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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement [ ] Confidential, for Use
[ ] Definitive Proxy Statement of the Commission Only
[ ] Definitive Additional Materials (as permitted by Rule 14a-6(e)(2))
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
EQUITY RESIDENTIAL PROPERTIES TRUST
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(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transactions applies:
(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):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee previously paid 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:
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PRELIMINARY COPY
EQUITY RESIDENTIAL PROPERTIES TRUST
Two North Riverside Plaza
Chicago, Illinois 60606
_________________, 1997
Dear Shareholder:
You are cordially invited to attend a special meeting of shareholders of
Equity Residential Properties Trust ("EQR") to be held at
______________________, ________, ________ on ____________, 1997, at ____ a.m.,
local time (the "EQR Special Meeting").
At the EQR Special Meeting, you will be asked to approve the acquisition of
the multifamily property business of Wellsford Residential Property Trust, a
Maryland real estate investment trust ("Wellsford"), by EQR through the tax-free
merger of EQR and Wellsford (the "Merger"). In the Merger, each outstanding
common share of beneficial interest of Wellsford will be converted into .625 of
a common share of beneficial interest of the surviving trust. Each outstanding
common share of beneficial interest of EQR ("EQR Common") will be converted into
one common share of beneficial interest of the surviving trust.
Details of the proposed Merger and information regarding EQR and Wellsford
are contained in the attached Joint Proxy Statement/Prospectus/Information
Statement, which you are encouraged to read carefully.
Your Board of Trustees believes that the proposed acquisition of Wellsford
by EQR will benefit EQR by making the resulting company better equipped to meet
competitive challenges by increasing its diversification and improving its
access to capital. The surviving trust in the Merger will be one of the largest
publicly traded real estate investment trusts ("REIT") (based on the aggregate
market value of its outstanding equity capitalization).
EQR, one of the largest publicly traded REITs (based on the aggregate
market value of its outstanding equity capitalization), is a self-administered
and self-managed equity REIT. EQR was organized as a Maryland real estate
investment trust in March 1993 and commenced operations as a publicly traded
company on August 18, 1993 upon completion of its initial public offering. EQR
was formed to continue the multifamily property business objectives and
acquisition strategies of certain affiliated entities controlled by Mr. Samuel
Zell, Chairman of the Board of Trustees of EQR. These entities had been engaged
in the acquisition, ownership and operation of multifamily properties since
1969. EQR's senior executives average over 23 years of experience in the
multifamily property business.
Your Board of Trustees has carefully reviewed and considered the terms and
conditions of the Merger and has received and considered the written opinion of
J.P. Morgan Securities
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Inc. ("J.P. Morgan") dated January 16, 1997 to the effect that, as of the date
of such opinion and based upon and subject to certain matters stated therein,
the consideration to be paid by EQR in connection with the Merger was fair to
EQR from a financial point of view. A copy of the written opinion of J.P.
Morgan is included as Appendix C to the Joint Proxy
Statement/Prospectus/Information Statement and should be read carefully in its
entirety. Your Board of Trustees has approved the Merger and believes the
Merger is in the best interests of EQR and its shareholders, and recommends that
all shareholders vote FOR approval of the Merger.
The Merger requires the affirmative vote of EQR shareholders owning two-
thirds of the outstanding shares of EQR Common. Accordingly, whether or not you
plan to attend the EQR Special Meeting, please complete, sign and date the
accompanying proxy card and return it in the enclosed prepaid envelope. You may
revoke your proxy in the manner described in the accompanying Joint Proxy
Statement/Prospectus/Information Statement at any time before it has been voted
at the EQR Special Meeting. If you attend the EQR Special Meeting, you may vote
in person even if you have previously returned your proxy card. Your prompt
cooperation will be greatly appreciated. This solicitation is made on behalf of
the Board of Trustees of EQR.
Sincerely,
Douglas Crocker II,
Chief Executive Officer,
President and Trustee
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EQUITY RESIDENTIAL PROPERTIES TRUST
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
NOTICE IS HEREBY GIVEN that a special meeting of shareholders ("EQR Special
Meeting") of Equity Residential Properties Trust, a Maryland real estate
investment trust ("EQR"), will be held at_______________________________________
______________________ on ____________________, at ____ a.m., local time, to
consider and vote on a proposal to approve the merger of EQR into Wellsford
Residential Property Trust, a Maryland real estate investment trust
("Wellsford"), pursuant to an Agreement and Plan of Merger entered into by EQR
and Wellsford on January 16, 1997.
Only holders of record of common shares of beneficial interest, $.01 par
value per share, of EQR at the close of business on ________________, 1997 will
be entitled to vote at the EQR Special Meeting.
By Order of the Board of Trustees,
Bruce C. Strohm
Secretary
Chicago, Illinois
_______________, 1997
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PLEASE DATE, SIGN AND RETURN YOUR EQR PROXY PROMPTLY IN THE ENCLOSED, SELF-
ADDRESSED ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES
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PLEASE DATE, SIGN AND RETURN YOUR WELLSFORD PROXY PROMPTLY IN THE ENCLOSED,
SELF-ADDRESSED ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED
STATES
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EQUITY RESIDENTIAL PROPERTIES TRUST
and
WELLSFORD RESIDENTIAL PROPERTY TRUST
JOINT PROXY STATEMENT
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WELLSFORD RESIDENTIAL PROPERTY TRUST
PROSPECTUS
--------
WELLSFORD REAL PROPERTIES, INC.
INFORMATION STATEMENT
This Joint Proxy Statement/Prospectus/Information Statement is being
furnished to the shareholders of Equity Residential Properties Trust, a Maryland
real estate investment trust ("EQR"), in connection with the solicitation of
proxies on behalf of the Board of Trustees of EQR ("EQR Board of Trustees") for
use at a special meeting of the holders of common shares of beneficial interest,
$.01 par value per share, of EQR ("EQR Common") to be held on _______________,
1997 and at any adjournment or postponement thereof ("EQR Special Meeting"). At
the EQR Special Meeting, holders of EQR Common ("EQR Common Shareholders") will
be asked to approve the acquisition of the multifamily property business of
Wellsford Residential Property Trust, a Maryland real estate investment trust
("Wellsford"), by approving the merger of EQR and Wellsford (the "Merger")
pursuant to an Agreement and Plan of Merger dated as of January 16, 1997 by and
between EQR and Wellsford (the "Merger Agreement"). A copy of the Merger
Agreement is attached hereto as Appendix A. The surviving trust in the Merger
("Surviving Trust") will be one of the largest publicly traded real estate
investment trusts ("REIT") (based on the aggregate market value of its
outstanding equity capitalization), and will be a self-administered and self-
managed equity REIT. The Surviving Trust intends to continue the multifamily
property business objectives and acquisition strategies of EQR.
This Joint Proxy Statement/Prospectus/Information Statement also is
being furnished to the shareholders of Wellsford in connection with the
solicitation of proxies on behalf of the
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Board of Trustees of Wellsford ("Wellsford Board of Trustees") for use at a
special meeting ("Wellsford Special Meeting" and, together with the EQR Special
Meeting, the "Meetings of Shareholders") of the holders of common shares of
beneficial interest, $.01 par value per share, of Wellsford ("Wellsford Common")
to be held on ____________, 1997 and at any adjournment or postponement thereof.
At the Wellsford Special Meeting, holders of Wellsford Common ("Wellsford Common
Shareholders") will be asked to approve (i) the Merger, including the adoption
of an amended and restated declaration of trust for the surviving trust, (ii)
amendments to Sections 2.3, 6.6, 9.1, 9.2 and 9.3 of the amended and restated
declaration of trust of the surviving trust (the "Additional Amendments"), (iii)
the issuance by Wellsford Real Properties, Inc. ("WRP Newco"), a subsidiary of
Wellsford, shares of which are to be distributed to the shareholders of
Wellsford immediately prior to the Merger, of up to 12,000,000 shares of common
stock, $.01 par value per share, of WRP Newco ("WRP Newco Common"), to satisfy
the requirements of the New York Stock Exchange ("NYSE") (the "Additional Share
Offering"), and (iv) the adoption of WRP Newco's 1997 Management Incentive Plan,
to satisfy the requirements of the NYSE.
This Joint Proxy Statement/Prospectus/Information Statement also is
being furnished to the shareholders of Wellsford to provide them with
information regarding WRP Newco. Immediately prior to the Merger, Wellsford
will contribute certain of its assets to WRP Newco, WRP Newco will assume
certain liabilities of Wellsford, and Wellsford will distribute to the Wellsford
Common Shareholders, pro rata, all of the outstanding shares of WRP Newco Common
owned by Wellsford (the "Distribution"). In addition, an affiliate of EQR will
enter into certain financial and business arrangements with WRP Newco, in the
manner described herein.
This Joint Proxy Statement/Prospectus/Information Statement also
relates to the common shares of beneficial interest, $.01 par value per share,
of the Surviving Trust issuable upon consummation of the Merger. On
_____________, 1997, the last reported sales price of a share of EQR Common, on
the NYSE was $________. On __________, 1997, the last reported sales price of a
share of Wellsford Common on the NYSE was $__________.
This Joint Proxy Statement/Prospectus/Information Statement and the
forms of proxy are first being mailed to all of EQR Common Shareholders and
Wellsford Common Shareholders on or about ____________, 1997.
See "Risk Factors" beginning on page __ for a discussion of certain
factors which should be considered by shareholders of EQR and Wellsford.
-----------
THE SECURITIES TO WHICH THIS JOINT PROXY STATEMENT/PROSPECTUS/
INFORMATION STATEMENT RELATE HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION
OR BY ANY STATE SECURITIES COMMISSION NOR HAS THE
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SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS JOINT PROXY STATEMENT/
PROSPECTUS/INFORMATION STATEMENT.ANY
REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Joint Proxy Statement/Prospectus/Information Statement is
________________, 1997.
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AVAILABLE INFORMATION
Wellsford has filed a Registration Statement on Form S-4 (the
"Registration Statement") under the Securities Act of 1933, as amended
("Securities Act"), with the Securities and Exchange Commission (the
"Commission") covering the common shares of beneficial interest and preferred
shares of beneficial interest of Wellsford to be issued in connection with the
Merger. As permitted by the rules and regulations of the Commission, this Joint
Proxy Statement/Prospectus/Information Statement omits certain information,
exhibits and undertakings contained in the Registration Statement. For further
information pertaining to the securities offered hereby, reference is made to
the Registration Statement, including the exhibits filed as a part thereof.
EQR and Wellsford are subject to the informational requirements of the
Securities Exchange Act of 1934, as amended ("Exchange Act"), and, in accordance
therewith, file reports, proxy statements and other information with the
Commission. As of the date of the Distribution, WRP Newco will also be subject
to the informational requirements of the Exchange Act. Reports, proxy
statements and other information filed by EQR, Wellsford and WRP Newco can be
inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549; and at its
Regional Offices located at Suite 1400, 500 West Madison Street, Chicago,
Illinois 60661; and Seven World Trade Center, Suite 1300, New York, New York
10048. Copies of such material can be obtained from the Public Reference
Section of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates. The Commission maintains a Web site that contains reports,
proxy and information statements and other information regarding registrants
that file electronically with the Commission. The address of the Commission's
Web site is: http://www.sec.gov. The EQR Common and preferred shares of
beneficial interest of EQR ("EQR Preferred" and, collectively, "EQR Shares") and
the Wellsford Common and preferred shares of beneficial interest of Wellsford
("Wellsford Preferred" and, collectively, "Wellsford Shares") are currently
listed on the NYSE and such reports, proxy statements and other information
concerning EQR and Wellsford can be inspected at the offices of the NYSE, 20
Broad Street, New York, New York 10005. WRP Newco has applied for listing of
the WRP Newco Common on the NYSE.
All information contained in this Joint Proxy Statement/Prospectus/
Information Statement with respect to Wellsford and WRP Newco has been supplied
by Wellsford, and all information with respect to EQR and ERP Operating Limited
Partnership, an Illinois limited partnership ("ERP Operating Partnership"), has
been supplied by EQR.
No person is authorized to give any information or to make any
representation not contained in this Joint Proxy Statement/Prospectus/
Information Statement, or incorporated in it by reference, and, if given or
made, such information or representation should not be relied upon as having
been authorized. This Joint Proxy Statement/Prospectus/ Information Statement
does not constitute an offer to sell, or a solicitation of an offer to purchase,
the
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securities offered by this Joint Proxy Statement/Prospectus/Information
Statement, or the solicitation of a proxy, in any jurisdiction where or from any
person to whom it is unlawful to make such offer, or solicitation of an offer,
or proxy solicitation. Neither the delivery of this Joint Proxy
Statement/Prospectus/Information Statement nor any distribution of the
securities offered pursuant to this Joint Proxy Statement/Prospectus/Information
Statement shall, under any circumstances, create an implication that there has
been no change in the affairs of EQR, Wellsford or WRP Newco since the date of
this Joint Proxy Statement/Prospectus/Information Statement.
All documents that are incorporated by reference in this Joint Proxy
Statement/Prospectus/Information Statement but which are not delivered herewith
are available without charge (other than exhibits to such documents which are
not specifically incorporated by reference therein) upon request from, in the
case of documents relating to EQR, Two North Riverside Plaza, Suite 400,
Chicago, Illinois 60606, Attention: Cynthia McHugh, telephone (312) 474-1300,
and, in the case of documents relating to Wellsford, 610 Fifth Avenue, New York,
New York 10020, Attention: Kim Ezzy, telephone (212) 333-2300. In order to
insure timely delivery of the documents, any request should be made by
____________, 1997.
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INFORMATION INCORPORATED BY REFERENCE
IN THIS JOINT PROXY STATEMENT/PROSPECTUS/INFORMATION STATEMENT
The following documents filed with the Commission by EQR or by
Wellsford pursuant to the Exchange Act are hereby incorporated in this Joint
Proxy Statement/Prospectus/Information Statement by reference:
1. EQR's current report on Form 8-K dated September 21, 1995.
2. EQR's current report on Form 8-K/A dated September 21, 1995, filed on
October 25, 1995.
3. EQR's current report on Form 8-K/A dated September 21, 1995, filed on
October 30, 1995.
4. EQR's annual report on Form 10-K for the year ended December 31, 1995.
5. EQR's current report on Form 8-K dated January 22, 1996.
6. EQR's current report on Form 8-K dated January 25, 1996.
7. EQR's current report on Form 8-K dated February 5, 1996.
8. EQR's current report on Form 8-K dated March 1, 1996.
9. EQR's current report on Form 8-K/A dated March 1, 1996.
10. EQR's definitive Proxy Statement dated March 29, 1996.
11. EQR's quarterly report on Form 10-Q for quarter ended March 31, 1996.
12. EQR's current report on Form 8-K dated May 15, 1996.
13. EQR's current report on Form 8-K dated May 23, 1996.
14. EQR's current report on Form 8-K/A dated May 23, 1996.
15. EQR's current report on Form 8-K dated May 24, 1996.
16. EQR's current report on Form 10-Q for quarter ended June 30, 1996.
17. EQR's Form 10-K/A for the year ended December 31, 1995, filed August
26, 1996.
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18. EQR's current report on Form 8-K dated September 4, 1996.
19. EQR's current report on Form 10-Q for quarter ended September 30, 1996
20. EQR's current report on From 8-K dated November 15, 1996.
21. EQR's current report on Form 8-K dated December 5, 1996.
22. EQR's current report on Form 8-K dated January 16, 1997.
23. The description of EQR Common contained in EQR's Registration
Statement on Form S-11 No. 33-80420, dated July 20, 1994, as amended.
24. Wellsford's annual report on Form 10-K for the year ended December 31,
1995.
25. Wellsford's definitive Proxy Statement dated March 28, 1996.
26. Wellsford's quarterly report on Form 10-Q for quarter ended March 31,
1996.
27. Wellsford's quarterly report on Form 10-Q for quarter ended June 30,
1996.
28. Wellsford's quarterly report on Form 10-Q for quarter ended September
30, 1996.
29. Wellsford's current report on Form 8-K, dated October 24, 1996.
30. Wellsford's current report on Form 8-K, dated October 31, 1996.
31. Wellsford's current report on Form 8-K, dated January 16, 1997.
32. Wellsford's current report on Form 8-K, dated February 3, 1997.
33. The information prescribed by Items 12, 13, 14, 15 and 16 of Form S-11
contained in Wellsford's Registration Statement on Form S-11 (No. 33-
69868) dated October 1, 1993 and in Amendment Nos. 1 and 2 thereto
dated October 22, 1993 and November 4, 1993, respectively, including
all exhibits thereto.
34. The description of Wellsford Common contained in Wellsford's
Registration Statement on Form 8-A dated November 10, 1992 and the
information thereby incorporated by reference contained in Wellsford's
Registration Statement on Form S-11 (No. 33-52406), as amended by
Amendment No. 1 thereto dated November 3, 1992, under the heading
"Description of Shares of Beneficial Interest."
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35. The description of Wellsford's Series A Convertible Preferred Shares
of Beneficial Interest, par value $.01 per share, contained in
Wellsford's Registration Statement on Form S-11 (No. 33-69868) dated
October 1, 1993 and in Amendments Nos. 1 and 2 thereto dated October
22, 1993 and November 4, 1993, respectively, under the heading
"Description of Series A Cumulative Convertible Preferred Shares."
36. The description of Wellsford's Series B Cumulative Redeemable
Preferred Shares of Beneficial Interest, par value $.01 per share,
contained in Wellsford's Registration Statement on Form 8-A dated
September 5, 1995, under the heading "Description of Registrant's
Securities to be Registered."
37. All documents subsequently filed by EQR or Wellsford pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act prior to the
date of the meetings of shareholders.
Any statement contained herein or in a document incorporated by reference
or deemed to be incorporated by reference herein shall be deemed to be modified
or superseded for purposes of this Joint Proxy Statement/Prospectus/Information
Statement to the extent that a statement contained in this Joint Proxy
Statement/Prospectus/Information Statement or in any other subsequently filed
document that also is or is deemed to be incorporated by reference in this Joint
Proxy Statement/Prospectus/Information Statement modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Joint Proxy
Statement/Prospectus/Information Statement.
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JOINT PROXY STATEMENT/PROSPECTUS/INFORMATION STATEMENT
TABLE OF CONTENTS
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SUMMARY ....................................................................................................... 1
COMPARATIVE PER SHARE DATA...................................................................................... 25
COMPARATIVE SHARE PRICES........................................................................................ 27
EQR .............................................................................................. 27
Wellsford.............................................................................................. 28
RISK FACTORS.................................................................................................... 37
Conflicts of Interest.................................................................................. 37
Adverse Consequences of Debt Financing................................................................. 37
Potential Change in Relative Stock Prices.............................................................. 38
Termination Payments if Merger Fails to Occur.......................................................... 39
Appraisal Rights....................................................................................... 39
Real Estate Investment Considerations.................................................................. 39
Potential Environmental Liability Affecting the Surviving Trust........................................ 40
Consequences of Failure to Qualify as a REIT........................................................... 41
Dependence on Key Personnel............................................................................ 42
Distribution Requirements Potentially Increasing Indebtedness of the Surviving
Trust......................................................................................... 42
Ownership Limit and Limits on Changes in Control....................................................... 42
Control and Influence by Significant Shareholders of EQR............................................... 44
Exemptions for Mr.Zell and Others from Maryland Business Combination
Law which Tend to Inhibit Takeovers........................................................... 44
WRP NEWCO RISK FACTORS.......................................................................................... 45
General Risks.......................................................................................... 45
Difficulty of Locating Suitable Investments; Competition............................................... 46
Nature of Investments Made by WRP Newco; Illiquidity of Real Estate
Investments................................................................................... 46
Risks of Acquisition, Development, Construction and Renovation Activities.............................. 46
Dependence on Rental Income from Real Property......................................................... 47
Operating Risks........................................................................................ 48
Adverse Consequences of Debt Financing................................................................. 48
Equity Investments with Third Parties.................................................................. 49
Investments in Debt Instruments........................................................................ 50
Mortgage Loans......................................................................................... 50
Risk of Loss on Commercial Mortgage-Backed Securities.................................................. 51
Limitation on Remedies................................................................................. 52
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Bankruptcy Considerations.............................................................................. 52
No Prior Operating History............................................................................. 52
Uninsured Loss......................................................................................... 52
Potential Environmental Liability Related to the Properties............................................ 53
Dependence on Key Personnel............................................................................ 54
Absence of Public Market; Risk of Changes in Share Price............................................... 54
Changes in Policies Without Stockholder Approval....................................................... 54
Costs of Compliance with the Americans with Disabilities Act and Similar
Laws.......................................................................................... 54
Other Laws............................................................................................. 55
Effect on Common Stock Price of Shares Available for Future Sale....................................... 55
Hedging Policies/Risks................................................................................. 55
Antitakeover Effect Resulting From a Staggered Board/Ability of Newco to
Issue Preferred Shares/and Certain Provisions of Maryland Law................................. 55
THE MEETINGS OF SHAREHOLDERS.................................................................................... 57
EQR.................................................................................................... 57
Wellsford.............................................................................................. 58
THE MERGER...................................................................................................... 60
Terms of the Merger.................................................................................... 60
Background of the Merger............................................................................... 60
Reasons for the Merger; Recommendation of the EQR Board of Trustees.................................... 65
Reasons for the Merger; Recommendation of the Wellsford Board of Trustees.............................. 68
Opinion of Financial Advisor - EQR..................................................................... 70
Opinion of Financial Advisor - Wellsford............................................................... 76
Effective Time of the Merger........................................................................... 84
Representations and Warranties; Conditions to the Merger............................................... 84
Appraisal Rights....................................................................................... 86
Regulatory Matters..................................................................................... 86
Termination Provisions................................................................................. 86
Termination Fee and Expenses........................................................................... 87
No Solicitation of Other Transactions.................................................................. 88
Conversion of Shares................................................................................... 88
Appointment of Exchange Agent.......................................................................... 90
Exchange of Certificates............................................................................... 90
Conduct of Business Pending the Merger................................................................. 90
Waiver and Amendment................................................................................... 94
Stock Exchange Listing................................................................................. 94
Anticipated Accounting Treatment....................................................................... 94
Shares Available for Resale............................................................................ 94
Contribution of Assets of Wellsford to ERP Operating Partnership....................................... 95
Certain Federal Income Tax Consequences................................................................ 95
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INTERESTS OF CERTAIN PERSONS IN THE MERGER AND DISTRIBUTION.....................................................110
Benefits of Key Executives.............................................................................110
Agreements with the Surviving Trust and ERP Operating Partnership......................................114
Agreements with WRP Newco..............................................................................115
SURVIVING TRUST SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL
DATA............................................................................................................117
EQUITY RESIDENTIAL PROPERTIES TRUST SELECTED HISTORICAL AND
COMBINED FINANCIAL DATA.........................................................................................120
WELLSFORD RESIDENTIAL PROPERTY TRUST SELECTED HISTORICAL
FINANCIAL DATA..................................................................................................123
UNAUDITED PRO FORMA FINANCIAL STATEMENTS OF THE SURVIVING TRUST.................................................127
POLICIES OF THE SURVIVING TRUST WITH RESPECT TO CERTAIN ACTIVITIES..............................................128
Business Objectives and Operating Strategies...........................................................128
Acquisition Strategies.................................................................................128
Disposition Strategies.................................................................................129
Investment Policies....................................................................................129
Financing Policies.....................................................................................130
Lending Policies.......................................................................................131
Policies with Respect to Other Activities..............................................................132
MANAGEMENT AND OPERATION OF THE SURVIVING TRUST AFTER THE
MERGER..........................................................................................................132
Trustees and Executive Officers........................................................................132
Committees of the Board of Trustees....................................................................138
Compensation of Trustees...............................................................................138
Consulting Agreements..................................................................................139
COMPARISON OF RIGHTS OF SHAREHOLDERS............................................................................139
Authorized and Issued Shares...........................................................................139
Amendment to Declaration and Bylaws....................................................................140
Special Meetings.......................................................................................141
Boards of Trustees.....................................................................................141
Mergers, Consolidations, and Sale of Substantially all Assets..........................................142
Restrictions on the Ownership, Transfer or Issuance of Shares..........................................143
Additional Amendments..................................................................................147
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THE CONTRIBUTION AND DISTRIBUTION..............................................................................148
Background of and Reasons for the Distribution.........................................................149
Manner of Effecting the Contribution and Distribution..................................................149
Listing and Trading of WRP Newco Common................................................................150
Conditions; Termination................................................................................150
Contribution and Distribution Agreement................................................................151
Tax Consequences of the Distribution...................................................................152
WELLSFORD REAL PROPERTIES, INC..................................................................................154
General ..............................................................................................154
WRP NEWCO PRO FORMA CAPITALIZATION..............................................................................158
WRP NEWCO DIVIDEND POLICY.......................................................................................160
WRP NEWCO'S INITIAL ASSETS......................................................................................160
American Cyanamid Office Complex.......................................................................161
Greenbrook Corporate Center............................................................................162
Chatham, New Jersey....................................................................................163
Palomino Park..........................................................................................163
Sonterra Assets........................................................................................165
Cash ..............................................................................................166
CERTAIN AGREEMENTS BETWEEN WRP NEWCO AND ERP OPERATING
PARTNERSHIP.....................................................................................................166
Common Stock and Preferred Stock Purchase Agreement....................................................166
Registration Rights Agreement..........................................................................168
Agreement Regarding Palomino Park......................................................................170
Credit Enhancement Agreement...........................................................................173
POLICIES WITH RESPECT TO CERTAIN ACTIVITIES OF WRP NEWCO........................................................174
Investment Policies....................................................................................174
Financing Policies.....................................................................................175
Policies with Respect to Other Activities..............................................................175
MANAGEMENT OF WRP NEWCO.........................................................................................176
Directors and Executive Officers.......................................................................176
Key Employee...........................................................................................178
Compensation of Directors..............................................................................179
Board Committees.......................................................................................179
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Executive Compensation.................................................................................180
Employment Agreements..................................................................................180
Compensation Committee Interlocks and Insider Participation............................................182
PRINCIPAL STOCKHOLDERS OF WRP NEWCO.............................................................................182
WRP NEWCO'S CERTAIN TRANSACTIONS................................................................................184
MANAGEMENT'S DISCUSSION AND ANALYSIS OF WELLSFORD REAL
PROPERTIES, INC. (PREDECESSOR)..................................................................................185
REPORT OF INDEPENDENT AUDITORS..................................................................................187
WELLSFORD REAL PROPERTIES, INC. (PREDECESSOR) COMBINED BALANCE
SHEETS..........................................................................................................188
WELLSFORD REAL PROPERTIES, INC. (PREDECESSOR) COMBINED INCOME
STATEMENT.......................................................................................................189
WELLSFORD REAL PROPERTIES, INC. (PREDECESSOR) COMBINED STATEMENTS
OF CASH FLOW....................................................................................................190
WELLSFORD REAL PROPERTIES, INC. (PREDECESSOR) PRO FORMA COMBINED
INCOME STATEMENT................................................................................................196
WELLSFORD REAL PROPERTIES, INC. (PREDECESSOR) PRO FORMA COMBINED
BALANCE SHEET...................................................................................................199
DESCRIPTION OF CAPITAL STOCK OF WRP NEWCO.......................................................................202
General ..............................................................................................202
Common Stock...........................................................................................203
Preferred Stock........................................................................................203
Classification or Reclassification of Common Stock or Preferred Stock..................................204
Power to Issue Additional Shares of Common Stock and Preferred Stock...................................204
Class A Common Stock...................................................................................204
Series A 8% Convertible Redeemable Preferred Stock.....................................................206
CERTAIN PROVISIONS OF MARYLAND LAW AND OF WRP NEWCO'S CHARTER
AND BYLAWS......................................................................................................211
Classification of the Board of Directors...............................................................211
</TABLE>
v
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<TABLE>
<CAPTION>
Page
<S> <C>
Removal of Directors...................................................................................212
Business Combinations..................................................................................212
Amendment to the Charter and Bylaws....................................................................213
Merger, Consolidation, Sale of Assets..................................................................213
Dissolution of WRP Newco...............................................................................213
Advance Notice of Director Nominations and New Business................................................213
Meetings of Stockholders...............................................................................214
Limitation of Liability and Indemnification............................................................215
APPROVAL OF WRP NEWCO ADDITIONAL SHARE OFFERING.................................................................216
APPROVAL OF WRP NEWCO'S 1997 MANAGEMENT INCENTIVE PLAN..........................................................217
LEGAL MATTERS...................................................................................................223
EXPERTS .......................................................................................................223
SHAREHOLDER PROPOSALS...........................................................................................224
APPENDIX A AGREEMENT AND PLAN OF MERGER.........................................................A-1
APPENDIX B ARTICLES OF MERGER...................................................................B-1
APPENDIX C OPINION OF J.P. MORGAN SECURITIES INC................................................C-1
APPENDIX D OPINION OF MERRILL LYNCH, PIERCE, FENNER &
SMITH INCORPORATED...................................................................D-1
</TABLE>
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in the Summary and under captions "Risk Factors," "WRP
Newco Risk Factors," "The Merger - Reasons for the Merger; Recommendation of the
EQR Board of Trustees" "- Reasons for the Merger; Recommendation of the
Wellsford Board of Trustees," "-Opinion of Financial Advisor - EQR" and "-
Opinion of Financial Advisor - Wellsford" and elsewhere in this Joint Proxy
Statement/Prospectus/Information Statement constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995 (the "Reform Act"). Such forward-looking statements involve known and
unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements of EQR, Wellsford or WRP Newco or industry
results to be materially different from any future results, performance or
achievements expressed or implied by such forward-looking statements. Such
factors include, among others, the following: general economic and business
conditions, which will, among other things, affect demand for multifamily
properties, availability and credit worthiness of prospective tenants, lease
rents and the availability of financing; adverse changes in the real estate
markets including, among other things, competition with other companies, risks
of real estate development and acquisition; governmental actions and
initiatives; environmental/safety requirements; and other changes and factors
referenced in this Joint Proxy Statement/Prospectus/Information Statement and
the documents incorporated herein by reference. With respect to WRP Newco, such
factors may also include: difficulty of locating suitable investments;
illiquidity of real estate investments; risks regarding the Palomino Park
development; limited control of entities in which investments are made; risks of
investments in debt instruments, including reduction in the value of collateral
and the inability to enforce remedies; risks of highly leveraged transactions;
dependence on key personnel; and lack of prior operating history. See "Risk
Factors" and "WRP Newco Risk Factors."
SUMMARY
The following is a summary of certain information contained elsewhere in
this Joint Proxy Statement/Prospectus/Information Statement. Reference is made
to, and this summary is qualified in its entirety by, the more detailed
information and financial statements contained in this Joint Proxy
Statement/Prospectus/Information Statement, the Appendices hereto and the
documents incorporated by reference herein.
Certain capitalized terms used in this summary are defined elsewhere in
this Joint Proxy Statement/Prospectus/Information Statement. As used in this
Joint Proxy Statement/Prospectus/Information Statement, except where the context
requires otherwise, "EQR" means Equity Residential Properties Trust, a Maryland
real estate investment trust and its subsidiaries; "ERP Operating Partnership"
means ERP Operating Limited Partnership, an Illinois limited partnership of
which EQR is the general partner, and its subsidiaries; "Wellsford" means
Wellsford Residential Property Trust, a Maryland real estate investment trust,
and its subsidiaries; and "WRP Newco" means Wellsford Real Properties, Inc., a
Maryland corporation, and its subsidiaries.
<PAGE>
As used in this Joint Proxy Statement/Prospectus/Information Statement,
"Surviving Trust" means the surviving Maryland real estate investment trust in
the Merger.
Parties to the Merger
EQR. EQR, one of the largest publicly traded REITs (based on the aggregate
market value of its outstanding equity capitalization), is a self-administered
and self-managed equity REIT. EQR was organized in March 1993 and commenced
operations as a publicly traded company on August 18, 1993 upon the completion
of its initial public offering (the "IPO"). EQR was formed to continue the
multifamily property business objectives and acquisition strategies of certain
affiliated entities controlled by Mr. Samuel Zell, Chairman of the Board of
Trustees of EQR. These entities had been engaged in the acquisition, ownership
and operation of multifamily properties since 1969. EQR's senior executives
average over 23 years of experience in the multifamily property business.
EQR is the largest publicly traded REIT owner of multifamily properties
(based on the number of apartment units owned and total revenues earned). As of
January 20, 1997, EQR owned or had interests in a portfolio of 240 multifamily
properties containing 71,869 apartment units and managed 13,054 additional units
owned by affiliated entities. As of January 20, 1997, the 240 properties EQR
owned or had interests in had an average occupancy rate of approximately 94%.
These properties are located in the following 30 states: Arizona, Arkansas,
California, Colorado, Florida, Georgia, Idaho, Illinois, Indiana, Iowa, Kansas,
Kentucky, Louisiana, Maryland, Michigan, Minnesota, Missouri, New Hampshire, New
Jersey, New Mexico, Nevada, North Carolina, Ohio, Oklahoma, Oregon, South
Carolina, Tennessee, Texas, Virginia and Washington.
All of EQR's interests in its properties are held directly or indirectly
by, and substantially all of its operations relating to the properties are
conducted through, ERP Operating Partnership. EQR controls ERP Operating
Partnership as the sole general partner and, as of January 14, 1997, owned
approximately 87% of ERP Operating Partnership's outstanding partnership
interests (excluding preference units) ("OP Units"), which may be exchanged by
the holders thereof for either shares of EQR Common, on a one-for-one basis or,
at EQR's option, the cash equivalent thereof.
EQR's corporate headquarters and executive offices are located at Two North
Riverside Plaza, Suite 400, Chicago, Illinois 60606, and its telephone number is
(312) 474-1300. In addition, EQR has regional operations centers in Chicago,
Illinois; Dallas, Texas; Denver, Colorado; Seattle, Washington; Tampa, Florida
and Bethesda, Maryland, and area offices in Atlanta, Georgia; Las Vegas, Nevada;
Phoenix, Arizona; Portland, Oregon; San Antonio, Texas; Irvine, California;
Raleigh, North Carolina; and Ft. Lauderdale, Florida.
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<PAGE>
Wellsford. Wellsford is a publicly traded, self-administered and self-
managed equity REIT, formed in 1992, which owns and operates multifamily
properties located in the Western, Southwestern and Pacific regions of the
United States. As of December 31, 1996, Wellsford owned 72 properties
containing 19,004 apartment units. Wellsford's average occupancy rate on
February 17, 1997 was approximately 94.8%. Wellsford's properties are located
in the following states: Arizona, Colorado, New Mexico, Nevada, Oklahoma,
Texas, Utah and Washington.
Wellsford's corporate headquarters and executive offices are located at 610
Fifth Avenue, New York, New York 10020, and its telephone number is (212) 333-
2300. In addition, Wellsford has operating headquarters in Denver, Colorado and
area offices in Dallas, Texas; San Antonio, Texas; Tulsa, Oklahoma; Oklahoma
City, Oklahoma; Phoenix, Arizona; and Tacoma, Washington.
Terms of the Merger
The Merger Agreement provides that, upon satisfaction or waiver of the
conditions set forth therein, EQR will be merged into Wellsford. The name of the
Surviving Trust will be Equity Residential Properties Trust. The EQR Board of
Trustees and Wellsford Board of Trustees have each approved the Merger as set
forth in the Merger Agreement. Upon consummation of the Merger (the "Effective
Time"), each outstanding share of Wellsford Common will be converted into .625
(the "Exchange Ratio") of a common share of beneficial interest, $.01 par value
per share, of the Surviving Trust ("Survivor Common"). At the Effective Time,
each outstanding share of EQR Common will be converted into one share of
Survivor Common. At the Effective Time, each outstanding share of Wellsford
Preferred and EQR Preferred will be converted into one preferred share of the
Surviving Trust ("Survivor Preferred") having the same preferences and other
terms as the preferred shares previously outstanding of the same series;
provided, however, the conversion ratio for Wellsford's Series A Cumulative
Convertible Preferred Shares of Beneficial Interest, .01 par value per share
("Wellsford Series A") will be adjusted in accordance with its terms. See "The
Merger - Terms of the Merger".
The Distribution of WRP Newco Common
Immediately prior to the Merger, Wellsford will contribute certain of its
assets, including an 80% interest in phases I and II of, and in options to
acquire and develop phases III, IV and V of, a 182-acre five-phase development
project located in Denver, Colorado ("Palomino Park"), a $17.8 million mortgage
receivable (the "Sonterra Loan"), on a 344-unit multifamily property located in
Tuscon, Arizona ("Sonterra"), an option to purchase Sonterra and approximately
$20 million of cash to WRP Newco and WRP Newco will assume certain obligations
of Wellsford (the "Contribution"). Immediately after the Contribution and
immediately prior to the Merger, Wellsford will distribute to the holders of
Wellsford Common all the outstanding shares of WRP Newco Common owned by
Wellsford as a distribution subject
3
<PAGE>
to income tax under Section 301 of the Internal Revenue Code of 1986, as amended
(the "Code"). Pursuant to the Distribution, the holders of Wellsford Common
will receive one share of WRP Newco Common for each four shares of Wellsford
Common owned by such holder. Cash will be paid in lieu of fractional shares.
The Contribution and the Distribution are not subject to approval by the
shareholders of Wellsford.
No shares of WRP Newco Common will be distributed to EQR Common
Shareholders. EQR Common Shareholders will participate indirectly in WRP Newco
through the interests of ERP Operating Partnership in WRP Newco as described
under "Certain Agreements between WRP Newco and ERP Operating Partnership."
4
<PAGE>
[Chart to be inserted depicting pre-Merger EQR & Wellsford]
5
<PAGE>
[Chart to be inserted depicting Surviving Trust & WRP Newco]
6
<PAGE>
[Map to be inserted depicting property interests of Surviving Trust]
7
<PAGE>
Reasons for the Merger; Recommendations of the Boards of Trustees
The EQR Board of Trustees believes that the Merger, including the
consideration to be paid by EQR, is fair and in the best interests of EQR and
its shareholders. The EQR Trustees who voted on the Merger unanimously approved
the Merger and unanimously recommend that the EQR Common Shareholders vote FOR
the Merger. The primary factors the EQR Board of Trustees considered in reaching
the foregoing conclusions were the beliefs that (i) the Merger would solidify
EQR's leadership position in the multifamily property industry and the Surviving
Trust will be one of the largest publicly traded REITs (based on the aggregate
market value of its outstanding equity capitalization), (ii) the Merger would
increase operating efficiencies through economies of scale, (iii) the Merger
would provide greater access to the public equity and debt markets, (iv) the
Surviving Trust would be a larger and financially stronger company, which would
make it easier to combine with other entities, (v) the combination of the
Wellsford properties with those of EQR would expand the geographic focus of
EQR's operations in the Southwest, Western and Pacific regions of the United
States, and (vi) the Merger could be effectuated through the issuance of shares
of equity to shareholders in the Merger rather than through the use of cash or a
separate public offering of equity or debt securities. The EQR Board of Trustees
also received the written opinion, dated January 16, 1997, of J.P. Morgan
Securities Inc. ("J.P. Morgan") to the effect that, as of such date and based
upon and subject to certain matters stated therein, the consideration to be paid
by EQR in connection with the Merger was fair, from a financial point of view,
to EQR. See "The Merger--Reasons for the Merger; Recommendation of the EQR Board
of Trustees" and "Opinion of Financial Advisors--EQR."
The Wellsford Board of Trustees believes that the Merger and Distribution
are fair to, and in the best interests of, Wellsford and its shareholders. By
unanimous vote, the Wellsford Board of Trustees approved the Merger, the
Distribution and the transactions contemplated thereby, and unanimously
recommend that the Wellsford Common Shareholders vote FOR the Merger. The Board
of Trustees reached its decision after careful consideration of a wide variety
of factors, the most important of which being that (i) the Merger would afford
shareholders a significant participation in a much larger and more
geographically diversified REIT with greater potential for long-term
appreciation and improved access to capital markets, (ii) the Merger was the
best alternative reasonably available to Wellsford Common Shareholders,
providing the greatest feasibility and potential to maximize shareholder value,
(iii) the Merger offered anticipated cost savings and operating efficiencies to
the Surviving Trust, (iv) the Merger would significantly increase the market
capitalization of the Surviving Trust, (v) the Exchange Ratio fairly reflected
the relative contributions of both companies to the combined entity, and (vi)
the Merger would be tax-free. The Wellsford Board of Trustees received further
confirmation of its decision in the form of the written opinion of Merrill
Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch"), dated January 16,
1997, to the effect that, as of such date and based upon certain assumptions and
considerations, the consideration to be received by Wellsford Common
Shareholders pursuant to the Merger and the Distribution was fair to such
8
<PAGE>
shareholders from a financial point of view. See "The Merger - Reasons for the
Merger" and "Opinion of Financial Advisor - Wellsford."
Opinions of Financial Advisors
EQR. At the meeting of the Board of Trustees of EQR on January 15,
1997, J.P. Morgan rendered its oral opinion to the Board of Trustees of EQR
that, as of such date, the consideration to be paid by EQR in connection with
the proposed Merger was fair from a financial point of view to EQR. J.P. Morgan
has confirmed its January 15, 1997 oral opinion by delivering its written
opinion to the Board of Trustees of EQR, dated January 16, 1997, that as of such
date, the consideration to be paid by EQR in connection with the proposed Merger
was fair from a financial point of view to EQR. No limitations were imposed by
EQR's Board of Trustees upon J.P. Morgan with respect to the investigations made
or procedures followed by it in rendering its opinions. See "The Merger -
Opinion of Financial Advisor - EQR."
Wellsford. At the meeting of the Board of Trustees of Wellsford on
January 16, 1997, Merrill Lynch delivered its written opinion to the Board of
Trustees of Wellsford that, as of such date and based upon the assumptions made,
matters considered and limits of review, as set forth in such opinion, the
proposed consideration to be received by the holders of Wellsford Common
pursuant to the Merger and the Distribution was fair to such shareholders from a
financial point of view. No limitations were imposed by Wellsford's Board of
Trustees upon Merrill Lynch with respect to the investigations made or
procedures followed by it in rendering its opinions. See "The Merger - Opinion
of Financial Advisor - Wellsford."
Risk Factors
In considering whether to approve the Merger, the shareholders of EQR
and Wellsford voting on the Merger should consider, in addition to the other
information in this Proxy Statement/Prospectus/Information Statement, the
matters discussed under "Risk Factors." Such matters include:
. Adverse consequences normally associated with debt or preferred
equity financing, including the risk that the Surviving Trust's
cash flow will be insufficient to meet required payments of
principal and interest.
. Risks associated with the potential change in the relative share
prices of EQR Common and Wellsford Common prior to the time the
Merger becomes effective.
. Possible payment of liquidated damages and expenses: the Merger
Agreement provides for a "Break-Up Fee" of $14 million (the "Break-
Up Fee") plus "Break-Up Expenses" of up to $2.5 million (the
"Break-Up Expenses") payable by Wellsford to EQR if the Merger
Agreement is terminated by either EQR or
9
<PAGE>
Wellsford under certain circumstances and, within one year thereafter,
Wellsford enters into an agreement regarding an "Acquisition
Proposal," as defined herein, which is consummated. If the Merger
Agreement is terminated by either EQR or Wellsford under certain other
circumstances, either EQR or Wellsford will be required to pay the
other party's Break-Up Expenses of up to $2.5 million. See "The
Merger-Termination Provisions."
. Possible conflicts of interest due to the fact that certain members of
management of Wellsford, pursuant to existing agreements, have certain
interests that arise in connection with the Merger and the
Distribution that are in addition to the interests of shareholders of
Wellsford generally.
. Shareholders of EQR and Wellsford do not have appraisal rights in
connection with the Merger under Maryland law.
Interests of Certain Persons
In considering whether to approve the Merger, shareholders should be aware
that certain members of the management of Wellsford and the Wellsford Board of
Trustees have certain interests that arise in connection with the Merger and the
Distribution that are in addition to the interests of shareholders of Wellsford
generally. These interests arise under existing agreements with, and previously
approved annual compensation awards from, Wellsford and proposed agreements with
WRP Newco and the Surviving Trust relating to, among other things, severance
payments to be made to certain executive officers (but not Jeffrey H. Lynford,
Chairman of the Board, Edward Lowenthal, President and Chief Executive Officer,
and Daniel M. Kelley, Vice Chairman), the forgiveness of loans made to certain
executive officers incurred to acquire shares of Wellsford Common, the issuance
of additional shares of Wellsford Common to certain executive officers, the
acceleration of vesting of restricted share grants issued to certain executive
officers (but not Messrs. Lynford and Lowenthal), payments to be made to certain
executive officers to satisfy income and excise tax obligations resulting from
certain monies and other benefits to be paid to them in connection with the
Merger and the issuance of WRP Newco stock options to certain executive officers
and trustees of Wellsford in replacement of certain existing Wellsford share
options and reload options granted in connection with the exercise of vested
Wellsford options. In addition, upon completion of the Merger, WRP Newco will
enter into employment agreements with Messrs. Lynford and Lowenthal for five and
one-half years and employment agreements with Gregory F. Hughes, Chief Financial
Officer of Wellsford, and David M. Strong, a Vice President of Wellsford, for
two years, and WRP Newco will enter into a five-year consulting agreement with
Mr. Kelley. WRP Newco will also assume the existing split dollar life insurance
arrangements between Wellsford and Messrs. Lynford and Lowenthal. See
"Interests of Certain Persons in the Merger and Distribution."
Further, upon completion of the Merger, Messrs. Lynford and Lowenthal will
each enter into a five-year consulting agreement with ERP Operating Partnership
and will be appointed to
10
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the Board of Trustees of the Surviving Trust for a three-year term. In addition,
Donald D. MacKenzie, Executive Vice President-Director of Operations of
Wellsford, will be a Senior Vice President of the Surviving Trust upon
completion of the Merger. The Surviving Trust will indemnify each trustee and
officer of Wellsford for all actions on or prior to the Effective Time to the
same extent such individuals were indemnified by Wellsford prior to the
Effective Time.
Effective Time of the Contribution and the Distribution
As stated in "The Contribution and Distribution," the Contribution and the
Distribution will take place immediately prior to the Merger.
Effective Time of the Merger and Closing Date
The closing ("Closing") of the Merger will take place at 10:00 a.m. on the
date to be specified by EQR and Wellsford, which will be no later than the third
business day after satisfaction or waiver of the conditions set forth in the
Merger Agreement (the "Closing Date"), at the offices of Rudnick & Wolfe, 203
North LaSalle Street, Chicago, Illinois 60601, unless another date or place is
agreed to in writing by the parties. The Merger will become effective at the
time the State Department of Assessments and Taxation of Maryland (the
"Department") accepts for record the Articles of Merger (the "Articles"), or at
such time as EQR and Wellsford will agree should be specified in the Articles
(not to exceed 30 days after the Articles are accepted for record by the
Department). It is currently anticipated that the Merger will be effective on
or about ________, 1997.
Conditions to the Merger
The obligations of EQR and Wellsford to consummate the Merger are subject
to the satisfaction or waiver of certain conditions, including, among others,
(i) obtaining the requisite approval of the shareholders of EQR and shareholders
of Wellsford, (ii) the absence of any material adverse change in the financial
condition, business or operations of Wellsford or EQR, (iii) the receipt of
certain legal opinions, including opinions with respect to the tax consequences
of the Merger, (iv) the receipt of all material consents, authorizations, orders
and approvals of governmental agencies and third parties, (v) the consummation
of certain transactions by and between EQR, ERP Operating Partnership and WRP
Newco, (vi) the execution of certain agreements between each of Wellsford and
EQR and their respective affiliates, and (vii) the consummation of the
Contribution and the Distribution. EQR and Wellsford each have the right to
waive any conditions to their respective obligations to consummate the Merger.
See "The Merger - Conditions of the Merger."
Appraisal Rights
Shareholders of Wellsford and shareholders of EQR are not entitled to
dissenting shareholders' appraisal rights under Maryland law. Maryland law does
not provide appraisal
11
<PAGE>
rights to shareholders of a REIT in connection with a merger if their shares are
listed on a national securities exchange, such as the NYSE, on the record date
for determining shareholders entitled to vote on such merger. All of the shares
of EQR and Wellsford outstanding on the record date for determining the
shareholders entitled to vote on the Merger were listed on the NYSE.
Certain Federal Income Tax Consequences
Tax Consequences of Merger. The Merger is intended to qualify as a tax-
free reorganization under Section 368(a) of the Internal Revenue Code of 1986,
as amended (the "Code"). For a more detailed discussion of certain U.S. Federal
income tax consequences of the Merger and certain other matters related thereto,
see "The Merger -- Certain Federal Income Tax Consequences."
Tax Consequences of Distribution. To the extent the fair market value of
the shares of WRP Newco Common distributed in the Distribution to Wellsford
Common Shareholders exceeds Wellsford's tax basis in such shares, gain will be
recognized by Wellsford. Assuming Wellsford qualifies as a REIT and has a
dividends paid deduction for distributions to its shareholders at least equal to
its REIT taxable income (as computed before taking into account the dividends
paid deduction), no REIT level tax will be incurred on account of the
Distribution.
The distribution of shares of WRP Newco Common will, however, be taxable to
Wellsford Common Shareholders to the same extent as any other distribution made
by Wellsford to the Wellsford Common Shareholders. Thus, so long as Wellsford
qualifies for taxation as a REIT, distributions with respect to its shares,
including the Distribution, made out of current or accumulated earnings and
profits allocable thereto (and not designated as capital gain dividends) will be
includible by the Wellsford Common Shareholders as ordinary income for Federal
income tax purposes. For a more detailed discussion, see "Tax Consequences of
the Distribution."
Termination
The Merger Agreement provides that it may be terminated in a number of
circumstances at any time prior to the Effective Time, whether before or after
the approval of the Merger by the shareholders of EQR and shareholders of
Wellsford. See "The Merger -Termination Provisions."
Termination Fees
Depending on the reason for the Merger Agreement's termination, Wellsford
may be required to pay EQR either the Break-Up Fee and Break-Up Expenses or
Break-Up Expenses,
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<PAGE>
or EQR may be required to pay Wellsford the Break-Up Expenses. See "The Merger
- - Termination Fees and Expenses".
Anticipated Accounting Treatment
The Merger will be treated as a purchase in accordance with Accounting
Principles Board Opinion No. 16.
No Solicitation of Other Transactions
Wellsford has agreed that it (and its subsidiaries) will not, and will use
its best efforts to not permit its officers, trustees, employees, agents or
financial advisors to, initiate, solicit or 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 transactions involving all or any significant portion
of the assets or any equity securities of, it or any of its subsidiaries, other
than the transactions contemplated by the Merger Agreement. The Merger
Agreement does not, however, prohibit Wellsford from entering into discussions
with respect to an unsolicited proposal if the Board of Trustees of Wellsford
determines that such action is required by its duties to its shareholders
imposed by law.
EQR has agreed that if it enters into negotiations with another entity
having a class of equity securities registered under the Exchange Act regarding
the acquisition of such entity (whether effected through a merger,
consolidation, share exchange, tender offer or other form), then at least three
business days prior to executing any definitive agreement with such entity with
respect to such acquisition or making a tender offer for the shares or other
ownership interests of such entity, EQR will notify Wellsford of such
transaction and consult with Wellsford with respect thereto, it being
understood, however, that Wellsford will have no approval rights with respect
thereto.
Conversion of Shares; Exchange of Certificates
Each share of Wellsford Common outstanding immediately prior to the
Effective Time will be converted into .625 share of validly issued, fully paid
and nonassessable Survivor Common. Each share of EQR Common outstanding
immediately prior to the Effective Time will be converted into one share of
validly issued, fully paid and nonassessable Survivor Common. Each share of EQR
Preferred and Wellsford Preferred outstanding immediately prior to the Effective
Time will continue as one validly issued, fully paid and nonassessable share of
Survivor Preferred, with all the preferences, rights and powers that each share
previously had as shares issued by EQR or Wellsford, as the case may be, and
will rank pari passu with each other outstanding Survivor Preferred; provided,
however, that the conversion ratio relating to the Wellsford Series A will be
adjusted in accordance with its terms.
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All shares of Wellsford Common, when converted pursuant to the Merger, will
no longer be outstanding and will automatically be canceled and retired and each
holder of a certificate representing Wellsford Common will cease to have any
rights with respect thereto, except the right to receive shares of Survivor
Common, and cash in lieu of any fractional shares of Survivor Common, as well as
any dividends and distributions declared with respect thereto with a record date
after the Effective Time. At the Effective Time, each certificate representing
outstanding shares of Wellsford Preferred will cease to have any rights with
respect to such shares, except the right to receive a certificate of the
Surviving Trust representing an equal number of Survivor Preferred. Wellsford
Common Shareholders should not tender their certificates for Wellsford Common
with their proxy. As promptly as practicable after the Effective Time, Boston
EquiServe LLP, an affiliate of First National Bank of Boston, as the exchange
agent ("Exchange Agent"), will mail the Wellsford Common Shareholders
transmittal materials for use in exchanging certificates evidencing Wellsford
Shares for certificates evidencing shares of the Survivor Common or Survivor
Preferred ("Survivor Shares"). See "The Merger - Exchange of Certificates."
At the Effective Time, each certificate evidencing outstanding shares of
EQR Common and EQR Preferred will, without any action by the holders thereof,
thereafter represent the same number of shares of Survivor Common and Survivor
Preferred, as the case may be.
Management of the Surviving Trust
The Surviving Trust will have twelve trustees. The Board of Trustees of
the Surviving Trust will be made up of the current trustees of EQR, Jeffrey H.
Lynford, the Chairman of the Wellsford Board of Trustees, and Edward Lowenthal,
a Trustee and the President of Wellsford. The Board of Trustees of the
Surviving Trust will be divided into three equally numbered classes serving
staggered three-year terms. One class will serve as trustees until the 1998
annual meeting of shareholders, one class will serve as trustees until the 1999
annual meeting of shareholders, and one class will serve as trustees until the
2000 annual meeting of shareholders.
Senior management of the Surviving Trust will be drawn from the present
management of EQR. As a condition to the consummation of the Merger, Jeffrey H.
Lynford and Edward Lowenthal will enter into consulting agreements with ERP
Operating Partnership. In addition, Donald MacKenzie, Executive Vice President-
Director of Operations of Wellsford, will be a Senior Vice President of the
Surviving Trust upon completion of the Merger. See "The Merger -Interests of
Certain Persons in the Merger and Distribution."
After the Merger, management and control of ERP Operating Partnership will
be vested in the Surviving Trust, which will serve as its sole general partner.
The Merger Agreement also contains provisions relating to, among other
things, employee benefits and indemnification and liability coverage of former
trustees and officers of
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Wellsford after the Merger. See "The Merger - Interests of Certain Persons in
the Merger and Distribution."
The Meetings of Shareholders
EQR
The EQR Special Meeting has been called to consider and vote on the
approval of the Merger. The EQR Special Meeting will be held on __________,
1997 at _____ a.m., local time, in ___________________, ________, ________.
Only holders of record of EQR Common at the close of business on ___________,
1997 will be entitled to vote at the EQR Special Meeting. Each holder of EQR
Common is entitled to one vote per share on the Merger as proposed in the notice
of the EQR Special Meeting. EQR had outstanding _________________ shares of EQR
Common as of the close of business on ________, 1997, of which ____________
shares (or approximately___% of the outstanding shares of EQR Common) (excludes
____________ shares where beneficial ownership is disclaimed) were owned
beneficially by the officers and trustees of EQR, and such persons have
indicated their intention to vote such shares in favor of each of the proposals.
Approval of the Merger requires the affirmative vote of two-thirds of the
holders of the outstanding shares of EQR Common.
Wellsford
The Wellsford Special Meeting has been called to consider and vote on the
approval of the Merger, including the adoption of an amended and restated
declaration of trust of the Surviving Trust, the approval of the Additional
Amendments, the approval of the Additional Share Offering by WRP Newco and the
adoption of WRP Newco's 1997 Management Incentive Plan. The Wellsford Special
Meeting will be held on _______________, 1997, at ______ a.m., local time, at
_____________________________________________________________. Only holders of
record of Wellsford Common at the close of business on ________, 1997 will be
entitled to notice of and to vote at the Wellsford Special Meeting. Each holder
of Wellsford Common is entitled to one vote per share as proposed in the notice
of the Wellsford Special Meeting. Wellsford had outstanding __________________
shares of Wellsford Common as of the close of business on ________, 1997, of
which ____________ shares (or approximately ___% of the outstanding shares of
Wellsford Common) (excludes ____________ shares where beneficial ownership is
disclaimed) were owned beneficially by the officers and trustees of Wellsford,
and such persons have indicated their intention to vote such shares in favor of
the proposals. Approval of the Merger requires the affirmative vote of a
majority of the Wellsford Common Shareholders. Approval of the Additional
Amendments requires the affirmative vote of two-thirds of the holders of the
outstanding shares of Wellsford Common. Approval of the Additional Share
Offering by WRP Newco and adoption of WRP Newco's 1997 Management Incentive Plan
require the affirmative vote of a majority of the holders of the outstanding
shares of Wellsford Common voting, provided that the total votes cast represent
over 50% of the outstanding shares of Wellsford Common.
15
<PAGE>
Surviving Trust
Summary Unaudited Pro Forma
Combined Financial Data
The following tables set forth the summary unaudited pro forma combined
financial data for the Surviving Trust as a combined entity, giving effect to
the Merger as if it had occurred on the dates indicated herein, after giving
effect to the pro forma adjustments described in the notes to the unaudited pro
forma financial statements included elsewhere in the Joint Proxy Statement/
Prospectus/Information Statement.
The summary unaudited pro forma combined operating data are presented as if
the Merger had been consummated at the beginning of each period presented. In
addition to the Merger, the Surviving Trust pro forma combined operating data
gives effect to certain material events for EQR which occurred between January
1, 1996 and November 15, 1996 and during the year ended December 31, 1995. See
Note (T) to the Unaudited Pro Forma Combined Statement of Operations for the
nine months ended September 30, 1996 and the year ended December 31, 1995
included elsewhere in the Joint Proxy Statement/Prospectus/Information
Statement.
The summary unaudited pro forma combined balance sheet data is presented as
if the Merger had occurred on September 30, 1996. In addition to the Merger,
the Pro Forma Balance Sheet gives effect to certain material events that
occurred between October 1, 1996 and January 20, 1997, as if they had occurred
on September 30, 1996. See Note (A) to the Unaudited Pro Forma Balance Sheet
included elsewhere in the Joint Proxy Statement/Prospectus/Information
Statement. The Merger has been accounted for under the purchase method of
accounting in accordance with the Accounting Principles Board Opinion No. 16. In
the opinion of management, all significant adjustments necessary to reflect the
effects of the Merger have been made.
The summary pro forma financial information should be read in conjunction
with, and is qualified in its entirety by, the respective historical audited
financial statements and notes thereto of EQR and Wellsford incorporated by
reference into this Joint Proxy Statement/Prospectus/Information Statement and
the unaudited pro forma financial statements and notes thereto included
elsewhere in the Joint Proxy Statement/Prospectus/Information Statement.
The summary unaudited pro forma operating and balance sheet data are
presented for comparative purposes only and are not necessarily indicative of
what the actual combined results of EQR and Wellsford would have been for the
period and dates presented. Nor does such data purport to represent the results
of future periods.
16
<PAGE>
SURVIVING TRUST
---------------
<TABLE>
<CAPTION>
OPERATING DATA: Pro Forma Pro Forma
Nine Months Ended Year Ended
September 30, 1996 December 31, 1995
---------------------- ---------------------
REVENUES: (Amount in thousands except per share data)
<S> <C> <C>
Rental income $467,644 $602,682
Fee and asset management 4,982 7,030
Interest income-investment in 9,084 10,646
mortgage notes
Interest and other income 5,933 10,241
----- ------
Total revenues 487,643 630,599
------- -------
EXPENSES:
Property and maintenance 135,798 181,659
Real estate taxes and insurance 44,374 58,556
Property management 16,964 21,316
Fee and asset management 3,037 3,887
Depreciation 97,299 122,808
Interest:
Expense incurred 84,423 115,543
Amortization of deferred 2,794 3,425
financing costs
General and administrative 7,062 8,625
----- -----
Total Expenses 391,751 515,819
------- -------
Income before (loss) on sale of
investment communities and
(loss) on joint venture
communities 95,892 114,780
(Loss) on sale of investment -- (819)
communities
(Loss) on joint venture (53) (280)
communities ------- -------
Income before extraordinary 95,839 113,681
items and allocation to
minority interests
Extraordinary Item:
(Loss) on early extinguishment -- (5,553)
of debt ------- -------
Income before allocation to 95,839 108,128
Minority Interests
Income allocated to Minority (10,800) (12,190)
Interests ------- -------
Net income 85,039 95,938
Preferred distributions 36,594 45,217
------- -------
Net income available for Common $48,445 $50,721
Shares ======= =======
Net income per weighted average $0.86 $0.93
Common Share outstanding ======= =======
Weighted average Common Shares 56,426 54,360
outstanding ======= =======
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
BALANCE SHEET DATA: Pro Forma
(at end of period) September 30, 1996
------------------
<S> <C>
Real estate, after accumulated depreciation $3,697,614
Total assets $3,907,011
Total debt $1,546,300
Minority Interests $ 188,069
Shareholders' Equity $2,026,754
</TABLE>
18
<PAGE>
Equity Residential Properties Trust
Summary Historical and Combined Financial Data
The following tables set forth summary historical and combined financial
data for EQR. The summary historical combined financial data for each of the
years ended December 31, 1991, 1992, 1993, 1994 and 1995 are derived from the
audited financial statements of EQR as reported in its Annual Reports on Form
10-K and the summary historical financial data for each of the interim periods
ended September 30, 1996 and 1995 are derived from the unaudited financial
statements of EQR as reported in its Quarterly Reports on Form 10-Q. The
summary historical financial data should be read in conjunction with, and is
qualified in its entirety by, the historical and combined financial statements
and notes thereto of EQR incorporated by reference into this Joint Proxy
Statement/Prospectus/Information Statement.
19
<PAGE>
EQUITY RESIDENTIAL PROPERTIES TRUST
CONSOLIDATED AND COMBINED HISTORICAL FINANCIAL INFORMATION
(Amounts in thousands except per share data)
<TABLE>
<CAPTION>
Nine Months Ended
September 30 Year Ended December 31,
---------------- --------------------------------------
1996 1995 1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
REVENUES
Rental income $ 327,749 $ 273,723 $ 372,447 $ 220,727 $ 104,388 $ 86,597 $ 84,289
Fee and asset management 4,982 5,461 7,030 4,739 4,651 4,215 4,361
Interest income-investment
in mortgage notes 9,084 1,934 4,862 -- -- -- --
Interest and other income 2,232 3,652 4,573 5,568 3,031 2,161 888
---------- ---------- ---------- ---------- ---------- --------- ---------
Total revenues 344,047 284,770 388,912 231,034 112,070 92,973 89,538
---------- ---------- ---------- ---------- ---------- --------- ---------
EXPENSES
Property and maintenance 93,128 82,307 110,714 66,534 35,324 30,680 30,245
Real estate taxes and insurance 32,301 27,357 37,002 23,028 11,403 10,274 9,973
Property management 13,136 10,815 15,213 10,249 4,938 2,912 2,659
Property management - non-recurring -- -- -- 879 -- -- --
Fee and asset management 3,037 2,746 3,887 2,056 2,242 2,403 2,383
Depreciation 66,759 51,982 72,410 37,273 15,384 13,442 13,833
Interest:
Expense incurred 58,632 58,141 78,375 37,044 26,042 31,926 33,786
Amortization of deferred financing
costs 2,860 2,539 3,444 1,930 3,322 2,702 1,575
Refinancing costs -- -- -- -- 3,284 -- --
General and administrative 6,690 6,091 8,129 6,053 1,994 1,915 1,320
---------- ---------- ---------- ---------- ---------- --------- ---------
Total expenses 276,543 241,978 329,174 185,046 103,933 96,254 95,774
---------- ---------- ---------- ---------- ---------- --------- ---------
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
1996 1995 1995 1994 1993 1992 1991
----------- ----------- ----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Income (loss) before gain on disposition
of properties, extraordinary items and
allocation to Minority Interests 67,504 42,792 59,738 45,988 8,137 (3,281) (6,236)
Gain on disposition of properties 2,346 1,542 21,617 -- -- -- --
----------- ----------- ----------- ----------- ---------- ---------- ----------
Income (loss) before extraordinary items
and allocation to Minority Interests 69,850 44,334 81,355 45,988 8,137 (3,281) (6,236)
Extraordinary Items:
Write-off of unamortized costs on
refinanced debt (3,134) -- -- -- -- -- --
Gain on early extinguishment of debt -- 2,000 2,000 -- -- -- --
Gain on discharge of indebtedness -- -- -- -- 1,792 18,203 5,391
----------- ----------- ----------- ----------- ---------- ---------- ----------
Income (loss) before allocation to
Minority Interests 66,716 46,334 83,355 45,988 9,929 14,922 (845)
Income allocated to Minority Interests 8,426 9,004 15,636 11,570 3,834 -- --
----------- ----------- ----------- ----------- ---------- ---------- ----------
Net income (loss) 58,290 37,330 67,719 34,418 6,095 14,922 (845)
Preferred distributions 19,953 4,781 10,109 -- -- -- --
----------- ----------- ----------- ----------- ---------- ---------- ----------
Net income (loss) available for
Common Shares $ 38,337 $ 32,549 $ 57,610 $ 34,418 $ 6,095 $ 14,922 $ (845)
=========== =========== =========== =========== ========== ========== ==========
Net income per weighted average
Common Share outstanding $ 0.94 $ 0.95 $ 1.68 $ 1.34 $ .42 -- --
Weighted average Common Shares
outstanding 40,934 34,277 34,358 25,621 14,601 -- --
BALANCE SHEET DATA (at end of period):
Real estate, before accumulated
depreciation $ 2,747,081 $ 2,186,636 $ 1,963,476 $ 634,577 $ 358,212 $ 353,212
Real estate, after accumulated
depreciation $ 2,473,686 $ 1,969,453 $ 1,770,735 $ 478,210 $ 218,825 $ 226,818
Total assets $ 2,784,866 $ 2,141,260 $ 1,847,685 $ 535,914 $ 238,878 $ 243,693
Total debt $ 1,237,623 $ 1,002,219 $ 994,746 $ 278,642 $ 343,282 $ 360,132
Minority Interests $ 154,839 $ 168,963 $ 177,438 $ 83,159 $ -- $ --
Shareholders' Equity (Net Deficit) $ 1,271,890 $ 884,517 $ 609,936 $ 146,485 $ (122,094) $ (135,041)
</TABLE>
21
<PAGE>
Wellsford Residential Property Trust
Summary Historical Financial Data
The following tables set forth summary historical financial data for Wellsford.
The summary historical financial data for each of the years ended December 31,
1991, 1992, 1993, 1994 and 1995 are derived from the audited financial
statements of Wellsford as reported in its Annual Reports on Form 10-K and the
summary historical financial data for each of the interim periods ended
September 30, 1996 and 1995 are derived from the unaudited financial statements
of Wellsford as reported in its Quarterly Reports on Form 10-Q. The summary
historical financial data should be read in conjunction with, and is qualified
in its entirety by, the historical financial statements and notes thereto of
Wellsford incorporated by reference into this Joint Proxy
Statement/Prospectus/Information Statement. Certain reclassifications have been
made to Wellsford's historical financial data to conform to EQR's presentation.
22
<PAGE>
Wellsford Residential Property Trust
Summary Historical Financial Data
<TABLE>
<CAPTION>
Nine Months ended
September 30
Historical Year Ended December 31,
(000s except per share data) Historical (000s except per share data)
------------------------------- --------------------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
------------------------------- --------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues $97,152 $98,063 $131,232 $82,794 $42,007 $26,229 $22,071
Expenses (80,131) (86,007) (113,712) (73,299) (34,816) (26,991) (24,852)
Gain (loss) on sale of
investment
communities -- 516 (819) -- 882 -- --
Loss on joint venture
communities (52) (301) (279) -- -- -- --
---- ----- ----- ------- ------- ------- -------
Income (loss) before
extraordinary item $16,969 $12,271 $16,422 $9,495 $8,073 $(762) $ (2,781)
====== ====== ====== ===== ===== ===== =======
Net income (loss) $16,969 $7,142 $10,869 $9,495 $8,073 $(762) $(1,736)
Preferred dividends (9,411) (5,836) (8,973) (7,000) (972) -- --
------- ------- ------- ------- ------- ------- -------
Net income (loss)
available for
common
shareholders $7,558 $1,306 $1,896 $2,495 $7,101 $ (762) $(1,736)
===== ===== ===== ===== ===== ===== =======
Net income (loss) per
common share $.44 $.08 $0.11 $0.25 $0.91 $(0.34)
=== === ==== ==== ==== ======
Weighted average
number of common
shares outstanding 17,041 16,921 16,938 10,070 7,813 2,273
====== ====== ====== ====== ===== =====
</TABLE>
23
<PAGE>
Wellsford Residential Property Trust
Summary Historical Financial Data
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
September 30, 1996 Historical (000, except share data)
------------------ ---------------------------------------------------------------------------------
Historical 1995 1994 1993 1992 1991
------------------ -------------- --------------- --------------- --------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Real Estate assets
before
accumulated
depreciation $773,470 $736,399 $747,519 $301,389 $156,568 $124,768
Real estate assets
after accumulated
depreciation 696,078 677,908 712,742 282,224 143,787 116,553
Total Assets 739,823 729,638 745,754 322,400 165,963 126,107
Mortgages Payable 83,299 77,137 208,858 24,203 17,155 110,755
Convertible note
payable -- -- -- 46,070 55,358 --
Unsecured credit
facility 26,000 -- 140,000 -- -- --
Senior unsecured
notes 223,447 233,307 -- -- -- --
Shareholders' equity 381,703 398,359 371,655 239,775 89,986 12,168
Cash dividends
declared per
Series A preferred
share $1.31 $1.75 $1.75 $0.24 $--
==== ===== ==== ==== ==
Cash dividends
declared per
Series B preferred
share $1.81 $0.86 $-- $-- $--
==== ==== === === ==
Cash dividends
declared per
common share $1.45 $1.92 $1.80 $1.68 $0.16
==== ==== ==== ==== ====
</TABLE>
24
<PAGE>
COMPARATIVE PER SHARE DATA
The following summary presents selected comparative unaudited per share
information for EQR and Wellsford on an historical basis and EQR and Wellsford
on a pro forma combined basis assuming the combination had been effective
throughout the periods presented. Wellsford pro forma equivalent per share
amounts are presented with respect to pro forma information. Such per share
amounts allow comparison of historical information with respect to the value of
one share of Wellsford Common to the corresponding information with respect to
the projected value of one share of Survivor Common as a result of the Merger by
multiplying the pro forma amounts by the Exchange Ratio of .625 to 1.
<TABLE>
<CAPTION>
Nine Months
Ended Year Ended
September 30, December 31,
1996 1995
---- ----
<S> <C> <C>
Net Income Per Common Share
- ---------------------------
EQR $.94 $1.68
Wellsford .44 .11
Surviving Trust pro forma combined(A) .86 .93
Wellsford pro forma equivalent (B) .54 .58
Cash Distributions Declared Per Common Share
- --------------------------------------------
EQR $1.77 $2.18
Wellsford 1.45 1.92
Surviving Trust pro forma combined(A) 1.77 2.18
Wellsford pro forma equivalent (B) 1.11 1.36
Shareholders' Equity Per Common Share
- -------------------------------------
EQR $27.79 $25.26
Wellsford 22.32 23.40
Surviving Trust pro forma combined(A) 32.75 32.75
Wellsford pro forma equivalent (B) 22.45 23.30
- -----------
</TABLE>
25
<PAGE>
(A) The pro forma combined Net Income Per Common Share and Cash Distributions
Declared Per Common Share data for the Surviving Trust has been prepared
assuming that in the Merger each share of Wellsford Common is converted into
.625 of a share of Survivor Common resulting in total weighted average
outstanding shares of Survivor Common of 56,426,000 for the nine months ended
September 30, 1996 and 54,360,000 for the year ended December 31, 1995. For the
Shareholder's Equity Per Common Share data, total outstanding shares of Survivor
Common was 61,887,000 for both the nine months ended September 30, 1996 and the
year ended December 31, 1995.
(B) The Wellsford pro forma equivalent is determined by multiplying the Exchange
Ratio (.625) by the Surviving Trust pro forma combined per share amounts so that
the per share amounts are equated to the comparative values for each share of
Wellsford Common.
26
<PAGE>
COMPARATIVE SHARE PRICES
EQR
The EQR Common has been traded on the NYSE under the symbol "EQR" since
August 11, 1993. The following table sets forth the quarterly high and low sales
prices per share of EQR Common reported on the NYSE, as well as the quarterly
distributions declared per share of EQR Common, from January 1, 1995 through
February 18, 1997.
<TABLE>
<CAPTION>
High Low Distributions
---- --- -------------
1995
----
<S> <C> <C> <C>
First Quarter.................... 29 1/8 25 5/8 .53
Second Quarter................... 29 3/4 24 7/8 .53
Third Quarter.................... 31 3/4 27 3/4 .53
Fourth Quarter................... 31 7/8 28 .59
1996
----
First Quarter.................... 33 1/2 29 .59
Second Quarter................... 33 1/2 30 7/8 .59
Third Quarter.................... 36 1/8 32 7/8 .59
Fourth Quarter................... 43 3/8 35 5/8 .625(1)
1997
----
First Quarter (through
February 19, 1997)............... 45 3/4 39 3/4 N/A
- -------------------
</TABLE>
(1) The fourth quarter distribution was paid on January 10, 1997 to
shareholders of record as of December 27, 1996 and represented an
annual distribution rate of $2.50 per share.
On February 19, 1997, the last reported sale price of a share of EQR
Common on the NYSE was 45 1/2 per share. On January 16, 1997, the last full
trading day prior to the pubic announcement of the Merger, the last reported
sale price of a share of EQR Common on the NYSE was 43 3/8. As of February 17,
1997, EQR's transfer agent reported 489 record holders of EQR Common and, as of
September, 1996, The Depository Trust Company held EQR Common on behalf of
approximately 14,830 beneficial owners.
27
<PAGE>
Wellsford
The Wellsford Common has been traded on the NYSE under the symbol "WRP"
since November 20, 1992. The following table sets forth the quarterly high and
low sales prices per share of Wellsford Common reported on the NYSE, as well as
the quarterly distributions declared per share of Wellsford Common from January
1, 1995 through February 18, 1997.
<TABLE>
<CAPTION>
High Low Distributions
---- --- -------------
1995
----
<S> <C> <C> <C>
First Quarter...................... 21 3/4 19 1/4 $.48
Second Quarter..................... 22 3/4 20 .48
Third Quarter...................... 22 3/4 21 1/8 .48
Fourth Quarter..................... 23 1/8 19 5/8 .48
1996
----
First Quarter...................... 24 1/4 21 3/8 .485
Second Quarter..................... 22 7/8 20 1/2 .485
Third Quarter...................... 23 1/8 20 3/4 .485
Fourth Quarter..................... 25 21 1/2 .485
1997
----
First Quarter
(through February 18, 1997)........ 29 5/8 24 1/8 N/A
- --------------------
</TABLE>
On February 18, 1997, the last reported sale price of a share of
Wellsford Common on the NYSE was 29 1/2 per share. On January 16, 1997, the last
full trading day prior to the pubic announcement of the Merger, the last
reported sale price of a share of Wellsford Common on the NYSE was 25 3/4. As of
February 18, 1997, Wellsford's transfer agent reported 635 record holders of
Wellsford Common and, as of February 14, 1997, The Depository Trust Company held
Wellsford Common on behalf of approximately 13,500 beneficial owners.
BECAUSE THE EXCHANGE RATIO IS FIXED AND THE MARKET PRICE OF EQR COMMON
IS SUBJECT TO FLUCTUATION, THE MARKET VALUE OF THE SURVIVOR COMMON THAT HOLDERS
OF WELLSFORD COMMON WILL RECEIVE IN THE MERGER MAY INCREASE OR DECREASE PRIOR TO
AND FOLLOWING THE MERGER. SHAREHOLDERS ARE URGED TO OBTAIN CURRENT MARKET
QUOTATIONS FOR EQR COMMON AND WELLSFORD COMMON.
28
<PAGE>
Wellsford Real Properties, Inc.
WRP Newco intends to engage in a broad range of businesses and activities
related to the acquisition, development, ownership, management and financing of
real estate and the ownership of debt and equity securities of entities engaged
in real estate-related businesses and activities. WRP Newco does not initially
intend to seek to qualify as a REIT and, as a merchant banker for its own
account, it will actively engage in certain businesses that could not be
conducted by a REIT. WRP Newco will endeavor to build equity for its
shareholders by increasing net asset value per share and reinvesting internally
generated funds rather than paying cash dividends for the foreseeable future.
Unlike holders of interests in private funds that engage in many of the
activities in which WRP Newco intends to engage, WRP Newco believes that holders
of shares of WRP Newco Common will have more liquidity in their investment and
will have the ability to margin their shares and such holders need not make a
minimum investment in WRP Newco.
WRP Newco will conduct its business directly or through equity and debt
investments in other entities engaged in various real estate-related businesses
and activities. Initially, WRP Newco will focus on four distinct aspects of the
real estate business.
Commercial Properties. WRP Newco will seek to acquire, own and operate
commercial and office properties. Initially, WRP Newco will seek to acquire
suburban office properties at or below replacement cost and remarket the
properties after renovation, redevelopment and/or repositioning. WRP Newco has
acquired one suburban office property and has contracted to acquire four
additional such properties, all of which are located in New Jersey. See "WRP
Newco's Initial Assets."
Property Development. Initially, WRP Newco will engage in the development
of residential properties. Development properties may be retained for
investment and operated by WRP Newco, sold, or converted to condominium or
cooperative ownership. Certain development activities may be conducted in joint
ventures with local developers who may bear the substantial portion of the
economic risks associated with the construction, development and initial rent-up
of properties. Palomino Park will be WRP Newco's initial development project.
See "WRP Newco's Initial Assets."
Equity Investments. WRP Newco intends to make equity investments in
entities owned by third parties and which engage in real estate-related
businesses and activities. Some of the entities in which WRP Newco may invest
may be start-up companies or companies in need of additional capital.
High Yield Debt Investments. WRP Newco will make loans that constitute, or
will invest in a wide variety of, senior, junior or otherwise subordinated debt
instruments, which may be
29
<PAGE>
unsecured or secured by liens on real estate or the economic benefits thereof.
These investments may include debt that is acquired at a discount, mezzanine
financing, commercial mortgage-backed securities, secured and unsecured lines of
credit, distressed loans, and loans previously made by foreign and other
financial institutions. The Sonterra Loan will constitute WRP Newco's initial
debt investment. See "WRP Newco's Initial Assets."
WRP Newco may also manage and lease properties owned by it or in which it
has an equity or debt investment.
Initial Capital and Financing
Upon completion of the Distribution and consummation of the Merger and
certain of the other transactions described in this Joint Proxy
Statement/Prospectus/Information Statement, WRP Newco is expected to have
available the following sources of capital, financing and credit support:
. Approximately $20 million of cash (subject to adjustment as
provided in the Merger Agreement) contributed to WRP Newco by Wellsford
pursuant to the Contribution and Distribution Agreement among Wellsford and
WRP Newco (the "Contribution and Distribution Agreement").
. $3.5 million of proceeds from the sale to ERP Operating Partnership
of shares of Class A Common Stock, par value $.01 per share, of WRP Newco
("WRP Newco Class A Common"). See "Certain Agreements Between WRP Newco
and ERP Operating Partnership - Common Stock and Preferred Stock Purchase
Agreement."
. $25 million pursuant to the commitment of ERP Operating Partnership
to acquire up to 1,000,000 shares of WRP Newco's Series A 8% Convertible
Redeemable Preferred Stock ("WRP Newco Series A Preferred") at the request
of WRP Newco and subject to certain limited conditions. See "Certain
Agreements Between WRP Newco and ERP Operating Partnership -- Common Stock
and Preferred Stock Purchase Agreement."
. $50 million under a proposed two-year line of credit from The First
National Bank of Boston (the "Bank of Boston") and Morgan Guaranty Trust
Company of New York ("Morgan Guaranty"), as to which a term sheet has been
issued.
. $36.8 million, pursuant to an agreement with respect to the
construction financing for Phase I of Palomino Park, and $30 million,
pursuant to an agreement expected to be entered into with respect to the
construction financing for Phase II of Palomino Park, in each case
guaranteed by a third-party developer and supported by the credit of ERP
Operating Partnership pursuant to its stand-by obligations.
30
<PAGE>
. Approximately $14.8 million of credit enhancement from ERP
Operating Partnership with respect to the bonds issued to finance certain
public improvements at Palomino Park. See "Certain Agreements Between WRP
Newco and ERP Operating Partnership - Credit Enhancement Agreement."
In addition, WRP Newco presently intends to offer for sale shares of WRP
Newco Common for an aggregate purchase price of between $25 million and $100
million, excluding any over-allotment option. In order to satisfy the
requirements of the NYSE, the affirmative vote of the holders of a majority of
the outstanding shares of Wellsford Common is required to issue the foregoing
shares. See "Approval of WRP Newco Additional Share Offering."
WRP Newco Risk Factors
In addition to general investment and real estate risks and those factors
set forth elsewhere in this Joint Proxy Statement/Prospectus/Information
Statement under "WRP Newco Risk Factors" and elsewhere, in connection with WRP
Newco's future business activities, Wellsford Common Shareholders should be
aware of, among other things, the following factors:
. Competition in identifying and making investments and attracting
tenants.
. Illiquidity of WRP Newco's real estate investments.
. Excessive costs and delays associated with the acquisition,
development, construction and renovation of properties.
. Lack of limitation on the amount of debt that may be incurred and
risks of highly leveraged investments.
. Risks associated with debt instruments held by WRP Newco, including
the possibility that borrowers may not be able to make payments when due, that
the value of collateral may be less than amounts owed and that interest rates
charged may be less than WRP Newco's cost of funds.
. Risks associated with investments in junior mortgages, including lack
of control over the collateral and any foreclosure procedures.
. Risks associated with investments in commercial mortgage-backed
securities, resulting, in part, from the fact that the process of rating and
servicing such securities is difficult and existing credit support is
inadequate.
. WRP Newco is a newly-formed entity without any prior operating
history.
. Potential liability for unknown or future environmental liabilities.
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. WRP Newco is dependent primarily upon the efforts of its Chairman of the
Board and President and Chief Executive Officer.
. The ability of the WRP Newco Board of Directors to amend or revise WRP
Newco's investment and other policies without a vote of stockholders.
. The lack of a prior market for shares of WRP Newco Common.
WRP Newco's Initial Assets
WRP Newco's initial assets will consist primarily of the following:
. five office properties currently owned or to be acquired described as
follows:
(a) The American Cyanamid Office Complex located in Wayne, N.J. which is
expected to be acquired in February, 1997 for $18.8 million. The complex
consists of (i) a vacant headquarters facility of approximately 560,000 gross
square feet on approximately 194 acres consisting primarily of two office
buildings and (ii) two vacant smaller two-story office buildings of
approximately 70,600 gross square feet and 54,800 gross square feet,
respectively, located on a 9 acre and a 14 acre site, respectively. WRP Newco
intends to renovate and rent these buildings.
(b) The Greenbrook Corporate Center located in Fairfield, N.J. which is
expected to be acquired in March, 1997 for $23.7 million. This property
consists of (i) a three-story building of approximately 201,600 gross square
feet which is approximately 78% rented and situated on approximately 20 acres
and (ii) a contiguous undeveloped approximately 7-acre parcel zoned for office
and light industrial use. WRP Newco intends to renovate and rent this building.
(c) A three-story vacant suburban office building consisting of
approximately 65,000 gross square feet located in Chatham, New Jersey, which was
acquired for $5.1 million in January, 1997. WRP Newco intends to renovate and
rent this building.
. An approximate 80% interest in Phases I and II of, and in options to
acquire and develop Phases III, IV and V of, a 1,880 unit multifamily
development known as "Palomino Park," located on 182 acres, of which 65 acres
have been developed, in South East Denver, Colorado. Palomino Park is being
constructed around a centrally located 24 acre park and has a 29,000 square foot
recreation center. Phase I, which is to consist of 456 units, is approximately
60% completed and construction on Phase II which is to consist of 304 units is
expected to begin in April 1997. ERP Operating Partnership will have an
approximate 20% interest in Palomino Park.
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<PAGE>
. A $17.8 million mortgage loan on and option (the "Sonterra Option") to
purchase for approximately $20.5 million through December, 1997 and for $21
million during 1998, a 344-unit, newly constructed residential apartment project
located in Tucson, Arizona known as Sonterra at Williams Centre. The Sonterra
Loan is due on July 1, 1999 and bears interest at the rate of 9% percent per
annum.
. Approximately $20 million of cash contributed by Wellsford to WRP
Newco, a substantial portion of which will be applied to repay indebtedness
incurred to acquire WRP Newco's commercial properties.
Certain Agreements Between WRP Newco and ERP Operating Partnership
. Common Stock and Preferred Stock Purchase Agreement - Provides for
purchase by ERP Operating Partnership of (i) $3.5 million of WRP Newco Class A
Common and (ii) $25 million of WRP Newco Series A Preferred as requested by WRP
Newco over a 3-year period. ERP Operating Partnership is entitled to elect a
nominee to the WRP Newco Board of Directors for a minimum of two years. For ten
years after the Effective Time, WRP Newco has the right to direct the voting of
all shares of WRP Newco Series A Preferred, WRP Newco Class A Common and WRP
Newco Common owned by ERP Operating Partnership or any of its affiliates on most
matters. See "Certain Agreements Between WRP Newco and ERP Operating Partnership
- -- Common Stock and Preferred Stock Purchase Agreement."
. Registration Rights Agreement - Provides for registration rights at
WRP Newco's expense with respect to shares of WRP Newco Class A Common, WRP
Newco Series A Preferred and WRP Newco Common held by ERP Operating Partnership.
See "Certain Agreements Between WRP Newco and ERP Operating Partnership --
Registration Rights Agreement."
. Sonterra Option Agreement - Provides ERP Operating Partnership with
a right of first offer to acquire the Sonterra Option and a right to acquire the
Sonterra Option if WRP Newco does not exercise it. If WRP Newco acquires
Sonterra, ERP Operating Partnership will have a "Right of First/Last Offer" for
the property.
. Agreement Regarding Palomino Park - Governs the relationship between
WRP Newco and ERP Operating Partnership as 80% and 20% shareholders,
respectively, of the entity controlling Palomino Park, including certain rights
of first offer and put/call rights with respect to each other's shares. ERP
Operating Partnership has also agreed to be a stand-by purchaser of Phase I if
the construction loan thereon is not paid, and to be similarly obligated with
respect to Phase II. See "Certain Agreements Between WRP Newco and ERP Operating
Partnership -- Agreement Regarding Palomino Park."
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<PAGE>
. Credit Enhancement Agreement - Provides for ERP Operating
Partnership to make its own credit available for a period of eight years in the
form of a guaranty of WRP Newco's obligations to repay the bonds issued to
finance the park and certain infrastructure within Palomino Park. See "Certain
Agreements Between WRP Newco and ERP Operating Partnership -- Credit Enhancement
Agreement."
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WELLSFORD REAL PROPERTIES, INC. (PREDECESSOR)
SUMMARY UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
The following tables set forth the summary unaudited pro forma combined
financial data for Wellsford Real Properties, Inc. (Predecessor) as a combined
entity, giving effect to the Merger, Contribution and Distribution as if they
had occurred on the dates indicated herein, after giving effect to the pro forma
adjustments described in the notes to the unaudited pro forma combined financial
statements included elsewhere in this Joint Proxy Statement/Prospectus/
Information Statement.
The summary unaudited pro forma combined operating data are presented as if
the Merger, Contribution and Distribution had been consummated on January 1,
1996. In addition to the Merger, Combination and Distribution, the pro forma
combined operating data gives effect to certain material events which occurred
between January 1, 1996 and January 31, 1997 as if they had occurred on January
1, 1996. See the notes to the unaudited Pro Forma Combined Income Statement for
the nine months ended September 30, 1996 included elsewhere in this Joint Proxy
Statement/Prospectus/Information Statement.
The summary unaudited pro forma combined balance sheet data are presented
as if the Merger, Contribution and Distribution had occurred on September 30,
1996. In addition to the Merger, Contribution and Distribution, the pro forma
combined balance sheet data gives effect to certain material events which
occurred between October 1, 1996 and January 31, 1997 as if they had occurred on
September 30, 1996. See the notes to the unaudited Pro Forma Combined Balance
Sheet at September 30, 1996 included elsewhere in this Joint Proxy
Statement/Prospectus/Information Statement. In the opinion of management, all
necessary adjustments necessary to reflect the effects of the Merger,
Contribution and Distribution have been made.
The summary unaudited pro forma financial data should be read in
conjunction with, and is qualified in its entirety by, the respective historical
financial statements and notes thereto of Wellsford and Wellsford Real
Properties, Inc. (Predecessor) incorporated by reference into, and included in,
this Joint Proxy Statement/Prospectus/Information Statement, respectively.
The summary unaudited pro forma operating and balance sheet data are
presented for comparative purposes only and are not necessarily indicative of
what the actual combined results of Wellsford Real Properties, Inc.
(Predecessor) would have been for the period and as of the date presented; nor
does such data purport to represent the results of future periods.
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<PAGE>
Wellsford Real Properties, Inc. (Predecessor)
Summary Unaudited Combined Financial Data
<TABLE>
<CAPTION>
Pro Forma Historical
Nine Months Nine Months
Ended Ended
September 30, September 30,
1996 1996
---- ----
(Unaudited) (Unaudited)
(In thousands except per share data)
<S> <C> <C>
OPERATING DATA:
Revenues:
Rental income $2,797
Other income 212
Interest income 1,201 $356
--------------------------------
4,210 356
--------------------------------
Expenses:
Property operating and maintenance 620
Real estate taxes 313
General and administrative 1,125
Depreciation 383
Property management 108
--------------------------------
2,549 0
--------------------------------
Income before income taxes 1,661 356
Provision for income taxes 679
--------------------------------
Net income $982 $356
================================
Net income per common share $0.20
Weighted average common shares outstanding 4,870
</TABLE>
<TABLE>
<CAPTION>
Pro Forma Historical Historical
September 30, September 30, December 31,
1996 1996 1995
---- ---- ----
(Unaudited) (Unaudited)
(In thousands)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Real estate $64,628 $17,028 $7,955
Mortgage notes and interest receivable $17,934 $17,934 $0
Total assets $92,485 $41,317 $18,369
Total debt $39,755 $14,755 $14,755
Total equity $51,043 $26,562 $3,614
</TABLE>
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<PAGE>
RISK FACTORS
In considering whether to approve the Merger, the shareholders of EQR
and Wellsford should consider, in addition to the other information in this
Proxy Statement/Prospectus/Information Statement, the matters described in this
section.
Conflicts of Interest
In considering whether to approve the Merger, shareholders should be
aware that certain members of the management of Wellsford and the Wellsford
Board of Trustees have certain interests that arise in connection with the
Merger and the Distribution that are in addition to the interests of
shareholders of Wellsford generally. These interests arise under existing
agreements with, and previously approved annual compensation awards from,
Wellsford and proposed agreements with WRP Newco and the Surviving Trust
relating to, among other things, severance payments to be made to certain
executive officers (but not Messrs. Lynford, Lowenthal and Kelley), the
forgiveness of loans made to certain executive officers incurred to acquire
shares of Wellsford Common, the issuance of additional shares of Wellsford
Common to certain executive officers, the acceleration of vesting of restricted
share grants issued to certain executive officers (but not Messrs. Lynford and
Lowenthal), payments to be made to certain executive officers to satisfy income
and excise tax obligations resulting from certain monies and other benefits to
be paid to them in connection with the Merger and the issuance of WRP Newco
stock options to certain executive officers and trustees of Wellsford in
replacement of certain existing Wellsford share options and reload options
granted in connection with the exercise of vested Wellsford share options. In
addition, upon completion of the Merger, WRP Newco will enter into employment
agreements with Messrs. Lynford and Lowenthal for five and one-half years and
employment agreements with Messrs. Hughes and Strong for two years, and a
subsidiary of WRP Newco will enter into a five-year consulting agreement with
Mr. Kelley. WRP Newco will also assume the existing split dollar life insurance
arrangements between Wellsford and Messrs. Lynford and Lowenthal.
Further, upon completion of the Merger, Messrs. Lynford and Lowenthal
will each enter into a five-year consulting agreement with ERP Operating
Partnership and will be appointed to the Board of Trustees of the Surviving
Trust for a three year term. In addition, Mr. MacKenzie, Executive Vice
President-Director of Operations of Wellsford, will be a Senior Vice President
of the Surviving Trust upon completion of the Merger. The Surviving Trust will
indemnify each trustee and officer of Wellsford for all actions on or prior to
the Effective Time to the same extent such individuals were indemnified by
Wellsford prior to the Effective Time. See "Interests of Certain Persons in the
Merger and Distribution."
Adverse Consequences of Debt Financing and Preferred Shares
The Surviving Trust is subject to the risks normally associated with
debt or preferred equity financing, including the risk that the Surviving
Trust's cash flow will be insufficient to
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<PAGE>
meet required payments of principal, interest and distributions, the risk that
existing indebtedness may not be refinanced or that the terms of such
refinancing will not be as favorable as the terms of current indebtedness and
the risk that necessary capital expenditures for such purposes as renovations
and other improvements may not be financed on favorable terms or at all. If the
Surviving Trust were unable to refinance its indebtedness on acceptable terms,
or at all, the Surviving Trust might be forced to dispose of one or more of the
properties on disadvantageous terms, which might result in losses to the
Surviving Trust and might adversely affect the cash available for distributions
to shareholders. If interest rates or other factors at the time of the
refinancing result in higher interest rates upon refinancing, the Surviving
Trust's interest expense would increase, which would affect the Surviving
Trust's ability to make distributions to its shareholders. Furthermore, if a
property is mortgaged to secure payment of indebtedness and the Surviving Trust
is unable to meet mortgage payments, the mortgagee could foreclose upon the
property, appoint a receiver and receive an assignment of rents and leases or
pursue other remedies, all with a consequent loss of income and asset value to
the Surviving Trust. Foreclosures could also create taxable income without
accompanying cash proceeds, thereby hindering the Surviving Trust's ability to
meet the REIT distribution requirements of the Code.
A substantial portion of the Surviving Trust's debt was issued
pursuant to five different indentures which restrict the amount of indebtedness
(including acquisition financing) the Surviving Trust may incur. Accordingly,
in the event that the Surviving Trust is unable to raise additional equity or
borrow money because of the debt restrictions in the indentures, the Surviving
Trust's ability to acquire additional properties may be limited. If the
Surviving Trust is unable to acquire additional properties, its ability to
increase the distributions with respect to Surviving Common will be limited to
management's ability to increase funds from operations, and thereby cash
available for distributions, from the existing properties in the Surviving
Trust's portfolio at such time.
Immediately following consummation of the Merger, the Surviving Trust
will own properties that are subject to restrictive covenants or deed
restrictions relating to current or previous tax-exempt bond financing and owns
the bonds collateralized by additional properties. The Surviving Trust will
retain an independent outside consultant to monitor compliance with the
restrictive covenants and deed restrictions that affect these properties. The
bond compliance requirements may have the effect of limiting the Surviving
Trust's income from these properties in the event the Surviving Trust is
required to lower its rental rates to attract low or moderate income tenants, or
eligible/qualified tenants.
Potential Change in Relative Stock Prices
In considering whether to approve the Merger, shareholders of
Wellsford and EQR should consider the risks associated with (a) a potential
change in the relative stock prices of EQR Common and Wellsford Common prior to
the Effective Time, and (b) a possible reduction in the market price of Survivor
Common following the Merger, due to future sales of shares of
38
<PAGE>
Survivor Common or the availability of such shares for future sales, government
regulatory action, tax laws, interest rates and market conditions in general.
Sales of a substantial number of shares of Survivor Common or the
perception that such sales could occur, could adversely affect prevailing market
prices for shares of Survivor Common.
Termination Payments if Merger Fails to Occur
The Merger Agreement provides for a Break-Up Fee payable by Wellsford
of $14 million plus Break-Up Expenses of up to $2.5 million if the Merger
Agreement is terminated by either EQR or Wellsford under certain circumstances
and, within one year after such termination, Wellsford enters into an agreement
regarding an "Acquisition Proposal" (as hereinafter defined), which is
consummated. In addition, if the Merger Agreement is terminated for certain
reasons, EQR or Wellsford will be required to pay the other party's Break-Up
Expenses of up to $2.5 million. See "The Merger -- Termination Fee and
Expenses."
The obligation to pay the Break-Up Fee and/or Break-Up Expenses may
adversely affect the ability of Wellsford to engage in another transaction in
the event the Merger is not consummated.
Appraisal Rights
Shareholders of Wellsford and shareholders of EQR are not entitled to
dissenting shareholders' appraisal rights under Maryland law. Maryland law does
not provide appraisal rights to shareholders of a REIT in connection with a
merger if their shares are listed on a national securities exchange, such as the
NYSE, on the record date for determining shareholders entitled to vote on such
merger. All of the shares of EQR and Wellsford outstanding on the record date
for determining the shareholders entitled to vote on the Merger were listed on
the NYSE.
Real Estate Investment Considerations
General. Real property investments are subject to varying degrees of
risk and are relatively illiquid. Income from real property investments and the
Surviving Trust's resulting ability to make expected distributions to
shareholders may be adversely affected by the general economic climate, local
conditions such as oversupply of apartment units or a reduction in demand for
apartment units in the area, the attractiveness of the properties owned by the
Surviving Trust to tenants, zoning or other regulatory restrictions, the ability
of the Surviving Trust to provide adequate maintenance and insurance, and
increased operating costs (including insurance premiums and real estate taxes).
The Surviving Trust's income would also be adversely affected if tenants were
unable to pay rent or the Surviving Trust were unable to rent apartment units on
favorable terms. If the Surviving Trust were unable to promptly relet or
39
<PAGE>
renew the leases for a significant number of apartment units, or if the rental
rates upon such renewal or reletting were significantly lower than expected
rates, then the Surviving Trust's funds from operations and ability to make
expected distributions to shareholders may be adversely affected. In addition,
certain expenditures associated with each equity investment (such as real estate
taxes and maintenance costs) generally are not reduced when circumstances cause
a reduction in income from the investment. Furthermore, real estate investments
are relatively illiquid and, therefore, will tend to limit the ability of the
Surviving Trust to vary its portfolio promptly in response to changes in
economic or other conditions.
Changes in Laws. Increases in real estate taxes, income taxes and
service or other taxes generally are not passed through to tenants under
existing leases and may adversely affect the Surviving Trust's funds from
operations and its ability to make distributions to shareholders. Similarly,
changes in laws increasing the potential liability for environmental conditions
existing on properties or increasing the restrictions on discharges or other
conditions may result in significant unanticipated expenditures, which would
adversely affect the Surviving Trust's funds from operations and its ability to
make distributions to shareholders.
Potential Environmental Liability Affecting the Surviving Trust
Under various Federal, state and local environmental laws, ordinances
and regulations, an owner of real estate may be liable for the costs of removal
or remediation of certain hazardous or toxic substances on such property. These
laws often impose environmental liability without regard to whether the owner
knew of, or was responsible for, the presence of such hazardous or toxic
substances. The presence of such substances, or the failure properly to
remediate such substances, may adversely affect the owner's ability to sell or
rent the property or to borrow using the property as collateral. Persons who
arrange for the disposal or treatment of hazardous or toxic substances may also
be liable for the costs of removal or remediation of such substances at a
disposal or treatment facility, whether or not such facility is owned or
operated by such person. Certain laws impose liability for release of asbestos-
containing materials ("ACMs") into the air and third parties may seek recovery
from owners or operators of real properties for personal injury associated with
ACMs. In connection with the ownership (direct or indirect), operation,
management and development of real properties, the Surviving Trust may be
considered an owner or operator of such properties or as having arranged for the
disposal or treatment of hazardous or toxic substances and, therefore,
potentially liable for removal or remediation costs, as well as for certain
other related costs, including governmental fines and injuries to persons and
property.
All of EQR's properties have been the subject of a Phase I and, in
certain cases, a supplemental environmental assessment completed by qualified
independent environmental consultant companies. All of the environmental
assessments were conducted within the last five years and were obtained prior to
the acquisition by EQR of each of the properties. These environmental
assessments have not revealed, nor is EQR aware of, any environmental liability
40
<PAGE>
that EQR's management believes would have a material adverse effect on the
Surviving Trust's business, results of operations, financial condition or
liquidity.
All of Wellsford's properties have been the subject of a Phase I or
similar environmental assessment completed by qualified independent
environmental consultant companies. Of these environmental assessments, 16 were
conducted during the period from 1989 through 1991 and 63 were conducted during
the period from 1992 through the present. These environmental assessments have
not revealed, nor is Wellsford aware of, any environmental liability that
Wellsford's management believes would have a material adverse effect on the
Surviving Trust's business, results of operations, financial condition or
liquidity.
No assurance can be given that existing environmental assessments with
respect to any EQR or Wellsford properties reveal all environmental liabilities,
that any prior owner of a property did not create any material environmental
condition not known to EQR or Wellsford, or that a material environmental
condition does not otherwise exist as to any one or more properties of EQR or
Wellsford.
Consequences of Failure to Qualify as a REIT
Taxation as a Corporation. The Surviving Trust intends to operate in
a manner so as to qualify as a REIT under the Code. However, no assurance can
be given that the Surviving Trust was organized and will be able to operate in a
manner so as to qualify or remain so qualified. Qualifications as a REIT
involves the satisfaction of numerous requirements (some on an annual and
quarterly basis) established under highly technical and complex Code provisions
for which there are only limited judicial or administrative interpretations, and
involves the determination of various factual matters and circumstances not
entirely within the Surviving Trust's control.
If the Surviving Trust were to fail to qualify as a REIT in any
taxable year, the Surviving Trust would be subject to Federal income tax
(including any applicable alternative minimum tax) on its taxable income at
corporate rates. Moreover, unless entitled to relief under certain statutory
provisions, the Surviving Trust also would be disqualified from treatment as a
REIT for the four taxable years following the year during which qualification is
lost. This treatment would reduce the net earnings of the Surviving Trust
available for investment or distribution to shareholders because of the
additional tax liability to the Surviving Trust for the years involved. In
addition, distributions to shareholders would no longer be required to be made.
See "Federal Income Tax Considerations."
Other Tax Liabilities. Even if the Surviving Trust qualifies as a
REIT, it will be subject to certain Federal, state and local taxes on its income
and property. See "Federal Income Tax Considerations--Other Tax Considerations-
- -State and Local Taxes." In addition, the Surviving Trust's management
operations, which will be conducted through Equity Residential Properties
Management Limited Partnership and Equity Residential Properties Management
Limited
41
<PAGE>
partnership II (collectively, the "Management Partnerships") generally will be
subject to Federal income tax at regular corporate rates. See "Federal Income
Tax Considerations."
Consequences of Failure to Qualify as Partnerships. The Surviving
Trust intends that ERP Operating Partnership, the Management Partnerships and
each of the other partnership and limited liability company subsidiaries will be
organized as partnerships and will qualify for treatment as such under the Code.
If any of such subsidiaries fails to qualify for such treatment under the Code,
the Surviving Trust would cease to qualify as a REIT, and such subsidiary would
be subject to Federal income tax (including any alternative minimum tax) on its
income at corporate rates. See "Federal Income Tax Considerations."
Each of EQR and Wellsford believes it has operated in a manner so as
to qualify as a REIT under the Code for the taxable year ending December 31,
1996 and for the period beginning January 1, 1997 and ending on the date hereof.
Dependence on Key Personnel
The Surviving Trust will be dependent on the efforts of its executive
officers. While the Surviving Trust believes that it could find replacements for
these key personnel, the loss of their services may have a temporary adverse
effect on the operations of the Surviving Trust. None of these officers has
entered or will enter into employment agreements with the Surviving Trust.
Distribution Requirements Potentially Increasing Indebtedness of the Surviving
Trust
The Surviving Trust may be required from time to time, under certain
circumstances, to accrue as income for tax purposes interest and rent earned but
not yet received. In such event, or upon the repayment by the Surviving Trust
of principal on debt, the Surviving Trust could have taxable income without
sufficient cash to enable the Surviving Trust to meet the distribution
requirements of a REIT. Accordingly, the Surviving Trust could be required to
borrow funds or liquidate investments on adverse terms in order to meet such
distribution requirements. See "Federal Income Tax Considerations."
Ownership Limit and Limits on Changes in Control
9.8% Ownership Limit; Inapplicability to Mr. Zell and Others. In
order to maintain its qualification as a REIT under the Code, not more than 50%
of the value of the outstanding shares of beneficial interest of the Surviving
Trust may be owned, directly or indirectly, by five or fewer individuals (as
defined in the Code to include certain entities). Certain beneficial owners
(the "Zell Holders") affiliated with Mr. Zell and Equity Properties Management
Corp. ("EPMC") (i.e., beneficiaries of trusts established for the benefit of Mr.
Zell and his family and trusts established for the benefit of the family of Mr.
Robert Lurie, a deceased partner of Mr. Zell (the "Lurie Family Trusts")) and
certain entities controlled by Starwood Capital
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<PAGE>
Partners L.P. and its affiliates which contributed 23 of the properties to EQR
at the time of EQR's initial public offering (the "IPO") (the "Starwood Original
Owners") (through their potential ownership rights of EQR Common) together
constitute four individuals for purposes of this test and, under the Internal
Revenue Service's (the "Service") rules applicable to determining percentages of
ownership, will be deemed to own approximately 10% of the value of the
outstanding shares of beneficial interest of the Surviving Trust. Due to such
concentration of ownership of the Surviving Trust, ownership of more than 9.8%
of the lesser of the number or value of the outstanding shares of beneficial
interest of the Surviving Trust by any single shareholder has been restricted,
with certain exceptions, for the purpose of maintaining the Surviving Trust's
qualification as a REIT under the Code. The Surviving Trust's Board of Trustees,
upon receipt of a ruling from the Service, an opinion of counsel or other
evidence satisfactory to the Board of Trustees and upon such other conditions as
the Board of Trustees may direct, may also exempt a proposed transferee from
this restriction. See "Comparison of Right of Shareholders -- Restrictions on
Ownership, Transfer and Issuance of Shares." Additionally, the Surviving Trust's
Declaration of Trust will allow certain transfers of such Survivor Common
without the transferees being subject to the 9.8% ownership limit, provided such
transfers do not result in an increased concentration in the ownership of the
Surviving Trust. Finally, if the Additional Amendments are approved by the
Wellsford Common Shareholders (see "Additional Amendments") such restrictions in
the Surviving Trust's Declaration of Trust will not apply to the ownership of
the Survivor Common which will be subject to acquisition by the Zell Holders and
EPMC.
The 9.8% ownership limit, as well as the ability of the Surviving
Trust to issue additional Survivor Common or other shares of beneficial interest
(which may have rights and preferences senior to the Survivor Common), may
discourage a change of control of the Surviving Trust and may also (i) deter
tender offers for the Survivor Common, which offers may be advantageous to
shareholders, and (ii) limit the opportunity for shareholders to receive a
premium for their Survivor Common that might otherwise exist if an investor were
attempting to assemble a block of Survivor Common in excess of 9.8% of the
outstanding shares of beneficial interest of the Surviving Trust or otherwise
effect a change of control of the Surviving Trust.
Staggered Board. The Board of Trustees of the Surviving Trust will be
divided into three classes of trustees. The terms of the classes will expire in
1997, 1998 and 1999, respectively. As the term of each class expires, trustees
for that class will be elected for a three-year term and the trustees in the
other two classes will continue in office. The staggered terms for trustees may
impede the shareholders' ability to change control of the Surviving Trust even
if a change in control were in the shareholders' interest.
Preferred Shares. The Surviving Trust's Declaration will authorize
the Board of Trustees to issue up to 100,000,000 shares of Survivor Preferred
and to establish the preferences and rights (including the right to vote and the
right to convert into Survivor Common) of any Survivor Preferred issued. The
power to issue Survivor Preferred could have the effect of
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<PAGE>
delaying or preventing a change in control of the Surviving Trust even if a
change in control were in the shareholders' interest. There are additional
limitations on ownership regarding each outstanding series of EQR Preferred and
Wellsford Preferred.
Control and Influence by Significant Shareholders of EQR
As of December 31, 1996, the Zell Holders held certain OP Units issued
at the time of the IPO ("Original OP Units") to certain affiliates of Mr. Zell
which contributed 33 of the properties to EQR at the time of the IPO (the "Zell
Original Owners"), EPMC and other affiliates of Mr. Zell owned in the aggregate
approximately 7.92% of the shares of EQR Common (assuming that all of the
partnership interests in ERP Operating Partnership are exchanged for EQR
Common), and the Starwood Original Owners owned in the aggregate approximately
3.47% of the shares of EQR Common (assuming that all of the partnership
interests in ERP Operating Partnership are exchanged for EQR Common). The
Starwood Original Owners, together with the Zell Original Owners, will be
referred to as the "Original Owners." As of December 31, 1996, EQR had options
outstanding to purchase approximately 2.33 million shares of EQR Common which it
has granted to certain officers, employees and trustees of EQR and consultants
to EQR, some of whom are affiliated with Mr. Zell, representing in the aggregate
approximately 3.80% of the EQR Common (assuming that all such options are
exercised for EQR Common and all of the outstanding partnership interests in ERP
Operating Partnership are exchanged for EQR Common). Further, the consent of
affiliates of Mr. Zell who are Zell Holders and of the Starwood Original Owners
is required for certain amendments to ERP Operating Partnership's partnership
agreement. Accordingly, Mr. Zell and the Starwood Original Owners may continue
to have substantial influence over the Surviving Trust, which influence might
not be consistent with the interests of other shareholders, and on the outcome
of any matters submitted to the Surviving Trust's shareholders for approval. In
addition, although there is no current agreement, understanding or arrangement
for these shareholders to act together on any matter, these shareholders would
be in a position to exercise significant influence over the affairs of the
Surviving Trust if they were to act together in the future.
Exemptions for Mr. Zell and Others from Maryland Business Combination Law which
Tend to Inhibit Takeovers
Under the Maryland General Corporation Law, as amended ("MGCL"),
certain "business combinations" (including a merger, consolidation, share
exchange or, in certain circumstances, an asset transfer or issuance or
reclassification of equity securities) between a Maryland real estate investment
trust and any person who beneficially owns 10% or more of the voting power of
the trust's shares of beneficial interest or an affiliate of the trust who, at
any time within the two-year period prior to the date in question, was the
beneficial owner of 10% or more of the voting power of the trust's shares of
beneficial interest (an "Interested Shareholder"), or an affiliate of such
Interested Shareholder, are prohibited for five years after the most recent date
on which the Interested Shareholder becomes an Interested Shareholder.
Thereafter, any such
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business combination must be recommended by the board of trustees of such trust
and approved by the affirmative vote of at least (a) 80% of the votes entitled
to be cast by holders of outstanding voting shares of beneficial interest of the
trust and (b) two-thirds of the votes entitled to be cast by holders of voting
shares of beneficial interest of the trust other than shares held by the
Interested Shareholder with whom (or with whose affiliate) the business
combination is to be effected, (unless, among other conditions, the holders of
the common shares of the trust receive a minimum price (as defined in the MGCL)
for their shares and the consideration is received in cash or in the same form
as previously paid by the Interested Shareholder for its common shares). As
permitted by the statute, the Surviving Trust will exempt any business
combination involving Mr. Zell, the Zell Holders, EPMC and their respective
affiliates and associates, present or future, or any other person acting in
concert or as a group with any of the foregoing persons and, consequently, the
five-year prohibition and the super-majority vote requirements will not apply to
a business combination between any of them and the Surviving Trust. As a
result, Mr. Zell, the Zell Holders, EPMC, any present or future affiliate or
associate of theirs or any other person acting in concert or as a group with any
of the foregoing persons may be able to enter into business combinations with
the Surviving Trust, which may not be in the best interest of the shareholders,
without compliance by the Surviving Trust with the super-majority vote
requirements and other provisions of the statute.
WRP NEWCO RISK FACTORS
Ownership of WRP Newco Common involves various risks. In addition to
general risks of ownership of WRP Newco Common and those factors set forth
elsewhere in this Joint Proxy Statement/Prospectus/Information Statement,
Wellsford Common Shareholders should be aware of, among other things, the
following factors:
General Risks
If the properties of WRP Newco, of those entities in which it invests
or of those entities to which it will lend (collectively, the "WRP Newco
Properties") do not generate revenue sufficient to meet operating expenses,
including debt service and capital expenditures, the financial condition and
results of operations of WRP Newco may be adversely affected. WRP Newco's
financial condition and results of operations may be adversely affected by a
number of factors, including international and domestic general economic climate
and local real estate conditions (such as oversupply of or reduced demand for
space and changes in market rental rates); the perceptions of prospective
tenants of the safety, convenience and attractiveness of WRP Newco Properties;
the ability of the owner to provide adequate management, maintenance and
insurance; energy and supply shortages; the ability to collect on a timely basis
all rent from tenants and interest from borrowers; the expense of periodically
renovating, repairing and reletting spaces; and increasing operating costs
(including real estate taxes and utilities) which may not be passed through to
tenants. Certain significant expenditures associated with investments in real
estate (such as mortgage payments, real estate taxes, insurance and maintenance
costs) are generally not reduced when circumstances cause a reduction in rental
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revenues from the investment. If a WRP Newco Property is mortgaged to secure
the payment of indebtedness and if WRP Newco or the entity in which WRP Newco
invests or to which it lends is unable to meet its mortgage payments, a loss
could be sustained as a result of foreclosure on the property or the exercise of
other remedies by the mortgagee. In addition, real estate values and income
from properties are also affected by such factors as compliance with laws,
including tax laws, interest rate levels and the availability of financing.
Difficulty of Locating Suitable Investments; Competition
Identifying, completing and realizing on real estate investments has
from time to time been highly competitive, and involves a high degree of
uncertainty. WRP Newco will be competing for investments with many public and
private real estate investment vehicles, including financial institutions (such
as mortgage banks, pension funds and real estate investment trusts) and other
institutional investors, as well as individuals. There can be no assurance that
WRP Newco will be able to locate and complete investments which satisfy WRP
Newco's rate of return objective or realize upon their value or that it will be
able to fully invest its available capital.
Many of those with whom WRP Newco will compete for investments and its
services are far larger than WRP Newco, may have greater financial resources
than WRP Newco and may have management personnel with more experience than the
officers of WRP Newco.
Nature of Investments Made by WRP Newco; Illiquidity of Real Estate Investments
WRP Newco may make investments in real estate-related assets and
businesses which have experienced severe financial difficulties, which
difficulties may never be overcome. Since WRP Newco may only make a limited
number of investments and since many of the investments may involve a high
degree of risk, poor performance by one of the investments could severely affect
the financial condition and results of operations of WRP Newco.
Equity and debt investments in real estate are relatively illiquid.
Such illiquidity limits the ability of WRP Newco to vary its portfolio in
response to changes in economic or other conditions. Illiquidity may result
from the absence of an established market for the investments as well as legal
or contractual restrictions on their resale by WRP Newco.
Risks of Acquisition, Development, Construction and Renovation Activities
WRP Newco intends to acquire existing properties to the extent that
they can be acquired on advantageous terms and meet WRP Newco's investment
criteria. Acquisitions of properties entail general investment risks associated
with any real estate investment, including the risk that investments will fail
to perform as expected, that estimates of the cost of improvements to bring an
acquired property up to standards established for the intended market position
may prove inaccurate and the occupancy rates and rents achieved may be less than
anticipated.
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WRP Newco also intends to pursue the selective development,
construction and renovation of commercial and residential properties for its own
account or the account of entities in which it owns an equity interest as
opportunities arise. Risks associated with WRP Newco's development,
construction and renovation activities include the risks that: WRP Newco may
abandon development opportunities after expending resources to determine
feasibility; construction and renovation costs of a project may exceed original
estimates; occupancy rates and rents at a newly completed property may not be
sufficient to make the property profitable; and development, construction,
renovation and lease-up may not be completed on schedule (including risks beyond
the control of WRP Newco, such as weather or labor conditions or material
shortages) resulting in increased debt service expense and construction costs.
Development, construction and renovation activities are also subject to risks
relating to the inability to obtain, or delays in obtaining, all necessary
zoning, land-use, building, occupancy and other required governmental permits
and authorizations. These risks could result in substantial unanticipated
delays or expenses and, under certain circumstances, could prevent completion of
development, construction and renovation activities once undertaken, any of
which could adversely affect the financial condition and results of operations
of WRP Newco. Properties under development or acquired for development may
generate little or no cash flow from the date of acquisition through the date of
completion of development and may experience operating deficits after the date
of completion. In addition, new development and renovation activities,
regardless of whether or not they are ultimately successful, typically require a
substantial portion of management's time and attention.
WRP Newco may elect not to exercise its option to purchase the land
underlying Phases III, IV and/or V of Palomino Park, in some cases after having
expended money and time to determine the feasibility of developing such Phase.
In addition, WRP Newco may elect, after having acquired the land underlying one
or more of the Phases and paid the purchase price therefor, not to commence
construction, or to delay construction, because of local occupancy rates or
rents, excessive construction or renovation costs, lack of satisfactory
financing or for any other reason.
Any properties developed and renovated by WRP Newco will be subject to
the risks associated with the ownership and operation of real estate described
elsewhere in this section entitled "WRP Newco Risk Factors."
Dependence on Rental Income from Real Property
WRP Newco's cash flow, results of operations and value of its assets
would be adversely affected if a significant number of tenants of the WRP Newco
Properties failed to meet their lease obligations or if WRP Newco or the owner
of a WRP Newco Property were unable to lease a significant amount of space on
economically favorable terms. In the event of a default by a lessee, the owner
may experience delays in enforcing its rights as lessor and may incur
substantial costs in protecting its investment. The bankruptcy or insolvency of
a major tenant may have an adverse effect on a property. At any time, a tenant
may also seek protection under
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the bankruptcy laws, which could result in rejection and termination of such
tenant's lease and thereby cause a reduction in the cash flow of the property.
If a tenant rejects its lease, the owner's claim for breach of the lease would
(absent collateral securing the claim) be treated as a general unsecured claim.
Generally, the amount of the claim would be capped at the amount owed for unpaid
pre-petition lease payments unrelated to the rejection, plus the greater of one
year's lease payments or 15% of the remaining lease payments payable under the
lease (but not to exceed the amount of three years' lease payments). No
assurance can be given that the WRP Newco Properties will not experience
significant tenant defaults in the future.
Operating Risks
The WRP Newco Properties are subject to operating risks common to the
particular property type, any and all of which may adversely affect occupancy or
rental rates. Such properties are subject to increases in operating expenses
such as cleaning; electricity; heating, ventilation and air-conditioning;
elevator repair and maintenance; insurance and administrative costs; and other
general costs associated with security, landscaping, repairs and maintenance.
While commercial tenants are often obligated to pay a portion of these
escalating costs, there can be no assurance that they will agree to pay such
costs or that the portion that they agree to pay will fully cover such costs.
If operating expenses increase, the local rental market may limit the extent to
which rents may be increased to meet increased expenses without decreasing
occupancy rates. To the extent rents cannot be increased or costs controlled,
the cash flow of WRP Newco and its financial condition may be adversely
affected.
Adverse Consequences of Debt Financing
Leverage. Some of the WRP Newco real estate equity investments may
utilize a leveraged capital structure, in which case a third party lender would
be entitled to cash flow generated by such investments prior to WRP Newco
receiving a return. As a result of such leverage, WRP Newco would be subject to
the risks normally associated with debt financing, including the risk that cash
flow from operations and investments will be insufficient to meet required
payments of principal and interest, the risk that existing debt (which in most
cases will not have been fully amortized at maturity) will not be able to be
refinanced or that the terms of such refinancings will not be as favorable to
WRP Newco and the risk that necessary capital expenditures for such purposes as
renovations and other improvements will not be able to be financed on favorable
terms or at all. While such leverage may increase returns or the funds
available for investment by WRP Newco, it also will increase the risk of loss on
a leveraged investment. If WRP Newco defaults on secured indebtedness, the
lender may foreclose and WRP Newco could lose its entire investment in the
security for such loan. Because WRP Newco may engage in portfolio financings
where several investments are cross-collateralized, multiple investments may be
subject to the risk of loss. As a result, WRP Newco could lose its interests in
performing investments in the event such investments are cross-collateralized
with poorly performing or nonperforming investments. In addition, recourse
debt, which WRP Newco reserves the right to obtain, may subject other assets of
WRP Newco to risk of loss.
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Existing Debt Maturities; Foreclosures. WRP Newco anticipates that
only a portion of the principal of WRP Newco's indebtedness outstanding from
time to time will be repaid prior to maturity. However, WRP Newco may not have
sufficient funds to repay such indebtedness at maturity; it may therefore be
necessary for WRP Newco to refinance debt through additional debt financing or
equity offerings. If WRP Newco is unable to refinance this indebtedness on
acceptable terms, WRP Newco may be forced to dispose of properties upon
disadvantageous terms, which could result in losses to WRP Newco and adversely
affect the amount of cash available for further investment.
Risk of Rising Interest Rates. WRP Newco may incur indebtedness in
the future that also bears interest at a variable rate or may be required to
refinance its debt at higher rates. Outstanding advances under WRP Newco's
proposed credit facility will bear interest at a variable rate. Accordingly,
increases in interest rates could increase WRP Newco's interest expense and
adversely effect the financial condition and results of operations of WRP Newco.
Covenants. Various credit facilities or other debt obligations may
require WRP Newco to comply with a number of customary financial and other
covenants on an ongoing basis. Failure to comply with such covenants may limit
WRP Newco's ability to borrow funds or may cause a default under its then-
existing indebtedness.
No Limitation on Debt. The organizational documents of WRP Newco do
not contain any limitation on the amount of indebtedness WRP Newco may incur.
Accordingly, WRP Newco could become highly leveraged, resulting in an increase
in debt service that could increase the risk of default on WRP Newco's
indebtedness.
Equity Investments with Third Parties
WRP Newco may invest in shares or other equity interests of REITs or
other entities that invest in real estate assets. In such cases, WRP Newco will
be relying on the assets, investments and management of the REIT or other entity
in which it is investing. Such entities and their properties will be subject to
the other risks affecting the ownership and operation of real estate set forth
in this section entitled "WRP Newco Risk Factors."
WRP Newco may also co-invest with third parties through partnerships,
joint ventures or other entities, acquiring non-controlling interests or shared
responsibility for managing the affairs of a property, partnership, joint
venture or other entity and, therefore, will not be in a position to exercise
sole decision-making authority regarding the property, partnership, joint
venture or other entity.
Investments in partnerships, joint ventures, or other entities may,
under certain circumstances, involve risks not present were a third party not
involved, including the possibility that WRP Newco's partners or co-venturers
might become bankrupt or otherwise fail to fund
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their share of required capital contributions, that such partners or co-
venturers might at any time have economic or other business interests or goals
which are inconsistent with the business interests or goals of WRP Newco, and
that such partners or co-venturers may be in a position to take action contrary
to the instructions or the requests of WRP Newco and contrary to WRP Newco's
policies or objectives. Such investments may also have the potential risk of
impasse on decisions, such as a sale, because neither WRP Newco nor the partner
or co-venturer would have full control over the partnership or joint venture.
Consequently, actions by such partner or co-venturer might result in subjecting
properties owned by the partnership or joint venture to additional risk. In
addition, WRP Newco may in certain circumstances be liable for the actions of
its third-party partners or co-venturers.
Investments in Debt Instruments
WRP Newco intends to originate debt investments and may acquire
performing or nonperforming debt investments. In general, debt instruments
carry the risk that borrowers may not be able to make debt service payments or
to pay principal when due, the risk that the value of any collateral may be less
than the amounts owed, the risk that interest rates payable on the debt
instruments may be lower than WRP Newco's cost of funds, and the risk that the
collateral may be mismanaged or otherwise decline in value during periods in
which WRP Newco is seeking to obtain control of the underlying real estate. WRP
Newco is also dependent on the ability of the borrowers to operate successfully
their properties. Such borrowers and their properties will be subject to the
other risks affecting the ownership and operation of real estate set forth in
this section entitled "WRP Newco Risk Factors." Some of the loans may be
structured so that all or a substantial portion of the principal will not be
paid until maturity, which increases the risk of default at that time.
It is anticipated that a substantial portion of the debt in which WRP
Newco invests will not be rated by any nationally-recognized rating agency.
Generally, the value of unrated classes is more subject to fluctuation due to
economic conditions than rated classes. WRP Newco's acquisition of credit
supported classes of securitizations (which generally are expected to be first
loss classes) which are unrated at the time of acquisition and which have lower
ratings may increase the risk of nonpayment or of a significant delay in
payments on these classes. Should rated assets be downgraded, it may adversely
affect their value and may adversely affect the financial condition and results
of operations of WRP Newco.
Mortgage Loans
To the extent WRP Newco invests in mortgage loans, such mortgage loans
may or may not be recourse obligations of the borrower and generally will not be
insured or guaranteed by governmental agencies or otherwise. In the event of a
default under such obligations, WRP Newco may have to foreclose its mortgage or
protect its investment by acquiring title to a property and thereafter making
substantial improvements or repairs in order to maximize the property's
investment potential. Borrowers may contest enforcement of foreclosure or other
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remedies, seek bankruptcy protection against such enforcement and/or bring
claims for lender liability in response to actions to enforce mortgage
obligations. Relatively high "loan-to-value" ratios and declines in the value of
the property may prevent WRP Newco from realizing an amount equal to its
mortgage loan upon foreclosure.
WRP Newco may participate in loans originated by other financing
institutions. As a participant, WRP Newco may not have the sole authority to
declare a default under the mortgage or to control the property or any
foreclosure.
Any investments in junior mortgage loans which are subordinate to
liens of senior mortgages would involve additional risks, including the lack of
control over the collateral and any related foreclosure proceeding. In the
event of a default on a senior mortgage, WRP Newco may make payments to prevent
foreclosure on the senior mortgage without necessarily improving WRP Newco's
position with respect to the subject real property. In such event, WRP Newco
would be entitled to share in the proceeds only after satisfaction of the
amounts due to the holder of the senior mortgage.
Risk of Loss on Commercial Mortgage-Backed Securities
Many of the risks of investing in commercial mortgage-backed
securities ("CMBS") reflect the risks of investing directly in the real estate
securing the underlying mortgage loans. This may be especially true in the case
of commercial mortgage securities secured by, or evidencing an interest in, a
single commercial mortgage loan or a relatively small or less diverse pool of
commercial mortgage loans. See "--Mortgage Loans."
The risks of investing in commercial mortgage securities include risks
that the existing credit support will prove to be inadequate, either because of
unanticipated levels of losses or, if such credit support is provided by a third
party, because of difficulties experienced by such provider. Delays or
difficulties encountered in servicing commercial mortgage securities may cause
greater losses and, therefore, greater resort to credit support than was
originally anticipated, and may cause a rating agency to downgrade a security.
WRP Newco may acquire subordinated tranches of CMBS issuances. In
general, subordinated tranches of CMBS are entitled to receive repayment of
principal only after all principal payments have been made on more senior
tranches and also have subordinated rights as to receipt of interest
distributions. In addition, an active secondary market for such subordinated
securities is not as well developed as the market for certain other mortgage-
backed securities. Accordingly, such subordinated CMBS may have limited
marketability and there can be no assurance that a more efficient secondary
market will develop.
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Limitation on Remedies
Although WRP Newco will have certain contractual remedies upon the
default by borrowers under certain debt instruments, such as foreclosing on the
underlying real estate or collecting rents generated therefrom, certain legal
requirements (including the risks of lender liability) may limit the ability of
WRP Newco to effectively exercise such remedies.
The right of a mortgage lender to convert its loan position into an
equity interest may be limited by certain common law or statutory prohibitions,
which may operate to prevent a lender from exercising conversion rights from
debt to equity interests.
Bankruptcy Considerations
Investments made in assets operating in workout modes or under Chapter
11 of the Bankruptcy Code could be subordinated or disallowed, and WRP Newco
could be liable to third parties in such circumstances. Furthermore,
distributions made to WRP Newco in respect of such investments could be
recovered if any such distribution is found to be a fraudulent conveyance or
preferential payment. Bankruptcy laws, including the automatic stay imposed
upon the filing of a bankruptcy petition, may delay the ability of WRP Newco to
realize on collateral for loan positions held by it or may adversely affect the
priority of such loans through doctrines such as equitable subordination or may
result in a restructure of the debt through principles such as the "cramdown"
provisions of the bankruptcy laws.
No Prior Operating History
It should be noted that WRP Newco is a newly formed entity with no
prior operating history and that its properties and assets have only been
recently acquired.
Uninsured Loss
WRP Newco will carry comprehensive liability, fire, extended coverage
and rental loss insurance with respect to all of the properties that it owns,
with policy specifications, insured limits and deductibles customarily carried
for similar properties. There are, however, certain types of losses (such as
losses arising from acts of war or relating to pollution) that are not generally
insured because they are either uninsurable or not economically insurable.
Should an uninsured loss or a loss in excess of insured limits occur, WRP Newco
could lose its capital invested in a property, as well as the anticipated future
revenue from such property and would continue to be obligated on any mortgage
indebtedness or other obligations related to the property. Any such loss would
adversely affect the financial condition and results of operations of WRP Newco.
With respect to those properties in which WRP Newco holds an interest
through a mortgage, as well as those properties owned by entities to whom WRP
Newco makes unsecured
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loans, the borrowers will most likely be obligated to maintain insurance on such
properties and to arrange for WRP Newco to be covered as a named insured on such
policies. The face amount and scope of such insurance coverage may be less
comprehensive than WRP Newco would carry if it held the fee interest in such
property. Accordingly in such circumstances, or in the event that the borrowers
fail to maintain required coverage, uninsured or underinsured losses may occur,
which could have an adverse impact on WRP Newco's cash flow or financial
condition.
Potential Environmental Liability Related to the Properties
Under various Federal, state and local laws, ordinances and
regulations, an owner or operator of real estate is liable for the costs of
removal or remediation of certain hazardous or toxic substances on or in such
property. These laws often impose such liability without regard to whether the
owner or operator knew of, or was responsible for, the presence of such
hazardous or toxic substances. The cost of any required remediation and the
owners's liability therefor as to any property is generally not limited under
such enactments and could exceed the value of the property and/or the aggregate
assets of the owner. The presence of such substances, or the failure to
properly remediate such substances, may adversely affect the owner's ability to
sell or rent such property or to borrow using such property as collateral.
Persons who arrange for the disposal or treatment of hazardous or toxic
substances may also be liable for the costs of removal or remediation of such
substances at a disposal or treatment facility, whether or not such facility is
owned or operated by such person. Certain environmental laws govern the
removal, encapsulation or disturbance of ACMs when such materials are in poor
condition, or in the event of renovation or demolition. Such laws impose
liability for release of ACMs into the air and third parties may seek recovery
from owners or operators of real properties for personal injury associated with
ACMs. In this regard, it should be noted that the main headquarters building at
the American Cyanamid Office Complex contains ACM's. Upon acquisition of the
property, WRP Newco intends to proceed with the removal of ACM's in such
building. The operation and subsequent removal of certain underground storage
tanks are also regulated by federal and state laws. In connection with the
ownership (direct or indirect), operation, management and development of real
properties, WRP Newco may be considered an owner or operator of such properties
or as having arranged for the disposal or treatment of hazardous or toxic
substances, and, therefore, potentially liable for removal or remediation costs,
as well as certain other related costs, including governmental fines and
injuries to persons and property.
The properties described in this Joint Proxy
Statement/Prospectus/Information Statement that are owned or to be acquired by
WRP Newco have had recent Phase I or similar environmental audits (which
involved general inspections without soil sampling, ground water analysis or
radon testing, and for the Properties constructed in 1978 or earlier, survey
inspections to ascertain the existence of ACMs were conducted) completed by
independent environmental consultant companies. These environmental audits have
not revealed any environmental liability that would have a material adverse
effect on WRP Newco's business.
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Dependence on Key Personnel
WRP Newco is dependent primarily on the efforts of Jeffrey H. Lynford,
Chairman of the Board, and Edward Lowenthal, President, and the loss of either
of their services could have an adverse effect on the operations of WRP Newco.
Mr. Lynford and Mr. Lowenthal have each entered into employment agreements with
WRP Newco having a term of approximately five years. WRP Newco intends to
retain the services of individuals with expertise and experience in certain
activities to be conducted by WRP Newco, and the loss of the services of any of
these individuals could also have an adverse effect on the operations of WRP
Newco.
Absence of Public Market; Risk of Changes in Share Price
Prior to the Distribution, there will be no public market for WRP
Newco Common, and there can be no assurance that an active trading market for
WRP Newco Common will develop following the Distribution or, if developed, that
any such market will be sustained. In the absence of a public trading market,
an investor may be unable to liquidate his investment in WRP Newco. The initial
valuation of the WRP Newco Common may not be indicative of the market price of
the Newco Common after the Distribution. Factors such as government regulatory
action, tax laws, interest rates and market conditions in general could have a
significant impact on the future market price of the Newco Common.
Changes in Policies Without Stockholder Approval
The investment, financing, borrowing and distribution policies of WRP
Newco and its policies with respect to all other activities, growth, debt,
capitalization and operations, will be determined by the WRP Newco Board of
Directors. Although it has no present intention to do so, the Board of
Directors may amend or revise these policies at any time and from time to time
at its discretion without a vote of the stockholders of WRP Newco. A change in
these policies could adversely affect WRP Newco's financial condition, results
of operations and the market price of WRP Newco Common. See "Policies with
Respect to Certain Activities of WRP Newco."
Costs of Compliance with the Americans with Disabilities Act and Similar Laws
Under the Americans with Disabilities Act of 1980 (the "ADA"), places
of public accommodations and commercial facilities are required to meet certain
federal requirements related to access and use by disabled persons. Compliance
with ADA requirements could require both structural and non-structural changes
to the properties in which WRP Newco invests and noncompliance could result in
imposition of fines by the United States government or an award of damages to
private litigants. Although management of WRP Newco believes that its
properties are substantially in compliance with present requirements of the ADA,
WRP Newco may incur additional costs of compliance in the future. A number of
additional Federal, state and local laws exist which impose further burdens or
restrictions on owners with respect to
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access by disabled persons and may require modifications to properties in which
WRP Newco invests, or restrict certain further renovations thereof, with respect
to access by disabled persons. Final regulations under the ADA have not yet
been promulgated and the ultimate amount of the cost of compliance with the ADA
or other such laws is not currently ascertainable. While such costs are not
expected to have a material effect on WRP Newco, they could be substantial. If
required changes involve greater expense than WRP Newco currently anticipates,
WRP Newco's financial condition and results of operations could be adversely
affected.
Other Laws
Real estate properties are also subject to various Federal, state and
local regulatory requirements, such as state and local fire and life safety
requirements. Failure to comply with these requirements could result in the
imposition of fines by governmental authorities or awards of damages to private
litigants. WRP Newco believes that its properties are currently in material
compliance with all such regulatory requirements. However, there can be no
assurance that these requirements will not be changed or that new requirements
will not be imposed which would require significant unanticipated expenditures
by WRP Newco and could have an adverse effect on WRP Newco's results of
operations.
Effect on Common Stock Price of Shares Available for Future Sale
Sales of a substantial number of shares of WRP Newco Common, or the
perception that such sales could occur, could adversely affect prevailing market
prices of the WRP Newco Common. In addition, 1,750,000 shares of WRP Newco
Common have been reserved for issuance pursuant to WRP Newco's 1997 Management
Incentive Plan, and, when issued, these shares will be available for sale in the
public markets from time to time pursuant to exemptions from registration
requirements or upon registration. No prediction can be made about the effect
that future sales of WRP Newco Common will have on the market prices of WRP
Newco.
Hedging Policies/Risks
In connection with the financing of certain real estate investments,
WRP Newco may employ hedging techniques designed to protect WRP Newco against
adverse movements in currency and/or interest rates. While such transactions
may reduce certain risks, such transactions themselves may entail certain other
risks. Thus, while WRP Newco may benefit from the use of these hedging
mechanisms, unanticipated changes in interest rates, securities prices, or
currency exchange rates may result in a poorer overall performance for WRP Newco
than if it had not entered into such hedging transactions.
Antitakeover Effect Resulting From a Staggered Board/Ability of Newco to Issue
Preferred Shares/and Certain Provisions of Maryland Law
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WRP Newco's Board of Directors is divided into three classes. The
initial terms of the first, second and third classes will expire in 1998, 1999
and 2000, respectively. Beginning in 1998, directors for each class will be
chosen for a three-year term upon the expiration of their then current term, and
each year one class of directors will be elected by the stockholders. The
staggered terms for directors may limit the stockholders' ability to change
control of Newco even if a change of control were in the interests of
stockholders.
WRP Newco's Charter (the "WRP Newco Charter") authorizes the Board of
Directors to establish one or more series of preferred shares and to determine,
with respect to any series of preferred shares, the preferences and other terms
of such series. Although the Board of Directors has no intention at the present
time, it could issue a series of preferred shares that could, depending on the
terms of such series, impede or prevent a merger, tender offer or other
transaction that some, or a majority, of WRP Newco's shareholders might believe
to be in their best interest or in which shareholders might receive a premium
for their shares over the then current market price of such shares.
Under the MGCL, certain "business combinations" (including certain
issuances of equity securities) between a Maryland corporation and an Interested
Stockholder are prohibited for five years after the most recent date on which
the Interested Stockholder became an Interested Stockholder. Thereafter, any
such business combination must be approved by two supermajority stockholder
votes. The directors of WRP Newco have exempted from the Maryland statute any
business combinations with Jeffrey H. Lynford or Edward Lowenthal or any of
their affiliates or any other person acting in concert or as a group with any of
such persons and, consequently, the five-year prohibition and the supermajority
vote requirements will not apply to business combinations between such persons
and WRP Newco. See "Certain Provisions of Maryland Law and of WRP Newco Charter
and Bylaws."
The provisions of the MGCL described above and the exemptions granted
may discourage a third party from making an acquisition proposal for WRP Newco
and may inhibit a change in control under circumstances that could otherwise
give the holders of the WRP Newco Common the opportunity to realize a premium
over then-prevailing market prices.
It should also be noted that for ten years after the Closing Date, WRP
Newco has the right to direct the voting of all shares of WRP Newco Series A
Preferred, WRP Newco Class A Common and WRP Newco Common owned by ERP Operating
Partnership or any of its affiliates, except as to the election of the director
to be designated by ERP Operating Partnership or any matter relating to the
rights, preferences and privileges of WRP Newco Series A Preferred or WRP Newco
Class A Common. Such voting right may hinder a change in control.
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THE MEETINGS OF SHAREHOLDERS
EQR
The EQR Special Meeting has been called by the EQR Board of Trustees
for the purpose of approving the Merger. The EQR Special Meeting will be held
on ______, 1997, at ____ a.m., local time, at ________________________,
________, ________. Only shareholders of record of EQR Common at the close of
business on ________, 1997 will be entitled to vote at the EQR Special Meeting.
EQR had outstanding ______________ shares of EQR Common as of the close of
business on _________, 1997, of which ___________ shares (or approximately ___%
of the outstanding) shares of EQR Common (excludes _____ shares where beneficial
ownership is disclaimed) were owned beneficially by the officers and trustees of
EQR, and such persons have indicated their intention to vote such shares in
favor of the Merger. No EQR Shares other than EQR Common are entitled to vote on
the Merger. Each holder of EQR Common is entitled to one vote per share on the
Merger. If the accompanying proxy form is signed and returned, the shares
represented thereby will be voted in accordance with any direction on the proxy
form, or in the absence of a direction, they will be voted FOR the Merger. The
shareholder may revoke the proxy at any time prior to the voting thereof by
giving written notice of such revocation to EQR, by executing and delivering a
proxy bearing a later date, or by attending the EQR Special Meeting and voting
in person.
The expenses of the solicitation of EQR Common Shareholders will be
paid by EQR. In addition to the use of the mail, proxies may be solicited by
trustees, officers, or regular employees of EQR in person, by telecopy or by
telephone. Arrangements will also be made with brokerage firms and other
custodians, nominees and fiduciaries to forward solicitation material to the
beneficial owners of the shares of EQR Common held of record by such persons,
and EQR will reimburse such brokerage firms, custodians, nominees and
fiduciaries for reasonable out-of-pocket expenses incurred by them in connection
therewith. EQR has retained MacKenzie Partners to assist in the solicitation of
proxies. The fee of such firm is estimated to be $6000, plus reimbursement for
out-of-pocket costs and expenses.
The presence at the EQR Special Meeting, in person or by proxy, of the
holders of a majority of the outstanding shares of EQR Common is necessary to
constitute a quorum under Maryland law and the Amended and Restated Bylaws of
EQR (the "EQR Bylaws"). Votes cast by proxy or in person at the meeting will be
tabulated by election inspectors appointed for the meeting and will determine
whether or not a quorum is present. The election inspectors will treat
abstentions and "broker non-votes" (i.e., proxies of brokers who have limited
authority to vote on specified proposals) as shares that are present and
entitled to vote for purposes of determining the presence of a quorum at the
meeting. Under Maryland law, EQR's Amended and Restated Declaration of Trust
(the "EQR Declaration") and the EQR Bylaws, the affirmative vote of the holders
of two-thirds of the outstanding shares of EQR Common is required to approve the
Merger.
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EQR Common Shareholders may mark the accompanying EQR proxy to vote
their shares FOR or AGAINST, or to ABSTAIN with respect to, the Merger.
Abstentions and broker non-votes will have the effect of a vote against approval
of the Merger.
The EQR Trustees who voted on the Merger unanimously recommend that EQR
Common Shareholders vote FOR the Merger.
Pursuant to the EQR Bylaws, no business may be transacted at the EQR
Meeting except that referred to in the accompanying notice of the EQR Special
Meeting.
Wellsford
The Wellsford Special Meeting has been called by the Wellsford Board of
Trustees for the purpose of approving the Merger, including the adoption of an
amended and restated declaration of trust of the Surviving Trust, the Additional
Amendments, the Additional Share Offering by WRP Newco and the adoption of WRP
Newco's 1997 Management Incentive Plan. The Wellsford Special Meeting will be
held on _________, 1997, at ____ a.m., local time, at the
_______________________________________________________________________________
___. Only shareholders of record of Wellsford Common at the close of business on
________, 1997 will be entitled to vote at the Wellsford Special Meeting.
Wellsford had outstanding ______ shares of Wellsford Common as of the close of
business on ________, 1997, of which _______ shares (or approximately _____% of
the outstanding shares of Wellsford Common (excludes _____ shares where
beneficial ownership is disclaimed)) were owned beneficially by the officers and
trustees of Wellsford, and such persons have indicated their intention to vote
such shares in favor of the Merger, including the adoption of an amended and
restated declaration of trust of the Surviving Trust, the Additional Amendments,
the Additional Share Offering by WRP Newco and the adoption of WRP Newco's 1997
Management Incentive Plan. No Wellsford Shares other than Wellsford Common are
entitled to vote on the matters set forth in the notice of the Wellsford Special
Meeting. Each holder of Wellsford Common is entitled to one vote per share on
the matters set forth in the notice of the Wellsford Special Meeting. If the
accompanying proxy form is signed and returned, the shares represented thereby
will be voted in accordance with any direction on the proxy form, or in the
absence of a direction, they will be voted FOR the Merger, including adoption of
the amended and restated declaration of trust of the Surviving Trust, the
Additional Amendments, the Additional Share Offering by WRP Newco and the
adoption of WRP Newco's 1997 Management Incentive Plan. The shareholder may
revoke the proxy at any time prior to the voting thereof by giving written
notice of such revocation to Wellsford, by executing and delivering a proxy
bearing a later date, or by attending the Wellsford Special Meeting and voting
in person.
The expenses of the solicitation of Wellsford Common Shareholders will
be paid by Wellsford. In addition to the use of the mail, proxies may be
solicited by trustees, officers, or regular employees of Wellsford in person, by
telecopy or by telephone. Arrangements will also be made with brokerage firms
and other custodians, nominees and fiduciaries to forward
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solicitation material to the beneficial owners of the shares of Wellsford Common
held of record by such persons, and Wellsford will reimburse such brokerage
firms, custodians, nominees and fiduciaries for reasonable out-of-pocket
expenses incurred by them in connection therewith. Wellsford has retained
MacKenzie Partners to assist in the solicitation of proxies. The fee of such
firm is estimated to be $7,500, plus reimbursement for out-of-pocket costs and
expenses.
The presence at the Wellsford Special Meeting, in person or by proxy, of
the holders of a majority of the outstanding shares of Wellsford Common is
necessary to constitute a quorum under Maryland law and Wellsford's Bylaws (the
"Wellsford Bylaws"). Votes cast by proxy or in person at the Wellsford Special
Meeting will be tabulated by election inspectors appointed for the meeting and
will determine whether or not a quorum is present. The election inspectors will
treat abstentions and "broker non-votes" (i.e., proxies of brokers who have
limited authority to vote on specified proposals) as shares that are present and
entitled to vote for purposes of determining the presence of a quorum at the
meeting. Under Maryland law, Wellsford's Amended and Restated Declaration of
Trust (the "Wellsford Declaration") and the Wellsford Bylaws, the affirmative
vote of the holders of a majority of the outstanding shares of Wellsford Common
is required to approve the Merger. The affirmative vote of the holders of two-
thirds of the outstanding shares of Wellsford Common is required to approve the
Additional Amendments. The affirmative vote of the holders of a majority of
votes cast by holders of the outstanding shares of Wellsford Common (provided
that the total votes cast represent over 50% of the outstanding shares of
Wellsford Common) is required to approve the Additional Share Offering and the
adoption of WRP Newco's 1997 Management Incentive Plan.
Wellsford Common Shareholders may mark the accompanying Wellsford proxy
to vote their shares FOR or AGAINST, or to ABSTAIN from voting with respect, to
the Merger, the Additional Amendments, the Additional Share Offering and WRP
Newco's 1997 Management Incentive Plan. Abstentions and broker non-votes will be
counted in determining the presence of a quorum and will have the effect of a
vote against approval of the Merger and the Additional Amendments. An abstention
and a broker non-vote will have no effect on the proposal to approve the
Additional Share Offering and adoption of WRP Newco's 1997 Management Incentive
Plan so long as the total votes cast represent over 50% of the outstanding
shares of Wellsford Common.
The Wellsford Board of Trustees unanimously recommends that Wellsford
Common Shareholders vote FOR the Merger, the Additional Amendments, the
Additional Share Offering and WRP Newco's 1997 Management Incentive Plan. The
WRP Newco Board of Directors unanimously recommends that Wellsford Common
Shareholders vote FOR the Additional Share Offering and WRP Newco's 1997
Management Incentive Plan.
The Wellsford Bylaws provide that no business will be transacted at the
Wellsford Special Meeting except that referred to in the accompanying notice of
the Wellsford Special Meeting.
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THE MERGER
The description of the Merger contained in this Joint Proxy
Statement/Prospectus/Information Statement is qualified in its entirety by
reference to the Merger Agreement, the full text of which is attached as
Appendix A, and is incorporated herein by reference.
Terms of the Merger
The Merger Agreement provides that, upon satisfaction or waiver of the
conditions set forth therein, EQR will be merged into Wellsford. The name of
the Surviving Trust will be Equity Residential Properties Trust. At the
Effective Time, each outstanding share of Wellsford Common will be converted
into .625 of a share of Survivor Common. At the Effective Time, each
outstanding share of EQR Common will be converted into one share of Survivor
Common. At the Effective Time, each share of Wellsford Preferred and EQR
Preferred will be converted into one share of Survivor Preferred, having the
same preferences and other terms as the Wellsford Preferred or EQR Preferred
previously outstanding of the same series; provided, however, that the
conversion ratio for the Wellsford Series A will be adjusted in accordance with
its terms. No fractional shares of Survivor Common will be issued in connection
with the Merger. In lieu thereof, holders of Wellsford Common will receive a
cash payment equal to the unweighted average closing price of EQR Common on the
NYSE for the five trading days immediately preceding the Effective Time,
multiplied by the fraction of the shares of Survivor Common to which the holder
would be entitled under the Merger Agreement.
Background of the Merger
Since 1993, Douglas Crocker, the President and Chief Executive Officer
of EQR and Jeffrey H. Lynford, the Chairman of the Board of Wellsford and Edward
Lowenthal, President and Chief Executive Officer of Wellsford, have had a
personal relationship arising out of their participation in the multifamily
property business. At various times during 1994 and 1995 Mr. Crocker, Mr.
Lynford and Mr. Lowenthal have discussed the general status of the multifamily
property industry. Messrs. Crocker, Lynford and Lowenthal presumed that the
multifamily property industry would be the subject of combinations of existing
companies in the future, and separately considered whether their respective
companies should explore a combination with other companies.
On September 16, 1996, a regular quarterly Wellsford board meeting was
held at which Messrs. Lynford and Lowenthal reported on their discussions with
investment banking firms and other publicly traded REITs regarding possible
strategic combinations. They indicated that these discussions related primarily
to possible transactions in which Wellsford would acquire another entity or be
the survivor in a merger. The Board of Trustees of Wellsford authorized
management to engage in discussions regarding possible strategic business
combinations.
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On September 24, 1996, Messrs. Crocker, Lynford and Lowenthal met to
discuss the multifamily property industry and real estate market in general and
whether combining the property portfolios of EQR and Wellsford made sense for
both companies and their shareholders. The parties expressed a general interest
in exploring the possibility of a combination of the companies.
On October 19, 1996, Messrs. Crocker and Lynford had a meeting at which
they specifically discussed each company's interest in pursuing merger
discussions. During such meeting, Mr. Crocker and Mr. Lynford considered whether
a merger would be in the best interests of both companies and their
shareholders. Among the issues considered were whether a merger would combine
the talents of their respective companies, reduce corporate overhead by
eliminating redundancies and create a larger company which might be attractive
to institutional investors and increase access to public equity and debt
markets. Mr. Crocker and Mr. Lynford discussed various exchange ratios for
Wellsford Common as well as possible funds from operations and adjusted funds
from operations ratios. Concluding that a merger might be in the best interests
of both companies and their shareholders, Mr. Crocker and Mr. Lynford decided to
pursue merger discussions.
On October 24, 1996, Mr. Crocker and Mr. Lowenthal met at the National
Association of Real Estate Investment Trusts ("NAREIT") Convention in Dallas,
Texas. Mr. Crocker and Mr. Lowenthal discussed revised numbers with respect to
funds from operations and adjusted funds from operations in connection with
possible exchange ratios. Mr. Crocker discussed the fact that he would like to
reach agreement on these numbers in order to further pursue a merger
transaction. Mr. Crocker and Mr. Lowenthal agreed to have each company's
internal accountants discuss exchange ratios and evaluations.
On November 13, 1996, Mr. Crocker, Mr. Lowenthal, Gregory F. Hughes,
Chief Financial Officer of Wellsford, David H. Lee, Senior Vice President -
Capital Markets of EQR, Gerald A. Spector, Executive Vice President of EQR, and
David J. Neithercut, Chief Financial Officer of EQR, met. Mr. Lowenthal
presented the exchange ratio as a topic for discussion. The parties exchanged
views on relative assets and exchange values, but disagreements remained
regarding the method of valuation, the exchange ratio and other material issues.
On November 27, 1996, Mr. Crocker met with Messrs. Lynford, Lowenthal
and Hughes at Wellsford's corporate offices. The parties again discussed
valuation and determined that EQR was not willing to value the development
assets of Wellsford on a going concern basis in the same manner as the other
Wellsford assets. The parties alternatively discussed the formation of a new
Wellsford subsidiary to be spun off to the common shareholders of Wellsford
funded with the Wellsford development assets. The parties agreed that Mr.
Crocker would serve as a director on the proposed subsidiary's board of
directors and Messrs. Lowenthal and Lynford would serve as trustees on the EQR
Board of Trustees. The parties also discussed estimated financial results of EQR
for year-end 1997 and various employment issues, such as possible retention of
as many Wellsford employees as possible to meet EQR's staffing needs.
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On December 9, 1996, a regular quarterly Wellsford board meeting was
held at which members of management of Wellsford and its legal counsel were
present. At such meeting, Messrs. Lynford and Lowenthal reported on the
discussions they had with other publicly traded REITs regarding possible
business combination transactions. They indicated that the only ongoing
discussions at such time were with EQR, and they reported the status and
substance of these discussions, including those relating to a possible spin-off
of certain of Wellsford's assets, and the nature and results of management's
initial due diligence review of the business and financial condition of EQR.
On December 12, 1996, Mr. Crocker, Mr. Lowenthal, Mr. Lynford,
Mr. Hughes and attorneys from EQR's legal staff, as well as representatives of
Rudnick & Wolfe, special counsel for EQR, and Robinson Silverman Pearce Aronsohn
& Berman LLP, special counsel for Wellsford, met to discuss the structure of a
possible merger transaction, the formation of the proposed subsidiary and the
specific assets to be transferred to the proposed subsidiary, and the possible
pricing matrix for the Wellsford Common. General terms were discussed. It was
tentatively agreed, subject to satisfactory resolution of other material issues
and completion of due diligence, that the exchange ratio would be determined
based upon a value of $27.50 per share for the Wellsford Common and $40.00 per
share for the EQR Common, subject to adjustment in the event of a decline in the
market price of EQR Common. In addition, it was tentatively agreed, subject to
the additional study of the relevant assets and completion of due diligence,
that the assets to be contributed to the new subsidiary would have an initial
book value of at least $2.50 per share. Although discussions were still ongoing,
EQR and Wellsford requested their legal counsel to prepare a draft of a merger
agreement and other related documents so that management of the companies could
focus on the issues that required resolution.
On December 20, 1996, Mr. Crocker and Mr. Lowenthal had a telephone call
to discuss certain open issues of the possible merger transaction. The costs in
connection with the possible merger transaction were discussed in detail.
On December 26, 1996, Messrs. Crocker, Lowenthal and Hughes discussed by
telephone concerns regarding the capitalization of the proposed subsidiary upon
consummation of the possible merger. Mr. Crocker suggested that EQR purchase
$3.5 million in shares of common stock of the proposed subsidiary plus an
additional 10% interest in Palomino Park.
From December 26, 1996 through January 9, 1997, the management of EQR
and Wellsford had a number of discussions regarding various business issues.
On January 9, 1997, a special EQR board meeting was held at which
members of management, representatives of EQR's financial and legal advisors
were present in person or by conference telephone call. At such meeting, the
trustees were informed of the status of discussions with Wellsford's management
and the reasons that a combination with Wellsford would be beneficial. In
addition, the trustees discussed with management and EQR's legal
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advisors, the current operations of EQR and Wellsford, the form of consideration
payable in the proposed transaction, the valuation methodologies to be utilized
by J.P. Morgan for purposes of its opinion (see "The Merger-Opinion of EQR
Financial Advisor"), potential synergies expected by management to result from
the proposed transaction, certain governance, tax and due diligence matters and
the time table for completion of the transaction. The EQR Board of Trustees
also reviewed the tentative terms of the proposed merger between EQR and
Wellsford.
Mr. Crocker provided the EQR Board of Trustees with a discussion of the
background and events leading up to the meeting with respect to the proposed
merger with Wellsford. Mr. Crocker then set forth the reasons he believed a
possible business combination with Wellsford would be appropriate for EQR. The
reasons discussed were (i) the combined entity would be the second largest
publicly-traded REIT in the United States and the largest REIT focusing
primarily on multifamily properties, with 317 properties, consisting of 90,873
apartment units; (ii) the combined market capitalization, would be approximately
$5 billion and would not significantly alter EQR's existing Debt to Total Market
Capitalization Ratio; and (iii) the merger would improve access to the public
debt and equity markets to support EQR's continued growth. Mr. Crocker also
noted that Mr. Lowenthal and Mr. Lynford would be added to the EQR Board of
Trustees, assuming approval of the Merger by the shareholders of each company.
EQR's legal counsel presented and explained the terms of the Merger
Agreement to the EQR Board of Trustees including closing conditions, termination
rights and liquidated damages and expense reimbursement provisions, and advised
the EQR Board of Trustees of their fiduciary obligations. A discussion followed
concerning the proposed merger.
The EQR Board of Trustees discussed the advantages and disadvantages to
EQR of the Merger, including the factors raised by Mr. Crocker. The principle
negative factor that the EQR Board of Trustees considered was the significant
costs involved in connection with consummating the Merger and the substantial
management time and effort required to effectuate the Merger and integrate the
businesses of EQR and Wellsford. The EQR Board of Trustees did not believe that
this factor was sufficient to outweigh the advantages of the Merger,
particularly in light of the lower payout ratio of the Surviving Trust based
upon funds from operations, and the similar Debt to Total Market Capitalization
Ratio of the Surviving Trust, as compared with the current ratio for EQR.
From January 12, 1997 through January 16, 1997, representatives of
management of EQR and Wellsford and their respective counsel met in Chicago to
discuss and resolve the remaining open business and legal issues.
On January 15, 1997, a special meeting of the EQR Board of Trustees was
held. Representatives of J.P. Morgan made a detailed presentation regarding the
proposed merger with Wellsford. J.P. Morgan's presentation included a discussion
of (i) the fairness from a financial point of view to EQR of the consideration
to be paid by EQR in the proposed merger; (ii) a
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summary of the financial terms of the proposed merger; (iii) a valuation
analysis; and (iv) a discussion of the impact of the proposed merger on EQR.
Also included in J.P. Morgan's oral presentation of its fairness opinion were
(i) an outline of J.P. Morgan's fairness opinion process; (ii) a pro forma
merger analysis; (iii) a fully loaded share price analysis; (iv) a public
trading multiples analysis; (v) a selected transactions analysis; (vi) a share
trading history analysis; (vii) an historical exchange ratio analysis; (viii) a
net asset value analysis; and (ix) a WRP Newco analysis. See "- Opinion of
Financial Advisor -- EQR."
Following such presentations, and after extensive discussion, the Board
of Trustees of EQR concluded that the advantages of the Merger outweiged the
potential risks and the EQR Trustees who voted on the Merger unanimously
approved the Merger Agreement and the related agreements contemplated thereby,
and authorized EQR management to enter into such agreements. J.P. Morgan
rendered its oral opinion to the effect that, as of the date and subject to the
assumptions made, procedures followed, matters considered and limits of its
review, the consideration to be paid by EQR in connection with the Merger was
fair, froma financial point of view, to EQR. J.P. Morgan's written opinion was
delivered on January 16, 1997.
On January 16, 1997, a special meeting of the Board of Trustees of
Wellsford was held at which members of management, representatives of Merrill
Lynch and legal counsel were present. At such meeting, the Wellsford Board of
Trustees was updated on the status of discussions with EQR regarding the
potential merger transaction between Wellsford and EQR. Mr. Lynford reviewed
with the Board of Trustees (i) the background of the proposed merger and spin-
off transaction, (ii) the current status of Wellsford's financial and business
plans without the proposed merger, including the feasibility of improving the
profitability of Wellsford's existing property portfolio and raising additional
capital and acquiring new properties, (iii) pertinent due diligence findings
with respect to EQR, with particular emphasis on the current operations and
properties of EQR and (iv) the potential benefits as well as the risks of the
proposed merger transaction as described below under "- Reasons for the Merger;
Recommendation of the Wellsford Board of Trustees."
Wellsford's legal counsel made a presentation to the Wellsford Board of
Trustees in which it explained the material terms of the proposed merger and
spin-off transaction and agreements related thereto, briefed the Board of
Trustees on certain legal issues raised by the proposed merger transaction and
advised the Board of Trustees of its fiduciary duties in connection with such
transaction.
Merrill Lynch presented its financial analysis of the merger
transaction, which included: (i) an overview of the proposed transaction setting
forth, among other things, a summary of the key transaction terms and a
description of the Distribution, (ii) an analysis of the stock trading history
of each of Wellsford Common and EQR Common, (iii) valuation analyses of
Wellsford, EQR and WRP Newco, (iv) a comparison of each of Wellsford and EQR
with selected publicly traded companies, (v) a comparison of the proposed
financial terms of the Merger with the
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financial terms of other relevant mergers and acquisitions and (vi) a pro forma
merger analysis. Merrill Lynch concluded its presentation by orally advising
the Wellsford Board of Trustees that as of that date, based upon the facts and
circumstances as they existed at that time, and subject to certain assumptions,
factors and limitations, the proposed consideration to be received by the
holders of Wellsford Common, pursuant to the Merger and Distribution, was fair
to such shareholders from a financial point of view.
Following such presentations, and after extensive discussion of the
advantages and disadvantages of the proposed merger transaction as described
under "- Reasons for the Merger; Recommendations of the Wellsford Board of
Trustees", the Board of Trustees of Wellsford concluded that the advantages of
the Merger and Distribution outweighed the potential risks, and unanimously
approved the merger transaction, the spin-off, the Merger Agreement and all
transactions contemplated thereby.
The Merger Agreement was executed on January 16, 1997 .
Reasons for the Merger; Recommendation of the EQR Board of Trustees
The EQR Board of Trustees believes that the Merger, including the
consideration, is fair and in the best interests of EQR and its shareholders.
Accordingly, the EQR Trustees who voted on the Merger unanimously approved the
Merger and unanimously recommend approval of the Merger by the shareholders of
EQR. In reaching this determination, the EQR Board of Trustees consulted with
EQR management, as well as its financial advisors, J.P. Morgan, legal counsel
and accountants, and considered a number of factors. The material factors that
the EQR Board of Trustees considered in approving the Merger and unanimously
recommending approval of the Merger are that:
(i) The EQR Board of Trustees believes that the Merger would solidify
EQR's leadership position in the multifamily property industry. The EQR Board
of Trustees viewed this as favorable because the combined entity would own and
operate 317 multifamily properties consisting of 90,873 apartment units; would
have funds from operations on a pro forma basis for the nine months ended
September 30, 1996 of approximately $155.4 million and would have a combined
market capitalization, as of September 30, 1996, of approximately $5.0 billion
with an initial Debt to Total Market Capitalization Ratio of approximately 31%.
(ii) The EQR Board of Trustees believes that the Merger would increase
operating efficiency through economies of scales, which the EQR Board of
Trustees viewed as favorable as the combined entity would realize significant
savings in overhead and expenses (such savings are estimated to be approximately
$3.7 million per annum).
(iii) The EQR Board of Trustees believes that the Merger would provide
greater access to the public equity and debt markets. The Debt to Total Market
Capitalization Ratio for EQR as of September 30, 1996 was approximately 31.5%,
while the ratio on a pro forma basis of the
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Surviving Trust as of the same date would be approximately 31%. The EQR Board
of Trustees viewed this favorably because of management's belief, based in part
on discussions with advisors, investment banking firms and lenders, that it
would provide EQR Common Shareholders with enhanced liquidity and make the
Survivor Common a more attractive investment for institutional investors.
(iv) The EQR Board of Trustees believes that the Surviving Trust would
be a larger and financially stronger company, which would make it easier to
combine with other public or private entities. The EQR Board of Trustees viewed
this as favorable because it would provide another efficient and attractive
means of growth.
(v) The EQR Board of Trustees believes that the combination of the
Wellsford properties (approximately 19,000 units) with those of EQR will expand
the geographic focus of EQR's ownership and operation of properties and enhance
EQR's operations in the Southwest, Western and Pacific Northwest regions of the
United States. The EQR Board of Trustees viewed this as favorable because it
would limit the impact that adverse economic or real estate conditions in a
particular region may have on EQR as a whole and provide EQR the opportunity for
additional expansion in these regions.
(vi) The Unaudited Pro Forma Combined Financial Statements contained
herein illustrate the effects of the Merger for the nine months ended September
30, 1996 on a pro forma basis. On a pro forma basis funds from operations for
the Surviving Trust are $155.4 million for the nine months ended September 30,
1996 instead of $113.3 million for EQR on a historical basis. The EQR Board of
Trustees viewed this as favorable because it would most likely increase the
Surviving Trust's funds from operations available for distribution to
shareholders and holders of OP Units. Funds from operations available for
distribution is not the same as cash available for distribution as it does not
reflect cash required for capital expenditures and principal repayments on debt.
(vii) The Merger could be effectuated through the issuance of new
equity valued at $464 million (based upon a market price of $43.375 per share of
EQR Common on January 16, 1997), rather than through the use of cash or a public
offering of equity or debt securities, which the EQR Board of Trustees viewed as
favorable.
(viii) J.P. Morgan delivered an oral opinion on January 15, 1997 to
the effect that, as of such date and based upon and subject to certain matters
stated therein, the consideration to be paid by EQR in connection with the
Merger was fair, from a financial point of view, to EQR. The EQR Board of
Trustees viewed such opinion as favorable not only because of the conclusion
reached by J.P. Morgan, but also because such conclusion was consistent with the
opinion of EQR's management.
(ix) The EQR Board of Trustees believes the terms of the Merger
Agreement to be fair to EQR.
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(x) Under generally accepted accounting principles, the Merger will
be accounted for as a purchase, and for federal income tax purposes the Merger
will be a tax-free transaction, which the EQR Board of Trustees viewed as
favorable because, with certain possible exceptions, no gain or loss will be
recognized by EQR, Wellsford or a shareholder of Wellsford who receives shares
of Survivor Common for shares of Wellsford Common exchanged therefor (except
with respect to any cash received in lieu of a fractional interest in a share of
EQR Common).
The EQR Board of Trustees also considered certain potentially negative
factors which could arise from the Merger. These included, among others, the
significant costs involved in connection with consummating the Merger and the
substantial management time and effort required to effectuate the Merger and
integrate the businesses of EQR and Wellsford. The EQR Board of Trustees
considered that the Merger would increase the Debt to Total Market
Capitalization Ratio of the Surviving Trust from the Debt to Total Market
Capitalization Ratio of EQR. The Surviving Trust will assume all of Wellsford's
outstanding debt of approximately $330 million. The EQR Board of Trustees
recognized this increase could adversely affect the ability of the Surviving
Trust to obtain debt financing for additional growth and would subject EQR to
the risks of higher leverage. Overall, however, the EQR Board of Trustees
concluded that the increase in debt would be within EQR's policies with respect
to the incurrence of debt. In addition, the EQR Board of Trustees considered
the possible adverse effects upon the market for EQR Common Shares and upon
EQR's ability to raise capital and issue equity in both the public and private
markets which might result if the Merger were not consummated. Finally, the EQR
Board of Trustees considered the risk that the anticipated benefits of the
Merger might not be fully realized. The EQR Board of Trustees did not believe
that the negative factors were sufficient, either individually or collectively,
to outweigh the advantages of the Merger.
The EQR Board of Trustees viewed as adequate the conditions to the
closing in the Merger Agreement, including the condition that no change in the
financial condition, business or operations of Wellsford will have occurred that
would have a material adverse effect, other than a change which affects EQR and
Wellsford in a substantially similar manner.
In view of the wide variety of factors considered in connection with
its evaluation of the Merger, the EQR Board of Trustees did not find it
practicable to, and did not, quantify or otherwise attempt to assign relative
weight to the specific factors considered in reaching its determination.
The EQR Board of Trustees view the indemnification provisions relating
to Wellsford trustees and officers as a continuing responsibility and approved
of the continuation of the indemnification of the Wellsford trustees and
officers as part of the negotiated transaction.
The EQR Board of Trustees believes that the proposed transaction is
fair to and in the best interests of EQR and its shareholders. The EQR Trustees
who voted on the Merger
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unanimously approved the Merger, and unanimously recommend that the shareholders
of EQR vote FOR the Merger.
In the event the Merger is not consummated for any reason, EQR will
continue to pursue its business objectives.
Reasons for the Merger; Recommendation of the Wellsford Board of Trustees
At a special meeting of the Wellsford Board of Trustees held on
January 16, 1997, members of Wellsford management, representatives of Merrill
Lynch and legal counsel made presentations concerning the business and prospects
of Wellsford and EQR, and the potential combination of Wellsford and EQR. The
Wellsford Board of Trustees also reviewed the terms of the Merger Agreement and
the Contribution and Distribution Agreement with Wellsford's management and
Wellsford's financial and legal advisors. By unanimous vote, the Wellsford
Board of Trustees determined that the Merger and the Distribution were fair to,
and in the best interests of, Wellsford and its shareholders, approved and
adopted the Merger Agreement, the Contribution and Distribution Agreement and
the transactions contemplated thereby, and resolved to recommend that
Wellsford's shareholders approve the Merger.
The Wellsford Board of Trustees believes that the Merger offers
Wellsford's shareholders an opportunity to take advantage of the general trend
in the real estate industry towards consolidation, by affording shareholders a
significant participation in a much larger and more geographically diversified
REIT with greater potential for long-term appreciation and improved access to
capital markets.
In making its determination with respect to the Merger and the
Distribution, the Wellsford Board of Trustees also considered, among other
things, that:
(i) the Merger represents the alternative which has the greatest
feasibility and offers the greatest potential to maximize shareholder
value;
(ii) the Merger was the best alternative reasonably available to
Wellsford's shareholders. The Board believed that there were no other
prospective purchasers that had both the financial ability to complete the
transaction and would be willing to pay an aggregate consideration greater
than that to be paid by EQR in the Merger;
(iii) the anticipated cost savings and operating efficiencies available
to the Surviving Trust from the Merger, particularly in the reduction of
overhead expenses;
(iv) the terms of the Merger Agreement, which the Wellsford Board of
Trustees viewed as favorable because it believed them to be fair to
Wellsford and its shareholders and because the terms were reached through
extensive arms-length negotiations. In this regard, the Wellsford Board of
Trustees noted that the Exchange
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Ratio fairly reflected the relative contributions of both companies to the
combined entity and represented an attractive opportunity for shareholders
to continue their investment and maintain their receipt of quarterly
dividends, but with significantly expanded geographic diversification;
(v) the Merger will significantly increase the market capitalization
of the combined company which could increase the liquidity of Survivor
Common after the Merger;
(vi) the Distribution will enable shareholders to participate in an
opportunity to maximize the value of the Contributed Assets (as defined
herein);
(vii) the structure of the Merger, particularly the fact that the
Merger, as a "stock-for-stock" transaction, rather than a "cash-for-stock"
transaction, will provide an opportunity for Wellsford's shareholders to
participate in any future appreciation of the Surviving Trust;
(viii) the tax-free nature of the Merger; and
(ix) the opinion, analyses and presentations of Merrill Lynch,
including the opinion that the proposed consideration to be received by
Wellsford Common Shareholders pursuant to the Merger and the Distribution
was fair to such shareholders from a financial point of view.
The Wellsford Board of Trustees also considered certain potentially
negative factors in its deliberations concerning the Merger, including, among
others:
(i) the risk that the anticipated benefits of the Merger might not be
fully realized;
(ii) the significant costs involved in connection with consummating the
Merger;
(iii) the substantial management time and effort required to effectuate
the Merger;
(iv) the possibility that Wellsford may be required, if the Merger
Agreement is terminated under certain circumstances, to pay EQR a Break-Up
Fee of $14.0 million and to reimburse EQR Break-Up Expenses of up to $2.5
million; and
(v) that the dividend rate payable with respect to the EQR Common is
less than the dividend rate payable with respect to the Wellsford Common.
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In view of the wide variety of factors considered by the Wellsford Board of
Trustees, the Board of Trustees did not quantify or otherwise attempt to assign
relative weights to the specific factors considered in making its determination.
However, in the view of the Wellsford Board of Trustees, the potentially
negative factors considered by it were not sufficient, either individually or
collectively, to outweigh the positive factors considered by it in its
deliberations relating to the Merger.
Opinion of Financial Advisor - EQR
At the meeting of the Board of Trustees of EQR on January 15, 1997, J.P.
Morgan rendered its oral opinion to the Board of Trustees of EQR that, as of
such date, the consideration to be paid by EQR in connection with the proposed
Merger was fair from a financial point of view to EQR. J.P. Morgan has
confirmed its January 15, 1997 oral opinion by delivering its written opinion to
the Board of Trustees of EQR, dated January 16, 1997, that, as of such date, the
consideration to be paid by EQR in connection with the proposed Merger was fair
from a financial point of view to EQR. No limitations were imposed by EQR's
Board of Trustees upon J.P. Morgan with respect to the investigations made or
procedures followed by it in rendering its opinions.
The full text of the written opinion of J.P. Morgan dated January 16, 1997,
which sets forth the assumptions made, matters considered and limits on the
review undertaken, is attached as Appendix C to this Joint Proxy
Statement/Prospectus/Information Statement and is incorporated herein by
reference. EQR Common Shareholders are urged to read the opinion in its
entirety. J.P. Morgan's written opinion is addressed to the Board of Trustees
of EQR, is directed only to the consideration to be paid in connection with the
Merger and does not constitute a recommendation to any shareholder of EQR as to
how such shareholder should vote at the EQR Special Meeting. The summary of the
opinion of J.P. Morgan set forth in this Joint Proxy
Statement/Prospectus/Information Statement is qualified in its entirety by
reference to the full text of such opinion.
In arriving at its opinion, J.P. Morgan reviewed, among other things, the
Merger Agreement; the audited financial statements of EQR and Wellsford for the
fiscal year ended December 31, 1995, and the unaudited financial statements of
EQR and Wellsford for the nine months ended September 30, 1996; current and
historical market prices of the EQR Common and Wellsford Common; certain
publicly available information concerning the business of Wellsford and of
certain other companies engaged in businesses comparable to those of Wellsford,
and the reported market prices for certain other companies' securities deemed
comparable; publicly available terms of certain transactions involving companies
comparable to Wellsford and the consideration received for such companies; the
terms of other business combinations deemed relevant by J.P. Morgan; certain
internal financial analyses and estimates of budgeted 1997 funds from operations
and net operating income prepared by EQR and Wellsford and their respective
managements; and certain agreements with respect to outstanding indebtedness or
obligations of EQR and Wellsford. J.P. Morgan also held discussions with
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certain members of the management of EQR and Wellsford with respect to certain
aspects of the Merger, and the past and current business operations of EQR and
Wellsford, the financial condition and future prospects and operations of EQR
and Wellsford, and certain other matters believed necessary or appropriate to
J.P. Morgan's inquiry. In addition, J.P. Morgan reviewed such other financial
studies and analyses and considered such other information as it deemed
appropriate for the purposes of its opinion.
J.P. Morgan relied upon and assumed, without independent verification, the
accuracy and completeness of all information that was publicly available or that
was furnished to it by EQR and Wellsford or otherwise reviewed by J.P. Morgan,
and J.P. Morgan has not assumed any responsibility or liability therefor. J.P.
Morgan has not conducted any valuation or appraisal of any assets or
liabilities, nor have any valuations or appraisals been provided to J.P. Morgan.
In relying on financial analyses and forecasts provided to J.P. Morgan, J.P.
Morgan has assumed that they have been reasonably prepared based on assumptions
reflecting the best currently available estimates and judgments by management as
to the expected future results of operations and financial condition of EQR and
Wellsford to which such analyses or forecasts relate. J.P. Morgan has also
assumed that the Merger will have the tax consequences described in discussions
with, and materials furnished to J.P. Morgan by, representatives of EQR, and
that the other transactions contemplated by the Merger Agreement will be
consummated as described in the Merger Agreement.
The projections furnished to J.P. Morgan for EQR and Wellsford were
prepared by the respective managements of each company. Neither EQR nor
Wellsford publicly discloses internal management projections of the type
provided to J.P. Morgan in connection with J.P. Morgan's analysis of the Merger,
and such projections were not prepared with a view toward public disclosure.
These projections were based on numerous variables and assumptions that are
inherently uncertain and may be beyond the control of management, including,
without limitation, factors related to general economic and competitive
conditions and prevailing interest rates. Accordingly, actual results could
vary significantly from those set forth in such projections.
J.P. Morgan's opinions are based on economic, market and other conditions
as in effect on, and the information made available to J.P. Morgan as of, the
date of such opinions. Subsequent developments may affect the written opinion
dated January 16, 1997, and J.P. Morgan does not have any obligation to update,
revise, or reaffirm such opinion. J.P. Morgan expressed no opinion as to the
price at which the EQR Common or Wellsford Common will trade at any future time.
In accordance with customary investment banking practice, J.P. Morgan
employed generally accepted valuation methods in reaching its opinion. The
following is a summary of the material financial analyses utilized by J.P.
Morgan in connection with providing its opinion.
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Pro Forma Merger Analysis. J.P. Morgan analyzed the effect of the Merger
-------------------------
on, among other things, the estimated First Call funds from operations ("FFO")
per share of EQR Common for the year ended December 31, 1997. In doing so, J.P.
Morgan combined the average of various equity analyst estimated 1997 operating
results for Wellsford and EQR and assumed certain savings in accounting and
general and administrative expenses per estimates provided by the management of
EQR. J.P. Morgan observed a total projected post-Merger incremental accretion
of 4.4% to EQR's First Call 1997 FFO estimate of $3.43 per share. The analysis
assumed the January 8, 1997 closing price of $42.50 per share for EQR Common in
calculating the purchase price for Wellsford Common.
J.P. Morgan also analyzed the effect of the Merger on EQR's 1997 pro forma
equity market capitalization, total market capitalization, leverage ratios and
dividend payout ratio. In this regard, J.P. Morgan noted that the pro forma
equity market capitalization for EQR would be approximately $2.96 billion,
assuming a share price of $42.50 (EQR's closing share price on January 8, 1997)
and 69,702,788 shares of EQR Common outstanding after completion of the Merger,
and a total post-Merger pro forma market capitalization of approximately $5.27
billion. J.P. Morgan further noted that (i) EQR's Debt to Total Market
Capitalization Ratio would increase slightly, upon completion of the Merger,
from 32.2% prior to the Merger to 33.3% after the assumption of Wellsford's
outstanding debt plus the incremental debt incurred from the payment of certain
transaction costs, and (ii) the ratio of debt plus perpetual preferred stock to
total market capitalization also increases slightly from 41.3% to 41.9% after
accounting for the assumption and re-issuance of Wellsford Preferred by EQR.
J.P. Morgan also noted that EQR's management intends to retain its current
dividend of $2.50 per common share for the combined company.
Fully-Loaded Share Price. J.P. Morgan calculated the fully-loaded share
------------------------
price being paid by EQR for Wellsford Common. The fully-loaded share price
adjusts the implied share price of $26.56 (calculated as the January 8, 1997
closing price of $42.50 per share for EQR Common multiplied by the .625 exchange
ratio) for certain additional amounts being paid by EQR, including payments to
key executives of Wellsford in compensation, benefits, payments, accelerations,
share options and share appreciation rights. These additional payments are more
particularly described in the Merger Agreement. J.P. Morgan calculated that
these additional amounts create a fully-loaded price of up to $28.05 per share
of Wellsford Common. Based on the fully-loaded share price, J.P. Morgan
calculated a range of FFO multiples from a high of 13.0x (excluding synergies
and accounting) to a low of 9.6x (including synergies and accounting).
Public Trading Multiples Analysis. Using publicly available information,
---------------------------------
J.P. Morgan compared selected financial and stock market data of Wellsford with
similar data for selected publicly traded companies (each, a "Comparable
Company" and, collectively, the "Comparable Companies") engaged in businesses
which J.P. Morgan judged to be analogous to that of
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Wellsford's. The companies selected by J.P. Morgan were Security Capital
Pacific Trust, United Dominion Realty Trust, Post Properties, Inc., Avalon
Properties, Inc., Merry Land & Investment Company, Inc., Security Capital
Atlantic, Inc., Gables Residential Trust, Camden Property Trust, Irvine
Apartment Communities, Evans Withycombe Residential, Inc., Oasis Residential,
Inc. and Smith Residential Realty. These companies were selected, among other
reasons, because of their specialization in the multifamily REIT sector.
For each Comparable Company, publicly available financial performance data
through the twelve months ended September 30, 1996 was measured. J.P. Morgan
calculated the multiples of current stock price, as of January 8, 1997, to
analysts estimates for 1997 First Call FFO for each of the Comparable Companies
to determine the 1997 FFO trading multiples. J.P. Morgan's calculations
resulted in a range of 1997 FFO multiples from 10.1x to 13.9x (excluding the
highest and lowest). These multiples were then applied to Wellsford's First
Call 1997 FFO per share estimate (less $0.09 per share associated with the
Sonterra Loan contributed to WRP Newco), yielding a range of implied trading
values for Wellsford's common stock of approximately $21.88 to $29.98 per share.
J.P. Morgan also observed that the Comparable Companies had a range of debt to
total market capitalization of 27.7% to 44.5%.
Selected Transaction Analysis. Using publicly available information, J.P.
-----------------------------
Morgan examined selected transactions with respect to purchase price per share
to calculate FFO transaction multiples. Specifically, J.P. Morgan reviewed the
following six transactions (collectively, the "Transaction Comparables") that it
deemed relevant: Camden Property Trust/Paragon Group (pending): (J.P. Morgan's
estimate of the transaction multiple was based upon the announced exchange ratio
multiplied by the January 8, 1997 closing price for Camden's common stock,
divided by the 1997 First Call estimate of FFO for Paragon), United Dominion
Realty Trust/South West Property Trust, Inc., BRE Properties/California REIT,
Mid-America Apartment Communities/America First REIT, Inc., and Wellsford
Residential Property Trust/Holly Residential Properties, Inc. J.P. Morgan
observed a range of transaction multiples from 8.3x to 11.2x First Call FFO of
the acquired companies. This range was then applied to Wellsford's First Call
1997 FFO per share, as adjusted for the Sonterra Loan, resulting in a range of
equity values for Wellsford's common stock of between $17.91 and $24.17 per
share. J.P. Morgan noted that this range was below both the implied and fully-
loaded prices for Wellsford Common.
J.P. Morgan concluded that the multifamily REIT Transaction Comparables
were imperfect comparisons to the Merger and therefore did not provide a fully
meaningful test of the exchange ratio or the purchase price per share for
Wellsford Common. In arriving at this conclusion J.P. Morgan reviewed the FFO
multiples for the Transaction Comparables universe and compared them to both the
average First Call FFO trading multiple for the acquired multifamily REITs and
to the average trading FFO multiple for the Comparable Companies, corresponding
to the period from July 8, 1994 to January 8, 1997 during which the transactions
took place. J.P. Morgan observed that the average FFO trading multiple for the
acquired
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multifamily REITs was significantly below that of the Comparable Companies and
that the four most comparable of the acquired multifamily REITs were purchased
at a discount to the average FFO trading multiple for the Comparable Companies
for the corresponding time period. Based on this analysis, J.P. Morgan
discounted the relevance of the multifamily REIT Transaction Comparables as a
measure of the multiple for Wellsford's purchase price.
J.P. Morgan also noted that when certain other transactions from other REIT
sectors were included in the transaction analysis, the range of FFO multiples
became 8.2x to 13.4x, resulting in a range of $17.80 to $28.88 per share for
Wellsford's common stock. These additional transactions were Highwoods
Properties Inc./Crocker Realty, Simon Property Group, Inc./DeBartolo Realty
Corporation, Horizon Outlet Centers, Inc./McArthur/Glen Realty Corporation, and
Omega Healthcare Investors/Health Equity Properties, Inc.
Share Trading History Analysis. Based on publicly available information,
------------------------------
J.P. Morgan reviewed the history of trading prices for Wellsford Common and EQR
Common for the 52-week period ending January 8, 1997 and compared the 52-week
high/low range of $25.00 to $20.75 per share for Wellsford Common to both the
implied purchase price per share of $26.56 (calculated as the product of the
January 8, 1997 closing price for EQR Common times the exchange ratio of .625)
and the fully-loaded price per share of $28.05. J.P. Morgan noted that the
implied price for Wellsford Common was at a premium to the 52-week high.
Historical Exchange Ratio Analysis. J.P. Morgan reviewed the historical
----------------------------------
exchange ratio of the daily closing price per share of Wellsford Common to the
daily closing price per share of EQR Common for the period from January 9, 1996
to January 8, 1997. To compensate in the value of Wellsford's share price for
the loss of income resulting from the contribution of the Sonterra Loan to WRP
Newco, J.P. Morgan calculated the First Call 1996 FFO multiple for each of
Wellsford's daily closing prices beginning August 1, 1996 (the commencement date
of the mortgage loan). Adjusting Wellsford's First Call 1996 FFO downwards by
$0.09, J.P. Morgan multiplied the above FFO multiple times the adjusted First
Call 1996 FFO to arrive at an adjusted Wellsford share price for each closing
price from August 1, 1996 to January 8, 1997. This adjusted share price was
then used in the calculation of the historical exchange ratios. The exchange
ratios of the daily closing prices of one share of Wellsford Common, as adjusted
for the Sonterra Loan, to one share of EQR Common on January 9, 1996 and on
January 8, 1997, were 0.777 and 0.575, respectively. J.P. Morgan noted a one-
year low to high range (adjusted for the Sonterra mortgage) of between 0.569 and
0.780; an average one-year unadjusted exchange ratio of 0.662 versus an adjusted
ratio of 0.658; an average six-month unadjusted exchange ratio of 0.626 versus
an adjusted ratio of 0.623; and an average one-month unadjusted exchange ratio
of 0.583 versus an adjusted ratio of 0.579. In addition, such analysis implied
a one-year historical share price range for Wellsford of $24.18 to $33.15, as
calculated by multiplying EQR Common's January 8, 1997 closing price of $42.50
by the 52-week low and high values for the exchange ratios, respectively.
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Net Asset Value Analysis. Using the publicly available unaudited results
-------------------------
for each company for the period ending September 30, 1996, J.P. Morgan
calculated the Net Asset Value ("NAV") per share for both Wellsford Common and
EQR Common. In so doing, J.P. Morgan applied a range of capitalization rates
from 8.5% to 9.5% to projections by Wellsford and EQR for the stabilized 1997
net operating income ("NOI") of the properties, including projected acquisitions
related NOI, in order to calculate a gross real estate value, to which was added
the gross value of other assets, excluding the Wellsford assets to be
contributed to WRP Newco, less each company's respective outstanding debt and
liabilities, to arrive at an equity NAV. The equity NAV per share was then
calculated by dividing the equity NAV by the number of common shares outstanding
for each company. This analysis indicated an NAV exchange ratio range for the
two companies of between 0.470 to 0.742, and an implied range for the price of
Wellsford Common of $19.96 to $31.54 per share, assuming a January 8, 1997
closing price of $42.50 per share for EQR Common.
WRP Newco Analysis. As a part of its opinion, J.P. Morgan reviewed the
------------------
terms of EQR's investments in and commitments to WRP Newco. These include the
following items: an agreement by EQR to invest $3.5 million in WRP Newco Common
at the time of the Merger in return for receiving an approximately 7.5% interest
in WRP Newco; a commitment to purchase up to $25 million of preferred stock with
an 8.0% dividend and 8.0% conversion premium; a 20.0% interest in the Palomino
Park development (10.0% received through the purchase of Wellsford, and an
additional 10.0% purchased for $1.5 million in cash); credit enhancement for
$14.8 million in bonds outstanding on Palomino Park; and a two-part standby
purchase obligation for Palomino Park Phases I and II. J.P. Morgan noted that
EQR is to be compensated at competitive market based rates for its investments
in WRP Newco.
The summary set forth above does not purport to be a complete description
of the analyses or data presented by J.P. Morgan. The preparation of a fairness
opinion is a complex process and is not necessarily susceptible to partial
analysis or summary description. J.P. Morgan believes that the summary set
forth above and their analyses must be considered as a whole and that selecting
portions thereof, without considering all of its analyses, could create an
incomplete view of the processes underlying its analyses and opinion. J.P.
Morgan based its analyses on assumptions that it deemed reasonable, including
assumptions concerning general business and economic conditions and industry-
specific factors. The other principal assumptions upon which J.P. Morgan based
its analyses are set forth above under the description of each such analysis.
J.P. Morgan's analyses are not necessarily indicative of actual values or actual
future results that might be achieved, which values may be higher or lower than
those indicated. Moreover, J.P. Morgan's analyses are not and do not purport to
be appraisals or otherwise reflective of the prices at which businesses actually
could be bought or sold.
As a part of its investment banking business, J.P. Morgan and its
affiliates are continually engaged in the valuation of businesses and their
securities in connection with Mergers and acquisitions, investments for passive
and control purposes, negotiated underwritings, secondary
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distributions of listed and unlisted securities, private placements, and
valuations for estate, corporate and other purposes. J.P. Morgan was selected
to deliver an opinion to EQR's Board of Trustees with respect to the Merger on
the basis of such experience and its familiarity with EQR.
For the delivery of its opinion, EQR has agreed to pay J.P. Morgan a fee of
$600,000. In addition, EQR has agreed to reimburse J.P. Morgan for its
reasonable expenses incurred in connection with its services, including the fees
and disbursements of counsel, and will indemnify J.P. Morgan against certain
liabilities, including liabilities arising under the Federal securities laws.
J.P. Morgan and its affiliates (including Morgan Guaranty Trust Company of
New York) maintain banking and other business relationships with EQR and its
affiliates and Wellsford, for which it receives customary fees. In the ordinary
course of their businesses, affiliates of J.P. Morgan may actively trade the
debt and equity securities of EQR or Wellsford for their own accounts or for the
accounts of customers and, accordingly, they may at any time hold long or short
positions in such securities.
Opinion of Financial Advisor - Wellsford
Wellsford. At the meeting of the Board of Trustees of Wellsford on January
16, 1997, Merrill Lynch delivered its written opinion to the Wellsford Board of
Trustees (the "Merrill Lynch Opinion"), to the effect that, as of such date and
based upon the assumptions made, matters considered and limits of review, the
proposed consideration to be received by Wellsford Common Shareholders pursuant
to the Merger and the Distribution was fair to such shareholders from a
financial point of view. No limitations were imposed by Wellsford's Board of
Trustees upon Merrill Lynch with respect to the investigations made or
procedures followed by it in rendering its opinion.
A copy of the Merrill Lynch Opinion which sets forth the assumptions made,
matters considered and certain limitations on the scope of review undertaken by
Merrill Lynch, is attached hereto as Appendix D and is incorporated by reference
herein. The description of the written opinion set forth herein is qualified in
its entirety by reference to the full text of the written opinion. Shareholders
of Wellsford are urged to read such opinion in its entirety.
THE MERRILL LYNCH OPINION IS ADDRESSED TO THE WELLSFORD BOARD OF TRUSTEES
AND ADDRESSES ONLY THE FAIRNESS FROM A FINANCIAL POINT OF VIEW OF THE PROPOSED
CONSIDERATION TO BE RECEIVED BY WELLSFORD COMMON SHAREHOLDERS PURSUANT TO THE
MERGER AND THE DISTRIBUTION AND DOES NOT CONSTITUTE, NOR SHOULD IT BE CONSTRUED
AS, A RECOMMENDATION TO ANY WELLSFORD COMMON SHAREHOLDER AS TO HOW SUCH
SHAREHOLDER SHOULD VOTE AT THE WELLSFORD SPECIAL MEETING. THE PROPOSED
CONSIDERATION TO BE RECEIVED BY WELLSFORD COMMON
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SHAREHOLDERS PURSUANT TO THE MERGER AND THE DISTRIBUTION WAS DETERMINED ON THE
BASIS OF NEGOTIATIONS BETWEEN WELLSFORD AND EQR AND WAS APPROVED BY THE
WELLSFORD BOARD OF TRUSTEES.
In connection with the preparation of the Merrill Lynch Opinion, Merrill
Lynch, among other things: (i) reviewed Wellsford's Annual Report on Form 10-K
and related financial information for the fiscal year ended December 31, 1995
and Wellsford's Reports on Form 10-Q and the related unaudited financial
information for the quarterly periods ended March 31, 1996, June 30, 1996 and
September 30, 1996; (ii) reviewed EQR's Annual Report on Form 10-K and related
financial information for the fiscal year ended December 31, 1995 and EQR's
Reports on Form 10-Q and the related unaudited financial information for the
quarterly periods ended March 31, 1996, June 30, 1996 and September 30, 1996;
(iii) reviewed certain information, including certain financial forecasts and
assumptions, relating to the business, earnings, cash flow, assets and prospects
of (A) Wellsford and WRP Newco and (B) EQR, furnished to it by Wellsford and
EQR, respectively; (iv) reviewed estimates of prospective synergies resulting
from the Merger prepared by the managements of Wellsford and EQR and discussed
such estimates with the managements of both companies; (v) conducted discussions
with members of senior management of Wellsford and EQR concerning the respective
businesses and prospects of (A) Wellsford and WRP Newco and (B) EQR; (vi)
reviewed the historical market prices and trading activity for Wellsford Common
and EQR Common and compared them with that of certain companies which Merrill
Lynch deemed to be reasonably similar to Wellsford and EQR, respectively; (vii)
compared the results of operations of Wellsford and EQR with that of certain
companies which Merrill Lynch deemed to be reasonably similar to Wellsford and
EQR, respectively; (viii) compared the proposed financial terms of the Merger
with the financial terms of certain other mergers and acquisitions which Merrill
Lynch deemed to be relevant; (ix) considered the pro forma effect of the Merger
on the combined entity's capitalization ratios and earnings, cash flow and book
value per share; (x) reviewed the Merger Agreement; (xi) reviewed the financial
terms of the Contribution and Distribution as set forth in the Merger Agreement
and the forms of Contribution and Distribution Agreement and Stock Purchase
Agreement attached as exhibits thereto; and (xii) reviewed such other financial
studies and analyses and performed such other investigations and took into
account such other matters as Merrill Lynch deemed necessary, including its
assessment of general economic, market and monetary conditions.
In preparing the Merrill Lynch Opinion, Merrill Lynch relied on the
accuracy and completeness of all information supplied or otherwise made
available to it by Wellsford and EQR, and did not independently verify such
information or undertake an independent appraisal or evaluation of the assets or
liabilities of Wellsford or EQR. With respect to the financial forecasts,
assumptions and estimates of prospective synergies resulting from the Merger
furnished by Wellsford and the financial forecasts, assumptions and estimates of
prospective synergies resulting from the Merger furnished by EQR, Merrill Lynch
assumed that they had been reasonably prepared and reflected the best currently
available estimates and judgment of Wellsford's or EQR's management as to the
expected future financial performance of Wellsford,
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WRP Newco or EQR, as the case may be. Merrill Lynch further assumed that the
Merger will qualify as a tax-free reorganization to the holders of Wellsford
Common (except to the extent, if any, of cash received in lieu of fractional
shares). In addition, Merrill Lynch further assumed that the Distribution will
be consummated without any material modification to the terms set forth in the
forms of Contribution and Distribution Agreement and Stock Purchase Agreement
reviewed by it.
In connection with rendering its opinion, Merrill Lynch was not authorized
to, and did not, solicit indications of interest from third parties to purchase
the outstanding Wellsford Common or otherwise enter into a business combination
with Wellsford. Merrill Lynch's opinion as to the fairness from a financial
point of view of the proposed consideration to be received by holders of
Wellsford Common addresses the ownership position in the combined entity to be
received by the holders of Wellsford Common pursuant to the Merger on the terms
set forth in the Merger Agreement based upon the relative contributions of
Wellsford and EQR to the combined entity and after giving effect to the
Contribution and Distribution. Merrill Lynch expressed no opinion as to prices
at which the Survivor Common or the WRP Newco Common will trade following the
consummation of the Contribution and Distribution and the Merger or prices which
could be obtained for the Survivor Common in a sale of the combined entity
following the consummation of the Merger. Merrill Lynch did not consider, and
its opinion does not address, the tax consequences of the Distribution to the
holders of Wellsford Common. The Merrill Lynch Opinion does not address the
relative merits of the Merger as compared with any other business plan or
opportunity that might be presented to Wellsford, including alternative business
combinations with third parties, or the effect of any other arrangement in which
Wellsford might engage.
At the meeting of the Wellsford Board of Trustees held on January 16, 1997,
Merrill Lynch presented certain financial analyses accompanied by written
materials in connection with the delivery of its fairness opinion. The
following is a summary of the material financial and comparative analyses
performed by Merrill Lynch in arriving at its opinion.
Historical Trading Performance and Current Capitalization. Merrill Lynch
reviewed certain trading information for each of Wellsford and EQR and, on the
basis thereof, calculated their respective market values, market capitalizations
and trading multiples based on stock prices as of January 14, 1997 of $24.63 for
Wellsford and $42.88 for EQR. For this purpose, Merrill Lynch defined "total
market capitalization" as market value of the relevant company's common equity
(including operating partnership units), plus preferred stock at liquidation
value plus total debt less cash. Merrill Lynch then calculated the market value
of each of Wellsford and EQR as a multiple of projected FFO (based on mean First
Call estimates) and Adjusted Funds From Operations ("AFFO") (based on estimates
from Merrill Lynch Research). For Wellsford, the FFO multiples for 1996 and
1997 were 11.7x and 11.0x, respectively, and the AFFO multiples for 1996 and
1997 were 12.6x and 11.8x, respectively. For EQR, the FFO multiples for 1996
and 1997 were 13.8x and 12.5x, respectively, and the AFFO multiples for 1996 and
1997 were 16.0x and 14.4x, respectively.
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Merrill Lynch also reviewed the share price history for Wellsford for the
period January 7, 1996 through January 10, 1997, and for EQR for the period
January 7, 1996 through January 9, 1997 and noted certain events and public
announcements made by the respective companies during such periods.
Analysis of Selected Comparable Publicly Traded Companies. Using publicly
available information and estimates of future financial results published by
First Call and taken from Merrill Lynch Research, Merrill Lynch compared certain
financial and operating information and ratios for both Wellsford and EQR with
the corresponding financial and operating information for a group of publicly
traded companies engaged primarily in the ownership, management, operation and
acquisition of multifamily properties which Merrill Lynch deemed to be
reasonably comparable to Wellsford and EQR. For the purpose of its analyses,
the following companies were used as comparable companies to Wellsford: Evans
Withycombe Residential, Inc., Amli Residential Properties Trust, Camden Property
Trust, Oasis Residential, Inc. and Apartment Investment & Management Co.
(collectively, the "Wellsford Comparable Companies"); and the following
companies were used as comparable companies to EQR: Security Capital Pacific
Trust, United Dominion Realty Trust, Inc., Wellsford, Merry Land & Investment
Co., Inc., Security Capital Atlantic, Inc. and Apartment Investment & Management
Co. (collectively, the "EQR Comparable Companies").
Merrill Lynch's calculations resulted in the following relevant ranges for
the Wellsford Comparable Companies and for Wellsford as of January 14, 1997: a
range of debt to total market capitalization of 32.3% to 43.1%, with a mean of
40.8% (with Wellsford at 37.2%); a range of dividend yields of 6.4% to 7.5%,
with a mean of 7.1% (with Wellsford at 7.9%); a range of 1996 AFFO payout ratios
of 87.6% to 102.6%, with a mean of 95.4% calculated on the basis of projected
results for 1996 (with Wellsford at 99.0%); a range of market value as a
multiple of projected 1996 FFO of 11.1x to 11.9x, with a mean of 11.5x (with
Wellsford at 11.7x); a range of market value as a multiple of projected 1997 FFO
of 10.1x to 11.3x, with a mean of 10.7x (with Wellsford at 11.0x); a range of
market value as a multiple of projected 1996 AFFO of 12.6x to 13.9x, with a mean
of 13.2x (with Wellsford at 12.6x); and a range of market value as a multiple of
projected 1997 AFFO of 11.5x to 13.1x, with a mean of 12.2x (with Wellsford at
11.8x).
Merrill Lynch's calculations resulted in the following relevant ranges for
the EQR Comparable Companies and for EQR as of January 14, 1997: a range of
dividend yields of 5.8% to 7.9%, with a mean of 6.5% (with EQR at 5.8%); a range
of debt to total market capitalization of 11.5% to 42.9%, with a mean of 31.7%
(with EQR at 27.9%); a range of 1996 AFFO payout ratios of 82.2% to 99.0%, with
a mean of 90.2% calculated on the basis of projected results for 1996 (with EQR
at 93.3%); a range of market value as a multiple of projected 1996 FFO of 10.9x
to 15.5x, with a mean of 12.6x (with EQR at 13.8x); a range of market value as a
multiple of projected 1997 FFO of 10.1x to 14.6x, with a mean of 11.8x (with EQR
at 12.5x); a range of market value as a multiple of projected 1996 AFFO of 12.2x
to
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15.5x, with a mean of 13.7x (with EQR at 16.0x); and a range of market value as
a multiple of projected 1997 AFFO of 11.8x to 14.0x, with a mean of 13.0x (with
EQR at 14.4x).
None of the companies utilized in the above analysis for comparative
purposes is, of course, identical to Wellsford or EQR. Accordingly, a complete
analysis of the results of the foregoing calculations cannot be limited to a
quantitative review of such results and involves complex considerations and
judgments concerning differences in financial and operating characteristics of
the Wellsford Comparable Companies and the EQR Comparable Companies, and other
factors that could affect the public trading value of the Wellsford Comparable
Companies and the EQR Comparable Companies, as well as that of Wellsford or EQR.
In addition, the multiples of market value to estimated 1996 and projected 1997
FFO and AFFO for the Wellsford Comparable Companies and the EQR Comparable
Companies are based on projections prepared by research analysts using only
publicly available information. Accordingly, such estimates may or may not
prove to be accurate.
Comparable Transactions Analysis. Merrill Lynch also compared certain
financial ratios of the Merger with those of selected other mergers and
strategic transactions involving REITs which Merrill Lynch deemed to be
reasonably comparable to the Merger. These transactions were Camden Property
Trust's proposed merger with Paragon Group, Inc., Chateau Properties, Inc.'s
merger with ROC Communities, Inc., United Dominion Realty, Inc.'s merger with
South West Property Trust Inc., Highwoods Properties Inc.'s acquisition of
Crocker Realty Trust, Inc., Simon Property Group, Inc.'s merger with DeBartolo
Realty Corporation, Bradley Real Estate Inc.'s merger with Tucker Properties
Corp., BRE Properties Inc.'s Merger with REIT of California, Horizon Outlet
Center Inc.'s merger with McArthur Glen Realty Corp., Mid America Apartment
Communities Inc.'s merger with America First REIT, Inc. and Wellsford's merger
with Holly Residential Properties, Inc.
Using publicly available information and estimates of financial results as
published by First Call, Merrill Lynch calculated the premium of the implied
offer value per share relative to the acquired company's stock price on the day
before announcement of the respective transaction and the implied value per
share for the acquired company, as of the day before the announcement of the
respective transaction, as a multiple of the projected FFO per share for such
company. This analysis yielded a range of premiums/(discounts) of (0.8%) to
38.0% with a mean of 12.2% and a range of transaction FFO multiples of 6.6x to
15.5x with a mean of 10.2x.
Merrill Lynch observed that, based on the closing price of EQR Common on
the NYSE of $42.88 per share as of January 14, 1997, the Exchange Ratio yielded
an implied offer value in the Merger of $26.80 per share of Wellsford Common.
Together with the per share valuation range for Newco Common of $2.43 to $2.82,
the implied premium range of the aggregate consideration to be received in the
Merger and the Distribution over the closing market price of Wellsford Common on
January 14, 1997 was 18.7% to 20.3% and represented a range of
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implied offer values in the Merger and the Distribution for the Wellsford Common
as a multiple of Wellsford's projected 1997 FFO of 12.2x to 12.4x.
Discounted Cash Flow Analysis. Merrill Lynch performed discounted cash
flow analyses (i.e., an analysis of the present value of the projected levered
cash flows for the periods and using the discount rates indicated) of Wellsford
based upon projections provided by Wellsford's management of Wellsford's
dividends, FFO and AFFO for the years 1997 through 2001, inclusive, using
discount rates reflecting an equity cost of capital ranging from 15.0% to 17.0%
and terminal value multiples of calendar year 2001 FFO ranging from 10.5x to
12.5x and terminal value multiples of calendar year 2001 AFFO ranging from 11.5x
to 13.5x. The range of present values per Wellsford share was $22.07 to $27.85
using the FFO and AFFO discounted dividend methods and $24.50 to $29.47 based
upon the discounted AFFO method.
Merrill Lynch also performed discounted cash flow analyses of EQR based
upon projections and assumptions provided by EQR's management of EQR's
dividends, FFO and AFFO for the years 1997 through 2001, inclusive, using
discount rates reflecting an equity cost of capital ranging from 14.0% to 16.0%
and terminal value multiples of calendar year 2001 FFO ranging from 12.5x to
14.5x and terminal value multiples of calendar year 2001 AFFO ranging from 14.0x
to 16.0x. The range of present values per EQR share was $36.63 to $44.51 using
the FFO and AFFO discounted dividend methods and $39.89 to $47.41 based upon the
discounted AFFO method.
Net Asset Valuation Analysis. Merrill Lynch performed a net asset
valuation for Wellsford based on an asset-by-asset real estate valuation of
Wellsford's properties, an estimation of the current value for Wellsford's other
assets and liabilities, and an estimation of Wellsford's debt balances as of
December 31, 1996. The real estate valuation utilized property specific
projections prepared by Wellsford's management for the year 1997. For the
operating portfolio of Wellsford, the valuation utilized the direct
capitalization method on 1997 property net operating income after capital
reserves and a range of capitalization rates of 8.50% to 9.25%. These
calculations indicated a per share net asset valuation range for Wellsford of
$25.58 to $28.27.
Merrill Lynch also performed a net asset valuation for EQR based on an
asset-by-asset real estate valuation of EQR's properties, an estimation of the
current values for EQR's other assets and liabilities, and an estimation of
EQR's debt balances as of December 31, 1996. The real estate valuation utilized
property specific projections prepared by EQR's management for the year 1997.
For the operating portfolio of EQR, the valuation utilized the direct
capitalization method on 1997 property net operating income after capital
reserves and a range of capitalization rates of 8.25% to 9.25%. These
calculations indicated a per share net asset valuation range for EQR of $32.53
to $35.95.
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Merrill Lynch also performed a net asset valuation for WRP Newco based on
an asset-by-asset valuation. Merrill Lynch arrived at a range of values by
summing the following: (i) the implied value range for WRP Newco's interest in
the Sonterra Assets, (ii) the implied value range for WRP Newco's interest in
Palomino Park, net of associated liabilities, and (iii) cash and cash
equivalents less total debt. These calculations indicated a per share net asset
valuation range for WRP Newco Common of $2.43 to $2.82, of which amount $1.45
was attributable to cash and cash equivalents.
Relative Discounted Cash Flow Analysis. Merrill Lynch utilized the results
of the discounted cash flow analyses of Wellsford and EQR described above after
adjusting the projections relating to Wellsford to give effect to the
Distribution (as so adjusted, the "Post-Distribution Wellsford") to calculate a
range of implied exchange ratios based on a comparison of the relative ranges of
value for EQR and Post-Distribution Wellsford. When the low Post-Distribution
Wellsford discounted cash flow value was compared to the high EQR discounted
cash flow value and the high Post-Distribution Wellsford discounted cash flow
value was compared to the low EQR discounted cash flow value, the analysis
yielded an implied exchange ratio range of 0.442 to 0.660. The Exchange Ratio
under the Merger Agreement is set at .625, subject to adjustment as set forth in
the Merger Agreement.
Contribution Analysis. Merrill Lynch observed that Wellsford Common
Shareholders would own 15.3% of the common shares of the combined entity
outstanding after the Merger and Distribution (assuming an Exchange Ratio of
.625), after giving effect to the issuance of the Merger consideration. Merrill
Lynch reviewed certain projected operating and financial information, including,
among other things, FFO and AFFO for Post-Distribution Wellsford, EQR and the
pro forma combined entity without giving effect to potential transaction
synergies. Merrill Lynch observed that in 1997, 1998 and 1999 Post-Distribution
Wellsford would contribute (without giving effect to potential transaction
synergies) 16.0%, 14.1% and 13.2% to the combined entity's FFO, respectively,
and 16.6%, 14.6% and 13.6% to the combined entity's AFFO, respectively. Merrill
Lynch also reviewed the relative contributions to the pro forma combined net
asset valuation. The analysis indicated that Post-Distribution Wellsford would
contribute 17.1% of the combined net asset value based upon the midpoints of the
net asset value ranges.
Pro Forma Combination Analysis. Merrill Lynch analyzed the pro forma
effects resulting from the Merger, including the potential impact on EQR's
projected stand alone FFO per share and the anticipated accretion (i.e., the
incremental increase) to EQR's FFO per share resulting from the Merger. Merrill
Lynch observed that, after giving effect to Wellsford management's estimates of
potential transaction synergies, the Merger would be accretive to EQR's
projected FFO per share in each of the years 1997 through 1999, inclusive.
Merrill Lynch also observed that the indicated annual dividend per Wellsford
share pro forma for the Merger would be $1.56 per Wellsford share, or a 19.5%
implied reduction in Wellsford's current indicated dividend rate.
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Capitalization. In addition, Merrill Lynch compared EQR's book
capitalization as of December 31, 1996 to (i) its book capitalization as of
December 31, 1996 pro forma for the Merger and (ii) based on projections of
Wellsford and EQR managements, EQR's book capitalization as of December 31, 1997
pro forma for the Merger. The total debt to book equity ratio was 87.1%, 79.4%
and 80.5% as of December 31, 1996, pro forma December 31, 1996 and pro forma
December 31, 1997, respectively. The total debt to capitalization ratio was
46.6%, 44.2% and 44.6% as of such respective dates. Earnings before interest,
taxes, depreciation and amortization ("EBITDA") as a multiple of interest
expense was 3.2x, 3.3x and 3.5x as of such respective dates, EBITDA as a
multiple of fixed charges was 2.4x, 2.4x and 2.5x as of such respective dates,
EBITDA less capital expenditures as a multiple of interest expense was 3.0x,
3.1x and 3.2x as of such respective dates and EBITDA less capital expenditures
as a multiple of fixed charges was 2.2x, 2.3x and 2.3x as of such respective
dates. Additionally, based on projections of Wellsford's management for WRP
Newco, Merrill Lynch observed that the total debt to capitalization ratio of WRP
Newco as of December 31, 1997 was 25.4%.
The summary set forth above does not purport to be a complete description
of the analyses performed by Merrill Lynch in arriving at its opinion. The
preparation of a fairness opinion is a complex process and not necessarily
susceptible to partial or summary description. Merrill Lynch believes that its
analyses must be considered as a whole and that selecting portions of its
analyses and of the factors considered by it, without considering all factors
and analyses, could create a misleading view of the processes underlying its
analyses set forth in its opinion. In its analyses, Merrill Lynch made numerous
assumptions with respect to industry performance, general business and economic
conditions and other matters, many of which are beyond EQR's, Wellsford's and
Merrill Lynch's control. Any estimates contained in Merrill Lynch's analyses
are not necessarily indicative of actual values, which may be significantly more
or less favorable than as set forth therein. 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 such estimates are inherently subject
to uncertainty.
The Wellsford Board of Trustees selected Merrill Lynch to render a fairness
opinion because Merrill Lynch is an internationally recognized investment
banking firm with substantial experience in transactions similar to the Merger
and because it is familiar with Wellsford and its business. Merrill Lynch has
from time to time rendered investment banking, financial advisory and other
services to Wellsford and EQR for which it has received customary compensation.
Merrill Lynch is continually engaged in the valuation of businesses and their
securities in connection with Mergers and acquisitions, leveraged buyouts,
negotiated underwritings, secondary distributions of listed and unlisted
securities and private placements.
Pursuant to a letter agreement dated January 14, 1997, Wellsford has agreed
to pay Merrill Lynch fees as follows: (i) a cash fee of $500,000 payable upon
the delivery of the Merrill Lynch Opinion, and (ii) an additional cash fee of $2
million (less any fees paid to Merrill Lynch pursuant to (i) above) to be paid
upon the Closing of the Merger. WRP Newco has
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agreed with Wellsford to be responsible for $250,000 of such fees. Wellsford
also agreed to reimburse Merrill Lynch for its reasonable out-of-pocket expenses
incurred in connection with its advisory work, including the reasonable fees and
disbursements of its legal counsel, subject to certain limitations, and to
indemnify Merrill Lynch and certain related persons against certain liabilities
arising out of or in conjunction with its rendering of services under its
engagement, including certain liabilities under the federal securities laws.
In the ordinary course of its business, Merrill Lynch may actively trade in
the securities of Wellsford and EQR for its own account and the account of its
customers and, accordingly, may at any time hold a long or short position in
such securities.
Effective Time of the Merger
If the Merger is approved by the requisite vote of shareholders of
Wellsford and shareholders of EQR, and the other conditions to the Merger are
satisfied or waived, the Merger will become effective at the time the Department
accepts the Articles for record or at a different time established in the
Articles, not to exceed 30 days after the Articles are accepted for record by
the Department. It is presently anticipated that such filing and acceptance
will be made on or about _________, 1997, and that the Effective Time of the
Merger will occur on such date unless a different date is specified in the
Articles, as discussed above, although there can be no assurance as to whether
or when the Merger will occur. The Articles are attached hereto as Appendix B.
See "--Representation and Warranties; Conditions to the Merger."
Representations and Warranties; Conditions to the Merger
The Merger Agreement contains representations and warranties by EQR and
Wellsford regarding, among other things, their organization and good standing,
capitalization, ownership and capitalization of their subsidiaries,
qualification to do business, authority to enter into the Merger Agreement and
related agreements, filings with the Commission, reliability of financial
statements, compliance with applicable laws and regulations, taxation and
qualification as a REIT, properties, development rights (with respect to
Wellsford only), environmental matters, contracts, debt instruments, employee
benefit plans, undisclosed liabilities and the absence of certain legal
proceedings and other events, including material adverse changes in the parties'
businesses, financial condition or results of operations. These representations
and warranties will not survive the Effective Time.
The respective obligations of EQR and Wellsford to effect the Merger are
subject to the following conditions: (i) approval of the Merger Agreement, and
the transactions contemplated therein, by the shareholders of Wellsford and EQR,
(ii) approval by the NYSE of the listing of the shares of Survivor Common to be
issued in the Merger, (iii) the Registration Statement shall not be the subject
of any stop order or proceeding by the Commission seeking a stop order, (iv) no
injunctions or restraints shall have been issued by any court of competent
jurisdiction preventing the consummation of the Merger, (v) all state securities
laws shall have been
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complied with, (vi) execution of the Contribution and Distribution Agreement,
(vii) execution of the Common and Preferred Stock Purchase Agreement between ERP
Operating Partnership and WRP Newco (the "Stock Purchase Agreement"), (viii)
execution of the Palomino Credit Enhancement Agreement between ERP Operating
Partnership and WRP Newco, (ix) execution of the Sonterra Right of First Offer
Agreement between WRP Newco and ERP Operating Partnership, (x) execution of the
Palomino Agreement between WRP Newco and ERP Operating Partnership, (xi)
execution of the Transaction and Termination Costs Agreement among EQR,
Wellsford and WRP Newco, (xii) execution of the Consulting Agreements of Jeffrey
H. Lynford and Edward Lowenthal and (xiii) the receipt of the opinion of Ballard
Spahr Andrews & Ingersoll to the effect that the Merger Agreement and Articles
are enforceable under Maryland law.
The obligations of Wellsford and EQR to effect the Merger are subject to
the following additional conditions: (i) all representations and warranties
made by the parties shall be true and correct as of the Closing Date, which
shall be deemed the case unless the breach of such representations and
warranties, in the aggregate, could reasonably be expected to have a material
adverse effect with respect to such parties, (ii) each party shall have
performed its obligations under the Merger Agreement, (iii) as of the Closing
Date, neither party, nor any of their subsidiaries, will have suffered a
material adverse change in its business, financial condition or results of
operations taken as a whole (a "Material Adverse Change"), (iv) each party shall
have received an opinion of counsel from counsel to the other party stating that
commencing with its taxable year ended December 31, 1993, its client was
organized and has operated in conformity with the requirements for qualification
as a REIT under the Code, (v) each party shall have received an opinion of
counsel dated as of the closing date, to the effect that the Merger will qualify
as a reorganization under the provisions of Section 368(a) of the Code, (vi)
each party shall have received a "comfort letter" from the other party's
accountants, (vii) each party shall have received an opinion from counsel to the
other party addressing certain issues as set out in the Merger Agreement, and
(viii) the receipt of all consents and waivers from third parties necessary in
connection with the consummation of the transactions contemplated by the Merger
Agreement.
The obligation of EQR to effect the Merger is further subject to the
following conditions: (i) unless Wellsford Holly Management, Inc. ("Wellsford
Management Inc.") is dissolved before the Closing Date, the voting shares of
Wellsford Management Inc. shall have been transferred to EQR's designees as
provided for in the Merger Agreement, (ii) certain executives of Wellsford who
have agreed to the conversion of their options to purchase Wellsford Common into
options to purchase WRP Newco Common will have executed agreements releasing the
Surviving Trust from any obligations of Wellsford to them under options to
purchase Wellsford Common which are exchanged for or converted into options to
purchase WRP Newco Common, (iii) the Articles of Incorporation of WPHC shall
have been amended to modify its equity structure as provided in the Merger
Agreement and (iv) Wellsford's ownership interest in WPHC immediately prior to
the Distribution by Wellsford of WRP Newco Common shall consist solely of 80
voting shares of WPHC and 20 non-voting shares of WPHC.
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Appraisal Rights
Shareholders of Wellsford and shareholders of EQR are not entitled to
dissenting shareholders' appraisal rights under Maryland law. Maryland law does
not provide appraisal rights to shareholders of a real estate investment trust
in connection with a merger if their shares are listed on a national securities
exchange, such as the NYSE, on the record date for determining shareholders
entitled to vote on such merger. All of the shares of EQR and Wellsford
outstanding on the record date for determining the shareholders entitled to vote
on the Merger were listed on the NYSE.
Regulatory Matters
EQR and Wellsford believe that the Merger may be consummated without
notification being given or certain information being furnished to the Federal
Trade Commission (the "FTC") or the Antitrust Division of the Department of
Justice (the "Antitrust Division") pursuant to the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended ("HSR Act"), and that no waiting period
requirements under the HSR Act are applicable to the Merger. However, at any
time before or after the Effective Time, either the Antitrust Division or the
FTC could take such action under the antitrust laws as it deems necessary or
desirable in the public interest, or certain other persons could take action
under the antitrust laws, including seeking to enjoin the Merger. EQR and
Wellsford believe that consummation of the Merger would not violate any
antitrust laws. However, there can be no assurance that a challenge to the
Merger on antitrust grounds will not be made or, if a challenge is made, what
the result will be.
Termination Provisions
The Merger Agreement provides that it may be terminated at any time prior
to the filing of the Articles with the Department, whether before or after
approval of the Merger by the shareholders of Wellsford and EQR, by mutual
written consent, duly authorized by the Boards of Trustees of EQR and Wellsford.
In addition, the Merger Agreement may be terminated by EQR or Wellsford (i) if
the Merger has not been consummated by August 1, 1997 (provided the terminating
party will not have breached in any material respect its obligations under the
Merger Agreement in any manner that will have proximately contributed to the
occurrence of such failure), (ii) upon a breach of any representation, warranty,
covenant, obligation or agreement, on the part of the non-terminating party set
forth in the Merger Agreement, such that certain conditions set forth in the
Merger Agreement would be incapable of being satisfied by August 1, 1997, (iii)
if the requisite vote of the shareholders of EQR or Wellsford will not have been
obtained at the meeting of such shareholders, or (iv) if an order, decree,
ruling or other action permanently restraining, enjoining or otherwise
prohibiting the transactions contemplated by the Merger Agreement will have
become final and non-appealable.
The Merger Agreement may be terminated by Wellsford, if prior to the
Wellsford Special Meeting, the Wellsford Board of Trustees withdraws or modifies
its approval or recommendation
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of the Merger in connection with, or approves or recommends, a Superior
Acquisition Proposal (as defined hereinafter). The Merger Agreement may be
terminated by EQR if (i) prior to the Wellsford Special Meeting, the Wellsford
Board of Trustees withdraws or modifies in any manner adverse to EQR its
approval or recommendation of the Merger or the Merger Agreement in connection
with, or approves or recommends, a Superior Acquisition Proposal, or (ii)
Wellsford enters into a definitive agreement with respect to any Acquisition
Proposal.
The Merger Agreement defines an "Acquisition Proposal" as 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, Wellsford or any of its subsidiaries, other than the
transactions contemplated by the Merger Agreement. The Merger Agreement defines
a "Superior Acquisition Proposal" as a bona fide acquisition proposal by a third
party which a majority of the members of the Wellsford Board of Trustees
determines in good faith to be more favorable to Wellsford's shareholders from a
financial point of view than the Merger and which the Board of Trustees of
Wellsford determines is reasonably capable of being consummated.
Termination Fee and Expenses
The Merger Agreement provides for certain payments by Wellsford to EQR in
connection with the termination of the Merger Agreement. These payments are (i)
a Break-Up Fee of $14 million, plus (ii) Break-Up Expenses equal to the out-of-
pocket expenses incurred in connection with the Merger Agreement and the
transactions contemplated thereunder, up to a maximum of $2.5 million. If the
Merger Agreement is terminated due to the Wellsford Board of Trustees having
withdrawn or modified its approval or recommendation of the Merger or the Merger
Agreement in connection with, or having approved or recommended a Superior
Acquisition Proposal, or if Wellsford will have entered into a definitive
agreement with respect to any Acquisition Proposal, Wellsford is obligated to
pay EQR the Break-Up Fee. Additionally, if the Merger Agreement is terminated
due to a breach of any representation, warranty, covenant, obligation or
agreement by Wellsford or EQR, or failure by either Wellsford or EQR to obtain
the required shareholder approval, then the breaching party, or the party which
failed to obtain such shareholder approval, shall pay to the other party an
amount equal to the Break-Up Expenses. If the Merger is not consummated, other
than due to the termination of the Merger Agreement by (i) the mutual written
consent of the respective Boards of Trustees of EQR and Wellsford, (ii) either
party, upon the failure by EQR to obtain the required shareholder approval, or
(iii) Wellsford, upon a breach of any representation, warranty, covenant,
obligation or agreement on the part of EQR resulting in a "material adverse
effect" to EQR, and either prior to the termination of the Merger Agreement or
within 12 months thereafter, Wellsford or any of its subsidiaries enters into
any written Acquisition Proposal which is subsequently consummated, Wellsford is
required to pay the Break-Up Fee to EQR, as compensation and liquidated damages
for the loss suffered by EQR as a result of the failure of the Merger to be
consummated and to avoid the difficulty of determining damages under the
circumstances. Neither party shall have any liability to the other after payment
of the Break-Up Fee.
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Except as described above, all costs and expenses incurred in connection
with the Merger Agreement and the transactions contemplated thereby (the
"Transaction Costs") will be allocated between EQR and the Surviving Trust. If
the portion of the Transaction Costs allocated to the Surviving Trust exceeds an
amount specified in the Merger Agreement, WRP Newco will be obligated to
reimburse the Surviving Trust for such excess amount. If WRP Newco becomes
obligated to reimburse the Surviving Trust in the manner described above, the
funds contributed to WRP Newco by Wellsford under the Contribution and
Distribution Agreement will be decreased by an amount equal to the amount which
WRP Newco is obligated to reimburse the Surviving Trust.
No Solicitation of Other Transactions
Wellsford has agreed that (i) it and its subsidiaries will not, and it will
use its best efforts not to permit its officers, trustees, employees, agents or
financial advisors to initiate, solicit or 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 transactions involving all or any significant portion
of the assets or any equity securities of, it or any of its subsidiaries, other
than the transactions contemplated by the Merger Agreement and (ii) it will
notify EQR immediately if Wellsford receives any such inquiries or proposals, or
any requests for such information, or if any negotiations or discussions are
sought to be initiated or continued with it with respect to any of the
foregoing. The Merger Agreement does not, however, prohibit a party from
entering into discussion with respect to an unsolicited proposal if the Board of
Trustees of that party determines that such action is required by its duties to
its shareholders imposed by law.
EQR has agreed that if it enters into negotiations with another entity
having a class of equity securities registered under the Exchange Act regarding
the acquisition of such entity (whether effected through a merger,
consolidation, share exchange, tender offer or other form), then at least three
(3) business days prior to executing any definitive agreement with such entity
with respect to such acquisition or making a tender offer for the shares or
other ownership interests of such entity, EQR shall notify Wellsford of such
transaction and consult with Wellsford with respect thereto, it being
understood, however, that Wellsford shall have no approval rights with respect
thereto.
Conversion of Shares
Each share of Wellsford Common outstanding immediately prior to the
Effective Time will be converted into .625 of a share of Survivor Common. All
such shares of Wellsford Common, when so converted, will cease to be outstanding
and will automatically be cancelled and retired and each holder of a certificate
representing any such shares will cease to have any rights with respect thereto,
except the right to receive the shares of Survivor Common and any cash, without
interest, in lieu of fractional shares to be issued or paid in consideration
therefor
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upon the surrender of such certificate in accordance with the Merger Agreement,
as well as dividends and distributions declared with a record date after the
Effective Time.
Each share of Wellsford Preferred, consisting of Wellsford Series A and
Wellsford's Series B Cumulative Redeemable Preferred Shares of Beneficial
Interest ("Wellsford Series B"), outstanding immediately prior to the Effective
Time will continue as a preferred share of the Surviving Trust with its same
preferences and other terms except that each share of Wellsford Series A will be
redesignated as one share of Series D Convertible Preferred Share of Beneficial
Interest in the Surviving Trust ("Survivor Series D") and each share of
Wellsford Series B will be redesignated as one share of Series E Cumulative
Redeemable Preferred Share of Beneficial Interest in the Surviving Trust
("Survivor Series E"); provided, however, that the conversion ratio for Survivor
Series D shall be adjusted in accordance with its terms. At the Effective Time,
each certificate representing outstanding shares of Wellsford Series A and
Wellsford Series B will cease to have any rights with respect to such shares,
except the right to receive a certificate of the Surviving Trust representing an
equal number of Survivor Series D or Survivor Series E, as the case may be.
Each share of EQR Common outstanding immediately prior to the Effective
Time will be converted into and continue as one share of Survivor Common. At
the Effective Time, each certificate representing shares of EQR Common will
thereafter represent an equal number of shares of Survivor Common.
Each share of EQR Preferred, consisting of 9 1\8% Series A Cumulative
Redeemable Preferred Shares of Beneficial Interest, $.01 par value per share
(the "Series A Preferred Shares"), 9 1\8% Series B Cumulative Redeemable
Preferred Shares of Beneficial Interest, $.01 par value per share (the "Series B
Preferred Shares"), and 9 1\8% Series C Cumulative Redeemable Preferred
Shares of Beneficial Interest, $.01 par value per share (the "Series C Preferred
Shares"), outstanding immediately prior to the Effective Time will be converted
into and continue with its same preferences as one share of the Surviving
Trust's 9 3\8% Series A Cumulative Redeemable Preferred Shares of
Beneficial Interest ("Survivor Series A"), the Surviving Trust's 9 1\8%
Series B Cumulative Redeemable Preferred Shares of Beneficial Interest
("Survivor Series B") or the Surviving Trust's 9 1\8% Series C Cumulative
Redeemable Preferred Shares of Beneficial Interest ("Survivor Series C"),
respectively. At the Effective Time, each certificate evidencing outstanding
shares of Series A Preferred Shares, Series B Preferred Shares or Series C
Preferred Shares will thereafter evidence an equal number of shares of Survivor
Series A, Survivor Series B or Survivor Series C, respectively.
The issuance, terms and conditions of the Survivor Common and the Survivor
Preferred (collectively, the "Survivor Shares") will be governed by the
Surviving Trust's Declaration. For a detailed description of the provisions of
the Surviving Trust's Declaration, see "Comparison of Rights of Shareholders."
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Appointment of Exchange Agent
In order to facilitate distribution of certificates representing shares of
the Surviving Trust to Wellsford shareholders, the Surviving Trust will appoint
Boston EquiServe LLP, an affiliate of First National Bank of Boston, to act as
Exchange Agent in connection with the Merger. The Exchange Agent will enter
into an agreement with EQR and Wellsford pursuant to which it will agree to act
as agent for purposes of distributing the certificates representing shares of
the Surviving Trust to Wellsford shareholders.
Exchange of Certificates
Wellsford shareholders should not tender their certificates representing
Wellsford shares with their proxy. Promptly after the Effective Time, the
Exchange Agent will mail to all Wellsford shareholders transmittal materials,
including a letter of transmittal (the "Letter of Transmittal") for use in
exchanging certificates evidencing Wellsford Shares for certificates evidencing
Survivor Shares. As soon as practicable after the Letter of Transmittal is
properly completed and returned, along with the certificates evidencing
Wellsford Shares, to the Exchange Agent, the person specified in the Letter of
Transmittal will receive certificates for the number of whole shares of Survivor
Shares and, to the extent applicable, any cash in lieu of fractional shares of
Survivor Common, to which such person is entitled as a result of the Merger.
The Letter of Transmittal is expected to provide instructions for shareholders
who have lost or misplaced their certificates and wish to tender their shares.
Each Survivor Share for which Wellsford Shares are exchanged in the Merger
will be deemed to have been issued at the Effective Time. Accordingly,
Wellsford shareholders who receive Survivor Shares in the Merger will be
entitled to receive any dividends or other distributions which may be payable to
all holders of record of Survivor Shares with respect to any record date after
the Effective Time. No holder of Wellsford Shares will be entitled to receive
Survivor Shares or cash in lieu of fractional Survivor Common, and no dividends
or other distributions will be paid with respect to any Survivor Shares, until
the certificate or certificates formerly representing such holder's Wellsford
Shares have been surrendered in accordance with the procedures described above.
At the time such surrender has been accomplished, a certificate representing the
appropriate number of Survivor Shares will be issued and accrued dividends and
other distributions on such Survivor Shares will be paid without interest.
Existing shareholders of EQR are not required to tender their certificates
representing EQR Shares. Certificates for EQR Shares will represent the same
number and type of Survivor Shares.
Conduct of Business Pending the Merger
Except as (i) contemplated by the Merger Agreement, (ii) necessary to
accomplish the Distribution, (iii) as disclosed to EQR, or (iv) consented to in
writing by EQR, Wellsford will, and will cause each of its subsidiaries to: (a)
conduct its business only in the usual, regular and
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ordinary course and in substantially the same manner as before the date of the
Merger Agreement, (b) use reasonable efforts to preserve intact its business
organizations and goodwill and keep available the services of its officers and
employees, (c) confer on a regular basis with one or more representatives of EQR
to report operational matters of materiality and, subject to certain
qualifications, any proposals to engage in material transactions, (d) promptly
notify EQR of any material emergency or other material change in the condition
(financial or otherwise), business, properties, assets, liabilities, prospects
or the normal course of its 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 EQR true and correct copies of any report, statement or schedule
filed with the Commission subsequent to the date of the Merger Agreement, (f)
maintain its books and records in accordance with generally accepted accounting
principles ("GAAP") consistently applied and not change in any material manner
any of its methods, principles or practices of accounting in effect at the
"Financial Statement Date" (as defined in the Merger Agreement), except as may
be required by the Commission, applicable law or GAAP, (g) duly and timely file
all reports, tax returns and other documents required to be filed with Federal,
state, local and other authorities, subject to extensions permitted by law,
provided Wellsford notifies EQR that it is availing itself of such extensions
and provided such extensions do not adversely affect Wellsford's status as a
qualified REIT under the Code, (h) not make or rescind any express or deemed
election relative to taxes (unless required by law or necessary to preserve
Wellsford's status as a REIT or the status of any Wellsford subsidiaries as a
partnership for Federal income tax purposes), (i) 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 line(s) of credit, encumber assets or commence construction of, or
enter into any agreement or commitment to develop or construct, other real
estate projects, except in the ordinary course of business, which shall include
all activities necessary to proceed with the acquisition, ownership and
construction of Phases I, II and III of Palomino Park in accordance with the
agreements in existence on the date of the Merger Agreement and previously
furnished to EQR, (j) not amend its Declaration of Trust, Bylaws, or the
articles of incorporation, bylaws, partnership agreement, joint venture
agreement or comparable charter or organization document of any subsidiary
without EQR's prior written consent; provided that EQR will not unreasonably
withhold or delay its consent to non-material amendments to organizational
documents of such subsidiaries, (k) make no change in the number of shares of
beneficial interest or capital stock, other than pursuant to (i) the exercise of
options, rights or similar securities outstanding as of the date hereof and
disclosed to EQR, (ii) the conversion ratio of Wellsford Series A pursuant to
the terms of the Articles Supplementary for the Wellsford Series A, (iii)
options to purchase Wellsford Common which are issued, and (iv) the Dividend
Reinvestment and Share Purchase Plan of Wellsford, (l) grant no options or other
right or commitment relating to its shares of beneficial interest or capital
stock, membership interests or units of limited partnership interest or any
security convertible into its shares of beneficial interest or capital stock,
membership interests or units of limited partnership interest, or any security
the value of which is measured by shares of beneficial interest, or any security
subordinated to the claim of its general creditors, (m) not (i) authorize,
declare, set aside or pay any dividend or make any other distribution or
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payment with respect to any shares of its beneficial interest or capital stock,
except as provided in the Merger Agreement and in connection with the use of
shares of beneficial interest to pay the exercise price or tax withholding in
connection with equity-based employee benefit plans, or (ii) directly or
indirectly redeem, purchase or otherwise acquire any shares of beneficial
interest, membership interests or units of limited partnership interest or any
option, warrant or right to acquire, or security convertible into, shares of
beneficial interest, membership interests, or units of limited partnership
interest, (n) not sell, lease, mortgage, subject to lien or otherwise dispose of
any material part of its assets, individually or in the aggregate, except in the
ordinary course of business or as disclosed to EQR, (o) not make any loans,
advances or capital contributions to, or investments in, any other person or
entity, other than (i) loans, advances and capital contributions to Wellsford
subsidiaries in existence on the date of the Merger Agreement (other than WRP
Newco) and (ii) loans to WRP Newco and WRP Newco subsidiaries bearing interest
at a rate per annum equal to the rate of interest payable under the Second
Amended and Restated Revolving Credit Agreement dated June 30, 1995 between
Wellsford and First National Bank of Boston; (p) not pay, discharge or satisfy
any claims, liabilities or obligations (absolute, accrued, asserted or
unasserted, contingent or otherwise), other than the payment, discharge or
satisfaction, in the ordinary course of business consistent with past practice
or in accordance with their terms, of liabilities reflected or reserved against
in, or contemplated by, the most recent consolidated financial statements (or
the notes thereto) furnished to EQR or incurred in the ordinary course of
business consistent with past practice, (q) not enter into any commitment,
contractual obligation, capital expenditure or transaction (each, a
"Commitment") which may result in total payments or liability by or to it in
excess of $1 million or aggregate Commitments in excess of $5 million, (r) not
guarantee the indebtedness of another person or entity, enter into any "keep
well" or other agreement to maintain any financial statement condition of
another person or entity or enter into any arrangement having the economic
effect of any of the foregoing, other than guarantees of indebtedness of WRP
Newco and its subsidiaries provided, that on the Closing Date, the Surviving
Trust is released from any obligations with respect to such guarantees, or the
indebtedness so guaranteed is paid in full without payment by the Surviving
Trust or its subsidiaries, (s) not enter into any Commitment with any officer,
trustee, consultant or affiliate of Wellsford or any of the Wellsford's
subsidiaries, except as contemplated by the Merger Agreement, (t) not increase
any compensation or enter into or amend any employment agreement with any of its
officers, directors or employees earning more than $50,000 per annum, other than
waivers by employees of benefits under such agreements, (u) not adopt any new
employee benefit plan or amend any existing plans or rights, except for changes
which are required by law and changes which are not more favorable to
participants than provisions presently in effect, and (v) not settle any
shareholder derivative or class action claims arising out of or in connection
with any of the transactions contemplated by the Merger Agreement, (w) not
change the ownership of any of its subsidiaries except pursuant to the
Contribution Agreement and (x) not accept a promissory note in payment of the
exercise price payable under any option to purchase shares of Wellsford Common.
Wellsford has agreed to cause WRP Newco and its subsidiaries to repay, on the
Closing Date, all its loans made to any of them and to procure, on the Closing
Date, the release of Wellsford and its subsidiaries from any guarantees of the
obligations of WRP Newco and its subsidiaries other than the guarantees
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contemplated under the Credit Enhancement Agreement and Palomino Agreement by
Wellsford. In the event WRP Newco is unable to repay such loans to Wellsford on
the Closing Date, EQR may, at its option, and in lieu of terminating the Merger
Agreement, require WRP Newco to execute and deliver to the Surviving Trust a
promissory note in the amount of such indebtedness, payable in 12 equal
consecutive monthly installments together with interest thereon.
For purposes of this section, the Merger Agreement provides that any
contract, transaction or other event will be deemed to be material if it would
result or is expected to result in a net impact on Wellsford's consolidated
income statement in excess of $1 million, or on Wellsford's consolidated balance
sheet in excess of $1 million.
Prior to the Effective Time, WRP Newco and its subsidiaries will not be
bound by the restrictions which would otherwise be applicable under (a), (b),
(c), (d), (i), (j), (k), (l), (m)(ii), (n), (o), (p), (q), (r), (s), (t), (u),
or (w) above; provided, however, that in no event may WRP Newco: (i) issue any
of its shares to any person or entity other than Wellsford prior to the
Distribution for less than fair value; (ii) take any action or fail to take any
action which would reasonably be expected to result in the termination of or a
challenge to Wellsford's status as a REIT within the meaning of Section 856 of
the Code, or result in a Material Adverse Effect to Wellsford; (iii) enter into
any contract which creates or imposes any obligation on, or otherwise purports
to bind, Wellsford or any of the other Wellsford subsidiaries; (iv) take any
action or omit to take any action which causes a default under any loan
agreement to which Wellsford is a party; (v) amend its Articles of Incorporation
or By-laws in any manner which is inconsistent with the provisions of the WRP
Newco Stock Purchase Agreement.
Prior to the Effective Time, except as (i) contemplated by the Merger
Agreement, or (ii) consented to in writing by Wellsford, EQR will, and will
cause each of its subsidiaries to: (a) use its reasonable efforts to preserve
intact its business organizations and goodwill and keep available the services
of its officers and employees, (b) confer on a regular basis with one or more
representatives of Wellsford to report operational matters of materiality which
could have a EQR Material Adverse Effect (as defined in the Merger Agreement),
(c) promptly notify Wellsford of any material emergency or other material change
in the condition (financial or otherwise), business, properties, assets,
liabilities, prospects or the normal course of its 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), (d) promptly deliver to Wellsford true and correct copies of any
report, statement or schedule filed with the Commission subsequent to the date
of the Merger Agreement, (e) maintain its books and records in accordance with
GAAP consistently applied, and (f) duly and timely file all reports, tax returns
and other documents required to be filed with Federal, state, local and other
authorities.
In addition, during the period beginning the day after the fifth (5th)
trading day prior to the date of this Joint Proxy
Statement/Prospectus/Information Statement and ending on (but including) the
Closing Date, EQR will not (a) issue any EQR Common or other securities
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convertible into EQR Common in any single transaction or series of transactions
having an aggregate issuance price in excess of $250 million, or (b) announce
any merger with or acquisition of all or substantially all the assets of another
entity which has net assets in excess of $250 million.
Waiver and Amendment
The Merger Agreement provides that, at any time prior to the Effective
Time, either party may, to the extent legally allowed and set forth in a written
instrument signed on behalf of such party, (i) extend the time for the
performance of any of the obligations or other acts of the other party, (ii)
waive any inaccuracies in the representations and warranties contained in the
Merger Agreement or in any document delivered pursuant thereto and (iii) waive
compliance with any of the agreements or conditions for the benefit of such
party contained in the Merger Agreement.
The Merger Agreement provides that it may be amended by the parties by
action taken by the Boards of Trustees of EQR and Wellsford, at any time before
or after approval of the Merger Agreement by the shareholders of EQR or
Wellsford and prior to the filing of the Articles of Merger with the Department.
After any such approval by the shareholders of EQR or Wellsford, no amendment
may be made which by law requires the further approval of shareholders or
partners without obtaining such further approval.
Stock Exchange Listing
The Surviving Trust will apply to list the Survivor Shares issuable in
connection with the Merger on the NYSE. Approval of the listing of such shares
on the NYSE, subject to official notice of issuance, is a condition to the
respective obligations of the parties to consummate the Merger.
Anticipated Accounting Treatment
The Merger will be treated as a purchase in accordance with Accounting
Principles Board Opinion No. 16. Purchase accounting for a merger is the same
as the accounting treatment used for the acquisition of any group of assets.
The fair market value of the consideration given by the Surviving Trust in the
Merger will be used as the valuation basis of the combination. The assets
acquired and liabilities assumed of Wellsford will be recorded at their relative
fair market values as of the Effective Date. The financial statements of the
Surviving Trust will reflect the combined operations of EQR and Wellsford from
the date of the Merger.
Shares Available for Resale
The issuance of Survivor Common upon consummation of the Merger will be
registered under the Securities Act. Such shares may be traded freely and
without restriction by those
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shareholders not deemed to be "affiliates" of Wellsford as that term is defined
in the rules and regulations promulgated pursuant to the Securities Act.
"Affiliates" are generally defined as persons who control, are controlled by or
are under common control with an issuer. This Joint Proxy
Statement/Prospectus/Information Statement does not cover any resales of
Survivor Common received by affiliates of Wellsford.
Contribution of Assets of Wellsford to ERP Operating Partnership
Immediately after the Effective Time, the assets of Wellsford at the
Effective Time, subject to the liabilities of Wellsford, will be contributed by
the Surviving Trust to ERP Operating Partnership, in exchange for general
partner units of ERP Operating Partnership equal in number to the number of
shares of Survivor Common issued to the Wellsford Common Shareholders and
preferred units of ERP Operating Partnership equal in number to the number of
outstanding shares of Wellsford Preferred. In connection with the contribution
of assets to ERP Operating Partnership by the Surviving Trust, all of
Wellsford's senior unsecured indebtedness will become the obligation of ERP
Operating Partnership. ERP Operating Partnership will assume the Surviving
Trust's full and complete obligations with respect to Wellsford's senior
unsecured debt which will become an unconditional obligation of ERP Operating
Partnership. ERP Operating Partnership will execute and deliver a legally
binding assumption agreement in connection with the assumption of such Wellsford
unsecured debt.
Certain Federal Income Tax Consequences
The following is a general summary of the material United States Federal
income tax consequences of the Merger to EQR, Wellsford and their respective
shareholders. The following summary is based upon current provisions of the
Code, existing, temporary and final regulations thereunder and current
administrative rulings and court decisions, all of which are subject to change
(possibly on a retroactive basis). No attempt has been made to comment on all
United States Federal income tax consequences of the Distribution and the Merger
that may be relevant to particular holders of Wellsford Shares and EQR Shares,
including holders that are subject to special tax rules such as dealers in
securities, mutual funds, insurance companies, tax-exempt entities, holders who
do not hold their Wellsford Shares or EQR Shares as capital assets and holders
that, for United States Federal income tax purposes, are non-resident alien
individuals, foreign corporations, foreign partnerships or foreign estates or
trusts.
The tax discussion set forth below is included for general information
only. It is not intended to be, nor should it be construed to be, legal or tax
advice to any particular holder of Wellsford Shares or EQR Shares. Because of
the particular tax attributes of holders of Wellsford Shares or EQR Shares, the
Merger may have differing tax implications for such holders. Accordingly,
holders of Wellsford Shares or EQR Shares are urged and expected to consult with
their own legal and tax advisers regarding the United States federal income
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tax consequences of the Merger and any other consequences to them of the Merger
under state, local and foreign tax laws.
Tax Consequences of Merger. Rudnick & Wolfe, counsel to EQR in connection
with the Merger, will render an opinion to EQR that on the basis of the facts,
representations and assumptions set forth in such opinion:
(i) the Merger will constitute a reorganization within the meaning of
Section 368(a) of the Code, and EQR and Wellsford will each be a party to such
reorganization within the meaning of Section 368(b) of the code;
(ii) no gain or loss will be recognized by EQR as a result of the
Merger;
(iii) no gain or loss will be recognized by the shareholders of EQR upon
the exchange of their EQR Common solely for Survivor Common pursuant to the
Merger;
(iv) no gain or loss will be recognized by the shareholders of EQR upon
the exchange of their EQR Preferred solely for Survivor Preferred pursuant to
the Merger;
(v) the tax basis of the Survivor Common received or deemed to be
received by any holder of EQR Common in exchange for EQR Common pursuant to the
Merger will be the same as the tax basis of such EQR Common exchanged therefor;
(vi) the tax basis of the Survivor Preferred received or deemed to be
received by any holder of EQR Preferred in exchange for EQR Preferred pursuant
to the Merger will be the same as the tax basis of such EQR Preferred exchanged
therefor;
(vii) the holding period for Survivor Common and Survivor Preferred
received in exchange for EQR Common and EQR Preferred, respectively, pursuant to
the Merger will include the period that such EQR Common and EQR Preferred were
held by the holder, provided that such EQR Common and EQR Preferred were held as
capital assets by such holder at the Effective Time;
(viii) subsequent to the Merger, the proposed method of operation
described in this Joint Proxy Statement/Prospectus/Information Statement and as
represented by EQR should enable the Surviving Trust to satisfy the requirements
under the Code to qualify as a REIT for federal income tax purposes; and
(ix) ERP Operating Partnership will be classified as a partnership for
federal income tax purposes.
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Robinson Silverman Pearce Aronsohn & Berman LLP, counsel to Wellsford in
connection with the Merger, will render an opinion to Wellsford that on the
basis of the facts, representations and assumptions set forth in such opinion:
(i) the Merger will constitute a reorganization within the meaning of
Section 368(a) of the Code, and EQR and Wellsford will each be a party to such
reorganization within the meaning of Section 368(b) of the Code;
(ii) no gain or loss for federal income tax purposes will be recognized
by Wellsford as a result of the Merger;
(iii) no gain or loss will be recognized by the shareholders of Wellsford
upon the exchange of their Wellsford Common solely for Survivor Common pursuant
to the Merger;
(iv) no gain or loss will be recognized by the shareholders of Wellsford
upon the exchange of their Wellsford Preferred solely for Survivor Preferred
pursuant to the Merger;
(v) the tax basis of the Survivor Common received or deemed to be
received by any holder of Wellsford Common in exchange for Wellsford Common
pursuant to the Merger will be the same as the tax basis of such Wellsford
Common exchanged therefor;
(vi) the tax basis of the Survivor Preferred received or deemed to be
received by any holder of Wellsford Preferred in exchange for Wellsford
Preferred pursuant to the Merger will be the same as the tax basis of such
Wellsford Preferred exchanged therefor;
(vii) the holding period for Survivor Common and Survivor Preferred
received in exchange for Wellsford Common and Wellsford Preferred, respectively,
pursuant to the Merger will include the period that such shares of Wellsford
Common and Wellsford Preferred, respectively, were held by the holder, provided
that such Wellsford Common and Wellsford Preferred were held as capital assets
by such holder at the Effective Time; and
(viii) a shareholder of Wellsford Common who receives cash in lieu of a
fractional share of Wellsford Common pursuant to the Merger will recognize gain
or loss equal to the difference, if any, between such shareholder's basis in the
fractional share and the amount of cash received.
Shareholders of EQR and Wellsford should be aware that such opinions of
counsel are not binding on the United States IRS, and no assurance is or will be
given that the IRS would not adopt a contrary position or that the IRS position
would not be sustained by a court.
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Qualification of Surviving Trust as a REIT.
General. Wellsford elected REIT status commencing with its taxable year
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ending December 31, 1992. In the opinion of Robinson Silverman Pearce Aronsohn &
Berman LLP, which has acted as counsel to Wellsford, Wellsford was organized and
has operated in conformity with the requirements for qualification and taxation
as a REIT under the Code for its taxable years ended December 31, 1992 through
December 31, 1996. Rudnick & Wolfe has opined that, subsequent to the Merger,
the Surviving Trust's proposed method of operation described in this Joint Proxy
Statement/Prospectus/Information Statement and as represented by EQR should
enable it to meet the requirements for qualification and taxation as a REIT. It
must be emphasized that this opinion is based on various assumptions relating to
the organization and operation of the Surviving Trust, ERP Operating
Partnership, the Management Partnerships, Equity Residential Properties
Management Corp., Equity Residential Properties Management Corp. II, Equity
Residential Properties Management Corp. III and Wellsford Management Corp.
(collectively, the "Management Corps."), the limited partnerships and limited
liability companies (the "Financing Partnerships") that own the beneficial
interest of certain properties encumbered by mortgage financing, and various
qualified REIT subsidiaries wholly owned by the Surviving Trust (each a "QRS
Corporation") (collectively, the Management Partnerships, the Management Corps.,
the Financing partnerships and the QRS Corporations may be referred to as the
"Subsidiary Entities"), and is conditioned upon certain representations made by
EQR and ERP Operating Partnership as to certain relevant factual matters,
including matters related to the organization, expected operation, and assets of
the Surviving Trust, ERP Operating Partnership and the Subsidiary Entities. The
Surviving Trust's qualification and taxation as a REIT depend upon the Surviving
Trust's ability to meet on a continuing basis, through actual annual operating
and other results, the various requirements under the Code and described in the
Prospectus with regard to, among other things, the sources of its gross income,
the composition of its assets, the level of its dividends to shareholders, and
the diversity of its share ownership. Neither Rudnick & Wolfe nor Robinson
Silverman Pearce Aronsohn & Berman LLP will review the Surviving Trust's
compliance with these requirements on a continuing basis. No assurance can be
given that the actual results of the operations of the Surviving Trust, ERP
Operating Partnership, and the Subsidiary Entities, the sources of their income,
the nature of their assets, the level of the Surviving Trust's dividends to
shareholders and the diversity of its share ownership for any given taxable year
will satisfy the requirements under the Code for qualification and taxation as a
REIT.
In any year in which the Surviving Trust qualifies as a REIT, generally it
will not be subject to Federal income tax on that portion of its REIT taxable
income or capital gain which is distributed to shareholders. This treatment
substantially eliminates the "double taxation" (at both the corporate and
shareholder levels) that generally results from the use of corporate investment
vehicles. The Surviving Trust may, however, be subject to tax at normal
corporate rates upon any taxable income or capital gain not distributed.
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If the Surviving Trust should fail to satisfy either the 75% or the 95%
gross income test (as discussed below), and nonetheless maintains its
qualification as a REIT because certain other requirements are met, it will be
subject to a 100% tax on the greater of the amount by which it fails the 75% or
the 95% test, multiplied by a fraction intended to reflect its profitability.
The Surviving Trust will also be subject to a 100% tax on net income derived
from any "prohibited transaction," as described below. In addition, if the
Surviving Trust should fail to distribute during each calendar year at least the
sum of (i) 85% of its REIT ordinary income for such year, (ii) 95% of its REIT
capital gain net income for such year, and (iii) any undistributed taxable
income from prior years, the Surviving Trust would be subject to a 4% excise tax
on the excess of such required distribution over the amounts actually
distributed. The Surviving Trust may also be subject to the corporate
"alternative minimum tax," as well as tax in certain situations and on certain
transactions not presently contemplated. The Surviving Trust will use the
calendar year both for Federal income tax purposes and for financial reporting
purposes.
In order to qualify as a REIT, the Surviving Trust must meet, among others,
the following requirements:
Share Ownership Test. Shares of beneficial interest of the Surviving Trust
--------------------
must be held by a minimum of 100 persons for at least 335 days of a taxable year
that is 12 months, or during a proportionate part of a taxable year of less than
12 months. In addition, no more than 50% in value of the shares of beneficial
interest of the Surviving Trust may be owned, directly or indirectly and by
applying certain constructive ownership rules, by five or fewer individuals
during the last half of each taxable year. EQR and Wellsford believe that they
have each satisfied both of these tests, and EQR believes the Surviving Trust
will continue to do so. In order to help comply with the second of these tests,
the Surviving Trust has placed certain restrictions on the transfer of the
Survivor Common and Survivor Preferred that are intended to prevent further
concentration of share ownership.
Asset Tests. At the close of each quarter of the Surviving Trust's taxable
-----------
year, the Surviving Trust must satisfy two tests relating to the nature of its
assets. First, at least 75% of the value of the Surviving Trust's total assets
must be represented by any combination of interests in real property, interests
in mortgages on real property, shares in other REITs, cash, cash items and
certain government securities. Second, although the remaining 25% of the
Surviving Trust's assets generally may be invested without restriction,
securities in this class may not exceed either (i) 5% of the value of the
Surviving Trust's total assets as to any one issuer, or (ii) 10% of the
outstanding voting securities of any one issuer. Where the Surviving Trust
invests in a partnership, it will be deemed to own a proportionate share of the
partnership's assets. The Surviving Trust's investment in the properties of
Wellsford through its interest in ERP Operating Partnership will constitute
qualified assets for purposes of the 75% asset test.
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ERP Operating Partnership will own none of the voting stock of the
Management Corps. except for Wellsford Management Inc., in which ERP Operating
Partnership will own 10% of the voting stock. ERP Operating Partnership will
own 100% of the non-voting stock of each of the Management Corps. ERP Operating
Partnership will also own 100% of the Class A Common Stock of WRP Newco and 100%
of the Series A 8% Convertible Redeemable Preferred Stock of WRP Newco. By
virtue of its partnership interest in ERP Operating Partnership, the Surviving
Trust will be deemed to own its pro rata share of the assets of ERP Operating
Partnership, including the stock of the Management Corps. and WRP Newco as
described above. ERP Operating Partnership has not and does not intend to own
more than 10% of the voting securities of the Management Corps. or WRP Newco.
In addition, based upon its analysis of the estimated value of the stock of
the Management Corps. and WRP Newco owned by ERP Operating Partnership relative
to the estimated value of the other assets owned by ERP Operating Partnership,
EQR believes that its pro rata share of the stock of WRP Newco and each
Management Corp. held by ERP Operating Partnership will not exceed 5% of the
total value of the Surviving Trust's assets. No independent appraisals,
however, have been obtained to support this conclusion. This 5% limitation must
be satisfied not only on the date that the Surviving Trust first acquires stock
of WRP Newco or a Management Corp., but also at the end of each quarter in which
the Surviving Trust increases its interest in WRP Newco or any of the Management
Corps. (including as a result of increasing its interest in ERP Operating
Partnership as the holders of OP Units exercise their exchange rights).
Although the Surviving Trust plans to take steps to ensure that it satisfies the
5% value test for any quarter with respect to which retesting is to occur, there
can be no assurance that such steps will always be successful or will not
require a reduction in ERP Operating Partnership's overall interest in the
Management Corps.
The Surviving Trust's indirect interests as a general partner in the
Financing Partnerships are held through the QRS Corporations, each of which is
organized and operated as a "qualified REIT subsidiary" within the meaning of
the Code. Qualified REIT subsidiaries are not treated as separate entities from
their parent REIT. Instead, all assets, liabilities and items of income,
deduction and credit of each QRS Corporation will be treated as assets,
liabilities and items of the Surviving Trust. Each QRS Corporation therefore
will not be subject to Federal corporate income taxation, although it may be
subject to state or local taxation. In addition, the Surviving Trust's
ownership of the voting stock of each QRS Corporation will not violate the
general restriction against ownership of more than 10% of the voting securities
of any issuer.
Gross Income Tests. There are three separate percentage tests relating to
------------------
the sources of the Surviving Trust's gross income which must be satisfied for
each taxable year. For purposes of these tests, where the Surviving Trust
invests in a partnership, the Surviving Trust will be treated as receiving its
share of the income and loss of the partnership, and the gross income of the
partnership will retain the same character in the hands of the Surviving Trust
as it has in the hands of the partnership.
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1. The 75% Test. At least 75% of the Surviving Trust's gross income for
each taxable year must be "qualifying income." Qualifying income generally
includes (i) rents from real property (except as modified below); (ii) interest
on obligations collateralized by mortgages on, or interests in, real property;
(iii) gains from the sale or other disposition of interests in real property and
real estate mortgages, other than gain from property held primarily for sale to
customers in the ordinary course of the Surviving Trust's trade or business
("dealer property"); (iv) distributions on shares in other REITs, as well as
gain from the sale of such shares; (v) abatements and refunds of real property
taxes; (vi) income from the operation, and gain from the sale, of property
acquired at or in lieu of a foreclosure of a mortgage collateralized by such
property ("foreclosure property"); (vii) commitment fees received for agreeing
to make loans collateralized by mortgages on real property or to purchase or
lease real property; and (viii) certain qualified temporary investment income
attributable to the investment of new capital received by the Surviving Trust in
exchange for its shares (including the Securities offered hereby) during the
one-year period following the receipt of such new capital.
Rents received from a tenant will not, however, qualify as rents from real
property in satisfying the 75% test (or the 95% gross income test described
below) if the Surviving Trust, or an owner of 10% or more of the Surviving
Trust, directly or constructively owns 10% or more of such tenant. In addition,
if rent attributable to personal property leased in connection with a lease of
real property is greater than 15% of the total rent received under the lease,
then the portion of rent attributable to such personal property will not qualify
as rents from real property. Moreover, an amount received or accrued will not
qualify as rents from real property (or as interest income) for purposes of the
75% and 95% gross income tests if it is based in whole or in part on the income
or profits of any person. Finally, for rents received to qualify as rents from
real property, the Surviving Trust generally must not operate or manage the
property or furnish or render services to tenants, other than through an
"independent contractor" from whom the Surviving Trust derives no revenue. The
"independent contractor" requirement, however, does not apply to the extent that
the services provided by the Surviving Trust are "usually or customarily
rendered" in connection with the rental of space for occupancy only, and are not
otherwise considered "rendered to the occupant."
The Surviving Trust, through the Management Partnerships, will provide
certain services with respect to the properties of Wellsford and any newly
acquired multifamily residential properties. The Surviving Trust believes that
the services provided by the Management Partnerships are usually or customarily
rendered in connection with the rental of space for occupancy only, and
therefore that the provision of such services has not caused, and will not in
the future cause the rents received with respect to the Properties to fail to
qualify as rents from real property for purposes of the 75% and 95% gross income
tests.
2. The 95% Test. At least 95% of the Surviving Trust's gross income for
the taxable year must be derived from the above-described qualifying income, or
from dividends, interest or gains from the sale or disposition of stock or other
securities that are not dealer property.
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Dividends (including the Surviving Trust's share of dividends paid by the
Management Corps.) and interest on any obligations not collateralized by an
interest in real property and any payments made on behalf of the Surviving Trust
by a financial institution pursuant to a rate protection agreement will be
included as qualifying income for purposes of the 95% gross income test, but not
for purposes of the 75% test. For purposes of determining whether the Surviving
Trust complies with the 75% and 95% income tests, qualifying income does not
include income from prohibited transactions. A "prohibited transaction" is a
sale of dealer property, excluding certain dealer property held by the Surviving
Trust for at least four years and excluding foreclosure property.
The Surviving Trust's investment in the Properties, through ERP Operating
Partnership, in major part will give rise to rental income qualifying under the
75% and 95% gross income tests. Gains on sales of the Properties or of the
Surviving Trust's interest in ERP Operating Partnership will generally qualify
under the 75% and 95% gross income tests. EQR believes that the income on its
other investments, including its indirect investment in WRP Newco and the
Management Corps., will not cause the Surviving Trust to fail the 75% or 95%
gross income test for any year, and the Surviving Trust anticipates that this
will continue to be the case.
Even if the Surviving Trust fails to satisfy one or both of the 75% or 95%
gross income tests for any taxable year, it may still qualify as a REIT for such
year if it is entitled to relief under certain provisions of the Code. These
relief provisions will generally be available if: (i) the Surviving Trust's
failure to comply was due to reasonable cause and not to willful neglect; (ii)
the Surviving Trust reports the nature and amount of each item of its income
included in the tests on a schedule attached to its tax return; and (iii) any
incorrect information on this schedule is not due to fraud with intent to evade
tax. If these relief provisions apply, the Surviving Trust, however, will still
be subject to a 100% tax based upon the greater of the amount by which it fails
either the 75% or 95% gross income test for that year, less certain adjustments.
3. The 30% Test. The Surviving Trust must derive less than 30% of its
gross income for each taxable year from the sale or other disposition of (i)
real property held for less than four years (other than foreclosure property and
involuntary conversions), (ii) stock or securities held for less than one year,
and (iii) property in a prohibited transaction. EQR does not anticipate that it
will have any substantial difficulty in complying with this test.
Annual Distribution Requirements. The Surviving Trust, in order to qualify
--------------------------------
as a REIT, is required to make dividend distributions (other than capital gain
dividends) to its shareholders each year in an amount at least equal to (A) the
sum of (i) 95% of the Surviving Trust's REIT taxable income (computed without
regard to the dividends paid deduction and the Surviving Trust's net capital
gain) and (ii) 95% of the net income (after tax), if any, from foreclosure
property, minus (B) the sum of certain items of non-cash income. Such
distributions must be paid in the taxable year to which they relate, or in the
following taxable year if declared before
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the Surviving Trust timely files its tax return for such year and if paid on or
before the first regular dividend payment after such declaration. To the extent
that the Surviving Trust does not distribute all of its net capital gain or
distributes at least 95%, but less than 100%, of its REIT taxable income, as
adjusted, it will be subject to tax on the undistributed amount at regular
capital gains or ordinary corporate tax rates, as the case may be.
The Surviving Trust has made and intends to continue to make timely
distributions sufficient to satisfy the annual distribution requirements. In
this regard, the partnership agreement of ERP Operating Partnership authorizes
the Surviving Trust, as general partner, to take such steps as may be necessary
to cause ERP Operating Partnership to distribute to its partners an amount
sufficient to permit the Surviving Trust to meet these distribution
requirements. It is possible that the Surviving Trust may not have sufficient
cash or other liquid assets to meet the 95% dividend requirement, due to the
payment of principal on debt or to timing differences between the actual receipt
of income and actual payment of expenses on the one hand, and the inclusion of
such income and deduction of such expenses in computing the Surviving Trust's
REIT taxable income on the other hand. To avoid any problem with the 95%
distribution requirement, the Surviving Trust will closely monitor the
relationship between its REIT taxable income and cash flow and, if necessary,
will borrow funds (or cause ERP Operating Partnership or other affiliates to
borrow funds) in order to satisfy the distribution requirement.
Failure to Qualify. If the Surviving Trust fails to qualify for taxation
------------------
as a REIT in any taxable year and the relief provisions do not apply, the
Surviving Trust will be subject to tax (including any applicable alternative
minimum tax) on its taxable income at regular corporate rates. Distributions to
shareholders in any year in which the Surviving Trust fails to qualify will not
be required and, if made, will not be deductible by the Surviving Trust. In
such event, to the extent of current and accumulated earnings and profits, all
distributions to shareholders will be taxable as ordinary income, and, subject
to certain limitations in the Code, corporate distributees may be eligible for
the dividends received deduction. Unless entitled to relief under specific
statutory provisions, the Surviving Trust also will be ineligible for
qualification as a REIT for the four taxable years following the year during
which qualification was lost.
Tax Aspects of the Surviving Trust's Investments in Partnerships.
General. The Surviving Trust will hold direct or indirect interests in ERP
-------
Operating Partnership, WRP Newco, the Management Partnerships and certain
Financing Partnerships (each individually a "Partnership" and, collectively, the
"Partnerships"). The Surviving Trust believes that each of the Partnerships
qualifies as a partnership (as opposed to an association taxable as a
corporation) for Federal income tax purposes. If any of the Partnerships were
to be treated as an association, it would be taxable as a corporation and
therefore subject to an entity-level tax on its income. In such a situation,
the character of the Surviving Trust's assets and items of gross income would
change, which would preclude the Surviving Trust from
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satisfying the asset tests and possibly the income tests (see "Certain Federal
Income Tax Consequences--Taxation of the Surviving Trust--Asset Tests" and "--
Gross Income Tests"), and in turn would prevent the Surviving Trust from
qualifying as a REIT.
Tax Termination of ERP Operating Partnership. Pursuant to Section
--------------------------------------------
708(b)(1)(B) of the Code, if within a twelve-month period, there is a sale or
exchange of 50 percent or more of the total interest in a partnership's capital
and profits, the partnership terminates for federal income tax purposes.
Treasury Regulations under Code Section 708(b)(1)(B) (the "Section 708
Regulations") provide that if a partnership is deemed terminated by a sale or
exchange of an interest, the following is deemed to occur: (a) the partnership
distributes all of its assets subject to all of its liabilities to the purchaser
and the other remaining partners in proportion to their respective interests in
the partnership assets; and, (b) immediately thereafter, the purchaser and the
other remaining partners contribute the assets, subject to the liabilities
encumbering such assets, to a new partnership. Under the Section 708
Regulations, the deemed termination of a partnership will result in the closing
of the partnership's taxable year and recognition of gain under Code Section 731
if the amount of money deemed distributed to the partner (including any money
deemed distributed upon a shift in the liabilities of the partnership under Code
Section 752) exceeds such partner's adjusted basis in his partnership interest.
Any built-in gain or loss attributable to the assets re-contributed to the
partnership must be allocated among the partners of the new partnership under
Code Section 704(c). See "Tax Aspects of Surviving Trusts Investment in
Partnerships -- Tax Allocations With Respect to the Properties." In addition,
the deemed termination requires the partnership to depreciate its assets as if
they were newly acquired by the partnership at the time of termination. As a
result, such assets must be depreciated over each asset's depreciable life
beginning as of the date of the deemed termination.
In connection with the Merger, more than 50 percent of the total interest
in ERP Operating Partnership's capital and profits will be exchanged.
Therefore, the Merger will result in the termination of ERP Operating
Partnership under Code Section 708(b)(1)(B). Accordingly, under the Section 708
Regulations, all of the assets of ERP Operating Partnership will be deemed to be
distributed to the partners of ERP Operating Partnership (including the
Surviving Trust) and re-contributed by such partners to a newly formed
partnership. Such deemed distribution and re-contribution is not expected to
cause gain recognition to the Surviving Trust under Code Section 731(a) because
the amount of cash deemed distributed to the Surviving Trust as a result of the
deemed liquidation (including any deemed distribution occurring under Code
Section 752 as a result of a shifting of liabilities among the partners of the
ERP Operating Partnership) is not expected to exceed the Surviving Trusts's
adjusted basis in the ERP Operating Partnership. Moreover, because the taxable
years of both the ERP Operating Partnership and the Surviving Trust end on the
same date, the closing of the ERP Operating Partnership's taxable year should
have no adverse tax consequences to the Surviving Trust. However, the
termination of the ERP Operating Partnership will cause the assets of the ERP
Operating Partnership to be depreciated as if they were newly acquired by the
ERP Operating Partnership, possibly resulting in lower annual depreciation
deductions to the Surviving Trust for federal income tax purposes. In addition,
the deemed re-contribution of the assets to the ERP Operating Partnership could
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result in a reallocation of the built-in gain attributable to the properties
owned by the ERP Operating Partnership. See "Tax Aspects of Surviving Trusts
Investment in Partnerships -- Tax Allocations With Respect to the Properties."
Proposed Treasury Regulations recently promulgated by the Treasury
Department (the "Proposed 708 Regulations") would alter the tax consequences of
a termination under Code Section 708(b)(1)(B). Under the Proposed Section 708
Regulations, if a partnership is terminated by a sale or exchange of an
interest, the following would be deemed to occur: (a) the partnership transfers
all of its assets and liabilities to a new partnership in exchange for an
interest in the new partnership; and (b) immediately thereafter, the terminated
partnership distributes all of the interests in the new partnership to the
purchasing partner and the other remaining partners in liquidation of the
terminated partnership. The effect of the Proposed Regulations would be to (i)
eliminate any possibility of gain recognition to the partners of the ERP
Operating Partnership under Code Section 731, and (ii) eliminate any potential
reallocation of ERP Operating Partnership's basis and any Section 704(c) built-
in gain with respect to the properties currently held by the ERP Operating
Partnership. However, under the Proposed 708 Regulations, the ERP Operating
Partnership would still be required to depreciate its properties as newly
acquired assets, possibly resulting in lower depreciation deductions to the
Surviving Trust for federal income tax purposes. The Proposed Section 708
Regulation will apply to the deemed termination of ERP Operating Partnership if
the Proposed Section 708 Regulations shall have been published as final
regulations in the Federal Register as of the effective date of the Merger.
Tax Allocations with Respect to the Properties. Pursuant to Section 704(c)
----------------------------------------------
of the Code, income, gain, loss and deduction attributable to appreciated or
depreciated property that is contributed to a partnership in exchange for an
interest in the partnership (such as certain of the Properties contributed to
ERP Operating Partnership in connection with both the initial public offering of
EQR and the Merger) (the "Contributed Properties") must be allocated in a manner
such that the contributing partner is charged with, or benefits from,
respectively, the unrealized gain or unrealized loss associated with the
property at the time of the contribution. The amount of such unrealized gain or
unrealized loss is generally equal to the difference between the fair market
value and the adjusted tax basis of contributed property at the time of
contribution (a "Book-Tax Difference"). Such allocations are solely for Federal
income tax purposes and do not affect the book capital accounts or other
economic or legal arrangements among the partners. ERP Operating Partnership
Agreement (as well as the Financing Partnerships agreements) require such
allocations to be made in a manner consistent with Section 704(c). As a result,
certain limited partners of ERP Operating Partnership will be allocated lower
amounts of depreciation deductions for tax purposes and increased taxable income
and gain on sale by the Partnerships of the contributed assets (including
certain of the Contributed Properties). These allocations will tend to
eliminate the Book-Tax Difference over the lives of the Partnerships. However,
the special allocation rules of Section 704(c) as applied by the Surviving Trust
will not always entirely rectify the Book-Tax Difference on an annual basis or
with respect to a specific taxable transaction such as a sale. Thus, the
carryover basis of the contributed assets
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in the hands of the Partnerships will cause the Surviving Trust to be allocated
lower depreciation and other deductions, and possibly greater amounts of taxable
income in the event of a sale of such contributed assets in excess of the
economic or book income allocated to it as a result of such sale. This may cause
the Surviving Trust to recognize taxable income in excess of cash proceeds,
which might adversely affect the Surviving Trust's ability to comply with the
REIT distribution requirements. See "Certain Federal Income Tax Consequences--
Qualification of the Surviving Trust as a REIT--Annual Distribution
Requirements."
Sale of the Properties. The Surviving Trust's share of any gain realized
----------------------
by ERP Operating Partnership on the sale of any dealer property generally will
be treated as income from a prohibited transaction that is subject to a 100%
penalty tax. See "Certain Federal Income Tax Consequences--Qualification of the
Surviving Trust as a REIT--Gross Income Tests--The 95% Test." Under existing
law, whether property is dealer property is a question of fact that depends on
all the facts and circumstances with respect to the particular transaction. The
Partnerships have held and intend to continue to hold the Properties for
investment with a view to long-term appreciation, to engage in the business of
acquiring, developing, owning and operating the Properties and other multifamily
residential properties and to make such occasional sales of the Properties as
are consistent with the Surviving Trust's investment objectives. Based upon
such investment objectives, the Surviving Trust believes that in general the
Properties should not be considered dealer property and that the amount of
income from prohibited transactions, if any, will not be material.
Taxation of Taxable Domestic Shareholders.
General. As long as the Surviving Trust qualifies as a REIT, distributions
-------
made to the Surviving Trust's taxable domestic shareholders, with respect to
their shares out of current or accumulated earnings and profits (and not
designated as capital gain dividends) will be taken into account by them as
ordinary income and will not be eligible for the dividends received deduction
for shareholders that are corporations. For purposes of determining whether
distributions on the Securities are out of current or accumulated earnings and
profits, the earnings and profits of the Surviving Trust will be allocated first
to the Survivor Preferred Shares and second to the Survivor Common Shares.
There can be no assurance, however, that the Surviving Trust will have
sufficient earnings and profits to cover distributions on the Survivor Preferred
Shares. Dividends that are designated as capital gain dividends will be taxed
as long-term capital gains (to the extent that they do not exceed the Surviving
Trust's actual net capital gain for the taxable year) without regard to the
period for which the shareholder has held its Securities. However, corporate
shareholders may be required to treat up to 20% of certain capital gain
dividends as ordinary income. For a discussion on the manner in which that
portion of any dividends designated by the Surviving Trust as capital gains
dividends will be allocated among the holders of Survivor Preferred Shares and
Survivor Common Shares, see "Description of Shares of Beneficial Interest--
Survivor Preferred Shares--Distributions." To the extent that the Surviving
Trust makes distributions in excess of current and accumulated earnings and
profits,
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these distributions are treated first as a tax-free return of capital to the
shareholder, reducing the tax basis of a shareholder's Securities by the amount
of such distribution (but not below zero), with distributions in excess of the
shareholder's tax basis taxable as capital gains (if the Securities are held as
a capital asset). In addition, any dividend declared by the Surviving Trust in
October, November or December of any year and payable to a shareholder of record
on a specific date in any such month will be treated as both paid by the
Surviving Trust and received by the shareholder on December 31 of such year,
provided that the dividend is actually paid by the Surviving Trust during
January of the following calendar year. Shareholders may not include in their
individual income tax returns any net operating losses or capital losses of the
Surviving Trust.
In general, any loss upon a sale or exchange of securities by a shareholder
who has held such securities for six months or less (after applying certain
holding period rules) will be treated as a long-term capital loss, to the extent
of distributions from the Surviving Trust received by such shareholder are
required to be treated by such shareholder as long-term capital gains.
Taxation of Tax-Exempt Shareholders
Most tax-exempt employees' pension trusts are not subject to Federal income
tax except to the extent of their receipt of "unrelated business taxable income"
as defined in Section 512(a) of the Code ("UBTI"). Distributions by the
Surviving Trust to a shareholder that is a tax-exempt entity should not
constitute UBTI, provided that the tax-exempt entity has not financed the
acquisition of its securities with "acquisition indebtedness" within the meaning
of the Code and the securities are not otherwise used in an unrelated trade or
business of the tax-exempt entity. In addition, for taxable years beginning on
or after January 1, 1994, certain pension trusts that own more than 10% of a
"pension-held REIT" must report a portion of the distribution that they receive
from such a REIT as UBTI. The Surviving Trust has not been and does not expect
to be treated as a pension-held REIT for purposes of this rule.
Taxation of Foreign Shareholders.
The following is a discussion of certain anticipated U.S. Federal income
tax consequences of the ownership and disposition of securities applicable to
Non-U.S. Holders of such securities. A "Non-U.S. Holder" is any person other
than (i) a citizen or resident of the United States, (ii) a corporation or
partnership created or organized in the United States or under the laws of the
United States or of any state thereof, or (iii) an estate or trust whose income
is includable in gross income for U.S. Federal income tax purposes regardless of
its source. The discussion is based on current law and is for general
information only.
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Distributions From the Surviving Trust.
--------------------------------------
1. Ordinary Dividends. The portion of dividends received by Non-U.S.
Holders payable out of the Surviving Trust's earnings and profits which are not
attributable to capital gains of the Surviving Trust or of ERP Operating
Partnership and which are not effectively connected with a U.S. trade or
business of the Non-U.S. Holder will be subject to U.S. withholding tax at the
rate of 30% (unless reduced by an applicable treaty). In general, Non-U.S.
Holders will not be considered engaged in a U.S. trade or business solely as a
result of their ownership of securities. In cases where the dividend income
from a Non-U.S. Holder's investment in securities is (or is treated as)
effectively connected with the Non-U.S. Holder's conduct of a U.S. trade or
business, the Non-U.S. Holder generally will be subject to U.S. tax at graduated
rates, in the same manner as U.S. shareholders are taxed with respect to such
dividends (and may also be subject to the 30% branch profits tax in the case of
a Non-U.S. Holder that is a foreign corporation).
2. Non-Dividend Distributions. Distributions by the Surviving Trust
which are not dividends out of the earnings and profits of the Surviving Trust
will not be subject to U.S. income or withholding tax. If it cannot be
determined at the time a distribution is made whether or not such distribution
will be in excess of the Surviving Trust's current and accumulated earnings and
profits, the entire distribution will be subject to withholding at the rate
applicable to dividends. However, the Non-U.S. Holder may seek a refund of such
amounts from the Service if it is subsequently determined that such distribution
was, in fact, in excess of current and accumulated earnings and profits of the
Surviving Trust.
3. Capital Gain Dividends. Under the Foreign Investment in Real Property
Tax Act of 1980 ("FIRPTA"), a distribution made by the Surviving Trust to a Non-
U.S. Holder, to the extent attributable to gains from dispositions of United
States Real Property Interests ("USRPIs") such as the Properties beneficially
owned by the Surviving Trust will be considered effectively connected with a
U.S. trade or business of the Non-U.S. Holder and subject to U.S. income tax at
the rate applicable to U.S. individuals or corporations, without regard to
whether such distribution is designated as a capital gain dividend. In
addition, the Surviving Trust will be required to withhold tax equal to 35% of
the amount of dividends to the extent such dividends constitute gains from any
USRPI. Distributions subject to FIRPTA may also be subject to a 30% branch
profits tax in the hands of a foreign corporate shareholder that is not entitled
to treaty exemption.
Dispositions of Securities. Unless securities constitute a USRPI, a sale
--------------------------
of securities by a Non-U.S. Holder generally will not be subject to U.S.
taxation under FIRPTA. The securities will not constitute a USRPI if the
Surviving Trust is a "domestically controlled REIT." A domestically controlled
REIT is a REIT in which, at all times during a specified testing period, less
than 50% in value of its securities is held directly or indirectly by Non-U.S.
Holders. The Surviving Trust believes that it has been and anticipates that it
will continue to be a domestically
108
<PAGE>
controlled REIT, and therefore that the sale of securities will not be subject
to taxation under FIRPTA. Because the securities will be publicly traded,
however, no assurance can be given the Surviving Trust will continue to be a
domestically controlled REIT. If the Surviving Trust does not constitute a
domestically controlled REIT, a Non-U.S. Holder's sale of securities generally
will still not be subject to tax under FIRPTA as a sale of a USRPI provided that
(i) the securities are "regularly traded" (as defined by applicable Treasury
regulations) on an established securities market and (ii) the selling Non-U.S.
Holder held 5% or less of the Surviving Trust's outstanding securities at all
times during a specified testing period.
If gain on the sale of securities were subject to taxation under FIRPTA,
the Non-U.S. Holder would be subject to the same treatment as a U.S. shareholder
with respect to such gain (subject to applicable alternative minimum tax and a
special alternative minimum tax in the case of nonresident alien individuals)
and the purchaser of securities could be required to withhold 10% of the
purchase price and remit such amount to the Service. Capital gains not subject
to FIRPTA will nonetheless be taxable in the United States to a Non-U.S. Holder
in two cases: (i) if the Non-U.S. Holder's investment in securities is
effectively connected with a U.S. trade or business conducted by such Non-U.S.
Holder, the Non-U.S. Holder will be subject to the same treatment as a U.S.
shareholder with respect to such gain, or (ii) if the Non-U.S. Holder is a
nonresident alien individual who was present in the United States for 183 days
or more during the taxable year and has a "tax home" in the United States, the
nonresident alien individual will be subject to a 30% tax on the individual's
capital gain.
Other Tax Considerations.
WRP Newco and the Management Corps. A portion of the cash to be used by
----------------------------------
ERP Operating Partnership to fund distributions to its partners, including the
Surviving Trust, is expected to come from WRP Newco and the Management Corps.
through payments of dividends on the stock of WRP Newco and the Management
Corps. held by ERP Operating Partnership. The Management Corps. will pay
Federal and state income tax at the full applicable corporate rates on their
taxable income. The Management Corps. will attempt to minimize the amount of
such taxes, but there can be no assurance whether or the extent to which
measures taken to minimize taxes will be successful. To the extent that WRP
Newco and/or the Management Corps. are required to pay Federal, state or local
taxes, the cash available to WRP Newco for distribution by the Surviving Trust,
among its shareholders will be reduced accordingly.
State and Local Taxes. The Surviving Trust and its shareholders may be
---------------------
subject to state or local taxation in various jurisdictions, including those in
which it or they transact business or reside. The state and local tax treatment
of the Surviving Trust and its shareholders may not conform to the Federal
income tax consequences discussed above. Consequently, prospective shareholders
should consult their own tax advisors regarding the effect of state and local
tax laws on an investment in the shares of beneficial interest of the Surviving
Trust.
109
<PAGE>
INTERESTS OF CERTAIN PERSONS IN THE MERGER AND DISTRIBUTION
In considering whether to approve the Merger, shareholders should be
aware that certain members of the management of Wellsford and the Wellsford
Board of Trustees have certain interests that arise in connection with the
Merger and the Distribution that are in addition to the interests of
shareholders of Wellsford generally. These interests arise under existing
agreements with, and previously approved annual compensation awards from,
Wellsford and proposed agreements with WRP Newco and the Surviving Trust.
Benefits of Key Executives
Each key executive of Wellsford, consisting of Messrs. Lynford,
Lowenthal, Kelley, MacKenzie, Hughes and Strong, has an existing employment
agreement with Wellsford that entitles him to certain benefits as described
below. In addition, in prior years each of the executives has earned and
received additional compensation in the form of share loans, grants of
restricted shares and share options. Members of the Board of Trustees of
Wellsford have also been granted share options over the years. Set forth below
is a discussion of the treatment of the various benefits and other compensation
to be paid in connection with the Merger to the key executives and the Trustees
by reason of these pre-existing agreements.
A. Severance Payments. Certain executive officers (but not Messrs.
------------------
Lynford, Lowenthal and Kelley) will be entitled to receive severance payments
under their employment agreements as follows: $764,070 for Mr. MacKenzie,
$692,440 for Mr. Hughes, and $585,000 for Mr. Strong.
B. Share Loans. Under the existing agreements, Wellsford's key
------------
executives previously purchased Wellsford Common over the years at their then
fair market value, the purchase price of which was borrowed from Wellsford and
evidenced by a ten-year promissory note. Under the agreements, 5% of the
principal balance of the promissory notes is forgiven each year provided the
executive remains in the employ of Wellsford and the remaining 50% is due at the
end of the ten year term of the promissory note. Upon a change of control, such
as the Merger, the then remaining principal balance of the loans will be
forgiven for Messrs. Lynford, Lowenthal, Kelley, MacKenzie, Hughes, and Strong
in the amounts of approximately $1.5 million, $1.5 million, $281,000, $1.1
million, $1.1 million and $369,000, respectively.
C. Change In Control Share Grants. In accordance with the terms of
------------------------------
the existing agreements between Wellsford and Messrs. Lynford, Lowenthal and
Kelley, immediately prior to the Merger and Distribution, Messrs. Lynford,
Lowenthal and Kelley will each be issued 22,346 shares of Wellsford Common,
which shares will participate in the Distribution and Merger on the same basis
as all other shares of Wellsford Common.
110
<PAGE>
D. Restricted Share Grants. Restricted share grants have previously
-----------------------
been made to Messrs. Lynford, Lowenthal, MacKenzie and Hughes, portions of which
have vested and portions of which remain subject to forfeiture. All restricted
shares, whether vested or not, will participate in the Distribution and Merger
on the same basis as all other shares of Wellsford Common. Messrs. Lynford
and Lowenthal each hold restricted share grants for 11,375 shares of Wellsford
Common that will continue to remain subject to forfeiture restrictions. The
shares of Survivor Common and the shares of WRP Newco Common to be received by
Messrs. Lynford and Lowenthal on account of the 11,375 restricted shares of
Wellsford Common held by each of them will be forfeited (as to 50% on January 1,
1998 and 50% on January 1, 1999) unless the Surviving Trust achieves on a
consolidated basis a minimum 5% increase in funds from operations per share for
the twelve-month period ending on the December 31 immediately preceding the
applicable vesting date over FFO per share for the preceding twelve-month
period. The portions of the restricted share grants issued to Messrs. MacKenzie
and Hughes that remain subject to forfeiture will become fully vested at the
Effective Time. Accordingly, 2,843 shares of Wellsford Common will vest upon
the Merger for each of Messrs. MacKenzie and Hughes, which shares will
participate in the Distribution and the Merger.
E. Tax Payments. Pursuant to the existing employment agreements with
------------
the key executives of Wellsford, in connection with the Merger the Surviving
Trust will pay to Messrs. Lynford, Lowenthal, MacKenzie, Hughes and Strong
approximately $2.6 million, $2.4 million, $1.0 million, $1.1 million and
$500,000, respectively, on account of the Federal, state and local income and
excise tax liabilities to the Internal Revenue Service and the various state and
local tax authorities. These payments are based on an estimated value of
Wellsford Common at the Effective Time of $27.50 per share and will be adjusted
based upon the actual value of Wellsford Common at the Effective Time.
F. Wellsford Options.
------------------
Over the years, the key executives of Wellsford have been granted
share options in connection with services previously rendered by them. The
treatment of both the vested options and the nonvested options are described
below.
(a) Vested Options.
--------------
All vested options (both incentive share options and nonqualified
options) held by Messrs. Lynford, Lowenthal, Kelley, Hughes and Strong will be
exercised prior to the Merger by tendering existing shares of Wellsford Common
in payment of the exercise price. The tendered shares of Wellsford Common will
be valued at $27.50 per share for purposes of payment of the exercise price
regardless of their actual value on the date of exercise. Pursuant to existing
agreements, each executive officer exercising a vested option will be granted a
new option to purchase additional shares of Wellsford Common at their then fair
market value (a "Reload Option"). Reload Options issued to Messrs. Lynford,
Lowenthal, Kelley, Hughes and
111
<PAGE>
Strong will be assumed by WRP Newco and amended, thereby becoming options to
purchase WRP Newco Common, as more fully described in (c) below.
All vested options (both incentive share options and nonqualified
options) held by Mr. MacKenzie may be exercised prior to the Merger by tendering
existing shares of Wellsford Common in payment of the exercise price. The
tendered shares of Wellsford Common will be valued at their then fair market
value for purposes of payment of the exercise price. In such event, Reload
Options will be granted to Mr. MacKenzie having an exercise price equal to the
fair market value of shares of Wellsford Common on the date of exercise. These
Reload Options will be converted in the Merger into EQR options based on the
Exchange Ratio.
(b) Nonvested Options.
-----------------
The nonvested portion of each Wellsford option held by Messrs.
Lynford, Lowenthal, Kelley, Hughes and Strong will be assumed by WRP Newco and
amended thereby becoming an option to purchase WRP Newco Common, as more fully
described in (c) below. Mr. MacKenzie holds Wellsford nonvested options to
acquire up to 28,000 shares of Wellsford Common, which options will vest in
connection with the Merger. These options will be converted into options to
acquire shares of EQR Common based on the Exchange Ratio. These converted EQR
options may be exercised by Mr. MacKenzie, and if exercised by tendering shares
of EQR Common, EQR reload options will be granted in connection therewith.
(c) Assumed Options.
---------------
For each of Messrs. Lynford, Lowenthal, Kelley, Hughes and Strong, WRP
Newco will assume and amend their Wellsford nonvested options and Reload Options
so that they become options to purchase WRP Newco Common. With respect to
Wellsford nonvested nonqualified options and Reload Options, the number of WRP
Newco nonqualified options will be calculated by dividing the value of such
Wellsford options by the value of the option to purchase one share of WRP Newco
Common. Reload Options will be valued using an exercise price of $27.50 per
share. The exercise price of each WRP Newco nonqualified option will be the
Issuance Price (as defined under "Certain Agreements between WRP Newco and ERP
Operating Partnership -- Common Stock and Preferred Stock Purchase Agreement")
and the term of each such WRP Newco option will be for an initial term of six
years with a four year extension if the optionee is employed by WRP Newco at the
end of four years. These options will become exercisable as follows: 25% after
two years, an additional 25% after three years, an additional 25% after four
years and the remaining 25% after five years from the date of the Merger. All
options will be valued using a mathematical option pricing formula that
incorporates certain assumptions, including an estimated value of the underlying
shares, share option exercise prices, the duration of the share options and the
volatility of the underlying shares (the "Option Pricing Formula"). Based on
the foregoing, the total number of shares of WRP Newco Common subject to options
with respect to Wellsford nonvested options and Reload Options assumed by WRP
Newco will be as follows: 307,396, 307,396, 161,648, 44,932 and 19,489, for
Messrs. Lynford,
112
<PAGE>
Lowenthal, Kelley, Hughes and Strong, respectively. These amounts will be
adjusted based upon the actual value of Wellsford Common (and the actual value
of the Wellsford options assumed by WRP Newco) at the Effective Time.
The nonvested incentive share options held by Messrs. Lynford, Lowenthal,
Kelley, Hughes and Strong will also be assumed by WRP Newco and amended to
become WRP Newco incentive stock options. These amended options will continue
to be nonvested incentive stock options just as they were before the Merger and
will maintain the same vesting schedule as the Wellsford incentive share options
assumed. These WRP Newco nonvested incentive stock options will reflect the
inherent value of, and have a term equal to the remaining term of, the Wellsford
incentive share options assumed, as required by Treasury Regulation Section
1.425-1(a). Based on the foregoing, the total number of shares of WRP Newco
Common subject to options with respect to Wellsford nonvested incentive share
options assumed by WRP Newco will be approximately as follows: 24,688, 24,688,
19,844, 23,386 and 16,115 for Messrs. Lynford, Lowenthal, Kelley, Hughes and
Strong, respectively.
113
<PAGE>
G. Options Held By Trustees. Outstanding options of Wellsford held by
------------------------
persons whose benefits are not described above will vest at the Effective Time
and each such optionee will have the right to continue their option subject to
adjustment for the Exchange Rate or the right to relinquish all option rights in
exchange for a cash payment of $27.50 per share for each option relinquished
less the exercise price per share. All existing options to purchase Wellsford
Common granted to the non-employee Trustees of Wellsford (other than Mr. Du
Bois) will be assumed by WRP Newco and amended thereby becoming options to
purchase WRP Newco Common. The number of options to purchase WRP Newco Common
will be calculated by dividing the value of each Trustee's existing options to
purchase Wellsford Common by the value of the option to purchase one share of
WRP Newco Common. The options to purchase WRP Newco Common will be exercisable
immediately, and will have an initial term of six years (regardless of whether
or not the optionee remains a director of WRP Newco) with a four-year extension
if the optionee is a trustee or director of WRP Newco at the end of four years.
The exercise price of the options to purchase WRP Newco Common shall be the
Issuance Price. All options will be valued using the Option Pricing Formula.
Each of Messrs. Germain, Hoenemeyer and Sixt hold options to purchase 15,000,
15,000 and 15,000 shares of Wellsford Common, respectively. These options will
be assumed by WRP Newco and amended to become options to purchase 30,260, 30,260
and 30,260 shares of WRP Newco Common, respectively, at the Effective Time,
assuming a fair market value of Wellsford Common of $27.50 per share at the
Effective Time. Mr. Du Bois holds options to purchase 15,000 shares of
Wellsford Common and his options will be cancelled at the Effective Time in
exchange for a cash payment of $69,915 (representing the excess of $27.50 over
the exercise price per share for each share of Wellsford Common subject to the
options).
Agreements with the Surviving Trust and ERP Operating Partnership
Consulting Agreements. Messrs. Lynford and Lowenthal will each execute a
---------------------
consulting agreement with ERP Operating Partnership. The consulting agreements
will each be for a term of five years from the Effective Time. Pursuant to the
consulting agreements each of Messrs. Lynford and Lowenthal will serve as a
senior management consultant to ERP Operating Partnership and, in all events,
will receive compensation at the rate of $200,000 per year plus reimbursement
for reasonable out-of-pocket expenses.
Appointment to Board of Trustees of Surviving Trust. At the Effective
---------------------------------------------------
Time, each of Messrs. Lynford and Lowenthal will be appointed to the Board of
Trustees of the Surviving Trust for a term ending at the annual meeting of the
Surviving Trust in the year 2000.
Indemnification. The Surviving Trust will indemnify each trustee and
---------------
officer of Wellsford to the same extent after the Effective Time as such
individuals were indemnified by Wellsford prior to the Effective Time.
114
<PAGE>
Severance and Retention Benefits. As of the Effective Time, the Surviving
--------------------------------
Trust will adopt a severance and retention program (the "Retention Program") for
specified employees of Wellsford who are not officers. The aggregate
obligations of the Surviving Trust under the Retention Program will not exceed
$544,575. Pursuant to the Retention Program, any employee who stays for 6
months after the Effective Time or is terminated without cause by the Surviving
Trust will be entitled to a bonus in a specified amount. The Retention Program
will not require the Surviving Trust to continue the employment of any employee
of Wellsford after the Effective Time.
Senior Officer. Mr. MacKenzie will be a Senior Vice President of the
--------------
Surviving Trust at an initial salary of $175,000 per annum. Mr. MacKenzie will
also receive employee stock options to purchase approximately 73,000 shares of
Survivor Common valued at the fair market value of Survivor Common on the
Effective Date.
Agreements with WRP Newco
Employment Agreements. WRP Newco will enter into employment agreements as
---------------------
of the Effective Time with Messrs. Lynford and Lowenthal, which will expire on
December 31, 2002 and will provide for cash compensation to be paid to each of
them of $275,000 per annum. WRP Newco will also enter into employment
agreements as of the Effective Time with Messrs. Hughes and Strong, which will
expire two years after the Effective Time, and will provide for annual cash
compensation to be paid to each of them of $175,000 and $100,000, respectively.
Each of Messrs. Lynford, Lowenthal, Hughes and Strong are also entitled to
incentive compensation as determined by the Compensation Committee. In
addition, Mr. Hughes is entitled to incentive compensation equal to at least 50%
of his annual base salary. See "Management of WRP Newco -- Employment
Agreements."
Split Dollar Life Insurance. The existing split dollar life insurance
---------------------------
arrangements between Wellsford and Messrs. Lynford and Lowenthal will be assumed
by WRP Newco.
Consultants. Upon completion of the Merger, William Cockrum, a consultant
-----------
to Wellsford, will receive a consulting fee of $500,000, payable $250,000 in
cash and $250,000 by the issuance of shares of WRP Newco Common. In addition,
WRP Newco will enter into a consulting agreement with Mr. Kelley which will
expire five years from the Effective Date and provide for a consulting fee of
$120,000 per year. Mr. Kelley will also receive a $580,000 non-interest bearing
loan which will be due upon termination of the consulting agreement.
New Options. In addition to the stock options in WRP Newco Common referred
-----------
to in "-- Benefits to Key Executives," immediately following the Distribution
and Merger, WRP Newco intends to grant new stock options to purchase shares of
WRP Newco Common to WRP Newco's non-employee directors (other than Mr. Crocker)
and certain executive officers. WRP Newco intends to grant options to purchase
42,750 shares of WRP Newco Common to each of
115
<PAGE>
such non-employee directors and options to purchase 85,500 shares of WRP Newco
Common to each of Messrs. Lynford, Lowenthal, Hughes and Strong.
116
<PAGE>
SURVIVING TRUST
SELECTED UNAUDITED PRO FORMA
COMBINED FINANCIAL DATA
The following tables set forth the selected unaudited pro forma
combined financial data for the Surviving Trust as a combined entity, giving
effect to the Merger as if it had occurred on the dates indicated herein, after
giving effect to the pro forma adjustments described in the notes to the
unaudited pro forma financial statements included elsewhere in the Joint Proxy
Statement/Prospectus/Information Statement.
The selected unaudited pro forma combined operating data are presented
as if the Merger had been consummated at the beginning of each period presented.
In addition to the Merger, the Surviving Trust pro forma combined operating data
gives effect to certain material events for EQR which occurred between January
1, 1996 and November 15, 1996 and during the year ended December 31, 1995. See
Note (T) to the Unaudited Pro Forma Combined Statement of Operations for the
nine months ended September 30, 1996 and the year ended December 31, 1995
included elsewhere in the Joint Proxy Statement/Prospectus/ Information
Statement.
The selected unaudited pro forma combined balance sheet data is
presented as if the Merger had occurred on September 30, 1996. In addition to
the Merger, the Pro Forma Balance Sheet gives effect to certain material events
that occurred between October 1, 1996 and January 20, 1997, as if they had
occurred on September 30, 1996. See Note (A) to the Unaudited Pro Forma Balance
Sheet included elsewhere in the Joint Proxy Statement/ Prospectus/Information
Statement. The Merger has been accounted for under the purchase method of
accounting in accordance with the Accounting Principles Board Opinion No. 16. In
the opinion of management, all significant adjustments necessary to reflect the
effects of the Merger have been made.
The selected pro forma financial information should be read in
conjunction with, and is qualified in its entirety by, the respective historical
audited financial statements and notes thereto of EQR and Wellsford incorporated
by reference into this Joint Proxy Statement/Prospectus/Information Statement
and the unaudited pro forma financial statements and notes thereto included
elsewhere in the Joint Proxy Statement/Prospectus/Information Statement.
The selected unaudited pro forma operating and balance sheet data are
presented for comparative purposes only and are not necessarily indicative of
what the actual combined results of EQR and Wellsford would have been for the
period and dates presented. Nor does such data purport to represent the results
of future periods.
117
<PAGE>
SURVIVING TRUST
<TABLE>
<CAPTION>
OPERATING DATA: Pro Forma Pro Forma
Nine Months Ended Year Ended
September 30, 1996 December 31, 1995
------------------ -----------------
<S> <C> <C>
REVENUES: (Amount in thousands except per share data)
Rental income $467,644 $602,682
Fee and asset management 4,982 7,030
Interest income-investment in mortgage notes 9,084 10,646
Interest and other income 5,933 10,241
----- ------
Total revenues 487,643 630,599
------- -------
EXPENSES:
Property and maintenance 135,798 181,659
Real estate taxes and insurance 44,374 58,556
Property management 16,964 21,316
Fee and asset management 3,037 3,887
Depreciation 97,299 122,808
Interest:
Expense incurred 84,423 115,543
Amortization of deferred financing costs 2,794 3,425
General and administrative 7,062 8,625
----- -----
Total Expenses 391,751 515,819
------- -------
Income before (loss) on sale of investment communities and (loss) on joint venture
communities 95,892 114,780
(Loss) on sale of investment communities -- (819)
(Loss) on joint venture communities (53) (280)
---- -----
Income before extraordinary items and allocation to minority interests 95,839 113,681
Extraordinary Item:
(Loss) on early extinguishment of debt -- (5,553)
-------- ---------
Income before allocation to Minority Interests 95,839 108,128
Income allocated to Minority Interests (10,800) (12,190)
--------- ---------
Net income 85,039 95,938
Preferred distributions 36,594 45,217
-------- --------
Net income available for Common Shares $48,445 $50,721
======== ========
Net income per weighted average Common Share outstanding $0.86 $0.93
======== ========
Weighted average Common Shares outstanding 56,426 54,360
======== ========
</TABLE>
118
<PAGE>
<TABLE>
<CAPTION>
BALANCE SHEET DATA: Pro Forma
(at end of period)
September 30, 1996
------------------
<S> <C>
Real estate, after accumulated depreciation $3,697,614
Total assets $3,907,011
Total debt $1,546,300
Minority Interests $ 188,069
Shareholders' Equity $2,026,754
</TABLE>
119
<PAGE>
EQUITY RESIDENTIAL PROPERTIES TRUST
SELECTED HISTORICAL AND COMBINED FINANCIAL DATA
The following tables set forth selected historical and combined
financial data for EQR. The selected historical combined financial data for each
of the years ended December 31, 1991, 1992, 1993, 1994 and 1995 are derived from
the audited financial statements of EQR as reported in its Annual Reports on
Form 10-K and the selected historical financial data for each of the interim
periods ended September 30, 1996 and 1995 are derived from the unaudited
financial statements of EQR as reported in its Quarterly Reports on Form 10-Q.
The selected historical financial data should be read in conjunction with, and
is qualified in its entirety by, the historical and combined financial
statements and notes thereto of EQR incorporated by reference into this Joint
Proxy Statement/Prospectus/Information Statement.
120
<PAGE>
EQUITY RESIDENTIAL PROPERTIES TRUST
CONSOLIDATED AND COMBINED HISTORICAL FINANCIAL INFORMATION
(Amounts in thousands except per share data)
<TABLE>
<CAPTION>
Nine Months Ended
September 30 Year Ended December 31,
--------------------- ------------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
------- ------- ------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
REVENUES
Rental income $ 327,749 $ 273,723 $ 372,447 $ 220,727 $ 104,388 $ 86,597 $ 84,289
---------- ---------- ---------- ---------- --------- --------- ---------
Fee and asset management 4,982 5,461 7,030 4,739 4,651 4,215 4,361
Interest income-investment
in mortgage notes 9,084 1,934 4,862 -- -- -- --
Interest and other income 2,232 3,652 4,573 5,568 3,031 2,161 888
---------- ---------- ---------- ---------- --------- --------- ---------
Total revenues 344,047 284,770 388,912 231,034 112,070 92,973 89,538
---------- ---------- ---------- ---------- --------- --------- ---------
EXPENSES
Property and maintenance 93,128 82,307 110,714 66,534 35,324 30,680 30,245
Real estate taxes and insurance 32,301 27,357 37,002 23,028 11,403 10,274 9,973
Property management 13,136 10,815 15,213 10,249 4,938 2,912 2,659
Property management - non-recurring -- -- -- 879 -- -- --
Fee and asset management 3,037 2,746 3,887 2,056 2,242 2,403 2,383
Depreciation 66,759 51,982 72,410 37,273 15,384 13,442 13,833
Interest:
Expense incurred 58,632 58,141 78,375 37,044 26,042 31,926 33,786
Amortization of deferred financing
costs 2,860 2,539 3,444 1,930 3,322 2,702 1,575
Refinancing costs -- -- -- -- 3,284 -- --
General and administrative 6,690 6,091 8,129 6,053 1,994 1,915 1,320
---------- ---------- ---------- ---------- --------- --------- ---------
Total expenses 276,543 241,978 329,174 185,046 103,933 96,254 95,774
---------- ---------- ---------- ---------- --------- --------- ---------
</TABLE>
121
<PAGE>
<TABLE>
<CAPTION>
1996 1995 1995 1994 1993 1992 1991
----------- ----------- ----------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Income (loss) before gain on disposition
of properties, extraordinary items and
allocation to Minority Interests 67,504 42,792 59,738 45,988 8,137 (3,281) (6,236)
Gain on disposition of properties 2,346 1,542 21,617 -- -- -- --
----------- ----------- ----------- ----------- ---------- ---------- ----------
Income (loss) before extraordinary items
and allocation to Minority Interests 69,850 44,334 81,355 45,988 8,137 (3,281) (6,236)
Extraordinary Items:
Write-off of unamortized costs on
refinanced debt (3,134) -- -- -- -- -- --
Gain on early extinguishment of debt -- 2,000 2,000 -- -- -- --
Gain on discharge of indebtedness -- -- -- -- 1,792 18,203 5,391
----------- ----------- ----------- ----------- ---------- ---------- ----------
Income (loss) before allocation to
Minority Interests 66,716 46,334 83,355 45,988 9,929 14,922 (845)
Income allocated to Minority Interests 8,426 9,004 15,636 11,570 3,834 -- --
----------- ----------- ----------- ----------- ---------- ---------- ----------
Net income (loss) 58,290 37,330 67,719 34,418 6,095 14,922 (845)
Preferred distributions 19,953 4,781 10,109 -- -- -- --
----------- ----------- ----------- ----------- ---------- ---------- -----------
Net income (loss) available for
Common Shares $ 38,337 $ 32,549 $ 57,610 $ 34,418 $ 6,095 $ 14,922 $ (845)
=========== =========== =========== =========== ========== ========== ===========
Net income per weighted average
Common Share outstanding $ 0.94 $ 0.95 $ 1.68 $ 1.34 $ .42 -- --
Weighted average Common Shares
outstanding 40,934 34,277 34,358 25,621 14,601 -- --
BALANCE SHEET DATA
(at end of period):
Real estate, before accumulated
depreciation $ 2,747,081 $ 2,186,636 $ 1,963,476 $ 634,577 $ 358,212 $ 353,212
Real estate, after accumulated
depreciation $ 2,473,686 $ 1,969,453 $ 1,770,735 $ 478,210 $ 218,825 $ 226,818
Total assets $ 2,784,866 $ 2,141,260 $ 1,847,685 $ 535,914 $ 238,878 $ 243,693
Total debt $ 1,237,623 $ 1,002,219 $ 994,746 $ 278,642 $ 343,282 $ 360,132
Minority Interests $ 154,839 $ 168,963 $ 177,438 $ 83,159 $ -- $ --
Shareholders' Equity (Net Deficit) $ 1,271,890 $ 884,517 $ 609,936 $ 146,485 $ (122,094) $ (135,041)
</TABLE>
122
<PAGE>
WELLSFORD RESIDENTIAL PROPERTY TRUST
SELECTED HISTORICAL FINANCIAL DATA
The following tables set forth selected historical financial data for Wellsford.
The selected historical financial data for each of the years ended December 31,
1991, 1992, 1993, 1994 and 1995 are derived from the audited financial
statements of Wellsford as reported in its Annual Reports on Form 10-K and the
selected historical financial data for each of the interim periods ended
September 30, 1996 and 1995 are derived from the unaudited financial statements
of Wellsford as reported in its Quarterly Reports on Form 10-Q. The selected
historical financial data should be read in conjunction with, and is qualified
in its entirety by, the historical financial statements and notes thereto of
Wellsford incorporated by reference into this Joint Proxy
Statement/Prospectus/Information Statement. Certain reclassifications have been
made to Wellsford's historical financial data to conform to EQR's presentation.
123
<PAGE>
Wellsford Residential Property Trust
Selected Historical Financial Data
<TABLE>
<CAPTION>
Nine Months ended
September 30
Historical Year Ended December 31,
(000s except per share data) Historical (000s except per share data)
--------------------------------- ----------------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
----------------- --------------- ------------- ------------ ----------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues $97,152 $98,063 $131,232 $82,794 $42,007 $26,229 $22,071
Expenses (80,131) (86,007) (113.712) (73.299) (34,816) (26,991) (24,852)
Gain (loss) on sale of
investment
communities -- 516 (819) -- 882 -- --
Loss on joint venture
communities (52) (301) (279) -- -- -- --
---- ----- ----- --- --- --- --
Income (loss) before
extraordinary item $16,969 $12,271 $16,422 $9,495 $8,073 $(762) $ (2,781)
====== ====== ====== ===== ===== ===== =======
Net income (loss) $16,969 $7,142 $10,869 $9,495 $8,073 $(762) $(1,736)
Preferred dividends (9,411) (5,836) (8,973) (7,000) (972) -- --
------- ------- ------- ------- ----- --- --
Net income (loss)
available for
common
shareholders $7,558 $1,306 $1,896 $2,495 $7,101 $ (762) $(1,736)
===== ===== ===== ===== ===== ===== =======
Net income (loss) per
common share $.44 $.08 $0.11 $0.25 $0.91 $(0.34)
=== === ==== ==== ==== ======
Weighted average
number of common 17,041 16,921 16,938 10,070 7,813 2,273
shares outstanding ====== ====== ====== ====== ===== =====
</TABLE>
124
<PAGE>
Wellsford Residential Property Trust
Selected Historical Financial Data
<TABLE>
<CAPTION>
September 30, 1996 Year Ended December 31,
------------------ -----------------------
Historical Historical (000, except share data)
-------------------- ---------------------------------------------------------------------------------
1995 1994 1993 1992 1991
-------------- --------------- --------------- --------------- ----------------
<S> <C> <C> <C> <C> <C>
Real Estate assets
before
accumulated
depreciation $773,470 $736,399 $747,519 $301,389 $156,568 $124,768
Real estate assets
after accumulated
depreciation 696,078 677,908 712,742 282,224 143,787 116,553
Total Assets 739,823 729,638 745,754 322,400 165,963 126,107
Mortgages Payable 83,299 77,137 208,858 24,203 17,155 110,755
Convertible note
payable -- -- -- 46,070 55,358 --
Unsecured credit
facility 26,000 -- 140,000 -- -- --
Senior unsecured
notes 223,447 233,307 -- -- -- --
Shareholders' equity 381,703 398,359 371,655 239,775 89,986 12,168
Cash dividends
declared per
Series A preferred
share $1.31 $1.75 $1.75 $0.24 $--
==== ===== ==== ==== ==
Cash dividends
declared per
Series B preferred
share $1.81 $0.86 $-- $-- $--
==== ==== === === ==
Cash dividends
declared per
common share $1.45 $1.92 $1.80 $1.68 $0.16
==== ==== ==== ==== ====
</TABLE>
125
<PAGE>
SURVIVING TRUST
BASIS OF PRESENTATION TO UNAUDITED PRO FORMA
COMBINED BALANCE SHEET
AS OF SEPTEMBER 30, 1996
The Unaudited Pro Forma Combined Balance Sheet gives effect to the proposed
Merger of Equity Residential Properties Trust ("EQR") and Wellsford Residential
Property Trust ("Wellsford") as if the Merger had occured on September 30, 1996.
The Unaudited Pro Forma Combined Balance Sheet gives effect to the Merger under
the purchase method of accounting in accordance with Accounting Principles Board
Opinion No. 16. In addition to the Merger, the EQR Pro Forma Balance Sheet gives
effect to certain material events which occurred between October 1, 1996 and
January 20, 1997, as if they had occured on September 30, 1996. See Note (A) to
the Unaudited Pro Forma Combined Balance Sheet. In the opinion of management,
all significant adjustments necessary to reflect the effects of the Merger have
been made.
The Unaudited Pro Forma Combined Balance Sheet is presented for comparative
purposes only and is not necessarily indicative of what the actual combined
financial position of EQR and Wellsford would have been at September 30, 1996,
nor does it purport to represent the future combined financial position of EQR
and Wellsford. This Unaudited Pro Forma Combined Balance Sheet should be read in
conjunction with, and is qualified in its entirety by, the respective historical
financial statements and notes thereto of EQR and Wellsford incorporated by
reference into the Joint Proxy Statement/Prospectus/Information Statement.
126
<PAGE>
SURVIVING TRUST
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
AS OF SEPTEMBER 30, 1996
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Pro Forma
EQR EQR Pro Forma EQR WRP Merger
Historical Adjustments (A) Pro Forma Historical (B) Adjustments (C)
<S> <C> <C> <C> <C> <C>
ASSETS
Rental property, net $ 2,473,686 $ 233,065 $ 2,706,751 $ 651,926 $ 338,937 (D)
Real Estate held for disposition 11,260 (11,260) - - -
Construction in progress - - - 44,153 (43,153)(E)
Investment in mortgage notes, net 86,486 - 86,486 17,800 (17,800)(F)
Cash and cash equivalents 152,545 (37,279) 115,266 7,979 (75,037)(G)
Rents receivables 2,126 - 2,126 - -
Deposits-restricted 5,501 - 5,501 9,813 (6,355)(H)
Escrows deposits-mortgage 14,953 - 14,953 - -
Deferred financing costs, net 13,062 - 13,062 5,092 (5,092)(I)
Other assets 25,247 - 25,247 3,060 6,296 (J)
----------- ----------- ----------- ----------- ----------
Total assets $ 2,784,866 $ 184,526 $ 2,969,392 $ 739,823 $ 197,796
=========== =========== =========== =========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Mortgage notes payable $ 738,862 $ 7,154 $ 746,016 $ 83,299 $ (5,223)(K)
Line of credit - - - 26,000 (26,000)(L)
Notes, net 498,761 - 498,761 223,447 -
Accounts payable and accrued expenses 36,063 - 36,063 10,812 -
Accrued interest payable 14,682 - 14,682 - -
Due to affiliates 778 - 778 - -
Rents received in advance and other liabilities 16,813 - 16,813 - -
Security deposits 12,945 - 12,945 3,131 -
Distributions payable 39,233 - 39,233 11,431 -
----------- ----------- ------------ ----------- ----------
Total liabilities 1,358,137 7,154 1,365,291 358,120 (31,223)
----------- ----------- ------------ ----------- ----------
Commitments and contingencies
Minority Interests 154,839 (5,194) 149,645 - 38,424
----------- ----------- ------------ ----------- ----------
Shareholders' equity:
Common shares 458 43 501 171 (64)(O)
Preferred shares 393,000 - 393,000 63 (63)(P)
Series D Convertible Preferred Shares 99,995 (P)
Series E Preferred Shares 57,500 (P)
Employee notes (5,274) - (5,274) (7,284) 7,284 (Q)
Paid in capital 962,647 182,523 1,145,170 461,298 (46,602)(R)
Distributions in excess of accumulated earnings (78,941) - (78,941) (72,545) 72,545 (S)
----------- ----------- ------------ ----------- ----------
Total Shareholders' Equity 1,271,890 182,566 1,454,456 381,703 190,595
----------- ----------- ------------ ----------- ----------
Total liabilities and shareholders' equity $ 2,784,866 184,526 2,969,392 739,823 197,796
----------- ----------- ------------ ----------- ----------
</TABLE>
<TABLE>
<CAPTION>
Surviving Trust
Pro Forma
Combined
<S> <C>
ASSETS $ 3,697,614
Rental property, net -
Real Estate held for disposition 1,000
Construction in progress 86,486
Investment in mortgage notes, net 48,208
Cash and cash equivalents 2,126
Rents receivables 8,959
Deposits-restricted 14,953
Escrows deposits-mortgage 13,062
Deferred financing costs, net 34,603
Other assets ------------
Total assets $ 3,907,011
============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Mortgage notes payable $ 824,092
Line of credit -
Notes, net 722,208
Accounts payable and accrued expenses 46,875
Accrued interest payable 14,682
Due to affiliates 778
Rents received in advance and other liabilities 16,813
Security deposits 16,076
Distributions payable 50,664
------------
Total liabilities 1,692,188
------------
</TABLE>
127
<TABLE>
<S> <C>
Commitments and contingencies (M)
Minority Interests 188,069 (N)
------------
Shareholders' equity:
Common shares 608
Preferred shares 393,000
Series D Convertible Preferred Shares 99,995
Series E Preferred Shares 57,500
Employee notes (5,274)
Paid in capital 1,559,866
Distributions in excess of accumulated earnings (78,941)
------------
Total Shareholders' Equity 2,026,754
------------
Total liabilities and shareholders' equity-- 3,907,011
============
</TABLE>
128
<PAGE>
SURVIVING TRUST
NOTES TO UNAUDITED PRO FORMA COMBINED BALANCE SHEET
AS OF SEPTEMBER 30, 1996
(AMOUNTS IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
A) The EQR Pro Forma Adjustments column includes the acquisition of
twelve multifamily residential properties, for an aggregate purchase
price of $231,700, including the assumption of $42,300 of mortgage
indebtedness, the disposition of three multifamily residential
properties which had a net book value of $9,900 and $12,200 of
mortgage indebtedness as of September 30, 1996 and the repayment of
mortgage indebtedness for three properties which had balances of
$23,000 as of September 30, 1996. In addition, this column includes
the issuance of 4,440 Common Shares which resulted in net proceeds of
$177,400 to EQR. All of these events occurred between October 1, 1996
and January 20, 1997.
(B) Certain reclassifications have been made to Wellsford's historical
balance sheet to conform to EQR's balance sheet presentation.
(C) Represents adjustments to record the Merger in accordance with the
purchase method of accounting, based upon the assumed purchase
price of $998,248 assuming a market value of $42.25 per share of
EQR's common shares, as follows:
Issuance of 10,732 common shares of beneficial interest of EQR, based
on the .625 exchange rate, in exchange for 17,171 common shares of
Wellsford, which includes 67 common shares of Wellsford issued
<TABLE>
<S> <C>
immediately prior to the merger. . . . . . . . . . . . . . . . . . $ 453,427
Issuance of EQR Series D Preferred Shares of Beneficial Interest. . . . . . . 99,995
Issuance of EQR Series E Preferred Shares of Beneficial Interest. . . . . . . 57,500
Assumption of Wellsford's liabilities, net of spin-off to WRP NewCo of $3,953 . . 354,167
Adjustment to increase the assumed Wellsford debt to it's fair value (see Note K) . 9,532
Merger costs (see calculation below). . . . . . . . . . . . . . . . 23,627
------------
$ 998,248
============
<CAPTION>
The following is a calculation of the estimated fees and other expenses
related to the Merger:
<S> <C>
Employee termination costs. . . . . . . . . . . . . . . . . . . $ 10,063
Buyout of stock options. . . . . . . . . . . . . . . . . . . . 4,227
Advisory fees . . . . . . . . . . . . . . . . . . . . . . . 2,350
Legal and accounting fees . . . . . . . . . . . . . . . . . . . .2,225
Consulting contracts. . . . . . . . . . . . . . . . . . . . . 2,000
Other, including printing, filing, transfer and spin-off costs . . . . . . 2,762
------------
TOTAL $ 23,627
============
</TABLE>
129
<PAGE>
SURVIVING TRUST
NOTES TO UNAUDITED PRO FORMA COMBINED BALANCE SHEET
AS OF SEPTEMBER 30, 1996
(AMOUNTS IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
D) Represents the estimated increase in Wellsford's rental property, net
based upon EQR's purchase price and the adjustment to eliminate the
basis of Wellsford's net assets acquired:
<TABLE>
<S> <C>
Purchase Price (see Note C) $ 998,248
Less: Historical basis of Wellsford's net assets acquired
Rental property, net 651,926
Construction in progress, net of spin-off to WRP NewCo of $17,028 27,125
Restricted deposits, net of spin-off to WRP NewCo of $6,355 3,458
Other assets, net of spin-off to WRP NewCo of $134 2,927
------------------
Step-up to record fair value of Wellsford Rental property 312,812
------------------
Plus: reclassification from construction in progress (see note E) 26,125
------------------
$ 338,937
==================
</TABLE>
E) Reflects the spin-off of $17,028 of costs related to the Palomino Park
project to WRP NewCo and the reclassification of $26,125 related to
three development properties completed subsequent to September 30,
1996, to rental property, net (see Note D).
F) Decrease results from the spin-off of the Sonterra mortgage notes
receivable to WRP NewCo.
G) Decrease of $75,037 reflects the spin-off of $21,710 in cash to WRP
NewCo, including an investment of $2,930 for EQR's 20% interest in the
Palomino Park project (see Note J), the expected payment of $23,827
for Merger (see Note C) and registration (see Note R) costs, the
repayment of $26,000 on Wellsford's line of credit (see Note L) and
EQR's purchase of $3,500 in WRP NewCo common stock (see Note J).
H) Decrease results from the spin-off of restricted cash to WRP NewCo for
the Palomino Park project.
I) Decrease due to elimination of Wellsford deferred loan costs in
connection with the Merger.
J) Increase of $6,296 results from the purchase of $3,500 in WRP NewCo
common stock and EQR's 20% investment in the Palomino Park project of
$2,930 offset by the spin-off to WRP NewCo of $134 in interest
receivable related to the Sonterra Mortgage notes receivable.
K) Decrease of $5,223 in mortgage notes payable reflects the spin-off of
$14,755 in bonds on the Palomino Park project to WRP NewCo offset by
recording a premium of $9,532 required to adjust Wellsford's debt to
its estimated fair value.
L) Reflects the repayment of Wellsford's line of credit from EQR's cash
balances. It is assumed that additional Wellsford borrowings of
$10,802 that would be incurred in connection with the spin-off of WRP
NewCo are repaid from EQR's cash balances.
130
<PAGE>
SURVIVING TRUST
NOTES TO UNAUDITED PRO FORMA COMBINED BALANCE SHEET
AS OF SEPTEMBER 30, 1996
(AMOUNTS IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
M) ERP Operating Partnership has committed to acquire up of 1,000 shares
of WRP NewCo Series A 8% Convertible Redeemable Preferred Stock; has
provided stand-by obligations with respect to a $36,800 agreement with
respect to the construction financing of Phase I of Palomino Park and
$30,000 pursuant to an agreement expected to be entered into with
respect to the construction financing for Phase II of Palomino Park;
and a $14,800 credit enhancement with respect to bonds issued to
finance certain public improvements at Palomino Park.
N) The pro forma allocation to the minority interests is based upon the
percentage owned by such minority interests as follows:
<TABLE>
<S> <C>
Total Shareholders' Equity and Minority Interests $ 2,214,823
Less: Preferred Shares, Series D Convertible and Series E Preferred shares (550,495)
------------------
1,664,328
Minority Interests percentage ownership in ERP Operating
Partnership (see Note R) 11.3%
------------------
Minority Interests $ 188,069
==================
</TABLE>
O) Decrease results from elimination of Wellsford common shares at $.01
par value ($171) net of the issuance of EQR common shares at $.01 par
value ($107) (see Note C).
P) Elimination of $63 of Wellsford Preferred Shares and the issuance of
$99,995 of EQR Series D Convertible Preferred Shares and of $57,500 of
EQR Series E Preferred Shares (see Note C).
Q) Reflects the elimination of restricted stock and the forgiveness of
all of Wellsford's employee notes, as a result of the Merger and the
subsequent repayment and forfeiture of $668 by a former employee.
R) Decrease to paid in capital to reflect the following:
<TABLE>
<S> <C>
Issuance of 10,732 EQR common shares at $42.25 per share $ 453,427
Par value of common shares issued (107)
Registration costs incurred in connection with the Merger (200)
Wellsford's historical shareholders' equity (461,298)
Adjustment for an 11.3% minority interest ownership in ERP Operating (38,424)
Partnership
==================
$ (46,602)
==================
</TABLE>
<TABLE>
<CAPTION>
The 11.3% minority interest ownership in EQR, is calculated as follows:
Shares Units
------ -----
<S> <C> <C>
Wellsford's historical Shares outstanding. . . . 17,171 -
==============
EQR's Shares to be issued based on the .625 Merger exchange ratio. . . . 10,732 10,732
EQR's historical Shares/Units outstanding. . . . 51,155 59,013
-------------- -------------
EQR's proforma Shares/Units outstanding. . . 61,887 69,745
============== =============
EQR ownership percentage of ERP Operating Partnership 88.7%
==============
Minority interest ownership percentage of ERP Operating Partnership 11.3%
==============
</TABLE>
S) Reflects the elimination of Wellsford's distribution in excess of
accumulated earnings to paid in capital, as a result of the Merger.
131
<PAGE>
SURVIVING TRUST
BASIS OF PRESENTATION TO UNAUDITED PRO FORMA
COMBINED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995 AND
THE NINE MONTHS ENDED SEPTEMBER 30, 1996
The Unaudited Pro Forma Combined Statements of Operations for the year
ended December 31, 1995 and the nine months ended September 30,1996 are
presented as if the Merger had occurred at the beginning of each period
presented. The Unaudited Pro Forma Combined Statements of Operations give
effect to the Merger under the purchase method of accounting in accordance with
Accounting Principles Board Opinion No. 16, and the combined entity qualifying
as a REIT, distributing at least 95% of its taxable income, and therefore,
incurring no federal income tax liability for the periods presented. In
addition to the Merger, the EQR Pro Forma Statement of Operations for the nine
months ended September 30, 1996 gives effect to the acquisition of 41
multifamily residential properties between January 1, 1996 and November 15, 1996
and the EQR Pro Forma Statement of Operations for the year ended December 31,
1995 gives effect to the acquisition of 58 multifamily residential properties
and the investment in partnership interests and subordinate mortgages
collateralized by 21 multifamily residential properties between January 1, 1995
and November 15, 1996. In the opinion of management, all significant
adjustments necessary to reflect the effects of these transactions have been
made.
The Unaudited Pro Forma Combined Statements of Operations are presented
for comparative purposes only and are not necessarily indicative of what the
actual combined results of EQR and Wellsford would have been for the year ended
December 31, 1995 and the nine months ended September 30, 1996, nor does it
purport to be indicative of the results of operations in future periods. The
Unaudited Pro Forma Combined Statements of Operations should be read in
conjunction with, and are qualified in their entirety by, the respective
historical financial statements and notes thereto of EQR and Wellsford
incorporated by reference into this Joint Proxy Statement/Prospectus/Information
Statement.
132
<PAGE>
SURVIVING TRUST
UNAUDITED PRO FORMA COMDINED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Surviving Trust
EQR Wellsford Merger Pro Forma
Pro Forma (T) Historical (U) Adjustments Combined
<S> <C> <C> <C> <C>
REVENUES
Rental Income $ 375,717 $ 91,927 $ - $ 467,644
Fee and asset management 4,982 - - 4,982
Interest income-investment in mortgage notes 9,084 356 (356)(V) 9,084
Interest and other income 1,064 4,869 - 5,933
--------- ------------ ----------- ----------
Total revenues 390,847 97,152 (356) 487,643
--------- ------------ ----------- ----------
EXPENSES
Property and maintenance 105,322 30,476 - 135,798
Real estate taxes and insurance 37,302 7,072 - 44,374
Property management 14,036 3,451 (523)(W) 16,964
Fee and asset management 3,037 - - 3,037
Depreciation 75,592 19,630 2,077 (X) 97,299
Interest:
Expense incurred 69,310 16,415 (1,302)(Y) 84,423
Amortization of deferred financing costs 2,794 494 (494)(Z) 2,794
General and administrative 6,690 2,593 (2,221)(AA) 7,062
--------- ------------ ------------ -----------
Total expenses 314,083 80,131 (2,463) 391,751
--------- ------------ ------------ -----------
Income before loss on joint venture communities 76,764 17,021 2,107 95,892
(Loss) on joint venture communities - (53) - (53)
--------- ------------ ------------ -----------
Income before allocation to Minority Interests 76,764 16,969 2,107 95,839
(Income) allocated to Minority Interests (7,938) - (2,862)(AB) (10,800)
--------- ------------ ------------ -----------
Net income 68,826 16,969 (755) 85,039
Preferred distributions 27,183 9,411 - 36,594
--------- ------------ ------------ -----------
Net income available to common shares $ 41,643 $ 7,557 $ (755) $ 48,445
========= ============ ============ ===========
Net income per weighted average Common
Share outstanding $ 0.91 $ 0.44 $ (0.49) $ 0.86
========= ============ ============ ===========
Weighted average Common Shares outstanding 45,775 17,041 (6,390)(AC) 56,426
========= ============ ============ ===========
</TABLE>
133
<PAGE>
SURVIVING TRUST
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Surviving Trust
EQR Wellsford Merger Pro Forma
Pro Forma (T) Historical (U) Adjustments Combined
<S> <C> <C> <C> <C>
REVENUES
Rental Income $ 479,116 $ 123,566 $ - $ 602,682
Fee and asset management 7,030 - - 7,030
Interest income-investment in mortgage notes 10,266 380 - 10,646
Interest and other income 2,955 7,286 - 10,241
--------------- ---------------- ------------- -----------------
Total revenues 499,367 131,232 - 630,599
--------------- ---------------- ------------- -----------------
EXPENSES
Property and maintenance 140,739 40,920 - 181,659
Real estate taxes and insurance 48,960 9,596 - 58,556
Property management 17,471 4,951 (1,106) (W) 21,316
Fee and asset management 3,887 - - 3,887
Depreciation 93,866 26,912 2,030 (X) 122,808
Interest:
Expense incurred 92,840 24,439 (1,736) (Y) 115,543
Amortization of deferred financing costs 3,425 2,534 (2,534) (Z) 3,425
General and administrative 8,129 4,360 (3,864) (AA) 8,625
--------------- --------------- ------------- -----------------
Total expenses 409,317 113,712 (7,210) 515,819
--------------- --------------- ------------- -----------------
Income before loss on sale of investment 90,050 17,520 7,210 114,780
communities and loss on joint venture
communities
(Loss) on sale of investment communities - (819) - (819)
(Loss) on joint venture communities - (280) - (280)
-------------- ---------------- ------------- -----------------
Income before extraordinary item 90,050 16,421 7,210 113,681
Extraordinary item:
(Loss) on early extinguishment of debt - (5,553) - (5,553)
-------------- ---------------- ------------- -----------------
Income before allocation to Minority Interests 90,050 10,868 7,210 108,128
(Income) allocated to Minority Interests (8,614) - (3,576) (AB) (12,190)
-------------- ---------------- ------------- -----------------
Net income 81,436 10,868 3,634 95,938
Preferred distributions 36,244 8,973 - 45,217
------------- --------------- ------------- -----------------
Net income available to common shares $ 45,192 $ 1,895 $ 3,634 $ 50,721
============== ================ ============= =================
Net income per weighted average Common $ 1.03 $ 0.11 $ (0.21) $ 0.93
Share outstanding ============== ================ ============= =================
Weighted average Common Shares outstanding 43,774 16,938 (6,352) (AC) 54,360
============== ================ ============= =================
</TABLE>
134
<PAGE>
SURVIVING TRUST
NOTES TO UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995 AND
THE NINE MONTHS ENDED SEPTEMBER 30, 1996
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
(T) The EQR Pro Forma Statements of Operations reflect the historical
results of EQR adjusted to reflect the following transactions as if they
had occurred at the beginning of each period presented: (i) the January
1996 Common Share Offering, (ii) the February 1996 Common Share
Offering, (iii) the May 1996 Common Share Offering, (iv) the Second
Public Debt Offering, (v) the Third Public Debt Offering, (vi) the
Series A Preferred Share Offering, (vii) the Series B Preferred Share
Offering, (viii) the September 1996 Common Share Offering, (ix) the
acquisition of 17 properties during 1995 and 41 properties during 1996,
(x) the refinancing of certain tax-exempt bonds in 1996, (xi) the
disposition of six properties in 1995 and two properties in 1996, (xii)
the repayment of mortgage indebtedness for six properties in 1995 and
six properties in 1996, and (xiii) the investment in partnership
interests and subordinate mortgages collateralized by 21 multifamily
properties in 1995, as previously reported on Form 8-K dated November
15, 1996, all incorporated by reference into this Joint Proxy Statement/
Prospectus/Information Statement.
(U) Certain reclassifications have been made to Wellsford's Historical
Statement of Operations to conform to EQR's Statement of Operations
presentation.
(V) Decrease results from the loss of interest income related to the
spin-off of the $17,800 Sonterra mortgage notes receivable to WRP NewCo.
(W) Decrease results from operating efficiencies expected to occur as a
result of the Merger.
(X) Represents the net increase in depreciation of real estate owned as a
result of recording the Wellsford real estate assets at fair value
versus historical cost. Depreciation is computed on a straight-line
basis over the estimated useful lives of the related assets which have a
useful life of approximately 30 years.
The calculation of the fair value of depreciable real estate assets at
September 30, 1996 is as follows:
<TABLE>
<CAPTION>
<S> <C>
Historical basis of Wellsford's rental property $ 651,926
Plus: Step up to Wellsford's rental property, net (see Note D) 312,812
-------------------
Pro forma basis of Wellsford's rental property at fair value 964,738
Less: Fair value allocated to land (96,474)
-------------------
Pro forma basis of Wellsford's depreciable rental property at fair value $ 868,264
===================
</TABLE>
Calculations of depreciation of rental property for the year ended
December 31,1995 and the nine months ended September 30, 1996 are as
follows:
<TABLE>
<CAPTION>
Year Nine Months
Ended Ended
December 31, 1995 September 30, 1996
----------------- ------------------
<S> <C> <C>
Depreciation expense based upon an estimated useful life $ 28,942 $ 21,707
of approximately 30 years. . . . .
Less: historic Wellsford depreciation of rental property. . 26,912 19,630
----------------- ------------------
Pro forma adjustment. . . . . $ 2,030 $ 2,077
================= ==================
</TABLE>
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<PAGE>
SURVIVING TRUST
NOTES TO UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995 AND
THE NINE MONTHS ENDED SEPTEMBER 30, 1996
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
(Y) Decrease results from the amortization of the premium required to record
Wellsford's debt at it's estimated fair value.
(Z) Decrease results from the elimination of amortization of Wellsford's
deferred financing costs, which costs would be eliminated in connection
with the Merger.
(AA) Decrease results from identified historic costs of certain items which
are anticipated to be eliminated or reduced as a result of the Merger as
follows:
<TABLE>
<CAPTION>
Year Nine Months
Ended Ended
December 31, 1995 September 30, 1996
----------------- ------------------
<S> <C> <C>
Duplication of public company expenses...................... $ 429 $ 410
Net reduction in salary, benefits and occupancy............. 2,521 1,281
Other....................................................... 914 530
--------------------------- ----------------------------
Total.................................................. $ 3,864 $ 2,221
=========================== ============================
</TABLE>
(AB) A portion of income was allocated to minority interests representing
interests in ERP Operating Partnership not owned by EQR. The pro forma
allocation to minority interests (represented by OP Units) is based upon
the percentage estimated to be owned by such minority interests as a
result of the pro forma transactions.
(AC) Decrease of Weighted Average Common Shares Outstanding based on the
conversion of Wellsford common shares to EQR common shares at a
conversion ratio of .625 Wellsford shares per EQR share and a par value
of $.01.
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<PAGE>
POLICIES OF THE SURVIVING TRUST
WITH RESPECT TO CERTAIN ACTIVITIES
The following section sets forth the policies expected to be
implemented by the Surviving Trust upon the effectiveness of the Merger with
respect to certain matters. These policies may be amended or revised from time
to time at the discretion of the Board of Trustees of the Surviving Trust
without a vote of the shareholders of the Surviving Trust.
Business Objectives and Operating Strategies
The Surviving Trust will seek to maximize both current income and
long-term growth in income. The Surviving Trust will focus on acquiring
multifamily properties that have strong cash flow potential with the intent to
hold such properties for long-term investment and capital appreciation.
The Surviving Trust's primary business objectives are to increase
distributions on a per share of Survivor Common basis, to increase the value of
its properties and to increase shareholders' value.
The Surviving Trust's strategies for accomplishing these objectives
will be:
. maintaining and increasing property occupancy while increasing
rental rates;
. controlling expenses, providing regular preventive maintenance,
making periodic renovations and enhancing amenities;
. maintaining a Debt to Total Market Capitalization Ratio of less
than 50%; and
. pursuing acquisitions that: (i) are available at prices below
estimated replacement costs; (ii) have potential for rental rate
and/or occupancy increases; (iii) have attractive locations in
their respective markets; and (iv) provide anticipated total
returns that will increase the Surviving Trust's distributions
per share of Survivor Common and the Surviving Trust's overall
market value.
The Surviving Trust will be committed to tenant satisfaction by striving to
anticipate industry trends and implementing strategies and policies consistent
with providing quality tenant services. In addition, the Surviving Trust will
continuously survey rental rates of competing properties and conduct
satisfaction surveys of residents to determine the factors they consider most
important in choosing a particular apartment unit.
Acquisition Strategies
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The Surviving Trust anticipates that future property acquisitions will be
located in the continental United States. Management will use market
information to evaluate acquisition opportunities. The Surviving Trust's market
data base will allow it to review the primary economic indicators of the markets
where the Surviving Trust currently manages properties and where it expects to
expand its operations. Acquisitions may be financed from various sources of
capital, which may include undistributed funds from operations, issuance of
additional equity securities, sales of properties and collateralized and
uncollateralized borrowings. In addition, the Surviving Trust may acquire
additional multifamily properties in transactions that include the issuance of
OP Units as consideration for the acquired properties. Such transactions may,
in certain circumstances, partially defer the sellers' tax consequences.
When evaluating potential acquisitions, the Surviving Trust will consider:
(i) the geographic area and type of community; (ii) the location, construction
quality, condition and design of the property; (iii) the current and projected
cash flow of the property and the ability to increase cash flow; (iv) the
potential for capital appreciation of the property, (v) the terms of resident
leases, including the potential for rent increases; (vi) the potential for
economic growth and the tax and regulatory environment of the community in which
the property is located; (vii) the occupancy and demand by residents for
properties of a similar type in the vicinity (the overall market and submarket);
(viii) the prospects for liquidity through sale, financing or refinancing of the
property; and (ix) competition from existing multifamily properties and the
potential for the construction of new multifamily properties in the area. The
Surviving Trust expects to purchase multifamily properties with physical and
market characteristics similar to the properties.
Disposition Strategies
Management will use market information to evaluate dispositions. The
Surviving Trust intends to dispose of its properties in cities or markets where
the level of new construction is increasing or the economy is expected to
decline substantially. The Surviving Trust will also dispose of properties in
markets where it does not intend to establish long-term concentrations. The
Surviving Trust will reinvest the proceeds received from property dispositions
to fund property acquisitions. In addition, when feasible the Surviving Trust
will structure these transactions as tax deferred exchanges.
Investment Policies
Investments in Real Estate or Interests in Real Estate. The Surviving
Trust's investment objectives will be to increase cash flow and the value of the
properties, and to acquire established income-producing multifamily properties
with cash flow growth potential. Additionally, where prudent and possible, the
Surviving Trust will seek to upgrade its existing properties and any newly
acquired multifamily properties. The Surviving Trust's business is focused on
multifamily properties, although such properties may include retail and
recreational facilities. The Surviving Trust's policy will be to acquire assets
primarily for current income
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<PAGE>
generation and long-term value appreciation; however, where appropriate, the
Surviving Trust will sell certain of its properties.
The Surviving Trust expects to pursue its investment objectives through the
direct and indirect ownership of properties and the ownership of interests in
other entities. The Surviving Trust will focus on properties in those markets
where the Surviving Trust currently has operations and in new markets targeted
by management. Future investments, including the activities described below,
will not be limited to any geographic area or to a specified percentage of the
Surviving Trust's assets. The Surviving Trust also may participate with other
entities in property ownership through joint ventures or other types of co-
ownership. Equity investments may be subject to existing mortgage financing and
other indebtedness or such financing or indebtedness may be incurred in
connection with acquiring investments. Any such financing or indebtedness will
have priority over the Surviving Trust's equity interest in such property.
Investments in Real Estate Mortgages. While the Surviving Trust will
emphasize equity real estate investments in multifamily properties, it may, in
its discretion, invest in mortgages and other interests related to multifamily
properties. The Surviving Trust does not intend to invest to a significant
extent in mortgages or deeds of trust, but may acquire mortgages as a strategy
for acquiring a property, subject to the investment restrictions applicable to
REITs. The mortgages in which the Surviving Trust may invest may be either
first mortgages or junior mortgages, and may or may not be insured by a
governmental agency. The Surviving Trust may also invest in mortgage-related
securities. Furthermore, the Surviving Trust may seek to issue securities
representing interest in such mortgage-related securities as a method of raising
additional funds.
Securities of or Interests in Persons Primarily Engaged in Real Estate
Activities and Other Issuers. Subject to the gross income and asset tests for
REIT qualification, the Surviving Trust also may invest in securities of
entities engaged in real estate activities or securities of other issuers,
including for the purpose of exercising control over such entities. The
Surviving Trust may acquire all or substantially all of the securities or assets
of other REITs or similar entities where such investments would be consistent
with the Surviving Trust's investment policies. In any event, the Surviving
Trust does not intend that its investments in securities will require it to
register as an "investment company" under the Investment Surviving Trust Act of
1940, and the Surviving Trust would intend to divest securities before any such
registration would be required.
Financing Policies
The Surviving Trust intends to maintain a Debt to Total Market
Capitalization Ratio of 50% or less. The Surviving Trust, however, may from
time to time re-evaluate this policy and decrease or increase such ratio in
light of then current economic conditions, relative costs to the Surviving Trust
of debt and equity capital, market values of the properties, growth and
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<PAGE>
acquisition opportunities and other factors. There will be no limit on the
Surviving Trust's Debt to Total Market Capitalization Ratio imposed by the
Surviving Trust's Declaration of Trust or Bylaws. To the extent that the Board
of Trustees of the Surviving Trust determines to obtain additional capital, the
Surviving Trust may issue debt or equity securities, or cause ERP Operating
Partnership to issue additional OP Units, or retain earnings (subject to
provisions in the Code requiring distributions of income to maintain REIT
status), or a combination of these methods. As long as ERP Operating
Partnership is in existence, the proceeds of all equity capital raised by the
Surviving Trust will be contributed to ERP Operating Partnership in exchange for
additional interests in ERP Operating Partnership, which will dilute the
ownership interest of holders of OP Units. It is the Surviving Trust's policy
that it shall not incur indebtedness other than short-term trade, employee
compensation, dividends payable or similar indebtedness that will be paid in the
ordinary course of business, and that indebtedness shall instead be incurred by
the ERP Operating Partnership to the extent necessary to fund the business
activities conducted by the ERP Operating Partnership.
The Surviving Trust owns several properties that are subject to restrictive
covenants or deed restrictions relating to current or previous tax-exempt bond
financings and owns the bonds collateralized by several additional properties.
The Surviving Trust has retained an independent outside consultant to monitor
compliance with the restrictive covenants and deed restrictions that affect
these properties. The bond compliance requirements may have the effect of
limiting the Surviving Trust's income from these properties if the Surviving
Trust is required to lower its rental rates to attract low or moderate income
tenants, or eligible/qualified tenants.
To the extent that the Board of Trustees determines to obtain debt
financing the Surviving Trust intends to do so generally through mortgages on
its properties and through lines of credit; however, the Surviving Trust may
also issue additional debt securities in the future. Such indebtedness may be
recourse, non-recourse or cross-collateralized and may contain cross-default
provisions. The Surviving Trust will not have a policy limiting the number or
amount of mortgages that may be placed on any particular property, but mortgage
financing instruments usually limit additional indebtedness on such properties.
In the future, the Surviving Trust may seek to extend, expand, reduce or renew
its lines of credit, or obtain new credit facilities or lines of credit, subject
to its general policy on debt capitalization, for the purpose of making
acquisitions or capital improvements or providing working capital to the
Surviving Trust or meeting the taxable income distribution requirements for
REITs under the Code if the Surviving Trust has taxable income without receipt
of cash sufficient to enable the Surviving Trust to meet such distribution
requirements.
Lending Policies
Although it is not presently contemplated, the Surviving Trust may consider
offering purchase money financing in connection with the sale of multifamily
properties where the provision of such financing will increase the value
received by the Surviving Trust for the property sold.
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Policies with Respect to Other Activities
Although it is not presently contemplated, the Surviving Trust may make
investments other than as previously described. All investments will be related
to the multifamily residential business. The Surviving Trust will have
authority to offer Survivor Common or other equity or debt securities in
exchange for property or other REITS and to repurchase or otherwise reacquire
Survivor Common or any other securities and may engage in such activities in the
future. Similarly, the Surviving Trust may offer additional OP Units or other
equity interests in ERP Operating Partnership that are exchangeable into
Survivor Common in exchange for property. The Surviving Trust may also make
loans to joint ventures in which it may participate in the future. The
Surviving Trust will not engage in trading, underwriting or the agency
distribution or sale of securities of other issuers. At all times, the
Surviving Trust intends to make investments in such a manner as to be consistent
with the requirements of the Code to qualify as a REIT unless, because of
circumstances or changes in the Code (or the regulations promulgated
thereunder), the Board of Trustees determines that it is no longer in the best
interests of the Surviving Trust to continue to have the Surviving Trust qualify
as a REIT. The Surviving Trust's policies with respect to such activities may
be reviewed and modified from time to time by the Surviving Trust's trustees
without notice to or the vote of the shareholders.
MANAGEMENT AND OPERATION OF THE
SURVIVING TRUST AFTER THE MERGER
Trustees and Executive Officers
The following table sets forth as of the consummation of the Merger the
names, positions and ages of the executive and senior officers and trustees of
the Surviving Trust.
<TABLE>
<CAPTION>
Name Position Age
---- -------- ---
<S> <C> <C>
Samuel Zell Chairman of the Board of Trustees (term expires 55
in 1999)
Douglas Crocker II President, Chief Executive Officer and Trustee 56
(term expires in 1998)
David J. Neithercut Executive Vice President and Chief Financial 41
Officer
Gregory H. Smith Executive Vice President-Asset Management 46
Gerald A. Spector Executive Vice President, Chief Operating Officer 50
and Trustee (term expires in 1998)
Bruce C. Strohm Executive Vice President, General Counsel and 42
Secretary
</TABLE>
141
<PAGE>
<TABLE>
<CAPTION>
Name Position Age
---- -------- ---
<S> <C> <C>
Frederick C. Tuomi Executive Vice President-Property Management 42
John Q. Collins Senior Vice President-Capital Markets 48
Stuart English Senior Vice President-Capital Projects 36
Alan W. George Senior Vice President-Acquisitions 39
Anthony G. Gigilio Senior Vice President 36
David H. Lee Senior Vice President-Capital Markets 49
John G. Lennox, Jr. Senior Vice President - Financial Analysis 43
Donald D. MacKenzie Senior Vice President 34
Michael J. McHugh Senior Vice President, Chief Accounting Officer 41
and Treasurer
William C. Trimarco Senior Vice President-Administration 43
John W. Alexander Trustee (term expires in 1999) 50
Henry H. Goldberg Trustee (term expires in 1999) 58
Errol R. Halperin Trustee (term expires in 1999) 56
James D. Harper, Jr. Trustee (term expires in 1998) 63
Sheli Z. Rosenberg Trustee (term expires in 1998) 55
Barry S. Sternlicht Trustee (term expires in 2000) 36
B. Joseph White Trustee (term expires in 2000) 49
Jeffrey H. Lynford Trustee (term expires in 2000)* 49
Edward Lowenthal Trustee (term expires in 2000)* 52
</TABLE>
*At the Effective Time, each of Messrs. Lynford and Lowenthal will be
appointed to the Board of Trustees of the Surviving Trust for a term ending
at the annual meeting of the Surviving Trust in the year 2000.
The following is a biographical summary as of February 18, 1997 of the
experience of the executive officers and trustees of the Surviving Trust.
Samuel Zell has been Chairman of the Board of EQR since March 1993. Mr.
Zell is chairman of the board of directors of Equity Group Investments, Inc., an
owner, manager and financier of real estate and corporations ("EGI"), American
Classic Voyages Co., an owner and
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operator of cruise lines ("American Classic"), and Anixter International Inc., a
provider of integrated network and cabling systems ("Anixter"). Mr. Zell is
chairman of the board and chief executive officer of both Capsure Holdings
Corp., a holding company whose principal subsidiaries are specialty property and
casualty insurers ("Capsure"), and Manufactured Home Communities, Inc., a REIT
specializing in the ownership and management of manufactured home communities
("MHC"). He is co-chairman of the board of directors of Revco D.S., Inc., a
drugstore chain ("Revco"), and is a director of Quality Food Centers, Inc., an
owner and operator of supermarkets, Sealy Corporation, a bedding manufacturer
("Sealy"), Ramco Energy PLC, an independent oil company based in the United
Kingdom, and TeleTech Holdings, Inc., a provider of telephone and computer based
customer care solutions.
Douglas Crocker II has been a Trustee, Chief Executive Officer and
President of EQR since March 1993. Mr. Crocker is a director of Horizon Group
Incorporated, an owner, developer and operator of outlet retail properties.
Mr. Crocker has been president and chief executive officer of First Capital
Financial Corporation, a sponsor of public limited real estate partnerships
("First Capital"), since December 1992 and a director of First Capital since
January 1993. He has been an executive vice president of Equity Financial and
Management Company ("EF&M"), a subsidiary of EGI, providing strategic direction
and services for EGI's real estate and corporate activities since November 1992.
From September 1992 until November 1992, Mr. Crocker was a managing director of
investment banking with Prudential securities, an investment banking firm. He
was a director and president of Republic Savings Bank, a national chartered
savings and loan association ("Republic"), from December 1988 to June 1992, at
which time the Resolution Trust Corporation took control of Republic.
David J. Neithercut has been Executive Vice President and Chief Financial
Officer of EQR since February 1995. Mr. Neithercut had been Vice President--
Financing of EQR from September 1993 until February 1995. Mr. Neithercut was a
senior vice president--finance of EGI from January 1995 until February 1995. He
was a vice president--finance of Equity Assets Management, Inc., a subsidiary of
EGI providing real estate ownership services ("EAM"), from October 1990 until
December 1994.
Gregory H. Smith has been Executive Vice President--Asset Management of EQR
since December 1994. Mr. Smith was a senior vice president of Strategic Realty
Advisors, Inc., a real estate and advisory company, from January 1994 until
December 1994. Mr. Smith had been employed at VMS Realty Partners, a sponsor of
public and private real estate limited partnerships, from June 1989 until
December 1993, most recently serving as first vice president.
Gerald A. Spector has been Trustee and Executive Vice President of EQR
since March 1993 and Chief Operating Officer of EQR since February 1995. Mr.
Spector was Treasurer of EQR from March 1993 through February 1995. Mr. Spector
had been an officer of EF&M since January 1973, most recently serving as vice
president from November 1994 through January 1996. Mr. Spector was executive
vice president and chief operating officer of EF&M from September 1990 through
November 1994. Mr. Spector had been an officer of EGI since
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<PAGE>
January 1998, most recently serving as vice president from November 1994 through
January 1996. Mr. Spector was executive vice president and chief operating
officer of EGI from January 1991 through January 1994. Mr. Spector was a
director of EGI and EF&M from January 1990 until January 1996 and a director of
MHC from December 1992 through May 1995.
Bruce C. Strohm has been Executive Vice President and General Counsel of
EQR since March 1995 and Secretary since November 1995. Mr. Strohm was an
Assistant Secretary since March 1995 and Vice President of EQR since its
formation. Mr. Strohm was a vice president of Rosenberg & Liebentritt, P.C., a
law firm ("R&L"), from January 1988 to March 1995, most recently serving as a
member of the firm's management committee.
Frederick C. Tuomi has been Executive Vice President--Property Management
of EQR since January 1994. Mr. Tuomi had been president of RAM Partners, Inc.,
a subsidiary of Post Properties, Inc., a REIT, from March 1991 to January 1994.
Mr. Tuomi was president of Pilot Property Company, a property management
company, from July 1988 until March 1991.
John Q. Collins has been Senior Vice President--Capital Markets of EQR
since May 1995. From January 1994 until May 1995, Mr. Collins had been Senior
Vice President-Acquisitions and Capital Markets. From 1992 until 1994, Mr.
Collins had been vice president--capital markets of Security Capital Group, a
real estate investment management company. From 1983 until 1992, Mr. Collins
was a real estate consultant and broker with LaSalle Partners Ltd., a corporate
real estate service firm.
Stuart English has been Senior Vice President-Capital Projects of EQR since
December 1996. Mr. English had been Vice President-Capital Markets from April
1996 to December 1996. Mr. English had been a project manager of Atkinson
Engineering from June 1986 to April 1996.
Alan W. George has been Senior Vice President-Acquisitions of EQR since
December 1995 and Vice President-Acquisitions and asset manager of EQR since
December 1993. Mr. George was vice president-asset management of EAM from June
1992 to August 1993. He was vice president-asset management for American Real
Estate Group, a real estate investment company, from 1990 to 1992.
Anthony G. Giglio has been a Senior Vice President of EQR since June 1996
and was a Vice President of EQR from September 1995 to June 1996. Mr. Giglio
had been a vice president of R&L from December 1993 to June 1996. Mr. Giglio
had been an attorney at Jones Day Reavis & Pogue, a law firm, from August 1985
to December 1993.
David Lee has been Senior Vice President--Capital Markets of EQR since
February 1995. Mr. Lee was Senior Vice President and Chief Financial Officer
from EQR's formation until February 1995. From January 1992 to May 1993, he was
vice president--financial services of EAM. From 1991 to 1992, he was vice
president-financial services of Equity Institutional
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<PAGE>
Investors, Inc., a subsidiary of EGI responsible for EGI's equity capital
raising and merchant banking activities. Mr. Lee was a vice president of First
Capital Benefit Administrators, Inc., a pension benefit advisory company
("Benefit Administrators"), from December 1988 until March 1993. Benefit
Administrators filed a petition under the Federal bankruptcy laws in January
1995, which resulted in its liquidation on November 15, 1995.
John G. Lennox, Jr., has been Senior Vice President - Financial Analysis of
EQR since February 1994 and Senior Vice President and Controller from EQR's
formation to February 1997. Mr. Lennox was employed by EPMC from 1984 to May
1993, most recently serving as the senior vice president--finance and
administration of its multifamily residential division.
Donald D. MacKenzie has been Executive Vice President and Director of
Operations of Wellsford since September, 1996 and was Vice President -
Acquisitions and Development of Wellsford from December 1994 to September, 1996.
From July 1992 until December 1994 he was Vice President for Acquisitions of
Wellsford. He also was a Vice President of Wellsford's predecessor, Wellsford
Group, Inc. ("WGI"), since 1988. From 1986 to 1988, Mr. MacKenzie was an asset
manager with Wallace Associates Consulting Group, a national real estate
consulting firm specializing in providing strategic consultation to the banking
industry. Previously he was employed with Paine Webber Incorporated as a
financial analyst in the Mergers and Acquisitions Group.
Michael J. McHugh has been Senior Vice President of EQR since November 1994
and Chief Accounting Officer and Treasurer of EQR since February 1995. From May
1990 until January 1995, Mr. McHugh had been senior vice president and chief
financial officer of First Capital.
William C. Trimarco has been Senior Vice President of EQR since March 1996.
Mr. Trimarco had been a senior vice president-administration of EGI from July
1990 to March 1996 and was employed by EGI since November 1977.
John W. Alexander has been a Trustee of EQR since May 1993. Mr. Alexander
has been president of Mallard Creek Capital Partners, Inc., primarily an
investment company with interests in real estate and development entities, since
February 1994. He is a partner of Meringoff Equities, a real estate investment
and development company, and is a director of Jacor Communications, Inc., an
owner and operator of radio stations ("Jacor").
Henry H. Goldberg has been a Trustee of EQR since January 1995. Mr.
Goldberg is chairman of the board, chief executive officer and founder of Artery
Properties, Inc. Founded in 1959, Artery Properties, Inc. is a diversified real
estate company. Mr. Goldberg was the direct or indirect general partner (or an
executive thereof) of nine partnerships owning residential apartment communities
and one commercial office building, each of which filed petitions under the
Federal bankruptcy laws during 1991 through 1993. Each of the partnerships is
now out of bankruptcy through a reorganization plan agreed to by the project
lender.
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<PAGE>
Errol R. Halperin has been a Trustee of EQR since May 1993. Mr. Halperin
has been an attorney at Rudnick & Wolfe, a law firm, since 1979, serving as a
senior partner and a member of such firm's policy committee since 1981,
specializing in Federal income tax counseling and real estate and corporate
transactions.
James D. Harper, Jr. has been a Trustee of EQR since May 1993. Since 1982,
Mr. Harper has been president of JDH Realty Co., a real estate development and
investment company. Since 1988, he has been a co-managing partner in AH
Development, S.E. and AH HA Investments, S.E., special limited partnerships
formed to develop over 400 acres of land in Puerto Rico.
Sheli Z. Rosenberg has been a Trustee of EQR since March 1993. She is a
principal of the law firm of R&L. Ms. Rosenberg is chief executive officer,
president and a director of EGI. Ms. Rosenberg has been a director of Jacor
Communications, Inc., an owner of radio stations, since 1994 and has been the
Chairman of its Board of Directors since February 1996. Ms. Rosenberg is a
trustee of California Real Estate Investment Trust, a REIT, which is planning to
focus on mezzanine financing opportunities associated with income producing real
estate; and a director of Capsure Falcon Building Products, Inc., a manufacturer
and supplier of building products; American Classic; MHC; Anixter; Sealy; and
Revco. Ms. Rosenberg was a Vice President of Benefits Administrators, which
filed a petition under the Federal bankruptcy laws in January 1995, which
resulted in its liquidation on November 15, 1995.
Barry S. Sternlicht has been a Trustee of EQR since May 1993. Mr.
Sternlicht has been chief executive officer and president of Starwood Capital
Group, L.P. since 1993 and president of Starwood Capital Partners, L.P., a
privately owned real estate investment firm, since its formation in 1991. Mr.
Sternlicht is chairman of the board and chief executive officer of Starwood
Lodging Trust, a REIT specializing in the ownership of hotels and co-chairman of
the board of Westin Hotels & Resorts Company, an owner and operator of hotels.
Mr. Sternlicht is a director of Angeles Participating Mortgage Trust, a mortgage
REIT, U.S. Franchise Systems, a hotel franchise company, and Starwood Lodging
Corporation, which manages hotels owned by Starwood Lodging Trust.
B. Joseph White has been a Trustee of EQR since May 1993. Mr. White has
been a professor at the University of Michigan Business School since 1987 and
Dean since 1991. Mr. White is a director of Falcon, Union Pump Company, a
manufacturer of pumps, and Kelly Services, Inc., an employment agency.
For biographical descriptions of Jeffrey H. Lynford and Edward Lowenthal
see "Management of WRP Newco-Directors and Executive Officers."
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<PAGE>
Committees of the Board of Trustees
There will be three standing committees of the Board of Trustees of the
Surviving Trust: the Executive Committee, the Compensation Committee and the
Audit Committee, which are described further below.
Executive Committee: The Executive Committee will be comprised of Messrs.
Alexander, Crocker and Zell. The Executive Committee will have the authority
within certain parameters to acquire, dispose of and finance investments for the
Surviving Trust and execute contracts and agreements, including those related to
the borrowing of money by the Surviving Trust, and generally exercise all other
powers of the Board, except as prohibited by law.
Compensation Committee: The Compensation Committee will be comprised of
Messrs. Halperin and Harper and Ms. Rosenberg. Mr. Harper will be the chairman.
The Compensation Committee will review and make recommendations concerning
proposals by management with respect to compensation, bonuses, employment
agreements and other benefits and policies respecting such matters for the
executive officers of the Surviving Trust.
Audit Committee: The Audit Committee will be comprised of Messrs. White,
Alexander, Halperin, Sternlicht and Goldberg. Mr. White will be the chairman.
The Audit Committee will make recommendations concerning the engagement of
independent public accountants, review the plans and results of the audit
engagement with the independent public accountants, approve professional
services provided by the independent public accountants, review the independence
of the independent public accountants, consider the range of audit and non-audit
fees and review the adequacy of the Surviving Trust's internal accounting
controls.
Compensation of Trustees
Trustees who are not employees of the Surviving Trust receive an annual fee
of $20,000 for serving as trustees. In addition, trustees who serve on the
Audit Committee, the Executive Committee or the Compensation Committee will
receive an additional $1,000 per annum for each committee on which they serve.
Committee chairs receive an additional $500 per annum. The Surviving Trust will
also reimburse the trustees of each committee for travel expenses incurred in
connection with their activities on behalf of the Surviving Trust. Each trustee
will also be granted options to purchase 5,000 shares of Survivor Common at the
fair market value of such shares at the close of business on the date of the
first trustees' meeting following each annual meeting of shareholders.
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Consulting Agreements
Messrs. Lynford and Lowenthal will each execute a consulting agreement with
ERP Operating Partnership. The consulting agreements will each be for a term of
five years from the Effective Time. Pursuant to the consulting agreements, each
of Messrs. Lynford and Lowenthal will serve as a senior management consultant to
ERP Operating Partnership and, in all events, will receive compensation at the
rate of $200,000 per year plus reimbursement for reasonable out-of-pocket
expenses.
COMPARISON OF RIGHTS OF SHAREHOLDERS
At the Effective Time, the shareholders of Wellsford and EQR will become
shareholders of the Surviving Trust. The rights of Wellsford's shareholders are
presently governed by Title 8 of the Corporations and Associations Article of
the Annotated Code of Maryland ("Title 8"), the Wellsford Declaration, and the
Wellsford Bylaws. The rights of EQR's shareholders are presently governed by
Title 8, the EQR Declaration and EQR Bylaws. The rights of the shareholders of
the Surviving Trust will be governed by Title 8, the Surviving Trust's
Declaration and the Surviving Trust's Bylaws. Upon approval of the Merger by the
Wellsford Common Shareholders and at the Effective Time, the Wellsford
Declaration will be amended and restated to substantially conform the Wellsford
Declaration to the terms of the EQR Declaration (except for certain provisions
of the Wellsford Declaration that require approval by a two-thirds vote of the
Wellsford Common Shareholders). The Wellsford Declaration, as amended and
restated, will serve as the Surviving Trust's Declaration.
The following discussion summarizes certain significant differences between
the rights of shareholders of EQR, Wellsford and the Surviving Trust as a result
of these amendments. This summary does not purport to be complete and is
subject to and qualified in its entirety by reference to Title 8, the EQR
Declaration and Bylaws, the Wellsford Declaration and Bylaws and the Surviving
Trust's Declaration and Bylaws. In addition, upon the separate approval by an
affirmative vote of the holders of not less than two-thirds of Wellsford Common,
the Additional Amendments will be made to the Declaration of the Surviving
Trust. See "Additional Amendments." This summary does not take into account the
changes to the Wellsford Declaration contemplated by the Additional Amendments,
which are discussed in "-- Additional Amendments." Rights of the shareholders of
EQR and Wellsford which are and will remain the same after the Merger are not
discussed.
Authorized and Issued Shares
The Wellsford Declaration authorizes the issuance of 100,000,000 shares of
beneficial interest, which consists of shares of Wellsford Common and such other
types or classes as the Wellsford Board of Trustees may create and authorize
from time to time and designate as representing a beneficial interest in
Wellsford. The designation and number of outstanding shares of beneficial
interest of Wellsford as of February 13, 1997, was as follows:
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(i) 17,120,845 of Wellsford Common; (ii) 3,999,800 shares of Wellsford Series A;
and (iii) 2,300,000 shares of Wellsford Series B.
The EQR Declaration authorizes the issuance of 110,000,000 shares of
beneficial interest, of which 100,000,000 are EQR Common and 10,000,000 are
Preferred Shares which may be issued from time to time, in one or more series.
The designation and number of outstanding shares of beneficial interest in EQR
as of February 19, 1997, was as follows: (i) 51,676,835 of EQR Common; (ii)
6,120,000 shares of EQR Series A; (iii) 500,000 shares of EQR Series B
represented by 5,000,000 depository shares; (iv) 460,000 shares of EQR Series C
represented by 4,600,000 depository shares; and (v) no excess shares of
beneficial interest.
The Declaration of the Surviving Trust will authorize the issuance of
300,000,000 shares of beneficial interest, of which 200,000,000 will be shares
of Survivor Common and 100,000,000 will be preferred shares of beneficial
interest of the Surviving Trust which may be issued from time to time, as
authorized by the Board of Trustees of the Surviving Trust. As of the Effective
Date, the designation and number of the outstanding shares of beneficial
interest in the Surviving Trust will be as follows: (i) 62, 377,363 of Survivor
Common; (ii) 6,120,000 of Survivor Series A; (iii) 500,000 of Survivor Series B
represented by 5,000,000 depository shares; (iv) 460,000 of Survivor Series C
represented by 4,600,000 depository shares; (v) 3,999,800 of Survivor Series D;
and (vi) 2,300,000 of Survivor Series E.
Amendment to Declaration and Bylaws
As permitted by Title 8, the Wellsford Declaration provides that the
Wellsford Board of Trustees may, by a two-thirds vote, amend the Wellsford
Declaration from time to time in order to enable Wellsford to qualify and remain
qualified as a REIT under the Code and Title 8. Except as set forth in the
preceding sentence and in the Articles Supplementary that set forth the rights
and preferences of the holders of Wellsford Preferred, the Wellsford Declaration
may be amended only by the affirmative vote of the holders of not less than a
majority of the shares of beneficial interest then outstanding and entitled to
vote thereon, and in certain cases may be amended only by the affirmative vote
of the holders of not less than two-thirds of such shares. Amendments to the
provisions of the Wellsford Declaration relating to the removal of trustees, the
restrictions on ownership of its shares of beneficial interest, the
reorganization of Wellsford and mergers, consolidations and sales of all or
substantially all of Wellsford's property must be approved by the affirmative
vote of holders of not less than two-thirds of the shares of beneficial interest
then outstanding and entitled to vote on the matter.
As permitted by Title 8, the EQR Declaration provides that the EQR Board of
Trustees may, by a two-thirds vote, amend the EQR Declaration from time to time
in order to enable EQR to qualify and remain qualified as REIT under the Code
and under Title 8. Except as set forth in the previous sentence and in the
terms of preferred shares of beneficial interest, the EQR Declaration may be
amended only by the affirmative vote of the holders of not less than two-thirds
of the shares of beneficial interest then outstanding and entitled to vote
thereon.
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The Declaration of the Surviving Trust will provide for its amendment in
the same manner as the Wellsford Declaration. The amendment to the Declaration
of the Surviving Trust will also be effected by the Additional Amendments, if
approved. See "-- Additional Amendments."
Special Meetings
The Wellsford Bylaws provide that the chairman, the president or one-third
of the trustees of Wellsford may call a special meeting of Wellsford's
shareholders. A special meeting shall also be called by the secretary of
Wellsford upon the written request of holders of shares entitled to cast not
less than a majority of all the votes entitled to be cast at such meeting.
The EQR Bylaws provide that the chairman, the president or one-third of the
trustees of EQR may call a special meeting of EQR's shareholders. A special
meeting shall be called by the secretary of EQR upon the written request of EQR
Shareholders entitled to cast not less than 25% of all the votes entitled to be
cast at such meeting.
The Bylaws of the Surviving Trust will provide for special meetings in the
same manner as the EQR Bylaws.
Boards of Trustees
The Wellsford Declaration states that the trustees of Wellsford shall be
divided into three classes as nearly equal in number as possible, with the term
of each class of trustees expiring at the annual meeting of shareholders in the
third year following the year of their election. This classified Board of
Trustees could have the effect of making the removal of incumbents more time
consuming and difficult, which could delay, defer or prevent a third party from
making a timely offer or otherwise attempting to obtain control, even though
such an attempt might be beneficial to the company and its shareholders. Thus,
the classified board could increase the likelihood that incumbents will retain
their positions.
The Wellsford Declaration provides that a trustee may be removed, with or
without cause, by the affirmative vote of the holders of not less than two-
thirds of the shares of beneficial interest then outstanding and entitled to
vote in the election of trustees. Amendments to this section of the Wellsford
Declaration must be approved by the holders of not less than two-thirds of the
shares of beneficial interest outstanding and entitled to vote on the matter.
The EQR Declaration contains substantially similar provisions regarding the
classification of trustees as the Wellsford Declaration; however, the EQR
Declaration provides that a trustee may be removed only with cause, by the vote
of the holders of not less than two-thirds of the shares of beneficial interest
then outstanding and entitled to vote in the election of trustees. The EQR
Declaration defines cause as (i) material theft, fraud or embezzlement or active
and deliberate dishonesty by a trustee, (ii) habitual neglect of duty by a
trustee having a material and
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adverse significance to the trust, or (iii) the conviction of a trustee for a
felony or of any crime involving moral turpitude.
The Declaration of the Surviving Trust will contain provisions paralleling
those of the Wellsford Declaration relating to the classification and removal of
trustees. The method of removing trustees will also be effected by the
Additional Amendments, if approved. See "-- Additional Amendments."
Mergers, Consolidations, and Sale of Substantially all Assets
Declaration Provisions. Under the Wellsford Declaration, any merger or
consolidation involving Wellsford or any sale or other disposition of all or
substantially all of Wellsford's property must be approved by its trustees and
submitted to its shareholders for approval, such approval to be obtained by the
affirmative vote of (i) holders of not less than two-thirds of all the shares of
beneficial interest then outstanding and entitled to vote thereon, if Wellsford
is not the surviving entity in any merger or consolidation or in the event of a
proposed sale or disposition of all or substantially all of Wellsford's
property, or (ii) holders of not less than a majority of all the shares of
beneficial interest then outstanding and entitled to vote thereon, in all other
cases. Amending this section of the Wellsford Declaration requires the
affirmative vote of the holders of two-thirds of the shares of beneficial
interest outstanding and entitled to vote on the matter.
The EQR Declaration does not address the vote required for a merger or
consolidation involving EQR or EQR's property. Under Title 8, a merger must be
approved by the affirmative vote of two-thirds of all the shareholders entitled
to vote on the matter unless otherwise provided in the declaration of trust.
The Declaration of the Surviving Trust will contain provisions paralleling
those of the Wellsford Declaration relating to shareholder approval of mergers,
consolidations and sales of assets. The Declaration of the Surviving Trust will
provide that the Surviving Trust may sell or otherwise dispose of all or
substantially all of its property only upon the affirmative vote of the holders
of not less than two-thirds of all the shares then outstanding and entitled to
vote on the matter. These shareholder approval requirements for mergers,
consolidations and sales of assets will also be effected by the Additional
Amendments, if approved. See "-- Additional Amendments."
Statutory Restrictions. Under the MGCL, certain "business combinations"
(including a merger, consolidation, share exchange or, in certain circumstances,
an asset transfer or issuance or reclassification of equity securities) between
a Maryland REIT and (i) any person who beneficially owns 10% or more of the
voting power of the REIT's shares or an affiliate of the REIT who, at any time
within the two-year period prior to the date in question, was the beneficial
owner of 10% or more of the voting power of the then outstanding voting shares
of
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beneficial interest of the REIT (an "Interested Shareholder) or (ii) an
affiliate of an Interested Shareholder are prohibited for five years after the
most recent date on which the Interested Shareholder becomes an Interested
Shareholder. Thereafter, any such business combination must be recommended by
the Board of Trustees of such REIT and approved by the affirmative vote of at
least (a) 80% of the votes entitled to be cast by holders of outstanding shares
of the REIT and (b) two-thirds of the votes entitled to be cast by holders of
voting shares of the REIT other than shares held by the Interested Shareholder
with whom (or with whose affiliate) the business combination is to be effected,
unless, among other conditions, the REIT's common shareholders receive a minimum
price (as defined in the MGCL) for their shares and the consideration is
received in cash or in the same form previously paid by the Interested
Shareholder for its shares. These provisions of Maryland law do not apply,
however, to business combinations that are approved or exempted by the board of
trustees of the REIT prior to the time that the Interested Shareholder becomes
an Interested Shareholder. The Surviving Trust will exempt any business
combination involving Mr. Zell, the Zell Holders, EPMC and their respective
affiliates and associates, present or future, or any other person acting in
concert or as a group with any of the foregoing persons and, consequently, the
five-year prohibition and the super-majority vote requirements will not apply to
a business combination between any of them and the Surviving Trust.
In addition to the restrictions on certain business combinations, the MGCL
also provides that "control shares" of a Maryland REIT acquired in a "control
share acquisition" have no voting rights except to the extent approved by a vote
of two-thirds of the votes entitled to be cast on the matter, excluding shares
owned by the acquiror, by officers or by directors who are employees of the
REIT. "Control Shares" are voting shares which, if aggregated with all other
such shares previously acquired by the acquiror, or in respect of which the
acquiror is able to exercise or direct the exercise of voting power (except
solely by virtue of a revocable proxy), would entitle the acquiror to exercise
voting power in electing trustees within one of the following ranges of voting
power: (i) one-fifth or more but less than one-third, (ii) one-third or more
but less than a majority, or (iii) a majority or more of all voting power. A
"control share acquisition" means the acquisition of control shares, subject to
certain exceptions. Despite these restrictions on Control Share acquisitions,
the MGCL provides that a REIT may effectively exempt itself from such
restrictions by a provision contained in its Declaration or Bylaws. The
Wellsford Bylaws and EQR Bylaws both contain provisions stating that the
restrictions regarding Control Shares will not apply to any acquisition of its
shares by any person, and the Bylaws of the Surviving Trust will contain a
similar provision.
Restrictions on the Ownership, Transfer or Issuance of Shares
The Wellsford Declaration, subject to certain exceptions, provides that no
holder (other than (i) Edward Lowenthal and Jeffrey H. Lynford, and (ii) any
other person approved by the trustees) may own more than 9.8% (the "WRP
Ownership Limit") of the lesser of the number or value (in either case as
determined in good faith by the trustees) of the total outstanding shares of
beneficial interest. The Wellsford Declaration provides that the trustees may
waive
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the WRP Ownership Limit if evidence satisfactory to the trustees and to
Wellsford's tax counsel is presented that such ownership will not then or in the
future jeopardize Wellsford's status as a REIT. As a condition of such waiver,
the intended transferee must give written notice to Wellsford of the proposed
transfer and must furnish such opinions of counsel, affidavits, undertakings,
agreements and information as may be required by the trustees no later than the
15th day prior to any transfer which, if consummated, would result in the
intended transferee owning shares in excess of the WRP Ownership Limit. The
foregoing restrictions on transferability and ownership will not apply if the
Wellsford Board of Trustees determines that it is no longer in the best
interests of Wellsford to attempt to qualify, or to continue to qualify, as a
REIT. Any transfer of shares of beneficial interest that would (i) create a
direct or indirect ownership of shares of beneficial interest in excess of the
WRP Ownership Limit, (ii) result in the shares of beneficial interest being
owned by fewer than 100 persons, or (iii) result in Wellsford being "closely
held" within the meaning of Section 856(h) of the Code, will be null and void,
and the intended transferee will acquire no rights to such shares of beneficial
interest. The Wellsford Declaration provides that Wellsford, by notice to the
holder thereof, may purchase any or all shares of beneficial interest of
Wellsford (the "Excess Shares") that are proposed to be transferred pursuant to
a transfer which, if consummated, would result in the intended transferee owning
shares of beneficial ownership in excess of the WRP Ownership Limit or would
otherwise jeopardize Wellsford's REIT status. The purchase price of any Excess
Shares will be equal to the fair market value of such excess Shares as reflected
in the closing sales price for the shares of beneficial interest, if then listed
on a national securities exchange. From and after the date fixed for purchase
by the trustees, the holder of such shares of beneficial interest to be
purchased by Wellsford will cease to be entitled to dividends, distributions,
voting rights and other benefits with respect to such shares except the right to
payment of the purchase price for the shares. Any dividend or distribution paid
to a proposed transferee on Excess Shares prior to the discovery by Wellsford
that such shares of beneficial interest have been transferred in violation of
the provisions of the Wellsford Declaration shall be repaid to Wellsford upon
demand. If the foregoing transfer restrictions are determined to be void or
invalid by virtue of any legal decision, statute, rule or regulation, then the
intended transferee of any Excess Shares may be deemed, at Wellsford's option,
to have acted as an agent on behalf of Wellsford in acquiring such Excess Shares
and to hold such Excess Shares on behalf of Wellsford.
The Wellsford Declaration requires that all persons who own, directly or
indirectly, more than 5% in number or value of the total outstanding shares of
beneficial interest of Wellsford must give a written notice to Wellsford
containing the information specified in the Wellsford Declaration by January 31
of each year. In addition, each shareholder irrespective of such shareholder's
ownership shall upon demand be required to disclose to Wellsford in writing such
information with respect to the direct, indirect and constructive ownership of
beneficial interests as the trustees deem necessary to comply with the
provisions of the Code applicable to a REIT, to comply with the requirements of
any taxing authority or governmental agency or to determine any such compliance.
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The EQR Declaration, subject to certain exceptions, provides that no holder
may own, or be deemed to own by virtue of the attribution provisions of the
Code, more than 5% (the "EQR Ownership Limit") of the lesser of the number of
shares or value of the issued and outstanding shares of beneficial interest of
EQR. The EQR Board of Trustees, upon receipt of a ruling from the Service, an
opinion of counsel or other evidence satisfactory to the EQR Board of Trustees
and upon such other conditions as the EQR Board of Trustees may direct, may also
exempt a proposed transferee from the EQR Ownership Limit. As a condition of
such exemption, the intended transferee must give written notice to EQR of the
proposed transfer no later than the fifteenth day prior to any transfer which,
if consummated, would result in the intended transferee owning shares in excess
of the EQR Ownership Limit. Any transfer of EQR Common or EQR Preferred that
would (i) create a direct or indirect ownership of shares of beneficial interest
in excess of the EQR Ownership Limit, (ii) result in the shares of beneficial
interest being owned by fewer than 100 persons, or (iii) result in EQR being
"closely held" within the meaning of Section 856(h) of the Code, will be void ab
initio, and the intended transferee will acquire no rights to the shares of
beneficial interest. The foregoing restrictions on transferability and
ownership will not apply if the EQR Board of Trustees determines that it is no
longer in the best interests of EQR to attempt to qualify, or to continue to
qualify, as a REIT.
EQR's Declaration exempts from the Ownership Limit certain persons and
entities who would exceed the Ownership Limit as a result of the exchange of the
OP Units for EQR Common, which OP Units were received by them at the time of the
formation of EQR. These persons may also acquire additional EQR Shares through
EQR's Second Amended and Restated 1993 Share Option and Share Award Plan (the
"Option and Award Plan"), but in no event will such persons be entitled to
acquire additional shares of beneficial interest such that the five largest
beneficial owners of EQR's shares of beneficial interest hold more than 50% in
number or value of the total outstanding EQR Shares.
Any EQR Shares the transfer of which would result in a person owning shares
of beneficial interest in excess of the Ownership Limit or cause EQR to become
"closely held" under Section 856(h) of the Code that is not otherwise permitted
as provided above will constitute excess shares ("Excess Shares"), which will be
transferred by operation of law to EQR as trustee for the exclusive benefit of
the person or persons to whom the Excess Shares are ultimately transferred,
until such time as the intended transferee retransfers the Excess Shares. While
these Excess Shares are held in trust, they will not be entitled to vote or to
share in any distributions (except upon liquidation). Subject to the Ownership
Limit, the Excess Shares may be retransferred by the intended transferee to any
person (if the Excess Shares would not be Excess Shares in the hands of such
person) at a price not to exceed the price paid by the intended transferee or,
if the intended transferee did not give value for such Excess Shares (e.g., a
transfer by gift or devise), the fair market value (as described below) at the
time of the purported transfer that resulted in the Excess Shares, at which
point the Excess Shares will automatically be exchanged for the shares of
beneficial interest to which the Excess Shares are attributable. In addition,
such Excess Shares held in trust are subject to purchase by EQR at a
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purchase price equal to the lesser of the price paid for the Excess Shares in
the transaction that created such Excess Shares (or, in the case of a devise or
gift, the fair market value at the time of such devise or gift) and the fair
market value of the EQR Preferred or EQR Common to which such Excess Shares
relate on the date EQR exercises its right to purchase. Fair market value will
be the last sales price of such shares of beneficial interest reported on the
NYSE on the trading day immediately preceding the relevant date, or if not then
traded on the NYSE, the last reported sales price of such shares of beneficial
interest on the trading day immediately preceding the relevant date as reported
on any exchange or quotation system over which such shares of beneficial
interest may be traded, or if not then traded over any exchange or quotation
system, then the fair market value of such shares of beneficial interest on the
relevant date as determined in good faith by the EQR Board of Trustees. EQR's
right to purchase shall be for a period of 90 days after the later of the date
of the purported transfer which resulted in the Excess Shares and the date the
EQR Board of Trustees determines in good faith that such a transfer has
occurred. From and after the intended transfer to the intended transferee of
the Excess Shares, the intended transferee will cease to be entitled to
distributions (except upon liquidation), voting rights and other benefits with
respect to such shares except the right to payment of the purchase price for the
shares or the retransfer of shares as provided above. Any distribution paid to
a proposed transferee on Excess Shares prior to the discovery by EQR that such
shares of beneficial interest have been transferred in violation of the
provisions of EQR's Declaration will be repaid to EQR upon demand. If the
foregoing transfer restrictions are determined to be void or invalid by virtue
of any legal decision, statute, rule or regulation, then the intended transferee
of any Excess Shares may be deemed, at the option of EQR, to have acted as an
agent on behalf of EQR in acquiring such Excess Shares and to hold such Excess
Shares on behalf of EQR.
All certificates representing shares of beneficial interest of EQR shall
bear a legend referring to the restrictions described above.
All persons who own, directly or by virtue of the attribution provisions of
the Code, more than 5% (or such other percentage between 1/2 of 1% and 5% as
provided in the rules and regulations promulgated under the Code) of the lesser
of the number or value of the outstanding shares of beneficial interest of EQR
must give a written notice to EQR by January 31 of each year. In addition, each
shareholder will upon demand be required to disclose to EQR in writing such
information with respect to the direct, indirect and constructive ownership of
EQR Shares as the EQR Board of Trustees deems reasonably necessary to comply
with the provisions of the Code applicable to a REIT, to comply with the
requirements of any taxing authority or governmental agency or to determine any
such compliance.
The Declaration of the Surviving Trust will contain restrictions on the
ownership, transfer and issuance of Survivor Shares generally similar to those
restrictions contained in the EQR Declaration.
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Additional Amendments
Upon approval of the Merger by the Wellsford Common Shareholders and at the
Effective Time, the Wellsford Declaration will be amended and restated to
substantially conform the Wellsford Declaration to the terms of the EQR
Declaration (except for those provisions of the Wellsford Declaration that
require a two-thirds vote of the holders of Wellsford Common to be amended (the
"Two-Thirds Provisions")) and to effect certain additional changes as described
in "Comparison of Rights of Shareholders," including but not limited to an
increase in the number of authorized shares to 300,000,000, 100,000,000 of which
may be preferred shares. The Wellsford Declaration, as amended and restated
("Surviving Trust Declaration"), will constitute the declaration of the
Surviving Trust. The Board of Directors of each of Wellsford and EQR believe
that amendments to the Two-Thirds Provisions would be in the best interests of
the shareholders of EQR and Wellsford. The holders of Wellsford Common are
therefore being asked to separately approve amendments to sections 2.3, 6.6,
9.1, 9.2 and 9.3 of the Surviving Trust Declaration.
The following is a summary of the Additional Amendments as to which the
approval of the Wellsford Common Shareholders is being requested.
Removal of Trustees. Section 2.3 of the Wellsford Declaration currently
provides for the removal of Trustees, with or without cause, by the affirmative
vote of the holders of not less than two-thirds of the Wellsford Shares then
outstanding and entitled to vote on the election of trustees. Upon approval of
the Additional Amendments, the Surviving Trust Declaration will provide for the
removal of Trustees only with cause by the same vote previously required.
"Cause" will be defined as (a) material theft, fraud or embezzlement or active
and deliberate dishonesty by a Trustee; (b) habitual neglect of duty by a
Trustee having a material and adverse significance to the Trust; or (c) the
conviction of a Trustee for a felony or of any crime involving mortal turpitude.
Restrictions on Transfer and Ownership of Shares. In order to maintain its
status as a REIT under the Code and Title 8, Section 6.6 of the Wellsford
Declaration currently imposes a number of restrictions on the transfer and
ownership of Wellsford Shares. See "Comparison of Rights of Shareholders -
Restrictions on the Ownership, Transfer or Issuance of Shares." Since the
adoption of the Wellsford Declaration in 1992, the comparable section of the
declarations of other REITs has evolved into a more detailed provision relating
to the applicable ownership limits and compliance with the Code. Upon approval
of the Additional Amendments, these provisions will be modified to reflect the
effects of the Merger and the Surviving Trust's relationship with ERP Operating
Partnership. Among the specific amendments to be made will be the inclusion of
provisions exempting the exchange of OP Units into Survivor Shares from the
definition of "transfer." In addition, certain persons and entities who would
otherwise exceed the ownership limits placed on Survivor Shares due to their
ownership of EQR Shares or OP Units received at the formation of EQR will be
exempted from such ownership
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restrictions. Upon approval of the Additional Amendments, Excess Shares will be
held by the Surviving Trust for the benefit of the transferor of such shares.
Amendment to Declaration. Section 9.1 of the Wellsford Declaration currently
provides for its amendment by the affirmative vote of the holders of not less
than a majority of the Wellsford Shares outstanding and entitled to vote
thereon, except that amendments related to the removal of trustees, the
restrictions on the ownership of Wellsford Shares, the reorganization of
Wellsford and the merger, consolidation or sale of all or substantially of
Wellsford's property must be approved by the affirmative vote of the holders of
two-thirds of the Wellsford's Shares then outstanding and entitled to vote on
the matter. In addition, the Wellsford Board of Trustees may, by a two-thirds
vote, amend the Wellsford Declaration in order to enable Wellsford to qualify
and remain qualified as a REIT under the Code and Title 8.
Upon approval of the Additional Amendments, the Declaration of the
Surviving Trust will provide for its amendment by the Survivor Board of
Trustees, by a two-thirds vote, to enable the Surviving Trust to qualify and
remain qualified as a REIT. The Declaration of the Surviving Trust will also
provide for amendment of all its provisions by the affirmative vote of the
holders of not less than two-thirds of the Survivor Shares then outstanding and
entitled to vote thereon.
Mergers, Consolidation, or Sale of Trust Property. Section 9.2 of the Wellsford
Declaration currently states that, upon the affirmative vote of the holders of
not less than two-thirds of the Wellsford Shares then outstanding and entitled
to vote thereon, the trustees of Wellsford may reorganize Wellsford by creating
a separate entity into which Wellsford will merge or sell its assets. In
addition, Section 9.3 of the Wellsford Declaration currently provides that if
Wellsford is not the surviving entity in a merger or consolidation, or in the
event of a sale of all or substantially all of Wellsford's property, that
transaction must be approved by two-thirds of the Wellsford Shares then
outstanding and entitled to vote thereon. In all other cases, such a merger or
consolidation need only be approved by a majority of the Wellsford Shares then
outstanding and entitled to vote thereon. Upon approval of the Additional
Amendments, any merger, consolidation, or sale of all or substantially all of
the Surviving Trust's property will be required to be approved by two-thirds of
the Survivor Shares then outstanding and entitled to vote thereon.
THE CONTRIBUTION AND DISTRIBUTION
The following describes certain aspects of the Contribution and the
Distribution. To the extent that they relate to the Contribution and
Distribution Agreement, the following descriptions do not purport to be complete
and are qualified in their entirety by reference to the Contribution and
Distribution Agreement, which is filed as an exhibit to the registration
statement of which this Joint Proxy Statement/Prospectus/Information Statement
is a part.
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Background of and Reasons for the Distribution
EQR is in the business of acquiring, owning and operating multifamily
properties. It does not currently engage in any development activities and
generally does not hold debt instruments for investment. In the course of
discussions with respect to the Merger it became clear that EQR did not wish to
acquire all of Wellsford's interest in its development project near Denver,
Colorado, known as Palomino Park or its interests in the Sonterra Assets. If EQR
were to acquire such assets, Wellsford would not be able to receive what it
considered to be adequate value for such assets. Wellsford's management
believes that it can maximize the value of those assets for its shareholders by
not conveying them in the Merger and by retaining such assets and their long-
term value for Wellsford Common Shareholders by contributing them to WRP Newco
and distributing all of the shares of WRP Newco owned by Wellsford to the
Wellsford Common Shareholders pro rata. It has also been agreed that to provide
initial working capital for WRP Newco, Wellsford would contribute approximately
$20 million in cash to WRP Newco. Pursuant to the Merger, EQR will acquire the
remaining assets of Wellsford, subject to certain liabilities. See "-
Contribution and Distribution Agreement."
Although the Contribution and Distribution will not be effected unless the
Merger is approved and all conditions thereto have been satisfied or waived,
Wellsford Common Shareholders are not being asked to approve the Contribution
and Distribution, which are not subject to shareholder approval.
Manner of Effecting the Contribution and Distribution
The Contribution was approved and the Distribution was declared by the
Board of Trustees of Wellsford on January 16, 1997, the date on which it also
approved the Merger. The Contribution will be made immediately prior to the
Distribution, and both the Contribution and the Distribution will occur on the
same date as the Effective Date (the "Distribution Date") and immediately prior
to the Merger. The Distribution will be made to Wellsford Common Shareholders
of record as of the close of business on the Distribution Date. On or prior to
the Distribution Date, a share certificate evidencing all the shares of WRP
Newco Common owned by Wellsford will be delivered to the United States Trust
Company of New York, as Distribution Agent. Commencing on the Distribution
Date, the Distribution Agent will begin mailing to Wellsford Common Shareholders
as of the close of business on the Distribution Date one share of WRP Newco
Common for every four shares of Wellsford Common held on the Distribution Date.
See "Description of Capital Stock of WRP Newco -- Common Stock." Wellsford
Common Shareholders who would be entitled to receive fractional shares of WRP
Newco Common will receive cash in the Distribution in lieu of such fractional
shares. To accomplish this, the Distribution Agent will determine the number of
whole and fractional shares of WRP Newco Common to which each Wellsford Common
Shareholder as of the Distribution Date is entitled. Next, the Distribution
Agent will aggregate these fractional share interests and sell them on the open
market at then-prevailing prices. The Distribution Agent will distribute to
each Wellsford Common Shareholder its ratable share of such proceeds after
deducting
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appropriate amounts for federal income tax withholding purposes and any
applicable transfer taxes.
No holder of Wellsford Common Shareholder will be required to pay any cash
or other consideration for the shares of WRP Newco Common to be received in the
Distribution or to surrender or exchange shares of Wellsford Common or to take
any other action in order to receive WRP Newco Common.
Listing and Trading of WRP Newco Common
WRP Newco has applied for listing of the WRP Newco Common on the NYSE.
Initially, WRP Newco will have approximately 650 stockholders of record and the
outstanding shares of WRP Newco Common will be held on behalf of approximately
13,500 beneficial owners, based on the number of record holders and beneficial
owners of Wellsford Common as of February 18, 1997.
There is currently no trading market for the WRP Newco Common. Prices at
which WRP Newco Common may trade after the Distribution cannot be predicted.
Until the WRP Newco Common is fully distributed and an orderly market develops,
the prices at which trading in such stock occurs may fluctuate significantly.
The prices at which WRP Newco Common trades will be determined by the
marketplace and may be influenced by many factors, including, among others, the
depth and liquidity of the market for WRP Newco Common, investor perception of
WRP Newco and its businesses, WRP Newco's dividend policy and general economic
and market conditions.
Shares of WRP Newco Common distributed to Wellsford Common Shareholders in
the Distribution will be freely transferable, except for shares received by
persons who may be deemed to be "affiliates" of WRP Newco under the Securities
Act. Persons who may be deemed to be affiliates of WRP Newco after the
Distribution generally include individuals or entities that control, are
controlled by, or are under common control with, WRP Newco, and may include
certain officers and directors of WRP Newco as well as certain principal
stockholders of WRP Newco, if any. Persons who are affiliates of WRP Newco will
be permitted to sell their shares of WRP Newco Common only pursuant to an
effective registration statement under the Securities Act or an exemption from
the registration requirements of the Securities Act.
Conditions; Termination
The Contribution and Distribution are subject to certain conditions as set
forth in the Contribution and Distribution Agreement including, but not limited
to, each condition to the closing of the Merger set forth in the Merger
Agreement shall have been satisfied or waived. The Contribution and
Distribution may be abandoned at any time prior to their occurrence by and in
the sole discretion of the Board of Trustees of Wellsford without the approval
of WRP Newco or the Wellsford Common Shareholders.
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Contribution and Distribution Agreement
Wellsford and WRP Newco have entered into a Contribution and Distribution
Agreement providing for, among other things, the principal corporate
transactions required to effect the contribution by Wellsford of certain of its
assets to WRP Newco.
Wellsford will transfer, without representation or warranty, all of its
right, title and interest in and to the following assets, among others (the
"Contributed Assets"):
(a) the Sonterra Assets. See "WRP Newco's Initial Assets;"
(b) 80% of the outstanding shares of Wellsford Park Highlands Corp.
("WPHC"), which represents an approximate 80% interest in Palomino Park,
together with certain additional ownership and financing agreements relating to
Palomino Park. See "WRP Newco's Initial Assets;"
(c) cash in the amount of approximately $20 million, subject to adjustment
as described in the Merger Agreement and the Transaction and Termination Costs
Agreement attached as an exhibit thereto;
(d) the lease of the premises currently occupied by Wellsford in New York
City, together with the furniture, fixtures, equipment and personalty located at
such premises; and
(e) the name "Wellsford".
Simultaneously with the Contribution, WRP Newco will assume, among others,
the following liabilities:
(i) All liabilities of Wellsford with respect to the Contributed
Assets;
(ii) the obligations to executive officers and trustees of Wellsford
arising under certain Wellsford share option certificates, which will be
satisfied by (A) amending the option certificates, as described in
"Interests of Certain Persons in the Merger and Distribution -- Benefits of
Key Executives -- Wellsford Options" (as amended, the "Amended WRP Newco
Options") and (B) issuing shares of WRP Newco Common pursuant to the
Amended WRP Newco Options; and
(iii) any other obligation of Wellsford under any agreement relating
to the Sonterra Assets, the bonds relating to Palomino Park, or Palomino
Park except the obligations of ERP Operating Partnership under the Credit
Enhancement Agreement and the Palomino Agreement, each between ERP
Operating Partnership and WRP Newco.
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Mutual Indemnities. Pursuant to the Contribution and Distribution
Agreement, Wellsford and WRP Newco will each be responsible for all claims and
liabilities relating to its own business (whether or not such claims and
liabilities arise from activities occurring prior to the Distribution) and will
each indemnify the other against such claims and liabilities, subject to certain
limited exceptions relating to the Credit Enhancement Agreement, Palomino
Agreement and Transaction and Termination Costs Agreement.
Tax Consequences of the Distribution
The following discussion concerns the material United States Federal income
tax consequences of the receipt of shares of WRP Newco Common by Wellsford
Common Shareholders in the Distribution. The discussion is based on current law,
which is subject to change retroactively or prospectively, and is for general
information only. The discussion does not address all aspects of Federal income
taxation and does not address any aspects of state, local or non-U.S. tax laws,
except as set forth below. The discussion does not consider any specific facts
or circumstances that may apply to a particular Wellsford shareholder.
Accordingly, Wellsford Common Shareholders are urged to consult their tax
advisors regarding the United States Federal, state, local and non-U.S. income
and other tax consequences of the Distribution and of holding and disposing of
shares of WRP Newco Common.
General. To the extent the fair market value of the shares of WRP Newco
Common distributed in the Distribution to Wellsford Common Shareholders exceeds
Wellsford's tax basis in such shares, gain will be recognized by Wellsford.
Assuming Wellsford qualifies as a REIT and has a dividends paid deduction for
distributions to its shareholders at least equal to its REIT taxable income (as
computed before taking into account the dividends paid deduction), no REIT level
tax will be incurred on account of the Distribution.
The distribution of WRP Newco Common will, however, be taxable to Wellsford
Common Shareholders to the same extent as any other distribution made by
Wellsford to its shareholders. Thus, so long as Wellsford qualifies for taxation
as a REIT, distributions with respect to its shares, including the Distribution,
made out of current earnings and profits (computed as of the close of its
taxable year without taking into account any distributions made during such
year) or accumulated earnings and profits allocable thereto (and not designated
as capital gain dividends) will be includible by the shareholders as ordinary
income for Federal income tax purposes. For this purpose, the current and
accumulated earnings and profits of Wellsford will be allocated first to
distributions with respect to shares of Wellsford Preferred and then to
distributions with respect to Common Shares. None of these distributions will
be eligible for the dividends received deduction for corporate shareholders.
Distributions that are designated as capital gain dividends will be taxed as
long-term capital gains (to the extent they do not exceed Wellsford's actual net
capital gain for the taxable year) without regard to the period for which the
shareholder has held his share. Corporate shareholders, however, may be required
to treat up to 20% of certain capital gain dividends as ordinary income.
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Distributions in excess of current or accumulated earnings and profits will
not be taxable to a shareholder to the extent that they do not exceed the
adjusted basis of the shareholder's shares. Shareholders will be required to
reduce the tax basis of their shares by the amount of such distributions until
such basis has been reduced to zero, after which such distributions will be
taxable as capital gain (ordinary income in the case of a shareholder who holds
his shares as a dealer). The tax basis as so reduced will be used in computing
the capital gain or loss, if any, realized upon sale of the shares of Wellsford
Common (or shares of Survivor Common received in exchange therefor in the
Merger). Any loss upon a sale or exchange of shares of Wellsford Common (or
shares of Survivor Common received in exchange therefor in the Merger) by a
shareholder who held such shares of Wellsford Common (or shares of Survivor
Common received in exchange therefor in the Merger) for six months or less
(after applying certain holding period rules) will generally be treated as a
long-term capital loss to the extent such shareholder previously received
capital gain distributions with respect to such shares of Wellsford Common (or
shares of Survivor Common received in exchange therefor in the Merger).
The current earnings and profits of the Surviving Trust will include all
pre-Merger earnings and profits of Wellsford, all pre-Merger undistributed
earnings and profits of EQR and all post-Merger earnings and profits of the
Surviving Trust. The total earnings and profits at the close of the Surviving
Trust's taxable year will be allocated among pre-Merger Wellsford distributions,
including the Distribution, and all post-Merger distributions of the Surviving
Trust. Management estimates that approximately 50% of the value of the shares
of WRP Newco Common received in the Distribution will be taxable as ordinary
income. Because this estimate is based, in part, on future events, there can be
no assurance as to the portion of the value of the Distribution that will be
taxable as ordinary income. The remainder of the value of the shares of WRP
Newco Common received in the Distribution will either constitute a return of
capital (reducing basis in the shares of Wellsford Common that converted in the
Merger into Survivor Common) or capital gain. A Wellsford shareholder's tax
basis in the WRP Newco Common received in the Distribution will equal their fair
market value on the date of Distribution. The holding period of the WRP Newco
Common received in the Distribution will begin on the day following the date of
the Distribution.
Upon the sale or exchange of WRP Newco Common to or with a person other
than WRP Newco, a holder will recognize capital gain or loss equal to the
difference between the amount realized on such sale or exchange and the holder's
adjusted tax basis in such shares. Any capital gain or loss recognized will
generally be treated as long-term capital gain or loss if the holder held such
shares for more than one year.
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Backup Withholding and Information Reporting.
A noncorporate holder of WRP Newco Common who is not otherwise exempt from
backup withholding may be subject to backup withholding at the rate of 31% with
respect to distributions paid on, or the proceeds of a sale, exchange or
redemption of, the WRP Newco Common. Generally, backup withholding applies only
when the taxpayer (i) fails to furnish or certify his correct taxpayer
identification number to the payor in the manner requested, (ii) is notified by
the United States Internal Revenue Service ("IRS") that he has failed to report
payments of interest or dividends properly, or (iii) under certain
circumstances, fails to certify that he has not been notified by the IRS that he
is subject to backup withholding for failure to report interest or dividend
payments. Any amounts withheld under the backup withholding rules from a payment
to a holder will be allowed as a credit against the holder's Federal income tax
liability or as a refund, provided that the required information is furnished to
the IRS. Holders of WRP Newco Common should consult their own tax advisors
regarding their qualification for exemption from backup withholding and the
procedure for obtaining any applicable exemption.
State, Local and Foreign Taxation.
WRP Newco and its shareholders may be subject to state, local or foreign
taxation in various state, local or foreign jurisdictions, including those in
which it or they transact business or reside. Such state, local or foreign
taxation may differ from the Federal income tax treatment described above.
Consequently, prospective holders of WRP Newco Common should consult their own
tax advisors regarding the effect of state, local and foreign tax laws on the
ownership of WRP Newco Common.
WELLSFORD REAL PROPERTIES, INC.
General
WRP Newco intends to engage in a broad range of businesses and activities
related to the acquisition, development, ownership, management and financing of
real estate and the ownership of debt and equity securities of entities engaged
in real estate-related businesses and activities. WRP Newco does not initially
intend to seek to qualify as a REIT and, as a merchant banker for its own
account, it will actively engage in certain businesses that could not be
conducted by REITs because of, among other things, the requirement that REITs
distribute a substantial portion of their income, restrictions on their
ownership interests in other entities, and limitations on the types of assets
they can own and on selling such assets. WRP Newco will endeavor to build
equity for its shareholders by increasing net asset value per share and
reinvesting internally generated funds rather than paying cash dividends for the
foreseeable future.
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Unlike holders of interests in private funds that engage in many of the
activities in which WRP Newco intends to engage, WRP Newco believes that holders
of shares of WRP Newco Common will have more liquidity in their investment and
will have the ability to margin their shares and need not make a minimum
investment in WRP Newco.
WRP Newco will conduct its business directly or through equity and debt
investments in other entities engaged in various real estate-related businesses
and activities. Initially, WRP Newco will focus on four distinct aspects of the
real estate business, but it may add to, expand, retract from or discontinue
certain activities from time to time in response to changes in market, real
estate and general economic conditions.
(1) Commercial Properties. WRP Newco will seek to acquire, own and operate
commercial and office properties. Initially, WRP Newco will seek to acquire
suburban office properties at or below replacement cost and remarket the
properties after renovation, redevelopment and/or repositioning. As
opportunities arise, WRP Newco may seek to acquire other types of commercial and
industrial properties. WRP Newco has acquired one suburban office property and
has contracted to acquire four additional such properties, all of which are
located in New Jersey. See "WRP Newco's Initial Assets."
(2) Property Development. When justified by anticipated returns, WRP Newco
will engage in the development of residential properties and may develop other
types of properties in the future. Development properties may be retained for
investment and operated by WRP Newco, sold, or converted to condominium or
cooperative ownership. WRP Newco may also acquire land for speculation, future
development or subdivision. Certain development activities may be conducted in
joint ventures with local developers, in which case WRP Newco may attempt to
have the local developer bear the substantial portion of the economic risks
associated with the construction, development and initial rent-up of properties.
Palomino Park will be WRP Newco's initial development project. See "WRP Newco's
Initial Assets."
(3) Equity Investments. WRP Newco intends to make equity investments in
entities owned by third parties and which engage in real estate-related
businesses and activities. WRP Newco may also make short-term investments in
securities of publicly traded real estate companies. Some of the entities in
which WRP Newco may invest may be start-up companies or companies in need of
additional capital.
(4) High Yield Debt Investments. WRP Newco will make loans that
constitute, or will invest in a wide variety of, senior, junior or otherwise
subordinated debt instruments, which may be unsecured or secured by liens on
real estate or the economic benefits thereof. These investments may contain
options to acquire, or be convertible into the right to acquire, all or a
portion of the underlying real estate, or contain the right to participate in
the cash flow and economic return which may be derived from the real estate.
These investments may include debt that is acquired at a discount, mezzanine
financing, commercial mortgage-backed securities,
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secured and unsecured lines of credit, distressed loans, and loans previously
made by foreign and other financial institutions. In some cases WRP Newco may
only acquire a participating interest in the debt instrument. The Sonterra Loan
will constitute WRP Newco's initial debt investment. See "WRP Newco's Initial
Assets."
WRP Newco may also manage and lease properties owned by it or in which it
has an equity or debt investment.
In analyzing potential investments and dispositions, Wellsford has
reviewed, and WRP Newco will review, among other things, the primary economic
indicators of various cities and regions and market information regarding
various financial instruments. Much of this information has been, and will
continue to be, provided by REIS Reports, Inc., a nationally recognized real
estate market database firm.
Initial Capital and Financing
Upon completion of the Distribution and consummation of the Merger and
certain of the other transactions described in this Joint Proxy
Statement/Prospectus/Information Statement, WRP Newco is expected to have
available the following sources of capital, financing and credit support:
. Approximately $20 million of cash (subject to adjustment as
provided in the Merger Agreement) contributed to WRP Newco by Wellsford
pursuant to the Contribution and Distribution Agreement.
. $3.5 million of proceeds from the sale to ERP Operating Partnership
of shares of WRP Newco Class A Common. See "Certain Agreements Between WRP
Newco and ERP Operating Partnership -- Common Stock and Preferred Stock
Purchase Agreement."
. $25 million pursuant to the commitment of ERP Operating Partnership
to acquire up to 1,000,000 shares of WRP Newco Series A Preferred at the
request of WRP Newco and subject to certain limited conditions. See "See
Certain Agreements Between WRP Newco and ERP Operating Partnership --
Common Stock and Preferred Stock Purchase Agreement."
. $50 million under a proposed two-year line of credit from Bank of
Boston and Morgan Guaranty, as to which a term sheet has been issued.
. $36.8 million, pursuant to an agreement with respect to the
construction financing for Phase I of Palomino Park, and $30 million,
pursuant to an agreement expected to be entered into with respect to the
construction financing for Phase II of Palomino Park, in each case
guaranteed by a third-party developer and supported by the
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credit of ERP Operating Partnership pursuant to its stand-by obligations.
See "Certain Agreements Between WRP Newco and ERP Operating Partnership --
Agreement Regarding Palomino Park."
. Approximately $14.8 million of credit enhancement from ERP
Operating Partnership with respect to the bonds issued to finance certain
public facilities at Palomino Park. See "Certain Agreements Between WRP
Newco and ERP Operating Partnership-Credit Enhancement Agreement."
In addition, WRP Newco presently intends to offer for sale shares of WRP
Newco Common for an aggregate purchase price of between $25 million and $100
million, excluding any over-allotment option. There can, of course, be no
assurance as to the number of shares of WRP Newco Common which may be sold
pursuant to such offering, if any, or the amount of proceeds derived therefrom.
Proceeds of this offering would be used to repay loans made by Wellsford to WRP
Newco, and interest thereon, and any balance would be available for investments,
other business activities and working capital.
WRP Newco's other sources of capital to finance its acquisition,
investment, development and other activities, may include retained earnings,
funds derived from the issuance of debt and equity securities, sales of
investments and bank borrowings. See "Policies with Respect to Certain
Activities of WRP Newco."
Historical Background
In 1986, Jeffrey H. Lynford and Edward Lowenthal, the Chairman and
President, respectively, of Wellsford and WRP Newco formed Wellsford Group, Inc.
("WGI") with an initial capitalization of $1 million provided primarily by
William E. Simon, Raymond Chambers, Frank Walsh and principals of Eastdil
Realty, Inc. During the period from 1986 through November 1992, WGI and its
affiliates acquired 19 multifamily properties consisting of 5,255 units. In
November 1992 WGI transferred its properties to Wellsford, which raised $91
million of proceeds through the initial public offering of its common shares
("Wellsford IPO"). At the time of the Wellsford IPO, Wellsford was the only
REIT dedicated exclusively to the ownership of multifamily properties.
Wellsford's mission has been to maximize long term profitability for its
shareholders, while maintaining quality housing and exceptional service for its
residents. Wellsford has sought to achieve its mission by acquiring,
developing, and operating multifamily properties in target markets; applying
sophisticated management and operating techniques; and maintaining a
conservative capital structure.
During 1993 and 1994 Wellsford commenced an aggressive acquisition strategy
which increased the historical cost of its total assets from $147 million at the
Wellsford IPO, to $756 million at December 31, 1996 with the purchase of 15,774
multifamily units. These acquisitions included a 5,100 unit portfolio in
Oklahoma purchased for $133 million in May 1994, and the
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$250 million acquisition by merger of Holly Residential Properties, Inc., a
developer/owner of over 5,000 multifamily units in the Seattle/Tacoma area.
During 1995 and 1996 Wellsford focused its efforts on its core portfolio
and the development of new properties. Property management, which had been
contracted to third parties, was internalized. Wellsford now provides direct
management for 84% of its properties. Wellsford developed new properties
containing 548 multifamily units during this period, helping to reduce the
average age of its portfolio. In addition, Wellsford commenced development of
Palomino Park, a 182-acre master planned "Class A" multifamily residential
community in Highlands Ranch, a suburb of Denver. See "WRP Newco's Initial
Assets--Palomino Park."
Wellsford funded its acquisition and development activities with various
sources of capital including public and private debt and equity. Wellsford was
one of the first REITs to obtain a corporate credit rating, when it received an
implied senior rating of BBB - from Standard & Poor's Rating Services, Inc. and
Duff & Phelps, Inc. in September 1993. This rating helped Wellsford to issue
$100 million of convertible preferred shares in November 1993. In January 1995
Wellsford became one of the first REITs to access the unsecured debt markets
with a $100 million issuance. In August 1995 Wellsford's senior credit rating
was upgraded to BBB, which helped facilitate the issuance of $125 million of
unsecured notes and $57.5 million of perpetual preferred shares. Wellsford's
commitment to a conservative corporate capital structure, including a 35% Debt
to Total Market Capitalization, has resulted in its investment grade rating and
a gradual reduction of its costs of capital, as reflected by the borrowing costs
on its line of credit. At the time of the Wellsford IPO, Wellsford's line of
credit was secured and had a borrowing rate of LIBOR plus 3.75%. Wellsford's
line of credit is now unsecured with a rate of LIBOR plus 1.50%. Most recently,
Wellsford issued medium term notes at a rate of LIBOR plus .32%.
As a result of the above accomplishments, Wellsford has raised its dividend
15% since the Wellsford IPO and provided an average annual return to
shareholders of 21.2%, based upon the closing market price of a share of
Wellsford Common and EQR Common on the NYSE on January 16, 1997, the date the
Merger was publicly announced.
There can be no assurance that WRP Newco's future performance or rate of
return to its investors will be similar to Wellsford's past accomplishments or
the rate of return to its shareholders.
WRP NEWCO PRO FORMA CAPITALIZATION
The following table sets forth the pro forma capitalization of WRP Newco as
of September 30, 1996 on an historical basis and as adjusted to give effect to
the Merger and Distribution, the sale of shares of WRP Newco Class A Common to
ERP Partnership for an aggregate purchase price of $3.5 million and the
application of the net proceeds therefrom, and the funding of a portion of WRP
Newco's proposed $50 million credit facility with Bank of
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Boston and Morgan Guaranty for the purchase of five commercial office
properties. The information set forth in the table should be read in conjunction
with the WRP Newco financial statements and notes thereto, the WRP Newco pro
forma financial information and notes thereto and "Management's Discussion and
Analysis of Financial Condition and Results of Operations-Liquidity and Capital
Resources" of WRP Newco included elsewhere in this Joint Proxy
Statement/Prospectus/ Information Statement.
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<TABLE>
<CAPTION>
September 30, 1996
Actual As Adjusted
------- -----------
(In thousands)
<S> <C> <C>
DEBT:
Tax exempt mortgage note payable............ $14,755 $14,755
Credit facility............................. -- 25,000
------- -------
Total debt.................................. $14,755 $39,755
------- -------
STOCKHOLDERS' EQUITY:
Common Stock, $.01 par value per share;
200,000,000 shares authorized - 4,869,744
shares issued and outstanding, as adjusted.. -- 49
Capital in excess of par value................. -- 50,994
------- -------
Total stockholders' equity............. 26,562 51,043
------- -------
Total capitalization................... $41,317 $90,798
======= =======
</TABLE>
WRP NEWCO DIVIDEND POLICY
WRP Newco does not currently contemplate paying dividends on WRP Newco
Common. Earnings from the investments of WRP Newco are currently expected to be
used by WRP Newco to finance future acquisitions and investments. The Board of
Directors of WRP Newco may determine in its discretion to pay dividends on WRP
Newco Common in the future, and any such determination will be dependent upon
WRP Newco's results of operations, financial condition, contractual restrictions
and other factors deemed relevant at that time by the WRP Newco Board of
Directors.
WRP NEWCO'S INITIAL ASSETS
WRP Newco's initial assets will consist primarily of five office properties,
the Sonterra Loan, the Sonterra Option, an approximate 80% interest in phases I
and II of, and in options to acquire and develop phases III, IV and V of
Palomino Park, and approximately $20 million in cash. Set forth below is a
brief description of certain of these assets and WRP Newco's plans with respect
thereto. WRP Newco expects to use the approximately $20 million in cash to
repay at the Effective Time the loans made by Wellsford to finance the purchase
by WRP Newco of all of the commercial properties described below.
In the opinion of WRP Newco's management, all of the properties described
below are adequately covered by insurance.
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American Cyanamid Office Complex
WRP Newco expects to acquire the American Cyanamid Office Complex located in
Wayne, N.J. in February, 1997 pursuant to an existing contract. The American
Cyanamid Office Complex consists of (i) a headquarters complex (the "Campus")
consisting primarily of two office buildings; and (ii) two smaller office
buildings, located at 1700 and 1800 Valley Road. All the buildings are
currently vacant.
Headquarters Complex
The Campus consists of two parcels: (i) two buildings consisting of
approximately 560,000 gross square feet on approximately 194 acres (the "Main
Campus") and (ii) an approximately 10-acre site directly across the entrance to
the Main Campus which is zoned residential and has no existing structures. The
Main Campus has the potential for and is zoned for the development of additional
office space. The larger of the two buildings on the Main Campus (the
"Serpentine Building") was constructed in 1962, is four stories high and
contains approximately 400,000 gross square feet. The Serpentine Building
contains a fully functional cafeteria area seating 800, separate executive
officer tower, separate executive dining area, medical clinic and a branch bank
and overlooks a large reservoir and the heli-pad for the complex. The smaller
building (the "West Building") was constructed in 1972, is six stories high and
contains approximately 160,000 square feet. The West Building is connected to
the Serpentine Building by an underground passageway and has a (primarily)
moveable wall interior partitioning system, a fitness center and an auditorium.
There are 1,720 parking spaces currently serving both buildings.
On a pro forma basis, the Campus had a federal tax basis of $14.6 million at
September 30, 1996, and will be depreciated straight-line over a 40-year
estimated life. The current annual real estate taxes on the Campus are $1.2
million, subject to pending negotiations with the municipality of Wayne.
WRP Newco currently contemplates a number of renovations to the Serpentine
Building and the West Building to (i) comply with current life safety and ADA
requirements; (ii) enable the buildings to become more energy efficient; (iii)
eliminate potentially hazardous materials (such as spray-on asbestos
fireproofing in the Serpentine Building's structure); and (iv) maintain
aesthetics. Removal of the spray-on asbestos fire proofing will cost
approximately $3.5 million, and the estimated total cost of all planned
renovations will be approximately $9.1 million. WRP Newco will finance the
renovations from its working capital and its expected credit facility. It is
expected that the renovations will be completed by the first quarter of 1998.
The purchase price for the Campus is $14.6 million, or $26.00 per square
foot, and together with the cost of planned renovations, is $42.00 per square
foot.
1700 Valley Road
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The 1700 Valley Road building consists of 70,600 gross square feet, is two
stories high and is situated on a wooded 9 acre site contiguous with the Campus.
The building was constructed in two stages, during 1972 and 1979, and the
interior was totally refurbished in 1993. The building contains a full service
dining area and 294 parking spaces. The estimated cost of planned renovations
is $200,000.
The purchase price for 1700 Valley Road is $2.2 million, or $31.00 per square
foot, and together with the cost of planned renovations, is $34.00 per square
foot.
1800 Valley Road
The 1800 Valley Road building consists of 54,800 gross square feet, is two
stories high and is situated on a wooded 14 acre site contiguous with the
Campus. The building was constructed in 1980, contains a full service dining
area and has 260 parking spaces. WRP Newco contemplates renovations to comply
with existing life safety and ADA codes and improve certain existing conditions.
The estimated cost of planned renovations is $800,000. WRP Newco expects to
complete the renovations by the fourth quarter of 1997. WRP Newco currently
contemplates marketing this building primarily for sale.
The purchase price for 1800 Valley Road is $2.0 million, or $36.00 per square
foot, and together with the cost of planned renovations, is $51.00 per square
foot.
WRP Newco expects to finance the purchase of the American Cyanamid Office
Complex from the proceeds of a loan from Wellsford, which will obtain the funds
for the loan from its existing Bank of Boston line of credit.
Greenbrook Corporate Center
WRP Newco expects to acquire The Greenbrook Corporate Center ("Greenbrook")
in Fairfield, N.J. in March, 1997 pursuant to an existing contract. The
Greenbrook Corporate Center consists of (i) a three-story office building with
approximately 201,600 gross square feet situated on approximately 20 acres and
(ii) a contiguous undeveloped approximately 7-acre parcel zoned for office and
light industrial use. The entrance to the building is a 35-foot atrium lobby
and the second and third floors have terraces overlooking a park and country
club which border the rear of the site. WRP Newco intends to spend
approximately $500,000 to renovate the building.
Greenbrook accounted for 71% of WRP Newco's pro forma revenues during the
nine months ended September 30, 1996. The occupancy rate for Greenbrook was
85.7% for the year ended December 31, 1996. The current rental rate per square
foot is approximately $23. On a pro forma basis, Greenbrook had a federal tax
basis of $23.7 million at September 30, 1996, and will be depreciated straight-
line over a 40-year estimated life. The current annual real estate taxes on
Greenbrook are approximately $428,000.
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Greenbrook's two largest tenants are Information Resources, Inc., a market
research firm, and S.B. Thomas, whose principal business is baked foods.
Information Resources, Inc. occupies 64,676 rentable square feet, with an annual
rent of approximately $1.3 million, under a lease that expires December 2003.
S.B. Thomas occupies 49,384 rentable square feet with an annual rent of
approximately $.9 million, under a lease that expires in 2005. Greenbrook has
nine additional tenants, with annual rent of approximately $1.2 million.
The purchase price for this property is $23.7 million payable in cash, or
$125.00 per square foot, and together with the cost of planned renovations, is
$127.00 per square foot. WRP expects to finance the purchase of Greenbrook from
the proceeds of a loan from Wellsford, which will obtain the funds for the loan
from its existing Bank of Boston line of credit.
Chatham, New Jersey
In January 1997, WRP Newco acquired a three-story suburban office building
consisting of approximately 65,000 gross square feet located on approximately 5
acres in Chatham, New Jersey.
WRP Newco currently intends to spend approximately $3.1 million to make
various renovations to upgrade the building's status including, among other
things, to add a first class lobby and improve other common areas, renovate the
facade and upgrade the HVAC system and provide landscaping. These renovations
should be completed by the third quarter of 1997. WRP Newco is currently
marketing the building for rental.
The purchase price for the property was $5.1 million payable in cash, or
$78.00 per square foot, and together with the cost of planned renovations, is
$126.00 per square foot. WRP Newco financed the purchase of the Chatham building
with the proceeds of a loan from Wellsford, which it funded from its existing
line of credit with Bank of Boston.
Palomino Park
Palomino Park is a master planned five-phase multifamily development project
comprising approximately 182 acres, of which 65 acres have been developed, in
South East Denver, Colorado about 14 miles from Denver's central business
district. It is situated within Highlands Ranch, a 22,000 acre master planned
community. Palomino Park is intended to be developed as an integrated project
comprising an 1,880-unit multifamily apartment community constructed around a
centrally located 24 acre park which will feature tennis courts, athletic
fields, a putting green and an amphitheater. There is also a 29,000 square foot
recreation center which has been completed and which includes a full-size
gymnasium, fitness center, indoor golf range , racquet ball courts, and a baby-
sitting facility and has an adjacent swimming pool. Palomino Park will also
have a perimeter wall with a guard at the entry gate.
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Wellsford Park Highlands Corp. ("WPHC"), a wholly-owned subsidiary of
Wellsford, acquired options to purchase the land underlying each of the phases
(hereinafter referred to collectively as "Phases" or individually as a "Phase"
or specifically as "Phase I", "Phase II", "Phase III", "Phase IV" or "Phase V")
of Palomino Park. The land underlying Phases I and II has been acquired and the
land underlying Phases III, IV and V is subject to options which expire in May,
1997, May, 1998 and May, 1999, respectively. There can be no assurance that
Phase III, Phase IV or Phase V will be commenced or if commenced, that it will
be completed. The purchase price for land acquired with respect to any Phase is
$73,500 per acre, subject to an increase of the purchase price by 6% per annum
from and after November 30, 1994.
Blue Ridge will consist of 456 units of which 144 are constructed, 120 are
leased and 102 are occupied. Rents range from $760 per month for a one bedroom,
one bathroom to $1,375 per month for a three bedroom, two bathroom unit.
Garages are available and washer and dryer hook-ups exist in all the apartments.
Completion of construction of this Phase is expected in late 1997. The total
estimated cost of Blue Ridge is approximately $42.5 million.
Red Canyon is expected to consist of 304 units. The total estimated cost of
Red Canyon is approximately $33.6 million. Site preparation for construction of
Phase II has recently begun and construction of Phase II is expected to be
completed in late 1998.
Blue Ridge is owned by Park at Highlands LLC ("Phase I LLC"), a limited
liability company, the members of which are WPHC (99%) and Al Feld ("Feld")
(1%). Red Canyon is owned by Red Canyon at Palomino Park LLC ("Phase II LLC"),
a limited liability company, the members of which are WPHC (99%) and Feld (1%).
Feld is a Denver-based developer specializing in the construction of luxury
residential properties. He has constructed over 3,000 units since 1984.
Various development, construction and property management and guarantee fees,
as well as certain other fees designed to provide cost savings incentives in
connection with property construction and stabilization, are paid to Feld and
his affiliates. These amounts are included in the cost estimates for Phase I and
Phase II described above. Feld has unconditionally guaranteed completion of
Phase I within 30 months and Phase II within 24 months, in each case after
closing of the construction loan, and has agreed to a one-year guarantee of such
Phases against construction defects. In addition, in the case of both Blue
Ridge and Red Canyon, Feld has agreed, subject to certain conditions, to fund
deficits in the development and operating costs. To secure his obligations to
make deficit payments and perform all of his other obligations under the
operating agreements, Feld has pledged his interest in Phase I LLC and Phase II
LLC to WPHC.
The operating agreements provide that neither member may transfer, pledge or
assign its interest in the Phase I LLC or Phase II LLC without the consent of
the other member, except that (i) WPHC may transfer a portion of its interest
provided it retains at least a 21% interest in Phase I LLC or Phase II LLC, as
the case may be, and (ii) WPHC has an option to acquire
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Feld's interest for fair market value at any time after completion of the Phase,
and Feld has an option to compel WPHC to buy his interest for fair market value
upon completion of the Phase.
The construction loan on Blue Ridge is for approximately $36.8 million,
matures on December 31, 1998, and bears interest at the prime rate, except that
Phase I LLC may elect to cause a portion of the previously advanced principal to
bear interest at LIBOR plus 175 basis points. Feld has guaranteed repayment of
this loan.
Wellsford has agreed with the Phase I construction lender (the "Tri-Party
Agreement") to purchase the loan when due, assuming completion of construction,
if it is not paid off by Phase I LLC or by Feld pursuant to his guaranty, for
the lesser of the loan balance or the final agreed upon budget. Concurrently
with the Merger, ERP Operating Partnership has agreed to substitute itself for
Wellsford under the Tri-Party Agreement, with the consent of the Phase I
construction lender. See "Certain Agreements Between WRP Newco and ERP Operating
Partnership -- Agreement Regarding Palomino Park."
Palomino Park Public Improvements Corporation ("PPPIC"), a Colorado non-
profit corporation, has issued $14.8 million of tax exempt bonds due on December
1, 2035 (the "Bonds") to finance the development of the park and certain
infrastructure within Palomino Park, which have a total cost of approximately
$18.3 million. The Bonds currently bear interest at a floating rate, but may be
converted to a term rate or a fixed rate. Subject to certain restrictions,
revenue assessment liens are imposed against the Phases to secure the obligation
of the Phase owners to repay the portion of the Bonds' debt service attributed
by PPPIC to their respective Phases.
If it is determined to proceed with Phases III, IV and/or V, the ownership
and transaction structure of each such Phase is expected to be similar to that
of Phases I and II, although neither Wellsford nor Feld has any obligation to
continue the relationship for future Phases.
Sonterra Assets
Sonterra Loan
Pursuant to the Contribution and Distribution Agreement, WRP Newco will
receive Wellsford's $17.8 million mortgage loan made to the owner of Sonterra.
The principal amount of the Sonterra Loan is due on July 1, 1999. Until the
maturity date, the borrower is to pay interest only, monthly, at the rate of 9%
percent per annum. The loan is non-recourse and repayment of the loan is
secured by a first mortgage on Sonterra and by a personal guaranty. Under
certain circumstances, prepayment of the loan is subject to a prepayment premium
equal to 5% percent of the principal amount of the loan.
Sonterra Option Agreement
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WRP Newco will also receive Wellsford's option to acquire Sonterra through
December 31, 1998 free and clear of all mortgages and other material liens for
approximately $20.5 million if the sale is consummated on or before December 31,
1997 and approximately $21 million if the sale is consummated during 1998. ERP
Operating Partnership will have a right of first offer to acquire the Sonterra
Option and a right to acquire the option if WRP Newco does not exercise it. If
WRP Newco acquires Sonterra, then WRP Newco and ERP Operating Partnership will
enter into a "Right of First/Last Offer Agreement" in substantially the same
form as the Right of First/Last Offer Agreement entered into pursuant to the
Agreement Regarding Palomino Park. See "Certain Agreements Between WRP Newco
and ERP Operating Partnership -- Agreement Regarding Palomino Park."
Cash
Approximately $20 million of cash contributed by Wellsford to WRP Newco, a
substantial portion of which will be applied to repay indebtedness incurred to
acquire WRP Newco's commercial properties.
CERTAIN AGREEMENTS BETWEEN
WRP NEWCO AND ERP OPERATING PARTNERSHIP
The following describes certain aspects of the agreements to be entered
into by WRP Newco and ERP Operating Partnership on the Effective Date. The
following descriptions do not purport to be complete and are qualified in their
entirety by reference to the full text of the agreements, which are filed as
exhibits to the Registration Statement of which this Joint Proxy
Statement/Prospectus/Information Statement is a part.
Common Stock and Preferred Stock Purchase Agreement
Following the Distribution and upon consummation of the Merger, WRP Newco
will enter into the Stock Purchase Agreement with ERP Operating Partnership,
providing for the sale of WRP Newco Class A Common and WRP Newco Series A
Preferred to ERP Operating Partnership on the terms described below.
Common Stock.
Pursuant to the terms of the Stock Purchase Agreement, ERP Operating
Partnership will purchase from WRP Newco upon the Closing Date shares of Class A
common stock, par value $.01 per share, of WRP Newco ("WRP Newco Class A
Common") for an aggregate purchase price of $3.5 million at a price per share
equal to the Issuance Price. The "Issuance Price" is defined in the Stock
Purchase Agreement as (a) the average gross purchase price of WRP Newco Common
sold to institutional purchasers on or prior to the Closing Date or subject to
written commitments to purchase WRP Newco Common from institutional purchasers
received on or
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prior to the Closing Date (collectively "Institutional Sales") or (b) if there
are no Institutional Sales, the net book value per share of WRP Newco Common on
the Closing Date.
For a description of the WRP Newco Class A Common, see "Description of
Capital Stock of WRP Newco -- Class A Common."
Preferred Stock.
Pursuant to the terms of the Stock Purchase Agreement, ERP Operating
Partnership will agree to purchase from WRP Newco up to 1,000,000 shares of WRP
Newco Series A Preferred at $25.00 per share as requested by WRP Newco over the
three-year period (the "Commitment Period") commencing on the Closing Date.
Purchases of Class A Preferred are to be in minimum aggregate amounts of $1
million and in multiples of $500,000 in excess thereof. The obligations of ERP
Operating Partnership to acquire WRP Newco Series A Preferred are subject to,
among other matters, certain representations and warranties being true and
correct in all material respects and there being no event of default existing
under the Stock Purchase Agreement.
For a description of the WRP Newco Series A Preferred, see "Description of
Capital Stock of WRP Newco -- Class A Preferred."
WRP Newco Board Member Elected by ERP Operating Partnership.
On the Closing Date, ERP Operating Partnership, as the holder of WRP Newco
Series A Common, is entitled to elect Douglas Crocker II, President of EQR, to
the WRP Newco Board of Directors. In the event Mr. Crocker (or other person
subsequently elected by ERP Operating Partnership to the WRP Newco Board of
Directors) is unable or unwilling to serve as a director or is no longer
employed by ERP Operating Partnership, ERP Operating Partnership and WRP Newco
will agree to the election of another member of senior management of ERP
Operating Partnership to the WRP Newco Board of Directors (Crocker or such other
individual elected by WRP Newco Series A Common shareholders, called the
"Purchaser Director").
Voting of WRP Newco Class A Common and WRP Newco Series A Preferred.
For ten years after the Closing Date, WRP Newco has the right to direct the
voting of all shares of WRP Newco Series A Preferred, WRP Newco Class A Common
and WRP Newco Common owned by ERP Operating Partnership or any of its
affiliates, except as to the election of the Purchaser Director or any matter
relating to the rights, preferences and privileges of the WRP Newco Series A
Preferred or the WRP Newco Class A Common.
Sale of Stock.
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For ten years after the Closing Date, ERP Operating Partnership shall first
offer, in writing (a "Notice of Proposed Sale"), to sell any shares of WRP Newco
Common, WRP Newco Class A Common, WRP Newco Series A Preferred or warrants to
purchase WRP Newco Common owned by it to WRP Newco prior to selling such shares
to any other entity. If WRP Newco has not agreed to purchase such shares within
20 days of receipt of such notice, ERP Operating Partnership shall have the
right to sell such shares to any other entity for a period of 90 days provided
any sale is made on terms and conditions no more favorable to such entity than
specified in the Notice of Proposed Sale.
Events of Default.
An event of default occurs under the Stock Purchase Agreement upon the
occurrence of any of the following events, among others: (i) a judgment for the
payment of money in an aggregate amount in excess of $250,000 is rendered
against WRP Newco and such judgement remains undischarged for 30 days; (ii) a
change in control of WRP Newco (as defined in the Stock Purchase Agreement);
(iii) WRP Newco fails to pay the dividend on the WRP Newco Series A Preferred on
three separate instances; or (iv) a change resulting in or that could reasonably
be expected to result in a material adverse effect on WRP Newco.
Remedies.
Upon the occurrence of an event of default, all obligations of ERP
Operating Partnership to purchase shares of WRP Newco Series A Preferred
automatically terminate unless WRP Newco delivers a notice to ERP Operating
Partnership requesting the purchase by ERP Operating Partnership of WRP Newco
Series A Preferred, and the proceeds of such sale would cure such event of
default. In addition, in the event of the bankruptcy of WRP Newco or if WRP
Newco fails to pay the dividend on the WRP Newco Series A Preferred on three
separate instances, ERP Operating Partnership has the right to cause WRP Newco
to purchase the WRP Newco Series A Preferred then held by ERP Operating
Partnership.
Registration Rights Agreement
Upon issuance of the WRP Newco Class A Common, WRP Newco and ERP Operating
Partnership will enter into a Registration Rights Agreement providing for
registration rights at WRP Newco's expense with respect to shares of WRP Newco
Class A Common, WRP Newco Series A Preferred and WRP Newco Common.
Demand Registration.
After one (1) year from the consummation of the Merger and the Distribution
(the "Effective Date"), upon request (a "Demand Notice") of ERP Operating
Partnership, WRP Newco has agreed to file a registration statement providing for
the resale by ERP Operating Partnership of Registrable Securities and will use
its best efforts to cause any such registration
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statement to be declared effective by the Commission. "Registrable Securities"
means any of: (i) WRP Newco Series A Preferred issuable or issued; (ii) WRP
Newco Common issuable or issued upon conversion of shares of WRP Newco Series A
Preferred or WRP Newco Class A Common, or (iii) WRP Newco Common issuable or
issued upon the exercise of warrants issued pursuant to the Articles
Supplementary. WRP Newco is entitled to postpone for a reasonable period of
time (but not in excess of 60 days) the filing of any registration statement, if
the Board of Directors of WRP Newco determines that such registration and
offering would materially interfere with any proposed material transaction
involving WRP Newco.
ERP Operating Partnership has the right to deliver one Demand Notice during
any calendar year, but not more than four Demand Notices during the period
ending five years from the Effective Date.
Incidental Registration.
If WRP Newco proposes to register any WRP Newco Common for public sale
pursuant to an underwritten offering it will give prompt written notice (a
"Registration Notice") to ERP Operating Partnership and upon request from ERP
Operating Partnership, WRP Newco will include Registrable Securities in the
registration statement. WRP Newco will not be required to effect any
registration if WRP Newco is advised by a nationally recognized independent
investment banking firm selected by WRP Newco to act as lead underwriter, that a
registration at that time of additional securities would materially and
adversely affect the offering.
ERP Operating Partnership has the right to deliver one Registration Notice
during any calendar year, but not more than four Registration Notices during the
period ending five years from the Effective Date.
Limit in Aggregate Amount.
WRP Newco need not register Registrable Securities pursuant to a Demand
Notice or Registration Notice unless the Registrable Securities being registered
have an aggregate fair market value of (i) $5,000,000 during the period ending
three years from the Effective Date ("Initial Period"), or (ii) $7,500,000 at
any time after the Initial Period.
Lockup.
In the event WRP Newco proposes to effect the distribution of its
securities through an underwritten public offering, beginning seven days prior
to the pricing of such offering and ending thirty days after such pricing, ERP
Operating Partnership, in the event it beneficially owns in excess of 100,000
shares, will cease any sale or other disposition of any of the Registrable
Securities, if requested by WRP Newco; provided, however, that ERP Operating
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Partnership will not be subject to more than one lockup period during any 12
month period.
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Agreement Regarding Palomino Park
General.
Upon consummation of the Merger, WRP Newco and ERP Operating Partnership
will become the shareholders in WPHC. Pursuant to the Contribution and
Distribution Agreement, Wellsford will contribute to WRP Newco 80% of its shares
of WPHC, consisting of voting Class A Shares (the "Class A Shares"). The
remaining 20% of Wellsford's shares in WPHC, consisting of non-voting Class B
Shares (the "Class B Shares"), will be retained by Wellsford and, following the
Merger, will be owned by ERP Operating Partnership. WPHC, together with Feld,
are the two members of the limited liability companies -- Park at Highlands LLC
and Red Canyon at Palomino Park LLC -- which own Phase I and Phase II,
respectively. WRP Newco and ERP Operating Partnership will enter into an
agreement (the "Palomino Agreement") regarding their rights and obligations as
shareholders of WPHC and certain aspects of the development of Palomino Park,
including Phases I (Blue Ridge) and II (Red Canyon). Certain of the terms are
summarized below.
Capital Contributions.
WPHC is obligated to make capital contributions to the Phase I LLC and
Phase II LLC for certain acquisition costs, and to fund the deficit between
construction costs and construction loan proceeds, respectively. These
subsequent capital contribution obligations ("Phase Contributions") are limited
to the deficits as projected in the budgets originally adopted for each Phase.
Wellsford has guaranteed the Phase Contributions, which guarantees, following
the Merger and with the consent of Feld, will be assumed by WRP Newco.
ERP Operating Partnership has no obligation to contribute capital to WPHC.
Issuance of Additional WPHC Shares to WRP Newco; Anti-Dilution Provisions.
If additional shares of WPHC are issued to WRP Newco or to one of its
subsidiaries, ERP Operating Partnership will have the right to purchase a
sufficient number of such shares to retain a 20% interest in WPHC. Any Class A
Shares acquired by ERP Operating Partnership will be converted into Class B
Shares.
Offers to Purchase Class A Shares or Class B Shares; Rights of First Refusal;
The WRP Newco Drag Along Right.
ERP Operating Partnership may transfer all, but not part, of its Class B
Shares, except in a Tag Along transaction (described below).
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WRP Newco may transfer all or part of its Class A Shares after the
expiration of the lock-up period (i.e., the period during which ERP Operating
Partnership is liable to the construction lender under a Tri-Party Agreement, as
described below).
If WRP Newco receives an offer to purchase all of the Class A Shares, WRP
Newco has the right ("Drag Along Right") to compel ERP Operating Partnership to
sell all of its Class B Shares as part of that transaction to enable WRP Newco
to effectuate a total sale of WPHC to a third party.
If ERP Operating Partnership or WRP Newco shall receive an offer from a
bona fide third party to purchase all (or in the case of WRP Newco any part) of
their shares in WPHC, then the selling shareholder shall be obligated to offer
to sell its shares to the other shareholder (i.e. the non-selling shareholder)
who shall have a preemptive right ("Right of First Refusal") to purchase the
offered shares on the same terms.
ERP Operating Partnership may exercise its Right of First Refusal as to the
Class A Shares, notwithstanding that WRP Newco may have exercised its Drag Along
Right. In such event and for such purpose, WRP Newco's Class A Shares shall be
valued as if all of the shares of WPHC had been sold, and not only the Class A
Shares alone.
ERP Operating Partnership's Tag Along Right.
ERP Operating Partnership has a right ("Tag Along Right") to compel WRP
Newco to include ERP Operating Partnership's Class B Shares in a sale of the
Class A Shares, in such amount as will preserve the 80%-20% ratio between the
Class A Shares held by WRP Newco and Class B Shares held by ERP Operating
Partnership.
The Put/Call Feature of One-Half of the Class B Shares.
One-half of ERP Operating Partnership's Class B Shares (the "Put/Call
Shares") are subject to a Put/Call agreement in favor of either ERP Operating
Partnership (the Put feature) or WRP Newco (the Call feature) at the Put/Call
Price.
The Put: ERP Operating Partnership may compel WRP Newco to purchase from
ERP Operating Partnership the Put/Call Shares at any time after the fifth year
for the Put/Call Price.
The Call: WRP Newco may compel ERP Operating Partnership to sell to WRP
Newco the Put/Call Shares at any time for the Put/Call Price.
The Put/Call Price equals $1.9 million (adjusted, in the case of the Call,
for inflation after the fifth year), less any amounts previously received by ERP
Operating Partnership from sale and refinancing proceeds.
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Consistent with the foregoing, one-half of the Class B Shares in any sale
transaction effected by means of either the Drag Along Right or the Tag Along
Right is deemed Put/Call Stock and entitled to receive the greater of the
purchase price in such transaction or a pro-rated portion of the Put/Call Price.
Future Acquisitions of the Remaining Overall Property.
Any future Phase acquired by WPHC will be acquired in a Colorado limited
liability company substantially similar to the Phase II LLC.
ERP Operating Partnership's Right of First Offer if WPHC Elects to Assign its
Interest in the Land Contract.
If WRP Newco, through WPHC, decides not to acquire a future Phase and
instead to assign the land contract to a third party for such future Phase, then
ERP Operating Partnership, subject to the similar interests of Feld, has a
preemptive right of first offer with respect to such proposed assignment.
ERP Operating Partnership's Right of First/Last Offer for Sale of Blue Ridge and
Red Canyon.
With the exception of sales pursuant to a condominium or townhome plan, ERP
Operating Partnership is accorded certain rights of first and last offer with
respect to a sale of either WPHC's interest in the Phase I LLC or the Phase II
LLC, or the sale of fee title to Phase I or Phase II by either of said entities.
WRP Newco and WHPC Loss of Control.
WRP Newco has agreed not to lose its controlling interest in WPHC nor to
permit WPHC to lose its controlling interest in Phase I LLC, Phase II LLC or any
future entity formed with respect to another phase of Palomino Park without
first releasing ERP Operating Partnership from its obligations with respect to
the Credit Enhancement Agreement and ERP Guaranty (as defined below).
Tri-Party Agreements and Standby Agreements.
Phase I Tri-Party Agreement. With respect to the development of Phase I,
NationsBank, N.A. ("NationsBank") has provided a construction loan of
approximately $36.7 million. Wellsford, PPPIC and NationsBank have entered into
an agreement ("Phase I Tri-Party Agreement") under which Wellsford has agreed,
assuming completion of construction, if the loan is not paid when due, to pay
NationsBank the lesser of the loan balance or the final agreed upon budget. Upon
consummation of the Merger, ERP Operating Partnership will, with the consent of
NationsBank, assume Wellsford's obligations under the Phase I Tri-Party
Agreement.
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Phase II Tri-Party Agreement. With respect to the development of Phase II,
a construction loan has not yet been obtained. ERP Operating Partnership has
agreed to provide substantially similar credit support for the Phase II
construction loan ("Phase II Tri-Party Agreement") as it has agreed to provide
pursuant to the Phase I Tri-Party Agreement. ERP Operating Partnership will
receive a fee of (i) 1% of the committed construction loan amount for each of
the first two years and (ii) 1-1/2% of such amount for the third year. The
parties anticipate a construction loan of approximately $30 million.
The Standby Agreements. If ERP Operating Partnership does, in fact, pay
off the construction loan pursuant to its obligations under the Phase I Tri-
Party Agreement or Phase II Tri-Party Agreement, ERP Operating Partnership shall
be entitled to acquire fee title to the corresponding Phase for $100.
Events of Default. Upon an event of default (as described below), ERP
Operating Partnership may exercise all remedies available to it and shall have
no obligation to enter into the Phase II Tri-Party Agreement; provided, however,
ERP Operating Partnership may not disaffirm its obligations under the Phase I
Tri-Party Agreement or, if entered into prior to the event of default, the Phase
II Tri-Party Agreement. An event of default includes, among other things, a
material misrepresentation by WRP Newco, failure to make payments after a
material default by WRP Newco under the Palomino Agreement or any document
entered into pursuant to the Palomino Agreement, an undischarged judgment
against WRP Newco in excess of $250,000 and a change in control of WRP Newco.
Credit Enhancement Agreement
At the time of the Contribution and Distribution, with the consent of
Dresdner Bank, AG, NY Branch ("Dresdner"), WRP Newco will assume Wellsford's
obligations under a certain agreement (the "Bank Reimbursement Agreement")
entered into between PPPIC, Wellsford and Dresdner pursuant to which (i)
Dresdner has issued its letter of credit ("Dresdner Letter of Credit") to insure
the repayment of the Bonds and (ii) Wellsford has undertaken to reimburse
Dresdner if the Dresdner Letter of Credit is drawn upon.
ERP Operating Partnership has agreed to enter into a Credit Enhancement
Agreement with WRP Newco (the "Credit Enhancement Agreement") under which,
assuming the satisfaction of certain conditions, ERP Operating Partnership will
make its own credit available to Dresdner in the form of a guaranty to Dresdner
of WRP Newco's obligations under the Bank Reimbursement Agreement for a period
of eight years from the consummation of the Merger (the "ERP Guaranty").
The ERP Guaranty will be revised and made available with respect to any
similar letter of credit or credit facility issued in lieu or replacement of the
Dresdner Letter of Credit.
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WRP Newco has agreed to pay ERP Operating Partnership for the ERP Guaranty
an annual credit enhancement fee, payable quarterly, equal to .5% of the face
amount of the Dresdner Letter of Credit (or the face amount of any alternate
credit arrangement). Following an event of default by WRP Newco, ERP Operating
Partnership will have the right, among other remedies, to select an alternate
interest rate on the Bonds and to direct the actions of PPPIC under the Credit
Enhancement Agreement. In addition, pursuant to the Credit Enhancement Agreement
there are certain restrictions on the ability to convert the rate mode of the
Bonds. WRP Newco has agreed to reimburse ERP Operating Partnership for any
amounts it pays under the ERP Guaranty or any revision thereof, together with
interest on such amount.
POLICIES WITH RESPECT TO CERTAIN
ACTIVITIES OF WRP NEWCO
The following is a discussion of WRP Newco's investment policies, financing
policies and policies with respect to certain other activities. WRP Newco's
policies with respect to these activities have been determined by the directors
of WRP Newco and may be amended or revised from time to time at the discretion
of the directors without a vote of the stockholders of WRP Newco.
Investment Policies
WRP Newco intends to invest in real estate directly or indirectly through
entities that engage in real estate-related activities. These investments may
be in the form of debt or equity.
Debt investments may include the purchasing of mortgage loans, other
financial instruments collateralized by real estate or real estate interests, or
participations therein, real property tax liens or tax-exempt bonds
collateralized by real estate or tax-increment finance districts. These debt
instruments may be senior, junior or otherwise subordinated to the interests of
others. Further, WRP Newco may provide credit enhancement or guarantees of the
obligations of others involved in real estate-related activities. WRP Newco may
also invest in participating or convertible mortgages if WRP Newco concludes
that it may benefit from the cash flow and/or any appreciation in the value of
the property. Such mortgages may be similar to equity participations. WRP
Newco may also make mortgage loans or participate in such loans and
contemporaneously or otherwise obtain related property purchase options.
Equity investments may include development projects directly or through
joint ventures, as well as the purchase of general or limited partnership
interests in limited partnerships, shares in publicly-traded or privately-held
corporations or interests in other entities that own real estate or provide
services or products to the real estate industry. WRP Newco intends to engage
in active real estate businesses, which may include land subdivisions,
condominium conversions, property sales, and other businesses considered
ineligible investments for REITs. WRP Newco may also hold real estate or
interests therein for investment. WRP Newco may purchase
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substantially leased, mostly unleased or vacant properties of any type or
geographic location. WRP Newco intends to renovate and re-lease the mostly
unleased or vacant properties.
The activities described above often do not generate immediate cash flow,
and cash flow generated may be non-recurring. These investments may be subject
to existing debt financing and any such financing will have a priority over the
equity interests of WRP Newco.
WRP Newco may offer to exchange its securities for properties and
securities of other entities. Further, it may, from time to time, repurchase
its shares. WRP Newco will seek investments generally with a duration of one to
five years.
Financing Policies
WRP Newco will seek to finance its investments through both public and
private secured and unsecured debt financings, as well as public and private
placements of its equity securities. The equity securities will include both
common and preferred equity issuances. WRP Newco does not have a policy
limiting the number or amount of mortgages that may be placed on any particular
property, but mortgage financing instruments usually limit additional
indebtedness on such properties. There are currently no restrictions on the
amount of debt that WRP Newco may incur.
Also, WRP Newco does not plan to distribute dividends for the foreseeable
future, which will permit it to accumulate cash flow from investments,
disposition of investments and other business activities.
WRP Newco has obtained a term sheet from Bank of Boston and Morgan Guaranty
for a proposed $50 million two-year line of credit. This facility is subject to
certain financial and other covenants. In the future, WRP Newco may seek to
extend, expand, reduce or renew such facility, or obtain an additional or a
replacement facility.
Policies with Respect to Other Activities
WRP Newco does not intend to qualify as a REIT, but it may, from time to
time, sell properties or entities to REITs for cash and/or securities. Further,
it may spin-off to its common stockholders, shares of its subsidiaries or shares
of other entities it has acquired through the sale of its properties,
investments or otherwise. These spin-offs may be taxable or non-taxable,
depending upon the facts and circumstances. WRP Newco's policies with respect to
its activities may be reviewed and modified from time to time by WRP Newco's
directors without notice to or vote of its stockholders.
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<PAGE>
MANAGEMENT OF WRP NEWCO
Directors and Executive Officers
The executive officers and directors of WRP Newco, their ages and their
positions are as follows:
<TABLE>
<CAPTION>
Name Age Position Held
---- --- -------------
<S> <C> <C>
Jeffrey H. Lynford............. 49 Chairman of the Board,
Secretary and Director**
Edward Lowenthal............... 52 President, Chief Executive
Officer and Director*
Gregory F. Hughes.............. 33 Chief Financial Officer
David Strong................... 38 Vice President for Development
Rodney F. Du Bois.............. 60 Director*
Mark S. Germain................ 46 Director**
Frank J. Hoenemeyer............ 77 Director***
Frank J. Sixt.................. 45 Director***
Douglas J. Crocker, II(1)...... 56 Proposed Director**
- --------------------
</TABLE>
* Term expires 1998
** Term expires 1999
*** Term expires 2000
(1) Mr. Crocker will become a director immediately upon consummation of the
Merger and the purchase by ERP Operating Partnership of WRP Newco Class A
Common. Mr. Crocker will remain a director for a minimum of two years, and
thereafter so long as certain conditions are met. See "Description of
Capital Stock of WRP Newco -- Class A Common Stock."
Jeffrey H. Lynford has been the Chairman of the Board and Secretary of
Wellsford since its formation in July 1992 and was the Chief Financial Officer
of Wellsford from July 1992 until December 1994. Mr. Lynford was the Chairman
of the Board of WGI since its formation in 1986. Mr. Lynford currently serves
as a trustee emeritus of the National Trust for Historic Preservation and as a
director of three mutual funds: Cohen & Steers Total Return Realty Fund, Inc.,
Cohen & Steers Realty Shares, Inc. and Cohen & Steers Realty Income Fund, Inc.
He is also a member of the New York bar. Prior to founding WGI, Mr. Lynford
gained real estate
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<PAGE>
and investment banking experience as a partner of Bear Stearns & Co. and a
managing director of A.G. Becker Paribas, Inc.
Edward Lowenthal has been the President and Chief Executive Officer and a
trustee of Wellsford since its formation in July 1992 and was President of WGI
since its formation in 1986. Mr. Lowenthal currently serves as a director of
United American Energy Corporation, a developer, owner and operator of
hydroelectric and other alternative energy facilities, a director of Corporate
Renaissance Group, Inc., a mutual fund, a director of Omega Healthcare, Inc., a
REIT, a director of Great Lakes REIT, Inc., a real estate investment trust that
owns and operates office buildings, and a trustee of Corporate Realty Income
Trust, a REIT. He is also a member of the executive committee and The Board of
Governors of the NAREIT. Prior to founding WGI, Mr. Lowenthal gained real
estate and investment banking experience as a partner of Bear Stearns & Co., a
managing director of A.G. Becker Paribas, Inc., and a partner in the law firm of
Robinson Silverman Pearce Aronsohn & Berman.
Gregory F. Hughes has been a Vice President - Chief Financial Officer of
Wellsford since December 1994. From March 1993 until December 1994 he was a
Vice President and Chief Accounting Officer of Wellsford. During 1992, Mr.
Hughes was a controller with Jones Lang Wootton Realty Advisors, a firm that
provides real estate asset management and investment consultation services.
From 1985 to 1991, Mr. Hughes was a manager with Kenneth Leventhal & Company, a
public accounting firm specializing in real estate and financial services. Mr.
Hughes is a certified public accountant.
David M. Strong has been a Vice President of Wellsford since July 1995.
From July 1994 until July 1995 he was Acquisitions and Development Associate of
Wellsford. From 1991 to 1994, Mr. Strong was President and owner of LPI
Management, Inc., a commercial real estate company providing management and
consulting services. From 1984 to 1991, he was a senior executive with the
London Pacific Investment Group, a real estate development, investment and
management firm active in Southern California and Western Canada. From 1979 to
1984, Mr. Strong was a manager with Arthur Young, a public accounting firm. Mr.
Strong is a member of the Canadian Institute of Chartered Accountants.
Rodney F. Du Bois has been a trustee of Wellsford since November 1992. Mr.
Du Bois also has been President and co-owner of Goshawk Corporation, which
provides finance and general corporate services, since 1982. Mr. Du Bois was a
founder of Mountain Cable Company, a cable TV multiple system operator, and its
Chairman from 1985 until the company's sale in 1988. Previously Mr. Du Bois
served as Executive Vice President and a director of C. Brewer and Co., Chairman
of Alexander and Baldwin Agribusiness, Inc., a managing director of Warburg,
Paribas, Becker, Inc. and a Professor of Real Estate at the Amos Tuck School of
Business Administration at Dartmouth College.
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<PAGE>
Mark S. Germain has been a trustee of Wellsford since November 1992.
Currently he is employed by Olmstead Group L.L.C., which is a consultant to
biotechnology and other high technology companies. Mr. Germain also serves as a
board member of several privately held biotechnology companies. Previously,
from 1990 to 1994, Mr. Germain was employed by D. Blech & Company, Incorporated,
a merchant bank. From 1986 to 1989, he was President and Chief Operating
Officer of The Vista Organization, Ltd., and from 1989 to 1990, its President
and Chief Executive Officer. Mr. Germain was a partner in a New York law firm
prior to 1986.
Frank J. Hoenemeyer has been a trustee of Wellsford since November 1992.
Mr. Hoenemeyer also currently serves as a director of American International
Group, Inc., Mitsui Trust Bank (U.S.A.), W.P. Carey Advisors, Inc. and Carey
Fiduciary Advisors, Inc. (subsidiaries of W.P. Carey & Co., Inc.) and ARIAD
Pharmaceuticals, Inc. and as Vice Chairman of the Investment Committee of W.P.
Carey & Co., Inc. From 1947 to 1984, he was employed by The Prudential
Insurance Company of America where he served as Vice Chairman and Chief
Investment Officer prior to his retirement.
Frank J. Sixt has been a trustee of Wellsford since November 1992. Mr.
Sixt also currently serves as an executive director of Cheung Kong (Holdings)
Limited, Cheung Kong Infrastructure Holdings Limited and Hutchinson Whampoa
Limited Group of Companies. He also serves as a director of Husky Oil Limited,
Concord Property and Financial Company Limited and World Financial Properties
Limited. He is also a director of and Chairman of the Executive Committee of
the Board of Directors of Gordon Capital Corporation. Previously, from 1987 to
1990, Mr. Sixt was a partner in the law firm of Stikeman Elliot.
For a biographical description of Douglas J. Crocker II see "Management and
Operation of the Surviving Trust After the Merger-Trustees and Executive
Officers."
Key Employee
Richard R. Previdi has been active in seeking to acquire commercial
properties on behalf of WRP Newco and its predecessor since September, 1996.
From May 1994 until June 1996, he was a managing director of Emmes & Company, a
real estate investment company. From April 1990 until May 1994, Mr. Previdi was
a managing director of Trammell Crow N.E., Inc., and Chief Executive Officer of
that company's Northern Virginia Commercial Division. Previously, from October
1985 until April 1990, he was first a marketing principal, and later
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<PAGE>
a partner, of Trammell Crow Company. From October 1982 until October 1985, Mr.
Previdi was a manager with Arthur Young and Company, a public accounting firm.
Compensation of Directors
WRP Newco will pay to each of its directors who are not employees of WRP
Newco (i) an annual fee of $16,000, payable quarterly in shares of WRP Newco
Common, and (ii) a fee of $2,250 payable in cash for each regular quarterly
Board of Directors meeting at which such director is present in person or by
telephone. Messrs. Du Bois, Germain, Hoenemeyer and Sixt will also receive
options to purchase 42,750 shares of WRP New Common each under WRP Newco's 1997
Management Incentive Plan and will be eligible along with present and future
directors to receive additional share options, all subject to stockholder
approval. Directors who are employees of WRP Newco will not be paid any
directors' fees. In addition, WRP Newco will reimburse the directors for travel
expenses incurred in connection with their activities on behalf of WRP Newco.
Board Committees
The Board of Directors of WRP Newco will establish, following the
Distribution, an Audit Committee, a Compensation Committee and an Executive
Committee. The Board will not have a nominating committee or a committee
performing the functions of a nominating committee; the entire Board will
perform the usual functions of such committee.
Executive Committee. The Executive Committee will consist of Messrs.
Lynford, Lowenthal and Hoenemeyer. The Executive Committee has the authority to
acquire, dispose of and finance investments for WRP Newco and execute contracts
and agreements, including those related to the borrowing of money by WRP Newco,
and generally to exercise all other powers of the directors except for those
which require action by all directors or the independent directors under the
Articles of Incorporation or Bylaws of WRP Newco or under applicable law.
Compensation Committee. The Compensation Committee will consist of Messrs.
Du Bois, Germain, Hoenemeyer and Sixt, none of whom are employees of WRP Newco.
The Compensation Committee will review WRP Newco's compensation and employee
benefit plans, programs and policies, approve employment agreements and monitor
the performance and compensation of the Executive Officers and other employees.
Audit Committee. The Audit Committee will consist of Messrs. Du Bois,
Germain, Hoenemeyer and Sixt and will make recommendations concerning the
engagement of independent public accountants, review with the independent public
accountants the plans and results of the audit engagement, approve the
professional services provided by the independent public accountants, review the
independence of the independent public accountants, consider the range
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<PAGE>
of audit and non-audit fees, review the adequacy of WRP Newco's internal
accounting controls and review related party transactions.
Executive Compensation
WRP Newco was organized as a Maryland corporation in January, 1997. Its
executive officers will not be entitled to receive any separate salary or other
cash compensation from WRP Newco for any period prior to the Distribution.
Prior to the Distribution, WRP Newco's executive officers will only receive
compensation from Wellsford for services rendered by them to Wellsford.
The following table sets forth certain information with respect to the
Chief Executive Officer and each of the other executive officers of WRP Newco
(collectively, the "Executive Officers") whose cash compensation is expected to
exceed $100,000 on an annualized basis during the fiscal year ending December
31, 1997, and all executive officers as a group.
<TABLE>
<CAPTION>
Name of Individual or Number in Cash
- ------------------------------- -----
Group Capacities in Which Serve Compensation
- ------ -------------------------- ------------
<S> <C> <C>
Jeffrey H. Lynford............... Chairman of the Board and $275,000
Secretary
Edward Lowenthal................. President and Chief $275,000
Executive Officer
Gregory F. Hughes................ Chief Financial Officer $175,000
David M. Strong.................. Vice President for $100,000
Development
All executive officers as a group
(consisting of the four persons
named above)..................................................... $825,000
</TABLE>
For information regarding options to purchase shares of WRP Newco Common to
be granted to executive officers and directors, see "Interests of Certain
Persons in the Merger and Distribution -- Agreements with WRP Newco."
Employment Agreements
WRP Newco will enter into employment agreements with Messrs. Lynford and
Lowenthal (the "Senior Executives"), pursuant to which Mr. Lynford will serve as
the Chairman of the Board of WRP Newco and Mr. Lowenthal will serve as its
President and Chief Executive Officer. WRP Newco will also enter into employment
agreements with Messrs. Hughes and
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<PAGE>
Strong. The employment agreements with Messrs. Lynford and Lowenthal will expire
on December 31, 2002, and the employment agreements with Messrs. Hughes and
Strong will expire two years from the Effective Time. WRP Newco will also enter
into a consulting agreement with Daniel M. Kelley which will expire five years
from the Effective Date and provide for a consulting fee of $120,000 per year.
Each of the employment agreements is automatically extended for additional
one-year periods unless either the Executive Officer or WRP Newco gives prior
notice not to extend the employment agreement, as specified in the agreement.
Pursuant to the employment agreements, each of the Executive Officers is
also entitled to incentive compensation to be determined by the Compensation
Committee. Mr. Hughes is entitled to incentive compensation equal to at least
50% of his annual base salary.
In the event that either of the Senior Executives dies during the term of
his employment agreement, or if WRP Newco elects to terminate his employment
agreement as a result of the Senior Executive's total disability, WRP Newco is
required to pay additional compensation for the longer of 36 months after such
termination or for the remaining term of his agreement at the rate of his then
annual base salary.
Following a "change in control of WRP Newco" (as defined in the
agreements), if a Senior Executive's employment agreement is terminated (a) by
WRP Newco, other than for "proper cause" (as defined in the agreements) or death
or disability or (b) by the Senior Executive, then in either case the Senior
Executive shall be entitled to receive a lump sum cash payment generally equal
to the sum of (i) the amount of compensation that he would have been entitled to
had the agreement not been so terminated and (ii) 299% of his average annual
compensation of every type and form includible in gross income received during
the three year period preceding the calendar year in which employment is
terminated. The Senior Executives are also entitled to reimbursement of income
taxes on certain non-cash taxable income resulting from a change in control of
WRP Newco, including taxable income resulting from accelerated loan forgiveness
or vesting of restricted shares or options. In addition, each Senior Executive
is entitled to receive an additional sum to cover certain resulting income and
excise tax liabilities that may be incurred on all of the foregoing.
The employment agreements with the Senior Executives will indemnify and
hold harmless the Senior Executives for any income and excise tax liabilities
that arise from any benefits described in this Joint Proxy
Statement/Prospectus/Information Statement and are not otherwise provided for in
the payments to be made to them by the Surviving Trust on the date of the
Merger.
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<PAGE>
Compensation Committee Interlocks and Insider Participation
The Compensation Committee currently consists of the four independent
directors of WRP Newco: Rodney F. Du Bois, Mark S. Germain, Frank J. Hoenemeyer
and Frank J. Sixt, none of whom is, or has been, an officer or employee of WRP
Newco.
PRINCIPAL STOCKHOLDERS OF WRP NEWCO
The following table sets forth information regarding the beneficial
ownership of WRP Newco Common by each person anticipated by WRP Newco to be the
beneficial owner of more than 5% of WRP Newco Common, by each director or
proposed director of WRP Newco, by certain executive officers of WRP Newco and
by all directors, proposed directors and executive officers of WRP Newco as a
group after giving effect to the Distribution, the Merger and certain other
transactions described herein (excluding the Additional Share Offering). Each
person named in the table has sole voting and investment power with respect to
all WRP Newco Common shown as beneficially owned by such person.
191
<PAGE>
<TABLE>
<CAPTION>
Name and Address of Beneficial Amount and Nature of
Owner (1) Beneficial Ownership Percent of Class
- ---------------------------------- ---------------------- -----------------
<S> <C> <C>
Jeffrey H. Lynford(2)............. 502,966 9.75%
Edward Lowenthal(2)............... 503,483 9.76%
Gregory F. Hughes(3).............. 168,003 3.43%
David Strong(4)................... 125,466 2.58%
Rodney F. Du Bois(5)
32 Rip Road
Hanover, New Hampshire 03755... 44,500 *
Mark S. Germain(6)
Olmsted Road
Scarsdale, New York 10583...... 103,010 2.14%
Frank J. Hoenemeyer(6)
7 Harwood Drive
Madison, New Jersey 07940...... 73,943 1.54%
Frank J. Sixt(6)
c/o Cheung Kung (Holdings), Ltd.
Ching Building, 18-22 Floors
29 Queen's Road Central
Hong Kong....................... 73,010 1.52%
Douglas J. Crocker II(7)
c/o Equity Residential
Properties Trust
Two North Riverside Plaza
Chicago, Illinois 60606........
ERP Operating Limited Partnership
Two North Riverside Plaza
Chicago, Illinois 60606........ 350,000(8) 7.38%
All directors, proposed directors
and executive officers as a group
(9 persons)...................... 1,594,381 26.07%
- --------------------
</TABLE>
* Less than 1.0%
(1) Unless otherwise indicated, the address of each person is c/o Wellsford
Real Properties, Inc., 610 Fifth Avenue, New York, New York 10020.
(2) Includes 417,585 shares of WRP Newco Common issuable upon the exercise of
options, all of which will be either issued or amended as of the Effective
Time, and none of which will be exercisable as of the Effective Time.
Options to purchase 332,085 of these shares represent replacement options
for Wellsford share options having exercise prices ranging from $18.94 to
$27.50.
(3) Includes 153,818 shares of WRP Newco Common issuable upon the exercise of
options, all of which will either be issued or amended as of the Effective
Time, and none of which will be exercisable as of the Effective Time.
Options to purchase 68,318 of these shares represent replacement options
for Wellsford share options having exercise prices ranging from $18.94 to
$27.50.
(4) Includes 121,105 shares of WRP Newco Common issuable upon the exercise of
options, all of which will either be issued or amended as of the Effective
Time, and none of which will be exercisable as of the Effective Time.
Options to purchase 35,605 of these shares represent replacement options
for Wellsford share options having exercise prices ranging from $18.94 to
$27.50.
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<PAGE>
(5) Includes 42,750 shares of WRP Newco Common issuable upon the exercise of
options, all of which will either be issued or amended as of the Effective
Time and will then be immediately exercisable.
(6) Includes 73,010 shares of WRP Newco Common issuable upon the exercise of
options, all of which will either be issued or amended as of the Effective
Time and will then be immediately exercisable.
(7) Excludes 350,000 shares of WRP Newco Common (estimated) to be issued to ERP
Operating Partnership pursuant to the Stock Purchase Agreement. Mr. Crocker
is President and Chief Executive Officer of EQR, the general partner of ERP
Operating Partnership, and disclaims beneficial ownership of such shares.
(8) Estimated number of shares of WRP Newco Common to be issued to ERP
Operating Partnership pursuant to the Stock Purchase Agreement.
WRP NEWCO'S CERTAIN TRANSACTIONS
The contract to purchase the Chatham property was, and the contracts to
purchase the Greenbrook Corporate Center and the American Cyanamid Office
Complex will be transferred, directly or indirectly, to WRP Newco by Messrs.
Lynford, Lowenthal, Mark Germain, a trustee of Wellsford, and three unaffiliated
parties, or one or more entities owned by them (collectively, "Wellsford
Commercial"), for shares of WRP Newco Common having an aggregate value of
approximately $2.25 million and WRP Newco's agreement to repay a $1.0 million
advance used for the down payment on the American Cyanamid Office Complex. The
number of shares to be issued will be based upon the Issuance Price. Messrs.
Lynford, Lowenthal and Germain will each receive approximately 13.3% of the
shares of WRP Newco Common to be issued to Wellsford Commercial. The aggregate
purchase price for these commercial properties is approximately $44.5 million,
excluding the approximately $2.25 million referred to above. The above transfers
to WRP Newco, along with the Contribution and the purchase of stock by ERP
Operating Partnership under the Stock Purchase Agreement, are being made as part
of a single plan intended to qualify as a tax-free transaction.
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
WELLSFORD REAL PROPERTIES, INC. (PREDECESSOR)
Overview
The following discussion should be read in conjunction with the Wellsford
Real Properties Inc. (Predecessor) (the "Company") financial statements
contained herein.
Results of Operations
The Company's operations during the nine months ended September 30, 1996
consisted of owning a mortgage note receivable, upon which the Company earned
$356,000 of interest income, and developing two multifamily communities located
in Denver, Colorado with a total of 760 units under development.
Liquidity and Capital Resources
The Company expects to meet its short-term liquidity requirements generally
through its working capital and cash flow provided by operations. The Company
considers its ability to generate cash to be adequate and expects it to continue
to be adequate to meet operating requirements both in the short and long terms.
The Company expects to meet its long-term liquidity requirements such as
refinancing mortgages, financing acquisitions and development, and financing
capital improvements and debt and equity investments in real estate companies by
long-term borrowings, through the issuance of debt and the offering of
additional debt and equity securities.
The Company has received written indication from the Bank of Boston and
Morgan Guaranty that they will provide a $50 million credit facility, subject to
customary conditions, which would be available to fund acquisitions, debt and
equity investments, development, capital expenditures, repayment of indebtedness
and related expenditures. The Company expects to obtain this credit facility
concurrently with the closing of the Merger and Distribution. The written
indication received is subject to the completion of due diligence and
documentation and is not a commitment.
In December 1995, the Company marketed and sold $14.8 million of tax-exempt
bonds to fund construction at Palomino Park. The bonds have a variable rate of
interest and a term of 40 years. At September 30, 1996, $6.4 million of the
bond proceeds were being held in escrow pending their use for the funding of
development.
In July 1996, the Company originated the Sonterra Loan. The Sonterra
Loan bears interest at 9% per annum and matures in July 1999. The Company also
has the exclusive option
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<PAGE>
to purchase the community for $20.5 million through December 1997 and for $21
million during 1998.
195
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Shareholders and Board of Trustees of
Wellsford Residential Property Trust and Subsidiaries
We have audited the accompanying combined balance sheet of the Predecessor to
Wellsford Real Properties, Inc. (the "Company") as of December 31, 1995, and the
related combined statement of cash flows for the period from March 22, 1995 (the
date the assets were acquired and liabilities incurred) to December 31, 1995.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
As described in Note 1, no operating revenues or expenses were incurred in the
period from March 22, 1995 through December 31, 1995. Accordingly, the income
statement for the period ended December 31, 1995 has been omitted.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of the Company
at December 31, 1995, and its cash flows for the period from March 22, 1995 to
December 31, 1995, in conformity with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
------------------------------------
New York, New York
January 30, 1997
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<PAGE>
Wellsford Real Properties, Inc. (Predecessor)
Combined Balance Sheets
(In thousands)
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
---- ----
(Unaudited)
<S> <C> <C>
ASSETS
Construction in process $17,028 $7,955
Restricted cash 6,355 10,414
Mortgage note and interest receivable 17,934 0
----------------------------
Total Assets $41,317 $18,369
============================
LIABILITIES AND EQUITY
Tax exempt mortgage note payable $14,755 $14,755
----------------------------
Total Liabilities $14,755 $14,755
----------------------------
Commitments and contingencies -- --
Equity 26,562 3,614
----------------------------
Total Equity 26,562 3,614
----------------------------
Total Liabilities and Equity $41,317 $18,369
============================
</TABLE>
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<PAGE>
Wellsford Real Properties, Inc. (Predecessor)
Combined Income Statement
(In thousands)
<TABLE>
<CAPTION>
Nine Months
Ended
September 30,
1996
----
(Unaudited)
<S> <C>
Interest income $356
-------------
Net income $356
=============
</TABLE>
See accompanying notes.
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<PAGE>
Wellsford Real Properties, Inc. (Predecessor)
Combined Statements of Cash Flow
(In thousands)
<TABLE>
<CAPTION>
Nine Months Period From
Ended March 22 to
September 30, December 31,
1996 1995
---- ----
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $356 $0
Adjustments to reconcile net income to
net cash provided by operating activities:
Decrease (increase) in assets:
Debt service reserve 4,059 4,341
Interest receivable (134) 0
-----------------------------
Net cash provided by operating activities 4,281 4,341
-----------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments in real estate assets (9,073) (7,955)
Investment in mortgage note receivable (17,800) 0
-----------------------------
Net cash (used) in investing activities (26,873) (7,955)
-----------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from tax exempt mortgage note payable 0 14,755
Funding of restricted cash accounts 0 (14,755)
Equity contributions (distributions), net 22,592 3,614
-----------------------------
Net cash provided by financing activities 22,592 3,614
-----------------------------
Net increase (decrease) in cash and cash
equivalents $0 $0
Cash and cash equivalents, beginning of period 0 0
-----------------------------
Cash and cash equivalents, end of period $0 $0
Cash paid during the period for interest $384 $335
=============================
</TABLE>
See accompanying notes.
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<PAGE>
WELLSFORD REAL PROPERTIES, INC. (PREDECESSOR)
NOTES TO COMBINED FINANCIAL STATEMENTS
(Information pertaining to the nine months ended September 30, 1996 is
unaudited)
(1) Organization and Basis of Presentation
Wellsford Real Properties, Inc. ("WRP Newco"), a C corporation formed on
January 8, 1997, is a wholly owned subsidiary of Wellsford Residential
Property Trust ("Wellsford"). On January 16, 1997 Wellsford announced
its intention to merge with Equity Residential Properties Trust ("EQR").
Immediately prior to the Merger, Wellsford intends to contribute certain
of its assets to WRP Newco and have WRP Newco assume certain liabilities
of Wellsford. Immediately after the contribution of assets to WRP Newco
and immediately prior to the Merger, Wellsford intends to distribute to
its common shareholders all the outstanding shares of WRP Newco owned by
Wellsford. The common shareholders of Wellsford will receive one common
share of WRP Newco for each four common shares of Wellsford owned.
The accompanying combined financial statements of the predecessor to WRP
Newco (the "Company") include the assets and liabilities to be
contributed and assumed by WRP Newco from the time the assets and
liabilities were acquired or incurred, respectively, by Wellsford or the
majority owned or controlled subsidiary of Wellsford.
For the purpose of the Company, the assets were acquired and liabilities
incurred beginning on March 22, 1995. During the period from March 22,
1995 through December 31, 1995 the Company was principally involved in
the initial phase of construction development activities with no
operating revenues or expenses incurred. Accordingly, the income
statement for the period ended December 31, 1995 has been omitted.
The combined financial statements as of and for the nine months ended
September 30, 1996 are unaudited; however, in the opinion of the
management of the Company, all adjustments necessary for a fair
presentation of the combined financial statements for this interim period
have been included. The results are not necessarily indicative of the
results to be obtained for a full fiscal year.
(2) Summary of Significant Accounting Policies
Principles of Combination. All significant intercompany transactions
-------------------------
between Wellsford and the majority owned or controlled subsidiaries
relating to the assets and liabilities that are to be contributed or
assumed by WRP Newco have been eliminated in combination.
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<PAGE>
Income Recognition. Residential communities are leased under operating
------------------
leases with terms generally one year or less; rental revenue is
recognized monthly as it is earned. Commercial properties are leased
under operating leases; rental revenue is recognized on a straight-line
basis over the terms of the leases.
Cash and Cash Equivalents. The Company considers all demand and money
-------------------------
market accounts and short term investments in government funds with an
original maturity of three months or less to be cash and cash
equivalents.
Real Estate and Depreciation. Costs directly related to the acquisition
----------------------------
and improvement of real estate are capitalized, including interest
expense incurred during and related to construction and including all
improvements identified during the underwriting of a property
acquisition.
Depreciation is computed over the expected useful lives of depreciable
property on a straight line basis, principally 40 years for buildings and
improvements and 5 to 12 years for furnishings and equipment.
The Company has adopted Statement of Financial Accounting Standard ("SFAS")
121 "Accounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets to Be Disposed of" which requires that long-lived assets to
be held and used be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. The adoption of SFAS 121 has not had an impact on the
Company's combined financial statements.
Mortgage Note Receivable Impairment. The Company considers a note impaired
-----------------------------------
if, based on current information and events, it is probable that all
amounts due under the note agreement are not collectable. Impairment is
measured based upon the fair value of the underlying collateral. No
impairment has been recorded through September 30, 1996.
Financing Costs. Financing and refinancing costs are capitalized and
---------------
amortized over the term of the related loan under the interest method.
Credit facility fees are capitalized and amortized over the term of the
commitment on a straight-line basis.
Estimates. The preparation of financial statements in conformity with
---------
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
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<PAGE>
(3) Restricted Cash
Restricted cash primarily consists of the remaining proceeds from the
Palomino Park tax-exempt mortgage note (Note 5) which are restricted in
their use to construction costs and capitalized interest related to the
Palomino Park development project (Note 4).
(4) Multifamily Communities and Mortgage Note Receivable
The Company holds a $17.8 million mortgage on a 344 unit, newly constructed
community in Tucson, Arizona known as Sonterra at Williams Centre (the
"Sonterra Mortgage"). The Sonterra Mortgage bears interest at 9% per
annum and matures in July 1999. The Company also has the exclusive
option to purchase the community for $20.5 million through December 1997
and $21 million during 1998. Interest receivable of $0.1 million is
included in the September 30, 1996 balance. The fair market value of the
Company's mortgage note receivable, estimated by using a discounted cash
flow analysis, approximates the carrying amount. In connection with the
Sonterra Mortgage, a $0.2 million origination fee was paid to Wellsford
by the borrower.
The Company currently has two multifamily projects under development in a
suburb of Denver, Colorado, totaling 760 apartment units (collectively,
the "Development Communities"). The Development Communities are the
first of five communities at Palomino Park, a 1,880 unit master-planned,
security controlled apartment/townhome community. The Company has the
option to develop phases three through five, but is not obligated to do
so. The 181.8 acre master site surrounds an amenity-filled, 24 acre park
and an approximately 29,000 square foot recreational center to be shared
by all phases. The Development Communities are being constructed
pursuant to fixed-price contracts, with a local developer, and are
estimated to cost approximately $76.1 million in total, including certain
development and incentive fees payable to the developer. The Company is
committed to purchase 100% of the Development Communities upon completion
and the achievement of certain occupancy levels. At September 30, 1996
the Company had invested $17 million related to the land for the
Development Communities, the recreation center and general infrastructure
work. A portion of such infrastructure will become the property of
certain local governmental entities at the date of completion and
retirement of the tax-exempt mortgage note payable described in note 5.
In addition, approximately $15.4 million was outstanding at September 30,
1996 on a construction loan to the developer, which the Company would
repay upon purchase assuming completion and achievement of certain
occupancy levels. During the periods ended September 30, 1996, and
December 31, 1995, respectively, the Company capitalized $0.4 million and
$0.3 million of interest to the Development Communities. The Company
expects to fund the construction of its Development Communities from its
working capital and with proceeds from a credit facility and a $14.8
million tax-exempt mortgage note (Note 5).
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<PAGE>
Subsequent to September 30, 1996, the Company entered into contracts on
five commercial office properties for $47.6 million in aggregate, and has
closed on one of the properties: The purchase prices for these commercial
properties include approximately $2.25 million in value of shares of WRP
Newco Common to be issued to the persons or entities which previously
held the contracts on such properties. Each of the Chairman of the Board
and President of Wellsford, Messrs. Lynford and Lowenthal, and Mark
Germain, a trustee of Wellsford, will receive approximately 13.3% of such
shares.
Greenbrook Corporate Center ($23.7 million) is a Class A, three-story
office building with a 35 foot atrium, located in Fairfield, NJ, and
comprising approximately 190,000 rentable square feet. It is situated on
a 20 acre developed site with 7 acres of additional, contiguous
undeveloped land.
The American Cyanamid ($14.6 million) site consists of 194 acres containing
two office buildings, totaling approximately 560,000 square feet, an
adjacent 10-acre undeveloped site, and a central utility plant located in
Wayne, NJ. The site is currently undergoing a major renovation.
1700 Valley Road ($2.2 million) is a Class B+, two-story vacant office
building located in Wayne, NJ and comprising approximately 70,600 square
feet. It is situated on a nine acre site contiguous to the American
Cyanamid site.
1800 Valley Road ($2.0 million) is a Class B+, two-story vacant office
building located in Wayne, NJ and comprising approximately 54,800 square
feet. It is situated on a 14 acre site contiguous to the American
Cyanamid site.
The Chatham Building ($5.1 million) is a three-story office building
located in Chatham, NJ and comprising approximately 65,000 square feet.
The site is currently undergoing a major renovation. The purchase of this
building was closed in January 1997.
(5) Tax Exempt Mortgage Notes Payable
At September 30, 1996 and at December 31, 1995, the Company had $14.8
million of tax exempt mortgage notes payable outstanding. The Company's
tax exempt mortgage note payable is secured by certain infrastructure at
the Company's Palomino Park development and bears interest-only payments
at a variable rate (which approximates the Standard & Poor's / J.J.
Kenney index for short-term high grade tax-exempt bonds, currently 3.65
%) until it matures in December 2035.
The tax-exempt mortgage note payable is security for tax-exempt bonds which
are backed by a letter of credit from a AAA rated financial institution.
Wellsford has guaranteed
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<PAGE>
the reimbursement of the financial institution in the event that the
letter of credit is drawn upon. It is anticipated that as a result of
the Merger, this guaranty will be replaced by the guarantees of WRP Newco
and EQR. These bonds require the Company to obtain the approval of both
the trustee, as defined in the bond documents, and the above mentioned
financial institution for transactions such as those anticipated in
connection with the Merger and Distribution. The Company expects to
receive such approvals.
The fair market value of the variable rate tax exempt mortgage note is
considered to be the carrying amount.
(6) Commitments and Contingencies
WRP Newco will enter into employment agreements with certain of its
officers. Such agreements will be for terms which expire between 1999 and
2002, and will provide for aggregate annual base salaries of $0.8
million, $0.8 million and $0.6 million in 1997, 1998 and 1999 through
2002, respectively. The Company is obligated under an operating lease
covering its corporate headquarters for $0.2 million in 1997, $0.2
million in 1998, and $0.2 million in 1999, plus certain operating expense
escalations. The Company intends to enter into a five-year consulting
agreement with the vice chairman of Wellsford, Daniel M. Kelley. Under
the agreement, Mr. Kelley will advise the Company with respect to its
development and other real estate activities and will receive an annual
consulting fee of $120,000. Mr. Kelley will also receive a $580,000 non-
interest bearing loan which will be due upon the termination of the
consulting agreement.
As a commercial real estate owner, the Company is subject to potential
environmental costs. The Company's American Cyanamid site contains
asbestos containing materials ("ACMs"); upon acquisition of the property,
the Company intends to proceed with the removal of all ACMs in such
property which is anticipated to cost $3.5 million. At this point in
time, management of the Company is not aware of any environmental
concerns that would have a material adverse effect on the Company's
financial position or future results of operations except as just
described.
In 1997 WRP Newco will adopt a defined contribution savings plan pursuant
to Section 401 of the Internal Revenue Code. Under such a plan there are
no prior service costs. All employees will be eligible to participate in
the plan after one year of service. Employer contributions will be made
based on a discretionary amount determined by WRP Newco's management.
Employer contributions, if any, will be based upon the amount contributed
by an employee.
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<PAGE>
WELLSFORD REAL PROPERTIES, INC. (PREDECESSOR)
PRO FORMA COMBINED INCOME STATEMENT
For the Nine Months Ended September 30, 1996
(In Thousands Except Per Share Data)
(Unaudited)
During the period from January 1, 1996 to January 31, 1997, Wellsford Real
Properties, Inc. (Predecessor) (the "Company") acquired a mortgage note
receivable, purchased a commercial office property, and contracted to purchase
four additional commercial office properties. One of the commercial office
properties, the Greenbrook Corporate Center, is currently occupied.
This unaudited Pro Forma Combined Income Statement is presented as if the
Company's transactions, each as referred to above, and the Merger and
Distribution had been consummated on January 1, 1996, and as if the commercial
office properties under contract were actually purchased as of January 1, 1996.
In the opinion of the Company's management, all adjustments necessary to reflect
the effects of these transactions have been made.
This unaudited Pro Forma Combined Income Statement is presented for
comparative purposes only, and is not necessarily indicative of what the actual
results of operations of the Company would have been for the period presented;
nor does it purport to represent the results for future periods. This unaudited
Pro Forma Combined Income Statement should be read in conjunction with, and is
qualified in its entirety by, the respective historical financial statements and
notes thereto of Wellsford and the Company, incorporated by reference into, and
included in, this Joint Proxy Statement/Prospectus/Information Statement,
respectively.
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<PAGE>
Wellsford Real Properties, Inc. (Predecessor)
Pro Forma Combined Income Statement
Nine Months Ended September 30, 1996
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Pro Forma
Historical Adjustments Pro Forma
---------- ----------- ---------
<S> <C> <C> <C>
REVENUE
Rental income $2,797 (A) $2,797
Other income 212 (A) 212
Interest income $356 845 (B) 1,201
------------------------- --------
Total Revenue 356 3,854 4,210
------------------------- --------
EXPENSES
Property operating and maintenance 620 (A) 620
Real estate taxes 313 (A) 313
General and administrative 1,125 (C) 1,125
Depreciation 383 (D) 383
Property management 108 (A) 108
------------------------- --------
Total Expenses 0 2,549 2,549
------------------------- --------
Income before income taxes $356 $1,305 1,661
=========================
Provision for income taxes 679 (E)
--------
Net income $982
========
Net income per common share $0.20 (F)
========
Weighted average common shares outstanding 4,870 (F)
========
</TABLE>
206
<PAGE>
Wellsford Real Properties, Inc. (Predecessor)
Notes to Unaudited Pro Forma Combined Income Statement
September 30, 1996
(A) Represents historical operating revenues and expenses of Greenbrook
Corporate Center, which was acquired in January 1997, for the nine months
ended September 30, 1996. The Company's other four commercial properties
are currently vacant.
(B) Represents interest income from the Sonterra Loan for the period from
January 1, 1996 to the date of origination (July 10, 1996).
(C) Represents the estimated general and administrative costs of WRP Newco for
nine months.
(D) Represents depreciation on Greenbrook Corporate Center for the nine months
ended September 30, 1996 utilizing a 40 year estimated useful life.
(E) Represents provision for federal and state income taxes at rates of 35% and
9%, respectively.
(F) Represents the aggregate of the shares of WRP Newco Common issued in
connection with the Distribution (one share for every four shares of
Wellsford Common), the 225,000 shares to be issued in connection with the
acquisition of the commercial properties, and 350,000 shares (estimated) of
WRP Newco Class A Common to be purchased by ERP Operating Partnership for
$3.5 million.
207
<PAGE>
WELLSFORD REAL PROPERTIES, INC. (PREDECESSOR)
PRO FORMA COMBINED BALANCE SHEET
September 30, 1996
(In Thousands)
(Unaudited)
This unaudited Pro Forma Combined Balance Sheet is presented as if the Merger,
Contribution and Distribution and the proposed credit facility agreement with
Bank of Boston and Morgan Guaranty had been consummated on September 30, 1996,
and the commercial office properties purchased by, or under contract with,
Wellsford Real Properties, Inc. (Predecessor) (the "Company") had been purchased
on September 30, 1996, utilizing proceeds from the Merger and Contribution and a
draw from the credit facility.
This unaudited Pro Forma Combined Balance Sheet is presented for
comparative purposes only, and is not necessarily indicative of what the actual
financial position of the Company would have been at September 30, 1996; nor
does it purport to represent the future financial position of the Company. This
unaudited Pro Forma Combined Balance Sheet should be read in conjunction with,
and is qualified in its entirety by, the respective historical financial
statements and notes thereto of Wellsford and the Company, incorporated by
reference into, and included in, this Joint Proxy
Statement/Prospectus/Information Statement, respectively.
208
<PAGE>
Wellsford Real Properties, Inc. (Predecessor)
Pro Forma Combined Balance Sheet
September 30, 1996
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Pro Forma
Historical Adjustments Pro Forma
---------- ----------- ---------
ASSETS
<S> <C> <C> <C>
Real estate assets, at cost
Land $0 $7,140 $7,140
Buildings and improvements 40,460 40,460
----------------------- ----------
0 47,600 (A) 47,600
Construction in process 17,028 17,028
----------------------- ----------
17,028 47,600 64,628
Cash and cash equivalents 3,568 (B) 3,568
Restricted cash 6,355 6,355
Mortgage note and interest
receivable 17,934 17,934
----------------------- ----------
Total Assets $41,317 $51,168 $92,485
======================= ==========
LIABILITIES AND EQUITY
Liabilities:
Tax exempt mortgage note payable $14,755 $14,755
Credit facility $25,000 (C) 25,000
----------------------- ----------
Total Liabilities 14,755 25,000 39,755
----------------------- ----------
Commitments and contingencies -- -- --
Minority Interest 1,687 (D) 1,687
Equity:
Equity 26,562 (26,562) 0
Common stock $.01 par value per
share, 4,869,744 shares issued
and outstanding as adjusted 49 49
Paid in capital in excess of
par value 50,994 50,994
----------------------- ----------
Total Equity 26,562 24,481 (E) 51,043
----------------------- ----------
Total Liabilities and Equity $41,317 $51,168 $92,485
======================= ==========
</TABLE>
209
<PAGE>
Wellsford Real Properties, Inc. (Predecessor)
Notes to Unaudited Pro Forma Combined Balance Sheet
September 30, 1996
(A) Reflects the acquisition of five commercial office properties, previously
acquired or currently under contract for $47.6 million summarized as
follows:
<TABLE>
<CAPTION>
Name Location Square Purchase Purchase Planned Purchase Price Actual/Scheduled
Footage Price Price Per Improvements & Closing Date
Sq. Ft. Planned Impr.
Per Sq. Ft.
<S> <C> <C> <C> <C> <C> <C> <C>
American Cyanamid Wayne, NJ 560,000 $14.6 million $ 26 $9.1 million $ 42 February 1997
Chatham Building Chatham, NJ 65,000 5.1 million 78 3.1 million 126 January 1997
Greenbrook Corp. Ctr Fairfield, NJ 190,000 23.7 million 125 0.5 million 127 March 1997
1700 Valley Road Wayne, NJ 70,600 2.2 million 31 0.2 million 34 February 1997
1800 Valley Road Wayne, NJ 54,800 2.0 million 36 0.8 million 51 February 1997
940,400 47.6 million $13.7 million
</TABLE>
Greenbrook Corporate Center is currently in operation. The Company's other
four commercial properties are currently vacant.
(B) Reflects the net cash effect of the following transactions (in thousands):
Cash contribution to WRP Newco at Contribution $ 20,468
ERP Operating Partnership's purchase of WRP Newco Common 3,500
Acquisition of properties (20,400)
-------
$ 3,568
=======
(C) Represents draws on the credit facility to fund acquisitions.
(D) Represents ERP Operating Partnership's 20% minority interest in Palomino
Park.
(E) Represents the aggregate of the shares of WRP Newco Common issued in
connection with the Distribution (one share for every four shares of
Wellsford Common), the 225,000 shares to be issued in connection with the
acquisition of the commercial properties, and the 350,000 shares (estimated)
of WRP Newco Class A Common to be purchased by ERP Operating Partnership for
$3.5 million.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK OF WRP NEWCO
The following summary of the terms of WRP Newco's stock does not purport to be
complete and is subject to and qualified in its entirety by reference to
Maryland law, WRP Newco's Charter and Bylaws, copies of which are exhibits to
the registration statement of which this Joint Proxy
Statement/Prospectus/Information Statement is a part. See "Additional
Information."
General
The Charter of WRP Newco (the "Newco Charter") authorizes up to 200,000,000
shares of Common Stock, par value $.01 per share. The Board of Directors may
reclassify any unissued shares of stock in one or more classes or series of
stock. Upon completion of the Distribution and the other transactions to be
entered into upon consummation of the Merger, there will be 4,519,744 shares of
WRP Newco Common issued and outstanding (excluding the Additional Share
Offering) and 350,000 shares (estimated) of WRP Newco Class A Common issued and
outstanding. The Board of Directors has also authorized the issuance of up to
2,000,000 shares of WRP Newco Series A Preferred of which 1,000,000 shares are
subject to issuance pursuant to the Stock Purchase Agreement and 1,000,000
shares are subject to issuance pursuant to WRP Newco's right to pay dividends on
the WRP Newco Series A Preferred by the issuance of additional shares of WRP
Newco Series A Preferred. In addition, up to 1,750,000 shares of WRP Newco
Common have been reserved for issuance under WRP Newco's 1997 Management
Incentive Plan, subject to approval of the Wellsford Common Shareholders. See
"Approval of WRP Newco's 1997 Management Incentive Plan."
WRP Newco also intends to issue up to approximately 10,000,000 shares of WRP
Newco Common, excluding any over-allotment option, if any, in connection with
WRP Newco's Additional Share Offering upon which the shareholders of Wellsford
are being asked to vote. See "Approval of WRP Newco Additional Share Offering."
At present, there is no established trading market for the WRP Newco Common.
WRP Newco has applied for listing of the WRP Newco Common on the NYSE under the
symbol "WRP." The United States Trust Company of New York will act as transfer
agent and registrar of the WRP Newco Common.
Under Maryland law, stockholders generally are not liable for the
corporation's debts and obligations.
WRP Newco intends to furnish to its stockholders an annual report containing
audited consolidated financial statements and an opinion thereon expressed by an
independent public accounting firm.
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<PAGE>
Common Stock
All shares of WRP Newco Common to be issued in connection with the
Distribution and the other transactions to be entered into upon consummation of
the Merger have been duly authorized, and will be fully paid, validly issued and
nonassessable. Subject to the preferential rights of any other class or series
of stock, holders of shares of WRP Newco Common are entitled to receive
dividends on such stock if, as and when authorized and declared by the Board of
Directors of WRP Newco out of assets legally available therefor and to share
ratably in the assets of WRP Newco legally available for distribution to its
stockholders in the event of its liquidation, dissolution or winding up after
payment of or adequate provision for all known debts and liabilities of WRP
Newco and payment of liquidation preferences to holders of preferred stock.
Each outstanding share of WRP Newco Common entitles the holder to one vote on
all matters submitted to a vote of stockholders, including the election of
directors, and, except as provided with respect to any other class or series of
stock, the holders of such shares will possess exclusive voting power. There is
no cumulative voting in the election of directors, which means that, except with
respect to the director elected by the holders of the WRP Newco Class A Common,
the holders of a majority of the outstanding shares of WRP Newco Common can
elect all of the directors then standing for election and the holders of the
remaining shares will not be able to elect any directors. See "-- Class A
Common Stock."
Holders of shares of WRP Newco Common have no preference, conversion,
exchange, sinking fund, redemption or appraisal rights and have no preemptive
rights to subscribe for any securities of WRP Newco. Except for the rights of
WRP Newco Class A Common described below, shares of WRP Newco Common will have
equal dividend, liquidation and other rights.
Under the MGCL, a Maryland corporation generally may not dissolve, amend its
charter, merge, sell all or substantially all of its assets, engage in a share
exchange or engage in similar transactions outside the ordinary course of
business unless approved by the affirmative vote of stockholders holding at
least two-thirds of the shares entitled to vote on the matter unless a lesser
percentage (but not less than a majority of all of the votes entitled to be cast
on the matter) is set forth in the corporation's charter. The Newco Charter
provides for approval of consolidations, share exchanges, mergers in which WRP
Newco is the successor, and amendments to the charter (except amendments to the
provisions relating to the classification and removal of directors or any
amendment reducing supermajority voting requirements) by the affirmative vote of
holders of shares entitled to cast a majority of the votes entitled to be cast
on the matter.
Preferred Stock
The Newco Charter authorizes the Board of Directors to issue preferred stock
in one or more series. Thus, the Board of Directors could authorize the
issuance of shares of preferred
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<PAGE>
stock with terms and conditions which could have the effect of delaying,
deferring or preventing a transaction or a change in control of WRP Newco that
might involve a premium price for holders of WRP Newco Common or otherwise be in
their best interest.
Classification or Reclassification of Common Stock or Preferred Stock
The Newco Charter authorizes the Board of Directors to classify or reclassify
any unissued stock by setting or changing the numbers, designations,
preferences, conversion or other rights, voting powers, restrictions,
limitations as to distributions, qualifications or terms or conditions of
redemption of any of such shares.
Power to Issue Additional Shares of Common Stock and Preferred Stock
WRP Newco believes that the power of the Board of Directors to issue
additional authorized but unissued shares of WRP Newco Common and to reclassify
any unissued shares of WRP Newco Common and thereafter to cause WRP Newco to
issue such reclassified shares of stock will provide WRP Newco with increased
flexibility in structuring possible future financings and acquisitions and in
meeting other needs which might arise. The additional classes or series, as
well as the WRP Newco Common, will be available for issuance without further
action by WRP Newco's stockholders, unless such action is required by applicable
law or the rules of any stock exchange or automated quotation system on which
WRP Newco's securities may be listed or traded. Although the Board of Directors
has no intention at the present time of doing so, it could authorize WRP Newco
to issue a class or series that could, depending on the terms of such class or
series, delay, defer or prevent a transaction or a change of control of WRP
Newco that might involve a premium price for holders of common stock or
otherwise be in their best interest.
Class A Common Stock
Rights Generally.
Each share of WRP Newco Class A Common entitles its holder to all the rights
of a share of WRP Newco Common in addition to the rights described below.
Holders of WRP Newco Class A Common will not have any preemptive rights to
acquire other securities of WRP Newco.
Voting Rights.
Holders of WRP Newco Class A Common, as a class, may elect one director to the
WRP Newco Board of Directors (the "Class A Director") until the longer of two
years from the Closing Date or so long as (i) ERP Operating Partnership is
obligated to purchase preferred stock in WRP Newco pursuant to the Stock
Purchase Agreement; (ii) ERP Operating Partnership has obligations pursuant to
the Agreement Regarding Palomino Park or pursuant to the Credit
213
<PAGE>
Enhancement Agreement; or (iii) the aggregate liquidation value of the shares of
WRP Newco Series A Preferred owned by ERP Operating Partnership is greater than
$10 million. The WRP Newco Class A Director may be removed without cause, only
by the affirmative vote of a majority of the Class A Common electing such
director.
For ten years after the Effective Time, WRP Newco has the right to direct the
voting of all shares of WRP Newco Class A Common owned by ERP Operating
Partnership or any of its affiliates, except as to the election of the Class A
Director or any matter relating to the rights, preferences and privileges of the
WRP Newco Class A Common.
Optional and Automatic Conversion.
Holders of WRP Newco Class A Common have the right, exercisable at any time
and from time to time, to convert all or any of such WRP Newco Class A Common
into WRP Newco Common at a conversion rate of one share of WRP Newco Common for
each share of WRP Newco Class A Common so converted, subject to adjustment. Any
outstanding shares of WRP Newco Class A Common will automatically convert, at
the conversion rate, into shares of WRP Newco Common upon the sale, transfer,
pledge or other disposition ("Transfer") of such shares of WRP Newco Class A
Common to any entity other than an affiliate of EQR or ERP Operating
Partnership.
Adjustment of Conversion Rate.
The conversion rate in effect at any time for the WRP Newco Class A Common is
subject to adjustment from time to time as follows:
In case WRP Newco (a) reclassifies the outstanding WRP Newco Common into
shares of some other class or series of shares, (b) subdivides the outstanding
WRP Newco Common into a greater number of shares of WRP Newco Common or (c)
combines the outstanding WRP Newco Common into a smaller number of shares of WRP
Newco Common, the conversion rate immediately prior to such action shall be
adjusted so that the holder of any shares of WRP Newco Class A Common thereafter
surrendered for conversion shall be entitled to receive the number of shares of
WRP Newco Common which he would have owned immediately following such action had
such WRP Newco Class A Common been converted immediately prior thereto.
Purchase of Shares of Voting Stock in Excess of REIT Ownership Limit.
If, an event which is undertaken or caused by WRP Newco occurs resulting in
ERP Partnership, EQR or any of their affiliates owning shares of WRP Newco Class
A Common in excess of the REIT ownership limits (initially 9.9% of the value of
the voting stock of WRP Newco), then WRP Newco will purchase such shares of WRP
Newco Class A Common in excess of the REIT ownership limit at the market price
thereof.
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<PAGE>
Series A 8% Convertible Redeemable Preferred Stock
General.
The Board of Directors of WRP Newco has established a series of preferred
stock designated Series A 8% Convertible Redeemable Preferred Stock, par value
$25.00 per share. The maximum number of authorized shares of WRP Newco Series A
Preferred is 2,000,000.
Seniority.
With respect to the right to receive dividends and to participate in
distributions or payments in the event of any liquidation, dissolution or
winding up of WRP Newco, the WRP Newco Series A Preferred will rank on a parity
with any other preferred stock of WRP Newco, and will rank senior to the WRP
Newco Common and any other class or series of shares of stock of WRP Newco
ranking, as to dividends and upon liquidation, junior to the WRP Newco Series A
(collectively the "Junior Shares"). Notwithstanding the foregoing, WRP Newco
may make distributions or pay dividends in WRP Newco Common or in any other
shares of WRP Newco ranking junior to the WRP Newco Series A Preferred as to
distribution rights and liquidation preference at any time.
Dividends.
The holders of WRP Newco Series A Preferred are entitled to receive, when and
as declared by the WRP Newco Board of Directors out of any funds legally
available therefor, dividends at the rate of $2.00 per share per year, payable
in cash, except as provided below, in equal amounts quarterly on the fifteenth
(or, if not a business day, the next succeeding business day) of January, April,
July and October each year (each such day being called a "Quarterly Dividend
Date" and each period ending on a Quarterly Dividend Date being called a
"Dividend Period"). The amount of any dividend payable for the initial Dividend
Period and for any Dividend Period,shorter than a full Dividend Period shall be
prorated.
Notwithstanding the foregoing, for any 12 Dividend Periods, WRP Newco has the
right to pay the dividend in additional shares of WRP Newco Series A Preferred
determined by dividing the total amount of the dividend to be paid in shares by
$25.00.
In the event WRP Newco fails to pay any dividend on the WRP Newco Series A
Preferred on any Quarterly Dividend Date, WRP Newco shall not pay any dividends
on any other class of stock of WRP Newco other than (1) pro rata with other
securities of WRP Newco ranking pari passu with the WRP Newco Series A Preferred
or (ii) with Junior Shares until such dividend on the WRP Newco Series A
Preferred has been paid.
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Distributions Upon Liquidation, Dissolution or Winding Up.
Upon the voluntary or involuntary dissolution, liquidation or winding up of
WRP Newco, the holders of the WRP Newco Series A Preferred will be entitled to
receive and to be paid out of the assets of WRP Newco available for distribution
to its shareholders, before any payment or distribution is made on any Junior
Shares, the amount of $25.00 per share of WRP Newco Series A Preferred
("Liquidation Value"), plus any accrued and unpaid dividends thereon. If, upon
any dissolution, liquidation, or winding up of WRP Newco, the amounts payable
with respect to the preference value of the WRP Newco Series A Preferred and any
other shares of stock of WRP Newco ranking as to any such distribution on a
parity with the WRP Newco Series A Preferred are not paid in full, the holders
of the WRP Newco Series A Preferred and of such other shares will share ratably
in such distribution of assets of WRP Newco in proportion to the full respective
preference amounts to which they are entitled.
Redemption.
Optional Redemption. On and after ____________, 2002, WRP Newco may, at its
option, redeem at any time all or any part of the outstanding WRP Newco Series A
Preferred at a price per share (the "Redemption Price") equal to $25.00 per
share of WRP Newco Series A Preferred, together with all accrued and unpaid
dividends to and including the date fixed for redemption (the "Redemption
Date"); provided, however, that no partial redemption of the WRP Newco Series A
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Preferred may be effected if after giving effect thereto the aggregate
Liquidation Value of the WRP Newco Series A Preferred outstanding is less than
$10,000,000. The Redemption Price and all accrued and unpaid dividends will be
paid in cash; provided, however, that if (a) a holder of WRP Newco Series A
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Preferred desires to convert any of its WRP Newco Series A Preferred called for
redemption but such conversion would cause any direct or indirect holder which
is classified as a REIT under Section 856 of the Code, to own, directly or
indirectly, more than 9.9% of the outstanding voting stock of WRP Newco or would
otherwise cause any direct or indirect holder of such outstanding voting stock
to lose its status as a REIT under the Code, and (b) such holder has so notified
WRP Newco in writing prior to the Redemption Date, stating the number of shares
of WRP Newco Series A Preferred which have been called for redemption which such
holder is unable to convert for such reason (such shares being referred to as
the "Unconvertible Shares"), then WRP Newco shall pay, in cash, the Redemption
Price plus all accrued and unpaid dividends for each Unconvertible Share and
shall issue to such holder a warrant to purchase the number of shares of WRP
Newco Common equal to (i) the fair market value of a share of WRP Newco Common
on the Redemption Date (calculated pursuant to the terms of the Articles
Supplementary) over the Redemption Price, multiplied by (ii) the number of
shares of WRP Newco Common into which the Unconvertible Shares redeemed from
such holder were convertible immediately prior to such redemption, and divided
by (iii) the fair market value of a share of WRP Newco Common on the Redemption
Date. Such warrant shall be exercisable without cost to the holder thereof at
any time and from time to time for a period of 10 years from the date of
issuance of such warrant. The warrant
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shall be on such terms and conditions as are customarily contained in like
warrants, including provisions to protect the holder of the warrant from
dilution. WRP Newco shall have the right, at any time, to redeem such warrant
at a price equal to the fair market value of such warrant on the date of any
such redemption.
Required Redemption. Upon the (A) (i) non-payment by WRP Newco of any
dividend on the Quarterly Dividend Date applicable to such dividend for three
Dividend Periods which need not be consecutive or (ii) failure by WRP Newco to
comply with any term or obligations under the Articles Supplementary (the
occurrences in (i) and (ii) each called an "Event of Default") or (B) on and
after ____________, 2012, whichever comes first, the holder of any shares of WRP
Newco Series A Preferred may, at its option, cause WRP Newco to redeem at any
time all of the WRP Newco Series A Preferred held by such holder at $25.00 per
share, payable in cash, together with all accrued and unpaid dividends to and
including the Redemption Date. Notwithstanding the provisions of the previous
sentence, provided an Event of Default has not occurred, WRP Newco has the right
to extend the date during which a required redemption is not permitted for three
separate additional five year periods if the dividend rate on the WRP Newco
Series A Preferred is changed to the then market rate of comparable preferred
stock (the "Market Rate") on the first day of each such additional five year
period; provided, however, in no event shall the dividend be reduced to less
than $2.00 per share of WRP Newco Series A Preferred. The Market Rate shall be
determined by mutual agreement of the holders of WRP Newco Series A Preferred
Stock and WRP Newco or, if they cannot agree, by an investment banking firm
under the procedure set forth in the Articles Supplementary.
Voting Rights. The holders of WRP Newco Series A Preferred are not be
entitled to vote on any matter except as provided below; provided, however, the
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holders of WRP Newco Series A Preferred are not to have any voting rights to the
extent such rights will cause any holder of WRP Newco Series A Preferred to own
more than 9.9% of the outstanding voting stock of WRP Newco or otherwise cause
any holder of WRP Newco Series A Preferred that is classified as a REIT under
Section 856 of the Code to lose its status as a REIT under the Code.
So long as any shares of WRP Newco Series A Preferred remain outstanding, WRP
Newco will not, without the affirmative vote of the holders of at least two-
thirds of the shares of WRP Newco Series A Preferred outstanding at the time,
(i) authorize, create or issue, or increase the authorized or issued amount of,
any class or series of shares of capital stock ranking prior to the WRP Newco
Series A Preferred with respect to the payment of dividends or the distribution
of assets upon liquidation, dissolution or winding up or reclassify any
authorized shares of stock of WRP Newco into such shares, or create, authorize
or issue any obligation or security convertible into or evidencing the right to
purchase any such shares; or (ii) amend, alter or repeal the provisions of the
WRP Newco Charter or the Articles Supplementary classifying the WRP Newco Series
A Preferred, whether by merger, consolidation or otherwise (an "Event"), so as
to materially and adversely affect any right, preference, privilege or voting
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power of the WRP Newco Series A Preferred or the holders thereof; provided,
--------
however, with respect to the occurrence of any of the Events set forth in (ii)
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above, so long as the shares of WRP Newco Series A Preferred remain outstanding
with the terms thereof materially unchanged, taking into account that upon the
occurrence of an Event, WRP Newco may not be the surviving entity, the
occurrence of any such Event will not be deemed to materially and adversely
affect such rights, preferences, privileges or voting power of holders of WRP
Newco Series A Preferred and provided further that (x) any increase in the
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amount of the authorized or issued shares of preferred stock of WRP Newco or the
creation or issuance of any other preferred stock of WRP Newco, or (y) any
increase in the amount of authorized or issued WRP Newco Series A Preferred or
any other preferred stock of WRP Newco, in each case ranking on a parity with or
junior to the WRP Newco Series A Preferred with respect to payment of dividends
or the distribution of assets upon liquidation, dissolution or winding up, shall
not be deemed to materially and adversely affect such rights, preferences,
privileges or voting powers.
Rights of Conversion.
Holders of WRP Newco Series A Preferred shall have the right, exercisable at
any time and from time to time, except in the case of WRP Newco Series A
Preferred called for redemption, to convert all or any of such WRP Newco Series
A Preferred into WRP Newco Common at a conversion price per share of WRP Newco
Common equal to (a) (i) the net book value per share of WRP Newco Common on the
Closing Date or (ii) in the event any sales of WRP Newco Common to any
institutional purchasers have taken place on or prior to the Closing Date or are
subject to a commitment to purchase from an institutional purchaser made on or
prior to the Closing Date, the average per share sale price of WRP Newco Common
sold to institutional purchasers on or prior to the Closing Date and subject to
written commitments to purchase from institutional purchasers received on or
prior to the Closing Date, multiplied by (b) 1.08 (the "Conversion Price"). In
the case of WRP Newco Series A Preferred called for redemption, conversion
rights will expire at the close of business on the last business day preceding
the Redemption Date.
Adjustments of Conversion Rate.
The conversion rate in effect at any time for the WRP Newco Series A Preferred
is subject to adjustment from time to time to protect against certain dilutive
events.
In case WRP Newco (1) pays or makes a distribution in shares of WRP Newco
Common to holders of the WRP Newco Common, (2) reclassifies the outstanding WRP
Newco Common into shares of some other class or series of shares, (3) subdivides
the outstanding WRP Newco Common into a greater number of shares of WRP Newco
Common or (4) combines the outstanding WRP Newco Common into a smaller number of
shares of WRP Newco Common, the conversion rate immediately prior to such action
shall be adjusted so that the holder of any shares of WRP Newco Series A
Preferred thereafter surrendered for conversion will be entitled
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to receive the number of shares of WRP Newco Common which he would have owned
immediately following such action had such WRP Newco Series A Preferred been
converted immediately prior to such event.
In case WRP Newco issues rights, options or warrants to all holders of the
WRP Newco Common entitling them to subscribe for or purchase WRP Newco Common
(or securities convertible into WRP Newco Common) at a price per share less than
the current market price (as determined pursuant to the Articles Supplementary)
of the WRP Newco Common on such record date, the number of shares of WRP Newco
Common into which each share of WRP Newco Series A Preferred is convertible will
be adjusted so that the same shall be equal to the number determined by
multiplying the number of shares of WRP Newco Common into which such share of
WRP Newco Series A Preferred was convertible immediately prior to such record
date by a fraction of which the numerator shall be the number of shares of WRP
Newco Common outstanding on such record date plus the number of additional
shares of WRP Newco Common offered (or into which the convertible securities so
offered are convertible), and of which the denominator shall be the number of
shares of WRP Newco Common outstanding on such record date, plus the number of
shares of WRP Newco Common which the aggregate offering price of the additional
shares of WRP Newco Common offered (or into which the convertible securities so
offered are convertible) would purchase at such current market price.
In case WRP Newco distributes to all holders of WRP Newco Common any class of
shares of capital stock other than WRP Newco Common, evidences of indebtedness
or assets of WRP Newco (other than cash distributions out of current or retained
earnings), or distributes to all holders of WRP Newco Common rights or warrants
to subscribe for securities other than those referred to in the immediately
preceding paragraph, then in each case the number of shares of WRP Newco Common
into which each share of WRP Newco Series A Preferred will be convertible will
be adjusted so that the same shall equal the number determined by multiplying
the number of shares of WRP Newco Common into which such share of WRP Newco
Series A Preferred was convertible immediately prior to the date of such
distribution by a fraction of which the numerator shall be the current market
price of the WRP Newco Common on the record date mentioned below, and of which
the denominator shall be such current market price of the WRP Newco Common, less
the then fair market value (as determined by the Board of Directors) of the
portion of the securities or assets so distributed or of such subscription
rights or warrants applicable to one share of WRP Newco Common. Notwithstanding
the foregoing, in the event that WRP Newco distributes rights or warrants (other
than those referred to in the immediately preceding paragraph) ("Rights") pro
rata to holders of the WRP Newco Common, WRP Newco may, in lieu of making any
adjustment pursuant to this paragraph make proper provision so that each holder
of a share of WRP Newco Series A Preferred who converts such share after the
record date for such distribution and prior to the expiration or redemption of
the Rights shall be entitled to receive upon such conversion, in addition to the
WRP Newco Common issuable upon such conversion (the "Conversion Shares"), a
number of Rights to be determined as follows: (1) if such conversion occurs on
or prior to the date for the distribution to the holders of Rights of separate
certificates evidencing such Rights (the "Distribution Date"),
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the same number of Rights to which a holder of a number of shares of WRP Newco
Common equal to the number of Conversion Shares is entitled at the time of such
conversion in accordance with the terms and provisions of and applicable to the
Rights; and (2) if such conversion occurs after the Distribution Date, the same
number of Rights to which a holder of the number of shares of WRP Newco Common
into which a share of WRP Newco Series A Preferred so converted was convertible
immediately prior to the Distribution Date would have been entitled on the
Distribution Date in accordance with the terms and provisions of and applicable
to the Rights.
Options.
So long as any WRP Newco Series A Preferred is outstanding, WRP Newco may not
issue any options to purchase shares of WRP Newco ("Employee Stock Options") to
officers, directors or employees of or consultants to, WRP Newco, whether
pursuant to employee stock option or purchase plans of WRP Newco or employment
or consulting agreements or otherwise for an exercise price which is less than
the fair market value of such shares on the date of grant. In the event the
number of shares of WRP Newco Common subject to Employee Stock Options
(excluding any Employee Stock Options granted in exchange for Wellsford share
options existing at the Effective Time) at any time exceeds, in the aggregate,
10% of the WRP Newco Common outstanding at such time, all Employee Stock Options
outstanding at such time in excess of such 10%, shall be deemed for certain
anti-dilution purposes to have an exercise price per share equal to 20% of the
average fair market value of a share of WRP Newco Common on the date of grant of
those shares subject to Employee Stock Options most recently granted in excess
of such 10%.
CERTAIN PROVISIONS OF MARYLAND LAW AND OF
WRP NEWCO'S CHARTER AND BYLAWS
The following summary of certain provisions of Maryland law and WRP Newco's
Charter and Bylaws does not purport to be complete and is subject to and
qualified in its entirety by reference to Maryland law and to WRP Newco's
Charter and Bylaws, copies of which are attached as exhibits to the registration
statement of which this Joint Proxy Statement/Prospectus/Information Statement
is a part. See "Additional Information."
Classification of the Board of Directors
The Bylaws provide that the number of directors of WRP Newco may be
established by the Board of Directors but may not be fewer than the minimum
number required by Maryland law, which is three, nor more than 15. Any vacancy
will be filled, at any regular meeting or at any special meeting called for that
purpose, by a majority of the remaining directors. A vacancy resulting from an
increase in the number of directors must be filled by a majority of the entire
Board of Directors.
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Pursuant to the Newco Charter, the Board of Directors is divided into three
classes of directors. The initial terms of the first, second and third classes
will expire at the annual meetings of stockholders to be held in 1998, 1999 and
2000, respectively. Beginning in 1998, directors of each class will be chosen
for three-year terms upon the expiration of their current terms and each year
one class of directors will be elected by the stockholders. The members of each
such class will hold office until their successors are duly elected and
qualified. WRP Newco believes that classification of the Board of Directors
will help to assure the continuity and stability of WRP Newco's business
strategies and policies as determined by the Board of Directors. Holders of
shares of WRP Newco Common have no right to cumulative voting in the election of
directors. Consequently, at each annual meeting of stockholders, the holders of
a majority of the shares of WRP Newco Common are able to elect all of the
successors of the class of directors whose terms expire at that meeting.
Classification of the Board of Directors could have the effect of making the
removal of incumbent directors more time-consuming and difficult, which could
discourage a third party from making a tender offer or otherwise attempting to
obtain control of WRP Newco, even though such an attempt might be beneficial to
WRP Newco and its stockholders. At least two annual meetings of stockholders,
instead of one, will generally be required to effect a change in a majority of
the Board of Directors. Thus, the classified board provision could increase the
likelihood that incumbent directors will retain their positions.
Removal of Directors
The Newco Charter provides that, except as provided in the next sentence, a
director may be removed only for cause and by the affirmative vote of at least
two-thirds of the votes entitled to be cast for the election of directors (i.e.,
the votes attributable to all outstanding shares of WRP Newco Common). The
Class A Director may be removed, without cause, only by the affirmative vote of
at least a majority of the Class A Common electing such Class A Director.
Business Combinations
Under the MGCL, certain "business combinations" (including a merger,
consolidation, share exchange or, in certain circumstances, an asset transfer or
issuance or reclassification of equity securities) between a Maryland
corporation and (i) any person who beneficially owns 10% or more of the voting
power of the corporation's shares or (ii) an Interested Stockholder or (iii) an
affiliate of an Interested Stockholder are prohibited for five years after the
most recent date on which the Interested Stockholder becomes an Interested
Stockholder. Thereafter, any such business combination must be recommended by
the board of directors of such corporation and approved by the affirmative vote
of at least (a) 80% of the votes entitled to be cast by holders of outstanding
shares of voting stock of the corporation and (b) two-thirds of the votes
entitled to be cast by holders of voting stock of the corporation other than
shares held by the Interested Stockholder with whom (or with whose affiliate)
the business combination is to be effected, unless, among other conditions, the
corporation's common stockholders receive a minimum price
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(as defined in the MGCL) for their shares and the consideration is received in
cash or in the same form previously paid by the Interested Stockholder for its
shares. These provisions of Maryland law do not apply, however, to business
combinations that are approved or exempted by the board of directors of the
corporation prior to the time that the Interested Stockholder becomes an
Interested Stockholder. The directors of WRP Newco have exempted from the
Maryland statute any business combinations with Jeffrey H. Lynford or Edward
Lowenthal or any of their affiliates or any other person acting in concert or as
a group with any of such persons.
Amendment to the Charter and Bylaws
The Newco Charter may be amended only by the affirmative vote of a majority of
all of the votes entitled to be cast on the matter, except that any amendment to
the sections of the charter that address the number, classification or removal
of directors, or any amendment providing that the stockholders may approve an
action by a lesser percentage of votes than that required by law will be valid
only if approved by the affirmative vote of two-thirds of all of the votes
entitled to be cast on the matter. The Board of Directors of WRP Newco has the
exclusive power to adopt, alter or repeal any provision of the Bylaws and to
make new Bylaws.
Merger, Consolidation, Sale of Assets
A sale of all or substantially all of the assets of WRP Newco or a merger in
which WRP Newco is not the successor must be approved by the affirmative vote of
two-thirds of all of the votes entitled to be cast on the matter. A
consolidation or share exchange or a merger in which WRP Newco is the successor
need be approved only by the affirmative vote of holders of shares entitled to
cast a majority of all votes entitled to be cast on the matter.
Dissolution of WRP Newco
The dissolution of WRP Newco must be approved by the affirmative vote of the
holders of not less than two-thirds of all the votes entitled to be cast on the
matter.
Advance Notice of Director Nominations and New Business
The Bylaws of WRP Newco provide that (a) with respect to an annual meeting of
stockholders, nominations of persons for election to the Board of Directors and
the proposal of business to be considered by stockholders may be made only (i)
pursuant to WRP Newco's notice of the meeting, (ii) by or at the direction of
the Board of Directors or (iii) by a stockholder who is entitled to vote at the
meeting and has complied with the advance notice procedures set forth in the
Bylaws and (b) with respect to special meetings of stockholders, only the
business specified in WRP Newco's notice of meeting may be brought before the
meeting of stockholders and nominations of persons for election to the Board of
Directors may be made only (i) pursuant to WRP Newco's notice of the meeting,
(ii) by or at the direction of the Board
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of Directors, or (iii) provided that the Board of Directors has determined that
directors shall be elected at such meeting, by a stockholder who is entitled to
vote at the meeting and has complied with the advance notice provisions set
forth in the Bylaws.
Meetings of Stockholders
WRP Newco's Bylaws provide that annual meetings of stockholders shall be held
on a date and at the time set by the Board of Directors during the month of May
each year (commencing in May 1998). Special meetings of the stockholders may be
called by (i) the Chairman of the Board of WRP Newco, (ii) the President of WRP
Newco, (iii) the Chief Executive Officer of WRP Newco or (iv) the Board of
Directors. As permitted by the MGCL, the Bylaws provide that special meetings
must be called by the Secretary of WRP Newco upon the written request of the
holders of shares entitled also to cast not less than a majority of all of the
votes entitled to be cast at the meeting.
WRP Newco's Bylaws provide that any stockholder of record wishing to nominate
a director or have a stockholder proposal considered at an annual meeting
(except for stockholder proposals included in WRP Newco proxy materials pursuant
to Rule 14a-8 under the securities Exchange Act of 1934, as amended) must
provide written notice and certain supporting documentation to WRP Newco
relating to the nomination or proposal not later than 60 days nor earlier than
90 days prior to the anniversary date of the prior year's annual meeting or
special meeting in lieu thereof (the "Anniversary Date"). In the event that the
annual meeting is advanced by more than 30 calendar days before or delayed more
than 60 days from the Anniversary Date, stockholders generally must provide
written notice no earlier than 90 days prior to such annual meeting nor later
than the later of 60 days prior to such annual meeting or 10 days following the
date on which notice of the meeting is mailed to stockholders.
The purpose of requiring stockholders to give WRP Newco advance notice of
nominations and other business is to afford the Board of Directors a meaningful
opportunity to consider the qualifications of the proposed nominees or the
advisability of the other proposed business and, to the extent deemed necessary
or desirable by the Board of Directors, to inform stockholders and make
recommendations about the qualifications or business, as well as to provide a
more orderly procedure for conducting meetings of stockholders. Although WRP
Newco's Bylaws do not give the Board of Directors any power to disapprove
stockholder nominations for the election of directors or proposals for action,
they may have the effect of precluding a contest for the election of directors
or the consideration of stockholder proposals if the proper procedures are not
followed, and of discouraging or deterring a third party from conducting a
solicitation of proxies to elect its own slate of directors or to approve its
own proposal, without regard to whether consideration of the nominees or
proposals might be harmful or beneficial to WRP Newco and its stockholders.
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Limitation of Liability and Indemnification
The MGCL permits a Maryland corporation to include in its charter a provision
limiting the liability of its directors and officers to the corporation and its
stockholders for money damages except for liability resulting from (a) actual
receipt of an improper benefit or profit in money, property or services or (b)
active and deliberate dishonesty established by a final judgment as being
material to the cause of action. The Newco Charter contains such a provision
which eliminates such liability to the maximum extent permitted by Maryland law.
The Newco Charter authorizes WRP Newco, to the maximum extent permitted by
Maryland law, to obligate itself to indemnify and to pay or reimburse reasonable
expenses in advance of final disposition of a proceeding to (a) any present or
former director or officer or (b) any individual who, while a director of WRP
Newco, and at the request of WRP Newco, serves or has served another
corporation, partnership, joint venture, trust, employee benefit plan, limited
liability company or any other enterprise as a director, officer, partner,
trustee, manager or member of such corporation, partnership, joint venture,
trust, employee benefit plan, limited liability company or other enterprise.
The Bylaws of WRP Newco obligate it, to the maximum extent permitted by Maryland
law, to indemnify and to pay or reimburse reasonable expenses in advance of
final disposition of a proceeding to (a) any present or former director or
officer who is made a party to the proceeding by reason of his service in that
capacity or (b) any individual who, while a director of WRP Newco and at the
request of WRP Newco, serves or has served another corporation, partnership,
joint venture, trust, employee benefit plan, limited liability company or any
other enterprise as a director, officer, partner, trustee, manager or member of
such corporation, partnership, joint venture, trust, employee benefit plan,
limited liability company or other enterprise and who is made a party to the
proceeding by reason of his service in that capacity. The Newco Charter and
Bylaws also permit WRP Newco to indemnify and advance expenses to any person who
served a predecessor of WRP Newco in any of the capacities described above and
to any employee or agent of WRP Newco or a predecessor of WRP Newco.
The MGCL requires a corporation (unless its charter provides otherwise, which
the Newco Charter does not) to indemnify a director or officer who has been
successful, on the merits or otherwise, in the defense of any proceeding to
which he is made a party by reason of his service in that capacity. The MGCL
permits a corporation to indemnify its present and former directors and
officers, among others, against judgments, penalties, fines, settlements and
reasonable expenses actually incurred by them in connection with any proceeding
to which they may be made a party by reason of their service in those or other
capacities unless it is established that (a) the act or omission of the director
or officer was material to the matter giving rise to the proceeding and (i) was
committed in bad faith or (ii) was the result of active and deliberate
dishonesty, (b) the director or officer actually received an improper personal
benefit in money, property or services or (c) in the case of any criminal
proceeding, the director or officer had reasonable cause to believe that the act
or omission was unlawful. However, a Maryland corporation may not indemnify for
an adverse judgment in a suit by or in the right of
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the corporation. In addition, the MGCL requires WRP Newco, as a condition to
advancing expenses, to obtain (a) a written affirmation by the director or
officer of his good faith belief that he has met the standard of conduct
necessary for indemnification by WRP Newco as authorized by the Bylaws and (b) a
written statement by or on his behalf to repay the amount paid or reimbursed by
WRP Newco if it shall ultimately be determined that the standard of conduct was
not met.
APPROVAL OF WRP NEWCO ADDITIONAL SHARE OFFERING
The Board of Trustees of Wellsford and the Board of Directors of WRP Newco
have approved the issuance by WRP Newco of up to 12,000,000 shares of WRP Newco
Common (the "Additional Shares"), subject to further approval by the Wellsford
Common Shareholders in order to satisfy the requirements of the NYSE. The
purchase price for the Additional Shares will be determined by the Board of
Directors of WRP Newco based upon prevailing market conditions. WRP Newco
anticipates that the offering of the Additional Shares will be made to a limited
number of investors pursuant to a registration statement to be filed with the
Commission under the Securities Act.
The proceeds of this offering, after payment of underwriters' commissions and
other offering expenses, will be used to repay loans made by Wellsford to WRP
Newco, and interest thereon, and for investments, other business activities and
working capital. As of the date hereof, WRP Newco does not have any agreements,
understandings or commitments to make any specific investments with such
proceeds. In the normal course of business, however, WRP Newco is continually
evaluating a number of potential investments and entering into non-binding
letters of intent. In accordance with the Newco Charter, WRP Newco may make
additional investments without the consent of its stockholders.
WRP Newco anticipates that purchasers of Additional Shares will be able to
sell such shares in the public market immediately after purchase. The existence
of the Additional Shares in the public market could adversely affect the market
price for shares of WRP Newco Common.
The Additional Shares will have the same terms as all other shares of WRP
Newco Common with respect to dividends, voting, ownership and any other right(s)
and limitation(s) pertaining to shares of WRP Newco Common generally. However,
as would be the case with respect to any issuance of equity voting securities,
the Additional Shares, if issued, will dilute the relative voting power of the
issued and outstanding shares of WRP Newco Common.
The Board of Trustees of Wellsford and the Board of Directors of WRP Newco
believe that the WRP Newco Additional Share Offering will enable WRP Newco to
raise additional capital more expeditiously and, as a result of the payment of
lower underwriting commissions and significantly reduced printing costs, at less
cost than a public offering to other than a limited number of investors, thereby
enhancing its ability to build equity for its shareholders by increasing net
asset value per share. The Board of Trustees of Wellsford and the Board of
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Directors of WRP Newco also believe that the WRP Newco Additional Share Offering
will enhance WRP Newco's capital structure and will not dilute the equity of
existing stockholders.
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The Board of Trustees of Wellsford and the
Board of Directors of WRP Newco recommend that you
vote FOR the proposal to approve the WRP Newco Additional Share Offering.
- --------------------------------------------------------------------------------
APPROVAL OF WRP NEWCO'S 1997 MANAGEMENT INCENTIVE PLAN
General. The Board of Directors of WRP Newco has approved, subject to the
approval of the shareholders, the 1997 Management Incentive Plan (the
"Management Incentive Plan"). The purpose of the Management Incentive Plan is
to align the interests of WRP Newco's directors, executive officers and key
employees with those of the shareholders and to enable WRP Newco to attract,
compensate and retain directors, executive officers and key employees and
provide them with appropriate incentives and rewards for their performance.
Awards to directors, executive officers and other key employees under the
Management Incentive Plan may take the form of share options ("Options"),
including corresponding share appreciation rights ("SARs") and reload options,
restricted share awards and share purchase awards. The maximum number of shares
of WRP Newco Common that may be the subject of awards under the Management
Incentive Plan is 1,750,000 shares.
Share Authorization. Shares of WRP Newco Common covered by any unexercised
portions of terminated Options, shares of WRP Newco Common forfeited by
participants and shares of WRP Newco Common subject to any awards that are
otherwise surrendered by a participant without receiving any payment or other
benefit with respect thereto may again be subject to new awards under the
Management Incentive Plan. In the event the purchase price of an Option is paid
in whole or in part through the delivery of shares of WRP Newco Common, the
number of shares of WRP Newco Common issuable in connection with the exercise of
the Option shall not again be available for the grant of awards under the
Management Incentive Plan. Shares of WRP Newco Common subject to Options, or
portions thereof, with respect to which SARs are exercised, are not again
available for the grant of awards under the Management Incentive Plan. The
shares of WRP Newco Common to be issued or delivered under the Management
Incentive Plan are authorized and unissued shares, or issued shares of WRP Newco
Common that have been reacquired by WRP Newco.
Management Incentive Plan Administration. The Management Incentive Plan will
be administered by a committee of two or more non-employee directors (the
"Committee"), which will initially consist of Messrs. Du Bois and Germain. The
Committee will determine the
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directors, executive officers and other key employees who will be eligible for
and granted awards, determine the amount and type of awards, establish rules and
guidelines relating to the Management Incentive Plan, establish, modify and
terminate the terms and conditions of awards and take such other action as may
be necessary for the proper administration of the Management Incentive Plan.
All employees and non-employee directors are currently eligible to participate
in the Management Incentive Plan.
Options. "Incentive Options" meeting the requirements of Section 422 of the
Code, and "Nonqualified Options" that do not meet such requirements are both
available for grant under the Management Incentive Plan. The term of each
Option will be determined by the Committee, but no Incentive Option will be
exercisable more than ten years after the date of grant. Options may also be
subject to restrictions on exercise, such as exercise in periodic installments,
as determined by the Committee. The exercise price for Incentive Options must
be at least equal to 100% of the fair market value of the shares of WRP Newco
Common on the date of grant and the exercise price for Nonqualified Options will
be determined by the Committee at the time of grant. The exercise price can be
paid in cash, or if approved by the Committee, by tendering shares (actually or
constructively) of WRP Newco Common owned by a participant.
Incentive Options are not transferable except by will or the laws of descent
and distribution and may be exercised only by the participant (or his guardian
or legal representative) during his or her lifetime, except as provided below.
Nonqualified Options may be transferable to family members and entities for the
benefit of the participant or his family members. If a participant's employment
with WRP Newco or service as a director terminates for any reason (other than
death or disability), any unexercised or unexpired Options held by the
participant (or its permitted transferee) will be deemed cancelled and
terminated on the date of such termination, unless the Committee decides to
extend the term of such Options for a period not exceeding three months. In the
case of a non-employee director, however, if such participant's service as a
director terminates by reason of death, disability, or under mutually
satisfactory conditions, any unexercised or unexpired Nonqualified Options held
by the participant (or its permitted transferee) will be exercisable for a
period of five years from the date of such termination or until the expiration
of the Option, whichever is shorter. If a participant dies while employed by
WRP Newco, including an employee who is also a director, any unexercised or
unexpired Options will, to the extent exercisable on the date of death, be
exercisable by the holder or by the participant's estate or by any person who
acquired such Options by bequest or inheritance, at any time generally within
one year after such death. If a participant becomes totally disabled and his
employment terminates as a result of such disability, including an employee who
is also a director, the holder or the participant (or his guardian or legal
representative) will have the unqualified right to exercise any unexercised and
unexpired Options held by the participant (or its permitted transferee)
generally for one year after such termination.
Share Appreciation Rights. The Management Incentive Plan provides that SARs
may be granted in connection with a grant of Options. Each SAR must be
associated with a specific
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Option and must be granted at the time of grant of such Option. A SAR is
exercisable only to the extent the related Option is exercisable. Upon the
exercise of a SAR, the recipient is entitled to receive from WRP Newco, without
the payment of any cash (except for any applicable withholding taxes), up to,
but no more than, an amount in cash or shares of WRP Newco Common equal to the
excess of (A) the fair market value of one Common Share on the date of such
exercise over (B) the exercise price of any related Option, times the number of
shares of WRP Newco Common in respect of which such SAR shall have been
exercised. Upon the exercise of a SAR, the related share Option, or the portion
thereof in respect of which such SAR is exercised, will terminate. Upon the
exercise of an Option granted in tandem with a SAR, such tandem SAR will
terminate.
Reload Options. The Committee may grant, concurrently with the award of any
Option (each an "Underlying Option") to such participants, one or more reload
options (each a "Reload Option") to purchase for cash or, if permissible under
the Underlying Option, shares of WRP Newco Common, a number of shares of WRP
Newco Common equal to the number of shares of WRP Newco Common delivered (or
deemed delivered) by the participant to WRP Newco to exercise the Underlying
Option. Although an Underlying Option may be an Incentive Option, a Reload
Option is not intended to qualify as an Incentive Option. A Reload Option may
be granted in connection with the exercise of an Option that is itself a Reload
Option. Each Reload Option will have the same expiration date as the Underlying
Option and an exercise price equal to the fair market value of the shares of WRP
Newco Common on the date of grant of the Reload Option. A Reload Option is
exercisable immediately.
Reload Options permit a participant to retain, through the term of the
original Option, his or her economic interest in the sum of the shares of WRP
Newco Common covered by such Options as well as the already-owned shares of WRP
Newco Common that could be used to exercise such Option, by granting options on
the number of shares of WRP Newco Common used to pay the exercise price of the
original Option and subsequent Reload Options. In this way, Reload Options
provide a participant with the opportunity to build up ownership of shares of
WRP Newco Common covered by an original Option earlier during the Option term
rather than through a single exercise at or near the end of the Option term.
Restricted Shares. WRP Newco may award restricted shares of WRP Newco Common
to a participant. Such a grant gives a participant the right to receive shares
of WRP Newco Common subject to a risk of forfeiture based upon certain
conditions. The forfeiture restrictions on the shares of WRP Newco Common may
be based upon performance standards, length of service or other criteria as the
Committee may determine. Until all restrictions are satisfied, lapsed or
waived, WRP Newco will maintain custody over the restricted shares of WRP Newco
Common but the participant will be able to vote the shares of WRP Newco Common
and will be entitled to an amount equal to all distributions, if any, paid with
respect to the shares of WRP Newco Common, as provided by the Committee. During
such restrictive period, the restricted shares of WRP Newco Common may not be
sold, assigned, transferred, pledged or otherwise
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encumbered. Upon termination of employment, the participant generally forfeits
the right to the shares of WRP Newco Common to the extent the applicable
performance standards, length of service requirements, or other measurement
criteria have not been met.
Share Purchase Awards. The Management Incentive Plan also permits the grant
of share purchase awards to participants. Participants who are granted a share
purchase award are provided with a share purchase loan to enable them to pay the
purchase price for the shares of WRP Newco Common acquired pursuant to the
award. The terms of each share purchase loan will be determined by the
Committee. The purchase price of shares of WRP Newco Common acquired with a
share purchase loan is the fair market value on the date of the award. The
Management Incentive Plan provides that some or all of a share purchase loan can
be forgiven under terms determined by the Committee. At the end of the loan
term, the remainder of the share purchase loan will be due and payable. The
interest rate, if any, on a share purchase loan will be determined by the
Committee. Share purchase loans may be recourse or nonrecourse under terms
determined by the Committee.
If a participant's employment with WRP Newco is terminated for any reason
other than death, disability or termination without "cause", the balance of the
share purchase loans to such participant will be immediately due and payable.
If a participant's employment terminates by reason of death, disability or
termination without "cause", the balance of such participant's share purchase
loans may be forgiven in full at the discretion of the Committee.
Antidilution Provisions. The number of shares of WRP Newco Common authorized
to be issued under the Management Incentive Plan and subject to outstanding
awards (and the grant or exercise price thereof) may be adjusted to prevent
dilution or enlargement of rights in the event of any dividend or other
distribution, recapitalization, stock split, reverse stock split,
reorganization, merger, consolidation, split-up, spin-off, combination,
repurchase or exchange of shares of WRP Newco Common or other securities, or
other similar capitalization change.
Certain Federal Income Tax Consequences of the Management Incentive Plan. The
following is a brief summary of the principal federal income tax consequences of
awards under the Management Incentive Plan. The summary is based upon current
federal income tax laws and interpretations thereof, all of which are subject to
change at any time, possibly with retroactive effect. The summary is not
intended to be exhaustive and, among other things, does not describe state,
local or foreign tax consequences.
In general, a participant is not subject to federal income tax either at the
time of grant or at the time of exercise of an Incentive Option. However, upon
exercise, the difference between the fair market value of the shares of WRP
Newco Common and the exercise price is a tax preference item subject to the
possible application of the alternative minimum tax. If a participant does not
dispose of shares of WRP Newco Common acquired through the exercise of an
Incentive Option in a "disqualifying disposition" (i.e., no disposition occurs
----
within two
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<PAGE>
years from the date of grant of the share option nor within one year of the
transfer of the shares of WRP Newco Common to the participant), then the
participant will be taxed only upon the gain, if any, from the sale of such
shares of WRP Newco Common, and such gain will be taxable as gain from the sale
of a capital asset.
WRP Newco will not receive any tax deduction on the exercise of an Incentive
Option or, if the above holding period requirements are met, on the sale of the
underlying shares of WRP Newco Common. If there is a disqualifying disposition
(i.e., one of the holding period requirements is not met), the participant will
----
be treated as receiving compensation subject to ordinary income tax in the year
of the disqualifying disposition and WRP Newco will be entitled to a deduction
for compensation expense in an amount equal to the amount included in income by
the participant. The participant generally will be required to include in
income an amount equal to the difference between the fair market value of the
shares of WRP Newco Common at the time of exercise and the exercise price. Any
appreciation in value after the time of exercise will be taxed as capital gain
and will not result in any deduction by WRP Newco.
If Nonqualified Options are granted to a participant, there are no federal
income tax consequences at the time of grant. Upon exercise of the Option, the
participant must report as ordinary income an amount equal to the difference
between the exercise price and the fair market value of the shares of WRP Newco
Common on the date of exercise. WRP Newco will receive a tax deduction in like
amount. Any appreciation in value after the time of exercise will be taxed as
capital gain and will not result in any deduction by WRP Newco.
No income will be realized by a participant in connection with the grant of
any SAR. The participant must include in ordinary income the amount of cash
received and the fair market value on the exercise date of any shares of WRP
Newco Common received upon the exercise of a SAR. WRP Newco will be entitled to
a deduction equal to the amount included in such participant's income by reason
of the exercise of any SAR.
The receipt of a Reload Option by a holder of an Incentive Option or a
Nonqualified Option (including a Reload Option) who pays the exercise price in
full or in part with previously acquired shares of WRP Newco Common should not
affect the tax treatment of the exercise of such Incentive or Nonqualified
Option (including the amount of ordinary income, if any, recognized upon
exercise). A participant will not be subject to tax at the time a Reload Option
is granted (except for any income recognized upon the exercise of a Nonqualified
Option at the time of grant of the Reload Option). A Reload Option will
constitute a Nonqualified Option for federal income tax purposes and will be
taxed as such in the manner set forth above.
A grant of restricted shares of WRP Newco Common does not constitute a taxable
event for either a participant or WRP Newco. However, the participant will be
subject to tax, at ordinary income rates, when the shares of WRP Newco Common
are no longer subject to a substantial risk of forfeiture or they become
transferable. WRP Newco will be entitled to take a commensurate deduction at
that time.
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A participant may elect to recognize taxable ordinary income at the time
restricted shares of WRP Newco Common are awarded in an amount equal to the fair
market value of the shares of WRP Newco Common at the time of grant, determined
without regard to any forfeiture restrictions. If such an election is made, WRP
Newco will be entitled to a deduction at that time in the same amount. Future
appreciation on the shares of WRP Newco Common will be taxed at the capital
gains rate when the shares of WRP Newco Common are sold. However, if, after
making such an election, the shares of WRP Newco Common are forfeited, the
participant will be unable to claim a deduction.
In general, a participant who receives a share purchase award incurs no tax
liability and WRP Newco does not receive any deduction at the time shares of WRP
Newco Common are acquired through a share purchase award. However, as the share
purchase loan is forgiven, the participant will be required to recognize income
in an amount equal to the forgiven portion of the loan. WRP Newco will be
entitled to take a commensurate deduction at such time.
Applicable withholding taxes may be withheld in connection with any award
under the Management Incentive Plan. In that regard, the Committee has the
discretion to allow a participant to satisfy its withholding tax obligations
with shares of WRP Newco Common.
Change in Control. Depending on the terms of a particular award as determined
by the Committee, upon the occurrence of a change in control of WRP Newco, all
options and related SARs may become immediately exercisable, the restricted
shares of WRP Newco Common may fully vest and share purchase loans may be
forgiven in full.
Termination, Amendment and ERISA Status. The Management Incentive Plan will
terminate by its terms and without any action by the Board on the tenth
anniversary of the date of its effectiveness. No awards may be made after that
date. Awards outstanding on such date will remain valid in accordance with
their terms.
The Committee may amend or alter the terms of awards under the Management
Incentive Plan, including to provide for the forgiveness in whole or in part of
share purchase loans, the release of the shares of WRP Newco Common securing
such loans or the termination or modification of the vesting or performance
provisions of the grants of restricted shares of WRP Newco Common but no such
action shall in any way impair the rights of a participant under any award
without such participant's consent.
The Committee may amend or terminate the Management Incentive Plan. No such
amendments or termination of the Management Incentive Plan shall in any way
impair the rights of a participant under any award previously granted without
such participant's consent. In addition, any amendment or termination will be
subject to shareholder approval if approval is required by Federal or state law
or regulation or rule of any stock exchange or quotation system on which the
shares of WRP Newco Common are listed or quoted.
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The Management Incentive Plan is not subject to the provisions of the Employee
Retirement Income Security Act of 1976, as amended.
- --------------------------------------------------------------------------------
The Board of Trustees of Wellsford and the Board
of Directors of WRP Newco recommend that you vote
FOR the proposal to the adopt WRP Newco's 1997 Management Incentive Plan.
- --------------------------------------------------------------------------------
LEGAL MATTERS
Certain legal matters in connection with the Merger will be passed upon for
EQR by Rudnick & Wolfe, Chicago, Illinois and Rosenberg & Liebentritt, P.C.,
Chicago, Illinois. Errol R. Halperin, a partner of Rudnick & Wolfe, is a trustee
of EQR. Attorneys of Rudnick & Wolfe beneficially own less than 1% of the
outstanding EQR Common, either directly or upon the exercise of options. Sheli
Z. Rosenberg, a principal of Rosenberg & Liebentritt, P.C., is a trustee of EQR.
Attorneys of Rosenberg & Liebentritt, P.C. beneficially own less than 1% of the
outstanding EQR Common, either directly or upon the exercise of options. Certain
legal matters in connection with the Merger will be passed upon for Wellsford by
Robinson Silverman Pearce Aronsohn & Berman LLP, New York, New York. Ballard
Spahr Andrews & Ingersoll, Baltimore, Maryland, will pass upon certain matters
of Maryland law relating to the Merger Agreement and Articles under Maryland
law.
EXPERTS
The consolidated financial statements of EQR and its subsidiaries for the
years ended December 31, 1995 and 1994 incorporated herein by reference have
been audited by Grant Thornton LLP, independent public accountants, as indicated
in their reports with respect thereto, and are incorporated in this Joint Proxy
Statement/Prospectus/Information Statement in reliance upon the authority of
said firm as experts in accounting and auditing.
The combined financial statements of WRP Newco (Predecessor), at December 31,
1995 and for the period from March 22 to December 31, 1995, appearing in this
Joint Proxy Statement/Prospectus/Information Statement; the consolidated
financial statements of Wellsford and its subsidiaries appearing in Wellsford's
Annual Report (Form 10-K) for the year ended December 31, 1995; the Combined
Statement of Revenue and Certain Expenses of the 1996 Acquired Properties and
Probable Properties for the year ended December 31, 1995, appearing in the
Current Report of EQR on Form 8-K, as amended by Form 8-K/A, dated May 23, 1996;
and the Combined Statement of Revenue and Certain Expenses of the 1996 Acquired
Properties for the year ended December 31, 1995, appearing in the Current Report
of EQR on Form 8-K,
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dated November 15, 1996; have all been audited by Ernst & Young LLP, independent
auditors, as set forth in their reports thereon included herein or included (or
incorporated by reference) therein and incorporated herein by reference. Such
financial statements are included herein or incorporated herein by reference in
reliance upon such reports given upon the authority of such firm as experts in
accounting and auditing.
SHAREHOLDER PROPOSALS
Any proposal which a shareholder of EQR intends to present at the 1997 Annual
Meeting of Shareholders of EQR, if the Merger has not been consummated prior to
the date such meeting is to be held, must have been received by the Secretary of
EQR no later than November 29, 1996 to have been eligible for inclusion in EQR's
proxy statement and proxy form relating to such meeting.
Any proposal which a shareholder of Wellsford intends to present at the 1997
Annual Meeting of Shareholders of Wellsford, if the Merger has not been
consumated prior to the date such meeting is to be held, must have been received
by Wellsford at its principal executive offices on or before November 29, 1996
to have been eligible for inclusion in Wellsford's proxy statement and proxy
form relating to such meeting.
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APPENDIX A
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
BETWEEN
EQUITY RESIDENTIAL PROPERTIES TRUST
AND
WELLSFORD RESIDENTIAL PROPERTY TRUST
Dated as of January 16, 1997
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
ARTICLE PAGE
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<C> <S> <C>
1 THE MERGER............................................................. 2
1.1 The Merger....................................................... 2
1.2 Newco Transactions............................................... 2
1.3 Closing.......................................................... 3
1.4 Effective Time................................................... 3
1.5 Amendments and Restatements of Wellsford's Declaration of Trust.. 3
1.6 Amendment and Restatement of Wellsford's Bylaws.................. 3
1.7 Trustees......................................................... 3
1.8 Effect on Shares of Beneficial Interest and Options.............. 3
1.9 Exchange Ratio................................................... 4
1.10 Completion of Contribution Agreement............................. 4
1.11 Reversal of Direction of Merger.................................. 5
1.12 Change in Number of Spin-Off Shares.............................. 5
2 REPRESENTATIONS AND WARRANTIES OF Wellsford............................ 6
2.1 Organization, Standing and Power of Wellsford.................... 6
2.2 Wellsford Subsidiaries........................................... 6
2.3 Capital Structure................................................ 7
2.4 Authority; Noncontravention; Consents............................ 9
2.5 SEC Documents; Financial Statements; Undisclosed Liabilities..... 10
2.6 Absence of Certain Changes or Events............................. 11
2.7 Litigation....................................................... 11
2.8 Properties....................................................... 12
2.9 Environmental Matters............................................ 14
2.10 Related Party Transactions....................................... 14
2.11 Absence of Changes in Benefit Plans; ERISA Compliance............ 14
2.12 Employee Policies................................................ 15
2.13 Taxes............................................................ 15
2.14 No Payments to Employees, Officers, Trustees or Directors........ 16
2.15 Brokers; Schedule of Fees and Expenses........................... 16
2.16 Compliance with Laws............................................. 17
2.17 Contracts; Debt Instruments...................................... 17
2.18 Opinion of Financial Advisor..................................... 18
2.19 State Takeover Statutes.......................................... 18
2.20 Registration Statement........................................... 18
2.21 Development Properties........................................... 18
2.22 EQR Shares of Beneficial Interest................................ 18
2.23 Investment Company Act of 1940................................... 18
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
ARTICLE PAGE
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<C> <S> <C>
2.24 Intentionally Omitted............................................ 18
2.25 Definition of Knowledge of Wellsford............................. 18
3 REPRESENTATIONS AND WARRANTIES OF EQR.................................. 19
3.1 Organization, Standing and Power of EQR.......................... 19
3.2 Capital Structure................................................ 19
3.3 Organization, Standing and Power of ERP
Operating Partnership............................................ 20
3.4 Capital Structure of ERP Operating Partnership................... 21
3.5 Authority; Noncontravention; Consents............................ 21
3.6 SEC Documents; Financial Statements; Undisclosed Liabilities..... 22
3.7 Absence of Certain Changes or Events............................. 23
3.8 Litigation....................................................... 23
3.9 Properties....................................................... 24
3.10 Environmental Matters............................................ 25
3.11 Taxes............................................................ 25
3.12 Brokers; Schedule of Fees and Expenses........................... 26
3.13 Compliance with Laws............................................. 26
3.14 Contracts; Debt Instruments...................................... 26
3.15 Opinion of Financial Advisor..................................... 26
3.16 State Takeover Statutes.......................................... 26
3.17 Registration Statement........................................... 27
3.18 Wellsford Shares of Beneficial Interest.......................... 27
3.19 Intentionally Omitted............................................ 27
3.20 Investment Company Act of 1940................................... 27
3.21 Definition of Knowledge of EQR................................... 27
4 COVENANTS.............................................................. 27
4.1 Acquisition Proposals............................................ 27
4.2 Conduct of Wellsford's Business Pending Merger................... 28
4.3 Conduct of EQR's Business Pending Merger......................... 33
4.4 Covenant of EQR.................................................. 34
4.5 Other Actions.................................................... 34
4.6 Filing of Certain Reports........................................ 34
5 ADDITIONAL COVENANTS................................................... 34
5.1 Preparation of the Registration Statement and the Proxy Statement;
Wellsford Shareholders Meeting and EQR Shareholders Meeting...... 34
5.2 Access to Information: Confidentiality........................... 36
5.3 Best Efforts; Notification....................................... 36
5.4 Costs of Transaction............................................. 37
5.5 Tax Treatment.................................................... 37
</TABLE>
ii
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<TABLE>
<CAPTION>
ARTICLE PAGE
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<C> <S> <C>
5.6 Public Announcements............................................. 37
5.7 Listing.......................................................... 37
5.8 Letters of Accountants........................................... 38
5.9 Transfer and Gains Taxes......................................... 38
5.10 Benefit Plans and Other Employee Arrangements.................... 38
5.11 Indemnification.................................................. 40
5.12 Contribution Agreement........................................... 41
5.13 Declaration of Dividends and Distributions....................... 41
5.14 Consulting Agreements............................................ 41
5.15 Transfer of Management Company Shares............................ 42
5.16 Transfer of Wellsford Assets After Effective Time................ 42
5.17 Notices.......................................................... 42
5.18 Resignations..................................................... 42
5.19 Third Party Management Agreements................................ 42
5.20 Repayment of Certain Indebtedness................................ 43
6 CONDITIONS............................................................. 44
6.1 Conditions to Each Party's Obligation to Effect the Merger....... 44
6.2 Conditions to Obligations of EQR................................. 45
6.3 Conditions to Obligations of Wellsford........................... 48
7 TERMINATION, AMENDMENT AND WAIVER...................................... 50
7.1 Termination...................................................... 50
7.2 Certain Fees and Expenses........................................ 51
7.3 Effect of Termination............................................ 52
7.4 Amendment........................................................ 53
7.5 Extension; Waiver................................................ 53
8 GENERAL PROVISIONS..................................................... 53
8.1 Nonsurvival of Representations and Warranties.................... 53
8.2 Notices.......................................................... 53
8.3 Interpretation................................................... 54
8.4 Counterparts..................................................... 54
8.5 Entire Agreement; No Third-Party Beneficiaries................... 55
8.6 Governing Law.................................................... 55
8.7 Assignment....................................................... 55
8.8 Enforcement...................................................... 55
8.9 Severability..................................................... 55
8.10 Non-Recourse..................................................... 56
</TABLE>
iii
<PAGE>
EXHIBITS
--------
Exhibit "A" - Articles of Merger
Exhibit "B" - Contribution Agreement
Exhibit "C" - Newco Stock Purchase Agreement
Exhibit "D" - Palomino Agreement
Exhibit "E" - Palomino Credit Enhancement Agreement
Exhibit "F" - Sonterra Right of First Offer Agreement
Exhibit "G" - Adjustment to Exchange Ratio
Exhibit "H" - Transaction Costs Agreement
Exhibit "I" - Retention Program Letter
Exhibit "J" - Key Executives
Exhibit "K" - Form of Consulting Agreement
Exhibit "L" - Form of Letter for EQR Tax Opinion
Exhibit "M" - Opinion of Counsel to Wellsford
Exhibit "N" - Form of Letter for Wellsford Tax Opinion
Exhibit "O" - Opinion of Counsel to EQR
iv
<PAGE>
INDEX OF DEFINED TERMS
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<TABLE>
<CAPTION>
DEFINED TERM SECTION
- ------------ -------
<S> <C>
Acquisition Proposal 4.1(a)
Affiliate 2.10
Agreement Preamble
Articles of Merger Recital C
Average Closing Price 1.9
Base Amount 7.2
Break-Up Expenses 7.2
Break-Up Fee 7.2
Break-Up Fee Tax Opinion 7.2
Change in Control Share Grants 2.3(b)
Closing 1.3
Closing Date 1.3
Code Recital E
Commitment 4.2(q)
Confidentiality Agreement 5.2
Contribution Agreement Recital D
Denver Lease 5.22
Department 1.4
Effective Time 1.4
employee benefit plan 2.11(b)
Encumbrances 2.8(a)
EQR Preamble
EQR Common Shares 1.9
EQR Disclosure Letter Article 3
EQR Employee Share Plans 3.2(a)
EQR Financial Statement Date 3.7
EQR Material Adverse Change 3.7
EQR Material Adverse Effect 3.1
EQR Options 3.2(a)
EQR Preferred Shares 3.2(a)
EQR Properties 3.9
EQR SEC Documents 3.6
EQR Series A Preferred Shares 3.2(a)
EQR Series B Preferred Shares 3.2(a)
EQR Series C Preferred Shares 3.2(a)
EQR Shareholder Approvals 3.5(a)
EQR Shareholders Meeting 5.1(b)
EQR Subsidiaries 3.1
</TABLE>
v
<PAGE>
<TABLE>
<CAPTION>
DEFINED TERM SECTION
- ------------- -------
<S> <C>
EQR Units 3.2(c)
ERISA 2.11(b)
ERP Operating Partnership 1.2
ERP Operating Partnership Agreement 3.2(a)
Exchange Act 2.4(b)
Exchange Ratio 1.9
GAAP 2.5
Governmental Entity 2.4(b)
Hazardous Materials 2.9
include, includes or including 8.3
Indebtedness 2.7(b)
Indemnified Parties 5.11(a)
IRS 1.11
Laws 2.4(b)
Liens 2.2(b)
Management Corp. 5.15
Merger Recital B
New York Stock Exchange Composite Transactions 1.9
Newco Recital D
Newco Stock Purchase Agreement 1.2(b)
NYSE 2.4(b)
1940 Act 2.23
Palomino Agreement 1.2(c)
Palomino Credit Enhancement Agreement 1.2(d)
Palomino Development Agreements 4.2(i)
Payor 7.2
Person 2.2(a)
Property Restrictions 2.8(a)
Proxy Statement 2.4(b)
Qualifying Income 7.2
Recipient 7.2
Registration Statement 5.1(a)
REIT 2.13(b)
REIT Requirements 7.2
Restricted Share Grants 2.3(b)
Retention Program 5.10(c)
Revolver Rate 4.2
Retention Program Letter 5.10(c)
Schedule 5.10 Employees 5.10(c)
SEC 2.4(b)
Securities Act 2.4(b)
</TABLE>
vi
<PAGE>
<TABLE>
<CAPTION>
DEFINED TERM SECTION
- ------------- -------
<S> <C>
Share Loan and Acquisition Agreements 2.3(b)
Shareholder Approvals 3.5(a)
Sonterra Right of First Offer Agreement 1.2(e)
Spin-Off 1.2
Springing Shares 2.3(b)
Subsidiary 2.2(a)
Superior Acquisition Proposal 4.1
Surviving Trust 1.1
Takeover Statute 2.19
Taxes 2.13(a)
Third Party Management Agreements 2.17(d)
Title 8 1.1
to the Knowledge of EQR 3.21
to the Knowledge of Wellsford 2.25
Transaction Costs Agreement 5.4
Transfer and Gains Taxes 5.9
Wellsford Preamble
Wellsford Benefit Plans 2.11(a)
Wellsford Common Shares 1.2(f)
Wellsford Disclosure Letter Article 2
Wellsford Financial Statement Date 2.6
Wellsford Material Adverse Change 2.6
Wellsford Material Adverse Effect 2.1
Wellsford Options 2.3(b)
Wellsford Properties 2.8(a)
Wellsford SEC Documents 2.5
Wellsford Series A Preferred Shares 2.3(a)
Wellsford Series B Preferred Shares 2.3(a)
Wellsford Shareholder Approvals 2.4(a)
Wellsford Shareholder Meeting 5.1(c)
Wellsford Subsidiaries 2.2
WPHC 1.10
WPHC Non-Voting Shares 5.24
WPHC Voting Shares 5.24
</TABLE>
vii
<PAGE>
AGREEMENT AND PLAN OF MERGER
----------------------------
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") dated as of January
16, 1997 by and between EQUITY RESIDENTIAL PROPERTIES TRUST, a Maryland real
estate investment trust ("EQR"), and WELLSFORD RESIDENTIAL PROPERTY TRUST, a
Maryland real estate investment trust ("Wellsford").
R E C I T A L S:
---------------
A. The Boards of Trustees of EQR and Wellsford deem it advisable and in
the best interests of their respective shareholders, subject to the conditions
and other provisions contained herein, that EQR acquire the assets and business
of Wellsford and operate the business under the name "Equity Residential
Properties Trust."
B. The acquisition of the assets and business of Wellsford shall be
effected by the merger of EQR and Wellsford (the "Merger").
C. Upon the terms and conditions set forth herein, EQR and Wellsford
shall execute Articles of Merger in substantially the form attached hereto as
Exhibit "A" (the "Articles of Merger") and shall file such articles in
accordance with Maryland law to effectuate the Merger.
D. Immediately prior to the Merger, it is contemplated that Wellsford
shall contribute certain of its assets to Wellsford Real Properties, Inc., a
Maryland corporation ("Newco"), and that Newco shall assume certain obligations
of Wellsford, all as provided in the Contribution and Distribution Agreement in
substantially the form attached hereto as Exhibit "B" (the "Contribution
Agreement").
E. Immediately prior to the Merger, it is contemplated that Wellsford
shall distribute to its common shareholders all the outstanding shares of Newco
owned by it in a distribution subject to income tax under the Internal Revenue
Code of 1986, as amended (the "Code").
F. For federal income tax purposes, it is intended that the Merger
shall qualify as a tax-free reorganization within the meaning of Section 368(a)
of the Code.
G. EQR and Wellsford have each received a fairness opinion relating
to the transactions contemplated hereby as more fully described herein.
H. EQR and Wellsford desire to make certain representations,
warranties and agreements in connection with the Merger.
<PAGE>
NOW, THEREFORE, in consideration of the premises, and the mutual
representations, warranties, covenants and agreements contained herein, the
parties hereto hereby agree as follows:
ARTICLE 1
---------
THE MERGER
----------
1.1 THE MERGER. Upon the terms and subject to the conditions of this
Agreement, and in accordance with Title 8 of the Corporations and Associations
Article of the Annotated Code of Maryland, as amended ("Title 8"), EQR shall be
merged with and into Wellsford, with Wellsford as the surviving real estate
investment trust (the "Surviving Trust").
1.2 NEWCO TRANSACTIONS. Wellsford, on January 8, 1997, formed Newco.
Immediately prior to the time of effectiveness of the Merger:
(a) Wellsford shall, and shall cause Newco to, execute and deliver the
Contribution Agreement and consummate the transactions contemplated
thereby;
(b) EQR will cause ERP Operating Limited Partnership, an Illinois
limited partnership of which EQR is the sole general partner (the "ERP
Operating Partnership"), to execute and deliver, and Wellsford shall cause
Newco to execute and deliver, the Common Stock and Preferred Stock Purchase
Agreement in substantially the form annexed hereto as Exhibit "C" (the
"Newco Stock Purchase Agreement");
(c) EQR will cause ERP Operating Partnership to execute and deliver,
and Wellsford shall cause Newco to execute and deliver, the Agreement
Regarding Palomino Park in substantially the form annexed hereto as Exhibit
"D" (the "Palomino Agreement");
(d) EQR will cause ERP Operating Partnership to execute and deliver,
and Wellsford shall cause Newco to execute and deliver, the Credit
Enhancement Agreement in substantially the form annexed hereto as Exhibit
"E" (the "Palomino Credit Enhancement Agreement");
(e) EQR will cause ERP Operating Partnership to execute and deliver,
and Wellsford shall cause Newco to execute and deliver, the Sonterra Right
of First Offer Agreement in substantially the form annexed hereto as
Exhibit "F" (the "Sonterra Right of First Offer Agreement"); and
(f) Wellsford will distribute to its common shareholders, as a
distribution taxable under Code Section 301, all the outstanding shares of
Newco owned by Wellsford
2
<PAGE>
as further described in the Contribution Agreement, so that each holder of
common shares of beneficial interest of Wellsford, $0.01 par value per
share ("Wellsford Common Shares"), receives one common share of Newco for
each Wellsford Common Share held by such holder
(such transactions being referred to collectively as the "Spin-Off").
Immediately after the Effective Time (as defined below), the transactions
contemplated by the Newco Stock Purchase Agreement, the Palomino Agreement and
the Palomino Credit Enhancement Agreement which are to occur on the Closing Date
(as defined below) shall be consummated.
1.3 CLOSING. The closing of the Merger ("Closing") will take place at
10:00 a.m. on the date to be specified by the parties, which (subject to
satisfaction or waiver of the conditions set forth in Article 6) shall be no
later than the third business day after satisfaction or waiver of the conditions
set forth in Section 6.1(a) (the "Closing Date"), at the offices of Rudnick &
Wolfe, 203 North LaSalle Street, Chicago, Illinois 60601, unless another date or
place is agreed to in writing by the parties.
1.4 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, executed in accordance with Title 8, with the State
Department of Assessments and Taxation of Maryland (the "Department"), and shall
make all other filings and recordings required under Title 8. The Merger shall
become effective ("Effective Time") at such time as the Department accepts the
Articles of Merger for record, or at such time as EQR and Wellsford shall agree
should be specified in the Articles of Merger (not to exceed thirty (30) days
after the Articles of Merger are accepted for record by the Department). Unless
otherwise agreed, the parties shall cause the Effective Time to occur on the
Closing Date.
1.5 AMENDMENTS AND RESTATEMENTS OF WELLSFORD'S DECLARATION OF TRUST. The
Amended and Restated Declaration of Trust, as amended, of Wellsford shall be
amended and restated at the Effective Time as provided in the Articles of
Merger.
1.6 AMENDMENT AND RESTATEMENT OF WELLSFORD'S BYLAWS. From and after the
Effective Time, the Bylaws of the Surviving Trust shall be the Bylaws of EQR as
in effect immediately prior to the Merger, until further amended or restated in
accordance therewith and Title 8.
1.7 TRUSTEES. The trustees of the Surviving Trust shall be the persons
named in the Articles of Merger, each of whom shall serve for the term specified
in the Articles of Merger.
1.8 EFFECT ON SHARES OF BENEFICIAL INTEREST AND OPTIONS. The effect of
the Merger on the shares of beneficial interest, options to purchase shares of
beneficial interest and restricted share awards of each of EQR and Wellsford
shall be as provided in the Articles of Merger.
3
<PAGE>
1.9 EXCHANGE RATIO. The exchange ratio to be set forth in the Articles of
Merger ("Exchange Ratio") shall be 0.625 of a common share of beneficial
interest of the Surviving Trust, $0.01 par value per share, for each Wellsford
Common Share outstanding immediately prior to the Effective Time. In the event
that the Average Closing Price (as defined below) is less than $40.00 per share,
the Exchange Ratio shall be the rate per share specified in Exhibit "G" hereto.
For the purposes of this Agreement, "Average Closing Price" shall mean the
average of the daily closing prices of a common share of beneficial interest of
EQR, $0.01 par value per share ("EQR Common Share"), reported as "New York Stock
Exchange Composite Transactions" by The Wall Street Journal (Midwest Edition)
during the consecutive twenty (20) trading day period ending at the end of the
fifth (5th) trading day prior to the date which the proxy statements required by
Section 5.1 hereof are dated.
1.10 COMPLETION OF CONTRIBUTION AGREEMENT. At the time the Contribution
Agreement is executed, the parties shall complete the blank presently in the
Contribution Agreement for the amount of Contribution Funds (as defined in the
Contribution Agreement). The amount of the Contribution Funds shall be
$13,355,600, adjusted as follows:
(a) such amount shall be decreased by:
(i) 80% of any cash (excluding loans) invested by Wellsford or
any of its Subsidiaries in Wellsford Park Highlands Corp., a
Colorado corporation ("WPHC"), and its Subsidiaries after
September 30, 1996 and prior to the Spin-Off;
(ii) 100% of any accrued interest on the Promissory Note dated
June 28, 1996 made by Specified Properties VIII, L.P., a
Texas limited partnership, to Wellsford remaining unpaid as
of the Closing Date; and
(iii) $2.50 for each share of Newco distributed to the
shareholders of Wellsford in the Spin-Off less than
17,104,359 shares; and
(b) such amount shall be increased by:
(i) 80% of the accrued interest on the Bonds (as defined in the
Credit Enhancement Agreement) which remains unpaid as of the
Closing Date;
(ii) $2.50 for each share of Newco distributed to the
shareholders of Wellsford in the Spin-Off in excess of
17,104,359 shares; and
4
<PAGE>
(iii) the amount, if any, provided for in Section 1(b) of the
Transaction Costs Agreement (as defined in Section 5.4).
1.11 REVERSAL OF DIRECTION OF MERGER. In order to allow counsel
to opine that the Merger, for federal income tax purposes, will qualify as a
tax-free reorganization within the meaning of the Code, the parties have agreed
that EQR shall be merged into Wellsford and that Wellsford shall be the
Surviving Trust. The parties will jointly file a request for a private letter
ruling with the Internal Revenue Service ("IRS"), as soon as practicable after
the date hereof, to obtain a private letter ruling from the IRS to the effect
that a merger of Wellsford into EQR with EQR being the Surviving Trust will not
adversely affect the tax-free nature of the reorganization. If such a private
letter ruling is received or in the event the IRS publishes a revenue ruling or
other published announcement (including the promulgation of a Treasury
regulation) to the effect that, and counsel for the parties are reasonably
willing to opine that, a merger of Wellsford into EQR with EQR being the
Surviving Trust will not adversely affect the tax-free nature of the
reorganization, the parties will amend this Agreement, the Articles of Merger
and all other agreements as may be necessary or desirable solely for the
purposes of providing for the merger of Wellsford into EQR with EQR being the
Surviving Trust; provided, however, that such amendments shall not modify the
substantive provisions or economic terms of this Agreement and the transactions
contemplated hereby; and further provided that both the Merger and the merger of
Wellsford into EQR with EQR being the Surviving Trust are submitted to and
approved by the shareholders of EQR and Wellsford in the manner required by
applicable law. Any such amendment may be made before or after the approval of
the Merger by the respective shareholders of EQR and Wellsford. The costs and
expenses of seeking and obtaining any private letter ruling as contemplated by
this Section 1.11 shall be borne by EQR.
Any conditions to the Merger set forth in Article 6 that would be
satisfied but for the reversal of direction of the Merger shall be deemed
satisfied.
1.12 CHANGE IN NUMBER OF SPIN-OFF SHARES. If for any reason
Wellsford shall determine to distribute in the Spin-Off less than one common
share of Newco for each outstanding Wellsford Common Share, the parties will
amend this Agreement and all other agreements contemplated hereby solely for the
purpose of appropriately adjusting all numbers and dollar amounts which were
based on one common share of Newco being distributed in the Spin-Off for each
outstanding Wellsford Common Share.
5
<PAGE>
ARTICLE 2
---------
REPRESENTATIONS AND WARRANTIES OF WELLSFORD
-------------------------------------------
Except as set forth in the letter of even date herewith signed by the
Chairman of the Board or President of Wellsford in his capacity as such and
delivered to EQR prior to the execution hereof (the "Wellsford Disclosure
Letter"), Wellsford represents and warrants to EQR as follows:
2.1 ORGANIZATION, STANDING AND POWER OF WELLSFORD. Wellsford is a
real estate investment trust duly organized and validly existing under the laws
of Maryland and has the requisite power and authority to carry on its business
as now being conducted. Wellsford is duly qualified or licensed to do business
as a foreign trust and is in good standing in each jurisdiction in which the
nature of its business or the ownership or leasing of its properties makes such
qualification or licensing necessary, other than in such jurisdictions where the
failure to be so qualified or licensed, individually or in the aggregate, would
not have a material adverse effect on the business, properties, assets,
financial condition or results of operations of Wellsford and the Wellsford
Subsidiaries (as defined below), taken as a whole (a "Wellsford Material Adverse
Effect"). Wellsford has delivered to EQR complete and correct copies of its
Amended and Restated Declaration of Trust (including all Articles Supplementary
thereto) and Amended and Restated Bylaws, in each case, as amended to the date
of this Agreement.
2.2 WELLSFORD SUBSIDIARIES.
(a) Schedule 2.2 to the Wellsford Disclosure Letter sets forth (i)
each Subsidiary of Wellsford (the "Wellsford Subsidiaries"), (ii) the ownership
interest therein of Wellsford, (iii) if not wholly-owned by Wellsford, the
identity and ownership interest of other owners of such Wellsford Subsidiary,
and (iv) each apartment community owned by such Subsidiary. As used in this
Agreement, "Subsidiary" of any Person means any corporation, partnership,
limited liability company, joint venture or other legal entity of which such
Person (either directly or through or together with another Subsidiary of such
Person) owns any of the capital stock or other equity interests of such
corporation, partnership, limited liability company, joint venture or other
legal entity. As used herein, "Person" means an individual, corporation,
partnership, limited liability company, joint venture, association, trust,
unincorporated organization or other entity.
(b) Except as set forth in Schedule 2.2 to the Wellsford Disclosure
Letter, (i) all the outstanding shares of capital stock of each Wellsford
Subsidiary that is a corporation have been validly issued and are (A) fully paid
and nonassessable, (B) owned by Wellsford or by another Wellsford Subsidiary,
and (C) owned free and clear of all pledges, claims, liens, charges,
encumbrances and security interests of any kind or nature whatsoever
(collectively, "Liens"), and (ii) all equity interests in each Wellsford
Subsidiary that is a partnership, joint
6
<PAGE>
venture, limited liability company or trust which are owned by Wellsford, by
another Wellsford Subsidiary or by Wellsford and another Wellsford Subsidiary
are owned free and clear of all Liens. Each Wellsford Subsidiary that is a
corporation is duly incorporated and validly existing under the laws of its
jurisdiction of incorporation and has the requisite corporate power and
authority to carry on its business as now being conducted, and each Wellsford
Subsidiary that is a partnership, limited liability company or trust is duly
organized and validly existing under the laws of its jurisdiction of
organization and has the requisite power and authority to carry on its business
as now being conducted. Each Wellsford Subsidiary is duly qualified or licensed
to do business and is in good standing in each jurisdiction in which the nature
of its business or the ownership or leasing of its properties makes such
qualification or licensing necessary, other than in such jurisdictions where the
failure to be so qualified or licensed, individually or in the aggregate, would
not have a Wellsford Material Adverse Effect. Copies of the Articles of
Incorporation, Bylaws, organization documents and partnership, joint venture and
operating agreements of each Wellsford Subsidiary, as amended to the date of
this Agreement, have been previously delivered or made available to EQR.
2.3 CAPITAL STRUCTURE.
(a) The authorized shares of beneficial interest of Wellsford consist
of 100,000,000 shares of beneficial interest, of which 4,600,000 are Series A
Cumulative Convertible Preferred Shares of Beneficial Interest, $.01 par value
per share ("Wellsford Series A Preferred Shares"), and 2,300,000 are Series B
Cumulative Redeemable Preferred Shares of Beneficial Interest, $.01 par value
per share ("Wellsford Series B Preferred Shares"). On January 14, 1997, (i)
17,111,937 Wellsford Common Shares, 3,999,800 Wellsford Series A Preferred
Shares and 2,300,000 Wellsford Series B Preferred Shares were issued and
outstanding, (ii) 1,000,000 Wellsford Common Shares have been reserved for the
Dividend Reinvestment and Share Purchase Plan of Wellsford, (iii) 979,325
Wellsford Common Shares were issuable upon exercise of outstanding options to
purchase Wellsford Common Shares, (iv) 582,900 Wellsford Common Shares were
reserved for issuance upon the exercise of options which may be granted under
the 1992 Share Option Plan, (v) 750,000 Wellsford Common Shares were reserved
for issuance under the Long-Term Management Incentive Plan of Wellsford, and
(vi) a sufficient number of Wellsford Common Shares were reserved for issuance
to permit the conversion of the then outstanding Wellsford Series A Preferred
Shares.
(b) Set forth in Schedule 2.3 of the Wellsford Disclosure Letter is a
true and complete list of the following: (i) each qualified or nonqualified
option to purchase Wellsford Common Shares granted under the 1992 Share Option
Plan, Long-Term Management Incentive Plan, or any other formal or informal
arrangement ("Wellsford Options"); (ii) each grant of Wellsford Common Shares to
employees which are subject to any risk of forfeiture ("Restricted Share
Grants"); (iii) any obligation of Wellsford to issue Wellsford Common Shares as
a result of the transactions contemplated hereby ("Change in Control Share
Grants"); and (iv) each loan made by Wellsford with respect to the purchase of
Wellsford Common Shares which will be forgiven as a result of the transactions
contemplated by this Agreement (the "Share Loan and
7
<PAGE>
Acquisition Agreements"). The Restricted Share Grants are included in the
number of outstanding Wellsford Common Shares set forth in Section 2.3(a). For
each Wellsford Option held by the executive officers of Wellsford, Schedule 2.3
of the Wellsford Disclosure Letter sets forth the name of the grantee, the date
of the grant, status of the option as qualified or nonqualified under Section
422 of the Code, the number of Wellsford Common Shares subject to such option,
the number of shares subject to options that are currently exercisable, the
exercise price per share, those options granting reload options, and the number
of such shares subject to share appreciation rights. For each option to
purchase Wellsford Common Shares held by employees of Wellsford or any of the
Wellsford Subsidiaries who are not executive officers of Wellsford, Schedule 2.3
to the Wellsford Disclosure Letter sets forth the name of the grantee, the date
of the grant, the number of Wellsford Common Shares subject to such option and
the exercise price per share. For each Restricted Share Grant, Schedule 2.3 of
the Wellsford Disclosure Letter sets forth the name of the grantee, the date of
the grant and the number of Wellsford Common Shares granted. For each Change in
Control Share Grant, Schedule 2.3 to the Wellsford Disclosure Letter sets forth
the aggregate number of Wellsford Common Shares to be issued immediately prior
to the Spin-Off and the Merger. For each Share Loan and Acquisition Agreement,
Schedule 2.3 of the Wellsford Disclosure Letter sets forth the name of the
borrower, the date of the loan, the aggregate principal amount of the loan, the
number of shares originally pledged as security for each loan the number of
shares that have been released from such pledge and the outstanding loan balance
as of the date of the Wellsford Disclosure Letter. On the date of this
Agreement, except as set forth in this Section 2.3 or Schedule 2.3 of the
Wellsford Disclosure Letter, no shares of beneficial interest or other voting
securities of Wellsford were issued, reserved for issuance, or outstanding.
(c) All outstanding shares of beneficial interest of Wellsford are
duly authorized, validly issued, fully paid and nonassessable and not subject to
preemptive rights, except that the shareholders may be subject to further
assessment with respect to certain claims for tort, contract, taxes, statutory
liability and otherwise in some jurisdictions to the extent such claims are not
satisfied by Wellsford. There are no bonds, debentures, notes or other
indebtedness of Wellsford having the right to vote (or convertible into, or
exchangeable for, securities having the right to vote) on any matters on which
shareholders of Wellsford may vote.
(d) Except as set forth in this Section 2.3 or in Schedule 2.3 of the
Wellsford Disclosure Letter, as of the date of this Agreement there are no
outstanding securities, options, warrants, calls, rights, commitments,
agreements, arrangements or undertakings of any kind to which Wellsford or any
Wellsford Subsidiary is a party or by which such entity is bound, obligating
Wellsford or any Wellsford Subsidiary to issue, deliver or sell, or cause to be
issued, delivered or sold, additional shares of beneficial interest, voting
securities or other ownership interests of Wellsford or any Wellsford Subsidiary
or obligating Wellsford or any Wellsford Subsidiary to issue, grant, extend or
enter into any such security, option, warrant, call, right, commitment,
agreement, arrangement or undertaking (other than to Wellsford or a Wellsford
Subsidiary).
8
<PAGE>
2.4 AUTHORITY; NONCONTRAVENTION; CONSENTS.
(a) Wellsford has the requisite power and authority to enter into this
Agreement and, subject to the requisite shareholder approval of the Merger (the
"Wellsford Shareholder Approvals"), to consummate the transactions contemplated
by this Agreement to which Wellsford is a party. The execution and delivery of
this Agreement by Wellsford and the consummation by Wellsford of the
transactions contemplated by this Agreement to which Wellsford is a party have
been duly authorized by all necessary action on the part of Wellsford, subject
to the Wellsford Shareholder Approvals. This Agreement has been duly executed
and delivered by Wellsford and constitutes a valid and binding obligation of
Wellsford, enforceable against Wellsford in accordance with its terms, subject
to applicable bankruptcy, insolvency, moratorium or other similar laws relating
to creditors' rights and general principles of equity.
(b) Except as set forth in Schedule 2.4 to the Wellsford Disclosure
Letter, the execution and delivery of this Agreement by Wellsford do not, and
the consummation of the transactions contemplated by this Agreement to which
Wellsford is a party and compliance by Wellsford with the provisions of this
Agreement will not, conflict with, or result in any violation of, or default
(with or without notice or lapse of time, or both) under, or give rise to a
right of termination, cancellation or acceleration of any material obligation or
to loss of a material benefit under, or result in the creation of any Lien upon
any of the properties or assets of Wellsford or any Wellsford Subsidiary under,
(i) the Amended and Restated Declaration of Trust or the Amended and Restated
Bylaws of Wellsford or the comparable charter or organizational documents or
partnership or similar agreement (as the case may be) of any Wellsford
Subsidiary, each as amended or supplemented to the date of this Agreement, (ii)
any loan or credit agreement, note, bond, mortgage, indenture, reciprocal
easement agreement, lease or other agreement, instrument, permit, concession,
franchise or license applicable to Wellsford or any Wellsford Subsidiary or
their respective properties or assets or (iii) subject to the governmental
filings and other matters referred to in the following sentence, any judgment,
order, decree, statute, law, ordinance, rule or regulation (collectively,
"Laws") applicable to Wellsford or any Wellsford Subsidiary, or their respective
properties or assets, other than, in the case of clause (ii) or (iii), any such
conflicts, violations, defaults, rights, loss or Liens that individually or in
the aggregate would not (x) have a Wellsford Material Adverse Effect or (y)
prevent the consummation of the transactions contemplated by this Agreement. No
consent, approval, order or authorization of, or registration, declaration or
filing with, any federal, state or local government or any court, administrative
or regulatory agency or commission or other governmental authority or agency,
domestic or foreign (a "Governmental Entity"), is required by or with respect to
Wellsford or any Wellsford Subsidiary in connection with the execution and
delivery of this Agreement by Wellsford or the consummation by Wellsford of the
transactions contemplated by this Agreement, except for (i) the filing with the
Securities and Exchange Commission (the "SEC") of (x) a joint proxy statement
relating to the approval by Wellsford's shareholders and EQR's shareholders of
the transactions contemplated by this Agreement (as amended or supplemented from
time to time, the "Proxy Statement"), (y) registration statements on appropriate
forms under the Securities Act of 1933, as amended
9
<PAGE>
(the "Securities Act"), and the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and (z) such reports under Section 13(a) of the Exchange Act as
may be required in connection with this Agreement and the transactions
contemplated by this Agreement, (ii) the filing of listing applications with the
New York Stock Exchange Inc. ("NYSE") with respect to the shares of beneficial
interest of the Surviving Trust to be issued in the Merger, (iii) the filing of
the Articles of Merger with the Department and (iv) such other consents,
approvals, orders, authorizations, registrations, declarations and filings (A)
as are set forth in Schedule 2.4 to the Wellsford Disclosure Letter, (B) as may
be required under (y) federal, state or local environmental laws, or (z) the
"blue sky" laws of various states, to the extent applicable, or (C) which, if
not obtained or made, would not prevent or delay in any material respect the
consummation of any of the transactions contemplated by this Agreement or
otherwise prevent Wellsford from performing its obligations under this Agreement
in any material respect or have, individually or in the aggregate, a Wellsford
Material Adverse Effect.
(c) For purposes of determining compliance with the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, Wellsford confirms that the
conduct of its business consists solely of investing in, owning and operating
real estate for the benefit of its shareholders.
2.5 SEC DOCUMENTS; FINANCIAL STATEMENTS; UNDISCLOSED LIABILITIES.
Wellsford has filed all required reports, schedules, forms, statements and other
documents with the SEC since November 27, 1992 through the date hereof (the
"Wellsford SEC Documents"). Schedule 2.5 of the Wellsford Disclosure Letter
contains a complete list of all Wellsford SEC Documents filed by Wellsford with
the SEC since January 1, 1996 and on or prior to the date of this Agreement.
All of the Wellsford SEC Documents (other than preliminary material), as of
their respective filing dates, complied in all material respects with all
applicable requirements of the Securities Act and the Exchange Act and, in each
case, the rules and regulations promulgated thereunder applicable to such
Wellsford SEC Documents. None of the Wellsford SEC Documents at the time of
filing contained any untrue statement of a material fact or omitted to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading, except to the extent such statements have been modified or
superseded by later Wellsford SEC Documents filed and publicly available prior
to the date of this Agreement. The consolidated financial statements of
Wellsford included in the Wellsford SEC Documents complied as to form in all
material respects with applicable accounting requirements and the published
rules and regulations of the SEC with respect thereto, have been prepared in
accordance with generally accepted accounting principles ("GAAP") (except, in
the case of unaudited statements, as permitted by the applicable rules and
regulations of the SEC) applied on a consistent basis during the periods
involved (except as may be indicated in the notes thereto) and fairly presented,
in accordance with the applicable requirements of GAAP and the applicable rules
and regulations of the SEC, the consolidated financial position of Wellsford and
the Wellsford Subsidiaries, taken as a whole, as of the dates thereof and the
consolidated results of operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit
adjustments). Wellsford
10
<PAGE>
has no Subsidiaries which are not consolidated for accounting purposes. Except
for liabilities and obligations set forth in the Wellsford SEC Documents or in
Schedule 2.5 to the Wellsford Disclosure Letter, neither Wellsford nor any of
the Wellsford Subsidiaries has any liabilities or obligations of any nature
(whether accrued, absolute, contingent or otherwise) required by GAAP to be set
forth on a consolidated balance sheet of Wellsford or in the notes thereto and
which, individually or in the aggregate, would have a Wellsford Material Adverse
Effect. Management Corp. (as defined in Section 5.15) has assets of less than
$1,000. On the date of this Agreement, Newco has no material assets.
2.6 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed in the
Wellsford SEC Documents or the Wellsford Disclosure Letter, since the date of
the most recent audited financial statements included in Wellsford SEC Documents
(the "Wellsford Financial Statement Date") Wellsford and the Wellsford
Subsidiaries have conducted their business only in the ordinary course (taking
into account prior practices, including the acquisition of properties and
issuance of securities) and there has not been (a) any material adverse change
in the business, financial condition or results of operations of Wellsford and
the Wellsford Subsidiaries taken as a whole (a "Wellsford Material Adverse
Change"), nor has there been any occurrence or circumstance that with the
passage of time would reasonably be expected to result in a Wellsford Material
Adverse Change, (b) except for regular quarterly distributions (in the case of
Wellsford) not in excess of $0.485 per Wellsford Common Share, $0.4375 per
Wellsford Series A Preferred Share, and $0.603125 per Wellsford Series B
Preferred Share, in each case with customary record and payment dates, any
declaration, setting aside or payment of any dividend or other distribution
(whether in cash, stock or property) with respect to any of Wellsford's shares
of beneficial interest, (c) any split, combination or reclassification of any of
Wellsford's shares of beneficial interest or any issuance or the authorization
of any issuance of any other securities in respect of, in lieu of or in
substitution for, or giving the right to acquire by exchange or exercise, shares
of its beneficial interest or any issuance of an ownership interest in, any
Wellsford Subsidiary except as contemplated by this Agreement, (d) any damage,
destruction or loss, whether or not covered by insurance, that has or would have
a Wellsford Material Adverse Effect or (e) any change in accounting methods,
principles or practices by Wellsford or any Wellsford Subsidiary materially
affecting its assets, liabilities or business, except insofar as may have been
disclosed in Wellsford SEC Documents or required by a change in GAAP or (f) any
amendment of any employment, consulting, severance, retention or any other
agreement between Wellsford and any officer or trustee of Wellsford. There are
no distributions in arrears which have been scheduled for payment or unpaid
distributions with respect to the Wellsford Series A Preferred Shares and
Wellsford Series B Preferred Shares.
2.7 LITIGATION. Except as disclosed in the Wellsford SEC Documents or in
Schedule 2.7 to the Wellsford Disclosure Letter, and other than personal injury
and other routine tort litigation arising from the ordinary course of operations
of Wellsford and the Wellsford Subsidiaries (a) which are covered by adequate
insurance or (b) for which all material costs and liabilities arising therefrom
are reimbursable pursuant to common area maintenance or similar agreements,
there is no suit, action or proceeding pending or, to the Knowledge of
Wellsford,
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threatened in writing against or affecting Wellsford or any Wellsford Subsidiary
that, individually or in the aggregate, could reasonably be expected to (i) have
a Wellsford Material Adverse Effect or (ii) prevent the consummation of any of
the transactions contemplated by this Agreement, nor is there any judgment,
decree, injunction, rule or order of any Governmental Entity or arbitrator
outstanding against Wellsford or any Wellsford Subsidiary having, or which,
insofar as reasonably can be foreseen, in the future would have, any such
effect. Notwithstanding the foregoing, Schedule 2.7 to the Wellsford Disclosure
Letter sets forth each and every uninsured claim, equal employment opportunity
claim and claim relating to sexual harassment and/or discrimination pending or,
to the Knowledge of Wellsford, threatened as of the date hereof, in each case
with a brief summary of such claim or threatened claim.
2.8 PROPERTIES.
(a) Except as provided in Schedule 2.8 of the Wellsford Disclosure
Letter, Wellsford or the Wellsford Subsidiary set forth on Schedule 2.2 of the
Wellsford Disclosure Letter owns fee simple title to each of the real properties
identified in Schedule 2.8 of the Wellsford Disclosure Letter (the "Wellsford
Properties"), which are all of the real estate properties owned by them, in each
case (except as provided below) free and clear of liens, mortgages or deeds of
trust, claims against title, charges which are liens, security interests or
other encumbrances on title ("Encumbrances"). Except as set forth in Schedule
2.2 or Schedule 2.8 of the Wellsford Disclosure Letter, no other Person has any
ownership interest in any of the Wellsford Properties, and any such ownership
interest so scheduled does not materially detract from the value of, or
materially interfere with the present use of, any of the Wellsford Properties
subject thereto or affected thereby. The Wellsford Properties are not subject
to any rights of way, written agreements, laws, ordinances and regulations
affecting building use or occupancy, or reservations of an interest in title
(collectively, "Property Restrictions"), except for (i) Encumbrances and
Property Restrictions set forth in the Wellsford Disclosure Letter, (ii)
Property Restrictions imposed or promulgated by law or any governmental body or
authority with respect to real property, including zoning regulations, provided
they does not materially adversely affect the current use of any Wellsford
Property, (iii) Encumbrances and Property Restrictions disclosed on existing
title reports or existing surveys (in either case copies of which title reports
and surveys have been delivered or made available to EQR and listed in the
Wellsford Disclosure Letter), which Encumbrances and Property Restrictions, in
any event, do not materially detract from the value of, or materially interfere
with the present use of, any of the Wellsford Properties subject thereto or
affected thereby, and (iv) mechanics', carriers', workmen's, repairmen's liens
and other Encumbrances, Property Restrictions and other limitations of any kind,
if any, which, individually or in the aggregate, do not materially detract from
the value of or materially interfere with the present use of any of the
Wellsford Properties subject thereto or affected thereby, and do not otherwise
materially impair business operations conducted by Wellsford and the Wellsford
Subsidiaries. Except as provided in Schedule 2.8 of the Wellsford Disclosure
Letter, no portion of any of the Wellsford Properties is located in a flood zone
area "V".
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(b) Except as provided in Schedule 2.8 of the Wellsford Disclosure
Letter, valid policies of title insurance have been issued insuring Wellsford's
or the applicable Wellsford Subsidiaries' fee simple title to the Wellsford
Properties in amounts at least equal to the purchase price thereof paid by
Wellsford therefor, subject only to the matters disclosed above and on the
Wellsford Disclosure Letter, and such policies are, at the date hereof, in full
force and effect and no claim has been made against any such policy.
(c) Except as provided in Schedule 2.8 of the Wellsford Disclosure
Letter, Wellsford has no Knowledge (as defined in Section 2.25) (i) that, any
certificate, permit or license from any governmental authority having
jurisdiction over any of the Wellsford Properties or any agreement, easement or
other right which is necessary to permit the lawful use and operation of the
buildings and improvements on any of the Wellsford Properties or which is
necessary to permit the lawful use and operation of all driveways, roads and
other means of egress and ingress to and from any of the Wellsford Properties
has not been obtained and is not in full force and effect, or of any pending
threat of modification or cancellation of any of same; (ii) of any written
notice of any violation of any federal, state or municipal law, ordinance,
order, regulation or requirement materially and adversely affecting any of the
Wellsford Properties issued by any governmental authority; (iii) of any material
structural defects relating to any Wellsford Property which costs more than
$100,000 to repair; (iv) of any Wellsford Property whose building systems are
not in working order in any material respect and costs more than $100,000 to
repair; (v) of any physical damage to any Wellsford Property in excess of
$100,000 for which there is no insurance in effect covering the cost of the
restoration; (vi) of any current renovation or uninsured restoration to any
Wellsford Property the cost of which exceeds $100,000; or (vii) of items
referred to in Section 2.8(c)(iii)-(vi) which aggregate for Wellsford and its
Subsidiaries more than $5,000,000.
(d) Neither Wellsford nor any of the Wellsford Subsidiaries has
received any written notice to the effect that (i) any condemnation or rezoning
proceedings are pending or threatened with respect to any of the Wellsford
Properties or (ii) any zoning, building or similar law, code, ordinance, order
or regulation is or will be violated by the continued maintenance, operation or
use of any buildings or other improvements on any of the Wellsford Properties or
by the continued maintenance, operation or use of the parking areas. All work
to be performed, payments to be made and actions to be taken by Wellsford or the
Wellsford Subsidiaries prior to the date hereof pursuant to any agreement
entered into with a governmental body or authority in connection with a site
approval, zoning reclassification or other similar action relating to any
Wellsford Properties (e.g., Local Improvement District, Road Improvement
District, Environmental Mitigation) has been performed, paid or taken, as the
case may be, and Wellsford has no Knowledge of any planned or proposed work,
payments or actions that may be required after the date hereof pursuant to such
agreements.
(e) Except as set forth in Schedule 2.8 of the Wellsford Disclosure
Letter, all of the Wellsford Properties are managed by Wellsford or a wholly-
owned Wellsford Subsidiary.
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2.9 ENVIRONMENTAL MATTERS. None of Wellsford, any of the Wellsford
Subsidiaries or, to Wellsford's Knowledge, any other Person has caused or
permitted (a) the unlawful presence of any hazardous substances, hazardous
materials, toxic substances or waste materials (collectively, "Hazardous
Materials") on any of the Wellsford Properties, or (b) any unlawful spills,
releases, discharges or disposal of Hazardous Materials to have occurred or be
presently occurring on or from the Wellsford Properties as a result of any
construction on or operation and use of such properties, which presence or
occurrence would, individually or in the aggregate, have a Wellsford Material
Adverse Effect; and in connection with the construction on or operation and use
of the Wellsford Properties, Wellsford and the Wellsford Subsidiaries have not
failed to comply in any material respect with all applicable local, state and
federal environmental laws, regulations, ordinances and administrative and
judicial orders relating to the generation, recycling, reuse, sale, storage,
handling, transport and disposal of any Hazardous Materials, except to the
extent such failure to comply, individually or in the aggregate, would not have
a Wellsford Material Adverse Effect.
2.10 RELATED PARTY TRANSACTIONS. Set forth in Schedule 2.10 of the
Wellsford Disclosure Letter is a list of all arrangements, agreements and
contracts entered into by Wellsford or any of the Wellsford Subsidiaries with
(a) any consultant, (b) any person who is an officer, trustee, director or
Affiliate (as defined below) of Wellsford or any of the Wellsford Subsidiaries,
any relative of any of the foregoing or any entity of which any of the foregoing
is an Affiliate or (c) any person who acquired Wellsford Common Shares in a
private placement, except those of a type available to Wellsford employees
generally. Such documents, copies of all of which have previously been
delivered or made available to EQR, are listed in Schedule 2.10 of the Wellsford
Disclosure Letter. As used in this Agreement, the term "Affiliate" shall have
the same meaning as such term is defined in Rule 405 promulgated under the
Securities Act.
2.11 ABSENCE OF CHANGES IN BENEFIT PLANS; ERISA COMPLIANCE.
(a) Except as disclosed in the Wellsford SEC Documents or in Schedule
2.11 to the Wellsford Disclosure Letter and except as contemplated by this
Agreement, since the date of the most recent audited financial statements
included in the Wellsford SEC Documents, there has not been any adoption or
amendment in any respect by Wellsford or any Wellsford Subsidiary of any bonus,
pension, profit sharing, deferred compensation, incentive compensation, stock
ownership, stock purchase, stock option, phantom stock, retirement, vacation,
severance, disability, death benefit, hospitalization, medical or other employee
benefit plan, arrangement or understanding (whether or not legally binding)
providing benefits to any current or former employee, officer or director of
Wellsford, any Wellsford Subsidiary, or any person Affiliated with Wellsford
under Section 414 (b), (c), (m) or (o) of the Code (collectively, "Wellsford
Benefit Plans").
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(b) Except as described in the Wellsford SEC Documents or in Schedule
2.11 to the Wellsford Disclosure Letter, (i) all Wellsford Benefit Plans of
Wellsford and the Wellsford Subsidiaries, including any such plan that is an
"employee benefit plan" as defined in Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), are in compliance in all
material respects with all applicable requirements of law, including but not
limited to ERISA and the Code, and (ii) neither Wellsford nor any Wellsford
Subsidiary has any material liabilities or obligations with respect to any such
Wellsford Benefit Plan, whether accrued, contingent or otherwise. Except as set
forth in Schedule 2.11 to the Wellsford Disclosure Letter, the execution of, and
performance of the transactions contemplated in, this Agreement will not (either
alone or upon the occurrence of any additional or subsequent events) constitute
an event under any Wellsford Benefit Plan, policy, arrangement or agreement or
any trust or loan that will or may result in any payment (whether of severance
pay or otherwise), acceleration, forgiveness of indebtedness, vesting,
distribution, increase in benefits or obligation to fund benefits with respect
to any employee, trustee or director. The only severance agreements or severance
policies applicable to employees of Wellsford or any of the Wellsford
Subsidiaries are the agreements and policies specifically referred to in
Schedule 2.11 to the Wellsford Disclosure Letter and the severance program
referred to in Section 5.10(c).
2.12 EMPLOYEE POLICIES. Schedule 2.12 of the Wellsford Disclosure
Letter lists the employee handbooks of Wellsford and each of the Wellsford
Subsidiaries currently in effect. A copy of each such employee handbook has
previously been made available to EQR. Except as set forth in Schedule 2.12 of
the Wellsford Disclosure Letter, such handbooks fairly and accurately summarize
all material employee policies, vacation policies and payroll practices of
Wellsford and the Wellsford Subsidiaries.
2.13 TAXES.
(a) Each of Wellsford and the Wellsford Subsidiaries has filed all tax
returns and reports required to be filed by it (after giving effect to any
filing extension properly granted by a Governmental Entity having authority to
do so) and has paid (or Wellsford has paid on its behalf) all Taxes (as defined
below) shown on such returns and reports as required to be paid by it except (i)
as set forth in Schedule 2.13 of the Wellsford Disclosure Letter, or (ii) real
estate taxes that are being contested in good faith by appropriate proceedings
and for which Wellsford or the applicable Wellsford Subsidiary shall have set
aside on its books adequate reserves. The most recent audited financial
statements contained in the Wellsford SEC Documents reflect an adequate reserve
for all material Taxes payable by Wellsford and the Wellsford Subsidiaries for
all taxable periods and portions thereof through the date of such financial
statements. Since the Wellsford Financial Statement Date, Wellsford has
incurred no liability for taxes under Sections 857(b), 860(c) or 4981 of the
Code, including without limitation any tax arising from a prohibited transaction
described in Section 857(b)(6) of the Code, and neither Wellsford nor any
Wellsford Subsidiary has incurred any liability for taxes other than in the
ordinary course of business. No event has occurred, and no condition or
circumstance exists, which presents a material risk that any material Tax
described in the preceding sentence will be imposed upon
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Wellsford. To the Knowledge of Wellsford, no deficiencies for any Taxes have
been proposed, asserted or assessed against Wellsford or any of the Wellsford
Subsidiaries, and no requests for waivers of the time to assess any such Taxes
are pending. As used in this Agreement, "Taxes" shall include all federal,
state, local and foreign income, property, sales, franchise, employment, excise
and other taxes, tariffs or governmental charges of any nature whatsoever,
together with penalties, interest or additions to Tax with respect thereto.
(b) Wellsford (i) for all taxable years commencing with 1993 through
the most recent December 31, has been subject to taxation as a real estate
investment trust (a "REIT") within the meaning of Section 856 of the Code and
has satisfied all requirements to qualify as a REIT for such years, (ii) has
operated, and intends to continue to operate, in such a manner as to qualify as
a REIT for the taxable year ending December 31, 1997, and (iii) has not taken or
omitted to take any action which would reasonably be expected to (A) result in
any rents paid by the tenants of the Properties to be excluded from the
definition of "rents from real property" under Section 856(d)(2)(C) of the Code,
or (B) otherwise result in a challenge to its status as a REIT, and to
Wellsford's Knowledge, no such challenge is pending or threatened. Each
Wellsford Subsidiary which is a partnership, joint venture or limited liability
company (i) has been since its formation and continues to be treated for federal
income tax purposes as a partnership and not as a corporation or an association
taxable as a corporation, and (ii) has not since its formation owned any assets
(including, without limitation, securities) that would cause Wellsford to
violate Section 856(b)(5) of the Code. Each Wellsford Subsidiary which is a
corporation has been since its formation a qualified REIT subsidiary under
Section 856(i) of the Code.
2.14 NO PAYMENTS TO EMPLOYEES, OFFICERS, TRUSTEES OR DIRECTORS. Set
forth in Exhibit "J" to this Agreement (and the Exhibits referenced therein) and
Schedule 2.3 of the Wellsford Disclosure Letter is a true and complete list of
all cash and non-cash payments which will become payable to each employee,
officer, trustee or director of Wellsford or any Wellsford Subsidiary as a
result of the Spin-Off and Merger. Except as described in Exhibit "J" to this
Agreement (and the Exhibits referenced therein) and in Schedule 2.3 to the
Wellsford Disclosure Letter, or as otherwise provided for in this Agreement,
there is no employment or severance contract, or other agreement requiring
payments, cancellation of indebtedness or other obligation to be made on a
change of control or otherwise as a result of the consummation of any of the
transactions contemplated by this Agreement, with respect to any employee,
officer, trustee or director of Wellsford or any Wellsford Subsidiary.
2.15 BROKERS; SCHEDULE OF FEES AND EXPENSES. No broker, investment
banker, financial advisor or other person, other than Merrill Lynch & Co. and
William Cockrum, the fees and expenses of which have previously been disclosed
to EQR, is entitled to any broker's, finder's, financial advisor's or other
similar fee or commission in connection with the transactions contemplated
hereby based upon arrangements made by or on behalf of Wellsford or any
Wellsford Subsidiary.
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2.16 COMPLIANCE WITH LAWS. Except as disclosed in the Wellsford SEC
Documents, neither Wellsford nor any of the Wellsford Subsidiaries has violated
or failed to comply with any statute, law, ordinance, regulation, rule,
judgment, decree or order of any Governmental Entity applicable to its business,
properties or operations, except to the extent that such violation or failure
would not have a Wellsford Material Adverse Effect.
2.17 CONTRACTS; DEBT INSTRUMENTS.
(a) Neither Wellsford nor any Wellsford Subsidiary has received a
written notice that Wellsford or any Wellsford Subsidiary is in violation of or
in default under (nor to the Knowledge of Wellsford does there exist any
condition which upon the passage of time or the giving of notice or both would
cause such a violation of or default under) any material loan or credit
agreement, note, bond, mortgage, indenture, lease, permit, concession,
franchise, license or any other material contract, agreement, arrangement or
understanding, to which it is a party or by which it or any of its properties or
assets is bound, except as set forth in Schedule 2.17 to the Wellsford
Disclosure Letter, nor to the Knowledge of Wellsford does such a violation or
default exist, except to the extent that such violation or default, individually
or in the aggregate, would not have a Wellsford Material Adverse Effect.
(b) Except for any of the following expressly identified in Wellsford
SEC Documents, Schedule 2.17 to the Wellsford Disclosure Letter sets forth a
list of each loan or credit agreement, note, bond, mortgage, indenture and any
other agreement and instrument pursuant to which any indebtedness of Wellsford
or any of Wellsford Subsidiaries, other than indebtedness payable to Wellsford
or a Wellsford Subsidiary, in an aggregate principal amount in excess of
$250,000 per item is outstanding or may be incurred. For purposes of this
Section 2.17, "Indebtedness" shall mean, with respect to any Person, without
duplication, (A) all indebtedness of such person for borrowed money, whether
secured or unsecured, (B) all obligations of such person under conditional sale
or other title retention agreements relating to property purchased by such
person, (C) all capitalized lease obligations of such person, (D) all
obligations of such person under interest rate cap, swap, collar or similar
transaction or currency hedging transactions (valued at the termination value
thereof) and (E) all guarantees of such person of any such indebtedness of any
other person.
(c) To the extent not set forth in response to the requirements of
Paragraph 2.17(b), Schedule 2.17 to the Wellsford Disclosure Letter sets forth
each interest rate cap, interest rate collar, interest rate swap, currency
hedging transaction, and any other agreement relating to a similar transaction
to which Wellsford or any Wellsford Subsidiary is a party or an obligor with
respect thereto.
(d) Neither Wellsford nor any of the Wellsford Subsidiaries is a party
to any agreement relating to the management of any of the Wellsford Properties
by any Person other than a wholly-owned Wellsford Subsidiary, except the
agreements described in Schedule 2.17 to the Wellsford Disclosure Letter (the
"Third Party Management Agreements"). True and
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complete copies of the Third Party Management Agreements have previously been
furnished to EQR.
2.18 OPINION OF FINANCIAL ADVISOR. Wellsford has received the opinion of
Merrill Lynch & Co., dated January 16, 1997, satisfactory to Wellsford, a signed
copy of which has been provided to EQR, to the effect that the proposed
consideration to be received by the holders of common shares of beneficial
interest of Wellsford pursuant to the Merger and Spin-Off is fair to such
holders from a financial point of view.
2.19 STATE TAKEOVER STATUTES. Wellsford has taken all action necessary
to exempt the transactions contemplated by this Agreement between EQR and
Wellsford and its Affiliates from the operation of any "fair price,"
"moratorium," "control share acquisition" or any other anti-takeover statute or
similar statute enacted under the state or federal laws of the United States or
similar statute or regulation (a "Takeover Statute").
2.20 REGISTRATION STATEMENT. The information relating to Wellsford and
the Wellsford Subsidiaries included in the Registration Statement (as defined in
Section 5.1) will not, as of the effective date of the Registration Statement,
contain 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.
2.21 DEVELOPMENT PROPERTIES. Schedule 2.21 of the Wellsford Disclosure
Letter lists all agreements entered into by Wellsford or any of the Wellsford
Subsidiaries relating to the development or construction of, or additions or
expansions to, any real properties which are currently in effect and under which
Wellsford or any of the Wellsford Subsidiaries currently has, or expects to
incur, an obligation in excess of $250,000. True and correct copies of such
agreements have previously been delivered or made available to EQR.
2.22 EQR SHARES OF BENEFICIAL INTEREST. Neither Wellsford nor any of
Wellsford Subsidiaries owns any shares of beneficial interest of EQR or other
securities convertible into shares of beneficial interest of EQR.
2.23 INVESTMENT COMPANY ACT OF 1940. Neither Wellsford nor any of
Wellsford 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").
2.24 INTENTIONALLY OMITTED.
2.25 DEFINITION OF KNOWLEDGE OF WELLSFORD. As used in this Agreement,
the phrase "to the Knowledge of Wellsford" (or words of similar import) means
the knowledge of those individuals identified in Schedule 2.25 of the Wellsford
Disclosure Letter.
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ARTICLE 3
---------
REPRESENTATIONS AND WARRANTIES OF EQR
-------------------------------------
Except as set forth in the letter of even date herewith signed by the
President of EQR and delivered to Wellsford prior to the execution hereof (the
"EQR Disclosure Letter"), EQR represents and warrants to Wellsford as follows:
3.1 ORGANIZATION, STANDING AND POWER OF EQR. EQR is a real estate
investment trust duly organized and validly existing under the laws of Maryland
and has the requisite power and authority to carry on its business as now being
conducted. EQR is duly qualified or licensed to do business as a foreign trust
and is in good standing in each jurisdiction in which the nature of its business
or the ownership or leasing of its properties makes such qualification or
licensing necessary, other than in such jurisdictions where the failure to be so
qualified or licensed, individually or in the aggregate, would not have a
material adverse effect on the business, properties, assets, financial condition
or results of operations of EQR and the Subsidiaries of EQR ("EQR
Subsidiaries"), taken as a whole ("EQR Material Adverse Effect"). EQR has
delivered to Wellsford complete and correct copies of its Amended and Restated
Declaration of Trust and Amended and Restated Bylaws as amended or supplemented
to the date of this Agreement.
3.2 CAPITAL STRUCTURE.
(a) The authorized shares of beneficial interest of EQR consist of
100,000,000 EQR Common Shares, and 10,000,000 preferred shares of beneficial
interest ("EQR Preferred Shares"), of which 6,120,000 EQR Preferred Shares have
been designated as 9-3/8% Series A Cumulative Redeemable Preferred Shares of
Beneficial Interest, $0.01 par value per share (the "EQR Series A Preferred
Shares"), 500,000 EQR Preferred Shares have been designated as 9-1/8% Series B
Cumulative Redeemable Preferred Shares of Beneficial Interest, $0.01 par value
per share, that are represented by 5,000,000 depository shares (the "EQR Series
B Preferred Shares"), and 460,000 EQR Preferred Shares have been designated as
9-1/8% Series C Cumulative Redeemable Preferred Shares of Beneficial Interest,
$0.01 par value per share, that are represented by 4,600,000 depository shares
(the "EQR Series C Preferred Shares"). As of January 14, 1997, (a) 51,155,813
EQR Common Shares, 6,120,000 EQR Series A Preferred Shares, 500,000 EQR Series B
Preferred Shares (represented by 5,000,000 depositary shares) and 460,000 EQR
Series C Preferred Shares (represented by 4,600,000 depositary shares) were
outstanding, (b) 960,542 EQR Common Shares were available for issuance under
EQR's 1996 Non-Qualified Employee Share Purchase Plan (the "EQR Employee Share
Plans"), (c) 2,328,715 EQR Common Shares were issuable upon exercise of
outstanding share options (the "EQR Options") to purchase EQR Common Shares, and
975,353 EQR Common Shares were available for grant, under EQR's Second Amended
and Restated 1993 Share Option and Share Award Plan (the "Employee Share Award
and Option Plan"), (d) 21,541 EQR Common Shares are restricted
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and subject to forfeiture, and (e) 7,857,933 EQR Common Shares were reserved for
issuance upon exchange of EQR Units (as defined below) for EQR Common Shares
pursuant to the Fourth Amended and Restated Agreement of Limited Partnership
(the "ERP Operating Partnership Agreement") of the ERP Operating Partnership.
On January 14, 1997, except as set forth in this Section 3.2, no shares of
beneficial interest or other voting securities of EQR were issued, reserved for
issuance or outstanding.
(b) All outstanding shares of beneficial interest of EQR are duly
authorized, validly issued, fully paid and nonassessable and not subject to
preemptive rights, except that the shareholders may be subject to further
assessment with respect to certain claims for tort, contract, taxes, statutory
liability and otherwise in some jurisdictions to the extent such claims are not
satisfied by EQR. There are no bonds, debentures, notes or other indebtedness
of EQR having the right to vote (or convertible into, or exchangeable for,
securities having the right to vote) on any matters on which shareholders of EQR
may vote.
(c) Except (i) for the EQR Options, (ii) for the units ("EQR Units")
of partnership interest held by partners in the ERP Operating Partnership
(which, subject to certain restrictions, may be exchanged by the holders thereof
for either EQR Common Shares on a one-for-one basis or, at EQR's option, cash),
as are disclosed in Schedule 3.2 to the EQR Disclosure Letter or (iii) as set
forth in Schedule 3.2 to the EQR Disclosure Letter, as of the date of this
Agreement there are no outstanding securities, options, warrants, calls, rights,
commitments, agreements, arrangements or undertakings of any kind to which EQR
or any EQR Subsidiary is a party or by which such entity is bound, obligating
EQR or any EQR Subsidiary to issue, deliver or sell, or cause to be issued,
delivered or sold, additional shares of beneficial interest, voting securities
or other ownership interests of EQR or of any EQR Subsidiary or obligating EQR
or any EQR Subsidiary to issue, grant, extend or enter into any such security,
option, warrant, call, right, commitment, agreement, arrangement or undertaking
(other than to EQR or an EQR Subsidiary). Except as set forth on Schedule 3.2
to the EQR Disclosure Letter or as required under the ERP Operating Partnership
Agreement, there are no outstanding contractual obligations of EQR or any EQR
Subsidiary to repurchase, redeem or otherwise acquire any shares of beneficial
interest of EQR or any capital stock, voting securities, or other ownership
interests in any EQR Subsidiary or make any material investment (in the form of
a loan, capital contribution or otherwise) in any person (other than an EQR
Subsidiary).
(d) EQR owns all of its partnership interests in ERP Operating
Partnership free and clear of all Liens.
3.3 ORGANIZATION, STANDING AND POWER OF ERP OPERATING PARTNERSHIP. ERP
Operating Partnership is a limited partnership duly organized and validly
existing under the laws of Illinois and has the requisite power and authority to
carry on its business as now being conducted. ERP Operating Partnership is duly
qualified or licensed to do business and is in good standing in each
jurisdiction in which the nature of its business or the ownership or leasing of
its properties makes such qualification or licensing necessary, other than in
such jurisdictions
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where the failure to be so qualified or licensed, individually or in the
aggregate, would not have an EQR Material Adverse Effect. EQR has delivered to
Wellsford complete and correct copies of its Fourth Amended and Restated
Agreement of Limited Partnership as amended or supplemented to the date of this
Agreement.
3.4 CAPITAL STRUCTURE OF ERP OPERATING PARTNERSHIP. As of January 14,
1997, the number of outstanding units of partnership interest in ERP Operating
Partnership consists of (a) 51,155,813 units of general partnership interest,
(b) 7,857,933 units of limited partnership interest, (c) 6,120,000 9-3/8% Series
A Cumulative Redeemable Preference Units, (d) 500,000 9-1/8% Series B Cumulative
Redeemable Preference Units, and (e) 460,000 9-1/8% Series C Cumulative
Redeemable Preference Units. Except for the units of limited partnership
interest, all of the units of partnership interest in ERP Operating Partnership
are owned by EQR free and clear of all Liens.
3.5 AUTHORITY; NONCONTRAVENTION; CONSENTS.
(a) EQR has the requisite power and authority to enter into this
Agreement, and subject to the requisite shareholder approval of the Merger (the
"EQR Shareholder Approvals" and, together with the Wellsford Shareholder
Approvals, the "Shareholder Approvals") to consummate the transactions
contemplated by this Agreement to which EQR is a party. The execution and
delivery of this Agreement by EQR and the consummation by EQR of the
transactions contemplated by this Agreement to which EQR is a party have been
duly authorized by all necessary action on the part of EQR, subject to the EQR
Shareholder Approvals. This Agreement has been duly executed and delivered by
EQR and constitutes a valid and binding obligation of EQR, enforceable against
EQR in accordance with its terms, subject to applicable bankruptcy, insolvency,
moratorium or other similar laws relating to creditors' rights and general
principles of equity.
(b) Except as set forth in Schedule 3.5 to the EQR Disclosure Letter,
the execution and delivery of this Agreement by EQR do not, and the consummation
of the transactions contemplated by this Agreement to which EQR is a party and
compliance by EQR with the provisions of this Agreement will not, conflict with,
or result in any violation of or default (with or without notice or lapse of
time, or both) under, or give rise to a right of termination, cancellation or
acceleration of any material obligation or to loss of a material benefit under,
or result in the creation of any Lien upon any of the properties or assets of
EQR or any EQR Subsidiary under, (i) the Amended and Restated Declaration of
Trust or Amended and Restated Bylaws of EQR or the comparable charter or
organizational documents or partnership or similar agreement (as the case may
be) of any other EQR Subsidiary, each as amended or supplemented to the date of
this Agreement, (ii) any loan or credit agreement, note, bond, mortgage,
indenture, reciprocal easement agreement, lease or other agreement, instrument,
permit, concession, franchise or license applicable to EQR or any EQR Subsidiary
or their respective properties or assets or (iii) subject to the governmental
filings and other matters referred to in the following sentence, any Laws
applicable to EQR or any EQR
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Subsidiary or their respective properties or assets, other than, in the case of
clause (ii) or (iii), any such conflicts, violations, defaults, rights, loss or
Liens that individually or in the aggregate would not (x) have an EQR Material
Adverse Effect or (y) prevent the consummation of the transactions contemplated
by this Agreement. No consent, approval, order or authorization of, or
registration, declaration or filing with, any Governmental Entity is required by
or with respect to EQR or any EQR Subsidiary in connection with the execution
and delivery of this Agreement or the consummation by EQR of any of the
transactions contemplated by this Agreement, except for (i) the filing with the
SEC of (x) the Proxy Statement and (y) such reports under Section 13 (a) of the
Exchange Act as may be required in connection with this Agreement and the
transactions contemplated by this Agreement, (ii) the filing of the Articles of
Merger with the Department, (iii) such filings as may be required in connection
with the payment of any transfer and gains taxes and (iv) such other consents,
approvals, orders, authorizations, registrations, declarations and filings (A)
as are set forth in Schedule 3.5 to the EQR Disclosure Letter or (B) as may be
required under (x) federal, state or local environmental laws or (y) the
securities laws of the State of Maryland or (C) which, if not obtained or made,
would not prevent or delay in any material respect the consummation of any of
the transactions contemplated by this Agreement or otherwise prevent EQR from
performing its obligations under this Agreement in any material respect or have,
individually or in the aggregate, an EQR Material Adverse Effect.
(c) For purposes of determining compliance with the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, EQR confirms that the conduct of
its business consists solely of investing in, owning and operating real estate
for the benefit of its shareholders.
3.6 SEC DOCUMENTS; FINANCIAL STATEMENTS; UNDISCLOSED LIABILITIES. EQR
and ERP Operating Partnership have filed all required reports, schedules, forms,
statements and other documents with the SEC since August 18, 1993 through the
date hereof (the "EQR SEC Documents"). Schedule 3.6 of the EQR Disclosure
Letter contains a complete list of all EQR SEC Documents filed by EQR under the
Exchange Act since January 1, 1996 and on or prior to the date of this
Agreement. All of the EQR SEC Documents (other than preliminary material), as
of their respective filing dates, complied in all material respects with all
applicable requirements of the Securities Act and the Exchange Act and, in each
case, the rules and regulations promulgated thereunder applicable to such EQR
SEC Documents. None of the EQR SEC Documents at the time of filing contained
any untrue statement of a material fact or omitted to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading, except to the extent such statements have been modified or
superseded by later EQR SEC Documents filed and publicly available prior to the
date of this Agreement. The consolidated financial statements of EQR and the
EQR Subsidiaries included in the EQR SEC Documents complied as to form in all
material respects with applicable accounting requirements and the published
rules and regulations of the SEC with respect thereto, have been prepared in
accordance with GAAP (except, in the case of unaudited statements, as permitted
by the applicable rules and regulations of the SEC) applied on a consistent
basis during the periods
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involved (except as may be indicated in the notes thereto) and fairly presented,
in accordance with the applicable requirements of GAAP and the applicable rules
and regulations of the SEC, the consolidated financial position of EQR and the
EQR Subsidiaries, taken as a whole, as of the dates thereof and the consolidated
results of operations and cash flows for the periods then ended (subject, in the
case of unaudited statements, to normal year-end audit adjustments). Except for
liabilities and obligations set forth in the EQR SEC Documents or in Schedule
3.6 to the EQR Disclosure Letter, neither EQR nor any EQR Subsidiary has any
liabilities or obligations of any nature (whether accrued, absolute, contingent
or otherwise) required by GAAP to be set forth on a consolidated balance sheet
of EQR or in the notes thereto and which, individually or in the aggregate,
would have an EQR Material Adverse Effect.
3.7 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed in the EQR
SEC Documents or in Section 3.7 to the EQR Disclosure Letter, since the date of
the most recent audited financial statements included in the EQR SEC Documents
(the "EQR Financial Statement Date"), EQR and the EQR Subsidiaries have
conducted their business only in the ordinary course (taking into account prior
practices, including the acquisition of properties and issuance of securities)
and there has not been (a) any material adverse change in the business,
financial condition or results of operations of EQR and the EQR Subsidiaries
taken as a whole (a "EQR Material Adverse Change"), nor has there been any
occurrence or circumstance that with the passage of time would reasonably be
expected to result in an EQR Material Adverse Change, (b) except for regular
quarterly distributions (in the case of EQR) not in excess of $.625 per EQR
Common Share, $.5859 per EQR Series A Preferred Share, $5.703 per EQR Series B
Preferred Share and $5.703 per EQR Series C Preferred Share, in each case
subject to rounding adjustments as necessary and with customary record and
payment dates, any declaration, setting aside or payment of any dividend or
other distribution (whether in cash, stock or property) with respect to any of
EQR's shares of beneficial interest, (c) any split, combination or
reclassification of any of EQR's shares of beneficial interest, (d) any damage,
destruction or loss, whether or not covered by insurance, that has or would have
an EQR Material Adverse Effect, or (e) any change made prior to the date of this
Agreement in accounting methods, principles or practices by EQR or any EQR
Subsidiary materially affecting its assets, liabilities or business, except
insofar as may have been disclosed in the EQR SEC Documents or required by a
change in GAAP. EQR is not in default in the payment of distributions on the EQR
Series A Preferred Shares, EQR Series B Preferred Shares or EQR Series C
Preferred Shares.
3.8 LITIGATION. Except as disclosed in the EQR SEC Documents or in
Schedule 3.8 to the EQR Disclosure Letter, and other than personal injury and
other routine tort litigation arising from the ordinary course of operations of
EQR and the EQR Subsidiaries (a) which are covered by adequate insurance, or (b)
for which all material costs and liabilities arising therefrom are reimbursable
pursuant to common area maintenance or similar agreements, there is no suit,
action or proceeding pending or, to the Knowledge of EQR, threatened in writing
against or affecting EQR or any EQR Subsidiary that, individually or in the
aggregate, could reasonably be expected to (i) have an EQR Material Adverse
Effect, or (ii) prevent the consummation of any of the transactions contemplated
by this Agreement, nor is there any
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judgment, decree, injunction, rule or order of any Governmental Entity or
arbitrator outstanding against EQR or any EQR Subsidiary having, or which,
insofar as reasonably can be foreseen, in the future would have, any such
effect.
3.9 PROPERTIES.
(a) EQR or one of the EQR Subsidiaries owns fee simple title to each
of the real properties listed in the EQR SEC Filings as owned by it (the "EQR
Properties"), except where the failure to own such title would not have an EQR
Material Adverse Effect.
(b) The EQR Properties are not subject to any Encumbrances or Property
Restrictions which could cause an EQR Material Adverse Affect.
(c) Valid policies of title insurance have been issued insuring EQR's
or the applicable EQR Subsidiaries' fee simple title to the EQR Properties in
amounts at least equal to the purchase price thereof paid by EQR or the
applicable EQR Subsidiaries therefor, except where the failure to obtain such
title insurance would not have an EQR Material Adverse Effect.
(d) EQR has no Knowledge (i) that it has failed to obtain a
certificate, permit or license from any governmental authority having
jurisdiction over any of the EQR Properties where such failure would have an EQR
Material Adverse Effect, or of any pending threat of modification or
cancellation of any of the same which would have an EQR Material Adverse Effect,
(ii) of any written notice of any violation of any federal, state or municipal
law, ordinance, order, rule, regulation or requirement affecting any of the EQR
Properties issued by any governmental authorities which would have an EQR
Material Adverse Effect, or (iii) of any structural defects relating to EQR
Properties, EQR Properties whose building systems are not in working order,
physical damage to any EQR Property for which there is no insurance in effect
covering the cost of restoration, any current renovation or uninsured
restoration, except such structural defects, building systems not in working
order, physical damage, renovation and restoration which, in the aggregate,
would not have an EQR Material Adverse Effect.
(e) Neither EQR nor any of the EQR Subsidiaries has received any
written notice to the effect that (i) any condemnation or rezoning proceedings
are pending or threatened with respect to any of the EQR Properties, or (ii) any
zoning, building or similar law, code, ordinance, order or regulation is or will
be violated by the continued maintenance, operation or use of any buildings or
other improvements on any of the EQR Properties or by the continued maintenance,
operation or use of the parking areas, other than such notices which, in the
aggregate, would not have an EQR Material Adverse Effect.
(f) All work to be performed, payments to be made and actions to be
taken by EQR or the EQR Subsidiaries prior to the date hereof pursuant to any
agreement entered into with a governmental body or authority in connection with
a site approval, zoning reclassification or similar action relating to any EQR
Properties (e.g., Local Improvement District, Road
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Improvement District, Environmental Mitigation), has been performed, paid or
taken, as the case may be, except where the failure to do so would, in the
aggregate, not have an EQR Material Adverse Effect, and EQR has no Knowledge of
any planned or proposed work, payments or actions that may be required after the
date hereof pursuant to such agreements which would have an EQR Material Adverse
Effect.
3.10 ENVIRONMENTAL MATTERS. None of EQR, any of the EQR Subsidiaries or,
to EQR's Knowledge, any other Person has caused or permitted (a) the unlawful
presence of any hazardous substances, hazardous materials, toxic substances or
waste materials (collectively, "Hazardous Materials") on any of the EQR
Properties, or (b) any unlawful spills, releases, discharges or disposal of
Hazardous Materials to have occurred or be presently occurring on or from the
EQR Properties as a result of any construction on or operation and use of such
properties, which presence or occurrence would, individually or in the
aggregate, have an EQR Material Adverse Effect; and in connection with the
construction on or operation and use of the EQR Properties, EQR and the EQR
Subsidiaries have not failed to comply in any material respect with all
applicable local, state and federal environmental laws, regulations, ordinances
and administrative and judicial orders relating to the generation, recycling,
reuse, sale, storage, handling, transport and disposal of any Hazardous
Materials, except to the extent such failure to comply, individually or in the
aggregate, would not have an EQR Material Adverse Effect.
3.11 TAXES.
(a) Each of EQR and the EQR Subsidiaries has filed all tax returns and
reports required to be filed by it (after giving effect to any filing extension
properly granted by a Governmental Entity having authority to do so) and has
paid (or EQR has paid on its behalf) all Taxes shown on such returns and reports
as required to be paid by it except where the failure to file such tax returns
or reports and failure to pay such Taxes would not have an EQR Material Adverse
Effect. The most recent audited financial statements contained in the EQR SEC
Documents reflect an adequate reserve for all material Taxes payable by EQR and
the EQR Subsidiaries for all taxable periods and portions thereof through the
date of such financial statements. Since the EQR Financial Statement Date, EQR
has incurred no liability for taxes under Sections 857(b), 860(c) or 4981 of the
Code, including without limitation any tax arising from a prohibited transaction
described in Section 857(b)(6) of the Code, and neither EQR nor any EQR
Subsidiary has incurred any liability for taxes other than in the ordinary
course of business. No event has occurred, and no condition or circumstance
exists, which presents a material risk that any material Tax described in the
preceding sentence will be imposed upon EQR. To the Knowledge of EQR, no
deficiencies for any Taxes have been proposed, asserted or assessed against EQR
or any of the EQR Subsidiaries, and no requests for waivers of the time to
assess any such Taxes are pending.
(b) EQR (i) for all taxable years commencing with 1993 through the
most recent December 31, has been subject to taxation as a REIT within the
meaning of Section 856 of the Code and has satisfied all requirements to qualify
as a REIT for such years, (ii) has
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operated, and intends to continue to operate, in such a manner as to qualify as
a REIT for the tax year ending December 31, 1997, and (iii) has not taken or
omitted to take any action which would reasonably be expected to (A) result in
any rents paid by tenants to the EQR Properties to be excluded from the
definition of "rents from real property" under Section 856(d)(2) of the Code, or
(B) otherwise result in a challenge to its status as a REIT, and to EQR's
Knowledge, no such challenge is pending or threatened. Each EQR Subsidiary
which is a partnership, joint venture or limited liability company has been
treated since its formation and continues to be treated for federal income tax
purposes as a partnership and not as a corporation or as an association taxable
as a corporation.
3.12 BROKERS; SCHEDULE OF FEES AND EXPENSES. No broker, investment
banker, financial advisor or other person, other than J.P. Morgan Securities,
Inc., the fees and expenses of which have previously been disclosed to Wellsford
and will be paid by EQR, is entitled to any broker's, finder's, financial
advisor's or other similar fee or commission in connection with the transactions
contemplated hereby based upon arrangements made by or on behalf of EQR or any
EQR Subsidiary.
3.13 COMPLIANCE WITH LAWS. Except as disclosed in the EQR SEC Documents,
neither EQR nor any of the EQR Subsidiaries has violated or failed to comply
with any statute, law, ordinance, regulation, rule, judgment, decree or order of
any Governmental Entity applicable to its business, properties or operations,
except to the extent that such violation or failure would not have an EQR
Material Adverse Effect.
3.14 CONTRACTS; DEBT INSTRUMENTS. Neither EQR nor any EQR Subsidiary has
received a written notice that EQR or any EQR Subsidiary is in violation of or
in default under (nor to the Knowledge of EQR does there exist any condition
which upon the passage of time or the giving of notice or both would cause such
a violation of or default under) any material loan or credit agreement, note,
bond, mortgage, indenture, lease, permit, concession, franchise, license or any
other material contract, agreement, arrangement or understanding, to which it is
a party or by which it or any of its properties or assets is bound, nor to the
Knowledge of EQR does such a violation or default exist, except to the extent
such violation or default, individually or in the aggregate, would not have an
EQR Material Adverse Effect, except as set forth in Schedule 3.14 to the EQR
Disclosure Letter.
3.15 OPINION OF FINANCIAL ADVISOR. EQR has received the opinion of J. P.
Morgan Securities, Inc., dated January 15, 1997, satisfactory to EQR, a signed
copy of which has been provided to Wellsford, to the effect that the
consideration to be paid by EQR in connection with the Merger is fair, from a
financial point of view, to EQR.
3.16 STATE TAKEOVER STATUTES. EQR has taken all action necessary to
exempt transactions between EQR and Wellsford and its Affiliates from the
operation of Takeover Statutes.
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3.17 REGISTRATION STATEMENT. The information with respect to EQR and the
EQR Subsidiaries included in the Registration Statement will not, as of the
effective date of the Registration Statement, contain 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.
3.18 WELLSFORD SHARES OF BENEFICIAL INTEREST. Neither EQR nor any of the
EQR Subsidiaries owns any shares of beneficial interest of Wellsford or other
securities convertible into shares of beneficial interest of Wellsford.
3.19 INTENTIONALLY OMITTED.
3.20 INVESTMENT COMPANY ACT OF 1940. Neither EQR nor any of the EQR
Subsidiaries is, or at the Effective Time will be, required to be registered
under the 1940 Act.
3.21 DEFINITION OF KNOWLEDGE OF EQR. As used in this Agreement, the
phrase "to the Knowledge of EQR" (or words of similar import) means the
knowledge of those individuals identified in Schedule 3.21 of the EQR Disclosure
Letter.
ARTICLE 4
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COVENANTS
---------
4.1 ACQUISITION PROPOSALS. Except as set forth in the Wellsford
Disclosure Letter, prior to the Effective Time, Wellsford agrees that:
(a) neither it nor any of the Wellsford Subsidiaries shall initiate,
solicit or 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, Wellsford or any of the Wellsford
Subsidiaries, other than the transactions contemplated by this 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 will use its best efforts not to permit any of its officers,
trustees, employees, agents or financial advisors to engage in any of the
activities described in Section 4.1(a);
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(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 will take the necessary
steps to inform the individuals or entities referred to in Section 4.1(b)
of the obligations undertaken in this Section 4.1; and
(d) it will notify EQR immediately if Wellsford 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 Section 4.1 shall prohibit the
Board of Trustees of Wellsford 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 (A) the Board
of Trustees of Wellsford determines in good faith that such action is required
for the Board of Trustees to comply with its duties to shareholders imposed by
law, (B) prior to furnishing such information to, or entering into discussions
or negotiations with, such person or entity, Wellsford provides written notice
to EQR to the effect that it is furnishing information to, or entering into
discussions with, such person or entity, and (C) subject to any confidentiality
agreement with such person or entity (which Wellsford determined in good faith
was required to be executed in order for the Board of Trustees to comply with
its duties to shareholders imposed by law), Wellsford keeps EQR informed of the
status (not the terms) of any such discussions or negotiations; and (ii) to the
extent applicable, complying with Rule 14e-2 promulgated under the Exchange Act
with regard to an Acquisition Proposal. Nothing in this Section 4.1 shall (x)
permit Wellsford to terminate this Agreement (except as specifically provided in
Article 7 hereof), (y) permit Wellsford to enter into an agreement with respect
to an Acquisition Proposal during the term of this Agreement (it being agreed
that during the term of this Agreement, Wellsford shall not enter into an
agreement with any Person that provides for, or in any way facilitates, an
Acquisition Proposal (other than a confidentiality agreement in customary form
executed as provided above)) or (z) affect any other obligation of Wellsford
under this Agreement; provided, however, that the Board of Trustees of Wellsford
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. As used herein, "Superior Acquisition Proposal" means a bona
fide Acquisition Proposal made by a third party which a majority of the members
of the Board of Trustees of Wellsford determines in good faith to be more
favorable to Wellsford's shareholders from a financial point of view than the
Merger and which the Board of Trustees of Wellsford determines is reasonably
capable of being consummated.
4.2 CONDUCT OF WELLSFORD'S BUSINESS PENDING MERGER. Prior to the
Effective Time, except as (i) contemplated by this Agreement, (ii) necessary to
accomplish the Spin-Off, (iii) disclosed in the Wellsford Disclosure Letter or
Exhibit "J" or (iv) consented to in writing by EQR, Wellsford shall, and shall
cause each of the Wellsford Subsidiaries to:
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(a) conduct its business only in the usual, regular and ordinary
course and in substantially the same manner as heretofore;
(b) use its reasonable efforts to preserve intact its business
organizations and goodwill and keep available the services of its officers
and employees;
(c) confer on a regular basis with one or more representatives of EQR
to report operational matters of materiality and, subject to Section 4.1,
any proposals to engage in material transactions;
(d) promptly notify EQR of any material emergency or other material
change in the condition (financial or otherwise), business, properties,
assets, liabilities, prospects or the normal course of its 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 EQR true and correct copies of any report,
statement or schedule filed with the SEC subsequent to the date of this
Agreement;
(f) maintain its books and records in accordance with GAAP
consistently applied and not change in any material manner any of its
methods, principles or practices of accounting in effect at the Financial
Statement Date, except as may be required by the SEC, applicable law or
GAAP;
(g) duly and timely file all reports, tax returns and other documents
required to be filed with federal, state, local and other authorities,
subject to extensions permitted by law, provided Wellsford notifies EQR
that it is availing itself of such extensions and provided such extensions
do not adversely affect Wellsford's status as a qualified REIT under the
Code;
(h) not make or rescind any express or deemed election relative to
Taxes (unless required by law or necessary to preserve Wellsford's status
as a REIT or the status of any Wellsford 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) 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 line(s) of
credit, encumber assets or commence construction of, or enter into any
agreement or commitment to develop or construct, other real estate
projects, except in the ordinary course of the multi-family apartment
business, which shall include all activities necessary to proceed with the
acquisition, ownership and construction of Phases I, II and III of the
multi-family residential project in Douglas County, Colorado referred to as
"Palomino Park" in accordance with the
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agreements in existence on the date of this Agreement and previously
furnished to EQR (the "Palomino Development Agreements");
(j) not amend its Amended and Restated Declaration of Trust, Articles
or Certificate of Incorporation, Bylaws, code of regulations or partnership
agreement or comparable charter or organizational document or the articles
of incorporation, by-laws, partnership agreement, joint venture agreement
or comparable charter or organization document of any Wellsford Subsidiary
without EQR's prior written consent, which shall not be unreasonably
withheld or delayed;
(k) make no change in the number of shares of beneficial interest or
capital stock, membership interests or units of limited partnership
interest issued and outstanding, other than pursuant to (i) the exercise of
options disclosed in Schedule 2.3 to the Wellsford Disclosure Letter and
the issuance of shares and options described in Exhibit "J" to this
Agreement, (ii) the conversion of Wellsford Series A Preferred Shares
pursuant to the terms of the Articles Supplementary for the Wellsford
Series A Preferred Shares, (iii) options to purchase Wellsford Common
Shares which are issued, and (iv) the Dividend Reinvestment and Share
Purchase Plan of Wellsford;
(l) grant no options or other right or commitment relating to its
shares of beneficial interest or capital stock, membership interests or
units of limited partnership interest or any security convertible into its
shares of beneficial interest or capital stock, membership interests or
units of limited partnership interest, or any security the value of which
is measured by shares of beneficial interest, or any security subordinated
to the claim of its general creditors;
(m) except as provided in Section 5.13 hereof and in connection with
the use of shares of beneficial interest of Wellsford 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 shares of its beneficial interest or capital stock, or (ii) directly or
indirectly redeem, purchase or otherwise acquire any shares of beneficial
interest, shares of capital stock, membership interests or units of
partnership interest or any option, warrant or right to acquire, or
security convertible into, shares of beneficial interest, shares of capital
stock, membership interests, or units of partnership interest;
(n) not sell, lease, mortgage, subject to Lien or otherwise dispose of
any material part of its assets, individually or in the aggregate, except
in the ordinary course of business;
(o) not make any loans, advances or capital contributions to, or
investments in, any other Person, other than (i) loans, advances and
capital contributions to Wellsford Subsidiaries in existence on the date
hereof (other than Newco and Subsidiaries of
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Newco), and (ii) loans to Newco and Subsidiaries of Newco bearing interest
at a rate per annum equal to the rate of interest payable under the Second
Amended and Restated Revolving Credit Agreement dated June 30, 1995 between
Wellsford and First National Bank of Boston, as agent for itself and other
banks ("Revolver Rate"), which loans to Newco and its Subsidiaries shall
become due and payable in full on the Closing Date; provided the proceeds
of such loans are not applied to activities which are not permitted under
this Section 4.2;
(p) not pay, discharge or satisfy any claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge or satisfaction, in the
ordinary course of business consistent with past practice or in accordance
with their terms, of liabilities reflected or reserved against in, or
contemplated by, the most recent consolidated financial statements (or the
notes thereto) furnished to EQR or incurred in the ordinary course of
business consistent with past practice;
(q) not enter into any commitment, contractual obligation, capital
expenditure or transaction (each, a "Commitment") which may result in total
payments or liability by or to it in excess of $1,000,000 or aggregate
Commitments in excess of $5,000,000;
(r) 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, other than guarantees of
indebtedness of Newco and Subsidiaries of Newco; provided, that on the
Closing Date, the Surviving Trust is unconditionally and irrevocably
released from any obligations with respect to such guarantees or the
indebtedness so guaranteed is paid in full without the payment of any
consideration by the Surviving Trust and its Subsidiaries;
(s) not enter into any Commitment with any officer, trustee,
consultant or Affiliate of Wellsford or any of the Wellsford Subsidiaries;
(t) not increase any compensation or enter into or amend any
employment agreement with any of its officers, directors or employees
earning more than $50,000 per annum, other than waivers by employees of
benefits under such agreements;
(u) not adopt any new employee benefit plan or amend any existing
plans or rights, except for changes which are required by law and changes
which are not more favorable to participants than provisions presently in
effect;
(v) not settle any shareholder derivative or class action claims
arising out of or in connection with any of the transactions contemplated
by this Agreement;
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(w) not change the ownership of any of its Subsidiaries except
pursuant to the Contribution Agreement on the Closing Date; and
(x) not accept a promissory note in payment of the exercise price
payable under any option to purchase Wellsford Common Shares.
For purposes of this Section 4.2 only, any contract, transaction or other event
shall be deemed to be material if it would result or is expected to result in a
net impact on Wellsford's consolidated income statement in excess of $1,000,000,
or on Wellsford's consolidated balance sheet in excess of $1,000,000.
Notwithstanding anything to the contrary herein contained, prior to the
Effective Time, Newco and its Subsidiaries shall not be bound by the
restrictions which would otherwise be applicable under Sections 4.2(a), (b),
(c), (d), (i), (j), (k), (l), (m)(ii), (n), (o), (p), (q), (r), (s), (t), (u),
or (w); provided, however, that in no event may Newco:
(i) issue any of its shares to any Person other than Wellsford
prior to the Spin-Off for less than fair value;
(ii) take any action or fail to take any action which would
reasonably be expected to result in the termination of or a
challenge to Wellsford's status as a REIT within the meaning
of Section 856 of the Code, or result in a Wellsford
Material Adverse Effect;
(iii) enter into any contract which creates or imposes any
obligation on, or otherwise purports to bind, Wellsford or
any of the other Wellsford Subsidiaries;
(iv) take any action or omit to take any action which causes a
default under any loan agreement to which Wellsford is a
party;
(v) amend its Articles of Incorporation or By-laws in any manner
which is inconsistent with the provisions of the Newco Stock
Purchase Agreement.
Notwithstanding anything to the contrary herein contained, prior to the
Effective Time, WPHC and its Subsidiaries may:
(A) amend the existing operating agreements of the Subsidiaries of WPHC in
a manner which is not adverse to the interests of WPHC in such
Subsidiaries;
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(B) purchase the interest of Al Feld in the Subsidiaries of WPHC in
accordance with the agreements granting such right in effect on the
date of this Agreement and previously furnished to EQR; and
(C) fulfill their respective obligations under the Palomino Development
Agreements.
4.3 CONDUCT OF EQR'S BUSINESS PENDING MERGER. Prior to the Effective
Time, except as (i) contemplated by this Agreement, or (ii) consented to in
writing by Wellsford, EQR shall, and shall cause each of the EQR Subsidiaries
to:
(a) use its reasonable efforts to preserve intact its business
organizations and goodwill and keep available the services of its officers
and employees;
(b) confer on a regular basis with one or more representatives of
Wellsford to report operational matters of materiality which would have an
EQR Material Adverse Effect;
(c) promptly notify Wellsford of any material emergency or other
material change in the condition (financial or otherwise), business,
properties, assets, liabilities, prospects or the normal course of its
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);
(d) promptly deliver to Wellsford true and correct copies of any
report, statement or schedule filed with the SEC subsequent to the date of
this Agreement;
(e) maintain its books and records in accordance with GAAP
consistently applied; and
(f) duly and timely file all reports, tax returns and other documents
required to be filed with federal, state, local and other authorities.
For purposes of this Section 4.3 only, an emergency, change, complaint,
investigation or hearing shall be deemed material if it would reasonably be
expected to have an EQR Material Adverse Effect.
In addition, during the period beginning the day after the fifth (5th)
trading day prior to the date which the proxy statements required by Section 5.1
hereof are dated and ending on (but including) the Closing Date, EQR will not
(a) issue any EQR Common Shares or other securities convertible into EQR Common
Shares in any single transaction or series of transactions having an aggregate
issuance price in excess of $250,000,000, or (b) announce any merger with or
acquisition of all or substantially all the assets of another entity which has
net assets in excess of $250,000,000.
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4.4 COVENANT OF EQR. If EQR enters into negotiations with another Person
who has a class of equity securities registered under the Exchange Act regarding
the acquisition of such Person (whether effected through a merger,
consolidation, share exchange, tender offer or other form), then at least three
(3) business days prior to executing any definitive agreement with such Person
with respect to such acquisition or making a tender offer for the shares or
other ownership interests of such Person, EQR shall notify Wellsford of such
transaction and consult with Wellsford with respect thereto, it being
understood, however, that Wellsford shall have no approval rights with respect
thereto.
4.5 OTHER ACTIONS. Each of Wellsford on the one hand and EQR on the other
hand shall not, and shall use commercially reasonable efforts to cause their
Subsidiaries not to take, any action that would result in (i) any of the
representations and warranties of such party (without giving effect to any
"knowledge" qualification) set forth in this Agreement that are qualified as to
materiality becoming untrue, (ii) any of such representations and warranties
(without giving effect to any "knowledge" qualification) that are not so
qualified becoming untrue in any material respect or (iii) except as
contemplated by Section 4.1, any of the conditions to the Merger set forth in
Article 6 not being satisfied.
4.6 FILING OF CERTAIN REPORTS. The Surviving Trust shall file the reports
required to be filed by it under the Exchange Act and the rules and regulations
adopted by the SEC thereunder, and it will take such further action as any
Affiliate of Wellsford or EQR may reasonably request, all to the extent required
from time to time to enable such Affiliate to sell shares of beneficial interest
of the Surviving Trust received by such Affiliate in the Merger without
registration under the Securities Act pursuant to (i) Rule 145(d)(1) under the
Securities Act, as such Rule may be amended from to time, or (ii) any successor
rule or regulation hereafter adopted by the SEC.
ARTICLE 5
---------
ADDITIONAL COVENANTS
--------------------
5.1 PREPARATION OF THE REGISTRATION STATEMENT AND THE PROXY STATEMENT;
WELLSFORD SHAREHOLDERS MEETING AND EQR SHAREHOLDERS MEETING.
(a) As soon as practicable following the date of this Agreement,
Wellsford and EQR shall prepare and file with the SEC a preliminary Proxy
Statement in form and substance satisfactory to each of EQR and Wellsford and
such registration statements under the Securities Act and Exchange Act as may be
required (collectively, the "Registration Statement"). To the extent
practicable, the parties shall utilize one document for transmittal to their
respective shareholders to meet applicable legal requirements. Each of
Wellsford and EQR shall use its reasonable best efforts to (i) respond to any
comments of the SEC and (ii) have the Registration
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Statement declared effective under the Securities Act and the rules and
regulations promulgated thereunder as promptly as practicable after such filing
and to keep the Registration Statement effective as long as is necessary to
consummate the Merger. Each of Wellsford and EQR will use its reasonable best
efforts to cause the Proxy Statement to be mailed to Wellsford's shareholders
and EQR's shareholders, respectively, as promptly as practicable after the
Registration Statement is declared effective under the Securities Act. Each
party agrees to date its Proxy Statement as of the same date, which shall be the
approximate date of mailing to the shareholders of the respective parties. Each
party will notify the other promptly of the receipt of any comments from the SEC
and of any request by the SEC for amendments or supplements to the Registration
Statement or the Proxy Statement or for additional information and will supply
the other with copies of all correspondence between such party or any of its
representatives and the SEC, with respect to the Registration Statement or the
Proxy Statement. The Registration Statement and the Proxy Statement shall
comply in all material respects with all applicable requirements of law. Prior
to mailing the Proxy Statement to their respective shareholders, EQR and
Wellsford shall have received the letters from their respective accountants
provided for by Section 5.8. Whenever any event occurs which is required to be
set forth in an amendment or supplement to the Registration Statement or the
Proxy Statement, EQR or Wellsford, as the case may be, shall promptly inform the
other of such occurrences and cooperate in filing with the SEC and/or mailing to
the shareholders of EQR and the shareholders of Wellsford such amendment or
supplement to the Proxy Statement. Wellsford or EQR, whichever shall become the
Surviving Trust, also shall take any action required to be taken under any
applicable state securities or "blue sky" laws in connection with the issuance
of shares of beneficial interest of the Surviving Trust pursuant to the Merger,
and the other party shall furnish all information concerning such party and the
holders of the shares of beneficial interest of such party and rights to acquire
shares of beneficial interest as may be reasonably requested in connection with
any such action.
(b) EQR will, as soon as practicable following the date of this
Agreement (but in no event sooner than 20 business days following the date the
Proxy Statement is mailed to the shareholders of Wellsford), duly call, give
notice of, convene and hold a meeting of its shareholders (the "EQR Shareholders
Meeting") for the purpose of obtaining the EQR Shareholder Approvals. EQR will,
through its Board of Trustees, recommend to its shareholders approval of this
Agreement, the Merger, and the transactions contemplated by this Agreement.
(c) Wellsford will, as soon as practicable following the date of this
Agreement (but in no event sooner than 20 business days following the date the
Proxy Statement is mailed to the shareholders of Wellsford), duly call, give
notice of, convene and hold a meeting of its shareholders (the "Wellsford
Shareholders Meeting") for the purpose of obtaining Wellsford Shareholder
Approvals. Wellsford will, through its Board of Trustees, recommend to its
shareholders approval of this Agreement, the Merger and the transactions
contemplated by this Agreement; provided, that prior to the Wellsford
Shareholders Meeting, such recommendation may be withdrawn, modified or amended
to the extent that, as a result of the commencement or receipt of a proposal
constituting a Superior Acquisition Proposal, the Board of Trustees of
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Wellsford determines in good faith that such withdrawal, modification or
amendment is appropriate.
(d) EQR and Wellsford shall use their best efforts to hold their
respective shareholder meetings on the same day, which day, subject to the
provisions of Sections 5.1(b) and 5.1(c), shall be a day not later than 45 days
after the date the Proxy Statement is mailed.
(e) If on the date for the EQR Shareholders Meeting and Wellsford
Shareholders Meeting established pursuant to Section 5.1(d) of this Agreement,
either EQR or Wellsford has not received a sufficient number of proxies to
approve the Merger (but less than 1/3rd of the outstanding common shares of
beneficial interest of such party have voted against the Merger), then both
parties shall adjourn their respective shareholders meetings until the first to
occur of (i) the date ten (10) days after the originally scheduled date of the
shareholders meetings or (ii) the date on which the requisite number of proxies
approving the Merger has been obtained or proxies have been received
representing more than one-third of its outstanding common shares of beneficial
interest which voted against the Merger.
5.2 ACCESS TO INFORMATION: CONFIDENTIALITY. Subject to the requirements
of confidentiality agreements with third parties, each of Wellsford and EQR
shall, and shall cause each of its Subsidiaries to, afford to the other party
and to the officers, employees, accountants, counsel, financial advisors and
other representatives of such other party, reasonable access during normal
business hours prior to the Effective Time to all their respective properties,
books, contracts, commitments, personnel and records and, during such period,
each of Wellsford and EQR shall, and shall cause each of its Subsidiaries to,
furnish promptly to the other party (a) a copy of each report, schedule,
registration statement and other document filed by it during such period
pursuant to the requirements of federal or state securities laws and (b) all
other information concerning its business, properties and personnel as such
other party may reasonably request. Each of Wellsford and EQR, shall cause its
Subsidiaries to, and shall use commercially reasonable efforts to cause its
officers, employees, accountants, counsel, financial advisors and other
representatives and affiliates to, hold any nonpublic information in confidence
to the extent required by, and in accordance with, and will comply with the
provisions of the letter agreement dated as of October 9, 1996 between Wellsford
and EQR (the "Confidentiality Agreement").
5.3 BEST EFFORTS; NOTIFICATION.
(a) Subject to the terms and conditions herein provided, Wellsford and
EQR 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 by such
agreements and (B)
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timely making all such filings and timely seeking all such consents, approvals,
permits and authorizations; (ii) use all reasonable best efforts to obtain in
writing any consents required from third parties to effectuate the Merger, such
consents to be in form reasonably satisfactory to Wellsford and EQR; 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 proper
officers and trustees of Wellsford and EQR shall take all such necessary action.
(b) Wellsford shall give prompt notice to EQR, and EQR shall give
prompt notice to Wellsford, (i) if any representation or warranty made by it
contained in this Agreement that is qualified as to materiality becomes untrue
or inaccurate in any respect or any such representation or warranty that is not
so qualified becomes untrue or inaccurate in any material respect or (ii) of the
failure by it to comply with or satisfy in any material respect any covenant,
condition or agreement to be complied with or satisfied by it under this
Agreement; provided, however, that no such notification shall affect the
representations, warranties, covenants or agreements of the parties or the
conditions to the obligations of the parties under this Agreement.
5.4 COSTS OF TRANSACTION. On the Closing Date, Wellsford and EQR shall
execute, and Wellsford shall cause Newco to execute, the Transaction and
Termination Costs Agreement in substantially in the form attached as Exhibit "H"
hereto (the "Transaction Costs Agreement").
5.5 TAX TREATMENT. Each of EQR and Wellsford shall use its reasonable
best efforts to cause the Merger to qualify as a reorganization under the
provisions of Sections 368(a) of the Code and to obtain the opinions of counsel
referred to in Sections 6.2(e) and 6.3(f).
5.6 PUBLIC ANNOUNCEMENTS. EQR and Wellsford 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, including the Merger and the Spin-
Off, 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.
5.7 LISTING. Prior to the Effective Time, EQR or Wellsford (whichever
shall be the Surviving Trust), shall use its best efforts to have the NYSE
approve for listing, upon official notice of issuance, the shares of beneficial
interest to be issued in the Merger.
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5.8 LETTERS OF ACCOUNTANTS.
(a) Wellsford shall use its reasonable best efforts to cause to be
delivered to EQR the "comfort" letter of Ernst & Young, Wellsford's independent
public accountants, dated and delivered the date on which the Registration
Statement shall become effective and as of the Effective Time, and addressed to
EQR, in form and substance reasonably satisfactory to EQR and reasonably
customary in scope and substance for letters delivered by independent public
accountants in connection with transactions such as those contemplated by this
Agreement.
(b) EQR shall use its reasonable best efforts to cause to be delivered
to Wellsford the "comfort" letter of Ernst & Young, EQR's independent public
accountants, dated the date on which the Registration Statement shall become
effective and as of the Effective Time, and addressed to Wellsford, in form and
substance reasonably satisfactory to Wellsford and reasonably customary in scope
and substance for letters delivered by independent public accountants in
connection with transactions such as those contemplated by this Agreement.
5.9 TRANSFER AND GAINS TAXES. EQR and Wellsford shall cooperate in the
preparation, execution and filing of all returns, questionnaires, applications
or other documents regarding any real property transfer or gains, sales, use,
transfer, value added stock transfer and stamp taxes, any transfer, recording,
registration and other fees and any similar taxes which become payable in
connection with the transactions contemplated by this Agreement (together with
any related interests, penalties or additions to tax, "Transfer and Gains
Taxes"). From and after the Effective Time, the Surviving Trust shall, or shall
cause ERP Operating Partnership, as appropriate, to pay or cause to be paid,
without deduction or withholding from any amounts payable to the holders of
beneficial interests in the Surviving Trust, all Transfer and Gains Taxes.
5.10 BENEFIT PLANS AND OTHER EMPLOYEE ARRANGEMENTS.
(a) BENEFIT PLANS. After the Effective Time, all employees of
Wellsford who are employed by the Surviving Trust shall, at the option of the
Surviving Trust, either continue to be eligible to participate in an "employee
benefit plan", as defined in Section 3(3) of ERISA, of Wellsford which is, at
the option of the Surviving Trust, continued by the Surviving Trust, or
alternatively shall be eligible to participate in the same manner as other
similarly situated employees of the Surviving Trust who were formerly employees
of EQR in any "employee benefit plan," as defined in Section 3(3) of ERISA,
sponsored or maintained by the Surviving Trust after the Effective Time. With
respect to each such employee benefit plan, service with EQR or any EQR
Subsidiary or with Wellsford or any Wellsford Subsidiary (as applicable) shall
be included for purposes of determining eligibility to participate, vesting (if
applicable) and entitlement to benefits. With respect to medical benefits
provided by the Surviving Trust on and after the Closing Date, coverage that
would otherwise be denied due to a preexisting illness shall be provided to
those employees who were covered by a plan sponsored by EQR, Wellsford or
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any of their Subsidiaries before the Closing Date, but only to the extent that
such illness was covered under such a plan before the Closing Date.
(b) SHARE INCENTIVE PLANS. The share incentive plans of Wellsford and
EQR, respectively, shall be terminated or continued, as specifically set forth
in the Articles of Merger.
(c) RETENTION PROGRAM. As of the Effective Time, the Surviving Trust
shall adopt a severance and retention program (the "Retention Program") with
respect to those employees of Wellsford and the Wellsford Subsidiaries set forth
in Schedule 5.10 to the Wellsford Disclosure Letter (the "Schedule 5.10
Employees") by issuing to such Schedule 5.10 Employees a letter substantially in
the form attached hereto as Exhibit "I" (the "Retention Program Letter");
provided, however, that in no event may the aggregate obligations of Wellsford
and the Surviving Trust under the Retention Program exceed $544,575. The
Surviving Trust shall maintain the Retention Program in accordance with the
terms thereof. In no event shall Wellsford adopt or agree to any other
severance or retention program in addition to the Retention Program, except as
otherwise specifically set forth in this Agreement. Neither the Retention
Program nor any other term of this Agreement shall require the Surviving Trust
to continue the employment of any employee of Wellsford after the Effective
Time. The Surviving Trust shall pay the amount set forth in Schedule 5.10 to
the Wellsford Disclosure Letter to each Schedule 5.10 Employee whose employment
is involuntarily terminated by the Surviving Trust without cause prior to such
employee's receipt of the Retention Program Letter.
(d) AGREEMENT OF OPTIONEES. Prior to the Closing, Wellsford shall use
its best efforts to obtain the written agreement of each employee (other than
the Executives of Wellsford as set forth in Exhibit "J" to this Agreement)
holding an option to purchase Wellsford Common Shares described in Schedule 2.3
to the Wellsford Disclosure Letter and of David Kelley to the cancellation of
such option at the Effective Time for cash in an amount equal to the difference
between $27.50 and the applicable exercise price set forth in such option,
multiplied by the number of Wellsford Common Shares subject to such option.
(e) RELEASE OF SURVIVING TRUST. At the Closing, each of (i) Jeffrey
H. Lynford, (ii) Edward Lowenthal, and (iii) each of the other Key Executives
set forth in Exhibit "J" who have agreed to the conversion of their options to
purchase Wellsford Common Shares into options to purchase common shares of
Newco, shall release the Surviving Trust from any obligations of Wellsford to
him under options to purchase Wellsford Common Shares which are exchanged for or
converted into options to purchase common shares of Newco.
(f) WITHHOLDING. Wellsford shall require each employee who exercises
an option to purchase Wellsford Common Shares or who receives Wellsford Common
Shares pursuant to any existing commitment to pay to Wellsford in cash or
Wellsford Common Shares an amount sufficient to satisfy in full Wellsford's
obligation to withhold Taxes incurred by reason of such exercise or issuance.
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(g) EXECUTIVES. The compensation, benefits, payments, accelerations,
share options and share appreciation rights of the "Executives" and the trustees
of Wellsford, as set forth in Exhibit "J" to this Agreement, shall be satisfied
at the Effective Time in accordance with the terms set forth in Exhibit "J" and
Schedule 5.10(g) to the Wellsford Disclosure Letter. For purposes of valuing
all existing options to be converted into options to purchase common shares of
Newco, Wellsford has utilized the Merrill Lynch trading desk formula pricing
model and take into account the number of options held, the exercise price and
duration thereof, the volatility of the market price of the shares involved, and
other required factors.
(h) COMMITTEE ACTION. Wellsford shall cause the appropriate committee
to take the appropriate action under Wellsford's 1992 Share Option Plan and
under its Long-Term Management Incentive Plan to cause each option to purchase
Wellsford Common Shares which remains unexercised as of the Effective Time to be
amended to adjust the number of shares for which such option is thereafter
exercisable and the exercise price by the Exchange Ratio, as provided for in the
Articles of Merger.
5.11 INDEMNIFICATION.
(a) From and after the Effective Time, the Surviving Trust 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 or trustee of Wellsford or any Wellsford Subsidiary (the "Indemnified
Parties") which is the same as the exculpation and indemnification provided to
the Indemnified Parties by Wellsford and the Wellsford Subsidiaries immediately
prior to the Effective Time in its Amended and Restated Declaration of Trust and
Bylaws, as in effect on the date hereof; provided, that such exculpation and
indemnification covers actions on or prior to the Effective Time, including,
without limitation, all transactions contemplated by this Agreement. In no
event shall the Surviving Trust be obligated to provide directors' and officers'
liability insurance. If the Surviving Trust has directors and officers'
insurance, such insurance shall apply to all directors and officers of the
Surviving Trust serving as such during the period such coverage is in effect.
(b) The Surviving Trust shall continue in force and effect after the
Effective Time each Indemnification Agreement between EQR and any Person which
was in force and effect immediately prior to the Effective Time.
(c) The provisions of this Section 5.11 are intended to be for the
benefit of, and shall be enforceable by, each Indemnified Party, his or her
heirs and his or her personal representatives and shall be binding on all
successors and assigns of EQR and Wellsford.
(d) In the event that the Surviving Trust or any of its respective
successors or assigns (i) consolidates with or merges into any other person and
shall not be the continuing or surviving corporation or entity of such
consolidation or merger or (ii) transfers all or
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substantially all of its properties and assets to any person, then, and in each
such case the successors and assigns of such entity shall assume the obligations
set forth in this Section 5.11, which obligations are expressly intended to be
for the irrevocable benefit of, and shall be enforceable by, each trustee and
officer covered hereby.
5.12 CONTRIBUTION AGREEMENT. Wellsford shall cause Newco to execute the
Contribution Agreement and any other agreement related to the transactions
contemplated hereby to which Newco is a party provided that Wellsford has
obtained all material consents required to be obtained by Wellsford and the
Wellsford Subsidiaries from third parties in order to perform their respective
obligations under the Contribution Agreement and the other agreements
contemplated hereby to which Newco is a party. Wellsford shall diligently seek
and use its best efforts to obtain such consents prior to the Closing Date.
Wellsford shall keep EQR currently apprised of its progress in obtaining such
consents. Wellsford shall inform EQR promptly if it appears unlikely that any
given consent will be obtained. Wellsford shall cooperate with EQR in taking
any action to either obtain such consents or to put Wellsford and the Wellsford
Subsidiaries in a position so that such consents are no longer required;
provided such action does not cost Wellsford a material amount or materially
adversely affect Wellsford and the Wellsford Subsidiaries.
5.13 DECLARATION OF DIVIDENDS AND DISTRIBUTIONS. From and after the date
of this Agreement, Wellsford shall not make any dividend or distribution to its
shareholders without the prior written consent of EQR; provided, however, the
written consent of EQR shall not be required for the distribution of Newco
shares pursuant to the Spin-Off and for the authorization and payment of
quarterly distributions with respect to the Wellsford Common Shares of up to
$0.485 per share, the Wellsford Series A Preferred Shares of up to $0.4375 per
share and the Wellsford Series B Preferred Shares of up to $0.603125 per share;
provided, however, the record date for each distribution with respect to the
Wellsford Common Shares shall be the same date as the record date for the
quarterly distribution for the Common Shares of EQR as provided to Wellsford by
notice not less than twenty (20) business days prior to the record date for any
quarterly EQR distribution; provided, however, in the event EQR has not notified
Wellsford of the record date for a quarterly distribution with respect to the
EQR Common Shares for any quarter prior to the last twenty (20) business days of
such quarter, Wellsford may authorize a distribution on the Wellsford Common
Shares, subject to the terms and conditions of this Section 5.13.
Notwithstanding the foregoing, if EQR is to be the Surviving Trust, Wellsford
may make distributions to its shareholders in excess of the foregoing amounts
without the consent of EQR but only to the extent such distributions are
required to comply with the minimum distribution requirements set forth in
Section 857(b) of the Code.
5.14 CONSULTING AGREEMENTS. ERP Operating Partnership shall enter into a
consulting agreement with each of Jeffrey H. Lynford and Edward Lowenthal which
shall become effective as of the Effective Time and shall be in substantially
the forms attached hereto as Exhibit "K".
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5.15 TRANSFER OF MANAGEMENT COMPANY SHARES. At the Closing, Wellsford
shall cause the owners (other than Wellsford or a wholly-owned subsidiary of
Wellsford) to transfer to such person or persons as EQR shall designate by
written notice delivered to Wellsford prior to the Closing, all of the shares of
Wellsford Holly Management Inc. ("Management Corp.") owned by them, constituting
all the outstanding shares of the Management Corp. which are not owned by
Wellsford or a wholly-owned subsidiary of Wellsford for an aggregate
consideration of $1.00, unless Management Corp. was dissolved prior to the
Closing Date.
5.16 TRANSFER OF WELLSFORD ASSETS AFTER EFFECTIVE TIME. Wellsford
acknowledges that immediately after the Effective Time, the real properties
owned by Wellsford and the Wellsford Subsidiaries and the equity interests in
certain of the Wellsford Subsidiaries shall be transferred to ERP Operating
Partnership, subject to all liabilities of Wellsford and the Wellsford
Subsidiaries, as a capital contribution in exchange for a number of units and
preferred units of ERP Operating Partnership equal to the number of common
shares of beneficial interest and preferred shares of beneficial interest of the
Surviving Trust issued in the Merger to the owners of the shares of beneficial
interest of Wellsford in the Merger; provided, however, that Wellsford makes no
representation or warranty regarding EQR's ability to accomplish the foregoing,
the costs that would be incurred in connection therewith or any consents or
approvals that may be required therefor.
5.17 NOTICES.
(a) Within the time period provided for in the Amended and Restated
Declaration of Trust of the Surviving Trust, the Surviving Trust shall notify
the holders of Wellsford Series A Preferred Shares (which have been converted
into Series D Preferred Shares of the Surviving Trust) of the conversion rate
applicable to such shares after giving effect to the Merger.
(b) Each party shall provide such notice to its shareholders of the
Merger as is required under Maryland law.
5.18 RESIGNATIONS. On the Closing Date, Wellsford shall cause the
trustees, directors and officers of Wellsford and each of the Wellsford
Subsidiaries (excluding Newco and its Subsidiaries) to submit their resignations
from such positions, effective as of the Effective Time.
5.19 THIRD PARTY MANAGEMENT AGREEMENTS. Wellsford shall not amend the
existing Third Party Management Agreement which provides that such agreement may
be cancelled by Wellsford on thirty days' notice or less without any charge,
penalty or other cost for such cancellation. Wellsford shall not renew the
other existing Third Party Management Agreement which expires in April, 1997
except on terms which permit its cancellation by Wellsford on thirty days'
notice or less without any charge, penalty or other cost for such cancellation,
and shall not thereafter amend such terms.
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5.20 REPAYMENT OF CERTAIN INDEBTEDNESS. Wellsford covenants that on the
Closing Date it shall cause Newco and its Subsidiaries to repay all loans made
to any of them by Wellsford or the other Wellsford Subsidiaries and to procure
on the Closing Date the unconditional and irrevocable release of Wellsford and
such other Wellsford Subsidiaries from any guaranties of the obligations of
Newco and its Subsidiaries (whether effected directly or indirectly through the
repayment of the indebtedness so guaranteed), other than the guaranties
contemplated under the Credit Enhancement Agreement and the Palomino Agreement.
Wellsford covenants that it shall cause Newco to apply the Contribution Funds
(as defined in the Contribution Agreement) and shall cause Newco to request
purchases of shares of Newco under the Newco Stock Purchase Agreement to the
extent that Newco does not repay such indebtedness from other sources and obtain
such releases by other means.
5.21 10B-17 NOTICE. Wellsford shall give any notice required under Rule
10b-17 promulgated under the Exchange Act of the record date for determining the
holders of Wellsford Common Shares entitled to receive the distribution of the
shares of Newco owned by Wellsford. The parties shall co-operate in
establishing the date for the Closing Date in order to facilitate compliance
with said Rule.
5.22 DENVER LEASE. Prior to the Closing Date, Wellsford may sublease the
office space in Denver, Colorado currently leased by Wellsford (the "Denver
Space") to a subtenant with EQR's prior consent, which consent shall not be
withheld if such prospective tenant is financially capable of making the rental
payments under the sublease. If the Denver Space has not been subleased by
Wellsford by the Closing Date, the Surviving Trust shall use reasonable
commercial efforts to sublease the Denver Space; provided that the Surviving
Trust shall not be required to sublease such space to any Person which is not
financially capable of making the payments required under the sublease. Newco
may refer potential tenants to the Surviving Trust and may sublease the Denver
Space itself. If the Denver Space is not subleased by the Closing Date, but is
thereafter subleased by the Surviving Trust, the Surviving Trust shall pay to
Newco the present value (determined using an interest rate of 8%) of all base
rent payable under such sublease (net of third party brokers' commissions)
promptly after such sublease is executed by the parties.
5.23 NEW YORK LEASE. If prior to the Effective Time Wellsford is unable
to obtain the consent of the landlord under the lease of the office space in New
York, New York currently leased by Wellsford (the "New York Lease") to either
(a) the assignment of the New York Lease to Newco and the release of the
Surviving Trust from all liability under the New York Lease, or (ii) the
sublease to Newco of the space leased under the New York Lease, then the
Surviving Trust will reasonably co-operate with Newco to provide Newco with the
benefits of the New York Lease, including becoming a 50% joint venture partner
with Newco in an entity formed to sublease such space.
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5.24 AMENDMENT TO ARTICLES OF WPHC. Prior to the Closing Date, Wellsford
shall cause: (a) the Articles of Incorporation of WPHC to be amended so as to
provide (i) for two classes of common shares which shall be identical in all
respects except that (A) one class shall be voting (the "WPHC Voting Shares")
and one class shall be non-voting (the "WPHC Non-Voting Shares"), and (B) each
WPHC Non-Voting Share shall be convertible at any time into one WPHC Voting
Share, and (ii) that no dividend may be declared or paid on the outstanding
shares of either class of common shares of WPHC unless the same dividend is
declared on both classes of common shares of WPHC, except that any stock
dividend payable solely in common shares of WPHC shall be paid in WPHC Voting
Shares, as to such dividends on WPHC Voting Shares, or WPHC Non-Voting Shares,
as to dividends on WPHC Non-Voting Shares, and (b) the shares of WPHC owned by
Wellsford to be converted or exchanged for 80 WPHC Voting Shares, which shall be
contributed to Newco pursuant to the Contribution Agreement, and 20 WPHC Non-
Voting Shares, which shall continue to be owned by the Surviving Trust after the
Effective Time.
5.25 COMPLETION OF ARTICLES OF MERGER. If the Closing Date occurs on or
after the annual meeting of the shareholders of EQR for 1997, Exhibit "B" to the
Articles of Merger shall be completed prior to the execution thereof by the
parties in such a manner so that each of Jeffrey H. Lynford and Edward Lowenthal
shall be designated as trustees whose terms expire at the annual meeting of the
shareholders of the Surviving Trust held in 2000. If the Closing Date occurs
before the annual meeting of the shareholders of EQR for 1997, (a) Exhibit "B"
to the Articles of Merger shall be completed prior to the execution thereof by
the parties in such a manner so that each of Jeffrey H. Lynford and Edward
Lowenthal shall be designated as trustees whose terms expire at the annual
meeting of the shareholders of the Surviving Trust held in 1998, and (b) Jerry
H. Lynford and Edward Lowenthal shall be designated as management's designees in
the Surviving Trust's proxy material for its annual meeting of shareholders held
in 1998 to serve as trustees of the Surviving Trust with terms expiring at the
annual meeting of shareholders of the Surviving Trust held in 2000. The terms
of the remaining trustees of the Surviving Trust shall be completed in Exhibit
"B" in the manner designated by EQR.
ARTICLE 6
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CONDITIONS
----------
6.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER. The
obligations of each party to effect the Merger shall be subject to the
fulfillment at or prior to the Closing Date of the following conditions:
(a) SHAREHOLDER APPROVALS. This Agreement, the Merger and the
transactions contemplated by this Agreement shall have been approved and
adopted by the Shareholder Approvals.
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(b) LISTING OF SHARES. The NYSE shall have approved for listing the
shares of beneficial interest of the Surviving Trust to be issued in the
Merger, subject in each case to official notice of issuance.
(c) REGISTRATION STATEMENT. The Registration Statement shall have
become effective under the Securities Act and shall not be the subject of
any stop order or proceedings by the SEC seeking a stop order.
(d) 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.
(e) BLUE SKY LAWS. The Surviving Trust shall have received all state
securities or "blue sky" permits and other authorizations necessary to
issue shares of beneficial interest to the shareholders of EQR and
Wellsford.
(f) OPINION OF MARYLAND COUNSEL. EQR and Wellsford shall have
received the opinion of Ballard Spahr Andrews & Ingersoll to the effect
that this Agreement and the Articles of Merger are enforceable under
Maryland law, that all requisite approval of the Merger by the shareholders
of EQR and Wellsford has been obtained, and as to such other matters as are
customary in a transaction such as the Merger.
6.2 CONDITIONS TO OBLIGATIONS OF EQR. The obligations of EQR 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 EQR:
(a) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Wellsford set forth in this Agreement shall be true and
correct as of the Closing Date (other than changes thereto which occurred
solely by reason of the Spin-Off), 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 EQR shall have received a
certificate (which certificate may be qualified by Knowledge to the same
extent as the representations and warranties of Wellsford contained herein
are so qualified) signed on behalf of Wellsford by the chief executive
officer or the chief financial officer of Wellsford, in such capacity, to
such effect; provided, however, that no representation or warranty shall be
deemed to have been breached as a result of any act of Newco and its
Subsidiaries taken or omitted to be taken after the date of this Agreement,
if such act or omission was taken or omitted to be taken without causing
Newco to breach Section 4.2 of this Agreement. For the purposes of Section
6.2(a), the representations and warranties of Wellsford shall be deemed
true and correct unless the breach of such representations
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and warranties, in the aggregate, could reasonably be expected to have a
Wellsford Material Adverse Effect.
(b) PERFORMANCE OF OBLIGATIONS OF WELLSFORD. Wellsford shall have
performed in all material respects all obligations required to be performed
by it under this Agreement at or prior to the Effective Time, and EQR shall
have received a certificate signed on behalf of Wellsford by the chief
executive officer or the chief financial officer of Wellsford, in such
capacity, to such effect. For purposes of this Agreement, the inability of
Newco to (i) repay all of the loans and advances made to it by Wellsford or
any of the other Wellsford Subsidiaries, after giving effect to all cash to
be received by Newco on the Closing Date (including any amounts to be
received under the Newco Stock Purchase Agreement), shall be deemed to be a
material default, and (ii) the inability of Newco to obtain the
unconditional and irrevocable release from any obligations of Newco and its
Subsidiaries issued after the date of this Agreement (whether directly
through a release or indirectly through the payment of the indebtedness so
guaranteed) shall be deemed to be a material default. Notwithstanding the
foregoing, if Newco is unable to repay such indebtedness to Wellsford on
the Closing Date, after giving effect to all cash to be received by Newco
on the Closing Date (including any amounts to be received under the Newco
Stock Purchase Agreement), EQR may, at its option, and in lieu of
terminating this Agreement, require Newco to execute and deliver to the
Surviving Trust a promissory note in the amount of such indebtedness which
Newco is unable to pay, payable in twelve (12) equal consecutive monthly
installments on the last day of each month, commencing with the month next
following the month in which the Merger occurs, together with interest
thereon at a rate equal to the Revolver Rate plus 2%, payable with each
installment of principal.
(c) MATERIAL ADVERSE CHANGE. Since the date of this Agreement, there
shall have been no Wellsford Material Adverse Change and EQR shall have
received a certificate of the chief executive officer or chief financial
officer of Wellsford, in such capacity, certifying to such effect.
(d) OPINIONS RELATING TO REIT AND PARTNERSHIP STATUS. EQR shall have
received an opinion of counsel to Wellsford, reasonably satisfactory to
EQR, that, commencing with its taxable year ended December 31, 1993,
Wellsford 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) OTHER TAX OPINION. EQR shall have received an opinion dated the
Closing Date from counsel to EQR, based upon certificates and letters,
which letters and certificates are substantially in the form set forth in
Exhibit "L" hereto and dated the
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Closing Date, to the effect that the Merger will qualify as a
reorganization under the provisions of Section 368(a) of the Code.
(f) COMFORT LETTER. EQR shall have received the letter from the
accountants for Wellsford required by Section 5.8 hereof.
(g) OPINION OF COUNSEL. EQR shall have received an opinion from
Robinson Silverman Pearce Aronsohn & Berman LLP or other counsel to
Wellsford reasonably satisfactory to EQR dated the Closing Date in form and
substance reasonably satisfactory to EQR addressing the matters set forth
in Exhibit "M" hereto.
(h) CONSENTS. All consents and waivers (including, without
limitation, waivers of rights of first refusal) from third parties
necessary in connection with the consummation of the transactions
contemplated by this Agreement shall have been obtained, other than such
consents and waivers from third parties, which, if not obtained, would not
result, individually or in the aggregate, in an EQR Material Adverse Effect
or a Wellsford Material Adverse Effect.
(i) CONSULTING AGREEMENTS. Jeffrey H. Lynford and Edward Lowenthal
shall have executed and delivered their respective Consulting Agreements.
(j) SHARES OF MANAGEMENT CORP. Unless Management Corp. was dissolved
before the Closing Date, the voting shares of Management Corp. shall have
been transferred to EQR's designees in accordance with Section 5.15.
(k) RELEASES. The Key Executives shall have executed the releases
described in Section 5.10(e).
(l) WPHC ARTICLES. The Articles of Incorporation of WPHC shall have
been amended as provided in Section 5.24 and immediately prior to the Spin-
off, Wellsford's ownership interest in WPHC shall consist solely of 80 WPHC
Voting Shares and 20 WPHC Non-Voting Shares.
(m) CONTRIBUTION AGREEMENT. Wellsford and Newco shall have entered
into the Contribution Agreement and each of the transactions contemplated
thereby shall have been completed to the extent required to be completed
thereunder as of such time.
(n) NEWCO STOCK PURCHASE AGREEMENT. Newco shall have executed and
delivered the Newco Stock Purchase Agreement.
(o) PALOMINO CREDIT ENHANCEMENT AGREEMENT. Newco shall have executed
and delivered the Palomino Credit Enhancement Agreement.
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(p) PALOMINO AGREEMENT. Newco shall have executed and delivered the
Palomino Agreement.
(q) SONTERRA RIGHT OF FIRST OFFER. Newco shall have executed and
delivered the Sonterra Right of First Offer Agreement.
(r) TRANSACTION COSTS AGREEMENT. Each of Wellsford and Newco shall
have executed and delivered the Transaction Costs Agreement.
6.3 CONDITIONS TO OBLIGATIONS OF WELLSFORD. The obligation of Wellsford
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 Wellsford:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of EQR set forth in this Agreement shall be true and correct as of the date
of this Agreement and as of the Closing Date, as though made on and as of
the Closing Date, except to the extent the representation or warranty is
expressly limited by its terms to another date, and Wellsford shall have
received a certificate (which certificate may be qualified by Knowledge to
the same extent as the representations and warranties of EQR contained
herein are so qualified) signed on behalf of EQR by the chief executive
officer and the chief financial officer of such party to such effect. For
the purposes of this Section 6.3(a), the representations and warranties of
EQR shall be deemed true and correct unless the breach of such
representations and warranties, in the aggregate, could reasonably be
expected to have an EQR Material Adverse Effect.
(b) PERFORMANCE OF OBLIGATIONS OF EQR. EQR shall have performed in
all material respects all obligations required to be performed by it under
this Agreement at or prior to the Effective Time, and Wellsford shall have
received a certificate of EQR signed on behalf of EQR by the chief
executive officer or the chief financial officer of EQR, in such capacity,
to such effect.
(c) MATERIAL ADVERSE CHANGE. Since the date of this Agreement, there
shall have been no EQR Material Adverse Change and Wellsford shall have
received a certificate of the chief executive officer or chief financial
officer of EQR, in such capacity, certifying to such effect.
(d) COMFORT LETTER. Wellsford shall have received the letter from the
accountants for EQR required by Section 5.8 hereof.
(e) OPINION RELATING TO REIT STATUS AND PARTNERSHIP STATUS. Wellsford
shall have received an opinion of counsel to EQR, reasonably satisfactory
to Wellsford,
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that, commencing with its taxable year ended December 31, 1993, (A) EQR was
organized and has operated in conformity with the requirements for
qualification as a REIT under the Code and (B) ERP Operating Partnership
has been during and since 1993 and continues to be, treated of federal
income tax purposes as a partnership, and not as a corporation or
association taxable as a corporation (with customary exceptions,
assumptions and qualifications and based upon customary representations).
(f) OTHER TAX OPINION. Wellsford shall have received an opinion dated
the Closing Date from counsel to Wellsford, based upon certificates and
letters, which letters and certificates are substantially in the form set
forth in Exhibit "N" hereto and dated the Closing Date, to the effect that
the Merger will qualify as a reorganization under the provisions of Section
368(a) of the Code.
(g) OPINION OF COUNSEL. Wellsford shall have received an opinion from
Rudnick & Wolfe or other counsel to EQR reasonably satisfactory to
Wellsford dated the Closing Date in form and substance reasonably
satisfactory to Wellsford addressing the matters set forth in Exhibit "O"
hereto dated the Closing Date.
(h) CONSENTS. All consents and waivers (including, without
limitation, waivers or rights of first refusal) from third parties
necessary in connection with the consummation of the transactions
contemplated hereby shall have been obtained, other than such consents and
waivers from third parties, which, if not obtained, would not result,
individually or in the aggregate, in an EQR Material Adverse Effect or a
Wellsford Material Adverse Effect.
(i) CONSULTING AGREEMENT. ERP Operating Partnership shall have
executed the Consulting Agreements with each of Jeffrey H. Lynford and
Edward Lowenthal.
(j) NEWCO STOCK PURCHASE AGREEMENT. ERP Operating Partnership shall
have executed and delivered the Newco Stock Purchase Agreement.
(k) PALOMINO CREDIT ENHANCEMENT AGREEMENT. ERP Operating Partnership
shall have executed and delivered the Palomino Credit Enhancement
Agreement.
(l) PALOMINO AGREEMENT. ERP Operating Partnership shall have executed
and delivered the Palomino Agreement.
(m) SONTERRA RIGHT OF FIRST OFFER. ERP Operating Partnership shall
have executed and delivered the Sonterra Right of First Offer Agreement.
(n) TRANSACTION COSTS AGREEMENT. EQR shall have executed and
delivered the Transaction Costs Agreement.
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ARTICLE 7
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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 Department, whether before or
after either of the Shareholder Approvals are obtained:
(a) by mutual written consent duly authorized by the respective Boards
of Trustees of EQR and Wellsford;
(b) by EQR, upon a breach of any representation, warranty, covenant,
obligation or agreement on the part of Wellsford set forth in this
Agreement, in either case such that the conditions set forth in Section
6.2(a) or Section 6.2(b), as the case may be, would be incapable of being
satisfied by August 1, 1997 (or as otherwise extended);
(c) by Wellsford, upon a breach of any representation, warranty,
covenant obligation or agreement on the part of EQR set forth in this
Agreement, in either case such that the conditions set forth in Section
6.3(a) or Section 6.3(b), as the case may be, would be incapable of being
satisfied by August 1, 1997 (or as otherwise extended);
(d) by either EQR or Wellsford, if any judgment, injunction, order,
decree or action by any Governmental Entity of competent authority
preventing the consummation of the Merger shall have become final and
nonappealable;
(e) by either EQR or Wellsford, if the Merger shall not have been
consummated before August 1, 1997; provided, in the case of termination
pursuant to this Section 7.1(e), the terminating party shall not 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 Section;
(f) by either EQR or Wellsford if, upon a vote at a duly held
Wellsford Shareholders Meeting or any adjournment thereof, Wellsford
Shareholder Approvals shall not have been obtained as contemplated by
Section 5.1;
(g) by either EQR or Wellsford if, upon a vote at a duly held EQR
Shareholders Meeting or any adjournment thereof, the EQR Shareholder
Approvals shall not have been obtained as contemplated by Section 5.1;
(h) by Wellsford, if prior to the Wellsford Shareholders Meeting, the
Board of Trustees of Wellsford shall have withdrawn or modified its
approval or
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recommendation of the Merger or this Agreement in connection with, or
approved or recommended, a Superior Acquisition Proposal;
(i) by EQR if (i) prior to the Wellsford Shareholders Meeting, the
Board of Trustees of Wellsford shall have withdrawn or modified in any
manner adverse to EQR its approval or recommendation of the Merger or this
Agreement in connection with, or approved or recommended, any Superior
Acquisition Proposal, or (ii) Wellsford shall have entered into a
definitive agreement with respect to any Acquisition Proposal; and
(j) by Wellsford or EQR if the Average Closing Price is less than
$37.00 per share; provided, however, any notice of termination given
pursuant to this Section 7.1(j) shall be given within three (3) business
days after the date that such right of termination accrues.
7.2 CERTAIN FEES AND EXPENSES. If this Agreement shall be terminated (i)
pursuant to Section 7.1(h) or 7.1(i), then Wellsford will pay EQR (provided
Wellsford was not entitled to terminate this Agreement pursuant to Section
7.1(c) at the time of such termination) a fee equal to the Break-Up Fee (as
defined below), (ii) pursuant to Section 7.1(b) or 7.1(f), then Wellsford will
pay EQR (provided Wellsford was not entitled to terminate this Agreement
pursuant to Section 7.1(c) at the time of such termination) an amount equal to
the Break-Up Expenses (as defined below). If this Agreement shall be terminated
pursuant to Section 7.1(c) or 7.1(g), then EQR will pay Wellsford (provided EQR
was not entitled to terminate this Agreement pursuant to Section 7.1(b) at the
time of such termination), an amount equal to the Break-Up Expenses. If the
Merger is not consummated (other than due to the termination of this Agreement
pursuant to Section 7.1(a), 7.1(g) or 7.1(j) or EQR's failure to perform its
obligations under this Agreement in such a manner so as to entitle Wellsford to
terminate this Agreement pursuant to Section 7.1(c)) and at the time of the
termination of this Agreement an Acquisition Proposal has been received by
Wellsford, and either prior to the termination of this Agreement or within
twelve (12) months thereafter Wellsford or any Wellsford Subsidiary enters into
any written Acquisition Proposal which is subsequently consummated (whether or
not such Acquisition Proposal is the same Acquisition Proposal which had been
received at the time of the termination of this Agreement), then Wellsford shall
pay the Break-Up Fee to EQR. The payment of the Break Up Fee shall be
compensation and liquidated damages for the loss suffered by EQR 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 Break-Up Fee. The Break-
Up Fee shall be paid by Wellsford to EQR, or the Break-Up Expenses shall be paid
by Wellsford to EQR or EQR to Wellsford (as applicable), 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,
"Break-Up Fee" shall be an amount equal to the lesser of (i) $14,000,000 plus
Break-Up Expenses (the "Base Amount") and (ii) the sum of (A) the maximum amount
that can be paid to EQR without causing it 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
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in Sections 856(c)(2)(A)-(H) and 856(c)(3)(A)-(I) of the Code ("Qualifying
Income"), as determined by independent accountants to EQR, and (B) in the event
EQR receives a letter from outside counsel (the "Break-Up Fee Tax Opinion")
indicating that EQR has received a ruling from the IRS holding that EQR's
receipt of the 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 EQR of the remaining
balance of the Base Amount following the receipt of and pursuant to such ruling
would not be deemed constructively received prior thereto, the Base Amount less
the amount payable under clause (A) above. Wellsford's obligation to pay any
unpaid portion of the Break-Up Fee shall terminate three years from the date of
this Agreement. In the event that EQR is not able to receive the full Base
Amount, Wellsford shall place the unpaid amount in escrow and shall not release
any portion thereof to EQR unless and until Wellsford receives any one or
combination of the following: (i) a letter from EQR's independent accountants
indicating the maximum amount that can be paid at that time to EQR without
causing EQR to fail to meet the REIT Requirements or (ii) a Break-Up Fee Tax
Opinion, in which event Wellsford shall pay to EQR the lesser of the unpaid Base
Amount or the maximum amount stated in the letter referred to in (i) above. The
"Break-Up Expenses" payable to EQR or Wellsford, as the case may be (the
"Recipient"), shall be an amount equal to the lesser of (i) $2,500,000, (ii) the
Recipient's out-of-pocket expenses incurred in connection with this Agreement
and the transactions contemplated hereby (including, without limitation, all
attorneys', accountants' and investment bankers' fees and expenses) and (iii)
the sum of (A) the maximum amount that can be paid to the Recipient without
causing it to fail to meet the requirements of Sections 856(c)(2) and (3) of the
Code determined as if the payment of such amount did not constitute Qualifying
Income, as determined by independent accountants to the Recipient, and (B) in
the event the Recipient receives a Break Up Fee Tax Opinion indicating that the
Recipient has received a ruling from the IRS holding that the Recipient's
receipt of the Expense Fee would either constitute Qualifying Income or would be
excluded from gross income within the meaning of the REIT Requirements or that
receipt by the Recipient of the remaining balance of the Expense Fee following
the receipt of and pursuant to such ruling would not be deemed constructively
received prior thereto, the Expense Fee less the amount payable under clause (A)
above. The obligation of EQR or Wellsford, as applicable ("Payor"), to pay any
unpaid portion of the Break Up Expenses shall terminate three years from the
date of this Agreement. In the event that the Recipient is not able to receive
the full Expense Fee, 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 any one or combination 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 to fail to meet
the REIT Requirements or (ii) a Break-Up Fee Tax Opinion, in which event the
Payor shall pay to the Recipient the lesser of the unpaid Expense Fee or the
maximum amount stated in the letter referred to in (i) above.
7.3 EFFECT OF TERMINATION. In the event of termination of this Agreement
by either Wellsford or EQR 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 EQR, or Wellsford, other than
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the last sentence of Section 5.2, Section 7.2, this Section 7.3 and Article 8;
provided that (a) if this Agreement is terminated by EQR pursuant to Section
7.1(b), Wellsford shall not be entitled to any of the benefits of Section 7.2,
or (b) if this Agreement is terminated by Wellsford pursuant to Section 7.1(c),
EQR shall not be entitled to any of the benefits of Section 7.2.
7.4 AMENDMENT. This Agreement may be amended by the parties in writing by
action of their respective Boards of Trustees at any time before or after any
Shareholder Approvals are obtained and prior to the filing of the Articles of
Merger with the Department; provided, however, that, after the Shareholder
Approvals are obtained, no such amendment, modification or supplement shall be
made which by law requires the further approval of shareholders without
obtaining such further approval.
7.5 EXTENSION; WAIVER. At any time prior to the Effective Time, the
parties may (a) extend the time for the performance of any of the obligations or
other acts of the other party, (b) waive any inaccuracies in the representations
and warranties of the other party contained in this Agreement or in any document
delivered pursuant to this Agreement or (c) subject to the proviso of Section
7.4, waive compliance with any of the agreements or conditions of the other
party contained in this Agreement. Any agreement on the part of a party to any
such extension or waiver shall be valid only if set forth in an instrument in
writing signed on behalf of such party. The failure of any party to this
Agreement to assert any of its rights under this Agreement or otherwise shall
not constitute a waiver of those rights.
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):
53
<PAGE>
(a) if to EQR, to: Equity Residential Properties Trust
Two North Riverside Plaza, Suite 400
Chicago, Illinois 60606
Attention: President
Fax No. (312) 207-5243
with a copy to: Equity Residential Properties Trust
Two North Riverside Plaza, Suite 400
Chicago, Illinois 60606
Attention: Bruce C. Strohm, Esq.
Fax No. (312) 454-0039
Rudnick & Wolfe
203 N. LaSalle St., Suite 1800
Chicago, Illinois 60601
Attention: Errol R. Halperin, Esq.
Fax No. (312) 236-7516
(b) if to Wellsford, to: Wellsford Residential Property Trust
610 Fifth Avenue, 7th Floor
New York, New York 10020
Attention: President
Fax No. (212) 333-2323
with a copy to: Robinson Silverman Pearce Aronsohn &
Berman LLP
1290 Avenue of the Americas
New York, New York 10104-0053
Attention: Alan S. Pearce, Esq.
Fax No. (212) 541-1411
All notices shall be deemed given only when actually received.
8.3 INTERPRETATION. When a reference is made in this -Agreement to a
Section, such reference shall be to a Section of this Agreement unless otherwise
indicated. The table of contents and headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. Whenever the words "include", "includes" or
"including" are used in this Agreement, they shall be deemed to be followed by
the words "without limitation."
8.4 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other party.
54
<PAGE>
8.5 ENTIRE AGREEMENT; NO THIRD-PARTY BENEFICIARIES. This Agreement, the
Wellsford Disclosure Letter, the EQR Disclosure Letter, the Confidentiality
Agreement and the other agreements entered into in connection with the
Transactions (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 5.10 (with respect to the Schedule 5.10 Employees who do not receive
Retention Program Letters) and Section 5.11 ("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 trustees of Wellsford
who had been trustees of Wellsford prior to the Effective Time.
8.6 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF MARYLAND, REGARDLESS OF THE LAWS THAT
MIGHT OTHERWISE GOVERN UNDER APPLICABLE PRINCIPLES OF CONFLICT OF LAWS THEREOF.
8.7 ASSIGNMENT. Neither this Agreement nor any of the rights, interests
or obligations under this Agreement shall be assigned or delegated, in whole or
in part, by operation of law or otherwise by any of the parties without the
prior written consent of the other parties. Subject to the preceding sentence,
this Agreement will be binding upon, inure to the benefit of, and be enforceable
by, the parties and their respective successors and assigns.
8.8 ENFORCEMENT. The parties agree that irreparable damage would
occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached.
It is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement in any court of the United States
located in the State of Illinois or New York or in any Illinois or New York
State court located in Illinois or New York, this being in addition to any other
remedy to which they are entitled at law or in equity. In addition, each of the
parties hereto (a) consents to submit itself (without making such submission
exclusive) to the personal jurisdiction of any federal court located in the
State of Illinois or New York or any Illinois or New York State court in the
event any dispute arises out of this Agreement or any of the transactions
contemplated by this Agreement and (b) agrees that it will not attempt to deny
or defeat such personal jurisdiction by motion or other request for leave from
any such court.
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
55
<PAGE>
broad as to be unenforceable, the provision shall be interpreted to be only so
broad as is enforceable.
8.10 NON-RECOURSE.
(a) This Agreement and all documents, agreements, understandings and
arrangements relating hereto have been entered into or executed on behalf of
Wellsford by the undersigned in his capacity as a trustee or officer of
Wellsford, which has been formed as a Maryland real estate investment trust
pursuant to an Amended and Restated Declaration of Trust of Wellsford dated as
of November 2, 1992, as amended and restated, and not individually, and neither
the trustees, officers nor shareholders of Wellsford shall be personally bound
or have any personal liability hereunder. EQR shall look solely to the assets
of Wellsford for satisfaction of any liability of Wellsford with respect to this
Agreement and any other agreements to which it is a party. EQR will not seek
recourse or commence any action against any of the shareholders of Wellsford or
any of their personal assets, and will not commence any action for money
judgments against any of the trustees or officers of Wellsford or seek recourse
against any of their personal assets, for the performance or payment of any
obligation of Wellsford hereunder or thereunder.
(b) This Agreement and all documents, agreements, understandings and
arrangements relating hereto have been entered into or executed on behalf of EQR
by the undersigned in his capacity as a trustee or officer of EQR, which has
been formed as a Maryland real estate investment trust pursuant to an Amended
and Restated Declaration of Trust of EQR dated as of August 10, 1993, as amended
and restated, and not individually, and neither the trustees, officers nor
shareholders of EQR shall be personally bound or have any personal liability
hereunder. Wellsford shall look solely to the assets of EQR for satisfaction of
any liability of EQR with respect to this Agreement and any other agreements to
which it is a party. Wellsford will not seek recourse or commence any action
against any of the shareholders of EQR or any of their personal assets, and will
not commence any action for money judgments against any of the trustees or
officers of EQR or seek recourse against any of their personal assets, for the
performance or payment of any obligation of EQR hereunder or thereunder.
56
<PAGE>
IN WITNESS WHEREOF, EQR and Wellsford have caused this Agreement to be
signed by their respective officers thereunto duly authorized all as of the date
first written above.
EQUITY RESIDENTIAL PROPERTIES
TRUST
By:/s/ Douglas J. Crocker II
------------------------------------------
Name: Douglas J. Crocker II
-------------------------------------
Title: Chief Executive Officer & President
------------------------------------
WELLSFORD RESIDENTIAL PROPERTY
TRUST
By:/s/ Edward Lowenthal
------------------------------------------
Name: Edward Lowenthal
-------------------------------------
Title: President
------------------------------------
57
<PAGE>
EXHIBIT "G"
-----------
ADJUSTMENT TO EXCHANGE RATIO
----------------------------
<TABLE>
<CAPTION>
IF AVERAGE PRICE IS: EXCHANGE RATIO IS:
-------------------- ------------------
<S> <C>
$40.000 0.625
$39.875 0.627
$39.750 0.629
$39.625 0.631
$39.500 0.633
$39.375 0.635
$39.250 0.637
$39.125 0.639
$39.000 0.641
$38.875 0.643
$38.750 0.645
$38.625 0.647
$38.500 0.649
$38.375 0.651
$38.250 0.654
$38.125 0.656
$38.000 0.658
$37.875 0.659
$37.750 0.660
$37.625 0.661
$37.500 0.662
$37.375 0.663
$37.250 0.664
$37.125 0.665
$37.000 0.666
</TABLE>
G-1
<PAGE>
APPENDIX B
----------
EQUITY RESIDENTIAL PROPERTIES TRUST
WELLSFORD RESIDENTIAL PROPERTY TRUST
ARTICLES OF MERGER
------------------
Wellsford Residential Property Trust, a Maryland real estate investment
trust ("Wellsford"), and Equity Residential Properties Trust, a Maryland real
estate investment trust ("Equity"), certify to the State Department of
Assessments and Taxation of Maryland:
1. The Merger. Equity and Wellsford agree to merge in the manner
hereinafter set forth. Subject to the acceptance for record of these Articles
by the State Department of Assessments and Taxation of Maryland (the
"Department"), Equity shall be merged with and into Wellsford in accordance with
Section 8.501.1 of the Corporations and Associations Article of the Annotated
Code of Maryland (the "Maryland Code"), and the separate existence of Equity
shall thereupon cease.
2. The Surviving Trust. Wellsford is the real estate investment trust to
survive the Merger. When used in these Articles, the term "Surviving Trust"
shall mean Wellsford as the trust surviving in the Merger as of the Effective
Time (as defined below) and thereafter.
3. Formation. Both Wellsford and Equity are formed under Title 8 of the
Maryland Code.
4. Principal Offices. The principal office of each of Wellsford and
Equity in the State of Maryland is located in Baltimore City.
5. Ownership of Land Interests. Equity owns interests in land in the
following counties located within the State of Maryland: [list counties]
6. Declaration of Trust. Effective as of the Effective Time, the
Declaration of Trust (the "Declaration") of the Surviving Trust shall be amended
and restated in its entirety as set forth in Exhibit "A" to these Articles,
until duly amended in its entirety in accordance with its terms and applicable
law. The name and address of the Surviving Trust's Resident Agent is as set
forth in Section 1.2 of Exhibit "A".
7. Effective Time. The Merger shall be effective at the time the
Department accepts these Articles for Record [or a different time established
herein, not to exceed 30 days after the Articles are accepted for Record] (the
"Effective Time") (The date on which the Effective Time occurs is herein
referred to as the "Effective Date").
8. Effects. The Merger shall have the effects specified in Section
8.501.1(n) of the Maryland Code. If at any time the Surviving Trust shall
consider or be advised that any further
<PAGE>
assignments, conveyances or assurances in law are necessary or desirable to
vest, perfect or confirm in the Surviving Trust the title to any property or
rights of Equity or Wellsford or otherwise to carry out the provisions hereof,
the persons who are the proper officers and trustees of Equity or Wellsford
immediately prior to the Effective Time (or their successors in office) shall
execute and deliver any and all proper deeds, assignments and assurances in law,
and do all things necessary or proper, to vest, perfect or confirm title to such
property or rights in the Surviving Trust and otherwise to carry out the
provisions hereof. The Surviving Trust shall be governed by the laws of the
State of Maryland. The parties hereto shall take all actions necessary in
accordance with applicable law and their respective Amended and Restated
Declarations of Trust ("Declarations") and Bylaws to cause the Merger to be
consummated at the earliest lawful and practicable date.
9. Approval of Merger. The terms and conditions of the Merger were duly
advised, authorized and approved by Equity in the manner and by the vote
required by the laws of the State of Maryland and the Declaration of Trust of
Equity as follows:
(a) The Board of Trustees of Equity, at a meeting duly called and
held, adopted a resolution declaring that the terms and
conditions of the Merger described herein were advisable and
directing that the proposed transaction be submitted for
consideration by the shareholders of Equity.
(b) The shareholders of Equity entitled to vote on the proposed
merger, at a meeting duly called and held, adopted a resolution
approving the Merger.
The terms and conditions of the Merger were duly advised, authorized
and approved by the Wellsford in the manner and by the vote required by the laws
of the State of maryland and the Declaration of Trust of Wellsford as follows:
(a) The Board of Trustees of Wellsford, at a meeting duly called and
held, adopted a resolution declaring that the terms and
conditions of the Merger described herein were advisable and
directing that the proposed transaction be submitted for
consideration by the shareholders of Wellsford.
(b) The shareholders of Wellsford entitled to vote on the proposed
merger, at a meeting duly called and held, adopted a resolution
approving the Merger.
10. Trustees. As of the Effective Time, the trustees of the Surviving
Trust and their terms of office shall be as set forth on Exhibit "B" attached
hereto. If any of the individuals named in Exhibit "B" are unable to serve as a
trustee of the Surviving Trust at the Effective Time, his successor will be
nominated and elected in accordance with the Bylaws of the Surviving Trust.
2
<PAGE>
11. Capital.
(a) Wellsford's Declaration authorizes the issuance of 100,000,000
shares of beneficial interest, which consists of common shares, $.01 par
value per share ("Wellsford Common") and such other types or classes as the
trustees may create and authorize from time to time. Wellsford has
established the following classes of preferred shares: (i) 4,600,000 shares
of Series A Convertible Preferred Shares of Beneficial Interest, par value
$.01 per share ("Wellsford Series A") and (ii) 2,300,000 shares of Series B
Cumulative Redeemable Preferred Shares of Beneficial Interest, par value
$.01 per share ("Wellsford Series B").
(b) Equity's Declaration authorizes the issuance of 110,000,000
shares, of which 100,000,000 are common shares $.01 par value par share
("Equity Common"), and 10,000,000 are preferred shares. Equity has
established the following series of preferred shares: (i) 6,900,000 shares
of 9-3/8% Series A Cumulative Redeemable Preferred Shares of Beneficial
Interest, par value $.01 per share ("Equity Series A"); (ii) 575,000 shares
of 9-1/8% Series B Cumulative Redeemable Preferred Shares of Beneficial
Interest, par value $.01 per share ("Equity Series B"); and (iii) 460,000
shares of 9-1/8% Series C Cumulative Redeemable Preferred Shares, par value
$.01 per share ("Equity Series C").
(c) Effective at the Effective Time, the Declaration of the Surviving
Trust will be amended and restated to, among other things, increase the
number of authorized shares of beneficial interest to 200,000,000, of which
150,000,000 shall be common shares ("Survivor Common") and 50,000,000 shall
be preferred shares. Shares of Equity Common will have a par value of $.01
per share. The Declaration of the Surviving Trust will establish the
following classes of preferred shares: (i) 6,900,000 shares of Series A
Cumulative Redeemable Preferred Shares of Beneficial Interest, par value
$.01 per share ("Survivor Series A"); (ii) 575,000 shares of Series B
Cumulative Redeemable Preferred Shares of Beneficial Interest, par value
$.01 per share ("Survivor Series B"); (iii) 460,000 shares of Series C
Cumulative Redeemable Preferred Shares, par value $.01 per share ("Survivor
Series C"); (iv) 4,600,000 shares of Series D Convertible Preferred Shares
of Beneficial Interest, par value $.01 per share ("Survivor Series D"); and
(v) 2,300,000 shares of Series E Cumulative Redeemable Preferred Shares of
Beneficial Interest, par value $.01 per share ("Survivor Series E").
12. Conversion. The manner of converting the shares of Wellsford and Equity
shall be as follows:
(a) At the Effective Time, each share of Equity Common outstanding
immediately prior to the Effective Time shall without any action on the
part of the holder thereof, be converted in the Merger into one legally and
validly issued, fully paid and nonassessable common share of Survivor
Common.
3
<PAGE>
(b) Subject to the provisions of Section 12(j) hereof, at the
Effective Time, each share of Wellsford Common outstanding immediately
prior to the Effective Time shall, without any action on the part of the
holder thereof, be converted into 0.625 of a share of Survivor Common.
(c) At the Effective Time, each share of Equity Series A shall,
without any action on the part of the holder thereof, continue as a
preferred share of the Surviving Trust with its same rights, preferences,
privileges and voting powers, and be converted in the Merger into one share
of Survivor Series A.
(d) At the Effective Time, each share of Equity Series B shall,
without any action on the part of the holder thereof, continue as a
preferred share of the Surviving Trust with its same rights, preferences,
privileges and voting powers, and be converted in the Merger into one share
of Survivor Series B.
(e) At the Effective Time, each share of Equity Series C shall,
without any action on the part of the holder thereof, continue as a
preferred share of the Surviving Trust with its same rights, preferences,
privileges and voting powers, and be converted in the Merger into one share
of Survivor Series C.
(f) At the Effective Time, each share of Wellsford Series A shall,
without any action on the part of the holder thereof, continue as a
preferred share of the Surviving Trust with its same preferences, rights
and powers, and be converted in the Merger into one share of Survivor
Series D.
(g) At the Effective Time, each share of Wellsford Series B shall,
without any action on the part of the holder thereof, continue as a
preferred share of the Surviving Trust with its same preferences, rights
and powers, and be converted in the Merger into one share of Survivor
Series E.
(h) At the Effective Time, each certificate representing outstanding
shares of Equity Common, Equity Series A, Equity Series B and Equity Series
C will, without any action on the part of the holder thereof, thereafter
represent an equal number of shares of Survivor Common, Survivor Series A,
Survivor Series B or Survivor Series C, as the case may be.
(i) At the Effective Time, each share of Wellsford Common shall cease
to be outstanding and shall be cancelled and retired, and each holder of a
certificate representing such shares of Wellsford Common shall thereafter
cease to have any rights with respect to such shares, except the right to
receive, without interest, the Survivor Common as calculated pursuant to
Section 12(b) above and cash in lieu of fractional shares of the Survivor
Common in accordance with Section 12(j), upon the surrender of such
Wellsford certificate. At the Effective Time each certificate representing
outstanding shares of Wellsford Series A and Wellsford Series B will cease
to have any
4
<PAGE>
rights with respect to such shares, except the right to receive a
certificate of the Surviving Trust representing an equal number of Survivor
Series D or Survivor Series E, as the case may be.
(j) Notwithstanding any other provision hereof, no fractional shares
of Survivor Common shall be issued in connection with the Merger. Instead,
each holder of outstanding Wellsford Common having a fractional interest
arising upon the conversion or exchange of such shares in connection with
the Merger shall, at the time of surrender of its Wellsford certificate, be
paid an amount in cash equal to the Closing Price (as hereinafter defined)
times the fraction of Survivor Common to which such holder would otherwise
be entitled. No such holder shall be entitled to dividends, voting rights
or any other shareholder rights in respect of any fractional share. For
purposes of this Section 12(j), "Closing Price" shall mean the unweighted
average closing price of a share of Equity Common (as reported in the New
York Stock Exchange, Inc. Composite Tape) for the five (5) Trading Days
immediately preceding the Effective Date, and "Trading Day" shall mean any
day on which Wellsford Common is traded on the New York Stock Exchange and
reported on its Composite Tape.
(k) Each share of Wellsford Common issued and held in Wellsford's
treasury at the Effective Time, if any, shall by virtue of the Merger cease
to be outstanding and shall be cancelled and retired and shall cease to
exist without payment of any consideration therefor.
(l) Each share of Equity Common issued and held in Equity's treasury
at the Effective Time, if any, shall by virtue of the Merger cease to be
outstanding and shall be cancelled and retired and shall cease to exist
without payment of any consideration therefor.
(m) At the Effective Time, each outstanding stock option to acquire
shares of Wellsford Common shall be converted and exchanged, without any
action on the part of the holder thereof, into (i) an option to acquire,
upon payment of the exercise price (which shall equal the exercise price
per share for the option immediately prior to the Merger, divided by the
Exchange Ratio (as defined in the Merger Agreement) multiplied by the
number of shares to which the option relates), the number of shares of
Survivor Common the option holder would have received pursuant to the
Merger if the holder had exercised his or her option immediately prior
thereto, rounded to the next lowest whole number and (ii) cash in lieu of
the portion of any option that would have related to any fractional shares
of Survivor Common absent the rounding required by the previous clause;
provided, however, that in respect of any stock option which is an
"incentive stock option" within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended ("Code"), the conversion hereinabove
provided for shall comply with the requirements of Section 424(a) of the
Code, including the requirement that such converted options shall not give
to the holder thereof any benefits additional to those which such holder
had prior to such conversion under the option as originally granted.
5
<PAGE>
The amount payable in lieu of the portion of any option that would have
related to each fractional share pursuant to this Section 12(m) shall be
payable on the Effective Date, and shall be calculated by applying the
formula set forth in Section 12(j) hereof to that fraction of Survivor
Common which the holder would otherwise have been entitled and reducing
such calculated amount by an amount equal to the exercise price per share
for the options as adjusted in clause (i) above times the fraction of unit
of Survivor Common to which such holder would otherwise have been entitled.
(n) As of the date hereof, Equity has in effect the "1993 Stock Option
Plan" and the "1993 Director Stock Option Plan" (collectively, the "Equity
Plans"). Each of the Equity Plans shall continue in existence in full force
and effect in accordance with their terms following the Effective Time as
stock option plans of the Surviving Trust and all options issued under the
Equity plans outstanding as of the Effective Time shall continue in full
force and effect in accordance with their terms as options to purchase
shares of the Surviving Trust.
13. Exchange of Certificates.
(a) As of the Effective Time, Equity shall deposit, or shall cause to
be deposited, with an exchange agent selected by Equity (the "Exchange
Agent"), for the benefit of the holders of certificates (the "Wellsford
Certificates") representing Wellsford Common, Wellsford Series A or
Wellsford Series B (collectively, the "Wellsford Shares") for exchange in
accordance with this Section 13, certificates (the "Survivor Certificates")
representing Survivor Common, Survivor Series D and Survivor Series E
(collectively, the "Survivor Shares") to be issued pursuant to this Section
13.
(b) Promptly after the Effective Time, the Surviving Trust shall cause
the Exchange Agent to mail to each holder of record of Wellsford Shares a
letter of transmittal which shall specify (i) that delivery shall be
effected, and risk of loss and title to Wellsford Certificates shall pass,
only upon delivery of such Wellsford Certificates to the Exchange Agent,
and shall be in such form and have such other provisions as the Surviving
Trust may reasonably specify, and (ii) instructions for use in effecting
the surrender of such Wellsford Certificates in exchange for Survivor
Certificates and cash in lieu of fractional shares. Upon surrender of a
Wellsford Certificate for cancellation to the Exchange Agent together with
such letter of transmittal, duly executed and completed in accordance with
the instructions thereto, the holder of such Wellsford Certificate shall be
entitled to receive in exchange therefor (x) a Survivor Certificate
representing the number of whole shares of Survivor Shares and (y) a check
representing the amount of cash in lieu of fractional shares of Survivor
Common, if any, and unpaid dividends and distributions, if any, which such
holder has the right to receive pursuant to the provisions of Section 13(c)
in respect of the Wellsford Certificate surrendered, after giving effect to
any required withholding tax, and the Wellsford Certificate so surrendered
shall forthwith be cancelled. No interest will be paid or accrued on the
cash in lieu of fractional shares of Survivor Common and unpaid dividends
and distributions,
6
<PAGE>
if any, payable to holders of Wellsford Certificates. In the event of a
transfer of ownership of Wellsford Shares which is not registered in the
transfer records of Wellsford, a Survivor Certificate representing the
proper number of Survivor Shares, together with a check for the cash to be
paid in lieu of any fractional shares of Survivor Common, if any, and
unpaid dividends and distributions, if any, which such holder has the right
to receive pursuant to the provisions of Section 13(c) in respect of the
Wellsford Certificate so surrendered, after giving effect to any required
withholding tax, may be issued to such a transferee if the Wellsford
Certificate is presented to the Exchange Agent, accompanied by all
documents required to evidence and effect such transfer and to evidence
that any applicable stock transfer taxes have been paid. All Wellsford
Certificates so surrendered will be cancelled forthwith. Notwithstanding
the foregoing, neither the Exchange Agent nor any party hereto shall be
liable to a holder of Wellsford Shares for any Survivor Shares or dividends
thereon, or cash in lieu of any fractional Survivor Common, delivered to a
public official pursuant to applicable escheat law.
(c) Notwithstanding any other provisions of these Articles of Merger,
no dividends or other distributions on Survivor Shares shall be paid with
respect to any Wellsford Shares represented by a Wellsford Certificate
until such Wellsford Certificate is surrendered for exchange as provided
herein. Subject to the effect of applicable laws, following surrender of
any such Wellsford Certificate, there shall be paid to the holder of the
Survivor Certificate issued in exchange therefor, without interest, (i) at
the time of such surrender, the amount of dividends or other distributions
with a record date after the Effective Time theretofore payable with
respect to such whole shares of Survivor Shares and not paid, less the
amount of any withholding taxes which may be required thereon, and (ii) at
the appropriate payment date, the amount of dividends or other
distributions with a record date after the Effective Time but prior to
surrender and a payment date subsequent to surrender payable with respect
to such whole shares of Survivor Shares, less the amount of any withholding
taxes which may be required thereon.
(d) At and after the Effective Time, there shall be no transfers on
the stock transfer books of Wellsford of the Wellsford Shares which were
outstanding immediately prior to the Effective Time. If, after the
Effective Time, Wellsford Certificates are presented to the Surviving
Trust, they shall be cancelled and exchanged for certificates for Survivor
Shares and cash in lieu of fractional Survivor Common, if any, and unpaid
dividends and distributions deliverable in respect thereof pursuant to
these Articles of Merger in accordance with the procedures set forth in
this Section 13. Wellsford Certificates surrendered for exchange by any
person constituting an "affiliate" of Wellsford for purposes of Rule 145(c)
under the Securities Act of 1933, as amended (the "Securities Act"), shall
not be exchanged until the Surviving Trust has received a written agreement
from such person as provided in Section 5.4 of the Merger Agreement.
(e) Any portion of the Survivor Certificates made available to the
Exchange Agent pursuant to Section 13(a) which remains unclaimed by the
holders of Wellsford
7
<PAGE>
Shares for one hundred twenty (120) days after the Effective Time shall be
delivered to the Surviving Trust, upon demand of the Surviving Trust, and
any former shareholders of Wellsford who have not theretofore complied with
this Section 13 shall look only to the Surviving Trust for payment of their
shares of Survivor Shares, cash in lieu of fractional shares and unpaid
dividends and distributions on the Survivor Shares deliverable in respect
of each share of Wellsford Shares such stockholder holds as determined
pursuant to these Articles, in each case, without any interest thereon.
(f) None of Wellsford, Equity, the Exchange Agent or any other person
shall be liable to any former holder of Wellsford Shares for any amount
properly delivered to a public official pursuant to applicable abandoned
property, escheat or similar laws.
(g) In the event any Wellsford 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 Trust, the posting by such person of a bond in
such reasonable amount as the Surviving Trust may direct as indemnity
against any claim that may be made against it with respect to such
Certificate, the Exchange Agent or the Surviving Trust will issue in
exchange for such lost, stolen or destroyed Wellsford Certificate the
Survivor Shares and cash in lieu of fractional Survivor Common, and unpaid
dividends and distributions on Survivor Shares as provided in Section
13(c), deliverable in respect thereof pursuant to these Articles.
14. Conditions. The obligations of the parties hereto to effect the
Merger as herein provided shall be subject to satisfaction, unless duly waived,
of the conditions set forth in the Merger Agreement.
15. Amendment. The parties hereto may amend, modify or supplement these
Articles in whole or in part and in such manner as may be agreed upon by them in
writing at any time before or after the adoption of these Articles by the
shareholders contemplated hereby; provided, however, that after any such
shareholder approval, any such amendment will be subject to further approval of
such shareholders if such further approval is required under the Declaration of
Trust or Bylaws of Equity, or the Declaration of Trust or Bylaws of Wellsford,
as the case may be, or under applicable law.
16. Waiver. Any term or provision of these Articles (other than any
matter which cannot under applicable law be waived) may be waived in writing at
any time by the party which is, or whose shareholders are, entitled to the
benefits thereof. The failure of any party at any time or times to require
performance of any provision hereof shall in no manner affect such party's right
at a later time to enforce the same. No waiver by any party of a condition or
of the breach of these Articles, whether by conduct or otherwise, in any one or
more instances shall be deemed to be construed as a further or continuing waiver
of any such condition or breach or a waiver of any other condition or of the
breach of any other term, covenant, representation or warranty of these
Articles.
8
<PAGE>
17. Notice. Any notice or other communication required or permitted under
these Articles shall be given, and shall be effective, in accordance with the
provisions of the Merger Agreement.
18. Governing Law. These Articles shall be governed by and construed in
accordance with the laws of the State of Maryland.
19. Counterparts. These Articles may be executed in multiple
counterparts, each of which shall be deemed an original and all of which
together shall constitute one agreement.
9
<PAGE>
IN WITNESS WHEREOF, these Articles of Merger have been signed on this
_________ day of ____________________, 1997 by a majority of the entire Board of
Trustees of each of Wellsford and Equity, and each of the undersigned trustees
acknowledges these Articles of Merger to be the trust act of the entity on whose
behalf he has signed, and as to all matters or facts required to be verified
under oath, each of the undersigned trustees acknowledges that to the best of
his knowledge, information, and belief, the matters and facts relating to the
real estate investment trust on behalf of which he has signed are true in all
material respects and this statement is made under the penalties for perjury.
Equity Residential Properties Trust Wellsford Residential Property Trust
- ------------------------------------- ---------------------------------------
Samuel Zell Jeffery H. Lynford
- ------------------------------------- ---------------------------------------
Douglas Crocker II Edward Lowenthal
- ------------------------------------- ---------------------------------------
Sheli Z. Rosenberg Daniel M. Kelly
- ------------------------------------- ---------------------------------------
Gerald A. Spector Rodney F. DuBois
- ------------------------------------- ---------------------------------------
James D. Harper, Jr. Mark S. Germain
- ------------------------------------- ---------------------------------------
Errol R. Halperin Frank J. Hoenemeyer
- ------------------------------------- ---------------------------------------
Barry S. Sternlicht Frank J. Sixt
- ------------------------------------- ---------------------------------------
John Alexander Larry W. Wells
- -------------------------------------
B. Joseph White
- -------------------------------------
Henry H. Goldberg
10
<PAGE>
APPENDIX C
[LETTERHEAD OF JP MORGAN]
January 16, 1997
The Board of Trustees
Equity Residential Properties Trust
Two North Riverside Plaza
Chicago, Illinois 60606
Ladies and Gentlemen:
You have requested our opinion as to the fairness, from a financial point of
view, to Equity Residential Properties Trust (the "Company") of the
consideration proposed to be paid by the Company in connection with the proposed
merger (the "Merger") of the Company with Wellsford Residential Property Trust
(the "Seller"). Pursuant to the Agreement and Plan of Merger, dated as of
January 16, 1997 (the "Agreement"), between the Company and the Seller, each
share of common beneficial interest of the Seller, $0.01 par value per share,
will be converted into 0.625 shares of common beneficial interest of the
surviving trust, subject to adjustment as provided in the Agreement, after
distribution of Newco (as defined in the Agreement). In addition, the Company
will pay certain amounts to key executives of the Seller in compensation,
benefits, payments, accelerations, share options and share appreciation rights,
as more particularly described in the Agreement.
In arriving at our opinion set forth below, we have reviewed, among other
things: (i) the Agreement; (ii) certain publicly available information
concerning the business of the Seller and of certain other companies engaged in
businesses comparable to those of the Seller, and the reported market prices for
certain other companies' securities deemed comparable; (iii) publicly available
terms of certain transactions involving companies comparable to the Seller and
the consideration received for such companies; (iv) current and historical
market prices of the common stock of the Company and the Seller; (v) audited
financial statements of the Company and the Seller for the fiscal year ended
December 31, 1995, and unaudited financial statements of the Company and the
Seller for the nine months ended September 30, 1996; (vi) certain agreements
with respect to outstanding indebtedness or obligations of the Company and the
Seller; (vii) certain internal financial analyses and estimates of budgeted 1997
funds from operations and net operating income prepared by the Company and the
Seller and their respective managements; and (viii) the terms of other business
combinations that we deemed relevant.
In addition, we have held discussions with certain members of the management of
the Company and the Seller with respect to certain aspects of the Merger, and
the past and current business operations of the Company and the Seller, the
financial condition and future prospects and operations of the Company and the
Seller, the effects of the Merger on the financial condition and future
prospects of the Company and the Seller, and certain other matters we believed
necessary or appropriate to our inquiry. We have reviewed such other
<PAGE>
[LOGO JP MORGAN]
-2-
financial studies and analyses and considered such other information as we
deemed appropriate for the purposes of this opinion.
In giving our opinion, we have relied upon and assumed, without independent
verification, the accuracy and completeness of all information that was publicly
available or was furnished to us by the Company and the Seller or otherwise
reviewed by us, and we have not assumed any responsibility or liability
therefor. We have not conducted any valuation or appraisal of any assets or
liabilities, nor have any such valuations or appraisals been provided to us. In
relying on financial analyses and forecasts provided to us, we have assumed that
they have been reasonably prepared based on assumptions reflecting the best
currently available estimates and judgments by management as to the expected
future results of operations and financial condition of the Company and the
Seller to which such analyses or forecasts relate. We have also assumed that the
Merger will have the tax consequences described in discussions with, and
materials furnished to us by, representatives of the Company, and that the other
transactions contemplated by the Agreement will be consummated as described in
the Agreement. We have relied as to all legal matters relevant to rendering our
opinion upon the advice of counsel.
Our opinion is necessarily based on economic, market and other conditions as in
effect on, and the information made available to us as of, the date hereof. It
should be understood that subsequent developments may affect this opinion and
that we do not have any obligation to update, revise, or reaffirm this opinion.
We are expressing no opinion herein as to the price at which the Company's or
the Seller's stock will trade at any future time.
In addition, we were not requested to and did not provide advice concerning the
structure, the specific amount of the consideration, or any other aspects of the
Merger, or to provide services other than the delivery of this opinion. We did
not participate in negotiations with respect to the terms of the Merger and
related transactions. Consequently, we have assumed that such terms are the most
beneficial terms from the Company's perspective that could under the
circumstances be negotiated among the parties to such transactions.
We will receive a fee from the Company for the delivery of this opinion. Our
affiliate, Morgan Guaranty Trust Company of New York, is a co-agent on the
Company's revolving credit facility. We have also provided other financial
advisory services to the Company and its affiliates in the past and have
received fees for such services. In the ordinary course of their businesses, our
affiliates may actively trade the debt and equity securities of the Company or
the Seller for their own account or for the accounts of customers and,
accordingly, they may at any time hold long or short positions in such
securities.
On the basis of and subject to the foregoing, it is our opinion as of the date
hereof that the consideration to be paid by the Company in connection with the
proposed Merger is fair, from a financial point of view, to the Company.
<PAGE>
[LOGO JP MORGAN]
-3-
This letter is provided to the Board of Trustees of the Company in connection
with and for the purposes of its evaluation of the Merger. This opinion does not
constitute a recommendation to any stockholder of the Company as to how such
stockholder should vote with respect to the Merger. This opinion may not be
disclosed, referred to, or communicated (in whole or in part) to any third party
for any purpose whatsoever except with our prior written consent in each
instance. This opinion may be reproduced in full in any proxy or information
statement mailed to stockholders of the Company but may not otherwise be
disclosed publicly in any manner without our prior written approval and must
otherwise be treated as confidential.
Very truly yours,
J.P. MORGAN SECURITIES INC.
By: /s/ Nicholas B. Paumgarten
--------------------------
Name: Nicholas B. Paumgarten
Title: Managing Director
<PAGE>
APPENDIX D
[LETTERHEAD OF MERRILL LYNCH]
January 16, 1997
Board of Trustees
Wellsford Residential Property Trust
610 Fifth Avenue
New York, New York 10020
Gentlemen:
Wellsford Residential Property Trust (the "Company") and Equity Residential
Properties Trust ("Equity Residential") have entered into an agreement dated
January 16, 1997 (the "Agreement") pursuant to which Equity Residential will be
merged with and into the Company in a transaction (the "Merger") in which each
common share of beneficial interest, par value $.01 per share, of Equity
Residential (the "Shares") will be converted into the right to receive 1 common
share of beneficial interest, par value $.01 per share, of the Company (the
"Company Shares") and each Company Share outstanding immediately prior to the
effective time of the Merger (the "Effective Time") will be converted into the
right to receive 0.625 (the "Exchange Ratio") Company Shares (the Company Shares
issued to the holders of Company Shares outstanding immediately prior to the
Effective Time are referred to herein as the "Surviving Company Shares"). In the
event that the average of the closing prices of the Shares for the twenty
consecutive trading days ending on the fifth trading day prior to the date of
the joint proxy statement/prospectus that will be used to solicit the votes of
the shareholders of the Company and Equity Residential to approve the Merger is
less than $40.00 per share but not less than $37.00 per Share, the Exchange
Ratio shall be incrementally adjusted as set forth in Exhibit "G" to the
Agreement. We understand that in the event Equity Residential and the Company
receive a ruling from the Internal Revenue Service and opinions of counsel to
the effect that a merger of the Company into Equity Residential will not
adversely affect the tax-free nature of the Merger, the Company and Equity
Residential will amend the Agreement to provide that the Merger will be
restructured such that the Company will be merged with and into Equity
Residential, as a result of which each Company Share would be converted into the
right to receive 0.625 Shares, subject to adjustment to give effect to the
adjustment provision described above, and each Share outstanding immediately
prior to the Effective Time would remain outstanding and unaffected by the
Merger (the Shares issuable to the holders of Company Shares in such event are
referred to herein as the "Reverse Merger Shares").
We further understand that the Agreement provides, and for purposes of
arriving at the opinion expressed below we have assumed, that immediately prior
to the Merger the Company will contribute certain assets and assign certain
obligations to its wholly owned subsidiary Wellsford Real Properties, Inc., a
Maryland corporation ("Newco"), pursuant to a contribution, distribution and
assumption agreement to be entered into between the Company and Newco
immediately prior to the Effective Time (the "Contribution Agreement"), and that
the Company will declare a special dividend consisting of all outstanding shares
of Newco common stock, par value $.01 per share (the "Newco Common Stock"),
owned by it and that such dividend will be distributed pro rata to the Company's
existing shareholders immediately prior to the Merger (the "Distribution"). You
have advised us that the Distribution will result in the imposition of federal
income tax liability to the Company's shareholders. In addition, pursuant to the
Agreement, ERP Operating Limited
<PAGE>
2
Partnership, an Illinois limited partnership of which Equity Residential is the
sole general partner ("Equity Residential OP"), and Newco will enter into a
preferred stock and common stock purchase agreement immediately prior to the
Effective Time (the "Stock Purchase Agreement") pursuant to which Equity
Residential OP has agreed to purchase (i) on the closing date under the Stock
Purchase Agreement a number of shares of Newco Class A common stock determined
in accordance with Section 2.1 of the Stock Purchase Agreement for an aggregate
purchase price of $3,500,000 in cash and (ii) from time to time as requested by
Newco up to the third anniversary of the closing date under the Stock Purchase
Agreement, a maximum of $25,000,000 of Newco's Series A Convertible Redeemable
Preferred Stock on the terms and conditions set forth in the Stock Purchase
Agreement. The terms and conditions of the Merger and the Distribution are more
fully set forth in the Agreement, the Contribution Agreement and the Stock
Purchase Agreement.
You have asked us whether, in our opinion, the proposed consideration
(defined as the Newco Common Stock received in the Distribution plus the
Surviving Company Shares or the Reverse Merger Shares, as applicable) to be
received by the holders of the Company Shares pursuant to the Merger and the
Distribution is fair to such shareholders from a financial point of view.
In arriving at the opinion set forth below, we have, among other things:
1. Reviewed the Company's Annual Report on Form 10-K and related
financial information for the fiscal year ended December 31, 1995, and
the Company's Forms 10-Q and the related unaudited financial
information for the quarterly periods ending March 31, 1996, June 30,
1996 and September 30, 1996;
2. Reviewed Equity Residential's Annual Report on Form 10-K and related
financial information for the fiscal year ended December 31, 1995, and
Equity Residential's Forms 10-Q and the related unaudited financial
information for the quarterly periods ending March 31, 1996, June 30,
1996 and September 30, 1996;
3. Reviewed certain information, including certain financial forecasts
and assumptions, relating to the business, earnings, cash flow, assets
and prospects of (i) the Company and Newco and (ii) Equity
Residential, furnished to us by the Company and Equity Residential,
respectively;
4. Reviewed estimates of prospective synergies resulting from the Merger
prepared by the managements of the Company and Equity Residential and
discussed such estimates with the managements of both companies;
5. Conducted discussions with members of senior management of the Company
and Equity Residential concerning the respective businesses and
prospects of (i) the Company and Newco and (ii) Equity Residential;
6. Reviewed the historical market prices and trading activity for the
Shares and the Company Shares and compared them with that of certain
publicly traded companies which we deemed to be reasonably similar to
Equity Residential and the Company, respectively;
7. Compared the results of operations of Equity Residential and the
Company with that of certain companies which we deemed to be
reasonably similar to Equity Residential and the Company,
respectively;
<PAGE>
3
8. Compared the proposed financial terms of the Merger with the financial
terms of certain other mergers and acquisitions which we deemed to be
relevant;
9. Considered the pro forma effect of the Merger on the combined entity's
capitalization ratios and earnings, cash flow and book value per
share;
10. Reviewed the Agreement;
11. Reviewed the financial terms of the Distribution as set forth in the
Agreement and the forms of Contribution Agreement and Stock Purchase
Agreement attached as exhibits thereto; and
12. Reviewed such other financial studies and analyses and performed such
other investigations and took into account such other matters as we
deemed necessary, including our assessment of general economic, market
and monetary conditions.
In preparing our opinion, we have relied on the accuracy and completeness
of all information supplied or otherwise made available to us by the Company and
Equity Residential, and we have not independently verified such information or
undertaken an independent appraisal or evaluation of the assets or liabilities
of the Company or Equity Residential. With respect to the financial forecasts
and estimates of prospective synergies resulting from the Merger furnished by
the Company and the financial forecasts, assumptions and estimates of
prospective synergies resulting from the Merger furnished by Equity Residential,
we have assumed that they have been reasonably prepared and reflect the best
currently available estimates and judgment of the Company's or Equity
Residential's management as to the expected future financial performance of the
Company, Newco or Equity Residential, as the case may be. We have further
assumed that the Merger will qualify as a tax-free reorganization to the
Company's shareholders (except to the extent, if any, of cash received in lieu
of fractional shares). In addition, we have further assumed that the
Distribution will be consummated without any material modification to the terms
set forth in the forms of Contribution Agreement and Stock Purchase Agreement
reviewed by us.
In connection with the preparation of this opinion, we have not been
authorized to, and did not, solicit indications of interest from third parties
to purchase the outstanding Company Shares or otherwise enter into a business
combination with the Company. Our opinion expressed herein as to the fairness to
the Company's shareholders from a financial point of view of the proposed
consideration to be received by the holders of the Company Shares addresses the
ownership position in the combined entity to be received by the Company's
shareholders pursuant to the Merger on the terms set forth in the Agreement
based upon the relative contributions of the Company and Equity Residential to
the combined entity and after giving effect to the Distribution, and we express
no opinion as to prices at which the Company Shares (or, if applicable, the
Shares) and the Newco Common Stock will trade following the consummation of the
Distribution and the Merger or prices which could be obtained for the Company
Shares (or, if applicable, the Shares) in a sale of the combined entity
following the consummation of the Merger. In addition, our opinion does not
address the relative merits of the Merger and alternative business combinations
with third parties.
This opinion is addressed to the Board of Trustees of the Company and does
not constitute a recommendation to any shareholder as to how such shareholder
should vote on the proposed Merger.
We have in the past provided financial advisory and financing services to
both the Company and Equity Residential and have received fees for the rendering
of such services. In the ordinary course of our business,
<PAGE>
4
we actively trade in the securities of the Company and Equity Residential for
our own account and the accounts of our customers and, accordingly, may at any
time hold a long or short position in such securities.
On the basis of, and subject to the foregoing, we are of the opinion that
the proposed consideration to be received by the holders of the Company Shares
pursuant to the Merger and the Distribution is fair to such shareholders from a
financial point of view.
Very truly yours,
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
<PAGE>
February 20, 1997
(312) 368-4012
Securities and Exchange Commission
Division of Corporation Finance
450 5th Street, N.W.
Washington, D.C. 20549
Re: Equity Residential Properties Trust Acquisition of Wellsford
Residential Property Trust
Ladies and Gentlemen:
Filed herewith is a joint proxy statement/prospectus/information statement
("Proxy Statement") relating to the acquisition by Equity Residential Properties
Trust, a Maryland real estate investment trust ("EQR") of substantially all the
assets of Wellsford Residential Property Trust, a Maryland real estate
investment trust ("Wellsford") by the merger of EQR and Wellsford ("Merger").
The enclosed Proxy Statement also represents an information statement which
will be filed by Wellsford Real Properties, Inc., a wholly owned subsidiary of
Wellsford ("WRP Newco") pursuant to Regulation 14C.
The transaction described in the Proxy Statement contemplates that prior to
the closing of the Merger, Wellsford will contribute certain of its assets to
WRP Newco (the "Contribution") and will then distribute all of the shares of
common stock of WRP Newco owned by it to its holders of shares of beneficial
interest (the "Distribution"). Subsequent to the Contribution and the
Distribution, the Surviving Trust will contribute all of its assets to ERP
Operating Limited Partnership, a subsidiary of EQR. Upon receipt of the staff's
comments, the parties would anticipate that revised preliminary proxy material
would be filed under cover of a registration statement on Form S-4 and by WRP
Newco under cover of a registration statement on Form 10 relating to the shares
of common stock of WRP Newco.
Each of the companies plans to call a special meeting of shareholders to be
held on or about May 1, 1997 and plans to mail the Proxy Statement on or about
March 21, 1997. Thus, the parties would appreciate the staff's comments as soon
as practicable.
Securities and Exchange Commission
February 20, 1997
Page 2
Please call the undersigned or Jill K. Miller (312/368-7253) if there is
any comment on or questions concerning the enclosed Proxy Statement.
Very truly yours,
RUDNICK & WOLFE
Hal M. Brown
HMB/JKM/sz
Enclosure
cc: Douglas Crocker II
Bruce C. Strohm, Esq.
Alan Pearce, Esq.
JKM1600
