AMERICAN
COMMUNITY PROPERTIES TRUST
222
Smallwood Village Center
St.
Charles, Maryland 20602
SUMMARY
This
summary highlights selected information contained elsewhere in this proxy
statement relating to the Merger and other matters to be addressed at the
special meeting and may not contain all of the information that is important to
you. In this proxy statement, we refer to the merger of FCP/ACPT Acquisition
Company, Inc. with and into our Company as the “Merger,” and we refer to the
proposed amendment to our Amended and Restated Declaration of Trust as the
“Declaration of Trust Amendment.” For a more complete description of
the Merger and other transactions contemplated by the Merger Agreement and the
Declaration of Trust Amendment, you should carefully read this entire proxy
statement as well as the additional documents to which it refers, including the
Merger Agreement, a copy of which is attached to this proxy statement as Exhibit A,
and the Declaration of Trust Amendment, a copy of which is attached to this
proxy statement as Exhibit B. For
instructions on obtaining more information, see “¾Whom
can I call with questions” on page 16. References to “ACPT,” “the
Company,” “we,” “our,” or “us” in this proxy statement refer to American
Community Properties Trust and its subsidiaries unless otherwise indicated or
the context otherwise requires.
This
proxy statement is dated December 1, 2009 and is first being mailed to
shareholders on or about December 2, 2009.
Parties
to the Merger (Page 21)
American
Community Properties Trust
American
Community Properties Trust is a self-advised and self-managed real estate
holding company that is primarily engaged in the business of investing in and
managing multifamily rental properties as well as community development and
homebuilding. ACPT’s operations are primarily concentrated in the
Washington, D.C. metropolitan area and Puerto Rico. As of September
30, 2009, we owned or maintained interests in 22 multifamily rental properties,
directly and through partnerships, containing an aggregate of 3,366 completed
units and 184 units that are currently under construction. In
addition, as of September 30, 2009, we owned two commercial buildings containing
approximately 75,000 square feet of leasable space and approximately 4,000 acres
of land in St. Charles, Maryland and 600 acres of land in Puerto
Rico. We were formed as a Maryland real estate investment trust in
March 1997 to succeed to most of Interstate General Company L.P.’s (“IGC”) real
estate operations. On October 5, 1998, IGC transferred to ACPT the
common shares of four subsidiaries that collectively comprised the majority of
the principal real estate operations and assets of IGC. In exchange,
ACPT issued to IGC 5,207,954 Common Shares of ACPT, all of which were
distributed to the partners of IGC. We believe that we have qualified
and been taxable as a partnership for U.S. federal income tax purposes since
October 5, 1998. Our executive offices are located at 222 Smallwood
Village Center, St. Charles, Maryland, 20602, phone number (301)
843-8600. Our Common Shares currently are listed on the New York
Stock Exchange AMEX, or “NYSE Amex,” under the symbol “APO.” We
currently have no preferred shares outstanding.
FCP
Fund I, L.P.
Federal
Capital Partners is a Washington, .D.C.-based real estate investment company
that owns and manages a portfolio of multi-family office, industrial and retail
properties in the Mid-Atlantic region, including through FCP Fund I, L.P., its
equity fund, which we sometimes refer to in this proxy statement as
“FCP.” FCP’s executive offices are located at c/o Federal Capital
Partners, 1000 Potomac Street, Suite 120, Washington, D.C. 20007, phone
number (202) 333-6030.
FCP/ACPT
Acquisition Company, Inc.
FCP/ACPT
Acquisition Company, Inc., which we sometimes refer to in the proxy statement as
“Merger Sub,” is a Maryland corporation and indirect subsidiary of FCP formed
for the sole purpose of effecting the Merger. Merger Sub has not
conducted any business operations other than in connection with the transactions
contemplated by the Merger Agreement. Merger Sub’s executive offices
are located at c/o Federal Capital Partners, 1000 Potomac Street, Suite
120, Washington, D.C. 20007, phone number (202) 333-6030.
The
Special Meeting (Page 19)
The
special meeting will be held at 10:00 a.m., local time, on Tuesday, December 22,
2009, at the Regency Furniture Stadium, Legends Club Room, 11765 St. Linus
Drive, Waldorf, Maryland. At the special meeting, you will be
asked to consider and vote upon (i) approval of the Merger pursuant to the
terms of the Merger Agreement, (ii) the Declaration of Trust Amendment and (iii)
approval of any proposal to adjourn the special meeting to solicit
additional proxies in favor of approval of the Merger and the Declaration of
Trust Amendment if there are insufficient votes at the time of the special
meeting to approve both the Merger and the Declaration of Trust
Amendment.
Record
Date, Notice and Quorum (Page 19)
We
have set the close of business on November 27, 2009 as the record date for
determining those shareholders who are entitled to notice of, attend and vote
at, the special meeting. As of the record date, 5,622,660 Common
Shares were outstanding.
The
presence at the special meeting, in person or by proxy, of holders of a majority
of the aggregate number of our Common Shares outstanding and entitled to vote on
the record date will constitute a quorum, allowing us to conduct the business of
the special meeting.
A properly executed proxy marked ABSTAIN and a
broker non-vote will be counted for purposes of determining whether a quorum is
present at the special meeting but will not be voted.
Voting
Requirements for the Proposals (Page 19)
The
Merger
Under
the Merger Agreement, the proposal to approve the Merger requires the
affirmative vote of holders of at least two-thirds of our issued and outstanding
Common Shares entitled to vote at the special meeting.
Declaration
of Trust Amendment
Under
Maryland law and our Declaration of Trust, the proposal to approve the
Declaration of Trust Amendment requires the affirmative vote of holders of at
least two-thirds of our issued and outstanding Common Shares entitled to vote at
the special meeting.
Adjournments
Under
our Bylaws, any proposal to adjourn the special meeting to solicit additional
proxies in favor of approval of the Merger and the Declaration of Trust
Amendment if there are insufficient votes at the time of the special meeting to
approve both the Merger and the Declaration of Trust Amendment would require the
affirmative vote of a majority of the votes cast at the special
meeting.
Other
Voting Matters
Each
Common Share is entitled to one vote. If you hold your Common Shares
in “street name” (that is, through a broker or other nominee), your broker or
nominee will not vote your shares unless you provide instructions to your broker
or nominee on how to vote your shares. You should instruct your
broker or nominee how to vote your shares by following the directions provided
by your broker or nominee.
Because
the required vote to approve the Merger and the Declaration of Trust Amendment
is based on the number of Common Shares outstanding rather than on the number of
votes cast, if you fail to authorize a proxy to vote your shares by completing
and returning the enclosed proxy card, fail to vote in person or fail to
instruct your broker or nominee on how to vote or abstain from voting, it will
have the same effect as a vote against these proposals.
An
abstention or a broker non-vote as to either the Merger or the Declaration of
Trust Amendment will have the same effect as a vote against that
proposal. An abstention or a broker non-vote, if any, as to
adjournment of the special meeting will have no effect on the result of the vote
on adjournment. A broker non-vote occurs when a broker returns a
properly executed proxy but does not vote on a proposal on which the broker is
prohibited from exercising its discretionary voting authority.
Proxies;
Revocation of Proxies (Page 20)
Any
of our common shareholders of record entitled to vote at the special meeting may
vote by returning the enclosed proxy card or by appearing and voting at the
special meeting in person. If you hold your Common Shares in “street
name” (that is, through a broker, bank or other nominee), your broker, bank or
nominee will not vote your shares unless you provide instructions to your
broker, bank or nominee on how to vote your shares. Accordingly, you
should instruct your broker, bank or nominee how to vote your shares by
following the directions provided by your broker, bank or nominee. If
you wish to vote in person at the special meeting and your Common Shares are
held by a broker, bank or nominee, you must bring to the special meeting a legal
proxy from the broker, bank or nominee authorizing you to vote your Common
Shares. It can often take several days to obtain a legal proxy from a
broker, bank or nominee.
Even after you have properly submitted your proxy
card, you may change your vote at any time before the proxy is voted by
delivering to our Secretary a duly executed proxy bearing a later
date. In addition, the proxy holders will not exercise your proxy if
you attend the special meeting in person and notify the chairman of the meeting
that you would like your proxy revoked. Attendance at the special
meeting will not by itself revoke a previously granted proxy. If you
have instructed a broker, bank or nominee to vote your shares, you must follow
the directions received from your broker, bank or nominee in order to change
your proxy instructions.
Voting
Agreement with the Wilson Family Shareholders (Page 22)
FCP and
Merger Sub have entered into a voting agreement with J. Michael Wilson, the
Chairman of our Board of Trustees, and certain of his family members and
affiliated entities, which we refer to in this proxy statement as the “Wilson
Family Shareholders.” The Wilson Family Shareholders own an aggregate of
2,650,720 of our Common Shares (which represents 47% of our outstanding fully
diluted Common Shares as of the record date). Pursuant to the voting
agreement, the Wilson Family Shareholders have agreed to vote in favor of the
Merger, the Merger Agreement and each transaction contemplated by the Merger
Agreement, including the Declaration of Trust Amendment. In addition,
the Wilson Family Shareholders have agreed to vote against certain matters that
would interfere with our ability to timely complete the Merger. The
voting agreement with the Wilson Family Shareholders will be terminated upon the
first to occur of (i) the closing of the Merger and (ii) a termination of the
Merger Agreement in accordance with its terms. The voting agreement
with the Wilson Family Shareholders may also be terminated at any time upon
notice from FCP.
Voting
by Our Trustees and Executive Officers (Page 38)
As
of the record date, our trustees and executive officers, excluding J. Michael
Wilson, beneficially owned an aggregate of 416,949 Common Shares, representing,
in the aggregate, approximately 7.4% of the voting power of our Common Shares
entitled to vote at the special meeting. Our executive officers and
trustees other than J. Michael Wilson have informed us that they intend to vote
the Common Shares that they beneficially own in favor of the approval of the
Merger and the Declaration of Trust Amendment, and for the approval of any
adjournments of the special meeting for the purpose of soliciting additional
proxies. As described above, J. Michael Wilson and the other Wilson
Family Shareholders are obligated to vote the Common Shares that they
beneficially own for the approval of the Merger and the Declaration of Trust
Amendment in accordance with the voting agreement.
Voting and Passive Investment
Arrangement with Paul J. Isaac (Page 38)
FCP has advised us that it has entered
into an arrangement with one of our shareholders, Paul J. Isaac, who, together
with certain related persons and affiliates, beneficially owns an aggregate of
865,329 of our Common Shares (representing 15.4% of our outstanding fully
diluted Common Shares), pursuant to which Mr. Isaac and substantially all of
such related persons and affiliates would, after the closing of the Merger, make
a passive indirect investment in the Surviving Entity. In addition,
Mr. Isaac and such related persons and affiliates who would participate in such
investment have agreed to vote 829,529 of the Common Shares of our Company that
they own in favor of the Merger and the Declaration of Trust Amendment at the
special meeting. These Common Shares, combined with the Common Shares
owned by the Wilson Family Shareholders and our other trustees and executive
officers, comprise, in the aggregate, 3,897,198 of our Common Shares
(representing 69% of our outstanding fully diluted Common Shares), and represent
a sufficient number of votes to approve the Merger and the Declaration of Trust
Amendment at the special meeting. FCP has informed us that Mr. Isaac
approached FCP unsolicited to explore such an arrangement after the execution
and announcement of the Merger Agreement and that, prior to such meeting, FCP
had not had any discussions or meetings, nor had it contemplated initiating any
such discussions or meetings, with Mr. Isaac or any of his related persons or
affiliates.
The
Merger (Page 21)
At
the closing of the Merger, Merger Sub will merge with and into the Company, with
the Company surviving the Merger as a subsidiary of FCP, pursuant to the terms
of the Merger Agreement. We sometimes use the term “Surviving Entity”
in this proxy statement to describe the Company as the Surviving Entity
following the Merger.
Merger
Consideration (Page 21)
In
the Merger, each outstanding Common Share of the Company will automatically be
converted into the right to receive $7.75 in cash, without interest and less any
applicable withholding tax. We refer to this amount in this proxy
statement as the “Merger Consideration.” However, Common Shares held
by the Company, FCP, Merger Sub or any subsidiary of the Company or FCP will be
cancelled and retired for no additional consideration. The Merger
Consideration is fixed and will not be adjusted for changes in the trading price
of our Common Shares. However, the Merger Consideration is subject to
adjustment for certain dividend payments, if any (as described in the enclosed
proxy statement). At this time, we do not expect to make any
dividends or other distributions that would reduce the Merger
Consideration.
Treatment
of Restricted Shares and Share Appreciation Rights (Page 22)
In
the Merger, each unvested restricted Common Share of the Company that, by its
terms, vests automatically upon the consummation of the Merger will fully vest
in accordance with its terms and be considered an outstanding Common Share for
all purposes, including the right to receive the Merger
Consideration. In addition, each unvested restricted Common Share of
the Company that, by its terms, does not vest in connection with a change of
control, such as the Merger, will be cancelled and retired for no additional
consideration. There are currently 313,965 restricted Common Shares
outstanding that, by their terms, will vest upon consummation of the
Merger.
Additionally,
in the Merger, each of the outstanding share appreciation rights, which we refer
to as SARs, will be cancelled and in lieu thereof, each holder will be entitled
to the right to receive an amount in cash equal to the product of (i) the excess
of the Merger Consideration over the exercise price per Common Share underlying
such share appreciation right, or SAR, multiplied by (ii) the number of Common
Shares subject to such share appreciation right. There are currently
10,400 SARs outstanding. The excess of the $7.75 per share Merger
Consideration over the weighted average exercise price per Common Share
underlying the 10,400 outstanding SARs is $3.75 per share, for a total of
$39,000.
Payment
Procedures (Page 43)
Following
the completion of the Merger, you will receive a letter of transmittal and
instructions describing how you may exchange your Common Shares for the Merger
Consideration by sending your Common Share certificates with your completed
letter of transmittal to the exchange agent. You should not send your
Common Share certificates to us or anyone else until you receive these
instructions. You will receive payment of the Merger Consideration
after we receive from you a properly completed letter of transmittal together
with your share
certificates. If
you hold your Common Shares in “street name,” your broker or nominee must
surrender your shares in exchange for your Merger Consideration following
completion of the Merger.
Declaration
of Trust Amendment (Page 63)
You
are also being asked to consider and vote upon the Declaration of Trust
Amendment, which will cause Section 5.3.3 to be of no operation or
effect. This amendment would suspend the requirement that we make a
minimum distribution to our common shareholders in connection with our net
taxable income that is allocable to our shareholders. The amendment
would render such section inapplicable for the taxable year ending December 31,
2009 and thereafter, unless the Merger Agreement is terminated and our Board of
Trustees makes a public announcement that Section 5.3.3 will thereafter be
operative and in effect. Our Board of Trustees approved the
Declaration of Trust Amendment at the request of FCP as a condition to its
willingness to sign the Merger Agreement and is recommending that our common
shareholders vote to approve such proposal because the Merger Consideration to
which we, FCP and Merger Sub agreed under the Merger Agreement was premised on
the mutual understanding that no distributions of any kind would be made by us
with respect to our Common Shares in the future so long as the Merger Agreement
remains in effect. The Merger Agreement provides that if we make any
distributions with respect to our Common Shares, the Merger Consideration will
be reduced accordingly.
The
effect of the Declaration of Trust Amendment, if approved, is that, even if we
have net taxable income that is allocable to our common shareholders for the
taxable year ending on December 31, 2009 and thereafter, we would not make a
cash distribution as currently required under our Declaration of
Trust. Instead, if the Merger is consummated, you will receive, as a
common shareholder, the Merger Consideration.
If
the special meeting occurs prior to December 31, 2009, and if both the Merger
and the Declaration of Trust Amendment are approved by our shareholders, we
expect to file the Declaration of Trust Amendment with the State Department of
Assessments and Taxation of Maryland (the “SDAT”) as soon as practicable after
such approval, and on or prior to December 31, 2009, even if the closing of the
Merger does not occur until after December 31, 2009. In the unlikely
event that the Declaration of Trust Amendment is approved, but the Merger is not
approved, our Board of Trustees may elect not to file the Declaration of Trust
Amendment with the SDAT.
Recommendation
of Our Board of Trustees (Page 29)
Our Board of Trustees recommends that
holders of Common Shares vote FOR approval of the Merger and FOR approval of the
Declaration of Trust Amendment. At a meeting held on September 25, 2009, the
Special Committee of our Board of Trustees appointed by our Board of Trustees
and comprised of the five independent and disinterested trustees who are not
also employees of the Company (the “Special Committee”) unanimously recommended
to the Board of Trustees that the Board of Trustees determine that the Merger,
on the terms set forth in the Merger Agreement, and the Declaration of Trust
Amendment are advisable and in the best interests of Company. The
recommendation of the Special Committee was made after careful consideration of
a variety of business, financial and other factors in consultation with its
independent financial and legal advisors. Based on the recommendation
of the Special Committee, the Board of Trustees, at a meeting held on September
25, 2009, declared that the Merger, on the terms set forth in the Merger
Agreement, and the Declaration of Trust Amendment are advisable and in our best
interests and further determined to recommend that our shareholders approve the
Merger and the Declaration of Trust Amendment. Two of the trustees,
J. Michael Wilson and Stephen K. Griessel, abstained from voting due to their
interests in the Merger; however, both of these trustees have indicated that
they intend to vote their Common Shares FOR approval of both the Merger and the
Declaration of Trust Amendment.
Opinion
of the Special Committee’s Financial Advisor (Page 31)
On
September 25, 2009, FBR Capital Markets & Co., which we refer to as FBR,
rendered its oral opinion to the Special Committee (which was subsequently
confirmed by delivery of FBR’s written opinion dated the same date) to the
effect that, as of September 25, 2009, the per share Merger Consideration of
$7.75 to be received by holders of our Common Shares other than the Wilson
Family Shareholders (which we refer to as the “Unaffiliated Holders”), in the
proposed Merger pursuant to the Merger Agreement was fair to such Unaffiliated
Holders from a financial point of view.
FBR’s
opinion was directed to the Special Committee and only addressed the fairness,
from a financial point of view, of the per share Merger Consideration to be
received by the Unaffiliated Holders, in the proposed Merger pursuant to the
Merger Agreement, and did not address any other aspect or implication of the
proposed Merger. The summary of FBR’s opinion in this proxy statement is
qualified in its entirety by reference to the full text of its written opinion,
which is included as Exhibit C
to this proxy statement and sets forth the procedures followed, assumptions
made, qualifications and limitations on the review undertaken and other matters
considered by FBR in preparing its opinion. However, neither FBR’s written
opinion nor the summary of its opinion and the related analyses set forth in
this proxy statement are intended to be, and do not, constitute advice or a
recommendation to any security holder as to how such security holder should act
or vote with respect to any matter relating to the Merger.
Available
Funds (Page 44)
As
noted above, the Merger is not subject to any conditions regarding the ability
of FCP or Merger Sub to obtain the financing necessary to complete the Merger.
FCP has represented to us in the Merger Agreement that it will, on the closing
date, have cash sufficient to pay the Merger Consideration and to satisfy the
obligations of FCP and Merger Sub at the time and in the manner contemplated by
the Merger Agreement, including without limitation, in connection with the
Merger and the other transactions contemplated by the Merger Agreement and all
related expenses.
No
Dissenters’ or Appraisal Rights (Page 68)
Under
Maryland law, because our Common Shares are listed on the NYSE Amex, appraisal
rights are not available to holders of our Common Shares in connection with the
Merger.
Interests
of Our Trustees, Executive Officers and Other Persons in the Merger (Page
37)
Each
of our executive officers and certain of our trustees and other persons have
interests in the Merger that differ from, or are in addition to, and therefore
may conflict with, your interests as a shareholder as described in “The
Merger—Interests of Our Trustees, Executive Officers and Other Persons in the
Merger” beginning on page 37. Our Board of Trustees is aware of these
interests and considered them in approving the Merger and the other transactions
contemplated by the Merger Agreement. These interests
include:
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restricted
Common Shares owned by our trustees and executive officers, including
290,995 restricted Common Shares that were granted on September 9, 2009,
to our Chief Executive Officer pursuant to the Amended and Restated
Employment Agreement, dated May 14, 2009, among us, our subsidiary
American Rental Properties Trust and our Chief Executive Officer, which
currently are subject to vesting restrictions and will become fully vested
upon consummation of the Merger but prior to the effectiveness of the
Merger and the holders of which will be entitled to receive the same
consideration as the holders of Common
Shares;
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pursuant
to an agreement between our Chief Executive Officer and Interstate
Business Corporation (“IBC”), an entity affiliated with J. Michael Wilson,
the Chairman of our Board of Trustees, 185,550 of our Common Shares owned
by IBC, which were to be transferred in annual installments from IBC to a
trust established by IBC for the sole and exclusive benefit of our Chief
Executive Officer, will instead be transferred to our Chief Executive
Officer upon the consummation of the Merger, and our Chief Executive
Officer will be entitled to receive the same per share Merger
Consideration in exchange for such 185,550 Common Shares as all other
holders of our Common Shares under the terms of the Merger
Agreement;
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share
appreciation rights, or SARs, will be cancelled and, in lieu thereof, each
holder will be entitled to the right to receive an amount in cash equal to
the product of (i) the excess of the Merger Consideration over the
exercise price per Common Share underlying such SAR multiplied by (ii) the
number of Common Shares subject to such SAR. An aggregate
amount of $37,500 will be paid out to one of our trustees in connection
with the cancellation of 10,000 SARs held by
him;
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J.
Michael Wilson, the Chairman of our Board of Trustees, had expressed a
strong desire on behalf of the Wilson Family Shareholders to sell their
Common Shares in order to created needed
liquidity;
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certain
of our executive officers, one of whom is also a trustee, may be employed
by FCP to assist with the management of the Surviving Entity following the
Merger;
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our
Board of Trustees and executive officers are entitled to indemnification
by FCP and the Surviving Entity and liability insurance coverage for a
period of six years following the effective time of the Merger;
and
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our
independent trustees are entitled to receive, for their service on the
Special Committee, lump sum payments of $25,000 per member and an
additional $40,000 and $20,000 payment to the chairman and vice chairman
of the Special Committee,
respectively.
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Solicitation
of Other Offers (Page 48)
From
the first business day after the date of the Merger Agreement until 11:59 p.m.,
Eastern Standard Time, on October 28, 2009 (we refer to this period as the
“go-shop period”), we were permitted to initiate, solicit and encourage
acquisition proposals (including by way of providing access to non-public
information pursuant to confidentiality agreements), and participate in
discussions or negotiations with respect to acquisition proposals or otherwise
cooperate with or assist or participate in, or facilitate any such discussions
or negotiations. The Special Committee directed FBR, during the
“go-shop period,” to approach potentially interested parties in an effort to
solicit acquisition proposals for the Company that constituted or were
reasonably likely to lead to a superior proposal. Accordingly, FBR
contacted 57 potential financial and strategic buyers of which 19 requested a
confidentiality agreement so they could consider whether to participate in the
process and 10 signed confidentiality agreements and conducted due
diligence. However, none of the potential buyers contacted by FBR
submitted an acquisition proposal prior to expiration of the “go-shop”
period.
After
the end of the go-shop period, we have agreed not to:
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initiate,
solicit or encourage any inquiries or the making of any proposal or offer
that constitutes, or could reasonably be expected to lead to, any
acquisition proposal;
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initiate,
enter into, engage in, continue, or otherwise participate in any
discussions or negotiations regarding, or provide any non-public
information or data to any person relating to, any acquisition
proposal;
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withdraw
the recommendation of the Board of
Trustees;
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approve,
endorse or recommend, or publicly propose to approve, endorse or
recommend, any acquisition
proposal;
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enter
into any agreement in principle, arrangement, understanding, contract or
agreement providing for, or relating to, an acquisition proposal or enter
into any agreement or agreement in principle requiring the Company to
abandon, terminate or fail to consummate the Merger or any of the
transactions contemplated by the Merger
Agreement;
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exempt
any person from the restrictions contained in any state “business
combination,” takeover or similar laws or otherwise cause such
restrictions not to apply to any person or to any acquisition
proposal;
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exempt
any person from the ownership limitations and restrictions contained in
Article IV of our Declaration of Trust or cause such limitations and
restrictions not to apply; or
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release
any person from or fail to enforce any standstill agreement or similar
obligation to us and our subsidiaries other than the automatic termination
of standstill obligations pursuant to the terms of agreements as in effect
as of the date hereof, by virtue of the execution and announcement of the
Merger Agreement.
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Notwithstanding
these restrictions:
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we
are permitted to continue discussions and provide non-public information
to any party that has made an acquisition proposal that satisfies certain
conditions, including the determination by the Board of Trustees or the
Special Committee that such proposal constitutes or is reasonably likely
to lead to a superior proposal, on or prior to October 28, 2009, and with
whom we are having ongoing discussions or negotiations as of October 28,
2009 (we must otherwise immediately cease or cause to be terminated
discussions except as permitted below and cause any confidential
information provided or made available to be returned or destroyed);
and
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at
any time after the date of the Merger Agreement and prior to the approval
of the Merger Agreement by our shareholders, we are permitted to furnish
information with respect to the Company and our subsidiaries to any person
making a bona fide written acquisition proposal and participate in
discussions or negotiations with the person making the bona fide
acquisition proposal, if such proposal is reasonably likely to lead to a
superior proposal (as defined in the Merger Agreement) and it would be
inconsistent with the trustees’ duties under applicable law to fail to
consider such bona fide proposal.
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In
addition, we may terminate the Merger Agreement and enter into a definitive
agreement with respect to a superior proposal under certain
circumstances. In the event that a superior proposal has been made
(or any material revision of a superior proposal has been made), we are not
allowed to effect a recommendation withdrawal (as defined in the Merger
Agreement) or terminate the agreement to accept such proposal
unless:
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we
shall have provided prior written notice to FCP and Merger Sub, at least
three business days in advance, of our intention to take any such action
with respect to such superior proposal, which notice shall specify the
material terms and conditions of such superior proposal (including the
identity of the party making such superior proposal);
and
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prior
to effecting any such action, we shall have negotiated, and shall have
caused our financial and legal advisors to negotiate, during the requisite
three-business day period, with FCP and Merger Sub in good faith (to the
extent FCP and Merger Sub desire to negotiate) to make such adjustments in
the terms and conditions of the Merger Agreement so that the transactions
contemplated by thereby are more favorable to our shareholders than the
superior proposal.
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See
“The Merger Agreement — Recommendation Withdrawal/ Termination in Connection
with a Superior Proposal.”
Conditions
to the Merger (Page 51)
The
Merger will be completed only if the conditions specified in the Merger
Agreement are either satisfied or waived (to the extent
permissible). The most significant conditions specified in the Merger
Agreement include:
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requisite
approval of both the Merger and the amendment to our Declaration of Trust
by our shareholders;
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the
absence of any legal prohibition on the
Merger;
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the
continued accuracy of the respective representations and warranties of FCP
and Merger Sub, on the one hand, and the Company, on the other hand,
contained in the Merger Agreement, except, with respect to most of such
representations and warranties, where the failure of such representations
and warranties to be accurate would not have a material adverse effect on
our Company, as defined in the Merger
Agreement;
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·
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FCP
and Merger Sub, on the one hand, and the Company, on the other hand,
having performed or complied in all material respects with all agreements
and covenants required by the Merger Agreement to be performed or complied
with on or prior to the closing
date;
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·
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the
Company having caused American Rental Properties Trust (“ARPT”), one of
our subsidiaries, to distribute certain inter-company obligations to the
Company in order to distribute the current and accumulated earnings and
profits of ARPT;
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·
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FCP
shall not have determined that there is a “substantial risk” (as described
in the Merger Agreement) that the Company does not qualify or has not
qualified as a partnership for tax purposes, provided that, in the event
of such determination, a tax opinion of legal counsel as to the Company’s
status as a partnership for tax purposes would satisfy such
condition;
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·
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the
receipt of certain third party consents;
and
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·
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the
absence of any event, fact, development, circumstance change or effect
that, individually or in the aggregate, would constitute a material
adverse effect on our Company, as defined in the Merger
Agreement. See “The Merger—The Merger Agreement—Definition of
Material Adverse Effect” on page 53 of this proxy
statement.
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The
Merger is not conditioned on FCP or FCP Merger Sub obtaining financing for the
Merger Consideration. See “—Available Funds” on page 44 for more
information regarding the financing of the Merger.
If
the holders of the requisite percentage of our Common Shares approve the Merger
and the Declaration of Trust Amendment and the other conditions to the Merger
are satisfied or waived (to the extent permissible), then we intend to
consummate the Merger as soon as practicable following the special
meeting.
Termination
of the Merger Agreement/Payment of Termination Payment and Merger Expenses (Page
53)
In
addition to customary termination events, including termination by mutual
consent of the parties, termination for breaches of representations or
warranties, failure to perform any required covenants or agreements, and
termination upon failure to receive the requisite shareholder approval for the
Merger, the Merger Agreement may be terminated under the following
circumstances:
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·
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by
us any time prior to receiving shareholder approval for the Merger in
order to enter into a definitive acquisition agreement that provides for
the implementation of a superior proposal in accordance with the
termination provisions contained in the Merger Agreement, provided that we
pay FCP (i) a $1.45 million termination payment and up to $300,000 of
FCP’s merger expenses if the termination was to accept a superior proposal
during the go-shop period or otherwise from a party who made a bona fide
written acquisition proposal during the go-shop period that was reasonably
likely to lead to a superior proposal (as defined in the Merger Agreement)
and with whom negotiations or discussions were continuing at the end of
the go-shop period or (ii) a $1.75 million termination payment and up to
$300,000 of FCP’s merger expenses if the termination was to accept a
superior proposal that arose after the go-shop period with any other
person; or
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·
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by
either us or FCP if the Merger is not completed on or before March 31,
2010; or
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·
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by
either us or FCP if the Merger is prohibited by any governmental
authority; or
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·
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by
FCP if our Board of Trustees or the Special Committee (i) makes a
recommendation withdrawal (as defined in the Merger Agreement) prior to
the special meeting, (ii) approves or recommends to the Company’s
shareholders an acquisition proposal other than the Merger or (iii) fails
to cause the recommendation of the Merger to be included in this proxy
statement, in which event, pursuant to the Merger Agreement, we would be
required to pay the $1.75 million termination payment and up to $300,000
of FCP’s merger expenses; provided, that we would be required to pay a
$1.45 million termination payment and up to $300,000 of FCP’s merger
expenses if the such actions were taken in connection with the acceptance
of a superior proposal during the go-shop period or otherwise from a party
who made a bona fide written acquisition proposal identified during the
go-shop period that was reasonably likely to lead to a superior proposal
(as defined in the Merger Agreement) and with whom negotiations or
discussions were continuing at the end of the go-shop period (of which
there were none).
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We
also would be required to pay FCP certain termination expenses and fees in the
following circumstances:
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·
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if
we breach our representations and warranties or fail to perform any
covenants or other agreements contained in the Merger Agreement and such
breach causes a condition to closing to not be satisfied or renders such
condition incapable of being satisfied by March 31, 2010, then we would be
required to pay the $1.75 million termination payment and up to $300,000
of FCP’s merger expenses; and
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·
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if
the shareholders do not approve the Merger and the Declaration of Trust
Amendment, we would be required to reimburse FCP for up to $600,000 of its
merger expenses; in addition, if we complete an acquisition proposal
within 12 months following the termination date of the Merger Agreement
(whether or not the acquisition proposal was received prior to the
termination date), we would be required to pay FCP a termination fee of
$1.45 million plus up to $600,000 of FCP’s merger expenses;
and
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·
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if
FCP or Merger Sub breaches any of their representations and warranties or
fails to perform any covenants or other agreements contained in the Merger
Agreement and such breach causes a condition to closing to not be
satisfied or renders such condition incapable of being satisfied by March
31, 2010, then FCP would be required to pay to us a $1.45 million
termination payment and up to $300,000 of our merger expenses; provided,
that if we terminate the Merger Agreement for any such breach by FCP or
Merger Sub within 5 business days prior to the effective time of the
Merger, then FCP would be required to pay to us a $5 million termination
payment and up to $300,000 of our merger
expenses.
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Certain
Tax Consequences of the Merger (Page 58)
You
will be subject to tax on your share of the income we recognize in connection
with the distribution by ARPT of certain inter-company obligations to us (the
“E&P Distribution”). You will also be subject to U.S. federal
income tax on any gain resulting from your receipt of the Merger Consideration
for your Common Shares. A significant portion of the E&P
Distribution and Merger Consideration could be taxed as ordinary
income. For further information on the material U.S. federal income
tax consequences of the Merger and the E&P Distribution, please see the
section captioned “Material United States Federal Income Tax
Consequences—Consequences of the Merger and the E&P Distribution to U.S.
Holders of Our Common Shares” on page 59. You should consult your own
tax advisor for a full understanding of the tax consequences of the Merger and
the E&P Distribution to you.
Fees
and Expenses (Page 40)
We
estimate that our Company will incur, and will be responsible for paying,
transaction-related fees and expenses, consisting primarily of filing fees, fees
and expenses of investment bankers, attorneys and accountants and other related
charges, totaling approximately $3.7 million, including loan assumption fees and
assuming the Merger and the other transactions contemplated by the Merger
Agreement are completed. In the event the Merger and the other
transactions contemplated by the Merger Agreement are completed, the Surviving
Entity will assume these fees and expenses, to the extent they have not been
paid. In the event the Merger is not completed, we will be
responsible for payment of these fees and expenses, other than the fees payable
to the financial advisor to the Special Committee and loan assumption fees,
which are both contingent on closing of the Merger.
Regulatory
Approvals (Page 40)
No
material federal or state regulatory approvals are required to be obtained by us
or the other parties to the Merger Agreement in connection with the
Merger. To effect the Merger, however, we must file articles of
merger with the SDAT and such articles of merger must be accepted for record by
the SDAT.
Litigation
Related to the Merger (Page 40)
On
October 2, 2009, Pennsylvania Avenue Funds, a purported Company shareholder,
filed a class action complaint in the Circuit Court for Charles County,
Maryland, against the Company, our Board of Trustees and FCP. The
complaint alleges that our trustees breached their fiduciary duties in
connection with the Merger. The complaint further alleges that FCP
aided and abetted those breaches of fiduciary duties. The complaint
seeks to enjoin consummation of the Merger and also seeks attorneys’ fees and
expenses.
On
October 23, 2009, Joseph M. Sullivan, a purported Company shareholder, filed a
class action complaint in the Circuit Court for Charles County, Maryland,
against the Company, our Board of Trustees, FCP and Merger Sub. The
complaint alleges that our trustees breached their fiduciary duties in
connection with the Merger. The
complaint
further alleges that FCP and Merger Sub aided and abetted those breaches of
fiduciary duties. The complaint seeks to enjoin consummation of the
Merger and also seeks attorneys’ fees and expenses.
On November 13, 2009, the parties
submitted to the Court an agreed stipulation and proposed order consolidating
these two actions. This order has not yet been entered. On
November 19, 2009, the plaintiffs filed in each action a consolidated
complaint. The consolidated complaint names the same defendants named
in the two initial complaints and asserts the same claims for breach of
fiduciary duties. The consolidated complaint alleges further that the
defendants breached fiduciary duties in connection with the disclosures
contained in the Company's preliminary proxy statement.
Who
Can Answer Other Questions (Page 16)
If
you have any questions about the Merger or any of the other transactions
contemplated by the Merger Agreement or about how to submit your proxy or would
like additional copies of this proxy statement, you should contact our Matthew
M. Martin, our Chief Financial Officer and Secretary:
Matthew
M. Martin
American
Community Properties Trust
222
Smallwood Village Center
St.
Charles, Maryland 20602
(301)
843-8600
QUESTIONS
AND ANSWERS ABOUT THE MERGER
What
am I being asked to vote on?
Holders of our Common Shares are being asked to
consider and vote upon (i) the Merger of Merger Sub with and into our Company
pursuant to the terms of the Merger Agreement and (ii) an amendment to our
Declaration of Trust to cause Section 5.3.3 to be of no operation or effect,
thus suspending the requirement that we make a minimum distribution to our
shareholders in connection with our net taxable income that is allocable to our
shareholders.
What
will I receive in the Merger?
You
will be entitled to receive $7.75 in cash, without interest, for each
outstanding Common Share that you own as of the effective time of the
Merger. The Merger Consideration is fixed and will not be adjusted
for changes in the trading price of our Common Shares. However, the
Merger Consideration is subject to adjustment for certain dividend payments, if
any (as described in the enclosed proxy statement). At this time, we
do not expect to make any dividends or other distributions that would impact the
Merger Consideration.
What
does the Board of Trustees recommend?
Our
Board of Trustees and the Special Committee comprised solely of trustees
determined by our Board to be independent and disinterested have approved the
Merger and declared the Merger, on the terms set forth in the Merger Agreement,
advisable and in our best interests. Our Board of Trustees recommends that
holders of our Common Shares vote FOR approval of the
Merger. For a description of
factors considered by our Board of Trustees, please see the sections captioned
“The Merger—Reasons for the Merger” on page 30 and “The Merger—Recommendation of
Our Board of Trustees” on page 29. In addition, our Board of Trustees
and the Special Committee have approved the Declaration of Trust Amendment and
determined that such amendment was advisable and in the best interests of the
Company. Our
Board of Trustees also recommends that holders of our Common Shares vote FOR
approval of the Declaration of Trust Amendment and FOR any proposed adjournments
of the special meeting for the purpose of soliciting additional proxies if there
are insufficient votes at the time of the special meeting to approve the Merger
and the Declaration of Trust Amendment.
Why
was the Special Committee of our Board of Trustees appointed?
One
of our trustees who is also an executive officer and J. Michael Wilson, our
Chairman who, together with the other Wilson Family Shareholders beneficially
own an aggregate of 47% of our outstanding fully diluted Common Shares, may have
interests in the Merger and the other transactions contemplated by the Merger
Agreement that differ from those of our other shareholders and, as a result, may
have conflicts of interest in considering the Merger and related transactions,
including the Declaration of Trust Amendment. In order to limit the
effect of these conflicts of interest, as well as the conflict of interest of
one trustee who later resigned from our Board of Trustees on September 8, 2009,
in connection with the evaluation by our Board of Trustees of the Merger and the
other transactions contemplated by the Merger Agreement, our Board of Trustees
appointed a Special Committee comprised solely of the five non-employee trustees
whom the Board determined to be independent and disinterested for purposes of
evaluating the proposed transaction and the other strategic alternatives
available to the Company. The members of the Special Committee are
Donald J. Halldin, Thomas E. Green, Michael E. Williamson, Antonio Ginorio and
Thomas J. Shafer. For more information about the interests of our
trustees and executive officers, please see the section captioned “The
Merger—Interests of Our Trustees, Executive Officers and Other Persons in the
Merger” on page 37.
What
is the premium to the market price of our Common Shares offered in the
Merger?
The
$7.75 cash per share Merger Consideration represents an approximate 17% premium
to the closing price of our Common Shares on September 14, 2009, the last
trading day before we announced that we were considering various strategic
alternatives, including a possible sale of the Company, and a 18% premium over
the volume-weighted average closing price of our Common Shares over the 90
trading day period ended September 14, 2009.
When
do you expect to complete the Merger?
A
special meeting of our shareholders is scheduled to be held on December 22,
2009, to consider and vote on the Merger pursuant to the terms of the Merger
Agreement. Because obtaining the requisite approval of the Merger by
our shareholders is only one of the conditions to the completion of the Merger,
we can give you no assurance as to when or whether the Merger will occur, but we
expect to close the Merger either late in the fourth quarter of 2009 or early in
the first quarter of 2010. For more information regarding the other
conditions to the Merger, please see the section captioned “The Merger
Agreement—Conditions to the Merger” on page 51.
If
the Merger is completed, when can I expect to receive the Merger Consideration
for my Common Shares?
If
you are a registered holder of our Common Shares at the effective time of the
Merger, then following the completion of the Merger, you will receive (i) a
letter of transmittal describing how you may exchange your Common Shares for the
Merger Consideration and (ii) instructions for use in effecting the surrender of
any share certificates held by you. At that time, you must send your
share certificates with your completed letter of transmittal to the exchange
agent. You should not send your share certificates to us or anyone
else until you receive these instructions. You will receive payment
of the Merger Consideration, less any applicable tax withholding, after we
receive from you a properly completed letter of transmittal together with your
share certificates. If you hold your Common Shares in “street name,”
your broker or nominee must take the actions required to obtain delivery of your
portion of the Merger Consideration to your account on your behalf and you will
not be required to take any action yourself to receive the Merger
Consideration.
If
I am a U.S. shareholder, what are the tax consequences of the Merger to
me?
You will be subject to tax on your share of the
E&P Distribution. You will also be subject to U.S. federal income
tax on any gain resulting from your receipt of the Merger Consideration for your Common Shares. A
significant portion of the E&P Distribution and Merger Consideration could
be taxed as ordinary income. For further information on the material
U.S. federal income tax consequences of the Merger and the E&P Distribution,
please see the section captioned “Material United States Federal Income Tax
Consequences—Consequences of the Merger and the E&P Distribution to U.S.
Holders of Our Common Shares” on page 59. You should consult your own
tax advisor for a full understanding of the tax consequences of the Merger and
the E&P Distribution to you.
If
I am a non-U.S. shareholder, what are the tax consequences of the Merger to
me?
The
tax consequences to non-U.S. shareholders are complex and will depend on various
factors. Non-U.S. shareholders are urged to consult with their own
tax advisors, especially concerning the Foreign Investment in Real Property Tax
Act of 1980, U.S. federal income tax withholding rules and the possible
application of benefits under an applicable income tax
treaty.
What
vote is required to approve the Merger?
While
Maryland law and our Declaration of Trust only require the affirmative vote of
the holders of a majority of our Common Shares to approve the Merger, under the
Merger Agreement, approval of the Merger requires the affirmative vote of the
holders of two-thirds of our Common Shares that are issued and outstanding on
the record date. We urge you to complete, execute and return the
enclosed proxy card to assure the voting of your shares at the special
meeting.
As
noted above, the Wilson Family Shareholders, who own an aggregate of 2,650,720
Common Shares of our Company (representing 47% of our outstanding fully diluted
Common Shares) have agreed to vote their shares in favor of the Merger and the
Declaration of Trust Amendment and other trustees and officers of our Company
who own an aggregate of 416,949 of our Common Shares (representing 7.4% of our
outstanding fully diluted Common Shares) have indicated they will vote their
shares for the Merger and the Declaration of Trust
Amendment.
FCP
has advised us that it has entered into an arrangement with Mr. Isaac who,
together with certain related persons and affiliates, beneficially owns an
aggregate of 865,329 of our Common Shares (representing 15.4% of our outstanding
fully diluted Common Shares), pursuant to which Mr. Isaac and substantially all
of his related persons and affiliates would make a passive indirect investment
in the Surviving Entity of the Merger immediately after the closing of the
Merger and have agreed to vote 829,529 of the Common Shares that they own
(representing 14.8% of
our
outstanding fully diluted Common Shares) in favor of the Merger and the
Declaration of Trust Amendment at the special meeting. These Common
Shares, combined with the Common Shares owned by the Wilson Family Shareholders
and our other trustees and executive officers, comprise, in the aggregate,
3,897,198 of our Common Shares (representing 69% of our outstanding fully
diluted Common Shares), and represent a sufficient number of votes to approve
the Merger and the Declaration of Trust Amendment at the special
meeting.
What
rights do I have if I oppose the Merger?
You
can vote against the Merger by indicating a vote against the proposal on your
proxy card and signing and mailing your proxy card or by voting against the
Merger in person at the special meeting. Because our Common Shares
are listed on NYSE Amex, you are not entitled to dissenters’ or appraisal rights
under Maryland law.
Why
is the Declaration of Trust being amended and what vote is required to approve
the Declaration of Trust Amendment?
You
are also being asked to consider and vote upon an amendment to our Declaration
of Trust to cause Section 5.3.3 to be of no operation or effect. This
amendment would suspend the requirement that we make a minimum distribution to
our shareholders in connection with our net taxable income that is allocable to
our shareholders. The amendment would render such section
inapplicable for the fiscal year ending December 31, 2009 and subsequent
thereto, unless the Merger Agreement is terminated and our Board of Trustees
makes a public announcement that Section 5.3.3 will thereafter be operative and
in effect. Our Board of Trustees approved the Declaration of Trust
Amendment and is recommending that our common shareholders vote to approve such
proposal because the Merger Consideration to which we, FCP and Merger Sub agreed
under the Merger Agreement was premised on the mutual understanding that no
distributions of any kind would be made by us with respect to our Common Shares
in the future so long as the Merger Agreement remains in effect. The
Merger Agreement provides that if we make any distributions with respect to our
Common Shares, the Merger Consideration will be reduced
accordingly.
Approval of the Declaration of Trust Amendment
requires the affirmative vote of the holders of two-thirds of our Common Shares
that are issued and outstanding on the record date.
Do
both the Merger and Declaration of Trust Amendment need to be approved to
consummate the Merger?
In
order for us to consummate the Merger, BOTH the Merger and the Declaration of
Trust Amendment must be approved by our common shareholders. The
obligations of FCP and Merger Sub to consummate the Merger are conditioned on,
among other things, approval by our shareholders of the Declaration of Trust
Amendment. If the Declaration of Trust Amendment is not approved, we
will not be able to consummate the Merger unless FCP and Merger Sub waive this
condition.
If
both the Merger and the Declaration of Trust Amendment are approved by our
common shareholders, we expect to file the Declaration of Trust Amendment with
the SDAT as soon as practicable to effectuate such amendment. In the
unlikely event that the Declaration of Trust Amendment is approved, but the
Merger is not approved, our Board of Trustees may elect not to file the
Declaration of Trust Amendment with the SDAT.
What
vote of our common shareholders is required to approve an adjournment of the
special meeting?
Approval of any adjournment of the special meeting
to solicit additional proxies requires the affirmative vote of a majority of the
votes cast on such proposal.
Who
is entitled to vote at the special meeting?
Only
our common shareholders of record at the close of business on the record date,
November 27, 2009, are entitled to receive notice of and to attend the special
meeting and to vote the shares that they held on that date at the special
meeting, or any postponements or adjournments of the special
meeting. Each common shareholder has one vote for each Common Share
owned at the close of business on the record date. As of the record
date, there were 134 common shareholders of record holding 5,622,660 Common
Shares entitled to vote at the special meeting. We currently have no
preferred shares outstanding.
What
is the location, date and time of the special meeting?
The special
meeting will be held at 10:00 a.m., local time, on Tuesday, December 22, 2009,
at the Regency Furniture Stadium, Legends Club Room, 11765 St. Linus Drive,
Waldorf, Maryland.
What
happens if I sell my Common Shares before the special meeting or before the
completion of the Merger?
If you held
your Common Shares on the record date but transfer them prior to the date of the
special meeting, you will retain your right to vote at the special meeting, but
not the right to receive the Merger Consideration for the Common
Shares. The right to receive such consideration will pass to the
person who owns your Common Shares when the Merger becomes
effective.
How
do I vote?
If you are a
registered holder of our Common Shares and properly complete and sign the proxy
card attached to this proxy statement and return it to us prior to the special
meeting, your shares will be voted as you direct. If you are a
registered shareholder and attend the special meeting, you may deliver your
completed proxy card or vote in person. If you elect to vote in
person at the special meeting and your shares are held by a broker or nominee,
you must bring to the special meeting a legal proxy from the broker or nominee
authorizing you to vote your shares.
If you fail
to either return your proxy card or vote in person at the special meeting, or if
you mark your proxy card ABSTAIN, the effect will be the same as a vote against
the Merger and against the Declaration of Trust Amendment. For the
purposes of the vote to adjourn the special meeting to solicit additional
proxies, abstentions and broker non-votes, if any, will not be counted as votes
cast and will have no effect on the result of the vote. If you sign
and return your proxy card and fail to indicate your vote on your proxy, your
shares will be voted FOR the Merger, FOR the Declaration of Trust Amendment, and
FOR any adjournment of the special meeting to solicit additional
proxies.
If
my Common Shares are held for me by my broker, will my broker vote my shares for
me?
If you hold
your Common Shares in “street name” through a broker, bank or other nominee,
your broker, bank or nominee will not vote your shares unless you provide
instructions on how to vote. You should instruct your broker, bank or
nominee how to vote your shares by following the instructions of your broker,
bank or nominee. If you do not provide instructions to your broker,
bank or nominee, your Common Shares will not be voted and this will have the
same effect as a vote against the proposals to approve the Merger and the
Declaration of Trust Amendment.
How
will proxy holders vote my Common Shares?
If you
complete and properly sign the proxy card attached to this proxy statement and
return it to us prior to the special meeting, your Common Shares will be voted
as you direct. Unless you give other instructions on your proxy card,
the persons named as proxy holders will vote your shares in accordance with the
Board of Trustees’ recommendation. Our Board of Trustees
recommends a vote FOR approval of the Merger and FOR approval of the Declaration
of Trust Amendment. Please see the section captioned “The
Merger—Recommendation of the Special Committee and Our Board of Trustees” on
page 29 and “Declaration of Trust Amendment—Recommendation of Our Board of
Trustees” on page 63.
How
can I change my vote after I have mailed my signed proxy card?
If you are a
registered holder of our Common Shares, you may change your vote by (i)
delivering to our Secretary, before the special meeting, a later-dated, signed
proxy card or a written revocation of your proxy or (ii) attending the special
meeting and notifying the chairman of the meeting that you would like your proxy
revoked and voting in person. The proxy holders will not exercise
your proxy
if you attend the special meeting in person and so
request; your attendance at the special meeting, however, will not, by itself,
revoke your proxy. Ifyou have instructed a broker or nominee to vote
your shares, you must follow the directions received from your broker or nominee
to change those instructions. Also, if you elect to vote in person at
the special meeting and your shares are held by a broker or nominee, you must
bring to the special meeting a legal proxy from the broker or nominee
authorizing you to vote your shares.
What
will happen to my Common Shares after completion of the Merger?
Following the completion of the Merger, your Common
Shares will be cancelled and will represent only the right to receive the Merger
Consideration. Trading in our Common Shares on the NYSE Amex will
cease and price quotations for our Common Shares will no longer be
available.
What
do I need to do now?
This
proxy statement contains important information regarding the Merger, the other
transactions contemplated by the Merger Agreement, and the Declaration of Trust
Amendment, as well as information about our Company and the other parties to the
Merger Agreement. It also contains important information about what
our Board of Trustees considered in approving the Merger. We urge to
you read this proxy statement carefully, including the
exhibits.
Should
I send my Common Share certificates now?
No. After the Merger is completed, a
paying agent will send you a letter of transmittal describing how you may
exchange your Common Share certificates for the Merger
Consideration. At that time, you must send in your Common Share
certificates or execute an appropriate instrument of transfer of your shares, as
applicable, with your completed letter of transmittal to the paying agent to
receive the Merger Consideration. If you hold your shares in “street
name,” your broker or nominee must surrender your shares following completion of
the Merger.
Where
can I find more information about American Community Properties
Trust?
We
file annual, quarterly and other periodic reports, proxy statements and other
information with the Securities and Exchange Commission. You may read and copy
any reports, statements, or other information we file with the Securities and
Exchange Commission at its public reference room in Washington, D.C. (100 F
Street, N.E. 20549). Our Securities and Exchange Commission filing
number is 001-14369. Please call the Securities and Exchange
Commission at 1-800-SEC-0330 for further information on the public reference
room. Our filings are also available to the public on the Internet, through a
website maintained by the Securities and Exchange Commission at http://www.sec.gov
and on our website at
www.acptrust.com. Information contained on our website is not part of, or
incorporated into, this proxy statement. Please see the section
captioned “Where You Can Find Additional Information” on page
68.
Whom
can I call with questions?
If
you have questions, require assistance voting your shares or need additional
copies of proxy materials, you may call:
Matthew
M. Martin
Chief
Financial Officer and Secretary
American
Community Properties Trust
222
Smallwood Village Center
St.
Charles, Maryland 20602
(301)
843-8600
Who
will solicit and pay the cost of soliciting proxies?
The
Company will pay the expenses related to printing, filing and mailing this proxy
statement. In addition to solicitation by mail and, without
additional compensation for such services, proxies may be solicited personally,
or by telephone or telecopy, by our officers or employees. We will
bear the cost of soliciting proxies. We will also request that
banking institutions, brokerage firms, custodians, trustees, nominees,
fiduciaries and other like parties
forward the solicitation materials to the beneficial
owners of Common Shares held of record by such persons, and we will, upon
request of such record holders, reimburse forwarding charges and out-of-pocket
expenses.
If
you have further questions, you may contact Matthew M. Martin, our Chief
Financial Officer and Secretary, at the address or telephone number indicated
above.
CAUTIONARY STATEMENT REGARDING
FORWARD-LOOKING STATEMENTS
This
proxy statement contains certain forward-looking statements, including
statements relating to the financial condition, results of operations, plans,
objectives, future performance and businesses of our Company, as well as
information relating to the Merger, the Declaration of Trust Amendment, the
Merger Agreement and the transactions contemplated by the Merger Agreement,
including statements concerning the anticipated closing date of the Merger, the
conduct of the business of our Company if the Merger is not completed, tax
consequences of the Merger and the possibility that any of the conditions to
closing, including those outside our control, will be satisfied. The
Private Securities Litigation Reform Act of 1995 provides safe harbor provisions
for forward-looking information. These forward-looking statements are
based on current expectations, beliefs, assumptions, estimates and projections
about the current economic environment, our Company, the industry and markets in
which our Company operates. Words such as “believes,” “expects,”
“anticipates,” “intends,” “plans,” “estimates” and variations of such words and
similar words also identify forward-looking statements. Our Company
also may provide oral or written forward-looking information in other materials
released by the Company to the public.
You
should not place undue reliance on forward-looking statements because they
involve known and unknown risks, uncertainties and other factors which are, in
some cases, beyond our control. Although we believe that the
expectations reflected in any forward-looking statements that we made are based
upon reasonable assumptions, these risks, uncertainties and other factors may
cause our actual results, performance or achievements to differ materially from
anticipated future results, or the performance or achievements expressed or
implied by such forward-looking statements. Accordingly, there can be
no assurance that these expectations will be realized.
We
undertake no obligation to update or revise forward-looking statements in this
proxy statement to reflect changes in underlying assumptions or factors, new
information, future events or otherwise. Any forward-looking
statements speak only as of the date that they are made.
All
forward-looking statements attributable to us or any person acting on our behalf
are expressly qualified in their entirety by the cautionary statements contained
or referred to in this section.
THE SPECIAL MEETING
The
special meeting will be held at 10:00 a.m., local time, on Tuesday, December 22,
2009, at the Regency Furniture Stadium, Legends Club Room, 11765 St. Linus
Drive, Waldorf, Maryland. At the special meeting, you will be
asked to consider and vote upon (i) the Merger pursuant to the terms of the
Merger Agreement (Proposal 1), (ii) the Declaration of Trust Amendment (Proposal
2) and (iii) any proposal to adjourn the special meeting to solicit additional
proxies in favor of approval of the Merger and the Declaration of Trust
Amendment if there are insufficient votes at the time of the special meeting to
approve both the Merger and the Declaration of Trust Amendment (Proposal
3).
Record
Date, Notice and Quorum Requirement
We
have set the close of business on November 27, 2009 as the record date for
determining those shareholders who are entitled to notice of, attend and vote
at, the special meeting. As of the record date, 5,622,660 Common
Shares were outstanding. We have no preferred shares of beneficial
interest outstanding.
The
presence at the special meeting, in person or by proxy, of holders of a majority
of the aggregate number of our Common Shares outstanding and entitled to vote on
the record date will constitute a quorum, allowing us to conduct the business of
the special meeting.
Shares
of a holder represented by a properly executed proxy marked ABSTAIN and a broker
non-vote will be counted as present for purposes of determining whether a quorum
is present at the special meeting but will not be voted.
Voting
Requirements for the Proposals
The
Merger
Under
the Merger Agreement, the proposal to approve the Merger requires the
affirmative vote of holders of at least two-thirds of our issued and outstanding
Common Shares entitled to vote at the special meeting.
Declaration
of Trust Amendment
Under
Maryland law and our Declaration of Trust, the proposal to approve the
Declaration of Trust Amendment requires the affirmative vote of holders of at
least two-thirds of our issued and outstanding Common Shares entitled to vote at
the special meeting. Approval of the Declaration of Trust Amendment
is a condition to the obligations of FCP to close the Merger.
Adjournments
Under
our Bylaws, any proposal to adjourn the special meeting to solicit additional
proxies in favor of approval of the Merger and the Declaration of Trust
Amendment if there are insufficient votes at the time of the special meeting to
approve both the Merger and the Declaration of Trust Amendment will require the
affirmative vote of holders of at least a majority of the votes cast on the
proposal at the special meeting.
Other
Voting Matters
Abstentions
and broker non-votes will have the same effect as a vote against the proposals
to approve the Merger and to approve the Declaration of Trust
Amendment. For purposes of the vote to adjourn the special meeting to
solicit additional proxies, abstentions and broker non-votes, if any, will not
be counted as votes cast and will have no effect on the result of the
vote.
Each
Common Share is entitled to one vote. If you hold your Common Shares
in “street name” (that is, through a broker or other nominee), your broker or
nominee will not vote your shares unless you provide instructions to your broker
or nominee on how to vote your shares. You should instruct your
broker or nominee how to vote your shares by following the directions provided
by your broker or nominee.
Proxies;
Revocation of Proxies
Any
of our common shareholders of record entitled to vote at the special meeting may
vote by returning the enclosed proxy card or by appearing and voting at the
special meeting in person. If you hold your Common Shares in “street
name” (that is, through a broker, bank or other nominee), your broker, bank or
nominee will not vote your shares unless you provide instructions to your
broker, bank or nominee on how to vote your shares. Accordingly, you
should instruct your broker, bank or nominee how to vote your shares by
following the directions provided by your broker, bank or nominee. If
you wish to vote in person at the special meeting and your Common Shares are
held by a broker, bank or nominee, you must bring to the special meeting a legal
proxy from the broker, bank or nominee authorizing you to vote your Common
Shares. It can often take several days to obtain a legal proxy from a
broker, bank or nominee.
Even
after you have properly submitted your proxy card, you may change your vote at
any time before the proxy is voted by delivering to our Secretary a duly
executed proxy bearing a later date. In addition, the proxy holders
will not exercise your proxy if you attend the special meeting in person and
notify the chairman of the meeting that you would like your proxy
revoked. Attendance at the special meeting will not by itself revoke
a previously granted proxy. If you have instructed a broker, bank or
nominee to vote your shares, you must follow the directions received from your
broker, bank or nominee in order to change your proxy instructions.
THE MERGER—PROPOSAL 1
THE PARTIES
American
Community Properties Trust.
American
Community Properties Trust is a self-advised and self-managed real estate
holding company that is primarily engaged in the business of investing in and
managing multifamily rental properties as well as community development and
homebuilding. ACPT’s operations are primarily concentrated in the
Washington, D.C. metropolitan area and Puerto Rico. As of September
30, 2009, we owned or maintained interests in 22 multifamily rental properties,
directly and through partnerships, containing an aggregate of 3,366 completed
units and 184 units that are currently under construction. In
addition, as of September 30, 2009, we owned two commercial buildings containing
approximately 75,000 square feet of leasable space and approximately 4,000 acres
of land in St. Charles, Maryland and 600 acres of land in Puerto
Rico. We were formed as a Maryland real estate investment trust on
March 17, 1997 to succeed to most of Interstate General Company L.P.’s (“IGC”)
real estate operations. On October 5, 1998, IGC transferred to ACPT
the common shares of four subsidiaries that collectively comprised the majority
of the principal real estate operations and assets of IGC. In
exchange, ACPT issued to IGC 5,207,954 Common Shares of ACPT, all of which were
distributed to the partners of IGC. We believe that we have qualified
and been taxable as a partnership for U.S. federal income tax purposes since
October 5, 1998. Our executive offices are located at 222 Smallwood
Village Center, St. Charles, Maryland, 20602, phone number (301)
843-8600. Our Common Shares currently are listed on the New York
Stock Exchange AMEX, or “NYSE Amex,” under the symbol “APO.” We
currently have no preferred shares outstanding.
FCP
Fund I, L.P.
Federal
Capital Partners is a Washington, .D.C.-based real estate investment
company that owns and manages a portfolio of multi-family office,
industrial and retail properties in the Mid-Atlantic region, including through
FCP Fund I, L.P., its equity fund, which we sometimes refer to in this proxy
statement as “FCP.” FCP’s executive offices are located at c/o
Federal Capital Partners, 1000 Potomac Street, Suite 120, Washington, D.C.
20007, phone number (202) 333-6030.
FCP/ACPT
Acquisition Company, Inc.
FCP/ACPT
Acquisition Company, Inc., which we sometimes refer to in this proxy statement
as “Merger Sub,” is a Maryland corporation and indirect subsidiary of FCP formed
for the sole purpose of effecting the Merger. Merger Sub has not
conducted any business operations other than in connection with the transactions
contemplated by the Merger Agreement. Merger Sub’s executive offices
are located at c/o Federal Capital Partners, 1000 Potomac Street, Suite
120, Washington, D.C. 20007, phone number (202) 333-6030.
THE
MERGER
General
Description of the Merger
Overview
The
Merger Agreement provides for the Merger of Merger Sub with and into our
Company. Our Company will be the Surviving Entity in the Merger and
will be a subsidiary of FCP.
We
expect the Merger to occur as soon as practicable after our shareholders approve
the Merger and the Declaration of Trust Amendment and the satisfaction or waiver
of all other conditions to closing under the Merger Agreement. The
Merger will be completed when the articles of merger have been accepted for
record by the SDAT in accordance with Maryland law, or such later time as we and
Merger Sub may agree and designate in the articles of merger (not to exceed 30
days from the time the articles of merger are accepted for
record). We currently anticipate closing the Merger late in the
fourth quarter of 2009 or early in the first quarter of 2010.
Merger
Consideration to be Received by Holders of Our Common Shares
As
of the effective time of the Merger, holders of our Common Shares will have no
further ownership interest in the Surviving Entity. Instead, each
holder of our outstanding Common Shares immediately prior to the effective time
of the Merger will be entitled to receive $7.75 in cash per share, without
interest. However, the Merger Consideration is subject to adjustment
for certain dividend payments, if any (as described in this proxy
statement). At this time, we do not expect to make any dividends or
other distributions that would impact the Merger Consideration.
As
of the effective time of the Merger, each of our Common Shares that is owned by
us, by any of our subsidiaries or by FCP, Merger Sub or any of their
subsidiaries, other than shares held on behalf of third parties, will be
cancelled and retired and will cease to exist. No payment will be
made for any such cancelled shares.
Merger
Consideration to be Received by Holders of Restricted Shares and Share
Appreciation Rights
In
the Merger, each unvested restricted Common Share of our Company that, by its
terms, vests automatically upon the consummation of the Merger will fully vest
in accordance with its terms and be considered an outstanding Common Share for
all purposes, including the right to receive the Merger
Consideration. Each unvested restricted Common Share of our Company
that, by its terms, does not vest in connection with a change of control, such
as the Merger, will be cancelled and retired for no additional
consideration.
Additionally, in the Merger, each of the outstanding
share appreciation rights will be cancelled and in lieu thereof, each holder
will be entitled to receive an amount in cash equal to the product of (i) the
excess, if any, of the Merger Consideration over the base price per Common Share
underlying such share appreciation right multiplied by (ii) the number of Common
Shares subject to such share appreciation right. For more information
on these rights and privileges, see the section captioned “The Merger¾Interests
of Our Trustees, Executive Officers and Other Persons in the Merger” on page 37
of this proxy statement.
Merger
Vote Requirement
Pursuant
to the Merger Agreement, the affirmative vote of the holders of two-thirds of
our outstanding Common Shares entitled to vote at the special meeting is
required to approve the Merger. Common shares not voted at the
special meeting will have the same effect as a vote against the
Merger.
FCP
and Merger Sub have entered into a voting agreement with the Wilson Family
Shareholders who hold an aggregate of 2,650,720 of our Common Shares (which
represents 47% of our outstanding fully diluted Common
Shares). Pursuant to the voting agreement, the Wilson Family
Shareholders have agreed to vote their Common Shares in favor of the Merger and
the Declaration of Trust Amendment. The Wilson Family Shareholders
have agreed to vote against certain matters that would impact our ability to
timely complete the Merger as proposed herein. In addition, other
trustees and officers of our Company who own an aggregate of 416,949 of our
Common Shares (representing 7.4% of our outstanding fully diluted Common Shares)
have indicated that they will vote their shares in favor of the Merger and the
Declaration of Trust Amendment.
FCP
has advised us that it has entered into an arrangement with Mr. Isaac who,
together with certain related persons and affiliates, beneficially owns an
aggregate of 865,329 of our Common Shares (representing 15.4% of our outstanding
fully diluted Common Shares), pursuant to which Mr. Isaac and substantially all
of such related persons and affiliates would make a passive indirect investment
in the Surviving Entity of the Merger immediately after the closing of the
Merger and have agreed to vote 829,529 of the Common Shares that they own
(representing 14.8% of our outstanding fully diluted Common Shares) in favor of
the Merger and the Declaration of Trust Amendment at the special
meeting. These Common Shares, combined with the Common Shares owned
by the Wilson Family Shareholders and our other trustees and executive officers,
comprise, in the aggregate, 3,897,198 of our Common Shares (representing 69% of
our outstanding fully diluted Common Shares), and represent a sufficient number
of votes to approve the Merger and the Declaration of Trust Amendment at the
special meeting.
Background
of the Merger
In
October 2008, following a change in senior management, we began exploring
strategic alternatives in an effort to identify a course of action that would
create shareholder value and position our Company to raise additional
capital
for growth. In November 2008, the Company engaged FBR to assist the
Company in analyzing potential strategic and structural alternatives. Between
November 2008 and March 2009, the Company, with the assistance of FBR, reviewed
its corporate and capital structure and their tax implications. Based
on this review, the Company concluded that, although the Company had originally
been structured so as to qualify as a real estate investment trust, or REIT, for
U.S. federal income tax purposes, the Company was not able to qualify as a REIT
due in part to the heavy concentration of ownership of the Company’s Common
Shares among a small number of shareholders. In February 2009, the Board of
Trustees met to consider the results of this review and concluded that its
current corporate and capital structure was inefficient from a tax perspective
and was adversely affecting the trading prices of its Common
Shares. As a consequence of this review, the Board of Trustees
determined to consider three potential alternatives for the
Company:
1) a
recapitalization pursuant to which the Company would issue shares of two new
classes of tracking shares in exchange for existing Company Common Shares, with
one class of the new tracking shares tracking the financial performance of the
Company’s multifamily apartment business and the other class of tracking shares
tracking the financial performance of the Company’s land and development
business. In connection with the recapitalization, the Company would
also seek to cause ARPT to qualify as a REIT. This alternative would
allow the Company to raise additional capital through the issuance of tracking
shares that tracked the financial performance of the Company’s apartment
business and, if the Company could cause American Rental Property Trust to
qualify as a REIT, would enable the Company to operate ARPT in a more
tax-efficient manner.
2) a
recapitalization pursuant to which the Company would either cause ARPT to
qualify as a REIT, or cause the Company to qualify as a REIT and move the
Company’s land and development business into a taxable REIT
subsidiary.
3) voluntarily
delisting and deregistering (“Going Dark”) under the Securities Exchange Act of
1934, as amended (the “Exchange Act”), as a result of which the Common Shares
would begin to trade in the over-the-counter market. This strategy
would reduce ongoing costs of being a public company, estimated to be between
$1.1 and $2.2 million annually, but continue to require the Company to provide
certain quarterly information to shareholders.
REIT
qualification, under any of these alternatives, was deemed to be important for
tax efficiency since this would allow the Company to avoid paying corporate tax
on its REIT taxable earnings to the extent such earnings were distributed to
shareholders. REIT qualification could only be achieved, however, by
raising additional equity capital to dilute the ownership percentage of the
Wilson Family Shareholders or by having the Wilson Family Shareholders sell down
their positions in order to satisfy certain REIT ownership tests.
At
the February 2009 Board meeting, the Board authorized FBR to contact both
financial and strategic investors in order to assess their level of interest in
a potential strategic investment in the Company in light of the three
alternatives under consideration. At the direction of the Board, FBR
contacted 42 potential strategic and financial investors, of which five
expressed an interest in exploring a potential transaction with the
Company. However, none of the parties whom FBR contacted ultimately
made an investment in the Company. At a Board meeting in April 2009,
the Board, with the assistance of FBR, reviewed the feedback received from the
potential financial and strategic investors contacted by FBR. After
reviewing this feedback, at the Board’s request, the Company’s Chief Executive
Officer, with the assistance of FBR, held face-to-face meetings with certain of
the Company’s existing significant minority shareholders in order to solicit the
views of those shareholders with respect to the Company and the alternative
strategies being considered by the Company.
The
feedback received in these discussions was that:
|
·
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the
Company was too small to remain a public
company,
|
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·
|
the
Company needed to implement a more tax-efficient corporate and capital
structure, presumably by qualifying all or a portion of its business as a
REIT,
|
|
·
|
the
tracking stock idea was not appealing given that the Company would
probably not be able to completely insulate its apartment business from
the liabilities associated with its land development business and would
add complexity to the Company’s corporate and tax
structures;
|
|
·
|
none
of the potential investors was interested in making a minority investment
in a small public company that was both inefficient from a tax standpoint
and controlled by an existing majority shareholder;
and
|
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·
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current
significant minority shareholders opposed Going Dark as long as the
Company continued to be controlled by a majority
shareholder.
|
As
of the result of this feedback, the Board of Trustees did not authorize
management of the Company to actively pursue any of the alternatives discussed
above.
In
May 2009, a party approached the Wilson Family Shareholders on an unsolicited
basis about the possibility of acquiring the Wilson Family Shareholders’ shares
in the Company for a price of $7.00 per share. The Wilson Family
Shareholders declined this offer.
In
June 2009, J. Michael Wilson, the Company’s Chairman, informed the Board that
the Wilson Family Shareholders were willing to sell at least 50% of their
Company Common Shares in order to address the ownership issues raised by the
minority shareholders and potential investors. The Board was
receptive to the Wilson Family Shareholders pursuing this strategy, so long as
the sale was to an investor or group of investors that would be willing to
invest additional capital in the Company or facilitate an alternative strategy
to create shareholder value. Mr. Wilson expressed a desire to engage
FBR to assist the Wilson Family Shareholders in locating a buyer or buyers for
the Wilson Family Shareholders’ shares. The Wilson Family believed
FBR would be best suited to help them locate potential purchasers of their
shares because of FBR’s familiarity with the Company and its assets and
structure gained in the course of its engagement as a financial advisor to the
Company in connection with the Company’s consideration of strategic
alternatives. At the request of the Wilson Family, the Board
determined to suspend its engagement of FBR in order to allow FBR to assist the
Wilson Family Shareholders with respect to the sale of their
shares.
In
June 2009, FBR was engaged by the Wilson Family Shareholders to assist them in
connection with a potential sale of the Wilson Family Shareholders’
shares. At the direction of the Wilson Family Shareholders, FBR
contacted 25 potential financial and strategic investors. Of those 25
potential investors, 14 signed confidentiality agreements and performed due
diligence and three ultimately submitted proposals to purchase the Wilson Family
Shareholders’ Common Shares as discussed below.
During
this process, FBR received feedback that was similar to the feedback received
from potential investors and existing shareholders during the earlier meetings
held in March, April and May 2009, and it became apparent that none of the
parties contacted were interested in acquiring a significant minority interest
in the Company. Accordingly, the Wilson Family Shareholders
determined that their best course of action was to sell their entire stake in
the Company and, at the direction of the Wilson Family Shareholders, FBR began
contacting potential purchasers of their entire interest. In July and August
2009, three of the parties that FBR contacted on behalf of the Wilson Family
Shareholders submitted non-binding indications of interest to acquire the Wilson
Family Shareholders’ shares for proposed purchase prices ranging from $6.00 per
share to $7.75 per share. The highest price expressed by one of the
initial bidders, which we refer to as Bidder A, was subject to a financing
contingency. FCP, which had already performed a significant amount of
due diligence on the Company, submitted a non-binding indication of interest of
$7.15 per share with no financing contingency. The lowest bid of
$6.00 per share was submitted by a group of high net worth individuals, which we
refer to collectively as Bidder B. Both FCP and Bidder B also
indicated in their indications of interest that any purchase by them of the
Wilson Family Shareholders’ shares would be conditioned on their ability to buy
out the remaining Company shareholders through a subsequent tender offer or
other subsequent purchase transaction and/or to cause the Company to delist its
Common Shares from any national securities exchange and deregister the Company
under the Exchange Act (i.e., Go Dark).
Based
on its demonstrated ability and willingness to work towards consummating a
transaction expeditiously, its reputation, the professionalism demonstrated by
its representatives and the fact that it had performed a significant amount of
due diligence in the Company and that its offer was not subject to any financing
contingency, the Wilson Family Shareholders believed that FCP seemed to be the
most likely of the three bidders to be able to complete the purchase of their
interest in the Company on an expedited basis. After numerous
discussions, the Wilson Family Shareholders determined that they would accept
FCP’s offer if FCP would increase the price to $7.50 per share. FCP
agreed to the $7.50 per share price, subject to a meeting with the Board of
Trustees
to describe FCP’s strategic plans for the Company following such purchase of the
Wilson Family Shareholders’ shares to gauge the level of support that it would
receive from the Board regarding its plans for the Company.
In
late August 2009, subsequent to the Wilsons’ entering into exclusive
negotiations with FCP, the Company received, on an unsolicited basis, a
non-binding indication of interest from a private real estate investment fund,
which we refer to as Company A, to acquire the Company for a price of $8.00
per share, subject to due diligence and negotiation of definitive
documents.
In
response to FCP’s request to meet with the Board of Trustees, on September 1,
2009, the Board of Trustees met with representatives from FCP. These
representatives from FCP discussed their strategic plans for the Company,
including their interest to acquire the remaining outstanding Common Shares of
the Company following FCP’s purchase of the Wilson Family Shareholders’
shares.
After
meeting with FCP, the Board discussed FCP’s proposal to acquire the Wilson
Family Shareholders’ shares and its strategic plans for the Company and also
considered the unsolicited proposal that it had received from Company A to
acquire the Company for a price of $8.00 per share as described
above. The Board concluded that FCP’s proposal to the Wilson Family
Shareholders was only the first step of a proposed series of related
transactions to ultimately acquire the entire Company and determined to view the
FCP proposal to the Wilson Family Shareholders as a proposal to acquire the
entire Company.
In
light of the Board’s views regarding the Company’s prospects as a standalone
business and FCP’s stated intention to acquire the entire Company, the Board
determined that it would be advisable to engage in discussions with FCP about
acquiring the Company in a single transaction, rather than permitting FCP to
acquire the Wilson Family Shareholders’ shares without a firm commitment or
obligation to purchase the outstanding Common Shares of the minority
shareholders at the same price. The Board also expressed concern
regarding the effect on the minority shareholders if the Company were to Go
Dark.
After
further deliberation, at its September 1, 2009 meeting, the Board asked FBR
to invite FCP to make a proposal to acquire the Company at a price higher than
$7.50 per share and informed FCP that its approval of any acquisition of the
Company by FCP would be conditioned upon being able to conduct a post-signing
market check.
The
FCP representatives returned to meet with the Board of Trustees later in the day
on September 1, 2009, and outlined a proposal to acquire the Company in an
all-cash merger for a price of $7.75 per share, with no financing contingency,
subject to a 21-day “go-shop” arrangement that would commence after execution of
a definitive agreement and, upon the occurrence of certain events, reciprocal
termination fees of $1.75 million. The Board also discussed the
proposal by Company A and the fact that Company A had not performed a meaningful
due diligence investigation of the Company.
On
September 2, 2009, the Board Trustees met to consider FCP’s proposal and to
consider again the proposal from Company A. At that meeting
representatives of the Company’s counsel suggested that the Board consider
forming a Special Committee of independent and disinterested trustees to
evaluate FCP’s proposal and the other strategic alternatives available to the
Company. On September 2, 2009, the Board established a Special
Committee of Trustees, referred to as the “Special Committee,” comprised of the
Company’s five independent and disinterested trustees and the Special Committee
determined to engage a financial advisor and independent counsel.
On
September 3, 2009, the Special Committee met again to discuss the engagement of
a financial advisor and counsel. After extensive discussion, the
Special Committee determined that it would be in the best interests of the
Company to engage FBR as the Special Committee’s financial
advisor. The Special Committee members considered the prior
relationships between FBR and the Company and the then current relationship
between FBR and the Wilson Family Shareholders and the risk that those
relationships would impair FBR’s ability to provide independent financial advice
to the Special Committee. The Special Committee also considered the
extensive experience and knowledge gained by FBR from working with the Company
and the fact that FBR had already assisted the Wilson Family Shareholders in
identifying potential parties that could be interested in acquiring all or a
majority of the outstanding shares owned by the Wilson Family
Shareholders. The Special Committee considered the additional cost
and potential delay that would likely be incurred if the Special Committee
engaged a new financial advisor that would have to spend significant amounts of
time becoming familiar with the Company and the parties most likely to be
interested in acquiring the Company. Following those deliberations,
the Special Committee
concluded
that the interests of the Company and its shareholders, including those
shareholders unaffiliated with the Wilson Family Shareholders, would be best
served if FBR were engaged as the Special Committee’s financial advisor,
provided FBR entered into agreements with (i) members of the Wilson Family
Shareholders terminating the engagement agreement between FBR and the Wilson
Family Shareholders and confirming that FBR would not be entitled to any fees
under the terms of FBR’s engagement by the Wilson Family Shareholders whether or
not any sale transaction occurred after the date of such termination and (ii)
the Company terminating the engagement between FBR and the Company and
confirming that FBR would not be entitled to any additional fees under the terms
of FBR’s engagement by the Company regardless of whether a sale transaction
occurred after the date of such termination. The Special Committee
further determined that Hunton & Williams LLP (“Hunton & Williams”), the
Company’s counsel, should continue to be involved, as company counsel, in the
process relating to the strategic alternatives available to the Company given
its institutional knowledge about the Company and lack of other conflicts, but
that the Special Committee would also need its own independent
counsel. After extensive discussion with representatives from FBR and
Hunton & Williams, the Special Committee engaged FBR as its financial
advisor and determined to engage Venable LLP (“Venable”) as the Special
Committee’s independent counsel, subject to interviewing representatives from
Venable and negotiating the terms of Venable’s engagement.
On
September 4, 2009, the Special Committee met again to discuss
communications received from Ross Levin, one of the Company’s trustees,
regarding the process being undertaken by the Special Committee and Mr. Levin’s
belief that Paul Isaac, Mr. Levin’s employer and the beneficial owner of
approximately 11% of the Company’s outstanding Common Shares at the time, might
have an interest in submitting a proposal to acquire the Company on terms more
favorable than the terms proposed by FCP. Mr. Levin had indicated
that he believed Mr. Isaac may have an interest in acquiring the Company at the
September 1, 2009 Board meeting as well, but when asked whether he had any
specific knowledge that Mr. Isaac was interested in making a proposal to acquire
the Company, Mr. Levin said that he did not, but that he believed the Company
should undertake a more open process to sell the Company rather than first
entering into an agreement in principle with FCP that contained an exclusive
negotiating provision and then undertaking a market check of that transaction
after entering into a definitive agreement with FCP. The Special
Committee also considered the fact that FCP had indicated that it would cease to
engage in further discussions with the Company unless the Company agreed to
negotiate with FCP on an exclusive basis for a reasonable period of time with a
view towards entering into a definitive agreement with an appropriate market
check after execution of a definitive agreement. Although the Special
Committee considered carefully Mr. Levin's recommendations regarding the
Company's review of strategic alternatives, the Special Committee determined
that the Company's shareholders would be best served by negotiating initially on
an exclusive basis with FCP. As a result, on September 13, 2009,
the Special Committee approved and entered into a non-binding term sheet with
FCP that contained a binding agreement to negotiate with FCP on an exclusive
basis until September 23, 2009. This term sheet with FCP
provided for the merger of the Company with FCP for cash consideration of $7.75
per share, a 21-day go-shop arrangement following execution of a definitive
merger agreement and a mutual break-up fee of $1.75 million.
On
September 8, 2009, Mr. Levin resigned as a trustee of the
Company. In his resignation letter, Mr. Levin objected to the
Company’s strategy of pursuing negotiation of a merger on an exclusive basis
with one potential buyer rather than having a more open auction-like
process.
On
September 9, 2009, the Board of Trustees met to discuss Mr. Levin’s resignation
and the Company’s obligation to announce his resignation in a Current Report on
Form 8-K. The Board and its advisors also discussed the need, in
light of Mr. Levin’s resignation, to announce the fact that the Board had formed
the Special Committee to explore strategic alternatives, including a possible
sale of the Company. On September 14, 2009, the Company filed a Current Report
on Form 8-K announcing Mr. Levin’s resignation, the formation of the Special
Committee and the execution of a non-binding indication of interest containing
an exclusive negotiating agreement.
On
September 10, 2009, the Special Committee held a telephonic meeting at which it
reviewed the status of discussions with FCP with the assistance of its legal and
financial advisors.
At
a meeting of the Special Committee held on September 11, 2009, the Special
Committee reviewed the prior processes undertaken by the Company and the Wilson
Family Shareholders, including the strategic alternatives previously considered
by the Company, and the efforts of the Wilson Family Shareholders to solicit the
purchase of all or a significant portion of their Common Shares. In
addition, the Special Committee considered a request from FCP for the Company to
reimburse up to $1 million in FCP’s transaction-related expenses in the event
the Company was to enter into a definitive agreement relating to the acquisition
of 50% or more of the Company’s Common
Shares
or assets with a party other than FCP. The Special Committee directed
its chairman, with the assistance of its legal and financial advisors, to
negotiate terms of a cost reimbursement agreement as well as certain other
proposed terms of a transaction with FCP, including the duration of the go-shop
period, termination fees and the vote required for shareholders to approve the
transaction.
Later
in the evening on September 11, 2009, the Special Committee held another meeting
to discuss the status of negotiations with FCP regarding certain proposed
transaction terms and FCP’s expense reimbursement request. The
Special Committee authorized approval of a cost reimbursement agreement in which
the Company would reimburse FCP up to $300,000 in transaction-related expenses
incurred from September 8, 2009 forward in the event that the Company was to
enter into a definitive agreement relating to the acquisition of 50% or more of
the Company’s Common Shares or assets with a party other than FCP within 180
days from the end of the exclusivity period. On September 25, 2009,
the terms of this cost reimbursement agreement were generally subsumed in the
terms of the Merger Agreement.
At
a meeting of the Special Committee on September 18, 2009, the Special Committee
discussed proposed terms of the Merger Agreement with the assistance of its
legal and financial advisors. In addition, the Special Committee
reviewed how the post-signing market check would work, including the parties
that would be contacted during the go-shop period and the due diligence
materials that would be available to qualified bidders in an online data
room. The Special Committee also discussed a letter sent to the
Company’s trustees from counsel to one of the Company’s shareholders regarding
the scope of the process undertaken by the Company and requesting certain due
diligence materials. The Special Committee directed its legal
advisors to respond by letter to such shareholder’s counsel. In that
response, the Special Committee’s legal advisors informed such shareholder’s
counsel that the Special Committee acknowledged receipt of the letter and would
consider the letter promptly and carefully.
During
the following days, the Special Committee, with the assistance of its
legal and financial advisors and the Company’s outside legal counsel,
continued to negotiate the terms and conditions of the draft Merger Agreement
with FCP and its counsel. In particular, the Special Committee, in an
effort to ensure that the terms of the Merger Agreement would not preclude other
potential bidders from submitting proposals that might be superior during the
go-shop period, negotiated a longer go-shop period of 30 days and a reduced
break-up fee if we terminated the Merger Agreement in favor a superior proposal
(as defined in the Merger Agreement) during the go-shop period or otherwise from
a bidder identified during the go-shop period with whom negotiations or
discussions were continuing at the end of the go-shop period. In
addition, in an effort to ensure that the Company’s minority shareholders have a
meaningful vote with respect to the proposed Merger, the Special Committee
negotiated a super-majority shareholder approval provision, which requires
approval of the holders of two-thirds of the Company’s outstanding Common
Shares, notwithstanding the fact that only a majority vote is required under
Maryland law and the Company’s Declaration of Trust.
On
September 22, 2009, the Special Committee met to discuss the proposed terms of
the draft Merger Agreement and to consider whether to propose extending the
exclusive negotiating period with FCP beyond September 23, 2009. The
Special Committee reserved judgment on the issue of extending the exclusivity
period.
At
a meeting of the Special Committee on September 23, 2009, Venable reviewed the
duties of trustees under applicable law and certain proposed terms of the
transaction with FCP. The Special Committee discussed at length the
strategic review process and the potential effects on the Company’s minority
shareholders in the event that the Wilson Family Shareholders were to sell their
shares to a third party. Later in the evening on September 23, 2009,
the Special Committee held another meeting to review the status of the
negotiations with FCP with the assistance of its legal and financial
advisors. The Special Committee also reviewed the strategic
alternative process previously conducted by the Company, and the efforts of the
Wilson Family Shareholders to solicit the purchase of all or a significant
portion of their Common Shares. The Special Committee approved an
extension of the exclusivity period with FCP until September 30, 2009, in order
to provide the Special Committee further time to consider the proposed terms of
a transaction with FCP and to enable both parties to continue to negotiate
remaining open issues.
On
September 24, 2009, the Company filed a Current Report on Form 8-K announcing an
extension of the exclusive negotiating period with FCP until September 30,
2009.
On
September 25, 2009, the Special Committee met in executive session with Venable,
during which Venable reviewed the duties of trustees under applicable law and
members of the Special Committee reconfirmed
their
independence. At the invitation of the Special Committee,
representatives from FBR and Hunton & Williams participated in a portion of
the meeting, along with Matthew Martin, the Company’s Chief Financial
Officer. Hunton & Williams reviewed in detail the terms of the
proposed Merger Agreement. The Special Committee again reviewed the strategic
alternatives previously considered by the Company, and the efforts of the Wilson
Family Shareholders to solicit the purchase of all or a significant portion of
their Common Shares. At the request of the Special Committee, FBR
then reviewed its financial analysis of the Company and the proposed merger and
delivered its oral opinion to the Special Committee (which was subsequently
confirmed by delivery of FBR’s written opinion dated the same date), to the
effect that, as of September 25, 2009, the per share Merger Consideration of
$7.75 to be received the Unaffiliated Holders in the proposed Merger pursuant to
the Merger Agreement was fair to such Unaffiliated Holders from a financial
point of view. The Special Committee discussed at length the
foregoing matters. The Special Committee then unanimously determined
(i) that the sale of the Company is the best strategic alternative available to
the Company, (ii) that the proposed definitive Merger Agreement with FCP and
Merger Sub and the transactions contemplated thereby and the Declaration of
Trust Amendment are advisable and in the best interests of the Company, (iii) to
recommend that the Board of Trustees determine that the Merger, on the terms set
forth in the Merger Agreement, and the Declaration of Trust Amendment are
advisable and in the best interests of the Company and (iv) to recommend that
the Board of Trustees direct that each of the Merger and the Declaration of
Trust Amendment be submitted to the shareholders of the Company for their
approval and that the Board of Trustees recommend that the shareholders of the
Company approve the Merger and the Declaration of Trust
Amendment.
At
a meeting of the Board of Trustees immediately following the Special Committee
meeting, the chairman of the Special Committee reported to the Board of Trustees
that the Special Committee had unanimously determined to recommend that the
Board of Trustees approve the proposed Merger between the Company and Merger Sub
pursuant to the terms of the Merger Agreement and the Declaration of Trust
Amendment. The Special Committee then recommended that the Board of
Trustees (a) approve the proposed Merger with Merger Sub pursuant to the terms
of the Merger Agreement and the Declaration of Trust Amendment and (b) recommend
to the shareholders of the Company approval of the Merger pursuant to the terms
of the Merger Agreement and the Declaration of Trust Amendment. The
Board of Trustees (other than Messrs. Wilson and Griessel, who abstained from
deliberating or voting), having considered the recommendation of the Special
Committee regarding the proposed Merger with Merger Sub, the terms of the
Merger, alternatives to the Merger and the risks and benefits of the Merger, in
addition to various other factors, including the opinion of FBR, then (i)
determined that the Merger with Merger Sub and the transactions contemplated by
the proposed Merger Agreement with FCP and Merger Sub and the Declaration of
Trust Amendment are in the best interests of the Company, (ii) approved the
Merger with Merger Sub and the transactions contemplated by the proposed Merger
Agreement and the Declaration of Trust Amendment and (iii) resolved to recommend
that the shareholders of the Company vote FOR approval of the Merger and FOR
approval of the Declaration of Trust Amendment at a special meeting of
shareholders to be held for such purposes.
Following
this meeting, the Merger Agreement was finalized and executed on September 25,
2009. On the evening of September 25, 2009, the Company issued a
press release announcing that it had entered into the Merger Agreement with FCP
and Merger Sub. In addition, on September 25, 2009, the Wilson Family
Shareholders entered into a voting agreement with FCP and Merger
Sub. On September 28, 2009, the Company filed a Current Report on
Form 8-K reporting that it had entered into the Merger Agreement and the Wilson
Family Shareholders had entered into a voting agreement with FCP and Merger
Sub.
At
the Special Committee’s request, representatives of FBR promptly began
contacting parties to solicit their interest in acquiring the Company.
Representatives of FBR contacted 57 parties, including public and private real
estate companies, institutional investors and significant minority shareholders
of the Company, in order to determine whether they would be interested in
submitting an acquisition proposal to the Company.
At
the Special Committee’s request, FBR requested that all parties that had
indicated an interest in submitting an acquisition proposal and that had
executed confidentiality agreements with the Company, or were in the process of
negotiating the same, submit written proposals to acquire the Company along with
any proposed revisions to a draft form of merger agreement previously provided
on behalf of the Special Committee by 12:00 pm, Eastern time, on October 23,
2009, in order to provide an opportunity to review and negotiate improvements to
any proposal received prior to the close of the go-shop period. As of
the end of the go-shop period on October 28, 2009, ten potential bidders had
executed confidentiality agreements with the Company and had been provided
access to the data room. As of October 28, 2009, other than FCP, no
potential bidder had submitted an acquisition proposal to acquire the
Company.
On
each of September 30, October 1, October 2 and October 6, 2009, Mr. Isaac filed
a Statement of Changes in Beneficial Ownership on Form 4 disclosing that,
between September 28, 2009 and October 2, 2009, he had acquired, indirectly
through one of his controlled entities, an aggregate of 146,392 of our Common
Shares in open market transactions.
On
October 7, 2009, Mr. Isaac filed an amendment to his Schedule 13D disclosing the
acquisition of an aggregate of 146,392 of our Common Shares in open market
transactions, as previously disclosed on his Statements of Changes in Beneficial
Ownership on Form 4 described above, increasing the total number of our Common
Shares that he beneficially owns to 865,329 shares. In the amendment
to his Schedule 13D, Mr. Isaac disclosed that he was continuing to review the
proposed Merger that we had announced on September 25, 2009 and his alternatives
with respect to his investment in light of the pending Merger.
We
were informed by FCP that, on October 1, 2009, representatives from FCP met with
Mr. Isaac at the request of Mr. Isaac and without any solicitation from, or any
initiation on the part of, FCP or any of its representatives. At this
meeting, Mr. Isaac informed the representatives of FCP that he was considering
his alternatives with respect to his investment in the Company and expressed his
interest in possibly participating in the transaction on the buy-side with
FCP. Representatives of FCP informed Mr. Isaac at this meeting that
they did not wish to take any action that would jeopardize the Merger or
otherwise be viewed as being unfavorable to the shareholders of the Company, but
that they would consider his request.
After
careful consideration by its principals, on October 9, 2009, representatives of
FCP informed Mr. Isaac that it would be willing to consider, on a non-binding
basis, a passive investment by Mr. Isaac and certain of his related and
affiliated persons. Subsequently, the parties and their respective
representatives engaged in a number of follow-up discussions regarding the
viability of such a transaction and the possible terms of such
arrangement. On October 15, 2009, FCP informed the Special Committee
that it was considering a possible arrangement whereby Mr. Isaac and
substantially all of his related persons and affiliates would make a passive
indirect investment in the Surviving Entity.
On
October 16, 2009, the Special Committee met to discuss the possible arrangement
that Mr. Isaac and FCP were discussing and the impact of such an arrangement on
the Company and the Merger.
On
November 10, 2009, FCP entered into a voting agreement and a purchase agreement
pursuant to which Mr. Isaac and substantially all of his related persons and
affiliates would make a cash capital contribution in exchange for a passive
indirect investment in the Surviving Entity. In addition, Mr. Isaac and such
related persons and affiliates have agreed to vote in favor of the Merger and
the Declaration of Trust Amendment. The material terms of such
arrangement are more fully described under “—Voting and Passive Investment
Arrangement with Paul J. Isaac.”
FCP
has informed us that, prior to the meeting on October 1, 2009, which the parties
held at Mr. Isaac’s request, neither it nor any of its affiliates had had any
prior discussions or meetings with Mr. Isaac or any of his related and
affiliated persons, nor had it contemplated or considered initiating any such
discussions or meetings, regarding the Merger, the Declaration of Trust
Amendment or any of the other transactions contemplated by the Merger Agreement,
or any possible investment by Mr. Isaac and any of his related and affiliated
persons in the Surviving Entity. In addition, no discussions
regarding such potential investment were held between FCP, on one hand, and Mr.
Isaac and any of his related and affiliated persons, on the other hand, after
such meeting on October 1, 2009 and prior to October 9, 2009, when FCP informed
Mr. Isaac that it would consider a passive investment by Mr. Isaac and certain
of his related and affiliated persons.
Recommendation
of the Special Committee and Our Board of Trustees
Our Board of Trustees recommends that
holders of our Common Shares vote FOR approval of the Merger, FOR approval of
the Declaration of Trust Amendment and FOR any proposal to adjourn the Special
Meeting to solicit additional proxies if there are insufficient votes at the
time of the special meeting to approve both the Merger and the Declaration of
Trust Amendment. At a
meeting held on September 25, 2009, the Special Committee unanimously
recommended the Board of Trustees determine that the Merger, on the terms set
forth in the Merger Agreement, and the Declaration of Trust Amendment, are
advisable and in the best interests of the Company. The Board of
Trustees, at a meeting held on September 25, 2009, approved the execution
of the Merger Agreement and declared the Merger Agreement and the Declaration of
Trust Amendment advisable and in
the best interests of the Company and further
determined to recommend that our shareholders vote FOR approval of the Merger
and FOR approval of the Declaration of Trust Amendment. The two
members of our Board of Trustees who are not independent and disinterested,
Stephen K. Griessel and J. Michael Wilson, abstained from this
vote. All other members of the Board of Trustees voted in favor of
declaring the Merger Agreement and the Declaration of Trust Amendment advisable
and determining to recommend that our shareholders vote FOR approval the Merger
and FOR approval of the Declaration of Trust Amendment. The approval of our
Board of Trustees was made based on the recommendation of the Special Committee
and after the careful consideration of a variety of business, financial and
other factors and consultation with its advisors.
Reasons
for the Merger
In
deciding to approve the Merger on the terms set forth in the Merger Agreement,
our Board of Trustees and the Special Committee considered a number of factors,
both potentially positive and potentially negative, with respect to the Merger
and the other transactions contemplated by the Merger Agreement.
Some
of the potentially positive factors that our Board of Trustees and the Special
Committee considered include:
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Premium—the Merger
Consideration represents a significant premium over the market price of
our Common Shares prior to the Company’s announcement on September 14,
2009, that it had formed a Special Committee to explore strategic
alternatives, including a possible sale of the Company. The Merger
Consideration represents:
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a
$1.13, or 17%, premium over the closing price of our Common Shares on
September 14, 2009, the last trading day before we announced that we were
considering various strategic alternatives, including a possible sale of
the Company;
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a
$0.90, or 13%, premium over the volume-weighted average closing price of
our Common Shares for the 10-trading day period ending September 14,
2009;
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a
$1.60, or 26%, premium over the volume-weighted average closing price of
our Common Shares for the 30-trading day period ending September 14,
2009;
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a
$1.62, or 26%, premium over the volume-weighted average closing price of
our Common Shares for the 60-trading day period ending September 14,
2009;
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a
$1.21, or 18%, premium over the volume-weighted average closing price of
our Common Shares for the 90-trading day period ending September 14, 2009;
and
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a
$3.39, or 78%, premium over the volume-weighted average closing price of
our Common Shares for the 180-trading day period ending September 14,
2009;
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the
financial analysis reviewed and discussed with the Special Committee by
representatives of FBR, as well as the oral opinion of FBR to the Special
Committee on September 25, 2009 (which was subsequently confirmed by
delivery of FBR’s written opinion dated the same date) with respect to the
fairness, from a financial point of view, to the Unaffiliated Holders of
the per share Merger Consideration to be received by the Unaffiliated
Holders in the proposed Merger pursuant to the Merger
Agreement;
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the
high probability that the Merger would be completed based on, among other
things, the lack of any financing condition and the substantial financial
resources of FCP;
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the
fact that our Common Shares have historically traded with very low volume
on the NYSE Amex and that the Merger will create immediate liquidity for
all of our shareholders. The average daily trading volume of
our Common Shares on the NYSE Amex during the 180-trading day period prior
to our announcement on September 14, 2009, that we had formed a
Special Committee to explore strategic alternatives, including a possible
sale of the Company, was 2,812
shares;
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the
fact that most of the U.S. income-producing multi-family properties have a
low tax basis that would likely result in a large tax liability for the
Company if such assets were sold and that such tax liability would not be
incurred as a result of the Merger;
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knowing
that the Wilson Family Shareholders, who beneficially own 47% of the
Company’s outstanding fully diluted Common Shares, planned to sell their
shares to a third party in a privately negotiated sale transaction, the
Board and Special Committee considered the fact that the Merger would
ensure that our minority shareholders would be treated the same as our
majority shareholders, including sharing in a control premium, whereas a
private sale by the majority shareholders of control to a third party
could lead to a tender offer by such third party for the remaining
minority shares, or another business combination transaction in which the
Company’s minority shareholders would be forced to sell their shares,
possibly at a lower price per share than the price at which the Wilson
Family Shareholders sold their shares or could result in such third party
seeking to delist and deregister our Common Shares in an effort to reduce
our overhead, but with the incidental effect of further reducing the
liquidity of the our Common Shares and the market price of our Common
Shares; and
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the
fact that the Merger would be subject to market checks through the
“go-shop” and “fiduciary out” provisions contained in the Merger
Agreement.
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Reasons
Against the Merger
Some
of the potentially negative factors that our Board of Trustees and the Special
Committee considered include:
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the
fact that the Merger negotiations occurred at a time when the economy was
still in a recessionary phase and the commercial real estate and housing
markets had not yet begun to improve materially relative to the bear real
estate markets witnessed in recent
months;
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the
fact that the Company’s liquidity position had improved recently as a
result of the sale of the Company’s Puerto Rico apartment portfolio and
repayment of a significant amount of Company debt, thus giving the Company
the financial stability to remain solvent and operate independently until
a possible upturn in the real estate
markets;
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the
fact that an all-cash merger results in a taxable
transaction;
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the
Merger would preclude shareholders from participating in the future
performance of the Company;
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the
Merger would create a significant disruption to the operation of the
Company’s business;
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the
significant costs incurred in connection with negotiating and entering
into the Merger Agreement and completing the Merger and the fact that the
Merger would require payment of substantial fees if the Merger is not
consummated under certain
circumstances;
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the
Merger will trigger the vesting of the unvested restricted Common Shares
of our Company held by our Chief Executive Officer and the cash-out of the
SARs held by one of our independent
trustees;
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the
Merger Agreement imposes restrictions on the Company’s conduct of its
business; and
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the
obligation to pay a termination fee could have the effect of dissuading
other potential bidders from submitting an acquisition proposal for the
Company.
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In
view of the wide variety of factors considered by our Board of Trustees and the
Special Committee, our Board of Trustees and the Special Committee did not find
it practicable to, and did not, quantify or otherwise attempt to assign relative
weights to the specific factors considered. Our Board of Trustees’
recommendation is based on the totality of the information presented to and
considered by it. After taking into consideration the factors set
forth above together with other factors, including those described in “The
Merger—Reasons for the Merger” on
page
30, our Board of Trustees and the Committee determined that the potential
benefits of the Merger substantially outweigh the potential detriments
associated with the Merger.
Opinion
of the Special Committee’s Financial Advisor
On
September 25, 2009, FBR rendered its oral opinion to the Special Committee
(which was subsequently confirmed in writing by delivery of FBR’s written
opinion dated the same date) to the effect that, as of September 25, 2009,
the Per Share Merger Consideration to be received by the Unaffiliated Holders in
the proposed Merger pursuant to the Merger Agreement was fair to such
Unaffiliated Holders from a financial point of view.
FBR’s
opinion was directed to the Special Committee and only addressed the fairness,
from a financial point of view, of the Per Share Merger Consideration to be
received by the Unaffiliated Holders, in the proposed Merger pursuant to the
Merger Agreement, and did not address any other aspect or implication of the
proposed Merger. The summary of FBR’s opinion in this proxy statement is
qualified in its entirety by reference to the full text of its written opinion,
which is included as Exhibit C
to this proxy statement and sets forth the procedures followed, assumptions
made, qualifications and limitations on the review undertaken and other matters
considered by FBR in preparing its opinion. However, neither FBR’s written
opinion nor the summary of its opinion and the related analyses set forth in
this proxy statement are intended to be, and do not constitute advice or a
recommendation to any security holder as to how such security holder should act
or vote with respect to any matter relating to the Merger.
In
arriving at its opinion, FBR:
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reviewed
a draft, dated September 24, 2009, of the Merger Agreement and certain
related documents;
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reviewed
certain publicly available business and financial information relating to
the Company and the industries in which the Company
operates;
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reviewed
certain other business, financial and other information relating to the
Company, including financial forecasts for the Company provided to or
discussed with FBR by the management of the
Company;
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met
with certain members of the management of the Company to discuss the
business and prospects of the Company and the
Merger;
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reviewed
certain financial and share trading data and information for the Company
and compared that data and information with corresponding data and
information for companies with publicly traded securities that FBR deemed
relevant;
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reviewed
certain financial terms of the proposed Merger and compared those terms
with the financial terms of certain other business combinations and other
transactions which have recently been effected or
announced; and
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considered
such other information, financial studies, analyses and investigations and
financial, economic and market criteria that FBR deemed
relevant.
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In
connection with FBR’s review, FBR did not independently verify any of the
foregoing information and FBR assumed and relied upon such information being
complete and accurate in all material respects. With respect to the financial
forecasts provided or discussed with FBR by the Company that FBR used in its
analyses, management of the Company advised FBR, and FBR assumed, that such
forecasts were reasonably prepared in good faith on bases reflecting the best
currently available estimates and judgments of the management of the Company as
to the future financial performance of the Company and FBR expressed no view and
assumed no responsibility for the assumptions, estimates and judgments on which
such forecasts were based. FBR also assumed, with the Special Committee’s
consent, that, in the course of obtaining any regulatory or third party
consents, approvals or agreements in connection with the Merger, no delay,
limitation, restriction or condition will be imposed that would have an adverse
effect on the Company or the contemplated benefits of the Merger and that the
Merger would be consummated in accordance with the terms of the Merger Agreement
without waiver, modification or amendment of
any
material term, condition or agreement thereof. FBR also assumed, with the
Special Committee’s consent, that the Merger Agreement, when executed by the
parties thereto, would conform to the draft reviewed by FBR in all respects
material to FBR’s analyses.
FBR’s
opinion addressed only the fairness, from a financial point of view, to the
Unaffiliated Holders of the Per Share Merger Consideration to be received by the
Unaffiliated Holders in the Merger pursuant to the Merger Agreement and did not
address any other aspect or implication of the Merger or any agreement,
arrangement or understanding entered into in connection with the Merger or
otherwise or the fairness of the amount or nature of, or any other aspect
relating to, any compensation to any officers, trustees, directors or employees
of any party to the Merger, or class of such persons, relative to the Per Share
Merger Consideration or otherwise. The issuance of FBR’s opinion was approved by
an authorized internal committee of FBR.
FBR’s
opinion was necessarily based upon information made available to FBR as of the
date of its opinion and financial, economic, market and other conditions as they
existed and could be evaluated on such date and upon certain assumptions
regarding such financial, economic, market and other conditions which are
currently subject to unusual volatility and which, if different than assumed,
could have a material impact on FBR’s analyses or opinion. FBR’s opinion did not
address the relative merits of the Merger as compared to alternative
transactions or strategies that might be available to the Company or any other
party to the Merger, nor did it address the underlying business decision of the
Special Committee or the Board of Trustees of the Company to proceed with the
Merger. Furthermore, in connection with FBR’s opinion, FBR was not requested to
make, and did not make, any physical inspection or independent appraisal of any
of the assets, properties or liabilities (contingent or otherwise) of the
Company or any other party, nor was FBR provided with any such appraisal. The
Special Committee advised FBR, and for purposes of FBR’s analyses and its
opinion FBR assumed, that the Company does not qualify as a REIT for tax
purposes and that the Company has been unsuccessful in pursuing alternative
transactions that would permit it to qualify as a REIT.
FBR’s
opinion was provided for the information of the Special Committee and the Board
of Trustees of the Company in connection with their consideration of the Merger
and should not be construed as creating any fiduciary duty on the part of FBR to
the Special Committee, the Board of Trustees of the Company, the Company, any
security holder of the Company or any other party. FBR’s opinion does not
constitute advice or a recommendation to any investor or security holder of the
Company or any other person as to how such investor, security holder or other
person should vote or act on any matter relating to the proposed Merger or
otherwise.
In
preparing its opinion to the Special Committee, FBR performed a variety of
analyses, including those described below. The summary of FBR’s valuation
analyses is not a complete description of the analyses underlying FBR’s opinion.
The preparation of a fairness opinion is a complex process involving various
quantitative and qualitative judgments and determinations with respect to the
financial, comparative and other analytic methods employed and the adaptation
and application of those methods to the unique facts and circumstances
presented. As a consequence, neither FBR’s opinion nor the analyses underlying
its opinion are readily susceptible to partial analysis or summary description.
FBR arrived at its opinion based on the results of all analyses undertaken by it
and assessed as a whole and did not draw, in isolation, conclusions from or with
regard to any individual analysis, analytic method or factor. Accordingly, FBR
believes that its analyses must be considered as a whole and that selecting
portions of its analyses, analytic methods and factors, without considering all
analyses and factors or the narrative description of the analyses, could create
a misleading or incomplete view of the processes underlying its analyses and
opinion.
In
performing its analyses, FBR considered business, economic, industry and market
conditions, financial and otherwise, and other matters as they existed on, and
could be evaluated as of, the date of its opinion. No company, business or asset
used in FBR’s analyses for comparative purposes is identical to the Company, its
business or assets or the proposed transaction. While the results of each
analysis were taken into account in reaching its overall conclusion with respect
to fairness, FBR did not make separate or quantifiable judgments regarding
individual analyses. The implied valuation reference ranges and other valuation
metrics indicated by FBR’s analyses are illustrative and not necessarily
indicative of actual values nor predictive of future results or values, which
may be significantly more or less favorable than those suggested by the
analyses. In addition, any analyses relating to the value of assets, businesses
or securities do not purport to be appraisals or to reflect the prices at which
businesses or securities actually may be sold, which may depend on a variety of
factors, many of which are beyond the Company’s control and the control of FBR.
Much of the information used in, and accordingly the results of, FBR’s analyses
are inherently subject to substantial uncertainty.
FBR’s
opinion and analyses were provided to the Special Committee and the Board of
Trustees of the Company in connection with their consideration of the proposed
Merger and were among many factors considered by the Special Committee and the
Board of Trustees of the Company in evaluating the proposed Merger. Neither
FBR’s opinion nor its analyses were determinative of the Per Share Merger
Consideration or of the views of the Special Committee or the Board of Trustees
of the Company with respect to the proposed Merger.
The
following is a summary of the material valuation analyses performed in
connection with the preparation of FBR’s opinion rendered to the Special
Committee on September 25, 2009. The analyses summarized below include
information presented in tabular format. The tables alone do not constitute a
complete description of the analyses. Considering the data in the tables below
without considering the full narrative description of the analyses, as well as
the methodologies underlying and the assumptions, qualifications and limitations
affecting each analysis, could create a misleading or incomplete view of FBR’s
analyses.
For
purposes of its analyses, FBR reviewed a number of financial metrics
including:
Enterprise
Value – generally the value as of a
specified date of the relevant company’s outstanding equity securities (taking
into account its restricted units, outstanding options, warrants and other
convertible securities) plus the value of its minority interests plus the amount
of its net debt (the amount of its outstanding indebtedness, preferred stock and
capital lease obligations less the amount of cash on its balance sheet) as of a
specified date.
EBITDA –
generally the amount of the relevant company’s
earnings before interest, taxes, depreciation, and amortization for a specified
time period.
Unless
the context indicates otherwise, common stock prices for the selected companies
used in the Selected Companies Analysis described below were as of September 24,
2009, the last trading day for such shares prior to public announcement of the
proposed Merger.
Enterprise
Level Selected Companies Analysis
FBR
considered certain financial data for the Company and selected multifamily real
estate investment companies with publicly traded equity securities including
Enterprise Value as a multiple of estimated 2010 EBITDA.
The
selected companies were selected because they had publicly traded equity
securities and were deemed to be similar to the Company in one or more respects
including the nature of their business, size, diversification, financial
performance and geographic concentration. No specific numeric or other similar
criteria were used to select the selected companies and all criteria were
evaluated in their entirety without application of definitive qualifications or
limitations to individual criteria. As a result, a significantly larger or
smaller company with substantially similar lines of businesses and business
focus may have been included while a similarly sized company with less similar
lines of business and greater diversification may have been excluded. FBR
identified a sufficient number of companies for purposes of its analysis but may
not have included all companies that might be deemed comparable to the Company.
The selected multifamily real estate investment companies were:
Equity Residential
Apartment Investment and Management
Company
UDR,
Inc.
Home
Properties Inc.
Essex
Property Trust, Inc.
BRE
Properties Inc.
Mid-America Real Estate
Corporation
Associated Estates Realty
Corporation
The
selected companies analysis indicated the following:
|
Multiple Description
|
High
|
Low
|
Median
|
Mean
|
|
|
|
|
|
|
|
Enterprise
Value as a multiple of:
|
|
|
|
|
|
2010E
EBITDA
|
18.2x
|
12.7x
|
17.0x
|
16.3x
|
FBR
applied multiple ranges based on the selected companies analysis to
corresponding financial data for the Company provided by the Company’s
management. The entity level selected companies analysis indicated an
implied valuation reference range per Common Share of $3.53 to $6.33, as
compared to the Per Share Merger Consideration of $7.75.
Asset
Level Analyses
FBR
also separately analyzed the Company’s U.S. income producing assets; Puerto
Rican income producing assets; U.S. non-income producing assets; and Puerto
Rican non-income producing assets.
U.S. Income
Producing Assets. FBR analyzed the Company’s U.S. income
producing multifamily properties (i) using the capitalization rates indicated by
sales of comparable multifamily properties as reported by REIS Inc. and (ii)
based on the range of sales prices for units in comparable properties is as
reported by Reis Inc. FBR’s analysis indicated an implied aggregate
valuation reference range for the Company’s U.S. income producing assets of
approximately ($14.822) million to $5.040 million or ($2.64) to $0.90 per Common
Share. Numbers in parentheses indicate negative amounts. FBR’s
analysis took into account the tax liability likely to be incurred by the
Company as a result of a sale of the U.S. income producing multi-family
properties based on information provided by the Company regarding the Company’s
tax basis in those assets.
Puerto Rican
Income Producing Assets. FBR analyzed the Company’s Puerto
Rican income producing assets based on the projected net operating income and
future distributions expected to be generated by such assets as provided by
management of the Company. FBR’s analysis indicated an implied
aggregate valuation reference range for the Company’s Puerto Rican income
producing assets of approximately $7.174 million to $8.603 million or $1.28 to
$1.53 per Common Share.
U.S. Non-Income
Producing Assets. FBR analyzed the Company’s U.S. non-income
producing assets based on information provided by management of the Company
including bids previously received by the Company with respect to certain of
those assets; an analysis of the cash flows expected to be generated by certain
properties (taking into account the costs to develop and sales rates for such
properties), as well as publicly available information regarding sales of
certain properties. FBR’s analysis indicated an implied aggregate valuation
reference range for the Company’s U.S. non-income producing assets of
approximately $23.225 million to $32.306 million or $4.13 to $5.75 per Common
Share.
Puerto Rican
Non-Income Producing Assets. FBR analyzed the Company’s Puerto
Rican non-income producing assets based on information provided by management of
the Company including information on prior sales of certain properties;
projected costs to develop certain unfinished properties; and market quotes
provided to the Company by local real estate brokers. FBR’s analysis indicated
an implied aggregate valuation reference range for the Company’s Puerto Rican
income producing assets of approximately $3.555 million to $8.149 million or
$0.63 to $1.45 per Common Share.
FBR
calculated an implied aggregate valuation reference range for the Company’s
Common Shares by summing the implied valuation reference ranges per Common Share
for the U.S. income producing assets; the Puerto Rican income producing assets;
the U.S. non-income producing assets; and the Puerto Rican non-income producing
assets based on the foregoing analyses and subtracting corporate adjustments of
($1.89) to ($1.70) per Common Share for general and administrative expenses,
working capital and other costs expected to be incurred in realizing such values
based on estimates and other information provided by management of the
Company. Numbers
in
parentheses indicate costs or amounts to be subtracted. The asset
level analyses indicated an implied valuation reference range per Common Share
of $1.51 to $7.93, as compared to the Per Share Merger Consideration of
$7.75.
Other
Considerations
Implied
Premiums and Premiums Paid
FBR
also noted the implied premium of the Per Share Merger Consideration relative to
historical trading prices of Common Shares was (12%) based on the closing price
of Common Shares one-day prior to September 25, 2009 (the date the proposed
Merger was publicly announced); 41% based on the closing price of Common Shares
thirty trading days prior to September 25, 2009; 17% based on the closing
price of Common Shares on September 14, 2009 (the last trading day before the
Company publicly announced that it was considering various strategic
alternatives); and 34% based on the closing price of Common Shares thirty
trading days prior to September 14, 2009. FBR also noted that the average
premium paid in selected acquisitions of companies in the real estate industry
with publicly traded equity securities was 16% based on the closing price of the
acquired company’s shares one day prior to the public announcement of the
proposed transaction and 17% based on the closing price of the acquired
company’s shares thirty trading days prior to the public announcement of the
proposed transaction. Numbers in parentheses indicate negative
numbers.
Other
Matters
Pursuant
to an engagement letter dated September 4, 2009, the Special Committee retained
FBR as its financial advisor in connection with, among other things, the
proposed Merger. The Special Committee engaged FBR based on FBR’s
qualifications, experience and reputation as an internationally recognized
investment banking and financial advisory firm. FBR will receive a fee for its
services, a significant portion of which is contingent upon the consummation of
the Merger. FBR also became entitled to receive a fee upon the rendering of its
opinion which is not contingent upon the consummation of the
Merger. In addition, the Company has agreed to indemnify FBR and
certain related parties for certain liabilities and other items arising out of
or related to its engagement.
From
time to time, FBR and its affiliates have in the past provided investment
banking and other financial advice and services to the Company and certain of
its affiliates, including members of the Wilson Family Shareholders and certain
of their affiliates for which FBR and its affiliates have received compensation,
including, during the last two years, having acted as financial advisor to the
Company in connection with a potential reorganization of the Company (which we
refer to as the Company Engagement) and, following the suspension and
modification of that engagement, financial advisor to certain members of the
Wilson Family Shareholders in connection with the potential sale of all or a
material portion of the Common Shares held by the Wilson Family Shareholders
(which we refer to as the Wilson Family Shareholders Engagement). In accordance
with the Merger Agreement, FBR was also requested to solicit third party
indications of interest in acquiring all or any part of the Company for a
prescribed period following the execution of the Merger Agreement. In
addition, FBR and its affiliates may in the future provide investment banking
and financial advice and services to the Company, FCP and certain of their
respective affiliates for which FBR and its affiliates would expect to receive
compensation. FBR is a full service securities firm engaged in securities
trading and brokerage activities as well as providing investment banking and
other financial services. In the ordinary course of business, FBR and its
affiliates may acquire, hold or sell, for FBR’s and its affiliates own accounts
and the accounts of customers, equity, debt and other securities and financial
instruments (including bank loans and other obligations) of the Company, FCP,
affiliates of the Wilson Family Shareholders and certain of their respective
affiliates, as well as provide investment banking and other financial services
to such companies and persons. The Special Committee was aware that FBR had
previously entered into the Company Engagement, which was suspended prior to FBR
entering into the Wilson Family Shareholders Engagement. The Special Committee
was also aware that, prior to being engaged by the Special Committee, FBR
entered into agreements with (i) certain of the Wilson Family Shareholders
terminating the engagement period under the Wilson Family Shareholders
Engagement and confirming that FBR would not be entitled to any fees under the
terms of the Wilson Family Shareholders Engagement whether or not any sale
transaction occurred after the date of such termination and (ii) the Company
terminating the engagement period under the Company Engagement and confirming
that FBR would not be entitled to any additional fees under the terms of the
Company Engagement regardless of whether a sale transaction occurred after the
date of such termination. Pursuant to the terms of FBR’s engagement by the
Special Committee, the fee that became payable by the Company to FBR upon the
rendering of FBR’s opinion and certain fees previously paid by the Company to
FBR
pursuant
to the Company Engagement are creditable against the fee payable by the Company
to FBR upon consummation of the Merger.
Interests
of Our Trustees, Executive Officers and Other Persons in the Merger
In
considering the recommendation of our Board of Trustees in connection with the
Merger, holders of our Common Shares should be aware that, as described below,
each of our executive officers and trustees and certain other persons have
interests in, and will receive benefits from, the Merger that differ from, or
are in addition to, and therefore may conflict with, the interests of our
shareholders generally. These additional interests are described
below, to the extent material. As noted above, two members of our
Board of Trustees who are not independent and disinterested, Stephen K. Griessel
and J. Michael Wilson, abstained from voting on the Merger. In
addition, the number of our Common Shares beneficially owned by our trustees and
executive officers and holders of greater than 5% of our outstanding Common
Shares, as of November 9, 2009, appears below under the section captioned
“Principal and Management Shareholders” on page 66. Our Board of
Trustees was aware of these interests and considered them in approving the
Merger and the other transactions contemplated by the Merger Agreement and the
Declaration of Trust Amendment.
Restricted
Shares. In the Merger, each unvested restricted Common Share
of the Company that, by its terms, vests automatically upon the consummation of
the Merger will fully vest in accordance with its terms and be considered an
outstanding Common Share for all purposes, including the right to receive the
Merger Consideration. The following table sets forth the number of
restricted Common Shares held by our executive officers and our non-management
trustees as of the date of this proxy statement, all of which will be vested and
will be considered an outstanding Common Share for all purposes, including the
right to receive the Merger Consideration, immediately prior to the
Merger. On September 9, 2009, we awarded 363,743 restricted Common
Shares to Stephen K. Griessel, our Chief Executive Officer. This
award was made pursuant to the Amended and Restated Employment Agreement, dated
May 14, 2009, by and among Mr. Griessel, the Company and ARPT. Of the
363,743 restricted Common Shares covered by the award, 72,748 shares vested on
September 30, 2009. In addition, under the award agreement relating
to these restricted shares, any unvested shares will vest upon a change in
control of our Company. As a result, the 290,995 shares that are
currently subject to vesting restrictions will become fully vested prior to the
effective time of the Merger. In addition, our other trustees own an
aggregate of 22,970 restricted shares that will vest prior to the effective time
of the Merger in accordance with the terms of the award agreements relating to
these shares.
|
Trustees
and Executive
Officers:
|
|
Number
of Restricted Shares
|
|
|
Value
of
Restricted
Shares($)
|
|
|
|
|
|
|
|
|
|
|
Stephen
K. Griessel
|
|
|
290,995 |
|
|
$ |
2,255,211 |
|
|
Donald
J. Halldin
|
|
|
4,594 |
|
|
$ |
35,604 |
|
|
Michael
E. Williamson
|
|
|
4,594 |
|
|
$ |
35,604 |
|
|
Thomas
E. Green
|
|
|
4,594 |
|
|
$ |
35,604 |
|
|
Antonio
Ginorio
|
|
|
4,594 |
|
|
$ |
35,604 |
|
|
Thomas
J. Shafer
|
|
|
4,594 |
|
|
$ |
35,604 |
|
|
|
|
|
|
|
|
|
|
|
Agreement with Stephen K.
Griessel. On May 12, 2009, Stephen K. Griessel, our Chief
Executive Officer, executed an agreement with Interstate Business Corporation
(“IBC”), an entity affiliated with J. Michael Wilson, the Chairman of our Board
of Trustees, pursuant to which a total of 185,550 of our Common Shares owned by
IBC will be transferred in annual installments from IBC to a trust established
by IBC for the sole and exclusive benefit of Mr. Griessel. IBC will
retain legal title to all Common Shares held by the trust and the trustee of the
trust will be instructed to vote such Common Shares in the manner IBC votes the
other Common Shares that it owns. IBC also agreed to make payments to
Mr. Griessel in amounts equal to all dividends and distributions made with
respect to the Common Shares held by the trust. On the earlier of
April 30, 2011 or a change of control of our Company, all Common Shares held by
the trust will be transferred to Mr. Griessel and IBC will transfer directly to
Mr. Griessel the amount of Common Shares required to make the total number of
Common Shares transferred to Mr. Griessel pursuant to the agreement equal to
185,550. Upon the consummation of the Merger, a total of 185,550 of
our Common Shares will be transferred from IBC and/or the trust to Mr. Griessel
pursuant to the terms of the agreement and Mr. Griessel will be entitled to
receive the same per share Merger Consideration in exchange for such 185,550
Common Shares as all other holders of our Common Shares under the terms of the
Merger Agreement.
Share Appreciation
Rights. In the Merger, each of the outstanding share
appreciation rights will be cancelled and in lieu thereof, each holder will be
entitled to receive an amount in cash equal to the product of (i) the excess, if
any, of the Merger Consideration over the base price per Common Share underlying
such share appreciation right multiplied by (ii) the number of Common Shares
subject to such share appreciation right. None of our trustees and
executive officers owns any share appreciation rights and only one of our
trustees, Mr. Antonio Ginorio, owns share appreciation rights. The
following table sets forth the number of share appreciation rights held by our
trustees and executive officers as of the date of this proxy statement and the
value to be received for such rights in connection with the
Merger.
|
Trustees
and Executive
Officers:
|
|
Number
of Share Appreciation Rights
|
|
|
Value
of
Share
Appreciation Rights ($)
|
|
|
|
|
|
|
|
|
|
|
Antonio
Ginorio
|
|
|
10,000 |
|
|
$ |
37,500 |
|
Indemnification
and Insurance. The Merger Agreement provides that, following
the Merger, FCP and the Surviving Entity will indemnify and hold harmless any
person who is a trustee or executive officer of our Company or any of our
subsidiaries to the fullest extent allowed by applicable law and advance to such
persons the expenses incurred in connection with claims relating to such
parties’ duties or service as an officer, trustee, director, employee, agent or
fiduciary of our Company and its subsidiaries. The Merger Agreement
further provides that the Surviving Entity will (i) maintain the current
policies of trustees’ and officers’ liability insurance maintained by us or our
subsidiaries for a period of six years following the closing of the Merger and
(ii) maintain for a period of six years after the effective time of the Merger,
provisions in the Surviving Entity’s charter and bylaws regarding (a)
exculpation from liability for money damages for trustees, directors and
officers, (b) indemnification for trustees, directors, officers and employees
and (c) advance of expenses related to claims against such trustees, directors,
officers and employees. For a more complete discussion of these
provisions of the Merger Agreement, see the section captioned “The Merger
Agreement—Indemnification; Trustee and Officer Insurance” on page 56 of this
proxy statement.
Special
Committee Compensation. The trustees who serve on the Special
Committee are entitled to receive a retainer of $25,000 each for their service
on the Special Committee, with the Chairman receiving an additional retainer of
$40,000 for his service as Chairman of the Special Committee and the Vice
Chairman receiving an additional retainer of $20,000 for his service as Vice
Chairman. Such compensation is not conditioned upon the completion of
any transaction, including the Merger.
Voting
by Our Trustees and Executive Officers
As
of the record date, our trustees and executive officers, excluding J. Michael
Wilson, beneficially owned an aggregate of 416,949 Common Shares, representing,
in the aggregate, approximately 7.4% of the voting power of our Common Shares
entitled to vote at the special meeting. Our executive officers and
trustees other than J. Michael Wilson have informed us that they intend to vote
the Common Shares that they beneficially own in favor of the approval of the
Merger and the Declaration of Trust Amendment, and for the approval of any
adjournments of the special meeting for the purpose of soliciting additional
proxies.
Voting
and Passive Investment Arrangement with Paul J. Isaac
We
have been informed by FCP that, subsequent to the announcement of the execution
of the Merger Agreement, representatives of FCP met with Paul J. Isaac, who,
together with certain of his related and affiliated persons (whom we refer to as
the “Isaac Group”), beneficially owns an aggregate of 865,329 of our Common
Shares (which represents 15.4% of our outstanding Common Shares as of the record
date), on October 1, 2009, at the request of Mr. Isaac and without any
solicitation from, or any initiation on the part of, FCP or any of its
representatives. At this meeting, Mr. Isaac informed the
representatives of FCP that he was considering his alternatives with respect to
his investment in the Company and expressed his interest in possibly
participating in the transaction on the buy-side with
FCP. Representatives of FCP informed Mr. Isaac at this meeting that
they did not wish to take any action that would jeopardize the Merger or
otherwise be viewed as being unfavorable to the shareholders of the Company, but
that they would consider his request.
Mr.
Ross Levin, an employee of one of the entities that is controlled by Mr. Isaac,
had been one of our trustees until his resignation on September 8, 2009, as more
fully described in this proxy statement under the section entitled “—Background
of the Merger.” On October 7, 2009, Mr. Isaac filed an amendment to
his Schedule 13D pursuant to which he disclosed that one of the entities
controlled by him had purchased an aggregate of 146,392 common shares in open
market transactions between September 28, 2009 and October 2,
2009.
After
careful consideration by its principals, on October 9, 2009, representatives of
FCP informed Mr. Isaac that it would be willing to consider, on a non-binding
basis, a passive investment by Mr. Isaac and the Isaac
Group. Subsequently, the parties and their respective representatives
engaged in a number of follow-up discussions regarding the viability of such a
transaction and the possible terms of such arrangement. We have been
informed by FCP that, on November 10, 2009, FCP, Mr. Isaac and substantially all
of the members of the Isaac Group entered into a purchase agreement and a voting
agreement in connection with such passive investment by Mr. Isaac and such
members of the Isaac Group in the Surviving Entity, the material terms of which
are described below.
FCP
has informed us that, prior to the meeting on October 1, 2009 that the parties
held at Mr. Isaac’s request, neither it nor any of its affiliates had had any
prior discussions or meetings with Mr. Isaac or any member of the Isaac Group,
nor had it contemplated or considered initiating any such discussions or
meetings, regarding the Merger, the Declaration of Trust Amendment or any of the
other transactions contemplated by the Merger Agreement, or any possible
investment by Mr. Isaac and the Isaac Group in the Surviving
Entity. In addition, no discussions regarding such potential
investment were held between FCP, on one hand, and Mr. Isaac and the Isaac
Group, on the other hand, after such meeting on October 1, 2009 and prior to
October 9, 2009, when FCP informed Mr. Isaac that it would consider a passive
investment by Mr. Isaac and the Isaac Group.
Mr. Isaac’s Investment
Pursuant to the terms of a purchase agreement
entered into on November 10, 2009 by and among FCP, Mr. Isaac and substantially
all, but not all, of the members of the Isaac Group that own an aggregate of
829,529 of our Common Shares (which represents 14.8% of our outstanding common
shares as of the record date) (the “Interested Isaac Group”), immediately
after the effective time of the Merger, Mr. Isaac and the Interested Isaac Group
would make, through a newly formed entity, a capital contribution in cash of an
amount equal to 27.5% of the sum of the aggregate Merger Consideration that FCP
has agreed to pay to our common shareholders pursuant to the Merger Agreement
and all transaction and closing costs, fees and expenses to be incurred by FCP
in connection with the Merger. In exchange for such capital
contribution, the newly formed investment vehicle controlled by Mr. Isaac and
the Interested Isaac Group would receive a 27.8% passive, limited partnership
interest in a limited partnership to be formed through which FCP intends to own
substantially all of its interest in the Surviving Entity. FCP would
own the remaining 72.2% interest in the new limited partnership as the sole
general partner with sole and exclusive control over the management of such
limited partnership and the Surviving Entity. Mr. Isaac would not be
entitled to appoint or designate any members of the Board of Trustees of the
Surviving Entity or have any control or involvement in the management of the
business and affairs of the newly formed limited partnership or the Surviving
Entity. Instead, the investment vehicle through which Mr. Isaac and
the Interested Isaac Group would make their investment in the newly formed
limited partnership would be a passive investor with certain limited rights that
are intended to protect its investment. As a limited partner, the
Isaac Group investment vehicle would receive cash distributions to the extent
that FCP, as the general partner, determines that amounts are available for
distributions.
We
understand that the consummation of the investment transaction described above
by Mr. Isaac and the Interested Isaac Group is conditioned on, among other
things, the consummation of the Merger and other customary closing
conditions. In addition, we have been informed that, in the event the
purchase agreement related to such arrangement is terminated in accordance with
its terms, Mr. Isaac and the Interested Isaac Group would be obligated to
refrain from supporting, initiating or being involved in a competing acquisition
proposal for a period of 60 calendar days from the date of such
termination.
We
also understand that the proposed transaction would not affect the rights of Mr.
Isaac and the Interested Isaac Group to receive the Merger Consideration at the
time of the Merger with all other common shareholders, and that all of our
Common Shares that are owned by Mr. Isaac and the Interested Isaac Group would
be cashed-out along with all other outstanding Common Shares at the effective
time of the Merger.
Isaac Voting Agreement
In
addition to the purchase agreement related to the investment transaction
described above, we have been informed that, on November 10, 2009, FCP, Merger
Sub, Mr. Isaac and the Interested Isaac Group entered into a voting
agreement. Pursuant to the voting agreement, Mr. Isaac and the
Interested Isaac Group have agreed to vote in favor of the Merger and each
transaction contemplated by the Merger Agreement, including the Declaration of
Trust Amendment. In addition, Mr. Isaac and the Interested Isaac
Group have agreed to vote against certain matters that would impact our ability
to timely complete the Merger. We also understand that Mr. Isaac and
the Interested Isaac Group will continue to be bound by the voting agreement for
60 calendar days following the termination of the Merger Agreement by us to
enter into a definitive agreement with respect to a superior proposal in
accordance with the terms of the Merger Agreement, as well as 60 calendar days
following the termination of the purchase agreement described
above.
Regulatory
Approvals
No
material federal or state regulatory approvals are required to be obtained by us
or other parties to the Merger Agreement in connection with the
Merger. To effect the Merger, however, articles of merger must be
filed by Merger Sub and us with the SDAT and must be accepted for record by the
SDAT.
Litigation
Related to the Merger
On
October 2, 2009, Pennsylvania Avenue Funds, a purported Company shareholder,
filed a class action complaint in the Circuit Court for Charles County,
Maryland, against the Company, our Board of Trustees and FCP. The
complaint alleges that our trustees breached their fiduciary duties in
connection with the Merger. The complaint further alleges that FCP
aided and abetted those breaches of fiduciary duties. The complaint
seeks to enjoin consummation of the Merger and also seeks attorneys’ fees and
expenses.
On
October 23, 2009, Joseph M. Sullivan, a purported Company shareholder, filed a
class action complaint in the Circuit Court for Charles County, Maryland,
against the Company, our Board of Trustees, FCP and Merger Sub. The complaint
alleges that our trustees breached their fiduciary duties in connection with the
Merger. The complaint further alleges that FCP and Merger Sub aided
and abetted those breaches of fiduciary duties. The complaint seeks
to enjoin consummation of the Merger and also seeks attorneys’ fees and
expenses.
On November 13, 2009, the parties
submitted to the Court an agreed stipulation and proposed order consolidating
these two actions. This order has not yet been entered. On
November 19, 2009, the plaintiffs filed in each action a consolidated
complaint. The consolidated complaint names the same defendants named
in the two initial complaints and asserts the same claims for breach of
fiduciary duties. The consolidated complaint alleges further that the
defendants breached fiduciary duties in connection with the disclosures
contained in the Company's preliminary proxy statement.
We
intend to defend these actions vigorously. However, even if these
lawsuits are determined to be without merit, they may potentially delay or, if
the delay is substantial enough, prevent the consummation of the Merger by March
31, 2010, potentially prevent the closing of the Merger.
Delisting
and Deregistration of our Common Shares
If
the Merger is completed, our Common Shares will no longer be listed on the NYSE
Amex and will be deregistered under the Exchange Act.
Fees
and Expenses
We
estimate that our Company will incur, and will be responsible for paying,
transaction-related fees and expenses, consisting primarily of filing fees, fees
and expenses of investment bankers, attorneys and accountants and other related
charges, totaling approximately $3.7 million, including loan assumption fees and
assuming the Merger and the other transactions contemplated by the Merger
Agreement are completed. In the event the Merger and the other
transactions contemplated by the Merger Agreement are completed, the Surviving
Entity will assume these fees and expenses, to the extent they have not been
paid. In the event the Merger is not completed, we will
be
responsible
for payment of these fees and expenses, other than the fees payable to the
financial advisor to the Special Committee and loan assumption fees, which are
both contingent on closing of the Merger.
THE MERGER AGREEMENT
The
following is a summary of selected material provisions of the Merger Agreement.
This summary is qualified in its entirety by reference to the complete text of
the Merger Agreement, which is incorporated by reference in its entirety and
attached to this proxy statement as Exhibit A. We urge you to read
carefully the Merger Agreement in its entirety as the rights and obligations of
the parties are governed by the express terms of the Merger Agreement and not by
this summary or any other information contained in this proxy
statement.
The
Merger Agreement has been attached to this proxy statement to provide you with
information regarding its terms. It is not intended to provide any other factual
information about American Community Properties Trust or the other parties to
the Merger Agreement. Information about our Company can be found
elsewhere in this proxy statement and in the other public filings we make with
the SEC, which are available without charge at http://www.sec.gov.
The
Merger Agreement contains representations and warranties made by and to the
parties to the Merger Agreement as of specific dates. The statements embodied in
those representations and warranties were made solely for purposes of the
contract between FCP, Merger Sub and us and may be subject to important
qualifications and limitations agreed to by FCP, Merger Sub and us in connection
with negotiating its terms. In addition, certain representations and warranties
are subject to contractual standards of materiality that may be different from
what may be viewed as material to shareholders. The representations and
warranties may have been used for the purpose of allocating risk between the
parties rather than establishing matters as facts. For the foregoing reasons,
you should not rely on the representations and warranties as statements of
factual information.
The
Merger
If
the Merger is approved by our shareholders and all other conditions to the
Merger are satisfied or waived, Merger Sub, an indirect subsidiary of FCP, will
be merged with and into us, and we will continue as the Surviving Entity
following the Merger.
The
closing date of the Merger will be no later than the second (or in certain
limited circumstances, the fifth) business day after all of the closing
conditions set forth in the Merger Agreement are satisfied or waived by our
Company, FCP or Merger Sub, as applicable. The Merger will become
effective when the articles of merger have been accepted by the SDAT in
accordance with Maryland law, or such later time (not to exceed 30 days from the
date the articles of merger are accepted for record by the SDAT) as the parties
to the Merger Agreement may agree and designate in the articles of
Merger.
We
and FCP are working to complete the Merger as quickly as possible. Because
completion of the Merger is subject to certain conditions that are beyond the
control of FCP and us, we cannot predict the exact timing of the closing. At
this time, we expect that the Merger will close either late in the fourth
quarter of 2009 or early in the first quarter of 2010 if, at the special meeting
of our shareholders, our shareholders approve the Merger and the Declaration of
Trust Amendment, and all other conditions are either satisfied or
waived.
Organizational
Documents
In
connection with the Merger, at the effective time, the Declaration of Trust of
our Company will be amended and restated in its entirety in accordance with a
form provided by FCP as a schedule to the Merger Agreement, and such amended and
restated Declaration of Trust will be the Declaration of Trust of the Surviving
Entity. The bylaws of Merger Sub, as in effect immediately prior to
the effective time of the Merger, will be adopted by the Surviving Entity as the
bylaws of the Surviving Entity following the Merger. If both the
proposal to approve the Merger and the proposal to approve the Declaration of
Trust Amendment are approved by our common shareholders, we will amend our
Declaration of Trust to give effect to the Declaration of Trust Amendment prior
to the effective time. In the unlikely event that the Declaration of
Trust Amendment is approved, but the Merger is not approved, our Board of
Trustees may elect not to file the Declaration of Trust Amendment with the
SDAT.
Effective
Time and Closing
The
Merger will become effective upon the acceptance of the articles of merger for
record by SDAT or such later time agreed to by us and the other parties and
designated in the articles of merger, not to exceed 30 days from the date the
articles of merger are accepted for record by SDAT. Such time is
referred to in this proxy statement as the “effective time of the Merger” or
“effective time.”
Unless
the Merger Agreement is terminated in accordance with its terms, the closing of
the Merger will take place as promptly as practicable, but in no event later
than the second business day (or, in the event the last condition of the Merger
to be satisfied is the condition that relates to a certain matter related to our
subsidiary, ARPT, as more fully discussed in this proxy statement, no later than
the fifth business day) after all of the conditions of the closing of the Merger
are satisfied or appropriately waived.
Trustees
and Officers
The
directors of Merger Sub immediately prior to the effective time will be the
trustees of the Surviving Entity. The officers of the Surviving
Entity immediately after effective time will be those individuals who are
designated by FCP prior to the effective time.
Merger
Consideration to be Received by Holders of Our Common Shares, Restricted Common
Shares and SARs
Each
of our Common Shares (other than shares owned by us or our subsidiaries or FCP,
Merger Sub or any of their subsidiaries) issued and outstanding immediately
prior to the effective time will be converted into the right to receive $7.75 in
cash, without interest. In the event that, after September 25,
2009 but prior to the effective time of the Merger, the number of Common Shares
issued and outstanding changes due to a stock dividend, subdivision, stock
split, reclassification, recapitalization combination, or share exchange, an
appropriate adjustment to the Merger Consideration will be
made. However, such transactions are prohibited by the Merger
Agreement without the written consent of FCP. In addition, the Merger
Consideration is subject to adjustment for certain dividend payments, if
any. At this time, we do not expect to make any dividends or other
distributions that would impact the Merger Consideration and such payments are
prohibited by the Merger Agreement without the written consent of
FCP.
In
the Merger, each unvested restricted Common Share of our Company that, by its
terms, vests automatically upon the consummation of the Merger will fully vest
in accordance with its terms and be considered an outstanding Common Share for
all purposes, including the right to receive the Merger Consideration of $7.75
per Common Share. Each of our unvested restricted Common Shares that,
by its terms, does not vest in connection with a change of control, such as the
Merger, shall be cancelled and retired for no additional
consideration. Additionally, in the Merger, each of the outstanding
share appreciation rights will be cancelled and in lieu thereof, each holder
will receive an amount in cash equal to the product of (i) the
excess, if any, of the Merger Consideration over the base price per Common Share
underlying such share appreciation right multiplied by (ii) the number of Common
Shares subject to such share appreciation right.
Payment
Procedures
At
or prior to the effective time of the Merger, FCP will deposit cash with an
exchange agent in the amount of the aggregate Merger Consideration payable to
holders of our Common Shares, restricted shares and share appreciation
rights. As soon as practicable after the effective time of the
Merger, a letter of transmittal will be sent to each of our shareholders as of
the record date that will include instructions on how our shareholders may
exchange their shares for the cash consideration they will receive in the
Merger. The exchange agent will pay our former
shareholders, upon receiving the surrender of a shareholder’s share certificate,
if applicable, and upon delivery of a properly completed letter of transmittal,
the Merger Consideration they are entitled to receive, net of any applicable
withholding tax. No interest will be paid or accrue on any cash
payable upon surrender of any share
certificate. The exchange agent will also pay the holders
of the share appreciation rights the share appreciation right consideration
described above after the effective time of the Merger.
Available
Funds
FCP
has represented to us in the Merger Agreement that it currently has and will
have, on the closing date, cash sufficient to pay the Merger Consideration and
to satisfy the obligations of FCP and Merger Sub in connection with the Merger
and any other transaction contemplated by the Merger Agreement and any and all
fees and expenses in connection with the Merger.
Our
Representations and Warranties
We
have made certain customary representations and warranties to FCP and Merger
Sub, subject to the exceptions disclosed in the Merger Agreement and the
disclosure letter in connection with the Merger Agreement and subject to
customary qualifications for materiality. These representations and
warranties terminate at the effective time of the Merger and relate to, among
other things:
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corporate
and partnership matters, including due organization and qualification and
good standing;
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our
current capitalization and debt and outstanding restricted stock and share
appreciation rights;
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authority
of the Company to execute and deliver the Merger
Agreement;
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the
determination, approval and recommendation of the Special Committee and
the Board of Trustees;
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absence
of conflicts with, or violations of, organizational documents, applicable
laws or other obligations or agreements as a result of the Merger and
governmental filings, and consents necessary to complete the
Merger;
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compliance
with applicable law and possession of applicable
permits;
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the
timely filing and accuracy of SEC reports and financial statements and
compliance with the Sarbanes-Oxley Act of 2002, the Exchange Act and NYSE
Amex requirements;
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the
absence of certain changes and events that have resulted or would
reasonably be expected to result in a material adverse effect with respect
to us;
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the
absence of litigation or orders against
us;
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our
employee benefit plans;
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labor
matters affecting us and our
employees;
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the
accuracy of information contained in this proxy statement regarding
us;
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our
properties, leases and related title insurance
matters;
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our
intellectual property;
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tax
matters affecting us and our subsidiaries and
properties;
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environmental
matters affecting us and our subsidiaries and
properties;
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our
material contracts;
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related
party transactions involving us and our
subsidiaries;
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the
applicability of certain takeover and business combination statutes to
us;
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broker’s
fees payable in connection with the
Merger;
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the
opinion of our financial advisor;
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our
and our subsidiaries’ status as an investment company under the Investment
Company Act of 1940, as amended;
and
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accounting
and disclosure controls.
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Representations
and Warranties of the Other Parties to the Merger Agreement
FCP and Merger Sub have made certain representations
and warranties to us that terminate at the effective time of the
Merger. These representations and warranties relate to, among other
things:
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corporate
and partnership matters, including due organization and qualification and
good standing;
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authority
of FCP and Merger Sub to execute and deliver the Merger
Agreement;
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absence
of conflicts with, or violations of, organizational documents, applicable
laws or other obligations or agreements as a result of the Merger and
governmental filings, and consents necessary to complete the
Merger;
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available
funds sufficient to pay the Merger Consideration and to satisfy other
obligations in connection with the Merger and the other transactions
contemplated by the Merger
Agreement;
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ownership,
prior activities and the sole purpose of Merger
Sub;
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ownership
of our Common Shares; and
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accuracy
of information contained in this proxy statement regarding FCP and Merger
Sub.
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Covenants
Regarding Conduct of Our Business
During
the period from September 25, 2009 to the earlier of the closing date of the
Merger or termination of the Merger Agreement, we have agreed that we and each
of our subsidiaries will not, except (i) as set forth in our disclosure letter
given to FCP by us in connection with the Merger Agreement, (ii) as consented to
in writing by FCP, which consent is not to be unreasonably withheld, or (iii) as
expressly contemplated or permitted by the Merger Agreement:
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conduct
our business other than in the ordinary course consistent with past
practice or fail to use our commercially reasonable efforts to
preserve our business organization, maintain our status as a
partnership for tax purposes, maintain our current regulatory
authorizations, permits and licenses, keep available the services of our
officers, managers and employees and preserve our current
relationships with lessees and other persons with which we have
significant business relations;.
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authorize,
issue, sell, repurchase or redeem our subsidiaries or our
securities;
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pay
or declare dividends, except for dividends required by our Declaration of
Trust (in which case the Merger Consideration will be reduced dollar for
dollar by the amount of such dividends) and dividends from our
subsidiaries to us or our subsidiaries, or adjust, split, combine, redeem,
reclassify or purchase any of our equity interests or those of our
subsidiaries;
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except
as required by one of our benefit plans, increase the compensation or
benefits payable to any of our trustees, employees, consultants, directors
or officers (other than reasonable increases in accordance with past
practice, including increases resulting from the annual performance
reviews of Matthew M. Martin and Stephen K. Griessel), grant any new
severance rights, enter into any new employment agreements, establish,
adopt or enter into any compensation plan, amend or waive any performance
or vesting criteria or accelerate vesting, exercisability or funding under
any of our benefit plans;
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acquire
all or any portion of the assets, business, properties or shares of stock
or other securities of any entity or
person;;
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create,
incur or assume any indebtedness or assume, guarantee or endorse the
obligations of any person or entity, except (i) in the ordinary course
pursuant to our existing credit facilities, not to exceed $1 million
in the aggregate, and (ii) the indebtedness listed on the disclosure
letter delivered to FCP in connection with the Merger
Agreement;
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pre-pay
any long-term indebtedness, except in the ordinary course of business
consistent with past practice and in accordance with the its
terms;
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pay,
discharge or satisfy any claims, liabilities or obligations, except in the
ordinary course of business consistent with past practice and in
accordance with their terms;
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make
or authorize any capital expenditures, in excess of $250,000 individually
or $500,000 in the aggregate, except for (i) expenditures disclosed in our
disclosure letter or (ii) expenditures in the ordinary course of
business in order to own, maintain and operate our properties in working
order;
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amend
any provision of any organizational document of the Company or our
subsidiaries;
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materially
change any of the accounting principles or practices, subject to certain
limited exceptions;
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enter
into or terminate any material contract, or modify, amend, fail to comply
with or waive compliance with or breaches under, in any material respect,
a material contract, except as listed on our disclosure
letter;
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waive,
release, assign, settle or compromise any material claim or litigation,
except those involving only the payment of monetary damages not exceeding
$100,000 individually or $250,000 in the
aggregate;
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make
any tax election or settle or compromise any liability for taxes in excess
of $25,000, except as required by law or necessary to maintain our status
as a partnership for tax purposes;
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fail
to comply in any material respect with applicable laws, including the
filing of SEC reports;
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enter
into any new material line of business or change our material operating
policies, except as required by law, or form or dissolve any entity or
commence or cease the operation of any material
business;
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enter
into any new lease (including renewals) for in excess of 10,000 square
feet at any of our properties, except in connection with a right of a
tenant under an existing tenant lease or as disclosed in our disclosure
letter;
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terminate
or materially modify or amend any tenant lease that relates to in excess
of 10,000 square feet, except in connection with a right of a tenant under
an existing tenant lease;
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amend
any term of any of our securities or the securities of our
subsidiaries;
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sell
or otherwise dispose of, or subject to any lien, any of our properties,
except for pending sales disclosed to FCP or as otherwise set forth in our
disclosure letter;
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sell,
lease, mortgage, subject to a lien or otherwise dispose of any of our
personal or intangible property in excess of $100,000 individually or
$250,000 in the aggregate;
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except
as set forth in our disclosure letter, enter into or otherwise modify any
agreement or arrangement with our employees, officers, trustees, partners,
directors and affiliates;
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fail
to use commercially reasonable efforts to comply or remain in compliance
with all material terms of any agreement relating to any of our or our
subsidiaries indebtedness;
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adopt
a plan of complete or partial liquidation or dissolution or adopt
resolutions providing for or authorizing such liquidation or
dissolution;
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fail
to maintain or replace existing insurance policies for us and each of our
subsidiaries and our properties, assets and
businesses;
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authorize,
enter into any agreement or commit to do any of the
foregoing;
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take
any action that would interfere with or delay the consummation of the
Merger; or
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take
any action that is intended or reasonably likely to result in (i) any
of the representations and warranties set forth in the Merger Agreement
becoming untrue in any material respect, or (ii) any of the
conditions to the Merger not being
satisfied.
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Other
Covenants
We
and the other parties to the Merger Agreement have agreed to various covenants
regarding general matters. Some of these covenants are mutual, while
others have been made either only by us or only by FCP and/or Merger
Sub.
The
mutual covenants regarding general matters include, but are not limited
to:
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cooperating
to prepare and file this proxy
statement;
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using
commercially reasonable efforts to take all action necessary to effect the
Merger, and to cooperate to obtain any necessary permits, consents and
approvals from third parties, and to defend against any litigation or
judicial action brought in conjunction with the Merger
Agreement;
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cooperating
with respect to any press releases or announcements concerning the
transactions contemplated by the Merger
Agreement;
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using
commercially reasonable efforts to cause our Common Shares to be delisted
from the NYSE Amex and deregistered under the Exchange Act;
and
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cooperating
in the preparation, execution and filing of all transfer tax related
documentation.
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The
covenants regarding general matters that we have made include, but are not
limited to:
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preparing
and filing this proxy statement with the SEC and all other required
filings and to use our reasonable efforts to have this proxy statement
cleared by the SEC;
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holding
a meeting of our shareholders to vote on the Merger and the Declaration of
Trust Amendment;
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including
the recommendation of our Board of Trustees that holders of our Common
Shares approve the Merger, the amendment to our Declaration of Trust and
the other transactions contemplated by the Merger Agreement at the meeting
of our shareholders and using all other reasonable efforts to obtain
shareholder approval;
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obtaining
and delivering to FCP at the closing of the Merger the resignations of our
and our subsidiaries trustees and directors, as applicable, as designated
by FCP
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providing
FCP and its representatives with reasonable access to our and our
subsidiaries’ facilities, offices, properties, books, records, contracts,
commitments, officers, employees, accountants, counsel and other
representatives and providing copies of all SEC reports and all other
information concerning our business as may be reasonably
requested;
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operating
in such a manner as to permit us to continue to qualify as a partnership
for U.S. federal income tax purposes until the effective
time;
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preparing
and timely filing all tax returns for taxes in excess of $25,000 in a
manner consistent with past practice and in accordance with applicable
laws;
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fully
and timely paying all taxes due and payable by
us;
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properly
reserving for all taxes payable by us and our subsidiaries that accrue
prior to the effective time of the
Merger;
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delivering
to FCP within 30 days of the execution of the Merger Agreement, but not
later than 20 days prior to the effective time, a written determination of
the accumulated, as well as estimated current, earnings and profits of
ARPT and causing ARPT to distribute at least five business days prior to
the effective time certain inter-company receivables to us (but only after
we have obtained the approval of our shareholders for the Merger and the
Declaration of Trust Amendment and certain third party
consents);
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promptly
notifying FCP of (i) any communication from a third party alleging that
the consent of such third party is required in connection with the
transactions contemplated by the Merger Agreement, (ii) any communication
from a governmental authority in connection with the transactions
contemplated by the Merger Agreement, (iii) any material actions
threatened or commenced against or otherwise affecting us that are related
to the transactions contemplated by the Merger Agreement or (iv) any
effect, event, development or change that causes or is reasonably likely
to cause a condition to closing not to be satisfied;
and
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providing
all relevant information and access to our tax advisors necessary for
FCP’s tax advisors to determine whether there is a substantial risk that
we have not qualified as a partnership for tax purposes for any period
commencing with our taxable year ended December 31,
1998.
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The
covenants regarding general matters that FCP and/or Merger Sub have made
include, but are not limited to:
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promptly
notifying us of (i) any communication from a third party alleging that the
consent of such third party is required in connection with the
transactions contemplated by the Merger Agreement, (ii) any communication
from a governmental authority in connection with the transactions
contemplated by the Merger Agreement, (iii) any material actions
threatened or commenced against or otherwise affecting FCP or Merger Sub
that are related to the transactions contemplated by the Merger Agreement
or (iv) any effect, event, development or change that causes or is
reasonably likely to cause a condition to closing not to be
satisfied.
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Solicitation
of Other Offers
From
the date of the Merger Agreement (September 25, 2009) until 11:59 p.m., Eastern
Standard Time, on October 28, 2009 (which we refer to as the “go-shop period”),
we were permitted to initiate, solicit and encourage acquisition proposals
(including by way of providing access to non-public information pursuant to
confidentiality agreements), and participate in discussions or negotiations with
respect to acquisition proposals or otherwise cooperate with or assist or
participate in, or facilitate any such discussions or
negotiations. We were required to have promptly provided to FCP and
Merger Sub any material non-public information concerning us or our
subsidiaries
that was provided to any person given such access which had not been previously
provided to FCP or Merger Sub.
Within
two business days after receiving an acquisition proposal during the go-shop
period that our Board of Trustees or the Special Committee believed in good
faith, after consultation with outside legal counsel and our financial advisor,
constituted or was reasonably likely to lead to a superior proposal, we were
required to notify FCP in writing of the identity of each person who had made
such an acquisition proposal. We were also required to provide FCP a
written summary of each such acquisition proposal within two business
days.
After
the end of the go-shop period, we have agreed not to:
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initiate,
solicit or encourage any inquiries or the making of any proposal or offer
that constitutes, or could reasonably be expected to lead to, any
acquisition proposal;
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initiate,
enter into, engage in, continue, or otherwise participate in any
discussions or negotiations regarding, or provide any non-public
information or data to any person relating to, any acquisition
proposal;
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withdraw
the recommendation of the Board of
Trustees;
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approve,
endorse or recommend, or publicly propose to approve, endorse or
recommend, any acquisition
proposal;
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enter
into any agreement in principle, arrangement, understanding, contract or
agreement providing for, or relating to, an acquisition proposal or enter
into any agreement or agreement in principle requiring the Company to
abandon, terminate or fail to consummate the Merger or any of the
transactions contemplated by the Merger
Agreement;
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exempt
any person from the restrictions contained in any state “business
combination,” takeover or similar laws or otherwise cause such
restrictions not to apply to any Person or to any Acquisition
Proposal;
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exempt
any person from the ownership limitations and restrictions contained in
Article IV of the Company’s Declaration of Trust or cause such limitations
and restrictions not to apply; or
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release
any person from or fail to enforce any standstill agreement or similar
obligation to the Company and its subsidiaries other than the automatic
termination of standstill obligations pursuant to the terms of agreements
as in effect as of the date hereof, by virtue of the execution and
announcement of the Merger
Agreement.
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Notwithstanding
these restrictions, after the go-shop period, we are permitted to continue
discussions and provide non-public information to any party that made a bona
fide written acquisition proposal prior to the end of the go-shop period, that
our Board of Trustees or the Special Committee determines, as of the end of the
go-shop period, in good faith, after consultation with outside legal counsel and
our financial advisor, constitutes or is reasonably likely to lead to a superior
proposal.
However,
we must otherwise immediately cease or cause to be terminated discussions except
as permitted below and cause any confidential information provided or made
available to be returned or destroyed. At any time after the date of
the Merger Agreement and prior to the approval of the Merger Agreement by our
shareholders, we are permitted to furnish information with respect to the
Company and our subsidiaries to any person making an acquisition proposal and to
participate in discussions or negotiations with the person making the
acquisition proposal, so long as, in the case of a person with whom we did not
have ongoing negotiations or discussions at the end of the go-shop period, such
acquisition proposal was a written bona fide acquisition proposal that was not
solicited, encouraged, facilitated by us or otherwise obtained in violation of
the Merger Agreement. In addition, our Board of Trustees or the
Special Committee must determine in good faith, after consultation with outside
legal counsel and our financial advisor, that such acquisition proposal
constitutes or is reasonably likely to lead to a superior proposal or that
failure to take such action, in light of the acquisition proposal and the terms
of this Merger Agreement, would be inconsistent with the trustees’ duties under
applicable law.
From
and after October 28, 2009, we must notify FCP in writing within 48 hours
if we receive any acquisition proposal, including in such notice the material
terms of the acquisition proposal, and shall keep FCP apprised as to the status
and any material developments concerning the same on a current basis (and in any
event no later than 36 hours after the occurrence of such
developments). In addition, from and after October 28, 2009, we must
notify FCP orally and in writing if we determine to begin providing information
or to engage in negotiations concerning an acquisition proposal not later than
24 hours after making such determination.
An
“acquisition proposal” means any proposal or offer for, whether in one
transaction or a series of related transactions, any (i) Merger,
consolidation, share exchange, business combination or similar transaction
involving us or any of our significant subsidiaries, (ii) sale or other
disposition, directly or indirectly, by Merger, consolidation, share exchange,
business combination or any similar transaction, of any of our assets or our
subsidiaries’ assets representing 20% or more of our consolidated assets,
(iii) issue, sale or other disposition by us or any of our subsidiaries of
securities (or options, rights or warrants to purchase, or securities
convertible into, such securities) representing 20% or more of the votes
associated with our outstanding voting securities, (iv) tender offer or
exchange offer in which any person or group shall acquire beneficial ownership,
or the right to acquire beneficial ownership, of 20% or more of the votes
associated with our Common Shares, (v) recapitalization, restructuring,
liquidation, dissolution or other similar type of transaction with respect to
us, or (vi) transaction which is similar in form, substance or purpose to
any of the foregoing transactions.
A
“superior proposal” means any bona fide written acquisition proposal that we did
not solicit in violation of the Merger Agreement (i) that relates to more
than 60% of the voting power of our Common Shares or our assets and our
subsidiaries’ assets, taken as a whole, (ii) which our Board of Trustees or
the Special Committee determines in its good faith judgment (after consultation
with its financial advisor and after taking into account all of the terms and
conditions of the acquisition proposal) to be more favorable to our shareholders
(in their capacities as shareholders) than the Merger, (iii) the
material conditions to the consummation of which are all reasonably capable of
being satisfied in the judgment of our Board of Trustees or the Special
Committee, and (iv) for which financing, to the extent required, is then
committed or, in the judgment of our Board of Trustees or the Special Committee,
is reasonably likely to be available.
Recommendation
Withdrawal / Termination in Connection with a Superior Proposal
The
Merger Agreement requires us to call, give notice of, convene and hold a meeting
of our shareholders to approve the Merger and the Declaration of Trust
Amendment. In this regard, our Board of Trustees resolved to recommend that our
shareholders approve the Merger and the Declaration of Trust Amendment. However,
if our Board of Trustees or the Special Committee determines in good faith,
after consultation with outside legal counsel, that failure to take such action
would be inconsistent with the trustees’ duties under applicable law, the Board
of Trustees or the Special Committee may, at any time prior to the approval of
the Merger Agreement by our shareholders:
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withhold,
withdraw, modify, change or qualify in a manner adverse to FCP in any
material respect, or publicly propose to withdraw, its recommendation;
or
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fail
to include its recommendation in this proxy statement;
or
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knowingly
take any other action or knowingly make any other public statement that is
inconsistent in any material respect with such recommendation;
or
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terminate
the Merger Agreement and enter into a definitive agreement with respect to
an acquisition proposal that constitutes a superior proposal, after giving
effect to all of the adjustments which may be offered by FCP; provided,
that we are not entitled to terminate the Merger Agreement in accordance
with this bullet unless we have concurrently paid to FCP the applicable
termination fee and expenses as described in further detail in “—
Termination Payments and Expenses” beginning on page
55.
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In
the event that a superior proposal has been made (or any material revision of a
superior proposal has been made), we are not allowed to take any of the actions
in bullets 1-4 above unless:
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we
shall have provided prior written notice to FCP and Merger Sub, at least
three (3) business days in advance, of our intention to take any of the
actions in bullets 1-4 above with respect to such superior proposal, which
notice shall specify the material terms and conditions of such superior
proposal (including the identity of the party making such superior
proposal); and
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prior
to effecting any of the actions in bullets 1-4 above, we shall have, and
shall have caused our financial and legal advisors to, during the
requisite 3-business day period, negotiate with FCP and Merger Sub in good
faith (to the extent FCP and Merger Sub desire to negotiate) to make such
adjustments in the terms and conditions of the Merger Agreement so that
the transactions contemplated thereby are more favorable to our
shareholders than the superior
proposal.
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To
the extent our Board of Trustees or the Special Committee proposes to take the
foregoing actions with regard to its recommendation, it may only do so if we
have not intentionally or materially breached our obligations under certain
solicitation provisions of the Merger Agreement.
We
are not prohibited by the Merger Agreement from complying with our disclosure
obligations under U.S. federal or state law with regard to an acquisition
proposal, including taking and disclosing to our shareholders a position
contemplated by Rule 14d-9 and Rule 14e-2(a) under the Exchange
Act.
Employee
Benefits
Each
of our employees who are employees immediately prior to the effective time of
the Merger will continue to be an employee of the Surviving Entity immediately
after the effective time of the Merger. To the extent that the
Surviving Entity or any affiliate thereof maintains any health, welfare,
retirement or paid-time-off benefit plan in which any employee of the Surviving
Entity participates after the effective time of the Merger, the Surviving Entity
shall cause such plan to recognize the prior service of each such employee with
us and our affiliates prior to the effective time as employment with the
Surviving Entity and its affiliates for purposes of eligibility and benefit
entitlement (and, in the case of severance or paid time off benefits, benefit
accrual) under such plans of the Surviving Entity. In addition, FCP
has agreed to waive pre-existing condition exclusions, waiting periods and
certain other requirements and to provide credit for co-payments and deductibles
paid in the plan year immediately preceding the effective time of the
Merger.
Conditions
to the Merger
The
Merger will be completed only if the conditions specified in the Merger
Agreement are either satisfied or waived. Some of the conditions are
mutual, meaning that if the condition is not satisfied, none of the parties
would be obligated to close the Merger. Those conditions that are not
mutual are in favor of either FCP or Merger Sub, on the one hand, or our
Company, on the other hand, meaning that, if the condition is not satisfied, the
party could waive the condition, to the extent legally permissible, and the
other party would remain obligated to close.
The
mutual conditions for completion of the Merger are:
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approval
of both the Merger and the Declaration of Trust Amendment by our
shareholders; and
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absence
of any action by any governmental authority in the United States that
would make the Merger illegal or otherwise restrict, prevent or prohibit
consummation of the Merger.
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Our
obligation to effect the Merger is subject to the satisfaction or waiver of
various conditions that include the following:
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the
representations and warranties of FCP and Merger Sub being true and
correct as of the date of the Merger Agreement and as of the closing date
of the Merger (except to the extent the representation or warranty is
expressly limited by its terms to another date), except where the failure
of such representations and warranties to be true and correct, without
giving effect to any materiality or material adverse effect qualifier,
does not or would not have, individually or in the aggregate, an FCP
material adverse effect;
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each
of FCP and Merger Sub having performed in all material respects all
obligations or complied with, in all material respects, all agreements and
covenants required to be performed by it under the Merger Agreement on or
prior to the closing time of the Merger;
and
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delivery
by FCP of an executed officer certificate as to the satisfaction of these
conditions.
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FCP’s
and Merger Sub’s obligation to effect the Merger is subject to the satisfaction
or waiver of various conditions that include the following:
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the
representations and warranties of our Company being true and correct as of
the date of the Merger Agreement and as of the closing date of the Merger
(except to the extent the representation or warranty is expressly limited
by its terms to another date), except where the failure of such
representations and warranties to be true and correct, without giving
effect to any materiality or material adverse effect qualifier, does not
or would not reasonably be likely to have, individually or in the
aggregate, a material adverse
effect;
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the
representations and warranties of our Company concerning capitalization,
debt and authority relative to the Merger Agreement being true and correct
in all material respects;
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the
representations and warranties of our Company concerning the operation of
our business in the ordinary course, the absence of a material adverse
effect and the validity of our status since our taxable year ended
December 31, 1998 as a partnership for tax purposes being true and correct
in all respects as of the date of the Merger Agreement and as of the
closing date of the Merger;
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our
Company having performed in all material respects all obligations or
complied with, in all material respects, all agreements and covenants
required to be performed by it under the Merger Agreement on or prior to
the closing time of the Merger;
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delivery
by us of an executed officer certificate as to the satisfaction of these
conditions;
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our
compliance in all respects with our covenants regarding the earnings and
profits of ARPT, including the distribution by ARPT of inter-company
obligations in accordance with the Merger
Agreement;
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if
FCP’s tax advisors determine that, in their judgment, there is a greater
than 25% possibility that we have not qualified to be taxed as a
partnership for tax purposes for any taxable period commencing with the
taxable year ended December 31, 1998 and deliver a notice describing the
technical issue leading to such determination, the delivery within 10 days
of receiving such notice of a tax opinion addressed to us from legal
counsel satisfactory to FCP to the effect that the technical issues raised
by FCP should not have caused us to be treated as an association taxable
as a corporation under the Internal Revenue Code for the taxable years
commencing with our taxable year ended December 31,
1998;
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the
receipt of certain third party consents;
and
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the
absence of a material adverse effect to our
Company.
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Certain
of the above conditions, such as the requirement for shareholder approval,
cannot be waived under applicable law. We, FCP and Merger Sub reserve
the right to waive other conditions to the Merger. We cannot be
certain when (or if) the conditions to the Merger will be satisfied or waived or
that the Merger will be completed. We expect to complete the Merger
as promptly as practicable after all the conditions have been satisfied or
waived.
Definition
of Material Adverse Effect
Under
the Merger Agreement, “material adverse effect,” as it applies to our Company,
means any event, fact, development, circumstance, change or effect that
individually or in the aggregate is or is reasonably likely to be materially
adverse to the assets, business, prospects, condition (financial or otherwise)
or results of operations of our Company and our subsidiaries, taken as a whole;
provided,
however, that none of the following shall be deemed to constitute a
“material adverse effect”:
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any
event, fact, development, circumstance, change or effect arising out of or
resulting from changes in the United States or global economy or capital,
financial or securities markets generally, including changes in interest
or exchange rates (except to the extent such event, fact, development,
circumstance, change or effect affects us and our subsidiaries in a
disproportionate manner as compared to other persons or participants in
the industries in which we and our subsidiaries conduct our
business);
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the
commencement or escalation of a war or armed hostilities or the occurrence
of acts of terrorism or sabotage;
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any
changes in general economic, legal, regulatory or political conditions in
the geographic regions in which we and our subsidiaries operate (except to
the extent such event, fact, development, circumstance, change or effect
affects us and our subsidiaries in a disproportionate manner as compared
to other persons or participants in the industries in which we and our
subsidiaries conduct our business and that operate in the geographic
regions affected by such event, fact, development, circumstance, change or
effect);
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the
consummation or anticipation of the Merger or the announcement of the
execution of the Merger Agreement;
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the
compliance with the terms of, or the taking of any action required by, the
Merger Agreement;
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earthquakes,
hurricanes or other natural
disasters;
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any
failure of us to complete the sale of all or any of our properties located
in Baltimore, Maryland; or
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changes
in law or accounting principles generally accepted in the United States of
America.
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We
have agreed that, with respect to our representations regarding the absence of
conflicts with, or violations of, organizational documents, applicable laws or
other obligations or agreements as a result of the Merger and governmental
filings and consents necessary to complete the Merger, the exceptions in bullets
4 and 5 above shall not apply.
We
and FCP have agreed that the mere fact of a decrease in the market price of our
Common Shares shall not, in and of itself, be considered a material adverse
effect, but any event, fact, development or circumstance relating to the assets,
business, prospects, condition or results of operations of the Company and its
subsidiaries that causes such decrease shall be considered in determining
whether there has been a material adverse effect..
Under
the Merger Agreement, “FCP material adverse effect,” means any event, fact,
development, circumstance, change or effect that would reasonably be expected to
prevent, or materially hinder, FCP and the Merger Sub from being able to
consummate the Merger.
Termination
The
Merger Agreement may be terminated prior to the Merger effective
time:
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by
mutual written consent of FCP and
us;
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by
either FCP or us, if:
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our
shareholders do not approve the Merger or the Declaration of Trust
Amendment;
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any
governmental authority with authority over such matters takes any action
that is final and non-appealable that permanently restrains, enjoins or
otherwise prohibits the consummation of the Merger, provided that the
terminating party uses reasonable best efforts oppose such action or to
have the action vacated or made inapplicable to the Merger;
or
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the
Merger is not completed on or before March 31, 2010, unless the failure to
complete the Merger by this date is the result of any action or inaction
under the Merger Agreement by the terminating
party;
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prior
to the special meeting of our shareholders to approve the Merger and the
Declaration of Trust Amendment, our Board of Trustees or the Special
Committee:
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withholds,
withdraws, modifies, changes or qualifies in a manner adverse to FCP in
any material respect, or publicly propose to withdraw, its
recommendation;
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fails
to include its recommendation in this proxy
statement;
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knowingly
takes any other action or knowingly makes any other public statement that
is inconsistent in any material respect with such
recommendation;
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publicly
proposes to effect any of the
foregoing;
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our
Board of Trustees or the Special Committee approves or recommends (or
resolves to approve or recommend) an acquisition proposal other than the
Merger to our shareholders;
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we
breach any representation or warranty or fail to perform any covenant or
agreement contained in the Merger Agreement that prevents satisfaction of
the conditions to FCP’s obligation to close the Merger, and the breach or
failure is incapable of being cured by March 31, 2010 or, if capable of
being cured by such date, we have not commenced to cure the breach or
failure within 10 business days of receiving written notice of the breach
or failure from FCP and have not diligently pursued such cure to
completion thereafter; provided, however, that
FCP is not then also in material breach of its representations,
warranties, covenants or agreements such as would cause a condition to
closing to not be satisfied.
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FCP
breaches any representation or warranty or fails to perform any covenant
or agreement contained in the Merger Agreement that prevents satisfaction
of the conditions to our obligation to close the Merger, and the breach or
failure is incapable of being cured by March 31, 2010 or, if capable of
being cured by such date, FCP has not commenced to cure the breach or
failure within 10 business days of receiving written notice of the breach
or failure from us and has not diligently pursued such cure to completion
thereafter; provided,
however, that we are not then also in material breach of our
representations, warranties, covenants or agreements such as would cause a
condition to closing to not be
satisfied.
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prior
to approval of the Merger by our shareholders, our Board of Trustees has
withdrawn its recommendation and/or approved and authorized us to enter
into a definitive agreement with respect to a superior proposal, but only
if (i) we have not materially breached any of our obligations under
the solicitation provisions of the Merger Agreement, (ii) our Board
of Trustees or the Special Committee has determined in good faith that the
definitive agreement constitutes a superior proposal and has determined in
good faith, after consultation with outside legal counsel,
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that
failure to enter into the competing agreement would be inconsistent with
the trustees’ duties under applicable law, (iii) we have provided FCP
written notice of our intention to enter the competing agreement, (iv) we
have complied with the other requirements for approving a superior
proposal as discussed above under the caption “¾Recommendation
Withdrawal / Termination in Connection with a Superior Proposal” beginning
on page 50; and (v) concurrently with such termination, we have paid FCP
the applicable termination fee and certain of its Merger expenses as
described under the caption “¾ Termination
Payments and Expenses” beginning on page
55.
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Termination
Payments and Expenses
The
Merger Agreement provides that we are obligated to pay FCP an amount equal to
$1.75 million as a termination payment and up to $300,000 of its Merger expenses
incurred since September 3, 2009 if the Merger Agreement is terminated by FCP,
if, except as set forth below:
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prior
to the special meeting of our shareholders to approve the Merger and the
Declaration of Trust Amendment, our Board of Trustees or the Special
Committee:
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withholds,
withdraws, modifies, changes or qualifies in a manner adverse to FCP in
any material respect, or publicly propose to withdraw, its
recommendation;
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fails
to include its recommendation in this proxy
statement;
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knowingly
takes any other action or knowingly makes any other public statement that
is inconsistent in any material respect with such
recommendation;
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publicly
proposes to effect any of the
foregoing;
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our
Board of Trustees or the Special Committee approves or recommends (or
resolves to approve or recommend) an acquisition proposal other than the
Merger to our shareholders; or
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we
breach any representation or warranty or fail to perform any covenant or
agreement contained in the Merger Agreement that prevents satisfaction of
the conditions to FCP’s obligation to close the Merger, and the breach or
failure is incapable of being cured by March 31, 2010 or, if capable of
being cured by such date, we have not commenced to cure the breach or
failure within 10 business days of receiving written notice of the breach
or failure from FCP and have not diligently pursued such cure to
completion thereafter; provided, however, that
FCP is not then also in material breach of its representations,
warranties, covenants or agreements such as would cause a condition to
closing to not be satisfied.
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In
addition, we are obligated to pay FCP an amount equal to $1.75 million as a
termination payment and up to $300,000 of its Merger expenses incurred since
September 3, 2009 if the Merger Agreement is terminated by us because our Board
of Trustees has approved and authorized us to enter into a definitive agreement
with respect to a superior proposal subject to the conditions described in, and
in accordance with, the Merger Agreement.
Notwithstanding
the above, the Merger Agreement provides that we are obligated to pay FCP an
amount equal to $1.45 million as a termination payment and up to $300,000 of its
Merger expenses incurred since September 3, 2009 if the Merger Agreement is
terminated by us because our Board of Trustees or the Special Committee has
approved and authorized us to enter into a definitive agreement with respect to
a superior proposal during the go-shop period or otherwise from a party
identified during the go-shop period and who submitted, during the go-shop
period, an acquisition proposal that our Board of Trustees or the Special
Committee determined, as of the end of the go-shop period, in good faith, after
consultation with outside legal counsel and the Special Committee’s financial
advisor, constituted or was reasonably likely to lead to a superior
proposal.
The
Merger Agreement provides that we are obligated to reimburse FCP for up to
$600,000 of its expenses incurred since September 3, 2009 if the Merger
Agreement is terminated by either FCP or us in the event that our shareholders
vote to not approve the Merger or the amendment to our Declaration of Trust at
the special shareholder meeting. In addition,
if: (a) prior to the special meeting of shareholders, an
acquisition proposal shall have been
publicly
announced or made known and not otherwise withdrawn, and (b) concurrently
with such termination or within 12 months thereafter, we enter into an agreement
with respect to an acquisition proposal or any acquisition proposal is
consummated, whether or not on the same terms originally proposed, we would be
obligated to pay FCP a fee upon the consummation of such acquisition proposal
equal to $1.45 million in addition to the expense reimbursement described in the
preceding sentence.
FCP
has agreed to pay us an amount equal to $1.45 million as a termination payment
and up to $300,000 of our Merger expenses incurred since September 3, 2009 if
the Merger Agreement is terminated by us in the event that FCP breaches any
representation or warranty or fails to perform any covenant or agreement
contained in the Merger Agreement that prevents satisfaction of the conditions
to our obligation to close the Merger, and the breach or failure is incapable of
being cured by March 31, 2010 or, if capable of being cured by such date, FCP
has not commenced to cure the breach or failure within 10 business days of
receiving written notice of the breach or failure from us and has not diligently
pursued such cure to completion thereafter; provided, however, that we are not
then also in material breach of our representations, warranties, covenants or
agreements such as would cause a condition to closing to not be
satisfied. Notwithstanding the foregoing, if we terminate the Merger
Agreement for any such breach by FCP or Merger Sub within 5 business days prior
to the effective time of the Merger, then FCP would be required to pay to us a
$5 million termination payment and up to $300,000 of our Merger expenses
incurred since September 3, 2009.
Our
right to receive payment of the fees and expenses described in this section from
FCP shall be our sole and exclusive remedy against FCP, Merger Sub and any of
their respective former, current, or future general or limited partners,
stockholders, managers, members, directors, officers, affiliates or agents for
the loss suffered as a result of the failure of the Merger to be consummated,
and upon payment of such amounts, none of FCP, Merger Sub or any of their
respective former, current, or future general or limited partners, stockholders,
managers, members, directors, officers, affiliates or agents shall have any
further liability or obligation relating to or arising out of the Merger
Agreement or the transactions thereby. FCP’s right to receive payment
of the fees and expenses described in this section from us shall be the sole and
exclusive remedy of FCP and Merger Sub against us and our subsidiaries and any
of our respective former, current, or future general or limited partners,
shareholders, managers, members, directors, officers, affiliates or agents for
the loss suffered as a result of the failure of the Merger to be consummated,
and upon payment of such amounts, none of the us or our subsidiaries or any of
our respective former, current, or future general or limited partners,
shareholders, managers, members, directors, officers, affiliates or agents shall
have any further liability or obligation relating to or arising out of the
Merger Agreement or the transactions contemplated thereby. Neither us
nor FCP is expressly entitled to seek specific performance of the other’s
obligations under the Merger Agreement.
Amendment
of the Merger Agreement
The
parties may amend the Merger Agreement, but after our shareholders have approved
the Merger, no such amendment will be made that by law or pursuant to the rules
of the NYSE Amex requires further approval by our shareholders without obtaining
such approval.
Indemnification;
Trustee and Officer Insurance
Our
Company will be the Surviving Entity in the Merger and, along with FCP, will
provide exculpation and indemnification to the fullest extent authorized or
permitted by applicable law for each person who as of the date of the Merger
Agreement or during the period from the date of the Merger Agreement through the
closing date of the Merger, served as an executive officer, trustee, director or
fiduciary of our Company or any of our subsidiaries (referred to in this proxy
statement as the “indemnified parties”) in connection with any claims and any
judgments, fines, penalties and amounts paid in settlement resulting
therefrom. In addition, FCP and the Surviving Entity will promptly
pay on behalf of or, within 30 days after any request for advancement, advance
to each indemnified party, to the fullest extent permitted by applicable law,
any expenses incurred in defending, serving as a witness with respect to or
otherwise participating in any claim in advance of the final disposition of such
claim. The indemnification and advancement obligations of FCP and the
Surviving Entity pursuant to the Merger Agreement will extend to acts or
omissions occurring at or before the closing time and any claim relating
thereto, and all rights to indemnification and advancement contained in the
Merger Agreement shall continue with respect to an indemnified party even after
such indemnified party ceases to be a trustee, director, executive officer or
fiduciary of us or our subsidiaries.
The
Merger Agreement provides that all rights to indemnification and exculpation
existing in favor of the present and former trustees, directors, officers,
employees or fiduciaries of our Company and our subsidiaries provided for in our
and our subsidiaries’ organizational documents will continue in full force and
effect for a period of six (6) years from the closing date of the
Merger. The Merger Agreement also requires that the Surviving Entity
maintain in effect, for a period of six years after the effective time of the
Merger, our current directors’ and officers’ liability policies; provided,
however, that the Surviving Entity may instead substitute policies of at least
the same amounts and containing other terms and conditions which are, in the
aggregate, not less advantageous to the insured persons. This
requirement is subject to a maximum cost per year of coverage of 300% of the
annual premiums we paid for such insurance prior to the date we signed the
Merger Agreement. If the cost per year of insurance coverage exceeds
such maximum amount, the Surviving Entity must obtain as much comparable
insurance as possible for an annual premium equal to 300% of the annual premiums
we paid prior to the date we signed the Merger Agreement.
The
obligations described above regarding trustees’, directors’ and officers’
indemnification and exculpation and directors’ and officers’ insurance must be
assumed by any successor entity to the Surviving Entity.
Litigation
Relating to the Merger
On
October 2, 2009, Pennsylvania Avenue Funds, a purported Company shareholder,
filed a class action complaint in the Circuit Court for Charles County,
Maryland, against the Company, our Board of Trustees and FCP. The
complaint alleges that our trustees breached their fiduciary duties in
connection with the Merger. The complaint further alleges that FCP
aided and abetted those breaches of fiduciary duties. The complaint
seeks to enjoin consummation of the Merger and also seeks attorneys’ fees and
expenses.
On
October 23, 2009, Joseph M. Sullivan, a purported Company shareholder, filed a
class action complaint in the Circuit Court for Charles County, Maryland,
against the Company, our Board of Trustees, FCP and Merger Sub. The complaint
alleges that our trustees breached their fiduciary duties in connection with the
Merger. The complaint further alleges that FCP and Merger Sub aided
and abetted those breaches of fiduciary duties. The complaint seeks
to enjoin consummation of the Merger and also seeks attorneys’ fees and
expenses.
On
November 13, 2009, the parties submitted to the Court an agreed stipulation and
proposed order consolidating these two actions. This order has not
yet been entered. On November 19, 2009, the plaintiffs filed in each
action a consolidated complaint. The consolidated complaint names the
same defendants named in the two initial complaints and asserts the same claims
for breach of fiduciary duties. The consolidated complaint alleges
further that the defendants breached fiduciary duties in connection with the
disclosures contained in the Company's preliminary proxy statement.
We
intend to defend these actions vigorously. However, even if these
lawsuits are determined to be without merit, they may potentially delay or, if
the delay is substantial enough, prevent the consummation of the Merger by March
31, 2010, potentially prevent the closing of the Merger.
MATERIAL UNITED STATES FEDERAL INCOME
TAX CONSEQUENCES
The
following is a summary of the material U.S. federal income tax consequences to
holders of our Common Shares of:
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the
E&P Distribution; and
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This
summary is based on current law and is for general information
only. This summary is based on the Internal Revenue Code of 1986, as
amended (the “Code”), applicable Treasury Regulations, and administrative and
judicial interpretations thereof, each as in effect as of the date hereof, all
of which are subject to change, possibly with retroactive effect. We
have not requested, and do not plan to request, any rulings from the Internal
Revenue Service (the “IRS”) concerning the tax consequences of the E&P
Distribution and the Merger, and the statements in this proxy statement are not
binding on the IRS or any court. We can provide no assurance that the
tax consequences described in this discussion will not be challenged by the IRS,
or if challenged, will be sustained by a court.
This
summary assumes that our Common Shares are held as a capital asset within the
meaning of Code Section 1221 and does not address all tax consequences that
may be relevant to particular holders in light of their personal investment or
tax circumstances or to persons that are subject to special tax
rules. In addition, except as noted below, this summary does not
address the tax consequences for special classes of holders of our Common
Shares, including, for example:
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banks
and other financial institutions;
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regulated
investment companies;
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subchapter
S corporations;
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dealers
in securities or currencies;
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traders
in securities that elect to use a mark-to-market method of accounting for
their securities holdings;
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·
|
persons
whose functional currency is not the U.S.
dollar;
|
|
·
|
persons
holding our Common Shares as part of a hedging or conversion transaction,
as part of a “straddle” or a constructive sale, or otherwise part of any
integrated transaction for U.S. federal income tax
purposes;
|
|
·
|
certain
U.S. expatriates;
|
|
·
|
persons
subject to the alternative minimum
tax;
|
|
·
|
persons
who acquired our Common Shares through the exercise of employee stock
options or warrants or otherwise as
compensation;
|
|
·
|
persons
that are properly classified as a partnership or otherwise as a
pass-through entity under the Code;
and
|
|
·
|
non-U.S.
holders, as defined below.
|
This
summary also does not discuss any state, local, foreign tax considerations, or
other any tax considerations other than U.S. federal income tax
considerations.
If
any entity that is treated as a partnership for U.S. federal tax purposes holds
our Common Shares, the tax treatment of its partners or members generally will
depend upon the status of the partner or member and the activities of the
entity. If you are a partner of a partnership or a member of a
limited liability company or other entity classified as a partnership for U.S.
federal tax purposes and that entity holds our Common Shares, you should consult
your tax advisor.
As
noted above, this discussion does not address any tax consequences to persons
that are non-U.S. holders. However, special tax considerations with
respect to the E&P Distribution and the merger may apply to a holder of our
Common Shares that itself is a U.S. partnership, limited liability company, or
other entity which is treated as a partnership for U.S. federal income tax
purposes, but which has non-U.S. persons as partners or
members. Accordingly, any shareholder that is treated as a
partnership for U.S. federal income tax purposes, and whose partners or members
include non-U.S. persons, should consult with its own tax advisor regarding any
special U.S. tax consequences to it and its partners or members that may result
from the E&P Distribution and the Merger.
Consequences
of the Merger and the E&P Distribution to U.S. Holders of Our Common
Shares
This
summary does not address any tax consequences to any person (including their
affiliates, subsidiaries, and related parties) that acquires or holds any
interest in the Company or its subsidiaries (whether directly or indirectly)
following the effective time of the Merger. Such persons should
consult their own respective tax advisors regarding any U.S. federal income and
other tax consequences to them that may result from the E&P Distribution and
the Merger in their specific circumstances.
For
purposes of this section, a “U.S. holder” means a beneficial owner of our Common
Shares that is for U.S. federal income tax purposes one of the
following:
|
·
|
a
citizen or resident of the United
States;
|
|
·
|
a
corporation or other entity treated as a corporation for U.S. federal
income tax purposes created or organized in or under the laws of the
United States, any state thereof, or the District of
Columbia;
|
|
·
|
a
trust (A) the administration of which is subject to the primary
supervision of a United States court, if one or more United States persons
have the authority to control all substantial decisions of the trust, or
(B) that was in existence on August 20, 1996, was treated as a
United States person on the previous day, and elected to continue to be so
treated; or
|
|
·
|
an
estate the income of which is subject to U.S. federal income taxation
regardless of its source.
|
As
used in this section, a “non-U.S. holder” means a beneficial owner of our Common
Shares that is not a U.S. holder as described in the bullets above or a
partnership for U.S. federal income tax purposes.
We
have elected to be taxed as a partnership for U.S. federal income tax purposes
and believe that we have qualified and been taxable as a partnership since our
date of formation. Specifically, we believe that we are classified as
a “publicly traded partnership” or “PTP” under Code Section 7704. A
PTP is taxable as a corporation unless it satisfies a special “90% qualifying
income exception” under Code Section 7704(c). Under that exception, a
PTP is not subject to corporate-level tax if 90% or more of its gross income
each year has consisted of dividends, interest, “rents from real property” (as
that term is defined for purposes of the U.S. federal income tax rules governing
REITs, with certain modifications), gain from the sale or other disposition of
real property, and certain other types of income. This entire
discussion assumes that we are treated as a PTP that is taxable as a partnership
(and not a corporation) for U.S. federal income tax purposes. If we
have failed to satisfy the 90% qualifying income exception and are, as a result,
treated as a corporation, the U.S. federal income tax consequences of the
E&P Distribution and the Merger to U.S. holders likely would be
substantially different from that described herein. In the event that
we are treated as a corporation for U.S. federal income tax purposes, it is,
however, unlikely that the consequences would be less favorable to U.S.
holders.
Consequences of the E&P
Distribution to U.S. Holders of Our Common Shares
U.S.
holders will be required to take into account as dividend income their
distributive share of that portion of the E&P Distribution that constitutes
a dividend for U.S. federal income tax purposes. The E&P
Distribution generally will constitute a dividend for U.S. federal income tax
purposes to the extent it does not exceed ARPT’s current and accumulated
earnings and profits (as determined for U.S. federal income tax
purposes). We estimate that ARPT’s current and accumulated earnings
and profits will be approximately $1.97 per share. There is
substantial uncertainty under current law regarding whether the dividend portion
of the E&P Distribution will be treated as “qualified dividend
income.” We intend to report the dividend portion of the E&P
Distribution as “qualified dividend income,” but no assurance can be provided
that the IRS will not successfully challenge that
treatment. Qualified dividend income allocated to a U.S. holder,
taxed at individual rates, generally will be subject to taxation at the 15%
maximum rate applicable to long-term capital gain. If the dividend
portion of the E&P Distribution is not qualified dividend income, it will be
treated as ordinary income for U.S. holders taxed at individual
rates. U.S. holders should consult their tax advisors regarding the
treatment of the dividend portion of the E&P Distribution as qualified
dividend income.
To
the extent that the E&P Distribution exceeds ARPT’s current and accumulated
earnings and profits, the E&P Distribution will first reduce our adjusted
basis in the stock of ARPT, and will thereafter be treated as gain from the sale
of our interest in ARPT. Because our adjusted tax basis in the stock
of ARPT is very small or zero, the E&P Distribution, to the extent it
exceeds ARPT’s current and accumulated earnings and profits, generally will be
treated as gain from the sale of our interest in ARPT. Any such gain
generally will be treated as long-term capital gain. As a general
matter, the maximum U.S. federal income tax rate on net long-term capital gain
applicable to U.S. holders, taxed at individual rates, currently is
15%.
We
estimate that the E&P Distribution will be $3.56 per share, approximately
$1.97 per share of which will be dividend income and approximately $1.59 per
share of which will be long term capital gain.
Consequences
of the Merger to U.S. Holders of Our Common Shares
For
U.S. federal income tax purposes, the Merger will be treated, with respect to
each U.S. holder, as a sale of Common Shares. Each such holder
generally will recognize gain or loss equal to the difference between the amount
realized on the disposition and such holder’s adjusted tax basis in its Common
Shares. For these purposes, the amount realized by a U.S. holder in
connection with the Merger generally will the sum of:
|
·
|
the
Merger Consideration (i.e., the cash
received, including any amount withheld under applicable tax law);
and
|
|
·
|
the
amount of our liabilities allocated to the Common Shares
sold.
|
For
purposes of this calculation, a U.S. holder’s adjusted tax basis in its Common
Shares will be increased by any income allocated by us to such holder in
connection with the E&P Distribution. We do not have any
significant liabilities.
Generally,
any gain or loss recognized by a U.S. holder on the disposition of the Common
Shares in connection with the Merger will be capital gain or
loss. However, any portion of a U.S. holder’s amount realized on the
disposition that is attributable to our “unrealized receivables,” or “inventory
items,” in each case as defined in Code Section 751, generally will give rise to
ordinary income or loss. “Unrealized receivables” include stock in
our Puerto Rico subsidiary to the extent of the lower of the appreciation of
value of that stock and the amount of earnings and profits accumulated by our
Puerto Rico subsidiary which have not been previously subject to U.S.
tax. The amount of unrealized receivables (and thus ordinary income)
recognized by a U.S. holder will depend upon how long it has held our Common
Shares. For U.S. holders that have held our Common Shares since our
formation in 1998, we estimate that the amount of “unrealized receivables” that
will give rise to income will be between $1.91 and $2.98 per
share. However, it is possible that the actual numbers could differ
from these estimates. The amount of ordinary income may exceed the
net taxable gain, if any, that a U.S. holder otherwise would realize on the
disposition of our Common Shares in connection with the Merger. This
ordinary income will be recognized in any event. Thus, a U.S. holder
may recognize both ordinary income and a capital loss on the disposition of our
Common Shares in connection with the Merger.
For
U.S. holders taxed at individual rates, net capital gain from the sale of an
asset held one year or less is subject to tax at the applicable rate for
ordinary income. For these types of U.S. holders, the maximum rate of
tax on the net capital gain from a sale or exchange or a capital asset held for
more than one year generally is 15%. Capital losses may be used to
offset ordinary income only to a limited extent.
In
addition to the possibility of recognizing ordinary income under Code Section
751, a portion of any long-term gain recognized by a U.S. holder taxed at
individual rates in connection with its disposition of our Common Shares in the
Merger may be characterized as unrecaptured Code Section 1250 gain and subject
to an increased capital gain tax rate of 25%. Our assets do not
currently have unrecaptured Section 1250 gain associated with them, so that a
U.S. holder should not expect to recognize Section 1250 capital gain in
connection with the Merger. The amount of a U.S.
holder’s long-term capital gain (after the application of Code Section 751 as
described above) that is not taxed at the increased rate for Section 1250
capital gain will be taxed at regular long-term capital gain rates.
Accordingly, any gain on the sale of Common Shares
held for more than one year could be treated partly as gain from the sale of a
long-term capital assets subject to a 15% tax rate and partly as ordinary income
to the extent attributable to “unrealized receivables.” Each U.S.
holder should consult with its own tax advisor regarding the application of the
ordinary income tax rates to a sale of our Common Shares.
FIRPTA
Withholding
To
prevent U.S. federal income tax withholding under the Foreign Investment in Real
Property Tax Act of 1980 (“FIRPTA”), currently at a rate of 10%, each U.S.
holder is required to complete a FIRPTA affidavit stating that it is not a
non-U.S. holder. Non-U.S. holders generally are subject to U.S.
federal income tax (including withholding) under FIRPTA. U.S. federal
income tax withheld under FIRPTA does not constitute a tax in addition to tax
otherwise applicable, either under FIRPTA or otherwise, but rather generally is
creditable against a holder’s underlying U.S. federal income tax
liability. The application of FIRPTA is complicated, and non-U.S.
holders are urged to consult their tax advisors regarding the application of
FIRPTA (including withholding) in each holder’s circumstances in connection with
the Merger.
Reportable
Transactions
If
a holder of our Common Shares recognizes a loss as a result of a transaction
with respect to our Common Shares (including in connection with the Merger) of
at least (i) $2,000,000 or more in a single taxable year or $4,000,000 or more
in a combination of taxable years, for a holder that is an individual,
S corporation, trust, or a partnership with at least one noncorporate
partner, or (ii) $10,000,000 or more in a single taxable year or $20,000,000 or
more in a combination of taxable years, for a holder that is either a
corporation or a partnership with only corporate partners, such holder may be
required to file a disclosure statement with the IRS on
Form 8886. The fact that a loss is reportable under these
Treasury Regulations does not affect the legal determination of whether the
taxpayer’s treatment of the loss is proper. Holders should consult their tax
advisors to determine the applicability of these Treasury Regulations in light
of their individual circumstances.
Information
Reporting and Backup Withholding
Backup
withholding, presently at a rate of 28%, and information reporting may apply to
the Merger Consideration received pursuant to the exchange of our Common Shares
in the merger. Backup withholding generally will not apply, however,
to a holder who:
|
·
|
in
the case of a U.S. holder, furnishes a correct taxpayer identification
number and certifies that it is not subject to backup withholding on IRS
Form W-9;
|
|
·
|
in
the case of a non-U.S. holder, furnishes an applicable IRS Form W-8;
or
|
|
·
|
is
otherwise exempt from backup withholding and complies with other
applicable rules and certification
requirements.
|
Backup
withholding is not an additional tax. It generally may be credited
against the holder’s U.S. federal income tax liability and may entitle the
holder to a refund if required information is properly and timely
furnished to the IRS.
THE FOREGOING DOES NOT PURPORT TO BE A COMPLETE
ANALYSIS OF THE POTENTIAL TAX CONSIDERATIONS RELATING TO THE E&P
DISTRIBUTION AND THE MERGER. THEREFORE, HOLDERS OF OUR COMMON SHARES ARE
STRONGLY URGED TO CONSULT THEIR TAX ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES
TO THEM OF THE E&P DISTRIBUTION AND THE MERGER, INCLUDING THE APPLICABILITY
AND EFFECT OF U.S. FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX LAWS IN THEIR
PARTICULAR CIRCUMSTANCES.
Recommendation
of Our Board of Trustees
Our
Board of Trustees recommends that holders of our Common Shares vote FOR approval
of the Merger.
DECLARATION OF TRUST AMENDMENT—PROPOSAL
2
Proposed
Amendment
You
are also being asked to consider and vote upon an amendment to our Declaration
of Trust to cause Section 5.3.3 to be of no operation or effect. This
amendment would suspend the requirement that we make a minimum distribution to
our shareholders in connection with distributions of net taxable
income. The amendment would render such section inapplicable for the
fiscal year ending December 31, 2009 and subsequent thereto, unless the
Merger Agreement is terminated and our Board of Trustees makes a public
announcement that Section 5.3.3 will thereafter be operative and in
effect. Our Board of Trustees approved the Declaration of Trust
Amendment and is recommending that our common shareholders vote to approve
Proposal 2 because the Merger Consideration to which we, FCP and Merger Sub
agreed under the Merger Agreement was premised on the mutual understanding that
no distributions of any kind would be made by us with respect to our Common
Shares in the future so long as the Merger Agreement remains in
effect. The Merger Agreement provides that if we make any
distributions with respect to our Common Shares, the Merger Consideration will
be reduced accordingly. We urge you to read carefully the Declaration
of Trust Amendment, which is incorporated by reference in its entirety and
attached to this proxy statement as Exhibit
B. If the special meeting occurs prior to December 31, 2009,
and if both the Merger and the Declaration of Trust Amendment are approved by
our shareholders, we expect to file the Declaration of Trust Amendment with the
SDAT as soon as practicable after such approval, and on or prior to December 31,
2009, even if the closing of the Merger does not occur until after December 31,
2009. In the unlikely event that the Declaration of Trust Amendment
is approved, but the Merger is not approved, our Board of Trustees may elect not
to file the Declaration of Trust Amendment with the SDAT.
In order for us to consummate the Merger,
both the Merger and the Declaration of Trust Amendment must be approved by our
common shareholders. If the Merger is approved but the
Declaration of Trust Amendment is not approved, then we will not be able to
complete the Merger.
Vote
Required
Approval of the Declaration of Trust Amendment
requires the affirmative vote of the holders of two-thirds of our Common Shares
that are issued and outstanding on the record date.
Recommendation
of Our Board of Trustees
Our Board of Trustees recommends that
holders of our Common Shares vote FOR approval of the Declaration of Trust
Amendment.
ADJOURNMENTS AND POSTPONEMENTS OF THE
SPECIAL MEETING
Proposal
for Adjournments—Proposal 3
We
are asking our common shareholders to vote on a proposal to approve any
adjournments of the special meeting for the purpose of soliciting additional
proxies if there are not sufficient votes at the special meeting to approve the
Merger or the Declaration of Trust Amendment. Under Maryland law and
our Bylaws, the affirmative vote of a majority of the votes cast at the special
meeting is required to adjourn the special meeting. The special
meeting may be adjourned from time to time to a date not more than 120 days
after the original record date without notice other than announcement at such
meeting. For purposes of the vote to approve any adjournment of the
special meeting, abstentions and broker non-votes, if any, will not be counted
as votes cast and will have no effect on the result of the vote, although they
will be considered present for the purpose of determining the presence of a
quorum.
Recommendation
of our Board of Trustees
Our Board of Trustees recommends that
holders of our Common Shares vote “FOR” the approval of any adjournments of the
special meeting for the purpose of soliciting additional proxies if there are
not sufficient votes at the special meeting to approve the Merger or the
Declaration of Trust Amendment.
Postponements
At
any time prior to convening the special meeting, our Board of Trustees may
postpone the special meeting for any reason without the approval of our
shareholders. If the special meeting is postponed, we will provide at least ten
days’ notice of the new date of the special meeting.
MARKET PRICE OF OUR COMMON
SHARES
Our
Common Shares of beneficial interest, par value $0.01 per share, are traded on
the NYSE AMEX under the symbol “APO.” As of the close of business on
November 27, 2009, which is the record date for the special meeting, there were
134 common shareholders of record. The following table sets forth the
high and low closing prices of our Common Shares as reported on the NYSE AMEX
(rounded to the nearest cent) and the dividends paid per Common Share for each
quarterly period for the past two years and for the first, second, third and
fourth quarterly periods (through November 30, 2009) of the fiscal year ending
December 31, 2009.
|
|
|
|
Price
Range of ACPT Shares
|
|
|
Dividends
|
|
|
|
Quarter
|
|
High
|
|
|
Low
|
|
|
Declared
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
Fourth
|
|
$ |
8.55 |
|
|
$ |
7.35 |
|
|
$ |
- |
|
|
|
Third
|
|
|
8.77 |
|
|
|
5.50 |
|
|
|
- |
|
|
|
Second
|
|
|
9.09 |
|
|
|
5.20 |
|
|
|
- |
|
|
|
First
|
|
|
5.39 |
|
|
|
3.41 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
Fourth
|
|
$ |
10.20 |
|
|
$ |
3.10 |
|
|
$ |
0.10 |
|
|
|
Third
|
|
|
14.25 |
|
|
|
10.20 |
|
|
|
- |
|
|
|
Second
|
|
|
19.01 |
|
|
|
13.45 |
|
|
|
- |
|
|
|
First
|
|
|
20.00 |
|
|
|
14.50 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
Fourth
|
|
$ |
25.75 |
|
|
$ |
17.50 |
|
|
$ |
- |
|
|
|
Third
|
|
|
27.59 |
|
|
|
19.22 |
|
|
|
0.10 |
|
|
|
Second
|
|
|
20.33 |
|
|
|
18.58 |
|
|
|
0.10 |
|
|
|
First
|
|
|
19.47 |
|
|
|
17.64 |
|
|
|
0.10 |
|
On
September 14, 2009, the last trading day before we announced that we were
considering various strategic alternatives, including a possible sale of the
Company, the closing price of our Common Shares on the NYSE Amex was
$6.62 per share. On November 9, 2009, the closing price of our
Common Shares on the NYSE Amex was $7.40 per share. You are
encouraged to obtain current market quotations for our Common
Shares.
PRINCIPAL AND MANAGEMENT
SHAREHOLDERS
As
of November 27, 2009, there were 5,622,660 of our Common Shares
outstanding.
The
following table sets forth information, as of November 27, 2009, regarding our
Common Shares owned of record or known by us to be owned beneficially
by:
|
·
|
each
person beneficially owning 5% or more of our outstanding Common
Shares;
|
|
·
|
each
trustee of our Company;
|
|
·
|
our
Chief Executive Officer and each of the four other most highly paid
executive officers of our Company;
and
|
|
·
|
the
trustees and executive officers of our Company as a
group.
|
The
number of our Common Shares “beneficially owned” by each shareholder is
determined under rules of the SEC regarding the beneficial ownership of
securities. Under the SEC rules, beneficial ownership of our Common Shares
includes any shares as to which the person or entity has sole or shared voting
power or investment power.
Unless
otherwise indicated in the footnotes, all such interests are owned directly, and
the indicated person or entity has sole voting and investment
power. The address for each of our trustees and executive officers
listed below is: c/o American Community Properties Trust, 222
Smallwood Village Center, St. Charles, Maryland, 20602.
|
|
Shares Beneficially Owned
|
|
Name
and Address of Beneficial Owner
|
Amount
and Nature of Beneficial Ownership(1)
|
|
|
|
|
5%
Holders:
|
|
|
|
|
|
The
Wilson Group (1)
222
Smallwood Village Center
St.
Charles, MD 20602
|
2,650,720
|
|
47.1
|
%
|
|
Interstate
Business Corporation (1)(2)(3)
222
Smallwood Village Center
St.
Charles, MD 20602
|
1,549,976
|
|
27.6
|
%
|
|
Wilson
Securities Corporation (1)(2)(3)
222
Smallwood Village Center
St.
Charles, MD 20602
|
586,101
|
|
10.4
|
%
|
|
Paul
J. Isaac (4)
75
Prospect Avenue
Larchmont,
New York 10538
|
865,329
|
|
15.4
|
%
|
|
Leeward
Capital, L.P. (5)
One
California Street, Suite 300
San
Francisco, CA 94111
|
288,000
|
|
5.1
|
%
|
|
Trustees
and Executive Officers:
|
|
|
|
|
|
J.
Michael Wilson (1)(3)(6)
|
107,747
|
|
1.9
|
%
|
|
Stephen
K. Griessel
|
363,743
|
|
6.5
|
%
|
|
Thomas
J. Shafer
|
18,841
|
|
*
|
|
|
Antonio
Ginorio
|
14,841
|
|
*
|
|
|
Donald
J. Halldin
|
6,508
|
|
*
|
|
|
Michael
Williamson
|
6,508
|
|
*
|
|
|
Thomas
E. Green
|
6,508
|
|
*
|
|
|
Matthew
M. Martin
|
--
|
|
--
|
|
|
Jorge
Garcia
|
--
|
|
--
|
|
|
Mark
MacFarland
|
--
|
|
--
|
|
|
Harry
Chalstrom
|
100
|
|
*
|
|
|
All
trustees and executive officers as a group
(11 persons)(6)
|
524,796
|
|
9.3
|
%
|
*Less
than one percent.
|
(1)
|
As
reported in a Schedule 13D/A filed April 15, 2008, the Wilson Group is
comprised of James J. Wilson and his wife, Barbara A. Wilson; their six
children, J. Michael Wilson (Chairman of ACPT), Thomas B. Wilson, Kevin J.
Wilson, Elizabeth W. Weber, Mary P. Wilson and Brian J. Wilson; Interstate
Business Corporation; Wilson Securities Corporation; and Wilson Family
Limited Partnership. The Wilson Group, collectively, has voting
and dispositive control through direct and indirect ownership of 47.1% of
ACPT's outstanding shares as reflected in the Wilson Group's Schedule
13D. The members of the group periodically meet to discuss
matters relating to their ownership of ACPT and may from time to time act
together with respect to the voting or disposition of Common
Shares. However, there is no formal arrangement among the
members of the group in regard to their voting and dispositive voting
rights and, accordingly, the group members may not always act together
with respect to the Common Shares.
|
|
(2)
|
Interstate
Business Corporation and Wilson Securities Corporation are owned by the
Wilson Family Shareholders, including J. Michael
Wilson
|
|
(3)
|
These
persons are members of the Wilson Group and their shares are also included
with the Wilson Group.
|
|
(4)
|
Based
on a Schedule 13D/A filed October 7, 2009, Paul J. Isaac directly owns
73,450 shares and has beneficial ownership of 791,879 shares that are
directly owned by: (i) Isaac Brothers L.L.C. (220,200 shares), (ii)
Arbiter Partners L.P. (484,329 shares), (iii) Karen Isaac (wife) and 4
grandchildren (70,100), (iv) Isaac Grandchildren’s Trust (12,250 shares),
(v) Marjorie S. Isaac u/w/o Irving H. Isaac Marital Trust (5,000
shares).
|
|
(5)
|
Based
on a Schedule 13D filed on December 2, 2008, Leeward Capital, L.P. has
beneficial ownership of 288,000
shares.
|
|
(6)
|
Includes
21,350 shares attributable to ACPT shares held by the Wilson Family
Limited Partnership. J. Michael Wilson is a General Partner of
the Wilson Family Limited Partnership. The management and
control of the business and affairs of the partnership are vested jointly
in the General Partners, thus J. Michael Wilson shares voting and
dispositive power over Common Shares owned by the Wilson Family Limited
Partnership.
|
DISSENTERS’ RIGHTS OF
APPRAISAL
We are organized as a real estate investment trust
under Maryland law. Under the Maryland REIT Law, because our Common Shares were
listed on the NYSE Amex on the record date for determining shareholders entitled
to vote at the special meeting, our common shareholders who object to the Merger
do not have any appraisal rights or dissenters' rights in connection with the
Merger.
We
currently know of no other business that will be presented for consideration at
the special meeting. Nevertheless, the enclosed proxy card confers discretionary
authority to vote with respect to matters described in Rule 14a-4(c) under
the Exchange Act, including matters that our Board of Trustees does not know of
at this time, if such matters are presented within a reasonable time before
proxy solicitation. If any of these matters are presented at the special
meeting, then the proxy agents named in the enclosed proxy card will have
discretionary authority to vote the shares represented by duly executed proxies
in accordance with their discretion.
SHAREHOLDER
PROPOSALS
If
we complete the Merger, the Company will not have public shareholders and there
will be no public participation in any future meeting of
shareholders. If we do not complete the Merger when currently
anticipated, we intend to hold our next annual meeting in June 2010 or shortly
thereafter. If the Merger is not completed for any reason, under SEC
rules, shareholders intending to submit proposals for presentation at our 2010
Annual Meeting of Shareholders must have submitted their proposals in writing,
and we must have received these proposals at our executive offices on or before
February 3, 2010 for inclusion in our proxy statement and the form of proxy
relating to our 2010 Annual Meeting.
Although
shareholder proposals received by us after February 3, 2010 will not be included
in our proxy statement or proxy card for the 2010 Annual Meeting of
Shareholders, shareholder proposals may be included in the agenda for the 2010
Annual Meeting of Shareholders if properly submitted in accordance with our
Bylaws. Our Bylaws currently provide that in order for a shareholder to nominate
a candidate for election as a director at an annual meeting of shareholders or
propose business for consideration at such meeting, notice must be given in
writing to our Secretary not later than the close of business on the
90th day prior to the first anniversary of the date of the preceding year’s
annual meeting nor earlier than the 60th day prior to the first anniversary
of the date the preceding year’s annual meeting. As a result, any notice given
by or on behalf of a shareholder pursuant to the provisions of the Bylaws must
be delivered in writing via personal delivery or United States certified mail,
postage prepaid to our Secretary c/o American Community Properties Trust, 222
Smallwood Village Center, St. Charles, Maryland, 20602, Attn: Secretary, not
earlier than March 5, 2010, and not later than April 4, 2010.
WHERE YOU CAN FIND ADDITIONAL
INFORMATION
We
file annual and quarterly reports, proxy statements and other information with
the SEC under the Exchange Act. You may read and obtain copies of
this information in person or by mail from the Public Reference Section of the
SEC, 100 F Street N.E., Room 1580, Washington, DC 20549, at prescribed
rates. You may obtain information on the operation of the public
reference room by calling the SEC at (800) SEC-0330.
The
SEC also maintains an Internet website that contains annual, quarterly and
current reports, proxy statements and other information about issuers like our
Company, which file electronically with the SEC. The address of that
site is http://www.sec.gov. You may also retrieve this information
from our website at www.acptrust.com. Information contained on our
website is not incorporated in or made a part of this proxy
statement.
This
proxy statement does not constitute the solicitation of a proxy in any
jurisdiction to or from any person to whom or from whom it is unlawful to make
such proxy solicitation in such jurisdiction. You should rely only on
the information in this document. We have not authorized anyone to
provide you with information that is different from what is contained in this
proxy statement. The information contained in
this
document speaks only as of the date of this document, unless the information
specifically indicates that another date applies.
Executed
Version
AGREEMENT
AND PLAN OF MERGER
DATED
AS OF SEPTEMBER 25, 2009
AMONG
FCP
FUND I, L.P.
FCP/ACPT
ACQUISITION COMPANY, INC.
AND
AMERICAN
COMMUNITY PROPERTIES TRUST
TABLE
OF CONTENTS
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Page
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ARTICLE
1. CERTAIN DEFINITIONS
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1
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1.01
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Certain
Definitions
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1
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2.01
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The
Merger
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10
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2.02
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Effective
Time; Closing
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11
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2.03
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Tax
Treatment of the Merger
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12
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ARTICLE
3. CONSIDERATION; EXCHANGE PROCEDURES
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12
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3.01
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Conversion
of Shares
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12
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3.02
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Exchange
Procedures; Exchange Agent
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12
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3.03
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Share
Appreciation Rights; Restricted Stock
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14
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3.04
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Adjustments
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15
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3.05
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Withholding
Taxes
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15
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ARTICLE
4. Conduct of the Parties Pending Closing
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16
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4.01
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Conduct
of Business by the Company
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16
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4.02
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Conduct
of All Parties
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20
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ARTICLE
5. REPRESENTATIONS AND WARRANTIES
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20
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5.01
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Disclosure
Letter
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20
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5.02
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Representations
and Warranties of the Company
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20
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5.03
|
Representations
and Warranties of Acquiror and Merger Subsidiary
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42
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6.01
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Company
Shareholders Meeting
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45
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|
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6.02
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Proxy
Statement
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46
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6.03
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Access
to Information; Confidentiality
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47
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6.04
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Acquisition
Proposals; Solicitation
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47
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6.05
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Further
Action; Commercially Reasonable Efforts
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53
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6.06
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Public
Announcements
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54
|
|
|
6.07
|
Exculpation,
Indemnification and Insurance
|
54
|
|
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6.08
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Employee
Benefit Matters
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57
|
|
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6.09
|
Transfer
Taxes
|
58
|
|
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6.10
|
Tax
Matters
|
58
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Page
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6.11
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Resignations
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58
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6.12
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Delisting
and Deregistering of Securities
|
59
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6.13
|
Accumulated
Earnings and Profits/Distribution of Inter-Company
Obligations
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59
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|
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6.14
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Notice
of Certain Events
|
60
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|
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6.15
|
Qualification
of the Company as a Partnership for Tax Purpose
|
60
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ARTICLE
7. CONDITIONS TO CONSUMMATION OF THE MERGER
|
62
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|
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7.01
|
Conditions
to the Obligations of Each Party
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62
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7.02
|
Conditions
to the Obligations of Acquiror and Merger Subsidiary
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62
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7.03
|
Conditions
to the Obligations of the Company
|
63
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ARTICLE
8. TERMINATION
|
64
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8.01
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Termination
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64
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8.02
|
Effect
of Termination
|
65
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|
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8.03
|
Fees
and Expenses
|
65
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ARTICLE
9. General Provisions
|
67
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9.01
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Non
Survival of Representations and Warranties
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67
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9.02
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Notices
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67
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9.03
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Severability
|
68
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|
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9.04
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Amendment
|
68
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|
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9.05
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Entire
Agreement; Assignment
|
69
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|
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9.06
|
Parties
in Interest
|
69
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|
|
9.07
|
Governing
Law
|
69
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|
|
9.08
|
Waiver
of Jury Trial
|
69
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|
|
9.09
|
Waiver
|
69
|
|
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9.10
|
Headings
|
70
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9.11
|
Counterparts
|
70
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|
9.12
|
Mutual
Drafting
|
70
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AGREEMENT AND PLAN OF MERGER,
dated as of September 25, 2009 (this “Agreement”),
among FCP Fund I, L.P., a Delaware limited partnership (“Acquiror”),
FCP/ACPT Acquisition Company, Inc., a Maryland corporation and an indirect
subsidiary of Acquiror (“Merger
Subsidiary”), and American Community Properties Trust, a Maryland real
estate investment trust (the “Company”).
RECITALS
WHEREAS, the parties wish to
effect a business combination through a merger of Merger Subsidiary with and
into the Company (the “Merger”)
on the terms and subject to the conditions set forth in this Agreement with the
Company continuing as the Surviving Company and an indirect subsidiary of
Acquiror;
WHEREAS, the Board of Trustees
of the Company has approved this Agreement and the Merger and the other
transactions contemplated herein and declared that the Merger and the other
transactions contemplated herein are advisable and in the best interests of the
Company and its shareholders, on the terms and subject to the conditions set
forth herein;
WHEREAS, Acquiror, as the
majority shareholder of Merger Subsidiary, has approved this Agreement and the
Merger and declared that this Agreement and the Merger are advisable on the
terms and subject to the conditions set forth herein; and
WHEREAS, simultaneously with
the execution and delivery of this Agreement, each of Acquiror, Merger
Subsidiary and the Wilson Family Shareholders have executed and delivered a
voting agreement (the “Voting
Agreement”), pursuant to which each of the Wilson Family Shareholders has
agreed to take specified actions in furtherance of the Merger; and
WHEREAS, the parties hereto
desire to make certain representations, warranties, covenants and agreements in
connection with the Merger, and also to prescribe various conditions to such
transactions.
NOW, THEREFORE, in consideration of
the premises and of the mutual covenants, representations, warranties and
agreements contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, and intending to be
legally bound hereby, the parties agree as follows:
ARTICLE
1.
CERTAIN
DEFINITIONS
1.01
Certain
Definitions
The
following terms are used in this Agreement with the meanings set forth
below:
“Acquiror”
has the meaning set forth in the preamble to this Agreement.
“Acquiror Material
Adverse Effect” means any event, fact, development, circumstance, change
or effect that would reasonably be expected to prevent, or materially hinder,
Acquiror or Merger Subsidiary from being able to consummate the Merger and the
other transactions contemplated by this Agreement.
“Acquiror
Termination Fee” means $1,450,000; provided, that, such amount shall be
$5,000,000 if the Company terminates this Agreement pursuant to Section 8.01(d)(i)
within five (5) Business Days prior to the Effective Time.
“Acquisition
Proposal” has the meaning set forth in Section
6.04(b).
“Action”
means any claim, action, suit, proceeding, arbitration, mediation or other
investigation.
“Affiliate”
means, with respect to any Person, any other Person which directly or indirectly
controls, is controlled by or is under common control with such
Person. For purposes of the immediately preceding sentence and the
definition of “Subsidiary” in this Section 1.01, the
term “control” (including, with correlative meanings, the terms “controlling,”
“controlled by” and “under common control with”), as used with respect to any
Person, means the possession, directly or indirectly, of the power to direct or
cause the direction of the management and policies of such Person, whether
through ownership of voting securities, by contract or otherwise.
“Agreement”
has the meaning set forth in the Preamble.
“Applicable
Permits” has the meaning set forth in Section 5.02(e).
“Articles of
Merger” has the meaning set forth in Section 2.02(b).
“Benefit
Plans” has the meaning set forth in Section 5.02(i).
“Blue Sky
Laws” has the meaning set forth in Section
5.02(d)(ii).
“Business
Day” means Monday through Friday of each week, except a legal holiday
recognized as such by the U.S. Government or any day on which banking
institutions in the State of New York are authorized or obligated by Law to
close.
“Certificate”
means any certificate which immediately prior to the Effective Time represented
Company Common Shares.
“Claim” has
the meaning set forth in Section 6.07(a).
“Closing”
and “Closing
Date” have the meanings set forth in Section 2.02(a).
“Code”
means the Internal Revenue Code of 1986, as amended.
“Company”
has the meaning set forth in the preamble to this Agreement.
“Company
Board” means the Board of Trustees of the Company.
“Company
Bylaws” means the Amended and Restated Bylaws of the Company, as amended,
as in effect on the date hereof.
“Company
Charter” means the Amended and Restated Declaration of Trust of the
Company, as amended, as in effect on the date hereof.
“Company Charter
Amendment” means
the proposed amendment to amend the Company Charter to eliminate Section 5.3.3
of the Company Charter and to make such section inapplicable for the year ending
December 31, 2009 and for any subsequent year prior to, or including, the year
in which the Merger is consummated.
“Company Charter
Amendment Approval” has the meaning set forth in
Section
5.02(c)(iv).
“Company Common
Shares” means the common shares of beneficial interest of the Company,
par value $0.01 per share.
“Company
Expenses” means all documented, out-of-pocket expenses incurred by the
Company from and after September 3, 2009, in connection with the Transaction up
to a maximum of $300,000.
“Company
Indemnified Parties” has the meaning set forth in Section 6.07(a).
“Company
Leases” has the meaning set forth in Section
5.02(l)(vii).
“Company
Material
Adverse Effect” means any event, fact, development, circumstance, change
or effect that, individually or in the aggregate with all other events, facts,
developments, circumstances, changes or effects, is or is reasonably likely to
be materially adverse to the assets, business, prospects, condition (financial
or otherwise) or results of operations of the Company and its Subsidiaries,
taken as a whole; provided, however, that none of
the following shall be deemed to constitute a “Company Material Adverse Effect”:
(i) any event, fact, development, circumstance, change or effect arising out of
or resulting from changes in the United States or global economy or capital,
financial or securities markets generally, including changes in interest or
exchange rates (except to the extent such event, fact, development,
circumstance, change or effect affects the Company and its Subsidiaries in a
disproportionate manner as compared to other Persons or participants in the
industries in which the Company and its Subsidiaries conduct their business),
(ii) the commencement or escalation of a war or armed hostilities or the
occurrence of acts of terrorism or sabotage, (iii) any changes in general
economic, legal, regulatory or political conditions in the geographic regions in
which the Company and its Subsidiaries operate (except to the extent such event,
fact, development, circumstance, change or effect affects the Company and its
Subsidiaries in a disproportionate manner as compared to
other
Persons or participants in the industries in which the Company and its
Subsidiaries conduct their business and that operate in the geographic regions
affected by such event, fact, development, circumstance, change or effect),
(iv) the consummation or anticipation of the Merger or the announcement of
the execution of this Agreement, (v) the compliance with the terms of, or the
taking of any action required by, this Agreement, (vi) earthquakes, hurricanes
or other natural disasters, (vii) any failure of the Company to complete the
sale of all or any of its Properties located in Baltimore, Maryland, or (viii)
changes in Law or GAAP. Notwithstanding the foregoing, with respect
to references to Company Material Adverse Effect in the representations set
forth in Section
5.02(d), the exceptions set forth in clauses (iv) and (v) of this
definition shall not apply. The parties agree that the mere fact of a
decrease in the market price of Company Common Shares shall not, in and of
itself, constitute a Company Material Adverse Effect, but any event, fact,
development, circumstance, change or effect relating to the assets, business,
prospects, condition (financial or otherwise) or results of operations of the
Company and its Subsidiaries, taken as a whole, that causes such decrease shall
be considered in determining whether there has been a Company Material Adverse
Effect.
“Company
Property” or “Company
Properties” has the meaning set forth in Section
5.02(l).
“Company Special
Committee” means the special committee of the Company Board formed to,
among other things, consider strategic alternatives, including, without
limitation, a possible change of control of the Company.
“Company Share
Incentive Plan” means the Company’s 2009 Share Incentive
Plan.
“Company
Shareholder Approval” has the meaning set forth in Section
5.02(c)(iii).
“Company
Shareholders Meeting” means a special meeting of the Company’s
shareholders (including any adjournment or postponement thereof) to consider and
vote upon the approval of the Merger, this Agreement and any other matter
required to be approved by the Company’s shareholders for consummation of the
Transaction.
“Company Title
Insurance Policies” has the meaning set forth in Section
5.02(l)(v).
“Confidentiality
Agreement” has the meaning set forth in Section 6.03(b).
“Consents”
has the meaning set forth in Section
5.02(d).
“Constituent
Documents” means the charter, articles of incorporation, certificate of
incorporation or certificate of formation and bylaws of a corporation, the
certificate of partnership and partnership agreement of a general or limited
partnership, the certificate of formation and limited liability company
agreement or operating agreement of a limited liability company, the declaration
of trust, trust agreement and bylaws of a trust and the comparable formation
and/or governing documents of other entities, including any agreements or
arrangements governing the rights of members, shareholders or other holders of
interests in any
such
entity, including shareholders agreements, voting agreements, registration
rights agreements and similar agreements.
“Continuing
Employee” has the meaning set forth in Section
6.08(a).
“Current Share
Appreciation Rights” has the meaning set forth in Section
3.03(a).
“Disclosure
Letter” has the meaning set forth in Section 5.01.
“Effective
Time” has the meaning set forth in Section 2.02(b).
“Employee”
has the meaning set forth in Section
6.08(a).
“Environmental
Laws” means any United States federal, state or local Laws in existence
on or before the date hereof relating to (i) pollution, protection, preservation
or restoration of the environment, health, safety or natural resources
(including, air, surface water, groundwater, drinking water supply, surface
land, subsurface land, plant and animal life, wetlands or any other natural
resource); (ii) releases or threatened releases of Hazardous Substances; or
(iii) the exposure to, or the manufacture, handling, transport, use, generation,
recycling, treatment, storage or disposal of Hazardous Substances.
“ERISA”
means the Employee Retirement Income Security Act of 1974, as
amended.
“ERISA
Affiliate” means, with respect to any entity, trade or business, any
other entity, trade or business that is a member of a group described in Section
414(b), (c), (m) or (o) of the Code or Section 4001(b)(1) of ERISA that includes
the first entity, trade or business, or that is a member of the same “controlled
group” as the first entity, trade or business pursuant to Section 4001(a)(14) of
ERISA.
“Exchange
Act” means the Securities Exchange Act of 1934, as amended, and the rules
and regulations thereunder.
“Exchange
Agent” has the meaning set forth in Section 3.02(a).
“Excluded
Party” has the meaning set forth in Section
6.04(a)(iii).
“Expenses”
has the meaning set forth in Section 6.07(a).
“GAAP”
means accounting principles generally accepted in the United States of
America.
“Governmental
Authority” means any domestic or foreign (including, without limitation,
Puerto Rico) federal, state, municipal or local government, governmental,
regulatory or administrative authority, agency, instrumentality or commission or
any court, tribunal, or judicial or arbitral body of any nature; or any body
exercising, or entitled to exercise, any administrative, executive, judicial,
legislative, police, regulatory or taxing authority or power of any
nature.
“Hazardous
Substance” means (i) those substances defined in or regulated under
the following United States federal statutes and their state (and Puerto Rican)
counterparts, as each may be amended from time to time, and all regulations
thereunder: the Resource Conservation and Recovery Act, the Comprehensive
Environmental Response, Compensation and Liability Act, the Clean Water Act, the
Safe Drinking Water Act, the Atomic Energy Act and the Clean Air Act;
(ii) petroleum and petroleum products or any derivative or by-product
thereof, including crude oil and any fractions thereof;
(iii) polychlorinated biphenyls, asbestos or asbestos containing material,
urea formaldehyde foam insulation, lead, radioactive material and radon; and
(iv) any other contaminant, substance, material, pollutant or waste
regulated by any Governmental Authority pursuant to any Environmental
Law.
“Intellectual
Property” means all intellectual property owned or used by the Company
and its Subsidiaries, including patents (including any continuations,
divisionals, continuations-in-part, renewals and reissues), trademarks, trade
names, service marks, logos, domain names and other indicators of source or
origin, database rights, copyrights, copyrightable works, mask works,
technology, know-how, trade secrets, inventory, ideas, algorithms, processes,
computer software programs or applications (in both source code and object code
form), tangible or intangible proprietary information or material and all other
intellectual property or proprietary rights, together with all goodwill
symbolized by any of the foregoing, registrations and applications for the
foregoing, and rights to sue for past infringement thereof.
“IRS” means
the Internal Revenue Service.
“JV
Entities” has the meaning set forth in Section
5.02(a)(v).
“knowledge of the
Company” or “to the Company’s
knowledge” means the actual knowledge of Stephen K. Griessel, Matthew M.
Martin, Peggy Moore or any executive officer of the Company, but excluding J.
Michael Wilson.
“Law” has
the meaning set forth in Section
5.02(d).
“Letter of
Transmittal” has the meaning set forth in Section 3.02(b).
“Liens”
means any charge, mortgage, pledge, title defect, security interest,
restriction, Claim, lien or encumbrance of any nature.
“Material
Contracts” has the meaning set forth in Section 5.02(p)(i).
“Material Company
Leases” has the meaning set forth in Section
5.02(l)(vii).
“Merger”
has the meaning set forth in the Recitals.
“Merger
Consideration” has the meaning set forth in Section 3.03(a).
“Merger
Subsidiary” has the meaning set forth in the preamble to this
Agreement.
“MGCL”
means the Maryland General Corporation Law or Title 8 of the Corporations and
Associations Article of the Annotated Maryland Code, as applicable.
“No-Shop Period
Start Date” means October 28, 2009.
“NYSE Amex”
has the meaning set forth in Section
5.02(d)(ii).
“Other
Filings” has the meaning set for in Section
6.02.
“Outside
Date” has the meaning set forth in Section
8.01(b)(ii).
“Participation
Agreements” has the meaning set forth in Section
5.02(l)(xii).
“Participation
Party” has the meaning set forth in Section
5.02(l)(xii).
“Payment
Fund” has the meaning set forth in Section
3.02(a).
“Permitted
Liens” means (i) Liens for Taxes not yet delinquent and Liens for
Taxes being contested in good faith and for which there are adequate reserves on
the financial statements of the Company (if such reserves are required pursuant
to GAAP); (ii) inchoate mechanics’ and materialmen’s Liens for construction
in progress; (iii) inchoate workmen’s, repairmen’s, warehousemen’s and carriers’
Liens arising in the ordinary course of business of the Company or any of its
Subsidiaries; (iv) zoning restrictions, building codes, survey exceptions,
utility easements, rights of way and similar Liens that are imposed by any
Governmental Authority having jurisdiction thereon that are typical for the
applicable property type and locality; (v) with respect to real property, any
title exception disclosed in any Company title insurance policy provided or made
available to Acquiror (whether material or immaterial), Liens and obligations
arising under the Material Contracts (including but not limited to any Lien
securing mortgage debt disclosed in the Disclosure Letter) relating to any
Company Property or any Lien that does not interfere materially with the current
use of such property (assuming its continued use in the manner in which it is
currently used) or materially adversely affect the value or marketability of
such property; (vi) easement agreements and all other matters disclosed on any
Company title insurance policy provided to Acquiror; and (vii) matters that
would be disclosed on current title reports or surveys that arise or have arisen
in the ordinary course of business.
“Per Share
Amount” has the meaning set forth in Section
3.01(a).
“Person”
means any individual, bank, corporation, partnership, limited partnership,
association, joint venture, joint-stock company, trust, limited liability
company, unincorporated organization or person (including a “person” as defined
in Section 13(d)(3) of the Exchange Act).
“Property
Agreements” has the meaning set forth in Section
5.02(l)(iii).
“Property
Restrictions” has the meaning set forth in Section
5.02(l)(ii).
“Proxy
Statement” has the meaning set forth in Section 5.02(d)(ii).
|
|
“PTP Due
Diligence Request” has the meaning set forth in Section
6.15(a).
|
| |
|
“PTP Opinion” has the meaning set forth in Section
6.15(b).
|
“Recommendation”
has the meaning set forth in Section
6.01.
“Recommendation
Withdrawal” has the meaning set forth in Section
6.01.
“Rent Roll”
has the meaning set forth in Section
5.02(l)(vii).
“Representative”
has the meaning set forth in Section
6.04(a).
“Rights”
has the meaning set forth in Section
5.02(b)(iii).
“SDAT” has
the meaning set forth in Section
2.02(b).
“SEC” means
the Securities and Exchange Commission.
“SEC
Reports” has the meaning set forth in Section 5.02(f).
“Securities
Act” means the Securities Act of 1933, as amended, and the rules and
regulations thereunder.
“Share
Appreciation Right Consideration” has the meaning set forth in Section 3.03(a).
“Share
Appreciation Rights” has the meaning set forth in Section
5.02(b)(iii).
“Special
Shareholder Approval” means the approval of this Agreement and the Merger
by the affirmative vote of the holders of two-thirds of the issued and
outstanding Company Common Shares.
“Special
Termination Expenses” means all documented, out-of-pocket expenses
incurred by Acquiror and its Affiliates from and after September 3, 2009, in
connection with the Transaction up to a maximum of $600,000.
“Special
Termination Fee” means $1,450,000.
“Subsidiary”
means, with respect to any Person, (i) any other Person controlled by such
Person, directly or indirectly, through one or more intermediaries, and (ii) any
“significant subsidiary” of such Person as defined in Rule 1-02 of Regulation
S-X promulgated by the SEC.
“Substantial Tax
Issue” has the meaning set forth in Section
6.15(b).
“Superior
Proposal” has the meaning set forth in Section
6.04(b).
“Surviving
Company” has the meaning set forth in Section 2.01(a).
“Surviving Company
Benefit Plans” has the meaning set forth in Section
6.08(b).
“Tax” or
“Taxes”
means any and all taxes, charges, fees, levies and other assessments, including
income, gross receipts, excise, property, sales, withholding (including dividend
withholding and withholding required pursuant to Sections 1445 and 1446 of
the Code), social security, occupation, use, service, license, payroll,
franchise, transfer and recording taxes, windfall or other profits, capital
stock, employment, worker’s compensation, unemployment or compensation taxes,
fees and charges, including estimated, excise, ad valorem, stamp, value added,
capital gains, duty or custom taxes, imposed by the United States or any
government or taxing authority (domestic or foreign), whether computed on a
separate, consolidated, unitary, combined or any other basis, and similar
charges of any kind (together with any and all interest, penalties, additions to
tax and additional amounts imposed with respect thereto), whether or not
disputed, imposed by any government or taxing authority.
“Tax Protection
Agreements” has the meaning set forth in Section
5.02(n).
“Tax
Returns” means any return, declaration, report, statement, claim for
refund, transfer pricing report or other information required to be provided to
a taxing authority in connection with Taxes, including any schedule or
attachment thereto, and including any amendment thereof, supplied or required to
be supplied to any taxing authority in connection with Taxes.
“Termination
Date” has the meaning set forth in Section
8.01.
“Termination
Expenses” means all documented, out-of-pocket expenses incurred by
Acquiror and its Affiliates from and after September 3, 2009, in connection with
the Transaction up to a maximum of $300,000.
“Termination
Fee” means: (i) $1,450,000 in the event this Agreement is terminated by
the Company prior to the Company Shareholder Meeting pursuant to the provisions
of Section 8.01(d)(ii) and such termination is effected by the Company in order
to accept a Superior Proposal with an Excluded Party; or (ii) $1,750,000 in the
event this Agreement is terminated by the Company or Acquiror pursuant to any
other applicable provision in Article VIII that by its terms requires payment of
the Termination Fee.
“Transaction”
means the Merger and any other transaction contemplated by this
Agreement.
“Transfer
Taxes” has the meaning set forth in Section 6.09.
“Treasury
Regulations” means the Treasury regulations promulgated under the
Code.
“United
States” means the United States of America, including all territories and
possessions thereof (including Puerto Rico).
“Wilson Family
Shareholders” means James J. Wilson, Barbara A. Wilson, Kevin J. Wilson,
Elizabeth A. Wilson, Thomas B. Wilson, Mary P. Wilson, J. Michael Wilson, Brian
J. Wilson, Wilson Securities Corporation, Interstate Business
Corporation, and/or Wilson Family Limited Partnership, including any of their
respective Affiliates or family members, and each of their respective heirs,
successors and assigns, that hold Company Common Shares.
ARTICLE
2.
THE
MERGER
2.01
The
Merger
(a) The
Merger. Upon the terms and subject to the conditions set forth
in this Agreement, and in accordance with the MGCL, at the Effective Time,
Merger Subsidiary shall merge with and into the Company, the separate corporate
existence of Merger Subsidiary shall cease and the Company shall survive and
continue to exist as a Maryland real estate investment trust and as an indirect
subsidiary of Acquiror (the Company, as the surviving company in the Merger, is
sometimes referred to herein as the “Surviving
Company”) with all its rights, privileges, immunities, powers and
franchises continuing unaffected by the Merger.
(b) Name. The
name of the Surviving Company shall be “American Community Properties
Trust”.
(c) Charter and
Bylaws. At the Effective Time, the Declaration of Trust of the
Company shall be amended to read in its entirety as set forth on Schedule 2.01(c)
hereto and shall be the Declaration of Trust of the Surviving Company after the
Effective Time, until thereafter amended in accordance with its terms and as
provided in the MGCL. Subject to compliance with Section 6.07(c)
hereof, the bylaws of Merger Subsidiary as in effect immediately prior to the
Effective Time shall be the bylaws of the Surviving Company after the Effective
Time, and thereafter may be amended in accordance with their terms and as
provided by the Declaration of Trust of the Surviving Company and the MGCL,
except that references in the bylaws to “FCP/ACPT Acquisition Company, Inc.”
shall be changed to “American Community Properties Trust”.
(d) Directors and Executive
Officers of the Surviving Company. The parties hereto shall
take all actions necessary so that the trustees of the Surviving Company
immediately after the Effective Time shall be the directors of Merger Subsidiary
immediately prior to the Effective Time. The parties hereto shall
take all actions necessary so that the officers of the Surviving Company
immediately after the Merger shall be those individuals who are designated by
Aquiror prior to the Effective Time.
(e) Effect of the
Merger. The effect of the Merger shall be as provided in the
MGCL. Without limiting the generality of the foregoing, and subject
thereto, at the Effective Time, all the property, rights, privileges, powers and
franchises of the Company and Merger Subsidiary shall vest in the Surviving
Company, and all debts, liabilities, obligations, restrictions, disabilities and
duties of the Company and Merger Subsidiary shall become the debts, liabilities,
obligations, restrictions, disabilities and duties of the Surviving
Company.
(f) Additional
Actions. If, at any time after the Effective Time, the
Surviving Company shall consider or be advised that any deeds, bills of sale,
assignments or assurances in law or any other acts are necessary or desirable to
(i) vest, perfect or confirm, of record or otherwise, in the Surviving
Company its right, title or interest in, to or under any of the rights,
properties or assets of either Merger Subsidiary or the Company, or
(ii) otherwise carry out the purposes of this Agreement, the Surviving
Company and its proper officers and directors shall be authorized to execute and
deliver, in the name and on behalf of either Merger Subsidiary or the Company,
all such proper deeds, bills of sale, assignments and assurances in law and to
do, in the name and on behalf of either Merger Subsidiary or the Company, all
acts necessary or proper to vest, perfect or confirm the Surviving Company’s
right, title or interest in, to or under any of the rights, properties or assets
of Merger Subsidiary or the Company and otherwise to carry out the purposes of
this Agreement, and the proper officers and directors of the Surviving Company
are fully authorized in the name of the Surviving Company or otherwise to take
any and all such action.
2.02 Effective Time;
Closing
(a) The
closing of the Merger and the other transactions contemplated hereby (the “Closing”)
shall take place as promptly as practicable (but in no event later than the
second (2nd)
Business Day or, in the event the last condition to be satisfied is the
condition set forth in Section 7.02(f), no
later than the fifth (5th)
Business Day) after all of the conditions set forth in Article VII (other
than those conditions that by their nature are to be satisfied at the
consummation of the Merger) shall have been satisfied or waived by the party
entitled to the benefit of the same, and, subject to the foregoing, shall take
place at such time and on a date to be specified by the parties (the “Closing
Date”). The Closing shall take place at the offices of Hunton
& Williams LLP, 1900 K Street, N.W., Washington, D.C. 20006, or
at such other place as the parties may mutually agree upon. At the
Closing, there shall be delivered to Acquiror and the Company the certificates
and other documents required to be delivered under Article VII
hereof. For avoidance of doubt, the failure by a party to perform all
of its obligations required to be performed in connection with the Closing shall
be deemed to be a breach of a covenant by such party for purposes of Section 8.01(c)(ii)
or Section
8.01(d)(i), as applicable.
(b) At the
Closing, the parties shall cause Articles of Merger (the “Articles of
Merger”) to be duly executed and filed with the State Department of
Assessments and Taxation of Maryland (the “SDAT”)
pursuant to the MGCL. The Merger provided for herein shall become
effective at such time as the Articles of Merger have been accepted for record
by the SDAT, or such later time (not to exceed 30 days from the date the
Articles of Merger
are
accepted for record by the SDAT) designated by the parties in the Articles of
Merger, in accordance with the MGCL (the “Effective
Time”).
2.03 Tax Treatment of the
Merger.
For federal income
tax purposes, the Merger shall be treated, with respect to each holder of
Company Common Shares, as a sale of the Company Common Shares by each holder of
those Company Common Shares to Acquiror and/or any Subsidiary of Acquiror in
exchange for the Merger Consideration received by such holder in the
Merger.
ARTICLE
3.
CONSIDERATION;
EXCHANGE PROCEDURES
3.01 Conversion of
Shares.
As
of the Effective Time, by virtue of the Merger and without any action on the
part of any holders of Company Common Shares, holders of any ownership interests
in Merger Subsidiary or any other Person:
(a) Except as
set forth in Sections
3.01(b) and 3.01(c), each Company
Common Share issued and outstanding immediately prior to the Effective Time
shall be automatically converted into, and shall be canceled in exchange for,
the right to receive a cash amount equal to $7.75, without interest (the “Per Share
Amount”).
(b) Each
share of common stock of Merger Subsidiary issued and outstanding immediately
prior to the Effective Time that is owned by Acquiror or by any Subsidiary of
Acquiror, shall automatically be converted into and become one share of
beneficial interest of the Surviving Company and shall constitute the only
issued or outstanding shares of beneficial interest of the Surviving
Company.
(c) Each
Company Common Share that is owned by the Company or any of its Subsidiaries, or
by Acquiror, Merger Subsidiary or any other direct or indirect Subsidiary of
Acquiror or Merger Subsidiary, shall, immediately prior to the Effective Time,
automatically be cancelled and retired and shall cease to exist and no cash,
stock or any other consideration shall be paid in exchange
therefor.
3.02 Exchange
Procedures;
Exchange Agent
(a) Exchange
Agent. Prior to the Effective Time, Acquiror shall appoint an
institution reasonably acceptable to the Company to act as Exchange Agent (the
“Exchange
Agent”) in accordance with an agreement reasonably satisfactory to the
Company to receive the funds necessary to make the payments contemplated by
Sections
3.01(b) and 3.03(a) and Acquiror
shall, at or prior to the Effective Time, deposit or cause to be deposited with
the Exchange Agent, for the benefit of the holders of Company Common Shares for
exchange in accordance with this Article III, cash in
an amount sufficient to make payments of the Merger
Consideration
(such aggregate cash consideration being deposited hereinafter referred to as
the “Payment
Fund”). Acquiror shall cause the Exchange Agent to make, and
the Exchange Agent shall make, payments out of the Payment Fund as provided for
in this Article
III and the Payment Fund shall not be used for any other
purpose. Any and all interest earned on cash deposited in the Payment
Fund shall be paid to Surviving Company.
(b)
Exchange Procedures for
Company Common Shares. As soon as reasonably practicable after
the Effective Time, the Surviving Company shall cause the Exchange Agent to mail
to each Person who immediately prior to the Effective Time was a holder of
record of Company Common Shares (other than Company Common Shares held by
Acquiror, Merger Subsidiary or any Subsidiary of Acquiror or Merger Subsidiary
immediately prior to the Effective Time) (i) a letter of transmittal (a “Letter of
Transmittal”) (which shall specify that delivery shall be effected, and
risk of loss and title shall pass only upon delivery of the certificate or
certificates (collectively, “Certificates”),
which immediately prior to the Effective Time evidenced Company Common Shares,
to the Exchange Agent and shall be in such form and have such other provisions
as Acquiror may reasonably specify), and (ii) instructions for use in effecting
the surrender of the Certificates in exchange for payment of the Per Share
Amount. Upon surrender to the Exchange Agent of a Certificate for
cancellation, together with such Letter of Transmittal duly executed and
completed in accordance with the instructions thereto, and such other customary
documents as may reasonably be required by the Exchange Agent, the holder of
such Certificate shall be entitled to receive in exchange therefor by check an
amount in cash, without interest, equal to the Per Share Amount for each Company
Common Share formerly evidenced by such Certificate. Such payment of
the Per Share Amount shall be sent to such holder by the Exchange Agent promptly
after receipt by the Exchange Agent of such Certificate, together with such
Letter of Transmittal duly executed and completed in accordance with the
instructions thereto, and such other customary documents as may reasonably be
required by the Exchange Agent, and the Company Common Shares formerly evidenced
by such Certificate so surrendered shall forthwith be canceled. The
right of any shareholder to receive the Per Share Amount, shall be subject to
and reduced by any applicable withholding obligation as set forth in Section 3.05. No
interest will be paid or will accrue on any cash payable upon the surrender of a
Certificate.
(c) No Further Ownership Rights
in Shares. Until surrendered as contemplated by this Article III, each
Certificate shall be deemed at any time after the Effective Time to represent
only the right to receive upon such surrender the Per Share Amount in respect of
the Company Common Shares formerly evidenced by such Certificate as contemplated
by this Section
3.02. All cash paid upon the surrender for exchange of
Certificates in accordance with the terms of this Article III shall be
deemed to have been paid in full satisfaction of all rights pertaining to the
Company Common Shares evidenced by such Certificates. After the
Effective Time, there shall be no further registration of transfers of Company
Common Shares outstanding immediately prior to the Effective Time on the records
of the Company, and if Certificates are presented to the Surviving Company, they
shall be canceled and exchanged as provided for, and in accordance with the
procedures set forth, in this Article
III.
(d) Unregistered Transfer of
Stock. If payment of the Per Share Amount is to be made to a
Person other than the Person in whose name the surrendered Certificate is
registered, it shall be a condition of such payment that the Certificate so
surrendered shall be properly endorsed or shall be otherwise in proper form for
transfer and that the Person requesting such payment shall have paid any
transfer and any other Taxes required by reason of the payment to a Person other
than the registered holder of the Certificate surrendered or shall have
established to the satisfaction of the Surviving Company that such Tax either
has been paid or is not applicable.
(e) Lost
Certificates. In the event that any Certificate shall have
been lost, stolen or destroyed, upon the making of an affidavit of that fact by
the Person claiming such Certificate to be lost, stolen or destroyed and, if
required by the Surviving Company or the Exchange Agent, the posting by such
Person of a bond in such reasonable amount as the Surviving Company or the
Exchange Agent may require as indemnity against any claim that may be made
against it with respect to such Certificate, the Exchange Agent will issue, in
exchange for such lost, stolen or destroyed Certificate, the Per Share Amount
payable pursuant to this Article
III.
(f) Termination of Payment
Fund. Any portion of the Payment Fund that remains unclaimed
by the former holders of Company Common Shares one year after the Effective Time
shall be delivered to the Surviving Company. Any such holders who
have not complied with this Article III prior to
that time shall thereafter look only to the Surviving Company for payment of the
Per Share Amount (subject to abandoned property, escheat and similar
Laws). Any such portion of the Payment Fund remaining unclaimed by
holders of Company Common Shares immediately prior to such time as such amounts
would otherwise escheat to or become property of any Governmental Authority
shall, to the extent permitted by applicable Law, become the property of the
Surviving Company free and clear of all claims or interest of any Persons
previously entitled thereto.
(g) No
Liability. None of Acquiror, Merger Subsidiary, the Company or
the Exchange Agent, or any employee, officer, director, trustee, shareholder,
partner, member, agent or Affiliate thereof, shall be liable to any Person in
respect of any cash from the Payment Fund delivered to a public official
pursuant to any applicable abandoned property, escheat or similar
Law.
3.03 Share Appreciation Rights;
Restricted Stock
(a) Each of
the Share Appreciation Rights that are issued and outstanding as of immediately
prior to the Effective Time (the “Current Share
Appreciation Rights”), whether or not then vested or exercisable, shall
be cancelled and in lieu thereof, the holder of each such Current Share
Appreciation Right will be entitled to receive an amount in cash equal to the
product of (i) the excess, if any, of the Per Share Amount over the base price
per share of Company Common Shares under such Current Share Appreciation Right
(but not less than zero) multiplied by (ii) the number of Company Common Shares
subject to such Current Share Appreciation Right, without interest (the “Share
Appreciation Right Consideration”). The aggregate
Share Appreciation Right Consideration payable to all holders of Current Share
Appreciation
Rights together with the aggregate Per Share Amount payable to all holders of
Company Common Shares is referred to herein as the “Merger
Consideration.”
(b) Restricted
Shares. At or immediately prior to the Effective Time, any
Restricted Shares that, pursuant to the terms thereof, vest automatically upon
the consummation of a change of control or similar transaction shall become
fully vested in accordance with their terms, and each such Restricted Share
shall be considered an outstanding Company Common Share for all purposes of this
Agreement, including the right to receive the Per Share Amount. Any
Restricted Shares that, pursuant to the terms thereof, do not vest automatically
upon the consummation of a change of control or similar transaction shall,
immediately prior to the Effective Time, be cancelled and retired and no cash,
stock or any other consideration shall be paid in exchange
therefor.
(c) Corporate Action.
Prior to the Effective Time and subject to and conditional upon the occurrence
of the Closing, the Company shall take such actions as it deems necessary or
desirable to effectuate the provisions of this Section
3.03.
3.04 Adjustments
Notwithstanding
anything in this Agreement to the contrary, if, between the date of this
Agreement and the Effective Time, the outstanding Company Common Shares shall be
changed into a different number, class or series of shares by reason of any
stock dividend, subdivision, reclassification, recapitalization, stock split,
combination or exchange of shares, then the Per Share Amount payable with
respect thereto and any other amounts payable pursuant to this Agreement shall
be appropriately adjusted.
3.05
Withholding Taxes
Acquiror,
the Exchange Agent, or the Surviving Company, as applicable, shall be entitled
to deduct and withhold from the consideration otherwise payable in connection
with the Merger to a holder of any Company Common Shares or Share Appreciation
Rights any amounts required to be deducted and withheld under the Code, the
Treasury Regulations, or any provision of state, local or foreign Tax Law and
shall, to the extent so withheld, promptly pay or cause to be paid any such
amounts to the appropriate Governmental Authority as required by applicable
law. To the extent that amounts are so withheld, such withheld
amounts shall be treated for all purposes of this Agreement as having been paid
to the holder of such Company Common Shares or Share Appreciation Rights in
respect of which such deduction and withholding was made.
ARTICLE
4.
CONDUCT
OF THE PARTIES PENDING CLOSING
From
the date hereof until the earlier of the Effective Time and the termination of
this Agreement pursuant to and in accordance with Article VIII, except
as expressly contemplated or permitted by this Agreement or as disclosed in
Section 4.01 of
the Disclosure Letter, without the prior written consent of Acquiror, not to be
unreasonably withheld, the Company will not, and will cause each of its
Subsidiaries not to:
(a)
Ordinary
Course. Conduct its business and the business of its
Subsidiaries other than in the ordinary and usual course consistent with past
practice or fail to use commercially reasonable efforts to preserve its business
organization, maintain its status as a partnership for federal income taxation
purposes, maintain its current regulatory authorizations, permits and licenses,
keep available the present services of its officers, managers and employees and
preserve the current relationships of the Company and its Subsidiaries with
lessees and other persons with which the Company or its Subsidiaries have
significant business relations.
(b) Shares. (i)
Authorize for issuance, issue, sell, agree or commit to issue or sell, otherwise
permit to become outstanding, dispose of or encumber or pledge, or authorize or
propose the creation of (whether through the issuance or granting of options,
warrants, commitments, subscriptions, rights to purchase or otherwise) any
shares (or similar interests) of any class of beneficial interest of the Company
or any of its Subsidiaries or any other securities or equity equivalents
(including, without limitation, convertible securities, share appreciation
rights, “phantom” share plans or share equivalents) or any Rights of any kind,
other than the issuance of Company Common Shares in connection with (A) the
vesting of any Share Appreciation Rights in accordance with the terms of such
Share Appreciation Rights, or (B) the vesting of and lapse of restrictions on
Restricted Shares, or (ii) repurchase, redeem or otherwise acquire any
securities or equity equivalents of the Company.
(c) Dividends;
Etc. (i) Make, declare, pay or set aside for payment any
dividend on or in respect of, or declare or make any distribution on, any shares
of beneficial interest or other securities or equity interests of the Company or
any of its Subsidiaries, other than (A) dividends or distributions that are
required to be paid by the Company in order to comply with the requirements of
the Company Charter; provided, that, in the event
that the Company makes, declares, pays or sets aside for payment such required
dividends or distributions, the Per Share Amount shall be reduced dollar for
dollar by the per share amount of such dividends or distributions, and (B)
dividends or distributions paid by any of the Subsidiaries of the Company so
long as such dividends or distributions are only paid to the Company or any of
its other wholly-owned Subsidiaries; or (ii) directly or indirectly adjust,
split, combine, redeem, reclassify, purchase or otherwise acquire, any equity
interests of the Company or any of its Subsidiaries.
(d) Compensation; Employment
Agreements; Etc. Except as may be required by the terms of a
Benefit Plan: (i) increase the compensation or benefits payable or to become
payable to any trustee, director, officer, employee or consultant of the Company
or any of its Subsidiaries (except for reasonable increases in the ordinary
course of business consistent with past practices, including, but not limited
to, increases that are approved by the Compensation Committee of the Company
Board in connection with the annual performance reviews of Steven K. Griessel
and Matthew M. Martin on October 1, 2009); (ii) grant any rights to severance or
termination pay to, or enter into any employment or severance agreement with,
any trustee, director, officer, employee or consultant of the Company or any
Subsidiary of the Company, or establish, adopt, enter into or materially amend
any collective bargaining, bonus, profit sharing, thrift, compensation, share
option, restricted share, pension, retirement, deferred compensation,
employment, termination, severance or other plan, agreement, trust, fund, policy
or arrangement for the benefit of any such trustee or officer; or (iii) except
as contemplated by this Agreement, take any affirmative action to amend or waive
any performance or vesting criteria or accelerate vesting, exercisability or
funding under any Benefit Plan.
(e) Acquisitions. Acquire
(by merger, consolidation, acquisition of equity interests or assets, or any
other business combination) all or any portion of the assets, business,
properties or shares of stock or other securities of any corporation,
partnership, limited liability company, joint venture or other business
organization or any other Person.
(f) Indebtedness. (i)
Create, assume or incur any indebtedness for borrowed money or issue any debt
securities, or assume, guarantee or endorse, or otherwise as an accommodation
become responsible for, the obligations of any Person (other than a wholly owned
Subsidiary of the Company) for borrowed money, except (A) indebtedness for
borrowed money incurred in the ordinary course of business pursuant to the
existing credit facilities of the Company or its Subsidiaries, which borrowings
shall not exceed $1,000,000 in the aggregate and (B) the Indebtedness listed in
Section 4.01(f)
of the Disclosure Letter; or (ii) enter into or amend any contract, agreement,
commitment or arrangement that, if fully performed, would not be permitted under
this Section 4.01(f).
(g) Debt Payment and Capital
Expenditures. (i) Except as disclosed in Section 4.01(g) of
the Disclosure Letter, prepay any long-term debt (including, without limitation,
prepayments or repayments of revolving credit facilities or other similar lines
of credit and/or payments made in respect of any termination or settlement of
any interest rate swap or other similar hedging instrument relating thereto),
except in the ordinary course of business consistent with past practice and in
accordance with their terms, or pay, discharge or satisfy any claims,
liabilities or obligations (absolute, accrued, contingent or otherwise), except
in the ordinary course of business consistent with past practice and in
accordance with their terms or (ii) make or authorize any capital expenditures
or commitments for capital expenditures in excess of $250,000 individually, or
$500,000 in the aggregate, except for (A) expenditures disclosed in Section 4.01(g)
of the Disclosure Letter or (B) expenditures in the ordinary course of business
in order to own, operate and maintain the Company Properties in working
order.
(h) Constituent
Documents. Amend the Company Charter or the Company Bylaws or
any other Constituent Documents of the Company, any Subsidiary of the Company or
any JV Entity, except as may be required by this Agreement.
(i) Accounting
Methods. Change in any material respect any of the accounting
principles or practices used by it (except as required by GAAP or change in Law,
or as recommended by the Company’s independent auditors, or pursuant to written
instructions, comments or orders from the SEC, in which case the Company shall
provide Acquiror with written notification).
(j)
Contracts. Except
as described in Section 4.01(j) of
the Disclosure Letter, enter into or terminate any Material Contract or amend,
modify, fail to comply with the terms of, or waive compliance with or any
breaches under, in any material respect, any existing Material
Contracts.
(k) Claims. Except
as disclosed in Section 4.01(k) of
the Disclosure Letter, waive, release, assign, settle or compromise any material
claim or litigation, other than settlements involving only the payment of money
damages that are not in excess of $100,000 individually, or $250,000 in the
aggregate.
(l) Tax
Methods. Without limitation of Section 6.10, make
any election relating to Taxes (including any changes to tax accounting method
or election relating to Tax accounting), or settle or compromise any liability
for Taxes in excess of $25,000 unless in each case such action is required by
law or necessary to preserve the status of the Company as a partnership under
the Code (provided that in such events the Company shall notify Acquiror of such
election and shall not fail to make such election in a timely
manner).
(m) Compliance with
Law. Fail to comply in any material respect with any
applicable Laws wherever the Company’s or its Subsidiaries’ business is
conducted, including the timely filing of all reports, forms or other documents
with the SEC required under the Securities Act or the Exchange Act.
(n) Operations. Enter
into any new material line of business or change its material operating policies
except as required by Law, regulation or policies imposed by any Governmental
Authority, or form or dissolve, or commence or cease the operations of, any
material business or any corporation, partnership, joint venture, business
association or other business organization or division thereof.
(o) Company
Leases. Except in connection with a right being exercised by a
tenant under an existing Company Lease or as disclosed in Section 4.01(o) of the
Disclosure Letter, enter into any new lease (including renewals) for in excess
of 10,000 square feet of net rentable area, or except in connection with a right
being exercised by a tenant under an existing Company Lease, terminate or
materially modify or amend any Company Lease that relates to in excess of 10,000
square feet of net rentable area.
(p)
Securities. Amend
any term of any outstanding security of the Company or any of its
Subsidiaries.
(q) Company
Properties. Sell or otherwise dispose of, or subject to any
Lien (other than Permitted Liens existing as of the date of this Agreement), any
Company Properties other than (i) pending sales of Company Properties pursuant
to definitive agreements executed prior to the date hereof and identified on
Section 4.01(q)
of the Disclosure Letter or (ii) as otherwise disclosed in Section 4.01(q) of
the Disclosure Letter.
(r) Personal
Property. Sell, lease, mortgage, subject to Lien or otherwise
dispose of, or agree to do any of the foregoing with respect to, any of the
personal or intangible property of the Company or any of its Subsidiaries in
excess of $100,000 individually or $250,000 in the aggregate.
(s) Agreements with
Affiliates. Except as set forth in Section 4.01(s) of
the Disclosure Letter and excluding matters covered by Section 4.01(d)
above, enter into or otherwise modify any agreement or arrangement with Persons
that are Affiliates of the Company or any of its Subsidiaries or, as of the date
of this Agreement, are employees, officers, trustees, partners or directors of
the Company or any of its Subsidiaries.
(t) Debt
Compliance. Fail to use commercially reasonable efforts to
comply or remain in compliance with all material terms and provisions of any
agreement relating to any outstanding indebtedness of the Company or any of its
Subsidiaries.
(u) Liquidation. Adopt
a plan of complete or partial liquidation or dissolution or adopt resolutions
providing for or authorizing such liquidation or dissolution.
(v) Insurance. Fail
to maintain in full force and effect the existing insurance policies or to
replace such insurance policies with comparable insurance policies covering the
Company Properties or the Company, its Subsidiaries and their respective
properties, assets and businesses.
(w) Other
Actions. Authorize or enter into any agreement or otherwise
make any commitment to do any of the foregoing.
In
connection with the continued operation of the Company and its Subsidiaries, the
Company will confer in good faith on a regular and frequent basis with one or
more representatives of Acquiror designated to the Company regarding operational
matters and the general status of ongoing operations, and will notify Acquiror
promptly of any event or occurrence that has had or may reasonably be expected
to have a Company Material Adverse Effect or which could reasonably be expected
to result in the Company being unable to deliver the certificates described in
Section 7.02(c)
of this Agreement. The Company acknowledges that Acquiror does not
and will not waive any rights it may have under this Agreement as a result of
such consultation.
Notwithstanding
anything to the contrary set forth in this Agreement, nothing in this Agreement
shall prohibit the Company from taking any action at any time or from time to
time that in the reasonable judgment of the Company is reasonably necessary for
the Company to maintain its qualification as a partnership under the Code for
any period or portion thereof ending on or prior to the Effective Time; provided, however, that the
Company shall have made a good faith effort to provide Acquiror with as much
advance notice of such action as practicable and shall consider in good faith
any comments or suggestions by Acquiror relating to such action.
4.02 Conduct of All
Parties.
Each
party hereto agrees that, from the date hereof until the Effective Time, except
as expressly contemplated or permitted by this Agreement, without the prior
written consent of the other parties hereto, such party shall not, and shall
cause each of its Subsidiaries not to:
(a)
Interference or
Delay. Take, or cause to be taken, any action that would
interfere with the consummation of the Merger and other transactions
contemplated by this Agreement, or delay the consummation of such
transactions.
(b) Adverse
Actions. Take any action that is intended or is reasonably
likely to result in (x) any of its representations and warranties set forth
in this Agreement being or becoming untrue in any material respect at any time
at or prior to the Effective Time or (y) any of the conditions to the
Merger set forth in Article VII not being
satisfied.
(c) Commitments. Enter
into any contract with respect to, or otherwise agree or commit to do, any of
the foregoing.
ARTICLE
5.
REPRESENTATIONS
AND WARRANTIES
5.01 Disclosure
Letter
Concurrently
with the execution and delivery of this Agreement, the Company is delivering to
Acquiror a Disclosure Letter with numbered sections corresponding to the
relevant sections in this Agreement (the “Disclosure
Letter”). Any exception, qualification, limitation, document
or other item described in any provision, subprovision, section or subsection of
any Section of the Disclosure Letter with respect to a particular representation
or warranty contained in Section 5.02 herein
shall be deemed to be an exception or qualification with respect to all other
representations or warranties contained in Section 5.02 herein
to which the relevance of such item is reasonably apparent. Nothing
in the Disclosure Letter is intended to broaden the scope of any representation
or warranty contained in Section 5.02
herein.
5.02
Representations and
Warranties of the Company
The
Company hereby represents and warrants to Acquiror and Merger Subsidiary
that:
(a) Existence; Good Standing;
Authority; Subsidiaries.
(i) The
Company is a real estate investment trust duly organized, validly existing under
the laws of the State of Maryland and in good standing with the
SDAT. The Company Charter is in effect. The Company is
duly qualified or licensed to do business as a foreign entity and is in good
standing under the laws of any other jurisdiction in which the character of the
properties owned, leased or operated by it therein or in which the transaction
of its business makes such qualification or licensing necessary, other than in
such jurisdictions where the failure to be so qualified or licensed would not,
individually or in the aggregate, reasonably be expected to have a Company
Material Adverse Effect. The Company has all requisite trust power
and authority to own, operate, lease and encumber its assets and properties and
to carry on its business as now conducted.
(ii) Section 5.02(a)(ii)
of the Disclosure Letter sets forth: (i) each Subsidiary of the Company; (ii)
the legal form of each Subsidiary of the Company, including the state of
formation; and (iii) the identity and percentage ownership interest of each
holder of any ownership or voting interest in each Subsidiary of the
Company.
(iii) Each material Subsidiary of the
Company is a corporation, partnership, limited liability company, trust or other
business association or entity duly incorporated or organized, validly existing
and in good standing under the laws of the jurisdiction of its incorporation or
organization. Each material Subsidiary of the Company has all
requisite corporate, limited partnership, limited liability company or similar
power and authority to own, operate, lease and encumber its assets and
properties and to carry on its business as now conducted.
(iv) Each Subsidiary of the Company
is duly qualified or licensed to do business as a foreign entity and is in good
standing under the laws of each jurisdiction in which the character of the
properties owned, leased or operated by it therein or in which the transaction
of its business makes such qualification or licensing necessary, other than in
such jurisdictions where the failure to be so qualified or licensed would not,
individually or in the aggregate, reasonably be expected to have a Company
Material Adverse Effect.
(v) Section 5.02(a)(v) of
the Disclosure Letter sets forth a correct and complete list of all Persons that
are not Subsidiaries of the Company and in which the Company or any of its
Subsidiaries has a direct or indirect voting or ownership interest (the “JV Entities”),
together with the jurisdiction of organization of each JV Entity, the names of
the other members, partners or other holders of ownership interests in each JV
Entity and the respective percentage interests of each such member, partner or
holder in each JV Entity. Except for the Subsidiaries listed in Section 5.02(a)(ii)
of the Disclosure Letter or as set forth in Section 5.02(a)(v) of
the Disclosure Letter, the Company does not own, directly or indirectly, any
material membership interest in, material amount of shares of stock or
beneficial interest of, or other material ownership interest in, any
Person. The Company does not have any commitment or obligation to
provide any material amount of funds to, make any material investment (in the
form of a loan, capital contribution or otherwise) in, or acquire, directly or
indirectly, any material membership
interest
in, material amount of shares of stock or beneficial interest of, or other
material ownership interest in, any Person.
(vi) Except as
set forth in Section
5.02(a)(vi) of the Disclosure Letter, all of the outstanding equity or
voting securities or other interests of each of the Company’s Subsidiaries, and
all of the outstanding equity or voting securities or other interests of each of
the JV Entities that are owned directly or indirectly by the Company, (i) have
been duly authorized and validly issued, (ii) are fully paid and nonassessable,
(iii) are not subject to (and were not issued in violation of) any preemptive
right under any Law, or under the Constituent Documents of the applicable
Subsidiary or JV Entity, and (iv) are owned by the Company or by one of its
Subsidiaries, directly or indirectly, free and clear of all Liens, limitations
and restrictions whatsoever (including any restriction on the right to vote or
sell the same, except as may be provided as a matter of Law).
(vii) The
Company has previously made available to Acquiror true and complete copies of
the Company Charter and the Company Bylaws, each as amended through the date
hereof, as well as the Constituent Documents of each of the Company’s
Subsidiaries and the JV Entities (and in each case, all amendments thereto) and
all such documents are in full force and effect and no dissolution, revocation
or forfeiture proceedings by or regarding the Company, any of its Subsidiaries
or the JV Entities have been commenced. The Company is not in default
or violation (and no event has occurred which, with notice or the lapse of time
or both, would constitute a default or violation) of any material term,
condition or provision of the Company Charter or Company Bylaws. None
of the Company’s Subsidiaries is in default or violation (and no event has
occurred which, with notice or the lapse of time or both, would constitute a
default or violation) of any material term, condition or provision of its
respective Constituent Documents. To the Company’s knowledge, none of
the JV Entities is in default or violation (and no event has occurred which,
with notice or the lapse of time or both, would constitute a default or
violation) of any material term, condition or provision of its respective
Constituent Documents.
(b) Capitalization; Debt.
(i) The
authorized capitalization of the Company consists of (A) 10,000,000 Company
Common Shares, of which, as of September 24, 2009, 5,229,954 were issued and
outstanding, and (B) 10,000,000 preferred shares, par value $0.01 per share,
none of which are or have at any time been issued or
outstanding. 750,000 Company Common Shares have been reserved for
issuance as restricted shares pursuant to the Company Share Incentive
Plan. Of the 750,000 Company Common Shares reserved for issuance
pursuant to the Company Share Incentive Plan, 391,751 Company Common Shares have
been granted or approved for grant to officers and trustees of the Company as
shares subject to the restrictions set forth in the Company Share Incentive Plan
and the grant agreements related thereto (the “Restricted
Shares”). Section 5.02(b)(i) of
the Disclosure Letter sets forth a true, complete and correct list of all vested
and unvested Restricted Shares awarded by the Company or any of its
Subsidiaries, including the name of the Person to whom such Restricted Shares
were granted, the vesting
periods
for such Restricted Shares and other terms of the restrictions related
thereto. Other than the Restricted Shares, no Company Common Shares
have been issued or are outstanding under the Company Share Incentive
Plan. There are no Company Common Shares reserved for issuance or
required to be reserved for issuance other than the Restricted Shares issued
pursuant to the Company Share Incentive Plan, as described above. All
issued and outstanding Company Common Shares are duly authorized, validly
issued, fully paid and nonassessable, and are not subject to (and were not
issued in violation of) any preemptive right under any Law (including the
provisions of the MGCL), or under the Company Charter or the Company
Bylaws.
(ii) Section 5.02(b)(ii)
of the Disclosure Letter sets forth a true and complete list of all secured and
unsecured indebtedness of the Company and its Subsidiaries, including the
instruments related thereto, their outstanding principal amounts as of August
31, 2009, interest rates and maturity dates. The Company has no
outstanding bonds, debentures, notes or other similar obligations the holders of
which have the right to vote (or which are convertible into or exercisable for
securities having the right to vote) with the shareholders of the Company on any
matter.
(iii) Section 5.02(b)(iii)
of the Disclosure Letter sets forth a true and complete list of all outstanding
share appreciation rights issued pursuant to the Company Share Incentive Plan,
the Company’s Employees’ Share Incentive Plan and the Company’s Trustee Share
Incentive Plan (the “Share
Appreciation Rights”), including the name of the Person to whom such
Share Appreciation Rights were granted, the number of shares subject to each
Share Appreciation Right, the type of Share Appreciation Right and the per share
exercise price or purchase price for each Share Appreciation
Right. Except for the Share Appreciation Rights, there are no
options, warrants, calls, share appreciation rights, “phantom” shares, rights or
warrants, subscription rights, restrictions, exercisable, exchangeable or
convertible securities or other rights, contracts, agreements or commitments,
contingent or otherwise (collectively, “Rights”)
that obligate the Company to issue, transfer or sell any Company Common Shares
or any investment that is convertible into or exercisable or exchangeable for
any Rights or Company Common Shares. The per share exercise price for
each Share Appreciation Right is equal to or greater than the fair market value
of the underlying Company Common Shares as of the date of the grant of such
Share Appreciation Right. The Company has not issued any dividend
equivalent rights, performance awards or similar rights. The Company
has no commitment to redeem, repurchase or otherwise acquire any Company Common
Shares or to pay any dividend or make any other distributions in respect of the
Company Common Shares. The Company Board has not declared any
dividend or distribution with respect to the Company Common Shares the record or
payment date of which is on or after the date of this Agreement.
(iv) There are
no Rights that obligate any Subsidiary of the Company to issue, transfer or sell
any voting or equity interest or any investment that is convertible into or
exercisable or exchangeable for any Rights or any voting or equity interest in
any Subsidiary of the Company. No Subsidiary of the Company has
issued any dividend equivalent rights, performance awards or similar
rights.
(v) Except as
set forth in Section
5.02(b)(v) of the Disclosure Letter, there are no voting trusts, proxies
or other agreements or understandings to which the Company is a party with
respect to the voting of any security of the Company or any Subsidiary of the
Company, or which restrict the transfer of any such securities, nor does the
Company have knowledge of any third party agreements or understandings with
respect to the voting of any such securities or which restrict the transfer of
such securities, except with respect to the Voting Agreement.
(vi) Except as
set forth in Section
5.02(b)(vi) of the Disclosure Letter, neither the Company nor any of its
Subsidiaries is under any obligation, contingent or otherwise, by reason of any
agreement to register the offer and sale or resale of any of its securities
under the Securities Act.
(c) Authority Relative to this
Agreement.
(i) The
Company has all necessary power and authority to execute and deliver this
Agreement and all documents and agreements contemplated by this Agreement, to
perform its obligations under this Agreement and, subject to the Company
Shareholder Approval, the Special Shareholder Approval and the Company Charter
Amendment Approval, to consummate the Merger, the Company Charter Amendment and
the other transactions contemplated hereby. The execution, delivery
and performance by the Company of this Agreement and the consummation of the
Merger, the Company Charter Amendment and the other transactions contemplated by
this Agreement have been duly and validly authorized by all necessary trust
action on behalf of the Company and no other trust proceedings on the part of
the Company or any of the Subsidiaries are necessary to authorize this Agreement
or to consummate the Merger, the Company Charter Amendment and the other
transactions contemplated hereby (other than, with respect to this Agreement,
the Merger and the Company Charter Amendment, receipt of the Company Shareholder
Approval, the Special Shareholder Approval and the Company Charter Amendment
Approval). This Agreement has been duly and validly executed and
delivered by the Company and, assuming due authorization, execution and delivery
hereof by each of Acquiror and Merger Subsidiary, constitutes a valid, legal and
binding agreement of the Company, enforceable against the Company in accordance
with and subject to its terms and conditions, except as enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium,
fraudulent transfer and similar Laws of general applicability relating to or
affecting creditors’ rights or by general equity principles.
(ii) The
Company Board has authorized the Company Special Committee to act on behalf of
the Company Board with respect to the consideration and recommendation of this
Agreement, the Merger, the Company Charter Amendment and the other transactions
contemplated hereby to the Company Board. The Company Special
Committee has duly and validly authorized the execution and delivery of this
Agreement, unanimously declared the Merger, the Company Charter Amendment and
the transactions contemplated by this Agreement advisable and in the best
interest of the Company, and approved (subject to receipt of the approval of the
Company Board of the Merger, the Company Charter Amendment and the other
transactions contemplated hereby and the Company Shareholder Approval, the
Special
Shareholder
Approval and the Company Charter Amendment Approval) the Merger, the Company
Charter Amendment and the other transactions contemplated hereby. The
Company Board, upon the recommendation of the Company Special Committee, has
duly and validly authorized the execution and delivery of this Agreement,
declared the Merger, the Company Charter Amendment and the transactions
contemplated by this Agreement advisable and in the best interest of the
Company, and approved, subject to receipt of the Company Shareholder Approval,
the Special Shareholder Approval and the Company Charter Amendment Approval, the
Merger, the Company Charter Amendment and the other transactions contemplated
hereby. The Company Board has resolved to recommend that the holders
of the Company Common Shares approve this Agreement, the Merger, the Company
Charter Amendment and the transactions contemplated hereby, and directed that
this Agreement, the Merger and the Company Charter Amendment be submitted to the
shareholders of the Company for their approval to the extent required by Law and
the Company Charter and Company Bylaws.
(iii) The Merger requires the
affirmative vote of a majority of all votes entitled to be cast by the holders
of all outstanding Company Common Shares as of the record date for the Company
Shareholders Meeting (the “Company
Shareholder Approval”). The Company Shareholder Approval is the only vote
of the holders of any class or series of shares of the Company necessary to
approve the Merger, other than the Special Shareholder Approval required by this
Agreement.
(iv) The
Company Charter Amendment requires the affirmative vote of two-thirds of all
votes entitled to be cast by the holders of all outstanding Company Common
Shares as of the record date for the Company Shareholders Meeting (the “Company Charter
Amendment Approval”). The Company Charter Amendment Approval
is the only vote of the holders of any class or series of shares of the Company
necessary to approve the Company Charter Amendment.
(d) No Conflict; Required
Filings and Consents.
(i) Except as
set forth in Section
5.02(d) of the Disclosure Letter, the execution and delivery by the
Company of this Agreement and all documents and agreements contemplated by this
Agreement does not, and the performance by the Company of its obligations
hereunder and thereunder will not, (A) conflict with or violate the Company
Charter, the Company Bylaws or the Constituent Documents of any of the Company’s
Subsidiaries, (B) assuming that all Consents have been obtained, and all
filings and obligations described in Section 5.02(d)(ii)
have been made, conflict with or violate any foreign or domestic federal, state,
municipal or local statute, law, ordinance, regulation, rule, code, executive
order, injunction, judgment, decree or other order of any Governmental Authority
(“Law”)
applicable to the Company or any of its Subsidiaries or by which any property or
asset of the Company or any of its Subsidiaries is bound or affected, or
(C) require any consent under, or result in any violation or breach of, or
constitute a default (or an event which, with notice or lapse of time or both,
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, or result in the creation of a Lien
or other encumbrance on any
property
or asset of the Company or any of its Subsidiaries under or pursuant to, any
note, bond, mortgage, indenture, contract, agreement, lease, license, permit,
franchise or other instrument or obligation. Section 5.02(d) of
the Disclosure Letter lists all consents and approvals required to be obtained
by the Company in connection with the performance by the Company of its
obligations hereunder (the “Consents”).
(ii) The execution and delivery by
the Company of this Agreement and all documents and agreements contemplated by
this Agreement do not, and the performance of its obligations hereunder will
not, require any consent, approval, authorization or permit of, or filing with
or notification to, any Governmental Authority except for (A) applicable
requirements, if any, of the Securities Act, the Exchange Act, state securities
or “blue sky” laws (“Blue Sky
Laws”), (B) the filing with the SEC of a proxy statement, in
preliminary and definitive form, relating to the Merger to be sent to the
Company’s shareholders (as amended or supplemented from time to time, the “Proxy
Statement”) and other written communications that may be deemed
“soliciting materials” under Rule 14a-12 under the Exchange Act, (C) the filing
of the Articles of Merger with, and the acceptance for record thereof by, the
SDAT and (D) any filings required under the rules and regulations of the
NYSE Amex (the “NYSE
Amex”).
(e) Permits;
Compliance with
Law. Except as set forth in Section 5.02(e) of
the Disclosure Letter, each of the Company and its Subsidiaries is in possession
of all franchises, grants, authorizations, licenses, permits, consents,
certificates, approvals and orders of any Governmental Authority necessary for
each of the Company or its Subsidiaries to own, lease, develop and operate its
properties or to carry on its business as it is now being conducted and develop
its properties as contemplated by the Permits (the “Applicable
Permits”), and all such Permits are valid and in full force and effect,
except where the failure to have, or the suspension or cancellation of, or any
appeal or litigation related to, any of the Applicable Permits would not
reasonably be expected to have a Company Material Adverse Effect. No
suspension or cancellation of, or any appeal or litigation related to, any of
the Applicable Permits is pending or, to the knowledge of the Company,
threatened, except where the failure to have, or the suspension or cancellation
of, or any appeal or litigation related to, any of the Applicable Permits would
not reasonably be expected to have a Company Material Adverse
Effect. Each of the Company and its Subsidiaries conducts its
business in compliance with all applicable Laws, and neither the Company nor any
of its Subsidiaries (i) is in material violation of any Law applicable to the
Company or any of its Subsidiaries or by which any of their properties or assets
is bound or affected, or (ii) is in material default, breach or violation
of any note, bond, mortgage, indenture, contract, agreement, lease, license,
Applicable Permit, franchise or other instrument or obligation to which the
Company or any of its Subsidiaries is a party or by which the Company or any of
its Subsidiaries or any of their properties or assets is
bound. Neither the Company nor any of its Subsidiaries has received
any written notification from any Governmental Authority asserting that it is
not in compliance with any Law that such Governmental Authority
enforces.
(f) SEC Filings; Financial
Statements.
(i) The Company has timely filed or
furnished all forms, reports, schedules, registration statements, proxy
statements and other documents (including all exhibits, schedules and
supplements) required to be filed or furnished by it with the SEC since January
1, 2006 (the “SEC
Reports”). The SEC Reports, each as amended prior to the date
hereof, (i) have been prepared in all material respects in accordance with
the requirements of the Securities Act or the Exchange Act, as the case may be,
and the rules and regulations promulgated thereunder, and (ii) did not,
when filed or as amended prior to the date hereof, contain any untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary in order to make the statements made therein, in the light
of the circumstances under which they were made, not misleading. As
of the date of this Agreement, the Company has no outstanding and unresolved
comments from the SEC with respect to any of the SEC Reports. The
Company has provided to Acquiror true and complete copies of any forms,
documents, amendments, reports or other filings that have been prepared but not
filed with the SEC as of the date of this Agreement.
(ii) Each of
the consolidated financial statements (including, in each case, any notes
thereto) contained in the SEC Reports, as amended prior to the date hereof, was
prepared in accordance with GAAP applied on a consistent basis throughout the
periods indicated (except as may be indicated in the notes thereto) and each
fairly presented, in all material respects, the consolidated financial position,
results of operations and cash flows of the Company and its consolidated
Subsidiaries as of the respective dates thereof and for the respective periods
indicated therein except as otherwise noted therein (subject, in the case of
unaudited statements, to normal and recurring year-end
adjustments). Other than as disclosed in the SEC Reports, since
January 1, 2009, there has been no material change in the Company’s accounting
methods or principles that would be required to be disclosed in the Company’s
financial statements in accordance with GAAP.
(iii) Except (A) to the extent
disclosed in the SEC Reports, each as amended prior to the date hereof, (B)
liabilities incurred on behalf of the Company or any of its Subsidiaries in
connection with this Agreement, and (C) liabilities incurred in the ordinary
course of business consistent with past practice, since December 31, 2008,
neither the Company nor any of its Subsidiaries had any liabilities or
obligations of any nature (whether accrued, absolute, contingent or otherwise)
required by GAAP to be set forth in a consolidated balance sheet of the Company
or in the notes thereto.
(iv) The
Company is in compliance, and has complied, in all material respects with (A)
the applicable provisions of the Sarbanes-Oxley Act of 2002 and the related
rules and regulations promulgated under such Act (the “Sarbanes-Oxley
Act”) and the Exchange Act and (B) the applicable listing and corporate
governance rules and regulations of the NYSE Amex. There are no
outstanding loans made by the Company or any of its Subsidiaries to any
executive officer (as defined under Rule 3b-7 under the Exchange Act) or trustee
of the Company. Since the enactment of the Sarbanes-Oxley Act,
neither the Company nor any of its Subsidiaries has made any loans to any
executive officer, trustee or director of the Company or any of its
Subsidiaries.
(g) Absence of Certain Changes
or Events. Except as set forth in the SEC Reports or as set
forth in Section
5.02(g) of the Disclosure Letter, since January 1, 2009, each of the
Company and its Subsidiaries has conducted its business in the ordinary course
consistent with past practice and there have not been any changes, effects or
circumstances or events, individually or in the aggregate, that have resulted or
would reasonably be expected to result in a Company Material Adverse
Effect.
(h) Litigation. As
of the date hereof, except (i) as listed in Section 5.02(h) of
the Disclosure Letter, (ii) as set forth in the SEC Reports filed prior to the
date of this Agreement, or (iii) for suits, claims, Actions, proceedings or
investigations arising from the ordinary course of operations of the Company and
its Subsidiaries involving (A) collection matters or (B) personal injury or
other tort litigation which are covered by adequate insurance (subject to
customary deductibles), there is no Action pending or, to the Company’s
knowledge, threatened against the Company or any of its Subsidiaries or any of
its or their respective properties or assets, or related to the Applicable
Permits. None of the matters identified in Section 5.02(h) of
the Disclosure Letter would reasonably be expected to have a Company Material
Adverse Effect or to question the validity of this Agreement or any action to be
taken by the Company or its Subsidiaries in connection with the consummation of
the Merger. Neither the Company nor any of its Subsidiaries are
subject to any order, judgment, writ, injunction or decree of any Governmental
Authority, except as would not have a Company Material Adverse
Effect.
(i) Employee Benefit
Plans.
(i) Section 5.02(i)(i)
of the Disclosure Letter lists (A) all material employee benefit plans (as
defined in Section 3(3) of ERISA) and (B) all other employee benefit plans,
policies, agreements or arrangements with respect to which the Company or any of
its ERISA Affiliates has any material obligation or liability, contingent or
otherwise, in effect, for current or former employees or consultants including
but not limited to (1) employment, individual consulting or other compensation
agreements, (2) cash bonus plans or policies or other cash incentive
compensation plans or policies, (3) stock purchase plans, equity or equity-based
compensation plans, (4) deferred compensation plans, (5) director, officer or
employee loans (excluding 401(k) Plan loans), (6) change in control and
severance agreements and (7) retention, termination, retirement, death,
disability, sick leave, vacation, salary continuation, health or life insurance
and educational assistance plans and policies (collectively, the “Benefit
Plans”). The
Company has made available to Acquiror with respect to each of the Benefit Plans
a true and correct copy of (i) any plans and related trust documents, insurance
contracts or other funding arrangements, and all amendments thereto (for the
last three completed plan years); (ii) Forms 5500 and all schedules thereto for
the last three completed plan years, (iii) the most recent actuarial report, if
any; (iv) the most recent IRS determination or opinion letter; (v) the most
recent summary plan descriptions and any subsequent summary of material
modification; (vi) written summaries of all non-written Benefit Plans and (vii)
any material correspondence with the IRS, U.S. Department of Labor or the
Pension Benefit Guaranty Corporation.
(ii) Each Benefit Plan has been
operated in all material respects in accordance with its terms and the
requirements of all applicable Laws, including, without limitation, ERISA and
the Code, except where such failure to operate such Benefit Plan in accordance
with its terms and Applicable Law would not, or would not reasonably be expected
to be, material to the Company and its Subsidiaries taken as a
whole. No material Action, claim or proceeding is pending or, to the
knowledge of the Company, threatened with respect to any Benefit Plan (other
than claims for benefits in the ordinary course) and, to the knowledge of the
Company, no fact or event exists that would give rise to any such material
Action, claim or proceeding. Neither the Company or any of its
Subsidiaries nor, to the knowledge of the Company, any other “disqualified
person” or “party in interest”, as defined in Section 4975 of the Code and
Section 3(14) of ERISA, respectively, has engaged in any non-exempt “prohibited
transaction”, as defined in Section 4975 of the Code or Section 406 of ERISA,
with respect to any Benefit Plan. To the knowledge of the Company, no
fiduciary violations under Title I of ERISA have occurred with respect to any
Benefit Plan.
(iii) Each Benefit Plan that is
intended to be qualified under Section 401(a) of the Code has timely
received a favorable determination or opinion letter from the IRS and, to the
knowledge of the Company, no fact or event has occurred since the date of any
such determination or opinion letter that could reasonably be expected to
adversely affect the qualified status of any such Benefit Plan. Each
trust established in connection with any Benefit Plan which is intended to be
exempt from federal income taxation under Section 501(a) of the Code is so
exempt.
(iv) All
contributions and benefits required to have been made or paid under any of the
Benefit Plans or by Law (without regard to any waivers granted under Section 412
of the Code), have been timely made in all material respects.
(v) [RESERVED]
(vi) No
Benefit Plan is, and neither the Company nor any of its Subsidiaries contributes
to or has at any time contributed to any Benefit Plan that is, (i) a
“multiemployer plan” (within the meaning of Section 3(37) of ERISA), (ii) a
“multiple employer plan” (within the meaning of Section 413(c) of the Code), or
(iii) any single employer plan or other pension plan that is subject to Title IV
or Section 302 of ERISA or Section 412 of the Code. No Benefit Plan
is an employee stock ownership plan within the meaning of Section 4975(e)(7) of
the Code or otherwise invests in employer securities as defined in Section
409(l) of the Code.
(vii) Except as set forth in Section 5.02(i)(vii)
of the Disclosure Letter, neither the execution and delivery of this Agreement,
nor the consummation of the transactions contemplated hereby, either alone or in
combination with another event (whether contingent or otherwise) will accelerate
the vesting, amount, funding or time of payment of any compensation, equity
award or other benefit.
(viii) Except as
set forth in Section
5.02(i)(viii) of the Disclosure Letter, none of the Benefit Plans provide
for continuing post-employment health, life insurance coverage or
other
welfare benefits for any participant or any beneficiary of a participant except
as may be required under any Law.
(ix)
Any individual who performs services for the Company or any of its Subsidiaries
(other than through a contract with an organization other than such individual)
and who is not treated as an employee of the Company or any of its Subsidiaries
for federal income tax purposes by the Company is not an employee for such
purposes.
(x)
All arrangements that would be considered “deferred compensation” for purposes
of Section 409A of the Code are in compliance with, or exempt from, Section 409A
of the Code. Each Benefit Plan that is subject to Section 409A of the
Code has been administered in compliance with the applicable requirements of
Section 409A of the Code and all applicable IRS and Treasury Department guidance
issued thereunder. None of the transactions contemplated by this
Agreement will result in a deferral of compensation under any Benefit Plan that
is subject to Section 409A of the Code.
(j) Labor
Matters.
(i) Neither the Company nor any of
its Subsidiaries is a party to any collective bargaining agreement or other
labor union contract applicable to persons employed by the Company or any of its
Subsidiaries. There are no material grievances outstanding against
the Company or any of its Subsidiaries under such agreement or contract and
there is no strike, slowdown, work stoppage or lockout by or with respect to any
employees of the Company or any of its Subsidiaries.
(ii) There is no union organization
activity involving any of the employees of the Company or any of its
Subsidiaries pending or, to the knowledge of the Company, threatened, nor has
there ever been union representation involving any of the employees of the
Company or any of its Subsidiaries. There is no picketing pending or,
to the knowledge of the Company, threatened, and there are no strikes,
slowdowns, work stoppages, other job actions, lockouts, arbitrations, grievances
or other labor disputes involving any of the employees of the Company or any of
its Subsidiaries pending or, to the knowledge of the Company,
threatened. There are no material complaints, charges or claims
against the Company or any of its Subsidiaries pending or, to the knowledge of
the Company, threatened arising out of, in connection with, or otherwise
relating to the employment or termination of employment or failure to employ by
the Company or any of its Subsidiaries, of any individual. The
Company and its Subsidiaries are in compliance with all Laws relating to the
employment of labor, including all such Laws relating to wages, hours, the
Worker Adjustment and Retraining Notification Act and any similar state or local
“mass layoff” or “plant closing” law (“WARN”),
collective bargaining, discrimination, civil rights, safety and health, workers’
compensation and the collection and payment of withholding and/or social
security taxes and any similar tax, except for any immaterial
non-compliance. There has been no “mass layoff” or “plant closing”
(as defined by WARN) with respect to the Company or any of its Subsidiaries
since January 1, 2005.
(k) Proxy
Statement. The information supplied by the Company relating to
the Company and its Subsidiaries to be contained in the Proxy Statement or other
documents to be filed with the SEC in connection herewith will not, on the date
the Proxy Statement is first mailed to holders of Company Common Shares or at
the time of the Company Shareholders Meeting or at the time of any amendment or
supplement thereof, or, in the case of any filing other than the Proxy
Statement, at the date it is first mailed to holders of Company Common Shares or
at the date it is first filed with the SEC, contain any untrue statement of
material fact or omit to state any material fact required to be stated therein
or necessary in order to make statements therein not false or misleading at the
time and in light of the circumstances under which such statement is made,
except that no representation is made by the Company with respect to the
information supplied by Acquiror or Merger Subsidiary. All documents
that the Company is responsible for filing with the SEC in connection with the
Merger or the other transactions contemplated by this Agreement will comply as
to form and substance in all material respects with the applicable requirements
of the Securities Act and the rules and regulations thereunder and the Exchange
Act and the rules and regulations thereunder.
(l) Property and
Leases.
(i) Section 5.02(l)(i) of
the Disclosure Letter sets forth a correct and complete list of all real
property interests owned or held by the Company, its Subsidiaries and any JV
Entities, including fee interests and ground leasehold interests (all such real
property interests, together with all buildings, structures and other
improvements and fixtures located on or under such real property and all
easements, rights and other appurtenances to such real property, are
individually referred to herein as “Company
Property” and collectively referred to herein as the “Company
Properties”). There are no mortgage loans held by the Company
or any of its Subsidiaries as lender. As of the date hereof, each of
the Company Properties is owned or leased by a Subsidiary of the Company or a JV
Entity, as indicated in Section 5.02(l)(i) of
the Disclosure Letter. As of the date of this Agreement, the
Company’s Subsidiaries and the JV Entities own fee simple title to, or if so
indicated in Section
5.02(l)(i) of the Disclosure Letter, lease each of the Company
Properties, in each case, free and clear of any Liens, title defects, covenants
or Property Restrictions, except for (i) Permitted Liens, (ii) Property
Restrictions imposed or promulgated by Law or by any Governmental Authority
which are customary and typical for similar properties and (iii) Property
Restrictions which do not interfere materially with the current use of such
property.
(ii) Except as set forth in Section 5.02(l)(ii)
of the Disclosure Letter or as would not reasonably be expected to have a
Company Material Adverse Effect, none of the Company Properties is subject to
any rights of way, agreements, Laws, ordinances or regulations affecting
building use or occupancy, or reservations of an interest in title
(collectively, “Property
Restrictions”), except for (1) Property Restrictions imposed or
promulgated by Law with respect to real property, including zoning regulations
and building codes, (2) leases on the Rent Roll or leases entered into in the
ordinary course after the date of the Rent Roll, REA’s, and all covenants,
restrictions and other matters disclosed on the Company Title Insurance Policies
or as would be disclosed on current title reports or surveys, (3) real estate
Taxes, charges of any nature
for
public utility services and special assessments, (4) service contracts,
management agreements, leasing commission agreements and other contractual
arrangements relating to the ownership, development or construction of the
Company Properties and (5) and other Permitted Liens. Except as would
not reasonably be expected to have a Company Material Adverse Effect, none of
the Company or any of its Subsidiaries or any JV Entity has received written
notice that it is currently in default or violation of any Property
Restrictions. Except as would not reasonably be expected to have a
Company Material Adverse Effect, each Company Property complies with the
Property Restrictions.
(iii) Except as
set forth on Section
5.02(l)(iii) of the Disclosure Letter and except for Company Properties
not yet developed or currently under development, there is no REA or other
agreement, easement or other right, in each case, that is required to be
obtained by the Company or any of its Subsidiaries or any JV Entity in order to
permit the lawful use and operation of the buildings and improvements on any of
the Company Properties and all utilities, parking areas, detention ponds,
driveways, roads and other means of egress and ingress to and from such Company
Properties (collectively, “Property
Agreements”) that has not been obtained and is not in full force and
effect, except for such failures to have in full force and effect that would not
reasonably be expected to have a Company Material Adverse Effect, and there is
no pending threat of modification or cancellation of any of same, that would
reasonably be expected to have a Company Material Adverse
Effect. Except as would not reasonably be expected to have a Company
Material Adverse Effect, none of the Company or any of its Subsidiaries or any
JV Entity has received notice that the Company or any of its Subsidiaries or any
JV Entity is currently in default of any Property Agreements.
(iv) None of the Company or any of
its Subsidiaries or any JV Entity has received written notice of, nor does the
Company have knowledge of, any uncured violation of any Laws affecting any of
the Company Properties or operations which would reasonably be expected to have
a Company Material Adverse Effect. Without limitation to the
foregoing, except as would not reasonably be expected to constitute a Company
Material Adverse Effect, none of the Company or any of its Subsidiaries or any
JV Entity has received notice of, nor does the Company have knowledge of, any
zoning, building or similar Laws or orders that are presently being violated or
will be violated by the continued maintenance, development, operation or use of
any buildings or other improvements on any of the Company Properties or by the
continued maintenance, development, operation or use of the parking areas on the
Company Properties.
(v) Except as
provided for in Section 5.02(l)(v) of
the Disclosure Letter, valid policies of title insurance (each a “Company Title
Insurance Policy”) have been issued insuring, as of the effective date of
each such Company Title Insurance Policy, the title or leasehold interest of the
applicable Subsidiary of the Company or JV Entity to or in the Company
Properties, subject to the matters disclosed on the Company Title Insurance
Policies and Permitted Liens. A copy of each Company Title Insurance
Policy has been previously made available to Acquiror. Each Company
Title Insurance Policy is in full force and effect and no claim has been made
against any such policy.
(vi) Except as provided for in Section 5.02(l)(vi)
of the Disclosure Letter, none of the Company or any of its Subsidiaries or any
JV Entity has received written notice of, nor does the Company have knowledge
of, any condemnation or rezoning proceedings that are pending or, to the
knowledge of the Company, threatened with respect to any of the Company
Properties.
(vii) Except as
provided in Section
5.02(l)(vii) of the Disclosure Letter and except for immaterial
discrepancies or omissions, the rent roll for each of the Company Properties
(the “Rent
Roll”) dated as of September 23, 2009 which have previously been made
available to Acquiror, list each material lease that was in effect as of the
date of each such Rent Roll and to which the Company or any of its Subsidiaries
or any JV Entity is a party as landlord with respect to each of the applicable
Company Properties. Except as disclosed in Section 5.02(l)(vii)
of the Disclosure Letter or for discrepancies or omissions that would not have a
Company Material Adverse Effect, the information set forth in the Rent Roll is
true, correct and complete as of the date of each such Rent
Roll. Except as set forth in Section 5.02(l)(vii)
of the Disclosure Letter, the Company has made available to Acquiror copies of
all leases that are in effect as of the date hereof and to which the Company or
any of its Subsidiaries or any JV Entity is a party as landlord with respect to
each of the applicable Company Properties (such leases, together with all
amendments, modifications, supplements, renewals, extensions, guarantees and
other documents related thereto, the “Company
Leases”), which copies are true, correct and complete in all material
respects. Except as set forth in Section 5.02(l)(vii)
of the Disclosure Letter, all Company Leases that relate to in excess of 20,000
square feet of net rentable area (the “Material Company
Leases”) are in full force and effect and none of the Company or any of
its Subsidiaries or any JV Entity has received written notice that the
applicable Subsidiary of the Company or JV Entity is in default under any
Material Company Lease, except for violations or defaults that have been
cured. As of the date of this Agreement, except as provided in Section 5.02(l)(vii)
of the Disclosure Letter, none of the Company or any of its Subsidiaries or any
JV Entity has delivered a written notice to a tenant under a Material Company
Lease that it is in default under such Material Company Lease and no such tenant
is in monetary or, to the knowledge of the Company, material non-monetary
default under such Material Company Lease.
(viii) Except as
set forth in Section
5.02(l)(viii) of the Disclosure Letter, to the knowledge of the Company,
all operation and reciprocal easement agreements or other similar agreements
under which the Company or any of its Subsidiaries or any JV Entity is a party
(each, an “REA”) are
in full force and effect and none of the Company or any of its Subsidiaries or
any JV Entity has received written notice that the applicable Subsidiary of the
Company or JV Entity is in default under any REA, except for violations or
defaults that have been cured or that are not, or would not reasonably be
expected to be, material to the Company and its Subsidiaries, taken as a
whole. Except as provided in Section 5.02(l)(viii)
of the Disclosure Letter, none of the Company or any of its Subsidiaries or any
JV Entity has delivered a written notice to a party under an REA that it is in
default under such REA and no such party to an REA is in monetary or, to the
knowledge of the Company, material non-monetary default under such REA, except
for defaults that are not, or would not reasonably be expected to be, material
to the Company and its Subsidiaries, taken as a whole.
(ix) No Company Property is subject
to a ground lease and none of the Company or any of its Subsidiaries or any JV
Entity is a lessee with respect to any ground lease.
(x) Except as
set forth in Section
5.02(l)(x) of the Disclosure Letter, as of the date of this Agreement,
there are no unexpired option agreements or rights of first refusal with respect
to the purchase of a Company Property or any portion thereof that is owned by
the Company or any of its Subsidiaries or any JV Entity or any other unexpired
rights in favor of any party other than the Company or any of its Subsidiaries
or any JV Entity to purchase or otherwise acquire a Company Property or any
portion that is owned by the Company or any of its Subsidiaries or any JV Entity
or any portion thereof, whether pursuant to a Company Lease, an REA or
otherwise; nor has the Company or any of its Subsidiaries or any JV Entity
entered into any contract for sale, ground lease or letter of intent to sell or
ground lease any Company Property or any portion thereof that is owned by the
Company or any of its Subsidiaries or any JV Entity.
(xi) The Company has provided or
made available to Acquiror copies of all agreements pursuant to which the
Company or any of its Subsidiaries or any JV Entity manages, acts as leasing
agent for or provides development services for any real property for any third
party, which copies are true, correct and complete in all material
respects.
(xii) The Company and its
Subsidiaries and the JV Entities have good and sufficient title to, or is
permitted to use under valid and existing licenses or leases, all their personal
properties and assets reflected in their books and records as being owned by
them or used by them in the ordinary course of business, free and clear of all
Liens and encumbrances, except for Permitted Liens, Liens for current Taxes not
yet due and payable, and Liens or encumbrances which are normal to the business
of the Company and its Subsidiaries and the JV Entities and are not, in the
aggregate, material in relation to the assets of the Company on a consolidated
basis and except also for such imperfections of title or leasehold interest,
easement and encumbrances, if any, as do not materially interfere with the
present use of the properties subject thereto or affected thereby.
(m) Intellectual
Property. Except as would not reasonably be expected to have a
Company Material Adverse Effect, (i) the conduct of the business of the Company
and its Subsidiaries as currently conducted does not infringe, misappropriate or
otherwise violate any Intellectual Property rights of any Person, (ii) each of
the Company and its Subsidiaries owns or has the right to use (by license or
other arrangement) all Intellectual Property used in the conduct of its business
as currently conducted, free and clear of all Liens, and (iii) to the knowledge
of the Company, no Person has infringed, misappropriated or otherwise violated
any Intellectual Property rights owned or used by the Company or its
Subsidiaries. All material fees and filings required to maintain any
registration of any Intellectual Property used by the Company or its
Subsidiaries have been paid or timely filed, are current and are not in default
or in arrears.
(n) Taxes.
(i) Each of the Company and its
Subsidiaries has (i) timely filed (or had filed on their behalf) all federal Tax
Returns and all other Tax Returns reflecting a Tax obligation of $25,000 or more
that are required to be filed by them (after giving effect to any filing
extension properly granted by a Governmental Authority having authority to do
so), and such Tax Returns are true, correct and complete in all material
respects, and (ii) paid (or had paid on their behalf) all Taxes (whether or not
shown as due on such Tax Returns) that are required to be paid by
it. The most recent financial statements contained in the Company SEC
Reports filed prior to the date hereof reflect an adequate reserve (excluding
any reserve for deferred Taxes established to reflect timing differences between
book and Tax income) for all Taxes payable by the Company and its Subsidiaries
for all taxable periods and portions thereof through the date of such financial
statements and Taxes payable by the Company and its Subsidiaries at the
Effective Time will not exceed such reserve as adjusted through the Closing Date
in accordance with the past custom and practice of the Company and its
Subsidiaries in filing their Tax Returns. True, correct and complete
copies of all federal Tax Returns that have been filed with the IRS by the
Company and each of its Subsidiaries with respect to the taxable years
commencing on or after January 2003 have been delivered or made available to
representatives of Acquiror.
(ii) To the knowledge of the
Company, no Person who has owned or who has been treated as owning (for U.S.
federal income tax purposes) Company Common Shares or Share Appreciation Rights
has taken a position on a Tax Return or otherwise for Tax purposes that is
inconsistent with information reported to such Person by the Company on Schedule
K-1 to IRS Form 1065 (or any state, local, or foreign analogue) or with any
position taken by the Company for purposes of federal, state, local, or foreign
Tax Law.
(iii) Neither
the Company nor any of its Subsidiaries has executed or filed with the IRS or
any other Governmental Authority any agreement, waiver or other document or
arrangement extending the period for examination, assessment or collection of
material Taxes (including, but not limited to, any applicable statute of
limitation) that is currently in effect, and no power of attorney with respect
to any material Tax matter is currently in force with respect to the Company or
any of its Subsidiaries.
(iv) The Company (A) for all taxable
years commencing with the Company’s taxable year ended December 31, 1998 through
the Company’s taxable year ended December 31, 2008, has been subject to taxation
as a partnership for U.S. federal income tax purposes and has not been subject
to U.S. federal income taxation as a corporation, whether pursuant to Section
7704(a) of the Code or otherwise, and the Company has satisfied all requirements
of Section 7704(c) of the Code to avoid taxation as a corporation,
notwithstanding the Company’s status as a “publicly traded partnership” within
the meaning of Section 7704(b) of the Code, (B) has operated since December 31,
2008 to the date hereof in a manner that will permit it to be subject to
taxation as a partnership for U.S. federal income tax purposes for the taxable
year that includes the date hereof, and (C) intends to continue to operate in
such a manner as to permit it to continue to be subject to taxation as a
partnership for U.S. federal income tax purposes for the taxable year of the
Company that will end with the Merger (and if the Merger is not consummated
prior to January 1, 2010, for the taxable year that will end on December 31,
2009).
No
challenge to the Company’s status as a partnership for U.S. federal income tax
purposes or to the Company’s satisfaction of the requirements of Section 7704(c)
of the Code is pending or has been threatened in writing.
(v) No audit
or other proceeding with respect to any Taxes due from or with respect to the
Company or any of its Subsidiaries or any Tax Return filed by the Company or any
of its Subsidiaries is being conducted by any Tax authority or other
Governmental Authority, and neither the Company nor any of its Subsidiaries has
received written notice that any such audit or other proceeding with respect to
Taxes or any Tax Return is pending. No extension of the statute of
limitations on the assessment of any material Taxes has been granted by the
Company or any of its Subsidiaries.
(vi) There are no Liens for Taxes
upon any assets of the Company or any Subsidiary thereof, except for Liens for
Taxes not yet due and payable for which adequate reserves have been made in
accordance with GAAP) upon any of the assets of the Company or any of its
Subsidiaries.
(vii) The
Company and each of its Subsidiaries have complied, in all material respects,
with all applicable Laws, rules and regulations relating to the payment and
withholding of Taxes (including, without limitation, withholding of Taxes
pursuant to Sections 1441, 1442, 1445, 1446, and 3402 of the Code or similar
provisions under any state, local or foreign Laws) and have duly and timely
withheld and have paid over to the appropriate Governmental Authorities all
amounts required to be so withheld and paid over on or prior to the due date
thereof under all applicable Laws.
(viii) To the
knowledge of the Company, no claim has been made in writing by a Governmental
Authority in a jurisdiction where the Company or any of its Subsidiaries has not
filed Tax Returns that the Company or any such Subsidiary is or may be subject
to taxation by that jurisdiction or may be required to file Tax Returns with or
with respect to that jurisdiction.
(ix) Neither
the Company, nor any of its Subsidiaries, nor any other Person on behalf of the
Company or any of its Subsidiaries, as the case may be, has requested any
extension of time within which to file any material Tax Return, which such Tax
Return has not yet been filed.
(x) Neither
the Company nor any of its Subsidiaries is or has been a party to any Tax
sharing or similar agreement or arrangement other than any agreement or
arrangement solely between either the Company and any one or more of its
Subsidiaries or between or any two or more Subsidiaries, in any case pursuant to
which it will have any obligation to make any payments after the
Merger.
(xi) Neither
the Company nor any of its Subsidiaries has requested or received a private
letter ruling or technical advice from the IRS or comparable rulings or guidance
from other Governmental Authority.
(xii)
Neither
the Company nor any of its Subsidiaries (A) is or has been at any time on or
after January 1, 1997, a member of an affiliated group filing a consolidated
federal income tax return and (B) has any liability for the Taxes of another
person other than the Company and such Subsidiaries under Treasury regulation
1.1502-6 (or any similar provision of state, local or foreign Law), as a
transferee, a successor, by contract or otherwise.
(xiii) There are
no Tax Protection Agreements currently in force and no person has raised in
writing, or to the knowledge of the Company threatened to raise, a material
claim against the Company or any of its subsidiaries for any breach of any Tax
Protection Agreement.
(xiv) Neither the Company nor any of
its Subsidiaries has been a party to any understanding or arrangement described
in Section 6662(d)(2)(C)(ii) of the Code or Treasury Regulations Section
1.6011-4(b)(2) or has been a material advisor as defined in Section 6111(b) of
the Code.
(xv) Neither
the Company nor any of its Subsidiaries has entered into any “closing agreement”
as described in Section 7121 of the Code (or any corresponding or similar
provision of state, local or foreign Tax Law) that would require the Company or
any of its Subsidiaries to include any item of income in, or exclude any item of
deduction from, taxable income for any taxable period (or portion thereof)
ending after the Closing Date or would otherwise have any adverse impact on the
tax liability of the Company or any Subsidiary for any taxable period (or
portions thereof) ending after the Closing Date.
(xvi) Since
January 1, 2003, neither the Company nor any of its Subsidiaries has agreed to
or is required to make any adjustments pursuant to Section 481(a) of the Code or
any similar provision of Law or has any application pending with any
Governmental Authority requesting permission for any changes in accounting
methods.
(xvii) Neither
the Company nor any of its Subsidiaries has constituted either a “distributing
corporation” or a “controlled corporation” (within the meaning of Section
355(a)(1)(A) of the Code) in a distribution of stock qualifying for tax-free
treatment under Section 355 of the Code (i) in the two years prior to the date
of this Agreement or (ii) in a distribution which could otherwise constitute
part of a “plan” or “series of related transactions” (within the meaning of
Section 355(e) of the Code) in conjunction with the transactions contemplated by
this Agreement.
(xviii)
The Company has made all the distributions required to be made pursuant to the
Company Charter (including, without limitation, all distributions required
pursuant to Section 5.3.3 thereof with respect to any periods ending on or prior
to the date of this Agreement).
As used
herein, “Tax Protection
Agreements” means any written or oral agreement to which the Company or
any of its Subsidiaries is a party pursuant to which: (a) any liability to
holders of Company Common Shares relating to Taxes may arise, whether or not as
a result of the consummation of the transactions contemplated by this Agreement;
(b) in connection with
the
deferral of income Taxes of any holder of Company Common Shares, the Company or
any of its Subsidiaries have agreed to (i) maintain a minimum level of debt or
continue a particular debt, (ii) retain or not dispose of assets for a period of
time that has not since expired, (iii) make or refrain from making any Tax
election, (iv) only dispose of assets in a particular manner, and/or (v) permit
holders of Company Common Shares to guarantee (or have guaranteed) debt of the
Company or any of its Subsidiaries; and/or (c) holders of Company Common Shares
have guaranteed debt of the Company or any of its
Subsidiaries.
(o) Environmental
Matters. Except as set forth in
Section 5.02(o)
of the Disclosure Letter or in the SEC Reports:
(i) to the knowledge of the
Company, the Company and its Subsidiaries (A) are in material compliance
with all Environmental Laws, (B) hold all material permits, approvals,
identification numbers, licenses and other authorizations required under any
Environmental Law to own or operate their assets as currently owned and operated
or to develop any Company Property as currently intended (“Environmental
Permits”) and (C) are in material compliance with their respective
Environmental Permits;
(ii) neither the Company nor any of
its Subsidiaries has released, and to the knowledge of the Company, no other
person has released, Hazardous Substances on any real property owned, leased or
operated by the Company or any of its Subsidiaries that would constitute a
material violation of Environmental Laws;
(iii) neither
the Company nor any of its Subsidiaries has received any written notice alleging
that the Company or any of its Subsidiaries may be in material violation of,
liable under, or a potentially responsible party pursuant to, the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980 or any other
Environmental Law; and
(iv) neither
the Company nor any of its Subsidiaries (A) has entered into or agreed to any
consent decree or order or is a party to any judgment, decree or judicial order
relating to compliance with Environmental Laws, Environmental Permits or the
investigation, sampling, monitoring, treatment, remediation, removal or cleanup
of Hazardous Substances and, to the knowledge of the Company, no investigation,
litigation or other proceeding is pending or threatened in writing with respect
thereto or (B) is an indemnitor in connection with any threatened or asserted
claim by any third-party indemnitee for any liability under any Environmental
Law or relating to any Hazardous Substances. Notwithstanding any
other provision of this Agreement, this Section 5.02(o) sets
forth the Company’s sole and exclusive representations and warranties with
respect to Hazardous Substances, Environmental Laws or other environmental
matters.
(p) Material
Contracts.
(i) Except as
filed as exhibits to the SEC Reports filed prior to the date of this Agreement,
or as disclosed in Section 5.02(p)(i)
of the Disclosure Letter, neither the Company nor any of its Subsidiaries is a
party or otherwise subject to, and none of their respective
properties
or assets are bound by, any written or oral contract or agreement (or amendment,
modification and supplement thereto or any side letters affecting the
obligations of any party thereunder) that:
(1) is a
“material contract” (as such term is defined in Item 601(b)(10) of Regulation
S-K under the Securities Act);
(2)
involves
aggregate expenditures in excess of $500,000;
(3)
involves
annual expenditures in excess of $250,000 and is not cancelable within one
year;
(4) contains
any non-compete or exclusivity provisions with respect to any line of business
or geographic area with respect to the Company or any of its Subsidiaries, or
that purports to restrict the right of the Company or any of its Subsidiaries to
conduct any line of business or to compete with any Person or operate in any
geographic area in which the Company or any of its Subsidiaries may conduct
business, in each case in any material respect;
(5) would
prohibit or materially delay the consummation of the Merger or any of the
transactions contemplated by this Agreement;
(6) involves
any sale, option to sell, right of first refusal, right of first offer or any
other contractual right to sell, dispose of, or master lease, by merger,
purchase or sale of assets or stock or otherwise, any material real property,
including any Company Property, any material asset or personal property, and
Subsidiary or any interest in any JV Entity;
(7) involves
any purchase, option to purchase, right of first refusal, right of first offer
or any other contractual right to purchase or acquire, by merger, purchase or
sale of assets or stock or otherwise, any material real property, any material
asset or personal property, or any ownership interest in any
Person;
(8) is an
agreement with any shareholder of the Company or any present or former director,
officer or employee of the Company or any of its Subsidiaries;
(9) could cause the Company or any
of its Subsidiaries to be obligated to indemnify or hold harmless any trustee,
director or executive officer of the Company or any of its Subsidiaries (other
than the organizational documents of the Company and its
Subsidiaries);
(10)
contains
any purchase price adjustment, earn-out or contingent purchase
price;
(11)
relates
to the settlement or proposed settlement of any Action, which involves the
issuance of equity securities or the payment of an amount in excess of
$100,000;
(12) constitutes a loan agreement,
letter of credit, indenture, note, bond, debenture, mortgage, pledge agreement,
securities agreement or otherwise evidences a capitalized lease obligation or
other indebtedness of, for the benefit of, or payable to the Company or any of
its Subsidiaries or any guaranty thereof, or constitutes an interest rate cap,
collar, swap or other hedging or similar agreement to which the Company or any
of its Subsidiaries is a party;
(13) provides
any funds to or makes any investment in (whether in the form of a loan, capital
contribution or otherwise) any Subsidiary of the Company, JV Entity or other
Person (other than any indebtedness among the Company and its Subsidiaries and
other than any funds or investments required pursuant to existing organizational
documents of any of its Subsidiaries); or
(14) constitutes an employment
agreement or severance, change in control, accelerated vesting, termination or
similar agreement with directors, trustees, officers or employees of the Company
or any Subsidiary of the Company or any other Person (the contracts described in
clauses (1) - (14) being the “Material
Contracts”).
(ii) Except as
set forth in Section
5.02(p)(ii) of the Disclosure Letter, (i) neither the Company nor any of
its Subsidiaries is and, to the knowledge of the Company, no other party is in
material breach or violation of, or default under, any Material Contract, (ii)
none of the Company nor any of its Subsidiaries has received any claim of
material default under any Material Contract, and (iii) no event has occurred
which would result in a material breach or violation of, or a default under, any
Material Contract (in each case, with or without notice or lapse of time or
both). Each Material Contract is valid, binding and enforceable in
accordance with its terms and is in full force and effect with respect to the
Company and its Subsidiaries, as applicable, and, to the knowledge of the
Company, with respect to the other parties hereto.
(q) Insurance. Section 5.02(q) of
the Disclosure Letter sets forth a correct and complete list of the insurance
policies held by, or for the benefit of, the Company or any of its Subsidiaries,
including the underwriter of such policies and the amount of coverage
thereunder. The Company and each of its Subsidiaries have paid, or
caused to be paid, all premiums due under such policies and have not received
written notice that they are in default with respect to any obligations under
such policies, other than would not have a Company Material Adverse
Effect. As of the date of this Agreement, neither the Company nor any
of its Subsidiaries has been refused any insurance with respect to its business,
properties or assets, nor has its coverage been limited, by any insurance
carrier to which it has applied for any such insurance with which it has carried
insurance since January 1, 2007. Neither the Company nor any of its
Subsidiaries has received any written notice of cancellation or termination with
respect to any existing insurance policy set forth in Section 5.02(q) of
the Disclosure Letter that is held by, or for the benefit of, any of the Company
or any of the Subsidiaries, other than would not have a Company Material Adverse
Effect.
(r) Related Party
Transactions. Except as set forth in Section 5.02(p)(i) of
the Disclosure Letter and except for ordinary course advances to employees, set
forth in Section
5.02(r) of the
Disclosure Letter is a list of all loans, agreements and contracts entered into
by the Company or any of its Subsidiaries under which continuing obligations
exist with any Person who is an officer, trustee, director or Affiliate of the
Company or any of its Subsidiaries, the record or beneficial owner of five
percent (5%) or more of the voting securities of the Company, a 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 Person of
which any of the foregoing is an Affiliate.
(s) Takeover
Statutes. The Company has taken all necessary steps so
that the Maryland Business Combination Act and Maryland Control Share
Acquisition Act (Subtitles 6 and 7 of Title 3 of the MGCL) are
not applicable to this Agreement or the Merger. No other
anti-takeover or similar Law of the State of Maryland or any other state or
jurisdiction applies or purports to apply to the Merger. Neither the
Company nor any of its Subsidiaries has adopted, or intends to adopt, a
shareholders’ rights plan, “poison pill” or similar plan or arrangement which
limits or impairs the ability to purchase, or to become the direct or indirect
beneficial owner of, Company Common Shares or any other equity or debt
securities of the Company or any of its Subsidiaries.
(t) Brokers. No
broker, finder or investment banker (other than FBR Capital Markets & Co.)
is entitled to any brokerage, finder’s or other fee or commission in connection
with the Merger and the other transactions contemplated by this Agreement, or in
connection with any past or current property transaction, based upon
arrangements made by or on behalf of the Company. A true and complete
copy of the engagement letter between the Company and FBR Capital Markets &
Co. has been provided to Acquiror prior to the date of this
Agreement.
(u) Opinion of Financial
Advisor. The Company Special Committee has received an opinion
of FBR Capital Markets & Co., to the effect that, subject to certain
assumptions, qualifications, limitations and other matters, the Merger
Consideration to be received by the Unaffiliated Holders of the Company Common
Shares is fair to such holders of Company Common Shares from a financial point
of view. For the purposes of the foregoing, the term “Unaffiliated
Holders” means the holders of Company Common Shares other than the Wilson Family
Shareholders. A true and complete copy of such opinion shall be
provided to Acquiror promptly following the execution of this
Agreement. It is agreed and understood that such opinion is for the
benefit of the Company Special Committee and may not be relied on by Acquiror or
Merger Subsidiary.
(v) Investment Company Act of
1940. Neither the Company nor any of its Subsidiaries is, or
at the Effective Time will be, required to be registered as an investment
company under the Investment Company Act of 1940, as amended.
(w) Accounting
Controls. The Company has established and maintains disclosure
controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) promulgated
under the Exchange Act) designed to ensure that (i) transactions are recorded as
necessary to permit preparation of financial statements in conformity with GAAP
and to maintain accountability for assets, (ii) all information required to be
disclosed by the Company in the reports that it files
with the
SEC is recorded, processed, summarized and reported within the time periods
specified in the rules and forms of the SEC and (iii) all such information is
accumulated and communicated to management as appropriate to allow the chief
executive officer and chief financial officer of the Company to make the
certifications required under the Exchange Act with respect to such
reports.
(x) No Other Representations or
Warranties.
(i) Except
for the representations and warranties contained in this Agreement, Acquiror and
Merger Subsidiary acknowledge that neither the Company nor any other Person or
entity on behalf of the Company has made, and neither Acquiror nor Merger
Subsidiary has relied upon, any representation or warranty with respect to the
Company or any of its Subsidiaries or their respective businesses, affairs,
assets, liabilities, financial condition, results of operations or prospects or
with respect to the accuracy or completeness of any other information provided
or made available to Acquiror and Merger Subsidiary by or on behalf of the
Company. Neither the Company nor any other Person or entity will
have, or be subject to, any liability or indemnification obligation to Acquiror,
Merger Subsidiary or any other Person or entity resulting from the distribution
in written or verbal communications to Acquiror or Merger Subsidiary or use by
Acquiror or Merger Subsidiary of, any such information, including any
information, documents, projections, forecasts or other material made available
to Acquiror or Merger Subsidiary in online “data rooms,” confidential
information memoranda or management interviews and presentations in expectation
of the transactions contemplated by this Agreement.
(ii) In
connection with any investigation by Acquiror and Merger Subsidiary of the
Company and its Subsidiaries, Acquiror and Merger Subsidiary have received or
may receive from the Company and its Subsidiaries and/or other persons or
entities on behalf of the Company certain projections, forward-looking
statements and other forecasts and certain business plan information in written
or verbal communications. Acquiror and Merger Subsidiary acknowledge
that there are uncertainties inherent in attempting to make such estimates,
projections and other forecasts and plans, that Acquiror and Merger Subsidiary
are familiar with such uncertainties, that Acquiror and Merger Subsidiary are
taking full responsibility for making their own evaluation of the adequacy and
accuracy of all estimates, projections and other forecasts and plans so
furnished to them (including the reasonableness of the assumptions underlying
such estimates, projections, forecasts or plans), and that Acquiror and Merger
Subsidiary shall have no claim against any Person or entity with respect
thereto. Accordingly, Acquiror and Merger Subsidiary acknowledge that
neither the Company nor any other Person or entity on behalf of the Company
makes any representation or warranty with respect to such estimates,
projections, forecasts or plans (including the reasonableness of the assumptions
underlying such estimates, projections, forecasts or plans).
5.03 Representations and
Warranties of Acquiror and Merger Subsidiary
Acquiror
and Merger Subsidiary hereby jointly and severally represent and warrant to the
Company as follows:
(a) Corporate
Organization.
(i) Aquiror is
a limited partnership duly organized, validly existing and in good standing
under the laws of the State of Delaware. The certificate of limited
partnership of Acquiror is in effect. Acquiror is in good standing
under the laws of any other jurisdiction in which the character of the
properties owned, leased or operated by it therein or in which the transaction
of its business makes such qualification or licensing necessary, other than in
such jurisdictions where the failure to be so qualified or licensed would not
reasonably be expected to have an Acquiror Material Adverse
Effect. Acquiror has all requisite limited partnership power and
authority to own, lease and operate its properties and to carry on its
businesses as now conducted.
(ii) Merger
Subsidiary is a corporation duly organized, validly existing and in good
standing under the Laws of the State of Maryland. The articles of
incorporation of Merger Subsidiary are in effect. Merger Subsidiary
is in good standing under the Laws of any other jurisdiction in which the
character of the properties owned, leased or operated by it therein or in which
the transaction of its business makes such qualification or licensing necessary,
other than in such jurisdictions where the failure to be so qualified or
licensed would not reasonably be expected to have an Acquiror Material Adverse
Effect. Merger Subsidiary has all requisite corporate power and
authority to own, lease and operate its properties and to carry on its
businesses as now conducted.
(b) Authority Relative to this
Agreement.
(i)
Each of
Acquiror and Merger Subsidiary has all necessary limited partnership and
corporate power and authority, as applicable, to execute and deliver this
Agreement and all documents and agreements contemplated by this Agreement, to
perform its obligations under this Agreement and to consummate the Merger and
the other transactions contemplated hereby. No other proceedings on
the part of Acquiror or Merger Subsidiary, or any of their respective
subsidiaries, are necessary to authorize this Agreement or to consummate the
Merger and the other transactions contemplated hereby. This Agreement
has been duly and validly executed and delivered by each of Acquiror and Merger
Subsidiary and, assuming due authorization, execution and delivery hereof by the
Company, constitutes a valid, legal and binding agreement of each of Acquiror
and Merger Subsidiary, enforceable against each of Acquiror and Merger
Subsidiary in accordance with and subject to its terms and conditions, except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent transfer and similar Laws of general
applicability relating to or affecting creditors’ rights or by general equity
principles.
(ii) The
general partner of Acquiror has duly and validly authorized the execution and
delivery of this Agreement and approved the consummation of the Merger, and
taken all limited partnership actions required to be taken by the general
partner of Acquiror for the consummation of the Merger.
(iii) The directors of Merger
Subsidiary have duly and validly authorized the execution and delivery of this
Agreement and approved the consummation of the Merger, and taken all corporate
actions required to be taken by the directors of Merger Subsidiary for the
consummation of the Merger.
(c) Consents and Approvals; No
Violations.
(i) The
execution and delivery by Acquiror or Merger Subsidiary of this Agreement and
all documents and agreements contemplated by this Agreement does not, and the
performance of Acquiror or Merger Subsidiary’s obligations hereunder and
thereunder will not, (A) conflict with or violate the limited partnership
agreement of Acquiror or the articles of incorporation or bylaws of Merger
Subsidiary, (B) assuming that all consents, approvals, authorizations and
other actions described in subsection (ii) below have been obtained and all
filings and obligations described in subsection (ii) below have been made,
conflict with or violate any Law applicable to Acquiror or Merger Subsidiary or
by which any of their properties or assets are bound or affected, or
(C) require any consent or result in any violation or breach of, or
constitute a default (or an event which, with notice or lapse of time or both,
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, or result in the creation of a Lien
or other encumbrance on any properties or assets of Acquiror or Merger
Subsidiary pursuant to, any note, bond, mortgage, indenture, contract,
agreement, lease, license, permit, franchise or other instrument or obligation
to which either Acquiror or Merger Subsidiary is a party or by which
any of the properties or assets of Acquiror or Merger Subsidiary are bound or
affected.
(ii) The execution
and delivery by Acquiror or Merger Subsidiary of this Agreement and all
documents and agreements contemplated by this Agreement does not, and the
performance of Acquiror or Merger Subsidiary’s obligations hereunder will not,
require any consent, approval, authorization or permit of, or filing with, or
notification to, any Governmental Authority, except (A) for (1) applicable
requirements, if any, of the Exchange Act, Blue Sky Laws, and (2) the filing
with the SEC of the Proxy Statement, and (B) where the failure to obtain such
consents, approvals, authorizations or permits, or to make such filings or
notifications, would not prevent or delay consummation of the Merger, or
otherwise prevent Acquiror from performing its obligations under this
Agreement.
(d) Litigation. There
is no Action pending or, to Acquiror’s knowledge, threatened against Acquiror or
Merger Subsidiary or any of its or their respective properties or assets, except
as would not reasonably be expected to have an Acquiror Material Adverse
Effect.
(e) Available
Funds. Acquiror currently has or has access to, and on the
Closing Date will have available, all funds necessary to pay the Merger
Consideration and to satisfy the obligations of Acquiror and Merger Subsidiary
set forth in this Agreement, including, without limitation, in connection with
the Merger, and the other transactions contemplated hereby and all related
expenses. The obligations of Acquiror hereunder are not subject to
any conditions regarding the ability of Acquiror or Merger Subsidiary to obtain
financing.
(f) Ownership of Merger Sub; No
Prior Activities. Merger Subsidiary is an indirect subsidiary
of Acquiror. Merger Subsidiary has not conducted any activities other
than in connection with its organization, the negotiation and execution of this
Agreement and the consummation of the transactions contemplated
hereby.
(g) No Ownership of Company
Common Shares. Neither
Acquiror nor any of its Subsidiaries, including Merger Subsidiary, own any
Company Common Shares or other securities of the Company.
(h) Proxy
Statement. The information supplied by Acquiror or Merger
Subsidiary to the Company for inclusion in the Proxy Statement or other
documents to be filed with the SEC in connection herewith will not, on the date
the Proxy Statement is first mailed to holders of Company Common Shares or at
the time of the Company Shareholders Meeting or at the time of any amendment or
supplement thereof, or, in the case of any filing other than the Proxy
Statement, at the date it is first mailed to holders of Company Common Share or
at the date it is first filed with the SEC, contain any untrue statement of
material fact or omit to state any material fact required to be stated therein
or necessary in order to make statements therein not false or misleading at the
time and in light of the circumstances under which such statement is made,
except that no representation is made by Acquiror or Merger Subsidiary with
respect to the information supplied by the Company.
(i) Sole
Purpose. Merger Subsidiary was formed solely for the purpose
of effecting the Merger and has not and will not conduct any activities other
than those required for the Merger.
ARTICLE
6.
COVENANTS
6.01 Company Shareholders
Meeting
The
Company shall, in accordance with applicable Law and the Company Charter and the
Company Bylaws, duly call, give notice of, convene and hold the Company
Shareholders Meeting as promptly as reasonably practicable after the date that
the Proxy Statement is cleared by the SEC for the purpose of obtaining the
Company Shareholder Approval, the Special Shareholder Approval and the Company
Charter Amendment Approval. Except as is reasonably likely to be
required by the duties of the Company Board under applicable Law, the Company
shall include in the Proxy Statement the recommendation of the Company Board
that Company’s shareholders approve the Merger, the Company Charter Amendment
and the other transactions contemplated hereby (the “Recommendation”)
and use its reasonable efforts to obtain the Company Shareholder Approval, the
Special Shareholder Approval and the Company Charter Amendment Approval and to
take all other reasonable actions necessary or advisable to secure the Company
Shareholder Approval, the Special Shareholder Approval and the Company Charter
Amendment Approval. Except in accordance with this Article 6, none of
the Company Board nor any committee thereof, including the Company Special
Committee, shall (a) withhold,
withdraw,
modify, change or qualify in a manner adverse to Acquiror in any material
respect, or publicly propose to withdraw, the Recommendation, or (b) fail to
include the Recommendation in the Proxy Statement, or (c) knowingly take any
other action or knowingly make any other public statement that is inconsistent
in any material respect with such Recommendation (any action described in this
clause (a), (b) or (c) being referred to as “Recommendation
Withdrawal”). Notwithstanding the foregoing, (x) nothing
contained in this Agreement shall prevent the Company or the Company Board from
taking and disclosing to its shareholders a position contemplated by Rule 14d-9
and Rule 14e-2(a) promulgated under the Exchange Act (or any similar
communication to stockholders) or from making any legally required disclosure to
shareholders with regard to an Acquisition Proposal and (y) any
“stop-look-and-listen” communication by the Company or the Company Board to the
shareholders of the Company pursuant to Rule 14d-9(f) promulgated under the
Exchange Act (or any similar communication to the shareholders of the Company)
shall not be considered a Recommendation Withdrawal.
6.02 Proxy
Statement
As
promptly as practicable after the date of this Agreement, the Company shall
prepare and, after consultation with Acquiror, file a preliminary Proxy
Statement with the SEC under the Exchange Act. The parties hereto
shall cooperate with each other in the preparation of the Proxy
Statement. In addition, each of the Company and Acquiror shall, or
shall cause their respective affiliates to, prepare and, after consultation with
each other, file with the SEC all other filings that are required to be filed by
such party in connection with the transactions contemplated hereby (the “Other
Filings”). Each of the Company and Acquiror shall furnish all
information concerning itself and its Affiliates that is required to be included
in the Proxy Statement or, to the extent applicable, the Other Filings, or that
is customarily included in proxy statements prepared in connection with
transactions of the type contemplated by this Agreement. The Company
shall promptly notify Acquiror of the receipt of any comments of the SEC with
respect to the Proxy Statement or any of the Other Filings or of any requests by
the SEC for any amendment or supplement thereto or for additional information to
the Proxy Statement or the Other Filings and shall promptly provide to Acquiror
copies of all correspondence between the Company or any representative of the
Company and the SEC. The parties hereto shall cooperate with each
other in the preparation of any amendment or supplement to the Proxy
Statement. The Company shall give Acquiror and its counsel the
opportunity to review and comment on the Proxy Statement prior to its being
filed with the SEC and shall give Acquiror and its counsel the opportunity to
review and comment on all amendments and supplements to the Proxy Statement and
all responses to requests for additional information and replies to comments and
shall include in such documents or responses all comments reasonably proposed by
Acquiror prior to their being filed with, or sent to, the SEC. Each
of the Company and Acquiror shall use its reasonable efforts, after consultation
with the other parties hereto, to respond as promptly as practicable to all such
comments of and requests by the SEC. After satisfactorily responding
to all such comments of and requests by the SEC, the Company shall use its
reasonable efforts to have the Proxy Statement cleared by the SEC and thereafter
cause the Proxy Statement and all required amendments and supplements thereto to
be mailed to the holders of Company Common Shares entitled to vote at the
Company Shareholders Meeting as soon as reasonably practicable
following
clearance from the SEC. If at any time prior to the Effective Time,
any information relating to the Company or Acquiror or any of their respective
Subsidiaries, officers, members, trustees or directors, should be discovered by
the Company or Acquiror which should be set forth in an amendment or supplement
to the Proxy Statement or the Other Filings, so that the Proxy Statement or the
Other Filings shall not contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary in order
to make the statements therein, in light of the circumstances under which they
are made, not misleading, the party which discovers such information shall
promptly notify the other party, and an appropriate amendment or supplement
describing such information shall be filed with the SEC and, to the extent
required by applicable Law, disseminated to the shareholders of the
Company.
6.03 Access to Information;
Confidentiality
(a) Upon
reasonable notice and subject to applicable Laws relating to the exchange of
information, the Company shall, and shall cause each of its Subsidiaries and the
officers, trustees, directors, employees, auditors and agents of the Company and
its Subsidiaries to, afford to Acquiror and the officers, employees,
accountants, counsel and other representatives of Acquiror, reasonable access
during normal business hours during the period prior to the Effective Time, to
all its facilities, offices, properties, books, contracts, commitments, records,
officers, employees, accountants, counsel and other representatives of the
Company and its Subsidiaries and, during such period, the Company shall, and
shall cause its Subsidiaries to, make available to Acquiror (i) a copy of each
report, schedule, registration statement and other document filed or received by
it during such period pursuant to the requirements of federal securities laws or
federal or state banking laws (other than reports or documents which the Company
is not permitted to disclose under applicable Law) and (ii) all other
information concerning its business, properties and personnel as Acquiror may
reasonably request. Neither the Company nor any of its Subsidiaries
shall be required to provide access to or disclose information where such access
or disclosure would violate or prejudice the rights of the Company’s customers,
jeopardize any attorney-client privilege or contravene any Law, fiduciary duty
or binding agreement entered into prior to the date of this Agreement, provided
that, if requested to do so by Acquiror, the Company shall use commercially
reasonable efforts to redact proprietary data from any requested materials or
documentation, obtain a waiver from any applicable counterparty or take such
other action as may be reasonably requested by Acquiror. Acquiror
shall, and cause its representatives to, take all reasonable efforts to prevent
such access and inspection from interfering with the business operations of the
Company and its Subsidiaries.
(b) Prior to
the Effective Time, all information obtained by Acquiror pursuant to this Section 6.03 shall be
kept confidential in accordance with the Confidentiality Agreement, dated July
2, 2009 (the “Confidentiality
Agreement”), between Acquiror and the Company.
6.04 Acquisition
Proposals;
Solicitation
(a) Solicitation.
(i) Notwithstanding
any other provision of this Agreement to the contrary, during the period
beginning on the date of this Agreement and continuing until 11:59 p.m. (EST) on
the No-Shop Period Start Date, the Company and its Subsidiaries and their
respective employees, investment bankers, attorneys, accountants and other
advisors or representatives (such employees, investment bankers, attorneys,
accountants and other advisors or representatives, collectively, “Representatives”)
shall have the right (acting under the direction of the Company Board or the
Company Special Committee) to: (A) initiate, solicit and encourage, whether
publicly or otherwise, Acquisition Proposals (as hereinafter defined), including
by way of providing access to non-public information pursuant to (but only
pursuant to) the prior execution of one or more confidentiality agreements;
provided, however, that the
Company shall promptly provide to Acquiror and Merger Subsidiary any material
non-public information concerning the Company or its Subsidiaries that is
provided to any Person given such access which was not previously provided to
Acquiror and Merger Subsidiary; and (B) enter into and maintain discussions or
negotiations with respect to Acquisition Proposals and otherwise cooperate with,
assist or participate in, or facilitate any such inquiries, proposals,
discussions or negotiations.
(ii) From the
No-Shop Period Start Date until the Effective Time, or, if earlier, the
termination of this Agreement in accordance with Article VIII, except
as expressly permitted by Section 6.04(a)(iii),
Section
6.04(a)(v) or Section 6.04(a)(vii),
none of the Company, its Subsidiaries nor any of their Representatives shall,
directly or indirectly:
(1) initiate,
solicit or encourage any inquiries or the making of any proposal or offer that
constitutes, or could reasonably be expected to lead to, any Acquisition
Proposal (as defined below);
(2) initiate,
enter into, engage in, continue or otherwise participate in any discussions or
negotiations regarding, or provide any non-public information or data to any
Person relating to, any Acquisition Proposal;
(3) effect a
Recommendation Withdrawal;
(4) approve,
endorse or recommend, or publicly propose to approve, endorse or recommend, any
Acquisition Proposal;
(5) enter into any agreement in
principle, arrangement, understanding, contract or agreement providing for, or
relating to, an Acquisition Proposal or enter into any agreement or agreement in
principle requiring the Company to abandon, terminate or fail to consummate the
Merger or any of the transactions contemplated by this Agreement;
or
(6) exempt
any Person from the restrictions contained in any state “business combination,”
takeover or similar laws or otherwise cause such restrictions not to apply to
any Person or to any Acquisition Proposal;
(7) exempt
any Person from the ownership limitations and restrictions contained in Article
IV of the Company Charter as in effect as of the date of this Agreement, or
cause any such limitations and restrictions not to apply (other than any
exemptions from such limitations and restrictions then in effect as of the date
hereof); or
(8) release
any Person from or fail to enforce any standstill agreement or similar
obligation to the Company and its Subsidiaries other than the automatic
termination of standstill obligations pursuant to the terms of agreements as in
effect as of the date hereof, by virtue of the execution and announcement of
this Agreement.
(iii) Subject
to Section
6.04(a)(v) and except with respect to any written Acquisition Proposal
received prior to the No-Shop Period Start Date with respect to which all of the
requirements of Section 6.04(a)(v)
have been satisfied as of the No-Shop Period Start Date (any such Person so
submitting an Acquisition Proposal, an “Excluded
Party”), as determined, with respect to any Excluded Party, by the
Company Board or the Company Special Committee no later than the later of (A)
the No-Shop Period Start Date and (B) two (2) Business Days following the date
on which the Company received such Excluded Party’s written Acquisition Proposal
(it being understood, that following the No-Shop Period Start Date until such
time as the Company Board or the Company Special Committee determines that a
Person is an Excluded Party, the Company shall not be permitted to take any
action with respect to such Person that it would be prohibited from taking with
respect to a non-Excluded Party pursuant to Section 6.04(v)), on
the No-Shop Period Start Date, the Company shall, and shall cause its
Subsidiaries or any of their Representatives to, immediately cease and terminate
any solicitation, encouragement, discussion, negotiation or communications with
any Persons conducted theretofore by the Company, its Subsidiaries or any of
their Representatives with respect to any actual or potential Acquisition
Proposal and shall use its (and will cause its Subsidiaries and Representatives
to use their) reasonable best efforts to require the other parties thereto to
promptly return or destroy all confidential information previously furnished by
the Company, any of its Subsidiaries or their respective Representatives to such
Persons in accordance with the terms of any agreement under which such
confidential information was furnished. The Company and its
Subsidiaries shall be responsible for any failure on the part of their
respective Representatives to comply with this Section
6.04(a)(iii). Notwithstanding anything to the contrary herein,
the Company shall be permitted, after the No-Shop Period Start Date and prior to
the Company Shareholder Meeting, to continue to engage in discussions,
negotiations or communications regarding a written Acquisition Proposal with any
Excluded Party and to take the actions specified in proviso (x) and (y) of Section 6.04(a)(v)
with respect to any such Excluded Party; provided, that, upon the
determination by the Company Board or the Company Special Committee at any time
after the No-Shop Period Start Date that an Excluded Party’s Acquisition
Proposal ceases to satisfy all of the requirements of Section 6.04(a)(v) or
the Company Board or the Company Special Committee otherwise ceases to engage in
discussions, negotiations or communications with an Excluded Party regarding an
Acquisition Proposal, (x) such Excluded Party shall cease to be an Excluded
Party for all purposes under this Agreement at such time as the Acquisition
Proposal made by such Excluded Party ceases to satisfy all of the requirements
of Section
6.04(a)(v) or at such time the Company Board or the Company Special
Committee
ceases to engage in such discussions, negotiations or communication, as the case
may be, and (y) the Company shall promptly notify Acquiror in writing of such
event (including the identity of the Person that ceases to be an Excluded
Party).
(iv) The
Company shall notify Acquiror in writing of the identity of any party making a
bona fide written Acquisition Proposal prior to the No-Shop Period Start Date
that the Company Board or the Company Special Committee believes in good faith,
after consultation with outside legal counsel and the Company’s financial
advisor, constitutes or is reasonably likely to lead to a Superior Proposal (any
such proposal, an “Excluded
Acquisition Proposal”) and provide to Acquiror a written summary of the
material terms and conditions of any such Excluded Acquisition Proposal, in each
case within two (2) Business Days of receipt of such Excluded Acquisition
Proposal.
(v) Notwithstanding
anything in the foregoing to the contrary contained in Section 6.04(a)(iii),
if at any time following the No-Shop Period Start Date and prior to the time,
but not after, the Special Shareholder Approval is obtained, (A) the Company
receives any written Acquisition Proposal which the Company Board or the Company
Special Committee believes in good faith to be bona fide (that was not
solicited, encouraged, facilitated or otherwise obtained in violation of this
Agreement), (B) the Company Board or the Company Special Committee determines in
good faith, after consultation with outside legal counsel and the Company’s
financial advisor, that such Acquisition Proposal constitutes or is reasonably
likely to lead to a Superior Proposal, and (C) after consultation with outside
legal counsel, the Company Board or the Company Special Committee determines
that failure to take such action, in light of the Acquisition Proposal and the
terms of this Agreement, would be inconsistent with the trustees’ duties under
applicable Law, the Company Board or the Company Special Committee may (directly
or through its Representatives), (x) furnish information to the Person who made
such Acquisition Proposal (provided that the Company shall have received from
such Person, prior to furnishing any such information to such Person, an
executed confidentiality agreement and the Company shall have previously or
concurrently furnished such information to Acquiror and the Merger Subsidiary)
and (y) participate in discussions or negotiations with the Person making such
Acquisition Proposal regarding such Acquisition Proposal.
(vi) From and
after the No-Shop Period Start Date, the Company shall promptly (within 48 hours
from initial receipt) notify Acquiror in writing in the event it receives an
Acquisition Proposal from a Person or group of related Persons, including the
material terms and conditions thereof, and shall keep Acquiror apprised as to
the status and any material developments concerning the same on a current basis
(and in any event no later than 36 hours after the occurrence of such
developments). Without limiting the foregoing, the Company shall promptly
(within 24 hours of beginning to provide or engaging in negotiations) notify
Acquiror orally and in writing if it determines to begin providing information
or to engage in negotiations concerning an Acquisition Proposal from a Person or
group of related Persons pursuant to Section 6.04(a)(iii)
or Section
6.04(a)(v).
(vii) Notwithstanding anything in
this Agreement to the contrary, if, at any time prior to, but not after,
obtaining the Special Shareholder Approval, (A) the Company receives an
Acquisition Proposal which constitutes a Superior Proposal after giving effect
to all of the adjustments which may be offered by Acquiror pursuant to clause
(y) below and the Company Board or the Company Special Committee determines in
good faith, after consultation with outside legal counsel, that failure to take
such action would be inconsistent with the trustees’ duties under applicable
Law, the Company Board or the Company Special Committee may (1) effect a
Recommendation Withdrawal and/or (2) terminate this Agreement to enter into a
definitive agreement with respect to such Superior Proposal; or (B) other than
as a result of a Superior Proposal, the Company Board or the Company Special
Committee determines in good faith, after consultation with outside legal
counsel, that failure to take such action would be inconsistent with the
trustees’ duties under applicable Law, the Company Board or the Company Special
Committee may effect a Recommendation Withdrawal; provided, however, with respect
to circumstances in clause (A) only, the Company Board or the Company Special
Committee shall not effect a Recommendation Withdrawal (pursuant to clause
(A)(1)) or terminate this Agreement (pursuant to clause (A)(2))
unless:
(x) the
Company shall have provided prior written notice to Acquiror and Merger
Subsidiary, at least three (3) Business Days in advance (the “Notice
Period”), of its
intention to effect a Recommendation Withdrawal in response to such Superior
Proposal or terminate this Agreement to enter into a definitive agreement with
respect to such Superior Proposal, which notice shall specify the material terms
and conditions of any such Superior Proposal (including the identity of the
party making such Superior Proposal); and
(y) prior
to effecting such Recommendation Withdrawal or terminating this Agreement to
enter into a definitive agreement with respect to such Superior Proposal, the
Company shall, and shall cause its financial and legal advisors to, during the
Notice Period, negotiate with Acquiror and Merger Subsidiary in good faith (to
the extent Acquiror and Merger Subsidiary desire to negotiate) to make such
adjustments in the terms and conditions of this Agreement so that the
transactions contemplated by this Agreement are more favorable to the Company
Shareholders than such Superior Proposal.
In the event of any material revisions
to the Superior Proposal, the Company shall be required to deliver a new written
notice to Acquiror and Merger Subsidiary and to comply with the requirements of
this Section
6.04(a)(vii) with respect to such new written
notice. Notwithstanding anything to the contrary herein, the Company
shall not be entitled to terminate this Agreement and enter into a definitive
agreement with respect to the Superior Proposal referred to in clause (A)(2)
above, and any purported termination pursuant to the foregoing clause (A)(2)
shall be void and of no force or effect, unless concurrently with such
termination, the Company pays the Termination Fee and the Termination Expenses
payable pursuant to Section 8.03(b). The
Company’s right to terminate this Agreement under clause (A)(2) above shall not
be available if the Company has breached, or is then in breach of, Section
6.04. For
avoidance
of doubt, in the event the Company seeks to exercise its right to terminate this
Agreement in accordance with this Section 6.04(a)(vii),
in connection with such proposed termination, it may take the action previously
prohibited pursuant to Section
6.04(a)(ii)(6); provided, that clauses (x) and (y) of Section 6.04(a)(vii)
are satisfied.
(b) Definitions. For
purposes of this Agreement:
“Acquisition
Proposal” means any proposal or offer for, whether in one transaction or
a series of related transactions, any (i) merger, consolidation, share
exchange, business combination or similar transaction involving the Company or
any of its Subsidiaries that would constitute a “significant subsidiary”
(as defined in Rule 1-02 of Regulation S-X, but substituting 20%
for references to 10% therein), (ii) sale or other disposition, directly or
indirectly, by merger, consolidation, share exchange, business combination or
any similar transaction, of any assets of the Company or its Subsidiaries
representing 20% or more of the consolidated assets of the Company and its
Subsidiaries, taken as a whole, (iii) issue, sale or other disposition by
the Company or any of its Subsidiaries of (including by way of merger,
consolidation, share exchange, business combination or any similar transaction)
securities (or options, rights or warrants to purchase, or securities
convertible into, such securities) representing 20% or more of the votes
associated with the outstanding voting equity securities of the Company,
(iv) tender offer or exchange offer in which any Person or “group”
(as such term is defined under the Exchange Act) shall acquire beneficial
ownership (as such term is defined in Rule 13d-3 under the
Exchange Act), or the right to acquire beneficial ownership, of 20% or more of
the votes associated with the Company Common Shares, (v) recapitalization,
restructuring, liquidation, dissolution or other similar type of transaction
with respect to the Company, or (vi) transaction which is similar in form,
substance or purpose to any of the foregoing transactions; provided, however, that the
term “Acquisition Proposal” shall not include the Merger or any of the other
transactions contemplated by this Agreement; and
“Superior
Proposal” means a bona fide written Acquisition Proposal made by any
Person that was not solicited by the Company after the date hereof (except in
accordance with Section 6.04(a)(i))
(i) that relates to more than 60% of the voting power of the Company Common
Shares or of the assets of the Company and its Subsidiaries taken as a whole,
(ii) which the Company Board or the Company Special Committee determines in
its good faith judgment (after consultation with its financial advisor and after
taking into account all of the terms and conditions of the Acquisition Proposal)
to be more favorable to the Company Shareholders (in their capacities as
shareholders) than the Merger (including any alterations to this Agreement
agreed to in writing between the Company and Acquiror in response thereto),
(iii) the material conditions to the consummation of which are all
reasonably capable of being satisfied in the judgment of the Company Board or
the Company Special Committee, and (iv) for which financing, to the extent
required, is then committed or, in the judgment of the Company Board or the
Company Special Committee, is reasonably likely to
be available.
(c)
Certain Permitted
Disclosure. Nothing contained in this Section 6.04 shall be
deemed to prohibit the Company from complying with its disclosure obligations
under U.S.
federal
or state Law with regard to an Acquisition Proposal, including, without
limitation, taking and disclosing to its shareholders a position contemplated by
Rule 14d-9 and Rule 14e-2(a) promulgated under the Exchange
Act.
6.05 Further Action; Commercially
Reasonable Efforts
(a) Upon the
terms and subject to the conditions hereof, each of the parties hereto shall (i)
use its commercially reasonable efforts to take, or cause to be taken, all
appropriate action, and to do, or cause to be done, all things necessary, proper
or advisable under applicable Laws to consummate and make effective the Merger,
including, without limitation, using its commercially reasonable efforts to
obtain all Applicable Permits, consents, approvals, waivers, exemptions,
authorizations, qualifications and orders of Governmental Authorities and
parties to contracts with the Company and its Subsidiaries as are necessary for
the consummation of the Merger and to fulfill the conditions to the
Closing. In case, at any time after the Closing, any further action,
including, without limitation, the execution and delivery of any additional
documents or instruments, is necessary or desirable to carry out the purposes of
this Agreement, each of the parties hereto shall use its commercially reasonable
efforts to cause its respective officers, employees and agents to take all such
action. From the date of this Agreement through the Effective Time,
the Company shall timely file, or cause to be filed, with the SEC all SEC
Reports required to be so filed by applicable Law.
(b) The parties hereto shall
cooperate and assist one another in connection with all actions to be taken
pursuant to Section
6.05(a), including the preparation and making of the filings referred to
therein and, if requested, amending or furnishing additional information
thereunder, including, subject to applicable Law and the Confidentiality
Agreement, providing copies of all related documents to the non-filing party and
their advisors prior to filing, and to the extent practicable none of the
parties will file any such document or have any communication with any
Governmental Authority without prior consultation with the other
parties. Each party shall keep the others apprised of the content and
status of any communications with, and communications from, any Governmental
Authority with respect to the transactions contemplated by this
Agreement. To the extent practicable, and as permitted by a
Governmental Authority, each party hereto shall permit representatives of the
other party to participate in meetings (whether by telephone or in Person) with
such Governmental Authority. None of the parties shall consent to any
voluntary extension of any statutory deadline or waiting period or to any
voluntary delay of the consummation of the transactions contemplated by this
Agreement at the behest of any Governmental Authority without the consent of the
other parties, which consent shall not be unreasonably withheld or
delayed.
(c) Each of
the parties hereto agrees to cooperate and use its commercially reasonable
efforts to defend through litigation on the merits any Action, including
administrative or judicial Action, asserted by any party in order to avoid the
entry of, or to have vacated, lifted, reversed, terminated or overturned any
decree, judgment, injunction or other order (whether temporary, preliminary or
permanent) that in whole or in part restricts, delays, prevents or
prohibits
consummation
of the Merger, including, without limitation, by vigorously pursuing all
available avenues of administrative and judicial appeal.
(d)
From time to time
prior to the Effective Time, the Company shall notify Acquiror with respect to
any matter hereafter arising or any information obtained after the date hereof
which, if existing, occurring or known at or prior to the date of this
Agreement, would have been required to be set forth or described in the
Disclosure Letter.
(e) As promptly as possible after
the execution of this Agreement, each of the parties hereto shall use their
respective commercially reasonable efforts to commence the process of obtaining,
and obtain, any third party consents (i) necessary, proper or advisable to
consummate the transactions contemplated by this Agreement, (ii) disclosed in
the Disclosure Letter or (iii) required to prevent a Company Material Adverse
Effect from occurring prior to the Effective Time. In the event that
the Company fails to obtain any third party consent described above, the Company
shall use its commercially reasonable efforts, and shall take such actions as
are reasonably requested by Acquiror, to minimize any adverse effect upon the
Company and Acquiror and Merger Subsidiary and their respective businesses
resulting, or which could reasonably be expected to result, after the Effective
Time, from the failure to obtain such consent. Notwithstanding
anything to the contrary in this Agreement, in connection with obtaining any
approval or consent from any Person (other than a Governmental Authority) with
respect to any transaction contemplated by this Agreement, (i) without the prior
written consent of Acquiror, neither the Company nor any of its Subsidiaries
shall pay or commit to pay to such Person whose approval or consent is being
solicited any cash or other consideration, make any commitment or incur any
liability or other obligation due to such Person and (ii) neither Acquiror nor
Merger Subsidiary or their respective Affiliates shall be required to pay or
commit to pay such Person whose approval or consent is being solicited any cash
or other consideration, make any commitment or incur any liability or other
obligation. All costs, fees and expenses associated with the
assumption of any loan made to the Company or any of its Subsidiaries shall be
paid by the Company at Closing; provided, that Acquiror shall pay the fee
associated with submitting an application to a lender for the purpose of
initiating the process to obtain such lender’s consent to the Merger under the
applicable loan agreement.
6.06 Public
Announcements
The
parties hereto agree that no public release or announcement concerning the
transactions contemplated by this Agreement or the Merger shall be issued by any
party without the prior consent of the other party (which consent shall not be
unreasonably withheld), except as such release or announcement may be required
by Law or the rules or regulations of any securities exchange, in which case the
party required to make the release or announcement shall use its reasonable best
efforts to allow the other party reasonable time to comment on such release or
announcement in advance of such issuance.
6.07 Exculpation,
Indemnification
and Insurance
(a) Without limiting any additional
rights that any employee, officer, agent, trustee, director or fiduciary may
have under any employment or indemnification agreement or under the Company
Charter, Company Bylaws or this Agreement or, if applicable, similar
organizational documents or agreements of any Subsidiaries of the Company, from
and after the Effective Time, Acquiror and the Surviving Company shall: (i)
indemnify and hold harmless each Person who is at the date hereof or during the
period from the date hereof through the Effective Time serving as a executive
officer, director, trustee or fiduciary of the Company or its Subsidiaries or as
a fiduciary under or with respect to any employee benefit plan (within the
meaning of Section 3(3) of ERISA) (collectively, the “Company
Indemnified Parties”) to the fullest extent authorized or permitted by
applicable law, as now or hereafter in effect, in connection with any Claim and
any judgments, fines, penalties and amounts paid in settlement (including all
interest, assessments and other charges paid or payable in connection with or in
respect of such judgments, fines, penalties or amounts paid in settlement)
resulting therefrom; and (ii) promptly pay on behalf of or, within thirty days
after any request for advancement, advance to each of the Company Indemnified
Parties, to the fullest extent authorized or permitted by applicable law, as now
or hereafter in effect, any Expenses incurred in defending, serving as a witness
with respect to or otherwise participating in any Claim in advance of the final
disposition of such Claim, including payment on behalf of or advancement to the
Company Indemnified Party of any Expenses incurred by such Company Indemnified
Party in connection with enforcing any rights with respect to such
indemnification and/or advancement, in each case without the requirement of any
bond or other security (but subject to Acquiror’s or Surviving Company’s, as
applicable, receipt of a written undertaking by or on behalf of such Company
Indemnified Party, if required by applicable Law, to repay such Expenses if it
is ultimately determined under applicable Law that such Company Indemnified
Party is not entitled to be indemnified); provided, however, that neither
Acquiror nor Surviving Company shall be liable for any settlement effected
without Acquiror’s or the Surviving Company’s written consent and shall not be
obligated to pay the fees and expenses of more than one counsel (selected by a
plurality of the applicable Company Indemnified Parties) for all Company
Indemnified Parties in any jurisdiction with respect to any single Claim except
to the extent that two or more of such Company Indemnified Parties shall have
conflicting interests in the outcome of such action. The
indemnification and advancement obligations of Acquiror and the Surviving
Company pursuant to this Section 6.07(a) shall
extend to acts or omissions occurring at or before the Effective Time and any
Claim relating thereto (including with respect to any acts or omissions
occurring in connection with the approval of this Agreement and the consummation
of the transactions contemplated hereby, including the consideration and
approval thereof and the process undertaken in connection therewith and any
Claim relating thereto), and all rights to indemnification and advancement
conferred hereunder shall continue as to a Person who has ceased to be a
trustee, director, executive officer or fiduciary of the Company or its
Subsidiaries after the date hereof and shall inure to the benefit of such
Person’s heirs, executors and personal and legal representatives. As
used in this Section
6.07(a), (i) the term “Claim”
means any threatened, asserted, pending or completed Action, suit or proceeding,
or any inquiry or investigation, whether instituted by any party hereto, any
Governmental Authority or any other party, that any Company Indemnified Party in
good faith believes might lead to the institution of any such Action, suit or
proceeding, whether civil, criminal, administrative, investigative or other,
including any arbitration or other alternative
dispute
resolution mechanism, arising out of or pertaining to matters that relate to
such Company Indemnified Party’s duties or service as a director, officer,
trustee, employee, agent, or fiduciary of the Company, any of its Subsidiaries,
or any employee benefit plan (within the meaning of Section 3(3) of ERISA)
maintained by any of the foregoing or any other Person at or prior to the
Effective Time at the request of the Company or any of its Subsidiaries; and
(ii) the term “Expenses”
means reasonable attorneys’ fees and all other reasonable costs, expenses and
obligations (including, without limitation, experts’ fees, travel expenses,
court costs, retainers, transcript fees, duplicating, printing and binding
costs, as well as telecommunications, postage and courier charges) paid or
incurred in connection with investigating, defending, being a witness in or
participating in (including on appeal), or preparing to investigate, defend, be
a witness in or participate in, any Claim for which indemnification is
authorized pursuant to this Section 6.07(a),
including any Action relating to a claim for indemnification or advancement
brought by a Company Indemnified Party. Neither Acquiror nor the
Surviving Company shall settle, compromise or consent to the entry of any
judgment in any actual or threatened claim, demand, Action, suit, proceeding,
inquiry or investigation in respect of which indemnification has been or could
be sought by such Company Indemnified Party hereunder unless such settlement,
compromise or judgment includes an unconditional release of such Company
Indemnified Party from all liability arising out of such claim, demand, Action,
suit, proceeding, inquiry or investigation or such Company Indemnified Party
otherwise consents thereto.
(b) Without
limiting the foregoing, Acquiror and Merger Subsidiary agree that all rights to
indemnification and exculpation from liabilities for acts or omissions occurring
at or prior to the Effective Time now existing in favor of the current or former
directors, trustees, officers, other fiduciaries or employees of the Company or
any of its Subsidiaries as provided in the Company Charter or Company Bylaws
(or, as applicable, the charter, bylaws or other organizational documents of any
of the Subsidiaries) shall be assumed by the Surviving Company in the Merger,
without further action, at the Effective Time, and shall survive the Merger and
shall continue in full force and effect in accordance with their
terms.
(c) The
Surviving Company shall (i) for a period of six years after the Effective Time
cause to be maintained in effect in its charter or bylaws (or similar governing
documents), provisions regarding elimination of liability of trustees, directors
and officers, indemnification of officers, trustees, directors and employees and
advancement of Expenses that are no less advantageous to the intended
beneficiaries as those currently contained in Company Charter or Company Bylaws
and (ii) maintain for a period of six years the current policies of directors’
and officers’ liability insurance maintained by the Company and its Subsidiaries
(provided that the Surviving Company may substitute therefor policies of at
least the same coverage and amounts containing terms and conditions which are,
in the aggregate, no less advantageous to the insured, provided that such
substitution shall not result in gaps or lapses of coverage with respect to
matters occurring before the Effective Time) with respect to claims arising from
facts or events that occurred on or before the Effective Time; including,
without limitation, in respect of the transactions contemplated by this
Agreement; provided, however, that in no
event shall Acquiror be required to pay annual premiums for insurance under this
Section 6.07(c)
which in the aggregate exceed 300% of the current annual premiums paid by the
Company for such purpose;
provided that
Acquiror shall nevertheless be obligated to provide such coverage, with respect
to the entire six year period following the Effective Time, as may be obtained
for such 300% amount. The provisions of clause (ii) of this
subsection (b) shall be deemed to have been satisfied if prepaid policies have
been obtained by the Surviving Company for purposes of this Section 6.07, which
policies (together with Company’s existing policy) provide such directors and
officers with the coverage described in this subsection (b) for an aggregate
period of not less than six years with respect to claims arising from facts or
events that occurred on or before the Effective Time, including, without
limitation, in respect of the transactions contemplated by this
Agreement.
(d) If either
the Surviving Company or any of its successors or assigns (i) consolidates
with or merges with or into any other Person and shall not be the continuing or
surviving entity, partnership or other entity of such consolidation or merger or
(ii) transfers or conveys all or substantially all of its properties and assets
to any Person, then, and in each such case, proper provision shall be made so
that the successors and assigns of the Surviving Company assumes the obligations
set forth in this Section 6.07. The
parties acknowledge and agree that Acquiror guarantees the payment and
performance of the Surviving Company’s obligations pursuant to this Section
6.07.
(e) The
provisions of this Section 6.07 shall
not be terminated or modified in such a manner as to adversely affect any
indemnitee to whom this Section 6.07 applies
without the consent of such affected indemnitee and are intended to be for the
benefit of, and will be enforceable by, each indemnified party, his or her heirs
and his or her legal representatives.
6.08 Employee Benefit
Matters
(a) Each
individual who is an employee of the Company or any of its Affiliates
immediately prior to the Effective Time (an “Employee”)
shall continue as an employee of the Surviving Company or an Affiliate thereof
immediately after the Effective Time (each, a “Continuing
Employee”).
(b) To the
extent the Surviving Company or an Affiliate thereof maintains any health,
welfare, retirement or paid-time-off benefit plan of the Company, including
without limitation an “employee benefit plan” as defined in Section 3(3) of
ERISA (collectively, the “Surviving Company
Benefit Plans”), in which any Continuing Employee participates after the
Effective Time, the Surviving Company shall cause such Surviving Company Benefit
Plan to recognize the service of each such Continuing Employee prior to the
Effective Time with the Company and its Affiliates as employment with the
Surviving Company and its Affiliates for purposes of eligibility and benefit
entitlement, but not for purposes of benefit accrual (other than Surviving
Company Benefit Plans providing severance or paid-time-off benefits under which
such service will be recognized), under each such Surviving Company Benefit
Plan. In addition, the Surviving Company shall cause each Surviving
Company Benefit Plan, as applicable, to (i) waive all limitations as to
preexisting conditions exclusions, “at-work requirements” and waiting periods,
except to the extent that comparable limitations, “at-work requirements” or
waiting periods would have continued to apply to such Continuing Employees under
comparable Benefit
Plans
after the Effective Time, and (ii) provide each Continuing Employee with credit
for any co-payments and deductibles paid under any Benefit Plan in the plan year
immediately preceding the Effective Time in satisfying any applicable deductible
or out-of-pocket requirements under any Surviving Company Benefit
Plans.
(c) Nothing in this Section 6.08, express
or implied, is intended to or shall confer upon any other person, including,
without limitation, any Continuing Employee, any right, benefit or remedy of any
nature whatsoever under or by reason of this Agreement.
6.09 Transfer
Taxes
Acquiror
and the Company shall cooperate in the preparation, execution and filing of all
Tax Returns, questionnaires, applications or other documents regarding any real
property transfer or gains, sales, use, transfer, value added, stock transfer or
stamp Taxes, any transfer, recording, registration and other fees and any
similar Taxes that become payable in connection with the transactions
contemplated by this Agreement (together with any related interests, penalties
or additions to Tax, “Transfer
Taxes”), and shall cooperate in attempting to minimize the amount of
Transfer Taxes. From and after the Effective Time, the Surviving
Company shall pay or cause to be paid, without deduction or withholding from any
consideration or amounts payable to holders of Company Common Shares or Current
Share Appreciation Rights, all Transfer Taxes.
6.10 Tax
Matters
Without
limitation of Section
4.01(l), during the period from the date of this Agreement to the
Effective Time, the Company and its Subsidiaries shall:
(a) continue
to operate in such a manner as to permit the Company to continue to qualify as a
partnership for U.S. federal income Tax purposes throughout the period from the
date hereof to the Effective Time and not to be subject to U.S. federal income
taxation as a corporation;
(b) prepare
and timely file all federal and all other Tax Returns reflecting a Tax
obligation of $25,000 or more that are required to be filed by them (taking into
account all applicable extensions of time to file such Tax Returns) on or before
the Effective Date (“Post-Signing
Returns”) in a manner consistent with past practice and with applicable
Laws;
(c) fully
and timely pay all Taxes due and payable by them; and
(d) properly
reserve (and reflect such reserve in their books and records and financial
statements) for all Taxes payable by the Company and its Subsidiaries which
accrue, but are not due, prior to the Effective Time in a manner consistent with
past practice and with applicable Laws.
6.11 Resignations
The
Company shall obtain and deliver to Acquiror at the Closing evidence reasonably
satisfactory to Acquiror of the resignation effective as of the Effective Time,
of those trustees or directors of the Company or any of its Subsidiaries
designated by Acquiror to the Company in writing at least five (5) Business Days
prior to the Closing.
6.12 Delisting and Deregistering
of Securities
Acquiror
and the Company shall use their commercially reasonable best efforts to cause
the Company Common Shares to be delisted from the NYSE Amex and deregistered
under the Exchange Act promptly following the Effective Time.
6.13 Accumulated Earnings and
Profits/Distribution of Inter-Company Obligations
(a) Within
thirty (30) calendar days after the execution of this Agreement, but in no event
later than twenty (20) calendar days before the Effective Time, the Company
shall provide to Acquiror a good faith written determination of the accumulated,
as well as estimated current, earnings and profits of American Rental Properties
Trust, all of the common shares of which are owned by the Company (“ARPT”),
such determination to be before any reduction for the distribution to be made by
ARPT to the Company as provided for in Section
6.13(c). The written determination of the Company to be
provided as set forth herein shall contain a certification to the effect that
(i) the determination was prepared by the Company in consultation with Ernst
& Young LLP (which consultation shall include providing Ernst & Young
LLP the Company’s calculation underlying its determination and discussions
between the Company and Ernst & Young LLP regarding the Company’s
calculation), and (ii) the Company has sought the advice of Ernst & Young
LLP as to interpretation and application of Internal Revenue Code Section 312,
the Treasury Regulations thereunder and relevant related guidance pertaining to
the determination of earnings and profits in light of the specific factual
circumstances applicable to ARPT and its activities and operations.
(b) In the
event that there is any disagreement with respect to the Company’s determination
of ARPT’s current and/or accumulated earnings and profits, the Company and
Acquiror agree to cooperate and use their respective commercially reasonable
efforts to reach an agreement with respect to the amount of ARPT’s current
and/or accumulated earnings and profits.
(c) As
promptly as possible following the agreement between the Company and Acquiror of
the amount of ARPT’s current and accumulated earnings and profits, if any, in
accordance with the foregoing, but in any event no later than five (5) Business
Days prior to the Effective Time, the Company shall cause ARPT to make a
distribution to the Company of all (or such lesser portion of the amount as
designated by Acquiror) of the inter-company obligations held directly or
indirectly by ARPT; provided, however, that the Company shall not be obligated
to make the foregoing distribution until the condition set forth in Section
7.01(a) shall have been satisfied and the condition set forth in Section 7.02(c)
shall have been either satisfied or waived by Acquiror. The foregoing
distribution may be effected by declaring a dividend that is
contingent
on certain future events, but the contingencies shall be removed no later than
five (5) Business Days prior to the Effective Time.
(d) At the request of Acquiror, the
Company shall take, and shall cause its Subsidiaries to take, all actions
requested by the Acquiror to restructure (including, without limitation, to
amend, transfer, or cancel) the inter-company obligations by and among the
Subsidiaries of the Company and/or the Company, subject to the conditions that
(i) the Acquiror shall have agreed in writing to indemnify the Company and its
Subsidiaries for any Taxes incurred by any Subsidiary as a result of any such
restructuring in the event that the Merger is not consummated and (ii) the
restructuring takes place before ARPT makes the distribution described in Section
6.13(c).
6.14 Notice of Certain
Events
(a) The Company shall
notify Acquiror promptly of (i) any written communication and, to the knowledge
of the Company, any other communication from any Person alleging that the
consent of such Person (or another Person) is or may be required in connection
with the transactions contemplated by this Agreement (and the response thereto
from the Company or any of its Subsidiaries), (ii) any communication from any
Governmental Authority in connection with the transactions contemplated by this
Agreement (and the response thereto from the Company or any of its
Subsidiaries), (iii) any material Actions threatened or commenced against or
otherwise affecting the Company or any of its Subsidiaries that are related to
the transactions contemplated by the Agreement or (iv) any effect, event,
development or change between the date of this Agreement and the Effective Time
which causes or is reasonably likely to cause the conditions set forth in Section 7.02(a) or
7.02(b) not to
be satisfied.
(b) Acquiror
and Merger Subsidiary shall notify the Company promptly of (i) any written
communication and, to the knowledge of Acquiror, any other communication from
any Person alleging that the consent of such Person (or another Person) is or
may be required in connection with the transactions contemplated by this
Agreement (and the response thereto from Acquiror or Merger
Subsidiary), (ii) any communication from any Governmental Authority in
connection with the transactions contemplated by this Agreement (and the
response thereto from Acquiror or Merger Subsidiary), (iii) any material Actions
threatened or commenced against or otherwise affecting Acquiror or Merger
Subsidiary that are related to the transactions contemplated by the Agreement or
(iv) any effect, event, development or change between the date of this Agreement
and the Effective Time which causes or is reasonably likely to cause the
conditions set forth in Section 7.03(a) or
7.03(b) not to
be satisfied.
(c) The delivery of any
notice pursuant to this Section 6.14 shall
not limit or otherwise affect the remedies available hereunder to the party
receiving such notice.
6.15 Qualification of the Company
as a Partnership for Tax Purposes
(a) Within ten (10) business
days after the execution of this Agreement, the Company shall provide to the
designated tax advisors of the Acquiror (the “Tax Advisors”) all information
that is
reasonably available with respect to the Company and its Subsidiaries requested
by the Tax Advisors that is reasonably necessary for the Tax Advisors to confirm
to the Acquiror the accuracy of the representation and warranty of the Company
set forth in Section
5.02(n)(iv), which information shall include, but is not limited to, tax
returns, financial accounting records, work papers, and other relevant records
for all relevant periods. The Company shall also provide the
Tax Advisors reasonable access to any employees of the Company who might
reasonably be expected to have information relevant to the Tax Advisors’
inquiries concerning the Company’s qualification as a partnership for tax
purposes. In addition, and without limiting the foregoing, the
Company shall make P. Anthony Brown reasonably available to the Tax Advisors to
answer any and all questions that the Tax Advisors may have with respect to any
matters relevant to the Tax Advisors’ inquiries, and the Company hereby consents
to Ernst & Young LLP and Hogan & Hartson LLP providing to the Tax
Advisors any and all information that they may have obtained in the course of
their representation of the Company that such Tax Advisors, Ernst & Young
LLP, or Hogan & Hartson LLP may consider relevant or useful to such
inquiry. Notwithstanding any provision herein to the contrary, P.
Anthony Brown and Ernst & Young LLP, in its capacity as tax advisor to the
Company, shall not be required to provide any conclusions or other assurances to
the Acquiror or the Tax Advisors regarding the representation and warranty of
the Company set forth in Section 5.02(n)(iv). Tax
Advisors shall prepare and deliver to the Company a detailed request list
(“PTP Due
Diligence Request”) upon the signing of this
Agreement.
(b) The Acquiror shall cause
the Tax Advisors to complete the due diligence process described in this Section 6.15 within
fifteen (15) business days after the Tax Advisors have received all information
described in the PTP Due Diligence Request. In the event that the
Acquiror shall notify the Company in writing that the Tax Advisors have
determined that, in their judgment, there is a “substantial risk” (which shall
represent a greater than twenty five percent (25%) possibility) that the Company
has not qualified to be taxed as a “partnership” under the Code for any taxable
period commencing with the Company’s taxable year ended December 31, 1998
through and including the taxable year of the Company ending on the Effective
Time, which notice shall set forth in reasonable detail the technical issue
(the “Substantial Tax
Issue”) for such conclusion (which issue may include a conclusion that
there is not available adequate information for the Company to meet its burden
of proof to demonstrate that it is entitled to be taxed as a “partnership” under
the Code if the IRS should challenge that status), the Company shall immediately
be deemed to be in breach of the representation and warranty set forth in Section 5.02(n)(iv)
for all purposes under this Agreement. The Company shall have the
right to cure such breach by, within ten (10) business days of the receipt of
such notice to the Company, by delivering to the Acquiror a tax opinion of
Hunton & Williams LLP, or other counsel to the Company satisfactory to the
Acquiror, in a form reasonably satisfactory to Acquiror, opining that the
Substantial Tax Issue should not have caused the Company to be treated as an
association taxable as a corporation under the Code for all taxable periods
commencing with the Company’s taxable year ended December 31, 1998 through and
including the taxable year of the Company in which such opinion is being
rendered (the “PTP
Opinion”) (if the conclusion relates to the lack of adequate information
as described
in the
immediately preceding sentence above, an opinion that the available information
should permit the Company to meet such burden of proof).
ARTICLE
7.
CONDITIONS
TO CONSUMMATION OF THE MERGER
7.01 Conditions to the
Obligations of Each Party
The
obligations of each party to effect the Merger shall be subject to the
satisfaction, at or prior to the Closing, of the following
conditions:
(a) Shareholder
Approval. Each of the Special Shareholder Approval and the
Company Charter Amendment Approval shall have been obtained at the Company
Shareholders Meeting in accordance with the MGCL and the Company
Charter.
(b) No
Order. No Governmental Authority in the United States shall
have enacted, issued, promulgated, enforced or entered any Law (whether
temporary, preliminary or permanent) which is then in effect and has the effect
of making the Merger illegal or otherwise restricting, preventing or prohibiting
consummation of the Merger.
7.02 Conditions to the
Obligations of Acquiror and Merger Subsidiary
The
obligations of Acquiror and Merger Subsidiary to consummate the Merger are
subject to the satisfaction or waiver (where permissible) of the following
additional conditions:
(a) Representations and
Warranties. The representations and warranties of the Company
in this Agreement that (i) are not made as of a specific date shall be true and
correct as of the date of this Agreement and as of the Closing, as though made
on and as of the Closing, and (ii) are made as of a specific date shall be true
and correct as of such date, in each case except where the failure of such
representations or warranties to be true and correct (without giving effect to
any limitation as to “materiality” or “Company Material Adverse Effect” set
forth in such representations and warranties) does not or would not have or
would not be reasonably likely to have, individually or in the aggregate, a
Company Material Adverse Effect. In addition, (A) the representations
and warranties set forth in Sections 5.02(b) and
5.02 (c) shall
be true and correct in all material respects and (B) the representations and
warranties set forth in Sections 5.02(g) and
5.02(n)(iv)
shall be true and correct in all respects as of the date of this Agreement and
as of the Closing, as though made on and as of each such date.
(b) Agreements and
Covenants. The Company shall have performed, in all material
respects, all obligations and complied with, in all material respects, its
agreements and covenants to be performed or complied with by it under this
Agreement on or prior to the Closing.
(c) Consents. All
Consents listed on Section 5.02(d) of
the Disclosure Letter shall have been obtained by the Company or waived, except
where the failure of the Company to obtain any such Consent is attributable to
actions or inactions willfully undertaken by Acquiror and Merger Sub with the
intent of delaying or preventing the Company from obtaining any such
Consent.
(d) Officer
Certificate. The Company shall have delivered to Acquiror a
certificate, dated the date of the Closing, signed by the President or any Vice
President of the Company, certifying as to the satisfaction of the conditions
specified in Sections
7.02(a) and 7.02(b).
(e) No MAE. As
of the date of this Agreement and the Closing Date, there shall not be any
event, fact, development, circumstance, change or effect that, individually or
in the aggregate with all other events, facts developments, circumstances,
changes or effects, has resulted or would reasonably be expected to result in a
Company Material Adverse Effect.
(f) Compliance with Accumulated
Earnings & Profits Provision. The Company shall have
complied in all respects with Section 6.13,
including, without limitation, causing the distribution referred to in Section 6.13(d) to
have been made within the time period prescribed therein.
(g) Tax
Opinion. In the event that the Company has previously
delivered to Acquiror a PTP Opinion pursuant to Section 6.15, the
Company shall have received from Hunton & Williams LLP, or such other
counsel to the Company as may have rendered the PTP Opinion, a letter
satisfactory to the Acquiror, dated as of the Closing Date, reconfirming the
conclusions set forth in the PTP Opinion and extending such conclusions to the
period from the date of the PTP Opinion through and including the taxable year
of the Company ending on the Effective Time.
7.03 Conditions to the
Obligations of the
Company
The
obligations of the Company to consummate the Merger are subject to the
satisfaction or waiver (where permissible) of the following additional
conditions:
(a) Representations and
Warranties. The representations and warranties of Acquiror and
Merger Subsidiary in this Agreement that (i) are not made as of a specific date
shall be true and correct as of the date of this Agreement and as of the
Closing, as though made on and as of the Closing, and (ii) are made as of a
specific date shall be true and correct as of such date, in each case except
where the failure of such representations or warranties to be true and correct
(without giving effect to any limitation as to “materiality” or “Acquiror
Material Adverse Effect” set forth therein) does not and would not have,
individually or in the aggregate, an Acquiror Material Adverse
Effect.
(b) Agreements and
Covenants. Acquiror and Merger Subsidiary shall have
performed, in all material respects, all obligations or complied with, in all
material respects, all agreements and covenants to be performed or complied with
by them under this Agreement on or prior to the Closing.
(c) Officer
Certificate. Acquiror shall have delivered to the Company a
certificate, dated the date of the Closing, signed by the President or any Vice
President of Acquiror, certifying as to the satisfaction of the conditions
specified in Sections
7.03(a) and 7.03(b).
ARTICLE
8.
TERMINATION
8.01 Termination
This
Agreement may be terminated at any time prior to the Effective Time in writing
(the date of any such termination, the “Termination
Date”):
(a) by the
mutual written consent of Acquiror and the Company;
(b) by either
the Company or the Acquiror upon written notice to the other party,
if:
(i) any Governmental Authority with
jurisdiction over such matters shall have issued a governmental order
permanently restraining, enjoining or otherwise prohibiting either of the
Merger, and such governmental order shall have become final and unappealable;
provided, however, that the terms of this Section 8.01(b)(i)
shall not be available to any party unless such party shall have used its
reasonable best efforts to oppose any such governmental order or to have such
governmental order vacated or made inapplicable to the Merger;
(ii) the
Merger shall not have been consummated on or before March 31, 2010 (the “Outside
Date”), unless the failure to consummate the Merger on or prior to such
date is the result of any action or inaction under this Agreement by the party
seeking to terminate the Agreement pursuant to the terms of this Section
8.01(b)(ii);
(iii) upon a vote at a duly held
Company Shareholders Meeting (or at any adjournment or postponement thereof) to
obtain the Company Shareholder Approval, the Special Shareholder Approval or the
Company Charter Amendment Approval is not obtained;
(c) by
Acquiror, upon written notice to the Company, if:
(i) the
Company Board or the Company Special Committee (A) makes a Recommendation
Withdrawal prior to the Company Shareholders Meeting or publicly proposes to
effect a Recommendation Withdrawal, (B) approves or recommends to the Company
Shareholders an Acquisition Proposal other than the Merger or resolves to effect
the foregoing or (C) fails to cause the Company to include the Recommendation in
the Proxy Statement; or
(ii) the
Company shall have breached any of its representations or warranties or failed
to perform any of its covenants or other agreements contained in this Agreement,
which breach or failure to perform (A) would give rise to or cause any of
the conditions set forth in Section 7.02(a),
7.02(b) or
7.02(f) not to
be satisfied and (B) is incapable of being cured by the
Company
by the Outside Date or, if capable of being cured by the Company by the Outside
Date, the Company does not commence to cure such breach or failure within ten
Business Days after its receipt of written notice thereof from Acquiror and
diligently pursue such cure to completion thereafter; provided, however, that the
Acquiror is not then in material breach of this Agreement so as to cause any of
the conditions in Section 7.01, 7.03(a) or 7.03(b) not to be
satisfied;
(d) by the Company, upon written
notice to Acquiror:
(i) if
Acquiror shall have breached any of its representations or warranties or failed
to perform any of its covenants or other agreements contained in this Agreement,
which breach or failure to perform (A) would give rise to or cause any of
the conditions set forth in Section 7.03(a) or
7.03(b) not to
be satisfied and (B) is incapable of being cured by Acquiror by the Outside
Date or, if capable of being cured by Acquiror by the Outside Date, Acquiror
does not commence to cure such breach or failure within ten Business Days after
its receipt of written notice thereof from the Company and diligently pursue
such cure to completion thereafter; provided, however, that none of
the Company and its Subsidiaries is then in material breach of this Agreement so
as to cause any of the conditions in Section 7.01, 7.02(a) or 7.02(b) not to be
satisfied; or
(ii) prior to
receipt of the Special Shareholder Approval, in accordance with, and subject to,
the terms and conditions of, Section 6.04(a)(vii);
provided, however, that such
termination shall not be effective until such time as payment of the Termination
Fee and the Termination Expenses required by Section 8.03(b) shall
have been paid by the Company; provided, further, that the
Company’s right to terminate this Agreement under this Section 8.01(d)(ii)
shall not be available if the Company is then in breach of Section 6.04.
8.02 Effect of
Termination
In
the event of termination of this Agreement and abandonment of the Merger and the
other transactions contemplated by this Agreement pursuant to and in accordance
with Section
8.01, this Agreement shall forthwith become void and of no further force
or effect whatsoever and there shall be no liability on the part of any party,
or their respective officers, directors, subsidiaries or partners, as
applicable, to this Agreement; provided, however, that nothing
contained in this Agreement shall relieve any party to this Agreement from any
liability resulting from or arising out of any breach of any agreement or
covenant hereunder; provided, further, that
notwithstanding the foregoing, the covenants and other obligations under this
Agreement shall terminate upon the termination of this Agreement, except that
the agreements set forth in Section 6.03,
Section 6.06,
this Section
8.02, Section
8.03, Section
9.08 and Section 9.09 shall
survive termination indefinitely. If this Agreement is terminated as
provided herein, all filings, applications and other submissions made pursuant
to this Agreement, to the extent practicable, shall be withdrawn from the agency
or other Person to which they were made.
8.03 Fees and
Expenses
(a) Except as
otherwise explicitly set forth in this Section 8.03 or
elsewhere in this Agreement, all costs and Expenses incurred in connection with
this Agreement or the transactions contemplated hereby shall be paid by the
party incurring such Expenses, whether or not the transactions contemplated by
this Agreement are consummated.
(b) The
Company agrees that if this Agreement shall be terminated by (i) Acquiror
pursuant to Section
8.01(c), or (ii) by the Company pursuant to Section 8.01(d)(ii),
the Company shall pay to Acquiror the Termination Fee and the Termination
Expenses within three (3) Business Days following the termination, in the case
of termination by Acquiror pursuant to Section 8.01(c), and
concurrently with the termination, in the case of termination by the Company
pursuant to Section
8.01(d)(ii).
(c) The Acquiror agrees that if
this Agreement shall be terminated by the Company pursuant to Section 8.01(d)(i),
the Acquiror shall pay to the Company an amount equal to the Acquiror
Termination Fee and the Company Expenses within three (3) Business Days
following the termination.
(d) The
Company agrees that if this Agreement shall be terminated by Acquiror or the
Company pursuant to Section 8.01(b)(iii),
the Company shall pay to Acquiror the Special Termination Expenses within three
(3) Business Days following the termination; provided, that in connection with
such termination, (i) if, prior to the Company Shareholder Meeting, an
Acquisition Proposal shall have been publicly announced or publicly made known
that is not subsequently withdrawn, and (ii) concurrently with such
termination or within twelve months following the Termination Date, the Company
enters into an agreement with respect to any Acquisition Proposal, or any
Acquisition Proposal is consummated, whether or not on the same terms as
originally announced, then the Company (in addition to paying the Special
Termination Expenses) also shall, on the date of such consummation, pay to
Acquiror the Special Termination Fee.
(e) Each of
the Company, Acquiror and Merger Subsidiary acknowledges that the agreements
contained in this Section 8.03 are
an integral part of the transactions contemplated by this Agreement, that
without these agreements the Company, Acquiror and Merger Subsidiary would not
have entered into this Agreement, and that any amounts payable pursuant to this
Section 8.03 do
not constitute a penalty. If the Company fails to pay any amounts due to
Acquiror or Merger Subsidiary pursuant to this Section 8.03
within the time periods specified in this Section 8.03 or
Acquiror fails to pay the Company any amounts due to the Company pursuant to
this Section 8.03 within
the time periods specified in this Section 8.03,
the Company or Acquiror, as applicable, shall pay the costs and expenses
(including reasonable legal fees and expenses) incurred by Acquiror or the
Company, as applicable, in connection with any action, including the filing of
any lawsuit, taken to collect payment of such amounts, together with interest on
such unpaid amounts at the prime lending rate prevailing during such period as
published in The Wall Street
Journal, calculated on a daily basis from the date such amounts were
required to be paid until the date of actual payment. Notwithstanding anything
to the contrary in this Agreement, (i) the Company’s right to receive payment of
the Acquiror
Termination
Fee and the Company Expenses from Acquiror pursuant to this Section 8.03
shall be the sole and exclusive remedy of the Company and its Subsidiaries
against Acquiror, Merger Subsidiary and any of their respective former, current,
or future general or limited partners, stockholders, managers, members,
directors, officers, Affiliates or agents for the loss suffered as a result of
the failure of the Merger to be consummated, and upon payment of such amounts,
none of Acquiror, Merger Subsidiary or any of their respective former, current,
or future general or limited partners, stockholders, managers, members,
directors, officers, Affiliates or agents shall have any further liability or
obligation relating to or arising out of this Agreement or the transactions
contemplated by this Agreement, and (ii) Acquiror’s right to receive payment of
the Termination Fee, the Termination Expenses, the Special Termination Fee and
the Special Termination Expenses (as applicable) from the Company pursuant to
this Section 8.03
shall be the sole and exclusive remedy of Acquiror and Merger Subsidiary against
the Company and its Subsidiaries and any of their respective former, current, or
future general or limited partners, stockholders, managers, members, directors,
officers, Affiliates or agents for the loss suffered as a result of the failure
of the Merger to be consummated, and upon payment of such amounts, none of the
Company or its Subsidiaries or any of their respective former, current, or
future general or limited partners, stockholders, managers, members, directors,
officers, Affiliates or agents shall have any further liability or obligation
relating to or arising out of this Agreement or the transactions contemplated by
this Agreement.
ARTICLE
9.
GENERAL
PROVISIONS
9.01 Non Survival of
Representations and Warranties
The
representations and warranties in this Agreement shall terminate at the
Effective Time.
9.02 Notices
All
notices, requests, claims, demands and other communications hereunder shall be
in writing and shall be given (and shall be deemed to have been duly given upon
receipt) by delivery in Person or by a recognized overnight courier service to
the respective parties at the following addresses (or at such other address for
a party as shall be specified in a notice given in accordance with this Section
9.02):
if to
Acquiror or Merger Subsidiary:
FCP Fund
I, L.P.
c/o
Federal Capital Partners
1000
Potomac Street, Suite 120
Washington,
D.C. 20007
Facsimile: (202)
333-6030
Attention:
Lacy I. Rice
with a
copy to:
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Hogan
& Hartson LLP
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555
Thirteenth Street, NW
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Washington,
D.C. 20004
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Facsimile:
(202) 637-5910
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Attention: David
W. Bonser, Esq.
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Alexander
J. Park, Esq.
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if to the Company:
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American
Community Properties Trust
222
Smallwood Village Center
St.
Charles, Maryland 20602
Fax
No.: (301) 870-6432
Attention:
Matthew Martin
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with
copies to:
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Hunton
& Williams LLP
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951
Riverfront Plaza, East Tower
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Richmond,
Virginia 23219
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Fax
No.: (804) 343-4543
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Attention:
Daniel M. LeBey, Esq.
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9.03 Severability
If
any term or other provision of this Agreement is invalid, illegal or incapable
of being enforced by any rule of law or public policy or the application of this
Agreement to any Person or circumstance is invalid or incapable of being
enforced by any rule of law or public policy, all other conditions and
provisions of this Agreement shall nevertheless remain in full force and effect
so long as the economic or legal substance of the transactions contemplated
hereby is not affected in any manner materially adverse to any
party. To such end, the provisions of this Agreement are agreed to be
severable. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in a mutually acceptable manner in
order that the transactions contemplated hereby be consummated as originally
contemplated to the fullest extent possible.
9.04 Amendment
This
Agreement may be amended by the parties hereto by action taken by their
respective board of directors or board of trustees (or similar governing body or
entity) at any time prior to the Effective Time; provided, however, that, after
approval of the Merger by the
shareholders
of the Company, no amendment may be made without further shareholder approval
which, by Law or in accordance with the rules of the NYSE Amex, requires further
approval by such shareholders. This Agreement may not be amended
except by an instrument in writing signed by the parties
hereto.
9.05
Entire Agreement;
Assignment
This
Agreement constitute the entire agreement between the parties with respect to
the subject matter hereof and supersedes, except as set forth in Section 6.03(b), all
prior agreements and undertakings, both written and oral, among the parties, or
any of them, with respect to the subject matter hereof and
thereof. This Agreement shall not be assigned by operation of law or
otherwise (except to the Surviving Company). Notwithstanding the
foregoing, Acquiror may assign any of its rights or obligations under this
Agreement to any of its Affiliates and Acquiror may substitute any other
Affiliate for Merger Subsidiary, provided that no such
assignment shall relieve the Acquiror from any obligation
hereunder.
9.06 Parties in
Interest
This
Agreement shall be binding upon and inure solely to the benefit of each party
hereto, and nothing in this Agreement, express or implied, other than Section 6.07 and
Section 6.08,
is intended to or shall confer upon any other Person any right, benefit or
remedy of any nature whatsoever under or by reason of this
Agreement.
9.07 Governing
Law
This
Agreement shall be governed by and construed in accordance with, the laws of the
State of Maryland without regard, to the fullest extent permitted by law, to the
conflicts of laws provisions thereof which might result in the application of
the laws of any other jurisdiction.
9.08 Waiver of Jury
Trial
Each
of the parties hereto hereby waives to the fullest extent permitted by
applicable Law any right it may have to a trial by jury with respect to any
litigation directly or indirectly arising out of, under or in connection with
this Agreement or the transactions contemplated hereby. Each of the
parties hereto (a) certifies that no representative, agent or attorney of any
other party has represented, expressly or otherwise, that such other party would
not, in the event of litigation, seek to enforce that foregoing waiver and (b)
acknowledges that it and the other parties hereto have been induced to enter
into this Agreement and the transactions contemplated hereby, as applicable, by,
among other things, the mutual waivers and certifications in this Section
9.09.
9.09 Waiver
Except
as provided in this Agreement, no action taken pursuant to this Agreement,
including, without limitation, any investigation by or on behalf of any party,
shall be deemed to
constitute
a waiver by the party taking such action of compliance with any representations,
warranties, covenants or agreements contained in this Agreement. The
waiver by any party hereto of a breach of any provision hereunder shall not
operate or be construed as a waiver of any prior or subsequent breach of the
same or any other provision hereunder.
9.10 Headings
The
descriptive headings contained in this Agreement are included for convenience of
reference only and shall not affect in any way the meaning or interpretation of
this Agreement.
9.11 Counterparts
This
Agreement may be executed and delivered (including by facsimile transmission) in
one or more counterparts, and by the different parties hereto in separate
counterparts, each of which when executed shall be deemed to be an original but
all of which taken together shall constitute one and the same
agreement.
9.12 Mutual
Drafting
Each
party hereto has participated in the drafting of this Agreement, which each
party acknowledges is the result of extensive negotiations between the
parties.
[Signature
Page to Follow]
IN WITNESS WHEREOF, the
parties hereto have caused this Agreement to be executed in counterparts by
their duly authorized officers, all as of the day and year first above
written.
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FCP
FUND I, L.P
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By: FCP
Fund I GP, LLC, its general partner
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By:
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/s/ Lacy I. Rice
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Name: Lacy
I. Rice
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Title: Class
A Member
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FCP/ACPT
ACQUISITION COMPANY, INC.
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By:
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/s/ Lacy I.
Rice
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Name: Lacy
I. Rice
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Title: President
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AMERICAN
COMMUNITY PROPERTIES TRUST.
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By:
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/s/ Stephen K. Griessel
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Name: Stephen
K. Griessel
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Title: Chief
Executive Officer
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