UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
Commission file number: 1-12592
WALDEN RESIDENTIAL PROPERTIES, INC.
(Exact name of Registrant as specified in its Charter)
MARYLAND 75-2506197
(State or other jurisdiction (I.R.S. Employer Identification
of incorporation or organization) Number)
One Lincoln Centre
5400 LBJ Freeway, Suite 400
Dallas, Texas 75240
(Address of principal executive offices)
(972) 788-0510
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days.
YES X NO
---
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date: As of
August 4, 1997, there were 17,574,137 shares of Common Stock,
$0.01, par value outstanding.
<Page 1>
WALDEN RESIDENTIAL PROPERTIES, INC.
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of
June 30, 1997 (Unaudited) and
December 31, 1996 . . . . . . . . . . . . . .2
Condensed Consolidated Statements of Income
for the Three Months and Six Months Ended
June 30, 1997 and 1996 (Unaudited). . . . . .3
Condensed Consolidated Statements of Cash
Flows for the Six Months Ended June 30, 1997
and 1996 (Unaudited). . . . . . . . . . . . .4
Notes to Condensed Consolidated Financial
Statements (Unaudited) . . . . . . . . . . . .5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations . . . . . . . . . . . . . . . . . 10
PART 2. OTHER INFORMATION
Item 1. Legal Proceedings. . . . . . . . . . . . . . .17
Item 2. Changes in Securities. . . . . . . . . . . . .17
Item 3. Defaults Upon Senior Securities. . . . . . . .17
Item 4. Submission of Matters to a Vote of
Security Holders. . . . . . . . . . . . . . .17
Item 5. Other Information. . . . . . . . . . . . . . .17
Item 6. Exhibits and Reports on Form 8-K . . . . . . .18
<Page 2>
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
WALDEN RESIDENTIAL PROPERTIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
June 30, 1997 December 31, 1996
------------- -----------------
(Unaudited)
<S> <C> <C>
ASSETS
Real estate assets, at cost
Land . . . . . . . . . . . . . . . . . . . . $ 85,671 $ 80,914
Buildings. . . . . . . . . . . . . . . . . . 659,287 602,601
-------- --------
744,958 683,515
Less: Accumulated depreciation . . . . . (54,033) (41,707)
-------- --------
690,925 641,808
Real estate assets held for sale . . . . . . . 6,577 --
Rent and other receivables . . . . . . . . . . 953 1,324
Prepaid and other assets . . . . . . . . . . . 4,706 3,146
Deferred financing costs, net. . . . . . . . . 5,508 5,827
Cash and cash equivalents. . . . . . . . . . . 5,818 29,720
Restricted cash:
Escrow deposits. . . . . . . . . . . . . . . 6,120 5,369
Additional collateral on loans . . . . . . . 2,520 2,520
-------- --------
Total assets. . . . . . . . . . . . . . . $723,127 $689,714
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Mortgage notes payable . . . . . . . . . . . $257,252 $258,908
Credit facility. . . . . . . . . . . . . . . 29,350 --
Accrued real estate taxes. . . . . . . . . . 7,025 7,960
Accounts payable . . . . . . . . . . . . . . 5,822 5,653
Accrued expenses and other liabilities . . . 5,746 5,395
Preferred distribution payable on
convertible equity securities . . . . . . . 391 377
-------- --------
Total liabilities . . . . . . . . . . . . 305,586 278,293
Commitments and contingencies
Stockholders' equity:
Convertible equity securities. . . . . . . . 15,936 14,886
Preferred stock. . . . . . . . . . . . . . . 58 58
Common stock . . . . . . . . . . . . . . . . 177 169
Additional paid in capital . . . . . . . . . 451,517 432,974
Notes receivable from Company officers and
directors . . . . . . . . . . . . . . . . . (5,263) (5,263)
Deferred compensation on Restricted Stock. . (2,463) --
Distributions in excess of net income. . . . (42,421) (31,403)
-------- --------
Total stockholders' equity. . . . . . . . 417,541 411,421
-------- --------
Total liabilities and stockholders'
equity . . . . . . . . . . . . . . . . $723,127 $689,714
======== ========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
<Page 3>
WALDEN RESIDENTIAL PROPERTIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share information)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ----------------
1997 1996 1997 1996
------ ------ ------ ------
<S> <C> <C> <C> <C>
REVENUES
Rental income . . . . . . . . . $33,071 $24,437 $64,587 $48,570
Other property income . . . . . 1,333 919 2,605 1,746
Interest income . . . . . . . . 346 508 849 719
Other income. . . . . . . . . . -- 98 -- 202
------- ------- ------- -------
Total revenues . . . . . . . 34,750 25,962 68,041 51,237
------- ------- ------- -------
EXPENSES
Property operating and
maintenance. . . . . . . . . . 11,444 8,829 22,013 17,471
Real estate taxes . . . . . . . 3,412 2,296 6,561 4,649
General and administrative. . . 1,972 1,261 3,394 2,406
Interest. . . . . . . . . . . . 5,244 4,765 10,121 9,687
Amortization. . . . . . . . . . 200 219 411 394
Depreciation. . . . . . . . . . 6,793 4,747 13,121 9,265
------- ------- ------- -------
Total expenses . . . . . . . 29,065 22,117 55,621 43,872
------- ------- ------- -------
Operating income. . . . . . . . . 5,685 3,845 12,420 7,365
Gain on disposition of real
property . . . . . . . . . . . . -- 1,272 -- 1,272
------- ------- ------- -------
Income before extraordinary
item . . . . . . . . . . . . . . 5,685 5,117 12,420 8,637
Extraordinary loss on debt
extinguishment . . . . . . . . . -- (96) -- (584)
------- ------- ------- -------
Net income. . . . . . . . . . . . 5,685 5,021 12,420 8,053
Preferred distributions . . . . . (3,702) (813) (7,419) (1,284)
------- ------- ------- -------
Net income available to common
stockholders . . . . . . . . . . $ 1,983 $ 4,208 $ 5,001 $ 6,769
======= ======= ======= =======
Income per share:
Before extraordinary item, less
preferred distributions. . . . $ 0.11 $ 0.31 $ 0.29 $ 0.52
Extraordinary loss on debt
extinguishment . . . . . . . . -- (0.01) -- (0.04)
------- ------- ------- -------
Net income available to common
stockholders . . . . . . . . . $ 0.11 $ 0.30 $ 0.29 $ 0.48
======= ======= ======= =======
Distributions per share of
common stock . . . . . . . . . . $0.4825 $ 0.465 $ 0.965 $ 0.93
======= ======= ======= =======
Weighted average number of common
stock and common stock equivalent
shares outstanding . . . . . . . 17,537 14,151 17,346 14,179
======= ======= ======= =======
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
<Page 4>
WALDEN RESIDENTIAL PROPERTIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
----------------
1997 1996
------ ------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income. . . . . . . . . . . . . . . . . . . $12,420 $ 8,053
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization . . . . . . . . 13,532 9,659
Gain on disposition of real property. . . . . -- (1,272)
Extraordinary loss on debt extinguishment . . -- 584
Amortization of deferred compensation on
restricted stock . . . . . . . . . . . . . . 108 --
Net effect of changes in operating accounts:
Escrow deposits. . . . . . . . . . . . . . (751) (8,911)
Other assets . . . . . . . . . . . . . . . (1,301) 356
Accrued real estate taxes. . . . . . . . . (935) (1,139)
Accounts payable . . . . . . . . . . . . . (222) (522)
Other liabilities. . . . . . . . . . . . . 397 (99)
------- -------
Net cash provided by operating
activities. . . . . . . . . . . . . . . 23,248 6,709
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of real estate assets, net of
noncash items below . . . . . . . . . . . . (52,371) (45,948)
Real estate asset additions. . . . . . . . . (14,926) (2,784)
Proceeds from disposition of real property . -- 8,300
------- -------
Net cash used in investing activities . (67,297) (40,432)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from stock issuance, net of
issuance costs. . . . . . . . . . . . . . . 15,968 45,675
Purchase of the Company's common stock . . . -- (3,531)
Distributions paid . . . . . . . . . . . . . (23,424) (14,476)
Proceeds from mortgage notes payable
and credit facility . . . . . . . . . . . . 35,350 48,470
Payment of mortgage notes payable and
credit facility . . . . . . . . . . . . . . (6,000) (38,970)
Payment of financing costs . . . . . . . . . (91) (2,631)
Additional collateral on loans . . . . . . . -- (650)
Principal reductions of debt . . . . . . . . (1,656) (3,724)
------- -------
Net cash provided by financing
activities . . . . . . . . . . . . . . 20,147 30,163
------- -------
NET DECREASE IN CASH AND CASH EQUIVALENTS. . . (23,902) (3,560)
CASH AND CASH EQUIVALENTS, BEGINNING OF
PERIOD. . . . . . . . . . . . . . . . . . . . 29,720 6,801
------- -------
CASH AND CASH EQUIVALENTS, END OF PERIOD . . . $ 5,818 $ 3,241
======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Cash paid for interest . . . . . . . . . . . $ 9,781 $ 9,824
======= =======
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING
AND FINANCING ACTIVITIES
Real estate asset additions. . . . . . . . . $ 345 $ 194
======= =======
Notes receivable for officer and
director stock purchases. . . . . . . . . . $ -- $ 292
======= =======
Deferred compensation on restricted stock. . $ 2,571 $ --
======= =======
Preferred distribution payable on
convertible equity securities . . . . . . . $ 391 $ 471
======= =======
Items related to purchase of assets:
Securities issued for purchase of real
estate assets . . . . . . . . . . . . . . . $ 1,050 $ --
======= =======
Mortgage notes assumed. . . . . . . . . . $ -- $ 7,618
======= =======
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
<Page 5>
WALDEN RESIDENTIAL PROPERTIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. INTERIM UNAUDITED FINANCIAL INFORMATION
Walden Residential Properties, Inc. (the "Company") is a
self-administered and self-managed real estate company operated as a
real estate investment trust, as defined under the Internal Revenue
Code of 1986, as amended. As of June 30, 1997, the Company owned
75 multifamily properties, containing 23,188 apartment units,
primarily in the Southwest and Southeast regions of the United
States.
The accompanying unaudited financial statements should be read
in conjunction with the Company's Form 8-K dated April 21, 1997 and
the consolidated financial statements and notes thereto included in
the Form 10-Q for the three months ended March 31, 1997, and the
Form 10-K for the year ended December 31, 1996, which were filed
with the Securities and Exchange Commission ("SEC"). The
accompanying interim unaudited financial information has been
prepared pursuant to the rules and regulations of the SEC. Certain
information and footnote disclosures normally included in the
annual financial statements have been condensed or omitted
pursuant to rules and regulations of the SEC. Management believes
that the disclosures contained in this Form 10-Q are adequate to
make the information presented not misleading. In the opinion of
management, all adjustments and eliminations, consisting only of
normal recurring adjustments, necessary to present fairly the
consolidated financial position of the Company and its subsidiaries
as of June 30, 1997 and the consolidated results of their
operations and cash flows for the six months ended June 30, 1997
and 1996, have been included. The consolidated results of
operations for the six months ended June 30, 1997 are not
necessarily indicative of the results for the full year.
In the first quarter of 1997, the Financial Accounting
Standards Board ("FASB") issued Statement of Financial Accounting
Standard ("SFAS") No. 129, "Disclosure of Information about Capital
Structure", which is effective for year-end 1997. In the second
quarter of 1997, the FASB issued SFAS No. 130, "Reporting
Comprehensive Income," and SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information," both of which
are effective for year-end 1998. These statements are either not
applicable or are not expected to have a material impact on the
Company's financial statements.
Effective July 1, 1996, the Company revised its method of
accounting to capitalize the cost of replacement carpets on a
prospective basis. The Company believes this accounting policy
change is preferable because it is consistent with policies
currently being used by the majority of the largest publicly traded
apartment real estate investment trusts and provides a better
matching of expenses with the related benefit of the expenditures.
<Page 6>
Following is pro forma information for the three and six
months ended June 30, 1996 as if the revised capitalization policy
were in effect as of January 1, 1996:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, 1996 June 30, 1996
------------------ ----------------
<S> <C> <C>
Income before extraordinary item
as reported. . . . . . . . . . . . . . . $5,117 $8,637
Add: Adjustment for change in
accounting policy to capitalize
carpet replacement costs . . . . . 387 666
------ ------
Income before extraordinary item
as adjusted. . . . . . . . . . . . . . . $5,504 $9,303
====== ======
Net income as adjusted. . . . . . . . . . $5,408 $8,719
====== ======
Net income available to common
stockholders as adjusted . . . . . . . . $4,595 $7,435
====== ======
Income per share:
Before extraordinary item, less
preferred distributions as
reported . . . . . . . . . . . . . . . $ 0.31 $ 0.52
Adjustment for effect of change in
accounting policy. . . . . . . . . . . 0.02 0.04
------ ------
Income before extraordinary item,
less preferred distributions as
adjusted . . . . . . . . . . . . . . . $ 0.33 $ 0.56
====== ======
Net income available to common
stockholders as reported . . . . . . . $ 0.30 $ 0.48
Adjustment for effect of change in
accounting policy. . . . . . . . . . . 0.02 0.04
------ ------
Net income available to common
stockholders as adjusted . . . . . . . $ 0.32 $ 0.52
====== ======
</TABLE>
2. ACQUISITIONS
On April 21, 1997, the Company purchased six apartment
properties, containing 1,263 units, in Dallas/Fort Worth and
Austin, Texas for approximately $39.8 million. The acquisitions
were funded by a $18.5 million borrowing under the Company's credit
facility and $20.2 million of available cash. In addition, the
Company issued $1.1 million of limited partnership interests in an
existing subsidiary partnership which are convertible into 44,379
shares of the Company's common stock. Such partnership interests
are accounted for as convertible equity securities (see Note 3).
On June 26, 1997, the Company purchased a 310-unit apartment
property located in Dallas/Fort Worth, Texas for $7.9 million. The
acquisition was funded by a $7.4 million borrowing under the
Company's credit facility and $0.5 million of available cash.
3. STOCKHOLDERS' EQUITY
Convertible Equity Securities
-----------------------------
The Company has certain limited partnership interests that are
exchangeable for an aggregate of 810,128 shares of the Company's
common stock at the option of the interest holders. Prior to the
<Page 7>
exchange, the holders of the limited partnership interests will be
entitled to receive quarterly distributions equal to the greater of
the Company's actual distributions on 810,128 shares of common
stock, or $368,608 in the aggregate ($391,000 was accrued as of
June 30, 1997). These securities have been treated similar to
preferred stock in calculating earnings per share.
In conjunction with the apartment acquisition in April 1997
(see Note 2), the Company issued $1.1 million of limited
partnership interests which are convertible into 44,379 shares of
the Company's common stock. Prior to the exchange, the holders of
the limited partnership interests will be entitled to receive
quarterly distributions on the equivalent of 44,379 shares of
common stock if and when declared and paid (no distributions had
been declared on such securities as of June 30, 1997). These
securities have been treated as common stock equivalents in
calculating earnings per share.
Restricted Stock
----------------
In February 1997, the Company adopted a Long-Term Incentive
Plan to attract and retain individuals to serve as directors,
officers and employees of the Company. Pursuant to this plan, the
Company issued 107,500 restricted shares of common stock
("Restricted Stock") in February 1997 for $.01 per share to its
non-employee directors, four executive officers and certain other
employees. As of June 30, 1997, 10,000 shares of Restricted Stock
were canceled upon the departure of one of the executive officers.
The shares issued to the non-employee directors vest ratably over
a three-year period; while the shares issued to the executive
officers and other employees vest over a ten-year period, with 40%
vesting after the fourth anniversary and 10% vesting annually
thereafter. Deferred compensation related to the Restricted Stock
was computed based upon the market value of the shares at the date
of issuance less the amount paid for the shares. This deferred
compensation is being amortized over the respective vesting
periods. The unamortized amount as of June 30, 1997 was
$2,463,000.
4. NET INCOME PER SHARE OF COMMON STOCK
Net income per share of common stock has been computed by
dividing net income available to common stockholders by the
weighted average number of common stock and common stock equivalent
shares, if material, outstanding. Net income available to common
stockholders is net income less the preferred distributions on the
convertible equity securities (see Note 3) and preferred stock.
Common stock equivalents include the common stock applicable to
certain of the convertible equity securities as described in Note
3 and the weighted average number of assumed equivalent shares
outstanding from stock options, if material and dilutive. Fully
diluted net income per share of common stock is not materially
dilutive and is not presented.
Statement of Financial Accounting Standards ("SFAS") No. 128,
"Earnings per Share", which is effective for periods ending after
December 15, 1997, requires that companies disclose basic earnings
per share using only the weighted average number of common shares
outstanding during a period. Currently common stock equivalents
are included in this computation if they are material. Fully
diluted earnings per share will continue to be calculated in a
manner similar to the
<Page 8>
current calculation. Compliance with SFAS No. 128 will require
no change to the Company's earnings per share for the periods presented.
5. PRO FORMA STATEMENTS OF INCOME
The following unaudited condensed pro forma information for
the six months ended June 30, 1997 and 1996 was prepared from the
financial statements of the Company by adjusting for the effect of
all public offerings and property acquisitions and dispositions in
1997 and 1996, including debt used to finance acquisitions or
repaid from proceeds of dispositions, as if all of these
transactions had occurred on January 1, 1996. The pro forma
results do not include gains on property dispositions or
extraordinary losses on early extinguishment of debt. The current
capitalization policy is assumed in place for all properties
acquired during the periods. The following information is not
necessarily indicative of what the performance would have been had
the Company owned these properties for the entire period, nor does
it purport to represent future results of operations of the
Company. (In thousands, except per share information.)
<TABLE>
<CAPTION>
Pro Forma
----------------
Six Months Ended
June 30,
----------------
1997 1996
------ ------
<S> <C> <C>
Revenues . . . . . . . . . . . . . . . . . . . $70,873 $69,380
Expenses . . . . . . . . . . . . . . . . . . . 58,165 58,101
------- -------
Net income . . . . . . . . . . . . . . . . . . 12,708 11,279
Preferred distributions. . . . . . . . . . . . (7,419) (7,603)
------- -------
Net income available to common stockholders. . $ 5,289 $ 3,676
======= =======
Net income available to common stockholders
per share . . . . . . . . . . . . . . . . . . $ 0.30 $ 0.21
======= =======
Weighted average shares of common stock
outstanding . . . . . . . . . . . . . . . . . 17,391 17,141
======= =======
</TABLE>
6. COMMITMENTS AND CONTINGENCIES
As of June 30, 1997, the Company had executed contracts to
acquire two apartment properties containing 448 units, of which one
property was acquired in July 1997 (see Note 7). In connection
with such contracts, the Company deposited $300,000 of earnest
money. The remaining property acquisition is subject to the
completion of normal due diligence procedures and there is no
assurance the Company will purchase such property.
On May 21, 1997, the Company signed a definitive agreement
with Drever Partners, Inc. ("Drever") to provide for a strategic
alliance combining the two companies, subject to the approval of
Drever investors and the Company's stockholders. Under the
agreement, the Drever organization and all 79 Drever apartment
properties, containing 18,118 units located in Texas, Arizona,
Georgia and California, would be acquired by a partnership
indirectly wholly-owned by the Company. The transaction value is
approximately $670 million, consisting of $295 million in common
and preferred limited partnership units which are convertible into
common stock, and preferred stock with detachable warrants, $85
million in cash, and $290 million of assumed debt.
<Page 9>
7. SUBSEQUENT EVENTS
In July 1997, the Company announced its intention to
repurchase shares of its common stock. During July 1997, the
Company repurchased and retired 145,500 shares of its common stock
at a cost of $3,470,000.
On July 30, 1997, the Company purchased a 232-unit apartment
property located near Nashville, Tennessee for approximately $9.5
million. The Company assumed a $6.9 million bond financed
mortgage, with the remainder of the acquisition funded from a
borrowing under the Company's credit facility. In connection with
the assumption of the mortgage loan, the Company executed a letter
of credit for $7.1 million as additional collateral for the loan.
On August 7, 1997, the Company declared distributions of
$.4825 per share of common stock, $.5725 per share of convertible
preferred stock and $.575 per share of senior preferred stock, all
of which are payable on September 3, 1997 to stockholders of record
on August 18, 1997.
<Page 10>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
- ---------------------
The following discussion should be read in conjunction with
the "Supplemental Financial and Operating Data" and all of the
consolidated financial statements and notes thereto included
elsewhere in this Form 10-Q. Such financial statements and
information have been prepared to reflect the historical condensed
consolidated operations of the Company for the three and six months
ended June 30, 1997 and 1996, and the condensed consolidated
balance sheet data of the Company as of June 30, 1997 and December
31, 1996.
The changes in revenues and expenses related to property
operations during the three and six months ended June 30, 1997 and
1996 are primarily the result of the increased number of units
owned due to acquisitions of additional multifamily properties by
the Company. Where appropriate, comparisons are made on a
dollars-per-weighted-average-unit basis in order to adjust for
changes in the number of units owned during each period.
The following financial and operating data (see Page 11) is
provided as supplemental information to all financial statements
included elsewhere in this Form 10-Q. Such supplemental
information is unaudited except the balance sheet data as of
December 31, 1996.
<Page 11>
SUPPLEMENTAL FINANCIAL AND OPERATING DATA
(In thousands, except per share and property data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ----------------
1997 1996 1997 1996
------ ------ ------ ------
<S> <C> <C> <C> <C>
OPERATING DATA
Revenues
Rental income . . . . . . . $33,071 $24,437 $64,587 $48,570
Other property income . . . 1,333 919 2,605 1,746
Interest income . . . . . . 346 508 849 719
Other income. . . . . . . . -- 98 -- 202
------- ------- ------- -------
Total revenues. . . . . . 34,750 25,962 68,041 51,237
------- ------- ------- -------
Expenses
Property operating and
maintenance. . . . . . . . 11,444 8,829 22,013 17,471
Real estate taxes . . . . . 3,412 2,296 6,561 4,649
General and administrative. 1,972 1,261 3,394 2,406
Interest. . . . . . . . . . 5,244 4,765 10,121 9,687
Amortization. . . . . . . . 200 219 411 394
Depreciation. . . . . . . . 6,793 4,747 13,121 9,265
------- ------- ------- -------
Total expenses. . . . . . 29,065 22,117 55,621 43,872
------- ------- ------- -------
Operating income . . . . . . . . 5,685 3,845 12,420 7,365
Gain on disposition of real
property. . . . . . . . . . . . -- 1,272 -- 1,272
------- ------- ------- -------
Income before extraordinary
item. . . . . . . . . . . . . . 5,685 5,117 12,420 8,637
Extraordinary loss on debt
extinguishment. . . . . . . . . -- (96) -- (584)
------- ------- ------- -------
Net income . . . . . . . . . . . 5,685 5,021 12,420 8,053
Preferred distributions. . . . . (3,702) (813) (7,419) (1,284)
------- ------- ------- -------
Net income available to common
stockholders. . . . . . . . . . $ 1,983 $ 4,208 $ 5,001 $ 6,769
======= ======= ======= =======
Distribution per share of
common stock. . . . . . . . . . $0.4825 $ 0.465 $ 0.965 $ 0.93
======= ======= ======= =======
Weighted average number of
common stock and common stock
equivalent shares outstanding . 17,537 14,151 17,346 14,179
======= ======= ======= =======
- ----------------------------------------------------------------------------
PROPERTY DATA
Total properties (at end of
period) . . . . . . . . . . . . 75 60 75 60
Total units (at end of period) . 23,188 18,495 23,188 18,495
Total units (weighted average) . 22,617 17,084 22,111 17,145
Weighted average monthly
property revenue per unit . . . $ 507 $ 495 $ 506 $ 489
</TABLE>
- ----------------------------------------------------------------------------
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
-------- ------------
<S> <C> <C>
BALANCE SHEET DATA
Real estate assets, at cost, net . . . . . . $690,925 $641,808
Mortgage notes payable and Credit facility . 286,602 258,908
Stockholders' equity . . . . . . . . . . . . 417,541 411,421
</TABLE>
<Page 12>
Comparison of Three Months and Six Months Ended June 30, 1997 to
Three Months and Six Months Ended June 30, 1996
- ----------------------------------------------------------------
The weighted average number of units owned for the second
quarter of 1997 increased by 5,533 units, or 32.4%, from 17,084
units for the second quarter of 1996 to 22,617 units for the second
quarter of 1997 as a result of the acquisition of additional
properties. The portfolio had a weighted average occupancy of 94.8%
and 94.1% for the second quarter of 1996 and 1997, respectively.
The weighted average number of units owned for the six months
ended June 30, 1997, increased by 4,966 units, or 29.0% from 17,145
units for the first six months of 1996 to 22,111 units for the first
six months of 1997 as a result of the acquisition of additional
properties. Total units owned at June 30, 1996 and 1997 were 18,495
and 23,188, respectively. The portfolio had a weighted average
occupancy of 94.6% and 93.9% for the first six months of 1996 and
1997, respectively.
The Company owned 52 properties with 16,373 units throughout
both periods in 1997 and 1996 ("same store"). A summary of the
historical operating performance for "same store" properties is as
follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ----------------
1997 1996 % Change 1997 1996 % Change
------ ------ -------- ------ ------ --------
<S> <C> <C> <C> <C> <C>
Rental and other property revenue
(in thousands). . . . . . . . . . . $24,634 $24,248 1.6% $49,168 $48,088 2.2%
Property operating expenses (in
thousands) (1). . . . . . . . . . . 10,517 10,844 (3.0%) 20,792 21,332 (2.5%)
------- ------- ------- -------
Property operating income (in
thousands). . . . . . . . . . . . . $14,117 $13,404 5.3% $28,376 $26,756 6.1%
======= ======= ======= =======
Weighted average physical occupancy. 94.2% 94.8% 94.0% 94.6%
======= ======= ======= =======
Average monthly revenue per unit . . $ 502 $ 494 1.6% $ 500 $ 489 2.2%
======= ======= ======= =======
Average annualized property
operating and maintenance expenses
per unit. . . . . . . . . . . . . . $ 1,984 $ 2,108 (5.9%) $ 1,962 $ 2,058 (4.7%)
======= ======= ======= =======
Average annualized real estate
taxes per unit. . . . . . . . . . . $ 585 $ 541 8.1% $ 578 $ 548 5.5%
======= ======= ======= =======
Operating expense ratio. . . . . . . 42.7% 44.7% N/A 42.3% 44.4% N/A
</TABLE>
(1) Consists of property operating and maintenance and real estate tax
expenses.
The operating performance of properties not owned throughout both
periods in 1997 and 1996 is summarized as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ----------------
1997 1996 1997 1996
------ ------ ------ ------
<S> <C> <C> <C> <C>
Rental and other property revenue
(in thousands). . . . . . . . . . . $ 9,770 $ 1,108 $18,024 $ 2,228
Property operating expenses
(in thousands) (1). . . . . . . . . 4,339 281 7,782 788
------- ------- ------- -------
Property operating income
(in thousands). . . . . . . . . . . $ 5,431 827 $10,242 $ 1,440
======= ======= ======= =======
Weighted average number of units . . 6,244 711 5,738 772
======= ======= ======= =======
Weighted average physical occupancy. 93.8% 94.8% 93.6% 94.6%
======= ======= ======= =======
Average monthly revenue per unit . . $ 522 $ 519 $ 524 $ 481
======= ======= ======= =======
Average annualized property
operating and maintenance
expenses per unit . . . . . . . . . $ 2,127 $ 1,119 $ 2,075 $ 1,617
======= ======= ======= =======
Average annualized real estate
taxes per unit. . . . . . . . . . . $ 652 $ 456 $ 637 $ 422
======= ======= ======= =======
Operating expense ratio. . . . . . . 44.4% 25.4% 43.2% 35.4%
======= ======= ======= =======
</TABLE>
(1) Consists of property operating and maintenance and real estate tax
expenses.
<Page 13>
Interest income decreased $162,000 for the second quarter of
1997, or 31.9%, from $508,000 for the second quarter of 1996 to
$346,000 for the second quarter of 1997. Cash balances during the
second quarter of 1996 were greater than the second quarter of 1997
due to $30 million of stock proceeds and $8.2 million of property
sale proceeds received in April 1996 which were invested in
short-term securities. In addition, the $120 million of stock proceeds
received in December 1996 were used to acquire one property in
January 1997 and six properties in April 1997, resulting in reduced
cash balances during the second quarter of 1997. Interest income
increased $130,000 for the first six months of 1997, or 18.1%, from
$719,000 for the first six months of 1996 to $849,000 for the first
six months of 1997. The increase was primarily due to increased
cash balances for the first quarter of 1997 attributable to the
$120 million of stock proceeds received in December 1996, not
utilized until April 1997.
The 1996 other income of $98,000 for the second quarter and
$202,000 for the first six months was attributable to income from
WDN Management Company, which was merged into the Company and
dissolved effective December 31, 1996.
General and administrative expenses increased $711,000 for the
second quarter of 1997, or 56.4%, from $1,261,000 for the second
quarter of 1996 to $1,972,000 for the second quarter of 1997. This
represented a per unit increase of $54, or 18.3%, on an annualized
basis. General and administrative expenses increased $988,000 for
the first six months of 1997, or 41.1%, from $2,406,000 for the
first six months of 1996 to $3,394,000 for the first six months of
1997. This represents a per unit increase of $26, or 9.3%, on an
annualized basis. The increases in general and administrative
expenses were the result of increases in costs associated with the
increased number of employees, as a result of the increased number
of units over the 1996 level, as well as increased costs associated
with the increased number of stockholders (quarterly mailings to
stockholders, transfer services, etc.), and a one-time severance
charge relating to an executive of the Company.
Interest expense increased $479,000 for the second quarter of
1997, or 10.1%, from $4,765,000 for the second quarter of 1996 to
$5,244,000 for the second quarter of 1997. Interest expense
increased $434,000 for the first six months of 1997, or 4.5%, from
$9,687,000 for the first six months of 1996 to $10,121,000 for the
first six months of 1997. The increases were primarily due to debt
incurred in connection with the acquisition of additional
properties and partially due to a slight increase in the weighted
average interest rate on debt between periods.
Depreciation expense increased $2,046,000 for the second
quarter of 1997, or 43.1%, from $4,747,000 for the second quarter
of 1996 to $6,793,000 for the second quarter of 1997. Depreciation
increased $3,856,000 for the first six months of 1997, or 41.6%,
from $9,265,000 for the first six months of 1996 to $13,121,000 for
the first six months of 1997. The increases were due to
depreciation on additional properties acquired.
The $584,000 extraordinary loss on debt extinguishment
recorded in the six months ended June 30, 1996, resulted from the
write off of unamortized deferred financing costs due to the
refinancing of the Company's credit facility in February 1996
($488,000) and the refinancing of $22 million of variable rate
tax-exempt debt in May 1996 ($96,000).
<Page 14>
The $1,272,000 gain on disposition of real property recorded
in the three months and six months ended June 30, 1996 represented
the gain on the sale of a 384-unit apartment property, located in
Wichita, Kansas, in April 1996.
Liquidity and Capital Resources
- -------------------------------
The Company's principal demands for liquidity are
distributions to its stockholders, property operating and
maintenance costs, capital improvements to its properties,
acquisitions of properties, interest on indebtedness and debt
repayments.
During the first six months of 1997, the Company had cash
flows from operating activities of $23.2 million, and proceeds from
stock offerings of $16.0 million, including $12.1 million from its
dividend reinvestment plan. These funds, in addition to $29.4
million of net borrowings on the Company's credit facility, were
used during the period to acquire seven apartment properties
(containing 1,781 units) for $52.4 million, distributions to
stockholders of $23.4 million, capital improvements and
rehabilitation costs to its properties of $14.9 million, and
principal repayments of $1.7 million, resulting in a net decrease
in cash of $23.8 million.
The Company has a $150 million unsecured credit facility (the
"Credit Facility"), which expires in February 1999. The Credit
Facility has been used to finance property acquisitions, including
capital improvements, and will continue to be used to meet
short-term liquidity requirements. The availability of funds to the
Company under the Credit Facility is subject, however, to certain
borrowing base and other customary covenants.
Net cash provided by operating activities increased $16.5
million for the first six months of 1997 compared to the same
period in 1996, primarily due to an increase in property operating
income due to the increased number of units owned and a reduction
in payments for escrow deposits.
Net cash used in investing activities increased $26.9 million
for the first six months of 1997 compared to the same period in
1996, primarily due to increased capital expenditures on "same
store" properties (particularly for the construction of covered
carports, the installation of access gates with perimeter fencing,
energy efficient exterior lighting and water savers and the
reconstruction of balconies and exterior stairwells). Net cash used
in investing activities also increased due to acquisition
rehabilitation costs of $12.1 million and the purchase of
additional real estate assets of $6.5 million over the same period
in 1996. Also during the same period in 1996, the Company received
$8.3 million in proceeds from the disposition of an apartment
property.
Net cash provided by financing activities decreased by $10.1
million for the first six months of 1997 compared to the same
period in 1996, primarily due to a decrease in proceeds from stock
issuances of $29.7 million and an increase in distributions of $8.9
million and partially offset by a net borrowings increase of $19.9
million. In addition, during the first six months of 1996, the
Company purchased $3.5 million of its Common Stock and paid $2.5
million of principal on a mortgage note to release a guarantee.
<Page 15>
The Company intends to meet its short-term liquidity
requirements, including capital expenditures related to maintenance
and improvements of its properties, through cash flow provided by
operations and when necessary will utilize unused portions of its
Credit Facility to meet working capital needs. Historically, the
Company considers its cash provided by operating activities to be
adequate to meet both its operating requirements and distribution
obligations. The Company has expended $7.8 million and $7.1
million for capital expenditures, including non recurring items,
and acquisition rehabilitation costs, respectively during the first
six months of 1997. Capital expenditures and rehabilitation on
acquisition properties are anticipated to be approximately $11.9
million and $4.2 million, respectively, for the remainder of 1997.
Long-term liquidity requirements, such as refinancing mortgage
indebtedness and property acquisitions, including capital
improvements on property acquisitions, is dependent on the
Company's ability to obtain long-term borrowings, both secured and
unsecured, and to issue debt or equity securities.
As of June 30, 1997, the Company had outstanding indebtedness
in the aggregate principal amount of $286.6 million, consisting of
fixed rate debt of $206.2 million and variable rate debt of $80.4
million. In June 1997, the interest rate on the Credit Facility
was lowered from LIBOR plus 1.5% to LIBOR plus 1.375% for an
effective rate of 7.0625% at June 30, 1997. The weighted average
interest rate on the Company's outstanding indebtedness at June 30,
1997 was approximately 7.6%.
Funds from Operations
- ---------------------
Management of the Company generally considers funds from
operations ("FFO") an appropriate measure of the performance of an
equity real estate investment trust. FFO is defined as net income
(determined in accordance with generally accepted accounting
principles), excluding gains (or losses) from debt restructuring
and sales of property, plus depreciation of real estate assets.
The Company believes that in order to facilitate a clear
understanding of its operating results, FFO should be examined in
conjunction with net income as presented herein. FFO does not
represent cash generated from operating, investing and financing
activities in accordance with generally accepted accounting
principles and is not necessarily indicative of cash available to
fund cash needs and cash distributions. FFO should not be
considered as an alternative to net income (determined in
accordance with generally accepted accounting principles) as an
indication of the Company's performance or as an alternative to
cash flow (determined in accordance with generally accepted
accounting principles) as a measure of liquidity.
<Page 16>
Effective January 1, 1996, the Company adopted the modified
definition of FFO as recommended by the National Association of
Real Estate Investment Trusts; however, the Company's FFO is not
necessarily comparable to similar entitled items reported by other
REITs. FFO for the three months and six months ended June 30, 1997
and 1996 (as restated to conform to the new definition of FFO) are
as follows (unaudited):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ----------------
1997 1996 1997 1996
------ ------ ------ ------
<S> <C> <C> <C> <C>
Funds from operations:
Operating income. . . . . . . . . . $ 5,685 $ 3,845 $12,420 $ 7,365
Depreciation of real estate assets. 6,740 4,747 13,009 9,265
Preferred distributions on senior
(perpetual) preferred stock. . . . (2,300) -- (4,600) --
------- ------- ------- -------
Funds from operations (1). . . . $10,125 $ 8,592 $20,829 $16,630
======= ======= ======= =======
Cash flows provided by (used in):
Operating activities. . . . . . . . $14,525 $ 1,963 $23,248 $ 6,709
Investing activities. . . . . . . . (54,357) (39,301) (67,297) (40,432)
Financing activities. . . . . . . . 23,157 35,854 20,147 30,163
</TABLE>
(1) Represents funds from operations available for distribution to common
and convertible preferred stockholders and on convertible equity
securities.
Inflation
- ---------
The Company leases apartments under lease terms generally
ranging from six to 12 months. Management believes that such
short-term lease contracts lessen the impact of inflation on the
cost of property operations, as well as allow for the adjustment of
rental rates to market levels as leases expire.
<Page 17>
PART 2. OTHER INFORMATION
Item 1. Legal Proceedings
-----------------------------
None.
Item 2. Changes in Securities
---------------------------------
None.
Item 3. Defaults Upon Senior Securities
-------------------------------------------
None.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------------------
(a) The Company's Annual Meeting of Stockholders was held on
June 5, 1997.
(b) (1) The Stockholders elected two Directors nominated by
the Board of Directors:
Affirmative Negative Abstentions
Don R. Daseke 16,137,251 71,062 --
Linda Walker Bynoe 16,132,602 75,711 --
(2) The Stockholders ratified the appointment of
Deloitte & Touche LLP as independent auditors of the Company
for the year ending December 31, 1997:
Affirmative Negative Abstentions
16,109,790 27,062 71,460
Item 5. Other Information
-----------------------------
None.
<Page 18>
Item 6. Exhibits and Reports on Form 8-K
--------------------------------------------
(a) Exhibits
2.1 Contribution Agreement by and among
Walden/Drever Operating Partnership, L.P.,
Walden Residential Properties, Inc., the
Shareholders of Drever Partners, Inc., AOF, Inc.,
and AOFII, Inc.
2.2 Exchange Agreement among Walden Residential
Properties, Inc., Walden/Drever Operating
Partnership, L.P., Drever Partners, Inc.,
AOF, Inc. and AOFII, Inc.
10.1 Transfer and Assignment Agreement between
The Arbors of Austin and Walden Residential
Operating Partnership, L.P. (Arbors of Austin
Apartments)
10.2
10.3
10.4
10.5
10.6
10.7
11.1 Computation of Net Income per Share
12.1 Computation of Ratio of Earnings to Combined Fixed
Charges and Preferred Stock Dividends
27.1 Financial Data Schedule
(b) Reports
None.
<Page 19>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, Walden Residential Properties,
Inc. certifies that it has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
WALDEN RESIDENTIAL PROPERTIES, INC.
By: /s/ Don R. Daseke
-----------------
Don R. Daseke
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed by the following persons on
behalf of Walden Residential Properties, Inc. and in the
capacities and on the dates indicated.
Signatures Title Date
---------- ----- ----
/s/ Don R. Daseke Chairman of the Board of Directors, August 12, 1997
- ----------------------- Chief Executive Officer and Director
Don R. Daseke (Principal Executive Officer)
/s/ Mark S. Dillinger Executive Vice President, Chief August 12, 1997
- ----------------------- Financial Officer and Director
Mark S. Dillinger (Principal Financial and Accounting
Officer)
/s/ Marshall B. Edwards President, Chief Acquisitions Officer August 12, 1997
- ----------------------- and Director
Marshall B. Edwards
<Page E-1>
EXHIBIT INDEX
Exhibit No. Description
----------- -----------
2.1 Contribution Agreement by and among
Walden/Drever Operating Partnership, L.P.,
Walden Residential Properties, Inc., the
Shareholders of Drever Partners, Inc., AOF, Inc.,
and AOFII, Inc.
2.2 Exchange Agreement among Walden Residential
Properties, Inc., Walden/Drever Operating
Partnership, L.P., Drever Partners, Inc.,
AOF, Inc. and AOFII, Inc.
10.1 Transfer and Assignment Agreement between
The Arbors of Austin and Walden Residential
Operating Partnership, L.P. (Arbors of Austin
Apartments)
10.2 Transfer and Assignment Agreement between
Arbors of Bedford Limited and Walden Residential
Operating Partnership, L.P. (Arbors of Bedford
Apartments)
10.3 Transfer and Assignment Agreement between
Euless II Limited and Walden Residential
Operating Partnership, L.P. (Arbors of Euless
Apartments)
10.4 Transfer and Assignment Agreement between
The Arbors on Forest Lane Limited and Walden
Residential Operating Partnership, L.P. (Arbors
on Forest Lane Apartments)
10.5 Transfer and Assignment Agreement between
Arbor Park Limited and Walden Residential
Operating Partnership, L.P. (Arbor Park Apartments)
10.6 Transfer and Assignment Agreement between
Arbor Mill Limited and Walden Residential
Operating Partnership, L.P. (Arbors of Carrollton
Apartments)
10.7 Real Estate Sales Contract by and between
Village/Hillcrest Limited Partnership and
Walden Residential Properties, Inc. (Hillcrest
Apartments)
11.1 Computation of Net Income per Share
12.1 Computation of Ratio of Earnings
to Combined Fixed Charges and
Preferred Stock Dividends
27.1 Financial Data Schedule
<Page E-2>
Exhibit 11.1
WALDEN RESIDENTIAL PROPERTIES, INC.
COMPUTATION OF NET INCOME PER SHARE (1)
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ----------------
1997 1996 1997 1996
------ ------ ------ ------
<S> <C> <C> <C> <C>
Income before extraordinary
item. . . . . . . . . . . . . . $ 5,685 $ 5,117 $12,420 $ 8,637
Extraordinary loss on debt
extinguishment. . . . . . . . . -- (96) -- (584)
------- ------- ------- -------
Net income . . . . . . . . . . . 5,685 5,021 12,420 8,053
Preferred distributions. . . . . (3,702) (813) (7,419) (1,284)
------- ------- ------- -------
Net income available to common
stockholders. . . . . . . . . . $ 1,983 $ 4,208 $ 5,001 $ 6,769
======= ======= ======= =======
Income per share -- Primary:
Before extraordinary item,
less preferred distributions. $ .11 $ .31 $ .29 $ .52
Extraordinary loss on debt
extinguishment. . . . . . . . -- (.01) -- (.04)
------- ------- ------- -------
Net income available to
common stockholders . . . . . $ .11 $ .30 $ .29 $ .48
======= ======= ======= =======
Income per share -- Additional
Primary (2):
Before extraordinary item,
less preferred distributions. $ .11 $ .31 $ .29 $ .52
Extraordinary loss on debt
extinguishment. . . . . . . . -- (.01) -- (.04)
------- ------- ------- -------
Net income available to
common stockholders . . . . . $ .11 $ .30 $ .29 $ .48
======= ======= ======= =======
Income per share -- Fully
diluted (2):
Before extraordinary item,
less preferred distributions. $ .11 $ .31 $ .28 $ .52
Extraordinary loss on debt
extinguishment. . . . . . . . -- (.01) -- (.04)
------- ------- ------- -------
Net income available to
common stockholders . . . . . $ .11 $ .30 $ .28 $ .48
======= ======= ======= =======
Weighted average number of
shares outstanding:
Primary. . . . . . . . . . . . 17,537 14,151 17,346 14,179
Dilutive effect of
outstanding options . . . . . 121 52 164 60
------- ------- ------- -------
Additional Primary (2) . . . . 17,658 14,203 17,510 14,239
Fully dilutive effect of
outstanding options . . . . . 80 -- 39 --
------- ------- ------- -------
Fully diluted (2). . . . . . . 17,738 14,203 17,549 14,239
======= ======= ======= =======
</TABLE>
(1) Fully diluted net income per share does not include the convertible
equity securities and convertible preferred stock because they are
anti-dilutive.
(2) This calculation is submitted in accordance with Securities Exchange
Act of 1934 Release No. 9083, although not required by APB Opinion
No. 15, because it results in dilution of less than three percent.
<Page E-3>
Exhibit 12.1
WALDEN RESIDENTIAL PROPERTIES, INC.
COMPUTATION OF NET RATIO OF EARNINGS TO COMBINED
FIXED CHARGES AND PREFERRED DISTRIBUTIONS
(Dollars in Thousands)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ----------------
1997 1996 1997 1996
------ ------ ------ ------
<S> <C> <C> <C> <C>
Income before extraordinary
item. . . . . . . . . . . . . . $ 5,685 $ 5,117 $12,420 $ 8,637
Add:
Interest on indebtedness . . . 5,244 4,765 10,121 9,687
Amortization . . . . . . . . . 200 219 411 394
------- ------- ------- -------
Earnings. . . . . . . . . . $11,129 $10,101 $22,952 $18,718
======= ======= ======= =======
Fixed charges and preferred
distributions:
Interest on indebtedness . . . $ 5,244 $ 4,765 $10,121 $ 9,687
Amortization . . . . . . . . . 200 219 411 394
------- ------- ------- -------
Fixed charges . . . . . . . 5,444 4,984 10,532 10,081
Add:
Preferred
distributions (1). . . . . 3,702 813 7,419 1,284
------- ------- ------- -------
Combined fixed charges
and preferred
distributions. . . . . . $ 9,146 $ 5,797 $17,951 $11,365
======= ======= ======= =======
Ratio of earnings to fixed
charges . . . . . . . . . . . . 2.04x 2.03x 2.18x 1.86x
Ratio of earnings to fixed
charges and preferred
distributions . . . . . . . . . 1.22x 1.74x 1.28x 1.65x
(1) Includes distributions on convertible equity securities and preferred
stock.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 5,818
<SECURITIES> 0
<RECEIVABLES> 953
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 744,958
<DEPRECIATION> 54,033
<TOTAL-ASSETS> 723,127
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
58
<COMMON> 177
<OTHER-SE> 417,306
<TOTAL-LIABILITY-AND-EQUITY> 723,127
<SALES> 0
<TOTAL-REVENUES> 67,192
<CGS> 0
<TOTAL-COSTS> 28,574
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,121
<INCOME-PRETAX> 12,420
<INCOME-TAX> 0
<INCOME-CONTINUING> 12,420
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,001
<EPS-PRIMARY> .29
<EPS-DILUTED> .28
</TABLE>
CONTRIBUTION AGREEMENT
This CONTRIBUTION AGREEMENT (this "Agreement") dated as of May
21, 1997, is entered into by and among WALDEN/DREVER OPERATING
PARTNERSHIP, L.P., a Delaware limited partnership ("WDOP"), WALDEN
RESIDENTIAL PROPERTIES, INC., a Maryland corporation ("Walden"),
the shareholders of Drever Partners, Inc., a California corporation
("Drever"), AOF, Inc., a California corporation ("AOF"), and AOF
II, Inc., a California corporation ("AOFII"), listed on Schedule
1.1 hereto (collectively, the "Shareholders," and each
individually, a "Shareholder") and each of the equity participants in
Drever, all of which participants are listed on Schedule 1.2
hereto (collectively, the "Equity Participants," and each individually,
an "Equity Participant").
Recitals
A. Drever is the general partner of each of the partnerships
listed on Schedule 1.3 hereto (collectively, the "Drever
Partnerships"), AOF is the general partner of AOF Newgen, L.P.
(the general partner of Apartment Opportunity Fund, L.P.) and AOFII is
the general partner of Apartment Opportunity Fund II, L.P. (the
Drever Partnerships, AOF Newgen, L.P., Apartment Opportunity
Fund, L.P. and Apartment Opportunity Fund II, L.P., are referred to
collectively herein as the "Partnerships").
B. Maxwell B. Drever, one of the Shareholders, has assigned
to each of the Equity Participants a percentage of his right to
receive dividends, distributions and profits otherwise payable to
him pursuant to his stock ownership of Drever, as more
particularly described on Schedule 1.2 hereto (the "Equity Rights").
C. Drever has assigned to each of the individuals listed on
Schedule 2.2(b) hereto (collectively, the "Assignees," and each
individually, an "Assignee") a percentage of its rights to
distributions and profits otherwise payable to it as general
partner of certain of the Partnerships, as more particularly
described on Schedule 2.2(b) hereto (the "General Partner
Rights").
D. Certain of the Equity Participants own shares of capital
stock in certain subsidiaries of Drever (the "Subsidiary Shares").
E. Concurrently with the execution and delivery of this
Agreement, Walden, WDOP, Drever, AOF and AOFII have entered into an
Exchange Agreement (the "Exchange Agreement") pursuant to which
WDOP has agreed to offer to exchange (the "Exchange Offer") cash
and units of beneficial ownership in WDOP for the limited partner
interests in the Partnerships.
F. Pursuant to the terms and conditions set forth herein,
the Shareholders, the Equity Participants and the Assignees desire
to contribute, transfer and assign to WDOP, and WDOP desires to
acquire from the Shareholders, the Equity Participants and the
Assignees all of the issued and outstanding shares of capital
stock of Drever, AOF and AOFII (together with the Subsidiary Shares,
the "Shares"), the Equity Rights and the General Partner Rights.
NOW, THEREFORE, in consideration of the foregoing, and of the
representations, warranties, covenants and agreements contained
herein, WDOP, Walden, each of the Shareholders, the Equity
Participants and the Assignees hereby agree as follows:
ARTICLE 1
Definitions
For purposes of this Agreement, the following terms have the
meanings specified or referred to in this Article 1:
Accounts Receivable: shall have the meaning set
forth in Section 3.12 hereof.
Accredited Investor: means an "accredited investor,"
as such term is defined in Rule 501 promulgated
under the Securities Act.
Acquired Companies: means Drever, AOF, AOFII, and
their respective Subsidiaries, collectively.
Acquired Company Material Adverse Effect: shall
have the meaning set forth in Section 3.1 hereof.
Agencies: means all governmental authorities,
agencies or bodies having jurisdiction with respect to
real property, including the construction, zoning and
operation of real property.
Applicable Contract: means any Contract (a) under
which any Acquired Company has or may acquire any rights,
(b) under which any Acquired Company has or may become
subject to any obligation or liability, or (c) by which
any Acquired Company or any of the assets owned or used
by it may become bound.
Assignees: shall have the meaning set forth in the
first paragraph of this Agreement.
Attributable Consideration: shall have the meaning
set forth in Section 2.4 hereof.
Breach: will be deemed to have occurred if there is
or has been (a) any inaccuracy in or breach of, or any
failure to perform or comply with, any representation,
warranty, covenant, obligation or other provision of this
Agreement or any instrument delivered pursuant to this
Agreement, or (b) any claim (by any Person) or other
occurrence or circumstance that is or was inconsistent
with such representation, warranty, covenant, obligation
or other provision, and the term "Breach" means any such
inaccuracy, breach, failure, claim, occurrence or
circumstance.
Closing: shall have the meaning set forth in
Section 2.5 hereof.
Closing Date: means the date and time as of which
the Closing actually takes place.
Code: means the Internal Revenue Code of 1986, as
amended, and the treasury regulations promulgated
thereunder.
Common Stock: means the common stock, par value
$.01 per share, of Walden.
Common Units: means common units of beneficial
interest in WDOP, which units are exchangeable for shares
of Common Stock in accordance with the terms of the WDOP
Partnership Agreement.
Contemplated Transactions: means all of the
transactions contemplated by this Agreement, including:
(a) the contribution of the Shares, the
Equity Rights and the General Partner Rights by the
Shareholders, the Equity Participants and the
Assignees to WDOP;
(b) the delivery of the Contribution
Consideration by WDOP to the Shareholders, the Equity
Participants and the Assignees, as contemplated by
Section 2.1 hereof;
(c) the execution, delivery and performance
of the Employment Agreements;
(d) the performance by WDOP, Walden, the
Shareholders, the Equity Participants and the
Assignees of their respective covenants and obliga-
tions under this Agreement; and
(e) WDOP's acquisition and ownership of the
Shares, the Equity Rights and the General Partner
Rights and exercise of control over the Acquired
Companies.
Contract: means any agreement, contract, obligation,
promise or undertaking (whether written or oral and
whether express or implied) that is legally binding.
Contribution Consideration: means, collectively,
the Share Consideration and the General Partner Interest
Consideration, which, when combined with the aggregate
amount of the Exchange Consideration (as defined in the
Exchange Agreement), shall not exceed the Maximum
Consideration.
Damages: shall have the meaning set forth in Section 8.1
hereof.
Drever: shall have the meaning set forth in the
first paragraph of this Agreement.
Drever Partnerships: shall have the meaning set
forth in the Recitals hereto.
Employment Agreements: shall have the meaning set
forth in Section 2.6(a)(iii) hereof.
Encumbrance: means any lien, security interest,
mortgage, charge or other encumbrance on title.
Equity Participant and Equity Participants: shall
have the meanings set forth in the first paragraph of
this Agreement.
Equity Rights: shall have the meaning set forth in
the Recitals of this Agreement.
ERISA: means the Employee Retirement Income
Security Act of 1974 or any successor law, and the
regulations and rules issued pursuant thereto or any
successor law.
Exchange Act: means the Securities Exchange Act of
1934, as amended.
Exchange Offer: shall have the meaning set forth in
the Recitals of this Agreement.
Facilities: means any real property, leaseholds or
other interests currently or formerly owned or operated
by any Acquired Company and any buildings, plants,
structures or equipment (including motor vehicles)
currently or formerly owned or operated by any Acquired
Company.
Financial Statements: shall have the meaning set
forth in Section 3.4 hereof.
GAAP: means generally accepted United States
accounting principles.
General Partner Interest Consideration: means that
portion of the Contribution Consideration allocable to
the General Partner Interests.
General Partner Interests: means the general
partner interests of each of Drever, AOF and AOFII in the
Partnerships.
General Partner Rights: shall have the meaning set
forth in the Recitals of this Agreement.
Holdback Consideration: shall have the meaning set
forth in Section 2.4 hereof.
Holdback Partnership: shall have the meaning set
forth in Section 2.4 hereof.
Indemnified Person: shall have the meaning set forth
in Section 8.1 hereof.
IRS: means the Internal Revenue Service.
Knowledge: means (i) in the case of Walden or WDOP,
the actual knowledge (without the necessity of
investigation) of Don R. Daseke, Chairman of the Board and Chief
Executive Officer of Walden, Marshall B. Edwards,
President and Chief Acquisitions Officer of Walden, or
Mark S. Dillinger, Chief Financial Officer of Walden, or
(ii) in the case of a Shareholder, the actual knowledge
(without the necessity of investigation) of such
Shareholder.
Legal Requirement: means any federal, state, local,
municipal, foreign, international, multinational, or
other administrative order, constitution, law, ordinance,
principle of common law, regulation, statute or treaty.
Material Interest: means direct or indirect
beneficial ownership (as defined in Rule 13d-3 under the
Exchange Act) of voting securities or other voting
interests representing at least 20% of the outstanding
voting power of a Person or equity securities or other
equity interests representing at least 20% of the
outstanding equity securities or equity interests in a
Person.
Maximum Consideration: means, in the aggregate,
10,322,580 Common Units; 2,000,000 Preferred Units; and
$85,000,000 in cash, except as adjusted to accommodate
fractional Units.
Net General Partner Interest Consideration: means
the General Partner Interest Consideration less the
amount paid to the Assignees for the contribution of
their General Partner Rights.
Order: means any award, decision, injunction,
judgment, order, ruling, subpoena or verdict entered,
issued, made or rendered by any court, administrative
agency or other governmental body or by any arbitrator.
Organizational Documents: means (a) the articles or
certificate of incorporation and the bylaws of a
corporation; (b) the partnership agreement and any statement of
partnership of a general partnership; (c) the limited
partnership agreement and the certificate of limited
partnership of a limited partnership; (d) any charter or
similar document adopted or filed in connection with the
creation, formation or organization of a Person; and
(e) any amendment to any of the foregoing.
Partnership Agreements: means the partnership
agreements of the Partnerships.
Person: means an individual, partnership, joint
venture, corporation, trust, unincorporated organization
or other legal entity.
Plan: shall have the meaning set forth in Section
3.13 hereof.
Pledge Agreement: shall have the meaning set forth
in Section 2.6(a)(iv) hereof.
Preferred Stock: shall have the meaning set forth
in Section 4.3 hereof.
Preferred Units: means preferred units of beneficial
interest in WDOP, which units are exchangeable for
shares of Redeemable Preferred Stock and Warrants in
accordance with the terms of the WDOP Partnership
Agreement.
Property Restrictions: means rights of way, written
agreements, laws, ordinances and regulations affecting
building use or occupancy or reservations of an interest
in title.
Proration Mechanism: shall have the meaning set forth
in Section 2.2 hereof.
Proxy Statement: shall have the meaning set forth
in Section 5.6 hereof.
Redeemable Preferred Stock: means the 9.00%
Redeemable Preferred Stock of Walden.
Regulatory Filings: means any filings required
under the Securities Laws or applicable state securities
or "Blue Sky" laws.
Related Person: means, with respect to a particular
individual:
(a) each other member of such individual's
Family;
(b) any Person that is directly or indirectly
controlled by such individual or one or more members of
such individual's Family;
(c) any Person in which such individual or
members of such individual's Family hold (individually
or in the aggregate) a Material Interest; and
(d) any Person with respect to which such
individual or one or more members of such individual's
Family serves as a director, officer, partner, executor or
trustee (or in a similar capacity).
With respect to a specified Person other than an
individual, means:
(i) any Person that directly or indirectly
controls, is directly or indirectly controlled by,
or is directly or indirectly under common control
with such specified Person;
(ii) any Person that holds a Material Interest
in such specified Person;
(iii) each Person that serves as a director,
officer, partner, executor or trustee of such
specified Person (or in a similar capacity);
(iv) any Person in which such specified Person
holds a Material Interest;
(v) any Person with respect to which such
specified Person serves as a general partner or a
trustee (or in a similar capacity); and
(vi) any Related Person of any individual
described in clause (b) or (c).
For purposes of this definition, the "Family" of an
individual includes (1) the individual, (2) the individual's
spouse and former spouses, (3) any other natural
person who is related to the individual or the individual's
spouse within the second degree, and (4) any other
natural person who resides with such individual.
SEC: means the Securities and Exchange Commission.
Securities Act: means the Securities Act of 1933 or
any successor law, and the regulations and rules issued
pursuant thereto or any successor law.
Securities Laws: means the Securities Act, the
Exchange Act and the rules and regulations promulgated
thereunder.
Share Consideration: means an amount of Units and
cash with a value equal to the sum of (a) $28,023,804,
(b) the Net General Partner Interest Consideration, and
(c) the value of each limited partner interest owned by
any of Drever, AOF or AOFII, determined in accordance
with the terms of the Exchange Agreement.
Shares: shall have the meaning set forth in the
Recitals of this Agreement.
Shareholder and Shareholders: shall have the
meanings set forth in the first paragraph of this
Agreement.
Stephenson Litigation: means the following matters:
Drever Partners, Inc. vs. Stephenson, et al., Superior
Court for the State of California, County of Mavin, Case
No. 962810 and Stephenson vs. Drever, et al., Superior
Court for the State of California, County of Marin, Case
No. 163952; Supreme Court of the State of California,
Case No. 5057635.
Subsidiary: means with respect to any Person (the
"Owner"), any corporation or other Person of which
securities or other interests having the power to elect
a majority of that corporation's or other Person's board
of directors or similar governing body, or otherwise
having the power to direct the business and policies of
that corporation or other Person (other than securities
or other interests having such power only upon the
happening of a contingency that has not occurred) are
held by the Owner or one or more of its Subsidiaries.
Tenant Leases: means the lease agreements relating
to the Partnership Properties.
Units: means the Common Units and the Preferred
Units.
Walden: shall have the meaning set forth in the
first paragraph of this Agreement.
Walden Material Adverse Effect: shall have the
meaning set forth in Section 4.1 hereof.
Walden Permitted Liens: shall have the meaning as
defined in Section 4.12 hereof.
Walden Properties: shall have the meaning set forth
in Section 4.12 hereof.
Walden Reports: shall have the meaning set forth in
Section 4.7 hereof.
Walden Stockholders: means the holders of Common
Stock.
Warrant Agreement: means the Warrant Agreement
between Walden and The First National Bank of Boston, as
Warrant Agent, in substantially the form of Exhibit C to
the Exchange Agreement.
Warrants: means warrants issued by Walden pursuant
to the Warrant Agreement.
WDOP: shall have the meaning set forth in the first
paragraph of this Agreement.
WDOP Material Adverse Effect: shall have the
meaning set forth in Section 4.1 hereof.
WDOP Partnership Agreement: means the amended and
restated partnership agreement of WDOP in substantially
the form of Exhibit D to the Exchange Agreement.
ARTICLE 2
Contribution and Transfer of Shares, Equity Rights and General
Partner Rights; Closing
1. Contribution of Shares, Equity Rights and General Partner
Rights. Subject to the terms and conditions of this Agreement, at
the Closing, the Shareholders, the Equity Participants and the
Assignees will contribute, transfer and assign the Shares, the
Equity Rights and the General Partner Rights, Charlene Geiss
shall deliver all of her shares of capital stock of Concierge Realty &
Finance Corporation (representing a 5% equity interest in such
entity) (the "CRF Shares") and Michael L. Collier shall deliver
all of his shares of capital stock of Concierge Management
Corporation (representing a 10% equity interest in such entity) (the "CMC
Shares") to WDOP, and WDOP will acquire the Shares, the Equity
Rights, the General Partner Rights, the CRF Shares and the CMC
Shares from the Shareholders, the Equity Participants and the
Assignees, respectively, in exchange for the delivery by WDOP to
each Shareholder, Equity Participant and Assignee of the
Contribution Consideration. Upon receipt of the Contribution
Consideration, each Equity Participant shall be deemed to have
waived all rights, whether or not written, to receive additional shares of
capital stock of any of the Acquired Companies.
2. Allocation of Contribution Consideration; Election
Procedures. The Share Consideration shall be allocated among the Shareholders
and the Equity Participants as set forth on Schedule 2.2(a)
hereto, and the General Partner Interest Consideration shall be allocated
among the Shareholders and the Assignees as set forth on
Schedule 2.2(b) hereto. Drever shall provide to WDOP, on or
prior to June 30, 1997, illustrative schedules designating the amounts
of the Share Consideration and the General Partner Interest
Consideration allocable to each Shareholder, Equity Participant
and Assignee that would be payable to each Shareholder, Equity
Participant and Assignee assuming the Closing occurs on October
15, 1997. Additionally, Drever shall provide to WDOP, on or prior to
June 30, 1997, a document setting forth a procedure (the
"Proration Mechanism") pursuant to which each Shareholder, Equity
Participant and Assignee shall be entitled to elect pursuant to a written
notice delivered to Walden the portion of such Person's Shares,
Equity Rights and General Partner Rights, as applicable, which
such Person desires to have exchanged for (a) Common Units, (b)
Preferred Units, and (c) cash and a procedure for allocating the
various types of Contribution Consideration among the
Shareholders, Equity Participants and Assignees, if the aggregate
amount of any type of consideration offered by WDOP pursuant to this
Agreement and the Exchange Agreement selected by the Shareholders, Equity
Participants and Assignees and the Interestholders (as defined in
the Exchange Agreement), exceeds the Maximum Consideration amount
of such type of consideration.
3. Fractional Units. No fractional Units shall be issued as
part of the Contribution Consideration. In lieu of a fractional
Unit, each Person contributing Shares, Equity Rights or General
Partner Rights pursuant to Section 2.1 hereof who would otherwise
have been entitled to receive a fraction of a Unit shall receive
cash (without interest) in an amount equal to the product of (i)
such fraction of a Unit and (ii) in the case of a Common Unit,
$23.25 and, in the case of a Preferred Unit, $27.50. The
aggregate amount of cash elected to be received by the Shareholders, Equity
Participants and Assignees may be increased by the Proration
Mechanism above the Maximum Consideration to be paid in cash in
order to provide for the payment of cash in lieu of fractional
Units, provided there is a corresponding reduction in the other
types of Contribution Consideration.
4. Holdback of Contribution Consideration. To the extent
any portion of the Contribution Consideration is calculated based
on a general partner interest in excess of 1% of the
distributions payable by a Partnership (the "Holdback Partnership")
and all the limited partners of the Holdback Partnership do not exchange
their partnership interests pursuant to the Exchange Agreement, the
General Partnership Interest Consideration payable to the
Shareholders and Assignees at Closing attributable to such
general partner interest (the "Attributable Consideration") shall be
reduced by an amount equal to the product of (a) the Attributable
Consideration multiplied by (b) the percentage of the Holdback
Partnership not owned by Walden, WDOP and/or any other subsidiary
immediately following the Closing and the closing of the Exchange
Offer (such amount of the Attributable Consideration is referred
to herein as the "Holdback Consideration"). At such time as Walden,
WDOP and/or any other Subsidiary acquires all of the partnership
interests of the Holdback Partnership or otherwise acquires 100%
ownership of the Partnership Properties owned by the Holdback
Partnership, WDOP shall issue to the Shareholders and Assignees,
on a pro rata basis, the Holdback Consideration.
5. Closing. The contribution, transfer and assignment of the
Shares (the "Closing") provided for in this Agreement will take
place at the offices of Winstead Sechrest & Minick P.C., located
at 1201 Elm Street, Suite 5400, Dallas, Texas 75270 as soon as
practicable following the Closing of the Exchange Offer, or at
such other time, date or place as WDOP and the Shareholders may agree.
Subject to the provisions of Article 7 hereof, failure to
consummate the contribution, transfer and assignment of the
Shares, the Equity Rights and the General Partner Rights on the date
and time and at the place determined pursuant to this Section 2.5 will not
result in the termination of this Agreement and will not relieve
any party of any obligation under this Agreement.
6. Closing Obligations. At the Closing:
(a) The Shareholders, Equity Participants and
Assignees will deliver to the WDOP:
(i) certificates representing the Shares;
(ii) assignment agreements transferring the Equity
Rights and the General Partner Rights;
(iii) employment agreements executed by
Maxwell B. Drever, Michael E. Masterson and Michael L. Collier,
containing the terms set forth in Schedule 2.6(a)(iii)
hereto and such other terms as the parties may agree
upon (collectively, the "Employment Agreements");
(iv) a pledge agreement in the form of
Exhibit 2.6(a)(iv) hereto executed by Maxwell B. Drever
(the "Pledge Agreement"); and
(v) a certificate executed by each Shareholder
representing and warranting to WDOP that each of such
Shareholder's representations and warranties set forth
in this Agreement was accurate in all respects as of the
date of this Agreement and is accurate in all respects
as of the Closing Date as if made on the Closing Date; and
(b) WDOP will deliver to the Shareholders, Equity
Participants and Assignees;
(i) certificates representing the Units to be
delivered by WDOP to the Shareholders, Equity
Participants and Assignees pursuant to Section 2.1 hereof;
(ii) cashier's checks representing the cash
portion of the Contribution Consideration allocated to each
such Person pursuant to the Election Mechanism;
(iii) the Employment Agreements, executed by
Walden; and
(iv) a certificate executed by an authorized
officer of Walden to the effect that, except as otherwise
stated in such certificate, each of Walden's and WDOP's
representations and warranties set forth in this Agreement was
accurate in all respects as of the date of this
Agreement and is accurate in all respects as of the Closing Date
as if made on the Closing Date.
7. Cash Reserves. At Closing, a cash reserve account shall be
established in an amount equal to the amount of liabilities set
forth on a projected balance sheet of Drever, as of October 1,
1997, attached hereto as Schedule 2.7 (the "Cash Reserve"), to
account for the payment of such liabilities. Drever's cash on
hand on the Closing Date shall be allocated to the Cash Reserve, and
if Drever shall have insufficient cash available to fund the Cash
Reserve the Share Consideration payable at Closing to the
Shareholder of Drever and the applicable Equity Participants
shall be reduced by the amount of such shortfall. The Shareholder of
Drever and the applicable Equity Participants shall be entitled to
receive, on the 120th day following the Closing Date, an amount
of cash from WDOP equal to the additional amount they would have
received if the balances in the Cash Reserve (after paying or
accruing for the liabilities set forth on such projected balance
sheet) were added to the Share Consideration. Additionally,
Shareholders and Assignees of a general partner of a Partnership,
as to which Partnership there is a balance in the cash reserve
(established pursuant to the terms of the Exchange Agreement)
shall be entitled to receive, on the 120th day following the closing of
the Exchange Offer, an amount of cash from WDOP equal to the
additional amount each of them would have received if such
balance were added to the General Partner Interest Consideration.
ARTICLE 3
Representations and Warranties of the Shareholders
The Shareholders hereby jointly and severally represent and
warrant to WDOP and Walden as follows:
1. Existence; Good Standing; Compliance with Law-Acquired
Companies. Schedule 3.1 hereto contains a complete and accurate
list for each Acquired Company of its name, its jurisdiction of
incorporation and the other jurisdictions in which it is
authorized to do business. Each Acquired Company is a corporation duly
organized, validly existing and in good standing under the laws
of its jurisdiction of incorporation. Each Acquired Company is duly
licensed or qualified to do business and is in good standing
under the laws of any state of the United States in which the character
of the properties owned or leased by it therein or in which the
transaction of its business makes such qualification necessary,
except where the failure to be so qualified would not have a
material adverse effect on the business, results of operations or
financial condition of such Acquired Company (an "Acquired
Company Material Adverse Effect"). Each Acquired Company has all
requisite corporate power and authority to own, operate, lease and encumber
its properties and carry on its business as now conducted.
None of the Acquired Companies is in violation of any order
of any court, governmental authority or arbitration board or
tribunal or any law, ordinance, governmental rule or regulation to which
any Acquired Company or any of its respective properties or assets is
subject, where such violation would have an Acquired Company
Material Adverse Effect. Each Acquired Company has obtained all
licenses, permits and other authorizations and has taken all
actions required by applicable law or governmental regulations in
connection with its business as now conducted, where the failure
to obtain any such item or to take any such action would have an
Acquired Company Material Adverse Effect. A copy of each
Acquired Company's Organizational Documents has been delivered or made
available to Walden and its counsel and was complete and correct
when delivered or made available and, as delivered or made
available, is in full force and effect as of the date hereof.
2. Authorization; Validity and Effect of Agreement. Each of
the Shareholders and, to the Knowledge of the Shareholders, each of
the Equity Participants and the Assignees has the requisite power and
authority to execute and deliver this Agreement and to consummate
the Contemplated Transactions. Assuming the due and valid
authorization, execution and delivery of this Agreement by Walden
and WDOP, this Agreement constitutes the valid and legally
binding obligation of each Shareholder, enforceable against each
Shareholder in accordance with its terms, subject to applicable
bankruptcy, insolvency, moratorium or other similar laws relating
to creditors' rights and general principles of equity.
3. No Violation. Neither the execution and delivery by the
Shareholders of this Agreement, nor the consummation by the
Shareholders of the transactions contemplated hereby in
accordance with the terms hereof, will: (a) except as set forth on
Schedule 3.3 hereto, conflict with or result in a breach of any
provisions of the Organizational Documents of any Acquired
Company; (b) violate, or conflict with, or result in a breach of any
provision of, or constitute a default (or an event which, with
notice or lapse of time or both, would constitute a default)
under, or result in the termination or in a right of termination or
cancellation of, or accelerate the performance required by, or
result in the creation of an Encumbrance upon any of the
properties or assets of any Acquired Company under, or result in being
declared void, voidable or without further binding effect, any of
the terms, conditions or provisions of any note, bond, mortgage,
indenture, deed of trust or any license, franchise, permit,
lease, contract, agreement or other instrument, commitment or obligation
to which any Acquired Company is a party, or by which any
Acquired Company or any of their respective properties or assets is bound
or affected, except for any of the foregoing matters which,
individually or in the aggregate, would not have an Acquired
Company Material Adverse Effect; or (c) require any consent, approval or
authorization of, or declaration, filing or registration with,
any domestic governmental or regulatory authority, except where the
failure to obtain any such consent, approval or authorization of,
or declaration, filing or registration with, any governmental or
regulatory authority would not have an Acquired Company Material
Adverse Effect.
4. Financial Statements. The Shareholders have delivered or
caused to be delivered to WDOP true, correct and complete copies
of: (a) the unaudited balance sheets, and the related statements
of income, shareholders' equity and cash flow in each of the
years in the three-year period ended December 31, 1996 for each of
Drever, AOF and AOFII (the balance sheets for the year ended
December 31, 1996 being hereinafter referred to as the "1996
Balance Sheets" and all of the financial statements set forth in
this Section 3.4 being hereinafter collectively referred to as
the "Financial Statements"). Such Financial Statements were prepared
from the books and records of the Acquired Companies in
accordance with procedures and policies consistently applied throughout the
periods involved. At the date hereof, there are no material
debts, liabilities or obligations of any Acquired Company, whether
absolute, accrued, matured, contingent or otherwise, and
contingent liabilities or losses for unasserted claims which are probable of
assertion, except for those (i) reflected or reserved against in
the 1996 Balance Sheets, (ii) otherwise set forth in Schedule 3.4
hereto, or (iii) incurred in the ordinary course of business
since the dates of the Balance Sheets.
5. Capitalization. The authorized capital stock of (i) Drever
consists of 5,000 shares of common stock, no par value per share,
of which 4,550 shares are issued and outstanding, (ii) AOF
consists of 10,000 shares of common stock, no par value per share, of
which 10,000 shares are issued and outstanding, and (iii) AOFII
consists of 10,000 shares of common stock, no par value per share, of
which 10,000 shares are issued and outstanding, which collectively
constitute all of the Shares. The Shareholders are and will be
on the Closing Date the record and beneficial owners and holders of
the Shares, free and clear of all Encumbrances. Schedule 1.1
hereto properly identifies the name and address of each
Shareholder and the number of Shares held by each Shareholder. Set forth on
Schedule 3.5 hereto is a statement with respect to each Acquired
Company (other than Drever, AOF and AOFII) setting forth the
authorized capital stock of each such entity, the number and type
of outstanding capital stock of such entity and the holder of
such outstanding stock. With the exception of the Shares (which are
owned by the Shareholders), the CRF Shares and the CMC Shares,
all of the outstanding equity securities and other securities of each
Acquired Company are owned of record and beneficially by one or
more of the Acquired Companies, free and clear of all
Encumbrances. No legend or other reference to any purported Encumbrance
appears upon any certificate representing capital stock of any Acquired
Company. All of the outstanding shares of capital stock of each
Acquired Company have been duly authorized and validly issued and
are fully paid and nonassessable. There are no Contracts
relating to the issuance, sale or transfer of any capital stock or other
securities of any Acquired Company. None of the outstanding
capital stock or other securities of any Acquired Company was
issued in violation of the Securities Act or any other Legal
Requirement. No Acquired Company owns, or has any Contract to
acquire, any equity securities or other securities of any Person
(other than Acquired Companies) or any direct or indirect equity
or ownership interest in any other business.
6. Litigation. Except for the Stephenson Litigation and as
disclosed on Schedule 3.6 hereto, there are (a) no continuing
orders, injunctions or decrees of any court, arbitrator or
governmental authority to which any Acquired Company is a party
or by which any of their respective properties or assets are bound,
and (b) no actions, suits or proceedings pending against any
Acquired Company or, to the Knowledge of any Shareholder,
threatened against any Acquired Company, at law or in equity, or
before or by any federal or state commission, board, bureau, agency or
instrumentality.
7. Absence of Certain Changes. Except as disclosed on
Schedule 3.7 hereto, since the date of the Interim Balance
Sheets, (a) each Acquired Company has conducted its business only in the
ordinary course of business; (b) to the Knowledge of the
Shareholders, there has not been any Acquired Company Material
Adverse Effect; (c) no Acquired Company has incurred any liabilities,
whether or not accrued, contingent or otherwise, or suffered any
events or occurrences that, individually or in the aggregate,
would reasonably be likely to have an Acquired Company Material Adverse
Effect; and (d) there has not been any material change in any
Acquired Company's accounting principles, practices or methods.
8. Taxes. Except as set forth on Schedule 3.8 hereto,
(a) Each Acquired Company (i) has timely filed all
federal, state and foreign tax returns including, without
limitation, information returns and reports required to be
filed by it for tax periods ended prior to the date of this
Agreement or requests for extensions have been timely filed
and any such request has been granted and has not expired
and all such returns are accurate and complete in all material
respects, (ii) has paid or accrued all taxes shown to be due
and payable on such returns or which have become due and
payable pursuant to any assessment, deficiency notice,
30-day letter or other notice received by it, and (iii) has
properly accrued all taxes for such periods and periods subsequent
to the periods covered by such returns. None of the Acquired
Companies has received any notice that the federal, state
and local income and franchise tax returns of any Acquired
Company have been or will be examined by any taxing authority. None
of the Acquired Companies has executed or filed with the IRS
or any other taxing authority any agreement now in effect
extending the period for assessment or collection of any
income or other taxes.
(b) None of the Acquired Companies is a party to any
pending action or proceeding by any governmental authority
for assessment or collection of taxes and no claim for
assessment or collection of taxes has been asserted against it.
9. Books and Records. The books of account, minute books,
stock record books and other records of the Acquired Companies that are
in the possession of the Acquired Companies or the Shareholders,
all of which have been made available to Walden, are, to the
Knowledge of the Shareholders, in all material respects true and
correct. To the knowledge of the Shareholders, the minute books
of the Acquired Companies contain in all material respects accurate
of all meetings held, and corporate action taken, by the
shareholders, the Boards of Directors and committees of the Boards of
Directors of the Acquired Companies, including all action taken by Drever,
AOF and AOFII as general partners of the Partnerships, and, to
the knowledge of the Shareholders, no meeting of any such
shareholders, Board of Directors or committee has been held for which
minutes have not been prepared and are not contained in such minute
books. At the Closing, all books and records will be in the possession
of the Acquired Companies.
10. No Brokers. Except the fee that is to be paid to Houlihan
Lokey Howard & Zukin, none of Drever, AOF, AOFII or any
Shareholder has entered into any Contract with any Person which may
result in the obligation of any Acquired Company, WDOP or Walden to pay any
finder's fees, brokerage or agent's commissions or other like
payments in connection with the negotiations leading to this
Agreement or the consummation of the transactions contemplated
hereby. Except for the fees to be paid to Houlihan Lokey Howard &
Zukin and Merrill Lynch & Co. Incorporated, to the Knowledge of
the Shareholders there are no claims for payment of any finder's
fees, brokerage or agent's commissions or other like payments in
connection with the negotiations leading to this Agreement or the
consummation of the transactions contemplated hereby.
11. Insurance. The insurance policies listed and described on
Schedule 3.11 hereto are currently in force, and all such
policies or their equivalent will be maintained in force until the Closing
Date.
12. Accounts Receivable. All accounts receivable of each
Acquired Company that are reflected in the Financial Statements
(collectively, the "Accounts Receivable") represent or will
represent valid obligations arising from sales actually made or services
actually performed in the ordinary course of business. Unless
paid prior to the Closing Date, the Accounts Receivable are or will be
as of the Closing Date current and collectible net of the
respective reserves shown in the Financial Statements or on the
accounting records of such Acquired Company as of the Closing
Date (which reserves are adequate and calculated consistent with past
practice). Subject to such reserves, each of the Accounts
Receivable either has been or will be collected in full, without any
set-off, within 90 days after the day on which it first becomes due and
payable. There is no contest, claim or right of set-off, other
than returns in the ordinary course of business, under any
contract with any obligor of an Accounts Receivable relating to the amount
or validity of such Accounts Receivable.
13. Employee Benefits.
(a) As used in this Section 3.13, the following terms
have the meanings set forth below:
"Company Other Benefit Obligation" means an Other
Benefit Obligation owed, adopted or followed by an
Acquired Company or an ERISA Affiliate.
"Company Plan" means all Plans of which an
Acquired Company or an ERISA Affiliate is or was a Plan Sponsor,
or to which an Acquired Company or an ERISA Affiliate
otherwise contributes or has contributed, or in which an
Acquired Company or an ERISA Affiliate otherwise
participates or has participated. All references to Plans are
to Company Plans unless the context requires otherwise.
"Company VEBA" means a VEBA whose members include
employees of any Acquired Company or any ERISA
Affiliate.
"ERISA Affiliate" means, with respect to an Acquired
Company, any other Person that would be treated as a
single employer under Section 414 of the Code.
"Multi-Employer Plan" has the meaning given in
Section 3(37)(A) of ERISA.
"Other Benefit Obligations" means all obligations,
arrangements or customary practices, whether or not
legally enforceable, to provide benefits, other than
salary, as compensation for services rendered, to present
or former directors, employees or agents, other than
obligations, arrangements and practices that are Plans.
Other Benefit Obligations include consulting agreements
under which the compensation paid does not depend upon
the amount of service rendered, sabbatical policies,
severance payment policies and fringe benefits within the
meaning of Section 132 of the Code.
"PBGC" means the Pension Benefit Guaranty
Corporation or any successor thereto.
"Pension Plan" has the meaning given in Section
3(2)(A) of ERISA.
"Plan" has the meaning given in Section 3(3) of
ERISA.
"Plan Sponsor" has the meaning given in Section
3(16)(B) of ERISA.
"Qualified Plan" means any Plan that meets or
purports to meet the requirements of Section 401(a) of
the Code.
"Title IV Plans" means all Pension Plans that are
subject to Title IV of ERISA, 29 U.S.C. Section 1301 et
seq., other than Multi-Employer Plans.
"VEBA" means a voluntary employees' beneficiary
association under Section 501(c)(9) of the Code.
"Welfare Plan" has the meaning given in Section 3(1)
of ERISA.
(b) Schedule 3.13 hereto contains a complete and
accurate list of all Company Plans, Company Other Benefit
Obligations and Company VEBAs, and identifies as such all
Company Plans that are (A) defined benefit Pension Plans,
(B) Qualified Plans, (C) Title IV Plans or (D) Multi-Employer
Plans.
(i) Schedule 3.13 hereto contains a complete and
accurate list of (A) all ERISA Affiliates and (B) all
Plans of which any such ERISA Affiliate is or was a Plan
Sponsor, in which any such ERISA Affiliate participates
or has participated, or to which any such ERISA Affiliate
contributes or has contributed.
(ii) Schedule 3.13 hereto sets forth, for each
Multi-Employer Plan, as of its last valuation date, the
amount of potential withdrawal liability of the Acquired
Companies and the other ERISA Affiliates, calculated
according to information made available pursuant to
Section 4221(e) of ERISA.
(iii) Schedule 3.13 hereto sets forth a
calculation of the liability of the Acquired Companies for
post-retirement benefits other than pensions, made in accordance
with Financial Accounting Statement 106 of the
Financial Accounting Standards Board, regardless of
whether any Acquired Company is required by such
Statement to disclose such information.
(iv) Schedule 3.13 hereto sets forth the financial
cost of all obligations owed under any Company Plan or
Company Other Benefit Obligation that is not subject to
the disclosure and reporting requirements of ERISA.
(c) The Shareholders have delivered or caused to be
delivered to WDOP, or will deliver, or will cause to be
delivered, to WDOP within ten days of the date of this
Agreement:
(i) all documents that set forth the terms of each
Company Plan, Company Other Benefit Obligation or Company
VEBA and of any related trust, including (A) all plan
descriptions and summary plan descriptions of Company
Plans for which the Shareholders, the Acquired Companies
are required to prepare, file and distribute plan
descriptions and summary plan descriptions, and (B) all
summaries and descriptions furnished to participants and
beneficiaries regarding Company Plans, Company Other
Benefit Obligations and Company VEBAs for which a plan
description or summary plan description is not required;
(ii) all personnel, payroll and employment manuals
and policies;
(iii) all collective bargaining agreements
pursuant to which contributions have been made or
obligations incurred (including both pension and welfare
benefits) by the Acquired Companies and the ERISA
Affiliates, and all collective bargaining agreements
pursuant to which contributions are being made or
obligations are owed by such entities;
(iv) a written description of any Company Plan or
Company Other Benefit Obligation that is not otherwise in
writing;
(v) all registration statements filed with respect
to any Company Plan;
(vi) all insurance policies purchased by or to
provide benefits under any Company Plan;
(vii) all contracts with third party
administrators, actuaries, investment managers, consultants and
other independent contractors that relate to any Company
Plan, Company Other Benefit Obligation or Company VEBA;
(viii) all reports submitted within the four
years preceding the date of this Agreement by third party
administrators, actuaries, investment managers,
consultants or other independent contractors with respect to
any Company Plan, Company Other Benefit Obligation or
Company VEBA;
(ix) all notifications to employees of their rights
under Section 601 of ERISA et seq. and Section 4980B of
the Code;
(x) the Form 5500 filed in each of the most recent
three plan years with respect to each Company Plan,
including all schedules thereto and the opinions of
independent accountants;
(xi) all notices that were given by any Acquired
Company, any ERISA Affiliate or any Company Plan to the
IRS, the PBGC or any participant or beneficiary, pursuant
to statute, within the four years preceding the date of
this Agreement, including notices that are expressly
mentioned elsewhere in this Section 3.13;
(xii) all notices that were given by the IRS,
the PBGC or the Department of Labor to any Acquired
Company, any ERISA Affiliate or any Company Plan within
the four years preceding the date of this Agreement;
(xiii) with respect to Qualified Plans and VEBAs,
the most recent determination letter for each Plan of the
Acquired Companies that is a Qualified Plan; and
(xiv) with respect to Title IV Plans, the Form
PBGC-1 filed for each of the three most recent plan
years.
(d) Except as set forth on Schedule 3.13 hereto:
(i) The Acquired Companies have performed all of
their respective obligations under all Company Plans,
Company Other Benefit Obligations and Company VEBAs. The
Acquired Companies have made appropriate entries in their
financial records and statements for all obligations and
liabilities under such Plans, VEBAs and Obligations that
have accrued but are not due.
(ii) To the Knowledge of the Shareholders, no
statement, either written or oral, has been made by any
Acquired Company or any Partnership to any Person with
regard to any Plan or Other Benefit Obligation that was
not in accordance with the Plan or Other Benefit
Obligation and that could have an adverse economic consequence
to any Acquired Company, any Partnership or to WDOP.
(iii) The Acquired Companies, with respect to
all Company Plans, Company Other Benefits Obligations and
Company VEBAs, are, and each Company Plan, Company Other
Benefit Obligation and Company VEBA is, in full
compliance with ERISA, the IRC and other applicable laws
including the provisions of such laws expressly mentioned
in this Section 3.13, and with any applicable collective
bargaining agreement.
Except for matters disclosed in an
audited annual financial statement for a Company
Plan, no transaction prohibited by Section 406 of
ERISA and no "prohibited transaction" under Section
4975(c) of the Code have occurred with respect to
any Company Plan.
No Shareholder or Acquired Company has
any liability to the IRS with respect to any Plan,
including any liability imposed by Chapter 43 of
the Code.
No Shareholder or Acquired Company has
any liability to the PBGC with respect to any Plan
or has any liability under Section 502 or
Section 4071 of ERISA.
To the Knowledge of the Shareholders, all
filings required by ERISA and the Code as to each
Plan have been timely filed, and all notices and
disclosures to participants required by either
ERISA or the Code have been timely provided.
All contributions and payments made or
accrued with respect to all Company Plans, Company
Other Benefit Obligations and Company VEBAs are
deductible under Section 162 or Section 404 of the
Code. No amount, or any asset of any Company Plan
or Company VEBA, is subject to tax as unrelated
business taxable income.
(iv) Each Company Plan can be terminated within
thirty (30) days, and except with respect to any
Qualified Plan and except for contributions that may be
necessary for welfare benefit claims that are incurred
prior to plan termination, each Company Plan can be
terminated without payment of any additional contribution
or amount and without the vesting or acceleration of any
benefits promised by such Plan.
(v) Since October 1, 1996, there has been no
establishment or amendment of any Company Plan, Company
VEBA or Company Other Benefit Obligation.
(vi) No event has occurred or circumstance exists
that could result in a material increase in premium costs
of Company Plans and Company Other Benefit Obligations
that are insured, or a material increase in benefit costs
of such Plans and Obligations that are self-insured.
(vii) Other than claims for benefits submitted
by participants or beneficiaries, no claim against, or
legal proceeding involving, any Company Plan, Company
Other Benefit Obligation or Company VEBA is pending or,
to any Shareholder's Knowledge, is Threatened.
(viii) Except for the Drever Partners, Inc.
401(k) Plan, no Company Plan is a stock bonus, pension or
profit-sharing plan within the meaning of Section 401(a)
of the Code.
(ix) Each Qualified Plan of each Acquired Company is
qualified in form and operation under Section 401(a) of
the Code; each trust for each such Plan is exempt from
federal income tax under Section 501(a) of the Code.
Each Company VEBA is exempt from federal income tax. No
event has occurred or circumstance exists that will or
could give rise to disqualification or loss of tax-exempt
status of any such Plan or trust.
(x) Neither Drever nor any ERISA Affiliate has ever
maintained a "defined benefit plan" within the meaning of
Section 3(35) of ERISA.
(xi) No Acquired Company or ERISA Affiliate has ever
established, maintained or contributed to or otherwise
participated in, or had an obligation to maintain,
contribute to or otherwise participate in, any
Multi-Employer Plan.
(xii) No Acquired Company or ERISA Affiliate has
withdrawn from any Multi-Employer Plan with respect to
which there is any outstanding liability as of the date
of this Agreement. No event has occurred or circumstance
exists that presents a risk of the occurrence of any
withdrawal from, or the participation, termination,
reorganization or insolvency of, any Multi-Employer Plan
that could result in any liability of any Acquired
Company, Walden or WDOP to a Multi-Employer Plan.
(xiii) No Acquired Company or ERISA Affiliate has
received notice from any Multi-Employer Plan that it is
in reorganization or is insolvent, that increased
contributions may be required to avoid a reduction in
plan benefits or the imposition of any excise tax, or
that such Plan intends to terminate or has terminated.
(xiv) No Multi-Employer Plan to which any
Acquired Company or ERISA Affiliate contributes or has
contributed is a party to any pending merger or asset or
liability transfer or is subject to any proceeding
brought by the PBGC.
(xv) Except to the extent required under Section 601
of ERISA et seq. of ERISA and Section 4980B of the Code,
no Acquired Company provides health or welfare benefits
for any retired or former employee or is obligated to
provide health or welfare benefits to any active employee
following such employee's retirement or other termination
of service.
(xvi) Each Acquired Company has the right to
modify and terminate benefits to retirees (other than
pensions) with respect to both retired and active
employees.
(xvii) To the Knowledge of the Shareholders, the
Shareholders and all Acquired Companies have complied
with the provisions of Section 601 of ERISA et seq. of
ERISA and Section 4980B of the Code.
(xviii) No payment that is owed or may become due
to any director, officer, partner, employee or agent of
any Acquired Company will be non-deductible to the
Acquired Companies or subject to tax under Section 280G
or Section 4999 of the Code; nor will any Acquired
Company be required to "gross up" or otherwise compensate
any such Person because of the imposition of any excise
tax on a payment to such Person.
(xix) The consummation of the Contemplated
Transactions will not result in the payment, vesting or
acceleration of any benefit.
14. Contracts. Except as set forth on Schedule 3.14 hereto, no
Shareholder (and no Related Person of any Shareholder) has or may
acquire any rights under, and no Shareholder has or may become
subject to any obligation or liability under, any Contract that
relates to the business of, or any of the assets owned or used by,
any Acquired Company or Partnership.
15. Employees.
(a) Schedule 3.15 hereto contains a complete and
accurate list of the following information for each employee
of the Acquired Companies, including each employee on leave of
absence or layoff status: employer; name; job title; current
compensation paid or payable and any change in compensation
since December 31, 1996.
(b) Schedule 3.15 hereto contains a complete and
accurate list of the following information for each retired
employee of the Acquired Companies, or their dependents,
receiving benefits or scheduled to receive benefits in the
future: name, pension benefit, pension option election,
retiree medical insurance coverage, retiree life insurance
coverage and other benefits.
16. Labor Relations; Compliance. Since January 1, 1994, no
Acquired Company has been or is a party to any collective
bargaining or other labor Contract.
17. Relationships with Related Persons. Except as set forth on
Schedule 3.17 hereto, no Shareholder or any Related Person of any
Shareholder or any Acquired Company has, or since December 31, 1996
has had, any interest in any property (whether real, personal or
mixed and whether tangible or intangible), used in or pertaining to
the Acquired Companies' or the Partnerships' businesses. Except as
set forth in on Schedule 3.17 hereto, no Shareholder or any Related
Person of any Shareholder, any Acquired Company or any Partnership
is a party to any Contract with, or has any claim or right against,
any Acquired Company or Partnership.
18. Investment Intent. Each Shareholder is acquiring the Units
for its own account and for investment only and not with a view
toward, or for sale in connection with, any distribution thereof,
nor with any present intention of distributing or selling the Units
within the meaning of the Securities Act.
ARTICLE 4
Representations and Warranties of
WDOP and Walden
WDOP and Walden hereby represent and warrant to the
Shareholders as follows:
1. Existence; Good Standing; Authority Compliance with Law.
Walden is a corporation duly organized, incorporated, validly
existing and in good standing under the laws of the State of
Maryland. Walden is duly licensed or qualified to do business and
is in good standing under the laws of each state of the United
States in which the character of the properties owned or leased by
it therein or in which the transaction of its business makes such
qualification necessary, except where the failure to be so
qualified would not have a material adverse effect on the business,
results of operations or financial condition of Walden and its
Subsidiaries taken as a whole (a "Walden Material Adverse Effect").
Walden has all requisite power and authority to own, operate, lease
and encumber its properties and carry on its business as now
conducted. WDOP is a partnership duly organized, validly existing
and in good standing under the laws of the State of Delaware, has
the requisite partnership power and authority to own its properties
and to carry on its business as it is now being conducted and as
contemplated by this Agreement and is duly qualified to do business
and is in good standing in each jurisdiction in which the ownership
of its property or the conduct of its business requires such
qualification, except for jurisdictions in which such failure to be
so qualified or to be in good standing would not have a Walden
Material Adverse Effect.
Neither Walden nor any of its Subsidiaries is in violation of
any order of any court, governmental body or arbitration board or
tribunal, or any law, ordinance, governmental rule or regulation to
which Walden or any of its Subsidiaries or any of their respective
properties or assets is subject, where such violation would have a
Walden Material Adverse Effect. Walden and its Subsidiaries have
obtained all licenses, permits and other authorizations and have
taken all actions required by applicable law or governmental
regulations in connection with their business as now conducted,
where the failure to obtain any such item or to take any such
action would have a Walden Material Adverse Effect. Copies of the
Organizational Documents of Walden and WDOP have been delivered or
made available to Drever and its counsel, are complete and correct
and are in full force and effect as of the date hereof.
2. Authorization, Validity and Effect of Agreements. Walden and
WDOP have the requisite corporate and partnership power and
authority, respectively, to execute and deliver this Agreement and
to consummate the Contemplated Transactions. Subject to the
approval of the issuance of the shares of Common Stock to be issued
by Walden upon exchange of the Common Units and upon the exercise
of the Warrants by the Walden Stockholders, the consummation by
each of Walden and WDOP of this Agreement and the Contemplated
Transactions have been duly authorized by all requisite corporate
and partnership action on the part of Walden and WDOP,
respectively. Assuming the due and valid authorization, execution and
delivery of this Agreement by the Shareholders, the Equity
Participants and the Assignees, this Agreement constitutes the
valid and legally binding obligation of each of Walden and WDOP,
enforceable against them in accordance with its terms, subject to
applicable bankruptcy, insolvency, moratorium or other similar laws
relating to creditors' rights and general principles of equity.
3. Capitalization. The authorized capital stock of Walden
consists of 50,000,000 shares of Common Stock and 10,000,000 shares
of preferred stock, par value $.01 per share (the "Preferred
Stock"). As of March 31, 1997, there were 17,388,208 shares of
Common Stock issued and outstanding and 5,768,200 shares of
Preferred Stock, constituting the series designated as (a) the
9.16% Series A Cumulative Redeemable Preferred Stock, (b) the 9.16%
Series B Cumulative Redeemable Preferred Stock, and (c) the 9.20%
Senior Preferred Stock issued and outstanding. In addition, there
are 810,128 limited partnership interests issued and outstanding in
Walden Residential Operating L.P., a Subsidiary of Walden ("Walden
Operating"). Except as described above, Walden has no outstanding
bonds, debentures, notes or other obligations the holders of which
have the right to vote (or which are convertible into or
exercisable for securities having the right to vote) with the Walden
Stockholders on any matter. All such issued and outstanding shares
of Common Stock are duly authorized, validly issued, fully paid,
nonassessable and free of preemptive rights. There are not at the
date of this Agreement any existing options, warrants, calls,
subscriptions, convertible securities or other rights, agreements
or commitments which obligate Walden or any of its Subsidiaries to
issue, transfer or sell any shares of stock or other equity
interest of Walden or any of its Subsidiaries, other than the
issuance, by Walden up to 1,644,500 shares of Common Stock upon the
exercise of stock options issued to employees and directors. There
are no agreements or understandings to which Walden is a party with
respect to the voting of any shares of Common Stock or which
restrict the transfer of any such shares, except in order to
protect its REIT status.
4. Partnership Interests. Walden is the sole general partner and
WDN Properties, Inc., a wholly-owned subsidiary of Walden, is the
sole limited partner, of WDOP. All of the interests issued to such
entities by WDOP have been duly authorized and are validly issued,
fully paid and nonassessable. Other than this Agreement and the
Exchange Agreement, there are no outstanding or authorized options,
rights, warrants, calls, convertible securities, rights to
subscribe, conversion rights or other agreements or commitments to
which WDOP is a party or which are binding on WDOP providing for
the issuance or transfer by WDOP of additional interests.
5. Subsidiaries. Except as in the next sentence provided, Walden
owns directly or indirectly each of the outstanding shares of
capital stock or all of the partnership or other equity interests
of each of its Subsidiaries free and clear of all liens, pledges,
security interests, claims or other encumbrances other than liens
imposed by local law which are not material. There are currently
outstanding 810,128 limited partnership interests in Walden
Operating owned by persons other than Walden and its
Subsidiaries. Each of the outstanding shares of capital stock of or other
equity interest in each of the Subsidiaries is duly authorized, validly
issued, fully paid and nonassessable.
6. Other Interests. Except for interests in its Subsidiaries,
neither Walden nor any of Walden Subsidiary owns directly or
indirectly any interest or investment (whether equity or debt) in
any corporation, partnership, joint venture, business, trust or
entity (other than investments in short-term investment
securities).
7. No Violation. Neither the execution and delivery by Walden
and WDOP of this Agreement nor the consummation by Walden and WDOP
of the transactions contemplated hereby in accordance with the
terms hereof, will: (a) conflict with or result in a breach of any
provisions of the Organizational Documents of Walden or WDOP;
(b) result in a breach or violation of, a default under, or the
triggering of any payment or other material obligations pursuant
to, or accelerate vesting under, any of Walden's stock option
plans, or any grant or award made under any of the foregoing;
(c) violate, or conflict with, or result in a breach of any
provision of, or constitute a default (or an event which, with
notice or lapse of time or both, would constitute a default) under,
or result in the termination or in a right of termination or
cancellation of, or accelerate the performance required by, or
result in the creation of any Encumbrance upon any of the
properties of Walden or its Subsidiaries under, or result in being
declared void, voidable or without further binding effect, any of
the terms, conditions or provisions of any note, bond, mortgage,
indenture, deed of trust or any license, franchise, permit, lease,
contract, agreement or other instrument, commitment or obligation
to which Walden or any of its Subsidiaries is a party, or by which
Walden or any of its Subsidiaries or any of their properties is
bound or affected, except for any of the foregoing matters which,
individually or in the aggregate, would not have a Walden Material
Adverse Effect; or (d) other than the Regulatory Filings require
any consent, approval or authorization of, or declaration, filing
or registration with, any domestic governmental or regulatory
authority, except where the failure to obtain such consent,
approval or authorization of, or declaration, filing or
registration with, any governmental or regulatory authority would not have
a Walden Material Adverse Effect.
8. SEC Documents. Walden has delivered or made available to the
Shareholders its Annual Report on Form 10-K for the fiscal year
ended December 31, 1996 and its proxy statement relating to the
annual meeting of the Walden Stockholders to be held on June 5,
1997, each in the form (including exhibits and any amendments
thereto) filed with the SEC (collectively, the "1996 Fiscal Year
Reports"). The 1996 Fiscal Year Reports, together with all other
registration statements, prospectuses, Forms 8-K, 10-Q and 10-K,
information statements, schedules and proxy statements filed by
Walden with the SEC since January 1, 1994, each of which is listed
on Schedule 4.8 hereto (collectively, the "Walden Reports"), were
filed with the SEC in a timely manner and constitute all forms,
reports and documents required to be filed by Walden under the
Securities Laws.
As of their respective dates, the Walden Reports (a) complied
as to form in all material respects with the applicable
requirements of the Securities Laws and (b) did not contain any untrue
statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
made therein, in the light of the circumstances under which they
were made, not misleading. Each of the consolidated balance sheets
of Walden included in or incorporated by reference into the Walden
Reports (including the related notes and schedules) fairly presents
the consolidated financial position of Walden and its Subsidiaries
as of its date and each of the consolidated statements of income,
retained earnings and cash flows of Walden included in or
incorporated by reference into the Walden Reports (including any related
notes and schedules) fairly presents the consolidated results of
operations, retained earnings or cash flows, as the case may be, of
Walden and its Subsidiaries for the periods set forth therein
(subject, in the case of unaudited statements, to normal year-end
audit adjustments which would not be material in amount or effect),
in each case in accordance with GAAP, consistently applied during
the periods involved, except as may be noted therein and except, in
the case of the unaudited statements, as permitted by the
Securities Laws.
Except as and to the extent set forth on the consolidated
balance sheet of Walden and its Subsidiaries at December 31, 1996,
including all notes thereto, or as set forth in the Walden Reports,
neither Walden nor any of its Subsidiaries has any material
liabilities or obligations of any nature, whether absolute,
accrued, matured, contingent or otherwise, including, without
limitation, any contingent liabilities or losses for unasserted
claims which are probable of assertion, except for those (i)
reflected on an interim balance sheet filed with the SEC subsequent
to such date, (ii) otherwise disclosed on Schedule 4.8 hereto,
(iii) incurred in the ordinary course of business, and (iv)
liabilities related to the acquisition by Walden of six properties
on April 21, 1997.
9. Litigation. Except as disclosed on Schedule 4.9 hereto, there
are (a) no continuing orders, injunctions or decrees of any court,
arbitrator or governmental authority to which Walden or any of its
Subsidiaries is a party or by which any of its properties or assets
are bound, and (b) no actions, suits or proceedings pending against
Walden or any of its Subsidiaries or, to the Knowledge of Walden,
threatened against Walden or any of its Subsidiaries, at law or in
equity, or before or by any federal or state commission, board,
bureau, agency or instrumentality.
10. Absence of Certain Changes. Except and as to the extent
disclosed in the Walden Reports filed with the SEC as of the date
hereof, (a) Walden and its Subsidiaries have conducted their
businesses only in the ordinary course of such business (which, for
purposes of this Section 4.10 only, shall include all acquisitions
of real estate properties and financing arrangements made in
connection therewith); (b) to the Knowledge of Walden, there has
not been any Walden Material Adverse Effect; (c) as of the date
hereof, there has not been any declaration, setting aside or
payment of any dividend or other distribution with respect to the
Common Stock; (d) Walden and its Subsidiaries have not incurred any
liabilities or obligations of any nature, whether or not accrued,
contingent or otherwise or suffered any events or occurrences that
would be required by GAAP to be reflected on a consolidated balance
sheet of Walden or that, individually or in the aggregate, would
reasonably be likely to have a Walden Material Adverse Effect; and
(e) there has not been any material change in Walden's accounting
principles, practices or methods.
11. Taxes. Except as set forth on Schedule 4.11 hereto,
Walden and each of the Subsidiaries (a) has timely filed all
federal, state and foreign tax returns including, without
limitation, information returns and reports required to be filed by any
of them for tax periods ended prior to the date of this Agreement
or requests for extensions have been timely filed and any such
request has been granted and has not expired and all such returns
are accurate and complete in all material respects, (b) has paid or
accrued all taxes shown to be due and payable on such returns or
which have become due and payable pursuant to any assessment,
deficiency notice, 30-day letter or other notice received by it,
and (c) has properly accrued all taxes for such periods subsequent
to the periods covered by such returns. Neither Walden nor any of
the Subsidiaries has received any notice that the federal, state
and local income and franchise tax returns of Walden or any such
Subsidiary have been or will be examined by any taxing authority.
Neither Walden nor any of the Subsidiaries has executed or filed
with the IRS or any other taxing authority any agreement now in
effect extending the period for assessment or collection of any
income or other taxes.
Except as disclosed on Schedule 4.11 hereto, neither Walden
nor any of its Subsidiaries is a party to any pending action or
proceeding by any governmental authority for assessment or
collection of taxes, and no claim for assessment or collection of
taxes has been asserted against it. Walden (i) has qualified to be
taxed as a real estate investment trust ("REIT") pursuant to
Sections 856 through 859 of the Code for its taxable years ended
December 31, 1994 through 1996, inclusive (ii) has operated, and
intends to continue to operate, in such a manner as to qualify to
be taxed as a REIT pursuant to Sections 856 through 859 of the Code
for its taxable year ending on December 31, 1997, and (iii) has not
taken or omitted to take any action which could result in, a
challenge to its status as a REIT. For purposes of this
Section 4.11, "taxes" includes any interest, penalty or
additional amount payable with respect to any tax.
12. Books and Records.
(a) The books of account and other financial records of
Walden and its Subsidiaries, all reports (including, without
limitation, soil tests and construction inspection reports),
Tenant Leases and other documents related to the construction,
ownership, management and operation of their properties and
assets that are in the possession and control of Walden, all
of which have been made available to Drever are, to the
Knowledge of Walden, in all material respects true and
correct.
(b) The records of Walden contain in all material
respects accurate records of all meetings and accurately
reflect in all material respects all other corporate action of
the Walden Stockholders and directors and any committees of
the Board of Directors of Walden with respect to Walden.
13. Properties. Walden and its Subsidiaries own fee simple
title or leasehold estates to each of the real properties reflected
on the most recent balance sheet of Walden included in the Walden
Reports (the "Walden Properties"), which are all of the real estate
properties owned by them, and no Person has any contract, option,
right of first refusal or other agreement to purchase any Walden
Property or any part thereof. Each of the Walden Properties is
owned by Walden or its Subsidiaries free and clear of Encumbrances,
or any claim in favor of any Person that could become an
Encumbrance, and Property Restrictions, except for (a) Encumbrances and
Property Restrictions that are disclosed on Schedule 4.13 hereto,
(b) Encumbrances and Property Restrictions that would not be
reasonably likely, individually or in the aggregate, to have a
Walden Material Adverse Effect, (c) Property Restrictions imposed
or promulgated by law or any Agency, including zoning regulations,
(d) Encumbrances and Property Restrictions disclosed on existing
title reports, title policies or surveys, (e) to the knowledge of
Walden, mechanics', carriers', workmen's, repairmen's liens and
other Encumbrances, Property Restrictions and other limitations of
any kind, if any, which have heretofore been bonded or which
individually or in the aggregate, do not exceed $100,000, do not
materially detract from the value of or materially interfere with
the present use of any of the Walden Properties subject thereto or
affected thereby and do not otherwise materially impair business
operations conducted by Walden and its Subsidiaries, and (f) taxes
that are not yet delinquent (such Encumbrances, Property
Restrictions, liens, limitations and taxes set forth in clauses (a)
through (e) and the clause (f), collectively, the "Walden Permitted
Liens").
Valid policies of title insurance have been issued insuring
Walden's or any of its Subsidiaries' fee simple title to, or
leasehold estate in the Walden Properties, subject only to the
matters disclosed above and as disclosed on Schedule 4.12 hereto,
and such policies are, at the date hereof, in full force and effect
and no material claim has been made against any such policy.
Except as disclosed on Schedule 4.13 hereto or as otherwise set
forth in Walden's 1997 capital expenditure budget, (i) there is no
certificate, permit or license from any governmental authority
having jurisdiction over any of the Walden Properties and there is
no agreement, easement or other right which is necessary to permit
the lawful use and operation of the buildings and improvements on
any of the Walden Properties or which is necessary to permit the
lawful use and operation of all driveways, roads and other means of
egress and ingress to and from any of the Walden Properties that
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
where the failure to obtain the same would not be reasonably likely
to have a Walden Material Adverse Effect; (ii) neither Walden nor
any of its Subsidiaries has received written notice of any
violation of any federal, state or municipal law, ordinance, order,
regulation or requirement affecting any portion of any of the
Walden Properties issued by any governmental authority; (iii) there
are no structural defects relating to the Walden Properties and no
Walden Properties whose building systems are not in working order
in any respect, except for such defects that, individually or in
the aggregate, would not be reasonably likely to have a Walden
Material Adverse Effect; and (iv) there is (A) no physical damage
to any Walden Property in excess of $250,000 for which there is no
insurance in effect covering the cost of the restoration, (B) no
current renovation to any Walden Property the cost of which exceeds
$250,000, and (C) no current restoration of any Walden Property the
cost of which exceeds $250,000.
Except as disclosed on Schedule 4.13 hereto, Walden or its
Subsidiaries have received no notice to the effect that and there
are no (x) condemnation or rezoning proceedings that are pending
or, to the Knowledge of Walden, threatened with respect to any of
the Walden Properties that would be reasonably likely to have a
Walden Material Adverse Effect or (y) any zoning, building or
similar laws, codes, ordinances, orders or regulations that are or
will be violated by the continued maintenance, operation or use of
any buildings or other improvements on any of the Walden Properties
or by the continued maintenance, operation or use of the parking
areas where such violation would be reasonably likely to have a
Walden Material Adverse Effect. To the Knowledge of Walden, all
work to be performed, payments to be made and actions to be taken
by Walden or its Subsidiaries prior to the date hereof pursuant to
any agreement entered into with an Agency in connection with a site
approval, zoning reclassification or other similar action relating
to the Walden Properties (e.g., Local Improvement District, Road
Improvement District, Environmental Mitigation) has been performed,
paid or taken, as the case may be, and Walden is not aware of any
planned or proposed work, payments or actions that may be required
after the date hereof pursuant to such agreements.
14. Compliance with Applicable Regulations.
(a) Except as disclosed on Schedule 4.14 hereto, all
Walden Properties and the operation thereof (including the
handling of tenant security and other deposits) currently are
in substantial compliance with the requirements of all
Agencies having jurisdiction over Walden, its Subsidiaries and
the Walden Properties, except where the failure to so comply
would not be reasonably likely to have a Walden Material
Adverse Effect; and to Walden's Knowledge, there are no
material commitments or agreements with any of the Agencies
affecting the Walden Properties which have not been fully
disclosed to the Shareholders in writing.
(b) Except as disclosed on Schedule 4.14 hereto, neither
Walden nor any of its Subsidiaries has received any written
notice of uncured violations at any of the Walden Properties
of zoning, building, fire, rent control, tenant security or
other deposits or any other applicable statute, ordinance or
regulation, relating to any of the Walden Properties, its
construction, or any occupancy thereof except for violations
that, individually or in the aggregate, would not be reasonably
likely to have a Walden Material Adverse Effect, nor are
there presently pending against Walden, any of its
Subsidiaries or against any of the Walden Properties any judgments
relating to any of the above matters, any judicial proceedings
or administrative actions or any state of facts which, to
Walden's Knowledge, with notice or lapse of time, could
reasonably be expected to give rise to any such proceedings or
action, in either case that could be reasonably likely to have
a Walden Material Adverse Effect.
(c) Except as disclosed on Schedule 4.14 hereto and
except as would not be reasonably likely to have a Walden
Material Adverse Effect, neither Walden nor any of its
Subsidiaries has received any written notice that any of the
Walden Properties is currently subject to (i) any existing,
pending or, to the Knowledge of Walden, threatened
investigation or inquiry by any governmental authority or (ii) any
remedial obligations, under any Applicable Environmental Laws;
and Walden nor any of its Subsidiaries has obtained any
permits, licenses or similar authorizations to occupy,
renovate, operate or use any portion of any of the Walden
Properties by reason of any Applicable Environmental Laws.
(d) Except as disclosed on Schedule 4.14 hereto and
except as would not be reasonably likely to have a Walden
Material Adverse Effect, to the Knowledge of Walden, no
Hazardous Materials are located on or about any of the Walden
Properties. To the Knowledge of Walden, and except as would
not be reasonably likely to have a Walden Material Adverse
Effect, no Walden Property contains any underground tanks for
the storage or disposal of Hazardous Materials. Further, to
the Knowledge of Walden, and except as would not be reasonably
likely to have a Walden Material Adverse Effect, (i) no Walden
Property previously has been used for the storage, manufacture
or disposal of Hazardous Materials, (ii) no written complaint,
Order, citation or notice with regard to air emissions, water
discharges, noise emissions and Hazardous Materials, if any,
or any other Applicable Environmental Laws from any Person or
Agency has been received by Walden, and (C) to Walden's
Knowledge, Walden and its Subsidiaries in material compliance
with all Applicable Environmental Laws.
(e) Neither Walden nor any of the Subsidiaries has
received any written notices that any material permits,
licenses or consents not already obtained are required by the
Agencies in connection with the use and occupancy of any of
the Walden Properties or any material improvements thereto.
15. No Brokers. Except the fee that is to be paid to Merrill
Lynch & Co. Incorporated by Walden has not entered into any
contract, arrangement or understanding with any Person which may
result in the obligation of Walden, WDOP or any Shareholder to pay
any finder's fees, brokerage or agent's commissions or other like
payments in connection with the negotiations leading to this
Agreement or the consummation of the Contemplated Transactions.
Except for the fees payable to Houlihan Lokey Howard & Zukin and
Merrill Lynch & Co. Incorporated, to the Knowledge of Walden, there
is no other claim for payment of any finder's fees, brokerage or
agent's commissions or other like payments in connection with the
negotiations leading to this Agreement or the consummation of the
Contemplated Transactions.
16. Units. The issuance and delivery by WDOP of the Units
pursuant to the terms of this Agreement have been duly and
validly authorized by all necessary partnership action on the part of
WDOP. The Units to be issued pursuant to this Agreement, when issued in
accordance with the terms of this Agreement, will be validly
issued, fully paid and nonassessable.
17. Encumbrances on Properties. No action has been taken by
Walden or any of its Subsidiaries, nor has Walden or any of its
Subsidiaries failed to act, with respect to work performed or
delivery of material which would give rise to an Encumbrance, other
than a Walden Permitted Lien, on any of the Walden Properties or
any improvements thereto. As of the Closing, there will be no
unpaid assessments against any of the Walden Properties except for
property taxes assessed but not due and payable at the time of
Closing; and there will be no claim in favor of any person or
entity (including the present management) for any unpaid
commissions or fees for leasing of any of the Walden Properties arising
out of the acts of or through Walden or any of its Subsidiaries
otherwise than as payable in the ordinary course of business
consistent with past practice.
18. Insurance. The insurance policies listed and described
on Schedule 4.17 hereto are currently in force, and all such
policies or their equivalent will be maintained in force until
Closing. Neither Walden nor any of its Subsidiaries has received
any notice from any insurer of any of the Walden Properties or any
part thereof requesting any improvements, alterations, additions,
correction or other work in, on or about the improvements thereto,
whether related to any of the Walden Properties or to the operation
of any occupant thereof, which have not been cured or satisfied.
19. Non-foreign Status. Neither Walden nor WDOP is a
non-resident alien, foreign corporation, foreign partnership,
foreign trust or foreign estate (as those terms are defined in
Sections 1445 and 7701 of Code).
20. Information. None of the Proxy Statement or any other
document filed or to be filed by or on behalf of Walden with the
SEC or any other governmental entity or any other document required
to be prepared and distributed in connection with the Contemplated
Transactions will contain when filed, or shall contain, at the
respective times filed with the SEC or other Agency, and, in
addition, in the case of the Proxy Statement at the date it or
any amendment or supplement thereto is mailed to the Walden
Stockholders to solicit the vote of such stockholders on the
issuance of shares of Common Stock to be issued by Walden upon the exchange
of Units and upon the exercise of the Warrants, any untrue statement
of a material fact or omit to state any material fact required to
be stated therein or necessary in order to make the statements
made therein, in the light of the circumstances under which they were
made, not misleading; provided that the foregoing shall not apply
to information supplied by the Shareholders in writing
specifically for inclusion or incorporation by reference in any such document.
The Proxy Statement shall comply as to form in all material
respects with the provisions of the Exchange Act and the rules and
regulations thereunder.
ARTICLE 5
Covenants
1. Conduct of Business.
(a) Prior to the Closing Date, except as contemplated by
this Agreement, unless Walden or the Shareholders, as
appropriate, has consented in writing thereto, WDOP, on the one
hand, and the Shareholders, on the other hand:
(i) Shall use their reasonable efforts to preserve
intact, in all material respects, its business
organization and goodwill and the business organizations and
goodwill of the Acquired Companies;
(ii) Shall confer on a regular basis with one or
more representatives of the other to report operational
matters of materiality and, any proposals to engage in
material transactions; and
(iii) Shall promptly notify the other of any
material emergency or other material change in the
condition (financial or otherwise), business, properties,
assets, liabilities, prospects or the normal course of
their businesses or in the operation of their properties,
any material governmental complaints, investigations or
hearings (or communications indicating that the same may
be contemplated), or the breach in any material respect
of any representation, warranty, covenant or agreement
contained herein.
(b) Prior to the Closing Date, unless Walden has
consented (such consent not to be unreasonably withheld or
delayed) in writing thereto, the Shareholders agree to cause
each of Drever, AOF and AOFII to:
(i) Conduct its operations according to its usual,
regular and ordinary course in substantially the same
manner as heretofore conducted;
(ii) Not amend its articles of incorporation or
bylaws;
(iii) Not issue any additional shares of capital
stock;
(iv) Not declare, set aside or pay any distribution
or payment with respect to, or directly or indirectly
redeem, purchase or otherwise acquire, any shares of
capital stock or make any commitment for any such action,
except in the ordinary course of business;
(v) Not sell or otherwise dispose of any of its
assets which are material, individually or in the
aggregate;
(vi) Not make any loans, advances or capital
contributions to, or investments in, any other Person;
(vii) Not pay, discharge or satisfy any claims,
liabilities or obligations (absolute, accrued, asserted
or unasserted, contingent or otherwise), other than the
payment, discharge or satisfaction in the ordinary course
of business consistent with past practice or in
accordance with their terms, of liabilities reflected or
reserved against in, or contemplated by, the most recent
financial statements (or the notes thereto) of such
entity or incurred in the ordinary course of business
consistent with past practice;
(viii) Not enter into any commitment which may
result in total payments or liability by or to it in
excess of $25,000 in the case of any one commitment or in
excess of $100,000 for all commitments other than
commitments entered into in the ordinary course of
business;
(ix) By June 13, 1997, deliver to Walden the
unaudited balance sheet of each of Drever, AOF and AOFII
for the first fiscal quarter of 1997 and the related
statements of operations, shareholders' equity and cash
flow for such period and within forty-five (45) days
following the end of any subsequent fiscal quarter ending
prior to the Closing Date, deliver to Walden the
unaudited balance sheet of each of Drever, AOF and AOFII for
such quarter and the related statements of operations,
shareholders' equity and cash flow for such period;
(x) Deliver to Walden true, correct and complete
copies of all 1996 federal, state and local income or
franchise tax returns filed by each Acquired Company and
all material communications relating thereto at the time
they are filed but not later than September 15, 1997;
(xi) All contracts to which any Acquired Company is
a party; and
(xii) Shall terminate any contracts in existence
on the date hereof between Drever/McIntosh, Inc. and
either of Apartment Opportunity Fund, L.P. and Apartment
Opportunity Fund II, L.P. and enter into agreements with
the same terms and conditions between Drever and
Apartment Opportunity Fund, L.P. and Apartment Opportunity
Fund II, L.P.
(c) Prior to the Closing Date, unless the Shareholders
have consented (such consent not to be unreasonably withheld
or delayed) in writing thereto, each of Walden and WDOP:
(i) Shall, and shall cause each of their respective
affiliates to, conduct their operations according to
their usual, regular and ordinary course in substantially
the same manner as heretofore conducted;
(ii) Shall not amend their respective articles of
incorporation, bylaws, partnership agreement or other
charter document;
(iii) Shall not (A) except pursuant to the
exercise of options, warrants, conversion rights and
other contractual rights (including Walden's existing
dividend reinvestment plan and stock option plans)
existing on the date hereof, or as otherwise required by
this Agreement or the Contribution Agreement) issue any
shares of its capital stock, effect any stock split,
reverse stock split, stock dividend, recapitalization or
other similar transaction, (B) amend any employment
agreement with any of its present or future officers or
directors, or (C) adopt any new employee benefit plan
(including any stock option, stock benefit or stock
purchase plan);
(iv) Shall not (A) declare, set aside or pay any
dividend or make any other distribution or payment with
respect to any shares of its capital stock, except a
dividend not to exceed $.4825 per share of Common Stock,
$.5725 per share of Walden's 9.16% Series A Cumulative
Redeemable Preferred Stock and 9.16% Series B Cumulative
Redeemable Preferred Stock and $.575 per share of
Walden's 9.20% Senior Preferred Stock for the second and
third calendar quarters of 1997 and any other dividend or
distribution necessary for Walden to maintain its ability
to qualify to be taxed as a REIT under the Code, or
(B) except in connection with the use of shares of
capital stock to pay the exercise price or tax
withholding in connection with stock-based employee benefit plans
of Walden, directly or indirectly redeem, purchase or
otherwise acquire any shares of its capital stock or
capital stock of any of its affiliates, or make any
commitment for any such action;
(v) Shall not, and shall not permit any of their
respective affiliates to, sell or otherwise dispose of,
except in the ordinary course of business, any of their
assets which are material, individually or in the
aggregate;
(vi) Shall not, and shall not permit any of their
respective affiliates to, make any loans, advances or
capital contributions to, or investments in, any
unaffiliated third party other than in connection with the sale
of properties;
(vii) Shall not, and shall not permit any of
their respective affiliates to, pay, discharge or satisfy
any claims, liabilities or obligations (absolute,
accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge or satisfaction
in the ordinary course of business consistent with past
practice or in accordance with their terms, of
liabilities reflected or reserved against in, or contemplated
by, the most recent consolidated financial statements (or
the notes thereto) of Walden included in Walden's Form
10-K for the fiscal year ended December 31, 1996 or
incurred in the ordinary course of business consistent
with past practice;
(viii) Shall not, and shall not permit any of
their respective affiliates to, enter into any
commitments which, individually or in the aggregate, may result
in total payments or liability by or to it in excess of
$1,000,000 other than commitments entered into in the
ordinary course of business; and
(ix) Shall not, and shall not permit any of their
respective affiliates to, enter into any commitment with
any officer, director or affiliate of Walden, except in
the ordinary course of business.
2. Approval of Stockholders. In connection with the
issuance of shares of Common Stock by Walden upon exchange of the
Common Units and the exercise of the Warrants, Walden, acting
through its Board of Directors, shall, in accordance with
applicable law, its articles of incorporation and bylaws and the rules and
regulations of the New York Stock Exchange, duly call, give notice
of, convene and hold a special meeting of the Walden Stockholders
as soon as practicable after the Proxy Statement is cleared by the
SEC, for the purpose of voting upon the approval of such share
issuances. Walden shall include in the Proxy Statement the
recommendation of its Board of Directors that the Walden
Stockholders vote in favor of the approval of such share issuances, unless
the Board of Directors of Walden determines in good faith that
any such action would violate such Board's fiduciary duties under
applicable law.
3. Filings; Other Action. Subject to the terms and
conditions herein provided, Walden and the Shareholders shall:
(a) use all their best efforts to cooperate with one another in
(i) determining which filings are required to be made prior to the
Closing Date with, and which consents, approvals, permits or
authorizations are required to be obtained prior to the Closing
Date from, governmental or regulatory authorities of the United
States, the several states, third party secured and unsecured
lenders and rating agencies in connection with the execution and
delivery of this Agreement and the consummation of the transactions
contemplated hereby and (ii) timely making all such filings and
timely seeking all such consents, approvals, permits or
authorizations; (b) use their best efforts to obtain in writing any
consents required from third parties in form reasonably satisfactory to
Walden and the Shareholders necessary to effectuate the
Contemplated Transactions, and (c) use their best efforts to
take, or ause 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 Closing Date, any further action is
necessary or desirable to carry out the purpose of this
Agreement, the proper officers and directors of Walden, Drever, AOFII and
AOF shall take all such necessary action.
4. Inspection of Records. From the date hereof to the
Closing Date, each of Walden, Drever, AOFII and AOF shall allow all
designated officers, attorneys, accountants and other
representatives of the other access at all reasonable times to the records
and files, correspondence, audits and properties, as well as to all
information relating to commitments, contracts, titles and
financial position, or otherwise pertaining to the business and
affairs of Walden, WDOP, Drever, AOFII, AOF and their respective
affiliates.
5. Publicity. The initial press release relating to this
Agreement shall be a joint release and thereafter Walden, Drever,
AOFII and AOF shall, subject to their respective legal obligations
(including requirements of stock exchanges and other similar
regulatory bodies), consult with each other, and use reasonable
efforts to agree upon the text of any press release, before issuing
any such press release or otherwise making public statements with
respect to the transactions contemplated hereby and in making any
filings with any federal or state governmental or regulatory agency
or with any national securities exchange with respect thereto.
6. Proxy Statement. Walden shall file with the SEC as soon
as practicable a proxy statement (the "Proxy Statement") under the
Exchange Act, with respect to the meeting of the Walden
Stockholders in connection with the Contemplated Transactions and the
Exchange Offer. Walden will cause the Proxy Statement to comply as
to form in all material respects with the applicable provisions of
the Exchange Act and the rules and regulations promulgated
thereunder. Walden shall use its best efforts to make, prior to
the Closing Date, all necessary Regulatory Filings to carry out the
transactions contemplated by this Agreement and will pay all
expenses incident thereto. The Shareholders hereby agree to
cooperate with Walden in the preparation of the Proxy Statement and
to provide Walden with such information as Walden may reasonably
request.
7. Further Action. Each party hereto shall, subject to the
fulfillment at or before the Closing Date of each of the conditions
of performances set forth herein or the waiver thereof, perform
such further acts and execute such documents as may reasonably be
required to effect the Exchange Offer.
8. Expenses. All costs and expenses incurred in connection
with this Agreement and the Contemplated Transactions shall be paid
by the party incurring such expenses, including all fees and
expenses of agents, representatives, counsel and accountants.
9. Third Party Consents. Each of WDOP, Walden and the
Shareholders shall take, or cause to be taken, all necessary
corporate and other action and will use its commercially reasonable
efforts to obtain the consents and applicable approvals from third
parties that may be required to enable it to carry out the
Contemplated Transactions.
10. Efforts to Fulfill Conditions. Each of WDOP, Walden and
the Shareholders shall use their best efforts to insure that all
conditions precedent to its obligations hereunder are fulfilled at
or prior to the Closing.
11. Representations, Warranties and Conditions Prior to
Closing. Each of Walden, WDOP and the Shareholders shall use their
best efforts to cause its representations and warranties contained
in this Agreement to be true and correct on and as of the Closing
Date in all material respects. Prior to Closing, each of Walden
and the Shareholders shall promptly notify the other in writing
(a) if any representation or warranty contained in this Agreement
is discovered to be or becomes untrue or (b) if any of WDOP, Walden
or the Shareholders fails to perform or comply with any of its
covenants or agreements contained in this Agreement or it is
reasonably expected that it will be unable to perform or comply
with any of its covenants or agreements contained in this
Agreement.
12. Cooperation of the Parties. Walden and the Shareholders
each will cooperate with the other in supplying such information as
may be reasonably requested by the other in connection with
obtaining consents or approvals to the transactions contemplated by
this Agreement.
13. Stock Exchange Listing. Walden shall, as promptly as
practicable following the date hereof, prepare and submit to the
New York Stock Exchange a listing application covering the shares
of Common Stock and Preferred Stock to be issued by Walden upon
exchange of the Common Units and Preferred Units, respectively, and
shall use its best efforts to obtain, prior to the Closing Date,
approval of the listing of such shares, subject to official notice
of issuance.
ARTICLE 6
Conditions
1. Conditions to the Shareholders', the Equity
Participants', Walden's and WDOP's Obligations to Consummate the
Contemplated Transactions. The respective obligation of each party to
effect the Contemplated Transactions shall be subject to the
fulfillment at or prior to the Closing Date of the following
conditions:
(a) The issuance of the Common Stock issuable upon
exchange of the Common Units and upon the exercise of the
Warrants shall have been approved by the Walden Stockholders.
(b) None of the parties hereto shall be subject to any
order or injunction of a court of competent jurisdiction which
prohibits the consummation of the Contemplated Transactions.
In the event any such order or injunction shall have been
issued, each party agrees to use its reasonable efforts to
have any such injunction lifted.
(c) The Exchange Offer shall have closed.
(d) All consents, authorizations, orders and approvals
of (or filings or registrations with) any governmental commission,
board, other regulatory body or third parties required
in connection with the execution, delivery and performance of
this Agreement shall have been obtained or made, except where
the failure to have obtained or made any such consent,
authorization, order, approval, filing or registration would
not have a material adverse effect on the business, results of
operations or financial condition of Walden and each of
Drever, AOF and AOFII (and their respective affiliates taken
as a whole), following the Closing.
2. Conditions to Obligations of the Shareholders and Equity
Participants to Consummate the Contemplated Transactions. The
obligations of each of the Shareholders and Equity Participants to
consummate the Contemplated Transactions shall be subject to the
fulfillment at or prior to the Closing Date of the following
conditions, unless waived by such Shareholder or Equity
Participant:
(a) WDOP and Walden shall have performed their respec-
tive agreements contained in this Agreement required to be
performed on or prior to the Closing Date and the representations
and warranties of Walden and WDOP contained in this
Agreement shall be true and correct in all material respects
as of the Closing Date (except for those representations and
warranties that address matters only as of a particular date
and time which need only be true and correct as of such date
or with respect to such period).
(b) The Shareholders shall have received the opinion of
Winstead Sechrest & Minick P.C. ("WSM"), dated the Closing
Date, in substantially the form attached hereto as Schedule
6.2.
(c) The shares of Common Stock and Preferred Stock
issuable upon the exchange of the Common Units and Preferred
Units, respectively, and upon the exercise of the Warrants
shall have been approved for listing on the New York Stock
Exchange subject to official notice of issuance.
3. Conditions to Obligation of WDOP to Consummate the
Contemplated Transactions. The obligation of WDOP to consummate
the Contemplated Transactions shall be subject to the fulfillment
at or prior to the Closing Date of the following conditions, unless
waived by WDOP:
(a) The Shareholders and the Equity Participants shall
have performed their agreements contained in this Agreement
required to be performed on or prior to the Closing Date and
the representations and warranties of the Shareholders
contained in the Agreement shall be true and correct in all
material respects as of the Closing Date.
(b) Interestholders (as defined in the Exchange
Agreement) representing 50% or more of the limited partner
interests of each of Apartment Opportunity Fund, L.P. and
Interestholders representing 50.1% or more of the limited
partner interests of Apartment Opportunity Fund II, L.P. shall
have accepted the Exchange Offer.
(c) Partnership Properties (as defined in the Exchange
Agreement) representing no more than 25% of the aggregate
Property Values (as defined in the Exchange Agreement) of the
Partnership Properties held by Apartment Opportunity Fund,
L.P. and Partnership Properties representing no more than 25%
of the aggregate Property Values of the Partnership Properties
held by Apartment Opportunity Fund II, L.P. shall have been
excluded pursuant to the provisions of the Exchange Agreement
from the Partnership Properties to be held by the Partnerships
on the Closing Date.
(d) Walden shall have indicated its intention to close
the Exchange Offer by delivery of written notice to that
effect to the Shareholders.
(e) The opinion of Merrill Lynch & Co. Incorporated
addressed to the Board of Directors of Walden that the
Exchange Consideration payable under the Exchange Agreement is
fair, from a financial point of view, to the Walden
Stockholders shall not have been withdrawn or materially modified.
(f) Walden shall have received the opinions of Richard
Kalish, Esq., General Counsel of Drever, dated the Closing
Date, in substantially the form attached hereto as Schedule
6.3 hereto.
ARTICLE 7
Termination
1. Termination by Mutual Consent. This Agreement may be
terminated and the Contemplated Transactions may be abandoned at
any time prior to the Closing Date by the mutual written consent of
the Shareholders and Walden (with the prior approval of the Board
of Directors of Walden).
2. Termination by Either the Shareholders or Walden. This
Agreement may be terminated and the Contemplated Transactions may
be abandoned by either the Shareholders or Walden if (a) the
Contemplated Transactions shall not have been consummated by
December 31, 1997, provided that a party that has willfully and
materially breached a representation, warranty or covenant of such
party set forth in this Agreement shall not be entitled to exercise
its right to terminate under this Section 7.2(a), (b) a United
States federal or state court of competent jurisdiction or United
States federal or state governmental, regulatory or administrative
agency or commission shall have issued an Order, decree or ruling
or taken any other action permanently restraining, enjoining or
otherwise prohibiting the transactions contemplated by this
Agreement and such Order, decree, ruling or other action shall have
become final and non-appealable, provided that the party seeking to
terminate this Agreement pursuant to this clause (c) shall have
used all reasonable efforts to remove such Order, decree, ruling or
injunction, or (d) any of the conditions set forth in Article 6
hereof shall not have been satisfied; and provided, in the case of
a termination pursuant to clause (a) or (d) above, that 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 said clause.
3. Termination by the Shareholders. This Agreement may be
terminated and the Contemplated Transactions may be abandoned at
any time prior to the Closing Date if (a) there has been a breach
by Walden or WDOP of any representation or warranty contained in
this Agreement which would have or would be reasonably likely to
have a Walden Material Adverse Effect and which breach is not
curable by December 31, 1997, or (b) there has been material breach
of any of the covenants or agreements set forth in this Agreement
on the part of Walden or WDOP, which breach is not curable or, if
curable, is not cured within 30 days after written notice of such
breach is given by any of the Shareholders to Walden.
4. Termination by Walden. This Agreement may be terminated
and the contemplated Transactions may be abandoned at any time
prior to the Closing Date, by action of the Board of Directors of
Walden, if (a) there has been a breach by the Shareholders of any
representation or warranty contained in this Agreement which would
have or would be reasonably likely to have an Acquired Company
Material Adverse Effect, which breach is not cured by December 31,
1997, or (b) there has been a material breach of any of the
covenants or agreements set forth in this Agreement on the part of
any the Shareholders, which breach is not curable or, if curable,
is not cured within 30 days after written notice of such breach is
given by Walden to the Shareholders.
5. Effect of Termination and Abandonment. In the event of
termination of this Agreement and the abandonment of the
Contemplated Transactions pursuant to this Article 7, all obligations of
the parties hereto shall terminate, except the obligations of the
parties pursuant to this Section 7.5 and except for the provisions
of Article 8 hereof (excluding Sections 9.3 and 9.12).
6. Extension; Waiver. At any time prior to the Closing
Date, either Walden or the Shareholders may, to the extent legally
allowed, (a) extend the time for the performance of any of the
obligations or other acts of the other parties hereto, (b) waive
any inaccuracies in the representations and warranties made to such
party contained herein or in any document delivered pursuant
hereto, and (c) waive compliance with any of the agreements or
conditions for the benefit of such party contained herein. Any
agreement on the part of a party hereto to any such extension or
waiver shall be valid only if set forth in an instrument in writing
signed on behalf of such party.
ARTICLE 8
Indemnification
1. Indemnification and Payment of Damages by Maxwell B.
Drever. Maxwell B. Drever will indemnify and hold harmless WDOP,
Walden, the Acquired Companies, the Partnerships and their
respective representatives, stockholders, controlling persons and
affiliates (collectively, the "Indemnified Persons") for, and will
pay to the Indemnified Persons the amount of, any loss, liability,
claim, damage (including incidental and consequential damages),
expense (including costs of investigation and defense and
reasonable attorneys' fees) or diminution of value, whether or not
involving a third-party claim (collectively, "Damages"), arising,
directly or indirectly, from or in connection with the Stephenson
Litigation, all liabilities of Drever set forth on a balance sheet
of Drever prepared as of the Closing Date (whether or not then
currently payable) and the Contemplated Transaction. The
obligations of Maxwell B. Drever under this Section 8.1 shall be secured
by a pledge of the Common Units and Preferred Units received by
Mr. Drever as Contribution Consideration under the terms and subject
to the conditions of the Pledge Agreement.
The remedies provided in this Section 8.1 will not be
exclusive of or limit any other remedies that may be available to
Walden or the other Indemnified Persons.
2. Procedure for Indemnification
(a) Promptly after receipt by an indemnified party under
Section 8.1 hereof of the commencement of any indemnified
proceeding against it, such indemnified party will, if a claim
is to be made against an indemnifying party under such
Section, give notice to the indemnifying party of the
commencement of such claim, but the failure to notify the
indemnifying party will not relieve the indemnifying party of
any liability that it may have to any indemnified party,
except to the extent that the indemnifying party demonstrates
that the defense of such action is prejudiced by the
indemnifying party's failure to give such notice.
(b) If any indemnified proceeding referred to in Section
8.2(a) hereof is brought against an indemnified party and it
gives notice to the indemnifying party of the commencement of
such proceeding, the indemnifying party will, unless the claim
involves taxes, be entitled to participate in such proceeding
and, to the extent that it wishes (unless (i) the indemnifying
party is also a party to such proceeding and the indemnified
party determines in good faith that joint representation would
be inappropriate or (ii) the indemnifying party fails to
provide reasonable assurance to the indemnified party of its
financial capacity to defend such proceeding and provide
indemnification with respect to such proceeding), to assume
the defense of such proceeding with counsel satisfactory to
the indemnified party and, after notice from the indemnifying
party to the indemnified party of its election to assume the
defense of such proceeding, the indemnifying party will not,
as long as it diligently conducts such defense, be liable to
the indemnified party under this Article 8 for any fees of
other counsel or any other expenses with respect to the
defense of such proceeding, in each case subsequently incurred
by the indemnified party in connection with the defense of
such proceeding, other than reasonable costs of investigation.
If the indemnifying party assumes the defense of a proceeding,
(i) it will be conclusively established for purposes of this
Agreement that the claims made in that proceeding are within
the scope of and subject to indemnification, (ii) no
compromise or settlement of such claims may be effected by the
indemnifying party without the indemnified party's consent
unless (A) there is no finding or admission of any violation
of Legal Requirements or any violation of the rights of any
Person and no effect on any other claims that may be made
against the indemnified party and (B) the sole relief provided
is monetary damages that are paid in full by the indemnifying
party, and (iii) the indemnified party will have no liability
with respect to any compromise or settlement of such claims
effected without its consent. If notice is given to an
indemnifying party of the commencement of any proceeding and
the indemnifying party does not, within ten days after the
indemnified party's notice is given, give notice to the
indemnified party of its election to assume the defense of
such proceeding, the indemnifying party will be bound by any
determination made in such proceeding or any compromise or
settlement effected by the indemnified party.
(c) Notwithstanding the foregoing, if an indemnified
party determines in good faith that there is a reasonable
probability that a proceeding may adversely affect it or its
affiliates other than as a result of monetary damages for
which it would be entitled to indemnification under this
Agreement, the indemnified party may, by notice to the
indemnifying party, assume the exclusive right to defend,
compromise or settle such proceeding, but the indemnifying
party will not be bound by any determination of a proceeding
so defended or any compromise or settlement effected without
its consent (which may not be unreasonably withheld).
ARTICLE 9
General Provisions
1. Nonsurvival of Representations and Warranties. No
representation or warranty in this Agreement or in any instrument
delivered to this Agreement shall survive the Closing Date. This
Section 9.1 shall not limit any covenant or agreement set forth
herein that, by its terms, contemplates performance after the
Closing Date.
2. Confidentiality. Between the date of this Agreement and the
Closing Date, Walden, WDOP, the Shareholders, the Equity
Participants and the Assignees will maintain in confidence, and will cause
the Acquired Companies and the directors, officers, partners,
employees, agents and advisors of Walden, WDOP, the Acquired
Companies and the Partnerships to maintain in confidence, and not
use to the detriment of another party or an Acquired Company or
Partnership any written, oral or other information obtained in
confidence from another party or an Acquired Company or Partnership
in connection with this Agreement or the Contemplated Transactions,
unless (a) such information is already known to such party or to
others not bound by a duty of confidentiality or such information
becomes publicly available through no fault of such party, (b) the
use of such information is necessary or appropriate in making any
filing or obtaining any consent or approval required for the
consummation of the Contemplated Transactions, or (c) the
furnishing or use of such information is required by or necessary or
appropriate in connection with legal proceedings. If the
Contemplated Transactions are not consummated, each party will return or
destroy as much of such written information as the other party may
reasonably request. Whether or not the Closing takes place, the
Shareholders, the Equity Participants and the Assignees waive, and
shall, upon Walden's request, cause the Acquired Companies and the
Partnerships to waive, any cause of action, right or claim arising
out of the access of Walden or its representatives to any trade
secrets or other confidential information of the Acquired Companies
and the Partnerships except for the intentional competitive misuse
by Walden of such trade secrets or confidential information.
3. Notices. All notices, consents, waivers and other
communications under this Agreement must be in writing and will be deemed to
have been duly given when (a) delivered by hand (with written
confirmation of receipt), (b) sent by telecopier (with written
confirmation of receipt), provided that a copy is mailed by
registered mail, return receipt requested or (c) when received by
the addressee, if sent by a nationally recognized overnight
delivery service (receipt requested), in each case to the
appropriate addresses and telecopier numbers set forth below with respect
to Walden and the Shareholders and as set forth on the signature
pages hereto with respect to the Equity Participants and the
Assignees (or to such other addresses and telecopier numbers as a
party may designate by notice to the other parties):
If to Walden or WDOP:
c/o Walden Residential Properties, Inc.
One Lincoln Centre
5400 LBJ Freeway
Suite 400
Dallas, Texas 75240
Attention: Don R. Daseke
Chief Executive Officer
Facsimile: (972) 788-1550
with a copy (which shall not constitute notice) to:
Winstead Sechrest & Minick P.C.
1201 Elm Street
Suite 5400
Dallas, Texas 75240
Attention: Kenneth L. Betts, Esq.
Facsimile: (214) 745-5390
If to the Shareholders:
c/o Drever Partners, Inc.
Four Embarcadero Center
Suite 1810
San Francisco, California 94111
Attention: Michael E. Masterson
Facsimile: (415) 433-1777
with a copy (which shall not constitute notice) to:
Richard Kalish, Esq.
c/o Drever Partners, Inc.
Four Embarcadero Center
Suite 1810
San Francisco, California 94111
Facsimile: (415) 433-1777
4. Further Assurances. The parties agree (a) to furnish upon
request to each other such further information, (b) to execute and
deliver to each other such other documents, and (c) to do such
other acts and things, all as the other party may reasonably
request for the purpose of carrying out the intent of this
Agreement and the documents referred to in this Agreement.
5. Waiver. The rights and remedies of the parties to this
Agreement are cumulative and not alternative. Neither the failure
nor any delay by any party in exercising any right, power or
privilege under this Agreement or the documents referred to in this
Agreement will operate as a waiver of such right, power or
privilege, and no single or partial exercise of any such right,
power or privilege will preclude any other or further exercise of
such right, power or privilege or the exercise of any other right,
power or privilege. To the maximum extent permitted by applicable
law, (a) no claim or right arising out of this Agreement or the
documents referred to in this Agreement can be discharged by one
party, in whole or in part, by a waiver or renunciation of the
claim or right unless in writing signed by the other party; (b) no
waiver that may be given by a party will be applicable except in
the specific instance for which it is given; and (c) no notice to
or demand on one party will be deemed to be a waiver of any
obligation of such party or of the right of the party giving such
notice or demand to take further action without notice or demand as
provided in this Agreement or the documents referred to in this
Agreement.
6. Entire Agreement and Modification. This Agreement supersedes
all prior agreements, oral and written, between the parties with
respect to its subject matter, including, without limitation, the
letters of intent dated March 12, 1997 and May 8, 1997 and
constitutes (along with the documents referred to in this
Agreement) a complete and exclusive statement of the terms of the
agreement between the parties with respect to its subject matter.
This Agreement may not be amended except by a written agreement
executed by the party to be charged with the amendment.
7. Schedules.
(a) The Schedules are incorporated by reference herein
and made a part of this Agreement.
(b) The disclosures in the Schedules hereto must relate
only to the representations and warranties in the Section of
the Agreement to which they expressly relate and not to any
other representation or warranty in this Agreement.
(c) In the event of any inconsistency between the
statements in the body of this Agreement and those in the
Schedules hereto (other than an exception expressly set forth
as such in the Schedules hereto with respect to a specifically
identified representation or warranty), the statements in the
body of this Agreement will control.
8. Assignments, Successors and No Third-Party Rights. No party
may assign any of its rights under this Agreement without the prior
consent of the other parties except that Walden may assign any of
its rights under this Agreement to any Subsidiary of Walden.
Subject to the preceding sentence, this Agreement will apply to, be
binding in all respects upon, and inure to the benefit of the
successors and permitted assigns of the parties. Nothing expressed
or referred to in this Agreement will be construed to give any
Person other than the parties to this Agreement any legal or
equitable right, remedy or claim under or with respect to this
Agreement or any provision of this Agreement. This Agreement and
all of its provisions and conditions are for the sole and exclusive
benefit of the parties to this Agreement and their successors and
assigns.
9. Severability. If any provision of this Agreement is held
invalid or unenforceable by any court of competent jurisdiction,
the other provisions of this Agreement will remain in full force
and effect. Any provision of this Agreement held invalid or
unenforceable only in part or degree will remain in full force and
effect to the extent not held invalid or unenforceable.
10. Section Headings; Construction. The headings of Sections in
this Agreement are provided for convenience only and will not
affect its construction or interpretation. All references to
"Section" or "Sections" refer to the corresponding Section or
Sections of this Agreement. All words used in this Agreement will
be construed to be of such gender or number as the circumstances
require. Unless otherwise expressly provided, the word "including"
does not limit the preceding words or terms.
11. Governing Law. This Agreement will be governed by the laws of
the State of Delaware without regard to its rules of conflict of
laws. Each of Walden, WDOP and the Shareholders hereby irrevocably
and unconditionally (a) consents to submit to the exclusive
jurisdiction of the courts of the State of Delaware and of the
appropriate federal courts located in the State of Delaware (the
"Delaware Courts") for any litigation arising out of or relating to
this Agreement and the transactions contemplated hereby (and agrees
not to commence any litigation relating thereto except in such
courts), (b) waives any objection to the laying of venue of any
such litigation in the Delaware Courts and agrees not to plead or
claim in any Delaware Court that such litigation brought therein
has been brought in an inconvenient forum, and (c) agrees that it
will not bring any action arising out of or relating to this
Agreement or any of the transactions contemplated hereby in a court
other than a Delaware Court.
12. Counterparts. This Agreement may be executed in one or more
counterparts, each of which will be deemed to be an original copy
of this Agreement and all of which, when taken together, will be
deemed to constitute one and the same agreement.
13. Amendment to AOF and AOFII Articles of Incorporation.
The shareholders of AOF and AOFII hereby consent to amend the
Articles of Incorporation of AOF and AOFII, respectively, effective
as of the Closing Date, to delete Article V thereof.
[Balance of Page Intentionally Left Blank]
IN WITNESS WHEREOF, the parties have executed and delivered
this Agreement as of the date first written above.
WDOP:
WALDEN/DREVER OPERATING
PARTNERSHIP, L.P.
By: Walden Residential Properties, Inc.
its General Partner
By:
Name:
Title:
WALDEN:
WALDEN RESIDENTIAL PROPERTIES, INC.
By:
Name:
Title:
SHAREHOLDERS:
DREVER FAMILY PARTNERSHIP I
By:
Maxwell B. Drever, as Managing
General Partner
DREVER FAMILY PARTNERSHIP II
By:
Maxwell B. Drever, as Managing
General Partner
DREVER EDUCATIONAL TRUST
By:
Malcolm Edwards, Trustee
Michael Masterson
Michael Collier
Bryan Levy
Richard Kalish
EQUITY PARTICIPANTS:
Michael E. Masterson
Address:
Michael Collier
Address:
Bryan A. Levy
Address:
Charlene Geiss
Address:
Richard Kalish
Address:
David Glaser
Address:
William Bentley
Address:
EXCHANGE AGREEMENT
among
WALDEN RESIDENTIAL PROPERTIES, INC.
WALDEN/DREVER OPERATING PARTNERSHIP, L.P.,
DREVER PARTNERS, INC.,
AOF, INC. and
AOF II, INC.
May 21, 1997
EXCHANGE AGREEMENT
This EXCHANGE AGREEMENT (this "Agreement"), dated as
of May 21, 1997, is entered into by and among WALDEN
RESIDENTIAL PROPERTIES, INC., a Maryland corporation
("Walden"), WALDEN/DREVER OPERATING PARTNERSHIP, a Delaware
limited partnership ("WDOP"), DREVER PARTNERS, INC., a
California corporation ("Drever"), AOF II, INC., a
California corporation ("AOFII"), and AOF, INC., a
California corporation ("AOF").
RECITALS
A. The Boards of Directors of each of (i) Walden,
the general partner of WDOP, (ii) Drever, the general
partner of each of the partnerships listed on Schedule 1.1
hereto (collectively, the "Drever Partnerships"), (iii)
AOFII, the general partner of Apartment Opportunity Fund
II, L.P., and (iv) AOF, the general partner of AOF Newgen,
L.P. (the general partner of Apartment Opportunity Fund,
L.P.) (AOF Newgen, L.P., collectively, with Apartment
Opportunity Fund, L.P., Apartment Opportunity Fund II, L.P.
and each of the Drever Partnerships, the "Partnerships")
have determined that a business combination between the
Partnerships and WDOP is in the best interests of the
partners of the Partnerships and the stockholders of Walden
and presents an opportunity for their respective entities
to achieve long-term strategic and financial benefits, and
accordingly have agreed to effect the Exchange Offer
(hereinafter defined) subject to the terms and conditions
set forth herein.
B. Concurrently with the execution and delivery of
this Agreement, WDOP, Walden, the shareholders of each of
Drever, AOFII and AOF (collectively, the "Shareholders"),
certain equity participants in Drever (collectively, the
"Equity Participants") and certain assignees of Drever
(collectively, the "Assignees") are entering into a
contribution agreement (the "Contribution Agreement"),
pursuant to which the Shareholders, the Equity Participants
and the Assignees have agreed, among other things, to
contribute the Shares, the Equity Rights and the General
Partner Rights (as such terms are defined in the
Contribution Agreement) to WDOP in exchange for cash and
Units (hereinafter defined).
C. Walden, WDOP, Drever, AOFII and AOF desire to
make certain representations, warranties and agreements in
connection with the Exchange Offer.
NOW, THEREFORE, in consideration of the foregoing, of
the representations, warranties, covenants and agreements
contained herein, and other good and valuable
consideration, the receipt and sufficiency of which are
hereby acknowledged, and intending to be legally bound
hereby, Walden, WDOP, Drever, AOFII and AOF hereby agree as
follows:
ARTICLE 1
Definitions
As used in this Agreement, the following terms shall
have the meanings hereinafter set forth:
Accredited Investor: means an "accredited
investor," as such term is defined in Rule 501
under the Securities Act.
Acquisition Proposal: shall have the
meaning set forth in Section 6.1 hereof.
Agencies: means all governmental
authorities, agencies or bodies having
jurisdiction with respect to real property,
including the construction, zoning and operation
of real property.
Agreement of General Partnership of
Walden-WDOP Partners: means the agreement of
general partnership between Walden and WDOP, in
substantially the form of Exhibit A hereto.
AOF: shall have the meaning set forth in
the opening paragraph of this Agreement.
AOFII: shall have the meaning set forth in
the opening paragraph of this Agreement.
Applicable Environmental Laws: means any
and all applicable laws now in effect and
pertaining to health or the environment,
including, without limitation, the Superfund
Reauthorization and Amendments Act of 1986, the
Comprehensive Environmental Response,
Compensation and Liability Act of 1980, the
Resource Conservation and Recovery Act of 1976,
the Texas Water Code, the Texas Solid Waste
Disposal Act, and the Texas Toxic Substances
Control Act, as well as any and all other laws,
ordinances, rules and/or regulations created or
imposed by any governmental authority having
jurisdiction with respect to the Partnership
Properties or the Walden Properties, as
applicable, whether local, state or federal,
pertaining to environmental regulation,
contamination, clean-up or disclosure, as now
existing.
Assignees: shall have the meaning set
forth in the Recitals to this Agreement.
Articles Supplementary: means the Articles
Supplementary establishing the rights and
preferences of the Redeemable Preferred Stock,
in substantially the form of Exhibit B hereto.
Cash Reserves: shall have the meaning set
forth in Section 2.10 hereof.
Closing: shall have the meaning set forth
in Section 2.9 hereof.
Closing Date: shall have the meaning set
forth in Section 2.9 hereof.
Code: means the Internal Revenue Code of
1986, as amended, and the Treasury regulations
promulgated thereunder.
Common Stock: means the common stock, par
value $.01 per share, of Walden.
Common Units: means common units of
beneficial interest in WDOP, which units are
exchangeable for shares of Common Stock in
accordance with the terms of the WDOP
Partnership Agreement.
Contribution Agreement: shall have the
meaning set forth in the Recitals to this
Agreement.
Direct Interestholders: means all
Interestholders other than the Indirect
Interestholders.
Drever: shall have the meaning set forth
in the opening paragraph of this Agreement.
Drever Partnerships: shall have the
meaning set forth in the Recitals to this
Agreement.
Drever Permitted Liens: shall have the
meaning set forth in Section 4.11 hereof.
Encumbrance: means any lien, security
interest, mortgage, charge or other encumbrance
on title.
Equity Participants: shall have the
meaning set forth in the Recitals to this
Agreement.
Exchange Act: means the Securities
Exchange Act of 1934, as amended.
Exchange Consideration: means the
aggregate amount of cash and Units offered by
WDOP to the Interestholders in exchange for
their Interests pursuant to the terms and
conditions of Article 2 hereof; provided, that
(i) the Exchange Consideration with respect to
each Interestholder who is not an Accredited
Investor shall consist of cash only, and (ii)
the aggregate amount of Exchange Consideration
paid by WDOP, when combined with the aggregate
amount of consideration paid by WDOP to the
Shareholders, the Equity Participants and the
Assignees pursuant to the Contribution
Agreement, shall not exceed the Maximum
Consideration.
Exchange Offers: shall have the meaning
set forth in Section 2.1 hereof.
Exchange Offer Documents: shall have the
meaning set forth in Section 2.6 hereof.
Expiration Date: shall have the meaning
set forth in Section 2.8 hereof.
Hazardous Materials: means any toxic
materials, hazardous waste or hazardous
substance (as regulated under Applicable
Environmental Laws) and including, without
limitation, any asbestos or asbestos-related
products or materials and any oils,
petroleum-derived compounds or pesticides
regulated under Applicable Environmental Laws,
excluding, however, any such materials, wastes
or substances in reasonable amounts that are
customarily used in the operation and
maintenance of an apartment complex.
Indirect Interestholders: means AOF
Investors, L.P., Houston Portfolio Joint
Venture II and Westfield Lakes Joint Venture.
Interest: means a limited partner interest
in a Partnership and a general partner interest
in Tassajara Partners.
Interestholder: means any holder of record
of an Interest.
Interim Balance Sheets: shall have the
meaning set forth in Section 4.4(b) hereof.
IRS: means the Internal Revenue Service.
Knowledge: means (i) in the case of Walden
or WDOP, the actual knowledge (without the
necessity of investigation) of Don R. Daseke,
Chairman of the Board and Chief Executive
Officer of Walden, Marshall B. Edwards,
President and Chief Acquisitions Officer of
Walden, or Mark S. Dillinger, Executive Vice
President and Chief Financial Officer of Walden,
and (ii) in the case of Drever, AOFII and AOF,
the actual knowledge (without the necessity of
investigation) of Maxwell B. Drever, Chairman of
the Board of Directors of Drever, Michael E.
Masterson, President of Drever, or Bryan A.
Levy, Chief Financial Officer of Drever.
Mailing Date: means the date on which the
Proxy Statement is first mailed to the Walden
Stockholders.
Maximum Consideration: means, in the
aggregate, 10,322,580 Common Units; 2,000,000
Preferred Units; and $85,000,000 in cash, except
as adjusted to accommodate fractional Units.
Owner Partnership: shall have the meaning
set forth in Section 3.1 hereof.
Partnership Agreements: means the
partnership agreements of the Partnerships.
Partnership Properties: shall have the
meaning set forth in Section 4.11 hereof.
Partnerships: shall have the meaning set
forth in the Recitals to this Agreement.
Person: means an individual, partnership,
joint venture, corporation, trust,
unincorporated organization or other legal
entity.
Preferred Stock: shall have the meaning
set forth in Section 5.3 hereof.
Preferred Units: means preferred units of
beneficial interest in WDOP, which units are
exchangeable for shares of Redeemable Preferred
Stock and Warrants in accordance with the terms
of the WDOP Partnership Agreement.
Property Material Breach: means the breach
of a representation or warranty contained in
Article 4 hereof requiring an expenditure of
funds to remedy and/or resulting in a diminution
in value of any one of the Partnership
Properties (where such breach cannot be
completely remedied through the expenditure of
funds) in excess of $250,000.
Property Restrictions: means rights of
way, written agreements, laws, ordinances and
regulations affecting building use or occupancy
or reservations of an interest in title.
Property Value: means, for each
Partnership Property, the equity value of such
Partnership Property as shown on Schedule 1.2
hereto.
Proration Mechanism: shall have the
meaning set forth in Section 2.2 hereof.
Proxy Statement: shall have the meaning
set forth in Section 6.7 hereof.
Redeemable Preferred Stock: means the
9.00% Redeemable Preferred Stock of Walden.
Regulatory Filings: means any filings
required under the Securities Laws.
REIT: shall have the meaning set forth in
Section 5.11 hereof.
SEC: means the Securities and Exchange
Commission.
Securities Act: means the Securities Act
of 1933, as amended.
Securities Laws: means the Securities Act,
the Exchange Act and the rules and regulations
promulgated under either of such acts, and any
applicable state securities laws.
Subsidiary: means any Person (a) more than
50% of whose outstanding securities representing
the right, other than as affected by events of
default, to vote for the election of directors
are owned by Walden or any other Subsidiary, (b)
with respect to which Walden or any other
Subsidiary has the power to elect or appoint a
general partner or (c) of which Walden or any
Subsidiary is a general partner.
Superior Acquisition Proposal: shall have
the meaning set forth in Section 6.1 hereof.
Tenant Leases: means the lease agreements
relating to the Partnership Properties.
Units: means the Common Units and the
Preferred Units.
Walden: shall have the meaning set forth
in the opening paragraph of this Agreement.
Walden Material Adverse Effect: shall have
the meaning set forth in Section 5.1 hereof.
Walden Operating: shall have the meaning
set forth in Section 5.3 hereof.
Walden Permitted Liens: shall have the
meaning set forth in Section 5.13 hereof.
Walden Properties: shall have the meaning
set forth in Section 5.13 hereof.
Walden Reports: shall have the meaning set
forth in Section 5.8 hereof.
Walden Stockholders: means the holders of
Common Stock.
Warrant Agreement: means the Warrant
Agreement between Walden and The First National
Bank of Boston, as Warrant Agent, in
substantially the form of Exhibit C hereto.
Warrants: means warrants issued by Walden
pursuant to the Warrant Agreement.
WDOP: shall have the meaning set forth in
the opening paragraph of this Agreement.
WDOP Partnership Agreement: means the
amended and restated partnership agreement of
WDOP in substantially the form of Exhibit D
hereto.
ARTICLE 2
The Exchange Offer
1 Commencement of the Exchange Offer.
Simultaneously with the mailing of the Proxy Statement to
the Walden Stockholders, WDOP shall commence an exchange
offer (the "Direct Exchange Offer") to the Direct
Interestholders and an exchange offer to the partners of
the Indirect Interestholders (the "Indirect Exchange Offer"
and, together with the Direct Exchange Offer, the "Exchange
Offers") pursuant to which it will, subject to the terms
and conditions set forth herein, offer to the
Interestholders the Exchange Consideration in exchange for
the Interests. Consummation of the Exchange Offer by
Walden and WDOP shall be subject only to those conditions
specified in Article 7 of this Agreement.
2 Allocation of Exchange Consideration; Election
Procedures. The Exchange Offers shall (i) apportion the
Exchange Consideration among the Direct Interestholders
based on the assumption that the Partnership Properties
were sold for cash in an amount equal to the Property
Values specified on Schedule 1.2 hereto on the Closing Date
and the net proceeds from such sales were immediately
distributed to the Direct Interestholders in accordance
with the provisions of the Partnership Agreements and (ii)
apportion the Exchange Consideration hereto among the
partners of the Indirect Interestholders based on the
assumption that the Partnership Properties were sold for
cash in an amount equal to the Property Values specified on
Schedule 1.2 hereto on the Closing Date and the net
proceeds from such sales were immediately distributed to
the Indirect Interestholders in accordance with the
provisions of the Partnership Agreements and redistributed
to the partners of the Indirect Interestholders pursuant to
the provisions of the partnership agreements of the
Indirect Interestholders. Drever shall provide to WDOP, on
or prior to June 30, 1997, an illustrative schedule
designating the amount of the Exchange Consideration
allocated to each Partnership hereto that would be payable
to each Interestholder, assuming the Exchange Offers close
on October 15, 1997. Additionally, Drever shall provide to
WDOP, on or prior to June 30, 1997, a document setting
forth a procedure (the "Proration Mechanism") pursuant to
which each Interestholder who is an Accredited Investor
shall be entitled to elect pursuant to a written notice
delivered to Walden the portion of such Interestholder's
Interest which such Interestholder desires to have
exchanged for (a) Common Units, (b) Preferred Units, and
(c) cash and a procedure for allocating the various types
of Exchange Consideration among the Interestholders who are
Accredited Investors if the aggregate amount of any type of
consideration offered by WDOP pursuant to this Agreement
and the Contribution Agreement selected by such
Interestholders and the Shareholders, Equity Participants
and Assignees exceeds the Maximum Consideration amount of
such type of Consideration. Each Interestholder who is not
an Accredited Investor shall receive cash in exchange for
such Interestholder's Interest calculated as if the
Partnership Properties were sold for cash as described
above.
3 Fractional Units. No fractional Units shall be
issued with respect to the Exchange Offers. In lieu of a
fractional Unit, each holder of an Interest exchanged
pursuant to Section 2.1 hereof who would otherwise have
been entitled to receive a fraction of a Unit shall receive
cash (without interest) in an amount equal to the product
of (i) such fraction of a Unit, and (ii) in the case of a
Common Unit, $23.25 and, in the case of a Preferred Unit,
$27.50. The aggregate amount of cash elected to be
received by Interestholders may be increased by the
Proration Mechanism above the Maximum Consideration to be
paid in cash in order to provide for the payment of cash in
lieu of fractional Units, provided there is a corresponding
reduction in the other types of Exchange Consideration.
4 Conduct of the Exchange Offers. The Exchange
Offers shall be made in compliance with all applicable
provisions of the Securities Laws, including, without
limitation, Regulation D promulgated under the Securities
Act.
5 Restrictions on Amendment or Waiver of Exchange
Offers. Without the prior written consent of Drever, WDOP
shall not amend any material term or condition of the Ex-
change Offers in any manner adverse to the Interestholders.
6 Preparation of Exchange Offer Documents. As soon
as practicable following the date hereof, Walden and WDOP
shall prepare or cause to be prepared, in cooperation with
Drever, AOFII, AOF and their counsel, appropriate
documentation to effect the Exchange Offers, including an
offer to exchange, a form of notice of election and a form
of letter of acceptance (collectively, together with any
amendments and supplements thereto, the "Exchange Offer
Documents"). The Exchange Offer Documents at all times
following their distribution to the Interestholders will
comply in all material respects with the applicable
provisions of the Securities Laws. Each of Walden and
WDOP, on the one hand, and Drever, AOFII and AOF, on the
other hand, agrees to correct as promptly as practicable
any information provided by it for use in the Exchange
Offer Documents if and to the extent that such information
shall have become false or misleading in any material
respect.
7 Dissemination of Exchange Offer Documents. Upon
receipt of the final Exchange Offer Documents from WDOP and
the written request of Walden to mail such documents,
Drever, AOF or AOFII, as applicable, will promptly mail or
otherwise deliver such documents or cause such documents to
be mailed or otherwise delivered to the Interestholders of
record. Drever, AOF and AOFII, as applicable, agree to
mail or otherwise deliver to the Interestholders any
appropriate amendment or supplement to the Exchange Offer
Documents delivered to them by Walden.
8 Expiration of Exchange Offers. The Exchange
Offers shall expire on the date (the "Expiration Date") of
the meeting of the Walden Stockholders held in accordance
with the provisions of Section 6.3 hereof, provided that,
at the reasonable request of Drever, Walden shall postpone
the Expiration Date for an additional period of time, not
to exceed 30 calendar days, beyond the date of such
meeting.
9 The Closing. Subject to the terms and conditions
of this Agreement, the closing of the Exchange Offers (the
"Closing") shall take place at the offices of Winstead
Sechrest & Minick P.C., located at 1201 Elm Street, Suite
5400, Dallas, Texas, at 9:00 a.m., local time, on the first
business day following the Expiration Date, or at such
other time, date or place as Walden and Drever may agree.
The date on which the Closing occurs is hereinafter
referred to as the "Closing Date."
10 Cash Reserves. At Closing, a cash reserve
account in respect of each Partnership shall be
established, in such amounts as are set forth on Schedule
2.10 hereto (collectively, the "Cash Reserves"), to account
for the payment of certain liabilities of each Partnership
existing as of the Closing Date as provided below. Each
Partnership's cash on hand as of the Closing Date shall be
allocated to the respective Cash Reserve, and if any
Partnership shall have insufficient cash available to fund
such Cash Reserve, the Exchange Consideration payable at
Closing allocated to the Interestholders of such
Partnership shall be reduced by an amount equal to such
shortfall.
The following provisions shall govern the allocation
of liabilities of each Partnership and the treatment of
certain items of income of each Partnership:
(a) Rentals, revenues and other income, if any,
from the Partnership Properties of the Partnership, as
well as taxes, assessments, improvement bonds, license
and permit fees, service and other contract fees,
utility costs (other than those charged by utility
companies directly to tenants of the Partnership
Properties) and other expenses affecting the
Partnership Properties shall be prorated between
Walden and the Interestholders of the Partnership as
of the Closing Date based on a 365-day year. For purposes
of calculating prorations, Walden shall be
deemed to become title holder of the Partnership Properties,
and therefore become entitled to the income
from, and become responsible for the expenses of, the
Partnership Properties, as of 12:01 a.m. on the
Closing Date. On the Closing Date, there shall be deducted
from the Cash Reserve an amount equal to the
sum of: (i) all unrefunded, unapplied and
nonrefundable security deposits paid by tenants of the
Partnership Properties owned by the Partnership prior
to the Closing Date and (ii) all rentals received from
tenants of the Partnership Properties owned by the
Partnership prior to the Closing Date that are
attributable to periods after the Closing Date. All
non-delinquent real estate taxes or assessments on the
Partnership Properties shall be prorated based on the
actual current tax bill, but if such tax bill has not
been received by the Partnership by the Closing Date
or if supplemental taxes are assessed after the
Closing for the periods prior to the Closing, the
parties hereto shall make any necessary adjustment to
the Cash Reserve after the Closing so that the
Interestholders of the Partnership shall have borne
all real property taxes, including all supplemental
taxes, allocable to the periods prior to the Closing,
and Walden shall bear all real property taxes,
including all supplemental taxes, allocable to the periods
from and after the Closing. If any expenses attributable
to the Partnership Properties and allocable to
the periods prior to the Closing are discovered or
billed after the Closing, the parties hereto shall
make any necessary adjustment to the Cash Reserve
after the Closing so that the Interestholders shall
have borne all expenses allocable to the periods prior
to the Closing and Walden shall bear all expenses
allocable to the periods from and after the Closing,
provided that no further adjustments shall be made
after 120 days following the Closing Date, except
adjustments relating to tax appeals and protests, as
specified in subsection (c) below.
(b) All delinquent rentals and other revenues as
of the Closing Date shall not be prorated at the
Closing, but shall, when collected, after deducting
Walden's reasonable costs of collection thereof, be
applied in the order of delinquency, oldest first, and
any portion thereof, as so collected and applied,
attributable to any period prior to the Closing Date
shall be added to the Cash Reserve. After the Closing,
Walden shall use commercially reasonable efforts
to collect such delinquent rentals and other revenues
on behalf of the Interestholders of the Partnership,
and the Interestholders shall not have the right to
seek collection of any delinquent rentals due in
connection with any Partnership Property.
(c) The Interestholders of the Partnership shall
be entitled to receive as soon as practicable
following receipt by the Partnership or WDOP, as the
case may be, of the proceeds from any tax appeals or
protests initiated on behalf of the Partnership prior
to the Closing Date for tax fiscal years prior to the
tax fiscal year in which the Closing Date occurs. If
an application to reduce real estate taxes is filed
and such application includes any period extending
from any time before 12:01 a.m. on the Closing Date
until any time after 12:01 a.m. on the Closing Date,
then any reduction realized as a result of such
application (after payment of reasonable attorneys'
fees, appraisal expenses and other direct costs) shall
be prorated between Walden and the Interestholders of
the Partnership, when received, as of the Closing
Date.
(d) Each Interestholder of the Partnership who
has elected to participate in the Exchange Offer shall
be entitled to receive, on the 120th day following the
Closing Date, an amount of cash from WDOP equal to the
additional amount it would have received if the
balance in the Cash Reserve (after making the
adjustments described in Section 2.10(a)) were added
to the Property Value of the Partnership Properties
held by the Partnership.
(e) The provisions of this Section 2.10 shall
survive the Closing.
ARTICLE 3
Exclusion of Properties
1 Environmental Issues. In the event any party
hereto discovers, at any time prior to the forty-fifth
(45th) calendar day following the date hereof, that any of
the Partnership Properties is in violation of any Applica-
ble Environmental Laws or contains or has otherwise been
contaminated by Hazardous Materials, such party shall
notify the other parties hereto in writing of any such
violation or contamination within two (2) business days of
such discovery; provided, however, the terms "violation"
and "contamination" as used herein shall not include
asbestos or asbestos-containing materials or lead-based
paints or furnishings that are in good condition and that
do not, at the time of discovery within such 45-day period,
require immediate abatement, encapsulation or removal
pursuant to Applicable Environmental Laws. If, after
reviewing the extent of such violation or contamination,
the parties hereto in good faith determine that such viola-
tion or contamination is material and is not curable or, if
curable, is not cured within 30 days after such written
notice thereof is given by Walden to Drever, Drever shall
cause the Partnership that owns such property (the "Owner
Partnership") to transfer ownership thereof on or prior to
the Closing Date to a new entity, which entity shall not be
a Partnership, and the Exchange Consideration payable
pursuant to Article 2 hereof to the Interestholders of the
Owner Partnership shall be reduced by an amount equal to
the Property Value of the transferred Partnership Property;
provided, however, if such property is the only Partnership
Property owned by the Owner Partnership, WDOP shall be
entitled to terminate the Exchange Offer with respect to
the Interestholders of the Owner Partnership. The remedy
provided by this Section 3.1 shall be the sole remedy of
Walden and WDOP with respect to any environmental violation
or contamination liability discovered on any Partnership
Property, provided that such limitation shall not apply to
any breach of the notification obligations of Drever, AOF
and AOFII contained in this Section 3.1.
2 Breach. In the event any party hereto discovers,
at any time prior to the forty-fifth (45th) calendar day
following the date hereof, the existence of a Property
Material Breach, such party shall notify all other parties
hereto as soon as practicable and the Owner Partnership
shall, at its discretion within five business days of
delivery of such notice to the general partner thereof (or
within five business days of such discovery, if discovered
by such general partner), (i) cure the breach, (ii) reduce
the purchase price payable by Walden for the applicable
Partnership Property owned by such Owner Partnership by the
amount equal to the cost of repairs and/or diminution in
value of such Partnership Property, as agreed to in good
faith by the parties hereto (the "Repair Cost"), or (iii)
if the Repair Cost for any Partnership Property exceeds
$1,000,000, the Owner Partnership shall transfer ownership
of such Partnership Property (the "Transferred Property")
on or prior to the Closing Date to a new entity, which
entity shall not be a Partnership, and the Exchange
Consideration payable pursuant to Article 2 hereof to the
Interestholders of the Owner Partnership shall be reduced
by an amount equal to the Repair Cost, if an Owner
Partnership elects to reduce the purchase price pursuant to
clause (ii) above, or by an amount equal to the Property
Value of the Transferred Partnership Property if an Owner
Partnership elects to transfer the Partnership Property
pursuant to clause (iii) above; provided, however, if any
Transferred Property is the only Partnership Property owned
by the Owner Partnership, WDOP shall be entitled to
terminate the Exchange Offer with respect to the
Interestholders of the Owner Partnership. If the Owner
Partnership has failed to cure the breach prior to the
Closing Date or has not otherwise agreed to reduce the
purchase price payable by Walden for the applicable
Partnership Property or transferred such Partnership
Property on or prior to the Closing Date, Walden shall be
entitled to require, by written notice to the Owner
Partnership, that the Owner Partnership(s) transfer owner-
ship of such Partnership Property on or prior to the
Closing Date to a new entity, which entity shall not be a
Partnership, and the Exchange Consideration payable
pursuant to Article 2 hereof to the Interestholders of the
Owner Partnership shall be reduced by an amount equal to
the Property Value of the transferred Partnership Property;
provided, however, if any such transferred Partnership
Property is the only Partnership Property owned by the
Owner Partnership, WDOP shall be entitled to terminate the
Exchange Offer with respect to the Interestholders of the
Owner Partnership. The remedy provided by this Section 3.2
shall be the sole remedy of Walden and WDOP with respect to
any defect discovered, or discoverable pursuant to a
property inspection conducted in accordance with customary
industry practice, as to any Partnership Property, provided
that such limitation shall not apply to any breach of the
notification obligations of Drever, AOF and AOFII contained
in this Section 3.2.
3 Casualty and Condemnation Loss.
(a) In the event that any Partnership
Property is damaged by any casualty occurring
after the date hereof and prior to the Closing
Date, all insurance proceeds received by the
Owner Partnership as a result of such damage,
together with cash in an amount equal to any
deductible paid by the Owner Partnership, shall
be retained by the Owner Partnership and not
distributed to the Interestholders of such Owner
Partnership, except as provided below. If the
uninsured Repair Cost as a result of such
casualty exceeds $250,000, then Walden shall be
entitled, at its election, to require the Owner
Partnership to transfer ownership of the
affected Partnership Property and any insurance
proceeds received by the Owner Partnership with
respect to such Partnership Property to a new
entity, which entity shall not be a Partnership,
and the Exchange Consideration payable pursuant
to Article 2 hereof to the Interestholders of
the Owner Partnership shall be reduced by an
amount equal to the Property Value of the
transferred Partnership Property; provided,
however, that if such transferred Partnership
Property is the only Partnership Property owned
by Owner Partnership, WDOP shall be entitled to
terminate the Exchange Offer with respect to
Interestholders of the Owner Partnership.
(b) In the event of a taking by
condemnation or similar proceedings or actions
of any portion of any Partnership Property, the
Owner Partnership shall retain any condemnation
awards or proceeds from any such proceedings or
actions in lieu thereof and not distribute such
amounts to the Interestholders of such Owner
Partnership.
ARTICLE 4
Representations and Warranties of Drever, AOFII and AOF
Drever, AOFII and AOF represent and warrant to Walden
and WDOP as follows, except that all representations and
warranties made by AOFII apply solely to information
derived from the books and records of AOFII and Apartment
Opportunity Fund II, L.P.:
1 Existence; Good Standing; Authority; Compliance
with Law. Each of the Partnerships is a partnership duly
organized, validly existing and in good standing under the
laws of the State of California. Each of the Partnerships
is duly licensed or qualified to do business as a foreign
partnership and is in good standing under the laws of any
other state of the United States in which the character of
the properties owned or leased by it therein or in which
the transaction of its business makes such qualification
necessary, except where the failure to be so qualified
would not result in a Property Material Breach. Each
Partnership has all requisite partnership power and
authority to own, operate, lease and encumber its
properties and carry on its business as now conducted.
None of the Partnerships is in violation of any order
of any court, governmental authority or arbitration board
or tribunal, or any law, ordinance, governmental rule or
regulation to which such Partnership or any of its
properties or assets is subject, where such violation would
result in a Property Material Breach. Each Partnership has
obtained all licenses, permits and other authorizations and
has taken all actions required by applicable law or
governmental regulations in connection with its business as
now conducted, where the failure to obtain any such item or
to take any such action would result in a Property Material
Breach. A copy of each Partnership Agreement (together
with all amendments, exhibits and attachments thereto) has
been delivered or made available to Walden and its counsel,
was complete and correct when delivered or made available
and, as delivered or made available, is in full force and
effect as of the date hereof.
2 Authorization, Validity and Effect of Agreement.
Subject to Article V of the Articles of Incorporation of
each of AOF and AOFII, each of Drever, AOFII and AOF has
the requisite corporate power and authority to execute and
deliver this Agreement and consummate the transactions
contemplated hereby. The consummation by each of Drever,
AOFII and AOF of this Agreement and the transactions
contemplated hereby has been duly authorized by all
requisite action on the part of each of Drever, AOFII and
AOF. Assuming the due and valid authorization, execution
and delivery of this Agreement by Walden and WDOP, this
Agreement constitutes the valid and legally binding
obligation of each of Drever, AOFII and AOF, enforceable
against each of Drever, AOFII and AOF in accordance with
its terms, subject to applicable bankruptcy, insolvency,
moratorium or other similar laws relating to creditors'
rights and general principles of equity.
3 No Violation. Neither the execution and delivery
by any of Drever, AOFII or AOF of this Agreement nor the
consummation by any of Drever, AOFII or AOF of the
transactions contemplated hereby in accordance with the
terms hereof, will: (a) conflict with or result in a breach
of any provisions of the articles of incorporation or
bylaws of Drever, AOFII or AOF or the Partnership Agreement
of any Partnership, except for the provisions of Article V
of the Articles of Incorporation of each of AOF and AOFII;
(b) violate, or conflict with, or result in a breach of any
provision of, or constitute a default (or an event which,
with notice or lapse of time or both, would constitute a
default) under, or result in the termination or in a right
of termination or cancellation of, or accelerate the
performance required by, or result in the creation of an
Encumbrance upon any of the properties or assets of Drever,
AOFII, AOF or any Partnership under, or result in being
declared void, voidable or without further binding effect,
any of the terms, conditions or provisions of any note,
bond, mortgage, indenture, deed of trust or any license,
franchise, permit, lease, contract, agreement or other
instrument, commitment or obligation to which any of
Drever, AOFII or AOF is a party, or by which Drever, AOFII,
AOF or any Partnership or any of their respective
properties or assets are bound or affected, except for any
of the foregoing matters which, individually or in the
aggregate with respect to any Partnership Property, would
not result in a Property Material Breach; or (c) require
any consent, approval or authorization of, or declaration,
filing or registration with, any domestic governmental or
regulatory authority, except where the failure to obtain
any such consent, approval or authorization of, or
declaration, filing or registration with, any governmental
or regulatory authority would not result in a Property
Material Breach.
4 Financial Statements; Undisclosed Liabilities.
(a) Drever, AOFII or AOF, as appropriate, has
delivered to Walden true, correct and complete copies
of the audited balance sheets and related statements
of income, partners' capital and cash flows for each
of the years in the three-year period ended December
31, 1996 for each of Apartment Opportunity Fund, L.P.
and Apartment Opportunity Fund II, L.P. and the
unaudited balance sheets and related statements of
income, partners' capital and cash flows for each of
the years in the three-year period ended December 31,
1996 for each of the other Partnerships. Such audited
financial statements, and any notes thereto, fairly
present the financial condition and results of
operations, partners' capital and cash flows of the
applicable Partnership as at the respective dates and
for the periods referred to in such financial
statements in accordance with generally accepted
accounting principles consistently applied through the
periods involved, except as disclosed in the report
accompanying or in the notes to such audited financial
statements. The unaudited financial statements were
prepared from the books and records of the applicable
Partnership in accordance with procedures and policies
consistently applied throughout the periods involved.
(b) The unaudited balance sheet of each Partnership,
as of March 31, 1997 (collectively, the "Interim
Balance Sheets"), and the related statements of
income, partners' capital and cash flows for the
period then ended are attached hereto as Schedule
4.4(b) and were prepared from the books and records of
such Partnership in accordance with procedures and
policies consistently applied throughout the periods
involved. At the date hereof, there are no material
debts, liabilities or obligations of any nature of any
Partnership, whether absolute, accrued, matured,
contingent or otherwise, including, without
limitation, any contingent liabilities or losses for
unasserted claims which are probable of assertion,
except for those (i) reflected or reserved against in
the Interim Balance Sheets, (ii) otherwise set forth
on Schedule 4.4(b) hereto, or (iii) incurred in the
ordinary course of business since the date of the
Interim Balance Sheets.
5 Partnership Interests. All of the existing
Interests have been duly authorized and are validly issued,
fully paid and nonassessable. Except as disclosed on
Schedule 4.5 hereto, there are no outstanding or authorized
options, rights, warrants, calls, convertible securities,
rights to subscribe, conversion rights or other agreements
or commitments to which any Partnership is a party or which
are binding on any Partnership providing for the issuance
or transfer by any Partnership of additional Interests.
6 Litigation. Except as disclosed on Schedule 4.6
hereto, there are (a) no continuing orders, injunctions or
decrees of any court, arbitrator or governmental authority
to which any Partnership is a party or by which any
properties or assets of any Partnership are bound, and
(b) no actions, suits or proceedings pending against any
Partnership or, to the Knowledge of Drever, AOFII and AOF,
threatened against any Partnership, at law or in equity, or
before or by any federal or state commission, board,
bureau, agency or instrumentality.
7 Absence of Certain Changes. Except as disclosed
on Schedule 4.7 hereto, since the date of the Interim
Balance Sheets, (a) each Partnership has conducted its
business only in the ordinary course of such business (for
purposes of this Section 4.7 only, the term "ordinary
course of business" includes all acquisitions of real
estate properties and financing arrangements made in
connection therewith); (b) to the Knowledge of Drever,
AOFII and AOF, there has not been any Property Material
Breach; (c) none of the Partnerships has incurred any
liabilities, whether or not accrued, contingent or
otherwise, or suffered any events or occurrences that,
individually or in the aggregate, would reasonably be
likely to result in a Property Material Breach; and
(d) there has not been any material change in any
Partnership's accounting principles, practices or methods.
8 Taxes. Except as disclosed on Schedule 4.8
hereto:
(a) Each of the Partnerships (a) has timely
filed all federal, state and foreign tax returns
including, without limitation, information returns and
reports required to be filed by it for tax periods
ended prior to the date of this Agreement or requests
for extensions have been timely filed and any such
request has been granted and has not expired and all
such returns are accurate and complete in all material
respects, (b) has paid or accrued all taxes shown to
be due and payable on such returns or which have
become due and payable pursuant to any assessment,
deficiency notice, 30-day letter or other notice
received by it, and (c) has properly accrued all
taxes for such periods and periods subsequent to the
periods covered by such returns. None of the
Partnerships has received any notice that the federal,
state and local income and franchise tax returns of
any Partnership have been or will be examined by any
taxing authority. None of the Partnerships has
executed or filed with the IRS or any other taxing
authority any agreement now in effect extending the
period for assessment or collection of any income or
other taxes.
(b) None of the Partnerships is party to any
pending action or proceeding by any governmental
authority for assessment or collection of taxes and no
claim for assessment or collection of taxes has been
asserted against any Partnership. True, correct and
complete copies of all 1996 federal, state and local
income or franchise tax returns filed by each
Partnership and all material communications relating
thereto have been delivered to Walden or made
available to representatives of Walden.
(c) Each Partnership has properly and timely
made all tax elections which it is required to make
pursuant to the terms of the partnership agreement of
such Partnership, including, but not limited to,
elections under Section 754 of the Code.
(d) None of the Partnerships has received any
notice from any partner that such partner intends to
treat any item of income, deduction, loss or credit in
a manner that is inconsistent with the manner in which
such item has been treated by such Partnership on the
tax or information returns filed by such Partnership.
(e) None of the Partnerships is taxable as a
corporation for federal income tax purposes.
(f) None of the Partnerships owns real property
which is held primarily for sale to customers in the
ordinary course of its trade or business or which
would otherwise be classified as "inventory."
(g) None of the Partnerships owns any stock in
any corporation or any partnership interests or
securities.
(h) None of the Partnerships owns any assets or
property other than the Partnership Properties owned
by it, personalty related to the Partnership
Properties and cash or cash equivalents.
(i) None of the rent received with respect to
Tenant Leases is determined, in whole or in part, by
reference to the profits derived by any Person from
the Partnership Properties.
(j) To the Knowledge of Drever, none of the
tenants or lessees of the Partnership Properties are
directly or indirectly related to any Partnership or
the partners of any Partnership.
(k) To the Knowledge of Drever, AOFII and AOF,
all services provided to the tenants of the Partnership
Properties are services usually or customarily
rendered in connection with the rental of comparable
multifamily residential properties for occupancy only.
9 Books and Records.
(a) The books of account and other financial
records of each Partnership, and all soil tests and
construction inspection reports, all of which have
been made available to Walden, are, to the Knowledge
of Drever, AOFII and AOF, in all material respects
true and correct.
(b) To the Knowledge of Drever, AOFII and AOF,
the records of each Partnership contain in all
material respects accurate records of all meetings and
accurately reflect in all material respects all
actions of the Interestholders with respect to such
Partnership.
10 No Brokers. Except the fee that is to be paid to
Houlihan Lokey Howard & Zukin, none of Drever, AOFII, AOF
or any Partnership has entered into any contract,
arrangement or understanding with any Person which may
result in the obligation of Drever, AOFII, AOF, any
Partnership, Walden or WDOP to pay any finder's fees,
broker's or agent's commissions or other like payments in
connection with the negotiations leading to this Agreement
or the consummation of the transactions contemplated
hereby. Except for the fees to be paid to Houlihan Lokey
Howard & Zukin and Merrill Lynch & Co. Incorporated, to the
Knowledge of Drever, AOFII or AOF, there is no claim for
payment of any finder's fees, broker's or agent's commis-
sions or other like payments in connection with the
negotiations leading to this Agreement or the consummation
of the transactions contemplated hereby.
11 Properties. Each Partnership owns fee simple
title or leasehold estates to each of the real properties
reflected on Schedule 1.2 hereto as owned by such
Partnership (collectively, the "Partnership Properties"),
which are all of the real estate properties owned by such
Partnership, and no Person has any contract, option, right
of first refusal or other agreement to purchase any
Partnership Property or any material fixture or item of
personalty thereof. Each of the Partnership Properties is
owned by the Partnership shown on Schedule 4.11 hereto as
owning such Partnership Property, free and clear of Encum-
brances, or any claim in favor of any Person that could
become an Encumbrance, and Property Restrictions, except
for (a) Encumbrances and Property Restrictions that are
disclosed on Schedule 4.11 hereto, (b) Encumbrances and
Property Restrictions that would not be reasonably likely,
individually or in the aggregate with respect to any
Partnership Property, to result in a Property Material
Breach, (c) Property Restrictions imposed or promulgated by
law or any Agency, including zoning regulations,
(d) Encumbrances and Property Restrictions disclosed on
existing title reports, title policies or surveys, (e) to
the Knowledge of Drever, AOF and AOFII, mechanics',
carriers', workmen's or repairmen's liens and other
Encumbrances, Property Restrictions and other limitations
of any kind, if any, which have heretofore been bonded or
which, individually or in the aggregate with respect to any
Partnership Property, do not exceed $25,000, do not
materially detract from the value of or materially
interfere with the present use of any of the Partnership
Properties subject thereto or affected thereby, and do not
otherwise materially impair business operations conducted
by any Partnership, and (f) taxes that are not yet
delinquent (such Encumbrances, Property Restrictions,
liens, limitations and taxes set forth in clauses (a)
through (e) and this clause (f), collectively, "Drever
Permitted Liens").
Valid policies of title insurance have been issued
insuring each Partnership's fee simple title to, or
leasehold estate in, the Partnership Properties owned by
it, subject only to the matters disclosed above and as
disclosed on Schedule 4.11 hereto and such policies are, at
the date hereof, in full force and effect and no material
claim has been made against any such policy. Except as
disclosed on Schedule 4.11 hereto or as otherwise set forth
in such Partnership's 1997 capital expenditures budget,
(i) there is no certificate, permit or license from any
Agency having jurisdiction over any of the Partnership
Properties and there is no agreement, easement or other
right which is necessary to permit the lawful use and
operation of the buildings and improvements on any of the
Partnership Properties or which is necessary to permit the
lawful use and operation of all driveways, roads and other
means of egress and ingress to and from any of the
Partnership Properties that 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, except where
the failure to obtain the same would not be reasonably
likely to result in a Property Material Breach; (ii) none
of the Partnerships has received written notice of any
violation of any federal, state or municipal law,
ordinance, order, regulation or requirement issued by any
Agency affecting any portion of any of the Partnership
Properties; (iii) to the Knowledge of Drever, AOF and AOFII
as of the date hereof, there are no structural defects
relating to the Partnership Properties and no Partnership
Properties whose building systems are not in working order
in any respect, except for such defects that, individually
or in the aggregate with respect to any Partnership
Property, would not be reasonably likely to result in a
Property Material Breach; and (iv) there is (A) no current
renovation to any single Partnership Property the cost of
which exceeds $250,000, and (B) no current restoration of
any single Partnership Property the cost of which exceeds
$250,000.
Except as disclosed on Schedule 4.11 hereto, none of
the Partnerships has received notice to the effect that and
there are no (x) condemnation or rezoning proceedings that
are pending or to the Knowledge of Drever, AOFII or AOF
threatened with respect to any of the Partnership
Properties that would be reasonably likely to result in a
Property Material Breach or (y) any zoning, building or
similar laws, codes, ordinances, orders or regulations that
are or will be violated by the continued maintenance,
operation or use of any buildings or other improvements on
any of the Partnership Properties or by the continued
maintenance, operation or use of the parking areas where
such violation would be reasonably likely to result in a
Property Material Breach. To the Knowledge of each of
Drever, AOFII and AOF, all work to be performed, payments
to be made and actions to be taken by each Partnership
prior to the date hereof pursuant to any agreement entered
into with an Agency in connection with a site approval,
zoning reclassification or other similar action relating to
any Partnership Property (e.g., Local Improvement District,
Road Improvement District, Environmental Mitigation) has
been performed, paid or taken, as the case may be, and
neither Drever, AOFII nor AOF has any Knowledge of any
planned or proposed work, payments or actions that may be
required after the date hereof pursuant to such agreements.
12 Compliance with Applicable Regulations.
(a) Except as disclosed on Schedule 4.12 hereto,
all Partnership Properties and the operation thereof
(including the handling of tenant security and other
deposits) currently are in substantial compliance with
the requirements of all Agencies having jurisdiction
over the Partnerships and the Partnership Properties,
except where the failure to so comply would not be
reasonably likely to result in a Property Material
Breach; and to the Knowledge of Drever, AOF and AOFII,
there are no material commitments or agreements with
any of the Agencies affecting any Partnership Property
which have not been fully disclosed to Walden in
writing.
(b) Except as disclosed on Schedule 4.12 hereto,
none of the Partnerships has received any written
notice of uncured violations at any of the Partnership
Properties of zoning, building, fire, rent control,
tenant security or other deposits or any other
applicable statute, ordinance or regulation, relating
to any of the Partnership Properties, its construction
or any occupancy thereof except for violations that,
individually or in the aggregate with respect to any
Partnership Property, would not be reasonably likely
to result in a Property Material Breach, nor are there
presently pending against any Partnership or against
any of the Partnership Properties any judgments
relating to any of the above matters, any judicial
proceedings or administrative actions or any state of
facts which, to the Knowledge of Drever, AOF and
AOFII, with notice or lapse of time, could reasonably
be expected to give rise to any such proceedings or
actions, in either case that would be reasonably
likely to result in a Property Material Breach.
(c) Except as disclosed on Schedule 4.12 hereto
and except as would not be reasonably likely to result
in a Property Material Breach, none of the
Partnerships has received any written notice that any
of the Partnership Properties is currently subject to
(i) any existing, pending or, to the Knowledge of
Drever, AOF and AOFII, threatened investigation or
inquiry by any Agency or (ii) any remedial obligations
under any Applicable Environmental Laws; and none of
the Partnerships has obtained any permits, licenses or
similar authorizations to occupy, renovate, operate or
use any portion of any of the Partnership Properties
by reason of any Applicable Environmental Laws.
(d) Except as disclosed on Schedule 4.12 hereto
and except as would not be reasonably likely to result
in a Property Material Breach, to the Knowledge of
Drever, AOFII and AOF as of the date hereof, no
Hazardous Materials are located on or about any of the
Partnership Properties. To the Knowledge of each of
Drever, AOFII and AOF as of the date hereof and except
as would not be reasonably likely to result in a
Property Material Breach, no Partnership Property
contains any underground tanks for the storage or
disposal of Hazardous Materials. Further, to the
Knowledge of each of Drever, AOFII and AOF as of the
date hereof and except as would not be reasonably
likely to result in a Property Material Breach, (i) no
Partnership Property previously has been used for the
storage, manufacture or disposal of Hazardous
Materials, (ii) no written complaint, order, citation
or notice with regard to air emissions, water
discharges, noise emissions and Hazardous Materials,
if any, or any other Applicable Environmental Laws
from any Person or Agency has been received by any
Partnership, and (iii) each Partnership is in compliance
with all Applicable Environmental Laws.
(e) None of the Partnerships has received any
written notice that any material permits, licenses or
consents not already obtained are required by the
Agencies in connection with the use and occupancy of
any of the Partnership Properties or any material
improvements thereto.
13 Encumbrances on Properties. No action has been
taken by any Partnership, nor has any Partnership failed to
act, with respect to work performed or delivery of material
which action or failure to act would give rise to an Encum-
brance, other than a Drever Permitted Lien, on any of the
Partnership Properties or any improvements thereto. As of
the Closing, there will be no claim in favor of any Person
(including the present management) for any unpaid
commissions or fees for leasing of any of the Partnership
Properties arising out of the acts of or through any
Partnership otherwise than as payable in the ordinary
course of business consistent with past practice.
14 Insurance. The insurance policies listed and
described on Schedule 4.14 hereto are currently in force,
and all such policies or their equivalent will be
maintained in force until the Closing. None of the
Partnerships has received any notice from any insurer of
any of the Partnership Properties or any part thereof
requesting any improvements, alterations, additions,
corrections or other work in, on or about the improvements
thereto, whether related to any of the Partnership
Properties or to the operation of any occupant thereof,
which have not been cured or satisfied.
15 Non-foreign Status. To the Knowledge of Drever,
AOF and AOFII, except as disclosed on Schedule 4.15 hereto,
none of the Partnerships nor any of the Interestholders is
a non-resident alien, foreign corporation, foreign
partnership, foreign trust or foreign estate (as those
terms are defined in Sections 1445 and 7701 of the Code).
16 Information. None of the information to be
supplied by Drever, AOFII or AOF in writing specifically
for inclusion or incorporation by reference in the Exchange
Offer Documents, the Proxy Statement or any other document
filed or to be filed by or on behalf of Walden with the SEC
or any other governmental entity, or otherwise prepared in
connection with the transactions contemplated hereby, will
contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or
necessary in order to make the statements made therein, in
the light of the circumstances under which they were made,
not misleading.
ARTICLE 5
Representations and Warranties of Walden and WDOP
Walden and WDOP represent and warrant to Drever,
AOFII, AOF, each of the Partnerships and each of the
Interestholders as follows:
1 Existence; Good Standing; Authority; Compliance
with Law. Walden is a corporation duly organized,
incorporated, validly existing and in good standing under
the laws of the State of Maryland. Walden is duly licensed
or qualified to do business and is in good standing under
the laws of any other state of the United States in which
the character of the properties owned or leased by it
therein or in which the transaction of its business makes
such qualification necessary, except where the failure to
be so qualified would not have a material adverse effect on
the business, results of operations or financial condition
of Walden and the Subsidiaries (as defined below) taken as
a whole (a "Walden Material Adverse Effect"). Walden has
all requisite power and authority to own, operate, lease
and encumber its properties and carry on its business as
now conducted. WDOP is a partnership duly organized,
validly existing and in good standing under the laws of the
State of Delaware, has the requisite partnership power and
authority to own its properties and to carry on its
business as it is now being conducted and as contemplated
by this Agreement and is duly qualified to do business and
is in good standing in each jurisdiction in which the
ownership of its property or the conduct of its business
requires such qualification, except for jurisdictions in
which such failure to be so qualified or to be in good
standing would not have a Walden Material Adverse Effect.
Neither Walden nor any of the Subsidiaries is in
violation of any order of any court, governmental authority
or arbitration board or tribunal, or any law, ordinance,
governmental rule or regulation to which Walden or any of
its Subsidiaries or any of their respective properties or
assets is subject, where such violation would have a Walden
Material Adverse Effect. Walden and its Subsidiaries have
obtained all licenses, permits and other authorizations and
have taken all actions required by applicable law or
governmental regulations in connection with their business
as now conducted, where the failure to obtain any such item
or to take any such action would have a Walden Material
Adverse Effect. Copies of the articles of incorporation
and bylaws of Walden and the partnership agreement of WDOP
have been delivered or made available to Drever and its
counsel, are complete and correct and are in full force and
effect as of the date hereof.
2 Authorization, Validity and Effect of Agreements.
Walden and WDOP have the requisite corporate and
partnership power and authority, respectively, to execute
and deliver this Agreement and consummate the transactions
contemplated hereby. Subject only to the approval of the
issuance of the shares of Common Stock to be issued by
Walden upon exchange of the Common Units and the exercise
of the Warrants by the Walden Stockholders, the
consummation by each of Walden and WDOP of this Agreement
and the transactions contemplated hereby have been duly
authorized by all requisite corporate and partnership
action on the part of Walden and WDOP, respectively.
Assuming the due and valid authorization, execution and
delivery of this Agreement by Drever, AOF and AOFII, this
Agreement constitutes the valid and legally binding
obligation of each of Walden and WDOP, enforceable against
each of Walden and WDOP in accordance with its terms,
subject to applicable bankruptcy, insolvency, moratorium or
other similar laws relating to creditors' rights and
general principles of equity.
3 Capitalization. The authorized capital stock of
Walden consists of 50,000,000 shares of Common Stock and
10,000,000 shares of preferred stock, par value $.01 per
share (the "Preferred Stock"). As of March 31, 1997, there
were 17,388,208 shares of Common Stock issued and
outstanding and 5,768,200 shares of Preferred Stock issued
and outstanding, constituting the series designated as (a)
the 9.16% Series A Cumulative Redeemable Preferred Stock,
(b) the 9.16% Series B Cumulative Redeemable Preferred
Stock, and (c) the 9.20% Senior Preferred Stock. In
addition, there are 810,128 limited partnership interests
issued and outstanding in Walden Residential Operating
Partnership, L.P., a Subsidiary ("Walden Operating").
Except as described above, Walden has no outstanding bonds,
debentures, notes or other obligations the holders of which
have the right to vote (or which are convertible into or
exercisable for securities having the right to vote) with
the Walden Stockholders on any matter. All such issued and
outstanding shares of Common Stock are duly authorized,
validly issued, fully paid, nonassessable and free of
preemptive rights. There are not at the date of this
Agreement any existing options, warrants, calls,
subscriptions, convertible securities or other rights,
agreements or commitments which obligate Walden or any of
the Subsidiaries to issue, transfer or sell any shares of
stock or other equity interest of Walden or any of the
Subsidiaries, other than the issuance by Walden of up to
1,664,500 shares of Common Stock upon the exercise of stock
options issued to employees and directors. There are no
agreements or understandings to which Walden is a party
with respect to the voting of any shares of Common Stock or
which restrict the transfer of any such shares, except in
order to protect its REIT status.
4 Partnership Interests. Walden is the sole
general partner and WDN Properties, Inc., a wholly-owned
Subsidiary, is the sole limited partner, of WDOP. All of
the interests issued to such entities by WDOP have been
duly authorized and are validly issued, fully paid and
nonassessable. Other than this Agreement and the
Contribution Agreement, there are no outstanding or
authorized options, rights, warrants, calls, convertible
securities, rights to subscribe, conversion rights or other
agreements or commitments to which WDOP is a party or which
are binding on WDOP providing for the issuance or transfer
by WDOP of additional interests.
5 Subsidiaries. Except as in the next sentence
provided, Walden owns directly or indirectly each of the
outstanding shares of capital stock or all of the
partnership or other equity interests of each of the
Subsidiaries free and clear of all liens, pledges, security
interests, claims or other encumbrances other than liens
imposed by local law which are not material. There are
currently outstanding 810,128 limited partnership interests
in Walden Operating owned by Persons other than Walden and
the Subsidiaries. Each of the outstanding shares of
capital stock of or other equity interest in each of the
Subsidiaries is duly authorized, validly issued, fully paid
and nonassessable.
6 Other Interests. Except for interests in the
Subsidiaries, neither Walden nor any of the Subsidiaries
owns directly or indirectly any interest or investment
(whether equity or debt) in any corporation, partnership,
joint venture, business, trust or entity (other than
investments in short-term investment securities).
7 No Violation. Neither the execution and delivery
by Walden of this Agreement nor the consummation by Walden
and WDOP of the transactions contemplated hereby in
accordance with the terms hereof, will: (a) conflict with
or result in a breach of any provisions of the articles of
incorporation or bylaws of Walden or the partnership
agreement of WDOP; (b) result in a breach or violation of,
a default under, or the triggering of any payment or other
material obligations pursuant to, or accelerate vesting
under, any of Walden's stock option plans, or any grant or
award made under any of the foregoing; (c) violate, or
conflict with, or result in a breach of any provision of,
or constitute a default (or an event which, with notice or
lapse of time or both, would constitute a default) under,
or result in the termination or in a right of termination
or cancellation of, or accelerate the performance required
by, or result in the creation of any Encumbrance upon any
of the properties of Walden or the Subsidiaries under, or
result in being declared void, voidable or without further
binding effect, any of the terms, conditions or provisions
of any note, bond, mortgage, indenture, deed of trust or
any license, franchise, permit, lease, contract, agreement
or other instrument, commitment or obligation to which
Walden or any of the Subsidiaries is a party, or by which
Walden or any of the Subsidiaries or any of their
properties is bound or affected, except for any of the
foregoing matters which, individually or in the aggregate,
would not have a Walden Material Adverse Effect; or
(d) other than the Regulatory Filings, require any consent,
approval or authorization of, or declaration, filing or
registration with, any domestic governmental or regulatory
authority, except where the failure to obtain such consent,
approval or authorization of, or declaration, filing or
registration with, any governmental or regulatory authority
would not have a Walden Material Adverse Effect.
8 SEC Documents. Walden has delivered or made
available to Drever its Form 10-K for the fiscal year ended
December 31, 1996 and the proxy statement relating to the
annual meeting of the Walden Stockholders to be held on
June 5, 1997, each in the form (including exhibits and any
amendments thereto) filed with the SEC (collectively, the
"1996 Fiscal Year Reports"). The 1996 Fiscal Year Reports,
together with all other registration statements,
prospectuses, Forms 8-K, 10-Q and 10-K, information
statements, schedules and proxy statements filed by Walden
with the SEC since January 1, 1994, each of which is listed
on Schedule 5.8 hereto (collectively, the "Walden
Reports"), were filed with the SEC in a timely manner and
constitute all forms, reports and documents required to be
filed by Walden under the Securities Laws.
As of their respective dates, the Walden Reports
(a) complied as to form in all material respects with the
applicable requirements of the Securities Laws and (b) did
not contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein or
necessary to make the statements made therein, in the light
of the circumstances under which they were made, not
misleading. Each of the consolidated balance sheets of
Walden included in or incorporated by reference into the
Walden Reports (including the related notes and schedules)
fairly presents the consolidated financial position of
Walden and the Subsidiaries as of its date, and each of the
consolidated statements of income, stockholders' equity and
cash flows of Walden included in or incorporated by
reference into the Walden Reports (including any related
notes and schedules) fairly presents the consolidated
results of operations, stockholders' equity or cash flows,
as the case may be, of Walden and the Subsidiaries for the
periods set forth therein (subject, in the case of
unaudited statements, to normal year-end audit adjustments
which will not be material in amount or effect), in each
case in accordance with generally accepted accounting
principles consistently applied during the periods
involved, except as may be noted therein and except, in the
case of the unaudited statements, as permitted by the
Securities Laws.
Except as and to the extent set forth on the
consolidated balance sheet of Walden and the Subsidiaries
at December 31, 1996, including all notes thereto, or as
set forth in the Walden Reports, neither Walden nor any of
the Subsidiaries has any material debts, liabilities or
obligations of any nature, whether absolute, accrued,
matured, contingent or otherwise, including, without
limitation, any contingent liabilities or losses for
unasserted claims which are probable of assertion, except
for those (i) reflected on any interim balance sheet filed
with the SEC subsequent to such date, (ii) otherwise
disclosed on Schedule 5.8 hereto, (iii) incurred in the
ordinary course of business since such date, and
(iv) liabilities related to the acquisition by Walden of
six properties on April 21, 1997.
9 Litigation. Except as disclosed on Schedule 5.9
hereto, there are (a) no continuing orders, injunctions or
decrees of any court, arbitrator or governmental authority
to which Walden or any of the Subsidiaries is a party or by
which any of its properties or assets are bound, and (b) no
actions, suits or proceedings pending against Walden or any
of the Subsidiaries or, to the Knowledge of Walden,
threatened against Walden or any of the Subsidiaries, at
law or in equity, or before or by any federal or state
commission, board, bureau, agency or instrumentality.
10 Absence of Certain Changes. Except and as to the
extent disclosed in the Walden Reports filed with the SEC
as of the date hereof, (a) Walden and the Subsidiaries have
conducted their business only in the ordinary course of
such business (which, for purposes of this Section 5.10
only, shall include all acquisitions of real estate
properties and financing arrangements made in connection
therewith); (b) to the Knowledge of Walden, there has not
been any Walden Material Adverse Effect; (c) as of the date
hereof, there has not been any declaration, setting aside
or payment of any dividend or other distribution with
respect to the Common Stock; (d) Walden and the
Subsidiaries have not incurred any liabilities or
obligations of any nature, whether or not accrued,
contingent or otherwise, or suffered any events or
occurrences that would be required by generally accepted
accounting principles to be reflected on a consolidated
balance sheet of Walden or that, individually or in the
aggregate, would reasonably be likely to have a Walden
Material Adverse Effect; and (e) there has not been any
material change in Walden's accounting principles,
practices or methods.
11 Taxes. Except as set forth on Schedule 5.11
hereto, Walden and each of the Subsidiaries (a) has timely
filed all federal, state and foreign tax returns including,
without limitation, information returns and reports
required to be filed by any of them for tax periods ended
prior to the date of this Agreement or requests for
extensions have been timely filed and any such request has
been granted and has not expired and all such returns are
accurate and complete in all material respects, (b) has
paid or accrued all taxes shown to be due and payable on
such returns or which have become due and payable pursuant
to any assessment, deficiency notice, 30-day letter or
other notice received by it, and (c) has properly accrued
all taxes for such periods subsequent to the periods
covered by such returns. Neither Walden nor any of the
Subsidiaries has received any notice that the federal,
state and local income and franchise tax returns of Walden
or any such Subsidiary have been or will be examined by any
taxing authority. Neither Walden nor any of the
Subsidiaries has executed or filed with the IRS or any
other taxing authority any agreement now in effect
extending the period for assessment or collection of any
income or other taxes.
Except as disclosed on Schedule 5.11 hereto, neither
Walden nor any of the Subsidiaries is a party to any
pending action or proceeding by any governmental authority
for assessment or collection of taxes, and no claim for
assessment or collection of taxes has been asserted against
it. Walden (i) has qualified to be taxed as a real estate
investment trust ("REIT") pursuant to Sections 856 through
859 of the Code for its taxable years ended December 31,
1994 through 1996, inclusive (ii) has operated, and intends
to continue to operate, in such a manner as to qualify to
be taxed as a REIT pursuant to Sections 856 through 859 of
the Code for its taxable year ending on December 31, 1997,
and (iii) has not taken or omitted to take any action which
could result in, a challenge to its status as a REIT. For
purposes of this Section 5.11, "taxes" includes any
interest, penalty or additional amount payable with respect
to any tax.
12 Books and Records.
(a) The books of account and other financial
records of Walden and the Subsidiaries, all reports
(including, without limitation, soil tests and
construction inspection reports), Tenant Leases and
other documents related to the construction,
ownership, management and operation of their
properties and assets that are in the possession and
control of Walden, all of which have been made
available to Drever are, to the Knowledge of Walden,
in all material respects true and correct.
(b) The records of Walden contain in all
material respects accurate records of all meetings and
accurately reflect in all material respects all other
corporate action of the Walden Stockholders and
directors and any committees of the Board of Directors
of Walden with respect to Walden.
13 Properties. Walden and the Subsidiaries own fee
simple title or leasehold estates to each of the real
properties reflected on the most recent balance sheet of
Walden included in the Walden Reports (the "Walden
Properties"), which are all of the real estate properties
owned by them, and no Person has any contract, option,
right of first refusal or other agreement to purchase any
Walden Property or any part thereof. Each of the Walden
Properties is owned by Walden or its Subsidiaries free and
clear of Encumbrances, or any claim in favor of any Person
that could become an Encumbrance, and Property
Restrictions, except for (a) Encumbrances and Property
Restrictions that are disclosed on Schedule 5.13 hereto,
(b) Encumbrances and Property Restrictions that would not
be reasonably likely, individually or in the aggregate, to
have a Walden Material Adverse Effect, (c) Property
Restrictions imposed or promulgated by law or any Agency,
including zoning regulations, (d) Encumbrances and Property
Restrictions disclosed on existing title reports, title
policies or surveys, (e) to the Knowledge of Walden,
mechanics', carriers', workmen's or repairmen's liens and
other Encumbrances, Property Restrictions and other
limitations of any kind, if any, which have heretofore been
bonded or which individually or in the aggregate, do not
exceed $100,000, do not materially detract from the value
of or materially interfere with the present use of any of
the Walden Properties subject thereto or affected thereby,
and do not otherwise materially impair business operations
conducted by Walden and the Subsidiaries, and (f) taxes
that are not yet delinquent (such Encumbrances, Property
Restrictions, liens, limitations and taxes set forth in
clauses (a) through (e) and this clause (f), collectively,
the "Walden Permitted Liens").
Valid policies of title insurance have been issued
insuring Walden's and each of its Subsidiaries' fee simple
title to, or leasehold estate in, the Walden Properties,
subject only to the matters disclosed above and as
disclosed on Schedule 5.13 hereto, and such policies are,
at the date hereof, in full force and effect and no
material claim has been made against any such policy.
Except as disclosed on Schedule 5.13 hereto or as otherwise
set forth in Walden's 1997 capital expenditures budget,
(i) there is no certificate, permit or license from any
Agency having jurisdiction over any of the Walden
Properties and there is no agreement, easement or other
right which is necessary to permit the lawful use and
operation of the buildings and improvements on any of the
Walden Properties or which is necessary to permit the
lawful use and operation of all driveways, roads and other
means of egress and ingress to and from any of the Walden
Properties that 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 where the failure to obtain
the same would not be reasonably likely to have a Walden
Material Adverse Effect; (ii) neither Walden nor any of the
Subsidiaries has received written notice of any violation
of any federal, state or municipal law, ordinance, order,
regulation or requirement affecting any portion of any of
the Walden Properties issued by any Agency; (iii) there are
no structural defects relating to the Walden Properties and
no Walden Properties whose building systems are not in
working order in any respect, except for such defects that,
individually or in the aggregate, would not be reasonably
likely to have a Walden Material Adverse Effect; and
(iv) there is (A) no physical damage to any single Walden
Property in excess of $250,000 for which there is no
insurance in effect covering the cost of the restoration,
(B) no current renovation to any single Walden Property the
cost of which exceeds $250,000, and (C) no current
restoration of any single Walden Property the cost of which
exceeds $250,000.
Except as disclosed on Schedule 5.13 hereto, Walden
and the Subsidiaries have received no notice to the effect
that and there are no (x) condemnation or rezoning
proceedings that are pending or, to the Knowledge of
Walden, threatened with respect to any of the Walden
Properties that would be reasonably likely to have a Walden
Material Adverse Effect or (y) any zoning, building or
similar laws, codes, ordinances, orders or regulations that
are or will be violated by the continued maintenance,
operation or use of any buildings or other improvements on
any of the Walden Properties or by the continued
maintenance, operation or use of the parking areas where
such violation would be reasonably likely to have a Walden
Material Adverse Effect. To the Knowledge of Walden, all
work to be performed, payments to be made and actions to be
taken by Walden or the Subsidiaries prior to the date
hereof pursuant to any agreement entered into with an
Agency in connection with a site approval, zoning
reclassification or other similar action relating to the
Walden Properties (e.g., Local Improvement District, Road
Improvement District, Environmental Mitigation) has been
performed, paid or taken, as the case may be, and Walden is
not aware of any planned or proposed work, payments or
actions that may be required after the date hereof pursuant
to such agreements.
14 Compliance with Applicable Regulations.
(a) Except as disclosed on Schedule 5.14 hereto,
all Walden Properties and the operation thereof
(including the handling of tenant security and other
deposits) currently are in substantial compliance with
the requirements of all Agencies having jurisdiction
over Walden, the Subsidiaries and the Walden
Properties, except where the failure to so comply
would not be reasonably likely to have a Walden
Material Adverse Effect; and to Walden's Knowledge,
there are no material commitments or agreements with
any of the Agencies affecting the Walden Properties
which have not been fully disclosed to Drever in
writing.
(b) Except as disclosed on Schedule 5.14 hereto,
neither Walden nor any of the Subsidiaries has
received no notices of uncured violations at any of
the Walden Properties of zoning, building, fire, rent
control, tenant security or other deposits or any
other applicable statute, ordinance or regulation,
relating to any of the Walden Properties, its
construction, or any occupancy thereof except for
violations that, individually or in the aggregate,
would not be reasonably likely to have a Walden
Material Adverse Effect, nor are there presently
pending against Walden, any of the Subsidiaries or
against any of the Walden Properties any judgments
relating to any of the above matters, any judicial
proceedings or administrative actions or any state of
facts which, to Walden's Knowledge, with notice or
lapse of time, could reasonably be expected to give
rise to any such proceedings or action, in either case
that could be reasonably likely to have a Walden
Material Adverse Effect.
(c) Except as disclosed on Schedule 5.14 hereto
and except as would not be reasonably likely to have
a Walden Material Adverse Effect, neither Walden nor
any of the Subsidiaries has received written notice
that any of the Walden Properties is currently subject
to (i) any existing, pending or, to the Knowledge of
Walden, threatened investigation or inquiry by any
Agency or (ii) any remedial obligations under any
Applicable Environmental Laws; and neither Walden nor
any of the Subsidiaries has obtained any permits,
licenses or similar authorizations to occupy,
renovate, operate or use any portion of any of the
Walden Properties by reason of any Applicable
Environmental Laws.
(d) Except as disclosed on Schedule 5.14 hereto
and except as would not be reasonably likely to have
a Walden Material Adverse Effect, to the Knowledge of
Walden, no Hazardous Materials are located on or about
any of the Walden Properties. To the Knowledge of
Walden, and except as would not be reasonably likely
to have a Walden Material Adverse Effect, no Walden
Property contains any underground tanks for the
storage or disposal of Hazardous Materials. Further,
to the Knowledge of Walden, and except as would not be
reasonably likely to have a Walden Material Adverse
Effect, (i) no Walden Property previously has been
used for the storage, manufacture or disposal of
Hazardous Materials, (ii) no written complaint, order,
citation or notice with regard to air emissions, water
discharges, noise emissions and Hazardous Materials,
if any, or any other Applicable Environmental Laws
from any Person or Agency has been received by Walden
or any of the Subsidiaries, and (iii) to Walden's
Knowledge, Walden and the Subsidiaries are in compliance
with all Applicable Environmental Laws.
(e) Neither Walden nor any of the Subsidiaries
has received written notice that any material permits,
licenses or consents not already obtained are required
by the Agencies in connection with the use and
occupancy of any of the Walden Properties or any
material improvements thereto.
15 No Brokers. Except the fee that is to be paid to
Merrill Lynch & Co. Incorporated by Walden, Walden has not
entered into any contract, arrangement or understanding
with any Person or firm which may result in the obligation
of Walden, WDOP, Drever, AOF or AOFII to pay any finder's
fees, broker's or agent's commissions or other like
payments in connection with the negotiations leading to
this Agreement or the consummation of the transactions
contemplated hereby. Except for the fees payable to
Houlihan Lokey Howard & Zukin and Merrill Lynch & Co.
Incorporated, to the Knowledge of Walden, there is no claim
for payment of any finder's fees, broker's or agent's
commissions or other like payments in connection with the
negotiations leading to this Agreement or the consummation
of the transactions contemplated hereby.
16 Units. The issuance and delivery by WDOP of
Units in connection with the Exchange Offer and the
Contribution Agreement have been duly and validly autho-
rized by all necessary partnership action on the part of
WDOP. The Units to be issued in connection with the
Exchange Offer and the Contribution Agreement when issued
in accordance with the terms of this Agreement, will be
validly issued, fully paid and nonassessable.
17 Encumbrances on Properties. No action has been
taken by Walden or any of the Subsidiaries, nor has Walden
or any of the Subsidiaries failed to act, with respect to
work performed or delivery of material which would give
rise to an Encumbrance, other than a Walden Permitted Lien,
on any of the Walden Properties or any improvements
thereto. As of the Closing, there will be no unpaid
assessments against any of the Walden Properties except for
property taxes assessed but not due and payable at the time
of Closing; and there will be no claim in favor of any
Person (including the present management) for any unpaid
commissions or fees for leasing of any of the Walden
Properties arising out of the acts of or through Walden or
any of the Subsidiaries otherwise than as payable in the
ordinary course of business consistent with past practice.
18 Insurance. The insurance policies listed and
described on Schedule 5.18 hereto are currently in force,
and all such policies or their equivalent will be
maintained in force until the Closing. Neither Walden nor
any of the Subsidiaries has received any notice from any
insurer of any of the Walden Properties or any part thereof
requesting any improvements, alterations, additions,
correction or other work in, on or about the improvements
thereto, whether related to any of the Walden Properties or
to the operation of any occupant thereof, which have not
been cured or satisfied.
19 Non-foreign Status. Neither Walden nor WDOP is
a non-resident alien, foreign corporation, foreign
partnership, foreign trust or foreign estate (as those
terms are defined in Sections 1445 and 7701 of the Code).
20 Information. None of the Proxy Statement or any
other document filed or to be filed by or on behalf of
Walden with the SEC or any other governmental entity or any
other document required to be prepared and distributed in
connection with the transactions contemplated hereby,
including, without limitation, the Exchange Offer
Documents, will contain when filed, or shall contain at the
respective times filed with the SEC or other Agency, and,
in addition, in the case of the Proxy Statement and the
Exchange Offer Documents at the date it or any amendment or
supplement thereto is mailed (i) to the Walden Stockholders
to solicit the vote of such stockholders on the issuance of
shares of Common Stock to be issued by Walden upon the
exchange of Common Units and upon the exercise of the
Warrants, or (ii) the Interestholders, any untrue statement
of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make
the statements made therein, in the light of the
circumstances under which they were made, not misleading;
provided that the foregoing shall not apply to information
supplied by Drever, AOFII or AOF in writing specifically
for inclusion or incorporation by reference in any such
document. The Proxy Statement shall comply as to form in
all material respects with the applicable provisions of the
Exchange Act and the rules and regulations thereunder.
ARTICLE 6
Covenants
1 Acquisition Proposals. Prior to the Closing
Date, Drever, AOFII and AOF each agree (a) that none of
them nor any of their affiliates shall, and each of them
shall direct and use its best efforts to cause its
respective officers, directors, employees, agents,
affiliates and representatives (including, without
limitation, any investment banker, attorney or accountant
retained by it or any of its affiliates) not to, initiate,
solicit or encourage, directly or indirectly, any inquiries
or the making or implementation of any proposal or offer
with respect to a merger, acquisition, tender offer,
exchange offer, consolidation or similar transaction
involving, or any purchase of all or any significant
portion (which, for purposes of this Section 6.1 shall mean
Partnership Properties having an aggregate Property Value
of 20% or more of the aggregate Property Value of all
Partnership Properties) of the assets or any equity
securities of, such entity, any Partnership or any of their
affiliates, 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) that 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 each will take the necessary steps to inform the
individuals or entities referred to above of the
obligations undertaken in this Section 6.1; and (c) that it
will notify Walden immediately if any such inquiries or
proposals are received by, any such information is
requested from, or any such negotiations or discussions are
sought to be initiated or continued with, it; provided,
however, that nothing contained in this Section 6.1 shall
prohibit Drever from furnishing information to or entering
into discussions or negotiations with, any Person that
makes an unsolicited bona fide Superior Acquisition
Proposal (as defined below), if, and only to the extent
that, (i) the Boards of Directors of Drever, AOFII and/or
AOF determine in good faith that such action is required
for Drever, AOFII or AOF, as applicable, to comply with its
fiduciary duties to the partners of the Partnerships under,
or otherwise violate, applicable law as advised by counsel,
(ii) prior to furnishing such information to, or entering
into discussions or negotiations with, such Person, Drever
provides written notice to Walden to the effect that
Drever, AOFII and/or AOF are furnishing information to, or
entering into discussions with, such Person except to the
extent that the Boards of Directors of Drever, AOFII and/or
AOF, as applicable, determine in good faith that any such
action would violate such Boards' fiduciary duties under,
or otherwise violate, applicable law, and (iii) subject to
any confidentiality agreement with such Person (which
Drever determined in good faith was required to be executed
in order for Drever, AOFII and/or AOF to comply with its
fiduciary duties to the partners of the Partnership imposed
by law as advised by counsel), Drever keeps Walden
reasonably informed of the status (but not the terms) of
any such discussions or negotiations except to the extent
that the Boards of Directors of Drever, AOFII and/or AOF,
as applicable, determine in good faith that any such action
would violate such Boards' fiduciary duties under, or
otherwise violate, applicable law. A "Superior Acquisition
Proposal" means a bona fide Acquisition Proposal made by a
third party and which a majority of the members of the
Board of Directors of Drever, AOFII and/or AOF, as
applicable, determines in good faith (a) to be more
favorable to the Interestholders than the Exchange Offer
and (b) is reasonably capable of being consummated.
Nothing in this Section 6.1 shall (x) permit any party
to terminate this Agreement (except as specifically
provided for in Article 8 hereof), (y) permit any party to
enter into any agreement with respect to an Acquisition
Proposal during the term of this Agreement (it being agreed
that during the term of this Agreement, no party shall
enter into any agreement with any Person that provides for,
or in any way facilitates, an Acquisition Proposal (other
than a confidentiality agreement in customary form)), or
(z) affect any other obligation of any party under this
Agreement.
2 Conduct of Business.
(a) Prior to the Closing Date, except as contem-
plated by this Agreement, unless Walden or Drever, as
appropriate, has consented in writing thereto, WDOP,
on the one hand, and Drever, AOFII or AOF, as general
partners of the Partnerships, on the other hand:
(i) Shall use their reasonable efforts to
preserve intact, in all material respects, their
business operations and goodwill and the
business operations and goodwill of the
Partnerships;
(ii) Shall confer on a regular basis with
one or more representatives of the other to
report operational matters of materiality and,
subject to Section 6.1 hereof, any proposals to
engage in material transactions; and
(iii) Shall promptly notify the other
of any material emergency or other material
change in the condition (financial or
otherwise), business, properties, assets,
liabilities, prospects or the normal course of
their businesses or in the operation of their
properties, any material governmental
complaints, investigations or hearings (or
communications indicating that the same may be
contemplated), or the breach in any material
respect of any representation, warranty,
covenant or agreement contained herein.
(b) Prior to the Closing Date, unless Walden has
consented (such consent not to be unreasonably
withheld or delayed) in writing thereto, each of
Drever, AOF and AOFII, as general partners of the
Partnerships, agrees to cause each of the Partnerships
to:
(i) Conduct its operations according to
its usual, regular and ordinary course in
substantially the same manner as heretofore
conducted;
(ii) Not amend its partnership agreement or
other charter documents;
(iii) Not issue any additional Inter-
ests, provided that the foregoing shall not
prohibit the transfer of Interests outstanding
on the date hereof or the fulfillment of the
obligations disclosed on Schedule 4.5 hereto;
(iv) Not declare, set aside or pay any
distribution or payment with respect to, or
directly or indirectly redeem, purchase or
otherwise acquire, any Interests or make any
commitment for any such action, except in the
ordinary course of business and pursuant to the
terms of its partnership agreement;
(v) Not sell or otherwise dispose of (A)
any Partnership Properties or (B) any of its
other assets which are material, individually or
in the aggregate;
(vi) Not make any loans, advances or
capital contributions to, or investments in, any
other Person other than in the ordinary course
of business consistent with past practice;
(vii) Not pay, discharge or satisfy any
claims, liabilities or obligations (absolute,
accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge or
satisfaction in the ordinary course of business
consistent with past practice or in accordance
with their terms, of liabilities reflected or
reserved against in, or contemplated by, the
most recent financial statements (or the notes
thereto) of such Partnership or incurred in the
ordinary course of business consistent with past
practice;
(viii) Not enter into any commitment
which individually may result in total payments
or liability by or to it in excess of $25,000 in
the case of any one commitment or in excess of
$100,000 for all commitments other than
commitments entered into in the ordinary course
of business;
(ix) (A) Until the Closing, continue the
operation of the Partnership Properties owned by
it in the normal and usual manner consistent
with past practice, not remove any material
fixtures, furnishings, equipment or personalty
therefrom, except for repair or replacement or
otherwise in the ordinary course of business
consistent with past practice, and manage,
operate, maintain, repair and redecorate the
Partnership Properties owned by it in the
ordinary course of business consistent with past
practice and in accordance with such
Partnership's 1997 capital expenditures budget,
as previously provided to Walden, in such manner
as to maintain such Partnership Properties in no
less satisfactory condition than the same exists
as of the date hereof; and
(B) Maintain all rental units (other
than "models") included in the Partnership
Properties owned by it in "market ready"
rentable condition as of the Closing Date;
provided, however, that Walden and WDOP acknowledge
that rental units that are vacated within
five (5) business days prior to the Closing Date
will be in varying conditions of make-ready for
leasing, as is ordinary in the Partnership's
course of business; and
(x) Within forty-five (45) days following
the end of any fiscal quarter ending prior to
the Closing Date, deliver to Walden the
unaudited balance sheet of each of the
Partnerships for such quarter and the related
statements of operations, partners' capital and
cash flows for such period.
(c) Prior to the Closing Date, unless Drever has
consented (such consent not to be unreasonably
withheld or delayed) in writing thereto, each of
Walden and WDOP:
(i) Shall, and shall cause each of its
affiliates to, conduct their operations
according to its usual, regular and ordinary
course in substantially the same manner as
heretofore conducted;
(ii) Shall not amend its articles of
incorporation, bylaws, partnership agreement or
other charter document, as the case may be;
(iii) Shall not (A) except pursuant to
the exercise of options, warrants, conversion
rights and other contractual rights (including
Walden's existing dividend reinvestment plan and
stock option plans) existing on the date hereof,
or as otherwise required by this Agreement or
the Contribution Agreement), issue any shares of
its capital stock, effect any stock split,
reverse stock split, stock dividend,
recapitalization or other similar transaction,
(B) amend any employment agreement with any of
its present or future officers or directors, or
(C) adopt any new employee benefit plan
(including any stock option, stock benefit or
stock purchase plan);
(iv) Shall not (A) declare, set aside or
pay any dividend or make any other distribution
or payment with respect to any shares of its
capital stock, except that Walden may pay a
dividend not to exceed $.4825 per share of
Common Stock, $.5725 per share of Walden's 9.16%
Series A Cumulative Redeemable Preferred Stock
and 9.16% Series B Cumulative Redeemable
Preferred Stock and $.575 per share of Walden's
9.20% Senior Preferred Stock for the second and
third calendar quarters of 1997 and any other
dividend or distribution necessary for Walden to
maintain its ability to qualify to be taxed as a
REIT under the Code, or (B) except in connection
with the use of shares of capital stock to pay
the exercise price or tax withholding in
connection with stock-based employee benefit
plans of Walden, directly or indirectly redeem,
purchase or otherwise acquire any shares of its
capital stock or partnership interests, as the
case may be, or capital stock or partnership
interests, as the case may be, of any of its
affiliates, or make any commitment for any such
action;
(v) Shall not, and shall not permit any of
its affiliates to, sell or otherwise dispose of
any of its assets which are material,
individually or in the aggregate;
(vi) Shall not, and shall not permit any of
its respective affiliates to, make any loans,
advances or capital contributions to, or
investments in, any unaffiliated third party
other than in connection with the sale of
properties;
(vii) Shall not, and shall not permit
any of its affiliates to, pay, discharge or
satisfy any claims, liabilities or obligations
(absolute, accrued, asserted or unasserted,
contingent or otherwise), other than the
payment, discharge or satisfaction in the
ordinary course of business consistent with past
practice or in accordance with their terms, of
liabilities reflected or reserved against in, or
contemplated by, the most recent consolidated
financial statements (or the notes thereto) of
Walden included in Walden's Form 10-K for the
fiscal year ended December 31, 1996 or incurred
in the ordinary course of business consistent
with past practice;
(viii) Shall not, and shall not permit
any of its respective affiliates to, enter into
any commitment which, individually or in the
aggregate, may result in total payments or
liabilities by or to it in excess of $1,000,000
other than in the ordinary course of business;
and
(ix) Shall not, and shall not permit any of
its respective affiliates to, enter into any
commitment with any officer, director or
affiliate of Walden, except in the ordinary
course of business.
3 Approval of Stockholders and Acceptance by
Interestholders.
(a) In connection with the issuance of shares of
Common Stock by Walden upon exchange of the Common
Units and upon the exercise of the Warrants, Walden,
acting through its Board of Directors, shall, in
accordance with applicable law, its articles of
incorporation and bylaws and the rules and regulations
of the New York Stock Exchange, duly call, give notice
of, convene and hold a special meeting of the Walden
Stockholders as soon as practicable, for the purpose
of voting upon the approval of such share issuances.
Walden shall include in the Proxy Statement the
recommendation of its Board of Directors that the
Walden Stockholders vote in favor of the approval of
such share issuances, unless the Board of Directors of
Walden determines in good faith that any such action
would violate such Board's fiduciary duties under
applicable law.
(b) Each of Drever, AOF and AOFII shall take all
necessary action, in accordance with applicable law,
its articles of incorporation and bylaws to recommend
that the Interestholders accept the Exchange Offer and
tender their Interests to WDOP pursuant to the
Exchange Offer, unless the Boards of Directors of
Drever, AOFII and/or AOF, as applicable, determine in
good faith that any such action would violate such
Boards' fiduciary duties under, or otherwise violate,
applicable law.
4 Filings; Other Action. Subject to the terms and
conditions herein provided, Walden and Drever shall:
(a) use all their best efforts to cooperate with one
another in (i) determining which filings are required to be
made prior to the Closing Date with, and which consents,
approvals, permits or authorizations are required to be
obtained prior to the Closing Date from, governmental or
regulatory authorities of the United States, the several
states, third party secured and unsecured lenders and
rating agencies in connection with the execution and
delivery of this Agreement and the consummation of the
transactions contemplated hereby and (ii) timely making all
such filings and timely seeking all such consents,
approvals, permits or authorizations; (b) use their best
efforts to obtain in writing any consents required from
third parties in form reasonably satisfactory to Walden and
Drever necessary to effectuate the Exchange Offer; and
(c) use their 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 Closing Date, any
further action is necessary or desirable to carry out the
purpose of this Agreement, the proper officers and
directors of Walden, Drever, AOFII and AOF shall take all
such necessary action.
Walden and Drever shall promptly provide the other (or
its counsel) copies of (x) all filings in connection with
the Exchange Offer, (y) all filings under the Exchange Act
after the date hereof and prior to the Closing Date, and
(z) all other regulatory filings in connection with this
Agreement and the transactions contemplated hereby, in each
case, made by Walden or WDOP, on the one hand, or Drever,
AOFII or AOF, on the other hand.
5 Inspection of Records. From the date hereof to
the Closing Date, each of Walden, Drever, AOFII and AOF
shall, upon reasonable notice. allow all designated
officers, attorneys, accountants and other representatives
of the other access at all reasonable times to the records
and files, correspondence, audits and properties, as well
as to all information relating to commitments, contracts,
titles and financial position, or otherwise pertaining to
the business and affairs of Walden, WDOP, Drever, AOFII,
AOF and their respective affiliates.
6 Publicity. The initial press release relating to
this Agreement shall be a joint release and thereafter
Walden, Drever, AOFII and AOF shall, subject to their
respective legal obligations (including requirements of
stock exchanges and other similar regulatory bodies),
consult with each other, and use reasonable efforts to
agree upon the text of any press release, before issuing
any such press release or otherwise making public
statements with respect to the transactions contemplated
hereby and in making any filings with any federal or state
governmental or regulatory agency or with any national
securities exchange with respect thereto.
7 Proxy Statement. Walden shall file with the SEC
as soon as practicable a proxy statement (the "Proxy
Statement") under the Exchange Act, with respect to the
meeting of the Walden Stockholders in connection with the
Exchange Offer. Walden will cause the Proxy Statement to
comply as to form in all material respects with the
applicable provisions of the Exchange Act and the rules and
regulations promulgated thereunder. Walden shall use its
best efforts to obtain, prior to the Closing Date, all
necessary permits or approvals required under the
Securities Laws to carry out the transactions contemplated
by this Agreement and will pay all expenses incident
thereto. Drever, AOFII and AOF hereby agree to cooperate
with Walden in the preparation of the Proxy Statement and
to provide Walden with such information as Walden may
reasonably request. Walden, after consultation with
Drever, shall respond as promptly as practicable to any
comments made by the SEC with respect to the Proxy
Statement and shall cause a definitive Proxy Statement to
be mailed to the Walden Stockholders at the earliest
practicable date. Each of Drever, AOFII, AOF, Walden and
WDOP agrees to correct as promptly as practicable any
information provided by it for use in the Proxy Statement
if and to the extent that it shall have become false or
misleading in any material respect, and Walden agrees to
take all steps necessary to file with the SEC and have
cleared thereby any amendment or supplement to the Proxy
Statement so as to correct the same and to cause the Proxy
Statement as so corrected to be disseminated to the Walden
Stockholders to the extent required by applicable law.
8 Post-Closing Conduct of Business. For the
period commencing with the Closing Date and ending on and
including the 15th business day following the Closing Date,
Walden (either directly or indirectly through a relevant
affiliate) and WDOP (a) shall endeavor to cause each of the
Partnerships to continue to exist and engage in the conduct
of its business and (b) shall not permit any Partnership to
undertake any action or enter into any arrangement in
connection with or related to a merger of, liquidation of,
termination of, winding-up of, or similar transaction that
involves, such Partnership in which, as a result of such
transaction, such Partnership would no longer continue to
exist or remain in business for Federal income tax
purposes.
9 Further Action. Each party hereto shall, subject
to the fulfillment at or before the Closing Date of each of
the conditions of performances set forth herein or the
waiver thereof, perform such further acts and execute such
documents as may reasonably be required to effect the
Exchange Offer.
10 Expenses. Except as otherwise provided in
Article 8 hereof, all costs and expenses incurred in
connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring
such expenses.
11 Third Party Consents. WDOP, Walden, Drever, AOF
and AOFII each shall take all necessary corporate and other
action and will use its commercially reasonable efforts to
obtain the consents and applicable approvals from third
parties that may be required to enable it to carry out the
transactions contemplated by this Agreement.
12 Efforts to Fulfill Conditions. WDOP, Walden,
Drever, AOF and AOFII each shall use its best efforts to
insure that all conditions precedent to its obligations
hereunder are fulfilled at or prior to the Closing.
13 Representations, Warranties and Conditions Prior
to Closing. Walden, WDOP, AOF and Drever each shall use
its best efforts to cause its representations and
warranties contained in this Agreement to be true and
correct on and as of the Closing Date in all material
respects (except for those representations and warranties
that address matters only as of a particular date and time
which need only be true and correct as of such date or with
respect to such period). Prior to Closing, Walden and
Drever each shall promptly notify the other in writing
(a) if any representation or warranty contained in this
Agreement is discovered to be or becomes materially untrue
or (b) if any of WDOP, Walden, AOF, AOFII or Drever fails
to perform or comply, in all material respects, with any of
its covenants or agreements contained in this Agreement or
it is reasonably expected that it will be unable to perform
or comply, in all material respects, with any of its
covenants or agreements contained in this Agreement.
14 Partnership Agreements. On or prior to the
Mailing Date, Walden shall execute, and cause WDN
Properties, Inc. to execute, the WDOP Partnership Agreement
and deliver such agreement to WDOP. On or prior to the
Mailing Date, Walden and WDOP shall execute the Agreement
of General Partnership of Walden-WDOP Partners. Walden
shall not take, or permit to be taken, with respect to any
Partnership Property owned by a Partnership the general
partner of which Walden acquires control following the
Closing Date, any action with respect to such Partnership
or with respect to such Partnership Properties that would
be prohibited by the terms of the WDOP Partnership
Agreement if such Partnership Properties were owned by
WDOP, provided that nothing contained herein shall prohibit
Walden from causing any such Partnership to transfer such
Partnership Properties to WDOP.
15 Other Documents. On or prior to the Closing
Date, Walden shall execute and deliver the Warrant
Agreement to Drever, AOF and AOFII. In addition, on or
prior to the Closing Date, Walden shall execute the
Articles Supplementary and file such document with the
Department of Assessments and Taxation of the State of
Maryland.
16 Cooperation of the Parties. Walden and Drever
each will cooperate with the other in supplying such
information as may be reasonably requested by the other in
connection with the consummation of the transactions
contemplated by this Agreement, including, without
limitation, seeking any necessary consents or approvals.
17 Stock Exchange Listing. Walden shall, as
promptly as practicable following the date hereof, prepare
and submit to the New York Stock Exchange a listing
application covering the shares of Common Stock and
Preferred Stock to be issued by Walden upon exchange of the
Common Units and Preferred Units, respectively, and shall
use its best efforts to obtain, prior to the Closing Date,
approval of the listing of such shares, subject to official
notice of issuance.
ARTICLE 7
Conditions
1 Conditions to the Interestholders', Walden's and
WDOP's Obligations to Consummate the Exchange Offer. The
respective obligation of each party to consummate the
Exchange Offer shall be subject to the fulfillment at or
prior to the Closing Date of the following conditions:
(a) The issuance of the Common Stock issuable
upon exchange of the Common Units and upon the
exercise of the Warrants shall have been approved by
the Walden Stockholders as provided herein.
(b) None of the parties hereto shall be subject
to any order or injunction of a court of competent
jurisdiction which prohibits the consummation of the
transactions contemplated by this Agreement. In the
event any such order or injunction shall have been
issued, each party agrees to use its reasonable
efforts to have any such injunction lifted.
(c) The Proxy Statement shall have been cleared
by the SEC and no stop order with respect to the Proxy
Statement shall be in effect.
(d) All consents, authorizations, orders and
approvals of (or filings or registrations with) any
governmental commission, board, other regulatory body
or third parties required in connection with the
execution, delivery and performance of this Agreement
shall have been obtained or made, except for filings
in connection with the Exchange Offer and any other
documents required to be filed after the Closing Date
and except where the failure to have obtained or made
any such consent, authorization, order, approval,
filing or registration would not have a material
adverse effect on the business, results of operations
or financial condition of Walden and each of the
Partnerships (and their respective affiliates), taken
as a whole, following the Closing Date.
2 Conditions to Obligations of the Interestholders
to Consummate the Exchange Offer. The obligations of each
Interestholder to consummate the Exchange Offer shall be
subject to the fulfillment at or prior to the Closing Date
of the following conditions, unless waived by such
Interestholder:
(a) WDOP and Walden shall have performed, in all
material respects, their respective agreements
contained in this Agreement required to be performed
on or prior to the Closing Date and the representations
and warranties of Walden and WDOP contained in
this Agreement shall be true and correct as of the
Closing Date in all material respects (except for
those representations and warranties that address
matters only as of a particular date and time which
need only be true and correct as of such date or with
respect to such period), and Drever shall have
received a certificate from an executive officer of
Walden dated the Closing Date certifying to such
effect.
(b) The opinion of Houlihan Lokey Howard & Zukin
that the aggregate Exchange Consideration to be
received by the Interestholders is fair, from a
financial point of view, as of the Closing Date shall
have been delivered to Drever.
(c) Drever shall have received the opinion of
Winstead Sechrest & Minick P.C. ("WSM"), dated the
Closing Date, in substantially the form attached
hereto as Schedule 7.2.
(d) The shares of Common Stock and Preferred
Stock issuable upon the exchange of the Common Units
and Preferred Units, respectively, and upon the
exercise of the Warrants shall have been approved for
listing on the New York Stock Exchange subject to
official notice of issuance.
3 Conditions to Obligation of WDOP to Consummate
the Exchange Offer. The obligation of WDOP to consummate
the Exchange Offer shall be subject to the fulfillment at
or prior to the Closing Date of the following conditions,
unless waived by WDOP:
(a) Drever, AOF and AOFII shall have performed,
in all material respects, their agreements contained
in this Agreement required to be performed on or prior
to the Closing Date and the representations and
warranties of Drever, AOF and AOFII contained in the
Agreement shall be true and correct in all material
respects as of the Closing Date (except for those
representations and warranties that address matters
only as of a particular date and time which need only
be true and correct as of such date or with respect to
such period), and Walden shall have received a
certificate of an executive officer of Drever dated
the Closing Date certifying to such effect.
(b) Interestholders representing 50.1% or more
of the Interests of Apartment Opportunity Fund, L.P.
and Interestholders representing 50.1% or more of the
Interests of Apartment Opportunity Fund II, L.P. shall
have accepted the Exchange Offer.
(c) Partnership Properties representing no more
than 25% of the aggregate Property Values of the
Partnership Properties held by Apartment Opportunity
Fund, L.P. and Partnership Properties representing no
more than 25% of the aggregate Property Values of the
Partnership Properties held by Apartment Opportunity
Fund II, L.P. shall have been excluded, pursuant to
the provisions of Article 3 hereof, from the Partnership
Properties held by the Partnerships on the
Closing Date.
(d) The opinion of Merrill Lynch & Co.
Incorporated addressed to the Board of Directors of
Walden that the aggregate Exchange Consideration,
payable under this Agreement is fair, from a financial
point of view, to the Walden Stockholders, shall not
have been withdrawn or materially modified.
(e) Walden shall have received the opinions of
Richard J. Kalish, Esq., General Counsel of Drever,
and Skadden, Arps, Slate, Meagher & Flom LLP, dated
the Closing Date, in substantially the forms attached
hereto as Schedule 7.3(a) and Schedule 7.3(b),
respectively.
ARTICLE 8
Termination
1 Termination by Mutual Consent. This Agreement
may be terminated and the Exchange Offer may be abandoned
at any time prior to the Closing Date by the mutual written
consent of Drever and Walden, with the prior approval of
the respective Boards of Directors of Drever and Walden.
2 Termination by Either Drever or Walden. This
Agreement may be terminated and the Exchange Offer may be
abandoned by either Drever or Walden if (a) the Exchange
Offer shall not have been consummated by December 31, 1997,
provided that a party that has willfully and materially
breached a representation, warranty or covenant of such
party set forth in this Agreement shall not be entitled to
exercise its right to terminate under this Section 8.2(a),
(b) a meeting of the Walden Stockholders shall have been
duly convened and held and the approval of the Walden
Stockholders required by Section 7.1(a) hereof shall not
have been obtained at such meeting or at any adjournment or
postponement thereof, unless Walden is in breach of its
obligations under Section 6.3, hereof, (c) a United States
federal or state court of competent jurisdiction or United
States federal or state governmental, regulatory or
administrative agency or commission shall have issued an
order, decree or ruling or taken any other action
permanently restraining, enjoining or otherwise prohibiting
the transactions contemplated by this Agreement and such
order, decree, ruling or other action shall have become
final and non-appealable, provided that the party seeking
to terminate this Agreement pursuant to this clause (c)
shall have used its best efforts to remove such order,
decree, ruling or injunction, or (d) any of the conditions
set forth in Article 7 hereof shall not have been
satisfied; and provided, in the case of a termination
pursuant to clause (a) or (d) above, that 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 said clause.
3 Termination by Drever, AOF and AOFII. This
Agreement may be terminated and the Exchange Offer may be
abandoned at any time prior to the Closing Date by action
of the Boards of Directors of Drever, AOF and AOFII if
(a) in the exercise of its good faith judgment as to its
fiduciary duties to the Interestholders imposed by law, as
advised by counsel, the Boards of Directors of Drever, AOF
and AOFII determine that such termination is required by
reason of a Superior Acquisition Proposal being made,
(b) the Board of Directors of Walden withdraws, materially
modifies or changes in a manner materially adverse to the
Interestholders its recommendation to the Walden
Stockholders to approve the issuance of Common Stock
issuable upon exchange of the Common Units and upon the
exercise of the Warrants, (c) except with the written
consent of Drever, the Board of Directors of Walden
postpones the date scheduled for the meeting of the Walden
Stockholders to approve the issuance of Common Stock
issuable upon exchange of the Common Units and upon the
exercise of the Warrants beyond December 31, 1997 or fails
to set a date for such meeting by such date, (d) there has
been a breach by Walden or WDOP of any representation or
warranty contained in this Agreement which would have or
would be reasonably likely to have a Walden Material
Adverse Effect and which breach is not curable by December
31, 1997, or (e) there has been a material breach of any of
the covenants or agreements set forth in this Agreement on
the part of Walden or WDOP, which breach is not curable or,
if curable, is not cured within 30 days after written
notice of such breach is given by Drever to Walden.
4 Termination by Walden. This Agreement may be
terminated and the Exchange Offer may be abandoned at any
time prior to the Closing Date by action of the Board of
Directors of Walden, if (a) the Boards of Directors of
Drever, AOF and/or AOFII withdraw, materially modify or
change in a manner materially adverse to WDOP their
recommendation to the Interestholders to accept the
Exchange Offer, other than as a result of the occurrence of
an event that in the good faith judgment of the Boards of
Directors of Drever, AOF and/or AOFII has or is reasonably
likely to have a Walden Material Adverse Effect or
(b) there has been a material breach of any of the
covenants or agreements set forth in this Agreement on the
part of Drever, AOF or AOFII, which breach is not curable
or, if curable, is not cured within 30 days after written
notice of such breach is given by Walden to Drever, AOF or
AOFII, as applicable.
5 Effect of Termination and Abandonment. In the
event of termination of this Agreement and the abandonment
of the Exchange Offer pursuant to this Article 8, written
notice thereof shall forthwith be given to the other
parties specifying the provisions hereof pursuant to which
such termination is made, and this Agreement shall
forthwith become null and void, and there shall be no
liability on the part of the parties hereof, or their
respective directors, officers, employees, partners,
shareholders, representatives, agents or advisors, except
the obligations of the parties pursuant to this Section 8.5
and Section 6.10 hereof and except for the provisions of
Sections 9.1, 9.2, 9.3, 9.5, 9.7, 9.13 and 9.15 hereof.
Nothing contained in this Section 8.5 shall relieve any of
the parties hereto from liability for willful breach of
this Agreement. If Drever, AOF and AOFII elect to
terminate this Agreement pursuant to Section 8.3(a) hereof
and, within one year from the date of such termination,
Drever, AOF and/or AOFII consummates a Superior Acquisition
Proposal or enters into an agreement to consummate a
Superior Acquisition Proposal which is subsequently
consummated, Drever, AOF and/or AOFII shall pay to Walden,
provided that Walden and/or WDOP was not in material breach
of its obligations hereunder at the time of such
termination, as liquidated damages and not as a penalty or
forfeiture an amount equal to the least of (a) $10,000,000,
(b) an amount equal to 50% of the excess of the value of
the consideration received by the Interestholders pursuant
to the Superior Acquisition Proposal over $642,000,000 (the
"Liquidated Damages Amount") and (c) the sum of (x) the
maximum amount that can be paid to Walden without causing
Walden 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 Walden's
certified public accountants, plus (y) an amount equal to
the Liquidated Damages Amount less the amount payable under
clause (x) above in the event Walden receives a letter from
Walden's counsel indicating that Walden has received a
ruling from the IRS to the effect that Liquidated Damages
Amount payments constitute Qualifying Income. The payments
to which Walden is entitled under this Section 8.5 shall be
its sole remedy with respect to the termination of this
Agreement under the circumstances contemplated in this
Section 8.5.
6 Extension; Waiver. At any time prior to the
Closing Date, either Walden or Drever may, to the extent
legally allowed, (a) extend the time for the performance of
any of the obligations or other acts of the other parties
hereto, (b) waive any inaccuracies in the representations
and warranties made to such party contained herein or in
any document delivered pursuant hereto, and (c) waive
compliance with any of the agreements or conditions for the
benefit of such party contained herein. Any agreement on
the part of a party hereto to any such extension or waiver
shall be valid only if set forth in an instrument in
writing signed on behalf of such party.
ARTICLE 9
General Provisions
1 Nonsurvival of Representations and Warranties.
No representation or warranty in this Agreement or in any
instrument delivered pursuant to this Agreement shall
survive the Closing Date or the termination of this
Agreement. This Section 9.1 shall not limit any covenant
or agreement set forth herein that, by its terms,
contemplates performance after the Closing Date.
2 Notices. Any notice or other communication
required to be given hereunder to any of the parties hereto
shall be in writing and shall be sent by facsimile
transmission (confirmed by any of the methods that follow),
courier service (with proof of service), hand delivery or
certified or registered mail (return receipt requested and
first-class postage prepaid) and addressed as follows:
If to Walden or WDOP:
c/o Walden Residential Properties, Inc.
One Lincoln Centre
5400 LBJ Freeway
Suite 400
Dallas, Texas 75240
Attention: Don R. Daseke
Chief Executive Officer
Facsimile: (972) 788-1550
with a copy (which shall not constitute notice) to:
Winstead Sechrest & Minick P.C.
1201 Elm Street
Suite 5400
Dallas, Texas 75240
Attention: Kenneth L. Betts, Esq.
Facsimile: (214) 745-5390
If to Drever, or AOF or AOFII:
c/o Drever Partners, Inc.
Four Embarcadero Center
Suite 1810
San Francisco, California 94111
Attention: Michael E. Masterson
Facsimile: (415) 433-1777
with a copy (which shall not constitute notice) to:
Skadden, Arps, Slate, Meagher & Flom LLP
Four Embarcadero Center
Suite 3800
San Francisco, California 94111
Attention: Theodore J. Kozloff, Esq.
Facsimile: (415) 984-2698
or to such other address as any party shall specify by written
notice so given, and such notice shall be deemed to have been
delivered as of the date so delivered.
3 Assignment; Binding Effect; Benefit. Neither this
Agreement nor any of the rights, interests or obligations hereunder
shall be assigned by any of the parties hereto (whether by
operation of law or otherwise) without the prior written consent of
the other parties. Subject to the preceding sentence, this
Agreement shall be binding upon and shall inure to the benefit of
the parties hereto and their respective successors and permitted
assigns. Notwithstanding anything contained in this Agreement to
the contrary, nothing in this Agreement, expressed or implied, is
intended to confer on any Person, other than the parties hereto or
their respective heirs, successors, executors, administrators and
assigns, any rights, remedies, obligations or liabilities under or
by reason of this Agreement.
4 Entire Agreement. This Agreement, the Schedules and any
documents delivered by the parties in connection herewith
constitute the entire agreement among the parties with respect to
the subject matter hereof and supersede all prior agreements and
understandings, written and oral, among the parties with respect
thereto, including, without limitation, the letters of intent dated
March 12, 1997 and May 8, 1997. No addition to or modification of
any provision of this Agreement shall be binding upon any party
hereto unless made in writing and signed by all parties hereto.
5 Interference. Each party hereto further agrees that if
this Agreement is terminated in accordance with its terms, until
December 31, 1997 (a) it will not offer to hire or hire any Person
currently or formerly employed by the other party or any of its
affiliates with whom such party has had contact prior hereto other
than Persons whose employment shall have been terminated by such
other party prior to the date of such offer to hire or hiring and
(b) neither it nor its affiliates shall directly or indirectly,
(i) (A) solicit, seek or offer to effect or effect, (B) negotiate
with or provide any information to the Board of Directors of any of
Walden, Drever, AOF or AOFII, as applicable, any director or
officer of any of Walden, Drever, AOF or AOFII, as applicable, or
any stockholder of any of Walden, Drever, AOF or AOFII, as
applicable, with respect to, (C) make any statement or proposal,
whether written or oral, either alone or in concert with others, to
the Board of Directors of any of Walden, Drever, AOF or AOFII, as
applicable, any director or officer of any of Walden, Drever, AOF
or AOFII, as applicable, or any stockholder of any of Walden,
Drever, AOF or AOFII, as applicable, or any other Person with
respect to, or (D) make any public announcement (except as required
by law in respect of actions permitted hereby) or proposal or offer
whatsoever (including, without limitation, any "solicitation" of
"proxies" as such terms are defined or used in Regulation 14A of
the Exchange Act) with respect to, (1) any form of business
combination or similar or other extraordinary transaction involving
the other party or any affiliate thereof, including, without
limitation, a merger, tender or exchange offer or liquidation of
the other party's assets, (2) any form of restructuring,
recapitalization or similar transaction with respect to the other
party or any affiliate thereto, (3) any purchase of any securities
or assets, or rights or options to acquire any securities or assets
(through purchase, exchange, conversion or otherwise), of the other
party or any affiliate thereof, (4) any proposal to seek
representation on the Board of Directors of any of Walden, Drever,
AOF or AOFII, as applicable, or otherwise to seek to control or
influence the management, Board of Directors or policies of any of
Walden, Drever, AOF or AOFII, as applicable, or any affiliate
thereof, (5) any request or proposal to waive, terminate or amend
the provisions of this Section 9.5, or (6) any proposal or other
statement inconsistent with the terms of this Section 9.5 or
(ii) instigate, encourage, join, act in concert with or assist
(including, but not limited to, providing or assisting in any way
in the obtaining of financing for, or acting as a joint or
co-bidder for the other party with) any third party to do any of the
foregoing, unless and until such party has received the prior
written invitation or approval of a majority of the Board of
Directors of any of Walden, Drever, AOF or AOFII, as applicable, to
do any of the foregoing; provided that without such invitation or
approval, either party may at any time, on a confidential
non-public basis, submit to the chief executive officer or, if none,
the president of any of Walden, Drever, AOF or AOFII, as
applicable, a proposal to (x) amend any of the provisions of this
Section 9.5 or (y) effect a business combination or other
extraordinary transaction with the other party providing for the
acquisition of all or substantially all of the assets or the
securities of the other party, including, without limitation, a
merger, tender offer or exchange offer. Each party hereto agrees
that it will not agree with any third party to waive its rights
under this Section 9.5.
6 Amendment. This Agreement may be amended by the parties
hereto, by action taken by the Board of Directors of Walden,
Drever, AOF or AOFII, as applicable, at any time before or after
approval of this Agreement or any other matter presented in
connection with the Exchange Offer by the Walden Stockholders, but
after any such approval, no amendment shall be made which by law
requires the further approval of the Walden Stockholders without
obtaining such further approval. This Agreement may not be amended
except by an instrument in writing signed on behalf of each of the
parties hereto.
7 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware
without regard to the rules of conflicts of laws thereof or of any
other jurisdiction. Each of Walden, WDOP, Drever, AOF and AOFII
hereby irrevocably and unconditionally (a) consents to submit to
the exclusive jurisdiction of the courts of the State of Delaware
and of the appropriate federal courts located in the State of
Delaware (the "Delaware Courts") for any litigation, brought by any
of the parties hereto, arising out of or relating to this Agreement
or any of the transactions contemplated hereby, (b) waives any
objection to the laying of venue of any such litigation in the
Delaware Courts and agrees not to plead or claim in any Delaware
Court that such litigation brought therein has been brought in an
inconvenient forum, and (c) agrees that it will not bring any
action against any of the parties hereto, arising out or relating
to this Agreement and the transactions contemplated hereby, in any
court other than a Delaware Court.
8 Counterparts. This Agreement may be executed by the
parties hereto in separate counterparts, each of which when so
executed and delivered shall be an original, but all such
counterparts shall together constitute one and the same
instrument.
9 Headings. Headings of the Articles and Sections of this
Agreement are for the convenience of the parties only and shall be
given no substantive or interpretive effect whatsoever.
10 Interpretation. In this Agreement, unless the context
otherwise requires, words describing the singular number shall
include the plural and vice versa, and words denoting any gender
shall include all genders.
11 Waivers. Except as provided in this Agreement, no action
taken pursuant to this Agreement, including, without limitation,
any investigation by or on behalf of any party, shall be deemed to
constitute a waiver by the party taking such action of compliance
with any representations, warranties, covenants or agreements
contained in this Agreement. The waiver by any party hereto of a
breach of any provision hereunder shall not operate or be construed
as a waiver of any prior or subsequent breach of the same or any
other provision hereunder.
12 Incorporation. The Schedules attached hereto and
referred to herein are hereby incorporated herein and made a part
hereof for all purposes as if fully set forth herein.
13 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 in that
jurisdiction 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.
14 Enforcement of Agreement. The parties hereto agree that
irreparable damage would occur in the event that any of the
provisions of this Agreement was not performed in all material
respects and monetary damages would not be an adequate remedy
therefor. It is accordingly agreed that the parties shall be
entitled to an injunction or injunctions to prevent material
breaches of this Agreement and to enforce specifically the terms
and provisions hereof in any Delaware Court, this being in addition
to any other remedy to which they are entitled at law or in
equity.
15 Non-Recourse. Neither the officers, directors nor
stockholders of Walden shall be personally bound or have any
personal liability hereunder. Drever, AOF and AOFII shall look
solely to the assets of Walden for satisfaction of any liability of
Walden with respect to this Agreement. None of Drever, AOF or
AOFII will seek recourse or commence any action against any of the
stockholders of Walden or any of their personal assets, and will
not commence any action for money judgments against any of the
directors or officers of Walden or seek recourse against any of
their personal assets, for the performance or payment of any
obligation of Walden hereunder. Neither the directors, officers
nor stockholders of Drever, AOF nor AOFII nor the Interestholders
(other than Drever) shall be personally bound or have any personal
liability hereunder. Walden and WDOP shall look solely to the
assets of Drever, AOF and AOFII for satisfaction of any liability
of Drever, AOF and AOFII with respect to this Agreement. Walden
and WDOP will not seek recourse or commence any action against any
of the stockholders of Drever, AOF or AOFII or the Interestholders
(other than Drever) or any of their personal assets, and will not
commence any action for money judgments against any of the
directors or officers of Drever, AOF or AOFII or seek recourse
against any of their personal assets, for the performance or
payment of any obligation of Drever, AOF or AOFII hereunder.
16 Schedules.
(a) To the extent that the Schedules include items or
information which are not required to be disclosed under this
Agreement, disclosure of such items or information shall not
affect (directly or indirectly) the interpretation of this
Agreement or the scope of any disclosure obligation under the
Agreement. Inclusion of information in the Schedules shall
not be construed as an admission that such information is
material to the business, assets, liabilities, financial
position, operations or results of operations of the
disclosing party.
(b) Any matter disclosed in any Schedule to this
Agreement shall be deemed disclosed for all purposes under
this Agreement.
IN WITNESS WHEREOF, the parties have executed this
Agreement and caused the same to be duly delivered on their behalf
on the day and year first written above.
WALDEN RESIDENTIAL PROPERTIES, INC.
By:
Name:
Title:
WALDEN/DREVER OPERATING PARTNERSHIP
By: Walden Residential Properties, Inc.,
its general partner
By:
Name:
Title:
DREVER PARTNERS, INC.
By:
Name:
Title:
AOF II, INC.
By:
Name:
Title:
AOF, INC.
By:
Name:
Title:
TABLE OF CONTENTS
ARTICLE 1 - Definitions. . . . . . . . . . . . . . . . . . . . 2
ARTICLE 2 - The Exchange Offer . . . . . . . . . . . . . . . . 9
2.1. Commencement of the Exchange Offer. . . . . . . 9
2.4. Conduct of the Exchange Offers. . . . . . . . . 10
2.5. Restrictions on Amendment or Waiver of
Exchange Offers. . . . . . . . . . . . . . . . . . . 10
2.6. Preparation of Exchange Offer Documents . . . . 10
2.7. Dissemination of Exchange Offer Documents . . . 11
2.8. Expiration of Exchange Offers . . . . . . . . . 11
2.9. The Closing . . . . . . . . . . . . . . . . . . 11
ARTICLE 3 - Exclusion of Properties. . . . . . . . . . . . . . 13
ARTICLE 4 - Representations and Warranties of Drever, AOFII
and AOF . . . . . . . . . . . . . . . . . . . . . . . . . 16
4.1. Existence; Good Standing; Authority;
Compliance with Law. . . . . . . . . . . . . . . . . 16
4.2. Authorization, Validity and Effect of
Agreement. . . . . . . . . . . . . . . . . . . . . . 17
4.3. No Violation. . . . . . . . . . . . . . . . . . 17
4.4. Financial Statements; Undisclosed Liabilities . 18
4.5. Partnership Interests . . . . . . . . . . . . . 19
4.6. Litigation. . . . . . . . . . . . . . . . . . . 19
4.7. Absence of Certain Changes. . . . . . . . . . . 19
4.8. Taxes . . . . . . . . . . . . . . . . . . . . . 19
4.9. Books and Records . . . . . . . . . . . . . . . 21
4.10. No Brokers . . . . . . . . . . . . . . . . 21
4.11. Properties . . . . . . . . . . . . . . . . 22
4.12. Compliance with Applicable Regulations . . 24
4.13. Encumbrances on Properties . . . . . . . . 25
4.14. Insurance. . . . . . . . . . . . . . . . . 25
4.15. Non-foreign Status . . . . . . . . . . . . 26
4.16. Information. . . . . . . . . . . . . . . . 26
ARTICLE 5 - Representations and Warranties of Walden and WDOP. 26
5.1. Existence; Good Standing; Authority;
Compliance with Law. . . . . . . . . . . . . . . . . 26
5.2. Authorization, Validity and Effect of
Agreements . . . . . . . . . . . . . . . . . . . . . 27
5.3. Capitalization. . . . . . . . . . . . . . . . . 28
5.4. Partnership Interests . . . . . . . . . . . . . 28
5.5. Subsidiaries. . . . . . . . . . . . . . . . . . 28
5.6. Other Interests . . . . . . . . . . . . . . . . 29
5.7. No Violation. . . . . . . . . . . . . . . . . . 29
5.8. SEC Documents . . . . . . . . . . . . . . . . . 30
5.9. Litigation. . . . . . . . . . . . . . . . . . . 31
5.10. Absence of Certain Changes . . . . . . . . 31
5.11. Taxes. . . . . . . . . . . . . . . . . . . 31
5.12. Books and Records. . . . . . . . . . . . . 32
5.13. Properties . . . . . . . . . . . . . . . . 32
5.14. Compliance with Applicable Regulations . . 34
5.15. No Brokers . . . . . . . . . . . . . . . . 36
5.16. Units. . . . . . . . . . . . . . . . . . . 36
5.17. Encumbrances on Properties . . . . . . . . 36
5.18. Insurance. . . . . . . . . . . . . . . . . 37
5.19. Non-foreign Status . . . . . . . . . . . . 37
5.20. Information. . . . . . . . . . . . . . . . 37
ARTICLE 6 - Covenants. . . . . . . . . . . . . . . . . . . . . 38
6.1. Acquisition Proposals . . . . . . . . . . . . . 38
6.2. Conduct of Business . . . . . . . . . . . . . . 39
6.3. Approval of Stockholders and Acceptance by
Interestholders . . . . . . . . . . . . . . . . 44
6.4. Filings; Other Action.. . . . . . . . . . . . . 44
6.5. Inspection of Records.. . . . . . . . . . . . . 45
6.6. Publicity . . . . . . . . . . . . . . . . . . . 45
6.7. Proxy Statement . . . . . . . . . . . . . . . . 45
6.8. Post-Closing Conduct of Business. . . . . . . . 46
6.9. Further Action. . . . . . . . . . . . . . . . . 46
6.10. Expenses . . . . . . . . . . . . . . . . . 46
6.11. Third Party Consents . . . . . . . . . . . 46
6.12. Efforts to Fulfill Conditions. . . . . . . 47
6.13. Representations, Warranties and
Conditions Prior to Closing. . . . . . . . . . . . . 47
6.15. Other Documents. . . . . . . . . . . . . . 47
6.16. Cooperation of the Parties . . . . . . . . 48
6.17. Stock Exchange Listing . . . . . 48
ARTICLE 7 - Conditions . . . . . . . . . . . . . . . . . . . . 48
7.1. Conditions to the Interestholders', Walden's
and WDOP's Obligations to Consummate the
Exchange Offer. . . . . . . . . . . . . . . . . 48
7.2. Conditions to Obligations of the
Interestholders to Consummate the Exchange
Offer . . . . . . . . . . . . . . . . . . . . . 49
7.3. Conditions to Obligation of WDOP to Consummate
the Exchange Offer. . . . . . . . . . . . . . . 50
ARTICLE 8 - Termination. . . . . . . . . . . . . . . . . . . . 51
8.1. Termination by Mutual Consent . . . . . . . . . 51
8.2. Termination by Either Drever or Walden. . . . . 51
8.3. Termination by Drever, AOF and AOFII. . . . . . 51
8.4. Termination by Walden . . . . . . . . . . . . . 52
8.5. Effect of Termination and Abandonment . . . . . 52
8.6. Extension; Waiver . . . . . . . . . . . . . . . 53
ARTICLE 9 - General Provisions . . . . . . . . . . . . . . . . 54
9.1. Nonsurvival of Representations and Warranties . 54
9.2. Notices . . . . . . . . . . . . . . . . . . . . 54
9.3. Assignment; Binding Effect; Benefit . . . . . . 55
9.4. Entire Agreement. . . . . . . . . . . . . . . . 55
9.5. Interference. . . . . . . . . . . . . . . . . . 56
9.6. Amendment . . . . . . . . . . . . . . . . . . . 57
9.7. Governing Law . . . . . . . . . . . . . . . . . 57
9.8. Counterparts. . . . . . . . . . . . . . . . . . 57
9.9. Headings. . . . . . . . . . . . . . . . . . . . 57
9.10. Interpretation . . . . . . . . . . . . . . 57
9.11. Waivers. . . . . . . . . . . . . . . . . . 57
9.12. Incorporation. . . . . . . . . . . . . . . 58
9.13. Severability . . . . . . . . . . . . . . . 58
9.14. Enforcement of Agreement . . . . . . . . . 58
9.15. Non-Recourse . . . . . . . . . . . . . . . 58
9.16. Schedules. . . . . . . . . . . . . . . . . 59
INDEX OF SCHEDULES
Schedules
1.1 List of Drever Partnerships
1.2 List of Partnership Properties, including Partnership
Property
Values
2.10 Cash Reserves
4.5 Partnership Interests
4.6 Litigation (Drever)
4.7 Material Changes (Drever)
4.8 Tax Matters (Drever)
4.11 Property Matters (Drever)
4.12 Compliance with Regulations (Drever)
4.14 Insurance (Drever)
4.15 Foreign Status
5.8 Walden Reports; Material Changes
5.9 Litigation (Walden)
5.11 Tax Matters (Walden)
5.13 Property Matters (Walden)
5.14 Compliance with Regulations (Walden)
5.18 Insurance (Walden)
7.2 Opinion of Winstead Sechrest & Minick P.C.
7.3a Opinion of Richard J. Kalish, Esq.
7.3b Opinion of Skadden, Arps, Slate, Meagher & Flom LLP
Exhibits
A Form of Agreement of General Partnership
of Walden - WDOP Partners
B Form of Articles Supplementary
C Form of Warrant Agreement
D Form of WDOP Partnership Agreement
DA971180108
052197 v17
111:14199-27
TRANSFER AND ASSIGNMENT AGREEMENT
THE ARBORS OF AUSTIN, a Texas general partnership (hereinafter
referred to as "TRANSFEROR"), whose address is c/o First Worthing,
8144 Walnut Hill Lane, Suite 550, Dallas, Texas 75231, for and in
consideration of the delivery of certain partnership units and
other good and valuable consideration, to the undersigned in hand
paid, the receipt and legal sufficiency of which are hereby
acknowledged, has BARGAINED, TRANSFERRED and CONVEYED unto WALDEN
RESIDENTIAL OPERATING PARTNERSHIP, L.P., (hereinafter referred to
as "TRANSFEREE"), whose address is 5400 LBJ Freeway, Suite 400,
Dallas, Texas 75240, all of TRANSFEROR'S interest in and to all
tangible personal property owned by TRANSFEROR described in Exhibit
"A" attached hereto and incorporated herein by reference the same
as if fully copied and set forth at length (hereinafter referred to
as the "Personal Property"), and located on or attached to the real
property more particularly described in Exhibit "B" attached hereto
and incorporated herein by reference the same as if fully copied
and set forth at length (hereinafter referred to as the "Real
Property").
TRANSFEROR HEREBY EXPRESSLY DISCLAIMS ANY WARRANTIES AS TO
MERCHANTABILITY AND/OR FITNESS FOR A PARTICULAR PURPOSE AND ANY
OTHER WARRANTIES OR REPRESENTATIONS AS TO THE PHYSICAL CONDITION OF
THE PERSONAL PROPERTY OTHER THAN THOSE CONTAINED IN THE TRANSFER
AND CONTRIBUTION AGREEMENT DATED MARCH 24, 1997.BY ITS ACCEPTANCE
THEREOF, TRANSFEREE ACKNOWLEDGES AND AGREES THAT IT HAS INSPECTED
THE PERSONAL PROPERTY AND ACCEPTS SAME IN ITS PRESENT CONDITION "AS
IS".
TRANSFEROR represents that the Personal Property described in
Exhibit "A" is all of the Personal Property of every kind and
character owned by TRANSFEROR and situated on or used in connection
with the Real Property described on the attached Exhibit "B".
TO HAVE AND TO HOLD the Personal Property, together with all
and singular the rights and appurtenances thereto in any wise
belonging, unto TRANSFEREE, and TRANSFEREE'S successors and assigns
forever.
IN WITNESS WHEREOF, TRANSFEROR has executed this Transfer
and
Assignment Agreement as of the ____ day of April 1997.
TRANSFEROR:
THE ARBORS OF AUSTIN,
a Texas general partnership
By: FS/Southwest XII,
a Texas limited partnership,
its general partner
By: First Southwest Equity
Corporation,
a Texas corporation,
its general partner
By:___________________
Frederick L. Albrecht,
Vice President
ACCEPTANCE OF TRANSFEREE
The undersigned has inspected the Personal Property described
in the foregoing Transfer and Assignment Agreement, accepts the
Personal Property in its present condition and in its present
location, and the foregoing Transfer and Assignment Agreement is
accepted and approved this ____ day of April 1997.
TRANSFEREE:
By: WALDEN RESIDENTIAL OPERATING
PARTNERSHIP, L.P., a Georgia
limited partnership
By: WALDEN OPERATING, INC.,
general partner
By:
___________________________
Mark S. Dillinger
Executive Vice President
C:\OFFICE\WPWIN\WPDOCS\SEC\TRANSFER.001
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ACKNOWLEDGMENTS
THE STATE OF TEXAS
COUNTY OF DALLAS
This instrument was acknowledged before me on this the 18th
day of April, 1997, by Frederick L. Albrecht as the Vice President
of First Southwest Equity Corporation, a Texas corporation, in its
capacity as the general partner of FS/Southwest XII, a Texas
limited partnership, in its capacity as the general partner of THE
ARBORS OF AUSTIN, a Texas general partnership, on behalf of such
corporation and partnerships.
Notary Public in and for
the State of Texas
Printed Name of Notary Public
My Commission Expires:
THE STATE OF TEXAS
COUNTY OF DALLAS
This instrument was acknowledged before me on this the ____
day of April 1997 by Mark S. Dillinger, Executive Vice President of
WALDEN OPERATING, INC., General Partner of WALDEN RESIDENTIAL
OPERATING PARTNERSHIP, L.P., a Georgia limited partnership on
behalf of such limited partnership.
Notary Public in and for
the State of Texas
Printed Name of Notary Public
My Commission Expires:
TRANSFER AND ASSIGNMENT AGREEMENT
ARBORS OF BEDFORD LIMITED, a Texas general partnership
(hereinafter referred to as "TRANSFEROR"), whose address is c/o
First Worthing, 8144 Walnut Hill Lane, Suite 550, Dallas, Texas
75231, for and in consideration of the delivery of certain
partnership units and other good and valuable consideration, to the
undersigned in hand paid, the receipt and legal sufficiency of
which are hereby acknowledged, has BARGAINED, TRANSFERRED and
CONVEYED unto WALDEN RESIDENTIAL OPERATING PARTNERSHIP, L.P.,
(hereinafter referred to as "TRANSFEREE"), whose address is 5400
LBJ Freeway, Suite 400, Dallas, Texas 75240, all of TRANSFEROR'S
interest in and to all tangible personal property owned by
TRANSFEROR described in Exhibit "A" attached hereto and
incorporated herein by reference the same as if fully copied and
set forth at length (hereinafter referred to as the "Personal
Property"), and located on or attached to the real property more
particularly described in Exhibit "B" attached hereto and
incorporated herein by reference the same as if fully copied and
set forth at length (hereinafter referred to as the "Real
Property").
TRANSFEROR HEREBY EXPRESSLY DISCLAIMS ANY WARRANTIES AS TO
MERCHANTABILITY AND/OR FITNESS FOR A PARTICULAR PURPOSE AND ANY
OTHER WARRANTIES OR REPRESENTATIONS AS TO THE PHYSICAL CONDITION OF
THE PERSONAL PROPERTY OTHER THAN THOSE CONTAINED IN THE TRANSFER
AND CONTRIBUTION AGREEMENT DATED MARCH 24, 1997. BY ITS
ACCEPTANCE THEREOF, TRANSFEREE ACKNOWLEDGES AND AGREES THAT IT HAS
INSPECTED THE PERSONAL PROPERTY AND ACCEPTS SAME IN ITS PRESENT
CONDITION "AS IS".
TRANSFEROR represents that the Personal Property described in
Exhibit "A" is all of the Personal Property of every kind and
character owned by TRANSFEROR and situated on or used in connection
with the Real Property described on the attached Exhibit "B".
TO HAVE AND TO HOLD the Personal Property, together with all
and singular the rights and appurtenances thereto in any wise
belonging, unto TRANSFEREE, and TRANSFEREE'S successors and assigns
forever.
IN WITNESS WHEREOF, TRANSFEROR has executed this Transfer and
Assignment Agreement as of the ____ day of April 1997.
TRANSFEROR:
ARBORS OF BEDFORD LIMITED,
a Texas limited partnership
By: FS/Southwest X,
a Texas general partnership,
its sole general partner
By: First Southwest Equity
Corporation,
a Texas corporation,
its managing partner
By:
______________________
Frederick L. Albrecht,
Vice President
ACCEPTANCE OF TRANSFEREE
The undersigned has inspected the Personal Property described in the
foregoing Transfer and Assignment Agreement, accepts the Personal
Property in its present condition and in its present location, and the
foregoing Transfer and Assignment Agreement is accepted and approved this
____ day of April 1997.
TRANSFEREE:
By: WALDEN RESIDENTIAL OPERATING
PARTNERSHIP, L.P., a Georgia
limited partnership
By: WALDEN OPERATING, INC.,
general partner
By: ___________________________
Mark S. Dillinger
Executive Vice President
ACKNOWLEDGMENTS
THE STATE OF TEXAS
COUNTY OF DALLAS
This instrument was acknowledged before me on this the 18th day of
April, 1997, by Frederick L. Albrecht as the Vice President of First
Southwest Equity Corporation, a Texas corporation, in its capacity as the
managing general partner of FS/Southwest X, a Texas general partnership,
in its capacity as the general partner of ARBORS OF BEDFORD LIMITED, a
Texas limited partnership, on behalf of such corporation and partnerships.
Notary Public in and for
the State of Texas
Printed Name of Notary Public
My Commission Expires:
THE STATE OF TEXAS
COUNTY OF DALLAS
This instrument was acknowledged before me on this the ____ day of
April 1997 by Mark S. Dillinger, Executive Vice President of WALDEN
OPERATING, INC., General Partner of WALDEN RESIDENTIAL OPERATING
PARTNERSHIP, L.P., a Georgia limited partnership on behalf of such
limited partnership.
Notary Public in and for
the State of
Printed Name of Notary Public
My Commission Expires:
C:\OFFICE\WPWIN\WPDOCS\SEC\TRANSFER.002
1 CSC
TRANSFER AND ASSIGNMENT AGREEMENT
EULESS II LIMITED, a Texas limited partnership (hereinafter
referred to as "TRANSFEROR"), whose address is c/o First Worthing,
8144 Walnut Hill Lane, Suite 550, Dallas, Texas 75231, for and in
consideration of the delivery of certain partnership units and
other good and valuable consideration, to the undersigned in hand
paid, the receipt and legal sufficiency of which are hereby
acknowledged, has BARGAINED, TRANSFERRED and CONVEYED unto WALDEN
RESIDENTIAL OPERATING PARTNERSHIP, L.P., (hereinafter referred to
as "TRANSFEREE"), whose address is 5400 LBJ Freeway, Suite 400,
Dallas, Texas 75240, all of TRANSFEROR'S interest in and to all
tangible personal property owned by TRANSFEROR described in Exhibit
"A" attached hereto and incorporated herein by reference the same
as if fully copied and set forth at length (hereinafter referred to
as the "Personal Property"), and located on or attached to the real
property more particularly described in Exhibit "B" attached hereto
and incorporated herein by reference the same as if fully copied
and set forth at length (hereinafter referred to as the "Real
Property").
TRANSFEROR HEREBY EXPRESSLY DISCLAIMS ANY WARRANTIES AS TO
MERCHANTABILITY AND/OR FITNESS FOR A PARTICULAR PURPOSE AND ANY
OTHER WARRANTIES OR REPRESENTATIONS AS TO THE PHYSICAL CONDITION OF
THE PERSONAL PROPERTY OTHER THAN THOSE CONTAINED IN THE TRANSFER
AND CONTRIBUTION AGREEMENT DATED MARCH 24, 1997. BY ITS
ACCEPTANCE THEREOF, TRANSFEREE ACKNOWLEDGES AND AGREES THAT IT HAS
INSPECTED THE PERSONAL PROPERTY AND ACCEPTS SAME IN ITS PRESENT
CONDITION "AS IS".
TRANSFEROR represents that the Personal Property described in
Exhibit "A" is all of the Personal Property of every kind and
character owned by TRANSFEROR and situated on or used in connection
with the Real Property described on the attached Exhibit "B".
TO HAVE AND TO HOLD the Personal Property, together with all
and singular the rights and appurtenances thereto in any wise
belonging, unto TRANSFEREE, and TRANSFEREE'S successors and assigns
forever.
IN WITNESS WHEREOF, TRANSFEROR has executed this Transfer and
Assignment Agreement as of the ____ day of April 1997.
TRANSFEROR:
EULESS II LIMITED,
a Texas limited partnership
By: FS/Southwest X,
a Texas general partnership,
its sole general partner
By: First Southwest Equity
Corporation,
a Texas corporation,
its managing general
partner
By: ____________________________
Frederick L. Albrecht,
Vice President
ACCEPTANCE OF TRANSFEREE
The undersigned has inspected the Personal Property described
in the foregoing Transfer and Assignment Agreement, accepts the
Personal Property in its present condition and in its present
location, and the foregoing Transfer and Assignment Agreement is
accepted and approved this ____ day of April 1997.
TRANSFEREE:
By: WALDEN RESIDENTIAL OPERATING
PARTNERSHIP, L.P., a Georgia
limited partnership
By: WALDEN OPERATING, INC.,
general partner
By: ___________________________
Mark S. Dillinger
Executive Vice President
C:\OFFICE\WPWIN\WPDOCS\SEC\TRANSFER.004
2 CSC
ACKNOWLEDGMENTS
THE STATE OF TEXAS
COUNTY OF DALLAS
This instrument was acknowledged before me on this the 18th
day of April, 1997, by Frederick L. Albrecht as the Vice President
of First Southwest Equity Corporation, a Texas corporation, in its
capacity as the general partner of FS/Southwest X, a Texas general
partnership, in its capacity as the general partner of EULESS II
LIMITED, a Texas limited partnership, on behalf of such corporation
and partnerships.
Notary Public in and for
the State of Texas
Printed Name of Notary Public
My Commission Expires:
THE STATE OF TEXAS
COUNTY OF DALLAS
This instrument was acknowledged before me on this the ____ day of
April 1997 by Mark S. Dillinger, Executive Vice President of WALDEN
OPERATING, INC., General Partner of WALDEN RESIDENTIAL OPERATING
PARTNERSHIP, L.P., a Georgia limited partnership on behalf of such
limited partnership.
Notary Public in and for
the State of
Printed Name of Notary Public
My Commission Expires:
TRANSFER AND ASSIGNMENT AGREEMENT
THE ARBORS ON FOREST LANE LIMITED, a Texas limited partnership
(hereinafter referred to as "TRANSFEROR"), whose address is c/o
First Worthing, 8144 Walnut Hill Lane, Suite 550, Dallas, Texas
75231, for and in consideration of the delivery of certain
partnership units and other good and valuable consideration, to the
undersigned in hand paid, the receipt and legal sufficiency of
which are hereby acknowledged, has BARGAINED, TRANSFERRED and
CONVEYED unto WALDEN RESIDENTIAL OPERATING PARTNERSHIP, L.P.,
(hereinafter referred to as "TRANSFEREE"), whose address is 5400
LBJ Freeway, Suite 400, Dallas, Texas 75240, all of TRANSFEROR'S
interest in and to all tangible personal property owned by
TRANSFEROR described in Exhibit "A" attached hereto and
incorporated herein by reference the same as if fully copied and
set forth at length (hereinafter referred to as the "Personal
Property"), and located on or attached to the real property more
particularly described in Exhibit "B" attached hereto and
incorporated herein by reference the same as if fully copied and
set forth at length (hereinafter referred to as the "Real
Property").
TRANSFEROR HEREBY EXPRESSLY DISCLAIMS ANY WARRANTIES AS TO
MERCHANTABILITY AND/OR FITNESS FOR A PARTICULAR PURPOSE AND ANY
OTHER WARRANTIES OR REPRESENTATIONS AS TO THE PHYSICAL CONDITION OF
THE PERSONAL PROPERTY OTHER THAN THOSE CONTAINED IN THE TRANSFER
AND CONTRIBUTION AGREEMENT DATED MARCH 24, 1997. BY ITS
ACCEPTANCE THEREOF, TRANSFEREE ACKNOWLEDGES AND AGREES THAT IT HAS
INSPECTED THE PERSONAL PROPERTY AND ACCEPTS SAME IN ITS PRESENT
CONDITION "AS IS".
TRANSFEROR represents that the Personal Property described in
Exhibit "A" is all of the Personal Property of every kind and
character owned by TRANSFEROR and situated on or used in connection
with the Real Property described on the attached Exhibit "B".
TO HAVE AND TO HOLD the Personal Property, together with all
and singular the rights and appurtenances thereto in any wise
belonging, unto TRANSFEREE, and TRANSFEREE'S successors and assigns
forever.
IN WITNESS WHEREOF, TRANSFEROR has executed this Transfer and
Assignment Agreement as of the ____ day of April 1997.
TRANSFEROR:
THE ARBORS ON FOREST LANE LIMITED,
a Texas limited partnership
By: FS/Southwest VIII Limited,
a Texas limited partnership,
its sole general partner
By: First Southwest Equity
Corporation,
a Texas corporation,
its sole general partner
By:
______________________
Frederick L. Albrecht,
Vice President
ACCEPTANCE OF TRANSFEREE
The undersigned has inspected the Personal Property described
in the foregoing Transfer and Assignment Agreement, accepts the
Personal Property in its present condition and in its present
location, and the foregoing Transfer and Assignment Agreement is
accepted and approved this ____ day of April 1997.
TRANSFEREE:
By: WALDEN RESIDENTIAL OPERATING
PARTNERSHIP, L.P., a Georgia
limited partnership
By: WALDEN OPERATING, INC.,
general partner
By: _________________________
Mark S. Dillinger
Executive Vice President
C:\OFFICE\WPWIN\WPDOCS\SEC\TRANSFER.005
2 CSC
ACKNOWLEDGMENTS
THE STATE OF TEXAS
COUNTY OF DALLAS
This instrument was acknowledged before me on this the 18th
day of April, 1997, by Frederick L. Albrecht as the Vice President
of First Southwest Equity Corporation, a Texas corporation, in its
capacity as the general partner of FS/Southwest VIII Limited, a
Texas limited partnership, in its capacity as the general partner
of THE ARBORS ON FOREST LAND LIMITED, a Texas limited partnership,
on behalf of such corporation and partnerships.
Notary Public in and for
the State of Texas
Printed Name of Notary Public
My Commission Expires:
THE STATE OF TEXAS
COUNTY OF DALLAS
This instrument was acknowledged before me on this the ____
day of April 1997 by Mark S. Dillinger, Executive Vice President of
WALDEN OPERATING, INC., General Partner of WALDEN RESIDENTIAL
OPERATING PARTNERSHIP, L.P., a Georgia limited partnership on
behalf of such limited partnership.
Notary Public in and for
the State of
Printed Name of Notary Public
My Commission Expires:
TRANSFER AND ASSIGNMENT AGREEMENT
ARBOR MILL LIMITED, a Texas limited partnership (hereinafter
referred to as "TRANSFEROR"), whose address is c/o First Worthing,
8144 Walnut Hill Lane, Suite 550, Dallas, Texas 75231, for and in
consideration of the delivery of certain partnership units and
other good and valuable consideration, to the undersigned in hand
paid, the receipt and legal sufficiency of which are hereby
acknowledged, has BARGAINED, TRANSFERRED and CONVEYED unto WALDEN
RESIDENTIAL OPERATING PARTNERSHIP, L.P., (hereinafter referred to
as "TRANSFEREE"), whose address is 5400 LBJ Freeway, Suite 400,
Dallas, Texas 75240, all of TRANSFEROR'S interest in and to all
tangible personal property owned by TRANSFEROR described in Exhibit
"A" attached hereto and incorporated herein by reference the same
as if fully copied and set forth at length (hereinafter referred to
as the "Personal Property"), and located on or attached to the real
property more particularly described in Exhibit "B" attached hereto
and incorporated herein by reference the same as if fully copied
and set forth at length (hereinafter referred to as the "Real
Property").
TRANSFEROR HEREBY EXPRESSLY DISCLAIMS ANY WARRANTIES AS TO
MERCHANTABILITY AND/OR FITNESS FOR A PARTICULAR PURPOSE AND ANY
OTHER WARRANTIES OR REPRESENTATIONS AS TO THE PHYSICAL CONDITION OF
THE PERSONAL PROPERTY OTHER THAN THOSE CONTAINED IN THE TRANSFER
AND CONTRIBUTION AGREEMENT DATED MARCH 24, 1997. BY ITS
ACCEPTANCE THEREOF, TRANSFEREE ACKNOWLEDGES AND AGREES THAT IT HAS
INSPECTED THE PERSONAL PROPERTY AND ACCEPTS SAME IN ITS PRESENT
CONDITION "AS IS".
TRANSFEROR represents that the Personal Property described in
Exhibit "A" is all of the Personal Property of every kind and
character owned by TRANSFEROR and situated on or used in connection
with the Real Property described on the attached Exhibit "B".
TO HAVE AND TO HOLD the Personal Property, together with all
and singular the rights and appurtenances thereto in any wise
belonging, unto TRANSFEREE, and TRANSFEREE'S successors and assigns
forever.
IN WITNESS WHEREOF, TRANSFEROR has executed this Transfer and
Assignment Agreement as of the ____ day of April 1997.
TRANSFEROR:
ARBOR MILL LIMITED,
a Texas limited partnership
By: FS/Southwest XI,
a Texas general partnership,
its sole general partner
By: First Southwest Equity
Corporation,
a Texas corporation,
its managing partner
By: ________________________
Frederick L. Albrecht,
Vice President
ACCEPTANCE OF TRANSFEREE
The undersigned has inspected the Personal Property described
in the foregoing Transfer and Assignment Agreement, accepts the
Personal Property in its present condition and in its present
location, and the foregoing Transfer and Assignment Agreement is
accepted and approved this ____ day of April 1997.
TRANSFEREE:
By: WALDEN RESIDENTIAL OPERATING
PARTNERSHIP, L.P., a Georgia
limited partnership
By: WALDEN OPERATING, INC.,
general partner
By: ___________________________
Mark S. Dillinger
Executive Vice President
ACKNOWLEDGMENTS
THE STATE OF TEXAS
COUNTY OF DALLAS
This instrument was acknowledged before me on this the ____ day of
April 1997 by Mark S. Dillinger, Executive Vice President of WALDEN
OPERATING, INC., General Partner of WALDEN RESIDENTIAL OPERATING
PARTNERSHIP, L.P., a Georgia limited partnership on behalf of such
limited partnership.
Notary Public in and for
the State of
Printed Name of Notary Public
My Commission Expires:
THE STATE OF TEXAS
COUNTY OF DALLAS
This instrument was acknowledged before me on this the 18th
day of April, 1997, by Frederick L. Albrecht as the Vice President
of First Southwest Equity Corporation, a Texas corporation, in its
capacity as the general partner of FS/Southwest XI, a Texas general
partnership, in its capacity as the general partner of ARBOR MILL
LIMITED, a Texas limited partnership, on behalf of such corporation
and partnerships.
Notary Public in and for
the State of Texas
Printed Name of Notary Public
My Commission Expires:
C:\OFFICE\WPWIN\WPDOCS\SEC\TRANSFER.003
3 CSC:dmc
TRANSFER AND ASSIGNMENT AGREEMENT
ARBOR PARK LIMITED, a Texas limited partnership (hereinafter
referred to as "TRANSFEROR"), whose address is c/o First Worthing,
8144 Walnut Hill Lane, Suite 550, Dallas, Texas 75231, for and in
consideration of the delivery of certain partnership units and
other good and valuable consideration, to the undersigned in hand
paid, the receipt and legal sufficiency of which are hereby
acknowledged, has BARGAINED, TRANSFERRED and CONVEYED unto WALDEN
RESIDENTIAL OPERATING PARTNERSHIP, L.P., (hereinafter referred to
as "TRANSFEREE"), whose address is 5400 LBJ Freeway, Suite 400,
Dallas, Texas 75240, all of TRANSFEROR'S interest in and to all
tangible personal property owned by TRANSFEROR described in Exhibit
"A" attached hereto and incorporated herein by reference the same
as if fully copied and set forth at length (hereinafter referred to
as the "Personal Property"), and located on or attached to the real
property more particularly described in Exhibit "B" attached hereto
and incorporated herein by reference the same as if fully copied
and set forth at length (hereinafter referred to as the "Real
Property").
TRANSFEROR HEREBY EXPRESSLY DISCLAIMS ANY WARRANTIES AS TO
MERCHANTABILITY AND/OR FITNESS FOR A PARTICULAR PURPOSE AND ANY
OTHER WARRANTIES OR REPRESENTATIONS AS TO THE PHYSICAL CONDITION OF
THE PERSONAL PROPERTY OTHER THAN THOSE CONTAINED IN THE TRANSFER
AND CONTRIBUTION AGREEMENT DATED MARCH 24, 1997 BY ITS ACCEPTANCE
THEREOF, TRANSFEREE ACKNOWLEDGES AND AGREES THAT IT HAS INSPECTED
THE PERSONAL PROPERTY AND ACCEPTS SAME IN ITS PRESENT CONDITION "AS
IS".
TRANSFEROR represents that the Personal Property described in
Exhibit "A" is all of the Personal Property of every kind and
character owned by TRANSFEROR and situated on or used in connection
with the Real Property described on the attached Exhibit "B".
TO HAVE AND TO HOLD the Personal Property, together with all
and singular the rights and appurtenances thereto in any wise
belonging, unto TRANSFEREE, and TRANSFEREE'S successors and
assigns forever.
IN WITNESS WHEREOF, TRANSFEROR has executed this Transfer and
Assignment Agreement as of the ____ day of April 1997.
TRANSFEROR:
ARBOR PARK LIMITED,
a Texas limited partnership
By: FS/Southwest IX,
a Texas general partnership,
its sole general partner
By: First Southwest Equity
Corporation,
a Texas corporation,
its managing partner
By: ______________________
Frederick L. Albrecht,
Vice President
ACCEPTANCE OF TRANSFEREE
The undersigned has inspected the Personal Property described in the
foregoing Transfer and Assignment Agreement, accepts the Personal
Property in its present condition and in its present location, and the
foregoing Transfer and Assignment Agreement is accepted and approved this
____ day of April 1997.
TRANSFEREE:
By: WALDEN RESIDENTIAL OPERATING
PARTNERSHIP, L.P., a Georgia
limited partnership
By: WALDEN OPERATING, INC.,
general partner
By: ___________________________
Mark S. Dillinger
Executive Vice President
C:\OFFICE\WPWIN\WPDOCS\SEC\TRANSFER.006
2 CSC
ACKNOWLEDGMENTS
THE STATE OF TEXAS
COUNTY OF DALLAS
This instrument was acknowledged before me on this the 18th
day of April, 1997, by Frederick L. Albrecht as the Vice President
of First Southwest Equity Corporation, a Texas corporation, in its
capacity as the managing general partner of FS/Southwest IX, a
Texas general partnership, in its capacity as the general partner
of ARBOR PARK LIMITED, a Texas limited partnership, on behalf of
such corporation and partnerships.
Notary Public in and for
the State of Texas
Printed Name of Notary Public
My Commission Expires:
THE STATE OF TEXAS
COUNTY OF DALLAS
This instrument was acknowledged before me on this the ____ day of
April 1997 by Mark S. Dillinger, Executive Vice President of WALDEN
OPERATING, INC., General Partner of WALDEN RESIDENTIAL OPERATING
PARTNERSHIP, L.P., a Georgia limited partnership on behalf of such
limited partnership.
Notary Public in and for
the State of
Printed Name of Notary Public
My Commission Expires:
REAL ESTATE SALES CONTRACT
THIS REAL ESTATE SALES CONTRACT (hereinafter referred to as
the "Contract") is entered into by and between VILLAGE/HILLCREST
LIMITED PARTNERSHIP, a Texas limited partnership (hereinafter
referred to as "Seller") and WALDEN RESIDENTIAL PROPERTIES, INC.,
a Maryland corporation (hereinafter referred to as "Purchaser").
FOR AND IN CONSIDERATION OF the premises and the respective
covenants, agreements and obligations hereinafter set forth, Seller
and Purchaser do hereby agree as follows:
1
SALE AND PURCHASE
1.1 Upon and subject to the terms and conditions hereinafter
set forth, Purchaser agrees to purchase from Seller, and Seller
agrees to sell to Purchaser, the following (hereinafter
collectively referred to as the "Property"):
(a) The real property being approximately 12.939 acres
out of the John W. Farrens Survey, Abstract No. 1710 and
Abstract No. 545, in the City of Grand Prairie, Dallas and
Tarrant Counties, Texas which real property is more
particularly described on Exhibit "A" attached hereto, and
incorporated herein, together with all rights, ways,
privileges and appurtenances pertaining thereto, including any
right, title and interest of Seller in and to any streets,
alleys or rights-of-way adjoining said real property
(hereinafter collectively referred to as the "Real Property");
(b) All improvements and fixtures located on the Real
Property, including, without limitation, the buildings located
thereon, which are more commonly referred to as Hillcrest
Apartments located at 1960 W. Tarrant, Grand Prairie, Dallas
and Tarrant Counties, Texas (hereinafter referred to as the
"Improvements");
(c) All personal property of every kind and character
owned by Seller and situated on or used in connection with the
Real Property and Improvements (hereinafter collectively
referred to as the "Personal Property");
(d) All leases and rental agreements with tenants of the
Improvements (hereinafter collectively referred to as the
"Tenant Leases"), and all security deposits paid by the
Tenants in connection with the Tenant Leases (hereinafter
collectively referred to as the "Tenant Deposits");
(e) All management, employment, maintenance, service,
equipment, garbage disposal, guard, security, pest control,
and all other agreements, contacts, and leases (except Tenant
Leases) concerning the operation, use, management, maintenance
or lease of the Real Property, Improvements, and/or Personal
Property, or any portion thereof (hereinafter collectively
referred to as the "Collateral Agreements").
2
PURCHASE PRICE
2.1 The Purchase Price for the Property (hereinafter referred
to as the "Purchase Price") shall be Seven Million Eight Hundred
Fifty Thousand and 00/100 Dollars ($7,850,000.00), payable all in
cash at Closing.
3
EARNEST MONEY
3.1 Upon execution of this Contract, Purchaser shall deposit
with American Title Company located at 4949 Westgrove, Suite 200,
Dallas, Texas 75248, to the attention of Ann Sutton (hereinafter
referred to as the "Title Company"), cash in the amount of
Twenty-Five Thousand Dollars ($25,000.00) (the"Initial Deposit") to assure
prompt observance of this Contract by Purchaser.
3.2 On the date of the expiration of the Inspection Period
(as that term is defined in Paragraph 6. 1 herein) and if Purchaser
has not terminated this Contract pursuant to Paragraph 6. 1 herein,
then Purchaser shall deposit an additional Twenty-Five Thousand
Dollars ($25,000.00) as earnest money with the Title Company (the
"Additional Deposit"). The Additional Deposit together With the
Initial Deposit shall be collectively referred to herein as the
"Earnest Money Deposit".
3.3 The Earnest Money Deposit shall be deposited by the Title
Company and placed in an interest bearing account. All interest
accruing thereon shall be for the benefit of Purchaser.
3.4 The Earnest Money Deposit shall apply to the Purchase
Price at Closing.
4
TITLE STATUS
4.1 Within ten (10) days after the Effective Date (as
hereinafter defined in Paragraph 14.11), Seller shall deliver to
Purchaser a Commitment for Title Insurance, Texas standard form
(hereinafter referred to as the "Commitment"), together with copies
of all instruments and documents referred to therein as exceptions
to title covering the Property, in the amount of the Purchase
Price, in favor of Purchaser, pursuant to which the Title Company
agrees, subject to the provisions thereof, to issue at Closing an
Owner Policy of Title Insurance (hereinafter referred to as the
"Owner Policy") to Purchaser.
4.2 Purchaser shall have fifteen (15) days after the latest
to be received of the Commitment, legible copies of all exception
matters referenced in the Commitment and the survey (as hereinafter
defined in Paragraph 5.1), to provide to Seller written objections
to the status of title to the Property. If such written objections
have not been received by Seller prior to the end of the said
fifteen (15) day period, Purchaser shall be deemed to have
conclusively accepted and approved the status of title to the
Property, as shown by the Commitment. If Purchaser does timely
deliver to Seller such written objections, Seller shall have ten
(10) days from the receipt of the objections to attempt to cure
such objections. If Seller is unable or unwilling to cure such
objections within such ten (10) day period, Purchaser may either
(i) waive such objections in writing and purchase the Property
notwithstanding such objections, (ii) extend Seller additional
time, not later than the date of Closing, to cure such objections
or (iii) terminate this Contract by written notice to Seller, in
which event the Earnest Money Deposit shall be returned to
Purchaser on demand, and neither Seller nor Purchaser shall have
any further obligations hereunder.
4.3 Seller shall deliver to Purchaser, at Closing, a Special
Warranty Deed (hereinafter referred to as the "Deed") conveying fee
simple title to the Property to Purchaser, subject to the
exceptions to title contained in the Commitment approved, or
waived, by Purchaser pursuant to Paragraph 4.2 hereof.
5
SURVEY
5.1 Seller shall provide to Purchaser, within five (5) days
after the Effective Date, Seller's most recent survey (hereinafter
referred to as the "Survey") of the Property prepared by a licensed
surveyor or professional engineer. Upon the expiration of the
Inspection Period, if Purchaser has not terminated this Contract,
Seller will provide Purchaser with an updated and recertified
survey, which survey shall be in form and content sufficient to
delete the standard survey exception from the Owner Policy.
Notwithstanding the foregoing, if Purchaser desires to have a
current survey prior to the expiration of the Inspection Period,
Purchaser shall notify Seller of said desire and Seller will order
the updated Survey for Purchaser, however, Purchaser will pay for
the cost of the updated Survey if Purchaser does not close this
transaction.
5.2 Purchaser shall provide to Seller, in writing, within
fifteen (15) days after receipt of the latest to be received of the
Commitment, legible copies of all exception matters referenced in
the Commitment and the Survey, any objections to the Survey
referred to in Paragraph 5.1 hereof. If such written notice has
not been received by Seller prior to the end of said fifteen (15)
day period, Purchaser shall be deemed to have conclusively accepted
and approved the Survey. If Purchaser does timely deliver to
Seller such written objections, Seller shall have ten (10) days
from receipt of the objections to attempt to cure such objections.
If Seller is unable or unwilling to cure such objections within
such ten (10) day period, Purchaser may either: (i) waive such
objections in writing and purchase the Property notwithstanding
such objections, or (ii) terminate this Contract by written notice
to Seller, in which event the Earnest Money Deposit shall be
returned to Purchaser and neither Seller nor Purchaser shall have
any further obligations hereunder. Upon receipt of the updated and
recertified Survey, Purchaser shall have five (5) days to object in
writing to any material items which appear on the Survey for the
first time. If Purchaser so objects, Seller shall have until
Closing to cure the objections or notify Purchaser of Seller's
unwillingness to cure. If Seller is unable or unwilling to cure
such material objections, Purchaser shall either: (i) waive such
objections in writing and purchase the Property notwithstanding
such objections, or (ii) terminate this Contract by written notice
to Seller, in which event the Earnest Money Deposit shall be
returned to Purchaser and neither Seller nor Purchaser shall have
any further obligations hereunder.
6
INSPECTION AND EXAMINATION
6.1 Purchaser shall have until the expiration of the
forty-fifth (45th) day after the Effective Date (hereinafter referred to
as the "Inspection Period"), during which time, Purchaser, or
Purchaser's authorized agent or representative, shall be entitled
to enter upon the Property for the purpose of inspecting, examining
and making tests upon the Property. If Purchaser, in Purchaser's
sole discretion, is dissatisfied with the results of Purchaser's
inspection of the Property, Purchaser may, by written notice
delivered to Seller prior to the expiration of the Inspection
Period, terminate this Contract in which event the Earnest Money
Deposit shall be returned to Purchaser on demand, and neither
Seller nor Purchaser shall have any further obligations hereunder.
If Purchaser does not terminate this Contract by delivery of such
written notice prior to the expiration of the Inspection Period,
Purchaser shall be conclusively deemed to have accepted the
Property in its present condition.
6.2 Purchaser shall have the right to obtain an updated
Environmental Report. In the event such Environmental Report is
not acceptable to Purchaser, in Purchaser's reasonable discretion,
Purchaser shall have the right to terminate the Contract prior to
the expiration of the Inspection Period and receive a full refund
of the Earnest Money Deposit. Purchaser agrees to commission this
study within fifteen (15) days from the Effective Date.
6.3 To facilitate Purchaser's inspection of the Property,
Seller shall provide to Purchaser, at Seller's sole expense, within
five (5) days from the Effective Date, the following:
(a) Access to obtain copies of all tenant leases, at
Purchaser's expense, and a Rent Roll, herein so called, for
the Property, prepared as of the first day of the month in
which this Contract is executed. Additionally, Seller will
provide Purchaser access to Seller's records regarding expense
and income in order to enable Purchaser to complete an audit
of such records;
(b) True copies of the most recent tax statements (both
real estate and personal property taxes) on the Property;
(c) An accurate schedule (the "Operating Schedule" )
reflecting, with respect to the Property for the twelve (12)
month period preceding the month of execution of this Contract
(i) all operating expenses and capital expenditures of the
Property (ii) the aggregate rent collected from tenants of the
Property during such period;
(d) A true and complete inventory of all furnishings,
fixtures, equipment and other personal property located upon
and/or comprising the tangible items used in connection with
the Property;
(e) A true and complete list of all service and other
agreements (the "Third Party Agreements") pertaining to the
Property on which Seller is obligated showing: (i) the names
of the parties to each agreement, (ii) the service rendered or
to be rendered under each agreement, (iii) the compensation
payable by Seller under each agreement, and (iv) the term and
expiration date of each agreement;
(f) Copies of all certificates of occupancy, licenses
and permits required by law and issued by all governmental
authorities having jurisdiction, if any, which may be in
Seller's possession;
(g) All environmental, engineering, pest control and
other professional reports in the possession of Seller;
(h) A copy of a tenant rent roll for the Property,
showing actual occupancies, rentals, security deposits,
assigned parking spaces (if any), free rent, rent concessions,
tenant incentives, lease terms, unit numbers, and unit types.
A current schedule of rental rates for each type of unit
within the Property, and such other pertinent information
regarding the tenant leases and rental units as is reasonably
available to Seller;
(i) A copy of the standard form of tenant lease;
(j) A copy of all utility bills for the Property for the
previous twelve (12) months, excluding individually metered
tenant utility bills; and a letter from each of the utility
providers stating that the utilities are available to the
Property; and
(k) Copies of any pertinent litigation of safety related
issues with respect to the Property.
6.4 Purchaser agrees that if for any reason the Closing is
not consummated, Purchaser will promptly return to Seller all
materials furnished to Purchaser pursuant to Paragraph 6.2.
6.5 Purchaser shall have the right to approve or disapprove
during the Inspection Period any of the Third Party Agreements
described in Paragraph 6.2(e) above existing on the Effective Date.
Seller will not enter into any Third Party Agreements after the
Effective Date that do not contain a clause that grants to Seller
the right to terminate such agreement upon thirty (30) days notice.
Any Third Party Agreement not acceptable to Purchaser must have a
thirty (30) day cancellation clause and Seller will notify such
third party of Purchaser's desire to terminate such agreement. If
such Third Party Agreement cannot be terminated within thirty (30)
days, Purchaser must purchase the Property subject to the terms of
such Third Party Agreement or terminate the Contract.
7
CLOSING
7.1 The date of closing (hereinafter referred to as the
"Closing Date") shall be, and the event of closing (hereinafter
referred to as the "Closing"), shall occur on or before the
fifteenth (15th) day following the expiration of the Inspection
Period, in the offices of the Title Company, at such hour as Seller
and Purchaser may mutually agree, but otherwise at 10:00 a.m.,
local time.
7.2 All recordation fees and closing costs shall be borne by
Seller and Purchaser in accordance with custom in the area in which
the Property is situated. Provided, however, Seller shall pay for
the Owner Policy and Purchaser shall pay the extra premium for the
survey deletion in connection with the Title Policy.
7.3 Real and personal property taxes for the then current tax
year shall be prorated to the Closing Date. The proration shall be
based on the taxes paid for the tax year 1996. No future
adjustments for real and personal property taxes shall be made
between the parties.
7.4 In addition to the taxes, all rents paid under the tenant
leases, expenses pursuant to the Third Party Agreements and
municipal utilities shall be prorated as of the Closing Date.
Provided, however, Seller shall be entitled to the full amount of
any deposits then held by any utility companies and the amount
thereof shall be an addition to the Purchase Price unless Seller
elects, at its sole option, to obtain a refund of any deposit
directly from any utility company holding same, in which event
Purchaser shall be required to replace any such deposit if
requested or required by the respective utility company. Any
delinquent rents for the current month collected after Closing
shall be delivered to Seller, in Seller's pro rata share. All
tenant deposits paid to Seller under the Tenant Leases as reflected
on the Rent Roll shall be paid to Purchaser at Closing.
7.5 At Closing, Seller shall deliver to Purchaser the
following documents which shall be duly executed and, where
appropriate, acknowledged, together with any and all items or
instruments necessary or appropriate thereto:
(a) The Deed;
(b) The Owner Policy, containing no exception to title
other than (i) the standard printed exceptions in Schedule B
to the Commitment, the tax exception shall refer prior to
taxes for the year 1997 and subsequent years, and subsequent
assessments for years due to change in land usage or ownership
and (ii) those exceptions to title contained in Schedule B to
the Commitment which are approved by Purchaser or waived by
Purchaser pursuant to Paragraph 4.2 hereof;
(c) An Affidavit required pursuant to Section 1445 of
the Internal Revenue Code stating, under penalties of perjury,
that Seller nor any other party so swearing, is a foreign
person within the meaning of Section 1445 of the Internal
Revenue Code;
(d) A Bill of Sale transferring to Purchaser all of the
Personal Property including but not limited to, tangible
personal property and Third Party Agreements;
(e) An Assignment of Tenant Leases and Deposits
assigning all of Seller's right, title and interest in and to
all Tenant Leases and security deposits, and other leases
covering the Property. Seller shall also deliver to Purchaser
the original leases, security deposit agreements, insurance
policies and Third Party Agreements to Purchaser; and
(f) A Tenant Notification Agreement, dated the date of
Closing, executed by Seller, notifying the tenants of the
Property that the Property has been sold to Purchaser.
7.6 At Closing, Purchaser shall deliver to Seller the cash
funds referred to in Paragraph 2.1 hereof and the statutory notice
to tenants as required by Section 92.105 (b) of the Texas Property
Code.
7.7 Possession of the Property shall be delivered to
Purchaser at Closing.
8
SELLER'S REPRESENTATIONS, WARRANTIES AND COVENANTS
8.1 Seller's Representations and Warranties. Seller
represents and warrants to Purchaser the following:
(a) Seller has or will have at Closing good,
indefeasible, and fee simple title to the Property, free and
clear of all mortgages, liens, encumbrances, leases,
tenancies, security interest, covenants, conditions
restrictions, rights-of-way, easements, judgments or other
matters affecting title other than those shown on Schedule B
of the Commitment and otherwise permitted herein.
(b) This Contract has been duly authorized and executed
by Seller and is a valid and binding obligation of, and is
enforceable, in accordance with its terms, against Seller.
The documents delivered to Purchaser at Closing will be duly
authorized and executed by Seller and will be a valid and
binding obligation of, and will be enforceable in accordance
with their terms, against Seller.
(c) There is no pending or threatened condemnation or
similar proceeding affecting the Property or any portion
thereof, or pending public improvements, liens, or special
assessments, in, about or outside the Property which will in
any manner affect the Property or access to the Property, nor
any legal action of any kind or character whatsoever affecting
the Property which will in any manner affect Purchaser upon
the consummation hereof, nor is any such action presently
contemplated.
(d) To the best of Seller's knowledge, Seller has
complied with all applicable laws, ordinances, regulations,
statutes, rules and restrictions pending to and affecting the
Property. Performance of this Contract will not result in any
breach of, or constitute any default under, or result in
imposition of, any lien or encumbrance upon the Property under
any agreement or other instrument to which Seller is a party
or by which Seller or the Property might be bound.
(e) Seller will operate and manage the Property in
substantially the same manner it has been operated and managed
and will maintain the physical condition of the Property in
the same or better condition as it presently exists to the
date of Closing, reasonable wear and tear excepted.
(f) The rent roll delivered pursuant to Paragraph 6.2(h)
is the Current Rent Roll. Not earlier than five (5) days
prior to Closing, Seller shall deliver a Revised Rent Roll to
Purchaser, certified by Seller in writing as true and correct
which Revised Rent Roll shall set forth the following:
(i) the name of each tenant;
(ii) the lease commencement and expiration dates;
(iii) the amount of any security deposits;
(iv) a list of vacant space;
(v) the size and type of each vacant area; and
(vi) the amount and description of any concessions.
(g) Except as expressly set forth in the Rent Roll:
(i) To the best of Seller's knowledge, all of the
information contained on the Rent Roll is, and
will be, true, correct and complete as of its
date.
(ii) No rent under any Tenant Lease has been, or
prior to Closing will be, prepaid for a period
in excess of thirty (30) days.
(iii) No tenant has any right of first refusal
or option with respect to the leasing of
any portion of the Property.
(iv) No one, including any tenant, has any option
or right of first refusal to purchase the
Property or any part thereof.
(v) To the best of Seller's knowledge, there are
no oral agreements with anyone, including
tenants, with respect to the Property or any
portion thereof.
(vi) All of the present Tenant Leases for rental
space in the Property are in writing, on a
standard form (which form has been provided to
Purchaser) and duly executed by all parties
thereto, and, to the best of Seller's
knowledge, are (A) in full force and effect
and (B) valid and binding agreements of, and
fully enforceable in accordance with their
terms against, the tenants.
(vii) The Tenant Leases will not be amended in
any way after the Effective Date, other
than in the ordinary course of business,
without the prior, written consent of
Purchaser, which consent shall not be
unreasonably withheld. Purchaser, unless
it otherwise shall advise Seller in
writing within five (5) days following
Seller's request for such consent, shall
be deemed to have consented to any such
amendment.
(viii) Except as stated in the Rent Roll, there
are no uncured defaults on the part of
any party to any of the Tenant Leases,
and Seller is in full compliance with all
of lessor's obligations thereunder.
(ix) None of the rentals due or to become due under
such leases will be assigned, encumbered, or
subject to any liens at the Closing other than
the Permitted Exceptions.
(x) Except as disclosed to Purchaser by Seller in
writing, at the time of Closing, all tenants
will be paying charges for electricity
consumed in their space, including heating and
air conditioning, on an individually metered
basis.
(h) The Operating Statement delivered pursuant to
Paragraph 6.2(c) is the most recent monthly statement of
income and expense in connection with the operation and
maintenance of the Property. The balance of such statements
for the preceding months shall be made available to Purchaser
promptly upon request.
(i) No action has been taken with respect to work
performed or delivery of material which would give rise to a
lien on the Property. At Closing, there will be no claim in
favor of any person or entity which is or could become a lien
on the Real Property, the Improvements, or the Personal
Property, arising out of the furnishing of labor or materials,
other than claims or liens arising from acts of Purchaser;
there will be no unpaid assessments against the Property,
except for Property taxes assessed but not due and payable at
the time of Closing; and there will be no claim in favor of
any person or entity (including the present management
company) for any unpaid commissions or fees for leasing of the
Property. In the event of any such claims at Closing, Seller,
at its option and in lieu of the foregoing, either may: (i)
establish with the Title Company an escrow of funds in an
amount and upon conditions reasonably acceptable to Seller and
Purchaser, or (ii) provide a bond in favor of Purchaser or
Title Company (or Title Company's underwriter) in such amount,
upon such conditions and for such purposes as may be
satisfactory to Purchaser, Seller and Title Company, in either
case for the purpose of providing for such claims and/or
inducing the Title Company to insure Purchaser's title to the
Property free and clear of such claims.
(j) Seller agrees that benefits or compensations accrued
prior to Closing, and due or claimed to be due either before
or after Closing, to employees or former employees of Seller
shall constitute obligations of Seller only, and Seller agrees
to indemnify and hold Purchaser harmless from all such
obligations and claims.
(k) Seller will not borrow any money or do, or fail to
do, any other act or thing which would cause the Real
Property, the Improvements or any Personal Property to become
pledged or otherwise utilized as collateral or in any way
stand as security for any indebtedness or obligation.
(l) All ad valorem taxes and personal property taxes,
together with all assessments or other charges for utilities,
roads or the widening of such roads, or any other fees imposed
by any governmental authority with respect to the Property,
have been paid in full. The ad valorem taxes, personal
property taxes and special assessments pertaining to the
Property for calendar year 1996 were in the aggregate amount
of $145,047.00. Seller has received a Notice of Assessed
Valuation ("NOAV") establishing the ad valorem taxes for the
Property for 1997 to be $165,327.08. In the event Seller
receives any further invoices, notices or assessments that
should be included in the figure listed in this Subparagraph
(1), Seller will provide copies of same to Purchaser on or
prior to the Closing Date.
(m) The representations, warranties and covenants of the
Seller contained in this Agreement or in any document
delivered to Purchaser pursuant to the terms of this Agreement
(whether in this Section 8 or elsewhere): (i) shall be true
and correct in all material respects and not in default at the
time of Closing, just as though they were made at such time,
and Seller shall deliver to Purchaser, at Closing, an
affidavit to that effect. However, it is expressly agreed and
understood that the representations, warranties, and covenants
will merge with the Deed and will not survive the Closing of
this transaction.
(n) All rental units shall be in "market ready",
rentable condition as of the date of Closing. Provided,
however, Seller and Purchaser acknowledge that rental units
that are vacated within five (5) business days prior to the
date of Closing, will be in varying conditions of "make-ready"
for leasing, as is ordinary in Seller's course of business.
As to any units that are not in "market ready", rentable
condition as of the date of Closing, Purchaser and Seller
understand and agree that Purchaser shall be entitled to a
credit against the Purchase Price at Closing an amount equal
to the amount agreed upon at Closing by Purchaser and Seller
as being required to put in "market ready", rentable condition
any units that are not in such condition as of the date of the
Closing. Notwithstanding the foregoing, Seller will not be
required to pay an amount in excess of $500.00 per unit not in
"market ready", rentable condition. Purchaser shall have the
right to re-inspect the Property during the period commencing
not earlier than five (5) days prior to the Closing and ending
on the Closing solely for purposes of verifying the
maintenance of the Property in accordance with this Contract.
(o) To the best of Seller's knowledge, no Hazardous
Materials are located on or about the Property. For purposes
of this Paragraph the phrase, "To the best of Seller's
knowledge", is strictly limited to the information contained
in an environmental report prepared in connection with
Seller's acquisition of the Property. Seller agrees to
provide Purchaser with a copy of such environmental report.
(p) To the best of Seller's knowledge, the Improvements
and Personal Property are in good working order and are
structurally sound. For purposes of this Paragraph, the
phrase, "To the best of Seller's knowledge', is strictly
limited to the information contained in an engineer's report
prepared in connection with Seller's acquisition of the
Property. Seller agrees to provide Purchaser with a copy of
such engineer's report.
(q) Except as otherwise specifically stated in this
Contract, Seller shall disclose to Purchaser any and all
information Seller may have in its possession regarding the
following, but Seller hereby specifically disclaims any
warranty, guaranty or representation, oral or written, past,
present or future, of, as to, or concerning: (i) the nature
and condition of the Property, including, "without limitation,
the water, soil and geology, and the suitability thereof and
of the Property for any and all activities and uses which
Purchaser may elect to conduct thereon, and the existence of
any environmental hazards or conditions thereon (including the
presence of asbestos) or compliance with all applicable laws,
rules or regulations; (ii) except for any warranties contained
in the Deed to be delivered by Seller at the Closing, the
nature and extent of any right-of-way, lease, possession,
lien, encumbrance, license, reservation, condition or
otherwise; and (iii) the compliance of the Property or its
operation with any laws, ordinances or regulations of any
government or other body. Purchaser acknowledges that it will
inspect the Property and, except for the specific
representations, warranties and covenants contained herein,
Purchaser will rely solely on its own investigation of the
Property and not on any information provided or to be provided
by Seller. Purchaser further acknowledges that the
information provided and to be provided with respect to the
Property was obtained from a variety of sources and Seller:
(i) has not made any independent investigation or verification
of such information; and (ii) does not make any
representations as to the accuracy or completeness of such
information, except for the specific representations,
warranties and covenants contained herein. THE SALE OF THE
PROPERTY AS PROVIDED FOR HEREIN IS MADE ON AN "AS IS" BASIS,
AND PURCHASER EXPRESSLY ACKNOWLEDGES THAT, IN CONSIDERATION OF
THE AGREEMENTS OF SELLER HEREIN, EXCEPT AS OTHERWISE SPECIFIED
HEREIN, SELLER MAKES NO WARRANTY OR REPRESENTATION, EXPRESS OR
IMPLIED, OR ARISING BY OPERATION OF LAW, INCLUDING, BUT NOT
LIMITED TO, ANY WARRANTY OF CONDITION, HABITABILITY,
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, IN
RESPECT OF THE PROPERTY. NOTHING IN THIS PARAGRAPH SHALL BE
CONSTRUED OR DEEMED TO CONSTITUTE OR CREATE AN AFFIRMATIVE
OBLIGATION OF SELLER TO UNDERTAKE ANY ACTION OR TO INCUR ANY
EXPENSE IN PROCURING ANY INFORMATION OR REPORT RELATING TO
SELLER'S OBLIGATIONS HEREUNDER.
8.2 Notwithstanding the provisions of Paragraph 8. 1, if,
within ten (10) days from the date this Contract is fully executed,
Seller gives written notice that any representation or warranty
contained in this Paragraph 8. 1 is incorrect, Seller will not be
bound by such representation or warranty. However, within ten (10)
days after Seller's delivery of such notice to Purchaser, Purchaser
may terminate this Contract (in which event the Earnest Money
Deposit shall be immediately returned to Purchaser).
9
DEFAULT
9.1 In the event that Purchaser shall fail to purchase the
Property in accordance with the terms and conditions of this
Contract, or otherwise default in the performance of Purchaser's
obligations pursuant to this Contract, for any reason whatsoever
other than Seller's default or as otherwise permitted hereunder,
Seller shall be paid and shall retain the Earnest Money Deposit as
liquidated damages as Seller's sole remedy hereunder.
9.2 In the event that Seller shall default in the performance
of Seller's obligations hereunder, for any reason whatsoever other
than Purchaser's default or as otherwise permitted hereunder, as
Purchaser's only remedies hereunder, Purchaser may, at Purchaser's
option: (i) purchase the Property notwithstanding such default
pursuant to the remaining terms and provisions of this Contract, in
which event such default shall be deemed waived, (ii) terminate
this Contract, in which event Purchaser shall be entitled to return
of Purchaser's Earnest Money Deposit, and neither Seller nor
Purchaser shall have any further obligation hereunder, or (iii)
seek specific performance of this Contract.
10
CASUALTY LOSS
10.1 If, prior to the date of the Closing, all or any material
portion of the Property is either destroyed, damaged by fire or
other casualty, Purchaser shall have the right to cancel this
Contract by written notice to Seller and the Title Company within
ten (10) days after delivery to Purchaser of notice of the
occurrence of any such event (and the Closing shall be extended
such additional time as is necessary to make such election).
Provided, however, failure to so elect shall be deemed an election
by Purchaser to complete Purchaser's purchase obligations
hereunder. If, upon any such occurrence, Purchaser elects or is
deemed to have elected to complete Purchaser's purchase obligations
hereunder, Purchaser shall be entitled to receive all insurance
proceeds, as compensation for such loss and Seller shall, in this
regard, execute all documents and perform such acts as shall be
necessary or proper for Purchaser to receive such proceeds. In the
event Purchaser elects to complete the purchase of the Property and
accept an assignment of the insurance proceeds, Seller agrees to
pay to Purchaser an amount equal to the insurance policy
deductible.
11
BROKER FEES AND COMMISSIONS
11.1 Seller and Purchaser each hereby warrant and represent to
the other that all claims for brokerage fees, commissions or
finders' or other similar fees in connection with the transactions
contemplated in this Contract, insofar as such claims shall be
based on agreements made by either of the parties, shall be paid by
the party making such agreements, and the party hereto making such
agreement does hereby indemnify and hold the party hereto which
does not make such agreement harmless from and against all
liability, loss, cost, damage or expense (including but not limited
to reasonable attorney's fees and costs of litigation) which the
party hereto which does not make such agreement shall suffer or
incur because of any claim by any broker, agent or finder claiming
any compensation pursuant to such agreement with respect to the
sale and purchase of the Property or the execution of this
Contract. The provision of this Paragraph 11.1 shall survive
Closing.
11.2 Seller shall pay to Windsor Advisors, L.C. d/b/a Windsor
Realty Advisors (R. J. Hall) (hereinafter referred to as
"Realtor"), a commission in cash equal to four percent (4%) of the
Purchase Price. Provided, however, such commission shall be
payable only in the event that the sale of the Property as
contemplated in this Contract is consummated.
12
NOTICE
12.1 All notices, objections and approvals referred to in this
Contract must be given in writing and will be effective on the day
the notice is: (i) actually received by the addressee thereof after
being sent by overnight delivery (such as Federal Express) or
having been personally hand delivered by the sender or (ii)
deposited in the United States Mail, postage prepaid, registered or
certified mail, return receipt requested, and properly addressed to
the party to receive said notice, or (iii) sent to the addressee by
telecopier, facsimile or similar transmitting machine. The notice
addresses of the parties shall be those specified below unless
modified in writing by the appropriate party:
SELLER:
Village/Hillcrest Limited Partnership
4002 Beltline Road, Suite I 1 0
Addison, Texas 75244
(972) 980-6836
(972) 980-0384 (Facsimile)
With a copy to:
Mr. R. Steven Jones
Hesse & Jones, P.C.
4949 Westgrove, Suite 200
Dallas, Texas 75248
(972) 733-3117
(972)733-3119 (Facsimile)
PURCHASER:
Walden Residential Properties, Inc.
5400 LBJ Freeway
Suite 400, L.B. 45
Dallas, Texas 75240
(214) 788-0510
(214) 788-1550 (Facsimile)
With a copy to:
Ms. Robin Minick
Munsch, Hardt, Kopf, Harr & Dinan
4000 Fountain Place
1445 Ross Avenue
Dallas, Texas 75202-2790
(214) 855-7500
(214)855-7584 (Facsimile)
13
CONTINGENCY
13.1 Seller's obligation to close this Contract is expressly
contingent upon Seller using Seller's best efforts to obtain the
approval and consent of any lienholder and/or partner of Seller to
the herein proposed sale and the agreement of such lienholder to
release any and all liens or security interests it holds with
regard to the Property or with respect to a partner to grant
consent to such Sale on or before ten (10) days from the Effective
Date. In the event Seller is unable to obtain the approval within
the above described time period, this Contract shall terminate and
the Earnest Money Deposit shall be returned to Purchaser and
neither Purchaser nor Seller shall have any further obligations to
the other.
14
MISCELLANEOUS
14.1 The execution of this Contract by the first party
constitutes an offer to buy or sell the Property. Unless this
Contract is accepted by the other party within five (5) working
days from the execution of this Contract by the first party, and a
fully executed copy is delivered to the Title Company, the offer of
this Contract shall be automatically revoked and terminated.
14.2 This Contract and all of the terms, provisions and
covenants contained herein shall apply to, be binding upon and
inure to the benefit of the parties hereto, their respective
successors and assigns.
14.3 The captions employed in this Contract are for
convenience only and are not intended in any way to limit or
amplify the terms and provisions of this Contract.
14.4 Time is of the essence of this Contract.
14.5 This Contract shall be construed in accordance with the
laws of the State of Texas, and venue for any cause of action
arising hereunder shall lie in Dallas County, Texas.
14.6 This Contract contains the entire agreement of the
parties with respect to the subject matter hereof, and shall not be
varied, amended, or superseded except by written agreement between
the parties hereto.
14.7 This Contract may be executed in counterparts, each of
which shall constitute an original and all which taken together
shall constitute an original and all which taken together shall
constitute a single agreement.
14.8 The Purchaser hereby acknowledges that, at the time of
the execution of this Contract, the undersigned Realtor advised the
Purchaser by this writing that the Purchaser should have the
abstract covering the real estate which is the subject of this
Contract examined by an attorney of the Purchaser's own selection
or that the Purchaser should be furnished with or obtain a policy
of title insurance.
14.9 The Realtor, its agents and/or employee's may act in the
dual capacity of broker and undisclosed principal in the
transaction described hereunder.
14.10 If any date of significance hereunder falls upon a
Saturday, Sunday or recognized Federal holiday, such date will be
deemed moved forward to the next day which is not a Saturday,
Sunday or recognized Federal holiday. The terms "working day"
shall mean days elapsed exclusive of Saturday, Sunday or recognized
Federal holidays.
14.11 This Contract (or a counterpart hereof) must be
executed by Purchaser and Seller and a fully executed copy hereof
(or executed counterparts) deposited with the Title Company not
later than five (5) days after execution hereof by the latter of
Purchaser or Seller (the actual date of deposit being herein
referred to as the "Effective Date"), or this Contract shall become
null, void and of no effect whatsoever.
SELLER:
VILLAGE/HILLCREST LIMITED
PARTNERSHIP,
a Texas limited partnership
Date Executed by Seller
By:
Ron E. Collins, General Partner
PURCHASER:
WALDEN RESIDENTIAL PROPERTIES,
INC., a Maryland corporation
Date Executed by Purchaser
By:
Printed Name:
Title:
REALTOR:
WINDSOR REALTY ADVISORS, INC.
By:
R. J. Hall
ACCEPTANCE BY TITLE COMPANY
The undersigned title company, AMERICAN TITLE COMPANY,
referred to in the foregoing Contract as the "Title Company",
hereby acknowledges receipt of a fully executed copy (or executed
counterparts) of the foregoing Contract and $25,000.00 of the
Earnest Money Deposit referred to therein, and accepts the
obligations of the Title Company as set forth therein.
By:
Date:
"Effective Date"
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