<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Under Rule 14a-12
AMERICAN INDUSTRIAL PROPERTIES REIT
--------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
Not Applicable
--------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(l) and
0-11.
(1) Title of each class of securities to which transaction applies:
American Industrial Properties REIT common shares of beneficial
interest, $0.10 par value per share.
--------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies: (i)
11,354,801 common shares of beneficial interest, (ii) in-the-money
options to purchase 626,000 common shares of beneficial interest and
(iii) dividend equivalent rights on 460,000 common shares of beneficial
interest.
--------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined): (i) $13.74
for each common share of beneficial interest in cash, (ii) the
difference between $13.74 and the weighted average exercise price of
$13.508 for each common share of beneficial interest subject to an
in-the-money option and (iii) $2.909 for each dividend equivalent right
on a common share of beneficial interest.
--------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
11,354,801 common shares of beneficial interest X 13.74 per
share = $156,014,966;
626,000 common shares of beneficial interest subject to "in-the-money"
options X 2.1581 = $1,350,990;
460,000 dividend equivalent rights on common shares of beneficial
interest X 2.909 = $1,338,000;
Total proposed maximum aggregate value of the transaction: $158,703,956.
--------------------------------------------------------------------------------
(5) Total fee paid: $31,741
--------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials:
--------------------------------------------------------------------------------
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
--------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
--------------------------------------------------------------------------------
(3) Filing Party:
--------------------------------------------------------------------------------
(4) Date Filed:
--------------------------------------------------------------------------------
<PAGE> 2
AMERICAN INDUSTRIAL PROPERTIES REIT
6210 N. BELTLINE ROAD, SUITE 170
IRVING, TEXAS 75063
, 2001
Dear Fellow Shareholder:
We invite you to attend a special meeting of shareholders of American
Industrial Properties REIT to be held on , 2001, at 9:00 a.m., local
time, at 2200 Ross Avenue,
floor, Dallas, Texas. The purpose of the special meeting is to vote upon two
proposals, that if both approved, will result in you receiving $ per common
share you own. You will be asked to vote on the following proposals:
- the approval of the agreement and plan of merger with Developers
Diversified Realty Corporation and DDR Transitory Sub Inc. and the
transactions contemplated thereby, pursuant to which you will receive
$ per common share in connection with the merger; and
- the approval of the agreement of purchase and sale with Value Enhancement
Fund IV, L.P. and the transactions contemplated thereby, pursuant to
which 31 of our properties will be sold for $292.2 million.
Although you are being asked to vote on these proposals separately, if either
proposal is not approved, we will not close either of the transactions.
The approval of the holders of 66 2/3% of our outstanding common shares is
required to approve each of the transactions. Shareholders beneficially owning
or having the right to vote approximately 70.7% of our outstanding common shares
have signed voting agreements or agreed with AIP to vote their shares in favor
of the two transactions. If they vote in accordance with those agreements, the
transactions will be approved.
In connection with the merger, Chase Securities Inc., the financial advisor
to our special committee, delivered to the special committee of the board of
trust managers, an opinion dated November 1, 2000 that, on the date of that
opinion, the cash consideration proposed to be paid to the holders of our common
shares in connection with the merger was fair from a financial point of view to
these holders. The written opinion of Chase Securities is attached as Appendix A
to the accompanying proxy statement, and you should read it carefully. The
special committee is comprised of one trust manager. Two other trust managers
resigned from the special committee before it made its recommendation on the
proposals.
A MAJORITY OF THE TRUST MANAGERS NOT DESIGNATED BY DDR, ACTING ON THE
RECOMMENDATION OF THE REMAINING MEMBER OF THE SPECIAL COMMITTEE, HAS APPROVED
AND ADOPTED THE MERGER AGREEMENT AND THE PROPERTY SALE AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED THEREBY. THEY BELIEVE THAT THE MERGER IS FAIR TO, AND
IN THE BEST INTERESTS OF, OUR SHAREHOLDERS. THEY RECOMMEND THAT YOU VOTE FOR
BOTH OF THE PROPOSALS. THE TWO TRUST MANAGERS WHO RESIGNED FROM THE SPECIAL
COMMITTEE VOTED AGAINST THE PROPOSALS.
The accompanying proxy statement contains detailed information on the
proposed transactions. A copy of the merger agreement is attached as Appendix B
and a copy of the property sale agreement is attached as Appendix C to this
proxy statement. You should read them carefully.
Whether or not you plan to attend the special meeting, it is important that
your shares are represented at the meeting. Not returning your proxy card or not
instructing your broker how to vote any shares held for you in street name will
have the same effect as a vote against the proposals. Accordingly, you are
requested to promptly complete, sign and date the enclosed proxy card and return
it in the envelope provided, whether or not you plan to attend. Doing so will
not prevent you from voting your shares in person if you later choose to attend
the special meeting. If the merger and the sale of properties are approved, you
will receive instructions for surrendering your share certificates and a letter
of transmittal to be used for this purpose. You should not submit your share
certificates for exchange until you have received the instructions and the
letter of transmittal.
Sincerely,
Charles W. Wolcott
President and Chief Executive Officer
THESE TRANSACTIONS HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SEC, NOR
HAS THE SEC PASSED UPON THE FAIRNESS OR MERITS OF THE TRANSACTIONS OR UPON THE
ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED IN THIS DOCUMENT. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THIS PROXY STATEMENT IS DATED , 2001, AND, TOGETHER WITH THE
PROXY, IS FIRST BEING MAILED TO SHAREHOLDERS ON OR ABOUT , 2001.
<PAGE> 3
AMERICAN INDUSTRIAL PROPERTIES REIT
6210 N. BELTLINE ROAD, SUITE 170
IRVING, TEXAS 75063
(972) 756-6000
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON , 2001
To the Shareholders of American Industrial Properties REIT:
This is a notice that a special meeting of shareholders will be held on
, 2001, at 9:00 a.m., local time, at 2200 Ross Avenue, floor,
Dallas, Texas. The purpose of this meeting is for our shareholders to:
- Consider and vote on a proposal to approve an agreement and plan of
merger dated as of November 1, 2000, among American Industrial Properties
REIT, DDR Transitory Sub Inc. and Developers Diversified Realty
Corporation, and the transactions contemplated thereby, pursuant to which
you will receive $ for each of our shares that you own.
- Consider and vote on a proposal to approve the agreement of purchase and
sale dated as of November 1, 2000, among American Industrial Properties
REIT, certain of its affiliates and Value Enhancement Fund IV, L.P., and
the transactions contemplated thereby, pursuant to which we will sell 31
of our properties for $292.2 million.
- Consider and act upon any other matters as may properly come before the
special meeting.
Your board of trust managers has determined that only holders of our common
shares at the close of business on , 2001, will be entitled to vote
at the special meeting. Approval of the merger and the sale of the properties
requires the holders of 66 2/3% of our common shares outstanding on the record
date to vote in favor of the proposals. A form of proxy and a proxy statement
containing more detailed information with respect to the matters to be
considered at the special meeting accompany and are a part of this notice to
shareholders.
UNDER TEXAS LAW, YOU ARE ENTITLED TO DISSENTERS' RIGHTS IN CONNECTION WITH
THE MERGER. SEE PAGE 61 OF THE PROXY STATEMENT FOR A DESCRIPTION OF THOSE RIGHTS
AND THE PROCEDURES THAT YOU MUST FOLLOW TO EXERCISE YOUR RIGHTS.
Regardless of whether you plan to attend the special meeting, please
complete, sign and date the enclosed proxy card and return it promptly in the
enclosed envelope. It is important that your shares be represented at the
special meeting. You may revoke your proxy by:
- delivering to our corporate secretary, before the taking of the vote at
the special meeting, a written notice of revocation bearing a later date
than the date of the proxy, or a later-dated proxy relating to the same
shares; or
- attending the special meeting and voting in person.
By Order of the Board of Trust
Managers
Marc A. Simpson, Secretary
Irving, Texas
, 2001
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<S> <C>
SUMMARY TERM SHEET.......................................... 1
QUESTIONS AND ANSWERS ABOUT THE PROPOSED TRANSACTIONS....... 3
SUMMARY..................................................... 5
The Companies............................................. 5
Overview of the Transactions.............................. 5
The Special Meeting....................................... 6
Record Date; Voting Power................................. 6
Votes Required and Voting Agreements...................... 6
Special Committee......................................... 6
Fairness of the Merger.................................... 6
Conflicts of Interest..................................... 7
Other Terms of the Merger Agreement....................... 7
Sale of Property Portfolio................................ 9
Treatment of Share Options and Dividend Equivalent
Rights................................................. 9
Accounting Treatment...................................... 9
Material Federal Income Tax Consequences.................. 9
Regulatory Approvals...................................... 9
Dissenters' Rights........................................ 9
Litigation Relating to the Merger......................... 9
HISTORICAL MARKET INFORMATION............................... 10
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA............. 12
THE SPECIAL MEETING......................................... 14
Date, Time and Place of the Special Meeting............... 14
Matters to be Considered at the Special Meeting........... 14
Proxy Solicitation........................................ 14
Record Date and Quorum Requirement........................ 14
Required Vote............................................. 15
Voting Procedures......................................... 15
Other Matters to be Considered............................ 16
SPECIAL FACTORS............................................. 16
General Description....................................... 16
Background of the Merger.................................. 16
DDR's Purpose and Reasons for the Merger.................. 26
Benefits of the Merger to DDR............................. 26
Position of DDR Regarding Fairness of the Merger.......... 27
Recommendation of the Special Committee and the Board of
Trust Managers;
Reasons for the Merger................................. 27
Benefits and Detriments to Non-DDR Shareholders........... 30
Source and Amount of Funds; Financing for the Merger...... 30
Fairness of the Merger; Opinion of Financial Advisor...... 30
Conflicts of Interest..................................... 37
Transactions and Relationships Between AIP and DDR........ 39
Change In Control Payments................................ 40
Share Purchases........................................... 40
Material Federal Income Tax Consequences.................. 41
Plans for AIP After the Merger............................ 43
Conduct of the Business of AIP if the Merger is Not
Completed.............................................. 43
Anticipated Accounting Treatment of the Merger............ 43
Regulatory Approvals Relating to the Merger............... 43
Provision for Non-DDR Shareholders........................ 43
Litigation Relating to the Merger......................... 43
</TABLE>
i
<PAGE> 5
<TABLE>
<S> <C>
THE MERGER AGREEMENT........................................................................................ 44
General................................................................................................... 44
Effective Time of the Merger.............................................................................. 44
Consequences of the Merger................................................................................ 44
Employee Share Plan....................................................................................... 45
Surrender and Exchange of Share Certificates; Payment for Shares.......................................... 45
Transfer of Shares........................................................................................ 46
Officers, Trust Managers and Governing Documents.......................................................... 46
Representations and Warranties............................................................................ 46
Conduct of Business Prior to the Merger................................................................... 47
Access to Information..................................................................................... 48
No Solicitation........................................................................................... 48
Conditions to the Merger.................................................................................. 49
Termination............................................................................................... 51
Termination Fees.......................................................................................... 51
Indemnification........................................................................................... 52
Amendment................................................................................................. 52
FEES AND EXPENSES........................................................................................... 52
THE COMPANIES............................................................................................... 53
AIP....................................................................................................... 53
DDR and DDR Sub........................................................................................... 53
PRINCIPAL SHAREHOLDERS AND SHARE OWNERSHIP OF MANAGEMENT
OF AIP.................................................................................................... 54
TRUST MANAGERS AND EXECUTIVE OFFICERS OF AIP................................................................ 56
DIRECTORS AND EXECUTIVE OFFICERS OF DDR..................................................................... 58
DIRECTORS AND EXECUTIVE OFFICERS OF DDR SUB................................................................. 60
DISSENTERS' RIGHTS.......................................................................................... 61
THE SALE OF PROPERTIES...................................................................................... 62
INDEPENDENT AUDITORS........................................................................................ 65
SHAREHOLDER PROPOSALS....................................................................................... 65
WHERE YOU CAN FIND MORE INFORMATION......................................................................... 65
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE............................................................. 66
</TABLE>
ii
<PAGE> 6
SUMMARY TERM SHEET
This summary term sheet highlights information contained in this proxy
statement and may not contain all of the information that is important to you.
We urge you to read carefully this proxy statement, including the appendices and
the other documents we refer to in this proxy statement. In this proxy
statement, the terms "AIP," "we," "us" and "our" refer to American Industrial
Properties REIT.
- Shareholder Vote -- You are being asked to approve two transactions, the
completion of each of which is dependent on the approval of the other.
First, you are being asked to approve and adopt the merger agreement, by
which DDR Transitory Sub Inc. will be merged into AIP, resulting in
Developers Diversified Realty Corporation being the sole shareholder of
AIP. Second, you are being asked to approve and adopt a property sale
agreement, by which we will sell immediately prior to the merger a
portfolio of 31 of our properties to a private investment fund managed by
Lend Lease Real Estate Investments, Inc. Please read "Special Factors" on
page 16 and "The Sale of Properties" on page 62.
Both the merger agreement and the property sale agreement must be approved
and adopted by the affirmative vote of the holders of 66 2/3% of our
outstanding common shares. Please read "The Special Meeting -- Required
Vote" on page 15.
- Payment -- In the merger, each of the issued and outstanding common
shares owned by our shareholders, other than DDR, DDR Sub and their
respective direct and indirect subsidiaries, will be converted into the
right to receive $ in cash, without interest. That amount will be
reduced if we pay you a dividend prior to closing in order to maintain
REIT status or to avoid having REIT taxable income for federal income tax
purposes. If all or substantially all of our properties remaining after
the sale to Value Enhancement Fund are sold within six months after the
effective date of the merger for more than an agreed upon amount, you may
receive additional consideration. We sometimes refer to the per share
amount to be paid in the merger as the "merger consideration." Please
read "Special Factors -- General Description" on page 16.
- DDR Sub -- DDR Transitory Sub Inc., which we refer to as "DDR Sub," is a
newly formed Texas corporation that is wholly-owned by Developers
Diversified Realty Corporation, an Ohio corporation, which we refer to as
"DDR."
- Value Enhancement Fund -- Value Enhancement Fund IV, L.P., which we refer
to as "Value Enhancement Fund," is a Georgia limited partnership that is
managed by Lend Lease Real Estate Investments, Inc., which we refer to as
"Lend Lease."
- Continuing Shareholder -- Following completion of the merger, all shares
of DDR Sub stock will become AIP common shares. DDR is the sole
shareholder of DDR Sub and as a result will own all of our common shares
following completion of the merger. Please read "The Merger
Agreement -- Consequences of the Merger" on page 44.
- Voting Agreements -- DDR has agreed with us to vote its common shares in
favor of the proposals. Each of Morgan Stanley Dean Witter Investment
Management Inc., on behalf of certain clients, MS Real Estate Special
Situations Inc., LaSalle Investment Management, Inc., on behalf of
certain clients, LaSalle Investment Management (Securities), LP, on
behalf of certain clients, and USAA Real Estate Company, which, together
with DDR, beneficially own or have the right to vote in the aggregate
approximately 70.7% of our outstanding common shares on the record date
have entered into voting agreements with each of DDR and Value
Enhancement Fund by which each of them has agreed to vote in favor of the
proposals. If these shareholders vote as they have agreed to in the
voting agreements and DDR votes as it agreed with us, the proposals will
be approved and adopted regardless of how any other shareholder votes on
these issues. The voting agreements signed by the
1
<PAGE> 7
LaSalle entities allow them to vote against the proposals if in the exercise of
their fiduciary duties to their investment advisory clients, they believe they
should vote against the proposals. Please read "The Special Meeting -- Required
Vote" on page 15.
- Effects of the Transaction -- This is a "going private" transaction. As a
result of the merger:
- DDR will own AIP;
- Our shareholders other than DDR will no longer have any interest in
our future earnings or growth;
- We will no longer be a public company; and
- Our common shares will no longer be traded on the New York Stock
Exchange.
- Please read "The Merger Agreement -- Consequences of the Merger" on page
44.
- Tax Consequences -- Generally, the merger consideration will be taxable
for U.S. federal income tax purposes. You will recognize taxable gain or
loss in the amount of the difference between the amount of the merger
consideration and your adjusted tax basis for each common share of AIP
that you own. Please read "Special Factors -- Material Federal Income Tax
Consequences" on page 41.
- Conditions -- The merger agreement and the sale of properties are subject
to approval by our shareholders, compliance with certain financial
covenants, and customary conditions and the closing of each transaction
is conditioned on the closing of the other transaction. Please read "The
Merger Agreement -- Conditions to the Merger" on page 49.
- After the Merger -- Upon completion of the merger, DDR will own all of
our common shares. You will not own any of our common shares after
completion of the merger. Please read "The Merger
Agreement -- Consequences of the Merger" on page 44.
2
<PAGE> 8
QUESTIONS AND ANSWERS ABOUT THE PROPOSED TRANSACTIONS
The following questions and answers are intended to provide brief answers
to frequently asked questions concerning the merger and the proposed sale of
properties. These questions and answers do not, and are not intended to, address
all the questions that may be important to you. You should read carefully the
"Summary" section and the remainder of this document as well as the appendices
and the documents incorporated by reference in this document.
Q: WHAT WILL HAPPEN IN THE TRANSACTIONS?
A: If the transactions are approved, the sale of 31
of our properties to Value Enhancement Fund will occur. Immediately
following the sale of properties, DDR Sub will be merged into AIP. In the
merger, all of your shares will be converted into the right to receive
$ per share in cash and all shares in DDR Sub will be converted into
AIP common shares. The result of the merger is that DDR will be the sole
shareholder of AIP, controlling our remaining 39 properties and DDR will be
relieved of its obligation to purchase additional common shares or
preferred shares from AIP. If all or substantially all of our properties
remaining after the sale to Value Enhancement Fund are sold within six
months after the effective date of the merger for more than an agreed upon
amount, you may receive additional consideration.
Q: WHEN DO YOU EXPECT THE TRANSACTIONS TO BE
COMPLETED?
A: We are working to complete the transactions
during the first quarter of 2001.
Q: WHEN IS THE SPECIAL MEETING?
A: , 2001.
Q: WHO IS ENTITLED TO VOTE?
A: All persons and entities that are holders of AIP
common shares at the close of business on , 200 .
Q: WHAT ARE WE BEING ASKED TO VOTE UPON?
A: You are being asked to approve the merger of
DDR Sub into AIP and, immediately preceding the merger, the sale of 31 of
our properties to Value Enhancement Fund.
Q: WHAT VOTE IS REQUIRED TO APPROVE THE
TRANSACTIONS?
A: Approval of each of the transactions requires
the holders of 66 2/3% of our common shares outstanding on the record date
to vote in favor of each of the transactions.
Q: CAN DDR, AS A SHAREHOLDER OF AIP, VOTE ON
THE TRANSACTIONS?
A: Yes.
Q: WHY DID THE BOARD FORM A SPECIAL COMMITTEE?
A: Because four of our trust managers are
designees of DDR, one of our trust managers' employer has invested in DDR on
behalf of its clients, and one of our employee trust managers would receive
severance payments in connection with any change of control transaction.
These circumstances create actual or potential conflicts of interest for
those trust managers to which the special committee is not subject.
Therefore, the board appointed a special committee of three disinterested
trust managers to review and evaluate the proposals. Two of the three trust
managers resigned from the special committee before it made its
recommendation to the board on the proposals and subsequently voted against
the proposals.
Q: HOW DO THE BOARD OF TRUST MANAGERS AND THE
SPECIAL COMMITTEE RECOMMEND THAT I VOTE?
Our board of trust managers, acting on the recommendation of the remaining
member of our special committee, by a vote of a majority of our trust
managers not designated by DDR, has approved and recommended that
shareholders vote For approval of the proposals. The sole member of the
special committee and a majority of our trust managers not designated by
DDR believe that the merger is fair to, and in the best interests of, our
shareholders. The four trust managers that are designees of DDR abstained
from voting on the proposals. Our two trust managers that are not employees
or designees of our institutional shareholders resigned from the special
committee before it made its recommendation regarding the proposals and
thereafter voted against the proposals.
3
<PAGE> 9
Q: WHAT WILL HAPPEN TO MY COMMON SHARE
DIVIDENDS?
A: Under the merger agreement, we may pay a
dividend only in the minimum amount necessary to avoid jeopardizing our
status as a REIT under federal tax laws or to avoid having taxable income
for federal income tax purposes. The common consideration per share you
will receive in the merger would be reduced by the amount of any such
dividend. We may also pay a dividend based on cash generated from
operations if there is a delay of more than three days between the
scheduled closing on , 2001 and the actual closing date. Any
such dividend would not affect the amount of the merger consideration.
Q: WHAT WILL HAPPEN TO AIP'S EXECUTIVE OFFICERS
AFTER THE MERGER?
A. They will no longer be employed by AIP.
Q: WILL I OWE ANY U.S. FEDERAL INCOME TAXES AS A
RESULT OF THE MERGER?
A. The receipt of cash for common shares in the
merger will be a taxable transaction for U.S. federal income tax purposes
and may also be a taxable transaction under applicable state, local,
foreign or other tax laws.
Q: WHAT HAPPENS IF I TRANSFER MY SHARES AFTER THE
RECORD DATE?
A: The record date for the special meeting is
earlier than the expected date of the transactions. Therefore, transferors
of shares after the record date but prior to the transactions will retain
their right to vote at the special meeting, but the right to receive the
merger consideration will transfer with the shares.
Q: WHAT DO I NEED TO DO NOW?
A: Simply indicate on your proxy card how you
want to vote and sign, date and mail it to us in the enclosed envelope as
soon as possible.
Q: WHAT HAPPENS IF I DO NOT RETURN A PROXY CARD?
A: The failure to return your proxy card will have
the same effect as voting against the proposals.
Q: MAY I VOTE IN PERSON?
A: Yes. You may attend the special meeting and
vote your shares in person, rather than signing and mailing a proxy card.
Q: MAY I CHANGE MY VOTE AFTER I HAVE VOTED?
A: Yes. You may change your vote at any time
before your proxy is voted at the special meeting by submitting a new proxy
or you may attend the special meeting and vote in person. Simply attending
the meeting will not revoke your proxy.
Q: HOW WILL MY SHARES BE VOTED IF I RETURN A BLANK
SIGNED PROXY CARD?
A: Your proxy will be voted in favor of the
proposals.
Q: IF MY SHARES ARE HELD IN "STREET NAME" BY MY
BROKER, WILL MY BROKER VOTE MY SHARES FOR ME?
A: Your broker will vote your shares only if you
provide instructions on how to vote. You should instruct your broker how to
vote your shares, following the directions your broker provides. If you do
not provide instructions to your broker, your shares will not be voted and
they will be counted as votes against the transactions.
Q: SHOULD I SEND MY SHARE CERTIFICATES NOW?
A: No. After the merger is completed, you will
receive written instructions for exchanging your share certificates.
Q: WHO CAN HELP ANSWER MY QUESTIONS?
A: If you have additional questions about the
transactions, you should contact Tony Koeijmans at (972) 756-6000.
Q: AM I ENTITLED TO EXERCISE ANY DISSENTERS' RIGHTS
IN CONNECTION WITH THE MERGER?
A: Yes. Your rights to dissent are described on
page 61 and the procedures that you must follow to exercise your rights are
set forth on pages 61-62.
Q: WILL DDR SHAREHOLDERS BE REQUIRED TO VOTE ON
THE MERGER AGREEMENT?
A: No.
4
<PAGE> 10
SUMMARY
This summary highlights selected information from this proxy statement and
may not contain all of the information that is important to you. We have
included page references in parentheses to direct you to a more complete
description of the topics presented in this summary. To understand the merger
and the sale of properties fully and for a more complete description of the
legal terms of the merger and the sale of properties, you should read carefully
this entire proxy statement, the merger agreement and the property sale
agreement which are attached as appendices to this proxy statement.
THE COMPANIES (See page 53)
American Industrial Properties REIT
6210 N. Beltline Road, Suite 170
Irving, Texas 75062
(972) 756-6000
Web site: www.aipreit.com
We are a REIT focused on the light industrial property sector, including
office showroom, service center and flex properties, low-rise office and small
bay distribution buildings. AIP's portfolio of 70 properties comprises
approximately 7.5 million square feet in 11 states. We are based in Irving,
Texas and have acquired, managed and improved industrial and other commercial
properties since 1985.
Developers Diversified Realty Corporation
3300 Enterprise Parkway
Beachwood, Ohio 44122
(216) 755-5500
Web site: www.ddrc.com
DDR is a Beachwood, Ohio based REIT that currently owns and manages 209
shopping centers in 40 states totaling 49.2 million square feet of real estate
under management. DDR is a self-administered and self-managed REIT operating as
a fully integrated real estate company which develops, leases and manages
shopping centers.
DDR Sub was formed in August 2000 for the sole purpose of effectuating the
merger. DDR Sub is a subsidiary of DDR.
DDR, as of the record date, owns 46.0% of our issued and outstanding common
shares and has the right to designate four of our trust managers.
OVERVIEW OF THE TRANSACTIONS
Under the sale agreement, we will sell 31 of our properties to Value
Enhancement Fund for $292.2 million. Value Enhancement Fund is an investment
fund managed by Lend Lease. Neither Value Enhancement Fund nor Lend Lease is
affiliated with AIP. Neither of these entities directly owns any of our shares.
Immediately following the sale of properties, DDR Sub will be merged into
us. Our shareholders, other than DDR, DDR Sub and their respective direct and
indirect subsidiaries, will receive $ for each of our shares they own. The
aggregate $ million we will pay to our shareholders in connection with the
merger will be funded from the sale of the 31 properties to Value Enhancement
Fund, the $34.2 million of net proceeds we received when we sold our Manhattan
Towers property and from operations. While the proceeds from these sales and the
expected cash generated from operations are expected to be sufficient to pay the
common share consideration to the non-DDR shareholders, we may utilize such
funds to pay down existing lines of credit during the period prior to closing
and then would reborrow the funds as necessary under our existing lines of
credit to make the cash payments to the non-DDR shareholders at closing. In the
merger, DDR Sub shares will be converted into AIP shares. As a result, DDR will
become the sole shareholder of AIP, controlling our remaining 39 properties and
DDR will be relieved of its obligation to purchase additional common shares or
preferred shares from AIP. If AIP sells all or substantially all of its
properties remaining after the sale to Value Enhancement Fund during the six
months after the effective date of the merger, and if the net aggregate sale
price exceeds the aggregate agreed upon property values, you will receive a
distribution of your pro rata share of the excess.
If either of the transactions is not approved, neither transaction will be
completed.
5
<PAGE> 11
THE SPECIAL MEETING (See page 14)
The special meeting of our shareholders is scheduled to be held at 9:00
a.m., local time, on , 2001, at 2200 Ross Avenue, floor,
Dallas, Texas.
RECORD DATE; VOTING POWER (See page 14)
Our board of trust managers has fixed the close of business on
, 2001 as the record date to determine holders of our shares
entitled to notice of and to vote at the special meeting.
As of the record date, there were shares issued and outstanding, held
by approximately record holders. If you held common shares at the
close of business on the record date, you are entitled to one vote per share on
any matter that properly comes before the special meeting.
VOTES REQUIRED AND VOTING AGREEMENTS (See page 15)
The approval of the merger and of the sale of properties requires the
affirmative vote of holders of 66 2/3% of our common shares outstanding on the
record date. DDR has agreed with us to vote in favor of the proposals. Five of
our shareholders, USAA Real Estate Company, Morgan Stanley Dean Witter
Investment Management Inc., on behalf of certain clients, MS Real Estate Special
Situations Inc., LaSalle Investment Management, Inc., on behalf of certain
clients, LaSalle Investment Management (Securities), LP, on behalf of certain
clients, and their affiliates, beneficially own or have the right to vote in the
aggregate, together with DDR, approximately 70.7% of the total common shares
outstanding on the record date. The five shareholders have entered into voting
agreements with DDR and Value Enhancement Fund to vote the shares they own or
over which they exercise voting control in favor of the proposals. The voting
agreements signed by the LaSalle entities provide that they may vote against the
proposals if they believe they must do so to satisfy their fiduciary duties to
their investment advisory clients. Our trust managers and executive officers
collectively held a total of approximately 0.7% of the common shares outstanding
on the record date.
SPECIAL COMMITTEE
Our board of trust managers believed that eight of our trust managers,
Charles W. Wolcott, Albert T. Adams, Scott A. Wolstein, Robert H. Gidel, James
A. Schoff, Edward B. Kelly, Stanley J. Kraska, Jr. and T. Patrick Duncan had
actual or potential conflicts of interest in evaluating the transactions because
of their employment with us, their affiliation with DDR or their involvement in
litigation concerning a transaction involving AIP. Therefore, the board
appointed a special committee of three trust managers who did not have actual or
potential conflicts to review and evaluate the proposals. Two of the three trust
managers resigned from the special committee before it made its recommendation
to the board on the proposals and subsequently voted against the proposals.
FAIRNESS OF THE MERGER (See page 30)
The special committee has received, and the board is entitled to rely upon,
the opinion dated November 1, 2000 of Chase Securities Inc., the financial
advisor to the special committee. The opinion states that, on that date, the
cash consideration to be received by the holders of our common shares in the
merger was fair from a financial point of view to those holders. Based on the
terms of the merger agreement on that date, the per share cash consideration to
be received by the holders of the common shares was not less than $13.74 per
share, less any dividends paid to maintain REIT status or to keep us from having
REIT taxable income for federal income tax purposes. DDR, DDR Sub and their
respective direct and indirect subsidiaries will not receive any of the merger
consideration. For its services, Chase Securities received retainer fees
totaling $500,000. If the merger is completed, Chase Securities will receive an
additional $2.0 million, subject to upward adjustment. In addition, we have
agreed to reimburse Chase Securities for its reasonable expenses incurred in
connection with its services, including the fees and disbursements of its
counsel, and we have agreed to indemnify Chase Securities against various
liabilities, including liabilities arising under the federal securities laws.
The full text of the written opinion of Chase Securities is attached to this
proxy statement as Appendix A, and you should read it carefully. THE OPINION OF
CHASE SECURITIES IS DIRECTED TO THE SPECIAL COMMITTEE AND MAY BE RELIED UPON BY
THE
6
<PAGE> 12
BOARD OF TRUST MANAGERS AND IS NOT A
RECOMMENDATION TO YOU AS TO HOW YOU SHOULD VOTE AT THE SPECIAL MEETING.
CONFLICTS OF INTEREST (See page 37)
Some members of our board of trust managers and management have interests
in the merger that may conflict with your interests as a holder of our common
shares. As a result of the merger, our officers, trust managers, and parties
that designated some of our trust managers will receive a total of approximately
$ million in consideration for their shares, severance, options and dividend
equivalent rights, as described below.
- Our executive officers, Charles W. Wolcott, Marc A. Simpson, Lewis D.
Friedland and David B. Warner, will receive severance, option cash out
and dividend equivalent right cancellation payments totaling $
million in the aggregate. They will also have their medical benefits
continued for a period of up to one year or the benefits will be cashed
out. Mr. Wolcott also serves as a trust manager.
- The LaSalle entities, which have one representative on our board, and
which own beneficially, on behalf of certain clients, 7.6% of DDR's
outstanding common shares, will receive $ for their shares on the
same basis as our other shareholders.
- DDR, our largest shareholder, which has four representatives on our
board, will gain control of AIP and 39 of our remaining properties for
the assumption of approximately $ of debt and all of our remaining
obligations and liabilities after the merger. It will also be relieved of
its future funding obligations under its July 1998 share purchase
agreement with AIP.
AIP will continue to indemnify to the fullest extent permitted by law our
existing trust managers, officers and employees after the merger. Additionally,
we will continue the indemnification arrangements and trust managers' and
officers' liability insurance for our existing trust managers, officers and
employees after the merger. These obligations are guaranteed by DDR after the
merger.
OTHER TERMS OF THE MERGER AGREEMENT
The merger agreement is attached to this proxy statement as Appendix B. You
should read the merger agreement. It is the legal document that governs the
merger.
Conditions to the Merger (See page 49)
The completion of the merger depends upon the satisfaction of a number of
conditions, including:
- the approval of the merger by the holders of 66 2/3% of our outstanding
common shares;
- the absence of any order or legal restraint of any court or governmental
entity preventing or prohibiting the merger; the closing of the sale of
31 properties to Value Enhancement Fund for net cash proceeds of not less
than $135.4 million;
- the continued accuracy of each party's representations and warranties and
the fulfillment of each party's agreements contained in the merger
agreement;
- the absence of a material adverse effect, other than shareholder
litigation, with respect to AIP which would give DDR the right to
terminate the merger agreement;
- the delivery by our legal counsel of a legal opinion on specified tax
matters;
- the holders of no more than 10% of our outstanding common shares shall
have exercised dissenters' rights;
- the sale of our Manhattan Towers property for net proceeds of not less
than $34.2 million;
- our transaction expenses not exceeding $13.738 million;
- our net other assets being not less than $17.702 million; and
- our outstanding debt and available credit under our lines of credit being
not more than $137.4 million.
We have satisfied the condition regarding Manhattan Towers and [we are
deemed to have satisfied the conditions set forth above in the third, eighth,
ninth and tenth bullet points above].
7
<PAGE> 13
Other than the condition requiring shareholder approval, which is an independent
legal requirement, each party to the merger may waive any condition that is
intended for its benefit. If any of AIP, DDR or DDR Sub elects to waive a
condition and complete the merger, we will evaluate the facts and circumstances
giving rise to the waiver at that time. If we determine that these facts and
circumstances are material to shareholders, we will disclose this information in
a supplement to this proxy statement before the special meeting and will
resolicit your proxy.
Termination (See page 51)
Any party may terminate the merger agreement under a number of
circumstances, including the following:
- mutual written consent of the parties;
- any governmental entity has issued an injunction, order, decree or
ruling, or taken any other action restraining, enjoining or otherwise
prohibiting the merger that remains in effect on May 31, 2001;
- the merger has not been completed by May 31, 2001, but this right to
terminate the merger agreement will not be available to any party whose
breach of the merger agreement has been the cause of or resulted in the
failure to complete the merger by that date; or
- we fail to get approval of the merger from the holders of at least
66 2/3% of our common shares.
In addition, DDR or DDR Sub, but not AIP, may terminate the merger
agreement under a number of circumstances, including the following
circumstances:
- our board of trust managers has withdrawn or modified, in any manner
which is adverse to DDR or DDR Sub, its recommendation or approval of the
merger agreement;
- our board of trust managers has recommended to our shareholders or
approved an acquisition proposal from another party;
- we have signed a definitive agreement regarding an acquisition proposal
from a third party; or
- we breach the merger agreement or fail to satisfy our closing conditions.
AIP, but not DDR or DDR Sub, may terminate the merger agreement if prior to
the special meeting, our trust managers:
- withdraw or modify their recommendation of the merger agreement; or
- approve or recommend a superior acquisition proposal.
We may also terminate the merger agreement if DDR or DDR Sub breaches the
agreement or they fail to satisfy their closing conditions.
Termination fees (See page 51)
In the following circumstances, a party will be entitled to receive
termination fees:
- We must pay DDR $4.5 million if the merger agreement is terminated for
any of the following reasons:
- breach of any representation, warranty, covenant, obligation or
agreement by AIP such that the conditions to closing cannot be
satisfied by May 31, 2001;
- failure to close the sale to Value Enhancement Fund because of our
breach of the property sale agreement;
- if prior to the special meeting, the board withdraws its
recommendation in favor of the merger;
- if we enter into a definitive agreement with respect to an
acquisition proposal; or
- the board approves or recommends a superior acquisition proposal.
- DDR must pay us $4.5 million if the merger agreement is terminated
because DDR or DDR Sub breaches any representation, warranty, covenant,
obligation or agreement, such that the conditions to closing cannot be
satisfied by May 31, 2001. If the merger agreement is terminated because
of a breach by DDR, DDR is responsible for the $3.0 million termination
fee to be paid by us to Value Enhancement Fund. In all other cases, AIP
8
<PAGE> 14
would be responsible for any termination fee due to Value Enhancement
Fund.
SALE OF PROPERTY PORTFOLIO (See page 62)
In connection with the merger, you are being asked to approve the sale of
31 of our properties to Value Enhancement Fund for $292.2 million. The proceeds
from the sale will be used to help fund the cash payment for your shares in
connection with the merger. The property sale is conditioned upon the approval
of the merger and other customary conditions. The property sale agreement is
attached to this proxy statement as Appendix C. You should read the property
sale agreement.
TREATMENT OF SHARE OPTIONS AND DIVIDEND EQUIVALENT RIGHTS (See page 38)
When the merger occurs, each outstanding option to purchase our common
shares will be canceled in exchange for cash equal to the difference between the
$ cash merger consideration and the then current exercise price per share of
that share option. DDR will not be paid for any of its 100,000 options. We will
pay an aggregate of $ to cash out all outstanding options.
We have entered into mutual releases and settlement agreements with each of
our employees who holds dividend equivalent rights, commonly known as "DERs."
Under the terms of the agreements, each employee will receive an average of
$2.909 for each DER held. An aggregate of 460,000 DERs are outstanding. As a
result, we will pay an aggregate of $1,338,000 to cancel our DERs.
ACCOUNTING TREATMENT (See page 43)
The merger is expected to be accounted for using the purchase method of
accounting in accordance with GAAP.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES (See page 41)
You will generally recognize gain or loss for federal income tax purposes
equal to the difference between the amount of cash you receive in the merger and
the adjusted basis of your shares. DUE TO THE INDIVIDUAL NATURE OF TAX
CONSEQUENCES, YOU ARE URGED TO CONSULT YOUR TAX ADVISOR AS TO THE SPECIFIC TAX
CONSEQUENCES TO YOU OF THE MERGER, INCLUDING THE EFFECTS OF STATE, LOCAL OR
OTHER TAX LAWS.
REGULATORY APPROVALS (See page 43)
None of the parties is required to make filings with or obtain approvals
from regulatory authorities in connection with the merger, other than the filing
of articles of merger with Dallas County and the Secretary of State of the State
of Texas.
DISSENTERS' RIGHTS (See page 61)
Under Texas law, you are entitled to dissenters' rights. Your rights and
the procedures you must follow in order to validly exercise those rights are
described on page 61.
LITIGATION RELATING TO THE MERGER (See page 43)
Since the announcement of the proposed transactions, DDR, AIP and the trust
managers have been named as defendants in a purported shareholder class action
and derivative lawsuit seeking, among other things, to enjoin the proposed
merger. The complaint alleges breach of fiduciary duties, abuse of control of
AIP, waste and unjust enrichment in connection with the proposed merger. DDR,
AIP and the trust managers deny the allegations and intend to vigorously defend
themselves.
9
<PAGE> 15
HISTORICAL MARKET INFORMATION
Our common shares are traded on the New York Stock Exchange under the
symbol "IND." The following table shows the per share high and low sales prices
of our common shares on the last full trading day before the announcement on
November 2, 2000 of the signing of the property sale agreement and the merger
agreement.
<TABLE>
<CAPTION>
HIGH LOW
---- ------
<S> <C>
$13.38...................................................... $12.88
</TABLE>
The following table shows, for the periods indicated, the per share high
and low sales prices of our common shares as reported by the New York Stock
Exchange. The following table also shows the distributions paid per common share
during the periods indicated. The closing sale price of our common shares on
November 1, 2000 was $12.50. The closing sale price of our common shares on
, the last trading day prior to the date of this proxy statement, was
$ . You are encouraged to obtain current market quotations for our common
shares.
<TABLE>
<CAPTION>
DISTRIBUTIONS PER
HIGH LOW COMMON SHARE
------ ------ -----------------
<S> <C> <C> <C>
1998
First Quarter............................................... $14.38 $12.50 $ --
Second Quarter.............................................. 13.69 11.56 0.18
Third Quarter............................................... 13.75 9.88 0.20
Fourth Quarter.............................................. 11.75 9.13 0.20
1999
First Quarter............................................... $12.00 $ 9.56 $0.20
Second Quarter.............................................. 14.75 10.00 0.20
Third Quarter............................................... 15.00 10.63 0.22
Fourth Quarter.............................................. 13.00 11.00 0.22
2000
First Quarter............................................... $12.25 $10.06 $0.22
Second Quarter.............................................. 13.75 11.25 0.22
Third Quarter............................................... 14.25 12.69 0.22
Fourth Quarter.............................................. -- -- 0.22
</TABLE>
For the year ended December 31, 2000, we paid distributions totaling $0.88
per common share.
Under the merger agreement, we may authorize, declare and pay dividends
only in the minimum amount necessary to avoid jeopardizing our status as a REIT
under the Internal Revenue Code and to avoid having positive REIT taxable income
for federal income tax purposes. Any dividends paid for these purposes will
reduce the amount of merger consideration. We may also pay a dividend based on
cash generated by operations if there is a delay between the scheduled closing
date and the closing. Any dividend paid for that reason would not reduce the
amount of merger consideration.
If the merger is not consummated, our future distributions will be at the
discretion of our board of trust managers and will depend upon numerous factors,
including gross revenues received from properties, operating expenses, capital
expenditures for properties and interest expense incurred in borrowing. Pursuant
to Internal Revenue Code provisions, a REIT is generally required to distribute
at least 95% of its REIT taxable income. Recently enacted legislation reduces
the REIT distribution requirement to 90% for taxable years beginning after
December 31, 2000.
Distributions to the extent of our current and accumulated earnings and
profits for federal income tax purposes generally will be taxable to
shareholders as ordinary dividend income, ordinary gain or capital gain.
10
<PAGE> 16
Distributions in excess of earnings and profits generally will be treated
as a non-taxable reduction of the shareholder's basis in the common shares to
the extent thereof, which may have the effect of deferring taxation until the
sale of the shares, and thereafter as taxable gain. Following is an allocation
of our 2000 distributions to shareholders:
<TABLE>
<CAPTION>
AMOUNT OF
DISTRIBUTION
PER
DISTRIBUTION TYPE COMMON SHARE PERCENTAGE
----------------- ------------ ----------
<S> <C> <C>
Ordinary taxable dividend................................... $ %
20% rate capital gain.......................................
Section 1250 ordinary gain..................................
Return of capital...........................................
-------- -------
$ 100.00%
======== =======
</TABLE>
11
<PAGE> 17
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
We are providing the following information to aid you in your analysis of
the financial aspects of the transaction.
The historical consolidated operating and balance sheet data for the nine
months ended September 30, 2000 and 1999 have been derived from our unaudited
consolidated financial statements and accounting records. The historical
consolidated operating data for the years ended December 31, 1999, 1998, 1997,
1996 and 1995 and the balance sheet data as of December 31, 1999, 1998, 1997,
1996 and 1995 have been derived from our audited consolidated financial
statements and accounting records. This information may not be indicative of our
future operating results. This information is only a summary and you should read
it together with our consolidated financial statements, and quarterly financial
statements included in the Annual Report on Form 10K and Quarterly Reports on
Form 10Q, which are incorporated by reference into this document. All amounts
are in thousands, except per share and property data.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
----------------------- -----------------------------------------------------------
2000 1999 1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA
Property Revenues
Rents.................................. $ 54,608 $ 52,796 $ 71,028 $ 39,559 $ 9,367 $ 8,592 $ 8,676
Tenant reimbursements.................. 12,475 10,958 15,854 8,798 2,834 2,728 2,734
---------- ---------- ---------- ---------- --------- --------- ---------
Total Property Revenues......... 67,083 63,754 86,882 48,357 12,201 11,320 11,410
---------- ---------- ---------- ---------- --------- --------- ---------
Property Expenses
Property taxes......................... 7,335 6,631 9,453 4,980 1,607 1,421 1,397
Property management fees............... 1,763 1,284 1,678 1,474 418 430 428
Utilities.............................. 3,093 3,053 4,051 2,673 480 476 478
General operating...................... 3,030 2,794 3,864 2,489 891 849 795
Repairs and maintenance................ 2,222 2,072 3,330 2,218 524 529 431
Other property operating expenses...... 2,565 3,433 4,508 2,212 395 317 322
---------- ---------- ---------- ---------- --------- --------- ---------
Total Property Expenses......... 20,008 19,267 26,884 16,046 4,315 4,022 3,851
---------- ---------- ---------- ---------- --------- --------- ---------
Income from Property Operations.......... 47,075 44,487 59,998 32,311 7,886 7,298 7,559
Trust administration and overhead........ (3,187) (3,398) (4,628) (3,729) (2,504) (3,378) (2,404)
Depreciation............................. (9,698) (9,517) (13,819) (7,928) (2,774) (2,577) (2,479)
Amortization............................. (882) (476) (716) (455) (383) (332) (298)
Interest and other income................ 320 419 735 705 546 158 369
Interest on notes payable................ -- (111) (111) (869) (1,462) (4,003) (4,707)
Interest on mortgages payable............ (19,390) (19,607) (26,451) (14,270) (4,316) (1,898) (1,778)
Provision for possible losses on real
estate................................. -- -- -- (10,060) -- -- (600)
---------- ---------- ---------- ---------- --------- --------- ---------
Income (Loss) from Operations............ 14,238 11,797 15,008 (4,295) (3,007) (4,732) (4,338)
Minority interests in consolidated
subsidiaries........................... (385) (260) (313) 28 -- -- --
Gain (Loss) on sale of real estate....... 2,906 (75) (200) -- 2,163 177 (191)
Income in equity of joint venture........ 120 -- 624 -- -- -- --
---------- ---------- ---------- ---------- --------- --------- ---------
Income (Loss) before extraordinary
items.................................. 16,879 11,462 15,119 (4,267) (844) (4,555) (4,529)
Extraordinary items:
Gain (Loss) on extinguishment of debt.... (329) (585) (513) (23) 2,643 5,810 (55)
Provision for change in control costs.... -- -- -- (5,780) -- -- --
---------- ---------- ---------- ---------- --------- --------- ---------
NET INCOME (LOSS)........................ $ 16,550 $ 10,877 $ 14,606 $ (10,070) $ 1,799 $ 1,255 $ (4,584)
========== ========== ========== ========== ========= ========= =========
PER SHARE DATA (BASIC AND DILUTED)(A)
Gain (Loss) before extraordinary items... $ 0.81 $ 0.56 $ 0.74 $ (0.35) $ (0.26) $ (2.50) $ (2.50)
Extraordinary gain (loss)................ (0.02) (0.03) (0.03) (0.47) 0.80 3.20 (0.05)
---------- ---------- ---------- ---------- --------- --------- ---------
Net Income (loss)........................ $ 0.79 $ 0.53 $ 0.71 $ (0.82) $ 0.54 $ 0.70 $ (2.55)
========== ========== ========== ========== ========= ========= =========
Dividends paid........................... $ 0.66 $ 0.64 $ 0.86 $ 0.78 $ -- $ 0.20 $ 0.20
========== ========== ========== ========== ========= ========= =========
Weighted average Shares outstanding --
Basic and Diluted........................ 20,962,721 20,378,579 20,513,356 12,251,591 3,316,788 1,821,648 1,815,080
========== ========== ========== ========== ========= ========= =========
PROPERTY DATA
Total properties (at end of period)...... 71 75 74 65 36 13 15
Total square feet (at end of period)..... 7,814 8,344 8,057 7,391 4,175 1,451 1,592
Total square feet (weighted average)..... 7,859 8,260 8,286 5,453 1,699 1,579 1,557
OTHER DATA
Funds from operations.................... $ 24,010 $ 21,340 $ 28,947 $ 13,713 $ 1,159 $ (1,473) $ (243)
Cash flow provided by (used in):
Operating activities..................... $ 22,178 $ 20,702 $ 33,059 $ 2,961 $ (776) $ (5,658) $ 3,848
Investing activities..................... 7,940 (142,407) (141,150) (179,673) (61,898) 5,173 144
Financing activities..................... (30,045) 120,491 104,450 171,174 70,347 (3,199) (3,217)
</TABLE>
12
<PAGE> 18
The number of shares outstanding and per share data have been restated to
reflect the impact of the one-for-five reverse share split, which was approved
by our shareholders on October 15, 1997.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED DECEMBER 31,
SEPTEMBER 30, ---------------------------------------------------------
2000 1999 1998 1997 1996 1995
------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Assets
Real estate.......................... $ 634,091 $ 642,186 $ 505,132 $ 265,312 $ 94,472 $ 101,897
Accumulated depreciation............. (54,803) (46,931) (33,449) (25,521) (23,973) (23,441)
--------- --------- --------- --------- --------- ---------
Net real estate...................... 579,288 595,255 471,683 239,791 70,499 78,456
Cash and cash equivalents............ 9,404 8,220 11,567 13,804 5,376 8,353
Other assets, net.................... 18,531 17,207 17,080 4,800 3,061 2,573
--------- --------- --------- --------- --------- ---------
Total Assets................. $ 607,223 $ 620,682 $ 500,330 $ 258,395 $ 78,936 $ 89,382
========= ========= ========= ========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Mortgage and unsecured notes
payable........................... $ 320,536 $ 334,873 $ 266,539 $ 121,426 $ 53,216 $ 62,815
Accrued interest..................... 1,976 2,229 1,477 269 602 5,178
Tenant security deposits............. 3,067 2,954 2,138 1,254 471 521
Other liabilities.................... 15,050 15,587 17,651 7,231 1,964 1,620
--------- --------- --------- --------- --------- ---------
Total Liabilities............ 340,629 355,643 287,805 130,180 56,253 70,134
Minority interests................... 4,366 6,551 6,946 6,444 -- --
Shareholders' Equity:
Shares of beneficial interest........ 2,116 2,109 1,721 982 200 908
Additional paid in capital........... 383,458 383,067 327,805 224,363 127,856 124,605
Retained earnings.................... (123,346) (126,688) (123,947) (103,574) (105,373) (106,265)
--------- --------- --------- --------- --------- ---------
Total Shareholders' Equity... 262,228 258,488 205,579 121,771 22,683 19,248
--------- --------- --------- --------- --------- ---------
Total Liabilities and
Shareholders' Equity....... $ 607,223 $ 620,682 $ 500,330 $ 258,395 $ 78,936 $ 89,382
========= ========= ========= ========= ========= =========
</TABLE>
13
<PAGE> 19
THE SPECIAL MEETING
DATE, TIME AND PLACE OF THE SPECIAL MEETING
This proxy statement is being furnished to the holders of our common shares
in connection with the solicitation of proxies by the board of trust managers
for use at the special meeting of shareholders. The special meeting will be held
on , 2001 at 9:00 a.m., local time, at 2200 Ross Avenue, floor,
Dallas, Texas.
MATTERS TO BE CONSIDERED AT THE SPECIAL MEETING
At the special meeting, holders of our common shares will consider and vote
upon a proposal to approve the merger agreement with DDR and DDR Sub and the
transactions contemplated thereby, and a proposal to approve the property sale
agreement with Value Enhancement Fund and the transactions contemplated thereby.
Additional information concerning the special meeting, the merger agreement and
the property sale agreement is set forth below, and copies of the merger
agreement and the property sale agreement are attached to this proxy statement
as Appendix B and Appendix C, respectively, and incorporated by reference into
this proxy statement.
PROXY SOLICITATION
We will bear the expense of preparing, printing and mailing this proxy
statement and the proxies solicited by this document. In addition to the use of
the mails, proxies may be solicited by our officers and trust managers and
regular employees, without additional remuneration, by personal interviews,
written communications, telephone, telegraph or facsimile transmission. We also
will request brokerage firms, nominees, custodians and fiduciaries to forward
proxy materials to the beneficial owners of common shares held of record by
these brokerage firms, nominees, custodians and fiduciaries and will provide
reimbursement for the cost of forwarding the materials in accordance with
customary charges.
RECORD DATE AND QUORUM REQUIREMENT
The record date for the special meeting has been fixed as the close of
business on , 2001. Holders of our common shares are invited to
attend the special meeting. Only holders of our common shares on the record date
may vote at the special meeting and they will have one vote per share on matters
properly presented at the special meeting.
On the record date, there were common shares outstanding, which
were held by approximately record holders. As of the record date, our
trust managers and executive officers and their affiliates were entitled to vote
common shares, representing approximately % of the total common
shares then outstanding. Our trust managers (other than Messrs. Bricker and
Giles) and our executive officers have advised us that they intend to vote their
shares in favor of the transactions. Messrs. Bricker and Giles have notified us
that they intend to vote against the transactions. They do not intend, however,
to make a recommendation with respect to the transactions.
A list of shareholders will be available for examination by holders of our
common shares for any purpose related to the special meeting, during the 10-day
period preceding the special meeting, at our offices, 6210 N. Beltline Road,
Suite 170, Irving, Texas 75063.
The presence at the special meeting, either in person or by proxy, of the
holders of a majority of the outstanding common shares entitled to vote will
constitute a quorum for the transaction of business by the holders of common
shares at the special meeting.
Common shares present in person or represented by proxy, including shares
whose holders abstain or do not vote with respect to one or more of the matters
presented for shareholder approval, will be counted for purposes of determining
whether a quorum exists at the special meeting.
14
<PAGE> 20
REQUIRED VOTE
The vote of the holders of 66 2/3% of our common shares outstanding on the
record date is the only vote required to approve each of the proposals. Each of
the Morgan Stanley Dean Witter entities, USAA Realco and the LaSalle entities
have signed agreements with each of Value Enhancement Fund and DDR, and DDR has
agreed with us, to vote the common shares over which each has beneficial
ownership or voting control, representing in the aggregate approximately 70.7%
of the total common shares outstanding on the record date, in favor of the
proposals. If these shareholders vote in accordance with their voting
agreements, the proposals will be approved. The LaSalle entities have the right
to vote against the proposals if they believe they should do so to satisfy their
fiduciary duties to their investment advisory clients. Approval of at least a
majority of the non-DDR shareholders is not required to complete the merger.
VOTING PROCEDURES
Common shareholders who attend the special meeting may vote by ballot.
However, we know that many of you may not be able to attend the special meeting.
Accordingly, our board of trust managers is soliciting proxies so that each
holder of common shares on the record date has the opportunity to vote on the
sale of properties, the merger and any other proposal to be considered at the
special meeting. When a proxy card is returned properly signed and dated, the
shares represented by the proxy card will be voted in accordance with the
instructions on the proxy card. If you do not return a signed proxy card or vote
your common shares at the special meeting, your common shares will not be voted
and thus will have the effect of a vote against the transactions. A properly
executed proxy marked "Abstain" will not be voted. Since the affirmative vote of
66 2/3% of the common shares outstanding and entitled to vote at the special
meeting is required to approve the transactions, a proxy marked "Abstain" will
have the effect of a vote against the transactions. Abstentions occur when a
shareholders affirmatively elects to abstain from voting on the matter at issue
by so marking his or her proxy card.
Except for routine and non-controversial matters, the rules of the New York
Stock Exchange do not permit brokers and nominees to vote the shares that they
hold for customers either for or against a proposal without specific
instructions from the person who beneficially owns those shares. The votes not
permitted to be cast on non-routine matters are called "broker non-votes."
Broker non-votes will be treated as shares that are present for the purpose of
determining the presence of a quorum. However, for the purposes of determining
the outcome of any matter as to which the broker or nominee has indicated on the
proxy that it does not have discretionary authority to vote, those shares will
be treated as not entitled to vote with respect to that matter. The merger and
the sale of the properties are not considered routine and non-controversial
matters for this purpose. Therefore, if your common shares are held by a broker
or other nominee and you do not give your broker or nominee instructions on how
to vote your shares on the transactions, this will have the same effect as
voting against the transactions.
You are urged to mark the box on the proxy card to indicate how your common
shares are to be voted. If you return a signed proxy card, but do not indicate
how your shares are to be voted, the common shares represented by the proxy card
will be voted "FOR" the merger and the sale of the properties. The proxy card
also confers discretionary authority on the individuals named on the proxy card
to vote the shares represented by the proxy card on any other matter that is
properly presented for action at the special meeting.
You may revoke an executed and returned proxy card at any time before it is
voted by:
- notifying in writing our corporate secretary prior to the vote at the
special meeting, at American Industrial Properties REIT, 6210 N. Beltline
Road, Suite 170, Irving, Texas 75063;
- granting a subsequent proxy; or
- appearing in person and voting at the special meeting. Attendance without
voting at the special meeting will not in and of itself constitute
revocation of a proxy.
15
<PAGE> 21
OTHER MATTERS TO BE CONSIDERED
We are not aware of any business or matter other than the proposals to
approve the merger and the sale of 31 of our properties. If, however, any other
matter properly comes before the special meeting, the proxy holders will vote on
these matters in their discretion.
SPECIAL FACTORS
GENERAL DESCRIPTION
At the time the merger becomes effective, DDR Sub will be merged with and
into AIP. We will be the surviving entity in the merger and AIP will be governed
by our current declaration of trust and bylaws. As a result of the merger, our
common shareholders, other than DDR, DDR Sub and their respective direct and
indirect subsidiaries, will receive $ in cash, without interest, for
each common share they hold. DDR will be our sole shareholder, thereby
controlling our remaining 39 properties. If AIP sells all or substantially all
of its properties remaining after the sale to Value Enhancement Fund within six
months after the effective date of the merger, and if the sale price exceeds
values determined prior to the merger by AIP and DDR, you will receive
additional merger consideration. The additional consideration per share will be
calculated by subtracting the agreed value from the sale price and dividing the
result by the total number of common shares, including shares held by DDR and
its affiliated entities, outstanding on the closing date.
BACKGROUND OF THE MERGER
Since our formation, our fundamental business objective has been to
maximize shareholder value by maintaining long-term growth in funds from
operations for distribution to shareholders. To achieve this objective, we
commenced our operations with an emphasis on the acquisition and operation of
light industrial/office flex properties. More recently, we have focused on
maximizing the internal growth of our portfolio through internalizing property
management and accounting.
Beginning in early 1998 and continuing into 1999, market prices for
publicly traded REITs experienced significant declines. During this period,
there were relatively few real estate offerings in the public equity markets and
the liquidity of the real estate debt markets had tightened. As a result, we
were constrained from obtaining financing through the public equity or debt
markets. The only equity financing available to us was through sales of our
common and/or preferred shares to DDR under the July 1998 share purchase
agreement. For a discussion of that agreement, see "Transactions and
Relationships Between AIP and DDR" on page 39. Because of these developments, we
were limited in our ability to achieve our business objective of increasing
funds from operations through strategic acquisitions.
In early 1999, our board of trust managers held several meetings to
discuss, among other things, the performance of and growth opportunities for
AIP. The trust managers also evaluated our business plan and discussed the share
price and the need to increase shareholder value, including how to promote
analyst coverage. These discussions led to the determination in May 1999 that we
should retain the services of Salomon Smith Barney Inc. to assist us in our
review of strategic alternatives, including a sale of AIP, a strategic merger
with a complementary real estate entity, selected asset sales, liquidation of
AIP, and continuation of AIP's strategy.
From mid-May through August 1999, our board of trust managers held several
meetings to discuss, and were updated periodically as to, the progress of AIP's
strategic alternative review.
During this period, our trust managers created a committee of the board
consisting of Messrs. Wolcott, Wolstein, Gidel, Bricker and Morris to
investigate the different strategic alternatives.
On August 4, 1999, the trust managers held their quarterly meeting. At this
meeting, the trust managers directed Salomon Smith Barney, AIP's financial
advisor, to begin contacting select potential
16
<PAGE> 22
buyers in order to explore the interest of these parties in a possible
transaction with AIP and the valuation levels that could be obtained in a
transaction as part of AIP's strategic alternative review.
Following this meeting, our board of trust managers and management, with
the assistance of Salomon Smith Barney, identified potential buyers based upon
several criteria, including: (1) parties that owned or had invested in flex
properties; (2) parties that had real estate portfolios located in geographic
regions where AIP's properties are located; or (3) parties that were well known
institutional real estate investors (including opportunity funds and pension
funds) to which AIP's growth characteristics and size might be attractive. The
initial list included 50 potential buyers comprised of 16 public companies, 19
opportunity funds and 15 pension fund advisors. As the process continued, the
list expanded to include an additional 10 buyers as a result of outside
inquiries.
In mid-September 1999, a process was undertaken to elicit offers from
interested parties for all or a significant portion of our assets. Some parties
which expressed interest in only specific assets were encouraged to submit bids
for only such assets even though our preference remained that if the decision
was made to sell our assets, we would like to sell all of our assets in a single
transaction. In total, confidentiality agreements were ultimately sent to 60
potential buyers which had indicated interest in a possible transaction with
AIP.
On September, 10, 1999, the trust managers reestablished the board
committee for purposes of evaluating strategic alternatives available to AIP.
The committee membership was changed to reduce the size of the committee and to
have broader institutional representation on the committee. Messrs. Wolstein,
Bricker, Duncan and Morris were appointed as the members of the committee. The
committee was empowered to evaluate the strategic alternatives available to AIP
and to make a recommendation to the full board.
In the initial round of bids, two privately-held companies submitted
preliminary indications of interest for the entire company, subject to due
diligence, of $14.00 and $12.50 to $14.25 per share (gross valuation before
transaction costs), respectively. Additionally, Lend Lease orally indicated a
total asset valuation, subject to due diligence, of approximately $625 million,
or $13.35 per share on a gross valuation basis without deduction for transaction
expenses, and another institutional investor indicated that it was evaluating
making a joint proposal for the industrial portion of our assets with a public
company as its partner at a valuation of approximately $350 million. Four other
bidders submitted indications of interest for portions of the Company's
portfolio ranging from one asset for $3 million to 14 assets for $140 million.
On November 3, 1999, our board of trust managers convened its regular
quarterly meeting. AIP's advisors also attended the meeting. Mr. Wolcott
disclosed to the board that he had been contacted by representatives of one of
the bidders, referred to as "bidder A," regarding the possibility of management
participating in a possible bid for AIP or its assets. Mr. Wolcott stated that
he had informed bidder A that he would have to notify the committee of
management's potential participation and discuss it with the board before
engaging in any discussions. Mr. Wolcott confirmed that he had not seen, nor had
he participated in the preparation of bidder A's written bid. Salomon Smith
Barney stated that the written bid from bidder A did not reference any agreement
with management or any condition to its bid of management's participation. A
discussion followed as to the nature of management's participation in any of the
bids and the process for evaluating the strategic alternatives available to AIP.
AIP's legal and financial advisors were directed to exclude management from any
discussions with bidders while bidder A continued to be a potential bidder.
On November 15, 1999, our trust managers met with AIP's advisors to discuss
the composition and the formation of a special committee of trust managers in
connection with AIP's review of strategic alternatives and to receive an update
on the status of the bid process. Mr. Wolcott then updated the board as to the
status of management's potential participation with bidder A. Mr. Wolcott stated
that management had not reached an agreement with bidder A but that negotiations
were ongoing. Salomon Smith Barney then proceeded to update the board on the
status of the bid process. Following a discussion of the potential conflicts of
interest, the board then formed a special committee to consist of three
disinterested trust managers, Messrs. Bricker, Giles and Morris, and authorized
the special committee to
17
<PAGE> 23
review, evaluate and make a determination with respect to acquisition proposals
and other strategic alternatives and report their conclusions to the board.
On November 20, 1999, the newly formed special committee, comprised of
Messrs. Bricker, Giles and Morris, held its organizational meeting, elected Mr.
Bricker as chairman, established a tentative schedule and agenda for its
meetings and selected Salomon Smith Barney and Thompson & Knight L.L.P. to serve
as independent financial advisors and independent counsel, respectively, to the
committee. The committee then reviewed with Salomon Smith Barney strategic
alternatives and the status of various indications of interest for AIP. The
committee discussed in detail the interests of members of our board of trust
managers in connection with acquisition proposals. At this meeting, counsel for
AIP reviewed the basic form of acquisition documents to be submitted to
prospective bidders and counsel for the special committee reviewed the role of
special committees and the duties and responsibilities of the special committee
to AIP and the holders of its common shares.
From November 1999 through October 2000, the special committee held 38
meetings. There was unanimous attendance at the meetings, except that Mr. Giles
did not attend the meetings on April 24 and May 24, 2000 and one of the meetings
on May 26, 2000. Messrs. Bricker and Giles resigned from the special committee
in August 2000.
On November 22, 1999, the special committee met and reviewed with AIP's
financial advisor, Salomon Smith Barney, the status of discussions and
negotiations with prospective bidders and the status of their due diligence and
data room reviews.
On November 24, 1999, we issued a press release disclosing our exploration
of strategic alternatives. Management of AIP notified Mr. Wolstein that
management had terminated its discussions with bidder A and management would be
available to participate in discussions with bidders.
On December 6, 1999, our special committee and the other trust managers met
for a transaction update and to discuss revised indications of interest that had
been submitted by those third party bidders that continued to express an
interest in a possible transaction with AIP. Lend Lease had submitted a final
written indication of interest for the entire company at a price of $13.58 per
share (net of assumed transaction costs of $9.9 million). Bidder A had submitted
a final written indication of interest for the entire company at a price of
$13.00 per share (net of unspecified transaction costs), assuming consummation
of various property sales and the conversion of AIP equity interests into
mezzanine financing. The institutional investor that had offered $13.00 to
$13.50 in its initial indication, indicated that it had not finalized due
diligence sufficiently to confirm that its final offer would be in this range.
The other privately-held bidder provided a verbal indication of $10.40 to $11.00
(net of unspecified transaction costs), but did not submit a written indication.
At this meeting, the special committee directed Salomon Smith Barney to decline
the verbal offer from one of the privately-held bidders, and confirm the bids of
bidder A and Lend Lease while waiting for the institutional investor's final
indication. The special committee also directed Salomon Smith Barney, among
other things, to obtain individual asset bids for properties that may be able to
be sold separately.
On December 10, 1999, the institutional investor indicated that, based upon
extensive work performed over the past 10 days, it could not confirm its
preliminary bid range. This bidder indicated its revised bid would be in the
upper $12.00 range and, therefore, it would not be submitting a firm bid.
On December 13, 1999, the special committee met with AIP's advisors and was
updated regarding bid submissions and potential bid submissions by third
parties. At this meeting, the special committee also discussed with its advisors
other strategic alternatives, including the sale of AIP, a continuation or
modification of the current business strategy and liquidation of AIP.
On December 13, 1999, our board of trust managers met to review the status
of AIP's strategic alternatives. At this meeting, the trust managers reviewed
with Salomon Smith Barney then current REIT market conditions, the bids received
and alternatives to be considered by the board, including completing the current
sale process, continuing as a public company or liquidating assets.
18
<PAGE> 24
After this meeting, the special committee instructed Salomon Smith Barney
to notify Lend Lease and bidder A that their bids were too low, and to attempt
to seek a higher value from these parties.
Bidder A indicated that it was unable to raise its bid. Lend Lease
indicated that it might be able to bid a higher value for a significant portion
of our assets if it were not required to bid for the entire company. Lend Lease
was encouraged to re-bid on this basis.
On December 17, 1999, Lend Lease submitted a bid to acquire 35 of our
properties for $361 million.
On December 23, 1999, the special committee met with AIP's advisors to
discuss and review, among other things, the revised offer submitted by Lend
Lease and a revised business strategy for AIP prepared by management. At this
meeting, the special committee was informed by Salomon Smith Barney that DDR had
indicated an interest in a two-step transaction in which some of AIP's assets
would be sold to Lend Lease and AIP would then merge with DDR. The special
committee authorized Salomon Smith Barney to discuss with DDR and Lend Lease
possible offers for AIP on that basis.
On January 13, 2000, Lend Lease and DDR, along with AIP's and DDR's
financial advisors, met to discuss possible proposals. At this meeting, DDR and
Lend Lease discussed allocating assets among collateral pools in order to
minimize debt prepayment penalties. DDR also encouraged Lend Lease to bid on
more assets.
On January 26, 2000, our board was updated as to potential proposals from
Lend Lease and DDR. At this meeting, Salomon Smith Barney indicated that it had
discussed and reviewed with Lend Lease and AIP's management team a portfolio of
41 assets that Lend Lease was evaluating in contemplation of a bid.
Additionally, Salomon Smith Barney reported that bidder A had reiterated its
interest in pursuing a transaction with AIP for $13.25 (net of unspecified
transaction costs) per share to AIP shareholders.
On February 1, 2000, Lend Lease submitted a revised bid for 38 of our
properties for $365 million. Subsequently, Lend Lease removed six properties and
bid $322.4 million for 32 of our properties.
On February 8, 2000, Chadwick Saylor, DDR's financial advisor, notified
Lend Lease that DDR could not propose a transaction to AIP unless Lend Lease's
portfolio acquisition created more value to us.
On February 14, 2000, Lend Lease orally communicated to DDR and Salomon
Smith Barney a revised offer of $330 million for the same 32 assets. Lend Lease
emphasized that this offer was its final offer and, if it was not accepted in a
timely manner, Lend Lease would pursue other opportunities.
Based on the revised Lend Lease offer, DDR orally indicated to the special
committee that, in order to facilitate a transaction, it would consider
acquiring all our remaining real estate assets in a merger transaction.
During January and early February, several calls were received from bidder
A reiterating its interest in pursuing a transaction for our entire company.
Bidder A submitted a revised bid on February 7, 2000 reflecting a valuation of
approximately $13.30 (net of unspecified transaction costs) per AIP common
share.
On February 18, 2000, the special committee met with AIP's advisors and was
updated as to the communications and developments that had occurred with respect
to proposals to acquire all of AIP since its last meeting, including a revised
indication of interest from bidder A that placed a valuation for us at $13.35
(net of unspecified transaction costs) per common share. The special committee
was informed that the bidder A proposal contemplated an offer of $11.55 in cash
per share and $1.80 in proceeds from the sale of certain of our properties prior
to consummation of the transaction with bidder A. It was noted that the bidder A
proposal required conversion of equity interests in AIP and contemplated
mezzanine financing and material conditions to consummation of the proposal. At
this meeting, the special committee was also informed that negotiations with
Lend Lease resulted in an offer of $330 million for 32 of our properties and
that Lend Lease had indicated that the offer was final. DDR indicated that it
would consider acquiring all of the remaining assets and assuming all remaining
liabilities in a merger transaction. Based on DDR's analysis of the transaction
costs, the DDR and Lend Lease proposals indicated a value of
19
<PAGE> 25
$14.21 per AIP common share before transaction costs and $13.59 after
transaction costs estimated to be approximately $13.0 million. The special
committee reviewed the basic terms and conditions of bidder A's proposal and
concluded that the revised offer was inadequate as compared to the combined Lend
Lease and DDR proposals. The special committee directed Salomon Smith Barney to
continue negotiations with Lend Lease and DDR to increase the per share price to
non-DDR shareholders in the event that the proposed acquisitions were
consummated.
The special committee met on February 22, 2000 and February 23, 2000 to
discuss the Lend Lease and DDR proposals. The special committee also discussed
DDR's existing share purchase obligations under its share purchase agreement
with AIP, and our acquisition of properties previously owned by an affiliate of
DDR. The special committee also discussed various alternatives to increase the
proposed bid price for our common shares and established its strategy for the
conduct of further negotiations with DDR. The special committee was informed by
Salomon Smith Barney that DDR had indicated that it was reluctant to guarantee a
firm price to non-DDR shareholders because DDR's due diligence was incomplete.
The special committee concluded that it would be advisable and in the best
interest of AIP and its shareholders to encourage further negotiations with Lend
Lease and DDR, and in order to further such negotiations, the special committee
concluded that AIP should enter into exclusivity agreements with Lend Lease and
DDR for a period of two weeks. At this meeting, the special committee reviewed
the estimated transaction costs, including investment banking fees, legal,
accounting and other fees, debt prepayment and assumption fees and severance
payments under existing employment contracts. The special committee discussed
the ways of possibly reducing the amount of such costs in order to increase the
net price to AIP shareholders, including negotiating the amount of severance
payments to management and the fees payable to AIP's financial advisors.
On February 23, 2000, the board of trust managers held a regular quarterly
meeting. The special committee stated that additional time would be required to
complete its evaluation of strategic alternatives and review and consideration
of various acquisition proposals submitted by third parties. The special
committee recommended that exclusivity agreements be executed with each of DDR
and Lend Lease that would restrict us from negotiating with other parties from
February 28, 2000 through March 13, 2000 to provide the parties additional time
to complete their respective due diligence review of us and our assets. After
discussion, our trust managers agreed to provide these exclusivity agreements.
On February 25, 2000, the special committee met and discussed the
anticipated transaction costs, including the amount of anticipated severance and
other payments to management of AIP, in connection with the consummation of the
Lend Lease and DDR proposals.
On March 22, 2000, the special committee met with AIP's advisors and was
updated as to discussions, negotiations and developments since the special
committee's last meeting. The special committee was advised that DDR and Lend
Lease had submitted preliminary bids resulting in a gross price range before
transaction costs of $13.39 to $13.62 per AIP common share, with a net cash
price range to non-DDR shareholders of $13.09 to $13.32 after approximately $6.0
million of estimated transaction costs, as calculated by DDR. The special
committee reiterated its desire to increase the net price to our shareholders
from the proposed range through further negotiations with Lend Lease and DDR.
After further discussions, the special committee rejected the DDR and Lend Lease
offers and instructed Salomon Smith Barney to relay the special committee's
views to DDR and Lend Lease.
On March 31, 2000, the special committee met and reviewed a draft proposal
dated March 24, 2000 from DDR setting forth a proposed price to non-DDR holders
of AIP common shares of $13.85 per AIP common share before transaction costs.
Another alternative, under which the proceeds from the proposed sale of assets
to Lend Lease could be used to repurchase AIP common shares from DDR and other
major shareholders, was also discussed. The chairman noted that, at his request,
management had prepared and distributed to members of the special committee a
written analysis of this buy-out proposal. The special committee discussed the
analysis and the summary of the buy-out assumptions. The special committee also
reviewed and discussed an analysis of transaction costs prepared by management.
The special committee noted that, based on management's analysis of the
transaction costs associated with the Lend
20
<PAGE> 26
Lease and DDR transactions, the net price to non-DDR shareholders following
confirmation of the transactions would be in the range of $13.04 to $13.24 per
AIP common share, reflecting estimated transaction costs of $13.0-$18.0 million,
as calculated by management. The special committee discussed the viability of
redeeming DDR's and other major shareholders' share positions and the comparison
of that transaction with the proposed DDR and Lend Lease bids for AIP. At this
meeting, the special committee also discussed the possible retention of a
separate financial advisor for the special committee to advance negotiations
with DDR and Lend Lease.
On April 4, 2000, the special committee met to consider and take action
upon the pending bids of Lend Lease and DDR at a resulting gross valuation cash
price of $13.85 per AIP common share to the non-DDR shareholders, reflecting a
net price to non-DDR shareholders in the range of approximately $13.04 to $13.27
per AIP common share. The committee reviewed and summarized the discussions and
negotiations since the bid proposals were first presented to the committee in
December 1999. Mr. Bricker, the chairman of the special committee, summarized
the alternatives available to AIP, including accepting or rejecting the
acquisition proposals of DDR and Lend Lease, rejecting the DDR proposal and
consummating the sale of assets to Lend Lease followed by the liquidation of AIP
or the use of the proceeds to repurchase AIP common shares, and continuation as
an independent company with a revised business plan. Mr. Wolcott joined the
meeting and responded to questions from members of the committee regarding the
net asset valuation prepared by management. Following this discussion, the
committee voted two to one (with Mr. Morris voting against) to reject the latest
DDR and Lend Lease proposals.
On April 7, 2000, the special committee met telephonically and Mr. Bricker
reviewed the status of the pending negotiations with Lend Lease and DDR,
including the revised bid dated April 5, 2000 from DDR proposing an increase in
price for the remaining assets of AIP, following the sale of assets to Lend
Lease, resulting in an aggregate value for AIP of $14.00 per AIP common share on
a gross basis and $13.70, net of estimated transaction costs of approximately
$6.0 million, as calculated by DDR. After a full discussion, the special
committee was unable to reach a conclusion regarding the revised proposal.
During the discussion, the special committee authorized AIP management to
continue direct negotiations with Lend Lease regarding the proposed sale of
assets. Chase Securities, the financial advisor being considered by the special
committee, joined the conference call and was briefed on the current status of
the negotiations. Chase Securities detailed its qualifications, experience and
independence and discussed the scope of the proposed assignment and fee
arrangements.
On April 13, 2000, AIP asked Lend Lease if it would remove from its bid the
Manhattan Towers asset. In addition, AIP asked Lend Lease to reevaluate its
decision not to purchase five assets that were part of the portfolio on which
DDR had bid. Lend Lease also agreed to reconsider those five properties.
On April 19, 2000, pursuant to its discussions with management, Lend Lease
submitted a revised bid that excluded the Manhattan Towers asset. The revised
bid amount of $288.7 million was $44 million lower than its previous bid, which
had included Manhattan Towers. Lend Lease informed AIP that it would not bid on
the five properties it was asked to reevaluate.
On April 24, 2000, the special committee met to discuss Chase Securities'
proposed activities relating to developing transaction valuations, developing
alternatives to the separate pending proposals of Lend Lease and DDR, and
initiating direct negotiations with DDR and Lend Lease. Chase Securities was
then formally engaged to serve as the special committee's financial advisor.
On April 25, 2000, the board of trust managers met to discuss the status
and process of the deliberations. Our board of trust managers agreed that the
negotiation of a potential Lend Lease transaction should be given priority
pending the review of any other strategic alternatives.
On May 2, 2000, the special committee met and Chase Securities made a
detailed presentation regarding its activities since its retention by the
committee. The presentation included analyses of all offers, a preliminary real
estate analysis, a review of the DDR July 1998 share purchase agreement, trading
characteristics of AIP, and a review of strategic alternatives available to AIP
in light of the current market situation, including merger/sale transactions,
liquidation, or a stand alone transaction with DDR. Chase
21
<PAGE> 27
Securities also reviewed the discussions it had with Lend Lease and DDR. In
reviewing the strategic alternatives, a number of considerations were discussed
including limited liquidity for AIP shares, significant overhang represented by
large institutional investors, lack of third party research coverage, and
transaction costs associated with any transaction, among other discussion items.
Chase Securities also provided an outline of the next steps and considerations
to be undertaken, including finalizing a strategic alternative review and
formulating final and thorough responsive proposals to DDR and Lend Lease. After
a full discussion, the committee unanimously concluded that it could support a
minimum net price of $13.50 per AIP common share. The committee requested that
Chase Securities meet with representatives of DDR to discuss the transaction
valuations and minimum price per share.
On May 3, 2000, our board of trust managers held its regular quarterly
meeting. The special committee reported, based upon the advice of Chase
Securities, that it was recommending that AIP proceed in negotiations with Lend
Lease on the sale of a significant portfolio of assets and with DDR on a
proposed merger of AIP into DDR simultaneously with the sale to Lend Lease and
with the sale of Manhattan Towers as a standalone transaction. In addition, the
chairman of the special committee, Mr. Bricker, had a telephonic discussion with
representatives from Lend Lease expressing the special committee's desire to
move forward with a transaction and the execution of a term sheet.
On May 11, 2000, the special committee met to discuss definitive term
sheets for the pending bids of Lend Lease and DDR to acquire AIP and the
analysis of the proposed transactions prepared by management. In particular, the
committee reviewed a summary of the provisions of the Lend Lease term sheet,
including the purchase price of $288.7 million in cash and debt assumption, the
earnest money deposit, the conditions to closing, the description of properties
and the required documentation, and the provisions of the DDR term sheet,
including the structure of the proposed transaction, the merger consideration,
the possible subsequent sale of properties by DDR, the closing, the conditions
to closing, indemnity, voting arrangements and termination and break-up fees.
The committee also reviewed summaries of prior discussions between members of
the committee and other third parties to acquire specific assets of AIP. At this
meeting, the special committee received a report from the transaction costs
committee, a separate committee of trust managers appointed by the board to
review and negotiate transaction costs in connection with the Lend Lease and DDR
proposals, including executive compensation payments, investment banking fees
and legal fees.
The special committee met on May 24, 2000 and twice on May 26, 2000 to
discuss the status of the negotiations with Lend Lease. The committee outlined
its position with respect to several material terms contained in the Lend Lease
term sheet, including the purchase price for the properties, the required
minimum debt assumption, the payment of costs associated with the transaction,
the respective amounts of the escrow deposit, break-up fees and the closing date
and closing conditions, and authorized Chase Securities, AIP management and
counsel to continue negotiations with Lend Lease in accordance with the
committee's conclusions. The committee also reviewed and discussed the response
of DDR to the definitive term sheet submitted by AIP. The committee concluded
that an agreement needed to be reached with DDR regarding transaction costs,
working capital of AIP at closing and other cost assumptions in order to arrive
at an acceptable minimum net price per share to AIP shareholders upon
consummation of the merger. The committee directed Chase Securities to continue
to negotiate with DDR to resolve these issues.
On May 30, 2000, the board of trust managers held a meeting during which
the trust managers directed management to proceed with the listing and sale of
Manhattan Towers.
On June 12, 2000, the special committee met to discuss the latest drafts of
the term sheets for Lend Lease and DDR. Following a detailed discussion, the
committee unanimously concluded that the proposed term sheet with DDR should be
revised to provide that it be structured as a merger directly into DDR or a
subsidiary of DDR, that non-DDR shareholders receive a net price of at least
$13.50 per share upon consummation of the transaction, that DDR agree not to
reduce the value attributable to the DDR portfolio based on further due
diligence and that DDR pay Lend Lease or reimburse AIP in the event that AIP is
required to pay a break-up fee or reimburse Lend Lease for out-of-pocket costs
due to DDR's actions or its failure to comply with the proposed term sheet or
other agreements.
22
<PAGE> 28
On June 13, 2000, the board of trust managers met and the special committee
reported that the transactions as currently proposed were unacceptable and that,
if the transactions were to proceed, DDR would have to commit to the items
discussed in the committee's June 12, 2000 meeting.
On June 19, 2000, the special committee met to consider final drafts of the
term sheets with Lend Lease and DDR. The committee reviewed a proposed letter
agreement by which DDR agreed to the transaction terms outlined by the special
committee at its June 12 meeting, including the extension of the termination
date of the DDR share purchase commitment to AIP. The committee also reviewed
the exclusive negotiation agreement and term sheet with Lend Lease, including
the cost reimbursement obligation of AIP under certain circumstances, the amount
of loan assumption fees to be absorbed by Lend Lease and the break-up fees
payable by AIP in certain events. After discussion, the special committee
unanimously approved the proposed term sheets and related documents with Lend
Lease and DDR and concluded that the committee was prepared to submit its
recommendation to the AIP board that AIP enter into the documentation and
proceed to further negotiate the Lend Lease and DDR proposals.
On June 22, 2000, the board of trust managers convened a special meeting.
Counsel for the special committee outlined the terms of the agreement reached on
June 19, 2000 between DDR and the special committee. Counsel for the special
committee, management of AIP and AIP legal counsel then discussed the status of
the term sheet with Lend Lease providing for the purchase of approximately
$288.7 million of assets from AIP. The chairman of the special committee stated
that the recommendation of the special committee to the board was to approve the
execution of the DDR and Lend Lease term sheets and related documents and
proceed with the negotiation of the definitive terms, provisions and conditions
of the proposed transactions and the definitive agreements. A general discussion
on these proposed transactions ensued. After discussion, the non-DDR trust
managers unanimously authorized the execution of the DDR and Lend Lease term
sheets.
Shortly after the June 22 board meeting, the term sheets and related
documents were executed and delivered by the parties.
On July 19, 2000 and July 24, 2000 the special committee met. At the first
meeting, the chairman raised concern about the valuation of the proposed Lend
Lease transaction. The chairman expressed his desire to reassess the
transactions in order to ensure that shareholder value would be maximized in the
event the pending transactions with Lend Lease and DDR were consummated. At the
second meeting, the chairman again raised his concerns about the valuation for
the proposed transaction with Lend Lease. The special committee reviewed Salomon
Smith Barney's previous efforts to solicit indications of interest from
potential bidders. The committee was also briefed on the risks and challenges of
attempting to realize additional incremental proceeds for the Lend Lease
portfolio properties, including execution risks, the necessity of maintaining
the DDR bid proposal at its current rate, the reimbursement of expenses to Lend
Lease pursuant to the term sheet and the risks associated with the likely type
of purchaser for our property type and related financing risks.
On August 1, 2000, the special committee continued its discussions of the
$288.7 million purchase price to be paid by Lend Lease for certain of our
properties and reviewed strategic alternatives, including the implications of
pursuing the proposed transaction with DDR on a stand-alone basis.
Representatives of Chase Securities presented a strategic alternatives review
and summarized these strategic alternatives, the rationale for them, issues
presented in connection therewith and preliminary valuation considerations of
each alternative. Each member of the special committee stated his views with
respect to the value of the Lend Lease properties and the chairman was requested
to prepare a report of the special committee for submission to the board of
trust managers scheduled for the following day.
On August 2, 2000, the board of trust managers convened a regular quarterly
meeting. Mr. Bricker, the chairman of the special committee, indicated that he
could not support the Lend Lease transaction due to his unresolved concern over
the pricing of the proposed sale to Lend Lease. Mr. Giles, another member of the
special committee, indicated a similar concern with respect to then current
pricing of the transaction. Mr. Morris, the other member of the special
committee, indicated that he supported the Lend
23
<PAGE> 29
Lease and DDR transactions at the current pricing. After discussion, management
was authorized to extend the negotiation period under the exclusivity agreement
with Lend Lease to August 25, 2000 in order to determine if additional progress
could be obtained in negotiations with Lend Lease.
On August 7, 2000, the special committee met to continue its discussion of
the portfolio valuation and the purchase price to be paid by Lend Lease for
specific properties of AIP. The committee unanimously concluded that a
recommendation should be made to AIP's board of trust managers that management
be instructed to enter into further negotiations with Lend Lease with a view to
increasing the price to be paid by Lend Lease for the properties to be acquired
pursuant to the Lend Lease proposal.
On August 8, 2000, the board of trust managers met and Mr. Bricker reported
that the special committee had directed management to negotiate further with
Lend Lease on behalf of AIP.
On August 9, 2000, the special committee met to review and discuss the
results of the negotiations between AIP management and representatives of Lend
Lease regarding the purchase price to be paid by Lend Lease for the Lend Lease
portfolio. Mr. Wolcott reported that Lend Lease had offered to increase its
purchase price by $3.5 million and agreed to certain modifications to the term
sheet for the proposed transaction as requested by the committee. At the
meeting, Mr. Bricker and Mr. Giles announced that neither of them intended to
vote for the proposed sale of assets to Lend Lease under the current terms. It
was unanimously determined that the special committee's current position be
conveyed to the board of trust managers at the meeting to be held following the
meeting of the special committee.
On August 9, 2000, the trust managers met and Mr. Wolcott summarized the
results of negotiations with Lend Lease pursuant to the direction of the special
committee. Mr. Wolcott stated that, based upon conversations with Lend Lease on
August 8 and 9, during which Mr. Wolcott informed Lend Lease that the special
committee had met and directed him to request an additional purchase price
increase of Lend Lease. Mr. Wolcott reported that Lend Lease was willing to,
among other things, increase its purchase price by $3.5 million to $292.2
million. In consideration for this concession, Lend Lease proposed it would
receive an increased break-up fee of an additional $3.5 million if the Lend
Lease transaction did not occur and an extension of the exclusivity period
through August 18, 2000. Mr. Bricker then reported that the special committee
had met prior to this meeting and had considered this information. Mr. Bricker
stated that the informal recommendation of the special committee, with Mr.
Morris disagreeing, was to reject the Lend Lease transaction for the same
reasons previously discussed with the board. After further discussion, the board
of trust managers agreed to extend the exclusivity agreement with Lend Lease to
August 25, 2000.
On August 10, 2000, Mr. Giles resigned from the special committee.
On August 15, 2000, Mr. Giles notified counsel for the special committee
that he opposed the transactions because he believed the pricing was too low
based on Chase Securities' preliminary range of values for AIP's properties. Mr.
Giles also stated that he believed the timing of the transactions was poor, that
we were in a down market, that we should wait to sell until the market improved,
and the transactions would result in inadequate consideration to shareholders.
On August 15, 2000, Mr. Bricker notified the board that he opposed the
proposed transaction with Lend Lease. He stated that his opposition resulted
from several factors, including the fact that the Lend Lease purchase price was
at the low end of the valuation range prepared by Chase Securities, that the
aggregate purchase price paid by AIP for these properties was roughly the same
as the proposed aggregate sale price to Lend Lease, that net operating income on
these properties had increased since their purchase by AIP and that the
capitalization rate proposed to be paid on these properties by Lend Lease was
too high.
On August 16, 2000, our trust managers met and Mr. Wolcott informed the
board that both Mr. Bricker and Mr. Giles had distributed letters to each of the
trust managers setting forth their opposition to the proposed transactions. The
trust managers discussed in detail Mr. Giles' and Mr. Bricker's stated
positions.
24
<PAGE> 30
On August 25, 2000, our trust managers met and Mr. Morris led a discussion
regarding the status of the Lend Lease transaction and the proposed merger with
DDR. After discussion, the board agreed to extend the exclusivity agreement with
Lend Lease until September 15, 2000. Mr. Bricker informed the trust managers
that he opposed the extension of the Lend Lease exclusivity agreement and he was
resigning from the special committee due to his opposition to the extension and
the Lend Lease transaction. After discussion, our non-DDR trust managers
determined that the special committee should proceed with Mr. Morris as the sole
member.
Between August 28, 2000 and September 13, 2000, Mr. Morris, as the sole
remaining member of the special committee, met on several occasions with Chase
Securities and the special committee's legal advisors, our management and AIP
legal counsel to discuss the status of negotiations with DDR and Lend Lease.
During this period, Mr. Morris, the sole member of the special committee,
engaged in direct negotiations with representatives of both DDR and Lend Lease.
On September 13, 2000, the board of trust managers convened a special
meeting. Mr. Morris reported that some issues relating to the DDR and Lend Lease
transactions had been resolved but other issues were outstanding. After
discussion of these items, Mr. Morris stated that the special committee's
recommendation was to move forward with the negotiations based on progress made
to date. Based on this recommendation, the trust managers agreed that additional
negotiations should proceed and the trust managers authorized a two-week
extension of the Lend Lease exclusivity period.
Between September 20, 2000 and October 20, 2000, Mr. Morris, as the sole
remaining member of the special committee, met on several occasions with Chase
Securities, the special committee's legal advisors, our management and AIP legal
counsel to discuss the status of negotiations with DDR and Lend Lease. Mr.
Morris also engaged in direct negotiations with DDR representatives during this
period. During this period, DDR, AIP and Lend Lease discussed which of DDR or
Lend Lease would acquire the outlying parcels associated with the Summit Park
and Cameron Creek properties. It was ultimately decided that the two parcels
would remain with AIP and not be sold to Lend Lease.
On October 26, 2000, the sole remaining member of the special committee met
with representatives of Thompson & Knight, Locke Liddell & Sapp and Chase
Securities to consider the proposed transactions and to discuss the status of
the Lend Lease and DDR definitive agreements. He reported, among other things,
that the agreements relating to the DDR and Lend Lease transactions, which had
been prepared originally in July 2000, had been negotiated extensively from July
through October. Mr. Morris announced that the committee had determined to
recommend to the board of trust managers that the board approve the proposed
transactions with Lend Lease and DDR, subject to receipt of a favorable opinion
from Chase Securities as to the fairness from a financial point of view, of the
transaction with DDR. Representatives of Chase Securities reviewed with Mr.
Morris the process undertaken in connection with the issuance of a fairness
opinion and the bases on which the conclusions to be reached in the opinion
would be made. Counsel for the special committee and counsel for AIP then
reviewed the material terms of the agreements, including the pricing provisions,
the termination provisions, and the other recent revisions to the DDR merger
agreement. Mr. Morris was also briefed on the status of the Lend Lease
transaction.
By written consent dated November 1, 2000, Mr. Morris, as the sole
remaining member of the special committee, approved in all respects and
recommended to the entire board of trust managers the proposed sale of
properties to Value Enhancement Fund and the proposed merger with an affiliate
of DDR for the purchase price and on the terms, provisions and conditions set
forth in the Lend Lease property sale agreement and the DDR merger agreement,
respectively.
On November 1, 2000, a meeting of our board of trust managers was convened
and the special committee, the trust managers not designated by DDR and
representatives of Chase Securities, Thompson & Knight and Locke Liddell & Sapp
discussed the proposed transactions. A representative of Thompson & Knight
outlined the review of the proposed transactions undertaken by the special
committee, the negotiation process and the material terms of the transactions. A
representative of Locke Liddell & Sapp reviewed the fiduciary duties of the
board under the circumstances. Chase Securities delivered its oral opinion to
the special committee and, at the direction of the special committee, to the
25
<PAGE> 31
non-DDR trust managers, confirmed by delivery of its written opinion to the
special committee dated November 1, 2000, that the $13.74 cash per AIP common
share to be received by the non-DDR holders of AIP common shares in the merger
was fair from a financial point of view to such holders. Chase Securities also
reviewed the financial analysis it performed. After considering these matters,
the sole member of the special committee submitted his recommendation that the
board approve and declare advisable the property sale and the merger, that the
transactions be submitted to the shareholders and that AIP's shareholders
approve the transactions.
The DDR designated trust managers then joined the meeting. The trust
managers then voted on the transactions, which were considered together. Messrs.
Giles and Bricker voted against the proposal. Messrs. Adams, Gidel, Schoff and
Wolstein abstained from the vote, and Messrs. Duncan, Kelly, Morris, Kraska and
Wolcott voted in favor of the proposal. Prior to the vote, Mr. Kraska reminded
the board that, as he had previously disclosed, the LaSalle entities have an
ownership interest in DDR on behalf of certain clients.
The board next discussed the need for agreement between management and AIP
regarding the severance and other payments due to management upon the sale of
properties to Value Enhancement Fund and the closing of the merger. The board
then voted on the mutual releases and settlement agreements to be entered into
with management in connection with the transactions. The DDR designees and
Messrs. Bricker and Wolcott abstained, Mr. Giles voted against the agreements
and Messrs. Duncan, Kelly, Morris and Kraska voted in favor of the agreements.
Finally, the board voted on a proposal to approve revised fees that would be
owed by AIP to its financial advisors in connection with the transactions.
Messrs. Giles and Bricker voted against the proposal and the other nine trust
managers voted in favor of the proposal.
Subsequent to the board meeting, the mutual release and settlement
agreements, voting agreements, the property sale agreement and the merger
agreement were executed.
On November 2, 2000, prior to commencement of trading on the New York Stock
Exchange, AIP and DDR issued a joint press release announcing the transactions.
On November 9, 2000, we sold our Manhattan Towers property to a third party
for gross proceeds of approximately $55.4 million.
DDR'S PURPOSE AND REASONS FOR THE MERGER
DDR believes that the merger transaction and its unilateral control of
AIP's assets following the merger will enable DDR's shareholders and analysts
following DDR to more clearly understand the financial impact to DDR of its
investment in the light industrial/office properties of AIP. Additionally, DDR
believes that although AIP's business is not directly complementary to that of
DDR and its subsidiaries, DDR can obtain operating benefits and cost savings by
integrating some of AIP's operations into DDR and its subsidiaries.
At the present time, DDR's only cash return on its investment in AIP is the
distributions it receives on the AIP common shares it owns. However, if AIP were
wholly-owned by DDR, decisions could be made solely by DDR regarding AIP's
operations and the use of AIP's cash flow. DDR determined that it was an
appropriate time to make its acquisition offer to AIP based on its knowledge of
the real estate industry, its assessment of the underlying value of AIP's assets
and DDR's desire to take advantage of the benefits described below under
"Benefits of the Merger to DDR."
BENEFITS OF THE MERGER TO DDR
Following the merger, DDR will become the sole shareholder of AIP and,
therefore, will have unilateral control over the assets of AIP remaining after
the sale to Value Enhancement Fund and the
26
<PAGE> 32
closing of the merger. DDR believes the value of AIP can be enhanced following
the merger by the following:
- AIP will become a private company as a result of the merger and will,
therefore, have greater operating flexibility, allowing it to focus on
enhancing value by emphasizing growth and the operating cash flow without
the constraint of the public market's emphasis on quarterly earnings;
- the elimination of the costs associated with being a public company
should reduce the overall operational and administrative costs of AIP
following the merger;
- DDR will be able to manage directly the assets of AIP and thereby combine
AIP's operations with its other activities to enable DDR to obtain
certain operating efficiencies with respect to the remaining assets of
AIP after the merger;
- DDR will no longer have a contingent obligation to purchase additional
shares from AIP;
- DDR's sole control of the AIP assets will enable the public market to
assess more clearly the value of the assets to DDR; and
- DDR plans to make efforts to dispose of AIP's properties in an orderly
manner over time, and, therefore, could realize a profit on the sale
depending upon its ability to increase the value of the properties after
the merger, and market conditions at the time of sale.
POSITION OF DDR REGARDING FAIRNESS OF THE MERGER
DDR believes that the merger and the $ per share merger consideration
are fair, from a financial point of view, to the holders, other than DDR, of
AIP's common shares. The amount of the merger consideration was determined by
management of DDR after considering the factors set forth below and following
negotiations with the special committee of the AIP board of trust managers. The
factors considered by management of DDR included the following:
- the historical and projected financial performance of AIP;
- that the $ per share merger consideration represents approximately a
% premium over the closing price for the AIP common shares on
November 1, 2000, the last full trading day prior to announcement of the
merger;
- that the merger is not subject to DDR obtaining financing to consummate
the merger;
- that the merger provides the public shareholders who are considering
selling their AIP common shares with the opportunity to exchange their
shares for $ per share in cash without incurring the transaction
costs typically associated with market sales; and
- the ability of shareholders who object to the merger to obtain "fair
value" for their shares if they exercise and perfect their dissenters'
rights under the Texas REIT Act.
DDR did not find it practicable to, and therefore did not, quantify or
otherwise assign relative weights to the individual factors it considered in
reaching its conclusion as to fairness.
RECOMMENDATION OF THE SPECIAL COMMITTEE AND THE BOARD OF TRUST MANAGERS; REASONS
FOR THE MERGER
In its deliberations with respect to the merger agreement, the entire
special committee and the board consulted with our management and our financial
and legal advisors, and it was the committee's objective to maximize shareholder
value. With limited access to equity or debt capital to expand AIP, the entire
special committee recommended the pursuit of strategic alternatives. The entire
special committee directed its advisors to evaluate the proposals for the entire
company and pursue various strategies to maximize shareholder value. It was the
view of the sole remaining member of the committee that the perception in the
marketplace for the prospects of AIP's assets would begin to diminish as the
economy began to slow,
27
<PAGE> 33
which would negatively impact access to capital, future growth prospects and
shareholder value, thus reducing financial returns to shareholders.
After considerable review, in the business judgment of the sole remaining
member of the special committee, the best alternative to maximize shareholder
value and financial returns to shareholders was to sell AIP. Importantly, the
sole member of the special committee wanted to ensure that if a buyer emerged
for a large portion of the company, that another buyer or merger candidate for
the remainder of the company (including the assumption of all liabilities and
contingent liabilities) be identified, thus maximizing shareholder value and
financial returns to shareholders.
THE BOARD OF TRUST MANAGERS, ACTING ON THE RECOMMENDATION OF THE SOLE
REMAINING MEMBER OF THE SPECIAL COMMITTEE, HAS BY A MAJORITY VOTE OF THE TRUST
MANAGERS NOT DESIGNATED BY DDR, APPROVED THE MERGER AGREEMENT AND RECOMMENDED
THAT HOLDERS OF OUR COMMON SHARES VOTE FOR THE MERGER. THE MAJORITY OF OUR TRUST
MANAGERS NOT DESIGNATED BY DDR AND THE SOLE REMAINING MEMBER OF THE SPECIAL
COMMITTEE BELIEVE THAT THE MERGER IS FAIR TO, AND IN THE BEST INTERESTS OF, OUR
SHAREHOLDERS. OF OUR 11 TRUST MANAGERS, FIVE MEMBERS VOTED FOR, TWO VOTED
AGAINST, AND THE FOUR DDR DESIGNEES ABSTAINED ON, THE PROPOSAL TO APPROVE THE
MERGER AGREEMENT. OUR TWO TRUST MANAGERS WHO RESIGNED FROM THE SPECIAL COMMITTEE
VOTED AGAINST THE MERGER. THE REASONS THEY VOTED AGAINST THE TRANSACTIONS ARE
DESCRIBED IN "BACKGROUND OF THE MERGER" ON PAGE 24.
In consideration of the recommendation of the special committee and board
with respect to the merger, you should be aware that some of our trust managers
and management of AIP have interests in the merger that may conflict with the
interests of our shareholders generally. The board and special committee were
aware of these interests and considered them, among other matters, in approving
the merger agreement. See "Conflicts of Interest" on page 37.
The factors considered by the special committee and the board include those
enumerated below. While all of these factors were considered by the special
committee and the board, neither the special committee nor the board made
determinations with respect to each of these factors separately. Rather, the
special committee and the board each made its respective judgment with respect
to the merger agreement based on the total mix of information available to it,
and the judgments of individual trust managers may have been influenced to a
greater or lesser degree by their individual views with respect to different
factors.
In making its decision to approve the merger agreement, each of the special
committee and the board considered the following supporting factors, which were
all of the material factors considered by the special committee and the board:
- The board and the special committee believed that they had thoroughly
explored other alternatives to maximize shareholder value, including
remaining independent or engaging in a transaction with a third party.
- The board and the special committee believed, based on discussions with
third parties and active negotiations with DDR, that the cash price of
$13.74 per share was the best price that could be obtained by AIP in
light of the available alternatives.
- The special committee received, and the board relied upon, the opinion of
Chase Securities as to the fairness from a financial point of view to the
public shareholders of the $13.74 per share to be received in the merger
and the analysis presented to the special committee by Chase Securities.
- If DDR causes AIP to sell all or substantially all of its properties
remaining after the sale to Value Enhancement Fund during the six months
following the effective date of the merger for more than the agreed upon
values of the properties, our shareholders will receive their pro rata
part of the sales proceeds based upon AIP share ownership prior to the
merger.
28
<PAGE> 34
- The board and the special committee believed that the other terms of the
merger agreement were fair to us. Specifically, the board and the special
committee considered:
- the representations and warranties made by each party;
- the covenants of the parties and the effect of those provisions on our
operations prior to the merger;
- the provisions that permit the special committee and the board to
withdraw or modify their respective recommendations regarding the
merger;
- the provisions that allow the board to accept a superior proposal; and
- the limited number of conditions to the obligations of DDR and DDR
Sub, which should increase the likelihood of a timely consummation of
the merger;
- The alternative courses of action available to AIP given
- the limited possibilities for AIP to expand through acquisitions given
AIP's limited access to capital;
- the fact that few parties expressed an interest in acquiring AIP
despite an exhaustive search on behalf of AIP by AIP's financial
advisor for an acquiror; and
- the fact that there could be no assurance that if AIP did not move
forward immediately with Value Enhancement Fund and DDR, either or
both of them would not terminate their offers.
- The right of shareholders who do not vote in favor of the merger to
exercise dissenters' rights.
- The historical and projected financial performance of AIP.
- The $13.74 per share merger consideration represents an approximate 9.9%
premium over the closing price for the common shares on November 1, 2000,
the last full trading day prior to announcement of the merger.
The special committee and the board also considered the negative factors
discussed below in their deliberations concerning the merger:
- the fact that, following the merger, shareholders will cease to
participate in our future earnings or growth, if any, and to benefit from
increases, if any, in our value;
- the potential or actual conflicts of interest of our officers and trust
managers in connection with the merger; and
- the merger will be a taxable transaction to our shareholders.
The sole member of the special committee believes the merger is
procedurally fair because:
- the special committee consisted of a trust manager who was not our
employee, and therefore had no expectation to derive any personal
financial benefit from the merger different from that of any other
shareholder and thus could, without question of self-dealing, negotiate
on an arm's-length basis with representatives of DDR on your behalf;
- the special committee and the board had each considered DDR's and Lend
Lease's proposals on numerous occasions, thereby maintaining continuously
sufficient information to reach an informed business decision on DDR's
proposal;
- the special committee was advised by independent outside legal counsel
and an independent financial advisor, which helped to ensure that the
special committee understood its responsibility to recommend only a
transaction that was in your best interests, and that the special
committee pursued that goal independently, in good faith and diligently;
and
29
<PAGE> 35
- we had thoroughly explored the other alternatives prior to entering into
transactions with Lend Lease and DDR, which provided a basis for a
determination of our value as a going concern and to consider the
adequacy of the consideration offered by DDR.
BENEFITS AND DETRIMENTS TO NON-DDR SHAREHOLDERS
AIP and DDR believe the merger is fair, from a financial point of view, to
the non-DDR shareholders and will result in the following benefits to AIP's
public shareholders: (1) the non-DDR shareholders will realize the value of
their investment in AIP in cash at a price which represents a 9.9% premium to
the market price for the common shares prior to the announcement of the merger
and (2) the merger eliminates the risk of a decline in the value of their
investment in AIP. The primary detriment to the non-DDR shareholders of the
completion of the merger is that they will cease to have any ownership interest
in AIP and, therefore, will cease to participate in future earnings or growth,
if any, of AIP and to benefit from increases, if any, in the value of AIP. In
addition, the non-DDR shareholders may recognize a taxable gain upon completion
of the merger.
SOURCE AND AMOUNT OF FUNDS; FINANCING FOR THE MERGER
We estimate that the total amount of funds required to purchase all of our
outstanding shares, other than the excluded shares, under the merger agreement
and to pay related fees will be approximately $ million. A portion of these
funds has been obtained through the sale of our Manhattan Towers property, which
generated net proceeds to us of approximately $34.2 million. We will obtain net
proceeds of $ from the sale of our portfolio of 31 properties to Value
Enhancement Fund, and approximately $ from operations. Any remaining amount
necessary to close the merger will be borrowed under our existing line of credit
with Bank One Texas, N.A.
We expect the amount outstanding under this line of credit prior to the
merger, assuming retirement of the Prudential Securities Credit Corporation
acquisition line described below, will be approximately $28.0 million. The Bank
One line was initiated on January 28, 1999 and, assuming adequate collateral
availability, has a maximum borrowing amount of $50 million. The line matures on
January 28, 2001. We are currently in negotiations with Bank One to extend this
line for an additional year. The Bank One line is a secured line and we
currently have 18 properties pledged as collateral for this line. Six of those
properties will be sold to Value Enhancement Fund. We currently intend to retire
our acquisition line with Prudential Securities Credit with proceeds of
borrowing under the Bank One line and to transfer the four properties
collateralizing the Prudential Securities Credit line to the Bank One line.
Assuming completion of this transaction in the merger, 16 properties would serve
as collateral for the Bank One line. The Bank One line provides for a variable
rate of interest based upon our debt ratio in effect from time to time. The line
of credit currently bears interest at 1.75% over the 30 day LIBOR rate, or
8.37%. The Bank One line contains typical borrowing covenants and restrictions.
We are currently in compliance with all of these restrictions. The consent of
Bank One will be required to close the merger. We are currently discussing this
matter with Bank One and at this time, we believe we will obtain that consent.
FAIRNESS OF THE MERGER; OPINION OF FINANCIAL ADVISOR
At meetings of the special committee and, at the direction of the special
committee, the board of trust managers on November 1, 2000, Chase Securities
gave its oral opinion, confirmed in writing, addressed to the special committee
and to be relied upon by the board of trust managers, that, as of November 1,
2000, the date of the opinion, and based upon the assumptions made, matters
considered and limits of review set forth in the opinion, the cash consideration
to be paid to the holders of common shares in the proposed merger is fair from a
financial point of view to the common shareholders. Based on the terms of the
merger agreement on that date, the per share cash consideration to be received
by the holders of common shares was $13.74 per share. DDR, DDR Sub and their
respective direct and indirect subsidiaries will not receive any of the merger
consideration. The amount of the merger consideration was determined through
negotiation between the special committee, with the assistance of Chase
Securities, and DDR.
30
<PAGE> 36
Chase Securities was retained to act as financial advisor to the special
committee of the board of trust managers and to render an opinion to the special
committee as to the fairness, from a financial point of view, of the per share
cash consideration to be received by the holders of common shares of AIP (other
than DDR and any of its affiliated entities).
Chase Securities rendered its opinion to the special committee on November
1, 2000, to the effect that, as of that date, and based upon the assumptions
made, matters considered, and limits of review set forth in its opinion, the per
share cash consideration to be received by the holders of common shares of AIP
(other than DDR and any of its affiliated entities) pursuant to the merger
agreement, subject to adjustment, was fair from a financial point of view, to
the holders of common shares (other than DDR and any of its affiliated
entities). In rendering its opinion, Chase Securities was informed by AIP that
the consummation of the merger is contingent upon the consummation of the sale
of a portfolio of 31 properties to Value Enhancement Fund for not less than
$135.4 million cash consideration, net of related closing costs, repayment of
indebtedness for money borrowed secured by the Lend Lease portfolio and related
prepayment penalties and fees, and the consummation of the sale of Manhattan
Towers for not less than $34.2 million cash consideration, net of related
closing costs, repayment of indebtedness for money borrowed secured by the
Manhattan Towers and related prepayment penalties and fees.
In rendering its opinion, Chase Securities assumed that AIP and certain
wholly-owned subsidiaries, as applicable, will receive no less than $135.4
million cash consideration for the sale of the 31 property portfolio, net of
related closing costs, repayment of indebtedness for money borrowed secured by
the portfolio and related prepayment penalties and fees, and AIP will receive no
less than $34.2 million cash consideration for the sale of Manhattan Towers, net
of related closing costs, repayment of indebtedness for money borrowed secured
by Manhattan Towers and related prepayment penalties and fees.
THE FULL TEXT OF THE WRITTEN OPINION OF CHASE SECURITIES DATED NOVEMBER 1,
2000, WHICH SETS FORTH THE ASSUMPTIONS MADE, GENERAL PROCEDURES FOLLOWED,
MATTERS CONSIDERED AND LIMITATIONS ON THE SCOPE OF REVIEW UNDERTAKEN BY CHASE
SECURITIES IN RENDERING ITS OPINION, IS ATTACHED AS APPENDIX A TO THIS PROXY
STATEMENT AND IS INCORPORATED HEREIN BY REFERENCE. THE CHASE SECURITIES OPINION
IS DIRECTED TO THE SPECIAL COMMITTEE AND RELATES ONLY TO THE FAIRNESS, FROM A
FINANCIAL POINT OF VIEW, OF THE PER SHARE CASH CONSIDERATION TO BE RECEIVED BY
THE HOLDERS OF COMMON SHARES OF AIP (OTHER THAN DDR AND ANY OF ITS AFFILIATED
ENTITIES) PURSUANT TO THE MERGER AGREEMENT, AND DOES NOT CONSTITUTE A
RECOMMENDATION TO ANY OF THE HOLDERS OF COMMON SHARES AS TO HOW SUCH HOLDER OF
COMMON SHARES SHOULD VOTE, OR AGREE TO VOTE, WITH RESPECT TO THE MERGER. THE
SUMMARY OF CHASE SECURITIES' OPINION SET FORTH BELOW IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE WRITTEN OPINION ATTACHED HERETO AS
APPENDIX A. THE HOLDERS OF COMMON SHARES ARE URGED TO READ THE ENTIRE OPINION
CAREFULLY.
In arriving at its opinion, Chase Securities, among other things:
- reviewed drafts of the merger agreement, the purchase and sale agreement
and the Manhattan Towers purchase and sale agreement in the forms
provided to them, including the most recent drafts dated October 31, 2000
and has assumed that the final forms of such agreements, as applicable,
will not vary in any regard that is material to its analysis;
- reviewed certain publicly available business and financial information it
deemed relevant relating to AIP and the industries in which AIP operates;
- reviewed certain internal non-public financial and operating data
provided to it by the management of AIP relating to AIP's business,
including certain forecast and projection information as to future
financial results of such business;
- discussed with members of the senior management of AIP, AIP's operations,
historical financial statements and future prospects, before and after
giving effect to the merger and the sale of the portfolio to Value
Enhancement Fund and the sale of Manhattan Towers, as well as such other
matters as it deemed necessary or appropriate;
31
<PAGE> 37
- compared the financial and operating performance of AIP with publicly
available information concerning certain other companies and businesses
it deemed reasonably comparable and reviewed the relevant stock market
information for such other companies;
- reviewed the financial terms of certain recent business combinations and
acquisition transactions it deemed reasonably comparable to the merger
and the sale of the 31 property portfolio and the sale of Manhattan
Towers and otherwise relevant to its inquiry; and
- made such other analyses and examinations as it deemed necessary or
appropriate.
Chase Securities assumed and relied upon, without assuming any
responsibility for verification, the accuracy and completeness of all of the
financial and other information provided to, discussed with, or reviewed by or
for Chase Securities, or publicly available, for purposes of the opinion and
further relied upon the assurances of management of AIP that it was not aware of
any facts that would make that information inaccurate or misleading. Chase
Securities neither made nor obtained any independent evaluations or appraisals
of the assets or liabilities of AIP nor did Chase Securities conduct a physical
inspection of the properties and facilities of AIP. Chase Securities assumed
that the financial forecast and projection information provided to or discussed
with it by or on behalf of AIP were reasonably determined on bases reflecting
the best currently available estimates and judgments of the management of AIP as
to the future financial performance of AIP. We refer you to the information
under the heading "Financial Projections" below. Chase Securities expressed no
view as to such forecast or projection information, or the assumptions upon
which it was based.
In connection with the preparation of its opinion, Chase Securities was not
authorized by AIP or the special committee to solicit, nor did Chase Securities
solicit, offers from third parties for the acquisition of all or any part of the
equity or assets of AIP.
Chase Securities' opinion was necessarily based on market, economic and
other conditions as they existed and could be evaluated on the date of its
opinion. The opinion was limited to the fairness, from a financial point of
view, to the holders of the trust common shares of AIP (other than DDR, DDR Sub
and their respective direct and indirect subsidiaries) of the per share cash
consideration to be received in the merger and Chase Securities expressed no
opinion as to the underlying decision by AIP to engage in the merger, the sale
of the portfolio to Value Enhancement Fund or the sale of Manhattan Towers.
Chase Securities also expressed no opinion on matters of a tax, accounting or
legal nature related to the merger, the sale of the portfolio or the sale of
Manhattan Towers. Chase Securities' opinion does not constitute a recommendation
to any holder of equity interests in AIP as to how such holder should vote, or
agree to vote, with respect to the merger.
The following is a summary of the material financial analyses performed by
Chase Securities and reviewed with the special committee in connection with
Chase Securities' presentation and its opinion to the special committee. Chase
Securities has presented some of the summaries in tabular format. In order to
understand the financial analysis more fully, you should read the tables
together with the text of each summary. The summary set forth below does not
purport to be a complete description of the analyses performed by Chase
Securities in arriving at its opinion. Arriving at a fairness opinion is a
complex process not necessarily susceptible to partial analysis or summary
description. Chase Securities believes that its analyses must be considered as a
whole and that selecting portions of analyses and of the factors considered by
it, without considering all these factors and analyses, could create a
misleading view of the processes underlying its opinion. No company or
transaction used in the analyses set forth below as a comparison is directly
comparable to AIP or the proposed merger. Chase Securities did not assign
relative weights to any of its analyses in preparing its opinion. The matters
considered by Chase Securities in its analyses were based on numerous
macroeconomic, operating and financial assumptions with respect to industry
performance, general business and economic conditions and other matters, many of
which are beyond AIP's control and involve the application of complex
methodologies and educated judgment. Any estimates incorporated in the analyses
performed by Chase Securities are not necessarily indicative of actual past or
future results or values, which may be significantly more or less favorable than
these
32
<PAGE> 38
estimates. Estimated values do not purport to be appraisals and do not
necessarily reflect the prices at which businesses or companies may be sold in
the future, and these estimates are inherently subject to uncertainty. Such
analyses were prepared solely as part of Chase Securities' analysis of the
fairness, from a financial point of view to the holders of common shares (other
than DDR, DDR Sub and their respective direct and indirect subsidiaries) of the
per share consideration to be received by such holders in the merger.
Transaction Consideration. For purposes of its analysis, Chase Securities
based its assumptions and estimates on the per share consideration to be paid
for each common share (other than to DDR, DDR Sub and their respective direct
and indirect subsidiaries). The per share consideration of $13.74 multiplied by
the number of shares outstanding (20.992 million) equals an approximate total
equity value of $288.4 million. The total equity value of $288.4 million plus
net debt of $314.0 million projected for the consummation of the merger on
January 31, 2001, including transaction expenses and contingency reserves,
equals a total transaction value of $602.4 million.
Comparable Company Analysis. Chase Securities reviewed and compared the
operating performance and financial condition of five selected publicly traded
REITs, which are referred to collectively as the "comparable companies," using
publicly available information, with that of the operating performance and
financial condition of AIP. Such comparable companies consisted of the
following:
- Bedford Property Investors;
- Brandywine Realty Trust;
- EastGroup Properties Inc.;
- Keystone Properties Trust; and
- PS Business Parks.
Chase Securities' analysis included, among other things, a review of:
- total market capitalization, calculated by adding equity market value and
total debt, preferred units and preferred stock;
- ratios of price per share to funds from operations, "FFO," per share;
- ratios of price per share to adjusted funds from operations, "AFFO," per
share; and
- ratios of total market capitalization to earnings before interest
expense, taxes, depreciation and amortization, "EBITDA."
Chase Securities calculated the ratio of price per share as of October 27,
2000 to FFO per share using projected 2000 and 2001 FFO per share, as provided
by Realty Stock Review, a national data service that monitors and publishes
compilations of earnings estimates by selected research analysts regarding
companies of interest to institutional investors, the ratio of price per share
as of October 27, 2000 to AFFO per share using projected 2000 and 2001 AFFO per
share based on equity analyst research reports and total market capitalization
to EBITDA using projected 2000 and 2001 EBITDA based on equity analyst research
reports.
33
<PAGE> 39
These analyses showed the following:
<TABLE>
<CAPTION>
SUGGESTED
MULTIPLE
RANGE FOR IMPLIED
COMPARABLE MULTIPLES FOR
COMPANIES TRANSACTION
------------- -------------
<S> <C> <C>
Price as compared to estimated current year FFO............. 7.0x- 9.0x 8.9x
Price as compared to estimated next year FFO................ 6.0x- 8.0x 8.2x
Price as compared to estimated current year AFFO............ 8.0x-10.0x 13.1x
Price as compared to estimated next year AFFO............... 7.5x- 9.5x 11.2x
Total Market Capitalization to estimated current year
EBITDA.................................................... 9.5x-11.0x 10.2x
Total Market Capitalization to estimated next year EBITDA... 9.0x-10.5x 9.7x
</TABLE>
The implied multiples for the transaction were calculated using the $13.74
per share consideration that would be distributed to holders of common shares
(other than DDR, DDR Sub and their respective direct and indirect subsidiaries)
and the $602.4 million transaction value of the merger. Based on these analyses
and AIP's estimated current year FFO, estimated next year FFO, estimated current
year AFFO, estimated next year AFFO, estimated current year EBITDA, and
estimated next year EBITDA, Chase calculated that the per share value implied by
the transaction based on the multiples of the comparable companies was $8.40,
using the estimated current year AFFO to $16.06, using the estimated current
year EBITDA.
None of the comparable companies were identical to AIP and, accordingly, an
analysis of the foregoing necessarily involved complex considerations and
judgements concerning the differences in financial and operational
characteristics of the companies involved and other factors that could affect
the companies compared to AIP.
Precedent Transaction Analysis. Based upon publicly available information,
Chase analyzed the purchase price and transaction value multiples of
transactions for five selected corporate transactions involving the sale or
merger of the entire target company, which are referred to collectively as the
"precedent transactions." The precedent transactions were chosen based on a
review of target companies that had general business, operating and financial
characteristics representative of companies in the industry in which AIP
operates. The precedent transactions reviewed were:
<TABLE>
<CAPTION>
ANNOUNCEMENT DATE ACQUIRORS TARGETS
----------------- --------- -------
<S> <C> <C>
6/16/99.............................. Starwood Financial Trust Trinet Corporate Realty
3/01/99.............................. Duke Realty Weeks Corporation
11/17/99............................. ProLogis Industrial Trust Meridian Industrial Trust
7/09/98.............................. Reckson Associates/Metropolitan Tower Realty
12/23/97............................. Highwoods Properties J.C. Nichols Company
</TABLE>
In connection with its analysis, Chase Securities calculated for each of
the precedent transactions:
- the purchase price,
- total transaction value calculated by adding purchase price, total debt,
preferred units and preferred stock;
- ratios of offer price per share to FFO per share;
- ratios of offer price per share to AFFO per share; and
- ratios of total transaction value to EBITDA.
Chase Securities calculated the ratio of offer price per share to FFO per
share and AFFO per share using projected FFO and AFFO for the year in which the
transaction was announced and the year following the announcement of the
transaction and total transaction value to EBITDA using projected
34
<PAGE> 40
EBITDA for the year in which the transaction was announced and the year
following the announcement of the transaction.
The results of this comparison were as follows:
<TABLE>
<CAPTION>
SUGGESTED
MULTIPLE RANGE IMPLIED
FOR PRECEDENT MULTIPLES FOR
TRANSACTIONS TRANSACTION
-------------- -------------
<S> <C> <C>
Price as compared to estimated current year FFO............. 8.0x-10.0x 8.9x
Price as compared to estimated next year FFO................ 7.0x- 9.0x 8.2x
Price as compared to estimated current year AFFO............ 9.0x-11.0x 13.1x
Price as compared to estimated next year AFFO............... 8.0x-10.0x 11.2x
Total Market Capitalization to estimated current year
EBITDA.................................................... 11.0x-12.5x 10.2x
Total Market Capitalization to estimated next year EBITDA... 10.5x-12.0x 9.7x
</TABLE>
The implied multiples for the transaction were calculated using the $13.74
per share consideration that would be paid to holders of common shares (other
than DDR, DDR Sub and their respective direct and indirect subsidiaries) and the
$602.4 million transaction value for the merger. Based on these analyses and
AIP's estimated current year FFO, estimated next year FFO, estimated current
year AFFO, estimated next year AFFO, estimated current year EBITDA and estimated
next year EBITDA, the per share value implied by the suggested multiple range
for precedent transactions was $9.45, using the estimated current year AFFO to
$20.50, using the estimated next year EBITDA.
None of the selected precedent transactions reviewed were identical to the
merger and, accordingly, an analysis of the foregoing necessarily involved
complex considerations and judgments concerning differences in financial and
operational characteristics of the companies involved and other factors,
including the general market conditions prevailing in the equity capital markets
at the time of the transaction, that could affect the precedent transactions
compared to the transactions.
Chase Securities Estimated Adjusted Net Asset Value. Chase Securities
performed a net asset value calculation that was preceded by due diligence which
included:
- a discussion with AIP management concerning the leasing and cap rate
environment for each of its markets;
- a review of AIP's historical and current year budgets;
- a review of AIP prepared ARGUS cash flow projections;
- a review of AIP prepared rent rolls;
- a review of AIP's capital expenditure budget and year to date repair
reports;
- the completion of precedent property sales analysis for each of AIP's
markets; and
- site visits to selected properties which did not include physical
inspections of such properties.
Following this diligence, Chase Securities applied cap rates to AIP's 2000
budgeted net operating income (adjusted for a 3.0% property management fee and
$0.10 psf capital expenditure reserve) that took into consideration
market-by-market supply and demand fundamentals, market specific leasing
conditions, tenant quality, and building age from which gross real estate asset
value was calculated. Properties with occupancy rates in excess of 90% were
considered stabilized, properties with occupancy rates less than 90% were leased
up to 94% and properties with 100% occupancy were assigned a 3.0% vacancy
allowance. Chase Securities then applied a 5% premium and 5% discount to this
value that resulted in a gross real estate asset value range of $593.4 million
to $650.2 million. In calculating estimated net asset value, Chase Securities
subtracted net debt of $314.0 million from the gross real estate asset value
range that resulted in an estimated net asset value range of $279.4 million to
$336.2 million. Chase Securities then divided the
35
<PAGE> 41
net asset value range by 20.992 million common shares outstanding to calculate a
net asset value range of $13.31 to $16.01 per share. Finally, Chase Securities
adjusted its estimated net asset value range for transaction expenses of $13.7
million that resulted in an estimated adjusted net asset value range of $12.66
to 15.36 per share.
Chase Securities Liquidation Analysis. Chase Securities performed a
liquidation analysis for AIP based upon projections and assumptions provided by
AIP's management of projected net operating income and the projected debt
balance for the year ended December 31, 2000. Under the liquidating analysis,
AIP was liquidated over a 24-month period. Under the liquidation analysis, net
operating income growth was approximately 3.0% per annum after the first two
quarters until the end of the 24-month period. Additionally, Chase Securities
assumed that Manhattan Towers was sold for net proceeds of $34.4 million. AIP's
general and administrative expenses were assumed to be $1.146 million in the
first two quarters and to decline by 10% in the next two quarters and decline by
50% thereafter. Capital expenditures, tenant improvements and leasing costs are
assumed to be 15% of the net operating income. Chase Securities sold a
percentage of assets per quarter at various cap rates, ranging from
10.25%-11.00% in the conservative scenario and 9.75% to 10.50% in the aggressive
scenario, and correspondingly reduced the amount of debt and interest expense
for each quarter's disposition. Chase Securities applied this methodology
throughout the eight quarters to arrive at the total amount of proceeds from
asset sales. Finally, Chase Securities took this amount and reduced it by the
total amount of debt associated with the sales, along with various costs
associated with the liquidation process, to arrive at the total liquidation
proceeds. Chase Securities calculated the net present value of the total
liquidation proceeds using 15%, 17.5% and 20.0% discount rates and then divided
by the total shares outstanding (20.992 million) to arrive at a per share
liquidation value. The Chase Securities liquidation analysis resulted in values
ranging from $12.08 to $13.78 per share.
Dividend Discount Analysis. Chase Securities performed a dividend discount
analysis for AIP based upon projections and assumptions provided by AIP's
management of projected FFO per common share and projected annual dividend
payouts per common share for the years ending December 31, 2001 to December 31,
2006. Under the dividend discount model methodology, implied equity values are
estimated by discounting dividends per share for the years 2001 through 2005
using discount rates reflecting an expected equity total return and calculating
a terminal value by applying exit multiples on projected 2006 FFO for AIP. Chase
Securities used discount rates ranging from 15.0% to 18.0% and terminal
multiples of 7.0x to 9.0x. The present value of the dividends and the terminal
value were added together to determine a range of equity values for AIP which
ranged from $236.7 million to $316.6 million. On a per share basis, assuming
20.992 million common shares outstanding, this equated to $11.27, using a
terminal multiple of 7.0x and a discount rate of 18.0% to $15.08, using a
terminal multiple of 9.0x and a discount rate of 15.0%.
Free Cash Flow Analysis. Chase Securities performed a discounted free cash
flow analysis for AIP based upon projections and assumptions provided by AIP's
management of projected net operating income and projected free cash flow for
the years ending December 31, 2001 to December 31, 2006. Under the discounted
free cash flow model methodology, implied equity values are estimated by
discounting free cash flow for the years 2001 through 2005 using discount rates
reflecting an expected equity total return and calculating a terminal value by
applying exit cap rates to projected 2006 net operating income for AIP. Chase
Securities used terminal cap rates of 10.0% to 12.0% and discount rates ranging
from 15.0% to 18.0%. Chase Securities selected these ranges of discount rates
and terminal value cap rates based on a review of companies that Chase
Securities deemed comparable to AIP. The present value of free cash flow and the
terminal value were added together to determine a range of equity for AIP which
ranged from $242.4 million to $327.0 million. On a per share basis, assuming
20.992 million common shares outstanding, this equated to $11.55, using a
terminal cap rate of 12.0% and a discount rate of 18.0% to $15.58, using a
terminal cap rate of 10.0% and a discount rate of 15.0%.
AIP retained Chase Securities to act as exclusive financial advisor to the
special committee based upon its experience and expertise. Chase Securities, as
part of its financial advisory business, is continually engaged in the valuation
of businesses and their securities in connection with mergers and acquisitions
and valuations for estate, corporate and other purposes. The Chase Manhattan
Corporation and its affiliates,
36
<PAGE> 42
including Chase Securities, in the ordinary course of business, may have from
time to time, provided, and in the future may continue to provide, for customary
compensation, commercial and investment banking services to AIP, DDR, Lend Lease
and their respective affiliates, including serving as agent bank for the Lend
Lease credit facility, serving as agent bank for the Lend Lease Global
Properties, SICAF, credit facility and serving as agent bank for the Lend Lease
(U.S.) Finance, Inc., credit facility. In the ordinary course of business, Chase
Securities or its affiliates may trade in the debt and equity securities of AIP
and DDR and their respective affiliates, for their own accounts and for the
accounts of their customers and, accordingly, may at any time hold a long or
short position in such securities.
AIP entered into a letter agreement with Chase Securities, dated May 5,
2000 which sets forth the terms of Chase Securities' engagement, as financial
advisor to the special committee. Pursuant to the terms of the letter agreement,
AIP has paid and agreed to pay Chase Securities the following fees for its
services rendered in connection with the merger:
- a retainer fee of fee of $500,000, $100,000 of which was paid upon the
execution of the letter agreement and the remaining $400,000 of which was
paid in four equal monthly installments of $100,000 per month for the
four months immediately following the month in which the letter agreement
was executed; and
- a transaction fee of $2,000,000, payable upon the consummation of the
merger, subject to adjustment upward based upon the final consideration
received by holders of common shares (other than DDR, DDR Sub and their
respective direct and indirect subsidiaries).
AIP has also agreed to reimburse Chase Securities for its legal expenses
incurred in connection with its preparation and delivery of its opinion, and for
its other reasonable expenses incurred in connection with its engagement, and to
indemnify Chase against certain liabilities incurred in connection with its
engagement, including liabilities under the federal securities laws.
CONFLICTS OF INTEREST
In considering the recommendations of the board of trust managers and the
sole member of the special committee, you should be aware that some of our
members of management and trust managers have interests in the merger that are
different from, or in addition to, your interest as a shareholder generally.
These conflicts of interests are further described below and under the caption
"The Merger -- Background of the Merger" beginning on page 16.
37
<PAGE> 43
Total Consideration Payable to Trust Managers and Management. The total
amount of consideration that our trust managers and management will receive
individually in the merger is listed in the table below and described in more
detail in the remainder of this section. Receipt of the payments described below
is contingent upon the completion of the merger.
<TABLE>
<CAPTION>
COMMON
SEVERANCE COMMON SHARE TOTAL
NAME AND TITLE PAYMENTS SHARES OPTIONS DERS CONSIDERATION
-------------- ---------- -------- -------- -------- -------------
<S> <C> <C> <C> <C> <C>
Charles W. Wolcott................... $1,040,000 $ $ $580,000 $
President and CEO, trust manager
Lewis D. Friedland................... 806,250 290,000
Exec. V.P. and COO
Marc A. Simpson...................... 560,000 145,000
Sr. V.P., Secretary and Treasurer
David B. Warner...................... 525,000 145,000
Sr. V.P. -- Real Estate Operations
Scott A. Wolstein.................... -- --
Chairman of the Board
Albert T. Adams...................... -- --
trust manager
William H. Bricker................... -- --
trust manager
T. Patrick Duncan.................... -- --
trust manager
Robert H. Gidel...................... -- --
trust manager
Robert E. Giles...................... -- --
trust manager
Edward B. Kelley..................... -- --
trust manager
Stanley J, Kraska, Jr................ -- --
trust manager
J. Timothy Morris.................... -- --
trust manager
James A. Schoff...................... -- --
trust manager
</TABLE>
AIP Shares. Our common shares held individually by our officers and trust
managers will be converted into the right to receive the same merger
consideration as shares held by other shareholders. The total amounts that our
trust managers and executive officers will receive for their shares are listed
in the table above.
Shares Options and DERs. The terms of our options provide that all
outstanding options will automatically accelerate on a change in control. We
have taken the necessary actions to provide for the cancellation at the time the
merger becomes effective of all outstanding options to acquire common shares in
exchange for a per option cash payment equal to the cash merger consideration of
$ , less the then current exercise price of the option immediately before
the effective time. At the effective time, our trust managers and executive
officers will receive the cash payments listed in the table above for DERs and
options that they hold based on an average price of $2.909 per DER and the
excess of $ over the then current exercise price per share of the options.
The payment for termination of the DERs was negotiated
38
<PAGE> 44
by the sole member of the special committee and management and approved by our
board.
Officers' and Trust Managers' Indemnification and Insurance. The merger
agreement provides that we will indemnify our and our subsidiaries' present and
former officers, employees, trust managers and directors from liabilities
arising out of actions or omissions in these capacities prior to the time the
merger becomes effective, to the same extent as provided in our organizational
documents or any written indemnification agreements or under any of our benefit
plans. In addition, we will maintain directors' and officers' insurance coverage
for six years after the effective time of the merger on terms no less favorable
to these indemnified parties than existing insurance coverage. DDR has
guaranteed the performance of these AIP obligations.
The LaSalle Entities. The LaSalle entities, on behalf of their clients,
own beneficially or have voting control of 7.6% of DDR's outstanding common
stock.
TRANSACTIONS AND RELATIONSHIPS BETWEEN AIP AND DDR
Under the share purchase agreement dated as of July 30, 1998, between AIP
and DDR, as amended, DDR purchased 2,207,624 common shares of AIP for
$14,711,778 in cash and the transfer of five properties from DDR to AIP. In
November 1998, in a subsequent closing under the purchase agreement, AIP issued
2,815,192 common shares to DDR in exchange for the cancellation of $43,635,476
in aggregate principal amount of outstanding debt owed to DDR by AIP. This
transaction included undeveloped land purchased by AIP from DDR in the amount of
$2.3 million plus interest, which land was then contributed by AIP to a joint
venture with a third party.
From November 20, 1998 through November 20, 2000, AIP had the option under
the share purchase agreement to sell to DDR additional common and/or preferred
shares for an aggregate purchase price that did not exceed in the aggregate
$200,000,000. Any common shares sold to DDR would be at a price of $15.50 per
share. If DDR became the owner of 49.9% of our outstanding shares, we could sell
only preferred shares to DDR, at a price of $14.00 per share. These per share
prices were subject to downward adjustment if the closing price for AIP common
shares for the 10 days preceding the date we exercised our option was below
$12.12 per share. After DDR had funded $100 million of this additional
commitment, we could require DDR to purchase an additional $100 million in AIP
common shares or preferred shares, depending on whether DDR owned 49.9% of all
outstanding common shares, only so long as:
- the trading price of DDR common stock was above $18.00; and
- DDR's aggregate investment in AIP did not exceed 10% of DDR's market
capitalization.
The proceeds of any share sale to DDR were to be used solely for the
purpose of funding property acquisitions approved by a majority of the members
of the board of trust managers that were not affiliates of the seller of the
property or of the assignor that assigned its right to acquire the property to
AIP. This additional purchase option could only be exercised by action of a
majority of our trust managers, excluding the trust managers designated by DDR.
In December 1998, pursuant to this additional purchase option, AIP issued an
aggregate of 868,386 of its common shares to DDR in exchange for $13,459,993 to
fund property acquisitions by AIP in accordance with the terms of the purchase
agreement. All common shares issued by AIP under the purchase agreement prior to
January 15, 1999 were sold to DDR at a price of $15.50 per common share. In
January 1999, AIP issued 3,410,615 common shares to DDR in exchange for
$48,800,000 to fund certain property acquisitions by AIP in accordance with the
terms of the purchase agreement and the cancellation of $3,000,000 in aggregate
principal amount of outstanding debt owed to DDR by AIP. Of those shares,
1,543,005 common shares were issued at a price of $15.50 per common share and
1,867,610 common shares were issued at a price of $14.93 per common share. In
August 1999, AIP issued 354,839 common shares to DDR in exchange for $5,500,000
to fund certain property acquisitions by AIP in accordance with the terms of the
purchase agreement. AIP issued these shares at a price of $15.50 per common
share. At November 1, 2000, the date the merger agreement was signed, $166.6
million remained outstanding under our additional purchase option. If the merger
does not close by
39
<PAGE> 45
May 31, 2001 because of a breach of the merger agreement by DDR or DDR Sub, we
will regain our right to cause DDR to purchase up to $166.6 million of preferred
shares or additional common shares from AIP. AIP's right would be extended for a
period of time from its original termination date of November 20, 2000 by the
number of days between June 19, 2000 and the later of (1) the date on which the
breach occurs or (2) the first date on which a trust manager not designated by
DDR becomes aware of the breach.
Effective October 8, 1998, AIP acquired from DDR an 88.5% limited
partnership interest in DDR/ Tech 29 Limited Partnership, a limited partnership
whose assets consist of two light industrial properties and one office property
totaling 290,991 sq. ft., located in Silver Springs, Maryland. In consideration
for the property and for accrued interest on other borrowings, AIP issued
approximately $16.1 million in common shares to DDR. The shares issued were
valued at $15.50 per share.
During 1998, AIP also borrowed an aggregate of $47.2 million from DDR in
several unsecured borrowings at a fixed rate of interest of 10.25%, that
provided for quarterly payments of interest and were due 30 days after demand,
and AIP paid interest to DDR on these borrowings of approximately $660,000 for
the year ended December 31, 1998.
In December 1999, AIP repaid in full the borrowings from DDR made in 1998
to finance acquisitions. AIP also paid interest of $111,000 to DDR at the time
of that repayment.
AIP paid DDR $19,000 and $17,000 in management fees for the years ended
December 31, 1998 and 1999, respectively, for management services with respect
to certain real estate investments of AIP.
CHANGE IN CONTROL PAYMENTS
In December 1998, when DDR had purchased in excess of 33% of our
outstanding shares, we made change in control payments under the bonus and
severance agreements to our executive officers, and the options, restricted
shares and DERs held by them vested as follows:
<TABLE>
<CAPTION>
RESTRICTED
CASH OPTIONS DERS SHARES
EXECUTIVE OFFICER PAYMENT VESTED VESTED VESTED
----------------- -------- ------- ------- ----------
<S> <C> <C> <C> <C>
Charles W. Wolcott........................... $862,500 190,000 200,000 14,000
Lewis D. Friedland........................... 693,750 101,000 100,000 6,000
Marc A. Simpson.............................. 472,500 52,000 50,000 3,500
David B. Warner.............................. 455,625 52,000 50,000 3,500
</TABLE>
SHARE PURCHASES
None of AIP, its trust managers or executive officers, DDR Sub or DDR and
its affiliates has engaged in any transaction with respect to AIP common shares
within 60 days prior to the date of this proxy statement.
The following table sets forth purchases of AIP common shares by AIP during
1998, including, by quarter, the number of shares purchased and the high, low
and average price paid. AIP made no share repurchases during 1999 and 2000.
<TABLE>
<CAPTION>
PRICE PER SHARE
AIP PURCHASES OF NUMBER -------------------------
COMMON SHARES OF SHARES LOW HIGH AVERAGE
---------------- --------- ------ ------ -------
<S> <C> <C> <C> <C>
Fiscal Year 1998
First Quarter................................... 29,200 $13.13 $13.56 $13.40
Second Quarter.................................. 66,783 12.19 13.38 12.99
Third Quarter................................... 27,800 12.06 12.31 12.20
</TABLE>
40
<PAGE> 46
For a description of the purchases of AIP common shares by DDR, see "The
Merger -- Transactions and Relationships between AIP and DDR."
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the material federal income tax consequences
of the merger to holders of our common shares. This summary does not address all
aspects of federal income taxation that may be relevant to our common
shareholders in light of their particular circumstances or to common
shareholders subject to special treatment under the federal income tax laws.
These shareholders may include financial institutions, tax-exempt organizations,
insurance companies, dealers in securities or currencies, shareholders holding
shares as part of a conversion transaction, as part of a hedge or hedging
transaction, or as a position in a straddle for tax purposes, or shareholders
who acquired our shares in connection with the exercise or other satisfaction of
compensatory options. In addition, the summary below does not consider the
effect of any foreign, state, local or other tax laws that may be applicable to
the merger. The discussion assumes that common shareholders hold their common
shares as capital assets and not as inventory or as property held primarily for
sale to customers in the ordinary course of a trade or business. This summary is
based upon the provisions of the Internal Revenue Code of 1986, treasury
regulations, Internal Revenue Service rulings and judicial decisions, all in
effect as of the date hereof and all of which are subject to change by
subsequent legislative, judicial or administrative action. Some of these changes
may possibly be retroactive. This summary is for general informational purposes
only and is not tax advice.
Dividends. Distributions paid on our common shares, other than the merger
consideration, generally will constitute dividends for U.S. federal income tax
purposes and will be taken into account as ordinary income to the extent paid
from our current or accumulated earnings and profits, as determined under U.S.
federal income tax principles, and then will constitute a return of capital that
is applied against a shareholder's basis in the shares to the extent these
distributions exceed those earnings and profits. Distributions in excess of our
current or accumulated earnings and profits and a shareholder's basis in the
shares will be treated as a gain from the sale or exchange of the shares. As
long as AIP qualifies as a REIT, corporate shareholders will not be eligible for
the dividends received deduction as to such amounts.
Holders of Shares. In general, upon receipt of the merger consideration, a
holder of our common shares will be treated as if their common shares had been
redeemed. Such redemption of common shares will be a taxable transaction. The
U.S. federal income tax consequences of the redemption to a shareholder will
depend on whether, based on such shareholder's particular circumstances, such
shareholder qualifies for capital gain or loss treatment under section 302 of
the Internal Revenue Code. If a shareholder does not qualify for capital gain or
loss treatment, the redemption will be taxable to the shareholder as a dividend.
If the shareholder will not actually or constructively own shares of any
class of stock of AIP or DDR immediately after the redemption, such shareholder
will qualify for capital gain or loss treatment under section 302 of the
Internal Revenue Code. In such case, the shareholder will recognize capital gain
or loss equal to the difference between the amount of cash received in the
redemption and its adjusted tax basis in the redeemed shares. Such gain or loss
will be long-term capital gain or loss if the shareholder held such shares for
more than one year at the time of the redemption.
If a shareholder actually or constructively owns shares of any class of
stock of AIP or DDR immediately after the redemption of AIP's common shares, the
shareholder should consult its tax advisor regarding the U.S. federal income tax
consequences of the redemption in its particular situation, including the
possibility that the receipt of any proceeds in the redemption will be treated
as a dividend taxable as ordinary income.
Foreign Shareholders. In the case of any foreign shareholder, for United
States federal income tax purposes, i.e. a non-resident alien individual, a
foreign corporation, or a foreign estate or trust, except as set forth in the
next paragraph, we will withhold 30% of the merger consideration payable to the
foreign shareholder in order to satisfy certain withholding requirements in
connection with the receipt of fixed or determinable annual or periodical gains,
profits, and income, unless the foreign shareholder proves in a
41
<PAGE> 47
manner satisfactory to us that either (a) the redemption of its common shares
pursuant to the merger will qualify as a sale or exchange with respect to such
foreign shareholder under Section 302 of the Internal Revenue Code, rather than
as a dividend for federal income tax purposes, in which case no withholding will
be required, except as otherwise provided herein, (b) the foreign shareholder is
eligible for a reduced tax treaty rate with respect to dividend income, in which
case we will withhold at the reduced treaty rate, or (c) no withholding is
otherwise required. Foreign shareholders are urged to consult their own tax
advisers regarding the application to them of these withholding rules and other
tax consequences of the merger to them.
Under the Foreign Investment in Real Property Tax Act of 1980, a common
shareholder, that is a foreign shareholder will generally not be subject to U.S.
federal income or withholding tax on the gain recognized on the disposition of
our common shares pursuant to the merger if (a) we are a "domestically
controlled REIT" within the meaning of the Internal Revenue Code; or (b) our
common shares are regularly traded on an established securities market within
the meaning of the Internal Revenue Code and the shareholder does not own,
actually or constructively under attribution rules provided in the Internal
Revenue Code, in excess of 5% of the fair market value of all of our common
shares outstanding at any time during the shorter of the five-year period
preceding the merger or the shareholder's holding period. We believe that we are
a "domestically controlled REIT." We also believe that our common shares are
regularly traded on an established securities market within the meaning of the
Internal Revenue Code. We will endeavor to determine whether our common shares
continue to be regularly traded on an established securities market prior to the
merger and whether we are a "domestically controlled REIT" as of the effective
time of the merger. A foreign shareholder of our common shares who does not meet
either of the above exceptions will be subject to (a) United States federal
income tax at regular graduated rates on any gain recognized on the disposition
of its shares in the merger; and (b) withholding in respect of this tax at a
rate of 10% of the amount realized by the foreign shareholder in the merger.
Foreign shareholders are urged to consult their tax advisors concerning the
potential applicability of these exceptions and the consequences of a sale or
other disposition of the common shares held by foreign shareholders in advance
of the merger.
Certification of Non-Foreign States. In order to avoid withholding under
the Foreign Investment in Real Property Tax Act of 1980, a shareholder of our
common shares who is not a foreign shareholder must certify under penalties of
perjury as to its non-foreign status by completing the certification form that
will be included with the letter of transmittal in connection with the merger.
Backup Withholding. The exchange of common shares in the merger will be
reported to the Internal Revenue Service. Backup withholding at a rate of 31%
will apply to the merger proceeds unless the exchanging shareholder furnishes a
taxpayer identification number in the manner prescribed by applicable Treasury
regulations, certifies that the number is correct, certifies as to no loss of
exemption from backup withholding and meets other conditions. Backup withholding
does not apply to foreign shareholders, corporations and other exempt
non-foreign shareholders. A foreign shareholder will be exempt from backup
withholding if the applicable certification requirements are satisfied. The
payment or distribution of merger proceeds to or through the United States
office of a broker is subject to information reporting and backup withholding
unless an exemption from information reporting and backup withholding is
established. Any amounts withheld under the backup withholding rules described
above will be allowed as a refund or a credit against United States federal
income tax liability of the shareholder if the required information is furnished
to the Internal Revenue Service on a timely basis.
DUE TO THE INDIVIDUAL NATURE OF TAX CONSEQUENCES, YOU ARE URGED TO CONSULT
YOUR TAX ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES TO YOU OF THE MERGER,
INCLUDING THE EFFECTS OF APPLICABLE STATE, LOCAL OR OTHER TAX LAWS.
42
<PAGE> 48
PLANS FOR AIP AFTER THE MERGER
If DDR completes the merger, it intends to maintain AIP as a private REIT
which will operate AIP's remaining properties and implement an orderly
disposition plan. DDR will take certain steps after the approval of the merger
to (1) retain AIP's status as a REIT (although private), and (2) prevent AIP
from becoming a qualified REIT subsidiary of DDR. There are no current plans or
proposals which relate to or would result in:
- an extraordinary corporate transaction, such as a merger, reorganization
or liquidation involving AIP;
- a sale or transfer of a material amount of AIP's assets; or
- any other material change in AIP's corporate structure or business.
DDR's management has begun and intends to continue a study of AIP and its
assets, corporate structure, capitalization, operations, properties, policies,
management and personnel to determine what changes will be desirable following
completion of the merger in order to organize and integrate AIP's activities
with those of DDR and its other subsidiaries.
CONDUCT OF THE BUSINESS OF AIP IF THE MERGER IS NOT COMPLETED
If the merger is not completed, AIP's board of trust managers expects that
AIP's current management will continue to operate AIP's business substantially
as currently operated. AIP anticipates that DDR would continue to be a
substantial shareholder and have the right to nominate four of the 11 members of
the board of trust managers. AIP's board is not currently considering any other
alternative to the merger.
If the merger does not close by May 31, 2001 because of a breach of the
merger agreement by DDR or DDR Sub, we will retain our right to cause DDR to
purchase up to $166.6 million of preferred shares or additional common shares
from AIP. The purchase price for the shares would be based upon AIP's trading
price. AIP's right would be extended for a period of time from its original
termination date of November 20, 2000 by the number of days between June 19,
2000 and the later of (1) the date on which the breach occurs or (2) the first
date on which a trust manager not designated by DDR becomes aware of the breach.
If AIP had this right, the board would consider whether the sale of shares would
be accretive to shareholders. If so, and if there were appropriate property
acquisitions to be funded in connection therewith, it would require that DDR
purchase shares from AIP.
ANTICIPATED ACCOUNTING TREATMENT OF THE MERGER
The merger is expected to be accounted for using the purchase method of
accounting in accordance with GAAP.
REGULATORY APPROVALS RELATING TO THE MERGER
No party is required to make filings with or obtain approvals from
regulatory authorities in connection with the merger, other than the filing of
articles of merger with Dallas County and the Secretary of State of the State of
Texas.
PROVISION FOR NON-DDR SHAREHOLDERS
Neither DDR nor AIP has made any provision to grant non-DDR shareholders
access to the files of AIP or DDR or to obtain counsel or appraisal services at
their expense.
LITIGATION RELATING TO THE MERGER
On November 3, 2000, a purported shareholder class action and derivative
action lawsuit was filed in Dallas County Court at Law No. 1 by a shareholder of
AIP seeking, among other things, to enjoin the
43
<PAGE> 49
consummation of the merger. DDR and our trust managers have been named as
defendants in the lawsuit, and AIP has been named as a nominal defendant.
The plaintiff alleges that the defendants have breached fiduciary duties,
abused their control of AIP, and committed waste by agreeing to the terms of the
announced merger and that the defendants will be unjustly enriched in connection
with the proposed merger. The plaintiff has also sued for unspecified damages,
punitive damages and attorneys' fees. The defendants deny the plaintiff's
allegations of wrongdoing and intend to vigorously defend themselves.
THE MERGER AGREEMENT
The following describes the material terms of the merger agreement. The
full text of the merger agreement is attached to this proxy statement as
Appendix B and is incorporated in this proxy statement by reference. We
encourage you to carefully read the entire merger agreement.
GENERAL
The merger agreement provides that upon the terms and subject to the
conditions of the merger agreement, DDR Sub will be merged with and into us and
that, following the merger, the separate existence of DDR Sub will cease and we
will continue as the surviving entity. When the merger occurs:
- each outstanding share of common stock of DDR Sub will be converted into
a common share of AIP;
- each outstanding AIP common share held by non-DDR shareholders will be
converted into the right to receive $ in cash, without interest and
any additional consideration that may be payable to current shareholders
upon the sale of AIP's remaining properties as described on page ; and
- common shares and share options held by DDR, DDR Sub or their affiliates
(other than individuals) will be canceled in the merger.
The amount of merger consideration may be reduced if dividends are paid to
maintain REIT status or to avoid REIT taxable income for federal income tax
purposes.
EFFECTIVE TIME OF THE MERGER
The merger agreement provides that if all the conditions to the merger
agreement are satisfied or waived prior to the special meeting, the closing of
the merger will take place as soon as practicable following the special meeting.
Promptly after the closing, we and DDR Sub will file the necessary documents
with public officials to complete the merger. We expect that, if all conditions
to the merger have been satisfied or waived, the merger will occur within three
business days after the special meeting.
CONSEQUENCES OF THE MERGER
Pursuant to the merger agreement, following approval and adoption of the
merger and subject to the fulfillment or waiver of the conditions to closing,
DDR Sub will be merged with and into AIP and AIP will continue as the surviving
entity in the merger. As a result of the merger, each common share of AIP issued
and outstanding immediately prior to the completion of the merger, other than
the excluded shares described below, will be automatically converted into the
right to receive cash as described above. The AIP common shares that will not be
converted into the merger consideration are:
- shares held in AIP's treasury, which will be canceled without any payment
thereon;
- shares held by DDR, DDR Sub and their direct or indirect subsidiaries,
which will be canceled without any payment thereon; and
44
<PAGE> 50
- shares held by shareholders who have perfected their dissenters' rights,
which will be subject to appraisal in accordance with Texas law.
At the completion of the merger, all AIP common shares, other than the
shares for which dissenters' rights were perfected, will no longer be
outstanding and will be canceled and retired and will cease to exist, and each
certificate formerly representing those shares will thereafter represent only
the right to receive the merger consideration. Also, on completion of the
merger, each share of DDR Sub common stock will be canceled and automatically
converted into the right to receive one AIP common share. Therefore, following
the merger, the non-DDR shareholders will cease to participate in future
earnings or growth, if any, of AIP or benefit from any increases, if any, in the
value of AIP and they will no longer bear the risk of any decrease in value of
AIP. Distributions by AIP after completion of the merger will be paid to DDR as
the sole shareholder of AIP and not to the non-DDR shareholders. The rate of
distributions after the completion of the merger may be greater than the rate of
dividends currently paid by AIP.
The AIP common shares are currently registered under the Securities
Exchange Act of 1934. Following the merger, the common shares will become
eligible for termination of that registration and AIP's registration under the
Securities Exchange Act will be terminated. Additionally, the AIP common shares
will be delisted from the New York Stock Exchange. AIP's obligations to file
reports with the SEC will also be terminated. In addition, AIP will be relieved
of its obligation to comply with the other requirements of the Securities
Exchange Act, including the proxy rules, the short-swing trading profits
provisions and, with respect to future transactions involving AIP, the "going
private" provisions of Rule 13e-3 under the Securities Exchange Act.
Accordingly, less information will be required to be made publicly available
than is currently the case. DDR, however, will continue to be a publicly traded
and reporting company.
EMPLOYEE SHARE PLAN
At the effective time, each option to purchase our common shares, other
than those held by DDR, will be converted into the right to receive an amount in
cash equal to the difference between the cash merger consideration and the then
current exercise price of the option. Also at the effective time, each DER will
be converted into the right to receive the negotiated average price of $2.909
per DER.
SURRENDER AND EXCHANGE OF SHARE CERTIFICATES; PAYMENT FOR SHARES
Promptly after the time the merger becomes effective, AIP will deposit with
BankBoston, N.A., the exchange agent, an amount of cash equal to the aggregate
amount of cash merger consideration to be paid to holders of our common shares
immediately before the merger became effective and the amount of the final
dividend, if any. A final dividend will be paid from operating revenue generated
after the anticipated closing date, but only if the closing is delayed more than
three days beyond that date. The exchange agent will then send to persons who
held our common shares immediately before the merger became effective a letter
of transmittal containing instructions for use in effecting the exchange of
their AIP share certificates for the merger consideration payable to them. If
you held our common shares immediately before the effective time of the merger,
upon surrender to the exchange agent of an outstanding certificate or
certificates which represented our shares and acceptance of such certificate by
the exchange agent, the exchange agent will deliver to you the merger
consideration owed to you pursuant to the merger agreement. No interest will be
paid or accrue on any cash payable to you.
Any portion of the merger consideration payable which remains undistributed
for two years after the effective time will be delivered to AIP. If, at that
time, you have not previously exchanged your certificates, you may thereafter
only look to AIP, and then only as a general creditor, for payment of the merger
consideration owed to you.
If you do not have your share certificate, you may make an affidavit of
that fact. In addition, we may require that you post a bond in a reasonable
amount determined by us with respect to the missing share
45
<PAGE> 51
certificate. Upon receipt of the affidavit and any required bond, the exchange
agent will issue the merger consideration payable to you.
TRANSFER OF SHARES
At and after the effective time, our transfer agent will not record on the
share transfer books transfers of any of our common shares that were outstanding
immediately prior to the effective time of the merger.
OFFICERS, TRUST MANAGERS AND GOVERNING DOCUMENTS
From and after the effective time of the merger, Messrs. Wolstein, Gidel,
Adams and Schoff will remain as trust managers of AIP. Our other trust managers
and our officers will resign on or prior to the effective time. Our declaration
of trust and bylaws in effect immediately prior to the effective time will
continue to be our governing documents after the merger, each until later
amended.
REPRESENTATIONS AND WARRANTIES
We made customary representations and warranties in the merger agreement
relating to various aspects of our businesses and financial statements and other
matters, including, among other things:
- our and our subsidiaries' organization and good standing;
- our and our subsidiaries' authority to enter into and the validity and
effectiveness of the merger agreement;
- our and our subsidiaries' capital structure;
- the absence of conflicts, violations or defaults under our declaration of
trust, bylaws and other agreements;
- required consents and approvals, or the absence thereof, of governmental
entities relating to the merger;
- the documents and reports filed and to be filed, including this proxy
statement, with the SEC and the accuracy and completeness of the
information contained in those documents and reports;
- litigation matters;
- our and our subsidiaries' compliance with applicable laws;
- the absence of recent material changes or events;
- tax matters;
- material liabilities or the absence thereof;
- the absence of defaults under material loans, contracts, agreements, laws
and court orders;
- our and our subsidiaries' ownership of real property;
- environmental matters;
- pension and benefit plans and other matters relating to the Employee
Retirement Income Security Act of 1974;
- labor and employment matters;
- our and our subsidiaries' ownership of intangible property;
- insurance matters;
- takeover statutes;
46
<PAGE> 52
- Chase Securities' fairness opinion; and
- the Investment Company Act of 1940.
The merger agreement also contains customary representations and warranties
of DDR and DDR Sub relating to various aspects of their business, including,
among other things:
- their organization and good standing;
- their authority to enter into and the validity and effectiveness of the
merger agreement;
- the absence of conflicts, violations or defaults under their charter
documents and other agreements;
- the Investment Company Act of 1940;
- required consents and approvals, or the absence thereof, of governmental
entities;
- the information supplied or to be supplied in connection with the
documents and reports filed, and to be filed, with the SEC, including
this proxy statement, and the accuracy and completeness of the
information contained in those documents and reports;
- their capital structure;
- litigation matters and compliance with law; and
- their access to funds sufficient to consummate the transactions
contemplated by the merger agreement.
CONDUCT OF BUSINESS PRIOR TO THE MERGER
We have agreed, prior to the time the merger occurs, to operate our and our
subsidiaries' businesses in the ordinary course in substantially the same manner
as previously conducted and to use all commercially reasonable effects to
preserve intact our business organization, and retain the services of our
current officers and key employees.
In addition, the merger agreement places specific restrictions on our
ability and the ability of our subsidiaries to:
- except as described below, authorize, declare or pay any dividends on or
make other distributions in respect of any of our common shares;
- make or rescind any material express or deemed tax election;
- materially change our methods, principles or practices of accounting
except as required by the SEC, GAAP or applicable law;
- acquire or enter into any option or contract to acquire additional real
property;
- incur additional indebtedness except for working capital under our
revolving lines of credit;
- encumber assets;
- commence construction of, or enter into agreements to develop or
construct, other real estate projects;
- amend our organizational documents;
- change our capital structure;
- issue securities or change the terms of any outstanding securities;
- sell, dispose of or agree to sell or dispose of any of our properties;
- make loans, advances, capital contributions or investments in any entity
other than our subsidiaries;
47
<PAGE> 53
- commit to purchase real estate in excess of $500,000 individually and
$1,000,000 in the aggregate;
- guarantee indebtedness;
- enter into any related party transactions;
- increase compensation or enter into employment or other agreements;
- adopt any new employee benefit plan;
- change the ownership of our subsidiaries; or
- agree, commit or arrange to take any action listed above.
Under the merger agreement, we are permitted to pay a dividend, but only in the
minimum amount necessary to avoid jeopardizing our status as a REIT under the
Internal Revenue Code and having positive REIT taxable income for federal income
tax purposes. Any dividends paid for these purposes will reduce the amount of
the merger consideration. We may also pay a dividend from operating revenues if
the closing occurs after , 2001. A dividend paid for that purpose
would not reduce the amount of the merger consideration.
ACCESS TO INFORMATION
We have agreed to allow DDR and DDR Sub, their officers, employees,
accountants, counsel, financial advisors and other representatives, upon
reasonable advance notice, reasonable access during normal business hours to our
properties, books, contracts, commitments, personnel and records. We further
agreed to furnish promptly to DDR and DDR Sub all other information concerning
our business, properties and personnel as they may reasonably request.
NO SOLICITATION
In the merger agreement, we have agreed that, prior to the merger:
- except as described below, neither we nor any of our subsidiaries will
initiate, solicit or knowingly encourage, directly or indirectly, any
acquisition proposal, or engage in any negotiations concerning or
otherwise provide any confidential information or take any action
designed or reasonably likely to facilitate any acquisition proposal;
- except as described below, we will use our reasonable best efforts to
cause our officers, trust managers, employees, agents and financial
advisors not to engage in the activities listed in the preceding bullet
point;
- we will immediately cease and cause to be terminated any existing
activities, discussions or negotiations with any parties conducted prior
to November 1, 2000 with respect to the above actions; and
- we will promptly notify DDR Sub if we receive any such inquiries or
proposals, or any requests for information, or if any such negotiations
or discussions are sought to be initiated or continued.
The merger agreement does not prohibit our board of trust managers from:
- furnishing information to, or engaging in discussions or negotiations
with, any third party that makes an unsolicited acquisition proposal if:
- the board determines, in good faith, following consultation with and
after considering the advice of its legal and financial advisors, that
these actions could reasonably be expected to result in a superior
acquisition proposal; and
- prior to furnishing information to, or engaging in discussions or
negotiations with, the third party, we provide written notice to DDR and
DDR Sub to the effect that we are furnishing information
48
<PAGE> 54
to, or entering into discussions with, that third party, and the status
of the discussions or negotiations with the third party; or
- if applicable, taking and disclosing to our shareholders a position, as
contemplated by Rules 14d-9 and 14e-2 under the Securities Exchange Act
of 1934, or making any disclosure to our shareholders with regard to an
acquisition proposal.
The board of trust managers may withdraw or modify its approval or
recommendation of the merger agreement only if it decides to approve and
recommend a superior acquisition proposal.
The term "acquisition proposal" means an inquiry, proposal or offer with
respect to a transaction, other than the transactions contemplated by the sale
agreement or the merger agreement, involving, or any purchase of, all or any
significant portion of our assets or any of our equity securities or any assets
or securities of our subsidiaries. The term "superior acquisition proposal"
means a bona fide acquisition proposal:
- that the board of trust managers (excluding DDR's designees), or an
authorized committee of the board, determines to be more favorable to our
shareholders from a financial point of view than the merger, based upon
advice from our financial advisor and legal counsel that the value of the
consideration provided for in the proposal is superior to the value of
the consideration provided for in the merger; and
- for which any required financing is then committed or which, in the good
faith reasonable judgment of our board of trust managers and legal
counsel, is reasonably capable of being financed by the third party, if
financing is required.
CONDITIONS TO THE MERGER
Conditions to each party's obligations
The respective obligations of each party to complete the merger are subject
to the satisfaction prior to the closing date of the following conditions:
- approval and adoption of the merger agreement by the holders of 66 2/3%
of the outstanding common shares entitled to vote on the merger;
- receipt of all required consents, approvals, permits and authorizations
required to be obtained from any governmental entity in connection with
the transactions contemplated by the merger;
- absence of any temporary restraining order, preliminary or permanent
injunction or other order issued by any court of competent jurisdiction,
or order of any governmental entity having jurisdiction over us, DDR or
DDR Sub, and absence of any other legal restraint or prohibition
preventing or making illegal the consummation of the merger; and
- the sale of the 31 properties to Value Enhancement Fund shall have
closed.
Conditions to DDR's and DDR Sub's obligations
DDR's and DDR Sub's obligations to effect the merger are further subject to
the satisfaction or waiver of the following conditions:
- we will have performed in all material respects the obligations required
to be performed by us under the merger agreement at or prior to the
closing date, and DDR and DDR Sub will have received a certificate to
that effect signed on our behalf by our chief executive officer and our
chief financial officer;
- our representations and warranties described in the merger agreement will
be true and correct in all material respects on and as of the closing
date (or as of a particular date, where applicable), and
49
<PAGE> 55
DDR will have received a certificate to that effect, signed on our behalf by our
chief executive officer and chief financial officer;
- DDR will have been furnished with evidence of the receipt of all consents
required by the merger agreement;
- no material adverse effect will have occurred since November 1, 2000 with
respect to us, and DDR and DDR Sub will have received a certificate to
that effect from our chief executive officer or our chief financial
officer;
- the tax opinion of Locke Liddell & Sapp LLP, our counsel, will have been
delivered to us, DDR and DDR Sub;
- all of our officers and trust managers, other than DDR's designees to our
board, will have resigned;
- DDR Sub will have received a comfort letter from Ernst & Young, LLP, our
auditors;
- shareholders holding not more than 10% of our outstanding shares will
have exercised dissenters' rights;
- DDR and DDR Sub will have received from us FIRPTA certificates for the
DDR properties;
- Manhattan Towers will have been sold and generated net cash proceeds of
not less than $34.2 million;
- our transaction expenses will not exceed $13.738 million;
- the net cash proceeds to us from the sale of the 31 properties to Value
Enhancement Fund will not be less than $135.4 million;
- our net other assets will not be less than $17.702 million;
- the aggregate principal amount of our indebtedness and the amount of
indebtedness available under our lines of credit will not exceed $137.4
million; and
- the LaSalle entities, on behalf of their clients, the Morgan Stanley Dean
Witter entities, on behalf of their clients, and USAA Realco will have
voted in favor of the merger agreement.
We have satisfied the condition regarding the sale of Manhattan Towers. The
merger agreement provides that we will be deemed to have satisfied the ninth,
tenth, eleventh and twelfth conditions listed above if the sum or the actual
amounts of the items described in the ninth, eleventh and twelfth conditions
minus the actual amount of transaction expenses is within $1 million of the base
amount of $173.564 million. In accordance with the merger agreement, the
calculation was made on , 2001. Based on the calculation, we have
satisfied the conditions nine through 12. [Because the result was $ more
than the base amount, the merger consideration was increased from $13.74 per
share to $ per share. OR Because the result was within $1 million of the
base amount, the merger consideration remained at $13.74.]
Conditions to our obligations
Our obligation to effect the merger is further subject to the satisfaction
or waiver of the following conditions:
- DDR and DDR Sub will have performed in all material respect the
obligations required to be performed by them under the merger agreement
at or prior to the closing date, and we will have received a certificate
to that effect signed on behalf of DDR by its chief executive officer or
its chief financial officer;
- the representations and warranties of DDR and DDR Sub described in the
merger agreement will be true and correct in all material respects on and
as of the closing date (or as of a particular date,
50
<PAGE> 56
where applicable), and we will have received a certificate to that effect
signed on behalf of DDR by its chief executive officer and its chief
financial officer;
- as to DDR and DDR Sub, no material adverse effect will have occurred
since November 1, 2000, and we will have received a certificate to that
effect from each of their respective chief executive officers and chief
financial officers;
- the cash consideration you are to receive is $13.74 or more; and
- all consents and waivers from third parties in connection with the merger
have been obtained.
TERMINATION
The merger agreement may be terminated and the merger may be abandoned at
any time prior to the effective time as follows:
- by mutual written consent of our board of trust managers and DDR's and
DDR Sub's respective boards of directors;
- any of the parties if:
- any governmental entity has issued an injunction, order, decree or
ruling, or taken any other action restraining, enjoining or otherwise
prohibiting the consummation of the merger that remains in effect on May
31, 2001;
- the merger is not consummated by May 31, 2001 and the terminating
party's breach of any representation, warranty, covenant or other
obligation under the merger agreement has not been the cause of or
resulted in the failure of the merger to occur on or before May 31,
2001;
- we fail to get approval of the merger from the holders of at least
66 2/3% of the outstanding common shares; or
- the other party has breached its representations, warranties, covenants
or obligations such that the conditions to closing cannot be satisfied
by May 31,2001.
- by DDR or DDR Sub, if:
- prior to the special meeting, our board of trust managers has withdrawn
or modified, in any manner which is adverse to DDR, its recommendation
or approval of the merger or the merger agreement or the board has
approved or recommended to our shareholders any superior acquisition
proposal; or
- AIP enters into a definitive agreement with respect to an acquisition
proposal.
- by us, if:
- prior to the special meeting and subject to payment by us of a
termination fee:
- the board of trust managers has withdrawn or modified its
recommendation or approval of the merger agreement or the board has
approved or recommended a superior acquisition proposal.
TERMINATION FEES
The merger agreement provides that, except as described below, all costs
and expenses incurred in connection with the merger agreement will be paid by
the party incurring the expense.
- AIP must pay DDR $4.5 million if the merger agreement is terminated for
any of the following reasons:
- breach of any representation, warranty, covenant, obligation or
agreement by AIP such that the conditions to closing cannot be satisfied
by May 31, 2001;
51
<PAGE> 57
- failure to close the sale of the 31 properties to Value Enhancement Fund
in accordance with the sale agreement because of AIP's breach of that
agreement;
- if prior to the shareholders meeting, the board withdraws its
recommendation in favor of the merger;
- if AIP enters into a definitive agreement with respect to an acquisition
proposal; or
- if the board approves or recommends a superior acquisition proposal.
- DDR must pay AIP $4.5 million if the merger agreement is terminated
because DDR breaches any representation, warranty, covenant, obligation
or agreement, such that the conditions to closing cannot be satisfied by
May 31, 2000. If the sale agreement is terminated because of a breach by
DDR, DDR will be responsible for any termination fee to be paid by AIP to
Value Enhancement Fund under the property sale agreement.
INDEMNIFICATION
The merger agreement provides that, from and after the time the merger
agreement becomes effective, AIP will indemnify our and our subsidiaries'
present and former officers, employees, directors and trust managers from
liabilities arising out of actions or omissions in their capacity as such prior
to or at the effective time of the merger, to the extent provided in our or our
subsidiaries' organizational documents or any written indemnification agreements
or other employee benefit plan or pension plan. In addition, AIP will maintain
directors' and officers' insurance coverage for six years after the effective
time of the merger on terms no less favorable to these indemnified parties than
existing insurance coverage. DDR has agreed to guarantee these obligations after
the merger is effective.
AMENDMENT
The merger agreement may be amended at any time only by written agreement
of AIP, DDR and DDR Sub. However, after the required shareholder approval, no
term or condition contained in the merger agreement may be amended or modified
in any manner that by law requires further approval by our shareholders without
our obtaining this further shareholder approval.
FEES AND EXPENSES
Whether or not the transactions are completed, all fees and expenses
incurred in connection with the merger will be paid by the party incurring the
expenses. If AIP terminates the property sale agreement, in addition to paying a
termination fee, AIP must reimburse Value Enhancement Fund for its verifiable
out-of-pocket costs, including legal fees, up to $450,000. In addition to any
termination fee and expenses that may become payable by AIP under the merger
agreement or the property sale agreement, AIP's estimated fees and expenses to
be incurred in connection with the proposed transactions are as follows:
<TABLE>
<S> <C>
Filing fees (SEC)........................................... $31,741
Legal, accounting and financial advisor's fees of AIP and
the special committee.....................................
Printing and solicitation fees and expenses.................
Miscellaneous...............................................
-------
Total............................................. $
=======
</TABLE>
52
<PAGE> 58
THE COMPANIES
AIP
We are an Irving, Texas based REIT focused on the light industrial property
sector including office showroom, service center and flex properties, low-rise
office and small bay distribution buildings. At September 30, 2000, our
portfolio consisted of 71 properties comprised of approximately 7.8 million
square feet in 11 states. We are a self-administered REIT that has acquired,
managed and improved industrial and other commercial properties since 1985. Our
properties were approximately 93.6% leased at December 31, 1999 and 92.3% at
September 30, 2000. Our real estate assets are operated with the same long-term
objectives and therefore are viewed as a single operating segment.
Our executive offices are located at 6210 N. Beltline Road, Suite 170,
Irving, Texas 75063. Our telephone number is (972) 756-6000.
DDR AND DDR SUB
DDR is an Ohio based REIT formed in 1992 and DDR Sub is a newly formed
Texas REIT that was formed to effectuate the merger. DDR currently owns and
manages 209 shopping centers in 40 states totaling 49.2 million square feet of
real estate under management. DDR is a self-administered and self-managed REIT
operating as a fully integrated real estate company which develops, leases and
manages shopping centers. The principal executive offices of DDR and DDR Sub are
located at 3300 Enterprise Parkway, Beachwood, Ohio 44122. The telephone number
for each of these entities is (216) 755-5500. DDR owns 46.0% of our issued and
outstanding common shares, and under the share purchase agreement entered into
with AIP in July 1998, DDR has designated four of our trust managers.
53
<PAGE> 59
PRINCIPAL SHAREHOLDERS AND SHARE OWNERSHIP OF MANAGEMENT OF AIP
The following table sets forth information on the beneficial ownership of
our common shares as of the record date by persons known to us to own more than
5% of our outstanding common shares, each of our trust managers and executive
officers and all of our trust managers and executive officers as a group. The
following information with respect to beneficial ownership of more than 5% of
our outstanding common shares is based on reports on Schedule 13D or Schedule
13G filed with the SEC. A person is deemed to be the beneficial owner of the
number of common shares of which that person has the right to acquire beneficial
ownership, for example, by exercise of share options, within 60 days after the
record date.
Except as otherwise noted, all persons named below have sole voting and
investment power with respect to all shares shown as beneficially owned by them,
subject to community property laws where applicable.
<TABLE>
<CAPTION>
NUMBER OF
SHARES
BENEFICIALLY PERCENT
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED OF CLASS
------------------------------------ ------------ --------
<S> <C> <C>
Albert T. Adams............................................. 2,000(1) *
William H. Bricker.......................................... 5,400(2) *
T. Patrick Duncan........................................... 1,200 *
Robert H. Gidel............................................. 4,048(1) *
Robert E. Giles............................................. 8,012(2) *
Edward B. Kelley............................................ 2,000 *
Stanley J. Kraska, Jr. ..................................... --........
J. Timothy Morris........................................... 1,000(3) *
James A. Schoff............................................. 2,000(1) *
Charles W. Wolcott.......................................... 336,000(4) 1.56%
Scott A. Wolstein........................................... 2,006(1)(10) *
Lewis D. Friedland.......................................... 160,006(5) *
Marc A. Simpson............................................. 90,898(6) *
David B. Warner............................................. 79,900(6) *
USAA Real Estate Company.................................... 1,680,086(7) 7.79%
9830 Colonnade Boulevard, Suite 600
San Antonio, Texas 78230
Morgan Stanley Dean Witter & Co.
The Morgan Stanley Real Estate Special Situations Fund II,
L.P.
Morgan Stanley Dean Witter Investment Management Inc. .... 1,999,653(8) 9.27%
1585 Broadway New York, New York 10036
LaSalle Investment Management (Securities) LP and LaSalle
Investment Management, Inc. .............................. 1,507,578(9) 6.97%
100 East Pratt Street
Baltimore, Maryland 21202
Scott A. Wolstein and Developers Diversified Realty
Corporation............................................... 9,756,656(10) 45.23%
3300 Enterprise Parkway
Beachwood, Ohio 44122
All trust managers and executive officers as a group(14
persons).................................................. 694,479(1)(2)(3) 3.24%
(4)(5)(6)
</TABLE>
---------------
* Ownership is less than 1% of outstanding common shares.
(1) Includes vested options to purchase 2,000 common shares.
(2) Includes vested options to purchase 5,000 common shares.
(3) Includes vested options to purchase 1,000 common shares.
54
<PAGE> 60
(4) Includes vested options to purchase 250,000 common shares.
(5) Includes vested options to purchase 135,000 common shares.
(6) Includes vested options to purchase 70,000 common shares.
(7) Based upon Amendment No. 4 to Schedule 13D filed jointly by United States
Automobile Association, USAA Capital Corporation, and USAA Realco on August
6, 1998. USAA is the sole stockholder of USAA Capital Corporation and USAA
Capital Corporation is the sole stockholder of Realco. Based upon these
relationships, USAA, USAA Capital Corporation, and USAA Realco have shared
voting and dispositive power over 1,680,086 common shares.
(8) Based upon Amendment No. 1 to Schedule 13D filed jointly by Morgan Stanley
Dean Witter & Co. (f/k/a Morgan Stanley, Dean Witter, Discover & Co.),
Morgan Stanley Dean Witter Investment Management Inc. (f/k/a Morgan Stanley
Asset Management Inc.) and Morgan Stanley Real Estate Special Situations
Fund II, L.P. on March 17, 1998, Morgan Stanley Dean Witter has sole voting
and dispositive power over 120,231 common shares and shared voting and
dispositive power over 1,879,422 common shares held by the investors for
whom Morgan Stanley Dean Witter Investment Management acts as an investment
advisor. Pursuant to separate investment management agreements between
Morgan Stanley Dean Witter Investment Management and Morgan Stanley Real
Estate Special Situations Fund II, Morgan Stanley Dean Witter Investment
Management has been granted voting and dispositive power with respect to
the common shares held by Morgan Stanley Real Estate Special Situations
Fund II. Morgan Stanley Dean Witter Investment Management has shared voting
and dispositive power over 1,879,422 common shares held by Morgan Stanley
Dean Witter Investment Management purchasers and the Morgan Stanley Real
Estate Special Situations Fund II has shared voting and dispositive power
over 652,415 of such common shares. Pursuant to separate investment
management agreements between Morgan Stanley Dean Witter Investment
Management and the Morgan Stanley Dean Witter Investment Management
purchasers, Morgan Stanley Dean Witter Investment Management has been
granted voting and dispositive power with respect to the common shares held
by each of the Morgan Stanley Dean Witter Investment Management purchasers.
(9) Based upon Amendment No. 2 to Schedule 13D filed jointly by LaSalle
Investment Management (Securities) LP and LaSalle Investment Management,
Inc. on February 10, 1998, (i) LaSalle Investment Management (Securities)
LP has sole voting and dispositive power over 480,213 common shares and
shared voting and dispositive power with respect to 480,212 common shares;
and (ii) LaSalle Investment Management, Inc. has shared dispositive power
with respect to 542,153 common shares. Includes vested options to purchase
5,000 common shares.
(10) Based upon Amendment No. 7 to Schedule 13D filed jointly by DDR and Scott
A. Wolstein on November 14, 2000, DDR has sole voting and dispositive power
over 9,756,650 common shares and Mr. Wolstein has sole voting and
dispositive power over 2,006 common shares (which amount includes
beneficial ownership of 2,000 common shares as a result of options that are
exercisable). Mr. Wolstein, as chairman of the board, president and chief
executive officer of DDR, may be deemed to beneficially own all shares held
by DDR.
55
<PAGE> 61
TRUST MANAGERS AND EXECUTIVE OFFICERS OF AIP
The following persons are the trust managers and executive officers of AIP.
<TABLE>
<CAPTION>
NAME AGE POSITION(S) AND OFFICE(S) HELD
---- --- ------------------------------
<S> <C> <C>
Scott A. Wolstein.......... 48 Chairman of the Board of Directors and Chief Executive
Officer of the Company
Albert T. Adams............ 49 Trust Manager
William H. Bricker......... 68 Trust Manager
T. Patrick Duncan.......... 52 Trust Manager
Robert H. Gidel............ 49 Trust Manager
Robert E. Giles............ 52 Trust Manager
Edward B. Kelley........... 60 Trust Manager
Stanley J. Kraska, Jr. .... 40 Trust Manager
J. Timothy Morris.......... 34 Trust Manager
James A. Schoff............ 54 Trust Manager
Charles W. Wolcott......... 47 Trust Manager, President and Chief Executive Officer
Lewis D. Friedland......... 41 Executive Vice President and Chief Operating Officer
Marc A. Simpson............ 46 Senior Vice President and Chief Financial Officer,
Secretary and Treasurer
David B. Warner............ 42 Senior Vice President -- Real Estate Operations
</TABLE>
Scott A. Wolstein was appointed as a trust manager and as Chairman of the
Board of Trust Managers on July 30, 1998. Mr. Wolstein became Chairman of DDR in
February 1997, and has served as President and Chief Executive Officer of DDR
since its organization in 1992 and February 1993 initial public offering. Mr.
Wolstein was a principal and executive officer of DDR's predecessor prior to
1993. Mr. Wolstein is a graduate of the Wharton School at the University of
Pennsylvania and of the University of Michigan Law School. He is currently a
member of the Board of Trustees of the National Association of Real Estate
Investment Trusts and the International Council of Shopping Centers and serves
as the General Co-Chairman of the Cleveland Campaign for the State of Israel
Bonds. He is also a member of the Young Presidents Organization, The Urban Land
Institute, the National Realty Committee and the Wharton Real Estate Center.
Albert T. Adams was appointed as a trust manager on July 30, 1998. Mr.
Adams has been a partner with the law firm of Baker & Hostetler LLP in
Cleveland, Ohio, since 1984, and has been affiliated with the firm since 1977.
Mr. Adams is a graduate of Harvard College, Harvard Business School and Harvard
Law School. He serves as a member of the Board of Trustees of the Greater
Cleveland Roundtable and of the Western Reserve Historical Society. Mr. Adams
also serves as a director of DDR, Associated Estates Realty Corporation, Boykin
Lodging Company, Captec Net Lease Realty, Inc. and Dairy Mart Convenience
Stores, Inc.
William H. Bricker has served as a trust manager since September 1985. Mr.
Bricker was appointed Chairman and Chief Executive Officer of LTV Corporation in
November 2000. He has served as President of DS Energy Services Incorporated and
has consulted in the energy field and on international trade since 1987. In May
1987, Mr. Bricker retired as the Chairman and Chief Executive Officer of Diamond
Shamrock Corporation where he held various management positions from 1969
through May 1987. He received his Bachelor of Science and Master of Science
degrees from Michigan State University.
T. Patrick Duncan has served as a trust manager since December 1996. Mr.
Duncan joined USAA Realco in November 1986 as Chief Financial Officer. With over
24 years of experience, Mr. Duncan serves as Senior Vice President of Real
Estate Operations with responsibilities which include the direction of all
acquisitions, sales, management and leasing of real estate for USAA-affiliated
companies. Mr. Duncan received degrees from the University of Arizona in
Accounting and Finance. He is a Certified Public Accountant, Certified
Commercial Investment Manager, and holds a Texas Real Estate Broker's
56
<PAGE> 62
License. Mr. Duncan is also a member of the Board of Directors for the Daughters
of Charity and a member of the Board of Directors of the North San Antonio
Chamber of Commerce.
Robert H. Gidel has served as a trust manager since July 1998. Mr. Gidel
also serves as a Member of the Board of Directors of DDR, Lone Star Opportunity
Funds I and II and Fortress Investment Trust. Since 1993, Mr. Gidel has been the
managing partner of Liberty Partners, an investment partnership formed to
purchase securities interests in private and public real estate companies. He
has assumed management and governance roles in many of the companies in which
the partnership has invested. He was President and Chief Executive Officer of
Brazos Partners from 1993-1995, President and Chief Operating Officer of Paragon
Group, Inc. from 1995-1997 and President of Meridian Point Realty Trust VIII
from 1997-1998. Prior to 1993, Mr. Gidel was a Managing Director of Alex. Brown
Kleinwort Benson Realty Advisors. He is a graduate of Warrington College of
Business at the University of Florida with a major in real estate.
Robert E. Giles has served as a trust manager since March 1996. Mr. Giles
is currently Executive Vice President of Crown Castle UK Ltd., a communication
sites and wireless network services company. From 1995 to 1999, Mr. Giles was
the owner and President of Robert E. Giles Interests, Inc., a real estate
consulting and development firm and President of Title Network, Ltd., a national
title insurance agency. Mr. Giles was a Vice President with the J.E. Robert
Companies, Inc. from 1994 to 1995. From 1990 to 1994, Mr. Giles was President
and a Director of National Loan Bank, a publicly-held company created through
the merger of Chemical Bank and Texas Commerce Bank. Mr. Giles received his
Bachelor of Arts degree from University of Texas -- Austin in 1970 and received
a Master of Arts degree from University of Texas -- Arlington in 1973.
Edward B. Kelley has served as a trust manager since December 1996. Mr.
Kelley is President of USAA Realco and of La Cantera Development Company. He
joined Realco in April 1989 as Executive Vice President and Chief Operating
Officer before assuming his new title in August 1989. Mr. Kelley received his
Bachelor of Business Administration degree from St. Mary's University in 1964
and a Masters in Business Administration from Southern Methodist University in
1967, and is a Member of the Appraisal Institute. Mr. Kelley is a member of the
Board of Directors of USAA Equity Advisors, Inc.
Stanley J. Kraska, Jr. has served as a trust manager since July 1997. Mr.
Kraska has been employed by LaSalle Investment Management (Securities) LP or its
affiliates since February 1988. He currently serves as Managing Director, with
responsibility for private placement investment. Mr. Kraska graduated from
Dartmouth College in 1982 with a Bachelor of Arts degree and received a Master
of Business Administration degree from Harvard University in 1986.
J. Timothy Morris has served as a trust manager since January 15, 1999. Mr.
Morris is a Principal at Morgan Stanley Dean Witter and head of Morgan Stanley's
Real Estate Special Situations Program. Mr. Morris has over 12 years of
experience at Morgan Stanley Dean Witter in the investment banking and direct
investment areas. Prior to heading up the Special Situations initiative, Mr.
Morris spent five years in Hong Kong running Morgan Stanley Dean Witter's real
estate business for Asia. Mr. Morris currently serves on the board of Grove
Property Trust, as well as on the boards of two private REITs. He is a graduate
of Indiana University and holds a Bachelor of Science degree in Finance.
James A. Schoff has served as a trust manager since July 1998. Mr. Schoff
is Vice Chairman of the Board and Chief Investment Officer of DDR. Prior to
this, Mr. Schoff served as DDR's Executive Vice President and Chief Operating
Officer from the time of the DDR's initial public offering, and he was a
principal and executive officer of DDR's predecessor. Mr. Schoff is a graduate
of Hamilton College and Cornell University Law School. Mr. Schoff practiced law
with the firm of Thompson, Hine and Flory where he specialized in the
acquisition and syndication of real estate properties. Mr. Schoff currently
serves as a member of the Executive Committee and Board of Trustees of the
Western Reserve Historical Society and the National Committee for Community and
Justice.
Charles W. Wolcott currently serves as trust manager, President and Chief
Executive Officer. Mr. Wolcott was hired as the President and Chief Executive
Officer of AIP in May 1993 and has served
57
<PAGE> 63
as a trust manager since August 1993. Mr. Wolcott was President and Chief
Executive Officer for Trammell Crow Asset Services, a real estate asset and
portfolio management affiliate of Trammell Crow Company, from 1990 to 1992. He
served as Vice President and Chief Financial and Operating Officer of AIP from
1988 to 1991. From 1988 to 1990, Mr. Wolcott was a partner in Trammell Crow
Ventures Operating Partnership. Prior to joining the Trammell Crow Company in
1984, Mr. Wolcott was President of Wolcott Corporation, a firm engaged in the
development and management of commercial real estate properties. Mr. Wolcott
graduated from the University of Texas at Austin in 1975 with a Bachelor of
Science degree and received a Master of Business Administration degree from
Harvard University in 1977.
Lewis D. Friedland currently serves as Executive Vice President and Chief
Operating Officer. He was hired as the Vice President and Chief Investment
Officer of AIP in 1997. Prior to joining the Trust, Mr. Friedland was a founding
partner of Crimson Partners, an investment firm formed in 1992 that engaged in
the acquisition and development of real estate assets. Prior to founding this
firm, he was a Division Partner and Managing Director of Trammell Crow Company
where he was responsible for that firm's development, leasing, and property
management activities in Richmond, Va. Mr. Friedland graduated from the Wharton
School of the University of Pennsylvania in 1981 with a Bachelor of Science
Degree in Economics and received a Master of Business Administration degree from
Harvard University in 1985.
Marc A. Simpson currently serves as Senior Vice President and Chief
Financial Officer, Secretary and Treasurer. Mr. Simpson was hired as the Vice
President and Chief Financial Officer, Secretary and Treasurer of AIP in March
1994. From November 1989 through March 1994, Mr. Simpson was a Manager in the
Financial Advisory Services Group of Coopers & Lybrand L.L.P. Prior to that
time, he served as Controller of Pacific Realty Corporation, a real estate
development company. Mr. Simpson graduated with a Bachelor of Business
Administration degree from Midwestern State University in 1978, and received a
Master of Business Administration degree from Southern Methodist University in
1990.
David B. Warner currently serves as Senior Vice President -- Real Estate
Operations. Mr. Warner was hired as Vice President and Chief Operating Officer
of AIP in May 1993. From 1989 through the date he accepted a position with AIP,
Mr. Warner was a Director of the Equity Investment Group for the Prudential
Realty Group. From 1985 to 1989, he served in the Real Estate Banking Group of
NCNB Texas National Bank. Mr. Warner graduated from the University of Texas at
Austin in 1981 with a degree in finance and received a Master of Business
Administration from the same institution in 1984.
DIRECTORS AND EXECUTIVE OFFICERS OF DDR
<TABLE>
<CAPTION>
NAME AGE POSITION(S) AND OFFICE(S) HELD
---- --- ------------------------------
<S> <C> <C>
Chairman of the Board of Directors and
Scott A. Wolstein......................... 48 Chief
Executive Officer
Vice Chairman of the Board of Directors
James A. Schoff........................... 54 and
Chief Investment Officer
David M. Jacobstein....................... 53 President and Chief Operating Officer
Daniel B. Hurwitz......................... 34 Executive Vice President
Joan U. Allgood........................... 47 Vice President and General Counsel
William H. Schafer........................ 42 Senior Vice President and Chief Financial
Officer
Eric Mallory.............................. 39 Senior Vice President of Development
William N. Hulett III..................... 56 Director
Albert T. Adams........................... 49 Director
Dean S. Adler............................. 43 Director
Barry A. Sholem........................... 44 Director
Terrance R. Ahern......................... 41 Director
Robert H. Gidel........................... 49 Director
</TABLE>
58
<PAGE> 64
For a description of the business experience of Messrs. Wolstein, Schoff,
Adams and Gidel, see "Trust Managers and Executive Officers of AIP" on pages
56-57.
David M. Jacobstein has been the President and Chief Operating Officer of
DDR since May 1999. From 1986 until the time he joined DDR, Mr. Jacobstein was
employed by Wilmorite, Inc., a Rochester, New York based shopping center
developer where most recently he served as Vice Chairman and Chief Operating
Officer. Mr. Jacobstein is a graduate of Colgate University and George
Washington University Law School. Prior to joining Wilmorite, Mr. Jacobstein
practiced law with the firms of Thompson, Hine & Flory LLP in Cleveland, Ohio
and Harris, Beach & Wilcox in Rochester, New York where he specialized in
corporate and securities law. He is a member of the International Council of
Shopping Centers and has served as a Vice-President of the Colgate University
Alumni Corporation and as President of the Allendale Columbia School (Rochester,
NY) Board of Trustees.
Daniel B. Hurwitz was appointed Executive Vice President in June 1999. Mr.
Hurwitz most recently served as Senior Vice President and Director of Real
Estate and Development for Reading, Pennsylvania based Boscov's Department
Store, Inc., a privately held department store chain from 1991 until he joined
DDR. Prior to Boscov's, Mr. Hurwitz served as Development Director for The
Shopco Group, a New York City based developer of regional shopping malls. Mr.
Hurwitz is a graduate of Colgate University, and the Wharton School of Business
Executive Management Program at the University of Pennsylvania. He is a member
of the International Council of Shopping Centers and has served as a Board
member of the Colgate University Alumni Corporation, Reading JCC, American
Cancer Society (Regional), and the Greater Berk's Food Bank.
Joan U. Allgood has been a Vice President and General Counsel of DDR since
its organization as a public company and General Counsel of its predecessor
entities since 1987. Mrs. Allgood practiced law with the firm of Thompson, Hine
and Flory from 1983 to 1987, and is a graduate of Denison University and Case
Western Reserve University School of Law.
William H. Schafer has been a Vice President and Chief Financial Officer of
DDR since its organization as a public company and the Chief Financial Officer
of its predecessor entities since April 1992. Mr. Schafer joined the Cleveland,
Ohio office of the Price Waterhouse LLP accounting firm in 1983 and served there
as a Senior Manager from July 1990 until he joined the organization in 1992. Mr.
Schafer graduated from the University of Michigan with a Bachelor of Arts degree
in Business Administration.
Eric Mallory is the Vice President of Development since April 1999. Prior
to that, Mr. Mallory was Executive Vice President of PREIT-Rubin, Inc. in
Philadelphia, Pennsylvania since 1993. Mr. Mallory is a graduate of the
University of Pittsburgh and received his MBA from the University of Evansville.
William N. Hulett III has been managing member of Fame Development, Ltd., a
residential real estate developer since June 1999. Mr. Hulett has been a
Director of BridgeStreet Accommodations, Inc., an American Stock Exchange listed
company in the extended stay lodging industry, since June 1997. From June 1997
to June 1998, Mr. Hulett served as President and Chief Executive Officer of
BridgeStreet and from June 1998 to June 1999 he served as Vice Chairman of the
Board of Directors of BridgeStreet. From September 1995 to May 1997, Mr. Hulett
was the Co-Chairman and Chief Executive Officer of the Rock and Roll Hall of
Fame and Museum in Cleveland, Ohio. From May 1981 to May 1993, Mr. Hulett was
the President of Stouffer Hotel Company, the owner of a national hotel chain.
Prior to that time, Mr. Hulett served as Vice President of Operations for Westin
Hotels, based in Seattle, Washington. In December 1991, he completed a third
consecutive term as Chairman of the Convention and Visitors Bureau of Greater
Cleveland. Mr. Hulett is Chairman of the Northern Ohio Chapter of the American
Red Cross, a director of Cuyahoga Community College and a member of the Civic
Vision 2000 Steering Committee. He is also a director of the Greater Cleveland
Growth Association and Cleveland Development Advisors. Mr. Hulett was named
Business Executive of the Year for 1995 by the Sales and Marketing Executives
Association.
59
<PAGE> 65
Dean S. Adler is currently a principal with Lubert-Adler Partners, L.P., a
private equity real estate investment company which he founded in 1997. From
1987 through 1996, Mr. Adler was a principal and co-head of the private equity
group of CMS Companies, specializing in acquiring operating businesses and real
estate. Mr. Adler is a graduate of the Wharton School and the University of
Pennsylvania Law School. He was an instructor at the Wharton School between 1981
and 1983. He currently serves as a member of the Board of Directors of The Lane
Company, Electronics Boutique, Inc., U.S. Franchise Systems Inc. and Trans World
Entertainment Corporation. Mr. Adler has served on such community boards as the
UJA National Young Leadership Cabinet and he is currently a member of the Alexis
de Tocqueville Society and is co-chairman of The Walt Frazier Youth Foundation.
Barry A. Sholem is currently the Co-Chairman and Managing Director of
Donaldson, Lufkin & Jenrette, Inc. Real Estate Capital Partners, a $750 million
real estate fund which invests in a broad range of real estate related assets,
which he joined in January 1995. Prior to joining Donaldson, Lufkin & Jenrette,
Inc., Mr. Sholem was with Goldman, Sachs & Co. for fifteen years and was head of
the Real Estate Principal Investment Area for Goldman, Sachs & Co. on the West
Coast. Mr. Sholem is a graduate of Brown University and Northwestern
University's J.L. Kellogg Graduate School of Management. Mr. Sholem is currently
active in the Urban Land Institute, the International Council of Shopping
Centers, the U.C. Berkeley Real Estate Advisory Board and the Business
Roundtable.
Terrance R. Ahern is a co-founder and principal of The Townsend Group, an
institutional real estate consulting firm formed in 1986 which represents
primarily tax-exempt clients such as public and private pension plans,
endowment, foundation and multi-manager investments. Mr. Ahern is a member of
the Board of Directors of the Pension Real Estate Association. He was formerly a
member of the Board of Governors of NAREIT. Prior to founding The Townsend
Group, Mr. Ahern was a Vice President of a New York based real estate investment
firm and was engaged in the private practice of law. Mr. Ahern received a B.A.
and J.D. from Cleveland State University.
DIRECTORS AND EXECUTIVE OFFICERS OF DDR SUB
<TABLE>
<CAPTION>
NAME AGE POSITION(S) AND OFFICE(S) HELD
---- --- ------------------------------
<S> <C> <C>
David M. Jacobstein............................. 53 Director, President
James A. Schoff................................. 54 Vice President
Joan U. Allgood................................. 47 Director, Vice President and Secretary
William H. Schafer.............................. 42 Director, Treasurer
</TABLE>
For a description of the business experience of Mr. Schoff, see "Trust Managers
and Officers of AIP." For a description of the business experience of Messrs.
Jacobstein and Schafer and Ms. Allgood, see "Directors and Executive Officers of
DDR" on pages 58-59.
60
<PAGE> 66
DISSENTERS' RIGHTS
The Texas REIT Act entitles any AIP shareholder who objects to the merger
and who follows the procedures set forth in the Texas REIT Act, instead of
receiving the consideration proposed under the merger, to receive cash equal to
the "fair value" of that shareholder's common shares of AIP. The following
summary of the procedures relating to the exercise of dissenters' rights is not
a complete statement of those rights and is qualified in its entirety by
reference to Sections 25.10, 25.20 and 25.30 of the Texas REIT Act, which are
reproduced in full as Appendix D attached to this proxy statement.
ANY SHAREHOLDER CONTEMPLATING THE POSSIBILITY OF DISSENTING FROM THE MERGER
SHOULD CAREFULLY REVIEW THE TEXT OF APPENDIX D, PARTICULARLY THE SPECIFIC STEPS
REQUIRED TO PERFECT DISSENTERS' RIGHTS, AND SHOULD CONSULT HIS OR HER LEGAL
COUNSEL. DISSENTERS' RIGHTS WILL BE LOST IF THE PROCEDURAL REQUIREMENTS OF
SECTION 25.20 OF THE TEXAS REIT ACT ARE NOT FULLY AND PRECISELY FOLLOWED.
AIP shareholders who follow the procedure set forth in Section 25.20 of the
Texas REIT Act are entitled to receive a cash payment equal to the fair value of
their common shares equaling the value of the shares on the day before the
meeting relating to the merger, excluding any appreciation or depreciation in
the value of the shares in anticipation of the proposed action. Unless all of
the procedures set forth in Section 25.20 of the Texas REIT Act are followed by
a shareholder who wishes to exercise dissenters' rights, that shareholder will
be bound by the terms of the merger. To be entitled to a cash payment upon
exercise of dissenters' rights, a shareholder must first file, before the
special meeting, with AIP a written notice objecting to the merger. This
objection must state that the shareholder will exercise the shareholder's right
to dissent if the merger is completed and must contain the shareholder's
address. A shareholder desiring to exercise that shareholder's dissenters'
rights must not vote in favor of adoption and approval of the merger agreement.
A vote against approval and adoption of the merger agreement, however, will not
in itself constitute a notice of intent to exercise dissenters' rights.
After the merger has been approved by the AIP shareholders, AIP will send
to each shareholder who filed a notice indicating intent to exercise dissenters'
rights and did not vote in favor of the merger agreement, a notice that the
merger has been approved. This notice must be mailed within 10 days after
approval of the merger. The shareholder then has 10 days from the date AIP's
notice was delivered or mailed to the shareholder to make written demand on AIP
for payment of the fair value of the shareholder's shares. A shareholder who
fails to make a demand within the 10 day period is bound by the merger and will
receive the merger consideration.
Within 20 days after receiving the shareholder's demand for fair value, AIP
must deliver or mail to the shareholder a written notice either stating that AIP
accepts the amount claimed in the demand and agrees to pay that amount within 90
days after the date on which the merger was effective or containing an estimate
by AIP of the fair value of the shares and an offer to pay the amount of that
estimate within 90 days after the date the merger was effective, subject to
receipt of notice from the shareholder that the shareholder agrees to accept the
amount of that estimate.
If, within 60 days after the date on which the merger was effective, the
value of the shares is agreed on between the shareholder and AIP, then payment
for the shares will be made within 90 days after the date on which the merger
was effective. If, within that 60-day period, the shareholder and AIP do not
agree on the value of the shares, either the shareholder or AIP within 60 days
after the expiration of that 60-day period may file a petition in any court in
Dallas County, Texas asking for a finding and determination of the fair value of
the shareholder's shares.
The court will then determine whether each dissenting shareholder has fully
complied with the provisions of Section 25.20 of the Texas REIT Act and,
therefore, has become entitled to the valuation of and payment of its shares.
The court will then appoint one or more qualified appraisers to determine the
value of the shares. Based on the appraisers' report, the court will determine
the fair value of the shares and will order AIP to pay that value, together with
interest on the value of the shares, beginning 91 days after the date on which
the merger was effective. Upon payment of the value of the shares as determined
by the court, the dissenting shareholders cease to have any interest in those
shares or in AIP.
61
<PAGE> 67
Any shareholder who has exercised dissenters' rights and demanded payment
for the shareholder's shares is not entitled to vote or exercise any of the
rights of a shareholder except the right to receive payment for the
shareholder's shares. Within 20 days after demanding payment for shares, each
holder of certificates representing those shares must submit the certificates to
AIP for notation on the certificate that demand for fair value has been made.
The failure of holders of certificated shares to submit the certificates to AIP,
at AIP's option, will terminate the shareholder's dissenters' rights. Any
shareholder who has demanded payment for the shareholder's shares may withdraw
that demand at any time before payment of those shares has been made or before
any petition has been filed with a court to determine fair value.
THE SALE OF PROPERTIES
In order to facilitate the merger, we have entered into the sale agreement
with Value Enhancement Fund, under which we will sell 31 of our properties for
gross proceeds of $292.2 million. The closing of the sale of the properties to
Value Enhancement Fund is a condition to the closing of the merger. The cash
generated from the sale will be used to purchase the AIP common shares under the
merger agreement.
THE APPROVAL OF THE HOLDERS OF AT LEAST 66 2/3% OF OUR OUTSTANDING COMMON
SHARES ON THE RECORD DATE IS REQUIRED TO APPROVE THIS PROPOSAL. IF USAA REALCO,
THE MORGAN STANLEY DEAN WITTER ENTITIES, DDR AND THE LASALLE ENTITIES VOTE THEIR
SHARES IN ACCORDANCE WITH THE VOTING AGREEMENTS THEY SIGNED, THIS PROPOSAL WILL
BE APPROVED. THE VOTING AGREEMENTS SIGNED BY THE LASALLE ENTITIES PROVIDE THAT
THEY MAY VOTE AGAINST THE PROPOSALS IF THEY BELIEVE THEY MUST DO SO TO SATISFY
THEIR FIDUCIARY DUTIES TO THEIR INVESTMENT ADVISORY CLIENTS. A MAJORITY OF OUR
TRUST MANAGERS NOT DESIGNATED BY DDR HAS APPROVED AND ADOPTED THE PROPERTY SALE
AGREEMENT IN CONNECTION WITH THE APPROVAL OF THE MERGER AGREEMENT AND BELIEVES
THAT THE TRANSACTIONS CONTEMPLATED BY THE PROPERTY SALE AGREEMENT IN THE CONTEXT
OF THE MERGER TRANSACTION ARE IN THE BEST INTERESTS OF OUR SHAREHOLDERS.
ACCORDINGLY, THESE TRUST MANAGERS RECOMMEND THAT SHAREHOLDERS VOTE FOR THIS
PROPOSAL.
The closing of the transactions contemplated by the sale agreement will
take place immediately prior to the closing of the merger. The purchaser under
the sale agreement, Value Enhancement Fund, is a private investment fund managed
by Lend Lease, an institutional real estate advisor. Under the property sale
agreement, Value Enhancement Fund has the right to assign the agreement to one
or more assignees upon the following conditions:
- the assignee is an entity controlling, controlled by or under common
control with Value Enhancement Fund or an entity in which Value
Enhancement Fund is a direct or indirect investor;
- all of the earnest money has been delivered by Value Enhancement Fund in
accordance with the purchase and sale agreement;
- the assignee will assume all obligations under the purchase and sale
agreement, but Value Enhancement Fund will remain primarily liable for
the performance of the obligations;
- Value Enhancement Fund will notify AIP promptly upon the designation of
an assignee; and
- a copy of the executed assignment and assumption agreement that will be
delivered to AIP at least five days prior to the closing.
In connection with the purchase of the properties, Value Enhancement Fund
will assume up to $149.947 million of debt and other liabilities associated with
the properties.
Under the property sale agreement, we have agreed, among other things, to
the following:
- obtaining approval of the AIP shareholders to the sale as soon as
possible;
- using our commercially reasonable efforts to sell our Manhattan Towers
property for a purchase price of at least $48 million;
62
<PAGE> 68
- using our commercially reasonable efforts to cause the merger to occur
contemporaneously with the sale of the properties; and
- not to initiate or solicit any inquiries or negotiations with respect to
a sale of all or any significant portion of our assets or those of our
subsidiaries.
We have satisfied the condition regarding Manhattan Towers.
Our obligations and the obligations of Value Enhancement Fund to complete
the purchase and sale of the properties are subject to, among other things, the
following conditions:
- each of the party's representations and warranties contained in the sale
agreement being true and correct in all material respects as of the
closing date;
- Value Enhancement Fund's receipt of consent of lenders to its assumption
of at least $118 million of the debt associated with the properties;
- receipt by Value Enhancement Fund of estoppel certificates from nine of
10 of our major tenants and from 75% of our other tenants;
- receipt of approval of the AIP shareholders for the sale; and
- compliance with all of the covenants and obligations contained in the
sale agreement.
We will be obligated to pay Value Enhancement Fund a termination fee of
$3.0 million and reimburse it for actual out-of-pocket expenses not to exceed
$450,000, if any of the following occurs and we elect to or are required to
terminate the sale agreement:
- we are not able to obtain approval of our shareholders for the sale;
- we are unable to cause the contemporaneous closing of the merger;
- we receive a superior acquisition proposal, as determined in good faith
by our board of trust managers; or
- the sale of properties is not closed because the conditions described
above are not satisfied as a result of our default.
63
<PAGE> 69
The properties which are to be sold to Value Enhancement Fund or its
assignee are described below:
<TABLE>
<CAPTION>
OCCUPANCY AT
SEPTEMBER 30,
PROPERTY NAME TYPE CITY STATE GLSF 2000
------------- ---------------- ---------------- ---------- --------- ----------------
<S> <C> <C> <C> <C> <C>
107 Woodmere Light Industrial Folsom California 57,496 100.0%
100 Alfred Light Industrial Santa Clara California 33,824 100.0%
AeroTech Light Industrial Colorado Springs Colorado 75,892 100.0%
Avion Business Center Light Industrial Carrollton Texas 70,844 94.8%
Battlefield Business Park Light Industrial Manassas Virginia 154,226 100.0%
Black Canyon Technical Center Light Industrial Phoenix Arizona 100,000 100.0%
Bridgeway Technology Center Light Industrial Newark California 170,751 99.3%
Cameron Creek Business Park Light Industrial Austin Texas 50,021 100.0%
Central Park Office Tech Light Industrial Richardson Texas 73,099 90.0%
Columbia Corporate Center Light Industrial Aliso Viejo California 128,110 89.2%
Corporex Plaza I Light Industrial Tampa Florida 94,063 97.4%
Humboldt Tech Center Light Industrial Sunnyvale California 60,030 100.0%
Huntington Drive Light Industrial Monrovia California 62,218 98.2%
Interlocken Office Park Light Industrial Broomfield Colorado 121,970 100.0%
Inverness Business Park Light Industrial Englewood Colorado 99,862 100.0%
Junction II Business Park Light Industrial San Jose California 77,374 100.0%
Metro Business Park Light Industrial Phoenix Arizona 109,933 91.5%
Northpointe B Light Industrial Sterling Virginia 36,655 100.0%
Northpointe C Light Industrial Sterling Virginia 49,039 100.0%
Presidents Plaza Light Industrial Tampa Florida 42,649 97.1%
Skyway Business Center Light Industrial Irving Texas 66,504 87.1%
Southeast Commercial Center Light Industrial Austin Texas 34,514 100.0%
Stewart Plaza Light Industrial Sunnyvale California 47,054 100.0%
Summit Park Light Industrial Austin Texas 96,950 100.0%
---------
TOTAL LIGHT INDUSTRIAL 1,913,078
485 Clyde Office Mountain View California 61,600 100.0%
Academy Point Atrium II Office Colorado Springs Colorado 90,766 97.5%
Baytech Park Office San Jose California 188,825 100.0%
Centre Pointe Office Park Office Walnut Creek California 196,671 98.2%
Gibraltar Tech Center Office Sunnyvale California 36,228 100.0%
Northview Business Center Office Austin Texas 254,805 100.0%
Spring Valley Business Park #6 Office Richardson Texas 94,304 100.0%
---------
TOTAL OFFICE 923,199
TOTAL PORTFOLIO 2,836,277
PORTFOLIO OCCUPANCY 98.08%
</TABLE>
If Value Enhancement Fund fails to perform its obligations under the
property sale agreement for any reason except our failure to perform thereunder,
we may terminate the agreement and we will be entitled to receive Value
Enhancement Fund's $3,000,000 earnest money deposit.
64
<PAGE> 70
INDEPENDENT AUDITORS
Our consolidated financial statements incorporated in this document by
reference from our annual report on Form 10-K for the year ended December 31,
1999 have been audited by Ernst & Young LLP, independent auditors, as stated in
their report, which is incorporated herein by reference.
Representatives of Ernst & Young LLP are expected to be present at the
special meeting, will have the opportunity to make a statement if they so desire
and will be available to respond to appropriate questions.
SHAREHOLDER PROPOSALS
If the merger is completed, there will be no public shareholders and no
public participation in any of our future meetings of shareholders. If, however,
the merger is not completed, our shareholders would continue to be entitled to
attend and participate in our shareholder meetings and we will inform you by
press release or other reasonable means of the date by which shareholder
proposals must be received by us for inclusion in the proxy materials relating
to the next annual meeting. All shareholder proposals must comply with the rules
and regulations of the SEC.
WHERE YOU CAN FIND MORE INFORMATION
AIP and DDR are subject to the reporting requirements of the Securities
Exchange Act of 1934, and file reports, proxy statements and other information
with the SEC at its Public Reference Room at 450 Fifth Street, N.W., Washington,
D.C. 20549. You may obtain information on the operation of the Public Reference
Room by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains an
Internet site that contains reports, proxies, information statements and other
information regarding issuers that file electronically, and the address of that
site is http://www.sec.gov. AIP's common shares and DDR's common shares are
listed on the New York Stock Exchange. All reports, proxy statements and other
information that AIP and DDR filed with the New York Stock Exchange may be
inspected at the New York Stock Exchange's offices at 20 Broad Street, New York,
New York 10005.
You should rely only on the information contained in this document. We have
not authorized anyone to provide you with information that is inconsistent with
information contained in this document. The information in this document is
current as of the date it is mailed to shareholders, and not necessarily as of
any later date. If any material change occurs during the period in which this
document is required to be delivered, this document will be supplemented or
amended.
All information regarding AIP in this document has been supplied by AIP,
and all information regarding DDR and DDR Sub has been supplied by DDR.
65
<PAGE> 71
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The SEC allows us to "incorporate by reference" the information we file
with it, which means that we can disclose important information to you by
referring you to that information. The information incorporated by reference is
considered to be part of this document, and the information we file later with
the SEC will automatically update and supersede this information. We incorporate
by reference the documents listed below and any future filings made with the SEC
under Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934
subsequent to the date of this document and prior to the date of the special
meeting or any adjournment or postponement thereof.
The following documents we have filed with the SEC (File No. 1-9016) are
incorporated by reference:
- Annual Report on Form 10-K for the year ended December 31, 1999;
- Quarterly Report on Form 10-Q for the quarter ended March 31, 2000;
- Quarterly Report on Form 10-Q for the quarter ended June 30, 2000;
- Current Report on Form 8-K filed on February 17, 2000;
- Quarterly Report on Form 10-Q for the quarter ended September 30, 2000;
- Current Report on Form 8-K filed on November 8, 2000; and
- Current Report on Form 8-K filed on November 9, 2000.
You may request a copy of these filings at no cost by writing or
telephoning , , at the following address and telephone
number:
American Industrial Properties REIT
6210 N. Beltline Road
Suite 170
Irving, Texas 75063
(972) 756-6000
If you would like to request documents, please do so by , 2001
to receive them before the special meeting.
66
<PAGE> 72
APPENDIX A
[CHASE LOGO]
CHASE SECURITIES INC.
707 TRAVIS, 7-CBBN-388
HOUSTON, TX 77002
November 1, 2000
The Special Committee
of the Board of Trust Managers
American Industrial Properties REIT
6210 North Beltline, Suite 170
Irving, Texas 75063
Members of the Special Committee:
You have informed us that American Industrial Properties REIT (the
"Seller"), Developers Diversified Realty Corporation ("Parent"), owner of
approximately 46% of the common shares of beneficial interest of the Seller, par
value $.10 per share ("Trust Common Shares"), and DDR Transitory Sub Inc.,
("Buyer"), a direct wholly-owned subsidiary of Parent, propose to enter into an
Agreement and Plan of Merger dated as of November 1, 2000 (the "Merger
Agreement") which provides, among other things, that a merger will occur between
the Buyer and the Seller in which Buyer will be merged with and into the Seller
(the "Merger"). Pursuant to the Merger Agreement, the shareholders of the Seller
(other than Buyer and any of its affiliates) will receive for each Trust Common
Share $13.74 in cash (the "Per Share Cash Consideration"), subject to adjustment
(i) downward for any distribution made or dividend paid by the Seller, to the
shareholders of the Seller, other than the Final Dividend (as defined in the
Merger Agreement) and (ii) upward if the Base Amount (as defined in the Merger
Agreement) is more than $1,000,000 greater than $173,564,000, determined in
accordance with Section 6.2(m) of the Merger Agreement. The shareholders of
Seller (other than Buyer and any of its affiliates) will be entitled to receive
a supplemental payment if Buyer sells all or substantially all of the DDR
Properties (as defined in the Merger Agreement), at any time during the first
six months following the Closing Date (as defined in the Merger Agreement), for
an amount greater than the agreed-upon aggregate values of the DDR Properties
set forth on Exhibit B to the Merger Agreement.
You have also informed us that the Seller, AIP-Alfred, Inc. ("AIP-A"),
AIP/Battlefield GP, Inc. ("AIP/B"), AIP-SWAG Operating, L.P. ("AIP-S"), AIP
Properties #3, L.P. ("AIP-P") and AIP Operating, L.P. ("AIPO"; AIP-A, AIP/B,
AIP-S, AIP-P and AIPO, collectively, the "Seller Subs"), all wholly-owned
subsidiaries of the Seller and Value Enhancement Fund IV, L.P. ("Purchaser")
propose to enter into an Agreement of Purchase and Sale dated as of November 1,
2000 (the "Lend Lease Purchase Agreement") which provides, among other things,
for the sale (the "Lend Lease Sale") by the Seller and the Seller Subs to
Purchaser of the Property (as defined in the Lend Lease Purchase Agreement,
referred to herein as the "Lend Lease Portfolio") for not less than $135,400,000
cash consideration (net of related closing costs, repayment of indebtedness for
money borrowed secured by the Lend Lease Portfolio and related prepayment
penalties and fees) (the "Lend Lease Portfolio Consideration").
You have also informed us that the Seller and Divco West Properties, LLC
("Manhattan Towers Purchaser") have entered into an Agreement of Purchase and
Sale dated August 16, 2000, as amended August 29, 2000, as further amended
September 21, 2000 (the "Manhattan Towers Purchase Agreement"; the Merger
Agreement, the Lend Lease Purchase Agreement and the Manhattan Towers Purchase
Agreement, collectively, the "Agreements") which provides, among other things,
for the sale (the "Manhattan Towers Sale"; the Lend Lease Sale and the Manhattan
Towers Sale, collectively, the "Real Estate Sale") by the Seller to Manhattan
Towers Purchaser of the Property (as defined in the Manhattan
CHASE SECURITIES INC. IS A MEMBER OF NASD/SIPC, AND IS A WHOLLY-OWNED SUBSIDIARY
OF THE CHASE MANHATTAN CORPORATION.
A-1
<PAGE> 73
American Industrial Properties REIT
November 1, 2000
Page 2
Towers Purchase Agreement, referred to herein as the "Manhattan Towers"; the
Lend Lease Portfolio and the Manhattan Towers, collectively, the "Real Estate")
for not less than $34,200,000 cash consideration (net of related closing costs,
repayment of indebtedness for money borrowed secured by the Manhattan Towers and
related prepayment penalties and fees) (the "Manhattan Towers Consideration";
the Lend Lease Portfolio Consideration and the Manhattan Towers Consideration,
collectively, the "Aggregate Real Estate Consideration").
You have also informed us that the consummation of the Merger is contingent
upon the consummation of the Real Estate Sale, provided that the Seller and the
Seller Subs, as applicable, receive the Aggregate Real Estate Consideration in
exchange for the Real Estate. In rendering this opinion, we assume that the Real
Estate Sale will be consummated and the Seller will receive the Aggregate Real
Estate Consideration.
You have requested that we render our opinion as to the fairness, from a
financial point of view, to the holders of Trust Common Shares (other than Buyer
and any of its affiliates) of the Per Share Cash Consideration to be received by
such holders in the Merger.
In arriving at the opinion set forth below, we have, among other things:
(a) reviewed drafts of the Agreements in the forms provided to us,
including the most recent drafts dated October 31, 2000 and have assumed
that the final forms of such Agreements, as applicable, will not vary in
any regard that is material to our analysis;
(b) reviewed certain publicly available business and financial
information we deemed relevant relating to the Seller and the industries in
which the Seller operates;
(c) reviewed certain internal non-public financial and operating data
provided to us by the management of the Seller relating to the Seller's
business, including certain forecast and projection information as to
future financial results of such business;
(d) discussed with members of the senior management of the Seller, the
Seller's operations, historical financial statements and future prospects,
before and after giving effect to the Merger and/or the Real Estate Sale,
as well as such other matters as we deemed necessary or appropriate;
(e) compared the financial and operating performance of the Seller
with publicly available information concerning certain other companies and
businesses we deemed reasonably comparable and reviewed the relevant stock
market information for such other companies;
(f) reviewed the financial terms of certain recent business
combinations and acquisition transactions we deemed reasonably comparable
to the Merger and the Real Estate Sale and otherwise relevant to our
inquiry; and
(g) made such other analyses and examinations as we have deemed
necessary or appropriate.
We have assumed and relied upon, without assuming any responsibility for
verification, the accuracy and completeness of all of the financial and other
information provided to, discussed with, or reviewed by or for us, or publicly
available, for purposes of this opinion and have further relied upon the
assurances of management of the Seller that they are not aware of any facts that
would make such information inaccurate or misleading. We have neither made nor
obtained any independent evaluations or appraisals of the assets or liabilities
of the Seller nor have we conducted a physical inspection of the properties and
facilities of the Seller. We have assumed that the financial forecast and
projection information provided to or discussed with us by or on behalf of the
Seller have been reasonably determined on bases reflecting the best currently
available estimates and judgments of the management of the Seller as to the
future financial
A-2
<PAGE> 74
American Industrial Properties REIT
November 1, 2000
Page 3
performance of such companies. We express no view as to such forecast or
projection information, or the assumptions upon which they were based.
Our opinion herein is necessarily based on market, economic and other
conditions as they exist and can be evaluated on the date of this letter. Our
opinion is limited to the fairness, from a financial point of view, to the
holders of the Trust Common Shares (other than Buyer and any of its affiliates)
of the Per Share Cash Consideration to be received in the Merger and we express
no opinion as to the underlying decision by the Seller to engage in the Merger
or the Real Estate Sale. We also express no opinion on matters of a tax,
accounting or legal nature related to the Merger or the Real Estate Sale. This
opinion does not constitute a recommendation to any holder of equity interests
in the Seller as to how such holder should vote (or agree to vote) with respect
to the Merger.
Chase Securities Inc., as part of its financial advisory business, is
continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions and valuations for estate, corporate
and other purposes. We have acted as financial advisor to the Special Committee
of the Board of Trust Managers of the Seller in connection with the Merger and
will receive a fee from the Seller for our services, including for rendering
this opinion, payment of a significant portion of which is contingent upon the
consummation of the Merger and the Real Estate Sale. In addition, the Seller has
agreed to indemnify us for certain liabilities arising out of our engagement. As
we have previously advised you, The Chase Manhattan Corporation and its
affiliates, including Chase Securities Inc., in the ordinary course of business,
may have from time to time, provided, and in the future may continue to provide,
for customary compensation, commercial and investment banking services to the
Seller, Parent, Lend Lease Real Estate Investments, Inc. and their respective
affiliates, including serving as agent bank for the Lend Lease Real Estate
Investments, Inc. credit facility, serving as agent bank for the Lend Lease
Global Properties, SICAF, credit facility and serving as agent bank for the Lend
Lease (U.S.) Finance, Inc. credit facility. In the ordinary course of business,
we or our affiliates may trade in the debt and equity securities of the Seller
and Parent and their respective affiliates, for our own accounts and for the
accounts of our customers and, accordingly, may at any time hold a long or short
position in such securities.
Based upon and subject to the foregoing, we are of the opinion, as of the
date hereof, that the Per Share Cash Consideration in the Merger is fair, from a
financial point of view, to the holders of Trust Common Shares (other than Buyer
and any of its affiliates).
This opinion is for the use and benefit of the Special Committee of the
Board of Trust Managers of the Seller in its evaluation of the Merger and shall
not be used for any other purpose without the prior written consent of Chase
Securities Inc., provided that the Special Committee of the Board of Trust
Managers of the Seller may provide a copy of this opinion to the Board of Trust
Managers of the Seller and, provided further that, the Board of Trust Managers
of the Seller may rely upon this opinion in its evaluation of the Merger.
Very truly yours,
/s/ CHASE SECURITIES INC.
CHASE SECURITIES INC.
A-3
<PAGE> 75
APPENDIX B
AGREEMENT AND PLAN OF MERGER
AMONG
DEVELOPERS DIVERSIFIED REALTY CORPORATION,
DDR TRANSITORY SUB INC.
AND
AMERICAN INDUSTRIAL PROPERTIES REIT
DATED AS OF NOVEMBER 1, 2000
B-1
<PAGE> 76
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE 1 THE MERGER............................................... B-8
1.1 The Merger.................................................. B-8
1.2 Closing..................................................... B-8
1.3 Effective Time.............................................. B-8
1.4 Effect of Merger on Declaration of Trust and Bylaws......... B-9
1.5 Board of Managers and Officers.............................. B-9
1.6 Effect on Shares............................................ B-9
1.7 Dissenters' Rights.......................................... B-9
1.8 Share Options and Related Matters........................... B-10
1.9 Exchange of Certificates; Pre-Closing Dividends; Fractional
Shares...................................................... B-10
1.10 Right to Receive Dividends.................................. B-11
1.11 Additional Merger Consideration............................. B-12
ARTICLE 2 REPRESENTATIONS AND WARRANTIES OF SELLER................. B-12
2.1 Organization and Qualification; Subsidiaries................ B-12
2.2 Authority Relative to Agreements; Board Approval............ B-13
2.3 Capital Stock............................................... B-13
2.4 No Conflicts; No Defaults; Required Filings and Consents.... B-14
2.5 SEC Matters and Absence of Undisclosed Liabilities.......... B-14
2.6 Litigation; Compliance With Law............................. B-15
2.7 Absence of Certain Changes or Events........................ B-15
2.8 Tax Matters; REIT and Partnership Status.................... B-16
2.9 Compliance with Agreements.................................. B-17
2.10 Financial Records; Trust Declaration and Bylaws; Corporate
Records..................................................... B-18
2.11 Properties.................................................. B-19
2.12 Environmental Matters....................................... B-23
2.13 Employees and Benefit Plans................................. B-24
2.14 Labor Matters............................................... B-26
2.15 No Payments to Employees, Officers or Directors............. B-26
2.16 Insurance................................................... B-26
2.17 Proxy Statement; Additional Filings......................... B-27
2.18 Takeover Statutes........................................... B-27
2.19 Opinion of Financial Advisor................................ B-27
2.20 Knowledge Defined........................................... B-27
2.21 Investment Company Act of 1940.............................. B-27
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF PARENT AND BUYER....... B-27
3.1 Organization................................................ B-27
3.2 Due Authorization........................................... B-27
3.3 No Conflicts: No Defaults, Required Filings and Consents.... B-28
3.4 Proxy Statement; Additional Filings......................... B-28
3.5 Investment Company Matters.................................. B-28
3.6 Capital Structure........................................... B-28
3.7 Litigation; Compliance With Law............................. B-28
3.8 Funding..................................................... B-29
ARTICLE 4 COVENANTS................................................ B-29
4.1 Acquisition Proposals....................................... B-29
4.2 Conduct of Seller's Business Pending Merger................. B-30
4.3 Other Actions............................................... B-32
4.4 Releases.................................................... B-32
4.5 DRIP........................................................ B-32
</TABLE>
B-2
<PAGE> 77
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE 5 ADDITIONAL COVENANTS..................................... B-33
5.1 Preparation of the Proxy Statement; Seller Shareholders
Meeting..................................................... B-33
5.2 Access to Information: Confidentiality...................... B-34
5.3 Reasonable Efforts; Notification............................ B-34
5.4 Public Announcements........................................ B-35
5.5 Transfer and Gains Taxes.................................... B-35
5.6 Benefit Plans and Other Employee Arrangements............... B-35
5.7 Indemnification From and After the Effective Time........... B-35
5.8 Declaration of Dividends and Distributions.................. B-37
5.9 Outside Property Management Agreements...................... B-37
5.10 Lend Lease and Manhattan Towers Transactions................ B-37
5.11 Parent Guarantee............................................ B-38
5.12 Share Purchase Agreement.................................... B-38
5.13 Lend Lease and Manhattan Towers Agreements.................. B-38
5.14 Voting Agreement by Parent.................................. B-38
5.15 Settlement of Litigation.................................... B-38
ARTICLE 6 CONDITIONS............................................... B-38
6.1 Conditions to Each Party's Obligation to Effect the
Merger...................................................... B-38
6.2 Conditions to Obligations of Parent and Buyer............... B-39
6.3 Conditions to Obligations of Seller......................... B-41
ARTICLE 7 TERMINATION, AMENDMENT AND WAIVER........................ B-42
7.1 Termination................................................. B-42
7.2 Certain Fees and Expenses................................... B-43
7.3 Effect of Termination....................................... B-44
7.4 Amendment................................................... B-44
7.5 Extension; Waiver........................................... B-44
ARTICLE 8 GENERAL PROVISIONS....................................... B-45
8.1 Nonsurvival of Representations and Warranties............... B-45
8.2 Notices..................................................... B-45
8.3 Interpretation.............................................. B-45
8.4 Counterparts................................................ B-46
8.5 Entire Agreement; No Third-Party Beneficiaries.............. B-46
8.6 Governing Law............................................... B-46
8.7 Assignment.................................................. B-46
8.8 Enforcement................................................. B-46
8.9 Severability................................................ B-46
8.10 Survival.................................................... B-46
</TABLE>
B-3
<PAGE> 78
INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
SECTION WHERE
TERM TERM IS DEFINED
---- ---------------
<S> <C>
1940 Act.................................................... 2.21
Abstracts................................................... 2.11(f)
Acquisition Proposal........................................ 4.1(a)
Action...................................................... 2.6(a)
ADA......................................................... 2.11(e)
Additional Filings.......................................... 5.1(a)
Affiliates.................................................. 2.8(c)
Agreement................................................... Introduction
AICPA Statement............................................. 5.1(b)
Allocable Portion........................................... 1.11
Articles of Merger.......................................... Recital B
Anticipated Closing Date.................................... 6.2(m)
Base Amount................................................. 6.2
Benefit Arrangements........................................ 2.13(h)
Blue Sky Laws............................................... 2.4(e)
Board Manager............................................... Recital A
Board of Managers........................................... Recital A
Buyer....................................................... Introduction
Buyer Base Amount........................................... 7.2
Buyer Break-Up Fee.......................................... 7.2
Buyer Break-Up Fee Tax Opinion.............................. 7.2
Buyer Properties............................................ 2.11(a)
Buyer Shares................................................ 1.6(a)
Bylaws...................................................... 1.4
Capital Expenditure Budget and Schedule..................... 2.11(i)
CERCLA...................................................... 2.12(e)
Certificates................................................ 1.9(b)
Claim....................................................... 2.12(g)(i)
Closing..................................................... 1.2
Closing Date................................................ 1.2
Code........................................................ 2.8(a)
Comfort..................................................... 5.1(b)
Commitment.................................................. 2.7
Common Consideration........................................ 1.6(c)
Controlled Group Liability.................................. 2.13(h)
DDR Properties.............................................. 1.11
Development Agreements...................................... 4.2(i)
Development Budget and Schedule............................. 2.11(j)
Development Properties...................................... 2.11(j)
Development Property........................................ 2.11(j)
Dissenting Shares........................................... 1.7
DRIP........................................................ 1.9(b)
Effective Time.............................................. 1.3
employee benefit plan....................................... 2.13(h)
Employee Benefit Plans...................................... 2.13(h)
Employees................................................... 2.13(h)
Environmental Claim......................................... 2.12(g)(ii)
Environmental Laws.......................................... 2.12(g)(iii)
Environmental Permits....................................... 2.12(a)
</TABLE>
B-4
<PAGE> 79
<TABLE>
<CAPTION>
SECTION WHERE
TERM TERM IS DEFINED
---- ---------------
<S> <C>
Environmental Reports....................................... 2.12(f)
ERISA Affiliate............................................. 2.13(f)
Estoppel Certificates....................................... 6.2(e)
Exchange Act................................................ 2.4(e)
Exchange Agent.............................................. 1.9(a)
Exchange Fund............................................... 1.9(a)
Executive Summaries of the Environmental Reports............ 2.12(f)
Filings..................................................... 2.4(e)
Final Dividend.............................................. 1.9(a)
Form 10-K................................................... 2.5(a)
Former Employees............................................ 5.6(b)
GAAP........................................................ 2.5(b)
Government Authority........................................ 2.5(a)
Holders' Agreements......................................... Recital E
HSR Act..................................................... 2.4(e)
Impact fee.................................................. 2.11(c)
Indemnified Parties......................................... 5.7(a)
Indemnified Parties......................................... 5.7(b)
Insurance Policies.......................................... 2.16
IRS......................................................... 2.8(a)
Leases...................................................... 2.11(f)
Lend Lease Agreement........................................ 2.4
Lend Lease Properties....................................... 2.11(a)
Lend Lease Transaction...................................... 2.1(c)
Letter of Transmittal....................................... 1.9(b)
Liabilities................................................. 2.5(c)
Liens....................................................... 2.1(d)
Manhattan Towers Agreement.................................. 2.4
Manhattan Towers Properties................................. 2.11(a)
Manhattan Towers Transaction................................ 2.1(c)
Material Adverse Effect..................................... 2.1(c)
Material Leases............................................. 2.11(f)
Materials of Environmental Concern.......................... 2.12(g)(iv)
Merger...................................................... Recital A
Net Other Assets............................................ 6.2(m)
Non-Parent Shareholders..................................... 1.11
Option Consideration........................................ 1.8
Outside Property Management Agreement....................... 5.9
Parent...................................................... Introduction
Partnership Units........................................... 2.3(a)
Pension Plans............................................... 2.13(h)
Permitted Liens............................................. 2.11(a)
Plan........................................................ 2.13(b)
Projects.................................................... 2.11(j)
Property.................................................... 2.11(a)
Property Restrictions....................................... 2.11(a)
Proxy Statement............................................. 5.1(a)
Prudential.................................................. 4.4(b)
Qualified REIT Subsidiary................................... 2.8(i)
Qualifying Income........................................... 7.2
REIT........................................................ 2.8(b)
</TABLE>
B-5
<PAGE> 80
<TABLE>
<CAPTION>
SECTION WHERE
TERM TERM IS DEFINED
---- ---------------
<S> <C>
REIT Act.................................................... 1.1
REIT Requirements........................................... 7.2
Release..................................................... 2.12(g)(v)
Rent Roll................................................... 2.11(f)
Resale Properties........................................... 1.11
SEC......................................................... 2.5(a)
Securities Act.............................................. 2.4(e)
Securities Laws............................................. 2.5(a)
Seller...................................................... Introduction
Seller Break-Up Fee......................................... 7.2
Seller Break-Up Fee Tax Opinion............................. 7.2
Seller Incentive Plan....................................... 1.8
Seller Options.............................................. 1.8
Seller Reports.............................................. 2.5(a)
Seller Shareholders Meeting................................. 5.1(c)
SSB......................................................... 4.4(b)
Subsidiary.................................................. 2.1(b)
Superior Acquisition Proposal............................... 4.1
Surviving Company........................................... 1.1
Surviving Company Preferred Shares.......................... 1.6(e)
Surviving Company Shares.................................... 1.6(a)
Target Amount............................................... 6.2
Tax......................................................... 2.8(a)
Tenancy Leases.............................................. 2.11(l)
Third Party Provisions...................................... 8.5
Transaction Expenses........................................ 6.2(l)
Transfer and Gains Taxes.................................... 5.5
Trust Common Shares......................................... Recital E
Trust Declaration........................................... 1.4
Unbudgeted Capital Expenditures............................. 6.2(m)
Unincurred Capital Expenditures............................. 6.2(m)
Welfare Plans............................................... 2.13(h)
</TABLE>
B-6
<PAGE> 81
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated as of November
1, 2000, is among Developers Diversified Realty Corporation, an Ohio corporation
("Parent"), DDR Transitory Sub Inc., a Texas corporation ("Buyer"), and American
Industrial Properties REIT, a Texas real estate investment trust ("Seller").
RECITALS:
A. The Boards of Directors of Buyer and Parent and the Board of Trust
Managers of Seller (the "Board of Managers," and each individually, a "Board
Manager") consider it advisable, subject to the conditions and other provisions
contained herein, that Buyer shall merge with and into Seller (the "Merger").
B. Upon the terms and conditions set forth herein, Buyer and Seller shall
execute Articles of Merger (collectively, the "Articles of Merger") in
substantially the form attached hereto as Exhibit "A" and shall file such
Articles of Merger in accordance with Texas law to effectuate the Merger.
C. Seller has received a fairness opinion relating to the transactions
contemplated hereby as more fully described herein.
D. Parent, Buyer and Seller desire to make certain representations,
warranties and agreements in connection with the transactions contemplated
hereby.
E. Parent and Buyer are unwilling to enter into this Agreement unless,
contemporaneously with the execution and delivery of this Agreement, certain
institutional holders of Seller's issued and outstanding common shares of
beneficial interest, par value $0.10 per share ("Trust Common Shares"), enter
into agreements (the "Holders' Agreements") providing for certain actions
relating to the Trust Common Shares owned by them, and such holders have entered
into the Holders' Agreements.
NOW, THEREFORE, in consideration of the premises and the representations,
warranties, covenants and agreements contained herein, the parties hereto hereby
agree as follows:
ARTICLE 1
THE MERGER
1.1 The Merger. Upon the terms and subject to the conditions of this
Agreement, and in accordance with Section 23.40 of the Texas Real Estate
Investment Trust Act (the "REIT Act"), Parent shall contribute all of its Trust
Common Shares into Buyer and then Buyer shall be merged with and into Seller,
with Seller as the surviving real estate investment trust (the "Surviving
Company"). The name of the Surviving Company will be American Industrial
Properties REIT.
1.2 Closing. The closing of the Merger (the "Closing") will take place on
the later of (i) January 31, 2001 or (ii) within two (2) business days after the
date on which the last to be satisfied of the conditions in Article 6 is
satisfied or waived, provided, however, if all of the conditions are satisfied
or waived prior to the Seller Shareholders Meeting (as defined below)
immediately following the meeting (the "Closing Date"), at the offices of Locke
Liddell & Sapp, 2200 Ross Avenue, Suite 2200, Dallas, Texas 75201, unless
another date and time or place is agreed to in writing by the parties.
1.3 Effective Time. As soon as practicable following the satisfaction or
waiver of the conditions set forth in Article 6, the parties shall execute and
file the Articles of Merger, in accordance with Texas law, and shall make all
other filings and recordings required under Texas law. The Merger shall become
effective at such time ("Effective Time") as the Articles of Merger are accepted
by both the County Clerk in Dallas County, Texas, and the Secretary of State of
the State of Texas, or at such time as Buyer and Seller shall agree should be
specified in the Articles of Merger (not to exceed thirty (30) days after
B-7
<PAGE> 82
the Articles of Merger are accepted for record). Unless otherwise agreed, the
parties shall cause the Effective Time to occur on the Closing Date.
1.4 Effect of Merger on Declaration of Trust and Bylaws. The Third
Amended and Restated Declaration of Trust (the "Trust Declaration") of Seller
and the Fifth Amended and Restated Bylaws of Seller (the "Bylaws"), as in effect
immediately prior to the Effective Time, shall continue in full force and effect
after the Merger until further amended in accordance with applicable Texas law.
1.5 Board of Managers and Officers. The board of trust managers of the
Surviving Company shall consist of Scott A. Wolstein, James A. Schoff, Robert H.
Gidel and Albert T. Adams, and those persons shall continue to serve for the
balance of their unexpired terms or their earlier death, resignation or removal.
Seller shall cause all other members of the Board of Managers of Seller
immediately prior to the Effective Time to submit their resignations as Board
Managers on or prior to the Closing Date. Immediately prior to the Closing, all
officers of Seller shall resign and all officers and directors of all Seller
Subsidiaries shall resign.
1.6 Effect on Shares. Subject to Section 1.7, as of the Effective Time,
automatically by virtue of the Merger and without any action on the part of any
holder of the following securities or any party hereto:
(a) Each common share, $0.01 par value, of Buyer (the "Buyer Shares")
issued and outstanding immediately prior to the Effective Time shall be
converted into one validly issued, fully paid and nonassessable Trust Common
Share of the Surviving Company (the "Surviving Company Shares"). Certificates
which, immediately prior to the Effective Time, represented Buyer Shares shall
thereafter be deemed to represent the same number of Surviving Company Shares.
The Surviving Company shall issue new certificates representing Surviving
Company Shares to the shareholders of Buyer on a pro rata basis in accordance
with their respective shares of Buyer upon surrender to the Surviving Company of
share certificates formerly representing Buyer Shares.
(b) Each Trust Common Share issued and outstanding immediately prior to the
Effective Time and held by any direct or indirect Seller Subsidiary or in the
treasury of Seller, shall be canceled and retired and cease to exist. Each Trust
Common Share issued and outstanding immediately prior to the Effective Time and
held by Parent, Buyer or any of their respective direct or indirect subsidiaries
shall be contributed to Seller and become treasury shares of Seller, which shall
be canceled in accordance with the immediately preceding sentence.
(c) Each Trust Common Share issued and outstanding immediately prior to the
Effective Time, other than those shares referred to in Section 1.6(b) and in
Section 1.7, shall, subject to Section 5.8, be converted automatically into the
right to receive $13.74 in cash (or such greater amount as determined in
accordance with the last paragraph of Section 6.2(m)) (the "Common
Consideration"). If Seller makes a distribution or pays to the holders of Trust
Common Shares or declares a dividend other than the Final Dividend (as defined
in Section 1.9(a)), the Common Consideration payable to holders of Trust Common
Shares in the Merger shall be reduced by the amount derived by dividing the
aggregate amount of such dividends and distributions by the number of Trust
Common Shares issued and outstanding immediately prior to the Effective Time
(including, without limitation, the Trust Common Shares held, directly or
indirectly, by Parent).
(d) Each certificate previously representing Trust Common Shares, other
than shares referred to in Section 1.6(b) or in Section 1.7, shall thereafter
represent only the right to receive the Common Consideration in accordance with
Section 1.6(c) plus any declared but unpaid dividends on the shares represented
thereby. The holders of certificates previously representing Trust Common Shares
outstanding immediately prior to the Effective Time shall cease to have any
rights with respect to Trust Common Shares except as otherwise provided herein
or by law.
1.7 Dissenters' Rights. Notwithstanding anything in this Agreement to the
contrary, Trust Common Shares outstanding immediately prior to the Effective
Time and held by a holder who has not voted in favor of the Merger and who has
dissented from the Merger in accordance with Sections 25.10, 25.20
B-8
<PAGE> 83
and 25.30 of the REIT Act ("Dissenting Shares") shall not be converted into the
right to receive the Common Consideration as provided in Section 1.6 and shall
not be entitled to any of the additional consideration provided for in Section
1.11, unless and until such holder fails to perfect or withdraws or otherwise
loses his right to payment under the REIT Act. If, after the Effective Time, any
such holder fails to perfect or withdraws or loses his right to such payment,
such Dissenting Shares shall thereupon be treated as if they had been converted
as of the Effective Time into the right to receive the Common Consideration, if
any, to which such holder is entitled, without interest thereon, and shall be
eligible to receive a pro rata portion of any additional consideration payable
under Section 1.11. Seller shall give Buyer prompt notice of any notice of
dissent received by Seller and, prior to the Effective Time, Buyer shall have
the right to participate in all negotiations and proceedings with respect to
such dissents. Prior to the Effective Time, Seller shall not, except with the
prior written consent of Buyer, make any payment with respect to, or settle or
offer to settle, any such dissents.
1.8 Share Options and Related Matters. Each option (collectively, the
"Seller Options") granted under the Seller's Employee and Trust Manager
Incentive Plan, as amended (the "Seller Incentive Plan"), to a person other than
Parent, which is outstanding (whether or not then exercisable) immediately prior
to the Effective Time and which has not been exercised or canceled prior
thereto, shall, at the Effective Time, be canceled and upon the surrender and
cancellation of the option agreement representing such Seller Option, the
Surviving Company shall pay to the holder thereof at the Closing, with respect
to each canceled option, cash in an amount equal to the amount by which the
Common Consideration exceeds the option exercise price. The cash payment shall
be treated as compensation and shall be net of any applicable federal or state
withholding tax (the "Option Consideration"). Seller shall pay at the Effective
Time, to each participant having a deferral account under Seller's Deferred
Compensation Plan for Non-Employee Trust Managers, cash in an amount equal to
the value of his deferral account.
1.9 Exchange of Certificates; Pre-Closing Dividends; Fractional Shares.
(a) From and after the Effective Time, Seller's transfer agent shall act as
exchange agent (the "Exchange Agent"). Immediately prior to the Effective Time,
(i) if the Closing occurs after the Anticipated Closing Date (as defined in
Section 6.2(m)), to the extent such dividend would not cause Seller to fail to
satisfy the condition set forth in Section 6.2(m), Seller shall have the right
to declare a dividend in the amount per share on each Trust Common Share issued
and outstanding immediately prior to the Effective Time (including, without
limitation, the Trust Common Shares held, directly or indirectly, by Parent)
equal to the amount of cash generated by operations during the period commencing
on the fourth day immediately following the Anticipated Closing Date and ending
at the close of business on the day immediately preceding the Closing Date (such
amount to be certified in writing to Parent and Buyer by Seller's Chief
Executive Officer and Chief Financial Officer) divided by the number of Trust
Common Shares issued and outstanding on the record date for such dividend or
distribution (including, without limitation, the Trust Common Shares held,
directly or indirectly, by Parent) (the "Final Dividend"), and shall deposit
with the Exchange Agent the aggregate amount required to pay the Final Dividend
on each Trust Common Share issued and outstanding immediately prior to the
Effective Time (including, without limitation, the Trust Common Shares held,
directly or indirectly, by Parent), and (ii) Seller, Buyer and Parent shall
deposit with the Exchange Agent, in accordance with the provisions of this
Section 1.9, the aggregate Common Consideration to be paid to Seller's
shareholders, excluding the holders of those shares referred to in Section
1.6(b) and in Section 1.7. The aggregate amount deposited by Seller and Buyer
under this Section 1.9(a) is sometimes referred to in this Agreement as the
"Exchange Fund." Seller shall fund the amount required to pay the Final Dividend
solely from the cash generated by operations described above and shall not fund
any portion of that amount, directly or indirectly, through borrowings. Seller
shall retain the net cash proceeds from the sale of the Manhattan Towers
Properties (except to the extent such proceeds must be distributed to
shareholders to prevent Seller from having to pay federal income tax) and the
Lend Lease Properties, and the Net Other Assets amounts for the deposit required
under clause (ii) above, and shall include those net cash proceeds in the
deposit made pursuant to clause (ii). If such deposited amounts are insufficient
to pay in full the Common Consideration, Parent will fund the deficiency or
Parent will cause the Surviving Company to fund such deficiency by drawing
B-9
<PAGE> 84
down from the Surviving Company's available line of credit (any associated costs
to be borne by Parent and Buyer), and such amount as is necessary to cover any
deficiency shall be deposited with the Exchange Agent.
(b) Promptly, and in any event within two (2) business days after the
Effective Time, Parent shall cause the Exchange Agent to mail to each holder of
record of a certificate that immediately prior to the Effective Time represented
Trust Common Shares ("Certificates") (except holders of those shares referred to
in Section 1.6(b) and in Section 1.7) (i) a letter of transmittal (the "Letter
of Transmittal") that shall specify that delivery shall be effected, and risk of
loss and title to the Certificates shall pass, only upon delivery of the
Certificates duly endorsed to the Exchange Agent and in such form and with such
other provisions as Parent may reasonably specify and (ii) instructions for use
in effecting the surrender of the Certificates and receiving the Final Dividend
(if any) and the Common Consideration in respect thereof. Upon surrender of a
Certificate to the Exchange Agent for cancellation together with such Letter of
Transmittal, duly executed and completed in accordance with the instructions
thereto, the holder of such Certificate shall be entitled to receive in exchange
therefor a check representing the amount of the Final Dividend (if any) and the
Common Consideration to which such holder shall be entitled, after giving effect
to any required withholding tax, and the Certificate so surrendered shall be
canceled forthwith. In the event of a transfer of ownership of Trust Common
Shares which is not registered in the transfer records of Seller, checks for the
Final Dividend (if any) and the Common Consideration to which the registered
holder shall be entitled may be issued and paid to the applicable transferee if
the Certificate representing such Trust Common Shares is presented to the
Exchange Agent, accompanied by all documents required to evidence and effect
such transfer and by evidence reasonably acceptable to the Exchange Agent that
any applicable stock transfer taxes have been paid. Immediately following the
Effective Time, the Exchange Agent shall (x) pay to the administrator of
Seller's Dividend Reinvestment Plan (the "DRIP") or to one or more persons
designated by such administrator, an amount equal to the product of (1) the
Final Dividend (if any) and the Common Consideration and (2) the number of Trust
Common Shares held in the DRIP as of the Effective Time, and (y) make
appropriate arrangements for the immediate payment of the Final Dividend (if
any) and the Common Consideration to the beneficial owners of any Trust Common
Shares that are held in book-entry or other electronic form and for which at the
Effective Time there is no Certificate representing the ownership thereof.
(c) At and after the Effective Time, there shall be no transfers on the
stock transfer books of the Surviving Company of any Trust Common Shares which
were outstanding immediately prior to the Effective Time. If, after the
Effective Time, Certificates are presented to the Surviving Company, they shall
be canceled and exchanged for the Final Dividend (if any) and the Common
Consideration in accordance with this Section 1.9.
(d) Any portion of the Exchange Fund (including the proceeds of any
investments thereof) that remains unclaimed by the former holders of Trust
Common Shares two (2) years after the Effective Time shall be delivered to the
Surviving Company. Any former holder of Trust Common Shares who has not
theretofore complied with this Article 1 shall thereafter look only to the
Surviving Company for payment of the Final Dividend (if any) and the Common
Consideration, as determined pursuant to this Agreement, without any interest
thereon. None of Parent, Buyer, Seller, the Exchange Agent or any other person
shall be liable to any former holder of Trust Common Shares for any amount
properly delivered to a public official pursuant to applicable abandoned
property, escheat or similar laws. If any Certificate shall have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming such Certificate to be lost, stolen or destroyed and, if required by
the Surviving Company, the posting by such person of a bond in such reasonable
amount as the Surviving Company may direct as indemnity against any claim that
may be made against it with respect to such Certificate, the Exchange Agent or
the Surviving Company will issue and pay in exchange for such lost, stolen or
destroyed Certificate the Final Dividend (if any) and the Common Consideration.
1.10 Right to Receive Dividends. Notwithstanding anything in this
Agreement to the contrary, any holder of Trust Common Shares who, on the date of
the surrender of a Certificate, has not received any dividend or other
distribution with respect to such shares with a declared record date on or prior
to the
B-10
<PAGE> 85
date of such surrender shall nevertheless be entitled to receive any such
dividend or distribution on the later of the date of such surrender or the
payment date of such dividend or distribution.
1.11 Additional Merger Consideration. If at any time during the first six
months following the Closing Date, Buyer sells all or substantially all of the
properties listed on Exhibit B hereto (the "DDR Properties") for a net amount
greater than the agreed-upon aggregate values of the DDR Properties set forth on
Exhibit B, then the Allocable Portion (as defined below) of such incremental
proceeds shall be paid into a trust created for the benefit of the Non-Parent
Shareholders (as defined below). The funds, if any, held in such trust shall be
distributed not later than nine months after the Closing Date to the Non-Parent
Shareholders on a pro rata basis in accordance with their respective holdings of
Trust Common Shares immediately prior to the Effective Time. "Allocable Portion"
means the amount derived by multiplying the amount of such incremental proceeds
from the sale of the DDR Properties by a fraction, the numerator of which is the
number of Trust Common Shares held by the Non-Parent Shareholders immediately
prior to the Effective Time and the denominator of which is the total number of
Trust Common Shares issued and outstanding immediately prior to the Effective
Time. "Non-Parent Shareholders" means all holders of Trust Common Shares
immediately prior to the Effective Time except for Parent, Buyer, any other
direct or indirect Parent subsidiary, and any holder of Trust Common Shares
entitled to payment therefor under the REIT Act in accordance with Section 1.7
hereof.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller hereby represents and warrants to Parent and Buyer as follows:
2.1 Organization and Qualification; Subsidiaries.
(a) Seller is a real estate investment trust duly organized and validly
existing under the laws of the State of Texas. Seller has all requisite power
and authority to own, operate, lease and encumber its properties and carry on
its business as now conducted, and to enter into this Agreement and to perform
its obligations hereunder.
(b) Each Subsidiary is a corporation, partnership or limited liability
company duly organized, validly existing and in good standing under the laws of
the jurisdiction of its incorporation or organization, and has the corporate,
partnership or limited liability company power and authority, as applicable, to
own its properties and carry on its business as it is now being conducted. As
used in this Agreement "Subsidiary" means each entity in which Seller owns any
direct or indirect equity interest.
(c) Seller and each of the Subsidiaries is duly qualified to do business
and to the extent legally applicable is in good standing in such jurisdictions
in which the ownership of its property or the conduct of its business requires
such qualification, except for any jurisdiction in which any failure to be so
qualified or to be in good standing would not, individually or in the aggregate,
reasonably be expected to result in a Material Adverse Effect. As used in this
Agreement, "Material Adverse Effect" means a material adverse effect on the
financial condition, results of operations, business or prospects of Seller and
the Subsidiaries (to the extent of Seller's interests therein), taken as a
whole; provided, however, that any Action brought by a shareholder of Seller or
in the name of or on behalf of Seller relating to this Agreement, the Merger,
the sale by Seller of its Manhattan Towers Properties (the "Manhattan Towers
Transaction") or the transaction to be consummated pursuant to the Lend Lease
Agreement (as defined in Section 2.4 below) (the "Lend Lease Transaction") shall
be deemed not to have a Material Adverse Effect.
(d) Schedule 2.1(d) sets forth the name of each Subsidiary (whether owned
directly or indirectly through one or more intermediaries). All of the
outstanding shares of capital stock of, or other equity interests in, each of
the Subsidiaries are duly authorized, validly issued, fully paid and
nonassessable, and are owned, directly or indirectly, by Seller free and clear
of all Liens, except as set forth in Schedule 2.1(d). As used in this
Agreement, "Liens" means all liens, mortgages, deeds of trust, deeds to secure
debt, security interests, pledges, claims, charges, easements and other
encumbrances of any nature
B-11
<PAGE> 86
whatsoever. The following information for each Subsidiary is set forth in
Schedule 2.1(d), to the extent applicable: (i) its name and jurisdiction of
incorporation or organization; (ii) the type of and percentage interest held by
Seller in the Subsidiary and the names of and percentage interest held by the
other interest holders, if any, in the Subsidiary; and (iii) any loans from
Seller to, or payments payable to Seller from, the Subsidiary, and the rate of
interest thereon.
2.2 Authority Relative to Agreements; Board Approval.
(a) The execution, delivery and performance of this Agreement and of all of
the documents and instruments delivered in connection herewith by Seller are
within Seller's power. Subject to the receipt of the requisite approval of
Seller's shareholders and assuming this Agreement and such other documents and
instruments constitute binding obligations of Buyer and Parent, this Agreement
is, and the other documents and instruments required to be entered into
hereunder will be, when executed and delivered by Seller, the valid and binding
obligations of Seller, enforceable against Seller in accordance with their
respective terms subject only to bankruptcy, insolvency, reorganization,
moratorium or similar laws at the time in effect affecting the enforceability or
right of creditors generally and to general equitable principles (regardless of
whether such enforceability is considered in a proceeding in equity or at law).
(b) A majority of the Board of Managers not designated by Parent has
approved and declared advisable this Agreement and the transactions contemplated
hereby in accordance with Texas law, and has determined to recommend that the
shareholders of Seller vote in favor of and approve the Merger.
(c) Neither the consummation of the Merger pursuant to this Agreement, nor
(i) consummation of the transactions contemplated by the Lend Lease Transaction
or (ii) consummation of the transactions contemplated by the Manhattan Towers
Transaction, will give any person the right to demand payment for that
shareholder's shares under the laws of the State of Texas, under the Trust
Declaration, or otherwise, except for holders of Trust Common Shares who dissent
from the Merger pursuant to and in accordance with the REIT Act.
2.3 Capital Stock.
(a) Seller's authorized capital stock on the date hereof consists of
500,000,000 Trust Common Shares, and 50,000,000 preferred shares of beneficial
interest, $0.10 par value. As of the date hereof, there are 20,992,195 Trust
Common Shares issued and outstanding, and no preferred shares issued and
outstanding. All such issued and outstanding Trust Common Shares are duly
authorized, validly issued, fully paid, nonassessable and free of preemptive
rights except those granted by contracts identified on Schedule 2.3(a). Seller
has no outstanding bonds, debentures, notes or other obligations the holders of
which have the right to vote (or which are convertible into or exercisable for
securities the holders of which have the right to vote) with the shareholders of
Seller on any matter. Other than (i) the limited partnership units ("Partnership
Units") described in Schedule 2.3(a) to this Agreement which may be put to
Seller or any Subsidiary by the holders thereof for Trust Common Shares or the
cash equivalent thereof (at the option of Seller), (ii) options subject to grant
under the option plans described in Schedules 2.3(a) and (b)of this Agreement,
or (iii) as described in Schedule 2.3(c) to this Agreement, there are no
existing options, warrants, calls, subscriptions, convertible securities, or
other rights, agreements or commitments which obligate Seller or any Subsidiary
to issue, transfer or sell any shares of capital stock or other equity interests
of Seller.
(b) Except as described in Schedule 2.3(a), no Subsidiary has issued
Partnership Units or granted securities convertible into interests in Seller or
in any Subsidiary and no Subsidiary is a party to any outstanding commitment of
any kind relating to, or any presently effective agreement or understanding with
respect to, interests in Seller or in any Subsidiary, whether issued or
unissued.
(c) Except for Seller's interests in the Subsidiaries or as described in
Schedule 2.1(d), none of Seller or any of the Subsidiaries owns directly or
indirectly any interest or investment (whether equity or debt) in any
corporation, partnership, joint business, trust or other legal entity (other
than investments in short-term investment securities).
B-12
<PAGE> 87
2.4 No Conflicts; No Defaults; Required Filings and Consents. Neither the
execution and delivery by Seller of this Agreement, the agreement among Lend
Lease Real Estate Investments, Inc., Seller and certain of Seller's Subsidiaries
(the "Lend Lease Agreement") and the agreement relating to the sale of the
Manhattan Towers property ("the Manhattan Towers Agreement"), nor the
consummation by Seller of the transactions contemplated hereby and thereby in
accordance with the terms hereof and thereof, will:
(a) conflict with or result in a breach of any provision of the Trust
Declaration or Bylaws;
(b) except as described in Schedule 2.4(b), result in a breach or violation
of, a default under, or the triggering of any payment or other obligation
pursuant to, or accelerate vesting under, any tax protection agreement or other
agreement to which Seller or any Subsidiary is a party or by which Seller or any
Subsidiary is otherwise bound, or any Seller or Subsidiary stock option plan,
option plan or similar compensation plan or any grant or award made under any of
the foregoing;
(c) violate or conflict with any statute, regulation, judgment, order,
writ, decree or injunction applicable to Seller or to any of the Subsidiaries;
(d) except as described in Schedule 2.4(d), violate or conflict with or
result in a breach of any provision of, or constitute a default (or any event
which, with notice or lapse of time or both, would constitute a default) under,
or result in the termination or in a right of termination or cancellation of, or
accelerate the performance required by, or result in the creation of any Lien
upon any of the properties of Seller or of any of the Subsidiaries under, or
result in being declared void, voidable or without further binding effect, any
of the terms, conditions or provisions of any note, bond, mortgage, indenture,
deed of trust or any franchise, permit, lease, contract, agreement or other
instrument, commitment or obligation to which Seller or any of the Subsidiaries
is a party, or by which Seller or any of its Subsidiaries or any of their
properties is bound or affected; or
(e) require any consent, approval or authorization of, or declaration,
filing or registration with, any Government Authority (as defined below), other
than the Articles of Merger pursuant to Section 1.3 hereof and any filings
required under the Securities Act of 1933, as amended (the "Securities Act"),
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), the
Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR Act"), state
securities laws ("Blue Sky Laws") (collectively, the "Filings"), and any filings
required to be made with the Texas State Department of Assessments and Taxation,
if any, or any national securities exchange on which the Trust Common Shares are
listed.
2.5 SEC Matters and Absence of Undisclosed Liabilities.
(a) Seller has delivered or made available to Parent and Buyer the Annual
Report on Form 10-K for the fiscal year ended December 31, 1999 filed by Seller
with the Securities and Exchange Commission ("SEC") and all exhibits, amendments
and supplements thereto, including all documents incorporated by reference
therein (collectively, the "Form 10-K"), and each registration statement,
report, proxy statement or information statement and all exhibits thereto
prepared by Seller or relating to the Properties (as defined in Section 2.11(a))
for filing in the three (3) years ending on the date of this Agreement, each in
the form (including exhibits and any amendments thereto) filed with the SEC
(collectively the "Seller Reports"). The Seller Reports were filed with the SEC
in a timely manner and constitute all forms, reports and documents required to
be filed by Seller under the Securities Act and the Exchange Act and the rules
and regulations promulgated thereunder (the "Securities Laws"). As of their
respective dates and as amended through the date of this Agreement, the Seller
Reports (other than preliminary materials), (i) complied as to form in all
material respects with the applicable requirements of the Securities Laws and
(ii) did not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
made therein, in the light of the circumstances under which they were made, not
misleading except to the extent such statements have been modified or superseded
by later filed Seller Reports. To Seller's knowledge, there is no unresolved
violation asserted by any Government Authority with respect to any of the Seller
Reports. As used in this Agreement, "Government Authority" means any government
or state (or any subdivision thereof) of or in the United
B-13
<PAGE> 88
States, or any agency, authority, bureau, commission, department or similar body
or instrumentality thereof, or any government court or tribunal.
(b) Each of Seller's balance sheets included in or incorporated by
reference into the Seller Reports (including the related notes and schedules)
fairly presented the financial position of Seller as of its date and each of the
statements of operations, shareholders' equity (deficit) and cash flows included
in or incorporated by reference into the Seller Reports (including any related
notes and schedules) fairly presented the results of operations, retained
earnings or cash flows, as the case may be, of Seller for the period covered
thereby, in each case in accordance with United States generally accepted
accounting principles ("GAAP") consistently applied during the periods involved
and in accordance with Regulation S-X promulgated by the SEC, except as may be
noted therein and except, in the case of the unaudited statements, for normal
recurring year-end adjustments which would not, individually or in the
aggregate, reasonably be expected to result in a Material Adverse Effect.
(c) Except as and to the extent set forth in the Seller Reports or in any
Schedule hereto, to Seller's knowledge, none of Seller or any of the
Subsidiaries has any material Liabilities, nor do there exist any circumstances
that would, individually or in the aggregate, reasonably be expected to result
in a Material Adverse Effect. As used in this Agreement, "Liabilities" means, as
to any person, all debts, adverse claims, liabilities and obligations, direct,
indirect, absolute or contingent of such person, whether accrued, vested or
otherwise, whether in contract, tort, strict liability or otherwise and whether
or not actually reflected, or required by GAAP to be reflected, in such person's
balance sheets or other books and records, including (i) obligations arising
from noncompliance with any law, rule or regulation of any Government Authority
or imposed by any court or any arbitrator of any kind, (ii) all indebtedness or
liability of such person for borrowed money, or for the purchase price of
property or services (including trade obligations), (iii) all obligations of
such person as lessee under leases, capital or other, (iv) liabilities of such
person in respect of plans covered by Title IV of ERISA, or otherwise arising in
respect of plans for employees or former employees or their respective families
or beneficiaries, (v) reimbursement obligations of such person in respect of
letters of credit, (vi) all obligations of such person arising under acceptance
facilities, (vii) all liabilities of other persons or entities, directly or
indirectly, guaranteed, endorsed (other than for collection or deposit in the
ordinary course of business) or discounted with recourse by such person or with
respect to which such person is otherwise directly or indirectly liable, (viii)
all obligations secured by any Lien on property of such person, whether or not
the obligations have been assumed, and (ix) all other items which have been, or
in accordance with GAAP would be, included in determining total liabilities on
the liability side of such person's balance sheet.
2.6 Litigation; Compliance With Law.
(a) Except as disclosed in Schedule 2.6(a), there is no action, suit,
arbitration, inquiry, proceeding or investigation by or before any Government
Authority (any such item, an "Action") pending or, to Seller's knowledge,
threatened against Seller or any of the Subsidiaries that would, individually or
in the aggregate, reasonably be expected to result in a Material Adverse Effect,
or which questions the validity of this Agreement, the Lend Lease Agreement or
the Manhattan Towers Agreement or of any action taken or to be taken in
connection herewith or therewith. Except as disclosed in Schedule 2.6(a), there
are no continuing orders, injunctions or decrees of any Government Authority to
which Seller or any of the Subsidiaries is a party or by which any of its
properties or assets are bound.
(b) None of Seller or any of the Subsidiaries is in material violation of
any statute, rule, regulation, order, writ, decree or injunction of any
Government Authority or any body having jurisdiction over them or any of their
respective properties which, if enforced, would, individually or in the
aggregate with all other such violations, reasonably be expected to result in a
Material Adverse Effect.
2.7 Absence of Certain Changes or Events. Except as disclosed in Schedule
2.7 or in any Seller Report, since June 30, 2000, Seller and each of the
Subsidiaries has conducted its business only in the ordinary course of such
business and has not acquired any real estate or entered into any financing
arrangements in connection therewith, and there has not been (a) any change,
circumstance or event that would reasonably be expected to result in a Material
Adverse Effect, (b) any declaration, setting aside or
B-14
<PAGE> 89
payment of any dividend or other distribution with respect to the Trust Common
Shares, (c) any commitment, contractual obligation, borrowing, capital
expenditure or transaction (each, a "Commitment") entered into by Seller or any
of the Subsidiaries, other than Commitments which would not, individually or in
the aggregate, be expected to result in a Material Adverse Effect, (d) any
change in Seller's accounting principles, practices or methods, (e) any
increases by Seller in any bonuses, salaries or other compensation paid or
payable to any holder of Trust Common Shares, Board Manager, officer or
employee, or (f) any adoption of, or increase in benefits or amounts payable
under, any Plan.
2.8 Tax Matters; REIT and Partnership Status.
(a) Seller and each of the Subsidiaries has timely filed with the
appropriate taxing authority all tax returns required to be filed by it or has
timely requested extensions and any such request has been granted and has not
expired. Each such tax return is complete and accurate in all material respects.
All information shown on any such tax return is correct in all material
respects, and all material Taxes shown as owed by Seller or by any of the
Subsidiaries on any tax return have been paid or accrued, except for Taxes
contested in good faith and for which adequate reserves have been taken. As used
in this Agreement, "Tax" means any federal, state, local, or foreign income,
gross receipts, license, payroll, employment, excise, severance, stamp,
occupation, premium, windfall profits, environmental (including taxes under Code
(as defined below) Section 54A), customs duties, capital stock, profits,
withholding, social security (or similar), unemployment, disability, real
property, personal property, sales, use, transfer, registration, value added,
alternative or add-on minimum, estimated, or other tax of any kind whatsoever,
including any interest, penalty or addition thereto, whether disputed or not.
Each of Seller and each of the Subsidiaries has properly accrued all Taxes for
periods subsequent to the periods covered by such tax returns as required by
GAAP. None of Seller or any of the Subsidiaries has executed or filed with the
Internal Revenue Service (the "IRS") or any other taxing authority any agreement
now in effect extending the period for assessment or collection of any Tax. None
of Seller or any of the Subsidiaries is a party to any pending action or
proceeding by any taxing authority for assessment or collection of any Tax, and
no claim for assessment or collection of any Tax has been asserted against it.
No claim has been made by any authority in a jurisdiction where Seller or any of
the Subsidiaries does not file tax returns that it is or may be subject to
taxation or reporting in that jurisdiction. There is no dispute or claim
concerning any information, reporting or tax liability of Seller or of any of
the Subsidiaries, (i) claimed or raised by any taxing authority in writing or
(ii) as to which Seller or any of the Subsidiaries has knowledge. Seller is a
"domestically controlled" REIT within the meaning of Section 897(h)(4)(B) of the
Internal Revenue Code of 1986, as amended (the "Code"), and to Seller's
knowledge, there are no nondomestic registered beneficial owners of Trust Common
Shares. To Seller's knowledge, no person or entity which would be treated as an
"individual" for purposes of Section 542(a)(2) of the Code (as modified by
Section 856(h) of the Code) owns or would be considered to own (taking into
account the ownership attribution rules under Section 544 of the Code, as
modified by Section 856(h) of the Code) in excess of 9.8% of the value of the
outstanding equity interests in Seller.
(b) Seller (i) made a valid election in its federal income tax return for
the tax year ended December 31, 1993 to be taxed as a real estate investment
trust within the meaning of Section 856 of the Code ("REIT") and has complied in
all material respects (and will comply in all material respects) with all
applicable provisions of the Code relating to a REIT, for 1993 through the date
hereof, (ii) has operated, and will to continue to operate, in such a manner as
to qualify as a REIT for 2000 and up to the Effective Time, (iii) has not taken
or omitted to take any action which would reasonably be expected to result in a
challenge to its status as a REIT, and, no such challenge is pending or
threatened, and (iv) to its knowledge, will not be rendered unable to qualify as
a REIT for federal income tax purposes as a consequence of the transactions
contemplated by this Agreement.
(c) Except as described in Schedule 2.8(c), no amount or other entitlement
that could be received (whether in cash or property or the vesting of property)
as a result of or in connection with any of the transactions contemplated hereby
by any employee, officer, or manager of Seller or of any of the Subsidiaries or
of any of their affiliates (as defined in Rule 12b-2 promulgated under the
Exchange Act; hereinafter, "Affiliates") who is a "disqualified individual" (as
such term is defined in proposed Treasury
B-15
<PAGE> 90
Regulation Section 1.280G-1) under any employment, severance or termination
agreement, other compensation arrangement or plan currently in effect would be
characterized as an "excess parachute payment" (as such term is defined in
Section 280G(b) of the Code).
(d) Except as described in Schedule 2.8(d), the disallowance of a deduction
under Section 162(m) of the Code for employee remuneration will not apply to any
amount paid or payable by Seller or by any of the Subsidiaries under any
contract, stock plan, program, arrangement or understanding currently in effect.
(e) Each Subsidiary organized as a partnership or limited liability company
(and any other Subsidiary that files tax returns as a partnership for federal
income tax purposes) was and, as of the date hereof, continues to be, and will
continue to be through the Closing Date, classified as a partnership or as a
disregarded entity for federal income tax purposes. Neither Seller nor any
Subsidiary holds any asset the disposition of which would be subject to rules
similar to (i) Section 1374 of the Code as the result of Internal Revenue
Service Notice 88-19, or (ii) those contained in proposed regulations issued
under Treasury Regulation Section 1.337(d)-5, or temporary regulations issued
under Treasury Regulation Section 1.337(d)-5T, if such regulations were
finalized in the form proposed.
(f) For each taxable year beginning with Seller's taxable year that ended
December 31, 1993, the dividends paid by Seller on the Trust Common Shares have
been and will continue to be paid pro rata, with no preference to any Trust
Common Share as compared with other shares.
(g) Seller has not actively conducted a business (i) from which it earns
fees for services it performs and (ii) that would cause (x) Seller's REIT status
to be lost or (y) rents from real property to be treated as not rent under the
Code.
(h) As required by Treasury Regulation Section 1.857-8, Seller has
maintained the necessary records regarding the actual ownership of its shares,
and has timely made (i.e., by January 30 of each calendar year) the requisite
information requests of its shareholders regarding share ownership and has
maintained a list of the persons failing or refusing to comply in whole or in
part with Seller's demand for statements regarding share ownership.
(i) Seller has never owned more than 10% of the voting common shares of any
corporation other than a "Qualified REIT Subsidiary," i.e., (i) before 1998, a
corporation, all of whose shares were owned by Seller at all times during such
corporation's existence, and (ii) after January 1, 1998, a corporation (x) all
of whose shares are owned by Seller, and (y) all of whose earnings and profits
existing at the time Seller acquired all of its shares are distributed before
the end of the tax year in which all of the shares are acquired.
2.9 Compliance with Agreements.
(a) Seller is not in default under or in violation of the Declaration of
Trust or the Bylaws and neither Seller nor any of the Subsidiaries is in default
under or in violation of any material provision of the respective charter,
bylaws, partnership agreement, operating agreement or any similar organizational
document of such Subsidiaries.
(b) Since January 1, 1997, each of Seller and each of the Subsidiaries has
filed all reports, registrations and statements, together with any amendments
required to be made with respect thereto, that it was required to file with any
Government Authority and all other reports and statements required to be filed
by it, including any report or statement required to be filed pursuant to the
laws, rules or regulations of the United States, and has paid all fees or
assessments due and payable in connection therewith. There is no unresolved
violation asserted by any regulatory agency of which Seller has received any
written notice which, if resolved in a manner unfavorable to Seller or any
Subsidiary, would, individually or in the aggregate with all other such
violations, reasonably be expected to result in a Material Adverse Effect.
(c) Schedule 2.9(c) sets forth (i) a description of all material
indebtedness of Seller and of each of the Subsidiaries, whether unsecured or
secured or collateralized by mortgages, deeds of trust or other security
interests in the Property (as defined in Section 2.11(a)) or any other assets of
Seller or of any
B-16
<PAGE> 91
Subsidiary, or otherwise and (ii) each Commitment currently in effect entered
into by Seller or by any of the Subsidiaries (including any guarantees of any
third party's debt or any obligations in respect of letters of credit issued for
Seller's or any Subsidiary's account) which may result in total payments or
liability in excess of $100,000, excluding Commitments that are terminable on
thirty (30) days or less notice, and excluding Commitments the breach of which
would not, individually or in the aggregate with all other such breaches,
reasonably be expected to result in a Material Adverse Effect. Neither Seller
nor any of the Subsidiaries is in default, and, to Seller's knowledge, no event
has occurred which, with the giving of notice or the lapse of time or both,
would constitute a default, under any of the documents described in clause (i)
or (ii) of the first sentence of this paragraph or in respect of any payment
obligations thereunder. All joint venture and partnership agreements to which
Seller or any of the Subsidiaries is a party as of the date hereof are described
in Schedule 2.9(c), all of which are in full force and effect as against Seller
or the applicable Subsidiary and, to Seller's knowledge, as against the other
parties thereto, and none of Seller or any of the Subsidiaries is in default,
and, to Seller's knowledge, no event has occurred which, with the giving of
notice or the lapse of time or both, would constitute a default, with respect to
any obligations thereunder, except as would not, individually or in the
aggregate with all other such defaults, reasonably be expected to result in a
Material Adverse Effect. To Seller's knowledge, the other parties to such
agreements are not in breach of any of their respective obligations thereunder,
except as would not, individually or in the aggregate with all other such
defaults, reasonably be expected to result in a Material Adverse Effect. To
Seller's knowledge, there is no condition with respect to any of the
Subsidiaries (including with respect to the partnership agreements for the
Subsidiaries that are partnerships) that would, individually or in the aggregate
with all other such conditions, reasonably be expected to result in a Material
Adverse Effect.
(d) Except as disclosed in any other Schedule hereto, Schedule 2.9(d) sets
forth a complete and accurate list of all material agreements to which Seller or
any of the Subsidiaries is a party as of the date hereof relating to the
development or construction of, additions or expansions to, or management or
leasing services for, light industrial properties or office buildings or other
real properties which are currently in effect and under which Seller or any of
the Subsidiaries currently has, or expects to incur, any material obligation.
(e) Except for (i) agreements made in the ordinary course of business with
a maturity of less than one (1) year or that are terminable on thirty (30) days
or less notice, and (ii) agreements the breach or nonfulfillment of which would
not, individually or in the aggregate with all other such breaches or
nonfulfillments, reasonably be expected to result in a Material Adverse Effect,
Schedule 2.9(e) sets forth a complete and accurate list of all material
agreements to which Seller or any Subsidiary is a party as of the date hereof
which are not listed in any other Schedule hereto and are not exhibits to any
filing made by Seller with the SEC. Each of the Lend Lease Agreement, the
Manhattan Towers Agreement and each agreement listed on Schedule 2.9(e) is in
full force and effect as against Seller and, to Seller's knowledge, as against
the other parties thereto, no payments, if any, are delinquent, no notice of
default thereunder has been sent or received by Seller or any of the
Subsidiaries, and, to Seller's knowledge, no event has occurred which, with
notice or lapse of time or both, would constitute such a default thereunder,
except for any such default that would not, individually or in the aggregate
with all other such defaults, reasonably be expected to result in a Material
Adverse Effect.
(f) Seller has no written policies regarding transactions with Affiliates.
Schedule 2.9(f) lists all existing agreements with Affiliates relating to
matters other than employment or severance, each of which employment or
severance agreement is listed on Schedule 2.13(a).
2.10 Financial Records; Trust Declaration and Bylaws; Corporate Records.
(a) The books of account and other financial records of Seller and of each
of the Subsidiaries are in all material respects true and complete, have been
maintained in accordance with good business practices, and are accurately
reflected in all material respects in the financial statements included in the
Seller Reports.
B-17
<PAGE> 92
(b) Seller has delivered or made available to Buyer true and complete
copies of the Trust Declaration and the Bylaws, as amended to date, and the
charter, bylaws, organizational documents, partnership agreements and joint
venture agreements of the Subsidiaries, and all amendments thereto. All such
documents are listed on Schedule 2.10(b).
(c) The minute books and other records of corporate, trust or partnership
proceedings of Seller and of each of the Subsidiaries contain accurate records
of all meetings of the equity holders, managers and other governing bodies
thereof and accurately reflect in all material respects all other corporate
action of the managers, shareholders and directors and any committees of the
Board of Managers and of the Subsidiaries which are corporations and all actions
of the partners of the Subsidiaries which are partnerships.
2.11 Properties.
(a) Schedule 2.11(a) sets forth a complete and accurate list and the
address of all real property owned or leased by Seller or by any of the
Subsidiaries or otherwise used by Seller or by any of the Subsidiaries in the
conduct of their business or operations. That real property, together with the
land at each address referenced in Schedule 2.11(a) and all buildings,
structures and other improvements and fixtures located on or under such land and
all easements, rights and other appurtenances to such land shall be referred to
individually as a "Property" and collectively as the "Properties." Seller, or,
in the case of properties owned by Subsidiaries, the Subsidiary or trustees
holding legal title solely for the benefit of a Subsidiary indicated in Schedule
2.11(a), owns good and indefeasible fee simple title (or, if so indicated in
Schedule 2.11(a), leasehold title) to each of the Properties, in each case free
and clear of any Liens, title defects, common restrictions or covenants, laws,
ordinances or regulations affecting use or occupancy (including zoning
regulations and building codes) or reservations of interests in title
(collectively, "Property Restrictions"), except for (i) Permitted Liens, (ii)
Property Restrictions imposed or promulgated by law or by any Government
Authority which are customary and typical for similar properties, and (iii) the
obligations relating to the properties identified as Lend Lease Properties on
Schedule 2.11(a) (the "Lend Lease Properties") arising under the Lend Lease
Agreement and the obligations relating to the properties identified as Manhattan
Towers Properties on Schedule 2.11(a) (the "Manhattan Towers Properties")
arising under the Manhattan Towers Agreement. As used in this Agreement,
"Permitted Liens" means (u) Liens (other than Liens imposed under ERISA or any
Environmental Law or in connection with any Environmental Claim) for taxes or
other assessments or charges of Governmental Authorities that are not yet
delinquent or that are being contested in good faith by appropriate proceedings
in each case, and with respect to which adequate reserves or other appropriate
provisions are being maintained by Seller or the Subsidiaries to the extent
required by GAAP, (v) statutory Liens of landlords, carriers, warehousemen,
mechanics, materialmen and other Liens (other than Liens imposed under ERISA or
any Environmental Law or in connection with any Environmental Claim) imposed by
law and created in the ordinary course of business for amounts not yet overdue
or which are being contested in good faith by appropriate proceedings, and in
each case with respect to which adequate reserves or other appropriate
provisions are being maintained by Seller or the Subsidiaries to the extent
required by GAAP and which do not exceed $25,000 in the aggregate, (w) the
Leases, (x) easements, rights-of-way and covenant restrictions which are
customary and typical for properties similar to the Properties and which do not
(1) interfere materially with the ordinary conduct of any Property or the
business of Seller and the Subsidiaries as a whole or (2) detract materially
from the value or usefulness of the Property to which they apply, (y) the Liens
which were granted by Seller or any of the Subsidiaries to lenders pursuant to
credit agreements in existence on the date hereof which are described in
Schedule 2.9(c), and (z) such imperfections of title and encumbrances, if any,
as would not individually or in the aggregate reasonably be expected to result
in a Material Adverse Effect. To Seller's knowledge, none of the Permitted Liens
interferes with, impairs, or is violated by the present use, occupancy or
operation (or if applicable, development) of any Property that is not included
in the Lend Lease Properties or in the Manhattan Towers Properties (the
Properties not included in the Lend Lease Properties or the Manhattan Towers
Properties, the "Buyer Properties") and none of the Property Restrictions
interferes with, impairs, or is violated by, the existence of any building or
other structure or
B-18
<PAGE> 93
improvement which constitutes a part of, or the present use, occupancy or
operation (or, if applicable, development) of, any Buyer Property, except, in
each such case, to the extent that any interference, impairment or violation
would not, individually or in the aggregate with all other such items,
reasonably be expected to have a Material Adverse Effect. American Land Title
Association policies of title insurance (or marked title insurance commitments
having the same force and effect as title insurance policies) have been issued
by national title insurance companies insuring the fee simple or leasehold, as
applicable, title of Seller or a Subsidiary or a trustee holding legal title
solely for the benefit of a Subsidiary, as applicable, to each of the Buyer
Properties in amounts at least equal to the original cost thereof, subject only
to Permitted Liens, and to Seller's knowledge, all such policies are valid and
in full force and effect and no claim has been made under any such policy.
(b) Except as described in Schedule 2.11(b), Seller has no knowledge (i)
that any currently required certificate, permit or license (including building
permits and certificates of occupancy for tenant spaces) from any Government
Authority having jurisdiction over any Property or any agreement, easement or
other right that is necessary to permit the lawful use, occupancy or operation
of the existing buildings, structures or other improvements that constitute a
part of any of the Properties or which are necessary to permit the lawful use
and operation of any existing driveways, roads or other areas of ingress and
egress to and from any of the Properties has not been obtained or is not in full
force and effect, or of any pending threat of modification or cancellation of
any of same, or (ii) of any violation by any Property of any federal, state or
municipal law, ordinance, order, regulation or requirement, including any
applicable zoning law or building code, arising from the use or occupancy of
such Property or otherwise. Except as described in Schedule 2.11(b), Seller has
no knowledge of any current uninsured physical damage to any Buyer Property in
excess of $25,000. To Seller's knowledge, except for repairs identified in the
Capital Expenditure Budget and Schedule (as defined below in Section 2.11(i)),
each Buyer Property: (x) is in good operating condition and repair and is
structurally sound and free of defects, with no material alterations or repairs
being required thereto under applicable law or insurance company requirements,
and (y) consists of sufficient land areas, driveways and other improvements and
lawful means of access and utility service and capacity to permit the use
thereof in the manner and for the purposes to which it is presently devoted (or,
in the case of the Development Properties (as defined below in Section 2.11(j)),
for the development and operation thereon of the applicable Project), except, in
each such case, to the extent that failure to meet such standards would not,
individually or in the aggregate with all other such failures, reasonably be
expected to have a Material Adverse Effect.
(c) Seller has no knowledge (i) except as described in Schedule 2.11(c)that
any condemnation, eminent domain or rezoning proceedings are pending or
threatened with respect to any of the Buyer Properties, (ii) except as described
in Schedule 2.11(c), that any road widening or change of grade of any road
adjacent to any Buyer Property is underway or has been proposed, (iii) of any
proposed change in the assessed valuation of any Buyer Property other than
customarily scheduled revaluations, (iv) of any special assessment made or
threatened against any Property, or (v) that any of the Buyer Properties is
subject to any so-called "impact fee" or to any agreement with any Government
Authority to pay for sewer extension, oversizing utilities, lighting or like
expenses or charges for work or services by such Government Authority, except,
in the case of each of the foregoing, to the extent that same would not,
individually or in the aggregate with all other such items, reasonably be
expected to have a Material Adverse Effect.
(d) To Seller's knowledge, each of the Buyer Properties is an independent
unit which does not rely on any facilities located on any property not included
in such Property to fulfill any municipal or governmental requirement or for the
furnishing to such Property of any essential building systems or utilities,
other than facilities the benefit of which inures to the Buyer Properties
pursuant to one or more valid easements. Each of the Buyer Properties is served
by public water and sanitary systems and all other utilities, and, to Seller's
knowledge, each of the Buyer Properties has lawful access to public roads, in
all cases sufficient for the current use and occupancy of that Property (or, in
the case of the Development Properties, for the development and operation
thereon of the applicable Project (as defined herein)). To Seller's knowledge,
all parcels of land included in each Buyer Property that purport to be
contiguous are contiguous and are not separated by strips or gores. To Seller's
knowledge, no portion of any Buyer
B-19
<PAGE> 94
Property lies in any flood plain area (as defined by the U.S. Army Corps of
Engineers or otherwise) or includes any wetlands or vegetation or species
protected by any applicable laws. To Seller's knowledge, no improvements
constituting a part of any Buyer Property encroach on real property not
constituting a part of such Property.
(e) Except for matters addressed in the Capital Expenditure Budget and
Schedule, no Property fails to comply with the requirements of the Americans
With Disabilities Act (the "ADA") except for such noncompliance as Seller
reasonably believes will not, individually or in the aggregate, have a Material
Adverse Effect.
(f) Seller has provided to Parent and Buyer an accurate rent roll for each
Buyer Property as of September 30, 2000 (the "Rent Roll"), which identifies and
accurately describes each lease of space in each Buyer Property (collectively,
the "Leases"). Seller has delivered to Parent and Buyer an abstract of each
Lease (the "Abstracts") which accurately describes the material terms thereof.
With respect to each Lease for premises larger than 20,000 square feet of
rentable space (each a "Material Lease" and collectively, the "Material
Leases"), except as described in Schedule 2.11(f) and except for matters that
are not, individually or in the aggregate, reasonably expected to have a
material effect on any Buyer Property, (i) each of the Material Leases is valid
and subsisting and in full force and effect as against each party thereto, and
has not been amended, modified or supplemented, other than by any amendment,
modification or supplement that has been provided to Parent and Buyer, (ii) the
tenant under each of the Material Leases is in actual possession of the premises
leased thereunder, (iii) no tenant under any Material Lease is more than thirty
(30) days in arrears in the payment of rent, (iv) none of Seller or any of the
Subsidiaries has received any written notice from any tenant under any Material
Lease of its intention to vacate, (v) none of Seller or any of the Subsidiaries
has collected payment of rent under any Material Lease (other than security
deposits) for a period which is more than one (1) month in advance, (vi) no
notice of default has been sent or received by the landlord under any Material
Lease with respect to any defect that remains uncured as of the date hereof, no
default has occurred under any Material Lease and, to Seller's knowledge, no
event has occurred and is continuing which, with notice or lapse of time or
both, would constitute a default under any Material Lease, (vii) no tenant under
any of the Material Leases has any purchase option or kick-out right or is
entitled to any concession, allowance, abatement, set-off, rebate or refund,
(viii) none of the Material Leases and none of the rents or other amounts
payable thereunder has been assigned, pledged or encumbered except in connection
with financing secured by the applicable Buyer Property, which is described in
Schedule 2.9(c), (ix) no brokerage or leasing commission or other compensation
is due or payable to any Person with respect to or on account of any of the
Material Leases or any extensions or renewals thereof, (x) except as set forth
in the Abstracts, no space of a material size in any Buyer Property is occupied
by a tenant rent-free, (xi) no tenant under any of the Material Leases has
asserted any claim which is likely to affect the collection of rent from such
tenant, and (xii) the landlord under each Material Lease has fulfilled all of
its obligations thereunder in respect of tenant improvements and capital
expenditures. Other than the tenants identified in the Rent Roll and Abstracts
and parties to easement agreements which constitute Permitted Liens, no third
party has any right to occupy or use any portion of any Buyer Property. The Rent
Roll or Abstracts include a budget for all material tenant improvements and
similar material work required to be performed by the lessor under each of the
Material Leases.
(g) Schedule 2.11(g) sets forth a complete and accurate list of all
material commitments, letters of intent or written understandings made or
entered into by Seller or any of the Subsidiaries as of the date hereof (i) to
lease any space larger than 20,000 rentable square feet at any of the Buyer
Properties, (ii) to sell, mortgage, or pledge any Buyer Property or to otherwise
enter into a material transaction or arrangement in respect of the ownership or
financing of any Buyer Property, or (iii) to purchase or acquire an option,
right of first refusal or similar right in respect of any real property, which,
in any such case has not yet been reduced to a written lease or contract, and
sets forth with respect to each such commitment, letter of intent or other
understanding the principal terms thereof.
(h) Except as set forth in the Rent Roll or Abstracts, and except for
certain rights of first refusal which are set forth in the sections of the
partnership agreements referenced in Schedule 2.1(d) and which
B-20
<PAGE> 95
relate to partnerships in which Seller, directly or indirectly, owns less than a
100% interest, none of Seller or any of the Subsidiaries has granted any
outstanding options or has entered into any outstanding contracts with others
for the sale, mortgage, pledge, hypothecation, assignment, sublease, lease or
other transfer of all or any part of any Buyer Property, and no person has any
right or option to acquire, or right of refusal with respect to, Seller's or any
Subsidiary's interest in any Buyer Property or any part thereof. Except as
described in Schedule 2.11(h), none of Seller or any Subsidiary has any
outstanding options or rights of first refusal or has entered into any
outstanding contracts with others for the purchase of any real property.
(i) Schedule 2.11(i) contains a complete and accurate description of any
material noncompliance by any Property, to Seller's knowledge, with any law,
ordinance, code, health and safety regulation or insurance requirement (except
for the ADA, which is addressed in this respect in Section 2.11(e) above) other
than such noncompliance as would not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect. Schedule 2.11(i) also
sets forth Seller's and each Subsidiary's capital expenditure budget and
schedule for each Buyer Property (the "Capital Expenditure Budget and
Schedule"), which describes the capital expenditures which Seller or any
Subsidiary has budgeted for such Property that was acquired prior to January 1,
2000 for the period from January 1, 2000 through December 31, 2000 and the
expected capital expenditures from February 1, 2001 through May 31, 2001. To
Seller's knowledge, the costs and time schedules for 2000 and 2001 (February
through May 2001) set forth in the Capital Expenditure Budget and Schedule are
reasonable estimates and projections. Except as described in Schedule 2.11(i),
there are no outstanding, or to Seller's knowledge, threatened requirements of
any insurance company which has issued an insurance policy covering any Buyer
Property, or of any board of fire underwriters or other body exercising similar
functions, requiring any repairs or alterations to be made to any Buyer
Property.
(j) Schedule 2.11(j) contains a list of each Buyer Property which consists
of or includes undeveloped land or which is in the process of being developed or
rehabilitated (each, a "Development Property," and collectively, the
"Development Properties") and a brief description of the development or
rehabilitation intended by Seller or any Subsidiary to be carried out or
completed thereon (collectively, the "Projects"), including any budget and
development or rehabilitation schedule therefor prepared by or for Seller or any
Subsidiary (collectively, the "Development Budget and Schedule"). Except as
disclosed in Schedule 2.11(j), each Development Property is zoned for the lawful
development thereon of the applicable Project, and the Trust or a Subsidiary has
obtained all permits, licenses, consents and authorizations required for the
lawful development or rehabilitation thereon of such Project, except only for
such failure to meet the foregoing standards as would not, individually or in
the aggregate with all other such failures, reasonably be expected to have a
Material Adverse Effect. Except as described in Schedule 2.11(j), to Seller's
knowledge, there are no material impediments to or constraints on the
development or rehabilitation of any Project in all material respects within the
time frame and for the cost set forth in the Development Budget and Schedule
applicable thereto. In the case of each Project, the development of which has
commenced, to Seller's knowledge, the costs or expenses incurred in connection
with such Project and the progress thereof are, except as described in Schedule
2.11(j), consistent and in compliance in all material respects with all aspects
of the Development Budget and Schedule applicable thereto. All development and
rehabilitation efforts with respect to the Development Properties and the
Project have ceased.
(k) Seller has disclosed to Buyer all adverse matters known to Seller with
respect to or in connection with the Buyer Properties (including the Leases and
the Tenancy Leases), which would, individually or in the aggregate, reasonably
be expected to have a Material Adverse Effect.
(l) The ground leases underlying the leased Buyer Properties referenced in
Schedule 2.11(a) (collectively, the "Tenancy Leases") are listed in Schedule
2.11(l). Each of the Tenancy Leases is valid, binding and in full force and
effect against the applicable Subsidiary and, to Seller's knowledge, against the
other party thereto. Except as indicated in Schedule 2.11(l), none of the
Tenancy Leases is subject to any pledge, lien, sublease, assignment, license or
other agreement granting to any third party any interest in or any right to the
use or occupancy of any premises leased thereunder. To Seller's knowledge,
except
B-21
<PAGE> 96
as described in Schedule 2.11(l), there is no pending or threatened proceeding
which is reasonably likely to interfere with the quiet enjoyment of the tenant
under any of the Tenancy Leases. Except as described in Schedule 2.11(l), no
payments under any Tenancy Lease are delinquent and no notice of default
thereunder has been sent or received by Seller or any of the Subsidiaries. There
does not exist under any of the Tenancy Leases any default, and, to Seller's
knowledge, no event has occurred which, with notice or lapse of time or both,
would constitute such a default, except as would not, individually or in the
aggregate with all other such defaults, be reasonably expected to have a
Material Adverse Effect.
(m) Each of Seller and each of the Subsidiaries has good and sufficient
title to all the personal and other property and assets reflected in their books
and records as being owned by them (including those reflected in the balance
sheets of Seller and the Subsidiaries as of June 30, 2000, except as since sold
or otherwise disposed of in the ordinary course of business), free and clear of
all Liens, except for Permitted Liens which are not, individually or in the
aggregate, reasonably expected to have a material adverse effect on any
Property.
2.12 Environmental Matters.
(a) Except as disclosed on Schedule 2.12(a), to Seller's knowledge, each of
Seller and the Subsidiaries has obtained and now maintains as currently valid
and effective all permits required to be possessed by Seller or its Subsidiaries
under Environmental Laws (the "Environmental Permits") in connection with the
operation of its businesses and properties, all of which are listed in Schedule
2.12(a), except where the failure to have such Environmental Permit would not
individually or in the aggregate with all other failures to have a required
Environmental Permit, reasonably be expected to result in a Material Adverse
Effect. To Seller's knowledge, except as disclosed in the Environmental Reports
(as defined below), each of Seller and the Subsidiaries, and each Property, is
in compliance with all terms and conditions of the Environmental Permits and all
Environmental Laws, except for any noncompliance that would not, individually or
in the aggregate, reasonably be expected to have a Material Adverse Effect on
Seller or a Subsidiary. Seller has no knowledge of any actually and currently
existing circumstances that may prevent or interfere with such compliance in the
future.
(b) Each of Seller and the Subsidiaries has made available to Parent and
Buyer all material written information and written communications (whether from
a Government Authority, citizens' group, employee or other person) in its
possession or control regarding (i) alleged or suspected noncompliance of any of
the Properties with any Environmental Laws or Environmental Permits or (ii)
alleged or suspected liability of Seller or any Subsidiary under any
Environmental Law.
(c) There are no environmental liens or encumbrances on any of the
Properties and, to Seller's knowledge, no government actions have been taken or
are in process which are reasonably likely to subject any Property to such liens
or other encumbrances that would prevent the use of such Property as currently
conducted.
(d) No Environmental Claim (as defined below) with respect to the
operations or the businesses of Seller or of any Subsidiary, or with respect to
the Properties, has been asserted or, to Seller's knowledge, threatened, and, to
Seller's knowledge, no circumstances exist with respect to Seller or any of the
Subsidiaries or the Properties that would reasonably be expected to result in
any Environmental Claim being asserted, in any such case, (i) against (x) Seller
or any of the Subsidiaries, or (y) any person whose liability for any
Environmental Claims Seller or any of the Subsidiaries has or may have retained
or assumed either contractually or by operation of law, and (ii) which would
reasonably be expected to have a Material Adverse Effect.
(e) Except as disclosed in Schedule 2.12(e) or set forth in the
Environmental Reports: (i) none of Seller or any of the Subsidiaries has been
notified or has reason to believe that it will be notified of potential
responsibility in connection with any site that has been placed on, or proposed
to be placed on, the National Priorities List or its state or foreign equivalent
pursuant to the Comprehensive Environmental Response, Compensation and Liability
Act ("CERCLA"), 42 U.S.C. sec. 9601, et seq., or analogous state or foreign
laws, (ii) to Seller's knowledge, no Materials of Environmental Concern are
present on, in or under
B-22
<PAGE> 97
any Property in a manner or condition that is reasonably likely to give rise to
an Environmental Claim which would reasonably be expected to result in a
Material Adverse Effect, (iii) and to Seller's knowledge, none of Seller, any
Subsidiary or any tenant of any Property has Released or arranged for the
Release of any Materials of Environmental Concern at any location to an extent
or in a manner which would reasonably be expected to result in a Material
Adverse Effect on the Property, (iv) to Seller's knowledge, no underground
storage tanks, surface disposal areas, pits, ponds, lagoons, open trenches or
equipment is present at any Property, (iv) to Seller's knowledge, no
transformers, capacitors or other equipment containing fluid with more than 50
parts per million polychlorinated biphenyls are present at any Property, except
for any such transformers, capacitation or other equipment owned by any utility
company, and (vi) to Seller's knowledge, no employee, agent, contractor,
subcontractor or tenant of Seller or any of the Subsidiaries is now or has in
the past been exposed to friable asbestos or asbestos-containing material at any
Property.
(f) Seller has made available to Buyer the most recent Phase I
environmental reports prepared for Seller or the Subsidiaries or otherwise in
the possession of any of them with respect to the environmental condition of any
Property (collectively, the "Environmental Reports").
(g) For purposes of this Section 2.12, the terms listed below have the
following meanings:
(i) "claim" means any action, cause of action, suit, controversy,
trespass, judgment, execution, claim, liability or demand whatsoever, in
law or equity.
(ii) "Environmental Claim" means any notice of investigation or claim
or notice (written or oral) by any person alleging potential liability
(including potential liability for investigatory costs, cleanup costs,
governmental response costs, natural resources damages, property damages,
personal injuries or fatalities, or penalties) arising out of, based on or
resulting from (x) the presence, generation, transportation, treatment,
use, storage, disposal or Release of Materials of Environmental Concern or
the threatened Release of Materials of Environmental Concern at any
location, or (y) activities or conditions forming the basis of any
violation, or alleged violation of, or liability or alleged liability
under, any Environmental Law.
(iii) "Environmental Laws" means federal, state, local, provincial,
municipal and foreign laws, ordinances, principles of common law, rules,
orders, governmental policies, statutes, regulations, agreements with any
Governmental Authority, and treaties, relating to the pollution or
protection of the environment or of flora or fauna or their habitat or of
effects of Materials of Environmental Concern upon human health and safety,
or to the cleanup or restoration of the environment, including, but not
limited to, any laws relating to (x) generation, treatment, storage,
disposal or transportation of wastes, emissions or discharges or protection
of the environment from the same, and (y) exposure of persons to, or
Release or threat of Release, Materials of Environmental Concern.
(iv) "Materials of Environmental Concern" means all chemicals,
pollutants, contaminants, wastes, toxic substances, petroleum or any
fraction thereof, petroleum products and hazardous substances (as defined
in Section 101(14) of CERCLA, 42 U.S.C. sec. 9601(14)), or solid or
hazardous wastes as now defined and regulated under any Environmental Laws.
(v) "Release" means any release, spill, emission, leaking, pumping,
injection, deposit, disposal, discharge, dispersal, leaching or migration.
2.13 Employees and Benefit Plans.
(a) Schedule 2.13(a) sets forth a complete and accurate list of all
employment agreements with employees of Seller or of any of the Subsidiaries.
Except for the employees who are parties to such employment agreements, all of
the employees of Seller and of each of the Subsidiaries are employed in an
at-will status (except for restrictions or limitations on the at-will status of
such employees imposed by federal and state law and general principles of law or
equity).
(b) Schedule 2.13(b) sets forth a complete and accurate list of all
Employee Benefit Plans (as defined below) and all material Benefit Arrangements
(as defined below) which affect Employees (as
B-23
<PAGE> 98
defined below) maintained or contributed to, or required to be contributed to,
by Seller or an ERISA Affiliate (as defined below) within the last six (6) years
for the benefit of any Employees of Seller or of any of the Subsidiaries (each,
a "Plan").
(c) With respect to each Plan, (i) Seller and each of the Subsidiaries is
and always been in compliance in all material respects with the terms of that
Plan and with the requirements prescribed by all applicable statutes, orders or
governmental rules or regulations, (ii) Seller and each of the Subsidiaries has
timely contributed to each Pension Plan not less than the amounts accrued for
such plan for all plan periods for which payment is due, and (iii) none of
Seller or any ERISA Affiliate has any funding commitment or other liabilities
except as reserved for in the financial statements included in or incorporated
by reference into the Reports, except, in the case of each of clauses (i)
through (iii), for such matters as would not, individually or in the aggregate,
reasonably be expected to result in a Material Adverse Effect.
(d) None of Seller or any ERISA Affiliate has made any commitment to
establish any new Employee Benefit Plan, to modify any Employee Benefit Plan, or
to increase benefits or compensation of Employees of Seller or of any of the
Subsidiaries (except for normal increases in compensation consistent with past
practices), and to Seller's knowledge, no intention to do so has been
communicated to Employees of Seller or of any of the Subsidiaries.
(e) There are no pending or, to Seller's knowledge, anticipated claims,
actions, suits, proceedings or investigations against or otherwise involving any
of the Plans or any fiduciaries thereof with respect to their duties to the
Plans and no suit, action or other litigation (excluding claims for benefits
incurred in the ordinary course of Plan activities) has been brought against or
with respect to any Plan.
(f) Neither Seller nor any entity under "common control" with Seller within
the meaning of Section 4001 of ERISA ("ERISA Affiliate") has contributed to, or
been required to contribute to, any "multiemployer plan" (as defined in Section
3(37) and 4001(a)(3) of ERISA).
(g) Except as described in Schedule 2.13(g), Seller and the Subsidiaries do
not maintain or contribute to any plan or arrangement which provides or has any
liability to provide life insurance, medical or other employee welfare benefits,
except as otherwise required under Section 601, et seq., of ERISA, to any
Employee after his retirement or termination of employment and, to Seller's
knowledge, Seller and the Subsidiaries have never represented, promised or
contracted (whether in oral or written form) to any Employee or former Employee
that such benefits would be provided.
(h) For purposes hereof, "Employee Benefit Plans" means each and all
"employee benefit plans" as defined in Section 3(3) of ERISA maintained or
contributed to by a party hereto or in which a party hereto participates or
participated and which provides benefits to Employees, including (i) any such
plans that are "employee welfare benefit plans" as defined in Section 3(1) of
ERISA, including retirement medical and life insurance ("Welfare Plans"), and
(ii) any such plans that constitute "employee pension benefit plans" as defined
in Section 3(2) of ERISA ("Pension Plans"). "Benefit Arrangements" means life
and health, hospitalization, savings, bonus, deferred compensation, incentive
compensation, holiday, vacation, severance pay, sick pay, sick leave,
disability, tuition refund, service award, company car, scholarship, relocation,
patent award, fringe benefit, individual employment, consultation or severance
and other polices or practices of a party hereto providing employee or executive
compensation or benefits to Employees, other than Employee Benefit Plans.
"Employees" means all current employees, former employees and retired employees
of a party hereto or of any of the Subsidiaries, including employees on
disability, layoff or leave status. "Controlled Group Liability" means any and
all liabilities under (i) Title IV of ERISA, (ii) Section 302 of ERISA, (iii)
Sections 412 and 4971 of the Code, (iv) the continuation coverage requirements
of Section 601, et seq., of ERISA and Section 4980B of the Code, and (v)
corresponding or similar provisions of foreign laws or regulations, other than
such liabilities that arise solely out of, or relate solely to, the Plans.
(i) To Seller's knowledge, with respect to each plan that is subject to
Title IV or Section 302 of ERISA or Section 412 or 4971 of the Code: (i) there
does not exist any accumulated deficiency within
B-24
<PAGE> 99
the meaning of Section 412 of the Code or Section 302 of ERISA, whether or not
waived, (ii) the fair market value of the assets of such plan equals or exceeds
the actuarial present value of all accrued benefits under the plan (whether or
not vested), on a termination basis, (iii) no reportable event within the
meaning of Section 4043(c) of ERISA has occurred, and the consummation of the
transactions contemplated by this Agreement will not result in the occurrence of
any such reportable event, and (iv) all premiums to the Pension Benefit Guaranty
Corporation have been timely paid in full.
(j) There does not now exist, nor do any circumstances exist that could
result in, any Controlled Group Liability that would be a liability of Seller or
the Surviving Corporation following the Closing. Without limiting the generality
of the foregoing, neither Seller nor any ERISA Affiliate has engaged in any
transaction described in Section 4069 or Section 4204 of ERISA.
(k) Except as set forth in Schedule 2.13(k), neither the execution and
delivery of this Agreement, the Lend Lease Agreement and the Manhattan Towers
Agreement, nor the consummation of the transactions contemplated hereby and
thereby (either alone or in conjunction with any other event) will result in,
cause the accelerated vesting or delivery of, or increase the amount or value of
any payment or benefit to any employee of Seller or of any Subsidiary.
(l) Except as set forth in Schedule 2.13(l), each of the Plans has been
operated and administered in all material respects in accordance with the terms
of the Plan and all applicable laws.
(m) Except as set forth on Schedule 2.13(m), with respect to each of the
Plans, Seller or any ERISA Affiliate is not obligated to continue any such Plan
beyond the Closing Date.
(n) Each of the Pension Plans intended to be "qualified" within the meaning
of Code Section 401(a) is so qualified. Each Plan that is intended to qualify
for favorable tax treatment under Code Section 125 so qualifies and has been
operated in material compliance with Code Section 125.
(o) There is sufficient liquidity of assets in each of the funded Plans to
promptly pay for the benefits earned and other liabilities owed under such Plan.
With respect to each of the Plans, no insurance contract, annuity contract, or
other agreement or arrangement with any financial or other organization would
impose any penalty, discount or other reduction on account of the withdrawal of
assets from such organization or the change in the investment of such assets.
(p) All Form 5500s for each Plan required to be filed by Seller in the last
six (6) years have been filed.
2.14 Labor Matters. None of Seller nor any of the Subsidiaries 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.
Except for the matters described in Schedule 2.14 (none of which matters would,
individually or in the aggregate with all other such matters, reasonably be
expected to have a Material Adverse Effect), there is no unfair labor practice
or labor arbitration proceeding pending or, to the knowledge of Seller,
threatened against Seller or any of the Subsidiaries. To the knowledge of
Seller, there are no organizational efforts with respect to the formation of a
collective bargaining unit presently being made or threatened involving
employees of Seller or of any of the Subsidiaries.
2.15 No Payments to Employees, Officers or Directors. Schedule 2.15
contains a true and complete list of all cash and noncash payments which will
become payable to each employee, officer or director of Seller or any Subsidiary
as a result of or in connection with the Merger, the Lend Lease Transaction or
the Manhattan Towers Transaction or those transactions taken as a whole. Except
as set forth in Schedule 2.15, there is no employment or severance contract or
other agreement requiring payments, cancellation of indebtedness or other
obligations to be made or satisfied on a change of control or otherwise as a
result of or in connection with the Merger, the Lend Lease Transaction or the
Manhattan Towers Transaction or those transactions taken as a whole, with
respect to any employee, officer or director of Seller or any Subsidiary.
2.16 Insurance. Seller maintains insurance policies covering the assets,
business, equipment, properties, operations, employees, officers, managers, and
directors of Seller and of each of the Subsidiaries
B-25
<PAGE> 100
(collectively, the "Insurance Policies") which are of a type and in amounts
customarily carried by persons similar in size to Seller conducting businesses
similar to those of Seller. There is no material claim by Seller or by any of
the Subsidiaries pending under any of the Insurance Policies as to which
coverage has been questioned, denied or disputed by any underwriter of such
policy.
2.17 Proxy Statement; Additional Filings. The Proxy Statement and the
Additional Filings (both as defined in Section 5.1(a)) and all of the
information included or incorporated by reference therein (other than any
information supplied or to be supplied by Parent or Buyer for inclusion or
incorporation by reference therein) will not, as of the date such Proxy
Statement is first made available to the shareholders of Seller or as of the
date the Additional Filings are filed, and as of the time of the meeting of the
shareholders of Seller in connection with the transactions contemplated hereby,
contain any untrue statement of a material fact or omit 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 are made, not
misleading. The Proxy Statement and the Additional Filings will comply as to
form in all material respects with the provisions of the Exchange Act and the
rules and regulations promulgated by the SEC thereunder, except that no
representation is made by Seller with respect to the information supplied by
Parent or Buyer for inclusion or incorporation by reference therein.
2.18 Takeover Statutes. No "fair price," "moratorium," "control share
acquisition" or other antitakeover statute or similar statute or regulation
enacted by the State of Texas applies to the transactions contemplated by this
Agreement.
2.19 Opinion of Financial Advisor. Seller has received the opinion of
Chase Securities Inc. dated the date of this Agreement, a signed copy of which
will be provided to Parent and Buyer, to the effect that, on the date hereof,
the Common Consideration to be received by the holders of Trust Common Shares
pursuant to the Merger is fair to such holders from a financial point of view.
2.20 Knowledge Defined. As used herein, the phrase "to Seller's
knowledge" (or words of similar import) means the knowledge of those individuals
identified in Schedule 2.20, and includes any facts, matters or circumstances
set forth in any written notice from any Government Authority or any other
material notice received by any such individual with respect to Seller or any
Subsidiary, and also includes any matter of which Parent or Buyer informs Seller
in writing.
2.21 Investment Company Act of 1940. Neither Seller nor any of the
Subsidiaries is, or at the Effective Time will be, required to be registered
under the Investment Company Act of 1940, as amended (the "1940 Act").
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF PARENT AND BUYER
Parent and Buyer hereby jointly and severally represent and warrant to
Seller as follows:
3.1 Organization. Parent is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of Ohio. Buyer is a
corporation duly incorporated, validly existing and in good standing under the
laws of the State of Texas. Each of Parent and Buyer has all requisite corporate
power and authority to own, operate, lease and encumber its properties and carry
on its business as now conducted, and to enter into this Agreement and to
perform its obligations hereunder.
3.2 Due Authorization. The execution, delivery and performance of this
Agreement and of all of the documents and instruments delivered in connection
herewith by each of Parent and Buyer has been duly and validly authorized by all
necessary corporate action on the part of Parent and Buyer. Assuming this
Agreement and such other documents and instruments constitute binding
obligations of Seller, this Agreement is, and the other documents and
instruments required hereby will be, when executed and delivered by Parent and
Buyer, the valid and binding obligations of each of Parent and Buyer,
enforceable against Parent and Buyer in accordance with their respective terms
subject only to bankruptcy, insolvency, reorganization, moratorium or similar
laws at the time in effect affecting the enforceability or right of
B-26
<PAGE> 101
creditors generally and to general equitable principles (regardless of whether
such enforceability is considered in a proceeding in equity or at law). The
Board of Directors of Buyer has approved this Agreement and the transactions
contemplated hereby in accordance with Texas law. The Board of Directors of
Parent has authorized and approved and declared advisable this Agreement and the
transactions contemplated hereby in accordance with Ohio law.
3.3 No Conflicts: No Defaults, Required Filings and Consents. Neither the
execution and delivery by Parent or Buyer of this Agreement, nor the
consummation by Parent or Buyer of the transactions contemplated hereby and
thereby in accordance with the terms hereof and thereof, will:
(a) conflict with or result in a breach of any provision of the either the
Parent's or Buyer's articles of incorporation, as amended, the Parent's code of
regulations or the Buyer's bylaws;
(b) violate or conflict with any statute, regulation, judgment, order,
writ, decree or injunction applicable to Parent or Buyer or to any their
subsidiaries;
(c) except as described in Schedule 3.3(c), violate or conflict with or
result in a breach of any provision of, or constitute a default (or any event
which, with notice or lapse of time or both, would constitute a default) under,
or result in the termination or in a right of termination or cancellation of, or
accelerate the performance required by, or result in the creation of any Lien
upon any of the properties of Parent or Buyer or of any of their subsidiaries
under, or result in being declared void, voidable or without further binding
effect, any of the terms, conditions or provisions of any note, bond, mortgage,
indenture, deed of trust or any franchise, permit, lease, contract, agreement or
other instrument, commitment or obligation to which Parent or Buyer or any of
their subsidiaries is a party, or by which Parent or Buyer or any of their
subsidiaries or any of their properties is bound or affected; or
(d) require any consent, approval or authorization of, or declaration,
filing or registration with, any Government Authority, other than the Articles
of Merger pursuant to Section 1.3 hereof and the Filings, and any filings
required to be made with the Texas State Department of Assessments and Taxation,
if any, or any national securities exchange on which the Parent's common shares
are listed.
3.4 Proxy Statement; Additional Filings. None of the information supplied
or to be supplied by Parent or Buyer for inclusion or incorporation by reference
in the Proxy Statement or in the Additional Filings, as of the date the Proxy
Statement is mailed to the shareholders of Seller or as of the date the
Additional Filings are filed and as of the time of the meeting of the
shareholders of Seller in connection with the transactions contemplated hereby,
will contain any untrue statement of a material fact or omit 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 are made, not
misleading.
3.5 Investment Company Matters. Neither Parent nor Buyer is, and after
giving effect to the consummation of Merger neither Parent nor Buyer will be, an
"investment company" or an entity "controlled" by an "investment company," as
such terms are defined in the Investment Company Act of 1940, as amended.
3.6 Capital Structure. Immediately prior to the Effective Time, Parent
will be the sole shareholder of Buyer and own 10,000 shares of Buyer's common
stock. Other than as described in the immediately preceding sentence and except
for Parent's understandings with approximately 100 employees of Parent with
regard to the issuance to those employees of Surviving Company preferred stock
immediately following the Effective Time, at the Effective Time, there will be
no outstanding equity securities or other equity interests, debt securities or
derivative securities of Buyer or any oral or written agreements regarding the
issuance of same. There are no outstanding securities or assets convertible
into, exercisable for or exchangeable for any debt, equity or derivative
securities of Buyer or any oral or written agreements regarding the issuance of
same.
3.7 Litigation; Compliance With Law. Except as disclosed in Schedule 3.7,
there is no Action pending or, to Parent's or Buyer's knowledge, threatened
against either Parent or Buyer or any of their subsidiaries that would question
the validity of this Agreement or any action taken or to be taken in
B-27
<PAGE> 102
connection herewith, or that would, individually or in the aggregate, reasonably
be expected to result in a Buyer or Parent Material Adverse Effect that would
affect their ability to perform their obligations under this Agreement.
3.8 Funding. Parent and Buyer have cash or financing commitments (as
described in Schedule 3.8) sufficient to enable them to perform their
obligations hereunder.
ARTICLE 4
COVENANTS
4.1 Acquisition Proposals. Prior to the Effective Time or the earlier
termination of this Agreement in accordance with its terms, Seller agrees that:
(a) neither it nor any of the Subsidiaries shall initiate, solicit or
knowingly encourage, directly or indirectly, any inquiries or the making or
implementation of any proposal or offer (including, without limitation, any
proposal or offer to its shareholders) with respect to a merger, acquisition,
tender offer, exchange offer, consolidation, sale of assets or similar
transaction involving all or any significant portion of the assets or any equity
securities of Seller or any of the Subsidiaries, other than the transactions
contemplated by this Agreement, the Lend Lease Agreement and the Manhattan
Towers Agreement (any such proposal or offer being hereinafter referred to as an
"Acquisition Proposal") or engage in any negotiations concerning or provide any
confidential information or data to, or have any discussions with, any person
relating to an Acquisition Proposal, or otherwise facilitate any effort or
attempt to make or implement an Acquisition Proposal;
(b) it shall direct and use its reasonable best efforts to cause its
officers, Board Managers, employees, agents and financial advisors not to engage
in any of the activities described in Section 4.1(a) except to the extent
expressly permitted by the proviso below;
(c) it will immediately cease and cause to be terminated any existing
activities, discussions or negotiations with any parties conducted heretofore
with respect to any of the foregoing; and
(d) it will notify Buyer promptly if Seller receives any such inquiries or
proposals, or any requests for such information, or if any such negotiations or
discussions are sought to be initiated or continued with it;
provided, however, that nothing contained in this Agreement shall prohibit the
Board of Managers (or the officers, Board Managers, employees, agents or
financial advisors of Seller acting at the direction of the Board of Managers)
from (i) furnishing information to or entering into discussions or negotiations
with, any person or entity that makes an unsolicited Acquisition Proposal, if,
and only to the extent that (x) the Board of Managers (excluding Parent's
designees) determines in good faith following consultation with counsel and with
Seller's financial advisors that such action is required for the Board of
Managers to comply with its duties to shareholders imposed by law or such
proposal is or could reasonably be expected to result in, a Superior Acquisition
Proposal (as hereinafter defined), (y) prior to furnishing such information to,
or entering into discussions or negotiations with, such person or entity, Seller
provides written notice to Parent and Buyer to the effect that it is furnishing
information to, or entering into discussions with, such person or entity, and
(z) subject to any confidentiality agreement with such person or entity, Seller
keeps Parent and Buyer informed of the status (not the terms) of any such
discussions or negotiations; or (ii) to the extent applicable, taking and
disclosing to Seller's shareholders a position contemplated by Rules 14d-9 and
14e-2 promulgated under the Exchange Act with regard to an Acquisition Proposal.
Nothing in this Section 4.1 shall (1) permit Seller to terminate this Agreement
(except as specifically provided in Article 7 hereof), (2) permit Seller to
enter into an agreement with respect to an Acquisition Proposal during the term
of this Agreement (other than a confidentiality agreement in customary form
executed as provided above) or (3) affect any other obligation of Seller under
this Agreement; provided, however, that the Board of Managers may approve and
recommend a Superior Acquisition Proposal and, in connection therewith, withdraw
or modify its approval or recommendation of this Agreement and the Merger. Any
disclosure that the Board of Managers may be
B-28
<PAGE> 103
compelled to make with respect to the receipt of an Acquisition Proposal in
order to comply with its duties to shareholders of Seller or comply with
applicable law will not constitute a violation of this Section 4.1. As used
herein, "Superior Acquisition Proposal" means a bona fide Acquisition Proposal
made by a third party which the Board of Managers (excluding Parent's designees)
(or a duly constituted committee thereof charged with considering Acquisition
Proposals) determines in good faith following consultation with counsel and with
Seller's financial advisors to be more favorable to Seller's shareholders from a
financial point of view than the Merger and which the Board of Managers
(excluding Parent's designees) (or any such committee) determines is reasonably
capable of being financed and consummated.
4.2 Conduct of Seller's Business Pending Merger. Prior to the Effective
Time, except as consented to in writing by Parent and Buyer (which consent or
withholding of consent shall be communicated by Parent and Buyer to Seller
within seven (7) business days of the date of the request for such consent;
provided, however, if Parent and Buyer do not respond to the request for consent
within such seven (7) day period, they shall be deemed to have consented to such
request), as expressly provided for in this Agreement, the Lend Lease Agreement
or the Manhattan Towers Agreement, Seller shall, and shall cause each of the
Subsidiaries to:
(a) conduct its business only in the usual, regular and ordinary course and
in substantially the same manner as heretofore and take all action necessary to
continue to qualify as a REIT;
(b) use its commercially reasonable efforts to preserve intact its business
organization and goodwill and keep available the services of its officers and
key employees;
(c) confer on a regular basis with one or more representatives of Parent
and Buyer to report operational matters of materiality and, subject to Section
4.1, any proposal to engage in material transactions;
(d) promptly notify Parent and Buyer of any material emergency or other
material change in the condition (financial or otherwise), business, properties,
assets, liabilities or the normal course of its businesses or in the operation
of its properties, or of any material governmental complaints, investigations or
hearings (or communications indicating that the same may be contemplated);
(e) promptly deliver to Parent and Buyer true and correct copies of any
report, statement or schedule filed with the SEC subsequent to the date of this
Agreement and prior to the Closing;
(f) maintain its books and records in accordance with GAAP consistently
applied and not change in any material manner any of its methods, principles or
practices of accounting in effect at December 31, 1999, except as may be
required by the SEC, applicable law or GAAP;
(g) duly and timely file all material reports, tax returns and other
documents required to be filed with federal, state, local and other authorities,
subject to extensions permitted by law, so long as Seller notifies Parent and
Buyer that it is availing itself of such extensions and so long as such
extensions do not adversely affect Seller's status as a qualified REIT under the
Code;
(h) not make or rescind any material express or deemed election relative to
Taxes that would adversely affect Seller's status as a REIT or the status of any
Subsidiary as a partnership for federal income tax purposes or as a qualified
REIT subsidiary under Section 856(i) of the Code, as the case may be;
(i) make reasonably budgeted capital expenditures in the ordinary course of
business, but not acquire, enter into any option to acquire, or exercise an
option or contract to acquire, additional real property, incur additional
indebtedness except for working capital under its revolving lines of credit,
encumber assets or commence construction of, or enter into any agreement or
commitment to develop or construct, other real estate projects, except for
activities necessary to proceed with the construction of the projects which have
been budgeted and are disclosed in Schedule 2.11(i), in accordance with the
agreements in existence on the date of this Agreement and previously furnished
to Parent and Buyer (the "Development Agreements");
B-29
<PAGE> 104
(j) not amend its Trust Declaration or Bylaws, or the articles or
certificate of incorporation, bylaws, code of regulations, partnership
agreement, operating agreement or joint venture agreement or comparable charter
or organization document of any Subsidiary;
(k) except as contemplated by this Agreement, make no change in the number
of shares of beneficial interest, membership interests or units of limited
partnership interest issued and outstanding, other than pursuant to the exercise
of options disclosed in Schedule 2.3(b);
(l) grant no option or other right or commitment relating to its or any
Subsidiary's shares of beneficial interest (including annual grants to Board
Managers), membership interests or units of limited partnership interest or any
security convertible into its or any subsidiary's shares of beneficial interest,
membership interests or units of limited partnership interest, or any security
the value of which is measured by its or any Subsidiary's shares of beneficial
interest, or any security subordinated to the claim of its or any Subsidiary's
general creditors, and not amend or waive any rights under any outstanding
Options;
(m) except as provided in Section 5.8 and in connection with the use of
Trust Common Shares to pay the exercise price or tax withholding in connection
with equity-based employee benefit plans by the participants therein, not (i)
authorize, declare, set aside or pay any dividend or make any other distribution
or payment with respect to any Trust Common Shares except as may be required to
preserve the status of Seller as a REIT under the Code or to prevent Seller from
having to pay federal income tax, or (ii) directly or indirectly redeem,
purchase or otherwise acquire any shares of capital stock, membership interests
or units of partnership interest in Seller or any Subsidiary or any option,
warrant or right to acquire, or security convertible into, shares of beneficial
interest, membership interests, or units of partnership interest in Seller or
any Subsidiary, except for redemptions of Trust Common Shares required under
Article V of Seller's Trust Declaration in order to preserve the status of
Seller as a REIT under the Code;
(n) not sell, lease, mortgage, subject to Lien or otherwise dispose of any
of the Properties, except for the sale of Properties which are the subject of
binding contracts to sell in existence on the date of this Agreement and
disclosed in Schedule 2.11(g) and except for leases approved by Buyer in
accordance with this Section 4.2(n) (Buyer's approval not to be unreasonably
withheld, conditioned or delayed);
(o) not sell, lease, mortgage, subject to any material Lien or otherwise
dispose of any of its personal property or intangible property;
(p) not make any loans, advances or capital contributions to, or
investments in, any other person, other than loans, advances and capital
contributions to Subsidiaries in existence on the date hereof;
(q) not pay, discharge or satisfy any claims, liabilities or obligations
(absolute, accrued, asserted or unasserted, contingent or otherwise) which are
material to Seller and the Subsidiaries taken as a whole, other than the
payment, discharge or satisfaction, in the ordinary course of business
consistent with past practice or in accordance with their terms, of liabilities
reflected or reserved against in, or contemplated by, the most recent
consolidated financial statements (or the notes thereto) furnished to Parent and
Buyer or incurred in the ordinary course of business consistent with past
practice;
(r) not enter into any Commitment for the purchase of any real estate or
which may result in total payments or liability by or to it in excess of
$500,000 or aggregate Commitments in excess of $1,000,000 except (i) purchases
of real estate necessary to complete a like kind exchange pursuant to Section
1031 of the Code, if such purchase has been previously approved by Parent and
Buyer, such approval not to be unreasonably withheld or delayed, and (ii)
capital expenditures disclosed in Schedule 2.11(i);
(s) not guarantee the indebtedness of another person, enter into any "keep
well" or other agreement to maintain any financial statement condition of
another person or enter into any arrangement having the economic effect of any
of the foregoing;
(t) not enter into any Commitment with any officer, Board Manager, director
or Affiliate of Seller or any of the Subsidiaries, other than as contemplated by
Section 4.4(a) below;
B-30
<PAGE> 105
(u) not increase any compensation or enter into or amend any employment or
other agreement with any of its officers, directors or employees, other than
with respect to (i) incentive compensation payments to be paid to Seller's
officers and employees relating to 2000 performance as contemplated by the
agreements referenced in Section 4.4(a) below, and (ii) base pay increases and
pro-rated incentive compensation payments to Seller's employees who do not hold
dividend equivalent rights relating to 2001 performance.
(v) not adopt any new employee benefit plan or amend any existing plans or
rights, except for the changes set forth or reflected in the agreements
referenced in Section 4.4(a) below or which are required by law and changes
which are not more favorable to participants than provisions presently in
effect;
(w) not change the ownership of any of the Subsidiaries;
(x) not agree, commit or arrange to take any action prohibited by this
Section 4.2; and
(y) not change the methods, principles, practices or procedures used to
calculate the amount of the items set forth in Section 6.2(j)-(m).
4.3 Other Actions. Each of Seller on the one hand and Parent and Buyer on
the other hand shall not knowingly take, and shall use commercially reasonable
efforts to cause their subsidiaries not to take, any action that would result in
(a) any of the representations and warranties of such party (without giving
effect to any "knowledge" qualification) set forth in this Agreement that are
qualified as to materiality becoming untrue, (b) any of such representations and
warranties (without giving effect to any "knowledge" qualification) that are not
so qualified becoming untrue in any material respect, or (c) except as
contemplated by Section 4.1, any of the conditions to the Merger set forth in
Article 6 not being satisfied.
4.4 Releases.
(a) Prior to the Closing, Seller agrees to deliver to Parent and Buyer a
Compromise, Settlement and Mutual Release, substantially in the form attached
hereto as Exhibit C, from each officer and employee who is entitled to
severance, change of control or other similar payments in connection with the
transactions contemplated by this Agreement and who are listed in Schedule
4.4(a).
(b) Prior to the Closing, Seller agrees to deliver to Parent and Buyer
written agreements with Salomon Smith Barney Inc. ("SSB") and Prudential
Securities Incorporated ("Prudential") regarding the settlement of all sums due
and owing to SSB and Prudential in connection with the Merger, the Lend Lease
Transaction and the Manhattan Towers Transaction. The agreements shall release
Seller from any claims or obligations (excluding any ongoing indemnity
obligations) arising from or relating to engagement letters or investment
banking relationships between Seller or any Subsidiary and SSB or Prudential.
(c) Prior to Closing, Seller agrees to deliver to Parent and Buyer final
invoices from Locke Liddell & Sapp LLP, Ernst & Young LLP and any other
professional advisors of Seller for services rendered in connection with the
Merger, the Manhattan Towers Transaction and the Lend Lease Transaction, which
invoices may include estimated amounts for Closing and post-closing matters, and
agrees that the amounts invoiced will be accounted for in the calculation of the
Transaction Expenses and will be paid on or prior to Closing by Seller.
4.5 DRIP. Seller agrees to terminate its DRIP as soon as practicable
after the date of this Agreement.
B-31
<PAGE> 106
ARTICLE 5
ADDITIONAL COVENANTS
5.1 Preparation of the Proxy Statement; Seller Shareholders Meeting.
(a) The parties shall cooperate and promptly prepare, and Seller shall file
with the SEC as soon as practicable a proxy statement with respect to the
meeting of the shareholders of Seller in connection with the Merger and the Lend
Lease Transaction (the "Proxy Statement"). The parties shall cooperate and
promptly prepare and the appropriate party shall file with the SEC as soon as
practicable any other filings required under the Exchange Act ("Additional
Filings"), including without limitation, a Rule 13e-3 Transaction Statement on
Schedule 13E-3 with respect to the Merger to be filed jointly by Seller, Parent
and Buyer, together with any required amendments thereto. Each of Seller, Parent
and Buyer agrees that the information provided by it for inclusion in the Proxy
Statement, the Additional Filings, and each amendment or supplement thereto, at
the time of mailing or filing thereof and at the time of the meeting of
shareholders of Seller, will not include an untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading. Seller will use its reasonable best efforts, and Parent
and Buyer will cooperate with Seller, to (i) file a preliminary Proxy Statement
with the SEC and (ii) cause the Proxy Statement to be mailed to Seller's
shareholders, in each case, as promptly as practicable (including clearing the
Proxy Statement with the SEC). The parties will notify one another promptly of
the receipt of any comments from the SEC and of any request by the SEC for
amendments or supplements to the Proxy Statement or the Additional Filings or
for additional information and will supply one another with copies of all
correspondence between such party or any of its representatives and the SEC with
respect to the Proxy Statement or the Additional Filings. The parties shall
cooperate to cause the Proxy Statement and any Additional Filings to comply in
all material respects with all applicable requirements of law. Whenever any
event occurs which is required to be set forth in an amendment or supplement to
the Proxy Statement or the Additional Filings, Seller on the one hand, and
Parent and Buyer on the other hand, shall promptly inform the other of such
occurrence and cooperate in filing with the SEC and mailing to the shareholders
of Seller, as applicable, such amendment or supplement to the Proxy Statement or
Additional Filing. Seller shall use its reasonable best efforts to cause the
other parties to the Lend Lease Agreement and the Manhattan Towers Agreement to
take such actions and provide such cooperation as may be necessary to ensure
that the Proxy Statement, the Additional Filings, and each amendment or
supplement thereto, at the time of mailing or filing thereof and at the time of
the meeting of shareholders of Seller, will not include an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, and to facilitate Seller's compliance with
its obligations under this Section 5.1.
(b) To the extent the Proxy Statement contains financial statements of
Seller, it is a condition to the mailing of the Proxy Statement and the making
of the Additional Filings that if they so request, Parent and Buyer shall have
received a "comfort" letter or an "agreed upon procedures" letter from Ernst &
Young LLP, independent public accountants for Seller, of the kind contemplated
by the Statement of Auditing Standards with respect to Letters to Underwriters
promulgated by the American Institute of Certified Public Accountants (the
"AICPA Statement"), dated as of the date on which the Proxy Statement is to be
mailed to the shareholders of Seller, addressed to Parent and Buyer, in form and
substance reasonably satisfactory to Parent and Buyer, concerning the procedures
undertaken by Ernst & Young LLP with respect to the financial statements and
information of Seller and the Subsidiaries contained in the Proxy Statement and
the Additional Filings and the other matters contemplated by the AICPA Statement
and otherwise customary in scope and substance for letters delivered by
independent public accountants in connection with transactions such as those
contemplated by this Agreement.
(c) Seller will, as soon as practicable following the date of this
Agreement, duly call, give notice of, convene and hold a meeting of its
shareholders, such meeting to be held no sooner than twenty (20) business days
nor later than forty-five (45) days following the date the Proxy Statement is
mailed to
B-32
<PAGE> 107
the shareholders of Seller (the "Seller Shareholders Meeting") for the purpose
of obtaining Seller's shareholders' approval of the Merger and the Lend Lease
Transaction. Seller shall be required to hold the Seller Shareholders Meeting,
regardless of whether the Board of Managers has withdrawn, amended or modified
its recommendation that its shareholders adopt this Agreement and approve the
Merger and the Lend Lease Transaction, unless this Agreement has been terminated
pursuant to Section 7.1. Seller will, through the Board of Managers, recommend
that its shareholders adopt this Agreement and approve the transactions
contemplated hereby, including the Merger, and approve the Lend Lease
Transaction and the Manhattan Towers Transaction; however, prior to the Seller
Shareholders Meeting, such recommendation may be withdrawn, modified or amended
if Seller shall have received a Superior Acquisition Proposal, but only to the
extent expressly permitted under Section 4.1.
(d) If, on the date for the Seller Shareholders Meeting established
pursuant to Section 5.1(c) of this Agreement, Seller has not received duly
executed proxies which, when added to the number of votes represented in person
at the meeting by persons who intend to vote to adopt this Agreement and approve
the Lend Lease Transaction, will constitute a sufficient number of votes to
adopt this Agreement and approve those transactions (but less than a majority of
the outstanding Trust Common Shares have indicated their intention to vote
against, or have submitted duly executed proxies voting against, the adoption of
this Agreement and approval of those transactions), then Seller shall recommend
the adjournment of its shareholders meeting until the date ten (10) days after
the originally scheduled date of the shareholders meeting.
5.2 Access to Information: Confidentiality. Prior to the Effective Time,
subject to the requirements of confidentiality agreements with third parties,
Seller shall, and shall cause each of the Subsidiaries to, afford to Parent and
Buyer and to their officers, employees, accountants, counsel, financial advisors
and other representatives, upon reasonable advance notice, reasonable access
during normal business hours to all of Seller's properties, books, contracts,
commitments, personnel and records and, during such period, Seller shall, and
shall cause each of the Subsidiaries to, furnish promptly to Parent and Buyer
all other information concerning its business, properties and personnel as
Parent and Buyer may reasonably request. Parent and Buyer will hold, and will
use commercially reasonable efforts to cause their officers, employees and
representatives to hold, any non-public information in confidence.
5.3 Reasonable Efforts; Notification.
(a) Subject to the terms and conditions herein provided, Seller, on the one
hand and Parent and Buyer on the other hand shall: (i) use all reasonable best
efforts to cooperate with one another in (A) determining which filings are
required to be made prior to the Effective Time with, and which consents,
approvals, permits or authorizations are required to be obtained prior to the
Effective Time from, governmental or regulatory authorities of the United
States, the several states and foreign jurisdictions and any third parties in
connection with the execution and delivery of this Agreement, and the
consummation of the transactions contemplated hereby and (B) timely making all
such filings and timely seeking all such consents, approvals, permits and
authorizations; (ii) use all reasonable best efforts (other than the payment of
money) to obtain in writing any consents required from third parties to
effectuate the Merger, such consents to be in form reasonably satisfactory to
Seller and Parent and Buyer; and (iii) use all reasonable best efforts to take,
or cause to be taken, all other action and do, or cause to be done, all other
things necessary, proper or appropriate to consummate and make effective the
transactions contemplated by this Agreement. If at any time after the Effective
Time any further action is necessary or desirable to carry out the purpose of
this Agreement, the Surviving Company shall take all such necessary action.
(b) Seller shall give prompt notice to Parent and Buyer, and Parent and
Buyer shall give prompt notice to Seller, (i) if any representation or warranty
made by it contained in this Agreement that is qualified as to materiality
becomes untrue or inaccurate in any respect or any such representation or
warranty that is not so qualified becomes untrue or inaccurate in any material
respect or (ii) of the failure by it to comply with or satisfy in any material
respect any covenant, condition or agreement to be complied with or satisfied by
it under this Agreement, but no such notification shall affect the
B-33
<PAGE> 108
representations, warranties, covenants or agreements of the parties or the
conditions to the obligations of the parties under this Agreement.
5.4 Public Announcements. Parent, Buyer and Seller will consult with each
other before issuing, and provide each other the opportunity to review and
comment upon, any press release or other written public statements with respect
to the transactions contemplated by this Agreement, and shall not issue any such
press release or make any such written public statement prior to such
consultation, except as may be required by applicable law, court process or by
obligations pursuant to any listing agreement with any national securities
exchange. The parties agree that the initial press release to be issued with
respect to the transactions contemplated by this Agreement will be in the form
agreed to by the parties hereto prior to the execution of this Agreement.
5.5 Transfer and Gains Taxes. Parent, Buyer and Seller shall cooperate in
the preparation, execution and filing of all returns, questionnaires,
applications or other documents regarding any real property transfer or gains,
sales, use, transfer, value added stock transfer and stamp taxes, any transfer,
recording, registration and other fees and any similar taxes which become
payable in connection with the transactions contemplated by this Agreement
(together with any related interests, penalties or additions to tax, "Transfer
and Gains Taxes").
5.6 Benefit Plans and Other Employee Arrangements.
(a) None of Parent, Buyer or the Surviving Company has any obligation to
continue the employment of any employee of Seller after the Effective Time,
other than any such obligation arising under any agreement other than this
Agreement or imposed by law.
(b) After the Effective Time, all employees of Seller who are not employed
by the Surviving Company shall be eligible to receive health care continuation
coverage, as provided pursuant to the continuation coverage under Section 601,
et seq., of ERISA, under the group health plan maintained by Seller immediately
prior to Closing; provided, however, that if such plan is terminated, the
Surviving Company or the Parent shall provide healthcare continuation benefits
under the terms of a group health plan maintained for employees of the Surviving
Company or the Parent, as applicable, but only to the extent required by Section
601 et seq., of ERISA, under the group health plan maintained by Seller prior to
Closing (the "Former Employees"). After the Effective Time, the Surviving
Company or Parent shall fulfill Seller's responsibilities to provide
continuation coverage for the Former Employees but only to the extent required
under Section 601, et seq., of ERISA.
5.7 Indemnification From and After the Effective Time.
(a) From and after the Effective Time, the Surviving Company shall provide
exculpation and indemnification for each person who is now or has been at any
time prior to the date hereof or who becomes prior to the Effective Time, an
officer, employee, Board Manager or director of Seller or any Subsidiary (the
"Indemnified Parties") which is the same as the exculpation and indemnification
provided to the Indemnified Parties by Seller and the Subsidiaries (including
advancement of expenses) immediately prior to the Effective Time in the Trust
Declaration and Bylaws, in any separate indemnification agreements (each as
listed on Schedule 5.7(a) hereto) between Seller and its officers and Board
Managers, or in any Employee Benefit Plan or Pension Plan, in each case as in
effect on the date hereof or pursuant to the REIT Act; provided, that such
exculpation and indemnification covers only actions or omissions on or prior to
the Effective Time, including, without limitation, all transactions contemplated
by this Agreement.
(b) In addition to the rights provided in Section 5.7(a) above, in the
event of any threatened or actual claim, action, suit, proceeding or
investigation, whether civil, criminal or administrative, including, without
limitation, any action by or on behalf of any or all security holders of Seller,
Surviving Company, Parent or Buyer, or any Subsidiary or Buyer Subsidiary, or by
or in the right of Seller, Surviving Company, Parent or Buyer, or any Subsidiary
or Buyer Subsidiary, or any claim, action, suit, proceeding or investigation in
which any person who is now, or has been, at any time prior to the date hereof,
or who becomes prior to the Effective Time, an officer, Board Manager, employee
or director of Seller or any
B-34
<PAGE> 109
Subsidiary (the "Indemnified Parties") is, or is threatened to be, made a party
based in whole or in part on, or arising in whole or in part out of, or
pertaining to (i) the fact that he is or was an officer, employee, Board Manager
or director of Seller, Surviving Company, or any of the Subsidiaries or any
action or omission or alleged action or omission by such person in his capacity
as an officer, employee, Board Manager or director of Seller, Surviving Company,
or of any of the Subsidiaries, or (ii) this Agreement, the Lend Lease Agreement
and the Manhattan Towers Agreement or the transactions contemplated hereby and
thereby, whether in any case asserted or arising before or after the Effective
Time, Parent, Buyer, Seller, Surviving Company and the Indemnified Parties
hereby agree to cooperate in all reasonable respects in the defense of such
claim, action, suit, proceeding or investigation. It is understood and agreed
that, from and after the Effective Time, the Surviving Company shall indemnify
and hold harmless, as and to the full extent permitted by applicable law, each
Indemnified Party against any losses, claims, liabilities, expenses (including
reasonable attorneys' fees and expenses), judgments, fines and amounts paid in
settlement in accordance herewith in connection with any such threatened or
actual claim, action, suit, proceeding or investigation. In addition, after the
Effective Time, in the event of any such threatened or actual claim, action,
suit, proceeding or investigation, the Surviving Company shall promptly pay in
advance reasonable expenses and costs incurred by each Indemnified Person as
they become due and payable in advance of the final disposition of the claim,
action, suit, proceeding or investigation to the fullest extent and in the
manner permitted by law. No Indemnified Party will be required to consent to
entry of any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect to such claim or
litigation. Notwithstanding the foregoing, the Surviving Company shall not be
obligated to advance any expenses or costs prior to receipt of an undertaking by
or on behalf of the Indemnified Party, such undertaking to be accepted without
regard to the creditworthiness of the Indemnified Party, to repay any expenses
advanced if it shall ultimately be determined that the Indemnified Party is not
entitled to be indemnified against such expense. Notwithstanding anything to the
contrary set forth in this Agreement, the Surviving Company (x) shall not be
liable for any settlement effected without its prior written consent, and (y)
shall not have any obligation hereunder to any Indemnified Party to the extent
that a court of competent jurisdiction shall determine in a final and
nonappealable order that such indemnification is prohibited by applicable law.
In the event of a final and nonappealable determination by a court that any
payment of expenses is prohibited by applicable law, the Indemnified Party shall
promptly refund to the Surviving Company the amount of all such expenses
theretofore advanced pursuant hereto.
(c) Any Indemnified Party hereunder will (i) give prompt notice to the
Surviving Company of any claim which arises from or after the Effective Time
with respect to which it seeks indemnification and (ii) permit the Surviving
Company to assume the defense of such claim with counsel reasonably satisfactory
to a majority of the Indemnified Parties; provided, however, if the Indemnified
Parties include the Parent's designees who serve or served as Board Managers,
such Parent designees shall have no vote in the selection of or approval of
counsel for all of the Indemnified Parties. In connection with the selection of
counsel to represent the Indemnified Parties in connection with clause (ii)
above, the Surviving Corporation shall propose counsel to represent the
Indemnified Parties. The applicable Indemnified Parties shall have the right to
approve such counsel, but such approval shall not be unreasonably withheld. If
the proposed counsel is not approved, the Surviving Company shall continue to
propose counsel until counsel for the Surviving Company is approved by the
applicable Indemnified Parties. Any Indemnified Party shall have the right to
employ separate counsel and to participate in the defense of such claim, but the
fees and expenses of such counsel shall be at the expense of such person unless:
(x) the Surviving Company has agreed, in writing, to pay such fees or expenses;
(y) the Indemnifying Party shall have failed to assume the defense of such claim
after the receipt of notice from the Indemnified Party as required above and
failed to employ counsel reasonably satisfactory to a majority of the
Indemnified Parties (other than the DDR designees that are or were Board
Managers) or (z) based upon advice of counsel to such Indemnified Party and
concurrence therewith by counsel for the group of Indemnified Parties in such
matter, there shall be one or more defenses available to such Indemnified Party
that are not available to the Surviving Company or there shall exist conflicts
of interest between such Indemnified Party and the
B-35
<PAGE> 110
Surviving Company and/or the other Indemnified Parties (in which case, if the
Indemnified Party notifies the Surviving Company in writing that such
Indemnified Party elects to employ separate counsel at the expense of the
Surviving Company, the Surviving Company shall not have the right to assume the
defense of such claim on behalf of such Indemnified Party), in each of which
events the reasonable fees and expenses of such counsel (which counsel shall be
reasonably acceptable to the Surviving Company) shall be at the expense of the
Surviving Company.
(d) At or prior to the Effective Time, Seller shall purchase on or before
the Effective Time and thereafter the Surviving Company shall maintain in effect
until the sixth anniversary of the Effective Time, "run-off" directors' and
officers' liability insurance policy coverage for Seller's Board Managers and
officers which will provide the Board Managers and officers with coverage on
substantially similar terms as currently provided by Seller to such Board
Managers and officers. Seller and Buyer shall have the right to review and
approve any such policy, which approval shall not be unreasonably withheld.
(e) This Section 5.7 is intended for the irrevocable benefit of, and to
grant third party rights to, the Indemnified Parties and their successors,
assigns and heirs and shall be binding on the Indemnified Parties, Buyer, Seller
and all successors and assigns of Buyer and Seller. Each of the Indemnified
Parties shall be entitled to enforce the covenants contained in this Section 5.7
and Buyer and Seller acknowledge and agree that each Indemnified Party would
suffer irreparable harm and that no adequate remedy at law exists for a breach
of such covenants and such Indemnified Party shall be entitled to injunctive
relief and specific performance in the event of any breach of any provision in
this Section 5.7.
(f) In the event that the Surviving Company or any of its respective
successors or assigns consolidates with or merges into any other person and
shall not be the continuing or surviving corporation or entity of such
consolidation or merger, then, and in each such case, the successors and assigns
of such entity shall assume the obligations set forth in this Section 5.7, which
obligations are expressly intended to be for the irrevocable benefit of, and
shall be enforceable by, each Board Manager, director and officer and their
respective successors, assigns and heirs covered hereby.
(g) Seller represents and warrants that it has not created an
indemnification trust of the kind referred to in the indemnification agreements
listed on Schedule 5.7(a) and agrees that it will not create such a trust at or
prior to the Effective Time.
(h) The rights granted to the Indemnified Parties in this Section 5.7 are
in addition to any other rights to which the Indemnified Parties may be
entitled.
5.8 Declaration of Dividends and Distributions. From and after the date
of this Agreement, Seller shall not pay any dividend or make any distribution to
its shareholders without the prior written consent of Parent and Buyer, but the
written consent of Parent and Buyer shall not be required for the authorization
and payment of the Final Dividend (if any). The foregoing restrictions shall not
apply, however, to the extent a distribution by Seller is necessary for Seller
to maintain REIT status or to prevent Seller from having to pay federal income
tax; but, except with respect to the Final Dividend, in the event of such a
distribution, the aggregate cash consideration payable to holders of Trust
Common Shares in the Merger shall be reduced by the aggregate amount of such
distribution, and the Common Consideration per share shall be reduced
accordingly.
5.9 Outside Property Management Agreements. Seller will not, and will not
permit any of the Subsidiaries to, amend any property management agreement with
any party that is not an Affiliate of the Seller or the Subsidiaries (each, an
"Outside Property Management Agreement"). Seller will not, and will not permit
any of the Subsidiaries to, renew any Outside Property Management Agreement
except on terms which are the same as the existing Outside Property Management
Agreement or more favorable to Seller or the applicable Subsidiary than the
existing Outside Property Management Agreement.
5.10 Lend Lease and Manhattan Towers Transactions. Seller shall comply
with all of its obligations under the Lend Lease Agreement and under the
Manhattan Towers Agreement and shall use all reasonable best efforts to take, or
cause to be taken, all other action and do, or cause to be done, all
B-36
<PAGE> 111
other things necessary, proper or appropriate to consummate and make effective
the Lend Lease Transaction and the Manhattan Towers Transaction.
5.11 Parent Guarantee. Parent hereby guarantees the performance of
Buyer's and the Surviving Company's obligations under this Agreement, including,
without limitation, any such obligation arising under Section 5.7 of this
Agreement.
5.12 Share Purchase Agreement. If the Merger is not consummated by May
31, 2001 as a result of a breach by Parent or Buyer of any of its obligations
hereunder, Parent's and Seller's rights and obligations under Section 6.6 of the
Share Purchase Agreement dated July 30, 1998 between Parent and Seller, as
amended by Amendment No. One to Share Purchase Agreement dated as of September
14, 1998 between Parent and Seller, will be extended from November 20, 2000 by
the number of days between June 19, 2000 and the later of (i) the date on which
that breach occurs or (ii) the first date on which any Board Manager that is not
a designee of Parent becomes aware of the breach.
5.13 Lend Lease and Manhattan Towers Agreements. Seller shall not amend
the Lend Lease Agreement or the Manhattan Towers Agreement in any manner
whatsoever that affects the economic consequences or imposes any additional
obligations on AIP or any AIP Affiliates thereunder without Parent's prior
written consent. Seller shall provide Parent with immediate written notice of
any modification or amendment, including a copy thereof, to the Lend Lease
Agreement or the Manhattan Towers Agreement.
5.14 Voting Agreement by Parent. Parent hereby agrees that it shall vote
all Trust Common Shares owned, directly or indirectly, of record or
beneficially, by it and shall cause each of its Affiliates (excluding
individuals, but including, but not limited, to Buyer to vote all Trust Common
Shares owned, directly or indirectly, of record or beneficially, by them in
favor of the Merger and in favor of the transactions contemplated by the Lend
Lease Agreement. The parties agree that any breach of this Section 5.14 by
Parent would result in irreparable damage to Seller inadequately compensable in
damages; therefore, this Section 5.14 shall be specifically enforceable, and any
breach or threatened breach of this Section 5.14 will be the proper subject of a
temporary or permanent injunction or restraining order. Further, each party
hereto and its successors, heirs, representatives and assigns waive any claim or
defense that there is an adequate remedy at law for breach or threatened breach.
5.15 Settlement of Litigation. On or prior to the Effective Date, (i) if
a party seeks indemnity from Seller, Seller shall give prompt notice thereof to
Parent; and (ii) Seller shall not settle any litigation relating to the Merger,
the Lend Lease Transaction or the Manhattan Towers Transaction or any other
litigation initiated by or on behalf of any shareholder of Seller in his/her or
its capacity as a shareholder, without the prior written consent of Parent,
which shall not be unreasonably withheld or delayed.
ARTICLE 6
CONDITIONS
6.1 Conditions to Each Party's Obligation to Effect the Merger. The
obligations of each party to effect the Merger and to consummate the other
transactions contemplated by this Agreement to occur on the Closing Date shall
be subject to the fulfillment at or prior to the Closing Date of the following
conditions:
(a) Shareholder Approval. This Agreement, the Merger and the transactions
contemplated by this Agreement shall have been approved and adopted by Seller's
shareholders in accordance with the Exchange Act, the REIT Act, the Trust
Declaration and the Bylaws.
(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.
B-37
<PAGE> 112
(c) Lend Lease and Manhattan Towers Transactions. The Lend Lease
Transaction and the Manhattan Towers Transaction shall have been consummated in
accordance with the Lend Lease Agreement and the Manhattan Towers Agreement,
respectively.
(d) HSR Act. If a HSR filing was required in connection with the
transactions contemplated by this Agreement, the waiting period (and any
extension thereof) applicable to the Merger under the HSR Act shall have been
terminated or shall have expired, and no restrictive governmental order or other
governmental requirement shall be in effect preventing or making illegal the
consummation of the Merger.
6.2 Conditions to Obligations of Parent and Buyer. The obligations of
Parent and Buyer to effect the Merger and to consummate the other transactions
contemplated to occur on the Closing Date are further subject to the following
conditions, any one or more of which may be waived by Parent and Buyer:
(a) Representations and Warranties. The representations and warranties of
Seller set forth in this Agreement shall be true and correct in all material
respects (except for representations having a materiality or Seller Material
Adverse Effect qualification, which shall be correct in all respects) as of the
date of this Agreement and as of the Closing Date, as though made on and as of
the Closing Date, except to the extent the representation or warranty is
expressly limited by its terms to another date, and Parent and Buyer shall have
received a certificate (which certificate may be qualified by Knowledge to the
same extent as the representations and warranties of Seller contained herein are
so qualified) signed on behalf of Seller by the chief executive officer and the
chief financial officer of Seller, in such capacities, to such effect.
(b) Performance of Obligations of Seller. Seller shall have performed in
all material respects each obligation required to be performed by it under this
Agreement at or prior to the Effective Time, and Parent and Buyer shall have
received a certificate signed on behalf of Seller by the chief executive officer
and the chief financial officer of Seller, in such capacity, to such effect.
(c) Material Adverse Effect. Since the date of this Agreement, there shall
have been no Seller Material Adverse Effect and Parent and Buyer shall have
received a certificate of the chief executive officer or chief financial officer
of Seller, in such capacity, certifying to such effect.
(d) Tax Opinions Relating to REIT Status of Seller. Parent and Buyer shall
have received an opinion of Locke Liddell & Sapp LLP or other counsel to Seller
reasonably satisfactory to Buyer, dated as of the Closing Date, that, commencing
with its taxable year ended December 31, 1993, and ending immediately prior to
the Effective Time, Seller was organized and has operated in conformity with the
requirements for qualification as a REIT under the Code (with customary
exceptions, assumptions and qualifications and based upon customary
representations).
(e) Consents; Estoppel Certificates. All consents and waivers (including,
without limitation, waivers of rights of first refusal) from third parties
necessary in connection with the consummation of the transactions contemplated
by this Agreement shall have been obtained, other than such consents and waivers
from third parties, which, if not obtained, would not result, individually or in
the aggregate, in a Buyer Material Adverse Effect or a Seller Material Adverse
Effect, and Seller shall have obtained estoppel certificates in the form
attached hereto as Exhibit D from (i) each ground lessor identified in Schedule
2.11(l), (ii) nine of the 10 largest tenants in the properties identified on
Exhibit B (measured by annual base rental obligations) and (iii) 75% of the
remaining tenants in those properties (measured by rentable square footage,
excluding the square footage rented to the nine tenants referred to in clause
(ii), above (the estoppel certificates referred to in this sentence
collectively, the "Estoppel Certificates").
(f) Resignations. Seller shall have delivered to Parent and Buyer the
resignations referred to in Section 1.5.
(g) Comfort Letter. If applicable, Buyer shall have received a comfort
letter from Ernst & Young LLP, as described in Section 5.1(b).
(h) Dissenting Shares. The number of Dissenting Shares shall constitute
not more than 10% of the number of Trust Common Shares outstanding immediately
prior to the Effective Time.
B-38
<PAGE> 113
(i) FIRPTA Certificate/Withholding. Seller shall have delivered to Parent
and Buyer a certificate for each of the DDR Properties in the form attached
hereto as Schedule 6.2(i).
(j) Manhattan Towers. The cash proceeds to Seller from the sale of the
Manhattan Towers Properties (assuming consummation thereof on or prior to the
Effective Time) (less related closing costs, repayment of indebtedness for money
borrowed secured by the Manhattan Towers Properties and related prepayment
penalties and fees), shall not be less than $34,200,000.
(k) Lend Lease. The cash proceeds to Seller from the sale of the Lend
Lease Properties (assuming consummation thereof on or prior to the Effective
Time) (less related closing costs, repayment of indebtedness for money borrowed
secured by the Lend Lease Properties and related prepayment penalties and fees)
shall not be less than $135,400,000.
(l) Transaction Expenses. The Transaction Expenses shall not exceed
$13,738,000. As used in this Section 6.2(l), "Transaction Expenses" means all of
the following items not paid prior to Closing in connection with the Merger, the
Manhattan Towers Transaction and the Lend Lease Transaction, (A) severance
payments (including "gross-up" payments), payments to holders of restricted
shares, options or dividend equivalent rights, and similar payments, (B)
investment banking fees payable by Seller, (C) costs and expenses of Seller
associated with the Proxy Statement, the Additional Filings and the Seller
Shareholders Meeting, (D) real estate closing costs, in each case paid or
payable by Seller, (E) all loan assumption or prepayment fees payable by Seller,
(F) all costs and expenses related to obtaining the directors' and officers'
liability insurance referred to in Section 5.7(d) hereof, and (G) all amounts
payable under profit participation and similar agreements. The term Transaction
Expenses does not include any of the foregoing expenses paid prior to Closing.
Seller shall pay all remaining Transaction Expenses at the time of Closing.
(m) Net Other Assets. The amount of Net Other Assets held by Seller
immediately prior to the Effective Time shall not be less than $17,702,000. As
used in this Section 6.2(m), the term "Net Other Assets" shall mean the net
amount produced by (A) summing the amounts of unrestricted cash, restricted
cash, accounts and notes receivable (excluding straight lining of rents),
deposits and prepaid expenses (excluding the item described in Section 6.2(l)(F)
and all unamortized loan costs (except for extension fees with Bank One, N.A.
and Prudential Securities Credit Corp.) recorded by Seller in accordance with
GAAP and historical Seller practices, (B) adding to the sum of (A) above,
amounts expended by Seller in connection with any litigation (including any
amounts paid in settlement thereof in accordance with Section 5.15) relating to
this Agreement or the Merger and any amounts paid as dividends by Seller
(excluding the Final Dividend) after the date of this Agreement in accordance
with Section 5.8, (C) subtracting from the sum of items (A) and (B) above, the
amounts of non-mortgage debt liabilities (including, but not limited to, tenant
security deposits, accrued interest expense, property taxes payable, prepaid
rents, accounts payable, and other liabilities) recorded by Seller in accordance
with GAAP and (D) subtracting from the result of (C) Unincurred Capital
Expenditures. "Unincurred Capital Expenditures" is defined as amounts on
Schedule 2.11(i) not spent as of the Closing Date less amounts for Unbudgeted
Capital Expenditures which have been approved by Buyer on or after October 19,
2000. For purposes of this Agreement, the term "Unbudgeted Capital Expenditures"
means capital expenditures made by Seller in 2000 or 2001 that were not
contemplated in the Capital Expenditure Budget and Schedule. For purposes of
this Section 6.2(m), accounts receivable shall be valued as follows:
<TABLE>
<CAPTION>
LENGTH OF VALUE AS A % OF
DAYS OUTSTANDING BOOK AMOUNT
---------------- ---------------
<S> <C>
0-60................................................ 100%
61-90............................................... 80%
91-120.............................................. 65%
Over 120............................................ 50%
</TABLE>
Notwithstanding the foregoing, Seller shall be deemed to have satisfied the
conditions of Section 6.2(j), (k), (l) and (m) if, based on calculations made no
more than ten (10) days before the
B-39
<PAGE> 114
scheduled Proxy Statement mailing, with respect to a date two (2) business days
after the scheduled date set forth in the Proxy Statement for the Seller
Shareholders Meeting (the "Anticipated Closing Date"), the difference between
(A) the sum of the actual amounts of the items described in Section 6.2(j), (k)
and (m) minus the actual amount of Section 6.2(l) (the result of such
calculation being referred to herein as the "Base Amount") and (B) $173,564,000,
is $1,000,000 or less.
The parties agree that Seller shall calculate the Base Amount in accordance
with this Section 6.2(m) as of the Anticipated Closing Date and deliver such
calculation (including supporting documentation) to Parent and Buyer no more
than seven (7) days before the scheduled Proxy Statement mailing date. Seller
agrees to provide Buyer and Parent with any additional supporting documentation
for the calculation of the Base Amount that is reasonably requested by Buyer and
Parent, within forty-eight (48) hours after the request therefor. Within four
(4) business days after the receipt of Seller's calculation (assuming Seller has
promptly provided all supporting documentation requested), Parent and Buyer
shall provide Seller with a written notice of their agreement or dispute with
Seller's calculation. Assuming Parent and Buyer have timely provided Seller with
notice of their dispute, Seller agrees not to mail the Proxy Statement unless
and until Parent and Buyer have agreed in writing with Seller's calculation of
the Base Amount or the Base Amount is otherwise determined pursuant to this
Section 6.2. The parties agree to negotiate in good faith to attempt to settle
any disagreement or dispute in the calculation of the Base Amount. If, however,
Seller, Parent and Buyer are unable to settle any disagreement or dispute within
five (5) days after Parent and Buyer notify Seller in writing of a disagreement
or dispute, the disagreement or dispute shall be submitted (along with any
supporting documentation a party wishes to provide) within two (2) business days
after the end of that five (5) day period to Deloitte & Touche LLP for
resolution within ten (10) business days after submission thereof to that firm,
and the decision of Deloitte & Touche LLP shall be final and binding on the
parties. All costs incurred in connection with the resolution of any dispute by
Deloitte & Touche LLP, including expenses and fees for services rendered, shall
be borne equally by Buyer and Seller. If the Base Amount is more than $1,000,000
above $173,564,000, the Common Consideration shall be increased in an amount
equal to the amount by which the Base Amount calculated in this Section 6.2(m)
exceeds $173,564,000, divided by the number of Trust Common Shares outstanding
immediately prior to the Effective Time (including, without limitation, the
Trust Common Shares held, directly or indirectly, by Parent).
(n) Debt. On the Anticipated Closing Date, the aggregate principal amount
of the indebtedness for money borrowed by Seller and its Subsidiaries and
available to them under lines of credit shall not exceed $137,400,000.
(o) Voting Agreements. Each of ABKB/LaSalle Securities Limited
Partnership, LaSalle Advisors Limited Partnership, Morgan Stanley Asset
Management, Inc. and USAA Real Estate Company shall have voted for the Merger at
the Seller Shareholders Meeting in accordance with the Voting Agreements
executed by it at or prior to the execution of this Agreement.
Notwithstanding anything to the contrary in this Agreement, Parent and
Buyer may not terminate this Agreement because of the commencement after the
date hereof of litigation that challenges the validity of this Agreement, the
Lend Lease Agreement or the Manhattan Towers Agreement or of any action taken or
to be taken in connection herewith or therewith, unless any such litigation has
resulted in the granting of injunctive relief that prevents the consummation of
the Merger, the Lend Lease Transaction or the Manhattan Towers Transaction or
any of the other transactions contemplated hereby or thereby, and such
injunctive relief has not been dissolved or vacated.
6.3 Conditions to Obligations of Seller. The obligation of Seller to
effect the Merger and to consummate the other transactions contemplated to occur
on the Closing Date is further subject to the following conditions, any one or
more of which may be waived by Seller:
(a) Representations and Warranties. The representations and warranties of
Parent and Buyer set forth in this Agreement shall be true and correct in all
material respects (except for representations having a materiality or Buyer
Material Adverse Effect qualification, which shall be correct in all respects)
as of the date of this Agreement and as of the Closing Date, as though made on
and as of the Closing Date,
B-40
<PAGE> 115
except to the extent the representation or warranty is expressly limited by its
terms to another date, and Seller shall have received a certificate (which
certificate may be qualified by Knowledge to the same extent as the
representations and warranties of Parent and Buyer contained herein are so
qualified) signed on behalf of Parent by the chief executive officer and the
chief financial officer of Parent, in such capacities, to such effect.
(b) Performance of Obligations of Parent and Buyer. Parent and Buyer shall
have performed in all material respects each obligation required to be performed
by them under this Agreement at or prior to the Effective Time, and Seller shall
have received a certificate of each of Parent and Buyer signed on behalf of
Parent or Buyer, as applicable, by the chief executive officer or the chief
financial officer of Parent or Buyer, as applicable, in such capacity, to such
effect.
(c) Material Adverse Effect. Since the date of this Agreement, there shall
have been no Buyer or Parent Material Adverse Effect and Seller shall have
received a certificate of the chief executive officer and chief financial
officer of each of Buyer and Parent, in such capacities, certifying to such
effect.
(d) Consents. All consents and waivers (including, without limitation,
waivers of rights of first refusal) from third parties necessary in connection
with the consummation of the transactions contemplated hereby shall have been
obtained, other than such consents and waivers from third parties, which, if not
obtained, would not result, individually or in the aggregate, in a Buyer
Material Adverse Effect or a Seller Material Adverse Effect, and Seller shall
have obtained the Estoppel Certificates.
(e) Common Consideration. The Common Consideration is $13.74 or more.
Notwithstanding anything to the contrary in this Agreement, Seller may not
terminate this Agreement because of the commencement after the date hereof of
litigation that challenges the validity of this Agreement, the Lend Lease
Agreement or the Manhattan Towers Agreement or of any action taken or to be
taken in connection herewith, unless any such litigation has resulted in the
granting of injunctive relief that prevents the consummation of the Merger or
any of the other transactions contemplated hereby and such injunctive relief has
not been dissolved or vacated.
ARTICLE 7
TERMINATION, AMENDMENT AND WAIVER
7.1 Termination. This Agreement may be terminated at any time prior to
the filing of the Articles of Merger with the County Clerk of Dallas County,
Texas, and the Secretary of State of the State of Texas, whether before or after
the approval of Seller's shareholders is obtained:
(a) by mutual written consent duly authorized by the Board of Directors of
Parent and of Buyer and the Board of Managers;
(b) by Parent or Buyer, upon a breach of any representation, warranty,
covenant, obligation or agreement on the part of Seller set forth in this
Agreement, in any case such that the conditions set forth in Section 6.2(a) or
Section 6.2(b), as the case may be, would be incapable of being satisfied by May
31, 2001 (subject to extension in accordance with this Agreement), or upon a
failure of the Lend Lease Transaction or the Manhattan Towers Transaction to
close in accordance with the Lend Lease Agreement or the Manhattan Towers
Agreement, as applicable, because of a breach by Seller of its obligations
thereunder;
(c) by Seller, upon a breach of any representation, warranty, covenant,
obligation or agreement on the part of Parent or Buyer set forth in this
Agreement, in any 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 May
31, 2001 (subject to extension in accordance with this Agreement);
(d) by either Buyer or Seller, if any judgment, injunction, order, decree
or action by any Governmental Entity of competent authority preventing the
consummation of the Merger is issued on or
B-41
<PAGE> 116
before May 31, 2001 and remains in effect on May 31, 2001 (subject to extension
in accordance with this Agreement);
(e) by Parent, Buyer or Seller, if the Merger shall not have been
consummated on or before May 31, 2001; but a party may not terminate this
Agreement pursuant to this clause (e) if it shall have breached in any material
respect its obligations under this Agreement in any manner that shall have
proximately contributed to the occurrence of the failure referred to in this
clause;
(f) by either Seller (unless Seller is in breach of its obligations under
Section 5.1) or Parent or Buyer if, upon a vote at the Seller Shareholders
Meeting or any adjournment thereof, the approval of the Merger by Seller's
shareholders shall not have been obtained as contemplated by Section 5.1;
(g) by Seller, if prior to the Seller Shareholders Meeting, the Board of
Managers shall have withdrawn or modified its approval or recommendation of the
Merger or this Agreement in connection with, or approved or recommended, a
Superior Acquisition Proposal; and
(h) by Parent or Buyer if (i) prior to the Seller Shareholders Meeting, the
Board of Managers shall have withdrawn or modified in any manner adverse to
Buyer its approval or recommendation of the Merger or this Agreement in
connection with, or approved or recommended, any Superior Acquisition Proposal,
or (ii) Seller shall have entered into a definitive agreement with respect to
any Acquisition Proposal.
7.2 Certain Fees and Expenses. If this Agreement shall be terminated
pursuant to Section 7.1(b), 7.1(g) or 7.1(h), then Seller will pay Buyer (if
Seller was not entitled to terminate this Agreement pursuant to Section 7.1(c)
at the time of such termination) a fee equal to the Seller Break-Up Fee (as
defined below). If this Agreement shall be terminated pursuant to Section
7.1(c), then Buyer will pay Seller (provided Parent and Buyer were not entitled
to terminate this Agreement pursuant to Section 7.1(b) at the time of such
termination) a fee equal to the Buyer Break-Up Fee (as defined below). Any
payment of the Seller Break-Up Fee or the Buyer Break-Up Fee in accordance with
this Section 7.2 shall be compensation for the loss suffered by the recipient as
a result of the failure of the Merger to be consummated and to avoid the
difficulty of determining damages under the circumstances, and neither party
shall have any other liability to the other after the payment of the Seller
Break-Up Fee or the Buyer Break-Up Fee, as applicable. The Seller Break-Up Fee
or the Buyer Break-Up Fee, as applicable, shall be paid in immediately available
funds within fifteen (15) days after the date the event giving rise to the
obligation to make such payment occurred.
As used in this Agreement, "Seller Break-Up Fee" shall be an amount equal
to the lesser of (i) $4,500,000 (the "Seller Base Amount") and (ii) the sum of
(A) the maximum amount that can be paid to the recipient without causing Parent
or Buyer to fail to meet the requirements of Sections 856(c)(2) and (3) of the
Code determined as if the payment of such amount did not constitute income
described in Sections 856(c)(2)(A)-(H) and 856(c)(3)(A)-(I) of the Code
("Qualifying Income"), as determined by independent accountants to Parent, and
(B) if Parent receives an opinion from outside counsel (the "Seller Break-Up Fee
Tax Opinion") indicating that Parent's or Buyer's receipt of the Seller Base
Amount would either constitute Qualifying Income or would be excluded from gross
income within the meaning of Sections 856(c)(2) and (3) of the Code (the "REIT
Requirements") or that the receipt by Parent or Buyer of the remaining balance
of the Seller Base Amount following the receipt of and in accordance with such
opinion would not be deemed constructively received prior thereto, the Seller
Base Amount less the amount payable under clause (A) above.
As used in this Agreement, "Buyer Break-Up Fee" shall be an amount equal to
the lesser of (i) the sum of (x) $4,500,000 plus (y) if the Lend Lease Agreement
is terminated because of a breach by Parent or Buyer hereunder and, as a result
thereof, Seller is obligated to pay Lend Lease Real Estate Investors, Inc. the
fee under Section 7.5 of the Lend Lease Agreement an amount equal to that fee
(the "Buyer Base Amount") and (ii) the sum of (A) the maximum amount that can be
paid to Seller without causing Seller to fail to meet the requirements of
Section 856(c)(2) and (3) of the Code determined as if the payment of such
amount did not constitute Qualifying Income, as determined by independent
B-42
<PAGE> 117
accountants to Seller, and (B) if Seller receives an opinion from outside
counsel (the "Buyer Break-Up Fee Tax Opinion") indicating that Seller's receipt
of the Buyer Base Amount would either constitute Qualifying Income or would be
excluded from gross income within the meaning of the REIT Requirements or that
the receipt by Seller of the remaining balance of the Buyer Base Amount
following the receipt of and pursuant to such opinion would not be deemed
constructively received prior thereto, the Buyer Base Amount less the amount
payable under clause (A) above.
If the recipient is not able to receive the full Seller Base Amount or the
Buyer Base Amount, as applicable, the payor shall place the unpaid amount in
escrow and shall not release any portion thereof to the recipient unless and
until the payor receives either one of the following: (i) a letter from the
recipient's independent accountants indicating the maximum amount that can be
paid at that time to the recipient without causing the recipient (or Parent, as
applicable) to fail to meet the REIT Requirements or (ii) a Seller Break-Up Fee
Tax Opinion or Buyer Break-Up Fee Tax Opinion, as applicable, in either of which
events the payor shall pay to the recipient the lesser of the unpaid Seller Base
Amount or the Buyer Base Amount, as applicable, or the maximum amount stated
therein.
7.3 Effect of Termination. In the event of termination of this Agreement
by either Seller, Parent or Buyer 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 Parent, Buyer, or Seller, other than under the last
sentence of Section 5.2, Section 7.2, this Section 7.3 and Article 8.
7.4 Amendment. This Agreement may be amended by the parties in writing by
action of their respective Board of Managers and Board of Directors at any time
before or after any shareholder approvals are obtained and prior to the filing
of the Articles of Merger; however, after Seller's shareholders have approved
the Merger, no such amendment, modification or supplement shall be made which by
law requires the further approval of shareholders without obtaining such further
approval. The parties agree to amend this Agreement in the manner provided in
the immediately preceding sentence to the extent required to continue the status
of Seller and Parent as REITs.
7.5 Extension; Waiver. At any time prior to the Effective Time, the
parties may (a) extend the time for the performance of any of the obligations or
other acts of the other party, (b) waive any inaccuracies in the representations
and warranties of the other party contained in this Agreement or in any document
delivered pursuant to this Agreement, or (c) subject to the first sentence of
Section 7.4, waive compliance with any of the agreements of or conditions to be
satisfied by 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.
B-43
<PAGE> 118
ARTICLE 8
GENERAL PROVISIONS
8.1 Nonsurvival of Representations and Warranties. None of the
representations and warranties in this Agreement or in any instrument delivered
pursuant to this Agreement confirming the representations and warranties in this
Agreement shall survive the Effective Time. This Section 8.1 shall not limit any
covenant or agreement of the parties which by its terms contemplates performance
after the Effective Time.
8.2 Notices. All notices, requests, claims, demands and other
communications under this Agreement shall be in writing and shall be delivered
personally, sent by overnight courier (providing proof of delivery) to the
parties or sent by telecopy (providing confirmation of transmission) at the
following addresses or telecopy numbers (or at such other address or telecopy
number for a party as shall be specified by like notice):
<TABLE>
<S> <C>
(a) if to Parent or Buyer, to: Developers Diversified
Realty Corporation
34555 Chagrin Blvd.
Moreland Hills, Ohio 44022
Attention: Scott A. Wolstein
Telecopy Number: (440) 247-0434
with a copy to (which copy shall Baker & Hostetler LLP
not constitute notice): 3200 National City Center
1900 East 9th Street
Cleveland, Ohio 44114-3485
Attention: Robert A. Weible
Telecopy Number: (216) 696-0740
(b) if to the Trust: American Industrial Properties REIT
6210 North Beltline, Suite 170
Irving, Texas 75063
Attention: Charles W. Wolcott
Telecopy Number: (972) 756-0704
With a copy to (which copy shall Locke Liddell & Sapp LLP
not constitute notice): 2200 Ross Avenue
Suite 2200
Dallas, Texas 75201
Attention: Bryan L. Goolsby
Telecopy Number: (214) 740-8800
With a copy to (which copy shall Thompson & Knight
not constitute notice): 1700 Pacific Avenue
Suite 3300
Dallas, Texas 75201
Attention: Jack M. Little
Telecopy Number: (214) 696-1363
</TABLE>
All notices shall be deemed given only when actually received.
8.3 Interpretation. When a reference is made in this Agreement to a
Section, such reference shall be to a Section of this Agreement unless otherwise
indicated. The table of contents and headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
Interpretation of this Agreement. Whenever the words "include," "includes" or
"including" are used in this Agreement, they shall be deemed to be followed by
the words "without limitation."
B-44
<PAGE> 119
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.
8.5 Entire Agreement; No Third-Party Beneficiaries. This Agreement, the
Schedules and the other agreements entered into in connection with the Merger
(a) constitute the entire agreement and supersede all prior agreements and
understandings, both written and oral, between the parties with respect to the
subject matter of this Agreement and (b) except as provided in Section 5.7
("Third Party Provisions"), are not intended to confer upon any person other
than the parties hereto any rights or remedies. The Third Party Provisions may
be enforced by the beneficiaries thereof or on behalf of the beneficiaries
thereof by the persons who had been members of the Board of Managers prior to
the Effective Time.
8.6 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE INTERNAL SUBSTANTIVE LAWS OF THE STATE OF TEXAS, REGARDLESS
OF THE LAWS THAT MIGHT OTHERWISE GOVERN UNDER APPLICABLE PRINCIPLES OF CONFLICT
OF LAWS THEREOF.
8.7 Assignment. Neither this Agreement nor any of the rights, interests
or obligations of any party under this Agreement shall be assigned or delegated,
in whole or in part, by operation of law or otherwise without the prior written
consent of the other parties. Subject to the immediately preceding sentence,
this Agreement will be binding upon, inure to the benefit of, and be enforceable
by the parties and their respective successors and assigns.
8.8 Enforcement. The parties agree that irreparable damage would occur if
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 federal court located in Texas or Ohio, 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 Texas or Ohio if any dispute arises out of this Agreement or
any of the transactions contemplated by this Agreement and (b) agrees that it
will not attempt to deny or defeat such personal jurisdiction by motion or other
request for leave from any such court.
8.9 Severability. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of this
Agreement is so broad as to be unenforceable, the provision shall be interpreted
to be only so broad as is enforceable.
8.10 Survival. The obligations of Buyer, Parent and the Surviving
Corporation (other than their representations and warranties) shall survive the
Closing in accordance with their terms until barred by the applicable statute of
limitations.
B-45
<PAGE> 120
IN WITNESS WHEREOF, Parent, Buyer and Seller have caused this Agreement to
be signed by their respective officers thereunto duly authorized all as of the
date first written above.
DDR TRANSITORY SUB INC.,
a Texas corporation
By: /s/ JAMES A. SCHOFF
----------------------------------
Name: James A. Schoff
Title: Vice President
AMERICAN INDUSTRIAL PROPERTIES REIT,
a Texas real estate investment trust
/s/ CHARLES W. WOLCOTT
------------------------------------
Charles W. Wolcott,
President and Chief Executive
Officer
DEVELOPERS DIVERSIFIED REALTY
CORPORATION,
an Ohio corporation
By: /s/ JAMES A. SCHOFF
----------------------------------
Name: James A. Schoff
Title: Vice Chairman and Chief
Investment Officer
B-46
<PAGE> 121
APPENDIX C
AGREEMENT OF PURCHASE AND SALE
(AMERICAN INDUSTRIAL PROPERTIES REIT/LEND LEASE PORTFOLIO)
This Agreement of Purchase and Sale ("Agreement") is made and entered into by
and between Purchaser and Seller as of November 1, 2000 (the "Effective Date").
RECITALS
A. Defined terms are indicated by initial capital letters. Defined terms shall
have the meaning set forth herein, whether or not such terms are used
before or after the definitions are set forth.
B. Purchaser desires to purchase the Property and Seller desires to sell the
Property, all upon the terms and conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual terms, provisions, covenants
and agreements set forth herein, as well as the sums to be paid by Purchaser to
Seller, and for other good and valuable consideration, the receipt and
sufficiency of which are acknowledged, Purchaser and Seller agree as follows:
ARTICLE 1
BASIC INFORMATION
1.1 Certain Basic Terms. The following defined terms shall have the
meanings set forth below:
<TABLE>
<S> <C>
1.1.1 Seller: Collectively, American Industrial Properties
REIT, a Texas real estate investment trust
("AIP"), AIP/ Battlefield GP, Inc., a Texas
corporation, AIP-SWAG Operating, L.P., a Texas
limited partnership, AIP Properties #3, L.P., a
Delaware limited partnership, AIP Operating,
L.P., a Delaware limited partnership
1.1.2 Purchaser: Value Enhancement Fund IV, L.P., a Georgia
limited partnership
1.1.3 Purchase Price: $292,200,000.00, less a credit for the principal
amount of the Existing Loans assumed by Purchaser
at Closing and as adjusted to reflect the
prorations provided for herein, allocated between
the Projects pursuant to a separate written
agreement between the parties.
1.1.4 Earnest Money: Irrevocable Letters of Credit in the aggregate
amount of $3,000,000.00 (the "Earnest Money")
deposited in accordance with Section 3.1 below.
1.1.5 Title Company: Commonwealth Title Insurance Company
1700 Pacific Avenue, Suite 4740
Dallas, Texas 75201
Attention: Mr. David Payne and Ms. Amanda
Johnson
Telephone: (214) 855-8400
Facsimile: (214) 754-9066
</TABLE>
C-1
<PAGE> 122
<TABLE>
<S> <C>
1.1.6 Escrow Agent: Commonwealth Title Insurance Company
1700 Pacific Avenue, Suite 4740
Dallas, Texas 75201
Attention: Mr. David Payne and Ms. Amanda
Johnson
Telephone: (214) 855-8400
Facsimile: (214) 754-9066
1.1.7 Closing Date: The date which is fifteen (15) days after the
date of the AIP shareholder meeting at which the
requisite AIP Shareholder Approval is obtained,
but not to be later than January 31, 2001;
provided, however, either Seller or Purchaser may
extend the Closing Date until May 31, 2001 (the
"Outside Closing Date"), by giving written notice
to the other party of such election no later than
January 31, 2001, in the event the Shareholder
Approval is not obtained and/or the Manhattan
Towers Project Closing and/or the DDR Closing
(all as further described in Article 7) have not
occurred on or prior to January 31, 2001.
</TABLE>
1.2 Closing Costs. Closing costs shall be allocated and paid as follows:
<TABLE>
<CAPTION>
RESPONSIBLE
COST PARTY
---- -----------
<S> <C>
Title Commitment required to be delivered
pursuant to Section 5.1.................. Purchaser
Premium for standard form Title Policy
required to be delivered pursuant to
Section 5.2.............................. Purchaser
Premium for any upgrade of Title Policy for
extended or additional coverage and any
endorsements desired by Purchaser, any
inspection fee charged by the Title
Company, tax certificates, municipal and
utility lien certificates, and any other
Title Company charges.................... Purchaser
Costs of Survey and/or any revisions,
modifications or recertifications
thereto.................................. Purchaser
Costs for UCC Searches..................... Purchaser
Recording Fees............................. Purchaser
</TABLE>
C-2
<PAGE> 123
<TABLE>
<CAPTION>
RESPONSIBLE
COST PARTY
---- -----------
<S> <C>
Any loan assumption and/or prepayment
penalties, fees and costs required
pursuant to the applicable loan
documents................................ Purchaser, subject to a maximum cost of
1.25% of the aggregate principal amount of
all the Existing Loans as of the date of
Closing, with Seller paying any applicable
costs in excess of such amount; provided,
however, if Purchaser elects not to assume
the Existing Loans payable to Aegon Life
Insurance Company or Nationwide Life
Insurance Company totaling approximately
$118,183,000.00, Purchaser shall be fully
responsible for the excess of any
prepayment penalties, charges or yield
maintenance amounts relating to those loans
over the loan assumption fees and costs
that would have been payable if Purchaser
had assumed those loans, notwithstanding
that maximum cost cap.
Any deed taxes, documentary stamps,
transfer taxes, intangible taxes,
mortgage taxes or other similar taxes,
fees or assessments...................... Purchaser
Any escrow fee charged by Escrow Agent for
holding the Earnest Money or conducting
the Closing.............................. Purchaser
All other closing costs, expenses, charges
and fees................................. Purchaser
Each party shall be responsible for all
costs and expenses incurred by or on
behalf of such party..................... Seller/Purchaser
Cost of obtaining AIP Shareholder
Approval................................. Seller
Cost of Seller's Asset Manager's Fees
through Closing.......................... Seller
</TABLE>
1.3 Notice Addresses:
<TABLE>
<S> <C> <C> <C>
Purchaser: c/o Lend Lease Real Estate Copy to: King & Spalding
Investments, Inc. 191 Peachtree Street
3424 Peachtree Road, NE, Suite 800 Atlanta, Georgia 30303-1763
Atlanta, Georgia 30326 Attn: William B. Fryer, Esq.
Attention: Mr. Mark Bratt Telephone: (404) 572-4911
Telephone: (404) 848-8600 Facsimile: (404) 572-5148
Facsimile: (404) 848-8930
and to: Lend Lease Real Estate
Investments, Inc.
3424 Peachtree Road, N.E.
Suite 800
Atlanta, Georgia 30326
Attn: Mr. James P. Ryan
Telephone: (404) 848-8600
Facsimile: (404) 848-8925
</TABLE>
C-3
<PAGE> 124
<TABLE>
<S> <C> <C> <C>
Seller: c/o American Industrial Copy to: Locke Liddell & Sapp LLP
Properties REIT 100 Congress Ave., Suite 300
6210 N. Beltline Road, Suite 170 Austin, Texas 78701
Irving, Texas 75063 Attention: Brad B. Hawley, Esq.
Attention: Mr. Lew Friedland and Telephone: (512) 305-4706
Tony Koeijmans, Esq. Facsimile: (512) 305-4800
Telephone: (972) 756-6000
Facsimile: (972) 756-0704
and to: Thompson & Knight, P.C.
1700 Pacific Avenue,
Suite 3300
Dallas, Texas 75201
Attention: Jack M. Little, Esq.
Telephone: (214) 969-1363
Facsimile: (214) 969-1751
</TABLE>
1.4 Index of Certain Additional Defined Terms:
<TABLE>
<S> <C>
Acceptable Estoppel Certificate............................. Subsection 9.2.6
Acquisition Proposal........................................ Section 7.6
Agreement................................................... Preamble
Asset Manager............................................... Section 14.17
Assignment.................................................. Subsection 9.3.2
Capital Expenditure Schedule................................ Subsection 6.1.3
Casualty Notice............................................. Section 6.2
CERCLA...................................................... Section 13.3
Chase....................................................... Section 14.17
Closing..................................................... Section 9.1
Commission Schedule......................................... Subsection 11.1.5
DDR......................................................... Section 7.4
Deed........................................................ Subsection 9.3.1
Designated Representative(s)................................ Section 14.17
Effective Date.............................................. Preamble
Existing Loans.............................................. Subsection 4.1.2
Hazardous Materials......................................... Section 13.4
Improvements................................................ Subsection 2.1.1
Independent Consideration................................... Section 3.2
Intangible Personal Property................................ Subsection 2.1.4
Land........................................................ Subsection 2.1.1
Lease Files................................................. Subsection 4.1.15
Leases...................................................... Subsection 2.1.2
Lender Assumption Documents................................. Subsection 9.4.2
Loan Documents.............................................. Subsection 4.1.2
Major Tenants............................................... Subsection 9.2.6
Manhattan Towers Project.................................... Section 7.3
Material Damage............................................. Subsection 6.2.1
New Exceptions.............................................. Section 5.4
Operating Statements........................................ Subsection 4.1.3
Permitted Exceptions........................................ Section 5.3
Permitted Outside Parties................................... Section 4.6
Project..................................................... Subsection 2.1.1
Property; Properties........................................ Section 2.1
Property Information........................................ Section 4.1
</TABLE>
C-4
<PAGE> 125
<TABLE>
<S> <C>
Real Property............................................... Subsection 2.1.1
Reports..................................................... Section 4.4
SEC......................................................... Section 7.2
Service Contracts........................................... Subsection 4.1.8
Shareholder Approval........................................ Section 7.1
Shareholder Proposal........................................ Section 7.2
Subsidiaries................................................ Section 7.6
Superior Acquisition Proposal............................... Section 7.6
Survey...................................................... Section 5.2
Tangible Personal Property.................................. Subsection 2.1.3
Taxes....................................................... Section 10.1
Tenant Receivables.......................................... Subsection 10.1.3
Title Commitment............................................ Section 5.1
Title Policy................................................ Section 5.2
Unbilled Tenant Receivables................................. Subsection
10.1.3(a)
Uncollected Delinquent Tenant Receivables................... Subsection
10.1.3(a)
</TABLE>
ARTICLE 2
PROPERTY
2.1 Subject to the terms and conditions of this Agreement, Seller agrees
to sell to Purchaser, and Purchaser agrees to purchase from Seller, the
following property (collectively, the "Property" or the "Properties"):
2.1.1 Real Property. The parcels of land described in Exhibit A
attached hereto (collectively, the "Land"), together with (i) all
improvements located thereon (collectively, the "Improvements"), (ii) all
and singular the rights, benefits, privileges, easements, tenements,
hereditaments, and appurtenances thereon or in anywise appertaining
thereto, and (iii) all right, title, and interest of Seller, if any, in and
to all strips and gores and any land lying in the bed of any street, road
or alley, open or proposed, adjoining such Land (collectively, the "Real
Property"). The separately named facilities located on the Real Property
are listed in Exhibit A-1 attached hereto (each a "Project").
2.1.2 Leases. All of Seller's right, title and interest in all
leases of the Real Property, including leases which may be made by Seller
after the Effective Date and prior to Closing as permitted by this
Agreement (the "Leases"), and also including Seller's rights under all
guaranties, letters of credit or other instruments that guarantee or secure
the performance of the obligations of tenants under the Leases.
2.1.3 Tangible Personal Property. All of Seller's right, title and
interest in the equipment, machinery, furniture, furnishings, supplies and
other tangible personal property, if any, owned by Seller and now or
hereafter located on and used in connection with the operation, ownership
or management of the Real Property including, without limitation, the items
described on Exhibit B attached hereto and incorporated herein by
reference, but specifically excluding any items of personal property owned
by tenants at or on the Real Property and further excluding any items of
personal property owned by third parties and leased to Seller
(collectively, the "Tangible Personal Property").
2.1.4 Intangible Personal Property. All of Seller's right, title and
interest, if any, in all intangible personal property related to the Real
Property and the Improvements, including, without limitation all of
Seller's right, title and interest in: all trade names and trade marks
associated with the Real Property and the Improvements, including Seller's
rights and interests, if any, in the name of the Real Property; the plans
and specifications and other architectural and engineering drawings for the
Improvements, if any (to the extent assignable); warranties (to the extent
assignable); contract rights related to the construction, operation,
ownership or management of the Real Property, if any (but only to the
extent assignable and Seller's obligations thereunder are expressly assumed
by
C-5
<PAGE> 126
Purchaser pursuant to this Agreement); governmental permits, approvals and
licenses, if any (to the extent assignable); and telephone exchange numbers
(to the extent assignable) (collectively the "Intangible Personal
Property").
ARTICLE 3
EARNEST MONEY
3.1 Deposit of Earnest Money. Purchaser has previously deposited a
$1,000,000.00 letter of credit in escrow with Escrow Agent. Within two (2)
business days after the Effective Date, Purchaser shall deposit an additional
$2,000,000.00 letter of credit in the same form as the $1,000,000.00 letter of
credit in escrow with Escrow Agent.
3.2 Independent Consideration. On the Effective Date, Purchaser shall pay
to Seller One Hundred and No/100 Dollars ($100.00) as independent consideration
for Seller's performance under this Agreement ("Independent Consideration"),
which shall be retained by Seller in all instances, and shall not be applied
against the Purchase Price.
3.3 Form; Failure to Deposit. The Independent Consideration shall be in
the form of a certified or cashier's check or the wire transfer to Escrow Agent
of immediately available U.S. federal funds. If Purchaser fails to timely
deliver the Independent Consideration or the $2,000,000.00 letter of credit as
required, Seller may terminate this Agreement by written notice to Purchaser, in
which event the parties hereto shall have no further rights or obligations
hereunder, except for rights and obligations which, by their terms, survive the
termination hereof.
3.4 Disposition of Earnest Money. The Earnest Money shall not be applied
as a credit to the Purchase Price at Closing, but shall be returned to Purchaser
at Closing. In the event of a termination of this Agreement by either Seller or
Purchaser for any reason, Escrow Agent is authorized to deliver the Earnest
Money to the party hereto entitled to same pursuant to the terms hereof on or
before the tenth (10th) business day following receipt by Escrow Agent and the
non-terminating party of written notice of such termination from the terminating
party, unless the other party hereto notifies Escrow Agent that it disputes the
right of the other party to receive the Earnest Money. In such event, Escrow
Agent may interplead the Earnest Money into a court of competent jurisdiction in
the county in which the Earnest Money has been deposited. All attorneys' fees
and costs and Escrow Agent's costs and expenses incurred in connection with such
interpleader shall be assessed against the party against whom judgment is
rendered in the action, or if judgment is rendered in part against both parties,
then in the proportions the court determines.
ARTICLE 4
DUE DILIGENCE
4.1 Due Diligence Materials Previously Delivered or Made
Available. Purchaser acknowledges receipt of and/or access to what Purchaser
understands to be the following (the "Property Information") on or before the
Effective Date:
4.1.1 Rent Roll. Rent rolls including lists of security deposits
(collectively, the "Rent Roll") for the Property current as of September
30, 2000;
4.1.2 Loan Documents. Copies of all documents (the "Loan Documents")
which evidence or secure the loans (the "Existing Loans") encumbering the
Property as identified on Exhibit F attached hereto and incorporated herein
by references.
4.1.3 Financial Information. Copies of operating statements and a
summary of capital expenditures pertaining to the Property for the twelve
(12) months preceding the Effective Date of this Agreement or such lesser
period as Seller has owned each applicable Property (the "Operating
Statements");
C-6
<PAGE> 127
4.1.4 Lease Form. Copies of Seller's current standard lease form for
each Project;
4.1.5 Environmental Reports. Copies of all environmental reports or
site assessments related to the Property prepared for the benefit of Seller
or in Seller's possession;
4.1.6 Tax Statements. Copies of all ad valorem tax statements
relating to the Property for the most current available tax period and for
the last two (2) years;
4.1.7 Title and Survey. Copies of all of title insurance information
and surveys of the Property in Seller's possession;
4.1.8 Service Contracts. A list, together with copies, of all
service, supply, equipment rental, and other service contracts related to
the operation of the Property ("Service Contracts");
4.1.9 Personal Property. A list of Tangible Personal Property;
4.1.10 Engineering Reports. Copies of any engineering and other
physical improvement inspection reports relating to the Property in the
possession of Seller.
4.1.11 Brokerage Agreements. Copies of all leasing and other
brokerage agreements relating to the Property in the possession of Seller.
4.1.12 Management Agreements. Copies of all management agreements
relating to the Property in the possession of Seller.
4.1.13 Budget. A copy of Seller's budget for operations for the
Property for the current year.
4.1.14 Insurance Documents. Certificates of insurance and copies of
policies currently in effect with respect to each Project, and a
description of claims in excess of $50,000.00 made within the last two (2)
years and the status of such claims.
4.1.15 Lease Files. The lease files for all tenants, including the
Leases, amendments, guaranties, any letter agreements and assignments which
are in effect when made available ("Lease Files");
4.1.16 Maintenance Records and Warranties. Maintenance work orders
for the twelve (12) months preceding the Effective Date of this Agreement
and warranties, if any, on roofs, air conditioning units, fixtures and
equipment;
4.1.17 Plans and Specifications. Building plans and specifications
relating to the Property; and
4.1.18 Licenses, Permits and Certificates of Occupancy. Licenses,
permits and certificates of occupancy relating to the Property.
4.2 Physical Due Diligence. Until the Closing, Purchaser shall have
reasonable access to the Property at all reasonable times during normal business
hours, upon appropriate notice to tenants as permitted or required under the
Leases, for the purpose of conducting reasonably necessary tests, including
surveys and architectural, engineering, geotechnical and environmental
inspections and tests, provided that (i) Purchaser must give Seller forty-eight
(48) hours' prior telephone or written notice of any such inspection or test,
and with respect to any intrusive inspection or test (e.g., core sampling) must
obtain Seller's prior written consent (which consent may not be unreasonably
withheld, conditioned or delayed), (ii) prior to performing any inspection or
test, Purchaser must deliver a certificate of insurance to Seller evidencing
that Purchaser and its contractors, agents or representatives have in place not
less than $1,000,000.00 (on a per occurrence basis) of comprehensive general
liability insurance for its activities on the Property covering any accident
arising in connection with the presence of Purchaser, its contractors, agents
and representatives on the Property, which insurance shall name AIP and Asset
Manager as additional insureds thereunder, and (iii) all such tests shall be
conducted by Purchaser in compliance with Purchaser's responsibilities set forth
in Section 4.8 below. Purchaser shall bear the cost of all such inspections or
tests and shall be responsible for and act as the generator with respect to any
wastes generated by those tests. Subject to the provisions of Section 4.6
hereof, Purchaser or Purchaser's
C-7
<PAGE> 128
representatives may meet with any tenant with respect to such tenant's Lease;
provided, however, Purchaser must contact Seller at least forty-eight (48) hours
in advance by telephone or fax to inform Seller of Purchaser's intended meeting
and to allow Seller the opportunity to attend such meeting if Seller desires.
Subject to the provisions of Section 4.6 hereof, Purchaser or Purchaser's
representatives may meet with any governmental authority for any good faith,
reasonable purpose in connection with the transaction contemplated by this
Agreement; provided, however, Purchaser must contact Seller at least forty-eight
(48) hours in advance by telephone or fax to inform Seller of Purchaser's
intended meeting and to allow Seller the opportunity to attend such meeting if
Seller desires.
4.3 Due Diligence. Purchaser acknowledges that prior to the Effective
Date, Purchaser has (i) examined, inspected, and investigated the Property
Information and the Property and, in Purchaser's sole and absolute judgment and
discretion based upon Purchaser's knowledge as of the Effective Date, has
determined that the Property is acceptable to Purchaser, subject to the express
terms and conditions of this Agreement, (ii) obtained all necessary internal
approvals, and (iii) satisfied all other contingencies of Purchaser subject,
however, to the conditions to Closing as set forth in this Agreement. Purchaser
also acknowledges that, as far as Purchaser is aware, Purchaser has received or
had access to all Property Information and Purchaser has conducted all
inspections and tests of the Property that it considers important prior to the
Effective Date.
4.4 Return of Documents and Reports. If this Agreement terminates for any
reason, Purchaser shall promptly return and/or deliver to Seller all Property
Information in Purchaser's possession and copies thereof. Additionally, if this
Agreement terminates for any reason other than Seller's default, then Purchaser
must deliver to Seller copies of all third party reports, investigations and
studies, other than economic analyses, attorney work product or other legally
privileged articles of information (collectively, the "Reports" and,
individually, a "Report") prepared for Purchaser in connection with its due
diligence review of the Property; provided, however, Purchaser shall not be
required to make any such deliveries unless and until Purchaser has received all
payments due from Seller, if any, pursuant to Section 7.5. The Reports shall be
delivered to Seller without any representation or warranty as to the
completeness or accuracy of the Reports or any other matter relating thereto,
and Seller shall have no right to rely on any Report without the written consent
of the party preparing same. Purchaser's obligation to deliver the Property
Information and the Reports to Seller shall survive the termination of this
Agreement.
4.5 Service Contracts. Purchaser has advised Seller in writing of which
Service Contracts it will assume and which Service Contracts Purchaser requires
that Seller deliver written termination at or prior to Closing. Seller agrees to
cause all management agreements to provide for termination without cause and
without penalties payable by Purchaser upon thirty (30) days' prior written
notice. Seller shall deliver at Closing notices of termination of all Service
Contracts required by Purchaser to be terminated. Purchaser must assume the
obligations arising from and after the Closing Date under those Service
Contracts that Purchaser has agreed to assume.
4.6 Proprietary Information; Confidentiality. Purchaser acknowledges that
the Property Information is proprietary and confidential and has been delivered
to Purchaser solely to assist Purchaser in determining the feasibility of
purchasing the Property. Purchaser shall not use the Property Information for
any purpose other than as set forth in the preceding sentence. Purchaser shall
not disclose the contents to any person other than to those persons who are
responsible for determining the feasibility of or are otherwise involved in
Purchaser's acquisition of the Property and who have agreed to preserve the
confidentiality of such information as required hereby (collectively, "Permitted
Outside Parties"). Purchaser shall not divulge the contents of the Property
Information or other information except in strict accordance with the
confidentiality standards set forth in this Section 4.6. In permitting Purchaser
to review the Property Information or any other information, Seller has not
waived any privilege or claim of confidentiality with respect thereto, and no
third party benefits or relationships of any kind, either express or implied,
have been offered, intended or created.
4.7 No Representation or Warranty by Seller. Purchaser acknowledges that,
except as expressly set forth in this Agreement, neither Seller nor Asset
Manager has made nor makes any warranty or
C-8
<PAGE> 129
representation regarding the truth, accuracy or completeness of the Property
Information or the source(s) thereof. Purchaser further acknowledges that some
if not all of the Property Information was prepared by third parties other than
Seller and Asset Manager. Except as expressly set forth in this Agreement,
Seller expressly disclaims any and all liability for representations or
warranties, express or implied, statements of fact and other matters contained
in such information, or for omissions from the Property Information, or in any
other written or oral communications transmitted or made available to Purchaser.
Purchaser shall rely solely upon (i) satisfaction of Purchaser's conditions
expressly set forth in this Agreement, (ii) Seller's compliance with the terms
and provisions of this Agreement, and (iii) Purchaser's own investigation with
respect to the Property, including, without limitation, the Property's physical,
environmental or economic condition, compliance or lack of compliance with any
ordinance, order, permit or regulation or any other attribute or matter relating
thereto. Seller has not undertaken any independent investigation as to the
truth, accuracy or completeness of the Property Information.
4.8 Purchaser's Responsibilities. In conducting any inspections,
investigations or tests of the Property and/or Property Information after the
Effective Date, Purchaser and its agents and representatives shall: (i) not
unreasonably disturb the tenants or interfere with their use of the Property
pursuant to or in breach of the terms of their respective Leases; (ii) not
unreasonably interfere with the operation and maintenance of the Property; (iii)
not damage any part of the Property or any personal property owned or held by
any tenant or any third party; (iv) not injure or otherwise cause bodily harm to
Seller, Asset Manager, or their respective agents, guests, invitees, contractors
and employees or any tenants or their guests or invitees; (v) comply with all
applicable laws; (vi) promptly pay when due the costs of all tests,
investigations, and examinations done with regard to the Property; (vii) not
permit any liens to attach to the Property by reason of the exercise of
Purchaser's rights hereunder; (viii) repair any damage to the Property resulting
directly or indirectly from any such inspection or tests; and (ix) not reveal or
disclose prior to Closing any information obtained during Purchaser's inspection
activities with respect to the Property prior to the Effective Date concerning
the Property and the Property Information to anyone other than the Permitted
Outside Parties, in accordance with the confidentiality standards set forth in
Section 4.6 above, or except as may be otherwise required by law.
4.9 Purchaser's Agreement to Indemnify. Purchaser indemnifies and holds
Seller and Asset Manager harmless from and against any and all liens, claims,
causes of action, damages, liabilities and expenses (including reasonable
attorneys' fees) arising out of Purchaser's inspections or tests permitted under
this Agreement or the Exclusive Negotiation Agreement between AIP and Lend Lease
Real Estate, Inc. dated June 27, 2000 or any violation of the provisions of
Sections 4.2, 4.6 or 4.8; provided, however, the indemnity shall not extend to
protect Seller from any pre-existing liabilities for matters merely discovered
by Purchaser (e.g., latent environmental contamination) so long as Purchaser's
actions are conducted with reasonable care in accordance with industry
standards. Purchaser's obligations under this Section 4.9 shall survive the
termination of this Agreement and shall survive the Closing.
4.10 Environmental Studies. As additional consideration for the
transaction contemplated in this Agreement, Purchaser must provide to Seller,
immediately following the receipt of same by Purchaser, copies of any and all
reports, tests or studies involving contamination of or other environmental
concerns relating to the Property; provided, however, Purchaser shall have no
obligation to cause any such tests or studies to be performed on the Property.
Seller acknowledges that Purchaser has not made and does not make any warranty
or representation regarding the truth or accuracy of any such studies or
reports. Notwithstanding Section 4.9 above, Purchaser shall have no liability or
culpability of any nature as a result of having provided such information to
Seller or as a result of Seller's reliance thereon or arising out of the fact
that Purchaser merely conducted such tests or studies, so long as Purchaser's
actions are conducted with reasonable care in accordance with industry
standards.
C-9
<PAGE> 130
ARTICLE 5
TITLE AND SURVEY
5.1 Title Commitment. Purchaser has caused to be prepared and delivered
to Seller on or before the Effective Date: (i) current commitment(s) for title
insurance or preliminary title report (collectively, the "Title Commitment")
issued by the Title Company, in the aggregate amount of the Purchase Price, with
Purchaser as the proposed insured, and (ii) copies of all documents of record
referred to in the Title Commitment as exceptions to title to the Property.
5.2 New or Updated Survey. Purchaser may elect to obtain new surveys or
revise, modify, or re-certify any existing surveys (collectively, the "Survey")
as necessary in order for the Title Company to delete the survey exception from
any title policy (the "Title Policy") Purchaser elects to obtain from the Title
Company or to otherwise satisfy Purchaser's objectives.
5.3 Title Review. Prior to the Effective Date, Purchaser has reviewed
title to the Property as disclosed by the Title Commitment and the Survey.
Seller shall have no obligation to cure title objections except financing liens
created by, under or through Seller that are not being assumed by Purchaser,
which liens Seller shall cause to be released at or prior to Closing (with
Seller having the right to apply the Purchase Price or a portion thereof for
such purpose), and Seller shall deliver the Property free and clear of any such
financing liens. Seller further agrees to remove any exceptions or encumbrances
to title which are created by, under or through Seller after the effective date
of each applicable Title Commitment without Purchaser's prior written consent
(if requested, such consent shall not be unreasonably withheld, conditioned or
delayed). The term "Permitted Exceptions" shall mean: the specific exceptions
(excluding exceptions that are part of the applicable promulgated title
insurance form) in the Title Commitment that the Title Company has not agreed to
remove from the Title Commitment as of the Effective Date and that Seller is not
required to remove as provided above; matters created by, through or under
Purchaser; items shown on the Survey; real estate taxes not yet due and payable;
rights of tenants as tenants only under the Leases; and any licensees under any
Service Contracts not terminated as of Closing in accordance with the provisions
hereof.
5.4 New Exceptions. Purchaser may have Seller's title to the Property
re-reviewed at any time and from time to time up to the Closing and may give
Seller written notice of any additional title exceptions which first appear of
record after the effective date of each applicable Title Commitment ("New
Exceptions"). Seller shall, if requested by Purchaser, (i) cause any such
exception created by, through or under Seller without Purchaser's written
consent (in its sole discretion) to be removed prior to the Closing and (ii) use
good faith, commercially reasonable efforts to remove any other New Exceptions
prior to the Closing. If any such New Exception is not removed prior to Closing
and will have a material adverse effect on the use and operation of the
applicable Project, in Purchaser's reasonable judgment, Purchaser may elect
either (a) in the case of an exception described in clause (i) above, to close
and receive credit against the Purchase Price equal to the lesser of (A) the
cost of curing such title objection or (B) any diminution in value, determined
by an independent third party appraiser, resulting from or likely to result from
such title objection, or (b) to terminate this Agreement as to the affected
Project, in which event the Purchase Price will be reduced by the allocated
Purchase Price of the affected Project, and the parties shall have no further
rights, duties or obligations hereunder with respect to such Project except for
those obligations which by their terms survive termination of this Agreement. In
addition, if Purchaser elects to terminate this Agreement as to a certain
Project as a result of one or more New Exceptions affecting such Project, and
such affected Project is a part of a cross-collateralized debt pool and the
relevant lender or lenders will not permit such Project to be removed from the
pool at no cost to Purchaser, Purchaser may elect to terminate this Agreement as
to all Properties, in which event the Earnest Money shall be returned to
Purchaser and the parties shall have no further rights, duties or obligations
hereunder except for those obligations which by their terms survive termination
of this Agreement.
C-10
<PAGE> 131
ARTICLE 6
OPERATIONS AND RISK OF LOSS
6.1 Ongoing Operations. From the Effective Date through Closing, Seller
hereby covenants and agrees that:
6.1.1 Leases Service Contracts and Loan Documents. Seller will
perform its material obligations under the Leases, Service Contracts and
Loan Documents, including payment of all accrued and outstanding tenant
improvement and leasing commission costs relating to Leases in existence as
of the Effective Date.
6.1.2 New Contracts. Except as provided in Subsection 6.1.4, Seller
will not enter into any contract that will be an obligation affecting the
Property subsequent to the Closing, except contracts entered into in the
ordinary course of business that are terminable without cause and without
the payment of any termination penalty on not more than thirty (30) days'
prior notice, and which shall be terminated by Seller at Closing at no cost
to Purchaser, unless assumed by Purchaser at Purchaser's election made in
writing to Seller at least ten (10) days prior to Closing.
6.1.3 Maintenance of Improvements; Removal of Personal
Property. Subject to Sections 6.2 and 6.3, Seller shall continue to make
its budgeted capital expenditures with respect to the Improvements in a
commercially reasonable manner in the ordinary course of Seller's business
as provided in the schedule attached hereto as Exhibit H and incorporated
herein by reference (the "Capital Expenditure Schedule"), and operate and
maintain the Property in the ordinary course of business and consistent
with past practice. Seller will not remove any Tangible Personal Property
except as may be required for necessary repair or replacement, and
replacement shall be of approximately equal quality and quantity as the
removed item of Tangible Personal Property.
6.1.4 Leasing. Seller will continue to lease space in the
Improvements in the ordinary course of business; provided Purchaser must
approve any new Lease and will do so within five (5) business days of
Seller's delivery of the material terms of any proposed new Lease and
financial information on the proposed tenant that Seller is permitted to
share with third parties, or Purchaser's approval thereof shall be deemed
to have been given. Purchaser shall not unreasonably withhold or delay
approval of any new Lease. With respect to any new Lease that is approved
or deemed approved by Purchaser or with respect to the exercise by a tenant
under an existing Lease of renewal or expansion rights currently provided
for in the applicable Lease which renewal or expansion becomes effective
after the Effective Date, Purchaser shall be responsible for all third
party tenant improvement and leasing commission costs associated with such
new Lease, renewal or expansion. For purposes hereof, a "new Lease" shall
also mean a renewal of an existing Lease or expansion of space covered by
an existing Lease that is not currently provided for in the Lease documents
evidencing the existing Lease.
6.1.5 Maintenance of Insurance. Seller shall maintain the property
insurance currently in effect with respect to the Property through the last
day prior to the Closing Date at no cost to Purchaser.
6.2 Damage. If prior to Closing any Project is damaged by fire or other
casualty, Seller shall promptly notify Purchaser of the casualty and estimate
the cost to repair and the time required to complete repairs and will provide
Purchaser written notice of Seller's estimation (the "Casualty Notice") as soon
as reasonably possible after the occurrence of the casualty.
6.2.1 Material. In the event of any Material Damage to or
destruction of at least four (4) Projects or any portion of at least four
(4) Projects prior to Closing, Purchaser may, at its option, terminate this
Agreement as to either all of the affected Projects or all of the
Properties by delivering written notice to Seller on or before the
expiration of thirty (30) days after the date Seller delivers the Casualty
Notice to Purchaser (and if necessary, the Closing Date shall be extended
to give the parties the full thirty-day period to make such election and to
obtain insurance settlement agreements with Seller's insurers). Upon any
termination as to the affected Projects instead of all of the Properties,
the Purchase Price shall be reduced by the allocated portion of the
Purchase Price for the
C-11
<PAGE> 132
applicable Projects, and the parties hereto shall have no further rights or
obligations hereunder as to the affected Projects, other than those that by
their terms survive the termination of this Agreement. If Purchaser elects
to terminate as to all of the Properties, the Earnest Money shall be
returned to Purchaser and the parties shall have no further rights, duties
or obligations hereunder except for the obligations which by their terms
survive termination of this Agreement. Notwithstanding the foregoing, in
the event Purchaser elects to terminate this Agreement as to four (4) or
more Projects due to Material Damage occurring to the Properties, Seller
shall have the option to terminate this Agreement as to all Properties, in
which event the Earnest Money shall be returned to Purchaser and the
parties shall have no further rights, duties or obligations hereunder
except for the obligations which by all of the terms survive termination of
this Agreement. In the event of Material Damage or destruction of three (3)
or fewer Projects or if Purchaser elects not to terminate this Agreement as
to at least four (4) affected Projects as detailed above within said thirty
(30) day period, then the parties shall proceed under this Agreement and
close on schedule, and as of Closing Seller shall assign to Purchaser,
without representation or warranty by or recourse against Seller, all of
Seller's rights in and to any resulting insurance proceeds (including any
rent loss insurance applicable to any period on and after the Closing Date)
due Seller as a result of such damage or destruction, Purchaser shall
assume full responsibility for all needed repairs, and Purchaser shall
receive a credit at Closing for any deductible amount under such insurance
policies. For the purposes of this Agreement, "Material Damage"and
"Materially Damaged" means damage which, in Seller's reasonable estimation,
exceeds $500,000.00 to repair or which, in Seller's reasonable estimation,
will take longer than ninety (90) days to repair.
6.2.2 Not Material. If any Project is damaged but not Materially
Damaged, then neither Purchaser nor Seller shall have the right to
terminate this Agreement as to the affected Project, and Seller shall, at
its option, either (i) repair the damage before the Closing in a manner
reasonably satisfactory to Purchaser, or (ii) assign to Purchaser all of
Seller's proceeds from insurance payable by reason of such damage, plus pay
an amount to Purchaser for any deductible, less any amount expended by
Seller for repairs made with Purchaser's approval (in which case Purchaser
shall assume full responsibility for all needed repairs).
6.3 Condemnation. If proceedings in eminent domain are instituted with
respect to any Project comprising the Property or any portion thereof which
involves the taking of a portion of the Property exceeding $500,000.00 in value,
Purchaser and Seller shall have the same rights and obligations as provided in
Subsection 6.2.1 with respect to a casualty event affecting the Property.
Provided, if Purchaser is obligated or, if applicable, elects to proceed under
this Agreement, Seller shall, at the Closing, assign to Purchaser its entire
right, title and interest in and to any condemnation award, and Purchaser shall
have the sole right after the Closing to negotiate and otherwise deal with the
condemning authority in respect of such matter.
ARTICLE 7
SHAREHOLDER OBLIGATIONS; OTHER SELLER COVENANTS
7.1 Shareholder Approval. Purchaser acknowledges that the transactions
contemplated by this Agreement are subject to the approval of the holders of a
two-thirds majority of the outstanding common shares of AIP ("Shareholder
Approval"). AIP agrees to use good faith and make commercially reasonable
efforts to obtain such Shareholder Approval as soon as practicable. On the
Effective Date, AIP shall deliver to Purchaser voting agreements from the
institutional shareholder designated members of AIP's Board of Trust Managers
who are eligible to vote and support the approval of the transaction
contemplated herein who hold shares and their respective institutional
affiliates which are shareholders of AIP, pursuant to which the signatories to
such voting agreements have agreed to vote in favor of the transactions
contemplated by this Agreement, subject to rights parallel to Seller's rights
hereunder with respect to a Superior Proposal (defined below).
C-12
<PAGE> 133
7.2 Proxy Statement. In furtherance, and not in limitation of the
foregoing, as soon as practicable after the execution of this Agreement using
good faith and commercially reasonable efforts, Seller shall finalize and file
with the United States Securities And Exchange Commission (the "SEC") a
preliminary proxy statement in accordance with the applicable rules and
regulations promulgated under the Securities Exchange Act of 1934 and thereafter
shall file as soon as is practicable a definitive proxy statement. The proxy
statement shall include a proposal to approve the transactions contemplated in
this Agreement (the "Shareholder Proposal") and shall include the recommendation
of AIP's Board of Trust Managers in favor of the proposal. Seller shall use good
faith and commercially reasonable efforts to respond to any comments of the SEC
and to cause the proxy statement to be mailed to AIP's shareholders as promptly
as practicable. Purchaser shall furnish all information concerning Purchaser as
AIP may reasonably request in connection with such actions and the preparation
of the proxy statement.
7.3 Manhattan Towers. In connection with the transactions contemplated by
this Agreement, Seller is attempting to sell as a project owned by Seller known
as the Manhattan Towers Project and located in Manhattan Beach, California (the
"Manhattan Towers Project") for a gross purchase price of at least
$48,000,000.00. Seller shall use good faith and commercially reasonable efforts
to cause the sale of the Manhattan Towers Project to occur on such terms and
prior to or contemporaneously with Closing.
7.4 DDR Closing. In connection with the transactions contemplated by the
Agreement, AIP intends to cause Developers Diversified Realty Corporation
("DDR") to acquire AIP, generally in accordance with the term sheet to which DDR
and AIP are parties. Seller shall use good faith and commercially reasonable
efforts to cause the merger with a subsidiary of DDR (or such other structure as
agreed upon by DDR and AIP which results in DDR owning AIP) to occur
contemporaneously with Closing.
7.5 Break Up Fee; Reimbursement. If (i) notwithstanding Seller's good
faith efforts, Seller does not (A) obtain Shareholder Approval on or before the
Outside Closing Date, or (B) cause the closing of the sale of the Manhattan
Towers Project to occur prior to or contemporaneously with Closing, or (C) cause
the closing of DDR's acquisition of the outstanding shares of AIP to occur
contemporaneously with Closing, and as a result of (A) or (B) or (C), Seller
elects or is required to terminate this Agreement; or (ii) following the
Effective Date, Seller receives a Superior Acquisition Proposal and as a result
of the fiduciary obligations of the board of trust managers of AIP, as
determined in good faith in consultation with outside counsel, Seller determines
to, and does, terminate this Agreement (which Seller shall hereby be entitled to
do); or (iii) the transactions contemplated by this Agreement are not
consummated because the conditions set forth in Section 9.2 are not satisfied as
a result of a default by Seller hereunder; or (iv) Seller does not obtain
Shareholder Approval on or before the Outside Closing Date, Seller shall pay to
Purchaser a break up fee of $3,000,000.00, and will reimburse Purchaser for the
actual and verifiable out-of-pocket costs, including legal fees actually
incurred by Purchaser or its affiliates, including Lend lease Real Estate
Investments, Inc., in connection with the transactions contemplated by this
Agreement, not to exceed $450,000.00 in the aggregate. Seller agrees to make the
election to terminate or not terminate this Agreement due to a termination of
AIP's merger agreement with DDR outlined in (C) above within fourteen (14) days
of any such termination of the merger agreement with DDR, or Seller shall be
deemed to have elected to waive such termination right and proceed to Closing
under the remaining applicable terms and conditions specified in this Agreement.
This Section 7.5 shall survive termination of this Agreement.
7.6 Non-Solicitation. After the Effective Date and prior to the
termination of this Agreement in accordance with its terms, Seller agrees that:
(a) neither it nor any officer, director, employee, representative,
advisor or agent of Seller or any business entity under its direct control
(collectively, the "Subsidiaries") shall initiate, solicit or knowingly
encourage, directly or indirectly, any inquiries or the making or
implementation of any proposal or offer (including, without limitation, any
proposal or offer to its shareholders) with respect to a merger,
acquisition, tender offer, exchange offer, consolidation, sale of assets or
similar transaction involving all or any significant portion of the assets
or equity securities of Seller or any of
C-13
<PAGE> 134
the Subsidiaries, other than the transactions contemplated by this
Agreement, the DDR merger agreement and the Manhattan Towers agreement (any
such proposal or offer being hereinafter referred to as an "Acquisition
Proposal") or engage in any negotiations concerning or provide any
confidential information or data to, or have any discussions with, any
person relating to an Acquisition Proposal, or otherwise facilitate any
effort or attempt to make or implement an Acquisition Proposal;
(b) it shall direct and use its reasonable best efforts to cause its
officers, board of trust managers, employees, agents and financial advisors
not to engage in any of the activities described in Section 7.6(a) except
to the extent expressly permitted by the proviso below;
(c) it will immediately cease and cause to be terminated any existing
activities, discussions or negotiations with any parties conducted
heretofore with respect to any of the foregoing; and
(d) it will notify Purchaser promptly if Seller receives any such
inquiries or proposals, or any requests for such information, or if any
such negotiations or discussions are sought to be initiated or continued
with it;
provided, however, that nothing contained in this Agreement shall
prohibit the board of trust managers of AIP (or the officers, board of
trust managers of AIP, employees, agents or financial advisors of Seller
acting at the direction of the board of trust of managers of AIP) from
(i) furnishing information to or entering into discussions or
negotiations with, any person or entity that makes an unsolicited
Acquisition Proposal, if, and only to the extent that (x) the board of
trust managers of AIP determines in good faith following consultation
with counsel and with Seller's financial advisors that such action is
required for the board of trust managers of AIP to comply with its
duties to shareholders imposed by law or such proposal is a Superior
Acquisition Proposal (as hereinafter defined), (y) prior to furnishing
such information to, or entering into discussions or negotiations with,
such person or entity, Seller provides written notice to Purchaser to
the effect that it is furnishing information to, or entering into
discussions with, such person or entity, and (z) subject to any
confidentiality agreement with such person or entity, Seller keeps
Purchaser informed of the status (not the terms) of any such discussions
or negotiations; or (ii) to the extent applicable, taking and disclosing
to Seller's shareholders a position contemplated by Rules 14d-9 and
14e-2 promulgated under the Exchange Act with regard to an Acquisition
Proposal. Nothing in this Section 7.6 shall (1) permit Seller to
terminate this Agreement (except as specifically provided in Article 7
hereof), (2) permit Seller to enter into an agreement with respect to an
Acquisition Proposal during the term of this Agreement (other than a
confidentiality agreement in customary form executed as provided above)
or (3) affect any other obligation of Seller under this Agreement;
provided, however, that the board of trust managers of AIP may, subject
to the provisions of Section 7.5, approve and recommend a Superior
Acquisition Proposal and, in connection therewith, withdraw or modify
its approval or recommendation of this Agreement. Any disclosure that
the board of trust managers of AIP may be compelled to make with respect
to the receipt of an Acquisition Proposal in order to comply with its
duties to shareholders of Seller or comply with applicable law will not
constitute a violation of this Section 7.6. As used herein, "Superior
Acquisition Proposal" means a bona fide Acquisition Proposal made by a
third party which the board of trust managers of AIP (or a duly
constituted committee thereof charged with considering Acquisition
Proposals) determines in good faith following consultation with counsel
and with Seller's financial advisors to be more favorable to Seller's
shareholders from a financial point of view than the transactions
contemplated herein and which the board of trust managers of AIP (or any
such committee) determines is reasonably capable of being financed and
consummated.
C-14
<PAGE> 135
ARTICLE 8
EXISTING LOANS
Subject to Section 9.2.4, Purchaser shall either (i) acquire the Properties
subject to the Existing Loans, subject to the limitations on recourse set forth
in the documents evidencing or securing such loans, in which case Purchaser
shall assume such Existing Loans at Closing; or (ii) the Existing Loans shall be
paid at Closing. Purchaser agrees to promptly notify Seller of Purchaser's
election to not assume any Existing Loan for which Purchaser's assumption has
been approved by the applicable lender. Purchaser and Seller shall cooperate in
good faith and use their commercially reasonable efforts to negotiate with the
relevant lenders prior to the Closing Date to: (i) obtain the required lender
consents to Purchaser's proposed assumptions; (ii) minimize prepayment and
assumption fees and charges; (iii) obtain favorable terms of assumption for any
loans contemplated to be assumed; and (iv) obtain estoppel statements from
applicable lenders.
ARTICLE 9
CLOSING
9.1 Closing. The consummation of the transaction contemplated herein
("Closing") shall occur on the Closing Date at the offices of Locke Liddell &
Sapp LLP, 2200 Ross Avenue, Suite 2200, Dallas, Texas 75201 (or such other
location as may be mutually agreed upon by Seller and Purchaser). Funds shall be
deposited into and held by Escrow Agent in a closing escrow account with a bank
satisfactory to Purchaser and Seller. Upon satisfaction, completion or waiver of
all closing conditions and deliveries, the parties shall direct Escrow Agent to
immediately record and deliver the closing documents to the appropriate parties
and make disbursements according to the closing statements executed by Seller
and Purchaser.
9.2 Conditions to Parties' Obligation to Close. In addition to all other
conditions set forth herein, the obligation of Seller, on the one hand, and
Purchaser, on the other hand, to consummate the transactions contemplated
hereunder are conditioned upon the following:
9.2.1 Representations and Warranties. The other party's
representations and warranties contained herein shall be true and correct
in all material respects as of the date of this Agreement and the Closing
Date provided, however, the representation contained in Subsection 11.1.2
will be deemed satisfied at Closing provided no injunction is in place
issued by a court of competent jurisdiction prohibiting the Closing from
occurring;
9.2.2 Deliveries, Covenants, Obligations. As of the Closing Date,
the other party shall have tendered all deliveries to be made at Closing
and complied with all covenants and obligations herein to be complied with
on or prior to Closing;
9.2.3 Actions, Suits, etc. There shall exist no pending action,
suit, arbitration, claim, attachment, proceeding, assignment for the
benefit of creditors, insolvency, bankruptcy, reorganization or other
proceedings, that enjoins the Closing.
9.2.4 Loan Assumption. The obligations of Purchaser with regard to
Closing under this Agreement are, at its option, subject to Purchaser's
receipt of consent of lenders under the Existing Loans to Purchaser's
assumption of at least $118,000,000.00 of the principal balances of the
Existing Loans on terms that are the same in all material respects as those
currently applicable to such Existing Loans.
9.2.5 Title Policy. The obligations of Purchaser with regard to
Closing under this Agreement are, at its option, subject to Title Company
having irrevocably committed in writing to issue to Purchaser an extended
coverage owner's policy of title insurance in an amount at least equal to
the Purchase Price on American Land Title Association (ALTA) Owner's Policy
Form B-1970 or Form B-1992 with exception for creditor's rights deleted,
and all conditions to such issuance having
C-15
<PAGE> 136
been met, insuring that, upon Closing, Purchaser is the owner of the fee
simple title to the Property, without exception, whether standard or
special, except for the Permitted Exceptions.
9.2.6 Estoppels. The obligations of Purchaser with regard to Closing
under this Agreement are, at its option, subject to Seller having delivered
to Purchaser, no more than fifteen (15) days prior to Closing, Acceptable
Estoppel Certificates from at least (i) nine (9) of the ten (10) largest
tenants (measured by annual base rental obligations) of all of the
Properties, such tenants being identified on Exhibit I attached hereto and
incorporated herein by this reference (the "Major Tenants"), and (ii)
seventy-five percent (75%) of the remaining tenants (measured by rentable
square footage, not including the square footage of the nine (9) Major
Tenants for which Acceptable Estoppel Certificates have been delivered
pursuant to clause (i) above). An "Acceptable Estoppel Certificate" means
an executed Estoppel Certificate substantially in the form of Exhibit J
attached hereto and incorporated herein by this reference or in the form
provided in the applicable Lease, or with such modifications in form or
substance as are approved by Purchaser in its reasonable discretion.
9.2.7 Leasing Commissions; Tenant Improvement Costs. The obligations
of Purchaser with regard to Closing under this Agreement are, at its
option, subject to Seller having paid, performed and/or provided
appropriate credits to Purchaser at or prior to Closing with respect to
tenant improvement and leasing commission obligations relating to each
Lease in place as of the Effective Date that are accrued and outstanding as
of the Closing Date.
9.2.8 Shareholder Approval. Shareholder Approval shall have been
obtained, as well as shareholder approval of the transaction with DDR
described in Section 7.14.
So long as a party is not in default hereunder, if any condition to such
party's obligation to proceed with the Closing hereunder has not been satisfied
as of the Closing Date (or such earlier date as is provided herein), such party
may, in its sole discretion, terminate this Agreement by delivering written
notice to the other party on or before the Closing Date (or such earlier date as
is provided herein), or elect to close (or to permit any such earlier
termination deadline to pass) notwithstanding the non-satisfaction of such
condition, in which event such party shall be deemed to have waived any such
condition. In the event such party elects to close (or to permit any such
earlier termination deadline to pass), notwithstanding the non-satisfaction of
such condition, said party shall be deemed to have waived said condition, and
there shall be no liability on the part of any other party hereto for
nonintentional breaches of representations and warranties of which the party
electing to close had knowledge at the Closing.
9.3 Seller's Deliveries in Escrow. As of or prior to the Closing Date,
Seller shall deliver in escrow to Escrow Agent the following:
9.3.1 Deed. One or more special warranty or other limited warranty
deeds (as Seller's local counsel or Title Company shall advise, warranting
title only against any party claiming by, through or under Seller) in form
acceptable for recordation under the law of the state where the Property is
located and including a list of Permitted Exceptions to which the
conveyance shall be subject, executed and acknowledged by Seller, conveying
to Purchaser Seller's interest in the Real Property (collectively, the
"Deed");
9.3.2 Bill of Sale, Assignment and Assumption. One or more Bill of
Sale, Assignment and Assumption of Leases and Contracts in the form of
Exhibit C attached hereto (collectively, the "Assignment"), executed and
acknowledged by Seller, vesting in Purchaser, without implied warranty,
Seller's right, title and interest in and to the property described therein
free of any claims, except for the Permitted Exceptions to the extent
applicable;
9.3.3 Lender Assumption Documents. The applicable Lender Assumption
Documents;
9.3.4 Estoppels. All Acceptable Estoppel Certificates received by
Seller;
C-16
<PAGE> 137
9.3.5. Conveyancing or Transfer Tax Forms or Returns. Such
conveyancing or transfer tax forms or returns, if any, as are required to
be delivered or signed by Seller by applicable state and local law in
connection with the conveyance of the Real Property;
9.3.6 FIRPTA. A Foreign Investment in Real Property Tax Act
affidavit executed by Seller;
9.3.7 Authority. Evidence of the existence, organization and
authority of Seller and of the authority of the persons executing documents
on behalf of Seller reasonably satisfactory to the underwriter for the
Title Policy;
9.3.8 Rent Roll. Updated Rent Rolls for the Property.
9.3.9 Additional Documents. Any additional documents that Escrow
Agent or the Title Company may reasonably require for the proper
consummation of the transaction contemplated by this Agreement, including,
without limitation, the documents described on Exhibit L (Title Company
Requirements) (provided, however, no such additional document shall expand
any obligation, covenant, representation or warranty of Seller or result in
any new or additional obligation, covenant, representation or warranty of
Seller under this Agreement beyond those expressly set forth in this
Agreement).
9.3.10 Closing Certificate. A certificate confirming the
representations and warranties of Seller contained in Section 11.1 remain
true and correct in all material respect as of Closing.
9.4 Purchaser's Deliveries in Escrow. As of or prior to the Closing Date,
Purchaser shall deliver in escrow to Escrow Agent the following:
9.4.1 Bill of Sale, Assignment and Assumption. The Assignment,
executed and acknowledged by Purchaser;
9.4.2 Lender Assumption Documents. Any and all documents reasonably
required by Nationwide Life Insurance Company and Aegon Life Insurance
Company for Purchaser to assume, at its election, the approximate
indebtedness of $118,183,000.00 owing by Seller, to assume all obligations
of Seller under the Loan Documents, and to confirm that the applicable
assumed loans are not in default (the "Lender Assumption Documents"). In
addition, Purchaser will use commercially reasonable efforts (without
incurring additional expense) to cause Seller to be released from such
indebtedness and obligations from and after the Closing Date. In the event
Purchaser desires to and is able to cause National Realty Funding L.P.
and/or Guaranty Federal Bank, F.S.B. to permit Purchaser to assume the
approximate respective indebtedness of $23,630,000.00 and $7,893,000.00
owing by Seller, such lenders' assumption documentation shall be included
in the definition of "Lender Assumption Documents" hereunder.
9.4.3 Conveyancing or Transfer Tax Forms or Returns. Such
conveyancing or transfer tax forms or returns, if any, as are required to
be delivered or signed by Purchaser by applicable state and local law in
connection with the conveyance of Real Property; and
9.4.4. Indemnity. In the event Seller is not released from the
indebtedness and obligations under the Loan Documents which are the subject
of the Lender Assumption Documents, Purchaser shall execute an indemnity
agreement in favor of Seller relating to claims occurring after Closing
against Seller with respect to the Loan Documents.
9.4.5. Additional Documents. Any additional documents that Escrow
Agent or the Title Company may reasonably require for the proper
consummation of the transaction contemplated by this Agreement (provided,
however, no such additional document shall expand any obligation, covenant,
representation or warranty of Purchaser or result in any new or additional
obligation, covenant, representation or warranty of Purchaser under this
Agreement beyond those expressly set forth in this Agreement).
C-17
<PAGE> 138
9.4.6. Closing Certificate. A certificate confirming the
representations and warranties of Purchaser contained Section 11.2 remain
true and correct in all material respects as of Closing.
9.5 Closing Statements. As of or prior to the Closing Date, Seller and
Purchaser shall deposit with Escrow Agent executed closing statements consistent
with this Agreement in the form reasonably required by Escrow Agent.
9.6 Purchase Price. At or before 1:00 p.m. local time on the Closing
Date, Purchaser shall deliver to Escrow Agent the Purchase Price, less the
principal amount of indebtedness assumed by Purchaser pursuant to the Lender
Assumption Documents, plus or minus applicable prorations in accordance with
Article 10 hereof, in immediate, same-day U.S. federal funds wired for credit
into Escrow Agent's escrow account, which funds must be delivered in a manner to
permit Escrow Agent to deliver good funds to Seller or its designee on the
Closing Date (and, if requested by Seller, by wire transfer).
9.7 Possession. Seller shall deliver possession of the Property to
Purchaser at the Closing subject only to the Permitted Exceptions.
9.8 Delivery of Books and Records. At the Closing, Seller shall deliver
to the offices of Purchaser's property manager or to the Real Property to the
extent in Seller's or its property manager's possession or control: Lease Files;
maintenance records and warranties; plans and specifications; licenses, permits
and certificates of occupancy; copies or originals of all books and records of
account, contracts, and copies of correspondence with tenants and suppliers;
receipts for deposits, unpaid bills and other papers or documents which pertain
to the Property; all advertising materials; booklets; keys; and other similar
items, if any, used in the operation of the Property.
9.9 Notice to Tenants. Seller and Purchaser shall deliver to each tenant
immediately after the Closing a notice regarding the sale in substantially the
form of Exhibit E attached hereto, or such other form as may be required by
applicable law.
ARTICLE 10
PRORATIONS, DEPOSITS, COMMISSIONS
10.1 Prorations. At Closing, the following items shall be prorated as of
the date of Closing with all items of income and expense for the Property being
borne by Seller prior to the Closing and Purchaser from and after (but
including) the date of Closing: Tenant Receivables and other income and rents;
fees and assessments; prepaid expenses and obligations under Service Contracts;
accrued operating expenses; accrued and unpaid interest on the Existing Loans
assumed by Purchaser; real and personal ad valorem taxes ("Taxes"); and any
assessments by private covenant for the then-current calendar year of Closing.
Specifically, the following shall apply to such prorations:
10.1.1 Taxes. If Taxes for the year of Closing are not known or
cannot be reasonably estimated, Taxes shall be prorated based on Taxes for
the year prior to Closing. Any additional Taxes relating to the year of
Closing arising out of a change in ownership shall be assumed by Purchaser
effective as of Closing and paid by Purchaser when due and payable, and
Purchaser shall indemnify Seller from and against any and all such Taxes,
which indemnification obligation shall survive the Closing.
10.1.2 Utilities. Purchaser and Seller shall take all steps
necessary to effectuate the transfer of all utilities to Purchaser's name
as of the Closing Date, and where necessary, Purchaser shall post deposits
with the utility companies. Seller shall ensure that all utility meters are
read as of the Closing Date. Seller shall be entitled to recover any and
all deposits held by any utility company as of the Closing Date.
10.1.3 Tenant Receivables. Rents due from tenants under Leases and
operating expenses and/or taxes payable by tenants under Leases
(collectively, "Tenant Receivables") shall be
C-18
<PAGE> 139
apportioned on the basis of the period for which the same is payable and
if, as and when collected, as follows:
(a) Purchaser shall apply rent and other income received from
tenants under Leases after Closing in the following order of priority:
(i) first, to payment of the current Tenant Receivables then due for the
month in which the Closing Date occurs, which amount shall be
apportioned between Purchaser and Seller as of the Closing Date as set
forth in Section 10.1 hereof (with Seller's portion thereof to be
delivered to Seller); (ii) second, to Tenant Receivables first coming
due after Closing and applicable to the period of time after Closing,
which amount shall be retained by Purchaser; (iii) third, to payment of
Tenant Receivables first coming due after Closing but applicable to the
period of time before Closing, including, without limitation, the Tenant
Receivables described in Subsection 10.1.3(b) below (collectively,
"Unbilled Tenant Receivables"), which amount shall be delivered to
Seller; and (iv) thereafter, to delinquent Tenant Receivables which were
due and payable as of Closing but not collected by Seller as of Closing
(collectively, "Uncollected Delinquent Tenant Receivables"), which
amount shall be delivered to Seller. Notwithstanding the foregoing,
Seller shall have the right to pursue the collection of Uncollected
Delinquent Tenant Receivables for a period of one (1) year after Closing
without prejudice to Seller's rights or Purchaser's obligations
hereunder, provided, however, Seller shall have no right to cause any
such tenant to be evicted or to exercise any other remedies set forth in
such tenant's Lease against such tenant other than to sue for
collection. Any sums received by Purchaser to which Seller is entitled
shall be held in trust for Seller on account of such past due rents
payable to Seller, and Purchaser shall remit to Seller any such sums
received by Purchaser to which Seller is entitled within ten (10)
business days after receipt thereof less reasonable, actual costs and
expenses of collection, including reasonable attorneys' fees, court
costs and disbursements, if any. Seller expressly agrees that if Seller
receives any amounts after the Closing Date which are attributable, in
whole or in part, to any period after the Closing Date, Seller shall
remit to Purchaser that portion of the monies so received by Seller to
which Purchaser is entitled within ten (10) business days after receipt
thereof. With respect to Unbilled Tenant Receivables, Purchaser
covenants and agrees to (A) bill the same when billable pursuant to the
applicable Lease and (B) cooperate with Seller to determine the correct
amount of operating expenses and/or taxes due pursuant to the applicable
Lease. The provisions of this Subsection 10.1.3(a) shall survive the
Closing.
(b) Without limiting the generality of the requirements of
Subsection 10.1.3(a)(ii) above, if the final reconciliation or
determination of operating expenses and/or taxes due under the Leases
shows that a net amount is owed by Seller to Purchaser, Purchaser's pro
rata portion shall be paid by Seller to Purchaser within ten (10)
business days of such final determination under the Leases. If the final
determination of operating expenses and/or taxes due under the Leases
shows that a net amount is owed by Purchaser to Seller, Purchaser shall,
within ten (10) business days of such final determination, remit to
Seller Seller's portion of operating expenses and/or taxes for the
period up to and including the Closing Date, if, as and when received.
Purchaser agrees to receive and hold any monies received on account of
such past due expenses and/or taxes in trust for Seller and to pay same
promptly to Seller as aforesaid. The provisions of this Subsection
10.1.3(b) shall survive the Closing.
10.2 Closing Costs. Closing costs shall be allocated between Seller and
Purchaser in accordance with Section 1.2.
10.3 Capital Expenditures. To the extent Seller did not fund all capital
expenditures scheduled to be performed on or before the Closing Date (as set
forth on the Capital Expenditure Schedule), Purchaser shall receive a credit
against the Purchase Price in the estimated amount of such unfunded capital
expenditures, as shown on the Capital Expenditure Schedule.
10.4 Final Adjustment After Closing. If final bills are not available or
cannot be issued prior to Closing for any item being prorated under Section
10.1, then Purchaser and Seller agree to allocate such
C-19
<PAGE> 140
items on a fair and equitable basis as soon as such bills are available, final
adjustment to be made as soon as reasonably possible after the Closing. Payments
in connection with the final adjustment shall be due within thirty (30) days of
written notice. All such rights and obligations shall survive the Closing.
10.5 Tenant Deposits. All tenant security deposits collected and not
applied by Seller in accordance with the terms of the applicable Lease and
applicable law (and interest thereon if required by law or contract) shall be
transferred or credited to Purchaser at Closing. As of the Closing, Purchaser
shall assume Seller's obligations related to tenant security deposits, but only
to the extent they are credited or transferred to Purchaser.
10.6 No Commissions. Seller and Purchaser each represent and warrant to
the other that no real estate brokerage commission is payable to any person or
entity in connection with the transaction contemplated hereby, and each agrees
to and does hereby indemnify and hold the other harmless against the payment of
any commission to any other person or entity claiming by, through or under
Seller or Purchaser, as applicable. This indemnification shall extend to any and
all claims, liabilities, costs and expenses (including reasonable attorneys'
fees and litigation costs) arising as a result of such claims and shall survive
the Closing.
ARTICLE 11
REPRESENTATIONS AND WARRANTIES
11.1 Seller's Representations and Warranties. Seller represents and
warrants to Purchaser that:
11.1.1 Organization and Authority. Each entity comprising "Seller"
has been duly organized, is validly existing, and is in good standing in
the state in which it was formed. Subject to Shareholder Approval, Seller
has the full right and authority to enter into this Agreement and to
consummate or cause to be consummated the transactions contemplated hereby.
This Agreement has been, and all of the documents to be delivered by Seller
at the Closing will be, authorized and executed and constitute, or will
constitute, as appropriate, the valid and binding obligation of Seller,
enforceable in accordance with their terms, subject to the Shareholder
Approval. Except as disclosed by Seller to Purchaser, the execution,
delivery, and performance of this Agreement and the Closing Documents by
Seller will not result in any violation of or default under, or require any
notice, or consent under any of Seller's organizational documents, any
other agreement to which Seller is a party or any law, judgment or order
applicable to Seller.
11.1.2 Conflicts and Pending Actions. Except as disclosed by Seller
to Purchaser, there is no agreement to which Seller is a party or, to
Seller's knowledge, that is binding on Seller which is in conflict with
this Agreement. There is no action or proceeding pending or, to Seller's
knowledge, threatened against Seller or relating to the Property, which
challenges or impairs Seller's ability to execute or perform its
obligations under this Agreement, and no order or other relief has been
entered that imposes any recorded lien or other encumbrance on any of the
Property.
11.1.3 Service Contracts. To Seller's knowledge, the list of Service
Contracts to be delivered to Purchaser pursuant to this Agreement will be
correct and complete as of the date of its delivery.
11.1.4 Notices from Governmental Authorities. To Seller's knowledge,
Seller has not received from any governmental authority written notice of
any material violation of any laws applicable (or alleged to be applicable)
to the Property, or any part thereof, that has not been corrected, except
as may be reflected by the Property Information.
11.1.5 Leases. On or prior to the Effective Date, Seller has
delivered to Purchaser or made available to Purchaser, true, and correct
and complete copies of all leasing commissions and brokerage agreements
currently in effect for each Property, all of which are listed on Exhibit
K, attached hereto and incorporated herein by this reference (the
"Commission Schedule"). Seller has delivered to the Purchaser or made
available to Purchaser true and correct and complete copies of all existing
Leases. The Commission Schedule lists tenant improvement costs, brokers'
commissions and leasing fees for
C-20
<PAGE> 141
any tenant's prior space for which the landlord with respect to any of the
Properties is obligated or subject and which are unpaid as of October 6,
2000, and (ii) all brokers' commissions and leasing fees which the landlord
with respect to any of the Properties is contractually obligated to pay in
the event any tenant exercises any renewal or expansion option.
As of the Effective Date, no Lease has been modified except as shown in
the Leases delivered to Purchaser. Each of the Leases is in full force
and effect. To Seller's knowledge, no uncured event of material default
on the part of Seller has occurred under any of the Leases and there
exists no event which, with the giving of notice or the passage of time,
or both, would constitute such a default. To Seller's knowledge, no
uncured event of material default on the part of any tenant has occurred
under any of the Leases and, to Seller's knowledge, there exists no
event which, with the giving of notice or the passage of time, or both,
would constitute such a default. No tenant has any defense, offset or
claim against its obligation to pay rent or perform any of its other
obligations under its Lease. Except with respect to the "Battlefield
Property," no tenant has any right of right or first refusal or option
to purchase any part of the Property. If the tenant at the Battlefield
Property does elect to exercise its purchase option, the Battlefield
Property shall no longer be subject to this Agreement and the Purchase
Price will be reduced by the allocated Purchase Price thereof provided
pursuant to a separate written agreement between Seller and Purchaser
and the parties shall have no further rights, duties or obligations
herewith respect to the Battlefield Property, except for those
obligations which by their terms survive termination of this Agreement.
11.1.6 Loan Documents. On or prior to the Effective Date, Seller has
delivered to the Purchaser or made available to Purchaser true and correct
and complete copies of all existing Loan Documents. The Loan Documents have
not been modified except as shown in the Loan Documents. There are no other
documents or instruments which evidence, secure or otherwise govern the
Existing Loans. Seller has not received any notice of any material breach
or material default under the Loan Documents, and to Seller's knowledge,
there is no existing or uncured material default or material breach by any
party under the Loan Documents, and no facts or circumstances exist that,
with the passage of time or the giving of notice, or both, would constitute
such a default or breach by any party under the Loan Documents. To Seller's
knowledge, the current mortgagees or beneficiaries of the Existing Loans
are the lenders identified on Exhibit F. The outstanding principal balance
of each of the Existing Loans estimated as of February 28, 2001 is set
forth on Exhibit F.
11.1.7 Service Contracts. On or prior to the Effective Date, Seller
has made available or delivered to the Purchaser true and correct and
complete copies of all Service Contracts related to the operation of the
Property. The Service Contracts have not been modified except as shown in
the Service Contracts. Seller has not received any notice of any material
breach or material default under the Service Contracts, and to Seller's
knowledge, there is no existing or uncured material default or material
breach by any party under the Service Contracts, and no facts or
circumstances exist that, with the passage of time or the giving of notice,
or both, would constitute a default or breach by any party under the
Service Contracts.
11.1.8 Management Agreements. On or prior to the Effective Date,
Seller has made available or delivered to the Purchaser true and correct
and complete copies of all existing management agreements relating to the
Property. The management agreements have not been otherwise modified except
as shown in the management agreements delivered to Purchaser. Seller has
not received any notice of any uncured material breach or material default
under the management agreements, and to Seller's knowledge, there is no
existing or uncured material default or material breach by any party under
the management agreements, and no facts or circumstances exist that, with
the passage of time or the giving of notice, or both, would constitute such
a default or breach by any party under the management agreements.
C-21
<PAGE> 142
11.1.9 Condemnation. Seller has not received notice of, nor does
Seller have knowledge of any pending or contemplated condemnation, eminent
domain, or similar proceeding with respect to all or any portion of the
Properties.
11.1.10 Property Taxes. Seller has provided Purchaser with copies of
all notices and other documents relating to any and all property tax
reassessment proceedings or contests relating to or affecting any of the
Properties.
11.2 Purchaser's Representations and Warranties. Purchaser represents and
warrants to Seller that:
11.2.1 Organization and Authority. Purchaser has been duly organized
and is validly existing as a limited partnership in good standing in the
State of Georgia and as of the Closing Date will be qualified to do
business in each state in which the Real Property is located. Purchaser has
the full right and authority and has obtained any and all consents required
to enter into this Agreement and to consummate or cause to be consummated
the transactions contemplated hereby. This Agreement has been, and all of
the documents to be delivered by Purchaser at the Closing will be,
authorized and properly executed and constitute, or will constitute, as
appropriate, the valid and binding obligation of Purchaser, enforceable in
accordance with their terms. The execution, delivery, and performance of
this Agreement and the Closing Documents by Purchaser will not result in
any violation of or default under, or require any notice, or consent under
any of Purchaser's organizational documents, any other agreement to which
Purchaser is a party or any law, judgment or order applicable to Purchaser.
11.2.2 Conflicts and Pending Action. There is no agreement to which
Purchaser is a party or to Purchaser's knowledge binding on Purchaser which
is in conflict with this Agreement. There is no action or proceeding
pending or, to Purchaser's knowledge, threatened against Purchaser which
challenges or impairs Purchaser's ability to execute or perform its
obligations under this Agreement.
11.2.3. Adequate Funds. Purchaser currently has or on the Closing
will have adequate funds to close on the purchase of the Projects in
accordance with the terms hereof.
11.3 Survival of Representations and Warranties. The representations and
warranties set forth in this Article 11 are made as of the date of this
Agreement and remade as of the Closing Date, but shall be deemed to be merged
into and waived by the instruments of Closing, and shall not survive the
Closing. Terms such as "to Seller's knowledge," "to the best of Seller's
knowledge," or like phrases do not include constructive knowledge, imputed
knowledge, or knowledge Seller does not have but could have obtained through
further investigation or inquiry. Terms such as "to Purchaser's knowledge," "to
the best of Purchaser's knowledge," or like phrases do not include constructive
knowledge, imputed knowledge, or knowledge Purchaser does not have but could
have obtained through further investigation or inquiry. No broker, agent, or
party other than Seller is authorized to make any representation or warranty for
or on behalf of Seller. No broker, agent, or other party other than Purchaser is
authorized to make any representation or warranty for or on behalf of Purchaser.
C-22
<PAGE> 143
ARTICLE 12
DEFAULT AND REMEDIES
12.1 Seller's Remedies. If Purchaser fails to perform its obligations
pursuant to this Agreement at or prior to Closing for any reason except failure
by Seller to perform hereunder, Seller shall be entitled, as its sole remedy
(except as provided in Sections 4.9, 10.6, 12.3 and 12.4 hereof), to terminate
this Agreement and recover the Earnest Money as liquidated damages and not as
penalty, in full satisfaction of claims against Purchaser hereunder. Seller and
Purchaser agree that Seller's damages resulting from Purchaser's default are
difficult, if not impossible, to determine and the Earnest Money is a fair
estimate of those damages which has been agreed to in an effort to cause the
amount of such damages to be certain. Notwithstanding anything in this Section
12.1 to the contrary, in the event of Purchaser's default or a termination of
this Agreement, Seller shall have all remedies available at law or in equity in
the event Purchaser or any party related to or affiliated with Purchaser is
asserting any claims or right to the Property that would delay or prevent Seller
from having clear, indefeasible and marketable title to the Property. In all
other events Seller's remedies shall be limited to those described in this
Section 12.1 and Sections 4.9, 10.6, 12.3 and 12.4 hereof. IN NO EVENT SHALL
PURCHASER'S DIRECT OR INDIRECT PARTNERS, SHAREHOLDERS, OWNERS OR AFFILIATES, ANY
OFFICER, DIRECTOR, EMPLOYEE OR AGENT OF THE FOREGOING, OR ANY AFFILIATE OR
CONTROLLING PERSON THEREOF HAVE ANY LIABILITY FOR ANY CLAIM, CAUSE OF ACTION OR
OTHER LIABILITY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE PROPERTY,
WHETHER BASED ON CONTRACT, COMMON LAW, STATUTE, EQUITY OR OTHERWISE.
Seller's Initials /s/ CW Purchaser's Initials /s/ JR
12.2 Purchaser's Remedies. If Seller fails to perform its obligations
pursuant to this Agreement for any reason except failure by Purchaser to perform
hereunder, Purchaser shall elect, as its sole remedy (except as provided in
Sections 10.6, 12.3, 12.4 and 12.5), either to (i) terminate this Agreement by
giving Seller timely written notice of such election prior to or at Closing and
recover the amounts specified under Section 7.5, or (ii) waive said failure or
breach and proceed to Closing. IN NO EVENT SHALL SELLER'S DIRECT OR INDIRECT
PARTNERS, SHAREHOLDERS, OWNERS OR AFFILIATES, ANY OFFICER, DIRECTOR, EMPLOYEE OR
AGENT OF THE FOREGOING, OR ANY AFFILIATE OR CONTROLLING PERSON THEREOF HAVE ANY
LIABILITY FOR ANY CLAIM, CAUSE OF ACTION OR OTHER LIABILITY ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR THE PROPERTY, WHETHER BASED ON CONTRACT, COMMON
LAW, STATUTE, EQUITY OR OTHERWISE.
Seller's Initials /s/ CW Purchaser's Initials /s/ JR
12.3 Attorneys' Fees. In the event either party hereto employs an
attorney in connection with claims by one party against the other arising from
the operation of this Agreement, the non-prevailing party shall pay the
prevailing party all reasonable, actual and verifiable fees and expenses,
including attorneys' fees, incurred in connection with such claims.
12.4 Other Expenses. If this Agreement is terminated due to the default
of a party, then the defaulting party shall pay any fees or charges due to
Escrow Agent for holding the Earnest Money as well as any escrow cancellation
fees or charges and any fees or charges due to the Title Company for preparation
and/or cancellation of the Title Commitment.
12.5 Litigation Indemnity. Seller shall indemnify, save and hold harmless
Purchaser from and against any and all costs, losses, liabilities, obligations,
damages, lawsuits, deficiencies, claims, demands and expenses, including without
limitation attorney's fees and all amounts paid in investigation, defense or
settlement of any of the foregoing, incurred in connection with, arising out of,
or resulting from any litigation against Seller, including without limitation,
any shareholder litigation arising as a result of the transactions contemplated
by this Agreement, but excluding any such item arising out of Purchaser's
C-23
<PAGE> 144
negligent or wrongful action or inaction. The provisions of this Section 12.5
shall survive termination of this Agreement or consummation of the transactions
contemplated hereby.
ARTICLE 13
DISCLAIMERS, RELEASE AND INDEMNITY
13.1 Disclaimers By Seller.
(a) Except as expressly set forth in this Agreement, it is understood and
agreed that Seller and Asset Manager have not at any time made and are not now
making, and they specifically disclaim, any warranties or representations of any
kind or character, express or implied, with respect to the Property, including,
but not limited to, warranties or representations as to (i) matters of title,
(ii) environmental matters relating to the Property or any portion thereof,
including, without limitation, the presence of Hazardous Materials in, on, under
or in the vicinity of the Property, (iii) geological conditions, including,
without limitation, subsidence, subsurface conditions, water table, underground
water reservoirs, limitations regarding the withdrawal of water, and geologic
faults and the resulting damage of past and/or future faulting, (iv) whether,
and to the extent to which the Property or any portion thereof is affected by
any stream (surface or underground), body of water, wetlands, flood prone area,
flood plain, floodway or special flood hazard, (v) drainage, (vi) soil
conditions, including the existence of instability, past soil repairs, soil
additions or conditions of soil fill, or susceptibility to landslides, or the
sufficiency of any undershoring, (vii) the presence of endangered species or any
environmentally sensitive or protected areas, (viii) zoning or building
entitlements to which the Property or any portion thereof may be subject, (ix)
the availability of any utilities to the Property or any portion thereof
including, without limitation, water, sewage, gas and electric, (x) usages of
adjoining property, (xi) access to the Property or any portion thereof, (xii)
the value, compliance with the plans and specifications, size, location, age,
use, design, quality, description, suitability, structural integrity, operation,
title to, or physical or financial condition of the Property or any portion
thereof, or any income, expenses, charges, liens, encumbrances, rights or claims
on or affecting or pertaining to the Property or any part thereof, (xiii) the
condition or use of the Property or compliance of the Property with any or all
past, present or future federal, state or local ordinances, rules, regulations
or laws, building, fire or zoning ordinances, codes or other similar laws, (xiv)
the existence or non-existence of underground storage tanks, surface
impoundments, or landfills, (xv) the merchantability of the Property or fitness
of the Property for any particular purpose, (xvi) the truth, accuracy or
completeness of the Property Information, (xvii) tax consequences, or (xviii)
any other matter or thing with respect to the Property.
(b) Section 25359.7 of the California Health and Safety Code requires
owners of nonresidential property who know or have reasonable cause to believe
that any release of hazardous substance has come to be located on or beneath
real property to provide written notice of that condition to a buyer of such
real property. There is a possibility that a release of a hazardous substance
may have come to be located on or beneath one or more of the Projects as
described in the environmental reports and documents which have been received
and reviewed by Purchaser. By its execution of this Agreement, Purchaser
acknowledges its receipt of the foregoing notice given pursuant to Section
25359.7 of the California Health and Safety Code.
(c) Purchaser acknowledges that "Natural Hazards" described in the
following California Code Sections (the "Natural Hazard Laws") may affect one or
more of the Projects: Government Code Section 8589.3 (Special Flood Hazard);
Government Code Section 8589.5 (Potential Flooding); Government Code Sections
51178 and 51179 (Very High Fire Hazard Severity Zone); Public Resources Code
Section 2622 (Earthquake Fault Zone); Public Resources Code Section 2696
(Seismic Hazard Zone); and Public Resources Code Section 4125 (Wildland Forest
Fire Risks and Hazards). Purchaser acknowledges and agrees that Purchaser is an
experienced real estate investor, and has been advised that Purchaser should
determine whether any lists or maps delineating properties affected by such
Natural Hazards are available and otherwise determine whether any such Natural
Hazards affect any of the Projects. Purchaser further represents and warrants
that Purchaser has independently evaluated and
C-24
<PAGE> 145
investigated whether any or all of such Natural Hazards affect the one or more
of the Projects. Based on the foregoing, Purchaser knowingly and intentionally
waives any disclosures, obligations or requirements of Seller with respect to
Natural Hazards, including, without limitation, any disclosure obligations or
requirements under the following California Code Sections: Government Code
Sections 8589.3, 8589.4 and 51183.5 and Public Resources Code Sections 2621.9,
2694 and 4136 (the "Natural Hazard Disclosure Requirements"). Purchaser
acknowledges and agrees that this waiver has been specifically negotiated and is
an essential aspect of the bargain between the parties.
13.2 SALE "AS IS, WHERE IS." PURCHASER ACKNOWLEDGES AND AGREES THAT UPON
CLOSING, SELLER SHALL SELL AND CONVEY TO PURCHASER AND PURCHASER SHALL ACCEPT
THE PROPERTY "AS IS, WHERE IS, WITH ALL FAULTS," EXCEPT TO THE EXTENT EXPRESSLY
PROVIDED OTHERWISE IN THIS AGREEMENT AND ANY DOCUMENT EXECUTED BY SELLER AND
DELIVERED TO PURCHASER AT CLOSING. EXCEPT AS EXPRESSLY SET FORTH IN THIS
AGREEMENT, PURCHASER HAS NOT RELIED AND WILL NOT RELY ON, AND SELLER HAS NOT
MADE AND IS NOT LIABLE FOR OR BOUND BY, ANY EXPRESS OR IMPLIED WARRANTIES,
GUARANTEES, STATEMENTS, REPRESENTATIONS OR INFORMATION PERTAINING TO THE
PROPERTY OR RELATING THERETO (INCLUDING SPECIFICALLY, WITHOUT LIMITATION,
PROPERTY INFORMATION PACKAGES DISTRIBUTED WITH RESPECT TO THE PROPERTY) MADE OR
FURNISHED BY SELLER, THE ASSET MANAGER, OR ANY REAL ESTATE BROKER, AGENT OR
THIRD PARTY REPRESENTING OR PURPORTING TO REPRESENT SELLER, TO WHOMEVER MADE OR
GIVEN, DIRECTLY OR INDIRECTLY, ORALLY OR IN WRITING. PURCHASER REPRESENTS THAT
IT IS A KNOWLEDGEABLE, EXPERIENCED AND SOPHISTICATED PURCHASER OF REAL ESTATE
AND THAT, EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT, IT IS RELYING SOLELY
ON ITS OWN EXPERTISE AND THAT OF PURCHASER'S CONSULTANTS IN PURCHASING THE
PROPERTY AND SHALL MAKE AN INDEPENDENT VERIFICATION OF THE ACCURACY OF ANY
DOCUMENTS AND INFORMATION PROVIDED BY SELLER. PURCHASER WILL CONDUCT SUCH
INSPECTIONS AND INVESTIGATIONS OF THE PROPERTY AS PURCHASER DEEMS NECESSARY,
INCLUDING, BUT NOT LIMITED TO, THE PHYSICAL AND ENVIRONMENTAL CONDITIONS
THEREOF, AND SHALL RELY UPON SAME. PURCHASER ACKNOWLEDGES THAT SELLER HAS
AFFORDED PURCHASER A FULL OPPORTUNITY TO CONDUCT SUCH INVESTIGATIONS OF THE
PROPERTY AS PURCHASER DEEMED NECESSARY TO SATISFY ITSELF AS TO THE CONDITION OF
THE PROPERTY AND THE EXISTENCE OR NON-EXISTENCE OR CURATIVE ACTION TO BE TAKEN
WITH RESPECT TO ANY HAZARDOUS MATERIALS ON OR DISCHARGED FROM THE PROPERTY, AND
WILL RELY SOLELY UPON SAME. SELLER SHALL NOT BE DEEMED TO HAVE MADE ANY
REPRESENTATION OR WARRANTY WITH RESPECT TO ANY INFORMATION PROVIDED BY OR ON
BEHALF OF SELLER OR ITS AGENTS OR EMPLOYEES WITH RESPECT THERETO, OTHER THAN
SUCH REPRESENTATIONS, WARRANTIES AND COVENANTS OF SELLER AS ARE EXPRESSLY SET
FORTH IN THIS AGREEMENT. UPON CLOSING, PURCHASER SHALL ASSUME THE RISK THAT
ADVERSE MATTERS, INCLUDING, BUT NOT LIMITED TO, ADVERSE PHYSICAL OR CONSTRUCTION
DEFECTS OR ADVERSE ENVIRONMENTAL, HEALTH OR SAFETY CONDITIONS, MAY NOT HAVE BEEN
REVEALED BY PURCHASER'S INSPECTIONS AND INVESTIGATIONS.
Purchaser's Initials /s/ JR
13.3 Seller Released from Liability. Purchaser acknowledges that it had
the opportunity to inspect the Property prior to the Effective Date, and during
such period, observe its physical characteristics and existing conditions and
the opportunity to conduct such investigation and study on and of the Property
and adjacent areas as Purchaser deems necessary, and Purchaser hereby FOREVER
RELEASES AND DISCHARGES Seller and Asset Manager from all responsibility and
liability to Purchaser, including without limitation, liabilities under the
Comprehensive Environmental Response, Compensation and
C-25
<PAGE> 146
Liability Act Of 1980 (42 U.S.C. Sections 9601 et seq.), as amended ("CERCLA"),
California Health and Safety Code Sections 25300, et seq. and other similar
applicable state laws, directly or indirectly, regarding the condition
(including the presence in the soil, air, structures and surface and subsurface
waters, of Hazardous Materials or other materials or substances that have been
or may in the future be determined to be toxic, hazardous, undesirable or
subject to regulation and that may need to be specially treated, handled and/or
removed from the Property under current or future federal, state and local laws,
regulations or guidelines), valuation, salability or utility of the Property, or
its suitability for any purpose whatsoever; provided, however, the foregoing
release shall not include third party claims brought against Purchaser for which
Seller may be liable otherwise than under this Agreement. By closing this
transaction, Purchaser will be deemed to have waived any and all objections to
or complaints regarding (including, but not limited to, federal, state and
common law based actions), or any private right of action under, state and
federal law to which the Property is or may be subject, including, but not
limited to, CERCLA, physical characteristics and existing conditions, including,
without limitation, structural and geologic conditions, subsurface soil and
water conditions and solid and hazardous waste and Hazardous Materials on,
under, adjacent to or otherwise affecting the Property. Purchaser further hereby
assumes the risk of changes in applicable laws and regulations relating to past,
present and future environmental conditions on the Property and the risk that
adverse physical characteristics and conditions, including, without limitation,
the presence of Hazardous Materials or other contaminants, may not have been
revealed by its investigation. Purchaser expressly waives the provisions of
Section 1542 of the California Civil Code (or any similar provision or principle
of law which may apply in any other state where any Property is located) which
provides:
"A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR
DOES NOT KNOW OR EXPECT TO EXIST IN HIS FAVOR AT THE TIME OF
EXECUTING THE RELEASE, WHICH IF KNOWN TO HIM MUST HAVE
MATERIALLY AFFECTED THE SETTLEMENT WITH THE DEBTOR."
Purchaser's Initials: /s/ JR
13.4 "Hazardous Materials" Defined. For purposes hereof, "Hazardous
Materials" means "Hazardous Material," "Hazardous Substance," "Hazardous Waste,"
"Extremely Hazardous Waste," "Restricted Hazardous Waste," "Pollutant or
Contaminant," and "Petroleum" and "Natural Gas Liquids," as those terms are
defined or used in Section 101 of CERCLA or under any laws, ordinances, rules,
requirements and regulations of any governmental authority having jurisdiction
with respect to the Property, and any other substances regulated because of
their effect or potential effect on public health and the environment,
including, without limitation, PCBs, lead paint, asbestos, urea formaldehyde,
radioactive materials, putrescible, petroleum and infectious materials.
13.5 Indemnity. Purchaser agrees to indemnify and hold Seller harmless of
and from any and all liabilities, claims, demands, and expenses of any kind or
nature which arise or accrue after Closing and relate to the ownership,
maintenance, or operation of the Property by Purchaser and its successors and
assigns, including, without limitation, in connection with Hazardous Materials
at, on or under the Property, but excluding any matters as to which Seller has
contractual liability. Such indemnity shall not apply to any Hazardous Materials
existing as of the Closing Date unless Purchaser's activities cause the release
and/or migration of any Hazardous Materials at, on or under the Property
existing as of the Closing Date.
13.6 Survival. The terms and conditions of this Article 13 shall
expressly survive the Closing, and not merge with the provisions of any closing
documents.
Purchaser acknowledges and agrees that the disclaimers and other agreements
set forth herein are an integral part of this Agreement and that Seller would
not have agreed to sell the Property to Purchaser for the Purchase Price without
the disclaimers and other agreements set forth above.
C-26
<PAGE> 147
ARTICLE 14
MISCELLANEOUS
14.1 Parties Bound; Assignment. This Agreement, and the terms, covenants,
and conditions herein contained, shall inure to the benefit of and be binding
upon the heirs, personal representatives, successors, and assigns of each of the
parties hereto. Purchaser may assign its rights under this Agreement to one or
more assignees upon the following conditions: (i) the Assignee of Purchaser must
be an entity controlling, controlled by, or under common control with Purchaser
or an entity in which Value Enhancement Fund IV, L.P. is a direct or indirect
investor, (ii) all of the Earnest Money must have been delivered in accordance
herewith, (iii) the assignee of Purchaser shall assume all obligations of
Purchaser hereunder, but Purchaser shall remain primarily liable for the
performance of Purchaser's obligations, (iv) Purchaser shall notify Seller
(which may be by telephone to Tony Koeijmans, Esq. at (972) 550-3204, and
confirmed in writing within 24 hours) promptly following Purchaser's designation
of one or more assignees and (v) a copy of the fully executed written assignment
and assumption agreement shall be delivered to Seller at least five (5) days
prior to Closing.
14.2 Headings. The article, section, subsection, paragraph and/or other
headings of this Agreement are for convenience only and in no way limit or
enlarge the scope or meaning of the language hereof.
14.3 Invalidity and Waiver. If any portion of this Agreement is held
invalid or inoperative, then so far as is reasonable and possible the remainder
of this Agreement shall be deemed valid and operative, and, to the greatest
extent legally possible, effect shall be given to the intent manifested by the
portion held invalid or inoperative. The failure by either party to enforce
against the other any term or provision of this Agreement shall not be deemed to
be a waiver of such party's right to enforce against the other party the same or
any other such term or provision in the future.
14.4 Governing Law. This Agreement shall, in all respects, be governed,
construed, applied, and enforced in accordance with the law of the State of
Texas.
14.5 Survival. The provisions of this Agreement that contemplate
performance after the Closing and the obligations of the parties not fully
performed at the Closing shall survive the Closing and shall not be deemed to be
merged into or waived by the instruments of Closing.
14.6 Entirety and Amendments. This Agreement embodies the entire
agreement between the parties and supersedes all prior agreements and
understandings relating to the Property. This Agreement may be amended or
supplemented only by an instrument in writing executed by the party against whom
enforcement is sought.
14.7 Time. Time is of the essence in the performance of this Agreement.
14.8 Confidentiality. Purchaser shall make no public announcement or
disclosure of any information related to this Agreement to outside brokers or
third parties, before or after the Closing, without the prior consent of Seller;
provided, however, that Purchaser may, subject to the provisions of Section 4.6,
make disclosure of this Agreement to its Permitted Outside Parties as necessary
to perform its obligations hereunder and as may be required under laws or
regulations applicable to Purchaser. Notwithstanding anything to the contrary
hereinafter set forth, Purchaser may disclose such information (i) to its
employees, members of professional firms serving it or potential lenders or
investors who need such information for purposes of evaluating the transactions
contemplated in this Agreement, provided any such persons or entities agree to
and shall maintain the confidentiality thereof, (ii) if any court or
governmental agency requires disclosure in order to comply with applicable laws,
(iii) pursuant to any legal requirement, any reporting requirement pursuant to
applicable law or the applicable rules by any securities exchange or any
accounting or auditing disclosure requirement, (iv) in any legal action, to the
extent necessary to enforce its rights under this Agreement, and (v) to the
extent that such information is a matter of public record. The provisions of
this Section 14.8 shall survive the termination of this Agreement.
14.9 Notices. All notices required or permitted hereunder shall be in
writing and shall be served on the parties at the addresses set forth in Section
1.3. Any such notices shall, unless otherwise provided
C-27
<PAGE> 148
herein, be given or served (i) by depositing the same in the United States mail,
postage paid, certified and addressed to the party to be notified, with return
receipt requested, (ii) by overnight delivery using a nationally recognized
overnight courier, (iii) by personal delivery, or (iv) by facsimile, evidenced
by confirmed receipt. Notice deposited in the mail in the manner hereinabove
described shall be effective on the third (3rd) business day after such deposit.
Notice given in any other manner shall be effective only if and when received by
the party to be notified. A party's address may be changed by written notice to
the other party; provided, however, that no notice of a change of address shall
be effective until actual receipt of such notice. Copies of notices are for
informational purposes only, and a failure to give or receive copies of any
notice shall not be deemed a failure to give notice. Notices given by counsel to
the Purchaser shall be deemed given by Purchaser and notices given by counsel to
the Seller shall be deemed given by Seller.
14.10 Construction. The parties acknowledge that the parties and their
counsel have reviewed and revised this Agreement and agree that the normal rule
of construction -- to the effect that any ambiguities are to be resolved against
the drafting party -- shall not be employed in the interpretation of this
Agreement or any exhibits or amendments hereto.
14.11 Calculation of Time Periods. Unless otherwise specified, in
computing any period of time described herein, the day of the act or event after
which the designated period of time begins to run is not to be included and the
last day of the period so computed is to be included, unless such last day is a
Saturday, Sunday or legal holiday for national banks in the location where the
Property is located, in which event the period shall run until the end of the
next day which is neither a Saturday, Sunday, or legal holiday. The last day of
any period of time described herein shall be deemed to end at 5:00 p.m. Central
Standard Time.
14.12 Execution in Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be deemed to be an original, and all
of such counterparts shall constitute one Agreement. To facilitate execution of
this Agreement, the parties may execute and exchange by telephone facsimile
counterparts of the signature pages, provided that executed originals thereof
are forwarded to the other party on the same day by any of the delivery methods
set forth in Section 14.9 other than facsimile.
14.13 No Recordation. Without the prior written consent of Seller, there
shall be no recordation of either this Agreement or any memorandum hereof, or
any affidavit pertaining hereto, and any such recordation of this Agreement or
memorandum or affidavit by Purchaser without the prior written consent of Seller
shall constitute a default hereunder by Purchaser, whereupon Seller shall have
the remedies set forth in Section 12.1 hereof.
14.14 Further Assurances. In addition to the acts and deeds recited
herein and contemplated to be performed, executed and/or delivered by either
party at Closing, each party agrees to perform, execute and deliver, but without
any obligation to incur any additional liability or expense, on or after the
Closing any further deliveries and assurances as may be reasonably necessary to
consummate the transactions contemplated hereby or to further perfect the
conveyance, transfer and assignment of the Property to Purchaser.
14.15 Discharge of Obligations. The acceptance of the Deed by Purchaser
shall be deemed to be a full performance and discharge of every representation
and warranty made by Seller herein and every agreement and obligation on the
part of Seller to be performed pursuant to the provisions of this Agreement,
except those which are herein specifically stated to survive Closing.
14.16 No Third Party Beneficiary. The provisions of this Agreement and of
the documents to be executed and delivered at Closing are and will be for the
benefit of Seller and Purchaser only and are not for the benefit of any third
party, and accordingly, no third party shall have the right to enforce the
provisions of this Agreement or of the documents to be executed and delivered at
Closing.
14.17 Asset Manager: Designated Representative. Seller has engaged the
companies listed on Exhibit G (collectively, "Asset Manager") to provide certain
asset management services with respect to the Property. One of the Asset
Managers, Chase Realty Advisors, Inc. ("Chase") has been engaged to act as a
liaison between Seller and Purchaser in connection with the Property and this
Agreement. Chase has
C-28
<PAGE> 149
appointed Stan Levy and Tom Grier ("Designated Representative(s)") to deal with
Purchaser. Whenever any approval, acceptance, consent, direction or action of
Seller is required pursuant to this Agreement, Purchaser shall send to the
Designated Representative a written notice requesting same, which notice shall:
(i) describe in detail the matter for which such approval, acceptance, consent,
direction or other action of Seller is requested; (ii) be accompanied by a copy
of any contract, agreement or other document to be executed by Seller evidencing
such approval, consent, acceptance, direction or action of Seller; and (iii) be
accompanied by such other documents, written explanations and information as may
be reasonably necessary to explain the request fully and completely. Chase will
communicate Seller's response to any such requests to Purchaser. Whenever any
approval, acceptance, consent, direction or action of Purchaser is required
pursuant to this Agreement, Seller shall send to Purchaser a written notice
requesting same, which notice shall: (i) describe in detail the matter for which
such approval, acceptance, consent, direction or other action of Purchaser is
requested; (ii) be accompanied by a copy of any contract, agreement or other
document to be executed by Purchaser evidencing such approval, consent,
acceptance, direction or action of Purchaser; and (iii) be accompanied by such
other documents, written explanations and information as may be reasonably
necessary to explain the request fully and completely.
14.18 REIT. Seller hereby advises Purchaser that Seller is qualified as a
real estate investment trust under the provisions of the Internal Revenue Code
of 1986, as amended, and that, by reason thereof, the maintaining of such status
and the avoiding of any activity which might cause a penalty tax to be applied
is of material concern to Seller. Accordingly, Purchaser agrees to make any
modifications or amendments to this Agreement requested by Seller prior to
Closing that may be necessary for Seller to maintain its status as a real estate
investment trust or in order for it to avoid a penalty tax; provided, however,
that Purchaser shall have no obligation to enter into any such modification or
amendment that would materially alter or affect, in Purchaser's sole judgment,
Purchaser's rights, duties, or obligations under this Agreement. If Purchaser
declines to modify or amend this Agreement for any reason in a manner which
Seller determines, in the good faith exercise of its reasonable business
judgment, is necessary to maintain its status as a real estate investment trust
or avoid a penalty tax, Seller shall have the right to terminate this Agreement
by written notice delivered to Purchaser. In the event Seller exercises such
termination right, neither party shall have any further rights or obligations
hereunder (except with respect to provisions of this Agreement which recite that
they survive termination), the Earnest Money shall be returned to Purchaser and
all other funds and documents deposited in escrow shall be returned to the party
depositing the same.
14.19 Exculpation. No present or future officer, director, trust manager,
employee or agent of Seller shall have any personal liability, directly or
indirectly, and recourse shall not be had against any such officer, director,
trust manager, employee, or agent, under or in connection with this Agreement or
any other document or instrument heretofore or hereafter executed in connection
with this Agreement either before or after Closing. Purchaser hereby waives and
releases any and all such personal liability and recourse. The limitations of
liability provided in this Section are in addition to, and not in limitation of,
any limitation on liability provided for elsewhere in this Agreement or
otherwise provided by law or in any other contract, agreement or instrument. No
present or future officer, director, trust manager, employee or agent of
Purchaser shall have any personal liability, directly or indirectly, and
recourse shall not be had against any such officer, director, trust manager,
employee or agent, under or in connection with this Agreement either before or
after Closing. Seller hereby waives and releases any and all such personal
liability and recourse. The limitations of liability provided in this Section
are in addition to, and not in limitation of any limitation on liability
provided for elsewhere in this Agreement or otherwise provided by law or in any
other contract, agreement or instrument.
14.20 Joint and Several Liability of Seller. Each entity comprising
Seller shall be jointly and severally liable for all obligations of Seller
hereunder.
C-29
<PAGE> 150
ARTICLE 15
ESCROW AGENT
15.1 Escrow Provisions; Payment at Closing. If the Closing takes place
under this Agreement, Escrow Agent shall deliver the Earnest Money to Purchaser.
15.2 Payment on Demand. Upon receipt of any written certification from
Seller or Purchaser claiming the Earnest Money pursuant to the provisions of
this Agreement, Escrow Agent shall promptly forward a copy thereof to the other
such party (i.e., Purchaser or Seller, whichever did not claim the Earnest Money
pursuant to such notice) and, unless such other party within ten (10) days
thereafter notifies Escrow Agent of any objection to such requested disbursement
of the Earnest Money, Escrow Agent shall disburse the Earnest Money to the party
demanding the same and shall thereupon be released and discharged from any
further duty or obligation hereunder.
15.3 Exculpation of Escrow Agent. It is agreed that the duties of Escrow
Agent are herein specifically provided and are purely ministerial in nature, and
that Escrow Agent shall incur no liability whatsoever except for its willful
misconduct or gross negligence, so long as Escrow Agent is acting in good faith.
Seller and Purchaser do each hereby release Escrow Agent from any liability for
any error of judgment or for any act done or omitted to be done by Escrow Agent
in the good faith performance of its duties hereunder and do each hereby
indemnify Escrow Agent against, and agree to hold, save, and defend Escrow Agent
harmless from, any costs, liabilities, and expenses incurred by Escrow Agent in
serving as Escrow Agent hereunder and in faithfully discharging its duties and
obligations hereunder.
15.4 Stakeholder. Escrow Agent is acting as a stakeholder only with
respect to the Earnest Money. If there is any dispute as to whether Escrow Agent
is obligated to deliver the Earnest Money or as to whom the Earnest Money is to
be delivered, Escrow Agent may refuse to make any delivery and may continue to
hold the Earnest Money until receipt by Escrow Agent of an authorization in
writing, signed by Seller and Purchaser, directing the disposition of the
Earnest Money, or, in the absence of such written authorization, until final
determination of the rights of the parties in an appropriate judicial
proceeding. If such written authorization is not given, or a proceeding for such
determination is not begun, within sixty (60) days of notice to Escrow Agent of
such dispute, Escrow Agent may bring an appropriate action or proceeding for
leave to deposit the Earnest Money in a court of competent jurisdiction pending
such determination. Escrow Agent shall be reimbursed for all costs and expenses
of such action or proceeding, including, without limitation, reasonable
attorneys' fees and disbursements, by the party determined not to be entitled to
the Earnest Money. Upon making delivery of the Earnest Money in any of the
manners herein provided, Escrow Agent shall have no further liability or
obligation hereunder.
C-30
<PAGE> 151
SIGNATURE PAGE TO
AGREEMENT OF PURCHASE AND SALE
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
day and year written below.
SELLER:
AMERICAN INDUSTRIAL PROPERTIES REIT,
a Texas real estate investment trust
By: /s/ CHARLES W. WOLCOTT
----------------------------------
Charles W. Wolcott,
President and Chief Executive
Officer
Executed as of Nov. 1, 2000
AIP/BATTLEFIELD GP, INC.,
a Texas corporation
By: /s/ CHARLES W. WOLCOTT
----------------------------------
Charles W. Wolcott,
President and Chief Executive
Officer
Executed as of Nov. 1, 2000
AIP-SWAG OPERATING, L.P.
a Texas limited partnership
By: AIP-Swag GP, Inc.
General Partner
By:/s/ CHARLES W. WOLCOTT
--------------------------------
Charles W. Wolcott,
President and Chief Executive
Officer
Executed as of Nov. 1, 2000
C-31
<PAGE> 152
AIP PROPERTIES #3, L.P.,
a Delaware limited partnership
By: AIP Properties #3 GP, Inc.
General Partner
By:
/s/ CHARLES W. WOLCOTT
----------------------------------
Charles W. Wolcott,
President and Chief Executive
Officer
Executed as of Nov. 1, 2000
AIP OPERATING, L.P.,
a Delaware limited partnership
By: American Industrial Properties
REIT
General Partner
By:
/s/ CHARLES W. WOLCOTT
----------------------------------
Charles W. Wolcott,
President and Chief Executive
Officer
Executed as of Nov. 1, 2000
PURCHASER:
VALUE ENHANCEMENT FUND IV, L.P.,
a Georgia limited partnership
By: VEF IV GP, Inc.
General Partner
By: /s/ JAMES P. RYAN
----------------------------------
James P. Ryan,
President
Executed as of Nov. 1, 2000
C-32
<PAGE> 153
JOINDER BY ESCROW AGENT
Escrow Agent has executed this Agreement in order to confirm that Escrow Agent
has received and shall hold the Earnest Money required to be deposited under
this Agreement and the interest earned thereto, in escrow, and shall disburse
the Earnest Money, and the interest earned thereon, pursuant to the provisions
of this Agreement.
COMMONWEALTH TITLE INSURANCE COMPANY
By: /s/ AMANDA JOHNSON
----------------------------------
Name: Amanda Johnson
---------------------------------
Title: Escrow Officer
---------------------------------
Executed as of Nov. 7, 2000
C-33
<PAGE> 154
APPENDIX D
RIGHTS OF DISSENTING SHAREHOLDERS IN THE EVENT OF CERTAIN ACTIONS
Sec. 25.10. (A) Any shareholder of a domestic real estate investment trust
may dissent from any of the following actions:
(1) any plan of merger to which the real estate investment trust is a
party if shareholder approval is required by Section 23.30 of this Act and
the shareholder holds shares of a class or series that was entitled to vote
on the plan of merger as a class or otherwise;
(2) any sale, lease, exchange, or other disposition (not including any
pledge, mortgage, deed of trust, or trust indenture unless otherwise
provided in the declaration of trust) of all, or substantially all, of the
property and assets, with or without good will, of a real estate investment
trust requiring the special authorization of the shareholders as provided
by this Act; or
(3) any plan of exchange pursuant to Section 23.20 of this Act in
which the shares of the real estate investment trust of the class or series
held by the shareholder are to be acquired.
(B) Notwithstanding Subsection (A) of this Section, a shareholder may not
dissent from any plan of merger in which there is a single surviving or new
domestic or foreign corporation, real estate investment trust, partnership, or
other entity, or from any plan of exchange, if:
(1) the shares held by the shareholder are part of a class or series,
and on the record date fixed to determine the shareholders entitled to vote
on the plan of merger or plan of exchange, the shares are:
(a) listed on a national securities exchange;
(b) designated as a national market security on an interdealer
quotation system by the National Association of Securities Dealers,
Inc., or successor entity; or
(c) held of record by not less than 2,000 holders; and
(2) the shareholder is not required by the terms of the plan of merger
or the plan of exchange to accept any consideration for the shareholder's
shares other than:
(a) shares of a domestic or foreign entity that, immediately after
the effective date of the merger or exchange, will be part of a class or
series, shares of which are (i) listed, or authorized for listing upon
official notice of issuance, on a national securities exchange; (ii)
approved for quotation as a national market security on an interdealer
quotation system by the National Association of Securities Dealers,
Inc., or successor entity; or (iii) held of record by not less than
2,000 holders;
(b) cash in lieu of fractional shares otherwise entitled to be
received; or
(c) any combination of the securities and cash described in this
Subdivision.
PROCEDURE FOR DISSENT BY SHAREHOLDERS AS TO ACTIONS
Sec. 25.20. (A) Any shareholder of any domestic real estate investment
trust who has the right to dissent from any of the actions referred to in
Section 25.10 of this Act may exercise that right to dissent only by complying
with the following procedures:
(1)(a) With respect to a proposed action that is submitted to a vote
of shareholders at a meeting, the shareholder shall file with the real
estate investment trust, before the meeting, a written objection to the
action. The shareholder's objection must state that the shareholder will
exercise the shareholder's right to dissent if the action is effective and
must contain the shareholder's address, to which notice of the action shall
be delivered or mailed in that event. If the action is effected and the
D-1
<PAGE> 155
shareholder did not vote in favor of the action, the real estate investment
trust, in the case of action other than a merger, or the surviving or new
entity that is liable in the case of a merger to discharge the
shareholder's right of dissent, shall deliver or mail to the shareholder
written notice that the action has been effected within 10 days after the
action is effected. The shareholder may make a written demand on the
existing, surviving, or new entity for payment of the fair value of the
shareholder's shares within 10 days from the delivery or mailing of the
notice. The fair value of the shares shall be the value of the shares on
the day before the meeting, excluding any appreciation or depreciation in
anticipation of the proposed action. The demand shall state the number and
class of the shares owned by the shareholder and the fair value of the
shares as estimated by the shareholder. A shareholder who fails to make a
demand within the 10-day period is bound by the action.
(b) With respect to a proposed action that is approved pursuant to
Subsection (A) of Section 10.30 of this Act, the real estate investment
trust, in the case of action other than a merger, and the surviving or new
entity that is liable in the case of a merger to discharge the
shareholder's right of dissent, within 10 days after the date the action
takes effect, shall mail to each shareholder of record as of the date the
action takes effect notice of the fact and date of the action and that the
shareholder may exercise the shareholder's right to dissent from the
action. The notice shall be accompanied by a copy of this Section and any
articles or documents filed by the real estate investment trust with the
secretary of state to effect the action. If the shareholder did not consent
to the taking of the action, the shareholder may make written demand on the
existing, surviving, or new entity for payment of the fair value of the
shareholder's shares within 20 days after the mailing of the notice. The
fair value of the shares shall be the value of the shares on the date the
written consent authorizing the action was delivered to the real estate
investment trust pursuant to Subsection (A) of Section 10.30 of this Act,
excluding any appreciation or depreciation in anticipation of the action.
The demand shall state the number and class of shares owned by the
dissenting shareholder and the fair value of the shares as estimated by the
shareholder. Any shareholder failing to make demand within the 20-day
period is bound by the action.
(2) Within 20 days after receipt by the existing, surviving, or new
entity of a demand for payment made by a dissenting shareholder in
accordance with Subdivision (1) of this Subsection, the entity shall
deliver or mail to the shareholder a written notice that shall either set
out that the entity accepts the amount claimed in the demand and agrees to
pay that amount within 90 days after the date on which the action was
effected, and, in the case of shares represented by certificates, on the
surrender of the certificates duly endorsed, or shall contain an estimate
by the entity of the fair value of the shares and an offer to pay the
amount of that estimate within 90 days after the date on which the action
was effected, on receipt of notice within 60 days after that date from the
shareholder that the shareholder agrees to accept that amount and, in the
case of shares represented by certificates, on the surrender of the
certificates duly endorsed.
(3) If, within 60 days after the date on which the real estate
investment trust action was effected, the value of the shares is agreed on
between the shareholder and the existing, surviving, or new entity, payment
for the shares shall be made within 90 days after the date on which the
action was effected and, in the case of shares represented by certificates,
on surrender of the certificates duly endorsed. On payment of the agreed
value, the shareholder ceases to have any interest in the shares or in the
real estate investment trust.
(B) If, within 60 days after the date on which the action was effected, the
shareholder and the existing, surviving, or new entity do not agree on the value
of the shares, the shareholder or entity, within 60 days after the expiration of
the 60 -- day period, may file a petition in any court of competent jurisdiction
in the county in which the principal office of the domestic real estate
investment trust is located, asking for a finding and determination of the fair
value of the shareholder's shares. On the filing of a petition by the
shareholder, service of a copy of the petition must be made on the entity. The
entity, within 10 days after receiving the service, shall file in the office of
the clerk of the court in which the petition was filed a list containing the
names and addresses of all shareholders of the domestic real estate
D-2
<PAGE> 156
investment trust who have demanded payment for their shares and with whom
agreements as to the value of their shares have not been reached by the entity.
If the petition is filed by the entity, the list described in this Subsection
must be attached to the petition. The clerk of the court shall give notice of
the time and place fixed for the hearing of the petition by registered mail to
the entity and to the shareholders named on the list at the addresses stated in
the list. The court shall approve the forms of notices sent by mail. All
shareholders notified as required by this Subsection and the entity are bound by
the final judgment of the court.
(C) After the hearing of a petition filed under this Section, the court
shall determine which shareholders have complied with the provisions of this
Section and have become entitled to the valuation of and payment of their
shares. The court shall appoint one or more qualified appraisers to determine
that value. The appraisers may examine any books and records of the real estate
investment trust that relate to the shares the appraisers are charged with the
duty of valuing. The appraisers shall make a determination of the fair value of
the shares after conducting an investigation. The appraisers shall also afford a
reasonable opportunity to allow interested parties to submit to the appraisers
pertinent evidence relating to the value of the shares. The appraisers also have
the power and authority that may be conferred on masters in chancery by the
Texas Rules of Civil Procedure.
(D) The appraisers shall determine the fair value of the shares of the
shareholders adjudged by the court to be entitled to payment for their shares
and shall file their report of that value in the office of the clerk of the
court. The clerk shall give notice of the filing of the appraisers report to
interested parties. The appraisers report shall be subject to exceptions to be
heard before the court both on the law and the facts. The court shall determine
the fair value of the shares of the shareholders entitled to payment for their
shares and shall order the existing, surviving, or new entity to pay that value,
together with interest on the value of shares to the shareholders entitled to
payment, beginning 91 days after the date on which the applicable action from
which the shareholder elected to dissent was effected to the date of such
judgment. The judgment shall be immediately payable to the holders of
uncertificated shares. The judgment shall be payable to the holders of shares
represented by certificates only on, and simultaneously with, the surrender to
the existing, surviving, or new entity of duly endorsed certificates for those
shares. On payment of the judgment, the dissenting shareholders cease to have
any interest in those shares or in the real estate investment trust. The court
shall allow the appraisers a reasonable fee as court costs, and all court costs
shall be allocated between the parties in the manner that the court determines
to be fair and equitable.
(E) Shares acquired by the existing, surviving, or new entity, pursuant to
the payment of the agreed value of the shares, to the payment of the agreed
value of the shares, or to payment of the judgment entered for the value of the
shares, as provided in this Section, in the case of a merger, shall be treated
as provided in the plan of merger and, in all other cases, may be held and
disposed of by the real estate investment trust as in the case of other treasury
shares.
(F) This Section does not apply to a merger if, on the date of the filing
of the articles of merger, the surviving entity is the owner of all the
outstanding shares of the other entities, domestic or foreign, that are parties
to the merger.
(G) In the absence of fraud in the transaction, the remedy provided by this
Section to a shareholder objecting to any action referred to in Section 25.10 of
this Act is the exclusive remedy for the recovery of the value of the
shareholder's shares or money damages to the shareholder with respect to the
action. If the existing, surviving, or new entity complies with the requirements
of this Section, any shareholder who fails to comply with the requirements of
this Section is not entitled to bring suit for the recovery of the value of the
shareholder's shares or money damages to the shareholder with respect to the
action.
PROVISIONS AFFECTING REMEDIES OF DISSENTING SHAREHOLDERS
Sec. 25.30. (A) Any shareholder who has demanded payment for the
shareholder's shares in accordance with Section 25.20 of this Act is not
entitled to vote or exercise any other rights of a shareholder except the right
to receive payment for the shareholder's shares pursuant to the provisions of
D-3
<PAGE> 157
that Section and the right to maintain an appropriate action to obtain relief on
the ground that the action would be or was fraudulent. The respective shares for
which payment has been demanded may not be considered outstanding for the
purposes of any subsequent vote of shareholders.
(B) On receiving a demand for payment from any dissenting shareholder, the
real estate investment trust shall make an appropriate notation of the demand in
its shareholder records. Within 20 days after demanding payment for shares in
accordance with Section 25.20 of this Act, each holder of certificates
representing those shares shall submit the certificates to the real estate
investment trust for notation on the certificates that such demand has been
made. The failure of holders of certificated shares to submit the certificates
to the real estate investment trust, at the option of the real estate investment
trust, shall terminate the shareholder's rights under Section 25.20 of this Act
unless a court of competent jurisdiction for good and sufficient cause shown
directs otherwise. If uncertificated shares for which payment has been demanded
or shares represented by a certificate on which the real estate investment trust
has made a notation under this Subsection are transferred, any new certificate
issued for those shares shall bear similar notation together with the name of
the original dissenting holder of those shares, and a transferee of those shares
shall acquire by the transfer no rights in the real estate investment trust
other than those which the original dissenting shareholder had after making
demand for payment of the fair value of the shares.
(C) Any shareholder who has demanded payment for the shareholder's shares
in accordance with Section 25.20 of this Act may withdraw that demand at any
time before payment of those shares has been made or before any petition has
been filed pursuant to Section 25.20 of this Act. The demand may not be
withdrawn after the payment of the shares has been made or after any such
petition has been filed, unless the real estate investment trust consents to the
withdrawal of the demand. The shareholder and all persons claiming under the
shareholder shall be conclusively presumed to have approved and ratified the
action from which the shareholder dissented and shall be bound by the action,
the rights of the shareholder to be paid the fair value of the shareholder's
shares shall cease, and the shareholder's status as a shareholder shall be
restored without prejudice to any proceedings that may have been taken during
the interim, and the shareholder is entitled to receive any dividends or other
distributions made to the shareholders in the interim if:
(1) the demand is withdrawn as provided in this Subsection;
(2) pursuant to Subsection (B) of this Section, the demand terminates
the shareholder's rights under Section 25.20 of this Act;
(3) no petition asking for a court finding and determination of fair
value of such shares has been filed within the time provided in Section
25.20 of this Act; or
(4) the court determines, after the hearing of a petition filed under
Section 25.20, that the shareholder is not entitled to the relief provided
by that Section.
D-4
<PAGE> 158
--------------------------------------------------------------------------------
AMERICAN INDUSTRIAL PROPERTIES REIT
Special Meeting Of Shareholders
__________, 200_
This Proxy Is Solicited On Behalf Of The Board Of Trust Managers
PROXY
The undersigned hereby appoints Marc A. Simpson and Charles W. Wolcott, and each
of them, jointly and severally, as proxies, each with full power of
substitution, to vote all of the undersigned's common shares of beneficial
interest held of record on _______, 2001, at the special meeting of shareholders
and at any postponement or adjournment thereof.
This proxy, when properly executed, will be voted in accordance with the
directions made on the reverse side. If no direction is made, this proxy will be
voted FOR proposals one and two, and with respect to the third proposal,
according to the proxies' best judgment.
See reverse side
--------------------------------------------------------------------------------
<PAGE> 159
--------------------------------------------------------------------------------
1. Approval of the agreement and plan of merger dated as of November 1, 2000
among American Industrial Properties REIT, DDR Transitory Sub Inc. and
Developers Diversified Realty Corporation, and the transactions contemplated
thereby.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
--------------------------------------------------------------------------------
2. Approval of the agreement of purchase and sale dated as of November 1, 2000
between American Industrial Properties REIT and Value Enhancement Fund IV, L.P.,
and the transactions contemplated thereby.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
--------------------------------------------------------------------------------
3. The aforementioned proxies are authorized to vote in their discretion on any
other matters that may properly come before the special meeting or any
postponement or adjournment thereof, subject to limitations set forth in
applicable regulations under the Securities Exchange Act of 1934.
--------------------------------------------------------------------------------
Please sign exactly as name appears below. When shares are held in more than one
name, all parties should sign. When signing as attorney, executor,
administrator, trustee or guardian, please give full title as such. If a
corporation, please sign in full corporate name by an authorized officer. If a
partnership, please sign in partnership name by an authorized person.
Dated: , 200
---------------------------------- -
----------------------------------------------
Signature
----------------------------------------------
Signature if shares held in more than one name
--------------------------------------------------------------------------------
