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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A INFORMATION
---------------------
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
WALDEN RESIDENTIAL PROPERTIES, INC.
(Name of Registrant as Specified in its Charter)
(Name of Person Filing Proxy Statement, if other than Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[X] Fee computed on table below per Exchange Act Rules 14a-6(i) and 0-11.
(1) Title of each class of securities to which the transaction applies: (i)
Common Stock, par value $0.01 per share ("Walden Common Stock"), of Walden
Residential Properties, Inc. ("Walden"), (ii) 9.16% Series B Convertible
Redeemable Preferred Stock, par value $0.01 per share, of Walden ("Walden
Convertible Preferred Stock"), (iii) 9.20% Senior Preferred Stock, par
value $0.01 per share, of Walden ("Walden Senior Preferred Stock") and (iv)
9.0% Redeemable Preferred Stock, par value $0.01 per share, of Walden
("Walden Redeemable Preferred Stock").
(2) Aggregate number of securities to which transaction applies: (i) 25,612,177
shares of Walden Common Stock, (ii) 1,709,182 shares of Walden Convertible
Preferred Stock, (iii) 4,000,000 shares of Walden Senior Preferred Stock,
(iv) 1,672,288 shares of Walden Redeemable Preferred Stock, (v)
"in-the-money" warrants to purchase 3,191,431 shares of Walden Common Stock
and (vi) "in-the-money" options to purchase 1,348,558 shares of Walden
Common Stock.
(3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is
calculated and state how it was determined): (i) $23.14 for each share of
Walden Common Stock in cash out merger, (ii) $26.39 for each share of
Walden Convertible Preferred Stock, on an as-converted basis, in cash out
merger, (iii) $22.00 for each share of Walden Senior Preferred Stock in
cash out merger, (iv) $19.50 for each share of Walden Redeemable Preferred
Stock in cash out merger, (v) the difference between $23.14 and $23.13 for
each share subject to an "in-the-money" warrant and (vi) the difference
between $23.14 and the weighted average exercise price of $19.73 for each
share subject to an "in-the-money" option.
(4) Proposed maximum aggregate value of the transaction:
25,612,177 shares of Walden Common Stock x $23.14 per share = $592,665,776;
1,709,182 shares of Walden Convertible Preferred Stock x $26.39 per share =
$45,105,313;
4,000,000 shares of Walden Senior Preferred Stock x $22.00 per share =
$88,000,000;
1,672,288 shares of Walden Redeemable Preferred Stock x $19.50 per share =
$32,609,616;
3,191,431 "in-the-money" warrants x $.01 = $31,914;
1,348,558 shares subject to an "in-the-money" option x $3.41 = $4,598,583;
Total proposed maximum aggregate value of the transaction: $763,011,202
(5) Total fee paid: $152,602 (previously wired to Mellon Bank, N.A.)
[X] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
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WALDEN RESIDENTIAL PROPERTIES, INC.
5080 SPECTRUM DRIVE, SUITE 1000 EAST
ADDISON, TEXAS 75001
January 28, 2000
Dear Stockholders:
We invite you to attend a special meeting of stockholders of Walden
Residential Properties, Inc. to be held on February 29, 2000, at 8:00 a.m.,
local time, at Spectrum Center Conference Center, 5080 Spectrum Drive, Addison,
Texas. The purpose of the special meeting is for the holders of our common stock
to vote upon a merger that, if consummated, will result in our common
stockholders receiving $23.14 in cash per share. Our preferred stockholders will
also receive cash payments in the merger. These payments are described in the
accompanying proxy statement.
If the holders of a majority of the outstanding shares of our common stock
approve the merger, Oly Hightop Corporation ("Newco") will be merged with and
into us. We will be the surviving corporation in the merger. Newco was created
only to engage in the merger and was organized and is owned by affiliates of
Olympus Real Estate Fund II, L.P., a Delaware limited partnership engaged in
real estate investment.
In connection with the merger, J.P. Morgan Securities Inc., our financial
advisor, delivered to the board of directors and its special committee an
opinion dated September 24, 1999 that, on the date of that opinion, the cash
consideration proposed to be paid to the holders of our common stock in
connection with the merger was fair from a financial point of view to these
holders. The written opinion of J.P. Morgan is attached as Appendix A to the
accompanying proxy statement, and you should read it carefully.
THE BOARD OF DIRECTORS, ACTING ON THE UNANIMOUS RECOMMENDATION OF THE
SPECIAL COMMITTEE, BY A UNANIMOUS VOTE OF THOSE MEMBERS PRESENT, HAS APPROVED
AND ADOPTED THE MERGER AND THE MERGER AGREEMENT AND RECOMMENDS THAT COMMON
STOCKHOLDERS VOTE FOR THE MERGER. THE BOARD OF DIRECTORS AND THE SPECIAL
COMMITTEE BELIEVE THAT THE MERGER IS FAIR TO, AND IN THE BEST INTERESTS OF, OUR
STOCKHOLDERS.
The accompanying proxy statement contains detailed information on the
proposed merger. A copy of the merger agreement is attached as Appendix B to
this proxy statement.
Please give all of this information your careful attention. The approval of
the merger by the holders of a majority of the outstanding shares of our common
stock is the only vote that is required to approve the merger. Holders of our
preferred stock are not entitled to vote on the merger.
Whether or not you plan to attend, it is important that your shares of
common stock are represented at the special meeting. A failure to vote will
count as a vote against the merger. Accordingly, if you are a common
stockholder, you are requested to promptly complete, sign and date the enclosed
proxy card and return it in the envelope provided, whether or not you plan to
attend. Doing so will not prevent you from voting your shares in person if you
later choose to attend the special meeting. If the merger is approved by the
common stockholders, you will receive instructions for surrendering your stock
certificates and a letter of transmittal to be used for this purpose. You should
not submit your stock certificates for exchange until you have received the
instructions and the letter of transmittal.
Sincerely,
/s/ Marshall B. Edwards
Marshall B. Edwards,
President and Chief Executive
Officer
This proxy statement is dated January 28, 2000 and is first being mailed to
stockholders on or about January 28, 2000.
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WALDEN RESIDENTIAL PROPERTIES, INC.
5080 SPECTRUM DRIVE, SUITE 1000 EAST
ADDISON, TEXAS 75001
(972) 788-0510
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NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON FEBRUARY 29, 2000
To the Stockholders of Walden Residential Properties, Inc.:
This is a notice that a Special Meeting of Stockholders will be held on
February 29, 2000, at 8:00 a.m., local time, at Spectrum Center Conference
Center, 5080 Spectrum Drive, Addison, Texas. The purpose of this meeting is for
our common stockholders to:
1. Consider and vote upon the merger of Oly Hightop Corporation, a
newly formed Maryland corporation ("Newco"), with and into Walden pursuant
to a Second Amended and Restated Agreement and Plan of Merger, dated as of
January 6, 2000, among Walden, Newco and Oly Hightop Parent, L.P., a newly
formed Delaware limited partnership and the owner of all of the outstanding
stock of Newco. In the merger, our stockholders will receive the following
payments, without interest:
- each outstanding share of common stock will be converted into $23.14
in cash,
- each outstanding share of 9.16% convertible redeemable preferred stock
will be converted into $26.39 in cash,
- each outstanding share of 9.20% senior preferred stock will be
converted into $22.00 in cash, and
- each outstanding share of 9.0% redeemable preferred stock will be
converted into $19.50 in cash.
Preferred stockholders will also receive accrued and unpaid dividends
to, but not including, the closing date. Shares of our stock held by us,
Newco, Oly Hightop Parent, or our or their subsidiaries will be canceled in
the merger. A copy of the merger agreement is attached as Appendix B to,
and is described in, the accompanying proxy statement.
2. Approve the postponement or adjournment of the special meeting for
the solicitation of additional proxies, if necessary to approve the merger.
3. Consider and act upon any other matters as may properly come before
the special meeting or any adjournments or postponements of the special
meeting.
The board of directors has determined that only holders of shares of our
common stock at the close of business on January 24, 2000, will be entitled to
vote at the special meeting or any adjournments or postponements of the special
meeting. The board of directors also has determined that notice of the special
meeting will be sent to all holders of shares of our preferred stock at the
close of business on January 24, 2000, regardless of class. Approval of the
merger requires the holders of a majority of the shares of our common stock
outstanding on the record date to vote in favor of the merger. To adjourn the
special meeting to solicit additional proxies, the proposal to adjourn must be
approved by the holders of a majority of the shares of our common stock present
in person or represented by a properly executed proxy at the special meeting.
Although holders of our preferred stock are invited to attend the special
meeting, these holders do not have a right to vote on the merger. A form of
proxy and a proxy statement containing more detailed information with respect to
the matters to be considered at the special meeting accompany and form a part of
this notice to common stockholders.
By Order of the Board of Directors,
/s/ Edward H. Hatzenbuehler
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Edward H. Hatzenbuehler,
Secretary
Dallas, Texas
January 28, 2000
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WHETHER OR NOT YOU ARE ABLE TO ATTEND THE SPECIAL MEETING, IF YOU ARE A
HOLDER OF OUR COMMON STOCK, PLEASE SIGN, DATE AND RETURN THE ACCOMPANYING PROXY
CARD PROMPTLY IN THE ENCLOSED ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN
THE UNITED STATES. IF YOU ARE A HOLDER OF OUR COMMON STOCK, YOU MAY REVOKE YOUR
PROXY AND VOTE IN PERSON IF YOU DECIDE TO ATTEND THE SPECIAL MEETING. NO HOLDER
OF COMMON OR PREFERRED STOCK SHOULD SEND IN ANY CERTIFICATES AT THIS TIME.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
QUESTIONS AND ANSWERS ABOUT THE MERGER...... 1
SUMMARY..................................... 3
The Companies............................. 3
Overview of the Transaction............... 3
The Special Meeting....................... 4
Record Date; Voting Power................. 4
Voting Securities and Votes Required...... 4
Special Committee......................... 4
Opinion of Walden's Financial Advisor..... 4
Other Terms of the Merger Agreement....... 5
Accounting Treatment...................... 7
Material Federal Income Tax
Consequences........................... 7
Treatment of Stock Options, Restricted
Stock and Warrants..................... 7
Conflicts of Interests.................... 7
Regulatory Approvals...................... 8
No Appraisal Rights....................... 8
Voting Agreements......................... 8
Historical Market Information............. 9
Selected Historical Consolidated Financial
Data................................... 11
Certain Projections....................... 13
Cautionary Statement Concerning Forward-
looking Information.................... 14
RISK FACTORS................................ 15
THE SPECIAL MEETING......................... 16
Date, Time and Place of the Special
Meeting................................ 16
Matters to be Considered at the Special
Meeting................................ 16
Proxy Solicitation........................ 17
Record Date and Quorum Requirement........ 17
Required Vote............................. 17
Voting Procedures......................... 18
Effective Time of the Merger and Payment
for Shares............................. 19
Other Matters to be Considered............ 19
THE COMPANIES............................... 19
Walden.................................... 19
Parent and Newco.......................... 20
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
THE MERGER.................................. 20
General Description....................... 20
Background of the Merger.................. 20
Reasons for the Merger; Recommendation of
the Special Committee and the Board of
Directors.............................. 35
Opinion of Walden's Financial Advisor..... 37
Conflicts of Interests.................... 42
Material Federal Income Tax
Consequences........................... 44
Anticipated Accounting Treatment of the
Merger................................. 46
Regulatory Approvals Relating to the
Merger................................. 46
Financing................................. 46
Stockholder Rights Plan Amendment......... 47
Litigation Relating to the Merger......... 47
THE OPERATING PARTNERSHIP MERGERS........... 48
THE MERGER AGREEMENT........................ 49
Effective Time of the Merger.............. 49
General................................... 49
Surrender and Exchange of Stock
Certificates........................... 49
Stock Plans............................... 50
Warrants.................................. 50
Representations and Warranties............ 50
Conduct of Business Prior to the Merger... 52
No Solicitation........................... 54
Conditions Precedent...................... 55
Termination............................... 56
Termination Fees and Expenses............. 58
Indemnification........................... 60
Amendment................................. 60
PRINCIPAL STOCKHOLDERS AND STOCK OWNERSHIP
OF MANAGEMENT............................. 61
NO APPRAISAL RIGHTS......................... 63
INDEPENDENT AUDITORS........................ 64
STOCKHOLDER PROPOSALS....................... 64
WHERE YOU CAN FIND MORE INFORMATION......... 64
INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE................................. 64
Appendices:
A -- Opinion of J.P. Morgan Securities Inc.
B -- Second Amended and Restated Agreement and
Plan of Merger
</TABLE>
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WALDEN RESIDENTIAL PROPERTIES, INC.
5080 SPECTRUM DRIVE
SUITE 1000 EAST
ADDISON, TEXAS 75001
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PROXY STATEMENT
FOR THE SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON FEBRUARY 29, 2000
The questions and answers beginning on this page relate to the merger of
Newco with and into Walden, which is referred to in this proxy statement as the
"merger" or the "Walden merger."
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: WHAT WILL HAPPEN IN THE MERGER?
A: In the merger, Newco will be merged with and into
Walden, with Walden being the surviving corporation. Our common and
preferred stockholders will receive cash payments for their shares of our
stock.
Q: WHEN DO YOU EXPECT THE MERGER TO BE COMPLETED?
A: We are working to complete the merger during the
first quarter of 2000.
Q: WHAT ARE COMMON STOCKHOLDERS BEING ASKED TO VOTE
UPON?
A: Common stockholders are being asked to approve
the merger of Newco into Walden and to approve the adjournment of the
special meeting to solicit additional proxies to approve the merger, if
necessary. Approval of the merger requires the holders of a majority of
the shares of our common stock outstanding on the record date to vote in
favor of the transaction. The proposal to adjourn must be approved by the
holders of a majority of the shares of our common stock present in person
or represented by a properly executed proxy at the special meeting.
The holders of our convertible preferred stock, senior preferred stock and
redeemable preferred stock do not have a right to vote on the merger.
Q. HOW DO THE BOARD OF DIRECTORS AND THE SPECIAL
COMMITTEE RECOMMEND THAT I VOTE?
A: Our board of directors, acting on the unanimous
recommendation of the special committee, by a unanimous vote of all
directors, other than Arch K. Jacobson who was absent, has approved and
adopted the merger and the merger agreement and recommends that common
stockholders vote FOR approval of the merger. The board of directors and
the special committee believe that the merger is fair to, and in the best
interests of, our stockholders.
Q: WHAT HAPPENS IF I TRANSFER MY SHARES AFTER THE
RECORD DATE?
A: The record date for the special meeting is earlier
than the expected date of the merger. Therefore, transferors of shares of
common stock after the record date but prior to the merger will retain
their right to vote at the special meeting, but the right to receive the
merger consideration per share will transfer with the shares of stock.
Q: WHAT WILL HAPPEN TO MY COMMON STOCK DIVIDENDS?
A: Under the merger agreement, we may pay a fourth
quarter dividend only in the minimum amount necessary to avoid (a)
jeopardizing our status as a real estate investment trust under federal
tax laws and (b) having positive taxable income for the tax year ending at
the effective time of the merger. We do not expect to pay any 1999 fourth
quarter dividend on our common stock.
Q: WHAT DO I NEED TO DO NOW?
A: If you are a common stockholder, simply indicate
on your proxy card how you want to vote and sign,
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date and mail it in the enclosed envelope as soon as possible.
Q: WHAT HAPPENS IF I DON'T RETURN A PROXY CARD?
A: If you are a common stockholder, the failure to
return your proxy card will have the same effect as voting against the
merger.
Q: MAY I VOTE IN PERSON?
A: Yes. If you are a common stockholder, you may
attend the special meeting and common stockholders may vote their shares
in person, rather than signing and mailing a proxy card.
Q: MAY I CHANGE MY VOTE AFTER I HAVE VOTED?
A: Yes. If you are a common stockholder, you may
change your vote at any time before your proxy is voted at the special
meeting by following the instructions as detailed in "The Special
Meeting -- Voting Procedures" on page 18. Before your proxy is voted, you
may submit a new proxy or you may attend the special meeting and vote in
person.
Q: IF MY SHARES ARE HELD IN "STREET NAME" BY MY
BROKER, WILL MY BROKER VOTE MY SHARES FOR ME?
A: Your broker will vote your shares of common stock
only if you provide instructions on how to vote. You should instruct your
broker how to vote your shares, following the directions your broker
provides. If you do not provide instructions to your broker, your shares
will not be voted and they will be counted as votes against the merger.
Q: SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
A: No. After the merger is completed, we will send you
written instructions for exchanging your stock certificates.
Q: WHO CAN HELP ANSWER MY QUESTIONS?
A: If you have additional questions about the merger,
you should contact:
D. F. King & Co., Inc.
the proxy solicitor who may be called
toll-free at (800) 290-6424
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SUMMARY
This summary highlights selected information from this document and may not
contain all of the information that is important to you. For a more complete
understanding of the merger and for a more complete description of the legal
terms of the merger, you should carefully read this entire document, the merger
agreement which is attached as Appendix B and the other available information
referred to in "Where You Can Find More Information" on page 64. For
convenience, in this proxy statement, our 9.16% Series B convertible redeemable
preferred stock may be referred to as "convertible preferred stock," our 9.20%
senior preferred stock may be referred to as "senior preferred stock," and our
9.0% redeemable preferred stock may be referred to as "redeemable preferred
stock." Also, Olympus Real Estate Fund II, L.P. will be referred to as
"Olympus," Oly Hightop Corporation will be referred to as "Newco," Oly Hightop
Parent, L.P. will be referred to as "Parent," Walden/Drever Operating
Partnership, L.P. will be referred to as "Walden/Drever Partnership," and Walden
Residential Operating Partnership, L.P. will be referred to as "Walden
Residential Partnership."
THE COMPANIES (See page 19)
WALDEN RESIDENTIAL PROPERTIES, INC.
5080 Spectrum Drive, Suite 1000 East
Addison, Texas 75001
(972) 788-0510
We are a Dallas, Texas-based real estate investment trust, or REIT, focused
on middle income multifamily properties located primarily in selected
Southwestern and Southeastern metropolitan areas.
We primarily conduct our business through our two operating partnerships,
Walden/Drever Operating Partnership, L.P. and Walden Residential Operating
Partnership, L.P. Walden/Drever Partnership wholly owns 97 of our 140
properties. Walden Residential Partnership owns limited partnership interests in
Walden/ Drever Partnership and other subsidiaries that directly own properties.
OLY HIGHTOP CORPORATION
c/o Olympus Real Estate Fund II, L.P.
200 Crescent Court, Suite 1600
Dallas, Texas 75201
(214) 720-7800
Newco is a wholly owned subsidiary of Oly Hightop Parent, L.P. Parent and
Newco were organized and are owned by affiliates of Olympus Real Estate Fund II,
L.P., a Delaware limited partnership engaged in real estate investment. Parent
and Newco are newly formed entities created only to enter into the merger
agreement and to complete the merger and related transactions. Parent and Newco
have not otherwise conducted any business or operations.
None of Parent, Newco or Olympus is an affiliate of Walden.
OVERVIEW OF THE TRANSACTION
The merger is part of a larger transaction involving a series of mergers.
Immediately before the merger, two newly formed subsidiary limited partnerships
of Parent will separately merge into our two operating partnerships,
Walden/Drever Partnership and Walden Residential Partnership, with Walden/Drever
Partnership and Walden Residential Partnership being the surviving partnerships.
Newco will then merge into Walden, with Walden being the surviving corporation.
These operating partnership mergers and the merger with Newco are each
conditioned upon the approval of the merger with Newco by holders of a majority
of the outstanding shares of our common stock. The merger with Newco is the only
part of the larger transaction being voted upon by these holders. All of our
stockholders will receive cash in the merger, and Parent will be our only
stockholder after this merger. We and Parent expect that we will merge into
Parent shortly after the merger with Newco, with Parent being the surviving
entity.
The total value of the consideration payable to security holders of Walden,
Walden/Drever Partnership and Walden Residential Partnership in these mergers is
approximately $869 million, to be allocated to the
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partners of these partnerships and to our stockholders as shown in the following
table.
<TABLE>
<CAPTION>
MERGER CONSIDERATION/
CLASS OF SECURITY REFINANCING DISTRIBUTION
----------------- ------------------------
<S> <C>
- --------------------------------------------------------------
- common stock - $23.14 per share in cash
- --------------------------------------------------------------
- convertible preferred stock - $26.39 per share in cash,
plus accrued and unpaid
dividends
- --------------------------------------------------------------
- senior preferred stock - $22.00 per share in cash,
plus accrued and unpaid
dividends
- --------------------------------------------------------------
- redeemable preferred stock - $19.50 per share in cash,
plus accrued and unpaid
dividends
- --------------------------------------------------------------
- Walden/Drever Partnership - $19.50 per unit in cash,
Class B preferred units plus accrued and unpaid
distributions
- --------------------------------------------------------------
- Walden/Drever Partnership At each holder's election:
Class B common units
- Walden Residential - $23.14 per unit in cash;
Partnership
Class C common units
- Parent common limited
partnership interest; or
- Walden Residential - $11.57 per unit in cash and
Partnership a Parent common limited
Class D common units partnership interest;
plus, in each case, accrued
and unpaid full quarterly
distributions
- --------------------------------------------------------------
</TABLE>
THE SPECIAL MEETING (See page 16)
The special meeting of our stockholders is scheduled to be held at 8:00
a.m., local time, on February 29, 2000, at Spectrum Center Conference Center,
5080 Spectrum Drive, Addison, Texas.
RECORD DATE; VOTING POWER (See page 17)
Our board of directors has fixed the close of business on January 24, 2000
as the record date to determine holders of shares of our stock entitled to
notice of and to vote at the special meeting.
As of the record date, there were 25,627,338 shares of our common stock
issued and outstanding, held by approximately 1,526 record holders. If you held
common stock at the close of business on the record date, you are entitled to
one vote per share on any matter that may properly come before the special
meeting.
VOTING SECURITIES AND VOTES REQUIRED (See page 17)
The merger requires the approval of holders of a majority of the shares of
our common stock outstanding on the record date. Six of our directors, Marshall
B. Edwards, Mark S. Dillinger, Michael E. Masterson, Francesco Galesi, Linda
Walker Bynoe and Don R. Daseke, and their affiliates, held approximately 2.6% of
the total shares of common stock outstanding on the record date and have entered
into agreements with Parent and Newco to vote these shares in favor of the
merger. Our directors, executive officers and their affiliates held a total of
approximately 2.8% of the shares of our common stock outstanding on the record
date.
Westdale Properties America I, Ltd. and its affiliates held a total of
approximately 5.3% of the shares of our common stock outstanding on the record
date. Westdale has committed to provide up to $12 million in equity financing
for the merger and has indicated its intent to vote in favor of the merger. In
exchange for up to $12 million in equity financing, Westdale will receive a
limited partnership interest of up to 2.3% in Oly Hightop Holding, L.P., the
parent of Parent. Westdale's percentage interest assumes that holders of
approximately 937,000 units of limited partnership interest in the operating
partnerships elect to convert their units into common limited partnership
interests in Parent in connection with the operating partnership mergers.
For more information regarding this financing commitment, please read "The
Merger -- Financing" on page 46.
SPECIAL COMMITTEE
Our board of directors believed that three of our directors, Maxwell B.
Drever, Francesco Galesi and Michael E. Masterson, had actual or potential
conflicts of interests in evaluating the transaction with Parent and Newco
because they own limited partnership interests in our operating partnerships.
Therefore, the board of directors appointed a special committee of five
directors who were neither employees of Walden nor holders of operating
partnership units to review and evaluate the transaction.
OPINION OF WALDEN'S FINANCIAL ADVISOR (See page 37)
The board of directors and the special committee have received the opinion
of J.P. Morgan Securities Inc., their financial advisor, dated September 24,
1999. The opinion states that, on that date, the cash consideration to be
received by the holders of our common stock in the merger was fair from a
financial point of view to those holders. Based on the terms of the merger
agreement on that date, the per share cash consideration to be received by the
holders of common stock was between a range of $23.09 to $23.25 per share. The
range resulted from the possibility of up to a $5 million reduction in the
purchase price attributable to anticipated expenses in that initial agreement.
The amended merger agreement eliminates any adjustments to the cash merger
consideration and fixes the cash merger
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consideration to be paid to holders of our common stock at $23.14 per share. On
December 29, 1999, J.P. Morgan orally affirmed the fairness of the $23.14 per
share being offered to holders of our common stock as being within that initial
range. For its services in connection with the merger, J.P. Morgan received
retainer fees totaling $500,000 and a fee of $1.25 million upon execution of the
merger agreement. If the merger is completed, J.P. Morgan will receive
additional fees of approximately $7.0 million. In addition, we have agreed to
reimburse J.P. Morgan for its reasonable expenses incurred in connection with
its services, including the fees and disbursements of its counsel, and have
agreed to indemnify J.P. Morgan against various liabilities, including
liabilities arising under the federal securities laws. The full text of the
written opinion of J.P. Morgan is attached to this proxy statement as Appendix
A, and you should read it carefully. THE OPINION OF J.P. MORGAN IS DIRECTED TO
THE BOARD OF DIRECTORS AND THE SPECIAL COMMITTEE OF THE BOARD OF DIRECTORS AND
IS NOT A RECOMMENDATION TO YOU AS TO HOW YOU SHOULD VOTE AT THE SPECIAL MEETING.
OTHER TERMS OF THE MERGER AGREEMENT (See page 49)
The merger agreement is attached to this proxy statement as Appendix B. You
should read the merger agreement. It is the legal document that governs the
merger.
CONDITIONS PRECEDENT
The completion of the merger depends upon the satisfaction of a number of
conditions, including:
- the approval of the merger by the holders of a majority of the
outstanding shares of our common stock;
- the absence of any order or legal restraint of any court or governmental
entity preventing or prohibiting the merger;
- the continued accuracy of each party's representations and warranties and
the fulfillment of each party's agreements contained in the merger
agreement;
- the receipt of all consents from our lenders required by the merger
agreement to enable Parent to assume a portion of our debt;
- the completion of the Walden/Drever Partnership and Walden Residential
Partnership mergers;
- Newco's receipt of the debt financing from the following sources on the
terms agreed upon with these sources:
- $250 million under a credit agreement among affiliates of Olympus, The
Chase Manhattan Bank and other financial institutions;
- $175 million under a credit facility with Bank Boston, N.A. and
BancBoston Robertson Stephens Inc.;
- $650 million under a credit facility with Green Park Financial Limited
Partnership; and
- $40 million in additional borrowings under existing Walden credit
facilities with Northwestern Investment Management Co.
- Newco's receipt of approximately $412 million of equity financing from
its affiliates and up to $12 million of equity financing from Westdale
and up to $100 million in additional equity investments from unaffiliated
third parties, unless the failure to obtain the equity financing was the
result of the breach of any equity financing commitment by Parent or its
affiliates;
- the absence of a material adverse change or effect with respect to Walden
which would give Parent or Newco the right to terminate the merger
agreement;
- the delivery by our counsel of a legal opinion on specified tax matters;
- the delivery of a closing agreement between the Internal Revenue Service
and us providing that our REIT status has not been terminated under the
Internal Revenue Code, which agreement will not involve fines, penalties
or other charges that exceed $1 million; and
- the election by holders of a total of at least 937,000 Walden/Drever
Partnership Class B common units and Walden Residential Partnership Class
C and Class D units to convert these units into common limited
partnership interests in Parent in the operating partnership mergers. Two
of our directors, Michael E. Masterson and Francesco Galesi, have
informed us that they and their affiliates will convert a total of
543,383 of their units into common limited partnership interests in
Parent in the operating partnership mergers.
Other than the condition requiring common stockholder approval, which is a
legal requirement, each party to the merger may waive any condition that is
5
<PAGE> 10
intended for its benefit. If any of Walden, Newco or Parent elects to waive a
condition and complete the merger, we will evaluate the facts and circumstances
giving rise to the waiver at that time. If we determine that these facts and
circumstances are material to stockholders, we will disclose this information in
a supplement to this proxy statement before the special meeting and will
resolicit your proxy. EVEN IF THE HOLDERS OF OUR COMMON STOCK APPROVE THE
MERGER, THERE CAN BE NO ASSURANCE THAT THE MERGER WILL BE CONSUMMATED.
TERMINATION
Any party may terminate the merger agreement under a number of
circumstances, including the following material circumstances:
- any governmental entity has issued a final and non-appealable injunction,
order, decree or ruling, or taken any other action restraining, enjoining
or otherwise prohibiting the merger or the Walden/Drever Partnership or
Walden Residential Partnership mergers;
- the merger has not been completed by June 30, 2000, but this right to
terminate the merger agreement will not be available to any party whose
breach of the merger agreement has been the cause of or resulted in the
failure to complete the merger by that date;
- the holders of at least a majority of the outstanding shares of our
common stock do not approve the merger; or
- we, on the one hand, or Parent or Newco, on the other hand, have
materially breached the merger agreement.
In addition, Parent or Newco, but not Walden, may terminate the merger
agreement under a number of circumstances, including the following material
circumstances:
- a material adverse change or effect occurs with respect to Walden;
- any financing commitment made to Parent or Newco expires or otherwise
terminates pursuant to its terms as long as Parent or Newco has given us
notice within 30 days after the expiration or termination;
- Newco has not received the debt financing on the terms agreed upon with
the financing sources;
- the providers of the debt financing commitments, excluding the commitment
of The Chase Manhattan Bank, are willing to provide debt financing but
the aggregate gross proceeds available from the debt financing are less
than $865 million;
- our board of directors or special committee has withdrawn or modified, in
any manner which is adverse to Parent or Newco, its recommendation or
approval of the merger agreement, the merger or the transactions
contemplated by the merger agreement;
- our board of directors has recommended to our stockholders an acquisition
proposal from another party; or
- our board of directors has failed to recommend against a tender or
exchange offer involving 50% or more of our voting stock within ten
business days after the tender or exchange offer is begun.
Walden, but not Parent or Newco, may terminate the merger agreement under a
number of circumstances, including the following material circumstances:
- our board of directors or special committee determines to withdraw or
adversely modify its recommendation or approval of the merger because it
has received a financially superior acquisition proposal from another
party after giving Parent notice of the proposal and an opportunity to
revise Parent's proposal; or
- Newco fails or refuses to effect the merger, all of the conditions to
Newco's obligation to complete the merger have been satisfied, and
neither Parent nor Newco has the right to terminate the merger agreement.
TERMINATION FEES AND EXPENSES (See pages 58 through 59)
In the following circumstances, a party will be entitled to receive
termination fees or expenses:
- if we terminate the merger agreement because Parent or Newco has
materially breached the merger agreement, we will be entitled to receive
our expenses incurred in connection with the merger up to $2 million;
- if the merger agreement is terminated, Parent and Newco will be entitled
to receive their expenses incurred in connection with the merger up to
$12 million, unless the termination is:
- by mutual consent,
6
<PAGE> 11
- because they have materially breached the merger agreement,
- because of insufficient proceeds from the debt financing,
- because of the failure of The Chase Manhattan Bank to provide debt
financing under its commitment,
- because Olympus has failed to receive $100 million in additional equity
investments from third parties, or
- because Parent or Newco terminates the merger agreement because
definitive settlement agreements in the purported class action lawsuits
filed regarding the merger have not been entered into or preliminarily
approved on or before the scheduled closing date; and
- if the merger agreement is terminated because we receive an
economically superior proposal, Parent will be entitled to receive a
fee of $26.75 million.
The other circumstances in which these fees, expenses and liquidated
damages may be paid are set forth under "The Merger Agreement -- Termination
Fees and Expenses."
LIQUIDATED DAMAGES
The merger agreement provides that Parent will pay us liquidated damages of
$5 million if we terminate the merger agreement because neither Parent or Newco
have the right to terminate the merger agreement, all the conditions to our
obligation to effect the merger are satisfied and Newco fails or refuses to
effect the merger.
ACCOUNTING TREATMENT (See page 46)
The merger is expected to be accounted for using the purchase method of
accounting in accordance with generally accepted accounting principles.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES (See page 44)
You will generally recognize gain or loss for federal income tax purposes
equal to the difference between the amount of cash you receive in the merger and
the adjusted basis of your shares. DUE TO THE INDIVIDUAL NATURE OF TAX
CONSEQUENCES, YOU ARE URGED TO CONSULT YOUR TAX ADVISOR AS TO THE SPECIFIC TAX
CONSEQUENCES TO YOU OF THE MERGER, INCLUDING THE EFFECTS OF STATE, LOCAL OR
OTHER TAX LAWS.
TREATMENT OF STOCK OPTIONS, RESTRICTED STOCK AND WARRANTS
When the merger occurs, each outstanding option to purchase our common
stock will be canceled in exchange for cash equal to the difference between the
$23.14 cash merger consideration and the exercise price per share of that stock
option. Each share of restricted stock will be canceled in exchange for a cash
payment equal to the $23.14 cash merger consideration per share of common stock.
The current exercise price for our outstanding common stock warrants is
above the $23.14 cash consideration to be paid to the holders of our common
stock in the merger. Our board of directors will reduce the exercise price of
our outstanding common stock warrants to an exercise price per share equal to
$0.01 below the common stock cash merger consideration. Each outstanding warrant
will be canceled in the merger, and the holders of outstanding warrants to buy
our common stock will receive in the merger $0.01 in cash for each share that
the holders would have received upon the exercise of these warrants.
CONFLICTS OF INTERESTS (See page 42)
Some members of our board of directors and management have interests in the
merger that conflict with your interests as a holder of our common stock. As a
result of the merger, our officers and directors will receive a total of
approximately $86.3 million as described below.
- Six of our officers and directors, Marshall B. Edwards, Michael E.
Masterson, Mark S. Dillinger, Maxwell B. Drever, Robin K. Minick and
Theodore M. Kerr, will receive, at or within two years after the merger
occurs, a total of approximately $9.2 million in cash payments relating
to transition services, severance, consulting, noncompetition and
nonsolicitation arrangements.
- Thirteen of our officers and directors, Don R. Daseke, Mark S. Dillinger,
Maxwell B. Drever, Marshall B. Edwards, Theodore M. Kerr, Michael E.
Masterson, Robin K. Minick, Linda Walker Bynoe, Francesco Galesi, Robert
Honstein, Arch K. Jacobson, Louis G. Munin and J. Otis Winters, will
receive a total of approximately $15.1 million in cash in exchange for
their shares of our stock. In addition, these officers and directors will
receive an aggregate cash payment of approximately $5.2 million for
restricted stock and stock options that they hold,
7
<PAGE> 12
based on a price of $23.14 per share of restricted stock and the excess
of $23.14 over the exercise price per share of the options.
- Parent will continue the indemnification arrangements and directors' and
officers' liability insurance for our existing directors and officers
after the merger.
- Three of our directors, Messrs. Drever, Galesi and Masterson, directly or
indirectly currently own in the aggregate 2,452,608 common limited
partnership interests in Walden/Drever Partnership or Walden Residential
Partnership and will have the option to receive approximately $56.8
million in cash and/or new securities of Parent in the operating
partnership mergers.
REGULATORY APPROVALS (See page 46)
None of Walden, Parent or Newco is required to make filings with or obtain
approvals from regulatory authorities in connection with the merger, other than
the filing of articles of merger with the State Department of Assessments and
Taxation of Maryland.
NO APPRAISAL RIGHTS (See page 63)
Because our common stock, convertible preferred stock, redeemable preferred
stock and senior preferred stock are listed on the New York Stock Exchange,
holders of these shares will not have appraisal rights under Maryland law.
VOTING AGREEMENTS
Parent, Newco and each of Linda Walker Bynoe, Don R. Daseke, Mark S.
Dillinger, Marshall B. Edwards, Francesco Galesi, Michael E. Masterson (all of
whom are directors) and entities controlled by Mr. Daseke and Mr. Galesi, who
held a total of approximately 2.6% of the shares of our common stock outstanding
on the record date, have entered into voting agreements. These agreements
require that, subject to the terms and conditions of these agreements, each
stockholder will vote all shares of our common stock beneficially owned by that
stockholder, and any shares subsequently acquired, including upon the exercise
of stock options or conversion of Walden/Drever Partnership or Walden
Residential Partnership units, in favor of the merger and against any merger
with another party or any proposal that would impede the merger.
8
<PAGE> 13
HISTORICAL MARKET INFORMATION
Our common stock is traded on the New York Stock Exchange under the symbol
"WDN," our convertible preferred stock is traded on the New York Stock Exchange
under the symbol "WDNPRB," our senior preferred stock is traded on the New York
Stock Exchange under the symbol "WDNPRS," and our redeemable preferred stock is
traded on the New York Stock Exchange under the symbol "WDNPRD." The following
table shows the per share high and low sales prices of our common stock,
convertible preferred stock, senior preferred stock and redeemable preferred
stock on the last full trading day for that class before the announcement of the
signing of the initial merger agreement on September 24, 1999.
<TABLE>
<CAPTION>
HIGH LOW
-------- --------
<S> <C> <C>
Common stock............................................. $19.0625 $18.6250
Convertible preferred stock.............................. 21.8750 21.8750
Senior preferred stock................................... 16.8750 16.6250
Redeemable preferred stock............................... 16.3750 16.3125
</TABLE>
The following table shows the per share high and low sales prices of our
common stock as reported by the New York Stock Exchange. The following table
also shows, for the periods indicated, the distributions declared per share of
common stock. The closing sale price of our common stock on September 23, 1999
was $18.750. The closing price of our common stock on January 27, the last
trading day prior to the date of this proxy statement, was $22.125. You are
encouraged to obtain current market quotations for our common stock.
<TABLE>
<CAPTION>
DISTRIBUTIONS
PER SHARE OF
HIGH LOW COMMON STOCK
-------- -------- -------------
<S> <C> <C> <C>
1997
First Quarter............................................. $ 26.875 $ 24.000 $0.4825
Second Quarter............................................ 25.688 21.250 0.4825
Third Quarter............................................. 25.750 22.750 0.4825
Fourth Quarter............................................ 26.000 23.500 0.4825
1998
First Quarter............................................. $ 27.125 $ 23.750 $0.4825
Second Quarter............................................ 26.000 23.813 0.4825
Third Quarter............................................. 23.063 22.750 0.4825
Fourth Quarter............................................ 23.938 19.250 0.4825
1999
First Quarter............................................. $ 21.250 $ 16.000 $0.4825
Second Quarter............................................ 21.938 17.250 0.4825
Third Quarter............................................. 21.875 17.938 0.4825
Fourth Quarter............................................ 21.937 20.125 --
2000
First Quarter (through January 27, 2000).................. $ 22.375 $ 21.438 --
</TABLE>
For the year ended December 31, 1998, we declared and paid distributions
totaling $1.93 per share of common stock. On March 3, 1999, June 2, 1999,
September 2, 1999, and December 1, 1999, we paid a distribution of $.4825 per
share to holders of common stock. These represent an annualized distribution of
$1.93 per share of common stock.
Under a provision of our credit facility, distributions to stockholders may
not exceed 90% of funds from operations, as defined in the credit facility. We
do not anticipate that our distributions prior to the anticipated closing date
for the merger will be restricted by this provision.
Under the merger agreement, we may authorize, declare and pay quarterly
dividends after the third quarter of 1999 only in the minimum amount necessary
to avoid jeopardizing our status as a REIT under the Internal Revenue Code and
to avoid having positive REIT taxable income for the taxable year ending at the
time the merger becomes
9
<PAGE> 14
effective. In this case, payment can be made only after notice to and
consultation with Parent. We do not expect to pay any 1999 fourth quarter
dividend on our common stock. The merger agreement does not restrict the payment
of regular cash dividends on our convertible preferred stock, senior preferred
stock or redeemable preferred stock in accordance with their respective terms.
If the merger is not consummated, our future distributions will be at the
discretion of our board of directors and will depend upon numerous factors,
including gross revenues received from properties, operating expenses, capital
expenditures for properties and interest expense incurred in borrowing. Pursuant
to Internal Revenue Code provisions, a REIT is generally required to distribute
at least 95% of its REIT taxable income. Recently enacted legislation reduces
the REIT distribution requirement to 90% for taxable years beginning after
December 31, 2000.
Distributions to the extent of our current and accumulated earnings and
profits for federal income tax purposes generally will be taxable to
stockholders as ordinary dividend income, ordinary gain or capital gain.
Distributions in excess of earnings and profits generally will be treated as a
non-taxable reduction of the stockholder's basis in the shares of common stock
to the extent thereof, which may have the effect of deferring taxation until the
sale of the shares, and thereafter as taxable gain. Following is an allocation
of our 1998 distributions to common stockholders:
<TABLE>
<CAPTION>
AMOUNT OF DISTRIBUTION
DISTRIBUTION TYPE PER SHARE OF COMMON STOCK PERCENTAGE
- ----------------- ------------------------- ----------
<S> <C> <C>
Ordinary taxable dividend................................... $0.76 39.30%
20% rate capital gain....................................... 0.15 7.71%
Section 1250 ordinary gain.................................. 0.05 2.85%
Return of capital........................................... 0.97 50.14%
----- -------
$1.93 100.00%
===== =======
</TABLE>
10
<PAGE> 15
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
We are providing the following information to aid you in your analysis of
the financial aspects of the transaction. This information includes our selected
consolidated financial data since our initial public offering on February 9,
1994.
The historical consolidated operating and balance sheet data for the nine
months ended September 30, 1999 and 1998 have been derived from our unaudited
consolidated financial statements and accounting records. The historical
consolidated operating data for the years ended December 31, 1998, 1997, 1996
and 1995 and the period from February 9, 1994, the date we commenced operations,
to December 31, 1994 and the balance sheet data as of December 31, 1998, 1997,
1996, 1995 and 1994 have been derived from our audited consolidated financial
statements and accounting records. This information may not be indicative of our
future operating results. This information is only a summary and you should read
it together with our consolidated financial statements, which are incorporated
by reference into this document. All amounts are in thousands, except per share
and property data.
<TABLE>
<CAPTION>
Walden Residential Properties, Inc.
----------------------------------------------------------------------------------------
Nine Months Ended
September 30, Year Ended December 31, February 9 to
----------------------- ---------------------------------------------- December 31,
1999 1998 1998 1997(a) 1996 1995 1994
---------- ---------- ---------- ---------- --------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA
Revenues
Rental income...................... $ 196,424 $ 200,288 $ 268,224 $ 163,224 $ 105,602 $ 78,469 $ 39,602
Other property income.............. 8,634 8,212 10,593 6,313 3,873 3,090 1,493
Interest income.................... 1,533 1,227 1,717 1,598 1,433 856 365
Equity income from joint venture... 1,961 -- -- -- -- -- --
Management and other income........ 801 -- -- -- 263 409 533
---------- ---------- ---------- ---------- --------- -------- ---------
Total revenues................ 209,353 209,727 280,534 171,135 111,171 82,824 41,993
Expenses
Property operating and
maintenance...................... 64,589 69,176 91,930 56,483 37,521 28,748 15,607
Real estate taxes.................. 21,541 20,945 28,272 16,805 10,039 7,337 3,275
General and administrative......... 8,424 8,760 11,901 7,734 5,124 3,811 2,507
Transaction and other charges...... 4,053 -- 3,993 1,940 -- -- --
Interest expense................... 44,662 40,536 54,409 28,447 20,573 17,111 6,288
Depreciation and amortization...... 51,549 44,367 60,275 34,668 20,726 16,634 8,960
---------- ---------- ---------- ---------- --------- -------- ---------
Total expenses................ 194,818 183,784 250,780 146,077 93,983 73,641 36,637
---------- ---------- ---------- ---------- --------- -------- ---------
Operating income..................... 14,535 25,943 29,754 25,058 17,188 9,183 5,356
Gain on disposition of real
property........................... 16,027 6,696 6,459 2,055 1,934 1,502 --
Extraordinary loss on debt
extinguishment..................... (1,445) (104) (423) (422) (1,848) (1,352) --
---------- ---------- ---------- ---------- --------- -------- ---------
Income before income allocated to
minority interests................. 29,117 32,535 35,790 26,691 17,274 9,333 5,356
Income allocated to minority
interests.......................... (4,109) (11,137) (11,935) (4,109) (1,705) (922) --
---------- ---------- ---------- ---------- --------- -------- ---------
Net income........................... 25,008 21,398 23,855 22,582 15,569 8,411 5,356
Preferred distributions.............. (12,363) (9,841) (13,119) (13,186) (2,387) -- --
---------- ---------- ---------- ---------- --------- -------- ---------
Net income available to common
stockholders....................... $ 12,645 $ 11,557 $ 10,736 $ 9,396 $ 13,182 $ 8,411 $ 5,356
========== ========== ========== ========== ========= ======== =========
Basic net income per share........... $ 0.51 $ 0.63 $ 0.58 $ 0.53 $ 0.90 $ 0.69 $ 0.62
Diluted net income per share......... $ 0.51 $ 0.63 $ 0.58 $ 0.53 $ 0.89 $ 0.69 $ 0.62
Distributions per share of common
stock.............................. $ 1.45 $ 1.45 $ 1.93 $ 1.93 $ 1.86 $ 1.82 $ 1.09
Basic weighted average number of
common shares...................... 24,770 18,281 18,497 17,590 14,720 12,155 8,689
</TABLE>
11
<PAGE> 16
<TABLE>
<CAPTION>
Walden Residential Properties, Inc.
----------------------------------------------------------------------------------------
Nine Months Ended
September 30, Year Ended December 31, February 9 to
----------------------- ---------------------------------------------- December 31,
1999 1998 1998 1997(a) 1996 1995 1994
---------- ---------- ---------- ---------- --------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
PROPERTY DATA
Total properties (at end of
period)............................ 140 155 150 154 68 55 40
Total units (at end of period)....... 39,024 42,432 41,594 42,482 21,407 17,205 12,319
Total units (weighted average)....... 40,777 42,742 42,629 27,346 18,430 14,601 9,140
Weighted average monthly property
revenue per unit (b)............... $ 559 $ 542 $ 545 $ 517 $ 495 $ 465 $ 420
OTHER DATA
Funds from operations (c)............ $ 57,005 $ 58,833 $ 78,649 $ 50,233 $ 36,998 $ 24,917 $ 13,945
Cash flows provided by (used in):
Operating activities............... $ 65,198 $ 59,209 $ 69,405 $ 70,822 $ 38,281 $ 31,317 $ 16,420
Investing activities............... $ 11,497 $ (35,973) $ (53,776) $ (327,814) $(158,668) $(86,926) $(256,114)
Financing activities............... $ (82,437) $ (25,352) $ (16,094) $ 237,029 $ 143,306 $ 58,121 $ 243,982
</TABLE>
<TABLE>
<CAPTION>
At September 30, At December 31,
----------------------- -------------------------------------------------------------
1999 1998 1998 1997(a) 1996 1995 1994
---------- ---------- ---------- ---------- --------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Real estate assets, at cost....... $1,515,464 $1,532,085 $1,531,163 $1,506,030 $ 683,515 $513,341 $ 329,206
Accumulated depreciation.......... (167,161) (113,558) (128,765) (74,584) (41,707) (23,734) (8,589)
Total assets...................... 1,497,438 1,497,791 1,552,273 1,469,472 689,714 510,548 334,937
Mortgage notes payable, credit
facility and term loan.......... 777,619 759,631 806,867 702,354 258,908 259,015 165,439
Minority interests................ 106,476 313,660 147,277 321,916 14,886 18,608 --
Stockholders' equity.............. 554,233 376,973 533,203 395,215 396,535 216,519 160,267
</TABLE>
- ---------------
(a) On October 1, 1997, we acquired Drever Partners, Inc. and its affiliates in
a transaction accounted for under the purchase method of accounting.
(b) Represents rental income and other property income, divided by weighted
average units, divided by twelve or nine months, as applicable.
(c) Based on the guidelines established by the National Association of Real
Estate Investment Trusts and REIT industry standards, we believe funds from
operations, or "FFO," is an appropriate measure of the performance of an
equity REIT. FFO is generally calculated by excluding from net income any
gains or losses from debt restructurings and sales of property and adding
back any depreciation of real estate assets. In addition, extraordinary or
unusual items that are non-recurring events that would materially distort
the comparative measure of FFO are typically excluded. We believe FFO helps
to evaluate our operations by determining our ability to incur and service
debt and to make capital expenditures. By adding depreciation expense back
to net income, we believe that FFO presents an accurate picture of our
operating cash flows. In evaluating FFO and the trends it depicts,
consideration should be given to the major factors affecting FFO. Growth in
FFO results from increases in revenues or decreases in related operating
expenses. Our historical increases in FFO have been primarily the result of
increased revenues coming from property acquisitions. FFO does not
represent cash generated from operating 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 as an indication of
performance or as an alternative to cash flow as a measure of liquidity.
Our calculation of FFO includes income allocated to minority interests and
assumes the conversion of all convertible securities, including minority
interest securities. This calculation may differ from the FFO calculation
used by other REITs, and, accordingly may not be comparable to similarly
titled items reported by other REITs.
12
<PAGE> 17
CERTAIN PROJECTIONS
In connection with Parent's and Newco's review of Walden and in the course
of our negotiations with Parent and Newco described in "The Merger -- Background
of the Merger," we provided Parent and Newco with non-public business and
financial information. The non-public information we provided included
projections of our future operating performance. These projections do not give
effect to the merger or the financing of the merger. Inclusion of the
prospective financial information in this proxy statement should not be regarded
as a representation by any person that the results contained in the prospective
financial information will be achieved.
Neither our independent auditors, nor any other independent accountants,
have compiled, examined or performed any procedures with respect to the
prospective financial information contained in this proxy statement, nor have
they expressed any opinion or any other form of assurance on such information or
its achievability, and they assume no responsibility for, and disclaim any
association with, the prospective financial information.
We do not, as a matter of course, publicly disclose projections of future
revenues or earnings. The projections are included in this proxy statement only
because such information was made available to Parent and Newco in connection
with their due diligence investigation of Walden. The projections were not
prepared with a view towards public disclosure, nor were they prepared in
accordance with the guidelines established by the American Institute of
Certified Public Accountants for preparation and presentation of prospective
financial information.
The preparation of the projections involved judgments and assumptions with
respect to our operations that, although considered reasonable at the time by
our management, may not be realized. We cannot assure you that actual results
will not vary materially from the projections. These assumptions were as
follows:
- The total number of our properties and apartment units would remain
unchanged during all relevant periods at 140 properties and 39,024
apartment units.
- The debt against our properties would not change during all relevant
periods, and would bear interest at existing interest rates.
- Property revenue would increase a total of 4.8% between 1999 and 2000
based on increasing rents and other income and occupancy on an individual
property basis.
- Operating expenses would increase a total of 2.3% between 1999 and 2000
based on a 3.0% increase in insurance expenses and a 4.0% increase in
real estate taxes.
Factors such as industry performance and general business, economic,
regulatory, market and financial conditions, all of which are difficult to
predict and beyond the control of our management, may cause the projections or
the underlying assumptions to be inaccurate. Accordingly, there can be no
assurance that the projections will be realized, and actual results may be
materially greater or less than those contained in the projections.
We do not intend to update or otherwise revise the projections to reflect
circumstances existing after the date the projections were made or to reflect
the occurrence of future events even if any or all of the assumptions underlying
the projections are shown to be in error.
The internal management projections we provided to an affiliate of Olympus
included estimates of revenues and expenses as listed in the following table:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
-------------------
1999 2000
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Revenues.................................................... $266,190 $278,976
Expenses.................................................... $111,176 $113,757
</TABLE>
Parent and Newco have informed us that they took this information, together
with their own analyses, into account in determining whether to acquire Walden.
13
<PAGE> 18
CAUTIONARY STATEMENT CONCERNING
FORWARD-LOOKING INFORMATION
We make "forward-looking" statements in this proxy statement. These
statements are usually identified by the use of words such as "believes,"
"will," "anticipates," "estimates," "expects," "projects," "plans," "intends,"
"should" or similar expressions. These forward-looking statements reflect our
current views and are based on the information currently available to us and on
assumptions we have made.
Although we believe that our plans, intentions and expectations as
reflected in or suggested by these forward-looking statements are reasonable, we
can give no assurance that the plans, intentions or expectations will be
achieved. We have discussed elsewhere in this proxy statement and the documents
incorporated by reference in this proxy statement some important risks,
uncertainties and contingencies.
Except for our ongoing obligation to disclose material information as
required by the federal securities laws, we do not undertake any obligation to
release publicly any revisions to any forward-looking statements to reflect
events or circumstances after the date of this proxy statement or to reflect the
occurrence of unanticipated events.
14
<PAGE> 19
RISK FACTORS
In evaluating the merger, common stockholders should consider carefully the
material risks summarized below relating to the merger.
IF THE MERGER FAILS TO OCCUR, WE WILL NOT BENEFIT FROM FUNDS AND OTHER RESOURCES
WE HAVE EXPENDED IN PURSUIT OF THE MERGER AND MAY BE REQUIRED TO PAY UP TO AN
ADDITIONAL $38.75 MILLION IN TERMINATION FEES AND EXPENSES.
The merger is subject to a number of conditions, the satisfaction of which
are beyond our control. These include the following:
- our common stockholders must approve the merger;
- we must receive all required consents from third parties;
- holders of at least 937,000 Walden/Drever Partnership Class B common
units and Walden Residential Partnership Class C and Class D units elect
to convert these units into common limited partnership interests in
Parent;
- Newco must receive all of the debt and equity financing for the merger on
the general terms agreed upon with the financing sources and, in
addition, must obtain an additional $140 million in funds for a
combination of debt and equity financing that is not committed at this
time; and
- there must be no judicial or legal order preventing the merger.
In addition, Parent or Newco may terminate the merger agreement if
definitive settlement agreements in the purported class action lawsuits filed
regarding the merger have not been entered into and preliminarily approved by
the courts having jurisdiction over those lawsuits. Accordingly, the merger may
not be completed. If the merger is not completed, we will have incurred
substantial expense for which we will receive no ultimate benefit. Additionally,
if the merger agreement is terminated, we may be required to pay Parent and
Newco up to $38.75 million in termination fees and expenses. The obligation to
pay these amounts may adversely affect our ability to engage in another
transaction if the merger is not completed and it will also adversely affect our
financial condition.
THE FAIRNESS OPINION DOES NOT ADDRESS CHANGES IN THE VALUE OF OUR COMMON STOCK
SINCE THE DATE OF THE OPINION.
We do not intend to obtain an updated fairness opinion of J.P. Morgan
unless a material amendment is made to the financial terms of the merger
agreement. At the time J.P. Morgan rendered its opinion, the merger agreement
provided that our common stockholders would receive cash consideration of $23.25
per share, subject to reduction for expenditures by us prior to the merger. As a
result, under the initial merger agreement, the cash merger consideration
payable to common stockholders could have ranged from $23.25 per share if we
made no expenditures down to approximately $23.09 per share if we made $5
million in expenditures. J.P. Morgan's fairness opinion provides that cash
merger consideration of $23.25 per share of common stock, subject to these
adjustments, is fair from a financial point of view to these holders. The
amended merger agreement eliminates any adjustments to the cash merger
consideration and fixes the cash merger consideration to be paid to our common
stockholders at $23.14 per share. On December 29, 1999, J.P. Morgan orally
affirmed the fairness of the $23.14 per share being offered to holders of our
common stock as being within that initial range. Changes in our stock price,
operations or prospects, general market and economic conditions and other
factors on which J.P. Morgan's opinion was based may alter our value. Therefore,
J.P. Morgan's opinion may not accurately address the fairness of the cash
consideration at the time the merger is completed.
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COMMON STOCKHOLDERS MAY NOT BE ADEQUATELY COMPENSATED FOR THEIR STOCK IF THE
MERGER IS APPROVED.
When the merger is completed, each share of common stock will be converted
into the right to receive $23.14 in cash, which represented approximately a 20%
premium to the market price of our common stock shortly before the merger
agreement was signed on September 24, 1999. The merger agreement does not
contain any provision that would adjust this price based on fluctuations in the
share price of our common stock after September 24, 1999. Accordingly, the
premium you receive for your shares will be affected by the value of our common
stock at the time the merger is completed.
STOCKHOLDERS WILL NOT HAVE APPRAISAL RIGHTS IN THE MERGER.
Because our common stock, convertible preferred stock, senior preferred
stock and redeemable preferred stock are listed on the New York Stock Exchange,
our stockholders do not have appraisal rights under Maryland law. As a result,
stockholders who object to the merger and the merger consideration do not have a
right to demand different payment for their shares of stock and to petition a
court of equity for an appraisal to determine the fair value of their shares of
stock.
OUR DIRECTORS AND OFFICERS HAVE INTERESTS IN THE MERGER THAT MAY CONFLICT WITH
THE INTERESTS OF OUR OTHER STOCKHOLDERS.
In considering the recommendation of our board of directors and special
committee, you should be aware that some of our directors and officers have
interests in the merger different from or in addition to those of other of our
stockholders. These may present potential or actual conflicts of interests in
connection with the merger. Also, the merger will give rise to entitlements and
benefits for some of our directors and officers. Our directors and executive
officers will receive a total of approximately $86.3 million as a result of the
merger. This amount consists of cash payments relating to transition services,
severance, consulting, non-competition and nonsolicitation arrangements, cash in
exchange for shares of common stock and stock options and cash and securities
for their partnership interests. See "The Merger -- Conflicts of Interest."
THE MERGER WILL NOT OCCUR UNLESS HOLDERS OF 937,000 OPERATING PARTNERSHIP UNITS
ELECT TO RECEIVE PARENT LIMITED PARTNERSHIP INTERESTS IN THE OPERATING
PARTNERSHIP MERGERS.
It is a condition to the merger that holders of at least 937,000
Walden/Drever Partnership Class B common units and Walden Residential
Partnership Class C and Class D units elect to convert these units into common
limited partnership interests in Parent. As a result, even if our common
stockholders approve the merger, the merger will not occur unless 937,000 units
are converted into Parent limited partnership interests or Parent and Newco
waive this closing condition. Although two of our directors have informed us
that they will convert 543,383 units into Parent limited partnership interests,
there can be no assurance that enough other units will be converted to satisfy
this condition to the merger.
THE SPECIAL MEETING
DATE, TIME AND PLACE OF THE SPECIAL MEETING
This proxy statement is being furnished to the holders of the outstanding
shares of our common stock in connection with the solicitation of proxies by the
board of directors for use at the special meeting of stockholders or any
adjournment or postponement of the special meeting. The special meeting will be
held on February 29, 2000 at 8:00 a.m., local time, at Spectrum Center
Conference Center, 5080 Spectrum Drive, Addison, Texas.
MATTERS TO BE CONSIDERED AT THE SPECIAL MEETING
At the special meeting, holders of shares of our common stock will consider
and vote upon a proposal to approve the merger. If there are not sufficient
votes at the time of the special meeting to approve the
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merger, holders of common stock will be asked to vote to adjourn the meeting to
permit further solicitation of proxies. Additional information concerning the
special meeting and the merger agreement is set forth below, and a copy of the
merger agreement is attached to this proxy statement as Appendix B and
incorporated by reference into this proxy statement.
PROXY SOLICITATION
We will share equally with Parent the expense of preparing, printing and
mailing this document and the proxies solicited by this document. In addition to
the use of the mails, proxies may be solicited by our officers and directors and
regular employees, without additional remuneration, by personal interviews,
written communications, telephone, telegraph or facsimile transmission. We also
will request brokerage firms, nominees, custodians and fiduciaries to forward
proxy materials to the beneficial owners of common stock held of record by these
brokerage firms, nominees, custodians and fiduciaries and will provide
reimbursement for the cost of forwarding the materials in accordance with
customary charges. In addition, we have retained D.F. King & Co., Inc. to assist
in the solicitation of proxies, and we will pay D.F. King an estimated fee of
$6,000, plus reimbursement of reasonable expenses.
RECORD DATE AND QUORUM REQUIREMENT
The record date for the special meeting has been fixed as the close of
business on January 24, 2000. Holders of our common and preferred stock are
invited to attend the special meeting. However, only holders of our common stock
on the record date may vote at the special meeting. Holders of common stock will
have one vote per share on matters properly presented at the special meeting.
On the record date, there were 25,627,338 shares of common stock
outstanding, which were held by approximately 1,526 record holders. As of the
record date, our directors and executive officers and their affiliates were
entitled to vote 699,630 shares of common stock, representing approximately 2.8%
of the total shares of common stock then outstanding. Some of these persons and
their affiliates have signed agreements with Parent and Newco to vote shares of
common stock over which each has voting control, representing approximately 2.6%
of the total shares of common stock outstanding on the record date, in favor of
the merger. In addition, Westdale Properties America I, Ltd. has committed to
provide $12 million in equity financing for the merger and has indicated its
intent to vote in favor of the merger. In exchange for its $12 million in equity
financing, Westdale will receive an approximate 2.3% limited partnership
interest in Oly Hightop Holding, the parent of Parent. Westdale's percentage
interest assumes that holders of approximately 937,000 units of limited
partnership interest in the operating partnerships elect to convert their units
into common limited partnership interests in Parent in the operating partnership
mergers.
A list of stockholders will be available for examination by holders of our
common stock for any purpose related to the special meeting, during the ten-day
period preceding the special meeting, at our offices, 5080 Spectrum Drive, Suite
1000 East, Addison, Texas 75001-6410.
The presence at the special meeting, either in person or by proxy, of the
holders of a majority of the outstanding shares of common stock entitled to vote
will constitute a quorum for the transaction of business by the holders of
common stock at the special meeting.
Shares of common stock present in person or represented by proxy, including
shares whose holders abstain or do not vote with respect to one or more of the
matters presented for stockholder approval, will be counted for purposes of
determining whether a quorum exists at the special meeting.
REQUIRED VOTE
The vote of the holders of a majority of the shares of our common stock
outstanding on the record date is the only vote required to approve the merger.
The holders of convertible preferred stock, senior preferred stock and
redeemable preferred stock will not be entitled to vote on the merger. To
adjourn the special meeting to solicit additional proxies, the proposal to
adjourn must be approved by the holders of a
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majority of the shares of common stock present in person or represented by a
properly executed proxy at the special meeting.
VOTING PROCEDURES
Common stockholders who attend the special meeting may vote by ballot.
However, we know that many of you may not be able to attend the special meeting.
Accordingly, the board of directors is soliciting proxies so that each holder of
common stock on the record date has the opportunity to vote on the merger and
any other proposal to be considered at the special meeting. When a proxy card is
returned properly signed and dated, the stock represented by the proxy card will
be voted in accordance with the instructions on the proxy card. If you do not
return a signed proxy card or vote your shares of common stock at the special
meeting, your shares of common stock will not be voted and thus will have the
effect of a vote against the merger. A properly executed proxy marked "Abstain"
will not be voted. Since the affirmative vote of a majority of the shares of
common stock outstanding and entitled to vote at the special meeting is required
to approve the merger, a proxy marked "Abstain" will have the effect of a vote
against the merger. Abstentions occur when a stockholder affirmatively elects to
abstain from voting on the matter at issue by so marking his or her proxy card.
Except for routine and non-controversial matters, the rules of the New York
Stock Exchange do not permit brokers and nominees to vote the shares that they
hold for customers either for or against a proposal without specific
instructions from the person who beneficially owns those shares. Therefore, if
your shares of common stock are held by a broker or other nominee and you do not
give your broker or nominee instructions on how to vote your shares, this will
have the same effect as voting against the merger. Broker non-votes occur where
a broker holding stock for customers votes the shares on some matters but not
others. Brokers are permitted to vote on routine, non-controversial proposals in
instances where they have not received voting instructions from the beneficial
owner of the stock, but are not permitted to vote on non-routine matters, such
as the merger. The votes not permitted to be cast on non-routine matters are
called "broker non-votes." Broker non-votes will be treated as shares that are
present for the purpose of determining the presence of a quorum. However, for
the purpose of determining the outcome of any matter as to which the broker or
nominee has indicated on the proxy that it does not have discretionary authority
to vote, those shares will be treated as not entitled to vote with respect to
that matter (even though those shares are considered entitled to vote for quorum
purposes and may be entitled to vote on other matters).
You are urged to mark the box on the proxy card to indicate how your shares
of common stock are to be voted. If you return a signed proxy card, but do not
indicate how your shares are to be voted, the shares of common stock represented
by the proxy card will be voted "FOR" the merger and may also be voted to
adjourn the meeting to permit further solicitation of proxies. The proxy card
also confers discretionary authority on the individuals appointed by the board
of directors and named on the proxy card to vote the shares represented by the
proxy card on any other matter that is properly presented for action at the
special meeting. This discretionary authority will not be used to vote for
adjournment of the special meeting to permit further solicitation of proxies if
you vote against the approval of the merger.
Common stockholders may revoke an executed and returned proxy card at any
time before it is voted by:
1. notifying in writing the secretary of Walden prior to the vote at
the special meeting at Walden Residential Properties, Inc., 5080 Spectrum
Drive, Suite 1000 East, Addison, Texas 75001-6410;
2. granting a subsequent proxy; or
3. appearing in person and voting at the special meeting. Attendance
without voting at the special meeting will not in and of itself constitute
revocation of a proxy.
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EFFECTIVE TIME OF THE MERGER AND PAYMENT FOR SHARES
The closing of the transactions contemplated by the merger agreement will
take place on a date no later than the twelfth business day after satisfaction
or waiver of the latest to occur of the conditions to closing described in the
merger agreement. Promptly after the closing, articles of merger will be filed
with the State Department of Assessments and Taxation of Maryland. The merger
will occur at the time of the filing of the articles of merger with, and
acceptance for record of the articles of merger by, the State Department of
Assessments and Taxation of Maryland, or at a later time specified in the
articles of merger, not to exceed 30 days after the articles of merger are
accepted for record by the State Department of Assessments and Taxation of
Maryland.
Promptly after the merger occurs, the exchange agent will mail to each
record holder of an outstanding certificate representing our common stock,
convertible preferred stock, senior preferred stock or redeemable preferred
stock immediately prior to the effective time a letter of transmittal and
instructions for use in effecting the surrender of certificates in exchange for
the appropriate merger consideration. Upon surrender to the exchange agent of a
certificate, together with a duly executed letter of transmittal and any other
documents as may be reasonably required by the exchange agent, the holder of the
certificate will be entitled to receive the cash merger consideration described
in this proxy statement in exchange for each share.
YOU SHOULD NOT SEND YOUR CERTIFICATES NOW. YOU SHOULD SEND CERTIFICATES
ONLY PURSUANT TO INSTRUCTIONS PROVIDED IN THE LETTER OF TRANSMITTAL TO BE MAILED
TO YOU AFTER THE MERGER OCCURS. IN ALL CASES, THE MERGER CONSIDERATION WILL BE
PROVIDED ONLY IN ACCORDANCE WITH THE PROCEDURES DESCRIBED IN THIS DOCUMENT, THE
MERGER AGREEMENT AND THE LETTER OF TRANSMITTAL.
OTHER MATTERS TO BE CONSIDERED
We are not aware of any business or matter other than the proposal to
approve the merger and, if necessary, a proposal to adjourn the meeting to
solicit additional proxies that may be properly presented at the special
meeting. If, however, any matter properly comes before the special meeting, the
proxy holders will vote on these matters in their discretion.
THE COMPANIES
WALDEN
We are a Dallas, Texas-based real estate investment trust focused on middle
income multifamily properties located primarily in selected Southwestern and
Southeastern metropolitan areas. We are a Maryland corporation that was formed
on September 29, 1993 to continue and expand the multifamily property ownership,
management, acquisition and marketing operations and related business objectives
and strategies of The Walden Group, Inc. and its subsidiaries and affiliates. We
owned and operated 140 multifamily properties as of September 30, 1999,
containing 39,024 apartment units. In addition, in December of 1999, we
purchased 2 additional multifamily properties, which properties contain 616
apartment units. Approximately 95% of our properties are located in the Houston,
Dallas/Fort Worth, Austin, Phoenix, Nashville, Jacksonville, Tampa, San Antonio,
Tulsa, Atlanta, Salt Lake City and San Diego areas. The remaining properties are
primarily located in other areas in the Southwest and Southeast regions of the
United States. Of the total units owned and operated as of September 30, 1999,
29% are located in Houston in 14 different submarkets, and 26% are located in
Dallas/Fort Worth in 20 different submarkets. Our properties had a weighted
average physical occupancy rate of approximately 93.6% for 1998 and 93.0% for
the nine months ended September 30, 1999. Our real estate assets are operated
with the same long-term objectives and therefore are viewed as a single
operating segment.
We conduct a substantial portion of our business through Walden/Drever
Partnership, a subsidiary operating partnership. Walden/Drever Partnership
wholly owns and operates 97 of our 140 properties. Walden Residential
Partnership, our other operating partnership, owns Class C and Class D common
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limited partnership interests in Walden/Drever Partnership, as well as limited
partnership interests in two of our indirect subsidiaries.
Our executive offices, and those of Walden/Drever Partnership and Walden
Residential Partnership, are located at 5080 Spectrum Drive, Suite 1000 East,
Addison, Texas 75001-6410. The telephone number for each of these entities is
(972) 788-0510.
PARENT AND NEWCO
Parent is a newly formed Delaware limited partnership, and Newco is a newly
formed Maryland corporation, both of which were organized and are currently
owned by affiliates of Olympus for the purpose of effecting the merger. Parent
and Newco currently have no material assets, do not own any securities of
Walden, Walden/Drever Partnership or Walden Residential Partnership, and have
not engaged in any activities except those incident to their formation and in
connection with the merger. Oly Hightop Parent GP, LLC, the general partner of
Parent, is a newly formed Texas limited liability company. The principal
executive offices of Parent, Newco, Oly Hightop Parent GP, LLC and Olympus are
located at 200 Crescent Court, Suite 1600, Dallas, Texas 75201. The telephone
number for each of these entities is (214) 720-7800.
Olympus is an approximately $812 million private real estate investment
fund organized to make equity and equity-related investments in a diversified
portfolio of real estate properties, real estate operating companies and other
real estate related ventures. Olympus's current portfolio consists of
investments in the hotel, golf and commercial sectors, as well as multi-family
and single-family residential real estate sectors. Olympus is the second
discretionary real estate fund sponsored by Olympus Real Estate Corporation, and
the fund's principals are David B. Deniger, Jeffrey G. Mundy, Hal R. Hall,
Timothy B. Smith, Robert S. Riggs and Hicks, Muse, Tate & Furst Incorporated.
None of Parent, Newco or Olympus is an affiliate of Walden. Olympus and its
principals control Parent, Newco and their affiliates and will control Walden
after the merger.
THE MERGER
GENERAL DESCRIPTION
At the time the merger becomes effective, Newco will be merged with and
into Walden. We will be the surviving corporation in the merger and will be
governed by our current charter and bylaws. As a result of the merger, our
common stockholders will receive $23.14 in cash, without interest, for each
share of common stock they hold. Holders of convertible preferred stock will
receive $26.39 in cash, without interest, for each share of convertible
preferred stock they hold, plus any accrued and unpaid dividends to, but not
including, the date of closing. Holders of senior preferred stock will receive
$22.00 in cash, without interest, for each share of senior preferred stock they
hold, plus any accrued and unpaid dividends to, but not including, the date of
closing. Holders of redeemable preferred stock will receive $19.50 in cash,
without interest, for each share of redeemable preferred stock they hold, plus
any accrued and unpaid dividends to, but not including, the date of closing.
BACKGROUND OF THE MERGER
Since our formation, our fundamental business objective has been to
maximize stockholder value by maintaining long-term growth in funds from
operations for distributions to our stockholders. To achieve this objective, we
commenced our operations with an emphasis on the acquisition and operation of
apartment properties. More recently, however, we have focused on maximizing the
internal growth of our portfolio through property management and resident
services, a property enhancement program, the acquisition of garden apartment
properties that have strong cash flow growth potential and are located in our
target markets and programs to reduce general and administrative expenses.
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Beginning in early 1998, market prices for publicly traded real estate
investment trusts began a significant decline and, in the third and fourth
quarters, the multifamily REIT sector significantly declined. During this
period, our common stock price declined at a greater rate than the multifamily
REIT index and our funds from operations growth was low relative to other
multifamily REITs. In addition, there had been relatively few real estate
offerings in the public equity markets and the liquidity of the real estate debt
markets had declined. As a result, we were constrained from obtaining financing
through the public equity or debt markets. At the same time, our borrowing
capacity under our credit facility was insufficient to acquire properties.
Because of these developments, we found ourself limited in our ability to
achieve our business objectives.
In the middle of 1998, our board of directors began discussing ways to
strengthen our balance sheet, gain access to additional sources of capital and
provide us with liquidity to use for future investments and operations. By late
1998, these discussions, along with discussions on how to maximize stockholder
value, had intensified.
In or about November 1998, Joseph G. Beard, Westdale Properties of America
I, Ltd. and certain of their respective affiliates began acquiring shares of our
common stock. Contemporaneously with these transactions, Mr. Beard contacted
Marshall Edwards, the chief executive officer of Walden, to request information
regarding the identity of holders of interests in Walden's operating
partnerships. Mr. Edwards responded to Mr. Beard with a letter dated November
11, 1998 providing certain information regarding the ownership of these
operating partnership interests. During the remainder of 1998, Mr. Beard
contacted Mr. Edwards on several occasions and expressed an interest in
discussing with Walden and one or more of our securityholders Mr. Beard's views
and those of Westdale with regard to our operations, assets, capital structure
and ownership of Walden. On January 4, 1999, Mr. Beard, Westdale and various of
their affiliates filed a report on Schedule 13D reporting their acquisition of
approximately 5.4% of the Walden common stock in the period commencing November
3, 1998 and ending on December 23, 1998.
Following the filing of Mr. Beard's and Westdale's report on Schedule 13D,
Westdale retained BancBoston Robertson Stephens Inc. (now known as Robertson
Stephens) as its financial advisor with respect to a possible transaction with
Walden. Following its retention by Westdale, Robertson Stephens contacted us in
January 1999 to arrange a meeting among representatives of Westdale, Robertson
Stephens and us to discuss Westdale's views regarding potential changes in the
operations, assets, capital structure or ownership of Walden. On January 26,
1999, a meeting occurred between the representatives of Westdale, Mr. Edwards
and Robertson Stephens at which Westdale proposed that we and Westdale consider
a transaction in which Westdale would convey multi-family residential properties
to us in return for shares of our common stock and Westdale presented financial
information regarding the properties it proposed to convey to us. Thereafter,
additional meetings were held among representatives of Westdale and Robertson
Stephens, on the one hand, and Mr. Edwards, on the other, regarding Westdale's
continuing interest in exchanging real estate assets for shares of our common
stock, with the result that Westdale and its affiliates would control us. At
these meetings, Messrs. Edwards and Beard also discussed Mr. Beard's views
regarding our operations generally and common issues that we and Westdale faced
in our respective businesses.
On February 3, 1999, our board of directors met for the purpose of
interviewing investment bankers to assist the board in a strategic review
process and to evaluate potential ways to maximize stockholder value. The
investment banker candidates were selected by the board based upon their
knowledge of Walden, knowledge of the REIT multi-family sector and their
experience in REIT mergers and acquisitions generally. At this time, the board
heard presentations from representatives of each investment bank invited by the
board.
On February 4, 1999, our board of directors authorized the engagement of
J.P. Morgan as its financial advisor for the purpose of evaluating strategic
alternatives available to us. The board also requested that J.P. Morgan identify
public and private entities that might be interested in entering into a
strategic business combination with us. At this meeting, Mr. Edwards updated the
board on his discussions with Westdale and Robertson Stephens.
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Following our engagement of J.P. Morgan as our financial advisor, our
representatives, Mr. Edwards and Mr. Dillinger, and representatives of J.P.
Morgan, Westdale and Robertson Stephens continued to have discussions regarding
Westdale's interest in proposing possible transactions in which Westdale would
exchange multi-family real estate properties for our common stock. In connection
with those discussions, Westdale and Robertson Stephens continued to develop
information regarding us and our operations and assets, which included business
models detailing Westdale's and Robertson Stephens' expectations regarding the
future performance of our assets and those that Westdale proposed to convey to
us in return for our common stock. Although we received and gave consideration
to information provided by Westdale and Robertson Stephens, the parties did not,
during this period of time, engage in negotiations with regard to a material
transaction and we did not provide Westdale or Robertson Stephens with material
nonpublic information. On March 2, 1999, Mr. Beard, Westdale and their
affiliates amended their report on Schedule 13D to report the acquisition of
approximately 256,700 additional shares of our common stock between February 2,
1999 and February 26, 1999.
On March 17, 1999, J.P. Morgan made a presentation to our board of
directors discussing a variety of alternatives to maximize stockholder value.
The alternatives presented were private and public mergers, a strategic equity
infusion, a liquidation of the company, going private and remaining independent.
In mid-March 1999, Southwest Securities, a Dallas based financial services
firm that also publishes equity research on Walden, issued a report stating that
the likelihood of a potential sale or merger of Walden was increasing. Similar
reports of merger expectations continued to be published by various sources over
the next several months.
On April 15, 1999, J.P. Morgan made a presentation to our board regarding
potential strategic alternatives available to us to maximize stockholder value.
The alternatives presented were private and public mergers, a strategic equity
infusion, a liquidation of the company, going private and remaining independent.
The purpose of the presentation was to assist our board in identifying the best
alternative, or combination of alternatives, for us and our stockholders. During
the course of this presentation and the discussion of the alternatives, our
board also expressed an interest in evaluating the benefits and the possibility
of an acquisition of another company as an additional strategic alternative.
On April 22, 1999, J.P. Morgan again met with our board to discuss the
strategic alternatives to maximize stockholder value evaluated in previous
meetings, which were private and public mergers, a strategic equity infusion, a
liquidation of the company, going private and remaining independent, and
developments in the REIT and general real estate markets and to discuss various
discussions with third parties regarding these alternatives. Following the
meeting, the board authorized J.P. Morgan to formally contact third parties that
may be interested in a potential transaction that would maximize stockholder
value. Prior to this time, J.P. Morgan had only had informal discussions with
possible strategic partners during which J.P. Morgan attempted to ascertain
whether any of those entities had any interest in engaging in a transaction with
us.
Between the end of April and the middle of May, J.P. Morgan identified 17
third parties, other than Westdale, which it believed might have an interest in
engaging in a transaction with us. Thereafter, J.P. Morgan began to contact
these parties to determine their level of interest in a potential transaction
with us. J.P. Morgan and our management also began preparing public and
non-public information for distribution to interested parties after they entered
into confidentiality agreements with us. The types of transactions discussed
with these third parties varied based on the type of entity involved and the
nature of that entity's business. For example, public mergers were discussed
with public entities, while strategic equity infusions were discussed with those
parties who had historically made those types of investments in other entities.
During this period, Westdale and Robertson Stephens continued to provide
information to us regarding their views relating to the operations, assets,
capital structure and ownership of Walden.
In early May 1999, representatives of Westdale and Robertson Stephens
contacted Olympus Real Estate Corporation, an affiliate of Olympus that is not
affiliated with Westdale, to ask if it was interested in participating with
Westdale in one or more potential transactions involving us or our assets.
Olympus Real Estate Corporation indicated to Westdale an interest in considering
such a transaction. Shortly after
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this time, discussions began among representatives of Olympus Real Estate
Corporation, Westdale and Robertson Stephens regarding such a transaction.
Although Olympus Real Estate Corporation is known in the real estate industry
generally for its interest in acquiring real estate assets, neither Westdale nor
Robertson Stephens knew of any interest on the part of Olympus Real Estate
Corporation in a transaction involving us or our assets prior to contacting
them. During this same period, and ending on May 10, 1999, Mr. Beard, Westdale
and certain of their affiliates continued to acquire shares of our common stock
ultimately resulting in their acquisition of an aggregate of 1,408,500 shares
our common stock or approximately 5.7%. The last of these transactions occurred
on May 10, 1999. On May 18, 1999, Mr. Beard, Westdale and their affiliates
amended their report on Schedule 13D to report the acquisition of an additional
184,200 shares of our common stock and to report that they had expressed to us
their interest in a negotiated transaction in which all of our common stock and
interests in our operating partnerships would be acquired for cash and certain
real estate interests owned by Westdale would be acquired by us. Mr. Beard,
Westdale and their affiliates indicated that if such a transaction were
consummated, the reporting persons filing the Schedule 13D would control us.
On May 14, 1999, Westdale and an affiliate of Olympus made a written
proposal to our board regarding a potential business combination with us. That
proposal is summarized below:
- our common stock would be acquired for $23.00 per share in cash; and
- the holders of common units of limited partnership interest in our
operating partnerships would have the option of either:
- receiving $23.00 in cash per unit, or
- retaining equity.
Westdale stated in this letter that it expected that equity capital would be
supplied by an investment group led by affiliates of Olympus and that
discussions had taken place with BankBoston, N.A. in which BankBoston had
"indicated its willingness and ability to provide debt capital, on an
underwritten basis, up to 70% of the total required capital." Westdale also
indicated that it had already conducted considerable due diligence on our
physical assets and that it believed that any outstanding due diligence could be
completed on an expedited basis.
In addition, at this time, J.P. Morgan received indications of interest in
a possible transaction with Walden from three of the parties previously
contacted. The second indication of interest was from a public company to
acquire us for consideration consisting entirely of securities of the bidder,
which indication of interest was initially for between $22 to $23 per share of
our common stock. The remaining two indications of interest were predominately
cash proposals from privately-held entities to acquire us at prices ranging from
$21.50 to $22.00 per share of common stock.
In May and June, we entered into confidentiality agreements with nine third
parties, including Westdale, under which each agreed to maintain the
confidentiality of materials provided by, as well as their discussions with, us.
These confidentiality agreements were entered into with Westdale and the three
other parties who indicated an interest in a possible transaction. The other
five agreements were entered into in response to requests for additional
information. Following the execution of these confidentiality agreements, we
provided each of these parties with additional information and management and
J.P. Morgan met with representatives of these parties to discuss a possible
transaction. In addition, as requested by these parties from time to time,
management, primarily Mr. Edwards, Mr. Dillinger and Ted Kerr, provided
additional information and made itself available to respond to inquiries about
our assets and operations.
Also during May, representatives of J.P. Morgan met regularly with our
board to update the board regarding the discussions that had taken place with
representatives of various entities in connection with a possible transaction.
Representatives of J.P. Morgan informed the board that they believed that they
had discussed, or were discussing, a transaction involving us on a confidential
basis with all of the entities that would reasonably be likely to engage in a
transaction with us. Also at these meetings, representatives of
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J.P. Morgan reviewed with the board financial and comparative analyses of us. In
particular, J.P. Morgan noted the following:
- that although the general REIT market had rebounded and speculation in us
had increased the price of our common stock, our common stock continued
to be priced at a significant discount to our peers;
- that our higher leverage and lower growth prospects continued to depress
our valuation; and
- that our quarterly earnings continued to be reported below analysts'
initial estimates.
J.P. Morgan concluded that all of these factors negatively impacted both the
alternative of us remaining an independent company and our then current net
asset value per share.
During a regularly scheduled meeting of the board held on June 2, 1999,
J.P. Morgan reviewed its analysis of the four preliminary indications of
interest received to date with our board. This included a comparison of the
strengths and weaknesses and a review of the relative value of each of the four
proposals. Our board reaffirmed that J.P. Morgan should continue its discussions
with each bidder regarding a possible business combination.
On June 17, 1999, we issued a press release confirming that we had received
several indications of interest to buy us from both public and private entities.
Also during June, the public company that had previously provided an
indication of interest for $22 to $23 per share of our common stock reduced the
amount of consideration it was willing to pay to $20 per share, due to
heightened concerns regarding our future operating performance.
On June 22 and 29, 1999, representatives of J.P. Morgan met with our board
to update the board on the status of the discussions with various entities
regarding a possible business combination. At the June 29 board meeting, our
board was informed of the reduction of the public company's indication of
interest and determined not to proceed with discussions with this public entity.
By letter dated June 24, 1999 to our board, the Olympus affiliate and
Westdale updated their proposal to acquire us. The material terms of this letter
are summarized below.
- our common stock would be acquired for $23.00 per share in cash;
- the holders of common units of limited partnership interest in our
operating partnerships would have the option of receiving either:
- the equivalent of $23.00 per share of our common stock in cash, or
- an amended limited partnership interest offering a minimum annual
distribution of between 7% and 8%, a liquidity provision enabling
holders to exit their investment over a reasonable period of time and
other features to be agreed on by us, Westdale and Olympus;
- the holders of our convertible preferred stock would receive $23.00 in
cash per share for each share of our common stock that they would receive
on a conversion of the convertible preferred stock;
- the shares of senior preferred stock and redeemable preferred stock would
remain outstanding and would continue to be listed for trading on the New
York Stock Exchange or on another national securities exchange;
- the preferred operating partnership units would also remain outstanding;
and
- the bidders would repay our existing unsecured debt and refinance
approximately $500 million of our mortgage debt.
The Olympus affiliate and Westdale indicated in this letter that they had
received commitments to fund the debt portion of the purchase price and that
Olympus and its affiliates and Westdale had committed to fund the equity portion
of the purchase price. The Olympus affiliate and Westdale also indicated that,
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subject to the execution by the parties of a "no-shop" agreement prohibiting us
from soliciting or accepting offers from third parties for 30 days, Olympus and
Westdale were prepared to begin immediate negotiations with us regarding a
definitive agreement.
Also during June, the public company that had previously provided an
indication of interest for $22 to $23 per share of our common stock reduced the
amount of consideration it was willing to pay to $20 per share, due to
heightened concerns regarding our future operating performance.
By letter dated June 30, 1999 to us, a new group of financial buyers
referred to as "bidder A" proposed to acquire us. The material terms of this
letter are summarized below.
- our common stock would be acquired for $23.25 per share in cash;
- the holders of common units of limited partnership interest in our
operating partnerships would have the option of receiving $23.25 in cash
per unit or a preferred unit with an 8% annual return, subordinated to
any third party debt and senior to equity, with a put/call feature to be
determined;
- the holders of our convertible preferred stock would receive $23.25 in
cash per share for each share of our common stock that they would receive
on a conversion of the convertible preferred stock; and
- the senior preferred shares would be redeemed at the liquidation
preference of $25.00 per share.
Bidder A stated in this letter that any definitive offer would be conditioned on
a number of things, including the completion of final due diligence and approval
of the investment committee of one of the parties. Bidder A also stated that
there would be no financing contingency, but did not provide any details
relating to its financing. Bidder A further stated that we would need to confirm
a number of assumptions used by bidder A in its financial model which was the
basis for its offer, including assumptions relating to bidder A's assumption and
repayment of our outstanding debt.
On July 8, 1999, the board met with J.P. Morgan to review the terms and the
relative merits of the proposals received as of July 8 that remained
outstanding. These included the proposals of Olympus and Westdale and bidder A,
a proposal of another public company for a stock-for-stock merger in which our
common stockholders would receive stock of the bidder at a price estimated at
$19.00 per share and two indications of interest from privately-held entities,
identified later in this section as "bidder B" and "bidder C." In connection
with this discussion, the board reviewed the presentation of J.P. Morgan
updating the analysis of our actual and projected operating results and
estimated net asset values. The board also reviewed J.P. Morgan's presentation
regarding each of these proposals, and its analysis regarding a strategy of
remaining independent. J.P. Morgan expressed the view that the Olympus/Westdale
proposal appeared more viable than any other proposal, including bidder A's
proposal. The board discussed the likelihood of consummation of each bid and
issues regarding the valuation of the public company bidder. The board
instructed J.P. Morgan to commence discussions with representatives of Olympus
and Westdale regarding an increase in price to $23.25 per common share and the
terms of an agreement under which we would agree to a "no-shop" provision. The
"no-shop" provision would prevent us from initiating or encouraging proposals
from third parties. The board also instructed J.P. Morgan to continue to conduct
discussions with the other bidders to attempt to improve the price and determine
other definitive terms of their proposed transactions.
During the next several weeks, representatives of Olympus and Westdale and
Vinson & Elkins L.L.P., counsel to Olympus, and Robertson Stephens, and our
representatives, Mr. Edwards and Mr. Dillinger, and representatives of J.P.
Morgan and Locke Liddell & Sapp LLP, our counsel, continued to discuss the
structure and the economic and other terms of a possible acquisition of us.
These discussions resulted in a revised set of terms under which Olympus and
Westdale would be willing to acquire us. Those revised terms included an
increased price per share for our common stock of $23.25. The term sheet also
contained information regarding the surviving company's contemplated capital
structure after the transaction and the status of the financing commitments. In
addition, Olympus provided to J.P. Morgan draft financing commitment letters
that Olympus indicated were evidence of the viability of Olympus
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obtaining financing for the proposed transaction. Also during this time, the
parties and their representatives negotiated a draft "no-shop" agreement.
By letter dated August 4, 1999 to our board, a financial buyer referred to
as "bidder B" proposed an acquisition on the following terms:
- our common stock would be acquired for $23.50 in cash; and
- the holders of common units of limited partnership interest in our
operating partnerships would have the option of receiving either:
- $23.50 per unit in cash,
- continuation of their present position, or
- the right to choose by individual holders, or aggregations, of at
least 500,000 units from individual or groups of properties to be
specified by bidder B, properties aggregating an amount in cash
equivalent to $23.50 per unit.
Bidder B indicated in this letter that funds to finance a transaction "seem
readily available."
Also by letter dated August 4, 1999 to our board, a group of financial
buyers referred to as "bidder C" proposed an acquisition on the following terms:
- our common stock and convertible preferred stock would be acquired for
$22.50 per share, as reduced for contractual compensation paid to
employees and officers in connection with the transaction and uninsured
liabilities in connection with pending liabilities;
- common units of limited partnership interest in our operating partnership
would be exchanged for preferred units at the equivalent of the adjusted
common stock consideration;
- all shares of our senior and redeemable preferred stock would either
remain outstanding or be exchanged for comparable preferred stock of a
new entity; and
- bidder C would assume all of our outstanding secured debt.
Bidder C indicated in this letter that it had not secured debt financing
commitments, but that "discussions with potential lenders have confirmed both
the availability of funding . . . and expected financing costs."
At a meeting of the board held on August 5, 1999, representatives of Locke
Liddell, our legal counsel, and representatives of Thompson Knight P.C., counsel
to the independent directors on our board since October 1997, made a
presentation of the duties imposed on directors in connection with a possible
transaction.
Representatives of Locke Liddell then reviewed with the board the revised
terms of the Olympus/ Westdale proposal and the terms of the "no-shop"
agreement, which would allow the board to consider other proposals that were
determined to be superior, financially or otherwise. Representatives of J.P.
Morgan then reviewed with the board the status of Olympus's discussions
regarding financing commitments. J.P. Morgan also reviewed with the board the
status of the other proposals received to date, including those submitted by
bidder A, bidder B and bidder C. The board was informed that bidder A had
reduced its offer price per share of common stock to $22.75 and had completed
only minimal due diligence with respect to Walden. The board was also informed
that bidder A had requested that it be reimbursed for its expenses incurred in
further evaluating us up to a maximum of $1,000,000. J.P. Morgan reviewed with
the board its discussions with bidder B, and informed the board that bidder B
was in the early stages of due diligence and had not provided evidence of
committed debt financing. Lastly, J.P. Morgan informed the board that bidder C
was in the early stages of due diligence, had not provided evidence of committed
debt financing and had not provided details of its proposed capital structure,
including equity participation or level of debt financing commitments. J. P.
Morgan then informed the
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board that the second public company was unwilling to increase its indication of
interest above $19 per share. The board determined not to proceed with
discussions with this entity.
The board and representatives of J.P. Morgan then discussed the bids in
detail, including with respect to the price and likelihood of consummation of
each bid, issues regarding the terms of the Olympus/ Westdale proposal and the
"no-shop" agreement, and issues regarding the financing commitments and time
required to complete due diligence with respect to the other bidders. J.P.
Morgan also discussed with the board possible risks associated with delaying a
transaction, including that our quarterly funds from operations could fail to
meet analysts' initial estimates and that an increase in market interest rates
might jeopardize the consummation of a transaction at the pricing levels in the
proposals identified by J.P. Morgan.
Upon the recommendation of the independent directors on the board, the
board then instructed J.P. Morgan to secure specified changes to the "no-shop"
agreement with the Olympus affiliate and Westdale, which included a reduction in
the termination fee, while also continuing to discuss a possible transaction
with bidder A, bidder B and bidder C.
Also at the August 5 board meeting, a representative of Thompson Knight
discussed with the board the creation of a special committee, which would be
appointed because of the potential conflicts of interest of certain members of
our board resulting from the operating partnership unitholdings of some of our
directors and the fact that other directors of ours were also executive
officers. In addition to these potential conflicts, in December 1996, an
affiliate of Mr. Galesi had entered into an unrelated real estate transaction
with an affiliate of Olympus, but neither Parent nor Newco, in which a joint
venture involving these entities acquired 15 apartment properties throughout the
United States. These properties were sold in June 1998. Also, an affiliate of
Mr. Galesi and an affiliate of Olympus, but neither Parent nor Newco, are
currently negotiating an agreement under which the affiliate of Olympus will
acquire a majority interest in a hotel property owned by the Galesi affiliate.
The board then appointed a special committee consisting of Linda Walker
Bynoe, Robert L. Honstein, Arch K. Jacobson, Louis G. Munin and J. Otis Winters.
At no time has any of these directors been a record holder of operating
partnership units or one of our officers or employees. The special committee was
authorized to review, evaluate and make a determination with respect to the
acquisition proposal submitted by Olympus and Westdale and report their
conclusions to the board of directors.
On August 6, 1999, Mr. Edwards and representatives of J.P. Morgan and Locke
Liddell held discussions with representatives of Olympus, Westdale, Robertson
Stephens and Vinson & Elkins regarding the revisions to the proposed terms of
the Olympus/Westdale proposal and the "no-shop" agreement requested by our
board. The meeting ended with the parties at an impasse. Later that day, a
meeting of our board was held at which the board reviewed the results of these
discussions. The board instructed Mr. Edwards, our chief executive officer and a
director, to contact principals of Olympus to attempt to resolve the remaining
open issues.
Representatives of the parties, including Mr. Edwards for us, held
discussions over the next several days and negotiated a revised draft of the
"no-shop" agreement, which included the following terms:
(1) For 45 days from the date of the agreement, we would not initiate,
solicit or encourage, or furnish information in connection with or engage
in negotiations regarding, any inquiries or proposals from third parties
regarding any business combination or acquisition of more than 10% of our
securities or assets.
(2) During this 45-day period, we would promptly notify the Olympus
affiliate and Westdale of the receipt of any unsolicited inquiry or
proposal meeting the criteria summarized in paragraph (1) above that our
board determined in good faith, after consultation with our outside counsel
and financial advisors, was a superior proposal. For purposes of the
"no-shop" agreement, a superior proposal was one that may reasonably be
expected to result, if consummated, in a transaction more favorable, from a
financial point of view or otherwise, to the holders of our common stock
and the third party equity interest holders of our subsidiaries.
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(3) We would immediately cease and cause to be terminated any existing
discussions or negotiations with any third parties.
(4) During this 45-day period, our board could consider an unsolicited
proposal if it determined that it met the criteria of a superior proposal
summarized in paragraph (2) above and if we terminated the "no-shop"
agreement and paid the Olympus affiliate and Westdale, $1,000,000 plus all
of their out-of-pocket expenses, with the total amount payable under the
agreement not to exceed $3,000,000. This maximum $3,000,000 fee would also
be payable to the Olympus affiliate and Westdale, if at any time during the
120 days following the termination of the agreement, we or any of our
subsidiaries entered into an agreement relating to, or our board approved,
recommended or took no position with respect to, a transaction of the type
described in paragraph (1) above, other than a transaction proposed by the
Olympus affiliate or Westdale.
At a board meeting held on August 9, 1999, representatives of Locke Liddell
discussed with our board the revised draft of the "no-shop" agreement, which
contained the revisions requested by the board at the August 5 and August 6
meetings, which were (1) removal of a provision which provided that if we
completed any transaction other than with Olympus and Westdale following
termination of the "no-shop" agreement, we would owe Olympus and Westdale a
"break-up" fee and (2) a reduction of the break-up fee payable by us in the
event we terminated the no-shop agreement during its term. Representatives of
J.P. Morgan then discussed with the board the revised terms of the
Olympus/Westdale proposal. Based on the information gathered by J.P. Morgan and
an assessment of each outstanding offer, the board determined that the
Olympus/Westdale proposal was superior to the other alternatives available to
us. The board was informed that representatives of Olympus had informed
representatives of J.P. Morgan that Olympus would not proceed with a transaction
unless the "no-shop" agreement was executed on our behalf. The board also
determined that the termination fee contemplated by the "no-shop" agreement
would not preclude further proposals relating to us. Based on these factors, the
board, by a majority vote, authorized the execution of the "no-shop" agreement.
As a result of entering into the "no-shop" agreement, we discontinued all
discussions with bidders A, B and C.
Immediately following the August 9 board meeting, the special committee
previously appointed by our board to review and evaluate the Olympus/Westdale
acquisition proposal held its organizational meeting and elected a chairman,
established the schedule and agenda for its meetings and determined that other
board members should be invited to attend the initial discussions at its
meetings with the special committee meeting privately thereafter. At the
meeting, the special committee determined to retain Thompson Knight as its
counsel. The special committee also determined to retain J.P. Morgan to act as
its financial advisor as well as the financial advisor to the board. The latter
determination was made because no interested director had been involved in the
engagement of J.P. Morgan as financial advisor to us, because of J.P. Morgan's
extensive knowledge of us and the background and details of the Olympus/
Westdale acquisition proposal. The special committee selected Mr. Edwards, our
chief executive officer, and representatives of Locke Liddell to communicate and
handle the acquisition negotiations with representatives of Olympus and Westdale
under the direction and supervision of the special committee. All members of the
special committee, representatives of Locke Liddell and Thompson Knight and Mr.
Edwards participated in the meeting.
On August 9, 1999, we, an affiliate of Olympus and Westdale executed the
"no-shop" agreement on the terms summarized above. The provisions of this
agreement were scheduled to terminate on 11:59 p.m., central time, on September
23, 1999.
During the next several weeks, discussions continued among representatives
of us, primarily Mr. Edwards and Mr. Dillinger, Olympus and Westdale and our and
their advisors as to various terms of the proposed transaction.
On August 24, 1999, an affiliate of Olympus retained Robertson Stephens as
its financial advisor with respect to potential transactions involving us or our
assets. Among other things, the engagement letter between this affiliate and
Robertson Stephens released Westdale from its obligations to Robertson
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Stephens with respect to transactions involving us or our assets. Simultaneously
with the engagement by the Olympus affiliate of Robertson Stephens, Olympus and
Westdale began discussions regarding Westdale's participation as an equity
investor in any transaction ultimately consummated between Olympus and us.
Following our execution of the "no shop" agreement on August 9, 1999, the
representatives of Westdale continued to participate in discussions between us
and Olympus and to provide assistance to Olympus in connection with those
discussions, but did not engage in independent negotiations with us or with any
third party.
On August 16, 23 and 30 and September 2, 7, 13, 14, 17, 20, 21 and 22,
1999, the special committee met by telephone conference calls. All of the
members of the special committee were present at each of these meetings, except
that Mr. Jacobson was not present at the September 17, 1999 meeting. At each of
these meetings, the legal and financial advisors to the special committee and
members of management participated in the meetings and reported on the status of
the negotiations with Olympus and Westdale and the various issues with respect
to the proposed transaction. Also at these meetings, the members of the special
committee were informed of the progress that had been made in resolving these
issues. The other board members were invited to attend each of these meetings
and frequently attended and were updated on the progress of these negotiations.
Except discussions which occurred in executive session, all of the other board
members were present at all or part of each of these meetings of the special
committee, except that Mr. Daseke was not present at the meetings held on August
16, 23 and 30 and September 13, 1999 and Mr. Edwards was the only board member
who participated in the meetings of the special committee held on September 21
and 22, 1999. The members of the special committee also received reports from
representatives of J.P. Morgan and Locke Liddell on the other unsolicited
proposals received during this time period. At each meeting, the members of the
special committee discussed all of these matters, and instructed its advisors
and management to continue to attempt to resolve the various issues relating to
a proposed transaction with Olympus and Westdale.
At the meetings held on August 16, 23 and 30, 1999, the special committee
received reports from representatives of J.P. Morgan and Locke Liddell on the
status of acquisition negotiations with representatives of Olympus and Westdale.
The special committee also discussed the basic terms of the acquisition,
including the cash price of $23.25 per share for common stock, the proposed
structure of the acquisition, the required corporate authorization in order to
consummate the proposal and the consideration to be received by the holders of
each class of our outstanding securities. During these meetings, the members of
the special committee also discussed the alternative structures available for
dealing with holders of common operating partnership units who elect not to
receive cash pursuant to the Olympus/Westdale proposal. The special committee
also discussed the status of financing commitments for the acquisition proposal
as well as due diligence reviews of engineering and appraisal reports by Olympus
and Westdale. At the August 30, 1999 meeting, the special committee proposed
three alternative proposals for structuring the Olympus/Westdale acquisition and
concluded that Mr. Masterson should assist Mr. Edwards and representatives of
Locke Liddell in continued discussions with representatives of Olympus/Westdale
to the extent the discussions involved the treatment of holders of common
operating partnership units. At this meeting, the special committee also
reviewed and discussed the rights of the holders of our convertible preferred
stock, the redeemable preferred stock and the senior preferred stock as impacted
by the Olympus/Westdale acquisition proposal.
On September 2, 1999, the special committee received reports from
representatives of J.P. Morgan and Locke Liddell on the status of acquisition
negotiations with Olympus and discussed the alternative structures for dealing
with holders of our common operating partnership units. These alternatives
included proposed property transfers to operating partnership unit holders in
exchange for their interests and a tax-free distribution of debt proceeds from a
refinancing of our properties. The legal and financial advisors to the special
committee advised the special committee that no progress had been made with
representatives of Olympus regarding the alternative structures for the
acquisition.
On September 7, 1999, the special committee again discussed alternative
structures for the acquisition and the alternatives for dealing with holders of
common operating partnership units who elect not to receive cash. Mr. Edwards
noted that recent discussions of the issue with representatives of Olympus
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focused on the tax-free distribution of debt proceeds alternative and the tax
consequences thereof to holders of common operating partnership units. The
members of the special committee also discussed the time schedule for the
acquisition and the September 23, 1999 termination date pursuant to the "no
shop" agreement of August 9, 1999. The members of the special committee further
discussed the current market prices for our common stock and the cash price of
$23.25 per share or common operating partnership unit offered by
Olympus/Westdale and concluded that the cash offer price appeared to be firm and
would not be adversely impacted if any of the alternative proposals for holders
of common operating partnership units were implemented.
By letter dated September 10, 1999 to our board, bidder B updated its
proposal. The material terms of this letter are summarized below.
- our common stock would be acquired for $23.50 per share in cash;
- the holders of common units of limited partnership interest in our
operating partnerships would have the option of receiving either:
- $23.50 per unit in cash,
- continuation of their present position,
- exchange of our properties for units aggregating 500,000 or more,
providing fair market value of $23.50 per unit, or
- "other equitable arrangements subject to the approval of the Walden
board of directors";
- existing preferred stock would remain outstanding; and
- bidder B would assume approximately $413 million of our existing debt.
Bidder B indicated in this letter the sources of its funding for the
transaction, attached an application for mortgage financing executed on behalf
of the lender and stated that a managed real estate investment fund "is
committing a minimum of $150 million." J.P. Morgan proceeded to analyze the
financial aspects of the September 10 letter.
On September 13, 1999, the special committee met to discuss the response of
Olympus/Westdale to our alternative proposal of a tax-free distribution of debt
proceeds to holders of common operating partnership units. Mr. Edwards reported
that, under the Olympus response, holders of common operating partnership units
would be given the choice of receiving a financing distribution of 95% of the
value of their units (based on a valuation of $19.00 per unit) with the
remaining 5% interest continuing in the applicable operating partnership. The
special committee made no decision with respect to the Olympus/Westdale
response. The members of the special committee also briefly discussed the
September 10 letter received from bidder B and concluded that bidder B's
proposal should be considered by the entire board.
On September 14, 1999, our board met to review the developments that had
occurred relating to a potential transaction with Olympus and Westdale. At this
meeting, our legal and financial advisors reviewed and discussed with the board
bidder B's proposal. Representatives of J.P. Morgan informed the board that they
had concerns regarding bidder's B revised proposal, including the following:
- the lack of assurance that bidder B could obtain committed debt and
equity financing on a timely basis; and
- the lack of detail regarding the treatment of the interests of all of
Walden's classes of equity holders.
The advisors each informed the board that they did not believe that bidder B's
September 10 letter constituted a superior proposal for purposes of the
"no-shop" agreement with the Olympus affiliate and
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Westdale. The board adjourned the meeting without making a determination as to
whether this proposal constituted a superior proposal.
Immediately following the September 14 board meeting, the special committee
continued its discussions of alternatives for holders of common operating
partnership units and the strategy for continued negotiations with
Olympus/Westdale. The special committee decided to resubmit our tax-free
distribution of debt proceeds alternative structure (based on a valuation of
$23.25 per unit) to representatives of Olympus. Representatives of J.P. Morgan
reported on the fairness of the Olympus/Westdale acquisition proposal to our
stockholders and holders of common operating partnership units.
On September 17, 1999, the special committee met and received a report from
Mr. Edwards on the status of the discussions with Olympus/Westdale and its
response to our tax free distribution of debt proceeds alternative for holders
of common operating partnership units. Mr. Edwards reported that Olympus would
not increase the per unit valuation basis from $19.00 to $23.25 per unit. Mr.
Edwards reported that a proposal for dealing with holders of common operating
partnership units, which involved an alternative consideration consisting of
cash, continued equity interests and tax deferred distributions, had been
proposed by Olympus. Following the report, the special committee instructed Mr.
Edwards to pursue additional discussions and negotiations with representatives
of Olympus regarding the fourth alternative structure for dealing with holders
of common operating partnership units and to solicit a final response on the
issue from Olympus in writing. At the meeting, representatives of J.P. Morgan
discussed the anticipated fairness opinion to be rendered pursuant to its
engagement as financial advisors to the special committee and the board. J.P.
Morgan advised that the fairness opinion would address the fairness of the cash
price proposal to both common stockholders and holders of common operating
partnership units from a financial point of view but would not address the
alternative non-cash consideration which may be available to holders of common
operating partnership units. The special committee also discussed the status of
definitive documents for the acquisition, the anticipated time schedule and the
strategy for further negotiations with representatives of Olympus.
By letter dated September 17, 1999 from bidder B to our board, bidder B
reaffirmed and clarified its proposal to acquire us in a transaction in which
common stockholders would receive $23.50 in cash per share of common stock.
On September 20, 1999, the special committee met to discuss a communication
from Olympus regarding its substitute proposal with respect to the treatment of
holders of common operating partnership units. Mr. Edwards summarized the
contents of the response from Olympus and advised that holders of common
operating partnership units would be given options pursuant to the
Olympus/Westdale proposal consisting of cash, a new security of the applicable
partnership, a refinancing distribution option, or securities of Parent. The
members of the special committee discussed the terms and provisions of the new
securities described in the Olympus substitute proposal. The special committee
concluded that Mr. Edwards and representatives of Locke Liddell should continue
negotiations with Olympus regarding the substitute proposal for holders of
common operating partnership units. Legal advisors to the special committee
summarized the terms and provisions of the acquisition documents and the status
of several contract issues, including the issues of indemnity and financing, the
terms of certain of the new securities of Newco and Parent and management of
Newco and Parent. The special committee also briefly discussed the September 17,
1999 letter from bidder B to the board.
On September 21, 1999, the special committee met to discuss contract
issues, including the issues of indemnity, financing conditions and our payment
of termination fees under certain circumstances. Legal advisors to the special
committee reviewed the terms and provisions of the proposed agreement and plan
of merger. The special committee concluded that Mr. Edwards and representatives
of Locke Liddell should engage in further negotiations with representatives of
Olympus with respect to the contract issues in question and report back to the
special committee.
Later on September 21, 1999, our board met to review the status of the
negotiations with Olympus and Westdale. Also at this meeting, our legal and
financial advisors reviewed and discussed with the board bidder B's proposal.
This included a discussion of whether bidder B's proposal, as amended to date,
constituted a superior proposal for purposes of the "no shop" agreement with
Olympus and Westdale. Our
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legal and financial advisors informed the board that they continued to have
concerns regarding bidder B's proposal, which included concerns that bidder B
would not be able obtain the required financing to consummate a transaction. The
board determined that it did not have sufficient information to determine that
bidder B's proposal was a superior proposal for purposes of the "no shop"
agreement.
On September 22, 1999, the special committee met to discuss the acquisition
proposal of Olympus/ Westdale and open contract issues, including the issues of
indemnity and financing conditions. Legal advisors to the special committee
reported that no progress had been made with the representatives of Olympus
regarding the contract issues. Mr. Edwards and legal advisors to the special
committee further reported that a new issue had been raised by representatives
of Olympus relating to costs and expenses, which, in the opinion of Olympus,
could require a reduction in the cash price of $23.25 per share being offered by
Olympus pursuant to its proposal. Mr. Edwards and representatives of J.P. Morgan
advised the special committee that the additional costs and expenses could
possibly result in a reduction in the cash price from $23.25 to $23.00.
Representatives of J.P. Morgan advised that it was reviewing the possible
reduction in the cash price per share or common operating partnership unit and
its ability to render a fairness opinion with respect to a cash price in the
range of $23.00 to $23.25. The special committee instructed Mr. Edwards and
representatives of Locke Liddell to continue negotiations with representatives
of Olympus and report back to the special committee.
From September 10 to September 22, 1999, we and our financial advisor, J.P.
Morgan, and our legal advisors, Locke Liddell, and Olympus and its legal
advisors, Vinson & Elkins, continued to negotiate the merger agreement and
related documents. During this period, Olympus continued its due diligence with
respect to our operations.
Late in the evening on September 22, 1999, we and Olympus, advised by our
respective legal and financial advisors, negotiated a proposed definitive merger
agreement and a number of related documents, including the following:
- merger agreements providing for the merger of newly formed partnerships
into Walden/Drever Partnership and Walden Residential Partnership;
- voting agreements to be entered into by some of our directors and
executive officers;
- election and consent forms for holders of common units of limited
partnership interest;
- limited partnership agreement of Parent;
- articles supplementary for the Newco senior preferred stock and
redeemable preferred stock; and
- amended limited partnership agreements of Walden/Drever Partnership and
Walden Residential Partnership.
On September 23, 1999, the members of the special committee met with
representatives of Thompson Knight, Locke Liddell and J.P. Morgan to consider
the proposed transaction with Olympus. No other member of our board participated
in this meeting. At this meeting, the committee and its advisors also discussed
the status of discussion with other prospective bidders. J.P. Morgan reported
that no new indications of interest had been received and that "bidder A" had
essentially dropped out of the process. J.P. Morgan also reported that "bidder
C" had reiterated its $22.50 price per share for the common stock and had no
committed financing available. The proposal from "bidder B" was then discussed
at length. The special committee determined that the offer from Olympus was much
more developed and had a greater likelihood of being completed than the proposal
from "bidder B" as that proposal was then constituted. During the meeting,
representatives of J.P. Morgan reviewed with the special committee the process
undertaken in connection with the issuance of its opinion and the basis on which
the conclusions expressed in the opinion had been reached. J.P. Morgan then
rendered its oral opinion, subsequently confirmed by delivery of a written
opinion, that on the date of the opinion, the cash consideration to be paid to
the holders of shares of our common stock and common units of limited
partnership interest in our operating partnerships in the merger was fair, from
a financial point of view, to these holders. J.P. Morgan acted as financial
advisor to both the special committee and the whole board. Locke Liddell
reviewed the material terms of the draft agreements that had been distributed to
the special committee and discussed
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<PAGE> 37
various aspects of the directors' fiduciary duties in the context of the merger.
Following further discussion, the special committee unanimously resolved to
recommend to the board of directors the approval of the transaction with
Olympus.
Later on September 23, 1999, a special meeting of our board was held to
consider the transaction with Olympus as negotiated and documented. Also at this
meeting were representatives of each of Locke Liddell, Thompson Knight and J.P.
Morgan. At this meeting, the board and its financial and legal advisors
discussed the status of discussions with the other prospective bidders. During
the meeting, representatives of J.P. Morgan reviewed with the board the process
undertaken in connection with the issuance of its opinion and the basis on which
the conclusions expressed in the opinion had been reached. J.P. Morgan then
rendered its oral opinion, subsequently confirmed by delivery of a written
opinion, that on the date of the opinion, the cash consideration to be paid to
the holders of shares of our common stock and common units of limited
partnership interest in Walden's operating partnerships in the merger was fair,
from a financial point of view, to these holders. We do not intend to obtain an
updated fairness opinion from J.P. Morgan unless a material amendment is made to
the financial terms of the merger agreement. Locke Liddell reviewed the material
terms of the draft agreements that had been distributed to the board and
discussed various aspects of the directors' fiduciary duties in the context of
the merger and in the board's consideration of other outstanding proposals. The
chairman of the special committee then confirmed the special committee's
recommendation with respect to the proposed transaction. Following further
discussion, during which the directors asked numerous questions that were
responded to by representatives of management and by our advisors, the board, by
the unanimous vote of all directors, other than Arch K. Jacobson who was absent,
approved the definitive merger agreement and the transactions contemplated by
the merger agreement and authorized our officers to execute and deliver the
agreements. In part, the board made this determination in light of factors that
the board viewed as jeopardizing the proposed transaction with Olympus and
Westdale, which included the expiration of the "no-shop" provision that day and
an evaluation of the likelihood that Olympus would shortly withdraw its
proposal.
On September 23, 1999, the parties extended their "no-shop" agreement
through 5:00 p.m., central time, on September 24, 1999.
We, Parent and Newco executed the merger agreement and the Walden/Drever
Partnership and Walden Residential Partnership merger agreements on September
24, 1999 and, after the closing of trading, issued a press release announcing
the transaction.
A few weeks later, we, Parent and Newco agreed that the documents relating
to the transaction incorrectly reflected the receipt by holders of Walden/Drever
Partnership Class B common and preferred units and Walden Residential
Partnership Class C and Class D units of Walden/Drever Partnership and Walden
Residential Partnership, respectively, following the partnership mergers. The
parties agreed that the agreement reached on September 24, 1999 was to permit
those holders to elect to receive new securities in Parent rather than in
Walden/Drever Partnership and Walden Residential Partnership, the surviving
entities of the Walden/Drever Partnership and Walden Residential Partnership
mergers. In addition, the parties also agreed to (1) not permit us to make
severance or similar payments to our officers or consultants other than those
permitted by existing employment or consulting agreements, (2) fix the aggregate
cash merger consideration reduction for capital expenditures at $2,557,695 and
(3) provide that we would not be entitled to terminate the merger agreement if
Parent and Newco waived any reduction in the cash merger consideration that
exceeded $5 million as a result of capital expenditures and consent payments.
On November 3, 1999, the special committee considered and unanimously
approved amendments to the documents to reflect the foregoing agreements of the
parties and recommended to the board that the proposed revisions be approved and
recommended to our stockholders. The other board members who participated in the
meeting were Mr. Daseke, Mr. Drever and Mr. Galesi.
On November 4, 1999, the board considered and unanimously approved the
amendments to the documents as recommended by the special committee. All of the
members of the board were present at this meeting, with the exception of Mr.
Jacobson. On November 5, 1999, the parties entered into an
33
<PAGE> 38
amended and restated merger agreement and amended and restated Walden/Drever
Partnership and Walden Residential Partnership merger agreements with these
terms.
Shortly after the execution of the amended and restated merger agreement,
we were advised by attorneys representing two institutional holders of
approximately 45% of our outstanding senior preferred stock that the governing
documents of these holders prohibited them from accepting partnership interests
in Parent in exchange for their shares of our senior preferred stock. In
addition, these stockholders believed that the receipt of either Parent or Newco
securities in the merger would not provide adequate consideration for their
shares. At this time, we also began settlement discussions with attorneys
representing the purported classes in the litigation described under
"-- Litigation Relating to the Merger."
Subsequently, Olympus proposed that we, Parent and Newco amend and restate
the merger agreement a second time to provide the following terms:
- we would be the surviving corporation in the merger;
- our common stockholders would receive $23.14 in cash per share of common
stock;
- our convertible preferred stockholders would receive $26.39 in cash per
share of convertible preferred stock;
- our senior preferred stockholders would receive $22.00 in cash per share
of senior preferred stock; and
- our redeemable preferred stockholders would receive $19.50 in cash per
share of redeemable preferred stock.
These cash payments would be fixed and would not be subject to reduction
for capital expenditures we make before the completion of the merger. In
addition, Olympus proposed that the parties amend the Walden/Drever Partnership
and Walden Residential Partnership merger agreements to provide the following
terms:
- holders of Walden/Drever Partnership Class B common units and Walden
Residential Partnership Class C or Class D units could elect to receive:
- $23.14 in cash per unit,
- a common limited partnership interest in Parent, or
- a combination of a common limited partnership interest in Parent and
$11.57 in cash per unit; and
- holders of Walden/Drever Partnership Class B preferred units would
receive $19.50 in cash per unit.
On December 29, 1999, the special committee considered and unanimously
approved amendments to the documents to reflect the foregoing agreements of the
parties and recommended to the board that the proposed revisions be approved and
recommended to our stockholders. The amended merger agreement eliminates any
adjustments to the cash merger consideration and fixes the cash merger
consideration to be paid to our common stockholders at $23.14 per share. At the
time J.P. Morgan rendered its opinion, the merger agreement provided that our
common stockholders would receive cash consideration of $23.25 per share,
subject to reduction for expenditures by us prior to the merger. As a result,
under the initial merger agreement, the cash merger consideration payable to
common stockholders could have ranged from $23.25 per share if we made no
expenditures down to approximately $23.09 per share if we made $5 million in
expenditures. J.P. Morgan's fairness opinion provides that cash merger
consideration of $23.25 per share of common stock, subject to these adjustments,
is fair from a financial point of view to these holders. J.P. Morgan has orally
affirmed the fairness of the $23.14 per share being offered to holders of our
common stock as being within that initial range.
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<PAGE> 39
On December 29, 1999, the board considered and unanimously approved the
amendments to the documents as recommended by the special committee. All of the
members of the board were present at this meeting, with the exception of Mr.
Daseke. On January 6, 2000, the parties entered into second amended and restated
merger agreements with these terms.
REASONS FOR THE MERGER; RECOMMENDATION OF THE SPECIAL COMMITTEE AND THE BOARD OF
DIRECTORS
THE BOARD OF DIRECTORS, ACTING ON THE UNANIMOUS RECOMMENDATION OF THE
SPECIAL COMMITTEE, HAS BY A UNANIMOUS VOTE OF ALL DIRECTORS, OTHER THAN ARCH K.
JACOBSON WHO WAS ABSENT, APPROVED THE MERGER AND THE MERGER AGREEMENT AND
RECOMMENDS THAT HOLDERS OF OUR COMMON STOCK VOTE FOR THE MERGER. THE BOARD OF
DIRECTORS AND THE SPECIAL COMMITTEE BELIEVE THAT THE MERGER IS FAIR TO, AND IN
THE BEST INTERESTS OF, OUR STOCKHOLDERS.
In considering the recommendation of the special committee and board with
respect to the merger, you should be aware that some of our directors have
interests in the merger that may conflict with the interests of our stockholders
generally. The board and special committee were aware of these interests and
considered them, among other matters, in approving the merger agreements and the
mergers. See "Conflicts of Interest."
In their deliberations with respect to the merger and the merger agreement,
the special committee and the board consulted with our management and our
financial and legal advisors. The factors considered by the special committee
and the board include those enumerated below. While all of these factors were
considered by the special committee or the board, neither the special committee
nor the board made determinations with respect to each of these factors. Rather,
the special committee and the board each made its respective judgment with
respect to the merger and the merger agreement based on the total mix of
information available to it, and the judgments of individual directors may have
been influenced to a greater or lesser degree by their individual views with
respect to different factors.
In making its decision to approve the merger and the merger agreement, the
special committee and the board considered the following factors, which were all
of the material factors considered by the special committee and the board.
1. The board and the special committee assessed our strategic
alternatives, including the prospects of positioning us for the future and
restoring and enhancing long-term stockholder value by remaining an
independent company or by effecting a strategic business combination with
another company. After consultation with our financial advisor, the board
considered the value to stockholders from these alternatives. While each of
the alternatives was evaluated against our five-year business plan, it
appeared that we had limited possibilities to expand or operate effectively
as a stand-alone entity given our high leverage and low growth prospects
and that quarterly earnings were consistently below analysts' initial
estimates. We made no formal comparison of these alternatives to the
possibility of liquidating our assets.
2. The board and the special committee believed that we had thoroughly
explored the market's interest in an acquisition of Walden. This belief was
based on the efforts on behalf of us by J.P. Morgan to solicit indications
of interest to enter into a business combination with or acquire us,
including contacting 17 potential parties, not including Westdale. It
appeared that a transaction with Parent and Newco was superior to any
alternative and should result in greater value to stockholders than the
other alternatives.
3. The board and the special committee reviewed and took into
consideration the opinion of J.P. Morgan as to the fairness from a
financial point of view of the cash consideration to be received by the
holders of our common stock, and the analyses presented to the board and
special committee by J.P. Morgan. These analyses supported and helped
provide the basis for the board and special committee's beliefs that the
merger with Newco should result in maximizing stockholder value. In
particular, the board and the special committee noted that the merger
consideration represented approximately a 20% premium over our stock price
on September 17, 1999.
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<PAGE> 40
4. The board and the special committee believed that the terms of the
merger agreement permitting us to continue to declare and pay our regular
1999 third quarter dividend increased the value to stockholders of the
merger and help to ensure cash flow to stockholders prior to the time of
closing.
5. The board and the special committee believed that the fact that
Parent, upon signing the merger agreement, would also sign commitment
letters to finance the transaction in the total amount of $1,075,000,000
created the substantial likelihood of a timely consummation of the merger.
6. The board and special committee believed that the other terms of
the merger agreement were fair to us. Specifically, the board and the
special committee considered:
- the representations and warranties made by each party;
- the covenants of the parties and the effect of those provisions
to permit us to operate efficiently prior to the merger;
- the provisions that permit the special committee and the board to
withdraw or modify their respective recommendations regarding the
merger;
- the limited number of conditions to the obligations of Parent and
Newco, which should increase the likelihood of a timely
consummation of the merger; and
- the requirement that a majority of our common stockholders
approve the merger, which the board and the special committee
believed increased stockholders' participation in our affairs.
7. The special committee believed that the merger is procedurally fair
because:
- the special committee consisted of directors who were neither our
employees nor holders of operating partnership units, and
therefore had no expectation to derive any personal financial
benefit from the merger different from that of any other
stockholder and thus could, without question of self-dealing,
negotiate on an arm's-length basis with representatives of Parent
on your behalf;
- the special committee and the board had each considered Parent's
proposal on numerous occasions thereby reacquiring sufficient
information to reach an informed business decision on Parent's
proposal;
- the special committee was advised by independent outside legal
counsel, which helped to ensure that the members of the special
committee understood their responsibility to recommend only a
transaction that was in your best interests, and that the special
committee pursued that goal independently, in good faith and
diligently; and
- we had thoroughly explored the other alternatives prior to
entering into a transaction with Parent and Newco, which provided
a basis for a determination of our intrinsic value as a going
concern and to consider the adequacy of the premium offered by
Parent.
The special committee and the board also considered a number of negative
factors, including those discussed below, in its deliberations concerning the
mergers.
1. The fact that, following the merger, stockholders will cease to
participate in our future earnings or growth, if any, or benefit from
increases, if any, in our value.
2. The potential or actual conflicts of interest of our officers and
directors in connection with the mergers.
3. The merger will be a taxable transaction to our stockholders.
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<PAGE> 41
OPINION OF WALDEN'S FINANCIAL ADVISOR
At meetings of the special committee and board of directors on September
23, 1999, J.P. Morgan gave its oral opinion, subsequently confirmed in writing,
addressed to the special committee and the board of directors, that, as of
September 24, 1999, the date of the opinion, and based upon and subject to the
various considerations described in the opinion, the cash consideration to be
paid to the holders of common stock in the proposed merger is fair from a
financial point of view to the common stockholders. Based on the terms of the
merger agreement on that date, the per share cash consideration to be received
by the holders of common stock was between a range of $23.09 to $23.25 per
share. The range resulted from the possibility of up to a $5 million reduction
in the purchase price attributable to anticipated expenses in the initial
agreement. The amended merger agreement eliminates any adjustments to the cash
merger consideration and fixes the cash merger consideration to be paid to
holders of our common stock at $23.14 per share. On December 29, 1999, J.P.
Morgan orally affirmed the fairness of the $23.14 per share being offered to
holders of our common stock as being within that initial range. Neither the
special committee nor the board of directors limited J.P. Morgan in any way in
the investigations it made or procedures it followed in giving its opinion.
We have attached as Appendix A to this proxy statement the full text of
J.P. Morgan's written opinion. This opinion sets forth the assumptions made,
matters considered and limits on the review undertaken. We incorporate J.P.
Morgan's opinion into this document by reference and urge you to read this
opinion. J.P. Morgan addressed its opinion to the special committee and the
board of directors. The opinion addresses only the cash consideration to be paid
in the merger to our common stockholders and is not a recommendation to you as
to how you should vote at the special meeting.
In arriving at its opinion, J.P. Morgan reviewed:
1. the initial merger agreement, the initial Walden/Drever Partnership
merger agreement and the initial Walden Residential Partnership merger
agreement all entered into on September 24, 1999 and not any subsequent
agreements;
2. publicly available terms of several transactions involving
companies comparable to us and the consideration received for those
companies;
3. current and historical market prices of our common stock;
4. our audited financial statements for the fiscal year ended December
31, 1998, and unaudited financial statements for the first two calendar
quarters of 1999;
5. information with respect to our outstanding indebtedness or
obligations;
6. internal financial forecasts and estimates of budgeted funds from
operations and net operating income prepared by our management;
7. the terms of other business combinations deemed relevant by J.P.
Morgan; and
8. various publicly available information concerning our business and
of several other companies engaged in businesses comparable to ours, and
the reported market prices for other companies' securities deemed
comparable.
J.P. Morgan also held discussions with several members of our management on
numerous aspects of the transaction, our past and current business operations,
our financial condition and future prospects and operations, and other matters
that J.P. Morgan believed necessary or appropriate to its inquiry. In addition,
J.P. Morgan visited representative properties of Walden and reviewed other
financial studies and analyses and considered such other information that it
deemed appropriate for the purposes of its opinion.
J.P. Morgan relied upon and assumed, without independent verification, the
accuracy and completeness of all information that was publicly available or that
was furnished to it by us or otherwise reviewed by J.P. Morgan. J.P. Morgan has
not assumed any responsibility or liability for this information. J.P. Morgan
has not conducted any valuation or appraisal of any assets or liabilities, and
no valuations or
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<PAGE> 42
appraisals have been provided to J.P. Morgan. In relying on financial analyses
and forecasts provided to J.P. Morgan, J.P. Morgan has assumed that they have
been reasonably prepared based on assumptions reflecting management's best
currently available estimates and judgments as to our expected future results of
operations and financial condition. J.P. Morgan has also assumed that the merger
will have the tax consequences described in discussions with, and materials
furnished to J.P. Morgan by, our representatives, and that the other
transactions contemplated by the merger agreement will be consummated as
described in the merger agreement. J.P. Morgan relied as to all legal and tax
matters relevant to rendering its opinion upon the advice of our legal and tax
counsel.
J.P. Morgan utilized the following projections, which were based on
forecasts prepared by our management, in connection with its opinion:
1. real estate net operating income;
2. earnings before interest, taxes, depreciation and amortization; and
3. funds from operations.
In addition, J.P. Morgan utilized projections of funds from operations per
common share of us and our peers provided by First Call, an online data service
available to subscribers which compiles earnings estimates by research analysts.
This resulted in the following projections for us:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1999 2000 2001 2002 2003
------ ------ ------ ------ ------
(IN MILLIONS; EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Revenues....................................... $273.0 $296.2 $307.1 $315.1 $323.3
Net operating income........................... 164.8 175.9 182.6 187.3 192.1
Earnings before interest, taxes, depreciation
and amortization............................. 155.1 166.6 173.0 177.4 182.0
Funds from operations.......................... 79.1 85.0 91.2 96.4 102.0
Funds from operations per share................ 2.49 2.66 2.86 3.02 3.20
</TABLE>
No party made any representation or warranty with respect to these
projections. Financial projections are subject to contingencies beyond
management's control, and realization of the projections depends on numerous
factors, including, among other things, the completion of pending developments,
the actual cost in relation to development projects and decisions by management
to modify business plans to address changing needs and a changing operating
environment. All material events and circumstances cannot be predicted and
unanticipated events and circumstances are likely to occur. Accordingly, there
may be differences between the projected results of operations and our actual
results of operations, and these differences could be material. If the financial
projections prove to be materially different, the conclusions reached in the
opinion of J.P. Morgan could be materially affected.
Neither our independent auditors, nor any other independent accountants,
have compiled, examined or performed any procedures with respect to the
prospective financial information contained in this proxy statement, nor have
they expressed any opinion or any other form of assurance on such information or
its achievability, and they assume no responsibility for, and disclaim any
association with, the prospective financial information.
J.P. Morgan's opinion and the presentation to the board and special
committee were two of the many factors taken into consideration by the board and
the special committee in making their determination to recommend approval of the
merger. The cash consideration to be paid in the merger was determined through
arm's-length negotiation between representatives of the parties. The cash
consideration to be paid in the merger was not determined on the basis of any
recommendation by J.P. Morgan.
As is customary in the rendering of a fairness opinion, J.P. Morgan based
it opinion on economic, market and other conditions as in effect on, and the
information made available to J.P. Morgan as of, September 23, 1999. Subsequent
developments may affect J.P. Morgan's opinion, and J.P. Morgan does
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<PAGE> 43
not have any obligation to update, revise or reaffirm its opinion. However, we
have informed J.P. Morgan that if a material amendment is made to the financial
terms of the merger agreement, we will request that J.P. Morgan update and
revise or reaffirm, as applicable, its opinion. J.P. Morgan expressed no opinion
as to the price at which our stock will trade at any future time.
In accordance with customary investment banking practice, J.P. Morgan
employed generally accepted valuation methods in reaching its opinion. The
following is a summary of the material analyses utilized by J.P. Morgan in
connection with providing its opinion.
PUBLIC TRADING MULTIPLES ANALYSIS. Using publicly available information,
J.P. Morgan compared our selected financial and stock market data with similar
data for selected publicly traded companies engaged in businesses which J.P.
Morgan judged to be reasonably comparable to ours. The companies were:
- Camden Property Trust, Inc.;
- Cornerstone Realty Income Trust, Inc.;
- Gables Residential Trust, Inc.;
- Summit Properties Inc.; and
- United Dominion Realty, Inc.
J.P. Morgan selected these companies because of their specialization in the
multifamily REIT sector, geographic location, asset quality, market
capitalization and capital structure.
For each of these companies, J.P. Morgan measured publicly available
financial performance data through September 17, 1999. J.P. Morgan calculated
the multiples of current stock price, as of September 17, 1999, to analysts'
estimates for 2000 consensus funds from operations as reported by First Call for
each of these companies to determine the 2000 FFO trading multiples. J.P.
Morgan's calculations resulted in a range of 2000 FFO multiples from 7.1x to
8.3x. These multiples were then applied to our 2000 funds from operations per
share estimate, based on consensus FFO estimates, yielding a range of implied
trading values for our common stock of approximately $19.17 to $22.41 per share.
SELECTED TRANSACTION ANALYSIS. Using publicly available information, J.P.
Morgan examined the following transactions, some of which as of the date of the
opinion were pending approval:
<TABLE>
<CAPTION>
DATE OF
ACQUIROR TARGET ANNOUNCEMENT
-------- ------ ------------
<S> <C> <C>
Equity Residential Properties Lexford Residential Trust
Trust July 1998
Berkshire Realty Holdings, Inc. Berkshire Realty Co., Inc. March 1999
The Irvine Company Irvine Apartment Communities,
Inc. December 1998
Equity Residential Properties Merry Land & Investment Company,
Trust Inc. July 1998
Security Capital Pacific Trust Security Capital Atlantic April 1998
Bay Apartment Communities, Inc. Avalon Properties, Inc. March 1998
United Dominion Realty Trust, ASR Investments Corporation
Inc. December 1997
Apartment Investment and Ambassador Apartments, Inc.
Management Company December 1997
Camden Property Trust Oasis Residential, Inc. December 1997
Equity Residential Properties Evans Withycomb Residential, Inc.
Trust August 1997
Post Properties, Inc. Columbus Realty Trust August 1997
Equity Residential Properties Wellsford Residential Property
Trust Trust January 1997
Camden Properties Trust Paragon Group, Inc. December 1996
</TABLE>
J.P. Morgan selected these transactions because of their similarity to the
merger. An analysis of these transactions showed a range of funds from
operations transaction multiples from 6.3x to 14.0x and a median multiple of
11.4x. While the median multiple of these transactions is above the implied
transaction
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<PAGE> 44
multiple for the proposed merger of 9.3x, J.P. Morgan did not view this as
significant since there has been a substantial decrease in REIT multiples since
1998 from approximately 12.0x projected annual funds from operations to 8.8x.
Furthermore, the implied transaction premium, as discussed below, was
significantly higher than the mean of the premium paid for the comparable
transactions. Two of the comparable transactions, Berkshire Realty and The
Irvine Company, used cash as the consideration. The premiums in those
transactions were 29.8% and 25.6%, respectively.
TRANSACTION PREMIUM ANALYSIS. Using publicly available information, J.P.
Morgan examined the premiums paid for the comparable transactions listed above.
J.P. Morgan observed a range of transaction premiums from 0.4% to 29.8% and a
median of 8.0% based on the target share price one week prior to announcement of
the transaction and the acquirer share price as of the transaction announcement
date. This range was then applied to the closing price of a share of our common
stock, which was $19.00 on September 17, 1999, resulting in a range of equity
values for our common stock of between $19.08 and $24.66 per share. J.P. Morgan
noted that the reasons for, and circumstances surrounding, each of the
transactions analyzed were diverse and that premiums fluctuated due to different
business strategies, perceived growth, synergies, strategic value and the type
of consideration utilized in the transaction.
NET ASSET VALUE ANALYSIS. Using the publicly available results for us for
the period ended June 30, 1999, J.P. Morgan calculated our net asset value per
share. In so doing, J.P. Morgan arrived at an equity net asset value by:
1. calculating a gross real estate value by applying a range of
capitalization rates from 8.75% to 9.25% to projections for our forward
twelve months real estate net operating income, after providing for an
assumed level of maintenance capital expenditures of $350 per unit, as
estimated by us; and
2. adding the gross value of other assets, less our outstanding debt,
which was marked to market and other liabilities.
The equity net asset value per share was then calculated by dividing the
equity net asset value by the number of common shares outstanding. This analysis
indicated an implied range for the price of our common stock of $21.76 to $24.48
per share. This range is consistent with net asset value estimates in recently
published third party equity research reports, which range from $22.00 to $24.00
per share.
STOCK TRADING HISTORY. J.P. Morgan reviewed the historical trading prices
for our common stock and noted that over the last year the low closing price was
$16.00 per share and that the high closing price was $23.94 per share. In
addition, in order to study any meaningful price fluctuations that may have
occurred in the past year, J.P. Morgan calculated the historical closing price
averages as of September 17, 1999 as shown below. The cash consideration of
$23.25 per share represents a 22.4% premium over the closing share price of $19
on September 17, 1999.
<TABLE>
<CAPTION>
DAYS FROM CLOSING
SEPTEMBER 17, 1999 PRICE AVERAGE PREMIUM PAID
- ------------------ ------------- ------------
<S> <C> <C>
30 days $18.89 23.08%
60 days $19.30 20.47%
90 days $19.86 17.07%
180 days $19.48 19.35%
360 days $19.96 16.48%
</TABLE>
DISCOUNTED CASH FLOW. J.P. Morgan performed discounted cash flow analyses
of us based upon projections we provided, including a range of distinct rental
rate and expense growth assumptions by property. Specifically, five years of
cash flows to equity holders were projected. Each year's cash flow was
calculated by beginning with net income as follows:
1. deducting debt amortization, capital expenditures and preferred
dividends;
2. adding back debt capital raised, depreciation and amortization; and
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3. adjusting for annual changes in net working investment.
A range of terminal values was calculated by applying the range of 7.0x to
8.0x to our projected 2005 funds from operations. The resultant terminal value,
which was added to the year 2004 cash flow, was discounted together with the
five years of projected cash flows at a discount rate range between 12.00% and
14.00%. Discount rates and terminal multiples were selected based upon J.P.
Morgan's estimate of expected investor returns, discussions with our management
as well as other qualitative factors, such as the quality and location of our
properties and the age of our assets. This resulted in a range of value for our
common stock of $20.68 to $24.39 per share.
This summary does not purport to be a complete description of the analyses
or data presented by J.P. Morgan. The preparation of a fairness opinion is a
complex process and you may not be able to fully understand the fairness opinion
through only a partial analysis or summary description. J.P. Morgan believes
that one must consider its opinion, this summary and its analyses as a whole.
Selecting portions of this summary and these analyses, without considering the
analyses as a whole, would create an incomplete view of the processes underlying
the analyses and opinion. In arriving at its opinion, J.P. Morgan considered the
results of all of the analyses as a whole. No single factor or analysis was
determinative of J.P. Morgan's fairness determination. Rather, the totality of
the factors considered and analyses performed operated collectively to support
its determination. J.P. Morgan based the analyses on assumptions that it deemed
reasonable, including assumptions concerning general business and economic
conditions which impact our growth rates, and industry-specific factors, many of
which are beyond the control of J.P. Morgan or us. This summary sets forth under
the description of each analysis the other principal assumptions upon which J.P.
Morgan based that analysis. J.P. Morgan's analyses are not necessarily
indicative of actual values or actual future results that we might achieve,
which values may be higher or lower than those indicated. Analyses based upon
forecasts of future results are inherently uncertain, as they are subject to
numerous factors or events beyond the control of the parties and their advisors.
Accordingly, these forecasts and analyses are not necessarily indicative of
actual future results, which may be significantly more or less favorable than
suggested by those analyses. The inclusion of these forecasts is not a
representation by us, J.P. Morgan or any other person that the results will be
achieved. Moreover, J.P. Morgan's analyses are not and do not purport to be
appraisals or otherwise reflective of the prices at which businesses actually
could be bought or sold.
We retained J.P. Morgan to act as our financial advisor based on J.P.
Morgan's experience, expertise and their familiarity with us. J.P. Morgan is an
internationally recognized investment banking and advisory firm. As a part of
its investment banking business, J.P. Morgan and its affiliates are continually
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, investments for passive and control purposes,
negotiated underwritings, secondary distributions of listed and unlisted
securities, private placements, and valuations for estate, corporate and other
purposes.
For its services in connection with the merger, J.P. Morgan received
retainer fees totaling $500,000 and a fee of $1.25 million upon execution of the
merger agreement. If the merger is consummated, J.P. Morgan will receive
additional fees of approximately $7.0 million. In addition, we have agreed to
reimburse J.P. Morgan for its reasonable expenses incurred in connection with
its services, including the fees and disbursements of counsel, and agreed to
indemnify J.P. Morgan against various liabilities, including liabilities arising
under the federal securities laws.
J.P. Morgan and its affiliates have engaged in banking transactions with us
from time to time, including a mortgage loan and an interest rate swap, for
which J.P. Morgan and its affiliates have received customary fees. In the
ordinary course of their businesses, J.P. Morgan and its affiliates may actively
trade the debt and equity securities of Walden for their own accounts or for the
accounts of customers and, accordingly, they may at any time hold long or short
positions in such securities.
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CONFLICTS OF INTERESTS
In considering the recommendations of the board of directors and the
special committee, you should be aware that some of our members of management
and directors have interests in the merger that are different from, or in
addition to, your interest as a stockholder generally. These conflicts of
interests are further described below and under the caption "The
Merger -- Background of the Merger."
TOTAL CONSIDERATION PAYABLE TO DIRECTORS AND MANAGEMENT. The total amounts
of consideration that our directors and management will receive in, or within
two years after, the merger are listed in the table below and described in more
detail in the remainder of this section. Receipt of the payments described below
is contingent upon the completion of the merger.
<TABLE>
<CAPTION>
COMMON
PAYMENTS OPERATING COMMON
UNDER COMMON PARTNERSHIP STOCK RESTRICTED TOTAL
NAME AND TITLE CONTRACTS(1) STOCK UNITS(2) OPTIONS STOCK CONSIDERATION
-------------- ------------ ----------- ----------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
Don R. Daseke, Chairman
Emeritus................. $ -- $ 7,865,425 $ -- $1,462,525 $ 694,200 $10,022,150
Mark S. Dillinger,
Executive Vice
President, Chief
Financial Officer and
Director(3)............ 1,850,000 1,140,478 -- 469,564 254,540 3,714,582
Maxwell B. Drever,
Chairman Emeritus(4)... 299,000 318,869 33,324,192 -- -- 33,942,061
Marshall B. Edwards,
Chief Executive
Officer, President and
Director(5)............ 3,354,500 3,090,671 -- 829,125 532,220 7,806,516
Theodore M. Kerr,
Executive Vice
President -- Property
Operations(6).......... 900,000 211,106 -- 225,600 92,560 1,429,266
Michael E. Masterson,
Chairman of the Board
of Directors(7)........ 2,200,000 1,956,394 6,954,866 -- -- 11,111,260
Robin K. Minick, General
Counsel(8)............. 600,000 143,283 -- 118,400 -- 861,683
---------- ----------- ----------- ---------- ---------- -----------
Subtotal Executives/
Officers............... 9,203,500 14,726,226 40,279,058 3,105,214 1,573,520 68,887,518
Linda Walker-Bynoe,
Director............... -- 56,716 -- 66,325 33,761 156,802
Francesco Galesi,
Director............... -- -- 16,474,292 49,075 33,761 16,557,128
Robert Honstein,
Director............... -- -- -- 15,075 10,621 25,696
Arch K. Jacobson,
Director............... -- 129,584 -- 66,325 33,761 229,670
Louis G. Munin,
Director............... -- 115,700 -- 66,325 33,761 215,786
J. Otis Winters,
Director............... -- 115,700 -- 46,875 33,761 196,336
---------- ----------- ----------- ---------- ---------- -----------
Subtotal Directors....... -- 417,700 16,474,292 310,000 179,426 17,381,418
---------- ----------- ----------- ---------- ---------- -----------
Total.......... $9,203,500 $15,143,926 $56,753,350 $3,415,214 $1,752,946 $86,268,936
========== =========== =========== ========== ========== ===========
</TABLE>
- ---------------
(1) Payments under contracts include consideration payable for agreements
relating to transition services, severance, consulting, noncompetition
and/or nonsolicitation. These agreements will terminate upon a termination
of the merger agreement.
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(2) These amounts indicate the value of cash and/or limited partnership
interests in Parent to be received in the operating partnership mergers by
these officers and directors in exchange for their units of partnership
interest in Walden/Drever Partnership and Walden Residential Partnership.
(3) The payment under contract to Mr. Dillinger includes the following amounts:
$50,000 for transition services performed during the first three months
after the merger; a $650,000 bonus for transition services payable in
installments during the first three months after the merger; $400,000 for
consulting payments payable during the fourth through twelfth months after
the merger; and $750,000 for nonsolicitation of employees and noncompetition
until the second anniversary of the merger, payable in two installments
during the first year after the merger.
(4) The payment under contract to Mr. Drever is a severance payment in the
amount of $299,000 under his existing advisory agreement, payable within 30
days after a termination of these services.
(5) The payment under contract to Mr. Edwards includes the following amounts:
$75,000 for transition services performed within three months after the
merger; an $825,000 bonus for transition services payable in installments
during the first three months after the merger; $600,000 for consulting
services payable between the fourth and the twelfth month after the merger;
and $1,854,500 for nonsolicitation of employees and noncompetition until the
second anniversary of the merger, payable in two installments during the
first year after the merger.
(6) The payment under contract to Mr. Kerr includes the following amounts:
$43,750 for transition services performed during the first three months
after the merger; a $556,250 bonus for transition services payable during
the first three months after the merger; and a $300,000 payment for
nonsolicitation of employees and noncompetition until the second year
anniversary of the merger, payable at the end of the third month after the
merger.
(7) The payment under contract to Mr. Masterson includes the following amounts:
a $450,000 merger bonus payable at the closing of the merger and $1,750,000
for nonsolicitation of employees and noncompetition until the second
anniversary of the merger, payable during the first year after the merger.
(8) The payment under contract to Ms. Minick includes the following amounts:
$50,000 for three months of transition services performed after the merger
and a $550,000 bonus for transition services payable within three months
after the merger.
WALDEN SECURITIES. Shares of our common stock and preferred stock held by
our officers and directors will be converted into the right to receive the same
merger consideration as shares of stock held by other stockholders. The total
amounts that our directors and management will receive are listed in the table
above.
Two of our directors, Maxwell B. Drever and Michael E. Masterson, currently
own limited partnership interests in Walden/Drever Partnership, and another
director, Francesco Galesi, controls entities that own limited partnership
interests in Walden Residential Partnership. In connection with the
Walden/Drever Partnership and Walden Residential Partnership mergers, these
directors will have the option to receive limited partnership interests in
Parent. These directors thus may elect to receive an equity interest in Parent
and thus may continue to have the opportunity to participate in the future
earnings growth, if any, and benefit from any increase in our and our
subsidiaries' value and the value of Parent and its subsidiaries. The
Walden/Drever Partnership and Walden Residential Partnership mergers are
described below under "The Operating Partnership Mergers."
TRANSITION SERVICES, SEVERANCE, CONSULTING, NONCOMPETITION AND
NONSOLICITATION PAYMENTS. In connection with the merger, at or within two years
after the time the merger becomes effective, six of our officers and directors
will receive cash payments from us relating to transition services, severance,
consulting, noncompetition and/or nonsolicitation arrangements in the aggregate
amount set forth opposite the name of each of these officers and directors in
the table above.
Each of these officers and directors currently has an employment or
advisory agreement under which the officer or director would receive a severance
payment from us if the officer or director is terminated
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<PAGE> 48
from employment in connection with a change in control of us and we would
indemnify the officer or director from any excise tax payments resulting from
this severance payment. Maxwell B. Drever will retain his existing advisory
agreement. Mark S. Dillinger, Marshall B. Edwards, Theodore M. Kerr, Michael E.
Masterson and Robin K. Minick will enter into new agreements with Newco
providing for the payments for transition services, severance, consulting,
noncompetition and nonsolicitation agreements listed in the table above, which
will replace any severance payments that might otherwise be payable to these
officers and directors under the existing employment or advisory agreements with
us. The severance payments that otherwise would have been payable to Mr.
Dillinger, Mr. Edwards, Mr. Kerr, Mr. Masterson and Ms. Minick under their
existing employment agreements, excluding payments for stock options and
restricted stock, are $861,251, $1,362,402, $767,175, $747,500 and $526,443,
respectively. In addition, Mr. Drever has been reimbursed for his legal expenses
relating to the merger up to $75,000. Mr. Drever has requested reimbursement of
an additional $25,000 of legal expenses, which the board expects to pay, subject
to receipt of Olympus' consent.
STOCK OPTIONS AND RESTRICTED STOCK. The terms of our stock option plans
provide that all outstanding options will automatically accelerate on a change
in control. We have taken the necessary actions to provide for the cancellation
at the time the merger becomes effective of all outstanding options to acquire
common stock in exchange for a per option cash payment equal to the cash merger
consideration of $23.14, less the exercise price of the option. In addition,
under the terms of our incentive plans, all restrictions on outstanding
restricted stock awards will lapse on a change in control. We will cancel all
restricted stock awards in exchange for a per share cash payment equal to the
cash merger consideration of $23.14, which is the amount that would be payable
to that holder had the restrictions on the stock award lapsed. At the effective
time, our directors and management will receive the cash payments listed in the
table above for restricted stock and options that they hold based on a price of
$23.14 per share of restricted stock and the excess of $23.14 over the exercise
price per share of the options.
OFFICERS' AND DIRECTORS' INDEMNIFICATION INSURANCE. The merger agreement
provides that, for a period of six years after the effective time, Parent will
indemnify our and our subsidiaries' present and former officers and directors
from liabilities arising out of actions or omissions in these capacities prior
to the time the merger becomes effective, to the same extent as provided in our
organizational documents or any written indemnification agreements or under any
of our benefit plans. In addition, Parent will maintain directors' and officers'
insurance coverage for six years after the effective time on terms no less
favorable to these indemnified parties than existing insurance coverage, but the
surviving corporation will not be required to pay an annual premium in excess of
150% of the last premium paid prior to the date of the merger agreement.
WESTDALE/PARENT AGREEMENT. An affiliate of Parent has entered into an
expense sharing agreement with Westdale. Under this agreement, the parties have
agreed to share certain fees and expenses incurred in connection with the
merger. Westdale has agreed to commit up to $12 million in equity financing for
the merger and will receive a $1 million sourcing fee upon the closing of the
merger. In exchange for $12 million in equity financing, Westdale will receive a
limited partnership interest of up to 2.3% in Oly Hightop Holding, the parent of
Parent. Westdale's percentage interest assumes that holders of approximately
937,000 units of limited partnership interest in the operating partnerships
elect to convert their units into common limited partnership interests in Parent
in the operating partnership mergers. In addition, the expense sharing agreement
provides that Parent or Walden, as applicable, and Westdale will enter into a 12
month management agreement if the merger occurs. Westdale will be entitled to
receive a $500,000 fee for services provided under the management agreement.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
THE FOLLOWING IS A SUMMARY OF THE MATERIAL FEDERAL INCOME TAX CONSEQUENCES
OF THE MERGER TO HOLDERS OF OUR COMMON STOCK. THIS SUMMARY DOES NOT ADDRESS ALL
ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO OUR COMMON
STOCKHOLDERS IN LIGHT OF THEIR PARTICULAR CIRCUMSTANCES OR TO COMMON
STOCKHOLDERS SUBJECT TO SPECIAL TREATMENT UNDER THE FEDERAL INCOME TAX LAWS.
THESE STOCKHOLDERS MAY
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<PAGE> 49
INCLUDE FINANCIAL INSTITUTIONS, TAX-EXEMPT ORGANIZATIONS, INSURANCE COMPANIES,
DEALERS IN SECURITIES OR CURRENCIES, STOCKHOLDERS HOLDING STOCK AS PART OF A
CONVERSION TRANSACTION, AS PART OF A HEDGE OR HEDGING TRANSACTION, OR AS A
POSITION IN A STRADDLE FOR TAX PURPOSES, OR STOCKHOLDERS WHO ACQUIRED OUR STOCK
IN CONNECTION WITH THE EXERCISE OR OTHER SATISFACTION OF COMPENSATORY OPTIONS.
IN ADDITION, THE SUMMARY BELOW DOES NOT CONSIDER THE EFFECT OF ANY FOREIGN,
STATE, LOCAL OR OTHER TAX LAWS THAT MAY BE APPLICABLE TO THE MERGER. THE
DISCUSSION ASSUMES THAT COMMON STOCKHOLDERS HOLD THEIR COMMON STOCK AS CAPITAL
ASSETS AND NOT AS INVENTORY OR AS PROPERTY HELD PRIMARILY FOR SALE TO CUSTOMERS
IN THE ORDINARY COURSE OF A TRADE OR BUSINESS. THIS SUMMARY IS BASED UPON THE
PROVISIONS OF THE INTERNAL REVENUE CODE OF 1986, TREASURY REGULATIONS, INTERNAL
REVENUE SERVICE RULINGS AND JUDICIAL DECISIONS, ALL IN EFFECT AS OF THE DATE
HEREOF AND ALL OF WHICH ARE SUBJECT TO CHANGE BY SUBSEQUENT LEGISLATIVE,
JUDICIAL OR ADMINISTRATIVE ACTION. SOME OF THESE CHANGES MAY POSSIBLY BE
RETROACTIVE. THIS SUMMARY IS FOR GENERAL INFORMATIONAL PURPOSES ONLY AND IS NOT
TAX ADVICE.
HOLDERS OF STOCK
In general, a holder of our common stock will recognize gain or loss for
federal income tax purposes equal to the difference between the amount of cash
received in exchange for this stock in the merger and the holder's adjusted tax
basis in this stock. The gain or loss will be capital gain or loss as long as
the stock is a capital asset in the hands of the holder, and will be long-term
capital gain or loss if the holder has held the stock for more than one year as
of the effective time of the merger.
FOREIGN STOCKHOLDERS
Under the Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA"), a
common stockholder, that, for United States federal income tax purposes, is a
non-resident alien individual, a foreign corporation, or a foreign estate or
trust(a "foreign stockholder") will generally not be subject to United States
federal income or withholding tax on the gain recognized on the disposition of
our common stock pursuant to the merger if (a) we are a "domestically controlled
REIT" within the meaning of the Internal Revenue Code; or (b) our common stock
is regularly traded on an established securities market within the meaning of
the Internal Revenue Code and the stockholder does not own, actually or
constructively under attribution rules provided in the Internal Revenue Code, in
excess of 5% of the fair market value of all shares of our common stock
outstanding at any time during the shorter of the five-year period preceding the
merger or the stockholder's holding period.
We believe that we are a "domestically controlled REIT." We also believe
that our common stock is regularly traded on an established securities market
within the meaning of the Internal Revenue Code. We will endeavor to determine
whether our common stock continues to be regularly traded on an established
securities market prior to the merger and whether we are a "domestically
controlled REIT" as of the effective time of the merger.
A foreign stockholder of our common stock who does not meet either of the
above exceptions will be subject to (a) United States federal income tax at
regular graduated rates on any gain recognized on the disposition of its stock
in the merger; and (b) withholding in respect of this tax at a rate of 10% of
the amount realized by the foreign stockholder in the merger. Foreign
stockholders are urged to consult their tax advisors concerning the potential
applicability of these exceptions and the consequences of a sale or other
disposition of the common stock held by foreign stockholders in advance of the
merger.
FIRPTA CERTIFICATION
In order to avoid FIRPTA withholding, a holder of our common stock who is
not a foreign stockholder must certify under penalties of perjury as to its
non-foreign status by completing the certification form that will be included
with the letter of transmittal in connection with the merger.
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<PAGE> 50
BACKUP WITHHOLDING
The exchange of common stock in the merger will be reported to the Internal
Revenue Service. Backup withholding at a rate of 31% will apply to the merger
proceeds unless the exchanging stockholder furnishes a taxpayer identification
number in the manner prescribed by applicable Treasury regulations, certifies
that the number is correct, certifies as to no loss of exemption from backup
withholding and meets other conditions. Backup withholding does not apply to
foreign stockholders, corporations and other exempt non-foreign stockholders. A
foreign stockholder will be exempt from backup withholding if the applicable
certification requirements are satisfied. The payment or distribution of merger
proceeds to or through the United States office of a broker is subject to
information reporting and backup withholding unless an exemption from
information reporting and backup withholding is established.
Any amounts withheld under the backup withholding rules described above
will be allowed as a refund or a credit against United States federal income tax
liability if the required information is furnished to the Internal Revenue
Service on a timely basis.
DUE TO THE INDIVIDUAL NATURE OF TAX CONSEQUENCES, YOU ARE URGED TO CONSULT
YOUR TAX ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES TO YOU OF THE MERGER,
INCLUDING THE EFFECTS OF APPLICABLE STATE, LOCAL OR OTHER TAX LAWS.
ANTICIPATED ACCOUNTING TREATMENT OF THE MERGER
The merger is expected to be accounted for using the purchase method of
accounting in accordance with generally accepted accounting principles.
REGULATORY APPROVALS RELATING TO THE MERGER
Neither we nor Parent or Newco is required to make filings with or obtain
approvals from regulatory authorities in connection with the merger, other than
the filing of articles of merger with the State Department of Assessment and
Taxation of Maryland.
FINANCING
The total amount of funds required by Parent in connection with the
transaction is estimated to be approximately $1.4 billion, which will be used
for the following purposes:
- payment of the merger consideration of $758 million to holders of our
common stock, convertible preferred stock, senior preferred stock and
redeemable preferred stock;
- payment of the merger consideration to holders of Walden/Drever
Partnership Class B common and preferred units and Walden Residential
Partnership Class C and Class D units, in the case of unitholders who
receive all cash or elect to receive a cash refinancing distribution;
- payment in respect of outstanding stock options, restricted stock and
warrants;
- repayment of debt in the amount of approximately $447 million as of
September 30, 1999; and
- payment of fees and expenses (including debt prepayment fees and
financing fees).
Parent, Newco or their affiliates have received the following debt
financing commitments in connection with the merger:
- availability of $250 million under a Credit Agreement dated December 28,
1999 among affiliates of Olympus, The Chase Manhattan Bank and other
financial institutions;
- a commitment letter, dated September 23, 1999, from BankBoston, N.A. and
BancBoston Robertson Stephens Inc. in the amount of $175 million; and
- a commitment letter, dated September 22, 1999, from Green Park Financial
Limited Partnership in the amount of $650 million.
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<PAGE> 51
Parent and Newco have received equity financing commitments in the total
amount of approximately $412 million from various of their affiliates in
connection with the merger. In addition, Westdale Properties of America I, Ltd.
who, together with its affiliates held a total of approximately 5.5% of the
outstanding shares of our common stock on the record date, has committed to
provide $12 million in equity financing. Parent and Newco expect to fund the
remainder of the transaction with up to $40 million in additional borrowings
under existing Walden credit facilities with Northwestern Investment Management
Co. and up to $100 million in additional equity investments from unaffiliated
third parties. We cannot assure you that these funds will be available.
STOCKHOLDER RIGHTS PLAN AMENDMENT
In March 1998, our board adopted a rights plan, pursuant to which all
shares of our common stock now have attached to them a right to acquire one
one-hundredth of a share of preferred stock at a price per share of $70.00. The
rights will be evidenced by the certificates representing shares of common stock
until a person acquires, or announces the intention to make a tender offer to
acquire, beneficial ownership of 15% or more of the outstanding shares of common
stock. The earlier of these dates is called the distribution date. Following the
distribution date, the rights will be evidenced by a separate right certificate.
At any time after the distribution date, a holder of a right may either acquire
one one-hundredth of a share of preferred stock at a price per share of $70.00
or, in lieu of acquiring the preferred stock, may acquire shares of common stock
at a 50% discount from the then current price of the stock.
The number of outstanding rights and the number of shares of preferred
stock issuable upon the exercise of a right are subject to adjustment in the
event of a stock split of or a stock dividend on the shares of common stock. If
we are acquired in a merger or other business combination not previously
approved by our board, each right will be exercisable to acquire shares of
common stock of the acquiring company at a 50% discount from the price of those
shares of common stock at that time. The rights may be redeemed by our board at
a price of $.001 per right at any time prior to or within ten days following the
acquisition by a person of beneficial ownership of 15% or more of our
outstanding shares of common stock. The effect of the rights plan is to require
all persons interested in acquiring control of us to first negotiate with our
board before approaching our stockholders.
We amended our rights plan dated March 26, 1998 with BankBoston, N.A., as
rights agent, to provide that the completion of the merger or any transactions
contemplated by the merger agreement (including the Walden/Drever Partnership
and Walden Residential Partnership mergers) will not result in Parent, Newco or
any of their affiliates being an acquiring person, the rights to purchase our
junior preferred stock being exercisable under the rights agreement, or any
event being deemed a distribution date. If any of Parent, Newco or any of their
affiliates are deemed to be an acquiring person, then the rights would become
effective, potentially resulting in additional shares of our common stock being
issued and thereby dramatically increasing the price payable by Parent to
acquire us.
LITIGATION RELATING TO THE MERGER
On October 6, 1999, a purported class action lawsuit was filed in the
County Court of Dallas County, Texas under the caption Tom Berkowitz and Evan
Greenwalt, et al. v. Walden Residential Properties, Inc., et al. (Cause No. CC
99-10921-e) against us and the members of our board of directors. The complaint
alleges that the defendants have acted to complete the merger at an inadequate
and unfair price at the expense of, and which is unfair to, our common and
preferred stockholders. The complaint requests a judgment as follows:
- declaring the action is properly maintainable as a class action;
- declaring that the merger agreement was entered into in breach of the
fiduciary duties of the defendants and is therefore unlawful and
unenforceable;
- enjoining the defendants and other persons from consummating the merger
unless and until we adopt and implement a procedure or process to obtain
the highest possible price for stockholders;
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<PAGE> 52
- directing the individual defendants to exercise their fiduciary duties to
obtain a transaction that is in the best interests of our stockholders
until the process for our sale or auction is completed and the highest
possible price is obtained;
- rescinding, to the extent already implemented, the merger agreement or
any of the terms of the merger agreement;
- if the merger is consummated, awarding compensatory damages against the
defendants, jointly and severally, in an amount to be determined at
trial, together with pre-judgment interest at the maximum rate allowable
by law;
- imposition of a constructive trust, in favor of plaintiffs, upon any
benefits improperly received by defendants as a result in their wrongful
conduct; and
- awarding plaintiffs the costs and disbursements of the action, including
reasonable attorneys' fees and experts' fees.
On October 25, 1999, another purported class action lawsuit was filed in
the County Court of Dallas County, Texas under the caption Lawrence Feldman, et
al. v. Walden Residential Properties, Inc., et al. (Cause No. CC-99-11645-a)
against us and the members of our board of directors. This complaint was brought
on behalf of the holders of our senior preferred stock and redeemable preferred
stock and makes substantially the same allegations as the previous claim.
On or about January 4, 2000, the parties to these lawsuits reached separate
agreements in principle to settle these actions based on the final terms of the
merger. These agreements in principle were subject to, among other things,
documentation, the closing of the merger and court approval. On January 26,
2000, the parties entered into definitive settlement agreements and, on January
27, 2000, obtained preliminary court approval of these agreements. The
settlements provide that the lawsuits will be dismissed, and we and the members
of our board of directors will be released from all claims of the purported
classes. Under the settlements, we have agreed to pay the plaintiffs' attorneys
total fees of $3,235,000 and up to $70,000 in expenses.
THE OPERATING PARTNERSHIP MERGERS
Immediately prior to the consummation of the merger, and pursuant to the
terms of the Walden/ Drever Partnership and Walden Residential Partnership
merger agreements:
- WDOP Merger Sub, L.P., a newly formed subsidiary of Parent, will be
merged with and into Walden/Drever Partnership, with Walden/Drever
Partnership as the surviving entity; and
- WROP Merger Sub, L.P., a newly formed subsidiary of Parent, will be
merged with and into Walden Residential Partnership, with Walden
Residential Partnership as the surviving entity.
It is a condition to both of these operating partnership mergers that all
conditions to the merger with Newco have been satisfied, except for the
completion of the operating partnership mergers. As a result, the operating
partnership mergers will not occur unless holders of a majority of the
outstanding shares of our common stock approve the merger with Newco.
If the operating partnership mergers are completed, the holders of
Walden/Drever Partnership Class B common units and Walden Residential
Partnership Class C and Class D units will be able to elect to receive either
$23.14 in cash for each unit that they own, or to elect to receive a common
limited partnership interest in Parent, or a combination of a cash refinancing
distribution and a common limited partnership interest in Parent. Holders of
Walden/Drever Partnership Class B preferred units will receive $19.50 in cash
for each unit that they own. Holders of operating partnership units will receive
separate offering materials in connection with these operating partnership
mergers. This proxy statement is not an offer to elect cash and/or new
securities in these operating partnership mergers, and any offer will be made
only by separate materials.
It is a condition to the merger with Newco that holders of at least 937,000
Walden/Drever Partnership Class B common units and Walden Residential
Partnership Class C and Class D units elect to
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convert these units into common limited partnership interests in Parent. Two of
our directors, Michael E. Masterson and Francesco Galesi, have informed us that
they and their affiliates will convert a total of 543,383 of their units into
common limited partnership interests. There can be no assurance, however, that
937,000 units will in fact be converted.
After these operating partnership mergers, Parent and its general partners
will own all of the partnership interests in Walden/Drever Partnership and
Walden Residential Partnership, either directly or indirectly through our
subsidiaries.
THE MERGER AGREEMENT
The following describes the material terms of the merger agreement. The
full text of the merger agreement is attached to this proxy statement as
Appendix B and is incorporated in this proxy statement by reference. We
encourage you to carefully read the entire merger agreement.
EFFECTIVE TIME OF THE MERGER
The merger agreement provides that the closing of the merger will take
place no later than the twelfth business day after the satisfaction or waiver of
the conditions to the Walden merger. Promptly after the closing, Newco and
Walden will file the necessary documents with public officials to complete the
merger. We expect that, if all conditions to the merger have been satisfied or
waived, the merger will occur within twelve business days after the special
meeting.
GENERAL
The merger agreement provides that, upon the terms and subject to the
conditions of the merger agreement, Newco will be merged with and into Walden
and that, following the merger, the separate existence of Newco will cease and
Walden will continue as the surviving corporation. When the merger occurs:
- each outstanding share of common stock of Newco will be converted into a
share of common stock of Walden;
- each outstanding share of our common stock will be converted into the
right to receive $23.14 in cash, without interest;
- each outstanding share of our convertible preferred stock will be
converted into the right to receive $26.39 in cash, which represents
$23.14 multiplied by the number of shares of Walden common stock into
which each convertible preferred share would have been convertible prior
to the time the Walden merger becomes effective, without interest, plus
any accrued and unpaid dividends to, but not including, the closing date;
- each outstanding share of our senior preferred stock will be converted
into the right to receive $22.00 in cash, without interest, plus any
accrued and unpaid dividends to, but not including, the closing date;
- each outstanding share of our redeemable preferred stock will be
converted into the right to receive $19.50 in cash, without interest,
plus any accrued and unpaid dividends to, but not including, the closing
date; and
- shares of our common stock and our preferred stock held by Parent, Walden
or their subsidiaries will be canceled in the merger.
SURRENDER AND EXCHANGE OF STOCK CERTIFICATES
Promptly after the time the merger becomes effective, Parent will deposit
with BankBoston, N.A., the exchange agent an amount of cash equal to the
aggregate amount of cash merger consideration to be paid to persons who held our
common stock, convertible preferred stock, senior preferred stock and redeemable
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preferred stock immediately before the merger became effective, together with
any accrued and unpaid dividends owed to these former holders. The exchange
agent will promptly deliver the applicable merger consideration in exchange for
surrendered Walden stock certificates.
Promptly after the merger, the exchange agent will send persons who held
our common stock, convertible preferred stock, senior preferred stock and
redeemable preferred stock immediately before the merger became effective a
letter of transmittal containing instructions for use in effecting the exchange
of their Walden stock certificates for the merger consideration payable to them.
If you held shares of these classes of our stock immediately before the
effective time of the merger, upon surrender to the exchange agent of an
outstanding certificate or certificates which represented our stock and
acceptance of such certificate by the exchange agent, the exchange agent will
deliver to you the merger consideration owed to you pursuant to the merger
agreement. No interest will be paid or accrue on any cash payable to you.
Any portion of the merger consideration payable which remains undistributed
for six months after the effective time will be delivered to us. If, at that
time, you have not previously exchanged your certificates, you may thereafter
only look to us, and then only as a general creditor, for payment of the merger
consideration owed to you.
If you do not have your stock certificate, you may make an affidavit of
that fact. In addition, we may require that you post a bond in a reasonable
amount determined by us with respect to the missing stock certificate. Upon
receipt of the affidavit and any required bond, the exchange agent will issue
the merger consideration payable to you.
STOCK PLANS
At the effective time, each option to purchase our common stock will be
converted into the right to receive an amount in cash equal to the difference
between the cash merger consideration of $23.14 and the exercise price of the
option. Also at the effective time, each share of restricted stock will be
converted into the right to receive the cash merger consideration of $23.14.
WARRANTS
We agreed in the merger agreement to take all necessary action to reduce
the per share exercise price of each outstanding warrant to purchase common
stock to an amount equal to $0.01 below the cash merger consideration, effective
immediately prior to the effective time. At the effective time, each outstanding
warrant will be converted into the right to receive an amount of cash equal to
the difference between the cash merger consideration per share of $23.14, and
the per share exercise price of the warrants, as adjusted. As a result of these
provisions, holders of warrants will receive $0.01 in cash per share of common
stock that could have been obtained upon exercise of their warrants in the
merger.
REPRESENTATIONS AND WARRANTIES
We made customary representations and warranties in the merger agreement
relating to various aspects of our businesses and financial statements and other
matters, including, among other things:
- our, and our subsidiaries', organization and good standing;
- our, and our subsidiaries', capital structure;
- our, and our subsidiaries', authority to enter into and the validity and
effectiveness of the merger agreement;
- required consents and approvals of third parties;
- the absence of conflicts, violations or defaults under our charter,
bylaws and other agreements;
- required consents and approvals, or the absence thereof, of governmental
entities relating to the merger;
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- the documents and reports filed and to be filed, including this proxy
statement, with the Securities and Exchange Commission and the accuracy
and completeness of the information contained in those documents and
reports;
- the absence of recent material changes or events;
- material liabilities or the absence thereof;
- the absence of defaults under organizational documents and material
loans, contracts, agreements, laws and court orders;
- our, and our subsidiaries', compliance with applicable laws;
- litigation matters;
- tax matters;
- pension and benefit plans and other matters relating to the Employee
Retirement Income Security Act of 1974;
- labor and employment matters;
- our, and our subsidiaries', ownership of intangible property;
- environmental matters;
- our, and our subsidiaries', ownership of real property;
- insurance matters;
- J.P. Morgan's fairness opinion;
- the stockholder vote required to approve the merger;
- the absence of brokers' fees;
- the amendment of our stockholder's rights agreement;
- material contracts;
- our actions relating to our stock purchase plan and deferred compensation
plan, and options and warrants to purchase our common stock;
- our information systems; and
- the agreement under which Walden/Drever Partnership will purchase from
three of our officers and directors all of the outstanding stock of
Drever Partners, Inc. for $300.
The merger agreement also contains customary representations and warranties
of Parent and Newco relating to various aspects of their business, including,
among other things:
- their organization and good standing;
- their capital structure;
- their authority to enter into and the validity and effectiveness of the
merger agreement;
- the absence of conflicts, violations or defaults under their charter
documents and other agreements;
- required consents and approvals, or the absence thereof, of third party
lenders;
- required consents and approvals, or the absence thereof, of governmental
entities relating to the merger;
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- the information supplied or to be supplied in connection with the
documents and reports filed, and to be filed, with the Securities and
Exchange Commission, including this proxy statement, and the accuracy and
completeness of the information contained in those documents and reports;
- litigation matters;
- the absence of broker's fees;
- their access to funds sufficient to consummate the transactions
contemplated by the merger agreement; and
- their lack of prior business activities.
The representations and warranties of each party will expire at the time
the merger occurs.
CONDUCT OF BUSINESS PRIOR TO THE MERGER
We have agreed, prior to the time the merger occurs, to operate our and our
subsidiaries' businesses in the ordinary course in substantially the same manner
as previously conducted and to use all commercially reasonable efforts to
preserve intact our business organization, retain the services of our current
officers and employees and endeavor to preserve our relationships with customers
and suppliers.
In addition, the merger agreement places specific restrictions on our
ability and the ability of our subsidiaries to:
- except as described below, authorize, declare or pay any dividends on or
make other distributions in respect of any of our equity interests,
capital stock or partnership interests;
- split, combine or reclassify any of our equity interests or capital
stock, or issue, authorize or propose the issuance of any other
securities in respect of, in lieu of or in substitution for, shares of
our or our subsidiaries' equity interests or capital stock;
- repurchase, redeem or otherwise acquire, or permit any of our
subsidiaries to purchase, redeem or otherwise acquire, any equity
interests or capital stock;
- issue, deliver or sell, or authorize or propose to issue, deliver or sell
any of our equity interests, capital stock, voting securities or any
securities convertible into, or any rights, warrants or options to
acquire any such securities, except for specific issuances permitted in
the merger agreement;
- except as contemplated by or in connection with the merger agreement,
amend or propose to amend our organizational documents;
- in general, merge or consolidate with, or acquire any equity interest in
or any of the assets of, any business organization or assets, in each
case having a purchase price in excess of $50,000, or an aggregate
purchase price of all these transactions in excess of $500,000;
- in general, dispose of or agree to dispose of any material assets;
- except as contemplated by the merger agreement, authorize, recommend,
propose or announce an intention to adopt a plan of complete or partial
liquidation or dissolution;
- make any changes in accounting methods which would require disclosure
under Securities and Exchange Commission rules or regulations, other than
as required by law, rule, or regulation or generally accepted accounting
principles;
- except as contemplated by the merger agreement, enter into any agreement
or arrangement with any affiliate other than a wholly owned subsidiary;
- fail to use commercially reasonable efforts to maintain in full force and
effect insurance comparable in amount and scope of coverage to insurance
we now carry;
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- in general, make or rescind any material express or deemed tax election,
settle or compromise any material tax controversy, or change in any
material respect our methods of tax reporting;
- except for severance payments contemplated by existing employment or
consulting agreements and retention bonuses to be paid to nonexecutive
employees as contemplated by the merger agreement:
- hire or terminate any employee or consultant whose aggregate annual
compensation exceeds $75,000,
- grant any compensation increase, bonus or noncompetition payment to
any director, trustee, officer or employee,
- pay or agree to pay any current or past director, officer or employee
any pension, retirement or other benefit not contemplated by any
existing employee benefit or pension plan,
- enter into any new, or amend any existing, employment, severance or
termination agreement with any director, officer or employee, or
- become obligated under any new employee benefit or pension plan, which
was not in existence or approved by the board of directors on
September 24, 1999, or amend any existing plan or arrangement if the
amendment would have the effect of materially enhancing any benefits
under such plan or arrangement;
- assume or incur any indebtedness for borrowed money (except for regular
borrowings incurred in the ordinary course of business), forgive any
indebtedness, guarantee any indebtedness or debt securities of others,
issue or sell any debt securities or warrants or rights to acquire debt
securities or create any liens on its property that are not contemplated
by the merger agreement;
- agree to amend, waive, modify or terminate any provision of the
Walden/Drever Partnership or Walden Residential Partnership merger
agreements or any document relating to those mergers;
- redeem any of the rights under our stockholder rights plan unless
required by a court;
- materially amend or terminate, or waive compliance with the terms of or
breaches under, any material contract;
- enter into a new material contract;
- pay, discharge, settle or satisfy any claims, liabilities or obligations,
other than in the ordinary course of business and other than with respect
to the settlement of the purported class action lawsuits regarding the
merger in accordance with the provisions of the memoranda of
understanding entered into with the lawyers representing the purported
classes;
- agree to amend, waive, modify or terminate any provision of the agreement
under which Walden/ Drever Partnership will purchase from three of our
officers and directors all of the outstanding stock of Drever Partners,
Inc. for $300; or
- agree, in writing or otherwise, to take any action prohibited by the
merger agreement.
Under the merger agreement, we are permitted to do the following:
- after notice to and consultation with Parent, pay any regular quarterly
dividend after the third quarter dividend, but only in the minimum amount
necessary to avoid jeopardizing Walden's status as a REIT under the
Internal Revenue Code and having positive real estate investment trust
taxable income for the taxable year ending at the effective time;
- pay regular quarterly cash dividends on Walden convertible preferred
stock, senior preferred stock and redeemable preferred stock in
accordance with their respective terms, with usual record and payment
dates;
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- pay distributions to the partners of any limited partnership that is a
subsidiary of Walden in accordance with the requirements of the existing
organizational documents of those limited partnerships; and
- pay regular quarterly cash dividends to stockholders of any corporation
that is a preferred stock subsidiary of Walden, with usual record and
payment dates.
NO SOLICITATION
In the merger agreement, we have agreed that, prior to the merger:
- neither we nor any of our subsidiaries will initiate, solicit or
encourage, directly or indirectly, any Company Acquisition Proposal (as
defined below), or engage in any negotiations concerning or otherwise
take any action designed or reasonably likely to facilitate any Company
Acquisition Proposal;
- except as described below, we will direct and cause our officers,
directors, employees, agents and other representatives not to engage in
the activities listed above;
- we will immediately cease and cause to be terminated any existing
activities, discussions or negotiations with any parties conducted prior
to January 6, 2000 with respect to the above actions; and
- we will promptly notify Parent if we receive any such inquiries or
proposals, or any requests for information, or if any such negotiations
or discussions are sought to be initiated or continued.
However, the merger agreement does not prohibit our board of directors
from:
- furnishing information to, or engaging in discussions or negotiations
with, any third party that makes an unsolicited Company Acquisition
Proposal if:
- the board of directors determines, in good faith, following
consultation with and after considering the advice of its legal and
financial advisors, that these actions could reasonably be expected to
result in a Company Superior Proposal (as defined below);
- prior to furnishing information to, or engaging in discussions or
negotiations with, the third party, we provide both oral and written
notice to Parent to the effect that we are furnishing information to,
or entering into discussions with, that third party, the material
terms of the Company Acquisition Proposal and the identity of the
third party; and
- upon any material change in the details of the Company Acquisition
Proposal, we inform Parent of the change both orally and in writing;
or
- if applicable, taking and disclosing to our stockholders a position, as
contemplated by Rules 14d-9 and 14e-2(a) under the Securities Exchange
Act of 1934, or from making any disclosure to our stockholders with
regard to a Company Acquisition Proposal if, in the good faith judgment
of the board of directors, after consultation with outside counsel,
failure to disclose would be inconsistent with applicable law.
The board of directors may withdraw or modify its approval or
recommendation of the merger only if it decides to approve and recommend a
Company Superior Proposal.
The term "Company Acquisition Proposal" means an inquiry, proposal or offer
with respect to a transaction, other than the transactions contemplated by the
merger agreement, involving, or any purchase of, 10% or more of the assets or
any of our equity securities or any assets or securities of our subsidiaries.
The term "Company Superior Proposal" means an unsolicited bona fide Company
Acquisition Proposal:
- that a majority of the board of directors, or an authorized committee,
determines to be more favorable to our stockholders from a financial
point of view than the merger, based upon advice
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from our independent financial advisor of nationally recognized
reputation that the value of the consideration provided for in the
proposal is superior to the value of the consideration provided for in
the merger;
- for which any required financing is then committed or which, in the good
faith reasonable judgment of our board of directors, based upon advice
from our independent financial advisors, is reasonably capable of being
financed by the third party, if financing is required; and
- that the board of directors determines, in its good faith reasonable
judgment, is reasonably capable of being completed without undue delay.
CONDITIONS PRECEDENT
CONDITIONS TO EACH PARTY'S OBLIGATIONS
The respective obligations of each party to complete the merger are subject
to the satisfaction by each party prior to the closing date of the following
conditions:
- approval and adoption of the merger, and all other actions contemplated
by the merger agreement that require the approval of the holders of our
common stock, by the holders of a majority of the outstanding shares of
our common stock entitled to vote on the merger;
- receipt of all required consents, approvals, permits and authorizations
required to be obtained from any governmental entity in connection with
the transactions contemplated by the merger; and
- absence of any temporary restraining order, preliminary or permanent
injunction or other order issued by any court of competent jurisdiction,
or order of any governmental entity having jurisdiction over us, Parent
or Newco, and absence of any other legal restraint or prohibition
preventing or making illegal the consummation of the merger.
CONDITIONS TO NEWCO'S OBLIGATION
Newco's obligation to effect the merger is further subject to the
satisfaction or waiver of the following conditions:
- We will have performed in all material respects the obligations required
to be performed by us under the merger agreement at or prior to the
closing date, and Parent will have received a certificate to that effect
signed on our behalf by our chief executive officer and our chief
financial officer;
- our representations and warranties described in the merger agreement will
in general be true and correct in all material respects on and as of the
closing date (or as of a particular date, where applicable), and Parent
will have received a certificate to that effect, signed on our behalf by
our chief executive officer and our chief financial officer;
- Parent will have been furnished with evidence of the receipt of all
consents required by the merger agreement, and those consents will be
reasonably satisfactory to Parent;
- the Walden/Drever Partnership and Walden Residential Partnership mergers
will have been completed;
- Newco will have obtained the debt and equity financing contemplated by
the merger agreement substantially on the terms as outlined in the
financing commitments, excluding from this condition the failure to
receive equity financing due to the breach of any equity financing
commitment by Parent or its affiliates;
- no material adverse change or effect, or an event that could reasonably
be expected to cause a material adverse change or effect, will have
occurred since September 24, 1999 with respect to us, and Parent will
have received a certificate to that effect from our chief executive
officer and our chief financial officer;
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- the completion of the sale by Marshall B. Edwards, Mark S. Dillinger and
Michael E. Masterson of their outstanding shares of common stock of
Drever Partners, Inc., a partially owned subsidiary of Walden/Drever
Partnership, to Walden/Drever Partnership, such that Drever Partners,
Inc. will become a wholly owned subsidiary of Walden/Drever Partnership
in connection with the merger;
- the tax opinion of Locke Liddell & Sapp LLP, our counsel, will have been
delivered to us, Parent and Newco;
- we will have delivered a closing agreement with the Internal Revenue
Service providing that our ownership of one of our subsidiaries did not
cause a termination of our status as a REIT under the Internal Revenue
Code and we will not have incurred fines, penalties or other charges that
exceed $1 million in connection with the closing agreement; and
- holders of at least 937,000 Walden/Drever Partnership Class B common
units and Walden Residential Partnership Class C and Class D units elect
to convert these units into common limited partnership interests in
Parent in the operating partnership mergers.
CONDITIONS TO OUR OBLIGATION
Our obligation to effect the merger is further subject to the satisfaction
or waiver of the following conditions:
- Newco and Parent will have performed in all material respects the
obligations required to be performed by them under the merger agreement
at or prior to the closing date, and we will have received a certificate
to that effect signed on behalf of Newco by its chief executive officer
and its chief financial officer and signed on behalf of Parent by its
general partner; and
- the representations and warranties of Newco and Parent described in the
merger agreement will in general be true and correct in all material
respects on and as of the closing date (or as of a particular date, where
applicable), and we will have received a certificate to that effect
signed on behalf of Newco by its chief executive officer and its chief
financial officer and signed on behalf of Parent by its general partner.
TERMINATION
The merger agreement may be terminated (which will result in the automatic
termination of the Walden/Drever Partnership and the Walden Residential
Partnership merger agreements) and the merger may be abandoned at any time prior
to the effective time as follows:
1. by mutual written consent of us, Parent and Newco;
2. by either us, Parent or Newco if:
- any governmental entity has issued a final and non-appealable
injunction, order, decree or ruling, or taken any other action
restraining, enjoining or otherwise prohibiting the consummation of
the merger or the Walden/Drever Partnership or Walden Residential
Partnership mergers;
- the merger is not consummated by June 30, 2000 and the terminating
party's breach of any representation, warranty, covenant or other
obligation under the merger agreement has not been the cause of or
resulted in the failure of the merger to occur on or before June
30, 2000;
- the holders of a majority of the outstanding shares of our common
stock do not approve the merger;
- unless prohibited by a governmental entity or resulting from any
act or omission of Parent, Newco or their affiliates, as of June
29, 2000, either:
- no meeting of our stockholders has been held, or
- if held, no vote has been taken with respect to the merger; or
- there has been a material breach of the merger agreement by us,
Parent or Newco (but not by the terminating party) that is not
curable or has not been cured within 30 days,
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provided that the 30-day period will not extend past June 31, 2000
and that (a) the failure of our board of directors or special
committee to recommend the merger or (b) a breach of our agreements
regarding the nonsolicitation of Company Acquisition Proposals will
be considered "willful" breaches that cannot be cured;
3. by Parent or Newco, if:
- after the date of the original merger agreement, September 24,
1999, a material adverse change or effect occurs with respect to
us;
- any financing commitment made to Parent or Newco in connection with
the merger expires or otherwise terminates pursuant to its terms so
long as:
- Parent or Newco gives written notice to us of the termination
of the merger agreement no later than 30 days after the
expiration or termination of the financing commitment, and
- if Parent or Newco does not exercise this right to terminate
the merger agreement within this 30-day period, then the
condition of Newco's obligation to effect the merger relating
to Newco's receipt of financing will be deleted from the merger
agreement after the end of the 30-day period;
- the providers of the debt financing commitments, excluding the $250
million available under the credit facility with The Chase
Manhattan Bank, are willing to provide debt financing but the
aggregate gross proceeds available from the debt financing are less
than $865 million;
- the debt and equity financing for the transactions contemplated by
the merger agreement has not been received by the closing date
substantially on the terms outlined in the financing commitments,
excluding from this condition the failure to receive equity
financing due to the breach of any equity financing commitment by
Parent or one of its affiliates;
- prior to the special meeting, our board of directors or special
committee has withdrawn or modified, in any manner which is adverse
to Parent or Newco, its recommendation or approval of the merger
agreement, the merger or the transactions contemplated by the
merger agreement or the board has recommended to our stockholders
any Company Acquisition Proposal or any transaction described in
the definition of Company Acquisition Proposal or has failed to
recommend against a tender or exchange offer for 50% or more of our
voting stock within ten business days after the tender or exchange
offer is begun;
- the total retention bonuses permitted to be paid to nonexecutive
employees in the merger agreement exceed $2 million;
- definitive settlement agreements in the two purported class action
lawsuits filed regarding the merger (see "The Merger -- Litigation
Relating to the Merger") have not been entered into and
preliminarily approved by the courts in which these lawsuits were
filed on or before the scheduled closing date; or
4. by us, if:
- prior to the special meeting and subject to payment by us of a
break up fee and the termination expenses of Parent and Newco as
described below:
- the board of directors or the special committee has determined
to withdraw or modify, in any manner adverse to Parent or
Newco, its recommendation or approval of the merger and the
transactions contemplated by the merger agreement; and
- we have given notice to Parent advising Parent that we have
received a Company Superior Proposal from a third party,
specifying the material terms and conditions of
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the proposal and advising Parent that we intend to terminate
the merger agreement and either:
(a) Parent and Newco have not revised their acquisition
proposal within five business days after notice was given to
them; or
(b) if Parent and Newco within the five-business day period
have revised their proposal, the board of directors, after
consulting our financial advisor, has determined in its good
faith reasonable judgment that the third party's Company
Acquisition Proposal is superior to Parent and Newco's revised
proposal; or
- on the scheduled closing date:
- neither Parent nor Newco have the right to terminate the merger
agreement,
- all of the conditions to Newco's obligations to effect the
merger have been satisfied, and
- Newco fails or refuses to effect the merger.
5. if a court orders a party to take or not to take an action, and
that action causes a material breach of the merger agreement or makes it
impossible to perform.
The terminating party must provide written notice of the termination to the
other parties specifying its reason for such termination.
TERMINATION FEES AND EXPENSES
BREAK UP FEE
The merger agreement provides that, except as described below and except
for the costs and expenses incurred by Parent, Newco or their affiliates in
connection with the transactions contemplated by and specified in the merger
agreement, which will be reimbursed by us if the closing occurs, all costs and
expenses incurred in connection with the merger agreement will be paid by the
party incurring the expense. We will share equally with Parent all costs and
expenses in connection with the printing and mailing of this proxy statement, as
well as all SEC filing fees related to the transactions contemplated by the
merger agreement.
The merger agreement provides that we will pay Parent a break up fee of
$26.75 million if:
- the merger agreement is terminated by Parent or Newco because our board
of directors or the special committee has withdrawn or modified, in any
way which is adverse to Parent or Newco, its recommendation or approval
of the merger agreement, the merger or the transactions contemplated by
the merger agreement or because the board of directors has recommended to
our stockholders any Company Acquisition Proposal or any transaction
described in the definition of Company Acquisition Proposal;
- we terminate the merger agreement because, prior to the special meeting:
- the board of directors or the special committee has determined to
withdraw or modify, in any manner adverse to Parent or Newco, its
recommendation or approval of the merger and the transactions
contemplated by the merger agreement; and
- we have given notice to Parent advising Parent that we have received a
Company Superior Proposal from a third party, specifying the material
terms and conditions of the proposal and advising Parent that we
intend to terminate the merger agreement and either:
(a) Parent and Newco have not revised their acquisition proposal within
five business days after notice was given to them; or
(b) if Parent and Newco within the five-business day period have
revised their proposal, the board of directors, after consulting
our financial advisor, has determined in its good faith
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reasonable judgment that the third party's Company Acquisition
Proposal is superior to Parent and Newco's revised proposal; or
- the merger agreement is terminated by Parent, Newco or us:
- because the holders of a majority of our outstanding shares of common
stock do not approve the merger or, unless otherwise prohibited by a
governmental entity or resulting from any act or omission of Parent or
Newco or their affiliates, either no meeting of our stockholders has
been held or, if held, no vote has been taken;
- at the time of the special meeting or, if no meeting was held, at any
time within 30 days before the date of termination, a Company
Acquisition Proposal by another party has been pending; and
- within 12 months after the date of termination, we agree to or
consummate any Company Acquisition Proposal.
LIQUIDATED DAMAGES
The merger agreement provides that Parent will pay to us liquidated damages
of $5 million if we terminate the merger agreement because neither Parent nor
Newco have the right to terminate the merger agreement, all of the conditions to
Newco's obligation to effect the merger are satisfied and Newco fails or refuses
to effect the merger.
TERMINATION EXPENSES
The merger agreement provides that, in addition to other amounts payable
under the provisions of the merger agreement described under this section
entitled "Termination Fees and Expenses," we will pay to Parent the reasonable
out-of-pocket fees, costs and expenses incurred by Parent, Newco or their
affiliates in connection with the transactions contemplated by the merger
agreement up to a maximum of $12 million if the merger agreement is terminated
for any reason described in the previous section entitled "Termination," except
the following:
- by mutual written consent of us, Parent and Newco;
- by us because of a material breach of the merger agreement by Parent or
Newco;
- by Parent or Newco because the providers of the debt financing
commitments, excluding the commitment of The Chase Manhattan Bank, are
willing to provide debt financing but the aggregate gross proceeds
available from the debt financing are less than $825 million;
- by Parent or Newco because, on the scheduled closing date, the condition
to Newco's obligation to effect the merger relating to Newco's receipt of
financing has not been satisfied solely due to the failure of The Chase
Manhattan Bank to provide debt financing under its financing commitment;
- because Olympus has failed to receive $100 million in additional equity
investments from third parties; or
- because Parent or Newco terminates the merger agreement because
definitive settlement agreements in the purported class action lawsuits
filed regarding the merger have not been entered into or preliminarily
approved on or before the scheduled closing date.
The merger agreement further provides that, in addition to other amounts
payable under the provisions of the merger agreement described under this
section entitled "Termination Fees and Expenses," if we terminate the merger
agreement because of a material breach of the merger agreement by Parent or
Newco, Parent will pay to us the reasonable out-of-pocket fees, costs and
expenses we or our affiliates incur in connection with the transactions
contemplated by the merger agreement up to a maximum of $2 million.
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<PAGE> 64
In addition, a party may be liable for damages in excess of these
termination expenses if the termination results from its willful breach of the
merger agreement, unless the material breach occurs because a court orders a
party to take or not to take an action, and that action causes a material breach
of the merger agreement or makes it impossible to perform. If we terminate the
merger agreement because, on the closing date, neither Parent nor Newco have the
right to terminate the merger agreement, all of the conditions to Newco's
obligation to effect the merger have been satisfied and Newco fails or refuses
to effect the merger, this termination will not be deemed to be a termination
resulting from a material breach of the merger agreement by Parent or Newco.
INDEMNIFICATION
The merger agreement provides that, from and after the time the merger
agreement becomes effective, Parent will indemnify our and our subsidiaries'
present and former officers and directors from liabilities arising out of
actions or omissions in their capacity as such prior to or at the effective time
of the merger, to the extent provided in our or our subsidiaries' organizational
documents or any written indemnification agreements or other employee benefit
plan or pension plan. In addition, Parent will maintain directors' and officers'
insurance coverage for six years after the effective time on terms no less
favorable to these indemnified parties than existing insurance coverage, but
Parent will not be required to pay an annual premium in excess of 150% of the
last premium paid by us prior to September 24, 1999, the date of the original
merger agreement.
AMENDMENT
The merger agreement may be amended at any time only by written agreement
of us, Parent and Newco. However, after the required stockholder approval, no
term or condition contained in the merger agreement may be amended or modified
in any manner that by law requires further approval by our stockholders without
obtaining this further stockholder approval.
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<PAGE> 65
PRINCIPAL STOCKHOLDERS AND STOCK OWNERSHIP OF MANAGEMENT
The following table sets forth information on the beneficial ownership of
shares of our common stock as of the record date by persons known to us to own
more than 5% of our outstanding shares of common stock, each of our directors
and executive officers and all of our directors and executive officers as a
group. The following information with respect to beneficial ownership of more
than 5% of our outstanding shares of common stock is based on reports on
Schedule 13D or Schedule 13G filed with the Securities and Exchange Commission
or other reliable information. A person is deemed to be the beneficial owner of
the number of shares of common stock of which that person has the right to
acquire beneficial ownership, for example, by exercise of stock options or
exchange of units of partnership interests, within 60 days after the record
date.
Except as otherwise noted, the business address of all persons named below
is c/o Walden Residential Properties, Inc., 5080 Spectrum Drive, Suite 1000
East, Addison, Texas 75001. Also, except as otherwise noted, all persons named
below have sole voting and investment power with respect to all shares shown as
beneficially owned by them, subject to community property laws where applicable.
<TABLE>
<CAPTION>
NUMBER OF SHARES
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED PERCENT OF CLASS
- ------------------------------------ ------------------ ----------------
<S> <C> <C>
Maxwell B. Drever..................................... 1,628,892(1) 6.0%
Oly Hightop, LLC...................................... 2,334,631(2) 9.1%
200 Crescent Court, Suite 1600
Dallas, Texas 75201
Westdale Properties America I, Ltd.
JGB Ventures I, Ltd.
JGB Holdings, Inc.
Westdale 2000 Inc.
Trivestment Holdings Limited
657330 Ontario Inc.
Joseph G. Beard
Ronald Kimel, individually and as sole trustee for the
benefit
of the issue of Manuel Kimel under the Manuel Kimel
Family Trust
300 Commerce
Dallas, Texas 75226................................. 1,366,600(3) 5.3%
Joseph G. Beard....................................... 1,408,500(3) 5.5%
Linda Walker Bynoe.................................... 28,910(4)(5) *
Don R. Daseke......................................... 1,089,906(6) 4.1%
Mark S. Dillinger..................................... 261,861(7) 1.0%
Marshall B. Edwards................................... 495,314(8) 1.9%
Francesco Galesi...................................... 733,399(9) 2.8%
Robert L. Honstein.................................... 5,459(10) *
Arch K. Jacobson...................................... 32,059(5) *
Theodore M. Kerr...................................... 35,123(11) *
Michael E. Masterson.................................. 497,602(12) 1.9%
Louis G. Munin........................................ 31,459(5) *
J. Otis Winters....................................... 26,459(13) *
All directors and executive officers as a group (12
persons)............................................ 4,866,443(14) 16.4%
</TABLE>
- ---------------
* Less than 1%
(1) Includes 175,000 shares that Mr. Drever has the right to acquire through
the exercise of options and 1,440,112 shares issuable to Mr. Drever upon
the exchange of units of limited partnership interest in Walden/Drever
Partnership.
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<PAGE> 66
(2) Oly Fund II L.P. is a member of a group consisting of Oly Fund II, L.P.,
Oly Hightop, LLC, Oly Hightop, L.P., Oly Hightop Two GP, LLC, Oly Real
Estate Partners II, L.P. and Oly REP II, L.P., each of which are affiliates
of Parent and Newco. These shares include 1,366,600 shares beneficially
owned in the aggregate by Westdale Properties America I, Ltd., JGB Ventures
I, Ltd., JGB Holdings, Inc., Westdale 2000, Inc., Trivestment Holdings
Limited, 657330 Ontario Inc., Joseph G. Beard and Ronald Kimel,
individually and as sole trustee for the benefit of the issue of Manuel
Kimel under the Manuel Kimel Family Trust (collectively, the "Westdale
Group"), but Oly Hightop, LLC, Oly Hightop, L.P., Oly Hightop Two GP, LLC,
Oly Real Estate Partners II, L.P., Oly REP II, L.P. and Oly Fund II, LLC
disclaim beneficial ownership of the shares held by the Westdale Group. In
addition, these shares include 41,900 shares beneficially owned by Joseph
G. Beard as to which the other members of the Westdale Group do not share
voting or investment power. Under voting agreements among Parent, Newco and
holders of shares of our common stock, these holders have given to Parent
irrevocable proxies for a total of 676,671 shares (or approximately 2.6% of
the outstanding shares of common stock), appointing Parent as the holders'
attorney and proxy to vote these shares and any shares subsequently
acquired, including upon the exercise of stock options or conversion of
operating partnership units, under the terms of the voting agreements.
Accordingly, Parent shares voting power with these holders with respect to
676,671 shares. This number does not include shares that are not
outstanding but that may be acquired by the stockholders who have signed
voting agreements upon the exercise of stock options or the exchange of
units of our operating partnership interests by these stockholders.
(3) 1,366,600 shares are beneficially owned by the Westdale Group. Mr. Beard
may be deemed to be the beneficial owner of these shares plus an additional
41,900 shares owned by him as to which the other members of the Westdale
Group do not share voting or investment power.
(4) Under a voting agreement with Parent and Newco, Ms. Bynoe has given Parent
an irrevocable proxy to vote 3,910 shares, appointing Parent her attorney
and proxy to vote these shares and any other shares subsequently acquired,
including upon the exercise of stock options, pursuant to the terms of the
voting agreement. Accordingly, Ms. Bynoe shares voting power with Parent
with respect to 3,910 outstanding shares and the shares that may be
subsequently acquired.
(5) Includes 25,000 shares that this person has the right to acquire through
the exercise of options and 1,459 restricted shares, which are subject to
restrictions on transfer that lapse over time.
(6) Includes 339,906 shares owned of record by The Walden Group, Inc., of which
Mr. Daseke is the holder of 90% of the common stock and the sole director,
720,000 shares that Mr. Daseke has the right to acquire through the
exercise of options and 30,000 restricted shares, which are subject to
restrictions that lapse over time. Under voting agreements with Parent and
Newco, Mr. Daseke and The Walden Group, Inc. have given Parent irrevocable
proxies to vote a total of 369,906 shares, appointing Parent the holders'
attorney and proxy to vote these shares and any other shares subsequently
acquired, including upon the exercise of stock options, under the terms of
the voting agreements. Accordingly, Mr. Daseke shares voting power with
Parent with respect to 369,906 outstanding shares and the shares that may
be subsequently acquired.
(7) Includes 201,575 shares that Mr. Dillinger has the right to acquire through
the exercise of options and 11,000 restricted shares, which are subject to
restrictions on transfer that lapse over time. Under a voting agreement
with Parent and Newco, Mr. Dillinger has given Parent an irrevocable proxy
to vote 60,286 shares, appointing Parent his attorney and proxy to vote
these shares and any other shares subsequently acquired, including upon the
exercise of stock options, under the terms of the voting agreement.
Accordingly, Mr. Dillinger shares voting power with Parent with respect to
60,286 outstanding shares and the shares that may be subsequently acquired.
(8) Includes 338,750 shares that Mr. Edwards has the right to acquire through
the exercise of options and 23,000 restricted shares, which are subject to
restrictions on transfer that lapse over time. Under a voting agreement
with Parent and Newco, Mr. Edwards has given Parent an irrevocable proxy to
vote 156,564 shares, appointing Parent his attorney and proxy to vote these
shares and any other shares subsequently acquired, including upon the
exercise of stock options, under the terms of the
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<PAGE> 67
voting agreement. Accordingly, Mr. Edwards shares voting power with Parent
with respect to 156,564 outstanding shares and the shares that may be
subsequently acquired.
(9) Includes 711,940 shares issuable to entities controlled by Mr. Galesi upon
the exchange of units of limited partnership interest in Walden Residential
Partnership, 20,000 shares that Mr. Galesi has the right to acquire through
the exercise of options and 1,459 restricted shares, which are subject to
restrictions on transfer that lapse over time. Under voting agreements with
Parent and Newco, Mr. Galesi and two entities controlled by him have given
Parent irrevocable proxies to vote a total of 1,459 shares, appointing
Parent the holders' attorney and proxy to vote these shares and any other
shares subsequently acquired, including upon the exercise of stock options
or conversion of operating partnership units, under the terms of the voting
agreements. Accordingly, Mr. Galesi shares voting power with Parent with
respect to 1,459 outstanding shares and the shares that may be subsequently
acquired.
(10) Consists of 5,000 shares that Mr. Honstein has the right to acquire through
the exercise of options and 459 restricted shares, which are subject to
restrictions on transfer that lapse over time.
(11) Includes 22,000 shares that Mr. Kerr has the right to acquire through the
exercise of options and 4,000 restricted shares, which are subject to
restrictions that lapse over time.
(12) Includes 112,500 shares that Mr. Masterson has the right to acquire through
the exercise of options and 300,556 shares issuable to Mr. Masterson upon
the exchange of units of partnership interest in Walden/Drever Partnership.
Under a voting agreement with Parent and Newco, Mr. Masterson has given
Parent an irrevocable proxy to vote 84,546 shares, appointing Parent his
attorney and proxy to vote these shares and any other shares subsequently
acquired, including upon the exercise of stock options or conversion of
operating partnership units, under the terms of the voting agreement.
Accordingly, Mr. Masterson shares voting power with Parent with respect to
84,546 outstanding shares and the shares that may be subsequently acquired.
(13) Includes 20,000 shares that Mr. Winters has the right to acquire through
the exercise of options and 1,459 restricted shares, which are subject to
restrictions on transfer that lapse over time.
(14) Includes 2,452,608 shares issuable to these persons upon the exchange of
units of limited partnership interest in Walden/Drever Partnership and
Walden Residential Partnership, 1,689,825 shares that these persons have
the right to acquire through the exercise of options and 75,754 restricted
shares, which are subject to restrictions on transfer that lapse over time.
Under voting agreements with Parent and Newco, six of these persons and
their affiliates have given Parent irrevocable proxies to vote a total of
676,671 outstanding shares, appointing Parent the holders' attorney and
proxy to vote these shares and other shares subsequently acquired,
including upon the exercise of stock options or conversion of operating
partnership units, under the terms of the voting agreements. Accordingly,
these persons share voting power with Parent with respect to these 676,671
outstanding shares and the shares that may be subsequently acquired.
NO APPRAISAL RIGHTS
Holders of our common stock, convertible preferred stock, senior preferred
stock and redeemable preferred stock are not entitled to dissenting
stockholders' appraisal rights or other similar rights under the Maryland
General Corporation Law and will be bound by the terms of the merger agreement.
Maryland law does not provide appraisal rights or other similar rights to
stockholders of a corporation in connection with a merger if their shares are
listed on a national securities exchange, such as the New York Stock Exchange,
on the record date for determining stockholders entitled to vote on the merger.
All of the shares of our common stock, convertible preferred stock, senior
preferred stock and redeemable preferred stock outstanding on the record date
for determining stockholders entitled to vote on the merger were listed on the
New York Stock Exchange.
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<PAGE> 68
INDEPENDENT AUDITORS
Our consolidated financial statements incorporated in this document by
reference from our annual report on Form 10-K for the year ended December 31,
1998 have been audited by Deloitte & Touche LLP, independent auditors, as stated
in their report, which is incorporated herein by reference.
Representatives of Deloitte & Touche LLP are expected to be present at the
special meeting, will have the opportunity to make a statement if they so desire
and will be available to respond to appropriate questions.
STOCKHOLDER PROPOSALS
If the merger is consummated, there will be no public stockholders and no
public participation in any of our future meetings of stockholders. If, however,
the merger is not consummated, our stockholders would continue to be entitled to
attend and participate in our stockholder meetings. If there is a 2000 annual
meeting of our stockholders, proposals of stockholders intended to be presented
at this meeting must be received by our secretary at our principal executive
office no later than December 16, 2000 in order to be included in the proxy
statement and form of proxy for the annual meeting.
WHERE YOU CAN FIND MORE INFORMATION
We are subject to the reporting requirements of the Securities Exchange Act
of 1934, and file reports, proxy statements and other information with the
Securities and Exchange Commission. You may read and copy any materials that we
file with the Securities and Exchange Commission at its Public Reference Room at
450 Fifth Street, N.W., Washington, D.C. 20549. You may obtain information on
the operation of the Public Reference Room by calling the Securities and
Exchange Commission at 1-800-SEC-0330. In addition, the Securities and Exchange
Commission maintains an Internet site that contains reports, proxies,
information statements and other information regarding issuers that file
electronically, and the address of that site is http://www.sec.gov. Our common
stock, convertible preferred stock, senior preferred stock and redeemable
preferred stock are listed on the New York Stock Exchange. All reports, proxy
statements and other information that we filed with the New York Stock Exchange
may be inspected at the New York Stock Exchange's offices at 20 Broad Street,
New York, New York 10005.
You should rely only on the information contained in this document. We have
not authorized anyone to provide you with information that is inconsistent with
information contained in this document. This document is not an offer to sell
these securities in any state where the offer and sale of these securities is
not permitted. The information in this document is current as of the date it is
mailed to stockholders, and not necessarily as of any later date. If any
material change occurs during the period that this document is required to be
delivered, this document will be supplemented or amended.
All information regarding us in this document has been supplied by us, and
all information regarding Parent and Newco has been supplied by Parent.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Securities and Exchange Commission allows us to "incorporate by
reference" the information we file with it, which means that we can disclose
important information to you by referring you to those documents. The
information incorporated by reference is considered to be part of this document,
and the information we file later with the Securities and Exchange Commission
will automatically update and supersede this information. We incorporate by
reference the documents listed below and any future filings made with the
Securities and Exchange Commission under Sections 13(a), 13(c), 14 or 15(d) of
the Securities Exchange Act of 1934 subsequent to the date of this document and
prior to the date of the special meeting or any adjournment or postponement
thereof.
64
<PAGE> 69
The following documents we have filed with the Securities and Exchange
Commission (File No. 1-12592) are incorporated by reference:
- Annual Report on Form 10-K for the year ended December 31, 1998;
- Quarterly Report on Form 10-Q for the quarter ended March 31, 1999;
- Quarterly Report on Form 10-Q for the quarter ended June 30, 1999;
- Quarterly Report on Form 10-Q for the quarter ended September 30, 1999;
- Current Report on Form 8-K filed on September 30, 1999;
- Current Report on Form 8-K filed on October 6, 1999;
- Current Report on Form 8-K filed on November 12, 1999;
- Current Report on Form 8-K filed on January 10, 2000; and
- Proxy Statement on Schedule 14A filed on April 29, 1999.
You may request a copy of these filings at no cost by writing or
telephoning Deborah Attner, Director of Investment Relations, at the following
address and telephone number:
Walden Residential Properties, Inc.
5080 Spectrum Drive
Suite 1000 East
Addison, Texas 75001-6410
(972) 788-0510
If you would like to request documents, please do so by February 18, 2000
to receive them before the special meeting.
65
<PAGE> 70
APPENDIX A
OPINION OF J. P. MORGAN SECURITIES INC.
<PAGE> 71
JPMORGAN
[J.P. MORGAN SECURITIES INC. LETTERHEAD]
September 24, 1999
Special Committee of the Board of Directors
Walden Residential Properties, Inc.
5080 Spectrum Drive, Suite, 1000 East
Addison, Texas 75001
Attention: Mr. Otis Winters
Chairman
Ladies and Gentlemen:
You have requested our opinion as to the fairness, from a financial point of
view, to the holders of common stock, par value $.01 per share (the "Common
Stock"), of Walden Residential Properties, Inc. (the "Company"), and to the
holders of common operating partnership units (the "Common Units") in
Walden/Drever Operating Partnership, L.P. , or in Walden Residential Operating
Partnership, L.P. of the cash consideration proposed to be paid to them in
connection with the proposed merger (the "Merger") of the Company with Oly
Hightop Corporation, ("Newco"), a wholly-owned subsidiary of Oly Hightop Parent,
L.P. ("Parent"). Pursuant to the Agreement and Plan of Merger, dated September
24, 1999 (the "Agreement"), among the Company, Newco and Parent, and the
agreements contemplated thereby, the Company will be merged into Newco, and
holders of the Common Stock will receive for each share of Common Stock held by
them consideration of $23.25 per share in cash, and holders of the Common Units
shall have the option to receive for each Common Unit held by them consideration
of $23.25 per Common Unit in cash, both subject to adjustments as set forth in
the Agreement.
In arriving at our opinion, we have reviewed (i) the Agreement and forms of
certain of the agreements contemplated thereby; (ii) certain publicly available
information concerning the business of the Company and of certain other
companies engaged in businesses comparable to those of the Company, and the
reported market prices for certain other companies' securities deemed
comparable; (iii) publicly available terms of certain transactions involving
companies comparable to the Company and the consideration received for such
companies; (iv) current and historical market prices of the Common Stock of the
Company; (v) the audited financial statements of the Company for the fiscal year
ended December 31, 1998, and the unaudited financial statements of the Company
for the first two calendar quarters of 1999; (vi) certain agreements with
respect to outstanding indebtedness or obligations of the Company; (vii) certain
internal financial analyses and forecasts prepared by the Company and its
management; and (viii) the terms of other business combinations that we deemed
relevant.
<PAGE> 72
JPMORGAN
Special Committee of the Board of Directors
Walden Residential Properties, Inc.
September 24, 1999
Page 2 of 3
In addition, we have held discussions with certain members of the management of
the Company with respect to certain aspects of the Merger and the transactions
contemplated by the Agreement (the "Transaction"), the past and current business
operations of the Company, the financial condition and future prospects and
operations of the Company, and certain other matters we believed necessary or
appropriate to our inquiry. We have visited certain representative properties of
the Company, and reviewed such other financial studies and analyses and
considered such other information as we deemed appropriate for the purposes of
this opinion.
In giving our opinion, we have relied upon and assumed, without independent
verification, the accuracy and completeness of all information that was publicly
available or was furnished to us by the Company or otherwise reviewed by us, and
we have not assumed any responsibility or liability therefor. We have not
conducted any valuation or appraisal of any assets or liabilities, nor have any
such valuations or appraisals been provided to us. In relying on financial
analyses and forecasts provided to us, we have assumed that they have been
reasonably prepared based on assumptions reflecting the best currently available
estimates and judgments by management as to the expected future results of
operations and financial condition of the Company to which such analyses or
forecasts relate. We have also assumed that the Transaction will be consummated
as described in the Agreement and the agreements contemplated thereby. We have
relied as to all legal and tax matters relevant to rendering our opinion upon
the advice of the Company's legal and tax counsel.
Our opinion is necessarily based on economic, market and other conditions as in
effect on, and the information made available to us as of, the date hereof. It
should be understood that subsequent developments may affect this opinion and
that we do not have any obligation to update, revise, or reaffirm this opinion.
We have acted as financial advisor to the Company with respect to the proposed
Transaction and have received fees from the Company for our services. We will
also receive an additional fee if the proposed Merger is consummated. Our
affiliates and the Company have engaged in various banking transactions from
time to time, for which our affiliates have received customary compensation. In
the ordinary course of their businesses, our affiliates may actively trade the
debt and equity securities of the Company for their own account or for the
accounts of customers and, accordingly, they may at any time hold long or short
positions in such securities.
On the basis of and subject to the foregoing, it is our opinion as of the date
hereof that the cash consideration to be paid to the holders of Common Stock and
Common Units in the Transaction is fair, from a financial point of view, to such
holders.
This letter is provided to the Special Committee and the Board of Directors of
the Company in connection with and for the purposes of their evaluation of the
Transaction. This opinion does not constitute a recommendation to any holder of
the Common Stock as to how such holder should vote with respect to the Merger,
nor does this opinion constitute a
<PAGE> 73
JPMORGAN
Special Committee of the Board of Directors
Walden Residential Properties, Inc.
September 24, 1999
Page 3 of 3
recommendation to any holder of the Common Units as to whether such holder
should elect to receive cash in the Transaction. This opinion may be reproduced
in full in any proxy or information statement mailed to stockholders of the
Company but may not otherwise be disclosed publicly in any manner without our
prior written approval and must be treated as confidential.
Very truly yours,
J.P. MORGAN SECURITIES INC.
By: /s/ CHARLES LOWREY By: /s/ MURRAY J. MCCABE
-------------------------- ----------------------------
Name: Charles Lowrey Name: Murray J. McCabe
Title: Managing Director Title: Vice President
<PAGE> 74
APPENDIX B
SECOND AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
AMONG
WALDEN RESIDENTIAL PROPERTIES, INC.,
OLY HIGHTOP CORPORATION
AND
OLY HIGHTOP PARENT, L.P.
DATED AS OF JANUARY 6, 2000
<PAGE> 75
TABLE OF CONTENTS
ARTICLE 1
THE MERGER
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C> <C>
1.1 The Merger; Effective Time of the Merger......................... B-2
1.2 Closing.......................................................... B-2
1.3 Effect of the Merger............................................. B-2
1.4 Organizational Documents......................................... B-2
1.5 Directors and Officers of the Surviving Corporation.............. B-3
1.6 Approval of Stockholder of Newco................................. B-3
ARTICLE 2
EFFECT OF THE MERGER ON THE STOCK OF
THE CONSTITUENT ENTITIES; EXCHANGE OF CERTIFICATES
2.1 Effect of the Merger on Stock of Constituent Entities............ B-3
(a) Stock of Newco.............................................. B-3
(b) Company Common Stock, Company Convertible Preferred Stock,
Company Senior Preferred Stock and Company Redeemable
Preferred Stock............................................. B-3
(c) Company Warrants............................................ B-4
(d) Treatment of Company Stock Options.......................... B-4
(e) Treatment of Company Restricted Stock....................... B-4
2.2 Payment for Securities/Exchange of Certificates.................. B-4
(a) Exchange Agent.............................................. B-4
(b) Exchange Procedures......................................... B-5
(c) No Further Ownership Rights................................. B-5
(d) Termination of Exchange Fund................................ B-5
(e) No Liability................................................ B-6
(f) Lost, Stolen, or Destroyed Certificates..................... B-6
(g) Payment Procedures for Company Stock Options................ B-6
(h) Payment Procedures for Company Warrants..................... B-6
(i) Withholding of Tax.......................................... B-6
2.3 Appraisal Rights................................................. B-7
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of the Company.................... B-7
(a) Organization, Standing and Power............................ B-7
(b) Capital Structure........................................... B-8
(c) Authority; No Violations; Consents and Approvals............ B-10
(d) SEC Documents............................................... B-11
(e) Information Supplied........................................ B-12
(f) Absence of Certain Changes or Events........................ B-12
(g) No Undisclosed Material Liabilities......................... B-12
(h) No Default.................................................. B-13
(i) Compliance with Applicable Laws............................. B-13
(j) Litigation.................................................. B-13
(k) Taxes....................................................... B-13
</TABLE>
(i)
<PAGE> 76
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C> <C>
(l) Pension and Benefit Plans; ERISA............................ B-15
(m) Labor and Employment Matters................................ B-17
(n) Intangible Property......................................... B-17
(o) Environmental Matters....................................... B-18
(p) Properties.................................................. B-19
(q) Insurance................................................... B-20
(r) Opinion of Financial Advisor................................ B-20
(s) Vote Required............................................... B-20
(t) Beneficial Ownership of Company Common Stock................ B-21
(u) Brokers..................................................... B-21
(v) Investment Company Act of 1940.............................. B-21
(w) Amendment to Rights Agreement; State Takeover Laws.......... B-21
(x) Contracts................................................... B-21
(y) Stock Purchase Plan......................................... B-22
(z) Deferred Compensation Plan.................................. B-23
(aa) Company Options............................................. B-23
(bb) Company Warrants............................................ B-23
(cc) Rule 16b-3.................................................. B-23
(dd) Information Systems......................................... B-23
(ee) Drever Partners, Inc. Stock Purchase Agreement.............. B-23
(ff) Amendment and Restatement of Prior Agreement................ B-24
3.2 Representations and Warranties of Parent and Newco............... B-24
(a) Organization, Standing and Power............................ B-24
(b) Capital Structure........................................... B-24
(c) Authority; No Violations, Consents and Approvals............ B-24
(d) Information Supplied........................................ B-25
(e) Litigation.................................................. B-26
(f) Brokers..................................................... B-26
(g) Sources of Funds............................................ B-26
(h) Interim Operations of Parent and Newco...................... B-26
(i) Amendment and Restatement of Prior Agreement................ B-26
ARTICLE 4
COVENANTS RELATING TO CONDUCT
OF BUSINESS PENDING THE MERGER
4.1 Conduct of Business by the Company Pending the Merger............ B-27
(a) Ordinary Course............................................. B-27
(b) Dividends; Changes in Stock................................. B-27
(c) Issuance of Securities...................................... B-27
(d) Governing Documents......................................... B-28
(e) No Acquisitions............................................. B-28
(f) No Dispositions............................................. B-28
(g) No Dissolution, Etc......................................... B-28
(h) Accounting.................................................. B-28
(i) Affiliate Transactions...................................... B-28
(j) Insurance................................................... B-28
(k) Tax Matters................................................. B-28
(l) Certain Employee Matters.................................... B-29
(m) Indebtedness................................................ B-29
(n) WROP Merger and WDOP Merger................................. B-29
</TABLE>
(ii)
<PAGE> 77
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C> <C>
(o) Company Rights under Rights Agreement....................... B-29
(p) Contracts................................................... B-29
(q) Discharge of Liabilities.................................... B-29
(r) Drever Partners Stock Purchase Agreement.................... B-29
(s) Agreements.................................................. B-29
4.2 No Solicitation by the Company................................... B-30
ARTICLE 5
ADDITIONAL AGREEMENTS
5.1 Preparation of Proxy Statement................................... B-31
5.2 [INTENTIONALLY OMITTED].......................................... B-31
5.3 Access to Information............................................ B-31
5.4 Stockholders Meeting............................................. B-31
5.5 Approvals........................................................ B-32
5.6 [INTENTIONALLY OMITTED].......................................... B-32
5.7 Employee Matters................................................. B-32
5.8 Stock Options.................................................... B-33
5.9 Company Warrants................................................. B-33
5.10 Deferred Compensation Plan....................................... B-33
5.11 Directors' and Officers' Indemnification and Insurance........... B-33
5.12 Agreement to Defend.............................................. B-34
5.13 Public Announcements............................................. B-34
5.14 Other Actions.................................................... B-34
5.15 Advice of Changes; SEC Filings................................... B-34
5.16 Conveyance Taxes................................................. B-34
5.17 WDOP Merger and WROP Merger...................................... B-35
5.18 Employee Loans................................................... B-35
5.19 Dividends........................................................ B-35
5.20 Assistance....................................................... B-35
5.21 [INTENTIONALLY OMITTED].......................................... B-36
5.22 Proxy Solicitor.................................................. B-36
5.23 Drever Partners Stock Purchase Agreement......................... B-36
5.24 Company Properties............................................... B-36
5.25 Environmental Matters............................................ B-36
ARTICLE 6
CONDITIONS PRECEDENT
6.1 Conditions to Each Party's Obligation to Effect the Merger....... B-36
(a) Company Stockholder Approval................................ B-36
(b) Other Approvals............................................. B-37
(c) No Injunctions or Restraints................................ B-37
(d) HSR Act..................................................... B-37
6.2 Conditions to Obligations of Newco to Effect the Merger.......... B-37
(a) Representations and Warranties of the Company............... B-37
(b) Performance of Obligations of the Company................... B-37
(c) Consents Under Agreements................................... B-37
(d) WDOP Merger and WROP Merger................................. B-37
(e) Financing................................................... B-37
(f) Material Adverse Change or Effect........................... B-37
</TABLE>
(iii)
<PAGE> 78
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C> <C>
(g) Drever Partners Stock Purchase Agreement.................... B-38
(h) Legal Opinion............................................... B-38
(i) Closing Agreement........................................... B-38
(j) Conversion of Operating Partnership Units................... B-38
6.3 Conditions to Obligations of the Company to Effect the Merger.... B-38
(a) Representations and Warranties of Newco and Parent.......... B-38
(b) Performance of Obligations of the Company................... B-38
ARTICLE 7
TERMINATION AND AMENDMENT
7.1 Termination...................................................... B-39
7.2 Effect of Termination............................................ B-41
7.3 Amendment........................................................ B-43
7.4 Extension; Waiver................................................ B-44
7.5 Procedure for Termination, Amendment, Extension or Waiver........ B-44
ARTICLE 8
GENERAL PROVISIONS
8.1 Payment of Expenses.............................................. B-44
8.2 Nonsurvival of Representations, Warranties and Agreements........ B-44
8.3 Notices.......................................................... B-45
8.4 Interpretation................................................... B-45
8.5 Counterparts..................................................... B-45
8.6 Entire Agreement; No Third Party Beneficiaries................... B-45
8.7 Governing Law.................................................... B-46
8.8 No Remedy in Certain Circumstances............................... B-46
8.9 Assignment....................................................... B-46
8.10 Specific Performance............................................. B-46
8.11 No Affiliate Liability........................................... B-46
8.12 Schedule Definitions............................................. B-46
8.13 Effect of Amendment and Restatement.............................. B-47
</TABLE>
<TABLE>
<S> <C>
EXHIBITS:
Exhibit A Amended and Restated WDOP Merger Agreement
Exhibit B Amended and Restated WROP Merger Agreement
Exhibit C Form of Voting Agreement
Exhibit D-1 WDOP Election and Consent Form (Class B Common Unitholders)
Exhibit D-2 WROP Election and Consent Form (Class C Common Unitholders)
Exhibit D-3 WROP Election and Consent Form (Class D Common Unitholders)
Exhibit E Drever Partners Stock Purchase Agreement
Exhibit F Form of Option Surrender Agreement, Release and Waiver
Exhibit G Form of Second Amended and Restated Limited Partnership
Agreement of WDOP
Exhibit H Form of Second Amended and Restated Limited Partnership
Agreement of WROP
Exhibit I Form of Loan Repayment Agreement
Exhibit J Form of Legal Opinion of Locke Liddell & Sapp LLP
</TABLE>
(iv)
<PAGE> 79
<TABLE>
<S> <C>
DISCLOSURE SCHEDULES:
Schedule A Stockholders with Voting Agreements
Schedule B Class B Common Unitholders with Powers of Attorney
Schedule C Class C Common Unitholders with Powers of Attorney
Schedule D Class D Common Unitholders with Powers of Attorney
Company Disclosure Schedule:
Schedule 3.1(a) Company Subsidiaries
Schedule 3.1(b) Company Capital Structure
Schedule 3.1(c) Company Conflicts/Consents
Schedule 3.1(f) Company Certain Changes or Events
Schedule 3.1(g) Company Undisclosed Liabilities
Schedule 3.1(j) Company Litigation
Schedule 3.1(k) Company Tax Information
Schedule 3.1(l) Company Pension and Benefit Plan and Related Information
Schedule 3.1(m) Company Labor Matters
Schedule 3.1(o) Company Environmental Matters
Schedule 3.1(p) Company Properties
Schedule 3.1(q) Company Insurance
Schedule 3.1(x) Company Contracts
Schedule 3.1(dd) Company Information Systems
Schedule 4.1 Company Conduct of Business
Parent/Newco Disclosure Schedule:
Schedule 3.2(g) Parent/Newco Financing Commitments
Schedule 5.5(b) Parent/Newco Transaction Consents
</TABLE>
(v)
<PAGE> 80
INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
DEFINED
ON
PAGE #
-------
<S> <C>
Definition
Acquiring Person..........................................
Affiliate................................................. B-28
Agreement................................................. B-1
Articles of Merger........................................ B-2
Base Amount............................................... B-42
Break Up Fee.............................................. B-41
Cash Merger Consideration................................. B-3
CERCLA.................................................... B-19
Certificate............................................... B-5
Closing................................................... B-2
Closing Date.............................................. B-2
Company................................................... B-1
Company 1994 Option Plan.................................. B-4
Company Acquisition Proposal.............................. B-30
Company Bylaws............................................ B-2
Company Charter........................................... B-2
Company Common Stock...................................... B-3
Company Convertible Preferred Stock....................... B-3
Company Deferred Compensation Plan........................ B-23
Company Disclosure Schedule............................... B-7
Company Employee Benefit Plans............................ B-15
Company ERISA Affiliate................................... B-15
Company Incentive Plans................................... B-4
Company Intangible Property............................... B-17
Company Junior Preferred Stock............................ B-8
Company Litigation........................................ B-13
Company LTIP.............................................. B-4
Company Officers or Directors............................. B-33
Company Order............................................. B-13
Company Partnership....................................... B-38
Company Pension Plans..................................... B-15
Company Permits........................................... B-13
Company Properties........................................ B-19
Company Redeemable Preferred Stock........................ B-3
Company Rights............................................ B-21
Company Rights Agreement.................................. B-21
Company SEC Documents..................................... B-11
Company Senior Preferred Stock............................ B-3
Company Series A Warrants................................. B-4
Company Series B Warrants................................. B-4
Company Special Committee................................. B-1
Company Stock Option...................................... B-4
Company Stock Purchase Plan............................... B-4
Company Superior Proposal................................. B-31
Company Warrants.......................................... B-4
Confidentiality Agreement................................. B-31
Constituent Entities...................................... B-2
</TABLE>
(vi)
<PAGE> 81
<TABLE>
<CAPTION>
DEFINED
ON
PAGE #
-------
<S> <C>
Distribution Date...........................................
Drever Partners Stock Purchase Agreement.................. B-23
Effective Time............................................ B-2
Encumbrances.............................................. B-9
Environmental Laws........................................ B-18
EPA....................................................... B-19
ERISA..................................................... B-15
Exchange Act.............................................. B-11
Exchange Agent............................................ B-4
Exchange Fund............................................. B-4
Financing Commitments..................................... B-26
GAAP...................................................... B-11
Governmental Entity....................................... B-11
Hazardous Materials....................................... B-18
Holding................................................... B-24
HSR Act................................................... B-11
Information Systems....................................... B-23
Initial Agreement......................................... B-1
Injunction................................................ B-37
Investment Company Act.................................... B-21
knowledge................................................. B-13
Letter of Transmittal..................................... B-5
Liquidated Damages Base Amount............................ B-43
Material Adverse Change................................... B-7
Material Adverse Effect................................... B-7
Material Breach........................................... B-39
Material Contracts........................................ B-22
Merger.................................................... B-1
Merger Vote............................................... B-20
MGCL...................................................... B-2
Net Cash Flow............................................. B-7
Net Operating Income...................................... B-7
Newco..................................................... B-1
Newco Common Stock........................................ B-3
OP Transaction Documents.................................. B-1
OP Transactions........................................... B-1
Option Consideration...................................... B-4
Parent.................................................... B-1
Parent Affiliate.......................................... B-46
Parent Common Limited Partner Interests................... B-24
Parent/Newco Disclosure Schedule.......................... B-24
Parent/Newco Litigation................................... B-26
Parent/Newco Order........................................ B-26
Prior Agreement........................................... B-1
Prior Execution Date...................................... B-1
Property Restrictions..................................... B-19
Proxy Statement........................................... B-11
Qualifying Income......................................... B-42
REIT...................................................... B-14
REIT Requirements......................................... B-42
</TABLE>
(vii)
<PAGE> 82
<TABLE>
<CAPTION>
DEFINED
ON
PAGE #
-------
<S> <C>
Release..................................................... B-18
Released Claims........................................... B-43
Remedial Action........................................... B-18
Required Consents......................................... B-32
SDAT...................................................... B-2
SEC....................................................... B-11
Securities Act............................................ B-11
Series A Warrant Agreement................................ B-4
Stockholders Meeting...................................... B-31
Subsidiary................................................ B-7
Surviving Entity.......................................... B-2
Takeover Statute.......................................... B-21
Tax Protection Agreement.................................. B-14
Taxes..................................................... B-14
Termination Date.......................................... B-39
Termination Expenses...................................... B-42
Termination Tax Opinion................................... B-42
Transaction Documents..................................... B-10
Voting Agreement.......................................... B-1
Voting Debt............................................... B-9
Warrant Agent............................................. B-6
Warrant Agreements........................................ B-4
Warrant Consideration..................................... B-4
WDN Properties............................................ B-8
WDOP...................................................... B-1
WDOP Class B Common Units................................. B-8
WDOP Class B Preferred Units.............................. B-8
WDOP Election and Consent Form............................ B-35
WDOP Merger............................................... B-1
WDOP Merger Agreement..................................... B-1
WDOP Merger Sub........................................... B-1
WROP...................................................... B-1
WROP Class C Common Units................................. B-9
WROP Class D Common Units................................. B-9
WROP Election and Consent Form............................ B-35
WROP Merger............................................... B-1
WROP Merger Agreement..................................... B-1
WROP Merger Sub........................................... B-1
Year 2000 Data............................................ B-23
</TABLE>
(viii)
<PAGE> 83
SECOND AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
SECOND AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER, dated as of
January 6, 2000 (this "Agreement"), to be effective as of September 24, 1999
(the "Prior Execution Date"), among Walden Residential Properties, Inc., a
Maryland corporation (the "Company"), Oly Hightop Corporation, a Maryland
corporation ("Newco"), and Oly Hightop Parent, L.P., a Delaware limited
partnership ("Parent");
WHEREAS, the Company, Parent and Newco previously entered into an Agreement
and Plan of Merger on September 24, 1999 (the "Initial Agreement");
WHEREAS, the Company, Parent and Newco entered into to that certain Amended
and Restated Agreement and Plan of Merger dated November 5, 1999 (the "Prior
Agreement");
WHEREAS, the Company, Parent and Newco desire to amend and restate the
Prior Agreement in its entirety as provided herein;
WHEREAS, the Board of Directors of the Company, upon the recommendation of
a duly authorized special committee of independent directors (such committee,
including any later reconstitution of such committee, the "Company Special
Committee"), and the Board of Directors of Newco have approved and declared
advisable this Agreement and the merger of Newco with and into the Company, with
the Company being the surviving corporation, upon the terms and subject to the
conditions of this Agreement (the "Merger"), and the general partner of Parent,
the sole stockholder of Newco, has approved the Merger;
WHEREAS, concurrently with the execution of this Agreement, Parent, the
Company, WDOP Merger Sub, L.P., a Delaware limited partnership ("WDOP Merger
Sub"), and Walden/Drever Operating Partnership, L.P., a Delaware limited
partnership ("WDOP"), are entering into a Second Amended and Restated Agreement
and Plan of Merger (the "WDOP Merger Agreement"), a copy of which is attached as
Exhibit A hereto, in connection with which (i) holders of WDOP Class B Common
Units (as hereinafter defined) will (A) receive cash from WDOP or (B) elect to
receive new securities of Parent or a combination of new securities of Parent
and cash from WDOP, (ii) the holders of WDOP Class B Preferred Units (as
hereinafter defined) will receive cash from WDOP, and (iii) immediately prior to
the Merger, WDOP Merger Sub will merge with and into WDOP (the "WDOP Merger"),
with WDOP as the surviving entity;
WHEREAS, concurrently with the execution of this Agreement, Parent, Walden
Operating, Inc., a Delaware corporation, WROP Merger Sub, L.P., a Delaware
limited partnership ("WROP Merger Sub"), and Walden Residential Operating
Partnership, L.P., a Delaware limited partnership ("WROP"), are entering into a
Second Amended and Restated Agreement and Plan of Merger (the "WROP Merger
Agreement"), a copy of which is attached as Exhibit B hereto, in connection with
which (i) holders of WROP Class C Common Units (as hereinafter defined) and WROP
Class D Common Units (as hereinafter defined) will (A) receive cash from WROP or
(B) elect to receive new securities of Parent or a combination of new securities
of Parent and cash from WROP, and (ii) immediately prior to the Merger, WROP
Merger Sub will merge with and into WROP (the "WROP Merger"), with WROP as the
surviving entity (the WROP Merger Agreement, WDOP Merger Agreement, WDOP
Election and Consent Form (as hereinafter defined), WROP Election and Consent
Forms (as hereinafter defined), the Second Amended and Restated Limited
Partnership Agreement of WDOP, the Second Amended and Restated Limited
Partnership Agreement of WROP and all other documents to be executed by the
Company, Parent, Newco or their respective Affiliates in connection with the
transactions contemplated thereby, shall be hereinafter referred to as the "OP
Transaction Documents," and the transactions contemplated thereby shall be
hereinafter referred to as the "OP Transactions");
WHEREAS, concurrently with the execution of this Agreement, certain holders
of the Company's stock named in Schedule A hereto are entering into agreements,
each substantially in the form of Exhibit C hereto (each, a "Voting Agreement"),
with Parent, Newco and the Company providing, among
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<PAGE> 84
other things, that each such stockholder will vote, or cause to be voted at the
Stockholders Meeting (as hereinafter defined) contemplated hereby, all of the
shares of the Company's stock entitled to vote upon the Merger owned by each
such stockholder at such time in favor of this Agreement, the Merger and the
transactions contemplated hereby;
WHEREAS, concurrently with the execution of this Agreement, certain limited
partners of WDOP named in Schedule B hereto have executed a power of attorney
authorizing Parent to execute and deliver a WDOP Election and Consent Form (as
hereinafter defined), and certain limited partners of WROP named in Schedule C
and Schedule D hereto have executed a power of attorney authorizing Parent to
execute and deliver WROP Election and Consent Forms (as hereinafter defined), in
each case providing, among other things, that each such limited partner has
approved the WDOP Merger or the WROP Merger, as applicable, and has elected to
receive new securities of Parent or a combination of new securities of Parent
and cash from WDOP or WROP, as applicable, as of the effective time of the WDOP
Merger, in the case of such limited partners of WDOP, and as of the effective
time of the WROP Merger, in the case of such limited partners of WROP; and
WHEREAS, the Company, Newco and Parent desire to make certain
representations, warranties, covenants and agreements in connection with the
Merger and the OP Transactions and also to prescribe various conditions to the
Merger.
NOW, THEREFORE, in consideration of the foregoing and the representations,
warranties, covenants and agreements herein contained, the parties to this
Agreement agree as follows:
ARTICLE 1
THE MERGER
1.1 The Merger; Effective Time of the Merger. Upon the terms and subject to
the conditions of this Agreement, at the Effective Time (as hereinafter
defined), Newco shall be merged with and into the Company in accordance with the
Maryland General Corporation Law (the "MGCL"), the separate corporate existence
of Newco shall cease, and the Company shall continue as the surviving entity
(Newco and the Company are sometimes referred to herein as the "Constituent
Entities," and the Company is sometimes referred to herein as the "Surviving
Entity"). As soon as practicable at or after the closing of the Merger (the
"Closing") pursuant to Section 1.2 and Article 6, Newco and the Company shall
file articles of merger prepared and executed in accordance with the relevant
provisions of the MGCL (the "Articles of Merger") with the State Department of
Assessments and Taxation of Maryland ("SDAT"). The Merger shall become effective
upon the filing of the Articles of Merger with, and acceptance for record of the
Articles of Merger by, the SDAT, or at such later time (but not to exceed 30
days after the Articles of Merger are accepted for record by the SDAT) specified
in the Articles of Merger (the "Effective Time").
1.2 Closing. The Closing shall take place at 9:30 a.m., Central time, on a
date to be specified by the parties, which shall be no later than the twelfth
business day after satisfaction (or waiver in accordance with this Agreement) of
the latest to occur of the conditions set forth in Article 6 (the "Closing
Date"), at the offices of Vinson & Elkins L.L.P., 3700 Trammell Crow Center,
2001 Ross Avenue, Dallas, Texas 75201, unless another date or place is agreed to
in writing by the parties.
1.3 Effect of the Merger. The Merger shall have the effects set forth in
this Agreement and the applicable provisions of the MGCL. Without limiting the
generality of the foregoing and subject thereto, at the Effective Time all the
property, rights, privileges, immunities, powers and franchises of Newco shall
vest in the Surviving Entity, and all debts, liabilities, obligations and duties
of Newco shall become the debts, liabilities, obligations and duties of the
Surviving Entity.
1.4 Organizational Documents. At the Effective Time, the charter (as
defined in Section 1-101 of the MGCL) (the "Company Charter") and the Restated
Bylaws (the "Company Bylaws") of the
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<PAGE> 85
Company in effect immediately prior to the Effective Time shall be the charter
and bylaws of the Surviving Entity, until thereafter amended in accordance with
their respective terms and applicable law.
1.5 Directors and Officers of the Surviving Corporation. From and after the
Effective Time, the directors and officers of Newco shall be the initial
directors and officers of the Surviving Entity, and such directors and officers
shall serve until their successors have been duly elected or appointed (in the
case of officers) and qualified or until their death, resignation or removal
from office in accordance with the Surviving Entity's charter and bylaws.
1.6 Approval of Stockholder of Newco. By its execution and delivery of this
Agreement, Parent hereby consents (in its capacity as the sole stockholder of
Newco) to the Merger, this Agreement and the consummation of the transactions
contemplated hereby and agrees that Parent will not (in its capacity as the sole
stockholder of Newco) withdraw, revoke, rescind or alter such consent in any way
without the prior written consent of the Company; provided, however, that
nothing set forth in this Section 1.6 shall limit or otherwise qualify the
rights of Parent or Newco to terminate this Agreement pursuant to the terms and
subject to the conditions set forth in Article 7.
ARTICLE 2
EFFECT OF THE MERGER ON THE STOCK OF
THE CONSTITUENT ENTITIES; EXCHANGE OF CERTIFICATES
2.1 Effect of the Merger on Stock of Constituent Entities. At the Effective
Time, by virtue of the Merger and without any action on the part of the holder
of any shares of common stock, par value $0.01 per share, of Newco ("Newco
Common Stock"), or common stock, par value $0.01 per share ("Company Common
Stock"), of the Company, 9.0% Redeemable Preferred Stock, par value $0.01 per
share ("Company Redeemable Preferred Stock"), of the Company, 9.16% Series B
Convertible Redeemable Preferred Stock, par value $0.01 per share ("Company
Convertible Preferred Stock"), of the Company or 9.20% Senior Preferred Stock,
par value $0.01 per share ("Company Senior Preferred Stock"), of the Company:
(a) Stock of Newco. Each share of Newco Common Stock issued and
outstanding immediately prior to the Effective Time shall be converted into one
fully paid and nonassessable share of common stock, par value $0.01 per share,
of the Surviving Entity.
(b) Company Common Stock, Company Convertible Preferred Stock, Company
Senior Preferred Stock and Company Redeemable Preferred Stock. Other than any
shares of stock of the Company which are held by the Company or any of its
Subsidiaries (as hereinafter defined) or by Parent or any of its Subsidiaries,
which shares shall be canceled and no consideration shall be received in
exchange therefor, (i) each share of Company Common Stock issued and outstanding
immediately prior to the Effective Time shall be converted into the right to
receive $23.14 in cash, (ii) each share of Company Convertible Preferred Stock
issued and outstanding immediately prior to the Effective Time shall be
converted into the right to receive an amount in cash equal to the sum of (A)
$26.39 and (B) accrued and unpaid dividends on such share of Company Convertible
Preferred Stock to but excluding the Closing Date, (iii) each share of Company
Senior Preferred Stock issued and outstanding immediately prior to the Effective
Time shall be converted into the right to receive an amount in cash equal to the
sum of (A) $22.00 and (B) the amount of accrued and unpaid dividends on such
share of Company Senior Preferred Stock to, but excluding, the Closing Date, and
(iv) each share of Company Redeemable Preferred Stock issued and outstanding
immediately prior to the Effective Time shall be converted into the right to
receive an amount in cash equal to the sum of (A) $19.50 and (B) the amount of
accrued and unpaid dividends on such share of Company Redeemable Preferred Stock
to, but excluding, the Closing Date (the per share consideration described in
clauses (i) through (iv) is referred to herein as the "Cash Merger
Consideration"). All such shares of Company Common Stock, Company Convertible
Preferred Stock, Company Senior Preferred Stock and Company Redeemable Preferred
Stock, when so converted, shall no longer be outstanding and shall automatically
be canceled and retired and shall cease to exist, and each
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<PAGE> 86
holder of a certificate representing any such shares shall cease to have any
rights with respect thereto, except the right to receive the Cash Merger
Consideration to be paid in consideration therefor upon the surrender of such
certificates in accordance with Section 2.2, without interest.
(c) Company Warrants. Subject to their earlier expiration in accordance
with their respective terms, each warrant to purchase Company Common Stock then
outstanding under (i) that certain Series A Warrant Agreement (the "Series A
Warrant Agreement") dated as of December 27, 1996 between the Company and The
First National Bank of Boston (the "Company Series A Warrants") and (ii) that
certain Series B Warrant Agreement (together with the Series A Warrant
Agreement, the "Warrant Agreements") dated as of October 1, 1997 between the
Company and the First National Bank of Boston (the "Company Series B Warrants"
and, together with the Company Series A Warrants, the "Company Warrants"), shall
automatically be canceled and cease to exist and shall thereafter represent the
right to receive for each share of Company Common Stock subject to such Company
Warrant an amount in cash equal to the difference between (A) the amount of Cash
Merger Consideration payable in respect of a share of Company Common Stock and
(B) the per share exercise price of such Company Warrants, as adjusted pursuant
to Section 3.1(bb), to the extent such Cash Merger Consideration exceeds such
per share exercise price (such amount in cash as described above being
hereinafter referred to as the "Warrant Consideration"). The Warrant
Consideration shall be paid pursuant to the procedures set forth in Section
2.2(h).
(d) Treatment of Company Stock Options. Each outstanding option (each, a
"Company Stock Option") to purchase Company Common Stock that has been granted
under the Company's Amended and Restated 1994 Stock Option Plan (the "Company
1994 Option Plan"), the Company's Long-Term Incentive Plan (the "Company LTIP")
or the Company's 1998 Non-Qualified Employee Stock Purchase Plan (the "Company
Stock Purchase Plan" and, collectively with the Company 1994 Option Plan and the
Company LTIP, the "Company Incentive Plans"), whether or not then vested or
exercisable, shall become fully vested and exercisable as of the Effective Time
and shall automatically be canceled and cease to exist as of the Effective Time
and shall be converted into the right to receive an amount in cash, if positive,
equal to the number of shares of Company Common Stock subject to such Company
Stock Option multiplied by the excess of (i) the Cash Merger Consideration
payable in respect of a share of Company Common Stock minus (ii) the exercise
price of such Company Stock Option (such product, the "Option Consideration").
No cash payment will be due in respect of such Company Stock Option or its
termination if the amount set forth in clause (ii) exceeds the amount set forth
in clause (i). The Option Consideration shall be paid pursuant to the procedures
set forth in Section 2.2(g).
(e) Treatment of Company Restricted Stock. The Company shall take all
actions necessary to provide that, as of the Effective Time, (i) all
restrictions upon each outstanding share of restricted stock that has been
granted under the Company LTIP shall terminate, (ii) each such share of
restricted stock shall be converted into the right to receive the Cash Merger
Consideration payable in respect of a share of Company Common Stock, and (iii)
each share of restricted stock shall be canceled.
2.2 Payment for Securities/Exchange of Certificates
(a) Exchange Agent. (i) Immediately after the Effective Time, the
Surviving Entity or Newco shall deposit with a bank or trust company designated
by Newco and reasonably acceptable to the Company (the "Exchange Agent"), for
the benefit of the holders of shares of Company Common Stock, Company
Convertible Preferred Stock, Company Senior Preferred Stock and Company
Redeemable Preferred Stock, as applicable, for payment in accordance with this
Article 2, through the Exchange Agent, cash in an amount sufficient to pay the
aggregate Cash Merger Consideration (such cash being hereinafter referred to as
the "Exchange Fund") payable pursuant to Section 2.1 in exchange for outstanding
shares of Company Common Stock, Company Convertible Preferred Stock, Company
Senior Preferred Stock and Company Redeemable Preferred Stock, as applicable.
(ii) As soon as reasonably practicable after the Effective Time, the
Exchange Agent, pursuant to irrevocable instructions, shall deliver the
aggregate Cash Merger Consideration to be paid
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<PAGE> 87
pursuant to Section 2.1 out of the Exchange Fund. The Exchange Fund shall not be
used for any other purpose.
(b) Exchange Procedures. (i) As soon as reasonably practicable after the
Effective Time, the Exchange Agent shall mail to each holder of record of a
certificate or certificates which, immediately prior to the Effective Time
represented outstanding shares of Company Common Stock, Company Convertible
Preferred Stock, Company Senior Preferred Stock and Company Redeemable Preferred
Stock (each, a "Certificate"), which holder's shares of Company Common Stock,
Company Convertible Preferred Stock, Company Senior Preferred Stock or Company
Redeemable Preferred Stock were converted into the right to receive the Cash
Merger Consideration, in each case as set forth in Section 2.1:(1) a letter of
transmittal ("Letter of Transmittal") which shall specify that delivery shall be
effected and risk of loss and title to the Certificates shall pass only upon
delivery of the Certificates to the Exchange Agent, and shall be in such form
and have such other provisions as the Surviving Entity may reasonably specify,
and (2) instructions for use in effecting the surrender of the Certificates in
exchange for the Cash Merger Consideration.
(ii) Upon surrender of a Certificate for cancellation to the Exchange
Agent, together with the Letter of Transmittal, duly executed, and any other
documents reasonably required by the Exchange Agent or the Surviving Entity, (A)
the holder of a Certificate formerly representing shares of Company Common
Stock, Company Convertible Preferred Stock, Company Senior Preferred Stock or
Company Redeemable Preferred Stock shall be entitled to receive in exchange
therefor the applicable amount of Cash Merger Consideration, which such holder
has the right to receive pursuant to the provisions of this Article 2; and (B)
the Certificate so surrendered shall forthwith be canceled.
(iii) In the event of a transfer of ownership of Company Common
Stock, Company Convertible Preferred Stock, Company Senior Preferred Stock or
Company Redeemable Preferred Stock, which is not registered in the transfer
records of the Company, the appropriate amount of Cash Merger Consideration may
be paid to a transferee if the Certificate representing such Company Common
Stock, Company Convertible Preferred Stock, Company Senior Preferred Stock or
Company Redeemable Preferred Stock is presented to the Exchange Agent properly
endorsed or accompanied by appropriate stock powers and otherwise in proper form
for transfer and accompanied by all documents reasonably required by the
Exchange Agent to evidence and effect such transfer and by evidence that any
applicable stock transfer taxes have been paid. Until surrendered as
contemplated by this Section 2.2, each such Certificate shall be deemed at any
time after the Effective Time to represent only the right to receive upon such
surrender the appropriate amount of Cash Merger Consideration.
(c) No Further Ownership Rights. All Cash Merger Consideration paid upon
the surrender for exchange of shares of Company Common Stock, Company
Convertible Preferred Stock, Company Senior Preferred Stock or Company
Redeemable Preferred Stock in accordance with the terms hereof shall be deemed
to have been paid in full satisfaction of all rights pertaining to such shares
of Company Common Stock, Company Convertible Preferred Stock, Company Senior
Preferred Stock or Company Redeemable Preferred Stock, subject, however, to the
Surviving Entity's obligation to pay any dividends or make any other
distributions with a record date prior to the Effective Time that may have been
declared or made by the Company on such shares of Company Common Stock, Company
Convertible Preferred Stock, Company Senior Preferred Stock or Company
Redeemable Preferred Stock in accordance with the terms of this Agreement and
which remain unpaid at the Effective Time, and after the Effective Time there
shall be no further registration of transfers on the stock transfer books of the
Surviving Entity of the shares of Company Common Stock, Company Convertible
Preferred Stock, Company Senior Preferred Stock or Company Redeemable Preferred
Stock that were outstanding immediately prior to the Effective Time. If, after
the Effective Time, Certificates are presented to the Surviving Entity for any
reason, they shall be canceled and exchanged as provided in this Article 2.
(d) Termination of Exchange Fund. Any portion of the Exchange Fund that
remains undistributed to the former stockholders of the Company on the six month
anniversary of the Effective Time shall be delivered to the Surviving Entity
upon demand, and any stockholders of the Company who
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have not theretofore received any applicable Cash Merger Consideration and any
other dividends or distributions to which they are entitled under this Article 2
shall thereafter look only to Surviving Entity for payment of their claims with
respect thereto and only as general creditors thereof.
(e) No Liability. None of Parent, the Surviving Entity or Newco shall be
liable to any holder of shares of Company Common Stock, Company Convertible
Preferred Stock, Company Senior Preferred Stock or Company Redeemable Preferred
Stock, as the case may be, for any part of the Cash Merger Consideration or for
dividends or distributions with respect thereto delivered to a public official
pursuant to any applicable abandoned property, escheat or similar law. Any
amounts remaining unclaimed by holders of any such shares five years after the
Effective Time or at such earlier date as is immediately prior to the time at
which such amounts would otherwise escheat to or become property of any
governmental entity, shall, to the extent permitted by applicable law, become
the property of the Surviving Entity free and clear of any claims or interest of
any such holders or their successors, assigns or personal representatives
previously entitled thereto.
(f) Lost, Stolen, or Destroyed Certificates. If any Certificate shall
have been lost, stolen or destroyed, upon the making of an affidavit of that
fact by the person claiming such Certificate to be lost, stolen or destroyed
and, if required by the Surviving Entity the posting by such person of a bond in
such reasonable amount as the Surviving Entity may direct as indemnity against
any claim that may be made against it with respect to such Certificate, the
Exchange Agent shall issue in exchange for such lost, stolen or destroyed
Certificate the appropriate amount of Cash Merger Consideration.
(g) Payment Procedures for Company Stock Options. Upon the later of the
Effective Time and the surrender by the holder of a Company Stock Option by
delivery of an Option Release Agreement (as hereinafter defined), the Surviving
Entity shall pay to such holder the Option Consideration in respect thereof. No
interest shall be paid or accrued on the Option Consideration. Until settled in
accordance with the provisions of this Section 2.2, each Company Stock Option
shall be deemed at any time after the Effective Time to represent for all
purposes only the right to receive the Option Consideration. The surrender of a
Company Stock Option in exchange for the Option Consideration shall be deemed a
release of any and all rights the holder had or may have had in respect of such
Company Stock Option.
(h) Payment Procedures for Company Warrants. Pursuant to Section 5.9,
the First National Bank of Boston (or its successor), as Warrant Agent (the
"Warrant Agent"), shall deliver to the holders of Company Warrants notice of the
Merger, which notice shall specify the reduced exercise price of the Company
Warrants and the date as of which the holders of stock or other securities of
the Company may exchange their shares of stock or other securities for property
upon the Merger and shall specify that delivery shall be effected and risk of
loss and title to the Company Warrants shall pass only upon delivery of the
certificates representing the Company Warrants to the Warrant Agent. The notice
shall include instructions for surrendering such certificates in exchange for
the Warrant Consideration that such holder is entitled to receive pursuant to
Section 2.1(c), which the Warrant Agent shall instruct the Company to transfer
promptly to or upon the written order of such holder. No interest shall be paid
or accrued on the Warrant Consideration. Any amount payable to a holder of
Company Warrants will be rounded up to the nearest penny.
(i) Withholding of Tax. The Surviving Entity shall be entitled to deduct
and withhold from the Cash Merger Consideration and any dividends or
distributions otherwise payable pursuant to this Agreement to any holder of a
Certificate, if any, or from any Option Consideration or Warrant Consideration
payable pursuant to this Agreement to any holder of Company Stock Options or
Company Warrants, such amount as the Surviving Entity (or any Affiliate thereof,
as such term is defined in Section 4.1(i)) or the Exchange Agent is required to
deduct and withhold with respect to the making of such payment under federal,
state, local or foreign tax law. To the extent that amounts are so withheld by
the Surviving Entity, such withheld amounts shall be treated for all purposes of
this Agreement as having been paid to the former holder of a Certificate,
Company Stock Option or Company Warrant in respect of which such deduction and
withholding was made by the Surviving Entity.
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2.3 Appraisal Rights. The holders of shares of Company Common Stock,
Company Convertible Preferred Stock, Company Senior Preferred Stock and Company
Redeemable Preferred Stock shall not be entitled to appraisal rights.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of the Company. The Company represents
and warrants to Parent and Newco as follows (which representations and
warranties shall be deemed to have been made on and after the Prior Execution
Date up to and including the Effective Time (except to the extent that a
representation or warranty is made on or after another date or as of a specified
date), in each case as qualified by matters reflected on the disclosure schedule
delivered by the Company to Parent on or prior to the Prior Execution Date (the
"Company Disclosure Schedule") and made a part hereof by reference):
(a) Organization, Standing and Power. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Maryland, and each of its Subsidiaries (as defined below) is a corporation,
limited liability company or partnership duly organized, validly existing and in
good standing under the laws of its state of incorporation or organization, and
each of the Company and each of its Subsidiaries has all requisite power and
authority to own, lease and operate its properties and to carry on its business
as now being conducted, and is duly qualified and in good standing to do
business in each jurisdiction in which the business it is conducting, or the
operation, ownership or leasing of its properties, makes such qualification
necessary, other than in such jurisdictions where the failure so to qualify
would not have a Material Adverse Effect (as defined below) on the Company. The
Company has heretofore delivered to Parent complete and correct copies of the
Company Bylaws and the charter, bylaws or other organizational documents of each
of the Company's Subsidiaries. All Subsidiaries of the Company and their
respective jurisdictions of incorporation or organization are identified on
Schedule 3.1(a) of the Company Disclosure Schedule. Each owner and the
respective amount of such owner's equity interest in each such Subsidiary is set
forth on Schedule 3.1(a) of the Company Disclosure Schedule. Schedule 3.1(a) of
the Company Disclosure Schedule sets forth a list of each jurisdiction in which
the Company or a Company Subsidiary is qualified or licensed to do business and
each assumed name under which any of them conducts business in any jurisdiction.
As used in this Agreement, "Material Adverse Change" or "Material Adverse
Effect" means, when used in connection with the Company, any change, event or
effect, whether or not foreseeable or known as of the Prior Execution Date or
the date of this Agreement, that, individually or in the aggregate with any such
other changes, events or effects, is, or could reasonably be expected to be
(whether or not such change, event or effect has, at the time in question,
manifested itself in the Company's historical financial statements), materially
adverse to the historical or near-term or long-term projected (a) business, (b)
assets, (c) liabilities, (d) financial condition or (e) results of operations
(including, but not limited to, Net Operating Income (as defined below) and Net
Cash Flow (as defined below)), in each case, of the Company and its Subsidiaries
taken as a whole. For purposes of this Agreement, Material Adverse Change and
Material Adverse Effect shall be determined in light of Parent's initial capital
structure for the Surviving Entity, which capital structure is set forth in the
letter of even date herewith from Parent to the Company. As used in this
Agreement, "Net Operating Income" means rental and other property income minus
property management and operating expenses and general and administrative
expenses, and "Net Cash Flow" means Net Operating Income minus debt service
payments of principal and interest, capital expenditures and other non-
operating expenses. As used in this Agreement, the word "Subsidiary" means, with
respect to any party, any corporation or other organization, whether
incorporated or unincorporated, of which: (i) such party or any other Subsidiary
of such party is a general partner; (ii) at least a majority of the securities
or other interests having by their terms ordinary voting power to elect a
majority of the Board of Directors or others performing similar functions with
respect to such corporation or other organization is, directly or indirectly,
owned or controlled by such party or by any one or more of its Subsidiaries, or
by such party and any one or more of its Subsidiaries; (iii) such party and/or
any other Subsidiary of such party beneficially owns, directly or indirectly, at
least 25% of the equity interests; or (iv) such party and/or any
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other Subsidiary of such party has a direct or indirect investment of $10
million or more in equity or indebtedness.
(b) Capital Structure. As of the Prior Execution Date, the authorized
capital stock of the Company consists of (i) 50,000,000 shares of Company Common
Stock and (ii) 10,000,000 shares of preferred stock, par value $0.01 per share,
of which (A) 4,000,000 shares have been designated as Company Senior Preferred
Stock, (B) 1,800,000 shares have been designated as Company Convertible
Preferred Stock, (C) 2,000,000 shares have been designated as Company Redeemable
Preferred Stock and (D) 350,000 shares have been designated as Series A Junior
Participating Preferred Stock, par value $.01 per share (the "Company Junior
Preferred Stock"). As of the Prior Execution Date, (1) 25,460,322 shares of
Company Common Stock (including one Company Right, as hereinafter defined, for
each outstanding share of Company Common Stock) are issued and outstanding; (2)
4,000,000 shares of Company Senior Preferred Stock are issued and outstanding;
(3) 1,709,182 shares of Company Convertible Preferred Stock are issued and
outstanding; (4) 1,568,275 shares of Company Redeemable Preferred Stock are
issued and outstanding; (5) 500,000 shares of Company Common Stock are reserved
for issuance pursuant to the Company Incentive Plans, of which 112,899 shares of
Company Common Stock are issued but not yet vested under restricted stock
grants; (6) 345,709 shares of Company Common Stock were issued under the
Associates Loan Program and 106,600 shares were issued pursuant to the Company
LTIP in connection with officer loans; (7) 2,983,620 shares of Company Common
Stock are subject to issuance upon the exercise of options or awards granted to
officers, directors or employees of Company and its Subsidiaries under the
Company LTIP or the Company 1994 Option Plan; (8) 4,000,000 Company Series A
Warrants are issued and outstanding, and 5,233,247 Company Series B Warrants are
issued and outstanding; (9) 1,949,493 shares of Company Common Stock are
reserved for issuance upon conversion of the Company Convertible Preferred
Stock; (10) 350,000 shares of Company Junior Preferred Stock are reserved for
issuance under the Company Rights Agreement (as hereinafter defined); (11)
1,333,333 1/3 shares of Company Common Stock are subject to issuance, and are
also reserved for issuance, upon exercise of the 4,000,000 Company Series A
Warrants that are issued and outstanding, and 2,222,121 shares of Company Common
Stock are subject to issuance, and are also reserved for issuance, upon exercise
of the 5,227,853 Company Series B Warrants that are issued and outstanding and
upon exercise of Company Series B Warrants that are issuable upon conversion of
WDOP Class B Preferred Units (as defined below); (12) 3,611,483 shares of
Company Common Stock are subject to issuance, and are also reserved for
issuance, upon the exchange of WDOP Class B Common Units; (13) 429,938 shares of
Company Redeemable Preferred Stock are subject to issuance, and are also
reserved for issuance, upon the exchange of WDOP Class B Preferred Units; (14)
810,128 shares of Company Common Stock are subject to issuance, and are also
reserved for issuance, upon the exchange of WROP Class C Common Units (as
defined below); (15) 38,876 shares of Company Common Stock are subject to
issuance, and are also reserved for issuance, upon the exchange of WROP Class D
Common Units (as defined below); and (16) no Voting Debt (as defined below) is
issued and outstanding in the Company or any Subsidiary of the Company. The
Company is the sole general partner of WDOP and holds a one percent general
partnership interest in WDOP. WDN Properties, Inc., a New York corporation and
wholly owned Subsidiary of the Company ("WDN Properties"), holds a 53.95%
limited partnership interest in WDOP. As of the Prior Execution Date, Class A
limited partnership interests representing a 63.6070% interest in WDOP,
3,611,483 units of Class B common limited partnership interest in WDOP ("WDOP
Class B Common Units"), constituting an interest of 17.3086% in WDOP; Class C
limited partnership interests representing a 3.5900% interest in WDOP; Class D
limited partnership interests representing a 14.4754% interest in WDOP; and
429,938 units of Class B preferred limited partnership interest in WDOP ("WDOP
Class B Preferred Units") are validly issued and outstanding, fully paid and
nonassessable and not subject to preemptive rights. Each WDOP Class B Common
Unit is exchangeable for one share of Company Common Stock. Each WDOP Class B
Preferred Unit is exchangeable for one share of Company Redeemable Preferred
Stock and 3 1/3 Company Series B Warrants. Schedule 3.1(b) of the Company
Disclosure Schedule sets forth the name, number and class of WDOP units of
partnership interest and the percentage interest of each partner in WDOP. Walden
Operating, Inc., a Delaware corporation and wholly owned Subsidiary of the
Company, is the sole general partner of WROP and holds a one percent general
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partnership interest in WROP. WDN Properties holds a 77.3784% limited
partnerships interest in WROP. As of the Prior Execution Date, Class A limited
partnership interests representing an 83.2781% interest in WROP; 810,128 units
of Class C limited partnership interest in WROP ("WROP Class C Common Units"),
constituting an interest of 14.992% in WROP; and 38,876 units of Class D limited
partnership interest in WROP ("WROP Class D Common Units"), constituting an
interest of 0.7299% in WROP, are validly issued and outstanding, fully paid and
nonassessable and not subject to preemptive rights. Each WROP Class C Common
Unit and WROP Class D Common Unit is exchangeable for one share of Company
Common Stock. Schedule 3.1(b) of the Company Disclosure Schedule sets forth the
name, number and class of WROP units of partnership interest and the percentage
interest of each partner in WROP. The term "Voting Debt" means bonds,
debentures, notes or other indebtedness having the right to vote (or convertible
into securities having the right to vote) on any matters on which holders of
equity interests in the Company or any Subsidiary of the Company or Parent and
Newco, as applicable, may vote. All outstanding shares of Company Common Stock,
Company Senior Preferred Stock, Company Convertible Preferred Stock, and Company
Redeemable Preferred Stock are validly issued, fully paid and nonassessable and
are not subject to preemptive rights. Other than as set forth in the applicable
organizational documents or under applicable securities law and except as set
forth on Schedule 3.1(b) of the Company Disclosure Schedule, all outstanding
equity interests of the Subsidiaries of the Company owned by the Company, or a
direct or indirect wholly owned Subsidiary of the Company, are free and clear of
all liens, pledges, charges, encumbrances, claims, mortgages, deeds of trust,
security interests, restrictions, rights of first refusal, defects in title, or
other burdens, options or encumbrances of any kind ("Encumbrances"). Set forth
in Schedule 3.1(b) of the Company Disclosure Schedule is a true and complete
list of the following: (i) each outstanding qualified or non-qualified option to
purchase Company Common Stock granted under the Company Incentive Plans or
otherwise, the name of each holder of each such option and the exercise price
and the number of shares subject to each such option; (ii) each grant of Company
Common Stock to employees which is subject to any risk of forfeiture, the name
of each holder of such restricted stock and the number of shares of such
restricted stock held by each holder; (iii) each outstanding Company Series A
Warrant to purchase Company Common Stock and each outstanding Company Series B
Warrant to purchase Company Common Stock and in each case, the name of each
holder of such warrants and the number of warrants held by such holder; (iv) any
obligation of the Company to issue Company Common Stock as a result of the
transactions contemplated hereby and the total thereof; and (v) each loan made
by the Company with respect to the purchase of Company Common Stock and the
recipient, amount and principal terms thereof. Except as set forth in this
Section 3.1(b) or on Schedule 3.1(b) of the Company Disclosure Schedule, there
are issued and outstanding or reserved for issuance: (x) no shares of stock,
Voting Debt or other voting securities of the Company; (y) no securities of the
Company or any Subsidiary of the Company or securities or assets of any other
entity convertible into or exchangeable for shares of stock, Voting Debt or
other voting securities of the Company or any Subsidiary of the Company; and (z)
no options, warrants, calls, rights (including preemptive rights), commitments
or agreements to which the Company or any Subsidiary of the Company is a party
or by which it is bound in any case obligating the Company or any Subsidiary of
the Company to issue, deliver, sell, purchase, redeem or acquire, or cause to be
issued, delivered, sold, purchased, redeemed or acquired, additional shares of
stock or any Voting Debt or other voting securities of the Company or of any
Subsidiary of the Company, or obligating the Company or any Subsidiary of the
Company to grant, extend or enter into any such option, warrant, call, right,
commitment or agreement. Except for the Transaction Documents (as hereinafter
defined) and the OP Transaction Documents, there are not as of the Prior
Execution Date, and there will not be at the Effective Time, any stockholder
agreements, voting trusts or other agreements or understandings to which the
Company or any Subsidiary of the Company is a party or by which it is bound
relating to the voting of any shares of the stock of the Company or partnership
interests in WDOP or WROP that will limit in any way the solicitation of proxies
or consents from, or the casting of votes by, the stockholders of the Company or
the partners of WROP or WDOP with respect to the Merger or the other
transactions contemplated by the OP Transaction Documents. Except as set forth
in the applicable organizational documents of any Subsidiary of the Company or
as imposed and required by lenders in connection with bankruptcy remote or
special purpose entities that are Subsidiaries, there are no restrictions on the
Company's ability to vote the equity interests
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of any of its Subsidiaries. Except as set forth on Schedule 3.1(b) to the
Company Disclosure Schedule, all dividends or distributions on securities of the
Company that have been declared or authorized prior to the Prior Execution Date
have been paid in full.
(c) Authority; No Violations; Consents and Approvals.
(i) The Board of Directors of the Company and the Company Special
Committee have approved and declared advisable the Merger and this Agreement,
and have directed that the Merger and this Agreement be submitted for
consideration at a special meeting of the stockholders of the Company. The
directors of the Company have advised the Company and Parent and Newco that they
intend to vote or cause to be voted all of the shares of Company Common Stock
beneficially owned by them and their Affiliates in favor of approval of the
Merger and this Agreement. The general partner of WDOP has approved the WDOP
Merger and the WDOP Merger Agreement, and the general partner of WROP has
approved the WROP Merger and the WROP Merger Agreement. The Company has all
requisite power and authority to enter into this Agreement, the Loan Repayment
Agreements (as hereinafter defined), the Voting Agreements and all other
documents to be executed by the Company in connection with the transactions
contemplated hereby and thereby (collectively, the "Transaction Documents") and,
subject, with respect to the consummation of the Merger, to receipt of the
Merger Vote (as hereinafter defined), to consummate the transactions
contemplated hereby and thereby. Each Subsidiary that is a party to any OP
Transaction Document has all requisite power and authority to enter into such OP
Transaction Document and to consummate the transactions contemplated thereby.
The execution and delivery of the Transaction Documents and the OP Transaction
Documents and the consummation of the transactions contemplated hereby or
thereby have been duly authorized by all necessary action on the part of the
Company and each applicable Subsidiary, subject, with respect to the
consummation of the Merger, to receipt of the Merger Vote. The Transaction
Documents and the OP Transaction Documents have been duly executed and delivered
by the Company and each applicable Subsidiary and, subject, with respect to the
consummation of the Merger, to receipt of the Merger Vote, and assuming the
Transaction Documents to which Parent and Newco are parties constitute the valid
and binding obligation of Parent and Newco, constitute valid and binding
obligations of the Company and each applicable Subsidiary, enforceable in
accordance with their terms, subject, as to enforceability, to bankruptcy,
insolvency, reorganization, moratorium and other laws of general applicability
relating to or affecting creditors' rights and to general principles of equity
(regardless of whether such enforceability is considered in a proceeding in
equity or at law).
(ii) Except as set forth on Schedule 3.1(c) of the Company Disclosure
Schedule or on Schedule 5.5(b) to the Parent/Newco Disclosure Schedule, the
execution and delivery of the Transaction Documents or the OP Transaction
Documents by the Company or each applicable Subsidiary do not, and the
consummation of the transactions contemplated hereby or thereby, and compliance
with the provisions hereof or thereof, will not, conflict with, or result in any
violation of, or default (with or without notice or lapse of time, or both)
under, or give rise to a right of termination, cancellation or acceleration of
any material obligation or to the loss of a material benefit under, or give rise
to a right of purchase under, result in the creation of any Encumbrance upon any
of the properties or assets of the Company or any of its Subsidiaries under,
require the consent or approval of any third party or otherwise result in a
material detriment to the Company or any of its Subsidiaries under, any
provision of (A) the Company Charter or Company Bylaws or any provision of the
comparable charter or organizational documents of any of the Company's
Subsidiaries, (B) any loan or credit agreement, note, bond, mortgage, indenture,
lease or other agreement, instrument, permit, concession, franchise or license
applicable to the Company or any of its Subsidiaries or their respective
properties or assets or any guarantee by the Company or any of its Subsidiaries
of any of the foregoing, (C) any joint venture or other ownership arrangement or
(D) assuming the consents, approvals, authorizations or permits and filings or
notifications referred to in Section 3.1(c)(iii) are duly and timely obtained or
made and the approval of the Merger by the stockholders of the Company entitled
to vote thereon has been obtained, any judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to the Company or any of its
Subsidiaries or any of their respective properties or assets, other than, in the
case of clauses (B), (C) and (D), any such
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conflicts, violations, defaults, rights, Encumbrances or detriments that,
individually or in the aggregate, (1) have not had, and could not reasonably be
expected to have, a Material Adverse Effect on the Company, or (2) would not, or
could not reasonably be expected to, materially impair the ability of the
Company or any of its Subsidiaries to perform its obligations hereunder or
thereunder or prevent the consummation of any of the transactions contemplated
hereby or thereby. The Required Consents (as hereinafter defined) that are
listed on such Schedule 3.1(c) are indicated by an asterisk, it being understood
that additional Required Consents are listed on Schedule 5.5(b) of the
Parent/Newco Disclosure Schedule.
(iii) Except as set forth on Schedule 3.1(c) of the Company
Disclosure Schedule or as set forth in documents evidencing the tax-exempt bond
indebtedness of the Company or any of its Subsidiaries, which documents have
previously been made available to Parent and Newco, no consent, approval, order
or authorization of, or registration, declaration or filing with, or permit from
any court, governmental, regulatory or administrative agency or commission or
other governmental authority or instrumentality, domestic or foreign (a
"Governmental Entity"), is required by or with respect to the Company or any of
its Subsidiaries in connection with the execution and delivery of the
Transaction Documents or OP Transaction Documents by the Company or each of its
applicable Subsidiaries or the consummation by the Company or its applicable
Subsidiaries of the transactions contemplated hereby or thereby, except for: (A)
the filing with the Securities and Exchange Commission (the "SEC") of (1) a
proxy statement in preliminary and definitive form relating to the meeting of
the stockholders of the Company to be held in connection with the Merger (the
"Proxy Statement") and (2) such reports under Section 13(a) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and such other compliance
with the Exchange Act and the rules and regulations thereunder, as may be
required in connection with the Transaction Documents or the OP Transaction
Documents and the transactions contemplated hereby or thereby; (B) the filing of
the Articles of Merger with, and the acceptance for record of the Articles of
Merger by, the SDAT; (C) the filing of certificates of merger with the Delaware
Secretary of State in connection with the WDOP Merger and the WROP Merger; (D)
such filings and approvals as may be required by any applicable state takeover
laws, or environmental laws; (E) such filings and approvals as may be required
by any foreign premerger notification, securities, corporate or other law, rule
or regulation; (F) the filing, if applicable, of a pre-merger notification and
report by the Company under the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended (the "HSR Act"), and the expiration or termination of the
applicable waiting period thereunder; and (G) any such consent, approval, order,
authorization, registration, declaration, filing, or permit that the failure to
obtain or make (1) has not had, and could not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect on the Company, or
(2) would not, or could not reasonably be expected to, materially impair the
ability of the Company to perform its obligations hereunder or prevent the
consummation of any of the transactions contemplated hereby.
(d) SEC Documents. The Company has made available to Parent and Newco a
true and complete copy of each report, schedule, registration statement and
definitive proxy statement filed by the Company with the SEC since January 1,
1997 and prior to or on the Prior Execution Date (the "Company SEC Documents"),
which are all the documents (other than preliminary material) that the Company
was required to file with the SEC between January 1, 1997 and the Prior
Execution Date. As of their respective dates, the Company SEC Documents complied
in all material respects with the requirements of the Securities Act of 1933, as
amended (the "Securities Act"), or the Exchange Act, as the case may be, and the
rules and regulations of the SEC thereunder applicable to such Company SEC
Documents, and none of the Company SEC Documents contained any untrue statement
of a material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. The Company has no
outstanding and unresolved comments from the SEC with respect to any of the
Company SEC Documents. The financial statements of the Company included in the
Company SEC Documents complied as to form in all material respects with the
published rules and regulations of the SEC with respect thereto, were prepared
in accordance with generally accepted accounting principles ("GAAP") applied on
a consistent basis during the periods involved (except as may be indicated in
the notes thereto
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or, in the case of the unaudited statements, as permitted by Rule 10-01 of
Regulation S-X of the SEC) and fairly presented in accordance with applicable
requirements of GAAP (subject, in the case of the unaudited statements, to
normal, recurring adjustments, none of which are material) the consolidated
financial position of the Company and its consolidated Subsidiaries as of their
respective dates and the consolidated statements of income and the consolidated
cash flows of the Company and its consolidated Subsidiaries for the periods
presented therein. Except as disclosed in the Company SEC Documents, there are
no agreements, arrangements or understandings between the Company and any party
who is at the Prior Execution Date or was at any time prior to the Prior
Execution Date but after January 1, 1997 an Affiliate of the Company that are
required to be disclosed in the Company SEC Documents. The books of account and
other financial records of the Company are true, complete and correct in all
material respects and are accurately reflected in all material respects in the
financial statements included in the Company SEC Documents.
(e) Information Supplied. None of the information supplied or to be
supplied by the Company for inclusion or incorporation by reference in the Proxy
Statement will, at the date mailed to stockholders of the Company or at the time
of the meeting of such stockholders to be held in connection with the Merger or
at the Effective Time, contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary in order
to make the statements therein, in light of the circumstances under which they
are made, not misleading. If at any time prior to the Effective Time any event
with respect to the Company or any of its Subsidiaries, or with respect to other
information supplied by the Company for inclusion in the Proxy Statement, shall
occur which is required to be described in an amendment of, or a supplement to,
the Proxy Statement, such event shall be so described, and the Company shall
reasonably cooperate with Parent and Newco to cause such amendment or supplement
to be promptly filed (if required to be filed) with the SEC and disseminated to
the stockholders of the Company. The Proxy Statement, insofar as it relates to
the Company or its Subsidiaries or other information supplied by the Company for
inclusion or incorporation by reference therein, will comply as to form in all
material respects with the provisions of the Exchange Act and the rules and
regulations thereunder and other applicable law.
(f) Absence of Certain Changes or Events. Except as set forth on
Schedule 3.1(f) or Schedule 4.1 of the Company Disclosure Schedule or as
disclosed in or reflected in the Company SEC Documents, and except as
contemplated by this Agreement, since the date of the most recent audited
financial statements included in the Company SEC Documents to the Prior
Execution Date, (i) nothing has occurred that would have been prohibited by
Section 4.1(a), (b), (c) (but, with respect to (c), only after June 30, 1999),
(h), (i), (k), or (l)(iii) or (iv) if the terms of such subsections had been in
effect as of and after such date of such financial statements; and (ii) there
has not been: (A) any declaration, setting aside or payment of any dividend or
other distribution (whether in cash, stock or property) with respect to any of
the Company's stock; (B) any amendment of any term of any outstanding equity
security of the Company or any Subsidiary of the Company; (C) any repurchase,
redemption or other acquisition by the Company or any Subsidiary of the Company
of any outstanding shares of capital stock or other equity securities of, or
other ownership interests in, the Company or any Subsidiary of the Company; (D)
any material change in any method of accounting or accounting practice or any
tax method, practice or election by the Company or any Subsidiary of the
Company; (E) any amendment of any employment, consulting, severance, retention
or any other agreement between the Company and any officer or director of the
Company; or (F) any change, event or effect that has had, or could reasonably be
expected to have, a Material Adverse Effect on the Company.
(g) No Undisclosed Material Liabilities. Except as set forth on Schedule
3.1(g) of the Company Disclosure Schedule or as disclosed in the Company SEC
Documents, as of the Prior Execution Date, there are no liabilities of the
Company or any of its Subsidiaries of any kind whatsoever, whether accrued,
contingent, absolute or determined, other than: (i) liabilities adequately
provided for on the balance sheet of the Company dated as of June 30, 1999
(including the notes thereto) contained in the Company's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1999; (ii) liabilities incurred in the
ordinary course of business subsequent to June 30, 1999 which have not had,
individually or in the
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aggregate, and could not reasonably be expected to have a Material Adverse
Effect on the Company; and (iii) liabilities under this Agreement.
(h) No Default. Neither the Company nor any of its Subsidiaries is in
default or violation (and no event has occurred which, with notice or the lapse
of time or both, would constitute a default or violation) of any term, condition
or provision of (i) the Company Charter or Company Bylaws or the comparable
charter or organizational documents of any of the Company's Subsidiaries, (ii)
any loan or credit agreement, note, bond, mortgage, indenture, lease or other
agreement, instrument, permit, concession, franchise or license to which the
Company or any of its Subsidiaries is now a party or by which the Company or any
of its Subsidiaries or any of their respective properties or assets is bound or
(iii) any order, writ, injunction, decree, statute, rule or regulation
applicable to the Company or any of its Subsidiaries, except in the case of (ii)
and (iii) for defaults or violations which in the aggregate have not had and
could not reasonably be expected to have a Material Adverse Effect on the
Company.
(i) Compliance with Applicable Laws. The Company and its Subsidiaries
hold all permits, licenses, variances, exemptions, orders, franchises and
approvals of all Governmental Entities necessary for the lawful conduct of their
respective businesses (the "Company Permits"), except where the failure so to
hold has not had, and could not reasonably be expected to have, a Material
Adverse Effect on the Company. The Company and its Subsidiaries are in
compliance with the terms of the Company Permits, except where the failure so to
comply has not had, and could not reasonably be expected to have, a Material
Adverse Effect on the Company. Except as disclosed in the Company SEC Documents,
the businesses of the Company and its Subsidiaries are not being conducted in
violation of any law, ordinance or regulation of any Governmental Entity, except
for possible violations which have not had, and could not reasonably be expected
to have, a Material Adverse Effect on the Company. As of the Prior Execution
Date, no investigation or review by any Governmental Entity with respect to the
Company or any of its Subsidiaries is pending and of which the Company has
knowledge (as hereinafter defined) or, to the knowledge of the Company as of the
Prior Execution Date, is threatened, other than those the outcome of which has
not had, and could not reasonably be expected to have, a Material Adverse Effect
on the Company. For purposes of this Agreement, "knowledge" means the actual
knowledge of the executive officers of Parent, Newco or the Company, as
applicable.
(j) Litigation. Except as disclosed in the Company SEC Documents or on
Schedule 3.1(j) or on Schedule 4.1 of the Company Disclosure Schedule and except
for Company Litigation (as hereinafter defined) that both (i) is not covered by
insurance and (ii) does not involve potential liability to the Company or any of
its Subsidiaries in excess of $50,000, as of the Prior Execution Date there is
no suit, action or proceeding pending, or, to the knowledge of the Company,
threatened against or affecting the Company or any Subsidiary of the Company
("Company Litigation"), and, as of the Prior Execution Date, the Company and its
Subsidiaries have no knowledge of any facts that are likely to give rise to any
Company Litigation, nor as of the Prior Execution Date is there any judgment,
decree, injunction, rule or order of any Governmental Entity or arbitrator
outstanding against the Company or any Subsidiary of the Company ("Company
Order"). Except for Company Litigation that both (i) is not covered by insurance
and (ii) does not involve potential liability to the Company or any of its
Subsidiaries in excess of $50,000, Schedule 3.1(j) of the Company Disclosure
Schedule contains an accurate and complete list, as of the Prior Execution Date,
of all Company Litigation pending or, to the knowledge of the Company,
threatened against or affecting the Company or any of its Subsidiaries.
(k) Taxes. Except as set forth on Schedule 3.1(k) of the Company
Disclosure Schedule:
(i) Each of the Company and its Subsidiaries (A) has filed all Tax
returns and reports required to be filed by it (after giving effect to any
filing extension properly granted by a Governmental Entity having authority to
do so) and all such returns and reports are accurate and complete in all
material respects, and (B) has paid (or the Company has paid on its behalf) all
Taxes (as defined below) shown on such returns and reports as required to be
paid by it. The most recent financial statements contained in the Company SEC
Documents reflect an adequate reserve for all material Taxes payable by the
Company and its Subsidiaries for all taxable periods and portions thereof
through the date of such
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financial statements. The Company and each Subsidiary of the Company has
established (and until the Closing Date shall continue to establish and
maintain) on its books and records reserves that are adequate for the payment of
all Taxes not yet due and payable. Since June 30, 1999, the Company has incurred
no liability for Taxes under Sections 857(b), 860(c) or 4981 of the Code,
including without limitation any Tax arising from a prohibited transaction
described in Section 857(b)(6) of the Code, and neither the Company nor any of
its Subsidiaries has incurred any material liability for Taxes other than in the
ordinary course of business. No material deficiencies for any Taxes have been
proposed, asserted or assessed against the Company or any of its Subsidiaries,
including claims by any taxing authority in a jurisdiction where the Company or
any Subsidiary of the Company do not file Tax returns but in which any of them
is or may be subject to taxation, and no requests for waivers of the time to
assess any such Taxes are pending. As used in this Agreement, "Taxes" includes
all federal, state, local and foreign income, property, sales, use, franchise,
employment, payroll, excise, environmental and other taxes, tariffs or
governmental charges of any nature whatsoever, together with penalties, interest
or additions to Tax with respect thereto.
(ii) The Company (A) for all taxable years commencing with the year
ended December 31, 1993 through December 31, 1998, has been subject to taxation
as a real estate investment trust within the meaning of Section 856 of the Code
(a "REIT") and has satisfied all requirements to qualify as a REIT for such
years, (B) will qualify as a REIT for the taxable year ending December 31, 1999
and the taxable year ending at the Effective Time, and (C) to the Company's
knowledge, no challenge to the Company's status as a REIT is pending or
threatened. Each Subsidiary of the Company which is a partnership, joint venture
or limited liability company has been since its formation and continues to be
treated for federal income tax purposes as a partnership and not as a
corporation.
(iii) All Taxes which the Company or the Company's Subsidiaries are
required by law to withhold or collect, including Taxes required to have been
withheld in connection with amounts paid or owing to any employee, independent
contractor, creditor, stockholder or other third party and sales, gross receipts
and use taxes, have been duly withheld or collected and, to the extent required,
have been paid over to the proper Governmental Entities or are held in separate
bank accounts for such purpose. There are no liens for Taxes upon the assets of
the Company or the Company's Subsidiaries except for statutory liens for Taxes
not yet due.
(iv) The Tax returns of the Company and the Company's Subsidiaries
are not being and have not been examined or audited by any taxing authority for
any past year or periods.
(v) Neither the Company nor the Company's Subsidiaries (A) have filed
a consent under Section 341(f) of the Code concerning collapsible corporations,
or (B) are a party to any Tax allocation or sharing agreement.
(vi) The Company does not have any liability for the Taxes of any
person other than the Company and the Company's Subsidiaries and the Company's
Subsidiaries do not have any liability for the Taxes of any person other than
the Company and the Company's Subsidiaries (A) under Treasury Regulation Section
1.1502-6 (or any similar provision of state, local or foreign law), (B) as a
transferee or successor, (C) by contract, or (D) otherwise.
(vii) Neither the Company nor the Company's Subsidiaries have made
any payments, are obligated to make any payments, or are parties to an agreement
that could obligate them to make any payments that will not be deductible under
Section 280G of the Code. The Company and the Company's Subsidiaries have
disclosed to the IRS all positions taken on its federal income Tax returns which
could give rise to a substantial understatement of Tax under Section 6662 of the
Code.
(viii) Neither the Company nor any of its Subsidiaries has entered
into or is subject, directly or indirectly, to any "Tax Protection Agreements,"
except as disclosed in Schedule 3.1(k), true and correct copies of which have
been made available to Parent and Newco. As used herein, a "Tax Protection
Agreement" is an agreement, oral or written, (A) that has as one of its purposes
to permit a person or entity to take the position that such person or entity
could defer federal taxable income that
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otherwise might have been recognized upon a transfer of property to any
Subsidiary of the Company that is treated as a partnership for federal income
tax purposes, and (B) that (i) prohibits or restricts in any manner the
disposition of any assets of the Company or any of its Subsidiaries (including,
without limitation, requiring the Company or any of its Subsidiaries to
indemnify any person for any tax liabilities resulting from any such
disposition), (ii) requires that the Company or any of its Subsidiaries
maintain, or put in place, or replace, indebtedness, whether or not secured by
one or more of the Company Properties (as hereinafter defined), or (iii)
requires that the Company or any of its Subsidiaries offer to any person or
entity at any time the opportunity to guarantee or otherwise assume, directly or
indirectly, the risk of loss for federal income tax purposes for indebtedness or
other liabilities of the Company or any of its Subsidiaries.
(l) Pension and Benefit Plans; ERISA. Except as set forth on Schedule
3.1(l) of the Company Disclosure Schedule or in the Company SEC Documents:
(i) All "employee pension benefit plans," as defined in Section 3(2)
of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
maintained by the Company or any of its Subsidiaries or any trade or business
(whether or not incorporated) which is under common control, or which is treated
as a single employer, with the Company under Section 414(b), (c), (m) or (o) of
the Code ("Company ERISA Affiliate") or to which the Company or any of its
Subsidiaries or any Company ERISA Affiliate contributed or is obligated to
contribute thereunder within six years prior to the Effective Time (the "Company
Pension Plans") intended to qualify under Section 401 of the Code so qualify and
have been determined by the IRS to be qualified under Section 401 of the Code
and, to the knowledge of the Company as of the Prior Execution Date, nothing has
occurred with respect to the operation of the Company Pension Plans that could
reasonably be expected to cause the loss of such qualification or the imposition
of any material liability, penalty or tax under ERISA or the Code.
(ii) No Company Pension Plan is subject to Title IV of ERISA.
(iii) There is no material violation of ERISA with respect to (A) the
filing of applicable reports, documents, and notices with the Secretary of Labor
and the Secretary of the Treasury regarding all "employee benefit plans," as
defined in Section 3(3) of ERISA, the Company Pension Plans and all other
material employee compensation and benefit arrangements or payroll practices,
including, without limitation, severance pay, sick leave, vacation pay, salary
continuation for disability, consulting or other compensation agreements,
retirement, deferred compensation, bonus (including, without limitation, any
retention bonus plan), long-term incentive, stock option, stock purchase,
hospitalization, medical insurance, life insurance and scholarship programs
maintained by the Company or any of its Subsidiaries or with respect to which
the Company or any of its Subsidiaries has any liability (all such plans, other
than the Company Pension Plans, being hereinafter referred to as the "Company
Employee Benefit Plans") or (B) the furnishing of such documents to the
participants or beneficiaries of the Company Employee Benefit Plans or Company
Pension Plans.
(iv) Each Company Employee Benefit Plan and Company Pension Plan,
related trust (or other funding or financing arrangement) and all amendments
thereto are listed on Schedule 3.1(l), true and complete copies of which have
been made available to Parent, as have the most recent summary plan
descriptions, administrative service agreements, Form 5500s and, with respect to
any Company Pension Plan intended to be qualified pursuant to Section 401 of the
Code, a current determination letter.
(v) The Company Employee Benefit Plans and Company Pension Plans have
been maintained, in all material respects, in accordance with their terms and
with all provisions of ERISA (including rules and regulations thereunder) and
other applicable Federal and state law, there is no material liability for
breaches of fiduciary duty in connection with the Company Employee Benefit Plans
and Company Pension Plans, and neither the Company nor any of its Subsidiaries
or any "party in interest" or "disqualified person" with respect to the Company
Employee Benefit Plans and the Company Pension Plans has engaged in a material
"prohibited transaction" within the meaning of Section 4975 of the Code or
Section 406 of ERISA.
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(vi) As of the Prior Execution Date, there are no material actions,
suits or claims pending (other than routine claims for benefits) or, to the
knowledge of the Company, threatened against, or with respect to, the Company
Employee Benefit Plans or the Company Pension Plans or their assets.
(vii) Except as described on Schedule 3.1(l) of the Company
Disclosure Schedule, neither the execution and delivery of this Agreement nor
the consummation of the transactions contemplated hereby will (A) result in any
payment (including any retention bonuses or noncompetition payments) becoming
due to any employee or group of employees of the Company or any of its
Subsidiaries; (B) increase any benefits otherwise payable under any Company
Employee Benefit Plan or Company Pension Plan; or (C) result in the acceleration
of the time of payment or vesting of any such benefits. Except as described on
Schedule 3.1(l) of the Company Disclosure Schedule, there are no severance
agreements, noncompetition agreements or employment agreements between the
Company or any of its Subsidiaries and any employee of the Company or such
Subsidiary. True and complete copies of all severance agreements and employment
agreements described on Schedule 3.1(l) of the Company Disclosure Schedule have
been provided to Parent and Newco.
(viii) Neither the Company nor any of its Subsidiaries has any
consulting agreement or arrangement with any person involving compensation in
excess of $100,000 except as are terminable upon one month's notice or less.
(ix) Neither the Company nor any of its Subsidiaries nor any Company
ERISA Affiliate contributes to, or has an obligation to contribute to, and has
not within six years prior to the Effective Time contributed to, or had an
obligation to contribute to, a multiemployer plan within the meaning of Section
3(37) of ERISA.
(x) No stock or other security issued by the Company or any of its
Subsidiaries forms or has formed a material part of the assets of any Company
Employee Benefit Plan or Company Pension Plan.
(xi) The Company and its ERISA Affiliates have materially complied
with the requirements of Section 4980B of the Code and Parts 6 and 7 of Subtitle
B of Title I of ERISA regarding health care coverage under the Company Employee
Benefit Plans.
(xii) No amount has been paid by the Company or any of its ERISA
Affiliates, and no amount is expected to be paid by the Company or any of its
ERISA Affiliates, which would be subject to the provisions of 162(m) of the Code
such that all or a part of such payments would not be deductible by the payor.
(xiii) As to any Company Pension Plan intended to be qualified
pursuant to Section 401(a) of the Code there has been no termination or partial
termination of the plan within the meaning of Section 411(d)(3) of the Code.
(xiv) No act, omission or transaction has occurred which would result
in the imposition on the Company or any Subsidiary of the Company of breach of
fiduciary duty liability damages pursuant to Section 409 of ERISA, a civil
penalty pursuant to Section 502 of ERISA or a tax imposed pursuant to Chapter 43
of Subtitle D of the Code.
(xv) To the knowledge of the Company or any Subsidiary of the
Company, there is no matter pending with respect to any Company Pension Plan or
Company Employee Benefit Plan before the Internal Revenue Service, the
Department of Labor or the Pension Benefit Guaranty Corporation.
(xvi) Each Company Employee Benefit Plan may be unilaterally amended
or terminated in its entirety by the Company without liability except as to
benefits accrued thereunder prior to amendment or termination.
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(m) Labor and Employment Matters. Except as set forth on Schedule 3.1(m)
of the Company Disclosure Schedule or in the Company SEC Documents:
(i) Neither the Company nor any of its Subsidiaries is a party to any
collective bargaining agreement or other current labor agreement with any labor
union or organization, and there is no current union representation question
involving employees of the Company or any of its Subsidiaries, nor does the
Company or any of its Subsidiaries know of any activity or proceeding of any
labor organization (or representative thereof) or employee group (or
representative thereof) to organize any such employees.
(ii) As of the Prior Execution Date, there is no unfair labor
practice charge or grievance arising out of a collective bargaining agreement or
other grievance procedure pending, or, to the knowledge of the Company or any of
its Subsidiaries, threatened against the Company or any of its Subsidiaries.
(iii) As of the Prior Execution Date, there is no complaint, lawsuit
or proceeding in any forum by or on behalf of any present or former employee,
any applicant for employment or any classes of the foregoing alleging breach of
any express or implied contract of employment, any law or regulation governing
employment or the termination thereof or other discriminatory, wrongful or
tortious conduct in connection with the employment relationship pending, or, to
the knowledge of the Company or any of its Subsidiaries, threatened against the
Company or any of its Subsidiaries.
(iv) There is no strike, slowdown, work stoppage or lockout pending,
or, to the knowledge of the Company or any of its Subsidiaries, threatened,
against or involving the Company or any of its Subsidiaries.
(v) Employees of the Company and its Subsidiaries are lawfully
authorized to work in the United States according to federal immigration laws,
except for such lack of authorization that does not have, and could not
reasonably be expected to have, a Material Adverse Effect on the Company.
(vi) The Company and each of its Subsidiaries are in compliance with
all applicable laws respecting employment and employment practices, terms and
conditions of employment, wages, hours of work and occupational safety and
health, except for non-compliance that does not have, and could not reasonably
be expected to have, a Material Adverse Effect on the Company.
(vii) As of the Prior Execution Date, there is no proceeding, claim,
suit, action or governmental investigation pending or, to the knowledge of the
Company or any of its Subsidiaries, threatened, with respect to which any
current or former director, officer, employee or agent of the Company or any of
its Subsidiaries is or may be entitled to claim indemnification from the Company
or any of its Subsidiaries pursuant to the Company Charter or Company Bylaws or
any provision of the comparable charter or organizational documents of any of
the Company's Subsidiaries, as provided in any indemnification agreement to
which the Company or any Subsidiary of the Company is a party or pursuant to
applicable law.
(n) Intangible Property. The Company and its Subsidiaries own, possess
or have adequate rights to use all material trademarks, trade names, patents,
service marks, brand marks, brand names, computer programs, databases,
industrial designs and copyrights necessary for the operation of the businesses
of each of the Company and its Subsidiaries (collectively, the "Company
Intangible Property"), except where the failure to possess or have adequate
rights to use such properties has not had, and could not reasonably be expected
to have, a Material Adverse Effect on the Company. All of the Company Intangible
Property is owned or licensed by the Company or its Subsidiaries free and clear
of any and all liens, claims or encumbrances, except those that have not had,
and could not reasonably be expected to have, a Material Adverse Effect on the
Company, and neither the Company nor any such Subsidiary has forfeited or
otherwise relinquished any Company Intangible Property which forfeiture has
resulted, or could reasonably be expected to result, in a Material Adverse
Effect on the Company. To the knowledge of the Company, the use of the Company
Intangible Property by the Company or its Subsidiaries does not, in any material
respect, conflict with, infringe upon, violate or interfere with or constitute
an appropriation of any right, title, interest or goodwill, including, without
limitation, any intellectual property right, trademark, trade name, patent,
service mark, brand mark, brand name, computer program, database, industrial
design,
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copyright or any pending application therefor, of any other person, and there
have been no claims made, and neither the Company nor any of its Subsidiaries
has received any notice of any claim or otherwise knows that any of the Company
Intangible Property is invalid or conflicts with the asserted rights of any
other person or has not been used or enforced or has failed to have been used or
enforced in a manner that would result in the abandonment, cancellation or
unenforceability of any of the Company Intangible Property, except for any such
conflict, infringement, violation, interference, claim, invalidity, abandonment,
cancellation or unenforceability that has not had and could not reasonably be
expected to have a Material Adverse Effect on the Company.
(o) Environmental Matters. For purposes of this Agreement:
"Environmental Laws" means all federal, state and local laws
(including common laws), rules, regulations, ordinances, orders and decrees of
any Governmental Entity or other legal requirements, whether now in existence or
hereafter enacted and in effect at the time of Closing, relating to pollution or
the protection of human health or the environment or natural resources of any
jurisdiction in which the applicable party hereto owns or operates assets or
conducts business or owned or operated assets or conducted business (whether or
not through a predecessor entity) (including, without limitation, ambient air,
surface water, groundwater, land surface, subsurface strata, natural resources
or wildlife), including, without limitation, laws and regulations relating to
Releases or threatened Releases of Hazardous Materials or otherwise relating to
the manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of solid waste or Hazardous Materials, and any similar
laws, rules, regulations, ordinances, orders and decrees of any foreign
jurisdiction in which the applicable party hereto owns or operates assets or
conducts business;
"Hazardous Materials" means (i) any petroleum or petroleum products,
radioactive materials (including naturally occurring radioactive materials),
asbestos in any form that is or could become friable, urea formaldehyde foam
insulation, polychlorinated biphenyls or transformers or other equipment that
contain dielectric fluid containing polychlorinated biphenyls, (ii) any
chemicals, materials or substances which are now defined as or included in the
definition of "solid wastes," "hazardous substances," "hazardous wastes,"
"hazardous materials," "extremely hazardous substances," "restricted hazardous
wastes," "toxic substances" or "toxic pollutants," or words of similar import,
under any Environmental Law and (iii) any other chemical, material, substance or
waste, exposure to which is now prohibited, limited or regulated under any
Environmental Law in a jurisdiction in which the Company or any of its
Subsidiaries operates);
"Release" means any spill, effluent, emission, leaking, pumping,
pouring, emptying, escaping, dumping, injection, deposit, disposal, discharge,
dispersal, leaching or migration into the indoor or outdoor environment, or into
or out of any property owned, operated or leased by the applicable party or its
Subsidiaries; and
"Remedial Action" means all actions, including, without limitation,
any capital expenditures, required by a Governmental Entity or required under
any Environmental Law, or voluntarily undertaken to (i) clean up, remove, treat,
or in any other way ameliorate or address any Hazardous Materials or other
substance in the indoor or outdoor environment; (ii) prevent the Release or
threat of Release, or minimize the further Release of any Hazardous Material so
it does not endanger or threaten to endanger the public or employee health or
welfare of the indoor or outdoor environment; (iii) perform pre-remedial studies
and investigations or post-remedial monitoring and care pertaining or relating
to a Release; or (iv) bring the applicable party into compliance with any
Environmental Law.
Except as disclosed on Schedule 3.1(o) of the Company Disclosure
Schedule:
(i) The operations of the Company and its Subsidiaries have been
conducted, are and, as of the Closing Date, will be, in compliance with all
Environmental Laws, in all material respects;
(ii) The Company and its Subsidiaries have obtained and, until the
Closing Date, will maintain all material permits, licenses and registrations, or
applications relating thereto, and have made
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and, until the Closing Date, will make all material filings, reports and notices
required under applicable Environmental Laws for the continued operations of
their respective businesses;
(iii) The Company and its Subsidiaries are not subject to any
outstanding material written orders issued by, or material contracts with, any
Governmental Entity or other person respecting (A) Environmental Laws, (B)
Remedial Action, (C) any Release or threatened Release of a Hazardous Material
or (D) an assumption of responsibility for environmental liabilities of another
person;
(iv) As of the Prior Execution Date, the Company and its Subsidiaries
have not received any written communication alleging, with respect to any such
party, the violation of or liability under any Environmental Law;
(v) Neither the Company nor any of its Subsidiaries has any material
contingent liability in connection with the Release of any Hazardous Material
into the indoor or outdoor environment (whether on-site or off-site) or employee
or third party exposure to Hazardous Materials;
(vi) The operations of the Company and its Subsidiaries involving the
generation, transportation, treatment, storage or disposal of hazardous or solid
waste, as defined and regulated under 40 C.F.R. Parts 260-270 (in effect as of
the Prior Execution Date) or any applicable state equivalent, are in material
compliance with applicable Environmental Laws;
(vii) As of the Prior Execution Date, there is not on or in any
property of the Company or its Subsidiaries or any property for which the
Company or its Subsidiaries are potentially liable any of the following: (A) any
underground storage tanks or surface impoundments or (B) any on-site disposal of
Hazardous Material;
(viii) No Company Property (as hereinafter defined) is included or,
to the knowledge of the Company, proposed for inclusion on the National
Priorities List issued pursuant to the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended ("CERCLA"), by the United
States Environmental Protection Agency (the "EPA") or on the Comprehensive
Environmental Response, Compensation, and Liability Information System database
maintained by the EPA, and the Company has no knowledge that any Company
Property has otherwise been identified in a published writing by the EPA as a
potential CERCLA removal, remedial or response site or, to the knowledge of the
Company, proposed for inclusion on any similar list of potentially contaminated
sites pursuant to any other Environmental Law; and
(ix) The existence of possible environmental problems on sites
adjacent to Trinity Oaks Apartments (Dallas, Texas), Riverwalk Apartments
(Conroe, Texas), Reflections of Highpoint (Dallas, Texas) and Casa Verde
(Phoenix, Arizona) has not had, and could not reasonably be expected to have, a
material adverse impact on such Company Properties. The Company shall use its
commercially reasonable efforts to comply with the recommendations set forth in
Schedule 3.1(o) to manage or remedy environmental concerns described therein.
(p) Properties.
(i) The Company or one of the Company's Subsidiaries owns fee simple
title (or where indicated, leasehold estate) to each of the real properties
identified in Schedule 3.1(p) to the Company Disclosure Schedule (the "Company
Properties"), which are all of the real estate properties owned or leased by
them, in each case (except as provided below) free and clear of Encumbrances.
The Company Properties are not subject to any rights of way, written agreements,
laws, ordinances and regulations affecting building or land use, occupancy, or
development (collectively, "Property Restrictions"), except for (A) Encumbrances
and Property Restrictions relating to tax-exempt bond financing set forth on
Schedule 3.1(p) to the Company Disclosure Schedule, (B) Property Restrictions
imposed or promulgated by law or any governmental body or authority with respect
to real property, including zoning regulations, provided that they do not
materially adversely affect the currently intended use of any Company Property,
(C) Encumbrances and Property Restrictions disclosed on existing title reports
or existing surveys (in either case copies of which title reports or surveys
have been delivered or made available to Parent), and
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(D) mechanics', carriers', workmen's, repairmen's and materialmen's liens and
other Encumbrances, Property Restrictions and other limitations of any kind, if
any, which, individually or in the aggregate, do not materially detract from the
value of or materially interfere with the present use of any of the Company
Properties subject thereto or affected thereby, and do not, or could not
reasonably be expected to, otherwise have a Material Adverse Effect on the
Company. Except as provided on Schedule 3.1(p) to the Company Disclosure
Schedule, valid policies of title insurance have been issued, insuring the
Company's or its applicable Subsidiary's fee simple title or leasehold estate to
the Company Properties in amounts at least equal to the value of such Company
Properties at the time of the issuance of such policy, subject only to the
matters disclosed above and on the Company Disclosure Schedule, and such
policies are, at the Prior Execution Date, in full force and effect and no
material claim has been made against any such policy. An on-the-ground survey of
each of the Company Properties made prior to the Effective Time and prepared in
accordance with ALTA/ACSM (or Texas equivalent) standards would not disclose any
Encumbrance, Property Restriction or other matter affecting title which is not
currently shown on an existing survey of such Company Property and which could
materially adversely affect the value or operation of such Company Property or
the ability to obtain mortgage financing on such Company Property.
(ii) Each Company Property (A) complies with the Property
Restrictions or, to the extent that such Company Property does not comply, a
written waiver therefor exists and may be relied upon by Parent, (B) each
improvement on each Company Property lies outside of any flood plain or, if any
such improvement lies within a flood plain, adequate insurance therefor is in
full force and effect, and (C) each Company Property has access to and from a
dedicated public right-of-way.
(iii) All properties currently under development or construction by
the Company or the Company's Subsidiaries and all properties currently proposed
for acquisition, development or commencement of construction prior to the
Effective Time by the Company and the Company's Subsidiaries are listed as such
on Schedule 3.1(p) to the Company Disclosure Schedule. All executory agreements
entered into by the Company or any of its Subsidiaries relating to the
development or construction of multifamily residential or other real estate
properties (other than agreements for architectural, engineering, planning,
accounting, legal or other professional services or agreements for material or
labor) are listed on Schedule 3.1(p) to the Company Disclosure Schedule. Copies
of such agreements, all of which have previously been delivered or made
available to Parent and Newco, are listed on the Company Disclosure Schedule and
are true and correct.
(q) Insurance. Schedule 3.1(q) of the Company Disclosure Schedule sets
forth an insurance schedule of the Company's and each of its Subsidiaries'
directors' and officers' liability insurance. The Company and each of its
Subsidiaries maintains insurance with financially responsible insurers in such
amounts and covering such risks as are in accordance with normal industry
practice for companies engaged in businesses similar to those of the Company and
each of its Subsidiaries (taking into account the cost and availability of such
insurance). Except as set forth on Schedule 3.1(q), neither the Company nor any
of its Subsidiaries has received any notice of cancellation or termination with
respect to any existing material insurance policy of the Company or any of its
Subsidiaries.
(r) Opinion of Financial Advisor. The Company has received the written
opinion of J.P. Morgan Securities Inc. to the effect that, as of the Prior
Execution Date, on the basis of and subject to the assumptions set forth
therein, (i) the cash consideration to be paid to the holders of the Company
Common Stock, and (ii) the cash consideration to be offered to the holders of
common limited partnership interests in WDOP and WROP in the transactions
contemplated hereby is fair from a financial point of view to such holders. In
addition, the Company has received a valuation letter from J.P. Morgan
establishing a range of values for the Company Senior Preferred Stock and the
Company Redeemable Preferred Stock. Copies of the letters described above have
been delivered to Parent.
(s) Vote Required. The affirmative vote of the holders of a majority of
the outstanding shares of Company Common Stock entitled to vote thereon is the
only vote of the holders of any class or series of the Company's stock necessary
to approve the Merger (the "Merger Vote").
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(t) Beneficial Ownership of Company Common Stock. Neither the Company
nor its Subsidiaries "beneficially own" (as defined in Rule 13d-3 under the
Exchange Act) any of the outstanding Company Common Stock or any of the
Company's outstanding debt securities.
(u) Brokers. Except for the fees and expenses payable to J.P. Morgan
Securities Inc., which fees are reflected in such firm's engagement letter with
the Company (a copy of which has been delivered to Parent), no broker,
investment banker, or other person is entitled to any broker's, finder's or
other similar fee or commission in connection with the transactions contemplated
by the Transaction Documents or the OP Transaction Documents based upon
arrangements made by or on behalf of the Company.
(v) Investment Company Act of 1940. Neither the Company nor any of its
Subsidiaries is, or at the Effective Time will be, required to be registered as
an investment company under the Investment Company Act of 1940, as amended (the
"Investment Company Act").
(w) Amendment to Rights Agreement; State Takeover Laws.
(i) The Board of Directors of the Company has adopted a resolution
approving an amendment to the Rights Agreement dated as of March 26, 1998
between the Company and BankBoston, N.A. (the "Company Rights Agreement") to
provide that none of the execution and delivery of this Agreement, the
conversion of shares of Company Common Stock or Company Convertible Preferred
Stock into the right to receive the Cash Merger Consideration in accordance with
Article 2 of this Agreement, the consummation of the Merger or any other
transaction contemplated by the Transaction Documents or the OP Transaction
Documents will cause (A) the rights to purchase Company Junior Preferred Stock
under the Company Rights Agreement (the "Company Rights") to be exercisable
under the Company Rights Agreement, (B) Parent, Newco or any of their respective
Subsidiaries or any of their respective stockholders or holders of partnership
interests to be deemed an "Acquiring Person" (as defined in the Company Rights
Agreement), or (C) any such event to be deemed a "Distribution Date" (as defined
in the Company Rights Agreement).
(ii) The Company (A) has taken all action necessary to exempt the
transactions contemplated by the Transaction Documents and the OP Transaction
Documents from (x) the operation of any "fair price," "moratorium," "control
share acquisition," "business combination," or any other anti-takeover statute
or similar statute enacted under the state or federal laws of the United States
or similar statute or regulation (a "Takeover Statute") and (y) any ownership
restrictions or limitations set forth in the Company Charter or Company Bylaws
or the organizational documents of any Subsidiary of the Company and (B) has
delivered to Parent true and complete copies of all resolutions of the Board of
Directors of the Company, any amendments to the Company Bylaws and any other
documents necessary to exempt such transactions pursuant to clause (A) above.
(x) Contracts.
(i) Except as disclosed in the Company SEC Documents or on Schedule
3.1(x) to the Company Disclosure Schedule, there is no contract or agreement
that purports to limit in any material respect the names or the geographic
location in which the Company or any Company Subsidiary may conduct its
business.
(ii) Schedule 3.1(x) sets forth each interest rate cap, interest rate
collar, interest rate swap, currency hedging transaction, and any other
agreement relating to a similar transaction to which the Company or any Company
Subsidiary is a party or an obligor with respect thereto.
(iii) Except as set forth on Schedule 3.1(x), neither the Company nor
any of the Company's Subsidiaries is party to any agreement which would restrict
any of them from prepaying any of their indebtedness without penalty or premium
at any time or which requires any of them to maintain any amount of indebtedness
with respect to any of the Company Properties.
(iv) Neither the Company nor any of the Company's Subsidiaries is a
party to any agreement relating to the management of any of the Company
Properties which is not terminable by the
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Company or such Subsidiary without penalty on less than 30 days notice except
the agreements described on Schedule 3.1(x).
(v) Schedule 3.1(x) lists all agreements entered into by the Company
or any of the Company's Subsidiaries providing for the sale of, or option to
sell, any Company Properties or the purchase of, or option to purchase, any real
estate which are currently in effect.
(vi) Except as set forth on Schedule 3.1(x), neither the Company nor
any of its Subsidiaries has any continuing contractual liability (A) for
indemnification or otherwise under any agreement relating to the sale of real
estate previously owned (other than non-material indemnification obligations
relating to brokerage commissions, ordinary and customary title warranties,
post-closing adjustments and customary contractual indemnification for
pre-closing events upon sales of properties by the Company or any of its
Subsidiaries), (B) to pay any additional purchase price for any of the Company
Properties, or (C) to make any prorations or adjustments to prorations involving
an amount in excess of $50,000 (other than real estate taxes) that may
previously have been made with respect to any property currently or formerly
owned by the Company.
(vii) Except as set forth on Schedule 3.1(x), there are no material
outstanding contractual obligations of the Company or any of its Company
Subsidiaries to provide any funds to, or make any investment (in the form of an
advance, loan, extension of credit, capital contribution or otherwise) in, or
which provide for the direct or indirect guarantee by the Company or any of its
Subsidiaries (including by means of a take-or-pay or keepwell agreement) of the
indebtedness, liabilities, obligations or financial condition of, any of the
Company's Subsidiaries or any other person.
(viii) Except as set forth on Schedule 3.1(x), there are no
indemnification agreements entered into by and between the Company and any
director or officer of the Company or any of its Subsidiaries.
(ix) Except as set forth on Schedule 3.1(x), there are no contracts,
agreements, commitments or arrangements that (A) create a material partnership,
joint venture or similar arrangement, (B) require payments to be made in excess
of $100,000 per year for goods and services or with respect to any licenses
granted to or by the Company or any of its Subsidiaries, (C) grant any
Encumbrance upon any material asset of the Company or any of its Subsidiaries or
(D) were not made in the ordinary course of business and are material to the
Company and its Subsidiaries, taken as a whole, in each of the cases set forth
in clauses (A), (B), (C) and (D) which are not subject to termination within 30
days after the date of the execution and delivery thereof without penalty or
payment by the Company (all such contracts, arrangements or agreements listed on
Schedule 3.1(x) pursuant to clauses (i) through (ix), the "Material Contracts").
(y) Stock Purchase Plan. The Company has taken all action necessary,
including (without limitation) causing its Board of Directors (or a committee
thereof) to adopt resolutions, to provide that (i) the Company Stock Purchase
Plan shall be suspended effective as of the last day of the Purchase Period (as
defined in the Company Stock Purchase Plan) that commenced before the Prior
Execution Date and ended on or after the Prior Execution Date, which Purchase
Period begins on the first day of a calendar quarter and ends on the last day of
such calendar quarter, so as to terminate temporarily the Company Stock Purchase
Plan during all Purchase Periods, if any, occurring after such date until the
Effective Time; (ii) the Company Stock Purchase Plan shall terminate permanently
as of the Effective Time, at which time the number of whole shares of Company
Common Stock which such participant would otherwise be entitled to purchase
under the Company Stock Purchase Plan shall be converted into the right to
receive the Option Consideration to which such participant is entitled pursuant
to Section 2.1(d), and cash in the amount of any remaining account balance; and
(iii) if the last day of a Purchase Period does not occur prior to the Closing
Date, the Closing Date shall be deemed to be the last day of such Purchase
Period for purposes of determining the purchase price of the Company Common
Stock with respect to such Purchase Period.
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(z) Deferred Compensation Plan. The Company has taken all actions
necessary, including (without limitation) causing its Board of Directors (or a
committee thereof) to adopt resolutions, to provide that the Company's
Non-Qualified Deferred Compensation Plan (the "Company Deferred Compensation
Plan") shall terminate, effective as of the Effective Time, and all vested and
unvested account balances shall be distributed to such participants in
accordance with the terms of such plan and the corresponding Trust Agreement
dated as of October 1, 1998 between the Company and Delaware Charter and
Guarantee Trust Company.
(aa) Company Options. The Company has taken all actions necessary,
including (without limitation) causing its Board of Directors (or a committee
thereof) to adopt resolutions, to provide that the Company Stock Options shall
be automatically canceled as of the Effective Time and shall thereafter
represent the right to receive the Option Consideration as set forth in Section
2.1 and to ensure that, following the Effective Time, no participant in the
Company Incentive Plans or any other plans, programs or arrangements shall have
any right thereunder to acquire or otherwise receive any capital stock of, or
other equity or similar interests in, the Company, the Surviving Entity or any
Affiliate thereof.
(bb) Company Warrants. The Company has taken all necessary action,
including (without limitation) causing its Board of Directors (or a committee
thereof) to adopt resolutions, to reduce the exercise price of the Company
Warrants to an exercise price per share equal to $0.01 below the Cash Merger
Consideration payable with respect to a share of Company Common Stock, effective
immediately prior to the Effective Time.
(cc) Rule 16b-3. The Company has taken all necessary action, including
(without limitation) causing its Board of Directors to adopt resolutions
authorizing and approving the Merger, this Agreement and the transactions
contemplated hereby, to exempt such transactions under Rule 16b-3 of the
Exchange Act from the provisions of Section 16(b) of the Exchange Act.
(dd) Information Systems. The Company has formulated a plan in order to
address the ability of the Company's information systems to process date and
time data from, into and beyond the year 2000 ("Year 2000 Data"), and the
ability of such systems to interact with third parties' systems and with or
through electrical power, telecommunications and other utilities and services.
Schedule 3.1(dd) of the Company Disclosure Schedule identifies the Company's and
its Subsidiary's information systems that are material to the operations of the
Company and its Subsidiaries (the "Information Systems") and identifies for each
such Information System (i) whether such Information System has been identified
by the Company as being able to accurately process such Year 2000 Data, and (ii)
if such Information System has not been identified by the Company as being able
to accurately process Year 2000 Data, the plan and target date for replacing,
updating or upgrading such Information System in order to be able to accurately
process such data. Such plans are proceeding as scheduled and are being
implemented at costs which do not exceed the costs expected by the Company and
its Subsidiaries to be incurred with respect to their management information
systems to enable them to function in the ordinary course of business. The
Company is not aware of any facts or circumstances that create a reasonable
basis for the Company to believe that, if the scheduled replacements, updates or
upgrades continue to be made in accordance with the plans identified on Schedule
3.1(dd), the Company's Information Systems will be unable to accurately process
such Year 2000 Data as of and after December 31, 1999. No client, customer,
supplier or vendor, and no electric, telecommunications or other utility with
whom the Company's or any Subsidiary's Information Systems interact, has
notified the Company or such Subsidiary that the Information Systems, when used
in combination with any information system of such person, will be unable to
accurately process such Year 2000 Data.
(ee) Drever Partners, Inc. Stock Purchase Agreement. Concurrently with
the execution of the Initial Agreement, WDOP, Marshall B. Edwards, Mark S.
Dillinger, Michael E. Masterson and Drever Partners, Inc. have executed and
delivered that certain Stock Purchase Agreement dated September 24, 1999, a copy
of which is attached hereto as Exhibit E (the "Drever Partners Stock Purchase
Agreement").
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(ff) Amendment and Restatement of Prior Agreement. As of the date
hereof, in accordance with Section 7.5 of the Prior Agreement, the Board of
Directors of the Company and the Company Special Committee have taken all
actions necessary to effect the amendment and restatement of the Prior Agreement
pursuant to this Agreement.
3.2 Representations and Warranties of Parent and Newco. Parent and Newco
represent and warrant, jointly and severally, to the Company as follows (which
representations and warranties shall be deemed to have been made on and after
the Prior Execution Date up to and including the Effective Time (except to the
extent that a representation or warranty is made on or after another date or as
of a specified date), in each case as qualified by matters reflected on the
disclosure schedule delivered by Parent and Newco to the Company on or prior to
the Prior Execution Date (the "Parent/Newco Disclosure Schedule") and made a
part hereof by reference):
(a) Organization, Standing and Power. Newco is a corporation duly formed
and validly existing under the MGCL and is in good standing with the State
Department of Assessments and Taxation of Maryland, and Parent is a limited
partnership duly formed and validly existing under the Delaware Revised Uniform
Limited Partnership Act and is in good standing with the Delaware Secretary of
State. As of the date hereof and as of the Closing Date, neither Newco nor
Parent has any Subsidiaries, except that Newco is a wholly owned Subsidiary of
Parent, and WROP Merger Sub and WDOP Merger Sub are Subsidiaries of Parent, and
except for any newly created subsidiaries pursuant to Section 5.20. Newco has
heretofore delivered to the Company complete and correct copies of its charter
and Bylaws, and Parent has delivered to the Company complete and correct copies
of its Certificate of Limited Partnership and the Parent Partnership Agreement,
the Agreement of Limited Partnership of WROP Merger Sub and the Agreement of
Limited Partnership of WDOP Merger Sub.
(b) Capital Structure. As of the date hereof, Oly Hightop Holding, L.P.,
a Delaware limited partnership ("Holding"), is the sole limited partner of
Parent, and Oly Hightop Parent GP, LLC, a Delaware limited liability company and
wholly owned subsidiary of Holding, is the sole general partner of Parent. As of
the date hereof, the partnership interests of Parent consist of a .01% general
partner interest held by Oly Hightop Parent GP, LLC and a 99.99% limited
partnership interest held by Holding. As of the date hereof, Parent has
designated a class of partnership interests as Common Limited Partner Interests
of Parent ("Parent Common Limited Partner Interests"). As of the date hereof,
Holding is the only holder of a Parent Common Limited Partner Interest. As of
the date hereof, the authorized stock of Newco consists of 1,000 shares of Newco
Common Stock. As of the date hereof, (A) 100 shares of Newco Common Stock are
issued and outstanding; and (B) no Voting Debt is issued and outstanding. Except
as set forth in this Section 3.2(b), there are outstanding: (1) no equity
interests, Voting Debt or other voting securities of Parent or Newco; (2) no
securities of Parent, Newco or any Subsidiary of Parent or Newco or securities
or assets of any other entity convertible into or exchangeable for equity
interests, capital stock, Voting Debt or other voting securities of Parent or
Newco or any Subsidiary of Parent or Newco; and (3) other than the subscription
agreements set forth on Schedule 3.2(g) of the Parent/Newco Disclosure Schedule,
no options, warrants, calls, rights (including preemptive rights), commitments
or agreements to which Parent or Newco or any Subsidiary of Parent or Newco is a
party or by which it is bound in any case obligating Parent or Newco or any
Subsidiary of Parent or Newco to issue, deliver, sell, purchase, redeem or
acquire, or cause to be issued, delivered, sold, purchased, redeemed or
acquired, additional equity interests, capital stock or any Voting Debt or other
voting securities of Parent or Newco or of any Subsidiary of Parent or Newco, or
obligating Parent or Newco or any Subsidiary of Parent or Newco to grant, extend
or enter into any such option, warrant, call, right, commitment or agreement.
(c) Authority; No Violations, Consents and Approvals.
(i) Each of Parent, Newco, WDOP Merger Sub and WROP Merger Sub has
all requisite power and authority to enter into the Transaction Documents and
the OP Transaction Documents to which it is a party and to consummate the
transactions contemplated hereby or thereby. The execution and delivery of the
Transaction Documents and the OP Transaction Documents and the consummation of
the transactions contemplated hereby or thereby have been duly authorized by all
necessary action on the part
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of Parent, Newco, WDOP Merger Sub and WROP Merger Sub. The Transaction Documents
to which Parent, Newco, WDOP Merger Sub or WROP Merger Sub is a party have been
duly executed and delivered by each of Parent, Newco, WDOP Merger Sub and WROP
Merger Sub as the case may be, and assuming the Transaction Documents to which
the Company or any of its Subsidiaries is a party constitute the valid and
binding obligation of the Company or its Subsidiary, as the case may be,
constitute a valid and binding obligation of each of Parent, Newco, WDOP Merger
Sub or WROP Merger Sub enforceable in accordance with its terms, subject as to
enforceability, to bankruptcy, insolvency, reorganization, moratorium and other
laws of general applicability relating to or affecting creditors' rights and to
general principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law).
(ii) The execution and delivery of the Transaction Documents to which
it is a party do not, and the consummation of the transactions contemplated
hereby or thereby, and compliance with the provisions hereof or thereof, will
not, conflict with, or result in any violation of, or default (with or without
notice or lapse of time, or both) under, or give rise to a right of termination,
cancellation or acceleration of any material obligation or to the loss of a
material benefit under, or give rise to a right of purchase under, result in the
creation of any Encumbrance upon any of the properties or assets of Parent or
Newco or any of their Subsidiaries under, require the consent or approval of any
third party lender or otherwise result in a material detriment to Parent or
Newco or any of their Subsidiaries under, any provision of (A) the Parent
Partnership Agreement, the Articles of Incorporation or Bylaws of Newco or any
provision of the comparable charter or organizational documents of any of their
Subsidiaries, (B) any loan or credit agreement, note, bond, mortgage, indenture,
lease or other agreement, instrument, permit, concession, franchise or license
applicable to Parent or Newco or any of their Subsidiaries or their respective
properties or assets or any guarantee by Parent or Newco or any of their
Subsidiaries of the foregoing, (C) any joint venture or other ownership
arrangement or (D) assuming the consents, approvals, authorizations or permits
and filings or notifications referred to in Section 3.2(c)(iii) are duly and
timely obtained or made, any judgment, order, decree, statute, law, ordinance,
rule or regulation applicable to Parent or Newco or any of their Subsidiaries or
any of their respective properties or assets, other than, in the case of clauses
(B), (C) and (D), any such conflicts, violations, defaults, rights, Encumbrances
or detriments that, individually or in the aggregate, would not, or could not
reasonably be expected to, materially impair the ability of Parent or Newco to
perform its obligations hereunder or thereunder or prevent the consummation of
any of the transactions contemplated hereby or thereby.
(iii) No consent, approval, order or authorization of, or
registration, declaration or filing with, or permit from any Governmental Entity
is required by or with respect to Parent or Newco or any of their Subsidiaries
in connection with the execution and delivery by Parent or Newco of the
Transaction Documents to which Parent or Newco is a party or the consummation by
Parent or Newco of the transactions contemplated hereby or thereby, except for:
(A) the filing with the SEC of such reports under Section 13(a) of the Exchange
Act and such other compliance with the Securities Act and the Exchange Act and
the rules and regulations thereunder as may be required in connection with this
Agreement and the transactions contemplated hereby; (B) the filing of the
Articles of Merger with, and acceptance for record of the Articles of Merger by,
the SDAT; (C) such filings and approvals as may be required by any applicable
state takeover laws or environmental laws; (D) filings under the HSR Act, if
applicable; and (E) any such consent, approval, order, authorization,
registration, declaration, filing, or permit that the failure to obtain or make
would not, or could not reasonably be expected to, materially impair the ability
of Parent or Newco to perform its obligations hereunder or prevent the
consummation of any of the transactions contemplated hereby.
(d) Information Supplied. None of the information supplied or to be
supplied by Parent or Newco for inclusion or incorporation by reference in the
Proxy Statement will, at the date mailed to stockholders of the Company, at the
time of the meeting of such stockholders to be held in connection with the
Merger, or at the Effective Time, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they are made, not misleading. If at any time prior to the Effective
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Time any event with respect to Parent or Newco or any of their Subsidiaries, or
with respect to other information supplied by Parent or Newco for inclusion in
the Proxy Statement, shall occur which is required to be described in an
amendment of, or a supplement to, the Proxy Statement, such event shall be so
described, and such amendment or supplement shall be promptly filed (if required
to be filed) with the SEC. The Proxy Statement, insofar as it relates to Parent
or Newco or other Subsidiaries of Parent or Newco or other information supplied
by Parent or Newco for inclusion or incorporation by reference therein, will
comply as to form in all material respects with the provisions of the Exchange
Act and the rules and regulations thereunder.
(e) Litigation. As of the Prior Execution Date, there is no suit, action
or proceeding pending, or, to the knowledge of Parent or Newco, threatened
against or affecting Parent or Newco or any Subsidiary of Parent or Newco
("Parent/Newco Litigation") and, as of the Prior Execution Date, none of Parent,
Newco or their Subsidiaries have knowledge of any facts that are likely to give
rise to any Parent/ Newco Litigation, nor as of the Prior Execution Date is
there any judgment, decree, injunction, rule or order of any Governmental Entity
or arbitrator outstanding against Parent, Newco or any Subsidiary of Parent or
Newco ("Parent/Newco Order").
(f) Brokers. Except for fees and expenses incurred in connection with
the financing arrangements, fees and expenses payable to BancBoston Robertson
Stephens, which fees are reflected in its engagement letter with Oly Hightop,
LLC (a copy of which has been delivered to the Company), and the agreement
regarding fee and expense sharing agreement between Oly Hightop, LLC, Westdale
Asset Management, Ltd. and Westdale Properties America I, Ltd., which fees will
be paid by Newco, no broker, investment banker or other person is entitled to
any broker's, finder's or other similar fee or commission in connection with the
transactions contemplated by the Transaction Documents based upon arrangements
made by or on behalf of Parent or Newco.
(g) Sources of Funds. Newco and Parent have obtained the equity
financing commitments and expressions of interest and Parent and its Affiliates
have obtained the debt financing commitments and expressions of interest
(collectively, including any such commitment the expiration date of which is
extended, the "Financing Commitments"), all as described on Schedule 3.2(g) of
the Parent/Newco Disclosure Schedule.
(h) Interim Operations of Parent and Newco. Each of Parent, Newco, WDOP
Merger Sub and WROP Merger Sub was formed by Holding solely for the purpose of
engaging in the transactions contemplated hereby and, as of the Prior Execution
Date and as of the Effective Time, except for obligations or liabilities
incurred in connection with its incorporation or organization and the
transactions, agreements and arrangements contemplated by this Agreement, has
engaged in no other business or activities, has incurred no other obligations or
liabilities, has no assets and has conducted its operations only as contemplated
hereby.
(i) Amendment and Restatement of Prior Agreement. As of the date hereof,
in accordance with Section 7.5 of the Prior Agreement, the Board of Directors of
Newco and the general partner of Parent have taken all actions necessary to
effect the amendment and restatement of the Prior Agreement pursuant to this
Agreement.
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ARTICLE 4
COVENANTS RELATING TO CONDUCT
OF BUSINESS PENDING THE MERGER
4.1 Conduct of Business by the Company Pending the Merger. From the Prior
Execution Date until the Effective Time, the Company agrees as to itself and its
Subsidiaries that (except as described on Schedule 4.1 to the Company Disclosure
Schedule or as expressly contemplated or permitted by this Agreement, or to the
extent that Parent and Newco shall otherwise consent in writing):
(a) Ordinary Course. The Company and each of its Subsidiaries shall
carry on its businesses in the usual, regular and ordinary course in
substantially the same manner as heretofore conducted and shall use all
commercially reasonable efforts to preserve intact its present business
organization, keep available the services of its current officers and employees
and endeavor to preserve its relationships with customers, suppliers and others
having business dealings with it to the end that its goodwill and ongoing
business shall not be impaired in any material respect at the Effective Time.
The Company will promptly notify Parent of any Material Adverse Change or of any
litigation having potential liability to the Company or any of its Subsidiaries
in excess of $50,000 or any governmental complaints, investigations or hearings
involving the Company.
(b) Dividends; Changes in Stock. Except as contemplated by this
Agreement and for transactions solely among the Company and its direct or
indirect or wholly owned Subsidiaries, the Company shall not and it shall not
permit any of its Subsidiaries to: (i) authorize, declare or pay any dividends
on or make other distributions in respect of any of its equity interests,
capital stock or partnership interests, except for (A) the authorization,
declaration and payment of (1) regular quarterly cash dividends on Company
Common Stock for the third quarter of the Company's 1999 fiscal year not to
exceed $0.4825 per share (which dividend is payable in the fourth quarter), with
usual record and payment dates, and (2) any regular quarterly dividend
thereafter, but only in the minimum amount necessary to avoid (x) jeopardizing
the Company's status as a REIT under the Code and (y) having positive real
estate investment trust taxable income for the taxable year ending at the
Effective Time, in either case, after notice to and consultation with Parent,
(B) the payment of regular quarterly cash dividends on the Company Convertible
Preferred Stock, the Company Senior Preferred Stock and the Company Redeemable
Preferred Stock in accordance with their respective terms, with usual record and
payment dates, (C) the payment of any distributions to the partners of any
limited partnerships that are Subsidiaries of the Company made in accordance
with the requirements of the existing organizational documents of such
Subsidiary limited partnerships and (D) the payment of regular quarterly cash
dividends to stockholders of any corporations that are preferred stock
Subsidiaries of the Company, with usual record and payment dates; (ii) split,
combine or reclassify any of its equity interests or shares of capital stock or
issue or authorize or propose the issuance of any other securities in respect
of, in lieu of or in substitution for the Company's or a Subsidiary's equity
interests or capital stock; or (iii) repurchase, redeem or otherwise acquire, or
permit any of its Subsidiaries to purchase, redeem or otherwise acquire, any
equity interests or capital stock.
(c) Issuance of Securities. The Company shall not, and it shall not
permit any of its Subsidiaries to, issue, deliver or sell, or authorize or
propose to issue, deliver or sell, any of its equity interests or capital stock
of any class, any Voting Debt or other voting securities or any securities
convertible into, or any rights, warrants or options to acquire, any such
shares, Voting Debt, other voting securities or convertible securities, other
than: (i) the issuance of Company Common Stock upon the exercise of (A) stock
options that were outstanding on the Prior Execution Date under the Company
Incentive Plans, (B) Company Warrants that were outstanding on the Prior
Execution Date and (C) Company Series B Warrants issued pursuant to clause (ii),
and (ii) issuances of Company Common Stock, Company Redeemable Preferred Stock
and/or Company Series B Warrants by the Company to partners of limited
partnership Subsidiaries of the Company in accordance with the requirements of
the existing organizational documents of such Subsidiaries, (iii) issuances by a
wholly owned Subsidiary of the Company of such Subsidiary's capital stock or
equity interests to its parent, and (iv) the issuance of
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Company Common Stock upon the conversion of shares of Company Convertible
Preferred Stock in accordance with its terms.
(d) Governing Documents. Except as contemplated hereby or in connection
herewith, the Company shall not amend or propose to amend the Company Charter or
Company Bylaws and, except in connection with the OP Transactions, the Company
shall cause its Subsidiaries not to amend or propose to amend any partnership
agreement or other organizational documents of such Subsidiaries.
(e) No Acquisitions. Other than as described on Schedule 4.1 of the
Company Disclosure Schedule or as requested pursuant to Section 5.20, the
Company shall not, and it shall not permit any of its Subsidiaries to, acquire
(or agree to acquire by merging or consolidating with, or by purchasing any
equity interests in or any of the assets of, or by any other manner) any
business, corporation, partnership, association or other business organization
or division thereof, or any assets, in each case having a purchase price or
consideration payable in excess of $50,000; provided, however, that the
aggregate purchase price or consideration payable with respect to such
acquisitions shall not exceed $500,000, in the aggregate.
(f) No Dispositions. Other than as described on Schedule 4.1 of the
Company Disclosure Schedule or as requested pursuant to Section 5.20, the
Company shall not, and it shall not permit any of its Subsidiaries to, sell or
otherwise dispose of, or agree to sell or otherwise dispose of, any Company
Properties or any of its material assets.
(g) No Dissolution, Etc. Except as otherwise permitted or contemplated
by this Agreement, including as requested pursuant to Section 5.20, the Company
shall not authorize, recommend, propose or announce an intention to adopt a plan
of complete or partial liquidation or dissolution of the Company or any of its
Subsidiaries.
(h) Accounting. The Company shall not, nor shall the Company permit any
of its Subsidiaries to, make any changes in its accounting methods which would
be required to be disclosed under the rules and regulations of the SEC, except
as required by law, rule, regulation or GAAP.
(i) Affiliate Transactions. Except for any transaction contemplated by
the Transaction Documents or the OP Transaction Documents, the Company shall
not, nor shall the Company permit any of its Subsidiaries to, enter into any
agreement or arrangement with any of their respective Affiliates (as such term
is defined in Rule 405 under the Securities Act, an "Affiliate"), other than
with wholly owned Subsidiaries of the Company.
(j) Insurance. The Company shall, and shall cause its Subsidiaries to,
use all commercially reasonable efforts to maintain with financially responsible
insurance companies insurance in such amounts and against such risks and losses
as are customary for companies engaged in their respective businesses.
(k) Tax Matters. The Company shall not (i) make or rescind any material
express or deemed election relating to Taxes (except as required by law or
necessary to preserve the Company's status as a REIT or the status of any of the
Company's Subsidiaries as a partnership for federal income tax purposes or as a
qualified REIT subsidiary under Section 856(i) of the Code) unless it is
reasonably expected that such action will not materially and adversely affect
the Company, including elections for any and all joint ventures, partnerships,
limited liability companies or other investments where the Company has the
capacity to make such binding election, (ii) settle or compromise any material
claim, action, suit, litigation, proceeding, arbitration, investigation, audit
or controversy relating to Taxes, except where such settlement or compromise
will not materially and adversely affect the Company and except any settlement
or compromise relating to contests or protests relating to property tax
valuations undertaken by the Company in the ordinary course of business, or
(iii) change in any material respect any of its methods of reporting income or
deductions for federal income tax purposes from those employed in the
preparation of its federal income Tax Returns that have been filed for prior
taxable years, except as may be required by applicable law or except for changes
that are reasonably expected not to materially and adversely affect the Company.
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(l) Certain Employee Matters. The Company shall not and it shall not
permit any of its Subsidiaries to: (i) hire or terminate any employee or
consultant if the aggregate annual compensation of such employee or consultant
exceeds $75,000; (ii) grant any increases in the compensation of, or pay any
bonuses or noncompetition payments to, any of its directors, trustees, officers
or employees; (iii) pay or agree to pay to any director, officer or employee,
whether past or present, any pension, retirement or other employee benefit not
required or contemplated by any of the existing Company Employee Benefit Plans
or Company Pension Plans, as applicable, in each case as in effect on the Prior
Execution Date; (iv) enter into any new, or amend any existing, employment or
severance or termination agreement with any director, officer or employee; or
(v) become obligated under any new Company Employee Benefit Plan or Company
Pension Plan, which was not in existence or approved by the Board of Directors
of the Company prior to the Prior Execution Date, or amend any such plan or
arrangement in existence on the Prior Execution Date if such amendment would
have the effect of materially enhancing any benefits thereunder; provided,
however, that nothing in this Section 4.1(l) shall prohibit the Company from
making the severance payments contemplated by the employment and consulting
agreements set forth in Schedule 3.1(l) of the Company Disclosure Schedule and
paying up to an aggregate amount of Two Million Dollars ($2,000,000) in
retention bonuses to nonexecutive employees.
(m) Indebtedness. The Company shall not, nor shall it permit any of its
Subsidiaries to, (i) incur any indebtedness for borrowed money (except regular
borrowings under credit facilities made in the ordinary course of the Company's
cash management practices), forgive any indebtedness, or guarantee any
indebtedness or issue or sell any debt securities or warrants or rights to
acquire any debt securities of the Company or any of its Subsidiaries or
guarantee any debt securities of others or (ii) except in connection with the
acquisitions listed on Schedule 4.1, create any mortgages, liens, security
interests or similar other encumbrances on the property of the Company or any of
its Subsidiaries in connection with any indebtedness thereof.
(n) WROP Merger and WDOP Merger. The Company shall not, nor shall it
permit any of its Subsidiaries to, agree to amend, waive, modify or terminate
any provision of the WDOP Merger Agreement or the WROP Merger Agreement or any
other OP Transaction Document.
(o) Company Rights under Rights Agreement. The Company shall not redeem
any of the Company Rights prior to the Effective Time unless required to do so
by a court of competent jurisdiction.
(p) Contracts. The Company shall not, nor shall it permit any of its
Subsidiaries to, materially amend or terminate, or waive compliance with the
terms of or breaches under, any Material Contract, including (without
limitation) the Company Rights Agreement, and shall not, nor shall it permit any
of its Subsidiaries to, enter into a new contract, agreement or arrangement
that, if entered into prior to the date of this Agreement, would have been
required to be listed on Schedule 3.1(x).
(q) Discharge of Liabilities. The Company shall not, nor shall it permit
any of its Subsidiaries to, pay, discharge, settle or satisfy any claims,
liabilities or obligations (absolute, accrued, asserted or unasserted,
contingent or otherwise), other than the payment, discharge, settlement or
satisfaction, in the ordinary course of business consistent with past practice
or in accordance with their terms, of claims, liabilities or obligations
recognized or disclosed in the most recent financial statements of the Company
included in the Company SEC Documents.
(r) Drever Partners Stock Purchase Agreement. The Company shall not, nor
shall it permit any of its Subsidiaries to, agree to amend, waive, modify or
terminate any provision of the Drever Partners Stock Purchase Agreement.
(s) Agreements. The Company shall not, nor shall it permit any of its
Subsidiaries to, agree in writing or otherwise to take any action inconsistent
with any of the foregoing.
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4.2 No Solicitation by the Company.
(a) From and after the Prior Execution Date and prior to the Effective
Time, the Company agrees that:
(i) neither it nor any of its Subsidiaries shall initiate, solicit or
encourage, directly or indirectly, any inquiries or the making or implementation
of any proposal or offer (including, without limitation, any proposal or offer
to its stockholders) with respect to a merger, acquisition, tender offer,
exchange offer, consolidation, sale of assets or similar transaction involving,
or any purchase of, 10% or more of the assets or any equity securities of the
Company or any of the Company's Subsidiaries, other than the transactions
contemplated by this Agreement (any such inquiry, proposal or offer being
hereinafter referred to as a "Company 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 a Company Acquisition
Proposal, or terminate or waive any provision of any confidentiality agreement
with any person or otherwise take any action designed or reasonably likely to
facilitate any effort or attempt to make or implement a Company Acquisition
Proposal;
(ii) it will direct and cause its officers, directors, employees,
agents, attorneys, accountants, financial advisors or other representatives not
to engage in any of the activities in Section 4.2(a)(i), except to the extent
expressly permitted in Section 4.2(b)(i);
(iii) it will immediately cease and cause to be terminated any
existing activities, discussions or negotiations with any parties conducted
heretofore with respect to any of the foregoing and will take the necessary
steps to inform the individuals or entities referred to in Section 4.2(a)(ii) of
the obligations undertaken in this Section 4.2; and
(iv) it will notify Parent promptly if the Company receives any such
inquiries or proposals, or any requests for such information, or if any such
negotiations or discussions are sought to be initiated or continued with it.
(b) Notwithstanding the foregoing, nothing contained in Section 4.2(a)
shall prohibit the Board of Directors of the Company from the following actions:
(i) furnishing information to, or entering into discussions or
negotiations with, any person or entity that makes an unsolicited Company
Acquisition Proposal if, and only to the extent that, (A) the Board of Directors
of the Company determines in good faith, following consultation with and after
considering the advice of its legal and financial advisors, that such action
could reasonably be expected to result in a Company Superior Proposal (as
hereinafter defined), (B) prior to furnishing such information to, or entering
into discussions or negotiations with, such person or entity, the Company
provides both oral and written notice to Parent to the effect that it is
furnishing information to, or entering into discussions with, such person or
entity, the material terms and conditions of such Company Acquisition Proposal
and the identity of the person making such Company Acquisition Proposal and (C)
upon any material change in the details (including amendments or proposed
amendments) of any such Company Acquisition Proposal, the Company immediately
informs Parent of such change orally and in writing, and
(ii) to the extent applicable, taking and disclosing to its
stockholders a position as contemplated by Rules 14d-9 and 14e-2 promulgated
under the Exchange Act or from making any disclosure to the Company's
stockholders with regard to a Company Acquisition Proposal if, in the good faith
judgment of the Company's Board of Directors, after consultation with outside
counsel, failure so to disclose would be inconsistent with applicable law;
provided, however, that, from and after the Prior Execution Date, neither the
Board of Directors of the Company nor the Company Special Committee shall,
except as specifically permitted pursuant to this Section 4.2, withdraw or
modify, or propose to withdraw or modify, its position with respect to the
Merger or this Agreement or approve or recommend, or propose to approve or
recommend, a Company Acquisition Proposal. Nothing in this Section 4.2 shall (x)
permit the Company to enter into an agreement with respect to a Company
Acquisition Proposal during the term of this Agreement (it being
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agreed that during the term of this Agreement, the Company shall not enter into
any letter of intent, agreement in principle, acquisition agreement or other
similar agreement with any person that provides for, or in any way facilitates,
a Company Acquisition Proposal) or (y) affect any other obligation of the
Company under this Agreement; provided, however, that the Board of Directors of
the Company may approve and recommend a Company Superior Proposal and, in
connection therewith, withdraw or modify its approval or recommendation of this
Agreement and the Merger. As used herein, a "Company Superior Proposal" means an
unsolicited bona fide Company Acquisition Proposal made by a third party which a
majority of the members of the Board of Directors of the Company (or a duly
constituted committee thereof charged with considering Company Acquisition
Proposals) determines in good faith to be more favorable to the Company's
stockholders from a financial point of view than the Merger (based on advice
from the Company's independent financial advisor of nationally recognized
reputation that the value of the consideration provided for in such proposal is
superior to the value of the consideration provided for in the Merger), for
which any required financing is then committed or which, in the good faith
reasonable judgment of the Board of Directors of the Company (or any such
committee), based on advice from the Company's independent financial advisor, is
reasonably capable of being financed by such third party (if financing is
required), and which the Board of Directors of the Company determines, in its
good faith reasonable judgment, is reasonably capable of being consummated
without undue delay.
ARTICLE 5
ADDITIONAL AGREEMENTS
5.1 Preparation of Proxy Statement. The Company shall promptly prepare and
file with the SEC the Proxy Statement in form and substance reasonably
satisfactory to each of the Company, Parent and Newco. Each of the Company,
Parent and Newco shall use its commercially reasonable efforts to have the Proxy
Statement approved for mailing to the stockholders of the Company as promptly as
practicable after such filing. The Company shall agree to date the Proxy
Statement as of the approximate date of mailing to its stockholders and shall
use its commercially reasonable efforts to cause the Proxy Statement to be
mailed to its stockholders at the earliest practicable date.
5.2 [INTENTIONALLY OMITTED]
5.3 Access to Information. Upon reasonable notice, the Company shall (and
shall cause each of its Subsidiaries to) afford to the officers, employees,
accountants, counsel, financing sources and other representatives of Parent or
Newco, access, during normal business hours during the period prior to the
Effective Time, to all its properties, books, contracts, commitments and
records, as well as to its officers and employees and, during such period, the
Company shall (and shall cause its Subsidiaries to) furnish promptly to Parent
and Newco all other information concerning its business, properties and
personnel as Parent or Newco may reasonably request. Each of Parent and Newco
agrees that it will not, and will cause its respective representatives not to,
use any information obtained pursuant to this Section 5.3 for any purpose
unrelated to the consummation of the transactions contemplated by the
Transaction Documents or the OP Transaction Documents. The Confidentiality
Agreement for Representatives dated July 2, 1999 between the Company and Olympus
Real Estate Corporation (the "Confidentiality Agreement") relating to the
Confidentiality Agreement dated June 9, 1999 by Westdale Properties America I,
Ltd. shall apply with respect to information furnished thereunder or hereunder
and any other activities contemplated thereby.
5.4 Stockholders Meeting. The Company shall call a meeting of its
stockholders (the "Stockholders Meeting") to be held as promptly as practicable
after the date hereof, but no sooner than 20 business days following the date
that the Proxy Statement is mailed to stockholders of the Company, for the
purpose of voting upon the Merger. Subject to the provisions of Section 4.2(b),
the Company Special Committee and the Board of Directors of the Company shall
recommend to the Company's stockholders entitled to vote thereon the approval of
the Merger and this Agreement and not rescind such recommendation, and the
Company shall use all commercially reasonable efforts to obtain approval of the
Merger and this Agreement by its stockholders entitled to vote thereon. The
Company shall use all commercially
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reasonable efforts to hold such meeting as soon as practicable, but no sooner
than 20 business days following the date that the Proxy Statement is mailed to
stockholders of the Company.
5.5 Approvals.
(a) Each party hereto shall cooperate and use all commercially
reasonable efforts to promptly prepare and file all necessary documentation to
effect all necessary applications, notices, petitions, filings and other
documents, and use all commercially reasonable efforts to obtain (and will
cooperate with each other in obtaining) any consent, acquiescence,
authorization, order or approval of, or any exemption or nonopposition by, any
Governmental Entity required to be obtained or made by the Company or by Parent
or Newco, or any of their respective Subsidiaries, in connection with the
Merger, the WDOP Merger and the WROP Merger or the taking of any other action
contemplated by the Transaction Documents or the OP Transaction Documents.
(b) For purposes of this Agreement, (i) all consents indicated by an
asterisk on Schedule 3.1(c) of the Company Disclosure Schedule, (ii) all
consents set forth on Schedule 5.5(b) of the Parent/Newco Disclosure Schedule,
(iii) any other consent that is required by any lender to consummate the
transactions contemplated by the Transaction Documents, the OP Transaction
Documents and the Financing Commitments and to which such lender is legally
entitled and (iv) any other consent required by any third party (including
credit enhancers, bond issuers, insurers, servicers or trustees) in connection
with the financing, refinancing or assumption of indebtedness and changes in
ownership or control contemplated in the Transaction Documents, the OP
Transaction Documents and the Financing Commitments, are collectively referred
to herein as the "Required Consents." Subject to the terms and conditions herein
provided, each of the Company, Parent and Newco shall: (A) cooperate with one
another in (1) determining which filings are required to be made prior to the
Effective Time with, and which consents, approvals, permits or authorizations
are required to be obtained prior to the Effective Time from, governmental or
regulatory authorities of the United States, the several states and foreign
jurisdictions and any third parties in connection with the execution and
delivery of this Agreement, and the consummation of the transactions
contemplated hereby and (2) timely making all such filings and timely seeking
all such consents (including, without limitation, the Required Consents),
approvals, permits and authorizations, (B) use all commercially reasonable
efforts to obtain in writing any consents (including, without limitation, the
Required Consents) or waivers required from third parties to effectuate the
transactions contemplated by the Transaction Documents and the OP Transaction
Documents, such consents or waivers to be in form reasonably satisfactory to
Parent and the Company, and to (C) 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 the
Transaction Documents and the OP Transaction Documents, including the WROP
Merger and the WDOP Merger; provided, however, that in connection with obtaining
any consents, the Company will consult with Parent throughout the process of
seeking such third party consent, including (without limitation), consulting
Parent with respect to any payment that may be required to obtain such consent.
If, at any time after the Effective Time, any further action is necessary or
desirable to carry out the purpose of this Agreement, the proper officers and
directors of the Company, Parent or Newco shall take all such necessary action
that is commercially reasonable. Notwithstanding the foregoing, neither Parent
nor Newco shall be required to make any payment or grant any concession to
extend the term of any Financing Commitment beyond the expiration date set forth
in such Financing Commitment.
5.6 [INTENTIONALLY OMITTED].
5.7 Employee Matters. (a) The Company, Parent and Newco agree that all
employees of the Company immediately prior to the Effective Time shall be
employed by either Parent or Newco immediately after the Effective Time, it
being understood that neither Parent nor Newco, as the case may be, shall have
any obligations to continue employing such employees for any length of time
thereafter.
(b) For a period of three months after the Effective Time, Newco or
Parent (or any of their Affiliates), as the case may be, shall provide those
employees of the Company and its Subsidiaries covered by the Company Employee
Benefit Plans with benefits that are comparable, in the aggregate, to the
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benefits provided to such employees by the Company during the year prior to the
Closing Date (excluding equity compensation plans and arrangements). Parent and
Newco further agree that any present employees of the Company shall be credited
for their service with the Company for purposes of eligibility, entitlement to
benefits, and vesting in any plans provided by Parent, Newco (or any of their
Affiliates), as the case may be, and all pre-existing conditions and exclusions
shall be waived and expenses incurred by any employee for deductibles and
co-payments in the portion of the year prior to the date an employee first
became a participant in such plan shall be credited to the benefit of such
employee under such plan in the year in which such employee's participation
commenced.
(c) At the Effective Time, the Surviving Entity shall assume and perform
each of the severance obligations described on Schedule 3.1(l) to the Company
Disclosure Schedule.
5.8 Stock Options. The Company shall use all commercially reasonable
efforts to obtain, prior to the Effective Time, an executed Option Surrender
Agreement, Release and Waiver from all holders of outstanding Company Stock
Options in substantially the form attached as Exhibit F hereto.
5.9 Company Warrants. The Company (a) shall deliver to the Warrant Agent,
a certificate of a firm of independent public accountants describing the
reduction in the exercise price of the Company Warrants set forth in Section
3.1(bb) and (b) at the earliest practicable time but not less than 30 days
before the Closing Date, shall deliver to the Warrant Agent notice of the
Merger, in each case in accordance with the provisions of the Warrant
Agreements. The Company shall cause the Warrant Agent to promptly deliver notice
of such adjustment in the exercise price of the Company Warrants and notice of
the Merger to each holder of Company Warrants in accordance with the provisions
of the Warrant Agreements at the earliest practicable time but not less than 20
days before the Closing Date.
5.10 Deferred Compensation Plan. After the Effective Time, Parent or Newco
shall use its commercially reasonable efforts to cause all vested account
balances of participants in the Company Deferred Compensation Plan to be
distributed to such participants in accordance with the terms of the plan and
the corresponding Trust Agreement dated as of October 1, 1998 between the
Company and Delaware Charter and Guarantee Trust Company.
5.11 Directors' and Officers' Indemnification and Insurance.
(a) From and after the Effective Time, Parent shall provide exculpation
and indemnification for each person who is now or has been at any time prior to
the date hereof or who becomes prior to the Effective Time, an officer or
director of the Company or any Subsidiary of the Company (the "Company Officers
or Directors") that is the same as the exculpation and indemnification provided
to the Company Officers or Directors by the Company (including advancement of
expenses, if so provided) immediately prior to the Effective Time in the Company
Charter or Company Bylaws, in any separate indemnification agreements between
the Company and its directors or officers or in any other Company Employee
Benefit Plan or Company Pension Plan as in effect on the Prior Execution Date;
provided, that such exculpation and indemnification covers actions or omissions
on or prior to the Effective Time, including, without limitation, all
transactions contemplated by this Agreement. Parent shall obtain and maintain in
effect at the Effective Time and continuing until the sixth anniversary thereof
"run-off" directors and officers liability insurance with a coverage amount and
other terms and conditions no less favorable in the aggregate to the Company
Officers or Directors than under the Company's current directors and officers
liability insurance policy covering the directors and officers of the Company
with respect to their service as such prior to the Effective Time; provided,
however, that in no event shall Parent be required to pay a premium for such
insurance in excess of 150% of the last annual premium paid by the Company prior
to the Prior Execution Date, but if the premium required to obtain such coverage
would exceed such maximum amount, Parent shall purchase as much coverage as
possible for such maximum amount.
(b) The provisions of this Section 5.11 are intended to be for the
benefit of, and shall be enforceable by, each Company Officer or Director, his
or her heirs and his or her personal representatives and shall be binding on all
successors and assigns of Parent and the Company. Parent agrees to pay all costs
and expenses (including fees and expenses of counsel) that may be incurred by
any Company Officer
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or Director, his or her heirs or his or her personal representatives in
successfully enforcing the indemnity or other obligations of Parent under this
Section 5.11. The provisions of this Section 5.11 shall survive the Merger and
are in addition to any other rights to which a Company Officer or Director may
be entitled.
(c) In the event that Parent or any of its respective successors or
assigns (i) consolidates with or merges into any other person and shall not be
the continuing or surviving corporation or entity of such consolidation or
merger or (ii) transfers all or substantially all of its properties and assets
to any person, then, and in each such case, the successors and assigns of such
entity shall assume expressly or by operation of law the obligations set forth
in this Section 5.11, which obligations are expressly intended to be for the
irrevocable benefit of, and shall be enforceable by, each Company Officer or
Director.
5.12 Agreement to Defend. In the event any claim, action, suit,
investigation or other proceeding by any governmental body or other person or
other legal or administrative proceeding is commenced that questions the
validity or legality of the transactions contemplated hereby or seeks damages in
connection therewith, the parties hereto agree to cooperate and use their
commercially reasonable efforts to defend against and respond thereto.
5.13 Public Announcements. The parties hereto will consult with each other
before issuing, and provide each other with the reasonable opportunity to review
and comment upon, any press release or otherwise making any public statements
with respect to the transactions contemplated by the Transaction Documents or
the OP Transaction Documents, and shall not issue any such press release or make
any such public statement without the reasonable consent of the other party,
except as may be required by applicable law, by court process or by obligations
pursuant to any listing agreement with any national securities exchange or
transaction reporting system so long as the other party is notified promptly by
the disclosing party of such press release or public statement. The parties
agree that the initial press release to be issued on or after the date of this
Agreement with respect to the transactions contemplated by this Agreement will
be in the form agreed to by the parties hereto prior to the execution of the
Agreement.
5.14 Other Actions. From and after the Prior Execution Date, except as
contemplated by this Agreement, none of the Company, Parent or Newco shall, nor
shall the Company, Parent or Newco permit any of its Subsidiaries to, take or
agree or commit to take any action that is reasonably likely to result in any of
its respective representations or warranties hereunder being untrue in any
material respect or in any of the conditions to the Merger set forth in Article
6 not being satisfied. Each of the parties agrees to use its commercially
reasonable efforts to satisfy the conditions to the Closing set forth in this
Agreement.
5.15 Advice of Changes; SEC Filings. The Company shall confer with Parent
on a regular basis, report on Company operational matters and promptly advise
Parent orally and in writing of any change or event which has, or could
reasonably be expected to have, a Material Adverse Effect on the Company. The
Company or Parent, as the case may be, shall promptly provide each other (or
their respective counsel) copies of all filings made by such party or its
Subsidiaries with the SEC or any other state or federal Governmental Entity in
connection with the Transaction Documents or the OP Transaction Documents and
the transactions contemplated hereby or thereby.
5.16 Conveyance Taxes. The Company, Parent and Newco will (a) cooperate in
the preparation, execution and filing of all returns, questionnaires,
applications or other documents regarding any real property transfer or gains,
sales, use, transfer, value added, stock transfer and stamp taxes, any transfer,
recording, registration and other fees and any similar taxes which become
payable in connection with the transactions contemplated by the Transaction
Documents or the OP Transaction Documents that are required or permitted to be
filed on or before the Effective Time, (b) cooperate in the preparation,
execution and filing of all returns, questionnaires, applications or other
documents regarding any applicable exemptions to any such tax or fee, and (c)
each pay any such tax or fee which becomes payable by it on or before the
Effective Time.
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5.17 WDOP Merger and WROP Merger.
(a) The Company and Parent shall take all necessary action (i) to cause
the WROP Merger and the WDOP Merger to be consummated immediately prior to the
Effective Time (but on the Closing Date), which actions shall include the
actions set forth in Section 5.1 and the distribution of election and consent
forms to the holders of WDOP Class B Common Units substantially in the form of
Exhibit D-1 hereto (a "WDOP Election and Consent Form"), and to the holders of
WROP Class C Common Units and WROP Class D Common Units, each substantially in
the form of Exhibit D-2 and Exhibit D-3 hereto, respectively (each such form, a
"WROP Election and Consent Form") and (ii) thereafter, to cause the Second
Amended and Restated Limited Partnership Agreement of WDOP and the Second
Amended and Restated Limited Partnership Agreement of WROP to take effect. Each
party agrees that the Second Amended and Restated Limited Partnership Agreement
of WDOP shall be substantially in the form attached as Exhibit G hereto, and the
Second Amended and Restated Limited Partnership of WROP shall be substantially
in the form attached as Exhibit H hereto; provided, however, that no party shall
object to any nonsubstantive changes to such partnership agreements requested by
any other party hereto prior to the Effective Time.
(b) The parties acknowledge that if a common limited partner of WDOP or
WROP does not execute and deliver a WDOP Election and Consent Form or a WROP
Election and Consent Form, as applicable, on or before the date of the
Stockholders Meeting, then such common limited partner shall be entitled to
receive only cash in the WDOP Merger or the WROP Merger, as applicable, and
shall not be entitled to elect to receive new securities of Parent.
5.18 Employee Loans. On or before the date hereof, the Company has
delivered to Parent a Loan Repayment Agreement in substantially the form
attached as Exhibit I hereto executed by each officer and director of the
Company who has any outstanding loan from, or other debt obligation to, the
Company, which loan was made, or debt obligation incurred, for the purpose of
purchasing Company Common Stock. Prior to the Effective Time, the Company shall
cause any of its other employees who has any outstanding loan from, or other
debt obligations to, the Company, to execute and deliver a Loan Repayment
Agreement in substantially the form attached as Exhibit I hereto. With respect
to any loan from the Company to any of its employees, other than the persons who
are parties to the employment or consulting agreements listed on Schedule 3.1(l)
to the Company Disclosure Schedule, that was outstanding on the Prior Execution
Date, the Company shall be entitled to forgive an amount of accrued interest on
such loan equal to an amount determined by subtracting (a) dividends on the
Company Common Stock (that was purchased with the proceeds of such loan) which
are authorized and declared for any period after the third quarter of the
Company's 1999 fiscal year (which dividend is payable in the fourth quarter)
from (b) interest accrued on such loan after the payment of such third quarter
dividend.
5.19 Dividends. The Company shall authorize, declare and pay the minimum
amount of preclosing dividends on Company Common Stock necessary to avoid (a)
jeopardizing its status as a "real estate investment trust" under the Code and
(b) having positive real estate investment trust taxable income for the taxable
year ending at the Effective Time (provided that the foregoing shall not be
deemed to limit the amount of dividends that are otherwise payable by the
Company or Newco under the terms of this Agreement). In addition, upon the
written request of Newco or Parent, the Company shall authorize, declare and pay
any accrued and unpaid dividends to holders of Company Convertible Preferred
Stock, Company Senior Preferred Stock and Company Redeemable Preferred Stock to
but excluding the Closing Date immediately prior to the Effective Time.
5.20 Assistance. From and after the Prior Execution Date, if Parent
requests, the Company and its Subsidiaries shall cooperate, and shall use their
commercially reasonable efforts to cause the Company's accountants to cooperate,
in all reasonable respects in connection with any financing efforts (including,
without limitation, the refinancing or assumption of existing indebtedness) of
Parent or its Affiliates (including providing reasonable assistance in the
preparation of one or more offering circulars, private placement memoranda,
registration statements or other offering documents relating to debt and/or
equity financing) and any other filings that may be made by Parent or its
Affiliates with the SEC, all at the sole
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expense of Parent (or its Affiliates). From and after the Prior Execution Date,
if Parent requests, the Company shall create new subsidiaries and effect
mergers, and conversions of, among wholly owned Subsidiaries at the direction of
Parent and, immediately prior to the Effective Time, shall transfer any assets
and/or liabilities to such entities at the direction of Parent. In connection
with the financing efforts of Parent and its Affiliates, the Company shall, and
shall cause each of its Subsidiaries to, (i) furnish to its independent
accountants (or, if requested by Parent, to Parent's independent public
accountants), such customary management representation letters as its
accountants may reasonably require of the Company or its Subsidiaries as a
condition to its execution of any required accountants' consents necessary in
connection with the delivery of any "comfort" letters requested by financing
sources of Parent or its Affiliates and (ii) furnish to Parent all financial
statements (audited and unaudited) and other information in the possession of
the Company or its Subsidiaries or their representatives or agents as Parent
shall reasonably determine are required in connection with such financing. At
the request of Parent, the Company shall use its commercially reasonable efforts
to cause its accountants to deliver to Parent's accountants the work papers
relating to the preparation of the Company's financial statements or other
financial calculations. The Company shall cooperate with Parent and Newco in
obtaining surveys, title commitments and/or policies, engineering reports,
environmental reports and appraisals with respect to the Company Properties.
5.21 [INTENTIONALLY OMITTED].
5.22 Proxy Solicitor. If requested by Parent, the Company shall engage, at
the Company's expense, a proxy solicitor reasonably acceptable to Parent to
assist in the solicitation of proxies from stockholders relating to the Merger
Vote.
5.23 Drever Partners Stock Purchase Agreement. The Company shall use its
commercially reasonable efforts to cause the transactions contemplated by the
Drever Partners Stock Purchase Agreement to be consummated at or immediately
prior to the Effective Time in accordance with the Drever Partners Stock
Purchase Agreement.
5.24 Company Properties. To the extent of any noncompliance, the Company
shall cause each Company Property to comply with the representations and
warranties contained in Section 3.1(p) on or before the Closing or shall cause
written waivers of compliance, upon which the Parent may rely with respect to
any noncompliance, to be issued by appropriate parties in interest.
5.25 Environmental Matters. As promptly as practicable after the Prior
Execution Date, the Company developed and implemented an operation and
maintenance program at sites with asbestos-containing materials, lead paint or
other conditions for which an operation and maintenance program is recommended
as set forth in Schedule 3.1(o) and for any other material matters identified by
environmental reports delivered after the Prior Execution Date. Neither the
Company nor its Affiliates have, since the Prior Execution Date, or shall
thereafter, engage in repairs, renovations or cause any disturbances at any of
the sites set forth in Schedule 3.1(o) with respect to which sampling prior to
any disturbance is recommended in Schedule 3.1(o).
ARTICLE 6
CONDITIONS PRECEDENT
6.1 Conditions to Each Party's Obligation to Effect the Merger. The
respective obligation of each party to effect the Merger shall be subject to the
satisfaction prior to the Closing Date of the following conditions:
(a) Company Stockholder Approval. The Merger and all other actions
contemplated hereby that require the approval of holders of the Company Common
Stock shall have been approved and adopted by the affirmative vote of the
holders of a majority of the outstanding shares of Company Common Stock entitled
to vote thereon.
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(b) Other Approvals. All consents, approvals, permits and authorizations
required to be obtained prior to the Effective Time from any Governmental Entity
as indicated in Section 3.1(c) or Schedule 3.1(c) to the Company Disclosure
Schedule or Section 3.2(c) or Schedule 3.2(c) to the Parent/Newco Disclosure
Schedule in connection with the execution and delivery of the Transaction
Documents and the consummation of the transactions contemplated hereby or
thereby shall have been made or obtained (as the case may be). Unless otherwise
agreed to by the Company and Newco (which agreement shall not be unreasonably
withheld), no such governmental consent, approval, permit or authorization shall
then be subject to appeal.
(c) No Injunctions or Restraints. No temporary restraining order,
preliminary or permanent injunction or other order issued by any court of
competent jurisdiction, no order of any Governmental Entity having jurisdiction
over any party hereto, and no other legal restraint or prohibition shall be in
effect (an "Injunction") preventing or making illegal the consummation of the
Merger.
(d) HSR Act. If an HSR filing was required in connection with the
transactions contemplated by this Agreement, the waiting period (and any
extension thereof) applicable to the Merger under the HSR Act shall have been
terminated or shall have expired, and no restrictive order or other requirements
shall have been placed on the Company, Parent or Newco in connection therewith.
6.2 Conditions to Obligations of Newco to Effect the Merger. The
obligations of Newco to effect the Merger are subject to the satisfaction of the
following conditions, any or all of which may be waived in whole or in part by
Newco:
(a) Representations and Warranties of the Company. Each of the
representations and warranties of the Company set forth in this Agreement shall
be true and correct in all material respects (provided that any representation
or warranty of the Company contained herein that is modified by a materiality or
Material Adverse Effect qualifier(s) shall not be further qualified hereby) on
and as of the scheduled Closing Date (to the extent that a representation and
warranty speaks only as of a particular date, then as of the Closing Date such
representation and warranty shall be made on and as of such particular date
rather than as of the Closing Date), and Parent shall have received a
certificate to such effect signed on behalf of the Company by the Chief
Executive Officer and the Chief Financial Officer of the Company.
(b) Performance of Obligations of the Company. The Company shall have
performed in all material respects all obligations required to be performed by
it under this Agreement at or prior to the Closing Date, and Parent shall have
received a certificate to such effect signed on behalf of the Company by the
Chief Executive Officer and the Chief Financial Officer of the Company.
(c) Consents Under Agreements. Parent shall have been furnished with
evidence reasonably satisfactory to it of the receipt of all Required Consents,
and such Required Consents shall be in form and substance reasonably
satisfactory to Parent.
(d) WDOP Merger and WROP Merger. The conditions precedent to the
consummation of both the WDOP Merger and the WROP Merger set forth in the WDOP
Merger Agreement and in the WROP Merger Agreement, respectively, shall have been
satisfied (or waived), and both the WDOP Merger and the WROP Merger shall have
been consummated.
(e) Financing. The debt and equity financing for the transactions
contemplated hereby shall have been received on terms substantially as outlined
in the Financing Commitments (excluding from this condition the failure to
receive equity financing due to the breach of any equity Financing Commitment by
Parent or an Affiliate of Parent).
(f) Material Adverse Change or Effect. Except as set forth on Schedule
4.1 since the Prior Execution Date, no change, event or effect shall have
occurred that shall have caused, or could reasonably be expected to cause, a
Material Adverse Change or Material Adverse Effect with respect to the Company,
and Parent shall have received a certificate to such effect from the Chief
Executive Officer and Chief Financial Officer of the Company.
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(g) Drever Partners Stock Purchase Agreement. The sale of the
outstanding shares of common stock of Drever Partners, Inc. pursuant to the
Drever Partners Stock Purchase Agreement shall have been consummated.
(h) Legal Opinion. Locke Liddell & Sapp LLP, counsel to the Company,
shall have delivered a legal opinion in the form attached as Exhibit J hereto,
dated the Closing Date and addressed to the Company, Parent and Newco, to the
effect that (A) the Company has qualified to be taxed as a real estate
investment trust pursuant to the Code for each of its taxable years ending
December 31, 1993 through December 31, 1999, and the short taxable year
beginning January 1, 2000 and ending when the Closing occurs, and (B) each
Company Partnership (as defined below) is properly treated as a partnership and
not as a "publicly traded partnership" for federal income taxes. For purposes of
this Agreement, the term "Company Partnership" shall include all Company
Subsidiaries that are organized as partnerships included in Schedule 3.1(a) of
the Company Disclosure Schedule. In rendering such opinions, Locke Liddell &
Sapp LLP may rely upon (and the Company shall be required to make)
representations requested of the Company by Locke Liddell & Sapp LLP.
(i) Closing Agreement. The Company shall have entered into a Closing
Agreement with the Internal Revenue Service, as authorized by Section 7121 of
the Code, providing that the Company's ownership interest in Court Ventures,
Inc., a Georgia corporation, did not cause a termination of the Company's status
as a REIT under Section 856 of the Code and the fines, penalties, settlement
amounts and other charges incurred in connection with such Closing Agreement
shall not have been greater than $1,000,000.
(j) Conversion of Operating Partnership Units. An aggregate of at least
937,000 WROP Class C Common Units, WROP Class D Common Units and WDOP Class B
Common Units shall have elected to have such units converted into Parent Common
Limited Partner Interests in the WROP Merger and the WDOP Merger.
6.3 Conditions to Obligations of the Company to Effect the Merger. The
obligation of the Company to effect the Merger is subject to the satisfaction of
the following conditions, any or all of which may be waived in whole or in part
by the Company:
(a) Representations and Warranties of Newco and Parent. Each of the
representations and warranties of Newco and Parent set forth in this Agreement
shall be true and correct in all material respects (provided that any
representation or warranty of Newco and Parent contained herein that is modified
by a materiality or Material Adverse Effect qualifier(s) shall not be further
qualified hereby) on and as of the scheduled Closing Date (to the extent that a
representation and warranty speaks only as of a particular date, then as of the
Closing Date such representation and warranty shall be made on and as of such
particular date rather than as of the Closing Date), and the Company shall have
received a certificate to such effect signed on behalf of Newco by the Chief
Executive Officer and the Chief Financial Officer of Newco and signed on behalf
of Parent by its general partner.
(b) Performance of Obligations of the Company. Each of Newco and Parent
shall have performed in all material respects all obligations required to be
performed by each of them under this Agreement at or prior to the Closing Date,
and the Company shall have received a certificate to such effect signed on
behalf of Newco by the Chief Executive Officer and the Chief Financial Officer
of Newco and signed on behalf of Parent by its general partner.
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ARTICLE 7
TERMINATION AND AMENDMENT
7.1 Termination. This Agreement may be terminated and the Merger may be
abandoned at any time prior to the Effective Time, whether before or after
approval of the matters presented in connection with the Merger by the
stockholders of the Company entitled to vote thereon:
(a) by mutual written consent of the Company, Parent and Newco, or by
mutual action of their respective Boards of Directors or general partner, as
applicable;
(b) by either the Company, Parent or Newco:
(i) if (A) any Governmental Entity shall have issued any Injunction
or taken any other action permanently restraining, enjoining or otherwise
prohibiting the consummation of the Merger, the WDOP Merger or the WROP Merger,
and such Injunction or other action shall have become final and nonappealable;
or (B) the Merger Vote shall not have been obtained upon a vote held at a duly
held meeting of stockholders, or at any adjournment thereof, or (C) unless (1)
prohibited by an event described in clause (A) or (2) resulting from any act or
omission of Parent or Newco or their Affiliates, as of the day immediately prior
to the Termination Date, either (x) no meeting of the Company's stockholders
shall have been held pursuant to Section 5.4 or (y) if held, no vote shall have
been taken in respect of Merger;
(ii) if the Merger shall not have been consummated by June 30, 2000
(the "Termination Date"); provided, however, that the right to terminate this
Agreement under this Section 7.1(b)(ii) shall not be available to any party
whose breach of any representation or warranty or failure to fulfill any
covenant or agreement under this Agreement has been the cause of or resulted in
the failure of the Merger to occur on or before such date; or
(iii) in the event, at any time on and after the Prior Execution Date
up to and immediately prior to the Effective Time, of a breach by the Company,
on the one hand, or Parent or Newco, on the other hand, of any representation,
warranty, covenant or other agreement contained in this Agreement which (A), if
such breach were to have occurred on the scheduled Closing Date, would give rise
to the failure of a condition set forth in Section 6.2(a) or (b) or Section
6.3(a) or (b), as applicable, and (B) cannot be cured or, if curable, has not
been cured within 30 days after the giving of written notice to the breaching
party of such breach (a "Material Breach"); provided that in no event shall such
30-day period extend beyond the Termination Date; and provided, further, that
the parties agree that a breach of the second sentence of Section 5.4 or the
obligations of the Company under Section 4.2 cannot be cured and shall be deemed
a "willful breach" for the purposes of Section 7.2(a) (provided that the
terminating party is not then in Material Breach of any representation,
warranty, covenant or other agreement contained in this Agreement);
(c) by Parent or Newco if, prior to the Stockholders Meeting, (i) the
Company Special Committee or the Board of Directors of the Company shall have
withdrawn or modified, in any manner which is adverse to Parent or Newco, its
recommendation or approval of the Merger, this Agreement or the transactions
contemplated hereby, or shall have resolved to do so, (ii) the Board of
Directors of the Company shall have recommended to the stockholders of the
Company any Company Acquisition Proposal or any transaction described in the
definition of Company Acquisition Proposal, or shall have resolved to do so, or
(iii) a tender offer or exchange offer for outstanding shares of stock of the
Company then representing 50% or more of the combined power to vote generally
for the election of directors is commenced, and the Board of Directors of the
Company does not, within the applicable period required by law, recommend that
the stockholders of the Company not tender their shares into such tender or
exchange offer;
(d) by the Company if, prior to the Stockholders Meeting, (i) the
Company Special Committee or the Board of Directors of the Company shall have
determined to withdraw or modify, in any manner which is adverse to Parent or
Newco, its recommendation or approval of the Merger and this Agreement
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and the transactions contemplated hereby pursuant to Section 4.2, (ii) the
Company shall have given notice to Parent advising Parent that the Company has
received a Company Superior Proposal from a third party, specifying the material
terms and conditions of such Company Superior Proposal (including the identity
of the third party), and advising Parent that the Company intends to terminate
this Agreement in accordance with this Section 7.1(d), and (iii) either (A)
Parent and Newco shall not have revised their acquisition proposal within five
business days after the date on which such notice is deemed to have been given
to them, or (B) if Parent and Newco within such period shall have revised their
acquisition proposal, the Board of Directors of the Company, after consultation
with the Company's financial advisor, shall have determined in its good faith
reasonable judgment that the third party's Company Acquisition Proposal is
superior to the Company's revised acquisition proposal; provided that the
Company may not effect such termination pursuant to this Section 7.1(d) unless
the Company has contemporaneously with such termination tendered payment to
Parent, or its designee, of the Break Up Fee pursuant to Section 7.2(b) and the
Termination Expenses of Parent and Newco pursuant to Section 7.2(d)(i) and the
five business day period has expired (it being understood that any amendment to
the price or material terms of a Company Superior Proposal shall require an
additional notice under clause (ii) above and an additional period of five
business days under clause (iii) above);
(e) by Parent or Newco if, after the Prior Execution Date, a change,
event or effect shall have caused or could reasonably be expected to cause a
Material Adverse Change or Material Adverse Effect with respect to the Company;
(f) pursuant to Section 8.8;
(g) by Parent or Newco, if any Financing Commitment expires or otherwise
terminates pursuant to its terms; provided, however, that (i) no termination
pursuant to this Section 7.1(g) shall be effective unless Parent or Newco shall
have given written notice to the Company of such termination no later than 30
days after such expiration or termination of such Financing Commitment, and (ii)
if Parent or Newco does not exercise such right to terminate this Agreement
within such 30-day period, then the condition to Newco's obligation to effect
the Merger under Section 6.2(e) shall automatically be deleted from this
Agreement after the end of such 30-day period;
(h) by Parent or Newco if, on the scheduled Closing Date, the providers
of debt financing under the debt Financing Commitments (excluding the Financing
Commitment of The Chase Manhattan Bank) are willing to provide debt financing
pursuant to the terms of such Financing Commitments, but the aggregate gross
proceeds available from such debt financing are less than $865,000,000;
(i) by Parent or Newco if, on the scheduled Closing Date, the condition
to Newco's obligation to effect the Merger set forth in Section 6.2(e) has not
been satisfied;
(j) by the Company if, on the scheduled Closing Date, (i) neither Parent
nor Newco has the right to terminate this Agreement pursuant to Section 7.1,
(ii) all of the conditions to Newco's obligation to effect the Merger under
Section 6.1 and Section 6.2 have been satisfied, and (iii) Newco fails or
refuses to effect the Merger. The Company agrees that it shall not be entitled
to terminate this Agreement pursuant to Section 7.1(b)(iii) under the
circumstances set forth in the immediately preceding sentence of this Section
7.1(j);
(k) by Parent or Newco if, on the scheduled Closing Date, the condition
to Newco's obligation to effect the Merger set forth in Section 6.2(j) has not
been satisfied;
(l) by Parent or Newco, if the retention bonuses provided for in Section
3.1(l) exceed Two Million Dollars ($2,000,000);
(m) by Parent or Newco, if the fines, penalties, settlement amounts and
other charges incurred in connection with the Closing Agreement referred to in
Section 6.2(j) exceed One Million Dollars ($1,000,000); or
(n) by Parent or Newco, if on or before the scheduled Closing Date
definitive settlement agreements between the plaintiffs and the defendants in
those actions styled, Berkowitz, et al. v. Walden
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Residential Properties, Inc., et al.; No. 3: 99-CV-2356-D; In the United States
District Court for the Northern District of Texas and Feldman, et al. v. Walden
Residential Properties, Inc., et al.: No. CC-99-11645a; In Dallas County Court
at Law No. 1, shall not have been signed and the courts in such actions shall
not have entered orders giving preliminary approval to the proposed settlements.
A terminating party shall provide written notice of termination to the
other parties specifying with particularity the reason for such termination. If
more than one provision in this Section 7.1 is available to a terminating party
in connection with a termination, a terminating party may rely on any and all
available provisions in this Section 7.1 for any such termination.
7.2 Effect of Termination.
(a) In the event of termination of this Agreement by any party hereto as
provided in Section 7.1, this Agreement shall forthwith become void and there
shall be no liability or obligation on the part of any party hereto except with
respect to this Section 7.2, the second and third sentences of Section 5.3,
Section 5.13 and Article 8; provided, however, that if such termination results
from a willful breach (except as provided in Section 8.8 and excluding from
being deemed a willful breach any termination by the Company pursuant to Section
7.1(j)) by a party hereto of any of its representations or warranties or of any
of its covenants or agreements contained in this Agreement, the breaching party
shall be fully liable for such breach notwithstanding the termination of this
Agreement (it being understood that such liability shall be reduced by any
payments made under Section 7.2(b), (c) or (d)).
(b) If (i) Parent or Newco terminates this Agreement pursuant to Section
7.1(c) or (ii) the Company terminates this Agreement pursuant to Section 7.1(d),
then the Company shall, on the day of, and (with respect to Section 7.1(d)) as a
condition to the effectiveness of, such termination, pay Parent or its designee
a fee in cash equal to Twenty-Six Million Seven Hundred Fifty Thousand Dollars
($26,750,000) (such fee is referred to as the "Break Up Fee"), by wire transfer
of immediately available funds to an account designated by Parent.
(c) If (i) this Agreement is terminated by either Parent, Newco or the
Company pursuant to clauses (B) or (C) of Section 7.1(b)(i) because the
stockholders of the Company shall not have approved the Merger at the
Stockholders Meeting referred to in Section 5.4 or because no meeting was held
or no vote taken, (ii) at the time of such Stockholders Meeting (or, in the case
where no meeting was held, at any time within 30 days prior to the date of
termination) there shall have been pending a Company Acquisition Proposal and
(iii) within 12 months after the date of termination the Company agrees to or
consummates a Company Acquisition Proposal (whether or not such Company
Acquisition Proposal is the same Company Acquisition Proposal pending at the
time of such meeting or, in the case where no meeting was held, pending at any
time within 30 days prior to the date of such termination), then at the closing
or other consummation of such Company Acquisition Proposal the Company shall pay
Parent or its designee an amount equal to the Break Up Fee by wire transfer of
immediately available funds to an account designated by Parent.
(d) (i) In addition to any other amounts that may be payable pursuant to
this Section 7.2, if this Agreement is terminated for any reason pursuant to
Section 7.1 (other than (A) pursuant to Section 7.1(a), (B) by the Company
pursuant to Section 7.1(b)(iii) because Parent or Newco is in Material Breach of
this Agreement, (C) by Parent or Newco pursuant to Section 7.1(h), (D) by Parent
or Newco pursuant to Section 7.1(i) if, on the scheduled Closing Date, the
condition to Newco's obligation to effect the Merger set forth in Section 6.2(e)
has not been satisfied solely due to the failure of either (1) The Chase
Manhattan Bank to provide debt financing under its Financing Commitment or (2)
Holding or Parent fail to receive the common and preferred equity investments
referred to in item 14 of Schedule 3.2(g), or (E) by Parent or Newco pursuant to
Section 7.1(n)), then the Company shall, on the date of such termination, pay to
Parent the Termination Expenses (as defined below) of Parent and Newco payable
hereunder in cash by wire transfer of immediately available funds to an account
designated by Parent. The Termination Expenses of Parent payable hereunder shall
be an amount equal to the lesser of Twelve Million Dollars ($12,000,000) or the
total Termination Expenses of Parent and Newco.
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(ii) In addition to any other amounts that may be payable pursuant to
this Section 7.2, if this Agreement is terminated by the Company pursuant to
Section 7.1(b)(iii) because Parent or Newco is in Material Breach of this
Agreement, Parent shall, on the date of such termination, pay to the Company the
Termination Expenses of the Company payable hereunder in cash by wire transfer
of immediately available funds to an account designated by the Company. The
Termination Expenses of the Company payable hereunder shall be an amount equal
to the lesser of Two Million Dollars ($2,000,000) or the total Termination
Expenses of the Company (such lesser amount, the "Base Amount").
(iii) As used herein, "Termination Expenses" shall mean such amount
as may be required to reimburse a party and its Affiliates for all reasonable
out-of-pocket fees, costs and expenses incurred by any of them in connection
with their (or any of their agent's or consultant's) due diligence efforts or
the transactions contemplated by the Transaction Documents and the OP
Transaction Documents, including, without limitation, (A) fees, costs and
expenses of accountants, counsel (including a reasonable allocation of the time
of any in-house counsel engaged on the transactions contemplated hereby),
financial advisors and other similar advisors, (B) fees paid to any Governmental
Entity and (C) fees, costs and expenses paid or payable to third parties under
any financing commitments or similar arrangements or in connection with
financing transactions or efforts, including, without limitation, any purchaser
or underwriter's discounts relating to the sale of the debt or equity financing
(except for the principal amount payable in connection therewith, but including
all accrued interest payable in connection therewith), the making of any
repurchase offer in respect of such financing, costs in connection with interest
rate hedging or protection agreements, or any fees paid or payable to financing
sources upon the termination of this Agreement, and (D) any fees, costs and
expenses incurred in connection with the performance or receipt of environmental
studies and reports, title commitments, property surveys, market surveys,
termite reports, property appraisals, and engineering reports (environmental and
structural) as part of the due diligence conducted in connection with the
transactions contemplated by the Transaction Documents and the OP Transaction
Documents. Notwithstanding the foregoing, in the case of the Company, the
Termination Expenses shall be an amount equal to the lesser of (i) the Base
Amount and (ii) the sum of (A) the maximum amount that can be paid to the
Company without causing it to fail to meet the requirements of Section 856(c)(2)
and (3) of the Code determined as if the payment of such amount did not
constitute income described in Sections 856(c)(2)(A)-(H) and 856(c)(3)(A)-(I) of
the Code ("Qualifying Income"), as determined by independent accountants to the
Company and (B) in the event the Company receives an opinion from outside
counsel (the "Termination Tax Opinion") to the effect that the receipt by the
Company of the Base Amount would either constitute Qualifying Income or would be
excluded from gross income within the meaning of Sections 856(c)(2) and (3) of
the Code (the "REIT Requirements") or that receipt by the Company of the
remaining balance of the Base Amount following the receipt of and pursuant to
such opinion would not be deemed constructively received prior thereto, the Base
Amount less the amount payable under clause (A) above. In the event that the
Company is not able to receive the full Base Amount, Parent shall place the
unpaid amount in escrow and shall not release any portion thereof to the Company
unless and until the Company receives any one or combination of the following:
(x) a letter from its independent accountants indicating the maximum amount that
can be paid at that time without causing it to fail to meet the REIT
Requirements or (y) a Termination Tax Opinion, in which event Parent shall pay
to the Company the lesser of the unpaid Base Amount or the maximum amount stated
in the letter referred to in the immediately preceding clause (x) above or, as
applicable, the Termination Tax Opinion.
(e) Any Break Up Fee or Termination Expenses of Parent or Newco shall be
paid by the Company without reservation of rights or protests, and the Company
(and its Affiliates) upon making such payment shall be deemed to have released
and waived any and all rights that it may have to recover such amounts. Any
Termination Expenses of the Company shall be paid by Parent without reservation
of rights or protests, and Parent (and its Affiliates) upon making such payment
shall be deemed to have released and waived any and all rights that it may have
to recover such amounts. Nothing contained in this Section 7.2(e) shall be
deemed to override or effect the parenthetical at the end of Section 7.2(a).
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(f) (i) If this Agreement is terminated by the Company under Section
7.1(j), the parties agree and acknowledge that the Company will suffer damages
that are not practicable to ascertain, and Parent and Newco agree to pay the
Company as liquidated damages a fee in cash (the "Liquidated Damages Base
Amount") equal to Five Million Dollars ($5,000,000), by wire transfer of
immediately available funds to an account designated by the Company within five
days after such termination. The parties agree that the foregoing liquidated
damages are reasonable considering all the circumstances existing as of the date
hereof and constitute the parties' good faith estimate of the actual damages
reasonably expected to result from such termination of this Agreement by the
Company. The Company agrees that, to the fullest extent permitted by law, the
Company's right to terminate this Agreement and the Company's right to receive
payment of the liquidated damages described above as provided in this Section
7.2(f) shall be the Company's sole and exclusive right and remedy if the Closing
does not occur with respect to any damages whatsoever that the Company may
suffer or allege to suffer as a result of any claim or cause of action asserted
by the Company relating to or arising from the Transaction Documents and the OP
Transaction Documents and the transactions contemplated hereby or thereby, and
no other damages (including, without limitation, the payment of any Termination
Expenses of the Company) shall be payable by Parent, Newco or any Parent
Affiliate (as hereinafter defined) in connection with such termination.
Notwithstanding the foregoing, the liquidated damages shall be an amount equal
to the lesser of (i) the Liquidated Damages Base Amount and (ii) the sum of (A)
the maximum amount that can be paid to the Company without causing it to fail to
meet the requirements of Section 856(c)(2) and (3) of the Code determined as if
the payment of such amount did not constitute Qualifying Income, as determined
by independent accountants to the Company, and (B) in the event the Company
receives the Termination Tax Opinion to the effect that the receipt by the
Company of the Liquidated Damages Base Amount would either constitute Qualifying
Income or would be excluded from gross income within the meaning of the REIT
Requirements or that receipt by the Company of the remaining balance of the
Liquidated Damages Base Amount following the receipt of and pursuant to such
opinion would not be deemed constructively received prior thereto, the
Liquidated Damages Base Amount less the amount payable under clause (A) above.
In the event that the Company is not able to receive the full Liquidated Damages
Base Amount, Parent shall place the unpaid amount in escrow and shall not
release any portion thereof to the Company unless and until the Company receives
any one or combination of the following: (x) a letter from its independent
accountants indicating the maximum amount that can be paid at that time without
causing it to fail to meet the REIT Requirements or (y) a Termination Tax
Opinion, in which event Parent shall pay to the Company the lesser of the unpaid
Liquidated Damages Base Amount or the maximum amount stated in the letter
referred to in the immediately preceding clause (x) above or, as applicable, the
Termination Tax Opinion.
(ii) As a condition of payment, and upon receipt of such amount as
liquidated damages under this Section 7.2(f), the Company hereby irrevocably and
unconditionally releases, acquits, and forever discharges Parent, Newco and all
Parent Affiliates of and from any and all Released Claims (as defined below),
including without limitation, all Released Claims arising out of, based upon,
resulting from or relating to the negotiation, execution, performance, breach or
otherwise related to or arising out of the Transaction Documents or any
agreement entered into in connection therewith or related thereto and any
transaction contemplated by any Transaction Documents or any such other
agreement. "Released Claims" as used herein shall mean any and all charges,
complaints, claims, causes of action, promises, agreements, rights to payment,
rights to any equitable remedy, rights to any equitable subordination, demands,
debts, liabilities, express or implied contracts, obligations of payment or
performance, rights of offset or recoupment, accounts, damages, costs, losses or
expenses (including attorneys' and other professional fees and expenses) held by
any party hereto, whether known or unknown, matured or unmatured, suspected or
unsuspected, liquidated or unliquidated, absolute or contingent, direct or
derivative.
7.3 Amendment. Subject to Section 7.5, this Agreement may be amended by
the parties hereto at any time before or after approval of the matters presented
in connection with the Merger by the stockholders of the Company entitled to
vote thereon; provided, however, that after any such approval, no amendment
shall be made which by law requires further approval by such stockholders
without first
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obtaining such further approval. Subject to Section 7.5, this Agreement may not
be amended except by an instrument in writing signed on behalf of each of the
parties hereto.
7.4 Extension; Waiver. Subject to Section 7.5, at any time prior to the
Effective Time, the parties hereto 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 contained herein or in any document delivered pursuant hereto; and
(c) waive compliance with any of the agreements or conditions contained herein.
Subject to Section 7.5, any agreement on the part of a party hereto to any such
extension or waiver shall be valid only if set forth in a written instrument
signed on behalf of such party.
7.5 Procedure for Termination, Amendment, Extension or Waiver. A
termination of this Agreement pursuant to Section 7.1, an amendment of this
Agreement pursuant to Section 7.3 or an extension or waiver pursuant to Section
7.4 shall, in order to be effective, require (i) in the case of the Company,
action by its Board of Directors and the Company Special Committee, (ii) in the
case of Newco, action by its Board of Directors, and (iii) in the case of
Parent, action by its general partner.
ARTICLE 8
GENERAL PROVISIONS
8.1 Payment of Expenses. Except as otherwise expressly provided in this
Agreement or by law, if the Closing does not occur, each party hereto shall pay
its own expenses incident to preparing for, entering into and carrying out this
Agreement and the consummation of the transactions contemplated hereby, except
that the Company and Parent shall share equally the expenses incurred by the
Company and Parent in connection with the printing and mailing of the Proxy
Statement and all filing fees paid in connection with the Proxy Statement to the
SEC and provided that this Section 8.1 shall in no way affect the rights and
obligations of the parties under Article 7. Notwithstanding the foregoing, if
the Closing does occur, then the Company shall pay or reimburse Parent or Newco
for all costs and expenses incurred by them or their Affiliates in connection
with the transactions contemplated by the Transaction Documents or the OP
Transaction Documents.
8.2 Nonsurvival of Representations, Warranties and Agreements. Subject to
the remaining provisions of this Section 8.2, the representations, warranties
and agreements in this Agreement shall remain operative and in full force and
effect regardless of any investigation made by or on behalf of any other party
hereto, any person controlling any such party or any of their officers,
directors, representatives or agents whether prior to or after the execution of
this Agreement. None of the representations, warranties and agreements in this
Agreement or in any instrument delivered pursuant to this Agreement shall
survive the Effective Time, and any liability for breach or violation thereof
shall terminate absolutely and be of no further force and effect at and as of
the Effective Time, except for the agreements that by their terms contemplate
performance after the Effective Time. The Confidentiality Agreement shall
survive the execution and delivery of this Agreement, and the provisions of the
Confidentiality Agreement shall apply to all information and material delivered
hereunder.
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8.3 Notices. Any notice or communication required or permitted hereunder
shall be in writing and either delivered personally, telegraphed or telecopied
or sent by certified or registered mail, postage prepaid, and shall be deemed to
be given, dated and received (a) when so delivered personally, (b) upon receipt
of an appropriate electronic answer back or confirmation when so delivered by
telegraph or telecopy (to such number specified below or another number or
numbers as such person may subsequently designate by notice given hereunder), or
(c) five business days after the date of mailing to the following address or to
such other address or addresses as such person may subsequently designate by
notice given hereunder, if so delivered by mail:
(i) if to the Company, to:
Walden Residential Properties, Inc.
5080 Spectrum Drive, Suite 1000 East
Addison, Texas 75001
Telecopy: (972) 490-2781
Attention: General Counsel
with a copy (which shall not constitute notice) to:
Locke Liddell & Sapp LLP
2200 Ross Avenue, Suite 2200
Dallas, Texas 75201
Telecopy: (214) 740-8800
Attention: Kenneth L. Betts
and (b) if to Parent or Newco, to:
Oly Hightop Parent, L.P.
Oly Hightop Corporation
200 Crescent Court, Suite 1600
Dallas, Texas 75201
Telecopy: (214) 740-7340
Attention: General Counsel
with copies to:
Vinson & Elkins L.L.P.
2001 Ross Avenue
Dallas, Texas 75201
Telecopy: (214) 220-7716
Attention: Michael D. Wortley
8.4 Interpretation. When a reference is made in this Agreement to
Sections, such reference shall be to a Section of this Agreement unless
otherwise indicated. The table of contents, glossary of defined terms and
headings contained in this Agreement are for reference purposes only and shall
not affect in any way the meaning or interpretation of this Agreement. Whenever
the word "include," "includes" or "including" are used in this Agreement, they
shall be deemed to be followed by the words "without limitation." Unless the
context otherwise requires, "or" is disjunctive but not necessarily exclusive,
and words in the singular include the plural and in the plural include the
singular.
8.5 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other parties, it being understood that all
parties need not sign the same counterpart.
8.6 Entire Agreement; No Third Party Beneficiaries. This Agreement
(together with the Confidentiality Agreement and any other documents and
instruments referred to herein) constitutes the entire agreement and supersedes
all prior agreements and understandings, both written and oral, among the
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parties with respect to the subject matter hereof. The provisions of Sections
5.7, 5.11 and 8.11 are intended to be for the benefit of, and shall be
enforceable by, the persons referred to therein and their respective heirs and
representatives; provided, however, that this Agreement (including such
provisions) shall be enforceable only against the parties hereto. Except as
provided in the immediately preceding sentence, this Agreement is not intended
to confer upon any person other than the parties hereto any rights or remedies
hereunder.
8.7 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Maryland, without giving effect to the
principles of conflicts of law thereof.
8.8 No Remedy in Certain Circumstances. Each party agrees that, should any
court or other competent authority hold any provision of this Agreement or part
hereof to be null, void or unenforceable, or order any party to take any action
inconsistent herewith or not to take an action consistent herewith or required
hereby, the validity, legality and enforceability of the remaining provisions
and obligations contained or set forth herein shall not in any way be affected
or impaired thereby, unless the foregoing inconsistent action or the failure to
take an action constitutes a Material Breach of this Agreement or makes this
Agreement impossible to perform, in which case this Agreement shall terminate.
Except as otherwise contemplated by this Agreement, to the extent that a party
hereto took an action inconsistent herewith or failed to take action consistent
herewith or required hereby pursuant to an order or judgment of a court or other
competent authority, such party shall not incur any liability or obligation
unless such party breached its obligations under the Confidentiality Agreement
or did not in good faith seek to resist or object to the imposition or entering
of such order or judgment.
8.9 Assignment. 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 will be binding
solely upon, inure to the sole benefit of and be enforceable solely by the
parties and their respective successors and assigns.
8.10 Specific Performance. The Company hereby acknowledges and agrees that
the failure of the Company to perform its obligations under the Transaction
Documents and the OP Transaction Documents in accordance with their specific
terms or to otherwise comply with such obligations, including its failure to
take all actions as are necessary on its part to the consummation of the Merger,
the WDOP Merger and the WROP Merger will cause irreparable injury to Parent and
Newco for which damages, even if available, will not be an adequate remedy.
Accordingly, the Company hereby consents to the issuance of injunctive relief by
any court of competent jurisdiction to compel performance of the Company's
obligations, including an injunction to prevent breaches, and to the granting by
any such court of the remedy of specific performance of the terms and conditions
of the Transaction Documents and the OP Transaction Documents.
8.11 No Affiliate Liability. Each of the following is herein referred to
as a "Parent Affiliate:" (a) any direct or indirect holder of any equity
interests or securities in Parent or Newco (whether limited or general partners,
members, stockholders or otherwise), (b) any Affiliate of Parent or Newco, or
(c) any director, officer, employee, representative or agent of (i) Parent or
Newco, (ii) any Affiliate of Parent or Newco or (iii) any such holder of equity
interests or securities referred to in clause (a) above. No Parent Affiliate
shall have any liability or obligation of any nature whatsoever in connection
with or under the Transaction Documents or the OP Transaction Documents or the
transactions contemplated hereby or thereby, and the Company hereby waives and
releases all claims of any such liability and obligation, it being understood
that no such person or entity (other than Parent or Newco) shall be liable for
or in respect of the Transaction Documents and the OP Transaction Documents or
the transactions contemplated hereby or thereby.
8.12 Schedule Definitions. All capitalized terms in the Company Disclosure
Schedule or Parent/ Newco Disclosure Schedule shall have the meanings ascribed
to them herein, unless the context otherwise requires or as otherwise defined.
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<PAGE> 129
8.13 Effect of Amendment and Restatement. This Agreement constitutes an
amendment and restatement of the Prior Agreement pursuant to Section 7.3 of the
Prior Agreement. The Company, Parent and Newco hereby agree that the Prior
Agreement shall hereafter be void and of no further force or effect. References
to the "Agreement and Plan of Merger" or the "Merger Agreement" contained in any
other instrument or document referenced in or executed in conjunction with the
Prior Agreement shall mean this Agreement.
[THE REMAINDER OF PAGE IS INTENTIONALLY BLANK]
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IN WITNESS WHEREOF, each party has caused this Agreement to be signed by
its respective officer thereunto duly authorized, all as of the date first
written above.
WALDEN RESIDENTIAL PROPERTIES, INC.,
a Maryland corporation
By: /s/ MARSHALL B. EDWARDS
-------------------------------------
Name: Marshall B. Edwards
Title: President and Chief Executive
Officer
OLY HIGHTOP CORPORATION,
a Maryland corporation
By: /s/ HAL R. HALL
-------------------------------------
Name: Hal R. Hall
Title: Vice President
OLY HIGHTOP PARENT, L.P.,
a Delaware limited partnership
By: Oly Hightop Parent GP, LLC,
its general partner
By: /s/ HAL R. HALL
-------------------------------------
Name: Hal R. Hall
Title: Vice President
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REVOCABLE PROXY
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
OF WALDEN RESIDENTIAL PROPERTIES, INC.
The undersigned stockholder(s) of Walden Residential Properties, Inc., a
Maryland corporation ("Walden"), hereby appoint(s) Michael E. Masterson and Mark
S. Dillinger, or either of them, with full power of substitution and
resubstitution, proxies of the undersigned, with all of the powers that the
undersigned would possess if personally present, to cast all votes which the
undersigned would be entitled to cast at the Special Meeting of Stockholders of
Walden to be held on February 28, 2000 at the Spectrum Center Conference Center,
5080 Spectrum Drive, Addison, Texas, commencing at 9:00 a.m., local time, and
any and all adjournments or postponements thereof, including to vote and act as
follows:
1. To approve the merger of Oly Hightop Corporation with and into Walden
Residential Properties, Inc. pursuant to the Second Amended and Restated
Agreement and Plan of Merger, dated as of January 6, 2000, by and among
Walden Residential Properties, Inc., Oly Hightop Corporation and Oly Hightop
Parent, L.P., including the transactions contemplated thereby.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. To approve the adjournment of the special meeting, if necessary to permit
further solicitation of proxies.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER
BUSINESS AS MAY PROPERLY COME BEFORE THE SPECIAL MEETING OR ANY ADJOURNMENT OR
POSTPONEMENT OF THE SPECIAL MEETING. THIS PROXY WILL BE VOTED AT THE SPECIAL
MEETING OR ANY ADJOURNMENT OR POSTPONEMENT THEREOF IN ACCORDANCE WITH THE
INSTRUCTIONS SET FORTH ABOVE OR, IN THE EVENT NO INSTRUCTIONS ARE SET FORTH,
THIS PROXY WILL BE VOTED "FOR" PROPOSAL 1 AND, IF NECESSARY, FOR PROPOSAL 2. IF
THERE IS AN INSTRUCTION TO VOTE "AGAINST" PROPOSAL 1 AND NO INSTRUCTION IS SET
FORTH FOR PROPOSAL 2, THEN THE PROXIES WILL NOT USE THEIR DISCRETIONARY
AUTHORITY TO VOTE "FOR" PROPOSAL 2.
This proxy hereby revokes all prior proxies given with respect to the shares
of the undersigned. The undersigned acknowledges receipt of the Notice of
Special Meeting of Stockholders and accompanying Proxy Statement.
Please complete, sign, date and return this proxy in the enclosed envelope.
No postage is required for mailing in the United States.
-------------------------------
Signature(s)
-------------------------------
Signature(s)
Date: , 2000
------------------------
IMPORTANT: Please date this
proxy and sign exactly as your
name appears to the left. If
shares are held by joint
tenants, both should sign. When
signing as attorney, executor,
administrator, trustee or
guardian, please give title as
such. If a corporation, please
sign in full corporate name by
president or other authorized
officer. If a partnership,
please sign in partnership name
by authorized person.
