AAC's Articles of Incorporation and Bylaws and by applicable law. This
Agreement has been duly executed and delivered by AAC and constitutes a valid
and binding obligation of AAC, enforceable against AAC in accordance with its
terms. Except as set forth in Schedule 3.1(e) to the AAC Disclosure Letter, the
execution and delivery of this Agreement by AAC does not, and the consummation
of the transactions contemplated hereby to which AAC is a party and compliance
by AAC with the provisions of this Agreement will not, conflict with, or result
in any violation of, or default (with or without notice or lapse of time, or
both) under, or give rise to a right of termination, cancellation or
acceleration of any obligation or to loss of a material benefit under, or result
in the creation of any Lien upon any of the properties or assets of AAC or any
AAC Subsidiary under, (i) the charter or bylaws or the comparable charter or
organizational documents or partnership or similar agreement (as the case may
be) of any AAC Entity, each as amended or supplemented to the date of this
Agreement, (ii) any loan or credit agreement, note, bond, mortgage, indenture,
lease or agreement to acquire real property, or any other material contract,
agreement, arrangement or understanding to which any AAC Entity is a party or by
which it or any of its properties is bound, or (iii) subject to the governmental
filings and other matters referred to in the following sentence, any judgment,
decree, statute, law, ordinance, rule, regulation or order of any Governmental
Entity (as defined herein) (collectively, "Laws") applicable to any AAC Entity,
or its respective business, properties, operations or assets, other than, in the
case of clause (ii) or (iii), any such conflicts, violations, defaults, rights
or Liens that individually or in the aggregate would not (x) have an AAC
Material Adverse Effect or (y) prevent the consummation of the Merger or the
other transactions contemplated hereby. No consent, approval, order or
authorization of, or registration, declaration or filing with, any federal,
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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.
(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,
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in AAC Economic Losses (as defined in Section 6.2(a) below) of $8,000,000 or
more (an "AAC Material Adverse Change"), nor has there been any occurrence or
circumstance that with the passage of time would reasonably be expected to
result in an AAC Material Adverse Change, (b) except for regular quarterly
distributions of the AAC Common Stock and the AAC Preferred Stock covering the
period through the Closing Date at a rate not to exceed in the aggregate on an
annual basis 9% of the value of the capital accounts of the AACLP partners, any
declaration, setting aside or payment of any dividend or other distribution
(whether in cash, stock or property) with respect to the AAC Common Stock and
AAC Preferred Stock, (c) any split, combination or reclassification of any AAC
Common Stock and AAC Preferred Stock or any issuance or the authorization of any
issuance of any other securities in respect of, in lieu of or in substitution
for, or giving the right to acquire by exchange or exercise, shares of its
beneficial interest or any issuance of an ownership interest in, any AAC Entity
except as contemplated by this Agreement, (d) any damage, destruction or loss,
whether or not covered by insurance, that has or would have an AAC Material
Adverse Effect, (e) any change in accounting methods, principles or practices by
any AAC Entity materially affecting its assets, liabilities or business, except
insofar as may have been disclosed in Schedule 3.1(g) to the AAC Disclosure
Letter or required by a change in GAAP, or (f) any amendment of any employment,
consulting, severance, retention or any other agreement between any AAC Entity
and any officer or director of any AAC Entity, other than as provided in Section
4.1(k) of this Agreement.
(h) Litigation. Except as disclosed in Schedule 3.1(h) to the AAC
Disclosure Letter, and other than personal injury and other routine tort
litigation arising from the ordinary course of operations of the AAC Entities
that is covered by adequate insurance, there is no suit, action, claim,
proceeding or governmental investigation pending or threatened against or
affecting any AAC Entity that, individually or in the aggregate, could
reasonably be expected to (i) have an AAC Material Adverse Effect or (ii)
prevent the consummation of the Merger or any of the other transactions
contemplated hereby, nor is there any judgment, decree, injunction, rule or
order of any Governmental Entity or arbitrator outstanding against any AAC
Entity having, or that, insofar as reasonably can be foreseen, in the future
would have, any such effect.
(i) (Absence of Changes in Benefit Plans; ERISA Compliance.
(i) Except as disclosed in Schedule 3.1(i)(i) to the AAC
Disclosure Letter, since the date of the most recent audited financial
statements of AAC, there has not been any adoption or amendment in any
material respect by any AAC Entity of any bonus, pension, profit
sharing, deferred compensation, incentive compensation, stock
ownership, stock purchase, stock option, phantom stock, retirement,
vacation, severance, disability, death benefit, hospitalization,
medical or other employee benefit plan, arrangement or understanding
(whether or not legally binding) providing benefits to any current or
former employee, officer or director of AAC or any AAC Subsidiary or
any person affiliated with AAC under Section 414(b), (c), (m) or (o) of
the Code (collectively, "AAC Benefit Plans").
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(ii) Except as described in Schedule 3.1(i)(ii) to the AAC
Disclosure Letter or as would not have an AAC Material Adverse Change,
(A) all AAC Benefit Plans, including any such plan that is an "employee
benefit plan" as defined in Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), are in compliance
with all applicable requirements of law, including ERISA and the Code
and (B) no AAC Entity has any liabilities or obligations with respect
to any such AAC Benefit Plan, whether accrued, contingent or otherwise
(other than obligations to make contributions and pay benefits and
administrative costs incurred in the ordinary course), nor are any such
liabilities or obligations expected to be incurred. Except as set forth
in Schedule 3.1(i)(ii) to the AAC Disclosure Letter, the execution of,
and performance of the Transactions contemplated in, this Agreement
will not (either alone or together with the occurrence of any
additional or subsequent events) constitute an event under any AAC
Benefit Plan, policy, arrangement or agreement, trust or loan that will
or may result in any payment (whether of severance pay or otherwise),
acceleration, forgiveness of indebtedness, vesting, distribution,
increase in benefits or obligation to fund benefits with respect to any
employee or director. The only severance agreements or severance
policies applicable to the AAC Entities are the agreement and policies
specifically referred to in Schedule 3.1(i)(ii) to the AAC Disclosure
Letter.
(j) (Taxes.
(i) Each AAC Entity has timely filed all Tax Returns (as
defined herein) required to be filed by it (after giving effect to any
filing extension properly granted by a Governmental Entity having
authority to do so). Each such Tax Return is true, correct and complete
in all material respects. Each AAC Entity has paid (or AAC has paid on
its behalf), within the time and manner prescribed by law, all Taxes
(as defined herein) that are due and payable. The most recent financial
statements described in Section 3.1(f) reflect an adequate reserve for
all taxes payable by the Company for all taxable periods and portions
thereof accrued through the date of such Financial Statements. As of
the date hereof, no AAC Entity has received notice that any federal,
state and local income or franchise tax return of such AAC Entity has
been or will be examined by any taxing authority. No AAC Entity has
executed or filed with the Internal Revenue Service or any other taxing
authority any agreement now in effect extending the period for
assessment or collection of any income or other taxes. Except as
disclosed on Schedule 3.1(j)(i) to the AAC Disclosure Letter, no AAC
Entity is a party to any pending action or proceeding by any
governmental authority for assessment or collection of taxes, and no
claim for assessment or collection of taxes has been asserted against
it. True, correct and complete copies of all federal, state and local
income or franchise tax returns filed by each AAC Entity and all
communications relating thereto have been delivered to the Company or
made available to representatives of the Company. As used in this
Agreement, "Taxes" shall mean any federal, state, local or foreign
income, gross receipts, license, payroll, employment withholding,
property, sales, excise or other tax or governmental charges of any
nature whatsoever, together with any penalties, interest or additions
thereto and "Tax Return" shall mean any return, declaration, report,
claim for refund, or information return or statement relating to Taxes,
including any schedule or attachment thereto, and including any
amendment thereof.
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(ii) AAC (A) for all of its taxable years commencing with the
year ended December 31, 1996 through December 31, 1997, has been
subject to taxation as a real estate investment trust ("REIT") within
the meaning of Section 856 of the Code and has satisfied the
requirements to qualify as a REIT for such years, except with respect
to the filing of AAC's 1997 Federal income tax return and the making of
the applicable elections thereon (B) has operated, and intends to
continue to operate, in such a manner as to qualify as a REIT for its
tax year ending on the Effective Day and (C) has not taken or omitted
to take any action that could reasonably be expected to result in a
challenge to its status as a REIT, and no such challenge is pending or
threatened. AAC has no undistributed earnings and profits allocable to
any taxable period during which it or any predecessor in interest was
subject to taxation as a corporation. AACLP has at all times, and each
other AAC Entity that is a partnership or files Tax Returns as a
partnership for federal income tax purposes has since its acquisition
by AAC, been classified for federal income tax purposes as a
partnership and not as a corporation or as an association taxable as a
corporation. Each of the AAC Subsidiaries that is a corporation for
federal income tax purposes is a "qualified REIT subsidiary" as defined
in Section 856(i) of the Code. No AAC Entity holds any asset (i) the
disposition of which could be subject to rules similar to Section 1374
of the Code as a result of an election under IRS Notice 88-19 or (ii)
that is subject to a consent filed pursuant to Section 341(f) of the
Code and regulations thereunder.
(iii) AAC has no reason to believe that any conditions exist
that could reasonably be expected to prevent the Merger from qualifying
as a reorganization within the meaning of Section 368(a) of the Code.
(k) No Loans or Payments to Employees, Officers or Directors. Except
as set forth in Schedule 3.1(k) to the AAC Disclosure Letter or as otherwise
specifically provided for in this Agreement, there is no (i) loan outstanding
from or to any employee or director, (ii) employment or severance contract or
other arrangement with respect to severance, (iii) other agreement requiring
payments to be made on a change of control or otherwise as a result of the
consummation of the merger or any of the other transactions contemplated hereby
with respect to any employee, officer or director of any AAC Entity or (iv) any
agreement to appoint or nominate any person as a director of any AAC Entity.
(l) Brokers. Other than Lazard, no broker, investment banker,
financial advisor or other person is entitled to any broker's, finder's,
financial advisor's or other similar fee or commission in connection with the
transactions contemplated hereby based upon arrangements made by or on behalf of
AAC or any AAC Subsidiary.
(m) Compliance with Laws. Except as set forth in Schedule 3.1(m) to
the AAC Disclosure Letter, no AAC Entity has violated or failed to comply in any
material respect with any Law applicable to its business, properties, operations
or assets, except for violations and failures to comply that would not,
individually or in the aggregate, reasonably be expected to result in an AAC
Material Adverse Effect.
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(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)
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matters that would be disclosed by an accurate survey, (f) existing mortgages or
deeds of trust and (g) exceptions to title disclosed in the title policies
covering the AAC Properties and any other, easements, rights-of-way,
restrictions (including zoning restrictions), matters of plat, minor defects or
irregularities in title, license or lease agreements for laundry, cable
television, telephone and other similar liens which, in the aggregate, do not
materially reduce the value of the AAC Properties or materially interfere with
the operation and use of, or the ordinary conduct of the business on, the AAC
Properties; (iii) valid policies of title insurance have been issued insuring
the applicable AAC Entity's fee simple title or leasehold estates to the AAC
Properties except as noted therein, and such policies are, at the date hereof,
in full force and effect and no claim has been made against any such policy;
(iv) there is no certificate, permit or license from any Governmental Entity
having jurisdiction over any of the AAC Properties or any agreement, easement or
any other right which is necessary to permit the lawful use and operation of the
buildings and improvements on any of the AAC Properties or which is necessary to
permit the lawful use and operation of all driveways, roads and other means of
egress and ingress to and from any of the AAC Properties that has not been
obtained and is not in full force and effect, or any pending threat of
modification or cancellation of any of same, nor any proposed material change in
the route, grade or width of, or otherwise affecting, any street, road or other
means of egress and ingress to or serving any of the AAC Properties that would
not individually or in the aggregate be expected to result in an AAC Material
Adverse Effect; and (v) except as disclosed on Schedule 3.1(p) to the AAC
Disclosure Letter, no AAC Entity has received notice to the effect that (a)
condemnation or rezoning or proceedings are pending or threatened with respect
to any of the AAC Properties or (b) zoning, building or similar laws, codes,
ordinances, orders or regulations are or will be violated by the continued
maintenance, operation or use of any buildings or other improvements on any of
the AAC Properties or by the continued maintenance, operation or use of the
parking areas.
(q) Warranties and Guaranties. Except as listed in Schedule 3.1(q)
to the AAC Disclosure Letter, no AAC Entity has taken any affirmative action to
release or modify any warranties or guarantees, if any, of contractors,
builders, architects, manufacturers, suppliers and installers relating to (i)
the AAC Properties, including all other buildings, improvements, furniture,
fixtures, equipment, machinery and other items of real estate located on the AAC
Properties, (ii) all licenses, permits and approvals required by any
Governmental Entity for the ownership, operation and use of the AAC Properties
or any part thereof as presently being conducted by the AAC Entities, except
where failure to obtain any such license, permit or approval would not have an
AAC Material Adverse Effect, and (iii) all intangible personal property
("Intangible Personal Property") owned by the AAC Entities and used in
connection with the ownership of the AAC Properties, including, without
limitation, general intangibles, business records relating to the AAC
Properties, plans and specifications, surveys and title insurance policies
pertaining to the AAC Properties, all licenses, permits and approvals with
respect to the construction, ownership, operation, leasing, occupancy or
maintenance of the AAC Properties, any unpaid award for taking by condemnation
or any damage to the AAC Properties by reason of a change of grade or location
of or access to any street or highway.
(r) Insurance. All of the AAC Entities' insurance policies are valid
and in full force and effect, all premiums for such policies were paid when due.
None of the AAC Entities has canceled or voluntarily allowed to expire, any of
its respective insurance policies unless such policy was replaced, without any
lapse of coverage, by another policy or policies providing coverage at least as
extensive as the policy or policies being replaced.
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(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 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.
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(iii) The minute books and other records of corporate or
partnership proceedings of each AAC Entity that had previously been
made available to the Company, contain in all material respects
accurate records of all meetings and accurately reflect in all material
respects all other corporate action of the stockholders and directors
and any committees of the Board of Directors of each AAC Entity that is
a corporation.
(y) State Takeover Statutes. The AAC Entities have taken all action
necessary to exempt transactions between the Company and the AAC Entities from
the operation of any "fair price," "moratorium," "control share acquisition" or
any other anti-takeover statute or similar statute enacted under the state or
federal laws of the United States or similar statute or regulation.
(z) Investment Company Act of 1940. None of the AAC Entities is, or
at the Effective Time, will be, required to be registered under the Investment
Company Act of 1940, as amended (the "Investment Company Act").
(aa) Leases. The leases with all tenants of the AAC Properties are,
and will be as of the Closing Date, in full force and effect, and no AAC Entity
is, nor will be as of the Closing Date, in default, except for such failures to
be in effect or defaults, individually or in the aggregate, that would not have
an AAC Material Adverse Effect. Except with respect to leases assigned to
mortgage lenders, the Leases for which any AAC Entity is the lessor are, or will
be at Closing, freely assignable by such AAC Entity, and such AAC Entity will
have obtained all necessary consents of any third party.
Section 3.2. Representations and Warranties of the Company.
The Company represents and warrants to AAC as follows:
(a) Organization, Standing and Corporate Power of the Company. The
Company is a corporation duly organized and validly existing under the laws of
Virginia and has the requisite corporate power and authority to carry on its
business as now being conducted. The Company is duly qualified or licensed to do
business and is in good standing in each jurisdiction in which the nature of its
business or the ownership or leasing of its properties makes such qualification
or licensing necessary, other than in such jurisdictions where the failure to be
so qualified or licensed, individually or in the aggregate, would not have a
material adverse effect on the business, properties, assets, financial condition
or results of operations of the Company and its Subsidiaries, taken as a whole
(a "Company Material Adverse Effect"). Each Company Subsidiary that is a
corporation is duly incorporated and validly existing under the laws of its
jurisdiction of incorporation and has the requisite corporate power and
authority to carry on its business as now being conducted and each Company
Subsidiary that is a partnership, limited liability company or trust is duly
organized and validly existing under the laws of its jurisdiction of
organization and has the requisite power and authority to carry on its business
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as now being conducted. Each Company Subsidiary is duly qualified or licensed to
do business and is in good standing in each jurisdiction in which the nature of
its business or the ownership or leasing of its properties makes such
qualification or licensing necessary, other than in such jurisdictions where the
failure to be so qualified or licensed individually or in the aggregate, would
not have a Company Material Adverse Effect.
(b) Capital Structure. The authorized capital stock of the Company
consists of 150,000,000 shares of Common Stock, $1 par value ("Common Stock"),
and 25,000,000 shares of preferred stock, no par value (the "Company Preferred
Stock"). On the date hereof, (i) 103,192,436 shares of Common Stock and
10,200,000 shares of Company Preferred Stock, consisting of 4,200,000 shares of
9 1/4% Series A Cumulative Redeemable Preferred Stock and 6,000,000 shares of
8.60% Series B Cumulative Redeemable Preferred Stock, were issued and
outstanding and 1,000,000 shares of Series C Cumulative Redeemable Preferred
Stock were authorized but none were outstanding, (ii) 4,876,435 shares of Common
Stock were available for grant under the Company's stock option and stock
purchase and loan plans (the "Company Plans"), and (iii) 9,655,395 shares of
Common Stock were reserved for issuance upon exercise of outstanding stock
options to purchase shares of Common Stock granted under the Company Plans (the
"Company Stock Options"). On the date of this Agreement, except as set forth in
this Section 3.2(b), no shares of capital stock or other voting securities of
the Company were issued, reserved for issuance or outstanding. All outstanding
shares of capital stock of the Company are, and all shares that may be issued
pursuant to this Agreement will be when issued, duly authorized, validly issued,
fully paid and nonassessable and not subject to preemptive rights. Except (A)
for the Company Stock Options, (B) the Company OP Units, (C) as set forth in
Schedule 3.2(b) to the Company Disclosure Letter and (D) as otherwise permitted
under Section 4.2, as of the date of this Agreement there are no outstanding
securities, options, stock appreciation rights, warrants, calls, rights,
commitments, agreements, arrangements or undertakings of any kind to which the
Company or any Company Subsidiary is a party or by which such entity is bound,
obligating the Company or any Company Subsidiary to issue, deliver or sell, or
cause to be issued, delivered or sold, additional shares of capital stock,
voting securities or other ownership interests of the Company or of any Company
Subsidiary or obligating the Company or any Company Subsidiary to issue, grant,
extend or enter into any such security, option, warrant, call, right,
commitment, agreement, arrangement or undertaking.
(c) (Company Operating Partnership.
(i) The Company owns all of its partnership interests in the
Company Operating Partnership free and clear of all Liens;
(ii) The Company has delivered to AAC complete and correct
copies of the Agreement of Limited Partnership of the Company Operating
Partnership, as amended or supplemented to the date of this Agreement
(the "Company OP Partnership Agreement"); and
(iii) As of September 4, 1998, there were 13,415,221
outstanding Company OP Units, of which the Company owned, either
directly or indirectly, 11,296,871 Company OP Units.
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<PAGE>
(d) Authority; Noncontravention; Consents. The Company has the
requisite corporate power and authority to enter into this Agreement and to
consummate the transactions contemplated by this Agreement to which the Company
is a party. The execution and delivery of this Agreement by the Company and the
consummation by the Company of the transactions contemplated hereby to which the
Company is a party have been duly authorized and approved in the manner required
by the Company Charter and the Company's Bylaws, by applicable law or by
applicable regulations of any stock exchange or other regulatory body, and by
the Company's Board of Directors. No approval by the stockholders of the Company
is required to complete the Merger and the other transactions contemplated
hereby, including without limitation, under the rules of the NYSE. This
Agreement has been duly executed and delivered by the Company and constitutes a
valid and binding obligation of the Company, enforceable against the Company in
accordance with its terms. The execution and delivery of this Agreement by the
Company does not, and the consummation of the transactions contemplated hereby
to which the Company is a party and compliance by the Company with the
provisions of this Agreement will not, conflict with, or result in any violation
of, or default (with or without notice or lapse of time, or both) under, or give
rise to a right of termination, cancellation or acceleration of any obligation
or to loss of a material benefit under, or result in the creation of any Lien
upon any of the properties or assets of the Company or any Company Subsidiary
under, (i) the Company Charter or Company's Bylaws or the comparable charter or
organizational documents or partnership or similar agreement (as the case may
be) of any Company Subsidiary, each as amended or supplemented to the date of
this Agreement, (ii) any loan or credit agreement, note, bond, mortgage,
indenture, reciprocal easement agreement, lease or other agreement, instrument,
permit, concession, franchise or license applicable to the Company or any
Company Subsidiary or their respective properties or assets or (iii) subject to
the governmental filings and other matters referred to in the following
sentence, any Laws applicable to the Company or any Company Subsidiary or their
respective properties or assets, other than, in the case of clause (ii) or
(iii), any such conflicts, violations, defaults, rights or Liens that
individually or in the aggregate would not (x) have a Company Material Adverse
Effect or (y) prevent the consummation of the Merger or the other transactions
contemplated hereby. No consent, approval, order or authorization of, or
registration, declaration or filing with, any Governmental Entity is required by
or with respect to the Company or any Company Subsidiary in connection with the
execution and delivery of this Agreement by the Company or the consummation by
the Company of any of the transactions contemplated hereby and thereby, except
for (i) the filing of the Articles of Merger with the VSCC and the SDAT, (ii)
the filing with the Securities and Exchange Commission (the "SEC") of such
reports under Section 13(a) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), as may be required in connection with this Agreement and
the other transactions contemplated by this Agreement, (iii) such filings as may
be required in connection with the payment of any Transfer and Gains Taxes, (iv)
the acceptance for record of the Articles of Merger by the SDAT and the issuance
of a Certificate of Merger by the VSCC, and (v) such other consents, approvals,
orders, authorizations, registrations, declarations and filings (A) as are set
forth in Schedule 3.2(d) to the Company Disclosure Letter, (B) as may be
required under federal, state or local Environmental Laws, (C) as may be
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required under the "blue sky" laws of various states or (D) which, if not
obtained or made, would not prevent or delay in any material respect the
consummation of any of the transactions contemplated by this Agreement or
otherwise prevent the Company from performing its obligations under this
Agreement in any material respect or have, individually or in the aggregate, a
Company Material Adverse Effect. For purposes of determining compliance with the
HSR Act, the Company confirms that the conduct of its business consists solely
of investing in, owning, developing and operating real estate for the benefit of
its shareholders and the unitholders of the Company Operating Partnership.
(e) SEC Documents; Financial Statements; Undisclosed Liabilities.
The Company has filed all required reports, schedules, forms, statements and
other documents with the SEC since January 1, 1994 through the date hereof (the
"Company SEC Documents"). Except for liabilities and obligations set forth in
the Company SEC Documents, neither the Company nor any of the Company
Subsidiaries has any liabilities or obligations of any nature (whether accrued,
contingent or otherwise) required by GAAP to be set forth on a consolidated
balance sheet of the Company or in the notes thereto and which, individually or
in the aggregate, would have a Company Material Adverse Effect. All of the
Company SEC Documents (other than preliminary material), as of their respective
filing dates, complied in all material respects with all applicable requirements
of the Securities Act of 1933, as amended (the "Securities Act"), and the
Exchange Act and, in each case, the rules and regulations promulgated thereunder
applicable to such Company SEC Documents. None of the Company SEC Documents at
the time of filing contained any untrue statement of a material fact or omitted
to state any material fact required to be stated therein or necessary in order
to make the statements therein, in light of the circumstances under which they
were made, not misleading, except to the extent such statements have been
modified or superseded by later Company SEC Documents filed and publicly
available prior to the date of this Agreement. There is no unresolved violation,
criticism or exception by any Governmental Entity of which the Company has
received written notice with respect to the Company report or statement which,
if resolved in a manner unfavorable to the Company, could have a Company
Material Adverse Effect. The consolidated financial statements of the Company
and the Company Subsidiaries included in the Company SEC Documents complied as
to form in all material respects with applicable accounting requirements and the
published rules and regulations of the SEC with respect thereto, have been
prepared in accordance with GAAP (except, in the case of interim financial
statements, as permitted by the applicable regulations of the SEC) applied on a
consistent basis during the periods involved (except as may be indicated in the
notes thereto) and fairly presented, in accordance with the applicable
requirements of GAAP, the consolidated financial position of the Company and the
Company Subsidiaries, taken as a whole, as of the dates thereof and the
consolidated results of operations and cash flows for the periods then ended
(subject, in the case of interim financial statements, to normal year-end
adjustments). The Company has no Company Subsidiaries that are not consolidated
for accounting purposes.
(f) Absence of Certain Changes or Events. Except as disclosed in the
Company SEC Documents or in Schedule 3.2(f) to the Company Disclosure Letter,
since the date of the most recent financial statements included in the Company
SEC Documents (the "Company Financial Statement Date") and to the date of this
Agreement, but not thereafter with respect to clause (a) of this Section 3.2(f),
the Company and the Company Subsidiaries have conducted their business only in
the ordinary course and there has not been (a) any material adverse change in
the business, financial condition or results of operations of the Company and
the Company Subsidiaries taken as a whole, that has resulted or would result,
individually or in the aggregate, in Company Economic Losses (as defined in
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Section 6.3 below) of $30,000,000 or more (a "Company Material Adverse Change"),
nor has there been any occurrence or circumstance that with the passage of time
would reasonably be expected to result in a Company Material Adverse Change, (b)
except for regular quarterly distributions not in excess of $.30 per share of
Common Stock (including any corresponding distribution by the Company Operating
Partnership) with customary record and payment dates, any declaration, setting
aside or payment of any dividend or other distribution (whether in cash, stock
or property) with respect to any of the Common Stock, (c) any split, combination
or reclassification of any share of Common Stock or any issuance or the
authorization of any issuance of any other securities in respect of, in lieu of
or in substitution for, or giving the right to acquire by exchange or exercise,
shares of Common Stock or any issuance of an ownership interest in, any Company
Subsidiary except as contemplated by this Agreement, (d) any damage, destruction
or loss, whether or not covered by insurance, that has or would have a Company
Material Adverse Effect or (e) any change in accounting methods, principles or
practices by the Company or any Company Subsidiary materially affecting its
assets, liabilities or business, except insofar as may have been disclosed in
the Company SEC Documents or required by a change in GAAP.
(g) Litigation. Except as disclosed in Schedule 3.2(g) to the
Company Disclosure Letter, and other than personal injury and other routine tort
litigation arising from the ordinary course of operations of the Company and the
Company Subsidiaries that is covered by adequate insurance, there is no suit,
action, claim, proceeding or governmental investigation pending or threatened
against or affecting the Company or any Company Subsidiary that, individually or
in the aggregate, could reasonably be expected to (i) have a Company Material
Adverse Effect or (ii) prevent the consummation of the Merger or any of the
other transactions contemplated hereby, nor is there any judgment, decree,
injunction, rule or order of any Governmental Entity or arbitrator outstanding
against the Company or any Company Subsidiary having, or that, insofar as
reasonably can be foreseen, in the future would have, any such effect.
(h) Properties. (i) The Company or a Company Subsidiary owns fee
simple title or has a valid leasehold interest in each of the real properties
listed in the Company SEC Reports as owned by the Company (the "Company
Properties"), except where failure to own such title would not have a Company
Material Adverse Effect; (ii) the Company Properties are not subject to any
Encumbrances or Property Restrictions that could cause a Company Material
Adverse Effect; (iii) valid policies of title insurance have been issued
insuring the Company's or the applicable Company Subsidiaries' fee simple title
to the Company Properties, except where failure to obtain such title insurance
would not have a Company Material Adverse Effect; (iv) there is no certificate,
permit or license from any Governmental Authority having jurisdiction over any
of the Company Properties that has not been obtained where such failure to
obtain would have a Company Material Adverse Effect, or any pending threat of
modification or cancellation of any of same that would have a Company Material
Adverse Effect; (v) neither the Company nor a Company Subsidiary has received
any written notice of any violation of any federal, state or municipal law,
ordinance, order, regulation or requirement affecting any of the Company
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Properties issued by any Governmental Authority that would have a Company
Material Adverse Effect; (vi) neither the Company nor a Company Subsidiary has
received any written notice to the effect that (a) condemnation or rezoning
proceedings are pending or threatened with respect to any of the Company
Properties or (b) zoning, building or similar laws, codes, ordinances, orders or
regulations are or will be violated by the continued maintenance, operation or
use of any buildings or other improvements on any of the Company Properties or
by the continued maintenance, operation or use of the parking areas, other than
notices that, in the aggregate, would not have a Company Material Adverse
Effect.
(i) Environmental Matters. The Company and each Company Subsidiary
have obtained all material licenses, permits, authorizations, approvals and
consents from Governmental Entities that are required in respect of their
business, operations, assets or properties under any applicable Environmental
Law and the Company and each Company Subsidiary are in compliance in all
material respects with the terms and conditions of all such licenses, permits,
authorizations, approvals and consents and with any Environmental Laws, except
for violations and failures to comply, individually or in the aggregate, that
would not have a Company Material Adverse Effect.
(j) (Taxes.
(i) The Company and each Company Subsidiary have timely filed
all Tax Returns required to be filed by them (after giving effect to
any filing extension properly granted by a Governmental Entity having
authority to do so). Each such Tax Return is true, correct and complete
in all material respects. The Company and each Company Subsidiary have
paid (or the Company has paid on their behalf), within the time and
manner prescribed by law, all Taxes that are due and payable. The most
recent financial statements contained in the Company SEC Documents
reflect an adequate reserve for all taxes payable by the Company for
all taxable periods and portions thereof accrued through the date of
such financial statements. Neither the Company nor any Company
Subsidiary has received notice that any federal, state and local income
or franchise tax return of the Company or any Company Subsidiary has
been or will be examined by any taxing authority. Neither the Company
nor any Company Subsidiary has executed or filed with the Internal
Revenue Service or any other taxing authority any agreement now in
effect extending the period for assessment or collection of any income
or other taxes. Neither the Company nor any Company Subsidiary is a
party to any pending action or proceeding by any governmental authority
for assessment or collection of taxes, and no claim for assessment or
collection of taxes has been asserted against it, which, individually
or in the aggregate, would not have a Company Material Adverse Effect.
(ii) The Company (A) for all of its taxable years commencing
with the year ended December 31, 1993 through December 31, 1997, has
been subject to taxation as a REIT within the meaning of Section 856 of
the Code and has satisfied the requirements to qualify as a REIT for
such years, (B) has operated, and intends to continue to operate, in
such a manner as to qualify as a REIT for its tax year ending December
31, 1998 and (C) has not taken or omitted to take any action that could
reasonably be expected to result in a challenge to its status as a
REIT, and no such challenge is pending or threatened. The Company
represents that each of its corporate Company Subsidiaries is a
Qualified REIT Subsidiary as defined in Section 856(i) of the Code, and
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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.
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
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Code. Without limiting the generality of the foregoing, during the period from
the date of this Agreement to the Effective Time, except as otherwise
contemplated by this Agreement or pursuant to the written consent of the
Company, AAC shall not and shall cause the other AAC Entities not to (and not to
authorize or commit or agree to):
(a) (i) declare, set aside or pay any dividends on, or make any
other distributions in respect of, any of AAC's capital stock or AAC OP Units or
stock or ownership interests in any other AAC Entity that are not directly or
indirectly wholly owned by AAC, except that AAC may declare, set aside and pay
the dividends and distributions permitted under Section 2.3 hereof and AAC may
also declare, set aside and pay on record and payment dates for the payment of
regular quarterly distributions of the AAC Common Stock and the AAC Preferred
Stock covering the period through the Closing Date at a rate not to exceed in
the aggregate on an annual basis 9% of the value of the capital accounts of the
AACLP partners (and corresponding distributions to the holder of units of
limited partnership of AACLP), (ii) split, combine or reclassify any capital
stock or partnership interests or issue or authorize the issuance of any other
securities in respect of, in lieu of or in substitution for shares of such
capital stock or partnership interests, except for a 1-for-2 reverse stock split
of the AAC Common Stock and AAC Preferred Stock that results in fractional
shares being redeemed for cash in an amount equal to the Common Merger
Consideration or the Preferred Merger Consideration (valuing the Company Series
D Preferred Stock at its per share liquidation preference) for which such
fractional shares would have been exchanged in the Merger (the parties agreeing
that none of AAC's representations and warranties herein shall be deemed untrue
as a result of such reverse stock split) or (iii) purchase, redeem or otherwise
acquire any shares of capital stock, partnership interests or any other equity
interests in AAC, any AAC Subsidiary or AAC OP Units;
(b) amend the charter, bylaws, partnership agreement or other
comparable organizational documents of any AAC Entity (other than AAC OP, as
described in the AAC Disclosure Letter);
(c) issue, deliver or sell, or grant any option or other right in
respect of, any shares of capital stock or debt securities, any other voting or
redeemable securities or ownership interests in any AAC Entity or any securities
convertible into, or any rights, warrants or options to acquire, any such
shares, voting securities or convertible or redeemable securities or ownership
interests except to AAC or an AAC Subsidiary;
(d) (merge or consolidate with any Person;
(e) (i) change in any material manner any of its methods, principles
or practices of accounting in effect at the AAC Financial Statement Date or (ii)
make or rescind any express or deemed election relating to taxes, settle or
compromise any claim, action, suit, litigation, proceeding, arbitration,
investigation, audit or controversy relating to taxes, except in the case of
settlements or compromises in an amount not to exceed, individually or in the
aggregate, $2,500,000, or change any of its methods of reporting income or
deductions for federal income tax purposes from those employed in the
preparation of its federal income tax return for the taxable year ending
December 31, 1997, except, in the case of clause (i), as may be required by
applicable law or GAAP and with notice thereof to the Company;
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(f) except as provided in Section 4.1(k) below, enter into or amend
or otherwise modify any agreement or arrangement with persons that are
affiliates or, as of the date hereof, are officers, directors or employees of
any AAC Entity;
(g) except as contemplated by Section 5.13, acquire or enter into a
contract to acquire, sell, transfer, or enter into a contract to sell or
transfer any real property without the consent of the Company, whose consent
shall not unreasonably be withheld;
(h) incur additional indebtedness, including under existing lines of
credit, or encumber any asset to secure indebtedness which in either case is not
prepayable at the principal amount without penalty without the consent of the
Company;
(i) incur any indebtedness, liability or obligation or make any
expenditure (other than with respect to fees payable to Lazard for which a
corresponding adjustment is made in Net Asset Value) if as a result thereof the
ratio of current assets to current liabilities of AAC and its consolidated
Subsidiaries at the Effective Time would be less than 1.0;
(j) fail to (i) collect and/or pay to the appropriate governmental
authorities, as required, except to the extent reasonably disputed in good
faith, all sales taxes, rental taxes or the equivalent, and all interest and
penalties thereon, required to be paid or collected in connection with the
operation of the AAC Properties as of the Closing Date and (ii) file all
necessary returns and petitions required to be filed through the Closing Date;
(k) Notwithstanding the foregoing, prior to the Effective Time, AAC
or AACLP may, without further consent of the Company, (i) transfer and assign to
American Apartment Communities III, L.P. or such entity as AAC or AACLP shall
designate (A) the management agreements set forth on Schedule 4.1(k) to the AAC
Disclosure Letter, (B) all rights and interest in the name "American Apartment
Communities" and (C) certain assets and liabilities of AAC as set forth in
Schedule 4.1(k), (ii) pay in cash to employees of AACLP certain accrued
achievement awards and bonuses which shall be included in the Net Asset Value
Adjustment set forth in Section 2.2 hereof, (iii) terminate the Non-Competition
Agreements dated as of March 15, 1996, by and between AACLP and certain officers
thereof, (iv) terminate the Securityholders' Agreement dated as of March 15,
1996, as amended, by and among AAC and the securityholders listed therein, (v)
to the extent that any Rights of First Refusal are exercised, AACLP may
distribute to the AACLP Interest Holders an amount of cash equal to the net
proceeds of any sales pursuant to such Rights of First Refusal, (vi) terminate
sponsorship of all benefit plans as contemplated by Section 5.8, and (vii)
terminate the provisions of the Second Addendum to Second Amended and Restated
Agreement of Limited Partnership of AACLP, dated as of August 1, 1996, and the
commitment to make capital contributions referenced therein. In addition, the
Company covenants to remove all references to the name "American Apartment
Communities" on all signage, letterhead and other property within 180 days of
the Closing Date.
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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
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(c) except as would not otherwise have a Company Material Adverse
Effect, (i) change in any material manner any of its methods, principles or
practices of accounting in effect at the Company Financial Statement Date,
except as may be required by the SEC, applicable law or GAAP and with notice
thereof to AAC or (ii) make or rescind any express or deemed election relating
to taxes, settle or compromise any claim, action, suit, litigation, proceeding,
arbitration, investigation, audit or controversy relating to taxes, except in
the case of settlements or compromises in an amount not to exceed, individually
or in the aggregate, $30,000,000, or change any of its methods of reporting
income or deductions for federal income tax purposes from those employed in the
preparation of its federal income tax return for the taxable year ending
December 31, 1997.
Section 4.3. Delivery of Reports by the Company.
The Company shall promptly deliver to AAC true and correct copies of
any report, statement or schedule filed with the SEC subsequent to the date of
this Agreement.
Section 4.4. Other Actions.
(a) Each of AAC and the Company shall not and shall cause its
respective Subsidiaries not to take any action that would result in (i) any of
the representations and warranties of such party set forth in this Agreement
that are qualified as to materiality becoming untrue in any material respect,
(ii) any of such representations and warranties that are not so qualified
becoming untrue in any respect or (iii) any of the conditions to the Merger set
forth in Article VI not being satisfied.
(b) Neither the Company nor AAC shall take or omit to take any
action that would cause the Company or AAC to be disqualified as a REIT.
ARTICLE V
ADDITIONAL COVENANTS
Section 5.1. Access to Information; Confidentiality.
Subject to the requirements of confidentiality agreements with third
parties, each of AAC and the Company shall, and shall cause each of its
respective Subsidiaries to, afford to the other party and to the officers,
employees, accountants, counsel, financial advisors and other representatives of
such other party, reasonable access during normal business hours during the
period prior to the Effective Time to all their respective properties, books,
contracts, commitments, personnel and records and, during such period, each of
AAC and the Company shall, and shall cause each of its respective Subsidiaries
to, furnish promptly to the other party (a) a copy of each report, schedule,
registration statement and other document filed by it during such period
pursuant to the requirements of federal or state securities laws and (b) all
other information concerning its business, properties and personnel as such
other party may reasonably request. Each of AAC and the Company will hold, and
will cause its respective Subsidiaries' officers, employees, accountants,
counsel, financial advisors and other representatives and affiliates to hold,
any nonpublic information in confidence to the extent required by, and in
accordance with, and will comply with the provisions of the letter agreement
between AAC and the Company dated as of August 6, 1998 (the "Confidentiality
Agreement").
Section 5.2. Best Efforts; Notification.
(a) Upon the terms and subject to the conditions set forth in this
Agreement, each of the Company and AAC agrees to use its best efforts to take,
or cause to be taken, all actions, and to do, or cause to be done, and to assist
and cooperate with the other in doing, all things necessary, proper or advisable
to fulfill all conditions applicable to such party pursuant to this Agreement
and to consummate and make effective, in the most expeditious manner
practicable, the Merger and the other transactions contemplated hereby,
including (i) the obtaining of all necessary actions or nonactions, waivers,
consents and approvals from Governmental Entities and the making of all
necessary registrations and filings and the taking of all reasonable steps as
may be necessary to obtain an approval, waiver or exemption from, or to avoid an
action or proceeding by, any Governmental Entity, (ii) the obtaining of all
necessary consents, approvals, waivers or exemption from shareholders and
non-governmental third parties; provided, however, that if AAC is obliged to pay
or incur any material expenses or other liabilities to obtain the consent of any
non-governmental party, it shall consult reasonably with the Company upon
reasonable notice prior to paying or incurring any such material expenses or
liabilities, and in no event shall AAC pay or incur any such expenses or
liabilities in obtaining such consents without obtaining the prior written
consent of the Company, which consent shall not unreasonably be withheld or
delayed, (iii) the defending of any lawsuits or other legal proceedings, whether
judicial or administrative, challenging the Merger, this Agreement or the
consummation of any of the other transactions contemplated hereby, including
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seeking to have any stay or temporary restraining order entered by any court or
other Governmental Entity vacated or reversed and (iv) the execution and
delivery of any additional instruments necessary to consummate the transactions
contemplated by and to fully carry out the purposes of, this Agreement;
provided, however, that a party shall not be obligated to take any action
pursuant to the foregoing if the taking of such action or the obtaining of any
waiver, consent, approval or exemption is reasonably likely to result in the
imposition of a condition or restriction of the type referred to in Section
6.1(b). In connection with and without limiting the foregoing, AAC, the Company
and their respective Boards of Directors shall (i) take all action necessary so
that no "fair price," "business combination," "moratorium," "control share
acquisition" or any other anti takeover statute or similar statute enacted under
state or federal laws of the United States or similar statute or regulation (a
"Takeover Statute") is or becomes applicable to the Merger, this Agreement or
any of the other transactions contemplated hereby and (ii) if any Takeover
Statute becomes applicable to the Merger, this Agreement, or any of the other
transactions contemplated hereby, take all action necessary so that the Merger
may be consummated as promptly as practicable on the terms contemplated by this
Agreement and otherwise to minimize the effect of such Takeover Statute on the
Merger or the consummation of any of the other transactions contemplated hereby.
(b) AAC shall give prompt notice to the Company, and the Company
shall give prompt notice to AAC, if (i) any representation or warranty made by
it contained in this Agreement that is qualified as to materiality becomes
untrue or inaccurate in any material respect or any such representation or
warranty that is not so qualified becomes untrue or inaccurate in any respect or
(ii) it fails to comply with or satisfy in any material respect any covenant,
condition or agreement to be complied with or satisfied by it under this
Agreement; provided, however, that no such notification shall affect the
representations, warranties, covenants or agreements of the parties or the
conditions to the obligations of the parties under this Agreement.
Section 5.3. Tax Treatment.
Each of the Company and AAC shall use its reasonable best efforts to
(a) cause the Merger to qualify as a reorganization under Section 368(a) of the
Code and (b) to obtain the opinions of counsel referred to in Section 6.2(e) and
6.3(d).
Section 5.4. No Solicitation of Transactions.
AAC shall not, directly or indirectly, through any officer, director,
employee, agent, investment banker, financial advisor, attorney, accountant,
broker, finder or other representative, initiate, solicit (including by way of
furnishing nonpublic information or assistance) any inquiries or the making of
any proposal that constitutes, or may reasonably be expected to lead to, any
Competing Transaction (as defined herein), or authorize or permit any of its
officers, directors, employees or agents, attorneys, investment bankers,
financial advisors, accountants, brokers, finders or other representatives to
take any such action. AAC shall notify the Company in writing (as promptly as
practicable) of all of the relevant details relating to all inquiries and
proposals which it or any of its Subsidiaries or any such officer, director,
employee, agent, investment banker, financial advisor, attorney, accountant,
broker, finder or other representative may receive relating to any of such
matters and if such inquiry or proposal is in writing, AAC shall deliver to the
other a copy of such inquiry or proposal. For purposes of this Agreement,
"Competing Transaction" shall mean any of the following (other than the
transactions contemplated by this Agreement): (i) any merger, consolidation,
share exchange, business combination, or similar transaction involving AAC (or
any of its Subsidiaries); (ii) any sale, lease, exchange, mortgage, pledge,
transfer or other disposition of 50% or more of the assets of AAC and its
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Subsidiaries taken as a whole in a single transaction or series of related
transactions, excluding any bona fide financing transactions which do not,
individually or in the aggregate, have as a purpose or effect the sale or
transfer of control of such assets; (iii) any tender offer or exchange offer for
30% or more of the outstanding shares of capital stock of AAC (or any of its
Subsidiaries) or the filing of a registration statement under the Securities Act
in connection therewith; or (iv) any public announcements of a proposal, plan or
intention to do any of the foregoing or any agreement to engage in any of the
foregoing.
Section 5.5. Public Announcements.
The Company and AAC will consult with each other before issuing, and
provide each other the opportunity to review and comment upon, any press release
or other public statements with respect to the Merger or the other transactions
contemplated hereby, and shall not issue any such press release or make any such
public statement prior to such consultation, except as may be required by
applicable law, court process or by obligations pursuant to any listing
agreement with any national securities exchange. The parties agree that the
initial press release to be issued with respect to the Merger will be in the
form agreed to by the parties hereto prior to the execution of this Agreement.
Section 5.6. Transfer and Gains Taxes.
The Company and AAC shall cooperate in the preparation, execution and
filing of all returns, questionnaires, applications or other documents regarding
any real property transfer or gains, sales, use, transfer, value added, stock
transfer and stamp taxes, any transfer, recording, registration and other fees
and any similar taxes which become payable in connection with the Merger
(together with any related interests, penalties or additions to tax, "Transfer
and Gains Taxes"). AAC shall pay or cause to be paid, without deduction or
withholding from any amounts payable to the holders of shares of AAC Nonvoting
Common Stock, AAC Common Stock and AAC Preferred Stock all Transfer and Gains
Taxes.
Section 5.7. Employee Matters.
AACLP (or the applicable AAC Entity) shall terminate all of its
employees prior to the Closing Date in compliance with (to the extent
applicable) the Worker Adjustment, Retraining and Notification Act of 1988, as
amended, including the giving of any notice thereunder, and under any applicable
state laws requiring the giving of notice of terminations, layoffs, site
closings or other comparable events. AACLP (or the applicable AAC Entity) shall
satisfy all severance pay, vacation pay and other legal obligations with respect
to its employees, including but not limited to any obligations under any
employment contracts or employee benefit plans or programs, to the extent based
on employment service rendered to AAC or any AAC Entity prior to the Closing
Date. The Company shall have no liability or obligation to the AAC Entities or
their employees to employ or offer employment to any employee of the AAC
Entities or any group of employees of the AAC Entities. It is understood,
however, that on or after the Closing Date, the Company may, in its sole and
absolute direction, offer employment to those employees of AAC and the AAC
Subsidiaries who, prior to Closing Date, worked as site employees. Nothing in
this Agreement shall limit the Company from taking any action at any time after
the Closing Date in respect of its employees or the terms and conditions of
their employment.
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Any former employees of the AAC Entities ("Former AAC Employees") that
are subsequently employed by the Company shall in general receive compensation
on the same basis and subject to same standards as the employees of the Company.
In addition, all Former AAC Employees shall be eligible to participate in the
same manner as other similarly situated employees of the Surviving Corporation
who were formerly employees of the Company in any other benefit programs,
policies and arrangements sponsored or maintained by the Surviving Corporation
after the Effective Time. With respect to each such employee benefit plan,
program, policy or arrangement, service with AAC or any of the AAC Subsidiaries
(as applicable) shall be included for purposes of determining eligibility to
participate, vesting (if applicable) and entitlement to benefits. The medical
plan or plans maintained by the Surviving Corporation after the Effective Time
shall waive all limitation as to preexisting conditions, exclusions and waiting
periods with respect to participation and coverage requirements applicable to
Former AAC Employees.
Section 5.8. Disposition of Benefit Plans.
As of the Closing Date, sponsorship of all AAC Benefit Plans shall be
assumed by American Apartment Communities III, L.P. ("AAC III"), which shall
thereafter be responsible for the administration of such plans. AAC III may
terminate any such plans, provided that it may, in its sole discretion in the
case of the AAC 401(k) Plan, transfer into the corresponding plan or plans of
the Surviving Corporation assets and liabilities attributable to Former AAC
Employees in a manner consistent with Section 414(l) of the Code.
Section 5.9. Company Board of Directors.
At the Effective Time, the Board of Directors of the Company shall be
expanded by two members, and the existing directors of the Company shall elect
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
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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 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.
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ARTICLE VI
CONDITIONS PRECEDENT
Section 6.1. Conditions to Each Party's Obligation to Effect the
Merger.
The respective obligation of AAC and the Company to effect the Merger
and to consummate the other transactions contemplated hereby is subject to the
satisfaction or waiver on or prior to the Effective Time of the following
conditions:
(a) Approval of the Merger. This Agreement and the transactions
contemplated hereby shall have been approved by the shareholders of AAC in the
manner required by the Articles of Incorporation and Bylaws of AAC and by
applicable law.
(b) No Injunctions or Restraints. No temporary restraining order,
preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing the
consummation of the Merger or any of the other transactions contemplated hereby
shall be in effect.
(c) Certain Actions and Consents. All material actions by or in
respect of or filings with any Governmental Entity required for the consummation
of the Merger or any of the other transactions contemplated hereby shall have
been obtained or made.
(d) Consummation of Exchange Agreement. The Exchange Agreement in
the form attached as Exhibit B shall have been consummated contemporaneously
with the closing of the Merger.
(e) Resolution of Rights of First Refusal. The Rights of First
Refusal shall have been exercised and closed, waived or otherwise finally
disposed of in a manner satisfactory to AAC and the Company.
Section 6.2. Conditions to Obligations of the Company.
The obligations of the Company to effect the Merger and to consummate
the other transactions contemplated hereby are further subject to the following
conditions, any one or more of which may be waived by the Company:
(a) Representations and Warranties. The representations and
warranties of AAC set forth in this Agreement shall be true and correct as of
the Closing Date, as though made on and as of the Closing Date, except to the
extent the representation or warranty is expressly limited by its terms to
another date and except to the extent the representation or warranty is rendered
incorrect as a result of the reverse stock split contemplated by Section 4.1(a),
and the Company shall have received a certificate signed on behalf of AAC by the
chief executive officer or the chief financial officer of AAC to such effect.
This condition shall be deemed satisfied notwithstanding any failure of a
representation or warranty of AAC to be true and correct as of the Closing Date
if the aggregate amount of AAC Economic Losses (as defined herein) that would
reasonably be expected to arise as a result of the failures of such
33
<PAGE>
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 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.
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<PAGE>
(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.
(l) Surrender of Certificates. Any and all certificates representing
shares of AAC Common Stock and AAC Preferred Stock held by any holder of more
than five shares of AAC Common Stock or five shares of AAC Preferred Stock shall
have been surrendered to the Company.
(m) Reverse Stock Split. AAC shall have completed the reverse stock
split contemplated by Section 4.1(a).
Section 6.3. Conditions to Obligation of AAC.
The obligation of AAC to effect the Merger and to consummate the other
transactions contemplated hereby is further subject to the following conditions,
any one or more of which may be waived by AAC:
(a) Representations and Warranties. The representations and
warranties of the Company set forth in this Agreement shall be true and correct
as of the Closing Date, as though made on and as of the Closing Date, except to
the extent the representation or warranty is expressly limited by its terms to
another date, and AAC shall have received a certificate signed on behalf of the
Company by the chief executive officer or the chief financial officer of the
Company to such effect. This condition shall be deemed satisfied notwithstanding
any failure of a representation or warranty of the Company to be true and
35
<PAGE>
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 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
36
<PAGE>
through the Effective Time, no change on the business, properties, assets
financial condition or results of operations of the Company and/or the Company
Operating Partnership has occurred that would have or would be reasonably likely
to have a Company Material Adverse Effect.
(i) Listing. The Company shall have caused the Common Stock issuable
upon the conversion of the Company Series D Preferred Stock and the transactions
contemplated by the Exchange Agreement, respectively, to be approved for listing
on the NYSE, subject to official notice of issuance.
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
Section 7.1. Termination.
This Agreement may be terminated at any time prior to the filing of the
Articles of Merger for each Merger with the SDAT and the VSCC:
(a) by mutual written consent duly authorized by the respective
Boards of Directors of the Company and AAC;
(b) by the Company, upon a material breach of any representation,
warranty, covenant or agreement on the part of AAC set forth in this Agreement,
or if any representation or warranty of AAC shall have become untrue, in either
case such that the conditions set forth in Section 6.2(a) or Section 6.2(c), as
the case may be, would be incapable of being satisfied by December 31, 1998 (as
otherwise extended);
(c) by AAC, upon a material breach of any representation, warranty,
covenant or agreement on the part of the Company set forth in this Agreement, or
if any representation or warranty of the Company shall have become untrue, in
either case such that the conditions set forth in Section 6.3(a) or Section
6.3(b) as the case may be, would be incapable of being satisfied by December 31,
1998 (as otherwise extended);
(d) by either the Company or AAC, if any judgment, injunction,
order, decree or action by any Governmental Entity of competent authority
preventing the consummation of the Merger shall have become final and
nonappealable; and
(e) by either the Company or AAC, if the Merger shall not have been
consummated before December 31, 1998; provided, however, that a party that has
willfully and materially breached a representation, warranty or covenant of such
party set forth in this Agreement shall not be entitled to exercise its right to
terminate under this Section 7.1(e).
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Section 7.2. [LEFT BLANK INTENTIONALLY]
Section 7.3. Effect of Termination.
In the event of termination of this Agreement by either AAC or the
Company as provided in Section 7.1, this Agreement shall forthwith become void
and have no effect, without any liability or obligation on the part of the
Company, or AAC, other than the last sentence of Section 5.1, Section 5.5, this
Section 7.3, Sections 8.2, 8.3, 8.5 through 8.10 and Article IX and except to
the extent that such termination results from a willful breach by a party of any
of its representations, warranties, covenants or agreements set forth in this
Agreement.
Section 7.4. Amendment.
At any time prior to the filing of the Articles of Merger with the SDAT
and the VSCC, this Agreement may be amended by the parties in writing by action
of their respective Boards of Directors, provided that any such amendment
approved by the Board of Directors of AAC after this Agreement has been approved
by the stockholders of AAC must also be approved by such stockholders if such
amendment would modify materially the terms of Section 2.1 or modify any other
provision of this Agreement so as to adversely affect any class of shares of
AAC. The parties agree to amend this Agreement in the manner provided in the
immediately preceding sentence to the extent required to (a) continue the status
of the parties as REITs or (b) preserve the Merger as a tax-free reorganization
under Section 368 of the Code.
Section 7.5. Extension; Waiver.
At any time prior to the Effective Time, each of AAC and the Company
may (a) extend the time for the performance of any of the obligations or other
acts of the other party, (b) waive any inaccuracies in the representations and
warranties of the other party contained in this Agreement or in any document
delivered pursuant to this Agreement or (c) subject to the proviso of Section
7.4, waive compliance with any of the agreements or conditions of the other
party contained in this Agreement. Any agreement on the part of a party to any
such extension or waiver shall be valid only if set forth in an instrument in
writing signed on behalf of such party. The failure of any party to this
Agreement to assert any of its rights under this Agreement or otherwise shall
not constitute a waiver of those rights.
ARTICLE VIII
GENERAL PROVISIONS
Section 8.1. Nonsurvival of Representations and Warranties.
None of the representations and warranties in this Agreement or in any
instrument delivered pursuant to this Agreement shall survive the Effective
Time. This Section 8.1 shall not limit any covenant or agreement of the parties
which by its terms contemplates performance after the Effective Time.
38
<PAGE>
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
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:
39
<PAGE>
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 meaning or interpretation of this
Agreement. Whenever the words "include," "includes" or "including" are used in
this Agreement, they shall be deemed to be followed by the words "without
limitation."
Section 8.4. Counterparts.
This Agreement may be executed in one or more counterparts, all of
which shall be considered one and the same agreement and shall become effective
when one or more counterparts have been signed by each of the parties and
delivered to the other parties.
Section 8.5. Entire Agreement; Third Party Beneficiaries.
This Agreement, the Confidentiality Agreement and the other agreements
entered into in connection with the transactions contemplated hereby (a)
constitute the entire agreement and supersede all prior agreements and
understandings, both written and oral, between the parties with respect to the
subject matter of this Agreement and (b) except for the provisions of Article II
and Section 5.8 are not intended to confer upon any person other than the
parties hereto any rights or remedies; provided, however, that AACLP and its
Limited Partners are intended to be third party beneficiaries of the
representations, warranties and covenants of the Company contained herein.
Section 8.6. Governing Law.
This Agreement shall be governed by, and construed in accordance with,
the laws of the Commonwealth of Virginia, regardless of the laws that might
otherwise govern under applicable principles of conflict of laws thereof.
40
<PAGE>
Section 8.7. Assignment.
Neither this Agreement nor any of the rights, interests or obligations
under this Agreement shall be assigned or delegated, in whole or in part, by
operation of law or otherwise by any of the parties without the prior written
consent of the other parties. Subject to the preceding sentence, this Agreement
will be binding upon, inure to the benefit of, and be enforceable by, the
parties and their respective successors and assigns.
Section 8.8. Enforcement.
The parties agree that irreparable damage would occur in the event that
any of the provisions of this Agreement were not performed in accordance with
their specific terms or were otherwise breached. It is accordingly agreed that
the parties shall be entitled to an injunction or injunctions to prevent
breaches of this Agreement and to enforce specifically the terms and provisions
of this Agreement in any court of the United States located in the State of
Maryland or in any Maryland state court, this being in addition to any other
remedy to which they are entitled at law or in equity. In addition, each of the
parties hereto (a) consents to submit itself (without making such submission
exclusive) to the personal jurisdiction of any federal court located in the
State of Maryland or any Maryland state court in the event any dispute arises
out of this Agreement or any of the Transactions contemplated by this Agreement
and (b) agrees that it will not attempt to deny or defeat such personal
jurisdiction by motion or other request for leave from any such court.
Section 8.9. Severability.
Any term or provision of this Agreement which is invalid or
unenforceable in any jurisdiction shall, as to that jurisdiction, be ineffective
to the extent of such invalidity or unenforceability without rendering invalid
or unenforceable the remaining terms and provisions of this Agreement or
affecting the validity or enforceability of any of the terms or provisions of
this Agreement in any other jurisdiction. If any provision of this Agreement is
so broad as to be unenforceable, the provision shall be interpreted to be only
so broad as is enforceable.
Section 8.10. Non-Recourse.
This Agreement shall not create or be deemed to create or permit any
personal liability or obligation on the part of any direct or indirect
shareholder of AAC or the Company, or any of their respective officers,
directors, employees, agents or representatives.
41
<PAGE>
ARTICLE IX
CERTAIN DEFINITIONS
Section 9.1. Certain Definitions.
For purposes of this Agreement:
An "affiliate" of any person means another person that directly or
indirectly, through one or more intermediaries, controls, is controlled by, or
is under common control with, such first person.
"AAC Disclosure Letter" means the letter dated September 10, 1998
previously delivered to the Company by AAC disclosing certain information in
connection with this Agreement.
"Beneficially Own" shall be determined in accordance with Rule 13d-3 of
the SEC under the Exchange Act.
"Company Disclosure Letter" means the letter dated September 10, 1998
previously delivered to AAC by the Company disclosing certain information in
connection with this Agreement.
"Company Series D Preferred Stock" means the Series D Cumulative
Convertible Redeemable Preferred Stock, no par value per share, issuable to
shareholders of AAC in the Merger.
"Company OP Units" means units of partnership interest in the Company
Operating Partnership.
"Person" means an individual, corporation, partnership, limited
liability company, joint venture, association, trust, unincorporated
organization or other entity.
"Subsidiary" of any person means any corporation, partnership, limited
liability company, joint venture or other legal entity 50% or more of the voting
stock or other equity interests of which are owned by such person (either
directly or through or together with another Subsidiary of such person).
42
<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:
Name:
Title:
AMERICAN APARTMENT COMMUNITIES II, INC.
By:
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:
Name:
Title:
43
<PAGE>
EXHIBIT A
(d) Series D Cumulative Convertible Preferred Stock.
(1) Designation and Number. A series of the preferred stock,
designated the "Series D Cumulative Convertible Redeemable
Preferred Stock" (the "Series D Preferred"), is hereby
established. The number of shares of the Series D Preferred
shall be 8,000,000.
(2) Relative Seniority. In respect of rights to receive
dividends and to participate in distributions or payments in
the event of any liquidation, dissolution or winding up of the
corporation, the Series D Preferred shall rank on a parity
with the Series A Preferred, the Series B Preferred and the
Series C Preferred and any other class or series of capital
stock of the corporation not constituting Junior Stock
(collectively, "Parity Stock"), and senior to the common stock
and any other class or series of capital stock of the
corporation ranking, as to dividends and upon liquidation,
junior to the Series D Preferred (collectively, "Junior
Stock").
(3) Dividends.
(A) The holders of the then outstanding Series D
Preferred shall be entitled to receive, when and as declared
by the Board of Directors out of any funds legally available
therefor, cumulative preferential cash dividends at the rate
of 7.5% of the Liquidation Preference of the Series D
Preferred (equivalent to $1.875 per share) per annum (subject
to adjustment as provided in subparagraph (F) of this
paragraph (3)), payable quarterly in arrears in cash on the
last day, or the next succeeding Business Day, of January,
April, July and October in each year, beginning November 2,
1998 [February 1, 1999, if the Issue Date is between October
16, 1998, and January 15, 1999], 1998 (each such day being
hereinafter called a "Dividend Payment Date" and each period
beginning on the day next following a Dividend Payment Date
and ending on the next following Dividend Payment Date being
hereinafter called a "Dividend Period"), to shareholders of
record at the close of business on the Friday occurring
between the tenth and fifteenth days of the calendar month in
which the applicable Dividend Payment Date falls on or such
date as shall be fixed by the Board of Directors at the time
of declaration of the dividend (the "Dividend Record Date"),
which shall be not less than 10 nor more than 30 days
preceding the Dividend Payment Date. The amount of any
dividend payable for the initial Dividend Period and for any
other partial Dividend Period shall be computed on the basis
<PAGE>
of a 360-day year consisting of twelve 30-day months.
Dividends on the shares of Series D Preferred shall accrue and
be cumulative from and including the date of original issue
thereof (the "Issue Date"), whether or not (i) the corporation
has earnings, (ii) dividends on such shares are declared or
(iii) on any Dividend Payment Date there shall be funds
legally available for the payment of such dividends. When
dividends are not paid in full upon the shares of Series D
Preferred and the shares of any other series of preferred
stock ranking on a parity as to dividends with the Series D
Preferred (or a sum sufficient for such full payment is not
set apart therefor), all dividends declared upon shares of
Series D Preferred and any other series of preferred stock
ranking on a parity as to dividends with the Series D
Preferred shall be declared pro rata so that the amount of
dividends declared per share on the Series D Preferred and
such other series of preferred stock shall in all cases bear
to each other the same ratio that accrued dividends per share
on the shares of Series D Preferred and such other series of
preferred stock bear to each other. "Business Day" shall mean
any day, other than a Saturday or Sunday, that is neither a
legal holiday nor a day on which banking institutions in New
York City, New York are authorized or required by law,
regulation or executive order to close.
(B) Except as provided in subparagraph (A) of this
paragraph (3), unless full cumulative dividends on the Series
D Preferred have been or contemporaneously are declared and
paid or declared and a sum sufficient for the payment thereof
set apart for payment on the Series D Preferred for all past
dividend periods and the then current dividend period, no
dividends (other than in Junior Stock) shall be declared or
paid or set aside for payment or other distribution or shall
be declared or made upon any Parity Stock or Junior Stock, nor
shall any Junior Stock or any Parity Stock be redeemed,
purchased or otherwise acquired for any consideration (or any
moneys be paid to or made available for a sinking fund for the
redemption of any shares of Junior Stock or Parity Stock) by
the corporation or any subsidiary of the corporation (except
by conversion into or exchange for Junior Stock).
(C) Any dividend payment made on shares of the Series
D Preferred shall first be credited against the earliest
accrued but unpaid dividend due with respect to such shares
which remains payable.
The amount of any dividends accrued on any shares of
Series D Preferred at any Dividend Payment Date shall be the
amount of any unpaid dividends accumulated thereon, to and
including such Dividend Payment Date, whether or not earned or
declared, and the amount of dividends accrued on any shares of
Series D Preferred at any date other than a Dividend Payment
Date shall be equal to the sum of the amount of any unpaid
dividends accumulated thereon, to and including the last
preceding Dividend Payment Date, whether or not earned or
declared, plus an amount calculated on the basis of the annual
dividend rate for the period after such last preceding
Dividend Payment Date to and including the date as of which
the calculation is made, based on a 360-day year of twelve
30-day months.
Accrued but unpaid dividends on the Series D
Preferred will not bear interest. Holders of the Series D
Preferred will not be entitled to any dividends in excess of
full cumulative dividends as described above.
2
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(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.
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(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
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day, regular way, in either case as reported on the New York
Stock Exchange ("NYSE") or, if such security is not listed or
admitted for trading on the NYSE, on the principal national
securities exchange on which such security is listed or
admitted for trading or, if not listed or admitted for trading
on any national securities exchange, on the NASDAQ National
Market or, if such security is not quoted on the NASDAQ
National Market, the average of the closing bid and asked
prices on such day in the over-the-counter market as reported
by NASDAQ or, if bid and asked prices for such security on
such day shall not have been reported through NASDAQ, the
average of the bid and asked prices on such day as furnished
by any NYSE member firm regularly making a market in such
security and selected for such purpose by the Board of
Directors. "Trading Day" in respect of any security shall mean
any day on which such security is traded on the NYSE, or if
such security is not listed or admitted for trading on the
NYSE, on the principal national securities exchange on which
such security is listed or admitted for trading, or if not
listed or admitted for trading on any national securities
exchange, on the NASDAQ National Market or, if such security
is not quoted on the NASDAQ National Market, in the applicable
securities market in which the security is traded.
In case of redemption of less than all shares of
Series D Preferred at the time outstanding, the shares of
Series D Preferred to be redeemed shall be selected pro rata
from the holders of record of such shares in proportion to the
number of shares of Series D Preferred held by such holders
(as nearly as may be practicable without creating fractional
shares) or by any other equitable method determined by the
corporation.
(B) Procedures for Redemption.
(i) Notice of any redemption will be mailed by the
corporation, postage prepaid, not less than 30 nor more than
60 days prior to the Series D Redemption Date, addressed to
the respective holders of record of the Series D Preferred to
be redeemed at their respective addresses as they appear on
the stock transfer records of the corporation. No failure to
give such notice or any defect therein or in the mailing
thereof shall affect the validity of the proceedings for the
redemption of any Series D Preferred except as to the holder
to whom the corporation has failed to give notice or except as
to the holder to whom notice was defective. In addition to any
information required by law, such notice shall state: (a) the
Series D Redemption Date; (b) the Series D Redemption Price;
(c) the number of shares of Series D Preferred to be redeemed;
(d) the place or places where certificates for such shares are
to be surrendered for payment of the Series D Redemption
Price; and (e) that dividends on the shares to be redeemed
will cease to accumulate on the Series D Redemption Date. If
less than all the shares of Series D Preferred held by any
holder are to be redeemed, the notice mailed to such holder
shall also specify the number of shares of Series D Preferred
held by such holder to be redeemed.
(ii) If notice of redemption of any shares of Series
D Preferred has been mailed in accordance with section (i) of
subparagraph (B) of this paragraph (5) above and provided that
on or before the Series D Redemption Date specified in such
notice all funds necessary for such redemption shall have been
irrevocably set aside by the corporation, separate and apart
from its other funds in trust for the benefit of any holders
of the shares of Series D Preferred so called for redemption,
so as to be, and to continue to be available therefor, then,
from and after the Series D Redemption Date, dividends on such
shares of Series D Preferred shall cease to accrue, and such
shares shall no longer be deemed to be outstanding and shall
not have the status of Series D Preferred and all rights of
the holders thereof as shareholders of the corporation (except
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the right to receive the Series D Redemption Price) shall
terminate. Upon surrender, in accordance with said notice, of
the certificates for any shares of Series D Preferred so
redeemed (properly endorsed or assigned for transfer, if the
corporation shall so require and the notice shall so state),
such shares of Series D Preferred shall be redeemed by the
corporation at the Series D Redemption Price. In case less
than all the shares of Series D Preferred represented by any
such certificate are redeemed, a new certificate or
certificates shall be issued representing the unredeemed
shares of Series D Preferred without cost to the holder
thereof.
(iii) The deposit of funds with a bank or trust
company for the purpose of redeeming Series D Preferred shall
be irrevocable except that:
(a) the corporation shall be entitled to
receive from such bank or trust company the interest
or other earnings, if any, earned on any money so
deposited in trust, and the holders of any shares
redeemed shall have no claim to such interest or
other earnings; and
(b) any balance of moneys so deposited by
the corporation and unclaimed by the holders of the
Series D Preferred entitled thereto at the expiration
of two years from the applicable Series D Redemption
Date shall be repaid, together with any interest or
other earnings earned thereon, to the corporation,
and after any such repayment, the holders of the
shares entitled to the funds so repaid to the
corporation shall look only to the corporation for
payment without interest or other earnings.
(C) Limitations on Redemption
(i) The Series D Redemption Price (other than the
portion thereof consisting of accrued and unpaid dividends)
shall be payable solely out of the sale proceeds of other
capital stock of the corporation and from no other source.
(ii) Unless full cumulative dividends on all shares
of Series D Preferred shall have been or contemporaneously are
declared and paid or declared and a sum sufficient for the
payment thereof set apart for payment for all past Dividend
Periods and the then current Dividend Period, no Series D
Preferred shall be redeemed (unless all outstanding shares of
Series D Preferred are simultaneously redeemed) or purchased
or otherwise acquired directly or indirectly by the
corporation (except by exchange for Junior Stock); provided,
however, that the foregoing shall not prevent the redemption
of Series D Preferred pursuant to Article 4 or the purchase or
acquisition of Series D Preferred pursuant to a purchase or
exchange offer made on the same terms to holders of all
outstanding shares of Series D Preferred.
(iii) The corporation shall not redeem in any period
of 12 consecutive months a number of shares of Series D
Preferred having an aggregate Liquidation Preference of more
than $100,000,000, provided that this restriction shall lapse
and be of no further force or effect if in any such period any
holder of record of such number of shares of Series D
Preferred or shares of common stock issued on conversion of
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such number of shares of Series D Preferred shall transfer
beneficial ownership of such number of shares of Series D
Preferred or such common stock, or a combination of shares of
Series D Preferred and such common stock representing such
number of shares of Series D Preferred, except (a) in a
distribution of such shares of Series D Preferred and/or
shares of common stock to the security holders of such holder
of record or (b) in a bona fide pledge to a bank or other
financial institution to secure obligations for borrowed
money, or as margin collateral, or upon foreclosure or private
sale under such pledge.
(D) Rights to Dividends on Shares Called for
Redemption. If the Series D Redemption Date is after a
Dividend Record Date and before the related Dividend Payment
Date, the dividend payable on such Dividend Payment Date shall
be paid to the holder in whose name the shares of Series D
Preferred to be redeemed are registered at the close of
business on such Dividend Record Date notwithstanding the
redemption thereof between such Dividend Record Date and the
related Dividend Payment Date or the corporation's default in
the payment of the dividend due. Except as provided in this
paragraph (5), the corporation will make no payment or
allowance for unpaid dividends, whether or not in arrears, on
called Series D Preferred.
(6) Voting Rights. Except as required by the Virginia Stock
Corporation Act and except as otherwise provided in this
paragraph (6), the holders of the Series D Preferred shall not
be entitled to vote at any meeting of the shareholders for
election of directors or for any other purpose or otherwise to
participate in any action taken by the corporation or the
shareholders thereof, or to receive notice of any meeting of
shareholders.
(A) Whenever dividends on any shares of Series D
Preferred shall be in arrears for any Dividend Period, the
holders of such shares of Series D Preferred shall have all
rights to notices and voting entitlements of holders of common
stock under the Virginia Stock Corporation Act and these
Articles, and the Series D preferred and the common stock
shall be a single voting group, until all dividends
accumulated on such shares of Series D Preferred for all past
Dividend Periods and the then current Dividend Period shall
have been fully paid or declared and a sum sufficient for the
payment thereof set aside for payment.
(B) So long as any shares of Series D Preferred
remain outstanding, the corporation shall not, without the
affirmative vote of the holders of at least a majority of the
shares of the Series D Preferred outstanding at the time, (i)
authorize or create, or increase the authorized or issued
amount of, any class or series of capital stock ranking prior
to the Series D Preferred with respect to payment of dividends
or the distribution of assets upon liquidation, dissolution or
winding up or reclassify any authorized capital stock of the
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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
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"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
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<PAGE>
Dividend Payment Date) must be accompanied by payment of an
amount equal to the dividend payable on such shares on such
Dividend Payment Date. A holder of shares of Series D
Preferred on a Dividend Record Date who (or whose transferee)
surrenders any such shares for conversion into common stock
after the opening of business on the corresponding Dividend
Payment Date will receive the dividend payable by the
corporation on such Series D Preferred on such date, and the
converting holder need not include payment of the amount of
such dividend upon such surrender. The corporation shall make
further payment or allowance for, and a converting holder
shall be entitled to, unpaid dividends in arrears (excluding
the then-current quarter) on converted shares and for
dividends on the common stock issued upon such conversion.
As promptly as practicable after the surrender of
certificates for Series D Preferred as aforesaid, the
corporation shall issue and shall deliver at such office to
such holder, or on his written order, a certificate or
certificates for the number of full shares of common stock
issuable upon the conversion of such Series D Preferred in
accordance with the provisions of this paragraph (7), and any
fractional interest in respect of common stock arising upon
such conversion shall be settled as provided in subparagraph
(D) of this paragraph (7). Each conversion shall be deemed to
have been effected immediately prior to the close of business
on the date on which the certificates for Series D Preferred
shall have been surrendered and such notice (and if
applicable, payment of an amount equal to the dividend payable
on such shares) received by the corporation as aforesaid, and
the person or persons in whose name or names any certificate
or certificates for common stock shall be issuable upon such
conversion shall be deemed to have become the holder or
holders of record of the shares represented thereby at such
time on such date, and such conversion shall be at the
Conversion Price in effect at such time and on such date,
unless the share transfer books of the corporation shall be
closed on that date, in which event such person or persons
shall be deemed to have become such holder or holders of
record at the opening of business on the next succeeding day
on which such share transfer books are open, but such
conversion shall be at the Conversion Price in effect on the
date on which such certificates for Series D Preferred have
been surrendered and such notice received by the corporation.
(D) No fractional shares or scrip representing
fractions of common stock shall be issued upon conversion of
the Series D Preferred. In lieu of issuing a fractional
interest in common stock that would otherwise be deliverable
upon the conversion of a share of Series D Preferred, the
corporation shall pay to the holder of such share an amount in
cash based upon the Current Market Price of the common stock
on the Trading Day immediately preceding the date of
conversion. If more than one share of Series D Preferred shall
be surrendered for conversion at one time by the same holder,
the number of full shares of common stock issuable upon
conversion thereof shall be computed on the basis of the
aggregate number of shares of Series D Preferred so
surrendered.
(E) The Conversion Rate and Conversion Price shall be
adjusted from time to time as follows:
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(i) If the corporation shall after the Issue Date (a)
declare and pay a dividend to holders of any class of capital
stock of the corporation payable in common stock, (b)
subdivide its outstanding common stock into a greater number
of shares, (c) combine its outstanding common stock into a
smaller number of shares or (d) reclassify its common stock,
the Conversion Rate shall be adjusted so that the holder of
any Series D Preferred thereafter surrendered for conversion
shall be entitled to receive the number of shares of common
stock that such holder would have owned or have been entitled
to receive after the happening of any of the events described
above had such shares been converted immediately prior to the
record date in the case of a dividend or the effective date in
the case of a subdivision, combination or reclassification. An
adjustment made pursuant to this section (i) shall become
effective immediately after the opening of business on the day
next following the record date (except as provided in
subparagraph (I) below) in the case of a dividend and shall
become effective immediately after the opening of business on
the day next following the effective date in the case of a
subdivision, combination or reclassification. Such
adjustment(s) shall be made successively whenever any of the
events listed above shall occur.
(ii) If the corporation shall issue after the Issue
Date rights, options or warrants to all holders of common
stock entitling them to subscribe for or purchase common stock
(or securities convertible into common stock) at a price per
share (or having a conversion price per share) less than 98%
of the Current Market Price of the common stock determined as
of the record date for the determination of shareholders
entitled to receive such rights, options or warrants, then the
Conversion Price shall be adjusted to equal the price
determined by multiplying (A) the Conversion Price in effect
immediately prior to the close of business on such record date
(B) a fraction, the numerator of which shall be the sum of (I)
the number of shares of common stock outstanding on the close
of business on such record date and (II) the number of shares
of common stock that could be purchased at the Current Market
Price on such record date with the aggregate proceeds to the
corporation from the exercise of such rights, options or
warrants (or the aggregate conversion price of the convertible
securities so offered), and the denominator of which shall be
the sum of (x) the number of shares of common stock
outstanding on the close of business on such record date and
(y) the number of shares of common stock issuable upon
exercise in full of such rights, options or warrants (or into
which the convertible securities so offered are convertible).
Such adjustment shall become effective immediately after the
opening of business on the day next following such record date
(except as provided in subparagraph (I) below). In determining
whether any rights, options or warrants entitle the holders of
common stock to subscribe for or purchase common stock at less
than 98% of the Current Market Price, there shall be taken
into account any consideration received by the corporation
upon issuance and upon exercise of such rights, options or
warrants, the value of such consideration, if other than cash,
to be determined by the Board of Directors, whose decision
shall be final, conclusive, and binding on all persons. Any
adjustment(s) made pursuant to this section (ii) shall be made
successively whenever any of the events listed above shall
occur.
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(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.
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(iv) If after the Issue Date (i) the corporation
shall merge or consolidate with any other real estate
investment trust, corporation or other business entity and
shall not be the survivor in such transaction (without respect
to the legal structure of the transaction), (ii) the
corporation shall transfer or sell all or substantially all of
its assets other than to an affiliate or subsidiary of the
corporation or (iii) the corporation shall liquidate and
dissolve, and the consideration allocable to each share of
common stock in any such transaction shall not have a Fair
Market Value of at least $15 times the Adjustment Factor, the
Conversion Price in effect at the opening of business on the
date on which such transaction is consummated or effective, if
greater than $15 times the Adjustment Factor, shall be
adjusted effective at the opening of business on such date to
equal $15 times the Adjustment Factor.
(v) If the Current Market Price of the common stock
on at least 20 consecutive Trading Days during the period of
36 consecutive months beginning on the second anniversary of
the Issue Date is not at least $14 times the Adjustment
Factor, and the Conversion Price in effect at the opening of
business on the fifth anniversary of the Issue Date or the
next succeeding Business Day, if such fifth anniversary is not
a Business Day, is greater than $15.25 times the Adjustment
Factor, the Conversion Price shall be adjusted effective at
the opening of business on such fifth anniversary or the next
following Business Day, if such fifth anniversary is not a
Business Day, to equal $15.25 times the Adjustment Factor.
(vi) No adjustment in the Conversion Price shall be
required unless such adjustment would require a cumulative
increase or decrease of at least 1% in such price; provided,
however, that any adjustments that by reason of this section
(vi) are not required to be made shall be carried forward and
taken into account in any subsequent adjustment until made;
and provided, further, that any adjustment shall be required
and made in accordance with the provisions of this paragraph
(7) (other than this section (vi)) not later than such time as
may be required in order to preserve the tax-free nature of a
dividend to the holders of common stock. Notwithstanding any
other provisions of this paragraph (7), the corporation shall
not be required to make any adjustment to the Conversion Price
for the issuance of any common stock pursuant to any plan
providing for the reinvestment of dividends or interest
payable on securities of the corporation and the investment of
additional optional amounts in common stock under such plan.
All calculations under this paragraph (7) shall be made to the
nearest cent (with $.005 being rounded upward) or to the
nearest one-tenth of a share (with .05 of a share being
rounded upward), as the case may be.
(F) If the corporation shall after the Issue Date be
a party to any transaction (including without limitation a
merger, consolidation, statutory share exchange, self tender
offer for all or substantially all of the outstanding common
stock, sale of all or substantially all of the corporation's
assets, recapitalization or reclassification of capital stock,
but excluding any transaction to which section (i) of
subparagraph (E) of this paragraph (7) applies (each of the
foregoing being referred to herein as a "Transaction"), in
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each case upon consummation of which common stock shall be
converted into the right to receive shares, stock, securities
or other property (including cash) or any combination thereof
("Transaction Consideration"), each share of Series D
Preferred which is not itself converted into the right to
receive Transaction Consideration in connection with such
Transaction shall thereafter be convertible into the kind and
amount of Transaction Consideration payable upon the
consummation of such Transaction with respect to that number
of shares of common stock into which one share of Series D
Preferred was convertible immediately prior to such
Transaction. The corporation shall not be a party to any
Transaction unless the terms of such Transaction are
consistent with this subparagraph (F) and enable the holder of
each share of Series D Preferred that remains outstanding
after consummation of such Transaction to convert such share
at the Conversion Price in effect immediately prior to such
Transaction into the Transaction Consideration payable with
respect to the number of shares of common stock into which
such share of Series D Preferred is then convertible. The
provisions of this subparagraph (F) shall similarly apply to
successive Transactions.
(G) If after the Issue Date:
(i) the corporation shall declare dividends on the
common stock, excluding cash dividends not exceeding in amount
current or accumulated funds from operations at the date of
declaration, determined on the basis of the corporation's most
recent annual or quarterly report to shareholders at the time
of the declaration of such dividends; or
(ii) the corporation shall authorize the granting to
the holders of the common stock of rights, options or warrants
to subscribe for or purchase any shares of any class or any
other rights, options or warrants; or
(iii) there shall be any Transaction for which
approval of any shareholders of the corporation is required or
self tender for all or substantially all of the outstanding
common stock; or
(iv) there shall occur the voluntary or involuntary
liquidation, dissolution or winding up of the corporation;
then the corporation shall cause to be filed with the
Transfer Agent and shall cause to be mailed to the holders of
the Series D Preferred at their addresses as shown on the
share records of the corporation, as promptly as possible, but
at least 15 days prior to the earliest applicable date
hereinafter specified, a notice stating (A) the record date as
of which the holders of common stock entitled to receive such
dividend or grant of rights, options or warrants are to be
determined, provided, however, that no such notification need
be made in respect of a record date for a dividend or grant of
rights, options or warrants unless the corresponding
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<PAGE>
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.
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(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).
16
<PAGE>
EXHIBIT C
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>
TABLE OF CONTENTS
Page
----
<S> <C>
ARTICLE I CERTAIN DEFINITIONS.....................................................................................2
ARTICLE II REPRESENTATIONS AND WARRANTIES.........................................................................5
ARTICLE III LOCK-UP AGREEMENT.....................................................................................6
Section 3.1..............................................................................................6
ARTICLE IV REGISTRATION RIGHTS....................................................................................9
Section 4.1 Registration.................................................................................9
Section 4.2 State Securities Laws.......................................................................12
Section 4.3 Expenses....................................................................................12
Section 4.4 Indemnification by the Company..............................................................12
Section 4.5 Agreements of Transaction Party Affiliates..................................................13
Section 4.6 Suspension of Registration Requirement: Restriction on Sale................................14
Section 4.7 Contribution................................................................................15
Section 4.8 No Other Obligation to Register.............................................................16
Section 4.9 Exchange Act Compliance.....................................................................16
Section 4.10 Breach of Agreement........................................................................16
ARTICLE V STANDSTILL AGREEMENT...................................................................................16
Section 5.1 Standstill..................................................................................16
Section 5.2 Termination of Certain Restrictions.........................................................18
ARTICLE VI GENERAL PROVISIONS....................................................................................20
Section 6.1 Notices.....................................................................................20
Section 6.2 Successors and Assigns......................................................................23
Section 6.3 Counterparts................................................................................23
Section 6.4 Governing Law...............................................................................23
Section 6.5 Severability................................................................................23
Section 6.6 Entire Agreement; Amendment; Waiver.........................................................24
Section 6.7 Interpretation; Absence of Presumption......................................................24
</TABLE>
(i)
<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.
2
<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.
3
<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.
"Securities Act" shall mean the Securities Act of 1933, as amended.
4
<PAGE>
"Trading Day" for purposes of any computation pursuant to this
Agreement in which the market value of any security of the Company is taken into
account, shall mean any day on which such security is traded on the NYSE, or if
such security is not listed or admitted for trading on the NYSE, on the
principal national securities exchange on which such security is listed or
admitted for trading, or if not listed or admitted for trading on any national
securities exchange, on the NASDAQ National Market or, if such security is not
quoted on the NASDAQ National Market, in the applicable securities market in
which the security is traded.
"Transaction Party Affiliate" shall mean any AAC Affiliate or any
Holder or First-Tier Transferee who becomes a UDR Affiliate as a result of the
Merger or the Exchange and shall include any pledgee for whom a Registration
Statement is filed pursuant to Section 4.1(a)(iv) or (v).
"UDR Affiliate" shall mean any Person who is an "affiliate" of the
Company within the meaning of paragraph (a)(1) of Rule 144.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
In order to assure the Company's compliance with applicable securities
laws, each Holder represents and warrants to the Company as of the date of this
Agreement, as follows:
(a) Such Holder is an "accredited investor" as defined in Rule
501(a) of the Securities Act.
(b) Such Holder is aware that the Securities have not been
registered under the Securities Act.
(c) The Securities are being acquired for such Holder's own
account without any intention to distribute or resell the Securities in
violation of the Securities Act or any applicable state securities or "blue sky"
law.
(d) Such Holder has received and thoroughly read and evaluated
the information concerning the Company and the Company Operating Partnership
provided to such Holder by the Company, through the management of AAC, in
connection with the Merger and the Exchange, and has been given the opportunity
to ask questions of, and receive answers from, the Company and its authorized
representatives concerning the terms and conditions of the Merger and the
Exchange and to obtain such additional information from the Company and its
authorized representatives as such Holder has considered appropriate. Such
Holder has assumed the accuracy and completeness of all such information and
that such information did not omit to state a material fact necessary to make
such information not misleading in light of the circumstances.
5
<PAGE>
(e) Such Holder has sought such accounting, legal and tax
advice as such Holder has considered necessary to make an informed investment
decision.
(f) Such Holder is experienced in investment and business
matters (or has been advised by an investment advisor who is so experienced),
and understands fully the nature of the risks involved in an investment in the
Securities.
(g) (i) Such Holder's office address as set forth in Section
6.1 hereof is correct; (ii) such Holder is not a foreign Person for purposes of
U.S. income taxation; and (iii) such Holder is not subject to backup withholding
either because Holder has not been notified by the Internal Revenue Service
("IRS") that Holder is subject to backup withholding as a result of a failure to
report all interest or dividends, or because Holder has been notified by the IRS
that Holder is no longer subject to backup withholding.
(h) All information that such Holder has provided to the
Company, directly or indirectly, concerning such Holder's financial position and
such Holder's knowledge of financial and business matters is correct and
complete as of the date hereof, and if there should be any material change in
such information prior to the delivery of the Securities to such Holder, such
Holder will immediately notify the Company.
ARTICLE III
LOCK-UP AGREEMENT
Section 3.1
311(a) (i) The Preferred Holder agrees that until the second
anniversary of the date of original issue of the Securities (the
"Lock-up Period"), except as otherwise provided in this Agreement, the
Preferred Holder will not offer, pledge, sell, contract to sell, grant
any options for the sale of, seek the redemption or exchange of,
transfer, distribute or otherwise dispose of, directly or indirectly
(collectively "Dispose Of"), any of the Preferred Shares or Conversion
Shares into which Preferred Shares have been converted.
(ii) Following the second anniversary of the date of
original issuance of the Preferred Shares and during any 12 month
period thereafter, except as otherwise provided in this Agreement, the
Preferred Holder shall be entitled to Dispose Of Preferred Shares,
Conversion Shares or a combination of Preferred Shares and Conversion
Shares representing up to the greater of (i) 50% of the original number
of Preferred Shares, or their equivalent in Conversion Shares, or a
combination of Preferred Shares and Conversion Shares representing up
to 50% of the original number of Preferred Shares or (ii) the number of
Conversion Shares or equivalent number of Preferred Shares, or a
combination thereof, equaling the number of shares of Common Stock the
total closing sale price of which on the NYSE on the day before the day
on which the Preferred Holder seeks to Dispose Of such Securities is
6
<PAGE>
not more than 5% of Average Market Capitalization on such date. For
purposes of this Section 3.1(a)(ii) and Section 3.1(c), a number of
Preferred Shares shall be deemed to be equivalent to the number of
Conversion Shares into which it is convertible at the Conversion Price
provided in the Company's Articles of Incorporation on the
determination date, and a number of Conversion Shares shall be deemed
to be equivalent to the number of Preferred Shares that, if converted
at such Conversion Price, would equal such number of Conversion Shares.
(iii) The restrictions in Sections 3.1(a)(i) and
3.1(a)(ii) shall terminate upon the occurrence of any Standstill
Termination Event. The restrictions in Section 3.1(a)(i) shall
terminate upon any breach by the Company of its obligations under
Article IV.
(b) (i) Each UDR Unit Holder agrees that during the Lock-up
Period, except as otherwise provided in this Agreement, such UDR Unit
Holder will not redeem any of the UDR Units.
(ii) After the first anniversary, and prior to the
second anniversary, of the date of original issue of the Securities,
the UDR Unit Holders may collectively redeem in accordance with the
Partnership Agreement UDR Units having an aggregate value not exceeding
$15,000,000. The ability of the UDR Unit Holders to redeem up to an
aggregate of $15,000,000 pursuant to the preceding sentence shall be
allocated among such UDR Unit Holders pro-rata, based upon the number
of UDR Units issued to each UDR Unit Holder pursuant to the Exchange
Agreement. For purposes of this Section 3.1(b)(ii), the value of the
UDR Units shall be assumed to be equal to the Cash Amount (as defined
in the Partnership Agreement) that the Company Operating Partnership
would be obligated to pay to the UDR Unit Holders upon redemption of
such UDR Units pursuant to Article VIII of the Partnership Agreement.
(iii) The restrictions in Sections 3.1(b)(i) and
3.1(b)(ii) shall terminate upon the occurrence of any Standstill
Termination Event described in Section 5.2(b)(ii), (iii), (iv) or (v).
The restrictions in Section 3.1(b)(i) shall terminate upon any breach
by the Company of its obligations under Article IV. Upon any such
termination pursuant to this Section 3.1(b)(iii), such UDR Unit Holders
may redeem any or all UDR Units thereafter if the UDR Units are then
redeemable under the terms of the Partnership Agreement. Such
termination shall not affect any provision of the Partnership Agreement
restricting or otherwise relating to redemption of UDR Units.
(c) The Preferred Holder may distribute any of its Preferred
Shares and Conversion Shares to its security holders (any such security holder,
a "Permitted Preferred Share Transferee") if before such distribution it shall
deliver to the Company:
7
<PAGE>
(i) an opinion of counsel reasonably acceptable to the Company
that such distribution will not constitute or result in a
violation of the registration requirements of the Securities
Act and state "blue sky" laws,
(ii) agreements substantially identical in form and substance
to this Agreement executed by each Permitted Preferred Share
Transferee who will together with the Controlled Affiliates of
such Permitted Preferred Share Transferee Beneficially Own as
a result of such distribution more than 40% of the original
number of Preferred Shares, or their equivalent in Conversion
Shares, or a combination of Preferred Shares and Conversion
Shares representing more than 40% of the original number of
Preferred Shares.
Upon any such distribution, each Permitted Preferred Share Transferee shall
continue to be bound by Section 3.1(a)(i), shall be entitled to all of the
rights of, subject to all limitations and obligations applicable to, the
Preferred Holder under Article IV, and, except as contemplated by Section
3.1(c)(ii), shall not be bound by Section 5.1 but shall be entitled to the
benefits of Section 5.2.
(d) The Company and the Company Operating Partnership will
consider any proposal by any UDR Unit Holder to distribute any of its UDR Units
and Conversion Shares to its security holders and, in the case of any such
security holder who is an individual, such individual's Family Members, in light
of factors relevant at the time of such proposal, including but not limited to
whether such proposed distribution is likely to cause the Company Operating
Partnership to be a "publicly traded partnership" as defined in Section 7704 of
the Internal Revenue Code of 1986, as amended, and whether all participants in
such proposed distribution are "accredited investors" as defined in Rule 501(a)
under the Securities Act. This Section 3.1(d) shall not be construed to require
consent to any such proposal, and any such distribution, if consented to, shall
be subject to all applicable provisions of the Partnership Agreement.
(e) Notwithstanding Sections 3.1(a)(i) and 3.1(a)(ii),
the Preferred Holder may from time to time, in a transaction or transactions
entered into bona fide and not for the purpose of evading any provision of this
Agreement, pledge all or any of the Preferred Shares (i) to a bank or other
financial institution to secure obligations for borrowed money or (ii) as margin
collateral. Upon foreclosure or private sale under any such pledge, neither the
pledgee nor any transferee of the pledgee shall be bound by or entitled to any
benefits or rights under any provision of this Agreement (except this Section
3.1(e) and Article IV). Prior to any such pledge, foreclosure or private sale,
the Company shall receive an opinion of counsel reasonably acceptable to the
Company to the effect that the applicable transaction will not constitute or
result in a violation of the registration requirements of the Securities Act and
state "blue sky" laws.
(f) Notwithstanding Sections 3.1(b)(i) and 3.1(b)(ii),
any UDR Unit Holder may from time to time, in a transaction or transactions
entered into bona fide and not for the purpose of evading any provision of this
Agreement, pledge all or any of its UDR Units (i) to a bank or other financial
institution to secure obligations for borrowed money or (ii) as margin
collateral, provided, however, that the pledgee shall agree that upon any
foreclosure or private sale under such pledge, all such UDR Units will be sold
to not more than one purchaser. Upon any such foreclosure or private sale,
neither the pledgee nor any transferee of the pledgee shall be bound by or
8
<PAGE>
entitled to any benefits or rights under any provision of this Agreement (except
this Section 3.1(f) and Article IV). Prior to any such pledge, foreclosure or
private sale, the Company shall receive an opinion of counsel reasonably
acceptable to the Company to the effect that the applicable transaction will not
constitute or result in a violation of the registration requirements of the
Securities Act and state "blue sky" laws. The provisions of Article IX of the
Partnership Agreement shall apply to any such foreclosure or private sale as
though the pledgee were the transferor Limited Partner, as defined in the
Partnership Agreement, referred to therein and the purchaser on foreclosure or
in the private sale were the assignee of such transferor Limited Partner.
ARTICLE IV
REGISTRATION RIGHTS
Section 4.1 Registration.
(a) Filing of Registration Statement. Subject to the
conditions set forth in this Agreement, the Company shall file a Registration
Statement:
(i) with respect to Conversion Shares issuable upon exchange
for UDR Units redeemable in accordance with Section
3.1(b)(ii), not later than 14 days after the first anniversary
of the date of original issue of the Securities,
(ii) with respect to the Conversion Shares issuable upon
conversion of the Preferred Shares, not later than 14 days
after the earlier of (A) the first anniversary of the date of
original issue of the Securities or (B) the occurrence of a
Standstill Termination Event,
(iii) with respect to the Conversion Shares issuable upon
exchange for UDR Units other than those, if any, with respect
to which a Registration Statement has been filed (and
continues to be effective) pursuant to (i) above, not later
than 14 days after the earlier of (A) expiration of the
Lock-up Period or (B) termination of the restrictions in
Section 3.1(b)(i) and 3.1(b)(ii),
(iv) with respect to Conversion Shares issuable on conversion
of Preferred Shares pledged pursuant to Section3.1(e) other
than such Conversion Shares, if any, with respect to which a
Registration Statement has been filed (and continues to be
effective) pursuant to (ii) above, promptly after receipt of
notice from the pledgee of a foreclosure on or private sale of
such Conversion Shares pursuant to such pledge, and
9
<PAGE>
(v) with respect to Conversion Shares issuable upon exchange
of UDR Units pledged pursuant to Section3.1(f) other than such
Conversion Shares, if any, with respect to which a
Registration Statement has been filed (and continues to be
effective) pursuant to (i) above, promptly after receipt of
notice from the pledgee of a foreclosure on or private sale of
such Conversion Shares pursuant to such pledge,
and shall cause such Registration Statement to be declared effective by the SEC
as soon as practicable but in no event later than 60 days after filing. The
Company agrees to use reasonable efforts to keep the Registration Statement,
after its date of effectiveness, continuously effective in accordance with
Section 4.1(c). The Company will include in any Registration Statement relating
to Conversion Shares issued to a Transaction Party Affiliate the disclosures
necessary to enable such Transaction Party Affiliate to reoffer such Conversion
Shares in compliance with the Securities Act by delivery of the Prospectus
included therein, unless such use of such Registration Statement is prohibited
by any rule or regulation (including staff interpretation) of the SEC, in which
case the Company shall file simultaneously with such Registration Statement a
separate Registration Statement relating to the reoffer of such Conversion
Shares by such Transaction Party Affiliate (a "Reoffer Registration Statement"),
shall cause such Reoffer Registration Statement to be declared effective by the
SEC as soon as practicable but in no event later than 60 days after filing, and
shall use reasonable efforts to keep such Reoffer Registration Statement, after
its date of effectiveness, continuously effective in accordance with Section
4.1(c). The term "Reoffer Registration Statement" shall include any Registration
Statement applicable to both the issuance of Conversion Shares and the reoffer
of such Conversion Shares by a Transaction Party Affiliate. In the event that
under any rule or regulation (including staff interpretation) of the SEC, a
Registration Statement filed pursuant to this Section 4.1(a) may not be used to
register Conversion Shares for purposes of distribution of such Conversion
Shares to any Holder and/or any First-Tier Transferee, such Registration
Statement shall relate to the reoffer of such Conversion Shares by such Holder
and/or such First-Tier Transferee, such Registration Statement shall be deemed a
Reoffer Registration Statement for purposes of this Article IV, and the Holder
and /or each such First-Tier Transferee shall be deemed a Transaction Party
Affiliate for such purposes. The Company shall not be deemed to be in breach of
this Section 4.1(a) if the SEC refuses to accept or make effective a Reoffer
Registration Statement filed pursuant to (ii) above because the Conversion
Shares to which such Registration Statement relates are subject to the
restrictions in Section 3.1(a)(1), provided the Company refiles such Reoffer
Registration Statement promptly after such restrictions terminate and causes
such Reoffer Registration Statement to be declared effective by the SEC as soon
as practicable but in no event later than 60 days after refiling.
(b) Notification and Distribution of Materials. The
Company shall promptly notify each Transaction Party Affiliate of the
effectiveness of any Reoffer Registration Statement applicable to Conversion
Shares issued to such Transaction Party Affiliate or pledgee and shall furnish
to such Transaction Party Affiliate such number of copies of such Reoffer
Registration Statement (including any amendments, supplements and exhibits), the
Prospectus contained therein (including each preliminary prospectus and all
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related amendments and supplements) and any documents incorporated by reference
in the Reoffer Registration Statement or such other documents as such
Transaction Party Affiliate may reasonably request in order to facilitate the
reoffer and sale of such Conversion Shares in the manner described in such
Reoffer Registration Statement.
(c) Amendments and Supplements. The Company shall prepare
and file with the SEC from time to time such amendments and supplements to each
Registration Statement and Prospectus used in connection therewith as may be
necessary to keep such Registration Statement effective and, in the case of a
Reoffer Registration Statement, to comply with the provisions of the Securities
Act with respect to the disposition of the Conversion Shares offered by the
Transaction Party Affiliates for which such Reoffer Registration Statement is
filed, until all Conversion Shares have been issued upon conversion of Preferred
Shares and exchange of UDR Units and, in the case of such Reoffer Registration
Statement, until the earlier of (a) the date on which such Transaction Party
Affiliates no longer hold any Conversion Shares or (b) in the case of
Transaction Party Affiliates who are AAC Affiliates, the date on which no such
Transaction Party Affiliates are deemed to be engaged in a distribution by
reason of paragraph (d)(3) of Rule 145, or, in the case of Transaction Party
Affiliates who are UDR Affiliates and Persons who are deemed to be Transaction
Party Affiliates pursuant to the last sentence of Section 4.1(a), the Conversion
Shares held by such Transaction Party Affiliates or deemed Transaction Party
Affiliates become eligible for sale under paragraph (k) of Rule 144 (the
"Reoffer Registration Expiration Date"). Upon 20 business days' notice from a
Transaction Party Affiliate, the Company shall file any supplement or
post-effective amendment to a Reoffer Registration Statement with respect to
such Transaction Party Affiliate's plan of distribution, such Transaction Party
Affiliate's ownership interests in securities of the Company, or other matters
required to be disclosed therein, that is reasonably necessary to permit the
reoffer and sale of such Transaction Party Affiliate's Conversion Shares
pursuant to such Reoffer Registration Statement. The Company shall cause the
Conversion Shares registered under any Registration Statement to be then listed
or quoted on the primary exchange or quotation system on which the Common Stock
is then listed or quoted.
(d) Notice of Certain Events. The Company shall promptly
notify each Transaction Party Affiliate of, and confirm in writing, the filing
of a Reoffer Registration Statement relating to the Conversion Shares of such
Transaction Party Affiliate or any Prospectus, amendment or supplement related
thereto or any post-effective amendment to such Reoffer Registration Statement
and the effectiveness of such Reoffer Registration Statement and any
post-effective amendment.
At any time when a Prospectus included in a Reoffer Registration
Statement is required to be delivered under the Securities Act by a Transaction
Party Affiliate, the Company shall immediately notify each Transaction Party
Affiliate of the happening of any event as a result of which the Prospectus
included in such Reoffer Registration Statement, as then in effect, includes an
untrue statement of a material fact or omits to state any material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading. In such event, the
Company shall promptly prepare and furnish to each applicable Transaction Party
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Affiliate a reasonable number of copies of a supplement to or an amendment of
such Prospectus as may be necessary so that, as thereafter delivered to offerees
of such Transaction Party Affiliate's Conversion Shares, such Prospectus shall
not include an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they are made, not misleading. The
Company will, if necessary, amend the Reoffer Registration Statement of which
such Prospectus is a part to reflect such amendment or supplement.
Section 4.2 State Securities Laws.
Subject to the conditions set forth in this Agreement, the Company
shall, in connection with the filing of any Registration Statement hereunder,
file such documents as may be necessary to register or qualify the Conversion
Shares to which such Registration Statement relates (with respect to the
issuance of such Conversion Shares and, if applicable, the subsequent resale
thereof) under the securities or "blue sky" laws of such states as any
Transaction Party Affiliate offering such Conversion Shares may reasonably
request, and the Company shall use its best efforts to cause such filings to
become effective; provided, however, that the Company shall not be obligated to
qualify as a foreign corporation to do business under the laws of any such state
in which it is not then qualified or to file any general consent to service of
process in any such state. Once effective, the Company shall use its best
efforts to keep such filings effective until the earlier of (a) the Reoffer
Registration Expiration Date or (b) in the case of a particular state, such
Transaction Party Affiliate has notified the Company that it no longer requires
an effective filing in such state in accordance with its original request for
filing.
Section 4.3 Expenses.
The Company shall bear all Registration Expenses incurred in connection
with the registration of the Conversion Shares pursuant to this Agreement.
Section 4.4 Indemnification by the Company.
The Company agrees to indemnify each Transaction Party Affiliate and
its officers, directors, employees, agents, representatives and Transaction
Party Affiliates, and each person or entity, if any, that controls such
Transaction Party Affiliate within the meaning of the Securities Act, and each
other person or entity, if any, subject to liability under the Securities Act
because of his, her or its connection with a Transaction Party Affiliate (each,
an "Indemnitee"), against any and all losses, claims, damages, actions,
liabilities, costs and expenses (including without limitation reasonable fees,
expenses and disbursements of attorneys and other professionals), joint or
several, arising out of or based upon any violation by the Company of any rule
or regulation promulgated under the Securities Act applicable to the Company and
relating to action or inaction required of the Company in connection with any
Reoffer Registration Statement or the related Prospectus relating to Conversion
Shares offered by such Transaction Party Affiliate, or upon any untrue or
alleged untrue statement of material fact contained in such Reoffer Registration
Statement or Prospectus, or any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
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therein, in light of the circumstances under which they were made, not
misleading; provided, that the Company shall not be liable to such Indemnitee or
any person who participates as an underwriter in the offering or sale of such
Conversion Shares or any other person, if any, who controls such underwriter
within the meaning of the Securities Act, in any such case to the extent that
any such loss, claim, damage, liability (or action or proceeding in respect
thereof) or expense arises out of or is based upon (i) an untrue statement or
alleged untrue statement or omission or alleged omission made in any such
Registration Statement or in any such Prospectus in reliance upon and in
conformity with information regarding such Transaction Party Affiliate or its
plan of distribution that was furnished to the Company for use in connection
with such Reoffer Registration Statement or related Prospectus by such
Transaction Party Affiliate or (ii) such Transaction Party Affiliate's failure
to send or give a copy of the final, amended or supplemented Prospectus
furnished to such Transaction Party Affiliate by the Company at or prior to the
time such action is required by the Securities Act to the person claiming an
untrue statement or alleged untrue statement or omission or alleged omission if
such statement or omission was corrected in such final, amended or supplemented
Prospectus.
Section 4.5 Agreements of Transaction Party Affiliates.
The Company shall have no obligation or liability to any Transaction
Party Affiliate under this Article IV unless such Transaction Party Affiliate
shall have entered into a written agreement with the Company or shall otherwise
be obligated to the Company (a) to cooperate with the Company and to furnish to
the Company all such information concerning its plan of distribution with
respect to its Conversion Shares, its ownership of Company securities and other
matters in connection with the preparation of a Reoffer Registration Statement
with respect to such Conversion Shares as the Company may reasonably request,
(b) to deliver or cause delivery of the Prospectus contained in such Reoffer
Registration Statement to any purchaser of the shares covered by such
Registration Statement from such Transaction Party Affiliate, (c) to indemnify
the Company, its officers, directors, employees, agents, representatives and
Transaction Party Affiliates, and each person, if any, who controls the Company
within the meaning of the Securities Act, and each other person, if any, subject
to liability under the Securities Act because of this connection with the
Company, against any and all losses, claims, damages, actions, liabilities,
costs and expenses arising out of or based upon (i) any untrue statement or
alleged untrue statement of material fact contained in such Reoffer Registration
Statement or the related Prospectus, or any omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein, in the light of the circumstances under which they were
made, not misleading, if and to the extent that such statement or omission
occurs from reliance upon and in conformity with written information regarding
such Transaction Party Affiliate that was furnished to the Company in writing by
such Transaction Party Affiliate specifically for use therein, unless such
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statement or omission was corrected in writing to the Company not less than
three (3) business days prior to the date of the final Prospectus (as
supplemented or amended, as the case may be) or (ii) the failure of such
Transaction Party Affiliate, through no fault of the Company, to deliver or
cause to be delivered the Prospectus contained in such Reoffer Registration
Statement (as amended or supplemented if applicable) furnished by the Company to
such Transaction Party Affiliate to any purchaser from such Transaction Party
Affiliate of the Conversion Shares to which such Reoffer Registration Statement
relates, (d) if requested by the Company in the case of a Company-initiated
non-underwritten offering, or if requested by the managing underwriter in a
Company-initiated underwritten offering, not to effect any public sale or
distribution of any Conversion Shares, including a sale pursuant to Rule 144,
during the period of 60 days beginning 15 days prior to the proposed offering
date specified in such request; provided, however, that the aggregate of all
periods of restrictions on resale imposed on any Transaction Party Affiliate as
a result of requests under this Section 4.5(d) and of deferral or suspension of
the Company's obligation to cause a Registration Statement for the Conversion
Shares of such Transaction Party Affiliate or to amend or supplement such a
Registration Statement pursuant to Section 4.6(b) shall not exceed 90 days
during any 12 month period, (e) following the effectiveness of any Reoffer
Registration Statement relating to Conversion Shares of such Transaction Party
Affiliate, not to effect any sales of such Conversion Shares pursuant to such
Reoffer Registration Statement at any time after such Transaction Party
Affiliate has received notice from the Company to suspend sales as a result of
the occurrence or existence of any event referred to in Section 4.6(b) or so
that the Company may correct or update such Reoffer Registration Statement,
provided that such Transaction Party Affiliate may recommence effecting sales of
such Conversion Shares pursuant to such Reoffer Registration Statement following
further notice to such effect from the Company, which notice shall be given by
the Company not later than five business days after the cessation of any such
event, and (f) incorporating the provisions of Section 4.7.
Section 4.6 Suspension of Registration Requirement:
Restriction on Sale.
(a) The Company shall promptly notify each Transaction Party
Affiliate, and confirm such notice in writing, of (i) the Company's receipt of
any notification with respect to the suspension of the qualification of such
Transaction Party Affiliate's Conversion Shares for offer or sale in any
jurisdiction or the initiation of any proceedings for that purpose and (ii) the
issuance by the SEC of any stop order suspending the effectiveness of a Reoffer
Registration Statement with respect to such Transaction Party Affiliate's
Conversion Shares or the initiation of any proceedings for that purpose. The
Company shall use its best efforts to obtain the withdrawal of any order
suspending the effectiveness of such Reoffer Registration Statement or the
qualification of such Conversion Shares at the earliest possible moment.
(b) Notwithstanding anything to the contrary set forth in
this Agreement, the Company may defer its obligation to cause a Registration
Statement to become effective or to amend or supplement a Registration Statement
for a period of not more than 60 days in the event of (i) an underwritten
primary offering by the Company if the Company is advised by the managing
underwriter of such offering that the sale of Conversion Shares under such
Registration Statement would impair the pricing or commercial practicality of
such offering, or (ii) pending negotiations relating to, or consummation of, a
transaction or the occurrence of an event that would require additional
disclosure of material information by the Company in such Registration
Statement, as to which the Company has a bona fide business purpose for
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preserving confidentiality or which renders the Company unable to comply with
SEC requirements and that would in each case make it impractical or inadvisable
to cause such Registration Statement to become effective or to amend or
supplement such Registration Statement; provided, however, that the Company
shall not defer or suspend its obligation under this Agreement to cause a
Registration Statement to become effective or to amend or supplement a
Registration Statement pursuant to this Section 4.6(b) for an aggregate period
of more than 90 days during any 12 month period. The Company shall notify each
Holder of the existence and, in the case of an event referred to in clause (i)
of this Section 4.6 (b), the nature of any such event.
Section 4.7 Contribution.
If the indemnification provided for in Sections 4.4 and 4.5(c) is
unavailable to an indemnified party with respect to any losses, claims, damages,
actions, liabilities, costs or expenses referred to therein or is insufficient
to hold the indemnified party harmless as contemplated therein, then the
indemnifying party, in lieu of indemnifying such indemnified party, shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages, actions, liabilities, costs or expenses in such
proportion as is appropriate to reflect the relative fault of the indemnifying
party, on the one hand, and the indemnified party, on the other hand, in
connection with the statements or omissions that resulted in such losses,
claims, damages, actions, liabilities, costs or expenses as well as any other
relevant equitable considerations. The relative fault of the indemnifying party,
on the one hand, and of the indemnified party on the other hand, shall be
determined by reference to, among other factors, whether the untrue or alleged
untrue statement of a material fact or omission to state a material fact relates
to information supplied by the indemnifying party or by the indemnified party
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission; provided, however,
that in no event shall the obligation of any indemnifying party to contribute
under this Section 4.7 exceed the amount that such indemnifying party would have
been obligated to pay by way of indemnification if the indemnification provided
for under Sections 4.4 or 4.5(c) had been available under the circumstances.
The Company and the Holders agree that it would not be just and
equitable if contribution pursuant to this Section 4.7 were determined by pro
rata allocation or by any other method of allocation that does not take account
of the equitable considerations referred to in the immediately preceding
paragraph.
Notwithstanding the provision of this Section 4.7, no Transaction Party
Affiliate shall be required to contribute any amount in excess of the amount by
which the gross proceeds from the sale of such Transaction Party Affiliate's
Conversion Shares exceeds the amount of any damages that such Transaction Party
Affiliate has otherwise been required to pay by reason of such untrue or alleged
untrue statement or omission. No indemnified party guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any indemnifying party who was not guilty
of such fraudulent misrepresentation.
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Section 4.8 No Other Obligation to Register.
Except as otherwise expressly provided in this Agreement, the Company
shall have no obligation to the Holders to register the Conversion Shares under
the Securities Act.
Section 4.9 Exchange Act Compliance.
The Company shall maintain registration of the Common Stock under the
Exchange Act and shall timely file all reports required to be filed thereunder
so that the current public information requirements of paragraph (c) of Rule 144
shall continuously be complied with.
Section 4.10 Breach of Agreement
No act or omission to act of the Company in contravention of this
Article IV shall be deemed a breach of the Company's obligations hereunder if
(a) such act or omission is cured within 30 days of receipt of written notice
from any Holder or First-Tier Transferee or (b) in the case of any such act or
omission that cannot be cured within such 30-day period, the Company actively
and diligently attempts to cure such act or omission during such 30-day period
and such act or omission is cured within 30 days thereafter; provided, however,
that this Section 4.10 shall not apply to any failure to file a Registration
Statement within the time limits specified in Sections 4.1(a)(i), (ii) and
(iii).
ARTICLE V
STANDSTILL AGREEMENT
Section 5.1 Standstill.
(a) Each UDR Unit Holder hereby agrees that until the fifth
anniversary of the date of this Agreement, such UDR Unit Holder will not
directly or indirectly:
(i) sell or transfer any Securities to any Person, except (A)
as a participant in a merger, consolidation or other business
combination approved by the Board or (B) in a transaction on
the NYSE or other market in which such Securities are traded,
in which the identity of the buyer or transferee is not known
by the seller or transferor in advance of the transaction, if
such sale or transfer would result in Beneficial Ownership by
the purchaser or transferee, or any Group of which, to the
actual knowledge of such UDR Unit Holder, the purchaser or
transferee is a member, of more than 9.8% of the number of
shares of Common Stock outstanding at the time of such sale or
transfer, determined on a Fully-Diluted Basis;
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(ii) purchase or acquire Securities or shares of Common Stock
if such purchase or acquisition would result in Beneficial
Ownership by all UDR Unit Holders, including any Group of
which, to the actual knowledge of such UDR Unit Holder, any
UDR Unit Holder is a member, of more than 9.8% of the number
of shares of Common Stock outstanding at the time of such
purchase or acquisition, determined on a Fully-Diluted Basis;
(iii) solicit, propose or effect any business combination,
liquidation or sale of the Company or similar extraordinary
transaction in which the Company would not be the survivor;
(iv) seek representation on the Company's Board (except as
provided in the Exchange Agreement);
(v) solicit, initiate, encourage or participate in any
"solicitation" of "proxies" or become a "participant" in any
"election contest" (as such terms are defined or used in
Regulation 14A under the Exchange Act, disregarding clause
(iv) of Rule 14a-1(l)(2) and including an exempt solicitation
pursuant to Rule 14a-2(b)(1)); or
(vi) contest the validity or enforceability of this Section
5.1, except as a consequence of establishing the occurrence of
any of the events specified in Sections 5.2(b)(ii), (iii),
(iv) or (v).
(b) The Preferred Holder hereby agrees that until the fifth
anniversary of the date of this Agreement, the Preferred Holder will not
directly or indirectly:
(i) sell or transfer any Securities to any Person, except (A)
as a participant in a merger, consolidation or other business
combination approved by the Board or (B) in a transaction on
the NYSE or other market in which such Securities are traded,
in which the identity of the buyer or transferee is not known
by the seller or transferor in advance of the transaction, if
such sale or transfer would result in Beneficial Ownership by
the purchaser or transferee, or any Group of which, to the
actual knowledge of the Preferred Holder, the purchaser or
transferee is a member, of more than 9.8% of the number of
shares of Common Stock outstanding at the time of such sale or
transfer, determined on a Fully-Diluted Basis;
(ii) purchase or acquire Securities or shares of Common Stock
if such purchase or acquisition would result in Beneficial
Ownership by the Preferred Holder and its Controlled
Affiliates in the aggregate of more than 15% of the number of
shares of Common Stock outstanding at the time of such
purchase or acquisition, determined on a Fully-Diluted Basis;
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(iii) solicit, propose or effect any business combination,
liquidation or sale of the Company or similar extraordinary
transaction in which the Company would not be the survivor;
(iv) seek representation on the Company's Board (except as
provided in the Merger Agreement);
(v) solicit, initiate, encourage or participate in any
"solicitation" of "proxies" or become a "participant" in any
"election contest" (as such terms are defined or used in
Regulation 14A under the Exchange Act, disregarding clause
(iv) of Rule 14a-1(l)(2) and including an exempt solicitation
pursuant to Rule 14a-2(b)(1)); or
(vi) contest the validity or enforceability of this Section
5.1, except as a consequence of establishing the occurrence of
any Standstill Termination Event defined in Section 5.2(b).
Section 5.2 Termination of Certain Restrictions.
(a) The restrictions in Section 5.1(a) shall terminate upon
the occurrence of any of the events specified in Sections 5.2(b)(ii), (iii),
(iv) or (v).
(b) The restrictions in Section 5.1(b) shall terminate upon
any of the following (each a "Standstill Termination Event"):
(i) a quarterly distribution on the Preferred Shares is in
arrears for any quarter for a period exceeding five days,
(ii) the occurrence of a Change of Control,
(iii) the authorization by the Board (with the director or
directors nominated and serving pursuant to Section 5.9 of the
Merger Agreement, if any, voting against) of the direct or
indirect solicitation of offers with respect to any merger,
consolidation, other business combination, liquidation or sale
of the Company or all or substantially all of its assets or
any other similar extraordinary transaction (any of the
foregoing, other than any transaction in which the Company is
the surviving and acquiring entity and in which (A) the only
other parties to the transaction are subsidiaries or
Controlled Affiliates of the Company or (B) the business or
assets acquired do not, or would not reasonably be expected
to, have a value greater than 50% of the assets of the Company
and its subsidiaries, consolidated, prior to such transaction,
a "Covered Transaction"), it being understood that mere
direction by the Board that the officers of the Company or a
committee of the Board review and report on a proposal
originated by any officer or director of the Company or by a
third party that might result in a solicitation of offers
shall not, without more, be deemed a "solicitation of offers,"
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provided the director or directors nominated and serving
pursuant to Section 5.9 of the Merger Agreement, if any,
receive notice of and have the opportunity to participate in
any meeting of the Board at which such a direction is made or
the report of the officers of the Company or such committee of
the Board is presented,
(iv) the written submission by any person or Group other than
the Preferred Holder of a proposal to the Company (including
the Board and any agent, representative or Affiliate of the
Company) with respect to, or otherwise expressing interest in
pursuing, a Covered Transaction, unless, as soon as
practicable after receipt of any such proposal, the Board
determines that such proposal is not in the best interests of
the Company and its shareholders and continues to reject such
proposal as a result of such determination,
(v) in connection with any actual or proposed Covered
Transaction, the termination of any shareholder rights plan or
amendment of the articles of incorporation or bylaws of the
Company to delete staggered terms of directors, supermajority
voting of the Company's shareholders, "excess share"
provisions, or other similar provisions which would reasonably
be expected to impede the consummation of such Covered
Transaction,
(vi) any breach of Section 5.9 of the Merger Agreement,
(vii) the initiation by the Company or any of its Affiliates
of any action, suit or other legal proceeding against the
Preferred Holder, any of its Affiliates or any of their
respective officers or directors with respect to any matter
unrelated to the express terms of this Agreement and the
related documents and the transactions contemplated thereby,
unless such action, suit or legal proceeding is authorized by
the Board at a meeting of which the director or directors
nominated and serving pursuant to Section 5.9 of the Merger
Agreement, if any, receive notice and in which they have the
opportunity to participate, provided that if there shall be a
final judgment on the merits in favor of the Preferred Holder
or such Affiliate in any such action, suit or legal proceeding
that is so authorized by the Board, a Standstill Termination
Event shall exist even though such judgment may be subject to
further appeal,
(viii) the distribution by the Preferred Holder of all of its
Preferred Shares and Conversion Shares pursuant to Section
3.1(c), provided that such Standstill Termination Event shall
not affect any agreement entered into by a Permitted Preferred
Share Transferee pursuant to Section 3.1(c)(ii), and
(ix) the date on which the Preferred Holder ceases (otherwise
than as a result of a distribution of Preferred Shares and
Conversion Shares pursuant to Section 3.1(c)) to be the
Beneficial Owner of Securities having an aggregate market
value of more than 5% of Average Market Capitalization. For
purposes of this Section 5.2(b) (ix), the "market value" of
Conversion Shares shall be determined by reference to the
closing sale price of the Common Stock on the day preceding
the determination date, and the "market value" of Preferred
Shares shall be the Series D Redemption Price of the Preferred
Shares provided in the Company's Articles of Incorporation on
the determination date.
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ARTICLE VI
GENERAL PROVISIONS
Section 6.1 Notices.
All notices, requests, claims, demands and other communications under
this Agreement shall be in writing and shall be deemed given if delivered
personally, sent by overnight courier (providing proof of delivery) to the
parties or sent by telecopy (providing confirmation of transmission) at the
following addresses or telecopy numbers (or at such other address or telecopy
number for a party as shall be specified by like notice), and further provided
that in case of directions to amend the Registration Statement pursuant to
Article IV, the Holder must confirm such notice in writing by overnight express
delivery with confirmation of receipt:
(a) if to the Company, to
UNITED DOMINION REALTY TRUST, INC.
10 South Sixth Street
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
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(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
(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
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(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
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
22
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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-Tier Transferee in a transaction complying
with the applicable provisions of Rule 144 or Rule 145 or in a transaction
effected after a Registration Statement with respect to such Securities has
become effective shall be bound by any provision of this Agreement.
Section 6.3 Counterparts.
This Agreement may be executed in any number of counterparts and by the
parties hereto in separate counterparts, each of which when so executed shall be
deemed to be an original and all of which taken together shall constitute one
and the same agreement.
Section 6.4 Governing Law.
This Agreement shall be governed by and construed in accordance with
the laws of the State of New York, regardless of the laws that might otherwise
govern under applicable principles of conflict of laws of such State.
Section 6.5 Severability.
In the event that any one or more of the provisions contained herein,
or the application thereof in any circumstances, is held invalid, illegal or
unenforceable in any respect for any reason, the validity, legality and
unenforceable of any such provision in every other respect and of the remaining
provisions contained herein shall not be in any way impaired thereby, it being
intended that all of the rights and privileges of the parties hereto shall be
enforceable to the fullest extent permitted by law.
23
<PAGE>
Section 6.6 Entire Agreement; Amendment; Waiver.
This Agreement is intended by the parties as a final expression of
their agreement and intended to be the complete and exclusive statement of the
agreement and understanding of the parties hereto in respect of the subject
matter contained herein. There are no restrictions, promises, warranties or
undertakings, other than those set forth or referred to herein, with respect to
such subject matter. This Agreement supersedes all prior agreements and
understandings between the parties with respect to such subject matter. No
amendment or waiver of any provision hereof shall be effective unless in writing
signed by each party against whom enforcement of such amendment or waiver is
sought. No waiver of any provision of this Agreement or a breach of any such
provision shall be construed as a waiver of any other provision hereof or a
breach of such provision or a subsequent breach of the same or any other
provision.
Section 6.7 Interpretation; Absence of Presumption.
For the purposes hereof, (i) words in the singular shall be held to
include the plural and vice versa and words of one gender shall be held to
include the other gender as the context requires, (ii) the terms "hereof",
"herein" and "herewith", and words of similar import shall, unless otherwise
stated, be construed to refer to this Agreement as a whole and not to any
particular provision of this Agreement, and Article and Section references are
to the Articles and Sections of this Agreement unless otherwise specified, (iii)
the word "including" and words of similar import when used in this Agreement
shall mean "including without limitation," unless the context otherwise requires
or unless otherwise specified, (iv) the word "or" shall not be exclusive and (v)
provisions shall apply, when appropriate, to successive events and transactions.
This Agreement shall be construed without regard to any presumption or rule
requiring construction or interpretation against the party drafting or causing
any instrument to be drafted.
24
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.
UNITED DOMINION REALTY TRUST, INC.
By:
Name:
Title:
UNITED DOMINION REALTY, L.P.
By: United Dominion Realty Trust, Inc.,
General Partner
By:
Name:
Title:
AMERICAN APARTMENT COMMUNITIES II, INC.
By:
Name: James D. Klingbeil
Title: Chief Executive Officer
AMERICAN APARTMENT COMMUNITIES III, L.P.
By American Apartment Communities III, Inc.,
General Partner
By:
Name:
Title:
25
<PAGE>
SCHNITZER INVESTMENT CORP.
By:
Name:
Title:
LF STRATEGIC REALTY INVESTORS, L.P.
By:
Name:
Title:
AMERICAN APARTMENT COMMUNITIES OPERATING
PARTNERSHIP, L.P.
By American Apartment Communities, Inc.,
General Partner
By:
Name:
Title:
AAC MANAGEMENT LLC
By:
Name:
Title:
26
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 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,
2
<PAGE>
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 Partnership, and
such Transferor has not relied on the Company, the Company Operating
Partnership or their advisors for such advice.
3
<PAGE>
(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 other applicable non-recognition Code provision, in which no
gain or loss is recognized for federal income tax purposes (a
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<PAGE>
"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 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
5
<PAGE>
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 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
6
<PAGE>
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 prior to
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<PAGE>
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 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
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<PAGE>
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 oi)" (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.
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):
9
<PAGE>
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:
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
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<PAGE>
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. 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.
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.
11
<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.
<TABLE>
<S> <C>
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
</TABLE>
<PAGE>
EXHIBIT D
THIRD AMENDED AND RESTATED AGREEMENT
OF LIMITED PARTNERSHIP
OF
UNITED DOMINION REALTY, L.P.
Dated as of September __, 1998
<PAGE>
<TABLE>
TABLE OF CONTENTS
ARTICLE I.
DEFINED TERMS
<S> <C>
1.01 Defined Terms................................................................................. 1
ARTICLE II.
PARTNERSHIP CONTINUATION AND IDENTIFICATION
2.01 Continuation.................................................................................. 8
2.02 Name, Office and Registered Agent............................................................. 8
2.03 Partners...................................................................................... 8
2.04 Term and Dissolution.......................................................................... 8
2.05 Filing of Certificate and Perfection of Limited Partnership................................... 9
2.06 Certificates Describing Partnership Units..................................................... 9
ARTICLE III.
BUSINESS OF THE PARTNERSHIP
3.01 Business of the Partnership................................................................... 10
ARTICLE IV.
CAPITAL CONTRIBUTIONS AND ACCOUNTS
4.01 Capital Contributions......................................................................... 10
4.02 Additional Capital Contributions and Issuances of
Additional Partnership Interests............................................................. 11
4.03 Loans to the Partnership...................................................................... 12
4.04 Capital Accounts.............................................................................. 12
4.05 Percentage Interests.......................................................................... 13
4.06 No Interest on Contributions.................................................................. 13
4.07 Return of Capital Contributions............................................................... 13
4.08 No Third Party Beneficiary.................................................................... 13
ARTICLE V.
PROFITS AND LOSSES; DISTRIBUTIONS
5.01 Allocation of Profit and Loss................................................................. 14
5.02 Distribution of Cash.......................................................................... 15
5.03 REIT Distribution Requirements................................................................ 16
5.04 No Right to Distributions in Kind............................................................. 16
5.05 Limitations on Return of Capital Contributions................................................ 16
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5.06 Distributions Upon Liquidation................................................................ 17
5.07 Substantial Economic Effect................................................................... 17
ARTICLE VI.
RIGHTS, OBLIGATIONS AND
POWERS OF THE GENERAL PARTNER
6.01 Management of the Partnership................................................................. 18
6.02 Delegation of Authority....................................................................... 21
6.03 Indemnification and Exculpation of Indemnitees................................................ 21
6.04 Liability of the General Partner.............................................................. 22
6.05 Partnership Expenses.......................................................................... 23
6.06 Outside Activities............................................................................ 23
6.07 Employment or Retention of Affiliates......................................................... 24
6.08 Title to Partnership Assets................................................................... 24
ARTICLE VII.
CHANGES IN GENERAL PARTNER AND THE COMPANY
7.01 Transfer of a General Partner's Partnership Interest;
Transactions Involving the Company........................................................... 24
7.02 Admission of a Substitute or Additional General............................................... 26
7.03 Effect of Bankruptcy, Withdrawal, Death or Dissolution
of a General Partner......................................................................... 27
7.04 Removal of a General Partner.................................................................. 27
ARTICLE VIII.
RIGHTS AND OBLIGATIONS
OF THE LIMITED PARTNERS
8.01 Management of the Partnership................................................................. 29
8.02 Power of Attorney............................................................................. 29
8.03 Limitation on Liability of Limited Partners................................................... 29
8.04 Ownership by Limited Partner of Corporate General
Partner or Affiliate......................................................................... 29
8.05 Redemption Right.............................................................................. 29
8.06 NYSE Listing and Securities Act Registration of
REIT Shares.................................................................................. 33
ARTICLE IX.
TRANSFERS OF LIMITED PARTNERSHIP INTERESTS
9.01 Purchase for Investment....................................................................... 33
9.02 Restrictions on Transfer of Limited Partnership Interests..................................... 33
9.03 Admission of Substitute Limited Partner....................................................... 34
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9.04 Rights of Assignees of Partnership Interests.................................................. 35
9.05 Effect of Bankruptcy, Death, Incompetence or Termination
of a Limited Partner......................................................................... 36
9.06 Joint Ownership of Interests.................................................................. 36
ARTICLE X.
BOOKS AND RECORDS; ACCOUNTING; TAX MATTERS
10.01 Books and Records............................................................................. 37
10.02 Custody of Partnership Funds; Bank Accounts................................................... 37
10.03 Fiscal and Taxable Year....................................................................... 37
10.04 Annual Tax Information and Report............................................................. 37
10.05 Tax Matters Partner; Tax Elections; Special Basis Adjustments................................. 37
10.06 Reports to Limited Partners................................................................... 38
ARTICLE XI.
AMENDMENT OF AGREEMENT; MERGER; NOTICE
11.01 Amendment of Agreement; Merger................................................................ 39
11.02 Notice to Limited Partners.................................................................... 39
ARTICLE XII.
GENERAL PROVISIONS
12.01 Notices....................................................................................... 39
12.02 Survival of Rights............................................................................ 40
12.03 Additional Documents.......................................................................... 40
12.04 Severability.................................................................................. 40
12.05 Entire Agreement.............................................................................. 40
12.06 Rules of Construction......................................................................... 40
12.07 Headings...................................................................................... 40
12.08 Counterparts.................................................................................. 40
12.09 Governing Law................................................................................. 40
EXHIBITS
EXHIBIT A - Partners, Capital Contributions and Percentage Interests
EXHIBIT B - Notice of Exercise of Redemption Right
</TABLE>
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<PAGE>
THIRD AMENDED AND RESTATED AGREEMENT
OF LIMITED PARTNERSHIP
OF
UNITED DOMINION REALTY, L.P.
Dated as of September __, 1998
RECITALS
United Dominion Realty, L.P. (the "Partnership") was formed as a
limited partnership under the laws of the Commonwealth of Virginia by a
Certificate of Limited Partnership filed with the Clerk of the State Corporation
Commission of Virginia on October 23, 1995 and commenced operations on November
4, 1995. The Second Amended and Restated Agreement of Limited Partnership of the
Partnership was entered into as of August 30, 1997 (the "Second Restatement").
This Third Amended and Restated Agreement of Limited Partnership is entered into
this __th day of September, 1998 by and among United Dominion Realty Trust, Inc.
(the "Company") as the general partner (in such capacity, the "General Partner")
and the Limited Partners set forth on Exhibit A hereto, for the purpose of
amending and restating the Second Restatement.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing, of mutual covenants
between the parties hereto, and of other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree to amend the Second Restatement to read in its entirety as follows:
ARTICLE I.
DEFINED TERMS
I.01 Defined Terms. The following defined terms used in this Agreement
shall have the meanings specified below:
"Act" means the Virginia Revised Uniform Limited Partnership Act, as it
may be amended from time to time.
"Additional Funds" is defined in Section 4.03.
"Additional Limited Partner" means a Person admitted to this
Partnership as a Limited Partner pursuant to Section 4.02.
"Affiliate" means, (i) any Person that, directly or indirectly,
controls or is controlled by or is under common control with such Person, (ii)
any other Person that owns, beneficially, directly or indirectly, 10% or more of
the outstanding capital stock, shares or equity interests of such Person, or
(iii) any officer, director, employee, partner or trustee of such Person or any
Person controlling, controlled by or under common control with such Person
<PAGE>
(excluding trustees and persons serving in similar capacities who are not
otherwise an Affiliate of such Person). For the purposes of this definition,
"control" (including the correlative meanings of the terms "controlled by" and
"under common control with"), as used with respect to any Person, shall mean the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, through the ownership
of voting securities or partnership interests or otherwise.
"Agreed Value" means the fair market value of a Partner's non-cash
Capital Contribution as of the date of contribution as agreed to by the such
Partner and the General Partner. The name and address of each Partner, number of
Partnership Units issued to such Partner, and the Agreed Value of such Partner's
non-cash Capital Contributions as of the date of contribution thereof is set
forth on Exhibit A.
"Agreement" means this Third Amended and Restated Agreement of Limited
Partnership, as amended from time to time.
"Available Cash" means, for any period, the excess, if any, of (i) the
cash receipts of the Partnership (other than from the sale, exchange or other
disposition of the assets of the Partnership), including amounts withdrawn from
reserves, over (ii) the disbursements of cash by the Partnership (other than
distributions to Partners and amounts paid with the receipts from the sale,
exchange or other disposition of the assets of the Partnership), including
amounts deposited in reserves. Available Cash for any period shall be determined
by the General Partner in its reasonable discretion.
"Capital Account" is defined in Section 4.04.
"Capital Contribution" means the total amount of capital contributed to
the Partnership by each Partner. Any reference to the Capital Contribution of a
Partner shall include the Capital Contribution made by a predecessor holder of
the Partnership Interest of such Partner. The paid-in Capital Contribution shall
mean the cash amount or the Agreed Value of other assets actually contributed by
each Partner to the capital of the Partnership.
"Capital Transaction" means the refinancing, sale, exchange,
condemnation, recovery of a damage award or insurance proceeds (other than
business or rental interruption insurance proceeds not reinvested in the repair
or reconstruction of Properties), or other disposition of any Property (or the
Partnership's interest therein).
"Cash Amount" means an amount of cash per Partnership Unit equal to the
Value of the REIT Shares Amount on the date of receipt by the General Partner of
a Notice of Redemption.
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<PAGE>
"Certificate" means any instrument or document that is required under
the laws of the Commonwealth of Virginia, or any other jurisdiction in which the
Partnership conducts business, to be signed and sworn to by the Partners of the
Partnership (either by themselves or pursuant to the power-of-attorney granted
to the General Partner in Section 8.02) and filed for recording in the
appropriate public offices within the Commonwealth of Virginia or such other
jurisdiction to perfect or maintain the Partnership as a limited partnership, to
effect the admission, withdrawal, or substitution of any Partner of the
Partnership, or to protect the limited liability of the Limited Partners as
limited partners under the laws of the Commonwealth of Virginia or such other
jurisdiction.
"Charter" means the Articles of Incorporation of the Company, as
amended from time to time.
"Code" means the Internal Revenue Code of 1986, as amended, and as
hereafter amended from time to time. Reference to any particular provision of
the Code shall mean that provision in the Code at the date hereof and any
successor provision of the Code.
"Commission" means the Securities and Exchange Commission.
"Company" means United Dominion Realty Trust, Inc., a Virginia
corporation.
"Conversion Factor" means 1.0, as adjusted pursuant to Section 8.05(f).
"Dividend Equivalent" as to any Partner means the amount of
distributions such Partner would have received for the quarter (or other
distribution period) from REIT Shares if such Partner owned the number of REIT
Shares equal to the product to such Partner's Partnership Units and the
Conversion Factor for the Partnership Record Date pertaining to such quarter (or
other distribution period).
"Event of Bankruptcy" as to any Person means the filing of a petition
for relief as to such Person as debtor or bankrupt under the Bankruptcy Code of
1978 or similar provision of law of any jurisdiction (except if such petition is
contested by such Person and has been dismissed within 90 days); insolvency or
bankruptcy of such Person as finally determined by a court proceeding; filing by
such Person of a petition or application to accomplish the same or for the
appointment of a receiver or a trustee for such Person or a substantial part of
his assets; commencement of any proceedings relating to such Person as a debtor
under any other reorganization, arrangement, insolvency, adjustment of debt or
liquidation law of any jurisdiction, whether now in existence or hereinafter in
effect, either by such Person or by another, provided that if such proceeding is
commenced by another, such Person indicates his approval of such proceeding,
consents thereto or acquiesces therein, or such proceeding is contested by such
Person and has not been finally dismissed within 90 days.
"General Partner" means the Company and any Person who becomes a
substitute or additional General Partner as provided herein, and any of their
successors as General Partner. At any time at which the Partnership has two or
more General Partners, all such General Partners shall designate one of such
General Partners as managing General Partner and may from time to time designate
a successor managing General Partner and, unless the context otherwise requires,
references to the General Partner shall mean the General Partner at the time so
designated as managing General Partner.
"General Partnership Interest" means a Partnership Interest held by the
General Partner that is a general partnership interest.
"Indemnitee" means (i) any Person made a party to a proceeding by
reason of such Person's status as the General Partner or a director, officer or
employee of the Partnership or the General Partner, and (ii) such other Persons
(including Affiliates of the General Partner or the Partnership) as the General
Partner may designate from time to time, in its sole and absolute discretion.
"Investment Agreement" means the contribution, investment, subscription
or other agreement or agreements pursuant to which a Limited Partner contributes
property or cash to the Partnership in exchange for a Partnership Interest.
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<PAGE>
"Limited Partner" means any Person named as a Limited Partner on
Exhibit A attached hereto, and any Person who becomes a Substitute or Additional
Limited Partner, in such Person's capacity as a Limited Partner in the
Partnership.
"Limited Partnership Interest" means the ownership interest of a
Limited Partner in the Partnership at any particular time, including the right
of such Limited Partner to any and all benefits to which such Limited Partner
may be entitled as provided in this Agreement and in the Act, together with the
obligations of such Limited Partner to comply with all the provisions of this
Agreement and of such Act.
"Loss" is defined in Section 5.01(f).
"Minimum Limited Partnership Interest" means the lesser of (i) 1% or
(ii) if the total Capital Contributions to the Partnership exceeds $50 million,
1% divided by the ratio of the total Capital Contributions to the Partnership to
$50 million; provided, however, that the Minimum Limited Partnership Interest
shall not be less than 0.2% at any time.
"Notice of Redemption" means the Notice of Exercise of Redemption Right
substantially in the form attached as Exhibit B hereto.
"NYSE" means the New York Stock Exchange and includes any other
national securities exchange on which the REIT Shares are listed at the
determination date.
"Offer" is defined in Section 7.01(c).
"Original Limited Partner" means UDRT of North Carolina, L.L.C., a
North Carolina limited liability company.
"Outside Partner" means any Partner other than a UDR Partner.
"Partner" means any General Partner or Limited Partner.
"Partner Nonrecourse Debt Minimum Gain" has the meaning set forth in
Regulations Section 1.704-2(i). A Partner's share of Partner Nonrecourse Debt
Minimum Gain shall be determined in accordance with Regulations Section
1.704-2(i)(5).
"Partnership Interest" means an ownership interest in the Partnership
held by either a Limited Partner or the General Partner and includes any and all
benefits to which the holder of such a Partnership Interest may be entitled as
provided in this Agreement, together with all obligations of such Person to
comply with the terms and provisions of this Agreement.
"Partnership Minimum Gain" has the meaning set forth in Regulations
Section 1.704-2(d). In accordance with Regulations Section 1.704-2(d), the
amount of Partnership Minimum Gain is determined by first computing, for each
Partnership nonrecourse liability, any gain the Partnership would realize if it
disposed of the property subject to that liability for no consideration other
than full satisfaction of the liability, and then aggregating the separately
computed gains. A Partner's share of Partnership Minimum Gain shall be
determined in accordance with Regulations Section 1.704-2(g)(1).
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<PAGE>
"Partnership Record Date" means the record date established by the
General Partner for the distribution of cash pursuant to Section 5.02, which
record date shall be the same as the record date established by the General
Partner for a distribution to the holders of the REIT Shares.
"Partnership Unit" means a fractional, undivided share of the
Partnership Interests of all Partners issued hereunder. The allocation of
Partnership Units among the Partners shall be as set forth on Exhibit A, as may
be amended from time to time.
"Percentage Interest" means at any time the percentage ownership
interest in the Partnership of each Partner, as determined by dividing the
Partnership Units owned by such Partner by the total number of Partnership Units
outstanding at such time. The Percentage Interest of each Partner shall be as
set forth on Exhibit A, as may be amended from time to time.
"Percentage Interest Adjustment Date" means the effective date of an
adjustment of the Partners' Percentage Interests pursuant to Section 4.05.
"Person" means any individual, partnership, corporation, joint venture,
trust or other entity.
"Profit" is defined in Section 5.01(f).
"Property" means any apartment property or other investment in which
the Partnership holds an ownership interest.
"Redeeming Partner" is defined in Section 8.05(a).
"Redemption Amount" means either the Cash Amount or the REIT Shares
Amount, as selected by the General Partner in its sole and absolute discretion
pursuant to Section 8.05(b).
"Redemption Right" is defined in Section 8.05(a).
"Regulations" means the Federal Income Tax Regulations issued under the
Code, as amended and as hereafter amended from time to time. Reference to any
particular provision of the Regulations shall mean that provision of the
Regulations on the date hereof and any successor provision of the Regulations.
"REIT" means a real estate investment trust under Sections 856 through
860 of the Code.
"REIT Expenses" means (i) costs and expenses relating to the continuity
of existence of the Company and its Subsidiaries (all such entities shall, for
purposes of this section, be included within the definition of Company),
including, without limitation, taxes, fees and assessments associated therewith
and any costs, expenses or fees payable to any director, officer or employee of
the Company (including, without limitation, any costs of indemnification), (ii)
costs and expenses relating to any offer or registration of REIT Shares or other
securities by the Company and all statements, reports, fees and expenses
incidental thereto, including, without limitation, underwriting discounts and
selling commissions applicable to any such offer of securities and any costs and
expenses associated with any claims made by any holders of such securities or
any underwriters or placement agents thereof, (iii) costs and expenses incurred
in connection with the repurchase of any securities by the Company, (iv) costs
and expenses associated with the preparation and filing of any periodic or other
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<PAGE>
reports and communications by the Company under federal, state or local laws or
regulations, including filings with the Commission, (v) costs and expenses
associated with compliance by the Company with laws, rules and regulations
promulgated by any regulatory body, including the Commission and any securities
exchange, (vi) costs and expenses associated with any 401(k) plan, incentive
plan, bonus plan or other plan providing for compensation for the employees of
the Company, (vii) costs and expenses incurred by the Company relating to any
issuance or redemption of Partnership Interests, and (viii) all other operating
or administrative costs incurred by the Company in connection with the ordinary
course of the Company's or the Partnership's business (including the business of
any Subsidiary thereof).
"REIT Share" means a share of common stock of the Company, $1 par value
per share, or a share of the common stock of any Successor Entity.
"REIT Shares Amount" shall mean a whole number of REIT Shares equal to
the product of the number of Partnership Units offered for redemption by a
Redeeming Partner, multiplied by the Conversion Factor as adjusted to and
including the Specified Redemption Date plus cash in lieu of any fractional REIT
Shares based on the Value of a REIT Share as of the date of receipt by the
General Partner of a Notice of Redemption; provided that in the event the
Company issues to all holders of REIT Shares rights, options, warrants or
convertible or exchangeable securities entitling the shareholders to subscribe
for or purchase REIT Shares, or any other securities or property (collectively,
the "rights"), and the rights have not expired at the Specified Redemption Date,
then the REIT Shares Amount shall also include the rights issuable to a holder
of the REIT Shares Amount of REIT Shares on the record date fixed for purposes
of determining the holders of REIT Shares entitled to rights.
"Securities Act" means the Securities Act of 1933, as amended.
"Service" means the Internal Revenue Service.
"Specified Redemption Date" means (i) with respect to Partnership Units
to be redeemed for a Cash Amount, the first Business Day of the month that is at
least 20 business days after the receipt by the General Partner of the Notice of
Redemption, as the same may be extended pursuant to Section 8.05(d) and (ii)
with respect to Partnership Units to be redeemed for a REIT Shares Amount, the
fifth Business Day following the date of the General Partner's notice of its
election to purchase such Partnership Units pursuant to Section 8.05(b).
"Subsidiary" means, with respect to any Person, any corporation or
other entity of which a majority of (i) the voting power of the voting equity
securities (including general partners' interests) or (ii) the outstanding
equity interests is owned, directly or indirectly, by such Person.
"Subsidiary Partnership" means any partnership of which the majority of
the limited or general partnership interests therein are owned, directly or
indirectly, by the Partnership.
"Substitute Limited Partner" means any Person admitted to the
Partnership as a Limited Partner pursuant to Section 9.03.
"Transaction" is defined in Section 7.01(c).
"Transfer" is defined in Section 9.02(a).
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<PAGE>
"UDR Partner" means the Company and any Partner that is an Affiliate of
the Company.
"Value" means, with respect to any security, the average of the daily
market price of such security for the twenty (20) consecutive trading days
immediately preceding the date of such valuation. The market price for each such
trading day shall be: (i) if such security is listed or admitted to trading on
any securities exchange or The Nasdaq National Market, the closing price,
regular way, on such day or, if no sale takes place on such day, the average of
the closing bid and asked prices on such day, (ii) if such security is not
listed or admitted to trading on any securities exchange or The Nasdaq National
Market, the last reported sale price on such day or, if no sale takes place on
such day, the average of the closing bid and asked prices on such day, as
reported by a recognized quotation source designated by the Company, or (iii) if
such security is not listed or admitted to trading on any securities exchange or
The Nasdaq National Market and no such last reported sale price or closing bid
and asked prices are available, the average of the reported high bid and low
asked prices on such day, as reported by a recognized quotation source
designated by the General Partner, or if there shall be no bid and asked prices
on such day, the average of the high bid and low asked prices, as so reported,
on the most recent day (not more than twenty (20) days prior to the date in
question) for which prices have been so reported; provided, that if there are no
bid and asked prices reported during the twenty (20) days prior to the date in
question, the value of such security shall be determined by the General Partner
acting in good faith on the basis of such quotations and other information as it
considers, in its reasonable judgment, appropriate. In the event that any
security includes any additional rights the value of which is not included
within such price, then the value of such rights shall be determined by the
General Partner acting in good faith on the basis of such quotations and other
information as it considers, in its reasonable judgment, appropriate, and
included in determining the "Value" of such security.
ARTICLE II.
PARTNERSHIP CONTINUATION AND IDENTIFICATION
II.01 Continuation. The Partners hereby agree to continue the
Partnership pursuant to the Act and upon the terms and conditions set forth in
this Agreement.
II.02 Name, Office and Registered Agent. The name of the Partnership
shall be United Dominion Realty, L.P. The specified office and place of business
of the Partnership shall be 10 South 6th Street, Richmond, Virginia 23219-3802.
The General Partner may at any time change the location of such office, provided
the General Partner gives notice to the Partners of any such change. The name
and address of the Partnership's registered agent is Katheryn E. Surface, United
Dominion Realty Trust, Inc., 10 South Sixth Street, Richmond Virginia
23219-3802. The sole duty of the registered agent as such is to forward to the
Partnership any notice that is served on her as registered agent.
II.03 Partners.
(a) The General Partner of the Partnership is the Company. Its
principal place of business shall be the same as that of the Partnership.
(b) The Limited Partners shall be those Persons identified as
Limited Partners on Exhibit A hereto, as amended from time to time.
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<PAGE>
II.04 Term and Dissolution.
(a) The term of the Partnership shall continue in full force
and effect until December 31, 2051, except that the General Partner, in its sole
and absolute discretion, may extend the term of the Partnership and the
Partnership shall be dissolved upon the first to occur of any of the following
events:
(i) The occurrence of an Event of Bankruptcy as to a
General Partner or the dissolution, death or withdrawal of a
General Partner unless the Partnership is continued pursuant
to Section 2.04(c); provided, that if a General Partner is on
the date of such occurrence a partnership, the dissolution of
such General Partner as a result of the dissolution, death,
withdrawal, removal or Event of Bankruptcy of a partner in
such partnership shall not be an event of dissolution of the
Partnership if the business of such General Partner is
continued by the remaining partner or partners, either alone
or with additional partners, and such General Partner and such
partners comply with any other applicable requirements of this
Agreement;
(ii) The passage of 90 days after the sale or other
disposition of all or substantially all of the assets of the
Partnership (provided that if the Partnership receives one or
more obligations as consideration for such sale or other
disposition, the Partnership shall continue, unless sooner
dissolved under the provisions of this Agreement, until such
time as all of such obligations are paid or satisfied in
full);
(iii) The redemption of all Limited Partnership
Interests (other than any of such interests held by the
Company or any Subsidiary thereof); or
(iv) The election by the General Partner that the
Partnership should be dissolved.
(b) Upon dissolution of the Partnership (unless the
Partnership is continued pursuant to Section 2.04(c)), the General Partner (or
its trustee, receiver, successor or legal representative) shall amend or cancel
the Certificate and liquidate the Partnership's assets and apply and distribute
the proceeds thereof in accordance with Section 5.06. Notwithstanding the
foregoing, the liquidating General Partner may either (i) defer liquidation of,
or withhold from distribution for a reasonable time, any assets of the
Partnership (including those necessary to satisfy the Partnership's debts and
obligations), or (ii) distribute the assets to the Partners in kind.
(c) Notwithstanding Section 2.04(a)(i), upon the occurrence of
an Event of Bankruptcy as to a General Partner or the dissolution, death or
withdrawal of a General Partner, the Limited Partners, within 90 days after such
occurrence, may elect to continue the Partnership for the balance of the term
specified in Section 2.04(a) by selecting, subject to Section 7.02 and any other
provisions of this Agreement, a substitute General Partner by consent of a
majority in interest of the Limited Partners. If the Limited Partners elect to
continue the Partnership and admit a substitute General Partner, the
relationship with the Partners and of any Person who has acquired an interest of
a Partner in the Partnership shall be governed by this Agreement.
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II.05 Filing of Certificate and Perfection of Limited Partnership. The
General Partner shall execute, acknowledge, record and file at the expense of
the Partnership, the Certificate and any and all amendments thereto and all
requisite fictitious name statements and notices in such places and
jurisdictions as may be necessary to cause the Partnership to be treated as a
limited partnership under, and otherwise to comply with, the laws of each state
or other jurisdiction in which the Partnership conducts business.
II.06 Certificates Describing Partnership Units. At the request of a
Limited Partner, the General Partner, at its option, may issue a certificate
summarizing the terms of such Limited Partner's interest in the Partnership,
including the number of Partnership Units owned and the Percentage Interest
represented by such Partnership Units as of the date of such certificate. Any
such certificate (i) shall be in form and substance as approved by the General
Partner, (ii) shall not be negotiable and (iii) shall bear the following legend:
This certificate is not negotiable. The Partnership Units
represented by this certificate are governed by and
transferable only in accordance with the provisions of the
Agreement of Limited Partnership of United Dominion Realty,
L.P., as amended from time to time.
ARTICLE III.
BUSINESS OF THE PARTNERSHIP
III.01 Business of the Partnership. The purpose and nature of the
business to be conducted by the Partnership is (i) to conduct any business that
may be lawfully conducted by a limited partnership organized pursuant to the
Act, provided, however, that such business shall be limited to and conducted in
such a manner as to permit the Company at all times to qualify as a REIT, unless
the Company otherwise ceases to qualify as a REIT, (ii) to enter into any
partnership, joint venture or other similar arrangement to engage in any of the
foregoing or the ownership of interests in any entity engaged in any of the
foregoing and (iii) to do anything necessary or incidental to the foregoing. In
connection with the foregoing, and without limiting the Company's right in its
sole and absolute discretion to cease qualifying as a REIT, the Partners
acknowledge that the Company's current status as a REIT and the avoidance of
income and excise taxes on the Company inures to the benefit of all the Partners
and not solely to the Company. Notwithstanding the foregoing, the Limited
Partners acknowledge that the Company may terminate its status as a REIT under
the Code at any time to the full extent permitted by the Charter. Subject to
Article XI hereof, the General Partner shall also be empowered (but shall not be
required) to do any and all acts and things necessary or prudent to ensure that
the Partnership will not be classified as a "publicly traded partnership" for
purposes of Section 7704 of the Code.
ARTICLE IV.
CAPITAL CONTRIBUTIONS AND ACCOUNTS
IV.01 Capital Contributions. The General Partner and the Limited
Partners have contributed to the capital of the Partnership cash or property in
an amount or having an Agreed Value set forth opposite their names on Exhibit A,
as amended from time to time.
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IV.02 Additional Capital Contributions and Issuances of Additional
Partnership Interests. Except as provided in this Section 4.02 or in Section
4.03, the Partners shall have no right or obligation to make any additional
Capital Contributions or loans to the Partnership. The Partners, with the
consent of the General Partner, which consent may be withheld in its sole and
absolute discretion, may contribute additional capital to the Partnership, from
time to time, and receive additional Partnership Interests in respect thereof,
in the manner contemplated in this Section 4.02.
(a) Issuances of Additional Partnership Interests. The General
Partner is hereby authorized to cause the Partnership to issue such additional
Partnership Interests in the form of Partnership Units for any Partnership
purpose at any time or from time to time, to the Partners (including the General
Partner) or to other Persons for such consideration and on such terms and
conditions as shall be established by the General Partner in its sole and
absolute discretion, all without the approval of any Limited Partners. Any
additional Partnership Interests issued thereby may be issued in one or more
classes, or one or more series of any of such classes, with such designations,
preferences and relative, participating, optional or other special rights,
powers and duties, including rights, powers and duties senior to Limited
Partnership Interests, all as shall be determined by the General Partner in its
sole and absolute discretion and without the approval of any Limited Partner,
subject to Virginia law, including, without limitation, (i) the allocations of
items of Partnership income, gain, loss, deduction and credit to each such class
or series of Partnership Interests; (ii) the right of each such class or series
of Partnership Interests to share in Partnership distributions; and (iii) the
rights of each such class or series of Partnership Interests upon dissolution
and liquidation of the Partnership. Without limiting the foregoing, the General
Partner is expressly authorized to cause the Partnership to issue Partnership
Units for less than fair market value, so long as the General Partner concludes
in good faith that such issuance is in the best interests of the Company and the
Partnership. Upon each issuance of Partnership Units hereunder, the General
Partner shall amend Exhibit A attached hereto to reflect such issuance.
(b) Certain Deemed Contributions of Proceeds of Issuance of
Company Securities. If (i) the Company issues securities and contributes some or
all the proceeds raised in connection with such issuance to the Partnership and
(ii) the proceeds actually received and contributed by the Company to the
Partnership are less than the Partnership's share (as determined by the General
Partner, in its sole and absolute discretion) of the gross proceeds of such
issuance as a result of any underwriter's discount or other expenses paid or
incurred in connection with such issuance, then the Company shall be deemed to
have made Capital Contributions to the Partnership in the aggregate amount of
the Partnership's share of the gross proceeds of such issuance that are
contributed to the Partnership and the Partnership shall be deemed
simultaneously to have paid such offering expenses in connection with the
issuance of additional Partnership Units to the Company for such Capital
Contributions pursuant to Section 4.02(a). In any case in which the Company
contributes less than all of the proceeds of such issuance to the Partnership,
it shall be deemed to have contributed the gross proceeds of issuance of the
number of units of the issued security (or the number of dollars of principal in
the case of debt securities) equal to the quotient of the division of the amount
of proceeds contributed by the net proceeds per unit (or per dollar), and the
Partnership shall be deemed to have paid offering expenses equal to the product
of such number of units (or dollars) times the per unit (or per dollar) offering
expenses.
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(c) Minimum Limited Partnership Interest. In the event that
either a redemption pursuant to Section 8.05 or additional Capital Contributions
by the General Partner and the Original Limited Partner would result in the
Limited Partners (other than the Original Limited Partner), in the aggregate,
owning less than the Minimum Limited Partnership Interest, the General Partner
and the Limited Partners (other than the Original Limited Partner) shall form
another partnership and contribute sufficient Limited Partnership Interests
together with such other Limited Partners so that the Limited Partners (other
than the Original Limited Partner), in the aggregate, own at least the Minimum
Limited Partnership Interest.
IV.03 Loans to the Partnership. If the General Partner determines that
it is in the best interests of the Company and the Partnership to provide for
additional Partnership funds ("Additional Funds") for any Partnership purpose,
the General Partner may (i) cause the Partnership to obtain such funds from
outside borrowings or (ii) elect to have the Company or a Subsidiary or
Subsidiaries of the Company loan such Additional Funds to the Partnership. The
loans to the Partnership shall be in exchange for such consideration and on such
terms and conditions as shall be established by the General Partner in its sole
and absolute discretion, all without the approval of any Limited Partners.
Without limiting the foregoing, the General Partner is expressly authorized to
cause the Partnership to issue debt securities for less than fair market value,
so long as the General Partner concludes in good faith that such issuance is in
the best interests of the Company and the Partnership.
IV.04 Capital Accounts. A separate capital account (a "Capital
Account") shall be established and maintained for each Partner in accordance
with Regulations Section 1.704-1(b)(2)(iv). If (i) a new or existing Partner
acquires an additional Partnership Interest in exchange for more than a de
minimis Capital Contribution, (ii) the Partnership distributes to a Partner more
than a de minimis amount of Partnership property as consideration for a
Partnership Interest, or (iii) the Partnership is liquidated within the meaning
of Regulation Section 1.704-1(b)(2)(ii)(g), the General Partner shall revalue
the property of the Partnership to its fair market value (as determined by the
General Partner, in its sole and absolute discretion, and taking into account
Section 7701(g) of the Code) in accordance with Regulations Section
1.704-1(b)(2)(iv)(f). When the Partnership's property is revalued by the General
Partner, the Capital Accounts of the Partners shall be adjusted in accordance
with Regulations Sections 1.704-1(b)(2)(iv)(f) and (g), which generally require
such Capital Accounts to be adjusted to reflect the manner in which the
unrealized gain or loss inherent in such property (that has not been reflected
in the Capital Accounts previously) would be allocated among the Partners
pursuant to Section 5.01 if there were a taxable disposition of such property
for its fair market value (as determined by the General Partner, in its sole and
absolute discretion, and taking into account Section 7701(g) of the Code) on the
date of the revaluation.
IV.05 Percentage Interests. If the number of outstanding Partnership
Units increases or decreases during a taxable year, each Partner's Percentage
Interest shall be adjusted by the General Partner effective as of the effective
date of each such increase or decrease to a percentage equal to the number of
Partnership Units held by such Partner divided by the aggregate number of
Partnership Units outstanding after giving effect to such increase or decrease.
If the Partners' Percentage Interests are adjusted pursuant to this Section
4.05, the Profits and Losses for the taxable year in which the adjustment occurs
shall be allocated between the several parts of the year (a) beginning on the
first day of the year and ending on the next following Percentage Interest
Adjustment Date, (b) beginning on the day following a Percentage Interest
Adjustment Date and ending on the next following Percentage Interest Adjustment
Date, and/or (c) beginning on the first day following the last Percentage
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Interest Adjustment Date occurring during the year and ending on the last day of
the year, as may be appropriate, either (i) as if the taxable year had ended on
the last day of each part or (ii) based on the number of days in each part. The
General Partner, in its sole and absolute discretion, shall determine which
method shall be used to allocate Profits and Losses for the taxable year in
which the adjustment occurs. The allocation among the Partners of Profits and
Losses allocated to any part of the year shall be based on the Percentage
Interests determined as of the first day of such part.
IV.06 No Interest on Contributions. No Partner shall be entitled to
interest on its Capital Contribution.
IV.07 Return of Capital Contributions. No Partner shall be entitled to
withdraw any part of its Capital Contribution or its Capital Account or to
receive any distribution from the Partnership, except as specifically provided
in this Agreement. Except as otherwise provided herein, there shall be no
obligation to return to any Partner or withdrawn Partner any part of such
Partner's Capital Contribution for so long as the Partnership continues in
existence.
IV.08 No Third Party Beneficiary. No creditor or other third party
having dealings with the Partnership shall have the right to enforce the right
or obligation of any Partner to make Capital Contributions or loans or to pursue
any other right or remedy hereunder or at law or in equity, it being understood
and agreed that the provisions of this Agreement shall be solely for the benefit
of, and may be enforced solely by, the parties hereto and their respective
successors and assigns. None of the rights or obligations of the Partners herein
set forth to make Capital Contributions or loans to the Partnership shall be
deemed an asset of the Partnership for any purpose by any creditor or other
third party, nor may such rights or obligations be sold, transferred or assigned
by the Partnership or pledged or encumbered by the Partnership to secure any
debt or other obligation of the Partnership or of any of the Partners. In
addition, it is the intent of the parties hereto that no distribution to any
Limited Partner shall be deemed a return of money or other property in violation
of the Act. However, if any court of competent jurisdiction holds that,
notwithstanding the provisions of this Agreement, any Limited Partner is
obligated to return such money or property, such obligation shall be the
obligation of such Limited Partner and not of the General Partner. Without
limiting the generality of the foregoing, a deficit Capital Account of a Partner
shall not be deemed to be a liability of such Partner nor an asset or property
of the Partnership.
ARTICLE V.
PROFITS AND LOSSES; DISTRIBUTIONS
V.01 Allocation of Profit and Loss.
(a) General.
(i) Profit of the Partnership for each fiscal year of
the Partnership shall be allocated in the following order of
priority:
(A) First, to the Partners in proportion to
and up to the amount of cash distributed to each such
Partner pursuant to Section 5.02 for the fiscal year;
and
(B) Thereafter, to the Partners in
accordance with their respective Percentage
Interests.
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(ii) Loss of the Partnership for each fiscal year of
the Partnership shall be allocated to the Partners in
accordance with their respective Percentage Interests.
(iii) Depreciation and amortization expenses of the
Partnership shall be allocated among the Partners in
accordance with their respective Percentage Interests.
(b) Minimum Gain Chargeback. Notwithstanding any provision to
the contrary, (i) any expense of the Partnership that is a "nonrecourse
deduction" within the meaning of Regulations Section 1.704-2(b)(1) shall be
allocated in accordance with the Partners' respective Percentage Interests, (ii)
any expense of the Partnership that is a "partner nonrecourse deduction" within
the meaning of Regulations Section 1.704-2(i)(2) shall be allocated in
accordance with Regulations Section 1.704-2(i)(1), (iii) if there is a net
decrease in Partnership Minimum Gain within the meaning of Regulations Section
1.704-2(f)(1) for any Partnership taxable year, items of gain and income shall
be allocated among the Partners in accordance with Regulations Section
1.704-2(f) and the ordering rules contained in Regulations Section 1.704-2(j),
and (iv) if there is a net decrease in Partner Nonrecourse Debt Minimum Gain
within the meaning of Regulations Section 1.704-2(i)(4) for any Partnership
taxable year, items of gain and income shall be allocated among the Partners in
accordance with Regulations Section 1.704-2(i)(4) and the ordering rules
contained in Regulations Section 1.704-2(j). A Partner's "interest in
partnership profits" for purposes of determining its share of the nonrecourse
liabilities of the Partnership within the meaning of Regulations Section
1.752-3(a)(3) shall be such Partner's Percentage Interest.
(c) Qualified Income Offset. If a Limited Partner receives in
any taxable year an adjustment, allocation, or distribution described in
subparagraphs (4), (5), or (6) of Regulations Section 1.704-1(b)(2)(ii)(d) that
causes or increases a negative balance in such Partner's Capital Account that
exceeds the sum of such Partner's shares of Partnership Minimum Gain and Partner
Nonrecourse Debt Minimum Gain, as determined in accordance with Regulations
Sections 1.704-2(g) and 1.704-2(i), such Partner shall be allocated specially
for such taxable year (and, if necessary, later taxable years) items of income
and gain in an amount and manner sufficient to eliminate such negative Capital
Account balance as quickly as possible as provided in Regulations Section
1.704-1(b)(2)(ii)(d). After the occurrence of an allocation of income or gain to
a Limited Partner in accordance with this Section 5.01(c), to the extent
permitted by Regulations Section 1.704-1(b) and Section 5.01(d), items of
expense or loss shall be allocated to such Partner in an amount necessary to
offset the income or gain previously allocated to such Partner under this
Section 5.01(c).
(d) Capital Account Deficits. Loss shall not be allocated to a
Limited Partner to the extent that such allocation would cause a deficit in such
Partner's Capital Account (after reduction to reflect the items described in
Regulations Section 1.704-1(b)(2)(ii)(d)(4), (5) and (6)) to exceed the sum of
such Partner's shares of Partnership Minimum Gain and Partner Nonrecourse Debt
Minimum Gain. Any Loss in excess of that limitation shall be allocated to the
General Partner. After the occurrence of an allocation of Loss to the General
Partner in accordance with this Section 5.01(d), to the extent permitted by
Regulations Section 1.704-1(b), Profit shall be allocated to such Partner in an
amount necessary to offset the Loss previously allocated to such Partner under
this Section 5.01(d).
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(e) Allocations Between Transferor and Transferee. If a
Partner transfers any part or all of its Partnership Interest, the distributive
shares of the various items of Profit and Loss allocable among the Partners
during such fiscal year of the Partnership shall be allocated between the
transferor and the transferee Partner either (i) as if the Partnership's fiscal
year had ended on the date of the transfer, or (ii) based on the number of days
of such fiscal year that each was a Partner without regard to the results of
Partnership activities in the respective portions of such fiscal year in which
the transferor and the transferee were Partners. The General Partner, in its
sole and absolute discretion, shall determine which method shall be used to
allocate the distributive shares of the various items of Profit and Loss between
the transferor and the transferee Partner.
(f) Definition of Profit and Loss. "Profit" and "Loss" and any
items of income, gain, expense, or loss referred to in this Agreement shall be
determined in accordance with federal income tax accounting principles, as
modified by Regulations Section 1.704-1(b)(2)(iv), except that Profit and Loss
shall not include items of income, gain and expense that are specially allocated
pursuant to Section 5.01(a)(iii), 5.01(b), 5.01(c), or 5.01(d). All allocations
of income, Profit, gain, Loss, and expense (and all items contained therein) for
federal income tax purposes shall be identical to all allocations of such items
set forth in this Section 5.01, except as otherwise required by Section 704(c)
of the Code and Regulations Section 1.704-1(b)(4). The General Partner shall
have the authority to elect the method to be used by the Partnership for
allocating items of income, gain, and expense as required by Section 704(c) of
the Code (including a method that may result in a Partner receiving a
disproportionately larger share of the Partnership's tax depreciation
deductions) and such election shall be binding on all Partners.
V.02 Distribution of Cash.
(a) The General Partner shall distribute Available Cash on a
quarterly (or, at the election of the General Partner, more frequent) basis to
the Partners who are Partners on the Partnership Record Date with respect to
such quarter (or other distribution period) in the following order of priority:
(i) First, to the Outside Partners, in proportion to
their respective Percentage Interests on the Partnership
Record Date, until each Outside Partner has received an amount
equal to its Dividend Equivalent for such quarter (or other
distribution period);
(ii) Second, to the UDR Partners, in proportion to
their respective Percentage Interests on the Partnership
Record Date, until each UDR Partner has received an amount
equal to the excess, if any, of (A) the amount that such UDR
Partner would have received pursuant to Section 5.02(a)(iii)
in the absence of Section 5.02(a)(i) and this Section
5.02(a)(ii) from the date of this Agreement to the end of the
period to which the distribution relates, over (B) the sum of
all prior distributions to such UDR Partner pursuant to this
Section 5.02(a)(ii) and Section 5.02(a)(iii); and
(iii) Thereafter, to the Partners in accordance with
their respective Percentage Interests on the Partnership
Record Date.
If a new or existing Partner acquires an additional Partnership Interest in
exchange for a Capital Contribution on any date other than a Partnership Record
Date, the cash distribution attributable to such additional Partnership Interest
for the Partnership Record Date following the issuance of such additional
Partnership Interest shall be reduced in the proportion that the number of days
that such additional Partnership Interest is held by such Partner bears to the
number of days between such Partnership Record Date and the immediately
preceding Partnership Record Date.
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(b) Notwithstanding any other provision of this Agreement, the
General Partner is authorized to take any action that it determines to be
necessary or appropriate to cause the Partnership to comply with any withholding
requirements established under the Code or any other federal, state or local law
including, without limitation, pursuant to Sections 1441, 1442, 1445, and 1446
of the Code. If the Partnership is required to withhold and pay over to any
taxing authority any amount resulting from the allocation or distribution of
income to a Partner or its assignee (including by reason of Section 1446 of the
Code) and if the amount to be distributed to the Partner (the "Distributable
Amount") equals or exceeds the amount required to be withheld by the Partnership
(the "Withheld Amount"), the Withheld Amount shall be treated as a distribution
of cash to such Partner. If, however, the Distributable Amount is less than the
Withheld Amount, no amount shall be distributed to the Partner, the
Distributable Amount shall be treated as a distribution of cash to such Partner,
and the excess of the Withheld Amount over the Distributable Amount shall be
treated as a loan (a "Partnership Loan") from the Partnership to the Partner on
the day the Partnership pays over such excess to a taxing authority. A
Partnership Loan may be repaid, at the election of the General Partner in its
sole and absolute discretion, either (i) through withholding by the Partnership
with respect to subsequent distributions to the applicable Partner or assignee,
or (ii) at any time more than twelve (12) months after a Partnership Loan
arises, by cancellation of Partnership Units with a value equal to the unpaid
balance of the Partnership Loan (including accrued interest). Any amounts
treated as a Partnership Loan pursuant to this Section 5.02(b) shall bear
interest at the lesser of (i) the base rate on corporate loans at large United
States money center commercial banks, as published from time to time in The Wall
Street Journal (or an equivalent successor publication), or (ii) the maximum
lawful rate of interest on such obligation, such interest to accrue from the
date the Partnership is deemed to extend the loan until such loan is repaid in
full.
(c) In no event may a Partner receive a distribution of cash
with respect to a Partnership Unit if such Partner is entitled to receive a cash
dividend as the holder of record of a REIT Share for which all or part of such
Partnership Unit has been or will be exchanged.
V.03 REIT Distribution Requirements. Notwithstanding anything to the
contrary in this Agreement, the General Partner, if it is not able to borrow
money from the Partnership, may cause the Partnership to distribute amounts
sufficient to enable the Company to pay shareholder dividends that will allow
the Company to (i) meet its distribution requirement for qualification as a REIT
as set forth in Section 857(a)(1) of the Code and (ii) avoid any federal income
or excise tax liability imposed by the Code.
V.04 No Right to Distributions in Kind. No Partner shall be entitled to
demand property other than cash in connection with any distributions by the
Partnership.
V.05 Limitations on Return of Capital Contributions. Notwithstanding
any of the provisions of this Article V, no Partner shall have the right to
receive and the General Partner shall not have the right to make, a distribution
that includes a return of all or part of a Partner's Capital Contributions,
unless after giving effect to the return of a Capital Contribution, the sum of
all Partnership liabilities, other than the liabilities to a Partner for the
return of his Capital Contribution, does not exceed the fair market value of the
Partnership's assets.
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V.06 Distributions Upon Liquidation.
(a) Upon liquidation of the Partnership, after payment of, or
adequate provision for, debts and obligations of the Partnership, including any
Partner loans, any remaining assets of the Partnership shall be distributed to
all Partners with positive Capital Accounts in accordance with their respective
positive Capital Account balances. For purposes of the preceding sentence, the
Capital Account of each Partner shall be determined after all adjustments made
in accordance with Sections 5.01 and 5.02 resulting from Partnership operations
and from all sales and dispositions of all or any part of the Partnership's
assets. Any distributions pursuant to this Section 5.06 shall be made by the end
of the Partnership's taxable year in which the liquidation occurs (or, if later,
within 90 days after the date of the liquidation). To the extent deemed
advisable by the General Partner, appropriate arrangements (including the use of
a liquidating trust) may be made to assure that adequate funds are available to
pay any contingent debts or obligations.
(b) If the General Partner has a negative balance in its
Capital Account following a liquidation of the Partnership, as determined after
taking into account all Capital Account adjustments in accordance with Sections
5.01 and 5.02 resulting from Partnership operations and from all sales and
dispositions of all or any part of the Partnership's assets, the General Partner
shall contribute to the Partnership an amount of cash equal to the negative
balance in its Capital Account and such cash shall be paid or distributed by the
Partnership to creditors, if any, and then to the Limited Partners in accordance
with Section 5.06(a). Such contribution by the General Partner shall be made by
the end of the Partnership's taxable year in which the liquidation occurs (or,
if later, within 90 days after the date of the liquidation).
V.07 Substantial Economic Effect. It is the intent of the Partners that
the allocations of Profit and Loss under the Agreement have substantial economic
effect (or be consistent with the Partners' interests in the Partnership in the
case of the allocation of losses attributable to nonrecourse debt) within the
meaning of Section 704(b) of the Code as interpreted by the Regulations
promulgated pursuant thereto. Article V and other relevant provisions of this
Agreement shall be interpreted in a manner consistent with such intent.
ARTICLE VI.
RIGHTS, OBLIGATIONS AND
POWERS OF THE GENERAL PARTNER
VI.01 Management of the Partnership.
(a) Except as otherwise expressly provided in this Agreement,
the General Partner shall have full, complete and exclusive discretion to manage
and control the business of the Partnership for the purposes herein stated, and
shall make all decisions affecting the business and assets of the Partnership.
Subject to the restrictions specifically contained in this Agreement, the powers
of the General Partner shall include, without limitation, the authority to take
the following actions on behalf of the Partnership:
(i) to acquire, purchase, own, operate, lease and
dispose of any real property and any other property or assets,
including, without limitation, equity interests in other
REITs, mortgage loans and participations therein, that the
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General Partner determines are necessary or appropriate or in
the best interests of the business of the Company and the
Partnership;
(ii) to construct buildings and make other
improvements on the properties owned or leased by the
Partnership;
(iii) to authorize, issue, sell, redeem or otherwise
purchase any Partnership Interests or any securities
(including secured and unsecured debt obligations of the
Partnership, debt obligations of the Partnership convertible
into any class or series of Partnership Interests, or options,
rights, warrants or appreciation rights relating to any
Partnership Interests) of the Partnership;
(iv) to borrow or lend money for the Partnership,
issue or receive evidences of indebtedness in connection
therewith, refinance, increase the amount of, modify, amend or
change the terms of, or extend the time for the payment of,
any such indebtedness, and secure such indebtedness by
mortgage, deed of trust, pledge or other lien on the
Partnership's assets;
(v) to guarantee or become a comaker of indebtedness
of the Company or any Subsidiary thereof, refinance, increase
the amount of, modify, amend or change the terms of, or extend
the time for the payment of, any such guarantee or
indebtedness, and secure such guarantee or indebtedness by
mortgage, deed of trust, pledge or other lien on the
Partnership's assets;
(vi) to use assets of the Partnership (including,
without limitation, cash on hand) for any purpose consistent
with this Agreement, including, without limitation, payment,
either directly or by reimbursement, of all operating costs
and general administrative expenses of the Company, the
Partnership, or any Subsidiary of either to third parties or
to the Company as set forth in this Agreement;
(vii) to lease all or any portion of any of the
Partnership's assets, whether or not the terms of such leases
extend beyond the termination date of the Partnership and
whether or not any portion of the Partnership's assets so
leased are to be occupied by the lessee, or, in turn,
subleased in whole or in part to others, for such
consideration and on such terms as the General Partner may
determine;
(viii) to prosecute, defend, arbitrate, or compromise
any and all claims or liabilities in favor of or against the
Partnership, on such terms and in such manner as the General
Partner may reasonably determine, and similarly to prosecute,
settle or defend litigation with respect to the Partners, the
Partnership, or the Partnership's assets; provided, however,
that the General Partner may not, without the consent of the
Limited Partners (other than the Original Limited Partner)
holding more than 50% of the Percentage Interests of the
Limited Partners (other than the Original Limited Partner),
confess a judgment against the Partnership;
(ix) to file applications, communicate, and otherwise
deal with any and all governmental agencies having
jurisdiction over, or in any way affecting, the Partnership's
assets or any other aspect of the Partnership business;
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(x) to make or revoke any election permitted or
required of the Partnership by any taxing authority;
(xi) to maintain such insurance coverage for public
liability, fire and casualty, and any and all other insurance
for the protection of the Partnership, for the conservation of
Partnership assets, or for any other purpose convenient or
beneficial to the Partnership, in such amounts and such types,
as it shall determine from time to time;
(xii) to determine whether or not to apply any
insurance proceeds for any property to the restoration of such
property or to distribute the same;
(xiii) to establish one or more divisions of the
Partnership, to hire and dismiss employees of the Partnership
or any division of the Partnership, and to engage legal
counsel, accountants, consultants, real estate brokers, and
other professionals, as the General Partner may deem necessary
or appropriate in connection with the Partnership business, on
such terms (including provisions for compensation and
eligibility to participate in employee benefit plans, stock
option plans and similar plans funded by the Partnership) as
the General Partner may deem reasonable and proper;
(xiv) to retain other services of any kind or nature
in connection with the Partnership business, and to pay
therefor such remuneration as the General Partner may deem
reasonable and proper;
(xv) to negotiate and conclude agreements on behalf
of the Partnership with respect to any of the rights, powers
and authority conferred upon the General Partner;
(xvi) to maintain accurate accounting records and to
file promptly all federal, state and local income tax returns
on behalf of the Partnership;
(xvii) to distribute Partnership cash or other
Partnership assets in accordance with this Agreement;
(xviii) to form or acquire an interest in, and
contribute property to, any further limited or general
partnerships, joint ventures or other relationships that it
deems desirable (including, without limitation, the
acquisition of interests in, and the contributions of property
to, its Subsidiaries and any other Person in which it has an
equity interest from time to time);
(xix) to establish Partnership reserves for working
capital, capital expenditures, contingent liabilities, or any
other valid Partnership purpose;
(xx) subject to Article XI, to merge, consolidate or
combine the Partnership with or into another Person;
(xxi) subject to Article XI, to do any and all acts
and things necessary or prudent to ensure that the Partnership
will not be classified as a "publicly traded partnership" for
purposes of Section 7704 of the Code; and
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(xxii) to take such other action, execute,
acknowledge, swear to or deliver such other documents and
instruments, and perform any and all other acts that the
General Partner deems necessary or appropriate for the
formation, continuation and conduct of the business and
affairs of the Partnership (including, without limitation, all
actions consistent with allowing the General Partner at all
times to qualify as a REIT unless the General Partner
voluntarily terminates its REIT status) and to possess and
enjoy all of the rights and powers of a general partner as
provided by the Act.
(b) Except as otherwise provided herein, to the extent the
duties of the General Partner require expenditures of funds to be paid to third
parties, the General Partner shall not have any obligations hereunder except to
the extent that Partnership funds are reasonably available to it for the
performance of such duties, and nothing herein contained shall be deemed to
authorize or require the General Partner, in its capacity as such, to expend its
individual funds for payment to third parties or to undertake any individual
liability or obligation on behalf of the Partnership.
VI.02 Delegation of Authority. The General Partner may delegate any or
all of its powers, rights and obligations hereunder, and may appoint, employ,
contract or otherwise deal with any Person for the transaction of the business
of the Partnership, which Person may, under supervision of the General Partner,
perform any acts or services for the Partnership as the General Partner may
approve.
VI.03 Indemnification and Exculpation of Indemnitees.
(a) The Partnership shall indemnify an Indemnitee from and
against any and all losses, claims, damages, liabilities, joint or several,
expenses (including reasonable legal fees and expenses), judgments, fines,
settlements, and other amounts arising from any and all claims, demands,
actions, suits or proceedings, civil, criminal, administrative or investigative,
that relate to the operations of the Partnership as set forth in this Agreement
in which any Indemnitee may be involved, or is threatened to be involved, as a
party or otherwise, unless it is established that: (i) the act or omission of
the Indemnitee was material to the matter giving rise to the proceeding and
either was committed in bad faith or was the result of active and deliberate
dishonesty; (ii) the Indemnitee actually received an improper personal benefit
in money, property or services; or (iii) in the case of any criminal proceeding,
the Indemnitee had reasonable cause to believe that the act or omission was
unlawful. The termination of any proceeding by judgment, order or settlement
does not create a presumption that the Indemnitee did not meet the requisite
standard of conduct set forth in this Section 6.03(a). The termination of any
proceeding by conviction or upon a plea of nolo contendere or its equivalent, or
an entry of an order of probation prior to judgment, creates a rebuttable
presumption that the Indemnitee acted in a manner contrary to that specified in
this Section 6.03(a). Any indemnification pursuant to this Section 6.03 shall be
made only out of the assets of the Partnership.
(b) The Partnership may reimburse an Indemnitee for reasonable
expenses incurred by an Indemnitee who is a party to a proceeding in advance of
the final disposition of the proceeding upon receipt by the Partnership of (i) a
written affirmation by the Indemnitee of the Indemnitee's good faith belief that
the standard of conduct necessary for indemnification by the Partnership as
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authorized in this Section 6.03 has been met, and (ii) a written undertaking by
or on behalf of the Indemnitee to repay the amount if it shall ultimately be
determined that the standard of conduct has not been met.
(c) The indemnification provided by this Section 6.03 shall be
in addition to any other rights to which an Indemnitee or any other Person may
be entitled under any agreement, pursuant to any vote of the Partners, as a
matter of law or otherwise, and shall continue as to an Indemnitee who has
ceased to serve in such capacity.
(d) The Partnership may purchase and maintain insurance, on
behalf of the Indemnitees and such other Persons as the General Partner shall
determine, against any liability that may be asserted against or expenses that
may be incurred by such Person in connection with the Partnership's activities,
regardless of whether the Partnership would have the power to indemnify such
Person against such liability under the provisions of this Agreement.
(e) For purposes of this Section 6.03, the Partnership shall
be deemed to have requested an Indemnitee to serve as fiduciary of an employee
benefit plan whenever the performance by it of its duties to the Partnership
also imposes duties on, or otherwise involves services by, it to the plan or
participants or beneficiaries of the plan; excise taxes assessed on an
Indemnitee with respect to an employee benefit plan pursuant to applicable law
shall constitute fines within the meaning of this Section 6.03; and actions
taken or omitted by an Indemnitee with respect to an employee benefit plan in
the performance of its duties for a purpose reasonably believed by it to be in
the interest of the participants and beneficiaries of the plan shall be deemed
to be for a purpose which is not opposed to the best interests of the
Partnership.
(f) In no event may an Indemnitee subject the Limited Partners
to personal liability by reason of the indemnification provisions set forth in
this Agreement.
(g) An Indemnitee shall not be denied indemnification in whole
or in part under this Section 6.03 because the Indemnitee had an interest in the
transaction with respect to which the indemnification applies if the transaction
was otherwise permitted by the terms of this Agreement.
(h) The provisions of this Section 6.03 are for the benefit of
the Indemnitees, their heirs, successors, assigns and administrators and shall
not be deemed to create any rights for the benefit of any other Persons.
VI.04 Liability of the General Partner.
(a) Notwithstanding anything to the contrary set forth in this
Agreement, the General Partner shall not be liable for monetary damages to the
Partnership or any Partners for losses sustained or liabilities incurred as a
result of errors in judgment or of any act or omission if the General Partner
acted in good faith. The General Partner shall not be in breach of any duty that
the General Partner may owe to the Limited Partners or the Partnership or any
other Persons under this Agreement or of any duty stated or implied by law or
equity provided the General Partner, acting in good faith, abides by the terms
of this Agreement.
(b) The Limited Partners expressly acknowledge that the
General Partner is acting on behalf of the Partnership, the Company and the
Company's shareholders collectively, that the General Partner is under no
obligation to consider the separate interests of the Limited Partners
(including, without limitation, the tax consequences to Limited Partners or the
tax consequences of some, but not all, of the Limited Partners) in deciding
whether to cause the Partnership to take (or decline to take) any actions. In
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any case in which the General Partner determines in good faith that the
interests of the Limited Partners and the General Partner's shareholders may
conflict, the Limited Partners further acknowledge and agree that the General
Partner shall be deemed to have discharged its fiduciary duties to the Limited
Partners by discharging such duties to the General Partner's shareholders. The
General Partner shall not be liable for monetary damages for losses sustained,
liabilities incurred, or benefits not derived by Limited Partners in connection
with any such decisions, provided that the General Partner has acted in good
faith.
(c) Subject to its obligations and duties as General Partner
set forth in Section 6.01, the General Partner may exercise any of the powers
granted to it under this Agreement and perform any of the duties imposed upon it
hereunder either directly or by or through its agents. The General Partner shall
not be responsible for any misconduct or negligence on the part of any such
agent appointed by it in good faith.
(d) Notwithstanding any other provisions of this Agreement or
the Act, any action of the General Partner on behalf of the Partnership or any
decision of the General Partner to refrain from acting on behalf of the
Partnership, undertaken in the good faith belief that such action or omission is
necessary or advisable in order (i) to protect the ability of the Company to
continue to qualify as a REIT or (ii) to prevent the Company from incurring any
taxes under Section 857, Section 4981, or any other provision of the Code, is
expressly authorized under this Agreement and is deemed approved by all of the
Limited Partners.
(e) Any amendment, modification or repeal of this Section 6.04
or any provision hereof shall be prospective only and shall not in any way
affect the limitations on the General Partner's liability to the Partnership and
the Limited Partners under this Section 6.04 as in effect immediately prior to
such amendment, modification or repeal with respect to matters occurring, in
whole or in part, prior to such amendment, modification or repeal, regardless of
when claims relating to such matters may arise or be asserted.
VI.05 Partnership Expenses. In addition to the expenses that are
directly attributable to the Partnership, the Partnership shall pay the REIT
Expenses that are allocable to the Partnership. The General Partner, in its sole
and absolute discretion, shall determine what portion of the REIT Expenses are
allocable to the Partnership. If any REIT Expenses determined by the General
Partner to be allocable to the Partnership are paid by the General Partner, the
General Partner shall be reimbursed by the Partnership therefor.
VI.06 Outside Activities. The Partners and any officer, director,
employee, agent, trustee, Affiliate, Subsidiary, or shareholder of any Partner
shall be entitled to and may have business interests and engage in business
activities in addition to those relating to the Partnership, including business
interests and activities substantially similar or identical to those of the
Partnership. Neither the Partnership nor any of the Partners nor any other
Person shall have any rights by virtue of this Agreement or the partnership
relationship established hereby in any such business ventures, interests or
activities, and the Partners shall have no obligation pursuant to this Agreement
to offer any interest in any such business ventures, interests and activities to
the Partnership or any Partner, even if such opportunity is of a character
which, if presented to the Partnership or any Partner, could be taken by such
Person.
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VI.07 Employment or Retention of Affiliates.
(a) Any Affiliate of the General Partner may be employed or
retained by the Partnership and may otherwise deal with the Partnership (whether
as a buyer, lessor, lessee, manager, furnisher of goods or services, broker,
agent, lender or otherwise) and may receive from the Partnership any
compensation, price, or other payment therefor which the General Partner
determines to be fair and reasonable.
(b) The Partnership may lend or contribute to its Subsidiaries
or other Persons in which it has an equity investment, and such Persons may
borrow funds from the Partnership, on terms and conditions established in the
sole and absolute discretion of the General Partner. The foregoing authority
shall not create any right or benefit in favor of any Subsidiary or any other
Person.
(c) The Partnership may transfer assets to joint ventures,
other partnerships, corporations or other business entities in which it is or
thereby becomes a participant upon such terms and subject to such conditions as
the General Partner deems are consistent with this Agreement and applicable law.
VI.08 Title to Partnership Assets. Title to Partnership assets, whether
real, personal or mixed and whether tangible or intangible, shall be deemed to
be owned by the Partnership as an entity, and no Partner, individually or
collectively, shall have any ownership interest in such Partnership assets or
any portion thereof. Title to any or all of the Partnership assets may be held
in the name of the Partnership, the General Partner or one or more nominees, as
the General Partner may determine, including Affiliates of the General Partner.
ARTICLE VII.
CHANGES IN GENERAL PARTNER AND THE COMPANY
VII.01 Transfer of a General Partner's Partnership Interest;
Transactions Involving the Company.
(a) Except as provided in Section 7.01(c), 7.01(d) or 7.03(a),
a General Partner shall not transfer all or any portion of its General
Partnership Interest or withdraw as General Partner.
(b) Except as provided in Section 7.01(c) or 7.01(d), the
General Partner (or all General Partners if at any time there are two or more
General Partners) and the Original Limited Partner will at all times own in the
aggregate at least a 1% Percentage Interest.
(c) Except as otherwise provided in Section 7.01(d), the
Company shall not merge, consolidate or otherwise combine with or into another
Person or sell all or substantially all of its assets (other than in connection
with a change in the Company's state of incorporation or organizational form) (a
"Transaction"), unless one of the following conditions is met:
(i) the consent of Limited Partners (other than the
Company or any Subsidiary of the Company) holding more than
50% of the Percentage Interests of the Limited Partners (other
than those held by the Company or any Subsidiary of the
Company) is obtained;
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(ii) the Transaction also includes a merger,
consolidation or combination of the Partnership or sale of
substantially all of the assets of the Partnership or other
transaction as a result of which all Limited Partners (other
than the Company or any Subsidiary) will receive for each
Partnership Unit 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 Conversion Factor and the
greatest amount of cash, securities or other property
(expressed as an amount per REIT Share) paid in the
Transaction in consideration for REIT Shares, provided, that
if, in connection with the 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, all Limited Partners (other than the Company or any
Subsidiary) will receive no less than the amount of cash and
the fair market value of securities or other consideration
that they would have received had they (A) exercised their
Redemption Right and (B) 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;
(iii) the Company is the surviving entity in the
Transaction and either (A) the holders of REIT Shares do not
receive cash, securities, or other property in the Transaction
or (B) all Limited Partners (other than the Company or any
Subsidiary) receive an amount of cash, securities, or other
property (expressed as an amount per Partnership Unit) that is
no less than the product of the Conversion Factor and the
greatest amount of cash, securities, or other property
(expressed as an amount per REIT Share) received in the
Transaction by any holder of REIT Shares; or
(iv) the Company merges, consolidates, or combines
with or into another entity and, immediately after such
merger, (A) substantially all of the assets of the surviving
entity, other than Partnership Units and the ownership
interests in any wholly-owned Subsidiaries held by the
Company, are contributed to the Partnership as a Capital
Contribution in exchange for Partnership Units with a fair
market value equal to the value of the assets so contributed
as determined pursuant to Section 704(c) of the Code, (B) any
successor or surviving corporation expressly agrees to assume
all obligations of the Company hereunder, and (C) the
Conversion Factor is adjusted appropriately to reflect the
ratio at which REIT Shares are converted into shares of the
surviving entity.
The General Partner shall give the Limited Partners notice of any Transaction at
least 20 business days prior to the effective date of such Transaction,
provided, however, that the General Partner need not give any such notice prior
to the date on which the holders of REIT Shares are first notified of such
Transaction by the Company.
(d) Notwithstanding Sections 7.01(a), 7.01(b) and 7.01(c),
(i) a General Partner may transfer all or any portion
of its General Partnership Interest to (A) a wholly-owned
Subsidiary of such General Partner or (B) the owner of all of
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the ownership interests of such General Partner, and following
a transfer of all of its General Partnership Interest, may
withdraw as General Partner; and
(ii) the Company may engage in a Transaction not
required by law or by the rules of any national securities
exchange on which the REIT Shares are listed to be submitted
to the vote of the holders of the REIT Shares and the General
Partner shall not be required to give notice to the Limited
Partners of any such Transaction as provided by Section
7.01(c).
VII.02 Admission of a Substitute or Additional General Partner. A
Person shall be admitted as a substitute or additional General Partner of the
Partnership only if the following terms and conditions are satisfied:
(a) the Person to be admitted as a substitute or additional
General Partner shall have accepted and agreed to be bound by all the terms and
provisions of this Agreement by executing a counterpart thereof and such other
documents or instruments as may be required or appropriate in order to effect
the admission of such Person as a General Partner, and a certificate evidencing
the admission of such Person as a General Partner shall have been filed for
recordation and all other actions required by Section 2.05 in connection with
such admission shall have been performed;
(b) if the Person to be admitted as a substitute or additional
General Partner is a corporation or a partnership it shall have provided the
Partnership with evidence satisfactory to counsel for the Partnership of such
Person's authority to become a General Partner and to be bound by the terms and
provisions of this Agreement; and
(c) counsel for the Partnership shall have rendered an opinion
(relying on such opinions from other counsel and the state or any other
jurisdiction as may be necessary) that the admission of the person to be
admitted as a substitute or additional General Partner is in conformity with the
Act, that none of the actions taken in connection with the admission of such
Person as a substitute or additional General Partner will cause (i) the
Partnership to be classified other than as a partnership for federal income tax
purposes, or (ii) the loss of any Limited Partner's limited liability.
VII.03 Effect of Bankruptcy, Withdrawal, Death or Dissolution of a
General Partner.
(a) Upon the occurrence of an Event of Bankruptcy as to a
General Partner (and its removal pursuant to Section 7.04(a) hereof) or the
withdrawal, removal or dissolution of a General Partner (except that, if a
General Partner is on the date of such occurrence a partnership, the withdrawal,
death, dissolution, Event of Bankruptcy as to or removal of a partner in such
partnership shall be deemed not to be a dissolution of such General Partner if
the business of such General Partner is continued by the remaining partner or
partners), the Partnership shall be dissolved and terminated unless the
Partnership is continued pursuant to Section 7.03(b) hereof. The merger of the
General Partner with or into any entity that is admitted as a substitute or
successor General Partner pursuant to Section 7.02 hereof shall not be deemed to
be the withdrawal, dissolution or removal of the General Partner.
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(b) Following the occurrence of an Event of Bankruptcy as to a
General Partner (and its removal pursuant to Section 7.04(a) hereof) or the
withdrawal, removal or dissolution of a General Partner (except that, if a
General Partner is on the date of such occurrence a partnership, the withdrawal,
death, dissolution, Event of Bankruptcy as to or removal of a partner in such
partnership shall be deemed not to be a dissolution of such General Partner if
the business of such General Partner is continued by the remaining partner or
partners), the Limited Partners, within 90 days after such occurrence, may elect
to continue the business of the Partnership for the balance of the term
specified in Section 2.04 hereof by selecting, subject to Section 7.02 hereof
and any other provisions of this Agreement, a substitute General Partner by
consent of the Limited Partners holding more than 50% of the Percentage
Interests of the Limited Partners. If the Limited Partners elect to continue the
business of the Partnership and admit a substitute General Partner, the
relationship with the Partners and of any Person who has acquired an interest of
a Partner in the Partnership shall be governed by this Agreement.
VII.04 Removal of a General Partner.
(a) Upon the occurrence of an Event of Bankruptcy as to, or
the dissolution of, a General Partner, such General Partner shall be deemed to
be removed automatically; provided, however, that if a General Partner is on the
date of such occurrence a partnership, the withdrawal, death, dissolution, Event
of Bankruptcy as to or removal of a partner in such partnership shall be deemed
not to be a dissolution of the General Partner if the business of such General
Partner is continued by the remaining partner or partners. The Limited Partners
may not remove the General Partner, with or without cause.
(b) If a General Partner has been removed pursuant to this
Section 7.04 and the Partnership is continued pursuant to Section 7.03 hereof,
such General Partner shall promptly transfer and assign its General Partnership
Interest in the Partnership (i) to the substitute General Partner approved by
the Limited Partners in accordance with Section 7.03(b) hereof and otherwise
admitted to the Partnership in accordance with Section 7.02 hereof. At the time
of assignment, the removed General Partner shall be entitled to receive from the
substitute General Partner the fair market value of the General Partnership
Interest of such removed General Partner as reduced by any damages caused to the
Partnership by such General Partner. Such fair market value shall be determined
by an appraiser mutually agreed upon by the General Partner and a majority in
interest of the Limited Partners within 10 days following the removal of the
General Partner. In the event that the parties are unable to agree upon an
appraiser, the General Partner and a majority in interest of the Limited
Partners each shall select an appraiser, each of which appraisers shall complete
an appraisal of the fair market value of the General Partner's General
Partnership Interest within 30 days of the General Partner's removal, and the
fair market value of the General Partner's General Partnership Interest shall be
the average of the two appraisals; provided, however, that if the higher
appraisal exceeds the lower appraisal by more than 20% of the amount of the
lower appraisal, the two appraisers, no later than 40 days after the removal of
the General Partner, shall select a third appraiser who shall complete an
appraisal of the fair market value of the General Partner's General Partnership
Interest no later than 60 days after the removal of the General Partner. In such
case, the fair market value of the General Partner's General Partnership
Interest shall be the average of the two appraisals closest in value.
(c) The General Partnership Interest of a removed General
Partner, during the time after default until transfer under Section 7.04(b),
shall be converted to that of a special Limited Partner; provided, however, such
removed General Partner shall not have any rights to participate in the
management and affairs of the Partnership, and shall not be entitled to any
portion of the income, expenses, Profit, gain or Loss, distributions or
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allocations, as the case may be, payable or allocable to the Limited Partners as
such. Instead, such removed General Partner shall receive and be entitled to
retain only distributions or allocations of such items which it would have been
entitled to receive in its capacity as General Partner, until the transfer is
effective pursuant to Section 7.04(b).
(d) All Partners shall have given and hereby do give such
consents, shall take such actions and shall execute such documents as shall be
legally necessary and sufficient to effect all the foregoing provisions of this
Section 7.04.
ARTICLE VIII.
RIGHTS AND OBLIGATIONS
OF THE LIMITED PARTNERS
VIII.01 Management of the Partnership. The Limited Partners shall not
participate in the management or control of Partnership business nor shall they
transact any business for the Partnership, nor shall they have the power to sign
for or bind the Partnership, such powers being vested solely and exclusively in
the General Partner.
VIII.02 Power of Attorney. Each Limited Partner hereby irrevocably
appoints the General Partner its true and lawful attorney-in-fact, who may act
for each Limited Partner and in its name, place and stead, and for its use and
benefit, to sign, acknowledge, swear to, deliver, file and record, at the
appropriate public offices, any and all documents, certificates, and instruments
as may be deemed necessary or desirable by the General Partner to carry out
fully the provisions of this Agreement and the Act in accordance with their
terms, which power of attorney is coupled with an interest and shall survive the
death, dissolution or legal incapacity of the Limited Partner, or the transfer
by the Limited Partner of any part or all of its Partnership Interest.
VIII.03 Limitation on Liability of Limited Partners. No Limited Partner
shall be liable for any debts, liabilities, contracts or obligations of the
Partnership. A Limited Partner shall be liable to the Partnership only to make
payments of its Capital Contribution, if any, as and when due hereunder. After
its Capital Contribution is fully paid, no Limited Partner shall, except as
otherwise required by the Act, be required to make any further Capital
Contributions or other payments or lend any funds to the Partnership.
VIII.04 Ownership by Limited Partner of Corporate General Partner or
Affiliate. No Limited Partner shall at any time, either directly or indirectly,
own any stock or other interest in the General Partner or in any Affiliate
thereof, if such ownership by itself or in conjunction with other stock or other
interests owned by other Limited Partners would, in the opinion of counsel for
the Partnership, jeopardize the classification of the Partnership as a
partnership for federal income tax purposes. The General Partner shall be
entitled to make such reasonable inquiry of the Limited Partners as is required
to establish compliance by the Limited Partners with the provisions of this
Section.
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VIII.05 Redemption Right.
(a) Subject to Sections 8.05(b), 8.05(c), 8.05(d), and
8.05(e), and the provisions of any agreement between the Partnership and any
Limited Partner with respect to Partnership Units held by such Limited Partners,
each Limited Partner, other than the Original Limited Partner, shall have the
right (the "Redemption Right") to require the Partnership to redeem on a
Specified Redemption Date all or a portion of the Partnership Units held by such
Limited Partner at a redemption price equal to and in the form of the Cash
Amount to be paid by the Partnership, provided, that such Partnership Units
shall have been outstanding for at least one year. The Redemption Right shall be
exercised pursuant to a Notice of Redemption delivered to the Partnership (with
a copy to the General Partner) by the Limited Partner who is exercising the
Redemption Right (the "Redeeming Partner"); provided, however, that the
Partnership shall not be obligated to satisfy such Redemption Right if the
General Partner elects to purchase the Partnership Units subject to the Notice
of Redemption pursuant to Section 8.05(b); and provided, further, that no
Limited Partner may deliver more than two Notices of Redemption during each
calendar year. A Limited Partner may not exercise the Redemption Right for less
than 1,000 Partnership Units or, if such Limited Partner holds less than 1,000
Partnership Units, all of the Partnership Units held by such Partner. The
Redeeming Partner shall have no right, with respect to any Partnership Units so
redeemed, to receive any distribution paid with respect to Partnership Units if
the record date for such distribution is on or after the Specified Redemption
Date.
(b) Notwithstanding the provisions of Section 8.05(a), a
Limited Partner that exercises the Redemption Right shall be deemed to have
offered to sell the Partnership Units described in the Notice of Redemption to
the General Partner, and the General Partner may, in its sole and absolute
discretion but subject to the last sentence of this subsection (b), elect to
purchase directly and acquire such Partnership Units by paying to the Redeeming
Partner either the Cash Amount or the REIT Shares Amount, as elected by the
General Partner (in its sole and absolute discretion), on the Specified
Redemption Date, whereupon the General Partner shall acquire the Partnership
Units offered for redemption by the Redeeming Partner and shall be treated for
all purposes of this Agreement as the owner of such Partnership Units. If the
General Partner shall elect to exercise its right to purchase Partnership Units
under this Section 8.05(b) with respect to a Notice of Redemption, it shall so
notify the Redeeming Partner within five Business Days after the receipt by the
General Partner of such Notice of Redemption. Such notice shall indicate whether
the General Partner will pay the Cash Amount or the REIT Shares Amount. Unless
the General Partner (in its sole and absolute discretion) shall exercise its
right to purchase Partnership Units from the Redeeming Partner pursuant to this
Section 8.05(b), the General Partner shall not have any obligation to the
Redeeming Partner or the Partnership with respect to the Redeeming Partner's
exercise of the Redemption Right. In the event the General Partner shall
exercise its right to purchase Partnership Units with respect to the exercise of
a Redemption Right in the manner described in the first sentence of this Section
8.05(b), the Partnership shall have no obligation to pay any amount to the
Redeeming Partner with respect to such Redeeming Partner's exercise of such
Redemption Right, and each of the Redeeming Partner, the Partnership, and the
General Partner shall treat the transaction between the General Partner and the
Redeeming Partner for federal income tax purposes as a sale of the Redeeming
Partner's Partnership Units to the General Partner. Each Redeeming Partner
agrees to execute such documents as the Partnership may reasonably require in
connection with the issuance of REIT Shares upon exercise of the Redemption
Right. If Section 5.05 hereof shall prevent the Partnership from satisfying, in
whole or in part, any exercise of the Redemption Right by a Redeeming Partner,
then the Company (whether or not it is then the General Partner) shall be deemed
to have elected pursuant to this Section 8.05(b) to purchase, and hereby agrees
to purchase, directly from such Redeeming Partner, such number of Partnership
Units as the Partnership is unable to redeem due to the operation of Section
5.05.
(c) Notwithstanding the provisions of Section 8.05(a) and
8.05(b), a Limited Partner shall not be entitled to exercise the Redemption
Right if the delivery of REIT Shares to such Partner on the Specified Redemption
Date by the Company pursuant to Section 8.05(b) (regardless of whether or not
the Company would in fact exercise its rights under Section 8.05(b)) would (i)
result in REIT Shares being owned by fewer than 100 persons (determined without
reference to any rules of attribution), (ii) result in the Company being
"closely held" within the meaning of Section 856(h) of the Code, (iii) cause the
Company to own, directly or constructively, 10% or more of the ownership
interests in a tenant of the Company's, the Partnership's or a Subsidiary's real
property, within the meaning of Section 856(d)(2)(B) of the Code, (iv) in the
good faith opinion of the Board of Directors of the Company, otherwise
disqualify the Company as a REIT, or (v) in the opinion of counsel for the
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Company, constitute or result in a violation of Section 5 of the Securities Act
of 1933, as amended (the "Securities Act"), or cause the acquisition of REIT
Shares by such Partner to be "integrated" with any other distribution of REIT
Shares for purposes of complying with the registration provisions of the
Securities Act. The Company, in its sole and absolute discretion, may waive the
restriction on redemption set forth in this Section 8.05(c); provided, however,
that in the event such restriction is waived, the Redeeming Partner shall be
paid the Cash Amount.
(d) Any Cash Amount to be paid to a Redeeming Partner pursuant
to this Section 8.05 shall be paid within 20 Business Days after the initial
date of receipt by the General Partner of the Notice of Redemption relating to
the Partnership Units to be redeemed; provided, however, that such 20-Business
Day period may be extended for up to an additional 180-day period to the extent
required for the Company to issue and sell securities the proceeds of which will
be contributed to the Partnership to provide cash for payment of the Cash
Amount. Notwithstanding the foregoing, the General Partner agrees to use its
best efforts to cause the closing of the acquisition of redeemed Partnership
Units hereunder to occur as quickly as reasonably possible.
(e) Notwithstanding any other provision of this Agreement, the
General Partner may place appropriate restrictions on the ability of the Limited
Partners to exercise their Redemption Rights as and if deemed necessary to
ensure that the Partnership does not constitute a "publicly traded partnership"
under section 7704 of the Code. If and when the General Partner determines that
imposing such restrictions is necessary, the General Partner shall give prompt
written notice thereof (a "Restriction Notice") to each of the Limited Partners,
which notice shall be accompanied by a copy of an opinion of counsel to the
Partnership which states that, in the opinion of such counsel, such restrictions
are necessary in order to avoid the Partnership being treated as a "publicly
traded partnership" under Section 7704 of the Code.
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(f) The Conversion Factor shall be adjusted from time to time
as follows:
(i) In the event that the Company (A) declares or
pays a dividend on its outstanding REIT Shares in REIT Shares
or makes a distribution to all holders of its outstanding REIT
Shares in REIT Shares, (B) subdivides its outstanding REIT
Shares, or (C) combines its outstanding REIT Shares into a
smaller number of REIT Shares, the Conversion Factor shall be
adjusted by multiplying the Conversion Factor by a fraction,
the numerator of which shall be the number of REIT Shares
issued and outstanding on the record date for such dividend,
distribution, subdivision or combination (assuming for such
purposes that such dividend, distribution, subdivision or
combination has occurred as of such time), and the denominator
of which shall be the actual number of REIT Shares (determined
without the above assumption) issued and outstanding on such
date.
(ii) In the event that the Company declares or pays a
dividend or other distribution on its outstanding REIT Shares
(other than (a) ordinary cash dividends or (b) dividends
payable in REIT Shares that give rise to an adjustment in the
Conversion Factor under subsection (i) hereof) and the Value
of the REIT Shares on the 20th trading day following the
record date ("Record Date") for such dividend or distribution
(the "Post-Distribution Value") is less than the Value of the
REIT Shares on the Business Day immediately preceding such
Record Date (the "Pre-Distribution Value"), then the
Conversion Factor in effect after the Record Date shall be
adjusted by multiplying the Conversion Factor in effect prior
to the Record Date by a fraction, the numerator of which is
the Pre-Distribution Value and the denominator of which is the
Post-Distribution Value, provided, however, that no adjustment
shall be made if (a) with respect to any cash dividend or
distribution with respect to REIT shares, the Partnership
distributes with respect to each Partnership Unit an amount
equal to the amount of such dividend or distribution
multiplied by the Conversion Factor or (b) with respect to any
dividend or distribution of securities or property other than
cash, the Partnership distributes with respect to each
Partnership Unit an amount of securities or other property
equal to the amount distributed with respect to each REIT
share multiplied by the Conversion Ratio or a partnership
interest or other security readily convertible into such
securities or other property.
(iii) Any adjustment to the Conversion Factor shall
become effective immediately after the effective date of any
of the events described in subsections (i) and (ii),
retroactive to the record date, if any, for such event,
provided, however, that if the Partnership receives a Notice
of Redemption after the record date, but prior to the payment
date or effective date, of any dividend, distribution,
subdivision or combination referred to in subsection (i) or
(ii), the Conversion Factor shall be determined as if the
Company had received the Notice of Exchange immediately prior
to the record date for such dividend, distribution,
subdivision or combination.
VIII.06 NYSE Listing and Securities Act Registration of REIT Shares. In
the event that the General Partner elects to acquire a Redeeming Partner's
Partnership Units by paying to such Partner the REIT Shares Amount, the REIT
Shares issued to the Redeeming Partner if and to the extent provided in such
Redeeming Partner's Registration Rights Agreement (a) registered under the
Securities Act and/or entitled to rights to Securities Act registration and (b)
listed on the NYSE.
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ARTICLE IX.
TRANSFERS OF LIMITED PARTNERSHIP INTERESTS
IX.01 Purchase for Investment.
(a) Each Limited Partner hereby represents and warrants to the
General Partner and to the Partnership that the acquisition of his Partnership
Interest is made as a principal for his account for investment purposes only and
not with a view to the resale or distribution of such Partnership Interest.
(b) Each Limited Partner agrees that he will not sell, assign
or otherwise transfer his Partnership Interest or any fraction thereof, whether
voluntarily or by operation of law or at judicial sale or otherwise, to any
Person who does not make the representations and warranties to the General
Partner set forth in Section 9.01(a) above and similarly agree not to sell,
assign or transfer such Partnership Interest or fraction thereof to any Person
who does not similarly represent, warrant and agree.
IX.02 Restrictions on Transfer of Limited Partnership Interests.
(a) Except as otherwise provided in this Article IX, no
Limited Partner may offer, sell, assign, hypothecate, pledge or otherwise
transfer his Limited Partnership Interest, in whole or in part, whether
voluntarily or by operation of law or at judicial sale or otherwise
(collectively, a "Transfer") without the written consent of the General Partner,
which consent may be withheld in the sole and absolute discretion of the General
Partner. The General Partner may require, as a condition of any Transfer, that
the transferor assume all costs incurred by the Partnership in connection
therewith.
(b) No Limited Partner may effect a Transfer of its Limited
Partnership Interest, in whole or in part, if, in the opinion of legal counsel
for the Partnership, such proposed Transfer would require the registration of
the Limited Partnership Interest under the Securities Act or would otherwise
violate any applicable federal or state securities or blue sky law (including
investment suitability standards).
(c) No Transfer by a Limited Partner of its Partnership Units,
in whole or in part, may be made to any Person if (i) in the opinion of counsel
for the Partnership, the Transfer would result in the Partnership's being
treated as an association taxable as a corporation (other than a qualified REIT
subsidiary within the meaning of Section 856(i) of the Code), (ii) in the
opinion of counsel for the Partnership, the Transfer would adversely affect the
ability of the Company to continue to qualify as a REIT or subject the Company
to any additional taxes under Section 857 or Section 4981 of the Code, or (iii)
such Transfer is effectuated through an "established securities market" or a
"secondary market (or the substantial equivalent thereof)" within the meaning of
Section 7704 of the Code.
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(d) No transfer of any Partnership Units may be made to a
lender to the Partnership or any Person who is related (within the meaning of
Regulations Section 1.752-4(b)) to any lender to the Partnership whose loan
constitutes a nonrecourse liability (within the meaning of Regulations Section
1.752-1(a)(2)), without the consent of the General Partner, which may be
withheld in its sole and absolute discretion, provided that as a condition to
such consent the lender will be required to enter into an arrangement with the
Partnership and the General Partner to exchange or redeem for the Cash Amount
any Partnership Units in which a security interest is held simultaneously with
the time at which such lender would be deemed to be a partner in the Partnership
for purposes of allocating liabilities to such lender under Section 752 of the
Code.
(e) Section 9.02(a) shall not apply to any Transfer by a
Limited Partner pursuant to the exercise of its Redemption Right under Section
8.05 hereof.
(f) Any Transfer in contravention of any of the provisions of
this Article IX shall be void and ineffectual and shall not be binding upon, or
recognized by, the Partnership.
IX.03 Admission of Substitute Limited Partner.
(a) Subject to the other provisions of this Article IX, an
assignee of the Limited Partnership Interest of a Limited Partner (which shall
be understood to include any purchaser, transferee, donee, or other recipient of
any disposition of such Limited Partnership Interest) shall be deemed admitted
as a Limited Partner of the Partnership only upon the satisfactory completion of
the following:
(i) The assignee shall have accepted and agreed to
be bound by the terms and provisions of this Agreement by
executing a counterpart or an amendment thereof, including a
revised Exhibit A, and such other documents or instruments as
the General Partner may require in order to effect the
admission of such Person as a Limited Partner.
(ii) To the extent required, an amended Certificate
evidencing the admission of such Person as a Limited Partner
shall have been signed, acknowledged and filed for record in
accordance with the Act.
(iii) The assignee shall have delivered a letter
containing the representation set forth in Section 9.01(a) and
the agreement set forth in Section 9.01(b).
(iv) If the assignee is a corporation, partnership
or trust, the assignee shall have provided the General Partner
with evidence satisfactory to counsel for the Partnership of
the assignee's authority to become a Limited Partner under the
terms and provisions of this Agreement.
(v) The assignee shall have executed a power of
attorney containing the terms and provisions set forth in
Section 8.02.
(vi) The assignee shall have paid all reasonable
legal fees of the Partnership and the General Partner and
filing and publication costs in connection with its
substitution as a Limited Partner.
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<PAGE>
(vii) The assignee has obtained the prior written
consent of the General Partner to its admission as a
Substitute Limited Partner, which consent may be given or
denied in the exercise of the General Partner's sole and
absolute discretion.
(b) For the purpose of allocating Profits and Losses and
distributing cash received by the Partnership, a Substitute Limited Partner
shall be treated as having become, and appearing in the records of the
Partnership as, a Partner upon the filing of the Certificate described in
Section 9.03(a)(ii) or, if no such filing is required, the later of the date
specified in the transfer documents or the date on which the General Partner has
received all necessary instruments of transfer and substitution.
(c) The General Partner shall cooperate with the Person
seeking to become a Substitute Limited Partner by preparing the documentation
required by this Section and making all official filings and publications. The
Partnership shall take all such action as promptly as practicable after the
satisfaction of the conditions in this Article IX to the admission of such
Person as a Limited Partner of the Partnership.
IX.04 Rights of Assignees of Partnership Interests.
(a) Subject to the provisions of Sections 9.01 and 9.02,
except as required by operation of law, the Partnership shall not be obligated
for any purposes whatsoever to recognize the assignment by any Limited Partner
of its Partnership Interest until the Partnership has received notice thereof.
(b) Any Person who is the assignee of all or any portion of a
Limited Partner's Limited Partnership Interest, but does not become a Substitute
Limited Partner and desires to make a further assignment of such Limited
Partnership Interest, shall be subject to all the provisions of this Article IX
to the same extent and in the same manner as any Limited Partner desiring to
make an assignment of its Limited Partnership Interest.
(c) The General Partner shall have the right, in its sole and
absolute discretion, to redeem the Limited Partnership Interest assigned by any
Limited Partner (an "Assigning Limited Partner") to any person who does not,
within 20 business days following the date of such assignment, become a
Substitute Limited Partner (an "Assignee"). In such case, the Assigning Limited
Partner and the Assignee shall be deemed to have tendered irrevocably to the
General Partner a Notice of Redemption with respect to all of the Limited
Partnership Interest assigned.
IX.05 Effect of Bankruptcy, Death, Incompetence or Termination of a
Limited Partner. The occurrence of an Event of Bankruptcy as to a Limited
Partner, the death of a Limited Partner or a final adjudication that a Limited
Partner is incompetent (which term shall include, but not be limited to,
insanity) shall not cause the termination or dissolution of the Partnership, and
the business of the Partnership shall continue if an order for relief in a
bankruptcy proceeding is entered against a Limited Partner, the trustee or
receiver of his estate or, if he dies, his executor, administrator or trustee,
or, if he is finally adjudicated incompetent, his committee, guardian or
conservator, shall have the rights of such Limited Partner for the purpose of
settling or managing his estate property and such power as the bankrupt,
deceased or incompetent Limited Partner possessed to assign all or any part of
his Partnership Interest and to join with the assignee in satisfying conditions
precedent to the admission of the assignee as a Substitute Limited Partner.
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<PAGE>
IX.06 Joint Ownership of Interests. A Partnership Interest may be
acquired by two individuals as joint tenants with right of survivorship,
provided that such individuals either are married or are related and share the
same home as tenants in common. The written consent or vote of both owners of
any such jointly held Partnership Interest shall be required to constitute the
action of the owners of such Partnership Interest; provided, however, that the
written consent of only one joint owner will be required if the Partnership has
been provided with evidence satisfactory to the counsel for the Partnership that
the actions of a single joint owner can bind both owners under the applicable
laws of the state of residence of such joint owners. Upon the death of one owner
of a Partnership Interest held in a joint tenancy with a right of survivorship,
the Partnership Interest shall become owned solely by the survivor as a Limited
Partner and not as an assignee. The Partnership need not recognize the death of
one of the owners of a jointly-held Partnership Interest until it shall have
received notice of such death. Upon notice to the General Partner from either
owner, the General Partner shall cause the Partnership Interest to be divided
into two equal Partnership Interests, which shall thereafter be owned separately
by each of the former owners.
ARTICLE X.
BOOKS AND RECORDS; ACCOUNTING; TAX MATTERS
X.01 Books and Records. At all times during the continuance of the
Partnership, the General Partner shall keep or cause to be kept at the
Partnership's specified office true and complete books of account in accordance
with generally accepted accounting principles, including: (a) a current list of
the full name and last known business address of each Partner, (b) a copy of the
Certificate of Limited Partnership and all certificates of amendment thereto,
(c) copies of the Partnership's federal, state and local income tax returns and
reports, (d) copies of the Agreement and any financial statements of the
Partnership for the three most recent years and (e) all documents and
information required under the Act. Any Partner or its duly authorized
representative, upon paying the costs of collection, duplication and mailing,
shall be entitled to inspect or copy such records during ordinary business
hours.
X.02 Custody of Partnership Funds; Bank Accounts.
(a) All funds of the Partnership not otherwise invested shall
be deposited in one or more accounts maintained in such banking or brokerage
institutions as the General Partner shall determine, and withdrawals shall be
made only on such signature or signatures as the General Partner may, from time
to time, determine.
(b) All deposits and other funds not needed in the operation
of the business of the Partnership may be invested by the General Partner in
investment grade instruments (or investment companies whose portfolio consists
primarily thereof), government obligations, certificates of deposit, bankers'
acceptances and municipal notes and bonds. The funds of the Partnership shall
not be commingled with the funds of any other Person except for such commingling
as may necessarily result from an investment in those investment companies
permitted by this Section 10.02(b).
X.03 Fiscal and Taxable Year. The fiscal and taxable year of the
Partnership shall be the calendar year.
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X.04 Annual Tax Information and Report. Within 75 days after the end of
each fiscal year of the Partnership, the General Partner shall furnish to each
person who was a Limited Partner at any time during such year the tax
information necessary to file such Limited Partner's individual tax returns as
shall be reasonably required by law.
X.05 Tax Matters Partner; Tax Elections; Special Basis Adjustments.
(a) The General Partner shall be the Tax Matters Partner of
the Partnership within the meaning of Section 6231(a)(7) of the Code. As Tax
Matters Partner, the General Partner shall have the right and obligation to take
all actions authorized and required, respectively, by the Code for the Tax
Matters Partner. The General Partner shall have the right to retain professional
assistance in respect of any audit of the Partnership by the Service and all
out-of-pocket expenses and fees incurred by the General Partner on behalf of the
Partnership as Tax Matters Partner shall constitute Partnership expenses. In the
event the General Partner receives notice of a final Partnership adjustment
under Section 6223(a)(2) of the Code, the General Partner shall either (i) file
a court petition for judicial review of such final adjustment within the period
provided under Section 6226(a) of the Code, a copy of which petition shall be
mailed to all Limited Partners on the date such petition is filed, or (ii) mail
a written notice to all Limited Partners, within such period, that describes the
General Partner's reasons for determining not to file such a petition.
(b) All elections required or permitted to be made by the
Partnership under the Code or any applicable state or local tax law shall be
made by the General Partner in its sole and absolute discretion.
(c) In the event of a transfer of all or any part of the
Partnership Interest of any Partner, the Partnership, at the option of the
General Partner, may elect pursuant to Section 754 of the Code to adjust the
basis of the Properties. Notwithstanding anything contained in Article V of this
Agreement, any adjustments made pursuant to Section 754 shall affect only the
successor in interest to the transferring Partner and in no event shall be taken
into account in establishing, maintaining or computing Capital Accounts for the
other Partners for any purpose under this Agreement. Each Partner will furnish
the Partnership with all information necessary to give effect to such election.
X.06 Reports to Limited Partners.
(a) As soon as practicable after the close of each fiscal
quarter (other than the last quarter of the fiscal year), the General Partner
shall cause to be mailed to each Limited Partner a quarterly report containing
financial statements of the Partnership, or of the Company if such statements
are prepared solely on a consolidated basis with the Company, for such fiscal
quarter, presented in accordance with generally accepted accounting principles.
As soon as practicable after the close of each fiscal year, the General Partner
shall cause to be mailed to each Limited Partner an annual report containing
financial statements of the Partnership, or of the Company if such statements
are prepared solely on a consolidated basis with the Company, for such fiscal
year, presented in accordance with generally accepted accounting principles. The
annual financial statements shall be audited by accountants selected by the
General Partner.
(b) Any Partner shall further have the right to a private
audit of the books and records of the Partnership, provided such audit is made
for Partnership purposes, at the expense of the Partner desiring it and is made
during normal business hours.
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ARTICLE XI.
AMENDMENT OF AGREEMENT; MERGER; NOTICE
XI.01 Amendment of Agreement; Merger. The General Partner's consent
shall be required for any amendment to the Agreement or any merger,
consolidation or combination of the Partnership. The General Partner, without
the consent of the Limited Partners, may amend this Agreement in any respect or
cause the Partnership to merge, consolidate or combine with or into any other
partnership, limited partnership, limited liability company or corporation as
contemplated in Section 7.01(c) or (d) hereof; provided, however, that the
following amendments and any other such merger, consolidation or combination of
the Partnership (a "Merger") shall require the consent of Limited Partners
(other than the Company or any Subsidiary of the Company) holding more than 50%
of the Percentage Interests of the Limited Partners (other than the Company or
any Subsidiary of the Company):
(a) any amendment affecting the operation of the Conversion
Factor or the Redemption Right (except as provided in Sections 7.01(c) or
8.05(e)) in a manner adverse to the Limited Partners;
(b) any amendment that would adversely affect the rights of
the Limited Partners to receive the distributions payable to them hereunder,
other than with respect to the issuance of additional Partnership Units pursuant
to Section 4.02;
(c) any amendment that would alter the Partnership's
allocations of Profit and Loss to the Limited Partners, other than with respect
to the issuance of additional Partnership Units pursuant to Section 4.02; or
(d) any amendment to this Article XI.
The consent of each Limited Partner shall be required for any
amendment that would impose on the Limited Partners any obligation to make
additional Capital Contributions to the Partnership.
XI.02 Notice to Limited Partners. The General Partner shall notify the
Limited Partners of the substance of any amendment or Merger requiring the
consent of the Limited Partners pursuant to Section 11.01 at least 20 business
days prior to the effective date of such amendment or Merger.
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ARTICLE XII.
GENERAL PROVISIONS
XII.01 Notices. All communications required or permitted under this
Agreement shall be in writing and shall be deemed to have been given when
delivered personally or upon deposit in the United States mail, registered,
postage prepaid return receipt requested, to the Partners at the addresses set
forth in Exhibit A attached hereto; provided, however, that any Partner may
specify a different address by notifying the General Partner in writing of such
different address. Notices to the Partnership shall be delivered at or mailed to
its specified office.
XII.02 Survival of Rights. Subject to the provisions hereof limiting
transfers, this Agreement shall be binding upon and inure to the benefit of the
Partners and the Partnership and their respective legal representatives,
successors, transferees and assigns.
XII.03 Additional Documents. Each Partner agrees to perform all further
acts and execute, swear to, acknowledge and deliver all further documents which
may be reasonable, necessary, appropriate or desirable to carry out the
provisions of this Agreement or the Act.
XII.04 Severability. If any provision of this Agreement shall be
declared illegal, invalid, or unenforceable in any jurisdiction, then such
provision shall be deemed to be severable from this Agreement (to the extent
permitted by law) and in any event such illegality, invalidity or
unenforceability shall not affect the remainder hereof.
XII.05 Entire Agreement. This Agreement and exhibits attached hereto
constitute the entire Agreement of the Partners and supersede all prior written
agreements and prior and contemporaneous oral agreements, understandings and
negotiations with respect to the subject matter hereof.
XII.06 Rules of Construction. When the context in which words are used
in the Agreement indicates that such is the intent, words in the singular number
shall include the plural and the masculine gender shall include the neuter or
female gender as the context may require. Unless the context otherwise
indicates, references to particular Articles and Sections are references to
Articles and Sections of this Agreement.
XII.07 Headings. The Article headings or sections in this Agreement are
for convenience only and shall not be used in construing the scope of this
Agreement or any particular Article.
XII.08 Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original copy and all of
which together shall constitute one and the same instrument binding on all
parties hereto, notwithstanding that all parties shall not have signed the same
counterpart.
XII.09 Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the Commonwealth of Virginia.
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IN WITNESS WHEREOF, the parties hereto have hereunder affixed their
signatures to this Third Amended and Restated Agreement of Limited Partnership,
all as of the ____ day of September, 1998.
The Partnership and American Apartment Communities Operating
Partnership, L.P., AAC Management LLC and Schnitzer Investment Corp. (the "AAC
Limited Partners") agree that notwithstanding the proviso to the first sentence
of Section 8.05(a) hereof (i) the AAC Limited Partners shall be entitled to
exercise their Redemption Rights as provided in Section 5(c)(ii) and (iii) of
the Partnership Interest Purchase and Exchange Agreement, dated as of September
10, 1998, among the AAC Limited Partners, the Partnership and the General
Partner, among others, and (ii) the Redemption Rights of the AAC Limited
Partners shall be modified as set forth in Section 3.1(b) of the Investment
Agreement, dated as of September 10, 1998, among the General Partner, the
Partnership and the AAC Limited Partners, among others. The Partnership, the
General Partner and the AAC Limited Partners agree that the foregoing
modifications shall be deemed to be an amendment to this Agreement binding upon
each of them.
GENERAL PARTNER:
UNITED DOMINION REALTY TRUST, INC.
By:
Name:
Title:
LIMITED PARTNERS:
AMERICAN APARTMENT COMMUNITIES
OPERATING PARTNERSHIP, L.P.,
a Delaware limited partnership
By:
Its: General Partner
By:
Name:
Title:
[signatures continued on following page]
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<PAGE>
AAC MANAGEMENT LLC, a Delaware
limited liability company
By:
Name:
Title:
SCHNITZER INVESTMENT CORP.,
an Oregon corporation
By:
Name:
Title:
By:
_____________, attorney-in-
fact for the other Limited
Partners listed on Exhibit A
to the Agreement
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<TABLE>
EXHIBIT A
Agreed Value of
Partner Cash Non-Cash Partnership Percentage
and Address Contribution Contribution Units Interest
----------- ------------ --------------- ----- --------
General Partner:
<S> <C>
%
%
United Dominion Realty Trust, Inc.
10 South Sixth Street, Suite 203
Richmond, Virginia 23219
Limited Partners:
UDRT of North Carolina, L.L.C.
c/o United Dominion Realty Trust, Inc.
10 South Sixth Street, Suite 203
Richmond, Virginia 23219
[UPDATE TO COME
FROM UDRT]
</TABLE>
<PAGE>
EXHIBIT B
NOTICE OF EXERCISE OF REDEMPTION RIGHT
In accordance with Section 8.05 of the Third Amended and Restated
Agreement of Limited Partnership (the "Agreement") of United Dominion Realty,
L.P., the undersigned hereby irrevocably (i) presents for redemption ________
Partnership Units in United Dominion Realty, L.P. in accordance with the terms
of the Agreement and the Redemption Right referred to in Section 8.05 thereof,
(ii) surrenders such Partnership Units and all right, title and interest
therein, and (iii) directs that the Cash Amount or REIT Shares Amount (as
defined in the Agreement) as determined by the General Partner deliverable upon
exercise of the Redemption Right be delivered to the address specified below,
and if REIT Shares (as defined in the Agreement) are to be delivered, such REIT
Shares be registered or placed in the name(s) and at the address(es) specified
below.
Dated:________ __, _____
Name of Limited Partner:
------------------------------
(Signature of Limited Partner)
------------------------------
(Mailing Address)
------------------------------
(City) (State) (Zip Code)
Signature Guaranteed by:
------------------------------
If REIT Shares are to be issued, issue to:
Please insert social security or identifying number:
Name:
EXHIBIT 5
Hunton & Williams
951 East Byrd Street
Riverfront Plaza, East
Richmond, VA 23219
File No.: 27789.000244
Direct Dial: (804) 788-8267
September 23, 1998
Board of Directors
United Dominion Realty Trust, Inc.
10 South Sixth Street
Richmond, Virginia 23219
Registration Statement on Form S-3
572,366 Shares of Common Stock
Gentlemen:
We are acting as counsel for United Dominion Realty Trust, Inc. (the
"Company") in connection with the registration under the Securities Act of 1933,
as amended, of 572,366 shares of Common Stock, $1 par value, of the Company (the
"Redemption Shares"). The Redemption Shares are described in the Registration
Statement on Form S-3 of the Company (the "Registration Statement") to be filed
with the Securities and Exchange Commission (the "Commission") on September 25,
1998. In connection with the filing of the Registration Statement, you have
requested our opinion concerning certain corporate matters.
We are of the opinion that:
1. The Company is a corporation duly organized and validly existing
under the laws of the Commonwealth of Virginia.
2. When the Redemption Shares have been issued to the Unitholders, as
described in the Registration Statement, the Redemption Shares will be legally
issued, fully paid and nonassessable.
We consent to the filing of this opinion with the Commission as an
exhibit to the Registration Statement and to the references to us in the
Prospectus included therein.
Very truly yours,
HUNTON & WILLIAMS
