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As filed with the Securities and Exchange Commission on August 25, 2000
Registration No. 333-
==============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
ERP OPERATING LIMITED PARTNERSHIP
EQUITY RESIDENTIAL PROPERTIES TRUST
(Exact name of co-registrant as specified in its charter)
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ILLINOIS 36-3894853
MARYLAND 6513 13-3675988
(State or other jurisdiction of (Primary Standard Industrial (IRS Employer
incorporation or organization) Classification Code Number) Identification No.)
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TWO NORTH RIVERSIDE PLAZA, SUITE 400
CHICAGO, IL 60606
(312) 474-1300
(Address, including ZIP Code, and telephone number,
including area code, of co-registrants' principal executive offices)
DOUGLAS CROCKER II
PRESIDENT AND CHIEF EXECUTIVE OFFICER
EQUITY RESIDENTIAL PROPERTIES TRUST
TWO NORTH RIVERSIDE PLAZA, SUITE 400
CHICAGO, IL 60606
(312) 474-1300
(Name, address, including ZIP Code, and telephone
number, including area code, of agent for service)
Copies to:
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HAL M. BROWN, ESQ. PAUL G. HUGHES, ESQ.
PIPER MARBURY RUDNICK & WOLFE CUMMINGS & LOCKWOOD
203 NORTH LASALLE STREET, SUITE 1800 FOUR STAMFORD PLAZA
CHICAGO, ILLINOIS 60601 STAMFORD, CONNECTICUT 06904-0120
(312) 368-4000 (203) 351-4207
(312) 236-7516 (TELECOPIER) (203) 351-4535 (TELECOPIER)
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Approximate date of commencement of proposed sale of the securities to
the public: As soon as practicable after the Registration Statement becomes
effective.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier registration statement for the
same offering. / /
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CALCULATION OF REGISTRATION FEE
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Proposed maximum Proposed maximum Amount of
Title of each class of Amount to be offering price aggregate registration
securities to be registered registered per unit offering price fee (2)
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ERP Operating Limited Partnership units of
limited partnership interest (1) ................ 1,807,904 $22.71 $41,057,500 $10,840
Equity Residential Properties Trust common shares
of beneficial interest, par value $.01 per share
(3)..............................................
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(1) Represents the estimated maximum number of units of limited partnership
interest of ERP Operating Limited Partnership to be issued in
connection with the transactions described herein.
(2) Pursuant to Rule 457(f), the filing fee has been computed based on the
book value of the units of limited partnership interest of Grove
Operating, L.P. as of June 30, 2000.
(3) The ERP units are exchangeable on a one-for-one basis for EQR common
shares of beneficial interest, par value $.01 per share. Such shares
are also being registered herewith. In accordance with Rule 457(i), no
additional fee is payable in respect of such registration.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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Grove Operating, L.P.
598 Asylum Avenue
Hartford, CT 06105
_______________, 2000
Dear Limited Partner:
You are cordially invited to attend a meeting of partners of Grove Operating,
L.P. to be held at __________ a.m., local time, on __________, 2000 at The
Hartford Club, 46 Prospect Street, Hartford, Connecticut.
At the meeting, you will be asked to approve the Agreement and Plan of Merger
among Grove Operating, L.P., Grove Property Trust and ERP Operating Partnership
and the transactions contemplated thereby, including the merger of a subsidiary
of ERP with Grove Operating L.P. If the proposed transactions take place, each
unit of limited partnership in Grove Operating, L.P. will be converted into the
right to receive, at your election, either cash in the amount of $17.00 or
0.3696 of a limited partnership unit of ERP for each unit of Grove Operating,
L.P. you own (subject to adjustment as described in the merger agreement), as
further described in the attached proxy statement/prospectus.
Please review the attached proxy statement/prospectus carefully. This document
contains a detailed description of the merger agreement and the transactions
contemplated thereby, including the transfer of Grove's retail properties to a
company owned by four of Grove's executive officers, including me, in exchange
for partnership interests of Grove Operating, L.P.
THE BOARD OF TRUST MANAGERS OF GROVE, THE SOLE GENERAL PARTNER OF GROVE
OPERATING, L.P., BELIEVES THAT THE TRANSACTIONS CONTEMPLATED BY THE MERGER
AGREEMENT ARE IN THE BEST INTERESTS OF THE LIMITED PARTNERS OF GROVE OPERATING,
L.P. AND HAS APPROVED THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED IN
SUCH AGREEMENT BY THE UNANIMOUS VOTE OF THE TRUST MANAGERS PRESENT. THE BOARD
ALSO RECOMMENDS THAT YOU VOTE FOR THE APPROVAL OF THE MERGER AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED IN SUCH AGREEMENT. Limited partners should be aware
that, in determining to sell Grove, several trust managers of Grove had certain
potentially conflicting interests. Some of these potentially conflicting
interests could have influenced the Board of Trust Managers' approval of the
merger agreement and its recommendation that the limited partners vote to
approve the merger agreement and the transactions contemplated in such
agreement. See "Interests of Certain Persons in the Mergers" in the proxy
statement/prospectus.
In arriving at its decision, the Board considered a number of factors,
including the opinion of Grove's financial advisor, Houlihan Lokey Howard &
Zukin Financial Advisors, Inc., as to the fairness, from a financial point of
view, of the consideration to be paid to Grove's shareholders and to the
limited partners of Grove Operating, L.P. in connection with the mergers, and
as to the fairness to Grove of the consideration to be received by it in
connection with the transfer of the retail properties.
I appreciate the loyalty and support our shareholders and limited partners have
demonstrated over the years. I hope you will continue this support by voting for
the proposed merger
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transactions. With other members of the Board of Trust Managers, I intend to
vote for the merger transactions, and recommend that all shareholders and
limited partners do the same.
Regardless of the number of partnership units you may own, it is important that
such units be represented at the meeting. Accordingly, please promptly mark,
sign, date and return your proxy card in the pre-addressed envelope whether or
not you plan to attend the meeting. If you attend the meeting, you may vote in
person whether or not you have previously returned your proxy. Failure to vote
is the equivalent of a vote against the merger transactions. More information
with respect to voting and electing to receive cash or ERP units in exchange for
your partnership units in Grove Operating, L.P. is included in the attached
proxy statement/prospectus.
On behalf of the Board of Trust Managers, we thank you for your continued
support and again we urge you to vote FOR the approval of the merger agreement
and transactions contemplated in such agreement.
Sincerely,
Damon D. Navarro
Chairman, President and Chief
Executive Officer,
Grove Property Trust
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Grove Operating, L.P.
598 Asylum Avenue
Hartford, CT 06105
NOTICE OF MEETING
TO BE HELD ______________, 2000
Dear Limited Partner:
You are cordially invited to attend a meeting of partners of Grove Operating,
L.P. to be held at ___ a.m., local time, on _____________, 2000 at The Hartford
Club, 46 Prospect Street, Hartford, Connecticut.
The purpose of the meeting is for limited partners to consider approval of the
Agreement and Plan of Merger among Grove Operating, L.P., Grove Property Trust
and ERP Operating Partnership and the transactions contemplated thereby,
including the merger of a subsidiary of ERP with Grove Operating L.P. and the
retail sale agreement. If the proposed transactions take place, each unit of
limited partnership in Grove Operating, L.P. will be converted into the right to
receive, at your election, either cash in the amount of $17.00 or 0.3696 of a
limited partnership unit of ERP for each unit of Grove Operating, L.P. you own,
as further described in the attached proxy statement/prospectus.
THE BOARD OF TRUST MANAGERS OF GROVE, THE SOLE GENERAL PARTNER OF GROVE
OPERATING, L.P., BELIEVES THAT THE TRANSACTIONS CONTEMPLATED BY THE MERGER
AGREEMENT ARE IN THE BEST INTERESTS OF THE LIMITED PARTNERS OF GROVE OPERATING,
L.P. AND HAS APPROVED THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED IN
SUCH AGREEMENT BY THE UNANIMOUS VOTE OF THE TRUST MANAGERS PRESENT. THE BOARD
ALSO RECOMMENDS THAT YOU VOTE FOR THE APPROVAL OF THE MERGER AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED IN SUCH AGREEMENT. Limited partners should be aware
that, in determining to sell Grove, several trust managers of Grove had certain
potentially conflicting interests. Some of these potentially conflicting
interests could have influenced the Board of Trust Managers' approval of the
merger agreement and its recommendation that the limited partners vote to
approve the merger agreement and the transactions contemplated in such
agreement. See "Interests of Certain Persons in the Mergers" in the proxy
statement/prospectus.
In arriving at its decision, the Board considered a number of factors,
including the opinion of Grove's financial advisor, Houlihan Lokey Howard &
Zukin Financial Advisors, Inc., as to the fairness, from a financial point of
view, of the consideration to be paid to Grove's shareholders and to the
limited partners of Grove Operating, L.P. in connection with the mergers, and
as to the fairness to Grove of the consideration to be received by it in
connection with the transfer of the retail properties.
THE RECORD DATE FOR PARTNERS ENTITLED TO NOTICE AND TO VOTE AT THE MEETING HAS
BEEN ESTABLISHED AS OF THE CLOSE OF BUSINESS ON _______________, 2000.
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Please review the materials contained in the attached proxy statement/prospectus
carefully and then mark, sign, date and return your proxy card so that your
units may be represented at the meeting. You may also attend and vote in person.
Sincerely,
Joseph R. LaBrosse
Chief Financial Officer, Secretary and Treasurer
Grove Property Trust
____________, 2000
UNITHOLDERS ARE URGED TO MARK, SIGN, DATE AND RETURN PROMPTLY THE ENCLOSED PROXY
IN THE ACCOMPANYING ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED
STATES. IF A UNITHOLDER RECEIVES MORE THAN ONE PROXY FOR ANY REASON, EACH PROXY
SHOULD BE COMPLETED AND RETURNED. YOUR COOPERATION WILL BE APPRECIATED. YOUR
PROXY WILL BE VOTED WITH RESPECT TO THE PROPOSAL TO APPROVE THE MERGER AGREEMENT
AND THE MERGER IN ACCORDANCE WITH ANY SPECIFICATIONS ON THE PROXY. A FAILURE TO
VOTE, EITHER BY NOT RETURNING THE ENCLOSED PROXY OR BY CHECKING THE "ABSTAIN"
BOX THEREON, WILL HAVE THE SAME EFFECT AS A VOTE AGAINST APPROVAL OF THE MERGER
AGREEMENT.
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GROVE OPERATING, L.P.
PROXY STATEMENT
-----
EQUITY RESIDENTIAL PROPERTIES TRUST
ERP OPERATING LIMITED PARTNERSHIP
PROSPECTUS
This proxy statement/prospectus is being furnished to the holders of
units of limited partnership interest of Grove Operating, L.P., a Delaware
limited partnership, in connection with the proxy solicitation on behalf of the
Board of Directors of Grove Property Trust, a Maryland real estate investment
trust and general partner of Grove L.P., on a proposal:
To approve the Agreement and Plan of Merger, dated July 17, 2000
between ERP Operating Limited Partnership, an Illinois limited
partnership, Grove and Grove L.P., and the transactions contemplated in
such agreement, including, but not limited to, the merger of a
subsidiary of ERP with and into Grove L.P.
Only holders of record of Grove L.P. units on _________, 2000 will be
eligible to vote with respect to the merger transactions.
In connection with the merger of a subsidiary of ERP into Grove L.P.,
holders of Grove L.P. units may elect to receive either 0.3696 units of limited
partnership interest in ERP or $17.00 in cash, without interest, per Grove L.P.
unit. The ERP units are exchangeable, on a one-for-one basis, for common shares
of beneficial interest, par value $.01 per share, of Equity Residential
Properties Trust, ERP's general partner, or, at the option of EQR, the cash
equivalent thereof. The EQR common shares trade on the New York Stock Exchange
under the symbol "EQR." If you do not properly submit a completed form of
election by the election deadline, you will be deemed to have elected to receive
cash in exchange for your Grove L.P. units. The election deadline is ________
p.m. Hartford time, on ___________, 2000.
This proxy statement/prospectus is also being furnished to Grove L.P.
limited partners that are subject to a deficit restoration obligation under the
Grove L.P. Limited Partnership Agreement. If such limited partners elect to
receive ERP units in exchange for their Grove L.P. units, such persons shall
have the right to elect to become subject to a deficit restoration obligation
under the ERP partnership agreement. We expect that Grove L.P. unitholders that
currently have the benefit of a "bottom guarantee" will continue to have such a
benefit after the consummation of the proposed merger transactions. If you are
currently subject to a deficit restoration obligation and you do not properly
submit a completed form of election by the election deadline, you will be deemed
to have elected not to become subject to a deficit restoration obligation under
the ERP Fifth Amended and Restated Partnership Agreement, as described below.
This document provides you with detailed information about the proposed
merger transactions, including how to elect to receive ERP units or cash. You
can also get information
1
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regarding EQR, ERP and Grove from publicly available documents filed by EQR,
ERP and Grove from the Securities and Exchange Commission.
In considering whether to approve the merger agreement and the
transactions contemplated thereby, the Grove L.P. limited partners should
consider, in addition to the other information in this proxy
statement/prospectus, the matters discussed under "Risk Factors" on page _______
herein. Such matters include:
- Possible conflicts of interest due to the fact that certain
trust managers and executive officers of Grove, Grove L.P.'s
sole general partner, pursuant to existing agreements,
including the retail agreement described herein, have certain
interests that arise in connection with the transaction that
are in addition to the interests of limited partners of Grove
L.P. and shareholders of Grove generally.
- Possible payment of liquidated damages and expenses: the
merger agreement provides for a "break-up fee" of $8.5 million
plus break-up expenses of up to $2 million payable by Grove to
EQR if the merger agreement is terminated by either EQR or
Grove under specified circumstances and, if Grove, within one
year thereafter, enters into an agreement regarding an
acquisition proposal, which is consummated. If the merger
agreement is terminated by either EQR or Grove under other
circumstances, either EQR or Grove will be required to pay the
other party's break-up expenses of up to $2 million.
- A number of federal income tax risks associated with an
election to receive ERP units, more fully described in
"Material Federal Income Tax Consequences."
- Differences between the rights of limited partners in Grove
L.P. and ERP under their respective partnership agreements and
Delaware and Illinois state law, which currently govern Grove
L.P. and ERP, respectively.
The deadline for submitting your election to receive cash or ERP units
is _______ p.m., Hartford time, on _______, 2000. Your vote is important, please
complete, sign, date and return your proxy and form of election.
This proxy statement/prospectus is first being mailed to all of the
holders of Grove L.P. units of limited partnership on or about ____________,
2000.
-----------
THE SECURITIES TO WHICH THIS PROXY STATEMENT/PROSPECTUS RELATE HAVE NOT BEEN
APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR BY ANY
STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT/ PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this proxy statement/prospectus is ____________, 2000.
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TABLE OF CONTENTS
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PAGE
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SUMMARY TERM SHEET............................................................................................1
QUESTIONS AND ANSWERS ABOUT THE MERGERS.......................................................................4
WHO CAN HELP ANSWER YOUR QUESTIONS............................................................................6
SUMMARY.......................................................................................................7
Parties to the Mergers...................................................................................7
The Transactions.........................................................................................8
The Retail Agreement.....................................................................................9
Possible Dividend Reduction..............................................................................9
No Market Value of Units Being Acquired..................................................................9
The Merger Agreement.....................................................................................9
Interests of Certain Persons in the Transactions........................................................10
Voting Positions Held By Control Persons and Vote Required for Approval of the
Mergers..........................................................................................10
Federal or State Regulatory Approvals Needed............................................................10
Dissenters Rights.......................................................................................11
Deficit Restoration Obligation..........................................................................11
Tax Consequences........................................................................................11
Accounting Treatment....................................................................................12
Risk Factors............................................................................................12
RISK FACTORS.................................................................................................14
Grove Trust Managers and Executive Officers Have Interests in the Merger Which May
Create a Conflict Between Such Persons and Grove L.P. Unitholders..............................14
Payment of Fees and Expenses by Grove if the Mergers Fail to Occur Could Adversely
Affect Grove's Ability to Engage in Other Transactions.........................................14
Grove L.P. Limited Partners Who Are Subject to a Deficit Restoration Obligation to
Grove L.P. and Who Elect to Receive ERP Units May Recognize Taxable Gain as
a Result of the Partnership Merger if They Do Not Enter into a Deficit Restoration
Obligation with ERP............................................................................14
Limited Partners of Grove L.P. Who Elect to Receive ERP Units May Recognize Taxable
Gain If They Are Relieved of an Amount of Liabilities In Excess of Their Tax
Basis in the ERP Units They Receive............................................................15
Limited Partners of Grove L.P. Who Contributed Any Of Grove's Retail Properties to
Grove L.P. and Who Do Not Participate in the Partnership Redemption May
Recognize Substantial Tax Gain as a Result of the Partnership Redemption.......................15
Transfer Restrictions on ERP Units......................................................................15
Combined Companies May Not Achieve Expected Efficiencies................................................16
Grove L.P. Limited Partners Will Have Reduced Voting Power as a Group after the
Mergers........................................................................................16
No Dissenters' Rights...................................................................................16
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS....................................................17
THE PARTNERS' MEETING........................................................................................18
General.............................................................................................18
Vote Required.......................................................................................18
How to Vote.........................................................................................18
Cash/Unit Election Procedure........................................................................19
DRO Election Procedure..............................................................................19
Cost of Proxy Solicitation..........................................................................20
THE TRANSACTIONS.............................................................................................21
Terms of the Transactions...........................................................................21
Background of the Transactions......................................................................22
Description of Grove and Grove L.P.'s Business......................................................29
Opinion of Financial Advisor to Grove/Grove L.P.....................................................30
Summary of Analyses Performed by Houlihan Lokey.....................................................32
Summary of Appraisals of retail properties by Italia & Lemp, Inc....................................35
Effective Time of the Transactions..................................................................38
Representation and Warranties.......................................................................38
Conditions to the Transactions......................................................................39
Possible Dividend Reduction.........................................................................40
No Appraisal Rights.................................................................................40
Termination Provisions..............................................................................41
Termination Fee and Expenses........................................................................41
No Solicitation of Other Transactions...............................................................42
Conversion of Units/Shares..........................................................................43
Conduct of Business Pending the Transactions........................................................43
Waiver and Amendment................................................................................45
Retail Agreement....................................................................................46
Rosenthal Transactions..............................................................................48
Potential Transaction with ERP Relating to Transfer of Certain Grove Properties.....................49
Possible Distribution Increase......................................................................49
Anticipated Accounting Treatment....................................................................49
Restrictions on Transfer of ERP Units...............................................................49
INTERESTS OF CERTAIN PERSONS IN THE TRANSACTIONS.............................................................50
MATERIAL FEDERAL INCOME TAX CONSEQUENCES.....................................................................52
Overview............................................................................................52
Material Federal Income Tax Consequences of the Partnership Merger..................................53
Deficit Restoration Obligations.....................................................................59
Effect of Subsequent Events.........................................................................60
Tax Status of ERP...................................................................................63
Tax Status of Grove L.P.............................................................................65
Tax Consequences of Ownership of ERP Units after the Partnership Merger.............................66
Material Federal Income Tax Consequences of the Retail Agreement....................................73
Tax Consequences of Ownership of EQR Common Shares..................................................75
MANAGEMENT AND OPERATION OF EQR AFTER THE MERGER.............................................................75
ADDITIONAL INFORMATION REGARDING THE BUSINESS OF GROVE L.P...................................................75
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GROVE PROPERTY DESCRIPTION...................................................................................78
COMPARISON OF RIGHTS OF THE UNITHOLDERS......................................................................80
Issuance of Other Units.............................................................................80
Option Plans........................................................................................81
Indemnification.....................................................................................81
Financial Statements and Reports....................................................................82
Mergers.............................................................................................83
Transfer of Units...................................................................................83
Redemption/Exchange of Partnership Interests for Common Shares......................................84
Amendment to Partnership Agreement..................................................................85
Transactions and Related Dispositions...............................................................86
Meetings............................................................................................87
Deficit Restoration Obligation......................................................................87
PRINCIPAL UNITHOLDERS OF GROVE L.P...........................................................................88
PRINCIPAL SHAREHOLDERS OF GROVE..............................................................................89
Security Ownership of Trust Managers and Executive Officers.........................................89
LITIGATION...................................................................................................90
LEGAL MATTERS................................................................................................91
EXPERTS......................................................................................................91
WHERE YOU CAN FIND MORE INFORMATION..........................................................................91
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APPENDIX A AGREEMENT AND PLAN OF MERGER
APPENDIX B OPINION OF HOULIHAN LOKEY HOWARD & ZUKIN FINANCIAL
ADVISORS, INC.
APPENDIX C RETAIL SALE AGREEMENT
APPENDIX D FORM OF SHAREHOLDER/PARTNER VOTING AGREEMENT
APPENDIX E MORGAN STANLEY GROUP, INC. VOTING AGREEMENT
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SUMMARY TERM SHEET
THE FOLLOWING ARE THE MORE IMPORTANT TERMS OF THE PROPOSED MERGERS:
- A subsidiary of ERP would merge into Grove L.P. in a merger
transaction and Grove L.P. would be the surviving entity. This
merger will be referred to as the partnership merger. See "The
Transactions-Terms of the Merger Transactions."
- Grove would merge into a subsidiary of ERP in a merger
transaction and the subsidiary of ERP would be the surviving
entity. This merger will be referred to as the company merger.
See "The Transactions-Terms of the Merger Transactions."
- ERP is an Illinois limited partnership which owns and operates
apartment complexes and had a partners' capital of
approximately $6.1 billion as of June 30, 2000. ERP is a
subsidiary of EQR, the largest publicly traded apartment
company in the United States. See "Summary-Parties to the
Mergers."
- Grove L.P. limited partners would have the option to elect to
receive either $17.00 per Grove L.P. unit or .3696 ERP units
per Grove L.P. unit (subject to adjustment as described in the
merger agreement). ERP units may be exchanged for either EQR
common shares on a one-for-one basis or, at EQR's option, the
cash equivalent of the applicable number of EQR common shares.
See "The Transactions-Terms of the Merger Transactions."
- The receipt of cash in the mergers by Grove L.P. limited
partners will be subject to federal and state tax. Subject to
specific exceptions, the receipt of ERP units in the
partnership merger by Grove L.P. limited partners will not be
subject to federal and state tax. See "Material Federal Income
Tax Consequences."
- The Board of Trust Managers of Grove believes that the merger
transactions are fair and in the best interest of Grove, Grove
L.P. and their respective shareholders and unitholders and
unanimously recommends that you approve and adopt the merger
agreement and the transactions contemplated in such agreement.
See "Reasons for the Merger Transactions: Recommendations of
the Grove Board of Trust Managers."
- Houlihan Lokey Howard & Zukin Financial Advisors, Inc.
delivered a fairness opinion to Grove stating that the
consideration to be received in the merger transactions by
Grove L.P. unitholders and the Grove shareholders is fair,
from a financial point of view, and that the consideration
to be received by Grove pursuant to the Retail agreement is
fair. See "Opinion of Financial Advisor-Grove."
- Immediately prior to and as a condition to ERP's obligation to
consummate the merger transactions, an entity owned by Messrs.
Joseph LaBrosse, Brian Navarro, Damon Navarro and Edmund
Navarro, each a Grove executive officer, will acquire Grove's
four retail properties from Grove for approximately
$21.7 million
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(including the assumption of mortgage debt). See "The
Transactions-Retail Agreement."
- The employee trust managers and the executive officers of
Grove will receive cash payments based upon the termination of
their employment and the stock options they hold. Non-employee
trust managers of Grove will receive a one-time cash payment
in recognition of their service to Grove.
- Grove L.P. unitholders owning at least two-thirds of the
outstanding Grove L.P. units must vote to approve the merger
agreement and the transactions contemplated in such agreement.
Grove, as general partner of Grove L.P., has agreed to vote
its 68.1% interest in Grove L.P. and certain executives of
Grove have agreed to vote their 8.6% limited partnership
interest in Grove L.P. to approve the merger agreement and the
transactions contemplated in such agreement. See "The
Transactions-Terms of the Merger Transactions."
- Grove shareholders owning at least two-thirds of the
outstanding Grove shares must vote to approve the merger
agreement and the transactions contemplated by the merger
agreement. Certain executives of Grove and Morgan Stanley
Group, Inc., holding an aggregate of 31.6% of the outstanding
Grove common shares, have agreed to vote their Grove common
shares to approve the merger agreement and the transactions
contemplated thereby.
- You do not have dissenters' rights or rights of appraisal in
connection with the merger agreement and the transactions
contemplated by the merger agreement. See "No Appraisal
Rights."
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This document incorporates important business and financial information
about EQR, ERP, Grove and Grove L.P. that is contained in or appended to
documents filed with the Securities and Exchange Commission. These documents and
such information are not included in or delivered with this proxy
statement/prospectus. See the section entitled "Where You Can Find More
Information" for information on documents incorporated by reference. EQR and ERP
will provide you with copies of the incorporated documents containing
information relating to EQR and ERP, without charge, upon written or oral
request to:
EQUITY RESIDENTIAL PROPERTIES TRUST
ERP OPERATING LIMITED PARTNERSHIP
Two North Riverside Plaza, Suite 400
Chicago, Illinois 60606
Attention: Cynthia McHugh
Senior Vice President - Investor Relations
Telephone: (312) 474-1300
Grove and Grove L.P. will provide you with information relating to
Grove and/or Grove L.P., without charge, upon written or oral request to:
GROVE PROPERTY TRUST
GROVE OPERATING, L.P.
598 Asylum Ave.
Hartford, Connecticut 06105
Attention: Sheila Daley or Michelle Hull
Toll-Free Telephone: (877) 547-1118
In order to receive timely delivery of the documents in advance of the
meeting, you should make your request no later than ____________, 2000. You may
also access the documents through the SEC's Internet website.
The SEC's Internet website is available at http://www.sec.gov.
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QUESTIONS AND ANSWERS ABOUT THE MERGERS
Q: WHY IS THE MEETING BEING CALLED?
A: The meeting is being called so that the unitholders of Grove L.P. can
approve the merger agreement between ERP, Grove L.P. and Grove and the
transactions contemplated in such agreement, including the merger of a
subsidiary of ERP into Grove L.P.
Q: WHAT WILL THE GROVE L.P. UNITHOLDERS RECEIVE IN THE PARTNERSHIP MERGER?
A: Grove L.P. limited partners will have the option of receiving either
$17.00 or .3696 ERP units per Grove L.P. unit.
Q: WHAT IS THE DIFFERENCE BETWEEN THE PARTNERSHIP MERGER AND THE COMPANY
MERGER?
A: There are two different mergers taking place in this transaction;
(1) the partnership merger between a subsidiary of ERP and Grove L.P.; and
(2) the company merger between a subsidiary of ERP and Grove.
Q: WHICH MERGER AM I VOTING TO APPROVE?
A: Because you are a holder of Grove L.P. units, you will vote to approve
the merger agreement and the transactions contemplated in such agreement,
including specifically the partnership merger.
Q: WHY ARE THE COMPANIES PROPOSING TO MERGE? HOW WILL I BENEFIT?
A: After careful study and evaluation, Grove's Board of Trust Managers
determined, by unanimous vote of the Trust Managers present, that the company
merger and the partnership merger are fair and in the best interests of Grove
and its shareholders and of Grove L.P. and its unitholders. Each holder of Grove
common shares will receive $17.00 cash per share. On July 14, 2000, the last
business day before the announcement that the merger agreement had been entered
into, the closing price reported on the American Stock Exchange of a Grove
common share was $16.3125.
Q: WHEN WILL I RECEIVE MY CASH OR MY ERP UNITS?
A: If the merger transactions are approved and consummated, you will
receive your cash or documentation related to your ERP units promptly after
the partnership merger becomes effective.
Q: DO I HAVE DISSENTERS' RIGHTS?
A: No. Grove L.P. limited partners do not have dissenters' rights or
rights of appraisal in connection with the merger transactions.
Q: WHAT ARE THE FEDERAL TAX CONSEQUENCES OF THE PARTNERSHIP MERGER TO THE
UNITHOLDERS?
A: The receipt of cash in the partnership merger will be a taxable
transaction for federal and most state income tax purposes. Subject to
specific exceptions, the receipt of ERP units in exchange for Grove L.P.
units will not be a taxable transaction for federal or state income tax
purposes. Please be aware that tax matters are very complicated and the tax
consequences of the partnership merger to you will depend on the facts of
your own situation.
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Q: WHEN DO YOU EXPECT THE MERGERS TO BE COMPLETED?
A: We hope to complete the mergers on __________, the day after the
shareholder and partner meetings, assuming the Grove L.P. unitholders and the
Grove shareholders approve the merger agreement and the transactions
contemplated by the merger agreement, including the partnership merger.
Q: WHAT VOTE IS REQUIRED TO APPROVE THE MERGERS?
A: The partnership merger must be approved by the affirmative votes of
Grove L.P. unitholders owning at least two-thirds of the outstanding Grove L.P.
units. Grove, as general partner of Grove L.P., has agreed to vote its 68.1%
interest in Grove L.P., and certain executives of Grove have agreed to vote
their 8.6% limited partnership interest in Grove L.P. to approve the merger
agreement and the transactions contemplated in such agreement, including the
partnership merger. The company merger must be approved by the affirmative votes
of Grove shareholders owning at least two-thirds of the outstanding shares of
Grove common stock. Certain executives of Grove and Morgan Stanley Group, Inc.
have agreed to vote 31.6% of the outstanding Grove common shares to approve the
merger agreement and the transactions contemplated in such agreement.
Q: HOW DO I VOTE?
A: Your vote is important. You can vote in person at the meeting or by
proxy. You can vote by mail by marking, signing, dating and mailing the enclosed
proxy card in the envelope provided. You may also attend the meeting and vote
your Grove L.P. units in person.
Q: CAN I REVOKE OR CHANGE MY PROXY?
A: Yes, you can change or revoke your proxy at any time before the vote
occurs at the meeting. To do so, you must:
- advise the Secretary of Grove in writing before your units are
voted by the proxy holders at the meeting;
- deliver later-dated proxy instructions; or
- vote in person.
Q: HOW DO I ELECT CASH OR ERP UNITS IN EXCHANGE FOR MY GROVE L.P. UNITS?
CAN I CHANGE OR REVOKE MY ELECTION?
A: Elections must be made by properly submitting the enclosed form of
election by 5:00 p.m. (Hartford time) on __________, 2000. Elections may be
changed or revoked prior to this time by submitting a later dated form of
election to Grove's Secretary.
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WHO CAN HELP ANSWER YOUR QUESTIONS
If you have any additional questions about the merger transactions, you should
contact:
GROVE PROPERTY TRUST
GROVE OPERATING, L.P.
598 Asylum Avenue
Hartford, Connecticut 06105
Attention: Sheila Daley or Michelle Hull
Toll-Free Telephone: (877) 547-1118
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SUMMARY
THE FOLLOWING SUMMARY HIGHLIGHTS SELECTED INFORMATION CONTAINED
ELSEWHERE IN THIS PROXY STATEMENT/PROSPECTUS AND DOES NOT CONTAIN ALL THE
INFORMATION THAT IS IMPORTANT TO YOU. TO UNDERSTAND THE MERGERS FULLY AND FOR A
MORE COMPLETE DESCRIPTION OF THE TERMS OF THE MERGERS, PLEASE SEE THE MORE
DETAILED INFORMATION CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS, THE
APPENDICES AND THE DOCUMENTS TO WHICH WE REFER YOU.
PARTIES TO THE MERGERS
EQUITY RESIDENTIAL PROPERTIES TRUST (EQR)
Two North Riverside Plaza
Chicago, Illinois 60606
(312) 474-1300
EQR is a real estate investment trust and one of the largest publicly
traded real estate companies in the United States. EQR was organized in March
1993 and commenced operations as a publicly traded company on August 15, 1993,
upon the completion of its initial public offering. EQR was formed to continue
the multifamily property business objectives and acquisition strategies of
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 mutlifamily properties since 1969. EQR's senior executives
average over 25 years of experience in the multifamily property business. EQR is
the largest publicly traded owner of multifamily properties, based on the number
of apartment units wholly-owned and total revenues earned. As of June 30, 2000,
EQR owned or had interests in a portfolio of 1,053 multifamily properties
containing 224,383 apartment units and managed 4,835 additional units owned by
affiliated and non-affiliated entities. As of June 30, 2000, the properties EQR
owned or had interests in had an average occupancy rate of approximately 95%.
These properties are located in 35 states.
ERP OPERATING LIMITED PARTNERSHIP (ERP)
Two North Riverside Plaza
Chicago, Illinois 60606
(312) 474-1300
ERP is a subsidiary of EQR. EQR controls ERP as its sole general
partner and as of June 30, 2000, owned approximately 91% of outstanding ERP
units, excluding ERP preferred units of limited partnership. ERP units may be
exchanged for either EQR common shares on a one-for-one basis or, at EQR's
option, the cash equivalent of the applicable number of EQR common shares. All
of EQR's interests in its properties are held directly or indirectly by, and
substantially all of its operations are conducted through, ERP. ERP owns and
operates apartment complexes throughout the United States. At June 30, 2000, it
had total assets of approximately $11.7 billion and partners' capital of
approximately $6.1 billion.
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GROVE PROPERTY TRUST (GROVE)
598 Asylum Avenue
Hartford, Connecticut 06105
(860) 246-1126
Grove owns and manages apartment complexes in New England and it or its
predecessors have been purchasing and managing real estate in that area since
1980. Grove's portfolio of 58 properties, consisting of 7,075 apartment units,
is focused primarily in Boston, Massachusetts, Hartford Connecticut and
Providence, Rhode Island. At June 30, 2000, Grove had total assets of
approximately $361.5 million.
GROVE OPERATING, L.P. (GROVE L.P.)
598 Asylum Avenue
Hartford, Connecticut 06191
(862) 246-1126
Grove L.P. was formed by Grove to act as a vehicle for the acquisition
of Grove's properties. Grove controls Grove L.P. as its sole general partner.
The Grove L.P. units are redeemable one year after issuance for cash (based on
the fair market value of an equivalent number of Grove common shares at the time
of such redemption) or, at Grove's option, for Grove common shares on a
one-for-one basis, subject to specific anti-dilution adjustments and exceptions.
Grove L.P. owns and operates Grove's property portfolio. At June 30, 2000, Grove
owned approximately 68% of the total partnership interests in Grove L.P.,
including the sole general partner interest. At June 30, 2000, Grove L.P. had
total assets of approximately $361.5 million and partners' capital of
approximately $101.9 million.
THE TRANSACTIONS
THE PARTNERSHIP MERGER
A subsidiary of ERP will be merged into Grove L.P. and Grove L.P. will
be the surviving entity. As a result of the partnership merger, the unitholders
of Grove L.P. may elect to receive either (i) $17.00 per Grove L.P. unit owned,
or (ii) 0.3696 of an ERP unit per Grove L.P. unit owned. This conversion ratio
is based upon the equivalent of $17.00 per Grove L.P. unit divided by an assumed
value of $46.00 per ERP unit. This conversion ratio is fixed, and the value of
an ERP unit received can increase or decrease based upon the then market value
of an ERP unit.
THE COMPANY MERGER
Grove will be merged into a subsidiary of ERP. The subsidiary of ERP, a
single member limited liability company, will be the surviving entity. As a
result of the merger, the shareholders of Grove will receive $17.00 per Grove
common share owned. Grove's general partnership interest in Grove L.P. will be
transferred pursuant to the company merger to the surviving limited liability
company, making the limited liability company the sole general partner of Grove
L.P.
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THE RETAIL AGREEMENT
Grove currently owns and operates four retail properties. In connection
with the merger transactions, an entity owned by Joseph LaBrosse, Brian Navarro,
Damon Navarro and Edward Navarro, executives of Grove, will acquire these
properties from Grove for approximately $21.7 million in consideration,
including the assumption of approximately $7.5 million of debt and the surrender
of Grove L.P. units.
POSSIBLE DIVIDEND REDUCTION
Grove will continue to pay dividends to its shareholders and Grove L.P.
will continue to pay partnership distributions to its unitholders, declared up
to the time the mergers become effective. However, the transaction costs
incurred by Grove and Grove L.P. in connection with the merger transactions are
not to exceed a set amount. If the sum of certain Grove and Grove L.P. costs in
the transaction exceed a set amount, dividends and partnership distributions
that would have been paid to the Grove shareholders and Grove L.P. unitholders
respectively will be reduced by the amount of this excess. If a Grove L.P.
unitholder elects to receive ERP units in exchange therefor, however, the
distributions currently paid by ERP are greater than those paid by Grove on an
as adjusted basis.
NO MARKET VALUE OF UNITS BEING ACQUIRED
GROVE L.P. UNITS
There is no market for Grove L.P. units, and the units are subject to
restrictions on transfer. However, subject to certain restrictions, prior to the
company merger Grove L.P. units may be redeemed or, at the option of Grove, the
redeeming unitholder may receive Grove common shares on a one-for-one basis.
ERP UNITS
There is no market value for ERP units, and such units are subject to
restrictions on transfer. However, ERP units may be exchanged for either EQR
common shares on a one-for-one basis or, at EQR's option, the cash equivalent of
the applicable number of EQR common shares.
THE MERGER AGREEMENT
The merger agreement is the legal document which governs the
partnership merger and the company merger. The merger agreement can be found in
Appendix A to this proxy statement/prospectus.
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INTERESTS OF CERTAIN PERSONS IN THE TRANSACTIONS
Upon consummation of the company merger, the employee trust managers
and the executive officers of Grove will receive cash payments based upon the
termination of their employment and the number of stock options which they hold
at that time. Non-employee trust managers of Grove will receive a one-time cash
payment in recognition of their substantial contributions to Grove and for their
service on Grove's Merger Oversight Committee. Moreover, ERP has agreed to
indemnify the officers and trust managers of Grove or any Grove subsidiary for
their actions on or prior to the merger, including all transactions consummated
pursuant to the merger agreement.
VOTING POSITIONS HELD BY CONTROL PERSONS AND VOTE REQUIRED FOR APPROVAL OF THE
MERGERS
VOTING POSITIONS HELD BY CONTROL PERSONS
THE PARTNERSHIP AND COMPANY MERGERS: Each of Messrs. Cheema, Garrahy,
LaBrosse, McNamara, Munsell, B. Navarro, D. Navarro, E. Navarro and Twaddell,
and Morgan Stanley Group, Inc. have signed a shareholder/partner voting
agreement whereby they have agreed to vote the shares or units they hold
affirmatively for the respective mergers. Together, they hold 31.6 % of the
outstanding shares of Grove and 8.6% of the outstanding limited partnership
units of Grove L.P. In addition, Grove, as general partner of Grove L.P., has
agreed to vote its 68.1% interest in Grove L.P. to approve the partnership
merger.
VOTE REQUIRED FOR APPROVAL OF THE MERGERS
THE PARTNERSHIP MERGER:
In order for the partnership merger to be consummated, unitholders
owning at least two-thirds of the Grove L.P. units must vote affirmatively for
the partnership merger.
THE COMPANY MERGER:
In order for the company merger to be consummated, Grove shareholders
owning at least two-thirds of outstanding common shares of Grove must vote
affirmatively for the company merger.
FEDERAL OR STATE REGULATORY APPROVALS NEEDED
ERP was required to file a registration statement and other related
documents with the SEC in connection with the mergers. The merger transactions
do not require a filing under the Hart-Scott-Rodino Act. ERP has received all
state security or "blue sky" authorizations necessary to issue the ERP units to
the Grove L.P. limited partners that elect to receive ERP units. Grove filed a
proxy statement with the SEC in connection with the special meeting of Grove
shareholders called to consider the merger agreement and the transactions
contemplated thereby.
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DISSENTERS' RIGHTS
Grove L.P. unitholders are not entitled to dissenters' rights or other
rights of appraisal in connection with the partnership merger under either
Delaware law or the agreement of limited partnership of Grove L.P.
DEFICIT RESTORATION OBLIGATION
In the event a Grove L.P. unitholder is subject to a deficit
restoration obligation under the Grove L.P. agreement of limited partnership and
elects to receive ERP units, such limited partner will have the right to enter
into a deficit restoration obligation under the ERP partnership agreement up to
the same amount of such limited partner's deficit restoration obligation under
the Grove L.P. partnership agreement.
TAX CONSEQUENCES
PARTNERSHIP MERGER. A limited partner of Grove L.P. who elects to
receive solely cash in exchange for his or her Grove L.P. units in connection
with the partnership merger will be deemed to have sold their Grove L.P. units
to ERP in a taxable transaction and would recognize taxable gain or loss equal
to (a) the sum of the amount of cash received plus the limited partner's share
of liabilities of Grove L.P. as of the date of closing, minus (b) that limited
partner's adjusted tax basis in his Grove L.P. units.
A limited partner of Grove L.P who elects to receive ERP units in
connection with the partnership merger generally will not recognize taxable gain
at the time of the partnership merger. However, a Grove L.P. limited partner who
elects to receive solely ERP units would recognize taxable gain to the extent
that the limited partner is relieved of an amount of partnership liabilities in
excess of the adjusted tax basis of the limited partner's ERP units. Whether or
not a particular Grove L.P. limited partner will experience a reduction in its
share of partnership liabilities in connection with the partnership merger
depends upon a number of factors, including, but not limited to, whether or not
a Grove L.P. limited partner who had a "deficit restoration obligation" with
respect to the Grove L.P. enters into a "deficit restoration obligation" under
the ERP partnership agreement. The continuing availability of deficit
restoration obligations are discussed more fully under the heading "Material
Federal Income Tax Consequences - Material Federal Income Tax Consequences of
the Partnership Merger--Deficit Restoration Obligations."
The Grove L.P. limited partners who elect to receive solely ERP units
in the partnership merger may nevertheless receive cash in lieu of any
fractional ERP units. The receipt of such cash will be a taxable sale of such
fractional Grove L.P. units for federal income tax purposes. See "Material
Federal Income Tax Consequences--Effect of Subsequent Events--Part Sale/Part
Contribution."
In addition, subsequent events and transactions could cause a Grove
L.P. limited partner to be required to recognize all or part of any gain
deferred at the time of the partnership merger
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as a result of receiving ERP units. See "Material Federal Income Tax
Consequences - Effect of Subsequent Events."
The consequences of the retail agreement are more fully discussed under
the heading "Material Federal Income Tax Consequences-Material Federal Income
Tax Consequences of the Retail Agreement."
The tax consequences of the partnership merger and the retail agreement
to each Grove L.P. limited partner will depend on facts relating to tax matters
particular to that limited partner. Each Grove L.P. limited partner, therefore,
is urged to consult with its own tax advisor for a full understanding of the tax
consequences to the limited partner that will result from the partnership merger
and the retail agreement.
ACCOUNTING TREATMENT
The partnership merger and the company merger will be treated as
purchases in accordance with Accounting Principles Board Opinion No. 16.
RISK FACTORS
In considering whether to approve the merger transactions, the limited
partners of Grove L.P. should consider, in addition to the other information
contained in this proxy statement/prospectus, the matters discussed under "Risk
Factors." Such matters include:
- Possible conflicts of interest due to the fact that certain
members of management of Grove, pursuant to existing
agreements and the retail agreement, have certain interests
that are in addition to the interests of limited partners of
Grove L.P. generally.
- Possible payment of liquidated damages and expenses: the
merger agreement provides for a "break-up fee" of $8.5 million
plus break-up expenses of up to $2 million payable by Grove to
EQR if the merger agreement is terminated by either EQR or
Grove under specified circumstances and, if within one year
thereafter, Grove enters into an agreement regarding an
acquisition proposal, which is consummated. If the merger
agreement is terminated by either EQR or Grove under other
circumstances, either EQR or Grove may be required to pay the
other party's break-up expenses of up to $2 million. See "The
Transactions-Termination Provisions."
- A number of federal income tax risks associated with an
investment in ERP, more fully described in "Material Federal
Income Tax Consequences."
- A Grove L.P. limited partner who elects to receive ERP units
in connection with the partnership merger might recognize
taxable gain as a result of the partnership merger if that
Grove L.P. limited partner is subject to a deficit restoration
obligation to Grove L.P. under the Grove L.P. partnership
agreement and the
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limited partner does not agree to enter into a deficit
restoration obligation with ERP.
- Grove L.P. limited partners who elect to receive ERP units in
connection with the partnership merger, including those
limited partners who enter into a deficit restoration
obligation with ERP, may recognize taxable gain if they are
relieved of an amount of liabilities that exceeds their tax
basis in their ERP units.
- Grove L.P. limited partners who contributed any of Grove's
retail properties to Grove L.P. might be required to recognize
substantial taxable gain as a result of transactions
contemplated in the retail agreement.
- Differences between the rights of limited partners in Grove
L.P. and ERP under their respective partnership agreements and
Delaware and Illinois state law, which currently govern Grove
L.P. and ERP, respectively.
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RISK FACTORS
In considering whether to vote to approve the merger agreement and the
transactions contemplated by the merger agreement, you should consider the risks
described in this section and in the documents we incorporate by reference into
this proxy statement/prospectus.
GROVE TRUST MANAGERS AND EXECUTIVE OFFICERS HAVE INTERESTS IN THE MERGER WHICH
MAY CREATE A CONFLICT BETWEEN SUCH PERSONS AND GROVE L.P. UNITHOLDERS
Grove L.P. limited partners should be aware that certain trust
managers, executive officers and members of the management of Grove have certain
interests that arise in connection with the merger transactions that are in
addition to the interests of limited partners generally. Such interests include
severance and transition payments, acceleration of vesting of restricted Grove
shares, acceleration of vesting of stock options and tax related payments and
the retail agreement. Therefore, a conflict between the interests of these
individuals and the interests of the Grove shareholders and limited partners
could exist. These conflicting interests are described in the section entitled
"Interests of Certain Persons In the Merger."
PAYMENT OF FEES AND EXPENSES BY GROVE IF THE MERGERS FAIL TO OCCUR COULD
ADVERSELY AFFECT GROVE'S ABILITY TO ENGAGE IN OTHER TRANSACTIONS
The merger agreement provides for a break-up fee of $8.5 million
payable by Grove plus an expense fee of up to $2 million if the merger agreement
is terminated by either EQR or Grove under specified circumstances and if, at
the time of termination, Grove has received another acquisition proposal and,
within one year after the termination, Grove enters into an agreement regarding
the acquisition of Grove or the sale of substantially all of its assets, which
acquisition or sale is later completed. In addition, if the merger agreement is
terminated for specified reasons, EQR or Grove will be required to pay the other
party an expense fee of up to $2 million.
See "The Merger--Termination Fee and Expenses."
The obligation to pay the break-up fee or the expense fee or both may
adversely affect the ability of Grove to engage in another transaction in the
event the company merger is not consummated.
GROVE L.P. LIMITED PARTNERS WHO ARE SUBJECT TO A DEFICIT RESTORATION OBLIGATION
TO GROVE L.P. AND WHO ELECT TO RECEIVE ERP UNITS MAY RECOGNIZE TAXABLE GAIN AS A
RESULT OF THE PARTNERSHIP MERGER IF THEY DO NOT ENTER INTO A DEFICIT RESTORATION
OBLIGATION WITH ERP
Grove L.P. limited partners who elect to receive ERP units and who are
subject to a deficit restoration obligation to Grove L.P. may recognize taxable
gain as a result of the partnership merger if they do not enter into a deficit
restoration obligation with ERP. ERP intends to cause the Grove L.P. limited
partners who are subject to a deficit restoration obligation to Grove L.P. to be
released from their deficit restoration obligations in connection with the
partnership merger. The release of a Grove L.P. limited partner from its deficit
restoration obligations to Grove L.P. may result in a deemed distribution of
cash to that limited partner which could cause the limited partner to recognize
taxable gain. The amount of the deficit
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restoration obligation that a Grove L.P. limited partner may enter into with
ERP will be equal to the limited partner's deficit restoration obligation to
Grove L.P.
LIMITED PARTNERS OF GROVE L.P. WHO ELECT TO RECEIVE ERP UNITS MAY RECOGNIZE
TAXABLE GAIN IF THEY ARE RELIEVED OF AN AMOUNT OF LIABILITIES IN EXCESS OF THEIR
TAX BASIS IN THE ERP UNITS THEY RECEIVE
Grove L.P. limited partners who elect to receive ERP units in
connection with the partnership merger, including those limited partners who
enter into a deficit restoration obligation with ERP, may recognize taxable gain
if they are relieved of an amount of liabilities that exceeds their tax basis in
the ERP units they receive.
LIMITED PARTNERS OF GROVE L.P. WHO CONTRIBUTED ANY OF GROVE'S RETAIL PROPERTIES
TO GROVE L.P. AND WHO DO NOT PARTICIPATE IN THE RETAIL SALE TRANSACTION MAY
RECOGNIZE SUBSTANTIAL TAX GAIN AS A RESULT OF THE RETAIL SALE TRANSACTION
Immediately prior to the partnership merger, Damon D. Navarro, Brian D.
Navarro, Edmund F. Navarro and Joseph R. LaBrosse, each an executive officer of
Grove, will contribute all 998,227 of their Grove L.P. units to a limited
liability company owned by such officers ("Investor LLC") in exchange for
interests in Investor LLC. Investor LLC will then redeem all 998,227 of its
Grove L.P. units for Grove L.P's ownership interest in the entities owning
Grove's four retail properties. The foregoing transactions are referred to as
the "retail sale transaction". The limited partners of Grove L.P. who
contributed any of the four retail properties, or interests in the entities
which owned the four retail properties, to Grove L.P., but who do not
participate in the retail sale transaction will be required to recognize gain
equal to the amount of any remaining built-in gain that they deferred upon
contribution of those properties to Grove L.P. This gain will generally equal
the difference between the contributing limited partner's share of the "book
basis" of the contributed property (i.e., the fair market value of the property
on the date of contribution less depreciation deductions taken for book
purposes) and the adjusted tax basis of such property, calculated at the time of
the retail sale transaction.
TRANSFER RESTRICTIONS ON ERP UNITS
The ERP partnership agreement provides for certain restrictions on a
limited partner's ability to transfer his or her ERP units. Subject to certain
exceptions, a limited partner may not transfer all or any portion of his or her
ERP units without obtaining the prior written consent of the general partner,
which consent may be withheld in the sole and absolute discretion of the general
partner, and meeting other requirements set forth in the ERP partnership
agreement. Notwithstanding this general prohibition, a limited partner of ERP
may transfer his, her or its ERP units by (i) operation of law, testamentary
disposition, gift (outright or in trust) or by sale in each case to or for the
benefit of his or her parent(s), spouse or descendants, (ii) pledges or other
collateral transfers effected by a limited partner to secure the repayment of a
loan or other obligation, (iii) the exchange of ERP units for EQR common shares,
and (iv) the distribution of ERP units or preference units to any of its direct
or indirect constituent partners or owners. A "transfer" does not include the
conversion of a preference unit into one or more ERP units nor the conversion of
a ERP unit into a share of EQR common shares. While these restrictions may
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limit a limited partner's ability to liquidate his, her or its investment in
ERP units quickly, the ERP units are redeemable into EQR common shares, for
which there is an active market.
COMBINED COMPANIES MAY NOT ACHIEVE EXPECTED EFFICIENCIES
ERP and Grove are large enterprises with operations in a number of
different states. There can be no assurance that costs or other factors
associated with the integration of the two companies would not adversely affect
future combined results of operations or the benefits of expected costs savings.
GROVE L.P. LIMITED PARTNERS WILL HAVE REDUCED VOTING POWER AS A GROUP AFTER THE
MERGERS
Upon completion of the merger transactions, Grove L.P. limited partners
will own up to a maximum of 0.8% of the outstanding ERP units and will not have
separate approval rights with respect to any actions or decisions of ERP.
NO DISSENTERS' RIGHTS
Limited partners of Grove are not entitled to dissenters' appraisal
rights under Delaware law or the Grove L.P. partnership agreement in connection
with the partnership merger.
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CAUTIONARY STATEMENT REGARDING
FORWARD-LOOKING STATEMENTS
Certain statements in the Summary and under captions "Risk Factors,"
"The Transactions-Advantages and Disadvantages of the Merger; Reasons for the
Transactions; Recommendation of the Grove Board of Trustees," "-Opinion of the
Financial Advisor for Grove" and elsewhere in this proxy statement/prospectus
and incorporated by reference herein are intended to constitute 'forward-looking
statements' within the meaning of the Private Securities Litigation Reform Act
of 1995. You may find many of these statements by looking for words such as
"believes," "expects," "anticipates," "estimates," or similar expressions in
this proxy statement/prospectus or in documents incorporated herein. These
forward-looking statements involve known and unknown risks, uncertainties and
other factors which may cause the actual results, performance or achievements of
EQR, ERP, Grove and Grove L.P., the combined company or the industry to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Such factors include,
among others:
- general and local economic and business conditions, which
will, among other things, affect demand for multifamily
properties, availability and creditworthiness of prospective
tenants;
- 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 acquisitions;
- governmental actions and initiatives;
- environmental and safety requirements;
- ability to achieve anticipated cost savings and operating
efficiencies from the mergers; and
- other changes and factors referenced in this proxy
statement/prospectus and the documents incorporated into this
proxy statement/prospectus by reference.
Because forward-looking statements are subject to risks and uncertainties,
actual results may differ materially from those expressed or implied by
forward-looking statements. You should not place undue reliance on these
statements, which speak only as of the date of this proxy statement/prospectus
or, in the case of a document incorporated by reference, the date of such
document.
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THE PARTNERS' MEETING
GENERAL
The meeting of the partners of Grove L.P. to approve the merger
agreement and the transactions contemplated by the merger agreement, including
the partnership merger, will be held at ________a.m. on ___________, 2000 at The
Hartford Club. The record date for partners entitled to notice of and to vote at
the partners meeting is the close of business on ____________, 2000. On that
date, Grove L.P. had _______ outstanding Grove L.P. units, of which ________
were held by Grove and _________ were held by Grove L.P. limited partners.
VOTE REQUIRED
The transactions contemplated by the merger agreement, including the
partnership merger, will not be consummated without the affirmative vote of at
least 66 2/3% of the Grove L.P. units outstanding as of the record date. For
this reason, the failure to vote will have the same effect as a negative vote.
As of June 30, 2000, Grove owned 8,296,661 Grove L.P. units or 68% of
the outstanding Grove L.P. units, and is permitted to vote these Grove L.P.
units in the same manner as other holders of Grove L.P. units. Grove will vote
all of its Grove L.P. units in favor of the transactions contemplated by the
merger agreement. In addition, the executive officers of Grove who own Grove
L.P. units have each entered into a separate agreement with ERP that binds them
to vote all of their Grove L.P. units in favor of the merger agreement and the
transactions contemplated in such agreement, including the partnership merger.
The Grove L.P. units held by these executive officers, together with the Grove
L.P. units held by Grove, constitute approximately _____% of the total number of
Grove L.P. units outstanding as of the record date. Therefore, voting against
the merger agreement and the transactions contemplated thereby will have no
effect on whether such transactions are consummated. In addition, there is no
requirement that the merger agreement and the transactions contemplated by the
merger agreement be approved by the affirmative vote of the holders of Grove
L.P. units who are unaffiliated with Grove.
HOW TO VOTE
You may use the accompanying proxy card to cast your vote or you may
attend the meeting of the partners and vote in person. The Grove L.P. units
represented by properly executed proxies, unless previously revoked, will be
voted in accordance with the instructions indicated on the proxy card. If no
instructions are given in a properly executed proxy, all Grove L.P. units
represented by that proxy will be voted in favor of the merger agreement and the
transactions contemplated thereby. You may revoke any proxy given at any time
prior to its use. Revocation may be done by signing and returning a later dated
proxy or by voting in person at the meeting of the partners.
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CASH/UNIT ELECTION PROCEDURE
In addition to voting to approve the merger agreement and the
transactions contemplated thereby, holders of Grove L.P. units may also elect to
receive cash or ERP units in exchange for their Grove L.P. units pursuant to the
partnership merger. You may make this election by completing the accompanying
form of election. In addition, holders of Grove L.P. units who elect to receive
ERP units in exchange for their Grove L.P. units and who are currently subject
to a deficit restoration obligation under the Grove L.P. partnership agreement
may also elect to become subject to a deficit restoration obligation under the
ERP partnership agreement by following the instructions contained in the form of
election.
To be effective, a form of election must be properly completed, signed
and submitted to the address indicated by 5:00 p.m. (Hartford time) on ________,
2000. If you do not properly submit a completed form of election by this
deadline, YOU WILL BE DEEMED TO HAVE ELECTED TO RECEIVE CASH IN EXCHANGE FOR
YOUR GROVE L.P. UNITS and, if you are subject to a deficit restoration
obligation, YOU WILL BE DEEMED NOT TO BECOME SUBJECT TO A DEFICIT RESTORATION
OBLIGATION UNDER THE ERP PARTNERSHIP AGREEMENT. As part of the election to
receive ERP units, you will agree to be bound by the terms of the ERP
partnership agreement. Any form of election may be changed or revoked prior to
the election deadline by (i) advising the paying agent in writing at the address
included in the form of election before the election deadline or (ii) delivering
to the paying agent (prior to the election deadline) a properly completed form
of election dated after your initial form of election. The election deadline is
____________, 2000.
ERP will have the discretion to determine if forms of election have
been properly completed, signed and submitted or revoked and to disregard any
immaterial defects in forms of election. Neither ERP nor the paying agent will
be under any obligation to notify any person of any defects in a submitted form
of election. If the forms of election are not properly completed to ERP's
satisfaction, you will receive cash.
DEFICIT RESTORATION OBLIGATION ELECTION PROCEDURE
Holders of Grove L.P. units who elect to receive ERP units in exchange
for their Grove L.P. units and who are currently subject to a deficit
restoration obligation under the Grove L.P. partnership agreement may also elect
to become subject to a deficit restoration obligation under the ERP partnership
agreement by following the instructions contained in the form of election.
To be effective, a form of election must be properly completed, signed
and submitted to the address indicated by 5:00 p.m. (Hartford time) on ________,
2000. If you do not properly submit a completed form of election by this
deadline, YOU WILL BE DEEMED TO HAVE ELECTED TO RECEIVE CASH IN EXCHANGE FOR
YOUR GROVE L.P. UNITS and, if you are subject to a deficit restoration
obligation, YOU WILL BE DEEMED NOT TO BECOME SUBJECT TO A DEFICIT RESTORATION
OBLIGATION UNDER THE ERP PARTNERSHIP AGREEMENT. As part of the election to
receive ERP units, you will agree to be bound by the terms of the ERP
partnership agreement. Any form of election may be changed or revoked prior to
the election deadline by (i) advising the paying agent in writing at the address
included in the form of election before the election deadline or (ii) delivering
to the paying agent (prior to the election deadline) a properly completed form
of
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election dated after your initial form of election. The deficit restoration
obligation election deadline is ____________, 2000.
ERP will have the discretion to determine if forms of election have
been properly completed, signed and submitted or revoked and to disregard any
immaterial defects in forms of election. Neither ERP nor the paying agent will
be under any obligation to notify any person of any defect in a submitted form
of deficit restoration obligation election. If the forms of deficit restoration
obligation election are not properly completed to ERP's satisfaction, you will
not become subject to a deficit restoration obligation under ERP's partnership
agreement.
COST OF PROXY SOLICITATION
Grove L.P. will pay the cost of its proxy solicitation. In addition to
soliciting proxies by mail, Grove L.P. employees or other representatives of
Grove L.P. or Grove may solicit limited partners of Grove L.P. personally and by
telephone. None of these employees or representatives will receive any
additional or special compensation for doing this.
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THE TRANSACTIONS
TERMS OF THE TRANSACTIONS
OVERVIEW
The following is a brief summary of the material terms of the merger
agreement and the transactions contemplated thereby. To fully understand the
merger transactions, and for a complete description of the terms of the mergers,
you should carefully read the entire document, including the merger agreement,
which is attached as Appendix A, and is incorporated by reference. This summary
is qualified in its entirety by reference to the full text of the merger
agreement.
The merger transactions consist of two separate mergers: the
partnership merger and the company merger. The merger transactions are designed
to allow ERP to acquire the 56 apartment communities Grove and Grove L.P.
currently own and manage in the Boston, Massachusetts, Hartford, Connecticut and
Providence, Rhode Island areas. The acquisition of the Grove properties will
increase ERP's presence in the New England states.
Through a series of steps and as a result of the merger transactions,
ERP will be the single member of a newly formed Delaware limited liability
company ("New LLC1"), which will become the sole limited partner of Grove L.P.
by forming a single member Delaware limited liability company ("New LLC2") which
will merge with and into Grove L.P. The Grove L.P. unitholders electing to
receive ERP units will become limited partners of ERP. ERP will also be the sole
member of a Maryland limited liability company ("New LLC3"), which will become
the sole general partner of Grove L.P pursuant to its merger with Grove. Grove
will merge with and into New LLC3.
THE PARTNERSHIP MERGER
Following approval of the partnership merger by the Grove L.P.
partners, Grove L.P. and New LLC2 will file a certificate of merger with the
Secretary of State of Delaware to effectuate the partnership merger. The
partnership merger will be comprised of the following steps:
- ERP will form New LLC1, which will in turn form New LLC2.
- New LLC2 will merge with Grove L.P. and Grove L.P. will
survive the partnership merger. New LLC1 will become the sole
limited partner of Grove L.P. and Grove will continue to be
the sole general partner of Grove L.P.
The limited partners of Grove L.P. may elect to receive either (i)
$17.00 or (ii) 0.3696 ERP units per Grove L.P. unit owned immediately prior to
the partnership merger.
Upon the effectiveness of the partnership merger, Grove L.P.'s limited
partners will no longer hold any interest in Grove L.P. The Grove L.P. limited
partners who elect to receive ERP units will become limited partners of ERP.
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THE COMPANY MERGER
Following approval of the company merger by the Grove shareholders,
Grove and New LLC3 will file articles of merger with the State Department of
Assessments and Taxation in Maryland to effectuate the company merger. The
company merger will be comprised of the following steps:
- ERP will form New LLC3.
- New LLC3 and Grove will merge.
- New LLC3 will be the surviving entity of the company merger.
- Grove shareholders will receive $17.00 per Grove common share
owned.
- Grove's general partnership interest in Grove L.P. will be
transferred by operation of law to New LLC3, whereby New LLC3
will become the sole general partner of Grove L.P.
- ERP will remain: (i) the sole member of New LLC1, which will
be the sole limited partner of Grove L.P., and (ii) the sole
member of New LLC3, which will be the sole general partner of
Grove L.P.
RETAIL AGREEMENT
Grove currently owns and operates four retail properties. As part of
the merger transactions, a limited liability company owned by Messrs. LaBrosse,
B. Navarro, D. Navarro and E. Navarro, executives of Grove, will acquire these
properties from Grove for approximately $21.7 million, consisting of the
redemption by Grove L.P. of 998,227 units currently owned by these executives,
valued at $17.00 per unit. Any excess value in the sale will be tendered in cash
to a limited liability company owned by the executives. The executives will bear
all costs of this transaction.
BACKGROUND OF THE TRANSACTIONS
Over the recent several years, Grove has had substantial growth in its
assets through a variety of acquisitions as well as in its revenues, net income
and funds from operations. During this period, Grove has also enjoyed
above-average total shareholder return, compared to other REITs, based both on
the price of the Grove common shares (and, indirectly, the value of the Grove
L.P. units) and on the dividends and distributions paid by Grove and Grove L.P.
Grove was approached periodically by representatives of other entities,
including EQR, expressing varying degrees of interest in acquiring Grove. None
of these approaches led to further developments until an inquiry Grove received
from EQR in the Fall of 1999. At that time, a senior officer of EQR contacted
the Chief Executive Officer of Grove to request a meeting. An initial meeting of
such officers occurred in the Fall of 1999 at which time a
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preliminary indication of EQR's valuation of Grove was suggested. The
representative of EQR also indicated that EQR had informally contacted
certain of the institutional shareholders of Grove to determine their
long-term interests in Grove and its securities.
Although no further contact between Grove and EQR took place during
1999, Grove's management began to evaluate what would be in the best interests
of the Grove shareholders and the Grove L.P. unitholders. That evaluation led
the Grove management to the conclusion that some type of acquisition proposal
for Grove might be made on either a friendly or a hostile basis. Because of
these developments, Grove determined that the interests of its shareholders and
the Grove L.P. unitholders would be better served if Grove exercised a greater
degree of control over some process that might occur.
In the first quarter of 2000, EQR expressed continuing interest in
pursuing an acquisition transaction with Grove. EQR expressed a preference for a
cash payment for Groves common shares and a fixed conversion ratio for the
exchange of Grove L.P. common units for ERP units. In early March, Grove and EQR
entered into a confidentiality agreement pursuant to which Grove agreed to
provide certain confidential information to EQR and EQR agreed to retain such
information in confidence and to use it only to evaluate the desirability of
pursuing a transaction with Grove. Grove thereafter provided certain
confidential information to EQR.
After entering into the confidentiality agreement with EQR, Grove
contacted two of the other parties who had, over time, expressed some degree of
interest in exploring a possible transaction with Grove. The discussions led to
the execution of confidentiality agreements with the other parties with terms
substantially identical to the terms of the confidentiality agreement between
Grove and EQR. Information comparable to that provided to EQR was thereafter
provided to one of those parties and some confidential information was provided
to the other.
Beginning in approximately mid-May, 2000, Grove had a series of
discussions with its counsel and other advisors concerning the substantive terms
of any transaction which might be presented to the Board of Trust Managers of
Grove and of the appropriate process to follow in its continuing discussions
with EQR and the other two parties. Grove's management recognized that the
structure of any transaction might have different tax consequences to the
holders of Grove's common shares than to the holders of Grove L.P.'s common
units. Grove believed that a transaction which was tax-free would likely be
substantially more important to the holders of Grove L.P.'s common units than it
would be to the holders of Grove's common shares.
EQR proposed that it and Grove enter into an agreement pursuant to
which Grove would agree that it would negotiate exclusively with EQR for a
30-day period and which would also outline the terms on which a transaction
between Grove and EQR might be concluded. During that period, representatives of
EQR would be permitted to perform additional due diligence concerning Grove and
its properties. Grove's management, its counsel and other advisors discussed
with EQR the terms of such an exclusivity agreement which Grove's management
believed might be acceptable to the Board of Trust Managers of Grove. The
proposed terms of such an agreement were the subject of extended discussion
among Grove and its advisors, and EQR. Terms which were discussed included,
without limitation, the period of any exclusivity, the general structure of any
potential transaction, the obligations of each to pay certain fees and expenses
in the event that a definitive agreement was not entered into, the
appropriateness of the
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assumptions EQR used to make its preliminary evaluation of Grove and the
price it might be willing to pay in any transaction with Grove. During this
time, the management of Grove also kept the Trust Managers of Grove advised
of the progress of the discussions.
A special meeting of the Board of Trust Managers of Grove was held on
May 25, 2000 for the purpose of reviewing the general proposals which had been
presented to Grove by EQR and each of the other interested parties and to
determine what course Grove should follow in the best interests of the holders
of Grove's common shares and Grove L.P.'s common units.
At this meeting, counsel for Grove reviewed the duties of the Board in
considering opportunities for the sale of the company. Management reviewed
Grove's recent operating history and the impact on Grove and its operations of
external conditions, including that the capital markets for real estate
investment trusts had been relatively positive in 1997 when Grove raised the
majority of its publicly held equity and that interest rates had been generally
favorable. A change in either of these would likely adversely affect the future
performance of Grove. The Board then reviewed the relative advantages and
disadvantages of various strategic alternatives available to Grove. These
alternatives included:
- Grove could remain independent and pursue its business
strategy;
- Grove could pursue a management leveraged buyout;
- Grove could sell its portfolio of properties and liquidate;
- Grove could pursue a possible transaction with an entity other
than EQR; or
- Grove could pursue a possible transaction with EQR.
The Board discussed management's expectations for Grove's results for
the next 18-month period taking into account increasing borrowing and equity
costs. The Board noted that there was increasing competition to acquire
available apartment communities in Grove's market, thereby increasing the
potential costs of future acquisitions. The Board also recognized that, if
market conditions in the real estate industry declined, it would be difficult
for Grove to continue its historic pace of growth and that any need to increase
dividends substantially in the near future to meet REIT tax requirements might
also restrict Grove's ability to grow. Based in part on management's
evaluations, the Board concluded that, on a total return basis, the sale
transaction would be better for the Grove shareholders and the Grove L.P.
unitholders than remaining independent.
In analyzing a management leveraged buyout of Grove, the Board noted
that, following such a transaction, Grove common shares would no longer be
publicly traded. The Board noted that this could adversely affect the ability of
the holders of Grove L.P.'s units to redeem such units. Management had also
indicated that the price in such a buyout would be lower than the indicated
price suggested by EQR because of the maximum amount which could be borrowed in
such a transaction. The Board noted that such a transaction would also present a
number of conflict of interest issues.
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In connection with a possible sale of Grove's portfolio of properties,
the Company's Chief Executive Officer noted that there are contractual
restrictions on the ability of Grove to sell certain of its properties for cash
without an adverse impact on Grove. He also noted that any such strategy would
require a significant amount of time to complete, introducing a degree of
uncertainty as to its success. He indicated that the sale of all of Grove's
properties would likely take as long as two years to complete and that, during
the process, Grove would bear the risk of a downturn in the real estate market.
The Board then discussed the possibility of Grove's seeking to enter
into a transaction with a party other than EQR. Based on Grove's extensive
knowledge of the apartment REIT industry, the Board discussed logical candidates
to acquire Grove other than EQR, including the two entities that had
specifically indicated an interest in acquiring Grove. In respect of one of
these entities, the Board noted that the party did not have available the amount
of cash which would be needed to conclude a cash transaction with Grove on a
timely basis, thereby decreasing the certainty of completing such a transaction.
In the case of the other entity, the Board noted that its corporate structure
would make it difficult to accomplish a transaction which would be acceptable to
the holders of Grove L.P.'s units and that this party had never completed a
merger-type transaction with an unaffiliated entity. The Board noted the
experience of EQR in completing acquisition transactions in an expeditious
manner.
At the conclusion of the May 25, 2000 Board meeting, the Board of Trust
Managers authorized the management of Grove to continue negotiations with EQR to
determine if there were terms of an exclusivity agreement that might be
acceptable to the Board. In making its determination, the Board noted in
particular the indicated terms of a transaction with EQR, the liquidity of EQR
and its ability to fund the transaction and the flexibility in structuring a
transaction based on the similar corporate structures of EQR and Grove. An
information meeting of the Board was scheduled for May 31, 2000 so that
management could report to the trust managers the status of discussions with EQR
concerning the terms of the proposed exclusivity letter.
Thereafter, management, with the assistance of its counsel and
advisors, continued discussions with EQR concerning the terms of the proposed
exclusivity agreement. Such discussions covered a variety of topics, including
the reasonableness of the assumptions being used by EQR in evaluating a
transaction with Grove, the circumstances under which Grove would be obligated
to pay a "break-up" fee and the circumstances under which both Grove and EQR
would be obligated to reimburse the other for certain expenses. EQR also
proposed that any agreement between EQR and Grove would contain representations,
warranties and certain other terms substantially similar to those of an
agreement entered into by EQR relating to a recent acquisition made by EQR.
Management of Grove and its counsel reviewed the terms of such agreement for
their general acceptability.
At the information meeting of the Board on May 31, 2000, management
reviewed the status of discussions with EQR and solicited the comments of the
Trust Managers. Based on a request of the Board at its May 25 meeting, the
Company's Chief Executive Officer, with the assistance of an outside advisor,
had contacted a number of investment banking firms, including Houlihan Lokey
Howard & Zukin Financial Advisors, Inc., soliciting proposals to be retained by
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Grove for the purpose of rendering an opinion as to the fairness, from a
financial point of view, of the consideration to be paid in any transaction
between Grove and EQR.
On June 9, 2000, the Board of Trust Managers of Grove held a special
meeting. Present in person or by telephone were all of the trust managers of
Grove, together with the Company's Chief Investment Officer and representatives
of the Company's counsel and its advisor, Jennings Securities LLC. The Company's
Chief Investment Officer reviewed with the Board the terms of the revised draft
exclusivity agreement emphasizing those terms that had changed since the last
draft circulated to the Board. After a full discussion of the terms of the
revised draft exclusivity agreement, the Board approved the agreement and
authorized its execution on behalf of Grove. At the June 9, 2000 meeting, the
Board also created a special committee, the Merger Oversight Committee, composed
of all of Grove's outside trust managers, to review independently the fairness
and reasonableness of the transactions contemplated by the exclusivity agreement
(including the terms of the transfer of the retail properties) to the holders of
Grove's common shares and Grove L.P.'s units.
Prior to the June 9, 2000 meeting and at the request of the Board,
Grove's Chief Executive Officer contacted a number of investment banking
firms to discuss the retention of one of them to provide an opinion as to the
fairness, from a financial point of view, with respect to both the
consideration to be received by the holders of Grove's common shares and
Grove L.P.'s common units in the merger transactions and the fairness, from a
financial point of view, to Grove of the consideration to be received by
Grove in connection with the transactions contemplated by the retail
agreement. After discussing the qualifications of each of the candidates, the
Board authorized the retention of Houlihan Lokey to provide an opinion. The
Board also authorized the retention of Jennings Securities LLC and
Albrizzi-Williams, Inc. (collectively referred to as "JENNINGS") to provide
additional advisory services. For services rendered to Grove in connection
with the transactions contemplated by the merger agreement and the retail
agreement, Houlihan Lokey and Jennings would receive fees in the amount of
$275,000 and $150,000, respectively, plus the reimbursement of certain
expenses.
At the June 9, 2000 meeting, the Board also took action so that the
Maryland "business combination" statute would not apply to transactions between
Grove and EQR or any of its affiliates.
On June 12, 2000, Grove and EQR entered into the exclusivity agreement.
Thereafter, representatives of Grove and EQR negotiated toward a definitive
merger agreement. At the same time, EQR began additional due diligence with
respect to Grove and its properties, including on-site inspections. These
activities continued through the month of June and into July. On July 12, Grove
agreed to extend the exclusivity period to July 17, 2000.
On July 10, 2000, the Merger Oversight Committee held a telephonic
meeting. All of the members of the Merger Oversight Committee attended the
meeting along with representatives of Grove's counsel, Houlihan Lokey and
Jennings. Grove's Chief Executive Officer, its Executive Vice President and its
Chief Investment Officer also attended the meeting for the purpose of providing
information and answering questions which members of the Committee might have.
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At the request of the Chairman of the Merger Oversight Committee,
Grove's counsel reviewed the terms of the principal agreements which would be
entered into, including the merger agreement, the retail agreement, amendments
to existing employment agreements, the schedule of payments to be made to
executive officers and other employees if the transactions are consummated and
the voting agreements pursuant to which certain persons would agree to vote
Grove common shares and Grove L.P. common units in favor of the merger agreement
and the transactions contemplated by the merger agreement. Grove's Chief
Executive Officer also reviewed the preliminary appraisals provided by Italia &
Lemp, Inc., independent real estate appraisers, and addressed to the Merger
Oversight Committee as to the value of the retail properties. After answering
questions from members of the Merger Oversight Committee, Grove's officers were
excused from the meeting.
The representatives of Houlihan Lokey made a presentation to the
Merger Oversight Committee describing the methods used by them in analyzing
the fairness from a financial point of view of the consideration to be paid
to the holders of Grove's common shares and Grove L.P.'s common units. Based
on these analyses, Houlihan Lokey had determined preliminarily that the value
of the Grove common shares and the Grove L.P. common units was below the
indicated price that EQR would be willing to pay. Houlihan Lokey determined
on a preliminary basis that the consideration to be paid in the merger
transactions to the holders of Grove's common shares and Grove L.P.'s common
units would be fair from a financial point of view. Houlihan Lokey presented
its preliminary oral opinion to that effect.
Houlihan Lokey also delivered its preliminary oral opinion to the
effect that the consideration to be paid to Grove in connection with the
transfer of the retail properties was fair to Grove from a financial point of
view.
The representatives of Jennings also commented on the payments proposed
to be made to certain of the executive officers of Grove upon consummation of
the transactions contemplated by the merger agreement. They noted that Grove had
historically paid their executive offices much less total compensation than paid
to executive officers at other REITs.
Following these presentations and their discussion of the terms of the
draft agreements, the Merger Oversight Committee determined that the terms of
the draft merger agreement, the draft retail agreement and the payments proposed
to be made to the executive officers and other employees of Grove were fair and
reasonable to Grove and to the holders of Grove's common shares and Grove L.P.'s
common units. The Merger Oversight Committee also recommended that the Grove
Board of Trust Managers approve these agreements and payments. The actions taken
by the Merger Oversight Committee at its meeting on July 10, 2000 were taken
subject to the receipt of a final opinion of Houlihan Lokey substantially
similar to the preliminary opinion delivered at the meeting.
In connection with its continuing due diligence with respect to Grove,
EQR determined that Grove had certain potential liabilities which EQR determined
it was not willing to assume. EQR indicated further that the price it would be
willing to pay for Grove would need to be reduced by the amount, if any, paid
and costs incurred by Grove in connection with either confirming that such
issues were not problematic or settling any associated liability. There were
extensive discussions between EQR, Grove and their respective advisors of the
issues these
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potential liabilities raised and the way to resolve them. While Grove
indicated its willingness to work to clarify and resolve the potential
liabilities, it also indicated that it would not be willing to resolve them
if the effect would be a reduction in the aggregate purchase price to be paid
by EQR by more than $3.5 million (or approximately $0.29 per Grove common
share and Grove L.P. unit). The parties agreed to resolve these issues by
obligating Grove to use its reasonable good faith efforts to obtain an
agreement addressed to closing such issues. The receipt of the closing
agreement and the absence of any associated liabilities and costs in excess
of $3.5 million was made a condition to both Grove's and ERP's obligation to
complete the mergers. Any amounts paid by Grove to settle such potential
liabilities and the costs of obtaining the settlement would be borne by the
holders of Grove's common shares and Grove L.P.'s units through a reduction
in the purchase price.
A special meeting of the Board of Trust Managers was held on July 14,
2000 for the purpose of reviewing these developments and of considering the
approval of a definitive merger agreement and related agreements. A
representative of Grove's independent auditors discussed its views as to the
likelihood of a satisfactory resolution of the potential liabilities and the
timeframe for achieving that settlement.
A representative of Houlihan Lokey then reviewed with the Board the
methodologies employed by Houlihan Lokey in evaluating the fairness, from a
financial point of view, of the consideration to be paid to the shareholders and
unitholders in the transactions contemplated by the merger agreement, and the
consideration to be received by Grove pursuant to the retail agreement. The
representative noted, in particular, that the change to the price to be paid to
the holders of Grove's common shares and Grove L.P.'s units based on the
settlement of the potential liabilities did not affect Houlihan Lokey's opinion
as to the fairness of the consideration, from a financial point of view, to the
holders of Grove's common shares and Grove L.P.'s units. The representative of
Houlihan Lokey then delivered the opinion of Houlihan Lokey that the
consideration to be paid to the holders of Grove's common shares and Grove
L.P.'s units in the merger transactions were fair from a financial point of view
to the holders of Grove's common shares and Grove L.P.'s units and that the
consideration to be received by Grove in connection with the transfer of the
retail properties was fair to Grove from a financial point of view.
Following the presentation by Houlihan Lokey, the Board meeting
recessed so that the Merger Oversight Committee could meet separately.
The Merger Oversight Committee then met and reviewed the additional
information presented to the Board. The Merger Oversight Committee also reviewed
all of the factors relating to the proposed transaction that had been considered
at its meeting on July 10, 2000. Following a full discussion, the Merger
Oversight Committee confirmed the preliminary conclusions and recommendations
which it had reached at its July 10 meeting.
Following conclusion of the meeting of the Merger Oversight Committee,
the meeting of the full Board resumed. Following further discussion, the Board,
by unanimous vote of the trust managers present, approved the merger agreement,
the retail agreement and the transactions contemplated by them. On July 14,
2000, Houlihan Lokey delivered its written fairness opinion.
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DESCRIPTION OF GROVE AND GROVE L.P.'S BUSINESS
GROVE
Grove, a Maryland real estate investment trust, is a self-managed and
self-administered real estate investment trust that is engaged in the
acquisition, repositioning, management and operation of mid-priced and
subsidized multifamily and specialty retail properties located in the
Northeastern part of the United States. Grove has in-house expertise in
acquisition, repositioning and renovation, marketing, leasing and property
management.
Grove owns interests in and operates apartment communities in
Connecticut, Massachusetts and Rhode Island and four specialty retail properties
in Massachusetts and Maine. The apartment communities are mid-priced and
subsidized apartment properties consisting primarily of two and three-story
buildings in landscaped settings. The apartment communities are well located
within their markets and appeal to middle income and moderate income residents
who are generally "renters by necessity" with the exception of the Boston
suburbs where residents are renters by choice in many instances.
Grove's predecessor started operations in 1980, and Grove completed its
first public offering in 1994 with the acquisition of three apartment
properties. In 1996, management began to undertake a number of strategic
initiatives intended to maximize shareholder value. In March 1997, Grove
completed the following: (i) the creation of an Umbrella Partnership REIT
structure by forming Grove L.P. to facilitate acquisition transactions and to
provide potential sellers with a mechanism to defer their tax liability; (ii)
the acquisition through Grove L.P. of 20 properties owned by Grove affiliates;
(iii) the acquisition of the property management assets and related liabilities
of Grove Property Services Limited Partnership, the entity that managed the
Grove properties and the 20 properties owned by Grove affiliates; (iv) a $30
million private placement of equity securities; and (v) the closing of a $25
million credit facility and a $15 million term loan facility.
In November 1997, Grove completed a public offering and sold additional
shares directly to certain investors. During 1998, Grove purchased 3,605
apartment units and a 23,325 square foot retail property for a total cost of
approximately $171 million with cash, debt and the issuance of operating units.
During 1999 and 2000, Grove sold four apartment communities containing 313
apartment units for $12.8 million. In 2000, Grove acquired three apartment
communities containing 912 apartment units.
Grove operates in three industry segments: residential, subsidized
residential and retail.
GROVE L.P.
Grove L.P. was formed by Grove to act as the vehicle for the
acquisition of properties. Grove is the sole general partner of Grove L.P. and
thereby controls it. Grove uses Grove L.P. to acquire properties in exchange for
common units, which represent limited partnership interests in Grove L.P. The
recipients of units are restricted from transferring the units for a one-year
period from the acquisition date. The units are redeemable after such time for
cash or, at Grove's
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option, for Grove common shares on a one-for-one basis, subject to certain
anti-dilution adjustments and exceptions.
OPINION OF FINANCIAL ADVISOR TO GROVE
Grove retained Houlihan Lokey to render an opinion as to: (i) the
fairness, from a financial point of view, to Grove's shareholders and Grove
L.P. unitholders of the consideration to be received by them pursuant to the
merger agreement; and (ii) the fairness, from a financial point of view, to
Grove of the consideration to be received by Grove pursuant to the retail
agreement.
Grove retained Houlihan Lokey based upon Houlihan Lokey's experience in
the valuation of businesses and their securities in connection with
recapitalizations and similar transactions, especially with respect to REITs and
other real estate companies. Houlihan Lokey is a nationally recognized
investment banking firm that is continually engaged in providing financial
advisory services in connection with mergers and acquisitions, leveraged
buyouts, business valuations for a variety of regulatory and planning purposes,
recapitalizations, financial restructurings, and private placements of debt and
equity securities.
On July 14, 2000, Houlihan Lokey delivered its written opinion to
the Grove Board of Trust Managers to the effect that, as of the date of such
opinion, on the basis of its analysis summarized below and subject to the
limitations described below, that: (i) the consideration to be received by
the Grove shareholders and the Grove L.P. unitholders pursuant to the merger
agreement is fair to them from a financial point of view; and (ii) the
consideration to be received by Grove upon transfer of the retail properties
is fair to Grove from a financial point of view. The opinion does not address
any other aspect of the mergers; nor does it constitute a recommendation to
any shareholder or unitholder as to how they should vote at their respective
meetings. Houlihan Lokey has no obligation to update the Houlihan Lokey
opinion.
A COPY OF THE HOULIHAN LOKEY OPINION, WHICH DESCRIBES AMONG OTHER
THINGS THE ASSUMPTIONS MADE, PROCEDURES FOLLOWED, MATTERS CONSIDERED AND
LIMITATIONS ON THE REVIEW UNDERTAKEN, IS ATTACHED AS APPENDIX B TO THIS PROXY
STATEMENT/PROSPECTUS. THE SUMMARY OF THE HOULIHAN LOKEY OPINION IN THIS PROXY
STATEMENT/PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT
OF THE HOULIHAN LOKEY OPINION. YOU ARE URGED TO, AND SHOULD, READ THE OPINION
CAREFULLY AND IN ITS ENTIRETY.
As compensation to Houlihan Lokey for its services in connection with
the transactions, Grove agreed to pay Houlihan Lokey an aggregate fee of
$275,000 in addition to Houlihan Lokey's expenses in connection therewith. No
portion of Houlihan Lokey's fee is contingent upon the successful completion of
the mergers or the transfer of the retail properties. Grove has also agreed to
indemnify Houlihan Lokey and related persons against certain liabilities,
including liabilities under federal securities laws, arising out of the
engagement of Houlihan Lokey, and to reimburse Houlihan Lokey for certain
expenses.
The Houlihan Lokey opinion does not address Grove's underlying business
decision to effect the mergers or the transfer of the retail properties.
Houlihan Lokey did not, and was not requested by Grove or any other person to,
solicit third party indications of interest in acquiring all or any part of
Grove or to make any recommendations as to the form or amount of
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consideration to be received by Grove, the shareholders of Grove, the Grove
L.P. unitholders, or any other person in connection with the transactions,
which consideration was determined through negotiations between Grove and
EQR. Houlihan Lokey was not asked to opine on and did not express any opinion
as to (1) tax or legal consequences of the transactions, including but not
limited to tax or legal consequences to Grove, or the shareholders of Grove
or the Grove L.P. unitholders of the transactions; (2) the fairness,
advisability or desirability of alternatives to the transactions; (3) the
fair market value of Grove; (4) whether any unitholder should elect to
receive cash or EQR securities; (5) the public market values or realizable
value of any EQR securities to be received as consideration in connection
with the transactions or the prices at which such EQR securities may trade in
the future following the EQR transaction; or (6) the fairness of any aspect
of the transactions not expressly addressed in the Houlihan Lokey opinion.
Houlihan Lokey did not perform an independent appraisal of the assets of
Grove. Furthermore, Houlihan Lokey did not negotiate the transactions or
advise Grove with respect to alternatives to it.
In arriving at its opinion, Houlihan Lokey:
- met with Grove's senior management and Grove's advisors to
discuss the transactions, the operations, financial
condition, future prospects and performance of Grove;
- reviewed Grove's annual report to shareholders on Form 10-K
for the fiscal years ended December 31, 1999, and quarterly
report on Form 10-Q for the quarter ended March 31, 2000;
- reviewed forecasts and projections prepared by Grove's
management with respect to Grove for the years ending December
31, 2000 through December 31, 2001;
- reviewed preliminary appraisal indications as prepared by
Italia & Lemp, Inc. for the following retail properties:
- Cornerblock;
- Longmeadow Shops;
- The Wharf; and
- Freeport Shops
- reviewed copies of the following agreements:
- a draft copy of the Exclusivity Agreement dated June
12, 2000;
- the Retail Transaction Structure memo as prepared by
Cummings & Lockwood;
- conducted site visits to certain of the properties owned by
Grove;
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- reviewed minutes of the meeting on May 25, 2000 of the Board
of Trust Managers of Grove;
- reviewed publicly available information on companies
Houlihan Lokey deemed comparable to Grove; and
- conducted such other analyses, studies and investigations
as Houlihan Lokey deemed appropriate under the circumstances
for rendering the opinion.
The following is a summary of the material financial analyses used by
Houlihan Lokey in connection with providing its opinion. This summary is
qualified in its entirety by reference to the full text of such opinion, which
is attached as Annex B to this proxy statement. You are urged to read the full
text of the Houlihan Lokey opinion carefully and in its entirety.
GROVE ENTERPRISE VALUATION. In order to determine the fairness of the
mergers, from a financial point of view, to Grove's shareholders and Grove L.P.
unitholders of the consideration to be received by them in connection with the
mergers, Houlihan Lokey first determined the estimated enterprise value of
Grove. In order to determine the estimated enterprise value of Grove, Houlihan
Lokey primarily used the following methodologies: (i) a build-up method, based
on various capitalization rates; (ii) a portfolio approach; (iii) a FFO
approach; and (iv) a yield approach. The analyses required studies of the
overall market, economic and industry conditions in which Grove operates and the
historical and projected operating results of Grove.
BUILD-UP METHOD. Houlihan Lokey derived an indication of the enterprise
value for Grove by applying capitalization rates to the adjusted net operating
income of Grove's properties as of December 31, 2000. Houlihan Lokey utilized
publicly available information regarding capitalization rates exhibited in
transactions involving assets similar in type and location to Grove's
properties.
By applying appropriate capitalization rates to the adjusted net
operating income of Grove's properties, as discussed above, Houlihan Lokey
calculated an enterprise value of Grove, which implied a price per share of less
than $17.00.
PORTFOLIO APPROACH. Houlihan Lokey derived an indication of the range
of enterprise value for Grove by applying a capitalization rate to Grove's
adjusted net operating income as of December 31, 2000. Houlihan Lokey utilized
publicly available information regarding capitalization rates exhibited in
transactions involving assets similar in type and location to Grove's
properties.
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By applying appropriate capitalization rates to the net operating
income of Grove's properties, as discussed above, Houlihan Lokey calculated an
enterprise value of Grove, which implied a price per share of less than $17.00.
FFO APPROACH. Houlihan Lokey reviewed certain financial information of
comparable publicly traded companies in the apartment REIT industry selected
solely by Houlihan Lokey. The public comparables included the following eight
publicly traded companies: Apartment and Investment and Management Company, BRE
Properties, Inc., Camden Property Trust, Essex Property Trust, Inc., Gables
Residential Trust, Mid America Apartment Communities, Inc., Smith Residential
Realty, Inc., and Town & Country Trust. Houlihan Lokey calculated certain
financial ratios of the public comparables based on the most recent publicly
available information.
The analysis showed that the ratio of market value of equity to funds
from operations ("FFO") (i.e. the ratio of "P/FFO") selected for Grove to apply
to Grove's next fiscal year end FFO ranged from a low of 10.0x to a high of
11.0x (the "FFO Multiples") which compares to a P/FFO ratio of a low of 6.3x to
a high of 14.5x exhibited by the public comparables.
Houlihan Lokey derived an indication of the range of market value of
equity for Grove by applying the FFO Multiples to Grove's representative FFO as
of December 31, 2000.
Based upon the lowest and highest multiples of FFO determined under
this methodology, Houlihan Lokey calculated an indication of the market value of
equity for Grove to be reasonably stated in the range of $202.6 million to
$222.9 million, the midpoint of which implies a price per share of less than
$17.00.
YIELD APPROACH. Houlihan Lokey derived an indication for Grove's market
value of equity by applying the average of the percentage of cash available for
distribution for the public comparables to derive an implied payout per share
amount, which was then applied to the average yield of the stock price for the
public comparables to result in an implied price per share of less than $17.00.
RETAIL EXCHANGE VALUATION. Houlihan Lokey determined the value of the
four properties that include: (a) Cornerblock, (b) Longmeadow Shops, (c) The
Wharf, and (d) Freeport Shops (collectively referred to as the retail
properties).
In order to determine the estimated enterprise value of the retail
properties, Houlihan Lokey primarily used the following methodologies: (1) a net
asset value approach based on various capitalization rates; and (2) an appraised
value approach. The analyses required studies of the overall market, economic
and industry conditions in which the retail properties operate and the
historical and projected operating results of the retail properties.
NET ASSET VALUE APPROACH. Houlihan Lokey derived an indication of
enterprise value for the retail properties by applying capitalization rates to
the net operating income of each of the retail properties as of December 31,
2000. Houlihan Lokey utilized publicly available information regarding
capitalization rates exhibited in transactions involving assets similar in type
and location to the retail properties.
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Based upon the selected capitalization rates, Houlihan Lokey calculated
an indication of enterprise value for the retail properties to be $19.0 million,
referred to as the retail exchange value.
APPRAISED VALUE APPROACH. Houlihan Lokey reviewed the July 7, 2000
individual appraisal reports on each retail property as prepared by Italia &
Lemp, Inc., which concluded that, as of June 29, 2000, the aggregate appraised
value of the retail properties ranged from $21.7 million to $21.9 million.
MERGER FAIRNESS ANALYSIS. Based on the analyses and factors described
in the foregoing, Houlihan Lokey determined indications of equity which would be
available to be allocated to the shareholders of Grove and Grove L.P.
unitholders, prior to any costs associated with the transactions (the "Derived
Value Per Share"). These indications of equity value were then compared to
Grove's common stock price as exhibited in trading on the American Stock
Exchange; and utilized to determine the value of Grove's L.P. units to be
utilized as consideration in the retail agreement.
Based upon the foregoing analyses Houlihan Lokey concluded that the
consideration to be received by Grove's shareholders and Grove L.P. unitholders
in connection with the mergers is fair to them from a financial point of view.
RETAIL EXCHANGE ANALYSIS. In order to determine the fairness, from a
financial point of view, of the consideration to be received by Grove pursuant
to the retail agreement, Houlihan Lokey applied the average of the Derived Value
Per Share, as determined above, to the number of units held by those Grove L.P.
unitholders participating in the retail agreement (the "Unitholders' Equity
Value"). The Unitholders' Equity Value was then compared to the equity
transferred in connection with the retail agreement.
Based upon the retail exchange value of $19.0 million, Houlihan Lokey
determined the equity value transferred in the transfer of the retail
properties. From the retail exchange value, Houlihan Lokey subtracted
interest-bearing debt of $7.2 million and added $2.5 million of cash, to result
in a net equity value to be transferred to the unitholder's of $14.3 million in
exchange for the unitholder's interest in Grove L.P. units.
Based on the foregoing analysis, Houlihan Lokey concluded that the
consideration to be received by Grove pursuant to the retail agreement is fair
to Grove from a financial point of view.
In arriving at its fairness opinion, Houlihan Lokey reviewed key
economic and market indicators, including, but not limited to, growth in Gross
Domestic Product, inflation rates, interest rates, consumer spending levels,
manufacturing productivity levels, unemployment rates and general stock market
performance. Houlihan Lokey's opinion is based on the business, economic, market
and other conditions as they existed as of July 14, 2000 and on the projected
financial information provided to Houlihan Lokey as of such date. In rendering
its opinion, Houlihan Lokey has relied upon and assumed, without independent
verification, the accuracy and completeness of the financial and other
information provided to Houlihan Lokey was reasonably prepared and that the
financial and other information reflected the best current
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available estimates of the financial results and condition of Grove; and that
no material changes have occurred in the information reviewed between the
date the information was provided and the date of the Houlihan Lokey opinion.
Houlihan Lokey did not independently verify the accuracy or completeness of
the information supplied to it with respect to Grove and does not assume
responsibility for it. Houlihan Lokey did not make any independent appraisal
of the specific properties or assets of Grove.
The summary set forth above describes the material points of more
detailed analyses performed by Houlihan Lokey in arriving at its fairness
opinion. The preparation of a fairness opinion is a complex analytical process
involving various determinations as to the most appropriate and relevant methods
of financial analysis and application of those methods to the particular
circumstances and is therefore not readily susceptible to summary description.
In arriving at its opinion, Houlihan Lokey made qualitative judgments as to the
significance and relevance of each analysis and factor. Accordingly, Houlihan
Lokey believes that its analyses and summary set forth herein must be considered
as a whole and that selecting portions of its analyses, without considering all
analyses and factors, or portions of this summary, could create an incomplete
view of the processes underlying the analyses set forth in Houlihan Lokey's
fairness opinions. In its analysis, Houlihan Lokey made numerous assumptions
with respect to Grove, industry performance, general business, economic, market
and financial conditions and other matters, many of which are beyond the control
of the respective entities. The estimates contained in such analyses are not
necessarily indicative of actual values or predictive of future results or
values, which may be more or less favorable than suggested by such analyses.
However, there were no specific factors reviewed by Houlihan Lokey that did not
support its opinion. Additionally, analyses relating to the value of businesses
or securities are not appraisals. Accordingly, such analyses and estimates are
inherently subject to substantial uncertainty.
SUMMARY OF APPRAISALS OF RETAIL PROPERTIES BY ITALIA & LEMP, INC.
The Merger Oversight Committee of Grove's Board of Trust Managers
retained Italia & Lemp, Inc. to perform valuations of the retail properties and
to prepare written appraisal reports for these properties. Italia & Lemp, Inc.
located in Hartford, Connecticut, is an outside party that is unaffiliated with
Grove and Grove, L.P. Italia & Lemp, Inc. is engaged in the business of
providing professional real estate-related services on a regional basis.
Grove paid $22,000 to Italia & Lemp, Inc. for the real estate appraisal
services which it rendered with respect to the retail properties.
Italia & Lemp, Inc. prepared appraisal reports for each of the retail
properties. In its written appraisal reports, Italia & Lemp, Inc. concluded that
the aggregate market value of the retail properties was $21,750,000.
THE APPRAISALS OF THE RETAIL PROPERTIES ARE AVAILABLE FOR INSPECTION
AND COPYING AT THE PRINCIPAL EXECUTIVE OFFICES OF GROVE, 598 ASYLUM AVENUE,
HARTFORD, CONNECTICUT DURING REGULAR BUSINESS HOURS BY ANY GROVE SHAREHOLDER OR
GROVE L.P. UNITHOLDER OR REPRESENTATIVE WHO HAS BEEN SO DESIGNATED IN WRITING.
GROVE WILL PROVIDE A COPY OF THE APPRAISALS OF THE RETAIL PROPERTIES TO ANY
GROVE SHAREHOLDER OR GROVE L.P. UNITHOLDER OR
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REPRESENTATIVE WHO HAS BEEN SO DESIGNATED IN WRITING UPON WRITTEN REQUEST AND
AT THE EXPENSE OF THE REQUESTING SHAREHOLDER OR UNITHOLDER.
PROCEDURES FOLLOWED
In arriving at this valuation figure, Italia & Lemp, Inc. undertook the
following steps:
- performed a complete appraisal process, as defined by the Uniform
Standards of Professional Appraisal Practice (USPAP), without any
departures from Standard 1;
- inspected the retail properties;
- researched and reviewed various sources of public information,
including, but not limited to, demographic statistics, zoning
records, available site and building information, and the land
records of all comparable sales;
- researched and reviewed sales of similar parcels to estimate the
value of the excess acreage, where noted;
- analyzed sales of improved properties in the market area
comparable to the retail properties to derive the market value of
the retail properties;
- researched the market area for pertinent rental and expense
information for comparable properties to estimate the market rent
and pro forma operating expenses for the retail properties;
- obtained income and expense information for the retail properties
from Grove;
- prepared cash flow analyses via the Income Capitalization Approach
by researching lender and investor parameters through discussions
with market participants;
- used the available market information to develop the Sales
Comparison and Income Capitalization approaches; and
- prepared the appraisals in accordance with Title XI of the
Financial Institutions Reform, Recovery and Enforcement Act of
1989 (FIRREA) and the Uniform Standards of Professional Appraisal
Practice (USPAP).
BASES FOR AND METHODS OF ARRIVING AT FINDINGS
Under an income capitalization approach, anticipated future benefits
(periodic cash flows) and capital appreciation are discounted to a present value
estimate.
Italia & Lemp, Inc. reviewed market data pertaining to rental rates,
vacancy and collection loss, and operating expenses to develop a reliable
estimate of net operating income for the retail properties. The method of income
capitalization employed by Italia & Lemp, Inc. involved yield capitalization
through a discounted cash flow analysis that forecasted revenues
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and expenses over a projected holding period and discounted the future stream
of income into a present worth estimate of market value.
Italia & Lemp, Inc. performed the income capitalization approach by
conducting the following steps:
- projecting market rent and terms for the subject property;
- analyzing encumbrances of the subject leases;
- estimating an absorption period for vacant space;
- estimating pro forma expense levels;
- extracting lender and investor parameters from the market and
incorporating them into the cash flow analysis;
- estimating net operating income and cash flow for each year of the
holding period based upon pro forma income and expense statements;
- estimating a discount rate; and
- preparing a present value estimate by adding together discounted
future benefits including cash flow and discounted reversionary
interest.
The sales comparison approach is based on the concept that an informed
purchaser would not pay more for a property than the cost of acquiring a
comparable property with similar utility.
Italia & Lemp, Inc. conducted a search to locate sales of properties
considered comparable to the retail properties. Adjustments to the sales data of
the comparable properties were made to reflect either superior or inferior
characteristics. The adjusted sales prices revealed a range of values which was
then reconciled into a final indication of market value for each of the retail
properties.
After reconciling the values for the retail properties arrived at using
the sales comparison approach and the income capitalization approach, a final
value estimate was arrived at for each of the retail properties. The final value
estimates for each of the retail properties considered the current economic
environment and its effect on real property values. Italia & Lemp, Inc.
concluded that a sale of the retail properties at the final value estimate would
take approximately 6 months to 1 year from the date on which the retail
properties were listed for sale on the open market.
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INSTRUCTIONS RECEIVED FROM GROVE
Grove instructed Italia & Lemp, Inc. to prepare an appraisal report to
estimate the market value of the retail properties which was to be used by Grove
to confirm the fairness and reasonableness of such transaction. Neither Grove
nor the Merger Oversight Committee imposed any limitations upon Italia & Lemp,
Inc. with respect to the investigations made or procedures followed by it in
conducting its appraisals.
EFFECTIVE TIME OF THE TRANSACTIONS
The closing of the merger transactions will take place on the date to
be specified by ERP, Grove and Grove L.P. which will be as soon as practicable
following approval of the mergers by Grove L.P. unitholders and Grove
shareholders and the satisfaction or waiver of the pre-closing conditions set
forth in the merger agreement, at the offices of Piper Marbury Rudnick & Wolfe,
203 North LaSalle Street, Chicago, Illinois 60601, unless the parties agree to
another date or place in writing.
The partnership merger will become effective upon filing the
certificate of merger with the Secretary of State of Delaware. Unless the
parties otherwise agree, the certificate of merger will be filed on the closing
date. The company merger will become effective upon filing the articles of
merger with the State Department of Assessments and Taxation of Maryland. Unless
the parties otherwise agree, the articles of merger will be filed on the closing
date.
REPRESENTATION AND WARRANTIES
The merger agreement contains representations and warranties of ERP,
Grove and Grove L.P. regarding, among other things:
- due organization and good standing;
- ownership and capitalization of subsidiaries;
- capitalization;
- other interests and sale obligations;
- authority to enter into the merger agreement;
- filings with the SEC;
- reliability of financial statements;
- compliance with applicable laws and regulations;
- ownership and condition of the properties;
- environmental matters;
- third party and related party transactions;
- employee benefits and other matters;
- taxation and qualification as a REIT;
- absence of certain legal proceedings and events;
- absence of payments to employees, officers, trust managers
and directors;
- debt instruments and other obligations;
- insurance matters;
- fees and expenses incurred;
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- undisclosed liabilities; and
- intellectual property.
These representations and warranties will not survive the completion of the
mergers.
CONDITIONS TO THE TRANSACTIONS
The obligations of ERP, Grove and Grove L.P. to complete the mergers
are subject to the following conditions:
- approval of the merger agreement and the transactions
contemplated thereby by the Grove L.P. partners and Grove
shareholders;
- effectiveness of the registration statement covering the ERP
units to be issued in the partnership merger and the EQR
common shares that may be issued upon conversion of the ERP
units;
- absence of any injunctions or restraints preventing the
completion of the mergers; and
- compliance with state securities laws.
The respective obligations of ERP, Grove and Grove L.P. to complete the
mergers are subject to the following additional conditions:
- all representations and warranties made by ERP, Grove and
Grove L.P. shall be true and correct as of the closing date.
The representations and warranties shall be deemed true and
correct unless the breach of such representations and
warranties, in the aggregate, could reasonably be expected to
have an adverse effect with respect to Grove, Grove L.P. or
ERP respectively;
- each of ERP, Grove and Grove L.P. shall have performed in all
material respects its obligations under the merger agreement;
- as of the closing date, ERP, Grove or Grove L.P. will not have
suffered a material adverse change in its business,
properties, assets, financial condition or results of
operation taken as a whole;
- ERP shall have received an opinion from Grove's counsel
stating that, commencing with its taxable year ended December
31, 1994, Grove was organized and has operated in conformity
with the requirements for qualification as a REIT under the
Internal Revenue Code;
- Grove shall have received an opinion from ERP's counsel
stating that, commencing with its taxable year ended December
31, 1992, EQR was organized and has operated in conformity
with the requirements for qualification as a REIT
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under the Internal Revenue Code and ERP has been treated as a
partnership since 1992.
- each of ERP and Grove shall have received an opinion from
Maryland counsel addressing specified issues set forth in the
merger agreement;
- ERP shall have received an opinion from Grove's counsel
addressing specified issues set forth in the merger agreement;
- Grove shall have received an opinion from ERP's counsel
addressing specified issues set forth in the merger agreement;
- the receipt of all consents and waivers from third parties
necessary in connection with the completion of the
transactions contemplated by the merger agreement; and
- the obligation of ERP to complete the company merger is
subject to (i) certain fees relating to the company merger not
exceeding specified amounts, (ii) the retail agreement being
consummated in accordance with its terms, and (iii) Grove's
obtaining the closing agreement, providing that the closing
agreement costs do not exceed specified amounts, unless ERP
agrees to pay the excess closing agreement costs.
POSSIBLE DIVIDEND REDUCTION
Under the terms of the merger agreement, Grove and Grove L.P. may
continue to make regular quarterly dividends and distributions not to exceed
$0.18 per share/unit, as well as a pro rated quarterly dividend for the quarter
in which the mergers become effective. However, each such dividend is subject to
a reduction to the extent that the then current estimate of specified fees and
expenses of Grove and Grove L.P. relating to the merger transactions exceeds
$13,002,586. In the event that this excess amount equals or exceeds the total
amount of the dividend which would otherwise be permitted under the merger
agreement, no dividend will be paid in that quarter and the remaining excess
amount, if any, will be carried forward and will reduce the next permitted
dividend. For a more detailed description of this possible dividend reduction,
please refer to Section 5.6 of the merger agreement, which is attached as
Appendix A to this proxy statement/prospectus.
NO APPRAISAL RIGHTS
The Grove L.P. limited partners are not entitled to dissenting limited
partners appraisal rights under Delaware law or the Grove L.P. partnership
agreement in connection with the partnership merger. The Grove shareholders are
not entitled to dissenting shareholders' appraisal rights under Maryland law or
the declaration of trust in connection with the company merger.
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TERMINATION PROVISIONS
The merger agreement may be terminated at any time prior to the
acceptance of the certificate of merger by the Delaware Secretary of State to
effectuate the partnership merger, whether the termination comes before or after
the approvals by the Grove shareholders or Grove L.P. unitholders:
- by the mutual consent of EQR and the Grove Board of Trust
Managers;
- upon the breach by the non-terminating party of any
representation, warranty, covenant, obligation or agreement
set forth in the merger agreement, such that the specified
conditions set forth in the merger agreement would be
incapable of being satisfied by March 31, 2001 (or as
otherwise extended);
- if an order, decree, judgement or other action preventing
completion of the company merger has become final and
non-appealable;
- if the company merger has not been completed by March 31, 2001
(subject to extension to May 31, 2001 in specified
circumstances), provided that the terminating party has not
materially breached its obligations under the merger agreement
in a manner that proximately contributed to the merger not
being completed by the relevant date;
- if the approval of the Grove shareholders has not been
obtained upon a vote at the meeting of the shareholders or if
the approval of the Grove L.P. unitholders has not been
obtained upon a vote at the meeting of the partnership; and
- if the Grove Board of Trust Managers withdraws or modifies its
approval or recommendation of the mergers or the merger
agreement.
TERMINATION FEE AND EXPENSES
The merger agreement provides for the payment, in specified
circumstances, of a break-up fee of $8.5 million and an expense fee equal to the
out-of-pocket expenses incurred in connection with the merger agreement of up to
$2 million.
THE BREAK-UP FEE
Grove is required to pay the break-up fee to ERP if: (i) the company
merger is not consummated because the Grove Board of Trust Managers withdraws or
modifies its approval or recommendation of the mergers or the merger agreement;
(ii) the Grove Board of Trust Managers withdraws or modifies in any manner
adverse to ERP its approval or recommendation of the mergers or the merger
agreement; (iii) the Grove Board of Trust Managers approves or recommends any
superior acquisition proposal; (iv) Grove enters into a definitive agreement
with respect to any acquisition proposal; or (v) at the time of the termination
of the merger agreement under specified circumstances, an acquisition proposal
has been received by Grove,
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and either prior to the termination of the merger agreement or within 12
months thereafter, Grove or any of its subsidiaries enters into any written
acquisition proposal which is then consummated.
Any break-up fee would be paid as compensation and liquidated damages
for the loss suffered by ERP as a result of the failure of the company merger to
be consummated and to avoid the difficulty of determining the damages under the
circumstances. Neither party shall have the liability to the other after payment
of the break-up fee and expense fee.
THE EXPENSE FEE
Grove is obligated to pay ERP the expense fee if the merger agreement
is terminated due to:
- the breach of any representation, warranty, covenant,
obligation or agreement on the part of Grove or Grove L.P. as
set forth in the merger agreement;
- if the Grove L.P. unitholders do not approve the merger
agreement and the transactions contemplated thereby at the
Grove L.P. partners meeting;
- if the Grove shareholders do not approve the company merger at
the Grove shareholders meeting; or
- if the merger agreement is terminated because the mergers have
not been consummated before March 31, 2001 (subject to
extension to May 31, 2001) and Grove has not delivered to ERP
the required legal opinions.
ERP is obligated to pay Grove the expense fee if the merger agreement
is terminated due to:
- the breach of any representation, warranty, covenant,
obligation or agreement on the part of ERP as set forth in the
merger agreement.
NO SOLICITATION OF OTHER TRANSACTIONS
Prior to the company merger, Grove has agreed that it will not
initiate, solicit, or encourage any inquires or the making of any offer 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 it or any of its subsidiaries, other
than those pertaining to the merger agreement.
Notwithstanding the above restrictions, the merger agreement does not
prohibit Grove from entering into discussions with respect to an unsolicited
proposal if the Grove Board of Trust Managers determines in good faith that this
action is required by the Board's legal duties to its shareholders.
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CONVERSION OF UNITS/SHARES
CONVERSION OF THE GROVE L.P. UNITS
At the completion of the partnership merger, each Grove L.P. unit
outstanding immediately prior to the completion of the partnership merger will
be canceled and converted into either 0.3696 of a limited partnership interest
in ERP or $17.00 per unit, payable to the unitholder in cash, less any
applicable taxes, at the election of the unitholder. Each unitholder of Grove
L.P. will cease to have any rights with respect thereto, other than the right to
receive:
- $17.00 per Grove L.P. unit or .3696 of an ERP unit (and cash
in lieu of any fractional ERP unit); and
- any distributions with respect to the Grove L.P. unit held
prior to the completion of the partnership merger.
The issuance, terms and conditions of the ERP units issued in connection with
the merger transactions will be governed by the ERP partnership agreement. For a
detailed description of the provisions of ERP's partnership agreement, see the
section entitled "Comparison of Rights of Shareholders/Unitholders."
CONVERSION OF THE GROVE SHARES
Upon completion of the company merger, each Grove common share
outstanding immediately prior to the completion of the company merger will cease
to be outstanding and will be converted into the right to receive $17.00 per
share payable to the shareholder in cash upon the surrender of the certificate,
less any applicable taxes. Each outstanding option to purchase Grove shares
granted under the employee stock option plan or any other employee agreement
(other than the options granted to the non-employee trust managers upon their
election at Grove's 2000 annual meeting, which were cancelled for no
consideration) shall be cancelled and the holder shall be entitled to receive
cash equal to the value of each option based on $17.00 per share merger
consideration, less any applicable taxes.
CONDUCT OF BUSINESS PENDING THE TRANSACTIONS
Except as contemplated by the merger agreement or consented to in
writing by ERP, Grove and Grove L.P. will and will cause each of their
subsidiaries to conduct its business only in the usual, regular and ordinary
course, and among other things:
- preserve its business organizations and goodwill and keep the
services of its officers and directors available;
- confer on a regular basis with ERP representatives regarding
operational matters of materiality or any proposals to engage
in material transactions;
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- notify ERP of any material emergency or change in the
financial or operational condition of the business;
- provide ERP with SEC reports, statements, schedules filed with
the SEC;
- consistently maintain books and records according to GAAP;
- timely file all reports;
- not make or rescind any express or deemed election relative to
taxes;
- not acquire nor enter into any option or agreement to acquire
additional real property, incur additional indebtedness,
except working capital, or enter into any agreement to develop
or construct other real estate projects, with limited
exceptions;
- not amend the Grove declaration of trust or comparable
organizational documents;
- unless provided for in the merger agreement, not issue shares
of beneficial interest or other equity interest, except upon
the exercise of previously outstanding options;
- limit dividends to specified amounts;
- not sell, lease, mortgage or dispose of any material part of
its assets;
- not make any loans, advances or capital contributions;
- not pay, discharge or satisfy any material claims,
liabilities, or obligations other than in the ordinary course
of business;
- not enter into any contractual obligations over an agreed
amount;
- not guarantee the indebtedness of another person or entity;
- not amend or enter into any commitment with any officer, trust
manager, director, or trustee;
- not increase compensation or amend any employment agreement
with limited exceptions;
- not adopt any new employee benefit plan;
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- not settle any shareholder or limited partner derivative suit
pertaining to the merger agreement;
- not reduce its ownership in any of its subsidiaries;
- not accept promissory notes;
- not enter into, amend, modify or waive any rights under any
agreement;
- continue to use its best efforts to qualify as a REIT and not
enter into any prohibited transactions; and
- with respect to the retail agreement, not amend any provision
of the agreement or alter its normal operations of the retail
businesses.
Except as contemplated by the merger agreement or consented to in
writing by Grove, ERP will and will cause each of its subsidiaries to conduct
its business only in the usual, regular and ordinary course, and among other
things:
- preserve intact its business organizations and goodwill and
keep the services of its officers and employees available;
- confer on a regular basis with Grove representatives regarding
operational matters of materiality or any proposals to engage
in material transactions;
- notify Grove of any material emergency or change in the
financial or operational condition of the business;
- provide Grove with SEC reports, statements, schedules filed
with the SEC;
- consistently maintain books and records according to GAAP;
- timely file all reports;
- form New LLC1 and New LLC3, cause New LLC1 to form New LLC2
and, cause each of New LLC1, New LLC2 and New LLC3 to carry
out their obligations under the merger agreement.
WAIVER AND AMENDMENT
At any time before the company merger, either party may:
- extend the time for performance of any of the obligations or
other acts of the other party required by the merger
agreement;
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- waive any inaccuracies in the representations and warranties
contained in the merger agreement or in any document delivered
pursuant to the merger agreement; and
- waive compliance with any of the agreements or conditions for
the benefit of the waiving party contained in the merger
agreement.
The merger agreement may be amended by EQR and the Grove Board of Trust
Managers, at any time before or after the approval by the Grove shareholders and
Grove L.P. unitholders and prior to the filing of the certificate of merger and
the articles of merger. After approval of the merger agreement by the Grove
shareholders and the Grove L.P. unitholders, no amendment may be made which by
law requires the further approval of shareholders or unitholders without
obtaining this further approval.
RETAIL AGREEMENT
REASONS FOR THE RETAIL AGREEMENT
The initial discussions between representatives of Grove and
representatives of EQR focused solely on whether there might be a mutually
acceptable basis on which EQR would acquire all of Grove, including Grove's
retail properties. It was not until after EQR had placed an indicated value of
$17.00 per Grove common share and Grove L.P. common unit that EQR advised Grove
that it did not expect to retain Grove's retail properties. EQR and four of
Grove's executive officers initiated discussions concerning the possible
transfer of the retail properties to an entity owned by those executive
officers.
EQR's business is limited to the ownership and operation of multifamily
properties. EQR indicated that, in the event of its acquisition of Grove, it was
not likely that EQR would retain its ownership of the retail properties over the
long-term. Messrs. D. Navarro, J. LaBrosse, E. Navarro and B. Navarro and EQR
then began preliminary discussions as to whether there was a basis on which the
four officers would be able to acquire the ownership of Grove's four retail
properties. The four officers determined that, while they had an interest in
acquiring ownership of the retail properties, they would do so only on a basis
where they acquired complete ownership of the properties.
During the course of negotiation of the exclusivity letter, the four
officers and EQR continued discussions concerning the possibility of the
officers' acquiring the retail properties, including an agreement that, if such
a transaction were to occur, the fair value of the retail properties aggregated
$21,650,000. This agreed real property value was the result of arms' length
negotiations between EQR and the four officers.
In mid-June when the exclusivity agreement was entered into between EQR
and Grove, the agreement contemplated that EQR would permit Grove to transfer
the retail properties to the four officers but did not require such transfer as
a condition to EQR's acquisition of Grove. During the course of negotiations,
EQR required that this transfer be made a condition to the mergers. Accordingly,
in the final merger agreement, transfer of the retail properties is a condition
to the obligation of ERP to consummate the mergers.
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In performing its functions, the Merger Oversight Committee
(composed exclusively of non-employee trust managers and "independent trust
managers" within the meaning of Grove's Third Amended and Restated
Declaration of Trust, as amended) reviewed fully and carefully the terms upon
which the retail properties would be transferred to assure that they were
fair and reasonable to Grove and Grove L.P. In its consideration of the
fairness and reasonableness of these transactions, the Merger Oversight
Committee considered, among other things, that the agreed real property value
was determined by arms' length negotiation between EQR and the four officers,
that the Committee received the opinion of Houlihan Lokey to the effect that
the consideration to be received by Grove for the retail properties was fair
from a financial point of view to Grove and that the Committee received
independent appraisals from Italia & Lemp, Inc. indicating that the fair
market value of the retail properties was substantially the same as the
agreed real property value, that such value did not reflect any costs which
would be incurred by Grove L.P. had it decided to sell the retail properties
to third parties and that the price to be paid by EQR per Grove common share
and Grove L.P. unit would be the same whether or not Grove L.P. owned the
retail properties.
At the conclusion of its deliberations, the Merger Oversight Committee
concluded that the transactions contemplated by the retail agreement were fair
and reasonable and recommended that the Board of Trust Managers of Grove approve
the retail agreement.
The Board of Trust Managers of Grove recommends that the Grove
shareholders and the Grove unitholders vote in favor of approving the merger
agreement and the transactions contemplated in it, including the retail
agreement.
SUMMARY OF THE MATERIAL PROVISIONS OF THE RETAIL AGREEMENT
PARTIES. The parties to the retail agreement are Damon D. Navarro,
Brian D. Navarro, Edmund F. Navarro, Joseph R. LaBrosse, each an executive
officer of Grove (collectively referred to as the "investors"), Investor LLC,
a limited liability company owned by the investors, and Grove L.P.
OVERVIEW. Immediately prior to the partnership merger, the
investors will contribute to Investor LLC 998,227 partnership units of Grove
L.P. Investor LLC will then withdraw as a partner of Grove L.P. and
surrender its 998,227 partnership units for redemption. As part of the
redemption, Grove L.P. will transfer its ownership interest in the entities
owning its four retail properties to Investor LLC. This transfer is a
condition to the partnership merger.
REDEMPTION PAYMENT. The redemption payment to Investor LLC will
consist of (a) the transfer on an "as-is" basis, without representation or
warranty, of Grove L.P.'s interest in the entities owning its retail
properties, as described above, and the name "Grove" and any trademark of
which the name "Grove" forms a part; and (b) a cash redemption payment of
approximately $2.8 million, calculated as follows:
1. Approximately $16.97 million, calculated by multiplying the
number of partnership units surrendered (998,227) times the $17.00
partnership unit cash merger consideration; PLUS
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2. The approximately $7.5 million principal amount of a loan
to be assumed by Investor LLC; LESS
3. The $21,650,000 "agreed real property value," subject to
adjustment as set forth below.
The agreed real property value is $21,650,000 plus all capital
expenditures made with respect to the retail properties on a cash basis from
and after June 1, 2000 through the redemption date, excluding up to $135,000
of specified capital expenditures.
The cash redemption payment is subject to further adjustment to
reflect a proration or adjustment, calculated as of the redemption date, for
real estate and personal property taxes and assessments, base rent for the
month in which the redemption occurs, water, electric, telephone and other
utility charges, contract and lease payment obligations, assignable permit
fees, interest on assumed debt and other expenses of operation and similar
items customarily pro-rated in connection with real estate transactions.
EXPENSES OF TRANSFER. Investor LLC will pay all transfer taxes, if
any, loan assumption charges and other costs and expenses of effecting the
transactions contemplated by the retail agreement, excluding legal,
accounting and other consulting fees incurred by ERP or its affiliates.
RELATIONSHIP TO MERGERS. It is a condition to Grove L.P.'s
obligation to carry out the transactions contemplated by the retail agreement
that each of the conditions to the closing of the partnership merger shall
have been satisfied or waived.
ROSENTHAL TRANSACTIONS
Grove and certain non-affiliated limited partnerships (referred to
as the "Rosenthal Partnerships") entered into exchange agreements, dated as
of February 18, 2000. Under the terms of the exchange agreements, and subject
to the satisfaction of various conditions, each general and limited partner
of the Rosenthal Partnerships was given the opportunity to exchange their
respective partnership interests in the Rosenthal Partnerships for cash or,
if they qualified as accredited investors under applicable securities law,
7.00% series A preferred units of limited partnership interests in Grove L.P.
Grove and Grove L.P. covenanted in the merger agreement to use reasonable
good faith efforts to cause the terms of the exchange agreement to be
modified to reflect the partnership merger. Grove and the Rosenthal
Partnerships have agreed, subject to receiving the necessary consent of the
Rosenthal Partnerships' partners, to amend the provisions of the exchange
agreement. Under the amended exchange agreements, the exchanging partners of
the Rosenthal Partnerships will receive the number of Grove L.P. units equal
to the number of preferred Grove L.P. units such partners were to receive
pursuant to the original transaction. The exchanging partners have until
September 29, 2000 to agree to such modification and make an election to
receive either Grove L.P. units or cash. There can be no assurances that the
partners of the Rosenthal Partnerships will approve such modifications to
such exchange agreements or that all of the conditions precedent to the
Rosenthal transactions will be satisfied.
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POTENTIAL TRANSACTION WITH ERP RELATING TO TRANSFER OF CERTAIN GROVE PROPERTIES
On July 14, 2000, ERP and Grove L.P. entered into a letter of intent
pursuant to which ERP may purchase for cash from Grove L.P.'s portfolio of
apartment communities, between 1,000 and 3,500 apartment units, prior to the
closing of the company merger. Any such transaction will not affect the
consideration received by Grove shareholders and Grove L.P. unitholders pursuant
to the company merger and/or the partnership merger. If ERP identifies any of
the Grove L.P. properties, ERP and Grove L.P. will negotiate a purchase contract
with Grove L.P. containing specific transaction terms, including a purchase
price. ERP and Grove L.P. have the right to terminate the letter of intent if a
mutually agreeable contract is not entered into within 40 days of the date of
the letter of intent. Any purchase contract is also subject to the approval of
the Grove Board of Trust Managers. As of the date hereof, no Grove L.P.
properties have been identified by ERP and there is no assurance that ERP will
identify any properties or that any purchase will occur.
POSSIBLE DISTRIBUTION INCREASE
Based on current distributions, on an as adjusted basis and following
the merger transactions, the distributions payable with respect to 0.3696 of an
ERP unit received with respect to each Grove L.P. unit by a holder thereof who
elects to receive ERP units would be $1.20 per annum compared to $0.72 per annum
with respect to a Grove L.P. unit based upon distributions declared by ERP and
Grove payable October 13, 2000 and July 14, 2000, respectively. ERP cannot make
any assurances that it will continue paying distributions at this current level.
ANTICIPATED ACCOUNTING TREATMENT
The merger transactions will be treated as a purchase in accordance
with Accounting Principles Board of Opinion #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 ERP will be
used as the valuation basis of the combination. The assets acquired and
liabilities assumed will be recorded at their relative fair market values as of
the closing date. The financial statements of ERP will reflect the combined
operations of ERP, Grove and Grove L.P. from the date of the merger
transactions.
RESTRICTIONS ON TRANSFER OF ERP UNITS
ERP units are not transferable under the ERP partnership agreement
without the consent of EQR, except that an ERP unitholder may transfer any or
all of its units: (i) by operation of law, (ii) testamentary disposition, gift
or by sale to or for the benefit of a parent(s), spouse or descendants, (iii) by
pledge or collateral transfer to secure the repayment of a loan, (iv) by
exchange for shares of beneficial interest of EQR, and (v) by distribution to
any indirect or direct owner or partner. In order to make a permitted transfer,
the unitholder must deliver to EQR a written, signed request of the transferor
that also evidences a written acceptance by transferee of all of the terms of
the ERP partnership agreement.
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INTERESTS OF CERTAIN PERSONS
IN THE TRANSACTIONS
The trust managers and the executive officers of Grove have interests
in the transactions contemplated by the merger agreement which are different
from the interests of the other Grove shareholders and the Grove L. P.
unitholders. Although the amounts which the executive officers will receive upon
their termination of employment (which is expected to occur on the effective
date of the company merger) are less than the amounts they would have been
entitled to receive under their employment agreements and bonus arrangements
which were in effect as of July 17, 2000, such amounts are substantial. In
addition, the executive officers and the trust managers will receive cash
payments based on the number of options they hold when the company merger occurs
(except for 2000 grants to non-employee trust managers, which were cancelled for
no consideration). The payments to be made in respect of the stock options are
based on the difference between the exercise price per share under the option
and $17.00. The following table indicates the amounts that will be received by
each of Grove's executive officers upon their termination of employment and that
will be received by each of Grove's executive officers and trust managers with
respect to options for Grove common shares held by them.
<TABLE>
<CAPTION>
NAME OF EXECUTIVE OFFICER OR TRUST PAYMENTS TO BE RECEIVED UPON PAYMENTS IN RESPECT
MANAGER TERMINATION OF OF STOCK OPTIONS
EMPLOYMENT
<S> <C> <C>
Damon D. Navarro $1,283,847 $1,277,691
Edmund F. Navarro 1,304,987 1,267,081
Joseph R. LaBrosse 924,161 1,006,813
Brian A. Navarro 1,296,495 1,267,081
Gerald A. McNamara 436,805 451,389
Munawar A. Cheema 686,320 490,000
James F. Twaddell 102,467
Harold V. Gorman 109,907
J. Joseph Garrahy 107,871
J. Timothy Morris 69,467
Keith W. Munsell 67,500
</TABLE>
On July 14, 2000, the Board of Trust Managers authorized a one-time
payment of $40,000 to each of the Company's non-employee trust managers in
recognition of their substantial contributions to Grove and its management
during their tenure as trust managers and for their service on the Merger
Oversight Committee.
The merger agreement provides that as of the effectiveness of the
company merger, ERP will provide indemnification for the current and former
officers and trust managers of Grove or any subsidiary of Grove. The
indemnification provided by ERP will be the same as the indemnification provided
by Grove to the officers and trust managers of Grove or any Grove subsidiary
immediately prior to the company merger. The indemnification covers actions on
or prior to the company merger, including all transactions contemplated by the
merger agreement.
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ERP has also agreed to use commercially reasonable efforts to obtain
and, if obtained, maintain in effect for a period of six years from the time of
the company merger "run-off" trust managers and officers liability insurance
with a coverage amount and other terms and conditions comparable to Grove's
current trust managers and officers liability insurance policy. The premium for
the "run off" policy will be paid in full at the time of the company merger,
provided that the premium shall not exceed $300,000.
ERP has also agreed to pay all costs and expenses (including fees and
expenses of counsel) that may be incurred by any indemnified party or his or her
heirs or personal representatives in successfully enforcing ERP's
indemnification obligations.
In the event of a merger, consolidation or transfer of all or
substantially all of the properties and assets of ERP, ERP's successors and
assigns would be obligated to assume these indemnification obligations.
For a description of the interest of D. Navarro, J. LaBrosse, E.
Navarro, and B. Navarro in the transfer of the retail properties substantially
simultaneously with the partnership merger, see the retail agreement section in
this proxy statement/prospectus.
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MATERIAL FEDERAL INCOME TAX CONSEQUENCES
OVERVIEW
You are urged to review the following discussion and to consult with
your own tax advisor to determine, among other things, the effect of the
partnership merger, the retail agreement and the subsequent ownership and
disposition of ERP units on your individual tax situation, including any state,
local or non-U.S. tax consequences that may apply to you.
The information in this section is based on the current provisions of
the Internal Revenue Code of 1986, as amended, current, temporary and proposed
Treasury Regulations, the legislative history of the Internal Revenue Code,
current administrative interpretations and practices of the IRS, including its
practices and policies as endorsed in private letter rulings, which are not
binding on the IRS except with respect to the taxpayer that receives such a
ruling, and court decisions. However, future legislation, Treasury Regulations,
administrative interpretations and court decisions could significantly change
current law or adversely affect current interpretations of existing law. Changes
in the applicable law could apply retroactively. Neither ERP nor Grove L.P. has
requested or plans to request any rulings from the IRS concerning the tax
treatment of the partnership merger, the company merger, the retail agreement or
ERP. Therefore, it is possible that the IRS would challenge the statements in
this discussion, which do not bind the IRS or the courts, and it is possible
that a court would agree with the IRS.
Because this is a summary that is intended to address only the U.S.
federal income tax consequences of the partnership merger, ownership of ERP
units after the partnership merger, and the retail agreement to certain limited
partners of Grove L.P, it may not contain all the information that may be
important to you. As you review this discussion, you should keep in mind that:
- the tax consequences to you may vary depending on your
particular tax situation, including the circumstances under
which you originally acquired your Grove L.P. units and
subsequent events that may have affected your Grove L.P.
units;
- you may be subject to special rules that are not discussed
below if you are:
-- a tax-exempt organization;
-- a broker-dealer;
-- a non-U.S. person;
-- a trust;
-- an estate;
-- a regulated investment company;
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-- an insurance company; or
-- otherwise subject to special tax treatment under the
Internal Revenue Code;
- this summary does not address any state, local, or non-U.S.
tax consequences;
- this summary does not address any tax consequences to non-U.S.
corporations, non-U.S. partnerships, non-U.S. trusts, non-U.S.
estates, or individuals who are not taxed as citizens or
residents of the United States, all of which may be referred
to collectively as "non-U.S. persons"; and
- this discussion is not intended to be, and should not be
construed as, tax advice.
As noted above, this discussion does not address any tax consequences
to Grove L.P. limited partners that are non-U.S. persons. However, special tax
considerations, such as tax withholding and information reporting obligations,
may apply to a Grove L.P. limited partner that itself is a U.S. partnership or
limited liability company but which has non-U.S. persons as partners or members
with respect to the partnership merger. Accordingly, any Grove L.P. limited
partner that is a partnership or limited liability company, and whose partners
or members include non-U.S. persons, should consult with its own tax advisor
regarding any special U.S. tax consequences to it and its partners or members
that may result from these transactions.
We have prepared this discussion of federal income tax consequences
based on consultation with Cummings & Lockwood, special counsel to Grove and
Grove L.P., and Piper Marbury Rudnick & Wolfe, special counsel to EQR and ERP,
in connection with the partnership merger and the retail agreement. In the
opinion of both Cummings & Lockwood and Piper Marbury Rudnick & Wolfe, the
following discussion is accurate in all material respects with respect to
matters of law or legal conclusions. However, opinions of counsel do not legally
bind the IRS. We cannot assure that the IRS will agree with the following legal
conclusions in this discussion, or that the IRS will not challenge these
conclusions. There is a possibility that the courts may rule in favor of the IRS
upon a challenge made by the IRS with respect to the legal conclusions in this
discussion.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE PARTNERSHIP MERGER
TREATMENT OF GROVE L.P. LIMITED PARTNERS WHO ELECT TO RECEIVE CASH.
Grove L.P. limited partners who elect to receive cash in exchange for
their Grove L.P. units will be treated as selling their Grove L.P. units for
cash. Partners of Grove L.P. who receive cash will generally recognize either
gain or loss equal to the difference between the "amount realized" on the sale
and the adjusted tax basis attributable to the Grove L.P. units sold. The amount
realized on the sale of Grove L.P. units for cash will generally equal the sum
of:
1. the aggregate amount of cash received; plus
2. the amount of any Grove L.P. liabilities allocated to the
selling limited partner that are actually or deemed to be
relieved as a result of the sale.
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To the extent that the amount realized exceeds the selling limited
partner's adjusted tax basis in the Grove L.P. units sold, the selling limited
partner will recognize taxable gain. Conversely, to the extent that the amount
realized is less than the selling limited partner's adjusted tax basis in the
Grove L.P. units sold, the selling limited partner will recognize a loss. To the
extent that a limited partner of Grove L.P. held his or her units as a capital
asset, the character of the gain will generally be capital gain. However, to the
extent that any of the cash received by a limited partner of Grove L.P. is
attributable to the limited partner's share of unrealized receivables or
inventory of Grove L.P., the limited partner will be required to treat the gain
as ordinary income. Currently, long-term capital gain recognized by an
individual is generally subject to tax at a maximum rate of 20%.
Additionally, if a portion of a limited partner's gain is attributable to
accelerated depreciation deductions previously taken by the limited partner,
a portion of the limited partner's gain may be "depreciation recapture
income" that is subject to tax at a 25% rate.
TREATMENT OF LIMITED PARTNERS OF GROVE L.P. WHO RECEIVE ERP UNITS.
Generally, no gain or loss will be recognized upon a contribution of
property to a partnership in exchange for a partnership interest. For federal
income tax purposes, the partners of Grove L.P. who receive ERP units will be
treated as contributing their Grove L.P. units in exchange for ERP units.
Therefore, a limited partner of Grove L.P. who receives only ERP units in
exchange for all of its Grove L.P. units in the partnership merger generally
will not recognize taxable gain or loss at the time of the partnership merger.
However, a recipient of only ERP units would be required to recognize gain to
the extent that the liabilities actually or deemed to be relieved under Section
752 of the Internal Revenue Code in connection with the partnership merger
exceed the recipient's adjusted tax basis in its ERP units. Additionally a
recipient of ERP units may be required to recognize ordinary income under the
"at-risk" recapture rules discussed below.
CONSEQUENCES OF RECEIVING CASH IN LIEU OF FRACTIONAL UNITS
If the exchange of Grove L.P. units for ERP units would result in the
issuance of a fractional ERP unit to a limited partner of Grove L.P., then
instead of issuing a fractional ERP unit, ERP will pay the limited partner of
Grove L.P. an amount of cash equal to the cash value of the fractional ERP unit
that would otherwise have been issued. Therefore, it is likely that many limited
partners of Grove L.P. who elect to receive ERP units will receive a combination
of cash and ERP units in exchange for their Grove L.P. units.
We believe that a Grove L.P. limited partner who receives both cash and
ERP units in exchange for his or her Grove L.P. units will be treated as having
contributed his or her Grove L.P. units to ERP in exchange for ERP units and as
having sold a portion of his or her Grove L.P. units to ERP for cash, referred
to as a part sale/part contribution. A Grove L.P. limited partner who is treated
as having sold a portion of his or her Grove L.P. units to ERP, as described
above, will be required to recognize gain, if any, under the rules under Section
707 of the Internal Revenue Code discussed below.
Section 707 of the Internal Revenue Code and the applicable Treasury
Regulations, which are referred to as the Section 707 regulations, generally
provide that a part sale/part contribution of property has occurred if:
1. a partner contributes property to a partnership; and
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2. the partnership transfers money or other consideration to the
partner.
The Section 707 regulations apply to a part sale/part contribution
unless:
1. the facts and circumstances clearly establish that the
contribution and transfer do not constitute a part sale/part
contribution; or
2. an exception to part sale/part contribution treatment applies.
The amount of gain that a Grove L.P. limited partner who receives both
ERP units and cash in lieu of fractional ERP units would be required to
recognize would be equal to the sum of the amount of cash received plus the
amount of relieved liabilities treated under the Section 707 regulations as
additional consideration received by the Grove L.P. limited partner, less that
limited partner's adjusted tax basis in the Grove L.P. units deemed sold. The
rules for determining the amount of a partner's relieved liabilities that are
additional consideration for the sale of property to the partnership are
complex. For a discussion of the amount of liabilities that would be treated as
consideration under the section 707 regulations, see "--Effect of Subsequent
Events--Part Sale/Part Contribution."
It is possible that the IRS could assert that the partnership merger should be
treated for federal income tax purposes as a part sale/part contribution by
Grove L.P. of its assets to ERP followed by a distribution of cash to the
purchasers receiving cash and a distribution of ERP units to the purchasers
electing to receive ERP units. We believe that such an assertion by the IRS
would not be upheld by a court if the issue were litigated. Additionally, ERP
plans to take the position that any receipt or deemed receipt of cash by a
particular Grove L.P. limited partner in, or in connection with, the partnership
merger does not result in the other Grove L.P. limited partners recognizing gain
as a result of a part sale/part contribution of assets by Grove L.P. to ERP.
However, if the IRS successfully recharacterized the transaction in this manner,
Grove L.P. would recognize taxable gain under the Section 707 regulations, and
the taxable gain of Grove L.P. could be allocated to the Grove L.P. limited
partners under the allocation provisions of the partnership agreement of Grove
L.P., with the result that each Grove L.P. limited partner could be allocated a
share of the resulting gain, even if the money or other consideration giving
rise to part sale/part contribution treatment is only received by other Grove
L.P. limited partners.
PROPOSED TREASURY REGULATIONS. The Treasury Department has recently
proposed regulations that would permit the parties to a partnership merger to
treat any transfers of cash or other property made by the acquiring partnership
to some but not all partners in the acquired partnership as a direct transaction
between the acquiring partnership and those individual partners, rather than
between the acquiring partnership and the acquired partnership, regardless of
the form of the transaction. Under this approach, these regulations are
consistent with the manner in which the partnership merger will be reported for
federal tax purposes, and would prevent any disproportionate amount of taxable
income being allocated to the Grove L.P. limited partners receiving ERP units as
described above. However, we cannot assure you that these proposed Treasury
Regulations will be adopted in their current form or at all, and even if
adopted, they would be effective only for partnership mergers occurring after
the date of adoption.
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OTHER EVENTS. In general, if a contributing partner is determined under
the part sale/part contribution regulations to have any liabilities relieved as
a result of the contribution of property to the transferee partnership, then the
relief of liabilities is treated as a deemed transfer of money from the
transferee partnership to the contributing partner in a part sale/part
contribution of some or all of the contributed property. However, if a
contributing partner does not receive any actual distributions of money or
property from the transferee partnership that are otherwise treated as
consideration paid in a part sale/part contribution of the contributed property,
and the contributing partner only contributes property that is subject to
"qualified liabilities" and all of the liabilities of the contributing partner
that the transferee partnership assumes are "qualified liabilities", then the
contributing partner will not be required to recognize gain under the part
sale/part contribution rules as a result of having liabilities relieved in
connection with the contribution of property to the transferee partnership.
Grove and Grove L.P. believe that all liabilities of the Grove L.P. limited
partners that will be assumed in the partnership merger by ERP, or to which the
assets of the Grove L.P. limited partners are subject, are qualified
liabilities. Therefore, the Grove L.P. limited partners who do not receive
distributions of cash or other property that are otherwise treated as
consideration received in a part sale/part contribution should not be required
to recognize gain under the Section 707 regulations as a result of their
contribution of Grove L.P. units to ERP. However, we cannot assure you that the
IRS will not contend otherwise. For a discussion of events subsequent to the
partnership merger which may result in part sale/part contribution treatment of
Grove L.P. limited partners see "-Effect of Subsequent Events--Part Sale/Part
Contribution".
"At-Risk" Recapture. Under Section 465 of the Internal Revenue Code, a
taxpayer's ability to use losses to offset taxable income is limited by rules
that are referred to as the "at-risk" rules. See "-- Tax Consequences of
Ownership of ERP Units After the Partnership Merger -- Limitations on
Deductibility of Losses; Treatment of Passive Activities and Portfolio Income"
below. In addition, the at-risk rules may require a taxpayer to "recapture"
losses that were previously used by the taxpayer with respect to an "activity"
if the taxpayer's "at-risk amount" for the activity falls below zero at the
close of the taxable year. Losses are recaptured by including the amount of the
losses previously used by the taxpayer in the taxpayer's taxable income for the
year of the recapture.
The identification and scope of an activity and the calculation of the
at-risk amount under the at-risk rules are highly complex and can involve
uncertainties. Generally, a taxpayer's at-risk amount for an activity is the
amount of the taxpayer's investment in the activity, which is increased by the
taxpayer's income from the activity and the taxpayer's share of the "qualified
nonrecourse financing," as defined in Section 465(b)(6) of the Internal Revenue
Code, with respect to the activity, and reduced by the taxpayer's losses and
distributions from the activity. It is possible that the partnership merger
and/or the repayment or refinancing of some outstanding indebtedness of Grove
L.P. that constitutes qualified nonrecourse financing at the time of or
following the partnership merger could cause a Grove L.P. limited partner's
at-risk amount to be reduced below zero, which could, in turn, cause the Grove
L.P. limited partner to recognize taxable income as a result of the at-risk
recapture provisions. The definition of qualified nonrecourse financing is
different from, and sometimes more restrictive than, the definition of
nonrecourse liabilities for purposes of determining basis, discussed below. For
example, debt issued by ERP in the
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public debt markets may not qualify as qualified nonrecourse financing even
if it qualifies as a nonrecourse liability. It is therefore possible that a
unitholder could incur a reduction in its share of qualified nonrecourse
financing that causes it to recognize taxable income under the at-risk
recapture rules even if the unitholder does not have a reduction in its
nonrecourse liabilities that causes it to recognize gain as the result of a
deemed cash distribution, as described above.
ADJUSTED BASIS IN ERP UNITS AFTER THE PARTNERSHIP MERGER. In general,
the adjusted tax basis in ERP units received by a limited partner of Grove L.P.
in connection with the partnership merger will equal the adjusted basis that the
limited partner had in its Grove L.P. units immediately before completion of the
partnership merger, increased or decreased by any deemed contribution or
distribution of cash. A deemed contribution or distribution of cash occurs if
there is an increase or decrease, respectively, in a partner's share of
partnership liabilities. An increase in a partner's share of partnership
liabilities is treated as a contribution of cash by the partner, and a reduction
in a partner's share of partnership liabilities is treated as a distribution of
cash by the partnership to the partner. A contribution of cash by a partner
increases the adjusted basis of one's partnership interest in the partnership.
Conversely, a distribution of cash to a partner reduces the adjusted basis of
the partner's interest in the partnership. To the extent that the amount of a
deemed distribution of cash exceeds a partner's basis in his or her partnership
interest, the partner would recognize taxable gain.
As a result of the contribution of Grove L.P. units to ERP, the limited
partners of Grove L.P. will be deemed to have been relieved of liabilities
previously allocated to them by Grove L.P. and to have assumed the amount of
liabilities allocated to them by ERP. Accordingly, a Grove L.P. limited
partner's adjusted basis in ERP units will be reduced to the extent liabilities
allocated to the partner by ERP is less than the liabilities previously
allocated to the limited partner by Grove L.P. Conversely, a Grove L.P. limited
partner's adjusted basis in ERP units will be increased to the extent
liabilities allocated to the limited partner by ERP exceeds the amount of
liabilities allocated to the limited partner by Grove L.P.
Because the amount of liabilities that will be allocated to the Grove
L.P. limited partners who elect to exchange their Grove L.P. units for ERP units
cannot be quantified until after the partnership merger, there may be a
substantial risk that a limited partner of Grove L.P. may receive a liability
allocation from ERP less than the amount of liabilities previously allocated to
the limited partner by Grove L.P., thereby causing a deemed distribution of cash
and potential gain recognition to a Grove L.P. limited partner who exchanges his
or her Grove L.P. units for ERP units. However, under the terms of the merger
agreement, the limited partners of Grove L.P. who have a deficit restoration
obligation to Grove L.P. will be offered to undertake a deficit restoration
obligation to ERP, in accordance with the terms of the ERP partnership
agreement, in the same amounts of their deficit restoration obligations to Grove
L.P. This obligation will enable such partners to receive an allocation of
recourse liabilities of ERP up to the agreed amount of their deficit restoration
obligation that is stated in the limited partnership agreement of Grove L.P.
In addition, a substantial number of partners in the McNeil
Partnerships, as set forth below, signed "bottom guarantees" in connection with
the contribution of their partnership
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interests in the McNeil Partnerships to Grove L.P. The following
Massachusetts limited partnerships are referred to herein, collectively, as
the McNeil Partnerships:
<TABLE>
<S> <C>
- Abington Glen Associates - Noonan Glen Associates Limited
- Cedar Glen Associates Limited Partnership
Partnership - Norton Glen Associates Limited
- Chestnut Glen Associates Limited Partnership
Partnership - Old Mill Glen Associates Limited
- Conway Court Associates Partnership
- Glen Grove Associates Limited - Phillips Park Associates Limited
Partnership Partnership
- Glen Meadow at Franklin Associates - Rockingham Glen
- Gosnold Grove Associates - Summer Hill Glen Associates
- Highland Glen Associates Limited - The 929 House Realty Associates
Partnership - Webster Green Associates Limited
- Longfellow Glen Associates Limited Partnership
Partnership - Westwood Glen
- Nehoiden Glen Associates Limited - Wilkins Glen Associates
Partnership
</TABLE>
A limited partner who has signed a bottom guarantee with a lender is personally
guaranteeing to pay an amount of the debt of the partnership remaining after an
event of default and the exhaustion of all remedies against the partnership
equal to the stated amount of his or her guarantee and, therefore, will be
allocated an amount of recourse liabilities by the partnership equal to the
agreed upon guaranteed amount. The bottom guarantees signed by the former
partners of the McNeil Partnerships relate to a loan that is being assumed by
ERP. Accordingly, the amount of liabilities allocated to those partners by ERP
will include the amount guaranteed by such Grove L.P. limited partners. However,
if ERP decides to pay off the loan to which the bottom guarantee relates, the
bottom guarantees will no longer be effective. Therefore, if the loan is paid
off and ERP is unable to assist the former partners of the McNeil Partnerships
in obtaining a similar bottom guarantee arrangement with a lender of ERP, the
former partners of the McNeil Partnerships would likely be allocated an amount
of liabilities that is less than the amount of liabilities allocated to them
prior to the payoff of that loan, thereby causing a deemed distribution of cash
and potential gain recognition to a Grove L.P. limited partner. After the
partnership merger, under the terms of the bottom guarantees, Grove L.P. may pay
off the indebtedness to which the bottom guarantees relate, provided that the
guarantors under the bottom guarantees are permitted to enter into reasonable
agreements or arrangements similar to the bottom guarantees.
In addition, ERP is obligated to use reasonable commercial efforts to
either assist the former limited partners of the Sturbridge Heritage Associates
Limited Partnership and JT Associates Limited Partnership in entering into a
bottom guarantee arrangement or to allocate them a sufficient amount of
non-recourse indebtedness in order to prevent the recognition of gain. If ERP's
reasonable commercial efforts fail to assist these partners in obtaining either
bottom guarantees or a sufficient allocation of non-recourse liabilities, then
these partners may
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be considered to be relieved of partnership liabilities which would result in
these partners recognizing taxable gain.
DEFICIT RESTORATION OBLIGATIONS
Under the terms of the merger agreement, a limited partner of Grove
L.P. who elects to receive ERP units and who is subject to a deficit restoration
obligation under the Grove L.P. partnership agreement may elect to undertake a
deficit restoration obligation to ERP equal to the amount of the limited
partner's deficit restoration obligation to Grove L.P. The deficit restoration
obligation entered into between a Grove L.P. limited partner and ERP will be
subject to the terms of the ERP partnership agreement.
Under the terms of the ERP partnership agreement, upon a liquidation or
dissolution of ERP, an ERP unitholder who agreed to undertake a deficit
restoration obligation to ERP will be obligated to make a capital contribution
to ERP generally equal to that unitholder's deficit capital account balance, as
determined after giving effect to all allocations of ERP's income or loss to
that unitholder for all periods, and all required distributions to, or
contributions from, that unitholder. Under the terms of the ERP partnership
agreement, the capital contribution required to be made by an ERP unitholder who
has agreed to undertake a deficit restoration obligation to ERP must be made
upon the later of:
(1) the end of the fiscal year in which ERP liquidates, or
(2) within 90 days following the liquidation and dissolution of
ERP.
In general, an ERP unitholder who agrees to undertake a deficit restoration
obligation to ERP waives its right to be reimbursed for any amounts that it
contributes to the capital of ERP as a result of fulfilling its deficit
restoration obligation. In general, an ERP unitholder will no longer be subject
to its deficit restoration obligation twelve months after exercising its right
under the ERP partnership agreement to request an exchange of all of its ERP
units for EQR common shares. However, if at the time the ERP unitholder
exercises his right to request an exchange of all of its ERP units, or during
the twelve-month period following the exchange, ERP or a substantial part of
ERP's assets is subject to bankruptcy proceedings, the ERP unitholder who
exchanged all of his ERP units will remain subject to the deficit restoration
obligation until neither ERP nor a substantial part of its assets are the
subject of bankruptcy proceedings. If an ERP unitholder is subject to a deficit
restoration obligation to ERP, any successor, assignee or transferee of all of
that ERP unitholder's ERP units shall become subject to deficit restoration
obligation to ERP.
By undertaking a deficit restoration obligation to ERP, an ERP
unitholder will be able to receive an allocation of recourse liabilities of ERP
up to the restoration amount. In general, an ERP unitholder's basis in its ERP
units will be increased by the amount of liabilities allocated to the
unitholder. This allocation of recourse liabilities may defer the recognition of
taxable gain that may otherwise have been required to be recognized by the Grove
L.P. limited partner either at the time of the partnership merger or thereafter.
ERP cannot assure you that the deficit restoration obligations will be effective
to defer taxable gain that a Grove L.P. limited partner
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would otherwise recognize either at the time of the partnership merger or
thereafter. In general, a deficit restoration obligation would be effective
to defer the recognition of gain only if, and to the extent, that ERP has
recourse liabilities outstanding equal to the amount of the deficit
restoration obligations of ERP unitholders and the amount of any similar
obligations undertaken by other unitholders of ERP. In the event that ERP
does not maintain an amount of recourse liabilities equal to the aggregate
amount of the deficit restoration obligations undertaken by the former Grove
L.P. limited partners, those limited partners may recognize taxable gain.
EFFECT OF SUBSEQUENT EVENTS
Even if a Grove L.P. limited partner is not required to recognize gain
at the time of the partnership merger, subsequent events could cause a Grove
L.P. limited partner who becomes an ERP unitholder in the partnership merger to
recognize part or all of the unitholder's gain that is not recognized at the
time of the partnership merger. Subsequent events that could cause the
recognition of gain to a former Grove L.P. unitholder include:
- the sale of individual properties by ERP, particularly those
acquired from Grove L.P. and with respect to which the former
Grove L.P. limited partner had substantial deferred gain even
before the partnership merger;
- a distribution by ERP to one or more ERP unitholders of a
property formerly held by Grove L.P. with respect to which
gain would have been recognized for tax purposes, but was
deferred, either at the time the former Grove L.P. limited
partner contributed the property to Grove L.P. or at the time
of the partnership merger;
- the refinancing, repayment or other reduction in the amount of
existing debt secured by individual properties, particularly
those acquired from Grove L.P. and with respect to which the
former Grove L.P. limited partner had substantial deferred
gain even before the partnership merger;
- the issuance of additional ERP units, which could reduce the
former Grove L.P. limited partner's share of ERP liabilities
and, therefore, result in a deemed distribution of cash to the
former Grove L.P. limited partner;
- the elimination of the disparity between the current tax bases
of the Grove L.P. properties and the "book bases" of the
properties, which are based on the fair market value of the
properties at the time of the partnership merger, which has
the effect of reducing the amount of indebtedness allocable to
former Grove L.P. limited partners for basis purposes and,
therefore, can result in deemed cash distributions. See "--
Tax Consequences of Ownership of ERP Units After the
Partnership Merger -- Tax Allocations with Respect to
Contributed Properties" below.
In general, except to the extent that (1) some of the properties held
through Grove L.P. were subject to restrictions on transfer that survive the
partnership merger, and (2) ERP is
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obligated to maintain any "bottom guarantees" of former Grove L.P. limited
partners, EQR, as the general partner of ERP, is not required to take into
account the tax consequences to the former Grove L.P. limited partners who
became ERP unitholders as a result of the partnership merger, in deciding
whether ERP will undertake specific transactions, and the former Grove L.P.
limited partners generally do not have the right to approve or disapprove
specific transactions.
SALE OF INDIVIDUAL PROPERTIES. If ERP sells assets acquired from Grove
L.P. in the partnership merger that have significant unrealized gain, under
applicable Treasury Regulations, the former Grove L.P. limited partners would be
specially allocated an amount of taxable gain equal to the unrealized gain,
reduced by any amortized amounts. Those former Grove L.P. limited partners would
report the additional gain on their individual federal income tax returns, but
would not be entitled to any special distributions from ERP in connection with a
sale of former Grove L.P. assets by ERP. Thus, the former Grove L.P. limited
partners may not receive cash distributions from ERP sufficient to pay their
additional taxes if former Grove L.P. properties are sold. A former Grove L.P.
limited partner, however, may be able to use any passive losses or passive loss
carryforwards to offset any unrealized gain that it must recognize, subject to
any applicable passive loss limitations, including special limitations that
would apply if ERP were to be classified as a publicly traded partnership. See
"-- Tax Status of ERP."
The amount of depreciation deductions allocated to former Grove L.P.
limited partners with respect to a particular property formerly owned by Grove
L.P. will depend on the method that ERP uses to calculate depreciation
deductions relating to properties with unrealized gain. For a discussion of the
impact to the ERP unitholders of unrealized gain in the absence of a sale of a
property, see "-- Tax Consequences of Ownership of ERP Units After the
Partnership Merger -- Tax Allocations with Respect to Contributed Properties"
below.
DISTRIBUTIONS OF PROPERTY. Upon the distribution by a partnership of
property to another partner within seven years of when the property was
contributed to the partnership, Section 704(c)(1)(B) of the Internal Revenue
Code generally requires that the partner who contributed that property to the
partnership recognize any gain that existed, but was deferred, for federal
income tax purposes with respect to the property at time of the contribution.
Similarly, Section 737 of the Internal Revenue Code generally requires the
recognition of a contributing partner's deferred gain upon the distribution by a
partnership to that partner of other partnership property within seven years of
when that partner contributed appreciated property to the partnership.
Accordingly, a former Grove L.P. limited partner who contributed appreciated
property to Grove L.P. could recognize gain under either of these provisions if
ERP either distributes a property formerly held by Grove L.P. to one or more
other ERP unitholders or distributes any ERP property to that Grove L.P. limited
partner within seven years of when the contributing Grove L.P. limited partner
originally contributed the property to Grove L.P. However, under specific
exceptions in the applicable Treasury Regulations, neither of these provisions
will apply to cause the recognition of gain by a Grove L.P. limited partner at
the time of the partnership merger. Similarly, to the extent allocable to a
former Grove L.P. limited partner, gain that is deferred at the time of the
partnership merger with respect to appreciated assets of Grove L.P. that are
contributed to ERP will be subject to gain recognition by those Grove L.P.
limited partners under these provisions upon a distribution of property by ERP
within seven years after the partnership merger.
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<PAGE>
REFINANCING OF THE INDEBTEDNESS SECURED BY INDIVIDUAL PROPERTIES. As
described above under "--Material Federal Income Tax Consequences of the
Partnership Merger -- Adjusted Basis in ERP Units After the Partnership Merger",
a Grove L.P. limited partner could recognize taxable gain as a result of a
reduction in the unitholder's share of partnership liabilities either in
connection with the partnership merger or due to later events. ERP cannot
guarantee that a future refinancing of the indebtedness securing a property
would not result in a reduction of the liabilities allocated to the former Grove
L.P. limited partners, causing the former Grove L.P. limited partners to
recognize taxable gain. Generally, the maximum amount of gain that any former
Grove L.P. limited partner could recognize as a result of a reduction in
liabilities is the amount by which its share of the indebtedness of Grove L.P.
exceeds its share of the tax basis of the Grove L.P. assets, which amount is
commonly referred to as a "negative tax capital account."
PART SALE/PART CONTRIBUTION. Cash distributions from a partnership to a
partner made after the date the partner contributed property to the partnership
may be treated as a transfer of property to the partner for purposes of the part
sale/part contribution rules under the Section 707 regulations. However, a cash
distribution will not be treated as part of a part sale/part contribution if it
is attributable to a "reasonable preferred return", a "reasonable guaranteed
payment" or is a distribution of "operating cash flow." ERP anticipates that
after completion of the partnership merger any ongoing cash distributions that
it makes to its unitholders, including the former Grove L.P. limited partners,
will qualify as distributions of operating cash flow, a reasonable guaranteed
payment or a reasonable preferred return and, therefore, will not be considered
part of a part sale/part contribution. ERP cannot guarantee, however, that
circumstances will not change and that ERP will not make one or more
extraordinary cash distributions that could be viewed as part of a part
sale/part contribution to the extent received by former Grove L.P. limited
partners.
ERP unitholders have the right to request an exchange of any or all of
their ERP units for EQR common shares with each ERP unit being exchangeable for
one EQR common share. Upon receipt of such a request, EQR, as ERP's general
partner, may, in its discretion, in lieu of issuing common shares, cause ERP to
pay the requesting ERP unitholder the cash equivalent value of the ERP units to
be exchanged. The existence of these exchange rights with respect to the ERP
units issued in the partnership merger should not be considered to be additional
consideration for purposes of the part sale/part contribution rules. However, if
a Grove L.P. limited partner that acquires ERP units in the partnership merger
were to exercise the exchange rights at the time of or shortly after the
partnership merger, there may be a risk that a payment of cash by ERP would
result in part sale/part contribution treatment of the partnership merger for
that ERP unitholder. ERP intends to take the position that an exercise of the
exchange rights by a former Grove L.P. limited partner following the partnership
merger does not result in part sale/part contribution treatment for the
partnership merger. ERP cannot guarantee, however, that the IRS would not
successfully challenge this position. Furthermore, if the IRS did challenge this
position, ERP cannot guarantee that the adverse tax effects would be limited to
the ERP unitholder that exercised its exchange rights. The IRS or the courts
might recharacterize the part sale/part contribution as occurring directly
between the Grove L.P. and ERP which could cause gain recognized on the deemed
sale to be allocated among the former Grove L.P. limited partners in accordance
with the Grove L.P. partnership agreement. However, as noted previously,
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recently proposed Treasury Regulations, if adopted, should limit part sale/part
contribution treatment only to the former Grove L.P. limited partner that
exercised its exchange right. See "--Material Federal Income Tax Consequences of
the Partnership Merger-Proposed Treasury Regulations," above.
If a part sale/part contribution to ERP of a portion of the assets of
Grove L.P. or a Grove L.P. limited partner's units to ERP is deemed to occur, a
unitholder could be required to recognize some or all of the deferred gain
represented by the excess of the fair market value of its Grove L.P. units over
the limited partner's basis in those units. The part sale would be treated as a
sale for all purposes of the Internal Revenue Code and would be considered to
take place on the date that, under general principles of federal tax law, ERP
becomes the owner of the property. If the transfer of money or other
consideration from ERP occurs after the partnership merger, ERP would be treated
as having acquired the property at the time of the partnership merger and having
issued an obligation to transfer to Grove L.P. or the limited partner, as
applicable, money or other consideration at a later date.
Moreover, if a transfer of property to a partnership is treated as part
of a part sale without regard to the partnership's assumption of or taking
subject to a qualified liability, then the partnership's assumption of or taking
subject to that liability is treated as a transfer of additional consideration
to the transferring partner. The amount of a "qualified liability" that will be
treated as additional consideration is generally equal to the lesser of:
(a) the amount by which the limited partner's allocable share of
the qualified liability immediately prior to the partnership
merger exceeds the limited partner's allocable share of the
qualified liability immediately after the partnership merger,
as determined under the Section 707 regulations; and
(b) the amount determined by multiplying the amount of the
qualified liability by the limited partner's "net equity
percentage." The net equity percentage is generally equal to
the amount of cash and other property received by the partner,
other than any cash deemed to be received as a result of a
relief of qualified liabilities, divided by the partner's
total net equity in the property sold, as calculated under
Section 707 regulations.
Grove and Grove L.P. believe that all liabilities of the Grove L.P. limited
partners that will be assumed in the partnership merger by ERP, or to which the
assets of the Grove L.P. limited partners are subject, are qualified
liabilities.
TAX STATUS OF ERP
An entity that is classified as a partnership for federal income tax
purposes generally is not a taxable entity and incurs no federal income tax
liability. Instead, each partner is required to take into account its allocable
share of income, gains, losses, deductions and credits of the partnership in
computing its federal income tax liability, even if no cash distributions are
made by the partnership to the partner. Distributions of money by a partnership
to a partner generally
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are not taxable unless the amount of the distribution exceeds the partner's
adjusted basis in its partnership interest.
The obligations of Grove and Grove L.P. to complete the partnership
merger and the company merger are conditioned upon their receipt of an opinion
of Piper Marbury Rudnick & Wolfe, special counsel to EQR and ERP, to the effect
that ERP has been during and since its formation, and continues to be treated
for federal income tax purposes as a partnership, and not as a corporation or
association taxable as a corporation. The opinion will rely on customary factual
assumptions and customary representations made by EQR and ERP. If any of the
factual assumptions or representations relied upon by counsel is inaccurate, the
opinion might not accurately describe the treatment of ERP as a partnership for
federal income tax purposes.
Under the Treasury Regulations under Section 7701 of the Internal
Revenue Code, an entity that is organized under state law as a partnership that
is not a "publicly traded partnership" will be treated as a partnership for tax
purposes unless it elects to be treated as a corporation. ERP has not elected,
and will not elect, to be treated as a corporation.
An entity that is classified as a partnership under these regulations
nevertheless will be taxable as a corporation if it is a "publicly traded
partnership" within the meaning of Section 7704 of the Internal Revenue Code and
it fails to satisfy a "90% qualifying income" test under Section 7704 of the
Internal Revenue Code. A partnership is a publicly traded partnership under
Section 7704 of the Internal Revenue Code if:
- interests in the partnership are traded on an established
securities market; or
- interests in the partnership are readily tradable on a
"secondary market," or the "substantial equivalent" of a
secondary market.
Under the relevant Treasury Regulations, interests in a partnership
will not be considered readily tradable on a secondary market or on the
substantial equivalent of a secondary market if the partnership qualifies for
specified "safe harbors," which look to the specific facts and circumstances
relating to the partnership and to transfers of interests in the partnership.
ERP currently takes the reporting position for federal income tax
purposes that it is not a publicly traded partnership. There is a significant
risk, however, that the right of ERP unitholders to exchange the ERP units for
EQR common shares could cause ERP units to be considered readily tradable on the
substantial equivalent of a secondary market. Moreover, if ERP units were
considered to be tradable on the substantial equivalent of a secondary market
either now or in the future, ERP cannot guarantee that it would qualify for any
of the safe harbors mentioned above or that, if it currently qualifies for a
safe harbor, ERP will continue to qualify for the safe harbors in the future.
For example, ERP cannot satisfy the "private placement" safe harbor because it
has more than 100 partners and has issued units in registered offerings, such as
the units to be issued in connection with the partnership merger.
Even if ERP is a publicly traded partnership, it will not be taxed as a
corporation if at least 90% of its gross income consists of "qualifying income"
under Section 7704 of the Internal
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Revenue Code. Qualifying income generally includes real property rents and
certain other types of passive income. ERP believes that it has and will
continue to have sufficient qualifying income so that it will be taxed as a
partnership, even if it were to be treated as a publicly traded partnership.
The income requirements applicable to EQR in order for it to qualify as a
REIT under the Internal Revenue Code and the definition of qualifying income
under the publicly traded partnership rules are very similar. In addition,
failure of ERP to qualify as a partnership for tax purposes would cause EQR
to fail to qualify as a REIT. Therefore, it is likely that EQR will manage
ERP in such a way that EQR will meet the gross income tests applicable to
REITs and ERP will have qualifying income sufficient for it to avoid being
taxed as a corporation.
If ERP were a publicly traded partnership, but were not taxed as a
corporation for federal income tax purposes because it satisfies the 90%
qualifying income requirement, ERP unitholders would be subject to special
passive loss rules applicable to publicly traded partnerships. In particular, if
ERP were a publicly traded partnership, an ERP unitholder would be unable to use
passive losses from other passive activities to offset the unitholder's share of
ERP income and gains. Similarly, any ERP losses allocable to an ERP unitholder
could be used only to offset the unitholder's allocable share of ERP income and
gains and not against income and gains from other passive activities.
This entire discussion assumes that ERP will be treated as a
partnership for federal income tax purposes. If ERP were instead taxable as a
corporation, most, if not all, of the tax consequences described below would not
apply and distributions to ERP unitholders could be materially reduced. In
addition, if ERP were taxable as a corporation, EQR would fail to qualify as a
REIT under the Internal Revenue Code and would be taxable as a regular
corporation. This would likely have the effect of reducing the value of EQR
common shares, which would adversely affect the value of ERP units received in
the partnership merger because the ERP units are exchangeable into EQR common
shares or their cash equivalent, at the election of EQR.
Additionally, ERP's interest in its subsidiary partnerships and limited
liability companies that own beneficial interests in properties encumbered by
mortgage financing involve special tax considerations, including the possibility
of a challenge by the IRS of the status of these entities as partnerships for
federal income tax purposes. If an ERP subsidiary partnership was treated as an
association taxable as a corporation and ERP was considered to own 10% or more
of the voting securities of the entity, EQR would violate the 10% asset test
applicable to REITs and therefore lose its status as a REIT. If EQR lost its
status as a REIT it would be taxable as a corporation and therefore be subject
to an entity-level tax on its taxable income. In addition, a change in ERP's or
one of ERP's subsidiary partnership's status for tax purposes might result in
the recognition of taxable income in which case EQR might incur a tax liability
without any related cash distributions.
TAX STATUS OF GROVE L.P.
The obligations of EQR and ERP to consummate the partnership merger and
the company merger are conditioned upon their receipt of an opinion of Cummings
& Lockwood, special counsel to Grove and Grove L.P., to the effect that Grove
L.P. has been during and since 1997, and continues to be, treated for federal
income tax purposes as a partnership, and not as a
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corporation or association taxable as a corporation. This opinion will rely
on customary factual assumptions and customary representations made by Grove
and Grove L.P. If any of the factual assumptions or representations relied
upon by counsel is inaccurate, the opinion may not accurately describe the
treatment of Grove L.P. as a partnership for federal income tax purposes.
Under the applicable Treasury Regulations, Grove L.P. will be
classified as a partnership so long as it does not elect to be classified as a
corporation and is not a publicly traded partnership. Grove L.P. has not elected
to be classified as a corporation and currently takes the reporting position for
federal income tax purposes that it is not a publicly traded partnership. Grove
L.P. takes the position that it is not a publicly traded partnership for federal
income tax purposes. Moreover, Grove L.P. believes that even if it were a
publicly traded partnership, it would not be taxed as a corporation because at
least 90% of its gross income consists of "qualifying income" under Section 7704
of the Internal Revenue Code. See "- Tax Status of ERP" above for a more
detailed discussion of the tax consequences of partnership classification, the
publicly traded partnership rules and the qualifying income exception.
This discussion of Material Federal Income Tax Consequences assumes
that Grove L.P. will be treated as a partnership for federal income tax
purposes, in accordance with the opinion of Cummings & Lockwood referred to
above. If Grove L.P. were instead taxable as a corporation, most, if not all, of
the tax consequences described in this discussion would not apply.
TAX CONSEQUENCES OF OWNERSHIP OF ERP UNITS AFTER THE PARTNERSHIP MERGER
INCOME AND DEDUCTIONS IN GENERAL. Each ERP unitholder will be required
to report on its income tax return its allocable share of income, gains, losses,
deductions and credits of ERP. Each ERP unitholder will be required to include
these items on its federal income tax return even if the unitholder has not
received any cash distributions from ERP. For each taxable year, ERP is required
to furnish to each ERP unitholder a Schedule K-1 that sets forth the
unitholder's allocable share of any income, gains, losses, deductions and
credits of ERP. ERP is not required to pay any federal income tax directly.
TREATMENT OF ERP DISTRIBUTIONS. Distributions of money by ERP to an ERP
unitholder, including deemed distributions that result from a reduction in the
unitholder's share of ERP liabilities, generally will result in taxable gain to
the unitholder only if and to the extent that the distribution exceeds the
unitholder's basis in its ERP units immediately before the distribution. A
portion of the gain may be taxable as ordinary income. Any reduction in an ERP
unitholder's share of ERP's nonrecourse liabilities, whether through repayment,
refinancing with recourse liabilities, refinancing with nonrecourse liabilities
secured by the other properties as to which the unitholder does not have Section
704(c) minimum gain, or otherwise, will constitute a deemed distribution of
money to the unitholder. In addition, an issuance of additional units by ERP
without a corresponding increase in ERP's nonrecourse liabilities could decrease
an ERP unitholder's share of ERP nonrecourse liabilities, resulting in a deemed
distribution of money to an ERP unitholder. A distribution of property other
than money by ERP to its unitholders ordinarily does not result in the
recognition of gain or loss by either ERP or the unitholder unless the property
is a marketable security for purposes of Section 731(c) of the Internal Revenue
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Code and the exceptions to the requirement for recognition of gain do not apply.
In that event, the property would be treated as money and the unitholder would
recognize gain, but not loss, to the extent described above.
INITIAL BASIS OF UNITS. In general, a Grove L.P. limited partner who
acquires ERP units in the partnership merger will have an initial basis in its
ERP units equal to its basis in its Grove L.P. units, adjusted to reflect the
effects of the partnership merger. See "-Material Federal Income Tax
Consequences of the Partnership Merger--Adjusted Basis in ERP Units After the
Partnership Merger."
An ERP unitholder's initial basis in its ERP units will generally be
increased by the unitholder's share of:
- ERP taxable income;
- any increases in nonrecourse liabilities incurred by ERP; and
- recourse liabilities to the extent the ERP unitholder elects
to take on a deficit restoration obligation.
Generally, an ERP unitholder's initial basis in its units will be
decreased, but not below zero, by the unitholder's share of:
- ERP distributions;
- decreases in liabilities of ERP, including any decrease in its
share of the nonrecourse liabilities of the ERP;
- losses of ERP; and
- nondeductible expenditures of ERP that are not chargeable to
capital.
ALLOCATIONS OF ERP INCOME, GAIN, LOSS AND DEDUCTIONS. The partnership
agreement of ERP generally provides that net losses will be allocated among the
unitholders in proportion to their respective percentage ownership interests in
ERP. However, a holder of ERP units will not be allocated net losses that would
have the effect of creating a deficit balance in its capital account, as
specially adjusted for such purpose, which losses are referred to as excess
losses. Excess losses will be allocated first to EQR in an amount equal to the
excess of the aggregate recourse debt of ERP over the aggregate deficit
restoration obligations of the ERP unitholders; second, to ERP unitholders who
have deficit restoration obligations in proportion to and to the extent of their
respective deficit restoration obligations; and thereafter, to EQR.
The ERP partnership agreement generally provides that net income first
will be allocated to reverse the losses previously allocated in reverse order of
the losses allocated. Thereafter, net income is allocated to any preferred
unitholders to the extent necessary to reflect and preserve the economic rights
associated with the particular preferred units. Finally, any remaining net
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income is allocated in proportion to the respective percentage ownership
interests of the unitholders.
ERP ALLOCATES PARTNERSHIP ITEMS IN ACCORDANCE WITH THE SUBSTANTIAL
ECONOMIC EFFECT SAFE HARBOR PROVIDED UNDER TREASURY REGULATIONS. A partnership's
allocation of any item of income, gain, loss or deduction to a partner will be
respected for federal income tax purposes so long as it has substantial economic
effect, or is otherwise deemed to be allocated in accordance with the partner's
interest in the partnership. If the allocation does not satisfy this standard,
then the item will be reallocated among the partners on the basis of their
respective interests in the partnership, determined by taking into account all
the facts and circumstances. The allocations of partnership items under ERP's
partnership agreement are intended to have substantial economic effect, based on
the applicable Treasury Regulations. Notwithstanding such intention, however, we
cannot assure you that the allocations under ERP's partnership agreement will
not be challenged by the IRS or that partnership items will not be required to
be reallocated as a result of such challenge.
TAX ALLOCATIONS WITH RESPECT TO GROVE PROPERTIES AND OTHER CONTRIBUTED
PROPERTIES. Under Section 704(c) of the Internal Revenue 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 must
be allocated in a manner so 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 unrealized gain
or unrealized loss associated with the property is generally equal to the
difference between the fair market value and the adjusted tax basis of the
contributed property at the time of initial contribution, referred to as a
"book-tax difference." To the extent that the book-tax difference represents an
unrealized gain it is referred to as a "built-in gain" and to the extent it
represents an unrealized loss it is referred to as a "built-in loss." In
general, the initial "book basis" of a property contributed to a partnership
equals the fair market value of the property at the time of the contribution.
Upon completion of the partnership merger, substantial built-in gains
are likely to exist with respect to the assets acquired in the partnership
merger, particularly those that Grove L.P. previously acquired in exchange for
Grove L.P. units. Under the rules of Section 704(c) of the Internal Revenue
Code, ERP will be required to make allocations of net income and loss to
eliminate the book-tax difference. These 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.
The partnership agreement of ERP requires that any allocations made to
reduce the book-tax difference attributable to any property be made in a manner
consistent with Section 704(c) of the Internal Revenue Code. Treasury
Regulations under Section 704(c) of the Internal Revenue Code require
partnerships to use a "reasonable method" for allocation of items affected by
Section 704(c) of the Internal Revenue Code. ERP uses the "traditional method,"
one of three methods outlined by the Treasury Regulations under Section 704(c),
for its existing properties and will use the traditional method for the
properties acquired in the partnership merger. Under the traditional method, the
book basis and tax basis of a property are both depreciated over the
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remaining recovery period for such property and EQR and the other ERP
partner, other than the partner who contributed the property with built-in
gain, will be allocated an amount of tax depreciation equal to their share of
book depreciation (to the extent of such tax depreciation deductions). This
will cause former Grove L.P. limited partners who have "built-in gains" to be
allocated less tax depreciation and, therefore, more income with respect to
the assets of ERP that were owned by Grove L.P. prior to the partnership
merger. The effects of these allocations will be different for different
Grove L.P. limited partners and will depend upon which, if any, properties
those limited partners originally contributed to Grove L.P. and the amount of
depreciation, if any, that remains to be claimed with respect to those
properties. These reduced allocations of depreciation and increased
allocations of income will be offset at least in part by increased
allocations of depreciation and reduced allocations of income with respect to
properties owned ERP before the partnership merger.
SALE OF GROVE L.P. PROPERTIES. If an asset that was acquired from Grove
L.P. limited partners is sold by ERP, gain equal to any book-tax difference
remaining at the time of such sale must be allocated exclusively to the former
Grove L.P. limited partners, even though the proceeds of the sale will be
allocated proportionately among all ERP unitholders. Conversely, no gain
attributable to any book-tax difference remaining in an existing ERP property at
the time of a sale will be allocated to the former Grove L.P. limited partners.
Under the traditional method, however, the gain required to be specially
allocated would not exceed the gain that is recognized by ERP on the sale. The
amount of gain allocated to specific former Grove L.P. limited partners with
respect to former Grove L.P. assets would depend upon a number of variables,
including the book-tax difference that existed with respect to such assets
within Grove L.P. before the partnership merger; whether the former Grove L.P.
limited partners own units issued in exchange for the contribution of that asset
to Grove L.P.; the amount of the additional book-tax difference that was created
as a result of the partnership merger with respect to the asset; and the amount
of the book-tax difference with respect to that asset that has been amortized
since the partnership merger and before the sale of the asset through the
special allocations of depreciation deductions described above.
Under ERP's partnership agreement, to the extent the Treasury
Regulations permit ERP to elect alternative methods to eliminate "built-in gain"
or "built-in loss" with respect to contributed property, EQR, as general
partner, will have the authority to elect the method to be used, and such
election will be binding on all partners. As a result, some ERP unitholders will
be allocated lower amounts of depreciation deductions for tax purposes and
increased taxable income and gain upon a sale of properties contributed by ERP
unitholders.
ALLOCATION OF ERP LIABILITIES
ERP's recourse and nonrecourse liabilities will be allocated among its
partners in accordance with the Internal Revenue Code and related Treasury
Regulations in the manner set forth below.
RECOURSE LIABILITIES. A partnership liability is a recourse liability
to the extent that any partner or a related person bears the economic risk of
loss for that liability. A partner's share of recourse liabilities equals the
portion of that liability, if any, for which that partner or a related
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person bears such economic risk of loss. The limited partners of Grove L.P.
who become ERP unitholders as a result of the partnership merger will not be
expected to bear the economic risk of loss for any of ERP's liabilities with
the exception of any limited partners agreeing to deficit restoration
obligations or signing bottom guarantees. However, EQR, as the sole general
partner of ERP currently does and will bear the economic risk of loss for a
certain amount of ERP's liabilities. Accordingly, such liabilities will
constitute recourse liabilities allocable to EQR.
NONRECOURSE LIABILITIES. A partnership liability is a nonrecourse
liability to the extent that no partner or related person bears the economic
risk of loss for that liability. A partner's share of nonrecourse liabilities
equals the sum of:
(1) the partner's share of partnership "minimum gain" determined
in accordance with the Internal Revenue Code and Treasury
Regulations;
(2) the amount of any taxable gain that would be allocated to the
partner if the partnership in a taxable transaction disposed
of all partnership property subject to one or more partnership
nonrecourse liabilities in full satisfaction of those
liabilities and for no other consideration; and
(3) the partner's share of excess nonrecourse liabilities of the
partnership (i.e., those liabilities not allocated under (1)
and (2) above).
ERP believes that its allocation of nonrecourse liabilities is in
accordance with the Treasury Regulations. ERP's allocation of excess nonrecourse
liabilities is determined by taking into account facts and circumstances
relating to a partner's interest in ERP's profits. EQR, as general partner of
ERP, has discretion in any fiscal year to allocate excess nonrecourse
liabilities among the partners in any manner permitted under the Internal
Revenue Code and related Treasury Regulations.
DISPOSITION OF ERP UNITS.
If an ERP unit is sold or otherwise disposed of, the determination of
gain or loss will be measured by the difference between the amount realized and
the adjusted tax basis of the unit sold. Upon the sale of an ERP unit, the
unitholder's "amount realized" will be the sum of the cash and fair market value
of other property received, plus the portion of ERP liabilities allocated to the
units sold. Upon a gift of an ERP unit, the amount realized will be the portion
of ERP liabilities allocable to such units. To the extent that the amount
realized exceeds the adjusted tax basis of the units disposed, an ERP unitholder
will recognize gain. The tax liability resulting from such gain could exceed the
amount of cash received upon such disposition.
EXCHANGE OF ERP UNITS.
Under ERP's partnership agreement, each ERP unitholder has the right to
request an exchange of any or all of its ERP units for EQR common shares, with
each ERP unit being exchangeable for one EQR common share. Upon receipt of such
request, EQR, as ERP's general partner, may, in its discretion, in lieu of
issuing EQR common shares, cause ERP to pay the
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requesting ERP unitholder the cash equivalent of the value of the EQR common
shares requested to be issued. An exchange of ERP units will constitute a
sale for tax purposes by the ERP unitholder to EQR. The sale will be fully
taxable to the ERP unitholder. An ERP unitholder will recognize gain for tax
purposes to the extent that the value of the EQR common shares received or
the sum of the cash received in the exchange, plus the amount of any
liabilities allocable to the exchanged units at the time of the exchange that
are relieved as a result of the exchange, exceed the ERP unitholder's
adjusted tax basis in the ERP units being exchanged.
LIQUIDATION OF ERP. If ERP liquidates and dissolves, a distribution of
ERP property other than money generally will not result in taxable gain to an
ERP unitholder, except to the extent provided in Sections 737, 704(c)(1)(B) and
731(c) of the Internal Revenue Code. The basis of any distributed property to an
ERP unitholder will equal the adjusted basis of the unitholder's ERP units,
reduced by any money distributed in liquidation. A distribution of money upon
the liquidation of ERP, however, will be taxable to an ERP unitholder to the
extent that the amount of money distributed in liquidation, including any deemed
distributions of cash as a result of a reduction in the unitholder's share of
partnership liabilities, exceeds the unitholder's tax basis in its ERP units. If
EQR issued its shares of beneficial interest to ERP unitholders upon the
liquidation of ERP, it is likely that each ERP unitholder would be treated as if
it had exchanged its ERP units for EQR shares and the unitholder would recognize
gain or loss as if its ERP units were sold in a fully taxable exchange.
LIMITATIONS ON DEDUCTIBILITY OF LOSSES; TREATMENT OF PASSIVE ACTIVITIES
AND PORTFOLIO INCOME. Generally, individuals, estates, trusts and some closely
held corporations and personal service corporations can deduct losses from
"passive activities" only to the extent that those losses do not exceed the
taxpayer's income from passive activities. Generally, passive activities are
activities or investments in which the taxpayer does not materially participate,
which would include the ownership of ERP units by former Grove L.P. limited
partners. If ERP were classified as a publicly traded partnership, but was not
taxable as a corporation, under the Internal Revenue Code, any losses or
deductions allocable to an ERP unitholder could be used only against gains or
income of ERP and could not be used to offset passive income from other passive
activities. Similarly, any ERP income or gain allocable to an ERP unitholder
could not be offset with losses from other passive activities of the unitholder.
For a more detailed discussion of ERP's possible classification as a publicly
traded partnership, see "- Tax Status of ERP" above.
In addition, an ERP unitholder may not deduct its share of any ERP
losses to the extent that those losses exceed the lesser of:
- the adjusted tax basis of its ERP units at the end of ERP's
taxable year in which the loss occurs; and
- the amount for which such unitholder is considered "at-risk"
at the end of that year.
In general, an ERP unitholder will be at-risk to the extent of its
basis in its ERP units, except to the extent that the unitholder acquired its
units using nonrecourse debt. For these
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purposes, a unitholder's basis in its ERP units will include only the
unitholder's share of ERP's liabilities, as determined under Section 752 of
the Internal Revenue Code, that are considered "qualified nonrecourse
financing" for purposes of these at-risk rules. ERP believes that all of the
debt secured by its properties that otherwise qualifies as nonrecourse
liabilities under Section 752 of the Internal Revenue Code will constitute
qualified nonrecourse financing for purposes of the at-risk rules, but ERP
cannot guarantee that the IRS might not successfully contend that some or all
of the debt secured by ERP's properties is not qualified nonrecourse
financing. In addition, there can be no assurance that ERP will not repay
some or all of its qualified nonrecourse financing in the future with
proceeds from equity offerings or proceeds of debt that do not constitute
qualified nonrecourse financing.
After the partnership merger, a former Grove L.P. limited partner's
at-risk amount with respect to the ERP units generally will increase or decrease
as the adjusted basis in its ERP units increases or decreases, except for
increases or decreases attributable to ERP nonrecourse liabilities that do not
constitute qualified nonrecourse financing. If an ERP unitholder is not allowed
to use losses in a particular taxable year because of the application of the
at-risk rules, the losses can be carried forward and may be used by the
unitholder to offset income in a subsequent year to the extent that the
unitholder's adjusted basis or at-risk amount, whichever was the limiting
factor, is increased in that subsequent year. The at-risk rules apply to:
- an individual unitholder or individual partner of a
partnership that is a unitholder;
- an individual shareholder of a unitholder that is an S
corporation; and
- a unitholder that is a corporation if 50% or more of the value
of that corporation's stock is owned, directly or indirectly,
by five or fewer individuals at any time during the last half
of the taxable year.
TAX RETURNS AND OTHER TAX MATTERS AFFECTING ERP'S UNITHOLDERS. ERP must
file with the IRS an annual information return for federal income tax purposes.
Within 90 days after the close of ERP's taxable year, ERP intends to furnish its
partners a Schedule K-1 which sets forth the allocable share of ERP income,
gains, losses, deductions and credits, if any, as well as certain other
information to be used in an ERP unitholder's tax return. The information return
filed by ERP may be audited by the IRS. Adjustments, if any, resulting from such
an audit may result in adjustments to an ERP partner's tax return, and possibly
may result in an audit of that return, which would not necessarily be limited to
ERP items.
The Internal Revenue Code contains special procedures that specify the
manner in which IRS audit adjustments of partnership items are resolved.
Partnerships generally are treated as separate entities for purposes of federal
tax audits, judicial review of IRS adjustments and tax settlement proceedings.
The tax treatment of partnership items is determined at the partnership level in
a unified partnership proceeding rather than in separate proceedings with each
partner. The Internal Revenue Code provides for one partner to be designated as
the "tax matters partner" for these purposes. The partnership agreement of ERP
appoints EQR as ERP's tax matters partner. As the tax matters partner, EQR has
all the rights and obligations of the tax matters partner under the Internal
Revenue Code. ERP unitholders generally will be required to treat
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ERP items on their federal income tax returns in a manner consistent with the
treatment of the items on ERP's information return. In general, that
consistency requirement is waived if an ERP unitholder files a statement with
the IRS identifying the inconsistency. Failure to satisfy the consistency
requirement, if not waived, will result in an adjustment to conform the
treatment of the item by an ERP unitholder to the treatment on ERP's return.
Even if the consistency requirement is waived, adjustments to an ERP
unitholder's tax liability with respect to partnership items may result from
an audit of an ERP unitholder's tax return or ERP's. Intentional or negligent
disregard of the consistency requirement may subject an ERP unitholder to
substantial penalties.
ERP WILL PROVIDE INFORMATION REGARDING STATE AND LOCAL TAXES. ERP will
own properties and conduct business operations in a number of states, and, thus,
ERP and its partners may be subject to income tax, withholding and tax reporting
requirements in a number of jurisdictions. ERP intends to provide its partners
with sufficient and timely state and local income tax information upon which
they may rely in reporting and otherwise complying with their state and local
income tax obligations.
ERP UNITHOLDERS MAY BE SUBJECT TO THE ALTERNATIVE MINIMUM TAX. The
Internal Revenue Code contains different sets of minimum tax rules applicable to
corporate and noncorporate taxpayers. CORPORATE INVESTORS SHOULD CONSULT WITH
THEIR TAX ADVISORS WITH RESPECT TO THE EFFECT OF THE CORPORATE ALTERNATIVE
MINIMUM TAX PROVISIONS FOLLOWING THE COMPLETION OF THE PARTNERSHIP MERGER. ERP
will not be subject to the alternative minimum tax, but each of ERP's
unitholders will be required to take into account his share of ERP's tax
preference items and adjustments in order to compute AMTI. SINCE THE IMPACT OF
THIS TAX DEPENDS ON EACH OF ERP'S UNITHOLDER'S PARTICULAR SITUATION, LIMITED
PARTNERS OF GROVE L.P. ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE
APPLICABILITY OF THE ALTERNATIVE MINIMUM TAX FOLLOWING COMPLETION OF THE
PARTNERSHIP MERGER.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE RETAIL AGREEMENT
Immediately prior to the partnership merger, Damon D. Navarro, Brian D.
Navarro, Edmund F. Navarro and Joseph R. LaBrosse, each an executive officer of
Grove and referred to as the "investors" will contribute all 998,227 of their
Grove L.P. units to Investor LLC, a limited liability company owned by the
investors, in exchange for interests in Investor LLC. Investor LLC will then
withdraw as a partner of Grove L.P. and surrender all 998,227 of its Grove L.P.
units for redemption by Grove L.P. In consideration for the surrender of those
Grove L.P. units, Grove L.P. will transfer its ownership interest in the
entities owning its four retail properties to Investor LLC. The foregoing
transactions are referred to herein as the "retail sale transaction".
CONSEQUENCES OF THE RETAIL SALE TRANSACTION TO THE LIMITED PARTNERS OF
GROVE L.P. WHO CONTRIBUTED INTERESTS IN ANY OF GROVE'S RETAIL PROPERTIES TO
GROVE L.P., BUT WHO DO NOT PARTICIPATE IN THE RETAIL SALE TRANSACTION. The
majority of the limited partners of Grove L.P. who do not participate in the
retail sale transaction, but who contributed any of the four retail properties,
or interests in entities that owned any of the four retail properties being
distributed in connection with the retail sale transaction will recognize
taxable gain as a result of the retail sale transaction. Ordinarily, a partner
recognizes no gain or loss upon the contribution of property to
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a partnership in exchange for an interest in that partnership. Any gain that
the contributing partner would have recognized had he or she sold the
contributed property for its fair market value in a fully taxable sale gets
deferred. However, Section 704(c)(1)(B) of the Internal Revenue Code requires
the contributing partner to recognize any remaining deferred gain upon a
distribution of the contributed property by the partnership to a partner
other than the partner who contributed the property. This gain recognition
rule generally applies to distributions of property by a partnership made
within seven years of the time the property was contributed to the
partnership. At the time the four retail properties were contributed to Grove
L.P., many of the contributing partners had deferred built-in gains with
respect to those properties. To the extent that those built-in gains have not
otherwise been eliminated through depreciation deductions taken prior to the
retail sale transaction, the contributing partners will be required to
recognize taxable gain as a result of the distribution of those properties in
connection with the retail sale transaction.
To the extent that those contributing partners held the assets
contributed as capital assets at the time of the contribution, the gain
recognized will be capital gain. Currently, the maximum capital gain rate
applicable to individuals is 20%. However, to the extent that any of the gain
realized represents a recapture of previously taken accelerated depreciation
deductions, the gain will be taxable as depreciation recapture income subject to
tax at a 25% rate.
The adjusted tax basis of the units of Grove L.P. held by the limited
partners of Grove L.P. who recognize gain as a result of the retail sale
transaction will be increased by the amount of gain they recognize.
Grove L.P. will not make any special distributions to those
contributing partners who are required to recognize gain as a result of the
retail sale transaction. Therefore, it is possible that those contributing
partners would recognize an amount of taxable gain for which they do not receive
a distribution of cash sufficient to pay their resulting tax liability.
Limited partners of Grove L.P. who contributed any of the retail
properties being distributed in connection with the retail sale transaction are
strongly urged to consult with their own tax advisor to determine the tax
consequences of the retail sale transaction to their own personal situation.
ADJUSTMENTS TO BASIS OF GROVE L.P.'S ASSETS. Because Grove L.P. has
made a valid election under the Internal Revenue Code to adjust the tax basis of
its properties in the event of a distribution of property to a partner in
liquidation of such partner's interest, Grove L.P. will be required to increase
the basis of its remaining assets immediately following the retail sale
transaction by the amount by which Grove L.P.'s adjusted tax basis in the
distributed property exceeds the adjusted basis of the recipient partner's
interest in Grove L.P., reduced by any cash received, and decrease its adjusted
tax basis in its remaining assets by the amount by which the adjusted tax basis
of the recipient partner's interest in Grove L.P., reduced by any cash received,
exceeds Grove L.P.'s adjusted tax basis in the distributed property. The
foregoing basis adjustments must be made among Grove L.P.'s assets in accordance
with complex allocation rules under the Internal Revenue Code. In general, such
rules require the adjustments to be made first proportionately among assets of a
similar class to those distributed.
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<PAGE>
TAX CONSEQUENCES OF OWNERSHIP OF EQR COMMON SHARES
You are urged to review the section entitled "Federal Income Tax
Consequences" in EQR's Annual Report on Form 10-K for the year ended December
31, 1999 for a discussion of the material federal income tax consequences of
ownership of common shares of EQR that may be applicable to you upon the
exchange of ERP units for EQR common shares.
Because the consequences of ownership of EQR common shares depends upon
your particular tax situation, you are urged to consult with your own tax
advisor to determine the effect of ownership of EQR common shares, including any
state, local or non-U.S. tax consequences, that may apply to you.
MANAGEMENT AND OPERATION OF EQR
AFTER THE MERGER
Upon the consummation of the merger transactions the executive officers
and trustees of EQR shall continue to serve for the balance of their unexpired
terms or their earlier death, resignation or removal.
ADDITIONAL INFORMATION REGARDING
THE BUSINESS OF GROVE L.P.
Grove L.P. was formed in March 1997. Grove L.P. is engaged in the
acquisition, repositioning, management and operation of mid-priced and
subsidized multifamily and specialty retail properties in the Northeastern
United States. In conjunction with Grove, its sole general partner, Grove L.P.
is a fully integrated real estate organization with in-house acquisition,
repositioning and renovation, financing, marketing, leasing and property
management expertise. Grove L.P. operates in three industry segments:
residential, subsidized residential and retail.
As of June 30, 2000, Grove L.P. owned interests in and operated 58
apartment communities containing a total of 7,075 units in Connecticut,
Massachusetts and Rhode Island and 4 specialty retail properties in
Massachusetts and Maine containing an aggregate of approximately 118,700
rentable square feet. The apartment communities are mid-priced and subsidized
apartment properties consisting primarily of two- and three-story buildings in
landscaped settings. The apartment communities are well located within their
markets and appeal to middle income and moderate income residents who are
generally "renters by necessity," with the exception of the Boston suburban
properties where residents are renters by choice in many instances.
Grove L.P. has and may in the future acquire properties in exchange for
Grove L.P. units. The recipients of Grove L.P. units are restricted from
transferring such units for a period of one year from the acquisition date. The
Grove L.P. units are redeemable after such time for cash (based on the fair
market value of an equivalent number of Grove common shares at the time of such
redemption) or, at Grove's option, for common shares of Grove on a one-for-one
basis, subject to certain anti-dilution adjustments and exceptions. While the
holders of Grove L.P.
75
<PAGE>
units determine whether they want to redeem units, Grove decides if the
redemption price will be paid in cash or in common shares.
Grove L.P. offers attractive purchase terms to owners of properties who
have little or no tax basis remaining in such properties. In many cases, the
immediate tax liability incurred by such owners upon a transfer of such
properties would be significant if the purchase price were paid in cash. Grove
L.P. can make payment in Grove L.P. units, thereby deferring all or a portion of
an owner's federal income tax liability. At July 17, 2000, Grove owned
approximately 68.1% of the total partnership interests, including the sole
general partner interest, in Grove L.P., representing ownership of 8,301,604
Grove L.P. units.
Grove L.P.'s long-term objectives have been: (i) accretively acquiring
under-utilized multifamily properties in high-barrier-to-entry locations in the
Northeastern United States; (ii) continuing to repurchase Grove L.P. units at
prices below net asset value (NAV); (iii) aggressively continuing the
repositioning and renovating of its property portfolio with a targeted annual
return on investment of 15%; (iv) aggressively managing its portfolio to
increase revenues at an above inflationary rate and keeping operating costs at
or below budgeted amounts; and (v) consistently providing quality service and a
desirable living environment to all of its residents. A variety of factors, many
of which are beyond Grove L.P.'s control, may prevent Grove L.P. from achieving
these objectives. In addition, future developments and events may cause Grove
L.P. to redefine its objectives either by modifying current objectives or by
identifying additional ones. Because of various provisions of the merger
agreement, Grove L.P.'s pursuit of some of these objectives may require the
concurrence of ERP.
ACQUISITIONS Grove L.P.'s primary growth strategy has been to acquire
under-utilized, mid-priced and subsidized apartment properties in the
Northeastern United States. Grove believes that opportunities for acquisitions
in the Northeastern United States are attractive because the region is generally
characterized by: (i) limited new construction due to significant barriers to
entry resulting from high construction costs, limited land availability, strict
zoning laws and extended permitting processes; (ii) a limited number of publicly
traded companies focusing on the acquisition of under-utilized, mid-priced or
subsidized multifamily communities; (iii) highly fragmented markets with many
small-to-medium sized family owned companies that own older apartment properties
in which the owners are looking to sell with minimal tax impact; and (iv) many
older apartment properties where maintenance and improvements have been deferred
and where Grove L.P. believes selective capital improvements and professional
management may create opportunities for increased rents.
When evaluating potential acquisitions, the following factors are among
those Grove L.P. considers: (i) the demographic characteristics and resident
profile of the neighborhood; (ii) the age and quality of the property; (iii) the
current and projected cash flow of the property and the ability to increase cash
flow through return-oriented capital improvements; (iv) the potential for
capital appreciation of the property; (v) the terms of 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 of and demand for properties of a similar type in the
market; and (viii) competition from existing properties and the potential for
the construction of new properties in the area.
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<PAGE>
Grove L.P.'s acquisitions of apartment communities have ranged from
single communities in the $3 million range (88 apartments) to a $105 million
portfolio that totaled 2,160 units.
REPOSITIONING AND RENOVATION. Grove L.P. evaluates, repositions and
renovates all acquired properties as appropriate. Subsidized residential
properties in the portfolio receive necessary renovations as required.
Repositioning of subsidized residential assets may occur upon partial conversion
to market rates. When pursuing an acquisition, members of Grove L.P.'s in-house
acquisitions, development and property management teams work together in
evaluating potential renovation and repositioning strategies and budgets.
Additionally, Grove L.P. reviews its portfolio to determine where opportunities
exist to make incremental capital improvements that meet its targeted annual
return on cost of 15%. Typical renovations include replacing carpets,
appliances, kitchen cabinets, counter tops, bathroom fixtures and vanities as
well as upgrading landscaping, adding fitness centers and community rooms,
repaving existing parking spaces and adding additional parking spaces.
77
<PAGE>
POLICIES WITH RESPECT TO CERTAIN ACTIVITIES
GENERAL. The following is a discussion of certain current investments, financing
and other practices of Grove L.P. These practices may be amended or revised from
time to time, except that Grove cannot change its policy of holding its assets
and conducting its business principally through Grove L.P. without the consent
of the holders of Grove L.P. units as provided in the partnership agreement of
Grove L.P.
INVESTMENT OBJECTIVES AND PRACTICES. Grove L.P.'s investment objective has
been to provide quarterly distributions of a portion of cash available for
distribution and to achieve long-term capital appreciation through increases
in cash flow from operations, reinvestment of retained cash, growth of Grove
L.P.'s property portfolio through accretive acquisitions and strategic return
oriented repositioning capital improvements. Grove L.P.'s practice is to
acquire assets primarily for generation of current income and appreciation.
Grove L.P. may purchase or lease income-producing multifamily, mixed-use or
specialty retail properties for long-term investment, expand and improve the
properties acquired, or sell such properties, in whole or in part, when
circumstances warrant. Grove L.P. has no policy as to the amount or
percentage of assets which may be invested in any specific property or
investment. Any financing or indebtedness secured by Grove L.P.'s properties
will have a priority over Grove L.P.'s unit holders in the event of a forced
sale or upon liquidation of any property in Grove's portfolio which serves as
such security.
While Grove has emphasized equity real estate investments in multifamily
properties, it may, at the discretion of the Board, invest in specialty
retail or mixed-use buildings, equity real estate investments in other types
of properties, mortgages (including participating or convertible mortgages),
stock of other REIT's and other real estate interests. Grove does not
currently intend to invest in mortgages or stock of other REIT's. The
investment by Grove or Grove L.P. in securities of other REIT's, other
concerns engaged in real estate activities or other issues is subject to the
percentage of ownership limitations and gross income tests necessary for
Grove's REIT qualification.
CAPITAL IMPROVEMENT PROGRAM. Grove L.P.'s capital improvement budget for 2000
totals $13.7 million and includes numerous improvements projects, including
but not limited to the renovation of apartment interiors and common areas,
conversion of property heating systems from electric heat to gas or oil fired
systems, additions and improvement to property amenities including adding
property club houses, fitness centers, and business centers, and replacement
of building systems including windows, exterior siding and septic systems.
Grove L.P.'s capital improvements will be funded with funds from operations,
cash on hand and Grove L.P.'s revolving credit facility.
DISPOSITION. Grove will periodically review the total assets in its
portfolio. Grove L.P. could dispose of some of its properties, based upon
Grove management's strategic review of its total portfolio.
78
<PAGE>
FINANCING PRACTICES. Grove, as general partner of Grove L.P., expects to
continue to maintain a conservative debt-to-total market capitalization ratio
of 60% or less. Such ratio represents total debt of Grove as a percentage of
the market value of Grove's common shares (assuming the exchange of all Grove
L.P. units for common shares) plus total debt of Grove. However, the
organizational documents of Grove and Grove L.P. do not limit the amount or
percentage of indebtedness that Grove or Grove L.P. may incur. In addition,
from time to time, Grove may modify its debt practice in light of changing
economic conditions, relative costs of debt and equity capital, market values
of its properties, general conditions in the market for debt and equity
securities, fluctuations in the market price of Grove's common shares, growth
and acquisition opportunities and other factors. Accordingly, Grove may
increase or decrease its debt-to-total market capitalization above or below
60%.
OTHER. Grove L.P. intends to operate in a manner that will not subject it to
regulation under the Investment Company Act of 1940. Grove L.P. does not
intend (i) to invest in the securities of other issuers for the purpose of
exercising control over such issuer; (ii) to underwrite securities of other
issuers; or (iii) to trade actively in loans or other investments.
PROPERTY MANAGEMENT
Grove L.P. manages its portfolio through its staff of professional and
support personnel, including the Chief Operating Officer of Grove and
regional property managers at the corporate level and property managers,
service technicians, leasing agents, porters and landscapers at the property
level. Accounting and administrative employees support the Chief Operating
Officer, regional property managers and on-site personnel.
The management division implements on-site management programs, accounting
systems, marketing systems and resident quality control and retention
procedures. On-site property management teams perform leasing and rent
collection functions and coordinate resident services. Grove L.P. uses
newspaper advertisements, resident referrals, apartment guides and the
Internet to market and advertise the Apartment Communities. Grove L.P.
supplements its marketing and advertising effort with point-of-purchase
materials and well-maintained properties with strong curb appeal. Grove
L.P.'s marketing personnel market the Apartment Communities on a continual
basis rather than waiting until vacancies occur. Grove L.P. does not need to
market its subsidized residential properties due to the fact these properties
have resident waiting lists.
The regional managers and accounting department personnel assist on-site
management. Regional managers monitor performance criteria at each apartment
community, and the accounting division audits and monitor each apartment
community's financial records.
Prior to entering into residential and subsidized residential leases, Grove
L.P. conducts background investigations of potential residents, including
credit checks, prior landlord references and employer verifications.
Substantially all of the apartments in the Apartment Communities are rented
pursuant to standard twelve-month leases, which
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<PAGE>
facilitate uniform lease administration by helping to standardize rent
collections, security deposit dispositions, evictions, repairs and renewals.
Grove L.P. typically requires residents to provide security deposits equal to
one month's rent. In addition, Grove L.P. manages lease expirations to ensure
that vacancies occur on a staggered basis. Such twelve month leases do not
typically give the tenant the right to renew their lease, except where
required under applicable subsidy programs, and accordingly, substantially
all of the leases, representing substantially all of the apartments and
annual rent, can turn over every twelve months. During 1997, 1998 and 1999,
Grove L.P. experienced average resident retention rates of 62%, 68% and 62%,
respectively.
Grove L.P.'s marketing and leasing procedures are designed to ensure
compliance with all federal, state and local laws and regulations.
Underwriting guidelines for prospective residents comply with The Fair
Housing Amendments Act of 1988 and Title III of the Americans with
Disabilities Act regulations and are designed to stabilize cash flows.
Approximately thirteen Apartment Communities are subsidized under various
programs administered by HUD or the Massachusetts Housing Finance Agency.
INSURANCE
Grove L.P. carries comprehensive liability, fire, flood (where required) and
extended coverage and rental loss insurance on all of its properties with
policy specifications, insured limits and deductibles customarily carried for
similar properties. In the opinion of Grove L.P.'s management, its properties
are adequately covered by insurance. There are, however, certain types of
losses which may be either uninsurable or not economically insurable, such as
those resulting from earthquakes, floods, tidal waves, explosion of water
pipes, nuclear hazards, wars, civil disturbances and environmental matters.
COMPETITION
All of the apartment communities are located in developed areas that include
other apartment communities. The number of competitive apartment properties
in a particular area could have a material effect on Grove L.P.'s ability to
(i) lease apartment units or (ii) lease apartment units at newly acquired
properties and (iii) increase the rental rates charged. There are numerous
real estate companies, including those operating in the markets in which
Grove L.P.'s properties are located, which compete with Grove L.P. in seeking
properties for acquisition and for tenants to occupy such properties. Grove
L.P. may compete with companies that have greater resources than Grove L.P.
Further, the availability of single-family housing and other forms of
multifamily residential properties, such as manufactured housing communities,
provide alternatives to existing and potential residents of apartment
communities.
MORTGAGE FINANCING
Mortgage notes payable consist of the following amounts at December 31, (amounts
in thousands):
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<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Amortizing first mortgage notes $ 117,290 $ 95,141
Interest-only first mortgage notes 63,000 67,000
--------- ---------
$ 180,290 $ 162,141
========= =========
</TABLE>
The amortizing first mortgage notes have fixed interest rates between 6.19% and
12.47%. These notes mature between the years 2000 and 2031 and are
collateralized by thirty-three properties with a carrying value of approximately
$161.8 million as of December 31, 1999. These notes are partially guaranteed by
certain executive officers and shareholders of Grove.
The interest-only first mortgage note has a principal balance of $63.0 million,
requires monthly payments of interest only at an effective fixed interest rate
of 6.71% and matures in 2008. This note is collateralized by seventeen
properties with an aggregate carrying value of approximately $85.2 million as of
December 31, 1999.
As of December 31, 1999, Grove L.P.'s weighted average interest rate on its
long-term debt is approximately 7.62% and its weighted average maturity is
approximately ten years.
Mortgage notes payable of $180.3 million include a fair value step up of $8.2
million. The contractual principal amount outstanding of mortgage notes
payable is $172.1 million. The $8.2 million step up relates to $45.0 million
of above market interest rate mortgages, which were assumed in connection
with the 1998 acquisition of twenty apartment communities in Massachusetts.
The interest rates on the assumed debt are between 7.46% and 12.47%. The step
up was computed using Grove L.P.'s estimated then current market interest
rate of 7.00%. The step up amount is not the legal stipulated principal
amount of the respective mortgage and, accordingly, this increase does not
increase the contractual obligation of Grove L.P.
On June 1, 1998, Grove L.P. obtained a $63.0 million ten-year term loan with
a lender. A portion of the proceeds from the loan was used to repay an
existing loan. Grove L.P. recognized an extraordinary loss on the early
extinguishment of debt of $0.9 million (net of $0.3 million allocated to
minority interests) as a result of the write-off of unamortized finance costs
and a termination fee associated with a swap contract related to the former
loan.
On March 15, 1999, Grove L.P. prepaid the Highland Glen mortgage note of $6.5
million. This prepayment transaction resulted in the recognition of
extraordinary income related to debt extinguishment of $0.3 million
On November 1, 1999, Grove L.P. prepaid the Abington Glen mortgage note of
approximately $2.0 million. This prepayment resulted in the recognition of
extraordinary income related to debt extinguishment of $0.1 million.
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<PAGE>
Annual principal payments due as of December 31, 1999 are as follows (in
thousands):
Year Ending December 31,
-----------------------
2000 $ 3,289
2001 3,365
2002 3,647
2003 8,005
2004 6,379
Thereafter 155,605
--------------
$ 180,290
==============
The following tables set forth (1) occupancy rates expressed as a percentage for
each of the last five years (or such lesser period that Grove L.P. owned such
apartment community), (2) the average effective annual rent per apartment unit
for each of the last five years (or such lesser period that Grove L.P. owned
such apartment community), (3) 1999 real estate taxes and applicable mill rates,
(4) amount of encumbrances against such properties, and (5) cost data used for
federal income tax basis purposes, including initial cost, subsequent
improvements and useful lives. Depreciation is claimed for buildings, building
improvements and land improvements using the straight-line method over the
estimated useful lives of the assets (10 to 30 years). Additionally, furniture,
fixtures and equipment are depreciated using an accelerated method over the
estimated useful lives of the assets (5 to 7 years).
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GROVE L.P.
1999 REAL ESTATE TAX EXPENSE & MIL RATES
<TABLE>
<CAPTION>
1999
Real Estate 1999
Property Name and State Town/City Tax Expense Mil Rate
----------------------- --------- ----------- --------
<S> <C> <C> <C>
CONNECTICUT
Arbor Commons Ellington 22,579 26.50
Avon Place Avon 140,163 22.42
Bradford Apartments Newington 56,473 27.17
Briar Knoll Apts Vernon 128,974 29.61
Brooksyde Apts West Hartford 70,309 30.05
Burgundy Studios Middletown 47,685 17.37
Cambridge Estates Norwich 69,217 25.74
Colonial Village Plainville 94,423 29.39
Summit & Birch Hill Farmington 125,990 22.80
Fox Hill Apartments Enfield 139,305 29.62
Fox Hill Commons Vernon 59,986 29.61
Greenfield Village Rocky Hill 185,803 22.03
High Meadow Ellington 80,541 26.50
Hilltop Norwich 86,767 25.74
Glastonbury Center Glastonbury 93,012 31.70
Loomis Manor West Hartford 45,836 30.05
Park Place West West Hartford 57,741 30.05
Pinney Brook Ellington N/A N/A
Parkwood East Haven 104,705 36.95
Ribbon Mill Manchester 83,989 27.07
River's Bend Windsor 489,377 22.70
Westwynd Apts West Hartford 48,317 30.05
Woodbridge Newington 64,383 27.17
MASSACHUSETTS
929 House Cambridge 89,934 15.07
Abington Grove Abington 72,565 19.10
Cedar Glen Reading 129,362 n/a
Chestnut Glen Abington 92,355 18.13
Coachlight Village Agawam 43,858 21.49
Conway Court Roslindale 15,115 n/a
Dean Estates Taunton 36,809 13.34
Four Winds Fall River 73,877 17.43
Glen Grove Wellesley 111,028 9.86
Glen Meadow Franklin 135,674 13.92
Gosnold Grove East Falmouth 14,213 11.46
Highland Glen Westwood 190,341 n/a
Longfellow Glen Sudbury 118,460 16.30
Nehoiden Glen Needham 47,457 12.88
Noonan Glen Winchester 14,217 14.64
Norton Glen Norton 124,589 15.80
Old Mill Glen Maynard 46,897 18.55
Phillips Park Wellesley 49,018 9.86
Rolling Green - Amherst Amherst N/A N/A
Rolling Green - Milford Milford N/A N/A
Rolling Green - Fall River Fall River N/A N/A
Rockingham Glen West Roxbury 116,039 N/A
Security Manor Westfield 26,945 16.40
Sturbridge Meadows Sturbridge 54,664 18.37
Summerhill Glen Maynard 83,498 N/A
Van Deene Manor West Springfield 60,990 18.22
Spring Hill Commons Acton 94,585 17.43
Webster Green Needham 43,679 12.88
Westwood Glen Westwood 164,296 N/A
Wilkins Glen Medfield 73,212 N/A
RHODE ISLAND
Dean Estates II Cranston 45,788 31.74
Royale Cranston 68,295 31.74
Tanglewood West Warwick 123,064 29.92
Winchester Park East Providence 314,839 23.05
Winchester Wood East Providence 105,660 23.05
--------------
5,076,896
==============
</TABLE>
83
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GROVE L.P.
FIVE YEAR AVERAGE OCCUPANCY RATES
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------
OCCUPANCY RATE
-------------------------------------------------------------------------------
Six Months Year Year Year Year Year
Number Ended Ended Ended Ended Ended Ended
Property Name and State Town/City of Units 6/30/00 12/31/99 12/31/98 12/31/97 12/31/96 12/31/95
-------- ------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CONNECTICUT
Arbor Commons Ellington 28 95.9% 93.5% 95.4% 96.6% 97.6% n/a
Avon Place Avon 158 98.5% 97.8% 99.0% 98.3% 99.1% n/a
Bradford Apartments Newington 64 94.2% 97.7% 94.7% 96.6% 91.6% n/a
Briar Knoll Apts Vernon 150 93.4% 94.3% 94.6% n/a n/a n/a
Brooksyde Apts West Hartford 80 98.8% 97.8% 97.6% 96.5% 94.0% n/a
Burgundy Studios Middletown 102 95.0% 96.5% 95.7% 97.2% 96.7% n/a
Cambridge Estates Norwich 92 95.8% 93.0% 91.9% 97.7% 97.4% n/a
Colonial Village Plainville 104 95.9% 95.8% 92.2% 97.1% 96.5% n/a
Summit & Birch Hill Farmington 185 99.1% 98.3% 97.5% 96.8% 96.5% n/a
Fox Hill Apartments Enfield 168 96.4% 97.5% 96.2% 93.9% 96.5% n/a
Fox Hill Commons Vernon 74 97.3% 95.7% 94.6% 94.5% 97.1% n/a
Greenfield Village Rocky Hill 150 91.8% 93.9% 92.9% n/a n/a n/a
High Meadow Ellington 100 97.7% 96.5% 95.4% 93.4% 90.0% n/a
Hilltop Norwich 120 92.7% 95.1% 88.4% n/a n/a n/a
Glastonbury Center Glastonbury 104 92.0% 95.4% 96.7% 90.8% 95.6% n/a
Loomis Manor West Hartford 43 98.5% 96.9% 94.8% 99.5% 100.0% n/a
Park Place West West Hartford 63 99.5% 94.9% 95.6% 97.5% 97.9% n/a
Pinney Brook Ellington 34 n/a n/a n/a n/a n/a n/a
Parkwood East Haven 102 97.0% 98.4% 96.6% n/a n/a n/a
Ribbon Mill Manchester 104 99.1% 94.6% 94.4% n/a n/a n/a
River's Bend Windsor 368 96.7% 97.0% 97.4% 96.0% 95.3% n/a
Westwynd Apts West Hartford 46 97.6% 98.2% 95.7% 97.2% 95.2% n/a
Woodbridge Newington 73 98.0% 94.8% 97.0% 99.2% 94.7% n/a
MASSACHUSETTS
929 House (3) Cambridge 127 98.8% 97.6% 98.8% n/a n/a n/a
Abington Grove Abington 90 97.9% 97.2% 92.8% n/a n/a n/a
Cedar Glen (6) Reading 114 98.0% 99.1% 99.7% n/a n/a n/a
Chestnut Glen (6) Abington 130 97.8% 97.9% 98.2% n/a n/a n/a
Coachlight Village Agawam 88 99.3% 98.6% 97.4% n/a n/a n/a
Conway Court (6) Roslindale 28 95.7% 100.8% 91.5% n/a n/a n/a
Dean Estates Taunton 58 97.5% 97.9% 96.1% 97.5% 94.9% n/a
Four Winds Fall River 168 97.0% 97.4% 95.3% 95.2% 90.5% n/a
Glen Grove (6) Wellesley 125 99.3% 98.7% 99.4% n/a n/a n/a
Glen Meadow Franklin 288 98.6% 90.9% 93.9% n/a n/a n/a
Gosnold Grove (6) East Falmouth 33 96.1% 92.3% 96.8% n/a n/a n/a
Highland Glen (6) Westwood 180 99.2% 98.2% n/a n/a n/a n/a
Longfellow Glen (6) Sudbury 120 95.1% 95.4% 95.8% n/a n/a n/a
Nehoiden Glen (6) Needham 61 99.9% 98.9% 99.0% n/a n/a n/a
Noonan Glen (6) Winchester 18 99.4% 98.7% 99.0% n/a n/a n/a
Norton Glen (6) Norton 150 98.4% 98.4% 93.2% n/a n/a n/a
Old Mill Glen (6) Maynard 50 91.8% 96.9% 92.7% n/a n/a n/a
Phillips Park Wellesley 49 90.1% 96.9% 102.5% n/a n/a n/a
Rolling Green - Amherst (4) (5) Amherst 204 92.8% n/a n/a n/a n/a n/a
Rolling Green - Milford (4) (5) Milford 304 100.3% n/a n/a n/a n/a n/a
Rolling Green - Fall River (4) (5) Fall River 404 91.7% n/a n/a n/a n/a n/a
Rockingham Glen West Roxbury 143 95.1% 97.8% 96.1% n/a n/a n/a
Security Manor Westfield 63 99.3% 99.5% 99.0% 99.8% 99.1% n/a
Sturbridge Meadows Sturbridge 104 96.5% 94.0% 93.5% n/a n/a n/a
Summerhill Glen (6) Maynard 120 99.4% 94.1% 94.8% n/a n/a n/a
Van Deene Manor (3) West Springfield 109 98.4% 97.9% 96.8% 99.3% 98.5% n/a
Spring Hill Commons Acton 123 97.8% 98.2% 95.1% n/a n/a n/a
Webster Green Needham 76 94.6% 96.3% 100.8% n/a n/a n/a
Westwood Glen Westwood 156 90.9% 92.1% 94.2% n/a n/a n/a
Wilkins Glen (6) Medfield 102 103.7% 97.2% 104.5% n/a n/a n/a
RHODE ISLAND
Dean Estates II Cranston 48 100.5% 98.8% 96.9% 96.5% 93.5% n/a
Royale Cranston 76 99.2% 97.7% 97.4% 91.7% 96.9% n/a
Tanglewood West Warwick 176 97.7% 97.4% 96.3% n/a n/a n/a
Winchester Park East Providence 416 98.9% 96.6% 94.5% n/a n/a n/a
Winchester Wood East Providence 62 97.2% 98.7% 98.2% n/a n/a n/a
----------
7,075
==========
</TABLE>
84
<PAGE>
GROVE L.P.
FIVE YEAR AVERAGE RENTAL RATES
<TABLE>
<CAPTION>
--------------------------------------------------------------------
AVERAGE MONTHLY RENTAL RATE PER APARTMENT
--------------------------------------------------------------------
Six Months Year Year Year Year Year
Number Ended Ended Ended Ended Ended Ended
Property Name and State Town/City of Units 6/30/00 12/31/99 12/31/98 12/31/97 12/31/96 12/31/95
-------- ------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CONNECTICUT
Arbor Commons Ellington 28 $ 742 $ 729 $ 713 $ 695 $ 686 n/a
Avon Place Avon 158 998 963 914 867 845 n/a
Bradford Apartments Newington 64 758 736 714 696 686 n/a
Briar Knoll Apts Vernon 150 745 706 645 n/a n/a n/a
Brooksyde Apts West Hartford 80 792 767 727 684 643 n/a
Burgundy Studios Middletown 102 481 465 446 436 430 n/a
Cambridge Estates Norwich 92 795 777 756 737 715 n/a
Colonial Village Plainville 104 822 811 780 747 726 n/a
Summit & Birch Hill Farmington 185 870 847 823 785 745 n/a
Fox Hill Apartments Enfield 168 710 695 684 667 642 n/a
Fox Hill Commons Vernon 74 788 767 736 710 692 n/a
Greenfield Village Rocky Hill 150 752 721 690 n/a n/a n/a
High Meadow Ellington 100 639 625 599 595 580 n/a
Hilltop Norwich 120 720 703 661 n/a n/a n/a
Glastonbury Center Glastonbury 104 903 879 832 801 773 n/a
Loomis Manor West Hartford 43 941 915 882 848 826 n/a
Park Place West West Hartford 63 736 706 687 671 656 n/a
Pinney Brook Ellington 34 n/a n/a n/a n/a n/a n/a
Parkwood East Haven 102 665 645 620 n/a n/a n/a
Ribbon Mill Manchester 104 831 799 681 n/a n/a n/a
River's Bend Windsor 368 841 812 778 752 714 n/a
Westwynd Apts West Hartford 46 705 688 673 659 648 n/a
Woodbridge Newington 73 781 762 741 724 712 n/a
MASSACHUSETTS
929 House (3) Cambridge 127 1,338 1,190 1,075 n/a n/a n/a
Abington Grove Abington 90 733 713 686 n/a n/a n/a
Cedar Glen (6) Reading 114 1,052 1,038 1,023 n/a n/a n/a
Chestnut Glen (6) Abington 130 1,088 1,056 1,051 n/a n/a n/a
Coachlight Village Agawam 88 584 573 556 n/a n/a n/a
Conway Court (6) Roslindale 28 451 452 449 n/a n/a n/a
Dean Estates Taunton 58 748 722 705 687 668 n/a
Four Winds Fall River 168 779 745 725 692 627 n/a
Glen Grove (6) Wellesley 125 1,080 1,054 1,043 n/a n/a n/a
Glen Meadow Franklin 288 709 651 464 n/a n/a n/a
Gosnold Grove (6) East Falmouth 33 854 835 843 n/a n/a n/a
Highland Glen (6) Westwood 180 840 841 n/a n/a n/a n/a
Longfellow Glen (6) Sudbury 120 1,169 1,164 1,130 n/a n/a n/a
Nehoiden Glen (6) Needham 61 1,088 1,060 1,048 n/a n/a n/a
Noonan Glen (6) Winchester 18 1,070 1,057 1,022 n/a n/a n/a
Norton Glen (6) Norton 150 1,096 1,073 1,055 n/a n/a n/a
Old Mill Glen (6) Maynard 50 1,203 1,218 1,215 n/a n/a n/a
Phillips Park Wellesley 49 1,433 1,378 1,351 n/a n/a n/a
Rolling Green - Amherst (4) (5) Amherst 204 805 n/a n/a n/a n/a n/a
Rolling Green - Milford (4) (5) Milford 304 827 n/a n/a n/a n/a n/a
Rolling Green - Fall River (4) (5) Fall River 404 738 n/a n/a n/a n/a n/a
Rockingham Glen West Roxbury 143 928 921 933 n/a n/a n/a
Security Manor Westfield 63 630 617 601 584 576 n/a
Sturbridge Meadows Sturbridge 104 705 677 609 n/a n/a n/a
Summerhill Glen (6) Maynard 120 426 425 426 n/a n/a n/a
Van Deene Manor (3) West Springfield 109 653 652 634 618 609 n/a
Spring Hill Commons Acton 123 859 823 777 n/a n/a n/a
Webster Green Needham 76 1,372 1,329 1,308 n/a n/a n/a
Westwood Glen Westwood 156 986 971 1,020 n/a n/a n/a
Wilkins Glen (6) Medfield 102 552 551 547 n/a n/a n/a
RHODE ISLAND
Dean Estates II Cranston 48 754 731 714 701 687 n/a
Royale Cranston 76 770 745 724 700 684 n/a
Tanglewood West Warwick 176 712 682 647 n/a n/a n/a
Winchester Park East Providence 416 669 609 558 n/a n/a n/a
Winchester Wood East Providence 62 1,038 976 934 n/a n/a n/a
-------------
7,075
=============
</TABLE>
85
<PAGE>
GROVE PROPERTY DESCRIPTION
The following sets forth information regarding Grove L.P.'s apartment
communities.
<TABLE>
<CAPTION>
Average Monthly
Average Average Economic Rental
Sq. Ft. Occupancy Rate (1) Rate Per Unit (2)
Per Unit -------------------- ----------------------
as of Year Six Months Year Six Months
Number Year Year June 30, Ended Ended Ended Ended
Property Town/City of Units Built Renovated 2000 12/31/99 6/30/00 12/31/99 6/30/99
-------- --------- -------- ----- --------- -------- -------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CONNECTICUT
Arbor Commons Ellington 28 1975 1988 780 93.5% 95.9% 729 742
Avon Place Avon 158 1973 1995 1,448 97.8% 98.5% 963 998
Bradford Apartments Newington 64 1964 1989 894 97.7% 94.2% 736 758
Briar Knoll Apts Vernon 150 1986 1999 867 94.3% 93.4% 706 745
Brooksyde Apts West Hartford 80 1945 1997 800 97.8% 98.8% 767 792
Burgundy Studios Middletown 102 1973 1996 443 96.5% 95.0% 465 481
Cambridge Estates Norwich 92 1977 1990 939 93.0% 95.8% 777 795
Colonial Village Plainville 104 1968 1989 981 95.8% 95.9% 811 822
Summit & Birch Hill Farmington 185 1967 1996 937 98.3% 99.1% 847 870
Fox Hill Apartments Enfield 168 1974 1991 796 97.5% 96.4% 695 710
Fox Hill Commons Vernon 74 1965 1989 849 95.7% 97.3% 767 788
Greenfield Village Rocky Hill 150 1965 1997 735 93.9% 91.8% 721 752
High Meadow Ellington 100 1975 1999 691 96.5% 97.7% 625 639
Hilltop Norwich 120 1987 1999 986 95.1% 92.7% 703 720
Glastonbury Center Glastonbury 104 1962 1989 961 95.4% 92.0% 879 903
Loomis Manor West Hartford 43 1948 1990 1,138 96.9% 98.5% 915 941
Park Place West West Hartford 63 1961 1989 861 94.9% 99.5% 706 736
Pinney Brook Ellington 34 1968 1999 882 n/a n/a n/a n/a
Parkwood East Haven 102 1975 1999 857 98.4% 97.0% 645 665
Ribbon Mill Manchester 104 1908 1999 1,221 94.6% 99.1% 799 831
River's Bend Windsor 368 1973 1996 1,038 97.0% 96.7% 812 841
Westwynd Apts West Hartford 46 1969 1990 901 98.2% 97.6% 688 705
Woodbridge Newington 73 1968 1991 792 94.8% 98.0% 762 781
MASSACHUSETTS
929 House (3) Cambridge 127 1975 n/a 752 97.6% 98.8% 1,190 1,338
Abington Grove Abington 90 1968 1999 867 97.2% 97.9% 713 733
Cedar Glen (6) Reading 114 1980 n/a 931 99.1% 98.0% 1,038 1,052
Chestnut Glen (6) Abington 130 1983 n/a 1,192 97.9% 97.8% 1,056 1,088
Coachlight Village Agawam 88 1967 1994 655 98.6% 99.3% 573 584
Conway Court (6) Roslindale 28 1920 n/a 839 100.8% 95.7% 452 451
Dean Estates Taunton 58 1984 n/a 1,014 97.9% 97.5% 722 748
Four Winds Fall River 168 1987 1996 1,089 97.4% 97.0% 745 779
Glen Grove (6) Wellesley 125 1979 n/a 1,294 98.7% 99.3% 1,054 1,080
Glen Meadow Franklin 288 1971 1999 1,017 90.9% 98.6% 651 709
Gosnold Grove (6) East Falmouth 33 1978 n/a 796 92.3% 96.1% 835 854
Highland Glen (6) Westwood 180 1979 n/a 1,250 98.2% 99.2% 841 840
Longfellow Glen (6) Sudbury 120 1984 n/a 905 95.4% 95.1% 1,164 1,169
Nehoiden Glen (6) Needham 61 1978 n/a 951 98.9% 99.9% 1,060 1,088
Noonan Glen (6) Winchester 18 1983 n/a 997 98.7% 99.4% 1,057 1,070
Norton Glen (6) Norton 150 1983 1999 1,100 98.4% 98.4% 1,073 1,096
Old Mill Glen (6) Maynard 50 1983 n/a 1,120 96.9% 91.8% 1,218 1,203
Phillips Park Wellesley 49 1988 n/a 1,245 96.9% 90.1% 1,378 1,433
Rolling Green - Amherst 204 1970 n/a 979 n/a 92.8% n/a 805
Amherst (4)(5)
Rolling Green - Milford 304 1972 n/a 1,473 n/a 100.3% n/a 827
Milford (4)(5)
Rolling Green - Fall River 404 1971 n/a 1,483 n/a 91.7% n/a 738
Fall River (4)(5)
Rockingham Glen West Roxbury 143 1974 n/a 1,480 97.8% 95.1% 921 928
Security Manor Westfield 63 1971 1988 1,150 99.5% 99.3% 617 630
Sturbridge Meadows Sturbridge 104 1985 1998 1,208 94.0% 96.5% 677 705
Summerhill Glen (6) Maynard 120 1980 n/a 801 94.1% 99.4% 425 426
Van Deene Manor (3) West 109 1970 1990 664 97.9% 98.4% 652 653
Springfield
Spring Hill Commons Acton 123 1973 1998 732 98.2% 97.8% 823 859
Webster Green Needham 76 1985 n/a 1,342 96.3% 94.6% 1,329 1,372
Westwood Glen Westwood 156 1972 n/a 817 92.1% 90.9% 971 986
86
<PAGE>
Wilkins Glen (6) Medfield 102 1975 n/a 1,249 97.2% 103.7% 551 552
RHODE ISLAND
Dean Estates II Cranston 48 1970 1994 1,170 98.8% 100.5% 731 754
Royale Cranston 76 1976 1993 1,151 97.7% 99.2% 745 770
Tanglewood West Warwick 176 1973 1998 1,042 97.4% 97.7% 682 712
Winchester Park East Providence 416 1972 1998 881 96.6% 98.9% 609 669
Winchester Wood East Providence 62 1989 1998 1,330 98.7% 97.2% 976 1,038
----- ----------------------------------------------------
Total/Weighted Average 7,075 1,029 96.6% 96.8% $798 $ 820
----- ----------------------------------------------------
----- ----------------------------------------------------
Same Community Weighted
Average (4) 96.6% 97.6% $798 $ 829
------------------------------------------
------------------------------------------
</TABLE>
(1) Average economic occupancy rate is derived by dividing; actual collected
rental income by gross potential rental income. Gross potential rental
income includes vacancy losses and bad debt, but does not include model
expenses or employee concessions or discounts.
(2) Average monthly rental rate per unit is derived by dividing actual collected
rental income by total number of leasable units. The following Apartment
Communities contain additional space which is rented to commercial tenants:
Apartment Communities Commercial Sq. Ft.
--------------------- ------------------
929 House 11,585
Van Deene Manor 1,630
------
Total 13,215
------
------
(4) The same community weighted average amounts represent the average occupancy
and rental rates for the 55 Apartment Communities owned by Grove or its
affiliated predecessors for the years 1999 and 2000. Three properties were
purchased by Grove or its affiliated predecessors during or subsequent to
such period and have been excluded from the same community amounts. The
following sets forth the acquisition dates for such excluded Apartment
Communities:
Apartment Communities Acquisition Date
--------------------- ----------------
Rolling Green - Amherst June-00
Rolling Green - Milford June-00
Rolling Green - Fall River June-00
(5) These three properties were purchased from non-affiliated parties in 2000,
as noted in note 4 above. Information on these properties is not available
for the entirety of the periods covered in the above table.
(6) These thirteen properties are subsidized residential properties.
87
<PAGE>
COMPARISON OF RIGHTS OF THE UNITHOLDERS
At the time the partnership merger becomes effective, Grove L.P.
unitholders who elect to receive ERP units will become ERP limited partners. The
rights of Grove L.P. limited partners are presently governed by the agreement of
limited partnership of Grove L.P. and the Delaware Revised Uniform Limited
Partnership Act ("DRULPA"). The rights of ERP's limited partners are presently
governed by the ERP partnership agreement and the Illinois Revised Uniform
Limited Partnership Act ("IRULPA"). Upon approval of the partnership merger by
the Grove L.P. unitholders and at the time the partnership merger becomes
effective, the ERP partnership agreement will remain in full force and effect.
Upon exchange of the Grove L.P. units, the rights of the former Grove L.P.
unitholders will be governed by the ERP partnership agreement. Rights of the ERP
limited partners will remain the same after the merger is complete.
The following discussion summarizes the significant differences between
the rights of Grove L.P. limited partners and ERP limited partners. This summary
is not complete. It is recommended, therefore, that the agreement of limited
partnership for Grove L.P. and the ERP partnership agreement be referred to and
read in their entirety.
ISSUANCE OF OTHER UNITS
GROVE L.P. AGREEMENT OF LIMITED PARTNERSHIP
Under the Grove L.P. partnership agreement, Grove may raise all or any
portion of funds by accepting capital contributions, including the issuance of
partnership units for interests in real property. Grove is authorized to cause
Grove L.P. to issue to partners or other individuals additional partnership
units in one more classes or series of units.
In its sole discretion, Grove may determine any special rights, powers,
and duties of the issued partnership units including:
- allocation of income, gain, loss, deduction and credit;
- the right to share in distributions;
- liquidation and dissolution rights; and
- the right to vote.
ERP PARTNERSHIP AGREEMENT
Under the ERP partnership agreement, EQR may cause ERP to issue
additional units as follows:
88
<PAGE>
- ERP units to EQR when EQR issues additional EQR common shares,
other than in exchange of ERP units, and the contribution of
the nets proceeds from the additional issuance is a capital
contribution to ERP. However, EQR may issue common shares in
connection with share option plans without receiving proceeds
and EQR can still receive the additional ERP units;
- ERP units to the partners that hold preference units that may
be converted to ERP units;
- ERP units to limited partners holding ERP units to the extent
of the limited partner's participation in any reinvestment
program;
- Preference units to EQR when EQR issues securities other than
common shares and the net proceeds are contributed to ERP as a
capital contribution; and
- ERP units and preference units, as EQR may determine, to
newly-admitted partners in exchange for the contribution by a
limited partner of additional capital to ERP.
OPTION PLANS
GROVE L.P. AGREEMENT OF LIMITED PARTNERSHIP
The Grove L.P. partnership agreement provides that Grove is authorized
to sell or issue common shares pursuant to any stock incentive, stock option,
stock ownership or employee benefits plan of Grove. At such time, Grove will
contribute proceeds resulting from the sale or issuance as an additional
contribution to Grove L.P. and will receive the same number of additional units
as the number of common shares sold or issued.
ERP PARTNERSHIP AGREEMENT
The ERP partnership agreement provides that EQR may cause ERP to issue
ERP units to EQR when EQR issues additional common shares, other than in
exchange for ERP units, and the contributions of the net proceeds as a capital
contribution to ERP. However, EQR may issue EQR common shares in connection with
share option plans without receiving any proceeds and EQR may still receive the
additional ERP units.
INDEMNIFICATION
GROVE L.P. AGREEMENT OF LIMITED PARTNERSHIP
The Grove L.P. partnership agreement provides that Grove L.P. will
indemnify Grove as a general partner, or any officer of Grove L.P. or Grove and
certain other individuals from and against all losses, claims, damages,
liabilities, joint or several, legal
89
<PAGE>
fees and other expenses, judgments, fines, settlements and other amounts
arising from proceedings, whether civil, criminal, administrative or
investigative that relate to Grove L.P. operations in which such individuals
are involved unless:
- the act or omission was material enough to give rise to the
proceeding and was committed in bad faith or was the result of
active and deliberate dishonesty;
- the individuals actually received an improper personal benefit
in the form of money, property or services; or
- in the case of a criminal proceeding, the individual had
reasonable cause to believe that the act or omission was
unlawful.
Any indemnification must be made only out of the assets of Grove L.P.
limited partners are not subject to personal liability by reason of the
indemnification provision.
ERP PARTNERSHIP AGREEMENT
The ERP partnership agreement contains a similar provision.
FINANCIAL STATEMENTS AND REPORTS
GROVE L.P. AGREEMENT OF LIMITED PARTNERSHIP
Under the Grove L.P. partnership agreement, Grove will keep or cause
Grove L.P. to keep at Grove L.P.'s principal office all books and records
pertaining to Grove L.P.'s business, including those books and records necessary
to provided limited partners with information they request.
Grove is required to cause Grove L.P. to prepare and mail to each
limited partner at the close of the partnership year, an annual report
containing financial statements. The Grove L.P. partnership agreement does not
require or provide for the distribution of quarterly financial information to
the partners.
ERP PARTNERSHIP AGREEMENT
Under the ERP partnership agreement, EQR is required to cause ERP to
prepare and distribute to the ERP partners annual financial data sufficient to
reflect the status and operations of ERP and its assets and to enable each
partner to file its federal income tax return. The ERP partnership agreement
does not require or provide for the distribution of quarterly financial
information to the partners.
90
<PAGE>
MERGERS
GROVE L.P.
DRULPA provides that limited partnerships may enter into mergers,
consolidations or similar transactions with other limited partnerships and
business entities.
ERP
IRULPA provides that limited partnerships may merge with limited
liability companies or limited partnerships.
TRANSFER OF UNITS
GROVE L.P. AGREEMENT OF LIMITED PARTNERSHIP
Under the Grove L.P. partnership agreement, no limited partner may
assign, sell, give, pledge or otherwise transfer all or any portion of his Grove
L.P. interest without the consent of Grove except to:
- transfer an interest to Grove;
- transfer to an affiliate, another original limited partner
or to a member of the limited partner's immediate family;
- transfer to a trust for the benefit of a charitable
foundation; and
- pledge to a lending institution, which is not an affiliate of
the limited partner, as collateral or security for a bona fide
loan or other extension or credit.
Grove has a first right of refusal to purchase the transferring
interest. The transferring limited partner must give written notice of the
proposed transfer to Grove. Grove has 10 days to elect to acquire the
partnership interest being transferred. If Grove does not elect to acquire the
partnership interest, the transferring limited partner may transfer the interest
to a third party.
Any transfer of a partnership interest must be made only to qualified
investors. Grove may prohibit any transfer if in Grove's opinion the transfer
would require any filings with the SEC, if a transfer would cause Grove L.P. to
be taxed as a corporation, or in the case of a transfer to a Grove L.P. lender
whose loan constitutes a non-recourse liability.
A limited partner may not substitute a transferee as a limited partner
in his place.
91
<PAGE>
ERP PARTNERSHIP AGREEMENT
Under the ERP partnership agreement, no limited partner may sell,
assign, distribute or otherwise transfer all or any portion of his ERP interest
without the consent of EQR except:
- by operation of law, testamentary disposition, outright gift
or a gift in trust, or by sale to or for the benefit of his
parent(s), spouse or descendents;
- pledges or other collateral transfers effected by a limited
partner to secure the repayment of a loan or other obligation
provided the pledgee agrees in writing to subordinate his
rights with the pledge interest to ERP and to defer the
exercise of its rights as a secured creditor under certain
situations;
- the exchange of preference units for ERP units or EQR common
shares or the exchange of ERP units for EQR common shares; and
- the distribution of ERP units or preference units by a limited
partner to any of its direct or indirect constituent partners
or owners.
The ERP partnership agreement also provides that EQR reserves the
right to require an opinion of counsel regarding such matters as EQR may
determine as a condition to any transfer. ERP limited partners must notify EQR
of any transfer of beneficial interest or other interest which occurs without a
transfer of record ownership and any pledge or collateral transfer. No part of a
limited partner's interest may be subject to the claims of any creditor, spouse
for alimony or support, or to legal process, and may not be voluntarily
alienated or encumbered except as is allowed by the ERP partnership agreement.
REDEMPTION/EXCHANGE OF PARTNERSHIP INTERESTS FOR COMMON SHARES
GROVE L.P. AGREEMENT OF LIMITED PARTNERSHIP
Under the Grove L.P. partnership agreement, a limited partner has the
right to require Grove L.P. to redeem all or a portion of its partnership
interest in exchange for cash so long as such interest has been held for at
least one year. Grove may, in its sole discretion, elect to acquire some or all
of redeeming limited partner's units in exchange for Grove common shares. Grove
common shares are listed on the American Stock Exchange under the symbol "GVE."
Upon issue, Grove common shares are duly authorized, validly issued, fully paid
and nonassessable. A limited partner receiving Grove common shares in exchange
for Grove L.P. units has all rights to vote and receive dividends.
ERP PARTNERSHIP AGREEMENT
Under the ERP partnership agreement, the ERP unitholders may request an
exchange of their ERP units for EQR common shares, on a one-for-one basis with
at least 10 days written notice to EQR. EQR may, instead of issuing EQR common
shares, cause
92
<PAGE>
ERP to pay the limited partner the cash equivalent instead. EQR common shares
are listed on the New York Stock Exchange under the symbol "EQR." EQR
shareholders may offer their common shares through public or private
transactions, on or off the New York Stock Exchange, at prevailing market
prices or at privately negotiated prices. Shareholders may sell their EQR
common shares directly or through agents or broker-dealers acting as
principal or agent, or in a distribution by underwriters.
AMENDMENT TO PARTNERSHIP AGREEMENT
GROVE L.P. AGREEMENT OF LIMITED PARTNERSHIP
Under the Grove L.P. partnership agreement, Grove has the exclusive
power to amend the agreement in order to:
- add to Grove's obligations under the agreement or to give up
any right or power granted to it;
- issue additional partnership interests;
- make an inconsequential change to the agreement that does not
adversely affect the limited partners in any material respect;
- make any changes to cure any ambiguity in the agreement;
- to satisfy any requirements or order of a federal or state
agency;
- to make changes reasonably necessary to maintain REIT status;
or
- to modify the manner in which capital accounts are computed.
Grove may not amend the partnership agreement without the limited
partners' consent if the action or amendment would:
- convert the limited partners' limited partnership interest
into a general partnership interest;
- modify the limited liability of the limited partners;
- affect the limited partners' rights to receive
distributions; or
- materially alter or modify the rights to a redemption.
93
<PAGE>
ERP PARTNERSHIP AGREEMENT
Under the ERP partnership agreement, the Chairman of the Board of EQR
is empowered to amend the ERP partnership agreement without the consent of the
limited partners, except to:
(i) modify the allocation of profits, losses or distributions
among the partners, except as allowed in the ERP partnership
agreement and as required by law;
(ii) amend the following sections of the ERP partnership agreement:
"Partnership", "Issuance and Conversion of Units",
"Limitations on Powers and Authorities of Partners" or
"Transfer of Partnership Units;"
(iii) enlarge the obligation of any partner to make contributions to
the capital of ERP; or
(iv) amend the "Amendment of Agreement" section of the ERP
partnership agreement.
The amendments referenced in items (i) and (ii) above to the ERP
partnership agreement may be amended with the written consent of EQR and certain
affiliates of Mr. Zell and other specified partners or their successors in
interest as long as they remain partners of ERP, and by the holders of not less
than 67% of the aggregate partnership interest held by all limited partners.
With respect to amendments referenced in items (iii) and (iv) above, the ERP
partnership agreement may only be amended with the written consent of all
partners.
TRANSACTIONS AND RELATED DISPOSITIONS
GROVE L.P. AGREEMENT OF LIMITED PARTNERSHIP
Grove is authorized to:
- acquire, dispose, mortgage, pledge, encumber or otherwise
exchange any Grove L.P. assets; and
- merge or cause to be formed other combinations of Grove L.P.
with and into another entity.
ERP PARTNERSHIP AGREEMENT
EQR is authorized to acquire any assets and encumber, sell, ground
lease or deposit any or all of ERP assets.
94
<PAGE>
MEETINGS
GROVE L.P. AGREEMENT OF LIMITED PARTNERSHIP
Meetings of the partners may be called at any time by Grove and must be
called by Grove when it receives the written request of 25% or more of the
partnership interest of the limited partners. Notice of not less than 7 days and
not more than 30 days prior to the meeting date is required. Meetings are
conducted by Grove or its designee.
Meetings may be waived so long as a written consent to waive the
meeting is signed by 25% or more of the partnership interests of the limited
partners.
ERP PARTNERSHIP AGREEMENT
The ERP partnership agreement does not contain a provision relating to
meetings of the partners.
DEFICIT RESTORATION OBLIGATION
GROVE L.P. AGREEMENT OF LIMITED PARTNERSHIP
If a Grove L.P. limited partner has a deficit balance in its capital
account, such limited partner must contribute that deficit balance to Grove L.P.
up to a specified amount, as defined in the Grove L.P. agreement of limited
partnership, within 90 days after liquidation and dissolution of Grove L.P.
ERP PARTNERSHIP AGREEMENT
If an ERP limited partner has a deficit balance in its capital account,
such limited partner is obligated to contribute the entire deficit balance to
ERP within 90 days following liquidation and dissolution of ERP. Grove L.P.
limited partners exchanging Grove L.P. units for ERP units must restore any
Grove L.P. deficit into ERP's capital; however, the deficit is required to be
restored only up to the amount specified under the Grove L.P. agreement of
limited partnership.
95
<PAGE>
PRINCIPAL UNITHOLDERS OF GROVE L.P.
The following table sets forth the ownership of Grove L.P. units as of
July 17, 2000 for (i) the Chief Executive Officer and each of the four other
most highly compensated executive officers of Grove, (ii) each trust manager of
Grove, (iii) each person whom Grove L.P. believes is a holder of Grove L.P.
units exceeding a 5% interest in Grove L.P. and (iv) the trust managers and
executive officers of Grove, as a group. All of such units are owned directly,
and the indicated person or entity has sole voting and disposition power. Grove
L.P. has no directors, trust managers or trustees.
<TABLE>
<CAPTION>
NAME AND BUSINESS ADDRESS OF OWNER (1) GROVE L.P. UNITS OWNED PERCENT OF GROVE L.P. UNITS
-------------------------------------- ---------------------- ---------------------------
<S> <C> <C>
Grove Property Trust 8,301,604 68.1%
Damon D. Navarro 331,337 2.7%
Brian D. Navarro 323,784 2.7%
Edmund F. Navarro 280,357 2.3%
Joseph R. LaBrosse 76,833 ---
J. Timothy Morris --- ---
James F. Twaddell --- ---
Harold V. Gorman --- ---
J. Joseph Garrahy --- ---
Gerald A. McNamara 31,751 ---
Munawar A. Cheema --- ---
Keith W. Munsell --- ---
All executives and trust managers as a group 1,044,062 8.6%
(11 persons)
</TABLE>
------------------
(1) Each person has a business address of c/o Grove L.P., 598 Asylum Ave.,
Hartford, Connecticut 06105.
96
<PAGE>
PRINCIPAL SHAREHOLDERS OF GROVE
SECURITY OWNERSHIP OF TRUST MANAGERS AND EXECUTIVE OFFICERS
The following table sets forth information as of the record date for
the special meeting regarding the beneficial ownership of Grove common shares by
each trust manager and each executive officers, and by all trust managers and
executive officers as a group. Each person named in the table has the sole
voting and investment power with respect to all shares shown as beneficially
owned by such person, except as otherwise set forth in the notes to the table.
For purposes of this table, a person is deemed to be the beneficial owner of a
security if that person has the option to acquire beneficial ownership of Grove
common shares within sixty (60) days of exercising such option. Accordingly, the
following table only reflects vested options to acquire Grove common shares, as
well as the number of Grove L.P. units owned by such person which are redeemable
with either cash or Grove common shares. For information relating to both vested
and unvested options held by certain persons in Grove, see "Interests of Certain
Persons in the Transactions."
<TABLE>
<CAPTION>
NAME OF BENEFICIAL NUMBER OF COMMON PERCENTAGE OF COMMON
OWNER (1) SHARES SHARES
------------------ ---------------- --------------------
<S> <C> <C>
Damon D. Navarro 247,060 (2) 8.6%
Joseph R. LaBrosse 307,856 (3) 3.7%
Edmund F. Navarro 685,894 (4) 7.9%
J. Timothy Morris 1,700,766 (5) 20.6%
James F. Twaddell 45,773 (6) *
Harold V. Gorman 14,725 (7) *
J. Joseph Garrahy 17,224 (8) *
Brian A. Navarro 707,406 (9) 8.1%
Gerald A. McNamara 134,766 (10) 1.6%
Munawar A. Cheema 98,863 (11) 1.2%
Keith W. Munsell 5,000 (12) *
Trust Managers and Named
Executive Officers as a Group (11
Persons) 4,470,039 (13) 41.5%
</TABLE>
--------------------
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<PAGE>
* Less than 1%
(1) Each person listed has a business address c/o Grove, 598 Asylum Avenue,
Hartford, Connecticut 06105.
(2) Includes 331,337 common shares which might be acquired by Mr. Navarro
upon redemption of an equal number of Grove L.P. units and 173,369 common shares
which could be acquired within 60 days upon exercise of options.
(3) Includes 76,833 common shares which might be acquired by Mr. LaBrosse
upon redemption of an equal number of Grove L.P. units and 109,294 common shares
which could be acquired within 60 days upon exercise of options.
(4) Includes 280,357 common shares which might be acquired by Mr. Navarro
upon redemption of an equal number of Grove L.P. units and 171,969 common shares
which could be acquired within 60 days upon exercise of options.
(5) Represents the common shares which are owned by entities managed by
Morgan Stanley or an affiliate of Morgan Stanley as to which Mr. Morris has
shared voting and investment power, and 10,000 common shares which could be
acquired within 60 days upon exercise of options.
(6) Includes 12,500 common shares which could be acquired by Mr. Twaddell
within 60 days upon exercise of options.
(7) Includes common shares which could be acquired by Mr. Gorman within 60
days upon exercise of options.
(8) Includes 12,362 common shares which could be acquired by Mr. Garrahy
within 60 days upon exercise of options.
(9) Includes 323,784 common shares which might be acquired by Mr. Navarro
upon redemption of an equal number of Grove L.P. units and 171,969 common shares
which could be acquired within 60 days upon exercise of options.
(10) Includes 40,750 common shares which might be acquired by Mr. McNamara
upon redemption of an equal number of Grove L.P. units and 54,344 common shares
which could be acquired within 60 days upon exercise of options.
(11) Includes 41,667 common shares which could be acquired by Mr. Cheema within
60 days upon exercise of options.
(12) Includes common shares which could be acquired by Mr. Munsell within 60
days upon exercise of options.
(13) Includes 1,053,062 common shares which might be acquired upon redemption of
an equal number of Grove L.P. units and 777,199 common shares which could be
acquired within 60 days upon exercise of options.
LITIGATION
Grove and each of its trust managers were named as defendants in an
action commenced on July 18, 2000 by the filing of a class action complaint by
The Taylor Family Trust. The suit, which was filed in the Circuit Court of
Maryland for Baltimore City, purports to be a class action.
The complaint refers to the proposed mergers and the proposed transfer
of Grove's retail properties to certain of the executive officers of Grove.
These transactions are described in detail elsewhere in this proxy statement.
The complaint alleges that each of Grove's trust managers breached his
fiduciary duty to the holders of Grove common shares by, among other things,
approving and entering into the retail agreement, pursuant to which the retail
properties are proposed to be transferred.
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The remedies sought include an injunction enjoining Grove and its trust
managers from proceeding with the closing of the transactions contemplated by
the merger agreement, rescission of the transactions if they consummated, the
award of rescissory damages, an accounting by the defendants for damages alleged
to have been sustained by members of the class as a result of the wrongs alleged
and the award of costs, including reasonable attorneys' fees and expenses.
Grove believes the suit is without merit and intends to defend against
the claims vigorously.
LEGAL MATTERS
Certain legal matters in connection with the merger transactions will
be passed upon for EQR by Piper Marbury Rudnick & Wolfe in Chicago, Illinois.
Errol R. Halperin, a partner of Piper Marbury Rudnick & Wolfe, is a trustee of
EQR. Attorneys of Piper Marbury Rudnick & Wolfe beneficially own less than 1% of
the outstanding common shares in EQR, either directly or upon the exercise of
options.
EXPERTS
Ernst & Young LLP, independent auditors, have audited each of EQR's and
ERP's consolidated financial statements and schedule included in each of EQR's
and ERP's Annual Report on Form 10-K for the year ended December 31, 1999 and
have audited Lexford Residential Trust's consolidated financial statements and
schedules included in each of EQR's and ERP's Current Report on Form 8-K, each
dated June 30, 1999, as set forth in their reports, which are incorporated by
reference in this prospectus and elsewhere in the registration statement. Such
financial statements and schedules are incorporated by reference in reliance on
Ernst & Young LLP's reports given on their authority as experts in accounting
and auditing. Certain legal matters in connection with the transactions will be
passed upon for Grove by Cummings & Lockwood, Stamford, Connecticut.
WHERE YOU CAN FIND MORE INFORMATION
EQR and ERP have filed a registration statement on Form S-4 to register
with the SEC the ERP units to be issued to Grove L.P. limited partners in the
partnership merger and the EQR common shares to be issued upon conversion of
such ERP units. The proxy statement/prospectus is a part of that registration
statement and constitutes a prospectus of EQR and ERP in addition to being a
proxy statement for Grove L.P. The registration statement, including the
attached exhibits and schedules, contains additional relevant information about
EQR, ERP and Grove L.P. As allowed by SEC rules, this proxy statement/prospectus
does not contain all the information you can find in the registration statement
or the exhibits to the registration statement.
In addition, EQR, Grove and ERP file annual, quarterly and special
reports, proxy statements and other information, as applicable, with the SEC.
Please call the SEC at
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<PAGE>
1-800-SEC-0330 for further information on the public reference rooms. You may
read and copy any reports, statements or other information we file at the
following locations of the SEC:
Public Reference Room New York Regional Office Chicago Regional Office
450 Fifth Street, N.W. 7 World Trade Center 500 West Madison Street
Room 1024 Suite 1300 Suite 1400
Washington, D.C. 20539 New York, New York 10048 Chicago, Illinois 60661-2511
You may also obtain copies of this information by mail from the Public
Reference Section of the SEC, 450 Fifth Street, N.W., Room 1024, Washington,
D.C. 20549, at prescribed rates. Our SEC filings are also available to the
public from commercial document retrieval services and at the Internet website
maintained by the SEC at http://www.sec.gov. The SEC's website contains reports,
proxy and information statements, and other information regarding issuers that
file electronically with the SEC.
The SEC allows us to "incorporate by reference" information into this
proxy statement/prospectus, which means that we can disclose important
information to you by referring you to another document filed separately with
the SEC. The information incorporated by reference is deemed to be part of this
proxy statement/prospectus, and this proxy statement/prospectus incorporates by
reference the documents set forth below that we have previously filed with the
SEC. These documents contain important information about ERP and EQR and their
financial condition.
<TABLE>
<CAPTION>
EQR SEC FILINGS (FILE NO. 1-12252) DESCRIPTION OR PERIOD/AS OF DATE
---------------------------------- --------------------------------
<S> <C>
Annual Report on Form 10-K Year ended December 31, 1999
Quarterly Reports on Form 10-Q Quarters ended March 31, 2000 and June 30, 2000
Current Reports on Form 8-K Dated June 30, 1999 and dated March 24, 2000
Proxy Statement Dated March 31, 2000
Registration Statement on Form 8-A/A dated Description of EQR common shares
August 10, 1993
Registration Statement on Form S-11 Information prescribed by Items 12, 13, 14, 15 and 16
(No. 33-80420) dated July 20, 1994, of such registration statement
as amended
ERP SEC FILINGS (FILE NO. 0-24920) DESCRIPTION OR PERIOD/AS OF DATE
--------------------------------- --------------------------------
Annual Report on Form 10-K Year ended December 31, 1999
</TABLE>
100
<PAGE>
<TABLE>
<CAPTION>
ERP SEC FILINGS (FILE NO. 0-24920) DESCRIPTION OR PERIOD/AS OF DATE
--------------------------------- --------------------------------
<S> <C>
Quarterly Reports on Form 10-Q Quarters ended March 31, 2000 and June 30, 2000
Current Report on Form 8-K Dated June 30, 1999
Registration Statement on Form 10 dated Description of units of limited partnership interest in
October 6, 1994, as amended by Amendment interest in ERP
No. 3 dated December 12, 1994 ERP
</TABLE>
EQR and ERP also incorporate by reference in this proxy
statement/prospectus additional documents that are filed with the SEC under
Sections 12(a), 13(c), 14 and 15(d) of the Exchange Act from the date of this
proxy statement/prospectus to the date of the meetings. These include periodic
reports, such as Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q,
Current Reports on Form 8-K, as well as proxy statements.
EQR has supplied all information contained or incorporated by reference
in this proxy statement/prospectus relating to EQR, and Grove has supplied all
such information relating to Grove.
If you are a shareholder of EQR or unitholder of ERP, we may already
have sent you some of the documents incorporated by reference but you can obtain
any of them through us, the SEC or the SEC's Internet worldwide website as
described above. Documents incorporated by reference are available from us
without charge, excluding all exhibits unless we have specifically incorporated
by reference an exhibit in this proxy statement/prospectus. You may obtain
documents incorporated by reference in this proxy statement/prospectus by
requesting them in writing or by telephone from the appropriate company at the
following addresses:
EQUITY RESIDENTIAL PROPERTIES TRUST
ERP OPERATING LIMITED PARTNERSHIP
Two North Riverside Plaza, Suite 400
Chicago, Illinois 60606
Tel: (312) 474-1300
Attention: Cynthia McHugh, Senior Vice President -
Investor Relations
If you would like to request documents from us, please do so by
__________________, 2000 to receive them before the meeting. If you request any
incorporated documents from us, we will mail them to you by first class mail, or
other equally prompt means, within one business day after we receive your
request.
WE HAVE NOT AUTHORIZED ANYONE TO GIVE YOU ANY INFORMATION OR TO MAKE
ANY REPRESENTATION ABOUT THE PROPOSED MERGER OR OUR COMPANIES THAT DIFFERS FROM
OR ADDS TO THE INFORMATION CONTAINED IN THIS DOCUMENT OR IN THE DOCUMENTS OUR
COMPANIES HAVE
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PUBLICLY FILED WITH THE SEC. THEREFORE, IF ANYONE SHOULD GIVE YOU ANY
DIFFERENT OR ADDITIONAL INFORMATION, YOU SHOULD NOT RELY ON IT.
IF YOU LIVE IN A JURISDICTION WHERE IT IS UNLAWFUL TO OFFER OR EXCHANGE OR SELL,
OR TO ASK FOR OFFERS TO EXCHANGE OR BUY, THE SECURITIES OFFERED BY THIS
DOCUMENT, OR TO ASK FOR PROXIES, OR, IF YOU ARE A PERSON TO WHOM IT IS UNLAWFUL
TO DIRECT SUCH OFFERS OR REQUESTS, THEN THE OFFER AND REQUEST PRESENTED BY THIS
DOCUMENT DOES NOT EXTEND TO YOU.
THE INFORMATION CONTAINED IN THIS DOCUMENT SPEAKS ONLY AS OF THE DATE
INDICATED ON THE COVER OF THIS DOCUMENT UNLESS THE INFORMATION SPECIFICALLY
INDICATES THAT ANOTHER DATE APPLIES.
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<PAGE>
APPENDIX A
--------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
AMONG
GROVE PROPERTY TRUST
GROVE OPERATING, L.P.
AND
ERP OPERATING LIMITED PARTNERSHIP
DATED AS OF JULY 17, 2000
--------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ARTICLE PAGE
------- ----
<S> <C>
THE MERGER........................................................................................................2
1.1 The Partnership Merger..........................................................................2
1.2 The Company Merger..............................................................................2
1.3 Closing.........................................................................................2
1.4 Effective Times.................................................................................2
1.5 Effect of Company Merger on Operating Agreement of New LLC3.....................................3
1.6 Effect of Partnership Merger on Agreement of Limited Partnership................................3
1.7 Effect of Partnership Merger on Grove LP Units..................................................3
1.8 Effect of Company Merger on Shares..............................................................4
1.9 Receipt of Consideration........................................................................5
1.10 Transfer Books..................................................................................7
1.11 No Further Ownership Rights in Shares...........................................................7
1.12 Adjustment to Merger Consideration..............................................................8
REPRESENTATIONS AND WARRANTIES OF GROVE AND GROVE OP..............................................................8
2.1 Organization, Standing and Power of Grove.......................................................8
2.2 Grove Subsidiaries..............................................................................9
2.3 Capital Structure..............................................................................11
2.4 Other Interests and Sale Obligations...........................................................12
2.5 Authority; Noncontravention; Consents..........................................................12
2.6 SEC Documents; Financial Statements; Undisclosed Liabilities...................................14
2.7 Absence of Certain Changes or Events...........................................................15
2.8 Litigation.....................................................................................15
2.9 Properties.....................................................................................16
2.10 Environmental Matters..........................................................................19
2.11 Consultants and Related Party Transactions.....................................................20
2.12 Employee Benefits..............................................................................21
2.13 Employee Matters...............................................................................23
2.14 Taxes..........................................................................................23
2.15 No Payments to Employees, Officers, Trustees or Directors......................................24
2.16 Brokers; Schedule of Fees and Expenses.........................................................25
2.17 Compliance with Laws...........................................................................25
2.18 Contracts; Debt Instruments....................................................................25
2.19 Opinion of Financial Advisor...................................................................28
2.20 State Takeover Statutes........................................................................28
2.21 Registration Statement.........................................................................28
2.22 Development Properties.........................................................................28
2.23 Investment Company Act of 1940.................................................................28
2.24 Trademarks, Patents and Copyrights.............................................................28
2.25 Insurance......................................................................................29
2.26 Definition of Knowledge of Grove...............................................................29
2.27 Vote Required..................................................................................29
i
<PAGE>
2.28 Secured Credit Facility........................................................................29
2.29 Assumption of Secured Debt.....................................................................29
2.30 Certain Fees...................................................................................29
REPRESENTATIONS AND WARRANTIES OF ERP............................................................................30
3.1 Organization, Standing and Power of ERP........................................................30
3.2 Capital Structure of ERP.......................................................................30
3.3 Authority; Noncontravention; Consents..........................................................30
3.4 SEC Documents; Financial Statements; Undisclosed Liabilities...................................31
3.5 Absence of Certain Changes or Events...........................................................32
3.6 Litigation.....................................................................................32
3.7 Properties.....................................................................................33
3.8 Environmental Matters..........................................................................33
3.9 Taxes..........................................................................................34
3.10 Brokers........................................................................................34
3.11 Compliance with Laws...........................................................................34
3.12 Contracts; Debt Instruments....................................................................35
3.13 State Takeover Statutes........................................................................35
3.14 Registration Statement.........................................................................35
3.15 Investment Company Act of 1940.................................................................35
3.16 Definition of Knowledge of ERP.................................................................35
3.17 Vote Required..................................................................................35
3.18 Employee Policies..............................................................................35
3.19 Financing......................................................................................35
3.20 Validity of Securities Issued..................................................................36
COVENANTS........................................................................................................36
4.1 Acquisition Proposals..........................................................................36
4.2 Conduct of Grove's Business Pending Merger.....................................................37
4.3 Conduct of ERP's Business Pending Merger.......................................................40
4.4 Other Actions..................................................................................41
4.5 Compliance with the Securities Act.............................................................41
ADDITIONAL COVENANTS.............................................................................................42
5.1 Preparation of the Registration Statement and the Proxy Statement; Grove
Shareholders Meeting and Grove OP Partners Meeting.............................................42
5.2 Access to Information: Confidentiality.........................................................43
5.3 Best Efforts; Notification.....................................................................44
5.4 Costs of Transaction...........................................................................44
5.5 Public Announcements...........................................................................44
5.6 Taxes..........................................................................................45
5.7 Benefit Plans and Other Employee Arrangements..................................................45
5.8 Indemnification................................................................................46
5.9 Declaration of Dividends and Distributions.....................................................47
5.10 Notices........................................................................................48
5.11 Resignations...................................................................................48
5.12 Third Party Management Agreements and Outside Management Agreements............................48
ii
<PAGE>
5.13 Modification of Rosenthal Transaction..........................................................49
5.14 Retail Sale Agreement..........................................................................49
5.15. Election to Undertake Deficit Restoration Obligation
Under ERP Agreement............................................................................49
5.16 Transfer of Grove LP Units.....................................................................49
5.17 Transfer of Grove Corp. Shares.................................................................49
CONDITIONS.......................................................................................................50
6.1 Conditions to Each Party's Obligation to Effect the Mergers....................................50
6.2 Conditions to Obligations of ERP...............................................................50
6.3 Conditions to Obligations of Grove.............................................................52
TERMINATION, AMENDMENT AND WAIVER................................................................................53
7.1 Termination....................................................................................53
7.2 Certain Fees and Expenses......................................................................54
7.3 Effect of Termination..........................................................................56
7.4 Amendment......................................................................................56
7.5 Extension; Waiver..............................................................................56
GENERAL PROVISIONS...............................................................................................57
8.1 Nonsurvival of Representations and Warranties..................................................57
8.2 Notices........................................................................................57
8.3 Interpretation.................................................................................58
8.4 Counterparts...................................................................................58
8.5 Entire Agreement; No Third-Party Beneficiaries.................................................58
8.6 Governing Law..................................................................................58
8.7 Assignment.....................................................................................58
8.8 Enforcement....................................................................................58
8.9 Severability...................................................................................59
8.10 Non-Recourse to Trustees and Officers..........................................................59
EXHIBITS
Exhibit "A" - Agreement of Merger
Exhibit "B" - Company Articles of Merger
Exhibit "C" - Opinion of Maryland Counsel
Exhibit "D" - Opinion of Cummings & Lockwood
Exhibit "E" - Opinion of Piper Marbury Rudnick & Wolfe
</TABLE>
iii
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") is dated as of
July 17, 2000 by and among ERP OPERATING LIMITED PARTNERSHIP, an Illinois
limited partnership ("ERP"), GROVE PROPERTY TRUST, a Maryland real estate
investment trust ("Grove"), and GROVE OPERATING, L.P., a Delaware limited
partnership ("Grove OP").
R E C I T A L S:
WHEREAS, the General Partner of ERP and the Board of Trust Managers of
Grove (the "Grove Board"), the sole general partner of Grove OP, have each
approved the acquisition of the business and assets of Grove by ERP, with such
acquisition being effected by the transactions described herein, including,
without limitation, the Partnership Merger and Company Merger (each as defined
below and collectively referred to as the "Mergers");
WHEREAS, ERP shall form a single member Delaware limited liability
company ("New LLC"), which in turn shall form a second single member Delaware
limited liability company ("New LLC2");
WHEREAS, the General Partner of ERP and the Grove Board have approved
(i) the merger of New LLC2 with and into Grove OP (the "Partnership Merger") and
(ii) immediately following the Partnership Merger, the merger (the "Company
Merger") of Grove with and into a single member Maryland limited liability
company to be formed by ERP ("New LLC3"), all upon the terms and subject to the
conditions set forth herein;
WHEREAS, Grove has received a fairness opinion relating to the Mergers,
as more fully described herein;
WHEREAS, the Grove Board has: (i) determined that the consideration to
be paid for each outstanding unit of limited partnership interest in Grove OP
(each an "Grove LP Unit") in the Partnership Merger is fair to and in the best
interests of the limited partners of Grove OP (the "Limited Partners"); (ii)
determined that the consideration to be paid for each issued and outstanding
share of beneficial interest, $.01 par value per share, of Grove (each a "Share"
or "Grove Common Share") in the Company Merger is fair to and in the best
interests of the shareholders of Grove; and (iii) approved this Agreement and
the transactions contemplated hereby, declared their advisability and resolved
to recommend approval and adoption of this Agreement by the shareholders of
Grove and Limited Partners; and
WHEREAS, ERP, Grove and Grove OP desire to make certain
representations, warranties and agreements in connection with the Mergers.
NOW, THEREFORE, in consideration of the premises, and the mutual
representations, warranties, covenants and agreements contained herein, the
parties hereto hereby agree as follows:
<PAGE>
ARTICLE 1
THE MERGERS
1.1 THE PARTNERSHIP MERGER. Prior to the Partnership Merger
Effective Time (as defined below), and subject to and upon the terms and
conditions of this Agreement, an Agreement of Merger in substantially the
form attached hereto as Exhibit "A" (the "Agreement of Merger") shall be
executed and delivered by Grove OP and New LLC2. Pursuant to the terms of the
Agreement of Merger, upon the terms and subject to the conditions of this
Agreement, and in accordance with Section 18-209 of the Delaware Limited
Liability Company Act (the "LLC Act") and Section 17-211 of the Delaware
Revised Uniform Limited Partnership Act (the "DRULPA"), New LLC2 shall be
merged with and into Grove OP, with Grove OP as the surviving entity (the
"Surviving Partnership").
1.2 THE COMPANY MERGER. Upon the terms and subject to the
conditions of this Agreement, immediately following the effectiveness of the
Partnership Merger, and in accordance with Title 8 of the Corporations and
Associations Article of the Annotated Code of Maryland, as amended ("Title
8") and Title 4A of the Corporations and Associations Article of the
Annotated Code of Maryland, as amended ("Title 4A"), Grove shall be merged
with and into New LLC3, with New LLC3 as the surviving entity (the "Surviving
Company").
1.3 CLOSING. The closing of the Mergers ("Closing") will take
place at 8:00 a.m. local time on the date to be specified by the parties,
which (subject to satisfaction or waiver of the other 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 Piper Marbury Rudnick & Wolfe, 203 North LaSalle Street,
Chicago, Illinois 60601, unless another date or place is agreed to in writing
by the parties hereto.
1.4 EFFECTIVE TIMES. As soon as practicable following the
satisfaction or waiver of the conditions set forth in Article 6 by the party
entitled to the benefit of the same:
(a) Grove OP shall execute and file a Certificate of Merger in
substantially the form attached to the Agreement of Merger
(the "Partnership Certificate of Merger"), executed in
accordance with the LLC Act and DRULPA, with the Office of the
Secretary of State of Delaware (the "Delaware Secretary"), and
shall make all other filings and recordings required under the
LLC Act and DRULPA. The Partnership Merger shall become
effective (the "Partnership Merger Effective Time") upon
filing of the Partnership Certificate of Merger. Unless
otherwise agreed, the parties shall cause the Partnership
Merger Effective Time to occur on the Closing Date.
(b) Immediately following the Partnership Merger Effective
Time, New LLC3 and Grove shall execute and file Articles of
Merger in substantially the form attached hereto as Exhibit
"B" (the "Company Articles of Merger"), executed in accordance
with Title 8 and Title 4A, with the State Department of
Assessments and Taxation of Maryland (the "Maryland
Department"), and shall make all other filings and recordings
required under Title 8 and Title 4A. The Company Merger
2
<PAGE>
shall become effective (the "Company Merger Effective Time")
at such time as shall be specified in the Company Articles of
Merger. Unless otherwise agreed, the parties shall cause the
Company Merger Effective Time to occur on the Closing Date.
1.5 EFFECT OF COMPANY MERGER ON OPERATING AGREEMENT OF NEW LLC3.
The Operating Agreement of New LLC3 shall continue in full force and effect
after the Company Merger Effective Time until amended in accordance with
Delaware law.
1.6 EFFECT OF PARTNERSHIP MERGER ON AGREEMENT OF LIMITED
PARTNERSHIP. The Agreement of Limited Partnership of Grove OP, as amended
(the "Grove OP Agreement"), shall continue in full force and effect after the
Partnership Merger Effective Time until further amended in accordance with
applicable Delaware law.
1.7 EFFECT OF PARTNERSHIP MERGER ON GROVE LP UNITS. At the
Partnership Merger Effective Time, by virtue of the Partnership Merger and
without any action on the part of ERP, Grove, Grove OP or the holders of any
of the following securities:
(a) CONVERSION OF GROVE LP UNITS. Each Grove LP Unit issued
and outstanding immediately prior to the Partnership Merger Effective Time
(excluding any Grove LP Units to be canceled pursuant to Section 1.7(b))
shall be canceled and converted into the right to receive, subject to the
terms and condition of this Agreement, at the election of the Limited Partner
holding such Grove LP Unit made pursuant to Section 1.9(c), either (i) $17.00
per Grove LP Unit (the "Partnership Cash Merger Consideration") payable to
the holder thereof in cash, without interest thereon, less any required
withholding of taxes, or (ii) 0.3696 units ("ERP Units") of limited
partnership interest in ERP (the "Partnership Unit Merger Consideration" and,
together with the Partnership Cash Merger Consideration, the "Partnership
Merger Consideration"). If, from the date hereof until the Partnership Merger
Effective Time, ERP (i) pays a dividend or makes a distribution on ERP Units
in ERP Units, (ii) subdivides the outstanding ERP Units into a greater number
of ERP Units or (iii) combines the outstanding ERP Units into a smaller
number of ERP Units, the Partnership Unit Merger Consideration shall be
adjusted to reflect the proportionate change in the number of outstanding ERP
Units. It is the intention of the parties hereto that the payment of the
Partnership Cash Merger Consideration shall be treated as a purchase by ERP
of the Grove LP Units of each Limited Partner who elects to receive the
Partnership Cash Merger Consideration pursuant to Proposed Treasury
Regulation Section 1.708-1(c)(3).
(b) CANCELLATION. Each Grove LP Unit held by Grove OP and
each Grove LP Unit owned by ERP or any direct or indirect wholly-owned
subsidiary of Grove or ERP immediately prior to the Partnership Merger
Effective Time shall, by virtue of the Partnership Merger and without any
action on the part of the holder thereof, cease to be outstanding, be
canceled and retired without payment of any consideration therefor and cease
to exist.
(c) CONVERSION OF INTERESTS IN NEW LLC2. At the Partnership
Merger Effective Time, each interest in New LLC2 shall be automatically
converted into one Grove LP Unit.
3
<PAGE>
(d) CONVERSION OF GENERAL PARTNER INTEREST. Each unit of
general partnership interest in Grove OP shall be unaffected by the
Partnership Merger.
(e) FUTURE CONTINGENT VALUE DISTRIBUTIONS. The right of any
person to receive Grove LP Units at any time in the future with respect to
Contingent Earnout Rights, as defined and contemplated in that certain
Agreement, dated as of April 22, 1998, as amended by that certain Amendment
to Conveyance Agreement, dated as of August 31, 1998 (the "McNeil Conveyance
Agreement"), involving the acquisition by Grove Corporation of certain
properties owned by 22 limited partnerships affiliated with Alexander H.
McNeil, shall convert into the right to receive that number of ERP Units
calculated in accordance with and subject to all of the other terms and
conditions contemplated in the McNeil Conveyance Agreement; provided,
however, that any reference in such agreements to Grove Shares shall be
deemed to refer to common shares ("EQR Common") of Equity Residential
Properties Trust, a Maryland real estate investment trust ("EQR"), as traded
on the New York Stock Exchange, Inc. (the "NYSE").
1.8 EFFECT OF COMPANY MERGER ON SHARES. At the Company Merger
Effective Time, by virtue of the Company Merger and without any action on the
part of ERP, Grove, Grove OP or the holders of any of the following
securities:
(a) CONVERSION OF SHARES. Each Share issued and outstanding
immediately prior to the Company Merger Effective Time
(excluding any Shares to be canceled pursuant to Section
1.8(b)) shall be cancelled and converted into the right to
receive, subject to the terms and conditions of this
Agreement, $17.00 per Share (the "Company Merger
Consideration") payable to the holder thereof in cash, without
interest thereon, upon the surrender of the certificate
formerly representing such Share, less any required
withholding of taxes. The Company Merger Consideration shall
be payable in cash without interest thereon in accordance with
Section 1.9 as soon as practicable after the Deposit Date, as
defined herein.
(b) CANCELLATION. Each Share held in the treasury of Grove and
each Share owned by ERP or any direct or indirect wholly-owned
subsidiary of Grove, Grove OP or ERP immediately prior to the
Company Merger Effective Time shall, by virtue of the Company
Merger and without any action on the part of the holder
thereof, cease to be outstanding, be canceled and retired
without payment of any consideration therefor and cease to
exist.
(c) STOCK OPTIONS. Except as specifically set forth in Section
5.7(c), at the Company Merger Effective Time, each outstanding
option (an "Grove Option") to purchase Shares granted under or
pursuant to any employee stock option plan or agreement
entered into by Grove with any employee of Grove or any
subsidiary thereof or any other person listed on Schedule 2.3
of the Grove Disclosure Letter (as defined herein) or
otherwise existing (the "Grove Stock Option Plans"), shall be
cancelled and the holder thereof shall be entitled to receive
in cash (the "Total Option Amount") an amount, if any, (less
applicable withholding taxes) equal to the product of: (i) the
number of Shares previously subject to such Grove Option,
whether vested or unvested, multiplied by; (ii) the excess, if
any, of the amount of
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the Company Merger Consideration over the exercise price per
Share previously subject to such Grove Option, payable not later
than the Trading Day immediately following the Company Merger
Effective Time.
1.9 RECEIPT OF CONSIDERATION.
(a) PAYMENT AGENT. Prior to the Partnership Merger Effective
Time, a bank or trust company reasonably acceptable to Grove shall be
designated by ERP to act as agent in connection with the Mergers to receive
the funds to which holders of Shares and Grove LP Units shall become entitled
pursuant to Sections 1.7 and 1.8 (the "Paying Agent").
(b) PROCEDURES FOR RECEIPT OF COMPANY MERGER CONSIDERATION.
Promptly after the Company Merger Effective Time, the Surviving Company shall
cause to be mailed to each holder of record, as of the Company Merger
Effective Time, of a certificate or certificates (the "Certificates") that,
prior to the Company Merger Effective Time, represented Shares, a form of
letter of transmittal and instructions for use in effecting the surrender of
the Certificates for payment of the Company Merger Consideration therefor.
Upon the surrender of each such Certificate formerly representing Shares,
together with such letter of transmittal, duly completed and validly executed
in accordance with the instructions thereto, the Paying Agent shall pay the
holder of record of such Certificate the Company Merger Consideration
multiplied by the number of Shares formerly represented by such Certificate,
in exchange therefor, and such Certificate shall forthwith be canceled. Until
so surrendered and exchanged, each such Certificate (other than Shares held
by ERP or Grove, or any direct or indirect subsidiary thereof) shall
represent solely the right to receive the Company Merger Consideration. No
interest shall be paid or accrue on the Company Merger Consideration.
(c) PROCEDURES FOR RECEIPT OF PARTNERSHIP MERGER CONSIDERATION.
(i) All elections by Limited Partners to receive the
Partnership Cash Merger Consideration or Partnership Unit Merger
Consideration shall be made on a form furnished by ERP for that purpose (a
"Form of Election") and reasonably satisfactory to Grove. Each Limited
Partner may only make an election to receive all Partnership Cash Merger
Consideration or Partnership Unit Merger Consideration in exchange for all of
its Grove LP Units.
(ii) Together with the Prospectus (as defined herein), ERP or
the Paying Agent shall mail a Form of Election to record holders of Grove LP
Units as of the record date for the Grove OP Partners Meeting (as defined
below) (the "Record Date"). Elections shall be made by Limited Partners by
delivering the Form of Election to the Paying Agent, as indicated in the Form
of Election. To be effective, a Form of Election must be properly completed,
signed and submitted to the Paying Agent by 5:00 p.m. (New York City time) on
the last Trading Day (as defined below) prior to the date of the Grove OP
Partners Meeting or such other time and date as ERP and Grove may mutually
agree (the "Election Deadline"). ERP will have the discretion, which it may
delegate in whole or in part to the Paying Agent, to determine whether Forms
of Election have been properly completed, signed and submitted or revoked and
to disregard immaterial defects in Forms of Election. The good faith decision
of ERP (or the Paying Agent) in such matters shall be conclusive and binding.
Neither ERP nor the Paying Agent will be under any obligation to notify any
person of any defect in a Form of Election submitted to the
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Paying Agent. The Paying Agent shall also make all computations contemplated
by Section 1.7 and this Section 1.9(c) and all such computations shall be
conclusive and binding on the Limited Partners in the absence of manifest
error. Any Form of Election may be changed or revoked prior to the Election
Deadline. For purposes hereof, if a Limited Partner (i) does not submit a
Form of Election which is received by the Paying Agent prior to the Election
Deadline (including a Limited Partner who submits and then revokes his or her
Form of Election and does not resubmit a Form of Election which is timely
received by the Paying Agent) or (ii) submits a Form of Election which is
defective in any manner such that the Paying Agent cannot reasonably
determine the election preference of the Limited Partner submitting such Form
of Election, then such Limited Partner shall be deemed for all purposes of
this Agreement to have validly elected to receive the Partnership Cash Merger
Consideration with respect to the Grove LP Units held by such Limited
Partner. Except as specifically provided in Section 5.13, any Persons (as
defined herein) acquiring Grove LP Units after the Record Date shall be
entitled to receive only that form of Partnership Merger Consideration
previously validly elected by the transferor of such Grove LP Units or, to
the extent no such valid election was made by such transferor in accordance
with this Section 1.9, the Partnership Cash Merger Consideration.
(iii) Following the Partnership Merger Effective Time, a
Limited Partner shall be entitled to receive the amount of Partnership Cash
Merger Consideration or Partnership Unit Merger Consideration, as the case
may be, as calculated in accordance with Section 1.7. The Paying Agent shall
promptly pay to each Limited Partner any Partnership Cash Merger
Consideration to which such Limited Partner is entitled pursuant to this
Section 1.9. No interest shall be paid or accrue on the Partnership Cash
Merger Consideration. With respect to any Partnership Unit Merger
Consideration to which such Limited Partner is entitled pursuant to this
Section 1.9, ERP shall promptly mail to such Limited Partner the
documentation necessary to reflect such Limited Partner's ownership of that
number of ERP Units calculated pursuant to this Section 1.9 including,
without limitation, a signature page to the Fifth Amended and Restated
Agreement of Limited Partnership of ERP dated as of August 1, 1998 (the "ERP
Agreement") for execution by such Limited Partner, which execution shall be a
condition to such Limited Partner's receipt of ERP Units. Notwithstanding any
other provision hereof, no fractional ERP Units shall be issued in connection
with the Partnership Merger. Instead, each Limited Partner having a
fractional interest arising upon the conversion of such Limited Partner's
Grove LP Units for Partnership Unit Merger Consideration shall be paid an
amount in cash equal to the Closing Price (as hereinafter defined) multiplied
by the fraction of an ERP Unit to which such Limited Partner would otherwise
be entitled. For purposes of this Section 1.9, "Closing Price" shall mean the
unweighted average closing price of a share of EQR Common (as reported in the
NYSE Composite Tape) for the five (5) Trading Days immediately preceding the
Partnership Merger Effective Time, and "Trading Day" shall mean any day on
which EQR Common is traded on the NYSE and reported on its Composite Tape.
(d) CONSIDERATION. Within three (3) Trading Days after the
Partnership Merger Effective Time (the "Deposit Date"), ERP or the Surviving
Company shall deposit, or cause to be deposited, in trust with the Paying
Agent, (i) the amount of Company Merger Consideration to which holders of
Shares shall be entitled at the Company Merger Effective Time pursuant to
Section 1.8(a) hereof and (ii) the amount of Partnership Cash Merger
Consideration to which holders of Grove LP Units shall be entitled at the
Partnership Merger Effective Time pursuant to Section 1.7(a) hereof (the
"Total Cash Consideration").
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(e) INVESTMENT OF TOTAL CASH CONSIDERATION. The Total Cash
Consideration shall be invested by the Paying Agent, as directed by ERP,
provided such investments shall be limited to direct obligations of the
United States of America, obligations for which the full faith and credit of
the United States of America is pledged to provide for the payment of
principal and interest, commercial paper rated of the highest quality by
Moody's Investors Service, Inc. and Standard & Poor's Corporation, or
certificates of deposit issued by a commercial bank having at least
$10,000,000,000 in assets; PROVIDED, HOWEVER, that the Total Cash
Consideration shall be readily available to satisfy all obligations to pay
the Company Merger Consideration and the Partnership Cash Merger
Consideration in accordance with the terms of this Agreement.
(f) TERMINATION OF DUTIES. Promptly following the date which
is one (1) year after the Company Merger Effective Time, ERP will cause the
Paying Agent to deliver to the Surviving Company all cash and documents in
its possession relating to the funds deposited on the Deposit Date described
in this Agreement, and the Paying Agent's duties relating thereto shall
terminate. Thereafter, each holder of a Certificate formerly representing a
Share may surrender such Certificate to ERP and (subject to applicable
abandoned property, escheat and similar laws) receive in exchange therefor
the Company Merger Consideration, as calculated in accordance with this
Section 1.9.
(g) NO LIABILITY. None of ERP, Grove or Grove OP shall be
liable to any holder of Shares or Grove LP Units for any Company Merger
Consideration or Partnership Merger Consideration delivered to a public
official pursuant to any applicable abandoned property, escheat or similar
law.
(h) WITHHOLDING RIGHTS. ERP or the Paying Agent shall be
entitled to deduct and withhold from the Company Merger Consideration or
Partnership Merger Consideration otherwise payable pursuant to or in
connection with this Agreement, or any other payment or debt cancellation
made pursuant to this Agreement, to any holder of Shares or Grove LP Units,
such amounts as ERP or the Paying Agent is required to deduct and withhold
with respect to the making of such payment under the Internal Revenue Code of
1986, as amended (the "Code"), or any provision of state, local or foreign
tax law. To the extent that amounts are so withheld by ERP or the Paying
Agent, such withheld amounts shall be treated for all purposes of this
Agreement as having been paid to the holder of the Shares or Grove LP Units,
as the case may be, in respect of which such deduction and withholding was
made by ERP or the Paying Agent.
1.10 TRANSFER BOOKS. At the Company Merger Effective Time, the
stock transfer books of Grove shall be closed, and there shall be no further
registration of transfers of Shares thereafter on the records of Grove.
1.11 NO FURTHER OWNERSHIP RIGHTS IN SHARES.
(a) The Company Merger Consideration delivered upon the
surrender for exchange of Shares in accordance with the terms hereof shall be
deemed to have been issued in full satisfaction of all rights pertaining to
such Shares, and there shall be no further registration of transfers on the
records of the Surviving Company of Shares which were outstanding immediately
prior to the Company Merger Effective Time. If, after the Company Merger
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Effective Time, Certificates are presented to the Surviving Company for any
reason, they shall be canceled and exchanged as provided in this Article 1.
(b) The Partnership Merger Consideration delivered upon the
conversion of Grove LP Units in accordance with the terms hereof shall be
deemed to have been issued in full satisfaction of all rights pertaining to
such Grove LP Units and there shall be no further registration of transfers
on the records of the Surviving Partnership of Grove LP Units which were
outstanding immediately prior to the Partnership Merger Effective Time.
1.12 ADJUSTMENT TO MERGER CONSIDERATION. Notwithstanding Section
1.7 or Section 1.8, the Partnership Cash Merger Consideration, Partnership
Unit Merger Consideration and Company Merger Consideration shall be subject
to reduction as a result of any Closing Agreement Costs (as defined in
Section 6.2) as follows:
(a) The Partnership Cash Merger Consideration and the Company
Merger Consideration shall each be reduced by an amount equal to the Closing
Agreement Costs, if any, up to an aggregate of $3.5 million, divided by the
aggregate number of Grove LP Units and Grove Shares cancelled and converted
in the Mergers in exchange for the Partnership Merger Consideration or
Company Merger Consideration, as the case may be (the "Reduction Amount");
provided, however, that the Partnership Cash Merger Consideration and the
Company Merger Consideration, when adjusted pursuant to this Section 1.12(a),
shall be adjusted to the nearest full cent, with any fractional cent equal to
.5 being rounded to the next highest full cent.
(b) If the Partnership Cash Merger Consideration shall be
adjusted pursuant to Section 1.12(a), the Partnership Unit Merger
Consideration shall be equal that number of ERP Units determined by dividing
(i) the Partnership Cash Merger Consideration, as adjusted pursuant to (a)
above, by (ii) $46.00.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF GROVE AND GROVE OP
Except as set forth in the letter of even date herewith signed by
the Chief Financial Officer of Grove in his capacity as such and delivered to
ERP prior to the execution hereof (the "Grove Disclosure Letter"), Grove and
Grove OP represent and warrant to ERP as follows:
2.1 ORGANIZATION, STANDING AND POWER OF GROVE AND GROVE OP.
(a) Grove is a real estate investment trust duly organized
and validly existing under the laws of Maryland and has the requisite trust
power and authority to carry on its business as now being conducted. Grove 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 Grove and the Grove Subsidiaries (as
defined below) taken as a whole (a "Grove Material Adverse Effect"). Schedule
2.1 to the Grove Disclosure Letter
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sets forth each jurisdiction in which Grove is qualified or licensed to do
business, as well as all assumed names under which Grove conducts business in
such jurisdictions. Grove has previously delivered to ERP complete and correct
copies of its Third Amended and Restated Declaration of Trust (the "Grove
Declaration") and Bylaws and the Agreement of Limited Partnership of Grove OP
(the "Grove OP Agreement"), in each case, as amended or supplemented to the date
of this Agreement.
(b) Grove OP is a limited partnership duly formed, validly
existing and in good standing under the laws of the State of Delaware, and
has the requisite partnership power and authority to carry on its business as
now being conducted. Grove OP is duly qualified or licensed to do business as
a foreign limited partnership 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 Grove Material Adverse
Effect. Schedule 2.1 to the Grove Disclosure Letter sets forth each
jurisdiction in which Grove OP is qualified or licensed to do business, as
well as all assumed names under which Grove OP conducts business in such
jurisdictions.
2.2 GROVE SUBSIDIARIES. Except as otherwise provided in the Grove
Disclosure Letter:
(a) Schedule 2.2 to the Grove Disclosure Letter sets forth:
(i) each Subsidiary of Grove;
(ii) the legal form of each Grove Subsidiary, including the
state or country of formation;
(iii) the identity and ownership interest of each owner of
such Grove Subsidiary, including but not limited to the amount, class or
series and terms of securities of such Grove Subsidiary owned by such owner;
(iv) each apartment community and/or other real estate
properties owned or under contract to be purchased by each Grove Subsidiary,
and separately setting forth each apartment community currently under
development, if any;
(v) each jurisdiction in which each Grove Subsidiary is
qualified or licensed to do business; and
(vi) each assumed name under which each Grove Subsidiary
conducts business in any jurisdiction.
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 any
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other legal entity. Without limiting the foregoing, for all purposes of this
Agreement, Grove OP shall be considered a Subsidiary of Grove.
(b) All the outstanding shares of capital stock of each Grove
Subsidiary that is a corporation have been validly issued and are (A) fully
paid and nonassessable, (B) owned by Grove or by another Grove 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 all equity interests in each Grove Subsidiary
that is a partnership, joint venture, limited liability company or trust
which are owned by Grove, by another Grove Subsidiary or by Grove and another
Grove Subsidiary are owned free and clear of all Liens. Each Grove 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
Grove 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 Grove Subsidiary is duly qualified or
licensed to do business and, with respect to each Grove Subsidiary that is a
corporation, 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 Grove Material Adverse Effect. True and correct copies of
the articles or certificate of incorporation, articles of organization,
bylaws, partnership agreements, joint venture and operating agreements or
similar organizational documents of each Grove Subsidiary, as amended to the
date of this Agreement, have been previously delivered to ERP.
(c) Grove Corporation, a Delaware corporation ("Grove
Corp."), (i) has no material assets or liabilities, (ii) carries on no
material operations and (iii) is, and has been since its formation, wholly
owned by certain executive officers of Grove. Schedule 2.2 to the Grove
Disclosure Letter sets forth each Affiliate (as defined herein) of Grove or
any Grove Subsidiary (excluding individuals, Grove Corporation and Grove
Subsidiaries), the legal form and ownership structure of such Affiliate. 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 of
1933, as amended (the "Securities Act").
(d) The process by which Grove merged, converted or otherwise
restructured certain Grove Subsidiaries in October 1999 and December 1999
which, prior to such dates, were not wholly-owned (directly or indirectly) by
Grove, into single member limited liability companies wholly-owned (directly
or indirectly) by Grove or Grove OP (the "Consolidation") conformed in all
respects with all applicable laws and regulations. Prior to the date hereof,
Grove has delivered to ERP true and correct copies of all documents
pertaining to the Consolidation.
(e) Schedule 2.2 to the Grove Disclosure Letter sets forth
all of the assets and liabilities as of June 30, 2000 of the Grove
Subsidiaries subject to the Retail Sale Agreement (as defined below).
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2.3 CAPITAL STRUCTURE.
(a) As of the date hereof, the authorized shares of
beneficial interest of Grove consist of (i) 34,000,000 Grove Common Shares,
of which 8,301,604 were issued and outstanding (including any Grove Common
Shares issued pursuant to Restricted Share Grants (as defined below) but
excluding any Grove Common Shares owned by Grove OP); and (ii) 1,000,000
Preferred Shares, $0.01 par value per share (the "Grove Preferred Shares",
and, collectively with the Grove Common Shares, the "Grove Shares"), none of
which was issued or outstanding. As of the date hereof, (i) 111,032 Grove
Common Shares were reserved for issuance but not issued under Grove's 1994
Share Option Plan (the "1994 Plan"); (ii) 1,308,860 Grove Common Shares were
reserved for issuance but not issued under Grove's 1996 Share Incentive Plan
(the "1996 Plan"); and (iii) 3,896,910 Grove Common shares have been reserved
for issuance upon the exchange of Grove LP Units. On the date hereof, except
as set forth in this Section 2.3 or Schedule 2.3 of the Grove Disclosure
Letter, no Grove Shares or other voting securities of Grove were issued,
reserved for issuance or outstanding.
(b) Set forth in Schedule 2.3 of the Grove Disclosure Letter
is a true and complete list as of the date hereof of the following: (i) each
Grove Option granted and outstanding under the 1994 Plan, 1996 Plan or
otherwise and a total thereof; and (ii) each grant of Grove Shares to
employees or trust managers of Grove which are subject to any risk of
forfeiture, and the plan pursuant to which such grants were made, if any,
("Restricted Share Grants") and a total thereof. The Restricted Share Grants
are included in the number of outstanding Grove Shares set forth in Section
2.3(a). Grove has no obligation to issue any Grove Shares as a result of the
transactions contemplated hereby ("Change in Control Share Grants"). For each
Grove Option held by the executive officers of Grove, Schedule 2.3 of the
Grove Disclosure Letter sets forth as of the date hereof, 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 Grove 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 Grove Option held by employees of Grove or any of the Grove
Subsidiaries who are not executive officers of Grove, Schedule 2.3 to the
Grove Disclosure Letter sets forth as of the date hereof the name of the
grantee, the date of the grant, the number of Grove Shares subject to such
option, the exercise price per share and the vesting schedule. For each
Restricted Share Grant, Schedule 2.3 of the Grove Disclosure Letter sets
forth as of the date hereof the name of the grantee, the date of the grant,
the number of Grove Shares granted and the vesting schedule. On the date of
this Agreement, except as set forth in Section 2.3(a) or Schedule 2.3 of the
Grove Disclosure Letter, no Grove Shares or other voting securities of Grove
were issued, reserved for issuance, or outstanding.
(c) All outstanding Grove Shares are duly authorized, validly
issued, fully paid and nonassessable and not subject to preemptive rights.
There are no bonds, debentures, notes or other indebtedness of Grove, or
assets of any other entities, exchangeable into Grove Shares having the right
to vote on any matters on which shareholders of Grove may vote.
(d) As of the date hereof, 12,198,514 Partnership Units (as
defined in the Grove OP Agreement) of Grove OP ("Grove OP Units") are duly
and validly issued, of which 8,301,604 are held by Grove and 3,896,910 are
held by Limited Partners. Schedule 2.3(d) to the
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Grove Disclosure Letter sets forth the name of each Limited Partner and the
number of Grove LP Units owned by each such Limited Partner in each case as
of the date of this Agreement. The Grove OP Units are subject to no
restrictions except as set forth in the Grove OP Agreement or in Schedule 2.3
to the Grove Disclosure Letter. Except as provided in the Grove OP Agreement
or in Schedule 2.3 to the Grove Disclosure Letter, Grove OP has not issued or
granted or is a party to any outstanding commitments of any kind relating to,
or any presently effective agreements or understandings with respect to, the
issuance or sale of interests in Grove OP, whether issued or unissued, or
securities convertible or exchangeable into interests in Grove OP or Grove,
except as contemplated by this Agreement.
(e) Except as set forth in this Section 2.3 or in Schedule
2.3 of the Grove 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 Grove or any
Grove Subsidiary is a party or by which such entity is bound, obligating
Grove or any Grove Subsidiary to issue, deliver or sell, or cause to be
issued, delivered or sold, additional shares of capital stock, voting
securities or other ownership interests of Grove or any Grove Subsidiary or
obligating Grove or any Grove Subsidiary to issue, grant, extend or enter
into any such security, option, warrant, call, right, commitment, agreement,
arrangement or undertaking.
(f) Except as set forth in Schedule 2.3 of the Grove
Disclosure Letter, all dividends or distributions on Grove Shares and Grove
LP Units which have been authorized or declared prior to the date of this
Agreement have been paid in full.
2.4 OTHER INTERESTS AND SALE OBLIGATIONS. Except as set forth in
Schedule 2.2 or 2.4 of the Grove Disclosure Letter, neither Grove nor any
Grove Subsidiary owns directly or indirectly any interest or investment
(whether equity or debt) in any corporation, partnership, limited liability
company, joint venture, business trust or entity (other than investments in
short-term investment securities) or has any right or obligation (whether
current or contingent) to acquire such an interest. With respect to such
interests, except as set forth in Schedule 2.2 or 2.4 to the Grove Disclosure
Letter, Grove and each such Grove Subsidiary owns such interests which are
owned by it free and clear of all liens, pledges, security interests, claims,
options or other encumbrances. Neither Grove nor any of the Grove
Subsidiaries is in breach in any material respect of any provision of any
agreement, document or contract governing its rights in or to the interests
owned or held by it, all of which agreements, documents and contracts are (a)
set forth on the Grove Disclosure Letter, (b) unmodified except as described
therein and (c) in full force and effect. To the Knowledge of Grove (as
defined in Section 2.26), the other parties to such agreements, documents or
contracts are not in any material breach of any of their respective
obligations under such agreements, documents or contracts.
2.5 AUTHORITY; NONCONTRAVENTION; CONSENTS.
(a) Grove and Grove OP each have the requisite power and
authority to enter into this Agreement and, subject (i) in Grove's case, to
the affirmative vote of holders of at least two-thirds of the outstanding
Grove Common Shares entitled to vote thereon to approve the Company Merger
(the "Grove Shareholder Approvals") and (ii) in Grove OP's case, to the
affirmative vote of holders of at least two-thirds of the outstanding Grove
OP Units, including
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the Grove OP Units beneficially owned by Grove and the Grove Subsidiaries, to
approve this Agreement and the transactions contemplated hereby (the "Grove
Partner Approvals" and, together with the Grove Shareholder Approvals, the
"Grove Approvals"), to consummate the transactions contemplated by this
Agreement to which Grove or Grove OP is a party. The execution and delivery
of this Agreement by Grove and Grove OP and the consummation by Grove and
Grove OP of the transactions contemplated by this Agreement have been duly
authorized by all necessary action on the part of Grove or any Grove
Subsidiary, subject to the Grove Approvals. This Agreement has been duly
executed and delivered by Grove and Grove OP and constitutes a valid and
binding obligation of Grove and Grove OP, enforceable against Grove and Grove
OP 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 2.5 to the Grove
Disclosure Letter, the execution and delivery of this Agreement by Grove and
Grove OP do not, and, except as set forth in Schedule 2.5 or Schedule 2.30 to
the Grove Disclosure Letter, the consummation of the transactions
contemplated by this Agreement by Grove and Grove OP and compliance by Grove
and Grove OP 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,
forfeiture, obligation to sell or convey (with or without a right to receive
consideration therefor) or acceleration of any material obligation or the
loss of a material benefit under, or result in the creation of any Lien upon
any of the properties or assets of Grove or any Grove Subsidiary under, (i)
the Declaration of Trust or the Bylaws of Grove or the comparable charter or
organizational documents or partnership or similar agreement (as the case may
be) of any Grove Subsidiary, in each case as amended or supplemented to the
date of this Agreement, (ii) any loan or credit agreement, note, bond,
mortgage, indenture, reciprocal easement agreement, employment or consulting
agreement, lease or other agreement, instrument, permit, concession,
franchise or license to which Grove or any Grove Subsidiary is a party or
their respective properties or assets are bound 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 Grove or any Grove 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) result in fees or other
payments in excess of $250,000 or the conveyance or forfeiture of any asset
(tangible or intangible) or right having a book value in excess of $250,000
or (y) prevent the consummation of the transactions contemplated by this
Agreement. Except as set forth on Schedule 2.5 to the Grove Disclosure
Letter, 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 Grove or any Grove Subsidiary in
connection with the execution and delivery of this Agreement by Grove or the
consummation by Grove of the transactions contemplated by this Agreement,
except for (i) the filing with the Securities and Exchange Commission (the
"SEC") of (x) a proxy statement relating to the Grove Shareholder Approvals
(as amended or supplemented from time to time, the "Proxy Statement") and (y)
such reports under Section 13(a) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), as may be required in connection with this
Agreement and the transactions contemplated by this Agreement, (ii) the
acceptance for record of the Company Articles of Merger by the Maryland
Department, (iii) the acceptance for record of the
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Partnership Certificate of Merger by the Delaware Secretary and (iv) such
other consents, approvals, orders, authorizations, registrations,
declarations and filings, including, without limitation, any consents,
approvals, orders, authorizations, registrations, declarations and filings
required by the United States Department of Housing and Urban Development
("HUD"), the Massachusetts Housing Finance Authority ("MHFA") or similar
agencies, (A) as are set forth in Schedule 2.5 to the Grove Disclosure
Letter, (B) as may be required under federal, state or local environmental
laws, 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 Grove or any Grove Subsidiary from
performing its obligations under this Agreement in any material respect or
have, individually or in the aggregate, a Grove Material Adverse Effect.
(c) For purposes of determining compliance with the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the
"Hart-Scott Act"), Grove confirms that the conduct of its business does not
require a filing under the Hart-Scott Act in connection with the Mergers.
2.6 SEC DOCUMENTS; FINANCIAL STATEMENTS; UNDISCLOSED LIABILITIES.
(a) Except as indicated on Schedule 2.6 to the Grove
Disclosure Letter, Grove has filed all required reports, schedules, forms,
statements and other documents with the SEC since January 1, 1995 through the
date hereof (the "Grove SEC Documents") on a timely basis. Schedule 2.6 of
the Grove Disclosure Letter contains a complete list (without exhibits) of
all Grove SEC Documents filed by Grove with the SEC since January 1, 1995 and
on or prior to the date of this Agreement. All of the Grove SEC Documents
(other than preliminary material), as of their respective filing dates, or as
of the date of the last amendment thereof (if amended after filing), 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 Grove SEC Documents. None of the
Grove 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 Grove SEC
Documents filed on a non-confidential basis prior to the date of this
Agreement. The consolidated financial statements of Grove included in the
Grove 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
accounting principles generally accepted in the United States ("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 therein or in the notes thereto)
and fairly presented, in accordance with the applicable requirements of GAAP
and the applicable rules and regulations of the SEC, in all material
respects, the consolidated financial position of Grove and the consolidated
Grove 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, any other adjustments described therein and the fact that
certain information and notes have been condensed or omitted in accordance
with the Exchange Act). Schedule 2.6 of the Grove Disclosure Letter sets
forth all Grove Subsidiaries which are not consolidated for accounting
purposes as of the date hereof. Except for liabilities
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and obligations set forth in the Grove SEC Documents or in Schedule 2.6 to
the Grove Disclosure Letter, neither Grove nor any of the Grove 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 Grove or in the notes thereto and which, individually or in
the aggregate, would have a Grove Material Adverse Effect, after taking into
account any assets acquired or services provided in connection with the
incurrence of such liabilities or obligations.
(b) Grove has at all times been in material compliance with
the rules and regulations of the American Stock Exchange ("AMEX").
(c) At no time has Grove OP or any other Grove Subsidiary
been subject to the reporting requirements of Sections 13 or 15(d) of the
Exchange Act.
2.7 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed in
the Grove SEC Documents or Schedule 2.7 to the Grove Disclosure Letter, since
the date of the most recent audited financial statements included in the
Grove SEC Documents (the "Grove Financial Statement Date") Grove and the
Grove 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 Grove
and the Grove Subsidiaries taken as a whole (a "Grove 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 Grove Material
Adverse Change, (b) except (i) prior to the date hereof, regular quarterly
dividends or distributions (in the case of Grove and Grove OP) not in excess
of $0.18 per Grove Common Share and Grove OP Unit with customary record and
payment dates and (ii) subsequent to the date hereof, in accordance with
Section 5.9, any declaration, setting aside or payment of any dividend or
other distribution (whether in cash, stock or property) with respect to any
Grove Shares and Grove OP Units, (c) any split, combination or
reclassification of any Grove Shares 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 Grove 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 Grove Material Adverse Effect, (e) any change made prior to the
date of this Agreement in accounting methods, principles or practices by
Grove or any Grove Subsidiary materially affecting its assets, liabilities or
business, except insofar as may have been disclosed in Grove SEC Documents or
required by a change in GAAP or (f) any amendment of any employment,
consulting, severance, retention or any other agreement between Grove and any
officer or trust manager of Grove.
2.8 LITIGATION. Except as disclosed in the Grove SEC Documents,
Schedule 2.8 or Schedule 2.9 to the Grove Disclosure Letter, and other than
personal injury and other routine tort litigation arising from the ordinary
course of operations of Grove and the Grove 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 Grove, threatened against or affecting Grove
or any Grove Subsidiary that, individually or in the aggregate, could
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reasonably be expected to have a Grove Material Adverse Effect, nor is there
any judgment, decree, injunction, rule or order of any Governmental Entity or
arbitrator outstanding against Grove or any Grove Subsidiary having, or which
could reasonably be expected to have, any such effect. Notwithstanding the
foregoing, (y) Schedule 2.8 to the Grove Disclosure Letter sets forth each
and every claim involving a potential dollar cost to Grove in excess of
$50,000 and each and every equal employment opportunity claim and claim
relating to sexual harassment and/or discrimination pending or, to the
Knowledge of Grove, threatened as of the date hereof, in each case with a
brief summary of such claim or threatened claim and (z) no claim is pending
or has been made since January 1, 1995 under any trustees', directors' or
officers' liability insurance policy maintained at any time by Grove or any
of the Grove Subsidiaries. There is no suit, action or proceeding pending, or
to the Knowledge of Grove, threatened, against Grove or any Grove Subsidiary
which challenges, states a cause of action grounded in, or seeks damages in
respect of, the transactions contemplated by this Agreement.
2.9 PROPERTIES.
(a) Schedule 2.9 to the Grove Disclosure Letter identifies
all real property owned or leased by Grove and the Grove Subsidiaries and the
Grove Subsidiary or Subsidiaries which owns or leases such real property (the
"Grove Properties"). Except as provided in Schedule 2.9 of the Grove
Disclosure Letter, Grove or the Grove Subsidiary set forth on Schedule 2.2 of
the Grove Disclosure Letter owns fee simple title to their respective Grove
Properties. All such properties are owned in each case free and clear of
liens, mortgages or deeds of trust, claims against title, charges which are
liens, security interests or other encumbrances on title securing monetary
obligations ("Encumbrances") (except as provided below). Except as set forth
in Schedule 2.2, Schedule 2.18 or Schedule 2.9 of the Grove Disclosure
Letter, no other Person has any ownership interest in any of the Grove
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 Grove Properties subject thereto or affected thereby. The Grove
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")
or other Encumbrances, except for (i) Encumbrances and Property Restrictions
set forth in the Grove 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 do not materially
adversely affect the current use of any Grove 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 ERP), which Encumbrances and Property
Restrictions disclosed in Schedule 2.9 to the Grove Disclosure Schedule or
contained in the previously delivered title reports, in any event, do not
materially interfere with the present use of, any of the Grove Properties
subject thereto or affected thereby (provided that Grove specifically
represents and warrants that any Encumbrances identified on any existing
title report as securing any Indebtedness, other than the Indebtedness
identified on Schedule 2.18 of the Grove Disclosure Letter, has been released
of record since the date of the title report in question), (iv) real estate
taxes and assessments which constitute a Lien but are not yet due and payable
and (v) mechanics', carriers', workmen's, repairmen's liens, other
Encumbrances and Property Restrictions (other than Encumbrances and Property
Restrictions contained in any agreement of the type described in Section
2.9(j) and disclosed on Schedule 2.9 to the Grove Disclosure Letter), if any,
which, individually or in the
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aggregate, do not materially detract from the value of or materially
interfere with the present use of any of the Grove Properties subject thereto
or affected thereby, and do not otherwise materially impair business
operations conducted by Grove and the Grove Subsidiaries, taken as a whole.
Except as disclosed in Schedule 2.9 of the Grove Disclosure Letter, no
portion of any of the Grove Properties is located in a flood zone area for
which flood insurance is available under a federally sponsored insurance
program except for that which, individually or in the aggregate, do not
materially detract from the value of or materially interfere with the present
use of such Grove Property subject thereto or affected thereby. Schedule 2.9
lists each of the Grove Properties which is under development as of the date
of this Agreement.
(b) Except as provided in Schedule 2.9 to the Grove
Disclosure Letter, valid policies of title insurance (each a "Grove Title
Insurance Policy") have been issued insuring Grove's or the applicable Grove
Subsidiary's fee simple title to the Grove Properties, subject only to the
matters disclosed above and on the Grove 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. A true and correct copy of each Grove Title
Insurance Policy has been previously delivered to ERP.
(c) Except as provided in Schedule 2.9 to the Grove
Disclosure Letter or in Grove's capital budget attached to the Grove
Disclosure Letter (the "Grove Capital Budget"), Grove has no Knowledge (i)
that, any certificate, permit or license from any governmental authority
having jurisdiction over any of the Grove 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 Grove Properties or
which is necessary to permit the lawful current use and operation of all
driveways, roads and other means of egress and ingress to and from any of the
Grove 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 Grove Properties issued by any governmental authority;
(iii) of any material structural defects relating to any Grove Property which
costs more than $75,000 to repair; (iv) of any Grove Property whose building
systems are not in working order in any material respect and costs more than
$75,000 to repair; (v) of any physical damage to any Grove Property in excess
of $75,000 for which there is no insurance in effect covering the cost of the
restoration; (vi) of any current renovation or uninsured restoration underway
to any Grove Property the cost of which exceeds $75,000; or (vii) of items
referred to in Section 2.9(c)(iii)-(vi) which aggregate for Grove and the
Grove Subsidiaries more than $1,000,000.
(d) Except as set forth in Schedule 2.9 to the Grove
Disclosure Letter, neither Grove nor any of the Grove 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
Grove Properties or (ii) any zoning, building or similar law, code,
ordinance, order or regulation is or will be violated in any material respect
for any property by the continued maintenance, operation or use of any
buildings or other improvements on any of the Grove Properties in accordance
with current practice or by the continued maintenance, operation or use of
the parking areas.
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(e) Except as set forth in Schedule 2.9 to the Grove
Disclosure Letter, all of the Grove Properties are managed by Grove or a
wholly-owned Grove Subsidiary.
(f) The rent roll for the Grove Properties as of April 30,
2000 has been previously delivered to ERP, and is complete and correct in all
material respects as of the date thereof (the "Rent Roll"). The Rent Roll
lists each lease with respect the Grove Properties, identifies the leased
premises, names all tenants, indicates square footage or other indication of
space leased, monthly rental, date to which paid, term of lease, date of
occupancy and date of expiration.
(g) Except as set forth in Schedule 2.9 to the Grove
Disclosure Letter, all work required to be performed, payments required to be
made and actions required to be taken prior to the date hereof pursuant to
any agreement entered into with a governmental body or authority in
connection with a site approval, zoning reclassification or other similar
action relating to any Grove Properties (e.g., local improvement district,
road improvement district, environmental mitigation) have been performed,
paid or taken, as the case may be, other than those where, individually or in
the aggregate with any other condition or omission resulting in a breach of
the representations and warranties set forth in this Section 2.9, the failure
would not have a Grove Material Adverse Effect, and Grove has no Knowledge of
any material work, payments or actions that are required after the date
hereof pursuant to such agreements, except as set forth in development or
operating budgets for such Grove Properties delivered to ERP prior to the
date hereof.
(h) Grove and each of the Grove Subsidiaries have good and
sufficient title to all their personal and non-real properties and assets
reflected in their books and records as being owned by them (including those
reflected in the consolidated balance sheet of Grove as of December 31, 1999,
except as since sold or otherwise disposed of in the ordinary course of
business), free and clear of all liens and encumbrances, except such
Encumbrances reflected on Schedule 2.18 or Schedule 2.9 to the Grove
Disclosure Letter or on the consolidated balance sheet of Grove as of
December 31, 1999, and the notes thereto, and except for Liens for current
taxes not yet due and payable, and Liens or encumbrances which are normal to
the business of Grove and the Grove Subsidiaries and are not, in the
aggregate, material in relation to the assets of Grove on a consolidated
basis and except also for such imperfections of title, easement and
encumbrances, if any, as do not materially interfere with the present use of
the properties subject thereto or affected thereby, or otherwise materially
impair the consolidated business operations of Grove.
(i) Except as set forth in Schedule 2.9 to the Grove
Disclosure Letter, no Grove Property is currently under development or
subject to any agreement with respect to development, and neither Grove nor
any Grove Subsidiary shall enter into any such agreements between the date
hereof and the Company Merger Effective Time without the prior written
approval of ERP.
(j) Schedule 2.9 to the Grove Disclosure Letter sets forth
each Grove Property subject to regulation by HUD, MHFA or similar agency, as
well as any agreements entered into between Grove and any Grove Subsidiary
and such agencies (including, without limitation, any so-called 121A excise
tax agreements). Those certain closing binders delivered to ERP by Grove
prior to the date hereof contain true and correct copies of all such
agreements. Grove and
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the Grove Subsidiaries have at times been in compliance with all applicable
rules and regulations of, and agreements with, HUD, MHFA or similar agencies.
2.10 ENVIRONMENTAL MATTERS. Grove has delivered to ERP a true and
complete copy of the environmental reports by third-party consulting firms
listed on Schedule 2.10 of the Grove Disclosure Letter (the "Grove
Environmental Reports"). To Grove's Knowledge, the Grove Environmental
Reports constitute all final environmental reports (including, without
limitation, all final versions of environmental investigations and testing or
laboratory analysis made by or on behalf of Grove or any of the Grove
Subsidiaries) with respect to the Grove Properties in the possession of Grove
or any Grove Subsidiary. With respect to each Grove Property, except for any
condition that individually or in the aggregate would not be reasonably
expected to have a Grove Material Adverse Effect, (a) no Hazardous Substances
(as defined below) have been used, stored, manufactured, treated, processed
or transported to or from any such Grove Property except as necessary to the
conduct of business and in compliance with Environmental Laws (as defined
below); (b) no unlawful spills, releases, discharges or disposals of
Hazardous Substances have occurred or are presently occurring on or from such
Grove Property; (c) such Grove Property and the business conducted thereon
are not in violation of Environmental Laws; and (d) Grove and the Grove
Subsidiaries have not received and do not reasonably expect to receive any
notice of potential responsibility, letter of inquiry or notice of alleged
liability under any Environmental Law from any Person regarding such Grove
Property or the business conducted thereon, provided, however, that with
respect to any Grove Property covered by an Environmental Report, the
representation contained in this Section 2.10 covers only that period
following the date of such Environmental Report. For the purposes of this
Section 2.10 only, "Grove Properties" shall be deemed to include all property
formerly owned, operated or leased by Grove or the Grove Subsidiaries;
solely, however, as to the period of time when such property was so owned,
operated, or leased by Grove or the Grove Subsidiaries.
"Environmental Laws" shall mean any applicable statute, code,
enactment, ordinance, rule, regulation, permit, consent, approval,
authorization, judgment, order, common law rule (including without limitation
the common law respecting nuisance and tortious liability), decree, injunction,
or other requirement having the force and effect of law, whether local, county,
state, territorial or national, at any time in force or effect relating to:
(a) emissions, discharges, spills, releases or threatened
releases of Hazardous Substances into ambient air, surface
water, groundwater, watercourses, publicly or privately owned
treatment works, drains, sewer systems, wetlands, septic
systems or onto land;
(b) the use, treatment, storage, disposal, handling,
manufacturing, transportation or shipment of Hazardous
Substances;
(c) the regulation of storage tanks; or
(d) otherwise relating to pollution or the protection the
environment.
"Hazardous Substances" shall mean all substances, wastes,
pollutants, contaminants and materials regulated or defined or designated as
hazardous, extremely or imminently hazardous,
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dangerous, or toxic pursuant to any law, by any local, county, state,
territorial or federal governmental authority, or with respect to which such
a governmental authority otherwise requires environmental investigation,
monitoring, reporting, or remediation; including, but not limited to:
(a) all substances, wastes, pollutants, contaminants and
materials regulated, or defined or designated as hazardous, extremely or
imminently hazardous, dangerous or toxic, under the following federal
statutes and their state counterparts, as well as their statutes'
implementing regulations: the Comprehensive Environmental Response,
Compensation and Liability Act, 42 U.S.C. section 9601 et. seq., the Resource
Conservation and Recovery Act, 42 U.S.C. section 6901 et. seq., the Toxic
Substances Control Act, 15 U.S.C. section 2601 et. seq., the Clean Water Act,
33 U.S.C. section 1251 et. seq., the Clean Air Act, 42 U.S.C. section 7401
et. seq., the Emergency Planning and Community Right to Know Act, 42 U.S.C.
section 11011 et. seq., the Safe Drinking Water Act, 33 U.S.C. section 300f
et. seq., the Federal Insecticide, Fungicide, and Rodenticide Act, 7 U.S.C.
section 136 et. seq., and the Hazardous Materials Transportation Act, 49
U.S.C. section 1501 et. seq.;
(b) petroleum and petroleum products including crude oil and
any fractions thereof;
(c) natural gas, synthetic gas, and any mixtures thereof; and
(d) radon, radioactive substances, asbestos, urea
formaldehyde, polychlorinated biphenyls and electromagnetic field radiation.
2.11 CONSULTANTS AND RELATED PARTY TRANSACTIONS.
(a) Set forth in Schedule 2.11 to the Grove Disclosure Letter
is a list of all arrangements, agreements and contracts entered into by Grove
or any of the Grove Subsidiaries under which continuing obligations exist
with (i) any consultant (other than a consultant entitled to receive less
than $15,000 from Grove or any Grove Subsidiary, PROVIDED, HOWEVER, that if
the total amount owed to consultants by Grove and the Grove Subsidiaries
under arrangements, agreements and contracts not set forth in Schedule 2.11
to the Grove Disclosure Letter exceeds $100,000, all such agreements shall be
set forth in Schedule 2.11), (ii) any person who is an officer, trust
manager, trustee, director or Affiliate of Grove or any of the Grove
Subsidiaries, any member of the "immediate family" (as such term is defined
in Item 404 of Regulation S-K promulgated under the Securities Act) of any of
the foregoing or any entity of which any of the foregoing is an Affiliate or
(iii) any person who acquired Grove Shares in a private placement within
three years preceding the date hereof, except those of a type available to
Grove employees generally. To the extent in writing, such documents, copies
of all of which have previously been delivered or made available to ERP, are
listed in Schedule 2.11 to the Grove Disclosure Letter.
(b) On or prior to the date hereof, (i) a special independent
committee of the Grove Board comprised of all the non-employee trust managers
of Grove (the "Special Committee") has approved that certain agreement by and
among Grove OP, Joseph LaBrosse, Damon Navarro, Brian Navarro and Edmund
Navarro and certain affiliates thereof relating to the transfer by Grove OP
of its equity interests in four retail properties and related assets and
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liabilities (the "Retail Sale Agreement") and the transactions contemplated
therein, (ii) the Retail Sale Agreement has been duly authorized and executed
by the parties thereto and is enforceable against the parties thereto in
accordance with its terms and (iii) a copy of the Retail Sale Agreement, as
executed and delivered and currently in effect, has been delivered to ERP.
The Special Committee has been duly created and authorized in accordance with
Maryland law and has received such advice, legal counsel and information
deemed appropriate by the Special Committee to carry out its duties in
accordance with Maryland and Delaware law. Schedule 2.11 to the Grove
Disclosure Letter sets forth the compensation, if any, payable to each Grove
non-employee trust manager for his service as a member of the Special
Committee.
2.12 EMPLOYEE BENEFITS. As used herein, the term "Employee Plan"
includes any pension, retirement, savings, disability, medical, dental,
health, life, death benefit, group insurance, profit sharing, deferred
compensation, stock option, stock loan, bonus, incentive, vacation pay,
tuition reimbursement, severance pay, or other employee benefit plan, trust,
agreement, contract, arrangement, policy or commitment (including, without
limitation, any pension plan, as defined in Section 3(2) of the Employee
Retirement Income Security Act of 1974, as amended and the rules and
regulations promulgated thereunder ("ERISA") ("Pension Plan"), and any
welfare plan as defined in Section 3(1) of ERISA ("Welfare Plan")), whether
any of the foregoing is funded, insured or self-funded, written or oral, (i)
sponsored or maintained by Grove or Grove Subsidiaries (each a "Controlled
Group Member") and covering any Controlled Group Member's active or former
employees (or their beneficiaries), (ii) to which any Controlled Group Member
is a party or by which any Controlled Group Member (or any of the rights,
properties or assets thereof) is bound or (iii) with respect to which any
current Controlled Group Member may otherwise have any material liability
(whether or not such Controlled Group Member still maintains such Employee
Plan). Each Employee Plan is listed on Schedule 2.12. With respect to the
Employee Plans:
(a) Except as disclosed in the Grove SEC Documents or in
Schedule 2.12 to the Grove Disclosure Letter, no Controlled
Group Member has any continuing liability under any Welfare
Plan which provides for continuing benefits or coverage for
any participant or any beneficiary of a participant after such
participant's termination of employment, except as may be
required by section 4980B of the Code or Section 601 (ET SEQ.)
of ERISA, or under any applicable state law, and at the
expense of the participant or the beneficiary of the
participant.
(b) Each Employee Plan complies in all material respects with
the applicable requirements of ERISA and any other applicable
law governing such Employee Plan, and each Employee Plan has
at all times been properly administered in all material
respects in accordance with all such requirements of law, and
in accordance with its terms and the terms of any applicable
collective bargaining agreement to the extent consistent with
all such requirements of law. Each Pension Plan which is
intended to be qualified is qualified under Section 401(a) of
the Code, has received a favorable determination letter from
the Internal Revenue Service (the "IRS") stating that such
Plan meets the requirements of Section 401(a) of the Code and
that the trust associated with such Plan is tax exempt under
Section 501(a) of the Code and no event has occurred which
would
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jeopardize the qualified status of any such Plan or the tax
exempt status of any such trust under Section 401(a) and
Section 501(a) of the Code, respectively. No lawsuits, claims
(other than routine claims for benefits) or complaints to, or
by, any person or governmental entity have been filed or are
pending, Grove has received no notice of such a lawsuit, claim
or complaint and, to the Knowledge of Grove, there is no fact
or contemplated event which would be expected to give rise to
any such lawsuit, claim (other than routine claims for
benefits) or complaint with respect to any Employee Plan.
Without limiting the foregoing, except as disclosed on
Schedule 2.12 to the Grove Disclosure Letter, the following
are true with respect to each Employee Plan:
(i) except for those not yet required to be filed or
distributed, all Controlled Group Members have filed or caused to be filed
every material return, report, statement, notice, declaration and other
document required by any law or governmental agency, federal, state and local
(including, without limitation, the IRS and the Department of Labor), with
respect to each such Employee Plan, each of such filings has been complete
and accurate in all material respects and no Controlled Group Member has
incurred any material liability in connection with such filings;
(ii) except for those not yet required to be filed or
distributed, all Controlled Group Members have delivered or caused to be
delivered to every participant, beneficiary and other party entitled to such
material, all material plan descriptions, returns, reports, schedules,
notices, statements and similar materials, including, without limitation,
summary plan descriptions and summary annual reports, as are required under
Title I of ERISA, the Code, or both, and no Controlled Group Member has
incurred any material liability in connection with such deliveries;
(iii) all contributions and payments with respect to Employee
Plans that are required to be made by a Controlled Group Member with respect
to periods ending on or before the Closing Date (including periods from the
first day of the current plan or policy year to the Closing Date) have been,
or will be, made or accrued before the Closing Date in accordance with the
appropriate plan document, actuarial report, collective bargaining agreement
or insurance contract or arrangement or as otherwise required by ERISA or the
Code;
(iv) with respect to each such Employee Plan, to the extent
applicable, Grove has delivered to ERP true and complete copies of (A)
current plan documents, or any and all other documents that establish the
existence of the current plan, trust, arrangement, contract, policy or
commitment and all amendments thereto, (B) the most recent determination
letter, if any, received from the IRS, (C) the three most recent Form 5500
Annual Report (and all schedules and reports relating thereto) and actuarial
reports and (D) all related trust agreements, insurance contracts or other
funding agreements that implement each such Employee Plan.
(c) With respect to each Employee Plan, there has not
occurred, and no person or entity is contractually bound to
enter into, any "prohibited transaction" within the meaning of
Section 4975(c) of the Code or Section 406 of ERISA, which
transaction is not exempt under Section 4975(d) of the Code or
Section 408 of ERISA.
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(d) Except as disclosed in Schedule 2.12A, no Controlled Group
Member has maintained or been obligated to contribute to any
Employee Plan subject to Code Section 412 or Title IV of
ERISA. With respect to each Employee Plan set forth on
Schedule 2.12A, Grove represents that each such Employee Plan
has been completely terminated in accordance with all Code and
ERISA requirements for a "standard termination" (as defined in
4041(b) of ERISA), as applicable on the termination date.
(e) Except as set forth in Schedule 2.12 to the Grove
Disclosure Letter, with respect to each Pension Plan
maintained by any Controlled Group Member, such Plan provides
the Plan Sponsor the authority to amend or terminate the
Pension Plan at any time, subject to applicable requirements
of ERISA and the Code.
(f) Except as disclosed on Schedule 2.12 to the Grove
Disclosure Letter, Grove has no obligation to make payments to
any individual to offset, in whole or in part, any federal or
state income taxes, including taxes imposed pursuant to the
provisions of Code Sections 280G or 4999, and the consummation
of the transactions contemplated by this Agreement will not
result in any excise tax withholding.
2.13 EMPLOYEE MATTERS. Schedule 2.13 of the Grove Disclosure
Letter lists the employee handbooks of Grove and each of the Grove
Subsidiaries currently in effect. A copy of each such employee handbook has
previously been made available to ERP. Except as set forth in Schedule 2.13
of the Grove Disclosure Letter, such handbooks fairly and accurately
summarize all material employee policies, vacation policies and payroll
practices of Grove and the Grove Subsidiaries. Neither Grove nor any of the
Grove Subsidiaries is a party to, or bound by, any collective bargaining
agreement, contract or other agreement or understanding with a labor union or
other labor organization, nor has Grove or any of the Grove Subsidiaries
agreed that any unit of their employees is appropriate for collective
bargaining. No union or other labor organization has been certified as
bargaining representative for any of Grove's employees. To the Knowledge of
Grove there are no organizational efforts with respect to the formation of a
collective bargaining unit presently being made or threatened involving
employees of Grove or any of the Grove Subsidiaries.
2.14 TAXES.
(a) Each of Grove and the Grove 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 Grove has paid on its behalf) all Taxes
(as defined below) shown or reflected on such returns and reports as required
to be paid by it and all such tax returns are correct in all material
respects except (i) as set forth in Schedule 2.14 to the Grove Disclosure
Letter, or (ii) real estate taxes that are being contested in good faith by
appropriate proceedings, each as described in Schedule 2.14 to the Grove
Disclosure Letter, and for which Grove or the applicable Grove Subsidiary
shall have set aside on its books adequate reserves. Except with respect to
any Taxes which might be imposed or assessed with respect to the matters set
forth in Schedule 5.6(d) to the Grove Disclosure Letter, the most recent
audited financial statements contained in the Grove SEC Documents reflect an
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adequate reserve for all material Taxes payable or accrued by Grove and the
Grove Subsidiaries for all taxable periods and portions thereof through the
date of such financial statements. Since the Grove Financial Statement Date,
Grove 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 Grove nor any Grove Subsidiary has incurred any liability for Taxes
other than in the ordinary course of business. No deficiencies for any Taxes
have been proposed, asserted or assessed pursuant to a "30-day letter" or
notice of deficiency sent by the IRS, or, to the Knowledge of Grove, except
as set forth in Schedule 2.14 of the Grove Disclosure Letter, otherwise
proposed, asserted or assessed against Grove or any of the Grove
Subsidiaries. No waivers of the time to assess any such Taxes have been
executed by Grove or any Grove Subsidiary and, to the Knowledge of Grove, no
requests for such waivers 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) Grove (i) has been subject to taxation as a real estate
investment trust (a "REIT") within the meaning of Section 856 of the Code
commencing with the taxable year beginning January 1, 1994, 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
until the Company Merger Effective Time 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 no such
challenge is pending or, to Grove's Knowledge, threatened. Each Grove
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 either a partnership or ignored as a separate entity
and not as a corporation or an association taxable as a corporation, as the
case may be, and (ii) has not since its formation owned any assets
(including, without limitation, securities) that would cause Grove to violate
Section 856(c)(4) of the Code. Each Grove Subsidiary which is a corporation
or treated as an association taxable as a corporation has been since the date
of its formation or January 1, 1994 (whichever is later) a qualified REIT
subsidiary under Section 856(i) of the Code. All former Grove Subsidiaries,
if such entities had remained Grove Subsidiaries, would comply with this
Section 2.14.
2.15 NO PAYMENTS TO EMPLOYEES, OFFICERS, TRUST MANAGERS OR
DIRECTORS.
(a) Set forth in Schedule 2.15 of the Grove Disclosure Letter
is a true and complete list of all cash and non-cash payments, rights to
property or other contract rights which may become payable, accelerated or
vested as a result of the Company Merger or Partnership Merger ("Section 2.15
Payments") to or in each current or former employee, officer, trustee, trust
manager or director of Grove or any Grove Subsidiary (each a "Section 2.15
Employee"). Except as described Schedule 2.15 to the Grove 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 current or former
employee, officer, trust manager, trustee or
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director of Grove or any Grove Subsidiary. On or prior to the date hereof, each
executive officer of Grove listed on Schedule 2.15 to the Grove Disclosure
Letter (each a "Grove Executive") has executed an amendment to such Grove
Executive's employment agreement or arrangement with Grove or any Grove
Subsidiary in the applicable form attached to Schedule 2.15.
(b) Schedule 2.15 to the Grove Disclosure Schedule sets forth
(i) all payments (whether in cash, in equity securities of Grove or any Grove
Subsidiary or otherwise) to be made to or for the account of employees of
Grove or any Grove Subsidiary (except for wages paid in the normal course of
business) which have been authorized and/or accrued but not paid and (ii) all
compensation payments which have been made to any employees listed on
Schedule 2.15 to the Grove Disclosure Letter from January 1, 2000 through
July 7, 2000. As of the date of this Agreement, no compensation payments have
been made to Grove employees since July 6, 2000.
(c) Any Section 2.15 Payment or arrangement or program
providing for Section 2.15 Payments which were authorized, adopted, approved
or ratified after June 12, 2000 have been authorized, adopted, approved or
ratified by the Special Committee, other than the grants of certain Grove
Options pursuant to and in accordance with the 1996 Plan, each of which is
disclosed on Schedule 2.15 to the Grove Disclosure Letter.
2.16 BROKERS; SCHEDULE OF FEES AND EXPENSES. Except as disclosed
in Schedule 2.16 to the Grove Disclosure Letter, no broker, investment
banker, financial advisor or other person, other than Houlihan Lokey Howard &
Zukin, the fees and expenses of which have previously been disclosed to ERP,
is entitled to any broker's, finder's, financial advisor's or other similar
fee or commission in connection with the transactions contemplated hereby or
any pending acquisition or disposition by Grove or any Grove Subsidiary based
upon arrangements made by or on behalf of Grove or any Grove Subsidiary. A
true and correct copy of the engagement letter for Houlihan Lokey Howard &
Zukin and each person referred to on Schedule 2.16 has been delivered to ERP
prior to the date hereof.
2.17 COMPLIANCE WITH LAWS. Except as disclosed in the Grove SEC
Documents or in Schedule 2.6 or Schedule 2.17 to the Grove Disclosure Letter,
neither Grove nor any of the Grove 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 Grove Material Adverse Effect.
2.18 CONTRACTS; DEBT INSTRUMENTS.
(a) To the Knowledge of Grove, except as disclosed in the
Grove SEC Documents or in Schedule 2.18 to the Grove Disclosure Letter, there
is no contract or agreement that purports to limit in any material respect
the names under or the geographic location in which Grove or any Grove
Subsidiary may conduct its business. Neither Grove nor any Grove Subsidiary
has received a written notice that Grove or any Grove Subsidiary is in
violation of or in default under (nor to the Knowledge of Grove 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
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which it is a party or by which it or any of its properties or assets is
bound, except as set forth in Schedule 2.18 to the Grove Disclosure Letter,
nor to the Knowledge of Grove does such a violation or default exist, except
as set forth in Schedule 2.18 to the Grove Disclosure Letter, or to the
extent that such violation or default, individually or in the aggregate,
would not have a Grove Material Adverse Effect.
(b) Schedule 2.18 to the Grove 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 (as
defined herein) of Grove or any Grove Subsidiary is outstanding or may be
incurred (collectively, the "Debt Documents"), as well as, with respect to
the Indebtedness evidenced by each Debt Document, as of July 1, 2000, the
outstanding principal balance, the maturity date, the applicable interest
rate (including the method or formula for calculating any interest that is
not a fixed percentage of the principal balance) and the amount of or the
method or formula for calculating any Equity Participation (as defined
herein). For purposes of this Section 2.18, "Indebtedness" shall mean (i)
indebtedness for borrowed money, whether secured or unsecured, (ii)
obligations under conditional sale or other title retention agreements
relating to property purchased by such person, (iii) capitalized lease
obligations, (iv) obligations under interest rate cap, swap, collar or
similar transaction or currency hedging transactions (valued at the
termination value thereof), (v) obligations to pay any equity kicker or other
participation in the operating cash flow, gross revenue or other income from
the real property or other asset of Grove or any Grove Subsidiary or in the
gross, net or excess sale, financing, refinancing or other capital proceeds
from any such property or other asset (whether or not in connection with any
other Indebtedness) (each an "Equity Participation") and (vi) guarantees of
any such indebtedness of any other person. Grove hereby represents and
warrants that each item of Indebtedness may be assumed by ERP without cost or
penalty, except as set forth in Schedule 2.18 to the Grove Disclosure Letter,
and without the consent of or requirement to obtain the approval or
confirmation as to any matter from the holder of any such Indebtedness or any
other person. For purposes of this Section 2.18, "assumed by ERP" shall mean
that, immediately or after the giving of notice or the passage of time (or
both), such Indebtedness will not, either automatically or upon the exercise
of any right or option of the holder of such Indebtedness or any other
person, be accelerated or become due and payable in whole or in part as a
result of the consummation of the transactions contemplated by this Agreement
(including, without limitation, the Mergers).
(c) Schedule 2.18 to the Grove 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 Grove or any Grove Subsidiary is a party or an obligor
with respect thereto.
(d) Except as set forth in Schedule 2.18 to the Grove
Disclosure Letter, neither Grove nor any of the Grove Subsidiaries is party
to any agreement which would restrict any of them from prepaying any of their
Indebtedness without penalty or premium at any time or which requires any of
them to maintain any amount of Indebtedness with respect to any of the Grove
Properties.
(e) Neither Grove nor any of the Grove Subsidiaries is a
party to any agreement relating to the management of any of the Grove
Properties by a party other than Grove or any
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wholly-owned Grove Subsidiary (a "Third Party"), except the agreements
described in Schedule 2.18 to the Grove Disclosure Letter (the "Third Party
Management Agreements"). A true and complete copy of each Third Party
Management Agreement has previously been delivered to ERP.
(f) None of Grove or any of the Grove Subsidiaries is a party
to any agreement pursuant to which Grove or any Grove Subsidiary manages any
real properties for any Third Party, except for the agreements described in
Schedule 2.18 to the Grove Disclosure Letter (the "Outside Management
Agreements"). A true and complete copy of each Outside Management Agreement,
if any, has previously been delivered to ERP.
(g) Schedule 2.18 of the Grove Disclosure Letter lists all
agreements entered into by Grove or any of the Grove Subsidiaries relating to
the development, construction, rehabilitation or renovation of, or additions
or expansions to, any Grove Properties which are currently in effect and
under which Grove or any of the Grove Subsidiaries currently has, or
reasonably expects to incur, an obligation in excess of $125,000. True and
correct copies of such agreements have previously been delivered to ERP.
(h) Schedule 2.18 to the Grove Disclosure Letter lists all
agreements entered into by Grove or any of the Grove Subsidiaries providing
for the sale of, or option to sell, any Grove Properties or the purchase of,
or option to purchase, any real estate which are currently in effect.
(i) Except as set forth in Schedule 2.18 to the Grove
Disclosure Letter, neither Grove nor any Grove Subsidiary has any continuing
contractual liability (i) for indemnification or otherwise under any
agreement relating to the sale of real estate previously owned, whether
directly or indirectly, by Grove or any Grove Subsidiary, except for standard
indemnification provisions entered into in the normal course of business,
(ii) to pay any additional purchase price for any of the Grove Properties, or
(iii) to make any reprorations or adjustments to prorations that may
previously have been made with respect to any property currently or formerly
owned by Grove.
(j) Except as set forth in Schedule 2.18 to the Grove
Disclosure Letter, neither Grove nor any Grove Subsidiary has entered into or
is subject, directly or indirectly, to any Tax Protection Agreements. As used
herein, a "Tax Protection Agreement" is an agreement, oral or written, (A)
that has as one of its purposes to permit a person or entity to take the
position that such person or entity could defer federal taxable income that
otherwise might have been recognized upon a transfer of property to the Grove
Partnership or any other Grove Subsidiary that is treated as a partnership
for federal income tax purposes, and (B) that (i) prohibits or restricts in
any manner the disposition of any assets of Grove or any Grove Subsidiary
(including, without limitation, requiring Grove or any Grove Subsidiary to
indemnify any person for any tax liabilities resulting from any such
disposition), (ii) requires that Grove or any Grove Subsidiary maintain, or
put in place, or replace, indebtedness, whether or not secured by one or more
of the Grove Properties, or (iii) requires that Grove or any Grove Subsidiary
offer to any person or entity at any time the opportunity to guarantee or
otherwise assume, directly or indirectly, the risk of loss for federal income
tax purposes for indebtedness or other liabilities of Grove or any Grove
Subsidiary. A true and correct copy of each Tax Protection Agreement has been
previously delivered to ERP.
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(k) Except as set forth in Schedule 2.18 to the Grove
Disclosure Letter, there are no material outstanding contractual obligations
of Grove or any Grove Subsidiary to make any investment in the form of a
loan, capital contribution or otherwise in any Grove Subsidiary or any other
Person. True and correct copies of each such agreement has been delivered to
ERP.
2.19 OPINION OF FINANCIAL ADVISOR. Grove has received the opinion
of Houlihan Lokey Howard & Zukin, dated July 14, 2000, satisfactory to Grove,
and a signed copy of which has been provided to ERP, to the effect that (i)
the consideration to be received by the holders of Grove Common Shares
pursuant to the Company Merger and the Limited Partners pursuant to the
Partnership Merger is fair, from a financial point of view, to such holders
and Limited Partners, and (ii) the consideration to be received by Grove OP
pursuant to the transactions contemplated by the Retail Sale Agreement is
fair, from a financial point of view, to Grove OP.
2.20 STATE TAKEOVER STATUTES. Grove has taken all action necessary
to exempt the transactions contemplated by this Agreement between ERP and
Grove and its Affiliates from the operation of Subtitles 6 and 7 of Title 3
of the Maryland General Corporation Law and any other "fair price,"
"moratorium," "control share acquisition" or any other takeover statute or
similar statute enacted under the state or federal laws of the United States
or similar statute or regulation (each a "Takeover Statute").
2.21 REGISTRATION STATEMENT. The information relating to Grove and
the Grove Subsidiaries included in the Proxy Statement and the registration
statement on Form S-4 under the Securities Act relating to the ERP Units
issuable in the Partnership Merger (the "Registration Statement") will not,
as of the date of mailing of the Proxy Statement and as of the effective date
of the Registration Statement, contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading.
2.22 DEVELOPMENT PROPERTIES. Schedule 2.22 to the Grove Disclosure
Letter lists all agreements entered into by Grove or any of the Grove
Subsidiaries relating to the development or construction of, or additions or
expansions to, any real properties under development for use as rental
properties by Grove or any Grove Subsidiary which are material and currently
in effect.
2.23 INVESTMENT COMPANY ACT OF 1940. Neither Grove nor any of the
Grove Subsidiaries is, or at the Company Merger Effective Time will be,
required to be registered under the Investment Company Act of 1940, as
amended (the "1940 Act").
2.24 TRADEMARKS, PATENTS AND COPYRIGHTS. Except as set forth in
Schedule 2.24 to the Grove Disclosure Letter, or to the extent the inaccuracy
of any of the following (or the circumstances giving rise to such inaccuracy)
individually or in the aggregate would not have a Grove Material Adverse
Effect, Grove and each Grove Subsidiary owns or possesses adequate licenses
or other legal rights to use all patents, patent rights, trademarks,
trademark rights, trade names, trade name rights, copyrights, service marks,
trade secrets, applications for trademarks and for service marks, know-how
and other proprietary rights and information used or held for use in
connection with the business of Grove and the Grove Subsidiaries as currently
conducted and Grove has no Knowledge of any assertion or claim challenging
the validity of any of the foregoing. The conduct of the business of Grove
and the Grove Subsidiaries as currently
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conducted does not and will not infringe in any way any patent, patent right,
license, trademark, trademark right, trade name, trade name right, service
mark, or copyright of any third party that, individually or in the aggregate,
could have a Grove Material Adverse Effect. To Grove's Knowledge, there are
no infringements of any proprietary rights owned by or licensed by or to
Grove or any Grove Subsidiary that individually or in the aggregate could
have a Grove Material Adverse Effect.
2.25 INSURANCE. Except as set forth on Schedule 2.25 to the Grove
Disclosure Letter, each of Grove and the Grove Subsidiaries is, and has been
continuously since the later of January 1, 1995 or the date upon which Grove
acquired ownership of such Grove Subsidiary, insured with insurers in such
amounts and against such risks and losses as are customary for companies
conducting the business as conducted by Grove and the Grove Subsidiaries
during such time period. Except as set forth on Schedule 2.25 to the Grove
Disclosure Letter, neither Grove nor any Grove Subsidiary has received any
written notice of cancellations or termination with respect to any material
insurance policy of Grove or any Grove Subsidiary. The insurance policies of
Grove and each Grove Subsidiary are valid and enforceable policies in all
material respects. Schedule 2.25 sets forth each policy of insurance
maintained by Grove and each Grove Subsidiary, as well as a brief description
of the coverage provided, annual premium, self insured retention or
co-payment provisions and deductible(s) for each such policy.
2.26 DEFINITION OF KNOWLEDGE OF GROVE. As used in this Agreement,
the phrase "to the Knowledge of Grove" (or words of similar import) means the
actual knowledge of those individuals identified in Schedule 2.26 of the
Grove Disclosure Letter.
2.27 VOTE REQUIRED. Except for the Grove Approvals, no other vote
or consent by the equity holders of Grove or any Grove Subsidiary, including,
but not limited to, Grove OP, (whether by agreement, under applicable law or
otherwise) is required to approve this Agreement and the transactions
contemplated hereby, nor shall any such equity holders be entitled to
dissenters' rights or other rights of appraisal in connection with the Grove
Approvals or the consummation of the transactions contemplated by this
Agreement.
2.28 SECURED CREDIT FACILITY. The secured credit facility by and
among Grove, Grove OP and Sovereign Bank may be paid off at or prior to the
Company Merger Effective Time without the incurrence of any fee or penalty
other than fees payable due to a prepayment of a thirty (30) day LIBOR note.
2.29 ASSUMPTION OF SECURED DEBT. The secured debt of Grove may be
assumed by ERP or an ERP Subsidiary pursuant to or in connection with the
Mergers without payment of a fee or penalty in connection with such debt
assumption exceeding, in the aggregate, 1% of the aggregate outstanding
balance of such secured debt as of the date of such assumption.
2.30 CERTAIN FEES. The actual fees and expenses incurred by Grove
and the Grove Subsidiaries in connection with the transactions contemplated
by this Agreement shall not exceed (i) the aggregate estimate of all such
fees and expenses, as set forth on Schedule 2.30 to the Grove Disclosure
Letter, or (ii) to the extent specifically provided on Schedule 2.30, the
estimates of the specific categories of fees and expenses, as set forth on
such Schedule.
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ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF ERP
Except as set forth in the letter of even date herewith signed by the
President or an Executive Vice President of EQR, the sole general partner of ERP
("EQR"), and delivered to Grove prior to the execution hereof (the "ERP
Disclosure Letter"), ERP represents and warrants to Grove and Grove OP as
follows:
3.1 ORGANIZATION, STANDING AND POWER OF ERP. ERP is authorized
and exists as an Illinois limited partnership under the laws of Illinois and
has the requisite power and authority to carry on its business as now being
conducted. ERP and its Subsidiaries (the "ERP Subsidiaries") are duly
qualified or licensed to do business and are 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 ERP and the ERP Subsidiaries taken as a whole ("ERP Material
Adverse Effect"). ERP has delivered to Grove a complete and correct copy of
the ERP Agreement, as amended or supplemented to the date of this Agreement.
3.2 CAPITAL STRUCTURE OF ERP. Schedule 3.2 to the ERP Disclosure
Letter sets forth the number of outstanding ERP Units as of June 30, 2000.
3.3 AUTHORITY; NONCONTRAVENTION; CONSENTS.
(a) ERP has the requisite power and authority to enter into
this Agreement and to consummate the transactions contemplated by this
Agreement to which ERP is a party. The execution and delivery of this
Agreement by ERP and the consummation by ERP of the transactions contemplated
by this Agreement to which ERP is a party have been duly authorized by all
necessary action on the part of ERP. This Agreement has been duly executed
and delivered by ERP and constitutes a valid and binding obligation of ERP,
enforceable against ERP 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 3.3 to the ERP Disclosure
Letter, the execution and delivery of this Agreement by ERP do not, and the
consummation of the transactions contemplated by this Agreement by ERP and
compliance by ERP 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 the loss of a
material benefit under, or result in the creation of any Lien upon any of the
properties or assets of ERP or any ERP Subsidiary under, (i) the ERP
Agreement or the comparable charter or organizational documents or
partnership or similar agreement (as the case may be) of any other ERP
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 to which ERP or any ERP Subsidiary is a
party or their respective properties
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or assets are bound or (iii) subject to the governmental filings and other
matters referred to in the following sentence, any Laws applicable to ERP or
any ERP 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 ERP 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 ERP or any ERP
Subsidiary in connection with the execution and delivery of this Agreement or
the consummation by ERP of any of the transactions contemplated by this
Agreement, except for (i) the filing with the SEC of (x) the Registration
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 acceptance for record of the Company
Articles of Merger by the Maryland Department, (iii) the acceptance for
record of the Partnership Certificate of Merger by the Delaware Secretary,
(iv) 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 including, without
limitation, any consents, approvals, orders, authorizations, registrations,
declarations and filings required by HUD, MFHA or similar agencies, (A) as
are set forth in Schedule 3.3 to the ERP Disclosure Letter, (B) as may be
required under federal, state or local environmental laws 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 ERP from performing its obligations under this Agreement in
any material respect or have, individually or in the aggregate, an ERP
Material Adverse Effect.
(c) For purposes of determining compliance with the
Hart-Scott Act, ERP confirms that the conduct of its business does not
require a filing under the Hart-Scott Act in connection with the Mergers.
3.4 SEC DOCUMENTS; FINANCIAL STATEMENTS; UNDISCLOSED LIABILITIES.
ERP has filed all required reports, schedules, forms, statements and other
documents with the SEC since January 1, 1995 through the date hereof (the
"ERP SEC Documents"). All of the ERP SEC Documents (other than preliminary
material), as of their respective filing dates or as of the date of the last
amendment thereof (if amended after filing), 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 ERP SEC Documents. None of the ERP 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 ERP SEC
Documents filed on a non-confidential basis prior to the date of this
Agreement. The consolidated financial statements of ERP and the ERP
Subsidiaries included in the ERP SEC Documents complied as to form in all
material respects with applicable accounting requirements and the published
rules and regulations of the SEC with respect thereto, have been prepared in
accordance with GAAP (except, in the case of unaudited statements, as
permitted by the applicable rules and regulations of the SEC) applied on a
consistent basis during the periods involved (except as may be indicated
therein or in the notes thereto) and fairly presented, in accordance with the
applicable requirements of GAAP and the applicable rules and regulations
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of the SEC, in all material respects, the consolidated financial position of
ERP and the ERP 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, any other adjustments described therein and the fact that
certain information and notes have been condensed or omitted in accordance
with the Exchange Act). Except for liabilities and obligations set forth in
the ERP SEC Documents or in Schedule 3.4 to the ERP Disclosure Letter,
neither ERP nor any ERP 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 ERP or in the notes
thereto and which, individually or in the aggregate, would have an ERP
Material Adverse Effect, after taking into account any assets acquired or
services provided in connection with the incurrence of such liabilities or
obligations.
3.5 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed in
the ERP SEC Documents or in Schedule 3.5 to the ERP Disclosure Letter, since
the date of the most recent audited financial statements included in the ERP
SEC Documents (the "ERP Financial Statement Date"), ERP and the ERP
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 ERP
and the ERP Subsidiaries taken as a whole (an "ERP 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 ERP Material Adverse
Change, (b) except for regular quarterly distributions (in the case of ERP)
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 ERP's partnership interests, (c) any split,
combination or reclassification of any of ERP's partnership interests, (d)
any damage, destruction or loss, whether or not covered by insurance, that
has or would have an ERP Material Adverse Effect, or (e) any change made
prior to the date of this Agreement in accounting methods, principles or
practices by ERP or any ERP Subsidiary materially affecting its assets,
liabilities or business, except insofar as may have been disclosed in the ERP
SEC Documents or required by a change in GAAP.
3.6 LITIGATION. Except as disclosed in the ERP SEC Documents or
in Schedule 3.6 to the ERP Disclosure Letter, and other than personal injury
and other routine tort litigation arising from the ordinary course of
operations of ERP and the ERP 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 ERP, threatened in writing against or affecting ERP or any ERP
Subsidiary that, individually or in the aggregate, (i) could reasonably be
expected to have an ERP Material Adverse Effect, nor is there any judgment,
decree, injunction, rule or order of any Governmental Entity or arbitrator
outstanding against ERP or any ERP Subsidiary having or which could
reasonably be expected to have any such effect, or (ii) could reasonably be
expected to prevent the consummation of any of the transactions contemplated
by this Agreement.
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3.7 PROPERTIES.
(a) ERP or one of the ERP Subsidiaries owns fee simple title
to each of the real properties listed in the ERP SEC Filings as owned by it
(the "ERP Properties"), except where the failure to own such title would not
have an ERP Material Adverse Effect.
(b) The ERP Properties are not subject to any Encumbrances or
Property Restrictions or located in a flood zone area "V" which, individually
or in the aggregate, would cause an ERP Material Adverse Effect.
(c) Valid policies of title insurance have been issued
insuring ERP's or the applicable ERP Subsidiary's fee simple title to the ERP
Properties except where the failure to obtain such title insurance would not
have an ERP Material Adverse Effect.
(d) ERP 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 ERP Properties where such failure would have an
ERP Material Adverse Effect, or of any pending threat of modification or
cancellation of any of the same which would have an ERP 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 ERP Properties issued by any governmental authorities which would
have an ERP Material Adverse Effect, or (iii) of any structural defects
relating to ERP Properties, ERP Properties whose building systems are not in
working order, physical damage to any ERP 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 ERP Material Adverse Effect.
(e) All work to be performed, payments to be made and actions
to be taken by ERP or the ERP 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 ERP Property (e.g., Local Improvement District, Road
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 ERP Material Adverse Effect.
3.8 ENVIRONMENTAL MATTERS. None of ERP, any of the ERP
Subsidiaries or, to ERP's Knowledge, any other Person has caused or permitted
(a) the unlawful presence of any Hazardous Substances on any of the ERP
Properties, or (b) any unlawful spills, releases, discharges or disposal of
Hazardous Materials to have occurred or be presently occurring on or from the
ERP Properties as a result of any construction on or operation and use of the
ERP Properties, which presence or occurrence would, individually or in the
aggregate, have an ERP Material Adverse Effect; and in connection with the
construction on or operation and use of the ERP Properties, ERP and the ERP
Subsidiaries have not failed to comply in any material respect with all
applicable Environmental Laws, except to the extent such failure to comply,
individually or in the aggregate, would not have an ERP Material Adverse
Effect.
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3.9 TAXES.
(a) Each of ERP and the ERP 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 ERP has paid on its behalf) all Taxes shown or
reflected 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 ERP Material Adverse Effect. Since the ERP 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 ERP nor any ERP Subsidiary has incurred any liability for
taxes other than in the ordinary course of business. No deficiencies for any
Taxes have been proposed, asserted or assessed pursuant to a "30-day letter"
or notice of deficiency sent by the IRS, or, to the Knowledge of ERP,
otherwise proposed, asserted or assessed against ERP or any of the ERP
Subsidiaries.
(b) EQR (i) for all taxable years commencing with 1992, 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 operated, and intends to continue to operate, in such a manner as to
qualify as a REIT for the tax year ending December 31, 2000, 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 ERP 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 EQR's status as a REIT,
and no such challenge is pending or, to ERP's Knowledge, threatened. Each ERP
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, or ignored as a separate entity, as the
case may be, and not as a corporation or as an association taxable as a
corporation. Each corporation, trust or other entity taxable as an
association which has merged with and into EQR had been subject to taxation
as a REIT at all times since its initial election of REIT status and had
satisfied all requirements to qualify as a REIT for such years, except to the
extent that a failure to satisfy such requirements would not have an ERP
Material Adverse Effect. Each Subsidiary of EQR which is a corporation or
which is treated as an association taxable as a corporation for federal
income tax purposes (of which EQR directly or indirectly owns ten percent
(10%) or more of the outstanding voting securities (as defined in Section
856(c) of the Code)) has been since the date of its formation or since EQR's
first taxable year as a REIT (whichever is later) a qualified REIT subsidiary
under Section 856(i) of the Code.
3.10 BROKERS. No broker, investment banker, financial advisor or
other person is entitled to any broker's, finder's, financial advisor's or
other similar fee or commission in connection with the transactions
contemplated hereby based upon arrangements made by or on behalf of ERP or
any ERP Subsidiary.
3.11 COMPLIANCE WITH LAWS. Except as disclosed in the ERP SEC
Documents, neither ERP nor any of the ERP Subsidiaries has violated or failed
to comply with any statute, law, ordinance, regulation, rule, judgment,
decree or order of any Governmental Entity
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applicable to its business, properties or operations, except to the extent
that such violation or failure would not have an ERP Material Adverse Effect.
3.12 CONTRACTS; DEBT INSTRUMENTS. Neither ERP nor any ERP
Subsidiary has received a written notice that ERP or any ERP Subsidiary is in
violation of or in default under (nor to the Knowledge of ERP does (i) such a
violation or default exist or (ii) does there exist any condition which, upon
the passage of time or the giving of notice or both would cause such a
violation or default to exist) 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 to the extent such violation or default, individually or in the
aggregate, would not have an ERP Material Adverse Effect, except as set forth
in Schedule 3.12 to the ERP Disclosure Letter.
3.13 STATE TAKEOVER STATUTES. ERP has taken all action necessary
to exempt transactions between ERP and Grove and its Affiliates from the
operation of any Takeover Statute.
3.14 REGISTRATION STATEMENT. The information with respect to ERP
and the ERP Subsidiaries included in the Proxy Statement or the Registration
Statement will not, as of the date of mailing of the Proxy Statement and 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.
3.15 INVESTMENT COMPANY ACT OF 1940. Neither ERP nor any of the
ERP Subsidiaries is, or at the Company Merger Effective Time will be,
required to be registered under the 1940 Act.
3.16 DEFINITION OF KNOWLEDGE OF ERP. As used in this Agreement,
the phrase "to the Knowledge of ERP" (or words of similar import) means the
actual knowledge of those individuals identified in Schedule 3.16 to the ERP
Disclosure Letter.
3.17 VOTE REQUIRED. No vote or consent by the equity holders of
ERP or any ERP Subsidiary (whether by agreement, under applicable law or
otherwise) is required to approve this Agreement or the transactions
contemplated hereby, nor will any such equity holders be entitled to
dissenters' rights or other rights of appraisal in connection with the
consummation of the transactions contemplated by this Agreement.
3.18 EMPLOYEE POLICIES. Each employee plan or arrangement of ERP
is in material compliance with ERISA, to the extent subject to ERISA, and any
other applicable law governing such employee plan or arrangement.
3.19 FINANCING. ERP will have readily available all funds
necessary to perform its obligations under this Agreement and the
transactions contemplated hereby.
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3.20 VALIDITY OF SECURITIES ISSUED. Any ERP Units issued pursuant
to the Partnership Merger, and any shares of EQR Common issued upon
redemption of such ERP Units, when issued, shall be duly authorized, validly
issued, fully-paid and non-assessable.
ARTICLE 4
COVENANTS
4.1 ACQUISITION PROPOSALS. Prior to the Company Merger Effective
Time, Grove agrees that:
(a) neither it nor any of the Grove 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 any of their respective shareholders or
limited partners) 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 Grove or any of the Grove 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, trust managers, employees, agents or financial advisors to engage
in any of the activities described in Section 4.1(a);
(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 ERP as promptly as practicable if Grove
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
Grove Board 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 Grove Board determines in good
faith that failure to do so would create a reasonable probability of a breach of
its duties to shareholders or Limited Partners imposed by law, (B) prior to
furnishing such information to, or entering into discussions or negotiations
with, such person or entity, Grove provides written notice to ERP 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 Grove determined in good faith was required to be
executed in order for the Grove Board to comply with its duties to shareholders
or Limited
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Partners imposed by law), Grove keeps ERP informed of the status of any such
discussions or negotiations; and (ii) to the extent applicable, complying
with Rule 14e-2 or Rule 14d-9 promulgated under the Exchange Act with regard
to an Acquisition Proposal. Nothing in this Section 4.1 shall (x) permit
Grove to terminate this Agreement (except as specifically provided in Article
7 hereof), (y) permit Grove 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, Grove 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 Grove under this
Agreement; provided, however, that the Grove Board may approve and recommend
a Superior Acquisition Proposal and, in connection therewith, withdraw or
modify its approval or recommendation of this Agreement and the Mergers. 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 Grove
Board determines in good faith to be more favorable to Grove's shareholders
and Limited Partners from a financial point of view than the Mergers and
which the Grove Board determines is reasonably capable of being consummated.
4.2 CONDUCT OF GROVE'S BUSINESS PENDING MERGER. Prior to the
Company Merger Effective Time, except as (i) contemplated by this Agreement,
(ii) set forth in Schedule 4.2 to the Grove Disclosure Letter, (iii) within
the aggregate amounts reflected in the Grove Capital Budget or (iv) consented
to in writing by ERP, Grove shall, and shall cause each of the Grove
Subsidiaries to, conduct its business only in the usual, regular and ordinary
course and in substantially the same manner as heretofore conducted, and,
irrespective of whether or not in the ordinary course of business, Grove
shall, and shall cause each of the Grove 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 ERP to report operational matters of materiality and,
subject to Section 4.1, any proposals to engage in material transactions;
(c) promptly notify ERP of any material emergency or other
material change in the condition (financial or otherwise), business,
properties, assets, liabilities, or the normal course of its businesses or in
the operation of its properties, or of any material governmental complaints,
investigations or hearings (or communications indicating that the same may be
contemplated);
(d) promptly deliver to ERP 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 not change in any material manner any of its
methods, principles or practices of accounting in effect at the Grove
Financial Statement Date, except as may be required by the SEC, applicable
law or GAAP;
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(f) 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 Grove notifies
ERP that it is availing itself of such extensions and provided such
extensions do not adversely affect Grove's status as a qualified REIT under
the Code;
(g) not make or rescind any express or deemed election
relative to Taxes (unless required by law or necessary to preserve Grove's
status as a REIT or the status of any Grove 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);
(h) other than in connection with those development
agreements set forth in Schedule 2.22 to the Grove Disclosure Letter or as
permitted pursuant to subsection (o) hereof, not acquire, enter into any
option or agreement 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 connection with the potential
purchase of (i) 521 subsidized elderly apartment units in Brookline,
Massachusetts (the "Brookline Transaction"), (ii) interests in the Kismul
Family Limited Partnership (the "Kismul Transaction"), and (iii) interests in
certain partnerships affiliated with Sydney and John Rosenthal (the
"Rosenthal Transactions"), each as more fully described in Schedule 4.2 of
the Grove Disclosure Letter, PROVIDED, HOWEVER, that ERP shall have the right
to review and comment upon the terms of and documentation related to the
Brookline Transaction and Kismul Transaction and necessary amendments to the
documentation related to the Rosenthal Transactions in order to provide for
transactions contemplated by this Agreement, and such terms and documentation
shall be subject to prior approval by ERP, which approval shall not be
unreasonably withheld or delayed;
(i) not amend its Bylaws or the Grove Declaration or the
articles of incorporation, bylaws, partnership agreement, joint venture
agreement or comparable charter or organization document of any Grove
Subsidiary without ERP's prior written consent, which shall not be
unreasonably withheld or delayed;
(j) issue no and make no change in the number of shares of
beneficial interest, capital stock, membership interests or units of limited
partnership interest issued and outstanding or reserved for issuance, other
than pursuant to those items disclosed in Schedule 2.3 to the Grove
Disclosure Letter;
(k) except in connection with and pursuant to the terms of
the Brookline Transaction and Rosenthal Transactions, 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;
(l) except as permitted by Section 5.9 and for dividends and
distributions by a Grove Subsidiary to Grove or a wholly-owned Grove
Subsidiary, not (x) authorize, declare, set
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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 (y)
except for redemptions of Grove LP Units in accordance with the Grove OP
Agreement or pursuant to the terms of the Retail Sale Agreement, 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 of any Person;
(m) 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;
(n) not make any loans, advances or capital contributions to,
or investments in, any other Person, other than loans, advances and capital
contributions to wholly-owned Grove Subsidiaries in existence on the date
hereof;
(o) not pay, discharge or satisfy any material 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 ERP or incurred in the ordinary course of
business consistent with past practice;
(p) 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 $135,000 or aggregate
Commitments in excess of $250,000; PROVIDED, HOWEVER, that no Commitments
shall be made with respect to any Grove Property subject to the Retail Sale
Agreement, except as specifically permitted by the terms of the Retail Sale
Agreement;
(q) 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;
(r) not enter into or amend any commitment with any officer,
trust manager, director, trustee, consultant or Affiliate of Grove or any of
the Grove Subsidiaries other than commitments with consultants involving
payments of (i) less than $15,000 per consultant and (ii) total aggregate
payments to all consultants of less than $110,000;
(s) not increase any compensation or enter into or amend any
employment agreement or other arrangement with any of its officers, trust
managers, trustees, directors or employees earning more than $50,000 per
annum as of the date hereof, other than waivers by employees of benefits
under such agreements, enter into any employment agreement or arrangement
with any other Person not currently an employee of Grove or a Grove
Subsidiary, providing for compensation in excess of $60,000 per annum or
increase any compensation, enter into or amend any employment agreement or
other arrangement with any new or current employee (except with respect to
arrangements which do not comprise employment agreements or amendments
thereto in the ordinary course of business and consistent with past practice
in timing and amount or pursuant to the terms of any such arrangement) or
take any action which
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could result in the creation of a right of the type required to be disclosed
in Section 2.15, or alter in any manner a payment or right disclosed on
Schedule 2.15 of the Grove Disclosure Letter;
(t) not adopt any new employee benefit plan or amend any
existing plans, options or rights, except for changes which are required by
law and changes which are not more favorable to participants in the aggregate
than provisions presently in effect;
(u) not settle any shareholder or limited partner, derivative
or other claims arising out of or in connection with any of the transactions
contemplated by this Agreement without the prior written approval of ERP,
which approval shall not be unreasonably withheld or delayed;
(v) not reduce its ownership of any of Grove Subsidiaries
except pursuant to a transaction which has the same effect as a transaction
permitted by subsection (m) hereof;
(w) not accept a promissory note in payment of the exercise
price payable under any Grove Option;
(x) not enter into or amend or otherwise modify or waive any
rights under any agreement or arrangement for the persons that are
affiliates, or as of the date hereof, all officers, trust managers, trustees,
directors or employees, of Grove or any Grove Subsidiary;
(y) except as provided in Schedule 2.9 or Schedule 2.18 to
the Grove Disclosure Letter, not directly or indirectly or through a
subsidiary, merge or consolidate with, acquire all or substantially all of
the assets of, or acquire the beneficial ownership of a majority of the
outstanding capital stock or other equity interest in any Person or entity;
(z) use its reasonable best efforts to continue to qualify as
a REIT prior to the Company Merger Effective Time, and not enter into any
transaction that would be considered a prohibited transaction as defined in
Section 857(b)(6) of the Code; and
(aa) with respect to the Retail Sale Agreement, (i) not amend,
waive any provision, or exercise any right under, the Retail Sale Agreement,
(ii) operate the Grove Subsidiaries subject to the Retail Sale Agreement only
in the ordinary course of business and (iii) not take any action which would
result in a material change to the assets and liabilities of such Grove
Subsidiaries, as set forth on Schedule 2.2 to the Grove Disclosure Schedule.
For purposes of this Section 4.2 only, any contract, transaction
or other event shall be deemed to be material and to be subject to the
terms hereof if it would result or is expected to result in a net
impact on Grove's consolidated income statement in excess of $275,000,
or on Grove's consolidated balance sheet in excess of $275,000.
4.3 CONDUCT OF ERP'S BUSINESS PENDING MERGER. Prior to the
Company Merger Effective Time, except as (i) contemplated by this Agreement,
or (ii) consented to in writing by Grove, ERP shall, and shall cause each of
the ERP 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;
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(b) confer on a regular basis with one or more
representatives of Grove to report operational matters of materiality which
would have a ERP Material Adverse Effect;
(c) promptly notify Grove 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 Grove 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;
(f) duly and timely file all reports, tax returns and other
documents required to be filed with federal, state, local and other
authorities; and
(g) duly form New LLC and New LLC3, cause New LLC to duly
form New LLC2 and cause each of New LLC, New LLC2 and New LLC3, respectively,
to carry out its obligations pursuant to this Agreement.
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 ERP Material Adverse Effect.
4.4 OTHER ACTIONS. Each of Grove and Grove OP on the one hand and
ERP on the other hand shall not, and shall use their reasonable best efforts
to cause their Subsidiaries not to, take any action that would result in (i)
any of the representations and warranties of such party set forth in this
Agreement that are qualified as to materiality becoming untrue, (ii) any of
such representations and warranties 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 Mergers set forth in Article 6 not being satisfied.
4.5 COMPLIANCE WITH THE SECURITIES ACT. No later than ten (10)
days prior to the Partnership Merger Effective Time, Grove shall cause to be
prepared and delivered to ERP a list identifying all persons who, at the time
of the Grove Shareholders Meeting (as defined in Section 5.1 hereto), (i) may
reasonably be deemed to be "affiliates" of Grove or Grove OP as that term is
used in paragraphs (c) and (d) of Rule 145 under the Securities Act and (ii)
shall be entitled to receive Partnership Unit Merger Consideration pursuant
to the Partnership Merger (the "Affiliates"). Grove shall use its reasonable
efforts to cause each person who is identified as an Affiliate in such list
to deliver to Grove on or prior to the Partnership Merger Effective Time a
written agreement, in the form previously approved by the parties hereto,
that such Affiliate will not sell, pledge, transfer or otherwise dispose of
any shares of EQR Common issued to such Affiliate upon exchange of ERP Units
pursuant to the ERP Agreement, except pursuant to an effective registration
statement under the Securities Act or in compliance with Rule 145.
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ARTICLE 5
ADDITIONAL COVENANTS
5.1 PREPARATION OF THE REGISTRATION STATEMENT AND THE PROXY
STATEMENT; GROVE SHAREHOLDERS MEETING AND GROVE OP PARTNERS MEETING.
(a) Grove and ERP shall use their reasonable best efforts to
prepare and file with the SEC the Registration Statement and Proxy Statement,
each in form and substance satisfactory to each of ERP and Grove. A portion
of the Registration Statement shall also constitute a prospectus of ERP with
respect to the ERP Units to be offered pursuant to the Partnership Merger
(the "Prospectus"). Each of Grove and ERP shall promptly use its reasonable
best efforts to (i) respond to any comments of the SEC and (ii) with respect
to ERP only, have the Registration 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 Partnership
Merger. ERP will use its reasonable best efforts to cause the Prospectus to
be mailed to the Limited Partners, as promptly as practicable after the SEC
has declared the Registration Statement effective. Grove will use its
reasonable best efforts to cause the Proxy Statement to be mailed to Grove's
shareholders, as promptly as practicable after the SEC has completed its
review of the Proxy Statement. 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 (and written summaries or transcripts of any oral
communication) between such party or any of its representatives and the SEC,
with respect to the Registration Statement or the Proxy Statement. The
respective parties will cause the Registration Statement and the Proxy
Statement to comply in all material respects with all applicable requirements
of law. Whenever any event occurs which is required to be set forth in an
amendment or supplement to the Registration Statement or the Proxy Statement,
ERP or Grove, 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 Grove or the Limited Partners such amendment or supplement to
the Proxy Statement or Prospectus, as the case may be. ERP also shall take
any action required to be taken under any applicable state securities or
"blue sky" laws in connection with the issuance of ERP Units pursuant to the
Partnership Merger, and Grove and Grove OP shall furnish all information
concerning Grove and the holders of Grove Shares and rights to acquire Grove
Shares, or Grove OP and the Limited Partners and the rights to acquire Grove
LP Units, as the case may be and as may be reasonably requested in connection
with any such action.
(b) Grove 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 Grove), duly call,
give notice of, convene and hold a meeting of its shareholders (the "Grove
Shareholders Meeting") for the purpose of obtaining the Grove Shareholder
Approvals. Grove will, through the Grove Board, recommend to its shareholders
approval of this Agreement, the Company Merger and the transactions
contemplated by this Agreement; PROVIDED, that prior to the Grove
Shareholders Meeting, such recommendation may be
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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 Grove Board determines in good faith that such withdrawal,
modification or amendment is appropriate
(c) Subject to the provisions of Sections 5.1(b), the Grove
Shareholders Meeting shall be held not later than 35 days after the date the
Proxy Statement is mailed.
(d) Grove OP will, as soon as practicable following the date
of this Agreement, duly call, give notice of, convene and hold a meeting of
its partners (the "Grove OP Partners Meeting") for the purpose of obtaining
the Grove Partner Approvals. The Grove OP Partners Meeting shall be held on
the same date as the Grove Shareholders Meeting. Grove will, through the
Grove Board, recommend to the Limited Partners approval of this Agreement and
the transactions contemplated hereby; PROVIDED, that prior to the Grove OP
Partners 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 Grove Board determines in
good faith that such withdrawal, modification or amendment is appropriate.
(e) If on the date for the Grove Shareholders Meeting
established pursuant to Section 5.1(b) of this Agreement, Grove has not
received a sufficient number of proxies to approve the Company Merger (but
less than one-third of the outstanding Shares have been voted against the
Company Merger), then Grove shall adjourn its shareholders meetings until
such date as shall be mutually agreed upon by Grove and ERP, which date shall
be not less than ten (10) days nor more than twenty (20) days after the
originally scheduled date.
(f) In connection with the Grove Partner Approvals, Grove
shall vote all Grove OP Units beneficially owned by Grove, and shall cause
any Grove Subsidiary to vote all Grove OP Units beneficially owned by such
Grove Subsidiary, in favor of this Agreement and the transactions
contemplated hereby.
5.2 ACCESS TO INFORMATION: CONFIDENTIALITY. Subject to the
requirements of confidentiality agreements with third parties, each of Grove
and ERP shall, and shall cause each of the Grove Subsidiaries and ERP
Subsidiaries, respectively, 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 Company Merger Effective Time to all their respective properties, books,
contracts, commitments, personnel and records and, during such period, each
of Grove and ERP shall, and shall cause each of the Grove Subsidiaries and
ERP Subsidiaries, respectively, 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
Grove and ERP shall, and shall cause the Grove Subsidiaries and ERP
Subsidiaries, respectively, to use commercially reasonable efforts to cause
its officers, employees, accountants, counsel, financial advisors and other
representatives and affiliates to, hold any nonpublic information in
confidence to the extent required by, and in accordance with, and will comply
with the provisions of the letter agreement dated as of March 13, 2000
between Grove and ERP (the "Confidentiality Agreement").
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5.3 BEST EFFORTS; NOTIFICATION.
(a) Subject to the terms and conditions herein provided,
Grove and ERP 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 Company Merger Effective Time or Partnership Merger Effective Time, as
applicable, with, and which consents, approvals, permits or authorizations
are required to be obtained prior to the Company Merger Effective Time or
Partnership Merger Effective Time, from governmental or regulatory
authorities of the United States, the several states and foreign
jurisdictions and any third parties in connection with the execution and
delivery of this Agreement, and the consummation of the transactions
contemplated hereby and (B) timely making all such filings and timely seeking
all such consents, approvals, permits and authorizations; (ii) use all
reasonable best efforts to obtain in writing any consents required from third
parties to effectuate the Mergers, such consents to be in form reasonably
satisfactory to Grove and ERP; 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 effectiveness of the Mergers, any further action is necessary or
desirable to carry out the purpose of this Agreement, the proper officers and
trust managers of Grove and the general partner of ERP shall take all such
necessary action.
(b) Grove shall give prompt notice to ERP, and ERP shall give
prompt notice to Grove, (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. In the event that the Mergers are not
consummated, each of ERP and Grove shall pay their own costs and expenses
relating to the Mergers and the other transactions contemplated by this
Agreement; provided, however, that (i) all SEC filing fees in connection with
the Mergers shall be paid 50% by Grove and 50% by ERP, (ii) all printing
costs associated with the Proxy Statement shall be paid by Grove and (iii)
all printing costs associated with the Prospectus shall be paid by ERP. This
Section 5.4 shall in no way affect the rights and obligations of the parties
hereto under Article 7 hereof.
5.5 PUBLIC ANNOUNCEMENTS. ERP and Grove 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
Mergers, 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. For purposes of this Section
5.5, "written public statements" shall
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include any written statement transmitted to the NYSE, AMEX, the shareholders
of Grove or the limited partners of ERP or Grove LP.
5.6 TAXES.
(a) ERP and Grove 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 interest, penalties or additions to tax, "Transfer
and Gains Taxes"). From and after the Company Merger Effective Time, the
Surviving Company shall, or shall cause ERP, 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 Company, all Transfer and
Gains Taxes.
(b) Grove will consult with and provide ERP the opportunity
to review and comment upon all returns, questionnaires, applications or other
documents to be filed after the date hereof by Grove with respect to Taxes
including, without limitation, Grove's federal, state and local income tax
returns, as well as the Form 5500 returns for its health and welfare benefit
and retirement plans, for its taxable year ended December 31, 1999
(collectively, the "Grove Tax Returns"), and shall not file any Grove Tax
Returns without the prior review and comment of ERP, which shall not be
unreasonably delayed.
(c) Grove will cause each Grove Subsidiary to consult with
and provide ERP the opportunity to review and comment upon all returns,
questionnaires, applications or other documents to be filed after the date
hereof by each respective Grove Subsidiary with respect to Taxes including,
without limitation, each Grove Subsidiary's federal, state and local income
tax returns for its taxable year ended December 31, 1999 (collectively, the
"Grove Subsidiary Tax Returns"), and Grove shall not cause any Grove
Subsidiary to file any Grove Subsidiary Tax Returns without the prior review
and comment of ERP, which shall not be unreasonably delayed.
(d) Prior to Closing, Grove shall use its reasonable good
faith efforts to obtain a final written closing agreement under Section 7121
of the Code with respect to the matters set forth on Schedule 5.6(d) to the
Grove Disclosure Letter, which closing agreement shall be satisfactory in
form and substance to ERP in its sole and absolute discretion (the "Closing
Agreement").
5.7 BENEFIT PLANS AND OTHER EMPLOYEE ARRANGEMENTS.
(a) BENEFIT PLANS. After the Company Merger Effective Time,
all employees of Grove or Grove OP who are employed by ERP shall, at the
option of ERP, either continue to be eligible to participate in an "employee
benefit plan," as defined in Section 3(3) of ERISA, currently maintained by
Grove or Grove OP which is, at the option of ERP, continued by ERP, or
alternatively, shall be eligible to participate in the same manner as other
similarly situated employees of ERP in any "employee benefit plan," as
defined in Section 3(3) of ERISA, sponsored or maintained by ERP for
similarly situated employees after the effectiveness of the Mergers. With
respect to each such employee benefit plan, service with Grove or any Grove
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Subsidiary (as applicable) shall be included for purposes of determining
eligibility to participate and vesting (if applicable). With respect to
medical benefits provided by ERP on and after the effectiveness of the
Mergers, (i) coverage that would otherwise be denied due to a preexisting
illness shall be provided to those employees who had such coverage under a
plan sponsored by Grove or any Grove Subsidiary (each, a "Prior Plan"), (ii)
unless required by law, no such employee shall be required to observe any
waiting period prior to entitlement to such benefits and (iii) each such
employee shall be credited as to previously paid deductible and co-payment
amounts under any Prior Plan.
(b) SEVERANCE PROGRAMS. In no event shall Grove amend,
modify or alter in any manner any severance program or adopt or agree to any
other programs, agreements or arrangements which would in any way alter the
Section 2.15 Payments, as set forth in Schedule 2.15 of the Grove Disclosure
Letter. No program, arrangement or agreement of Grove, or any term of this
Agreement, shall require ERP to continue the employment of any employee of
Grove after the Effective Time. As a condition to receiving a Section 2.15
Payment, each Section 2.15 Employee and each other terminated employee shall
execute and deliver to Grove an agreement and release in the applicable form
as attached to Schedule 2.15 to the Grove Disclosure Letter (a " Release").
The Section 2.15 Payments shall be satisfied immediately following the
Company Merger Effective Time or as otherwise set forth in Schedule 2.15 to
the Grove Disclosure Letter.
(c) OPTIONEES.
(i) Prior to the Closing, Grove will, through the Grove
Board (or any committee thereof), take all action required (x) for, except as
provided herein, the cancellation as of the Company Merger Effective Time of
all Grove Options in consideration for cash in an amount set forth in Section
1.8 and (y) to provide that any Grove Options granted on or about June 19,
2000 to non-employee trust managers of Grove who were re-elected as trust
managers at Grove's 2000 annual meeting of shareholders shall be canceled as
of the Company Merger Effective Time for no consideration.
(ii) From and after the date hereof, Grove, through the Grove
Board or otherwise, will not modify any Plan or authorize, and Grove will not
grant, any Grove Options, Restricted Share Grants or any other equity or cash
incentive grants or awards of any kind, nature or description.
(d) WITHHOLDING. Grove shall require each employee who
exercises a Grove Option, receives Grove Shares pursuant to any existing
commitment, or otherwise receives any payment from Grove as a result of the
transactions contemplated by this Agreement, to pay to Grove in cash or Grove
Shares an amount sufficient to satisfy in full Grove's obligation to withhold
Taxes incurred by reason of such exercise, issuance or receipt.
5.8 INDEMNIFICATION.
(a) From and after the Company Merger Effective Time, ERP
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
Company Merger Effective Time, an officer or trust
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manager of Grove or any Grove Subsidiary (the "Indemnified Parties") which is
the same as the exculpation and indemnification provided to the Indemnified
Parties by Grove (including advancement of expenses, if so provided, and
provided that such coverage provided by Grove shall have at least $5,000,000
of current trust manager and officer insurance with no more than a $75,000
deductible) immediately prior to the Company Merger Effective Time in its
Declaration of Trust, Bylaws, or any Employee Plan as in effect at the close
of business on the date hereof; PROVIDED, that such exculpation and
indemnification covers actions on or prior to the Company Merger Effective
Time, including, without limitation, all transactions contemplated by this
Agreement. ERP shall use commercially reasonable efforts to obtain and, if
obtained, maintain in effect from the Company Merger Effective Time and
continuing until the sixth anniversary thereof "run-off" trust managers and
officers liability insurance with a coverage amount and other terms and
conditions comparable to Grove's current trust managers and officers
liability insurance policy covering the trust managers and officers of Grove
with respect to their service as such prior to the Company Merger Effective
Time, PROVIDED, HOWEVER, that in no event shall ERP be required pay a premium
in excess of $300,000 for such coverage (the "Run-Off Policy"). ERP shall
provide Grove with a true and complete copy of a binder with respect to the
Run-Off Policy at least 10 days prior to the Company Merger Effective Time,
and shall use its reasonable best efforts to provide to Grove a true and
complete copy of the Run-Off Policy as proposed to be issued prior to the
Company Merger Effective Time. The premium for such policy shall be paid in
full at the Company Merger Effective Time.
(b) The provisions of this Section 5.8 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 ERP and Grove. ERP agrees to pay all costs and
expenses (including fees and expenses of counsel) that may be incurred by any
Indemnified Party or his or her heirs or his or her personal representatives
in successfully enforcing the indemnity or other obligations of ERP under
this Section 5.8. The provisions of this Section 5.8 shall survive the
Company Merger and are in addition to any other rights to which an
Indemnified Party may be entitled.
(c) In the event that ERP 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 company or entity of such consolidation or
merger or (ii) transfers all or substantially all of its properties and
assets to any person, then, and in each such case the successors and assigns
of such entity shall assume the obligations set forth in this Section 5.8,
which obligations are expressly intended to be for the irrevocable benefit
of, and shall be enforceable by, each trustee and officer covered hereby.
5.9 DECLARATION OF DIVIDENDS AND DISTRIBUTIONS. From and after
the date of this Agreement, Grove or Grove OP shall not make any dividend or
distribution to its shareholders or Limited Partners without the prior
written consent of ERP, except for the authorization and payment of dividends
or distributions with respect to the Grove Common Shares and Grove LP Units
of (i) subject to reduction as provided below, an amount per share/unit for
each full quarterly dividend not to exceed $0.18 per share/unit (each a
"Quarterly Dividend") and (ii) subject to reduction as provided below, a
pro-rated Quarterly Dividend for the period following the end of the calendar
quarter immediately preceding the payment date for the latest Quarterly
Dividend until the Company Merger Effective Time, with such dividend to be
pro-rated on the
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basis of the number of days in such period divided by ninety-two (92) (the
"Short Dividend"), provided however, that at least ten (10) days prior to the
setting of any record date or declaring of any dividend or distribution
permitted pursuant to this Section 5.9, Grove shall submit to ERP a then
current estimate of the fees and expenses of the transactions contemplated by
this Agreement, in reasonable detail and in such categories so as to conform
to the detail and categories set forth in Schedule 2.30 to the Grove
Disclosure Letter, which estimate shall be certified by the Chief Financial
Officer of Grove and subject to review by ERP. In conducting its review of
such estimate, ERP shall have the right to verify and examine all supporting
documentation which was utilized by Grove in determining such estimate,
including, without limitation, the right to contact vendors of Grove for the
purpose of confirming such estimates. To the extent that any estimated
category of fees or expenses set forth in such estimate exceeds the
corresponding estimate of such category set forth on Schedule 2.30 of the
Grove Disclosure Letter, the total of such excess amounts (the "Exceeded Cost
Amount") shall be divided by the total number of Grove Common Shares and
Grove LP Units outstanding as of the record date for the next distribution
permitted to be made pursuant to this Section 5.9 (the "Per Share Exceeded
Cost Amount"), and the maximum dividend or distribution per share/unit
payable pursuant to this Section 5.9 shall be $0.18 per share/unit less the
Per Share Exceeded Cost Amount (or, in the case of a Short Dividend, the
maximum amount of such Short Dividend, as calculated above, less the Per
Share Exceeded Cost Amount). In the event that the Exceeded Cost Amount
exceeds the total aggregate distribution to be made pursuant to this Section
5.9, such amount shall be carried forward and added to the Exceeded Cost
Amount with respect to the next distribution permitted under this Section
5.9. The record and payment dates for each Quarterly Dividend shall be the
same date as the record and payment dates for the corresponding quarterly
dividend for the EQR Common Shares, as provided to Grove by written notice
not less than twenty (20) days prior to the record date for such quarterly
EQR dividend. In the event that a dividend with respect to Grove Common
Shares or a distribution with respect to Grove LP Units permitted by this
Section 5.9 has (i) a record date prior to the Company Merger Effective Time
or Partnership Merger Effective Time, as the case may be, and (ii) has not
been paid as of such Company Merger Effective Time or Partnership Merger
Effective Time, as the case may be, the holders of Grove Common Shares or
Limited Partners shall be entitled to receive such distribution.
5.10 NOTICES. Each party hereto shall provide such notice to its
equity holders of the Mergers and other transactions contemplated hereby as
is required under applicable law.
5.11 RESIGNATIONS. On the Closing Date, if requested by ERP, Grove
shall request that the trust managers, directors and officers of Grove and
each of the Grove Subsidiaries to submit their resignations from such
positions, effective as of the Company Merger Effective Time or Partnership
Merger Effective Time, as requested.
5.12 THIRD PARTY MANAGEMENT AGREEMENTS AND OUTSIDE MANAGEMENT
AGREEMENTS. Grove will not, and will not permit any Grove Subsidiary to, (i)
amend the Third Party Management Agreements and Outside Management
Agreements, (ii) renew the Third Party Management Agreements except on terms
which permit its cancellation by Grove or the applicable Grove Subsidiary on
thirty days notice without charge, penalty or other cost for such
cancellation, or (iii) renew any Outside Management Agreement.
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5.13 MODIFICATION OF ROSENTHAL TRANSACTIONS. Grove and Grove OP
shall (i) use its reasonable good faith efforts to cause the terms of the
Rosenthal Transactions to be modified to provide that (A) in lieu of the
issuance of any units of preferred limited partnership interest in Grove OP
("Preferred Units") pursuant to the Rosenthal Transactions, one Grove LP Unit
shall be issued in substitution for each Preferred Unit which otherwise would
have been issued pursuant to the Rosenthal Transactions, (B) in the event
that the Mergers are consummated prior to the closing of the Rosenthal
Transactions, then upon the closing of the Rosenthal Transactions, in lieu of
receiving Grove LP Units, the Persons who would otherwise be entitled to
receive Grove LP Units in connection with the Rosenthal Transactions shall
instead be entitled to receive, in substitution for each Grove LP Unit they
would have otherwise been entitled to receive, either (y) the Partnership
Cash Merger Consideration or (z) the Partnership Unit Merger Consideration,
in each case as adjusted by Section 1.12, at the election of such Person,
which election shall be made prior to the Election Deadline, and (C) in the
event the Rosenthal Transactions are consummated prior to the effectiveness
of the Mergers, each Grove LP Unit issued pursuant to the Rosenthal
Transactions shall be converted pursuant to the Partnership Merger in
accordance with Section 1.7 or (ii) with the prior written consent of Oak OP,
which consent shall not be unreasonably withheld, otherwise modify or
terminate the agreements relating to the Rosenthal Transactions; provided,
however, that in the event that the Rosenthal Transactions are consummated
prior to the effectiveness of the Mergers but subsequent to the Record Date,
each Person entitled to receive Grove LP Units pursuant to the Rosenthal
Transactions shall promptly be provided a Form of Election, which must be
completed and returned prior to the Election Deadline in accordance with
Section 1.9 if such Person wishes to elect to receive Partnership Unit Merger
Consideration pursuant to the Partnership Merger.
5.14 RETAIL SALE AGREEMENT. Immediately prior to, and on the date
of, the Partnership Merger Effective Time, Grove and Grove OP shall cause the
transactions contemplated by the Retail Sale Agreement to be consummated in
accordance with the terms of such agreement.
5.15 ELECTION TO UNDERTAKE DEFICIT RESTORATION OBLIGATION UNDER ERP
AGREEMENT. In the event that a Limited Partner holding any Grove LP Units
who is subject to a deficit restoration obligation under Section 13.5 of the
Grove OP Agreement elects pursuant to Section 1.7(b) of this Agreement to
receive ERP Units in exchange for any portion of such Limited Partner's Grove
LP Units, then such Limited Partner shall have the right to become an
"Obligated Partner" (as such term is defined under the ERP Agreement) of ERP
by delivery of written notice to ERP no later than the Election Deadline.
Such written notice shall specify the "Restoration Amount" (as such term is
defined under the ERP Agreement) for such Limited Partner, which amount shall
not exceed such Limited Partner's "Protected Amount" (as such term is defined
under the Grove OP Agreement) as determined immediately prior to the
Partnership Merger Effective Time.
5.16 TRANSFER OF GROVE LP UNITS. Grove, as general partner of
Grove OP, hereby consents pursuant to the Grove OP Agreement to the transfer
of Grove LP Units by New LLC subsequent to the Partnership Merger Effective
Time to any Affiliate of EQR or ERP.
5.17 TRANSFER OF GROVE CORP. SHARES. At the Closing, at the option
of ERP, Grove shall cause the owners of Grove Corp. to transfer to such
person or persons as ERP shall designate by written notice delivered to Grove
prior to the Closing, all of the shares of Grove
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Corp. owned by them, constituting all of the outstanding shares of Grove
Corp., for an aggregate consideration of $1.00.
ARTICLE 6
CONDITIONS
6.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGERS.
The obligations of each party to effect the Mergers shall be subject to the
fulfillment at or prior to the Closing Date of the following conditions:
(a) GROVE APPROVALS. This Agreement, the Merger and the
transactions contemplated by this Agreement shall have been approved and
adopted by the Grove Approvals.
(b) 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.
(c) 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 Mergers or any of the other transactions contemplated
hereby shall be in effect.
(d) BLUE SKY LAWS. ERP shall have received all state
securities or "blue sky" permits and other authorizations necessary to issue
ERP Units to the Limited Partners.
6.2 CONDITIONS TO OBLIGATIONS OF ERP. The obligations of ERP to
effect the Mergers 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 in writing by ERP:
(a) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Grove and Grove OP set forth in this Agreement shall be true
and correct as of the Closing Date, as though made on and as of the Closing
Date, except to the extent the representation or warranty is expressly
limited by its terms to another date, and ERP shall have received a
certificate (which certificate may be qualified by Knowledge to the same
extent as the representations and warranties of Grove and Grove OP contained
herein are so qualified) signed on behalf of Grove and Grove OP by the chief
executive officer or the chief financial officer of Grove, in such capacity,
to such effect. For the purposes of Section 6.2(a), the representations and
warranties of Grove shall be deemed true and correct unless the breach of
such representations and warranties, in the aggregate, could reasonably be
expected to have a Grove Material Adverse Effect, PROVIDED, HOWEVER, that
this sentence shall not apply to any beach of Section 2.15 or Section 2.8.
(b) PERFORMANCE OF OBLIGATIONS OF GROVE. Grove and Grove OP
shall have performed in all material respects all covenants and obligations
required to be performed by them under this Agreement at or prior to the
earlier of the Company Merger Effective Time or Partnership Merger Effective
Time, and ERP shall have received a certificate signed on behalf of Grove by
the chief executive officer or the chief financial officer of Grove, in such
capacity, to such effect.
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(c) MATERIAL ADVERSE CHANGE. Since March 31, 2000, there
shall have been no Grove Material Adverse Change and ERP shall have received
a certificate of the chief executive officer or chief financial officer of
Grove, in such capacity, certifying to such effect.
(d) OPINION OF MARYLAND COUNSEL. ERP and Grove shall have
received the opinion of Maryland counsel reasonably satisfactory to Oak OP
addressing the matters set forth in Exhibit "C" hereto.
(e) OPINION RELATING TO REIT STATUS. ERP shall have received
an opinion, dated as of the date of the Proxy Statement and the Closing Date,
of Cummings & Lockwood reasonably satisfactory to ERP, that, commencing with
its taxable year ended December 31, 1994, (A) Grove was organized and has
operated in conformity with the requirements for qualification as a REIT
under the Code and (B) Grove OP has been during and since 1997 and continues
to be, treated for federal income tax purposes as a partnership, and not as a
corporation or association taxable as a corporation (with customary
exceptions, assumptions and qualifications and based upon customary
representations and the Closing Agreement).
(f) OPINION OF COUNSEL. ERP shall have received an opinion
from Cummings & Lockwood or other counsel to Grove reasonably satisfactory to
ERP dated the Closing Date in form and substance reasonably satisfactory to
ERP addressing the matters set forth in Exhibit "D" hereto.
(g) CONSENTS. Except as set forth on Schedule 6.2 to the
Grove Disclosure Letter, 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 ERP Material Adverse Effect or a Grove Material Adverse
Effect.
(h) CERTAIN FEES AND EXPENSES. The actual fees and expenses
incurred in connection with the transactions contemplated by this Agreement
shall not exceed (i) the aggregate estimate of all such fees and expenses,
set forth on Schedule 2.30 to the Grove Disclosure Letter, or (ii) to the
extent specifically provided on Schedule 2.30, the estimates of the specific
categories of fees and expenses, as set forth on such Schedule.
(i) RETAIL PROPERTY SALE. The transactions contemplated by
the Retail Sale Agreement shall have been consummated in accordance with the
terms of such agreement.
(j) CLOSING AGREEMENT AND COSTS. Grove shall have obtained
the Closing Agreement; provided, however, that the Closing Agreement Costs
shall not exceed $3.5 million without the prior written consent of ERP, which
consent may be given in ERP's sole and absolute discretion. As used herein
"Closing Agreement Costs" shall mean all Taxes, fees (including without
limitation any fees for professional services), or other costs incurred by or
imposed upon any of Grove, Grove OP, any Grove Subsidiary, EQR, ERP or any
ERP Subsidiary, with respect to, or as a result of, obtaining the Closing
Agreement and the matters to be addressed by the Closing Agreement ("Closing
Agreement Costs")
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6.3 CONDITIONS TO OBLIGATIONS OF GROVE. The obligation of Grove
and Grove OP to effect the Mergers 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 in writing by Grove:
(a) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of ERP 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 Grove shall have
received a certificate (which certificate may be qualified by Knowledge to
the same extent as the representations and warranties of ERP contained herein
are so qualified) signed on behalf of ERP by the chief executive officer and
the chief financial officer of EQR to such effect. For the purposes of this
Section 6.3(a), the representations and warranties of ERP shall be deemed
true and correct unless the breach of such representations and warranties, in
the aggregate, could reasonably be expected to have an ERP Material Adverse
Effect.
(b) PERFORMANCE OF OBLIGATIONS OF ERP. ERP shall have
performed in all material respects all covenants and obligations required to
be performed by it under this Agreement at or prior to the earlier of the
Company Merger Effective Time or the Partnership Merger Effective Time, and
Grove shall have received a certificate of ERP signed on behalf of ERP 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 ERP Material Adverse Change and Grove
shall have received a certificate of the chief executive officer or chief
financial officer of ERP, in such capacity, certifying to such effect.
(d) OPINION RELATING TO REIT STATUS. Grove shall have
received an opinion, dated as of the date of the Proxy Statement and the
Closing Date, of Piper Marbury Rudnick & Wolfe, reasonably satisfactory to
Grove, that, commencing with its taxable year ended December 31, 1992, (A)
EQR was organized and has operated in conformity with the requirements for
qualification as a REIT under the Code and (B) ERP has been during and since
1992 and continues to be, treated for federal income tax purposes as a
partnership, and not as a corporation or association taxable as a corporation
(with customary exceptions, assumptions and qualifications and based upon
customary representations).
(e) OPINION OF COUNSEL. Grove shall have received an opinion
from Piper Marbury Rudnick & Wolfe or other counsel to ERP reasonably
satisfactory to Grove dated the Closing Date in form and substance reasonably
satisfactory to Grove addressing the matters set forth in Exhibit "E" hereto
dated the Closing Date.
(f) CONSENTS. All consents and waivers (including, without
limitation, waivers or rights of first refusal) from third parties necessary
in connection with the consummation of the transactions contemplated hereby
shall have been obtained, other than such consents and waivers from third
parties, which, if not obtained, would not result, individually or in the
aggregate, in an ERP Material Adverse Effect or a Grove Material Adverse
Effect.
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(g) CLOSING AGREEMENT. Grove shall have obtained, and
delivered to ERP, the Closing Agreement. Under no circumstance shall Grove be
obligated to obtain the Closing Agreement if the Closing Agreement Costs are
in excess of $3.5 million, unless ERP agrees, in its sole and absolute
discretion, to pay the amount of Closing Agreement Costs in excess of $3.5
million.
ARTICLE 7
TERMINATION, AMENDMENT AND WAIVER
7.1 TERMINATION. This Agreement may be terminated at any time
prior to the acceptance of the Partnership Certificate of Merger by the
Delaware Secretary, whether before or after the Grove Approvals are obtained:
(a) by mutual written consent duly authorized by both the
general partner of ERP and the Grove Board;
(b) by ERP, upon a breach of any representation, warranty,
covenant, obligation or agreement on the part of Grove or Grove OP 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 March 31, 2001 (or as otherwise extended);
(c) by Grove, upon a breach of any representation, warranty,
covenant obligation or agreement on the part of ERP 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 March 31, 2001 (or as otherwise extended);
(d) by either ERP or Grove, if any judgment, injunction,
order, decree or action by any Governmental Entity of competent authority
preventing the consummation of either the Partnership Merger or Company
Merger shall have become final and nonappealable;
(e) by either ERP or Grove, if the Mergers shall not have
been consummated before March 31, 2001; provided, that 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 and, provided further, that (i) if the
Mergers shall not have been consummated solely due to the failure to receive
any required lender, HUD or MHFA consents (as listed on Schedule 2.5 of the
Grove Disclosure Letter), March 31, 2001 shall be automatically extended to
May 31, 2001 and (ii) any termination of this Agreement resulting solely by
reason of the failure to meet the condition set forth in (i) above shall be
pursuant to this Section 7.1(e);
(f) by either ERP or Grove if, upon a vote at a duly held
Grove Shareholders Meeting or any adjournment thereof, the Grove Shareholder
Approvals shall not have been obtained as contemplated by Section 5.1;
(g) by either ERP or Grove if the Grove Partner Approvals
shall not have been obtained as contemplated by Section 5.1;
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(h) by Grove, if prior to the Grove Shareholders Meeting or
the Grove OP Partners Meeting, the Grove Board shall have withdrawn or
modified its approval or recommendation of the Mergers or this Agreement in
connection with, or approved or recommended, a Superior Acquisition Proposal;
and
(i) by ERP if (i) prior to the Grove Shareholders Meeting or
the Grove OP Partners Meeting, the Grove Board shall have withdrawn or
modified in any manner adverse to ERP its approval or recommendation of the
Mergers or this Agreement in connection with, or approved or recommended, any
Superior Acquisition Proposal, or (ii) Grove shall have entered into a
definitive agreement with respect to any Acquisition Proposal.
7.2 CERTAIN FEES AND EXPENSES.
(a) If this Agreement shall be terminated (i) pursuant to
Section 7.1(h) or 7.1(i), then Grove will pay ERP (provided Grove 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), or
(ii) pursuant to Section 7.1(b), 7.1(f) or 7.1(g), then Grove will pay ERP
(provided Grove was not entitled to terminate this Agreement pursuant to
Section 7.1(c) at the time of such termination) an amount equal to the
Expense Fee (as defined below). If this Agreement shall be terminated by ERP
or Grove pursuant to Section 7.1(e) and Grove has not, at the time of such
termination, (i) obtained and delivered to ERP the Closing Agreement in
satisfaction of both Section 6.2(j) and Section 6.3(g) or (ii) caused to be
delivered to ERP the legal opinion referenced in Section 6.2(e), then Grove
will pay ERP an amount equal to the Expense Fee. If this Agreement shall be
terminated pursuant to Section 7.1(c), then ERP will pay Grove (provided ERP
was not entitled to terminate this Agreement pursuant to Section 7.1(b) at
the time of such termination), an amount equal to the Expense Fee. If the
Merger is not consummated (other than due to the termination of this
Agreement pursuant to Section 7.1(a), 7.1(c) or 7.1(e) (excluding any
termination pursuant to Section 7.1(e) with respect to which Grove is
obligated to pay ERP the Expense Fee)), and at the time of the termination of
this Agreement an Acquisition Proposal has been received by Grove, and either
prior to the termination of this Agreement or within twelve (12) months
thereafter Grove or any Grove 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 Grove shall pay the Break-Up Fee
to ERP, PROVIDED, HOWEVER, that for purposes of this sentence only, (x)
"Acquisition Proposal" shall not include a sale of Grove Properties to a
single purchaser or related group of purchasers for a Purchase Price (as
defined below) equal to or in excess of $158.6 million (an "Exempt Sale") and
(y) ERP shall have a right of first offer for a period of thirty days (but no
right of first refusal) with respect to the Grove Properties subject to the
Exempt Sale. EQR shall communicate its offer with respect to a proposed
Exempt Sale within thirty days of its receipt of notice that (i) Grove
desires to sell certain Grove Properties which sale, if consummated, would
constitute an Exempt Sale (an "Offer to Sell") or (ii) Grove has received a
bona fide offer to purchase certain Grove Properties which sale, if
consummated, would constitute an Exempt Sale (an "Offer to Purchase"). Grove
shall provide notice to ERP of an Offer to Sell or Offer to Purchase as soon
as practicable (but in all cases within three (3) days) following its
decision to undertake an Offer to Sell or its receipt of an Offer to
Purchase, as the case may be. In the case of an Offer to Sell, (i) if Grove
does not accept ERP's offer with respect to such proposed
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Exempt Sale, Grove shall be prohibited from consummating such proposed Exempt
Sale with any other Person or Persons at a price or on other terms equal to
or less than that offered by ERP and (ii) in the event ERP does not make an
offer with respect to such proposed Exempt Sale within the time period
prescribed herein, Grove shall be free to consummate such proposed Exempt
Sale with any Person or Persons. In the case of an Offer to Purchase, (i) if
ERP's offer with respect to such proposed Exempt Sale shall (x) equal or
exceed the value of the Offer to Purchase and (y) contain substantially
equivalent terms in other respects, Grove shall be bound to consummate the
Exempt Sale with ERP as soon as practicable in accordance with such offer,
(ii) EQR shall have the right to consummate such proposed Exempt Sale with
Grove on substantially the same terms as the Offer to Purchase and (iii) in
the event that ERP makes an offer which is declined by Grove, Grove must
consummate the Exempt Sale with the Person or Persons making the Offer to
Purchase, on better terms than the declined ERP offer, within six months of
Grove's refusal of such ERP offer. For purposes of this Section 7.2 "Purchase
Price" shall include the value of the consideration paid for the Grove
Properties, including the value of any direct or indirect debt assumed,
retired or released in connection with the Exempt Sale. Any amounts to be
paid by the purchaser contingent upon future events, if any, shall be
estimated in a manner to be mutually agreed upon by the parties hereto. All
communications with respect to an Exempt Sale shall be in accordance with
Section 8.2.
(b) The payment of the Break-Up Fee shall be compensation and
liquidated damages for the loss suffered by ERP as a result of the failure of
the Mergers 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 Grove to ERP, or the Expense Fee shall be paid by Grove
to ERP or ERP to Grove (as applicable), in immediately available funds within
fifteen (15) days after the date of the event giving rise to the obligation
to make such payment occurred.
(c) As used in this Agreement, "Break-Up Fee" shall be an
amount equal to the lesser of (i) $8,500,000 plus the Expense Fee (the "Base
Amount") and (ii) the sum of (A) the maximum amount that can be paid to ERP
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 in Sections 856(c)(2)(A)-(H) and 856(c)(3)(A)-(I)
of the Code ("Qualifying Income"), as determined by independent accountants
to ERP, and (B) in the event ERP receives a letter from outside counsel (the
"Break-Up Fee Tax Opinion") indicating that ERP has received a ruling from
the IRS holding that ERP'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 ERP of the excess of the Base Amount over the amount payable
in clause (A) 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. In the event that ERP determines, in
its absolute and sole discretion, that it is not able to receive the full
Base Amount, Grove shall place the unpaid amount in escrow and shall not
release any portion thereof to ERP unless and until Grove receives any one or
combination of the following: (i) a letter from ERP's independent accountants
indicating the maximum amount that can be paid at that time to ERP without
causing ERP to fail to meet the REIT Requirements or (ii) a Break-Up Fee Tax
Opinion, in which event Grove shall pay to ERP the lesser of the unpaid Base
Amount or the maximum amount stated in the letter referred to in (i) above.
Grove's obligation to pay any unpaid portion
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of the Break-Up Fee shall terminate three years from the date of this
Agreement. The "Expense Fee" payable to ERP or Grove, as the case may be (the
"Recipient"), shall be an amount equal to the least of (i) $2,000,000, (ii)
the Recipient's documented 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
excess of the Expense Fee over the amount payable under clause (A) 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. In the event that the Recipient is not able to receive the full
Expense Fee, the Payor (as defined below) 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. The obligation of ERP or Grove, as applicable ("Payor"), to pay
any unpaid portion of the Expense Fee shall terminate three years from the
date of this Agreement.
7.3 EFFECT OF TERMINATION. In the event of termination of this
Agreement by either Grove or ERP 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 ERP, Grove or Grove OP, other than 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 ERP pursuant to Section
7.1(b), Grove shall not be entitled to any of the benefits of Section 7.2, or
(b) if this Agreement is terminated by Grove pursuant to Section 7.1(c), ERP
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 the general partner of ERP and the Grove Board at any
time before or after the Grove Approvals are obtained and prior to the filing
of the Company Articles of Merger or Partnership Certificate of Merger;
provided, however, that, after the Grove Approvals are obtained, no such
amendment, modification or supplement shall be made which changes the amount
or type of consideration to be received by the shareholders of Grove or
partners of Grove OP or which by law requires the further approval of the
shareholders of Grove or partners of Grove OP without obtaining such further
approval.
7.5 EXTENSION; WAIVER. At any time prior to the earlier of the
Company Merger Effective Time or Partnership Merger 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,
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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 solely to confirm the representations
and warranties in this Agreement shall survive the Company Merger Effective
Time or Partnership Merger Effective Time, as the case may be. This Section
8.1 shall not limit any covenant or agreement of the parties which by its
terms contemplates performance after the Effective Times.
8.2 NOTICES. All notices, requests, claims, demands and other
communications under this Agreement shall be in writing and shall be
delivered personally, sent by overnight courier (providing proof of delivery)
to the parties or sent by telecopy (providing confirmation of transmission)
at the following addresses or telecopy numbers (or at such other address or
telecopy number for a party as shall be specified by like notice):
(a) if to ERP, to: ERP Operating Limited Partnership
Two North Riverside Plaza, Suite 400
Chicago, Illinois 60606
Attention: Bruce C. Strohm
Fax No.: (312) 454-0039
with a copy to: Piper Marbury Rudnick & Wolfe
203 North LaSalle Street, Suite 1800
Chicago, Illinois 60601-1293
Attention: Errol R. Halperin, Esq.
Fax No. (312) 236-7516
(b) if to Grove or Grove OP, to: Grove Property Trust
598 Asylum Avenue
Hartford, Connecticut 06105
Attention: Joseph R. LaBrosse
Fax No.: (860) 527-0401
with a copy to: Cummings & Lockwood
Four Stamford Plaza
Stamford, Connecticut 06904
Attention: Michael J. Hinton, Esq.
Fax No.: (203) 351-4535
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All notices shall be deemed given only when actually received.
8.3 INTERPRETATION. All references made herein to any party shall
include any predecessor to such party. When a reference is made in this
Agreement to a Section, such reference shall be to a Section of this
Agreement unless otherwise indicated. The table of contents and headings
contained in this Agreement are for reference purposes only and shall not
affect in any way the meaning or interpretation of this Agreement. Whenever
the words "include", "includes" or "including" are used in this Agreement,
they shall be deemed to be followed by the words "without limitation."
8.4 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each
of the parties and delivered to the other party.
8.5 ENTIRE AGREEMENT; NO THIRD-PARTY BENEFICIARIES. This
Agreement, the Grove Disclosure Letter, the ERP Disclosure Letter, the
Confidentiality Agreement and the other agreements entered into in connection
with the Mergers, including, without limitation, the executed documents the
forms of which are included in the Grove Disclosure Letter or are otherwise
specifically referred to herein, (a) constitute the entire agreement and
supersede all prior agreements and understandings, both written and oral,
between the parties with respect to the subject matter of this Agreement and
(b) except as provided in Section 5.7 and Section 5.8 ("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 trust managers of Grove who had been trust managers of Grove
prior to the Company Merger 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 Connecticut or in any
Illinois or Connecticut State court located in Illinois or Connecticut, 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
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State of Illinois or Connecticut or any Illinois or Connecticut 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 broad as to be
unenforceable, the provision shall be interpreted to be only so broad as is
enforceable.
8.10 NON-RECOURSE TO TRUSTEES, TRUST MANAGERS AND OFFICERS.
(a) This Agreement and all documents, certificates,
agreements, understandings and arrangements relating hereto have been entered
into or executed on behalf of Grove (both in its individual capacity and in
its capacity as general partner of Grove OP) by the undersigned in his
capacity as a trust manager or officer of Grove, which has been formed as a
Maryland real estate investment trust pursuant to its Third Amended and
Restated Declaration of Trust dated as of March 14, 1997, as amended, and not
individually, and neither the trust managers, officers nor shareholders of
Grove shall be personally bound or have any personal liability hereunder. ERP
shall look solely to the assets of Grove for satisfaction of any liability of
Grove with respect to this Agreement and any other agreements to which it is
a party. ERP will not seek recourse or commence any action against any of the
shareholders of Grove or any of their personal assets, and will not commence
any action for money judgments against any of the trust managers or officers
of Grove or seek recourse against any of their personal assets, for the
performance or payment of any obligation of Grove hereunder or thereunder.
(b) This Agreement and all documents, certificates,
agreements, understandings and arrangements relating hereto have been entered
into or executed on behalf of ERP by the undersigned in his capacity as a
trustee or officer of EQR, the sole general partner of ERP, 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 November 2, 1992, as amended
and restated, and not individually, and neither the trustees, officers nor
equity holders of EQR or ERP shall be personally bound or have any personal
liability hereunder. Grove shall look solely to the assets of ERP for
satisfaction of any liability of ERP with respect to this Agreement and any
other agreements to which it is a party. Grove will not seek recourse or
commence any action against any of the equity holders of ERP 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 ERP
hereunder or thereunder.
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IN WITNESS WHEREOF, ERP, Grove and Grove OP have caused this Agreement to be
signed by their respective officers thereunto duly authorized all as of the date
first written above.
ERP OPERATING LIMITED
PARTNERSHIP, an Illinois limited
partnership
By: Equity Residential Properties Trust
Its: General Partner
By: /s/ Bruce C. Strohm
-------------------------------------
Name: Bruce C. Strohm
------------------------------
Title: Executive Vice President
------------------------------
GROVE PROPERTY TRUST, a
Maryland real estate investment trust
By: /s/ Joseph R. LaBrosse
-------------------------------------
Name: Joseph R. LaBrosse
------------------------------
Title: Chief Financial Officer
------------------------------
GROVE OPERATING, L.P., a Delaware
limited partnership
By: /s/ Joseph R. LaBrosse
-------------------------------------
Name: Joseph R. LaBrosse
------------------------------
Title: Chief Financial Officer
------------------------------
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APPENDIX B
OPINION OF HOULIHAN LOKEY HOWARD & ZUKIN FINANCIAL ADVISORS,
INC.
<PAGE>
July 14, 2000
The Board of Trust Managers
Grove Property Trust
598 Asylum Avenue
Hartford, CT 06105
Dear Trust Managers:
We understand that Grove Property Trust (the "Company") is exploring whether
there might be mutually acceptable terms on which it would enter into a
transaction with Equity Residential Properties Trust ("EQR") pursuant to which
all of the Company's outstanding common shares would be exchanged for cash in an
all cash merger and all of the Operating Partnership Units in Grove Operating,
L.P. ("Grove OP Units") would, at the option of the holders thereof, at the
closing of the merger, either be converted into 0.3696 ($17.00 divided by
$46.00) of an Operating Partnership Unit in ERP Operating Limited Partnership
("EQR OP Units") on a tax free basis or entitled to $17.00 cash for each Grove
OP Unit subject in each case to downward adjustment not to exceed $0.29 per
share or Grove OP Unit. Such exchange of cash for the Company's common stock and
cash or EQR OP Units for the Grove OP Units is referred to herein as the "EQR
Transaction." The terms of the EQR Transaction which are currently under
consideration by the Company and EQR are more specifically outlined in
attachments to a letter agreement between the Company and EQR dated June 12,
2000 (the "Letter Agreement").
We further understand that prior to the closing of the EQR Transaction, the
Company would sell or otherwise transfer its four retail properties, the "Grove"
name and symbol trademark and related assets and liabilities to a private
limited liability company owned by Joseph LaBrosse, and Damon, Brian and Edmond
Navarro, for a gross purchase price/value equal to $21,650,000, (such
sale/transfer is referred to herein as the "Retail Exchange"). The consideration
for the Retail Exchange would consist of the assumption of all related property
indebtedness, plus the exchange of all Grove OP Units owned by such persons,
valued at $17 per Grove OP Unit subject to downward adjustment not to exceed
$0.29 per Grove OP Unit, with excess value credited in cash in such limited
liability company.
In connection with the EQR Transaction, the Company will incur certain
transaction costs, including: (a) approximately $5 million of payments to the
Company's executive management to provide for expectations relating to certain
share purchase transactions and related bonuses (the "Management Contract
Buyout"), (however; it is our understanding that such executive management will
waive their rights to approximately $22 million under existing employment
contracts which would otherwise become payable upon consummation of the EQR
Transaction), (b) approximately $4 million of severance to all of the Company's
corporate employees (the "Severance Package"), and (c) certain other closing
costs and transaction costs which, when combined with the Management Contract
Buyout and Severance Package
<PAGE>
The Board of Trust Manafers
Grove Property Trust
July 14, 2000 -2-
total approximately $20 million. Further, we understand that there is an
agreement between the Company and EQR which will provide that if Grove's
actual transaction costs associated with the EQR Transaction exceed
approximately $20 million the operation of a covenant in such agreement would
prohibit Grove from paying, or would reduce the permitted amount of,
dividends or distributions which would otherwise be permitted.
The EQR Transaction, the Retail Exchange, and the aforementioned payment of
transaction costs, as well as other related transactions described in the
attachments to the Letter Agreement or otherwise disclosed to us are referred to
collectively herein as the "Transaction."
You have requested our opinion (the "Opinion") as to the matters set forth
below. The Opinion does not address the Company's underlying business decision
to effect the Transaction. We have not been requested to, and did not, solicit
third party indications of interest in acquiring all or any part of the Company.
Furthermore, at your request, we have not negotiated the Transaction or advised
you with respect to alternatives to it.
In connection with this Opinion, we have made such reviews, analyses and
inquiries as we have deemed necessary and appropriate under the circumstances.
Among other things, we have:
1. met with the Company's senior management and the Company's advisors to
discuss the Transaction, the operations, financial condition, future
prospects and performance of the Company;
2. reviewed the Company's annual reports to shareholders and on Form 10-K
for the fiscal years ended December 31, 1999 and quarterly reports on
Form 10-Q for the quarter ended March 31, 2000;
3. reviewed forecasts and projections prepared by the Company's management
with respect to the Company for the years ended December 31, 2000
through December 31, 2001;
4. reviewed preliminary appraisal indications as prepared by Italia and
Lemp, Inc. for the following retail properties:
Cornerblock,
Longmeadow Shops
The Wharf, and
Freeport Shops
5. reviewed copies of the following agreements:
a draft copy of the Exclusivity Agreement dated June 12, 2000;
and the Retail Transaction Structure memo as prepared by
Cummings & Lockwood
6. conducted site visits to certain of the properties owned by the
Company;
7. reviewed Minutes of the Meeting on May 25, 2000 of the Board of Trust
Managers of the Company;
8. reviewed publicly available information on companies we deemed
comparable to the Company; and
9. conducted such other analyses, studies and investigations as we deemed
appropriate under the circumstances for rendering the opinion expressed
herein.
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The Board of Trust Managers
Grove Property Trust
July 14. 2000 -3-
We have relied upon and assumed, without independent verification, that the
financial forecasts and projections provided to us have been reasonably prepared
and reflect the best currently available estimates of the future financial
results and condition of the Company, and that there has been no material change
in the assets, financial condition, business or prospects of the Company since
the date of the most recent financial statements made available to us.
We have not independently verified the accuracy and completeness of the
information supplied to us with respect to the Company and do not assume any
responsibility with respect to it. We have not made any independent appraisal of
any of the properties or assets of the Company. Our opinion is necessarily based
on business, economic, market and other conditions as they exist and can be
evaluated by us at the date of this letter.
Based upon the foregoing, and in reliance thereon, it is our opinion that (a)
the consideration to be received by Company's stockholders and the Grove OP Unit
holders in connection with the Transaction is fair, from a financial point of
view, and (b) the consideration to be received by the Company in connection with
the Retail Exchange in connection with the Transaction is fair to the Company
from a financial point of view.
HOULIHAN LOKEY HOWARD & ZUKIN FINANCIAL ADVISORS, INC.
/s/Houlihan Lokey Howard & Zukin Financial Advisors, Inc.
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APPENDIX C
RETAIL SALE AGREEMENT
This REDEMPTION AND DISTRIBUTION AGREEMENT is made and entered into as
of the 17th day of July, 2000, by and among Damon D. Navarro ("D. Navarro"),
Brian D. Navarro ("B. Navarro"), Edmund F. Navarro ("E. Navarro"), Joseph R.
LaBrosse ("LaBrosse"), GROVE REALTY, LLC, a Delaware limited liability company
("Investor LLC"), and GROVE OPERATING, L.P., a Delaware limited partnership (the
"Partnership"). D. Navarro, B. Navarro, E. Navarro and La Brosse are sometimes
referred to herein individually as an "Investor," and collectively as the
"Investors."
R E C I T A L S:
A. The Partnership has been established and continued in
existence pursuant to a certain Agreement of Limited Partnership of Grove
Operating, L.P. dated as of March 10, 1997, as amended (the "Partnership
Agreement").
B. Each of the Investors, as a limited partner in the
Partnership, owns the number of Partnership Units set forth beside said
Investor's name on EXHIBIT A attached hereto and by this reference made a
part hereof.
C. Pursuant to a certain Agreement and Plan of Merger of even
date herewith (the "Merger Agreement"), by and between ERP Operating Limited
Partnership, an Illinois limited partnership ("ERP OP"), the Partnership and
Grove Property Trust, a Maryland real estate investment trust ("Grove"), it
is contemplated that, among other things, a limited liability company
referred to as "LLC 3" in the Merger Agreement will merge with and into the
Partnership (the "Partnership Merger"), with the Partnership as the surviving
entity. Capitalized terms that are not defined herein shall have the meanings
set forth in the Partnership Agreement or the Merger Agreement, as the case
may be.
D. The Investors, collectively, own all of the membership
interests in Investor LLC. The Investors desire to assign and contribute all
of their Partnership Units to Investor LLC prior to the Partnership Merger,
and Investor LLC desires to accept said contribution and assignment, and to
gain admission as a limited partner in the Partnership in the place and stead
of the Investors.
E. Following its admission as a limited partner in the
Partnership, Investor LLC desires, prior to the Partnership Merger, to
withdraw from the Partnership and surrender for redemption its Partnership
Units, and the Partnership desires to redeem such Partnership Units, all on
the terms set forth herein. The transactions described herein, including the
Agreed Retail Property Value and the mechanism for determining the Cash
Redemption Payment, have been authorized by (i) the Board of Trust Managers
of Grove, and (ii) the Merger Oversight Committee of the Board of Trust
Managers of Grove.
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NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
1.1 DEFINITIONS. As used in this Agreement, the following terms
have the following meanings (such meanings to be equally applicable to both
the singular and plural forms of the terms defined):
"Action" means any action, suit, arbitration, inquiry,
regulatory action, enforcement action proceeding or investigation by
or before any court, any Governmental Authority or any arbitration
tribunal, including without limitation, matters arising under or in
connection with Environmental Laws (including matters relating to
Pre-Existing Environmental Matters).
"Affiliate" means, when used with respect to a specified
person, another person that, directly or indirectly, controls, is
controlled by, or is under common control with, the person specified.
"Agreed Retail Property Value" means twenty-one Million Six
Hundred Fifty Thousand Dollars ($21,650,000), plus all Capital
Expenditures made with respect to the Retail Properties, determined on
a cash basis, from and after June 1, 2000 other than (1) up to $120,000
of Capital Expenditures made with respect to space leased to The
Children's Place Retail Stores, Inc., in Freeport, Maine, under and
pursuant to the terms of lease dated December 31, 1999, as amended
March 31, 2000, (2) up to $10,000 of Capital Expenditures for the
Retail Property located in Longmeadow, Massachusetts, and (3) up to
$5,000 of Capital Expenditures for each Retail Property other than the
one located in Longmeadow, Massachusetts.
"Assumed Liabilities" has the meaning set forth in Section 2.2.
"Capital Expenditure" means all expenditures which would be
treated as capital expenditures in accordance with generally accepted
accounting principles, consistently applied.
"Cash Redemption Payment" shall be a dollar amount equal to
(A) the number of Partnership Units surrendered for redemption by
Investor LLC pursuant to Section 2.1, multiplied by the Partnership
Cash Merger Consideration, as and if adjusted pursuant to Section 1.12
of the Merger Agreement, PLUS (B) the outstanding principal balance,
determined as of the Distribution Date, of the Long Meadow Mortgage
Loan, LESS (C) the Agreed Retail Property Value. The Cash Redemption
Payment shall be subject to adjustment as provided in Section 2.6.
"CERCLA" means the Comprehensive Environmental Response,
Compensation and Liability Act, 42 U.S.C. Sections 9601 ET SEQ., as
amended from time to time.
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"Distributed LLC's" has the meaning set forth in Section 2.1.
"Distribution" has the meaning set forth in Section 2.1.
"Distribution Date" has the meaning set forth in Section 2.1.
"Effective Time" has the meaning set forth in Section 2.1
"Environmental Law" shall have the meaning set forth in the
Merger Agreement.
"Former Partner" means any partner or member (other than the
Partnership) in the Distributed LLC's or any predecessor entity that
owned a Retail Property.
"Governmental Authority" means any government or any agency,
bureau, board, commission, court, department, official, political
subdivision, tribunal or other instrumentality of any government,
whether federal, state or local, domestic or foreign.
"Hazardous Material" shall have the meaning set forth in the
Merger Agreement.
"Indemnifying Party" has the meaning set forth in Section 5.2.
"Indemnitee" has the meaning set forth in Section 5.2.
"Indemnitee Notice" has the meaning set forth in Section 5.3.
"IRS" means the Internal Revenue Service.
"Liabilities" means any and all debts, liabilities and
obligations, absolute or contingent, matured or unmatured, liquidated
or unliquidated, accrued or unaccrued, known or unknown, whenever
arising, including, without limitation, Taxes and those debts,
liabilities and obligations arising under any law (including without
limitation Environmental Laws), rule, regulation, Action, threatened
Action, order or consent decree of any court, any governmental or other
regulatory or administrative agency or commission or any award of any
arbitration tribunal, and those arising under any contract, commitment
or undertaking.
"Long Meadow Mortgage Loan" has the meaning set forth in Section
2.2.
"Losses" and "Loss" mean any and all losses, charges,
Liabilities, claims, damages, penalties and costs or expenses
(including, without limitation, reasonable attorney's fees and any and
all expenses whatsoever reasonably incurred in investigating, preparing
or defending against any Actions or threatened Actions).
"Partnership Merger" has the meaning set forth in the Recitals.
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"Pre-Existing Environmental Matters" means (A) all
environmental conditions (including, but not limited to, Hazardous
Materials, Underground Storage Tanks and wetlands) which (i) are on
or under any of the Retail Properties on the Distribution Date, or
(ii) were on or under any of the Retail Properties at any time prior
to the Distribution Date including any subsurface migration of
Hazardous Materials from any such Retail Property to any other site
or location prior to or after the Distribution Date (B) all actions
or omissions of the Partnership, the Distributed LLC's or any party
acting by, through or under the Partnership or the Distributed LLC's
in connection with any of the matters referred to in clause (A) of
this definition and (C) all actions or omissions of the Partnership,
the Distributed LLC's or any parties acting by, through or under the
Partnership or the Distributed LLC's at any time on or before the
Distribution Date with respect to Hazardous Materials or other
matters within the scope of any Environmental Law, to the extent
relating to any of the Retail Properties, including without
limitation any violations of any Environmental Laws or permits.
"RCRA" means the Resource Conservation and Recovery Act, 42
U.S.C. Sections 6901 ET SEQ.
"Retail Properties" means the land legally described on
EXHIBIT B attached hereto and all related improvements. Exhibit B also
sets forth the address and common name of each of the Retail
Properties, which are individually referred to as a "Retail Property."
"Taxes" means all taxes, charges and fees imposed by the United
States or any state, county, local or foreign government or subdivision
or agency thereof.
"Tenant Leases" means all leases for occupancy of space by
tenants of the Retail Properties.
"Third-Party Claim" has the meaning set forth in Section 5.3.
"Underground Storage Tanks" has the meaning assigned to that
term by Section 9001 of RCRA and shall also include the following:
(A) any farm or residential tank of 1,100 gallons or less capacity
used for storing motor fuel for non-commercial purposes; (B) any
tank used for storing heating oil for consumptive use on the
premises where stored; (C) any septic tank; (D) any tank which would
be considered an underground storage tank under Section 9001 of RCRA
but for the fact that it contains hazardous wastes; and (E) any
pipes connected to items (A) through (D).
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ARTICLE 2
REDEMPTION AND DISTRIBUTION
2.1 REDEMPTION AND DISTRIBUTION.
(a) On the effective date of the Partnership Merger (the
"Distribution Date"), immediately prior to the filing of the certificate of
merger for the Partnership Merger (the "Effective Time"), the following
transactions shall be effectuated in the following order:
(i) First, each of the Investors shall assign, transfer and
contribute all of its Partnership Units (which shall be
not less than all of the Partnership Units set forth
beside said Investor's name on EXHIBIT A) to Investor
LLC, pursuant to an Assignment and Assumption of
Partnership Interests in the form attached hereto as
EXHIBIT C. Upon the execution and delivery of each
Assignment and Assumption of Partnership Interests,
Investor LLC shall be admitted as a limited partner in
the Partnership in the place and stead of said Investor;
and
(ii) Second, Investor LLC shall withdraw from the Partnership
and surrender all of its Partnership Units (which shall
be not less than the aggregate number of Partnership
Units set forth on EXHIBIT A) for redemption by the
Partnership pursuant to an instrument of complete
withdrawal in the form attached hereto as EXHIBIT D, and
in consideration thereof the Partnership shall (x)
distribute and assign to Investor LLC all of the
Partnership's membership interests (the "Distributed
Interests") in the limited liability companies identified
on EXHIBIT E (collectively, the "Distributed LLC's"; said
distribution being referred to herein as the
"Distribution"), pursuant to an Assignment and Assumption
of Membership Interests in the form attached hereto as
EXHIBIT F, (y) assign to Investor LLC, without
representation or warranty, the name "Grove," any
trademarks of which the name "Grove" forms a constituent
part and any related intellectual property rights and (z)
pay to Investor LLC the Cash Redemption Payment, as the
same may be adjusted pursuant to Section 2.6 hereof. Upon
the execution and delivery of the Assignment and
Assumption of Membership Interests, the Partnership Units
surrendered by Investor LLC shall be deemed to have been
redeemed and cancelled without the necessity of further
action, and shall thereupon forever cease to exist, and
Investor LLC shall no longer be a limited partner in the
Partnership. Said redemption is not being effectuated
pursuant to Section 8.6 of the Partnership Agreement and
shall not have the consequences described therein.
(b) Concurrently with the Distribution, Investors and
Investor LLC shall furnish the Partnership with an opinion of counsel, in
form and substance satisfactory to the Partnership in the Partnership's
reasonable discretion, with respect to the
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authorization, execution, delivery and enforceability of this Agreement and the
instruments required to be executed and delivered by Investor LLC and Investors
pursuant to this Agreement.
(c) The parties hereto agree that they shall each report the
Distribution as made pursuant to Section 736(b) of the Internal Revenue Code
of 1986, as amended.
(d) The parties hereto shall cooperate in executing and
delivering the documents referred to in this Section 2.1 so as to effectuate
the transaction described above in accordance herewith.
2.2 ASSUMPTION.
(a) Subject to the terms and conditions of this Agreement,
simultaneously with the transactions contemplated by clause (ii) of Section
2.1, Investor LLC shall (and hereby does, as of the Effective Time) assume
and undertake to pay and discharge any and all Liabilities, if any, of the
Partnership, whether heretofore or hereafter incurred relating to, incurred
in connection with or arising with respect to the Retail Properties, and any
and all Liabilities of the Distributed LLC's (or any predecessor thereto)
whether heretofore or hereafter incurred (collectively, the "Assumed
Liabilities"), regardless of the manner in which said Liabilities may have
arisen or are alleged to have arisen (including, without limitation and to
the fullest extent that said assumption is permitted by applicable law, any
Liabilities arising from the negligent, willful or fraudulent acts or
omissions of the Partnership or the Distributed LLC's or any predecessor
thereto), including, without limitation, (i) all liabilities and obligations
of the Partnership or the Distributed LLC's (or any predecessor thereto) in
connection with any Pre-Existing Environmental Matters, (ii) all liabilities
and obligations of the Partnership or the Distributed LLC's (or any
predecessor thereto) pursuant to or in connection with all agreements
relating to a Retail Property, if any, to which the Partnership or the
Distributed LLC's (or any predecessor thereto) is a party or to which the
Retail Properties are subject (collectively, the "Property-level Debt
Instruments") and which evidence or secure any indebtedness secured by
mortgages, deeds of trust, pledges, collateral assignments or security
agreements with respect to one or more of the Retail Properties
(collectively, the "Property-level Debt"), (iii) claims by employees of the
Distributed LLC's (or any predecessor thereto), including claims for accrued
vacation, sick pay and other related benefits, (iv) state, local and federal
tax liabilities with respect to any tax year or partial tax year to the
extent relating to any Distributed LLC or any Retail Property, (v) tort
claims in connection with injuries sustained or alleged by any party
(individuals or entity collectively a "Third Party") relating to a Retail
Property or in connection with the negligent or otherwise tortious acts or
omissions of any Distributed LLC (or any predecessor thereto) or its agents
or employees, officers or directors, (vi) claims made by any Third Party for
breaches of contract, guaranties or indemnities to the extent relating to any
Distributed LLC or any Retail Property, (vii) any contingent liabilities
arising under guaranties, warranties, indemnities or other undertakings not
identified in an Exhibit to this Agreement, to the extent relating to any
Distributed LLC or any Retail Property or (viii) any other pending or
threatened litigation relating in any
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manner to any Retail Property. Notwithstanding the foregoing, the parties
agree that (1) Investor LLC shall assume and undertake to discharge, in
accordance with the terms of the applicable Property-level Debt Instruments,
the mortgage loan from Webster Bank relating to the Long Meadow Retail
Property (the "Long Meadow Mortgage Loan"), but shall not be obligated to
assume or discharge the lien of the Sovereign Bank mortgages which encumber
the three other Retail Properties in order to secure the Partnership's credit
line, which credit line and related Property-level Debt Instruments shall be
discharged by ERP OP at the Effective Time of the Partnership Merger, and (2)
the Assumed Liabilities shall not include any Liabilities voluntarily assumed
by the Partnership or any successor of the Partnership after the Effective
Time of the Partnership Merger (e.g., any consent decree entered into by the
Partnership or any successor of the Partnership relating to an environmental
condition at any Retail Property, or the settlement by the Partnership or any
successor of the Partnership of any slip and fall case relating to any Retail
Property).
2.3 AS-IS, WHERE-IS; RELEASE BY INVESTOR LLC. Investor LLC and
the Investors specifically acknowledge and agree that the Partnership has
made and makes no representation, warranty or covenant of any kind with
respect to the Distributed LLC's or the assets, liabilities and business
thereof, including without limitation the Retail Properties, any
environmental conditions (including, without limitation, any Pre-Existing
Environmental Matters) at, or with respect to, the Retail Properties, the
site or physical conditions applicable to, or with respect to, the Retail
Properties, the zoning regulations or other governmental requirements
applicable to, or with respect to, the Retail Properties, the Property-level
Debt or any other matter affecting the use, occupancy, operation or condition
of or with respect to the Retail Properties, the level of income or profits
with respect to the Retail Properties or any matter whatsoever with respect
to the Retail Properties or the Assumed Liabilities. The Investors, and
Investor LLC are familiar with and have inspected the Retail Properties.
Investor LLC shall accept the Distributed Interests "AS IS," "WHERE IS" and
"WITH ALL FAULTS" (whether detectable or not) on the Distribution Date,
without any adjustment to the Agreed Retail Property Value for any change in
the physical or financial condition occurring with respect to the Retail
Properties or the Distributed LLC's from and after the date of the Merger
Agreement (other than in the case of Capital Expenditures made from and after
June 1, 2000, or as otherwise provided in Section 2.6). Investor LLC
acknowledges and agrees that neither the Partnership nor its employees and
representatives nor any other person will have, or be subject to, any
liability to Investor LLC or any other person resulting from the distribution
to Investor LLC, or Investor LLC's use of, any information pertaining to the
Retail Properties or the Assumed Liabilities. Investor LLC hereby waives,
releases, relinquishes and forever discharges the Partnership, its partners
and their respective officers, directors, shareholders, trustees, agents,
employees and representatives, and the successors and assigns of all of the
foregoing from and against any and all claims, causes of action, liabilities,
losses, damages, costs and expenses (including, but not limited to, all
claims and causes of action under CERCLA for cost recovery, for natural
resources damages and for contribution, all claims and causes of action under
common law principles, and all claims under other Environmental Laws,
including, without limitation, RCRA) that Investor LLC may have against the
Partnership, its direct or indirect partners, members and shareholders or the
officers, directors, shareholders, trustees, agents, employees,
representatives, successors and assigns of any of the foregoing for and with
respect to all Pre-Existing Environmental Matters. Investor
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LLC also acknowledges that Investor LLC has had sufficient opportunity to
conduct such investigations of and with respect to the Retail Properties as
it had deemed necessary and advisable. Investor LLC has not been induced by,
and has not relied upon, any representation, warranty or statement made by
the Partnership or any officer, agent, representative, employee, broker or
other person representing the Partnership. To the fullest extent permitted by
applicable law, Investor LLC waives any requirements for the Partnership to
furnish to Investor LLC, or record against title to the Retail Properties,
any environmental disclosure documents that would otherwise be required to be
furnished or recorded under applicable law.
2.4 IMPUTATION OF KNOWLEDGE TO INVESTOR LLC. Investor LLC
acknowledges and agrees that certain of the key executives or principals of
Investor LLC (who have exercised responsibility for the formation of Investor
LLC, and for the negotiation, execution, delivery and performance of this
Agreement) including without limitation the Investors are, and will remain
through the Effective Time, key executives of the Partnership's general
partner with responsibility for overseeing the operation of the Distributed
LLC's and the Retail Properties, that it is fair and reasonable in the
circumstances to impute to Investor LLC as of the execution and delivery of
this Agreement and as of the Effective Time, all knowledge, if any, of the
Partnership, the Distributed LLC's (and any predecessor thereto) with respect
to the Retail Properties and the Assumed Liabilities, and that all such
knowledge shall so be (and hereby is) imputed to Investor LLC. Investor LLC's
acknowledgments and agreements set forth in this Section and in Section 2.3
shall survive the Distribution indefinitely and shall govern in the event of
any conflict, express or implied, with any of the documents executed or
delivered in connection herewith.
2.5 CONDEMNATION AND CASUALTY; PHYSICAL CHANGES. The transactions
contemplated under this Article II shall be consummated as provided in this
Agreement, without adjustment or delay of any kind, notwithstanding the
occurrence of any damage, destruction or other change in the physical
condition of one or more of the Retail Properties or the initiation or
completion of any proceedings in eminent domain (or any deeds granted by the
Partnership in lieu thereof) with respect thereto; provided that the
Partnership hereby, effective as of the Distribution Date, assigns to
Investor LLC, without recourse, representation or warranty, all rights, title
and interest, if any, of the Partnership in and to any insurance proceeds or
condemnation awards or claims therefor related to all Assumed Liabilities,
including without limitation, those relating to said damage, destruction or
taking. The provisions of this Section 2.5 shall survive the consummation of
the transactions contemplated in this Agreement.
2.6 CLOSING PRORATIONS AND ADJUSTMENTS
(a) A rent roll (updated to within five (5) days prior to the
Distribution Date) and a proposed statement of prorations and
other adjustments shall be prepared by Investor LLC in
conformity with the provisions of this Agreement not less than
five (5) business days prior to the Distribution Date. For
purposes of prorations, the Distribution shall be deemed to
have occurred as of 12:01 a.m. on the Distribution Date. The
following items are to be prorated or adjusted, as the case
may require, as of the Distribution Date, and shall constitute
adjustments to the Cash Redemption Payment:
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(i) real estate and personal property taxes and assessments
(prorated on the basis of 100% of the most recent sacertainable
bill);
(ii) the base rent payable by tenants under the Tenant Leases
for the month in which the Distribution Date occurs; provided,
however, that rent and all other sums which are due and payable to
the Distributed LLC's by any tenant but uncollected as of the
Distribution Date shall not be adjusted, but Investor LLC shall use
diligent efforts to collect said past-due rents and shall cause the
rent and other sums for the period prior to the Distribution Date to
be remitted to the Partnership if, as and when collected. On the
Distribution Date, the Partnership shall deliver to Investor LLC a
schedule (prepared by the Partnership as of the most recent date
available) of all such past due but uncollected rent and other sums
owed by tenants. Investor LLC shall promptly remit to the
Partnership any such rent or other sums paid by scheduled tenants,
but only if a deficiency in the then current rent is not thereby
created. Investor LLC shall bill tenants who owe rent for periods
prior to the Distribution Date on a monthly basis for six
consecutive months following the Distribution Date. In the case of
percentage rents, it is the intent of the parties that the
Partnership (directly or through its ownership of the Distributed
LLC's prior to the Effective Time) shall be entitled to any
percentage rent payments, if any, to the extent accrued through the
Distribution Date. In the case of pass-throughs for taxes and
expenses, it is the intent of the parties that the Partnership
(directly or through its ownership of the Distributed LLC's prior to
the Effective Time) shall be entitled to an amount equal to the
total payments due from tenants for the 2000 calendar year or other
collection period under the applicable Tenant Lease in which the
Distribution Date occurs, multiplied by a fraction, the numerator of
which is the actual taxes or expenses paid by the Partnership
(directly or through its ownership of the Distributed LLC's prior to
the Effective Time) or with respect to which Investor LLC has
received a credit in connection with the Distribution, and the
denominator of which is the total taxes and expenses for said
calendar year or other collection period. Investor LLC shall use
diligent efforts to collect all percentage rents and pass-throughs
with respect to which the Partnership is entitled to share pursuant
to this clause (ii), and shall not waive or modify in any material
respect the obligation of any tenant under a Tenant Lease, to the
detriment of the Partnership, without the Partnership's prior
written consent. If any amount owed by a tenant under a Tenant Lease
remains delinquent for more than ninety (90) days past the date on
which said amount was due, and if the Partnership has the right to
share in all or any portion of said amount pursuant to this clause
(ii), then the Partnership shall have the right, at its sole cost,
to enforce the obligation of said tenant under said Tenant Lease
(and this clause (ii), without more, constitutes an assignment of
said right of enforcement), but in no event may the Partnership seek
to evict any tenant or terminate any Tenant Lease. From and after
the Distribution Date, Investor LLC shall certify monthly, as to all
income (broken into categories of income) received under all Tenant
Leases until all of Investor LLC's obligations under this Section
2.6 have been satisfied in full, but in no event to exceed a period
equal to six (6) months from the Distribution Date. Upon prior
reasonable written notice, the Partnership shall have the right to
inspect and review Investor LLC's books and records, and shall have
the right to engage an accounting firm to audit said books and
records, which audit shall be at Investor LLC's expense if it
discloses that any category of income with respect to which
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the Partnership is entitled to share pursuant hereto was more than
three percent (3%) greater than the amounts certified by Investor
LLC for the period of time in question.
(iii) water, electric, telephone and all other utility
charges, and any assignable deposits with utility companies (said
assignable deposits being credited to the Partnership) (to the
extent possible, utility prorations will be handled by meter
readings on the Distribution Date);
(iv) amounts due and prepayments, if any, under all
contracts, agreements, leases and licenses (including equipment
leases, but excluding Tenant Leases and the Property-level Debt
Instruments);
(v) assignable license and permit fees;
(vi) interest on any assumed Property-level Debt;
(vii) other expenses of operation and similar items (including
workers' compensation payments, if any) customarily prorated in
connection with real estate closings for similar properties in the
locality in question (provided that all Capital Expenditures made
after June 1, 2000 shall be treated as provided in the definition of
Agreed Retail Property Value);
(viii) The Partnership shall receive a credit for all cash
in any bank accounts of the Distributed LLC's as of the Distribution
Date; and
(ix) The Partnership shall be responsible for paying all
premiums, fees and other costs associated with the maintenance or
termination of any insurance policies maintained by the Partnership or
the Distributed LLC's prior to the Distribution Date with respect to
the Retail Properties, and shall be entitled to any refunds of unearned
premiums with respect to prepaid insurance amounts in connection with
the termination of said policies.
Any proration (other than general real estate and personal property taxes) which
must be estimated on the Distribution Date shall be re-prorated and finally
adjusted as soon as practicable after the Distribution Date; otherwise, all
prorations shall be final. In the case of pass-throughs for general real estate
taxes and expenses, the parties shall project in good faith what the amount of
the final proration will be at the end of the lease fiscal year in question (or
other collection period under the applicable Tenant Lease) and shall use such
projection as the basis for the proration adjustment on the Distribution Date,
subject to readjustment within thirty (30) days after the close of the fiscal
year for each Tenant Lease (or other collection period under the applicable
Tenant Lease).
2.7 CLOSING COSTS. Investor LLC shall assume and pay all transfer
taxes, if any, loan assumption fees, if any, and any and all other costs and
expenses of consummating the transactions contemplated under this Agreement.
Investor LLC shall have no responsibility to
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pay for legal, accounting or other consulting services retained by ERP OP or
an Affiliate of ERP OP in connection with said transactions.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
3.1 REPRESENTATIONS AND WARRANTIES OF INVESTOR LLC. Investor LLC
represents and warrants to the Partnership as follows:
(a) Investor LLC is a limited liability company duly
organized and validly existing under the laws of the State of
Delaware, and has full power and lawful authority under its
organizational documents to enter into and carry out the terms and
provisions of this Agreement that are applicable to Investor LLC.
All actions necessary to confer such power and authority upon the
persons executing this Agreement (and all documents which are
contemplated by this Agreement to be executed on behalf of Investor
LLC) have been taken. Investor LLC's execution, delivery and
performance of the terms and provisions of this Agreement that are
applicable to Investor LLC will not result in any violation of, or
default under, or require any notice or consent under, any of the
respective Investor LLC's organizational documents.
3.2 REPRESENTATIONS AND WARRANTIES OF INVESTOR LLC. Investor LLC
represents and warrants to the Partnership as follows:
(a) The Partnership has never owned fee title to any of the
Retail Properties. Neither the Partnership nor the general partners
of the Partnership are liable for, or are guarantors of, any
obligations or Liabilities of the Distributed LLC's, including
without limitation any obligations under or relating to any Tenant
Leases or Property-level Debt. The Partnership is not a party to any
Action involving the Retail Properties or the Distributed LLC's.
(b) The Distributed LLC's own no real property other than
the Retail Properties. Attached hereto as EXHIBIT G is a true and
accurate schedule of all assets and Liabilities of each of the
Distributed LLC's, including all Property-level Debt.
(c) The Distributed LLC's have no source of income other
than the Tenant Leases. Attached hereto as EXHIBIT H is a true and
accurate schedule of all of the Tenant Leases.
(d) Except as set forth on EXHIBIT I, there are no Actions
pending, or to the knowledge of Investors threatened, with respect
to the Retail Properties or the Distributed LLC's.
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3.3 REPRESENTATIONS AND WARRANTIES OF INVESTORS. Each Investor
represents and warrants to the Partnership as follows:
(a) Exhibit A accurately sets forth the number of
Partnership Units to which said Investor holds legal title. Said
Investor owns good, valid, and marketable title to said Partnership
Units, free and clear of all liens, claims, debts, security
interests, judgments, mortgages, options, call rights, sale
agreements, rights of third parties or encumbrances of any kind
whatsoever. Said Investor is not the beneficial owner of any
Partnership Units, other than the Partnership Units legally owned by
said Investor and set forth on Exhibit A. For the purposes hereof,
the term "beneficial owner" shall have the meaning set forth in Rule
13d-3 under the Exchange Act Rules, as promulgated by the Commission.
3.4 REAFFIRMATION OF REPRESENTATIONS AND WARRANTIES; SURVIVAL. All
of the representations and warranties made in this Article 3 shall be deemed to
have been remade and reaffirmed as of the Distribution Date, as though made on
the Distribution Date, and shall survive the consummation of the Distribution
indefinitely.
ARTICLE 4
COVENANTS
4.1 ENCUMBRANCE OF INTERESTS. Neither Investor LLC nor any of the
Investors shall mortgage, pledge, assign, sell, transfer, hypothecate, grant a
security interest in or otherwise encumber, directly or indirectly, all or any
portion of the respective Partnership Units owned by it from time to time.
4.2 FURTHER ASSURANCES. All of the parties hereto shall use their
reasonable best efforts, prior to, on and after the Distribution Date, to take
or cause to be taken, all actions, and to do, or cause to be done, all things,
necessary, proper or desirable under applicable laws and regulations to carry
out the purposes of this Agreement. Without limiting the foregoing, The
Partnership and Investor LLC shall use their best efforts to obtain all consents
and approvals, to enter into all amendatory agreements and to make all filings
and applications and take all other actions which may be required for the
consummation of the transactions contemplated by this Agreement, including,
without limitation, all applicable regulatory filings.
4.3 CAPITAL EXPENDITURES. Investors shall notify the Partnership
not less than ten (10) business days prior to causing the Distributed LLC's to
incur any Capital Expenditures, which shall be subject to any limitations
thereon contained in the Merger Agreement.
4.4 MAINTENANCE OF NET WORTH. Investor LLC covenants and agrees,
for a period of two (2) years following the Distribution Date, that (i) it shall
not (and shall not permit the Distributed LLC's to) sell, assign, transfer,
mortgage, pledge, hypothecate or otherwise encumber the Retail Properties, any
interest therein, or any interest of Investor LLC in the Distributed LLC's, and
(ii) it shall not make any distribution of the proceeds of any sale or
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financing, if the effect of any of the foregoing actions in (i) or (ii) above
would be to reduce the net worth of Investor LLC below $5,000,000 as determined
in accordance with generally accepted accounting principles, consistently
applied. In the event of a violation of the foregoing covenant, Investors shall,
without further action, be deemed to have assumed, jointly and severally, the
obligations of Investor LLC under Section 2.6, Article 3 and Article 5 of this
Agreement. This Section 4.4 shall survive the consummation of the transactions
contemplated under this Agreement.
4.5 OPERATION OF PROPERTIES. The Distributed LLC's shall have the
right to lease, manage and operate the Retail Properties in whatever manner they
deem appropriate during the period between the date hereof and the Distribution
Date, to the extent consistent with the Distributed LLCs' current standards and
practices. Without limiting the definition of Capital Expenditures, leasing
commissions, tenant allowances, rent abatements and any costs of constructing
tenant improvements shall be included in the definition of Capital Expenditures.
ARTICLE 5
INDEMNIFICATION
5.1 INDEMNIFICATION. Except as otherwise set forth herein,
Investor LLC, for itself, its Affiliates and its respective successors and
assigns, shall indemnify, defend and hold harmless the Partnership, each of
its trustees, officers, employees and agents, each Affiliate of the
Partnership, and each of the heirs, executors, successors and assigns of any
of the foregoing (the "Partnership Indemnitees") from and against any and all
Losses and Liabilities of and Actions against the Partnership Indemnitees
arising out of, by reason of or otherwise in connection with (i) the Assumed
Liabilities, (ii) the obligations of Investor LLC and/or the Investors under
this Agreement, and (iii) any Actions brought or joined in by any Former
Partner and/or any person claiming by or through any Former Partner, alleging
that said Former Partner has suffered or sustained any Loss or Liability, or
incurred any increased expense (including any acceleration of, or any
increase in, the Taxes owed by said Former Partner) by reason of the
transactions contemplated by this Agreement or by reason of any act of
Investors.
5.2 LIMITATIONS ON INDEMNIFICATION OBLIGATIONS. The amount which
any party (an "Indemnifying Party") is or may be required to pay to any other
party (an "Indemnitee") pursuant to Section 5.1 shall be reduced
(retroactively or prospectively) by any insurance proceeds or other amounts
actually recovered by or on behalf of such Indemnitee, in reduction of the
related Loss. If an Indemnitee shall have received the payment required by
this Agreement from an Indemnifying Party in respect of a Loss and shall
subsequently actually receive insurance proceeds or other amounts in respect
of such Loss, then such Indemnitee shall pay to such Indemnifying Party a sum
equal to the amount of such insurance proceeds, net of the costs (including
any fees) of recovery of insurance proceeds, or other amounts actually
received, up to the aggregate amount of any payments received from such
Indemnifying Party pursuant to this Agreement in respect of such Loss.
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5.3 PROCEDURE FOR INDEMNIFICATION
(a) If an Indemnitee shall receive notice or otherwise learn
of the assertion by a person (including, without limitation, any
Governmental Authority) who is not a party to this Agreement or the
Merger Agreement of any claim or of the commencement by any such
person of any Action (a "Third-Party Claim") with respect to which
an Indemnifying Party may be obligated to provide indemnification
pursuant to this Agreement, such Indemnitee shall give such
Indemnifying Party written notice (the "Indemnitee Notice") thereof
promptly after becoming aware of such Third-Party Claim; PROVIDED,
HOWEVER, that the failure of any Indemnitee to give notice as
provided in this Section 5.3 shall not relieve the applicable
Indemnifying Party of its obligations under this Article V, except
to the extent that such Indemnifying Party is prejudiced by such
failure to give notice. Such Indemnitee Notice shall describe the
Third-Party Claim in reasonable detail and shall indicate the amount
(estimated if necessary) of the Loss that has been or may be
sustained by such Indemnitee.
(b) The Indemnitee shall provide to the Indemnifying Party
on request all information and documentation reasonably necessary to
support and verify any Losses which the Indemnitee believes give
rise to a claim for indemnification hereunder and shall give the
Indemnifying Party reasonable access to all books, records and
personnel in the possession or under the control of the Indemnitee
which would have bearing on such claim.
(c) Upon receipt of the Indemnitee Notice required by
Section 5.3(a), the Indemnifying Party shall be entitled, if it so
elects, to take control of the defense and investigation with respect
to such claim and to employ and engage attorneys of its own choice
(subject to approval by the Indemnitee, which approval shall not be
unreasonably withheld) to handle and defend the same, at the
Indemnifying Party's cost, risk and expense, upon written notice to the
Indemnitee of such election within twenty (20) days of receipt of
Indemnitee's notice. The Indemnifying Party shall not settle any
third-party claim that is the subject of indemnification without the
written consent of the Indemnitee, which consent shall not be
unreasonably withheld; provided, however, that the Indemnifying Party
may settle a claim without the Indemnitee's consent if such settlement
(i) includes a complete release of the Indemnitee and (ii) does not
require the Indemnitee to make any payment or take any action or
otherwise materially adversely affect the Indemnitee. After notice from
an Indemnifying Party to an Indemnitee of its election to assume the
defense of a Third-Party Claim, such Indemnifying Party will not be
liable to such Indemnitee under this Article V for any legal or other
expenses subsequently incurred by such Indemnitee in connection with
the defense thereof; provided, that, if the defendants in any such
claim include both the Indemnifying Party and one or more Indemnitees
and a conflict of interest between such Indemnitees and such
Indemnifying Party exists in respect of such claim, such Indemnitees
will have the right to employ separate counsel reasonably satisfactory
to the Indemnifying Party to represent such Indemnitees, and in that
event the reasonable fees and expenses of such separate counsel (but
not more than one separate counsel) will be paid by such Indemnifying
Party.
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(d) If an Indemnifying Party elects to defend or to seek to
compromise any Third-Party Claim, the appropriate Indemnitee shall
(x) cooperate in all reasonable respects with the Indemnifying Party
in connection with such defense and (y) not admit any liability with
respect to, or settle, compromise or discharge, such Third-Party
Claim without the Indemnifying Party's prior written consent.
(e) If the Indemnifying Party shall decline to assume the
defense of any such Third-Party Claim, or shall fail to notify the
Indemnitee that it will defend such claim within twenty (20) days after
receipt of the Indemnitee Notice, the Indemnitee shall have the right
to defend against such claim. The reasonable expenses of all
proceedings, contests or lawsuits in respect of such claims shall be
borne by the Indemnifying Party but only if the Indemnifying Party is
responsible pursuant to this Article V to indemnify the Indemnitee in
respect of the Third-Party Claim.
(f) In the event of payment by an Indemnifying Party to any
Indemnitee in connection with any Third-Party Claim, such
Indemnifying Party shall be subrogated to and shall stand in the
place of such Indemnitee as to any events or circumstances with
respect to which such Indemnitee may have any right or claim
relating to such Third-Party Claim against any claimant or plaintiff
asserting such Third-Party Claim. Such Indemnitee shall cooperate
with such Indemnifying Party in a reasonable manner, and at the cost
and expense of such Indemnifying Party, in prosecuting any
subrogated right or claim.
(g) With respect to any Third-Party Claim for which the
Indemnifying Party assumes responsibility for defense, the Indemnifying
Party shall inform the Indemnitee, upon the reasonable written request
of the Indemnitee, of the status of efforts to resolve such Third-Party
Claim. With respect to any Third-Party Claim for which the Indemnifying
Party does not assume such responsibility, the Indemnitee shall inform
the Indemnifying Party, upon the reasonable written request of the
Indemnifying Party, of the status of efforts to resolve such
Third-Party Claim.
5.4 SURVIVAL OF INDEMNITIES. The obligations of Investor LLC
under this Article V shall survive the consummation of the Distribution
indefinitely, and shall also survive the sale or other transfer by it or them
of any assets or businesses or the assignment or purported assignment by it
or them of any Liabilities.
ARTICLE 6
CONDITIONS TO THE CONTRIBUTION AND THE DISTRIBUTIONS
6.1 CONDITIONS PRECEDENT TO THE DISTRIBUTIONS. The obligation of
the Partnership to effectuate the Distribution pursuant to Article II shall
be subject, at the option of the Partnership, to the fulfillment or waiver,
of each of the following conditions:
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(a) NO PROHIBITIONS. Consummation of the transactions
contemplated hereby shall not be prohibited by applicable law and no
Governmental Authority of competent jurisdiction shall have enacted,
issued, promulgated, enforced or entered any statute, rule, regulation,
executive order, decree, injunction or other order (whether temporary,
preliminary or permanent) which is in effect and which materially
restricts, prevents or prohibits consummation of the Distribution, the
Partnership Merger or any transaction contemplated by this Agreement or
the Merger Agreement, it being understood that the parties hereto
hereby agree to use their reasonable best efforts to cause any such
decree, judgment, injunction or other order to be vacated or lifted as
promptly as possible.
(b) CONDITIONS PRECEDENT TO PARTNERSHIP MERGER SATISFIED.
Each condition to the closing of the Partnership Merger set forth in
Sections 6.1, 6.2 and 6.3 of the Merger Agreement shall have been
satisfied or waived.
(c) ACCURACY OF REPRESENTATION. The representations and
warranties in Article 3 shall be true and complete in all material
respects, and Investors and Investor LLC shall not be in breach of
their respective covenants under Section 4.2.
(d) Execution and delivery of the instruments required to be
executed and delivered pursuant to Section 2.1(a).
(e) The Partnership and Investor LLC shall take all reasonable
steps necessary and appropriate to cause the conditions set forth in
this Section 6.1 to be satisfied and to effect the Distribution on the
Distribution Date. Any party shall have the right to waive any
condition that is for its exclusive benefit.
ARTICLE 7
MISCELLANEOUS
7.1 COMPLETE AGREEMENT; CONSTRUCTION. This Agreement, including
the Exhibits and Schedules, constitutes the entire agreement between the
parties with respect to the subject matter hereof, and supersedes all
previous negotiations, commitments and writings with respect to such subject
matter.
7.2 SURVIVAL OF AGREEMENTS. Except as otherwise contemplated by
this Agreement, all representations, warranties, covenants and agreements of
the parties contained in this Agreement will survive the Distribution Date.
7.3 GOVERNING LAW. This Agreement will be governed by and
construed in accordance with the laws of the State of Delaware, without
regard to the principles of conflicts of laws thereof.
7.4 NOTICES. All notices and other communications hereunder must
be in writing and must be delivered by hand, mailed by registered or
certified mail (return receipt requested) or
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sent by facsimile transmission to the parties at the following addresses (or
at such other addresses for a party as may be specified by like notice) and
will be deemed given on the date on which such notice is received:
To the Partnership:
Before the Distribution Date, to:
Grove Property Trust
598 Asylum Avenue
Hartford, Connecticut 06105
Fax No.: (860) 527-0401
With a copy to:
Cummings & Lockwood
Four Stamford Plaza
107 Elm Street
Stamford, Connecticut 06904
Attention: Michael J. Hinton
After the Distribution Date, to:
ERP Operating Limited Partnership
Two North Riverside Plaza, Suite 400
Chicago, Illinois 60606
Fax No. (312) 454-0434
With a copy to:
Piper Marbury Rudnick & Wolfe
203 North LaSalle Street
Suite 1800
Chicago, Illinois 60601
Attention: Errol R. Halperin
To Investor LLC:
Grove Property Trust
598 Asylum Avenue
Hartford, Connecticut 06105
Fax No.: (860) 527-0401
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With a copy to:
Cummings & Lockwood
Four Stamford Plaza
107 Elm Street
Stamford, Connecticut 06904
Attention: Michael J. Hinton
Prior to the Distribution Date, copies of all notices sent to either
party shall be sent to ERP OP at:.
ERP Operating Limited Partnership
Two North Riverside Plaza, Suite 400
Chicago, Illinois 60606
Fax No. (312) 454-0434
7.5 AMENDMENTS. This Agreement may not be modified or amended
except by an agreement in writing signed by the parties.
7.6 SUCCESSORS AND ASSIGNS. Except in connection with the
Partnership Merger, this Agreement shall not be assignable, in whole or in
part, directly or indirectly, by either party hereto without the prior
written consent of the other, and any attempt to assign any rights or
obligations arising under this Agreement without such consent shall be void;
PROVIDED, HOWEVER, that the provisions of this Agreement shall be binding
upon, inure to the benefit of and be enforceable by the parties and their
respective successors and permitted assigns; PROVIDED, FURTHER, that the
rights or the Partnership under this Agreement may be assigned after the
Partnership Merger to any Affiliate of the Partnership.
7.7 NO THIRD-PARTY BENEFICIARIES. Except for the provisions of
Article V relating to Indemnitees and as otherwise expressly provided herein,
the provisions of this Agreement are solely for the benefit of the parties
hereto and their respective successors and permitted assigns and should not
be deemed to confer upon third parties any remedy, claim, liability,
reimbursement, claim of action or other right in excess of those existing
without reference to this Agreement.
7.8 TERMINATION ON TERMINATION OF MERGER AGREEMENT. This
Agreement shall terminate in the event of the termination or expiration of
the Merger Agreement prior to the consummation of the Partnership Merger.
7.9 TITLE AND HEADINGS. Titles and headings to sections herein
are inserted for the convenience of reference only and are not intended to be
a part of or to affect the meaning or interpretation of this Agreement.
7.10 LEGAL ENFORCEABILITY. Any provision of this Agreement which
is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof. Any
such
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prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction. Without
prejudice to any rights or remedies otherwise available to any party hereto,
each party hereto acknowledges that damages would be an inadequate remedy for
any breach of the provisions of this Agreement and agrees that the
obligations of the parties hereunder are specifically enforceable.
7.11 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which when executed shall be deemed an original, but
all of which together shall constitute one and the same instrument.
7.12 NON-RECOURSE TO PARTNERS OF THE PARTNERSHIP. Investor LLC and
the Investors shall look solely to the assets of the Partnership for
satisfaction of any liability of the Partnership with respect to this
Agreement and all documents, agreements, understandings and arrangements
relating to this Agreement and will not seek recourse or commence any action
against any general partner or limited partner or the Partnership or the
trustees or officers of any of the foregoing for the performance or payment
of any obligation of the Partnership hereunder or thereunder.
7.13 LIMITED RECOURSE TO INVESTORS. The Partnership shall look
solely to the assets of Investor LLC for satisfaction of any liability of
Investor LLC with respect to this Agreement and all documents, agreements,
understandings and arrangements relating to this Agreement and will not seek
recourse or commence any action against any member of Investor LLC or the
trustees or officers of any of the foregoing for the performance or payment
of any obligation of Investor LLC hereunder or thereunder; provided, however,
that nothing contained in this Section 7.13 shall limit the liability of the
Investors under Section 3.3 or, to the extent applicable, Section 4.4.
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IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
GROVE OPERATING, L.P., a Delaware limited
partnership
By: GROVE PROPERTY TRUST, a Maryland
real estate investment trust, General partner
By: /s/ Joseph R. LaBrosse
-----------------------------------------
Name: Joseph R. LaBrosse
Title: Chief Financial Officer
GROVE REALTY LLC, a Delaware limited
liability company
By: /s/ Joseph R. LaBrosse
-----------------------------------------
Name: Joseph R. LaBrosse
Title: Chief Financial Officer
/s/ Damon D. Navarro
-------------------------------------------------
DAMON D. NAVARRO
/s/ Brian A. Navarro
-------------------------------------------------
BRIAN A. NAVARRO
/s/ Edmund F. Navarro
-------------------------------------------------
EDMUND F. NAVARRO
/s/ Joseph R. Labrosse
-------------------------------------------------
JOSEPH R. LABROSSE
<PAGE>
APPENDIX D
FORM OF
SHAREHOLDER/PARTNER VOTING AGREEMENT
THIS SHAREHOLDER/PARTNER VOTING AGREEMENT (this "Agreement") dated as
of July 17, 2000 between ERP OPERATING LIMITED PARTNERSHIP, an Illinois limited
partnership ("ERP"), and the undersigned holder of common shares of beneficial
interest, $0.01 par value (the "Common Stock"), of GROVE PROPERTY TRUST, a
Maryland real estate investment trust (the "Company"), and/or units of
partnership interest ("Units") in GROVE OPERATING, L.P., a Delaware limited
partnership ("OP"), for and on behalf of himself and each other person which is
a holder of Common Stock or Units as to which such Common Stock or Units he has
the power to vote (the undersigned holder, the "Holder" and, where the content
requires, all such holders, the "Holders" or each a "Holder").
WHEREAS, ERP, the Company and OP propose to enter into an Agreement and
Plan of Merger to be dated as of the date hereof (as the same may be amended or
supplemented, the "Agreement and Plan of Merger"; capitalized terms used but not
defined herein shall have the meanings set forth in the Agreement and Plan of
Merger) providing for the mergers of New LLC 2, a Delaware limited liability
company to be formed with and into OP and New LLC 3, a Delaware limited
liability company to be formed, with and into the Company, upon the terms and
subject to the conditions set forth in the Agreement and Plan of Merger;
WHEREAS, the Holder owns the number of shares of Common Stock and/or
number of Units set forth below his name on the signature page of this Agreement
(such shares of Common Stock and/or Units, the "Existing Interests" and,
together with any other shares of capital stock of the Company and/or interests
in the OP acquired by such Holder after the date hereof and during the term of
this Agreement, being collectively referred to herein as the "Interests"); and
WHEREAS, as a condition to its willingness to enter into the Agreement
and Plan of Merger, ERP has requested that Holder enter into this Agreement;
NOW, THEREFORE, in consideration of the premises and the
representations, warranties and agreements contained herein, the parties agree
as follows:
1. REPRESENTATIONS AND WARRANTIES OF THE HOLDER. Holder hereby
represents and warrants to ERP as of the date hereof as follows:
(1) Holder has all requisite legal capacity, power and
authority to enter into this Agreement and to consummate the
transactions contemplated hereby. This Agreement has been duly
authorized, executed and delivered by the Holder and constitutes a
valid and binding obligation of the Holder enforceable in accordance
with its terms. The execution and delivery of this Agreement do not,
and the consummation of the transactions contemplated hereby and
compliance with the terms hereof will not, conflict with, or result in
any breach or violation of, or default (with or without notice or lapse
of time or both) under any
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provision of, any agreement to which any Holder is a party. The
Existing Interests are not subject to any lien, pledge or
encumbrance of any kind.
(2) Each Holder is the record holder or beneficial (for all
purposes used in this Agreement the term "beneficial" has the
meaning given it under Rule 16(a)(1) promulgated by the SEC under
the Exchange Act) owner of the number of Existing Interests as is
set forth on the signature page hereto. On the date hereof, the
Existing Interests set forth on the signature page hereto constitute
all of the outstanding Interests owned of record or beneficially by
such Holder over which he has the power to vote. Holder does not
have record or beneficial ownership of any Interests not set forth
on the signature page hereto. Except as specifically disclosed on
the signature page hereto with respect to shared voting or
dispositive power, Holder has sole power of disposition with respect
to all of the Existing Interests set forth on the signature page
hereto and sole voting power with respect to the matters set forth
in Section 3 hereof.
(3) Each Holder's Existing Interests and the certificates
representing any Interests and the certificates representing such
shares when acquired are now, and at all times during the term hereof
will be, held by such Holder, or by a nominee or custodian for the
benefit of such Holder, free and clear of all liens, claims, security
interests, proxies, voting trusts or agreements, understandings or
arrangements or any other encumbrances whatsoever, except for any such
encumbrances or proxies arising hereunder.
(4) The Holder is a BONA FIDE resident of the State set forth
below Holder's name on the signature page hereto.
2. REPRESENTATIONS AND WARRANTIES OF ERP. ERP hereby represents
and warrants to the Holder that ERP has all requisite limited partnership power
and authority to enter into this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement by the general
partner of ERP, and the consummation of the transactions contemplated hereby,
have been duly authorized by all necessary limited partnership action on the
part of ERP. This Agreement has been duly executed and delivered by the general
partner of ERP and constitutes a valid and binding obligation of ERP enforceable
in accordance with its terms.
3. COVENANTS OF HOLDER. From and after the date hereof and until
the termination of this Agreement in accordance with Section 6, Holder agrees
as follows:
(1) At any meeting, or any adjournment of any meeting, of
shareholders of the Company or partners of the OP called to vote upon
the Mergers, the Agreement and Plan of Merger or the transactions
contemplated thereby, or in any other circumstances upon which a vote,
consent or other approval with respect to the Mergers or the
transactions contemplated by the Agreement and Plan of Merger is
sought, each Holder shall vote (or cause to be voted or shall not
interfere with the exercise by ERP of the proxy granted by
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Section 3(7) hereof) all of the Interests in favor of the Merger, the
adoption by the Company or the OP of the Agreement and Plan of Merger
and the approval of the terms thereof and the transactions contemplated
thereby.
(2) At any meeting of shareholders of the Company or
partners of the OP or at any adjournment thereof or in any other
circumstances upon which the Holder's vote, consent or other
approval is sought, each Holder shall vote (or cause to be voted or
shall not interfere with the exercise by ERP of the proxy granted by
Section 3(7) hereof) all of the Interests against (i) any merger
agreement or merger (other than the Agreement and Plan of Merger and
the Mergers), consolidation, combination, sale of assets not
contemplated by the Agreement and Plan of Merger, reorganization,
recapitalization, dissolution, liquidation or winding-up of or by
the Company or any other takeover proposal (collectively, "Takeover
Proposal"), (ii) any action or agreement that would result in a
breach of any covenant, representation or warranty or any other
obligation or agreement of the Company under the Agreement and Plan
of Merger or this Agreement or (iii) (w) any material amendment to
the OP's agreement of limited partnership, (x) any material
amendment of the Company's declaration of trust or bylaws or (y) any
change in a majority of the persons who constitute the Board of
Trust Managers of the Company.
(3) Except as contemplated by the Retail Sale Agreement, if
applicable, Holder agrees not to (i) offer to sell, sell, transfer,
encumber, pledge, assign or otherwise dispose of (including by gift)
(collectively, "Transfer"), or enter into any contract, option or
other arrangement with respect to or consent to the Transfer of, the
Interest or any interest therein to any person other than pursuant
to the terms of the Mergers, (ii) except as contemplated hereby,
grant any proxies or powers of attorney with respect to the
Interests, deposit any Interests into a voting trust or enter into
any voting arrangement with respect to the Interests, or any
interest in the foregoing, except with ERP, (iii) take any action
that would make any representation or warranty of such Holder
contained herein untrue or incorrect or have the effect of
preventing or disabling the Holder from performing any of its
obligations under this Agreement or (iv) commit or agree to take any
of the foregoing actions.
(4) Holder agrees with, and covenants to, ERP that the
Holder shall not request that the Company or the OP register the
transfer (book-entry or otherwise) of any certificate or
uncertificated interest representing any of the Interests, unless
such transfer is made in compliance with this Agreement.
(5) Holder will immediately cease and cause to be terminated
any existing activities, discussions or negotiations with any
parties conducted heretofore with respect to the sale, voting or
other disposition of the Existing Interests or a business
combination transaction involving the Company or the OP except as
contemplated by the Agreement and Plan of Merger with respect to
Retail Sale Agreement, the Rosenthal Transactions and the Brookline
Transaction.
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(6) Holder shall not directly or indirectly, through any
employee of the Company or the OP, representative, agent or other
person, solicit or encourage the initiation or submission of any direct
or indirect inquiries, proposals or offers regarding any acquisition,
merger, takeover bid or sale of all or any of the assets or any shares
of capital stock of the Company or assets of or limited partner
interests in the OP, whether or not in writing and whether or not
delivered to the Company or the OP or to the shareholders of the
Company or partners of the OP generally (including, without limitation,
by way of a tender offer) by any party other than ERP or its affiliates
(any such inquiry, proposal or offer being referred to herein as an
"Acquisition Proposal"); provided, however, that nothing contained in
this Agreement shall prevent any Holder from considering or
negotiating, solely in his capacity as a trustee of the Company, an
unsolicited, bona fide Acquisition Proposal in accordance with Section
4.1 of the Agreement and Plan of Merger. Holder will notify ERP, orally
and in writing as promptly as practicable, of any direct or indirect
contact related in any way to an Acquisition Proposal, including the
identity of the person involved in such contact, or on whose behalf
such contact is made, and the terms and conditions of any Acquisition
Proposal made unless notice thereof has been given by the Company or
the OP as contemplated by the Agreement and Plan of Merger.
(7) HOLDER HEREBY GRANTS TO, AND APPOINTS ERP AND ANY
DESIGNEE OF ERP, AND EACH OF THEM INDIVIDUALLY, HOLDER'S IRREVOCABLE
(UNTIL THE TERMINATION OF THIS AGREEMENT) PROXY AND ATTORNEY-IN-FACT
WITH FULL POWER OF SUBSTITUTION TO VOTE THE INTERESTS OF HOLDER AS
INDICATED IN SECTION 3(1) AND 3(2) ABOVE. THE HOLDER INTENDS THIS
PROXY TO BE IRREVOCABLE (UNTIL THE TERMINATION OF THIS AGREEMENT)
AND COUPLED WITH AN INTEREST AND WILL TAKE SUCH FURTHER ACTION TO
REVOKE AND HEREBY REVOKES ANY PROXY PREVIOUSLY GRANTED BY HOLDER
WITH RESPECT TO SUCH HOLDER'S INTERESTS WHICH WOULD IN ANY WAY
CONFLICT WITH THIS PROXY.
4. FURTHER ASSURANCES. Holder will, from time to time, execute
and deliver, or cause to be executed and delivered, such additional or
further consents, documents and other instruments as ERP may reasonably
request for the purpose of effectively carrying out the transactions
contemplated by this Agreement.
5. ASSIGNMENT. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
without the prior written consent of the other parties. This Agreement will
be binding upon, inure to the benefit of and be enforceable by the parties
and their respective successor and assigns.
4
<PAGE>
6. TERMINATION. This Agreement shall terminate, and no party
shall have any rights or obligations hereunder and this Agreement shall
become null and void and have no further effect upon the Company Merger
Effective Time or sooner termination of the Agreement and Plan of Merger
pursuant to Section 7.1 thereof. Nothing in this Section 7 shall relieve any
party of liability for breach of this Agreement.
7. GENERAL PROVISIONS.
(1) AMENDMENTS. This Agreement may not be amended except by an
instrument in writing signed by each of the parties hereto.
(2) NOTICE. All notices and other communications hereunder
shall be in writing and shall be deemed given if delivered
personally or sent by overnight courier (providing proof of
delivery) to ERP in accordance with Section 8.2 of the Agreement and
Plan of Merger and to Holder at its address set forth on the
signature page of this Agreement (or at such other address for a
party as shall be specified by like notice).
(3) INTERPRETATION. When a reference is made in this
Agreement to Sections, such reference shall be to a Section of this
Agreement unless otherwise indicated. The headings contained in this
Agreement are for reference purposes only and shall not affect in any
way the meaning or interpretation of this Agreement. Wherever the words
"include", "includes" or "including" are used in this Agreement, they
shall be deemed to be followed by the words "without limitation".
(4) SEVERABILITY. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any
rule of law, or public policy, all other conditions and provisions of
this Agreement shall nevertheless remain in full force and effect so
long as the economic or legal substance of the transactions
contemplated hereby is not affected in any manner materially adverse to
any party. Upon such determination that any term or other provision is
invalid, illegal or incapable of being enforced, the parties hereto
shall negotiate in good faith to modify this Agreement so as to effect
the original intent of the parties as closely as possible in a mutually
acceptable manner in order that the transactions contemplated hereby
may be consummated as originally contemplated to the fullest extent
possible.
(5) 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 of the
counterparts have been signed by each of the parties and delivered
to one party, it being understood that each party need not sign the
same counterpart.
5
<PAGE>
(6) ENTIRE AGREEMENT; NO THIRD-PARTY BENEFICIARIES. This
Agreement (including the documents and instruments referred to herein)
(i) constitutes the entire agreement and supersedes all prior
agreements and understandings, both written and oral, between the
parties with respect to the subject matter hereof and (ii) is not
intended to confer upon any Person other than the parties hereto any
rights or remedies hereunder.
(7) 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 conflicts of law thereof.
8. ENFORCEMENT. The parties agree that irreparable damage would
occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached. It
is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement in any court of the United States
located in the State of Maryland or in a Maryland state court, this being in
addition to any other remedy to which they are entitled at law or in equity. In
addition, each of the parties hereto (i) consents to submit such party to the
personal jurisdiction of any Federal court located in the State of Maryland or
any Maryland state court in the event any dispute arises out of this Agreement
or any of the transactions contemplated hereby, (ii) agrees that such party will
not attempt to deny or defeat such personal jurisdiction by motion or other
request for leave from any such court; and (iii) waives any right to trial by
jury with respect to any claim or proceeding related to or arising out of this
Agreement or any of the transactions contemplated hereby. All rights, powers and
remedies provided under this Agreement or otherwise available in respect hereof
at law or in equity shall be cumulative and not alternative, and the exercise of
any thereof by any party shall not preclude the simultaneous or later exercise
of any other such right, power or remedy by such party.
9. JOINDER. If the Holder resides in a community property state,
the Holder has delivered to ERP a spousal joinder or consent in the form
heretofore provided by ERP.
(SIGNATURE PAGE FOLLOWS)
6
<PAGE>
IN WITNESS WHEREOF, ERP has caused this Agreement to be signed by its
general partner and Holder has signed this Agreement, all as of the date first
written above.
ERP OPERATING LIMITED PARTNERSHIP
By: Equity Residential Properties Trust,
its general partner
By:
-----------------------------------
Name:
-----------------------------------
Title:
-----------------------------------
HOLDER
-----------------------------------------
Name:
------------------------------------
State of Residence:
----------------------
Address:
---------------------------------
---------------------------------
---------------------------------
Number of common shares of beneficial
interest of Company owned beneficially or
of record:
-----------------------------------------
Number of units of partnership interest
of OP owned beneficially or of record:
-----------------------------------------
7
<PAGE>
APPENDIX E
July 17, 2000
Equity Residential Properties Trust
Two North Riverside Plaza, Suite 400
Chicago, Illinois 60606-2639
Ladies and Gentlemen:
Reference is made to that certain Agreement and Plan of Merger dated July 17,
2000 among ERP Operating Limited Partnership, Grove Property Trust and Grove
Operating, L.P. (the "Merger Agreement"). Terms used without definition in this
letter have the meanings given them in the Merger Agreement.
As of the date of this letter, the undersigned is the beneficial owner with
voting power of 1,690,766 Grove Common Shares and 0 Grove OP Units. Provided
that Grove's Board of Trust Managers does not withdraw its recommendation that
the shareholders of Grove vote their Grove Common Shares in favor of the Merger
in order to recommend a Superior Acquisition Proposal pursuant to the terms of
the Merger Agreement, the undersigned agrees to vote all Grove Common Shares and
Grove OP Units over which it has the power to vote in favor of the Merger at the
Grove Shareholders Meeting and in favor of the Mergers.
Very truly yours,
MORGAN STANLEY GROUP, INC.
(on behalf of itself and all affiliated
entities which it controls)
By: /s/ John Timothy Morris
-------------------------------------
Name: John Timothy Morris
-------------------------------------
Title: Principal
-------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF TRUSTEES AND OFFICERS
Under Maryland law, a REIT organized in Maryland is permitted to
eliminate, by provision in its Declaration of Trust, the liability of its
trustees, officers and shareholders for money damages except for liability
resulting from (a) actual receipt of an improper benefit or profit in money,
property or services or (b) acts or omissions established by a final judgment as
involving active and deliberate dishonesty and being material to the cause of
action. The EQR declaration of trust, as general partner of ERP, includes such a
provision eliminating such liability to the maximum extent permitted by Maryland
law.
The Maryland REIT law, effective October 1, 1994, permits a Maryland
REIT to indemnify and advance expenses to its trustees, officers, employees
and agents to the same extent as permitted by the Maryland General
Corporation Law ("MGCL") for directors and officers of Maryland corporations.
In accordance with the MGCL, the bylaws of EQR require it to indemnify (a)
any present or former trustee, officer or shareholder of any individual who,
while a trustee, officer or shareholder, served or is serving as a trustee,
officer, director, shareholder or partner or otherwise, in the defense of a
proceeding to which he was made a party by reason of service in such
capacity, against reasonable expenses incurred by him in connection with the
proceeding, (b) any present or former trustee or officer or any individual
who, while a trustee or officer served or its serving as a trustee, officer,
director, shareholder or partner of another entity at EQR's express request
against any claim or liability to which he may become subject by reason of
service in such capacity unless it is established that (i) his act or
omission was material to the matter giving rise to the proceeding and was
committed in bad faith or was the result of active and deliberate dishonesty,
(ii) he actually received an improper personal benefit in money, property or
services or (iii) in the case of a criminal proceeding, he had reasonable
cause to believe that his act or omission was unlawful and (c) any present or
former shareholder against any claim or liability to which he may become
subject by reason of such status. In addition, EQR's bylaws require it to pay
or reimburse, in advance of final disposition of a proceeding, reasonable
expenses incurred by a present or former trustee, officer or shareholder or
any individual who, while a trustee, officer or shareholder, served or is
serving as a trustee, officer, director, shareholder or partner of another
entity at EQR's express request made a party to a proceeding by reason of
such status, however, provided, that in the case of a trustee or officer, EQR
shall have received (1) a written affirmation by such person of his good
faith belief that he has met the standard of conduct necessary for
indemnification by EQR as authorized by its bylaws and (2) a written
undertaking by or on his behalf to repay the amount paid or reimburse by EQR
if it shall ultimately be determined that the applicable standard of conduct
was not met. EQR's bylaws also (x) permit EQR to provide indemnification and
payment or reimbursement of expenses to a present or former trustee, officer
or shareholder who served as a predecessor of EQR or to any employee or agent
of EQR or a predecessor of EQR, (y) provide that any indemnification and
payment or reimbursement of the expenses permitted in the bylaws shall be
furnished in accordance with the procedures providing for indemnification
II-1
<PAGE>
and payment or reimbursement of expenses under Section 2-418 of the MGCL for
directors of Maryland corporations and (z) permit EQR to provide to the
trustees and officers such other and further indemnification or payment or
reimbursement of expenses to the fullest extent permitted by Section 2-418 of
the MGCL for directors of Maryland corporations.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to trustees and officers of EQR pursuant to the
foregoing provisions or otherwise, EQR has been advised that, although the
validity and scope of the governing statute have not been challenged in a court
of law, in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Securities Act of
1933 and is, therefore, unenforceable. In addition, indemnification may be
limited by state securities law.
The ERP partnership agreement also provides for indemnification of EQR
and its officers and trustees to the same extent indemnification is provided to
officers and trustees of EQR in its declaration of trust, and limit the
liability of EQR and its officers and trustees to ERP and its respective
partners to the same extent the liability of the officers and trustees of EQR to
EQR and its shareholders under EQR's declaration of trust.
ITEM 21. EXHIBITS
2.1 Agreement and Plan of Merger dated as of July 17, 2000 between Grove
Property Trust, Grove Operating, L.P. and ERP Operating Limited
Partnership (included as Appendix A to the prospectus contained in the
Registration Statement)
2.2 Agreement of Merger between Grove Operating, L.P. and New LLC2*
5.1 Opinion of Piper Marbury Rudnick & Wolfe regarding legality of ERP
units*
5.2 Opinion of Piper Marbury Rudnick & Wolfe LLP regarding legality of EQR
common shares*
8.1 Opinion of Cummings & Lockwood regarding the qualification of Grove as
a real estate investment trust for federal income tax purposes*
8.2 Opinion of Piper Marbury Rudnick & Wolfe regarding the qualifications
of EQR as a real estate investment trust for federal tax purposes*
23.1 Consent of Ernst & Young LLP
23.2 Consent of Piper Marbury Rudnick & Wolfe (included in Exhibits 5.1 and
8.2 hereof)*
23.3 Consent of Piper Marbury Rudnick & Wolfe, LLP (included in Exhibit 5.2
hereof)*
23.4 Consent of Cummings & Lockwood (included in Exhibit 8.1 hereof)*
23.5 Consent of Italia & Lemp
II-2
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
24 Power of Attorney (filed as part of the signature page to the
Registration Statement)
99.1 Form of Shareholder/Partners Voting Agreement between Grove Property
Trust, ERP Operating Limited Partnership, Grove Operating, L.P., and
each of certain executive officers of Grove (Included as Appendix D
to the prospectus contained in the Registration Statement)
99.2 Shareholder/Partner Voting Agreement between Grove Property Trust, ERP
Operating Limited Partnership, Grove Operating, L.P., and Morgan
Stanley Group, Inc. (Included as Appendix E to the prospectus
contained in the Registration Statement)
99.3 Opinion of Houlihan Lokey Howard & Zukin (included as Appendix B to the
prospectus contained in the Registration Statement)
99.4 Form of Proxy*
99.5 Form of Election*
99.6 Form of DRO Election Form*
99.7 Consent of Houlihan Lokey Howard & Zukin Financial Advisors, Inc.
</TABLE>
-----------------------------------
* to be filed by amendment
ITEM 22. UNDERTAKINGS
The undersigned registrant hereby undertakes:
- To file, during any period in which offers or sales
are being made, a post-effective amendment to this registration
statement;
- To include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933;
- To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in
the aggregate, represent a fundamental change in the information
set forth in the registration statement;
- To include any material information with respect to the
plan of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement;
II-3
<PAGE>
- That, for the purpose of determining any liability under
the Securities Act of 1933, each such post-effective amendment shall
be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering
thereof.
- To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold
at the termination of the offering.
- That, for purposes of determining any liability under the
Securities Act of 1933, each filing of the registrant's annual
report pursuant to Section 13(a) or 15(d) of the Securities Exchange
Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities
Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering
of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
- That prior to any public re-offering of the daa check was
p apresent securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any
person or party who is deemed to be an underwriter within the meaning
of Rule 145(c), the issuer undertakes that such re-offering prospectus
will contain the information called for by the applicable registration
form with respect to re-offerings by persons who may be deemed
underwriters, in addition to the information called for by the other
items of the applicable form.
- That every prospectus (A) that is filed pursuant to
paragraph (a) immediately preceding, or (B) that purports to meet the
requirements of Section 10(a)(3) of the Act and is used in connection
with an offering of securities subject to Rule 415, will be filed as
part of an amendment to the registration statement and will not be used
until such amendment is effective, and that, for purposes of
determining any liability under the Securities Act of 1993, each such
post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering
of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
- Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing
provisions, or otherwise, the registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification
is against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the
registrant in the successful defense of any action, suit or proceeding)
is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will,
unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final
adjudication of such issue.
II-4
<PAGE>
- To respond to requests for information that is incorporated
by reference into the prospectus pursuant to Item 4, 10(b), 11, or 13
of this form, within one business day of receipt of such request, and
to send the incorporation documents by first class mail or other
equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement
through the date of responding to the request.
- To supply by means of a post-effective amendment all
information concerning a transaction, and the company being acquired
involved therein, that was not the subject of and included in the
registration statement when it became effective.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, on this 24th day of
August, 2000.
EQUITY RESIDENTIAL PROPERTIES TRUST
By: /s/ DOUGLAS CROCKER II
---------------------------------------
Douglas Crocker II
President, Chief Executive Officer and
Trustee
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below, hereby constitutes and appoints Douglas Crocker II, David
Neithercut and Bruce C. Strohm, or any of them, his or her attorneys-in-fact and
agents, with full power of substitution and resubstitution for him or her in any
and all capacities, to sign any or all amendments or post-effective amendments
to this Registration Statement, and to file the same, with all exhibits thereto
and other documents in connection therewith or in connection with the
registration of the Securities under the Exchange Act, with the Securities and
Exchange Commission, granting unto each of such attorneys-in-fact and agents
full power and authority to do and perform each and every act and thing
requisite and necessary in connection with such matters as fully to all intents
and purposes as he might or could do in person, hereby ratifying and confirming
all that each of such attorneys-in-fact and agents or his substitute or
substitutes may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<S> <C> <C>
/s/ Samuel Zell Chairman of the Board of Trustees August 24, 2000
-----------------------------
Samuel Zell
/s/ Douglas Crocker II President, Chief Executive Officer and Trustee August 24, 2000
-----------------------------
Douglas Crocker II
<PAGE>
/s/ David J. Neithercut Executive Vice President and Chief Financial August 24, 2000
----------------------------- Officer
David J. Neithercut
/s/ Michael J. McHugh Senior Vice President, Chief Accounting Officer August 24, 2000
----------------------------- and Treasurer
Michael J. McHugh
/s/ John W. Alexander Trustee August 24, 2000
-----------------------------
John W. Alexander
/s/ Stephen O. Evans Trustee August 24, 2000
-----------------------------
Stephen O. Evans
/s/ Henry H. Goldberg Trustee August 24, 2000
-----------------------------
Henry H. Goldberg
/s/ Errol R. Halperin Trustee August 24, 2000
-----------------------------
Errol R. Halperin
/s/ James D. Harper, Jr. Trustee August 24, 2000
-----------------------------
James D. Harper, Jr.
/s/ Boone A. Knox Trustee August 24, 2000
-----------------------------
Boone A. Knox
/s/ Edward Lowenthal Trustee August 24, 2000
-----------------------------
Edward Lowenthal
/s/ Jeffrey H. Lynford Trustee August 24, 2000
-----------------------------
Jeffrey H. Lynford
/s/ Sheli Z. Rosenberg Trustee August 24, 2000
-----------------------------
Sheli Z. Rosenberg
/s/ Gerald A. Spector Trustee August 24, 2000
-----------------------------
Gerald A. Spector
/s/ Michael N. Thompson Trustee August 24, 2000
-----------------------------
Michael N. Thompson
/s/ B. Joseph White Trustee August 24, 2000
-----------------------------
B. Joseph White
</TABLE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, on this 24th day of
August, 2000.
ERP OPERATING LIMITED
PARTNERSHIP
By: Equity Residential Properties Trust,
its general partner
By: /s/ DOUGLAS CROCKER II
------------------------------
Douglas Crocker II
President, Chief Executive
Officer and Trustee
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below, hereby constitutes and appoints Douglas Crocker II, David
Neithercut and Bruce C. Strohm, or any of them, his or her attorneys-in-fact and
agents, with full power of substitution and resubstitution for him or her in any
and all capacities, to sign any or all amendments or post-effective amendments
to this Registration Statement, and to file the same, with all exhibits thereto
and other documents in connection therewith or in connection with the
registration of the Securities under the Exchange Act, with the Securities and
Exchange Commission, granting unto each of such attorneys-in-fact and agents
full power and authority to do and perform each and every act and thing
requisite and necessary in connection with such matters as fully to all intents
and purposes as he might or could do in person, hereby ratifying and confirming
all that each of such attorneys-in-fact and agents or his substitute or
substitutes may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<S> <C> <C>
/s/ Samuel Zell Chairman of the Board of Trustees August 24, 2000
-----------------------------
Samuel Zell
<PAGE>
/s/ Douglas Crocker II President, Chief Executive Officer and Trustee August 24, 2000
-----------------------------
Douglas Crocker II
/s/ David J. Neithercut Executive Vice President and Chief Financial August 24, 2000
----------------------------- Officer
David J. Neithercut
/s/ Michael J. McHugh Senior Vice President, Chief Accounting Officer August 24, 2000
----------------------------- and Treasurer
Michael J. McHugh
/s/ John W. Alexander Trustee August 24, 2000
-----------------------------
John W. Alexander
/s/ Stephen O. Evans Trustee August 24, 2000
-----------------------------
Stephen O. Evans
/s/ Henry H. Goldberg Trustee August 24, 2000
-----------------------------
Henry H. Goldberg
/s/ Errol R. Halperin Trustee August 24, 2000
-----------------------------
Errol R. Halperin
/s/ James D. Harper, Jr. Trustee August 24, 2000
-----------------------------
James D. Harper, Jr.
/s/ Boone A. Knox Trustee August 24, 2000
-----------------------------
Boone A. Knox
/s/ Edward Lowenthal Trustee August 24, 2000
-----------------------------
Edward Lowenthal
/s/ Jeffrey H. Lynford Trustee August 24, 2000
-----------------------------
Jeffrey H. Lynford
/s/ Sheli Z. Rosenberg Trustee August 24, 2000
-----------------------------
Sheli Z. Rosenberg
/s/ Gerald A. Spector Trustee August 24, 2000
-----------------------------
Gerald A. Spector
/s/ Michael N. Thompson Trustee August 24, 2000
-----------------------------
Michael N. Thompson
/s/ B. Joseph White Trustee August 24, 2000
-----------------------------
B. Joseph White
</TABLE>
