SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] 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 toss.240.14a-11(c) orss.240.14a-12
GROVE PROPERTY TRUST
(Name of Registrant as Specified in its Charter)
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(Name of Person(s) Filing proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
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[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.
1) Amount Previously Paid:
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2) Form, Schedule or Registration Statement No.:
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3) Filing Party:
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4) Date Filed:
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Grove Property Trust
598 Asylum Avenue
Hartford, CT 06105
Telephone: 860-246-1126
September 28, 2000
Dear Shareholders:
You are cordially invited to attend a special meeting of shareholders
of Grove Property Trust ("Grove") to be held at 9:00 a.m., Eastern time, on
Tuesday, October 31, 2000 at The Hartford Club, 46 Prospect Street, Hartford,
Connecticut.
At the special meeting, you will be asked to approve the merger of
Grove with and into a subsidiary of ERP Operating Limited Partnership ("ERP").
If the proposed merger takes place, each outstanding share of beneficial
interest, $0.01 par value per share, of Grove will be converted into the right
to receive cash in the amount of $17.00 per share (subject to a potential
reduction in an amount not to exceed $0.29 per share), as described in the
attached proxy statement.
Please review the attached proxy statement carefully. This document
contains a detailed description of the agreement and plan of merger among Grove,
Grove Operating, L.P. and ERP, and related transactions, including the transfer
of Grove's retail properties to a company owned by four of Grove's executive
officers, including me, in exchange for partnership interests of Grove
Operating, L.P.
Your Board of Trust Managers believes that the proposed merger is in
the best interests of Grove and the shareholders of Grove and has approved the
merger by the unanimous vote of the trust managers present. The Board also
recommends that you vote FOR the approval of the merger and the transactions
contemplated by the merger agreement. You should be aware that, in determining
to sell Grove, several trust managers of Grove had certain potentially
conflicting interests. Some of these potentially conflicting interests could
have influenced the Board of Trust Managers' approval of the merger agreement
and its recommendation that the Grove shareholders vote to approve the merger
and the transactions contemplated by the merger agreement. See "Interests of
Certain Persons in the Transactions" in the Proxy Statement.
In arriving at its decision, your Board considered a number of factors
including the opinion of Grove's financial advisor, Houlihan Lokey Howard &
Zukin Financial Advisors, Inc., as to the fairness, from a financial point of
view, of the consideration to be paid to Grove's shareholders and to the limited
partners of Grove Operating, L.P. in connection with the mergers and as to the
fairness, from a financial point of view, to Grove of the consideration to be
received by it in connection with the transfer of the retail properties.
I appreciate the loyalty and support our shareholders and limited
partners have demonstrated over the years. I hope you will continue this support
by voting FOR the proposed merger of Grove and the ERP subsidiary. With other
members of the Board of Trust Managers, I intend to vote FOR the merger, and
recommend that all shareholders and limited partners do the same.
Regardless of the number of shares you may own, it is important that
your shares be represented at the special meeting. Accordingly, please promptly
mark, sign, date and return your proxy card in the pre-addressed envelope
whether or not you plan to attend the special meeting. If you attend the special
meeting, you may vote in person whether or not you have previously returned your
proxy. Under Maryland law, approval of the merger requires the affirmative vote
of two-thirds of the shares entitled to be voted. As a result, the failure to
vote or an abstention is the equivalent of a vote against the merger.
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On behalf of your Board of Trust Managers, I thank you for your
continued support and again urge you to vote FOR the approval of the merger and
the transactions contemplated by the merger agreement.
Sincerely,
Damon D. Navarro
Chairman, President and Chief
Executive Officer
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GROVE PROPERTY TRUST
Notice of Special Meeting of Shareholders
To Be Held October 31, 2000
Dear Shareholder:
The Board of Trust Managers of Grove Property Trust ("Grove") has
scheduled a special meeting of shareholders for 9:00 a.m., Eastern time, on
Tuesday, October 31, 2000 at The Hartford Club, 46 Prospect Street, Hartford,
Connecticut. The sole purpose of the meeting is for shareholders to consider
approval of the merger of Grove into a subsidiary of ERP Operating Limited
Partnership ("ERP") pursuant to an Agreement and Plan of Merger among Grove,
Grove Operating, L.P. and ERP, along with the other transactions contemplated by
the merger agreement, including an agreement for the transfer of Grove's retail
properties to a company owned by four of Grove's executive officers in exchange
for partnership interests of Grove Operating, L.P. If the merger is approved and
becomes effective, shareholders will receive $17.00 cash for each share of Grove
(subject to a potential reduction in an amount not to exceed $0.29 per share).
Under Maryland law, the shareholders of Grove will not have dissenters' rights
in connection with the merger of Grove. No other business will be transacted at
the special meeting.
The Board of Trust Managers has received an opinion from Houlihan Lokey
Howard & Zukin Financial Advisors, Inc., dated July 14, 2000, to the effect that
the consideration to be received in the merger by the shareholders of Grove is
fair, from a financial point of view, to them. Houlihan Lokey also opined to the
effect that the consideration to be received by Grove in connection with the
transfer of the retail properties is fair, from a financial point of view, to
Grove.
After careful study and evaluation, the Board of Trust Managers has, by
unanimous vote of the Trust Managers present, determined that the merger is fair
and in the best interests of Grove and its shareholders and recommends that the
shareholders vote FOR approval of the merger and the other transactions
contemplated by the merger agreement. You should be aware that, in determining
to sell Grove, several trust managers of Grove had certain potentially
conflicting interests. Some of these potentially conflicting interests could
have influenced the Board of Trust Managers' approval of the merger agreement
and its recommendation that the Grove shareholders vote to approve the merger
and the transactions contemplated by the merger agreement. See "Interests of
Certain Persons in the Transactions" in the Proxy Statement.
The record date for shareholders entitled to notice of and to vote at
the special meeting has been established as the close of business on September
22, 2000.
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Please review the materials contained in the attached proxy statement
carefully and then mark, sign, date and return your proxy card so that your
shares may be represented at the meeting. You may also attend and vote in
person.
Sincerely,
Joseph R. LaBrosse
Chief Financial Officer, Secretary
and Treasurer
September 28, 2000
Shareholders are urged to mark, sign, date and return promptly the enclosed
proxy in the accompanying envelope, which requires no postage if mailed in the
United States. If a shareholder receives more than one proxy for any reason,
each proxy should be completed and returned. Your cooperation will be
appreciated. Your proxy will be voted with respect to the proposal to approve
the merger and the transactions contemplated by the merger agreement in
accordance with any specifications on the proxy. A failure to vote, either by
not returning the enclosed proxy or by checking the "abstain" box thereon, will
have the same effect as a vote AGAINST approval of the merger.
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TABLE OF CONTENTS
GROVE PROPERTY TRUST...........................................................1
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS......................................1
SUMMARY TERM SHEET.............................................................1
QUESTIONS AND ANSWERS ABOUT THE MERGERS........................................2
WHO CAN HELP ANSWER YOUR QUESTIONS.............................................4
SUMMARY........................................................................5
Parties to the Mergers......................................................5
The Transactions............................................................6
The Retail Agreement........................................................6
Possible Dividend Reduction.................................................6
Closing Agreement...........................................................7
Possible Reduction of Company Merger Consideration..........................7
The Merger Agreement........................................................7
Interests of Certain Persons in the Transactions............................7
Voting Positions Held by Control Persons and Vote Required for
Approval of the Mergers...................................................8
Federal or State Regulatory Approvals Needed and Filings Made...............8
Dissenters' Rights..........................................................8
Tax Consequences............................................................8
Conflicts of Interest.......................................................9
Break-Up Fee................................................................9
THE SPECIAL MEETING...........................................................10
Proxies and Voting.........................................................10
THE TRANSACTIONS..............................................................10
Terms of the Transactions..................................................10
BACKGROUND OF THE TRANSACTION.................................................12
Description of Grove and Grove L.P.'s Business.............................12
Reasons for the Mergers....................................................13
Reasons for the Retail Agreement...........................................18
Recommendation of the Board of Trust Managers..............................19
Opinion of Financial Advisor-Grove.........................................19
Summary of Analyses Performed by Houlihan Lokey............................20
Summary of Appraisals of Retail Properties by Italia & Lemp, Inc...........23
Effective Time of the Transactions.........................................25
THE MERGER AGREEMENT..........................................................25
Representation and Warranties..............................................25
Conditions to the Transactions.............................................26
Dividends..................................................................27
Termination Provisions.....................................................27
Termination Fee and Expenses...............................................28
No Solicitation of Other Transactions......................................29
Conduct of Business Pending the Transactions...............................29
Waiver and Amendment.......................................................31
RETAIL AGREEMENT..............................................................31
Parties....................................................................31
Overview...................................................................31
Redemption Payment.........................................................31
Expenses of Transfer.......................................................32
Relationship to Mergers....................................................32
NO APPRAISAL RIGHTS...........................................................32
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CONVERSION OF UNITS/SHARES....................................................32
Conversion of the Grove Shares.............................................32
Conversion of the Grove L.P. Units.........................................32
EXPECTED FEDERAL INCOME TAX CONSEQUENCES TO THE HOLDERS OF GROVE
COMMON SHARES...............................................................33
Consequences to Grove......................................................33
Consequences to the Shareholders...........................................33
Taxation of Non-United States Shareholders.................................33
MATTERS FOLLOWING THE EFFECTIVENESS OF THE MERGERS............................34
Surrender of and Payment for Shares........................................34
Certain Effects of the Merger..............................................34
INTERESTS OF CERTAIN PERSONS IN THE TRANSACTIONS..............................35
MARKET PRICE OF AND DIVIDENDS ON GROVE COMMON SHARES..........................36
PRINCIPAL SHAREHOLDERS OF GROVE...............................................36
Security Ownership of Trust Managers and Executive Officers................36
Security Ownership of Certain Beneficial Owners............................38
LITIGATION....................................................................40
FORWARD LOOKING STATEMENTS....................................................40
OTHER MATTERS.................................................................41
FUTURE SHAREHOLDER PROPOSALS..................................................41
APPENDIX A: AGREEMENT AND PLAN OF MERGER
APPENDIX B: HOULIHAN LOKEY OPINION
APPENDIX C: REDEMPTION AND DISTRIBUTION AGREEMENT
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Proxy Statement
GROVE PROPERTY TRUST
598 Asylum Avenue
Hartford, CT 06105
(860) 246-1126
Special Meeting of Shareholders to be Held
on October 31, 2000
The Board of Trust Managers of Grove Property Trust ("Grove") is
furnishing this proxy statement to the holders of Grove's common shares of
beneficial interest in connection with the solicitation of proxies by the Board
for use at a special meeting of shareholders of Grove to be held at 9:00 a.m.,
Eastern time, on Tuesday, October 31, 2000 at The Hartford Club, 45 Prospect
Street, Hartford, Connecticut, and at any adjournments thereof. The Board has
fixed the close of business on September 22, 2000 as the record date for
determining shareholders entitled to notice of, and to vote at, the special
meeting.
This proxy statement, the accompanying notice of special meeting and
form of proxy are first being mailed to Grove's shareholders on or about
September 28, 2000.
Grove has entered into the Agreement and Plan of Merger, dated as of
July 17, 2000, among Grove, Grove Operating, L.P. ("Grove L.P.") and ERP
Operating Limited Partnership ("ERP") pursuant to which Grove would merge into a
wholly owned subsidiary of ERP. Immediately prior to this merger and pursuant to
the merger agreement, Grove L.P. would merge with a different wholly owned
subsidiary of ERP. The terms of the merger agreement and the mergers are more
fully described in this proxy statement, including the attachments hereto. The
purpose of the special meeting is to consider and vote on a proposal to approve
the merger of Grove and the transactions contemplated by the merger agreement.
Upon consummation of the merger of Grove, each Grove common share would
be converted into the right to receive $17.00 in cash (subject to a potential
reduction in an amount not to exceed $0.29 per share). Upon consummation of the
merger of Grove L.P., each Grove L.P. common unit would, at the election of the
holder thereof, be converted into the right to receive $17.00 in cash (subject
to a potential reduction in an amount not to exceed $0.29 per unit) or into
0.3696 of a common unit of ERP (subject to a potential reduction in an amount
not to exceed 0.0063 per unit received, resulting in a reduced exchange ratio of
not less than 0.3633). Completion of the mergers is subject to satisfaction of a
number of conditions which are outlined in this proxy statement.
The Board of Trust Managers of Grove recommends that the shareholders
of Grove and the unitholders of Grove L.P. approve the merger and the
transactions contemplated by the merger agreement. A separate meeting of the
holders of Grove L.P.'s common units will be held on the same day as the special
meeting of Grove for the purpose of considering and voting on a proposal for the
common unitholders to approve the merger agreement and the transactions
contemplated by the merger agreement.
Grove's common shares are listed and traded on the American Stock
Exchange under the symbol "GVE." On July 14, 2000, the last business day prior
to public announcement of the execution of the merger agreement, the high and
low sale prices of a Grove common share were $16.3125 and $16.0625,
respectively.
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SUMMARY TERM SHEET
The following are the more important terms of the proposed mergers:
o Grove would merge into a subsidiary of ERP in a merger transaction
and the subsidiary of ERP would be the surviving entity. See "The
Transactions-Terms of the Transactions."
o A subsidiary of ERP would merge into Grove L.P. in a merger
transaction and Grove L.P. would be the surviving entity. See "The
Transactions-Terms of the Transactions."
o ERP is an Illinois limited partnership which owns and operates
apartment complexes and had a partners' capital of approximately
$6.1 billion as of June 30, 2000. ERP is a subsidiary of Equity
Residential Properties Trust, the largest publicly traded apartment
company in the United States. See "Summary-Parties to the Mergers."
o Holders of Grove common shares would receive $17.00 in cash per
Grove Common Share (subject to a potential reduction in an amount
not to exceed $0.29 per share). See "The Transactions-Terms of the
Transactions."
o The receipt of cash in the merger by Grove shareholders will be
subject to federal and state tax. See "Expected Federal Income Tax
Consequences to the Holders of Grove Common Shares."
o The Board of Trust Managers of Grove believes that the merger
transactions are fair and in the best interest of Grove, Grove L.P.
and their respective shareholders and unitholders and recommends by
the unanimous vote of the trust managers present that you approve
and adopt the merger and the transactions contemplated by the merger
agreement. See "Background of the Transaction."
o Houlihan Lokey Howard & Zukin Financial Advisors, Inc. delivered a
fairness opinion to Grove stating that the consideration to be
received by the Grove shareholders and the Grove L.P. unitholders in
the merger transactions is fair from a financial point of view and
that the consideration to be received by Grove upon the transfer of
its retail properties is fair from a financial point of view. See
"Background of the Transaction - Opinion of Financial
Advisor-Grove/Grove L.P."
o Immediately prior to the partnership merger, Messrs. Joseph
LaBrosse, Brian Navarro, Damon Navarro and Edmund Navarro, each a
Grove executive officer, will acquire Grove's four retail properties
for approximately $21.7 million (including the assumption of
mortgage debt). See "The Transactions-Terms of the
Transactions--Retail Agreement."
o The employee trust managers and the executive officers of Grove will
receive cash payments based upon the termination of their employment
and the stock options they hold. Non-employee trust managers of
Grove will receive a one-time cash payment in recognition of their
service to Grove.
o Grove shareholders owning at least two-thirds of the outstanding
Grove shares must vote to approve the merger and the transactions
contemplated by the merger agreement. Certain executives of Grove
and Morgan Stanley Dean Witter Investment Management, Inc., an
affiliate of the successor to Morgan Stanley Group, Inc., with the
power to vote an aggregate of
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31.6% of the outstanding Grove common shares, have agreed to vote
those Grove common shares to approve the merger and the transactions
contemplated by the merger agreement.
o Grove L.P. unitholders owning at least two-thirds of the outstanding
Grove L.P. units must vote to approve the merger agreement and the
transactions contemplated by the merger agreement. Grove, as general
partner of Grove L.P., has agreed to vote its 68.5% interest in
Grove L.P. and certain executives of Grove have agreed to vote their
8.6% limited partnership interest in Grove L.P. to approve the
merger agreement and the transactions contemplated by the merger
agreement. See "The Transactions-Terms of the Transactions."
o You do not have dissenters' rights or rights of appraisal in
connection with the merger and the transactions contemplated by the
merger agreement. See "No Appraisal Rights."
o After the partnership merger becomes effective, the amount of cash
consideration payable to the holders of Grove common shares will be
deposited in trust. Promptly after the Grove merger becomes
effective, each Grove shareholder will receive a letter of
transmittal to be completed and sent to the paying agent together
with the certificate(s) which represented such shareholder's Grove
shares. Promptly after a shareholder submits a properly completed
and signed letter of transmittal together with the stock
certificate(s), such shareholder will receive the cash that such
shareholder is entitled to receive.
QUESTIONS AND ANSWERS ABOUT THE MERGERS
Q: Why is the meeting being called?
A: The meeting is being called so that the shareholders of Grove can approve the
merger agreement among Grove, Grove L.P. and ERP and the transactions
contemplated thereby, including the merger of Grove into a subsidiary of ERP.
Q: What will the Grove shareholders receive in the merger?
A: Grove shareholders will receive $17.00 per Grove Common Share (subject to a
potential reduction in an amount not to exceed $0.29 per share).
Q: Why is the merger consideration subject to reduction?
A: The consideration to be paid in the mergers is subject to reduction in an
amount not to exceed $3.5 million in the aggregate (a maximum amount of $0.29
per Grove common share), which amount may be expended to resolve certain
existing potential liabilities. If Grove's potential liabilities cannot be
resolved for less than $3.5 million, EQR has the option of not closing the
merger transactions.
Q: What is the difference between the company merger and the partnership merger?
A: There are two different mergers taking place in this transaction: (1) the
company merger between a subsidiary of ERP and Grove and (2) the partnership
merger between a subsidiary of ERP and Grove L.P.
Q: Which merger am I voting to approve?
A: Because you are a holder of Grove common shares, you will vote to approve the
company merger and the transactions contemplated by the merger agreement.
Q: Why are the companies proposing to merge? How will I benefit?
A: After careful study and evaluation, Grove's Board of Trust Managers
determined, by unanimous vote of the trust managers present, that the company
merger and the partnership merger are fair and in the best interests of Grove
and its shareholders and of Grove L.P. and its unitholders. Each holder of Grove
common shares will receive $17.00 per share (subject to a potential reduction in
an amount not to exceed
2
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$0.29 per share). On July 14, 2000, the last business day before the
announcement that the merger agreement had been entered into, the closing price
reported on the American Stock Exchange per Grove common share was $16.3125.
Q: When will I receive my cash?
A: If the merger transactions are approved, you will receive your cash promptly
after the company merger becomes effective and you have submitted a properly
completed and executed letter of transmittal to the paying agent together with
the certificate(s) which represented your Grove common shares. The paying agent
will send you the form of letter of transmittal after the company merger becomes
effective.
Q: Do I have dissenters' rights?
A: No. Grove shareholders do not have dissenters' rights or rights of appraisal
in connection with the merger transactions.
Q: What are the federal tax consequences of the company merger to the
shareholders?
A: The receipt of cash in the company merger will be a taxable transaction for
federal and most state income tax purposes. Please be aware that tax matters are
very complicated and the tax consequences of the company merger to you will
depend on the particular facts of your own situation.
Q: When do you expect the mergers to be completed?
A: We hope to complete the mergers on October 31, 2000, the day of the
shareholder and partnership meetings, assuming the Grove shareholders and the
Grove L.P. unitholders approve the mergers and the transactions contemplated by
the merger agreement. However, there are also other conditions to completing the
mergers that must also be satisfied, including specifically the resolution of
certain potential Grove liabilities.
Q: What vote is required to approve the mergers?
A: The company merger must be approved by the affirmative votes of Grove
shareholders owning at least two-thirds of the outstanding shares of Grove
common stock. Certain executives of Grove and Morgan Stanley have agreed to vote
31.6% of the outstanding Grove common shares to approve the merger and the
transactions contemplated by the merger agreement. The partnership merger must
be approved by the affirmative votes of Grove L.P. unitholders owning at least
two-thirds of the outstanding Grove L.P. units. Grove, as general partner of
Grove L.P., has agreed to vote its 68.5% interest in Grove L.P., and certain
executives of Grove have agreed to vote their 8.6% limited partnership interest
in Grove L.P. to approve the merger agreement and the transactions contemplated
by the merger agreement.
Q: How do I vote?
A: Your vote is important. If you are a registered holder (that is, you hold
your shares in your own name and not through a broker or other nominee), you can
vote in person at the meeting or by proxy. You can vote by proxy by marking,
signing, dating and mailing the enclosed proxy card in the envelope provided.
You may also attend the meeting and vote your Grove common shares in person. If
you hold your shares in "street name" with a broker, your broker will vote your
shares only if you provide your broker with instructions on how to vote. You
should follow the directions provided by your broker regarding how to instruct
your broker to vote your shares. Without instructions, your shares will not be
voted, which will have the same effect as voting against the merger and the
transactions contemplated by the merger agreement.
Q: Can I revoke or change my proxy?
A: Yes, you can change or revoke your proxy at any time before the vote at the
meeting. To do so, you must:
o advise the Secretary of Grove in writing before your common shares are voted
by the proxy holders at the meeting;
o deliver later-dated proxy instructions; or
o vote in person.
Q: Should I send in my stock certificate now?
A: No. After the mergers are completed, we will send you written instructions
regarding the surrender of your certificates in exchange for cash.
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WHO CAN HELP ANSWER YOUR QUESTIONS
If you have any additional questions about the merger transactions, you should
contact:
Grove Property Trust
Grove Operating, L.P.
598 Asylum Avenue
Hartford, Connecticut 06105
Sheila Daley
or
Michele Hull
Telephone: (877) 547-1118
(Toll Free)
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SUMMARY
The following summary highlights selected information contained
elsewhere in this proxy statement and does not contain all the information that
is important to you. To understand the mergers fully and for a more complete
description of the legal terms of the mergers, please see the more detailed
information contained in this proxy statement, the Appendices and the documents
to which we refer you.
PARTIES TO THE MERGERS
Equity Residential Properties Trust (EQR)
Two North Riverside Plaza
Chicago, Illinois 60606
(312) 474-1300
EQR is a real estate investment trust and one of the largest publicly
traded real estate companies in the United States. EQR was organized in March
1993 and commenced operations as a publicly traded company on August 15, 1993,
upon the completion of its initial public offering. EQR was formed to continue
the multifamily property business objectives and acquisition strategies of
affiliated entities controlled by Mr. Samuel Zell, Chairman of the Board of
Trustees of EQR. These entities had been engaged in the acquisition, ownership
and operation of multifamily properties since 1969. EQR's senior executives
average over 25 years of experience in the multifamily property business. EQR is
the largest publicly traded owner of multifamily properties, based on the number
of apartment units wholly-owned and total revenues earned. As of June 30, 2000,
EQR owned or had interests in a portfolio of 1,053 multifamily properties
containing 224,383 apartment units and managed 4,835 additional units owned by
affiliated and non-affiliated entities. As of June 30, 2000, the properties EQR
owned or had interests in had an average occupancy rate of approximately 95%.
These properties are located in 35 states.
ERP Operating Limited Partnership (ERP)
Two North Riverside Plaza
Chicago, Illinois 60606
(312) 474-1300
ERP is a subsidiary of EQR. EQR controls ERP as its sole general
partner and as of June 30, 2000, owned approximately 91% of outstanding ERP
units, excluding ERP preferred units of limited partnership. ERP units may be
exchanged for either EQR common shares on a one-for-one basis or, at EQR's
option, the cash equivalent of the applicable number of EQR common shares. All
of EQR's interests in its properties are held directly or indirectly by, and
substantially all of its operations are conducted through, ERP. ERP owns and
operates apartment complexes throughout the United States. At June 30, 2000, it
had total assets of approximately $11.7 billion and partners' capital of
approximately $6.1 billion.
Grove Property Trust (Grove)
598 Asylum Avenue
Hartford, Connecticut 06105
(860) 246-1126
Grove owns and manages apartment complexes in New England and it or its
predecessors have been purchasing and managing real estate in that area since
1980. As of June 30, 2000, Grove's portfolio of 58 apartment communities ,
consisting of 7,075 apartment units, is focused primarily in the suburbs of
Boston, Massachusetts, Hartford, Connecticut and Providence, Rhode Island. At
June 30, 2000, Grove had total assets of $361.5 million.
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Grove Operating, L.P. (Grove L.P.)
598 Asylum Avenue
Hartford, Connecticut 06191
(860) 246-1126
Grove L.P. was formed by Grove to act as a vehicle for the acquisition
of its properties. Grove controls Grove L.P. as its sole general partner. The
Grove L.P. units are redeemable one year after issuance for cash (based on the
fair market value of an equivalent number of Grove common shares at the time of
such redemption) or, at Grove's option, for Grove common shares on a one-for-one
basis, subject to specific anti-dilution adjustments and exceptions. Grove L.P.
owns and operates Grove's property portfolio. At June 30, 2000, Grove owned
approximately 68.5% of the total partnership interests in Grove L.P., including
the sole general partner interest. At June 30, 2000, Grove L.P. had total assets
of approximately $361.5 million and partners' capital of approximately $101.9
million.
THE TRANSACTIONS
THE COMPANY MERGER
Grove will be merged into a subsidiary of ERP. The subsidiary of ERP, a
single member limited liability company, will be the surviving entity. As a
result of the merger, the shareholders of Grove will receive $17.00 per Grove
common share owned (subject to a potential reduction in an amount not to exceed
$0.29 per share). Grove's general partnership interest in Grove L.P. will be
transferred pursuant to the company merger to the surviving limited liability
company, making the limited liability company the sole general partner of Grove
L.P.
THE PARTNERSHIP MERGER
A subsidiary of ERP will be merged into Grove L.P. and Grove L.P. will
be the surviving entity. As a result of the partnership merger, the unitholders
of Grove L.P. may elect to receive either (i) $17.00 per Grove L.P. unit owned
(subject to a potential reduction in an amount not to exceed $0.29 per unit), or
(ii) 0.3696 of an ERP unit per Grove L.P. unit owned (subject to a potential
reduction in an amount not to exceed 0.0063 per unit received, resulting in a
reduced exchange ratio of not less than 0.3633). This conversion ratio is based
upon the equivalent of $17.00 per Grove L.P. unit divided by an assumed value of
$46.00 per ERP unit. This conversion ratio is fixed (subject to the reduction of
up to 0.0063 per unit), and the value of an ERP unit received can increase or
decrease based upon the then value of an ERP unit.
THE RETAIL AGREEMENT
Grove currently owns and operates four retail properties. Immediately
prior to the partnership merger, an entity owned by Joseph LaBrosse, Brian
Navarro, Damon Navarro and Edward Navarro, executives of Grove, will acquire
these properties from Grove for approximately $21.7 million (including the
assumption of mortgage debt and the surrender of Grove L.P. units).
POSSIBLE DIVIDEND REDUCTION
Grove will continue to pay dividends to its shareholders and Grove L.P.
will continue to pay partnership distributions to its unitholders, declared up
to the time the mergers become effective. However, the transaction costs
incurred by Grove and Grove L.P. in connection with the merger transactions are
not to exceed a set amount. If the sum of certain Grove and Grove L.P. costs in
the transaction exceed a set amount, dividends and partnership distributions
that would have been paid to the Grove shareholders and Grove L.P. unitholders
respectively will be reduced by the aggregate amount of this excess.
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CLOSING AGREEMENT
In connection with its due diligence with respect to Grove, EQR
determined that Grove may have certain potential tax-related liabilities which
EQR was not willing to assume pursuant to the mergers. EQR indicated that the
price it would be willing to pay for Grove would need to be reduced by the
amount, if any, paid and costs incurred by Grove in connection with resolving
such potential liabilities by obtaining a closing agreement from the IRS. The
receipt of the closing agreement and the absence of any associated liabilities
and costs in excess of $3.5 million is a condition to both Grove's and ERP's
obligation to complete the mergers. Any amounts paid by Grove to settle such
potential liabilities and the costs of obtaining the settlement would be borne
by the holders of Grove's common shares and Grove L.P.'s units through a
reduction in the purchase price, not to exceed $0.29 per Grove common share and
Grove L.P. unit (equivalent to a reduction of the unit consideration by 0.0063
ERP unit received).
POSSIBLE REDUCTION OF COMPANY MERGER CONSIDERATION
The Grove shareholders and the Grove L.P. unitholders will receive the
merger consideration, less an amount that may be expended by Grove to resolve
certain existing potential liabilities. The maximum amount the purchase price
may be reduced is $3.5 million. If Grove's potential liabilities cannot be
resolved for less than $3.5 million, ERP has the option of not proceeding with
the merger transactions. This potential reduction would reduce the cash received
by Grove shareholders by a maximum of $0.29 per Grove share.
The meeting of Grove shareholders will be held on October 31, 2000,
irrespective of whether Grove has resolved certain potential liabilities through
Grove's receipt of a closing agreement from the Internal Revenue Service, as
described herein. Thus, at the meeting of shareholders, Grove's shareholders
will be asked to approve the merger and the transactions contemplated by the
merger agreement whether or not Grove has resolved certain liabilities which
could reduce the company merger consideration, as described herein. In addition,
neither ERP nor Grove and Grove L.P. are obligated to complete the mergers
unless such liabilities are resolved for less than $3.5 million. Therefore, the
Grove shareholders may be asked to approve the company merger without knowing
the actual cash consideration or whether the mergers will actually be completed.
THE MERGER AGREEMENT
The merger agreement is the legal document which governs the mergers.
The merger agreement is attached hereto as Appendix A.
INTERESTS OF CERTAIN PERSONS IN THE TRANSACTIONS
Upon consummation of the Grove merger, the executive officers of Grove
will receive cash payments based upon the termination of their employment and
the number of stock options which they hold at that time. Non-employee trust
managers of Grove will receive a one-time cash payment in recognition of their
substantial contributions to Grove and for their service on the Merger Oversight
Committee, as well as cash payments based on the number of stock options they
hold (except for grants made in 2000, which will be cancelled for no
consideration). Moreover, ERP will indemnify the officers and trust managers of
Grove or any Grove subsidiary for their actions on or prior to the merger,
including all transactions arising from the merger agreement.
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VOTING POSITIONS HELD BY CONTROL PERSONS AND VOTE REQUIRED FOR APPROVAL OF THE
MERGERS
VOTING POSITIONS HELD BY CONTROL PERSONS
THE PARTNERSHIP AND COMPANY MERGERS: Messrs. Cheema, Garrahy, LaBrosse,
McNamara, Munsell, B. Navarro, D. Navarro, E. Navarro and Twaddell, and Morgan
Stanley have signed shareholder/partner voting agreements whereby they have
agreed to vote the shares or units they hold affirmatively for the respective
mergers. Together, they hold 31.6 % of the outstanding shares of Grove and 8.6%
of the outstanding limited partnership units of Grove L.P. In addition, Grove,
as general partner of Grove L.P., has agreed to vote its 68.5% interest in Grove
L.P. to approve the partnership merger.
VOTE REQUIRED FOR APPROVAL OF THE MERGERS
The Company Merger:
------------------
In order for the company merger to be approved, at least two-thirds of
outstanding common shares of Grove that are entitled to vote must vote
affirmatively for the company merger.
The Partnership Merger:
----------------------
In order for the partnership merger to be approved, unitholders owning
at least two-thirds of the Grove L.P. units must vote affirmatively for the
partnership merger.
FEDERAL OR STATE REGULATORY APPROVALS NEEDED AND FILINGS MADE
ERP was required to file a registration statement and other related
documents with the SEC in connection with the partnership merger. The merger
transactions do not require a filing under the Hart-Scott-Rodino Act. Prior to
the partnership merger, ERP will have received all state security or "blue sky"
permits and other authorizations necessary to issue the ERP units to the Grove
L.P. limited partners that elect to receive ERP units. Grove has filed this
proxy statement with the SEC.
DISSENTERS' RIGHTS
Grove shareholders are not entitled to dissenters' rights or other
rights of appraisal in connection with the company merger under Maryland law.
Grove L.P. unitholders are not entitled to dissenters' rights or other rights of
appraisal in connection with the partnership merger under Delaware law or the
agreement of limited partnership of Grove L.P.
TAX CONSEQUENCES
Based on the current provisions of the Internal Revenue Code and
applicable Treasury Regulations, the receipt of cash by the Grove L.P.
unitholders in the partnership merger and by Grove shareholders in the company
merger will be a taxable transaction for federal income tax purposes and is
likely to be a taxable transaction under state, local or foreign income tax
laws. Subject to specific exceptions, the receipt of ERP units in exchange for
Grove L.P. units is treated as a contribution and such limited partners will
generally not have to pay any state or federal income taxes. The merger
transactions are not expected to have any tax consequences to Grove, Grove L.P.
or ERP.
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CONFLICTS OF INTEREST
Possible conflicts of interest exist due to the fact that certain
members of management of Grove, pursuant to existing agreements and the retail
agreement, have certain interests that are in addition to the interests of
shareholders of Grove generally. Such interests include severance and transition
payments, acceleration of vesting of restricted Grove shares, acceleration of
vesting of stock options and tax recognition payments and the retail agreement.
Therefore, a conflict between the interests of these individuals and the
interests of the Grove shareholders and limited partners could exist. These
interests are described in the section entitled "Interests of Certain Persons in
the Transactions."
BREAK-UP FEE
The merger agreement provides for a "break-up fee" of $8.5 million plus
break-up expenses of up to $2 million payable by Grove to ERP if the merger
agreement is terminated by either ERP or Grove under specified circumstances
and, if, within one year thereafter, Grove enters into an agreement regarding an
acquisition proposal which is consummated. If the merger agreement is terminated
by either ERP or Grove under other circumstances, either ERP or Grove may be
required to pay the other party's break-up expenses of up to $2 million. See
"The Merger Agreement-Termination Provisions." The obligation to pay the
break-up fee or the expense fee or both may adversely affect the ability of
Grove to engage in another transaction in the event the company merger is not
consummated.
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THE SPECIAL MEETING
PROXIES AND VOTING.
It is important that all shareholders' votes be represented at the
special meeting either in person or by proxy. Each proxy will be voted as
directed by the shareholder. Signed proxies that are returned and do not contain
contrary instructions will be voted in favor of the approval of the merger and
the transactions contemplated by the merger agreement. Pursuant to Grove's
by-laws, no other business is permitted to be transacted at the special meeting.
A proxy may be revoked by delivering a written notice of revocation to
the Secretary of Grove, by delivering an executed proxy bearing a later date to
the Secretary of Grove or by appearing at the special meeting and voting in
person.
Each Grove common share entitles the holder thereof to one vote on the
proposal to approve the merger and the transactions contemplated by the merger
agreement. At the close of business on the record date, there were 8,364,947
common shares of Grove issued and outstanding. Approval of the merger and the
transactions contemplated by the merger agreement requires the affirmative vote
of two-thirds of the Grove common shares entitled to vote at the special
meeting.
The vote required to approve the merger is based on the total voting
power entitled to be cast on the proposal. Broker nonvotes occur when a broker
nominee does not vote on a matter at a meeting because it has not received
instructions from the beneficial owner to vote and does not have discretionary
authority to vote on such matter. Failures to vote, abstentions and broker
nonvotes with respect to the proposal to approve the merger and the transactions
contemplated by the merger agreement will have the same effect as a vote AGAINST
the proposal. Returned proxies will be processed and tabulated under the
supervision of independent inspectors of election.
In addition to solicitation by mail, trust managers, officers and
certain management employees of Grove may solicit proxies from Grove
shareholders, either personally or by telephone, telegraph or other form of
communication. Such persons will receive no additional compensation for such
services. Grove has retained Corporate Investor Communications, Inc. to assist
in soliciting proxies at an estimated cost of $10,000, plus out-of-pocket
expenses. All expenses associated with the solicitation of proxies in the form
enclosed will be borne by Grove.
The Board of Trust Managers of Grove has approved the merger agreement,
believes that the merger is in the best interests of Grove and its shareholders
and recommends approval by Grove shareholders of the merger and the transactions
contemplated by the merger agreement. Grove shareholders should be aware that,
in determining to sell Grove, several trust managers of Grove had certain
potentially conflicting interests. Some of these potentially conflicting
interests could have influenced the Board of Trust Managers' approval of the
merger agreement and its recommendation that the Grove shareholders vote to
approve the merger and the transactions contemplated by the merger agreement.
See "Interests of Certain Persons in the Transactions" in this proxy statement.
THE TRANSACTIONS
TERMS OF THE TRANSACTIONS
OVERVIEW
The following is a brief summary of the material terms of the of the
merger agreement and the transactions contemplated thereby. To understand the
merger transactions fully, and for a complete description of the legal terms of
the mergers, you should carefully read this entire document, including the
merger agreement, which is attached as Appendix A, and is incorporated by
reference. This summary is qualified in its entirety by reference to the full
text of the merger agreement and the retail agreement.
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The merger transactions consist of two separate mergers: the company
merger and the partnership merger. The merger transactions are designed to allow
ERP to acquire the 58 apartment communities Grove and Grove L.P. currently own
and manage in the Boston, Massachusetts, Hartford, Connecticut and Providence,
Rhode Island areas. The acquisition of the Grove properties will increase ERP's
presence in the New England states.
Through a series of steps and as a result of the merger transactions,
ERP or an entity wholly owned by ERP will be the single member of a newly formed
Delaware limited liability company ("New LLC1"), which will become the sole
limited partner of Grove L.P. by forming another single member Delaware limited
liability company ("New LLC2") which will merge with and into Grove L.P. ERP or
an entity wholly owned by ERP will also be the sole member of a newly-formed
Maryland limited liability company ("New LLC3"), which will become the sole
general partner of Grove L.P. by merging with Grove.
THE COMPANY MERGER
Following approval of the company merger by the Grove shareholders, the
satisfaction or waiver of other conditions and the consummation of the
partnership merger, Grove and New LLC3 will file articles of merger with the
State Department of Assessments and Taxation in Maryland to effectuate the
company merger. The company merger will be comprised of the following steps:
o ERP will form New LLC3.
o New LLC3 and Grove will merge.
o New LLC3 will be the surviving entity of the company merger.
o Grove shareholders will receive $17.00 per Grove common share owned
(subject to a potential reduction in an amount not to exceed $0.29
per share).
o Grove's general partnership interest in Grove L.P. will be
transferred pursuant to the company merger to New LLC3, and New LLC3
will become the sole general partner of Grove L.P.
o ERP or an entity wholly owned by ERP will be: (i) the sole member of
New LLC1, which will be the sole limited partner of Grove L.P., and
(ii) the sole member of New LLC3, which will be the sole general
partner of Grove L.P.
THE PARTNERSHIP MERGER
Following approval of the partnership merger by the Grove L.P. partners
and the satisfaction or waiver of other conditions, Grove L.P. and New LLC2 will
file a certificate of merger with the Secretary of State of Delaware to
effectuate the partnership merger. The partnership merger will be comprised of
the following steps:
o ERP will form New LLC1, which will in turn form New LLC2.
o New LLC2 will merge with Grove L.P. and Grove L.P. will survive the
partnership merger. New LLC1 will become the sole limited partner of
Grove L.P. and Grove will continue to be the sole general partner of
Grove L.P.
o The limited partners of Grove L.P. may elect to receive either (i)
$17.00 (subject to a potential reduction in an amount not to exceed
$0.29 per share) or (ii) 0.3696 ERP units (subject to a potential
reduction in an amount not to exceed 0.0063 per unit received,
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resulting in a reduced exchange ratio of not less than 0.3633) per
Grove L.P. unit owned immediately prior to the partnership merger.
Upon the effectiveness of the partnership merger, Grove L.P.'s limited
partners will no longer hold any interest in Grove L.P. The Grove L.P. limited
partners who elect to receive ERP units will become limited partners of ERP.
RETAIL AGREEMENT
Grove currently owns and operates four retail properties. Immediately
prior to the merger transactions, an entity owned by Messrs. J. LaBrosse, B.
Navarro, D. Navarro and E. Navarro, executives of Grove, will acquire these
properties from Grove for approximately $21.7 million consisting of the
redemption by Grove L.P. of 998,227 units currently owned by these executives
valued at $17.00 per unit (subject to a potential reduction not to exceed $0.29
per unit) and the assumption of approximately $7.5 million of debt by the entity
owned by the executives. Any excess value in the transfer will be tendered in
cash to the entity acquiring the retail properties. The executives will bear all
costs of this transaction.
BACKGROUND OF THE TRANSACTION
DESCRIPTION OF GROVE AND GROVE L.P.'S BUSINESS
GROVE
Grove, a Maryland real estate investment trust, is a self-managed and
self-administered real estate investment trust that is engaged in the
acquisition, repositioning, management and operation of mid-priced and
subsidized multifamily and specialty retail properties located in the
Northeastern part of the United States. Grove has in-house expertise in
acquisition, repositioning and renovation, marketing, leasing and property
management.
Grove owns interests in and operates apartment communities in
Connecticut, Massachusetts and Rhode Island and four specialty retail properties
in Massachusetts and Maine. The apartment communities are mid-prized and
subsidized apartment properties consisting primarily of two and three-story
buildings in landscaped settings. The apartment communities are well located
within their markets and appeal to middle income and moderate income residents
who are generally "renters by necessity" with the exception of the Boston
suburbs where residents are renters by choice in many instances.
Grove's predecessors started operations in 1980, and Grove completed
its first public offering in 1994 with the acquisition of three apartment
properties. In 1996, management began to undertake a number of strategic
initiatives intended to maximize shareholder value. In March 1997, Grove
completed the following: (i) the creation of an umbrella partnership REIT
structure by forming Grove L.P. to facilitate acquisition transactions and to
provide potential sellers with a mechanism to defer their tax liability; (ii)
the acquisition through Grove L.P. of 20 properties owned by Grove affiliates;
(iii) the acquisition of the property management assets and related liabilities
of Grove Property Services Limited Partnership, the entity that managed the
Grove properties and the 20 properties owned by Grove affiliates; (iv) a $30
million private placement of equity securities; and (v) the closing of a $25
million credit facility and a $15 million term loan facility.
In November 1997, Grove completed a public offering pursuant to which
it sold 4.5 million shares and sold additional shares directly to certain
investors. During 1998, Grove purchased 3,605 apartment units and a 23,325
square foot retail property for a total cost of approximately $171 million with
cash, debt and the issuance of operating units. During 1999 and 2000, Grove sold
four apartment communities containing 313 apartment units for $12.8 million. In
2000, Grove acquired three apartment communities containing 912 apartment units.
Grove operates in three industry segments: residential, subsidized
residential and retail.
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GROVE L.P.
Grove L.P. was formed by Grove to act as the vehicle for the
acquisition of properties. Grove is the sole general partner of Grove L.P. and
thereby controls it. Grove uses Grove L.P. to acquire properties in exchange for
common units, which represent limited partnership interests in Grove L.P. The
recipients of units are restricted from transferring the units for a one-year
period from the acquisition date. The units are redeemable after such time for
cash or for Grove common shares, at Grove's option, on a one-for-one basis,
subject to certain anti-dilution adjustments and exceptions. During 1998, Grove
L.P. issued approximately 391,000 common units in conjunction with the
acquisition of 20 properties with approximately 2,200 apartments.
REASONS FOR THE MERGERS
Over the recent several years, Grove has had substantial growth in its
assets through a variety of acquisitions as well as in its revenues, net income
and funds from operations. During this period, Grove has also enjoyed
above-average total shareholder returns, compared to other REITs, based both on
the price of the Grove common shares (and, indirectly, the value of the common
units of Grove L.P.) and on the dividends and distributions paid by Grove and
Grove L.P.
Grove was approached periodically by representatives of other entities,
including EQR, expressing varying degrees of interest in acquiring Grove. None
of these approaches led to further developments until an inquiry Grove received
from EQR in the Fall of 1999. At that time, a senior officer of EQR contacted
the Chief Executive Officer of Grove to request a meeting. An initial meeting of
such officers occurred in the Fall of 1999 at which time a preliminary
indication of EQR's valuation of Grove was suggested. The representative of EQR
also indicated that EQR had informally contacted certain of the institutional
shareholders of Grove to determine their long-term interests in Grove and its
securities.
Although no further contact between Grove and EQR took place during
1999, Grove's management began to evaluate what would be in the best interests
of the Grove shareholders and the Grove L.P. unitholders. That evaluation led
the Grove management to the conclusion that some type of acquisition proposal
for Grove might be made on either a friendly or a hostile basis. Because of
these developments, Grove determined that the interests of its shareholders and
the Grove L.P. unitholders would be better served if Grove exercised a greater
degree of control over some process that might occur.
In the first quarter of 2000, EQR expressed continuing interest in
pursuing an acquisition transaction with Grove. EQR expressed a preference for a
cash payment for Grove's common shares and a fixed conversion ratio for the
exchange of Grove L.P. common units for ERP units. In early March, Grove and EQR
entered into a confidentiality agreement pursuant to which Grove agreed to
provide certain confidential information to EQR and EQR agreed to retain such
information in confidence and to use it only to evaluate the desirability of
pursuing a transaction with Grove. Grove thereafter provided certain
confidential information to EQR.
After entering into the confidentiality agreement with EQR, Grove
contacted two of the other parties who had, over time, expressed some degree of
interest in exploring a possible transaction with Grove. The discussions led to
the execution of confidentiality agreements with the other parties with terms
substantially identical to the terms of the confidentiality agreement between
Grove and EQR. Information comparable to that provided to EQR was thereafter
provided to one of those parties and some confidential information was provided
to the other.
Beginning in approximately mid-May, 2000, Grove had a series of
discussions with its counsel and other advisors concerning the substantive terms
of any transaction which might be presented to the Board of Trust Managers of
Grove and the appropriate process to follow in its continuing discussions with
EQR and the other two parties. Grove's management recognized that the structure
of any transaction might have different tax consequences to the holders of
Grove's common shares than to the holders of Grove L.P.'s common units. Grove
believed that a transaction which was tax-free would likely be substantially
more
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important to the holders of Grove L.P.'s common units than it would be to the
holders of Grove's common shares.
EQR proposed that it and Grove enter into an agreement pursuant to
which Grove would agree that it would negotiate exclusively with EQR for a
30-day period and which would also outline the terms on which a transaction
between Grove and EQR might be concluded. During that period, representatives of
EQR would be permitted to perform additional due diligence concerning Grove and
its properties. Grove's management, its counsel and other advisors discussed
with EQR the terms of such an exclusivity agreement which Grove's management
believed might be acceptable to the Board of Trust Managers of Grove. The
proposed terms of such an agreement were the subject of extended discussion
among Grove and its advisors and EQR. Terms which were discussed included,
without limitation, the period of any exclusivity, the general structure of any
potential transaction, the obligations of each to pay certain fees and expenses
in the event that a definitive agreement was not entered into, the
appropriateness of the assumptions EQR used to make its preliminary evaluation
of Grove and the price it might be willing to pay in any transaction with Grove.
During this time, the management of Grove also kept the Trust Managers of Grove
advised of the progress of the discussions.
A special meeting of the Board of Trust Managers of Grove was held on
May 25, 2000 for the purpose of reviewing the general proposals which had been
presented to Grove by EQR and each of the other interested parties and to
determine what course Grove should follow in the best interests of the holders
of Grove's common shares and Grove L.P.'s common units.
At this meeting, counsel for Grove reviewed the duties of the Board in
considering opportunities for the sale of the company. Management reviewed
Grove's recent operating history and the impact on Grove and its operations of
external conditions, including that the capital markets for real estate
investment trusts had been relatively positive in 1997 when Grove raised the
majority of its publicly held equity and that interest rates had been generally
favorable. A change in either of these would likely adversely affect the future
performance of Grove. The Board then reviewed the relative advantages and
disadvantages of various strategic alternatives available to Grove. These
alternatives included:
o Grove could remain independent and pursue its business strategy;
o Grove could pursue a management leveraged buyout;
o Grove could sell its portfolio of properties and liquidate;
o Grove could pursue a possible transaction with an entity other than
EQR; or
o Grove could pursue a possible transaction with EQR.
The Board discussed management's expectations for Grove's results for
the next 18-month period taking into account increasing borrowing and equity
costs. The Board noted that there was increasing competition to acquire
available apartment communities in Grove's market, thereby increasing the
potential costs of future acquisitions. The Board also recognized that, if
market conditions in the real estate industry declined, it would be difficult
for Grove to continue its historic pace of growth and that any need to increase
dividends substantially in the near future to meet REIT tax requirements might
also restrict Grove's ability to grow. Based in part on management's
evaluations, the Board concluded that, on a total return basis, the sale
transaction would be better for the Grove shareholders and the Grove L.P.
unitholders than remaining independent.
In analyzing a management leveraged buyout of Grove, the Board noted
that, following such a transaction, Grove common shares would no longer be
publicly traded. The Board noted that this could adversely affect the ability of
the holders of Grove L.P.'s common units to redeem such units. Management had
also indicated that the price in such a buyout would be lower than the indicated
price suggested by EQR
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because of the maximum amount which could be borrowed in such a transaction. The
Board noted that such a transaction would also present a number of conflict of
interest issues.
In connection with a possible sale of Grove's portfolio of properties,
Grove's Chief Executive Officer noted that there are contractual restrictions on
the ability of Grove to sell certain of its properties for cash without an
adverse impact on Grove. He also noted that any such strategy would require a
significant amount of time to complete, introducing a degree of uncertainty as
to its success. He indicated that the sale of all of Grove's properties would
likely take as long as two years to complete and that, during the process, Grove
would bear the risk of a downturn in the real estate market.
The Board then discussed the possibility of Grove's seeking to enter
into a transaction with a party other than EQR. Based on Grove's extensive
knowledge of the apartment REIT industry, the Board discussed logical candidates
to acquire Grove other than EQR, including the two entities that had
specifically indicated an interest in acquiring Grove. In respect of one of
these entities, the Board noted that the party did not have available the amount
of cash which would be needed to conclude a cash transaction with Grove on a
timely basis, thereby decreasing the certainty of completing such a transaction.
In the case of the other entity, the Board noted that its corporate structure
would make it difficult to accomplish a transaction which would be acceptable to
the holders of Grove L.P.'s common units and that this party had never completed
a merger-type transaction with an unaffiliated entity. The Board noted the
experience of EQR in completing acquisition transactions in an expeditious
manner.
At the conclusion of the May 25, 2000 Board meeting, the Board of Trust
Managers authorized the management of Grove to continue negotiations with EQR to
determine if there were terms of an exclusivity agreement that might be
acceptable to the Board. In making its determination, the Board noted in
particular the indicated terms of a transaction with EQR, the liquidity of EQR
and its ability to fund the transaction and the flexibility in structuring a
transaction based on the similar corporate structures of EQR and Grove. An
information meeting of the Board was scheduled for May 31, 2000 so that
management could report to the Trust Managers the status of discussions with EQR
concerning the terms of the proposed exclusivity letter.
Thereafter, management, with the assistance of its counsel and
advisors, continued discussions with EQR concerning the terms of the proposed
exclusivity agreement. Such discussions covered a variety of topics, including
the reasonableness of the assumptions being used by EQR in evaluating a
transaction with Grove, the circumstances under which Grove would be obligated
to pay a "break-up" fee and the circumstances under which both Grove and EQR
would be obligated to reimburse the other for certain expenses. EQR also
proposed that any agreement between EQR and Grove would contain representations,
warranties and certain other terms substantially similar to those of an
agreement entered into by EQR relating to a recent acquisition made by EQR.
Management of Grove and its counsel reviewed the terms of such agreement for
their general acceptability.
At the information meeting of the Board on May 31, 2000, management
reviewed the status of discussions with EQR and solicited the comments of the
Trust Managers. Based on a request of the Board at its May 25 meeting, Grove's
Chief Executive Officer, with the assistance of an outside advisor, had
contacted a number of investment banking firms, including Houlihan Lokey Howard
& Zukin Financial Advisors, Inc., soliciting proposals to be retained by Grove
for the purpose of rendering an opinion as to the fairness, from a financial
point of view, of the consideration to be paid in any transaction between Grove
and EQR.
On June 9, 2000, the Board of Trust Managers of Grove held a special
meeting. Present in person or by telephone were all of the Trust Managers of
Grove together with Grove's Chief Investment Officer and representatives of
Grove's counsel and its advisor, Jennings Securities LLC. Grove's Chief
Investment Officer reviewed with the Board the terms of the revised draft
exclusivity agreement emphasizing those terms that had changed since the last
draft circulated to the Board. After a full discussion of the terms of the
revised draft exclusivity agreement, the Board approved the agreement and
authorized its execution on behalf of Grove. At the June 9, 2000 meeting, the
Board also created a special committee, the Merger Oversight Committee, composed
of all of Grove's outside trust managers, to review independently the fairness
and
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reasonableness of the transactions contemplated by the exclusivity agreement
(including the terms of the transfer of the retail properties) to the holders of
Grove's common shares and Grove L.P.'s common units.
Prior to the June 9, 2000 meeting and at the request of the Board,
Grove's Chief Executive Officer contacted a number of investment banking firms
to discuss the retention of one of them to provide an opinion as to the
fairness, from a financial point of view, with respect to both the consideration
to be received by the holders of Grove's common shares and Grove L.P.'s common
units in the merger transactions and the fairness, from a financial point of
view, to Grove of the consideration to be received by Grove in connection with
the proposed transfer of the retail properties. After discussing the
qualifications of each of the candidates, the Board authorized the retention of
Houlihan Lokey to provide an opinion. The Board also authorized the retention of
Jennings Securities LLC and Albrizzi-Williams, Inc. (collectively, "Jennings")
to provide additional advisory services. For services rendered to Grove in
connection with the transactions contemplated by the merger agreement and the
retail agreement, Houlihan Lokey and Jennings would receive fees in the amount
of $275,000 and $150,000, respectively, plus the reimbursement of certain
expenses.
At the June 9, 2000 meeting, the Board also took action so that the
Maryland "business combination" statute would not apply to transactions between
Grove and EQR or any of its affiliates.
On June 12, 2000, Grove and EQR entered into the exclusivity agreement.
Thereafter, representatives of Grove and EQR negotiated toward a definitive
merger agreement. At the same time, EQR began additional due diligence with
respect to Grove and its properties, including on-site inspections. These
activities continued through the month of June and into July. On July 12, Grove
agreed to extend the exclusivity period to July 17, 2000.
On July 10, 2000, the Merger Oversight Committee held a telephonic
meeting. All of the members of the Merger Oversight Committee attended the
meeting along with representatives of Grove's counsel and Houlihan Lokey and
Jennings. Grove's Chief Executive Officer, its Executive Vice President and its
Chief Investment Officer also attended the meeting for the purpose of providing
information and answering questions which members of the Committee might have.
At the request of the Chairman of the Merger Oversight Committee,
Grove's counsel reviewed the terms of the principal agreements which would be
entered into, including the merger agreement, the retail agreement, amendments
to existing employment agreements, the schedule of payments to be made to
executive officers and other employees if the transactions are consummated and
the voting agreements pursuant to which certain persons would agree to vote
Grove common shares and Grove L.P. common units in favor of the mergers and the
transactions contemplated by the merger agreement. Grove's Chief Executive
Officer also reviewed the preliminary appraisals provided by Italia & Lemp,
Inc., independent real estate appraisers, addressed to the Merger Oversight
Committee as to the value of the retail properties. After answering questions
from members of the Merger Oversight Committee, Grove's officers were excused
from the meeting.
The representatives of Houlihan Lokey made a presentation to the Merger
Oversight Committee describing the methods used by them in analyzing the
fairness, from a financial point of view, of the consideration to be paid to the
holders of Grove's common shares and Grove L.P.'s common units. Based on these
analyses, Houlihan Lokey had determined preliminarily that the value of the
Grove common shares and the Grove L.P. common units was below the indicated
price that EQR would be willing to pay. Houlihan Lokey determined on a
preliminary basis that the consideration to be paid in the merger transactions
to the holders of Grove's common shares and Grove L.P.'s common units would be
fair, from a financial point of view, to them. Houlihan Lokey presented its
preliminary oral opinion to that effect.
Houlihan Lokey also delivered its preliminary oral opinion to the
effect that the consideration to be paid to Grove in connection with the
transfer of the retail properties was fair to Grove from a financial point of
view.
The representatives of Jennings also commented on the payments proposed
to be made to the executive officers of Grove upon consummation of the
transactions contemplated by the merger agreement.
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They noted that Grove had historically paid its executive officers much less
total compensation than paid to executive officers at other REITs.
Following these presentations and their discussion of the terms of the
draft agreements, the Merger Oversight Committee determined that the terms of
the draft merger agreement, the draft retail agreement and the payments proposed
to be made to the executive officers and other employees of Grove were fair and
reasonable to Grove and to the holders of Grove's common shares and Grove L.P.'s
common units. The Merger Oversight Committee also recommended that the Board of
Grove approve these agreements and payments. The actions taken by the Merger
Oversight Committee at its meeting on July 10, 2000 were taken subject to the
receipt of a final opinion of Houlihan Lokey substantially similar to the
preliminary opinion delivered at the meeting.
In connection with its continuing due diligence with respect to Grove,
EQR determined that Grove had certain potential liabilities which EQR determined
it was not willing to assume. EQR indicated further that the price it would be
willing to pay for Grove would need to be reduced by the amount, if any, paid,
including costs incurred, by Grove in connection with either confirming that
such issues were not problematic or settling any associated liability. There
were extensive discussions between EQR, Grove and their respective advisors of
the issues these potential liabilities raised and the way to resolve them. While
Grove indicated its willingness to work to clarify and resolve the potential
liabilities, it also indicated that it would not be willing to resolve them if
the effect would be a reduction in the aggregate purchase price to be paid by
EQR by more than $3.5 million (or $0.29 per Grove common share and Grove L.P.
common unit). The parties agreed to resolve these issues by obligating Grove to
use its reasonable good faith efforts to obtain an agreement with the Internal
Revenue Service addressed to closing such issues. The receipt of the closing
agreement and the absence of any associated liabilities and costs in excess of
$3.5 million was made a condition to both Grove's and ERP's obligation to
complete the mergers. Any amounts paid by Grove to settle such potential
liabilities and the costs of obtaining the settlement would be borne by the
holders of Grove's common shares and Grove L.P.'s common units through a
reduction in the purchase price.
A special meeting of the Board of Trust Managers was held on July 14,
2000 for the purpose of reviewing these developments and of considering the
approval of a definitive merger agreement and related agreements. A
representative Grove's independent auditors discussed its views as to the
likelihood of a satisfactory resolution of the potential liabilities and the
timeframe for achieving that settlement.
A representative of Houlihan Lokey then reviewed with the Board the
methodologies employed by Houlihan Lokey in evaluating the fairness, from a
financial point of view, of the consideration to be paid to the shareholders and
unitholders in the transactions contemplated by the merger agreement, and the
consideration to be received by Grove in connection with the transfer of the
retail properties. The representative noted, in particular, that the change to
the price to be paid to the holders of Grove's common shares and Grove L.P.'s
common units based on the settlement of the potential liabilities did not affect
Houlihan Lokey's opinion as to the fairness of the consideration, from a
financial point of view, to the holders of Grove's common shares and Grove
L.P.'s common units. The representative of Houlihan Lokey then delivered the
opinion of Houlihan Lokey that the consideration to be paid to the holders of
Grove's common shares and Grove L.P.'s common units in the merger transactions
was fair from a financial point of view to the holders of Grove's common shares
and Grove L.P.'s common units and that the consideration to be received by Grove
in connection with the transfer of the retail properties was fair to Grove from
a financial point of view.
Following the presentation by Houlihan Lokey, the Board meeting
recessed so that the Merger Oversight Committee could meet separately.
The Merger Oversight Committee then met and reviewed the additional
information presented to the Board. The Merger Oversight Committee also reviewed
all of the factors relating to the proposed transaction that had been considered
at its meeting on July 10, 2000. Following a full discussion, the Merger
Oversight Committee confirmed the preliminary conclusions and recommendations
which it had reached at its July 10 meeting.
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Following conclusion of the meeting of the Merger Oversight Committee,
the meeting of the full Board resumed. Following further discussion, the Board,
by unanimous vote of the Trust Managers present, approved the merger agreement,
the retail agreement and the transactions contemplated by them. On July 14,
2000, Houlihan Lokey delivered its written fairness opinion.
REASONS FOR THE RETAIL AGREEMENT
The initial discussions between representatives of Grove and
representatives of EQR focused solely on whether there might be a mutually
acceptable basis on which EQR would acquire all of Grove, including Grove's
retail properties. It was not until after EQR had placed an indicated value of
$17.00 per Grove common share and Grove L.P. common unit that EQR advised Grove
that it did not expect to retain Grove's retail properties. EQR and four of
Grove's executive officers initiated discussions concerning the possible
transfer of the retail properties to an entity owned by those executive
officers.
EQR's business is limited to the ownership and operation of multifamily
residential properties. EQR indicated that, in the event of its acquisition of
Grove, it was not likely that EQR would retain its ownership of the retail
properties over the long-term. Messrs. D. Navarro, J. LaBrosse, E. Navarro and
B. Navarro and EQR then began preliminary discussions as to whether there was a
basis on which the four officers would be able to acquire the ownership of
Grove's four retail properties. The four officers determined that, while they
had an interest in acquiring ownership of the retail properties, they would do
so only on a basis where they acquired complete ownership of the properties.
During the course of negotiation of the exclusivity letter, the four
officers and EQR continued discussions concerning the possibility of the
officers' acquiring the retail properties, including an agreement that, if such
a transaction were to occur, the fair value of the retail properties aggregated
$21,650,000. This agreed real property value was the result of arms' length
negotiations between EQR and the four officers.
In mid June, when the exclusivity agreement was entered into between
EQR and Grove, the agreement contemplated that EQR would permit Grove to
transfer the retail properties to the four officers but did not require such
transfer as a condition to EQR's acquisition of Grove. During the course of
negotiations, EQR required that this transfer be made a condition to the
mergers. Accordingly, in the final merger agreement, transfer of the retail
properties is a condition to the obligation of ERP to consummate the mergers.
In performing its functions, the Merger Oversight Committee (composed
exclusively of non-employee trust managers and "independent trust managers"
within the meaning of Grove's Third Amended and Restated Declaration of Trust,
as amended) reviewed fully and carefully the terms upon which the retail
properties would be transferred to assure that they were fair and reasonable to
Grove and Grove L.P. In its consideration of the fairness and reasonableness of
these transactions, the Merger Oversight Committee considered, among other
things, that the agreed real property value was determined by arms' length
negotiation between EQR and the four officers, that the Committee received the
opinion of Houlihan Lokey to the effect that the consideration to be received by
Grove for the retail properties was fair from a financial point of view to Grove
and that the Committee received independent appraisals from Italia & Lemp, Inc.
indicating that the fair market value of the retail properties was substantially
the same as the agreed real property value, that such value did not reflect any
costs which would be incurred by Grove L.P. had it decided to sell the retail
properties to third parties and that the price to be paid by EQR per Grove
common share and Grove L.P. common unit would be the same whether or not Grove
L.P. owned the retail properties.
At the conclusion of its deliberations, the Merger Oversight Committee
concluded that the transactions contemplated by the agreement to transfer the
retail properties were fair and reasonable and recommended that the Board of
Trust Managers approve the agreement.
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RECOMMENDATION OF THE BOARD OF TRUST MANAGERS
The Board of Trust Managers of Grove recommends that the Grove
shareholders and the Grove, L.P. unitholders vote in favor of approving the
merger and the transactions contemplated by the merger agreement.
OPINION OF FINANCIAL ADVISOR-GROVE
Grove retained Houlihan Lokey to render an opinion as to: (i) the
fairness, from a financial point of view, to Grove's shareholders and Grove
L.P.'s unitholders of the consideration to be received by them pursuant to the
merger agreement; and (ii) the fairness, from a financial point of view, to
Grove of the consideration to be received by Grove upon the transfer of the
retail properties.
Grove retained Houlihan Lokey based upon Houlihan Lokey's experience in
the valuation of businesses and their securities in connection with
recapitalizations and similar transactions, especially with respect to REITs and
other real estate companies. Houlihan Lokey is a nationally recognized
investment banking firm that is continually engaged in providing financial
advisory services in connection with mergers and acquisitions, leveraged
buyouts, business valuations for a variety of regulatory and planning purposes,
recapitalizations, financial restructurings, and private placements of debt and
equity securities.
On July 14, 2000, Houlihan Lokey delivered its written opinion to the
Grove Board of Trust Managers (the "Houlihan Lokey Opinion"), to the effect
that, as of the date of such opinion, on the basis of its analysis summarized
below and subject to the limitations described below, that: (i) the
consideration to be received by the Grove shareholders and the Grove L.P.
unitholders pursuant to the merger agreement is fair to them from a financial
point of view; and (ii) the consideration to be received by Grove upon the
transfer of the retail properties is fair to Grove from a financial point of
view. The opinion does not address any other aspect of the mergers; nor does it
constitute a recommendation to any shareholder or unitholder as to how they
should vote at their respective meetings. Houlihan Lokey has no obligation to
update the Houlihan Lokey Opinion.
A copy of the Houlihan Lokey Opinion, which describes, among other
things, the assumptions made, procedures followed, matters considered and
limitations on the review undertaken, is attached as Appendix B to this proxy
statement. The summary of the Houlihan Lokey Opinion in this proxy statement is
qualified in its entirety by reference to the full text of the Houlihan Lokey
opinion. You are urged to, and should, read the opinion carefully and in its
entirety.
As compensation to Houlihan Lokey for its services in connection with
the transactions, Grove agreed to pay Houlihan Lokey an aggregate fee of
$275,000 in addition to Houlihan Lokey's expenses in connection therewith. No
portion of Houlihan Lokey's fee is contingent upon the successful completion of
the mergers or the transfer of the retail properties. Grove has also agreed to
indemnify Houlihan Lokey and related persons against certain liabilities,
including liabilities under federal securities laws, arising out of the
engagement of Houlihan Lokey, and to reimburse Houlihan Lokey for certain
expenses.
The Houlihan Lokey Opinion does not address Grove's underlying business
decision to effect the mergers or the transfer of the retail properties.
Houlihan Lokey did not, and was not requested by Grove or any other person to,
solicit third party indications of interest in acquiring all or any part of
Grove or to make any recommendations as to the form or amount of consideration
to be received by Grove, the shareholders of Grove, the Grove L.P. unitholders,
or any other person in connection with the transactions, which consideration was
determined through negotiations between Grove and EQR. Houlihan Lokey was not
asked to opine on and did not express any opinion as to (1) tax or legal
consequences of the transactions, including but not limited to tax or legal
consequences to Grove, the shareholders of Grove or the Grove L.P. unitholders
of the transactions; (2) the fairness, advisability or desirability of
alternatives to the transactions; (3) the fair market value of Grove; (4)
whether any unitholder should elect to receive cash or EQR securities; (5) the
public market values or realizable value of any EQR securities to be received as
consideration in connection with the transactions or the prices at which such
EQR securities may trade in the future following the transactions; or (6) the
fairness of any aspect of the transactions not expressly addressed in the
Houlihan
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Lokey Opinion. Houlihan Lokey did not perform an independent appraisal of the
assets of Grove. Furthermore, Houlihan Lokey did not negotiate the transactions
or advise Grove with respect to alternatives to it.
In arriving at its opinion, Houlihan Lokey:
o met with Grove's senior management and Grove's advisors to discuss
the transactions, the operations, financial condition, future
prospects and performance of Grove;
o reviewed Grove's annual reports to shareholders and on Form 10-K for
the fiscal year ended December 31, 1999 and quarterly report on Form
10-Q for the quarter ended March 31, 2000;
o reviewed forecasts and projections prepared by Grove's management
with respect to Grove for the years ending December 31, 2000 through
December 31, 2001;
o reviewed preliminary appraisal indications as prepared by Italia &
Lemp, Inc. for the following retail properties:
o Cornerblock;
o Longmeadow Shops;
o The Wharf; and
o Freeport Shops;
o reviewed copies of the following agreements;
o a draft copy of the exclusivity agreement dated June 12, 2000;
and
o a Retail Transaction Structure memorandum as prepared by Cummings
& Lockwood;
o conducted site visits to certain of the properties owned by Grove;
o reviewed minutes of the meeting on May 25, 2000 of the Board of
Trust Managers of Grove;
o reviewed publicly available information on companies Houlihan Lokey
deemed comparable to Grove; and
o conducted such other analyses, studies and investigations as
Houlihan Lokey deemed appropriate under the circumstances for
rendering the opinion expressed in the Houlihan Lokey Opinion.
SUMMARY OF ANALYSES PERFORMED BY HOULIHAN LOKEY
The following is a summary of the material financial analyses used by
Houlihan Lokey in connection with providing its opinion. This summary is
qualified in its entirety by reference to the full text of such opinion, which
is attached as Appendix B to this proxy statement. You are urged to read the
full text of the Houlihan Lokey Opinion carefully and in its entirety.
GROVE ENTERPRISE VALUATION. In order to determine the fairness, from a
financial point of view, to Grove's shareholders and Grove L.P.'s unitholders of
the consideration to be received by them in connection with the mergers,
Houlihan Lokey first determined the estimated enterprise value of Grove. In
order to determine the estimated enterprise value of Grove, Houlihan Lokey
primarily used the following methodologies: (i) a build-up method, based on
various capitalization rates; (ii) a portfolio approach; (iii) an
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FFO approach; and (iv) a yield approach. The analyses required studies of the
overall market, economic and industry conditions in which Grove operates and the
historical and projected operating results of Grove.
BUILD-UP METHOD. Houlihan Lokey derived an indication of the enterprise
value for Grove by applying capitalization rates to the adjusted net operating
income of Grove's properties as of December 31, 2000. Houlihan Lokey utilized
publicly available information regarding capitalization rates exhibited in
transactions involving assets similar in type and location to Grove's
properties.
By applying appropriate capitalization rates to the adjusted net
operating income of Grove's properties, as discussed above, Houlihan Lokey
calculated an enterprise value of Grove, which implied a price per share on a
fully diluted basis of less than the per share price to be paid pursuant to the
merger agreement (i.e., $17.00 reduced by an amount not to exceed $0.29).
PORTFOLIO APPROACH. Houlihan Lokey derived an indication of the range
of enterprise value for Grove by applying a capitalization rate to Grove's
adjusted net operating income as of December 31, 2000. Houlihan Lokey utilized
publicly available information regarding capitalization rates exhibited in
transactions involving assets similar in type and location to Grove's
properties.
By applying an appropriate capitalization rate to the adjusted net
operating income of Grove's properties, as discussed above, Houlihan Lokey
calculated an enterprise value of Grove, which implied a price per share on a
fully diluted basis of less than the per share price to be paid pursuant to the
merger agreement.
FFO APPROACH. Houlihan Lokey reviewed certain financial information of
comparable publicly traded companies in the apartment REIT industry selected
solely by Houlihan Lokey. The public comparables included the following eight
publicly traded companies: Apartment and Investment and Management Company, BRE
Properties, Inc., Camden Property Trust, Essex Property Trust, Inc., Gables
Residential Trust, Mid America Apartment Communities, Inc., Smith Residential
Realty, Inc., and Town & Country Trust. Houlihan Lokey calculated certain
financial ratios of the public comparables based on the most recent publicly
available information.
The analysis showed that the ratio of market value of equity to funds
from operations ("FFO") (i.e., the ratio of "P/FFO") selected for Grove to apply
to Grove's next fiscal year end FFO ranged from a low of 10.0x to a high of
11.0x (the "FFO Multiples") which compares to a P/FFO ratio of a low of 6.3x to
a high of 14.5x exhibited by the public comparables.
Houlihan Lokey derived an indication of the range of market value of
equity for Grove by applying the FFO Multiples to Grove's representative FFO as
of December 31, 2000.
Based upon the lowest and highest multiples of FFO determined under
this methodology, Houlihan Lokey calculated an indication of the market value of
equity for Grove to be reasonably stated in the range of $202.6 million to
$222.9 million, the midpoint of which implies a price per share on a fully
diluted basis of less than the per share price to be paid pursuant to the merger
agreement.
YIELD APPROACH. Houlihan Lokey derived an indication for Grove's market
value of equity by applying the average of the percentage of cash available for
distribution for the public comparables to derive an implied pay out per share
amount, which was then applied to the average yield of the stock price for the
public comparables to result in an implied price per share on a fully diluted
basis of less than the per share price to be paid pursuant to the merger
agreement.
RETAIL EXCHANGE VALUATION. Houlihan Lokey determined the value of the
four properties that include: (a) Cornerblock, (b) Longmeadow Shops, (c) The
Wharf, and (d) Freeport Shops (collectively, the "retail properties").
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In order to determine the estimated enterprise value of the retail
properties, Houlihan Lokey primarily used the following methodologies: (1) a net
asset value approach based on various capitalization rates; and (2) an appraised
value approach. The analyses required studies of the overall market, economic
and industry conditions in which the retail properties operate and the
historical and projected operating results of the retail properties.
NET ASSET VALUE APPROACH. Houlihan Lokey derived an indication of
enterprise value for the retail properties by applying capitalization rates to
the net operating income of each of the retail properties as of December 31,
2000. Houlihan Lokey utilized publicly available information regarding
capitalization rates exhibited in transactions involving assets similar in type
and location to the retail properties.
Based upon the selected capitalization rates, Houlihan Lokey calculated
an indication of enterprise value for the retail properties to be $19.0 million
(the "Retail Exchange Value").
APPRAISED VALUE APPROACH. Houlihan Lokey reviewed the July 7, 2000
individual appraisal reports on each Retail Property as prepared by Italia &
Lemp, Inc., which concluded that, as of June 29, 2000, the aggregate appraised
value of the Retail Properties ranged from $21.7 million to $21.9 million.
MERGER FAIRNESS ANALYSIS. Based on the analyses and factors described
in the foregoing, Houlihan Lokey determined indications of equity which would be
available to be allocated to the shareholders of Grove and Grove L.P.
unitholders, prior to any costs associated with the transactions (the "Derived
Value Per Share"). These indications of equity value were then compared to
Grove's common stock price as exhibited in trading on the American Stock
Exchange; and utilized to determine the value of Grove L.P.'s units to be
utilized as consideration in the Retail Exchange.
Based upon the foregoing analyses, Houlihan Lokey concluded that the
consideration to be received by Grove's shareholders and Grove L.P. unitholders
in connection with the mergers is fair to them from a financial point of view.
RETAIL EXCHANGE ANALYSIS. In order to determine the fairness, from a
financial point of view, of the consideration to be received by Grove pursuant
to the retail agreement, Houlihan Lokey applied the average of the Derived Value
Per Share, as determined above, to the number of units held by those Grove L.P.
unitholders participating in the Retail Exchange (the "Unitholders' Equity
Value"). The Unitholders' Equity Value was then compared to the equity
transferred in connection with the retail agreement.
Based upon the Retail Exchange Value of $19.0 million, Houlihan Lokey
determined the equity value to be transferred in the transfer of the retail
properties. From the Retail Exchange Value, Houlihan Lokey subtracted
interest-bearing debt of $7.2 million and added $2.5 million of cash, to result
in a net equity value to be transferred to the Grove L.P. unitholders
participating in the retail agreement of $14.3 million in exchange for the
unitholder's interest in Grove L.P. units.
Based on the foregoing analysis, Houlihan Lokey concluded that the
consideration to be received by Grove pursuant to the retail agreement is fair
to Grove from a financial point of view.
In arriving at its fairness opinion, Houlihan Lokey reviewed key
economic and market indicators, including, but not limited to, growth in Gross
Domestic Product, inflation rates, interest rates, consumer spending levels,
manufacturing productivity levels, unemployment rates and general stock market
performance. Houlihan Lokey's opinion is based on the business, economic, market
and other conditions as they existed as of July 14, 2000 and on the projected
financial information provided to Houlihan Lokey as of such date. In rendering
its opinion, Houlihan Lokey has relied upon and assumed, without independent
verification, the accuracy and completeness of the financial and other
information provided to Houlihan Lokey was reasonably prepared and that the
financial and other information reflected the best current available estimates
of the financial results and condition of Grove; and that no material changes
have occurred in the information reviewed between the date the information was
provided and the date of the Houlihan Lokey Opinion. Houlihan Lokey did not
independently verify the accuracy or completeness of the
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information supplied to it with respect to Grove and does not assume
responsibility for it. Houlihan Lokey did not make any independent appraisal of
the specific properties or assets of Grove.
The summary set forth above describes the material points of more
detailed analyses performed by Houlihan Lokey in arriving at its fairness
opinion. The preparation of a fairness opinion is a complex analytical process
involving various determinations as to the most appropriate and relevant methods
of financial analysis and application of those methods to the particular
circumstances and is therefore not readily susceptible to summary description.
In arriving at its opinion, Houlihan Lokey made qualitative judgments as to the
significance and relevance of each analysis and factor. Accordingly, Houlihan
Lokey believes that its analyses and summary set forth herein must be considered
as a whole and that selecting portions of its analyses, without considering all
analyses and factors, or portions of this summary, could create an incomplete
view of the processes underlying the analyses set forth in Houlihan Lokey's
fairness opinions. In its analysis, Houlihan Lokey made numerous assumptions
with respect to Grove, industry performance, general business, economic, market
and financial conditions and other matters, many of which are beyond the control
of the respective entities. The estimates contained in such analyses are not
necessarily indicative of actual values or predictive of future results or
values, which may be more or less favorable than suggested by such analyses.
However, there were no specific factors reviewed by Houlihan Lokey that did not
support its opinion. Additionally, analyses relating to the value of businesses
or securities are not appraisals. Accordingly, such analyses and estimates are
inherently subject to substantial uncertainty.
SUMMARY OF APPRAISALS OF RETAIL PROPERTIES BY ITALIA & LEMP, INC.
The Merger Oversight Committee of Grove's Board of Trust Managers
retained Italia & Lemp, Inc. to perform valuations of the retail properties and
to prepare written appraisal reports for these properties. Italia & Lemp, Inc.,
located in Hartford, Connecticut, is an outside party that is unaffiliated with
Grove and Grove, L.P. Italia & Lemp, Inc. is engaged in the business of
providing professional real estate-related services on a regional basis.
Grove paid $22,000 to Italia & Lemp, Inc. for the real estate appraisal
services which it rendered with respect to the retail properties.
Italia & Lemp, Inc. prepared appraisal reports for each of the retail
properties. In its written appraisal reports, Italia & Lemp, Inc. concluded that
the aggregate market value of the retail properties was $21,750,000.
The appraisals of the retail properties are available for inspection
and copying at the principal executive offices of Grove, 598 Asylum Avenue,
Hartford, Connecticut during regular business hours by any Grove shareholder or
Grove L.P. unitholder or representative who has been so designated in writing.
Grove will provide a copy of the appraisals of the retail properties to any
Grove shareholder or Grove L.P. unitholder or representative who has been so
designated in writing upon written request and at the expense of the requesting
shareholder or unitholder.
PROCEDURES FOLLOWED
In arriving at this valuation figure, Italia & Lemp, Inc. undertook the
following steps:
o performed a complete appraisal process, as defined by the Uniform
Standards of Professional Appraisal Practice (USPAP), without any
departures from Standard 1;
o inspected the retail properties;
o researched and reviewed various sources of public information,
including, but not limited to, demographic statistics, zoning
records, available site and building information, and the land
records of all comparable sales;
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o researched and reviewed sales of similar parcels to estimate the
value of the excess acreage, where noted;
o analyzed sales of improved properties in the market area comparable
to the retail properties to derive the market value of the retail
properties;
o researched the market area for pertinent rental and expense
information for comparable properties to estimate the market rent
and pro forma operating expenses for the retail properties;
o obtained income and expense information for the retail properties
from Grove;
o prepared cash flow analyses via the Income Capitalization Approach
by researching lender and investor parameters through discussions
with market participants;
o used the available market information to develop the Sales
Comparison and Income Capitalization approaches; and
o prepared the appraisals in accordance with Title XI of the Financial
Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA)
and the Uniform Standards of Professional Appraisal Practice
(USPAP).
BASES FOR AND METHODS OF ARRIVING AT FINDINGS
Under an income capitalization approach, anticipated future benefits
(periodic cash flows) and capital appreciation are discounted to a present value
estimate.
Italia & Lemp, Inc. reviewed market data pertaining to rental rates,
vacancy and collection loss, and operating expenses to develop a reliable
estimate of net operating income for the retail properties. The method of income
capitalization employed by Italia & Lemp, Inc. involved yield capitalization
through a discounted cash flow analysis that forecasted revenues and expenses
over a projected holding period and discounted the future stream of income into
a present worth estimate of market value.
Italia & Lemp, Inc. performed the income capitalization approach by
conducting the following steps:
o projecting market rent and terms for the subject property;
o analyzing encumbrances of the subject leases;
o estimating an absorption period for vacant space;
o estimating pro forma expense levels;
o extracting lender and investor parameters from the market and
incorporating them into the cash flow analysis;
o estimating net operating income and cash flow for each year of the
holding period based upon pro forma income and expense statements;
o estimating a discount rate; and
o preparing a present value estimate by adding together discounted
future benefits including cash flow and discounted reversionary
interest.
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The sales comparison approach is based on the concept that an informed
purchaser would not pay more for a property than the cost of acquiring a
comparable property with similar utility.
Italia & Lemp, Inc. conducted a search to locate sales of properties
considered comparable to the retail properties. Adjustments to the sales data of
the comparable properties were made to reflect either superior or inferior
characteristics. The adjusted sales prices revealed a range of values which was
then reconciled into a final indication of market value for each of the retail
properties.
After reconciling the values for the retail properties arrived at using
the sales comparison approach and the income capitalization approach, a final
value estimate was arrived at for each of the retail properties. The final value
estimates for each of the retail properties considered the current economic
environment and its effect on real property values. Italia & Lemp, Inc.
concluded that a sale of the retail properties at the final value estimate would
take approximately 6 months to 1 year from the date on which the retail
properties were listed for sale on the open market.
INSTRUCTIONS RECEIVED FROM GROVE
Grove instructed Italia & Lemp, Inc. to prepare an appraisal report to
estimate the market value of the retail properties which was to be used by Grove
to confirm the fairness and reasonableness of such transaction. Neither Grove
nor the Merger Oversight Committee imposed any limitations upon Italia & Lemp,
Inc. with respect to the investigations made or procedures followed by it in
conducting its appraisals.
EFFECTIVE TIME OF THE TRANSACTIONS
The closing of the merger transactions is scheduled to take place on
the day of the special meeting if the merger transactions are approved by Grove
shareholders and Grove L.P. unitholders and the other pre-closing conditions set
forth in the merger agreement are satisfied or waived.
THE MERGER AGREEMENT
REPRESENTATION AND WARRANTIES
The merger agreement contains representations and warranties of ERP,
Grove and Grove L.P. regarding, among other things:
o due organization and good standing;
o ownership and capitalization of subsidiaries;
o capitalization;
o other interests and sale obligations;
o authority to enter into the merger agreement;
o filings with the SEC;
o reliability of financial statements;
o compliance with applicable laws and regulations;
o ownership and condition of the properties;
o environmental matters;
25
<PAGE>
o third party and related party transactions;
o employee benefits and other matters;
o taxation and qualification as a REIT;
o absence of certain legal proceedings and events;
o absence of payments to employees, officers, trust managers and
directors;
o debt instruments and other obligations;
o insurance matters;
o fees and expenses incurred;
o undisclosed liabilities; and
o intellectual property.
These representations and warranties will not survive the completion of
the mergers.
CONDITIONS TO THE TRANSACTIONS
The obligations of ERP, Grove and Grove L.P. to complete the mergers
are subject to the following conditions:
o approval of the merger agreement and the transactions contemplated
thereby by Grove shareholders and Grove L.P. partners;
o effectiveness of the registration statement covering the ERP units
to be issued in the partnership merger and the EQR common shares
that might be issued upon conversion of the ERP units;
o absence of any injunctions or restraints preventing the completion
of the mergers; and
o compliance with state securities laws.
The respective obligations of ERP, Grove and Grove L.P. to complete the
mergers are subject to the following additional conditions:
o all representations and warranties made by ERP in the case of Grove
and Grove L.P. or by Grove and Grove L.P. in the case of ERP shall
be true and correct as of the closing date. The representations and
warranties shall be deemed true and correct unless the breach of
such representations and warranties, in the aggregate, could
reasonably be expected to have an adverse effect with respect to
Grove, Grove L.P. or ERP respectively;
o ERP in the case of Grove and Grove L.P. or Grove and Grove L.P. in
the case of ERP shall have performed in all material respects its
obligations under the merger agreement;
o as of the closing date, ERP in the case of Grove and Grove L.P. or
Grove or Grove L.P. in the case of ERP will not have suffered a
material adverse change in its business, properties, assets,
financial condition or results of operation taken as a whole;
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<PAGE>
o ERP shall have received an opinion from Grove's counsel stating
that, commencing with its taxable year ended December 31, 1994,
Grove was organized and has operated in conformity with the
requirements for qualification as a REIT under the Internal Revenue
Code;
o Grove shall have received an opinion from ERP's counsel stating
that, commencing with its taxable year ended December 31, 1992, EQR
was organized and has operated in conformity with the requirements
for qualifications as a REIT under the Internal Revenue Code and ERP
has been treated as a partnership since 1992.
o each of ERP and Grove shall have received an opinion from Maryland
counsel addressing specified issues set forth in the merger
agreement;
o ERP shall have received an opinion from Grove's counsel addressing
specified issues set forth in the merger agreement;
o Grove shall have received an opinion from EQR's counsel addressing
specified issues set forth in the merger agreement;
o the receipt of all consents and waivers from third parties necessary
in connection with the completion of the transactions contemplated
by the merger agreement;
o the obligation of ERP to complete the company merger is subject to
(i) certain fees relating to the company merger not exceeding
specified amounts and (ii) the retail agreement's being consummated
in accordance with its terms; and
o Grove shall have obtained a closing agreement from the IRS, provided
that under no circumstances is Grove obligated to obtain the closing
agreement if the costs associated with it are in excess of $3.5
million, unless ERP, in its sole discretion, approves such excess
closing agreement costs.
DIVIDENDS
Under the terms of the merger agreement, Grove and Grove L.P. would
continue to make regular quarterly dividends and distributions not to exceed
$0.18 per share/unit, as well as a pro rated quarterly dividend for the quarter
in which the mergers become effective. However, each such dividend is subject to
a reduction to the extent that the then current estimate of specified fees and
expenses relating to the merger transactions exceeds $13,002,586. In the event
that this excess amount equals or exceeds the total amount of the dividend which
would otherwise be permitted under the merger agreement, no dividend will be
paid in that quarter and the remaining excess amount, if any, will be carried
forward and will reduce the next permitted dividend. For a more detailed
description of this possible dividend reduction, please refer to Section 5.9 of
the merger agreement, which is attached as Appendix A to this proxy statement.
TERMINATION PROVISIONS
The merger agreement may be terminated at any time prior to the
acceptance of the certificate of merger by the Delaware Secretary of State to
effectuate the partnership merger, whether the termination comes before or after
the approvals by the Grove shareholders or Grove L.P. unitholders:
o by the mutual consent of EQR and the Grove Board of Trust Managers;
o upon the breach by the non-terminating party of any representation,
warranty, covenant, obligation or agreement set forth in the merger
agreement, such that the specified conditions set forth in the
merger agreement would be incapable of being satisfied by March 31,
2001 (or as otherwise extended);
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<PAGE>
o if an order, decree, judgement or other action preventing completion
of the company merger has become final and non-appealable;
o if the company merger has not been completed by March 31, 2001
(subject to extension to May 31, 2001 in specified circumstances),
provided that the terminating party has not materially breached its
obligations under the merger agreement in a manner that proximately
contributed to the merger not being completed by the relevant date;
o if the approval of the Grove shareholders has not been obtained upon
a vote at the meeting of the shareholders or if the approval of the
Grove L.P. unitholders has not been obtained upon a vote at the
meeting of the partnership; or
o if the Grove Board of Trust Managers withdraws or modifies its
approval or recommendation of the mergers or the merger agreement.
TERMINATION FEE AND EXPENSES
The merger agreement provides for the payment, in specified
circumstances, of a break-up fee of $8.5 million and an expense fee equal to the
out-of-pocket expenses incurred in connection with the merger agreement of up to
$2 million.
THE BREAK-UP FEE
Grove is required to pay the break-up fee to ERP if: (i) the company
merger is not consummated because the Grove Board of Trust Managers withdraws or
modifies its approval or recommendation of the mergers or the merger agreement;
(ii) the Grove Board of Trust Managers withdraws or modifies in any manner
adverse to ERP its approval or recommendation of the mergers or the merger
agreement; (iii) the Grove Board of Trust Managers approves or recommends any
superior acquisition proposal; (iv) Grove enters into a definitive agreement
with respect to any acquisition proposal; or (v) at the time of the termination
of the merger agreement under certain circumstances, an acquisition proposal has
been received by Grove, and either prior to the termination of the merger
agreement or within 12 months thereafter, Grove or any of its subsidiaries
enters into any written acquisition proposal which is then consummated.
Any break-up fee would be paid as compensation and liquidated damages
for the loss suffered by ERP as a result of the failure of the company merger to
be consummated and to avoid the difficulty of determining the damages under the
circumstances. Neither party shall have liability to the other after payment of
the break-up fee and expense fee.
THE EXPENSE FEE
Grove is obligated to pay ERP the expense fee if the merger agreement
is terminated due to:
o the breach of any representation, warranty, covenant, obligation or
agreement on the part of Grove or Grove L.P. as set forth in the
merger agreement;
o if the Grove shareholders do not approve the company merger and the
transactions contemplated by the merger agreement at the Grove
shareholders meeting;
o if the Grove L.P. unitholders do not approve the merger agreement
and the transactions contemplated thereby at the Grove L.P. partners
meeting; or
o if the merger agreement is terminated because the mergers have not
been consummated before March 31, 2001 (subject to extension to May
31, 2001) and Grove has not delivered
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<PAGE>
to ERP either the closing agreement satisfactorily resolving certain
potential liabilities or the required legal opinions.
ERP is obligated to pay Grove the expense fee if the merger agreement
is terminated due to:
o the breach of any representation, warranty, covenant, obligation or
agreement on the part of ERP as set forth in the merger agreement.
NO SOLICITATION OF OTHER TRANSACTIONS
Prior to the company merger, Grove has agreed that it will not
initiate, solicit, or encourage any inquires or the making of any offer with
respect to a merger, acquisition, tender offer, exchange offer, consolidation,
sale of assets or similar transaction involving all or any significant portion
of the assets or any equity securities of it or any of its subsidiaries, other
than those pertaining to the merger agreement.
Notwithstanding the above restrictions, the merger agreement does not
prohibit Grove from entering into discussions with respect to an unsolicited
proposal if the Grove Board of Trust Managers determines in good faith that this
action is required by the Board's legal duties to its shareholders.
CONDUCT OF BUSINESS PENDING THE TRANSACTIONS
Except as contemplated by the merger agreement or consented to in
writing by ERP, Grove and Grove L.P. will and will cause each of their
subsidiaries to conduct its business only in the usual, regular and ordinary
course, and, among other things, to:
o preserve its business organizations and goodwill and keep the
services of its officers and directors available;
o confer on a regular basis with ERP representatives regarding
operational matters of materiality or any proposals to engage in
material transactions;
o notify ERP of any material emergency or change in the financial or
operational condition of the business;
o provide ERP with reports, statements, and schedules filed with the
SEC;
o consistently maintain books and records according to GAAP;
o timely file all reports;
o not make or rescind any express or deemed election relative to
taxes;
o not acquire or enter into any option or agreement to acquire
additional real property, incur additional indebtedness, except
working capital, or enter into any agreement to develop or construct
other real estate projects, with limited exceptions;
o not amend the Grove declaration of trust or comparable
organizational documents;
o unless provided for in the merger agreement, not issue shares of
beneficial interest or other equity interest, except upon the
exercise of previously outstanding options;
o limit dividends to specified amounts;
o not sell, lease, mortgage or dispose of any material part of its
assets;
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<PAGE>
o not make any loans, advances or capital contributions;
o not pay, discharge or satisfy any material claims, liabilities, or
obligations other than in the ordinary course of business;
o not enter into any contractual obligations over an agreed amount;
o not guarantee the indebtedness of another person or entity;
o not amend or enter into any commitment with any officer, trust
manager, director, or trustee;
o not increase compensation or amend any employment agreement with
limited exceptions;
o not adopt any new employee benefit plan;
o not settle any shareholder or limited partner derivative suit
pertaining to the merger agreement;
o not reduce its ownership in any of its subsidiaries;
o not accept promissory notes;
o not enter into, amend, modify or waive any rights under any
agreement;
o continue to use its best efforts to qualify as a REIT and not enter
into any prohibited transactions; and
o with respect to the retail agreement, not amend any provision of the
agreement or alter its normal operations of the retail properties.
Except as contemplated by the merger agreement or consented to in
writing by Grove, ERP will and will cause each of its subsidiaries to conduct
its business only in the usual, regular and ordinary course, and, among other
things, to:
o preserve intact its business organizations and goodwill and keep the
services of its officers and employees available;
o confer on a regular basis with Grove representatives regarding
operational matters of materiality or any proposals to engage in
material transactions;
o notify Grove of any material emergency or change in the financial or
operational condition of the business;
o provide Grove with SEC reports, statements, and schedules filed with
the SEC;
o consistently maintain books and records according to GAAP;
o timely file all reports;
o form New LLC1 and New LLC3, cause New LLC1 to form New LLC2 and,
cause each of New LLC1, New LLC2 and New LLC3 to carry out their
obligations under the merger agreement.
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<PAGE>
WAIVER AND AMENDMENT
At any time before the company merger, either party may:
o extend the time for performance of any of the obligations or other
acts of the other party required by the merger agreement;
o waive any inaccuracies in the representations and warranties
contained in the merger agreement or in any document delivered
pursuant to the merger agreement; and
o waive compliance with any of the agreements or conditions for the
benefit of the waiving party contained in the merger agreement.
The merger agreement may be amended by ERP and the Grove Board of Trust
Managers at any time before or after the approval by Grove shareholders and
Grove L.P. unitholders but prior to the filing of the certificate of merger and
the articles of merger. After approval of the merger agreement by Grove
shareholders and Grove L.P. unitholders, no amendment may be made which by law
requires the further approval of shareholders or unitholders without obtaining
this further approval.
RETAIL AGREEMENT
The following is a brief summary of the material provisions of the
retail agreement, a copy of which is attached as Appendix C and is incorporated
by reference in this proxy statement. The summary is qualified in its entirety
by reference to the retail agreement. We urge all shareholders to read the
retail agreement in its entirety for a more complete description of its terms
and conditions.
PARTIES
The parties to the retail agreement are Damon D. Navarro, Brian D.
Navarro, Edmund F. Navarro, Joseph R. LaBrosse, each an executive officer of
Grove, a limited liability company owned by these executive officers ("Investor
LLC"), and Grove L.P.
OVERVIEW
Immediately prior to the partnership merger, the four executive
officers will contribute to Investor LLC 998,227 partnership units of Grove L.P.
Investor LLC will then withdraw as a partner of Grove L.P. and surrender its
998,227 partnership units for redemption. As part of the redemption, Grove L.P.
will transfer its ownership interest in the entities owning its four retail
properties to Investor LLC. This transfer is a condition to the partnership
merger.
REDEMPTION PAYMENT
The redemption payment to Investor LLC will consist of (a) the transfer
on an "as-is" basis, without representation or warranty, of Grove L.P.'s
interest in the entities owning its retail properties, as described above, and
the name "Grove" and any trademark of which the name "Grove" forms a part; and
(b) a cash redemption payment of approximately $2.8 million, calculated as
follows:
1. Approximately $16.97 million, calculated by multiplying the number
of partnership units surrendered (998,227) times the $17.00 per unit cash
partnership merger consideration (subject to a potential reduction not to exceed
$0.29 per unit); plus
2. The approximately $7.5 million principal amount of a loan to be
assumed by Investor LLC;
less
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3. The $21,650,000 "agreed real property value," subject to adjustment
as set forth below.
The agreed real property value is $21,650,000 plus all capital
expenditures made with respect to the retail properties on a cash basis from and
after June 1, 2000 through the redemption date, excluding up to $135,000 of
specified capital expenditures.
The cash redemption payment is subject to further adjustment to reflect
a proration or adjustment, calculated as of the redemption date, for real estate
and personal property taxes and assessments, base rent for the month in which
the redemption occurs, water, electric, telephone and other utility charges,
contract and lease payment obligations, assignable permit fees, interest on
assumed debt and other expenses of operation and similar items customarily
pro-rated in connection with real estate transactions.
EXPENSES OF TRANSFER
Investor LLC will pay all transfer taxes, if any, loan assumption
charges and other costs and expenses of effecting the transactions contemplated
by the retail agreement, excluding legal, accounting and other consulting fees
incurred by ERP or its affiliates.
RELATIONSHIP TO MERGERS
It is a condition to Grove L.P.'s obligation to carry out the
transactions contemplated by the retail agreement that each of the conditions to
the closing of the partnership merger shall have been satisfied or waived.
NO APPRAISAL RIGHTS
Grove shareholders are not entitled to dissenters' or appraisal rights
under Maryland law or the Grove declaration of trust in connection with the
merger or the transactions contemplated by the merger agreement.
CONVERSION OF UNITS/SHARES
CONVERSION OF THE GROVE SHARES
Upon completion of the company merger, each Grove common share
outstanding immediately prior to the completion of the company merger will cease
to be outstanding and will be converted into the right to receive $17.00 per
share payable to the shareholder in cash (subject to a potential reduction in an
amount not to exceed $0.29 per share) upon the surrender of the certificate,
less any applicable taxes. Each outstanding option to purchase Grove shares
granted under the Grove employee stock option plan or any other employee
agreement shall be cancelled and the holder shall be entitled to receive cash
equal to the value of each option based on $17.00 per share merger consideration
(subject to a potential reduction in an amount not to exceed $0.29 per share),
less any applicable taxes (other than the options granted to the non-employee
trust managers upon their election at Grove's 2000 Annual Meeting, which will be
cancelled for no consideration).
CONVERSION OF THE GROVE L.P. UNITS
Upon the completion of the partnership merger, each Grove L.P. unit
outstanding immediately prior to the completion of the partnership merger will
be canceled and converted into either 0.3696 (subject to a potential reduction
in an amount not to exceed 0.0063 per unit received, resulting in a reduced
exchange ratio of not less than 0.3633) of a limited partnership interest in ERP
or $17.00 per unit (subject to a potential reduction in an amount not to exceed
$0.29 per unit), payable to the unitholder in cash less any applicable taxes, at
the election of the unitholder. Each unitholder of Grove L.P. will cease to have
any rights with respect thereto, other than the right to receive:
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<PAGE>
o $17.00 (subject to a potential reduction in an amount not to exceed
$0.29 per unit) per Grove L.P. unit or 0.3696 (subject to a
potential reduction in an amount not to exceed 0.0063 per unit
received, resulting in a reduced exchange ratio of not less than
0.3633) of an ERP unit (and cash in lieu of any fractional ERP
unit); and
o any distributions with respect to the Grove L.P. unit held prior to
the completion of the partnership merger.
EXPECTED FEDERAL INCOME TAX CONSEQUENCES TO
THE HOLDERS OF GROVE COMMON SHARES
The merger will be treated as a sale of Grove's assets, followed by a
liquidation of Grove. The receipt of cash by Grove shareholders will be a
taxable transaction for such shareholders for federal income tax purposes under
the current Internal Revenue Code, and is likely to be a taxable transaction
under applicable state, local or foreign income tax laws.
CONSEQUENCES TO GROVE
The deemed sale of assets should not be taxable to Grove. Such deemed
sale would be taxable only if, in whole or part, it constituted a prohibited
transaction, or Grove failed to pay dividends equal to Grove's taxable income
for the year of the sale, including the gains recognized on the deemed sale. The
deemed sale should not be treated as a prohibited transaction, as the property
sold should not be treated as held primarily for sale to customers in the
ordinary course of Grove's business, given Grove's operating history. This
result should obtain even though the sale will not qualify for the statutory
prohibited transaction exemption.
If, for the taxable year during which the liquidation occurs, Grove
failed to distribute dividends at least equal to its taxable income for the year
of the sale, and the capital gain recognized on the deemed sale, it would be
subject to tax at the company level. As the deemed liquidating distribution will
qualify for the dividends paid deduction, it should be sufficient in amount to
eliminate any taxable income and capital gain recognized by Grove. Consequently,
Grove should not be subject to income tax on its other taxable income in the
year of the deemed sale or on the deemed sale of assets itself.
CONSEQUENCES TO THE SHAREHOLDERS
While the deemed liquidating distribution by Grove will be eligible for
the dividends paid deduction, as described above, such distribution in
liquidation will not be dividend income when received by the shareholders.
Distributions in liquidation should first reduce the basis in a shareholder's
shares in Grove, with any excess amounts constituting a capital gain, if the
shares were held as a capital asset. Long-term capital gain recognized by an
individual shareholder will generally be subject to federal tax at a maximum tax
rate of 20%. If the liquidating distribution is less than a shareholder's basis
in such shareholder's shares, the difference will constitute a capital loss. The
deductibility of capital losses is subject to certain limitations. Such capital
gain or loss will be long or short term, depending upon whether such shares have
been held for more than one year.
TAXATION OF NON-UNITED STATES SHAREHOLDERS
Because the liquidating distributions will be treated as paid in
exchange for a shareholder's shares and not as dividends, no withholding on
liquidating distributions will generally be required because of the Foreign
Investment in Real Property Tax Act, unless a shareholder who was not a United
States citizen or resident owns, or has owned within the past five years, 5% or
more of Grove's outstanding shares.
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The foregoing discussion may not be applicable with respect to shares
received pursuant to the exercise of employee stock options or otherwise as
compensation or with respect to holders of shares that are subject to special
tax treatment under the Internal Revenue Code, such as non-U.S. persons, life
insurance companies, dealers in securities, tax-exempt organizations, and
financial institutions. The discussion also may not apply to a holder of shares
in light of individual circumstances, including holders holding shares as part
of a straddle, a conversion transaction, a hedging transaction or other similar
transaction. Shareholders are urged to consult their own tax advisors to
determine the tax consequences of the company merger particular to them,
including the effect of any state, local, foreign income and other tax laws.
The foregoing discussion is based upon current provisions of the
Internal Revenue Code and applicable Treasury regulations. Future legislative,
administrative or judicial changes or interpretations could affect the accuracy
of the statements or conclusions set forth herein. Any such change could apply
retroactively and could affect the accuracy of such discussion.
No information is provided with respect to the consequences of the
company merger under applicable foreign, state or local income tax or other
laws.
MATTERS FOLLOWING THE EFFECTIVENESS OF THE MERGERS
SURRENDER OF AND PAYMENT FOR SHARES
At the effective time of the company merger, holders of Grove common
shares will be entitled to receive $17.00 in cash (subject to a potential
reduction in an amount not to exceed $0.29 per share). As soon as practicable
following the effectiveness of the company merger, EquiServe, as paying agent,
will send a letter of transmittal to each holder of Grove common shares. The
letter of transmittal will contain instructions with respect to the surrender of
certificates representing Grove common shares in exchange for cash. The paying
agent will accept certificates upon compliance with such reasonable terms and
conditions as the paying agent may impose to effect an orderly exchange in
accordance with normal exchange practices.
After the effective time, there will be no further transfer on the
records of Grove or its transfer agent of certificates representing Grove common
shares that have been converted pursuant to the merger agreement into the right
to receive cash. If such certificates are presented to Grove for transfer, they
will be cancelled against delivery of cash. Until surrendered each certificate
representing Grove common shares will be deemed after the effective time to
represent only the right to receive upon surrender $17.00 per share in cash
(subject to a potential reduction in an amount not to exceed $0.29 per share).
No interest will be paid or will accrue on any cash payable pursuant to the
merger agreement.
We request that you not surrender your certificates for exchange until
you receive a transmittal letter and instructions. Letters of transmittal will
be mailed promptly following the effective time of the company merger.
CERTAIN EFFECTS OF THE MERGER
At the effective time of the company merger, Grove will merge with and
into a wholly-owned subsidiary of ERP. The Grove common shares will no longer be
publicly traded and will represent only the right to receive cash. Trading in
Grove common shares on the American Stock Exchange will cease at 5:00 p.m.
Eastern time on the closing date. Grove common shares will then be deregistered
and Grove will no longer file periodic reports or proxy materials with the SEC.
Public shareholders will benefit by receiving cash of $17.00 per share
(subject to a potential reduction in an amount not to exceed $0.29 per share).
However, public shareholders will no longer have any continuing interest in the
Grove business and will not participate in any growth or earnings which Grove
might experience in the future. To the extent cash is received by shareholders,
they will be required to consummate a taxable transaction at a time not of their
choosing. As holders of the stock of a public
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corporation, shareholders can choose when and how much to sell in taxable
transactions, but this transaction will require the recognition of a taxable
transaction for all Grove shareholders in the year in which the company merger
becomes effective (expected to be during the year 2000).
INTERESTS OF CERTAIN PERSONS IN THE TRANSACTIONS
The trust managers and the executive officers of Grove have interests
in the transactions contemplated by the merger agreement which are different
from the interests of the other Grove shareholders and the Grove L. P.
unitholders. The amounts which the executive officers will receive upon their
termination of employment (which is expected to occur on the effective date of
the company merger) are substantially less than the amounts they would have been
entitled to receive under their employment agreements and bonus arrangements
which were in effect as of July 17, 2000. In addition, the executive officers
and the trust managers will receive cash payments based on the number of options
they hold when the company merger occurs whether or not vested (other than the
options granted to the non-employee trust managers upon their election at
Grove's 2000 Annual Meeting, which will be cancelled for no consideration). The
payments to be made in respect of the stock options are based on the difference
between the exercise price per share under the option and $17.00 (subject to a
potential reduction in an amount not to exceed $0.29 per share). In addition,
Messrs. D. Navarro, E. Navarro, B. Navarro, LaBrosse, McNamara and Cheema, each
an executive officer of Grove, will receive the merger consideration for shares
of Grove which were received as restricted share grants and are currently
subject to forfeiture. The following table indicates the amounts that will be
received by each of Grove's executive officers upon their termination of
employment and that will be received by each of Grove's executive officers and
trust managers with respect to options for Grove common shares held by them
(without giving effect to potential reductions).
<TABLE>
<CAPTION>
Maximum
Payments in
Name of Executive Officer or Payments to be Received upon Respect of Stock
Trust Manager Termination of Employment Options
<S> <C> <C>
Damon D. Navarro $1,283,847 $1,277,691
Edmund F. Navarro 1,304,987 1,267,081
Joseph R. LaBrosse 924,161 1,006,813
Brian A. Navarro 1,296,495 1,267,081
Gerald A. McNamara 436,805 451,389
Munawar A. Cheema 686,320 490,000
James F. Twaddell 102,467
Harold V. Gorman 109,907
J. Joseph Garrahy 107,871
J. Timothy Morris 69,467
Keith W. Munsell 67,500
</TABLE>
On July 14, 2000, the Board of Trust Managers authorized a one-time
payment of $40,000 to each of the Company's non-employee trust managers in
recognition of their substantial contributions to Grove and its management
during their tenure as trust managers and for their service on the Merger
Oversight Committee.
The merger agreement provides that as of the effective date of the
company merger, ERP will provide indemnification for the current and former
officers and trust managers of Grove or any subsidiary of Grove. The
indemnification provided by ERP will be the same as the indemnification provided
by Grove to the officers and trust managers of Grove or any Grove subsidiary
immediately prior to the company merger. The indemnification covers actions on
or prior to the company merger, including all transactions contemplated by the
Merger Agreement.
ERP has also agreed to use commercially reasonable efforts to obtain
and, if obtained, maintain in effect for a period of six years from the time of
the company merger "run-off" trust managers and officers liability insurance
with a coverage amount and other terms and conditions comparable to Grove's
current
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trust mangers and officers liability insurance policy. The premium for the "run
off" policy will be paid in full at the time of the company merger, provided
that the premium shall not exceed $300,000.
ERP has also agreed to pay all costs and expenses (including fees and
expenses of counsel) that may be incurred by any indemnified party or his or her
heirs or personal representatives in successfully enforcing ERP's
indemnification obligations.
In the event of a merger, consolidation or transfer of all or
substantially all of the properties and assets of ERP, ERP's successors and
assigns would be obligated to assume these indemnification obligations.
For a description of the interest of D. Navarro, J. LaBrosse, E.
Navarro, and B. Navarro in the transfer of the retail properties to occur
substantially simultaneously with the partnership merger, see "The Retail
Agreement."
MARKET PRICE OF AND DIVIDENDS ON GROVE COMMON SHARES
Grove common shares are listed on the American Stock Exchange. The
following table sets forth the high and low sales prices per Grove common share
as reported by the American Stock Exchange and dividends per common share for
the calendar periods shown. Grove had approximately 113 shareholders of record
as of the record date for the special meeting.
<TABLE>
<CAPTION>
Dividends per
Common
High Low Share
---- --- -------------
1998
----
<S> <C> <C> <C>
First Quarter ................................ $ 10.938 $ 10.125 $ 0.17
Second Quarter ............................... 11.250 10.000 0.17
Third Quarter ................................ 10.875 8.750 0.17
Fourth Quarter ............................... 11.750 9.250 0.17
1999
----
First Quarter ................................ $ 12.125 $ 10.438 $ 0.18
Second Quarter ............................... 13.500 10.500 0.18
Third Quarter ................................ 14.000 12.125 0.18
Fourth Quarter ............................... 13.250 11.750 0.18
2000
----
First Quarter ................................ $ 13.313 $ 12.375$ $ 0.18
Second Quarter ............................... 16.500 12.750 0.18
Third Quarter (through September 20, 2000).... 16.500 16.375 0.18
------
</TABLE>
PRINCIPAL SHAREHOLDERS OF GROVE
SECURITY OWNERSHIP OF TRUST MANAGERS AND EXECUTIVE OFFICERS
The following table sets forth information as of the record date for
the special meeting regarding the beneficial ownership of Grove common shares by
each trust manager and each executive officer, and by all trust managers and
executive officers as a group. Each person named in the table has the sole
voting and investment power with respect to all shares shown as beneficially
owned by such person, except as otherwise set forth in the notes to the table.
For purposes of this table, a person is deemed to be the beneficial owner of a
security if that person has the option to acquire beneficial ownership of Grove
common shares within sixty (60) days of the date of determination. Accordingly,
the following table only reflects vested options to acquire Grove common shares,
as well as the number of Grove L.P. units owned by such person which are
redeemable with either cash or Grove common shares. For information relating to
both vested and unvested options held by certain persons in Grove, see
"Interests of Certain Persons in the Transactions."
36
<PAGE>
<TABLE>
<CAPTION>
Number of Common Percentage of Common
Name of Beneficial Owner(1) Shares Shares
------------------------ ---------------- --------------------
<S> <C> <C> <C>
Damon D. Navarro 751,776 (2) 8.5%
Joseph R. LaBrosse 332,856 (3) 3.9%
Edmund F. Navarro 685,894 (4) 7.8%
J. Timothy Morris 1,700,766 (5) 20.3%
James F. Twaddell 48,273 (6) *
Harold V. Gorman 14,725 (7) *
J. Joseph Garrahy 19,724 (8) *
Brian A. Navarro 707,406 (9) 8.0%
Gerald A. McNamara 134,766 (10) 1.6%
Munawar A. Cheema 143,863 (11) 1.7%
Keith W. Munsell 10,000 (12) *
Trust Managers and Named
Executive Officers as a Group
(11 Persons) 4,550,039 (13) 44.4%
</TABLE>
--------------------
* Less than 1%
(1) Each person listed has a business address c/o Grove, 598 Asylum Avenue,
Hartford, Connecticut 06105.
(2) Includes 331,337 common shares which might be acquired by Mr. Navarro upon
redemption of an equal number of Grove L.P. units and 173,369 common shares
which could be acquired within 60 days upon exercise of options.
(3) Includes 76,833 common shares which might be acquired by Mr. LaBrosse upon
redemption of an equal number of Grove L.P. units and 134,294 common shares
which could be acquired within 60 days upon exercise of options.
(4) Includes 280,357 common shares which might be acquired by Mr. Navarro upon
redemption of an equal number of Grove L.P. units and 171,969 common shares
which could be acquired within 60 days upon exercise of options.
(5) Represents the common shares which are owned either by accounts managed by
Morgan Stanley Dean Witter Investment Management Inc. or which are owned by
affiliates of Morgan Stanley Dean Witter & Co., as to which Mr. Morris has
shared voting and investment power.
(6) Includes 15,000 common shares which could be acquired by Mr. Twaddell
within 60 days upon exercise of options.
(7) Represents common shares which could be acquired by Mr. Gorman within 60
days upon exercise of options.
(8) Includes 14,862 common shares which could be acquired by Mr. Garrahy within
60 days upon exercise of options.
37
<PAGE>
(9) Includes 323,784 common shares which might be acquired by Mr. Navarro upon
redemption of an equal number of Common Units and 171,969 common shares
which could be acquired within 60 days upon exercise of options.
(10) Includes 40,750 common shares which might be acquired by Mr. McNamara upon
redemption of an equal number of Common Units and 54,344 Common Shares
which could be acquired within 60 days upon exercise of options.
(11) Includes 66,667 common shares which could be acquired by Mr. Cheema within
60 days upon exercise of options.
(12) Represents 10,000 common shares which could be acquired by Mr. Munsell
within 60 days upon exercise of options.
(13) Includes 1,053,062 common shares which might be acquired upon redemption of
an equal number of Common Units and 837,199 common shares which could be
acquired within 60 days upon exercise of options.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
Set forth below is a table indicating those persons whom Grove's
management believes to be beneficial owners of more than 5% of the common
shares. The following information is based on reports filed with Grove and the
SEC or on other information that Grove believes is reliable.
<TABLE>
<CAPTION>
Common Shares
Beneficially Percent of
Name and Business Address of Beneficial Owner Owned Common Shares
------------------------------------------------------------------------------------------------------
<S> <C> <C>
Morgan Stanley Dean Witter & Co. 1,700,766 (1) 20.3%
1585 Broadway
New York, NY 10036
Oregon Public Employees' Retirement Fund and LaSalle Investment 1,012,729 (2) 12.1%
Management (Securities) L.P.
100 East Pratt Street, 20th Floor
Baltimore, MD 21202
Wellington Management Company, LLP 801,400 (3) 9.6%
75 State Street
Boston, MA 02109
Damon D. Navarro 751,766 (4) 8.5%
c/o Grove Property Trust
598 Asylum Avenue
Hartford, CT 06105
Brian D. Navarro 707,406 (5) 8.0%
c/o Grove Property Trust
598 Asylum Avenue
Hartford, CT 06105
Edmund F. Navarro 685,894 (6) 7.8%
38
<PAGE>
Common Shares
Beneficially Percent of
Name and Business Address of Beneficial Owner Owned Common Shares
------------------------------------------------------------------------------------------------------
c/o Grove Property Trust
598 Asylum Avenue
Hartford, CT 06105
Cliffwood Partners, LLC 426,000 (7) 5.1%
11726 San Vicente Boulevard
Suite 600
Los Angeles, CA 90049
</TABLE>
------------------------------------------
(1) Morgan Stanley Dean Witter & Co. has advised that it has sole voting and
dispositive power with respect to 101,799 shares and, through its wholly
owned affiliate, Morgan Stanley Dean Witter Investment Management Inc.,
shares voting and dispositive power with respect to 1,578,967 shares.
Includes 10,000 shares which could be acquired within 60 days upon exercise
of options.
(2) LaSalle Investment Management (Securities) L.P. has advised that with
respect to such shares it has (i) sole voting and dispositive power for
55,200 shares and (ii) shared voting and dispositive power for 957,529
shares. It can be inferred from LaSalle Investment Management (Securities)
L.P.'s Schedule 13G filed with the Securities and Exchange Commission that
LaSalle and the State of Oregon, Public Employees' Retirement Fund share
voting and dispositive power for shares held by LaSalle for the account of
the State of Oregon, Public Employees' Retirement Fund which exceed five
percent of such class of securities of the Company.
(3) Wellington Management Company, LLP has advised that with respect to such
shares it has (i) sole voting and dispositive power for no shares, (ii)
shared voting power for 513,200 shares and (iii) shared dispositive power
for 801,400 shares.
(4) Common shares beneficially owned as of September 22, 2000. Includes 331,337
common shares which might be acquired by Mr. Navarro upon redemption of an
equal number of common units and 173,369 common shares which could be
acquired within 60 days upon exercise of options.
(5) Common shares beneficially owned as of September 22, 2000. Includes 323,784
common shares which might be acquired by Mr. Navarro upon redemption of an
equal number of common units and 171,969 common shares which could be
acquired within 60 days upon exercise of options.
(6) Common shares beneficially owned as of September 22, 2000. Includes 280,357
common shares which might be acquired by Mr. Navarro upon redemption of an
equal number of common units and 171,969 common shares which could be
acquired within 60 days upon exercise of options.
(7) Cliffwood Partners LLC has advised that with respect to such shares it has
sole voting and dispositive power for all shares.
39
<PAGE>
LITIGATION
Grove and each of its trust managers were named as defendants in an
action commenced on July 18, 2000 by the filing of a class action complaint by
The Taylor Family Trust. The suit, which was filed in the Circuit Court of
Maryland for Baltimore City, purports to be a class action.
The complaint refers to the proposed mergers and the proposed transfer
of Grove's four retail properties to a limited liability company owned by four
executive officers of Grove. The lawsuit makes a number of claims, including
that each of Grove's trust managers breached his fiduciary duty to the holders
of Grove's common shares by approving and entering into the retail agreement,
pursuant to which the retail properties are proposed to be transferred.
The lawsuit seeks a preliminary and permanent injunction prohibiting
the merger transactions from proceeding, an unwinding of the merger if it has
already been completed or the award of recissory damages, an accounting by Grove
and its trust managers for alleged damages, and the award of plaintiff's costs,
including reasonable attorneys' fees and expenses.
Grove believes the suit is without merit and intends to defend against
the claims vigorously.
FORWARD LOOKING STATEMENTS
This proxy statement contains forward-looking statements within the
meaning of The Private Securities Litigation Reform Act of 1995. These
statements are based on expectations at the time they were made and are subject
to a number of risks and uncertainties. Statements relating to Grove's or Grove
L.P.'s intentions, hopes, beliefs, expectations or predictions are
forward-looking statements. Grove cautions readers that in addition to the
important factors described elsewhere in this proxy statement, the factors
listed below, among others, sometimes have affected, and in the future could
affect, Grove's actual results and could cause future results to differ
materially from those contained in or indicated by any forward-looking
statements made by, or on behalf of, Grove. There may be additional factors not
enumerated which could have a similar impact, including factors which affect
business generally, such as economic conditions.
These factors include, but are not limited to, the following:
o population shifts which may increase or decrease the demand for
rental housing;
o the ability of Grove effectively to integrate acquired properties
into its operations and to adopt its operations to the ownership of
properties with varying characteristics;
o the value of commercial and residential rental properties in the
Northeast, where all of Grove's properties are located, have
fluctuated considerably in recent years;
o the effect on Grove's properties of competition from new apartment
complexes which may be completed in proximity to such properties
thereby increasing competition;
o the effect of weather and other conditions which can significantly
affect property operating expenses;
o the availability of acquisition financing or refinancing; and
o compliance with applicable laws and regulations, including the
regulations of HUD and MHFA.
40
<PAGE>
Although Grove believes that its properties will continue to be
attractive to tenants and that it will be able to control expenses, future
revenue and operating trends cannot be reliably predicted. These trends may
cause Grove to adjust its operation in the future. Because of the foregoing and
other factors, recent trends should not be considered reliable indicators of
future financial results or stock prices.
OTHER MATTERS
Pursuant to Grove's bylaws, no other business is permitted to be
transacted at the special meeting.
On any motion to adjourn the special meeting, only those shares
represented by proxies entitled to vote FOR approval of the Merger Agreement
will be voted by the named proxies FOR such adjournment.
FUTURE SHAREHOLDER PROPOSALS
Due to the contemplated consummation of the mergers, Grove does not
currently expect to hold a 2001 annual meeting of shareholders because Grove
will be merged with and into a subsidiary of ERP and will cease to exist.
However, if the mergers are not consummated, Grove does intend to hold its 2001
annual meeting in the normal course of business. In this case, the shareholders
of Grove would continue to be entitled to attend and participate in the annual
meeting.
In the event the mergers are not consummated and the meeting is held,
because the date of Grove's 2001 annual meeting may have to be changed by more
than 30 days from the date of the company's 2000 annual meeting, the regulations
of the Securities and Exchange Commission provide that, to be eligible for
inclusion in Grove's proxy statement and form of proxy relating to the annual
meeting, proposals of Grove shareholders intended to be presented at the annual
meeting must be received by the Secretary of Grove, at Grove's place of
business, within a reasonable time before Grove begins to print and mail its
proxy statement to its shareholders in connection with the meeting. Grove will
inform its shareholders of the date by which the proposals must be received.
If you wish to submit proposals for consideration at Grove's 2001
annual meeting without including them in Groves proxy statement for that
meeting, you must notify Grove of your intentions a reasonable time before Grove
mails its proxy materials for that meeting. Should you fail to do this, the
persons named as proxies in Grove's proxy statement for its 2001 annual meeting
may exercise their discretionary authority to vote on your proposals.
41
<PAGE>
APPENDIX A
--------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
among
GROVE PROPERTY TRUST
GROVE OPERATING, L.P.
and
ERP OPERATING LIMITED PARTNERSHIP
Dated as of July 17, 2000
--------------------------------------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
-----------------
<S> <C>
Article Page
------- ----
ARTICLE 1 THE MERGERS...............................................................................1
1.1 The Partnership Merger................................................................1
1.2 The Company Merger....................................................................2
1.3 Closing...............................................................................2
1.4 Effective Times.......................................................................2
1.5 Effect of Company Merger on Operating Agreement of New LLC3...........................2
1.6 Effect of Partnership Merger on Agreement of Limited Partnership......................2
1.7 Effect of Partnership Merger on Grove LP Units........................................2
1.8 Effect of Company Merger on Shares....................................................3
1.9 Receipt of Consideration..............................................................4
1.10 Transfer Books........................................................................6
1.11 No Further Ownership Rights in Shares.................................................6
1.12 Adjustment to Merger Consideration....................................................6
ARTICLE 2 REPRESENTATIONS AND WARRANTIES OF GROVE AND GROVE OP......................................6
2.1 Organization, Standing and Power of Grove and Grove OP................................6
2.2 Grove Subsidiaries....................................................................7
2.3 Capital Structure.....................................................................8
2.4 Other Interests and Sale Obligations..................................................9
2.5 Authority; Noncontravention; Consents.................................................9
2.6 SEC Documents; Financial Statements; Undisclosed Liabilities.........................11
2.7 Absence of Certain Changes or Events.................................................11
2.8 Litigation...........................................................................12
2.9 Properties...........................................................................12
2.10 Consultants and Related Party Transactions...........................................15
2.11 Employee Benefits....................................................................16
2.12 Employee Matters.....................................................................17
2.13 Taxes................................................................................18
2.14 No Payments to Employees, Officers, Trust Managers or Directors......................18
2.15 Brokers; Schedule of Fees and Expenses...............................................19
2.16 Compliance with Laws.................................................................19
2.17 Contracts; Debt Instruments..........................................................19
2.18 Opinion of Financial Advisor.........................................................21
2.19 State Takeover Statutes..............................................................21
2.20 Registration Statement...............................................................21
2.21 Development Properties...............................................................21
2.22 Investment Company Act of 1940.......................................................21
2.23 Trademarks, Patents and Copyrights...................................................21
2.24 Insurance............................................................................22
2.25 Definition of Knowledge of Grove.....................................................22
2.26 Vote Required........................................................................22
2.27 Secured Credit Facility..............................................................22
2.28 Assumption of Secured Debt...........................................................22
2.29 Certain Fees.........................................................................22
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF ERP....................................................22
3.1 Organization, Standing and Power of ERP..............................................22
3.2 Capital Structure of ERP.............................................................23
3.3 Authority; Noncontravention; Consents................................................23
i
<PAGE>
3.4 SEC Documents; Financial Statements; Undisclosed Liabilities.........................23
3.5 Absence of Certain Changes or Events.................................................24
3.6 Litigation...........................................................................24
3.7 Properties...........................................................................24
3.8 Environmental Matters................................................................25
3.9 Taxes................................................................................25
3.10 Brokers..............................................................................26
3.11 Compliance with Laws.................................................................26
3.12 Contracts; Debt Instruments..........................................................26
3.13 State Takeover Statutes..............................................................26
3.14 Registration Statement...............................................................26
3.15 Investment Company Act of 1940.......................................................26
3.16 Definition of Knowledge of ERP.......................................................26
3.17 Vote Required........................................................................26
3.18 Employee Policies....................................................................27
3.19 Financing............................................................................27
3.20 Validity of Securities Issued........................................................27
ARTICLE 4 COVENANTS................................................................................27
4.1 Acquisition Proposals................................................................27
4.2 Conduct of Grove's Business Pending Merger...........................................28
4.3 Conduct of ERP's Business Pending Merger.............................................30
4.4 Other Actions........................................................................31
4.5 Compliance with the Securities Act...................................................31
ARTICLE 5 ADDITIONAL COVENANTS.....................................................................31
5.1 Preparation of the Registration Statement and the Proxy Statement; Grove
Shareholders Meeting and Grove OP Partners Meeting...................................31
5.2 Access to Information: Confidentiality...............................................33
5.3 Best Efforts; Notification...........................................................33
5.4 Costs of Transaction.................................................................33
5.5 Public Announcements.................................................................33
5.6 Taxes................................................................................34
5.7 Benefit Plans and Other Employee Arrangements........................................34
5.8 Indemnification......................................................................35
5.9 Declaration of Dividends and Distributions...........................................36
5.10 Notices..............................................................................36
5.11 Resignations.........................................................................36
5.12 Third Party Management Agreements and Outside Management Agreements..................36
5.13 Modification of Rosenthal Transactions...............................................37
5.14 Retail Sale Agreement................................................................37
5.15 Election to Undertake Deficit Restoration Obligation Under ERP Agreement.............37
5.16 Transfer of Grove LP Units...........................................................37
5.17 Transfer of Grove Corp. Shares.......................................................37
ARTICLE 6 CONDITIONS...............................................................................37
6.1 Conditions to Each Party's Obligation to Effect the Mergers..........................37
6.2 Conditions to Obligations of ERP.....................................................38
6.3 Conditions to Obligations of Grove...................................................39
ARTICLE 7 TERMINATION, AMENDMENT AND WAIVER........................................................40
7.1 Termination..........................................................................40
7.2 Certain Fees and Expenses............................................................41
ii
<PAGE>
7.3 Effect of Termination................................................................42
7.4 Amendment............................................................................42
7.5 Extension; Waiver....................................................................43
ARTICLE 8 GENERAL PROVISIONS.......................................................................43
8.1 Nonsurvival of Representations and Warranties........................................43
8.2 Notices..............................................................................43
8.3 Interpretation.......................................................................44
8.4 Counterparts.........................................................................44
8.5 Entire Agreement; No Third-Party Beneficiaries.......................................44
8.6 Governing Law........................................................................44
8.7 Assignment...........................................................................44
8.8 Enforcement..........................................................................44
8.9 Severability.........................................................................44
8.10 Non-Recourse to Trustees, Trust Managers and Officers................................45
</TABLE>
EXHIBITS
Exhibit "A" - Agreement of Merger
Exhibit "B" - Company Articles of Merger
Exhibit "C" - Opinion of Maryland Counsel
Exhibit "D" - Opinion of Cummings & Lockwood
Exhibit "E" - Opinion of Piper Marbury Rudnick & Wolfe
iii
<PAGE>
AGREEMENT AND PLAN OF MERGER
----------------------------
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") is dated as of
July 17, 2000 by and among ERP OPERATING LIMITED PARTNERSHIP, an Illinois
limited partnership ("ERP"), GROVE PROPERTY TRUST, a Maryland real estate
investment trust ("Grove"), and GROVE OPERATING, L.P., a Delaware limited
partnership ("Grove OP").
R E C I T A L S:
----------------
WHEREAS, the General Partner of ERP and the Board of Trust Managers of
Grove (the "Grove Board"), the sole general partner of Grove OP, have each
approved the acquisition of the business and assets of Grove by ERP, with such
acquisition being effected by the transactions described herein, including,
without limitation, the Partnership Merger and Company Merger (each as defined
below and collectively referred to as the "Mergers");
WHEREAS, ERP shall form a single member Delaware limited liability
company ("New LLC"), which in turn shall form a second single member Delaware
limited liability company ("New LLC2");
WHEREAS, the General Partner of ERP and the Grove Board have approved
(i) the merger of New LLC2 with and into Grove OP (the "Partnership Merger") and
(ii) immediately following the Partnership Merger, the merger (the "Company
Merger") of Grove with and into a single member Maryland limited liability
company to be formed by ERP ("New LLC3"), all upon the terms and subject to the
conditions set forth herein;
WHEREAS, Grove has received a fairness opinion relating to the Mergers,
as more fully described herein;
WHEREAS, the Grove Board has: (i) determined that the consideration to
be paid for each outstanding unit of limited partnership interest in Grove OP
(each an "Grove LP Unit") in the Partnership Merger is fair to and in the best
interests of the limited partners of Grove OP (the "Limited Partners"); (ii)
determined that the consideration to be paid for each issued and outstanding
share of beneficial interest, $.01 par value per share, of Grove (each a "Share"
or "Grove Common Share") in the Company Merger is fair to and in the best
interests of the shareholders of Grove; and (iii) approved this Agreement and
the transactions contemplated hereby, declared their advisability and resolved
to recommend approval and adoption of this Agreement by the shareholders of
Grove and Limited Partners; and
WHEREAS, ERP, Grove and Grove OP desire to make certain
representations, warranties and agreements in connection with the Mergers.
NOW, THEREFORE, in consideration of the premises, and the mutual
representations, warranties, covenants and agreements contained herein, the
parties hereto hereby agree as follows:
ARTICLE 1
---------
THE MERGERS
-----------
1.1 THE PARTNERSHIP MERGER. Prior to the Partnership Merger Effective
Time (as defined below), and subject to and upon the terms and conditions of
this Agreement, an Agreement of Merger in substantially the form attached hereto
as Exhibit "A" (the "Agreement of Merger") shall be executed and delivered by
Grove OP and New LLC2. Pursuant to the terms of the Agreement of Merger, upon
the terms and subject to the conditions of this Agreement, and in accordance
with Section 18-209 of the Delaware Limited Liability Company Act (the "LLC
Act") and Section 17-211 of the Delaware Revised Uniform Limited Partnership Act
(the "DRULPA"), New LLC2 shall be merged with and into Grove OP, with Grove OP
as the surviving entity (the "Surviving Partnership").
<PAGE>
1.2 THE COMPANY MERGER. Upon the terms and subject to the conditions of
this Agreement, immediately following the effectiveness of the Partnership
Merger, and in accordance with Title 8 of the Corporations and Associations
Article of the Annotated Code of Maryland, as amended ("Title 8") and Title 4A
of the Corporations and Associations Article of the Annotated Code of Maryland,
as amended ("Title 4A"), Grove shall be merged with and into New LLC3, with New
LLC3 as the surviving entity (the "Surviving Company").
1.3 CLOSING. The closing of the Mergers ("Closing") will take place at
8:00 a.m. local time on the date to be specified by the parties, which (subject
to satisfaction or waiver of the other conditions set forth in Article 6) shall
be no later than the third business day after satisfaction or waiver of the
conditions set forth in Section 6.1(a) (the "Closing Date"), at the offices of
Piper Marbury Rudnick & Wolfe, 203 North LaSalle Street, Chicago, Illinois
60601, unless another date or place is agreed to in writing by the parties
hereto.
1.4 EFFECTIVE TIMES. As soon as practicable following the satisfaction
or waiver of the conditions set forth in Article 6 by the party entitled to the
benefit of the same:
(a) Grove OP shall execute and file a Certificate of Merger in
substantially the form attached to the Agreement of Merger (the "Partnership
Certificate of Merger"), executed in accordance with the LLC Act and DRULPA,
with the Office of the Secretary of State of Delaware (the "Delaware
Secretary"), and shall make all other filings and recordings required under the
LLC Act and DRULPA. The Partnership Merger shall become effective (the
"Partnership Merger Effective Time") upon filing of the Partnership Certificate
of Merger. Unless otherwise agreed, the parties shall cause the Partnership
Merger Effective Time to occur on the Closing Date.
(b) Immediately following the Partnership Merger Effective Time,
New LLC3 and Grove shall execute and file Articles of Merger in substantially
the form attached hereto as Exhibit "B" (the "Company Articles of Merger"),
executed in accordance with Title 8 and Title 4A, with the State Department of
Assessments and Taxation of Maryland (the "Maryland Department"), and shall make
all other filings and recordings required under Title 8 and Title 4A. The
Company Merger shall become effective (the "Company Merger Effective Time") at
such time as shall be specified in the Company Articles of Merger. Unless
otherwise agreed, the parties shall cause the Company Merger Effective Time to
occur on the Closing Date.
1.5 EFFECT OF COMPANY MERGER ON OPERATING AGREEMENT OF NEW LLC3. The
Operating Agreement of New LLC3 shall continue in full force and effect after
the Company Merger Effective Time until amended in accordance with Delaware law.
1.6 EFFECT OF PARTNERSHIP MERGER ON AGREEMENT OF LIMITED PARTNERSHIP.
The Agreement of Limited Partnership of Grove OP, as amended (the "Grove OP
Agreement"), shall continue in full force and effect after the Partnership
Merger Effective Time until further amended in accordance with applicable
Delaware law.
1.7 EFFECT OF PARTNERSHIP MERGER ON GROVE LP UNITS. At the Partnership
Merger Effective Time, by virtue of the Partnership Merger and without any
action on the part of ERP, Grove, Grove OP or the holders of any of the
following securities:
(a) CONVERSION OF GROVE LP UNITS. Each Grove LP Unit issued and
outstanding immediately prior to the Partnership Merger Effective Time
(excluding any Grove LP Units to be canceled pursuant to Section 1.7(b)) shall
be canceled and converted into the right to receive, subject to the terms and
condition of this Agreement, at the election of the Limited Partner holding such
Grove LP Unit made pursuant to Section 1.9(c), either (i) $17.00 per Grove LP
Unit (the "Partnership Cash Merger Consideration") payable to the holder thereof
in cash, without interest thereon, less any required withholding of taxes, or
(ii) 0.3696 units ("ERP Units") of limited partnership interest in ERP (the
"Partnership Unit Merger Consideration" and, together with the Partnership Cash
Merger Consideration, the "Partnership Merger Consideration"). If, from the date
hereof until the Partnership Merger Effective Time, ERP (i) pays a dividend or
makes a distribution on ERP Units in ERP Units, (ii) subdivides the outstanding
ERP Units into a greater number of ERP Units or (iii) combines the outstanding
ERP Units into a smaller number of ERP Units, the Partnership Unit Merger
Consideration shall be adjusted to reflect the proportionate change in the
number of outstanding ERP Units. It is the intention of the parties hereto that
the payment of the Partnership Cash Merger Consideration shall be treated as a
purchase by ERP of the Grove LP Units
2
<PAGE>
of each Limited Partner who elects to receive the Partnership Cash Merger
Consideration pursuant to Proposed Treasury Regulation ss.1.708-1(c)(3).
(b) CANCELLATION. Each Grove LP Unit held by Grove OP and each
Grove LP Unit owned by ERP or any direct or indirect wholly-owned subsidiary of
Grove or ERP immediately prior to the Partnership Merger Effective Time shall,
by virtue of the Partnership Merger and without any action on the part of the
holder thereof, cease to be outstanding, be canceled and retired without payment
of any consideration therefor and cease to exist.
(c) CONVERSION OF INTERESTS IN NEW LLC2. At the Partnership Merger
Effective Time, each interest in New LLC2 shall be automatically converted into
one Grove LP Unit.
(d) CONVERSION OF GENERAL PARTNER INTEREST. Each unit of general
partnership interest in Grove OP shall be unaffected by the Partnership Merger.
(e) FUTURE CONTINGENT VALUE DISTRIBUTIONS. The right of any person
to receive Grove LP Units at any time in the future with respect to Contingent
Earnout Rights, as defined and contemplated in that certain Agreement, dated as
of April 22, 1998, as amended by that certain Amendment to Conveyance Agreement,
dated as of August 31, 1998 (the "McNeil Conveyance Agreement"), involving the
acquisition by Grove Corporation of certain properties owned by 22 limited
partnerships affiliated with Alexander H. McNeil, shall convert into the right
to receive that number of ERP Units calculated in accordance with and subject to
all of the other terms and conditions contemplated in the McNeil Conveyance
Agreement; provided, however, that any reference in such agreements to Grove
Shares shall be deemed to refer to common shares ("EQR Common") of Equity
Residential Properties Trust, a Maryland real estate investment trust ("EQR"),
as traded on the New York Stock Exchange, Inc. (the "NYSE").
1.8 EFFECT OF COMPANY MERGER ON SHARES. At the Company Merger Effective
Time, by virtue of the Company Merger and without any action on the part of ERP,
Grove, Grove OP or the holders of any of the following securities:
(a) CONVERSION OF SHARES. Each Share issued and outstanding
immediately prior to the Company Merger Effective Time (excluding any Shares to
be canceled pursuant to Section 1.8(b)) shall be cancelled and converted into
the right to receive, subject to the terms and conditions of this Agreement,
$17.00 per Share (the "Company Merger Consideration") payable to the holder
thereof in cash, without interest thereon, upon the surrender of the certificate
formerly representing such Share, less any required withholding of taxes. The
Company Merger Consideration shall be payable in cash without interest thereon
in accordance with Section 1.9 as soon as practicable after the Deposit Date, as
defined herein.
(b) CANCELLATION. Each Share held in the treasury of Grove and
each Share owned by ERP or any direct or indirect wholly-owned subsidiary of
Grove, Grove OP or ERP immediately prior to the Company Merger Effective Time
shall, by virtue of the Company Merger and without any action on the part of the
holder thereof, cease to be outstanding, be canceled and retired without payment
of any consideration therefor and cease to exist.
(c) STOCK OPTIONS. Except as specifically set forth in Section
5.7(c), at the Company Merger Effective Time, each outstanding option (an "Grove
Option") to purchase Shares granted under or pursuant to any employee stock
option plan or agreement entered into by Grove with any employee of Grove or any
subsidiary thereof or any other person listed on Schedule 2.3 of the Grove
Disclosure Letter (as defined herein) or otherwise existing (the "Grove Stock
Option Plans"), shall be cancelled and the holder thereof shall be entitled to
receive in cash (the "Total Option Amount") an amount, if any, (less applicable
withholding taxes) equal to the product of: (i) the number of Shares previously
subject to such Grove Option, whether vested or unvested, multiplied by; (ii)
the excess, if any, of the amount of the Company Merger Consideration over the
exercise price per Share previously subject to such Grove Option, payable not
later than the Trading Day immediately following the Company Merger Effective
Time.
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1.9 RECEIPT OF CONSIDERATION.
(a) PAYMENT AGENT. Prior to the Partnership Merger Effective Time,
a bank or trust company reasonably acceptable to Grove shall be designated by
ERP to act as agent in connection with the Mergers to receive the funds to which
holders of Shares and Grove LP Units shall become entitled pursuant to Sections
1.7 and 1.8 (the "Paying Agent").
(b) PROCEDURES FOR RECEIPT OF COMPANY MERGER CONSIDERATION.
Promptly after the Company Merger Effective Time, the Surviving Company shall
cause to be mailed to each holder of record, as of the Company Merger Effective
Time, of a certificate or certificates (the "Certificates") that, prior to the
Company Merger Effective Time, represented Shares, a form of letter of
transmittal and instructions for use in effecting the surrender of the
Certificates for payment of the Company Merger Consideration therefor. Upon the
surrender of each such Certificate formerly representing Shares, together with
such letter of transmittal, duly completed and validly executed in accordance
with the instructions thereto, the Paying Agent shall pay the holder of record
of such Certificate the Company Merger Consideration multiplied by the number of
Shares formerly represented by such Certificate, in exchange therefor, and such
Certificate shall forthwith be canceled. Until so surrendered and exchanged,
each such Certificate (other than Shares held by ERP or Grove, or any direct or
indirect subsidiary thereof) shall represent solely the right to receive the
Company Merger Consideration. No interest shall be paid or accrue on the Company
Merger Consideration.
(c) PROCEDURES FOR RECEIPT OF PARTNERSHIP MERGER CONSIDERATION.
(i) All elections by Limited Partners to receive the Partnership
Cash Merger Consideration or Partnership Unit Merger Consideration shall be made
on a form furnished by ERP for that purpose (a "Form of Election") and
reasonably satisfactory to Grove. Each Limited Partner may only make an election
to receive all Partnership Cash Merger Consideration or Partnership Unit Merger
Consideration in exchange for all of its Grove LP Units.
(ii) Together with the Prospectus (as defined herein), ERP or the
Paying Agent shall mail a Form of Election to record holders of Grove LP Units
as of the record date for the Grove OP Partners Meeting (as defined below) (the
"Record Date"). Elections shall be made by Limited Partners by delivering the
Form of Election to the Paying Agent, as indicated in the Form of Election. To
be effective, a Form of Election must be properly completed, signed and
submitted to the Paying Agent by 5:00 p.m. (New York City time) on the last
Trading Day (as defined below) prior to the date of the Grove OP Partners
Meeting or such other time and date as ERP and Grove may mutually agree (the
"Election Deadline"). ERP will have the discretion, which it may delegate in
whole or in part to the Paying Agent, to determine whether Forms of Election
have been properly completed, signed and submitted or revoked and to disregard
immaterial defects in Forms of Election. The good faith decision of ERP (or the
Paying Agent) in such matters shall be conclusive and binding. Neither ERP nor
the Paying Agent will be under any obligation to notify any person of any defect
in a Form of Election submitted to the Paying Agent. The Paying Agent shall also
make all computations contemplated by Section 1.7 and this Section 1.9(c) and
all such computations shall be conclusive and binding on the Limited Partners in
the absence of manifest error. Any Form of Election may be changed or revoked
prior to the Election Deadline. For purposes hereof, if a Limited Partner (i)
does not submit a Form of Election which is received by the Paying Agent prior
to the Election Deadline (including a Limited Partner who submits and then
revokes his or her Form of Election and does not resubmit a Form of Election
which is timely received by the Paying Agent) or (ii) submits a Form of Election
which is defective in any manner such that the Paying Agent cannot reasonably
determine the election preference of the Limited Partner submitting such Form of
Election, then such Limited Partner shall be deemed for all purposes of this
Agreement to have validly elected to receive the Partnership Cash Merger
Consideration with respect to the Grove LP Units held by such Limited Partner.
Except as specifically provided in Section 5.13, any Persons (as defined herein)
acquiring Grove LP Units after the Record Date shall be entitled to receive only
that form of Partnership Merger Consideration previously validly elected by the
transferor of such Grove LP Units or, to the extent no such valid election was
made by such transferor in accordance with this Section 1.9, the Partnership
Cash Merger Consideration.
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(iii) Following the Partnership Merger Effective Time, a Limited
Partner shall be entitled to receive the amount of Partnership Cash Merger
Consideration or Partnership Unit Merger Consideration, as the case may be, as
calculated in accordance with Section 1.7. The Paying Agent shall promptly pay
to each Limited Partner any Partnership Cash Merger Consideration to which such
Limited Partner is entitled pursuant to this Section 1.9. No interest shall be
paid or accrue on the Partnership Cash Merger Consideration. With respect to any
Partnership Unit Merger Consideration to which such Limited Partner is entitled
pursuant to this Section 1.9, ERP shall promptly mail to such Limited Partner
the documentation necessary to reflect such Limited Partner's ownership of that
number of ERP Units calculated pursuant to this Section 1.9 including, without
limitation, a signature page to the Fifth Amended and Restated Agreement of
Limited Partnership of ERP dated as of August 1, 1998 (the "ERP Agreement") for
execution by such Limited Partner, which execution shall be a condition to such
Limited Partner's receipt of ERP Units. Notwithstanding any other provision
hereof, no fractional ERP Units shall be issued in connection with the
Partnership Merger. Instead, each Limited Partner having a fractional interest
arising upon the conversion of such Limited Partner's Grove LP Units for
Partnership Unit Merger Consideration shall be paid an amount in cash equal to
the Closing Price (as hereinafter defined) multiplied by the fraction of an ERP
Unit to which such Limited Partner would otherwise be entitled. For purposes of
this Section 1.9, "Closing Price" shall mean the unweighted average closing
price of a share of EQR Common (as reported in the NYSE Composite Tape) for the
five (5) Trading Days immediately preceding the Partnership Merger Effective
Time, and "Trading Day" shall mean any day on which EQR Common is traded on the
NYSE and reported on its Composite Tape.
(d) CONSIDERATION. Within three (3) Trading Days after the
Partnership Merger Effective Time (the "Deposit Date"), ERP or the Surviving
Company shall deposit, or cause to be deposited, in trust with the Paying Agent,
(i) the amount of Company Merger Consideration to which holders of Shares shall
be entitled at the Company Merger Effective Time pursuant to Section 1.8(a)
hereof and (ii) the amount of Partnership Cash Merger Consideration to which
holders of Grove LP Units shall be entitled at the Partnership Merger Effective
Time pursuant to Section 1.7(a) hereof (the "Total Cash Consideration").
(e) INVESTMENT OF TOTAL CASH CONSIDERATION. The Total Cash
Consideration shall be invested by the Paying Agent, as directed by ERP,
provided such investments shall be limited to direct obligations of the United
States of America, obligations for which the full faith and credit of the United
States of America is pledged to provide for the payment of principal and
interest, commercial paper rated of the highest quality by Moody's Investors
Service, Inc. and Standard & Poor's Corporation, or certificates of deposit
issued by a commercial bank having at least $10,000,000,000 in assets; provided,
however, that the Total Cash Consideration shall be readily available to satisfy
all obligations to pay the Company Merger Consideration and the Partnership Cash
Merger Consideration in accordance with the terms of this Agreement.
(f) TERMINATION OF DUTIES. Promptly following the date which is
one (1) year after the Company Merger Effective Time, ERP will cause the Paying
Agent to deliver to the Surviving Company all cash and documents in its
possession relating to the funds deposited on the Deposit Date described in this
Agreement, and the Paying Agent's duties relating thereto shall terminate.
Thereafter, each holder of a Certificate formerly representing a Share may
surrender such Certificate to ERP and (subject to applicable abandoned property,
escheat and similar laws) receive in exchange therefor the Company Merger
Consideration, as calculated in accordance with this Section 1.9.
(g) NO LIABILITY. None of ERP, Grove or Grove OP shall be liable
to any holder of Shares or Grove LP Units for any Company Merger Consideration
or Partnership Merger Consideration delivered to a public official pursuant to
any applicable abandoned property, escheat or similar law.
(h) WITHHOLDING RIGHTS. ERP or the Paying Agent shall be entitled
to deduct and withhold from the Company Merger Consideration or Partnership
Merger Consideration otherwise payable pursuant to or in connection with this
Agreement, or any other payment or debt cancellation made pursuant to this
Agreement, to any holder of Shares or Grove LP Units, such amounts as ERP or the
Paying Agent is required to deduct and withhold with respect to the making of
such payment under the Internal Revenue Code of 1986, as amended (the "Code"),
or any provision of state, local or foreign tax law. To the extent that amounts
are so withheld by ERP or the Paying Agent, such withheld amounts shall be
treated for all purposes of this Agreement as having been paid to the holder
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of the Shares or Grove LP Units, as the case may be, in respect of which such
deduction and withholding was made by ERP or the Paying Agent.
1.10 TRANSFER BOOKS. At the Company Merger Effective Time, the stock
transfer books of Grove shall be closed, and there shall be no further
registration of transfers of Shares thereafter on the records of Grove.
1.11 NO FURTHER OWNERSHIP RIGHTS IN SHARES.
(a) The Company Merger Consideration delivered upon the surrender
for exchange of Shares in accordance with the terms hereof shall be deemed to
have been issued in full satisfaction of all rights pertaining to such Shares,
and there shall be no further registration of transfers on the records of the
Surviving Company of Shares which were outstanding immediately prior to the
Company Merger Effective Time. If, after the Company Merger Effective Time,
Certificates are presented to the Surviving Company for any reason, they shall
be canceled and exchanged as provided in this Article 1.
(b) The Partnership Merger Consideration delivered upon the
conversion of Grove LP Units in accordance with the terms hereof shall be deemed
to have been issued in full satisfaction of all rights pertaining to such Grove
LP Units and there shall be no further registration of transfers on the records
of the Surviving Partnership of Grove LP Units which were outstanding
immediately prior to the Partnership Merger Effective Time.
1.12 ADJUSTMENT TO MERGER CONSIDERATION. Notwithstanding Section 1.7 or
Section 1.8, the Partnership Cash Merger Consideration, Partnership Unit Merger
Consideration and Company Merger Consideration shall be subject to reduction as
a result of any Closing Agreement Costs (as defined in Section 6.2) as follows:
(a) The Partnership Cash Merger Consideration and the Company
Merger Consideration shall each be reduced by an amount equal to the Closing
Agreement Costs, if any, up to an aggregate of $3.5 million, divided by the
aggregate number of Grove LP Units and Grove Shares cancelled and converted in
the Mergers in exchange for the Partnership Merger Consideration or Company
Merger Consideration, as the case may be (the "Reduction Amount"); provided,
however, that the Partnership Cash Merger Consideration and the Company Merger
Consideration, when adjusted pursuant to this Section 1.12(a), shall be adjusted
to the nearest full cent, with any fractional cent equal to .5 being rounded to
the next highest full cent.
(b) If the Partnership Cash Merger Consideration shall be adjusted
pursuant to Section 1.12(a), the Partnership Unit Merger Consideration shall be
equal that number of ERP Units determined by dividing (i) the Partnership Cash
Merger Consideration, as adjusted pursuant to (a) above, by (ii) $46.00.
ARTICLE 2
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REPRESENTATIONS AND WARRANTIES OF GROVE AND GROVE OP
----------------------------------------------------
Except as set forth in the letter of even date herewith signed by the
Chief Financial Officer of Grove in his capacity as such and delivered to ERP
prior to the execution hereof (the "Grove Disclosure Letter"), Grove and Grove
OP represent and warrant to ERP as follows:
2.1 ORGANIZATION, STANDING AND POWER OF GROVE AND GROVE OP. (a) Grove
is a real estate investment trust duly organized and validly existing under the
laws of Maryland and has the requisite trust power and authority to carry on its
business as now being conducted. Grove is duly qualified or licensed to do
business as a foreign trust and is in good standing in each jurisdiction in
which the nature of its business or the ownership or leasing of its properties
makes such qualification or licensing necessary, other than in such
jurisdictions where the failure to be so qualified or licensed, individually or
in the aggregate, would not have a material adverse effect on the business,
properties, assets, financial condition or results of operations of Grove and
the Grove Subsidiaries (as defined below) taken as a whole (a "Grove Material
Adverse Effect"). Schedule 2.1 to the Grove Disclosure Letter sets forth each
jurisdiction in which Grove is qualified or licensed to do business, as well as
all assumed names under which
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Grove conducts business in such jurisdictions. Grove has previously delivered to
ERP complete and correct copies of its Third Amended and Restated Declaration of
Trust (the "Grove Declaration") and Bylaws and the Agreement of Limited
Partnership of Grove OP (the "Grove OP Agreement"), in each case, as amended or
supplemented to the date of this Agreement.
(b) Grove OP is a limited partnership duly formed, validly
existing and in good standing under the laws of the State of Delaware, and has
the requisite partnership power and authority to carry on its business as now
being conducted. Grove OP is duly qualified or licensed to do business as a
foreign limited partnership and is in good standing in each jurisdiction in
which the nature of its business or the ownership or leasing of its properties
makes such qualification or licensing necessary, other than in such
jurisdictions where the failure to be so qualified or licensed, individually or
in the aggregate, would not have a Grove Material Adverse Effect. Schedule 2.1
to the Grove Disclosure Letter sets forth each jurisdiction in which Grove OP is
qualified or licensed to do business, as well as all assumed names under which
Grove OP conducts business in such jurisdictions.
2.2 GROVE SUBSIDIARIES. Except as otherwise provided in the Grove
Disclosure Letter:
(a) Schedule 2.2 to the Grove Disclosure Letter sets forth:
(i) each Subsidiary of Grove;
(ii) the legal form of each Grove Subsidiary, including the state
or country of formation;
(iii) the identity and ownership interest of each owner of such
Grove Subsidiary, including but not limited to the amount, class or series and
terms of securities of such Grove Subsidiary owned by such owner;
(iv) each apartment community and/or other real estate properties
owned or under contract to be purchased by each Grove Subsidiary, and separately
setting forth each apartment community currently under development, if any;
(v) each jurisdiction in which each Grove Subsidiary is qualified
or licensed to do business; and
(vi) each assumed name under which each Grove Subsidiary conducts
business in any jurisdiction.
As used in this Agreement, "Subsidiary" of any Person means any corporation,
partnership, limited liability company, joint venture or other legal entity of
which such Person (either directly or through or together with another
Subsidiary of such Person) owns any of the capital stock or other equity
interests of such corporation, partnership, limited liability company, joint
venture or other legal entity. As used herein, "Person" means an individual,
corporation, partnership, limited liability company, joint venture, association,
trust, unincorporated organization or any other legal entity. Without limiting
the foregoing, for all purposes of this Agreement, Grove OP shall be considered
a Subsidiary of Grove.
(b) All the outstanding shares of capital stock of each Grove
Subsidiary that is a corporation have been validly issued and are (A) fully paid
and nonassessable, (B) owned by Grove or by another Grove Subsidiary, and (C)
owned free and clear of all pledges, claims, liens, charges, encumbrances and
security interests of any kind or nature whatsoever (collectively, "Liens"), and
all equity interests in each Grove Subsidiary that is a partnership, joint
venture, limited liability company or trust which are owned by Grove, by another
Grove Subsidiary or by Grove and another Grove Subsidiary are owned free and
clear of all Liens. Each Grove Subsidiary that is a corporation is duly
incorporated and validly existing under the laws of its jurisdiction of
incorporation and has the requisite corporate power and authority to carry on
its business as now being conducted, and each Grove Subsidiary that is a
partnership, limited liability company or trust is duly organized and validly
existing under the laws of its jurisdiction of organization and has the
requisite power and authority to carry on its business as now
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being conducted. Each Grove Subsidiary is duly qualified or licensed to do
business and, with respect to each Grove Subsidiary that is a corporation, is in
good standing in each jurisdiction in which the nature of its business or the
ownership or leasing of its properties makes such qualification or licensing
necessary, other than in such jurisdictions where the failure to be so qualified
or licensed, individually or in the aggregate, would not have a Grove Material
Adverse Effect. True and correct copies of the articles or certificate of
incorporation, articles of organization, bylaws, partnership agreements, joint
venture and operating agreements or similar organizational documents of each
Grove Subsidiary, as amended to the date of this Agreement, have been previously
delivered to ERP.
(c) Grove Corporation, a Delaware corporation ("Grove Corp."), (i)
has no material assets or liabilities, (ii) carries on no material operations
and (iii) is, and has been since its formation, wholly owned by certain
executive officers of Grove. Schedule 2.2 to the Grove Disclosure Letter sets
forth each Affiliate (as defined herein) of Grove or any Grove Subsidiary
(excluding individuals, Grove Corporation and Grove Subsidiaries), the legal
form and ownership structure of such Affiliate. As used in this Agreement, the
term "Affiliate" shall have the same meaning as such term is defined in Rule 405
promulgated under the Securities Act of 1933, as amended (the "Securities Act").
(d) The process by which Grove merged, converted or otherwise
restructured certain Grove Subsidiaries in October 1999 and December 1999 which,
prior to such dates, were not wholly-owned (directly or indirectly) by Grove,
into single member limited liability companies wholly-owned (directly or
indirectly) by Grove or Grove OP (the "Consolidation") conformed in all respects
with all applicable laws and regulations. Prior to the date hereof, Grove has
delivered to ERP true and correct copies of all documents pertaining to the
Consolidation.
(e) Schedule 2.2 to the Grove Disclosure Letter sets forth all of
the assets and liabilities as of June 30, 2000 of the Grove Subsidiaries subject
to the Retail Sale Agreement (as defined below).
2.3 CAPITAL STRUCTURE.
(a) As of the date hereof, the authorized shares of beneficial
interest of Grove consist of (i) 34,000,000 Grove Common Shares, of which
8,301,604 were issued and outstanding (including any Grove Common Shares issued
pursuant to Restricted Share Grants (as defined below) but excluding any Grove
Common Shares owned by Grove OP); and (ii) 1,000,000 Preferred Shares, $0.01 par
value per share (the "Grove Preferred Shares", and, collectively with the Grove
Common Shares, the "Grove Shares"), none of which was issued or outstanding. As
of the date hereof, (i) 111,032 Grove Common Shares were reserved for issuance
but not issued under Grove's 1994 Share Option Plan (the "1994 Plan"); (ii)
1,308,860 Grove Common Shares were reserved for issuance but not issued under
Grove's 1996 Share Incentive Plan (the "1996 Plan"); and (iii) 3,896,910 Grove
Common shares have been reserved for issuance upon the exchange of Grove LP
Units. On the date hereof, except as set forth in this Section 2.3 or Schedule
2.3 of the Grove Disclosure Letter, no Grove Shares or other voting securities
of Grove were issued, reserved for issuance or outstanding.
(b) Set forth in Schedule 2.3 of the Grove Disclosure Letter is a
true and complete list as of the date hereof of the following: (i) each Grove
Option granted and outstanding under the 1994 Plan, 1996 Plan or otherwise and a
total thereof; and (ii) each grant of Grove Shares to employees or trust
managers of Grove which are subject to any risk of forfeiture, and the plan
pursuant to which such grants were made, if any, ("Restricted Share Grants") and
a total thereof. The Restricted Share Grants are included in the number of
outstanding Grove Shares set forth in Section 2.3(a). Grove has no obligation to
issue any Grove Shares as a result of the transactions contemplated hereby
("Change in Control Share Grants"). For each Grove Option held by the executive
officers of Grove, Schedule 2.3 of the Grove Disclosure Letter sets forth as of
the date hereof, the name of the grantee, the date of the grant, status of the
option as qualified or nonqualified under Section 422 of the Code, the number of
Grove Shares subject to such option, the number of shares subject to options
that are currently exercisable, the exercise price per share, those options
granting reload options, and the number of such shares subject to share
appreciation rights. For each Grove Option held by employees of Grove or any of
the Grove Subsidiaries who are not executive officers of Grove, Schedule 2.3 to
the Grove Disclosure Letter sets forth as of the date hereof the name of the
grantee, the date of the grant, the number of Grove Shares subject to such
option, the exercise price per share and the
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vesting schedule. For each Restricted Share Grant, Schedule 2.3 of the Grove
Disclosure Letter sets forth as of the date hereof the name of the grantee, the
date of the grant, the number of Grove Shares granted and the vesting schedule.
On the date of this Agreement, except as set forth in Section 2.3(a) or Schedule
2.3 of the Grove Disclosure Letter, no Grove Shares or other voting securities
of Grove were issued, reserved for issuance, or outstanding.
(c) All outstanding Grove Shares are duly authorized, validly
issued, fully paid and nonassessable and not subject to preemptive rights. There
are no bonds, debentures, notes or other indebtedness of Grove, or assets of any
other entities, exchangeable into Grove Shares having the right to vote on any
matters on which shareholders of Grove may vote.
(d) As of the date hereof, 12,198,514 Partnership Units (as
defined in the Grove OP Agreement) of Grove OP ("Grove OP Units") are duly and
validly issued, of which 8,301,604 are held by Grove and 3,896,910 are held by
Limited Partners. Schedule 2.3(d) to the Grove Disclosure Letter sets forth the
name of each Limited Partner and the number of Grove LP Units owned by each such
Limited Partner in each case as of the date of this Agreement. The Grove OP
Units are subject to no restrictions except as set forth in the Grove OP
Agreement or in Schedule 2.3 to the Grove Disclosure Letter. Except as provided
in the Grove OP Agreement or in Schedule 2.3 to the Grove Disclosure Letter,
Grove OP has not issued or granted or is a party to any outstanding commitments
of any kind relating to, or any presently effective agreements or understandings
with respect to, the issuance or sale of interests in Grove OP, whether issued
or unissued, or securities convertible or exchangeable into interests in Grove
OP or Grove, except as contemplated by this Agreement.
(e) Except as set forth in this Section 2.3 or in Schedule 2.3 of
the Grove Disclosure Letter, as of the date of this Agreement there are no
outstanding securities, options, warrants, calls, rights, commitments,
agreements, arrangements or undertakings of any kind to which Grove or any Grove
Subsidiary is a party or by which such entity is bound, obligating Grove or any
Grove Subsidiary to issue, deliver or sell, or cause to be issued, delivered or
sold, additional shares of capital stock, voting securities or other ownership
interests of Grove or any Grove Subsidiary or obligating Grove or any Grove
Subsidiary to issue, grant, extend or enter into any such security, option,
warrant, call, right, commitment, agreement, arrangement or undertaking.
(f) Except as set forth in Schedule 2.3 of the Grove Disclosure
Letter, all dividends or distributions on Grove Shares and Grove LP Units which
have been authorized or declared prior to the date of this Agreement have been
paid in full.
2.4 OTHER INTERESTS AND SALE OBLIGATIONS. Except as set forth in
Schedule 2.2 or 2.4 of the Grove Disclosure Letter, neither Grove nor any Grove
Subsidiary owns directly or indirectly any interest or investment (whether
equity or debt) in any corporation, partnership, limited liability company,
joint venture, business trust or entity (other than investments in short-term
investment securities) or has any right or obligation (whether current or
contingent) to acquire such an interest. With respect to such interests, except
as set forth in Schedule 2.2 or 2.4 to the Grove Disclosure Letter, Grove and
each such Grove Subsidiary owns such interests which are owned by it free and
clear of all liens, pledges, security interests, claims, options or other
encumbrances. Neither Grove nor any of the Grove Subsidiaries is in breach in
any material respect of any provision of any agreement, document or contract
governing its rights in or to the interests owned or held by it, all of which
agreements, documents and contracts are (a) set forth on the Grove Disclosure
Letter, (b) unmodified except as described therein and (c) in full force and
effect. To the Knowledge of Grove (as defined in Section 2.26), the other
parties to such agreements, documents or contracts are not in any material
breach of any of their respective obligations under such agreements, documents
or contracts.
2.5 AUTHORITY; NONCONTRAVENTION; CONSENTS.
(a) Grove and Grove OP each have the requisite power and authority
to enter into this Agreement and, subject (i) in Grove's case, to the
affirmative vote of holders of at least two-thirds of the outstanding Grove
Common Shares entitled to vote thereon to approve the Company Merger (the "Grove
Shareholder Approvals") and (ii) in Grove OP's case, to the affirmative vote of
holders of at least two-thirds of the outstanding
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Grove OP Units, including the Grove OP Units beneficially owned by Grove and the
Grove Subsidiaries, to approve this Agreement and the transactions contemplated
hereby (the "Grove Partner Approvals" and, together with the Grove Shareholder
Approvals, the "Grove Approvals"), to consummate the transactions contemplated
by this Agreement to which Grove or Grove OP is a party. The execution and
delivery of this Agreement by Grove and Grove OP and the consummation by Grove
and Grove OP of the transactions contemplated by this Agreement have been duly
authorized by all necessary action on the part of Grove or any Grove Subsidiary,
subject to the Grove Approvals. This Agreement has been duly executed and
delivered by Grove and Grove OP and constitutes a valid and binding obligation
of Grove and Grove OP, enforceable against Grove and Grove OP in accordance with
its terms, subject to applicable bankruptcy, insolvency, moratorium or other
similar laws relating to creditors' rights and general principles of equity.
(b) Except as set forth in Schedule 2.5 to the Grove Disclosure
Letter, the execution and delivery of this Agreement by Grove and Grove OP do
not, and, except as set forth in Schedule 2.5 or Schedule 2.30 to the Grove
Disclosure Letter, the consummation of the transactions contemplated by this
Agreement by Grove and Grove OP and compliance by Grove and Grove OP with the
provisions of this Agreement will not, conflict with, or result in any violation
of, or default (with or without notice or lapse of time, or both) under, or give
rise to a right of termination, cancellation, forfeiture, obligation to sell or
convey (with or without a right to receive consideration therefor) or
acceleration of any material obligation or the loss of a material benefit under,
or result in the creation of any Lien upon any of the properties or assets of
Grove or any Grove Subsidiary under, (i) the Declaration of Trust or the Bylaws
of Grove or the comparable charter or organizational documents or partnership or
similar agreement (as the case may be) of any Grove Subsidiary, in each case as
amended or supplemented to the date of this Agreement, (ii) any loan or credit
agreement, note, bond, mortgage, indenture, reciprocal easement agreement,
employment or consulting agreement, lease or other agreement, instrument,
permit, concession, franchise or license to which Grove or any Grove Subsidiary
is a party or their respective properties or assets are bound or (iii) subject
to the governmental filings and other matters referred to in the following
sentence, any judgment, order, decree, statute, law, ordinance, rule or
regulation (collectively, "Laws") applicable to Grove or any Grove Subsidiary,
or their respective properties or assets, other than, in the case of clause (ii)
or (iii), any such conflicts, violations, defaults, rights, loss or Liens that
individually or in the aggregate would not (x) result in fees or other payments
in excess of $250,000 or the conveyance or forfeiture of any asset (tangible or
intangible) or right having a book value in excess of $250,000 or (y) prevent
the consummation of the transactions contemplated by this Agreement. Except as
set forth on Schedule 2.5 to the Grove Disclosure Letter, no consent, approval,
order or authorization of, or registration, declaration or filing with, any
federal, state or local government or any court, administrative or regulatory
agency or commission or other governmental authority or agency, domestic or
foreign (a "Governmental Entity"), is required by or with respect to Grove or
any Grove Subsidiary in connection with the execution and delivery of this
Agreement by Grove or the consummation by Grove of the transactions contemplated
by this Agreement, except for (i) the filing with the Securities and Exchange
Commission (the "SEC") of (x) a proxy statement relating to the Grove
Shareholder Approvals (as amended or supplemented from time to time, the "Proxy
Statement") and (y) such reports under Section 13(a) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), as may be required in connection
with this Agreement and the transactions contemplated by this Agreement, (ii)
the acceptance for record of the Company Articles of Merger by the Maryland
Department, (iii) the acceptance for record of the Partnership Certificate of
Merger by the Delaware Secretary and (iv) such other consents, approvals,
orders, authorizations, registrations, declarations and filings, including,
without limitation, any consents, approvals, orders, authorizations,
registrations, declarations and filings required by the United States Department
of Housing and Urban Development ("HUD"), the Massachusetts Housing Finance
Authority ("MHFA") or similar agencies, (A) as are set forth in Schedule 2.5 to
the Grove Disclosure Letter, (B) as may be required under federal, state or
local environmental laws, or (C) which, if not obtained or made, would not
prevent or delay in any material respect the consummation of any of the
transactions contemplated by this Agreement or otherwise prevent Grove or any
Grove Subsidiary from performing its obligations under this Agreement in any
material respect or have, individually or in the aggregate, a Grove Material
Adverse Effect.
(c) For purposes of determining compliance with the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the
"Hart-Scott Act"), Grove confirms that the conduct of its business does not
require a filing under the Hart-Scott Act in connection with the Mergers.
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2.6 SEC DOCUMENTS; FINANCIAL STATEMENTS; UNDISCLOSED LIABILITIES.
(a) Except as indicated on Schedule 2.6 to the Grove Disclosure
Letter, Grove has filed all required reports, schedules, forms, statements and
other documents with the SEC since January 1, 1995 through the date hereof (the
"Grove SEC Documents") on a timely basis. Schedule 2.6 of the Grove Disclosure
Letter contains a complete list (without exhibits) of all Grove SEC Documents
filed by Grove with the SEC since January 1, 1995 and on or prior to the date of
this Agreement. All of the Grove SEC Documents (other than preliminary
material), as of their respective filing dates, or as of the date of the last
amendment thereof (if amended after filing), complied in all material respects
with all applicable requirements of the Securities Act, and the Exchange Act
and, in each case, the rules and regulations promulgated thereunder applicable
to such Grove SEC Documents. None of the Grove SEC Documents at the time of
filing contained any untrue statement of a material fact or omitted to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading, except to the extent such statements have been modified or
superseded by later Grove SEC Documents filed on a non-confidential basis prior
to the date of this Agreement. The consolidated financial statements of Grove
included in the Grove SEC Documents complied as to form in all material respects
with applicable accounting requirements and the published rules and regulations
of the SEC with respect thereto, have been prepared in accordance with
accounting principles generally accepted in the United States ("GAAP") (except,
in the case of unaudited statements, as permitted by the applicable rules and
regulations of the SEC) applied on a consistent basis during the periods
involved (except as may be indicated therein or in the notes thereto) and fairly
presented, in accordance with the applicable requirements of GAAP and the
applicable rules and regulations of the SEC, in all material respects, the
consolidated financial position of Grove and the consolidated Grove
Subsidiaries, taken as a whole, as of the dates thereof and the consolidated
results of operations and cash flows for the periods then ended (subject, in the
case of unaudited statements, to normal year-end audit adjustments, any other
adjustments described therein and the fact that certain information and notes
have been condensed or omitted in accordance with the Exchange Act). Schedule
2.6 of the Grove Disclosure Letter sets forth all Grove Subsidiaries which are
not consolidated for accounting purposes as of the date hereof. Except for
liabilities and obligations set forth in the Grove SEC Documents or in Schedule
2.6 to the Grove Disclosure Letter, neither Grove nor any of the Grove
Subsidiaries has any liabilities or obligations of any nature (whether accrued,
absolute, contingent or otherwise) required by GAAP to be set forth on a
consolidated balance sheet of Grove or in the notes thereto and which,
individually or in the aggregate, would have a Grove Material Adverse Effect,
after taking into account any assets acquired or services provided in connection
with the incurrence of such liabilities or obligations.
(b) Grove has at all times been in material compliance with the
rules and regulations of the American Stock Exchange ("AMEX").
(c) At no time has Grove OP or any other Grove Subsidiary been
subject to the reporting requirements of Sections 13 or 15(d) of the Exchange
Act.
2.7 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed in the
Grove SEC Documents or Schedule 2.7 to the Grove Disclosure Letter, since the
date of the most recent audited financial statements included in the Grove SEC
Documents (the "Grove Financial Statement Date") Grove and the Grove
Subsidiaries have conducted their business only in the ordinary course (taking
into account prior practices, including the acquisition of properties and
issuance of securities) and there has not been (a) any material adverse change
in the business, financial condition or results of operations of Grove and the
Grove Subsidiaries taken as a whole (a "Grove Material Adverse Change"), nor has
there been any occurrence or circumstance that with the passage of time would
reasonably be expected to result in a Grove Material Adverse Change, (b) except
(i) prior to the date hereof, regular quarterly dividends or distributions (in
the case of Grove and Grove OP) not in excess of $0.18 per Grove Common Share
and Grove OP Unit with customary record and payment dates and (ii) subsequent to
the date hereof, in accordance with Section 5.9, any declaration, setting aside
or payment of any dividend or other distribution (whether in cash, stock or
property) with respect to any Grove Shares and Grove OP Units, (c) any split,
combination or reclassification of any Grove Shares or any issuance or the
authorization of any issuance of any other securities in respect of, in lieu of
or in substitution for, or giving the right to acquire by exchange or exercise,
shares of its beneficial interest or any issuance of an ownership interest in,
any Grove Subsidiary except as contemplated by this Agreement, (d) any damage,
destruction or loss, whether or not covered by insurance, that has or would have
a
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Grove Material Adverse Effect, (e) any change made prior to the date of this
Agreement in accounting methods, principles or practices by Grove or any Grove
Subsidiary materially affecting its assets, liabilities or business, except
insofar as may have been disclosed in Grove SEC Documents or required by a
change in GAAP or (f) any amendment of any employment, consulting, severance,
retention or any other agreement between Grove and any officer or trust manager
of Grove.
2.8 LITIGATION. Except as disclosed in the Grove SEC Documents,
Schedule 2.8 or Schedule 2.9 to the Grove Disclosure Letter, and other than
personal injury and other routine tort litigation arising from the ordinary
course of operations of Grove and the Grove Subsidiaries (a) which are covered
by adequate insurance or (b) for which all material costs and liabilities
arising therefrom are reimbursable pursuant to common area maintenance or
similar agreements, there is no suit, action or proceeding pending or, to the
Knowledge of Grove, threatened against or affecting Grove or any Grove
Subsidiary that, individually or in the aggregate, could reasonably be expected
to have a Grove Material Adverse Effect, nor is there any judgment, decree,
injunction, rule or order of any Governmental Entity or arbitrator outstanding
against Grove or any Grove Subsidiary having, or which could reasonably be
expected to have, any such effect. Notwithstanding the foregoing, (y) Schedule
2.8 to the Grove Disclosure Letter sets forth each and every claim involving a
potential dollar cost to Grove in excess of $50,000 and each and every equal
employment opportunity claim and claim relating to sexual harassment and/or
discrimination pending or, to the Knowledge of Grove, threatened as of the date
hereof, in each case with a brief summary of such claim or threatened claim and
(z) no claim is pending or has been made since January 1, 1995 under any
trustees', directors' or officers' liability insurance policy maintained at any
time by Grove or any of the Grove Subsidiaries. There is no suit, action or
proceeding pending, or to the Knowledge of Grove, threatened, against Grove or
any Grove Subsidiary which challenges, states a cause of action grounded in, or
seeks damages in respect of, the transactions contemplated by this Agreement.
2.9 PROPERTIES.
(a) Schedule 2.9 to the Grove Disclosure Letter identifies all
real property owned or leased by Grove and the Grove Subsidiaries and the Grove
Subsidiary or Subsidiaries which owns or leases such real property (the "Grove
Properties"). Except as provided in Schedule 2.9 of the Grove Disclosure Letter,
Grove or the Grove Subsidiary set forth on Schedule 2.2 of the Grove Disclosure
Letter owns fee simple title to their respective Grove Properties. All such
properties are owned in each case free and clear of liens, mortgages or deeds of
trust, claims against title, charges which are liens, security interests or
other encumbrances on title securing monetary obligations ("Encumbrances")
(except as provided below). Except as set forth in Schedule 2.2, Schedule 2.18
or Schedule 2.9 of the Grove Disclosure Letter, no other Person has any
ownership interest in any of the Grove Properties, and any such ownership
interest so scheduled does not materially detract from the value of, or
materially interfere with the present use of, any of the Grove Properties
subject thereto or affected thereby. The Grove Properties are not subject to any
rights of way, written agreements, laws, ordinances and regulations affecting
building use or occupancy, or reservations of an interest in title
(collectively, "Property Restrictions") or other Encumbrances, except for (i)
Encumbrances and Property Restrictions set forth in the Grove Disclosure Letter,
(ii) Property Restrictions imposed or promulgated by law or any governmental
body or authority with respect to real property, including zoning regulations,
provided they do not materially adversely affect the current use of any Grove
Property, (iii) Encumbrances and Property Restrictions disclosed on existing
title reports or existing surveys (in either case copies of which title reports
and surveys have been delivered or made available to ERP), which Encumbrances
and Property Restrictions disclosed in Schedule 2.9 to the Grove Disclosure
Schedule or contained in the previously delivered title reports, in any event,
do not materially interfere with the present use of, any of the Grove Properties
subject thereto or affected thereby (provided that Grove specifically represents
and warrants that any Encumbrances identified on any existing title report as
securing any Indebtedness, other than the Indebtedness identified on Schedule
2.18 of the Grove Disclosure Letter, has been released of record since the date
of the title report in question), (iv) real estate taxes and assessments which
constitute a Lien but are not yet due and payable and (v) mechanics', carriers',
workmen's, repairmen's liens, other Encumbrances and Property Restrictions
(other than Encumbrances and Property Restrictions contained in any agreement of
the type described in Section 2.9(j) and disclosed on Schedule 2.9 to the Grove
Disclosure Letter), if any, which, individually or in the aggregate, do not
materially detract from the value of or materially interfere with the present
use of any of the Grove Properties subject thereto or affected thereby, and do
not otherwise materially impair business operations conducted by Grove
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and the Grove Subsidiaries, taken as a whole. Except as disclosed in Schedule
2.9 of the Grove Disclosure Letter, no portion of any of the Grove Properties is
located in a flood zone area for which flood insurance is available under a
federally sponsored insurance program except for that which, individually or in
the aggregate, do not materially detract from the value of or materially
interfere with the present use of such Grove Property subject thereto or
affected thereby. Schedule 2.9 lists each of the Grove Properties which is under
development as of the date of this Agreement.
(b) Except as provided in Schedule 2.9 to the Grove Disclosure
Letter, valid policies of title insurance (each a "Grove Title Insurance
Policy") have been issued insuring Grove's or the applicable Grove Subsidiary's
fee simple title to the Grove Properties, subject only to the matters disclosed
above and on the Grove Disclosure Letter, and such policies are, at the date
hereof, in full force and effect and no claim has been made against any such
policy. A true and correct copy of each Grove Title Insurance Policy has been
previously delivered to ERP.
(c) Except as provided in Schedule 2.9 to the Grove Disclosure
Letter or in Grove's capital budget attached to the Grove Disclosure Letter (the
"Grove Capital Budget"), Grove has no Knowledge (i) that, any certificate,
permit or license from any governmental authority having jurisdiction over any
of the Grove Properties or any agreement, easement or other right which is
necessary to permit the lawful use and operation of the buildings and
improvements on any of the Grove Properties or which is necessary to permit the
lawful current use and operation of all driveways, roads and other means of
egress and ingress to and from any of the Grove Properties has not been obtained
and is not in full force and effect, or of any pending threat of modification or
cancellation of any of same; (ii) of any written notice of any violation of any
federal, state or municipal law, ordinance, order, regulation or requirement
materially and adversely affecting any of the Grove Properties issued by any
governmental authority; (iii) of any material structural defects relating to any
Grove Property which costs more than $75,000 to repair; (iv) of any Grove
Property whose building systems are not in working order in any material respect
and costs more than $75,000 to repair; (v) of any physical damage to any Grove
Property in excess of $75,000 for which there is no insurance in effect covering
the cost of the restoration; (vi) of any current renovation or uninsured
restoration underway to any Grove Property the cost of which exceeds $75,000; or
(vii) of items referred to in Section 2.9(c)(iii)-(vi) which aggregate for Grove
and the Grove Subsidiaries more than $1,000,000.
(d) Except as set forth in Schedule 2.9 to the Grove Disclosure
Letter, neither Grove nor any of the Grove Subsidiaries has received any written
notice to the effect that (i) any condemnation or rezoning proceedings are
pending or threatened with respect to any of the Grove Properties or (ii) any
zoning, building or similar law, code, ordinance, order or regulation is or will
be violated in any material respect for any property by the continued
maintenance, operation or use of any buildings or other improvements on any of
the Grove Properties in accordance with current practice or by the continued
maintenance, operation or use of the parking areas.
(e) Except as set forth in Schedule 2.9 to the Grove Disclosure
Letter, all of the Grove Properties are managed by Grove or a wholly-owned Grove
Subsidiary.
(f) The rent roll for the Grove Properties as of April 30, 2000
has been previously delivered to ERP, and is complete and correct in all
material respects as of the date thereof (the "Rent Roll"). The Rent Roll lists
each lease with respect the Grove Properties, identifies the leased premises,
names all tenants, indicates square footage or other indication of space leased,
monthly rental, date to which paid, term of lease, date of occupancy and date of
expiration.
(g) Except as set forth in Schedule 2.9 to the Grove Disclosure
Letter, all work required to be performed, payments required to be made and
actions required to be taken prior to the date hereof pursuant to any agreement
entered into with a governmental body or authority in connection with a site
approval, zoning reclassification or other similar action relating to any Grove
Properties (e.g., local improvement district, road improvement district,
environmental mitigation) have been performed, paid or taken, as the case may
be, other than those where, individually or in the aggregate with any other
condition or omission resulting in a breach of the representations and
warranties set forth in this Section 2.9, the failure would not have a Grove
Material Adverse Effect, and Grove has no Knowledge of any material work,
payments or actions that are required after the date
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hereof pursuant to such agreements, except as set forth in development or
operating budgets for such Grove Properties delivered to ERP prior to the date
hereof.
(h) Grove and each of the Grove Subsidiaries have good and
sufficient title to all their personal and non-real properties and assets
reflected in their books and records as being owned by them (including those
reflected in the consolidated balance sheet of Grove as of December 31, 1999,
except as since sold or otherwise disposed of in the ordinary course of
business), free and clear of all liens and encumbrances, except such
Encumbrances reflected on Schedule 2.18 or Schedule 2.9 to the Grove Disclosure
Letter or on the consolidated balance sheet of Grove as of December 31, 1999,
and the notes thereto, and except for Liens for current taxes not yet due and
payable, and Liens or encumbrances which are normal to the business of Grove and
the Grove Subsidiaries and are not, in the aggregate, material in relation to
the assets of Grove on a consolidated basis and except also for such
imperfections of title, easement and encumbrances, if any, as do not materially
interfere with the present use of the properties subject thereto or affected
thereby, or otherwise materially impair the consolidated business operations of
Grove.
(i) Except as set forth in Schedule 2.9 to the Grove Disclosure
Letter, no Grove Property is currently under development or subject to any
agreement with respect to development, and neither Grove nor any Grove
Subsidiary shall enter into any such agreements between the date hereof and the
Company Merger Effective Time without the prior written approval of ERP.
(j) Schedule 2.9 to the Grove Disclosure Letter sets forth each
Grove Property subject to regulation by HUD, MHFA or similar agency, as well as
any agreements entered into between Grove and any Grove Subsidiary and such
agencies (including, without limitation, any so-called 121A excise tax
agreements). Those certain closing binders delivered to ERP by Grove prior to
the date hereof contain true and correct copies of all such agreements. Grove
and the Grove Subsidiaries have at times been in compliance with all applicable
rules and regulations of, and agreements with, HUD, MHFA or similar agencies.
2.10 ENVIRONMENTAL MATTERS. Grove has delivered to ERP a true and
complete copy of the environmental reports by third-party consulting firms
listed on Schedule 2.10 of the Grove Disclosure Letter (the "Grove Environmental
Reports"). To Grove's Knowledge, the Grove Environmental Reports constitute all
final environmental reports (including, without limitation, all final versions
of environmental investigations and testing or laboratory analysis made by or on
behalf of Grove or any of the Grove Subsidiaries) with respect to the Grove
Properties in the possession of Grove or any Grove Subsidiary. With respect to
each Grove Property, except for any condition that individually or in the
aggregate would not be reasonably expected to have a Grove Material Adverse
Effect, (a) no Hazardous Substances (as defined below) have been used, stored,
manufactured, treated, processed or transported to or from any such Grove
Property except as necessary to the conduct of business and in compliance with
Environmental Laws (as defined below); (b) no unlawful spills, releases,
discharges or disposals of Hazardous Substances have occurred or are presently
occurring on or from such Grove Property; (c) such Grove Property and the
business conducted thereon are not in violation of Environmental Laws; and (d)
Grove and the Grove Subsidiaries have not received and do not reasonably expect
to receive any notice of potential responsibility, letter of inquiry or notice
of alleged liability under any Environmental Law from any Person regarding such
Grove Property or the business conducted thereon, provided, however, that with
respect to any Grove Property covered by an Environmental Report, the
representation contained in this Section 2.10 covers only that period following
the date of such Environmental Report. For the purposes of this Section 2.10
only, "Grove Properties" shall be deemed to include all property formerly owned,
operated or leased by Grove or the Grove Subsidiaries; solely, however, as to
the period of time when such property was so owned, operated, or leased by Grove
or the Grove Subsidiaries.
"Environmental Laws" shall mean any applicable statute, code,
enactment, ordinance, rule, regulation, permit, consent, approval,
authorization, judgment, order, common law rule (including without limitation
the common law respecting nuisance and tortious liability), decree, injunction,
or other requirement having the force and effect of law, whether local, county,
state, territorial or national, at any time in force or effect relating to:
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(l) emissions, discharges, spills, releases or threatened
releases of Hazardous Substances into ambient air, surface water,
groundwater, watercourses, publicly or privately owned treatment works,
drains, sewer systems, wetlands, septic systems or onto land;
(m) the use, treatment, storage, disposal, handling,
manufacturing, transportation or shipment of Hazardous Substances;
(n) the regulation of storage tanks; or
(o) otherwise relating to pollution or the protection the
environment.
"Hazardous Substances" shall mean all substances, wastes, pollutants,
contaminants and materials regulated or defined or designated as hazardous,
extremely or imminently hazardous, dangerous, or toxic pursuant to any law, by
any local, county, state, territorial or federal governmental authority, or with
respect to which such a governmental authority otherwise requires environmental
investigation, monitoring, reporting, or remediation; including, but not limited
to:
(a) all substances, wastes, pollutants, contaminants and materials
regulated, or defined or designated as hazardous, extremely or imminently
hazardous, dangerous or toxic, under the following federal statutes and their
state counterparts, as well as their statutes' implementing regulations: the
Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C.
section 9601 et. seq., the Resource Conservation and Recovery Act, 42 U.S.C.
section 6901 et. seq., the Toxic Substances Control Act, 15 U.S.C. section 2601
et. seq., the Clean Water Act, 33 U.S.C. section 1251 et. seq., the Clean Air
Act, 42 U.S.C. section 7401 et. seq., the Emergency Planning and Community Right
to Know Act, 42 U.S.C. section 11011 et. seq., the Safe Drinking Water Act, 33
U.S.C. section 300f et. seq., the Federal Insecticide, Fungicide, and
Rodenticide Act, 7 U.S.C. section 136 et. seq., and the Hazardous Materials
Transportation Act, 49 U.S.C. section 1501 et. seq.;
(b) petroleum and petroleum products including crude oil and any
fractions thereof;
(c) natural gas, synthetic gas, and any mixtures thereof; and
(d) radon, radioactive substances, asbestos, urea formaldehyde,
polychlorinated biphenyls and electromagnetic field radiation.
2.11 CONSULTANTS AND RELATED PARTY TRANSACTIONS.
(a) Set forth in Schedule 2.11 to the Grove Disclosure Letter is a
list of all arrangements, agreements and contracts entered into by Grove or any
of the Grove Subsidiaries under which continuing obligations exist with (i) any
consultant (other than a consultant entitled to receive less than $15,000 from
Grove or any Grove Subsidiary, provided, however, that if the total amount owed
to consultants by Grove and the Grove Subsidiaries under arrangements,
agreements and contracts not set forth in Schedule 2.11 to the Grove Disclosure
Letter exceeds $100,000, all such agreements shall be set forth in Schedule
2.11), (ii) any person who is an officer, trust manager, trustee, director or
Affiliate of Grove or any of the Grove Subsidiaries, any member of the
"immediate family" (as such term is defined in Item 404 of Regulation S-K
promulgated under the Securities Act) of any of the foregoing or any entity of
which any of the foregoing is an Affiliate or (iii) any person who acquired
Grove Shares in a private placement within three years preceding the date
hereof, except those of a type available to Grove employees generally. To the
extent in writing, such documents, copies of all of which have previously been
delivered or made available to ERP, are listed in Schedule 2.11 to the Grove
Disclosure Letter.
(b) On or prior to the date hereof, (i) a special independent
committee of the Grove Board comprised of all the non-employee trust managers of
Grove (the "Special Committee") has approved that certain agreement by and among
Grove OP, Joseph LaBrosse, Damon Navarro, Brian Navarro and Edmund Navarro and
certain affiliates thereof relating to the transfer by Grove OP of its equity
interests in four retail properties and related assets and liabilities (the
"Retail Sale Agreement") and the transactions contemplated therein, (ii) the
Retail
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Sale Agreement has been duly authorized and executed by the parties thereto and
is enforceable against the parties thereto in accordance with its terms and
(iii) a copy of the Retail Sale Agreement, as executed and delivered and
currently in effect, has been delivered to ERP. The Special Committee has been
duly created and authorized in accordance with Maryland law and has received
such advice, legal counsel and information deemed appropriate by the Special
Committee to carry out its duties in accordance with Maryland and Delaware law.
Schedule 2.11 to the Grove Disclosure Letter sets forth the compensation, if
any, payable to each Grove non-employee trust manager for his service as a
member of the Special Committee.
2.12 EMPLOYEE BENEFITS. As used herein, the term "Employee Plan"
includes any pension, retirement, savings, disability, medical, dental, health,
life, death benefit, group insurance, profit sharing, deferred compensation,
stock option, stock loan, bonus, incentive, vacation pay, tuition reimbursement,
severance pay, or other employee benefit plan, trust, agreement, contract,
arrangement, policy or commitment (including, without limitation, any pension
plan, as defined in Section 3(2) of the Employee Retirement Income Security Act
of 1974, as amended and the rules and regulations promulgated thereunder
("ERISA") ("Pension Plan"), and any welfare plan as defined in Section 3(1) of
ERISA ("Welfare Plan")), whether any of the foregoing is funded, insured or
self-funded, written or oral, (i) sponsored or maintained by Grove or Grove
Subsidiaries (each a "Controlled Group Member") and covering any Controlled
Group Member's active or former employees (or their beneficiaries), (ii) to
which any Controlled Group Member is a party or by which any Controlled Group
Member (or any of the rights, properties or assets thereof) is bound or (iii)
with respect to which any current Controlled Group Member may otherwise have any
material liability (whether or not such Controlled Group Member still maintains
such Employee Plan). Each Employee Plan is listed on Schedule 2.12. With respect
to the Employee Plans:
(a) Except as disclosed in the Grove SEC Documents or in Schedule
2.12 to the Grove Disclosure Letter, no Controlled Group Member
has any continuing liability under any Welfare Plan which provides
for continuing benefits or coverage for any participant or any
beneficiary of a participant after such participant's termination
of employment, except as may be required by section 4980B of the
Code or Section 601 (et seq.) of ERISA, or under any applicable
state law, and at the expense of the participant or the
beneficiary of the participant.
(b) Each Employee Plan complies in all material respects with the
applicable requirements of ERISA and any other applicable law
governing such Employee Plan, and each Employee Plan has at all
times been properly administered in all material respects in
accordance with all such requirements of law, and in accordance
with its terms and the terms of any applicable collective
bargaining agreement to the extent consistent with all such
requirements of law. Each Pension Plan which is intended to be
qualified is qualified under Section 401(a) of the Code, has
received a favorable determination letter from the Internal
Revenue Service (the "IRS") stating that such Plan meets the
requirements of Section 401(a) of the Code and that the trust
associated with such Plan is tax exempt under Section 501(a) of
the Code and no event has occurred which would jeopardize the
qualified status of any such Plan or the tax exempt status of any
such trust under Section 401(a) and Section 501(a) of the Code,
respectively. No lawsuits, claims (other than routine claims for
benefits) or complaints to, or by, any person or governmental
entity have been filed or are pending, Grove has received no
notice of such a lawsuit, claim or complaint and, to the Knowledge
of Grove, there is no fact or contemplated event which would be
expected to give rise to any such lawsuit, claim (other than
routine claims for benefits) or complaint with respect to any
Employee Plan. Without limiting the foregoing, except as disclosed
on Schedule 2.12 to the Grove Disclosure Letter, the following are
true with respect to each Employee Plan:
(i) except for those not yet required to be filed or distributed,
all Controlled Group Members have filed or caused to be filed every material
return, report, statement, notice, declaration and other document required by
any law or governmental agency, federal, state and local (including, without
limitation, the IRS and the Department of Labor), with respect to each such
Employee Plan, each of such filings has been complete and accurate in all
material respects and no Controlled Group Member has incurred any material
liability in connection with such filings;
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(ii) except for those not yet required to be filed or distributed,
all Controlled Group Members have delivered or caused to be delivered to every
participant, beneficiary and other party entitled to such material, all material
plan descriptions, returns, reports, schedules, notices, statements and similar
materials, including, without limitation, summary plan descriptions and summary
annual reports, as are required under Title I of ERISA, the Code, or both, and
no Controlled Group Member has incurred any material liability in connection
with such deliveries;
(iii) all contributions and payments with respect to Employee
Plans that are required to be made by a Controlled Group Member with respect to
periods ending on or before the Closing Date (including periods from the first
day of the current plan or policy year to the Closing Date) have been, or will
be, made or accrued before the Closing Date in accordance with the appropriate
plan document, actuarial report, collective bargaining agreement or insurance
contract or arrangement or as otherwise required by ERISA or the Code;
(iv) with respect to each such Employee Plan, to the extent
applicable, Grove has delivered to ERP true and complete copies of (A) current
plan documents, or any and all other documents that establish the existence of
the current plan, trust, arrangement, contract, policy or commitment and all
amendments thereto, (B) the most recent determination letter, if any, received
from the IRS, (C) the three most recent Form 5500 Annual Report (and all
schedules and reports relating thereto) and actuarial reports and (D) all
related trust agreements, insurance contracts or other funding agreements that
implement each such Employee Plan.
(c) With respect to each Employee Plan, there has not occurred,
and no person or entity is contractually bound to enter into, any
"prohibited transaction" within the meaning of Section 4975(c) of
the Code or Section 406 of ERISA, which transaction is not exempt
under Section 4975(d) of the Code or Section 408 of ERISA.
(d) Except as disclosed in Schedule 2.12A, no Controlled Group
Member has maintained or been obligated to contribute to any
Employee Plan subject to Code Section 412 or Title IV of ERISA.
With respect to each Employee Plan set forth on Schedule 2.12A,
Grove represents that each such Employee Plan has been completely
terminated in accordance with all Code and ERISA requirements for
a "standard termination" (as defined in 4041(b) of ERISA), as
applicable on the termination date.
(e) Except as set forth in Schedule 2.12 to the Grove Disclosure
Letter, with respect to each Pension Plan maintained by any
Controlled Group Member, such Plan provides the Plan Sponsor the
authority to amend or terminate the Pension Plan at any time,
subject to applicable requirements of ERISA and the Code.
(f) Except as disclosed on Schedule 2.12 to the Grove Disclosure
Letter, Grove has no obligation to make payments to any individual
to offset, in whole or in part, any federal or state income taxes,
including taxes imposed pursuant to the provisions of Code
Sections 280G or 4999, and the consummation of the transactions
contemplated by this Agreement will not result in any excise tax
withholding.
2.13 EMPLOYEE MATTERS. Schedule 2.13 of the Grove Disclosure Letter
lists the employee handbooks of Grove and each of the Grove Subsidiaries
currently in effect. A copy of each such employee handbook has previously been
made available to ERP. Except as set forth in Schedule 2.13 of the Grove
Disclosure Letter, such handbooks fairly and accurately summarize all material
employee policies, vacation policies and payroll practices of Grove and the
Grove Subsidiaries. Neither Grove nor any of the Grove Subsidiaries is a party
to, or bound by, any collective bargaining agreement, contract or other
agreement or understanding with a labor union or other labor organization, nor
has Grove or any of the Grove Subsidiaries agreed that any unit of their
employees is appropriate for collective bargaining. No union or other labor
organization has been certified as bargaining representative for any of Grove's
employees. To the Knowledge of Grove there are no organizational efforts with
respect to the formation of a collective bargaining unit presently being made or
threatened involving employees of Grove or any of the Grove Subsidiaries.
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2.14 TAXES.
(a) Each of Grove and the Grove Subsidiaries has filed all tax
returns and reports required to be filed by it (after giving effect to any
filing extension properly granted by a Governmental Entity having authority to
do so) and has paid (or Grove has paid on its behalf) all Taxes (as defined
below) shown or reflected on such returns and reports as required to be paid by
it and all such tax returns are correct in all material respects except (i) as
set forth in Schedule 2.14 to the Grove Disclosure Letter, or (ii) real estate
taxes that are being contested in good faith by appropriate proceedings, each as
described in Schedule 2.14 to the Grove Disclosure Letter, and for which Grove
or the applicable Grove Subsidiary shall have set aside on its books adequate
reserves. Except with respect to any Taxes which might be imposed or assessed
with respect to the matters set forth in Schedule 5.6(d) to the Grove Disclosure
Letter, the most recent audited financial statements contained in the Grove SEC
Documents reflect an adequate reserve for all material Taxes payable or accrued
by Grove and the Grove Subsidiaries for all taxable periods and portions thereof
through the date of such financial statements. Since the Grove Financial
Statement Date, Grove has incurred no liability for Taxes under Sections 857(b),
860(c) or 4981 of the Code, including, without limitation, any Tax arising from
a prohibited transaction described in Section 857(b)(6) of the Code, and neither
Grove nor any Grove Subsidiary has incurred any liability for Taxes other than
in the ordinary course of business. No deficiencies for any Taxes have been
proposed, asserted or assessed pursuant to a "30-day letter" or notice of
deficiency sent by the IRS, or, to the Knowledge of Grove, except as set forth
in Schedule 2.14 of the Grove Disclosure Letter, otherwise proposed, asserted or
assessed against Grove or any of the Grove Subsidiaries. No waivers of the time
to assess any such Taxes have been executed by Grove or any Grove Subsidiary
and, to the Knowledge of Grove, no requests for such waivers are pending. As
used in this Agreement, "Taxes" shall include all federal, state, local and
foreign income, property, sales, franchise, employment, excise and other taxes,
tariffs or governmental charges of any nature whatsoever, together with
penalties, interest or additions to Tax with respect thereto.
(b) Grove (i) has been subject to taxation as a real estate
investment trust (a "REIT") within the meaning of Section 856 of the Code
commencing with the taxable year beginning January 1, 1994, and has satisfied
all requirements to qualify as a REIT for such years, (ii) has operated, and
intends to continue to operate, in such a manner as to qualify as a REIT until
the Company Merger Effective Time and (iii) has not taken or omitted to take any
action which would reasonably be expected to (A) result in any rents paid by the
tenants of the Properties to be excluded from the definition of "rents from real
property" under Section 856(d)(2)(C) of the Code, or (B) otherwise result in a
challenge to its status as a REIT, and no such challenge is pending or, to
Grove's Knowledge, threatened. Each Grove Subsidiary which is a partnership,
joint venture or limited liability company (i) has been since its formation and
continues to be treated for federal income tax purposes as either a partnership
or ignored as a separate entity and not as a corporation or an association
taxable as a corporation, as the case may be, and (ii) has not since its
formation owned any assets (including, without limitation, securities) that
would cause Grove to violate Section 856(c)(4) of the Code. Each Grove
Subsidiary which is a corporation or treated as an association taxable as a
corporation has been since the date of its formation or January 1, 1994
(whichever is later) a qualified REIT subsidiary under Section 856(i) of the
Code. All former Grove Subsidiaries, if such entities had remained Grove
Subsidiaries, would comply with this Section 2.14.
2.15 NO PAYMENTS TO EMPLOYEES, OFFICERS, TRUST MANAGERS OR DIRECTORS.
(a) Set forth in Schedule 2.15 of the Grove Disclosure Letter is a
true and complete list of all cash and non-cash payments, rights to property or
other contract rights which may become payable, accelerated or vested as a
result of the Company Merger or Partnership Merger ("Section 2.15 Payments") to
or in each current or former employee, officer, trustee, trust manager or
director of Grove or any Grove Subsidiary (each a "Section 2.15 Employee").
Except as described Schedule 2.15 to the Grove Disclosure Letter, or as
otherwise provided for in this Agreement, there is no employment or severance
contract, or other agreement requiring payments, cancellation of indebtedness or
other obligation to be made on a change of control or otherwise as a result of
the consummation of any of the transactions contemplated by this Agreement, with
respect to any current or former employee, officer, trust manager, trustee or
director of Grove or any Grove Subsidiary. On or prior to the date hereof, each
executive officer of Grove listed on Schedule 2.15 to the Grove Disclosure
Letter (each a "Grove Executive") has executed an
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amendment to such Grove Executive's employment agreement or arrangement with
Grove or any Grove Subsidiary in the applicable form attached to Schedule 2.15.
(b) Schedule 2.15 to the Grove Disclosure Schedule sets forth (i)
all payments (whether in cash, in equity securities of Grove or any Grove
Subsidiary or otherwise) to be made to or for the account of employees of Grove
or any Grove Subsidiary (except for wages paid in the normal course of business)
which have been authorized and/or accrued but not paid and (ii) all compensation
payments which have been made to any employees listed on Schedule 2.15 to the
Grove Disclosure Letter from January 1, 2000 through July 7, 2000. As of the
date of this Agreement, no compensation payments have been made to Grove
employees since July 6, 2000.
(c) Any Section 2.15 Payment or arrangement or program providing
for Section 2.15 Payments which were authorized, adopted, approved or ratified
after June 12, 2000 have been authorized, adopted, approved or ratified by the
Special Committee, other than the grants of certain Grove Options pursuant to
and in accordance with the 1996 Plan, each of which is disclosed on Schedule
2.15 to the Grove Disclosure Letter.
2.16 BROKERS; SCHEDULE OF FEES AND EXPENSES. Except as disclosed in
Schedule 2.16 to the Grove Disclosure Letter, no broker, investment banker,
financial advisor or other person, other than Houlihan Lokey Howard & Zukin, the
fees and expenses of which have previously been disclosed to ERP, is entitled to
any broker's, finder's, financial advisor's or other similar fee or commission
in connection with the transactions contemplated hereby or any pending
acquisition or disposition by Grove or any Grove Subsidiary based upon
arrangements made by or on behalf of Grove or any Grove Subsidiary. A true and
correct copy of the engagement letter for Houlihan Lokey Howard & Zukin and each
person referred to on Schedule 2.16 has been delivered to ERP prior to the date
hereof.
2.17 COMPLIANCE WITH LAWS. Except as disclosed in the Grove SEC
Documents or in Schedule 2.6 or Schedule 2.17 to the Grove Disclosure Letter,
neither Grove nor any of the Grove Subsidiaries has violated or failed to comply
with any statute, law, ordinance, regulation, rule, judgment, decree or order of
any Governmental Entity applicable to its business, properties or operations,
except to the extent that such violation or failure would not have a Grove
Material Adverse Effect.
2.18 CONTRACTS; DEBT INSTRUMENTS.
(a) To the Knowledge of Grove, except as disclosed in the Grove
SEC Documents or in Schedule 2.18 to the Grove Disclosure Letter, there is no
contract or agreement that purports to limit in any material respect the names
under or the geographic location in which Grove or any Grove Subsidiary may
conduct its business. Neither Grove nor any Grove Subsidiary has received a
written notice that Grove or any Grove Subsidiary is in violation of or in
default under (nor to the Knowledge of Grove does there exist any condition
which upon the passage of time or the giving of notice or both would cause such
a violation of or default under) any material loan or credit agreement, note,
bond, mortgage, indenture, lease, permit, concession, franchise, license or any
other material contract, agreement, arrangement or understanding, to which it is
a party or by which it or any of its properties or assets is bound, except as
set forth in Schedule 2.18 to the Grove Disclosure Letter, nor to the Knowledge
of Grove does such a violation or default exist, except as set forth in Schedule
2.18 to the Grove Disclosure Letter, or to the extent that such violation or
default, individually or in the aggregate, would not have a Grove Material
Adverse Effect.
(b) Schedule 2.18 to the Grove Disclosure Letter sets forth a list
of each loan or credit agreement, note, bond, mortgage, indenture and any other
agreement and instrument pursuant to which any Indebtedness (as defined herein)
of Grove or any Grove Subsidiary is outstanding or may be incurred
(collectively, the "Debt Documents"), as well as, with respect to the
Indebtedness evidenced by each Debt Document, as of July 1, 2000, the
outstanding principal balance, the maturity date, the applicable interest rate
(including the method or formula for calculating any interest that is not a
fixed percentage of the principal balance) and the amount of or the method or
formula for calculating any Equity Participation (as defined herein). For
purposes of this Section 2.18, "Indebtedness" shall mean (i) indebtedness for
borrowed money, whether secured or unsecured, (ii) obligations under conditional
sale or other title retention agreements relating to property purchased by such
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person, (iii) capitalized lease obligations, (iv) obligations under interest
rate cap, swap, collar or similar transaction or currency hedging transactions
(valued at the termination value thereof), (v) obligations to pay any equity
kicker or other participation in the operating cash flow, gross revenue or other
income from the real property or other asset of Grove or any Grove Subsidiary or
in the gross, net or excess sale, financing, refinancing or other capital
proceeds from any such property or other asset (whether or not in connection
with any other Indebtedness) (each an "Equity Participation") and (vi)
guarantees of any such indebtedness of any other person. Grove hereby represents
and warrants that each item of Indebtedness may be assumed by ERP without cost
or penalty, except as set forth in Schedule 2.18 to the Grove Disclosure Letter,
and without the consent of or requirement to obtain the approval or confirmation
as to any matter from the holder of any such Indebtedness or any other person.
For purposes of this Section 2.18, "assumed by ERP" shall mean that, immediately
or after the giving of notice or the passage of time (or both), such
Indebtedness will not, either automatically or upon the exercise of any right or
option of the holder of such Indebtedness or any other person, be accelerated or
become due and payable in whole or in part as a result of the consummation of
the transactions contemplated by this Agreement (including, without limitation,
the Mergers).
(c) Schedule 2.18 to the Grove Disclosure Letter sets forth each
interest rate cap, interest rate collar, interest rate swap, currency hedging
transaction, and any other agreement relating to a similar transaction to which
Grove or any Grove Subsidiary is a party or an obligor with respect thereto.
(d) Except as set forth in Schedule 2.18 to the Grove Disclosure
Letter, neither Grove nor any of the Grove Subsidiaries is party to any
agreement which would restrict any of them from prepaying any of their
Indebtedness without penalty or premium at any time or which requires any of
them to maintain any amount of Indebtedness with respect to any of the Grove
Properties.
(e) Neither Grove nor any of the Grove Subsidiaries is a party to
any agreement relating to the management of any of the Grove Properties by a
party other than Grove or any wholly-owned Grove Subsidiary (a "Third Party"),
except the agreements described in Schedule 2.18 to the Grove Disclosure Letter
(the "Third Party Management Agreements"). A true and complete copy of each
Third Party Management Agreement has previously been delivered to ERP.
(f) None of Grove or any of the Grove Subsidiaries is a party to
any agreement pursuant to which Grove or any Grove Subsidiary manages any real
properties for any Third Party, except for the agreements described in Schedule
2.18 to the Grove Disclosure Letter (the "Outside Management Agreements"). A
true and complete copy of each Outside Management Agreement, if any, has
previously been delivered to ERP.
(g) Schedule 2.18 of the Grove Disclosure Letter lists all
agreements entered into by Grove or any of the Grove Subsidiaries relating to
the development, construction, rehabilitation or renovation of, or additions or
expansions to, any Grove Properties which are currently in effect and under
which Grove or any of the Grove Subsidiaries currently has, or reasonably
expects to incur, an obligation in excess of $125,000. True and correct copies
of such agreements have previously been delivered to ERP.
(h) Schedule 2.18 to the Grove Disclosure Letter lists all
agreements entered into by Grove or any of the Grove Subsidiaries providing for
the sale of, or option to sell, any Grove Properties or the purchase of, or
option to purchase, any real estate which are currently in effect.
(i) Except as set forth in Schedule 2.18 to the Grove Disclosure
Letter, neither Grove nor any Grove Subsidiary has any continuing contractual
liability (i) for indemnification or otherwise under any agreement relating to
the sale of real estate previously owned, whether directly or indirectly, by
Grove or any Grove Subsidiary, except for standard indemnification provisions
entered into in the normal course of business, (ii) to pay any additional
purchase price for any of the Grove Properties, or (iii) to make any
reprorations or adjustments to prorations that may previously have been made
with respect to any property currently or formerly owned by Grove.
(j) Except as set forth in Schedule 2.18 to the Grove Disclosure
Letter, neither Grove nor any Grove Subsidiary has entered into or is subject,
directly or indirectly, to any Tax Protection Agreements. As used herein, a "Tax
Protection Agreement" is an agreement, oral or written, (A) that has as one of
its purposes to
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permit a person or entity to take the position that such person or entity could
defer federal taxable income that otherwise might have been recognized upon a
transfer of property to the Grove Partnership or any other Grove Subsidiary that
is treated as a partnership for federal income tax purposes, and (B) that (i)
prohibits or restricts in any manner the disposition of any assets of Grove or
any Grove Subsidiary (including, without limitation, requiring Grove or any
Grove Subsidiary to indemnify any person for any tax liabilities resulting from
any such disposition), (ii) requires that Grove or any Grove Subsidiary
maintain, or put in place, or replace, indebtedness, whether or not secured by
one or more of the Grove Properties, or (iii) requires that Grove or any Grove
Subsidiary offer to any person or entity at any time the opportunity to
guarantee or otherwise assume, directly or indirectly, the risk of loss for
federal income tax purposes for indebtedness or other liabilities of Grove or
any Grove Subsidiary. A true and correct copy of each Tax Protection Agreement
has been previously delivered to ERP.
(k) Except as set forth in Schedule 2.18 to the Grove Disclosure
Letter, there are no material outstanding contractual obligations of Grove or
any Grove Subsidiary to make any investment in the form of a loan, capital
contribution or otherwise in any Grove Subsidiary or any other Person. True and
correct copies of each such agreement has been delivered to ERP.
2.19 OPINION OF FINANCIAL ADVISOR. Grove has received the opinion of
Houlihan Lokey Howard & Zukin, dated July 14, 2000, satisfactory to Grove, and a
signed copy of which has been provided to ERP, to the effect that (i) the
consideration to be received by the holders of Grove Common Shares pursuant to
the Company Merger and the Limited Partners pursuant to the Partnership Merger
is fair, from a financial point of view, to such holders and Limited Partners,
and (ii) the consideration to be received by Grove OP pursuant to the
transactions contemplated by the Retail Sale Agreement is fair, from a financial
point of view, to Grove OP.
2.20 STATE TAKEOVER STATUTES. Grove has taken all action necessary to
exempt the transactions contemplated by this Agreement between ERP and Grove and
its Affiliates from the operation of Subtitles 6 and 7 of Title 3 of the
Maryland General Corporation Law and any other "fair price," "moratorium,"
"control share acquisition" or any other takeover statute or similar statute
enacted under the state or federal laws of the United States or similar statute
or regulation (each a "Takeover Statute").
2.21 REGISTRATION STATEMENT. The information relating to Grove and the
Grove Subsidiaries included in the Proxy Statement and the registration
statement on Form S-4 under the Securities Act relating to the ERP Units
issuable in the Partnership Merger (the "Registration Statement") will not, as
of the date of mailing of the Proxy Statement and as of the effective date of
the Registration Statement, contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading.
2.22 DEVELOPMENT PROPERTIES. Schedule 2.22 to the Grove Disclosure
Letter lists all agreements entered into by Grove or any of the Grove
Subsidiaries relating to the development or construction of, or additions or
expansions to, any real properties under development for use as rental
properties by Grove or any Grove Subsidiary which are material and currently in
effect.
2.23 INVESTMENT COMPANY ACT OF 1940. Neither Grove nor any of the Grove
Subsidiaries is, or at the Company Merger Effective Time will be, required to be
registered under the Investment Company Act of 1940, as amended (the "1940
Act").
2.24 TRADEMARKS, PATENTS AND COPYRIGHTS. Except as set forth in
Schedule 2.24 to the Grove Disclosure Letter, or to the extent the inaccuracy of
any of the following (or the circumstances giving rise to such inaccuracy)
individually or in the aggregate would not have a Grove Material Adverse Effect,
Grove and each Grove Subsidiary owns or possesses adequate licenses or other
legal rights to use all patents, patent rights, trademarks, trademark rights,
trade names, trade name rights, copyrights, service marks, trade secrets,
applications for trademarks and for service marks, know-how and other
proprietary rights and information used or held for use in connection with the
business of Grove and the Grove Subsidiaries as currently conducted and Grove
has no Knowledge of any assertion or claim challenging the validity of any of
the foregoing. The conduct of the business of Grove and the Grove Subsidiaries
as currently conducted does not and will not infringe in any way any patent,
patent right, license, trademark, trademark right, trade name, trade name right,
service mark, or copyright of any third party that,
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individually or in the aggregate, could have a Grove Material Adverse Effect. To
Grove's Knowledge, there are no infringements of any proprietary rights owned by
or licensed by or to Grove or any Grove Subsidiary that individually or in the
aggregate could have a Grove Material Adverse Effect.
2.25 INSURANCE. Except as set forth on Schedule 2.25 to the Grove
Disclosure Letter, each of Grove and the Grove Subsidiaries is, and has been
continuously since the later of January 1, 1995 or the date upon which Grove
acquired ownership of such Grove Subsidiary, insured with insurers in such
amounts and against such risks and losses as are customary for companies
conducting the business as conducted by Grove and the Grove Subsidiaries during
such time period. Except as set forth on Schedule 2.25 to the Grove Disclosure
Letter, neither Grove nor any Grove Subsidiary has received any written notice
of cancellations or termination with respect to any material insurance policy of
Grove or any Grove Subsidiary. The insurance policies of Grove and each Grove
Subsidiary are valid and enforceable policies in all material respects. Schedule
2.25 sets forth each policy of insurance maintained by Grove and each Grove
Subsidiary, as well as a brief description of the coverage provided, annual
premium, self insured retention or co-payment provisions and deductible(s) for
each such policy.
2.26 DEFINITION OF KNOWLEDGE OF GROVE. As used in this Agreement, the
phrase "to the Knowledge of Grove" (or words of similar import) means the actual
knowledge of those individuals identified in Schedule 2.26 of the Grove
Disclosure Letter.
2.27 VOTE REQUIRED. Except for the Grove Approvals, no other vote or
consent by the equity holders of Grove or any Grove Subsidiary, including, but
not limited to, Grove OP, (whether by agreement, under applicable law or
otherwise) is required to approve this Agreement and the transactions
contemplated hereby, nor shall any such equity holders be entitled to
dissenters' rights or other rights of appraisal in connection with the Grove
Approvals or the consummation of the transactions contemplated by this
Agreement.
2.28 SECURED CREDIT FACILITY. The secured credit facility by and among
Grove, Grove OP and Sovereign Bank may be paid off at or prior to the Company
Merger Effective Time without the incurrence of any fee or penalty other than
fees payable due to a prepayment of a thirty (30) day LIBOR note.
2.29 ASSUMPTION OF SECURED DEBT. The secured debt of Grove may be
assumed by ERP or an ERP Subsidiary pursuant to or in connection with the
Mergers without payment of a fee or penalty in connection with such debt
assumption exceeding, in the aggregate, 1% of the aggregate outstanding balance
of such secured debt as of the date of such assumption.
2.30 CERTAIN FEES. The actual fees and expenses incurred by Grove and
the Grove Subsidiaries in connection with the transactions contemplated by this
Agreement shall not exceed (i) the aggregate estimate of all such fees and
expenses, as set forth on Schedule 2.30 to the Grove Disclosure Letter, or (ii)
to the extent specifically provided on Schedule 2.30, the estimates of the
specific categories of fees and expenses, as set forth on such Schedule.
ARTICLE 3
---------
REPRESENTATIONS AND WARRANTIES OF ERP
Except as set forth in the letter of even date herewith signed by the
President or an Executive Vice President of EQR, the sole general partner of ERP
("EQR"), and delivered to Grove prior to the execution hereof (the "ERP
Disclosure Letter"), ERP represents and warrants to Grove and Grove OP as
follows:
3.1 ORGANIZATION, STANDING AND POWER OF ERP. ERP is authorized and
exists as an Illinois limited partnership under the laws of Illinois and has the
requisite power and authority to carry on its business as now being conducted.
ERP and its Subsidiaries (the "ERP Subsidiaries") are duly qualified or licensed
to do business and are in good standing in each jurisdiction in which the nature
of its business or the ownership or leasing of its properties makes such
qualification or licensing necessary, other than in such jurisdictions where the
failure to be so qualified or licensed, individually or in the aggregate, would
not have a material adverse effect on the business, properties,
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assets, financial condition or results of operations of ERP and the ERP
Subsidiaries taken as a whole ("ERP Material Adverse Effect"). ERP has delivered
to Grove a complete and correct copy of the ERP Agreement, as amended or
supplemented to the date of this Agreement.
3.2 CAPITAL STRUCTURE OF ERP. Schedule 3.2 to the ERP Disclosure Letter
sets forth the number of outstanding ERP Units as of June 30, 2000.
3.3 AUTHORITY; NONCONTRAVENTION; CONSENTS.
(a) ERP has the requisite power and authority to enter into this
Agreement and to consummate the transactions contemplated by this Agreement to
which ERP is a party. The execution and delivery of this Agreement by ERP and
the consummation by ERP of the transactions contemplated by this Agreement to
which ERP is a party have been duly authorized by all necessary action on the
part of ERP. This Agreement has been duly executed and delivered by ERP and
constitutes a valid and binding obligation of ERP, enforceable against ERP in
accordance with its terms, subject to applicable bankruptcy, insolvency,
moratorium or other similar laws relating to creditors' rights and general
principles of equity.
(b) Except as set forth in Schedule 3.3 to the ERP Disclosure
Letter, the execution and delivery of this Agreement by ERP do not, and the
consummation of the transactions contemplated by this Agreement by ERP and
compliance by ERP with the provisions of this Agreement will not, conflict with,
or result in any violation of or default (with or without notice or lapse of
time, or both) under, or give rise to a right of termination, cancellation or
acceleration of any material obligation or the loss of a material benefit under,
or result in the creation of any Lien upon any of the properties or assets of
ERP or any ERP Subsidiary under, (i) the ERP Agreement or the comparable charter
or organizational documents or partnership or similar agreement (as the case may
be) of any other ERP Subsidiary, each as amended or supplemented to the date of
this Agreement, (ii) any loan or credit agreement, note, bond, mortgage,
indenture, reciprocal easement agreement, lease or other agreement, instrument,
permit, concession, franchise or license to which ERP or any ERP Subsidiary is a
party or their respective properties or assets are bound or (iii) subject to the
governmental filings and other matters referred to in the following sentence,
any Laws applicable to ERP or any ERP Subsidiary or their respective properties
or assets, other than, in the case of clause (ii) or (iii), any such conflicts,
violations, defaults, rights, loss or Liens that individually or in the
aggregate would not (x) have an ERP Material Adverse Effect or (y) prevent the
consummation of the transactions contemplated by this Agreement. No consent,
approval, order or authorization of, or registration, declaration or filing
with, any Governmental Entity is required by or with respect to ERP or any ERP
Subsidiary in connection with the execution and delivery of this Agreement or
the consummation by ERP of any of the transactions contemplated by this
Agreement, except for (i) the filing with the SEC of (x) the Registration
Statement and (y) such reports under Section 13(a) of the Exchange Act as may be
required in connection with this Agreement and the transactions contemplated by
this Agreement, (ii) the acceptance for record of the Company Articles of Merger
by the Maryland Department, (iii) the acceptance for record of the Partnership
Certificate of Merger by the Delaware Secretary, (iv) such filings as may be
required in connection with the payment of any transfer and gains taxes and (iv)
such other consents, approvals, orders, authorizations, registrations,
declarations and filings including, without limitation, any consents, approvals,
orders, authorizations, registrations, declarations and filings required by HUD,
MFHA or similar agencies, (A) as are set forth in Schedule 3.3 to the ERP
Disclosure Letter, (B) as may be required under federal, state or local
environmental laws or (C) which, if not obtained or made, would not prevent or
delay in any material respect the consummation of any of the transactions
contemplated by this Agreement or otherwise prevent ERP from performing its
obligations under this Agreement in any material respect or have, individually
or in the aggregate, an ERP Material Adverse Effect.
(c) For purposes of determining compliance with the Hart-Scott
Act, ERP confirms that the conduct of its business does not require a filing
under the Hart-Scott Act in connection with the Mergers.
3.4 SEC DOCUMENTS; FINANCIAL STATEMENTS; UNDISCLOSED LIABILITIES. ERP
has filed all required reports, schedules, forms, statements and other documents
with the SEC since January 1, 1995 through the date hereof (the "ERP SEC
Documents"). All of the ERP SEC Documents (other than preliminary material), as
of their respective filing dates or as of the date of the last amendment thereof
(if amended after filing), complied in all
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material respects with all applicable requirements of the Securities Act and the
Exchange Act and, in each case, the rules and regulations promulgated thereunder
applicable to such ERP SEC Documents. None of the ERP SEC Documents at the time
of filing contained any untrue statement of a material fact or omitted to state
any material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they were
made, not misleading, except to the extent such statements have been modified or
superseded by later ERP SEC Documents filed on a non-confidential basis prior to
the date of this Agreement. The consolidated financial statements of ERP and the
ERP Subsidiaries included in the ERP SEC Documents complied as to form in all
material respects with applicable accounting requirements and the published
rules and regulations of the SEC with respect thereto, have been prepared in
accordance with GAAP (except, in the case of unaudited statements, as permitted
by the applicable rules and regulations of the SEC) applied on a consistent
basis during the periods involved (except as may be indicated therein or in the
notes thereto) and fairly presented, in accordance with the applicable
requirements of GAAP and the applicable rules and regulations of the SEC, in all
material respects, the consolidated financial position of ERP and the ERP
Subsidiaries, taken as a whole, as of the dates thereof and the consolidated
results of operations and cash flows for the periods then ended (subject, in the
case of unaudited statements, to normal year-end audit adjustments, any other
adjustments described therein and the fact that certain information and notes
have been condensed or omitted in accordance with the Exchange Act). Except for
liabilities and obligations set forth in the ERP SEC Documents or in Schedule
3.4 to the ERP Disclosure Letter, neither ERP nor any ERP Subsidiary has any
liabilities or obligations of any nature (whether accrued, absolute, contingent
or otherwise) required by GAAP to be set forth on a consolidated balance sheet
of ERP or in the notes thereto and which, individually or in the aggregate,
would have an ERP Material Adverse Effect, after taking into account any assets
acquired or services provided in connection with the incurrence of such
liabilities or obligations.
3.5 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed in the
ERP SEC Documents or in Schedule 3.5 to the ERP Disclosure Letter, since the
date of the most recent audited financial statements included in the ERP SEC
Documents (the "ERP Financial Statement Date"), ERP and the ERP Subsidiaries
have conducted their business only in the ordinary course (taking into account
prior practices, including the acquisition of properties and issuance of
securities) and there has not been (a) any material adverse change in the
business, financial condition or results of operations of ERP and the ERP
Subsidiaries taken as a whole (an "ERP Material Adverse Change"), nor has there
been any occurrence or circumstance that with the passage of time would
reasonably be expected to result in an ERP Material Adverse Change, (b) except
for regular quarterly distributions (in the case of ERP) with customary record
and payment dates, any declaration, setting aside or payment of any dividend or
other distribution (whether in cash, stock or property) with respect to any of
ERP's partnership interests, (c) any split, combination or reclassification of
any of ERP's partnership interests, (d) any damage, destruction or loss, whether
or not covered by insurance, that has or would have an ERP Material Adverse
Effect, or (e) any change made prior to the date of this Agreement in accounting
methods, principles or practices by ERP or any ERP Subsidiary materially
affecting its assets, liabilities or business, except insofar as may have been
disclosed in the ERP SEC Documents or required by a change in GAAP.
3.6 LITIGATION. Except as disclosed in the ERP SEC Documents or in
Schedule 3.6 to the ERP Disclosure Letter, and other than personal injury and
other routine tort litigation arising from the ordinary course of operations of
ERP and the ERP Subsidiaries (a) which are covered by adequate insurance, or (b)
for which all material costs and liabilities arising therefrom are reimbursable
pursuant to common area maintenance or similar agreements, there is no suit,
action or proceeding pending or, to the Knowledge of ERP, threatened in writing
against or affecting ERP or any ERP Subsidiary that, individually or in the
aggregate, (i) could reasonably be expected to have an ERP Material Adverse
Effect, nor is there any judgment, decree, injunction, rule or order of any
Governmental Entity or arbitrator outstanding against ERP or any ERP Subsidiary
having or which could reasonably be expected to have any such effect, or (ii)
could reasonably be expected to prevent the consummation of any of the
transactions contemplated by this Agreement.
3.7 PROPERTIES.
(a) ERP or one of the ERP Subsidiaries owns fee simple title to
each of the real properties listed in the ERP SEC Filings as owned by it (the
"ERP Properties"), except where the failure to own such title would not have an
ERP Material Adverse Effect.
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(b) The ERP Properties are not subject to any Encumbrances or
Property Restrictions or located in a flood zone area "V" which, individually or
in the aggregate, would cause an ERP Material Adverse Effect.
(c) Valid policies of title insurance have been issued insuring
ERP's or the applicable ERP Subsidiary's fee simple title to the ERP Properties
except where the failure to obtain such title insurance would not have an ERP
Material Adverse Effect.
(d) ERP has no Knowledge (i) that it has failed to obtain a
certificate, permit or license from any governmental authority having
jurisdiction over any of the ERP Properties where such failure would have an ERP
Material Adverse Effect, or of any pending threat of modification or
cancellation of any of the same which would have an ERP Material Adverse Effect,
(ii) of any written notice of any violation of any federal, state or municipal
law, ordinance, order, rule, regulation or requirement affecting any of the ERP
Properties issued by any governmental authorities which would have an ERP
Material Adverse Effect, or (iii) of any structural defects relating to ERP
Properties, ERP Properties whose building systems are not in working order,
physical damage to any ERP Property for which there is no insurance in effect
covering the cost of restoration, any current renovation or uninsured
restoration, except such structural defects, building systems not in working
order, physical damage, renovation and restoration which, in the aggregate,
would not have an ERP Material Adverse Effect.
(e) All work to be performed, payments to be made and actions to
be taken by ERP or the ERP Subsidiaries prior to the date hereof pursuant to any
agreement entered into with a governmental body or authority in connection with
a site approval, zoning reclassification or similar action relating to any ERP
Property (e.g., Local Improvement District, Road Improvement District,
Environmental Mitigation), has been performed, paid or taken, as the case may
be, except where the failure to do so would, in the aggregate, not have an ERP
Material Adverse Effect.
3.8 ENVIRONMENTAL MATTERS. None of ERP, any of the ERP Subsidiaries or,
to ERP's Knowledge, any other Person has caused or permitted (a) the unlawful
presence of any Hazardous Substances on any of the ERP Properties, or (b) any
unlawful spills, releases, discharges or disposal of Hazardous Materials to have
occurred or be presently occurring on or from the ERP Properties as a result of
any construction on or operation and use of the ERP Properties, which presence
or occurrence would, individually or in the aggregate, have an ERP Material
Adverse Effect; and in connection with the construction on or operation and use
of the ERP Properties, ERP and the ERP Subsidiaries have not failed to comply in
any material respect with all applicable Environmental Laws, except to the
extent such failure to comply, individually or in the aggregate, would not have
an ERP Material Adverse Effect.
3.9 TAXES.
(a) Each of ERP and the ERP Subsidiaries has filed all tax returns
and reports required to be filed by it (after giving effect to any filing
extension properly granted by a Governmental Entity having authority to do so)
and has paid (or ERP has paid on its behalf) all Taxes shown or reflected on
such returns and reports as required to be paid by it except where the failure
to file such tax returns or reports and failure to pay such Taxes would not have
an ERP Material Adverse Effect. Since the ERP Financial Statement Date, EQR has
incurred no liability for taxes under Sections 857(b), 860(c) or 4981 of the
Code, including without limitation any tax arising from a prohibited transaction
described in Section 857(b)(6) of the Code, and neither ERP nor any ERP
Subsidiary has incurred any liability for taxes other than in the ordinary
course of business. No deficiencies for any Taxes have been proposed, asserted
or assessed pursuant to a "30-day letter" or notice of deficiency sent by the
IRS, or, to the Knowledge of ERP, otherwise proposed, asserted or assessed
against ERP or any of the ERP Subsidiaries.
(b) EQR (i) for all taxable years commencing with 1992, has been
subject to taxation as a REIT within the meaning of Section 856 of the Code and
has satisfied all requirements to qualify as a REIT for such years, (ii) has
operated, and intends to continue to operate, in such a manner as to qualify as
a REIT for the tax year ending December 31, 2000, and (iii) has not taken or
omitted to take any action which would reasonably be expected to (A) result in
any rents paid by tenants to the ERP Properties to be excluded from the
definition of "rents from real property" under Section 856(d)(2) of the Code, or
(B) otherwise result in a challenge to EQR's status as a REIT, and
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no such challenge is pending or, to ERP's Knowledge, threatened. Each ERP
Subsidiary which is a partnership, joint venture or limited liability company
has been treated since its formation and continues to be treated for federal
income tax purposes as a partnership, or ignored as a separate entity, as the
case may be, and not as a corporation or as an association taxable as a
corporation. Each corporation, trust or other entity taxable as an association
which has merged with and into EQR had been subject to taxation as a REIT at all
times since its initial election of REIT status and had satisfied all
requirements to qualify as a REIT for such years, except to the extent that a
failure to satisfy such requirements would not have an ERP Material Adverse
Effect. Each Subsidiary of EQR which is a corporation or which is treated as an
association taxable as a corporation for federal income tax purposes (of which
EQR directly or indirectly owns ten percent (10%) or more of the outstanding
voting securities (as defined in Section 856(c) of the Code)) has been since the
date of its formation or since EQR's first taxable year as a REIT (whichever is
later) a qualified REIT subsidiary under Section 856(i) of the Code.
3.10 BROKERS. No broker, investment banker, financial advisor or other
person is entitled to any broker's, finder's, financial advisor's or other
similar fee or commission in connection with the transactions contemplated
hereby based upon arrangements made by or on behalf of ERP or any ERP
Subsidiary.
3.11 COMPLIANCE WITH LAWS. Except as disclosed in the ERP SEC
Documents, neither ERP nor any of the ERP Subsidiaries has violated or failed to
comply with any statute, law, ordinance, regulation, rule, judgment, decree or
order of any Governmental Entity applicable to its business, properties or
operations, except to the extent that such violation or failure would not have
an ERP Material Adverse Effect.
3.12 CONTRACTS; DEBT INSTRUMENTS. Neither ERP nor any ERP Subsidiary
has received a written notice that ERP or any ERP Subsidiary is in violation of
or in default under (nor to the Knowledge of ERP does (i) such a violation or
default exist or (ii) does there exist any condition which, upon the passage of
time or the giving of notice or both would cause such a violation or default to
exist) any material loan or credit agreement, note, bond, mortgage, indenture,
lease, permit, concession, franchise, license or any other material contract,
agreement, arrangement or understanding, to which it is a party or by which it
or any of its properties or assets is bound, except to the extent such violation
or default, individually or in the aggregate, would not have an ERP Material
Adverse Effect, except as set forth in Schedule 3.12 to the ERP Disclosure
Letter.
3.13 STATE TAKEOVER STATUTES. ERP has taken all action necessary to
exempt transactions between ERP and Grove and its Affiliates from the operation
of any Takeover Statute.
3.14 REGISTRATION STATEMENT. The information with respect to ERP and
the ERP Subsidiaries included in the Proxy Statement or the Registration
Statement will not, as of the date of mailing of the Proxy Statement and as of
the effective date of the Registration Statement, contain an untrue statement of
a material fact or omit to state a material fact required to be stated therein,
or necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading.
3.15 INVESTMENT COMPANY ACT OF 1940. Neither ERP nor any of the ERP
Subsidiaries is, or at the Company Merger Effective Time will be, required to be
registered under the 1940 Act.
3.16 DEFINITION OF KNOWLEDGE OF ERP. As used in this Agreement, the
phrase "to the Knowledge of ERP" (or words of similar import) means the actual
knowledge of those individuals identified in Schedule 3.16 to the ERP Disclosure
Letter.
3.17 VOTE REQUIRED. No vote or consent by the equity holders of ERP or
any ERP Subsidiary (whether by agreement, under applicable law or otherwise) is
required to approve this Agreement or the transactions contemplated hereby, nor
will any such equity holders be entitled to dissenters' rights or other rights
of appraisal in connection with the consummation of the transactions
contemplated by this Agreement.
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3.18 EMPLOYEE POLICIES. Each employee plan or arrangement of ERP is in
material compliance with ERISA, to the extent subject to ERISA, and any other
applicable law governing such employee plan or arrangement.
3.19 FINANCING. ERP will have readily available all funds necessary to
perform its obligations under this Agreement and the transactions contemplated
hereby.
3.20 VALIDITY OF SECURITIES ISSUED. Any ERP Units issued pursuant to
the Partnership Merger, and any shares of EQR Common issued upon redemption of
such ERP Units, when issued, shall be duly authorized, validly issued,
fully-paid and non-assessable.
ARTICLE 4
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COVENANTS
---------
4.1 ACQUISITION PROPOSALS. Prior to the Company Merger Effective Time,
Grove agrees that:
(a) neither it nor any of the Grove Subsidiaries shall initiate,
solicit or encourage, directly or indirectly, any inquiries or the making or
implementation of any proposal or offer (including, without limitation, any
proposal or offer to any of their respective shareholders or limited partners)
with respect to a merger, acquisition, tender offer, exchange offer,
consolidation, sale of assets or similar transaction involving all or any
significant portion of the assets or any equity securities of Grove or any of
the Grove Subsidiaries, other than the transactions contemplated by this
Agreement (any such proposal or offer being hereinafter referred to as an
"Acquisition Proposal") or engage in any negotiations concerning or provide any
confidential information or data to, or have any discussions with, any person
relating to an Acquisition Proposal, or otherwise facilitate any effort or
attempt to make or implement an Acquisition Proposal;
(b) it will use its best efforts not to permit any of its
officers, trust managers, employees, agents or financial advisors to engage in
any of the activities described in Section 4.1(a);
(c) it will immediately cease and cause to be terminated any
existing activities, discussions or negotiations with any parties conducted
heretofore with respect to any of the foregoing and will take the necessary
steps to inform the individuals or entities referred to in Section 4.1(b) of the
obligations undertaken in this Section 4.1; and
(d) it will notify ERP as promptly as practicable if Grove
receives any such inquiries or proposals, or any requests for such information,
or if any such negotiations or discussions are sought to be initiated or
continued with it;
provided, however, that nothing contained in this Section 4.1 shall prohibit the
Grove Board from (i) furnishing information to or entering into discussions or
negotiations with, any person or entity that makes an unsolicited Acquisition
Proposal, if, and only to the extent that (A) the Grove Board determines in good
faith that failure to do so would create a reasonable probability of a breach of
its duties to shareholders or Limited Partners imposed by law, (B) prior to
furnishing such information to, or entering into discussions or negotiations
with, such person or entity, Grove provides written notice to ERP to the effect
that it is furnishing information to, or entering into discussions with, such
person or entity, and (C) subject to any confidentiality agreement with such
person or entity (which Grove determined in good faith was required to be
executed in order for the Grove Board to comply with its duties to shareholders
or Limited Partners imposed by law), Grove keeps ERP informed of the status of
any such discussions or negotiations; and (ii) to the extent applicable,
complying with Rule 14e-2 or Rule 14d-9 promulgated under the Exchange Act with
regard to an Acquisition Proposal. Nothing in this Section 4.1 shall (x) permit
Grove to terminate this Agreement (except as specifically provided in Article 7
hereof), (y) permit Grove to enter into an agreement with respect to an
Acquisition Proposal during the term of this Agreement (it being agreed that
during the
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term of this Agreement, Grove shall not enter into an agreement with any Person
that provides for, or in any way facilitates, an Acquisition Proposal (other
than a confidentiality agreement in customary form executed as provided above))
or (z) affect any other obligation of Grove under this Agreement; provided,
however, that the Grove Board may approve and recommend a Superior Acquisition
Proposal and, in connection therewith, withdraw or modify its approval or
recommendation of this Agreement and the Mergers. As used herein, "Superior
Acquisition Proposal" means a bona fide Acquisition Proposal made by a third
party which a majority of the members of the Grove Board determines in good
faith to be more favorable to Grove's shareholders and Limited Partners from a
financial point of view than the Mergers and which the Grove Board determines is
reasonably capable of being consummated.
4.2 CONDUCT OF GROVE'S BUSINESS PENDING MERGER. Prior to the Company
Merger Effective Time, except as (i) contemplated by this Agreement, (ii) set
forth in Schedule 4.2 to the Grove Disclosure Letter, (iii) within the aggregate
amounts reflected in the Grove Capital Budget or (iv) consented to in writing by
ERP, Grove shall, and shall cause each of the Grove Subsidiaries to, conduct its
business only in the usual, regular and ordinary course and in substantially the
same manner as heretofore conducted, and, irrespective of whether or not in the
ordinary course of business, Grove shall, and shall cause each of the Grove
Subsidiaries to:
(a) use its reasonable efforts to preserve intact its business
organizations and goodwill and keep available the services of its officers and
employees;
(b) confer on a regular basis with one or more representatives of
ERP to report operational matters of materiality and, subject to Section 4.1,
any proposals to engage in material transactions;
(c) promptly notify ERP of any material emergency or other
material change in the condition (financial or otherwise), business, properties,
assets, liabilities, or the normal course of its businesses or in the operation
of its properties, or of any material governmental complaints, investigations or
hearings (or communications indicating that the same may be contemplated);
(d) promptly deliver to ERP true and correct copies of any report,
statement or schedule filed with the SEC subsequent to the date of this
Agreement;
(e) maintain its books and records in accordance with GAAP
consistently applied and not change in any material manner any of its methods,
principles or practices of accounting in effect at the Grove Financial Statement
Date, except as may be required by the SEC, applicable law or GAAP;
(f) duly and timely file all reports, tax returns and other
documents required to be filed with federal, state, local and other authorities,
subject to extensions permitted by law, provided Grove notifies ERP that it is
availing itself of such extensions and provided such extensions do not adversely
affect Grove's status as a qualified REIT under the Code;
(g) not make or rescind any express or deemed election relative to
Taxes (unless required by law or necessary to preserve Grove's status as a REIT
or the status of any Grove Subsidiary as a partnership for federal income tax
purposes or as a qualified REIT subsidiary under Section 856(i) of the Code, as
the case may be);
(h) other than in connection with those development agreements set
forth in Schedule 2.22 to the Grove Disclosure Letter or as permitted pursuant
to subsection (o) hereof, not acquire, enter into any option or agreement to
acquire, or exercise an option or contract to acquire, additional real property,
incur additional indebtedness except for working capital under its revolving
line(s) of credit, encumber assets or commence construction of, or enter into
any agreement or commitment to develop or construct other real estate projects
except in connection with the potential purchase of (i) 521 subsidized elderly
apartment units in Brookline, Massachusetts (the "Brookline Transaction"), (ii)
interests in the Kismul Family Limited Partnership (the "Kismul Transaction"),
and (iii) interests in certain partnerships affiliated with Sydney and John
Rosenthal (the "Rosenthal Transactions"), each as more fully described in
Schedule 4.2 of the Grove Disclosure Letter, provided, however, that ERP shall
have the right to review and comment upon the terms of and documentation related
to the Brookline Transaction and Kismul Transaction and necessary amendments to
the documentation related to the Rosenthal Transactions in order
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to provide for transactions contemplated by this Agreement, and such terms and
documentation shall be subject to prior approval by ERP, which approval shall
not be unreasonably withheld or delayed;
(i) not amend its Bylaws or the Grove Declaration or the articles
of incorporation, bylaws, partnership agreement, joint venture agreement or
comparable charter or organization document of any Grove Subsidiary without
ERP's prior written consent, which shall not be unreasonably withheld or
delayed;
(j) issue no and make no change in the number of shares of
beneficial interest, capital stock, membership interests or units of limited
partnership interest issued and outstanding or reserved for issuance, other than
pursuant to those items disclosed in Schedule 2.3 to the Grove Disclosure
Letter;
(k) except in connection with and pursuant to the terms of the
Brookline Transaction and Rosenthal Transactions, grant no options or other
right or commitment relating to its shares of beneficial interest or capital
stock, membership interests or units of limited partnership interest or any
security convertible into its shares of beneficial interest or capital stock,
membership interests or units of limited partnership interest, or any security
the value of which is measured by shares of beneficial interest, or any security
subordinated to the claim of its general creditors;
(l) except as permitted by Section 5.9 and for dividends and
distributions by a Grove Subsidiary to Grove or a wholly-owned Grove Subsidiary,
not (x) authorize, declare, set aside or pay any dividend or make any other
distribution or payment with respect to any shares of its beneficial interest or
capital stock, or (y) except for redemptions of Grove LP Units in accordance
with the Grove OP Agreement or pursuant to the terms of the Retail Sale
Agreement, directly or indirectly redeem, purchase or otherwise acquire any
shares of beneficial interest, shares of capital stock, membership interests or
units of partnership interest or any option, warrant or right to acquire, or
security convertible into, shares of beneficial interest, shares of capital
stock, membership interests, or units of partnership interest of any Person;
(m) not sell, lease, mortgage, subject to Lien or otherwise
dispose of any material part of its assets, individually or in the aggregate,
except in the ordinary course of business;
(n) not make any loans, advances or capital contributions to, or
investments in, any other Person, other than loans, advances and capital
contributions to wholly-owned Grove Subsidiaries in existence on the date
hereof;
(o) not pay, discharge or satisfy any material claims, liabilities
or obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge or satisfaction, in the ordinary
course of business consistent with past practice, or in accordance with their
terms, of liabilities reflected or reserved against in, or contemplated by, the
most recent consolidated financial statements (or the notes thereto) furnished
to ERP or incurred in the ordinary course of business consistent with past
practice;
(p) not enter into any commitment, contractual obligation, capital
expenditure or transaction (each, a "Commitment") which may result in total
payments or liability by or to it in excess of $135,000 or aggregate Commitments
in excess of $250,000; provided, however, that no Commitments shall be made with
respect to any Grove Property subject to the Retail Sale Agreement, except as
specifically permitted by the terms of the Retail Sale Agreement;
(q) not guarantee the indebtedness of another Person, enter into
any "keep well" or other agreement to maintain any financial statement condition
of another Person or enter into any arrangement having the economic effect of
any of the foregoing;
(r) not enter into or amend any commitment with any officer, trust
manager, director, trustee, consultant or Affiliate of Grove or any of the Grove
Subsidiaries other than commitments with consultants involving payments of (i)
less than $15,000 per consultant and (ii) total aggregate payments to all
consultants of less than $110,000;
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(s) not increase any compensation or enter into or amend any
employment agreement or other arrangement with any of its officers, trust
managers, trustees, directors or employees earning more than $50,000 per annum
as of the date hereof, other than waivers by employees of benefits under such
agreements, enter into any employment agreement or arrangement with any other
Person not currently an employee of Grove or a Grove Subsidiary, providing for
compensation in excess of $60,000 per annum or increase any compensation, enter
into or amend any employment agreement or other arrangement with any new or
current employee (except with respect to arrangements which do not comprise
employment agreements or amendments thereto in the ordinary course of business
and consistent with past practice in timing and amount or pursuant to the terms
of any such arrangement) or take any action which could result in the creation
of a right of the type required to be disclosed in Section 2.15, or alter in any
manner a payment or right disclosed on Schedule 2.15 of the Grove Disclosure
Letter;
(t) not adopt any new employee benefit plan or amend any existing
plans, options or rights, except for changes which are required by law and
changes which are not more favorable to participants in the aggregate than
provisions presently in effect;
(u) not settle any shareholder or limited partner, derivative or
other claims arising out of or in connection with any of the transactions
contemplated by this Agreement without the prior written approval of ERP, which
approval shall not be unreasonably withheld or delayed;
(v) not reduce its ownership of any of Grove Subsidiaries except
pursuant to a transaction which has the same effect as a transaction permitted
by subsection (m) hereof;
(w) not accept a promissory note in payment of the exercise price
payable under any Grove Option;
(x) not enter into or amend or otherwise modify or waive any
rights under any agreement or arrangement for the persons that are affiliates,
or as of the date hereof, all officers, trust managers, trustees, directors or
employees, of Grove or any Grove Subsidiary;
(y) except as provided in Schedule 2.9 or Schedule 2.18 to the
Grove Disclosure Letter, not directly or indirectly or through a subsidiary,
merge or consolidate with, acquire all or substantially all of the assets of, or
acquire the beneficial ownership of a majority of the outstanding capital stock
or other equity interest in any Person or entity;
(z) use its reasonable best efforts to continue to qualify as a
REIT prior to the Company Merger Effective Time, and not enter into any
transaction that would be considered a prohibited transaction as defined in
Section 857(b)(6) of the Code; and
(aa) with respect to the Retail Sale Agreement, (i) not amend,
waive any provision, or exercise any right under, the Retail Sale Agreement,
(ii) operate the Grove Subsidiaries subject to the Retail Sale Agreement only in
the ordinary course of business and (iii) not take any action which would result
in a material change to the assets and liabilities of such Grove Subsidiaries,
as set forth on Schedule 2.2 to the Grove Disclosure Schedule.
For purposes of this Section 4.2 only, any contract, transaction
or other event shall be deemed to be material and to be subject to the
terms hereof if it would result or is expected to result in a net
impact on Grove's consolidated income statement in excess of $275,000,
or on Grove's consolidated balance sheet in excess of $275,000.
4.3 CONDUCT OF ERP'S BUSINESS PENDING MERGER. Prior to the Company
Merger Effective Time, except as (i) contemplated by this Agreement, or (ii)
consented to in writing by Grove, ERP shall, and shall cause each of the ERP
Subsidiaries to:
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(a) use its reasonable efforts to preserve intact its business
organizations and goodwill and keep available the services of its officers and
employees;
(b) confer on a regular basis with one or more representatives of
Grove to report operational matters of materiality which would have a ERP
Material Adverse Effect;
(c) promptly notify Grove of any material emergency or other
material change in the condition (financial or otherwise), business, properties,
assets, liabilities, prospects or the normal course of its businesses or in the
operation of its properties, or of any material governmental complaints,
investigations or hearings (or communications indicating that the same may be
contemplated);
(d) promptly deliver to Grove true and correct copies of any
report, statement or schedule filed with the SEC subsequent to the date of this
Agreement;
(e) maintain its books and records in accordance with GAAP
consistently applied;
(f) duly and timely file all reports, tax returns and other
documents required to be filed with federal, state, local and other authorities;
and
(g) duly form New LLC and New LLC3, cause New LLC to duly form New
LLC2 and cause each of New LLC, New LLC2 and New LLC3, respectively, to carry
out its obligations pursuant to this Agreement.
For purposes of this Section 4.3 only, an emergency, change, complaint,
investigation or hearing shall be deemed material if it would reasonably be
expected to have an ERP Material Adverse Effect.
4.4 OTHER ACTIONS. Each of Grove and Grove OP on the one hand and ERP
on the other hand shall not, and shall use their reasonable best efforts to
cause their Subsidiaries not to, take any action that would result in (i) any of
the representations and warranties of such party set forth in this Agreement
that are qualified as to materiality becoming untrue, (ii) any of such
representations and warranties that are not so qualified becoming untrue in any
material respect or (iii) except as contemplated by Section 4.1, any of the
conditions to the Mergers set forth in Article 6 not being satisfied.
4.5 COMPLIANCE WITH THE SECURITIES ACT. No later than ten (10) days
prior to the Partnership Merger Effective Time, Grove shall cause to be prepared
and delivered to ERP a list identifying all persons who, at the time of the
Grove Shareholders Meeting (as defined in Section 5.1 hereto), (i) may
reasonably be deemed to be "affiliates" of Grove or Grove OP as that term is
used in paragraphs (c) and (d) of Rule 145 under the Securities Act and (ii)
shall be entitled to receive Partnership Unit Merger Consideration pursuant to
the Partnership Merger (the "Affiliates"). Grove shall use its reasonable
efforts to cause each person who is identified as an Affiliate in such list to
deliver to Grove on or prior to the Partnership Merger Effective Time a written
agreement, in the form previously approved by the parties hereto, that such
Affiliate will not sell, pledge, transfer or otherwise dispose of any shares of
EQR Common issued to such Affiliate upon exchange of ERP Units pursuant to the
ERP Agreement, except pursuant to an effective registration statement under the
Securities Act or in compliance with Rule 145.
ARTICLE 5
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ADDITIONAL COVENANTS
--------------------
5.1 PREPARATION OF THE REGISTRATION STATEMENT AND THE PROXY STATEMENT;
GROVE SHAREHOLDERS MEETING AND GROVE OP PARTNERS MEETING.
(a) Grove and ERP shall use their reasonable best efforts to
prepare and file with the SEC the Registration Statement and Proxy Statement,
each in form and substance satisfactory to each of ERP and Grove. A portion of
the Registration Statement shall also constitute a prospectus of ERP with
respect to the ERP Units to be
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offered pursuant to the Partnership Merger (the "Prospectus"). Each of Grove and
ERP shall promptly use its reasonable best efforts to (i) respond to any
comments of the SEC and (ii) with respect to ERP only, have the Registration
Statement declared effective under the Securities Act and the rules and
regulations promulgated thereunder as promptly as practicable after such filing
and to keep the Registration Statement effective as long as is necessary to
consummate the Partnership Merger. ERP will use its reasonable best efforts to
cause the Prospectus to be mailed to the Limited Partners, as promptly as
practicable after the SEC has declared the Registration Statement effective.
Grove will use its reasonable best efforts to cause the Proxy Statement to be
mailed to Grove's shareholders, as promptly as practicable after the SEC has
completed its review of the Proxy Statement. Each party will notify the other
promptly of the receipt of any comments from the SEC and of any request by the
SEC for amendments or supplements to the Registration Statement or the Proxy
Statement or for additional information and will supply the other with copies of
all correspondence (and written summaries or transcripts of any oral
communication) between such party or any of its representatives and the SEC,
with respect to the Registration Statement or the Proxy Statement. The
respective parties will cause the Registration Statement and the Proxy Statement
to comply in all material respects with all applicable requirements of law.
Whenever any event occurs which is required to be set forth in an amendment or
supplement to the Registration Statement or the Proxy Statement, ERP or Grove,
as the case may be, shall promptly inform the other of such occurrences and
cooperate in filing with the SEC and/or mailing to the shareholders of Grove or
the Limited Partners such amendment or supplement to the Proxy Statement or
Prospectus, as the case may be. ERP also shall take any action required to be
taken under any applicable state securities or "blue sky" laws in connection
with the issuance of ERP Units pursuant to the Partnership Merger, and Grove and
Grove OP shall furnish all information concerning Grove and the holders of Grove
Shares and rights to acquire Grove Shares, or Grove OP and the Limited Partners
and the rights to acquire Grove LP Units, as the case may be and as may be
reasonably requested in connection with any such action.
(b) Grove will, as soon as practicable following the date of this
Agreement (but in no event sooner than 20 business days following the date the
Proxy Statement is mailed to the shareholders of Grove), duly call, give notice
of, convene and hold a meeting of its shareholders (the "Grove Shareholders
Meeting") for the purpose of obtaining the Grove Shareholder Approvals. Grove
will, through the Grove Board, recommend to its shareholders approval of this
Agreement, the Company Merger and the transactions contemplated by this
Agreement; provided, that prior to the Grove Shareholders Meeting, such
recommendation may be withdrawn, modified or amended to the extent that, as a
result of the commencement or receipt of a proposal constituting a Superior
Acquisition Proposal, the Grove Board determines in good faith that such
withdrawal, modification or amendment is appropriate
(c) Subject to the provisions of Sections 5.1(b), the Grove
Shareholders Meeting shall be held not later than 35 days after the date the
Proxy Statement is mailed.
(d) Grove OP will, as soon as practicable following the date of
this Agreement, duly call, give notice of, convene and hold a meeting of its
partners (the "Grove OP Partners Meeting") for the purpose of obtaining the
Grove Partner Approvals. The Grove OP Partners Meeting shall be held on the same
date as the Grove Shareholders Meeting. Grove will, through the Grove Board,
recommend to the Limited Partners approval of this Agreement and the
transactions contemplated hereby; provided, that prior to the Grove OP Partners
Meeting, such recommendation may be withdrawn, modified or amended to the extent
that, as a result of the commencement or receipt of a proposal constituting a
Superior Acquisition Proposal, the Grove Board determines in good faith that
such withdrawal, modification or amendment is appropriate.
(e) If on the date for the Grove Shareholders Meeting established
pursuant to Section 5.1(b) of this Agreement, Grove has not received a
sufficient number of proxies to approve the Company Merger (but less than
one-third of the outstanding Shares have been voted against the Company Merger),
then Grove shall adjourn its shareholders meetings until such date as shall be
mutually agreed upon by Grove and ERP, which date shall be not less than ten
(10) days nor more than twenty (20) days after the originally scheduled date.
(f) In connection with the Grove Partner Approvals, Grove shall
vote all Grove OP Units beneficially owned by Grove, and shall cause any Grove
Subsidiary to vote all Grove OP Units beneficially owned by such Grove
Subsidiary, in favor of this Agreement and the transactions contemplated hereby.
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5.2 ACCESS TO INFORMATION: CONFIDENTIALITY. Subject to the requirements
of confidentiality agreements with third parties, each of Grove and ERP shall,
and shall cause each of the Grove Subsidiaries and ERP Subsidiaries,
respectively, to afford to the other party and to the officers, employees,
accountants, counsel, financial advisors and other representatives of such other
party, reasonable access during normal business hours prior to the Company
Merger Effective Time to all their respective properties, books, contracts,
commitments, personnel and records and, during such period, each of Grove and
ERP shall, and shall cause each of the Grove Subsidiaries and ERP Subsidiaries,
respectively, to furnish promptly to the other party (a) a copy of each report,
schedule, registration statement and other document filed by it during such
period pursuant to the requirements of federal or state securities laws and (b)
all other information concerning its business, properties and personnel as such
other party may reasonably request. Each of Grove and ERP shall, and shall cause
the Grove Subsidiaries and ERP Subsidiaries, respectively, to use commercially
reasonable efforts to cause its officers, employees, accountants, counsel,
financial advisors and other representatives and affiliates to, hold any
nonpublic information in confidence to the extent required by, and in accordance
with, and will comply with the provisions of the letter agreement dated as of
March 13, 2000 between Grove and ERP (the "Confidentiality Agreement").
5.3 BEST EFFORTS; NOTIFICATION.
(a) Subject to the terms and conditions herein provided, Grove and
ERP shall: (i) use all reasonable best efforts to cooperate with one another in
(A) determining which filings are required to be made prior to the Company
Merger Effective Time or Partnership Merger Effective Time, as applicable, with,
and which consents, approvals, permits or authorizations are required to be
obtained prior to the Company Merger Effective Time or Partnership Merger
Effective Time, from governmental or regulatory authorities of the United
States, the several states and foreign jurisdictions and any third parties in
connection with the execution and delivery of this Agreement, and the
consummation of the transactions contemplated hereby and (B) timely making all
such filings and timely seeking all such consents, approvals, permits and
authorizations; (ii) use all reasonable best efforts to obtain in writing any
consents required from third parties to effectuate the Mergers, such consents to
be in form reasonably satisfactory to Grove and ERP; and (iii) use all
reasonable best efforts to take, or cause to be taken, all other action and do,
or cause to be done, all other things necessary, proper or appropriate to
consummate and make effective the transactions contemplated by this Agreement.
If, at any time after the effectiveness of the Mergers, any further action is
necessary or desirable to carry out the purpose of this Agreement, the proper
officers and trust managers of Grove and the general partner of ERP shall take
all such necessary action.
(b) Grove shall give prompt notice to ERP, and ERP shall give
prompt notice to Grove, (i) if any representation or warranty made by it
contained in this Agreement that is qualified as to materiality becomes untrue
or inaccurate in any respect or any such representation or warranty that is not
so qualified becomes untrue or inaccurate in any material respect or (ii) of the
failure by it to comply with or satisfy in any material respect any covenant,
condition or agreement to be complied with or satisfied by it under this
Agreement; provided, however, that no such notification shall affect the
representations, warranties, covenants or agreements of the parties or the
conditions to the obligations of the parties under this Agreement.
5.4 COSTS OF TRANSACTION. In the event that the Mergers are not
consummated, each of ERP and Grove shall pay their own costs and expenses
relating to the Mergers and the other transactions contemplated by this
Agreement; provided, however, that (i) all SEC filing fees in connection with
the Mergers shall be paid 50% by Grove and 50% by ERP, (ii) all printing costs
associated with the Proxy Statement shall be paid by Grove and (iii) all
printing costs associated with the Prospectus shall be paid by ERP. This Section
5.4 shall in no way affect the rights and obligations of the parties hereto
under Article 7 hereof.
5.5 PUBLIC ANNOUNCEMENTS. ERP and Grove will consult with each other
before issuing, and provide each other the opportunity to review and comment
upon, any press release or other written public statements with respect to the
transactions contemplated by this Agreement, including the Mergers, and shall
not issue any such press release or make any such written public statement prior
to such consultation, except as may be required by applicable law, court process
or by obligations pursuant to any listing agreement with any national securities
exchange. The parties agree that the initial press release to be issued with
respect to the transactions contemplated by this Agreement will be in the form
agreed to by the parties hereto prior to the execution of this Agreement. For
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purposes of this Section 5.5, "written public statements" shall include any
written statement transmitted to the NYSE, AMEX, the shareholders of Grove or
the limited partners of ERP or Grove LP.
5.6 TAXES.
(a) ERP and Grove shall cooperate in the preparation, execution
and filing of all returns, questionnaires, applications or other documents
regarding any real property transfer or gains, sales, use, transfer, value
added, stock transfer and stamp taxes, any transfer, recording, registration and
other fees and any similar taxes which become payable in connection with the
transactions contemplated by this Agreement (together with any related interest,
penalties or additions to tax, "Transfer and Gains Taxes"). From and after the
Company Merger Effective Time, the Surviving Company shall, or shall cause ERP,
as appropriate, to pay or cause to be paid, without deduction or withholding
from any amounts payable to the holders of beneficial interests in the Surviving
Company, all Transfer and Gains Taxes.
(b) Grove will consult with and provide ERP the opportunity to
review and comment upon all returns, questionnaires, applications or other
documents to be filed after the date hereof by Grove with respect to Taxes
including, without limitation, Grove's federal, state and local income tax
returns, as well as the Form 5500 returns for its health and welfare benefit and
retirement plans, for its taxable year ended December 31, 1999 (collectively,
the "Grove Tax Returns"), and shall not file any Grove Tax Returns without the
prior review and comment of ERP, which shall not be unreasonably delayed.
(c) Grove will cause each Grove Subsidiary to consult with and
provide ERP the opportunity to review and comment upon all returns,
questionnaires, applications or other documents to be filed after the date
hereof by each respective Grove Subsidiary with respect to Taxes including,
without limitation, each Grove Subsidiary's federal, state and local income tax
returns for its taxable year ended December 31, 1999 (collectively, the "Grove
Subsidiary Tax Returns"), and Grove shall not cause any Grove Subsidiary to file
any Grove Subsidiary Tax Returns without the prior review and comment of ERP,
which shall not be unreasonably delayed.
(d) Prior to Closing, Grove shall use its reasonable good faith
efforts to obtain a final written closing agreement under Section 7121 of the
Code with respect to the matters set forth on Schedule 5.6(d) to the Grove
Disclosure Letter, which closing agreement shall be satisfactory in form and
substance to ERP in its sole and absolute discretion (the "Closing Agreement").
5.7 BENEFIT PLANS AND OTHER EMPLOYEE ARRANGEMENTS.
(a) BENEFIT PLANS. After the Company Merger Effective Time, all
employees of Grove or Grove OP who are employed by ERP shall, at the option of
ERP, either continue to be eligible to participate in an "employee benefit
plan," as defined in Section 3(3) of ERISA, currently maintained by Grove or
Grove OP which is, at the option of ERP, continued by ERP, or alternatively,
shall be eligible to participate in the same manner as other similarly situated
employees of ERP in any "employee benefit plan," as defined in Section 3(3) of
ERISA, sponsored or maintained by ERP for similarly situated employees after the
effectiveness of the Mergers. With respect to each such employee benefit plan,
service with Grove or any Grove Subsidiary (as applicable) shall be included for
purposes of determining eligibility to participate and vesting (if applicable).
With respect to medical benefits provided by ERP on and after the effectiveness
of the Mergers, (i) coverage that would otherwise be denied due to a preexisting
illness shall be provided to those employees who had such coverage under a plan
sponsored by Grove or any Grove Subsidiary (each, a "Prior Plan"), (ii) unless
required by law, no such employee shall be required to observe any waiting
period prior to entitlement to such benefits and (iii) each such employee shall
be credited as to previously paid deductible and co-payment amounts under any
Prior Plan.
(b) SEVERANCE PROGRAMS. In no event shall Grove amend, modify or
alter in any manner any severance program or adopt or agree to any other
programs, agreements or arrangements which would in any way alter the Section
2.15 Payments, as set forth in Schedule 2.15 of the Grove Disclosure Letter. No
program, arrangement or agreement of Grove, or any term of this Agreement, shall
require ERP to continue the employment of any employee of Grove after the
Effective Time. As a condition to receiving a Section 2.15 Payment, each
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Section 2.15 Employee and each other terminated employee shall execute and
deliver to Grove an agreement and release in the applicable form as attached to
Schedule 2.15 to the Grove Disclosure Letter (a " Release"). The Section 2.15
Payments shall be satisfied immediately following the Company Merger Effective
Time or as otherwise set forth in Schedule 2.15 to the Grove Disclosure Letter.
(c) OPTIONEES.
(i) Prior to the Closing, Grove will, through the Grove Board (or
any committee thereof), take all action required (x) for, except as provided
herein, the cancellation as of the Company Merger Effective Time of all Grove
Options in consideration for cash in an amount set forth in Section 1.8 and (y)
to provide that any Grove Options granted on or about June 19, 2000 to
non-employee trust managers of Grove who were re-elected as trust managers at
Grove's 2000 annual meeting of shareholders shall be canceled as of the Company
Merger Effective Time for no consideration.
(ii) From and after the date hereof, Grove, through the Grove
Board or otherwise, will not modify any Plan or authorize, and Grove will not
grant, any Grove Options, Restricted Share Grants or any other equity or cash
incentive grants or awards of any kind, nature or description.
(d) WITHHOLDING. Grove shall require each employee who exercises a
Grove Option, receives Grove Shares pursuant to any existing commitment, or
otherwise receives any payment from Grove as a result of the transactions
contemplated by this Agreement, to pay to Grove in cash or Grove Shares an
amount sufficient to satisfy in full Grove's obligation to withhold Taxes
incurred by reason of such exercise, issuance or receipt.
5.8 INDEMNIFICATION.
(a) From and after the Company Merger Effective Time, ERP shall
provide exculpation and indemnification for each person who is now or has been
at any time prior to the date hereof or who becomes prior to the Company Merger
Effective Time, an officer or trust manager of Grove or any Grove Subsidiary
(the "Indemnified Parties") which is the same as the exculpation and
indemnification provided to the Indemnified Parties by Grove (including
advancement of expenses, if so provided, and provided that such coverage
provided by Grove shall have at least $5,000,000 of current trust manager and
officer insurance with no more than a $75,000 deductible) immediately prior to
the Company Merger Effective Time in its Declaration of Trust, Bylaws, or any
Employee Plan as in effect at the close of business on the date hereof;
provided, that such exculpation and indemnification covers actions on or prior
to the Company Merger Effective Time, including, without limitation, all
transactions contemplated by this Agreement. ERP shall use commercially
reasonable efforts to obtain and, if obtained, maintain in effect from the
Company Merger Effective Time and continuing until the sixth anniversary thereof
"run-off" trust managers and officers liability insurance with a coverage amount
and other terms and conditions comparable to Grove's current trust managers and
officers liability insurance policy covering the trust managers and officers of
Grove with respect to their service as such prior to the Company Merger
Effective Time, provided, however, that in no event shall ERP be required pay a
premium in excess of $300,000 for such coverage (the "Run-Off Policy"). ERP
shall provide Grove with a true and complete copy of a binder with respect to
the Run-Off Policy at least 10 days prior to the Company Merger Effective Time,
and shall use its reasonable best efforts to provide to Grove a true and
complete copy of the Run-Off Policy as proposed to be issued prior to the
Company Merger Effective Time. The premium for such policy shall be paid in full
at the Company Merger Effective Time.
(b) The provisions of this Section 5.8 are intended to be for the
benefit of, and shall be enforceable by, each Indemnified Party, his or her
heirs and his or her personal representatives and shall be binding on all
successors and assigns of ERP and Grove. ERP agrees to pay all costs and
expenses (including fees and expenses of counsel) that may be incurred by any
Indemnified Party or his or her heirs or his or her personal representatives in
successfully enforcing the indemnity or other obligations of ERP under this
Section 5.8. The provisions of this Section 5.8 shall survive the Company Merger
and are in addition to any other rights to which an Indemnified Party may be
entitled.
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(c) In the event that ERP or any of its respective successors or
assigns (i) consolidates with or merges into any other person and shall not be
the continuing or surviving company or entity of such consolidation or merger or
(ii) transfers all or substantially all of its properties and assets to any
person, then, and in each such case the successors and assigns of such entity
shall assume the obligations set forth in this Section 5.8, which obligations
are expressly intended to be for the irrevocable benefit of, and shall be
enforceable by, each trustee and officer covered hereby.
5.9 DECLARATION OF DIVIDENDS AND DISTRIBUTIONS. From and after the date
of this Agreement, Grove or Grove OP shall not make any dividend or distribution
to its shareholders or Limited Partners without the prior written consent of
ERP, except for the authorization and payment of dividends or distributions with
respect to the Grove Common Shares and Grove LP Units of (i) subject to
reduction as provided below, an amount per share/unit for each full quarterly
dividend not to exceed $0.18 per share/unit (each a "Quarterly Dividend") and
(ii) subject to reduction as provided below, a pro-rated Quarterly Dividend for
the period following the end of the calendar quarter immediately preceding the
payment date for the latest Quarterly Dividend until the Company Merger
Effective Time, with such dividend to be pro-rated on the basis of the number of
days in such period divided by ninety-two (92) (the "Short Dividend"), provided
however, that at least ten (10) days prior to the setting of any record date or
declaring of any dividend or distribution permitted pursuant to this Section
5.9, Grove shall submit to ERP a then current estimate of the fees and expenses
of the transactions contemplated by this Agreement, in reasonable detail and in
such categories so as to conform to the detail and categories set forth in
Schedule 2.30 to the Grove Disclosure Letter, which estimate shall be certified
by the Chief Financial Officer of Grove and subject to review by ERP. In
conducting its review of such estimate, ERP shall have the right to verify and
examine all supporting documentation which was utilized by Grove in determining
such estimate, including, without limitation, the right to contact vendors of
Grove for the purpose of confirming such estimates. To the extent that any
estimated category of fees or expenses set forth in such estimate exceeds the
corresponding estimate of such category set forth on Schedule 2.30 of the Grove
Disclosure Letter, the total of such excess amounts (the "Exceeded Cost Amount")
shall be divided by the total number of Grove Common Shares and Grove LP Units
outstanding as of the record date for the next distribution permitted to be made
pursuant to this Section 5.9 (the "Per Share Exceeded Cost Amount"), and the
maximum dividend or distribution per share/unit payable pursuant to this Section
5.9 shall be $0.18 per share/unit less the Per Share Exceeded Cost Amount (or,
in the case of a Short Dividend, the maximum amount of such Short Dividend, as
calculated above, less the Per Share Exceeded Cost Amount). In the event that
the Exceeded Cost Amount exceeds the total aggregate distribution to be made
pursuant to this Section 5.9, such amount shall be carried forward and added to
the Exceeded Cost Amount with respect to the next distribution permitted under
this Section 5.9. The record and payment dates for each Quarterly Dividend shall
be the same date as the record and payment dates for the corresponding quarterly
dividend for the EQR Common Shares, as provided to Grove by written notice not
less than twenty (20) days prior to the record date for such quarterly EQR
dividend. In the event that a dividend with respect to Grove Common Shares or a
distribution with respect to Grove LP Units permitted by this Section 5.9 has
(i) a record date prior to the Company Merger Effective Time or Partnership
Merger Effective Time, as the case may be, and (ii) has not been paid as of such
Company Merger Effective Time or Partnership Merger Effective Time, as the case
may be, the holders of Grove Common Shares or Limited Partners shall be entitled
to receive such distribution.
5.10 NOTICES. Each party hereto shall provide such notice to its equity
holders of the Mergers and other transactions contemplated hereby as is required
under applicable law.
5.11 RESIGNATIONS. On the Closing Date, if requested by ERP, Grove
shall request that the trust managers, directors and officers of Grove and each
of the Grove Subsidiaries to submit their resignations from such positions,
effective as of the Company Merger Effective Time or Partnership Merger
Effective Time, as requested.
5.12 THIRD PARTY MANAGEMENT AGREEMENTS AND OUTSIDE MANAGEMENT
AGREEMENTS. Grove will not, and will not permit any Grove Subsidiary to, (i)
amend the Third Party Management Agreements and Outside Management Agreements,
(ii) renew the Third Party Management Agreements except on terms which permit
its cancellation by Grove or the applicable Grove Subsidiary on thirty days
notice without charge, penalty or other cost for such cancellation, or (iii)
renew any Outside Management Agreement.
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5.13 MODIFICATION OF ROSENTHAL TRANSACTIONS. Grove and Grove OP shall
(i) use its reasonable good faith efforts to cause the terms of the Rosenthal
Transactions to be modified to provide that (A) in lieu of the issuance of any
units of preferred limited partnership interest in Grove OP ("Preferred Units")
pursuant to the Rosenthal Transactions, one Grove LP Unit shall be issued in
substitution for each Preferred Unit which otherwise would have been issued
pursuant to the Rosenthal Transactions, (B) in the event that the Mergers are
consummated prior to the closing of the Rosenthal Transactions, then upon the
closing of the Rosenthal Transactions, in lieu of receiving Grove LP Units, the
Persons who would otherwise be entitled to receive Grove LP Units in connection
with the Rosenthal Transactions shall instead be entitled to receive, in
substitution for each Grove LP Unit they would have otherwise been entitled to
receive, either (y) the Partnership Cash Merger Consideration or (z) the
Partnership Unit Merger Consideration, in each case as adjusted by Section 1.12,
at the election of such Person, which election shall be made prior to the
Election Deadline, and (C) in the event the Rosenthal Transactions are
consummated prior to the effectiveness of the Mergers, each Grove LP Unit issued
pursuant to the Rosenthal Transactions shall be converted pursuant to the
Partnership Merger in accordance with Section 1.7 or (ii) with the prior written
consent of Oak OP, which consent shall not be unreasonably withheld, otherwise
modify or terminate the agreements relating to the Rosenthal Transactions;
provided, however, that in the event that the Rosenthal Transactions are
consummated prior to the effectiveness of the Mergers but subsequent to the
Record Date, each Person entitled to receive Grove LP Units pursuant to the
Rosenthal Transactions shall promptly be provided a Form of Election, which must
be completed and returned prior to the Election Deadline in accordance with
Section 1.9 if such Person wishes to elect to receive Partnership Unit Merger
Consideration pursuant to the Partnership Merger.
5.14 RETAIL SALE AGREEMENT. Immediately prior to, and on the date of,
the Partnership Merger Effective Time, Grove and Grove OP shall cause the
transactions contemplated by the Retail Sale Agreement to be consummated in
accordance with the terms of such agreement.
5.15 ELECTION TO UNDERTAKE DEFICIT RESTORATION OBLIGATION UNDER ERP
AGREEMENT. In the event that a Limited Partner holding any Grove LP Units who is
subject to a deficit restoration obligation under Section 13.5 of the Grove OP
Agreement elects pursuant to Section 1.7(b) of this Agreement to receive ERP
Units in exchange for any portion of such Limited Partner's Grove LP Units, then
such Limited Partner shall have the right to become an "Obligated Partner" (as
such term is defined under the ERP Agreement) of ERP by delivery of written
notice to ERP no later than the Election Deadline. Such written notice shall
specify the "Restoration Amount" (as such term is defined under the ERP
Agreement) for such Limited Partner, which amount shall not exceed such Limited
Partner's "Protected Amount" (as such term is defined under the Grove OP
Agreement) as determined immediately prior to the Partnership Merger Effective
Time.
5.16 TRANSFER OF GROVE LP UNITS. Grove, as general partner of Grove OP,
hereby consents pursuant to the Grove OP Agreement to the transfer of Grove LP
Units by New LLC subsequent to the Partnership Merger Effective Time to any
Affiliate of EQR or ERP.
5.17 TRANSFER OF GROVE CORP. Shares. At the Closing, at the option of
ERP, Grove shall cause the owners of Grove Corp. to transfer to such person or
persons as ERP shall designate by written notice delivered to Grove prior to the
Closing, all of the shares of Grove Corp. owned by them, constituting all of the
outstanding shares of Grove Corp., for an aggregate consideration of $1.00.
ARTICLE 6
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CONDITIONS
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6.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGERS. The
obligations of each party to effect the Mergers shall be subject to the
fulfillment at or prior to the Closing Date of the following conditions:
(a) GROVE APPROVALS. This Agreement, the Merger and the
transactions contemplated by this Agreement shall have been approved and adopted
by the Grove Approvals.
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(b) REGISTRATION STATEMENT. The Registration Statement shall have
become effective under the Securities Act and shall not be the subject of any
stop order or proceedings by the SEC seeking a stop order.
(c) NO INJUNCTIONS OR RESTRAINTS. No temporary restraining order,
preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing the
consummation of the Mergers or any of the other transactions contemplated hereby
shall be in effect.
(d) BLUE SKY LAWS. ERP shall have received all state securities or
"blue sky" permits and other authorizations necessary to issue ERP Units to the
Limited Partners.
6.2 CONDITIONS TO OBLIGATIONS OF ERP. The obligations of ERP to effect
the Mergers and to consummate the other transactions contemplated to occur on
the Closing Date are further subject to the following conditions, any one or
more of which may be waived in writing by ERP:
(a) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Grove and Grove OP set forth in this Agreement shall be true and
correct as of the Closing Date, as though made on and as of the Closing Date,
except to the extent the representation or warranty is expressly limited by its
terms to another date, and ERP shall have received a certificate (which
certificate may be qualified by Knowledge to the same extent as the
representations and warranties of Grove and Grove OP contained herein are so
qualified) signed on behalf of Grove and Grove OP by the chief executive officer
or the chief financial officer of Grove, in such capacity, to such effect. For
the purposes of Section 6.2(a), the representations and warranties of Grove
shall be deemed true and correct unless the breach of such representations and
warranties, in the aggregate, could reasonably be expected to have a Grove
Material Adverse Effect, provided, however, that this sentence shall not apply
to any beach of Section 2.15 or Section 2.8.
(b) PERFORMANCE OF OBLIGATIONS OF GROVE. Grove and Grove OP shall
have performed in all material respects all covenants and obligations required
to be performed by them under this Agreement at or prior to the earlier of the
Company Merger Effective Time or Partnership Merger Effective Time, and ERP
shall have received a certificate signed on behalf of Grove by the chief
executive officer or the chief financial officer of Grove, in such capacity, to
such effect.
(c) MATERIAL ADVERSE CHANGE. Since March 31, 2000, there shall
have been no Grove Material Adverse Change and ERP shall have received a
certificate of the chief executive officer or chief financial officer of Grove,
in such capacity, certifying to such effect.
(d) OPINION OF MARYLAND COUNSEL. ERP and Grove shall have received
the opinion of Maryland counsel reasonably satisfactory to Oak OP addressing the
matters set forth in Exhibit "C" hereto.
(e) OPINION RELATING TO REIT STATUS. ERP shall have received an
opinion, dated as of the date of the Proxy Statement and the Closing Date, of
Cummings & Lockwood reasonably satisfactory to ERP, that, commencing with its
taxable year ended December 31, 1994, (A) Grove was organized and has operated
in conformity with the requirements for qualification as a REIT under the Code
and (B) Grove OP has been during and since 1997 and continues to be, treated for
federal income tax purposes as a partnership, and not as a corporation or
association taxable as a corporation (with customary exceptions, assumptions and
qualifications and based upon customary representations and the Closing
Agreement).
(f) OPINION OF COUNSEL. ERP shall have received an opinion from
Cummings & Lockwood or other counsel to Grove reasonably satisfactory to ERP
dated the Closing Date in form and substance reasonably satisfactory to ERP
addressing the matters set forth in Exhibit "D" hereto.
(g) CONSENTS. Except as set forth on Schedule 6.2 to the Grove
Disclosure Letter, all consents and waivers (including, without limitation,
waivers of rights of first refusal) from third parties necessary in connection
with the consummation of the transactions contemplated by this Agreement shall
have been obtained,
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other than such consents and waivers from third parties, which, if not obtained,
would not result, individually or in the aggregate, in an ERP Material Adverse
Effect or a Grove Material Adverse Effect.
(h) CERTAIN FEES AND EXPENSES. The actual fees and expenses
incurred in connection with the transactions contemplated by this Agreement
shall not exceed (i) the aggregate estimate of all such fees and expenses, set
forth on Schedule 2.30 to the Grove Disclosure Letter, or (ii) to the extent
specifically provided on Schedule 2.30, the estimates of the specific categories
of fees and expenses, as set forth on such Schedule.
(i) RETAIL PROPERTY SALE. The transactions contemplated by the
Retail Sale Agreement shall have been consummated in accordance with the terms
of such agreement.
(j) CLOSING AGREEMENT AND COSTS. Grove shall have obtained the
Closing Agreement; provided, however, that the Closing Agreement Costs shall not
exceed $3.5 million without the prior written consent of ERP, which consent may
be given in ERP's sole and absolute discretion. As used herein "Closing
Agreement Costs" shall mean all Taxes, fees (including without limitation any
fees for professional services), or other costs incurred by or imposed upon any
of Grove, Grove OP, any Grove Subsidiary, EQR, ERP or any ERP Subsidiary, with
respect to, or as a result of, obtaining the Closing Agreement and the matters
to be addressed by the Closing Agreement ("Closing Agreement Costs")
6.3 CONDITIONS TO OBLIGATIONS OF GROVE. The obligation of Grove and
Grove OP to effect the Mergers and to consummate the other transactions
contemplated to occur on the Closing Date is further subject to the following
conditions, any one or more of which may be waived in writing by Grove:
(a) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of ERP set forth in this Agreement shall be true and correct as of
the date of this Agreement and as of the Closing Date, as though made on and as
of the Closing Date, except to the extent the representation or warranty is
expressly limited by its terms to another date, and Grove shall have received a
certificate (which certificate may be qualified by Knowledge to the same extent
as the representations and warranties of ERP contained herein are so qualified)
signed on behalf of ERP by the chief executive officer and the chief financial
officer of EQR to such effect. For the purposes of this Section 6.3(a), the
representations and warranties of ERP shall be deemed true and correct unless
the breach of such representations and warranties, in the aggregate, could
reasonably be expected to have an ERP Material Adverse Effect.
(b) PERFORMANCE OF OBLIGATIONS OF ERP. ERP shall have performed in
all material respects all covenants and obligations required to be performed by
it under this Agreement at or prior to the earlier of the Company Merger
Effective Time or the Partnership Merger Effective Time, and Grove shall have
received a certificate of ERP signed on behalf of ERP by the chief executive
officer or the chief financial officer of EQR, in such capacity, to such effect.
(c) MATERIAL ADVERSE CHANGE. Since the date of this Agreement,
there shall have been no ERP Material Adverse Change and Grove shall have
received a certificate of the chief executive officer or chief financial officer
of ERP, in such capacity, certifying to such effect.
(d) OPINION RELATING TO REIT STATUS. Grove shall have received an
opinion, dated as of the date of the Proxy Statement and the Closing Date, of
Piper Marbury Rudnick & Wolfe, reasonably satisfactory to Grove, that,
commencing with its taxable year ended December 31, 1992, (A) EQR was organized
and has operated in conformity with the requirements for qualification as a REIT
under the Code and (B) ERP has been during and since 1992 and continues to be,
treated for federal income tax purposes as a partnership, and not as a
corporation or association taxable as a corporation (with customary exceptions,
assumptions and qualifications and based upon customary representations).
(e) OPINION OF COUNSEL. Grove shall have received an opinion from
Piper Marbury Rudnick & Wolfe or other counsel to ERP reasonably satisfactory to
Grove dated the Closing Date in form and
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substance reasonably satisfactory to Grove addressing the matters set forth in
Exhibit "E" hereto dated the Closing Date.
(f) CONSENTS. All consents and waivers (including, without
limitation, waivers or rights of first refusal) from third parties necessary in
connection with the consummation of the transactions contemplated hereby shall
have been obtained, other than such consents and waivers from third parties,
which, if not obtained, would not result, individually or in the aggregate, in
an ERP Material Adverse Effect or a Grove Material Adverse Effect.
(g) CLOSING AGREEMENT. Grove shall have obtained, and delivered to
ERP, the Closing Agreement. Under no circumstance shall Grove be obligated to
obtain the Closing Agreement if the Closing Agreement Costs are in excess of
$3.5 million, unless ERP agrees, in its sole and absolute discretion, to pay the
amount of Closing Agreement Costs in excess of $3.5 million.
ARTICLE 7
---------
TERMINATION, AMENDMENT AND WAIVER
---------------------------------
7.1 TERMINATION. This Agreement may be terminated at any time prior to
the acceptance of the Partnership Certificate of Merger by the Delaware
Secretary, whether before or after the Grove Approvals are obtained:
(a) by mutual written consent duly authorized by both the general
partner of ERP and the Grove Board;
(b) by ERP, upon a breach of any representation, warranty,
covenant, obligation or agreement on the part of Grove or Grove OP set forth in
this Agreement, in either case such that the conditions set forth in Section
6.2(a) or Section 6.2(b), as the case may be, would be incapable of being
satisfied by March 31, 2001 (or as otherwise extended);
(c) by Grove, upon a breach of any representation, warranty,
covenant obligation or agreement on the part of ERP set forth in this Agreement,
in either case such that the conditions set forth in Section 6.3(a) or Section
6.3(b), as the case may be, would be incapable of being satisfied by March 31,
2001 (or as otherwise extended);
(d) by either ERP or Grove, if any judgment, injunction, order,
decree or action by any Governmental Entity of competent authority preventing
the consummation of either the Partnership Merger or Company Merger shall have
become final and nonappealable;
(e) by either ERP or Grove, if the Mergers shall not have been
consummated before March 31, 2001; provided, that in the case of termination
pursuant to this Section 7.1(e), the terminating party shall not have breached
in any material respect its obligations under this Agreement in any manner that
shall have proximately contributed to the occurrence of the failure referred to
in this Section and, provided further, that (i) if the Mergers shall not have
been consummated solely due to the failure to receive any required lender, HUD
or MHFA consents (as listed on Schedule 2.5 of the Grove Disclosure Letter),
March 31, 2001 shall be automatically extended to May 31, 2001 and (ii) any
termination of this Agreement resulting solely by reason of the failure to meet
the condition set forth in (i) above shall be pursuant to this Section 7.1(e);
(f) by either ERP or Grove if, upon a vote at a duly held Grove
Shareholders Meeting or any adjournment thereof, the Grove Shareholder Approvals
shall not have been obtained as contemplated by Section 5.1;
(g) by either ERP or Grove if the Grove Partner Approvals shall
not have been obtained as contemplated by Section 5.1;
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(h) by Grove, if prior to the Grove Shareholders Meeting or the
Grove OP Partners Meeting, the Grove Board shall have withdrawn or modified its
approval or recommendation of the Mergers or this Agreement in connection with,
or approved or recommended, a Superior Acquisition Proposal; and
(i) by ERP if (i) prior to the Grove Shareholders Meeting or the
Grove OP Partners Meeting, the Grove Board shall have withdrawn or modified in
any manner adverse to ERP its approval or recommendation of the Mergers or this
Agreement in connection with, or approved or recommended, any Superior
Acquisition Proposal, or (ii) Grove shall have entered into a definitive
agreement with respect to any Acquisition Proposal.
7.2 CERTAIN FEES AND EXPENSES.
(a) If this Agreement shall be terminated (i) pursuant to Section
7.1(h) or 7.1(i), then Grove will pay ERP (provided Grove was not entitled to
terminate this Agreement pursuant to Section 7.1(c) at the time of such
termination) a fee equal to the Break-Up Fee (as defined below), or (ii)
pursuant to Section 7.1(b), 7.1(f) or 7.1(g), then Grove will pay ERP (provided
Grove was not entitled to terminate this Agreement pursuant to Section 7.1(c) at
the time of such termination) an amount equal to the Expense Fee (as defined
below). If this Agreement shall be terminated by ERP or Grove pursuant to
Section 7.1(e) and Grove has not, at the time of such termination, (i) obtained
and delivered to ERP the Closing Agreement in satisfaction of both Section
6.2(j) and Section 6.3(g) or (ii) caused to be delivered to ERP the legal
opinion referenced in Section 6.2(e), then Grove will pay ERP an amount equal to
the Expense Fee. If this Agreement shall be terminated pursuant to Section
7.1(c), then ERP will pay Grove (provided ERP was not entitled to terminate this
Agreement pursuant to Section 7.1(b) at the time of such termination), an amount
equal to the Expense Fee. If the Merger is not consummated (other than due to
the termination of this Agreement pursuant to Section 7.1(a), 7.1(c) or 7.1(e)
(excluding any termination pursuant to Section 7.1(e) with respect to which
Grove is obligated to pay ERP the Expense Fee)), and at the time of the
termination of this Agreement an Acquisition Proposal has been received by
Grove, and either prior to the termination of this Agreement or within twelve
(12) months thereafter Grove or any Grove Subsidiary enters into any written
Acquisition Proposal which is subsequently consummated (whether or not such
Acquisition Proposal is the same Acquisition Proposal which had been received at
the time of the termination of this Agreement), then Grove shall pay the
Break-Up Fee to ERP, provided, however, that for purposes of this sentence only,
(x) "Acquisition Proposal" shall not include a sale of Grove Properties to a
single purchaser or related group of purchasers for a Purchase Price (as defined
below) equal to or in excess of $158.6 million (an "Exempt Sale") and (y) ERP
shall have a right of first offer for a period of thirty days (but no right of
first refusal) with respect to the Grove Properties subject to the Exempt Sale.
EQR shall communicate its offer with respect to a proposed Exempt Sale within
thirty days of its receipt of notice that (i) Grove desires to sell certain
Grove Properties which sale, if consummated, would constitute an Exempt Sale (an
"Offer to Sell") or (ii) Grove has received a bona fide offer to purchase
certain Grove Properties which sale, if consummated, would constitute an Exempt
Sale (an "Offer to Purchase"). Grove shall provide notice to ERP of an Offer to
Sell or Offer to Purchase as soon as practicable (but in all cases within three
(3) days) following its decision to undertake an Offer to Sell or its receipt of
an Offer to Purchase, as the case may be. In the case of an Offer to Sell, (i)
if Grove does not accept ERP's offer with respect to such proposed Exempt Sale,
Grove shall be prohibited from consummating such proposed Exempt Sale with any
other Person or Persons at a price or on other terms equal to or less than that
offered by ERP and (ii) in the event ERP does not make an offer with respect to
such proposed Exempt Sale within the time period prescribed herein, Grove shall
be free to consummate such proposed Exempt Sale with any Person or Persons. In
the case of an Offer to Purchase, (i) if ERP's offer with respect to such
proposed Exempt Sale shall (x) equal or exceed the value of the Offer to
Purchase and (y) contain substantially equivalent terms in other respects, Grove
shall be bound to consummate the Exempt Sale with ERP as soon as practicable in
accordance with such offer, (ii) EQR shall have the right to consummate such
proposed Exempt Sale with Grove on substantially the same terms as the Offer to
Purchase and (iii) in the event that ERP makes an offer which is declined by
Grove, Grove must consummate the Exempt Sale with the Person or Persons making
the Offer to Purchase, on better terms than the declined ERP offer, within six
months of Grove's refusal of such ERP offer. For purposes of this Section 7.2
"Purchase Price" shall include the value of the consideration paid for the Grove
Properties, including the value of any direct or indirect debt assumed, retired
or released in connection with the Exempt Sale. Any amounts to be paid by the
purchaser contingent upon future events, if any, shall be estimated in a manner
to be mutually agreed upon by the parties hereto. All communications with
respect to an Exempt Sale shall be in accordance with Section 8.2.
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(b) The payment of the Break-Up Fee shall be compensation and
liquidated damages for the loss suffered by ERP as a result of the failure of
the Mergers to be consummated and to avoid the difficulty of determining damages
under the circumstances and neither party shall have any other liability to the
other after the payment of the Break-Up Fee. The Break-Up Fee shall be paid by
Grove to ERP, or the Expense Fee shall be paid by Grove to ERP or ERP to Grove
(as applicable), in immediately available funds within fifteen (15) days after
the date of the event giving rise to the obligation to make such payment
occurred.
(c) As used in this Agreement, "Break-Up Fee" shall be an amount
equal to the lesser of (i) $8,500,000 plus the Expense Fee (the "Base Amount")
and (ii) the sum of (A) the maximum amount that can be paid to ERP without
causing it to fail to meet the requirements of Sections 856(c)(2) and (3) of the
Code determined as if the payment of such amount did not constitute income
described in Sections 856(c)(2)(A)-(H) and 856(c)(3)(A)-(I) of the Code
("Qualifying Income"), as determined by independent accountants to ERP, and (B)
in the event ERP receives a letter from outside counsel (the "Break-Up Fee Tax
Opinion") indicating that ERP has received a ruling from the IRS holding that
ERP's receipt of the Base Amount would either constitute Qualifying Income or
would be excluded from gross income within the meaning of Sections 856(c)(2) and
(3) of the Code (the "REIT Requirements") or that the receipt by ERP of the
excess of the Base Amount over the amount payable in clause (A) following the
receipt of and pursuant to such ruling would not be deemed constructively
received prior thereto, the Base Amount less the amount payable under clause (A)
above. In the event that ERP determines, in its absolute and sole discretion,
that it is not able to receive the full Base Amount, Grove shall place the
unpaid amount in escrow and shall not release any portion thereof to ERP unless
and until Grove receives any one or combination of the following: (i) a letter
from ERP's independent accountants indicating the maximum amount that can be
paid at that time to ERP without causing ERP to fail to meet the REIT
Requirements or (ii) a Break-Up Fee Tax Opinion, in which event Grove shall pay
to ERP the lesser of the unpaid Base Amount or the maximum amount stated in the
letter referred to in (i) above. Grove's obligation to pay any unpaid portion of
the Break-Up Fee shall terminate three years from the date of this Agreement.
The "Expense Fee" payable to ERP or Grove, as the case may be (the "Recipient"),
shall be an amount equal to the least of (i) $2,000,000, (ii) the Recipient's
documented out-of-pocket expenses incurred in connection with this Agreement and
the transactions contemplated hereby (including, without limitation, all
attorneys', accountants' and investment bankers' fees and expenses) and (iii)
the sum of (A) the maximum amount that can be paid to the Recipient without
causing it to fail to meet the requirements of Sections 856(c)(2) and (3) of the
Code determined as if the payment of such amount did not constitute Qualifying
Income, as determined by independent accountants to the Recipient, and (B) in
the event the Recipient receives a Break-Up Fee Tax Opinion indicating that the
Recipient has received a ruling from the IRS holding that the Recipient's
receipt of the Expense Fee would either constitute Qualifying Income or would be
excluded from gross income within the meaning of the REIT Requirements or that
receipt by the Recipient of the excess of the Expense Fee over the amount
payable under clause (A) following the receipt of and pursuant to such ruling
would not be deemed constructively received prior thereto, the Expense Fee less
the amount payable under clause (A) above. In the event that the Recipient is
not able to receive the full Expense Fee, the Payor (as defined below) shall
place the unpaid amount in escrow and shall not release any portion thereof to
the Recipient unless and until the Payor receives any one or combination of the
following: (i) a letter from the Recipient's independent accountants indicating
the maximum amount that can be paid at that time to the Recipient without
causing the Recipient to fail to meet the REIT Requirements or (ii) a Break-Up
Fee Tax Opinion, in which event the Payor shall pay to the Recipient the lesser
of the unpaid Expense Fee or the maximum amount stated in the letter referred to
in (i) above. The obligation of ERP or Grove, as applicable ("Payor"), to pay
any unpaid portion of the Expense Fee shall terminate three years from the date
of this Agreement.
7.3 EFFECT OF TERMINATION. In the event of termination of this
Agreement by either Grove or ERP as provided in Section 7.1, this Agreement
shall forthwith become void and have no effect, without any liability or
obligation on the part of ERP, Grove or Grove OP, other than the last sentence
of Section 5.2, Section 7.2, this Section 7.3 and Article 8; provided that (a)
if this Agreement is terminated by ERP pursuant to Section 7.1(b), Grove shall
not be entitled to any of the benefits of Section 7.2, or (b) if this Agreement
is terminated by Grove pursuant to Section 7.1(c), ERP shall not be entitled to
any of the benefits of Section 7.2.
7.4 AMENDMENT. This Agreement may be amended by the parties in writing
by action of the general partner of ERP and the Grove Board at any time before
or after the Grove Approvals are obtained and prior to the
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filing of the Company Articles of Merger or Partnership Certificate of Merger;
provided, however, that, after the Grove Approvals are obtained, no such
amendment, modification or supplement shall be made which changes the amount or
type of consideration to be received by the shareholders of Grove or partners of
Grove OP or which by law requires the further approval of the shareholders of
Grove or partners of Grove OP without obtaining such further approval.
7.5 EXTENSION; WAIVER. At any time prior to the earlier of the
Company Merger Effective Time or Partnership Merger Effective Time, the parties
may (a) extend the time for the performance of any of the obligations or other
acts of the other party, (b) waive any inaccuracies in the representations and
warranties of the other party contained in this Agreement or in any document
delivered pursuant to this Agreement or (c) subject to the proviso of Section
7.4, waive compliance with any of the agreements or conditions of the other
party contained in this Agreement. Any agreement on the part of a party to any
such extension or waiver shall be valid only if set forth in an instrument in
writing signed on behalf of such party. The failure of any party to this
Agreement to assert any of its rights under this Agreement or otherwise shall
not constitute a waiver of those rights.
ARTICLE 8
---------
GENERAL PROVISIONS
------------------
8.1 NONSURVIVAL OF REPRESENTATIONS AND WARRANTIES. None of the
representations and warranties in this Agreement or in any instrument delivered
pursuant to this Agreement solely to confirm the representations and warranties
in this Agreement shall survive the Company Merger Effective Time or Partnership
Merger Effective Time, as the case may be. This Section 8.1 shall not limit any
covenant or agreement of the parties which by its terms contemplates performance
after the Effective Times.
8.2 NOTICES. All notices, requests, claims, demands and other
communications under this Agreement shall be in writing and shall be delivered
personally, sent by overnight courier (providing proof of delivery) to the
parties or sent by telecopy (providing confirmation of transmission) at the
following addresses or telecopy numbers (or at such other address or telecopy
number for a party as shall be specified by like notice):
(a) if to ERP, to: ERP Operating Limited Partnership
Two North Riverside Plaza, Suite 400
Chicago, Illinois 60606
Attention: Bruce C. Strohm
Fax No.: (312) 454-0039
with a copy to: Piper Marbury Rudnick & Wolfe
203 North LaSalle Street, Suite 1800
Chicago, Illinois 60601-1293
Attention: Errol R. Halperin, Esq.
Fax No. (312) 236-7516
(b) if to Grove or Grove OP, to: Grove Property Trust
598 Asylum Avenue
Hartford, Connecticut 06105
Attention: Joseph R. LaBrosse
Fax No.: (860) 527-0401
with a copy to: Cummings & Lockwood
Four Stamford Plaza
Stamford, Connecticut 06904
Attention: Michael J. Hinton, Esq.
Fax No.: (203) 351-4535
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All notices shall be deemed given only when actually received.
8.3 INTERPRETATION. All references made herein to any party shall
include any predecessor to such party. When a reference is made in this
Agreement to a Section, such reference shall be to a Section of this Agreement
unless otherwise indicated. The table of contents and headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement. Whenever the words "include",
"includes" or "including" are used in this Agreement, they shall be deemed to be
followed by the words "without limitation."
8.4 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other party.
8.5 ENTIRE AGREEMENT; NO THIRD-PARTY BENEFICIARIES. This Agreement, the
Grove Disclosure Letter, the ERP Disclosure Letter, the Confidentiality
Agreement and the other agreements entered into in connection with the Mergers,
including, without limitation, the executed documents the forms of which are
included in the Grove Disclosure Letter or are otherwise specifically referred
to herein, (a) constitute the entire agreement and supersede all prior
agreements and understandings, both written and oral, between the parties with
respect to the subject matter of this Agreement and (b) except as provided in
Section 5.7 and Section 5.8 ("Third Party Provisions"), are not intended to
confer upon any person other than the parties hereto any rights or remedies. The
Third Party Provisions may be enforced by the beneficiaries thereof or on behalf
of the beneficiaries thereof by the trust managers of Grove who had been trust
managers of Grove prior to the Company Merger Effective Time.
8.6 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED
IN ACCORDANCE WITH, THE LAWS OF THE STATE OF MARYLAND, REGARDLESS OF THE LAWS
THAT MIGHT OTHERWISE GOVERN UNDER APPLICABLE PRINCIPLES OF CONFLICT OF LAWS
THEREOF.
8.7 ASSIGNMENT. Neither this Agreement nor any of the rights, interests
or obligations under this Agreement shall be assigned or delegated, in whole or
in part, by operation of law or otherwise by any of the parties without the
prior written consent of the other parties. Subject to the preceding sentence,
this Agreement will be binding upon, inure to the benefit of, and be enforceable
by, the parties and their respective successors and assigns.
8.8 ENFORCEMENT. The parties agree that irreparable damage would occur
in the event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement in any court of the United States
located in the State of Illinois or Connecticut or in any Illinois or
Connecticut State court located in Illinois or Connecticut, this being in
addition to any other remedy to which they are entitled at law or in equity. In
addition, each of the parties hereto (a) consents to submit itself (without
making such submission exclusive) to the personal jurisdiction of any federal
court located in the State of Illinois or Connecticut or any Illinois or
Connecticut State court in the event any dispute arises out of this Agreement or
any of the transactions contemplated by this Agreement and (b) agrees that it
will not attempt to deny or defeat such personal jurisdiction by motion or other
request for leave from any such court.
8.9 SEVERABILITY. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of this
Agreement is so broad as to be unenforceable, the provision shall be interpreted
to be only so broad as is enforceable.
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8.10 NON-RECOURSE TO TRUSTEES, TRUST MANAGERS AND OFFICERS.
(a) This Agreement and all documents, certificates, agreements,
understandings and arrangements relating hereto have been entered into or
executed on behalf of Grove (both in its individual capacity and in its capacity
as general partner of Grove OP) by the undersigned in his capacity as a trust
manager or officer of Grove, which has been formed as a Maryland real estate
investment trust pursuant to its Third Amended and Restated Declaration of Trust
dated as of March 14, 1997, as amended, and not individually, and neither the
trust managers, officers nor shareholders of Grove shall be personally bound or
have any personal liability hereunder. ERP shall look solely to the assets of
Grove for satisfaction of any liability of Grove with respect to this Agreement
and any other agreements to which it is a party. ERP will not seek recourse or
commence any action against any of the shareholders of Grove or any of their
personal assets, and will not commence any action for money judgments against
any of the trust managers or officers of Grove or seek recourse against any of
their personal assets, for the performance or payment of any obligation of Grove
hereunder or thereunder.
(b) This Agreement and all documents, certificates, agreements,
understandings and arrangements relating hereto have been entered into or
executed on behalf of ERP by the undersigned in his capacity as a trustee or
officer of EQR, the sole general partner of ERP, which has been formed as a
Maryland real estate investment trust pursuant to an Amended and Restated
Declaration of Trust of EQR dated as of November 2, 1992, as amended and
restated, and not individually, and neither the trustees, officers nor equity
holders of EQR or ERP shall be personally bound or have any personal liability
hereunder. Grove shall look solely to the assets of ERP for satisfaction of any
liability of ERP with respect to this Agreement and any other agreements to
which it is a party. Grove will not seek recourse or commence any action against
any of the equity holders of ERP or any of their personal assets, and will not
commence any action for money judgments against any of the trustees or officers
of EQR or seek recourse against any of their personal assets, for the
performance or payment of any obligation of ERP hereunder or thereunder.
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IN WITNESS WHEREOF, ERP, Grove and Grove OP have caused this Agreement to be
signed by their respective officers thereunto duly authorized all as of the date
first written above.
ERP OPERATING LIMITED PARTNERSHIP,
an Illinois limited partnership
By: Equity Residential Properties Trust
Its: General Partner
By: /s/ BRUCE C. STROHM
----------------------------------
Name: Bruce C. Strohm
--------------------------
Title: Executive Vice President
--------------------------
GROVE PROPERTY TRUST, a Maryland
real estate investment trust
By: /s/ JOSEPH R. LABROSSE
----------------------------------
Name: Joseph R. LaBrosse
--------------------------
Title: Chief Financial Officer
--------------------------
GROVE OPERATING, L.P., a Delaware
limited partnership
By: Grove Property Trust
Its: General Partner
By: /s/ JOSEPH R. LABROSSE
----------------------------------
Name: Joseph R. LaBrosse
--------------------------
Title: Chief Financial Officer
--------------------------
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APPENDIX B
July 14, 2000
The Board of Trust Managers
Grove Property Trust
598 Asylum Avenue
Hartford, CT 06105
Dear Trust Managers:
We understand that Grove Property Trust (the "Company") is exploring whether
there might be mutually acceptable terms on which it would enter into a
transaction with Equity Residential Properties Trust ("EQR") pursuant to which
all of the Company's outstanding common shares would be exchanged for cash in an
all cash merger and all of the Operating Partnership Units in Grove Operating,
L.P. ("Grove OP Units") would, at the option of the holders thereof, at the
closing of the merger, either be converted into 0.3696 ($17.00 divided by
$46.00) of an Operating Partnership Unit in ERP Operating Limited Partnership
("EQR OP Units") on a tax free basis or entitled to $17.00 cash for each Grove
OP Unit subject in each case to downward adjustment not to exceed $0.29 per
share or Grove OP Unit. Such exchange of cash for the Company's common stock and
cash or EQR OP Units for the Grove OP Units is referred to herein as the "EQR
Transaction." The terms of the EQR Transaction which are currently under
consideration by the Company and EQR are more specifically outlined in
attachments to a letter agreement between the Company and EQR dated June 12,
2000 (the "Letter Agreement").
We further understand that prior to the closing of the EQR Transaction, the
Company would sell or otherwise transfer its four retail properties, the "Grove"
name and symbol trademark and related assets and liabilities to a private
limited liability company owned by Joseph LaBrosse, and Damon, Brian and Edmond
Navarro, for a gross purchase price/value equal to $21,650,000, (such
sale/transfer is referred to herein as the "Retail Exchange"). The consideration
for the Retail Exchange would consist of the assumption of all related property
indebtedness, plus the exchange of all Grove OP Units owned by such persons,
valued at $17 per Grove OP Unit subject to downward adjustment not to exceed
$0.29 per Grove OP Unit, with excess value credited in cash in such limited
liability company.
In connection with the EQR Transaction, the Company will incur certain
transaction costs, including: (a) approximately $5 million of payments to the
Company's executive management to provide for expectations relating to certain
share purchase transactions and related bonuses (the "Management Contract
Buyout"), (however; it is our understanding that such executive management will
waive their rights to approximately $22 million under existing employment
contracts which would otherwise become payable upon consummation of the EQR
Transaction), (b) approximately $4 million of severance to all of the Company's
corporate employees (the "Severance Package"), and (c) certain other closing
costs and transaction costs which, when combined with the Management Contract
Buyout and Severance Package
<PAGE>
The Board of Trust Managers
Grove Property Trust
July 14, 2000 - 2 -
total approximately $20 million. Further, we understand that there is an
agreement between the Company and EQR which will provide that if Grove's actual
transaction costs associated with the EQR Transaction exceed approximately $20
million the operation of a covenant in such agreement would prohibit Grove from
paying, or would reduce the permitted amount of, dividends or distributions
which would otherwise be permitted.
The EQR Transaction, the Retail Exchange, and the aforementioned payment of
transaction costs, as well as other related transactions described in the
attachments to the Letter Agreement or otherwise disclosed to us are referred to
collectively herein as the "Transaction."
You have requested our opinion (the "Opinion") as to the matters set forth
below. The Opinion does not address the Company's underlying business decision
to effect the Transaction. We have not been requested to, and did not, solicit
third party indications of interest in acquiring all or any part of the Company.
Furthermore, at your request, we have not negotiated the Transaction or advised
you with respect to alternatives to it.
In connection with this Opinion, we have made such reviews, analyses and
inquiries as we have deemed necessary and appropriate under the circumstances.
Among other things, we have:
1. met with the Company's senior management and the Company's advisors to
discuss the Transaction, the operations, financial condition, future
prospects and performance of the Company;
2. reviewed the Company's annual reports to shareholders and on Form 10-K for
the fiscal years ended December 31, 1999 and quarterly reports on Form 10-Q
for the quarter ended March 31, 2000;
3. reviewed forecasts and projections prepared by the Company's management
with respect to the Company for the years ended December 31, 2000 through
December 31, 2001;
4. reviewed preliminary appraisal indications as prepared by Italia and Lemp,
Inc. for the following retail properties:
Cornerblock,
Longmeadow Shops
The Wharf, and
Freeport Shops
5. reviewed copies of the following agreements:
a draft copy of the Exclusivity Agreement dated June
12, 2000; and the Retail Transaction Structure memo as
prepared by Cummings & Lockwood
6. conducted site visits to certain of the properties owned by the Company;
7. reviewed Minutes of the Meeting on May 25, 2000 of the Board of Trust
Managers of the Company;
8. reviewed publicly available information on companies we deemed comparable
to the Company; and
9. conducted such other analyses, studies and investigations as we deemed
appropriate under the circumstances for rendering the opinion expressed
herein.
<PAGE>
The Board of Trust Managers
Grove Property Trust
July 14, 2000 - 3 -
We have relied upon and assumed, without independent verification, that the
financial forecasts and projections provided to us have been reasonably prepared
and reflect the best currently available estimates of the future financial
results and condition of the Company, and that there has been no material change
in the assets, financial condition, business or prospects of the Company since
the date of the most recent financial statements made available to us.
We have not independently verified the accuracy and completeness of the
information supplied to us with respect to the Company and do not assume any
responsibility with respect to it. We have not made any independent appraisal of
any of the properties or assets of the Company. Our opinion is necessarily based
on business, economic, market and other conditions as they exist and can be
evaluated by us at the date of this letter.
Based upon the foregoing, and in reliance thereon, it is our opinion that (a)
the consideration to be received by Company's stockholders and the Grove OP Unit
holders in connection with the Transaction is fair, from a financial point of
view, and (b) the consideration to be received by the Company in connection with
the Retail Exchange in connection with the Transaction is fair to the Company
from a financial point of view.
HOULIHAN LOKEY HOWARD & ZUKIN FINANCIAL ADVISORS, INC.
<PAGE>
APPENDIX C
REDEMPTION AND DISTRIBUTION AGREEMENT
This REDEMPTION AND DISTRIBUTION AGREEMENT is made and entered into as
of the 17th day of July, 2000, by and among Damon D. Navarro ("D. Navarro"),
Brian D. Navarro ("B. Navarro"), Edmund F. Navarro ("E. Navarro"), Joseph R.
LaBrosse ("LaBrosse"), GROVE REALTY, LLC, a Delaware limited liability company
("Investor LLC"), and GROVE OPERATING, L.P., a Delaware limited partnership (the
"Partnership"). D. Navarro, B. Navarro, E. Navarro and La Brosse are sometimes
referred to herein individually as an "Investor," and collectively as the
"Investors."
R E C I T A L S:
A. The Partnership has been established and continued in existence
pursuant to a certain Agreement of Limited Partnership of Grove Operating, L.P.
dated as of March 10, 1997, as amended (the "Partnership Agreement").
B. Each of the Investors, as a limited partner in the Partnership, owns
the number of Partnership Units set forth beside said Investor's name on Exhibit
A attached hereto and by this reference made a part hereof.
C. Pursuant to a certain Agreement and Plan of Merger of even date
herewith (the "Merger Agreement"), by and between ERP Operating Limited
Partnership, an Illinois limited partnership ("ERP OP"), the Partnership and
Grove Property Trust, a Maryland real estate investment trust ("Grove"), it is
contemplated that, among other things, a limited liability company referred to
as "LLC 3" in the Merger Agreement will merge with and into the Partnership (the
"Partnership Merger"), with the Partnership as the surviving entity. Capitalized
terms that are not defined herein shall have the meanings set forth in the
Partnership Agreement or the Merger Agreement, as the case may be.
D. The Investors, collectively, own all of the membership interests in
Investor LLC. The Investors desire to assign and contribute all of their
Partnership Units to Investor LLC prior to the Partnership Merger, and Investor
LLC desires to accept said contribution and assignment, and to gain admission as
a limited partner in the Partnership in the place and stead of the Investors.
E. Following its admission as a limited partner in the Partnership,
Investor LLC desires, prior to the Partnership Merger, to withdraw from the
Partnership and surrender for redemption its Partnership Units, and the
Partnership desires to redeem such Partnership Units, all on the terms set forth
herein. The transactions described herein, including the Agreed Retail Property
Value and the mechanism for determining the Cash Redemption Payment, have been
authorized by (i) the Board of Trust Managers of Grove, and (ii) the Merger
Oversight Committee of the Board of Trust Managers of Grove.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE 1
---------
DEFINITIONS
-----------
1.1 DEFINITIONS. As used in this Agreement, the following terms have
the following meanings (such meanings to be equally applicable to both the
singular and plural forms of the terms defined):
"Action" means any action, suit, arbitration, inquiry, regulatory
action, enforcement action proceeding or investigation by or before any court,
any Governmental Authority or any arbitration tribunal, including without
limitation, matters arising under or in connection with Environmental Laws
(including matters relating to Pre-Existing Environmental Matters).
"Affiliate" means, when used with respect to a specified person,
another person that, directly or indirectly, controls, is controlled by, or is
under common control with, the person specified.
<PAGE>
"Agreed Retail Property Value" means Twenty-One Million Six Hundred
Fifty Thousand Dollars ($21,650,000), plus all Capital Expenditures made with
respect to the Retail Properties, determined on a cash basis, from and after
June 1, 2000 other than (1) up to $120,000 of Capital Expenditures made with
respect to space leased to The Children's Place Retail Stores, Inc., in
Freeport, Maine, under and pursuant to the terms of lease dated December 31,
1999, as amended March 31, 2000, (2) up to $10,000 of Capital Expenditures for
the Retail Property located in Longmeadow, Massachusetts, and (3) up to $5,000
of Capital Expenditures for each Retail Property other than the one located in
Longmeadow, Massachusetts.
"Assumed Liabilities" has the meaning set forth in Section 2.2.
"Capital Expenditure" means all expenditures which would be treated as
capital expenditures in accordance with generally accepted accounting
principles, consistently applied.
"Cash Redemption Payment" shall be a dollar amount equal to (A) the
number of Partnership Units surrendered for redemption by Investor LLC pursuant
to Section 2.1, multiplied by the Partnership Cash Merger Consideration, as and
if adjusted pursuant to Section 1.12 of the Merger Agreement, plus (B) the
outstanding principal balance, determined as of the Distribution Date, of the
Long Meadow Mortgage Loan, less (C) the Agreed Retail Property Value. The Cash
Redemption Payment shall be subject to adjustment as provided in Section 2.6.
"CERCLA" means the Comprehensive Environmental Response, Compensation
and Liability Act, 42 U.S.C. Section 9601 et seq, as amended from time to time.
"Distributed LLC's" has the meaning set forth in Section 2.1.
"Distribution" has the meaning set forth in Section 2.1.
"Distribution Date" has the meaning set forth in Section 2.1.
"Effective Time" has the meaning set forth in Section 2.1
"Environmental Law" shall have the meaning set forth in the Merger
Agreement.
"Former Partner" means any partner or member (other than the
Partnership) in the Distributed LLC's or any predecessor entity that owned a
Retail Property.
"Governmental Authority" means any government or any agency, bureau,
board, commission, court, department, official, political subdivision, tribunal
or other instrumentality of any government, whether federal, state or local,
domestic or foreign.
"Hazardous Material" shall have the meaning set forth in the Merger
Agreement.
"Indemnifying Party" has the meaning set forth in Section 5.2.
"Indemnitee" has the meaning set forth in Section 5.2.
"Indemnitee Notice" has the meaning set forth in Section 5.3.
"IRS" means the Internal Revenue Service.
"Liabilities" means any and all debts, liabilities and obligations,
absolute or contingent, matured or unmatured, liquidated or unliquidated,
accrued or unaccrued, known or unknown, whenever arising, including, without
limitation, Taxes and those debts, liabilities and obligations arising under any
law (including without limitation Environmental Laws), rule, regulation, Action,
threatened Action, order or consent decree of any court, any governmental or
other regulatory or administrative agency or commission or any award of any
arbitration tribunal, and those arising under any contract, commitment or
undertaking.
"Long Meadow Mortgage Loan" has the meaning set forth in Section 2.2.
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<PAGE>
"Losses" and "Loss" mean any and all losses, charges, Liabilities,
claims, damages, penalties and costs or expenses (including, without limitation,
reasonable attorney's fees and any and all expenses whatsoever reasonably
incurred in investigating, preparing or defending against any Actions or
threatened Actions).
"Partnership Merger" has the meaning set forth in the Recitals.
"Pre-Existing Environmental Matters" means (A) all environmental
conditions (including, but not limited to, Hazardous Materials, Underground
Storage Tanks and wetlands) which (i) are on or under any of the Retail
Properties on the Distribution Date, or (ii) were on or under any of the Retail
Properties at any time prior to the Distribution Date including any subsurface
migration of Hazardous Materials from any such Retail Property to any other site
or location prior to or after the Distribution Date (B) all actions or omissions
of the Partnership, the Distributed LLC's or any party acting by, through or
under the Partnership or the Distributed LLC's in connection with any of the
matters referred to in clause (A) of this definition and (C) all actions or
omissions of the Partnership, the Distributed LLC's or any parties acting by,
through or under the Partnership or the Distributed LLC's at any time on or
before the Distribution Date with respect to Hazardous Materials or other
matters within the scope of any Environmental Law, to the extent relating to any
of the Retail Properties, including without limitation any violations of any
Environmental Laws or permits.
"RCRA" means the Resource Conservation and Recovery Act, 42
U.S.C. Section 6901 et seq.
"Retail Properties" means the land legally described on Exhibit B
attached hereto and all related improvements. Exhibit B also sets forth the
address and common name of each of the Retail Properties, which are individually
referred to as a "Retail Property."
"Taxes" means all taxes, charges and fees imposed by the United States
or any state, county, local or foreign government or subdivision or agency
thereof.
"Tenant Leases" means all leases for occupancy of space by tenants of
the Retail Properties.
"Third-Party Claim" has the meaning set forth in Section 5.3.
"Underground Storage Tanks" has the meaning assigned to that term by
Section 9001 of RCRA and shall also include the following: (A) any farm or
residential tank of 1,100 gallons or less capacity used for storing motor fuel
for non-commercial purposes; (B) any tank used for storing heating oil for
consumptive use on the premises where stored; (C) any septic tank; (D) any tank
which would be considered an underground storage tank under Section 9001 of RCRA
but for the fact that it contains hazardous wastes; and (E) any pipes connected
to items (A) through (D).
ARTICLE 2
---------
REDEMPTION AND DISTRIBUTION
---------------------------
2.1 REDEMPTION AND DISTRIBUTION.
(a) On the effective date of the Partnership Merger (the
"Distribution Date"), immediately prior to the filing of the certificate of
merger for the Partnership Merger (the "Effective Time"), the following
transactions shall be effectuated in the following order:
(i) First, each of the Investors shall assign, transfer and
contribute all of its Partnership Units (which shall be not less than all of the
Partnership Units set forth beside said Investor's name on Exhibit A) to
Investor LLC, pursuant to an Assignment and Assumption of Partnership Interests
in the form attached hereto as Exhibit C. Upon the execution and delivery of
each Assignment and Assumption of Partnership Interests, Investor LLC shall be
admitted as a limited partner in the Partnership in the place and stead of said
Investor; and
(ii) Second, Investor LLC shall withdraw from the Partnership
and surrender all of its Partnership Units (which shall be not less than the
aggregate number of Partnership Units set forth on Exhibit A) for redemption by
the Partnership pursuant to an instrument of complete withdrawal in the form
attached hereto as
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<PAGE>
Exhibit D, and in consideration thereof the Partnership shall (x) distribute and
assign to Investor LLC all of the Partnership's membership interests (the
"Distributed Interests") in the limited liability companies identified on
Exhibit E (collectively, the "Distributed LLC's"; said distribution being
referred to herein as the "Distribution"), pursuant to an Assignment and
Assumption of Membership Interests in the form attached hereto as Exhibit F, (y)
assign to Investor LLC, without representation or warranty, the name "Grove,"
any trademarks of which the name "Grove" forms a constituent part and any
related intellectual property rights and (z) pay to Investor LLC the Cash
Redemption Payment, as the same may be adjusted pursuant to Section 2.6 hereof.
Upon the execution and delivery of the Assignment and Assumption of Membership
Interests, the Partnership Units surrendered by Investor LLC shall be deemed to
have been redeemed and cancelled without the necessity of further action, and
shall thereupon forever cease to exist, and Investor LLC shall no longer be a
limited partner in the Partnership. Said redemption is not being effectuated
pursuant to Section 8.6 of the Partnership Agreement and shall not have the
consequences described therein.
(b) Concurrently with the Distribution, Investors and Investor LLC
shall furnish the Partnership with an opinion of counsel, in form and substance
satisfactory to the Partnership in the Partnership's reasonable discretion, with
respect to the authorization, execution, delivery and enforceability of this
Agreement and the instruments required to be executed and delivered by Investor
LLC and Investors pursuant to this Agreement.
(c) The parties hereto agree that they shall each report the
Distribution as made pursuant to Section 736(b) of the Internal Revenue Code of
1986, as amended.
(d) The parties hereto shall cooperate in executing and delivering
the documents referred to in this Section 2.1 so as to effectuate the
transaction described above in accordance herewith.
2.2 ASSUMPTION.
(a) Subject to the terms and conditions of this Agreement,
simultaneously with the transactions contemplated by clause (ii) of Section 2.1,
Investor LLC shall (and hereby does, as of the Effective Time) assume and
undertake to pay and discharge any and all Liabilities, if any, of the
Partnership, whether heretofore or hereafter incurred relating to, incurred in
connection with or arising with respect to the Retail Properties, and any and
all Liabilities of the Distributed LLC's (or any predecessor thereto) whether
heretofore or hereafter incurred (collectively, the "Assumed Liabilities"),
regardless of the manner in which said Liabilities may have arisen or are
alleged to have arisen (including, without limitation and to the fullest extent
that said assumption is permitted by applicable law, any Liabilities arising
from the negligent, willful or fraudulent acts or omissions of the Partnership
or the Distributed LLC's or any predecessor thereto), including, without
limitation, (i) all liabilities and obligations of the Partnership or the
Distributed LLC's (or any predecessor thereto) in connection with any
Pre-Existing Environmental Matters, (ii) all liabilities and obligations of the
Partnership or the Distributed LLC's (or any predecessor thereto) pursuant to or
in connection with all agreements relating to a Retail Property, if any, to
which the Partnership or the Distributed LLC's (or any predecessor thereto) is a
party or to which the Retail Properties are subject (collectively, the
"Property-level Debt Instruments") and which evidence or secure any indebtedness
secured by mortgages, deeds of trust, pledges, collateral assignments or
security agreements with respect to one or more of the Retail Properties
(collectively, the "Property-level Debt"), (iii) claims by employees of the
Distributed LLC's (or any predecessor thereto), including claims for accrued
vacation, sick pay and other related benefits, (iv) state, local and federal tax
liabilities with respect to any tax year or partial tax year to the extent
relating to any Distributed LLC or any Retail Property, (v) tort claims in
connection with injuries sustained or alleged by any party (individuals or
entity collectively a "Third Party") relating to a Retail Property or in
connection with the negligent or otherwise tortious acts or omissions of any
Distributed LLC (or any predecessor thereto) or its agents or employees,
officers or directors, (vi) claims made by any Third Party for breaches of
contract, guaranties or indemnities to the extent relating to any Distributed
LLC or any Retail Property, (vii) any contingent liabilities arising under
guaranties, warranties, indemnities or other undertakings not identified in an
Exhibit to this Agreement, to the extent relating to any Distributed LLC or any
Retail Property or (viii) any other pending or threatened litigation relating in
any manner to any Retail Property. Notwithstanding the foregoing, the parties
agree that (1) Investor LLC shall assume and undertake to discharge, in
accordance with the terms of the applicable Property-level Debt Instruments, the
mortgage loan from Webster Bank relating to the Long Meadow Retail Property (the
"Long Meadow Mortgage Loan"), but shall not be obligated to assume or discharge
the lien of the Sovereign Bank mortgages which encumber the three other Retail
Properties in order to secure the Partnership's
4
<PAGE>
credit line, which credit line and related Property-level Debt Instruments shall
be discharged by ERP OP at the Effective Time of the Partnership Merger, and (2)
the Assumed Liabilities shall not include any Liabilities voluntarily assumed by
the Partnership or any successor of the Partnership after the Effective Time of
the Partnership Merger (e.g., any consent decree entered into by the Partnership
or any successor of the Partnership relating to an environmental condition at
any Retail Property, or the settlement by the Partnership or any successor of
the Partnership of any slip and fall case relating to any Retail Property).
2.3 AS-IS, WHERE-IS; RELEASE BY INVESTOR LLC. Investor LLC and the
Investors specifically acknowledge and agree that the Partnership has made and
makes no representation, warranty or covenant of any kind with respect to the
Distributed LLC's or the assets, liabilities and business thereof, including
without limitation the Retail Properties, any environmental conditions
(including, without limitation, any Pre-Existing Environmental Matters) at, or
with respect to, the Retail Properties, the site or physical conditions
applicable to, or with respect to, the Retail Properties, the zoning regulations
or other governmental requirements applicable to, or with respect to, the Retail
Properties, the Property-level Debt or any other matter affecting the use,
occupancy, operation or condition of or with respect to the Retail Properties,
the level of income or profits with respect to the Retail Properties or any
matter whatsoever with respect to the Retail Properties or the Assumed
Liabilities. The Investors, and Investor LLC are familiar with and have
inspected the Retail Properties. Investor LLC shall accept the Distributed
Interests "AS IS," "WHERE IS" and "WITH ALL FAULTS" (whether detectable or not)
on the Distribution Date, without any adjustment to the Agreed Retail Property
Value for any change in the physical or financial condition occurring with
respect to the Retail Properties or the Distributed LLC's from and after the
date of the Merger Agreement (other than in the case of Capital Expenditures
made from and after June 1, 2000, or as otherwise provided in Section 2.6).
Investor LLC acknowledges and agrees that neither the Partnership nor its
employees and representatives nor any other person will have, or be subject to,
any liability to Investor LLC or any other person resulting from the
distribution to Investor LLC, or Investor LLC's use of, any information
pertaining to the Retail Properties or the Assumed Liabilities. Investor LLC
hereby waives, releases, relinquishes and forever discharges the Partnership,
its partners and their respective officers, directors, shareholders, trustees,
agents, employees and representatives, and the successors and assigns of all of
the foregoing from and against any and all claims, causes of action,
liabilities, losses, damages, costs and expenses (including, but not limited to,
all claims and causes of action under CERCLA for cost recovery, for natural
resources damages and for contribution, all claims and causes of action under
common law principles, and all claims under other Environmental Laws, including,
without limitation, RCRA) that Investor LLC may have against the Partnership,
its direct or indirect partners, members and shareholders or the officers,
directors, shareholders, trustees, agents, employees, representatives,
successors and assigns of any of the foregoing for and with respect to all
Pre-Existing Environmental Matters. Investor LLC also acknowledges that Investor
LLC has had sufficient opportunity to conduct such investigations of and with
respect to the Retail Properties as it had deemed necessary and advisable.
Investor LLC has not been induced by, and has not relied upon, any
representation, warranty or statement made by the Partnership or any officer,
agent, representative, employee, broker or other person representing the
Partnership. To the fullest extent permitted by applicable law, Investor LLC
waives any requirements for the Partnership to furnish to Investor LLC, or
record against title to the Retail Properties, any environmental disclosure
documents that would otherwise be required to be furnished or recorded under
applicable law.
2.4 IMPUTATION OF KNOWLEDGE TO INVESTOR LLC. Investor LLC acknowledges
and agrees that certain of the key executives or principals of Investor LLC (who
have exercised responsibility for the formation of Investor LLC, and for the
negotiation, execution, delivery and performance of this Agreement) including
without limitation the Investors are, and will remain through the Effective
Time, key executives of the Partnership's general partner with responsibility
for overseeing the operation of the Distributed LLC's and the Retail Properties,
that it is fair and reasonable in the circumstances to impute to Investor LLC as
of the execution and delivery of this Agreement and as of the Effective Time,
all knowledge, if any, of the Partnership, the Distributed LLC's (and any
predecessor thereto) with respect to the Retail Properties and the Assumed
Liabilities, and that all such knowledge shall so be (and hereby is) imputed to
Investor LLC. Investor LLC's acknowledgments and agreements set forth in this
Section and in Section 2.3 shall survive the Distribution indefinitely and shall
govern in the event of any conflict, express or implied, with any of the
documents executed or delivered in connection herewith.
2.5 CONDEMNATION AND CASUALTY; PHYSICAL CHANGES. The transactions
contemplated under this Article II shall be consummated as provided in this
Agreement, without adjustment or delay of any kind, notwithstanding the
occurrence of any damage, destruction or other change in the physical condition
of one or more
5
<PAGE>
of the Retail Properties or the initiation or completion of any proceedings in
eminent domain (or any deeds granted by the Partnership in lieu thereof) with
respect thereto; provided that the Partnership hereby, effective as of the
Distribution Date, assigns to Investor LLC, without recourse, representation or
warranty, all rights, title and interest, if any, of the Partnership in and to
any insurance proceeds or condemnation awards or claims therefor related to all
Assumed Liabilities, including without limitation, those relating to said
damage, destruction or taking. The provisions of this Section 2.5 shall survive
the consummation of the transactions contemplated in this Agreement.
2.6 CLOSING PRORATIONS AND ADJUSTMENTS.
(a) A rent roll (updated to within five (5) days prior to the
Distribution Date) and a proposed statement of prorations and other adjustments
shall be prepared by Investor LLC in conformity with the provisions of this
Agreement not less than five (5) business days prior to the Distribution Date.
For purposes of prorations, the Distribution shall be deemed to have occurred as
of 12:01 a.m. on the Distribution Date. The following items are to be prorated
or adjusted, as the case may require, as of the Distribution Date, and shall
constitute adjustments to the Cash Redemption Payment:
(i) real estate and personal property taxes and assessments
(prorated on the basis of 100% of the most recent ascertainable bill);
(ii) the base rent payable by tenants under the Tenant Leases
for the month in which the Distribution Date occurs; provided, however, that
rent and all other sums which are due and payable to the Distributed LLC's by
any tenant but uncollected as of the Distribution Date shall not be adjusted,
but Investor LLC shall use diligent efforts to collect said past-due rents and
shall cause the rent and other sums for the period prior to the Distribution
Date to be remitted to the Partnership if, as and when collected. On the
Distribution Date, the Partnership shall deliver to Investor LLC a schedule
(prepared by the Partnership as of the most recent date available) of all such
past due but uncollected rent and other sums owed by tenants. Investor LLC shall
promptly remit to the Partnership any such rent or other sums paid by scheduled
tenants, but only if a deficiency in the then current rent is not thereby
created. Investor LLC shall bill tenants who owe rent for periods prior to the
Distribution Date on a monthly basis for six consecutive months following the
Distribution Date. In the case of percentage rents, it is the intent of the
parties that the Partnership (directly or through its ownership of the
Distributed LLC's prior to the Effective Time) shall be entitled to any
percentage rent payments, if any, to the extent accrued through the Distribution
Date. In the case of pass-throughs for taxes and expenses, it is the intent of
the parties that the Partnership (directly or through its ownership of the
Distributed LLC's prior to the Effective Time) shall be entitled to an amount
equal to the total payments due from tenants for the 2000 calendar year or other
collection period under the applicable Tenant Lease in which the Distribution
Date occurs, multiplied by a fraction, the numerator of which is the actual
taxes or expenses paid by the Partnership (directly or through its ownership of
the Distributed LLC's prior to the Effective Time) or with respect to which
Investor LLC has received a credit in connection with the Distribution, and the
denominator of which is the total taxes and expenses for said calendar year or
other collection period. Investor LLC shall use diligent efforts to collect all
percentage rents and pass-throughs with respect to which the Partnership is
entitled to share pursuant to this clause (ii), and shall not waive or modify in
any material respect the obligation of any tenant under a Tenant Lease, to the
detriment of the Partnership, without the Partnership's prior written consent.
If any amount owed by a tenant under a Tenant Lease remains delinquent for more
than ninety (90) days past the date on which said amount was due, and if the
Partnership has the right to share in all or any portion of said amount pursuant
to this clause (ii), then the Partnership shall have the right, at its sole
cost, to enforce the obligation of said tenant under said Tenant Lease (and this
clause (ii), without more, constitutes an assignment of said right of
enforcement), but in no event may the Partnership seek to evict any tenant or
terminate any Tenant Lease. From and after the Distribution Date, Investor LLC
shall certify monthly, as to all income (broken into categories of income)
received under all Tenant Leases until all of Investor LLC's obligations under
this Section 2.6 have been satisfied in full, but in no event to exceed a period
equal to six (6) months from the Distribution Date. Upon prior reasonable
written notice, the Partnership shall have the right to inspect and review
Investor LLC's books and records, and shall have the right to engage an
accounting firm to audit said books and records, which audit shall be at
Investor LLC's expense if it discloses that any category of income with respect
to which the Partnership is entitled to share pursuant hereto was more than
three percent (3%) greater than the amounts certified by Investor LLC for the
period of time in question.
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(iii) water, electric, telephone and all other utility
charges, and any assignable deposits with utility companies (said assignable
deposits being credited to the Partnership) (to the extent possible, utility
prorations will be handled by meter readings on the Distribution Date);
(iv) amounts due and prepayments, if any, under all
contracts, agreements, leases and licenses (including equipment leases, but
excluding Tenant Leases and the Property-level Debt Instruments);
(v) assignable license and permit fees;
(vi) interest on any assumed Property-level Debt;
(vii) other expenses of operation and similar items
(including workers' compensation payments, if any) customarily prorated in
connection with real estate closings for similar properties in the locality in
question (provided that all Capital Expenditures made after June 1, 2000 shall
be treated as provided in the definition of Agreed Retail Property Value);
(viii) The Partnership shall receive a credit for all cash in
any bank accounts of the Distributed LLC's as of the Distribution Date; and
(ix) The Partnership shall be responsible for paying all
premiums, fees and other costs associated with the maintenance or termination of
any insurance policies maintained by the Partnership or the Distributed LLC's
prior to the Distribution Date with respect to the Retail Properties, and shall
be entitled to any refunds of unearned premiums with respect to prepaid
insurance amounts in connection with the termination of said policies.
Any proration (other than general real estate and personal property taxes) which
must be estimated on the Distribution Date shall be re-prorated and finally
adjusted as soon as practicable after the Distribution Date; otherwise, all
prorations shall be final. In the case of pass-throughs for general real estate
taxes and expenses, the parties shall project in good faith what the amount of
the final proration will be at the end of the lease fiscal year in question (or
other collection period under the applicable Tenant Lease) and shall use such
projection as the basis for the proration adjustment on the Distribution Date,
subject to readjustment within thirty (30) days after the close of the fiscal
year for each Tenant Lease (or other collection period under the applicable
Tenant Lease).
2.7 CLOSING COSTS. Investor LLC shall assume and pay all transfer
taxes, if any, loan assumption fees, if any, and any and all other costs and
expenses of consummating the transactions contemplated under this Agreement.
Investor LLC shall have no responsibility to pay for legal, accounting or other
consulting services retained by ERP OP or an Affiliate of ERP OP in connection
with said transactions.
ARTICLE 3
---------
REPRESENTATIONS AND WARRANTIES
------------------------------
3.1 REPRESENTATIONS AND WARRANTIES OF INVESTOR LLC. Investor LLC
represents and warrants to the Partnership as follows:
(a) Investor LLC is a limited liability company duly organized and
validly existing under the laws of the State of Delaware, and has full power and
lawful authority under its organizational documents to enter into and carry out
the terms and provisions of this Agreement that are applicable to Investor LLC.
All actions necessary to confer such power and authority upon the persons
executing this Agreement (and all documents which are contemplated by this
Agreement to be executed on behalf of Investor LLC) have been taken. Investor
LLC's execution, delivery and performance of the terms and provisions of this
Agreement that are applicable to Investor LLC will not result in any violation
of, or default under, or require any notice or consent under, any of the
respective Investor LLC's organizational documents.
3.2 REPRESENTATIONS AND WARRANTIES OF INVESTOR LLC. Investor LLC
represents and warrants to the Partnership as follows:
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(a) The Partnership has never owned fee title to any of the Retail
Properties. Neither the Partnership nor the general partners of the Partnership
are liable for, or are guarantors of, any obligations or Liabilities of the
Distributed LLC's, including without limitation any obligations under or
relating to any Tenant Leases or Property-level Debt. The Partnership is not a
party to any Action involving the Retail Properties or the Distributed LLC's.
(b) The Distributed LLC's own no real property other than the
Retail Properties. Attached hereto as Exhibit G is a true and accurate schedule
of all assets and Liabilities of each of the Distributed LLC's, including all
Property-level Debt.
(c) The Distributed LLC's have no source of income other than the
Tenant Leases. Attached hereto as Exhibit H is a true and accurate schedule of
all of the Tenant Leases.
(d) Except as set forth on Exhibit I, there are no Actions
pending, or to the knowledge of Investors threatened, with respect to the Retail
Properties or the Distributed LLC's.
3.3 REPRESENTATIONS AND WARRANTIES OF INVESTORS. Each Investor
represents and warrants to the Partnership as follows:
(a) Exhibit A accurately sets forth the number of Partnership
Units to which said Investor holds legal title. Said Investor owns good, valid,
and marketable title to said Partnership Units, free and clear of all liens,
claims, debts, security interests, judgments, mortgages, options, call rights,
sale agreements, rights of third parties or encumbrances of any kind whatsoever.
Said Investor is not the beneficial owner of any Partnership Units, other than
the Partnership Units legally owned by said Investor and set forth on Exhibit A.
For the purposes hereof, the term "beneficial owner" shall have the meaning set
forth in Rule 13d-3 under the Exchange Act Rules, as promulgated by the
Commission.
3.4 REAFFIRMATION OF REPRESENTATIONS AND WARRANTIES; SURVIVAL. All of
the representations and warranties made in this Article 3 shall be deemed to
have been remade and reaffirmed as of the Distribution Date, as though made on
the Distribution Date, and shall survive the consummation of the Distribution
indefinitely.
ARTICLE 4
---------
COVENANTS
---------
4.1 ENCUMBRANCE OF INTERESTS. Neither Investor LLC nor any of the
Investors shall mortgage, pledge, assign, sell, transfer, hypothecate, grant a
security interest in or otherwise encumber, directly or indirectly, all or any
portion of the respective Partnership Units owned by it from time to time.
4.2 FURTHER ASSURANCES. All of the parties hereto shall use their
reasonable best efforts, prior to, on and after the Distribution Date, to take
or cause to be taken, all actions, and to do, or cause to be done, all things,
necessary, proper or desirable under applicable laws and regulations to carry
out the purposes of this Agreement. Without limiting the foregoing, The
Partnership and Investor LLC shall use their best efforts to obtain all consents
and approvals, to enter into all amendatory agreements and to make all filings
and applications and take all other actions which may be required for the
consummation of the transactions contemplated by this Agreement, including,
without limitation, all applicable regulatory filings.
4.3 CAPITAL EXPENDITURES. Investors shall notify the Partnership not
less than ten (10) business days prior to causing the Distributed LLC's to incur
any Capital Expenditures, which shall be subject to any limitations thereon
contained in the Merger Agreement.
4.4 MAINTENANCE OF NET WORTH. Investor LLC covenants and agrees, for a
period of two (2) years following the Distribution Date, that (i) it shall not
(and shall not permit the Distributed LLC's to) sell, assign, transfer,
mortgage, pledge, hypothecate or otherwise encumber the Retail Properties, any
interest therein, or any interest of Investor LLC in the Distributed LLC's, and
(ii) it shall not make any distribution of the proceeds of any sale or
financing, if the effect of any of the foregoing actions in (i) or (ii) above
would be to reduce the net worth of Investor LLC below $5,000,000 as determined
in accordance with generally accepted accounting principles,
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<PAGE>
consistently applied. In the event of a violation of the foregoing covenant,
Investors shall, without further action, be deemed to have assumed, jointly and
severally, the obligations of Investor LLC under Section 2.6, Article 3 and
Article 5 of this Agreement. This Section 4.4 shall survive the consummation of
the transactions contemplated under this Agreement.
4.5 OPERATION OF PROPERTIES. The Distributed LLC's shall have the right
to lease, manage and operate the Retail Properties in whatever manner they deem
appropriate during the period between the date hereof and the Distribution Date,
to the extent consistent with the Distributed LLCs' current standards and
practices. Without limiting the definition of Capital Expenditures, leasing
commissions, tenant allowances, rent abatements and any costs of constructing
tenant improvements shall be included in the definition of Capital Expenditures.
ARTICLE 5
---------
INDEMNIFICATION
---------------
5.1 INDEMNIFICATION. Except as otherwise set forth herein, Investor
LLC, for itself, its Affiliates and its respective successors and assigns, shall
indemnify, defend and hold harmless the Partnership, each of its trustees,
officers, employees and agents, each Affiliate of the Partnership, and each of
the heirs, executors, successors and assigns of any of the foregoing (the
"Partnership Indemnitees") from and against any and all Losses and Liabilities
of and Actions against the Partnership Indemnitees arising out of, by reason of
or otherwise in connection with (i) the Assumed Liabilities, (ii) the
obligations of Investor LLC and/or the Investors under this Agreement, and (iii)
any Actions brought or joined in by any Former Partner and/or any person
claiming by or through any Former Partner, alleging that said Former Partner has
suffered or sustained any Loss or Liability, or incurred any increased expense
(including any acceleration of, or any increase in, the Taxes owed by said
Former Partner) by reason of the transactions contemplated by this Agreement or
by reason of any act of Investors.
5.2 LIMITATIONS ON INDEMNIFICATION OBLIGATIONS. The amount which any
party (an "Indemnifying Party") is or may be required to pay to any other party
(an "Indemnitee") pursuant to Section 5.1 shall be reduced (retroactively or
prospectively) by any insurance proceeds or other amounts actually recovered by
or on behalf of such Indemnitee, in reduction of the related Loss. If an
Indemnitee shall have received the payment required by this Agreement from an
Indemnifying Party in respect of a Loss and shall subsequently actually receive
insurance proceeds or other amounts in respect of such Loss, then such
Indemnitee shall pay to such Indemnifying Party a sum equal to the amount of
such insurance proceeds, net of the costs (including any fees) of recovery of
insurance proceeds, or other amounts actually received, up to the aggregate
amount of any payments received from such Indemnifying Party pursuant to this
Agreement in respect of such Loss.
5.3 PROCEDURE FOR INDEMNIFICATION
(a) If an Indemnitee shall receive notice or otherwise learn of
the assertion by a person (including, without limitation, any Governmental
Authority) who is not a party to this Agreement or the Merger Agreement of any
claim or of the commencement by any such person of any Action (a "Third-Party
Claim") with respect to which an Indemnifying Party may be obligated to provide
indemnification pursuant to this Agreement, such Indemnitee shall give such
Indemnifying Party written notice (the "Indemnitee Notice") thereof promptly
after becoming aware of such Third-Party Claim; provided, however, that the
failure of any Indemnitee to give notice as provided in this Section 5.3 shall
not relieve the applicable Indemnifying Party of its obligations under this
Article V, except to the extent that such Indemnifying Party is prejudiced by
such failure to give notice. Such Indemnitee Notice shall describe the
Third-Party Claim in reasonable detail and shall indicate the amount (estimated
if necessary) of the Loss that has been or may be sustained by such Indemnitee.
(b) The Indemnitee shall provide to the Indemnifying Party on
request all information and documentation reasonably necessary to support and
verify any Losses which the Indemnitee believes give rise to a claim for
indemnification hereunder and shall give the Indemnifying Party reasonable
access to all books, records and personnel in the possession or under the
control of the Indemnitee which would have bearing on such claim.
(c) Upon receipt of the Indemnitee Notice required by Section
5.3(a), the Indemnifying Party shall be entitled, if it so elects, to take
control of the defense and investigation with respect to such claim and to
9
<PAGE>
employ and engage attorneys of its own choice (subject to approval by the
Indemnitee, which approval shall not be unreasonably withheld) to handle and
defend the same, at the Indemnifying Party's cost, risk and expense, upon
written notice to the Indemnitee of such election within twenty (20) days of
receipt of Indemnitee's notice. The Indemnifying Party shall not settle any
third-party claim that is the subject of indemnification without the written
consent of the Indemnitee, which consent shall not be unreasonably withheld;
provided, however, that the Indemnifying Party may settle a claim without the
Indemnitee's consent if such settlement (i) includes a complete release of the
Indemnitee and (ii) does not require the Indemnitee to make any payment or take
any action or otherwise materially adversely affect the Indemnitee. After notice
from an Indemnifying Party to an Indemnitee of its election to assume the
defense of a Third-Party Claim, such Indemnifying Party will not be liable to
such Indemnitee under this Article V for any legal or other expenses
subsequently incurred by such Indemnitee in connection with the defense thereof;
provided, that, if the defendants in any such claim include both the
Indemnifying Party and one or more Indemnitees and a conflict of interest
between such Indemnitees and such Indemnifying Party exists in respect of such
claim, such Indemnitees will have the right to employ separate counsel
reasonably satisfactory to the Indemnifying Party to represent such Indemnitees,
and in that event the reasonable fees and expenses of such separate counsel (but
not more than one separate counsel) will be paid by such Indemnifying Party.
(d) If an Indemnifying Party elects to defend or to seek to
compromise any Third-Party Claim, the appropriate Indemnitee shall (x) cooperate
in all reasonable respects with the Indemnifying Party in connection with such
defense and (y) not admit any liability with respect to, or settle, compromise
or discharge, such Third-Party Claim without the Indemnifying Party's prior
written consent.
(e) If the Indemnifying Party shall decline to assume the defense
of any such Third-Party Claim, or shall fail to notify the Indemnitee that it
will defend such claim within twenty (20) days after receipt of the Indemnitee
Notice, the Indemnitee shall have the right to defend against such claim. The
reasonable expenses of all proceedings, contests or lawsuits in respect of such
claims shall be borne by the Indemnifying Party but only if the Indemnifying
Party is responsible pursuant to this Article V to indemnify the Indemnitee in
respect of the Third-Party Claim.
(f) In the event of payment by an Indemnifying Party to any
Indemnitee in connection with any Third-Party Claim, such Indemnifying Party
shall be subrogated to and shall stand in the place of such Indemnitee as to any
events or circumstances with respect to which such Indemnitee may have any right
or claim relating to such Third-Party Claim against any claimant or plaintiff
asserting such Third-Party Claim. Such Indemnitee shall cooperate with such
Indemnifying Party in a reasonable manner, and at the cost and expense of such
Indemnifying Party, in prosecuting any subrogated right or claim.
(g) With respect to any Third-Party Claim for which the
Indemnifying Party assumes responsibility for defense, the Indemnifying Party
shall inform the Indemnitee, upon the reasonable written request of the
Indemnitee, of the status of efforts to resolve such Third-Party Claim. With
respect to any Third-Party Claim for which the Indemnifying Party does not
assume such responsibility, the Indemnitee shall inform the Indemnifying Party,
upon the reasonable written request of the Indemnifying Party, of the status of
efforts to resolve such Third-Party Claim.
5.4 SURVIVAL OF INDEMNITIES. The obligations of Investor LLC under this
Article V shall survive the consummation of the Distribution indefinitely, and
shall also survive the sale or other transfer by it or them of any assets or
businesses or the assignment or purported assignment by it or them of any
Liabilities.
ARTICLE 6
---------
CONDITIONS TO THE CONTRIBUTION AND THE DISTRIBUTIONS
----------------------------------------------------
6.1 CONDITIONS PRECEDENT TO THE DISTRIBUTIONS. The obligation of the
Partnership to effectuate the Distribution pursuant to Article II shall be
subject, at the option of the Partnership, to the fulfillment or waiver, of each
of the following conditions:
(a) NO PROHIBITIONS. Consummation of the transactions contemplated
hereby shall not be prohibited by applicable law and no Governmental Authority
of competent jurisdiction shall have enacted, issued,
10
<PAGE>
promulgated, enforced or entered any statute, rule, regulation, executive order,
decree, injunction or other order (whether temporary, preliminary or permanent)
which is in effect and which materially restricts, prevents or prohibits
consummation of the Distribution, the Partnership Merger or any transaction
contemplated by this Agreement or the Merger Agreement, it being understood that
the parties hereto hereby agree to use their reasonable best efforts to cause
any such decree, judgment, injunction or other order to be vacated or lifted as
promptly as possible.
(b) CONDITIONS PRECEDENT TO PARTNERSHIP MERGER SATISFIED. Each
condition to the closing of the Partnership Merger set forth in Sections 6.1,
6.2 and 6.3 of the Merger Agreement shall have been satisfied or waived.
(c) ACCURACY OF REPRESENTATION. The representations and warranties
in Article 3 shall be true and complete in all material respects, and Investors
and Investor LLC shall not be in breach of their respective covenants under
Section 4.2.
(d) Execution and delivery of the instruments required to be
executed and delivered pursuant to Section 2.1(a).
(e) The Partnership and Investor LLC shall take all reasonable
steps necessary and appropriate to cause the conditions set forth in this
Section 6.1 to be satisfied and to effect the Distribution on the Distribution
Date. Any party shall have the right to waive any condition that is for its
exclusive benefit.
ARTICLE 7
---------
MISCELLANEOUS
-------------
7.1 COMPLETE AGREEMENT; CONSTRUCTION. This Agreement, including the
Exhibits and Schedules, constitutes the entire agreement between the parties
with respect to the subject matter hereof, and supersedes all previous
negotiations, commitments and writings with respect to such subject matter.
7.2 SURVIVAL OF AGREEMENTS. Except as otherwise contemplated by this
Agreement, all representations, warranties, covenants and agreements of the
parties contained in this Agreement will survive the Distribution Date.
7.3 GOVERNING LAW. This Agreement will be governed by and construed in
accordance with the laws of the State of Delaware, without regard to the
principles of conflicts of laws thereof.
7.4 NOTICES. All notices and other communications hereunder must be in
writing and must be delivered by hand, mailed by registered or certified mail
(return receipt requested) or sent by facsimile transmission to the parties at
the following addresses (or at such other addresses for a party as may be
specified by like notice) and will be deemed given on the date on which such
notice is received:
To the Partnership:
Before the Distribution Date, to:
Grove Property Trust
598 Asylum Avenue
Hartford, Connecticut 06105
Fax No.: (860) 527-0401
11
<PAGE>
With a copy to:
Cummings & Lockwood
Four Stamford Plaza
107 Elm Street
Stamford, Connecticut 06904
Attention: Michael J. Hinton
After the Distribution Date, to:
ERP Operating Limited Partnership
Two North Riverside Plaza, Suite 400
Chicago, Illinois 60606
Fax No. (312) 454-0434
With a copy to:
Piper Marbury Rudnick & Wolfe
203 North LaSalle Street
Suite 1800
Chicago, Illinois 60601
Attention: Errol R. Halperin
To Investor LLC:
Grove Property Trust
598 Asylum Avenue
Hartford, Connecticut 06105
Fax No.: (860) 527-0401
With a copy to:
Cummings & Lockwood
Four Stamford Plaza
107 Elm Street
Stamford, Connecticut 06904
Attention: Michael J. Hinton
Prior to the Distribution Date, copies of all notices sent to either
party shall be sent to ERP OP at:
ERP Operating Limited Partnership
Two North Riverside Plaza, Suite 400
Chicago, Illinois 60606
Fax No. (312) 454-0434
7.5 AMENDMENTS. This Agreement may not be modified or amended except by
an agreement in writing signed by the parties.
7.6 SUCCESSORS AND ASSIGNS. Except in connection with the Partnership
Merger, this Agreement shall not be assignable, in whole or in part, directly or
indirectly, by either party hereto without the prior written consent of the
other, and any attempt to assign any rights or obligations arising under this
Agreement without such consent shall be void; provided, however, that the
provisions of this Agreement shall be binding upon, inure to the benefit of and
be enforceable by the parties and their respective successors and permitted
assigns; provided, further, that the rights or the Partnership under this
Agreement may be assigned after the Partnership Merger to any Affiliate of the
Partnership.
12
<PAGE>
7.7 NO THIRD-PARTY BENEFICIARIES. Except for the provisions of Article
V relating to Indemnitees and as otherwise expressly provided herein, the
provisions of this Agreement are solely for the benefit of the parties hereto
and their respective successors and permitted assigns and should not be deemed
to confer upon third parties any remedy, claim, liability, reimbursement, claim
of action or other right in excess of those existing without reference to this
Agreement.
7.8 TERMINATION ON TERMINATION OF MERGER AGREEMENT. This Agreement
shall terminate in the event of the termination or expiration of the Merger
Agreement prior to the consummation of the Partnership Merger.
7.9 TITLE AND HEADINGS. Titles and headings to sections herein are
inserted for the convenience of reference only and are not intended to be a part
of or to affect the meaning or interpretation of this Agreement.
7.10 LEGAL ENFORCEABILITY. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof. Any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction. Without prejudice to any
rights or remedies otherwise available to any party hereto, each party hereto
acknowledges that damages would be an inadequate remedy for any breach of the
provisions of this Agreement and agrees that the obligations of the parties
hereunder are specifically enforceable.
7.11 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which when executed shall be deemed an original, but all
of which together shall constitute one and the same instrument.
7.12 NON-RECOURSE TO PARTNERS OF THE PARTNERSHIP. Investor LLC and the
Investors shall look solely to the assets of the Partnership for satisfaction of
any liability of the Partnership with respect to this Agreement and all
documents, agreements, understandings and arrangements relating to this
Agreement and will not seek recourse or commence any action against any general
partner or limited partner or the Partnership or the trustees or officers of any
of the foregoing for the performance or payment of any obligation of the
Partnership hereunder or thereunder.
7.13 LIMITED RECOURSE TO INVESTORS. The Partnership shall look solely
to the assets of Investor LLC for satisfaction of any liability of Investor LLC
with respect to this Agreement and all documents, agreements, understandings and
arrangements relating to this Agreement and will not seek recourse or commence
any action against any member of Investor LLC or the trustees or officers of any
of the foregoing for the performance or payment of any obligation of Investor
LLC hereunder or thereunder; provided, however, that nothing contained in this
Section 7.13 shall limit the liability of the Investors under Section 3.3 or, to
the extent applicable, Section 4.4.
13
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
GROVE OPERATING, L.P., a Delaware
limited partnership
By: GROVE PROPERTY TRUST, a Maryland
real estate investment trust,
General partner
By: /s/ Joseph R. LaBrosse
---------------------------
Name: Joseph R. LaBrosse
---------------------------
Title: Chief Financial Officer
---------------------------
GROVE REALTY LLC, a Delaware limited
liability company
By: /s/ Joseph R. LaBrosse
---------------------------
Name: Joseph R. LaBrosse
---------------------------
Title: Chief Financial Officer
---------------------------
/s/ Damon D. Navarro
---------------------------------
DAMON D. NAVARRO
/s/ Brian D. Navarro
---------------------------------
BRIAN D. NAVARRO
/s/ Edmund F. Navarro
---------------------------------
EDMUND F. NAVARRO
/s/ Joseph R. Labrosse
---------------------------------
JOSEPH R. LABROSSE
14
<PAGE>
Schedule of Exhibits
Exhibit A - Schedule of Partnership Units
Exhibit B - Schedule of Retail Properties (including Legal Descriptions)
Exhibit C - Form of Assignment and Assumption of Partnership Interests
Exhibit D - Form of Instrument of Withdrawal
Exhibit E - Schedule of Distributed LLC's
Exhibit F - Form of Assignment of Membership Interests
Exhibit G - Schedule of Assets and Liabilities
Exhibit H - Schedule of Tenant Leases
Exhibit I - Schedule of Pending Actions
15
<PAGE>
CONSENT OF GROVE
----------------
The undersigned, in its capacity as General Partner of the Partnership,
hereby consents to the transactions described in Section 2.1(a) of this
Agreement and waives any right of first refusal under Section 11.3(A)(a) of the
Partnership Agreement.
GROVE PROPERTY TRUST, a Maryland
real estate investment trust
By: /s/ Joseph R. LaBrosse
---------------------------
Name: Joseph R. LaBrosse
---------------------------
Title: Chief Financial Officer
---------------------------
16
<PAGE>
EXHIBIT A
---------
SCHEDULE OF PARTNERSHIP UNITS
-----------------------------
UNIT HOLDERS
------------
UNIT HOLDER # OF UNITS
----------- ----------
Damon D. Navarro 324,294
Brian D. Navarro 316,743
Edmund F. Navarro 280,357
Joseph R. LaBrosse 76,833
---------
998,227
In addition to the Partnership Units listed above, Damon and Brian
Navarro are the beneficial owners of an additional 14,307 Partnership Units,
which will not be contributed to Investor LLC, but which instead will be
tendered in connection with the transactions contemplated in the Merger
Agreement.
A-1
<PAGE>
Special Proxy Statement: 1307 SPPS 00
<PAGE>
DETACH HERE
|X| Please mark
votes as in
this example.
This proxy is solicited by the Board of Trust Managers and may be revoked prior
to exercise. This proxy, when properly executed, will be voted as directed
herein by the undersigned shareholder. In the absence of direction, this proxy
will be voted FOR Item 1.
FOR AGAINST ABSTAIN
1. Approval of the merger of Grove Property Trust [ ] [ ] [ ]
("Grove") into a subsidiary of ERP Operating Limited
Partnership ("ERP"), pursuant to an Agreement and
Plan of Merger, dated as of July 17, 2000 among
Grove, Grove Operating, L.P. and ERP, and the other
transactions contemplated by the merger agreement.
2. Other Business:
In their discretion, the proxies are authorized to vote upon such other
business as may properly be brought before the meeting.
MARK HERE FOR ADDRESS MARK HERE IF
CHANGE AND NOTE AT LEFT [ ] YOU PLAN TO [ ]
ATTEND THE
MEETING
Please sign exactly as name(s) appear(s) hereon.
If shares are registered in the names of two or
more persons, each should sign. Executors,
administrators, trustees, guardians,
attorneys-in-fact, general partners and other
persons acting in a representative capacity
should add their title. When the proxy is given
by a corporation, it should be signed by an
authorized officer.
Signature Date Signature Date
-------------- ---------- --------------- ----------
<PAGE>
DETACH HERE
GROVE PROPERTY TRUST
The undersigned hereby appoints Damon D. Navarro and Joseph R.
P LaBrosse, and each of them, as proxies, with full power of
R substitution in each, to vote the shares of Grove Property Trust (the
O "Company") of the undersigned at the Special Meeting of the
X Shareholders to be held on Tuesday, October 31, 2000 at 9:00 a.m. at
Y The Hartford Club, 46 Prospect Street, Hartford, Connecticut 06103 and
at any adjournment thereof as specified on the reverse side.
----------- -----------
SEE REVERSE CONTINUED AND TO BE SIGNED ON REVERSE SIDE SEE REVERSE
SIDE SIDE
----------- -----------
