THE MERGER (PROPOSAL 1)
General
If the merger and the other transactions contemplated by the merger agreement are approved by Monogram stockholders and all other conditions to
the closing of the merger are either satisfied or waived, Monogram will be merged with and into Acquisition Sub, with Acquisition Sub surviving the merger as a wholly owned subsidiary of Parent. Upon
the completion of the merger, each share of common stock issued and outstanding immediately prior to the effective time of the
merger (other than shares owned by Parent, Acquisition Sub and certain of their affiliates, if any) will be converted into the right to receive the merger consideration, without interest and less any
applicable withholding taxes.
Our
common stock is currently registered under the Exchange Act and is quoted on the NYSE under the symbol "MORE." As a result of the merger, the Company will cease to be a
publicly-traded company and will be merged into a subsidiary of Parent. Following the completion of the merger, the registration of our common stock and our reporting obligations under the Exchange
Act will be terminated. In addition, upon the completion of the merger, our common stock will no longer be listed on any stock exchange or quotation system, including the NYSE.
Background of the Merger
The following chronology summarizes the key meetings and events that led to the signing of the merger agreement. The
following chronology does not purport to catalogue every conversation among our board, the Evaluation Committee, members of our management or our representatives and other
parties.
Our
senior management and board of directors periodically review, with the assistance of financial and legal advisors, and, when advisable, revise our long-term strategy and objectives
in light of developments in real estate markets, capital market conditions and our business and capabilities. Since our transition to a self-managed company, we have considered various potential
strategic alternatives with the goal of maximizing stockholder value, including potential acquisitions, dispositions, business combination transactions and transactions in our joint venture
investments.
In
2016, we took steps to reduce general and administrative expenses and completed certain value-creating transactions to strengthen our operating portfolio in connection with the board
of directors' evaluation of the Company's long term business plan. Despite this growth, our board of directors recognized that we continued to face challenges as a public company. Our joint venture
structure, large development pipeline and smaller scale relative to other public multifamily REITs caused our cost of capital to remain higher than that of our larger peers. Compared to larger public
multifamily REITs, our common stock traded at a material discount to our net asset value, or NAV.
From
time to time, Mark T. Alfieri, our Chief Executive Officer, President, Chief Operating Officer and Director met with executives of other entities in the real estate industry,
including Greystar, to discuss industry developments and possible opportunities for transactions with such entities.
On
February 19, 2016, Madison International Realty (together with certain affiliates) filed an amended Schedule 13D with the SEC disclosing that Madison International
Realty intended, among other possible actions, to approach the Company in connection with the possible negotiated acquisition of a limited number of assets or interests in assets (or the economic
rights associated with such assets).
On
March 3, 2016, Snow Park Capital issued a press release disclosing a letter that Snow Park sent to the Company's Board urging the Board to clarify Madison International
Realty's role in the Company's asset disposition program, engage an investment bank to assist the Company in exploring strategic alternatives and form a special committee of the Board to
oversee these processes.
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In
order to more effectively discuss and oversee different options for enhancing value for all stockholders between regularly scheduled meetings of the board of directors, and as a
result of litigation brought against the Company by affiliates of Behringer Harvard, the Company's former external advisor, the Company had formed an executive committee of the board of directors (the
"Executive Committee") in December 2015. On March 22, 2016, the Executive Committee, then consisting of E. Alan Patton (Chair of the board of directors), Mr. Alfieri, David D. Fitch,
Jonathan L. Kempner, Roger D. Bowler, Sami S. Abbasi and Timothy J. Pire (all independent directors other than Mr. Alfieri), met telephonically with representatives of Goodwin
Procter LLP ("Goodwin Procter") to discuss the potential engagement of Morgan Stanley & Co. LLC ("Morgan Stanley") as the Company's financial advisor, and the recent
activity by Madison and Snow Park. Goodwin Procter led a discussion regarding the duties of directors in the context of their consideration of the Company's strategic alternatives, including a
stand-alone strategy, and the potential sale of the Company to, or another strategic transaction with, a third party.
On
March 23, 2016, the board of directors met telephonically to discuss ongoing board refreshment efforts, governance matters and the exploration of strategic alternatives.
On
March 25, 2016, Tammy K. Jones was appointed to the board of directors as an independent director and member of the Executive Committee, effective April 1, 2016.
On
April 20, 2016, W. Benjamin Moreland was appointed to the board of directors as an independent director and member of the Executive Committee, effective May 1, 2016, and
on April 26, 2016, the Company announced that Mr. Abbasi and Mr. Bowler would not be standing for re-election to the board of directors at the annual meeting of stockholders to be
held on June 29, 2016.
On
May 20, 2016, the Executive Committee formed an evaluation committee (the "Evaluation Committee") consisting of independent directors in connection with the Company's
exploration of strategic alternatives. The Evaluation Committee was authorized to consider and evaluate any proposals that might be received by the Company regarding a potential sale transaction,
participate in and direct the negotiation of the material terms and conditions of any such transaction, and recommend to the board the advisability of entering into any such transaction or pursuing
another strategic alternative. The Evaluation Committee consisted of Mr. Moreland (Chairman), Mr. Fitch, Ms. Jones and Mr. Pire. Throughout the Evaluation Committee's
evaluation of a potential sale of the Company, the Evaluation Committee conducted formal meetings, but its members were also in regular informal communication with Goodwin Procter and with each other.
In addition, the Evaluation Committee, as well as the board of directors, frequently met in executive session with only the independent directors and, on certain occasions, Goodwin Procter present.
On
June 2, 2016, following prior discussions by the board of directors and the Evaluation Committee, the Evaluation Committee appointed Morgan Stanley as the Company's financial
advisor pursuant to a formal engagement letter for the purpose of advising the board of directors in connection with a potential transaction such as the merger and to evaluate whether the
consideration to be received in a merger was fair, from a financial point of view, to the holders of the Company's common stock.
On
June 9, 2016, the Executive Committee met telephonically to discuss, together with Goodwin Procter, and representatives of Morgan Stanley, potential strategic opportunities.
On
June 20, 2016, the Company announced that in connection with a review and assessment of its corporate governance policies, on June 17, 2016, the board of directors
adopted a resolution to opt out of Section 3-803 and Section 3-804(a) of the Maryland General Corporation Law and filed articles supplementary with the State Department of Assessments
and Taxation of Maryland to effect the opt-out. The effect was to prohibit the Company, without the affirmative vote of a majority of the votes cast on the matter by stockholders entitled to vote
generally in the election of directors, from
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classifying
its board of directors or from raising the threshold for removal of a director from a majority to two-thirds of the votes entitled to be cast by stockholders generally in the election of
directors.
Between
June 29 and July 29, 2016, the board of directors and the Executive Committee met several times with representatives of Goodwin Procter and Morgan Stanley to
discuss the Company's on-going efforts to recruit new independent directors to join the board of directors and management's work on updating the Company's long-term outlook.
During
this time, the Executive Committee engaged in general discussions concerning whether and when it might be advisable to approach and explore a potential strategic transaction with
third parties, including the scope of any such process, noting the potential disruptions to the Company's business, the risk of leaks that might arise from making contact with other parties, the
potential impact on the Company's business of such leaks, including the loss of partners and employees, and the potential need to disclose sensitive, proprietary and confidential information to
competitors and potential competitors. Representatives of Morgan Stanley also presented their views on the parties that it considered most likely to have an interest in a potential transaction with
the Company, as well as their views on such parties' ability to fund a transaction. Based on the risks discussed, the Executive Committee concluded that the most prudent approach at this time would be
to contact a limited number of parties that could make the financial commitment necessary to acquire the Company based on its size and consummate a transaction expeditiously, and the Executive
Committee directed the representatives of Morgan Stanley to begin such outreach.
During
the week of August 15, 2016, representatives of Morgan Stanley contacted two potential financial sponsors (Party A and Party B).
On August 24, 2016, the Company entered into a confidentiality agreement with Party A which included customary non-disclosure provisions and a standstill provision that allowed
Party A to participate in any auction or other sale process of the Company.
On
August 25, 2016, the Company entered into a confidentiality agreement with Party B which included customary non-disclosure provisions and a standstill provision that allowed
Party B to make confidential proposals to the Company at any time.
Also
on August 24 and August 25, 2016, the Company provided Party A and Party B and their respective advisors, respectively, with access to a virtual data room containing
business and legal due diligence materials. Thereafter, the parties and their advisors had discussions, and the Company provided answers to questions posed by such parties and their respective
advisors, regarding the due diligence materials.
Also
on August 25, 2016, the Company provided the interested parties with forecasts for the Company that had been prepared by management.
On
September 19, 2016, the Company received an oral indication of interest from Party A with respect to a potential sale transaction with the Company. The indication of interest
included a proposed price of $10.00 per share of Company common stock in cash.
On
September 19, 2016, the Company received an oral indication of interest from Party B with respect to a potential sale transaction with the Company at a price per share of
Company common stock in the range of $11.30 to $11.70 in cash.
On
September 21, 2016, the board of directors met with representatives of Goodwin Procter and Morgan Stanley to consider, among other things, the indications of interest from
Party A and Party B and to discuss the Company's recent stock price performance and recent performance of the Company's real estate assets, particularly in light of deceleration in rent growth of
certain key assets. Representatives of Morgan Stanley then discussed their view of the Company's market positioning and the recent mergers and acquisitions activity levels involving public multifamily
REITs.
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On
September 23, 2016, the Evaluation Committee, together with the board of director's observer, Scot Sellers and representatives of Morgan Stanley met to discuss the indications
of interest from Party A and Party B. Following discussion, the Evaluation Committee unanimously authorized Morgan Stanley to inform Party B that the Company was willing to move forward to
negotiate a transaction at a $12.00 per share cash price. The Evaluation Committee also authorized Morgan Stanley to inform Party A that the Company was unwilling to move forward with
Party A based on the $10.00 proposed price.
On
September 26, 2016, the
Wall Street Journal
published an article indicating that the Company was exploring a sale process.
Subsequent to the
Wall Street Journal
article, representatives of Morgan Stanley and the Company received several verbal inquiries that valued the
Company between $10.00 and the low $11.00 per share range.
On
September 30, 2016, the board of directors met telephonically to discuss the Company's updated long-term outlook plan, including growth deceleration in the multifamily REIT
sector and the risks of diverting management's focus and resources from other strategic opportunities and from operational matters while working to explore a Company strategic transaction.
Also
on September 30, 2016, the Company entered into a confidentiality agreement with its joint venture partner, PGGM, with customary non-disclosure provisions for purposes of
protecting discussions between the Company and PGGM regarding the Company's ongoing strategic process.
On
October 4, 2016, representatives of Morgan Stanley received an unsolicited written indication of interest from a private real estate developer and operator (Party
C) citing recent speculation in the press that the Company was engaged in a sale process. The letter indicated a proposed transaction
structure involving third party investors, an equity raise from unidentified new investors and a mix of cash and stock consideration, which Party C believed would be valued at $12.00 per share to the
Company stockholders but no explanation for the estimated valuation was provided. Based on execution risk and proposed relative valuation of the combined company, among other factors, the Evaluation
Committee determined not to pursue the non-binding proposal from Party C.
On
October 7, 2016, the board of directors met telephonically, together with members of management and representatives of Morgan Stanley and Goodwin Procter. The representatives
from Morgan Stanley described their discussions with Party B, in particular Party B's response to the Company's counter proposal of $12.00 per share in cash. Party B indicated that it was likely at or
below the lower end of the $11.30 to $11.70 per share range provided in its September 19, 2016 oral indication of interest based on its concerns regarding the decelerating income environment in
the multifamily REIT sector. The members of the Executive Committee also discussed the possibility of terminating the process with respect to a near-term sale of the Company.
On
September 30, 2016 and October 12, 2016, Party A and Party B, respectively, were removed from data room access. Also during this time, representatives of Morgan Stanley,
at the direction of the Executive Committee, informed the Parties that the Company would not be moving forward with a transaction and the Company terminated discussions with Party A and Party B.
On
October 19, 2016, because the board of directors had determined at that time to cease pursuing a strategic transaction, the board of directors authorized the termination of the
Company's engagement with Morgan Stanley as financial advisor in connection with the Company's consideration of a strategic transaction, and delivered a termination letter to Morgan Stanley.
From
November 2016 through December 2016, the Company focused on a potential shift in its overall business strategy by reducing its presence in certain geographic submarkets to gain
greater scale in select high barrier coastal regions, while simultaneously exiting certain submarkets experiencing oversupply from new development resulting in rental concessions and decelerating
income growth.
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Also
during this time, Mr. Alfieri continued to meet with executives of other entities in the real estate industry to discuss industry developments and possible opportunities in
the ordinary course for transactions with such entities.
On
December 21, 2016, Greystar's Founder, Chairman and CEO, Robert A. Faith, contacted Mr. Alfieri to express interest in an exploratory meeting between the parties
particularly with respect to the potential acquisition of certain of the Company's real estate assets.
On
January 4, 2017, Mr. Alfieri contacted the members of the Executive Committee to discuss with them Greystar's interest in a potential transaction with the Company.
On
January 9, 2017, the Company entered into a confidentiality agreement with Greystar, which included customary non-disclosure provisions but which did not include a standstill
provision since any contemplated transaction between the Company and Greystar at that time related to a real estate level transaction.
On
January 23, 2017, while in attendance at the 2017 National Multifamily Housing Council Annual Meeting, Mr. Alfieri received an unsolicited oral indication of interest
from a real estate investment company (Party D). The indication of interest did not include a proposed price, price range or transaction structure. Mr. Alfieri indicated that the Company was
primarily focused on executing its business strategy. He noted, however, that if Party D was prepared to make a compelling written offer, the board of directors and the Evaluation Committee would
consider it.
On
January 24, 2017 during a meeting in person and over the course of the next month, Mr. Faith and Mr. Alfieri discussed the possibility of an acquisition of the
Company by Greystar, but did not discuss valuation, a potential purchase price or any other specific terms. Mr. Alfieri indicated that the Company was primarily focused on executing its
business strategy. He noted, however, that if Greystar was prepared to make a compelling written offer, the board of directors and the Evaluation Committee would consider it. Mr. Faith
expressed interest in continuing discussions with the Company, but indicated that Greystar would have to discuss a potential transaction and other funding matters with equity financing sources over
the course of the next month.
On
January 30, 2017, the Company entered into a confidentiality agreement with Party D, which included customary non-disclosure provisions and a standstill arrangement, including
a provision that prohibits Party D from asking the Company to waive such standstill arrangement. In accordance with the merger agreement, the board of directors (or a committee thereof) may waive any
standstill provision if the board of directors (or a committee thereof) determines in good faith, after consultation with outside legal counsel, that failure to provide such waiver would reasonably be
expected to be inconsistent with its fiduciary duties under applicable law. Following execution of the confidentiality agreement with Party D, the Company provided Party D with due diligence materials
relating to the structuring of the Company's joint ventures with NPS and PGGM.
On
March 17, 2017, the Evaluation Committee met with Goodwin Procter and members of management to discuss certain terms of a potential transaction that the Company might consider,
including the amount of the termination fee payable by the Company in certain circumstances and whether the company would be permitted to solicit alternative acquisition proposals for a certain period
of time
after signing a merger agreement or the possibility of a reduced Company termination fee in the event that the Company were to terminate the merger agreement to accept a superior proposal within a
specified period from signing the merger agreement. The Evaluation Committee also discussed conditions to completion of any potential transaction, including a lack of a financing condition, and
structuring matters relating to the Company's joint venture partners, NPS and PGGM. Following the meeting, the Evaluation Committee informed Mr. Alfieri that he was authorized to inform
Greystar that the Company was willing to move forward to negotiate a transaction at not less than a $12.00 per share cash price.
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On
March 31, 2017, Goodwin Procter sent J.P. Morgan Securities LLC ("J.P. Morgan"), financial advisor to Greystar, a revised confidentiality agreement based on the evolving
possibility of a Company-level transaction with Greystar rather than a transaction regarding certain of the Company's real estate assets.
Over
the course of April 3 to April 20, 2017, Mr. Faith and Mr. Alfieri discussed the progress regarding potential funding sources for Greystar but did not
discuss specific details including valuation, a potential purchase price or any other terms.
On
April 20, 2017, the Company and Greystar entered into the revised confidentiality agreement, which agreement included customary non-disclosure and standstill provisions that
allow Greystar to make confidential proposals to the Company at any time.
On
May 17, 2017, Mr. Faith informed Mr. Alfieri that Greystar would be continuing to work on funding sources over the course of the next several weeks and remained
interested in pursuing a transaction with the Company. Mr. Alfieri informed Mr. Faith that the Company would only be willing to move forward to negotiate a transaction at not less than a
$12.00 per share cash price, and that the merger agreement would have to include a customary fiduciary out for the Company's board of directors in addition to a lower than customary Company
termination fee in the event that the Company were to terminate the merger agreement to accept a superior proposal within a specified period from signing.
On
May 18, 2017, Mr. Alfieri received a follow-up unsolicited indication of interest from Party D. The indication of interest did not include a proposed price, price range
or transaction structure.
On May 24, 2017, the Company received a written offer from Greystar, through a newly-formed fund backed by affiliates of APG, GIC and Ivanhoe Cambridge, to acquire the Company for
$12.00 per
share of the Company's common stock in cash, subject to confirmatory due diligence, satisfactory documentation and final board approval. In its letter, Greystar expressed its belief that the offer
represented compelling and certain value for the Company's stockholders, considered its interest in the Company to be highly confidential and would be automatically withdrawn in the event that the
Company or its joint venture partners made any disclosure of the offer, said that its offer was fully funded, and subject to a mutually agreeable exclusivity period to negotiate a merger agreement,
and also that the merger agreement would contain a customary no-shop provision but that Greystar would agree to a reduced Company termination fee of 1.5% of transaction equity value in the event that
the Company were to terminate the merger agreement to accept a superior proposal within 21 days of execution of the merger agreement. The offer letter also specified that after the execution of
the merger agreement, the Company would not be permitted to pay or declare any dividend on its common stock other than as necessary to maintain REIT status.
On
May 25, 2017, the Executive Committee held a telephonic meeting with representatives of Goodwin Procter and members of management. At the meeting, management and the Executive
Committee discussed the Company's long-term outlook, associated business plans, underlying assumptions and timelines and key risks that could affect the Company's ability to achieve the long-term
plan. The Executive Committee also discussed with Mr. Alfieri the ongoing talks between the Company and Greystar, including the May 24, 2017 offer, and the recent overture made by Party
D. The Executive Committee discussed this contact from Party D and determined to not solicit proposals from other third parties, including Party D, given concerns the Executive Committee had about
leaks and the views of management that the price proposed by Greystar likely exceeded the price level that any third party would offer, including compared to the indications of interest previously
received from Party A and Party B. The Executive Committee discussed the proposal received relative to the various alternatives available to the Company, the challenges in the industry and sector in
which the Company operates and the risks associated with the Company's long term outlook. The Executive Committee also discussed the proposed no-shop provision of the merger agreement and the reduced
Company
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termination
fee in the event that the Company were to terminate the merger agreement to accept a superior proposal within 21 days of execution of the merger agreement and the request from
Greystar that the parties enter into an exclusivity agreement and that given the risk of leaks that the proposed transaction should be announced as quickly as possible. With respect to the reduced
Company termination fee period, the Executive Committee discussed with Goodwin Procter, increasing that period from 21 days following execution of the merger agreement and decreasing the
proposed Company termination fee during the period from 1.5% of transaction equity value to 1.25% of transaction equity value. The Executive Committee also agreed to propose a 26-day exclusivity
period pursuant to which the parties would negotiate exclusively until June 21, 2017. The Executive Committee further resolved to authorize the Company to contact and re-engage Morgan Stanley
to act as the Company's financial advisor in connection with the proposed transaction based on their prior engagement with the Company and continued contact with the Company throughout 2017 regarding
potential transaction terms and financing and negotiating strategies. Mr. Alfieri also informed the Executive Committee that management had not discussed the terms of any employment
arrangements with Greystar, and the Executive Committee and Goodwin Procter instructed management to continue to avoid any such discussions.
On
May 26, 2017, Greystar and the Company executed an exclusivity agreement pursuant to which the parties agreed to negotiate exclusively until June 21, 2017.
On
May 29, 2017, the Company received a written due diligence request list from Greystar and representatives of Jones Day ("Jones Day"), Greystar's legal counsel, and on
May 29, 2017, the Company began to make due diligence materials available to Greystar and Jones Day through a virtual data room. Beginning on May 26, 2017, the respective representatives
of the Company and Greystar convened telephone calls to discuss initial due diligence requests.
On
May 29, 2017, representatives of Goodwin Procter had discussions with Jones Day during which such Jones Day confirmed that participation by the Company's management was not a
condition to the proposal submitted by Greystar, and there was no intention to engage in discussions regarding management's future compensation or participation in the transaction at that time.
On
May 31, 2017, Goodwin Procter sent a draft merger agreement to representatives of Jones Day. Over the course of the next week and a half, the parties continued the initial due
diligence investigation, and Goodwin Procter and Jones Day continued to negotiate the terms of the merger agreement.
On
June 12, 2017, the Evaluation Committee met telephonically with representatives of Goodwin Procter to discuss the status of negotiations with Greystar and the status of the
draft merger agreement, including open issues relating to the amount and triggers for the Company and Greystar termination fees and the financing covenants, and the engagement of Morgan Stanley.
On
June 13, 2017, following prior discussions by the Evaluation Committee, the Evaluation Committee re-engaged Morgan Stanley as the Company's financial advisor.
On
June 14 and 15, 2017, Goodwin Procter and Jones Day continued to negotiate the terms of the merger agreement.
On
June 16, 2017, the Evaluation Committee met telephonically with representatives from Goodwin Procter and Morgan Stanley also in attendance. At this meeting, Goodwin Procter led
a discussion concerning the duties of the Evaluation Committee and the board of directors in the context of their consideration of strategic alternatives, including a potential sale of the Company.
Also at the meeting, representatives of Morgan Stanley reviewed with the board of directors certain financial analyses and valuation perspectives based upon projections prepared by the Company's
management, and the Evaluation Committee discussed the proposal received relative to the various alternatives received by the Company previously, and the risks associated with the Company's long term
outlook.
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The
Evaluation Committee also discussed the perspective of the representatives of Morgan Stanley that the $12.00 price proposed by Greystar likely exceeded the price level that any competing financial
buyer could reasonably be expected to pay while achieving customary expected returns from such an investment. After a discussion of potential responses to Greystar, the Evaluation Committee decided
that making a counter proposal on the dividend cut-off proposal in the May 24, 2017 offer would be the most effective response and resolved and directed Mr. Alfieri to make a
counter-proposal to Mr. Faith that in the event that the merger agreement was signed prior to payment of the second quarter cash dividend of $0.075 per share of Company common stock, that the
Company would be permitted to pay this dividend as well as a pro rata dividend through the closing date of the proposed merger.
Later
that day, Mr. Alfieri communicated the counter proposal on the dividend to Mr. Faith. Mr. Faith expressed his disappointment and informed Mr. Alfieri
that Greystar believed that it had made a very strong bid on valuation. Mr. Faith then said that Greystar was only willing to permit payment of the second quarter dividend but stressed several
times that this was Greystar's best and final offer.
Over
the course of the next few days, the parties continued the due diligence investigation, Goodwin Procter and Jones Day continued to negotiate the terms of the merger agreement, and
the Evaluation Committee met regularly with representatives of Goodwin Procter and Morgan Stanley to discuss the status of negotiations with Greystar and the status of the draft merger agreement.
On
June 20, 2017, Greystar and the Company executed an exclusivity agreement amendment pursuant to which the parties agreed to extend the exclusively period until June 23,
2017.
On June 22, 2017, the Evaluation Committee met, together with representatives of Goodwin Procter and Morgan Stanley, to discuss negotiations with Greystar. Representatives from
Morgan Stanley provided its updated valuation views and provided a letter to our board regarding any current and historical relationships with Greystar and its equity financing sources. The letter
indicated that Morgan Stanley, as a full-service investment bank, has from time to time been engaged to provide financing services for affiliates of GIC and certain of their portfolio companies during
the prior two years. See the section entitled "
Opinion of the Company's Financial Advisor
Other
Information
" for further information. Representatives from Goodwin Procter discussed the draft merger agreement, particularly the changes proposed by Greystar replacing the
Company's right to seek specific performance with the Company's right to receive a higher reverse termination fee if the merger agreement is terminated under certain circumstances, the payment of
which would be guaranteed by the Guarantors.
On
June 23, 2017, Mr. Alfieri received a telephone call from Mr. Faith, during which Mr. Faith reiterated Greystar's continued interest in a transaction.
During the call, Mr. Faith proposed the Company would receive a substantial reverse termination fee payable if the merger agreement is terminated in certain circumstances in lieu of the
Company's right to seek specific performance to require the acquiring entity to complete the merger. Mr. Faith explained that the Guarantors would guarantee the payment of the reverse
termination fee.
On
June 23, 2017, Greystar and the Company executed an exclusivity agreement amendment pursuant to which the parties agreed to extend the exclusively period until June 27,
2017, subject to an agreement between the parties to complete due diligence within that period.
On
June 29, 2017, the Company held its annual meeting of stockholders following which Robert S. Aisner and Michael D. Cohen, the directors affiliated with Behringer Harvard,
resigned from the board of directors in accordance with the expiration in February 2017 of contractual rights between the Company and Behringer entitling Behringer to designate two nominees to the
board of directors.
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On
June 30, 2017, Goodwin Procter contacted Jones Day to review a list of open issues with respect to the merger agreement. These items included: (1) certain covenants,
including those regarding pre-closing tax transactions and related conditions to closing; (2) the size of the termination fee payable by Parent; and (3) remedies available to the Company
in the event of breach by Greystar under certain circumstances. Later that day, Goodwin Procter sent Jones Day a draft of the merger agreement and other transaction documents and engaged in various
telephonic discussions to negotiate the unresolved issues in those documents, and the Company facilitated the final due diligence items of Greystar.
Later
on June 30, 2017, Mr. Alfieri received a telephone call from Mr. Faith, during which Mr. Faith agreed to increase the reverse termination fee payable to
10% of the equity value of the transaction, or $202,090,337.
Also
on June 30, 2017, the board of directors and the Evaluation Committee held a joint telephonic meeting, together with Goodwin Procter and Morgan Stanley. Goodwin Procter
discussed its negotiations earlier in the day with Jones Day, including the remaining open issues on the merger agreement. Representatives of Morgan Stanley reviewed with the board of directors Morgan
Stanley's financial analyses of the consideration proposed in the merger.
On
June 30, 2017, conversations also took place among Mr. Fitch, independent chair of the Compensation Committee of the board of directors, Mr. Pire and Goodwin
Procter regarding certain employee benefits and compensation matters to be a part of the merger agreement.
On
July 3, 2017, after the closing of the U.S. stock markets, the
Wall Street Journal
published an article indicating that an
investment group led by Greystar was nearing a deal to buy the Company for $12.00 per share in cash.
On
July 4, 2017, Greystar provided the Company with its executed debt financing commitment letter from J.P. Morgan.
On
July 4, 2017, the board of directors and the Evaluation Committee held a joint telephonic meeting together with members of management and representatives of Goodwin Procter and
Morgan Stanley, to discuss and review the draft merger agreement and to consider the proposed transaction. Representatives of Goodwin Procter again reviewed the duties of the directors and the terms
of the draft merger agreement. Representatives of Morgan Stanley reviewed with the board of directors Morgan Stanley's financial analyses of the consideration proposed in the merger. Morgan Stanley
then rendered its oral opinion, subsequently confirmed in writing by delivery of a written opinion to our board of directors dated July 4, 2017, that as of that date and based upon and subject
to the various assumptions made, procedures followed, matters considered and qualifications and limitations on the scope of review undertaken by Morgan Stanley as set forth in the written opinion, the
merger consideration to be received by the holders of shares of our common stock pursuant to the merger agreement was fair from a financial point of view to such holders. Following extensive
discussion, and upon recommendation of the Evaluation Committee, the board of directors unanimously adopted resolutions which, among other things, approved and declared advisable and in the best
interests of the Company and the stockholders of the Company, the merger, the merger agreement and the other transactions contemplated by the merger agreement and resolved to recommend that the
stockholders of the Company vote for the approval of the merger and the other transactions contemplated by the merger agreement.
Following
the board meeting, the parties completed the transaction documents. In the afternoon of July 4, 2017, the parties executed and delivered the merger agreement and other
transaction documents and the Company issued a press release announcing the transaction.
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Reasons for the Merger
In reaching its decision to approve the merger, the merger agreement and the other transactions contemplated by the merger agreement and to
recommend approval of the merger and the transactions contemplated by the merger agreement to our common stockholders, our board of directors and the Evaluation Committee consulted with our senior
management team, as well as our outside legal and financial advisors, and considered a number of factors, including the following material factors which our board of directors viewed as supporting its
decision to approve the merger, the merger agreement and the other transactions contemplated by the merger agreement and to recommend approval of the merger and the transactions contemplated by the
merger agreement to our common stockholders:
-
-
the current and historical trading prices for our common stock, and the fact that the cash merger consideration of $12.00 per share represented
a premium of approximately 16.7% to the $10.28 volume weighted average closing price over the 12-month period ended July 3, 2017, the last trading day prior to the execution of the merger
agreement, a premium of approximately 21.6% to the $9.87 volume weighted average closing price over the 30-day period ended July 3, 2017 and a premium of approximately 22.4% to the closing
price of $9.80 on July 3, 2017, the last trading day prior to the public announcement of the merger agreement;
-
-
the course of negotiations between the Company and Greystar resulting in a price per share of our common stock that was higher than the
all-cash offers the Company received from Party A and Party B as well as other verbal indications of interests received by the Company over the past year;
-
-
our board of directors' knowledge of the business, operations, financial condition, earnings and prospects of the company, as well as its
knowledge of the current and prospective environment in which the company operates, including economic and market conditions;
-
-
the belief that the merger is more favorable to our stockholders than other strategic alternatives available to the company, including
remaining an independent public company;
-
-
the risks and uncertainty of remaining an independent public company, given the Company's joint venture structure and smaller scale relative to
other public multifamily REITs, which caused our cost of capital to remain higher than that of our larger peers and greater NAV discount as compared to larger public multifamily REITs, which impeded
our ability to raise new equity capital;
-
-
the high multiples of funds from operations at which common stock of REITs, including our common stock, have been trading and the risk that
those multiples might not be sustained, which could result in a decline in the trading price of our common stock regardless of our performance;
-
-
favorable conditions for sale transactions in the real estate markets generally and the multifamily sector specifically, including prices for
real estate assets being at or near historical highs while capitalization rates are at or near historical lows, the low interest rate environment and the possibility that interest rates may rise in
the near future;
-
-
the high probability that the merger would be completed based on, among other things, the lack of a financing condition, and the $202,090,337
reverse termination fee payable to the company if the merger agreement is terminated in certain circumstances, which payment is guaranteed by the Guarantors;
-
-
the terms and conditions of the merger agreement, which were reviewed by our board of directors with our financial and legal advisors, and the
fact that such terms were the product of arm's-length negotiations between the parties;
34
Table of Contents
-
-
Morgan Stanley's oral opinion, subsequently confirmed by delivery of a written opinion to our board of directors, dated July 4, 2017
that, as of that date, and based upon and subject to the various assumptions made, procedures followed, matters considered and qualifications and limitations on the scope of review undertaken by
Morgan Stanley as set forth in its written opinion, the merger consideration to be received by the holders of shares of our common stock pursuant to the merger agreement was fair from a financial
point of view to such holders (see "
Opinion of the Company's Financial Advisor
");
-
-
our ability, under the merger agreement, (1) (a) to pay a lower termination fee of $25,261,292 in connection with a superior proposal if
the merger agreement had been terminated in connection with the superior proposal within the first 30 days following the date of the merger agreement (subject to an extension for the completion
of matching rights periods in accordance with the no-shop provision of the merger agreement, provided that the initial superior proposal notice had been provided to Greystar by the Company on or prior
to the 30th day after the date of the merger agreement) or (b) to pay a termination fee of $65,679,359 in all other instances, and (2) at any time prior to receipt of the Company
stockholder approval, to participate in discussions or negotiations with third parties, under certain circumstances, if our board of directors determines, after consultation with advisors, that
failure to do so would be inconsistent with its legal duties and that such acquisition proposal constitutes, or could reasonably be expected to result in, a superior proposal;
-
-
our board of directors' ability, under the merger agreement, to withdraw, modify or amend its recommendation that our common stockholders vote
to approve the merger agreement and the merger under certain circumstances, subject to payment of the applicable termination fee;
-
-
our ability to terminate the merger agreement, under certain circumstances, in order to enter into a definitive agreement providing for a
superior proposal if our board of directors determines, after consultation with advisors and after taking into account any changes to the terms of the merger agreement proposed by Parent, that the
superior proposal continues to be a superior proposal, upon payment of the applicable termination fee;
-
-
the fact that (1) the $25,261,292 termination fee payable by us in certain circumstances (representing approximately 1.25% of the
company's equity value, based on the cash merger consideration) and (2) the $65,679,359 termination fee payable by us in other circumstances (representing approximately 3.25% of the company's
equity value, based on the cash merger consideration), were each viewed by our board of directors, after consultation with our legal and financial advisors, as reasonable and not likely to preclude
any other party from making a competing acquisition proposal;
-
-
the fact that the all cash merger consideration will provide our stockholders with immediate fair value, in cash, for all of their shares of
common stock;
-
-
the limited number of potential purchasers with the financial ability to acquire us; and
-
-
the fact that the merger would be subject to the approval of our common stockholders, and our common stockholders would be free to reject the
merger by voting against the merger for any reason, including if a higher offer were to be made prior to the stockholders meeting (although we may be required to pay a termination fee under certain
circumstances if we subsequently were to enter into a definitive agreement relating to, or to consummate, an acquisition proposal).
35
Table of Contents
Our
board of directors and the Evaluation Committee also considered the following potentially negative factors in its consideration of the merger agreement and the
merger:
-
-
the merger would preclude our stockholders from having the opportunity to participate in the future performance of our assets, future potential
earnings growth, future potential appreciation of the value of our common stock or future dividends that could be realized depending on our future performance;
-
-
the significant costs involved in connection with entering into and completing the merger and the substantial time and effort of management
required to consummate the merger and related disruptions to the operation of our business;
-
-
the restrictions on the conduct of our business prior to the completion of the merger, which could delay or prevent us from undertaking
business opportunities that may arise pending completion of the merger;
-
-
the pending merger or failure to complete the merger may cause harm to relationships with our employees, tenants and other business associates
and may divert management and employee attention away from the day-to-day operation of our business;
-
-
our inability to solicit competing acquisition proposals and the possibility that the $25,261,292 or $65,679,359 termination fee payable by us
upon the termination of the merger agreement could discourage other potential bidders from making a competing bid to acquire us;
-
-
the fact that an all cash merger would be taxable to our stockholders for U.S. federal income tax purposes;
-
-
the fact that, under Maryland law, our stockholders will not be entitled to appraisal rights, dissenters' rights or similar rights of an
objecting stockholder in connection with the merger;
-
-
our inability to seek specific performance to require Parent, Merger Sub or Merger Partnership to complete the merger, and the fact that our
exclusive remedy, available if the merger agreement is terminated in certain circumstances, would be limited to a reverse termination fee payable by Parent in the amount of $202,090,337, the payment
of which is guaranteed by the Guarantors; and
-
-
the fact that some of our directors and executive officers have interests in the merger that may be different from, or in addition to, our
stockholders generally (see "
Interests of Monogram's Directors and Executive Officers in the Merger
").
The
foregoing discussion of the factors considered by our board of directors is not intended to be exhaustive, but rather includes the material factors considered by our board of
directors. In reaching its decision to approve the merger, the merger agreement and the other transactions contemplated by the merger agreement, our board of directors did not quantify or assign any
relative weights to, and did not make specific assessments of, the factors considered, and individual directors may have given different weights to different factors. Our board of directors did not
reach any specific conclusion with respect to any of the factors or reasons considered.
The
above factors are not presented in any order of priority. The explanation of the factors and reasoning set forth above contain forward-looking statements and should be read in
conjunction with the section of this proxy statement entitled "
Cautionary Statement Regarding Forward-Looking Statements
."
Recommendation of the Company's Board of Directors
Our board of directors has unanimously approved the merger, the merger agreement and the other transactions contemplated
by the merger agreement, and has declared the merger and the other
36
Table of Contents
transactions contemplated by the merger agreement advisable and in the best interests of Monogram Residential Trust, Inc. and our stockholders. Our board of directors recommends that you vote
"FOR" the proposal to approve the merger and the merger agreement, "FOR" the proposal to approve, on a non-binding, advisory basis, the compensation that may be paid or become payable to our named
executive officers that is based on or otherwise relates to the merger and "FOR" the 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 and the merger agreement.
Opinion of the Company's Financial Advisor
We retained Morgan Stanley to provide us with financial advisory services in connection with the proposed merger. We selected Morgan Stanley to
act as our financial advisor based on Morgan Stanley's qualifications, expertise and reputation, and its knowledge of the business and affairs of the Company. As part of this engagement, our board of
directors requested that Morgan Stanley evaluate the fairness, from a financial point of view, of the merger consideration to be received by the holders of shares of our common stock pursuant to the
merger agreement. On July 4, 2017, at a meeting of our board of directors, Morgan Stanley rendered its oral opinion, subsequently confirmed in writing by delivery of a written opinion to our
board of directors dated July 4, 2017, that as of that date and based upon and subject to the various assumptions made, procedures followed, matters considered and qualifications and
limitations on the scope of review undertaken by Morgan Stanley as set forth in the written opinion, the merger consideration to be received by the holders of shares of our common stock pursuant to
the merger agreement was fair from a financial point of view to such holders of shares of our common stock.
The full text of the written opinion of Morgan Stanley, dated as of July 4, 2017, is attached to this proxy statement as Annex B and is hereby
incorporated into this proxy statement by reference in its entirety. You should read the opinion in its entirety for a discussion of the assumptions made, procedures followed, matters considered and
qualifications and limitations on the scope of the review undertaken by Morgan Stanley in rendering its opinion. We encourage you to read the entire opinion and the summary of Morgan Stanley's opinion
below carefully and in their entirety. This summary of the opinion of Morgan Stanley set forth in this proxy statement is qualified in its entirety by reference to the full text of the opinion. Morgan
Stanley's opinion was directed to our board of directors, in its capacity as such, and addresses only the fairness, from a financial point of view, to the holders of shares of our common stock, as of
the date of the opinion, of the merger consideration to be received by such holders pursuant to the merger agreement, and does not address any other aspects or implications of the merger. Morgan
Stanley's opinion was not intended to, and does not, constitute a recommendation to any holder of shares of our common stock as to how to vote at the special meeting to be held in connection with the
merger or whether to take any other action with respect to the merger. Morgan Stanley was not requested to opine as to, and its opinion did not in any manner address the relative merits of the
transactions contemplated by the merger agreement as compared to other business or financial strategies that might be available to us, nor did it address our underlying business decision to enter into
the merger agreement or proceed with any other transaction contemplated by the merger agreement.
In
connection with rendering its opinion, Morgan Stanley, among other things:
-
-
reviewed certain publicly available financial statements and other business and financial information of the Company;
-
-
reviewed certain internal financial statements and other financial and operating data concerning the Company prepared by the management of the
Company;
-
-
reviewed certain financial projections prepared by the management of the Company;
37
Table of Contents
-
-
discussed the past and current operations and financial condition and the prospects of the Company with senior executives of the Company;
-
-
reviewed the reported prices and trading activity for the Company's common stock;
-
-
compared the financial performance of the Company and the prices and trading activity of the Company's common stock with that of certain other
publicly-traded companies comparable with the Company, and their securities;
-
-
reviewed the financial terms, to the extent publicly available, of certain comparable acquisition transactions;
-
-
participated in certain discussions and negotiations among representatives of the Company and Parent and certain parties and their financial
and legal advisors;
-
-
reviewed the merger agreement, the draft equity financing and debt financing commitment letters, referred to as the commitment letters,
substantially in the form of the drafts dated July 3, 2017, and certain related documents; and
-
-
performed such other analyses, reviewed such other information and considered such other factors as Morgan Stanley deemed appropriate.
In
arriving at its opinion, Morgan Stanley assumed and relied upon, without independent verification, the accuracy and completeness of the information that was publicly available or
supplied or otherwise made available to it by the Company, and formed a substantial basis for its opinion. With respect to the financial projections, with the consent of our board of directors, Morgan
Stanley assumed that they had been reasonably prepared on bases reflecting the best currently available estimates and judgments of the management of the Company of the future financial performance of
the Company, and Morgan Stanley expressed no opinion on such projections or the reasonableness of the assumptions, estimates or judgments on which they were based, and Morgan Stanley assumed that
there had not occurred any material change in the assets, liabilities, financial condition, results of operations, business or prospects of the Company or any of its subsidiaries since the most recent
dates on which the most recent financial statements and financial projections or other information, financial or otherwise, was made available to Morgan Stanley. In addition, Morgan Stanley assumed
that the merger and the Additional Transactions (as defined in the merger agreement) will be consummated in accordance with the terms set forth in the merger agreement without any waiver, amendment or
delay of any terms or conditions, including, among other things, that Parent will obtain equity and debt financing in accordance with the terms set forth in the commitment letters; however, Morgan
Stanley expressed no opinion as to the terms of such equity and debt financing or the terms or conditions upon which it has been or will be obtained, and Morgan Stanley did not express any view on,
and its opinion did not address, any other term or aspect of the merger agreement or the transactions contemplated thereby (including the Additional Transactions and any transactions related to joint
ventures of the subsidiaries or affiliates of the Company, including any joint venture with PGGM or NPS) or any term or aspect of any other agreement or instrument contemplated by the merger agreement
or entered into or amended in connection therewith (including any agreement related to the Additional Transactions and joint ventures of the subsidiaries or affiliates of the Company, including any
agreement related to any joint venture with PGGM or NPS). Morgan Stanley also assumed that the definitive merger agreement would not differ in any material respect from the draft thereof furnished to
Morgan Stanley. Morgan Stanley assumed that in connection with the receipt of all the necessary governmental, regulatory or other approvals and consents required for the proposed merger, no delays,
limitations, conditions or
restrictions would be imposed that would have a material adverse effect on the contemplated benefits expected to be derived in the proposed merger. Morgan Stanley is not a legal, tax or regulatory
advisor. Morgan Stanley is a financial advisor only and relied upon, without independent verification, the assessment of the Company and its legal, tax or regulatory advisors with
38
Table of Contents
respect
to legal, tax and regulatory matters. Morgan Stanley expressed no opinion with respect to the fairness of the amount or nature of the compensation to any of the Company's officers, directors
or employees, or any class of such persons, including with respect to any Company compensatory award, relative to the merger consideration to be received by the holders of shares of the Company's
common stock in the merger. Morgan Stanley did not make any independent valuation or appraisal of the assets or liabilities of the Company, nor was Morgan Stanley furnished with any such valuations or
appraisals. Morgan Stanley's opinion was necessarily based on financial, economic, market and other conditions as in effect on, and the information made available to Morgan Stanley as of, the date of
its opinion. Events occurring after the date of Morgan Stanley's opinion may affect Morgan Stanley's opinion and the assumptions used in preparing it, and Morgan Stanley did not assume any obligation
to update, revise or reaffirm its opinion.
Morgan
Stanley noted in its opinion that, in connection with the preparation of its opinion, it was not authorized to solicit, and did not solicit, interest from any party with respect
to the acquisition, business combination or other extraordinary transaction, involving the Company, nor did Morgan Stanley negotiate with any of the parties, other than Parent, which expressed
interest to Morgan Stanley in the possible acquisition of the Company or certain of its constituent businesses.
Summary of Financial Analyses of Morgan Stanley
The following is a summary of the material financial analyses performed by Morgan Stanley in connection with its oral opinion and the
preparation of its written opinion letter to our board of directors dated July 4, 2017. The following summary is not a complete description of the financial analyses performed and factors
considered by Morgan Stanley in connection with its opinion, nor does the order of analyses described represent the relative importance or weight given to those analyses. Some of these summaries of
financial analyses include information presented in tabular format. In order to fully understand the financial analyses used by Morgan Stanley, the tables must be read together with the text of each
summary. The tables alone do not constitute a complete description of the financial analyses. The analyses listed in the tables and described below must be considered as a whole. Assessing any portion
of such analyses and of the factors reviewed, without considering all analyses and factors, could create a misleading or incomplete view of the process underlying Morgan
Stanley's opinion. Furthermore, mathematical analysis (such as determining an average or median) is not in itself a meaningful method of using the data referred to below.
Morgan Stanley reviewed and compared certain publicly available and Company management-provided financial information, ratios and market
multiples relating to the Company with equivalent publicly available data for companies that share similar business characteristics with the Company to derive an implied equity value reference range
for the Company's common stock. Morgan Stanley reviewed the following publicly traded multifamily REITs:
-
-
Apartment Investment and Management Company
-
-
AvalonBay Communities, Inc.
-
-
Camden Property Trust
-
-
Equity Residential
-
-
Essex Property Trust, Inc.
-
-
Mid-America Apartment Communities, Inc.
-
-
UDR, Inc.
39
Table of Contents
For
purposes of this analysis, Morgan Stanley analyzed and compared certain statistics for each of these companies for comparison purposes, including the ratios of share price to Wall
Street research analyst consensus (referred to as Street consensus) estimated funds from operations and estimated adjusted funds from operations, which are referred to as FFO and AFFO, respectively,
for calendar year 2018. Morgan Stanley also analyzed the premium or discount represented by the ratio of share price to Street consensus estimated net asset value per share, which is referred to as
NAV per share. The multiples and ratios for each of the comparable companies were calculated using their respective closing prices on July 3, 2017, and were based on the most recent publicly
available information and Street consensus estimates. Morgan Stanley derived a range of multiples or discounts/premiums, as applicable, for each metric using the high and low multiples or
discounts/premiums, as applicable, for the applicable comparable companies. Morgan Stanley selected these ranges based on its professional judgment after reviewing the selected companies' ranges for
each metric and the historical ranges of the Company for each metric.
The multiples observed for the selected companies are set forth below.
|
|
|
|
|
|
|
|
|
|
|
Selected Company
|
|
2018
FFO
Multiple
|
|
2018
AFFO
Multiple
|
|
Consensus
Premium/(Discount)
to NAV
|
|
Apartment Investment and Management Company
|
|
|
16.9x
|
|
|
20.0x
|
|
|
(9.1
|
)%
|
AvalonBay Communities, Inc.
|
|
|
21.2x
|
|
|
22.4x
|
|
|
0.2
|
%
|
Camden Property Trust
|
|
|
18.0x
|
|
|
21.1x
|
|
|
(3.8
|
)%
|
Equity Residential
|
|
|
20.4x
|
|
|
23.0x
|
|
|
(4.4
|
)%
|
Essex Property Trust, Inc.
|
|
|
21.0x
|
|
|
23.0x
|
|
|
6.2
|
%
|
Mid-America Apartment Communities, Inc.
|
|
|
16.7x
|
|
|
18.8x
|
|
|
6.7
|
%
|
UDR, Inc.
|
|
|
20.1x
|
|
|
22.3x
|
|
|
1.9
|
%
|
Morgan
Stanley then used these multiple ranges to derive separate implied per share equity value reference ranges for the Company using each of the metrics reviewed by applying the range
derived from the comparable companies for each metric to the corresponding Company metrics.
The
following table reflects the results of this analysis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Range
|
|
Implied Per-Share
Value Range
|
|
|
|
Low
|
|
High
|
|
Low
|
|
High
|
|
Price / 2018E FFO
|
|
|
16.7
|
x
|
|
21.2
|
x
|
$
|
7.58
|
|
$
|
9.62
|
|
Price / 2018E AFFO
|
|
|
18.8
|
x
|
|
23.0
|
x
|
$
|
9.02
|
|
$
|
11.05
|
|
Premium / (Discount) to NAV per ShareStreet consensus
|
|
|
(9.1
|
)%
|
|
6.7
|
%
|
$
|
10.63
|
|
$
|
12.48
|
|
Based
on this analysis, Morgan Stanley derived the following selected implied per share equity value reference range for the Company based on the low end and high end of the implied per
share equity value reference range for each metric set forth above. This analysis indicated the following implied per-share value reference range for the Company's common stock, as compared to the
per-share merger consideration of $12.00:
|
|
|
Implied Per Share Equity Value Reference Range
|
|
Per-Share Merger Consideration
|
$7.58 to $12.48
|
|
$12.00
|
Morgan
Stanley observed that the Company's historical and projected levels of general and administrative, or G&A, expenses were higher than G&A expenses that would be implied for the
Company based on a comparison with the comparable companies, Wall Street research, and other factors considered by Morgan Stanley. Morgan Stanley also observed that in calculating AFFO, the
40
Table of Contents
Company,
like a number of other companies in the real estate industry, adjusted FFO to AFFO by, among other things, adding back non-cash compensation to FFO, but that the comparable companies
generally did not add back non-cash compensation in calculating AFFO.
Accordingly,
Morgan Stanley calculated additional implied per share equity value reference ranges for the Company using the Price / 2018E FFO, Price / 2018E AFFO and Premium / (Discount)
to NAV per share metrics, but adjusting the Company's 2018E AFFO downward by approximately $0.03 per share for non-cash compensation estimated for calendar year 2018, and adjusting the
Street consensus estimated NAV for the Company downward, for the Wall Street research analysts that did not already account for the Company's higher G&A expense, by $2.12 per share, which was Morgan
Stanley's mid-point estimate of the net present value, discounted at the midpoint of the Company's weighted average cost of capital of 5.17%, of the estimated capitalized value of the Company's excess
G&A expense of $18 million, as of September 30, 2019, applying a nominal capitalization rate to such excess G&A expense of 4.66% based on the midpoint average capitalization rate
utilized in the Net Asset Value Analysis for the stabilized operating properties.
The
following table reflects the results of this analysis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Range
|
|
Implied
Per-Share Value
Range
|
|
|
|
Low
|
|
High
|
|
Low
|
|
High
|
|
Price / 2018E FFO
|
|
|
16.7
|
x
|
|
21.2
|
x
|
$
|
7.58
|
|
$
|
9.62
|
|
Price / 2018E Adjusted AFFO
|
|
|
18.8
|
x
|
|
23.0
|
x
|
$
|
8.41
|
|
$
|
10.30
|
|
Premium / (Discount) to Adjusted NAV per ShareStreet consensus
|
|
|
(9.1
|
)%
|
|
6.7
|
%
|
$
|
8.95
|
|
$
|
10.51
|
|
Based
on this analysis, Morgan Stanley derived the following selected implied per share equity value reference range for the Company based on the low end and high end of the implied per
share equity value reference range for each metric set forth above. This analysis indicated the following implied per-share value reference range for the Company's common stock, as compared to the
per-share merger consideration of $12.00:
|
|
|
Implied Per Share Equity Value Reference Range
|
|
Per-Share Merger Consideration
|
$7.58 to $10.51
|
|
$12.00
|
No
company utilized in the comparable company analysis is identical to the Company. In evaluating comparable companies, Morgan Stanley made judgments and assumptions with regard to
industry performance, general business, economic, market and financial conditions and other matters, which are beyond the Company's control, such as the impact of competition on the Company and the
industry generally, industry growth, and the absence of any adverse material change in the financial condition and prospects of the Company or the industry, or in the financial markets in general.
Morgan Stanley performed a dividend discount analysis of shares of the Company's common stock to derive an implied equity value reference range
for the Company's common stock. This analysis, which is also known as the dividend discount model, is a method of estimating the value of the common stock of a company as the sum of the implied
present values of distributable cash flow with respect to such common stock during a forecast period plus the present value of the terminal value of such common stock at the end of the forecast
period.
41
Table of Contents
Morgan Stanley calculated a range of implied present values (as of September 30, 2017) of the distributable cash flows that the Company was forecasted to
generate as contained in projections prepared by Company management during the twelve months ending September 30, 2018 through the twelve months ending September 30, 2020. In addition,
for the periods of the twelve months ending September 30, 2021 through the twelve months ending September 30, 2023, based upon the guidance and direction of Company management to assume
an annual growth rate of 4.5% for the Company's Core FFO and 5.0% for the Company's AFFO, Morgan Stanley extrapolated distributable cash flows that the Company was forecasted to generate during such
period and calculated a range of implied present values (as of September 30, 2017) of the distributable cash flows during such period. The distributable cash flows for such periods were
discounted to present value using a range of discount rates from 5.63% to 7.13%, which was derived by taking a sensitized range of the Company's cost of equity determined utilizing the capital asset
pricing model.
Morgan Stanley then calculated a range of implied terminal values of the Company's common stock as of September 30, 2023 by applying a terminal Core FFO multiple range of 16.3x to
20.0x to the Company's forecasted Core FFO per share for the twelve months ending September 30, 2023 of approximately $0.58. The range of multiples was selected using the low end of the range
of 10-year historical average next twelve months FFO multiples of peer multifamily REIT companies (excluding the top and bottom quartiles) as the low end of the range, and the average next twelve
months
FFO multiple of peer multifamily REIT companies as of July 3, 2017 as the high end of the range. This resulted in a range of estimated terminal values of approximately $9.45 to $11.60
per share. Morgan Stanley discounted the range of estimated terminal values derived from these calculations to present value as of September 30, 2017 using a range of discount rates from 5.63%
to 7.13%, which was derived as described above, and then added the resultant implied present values to the implied present value of distributable cash flows as described above. This analysis indicated
the following implied per share equity value reference range for the Company, as compared to the per-share merger consideration of $12.00:
|
|
|
Implied Per Share Equity Value Reference Range
|
|
Per-Share Merger Consideration
|
$8.17 to $10.34
|
|
$12.00
|
Morgan Stanley performed a discounted cash flow, or DCF, analysis to derive an implied equity value reference range for the Company's common
stock.
A
DCF analysis is designed to provide an implied value of a company by calculating the present value of estimated future unlevered free cash flows and terminal value of the company. The
"unlevered free cash flows" or "free cash flows" refer to a calculation of the future cash flows of an asset without including, in such calculation, any debt-servicing costs. The present value of a
terminal value, representing the value of unlevered free cash flows beyond the end of the forecast period, is added to arrive at a total aggregate value. Outstanding debt and preferred equity is
subtracted and outstanding cash is added to arrive at an equity value. The equity value is then divided by the fully diluted share count, in order to arrive at an implied value per share of common
stock.
Morgan
Stanley calculated a range of implied present values (as of September 30, 2017) of the net free cash flows that the Company was forecasted to generate as contained in
projections prepared by Company management during the twelve months ending September 30, 2018 through the twelve months ending September 30, 2020. In addition, for the periods of the
twelve months ending September 30, 2021 through the twelve months ending September 30, 2023, based upon the guidance and direction of Company management to assume an annual growth rate
of 3.0% for the Company's NOI, G&A and management fees, Morgan Stanley extrapolated net free cash flows that the Company was forecasted to generate during such period and calculated a range of implied
present values (as of
42
Table of Contents
September 30,
2017) of the net free cash flows during such period. The net free cash flows for such periods were discounted to present value using a range of discount rates from 4.70% to 5.63%,
which was derived by taking a sensitized range of the Company's weighted average cost of capital determined utilizing the capital asset pricing model to calculate the Company's cost of equity and
utilizing the Company's current weighted average interest rate on its current indebtedness to calculate the Company's cost of debt.
Morgan Stanley then calculated a range of implied terminal enterprise values of the Company as of September 30, 2023 by applying a range of implied exit capitalization rates of
5.06% to 6.08% to the forecasted net operating income of the Company (excluding the Company's third party asset management and property management fee businesses) for the twelve months ending
September 30, 2023, adding the estimated terminal values of the Company's third party asset and property management fee businesses as of September 30, 2023 based on Morgan Stanley's
professional judgment, Wall Street research analysts range of multiples, and experience with respect to valuations of these types of businesses. The range of capitalization rates was selected using
the low end of the range of 10-year historical average implied capitalization rates of peer multifamily REIT companies (excluding the top and bottom quartiles) and the current average implied exit
capitalization rate of peer multifamily REIT companies based on share prices as of July 3, 2017 for the high end of the range). The ranges of EBITDA multiples selected for the Company's third
party fee and property management businesses were based on Morgan Stanley's professional judgment, Wall Street research analysts range of multiples, and experience with respect to valuations of these
types of businesses. These analyses resulted in a range of implied terminal values of the Company as of September 30, 2023 of approximately $2.7 billion to $3.2 billion.
Morgan
Stanley discounted the range of estimated terminal values derived from these calculations to forecasted present value as of September 30, 2017 using a range of discount
rates of 4.70% to 5.63%, which was derived by taking a sensitized range of the Company's weighted average cost of capital determined utilizing the capital asset pricing model, and then added the
resultant implied present values to the implied present value of net free cash flows as described above, subtracting forecasted outstanding debt and adding forecasted outstanding cash as of
September 30, 2017, and dividing by the number of fully diluted shares, all as provided by the Company's management.
This
analysis indicated the following implied per share equity value reference range for the Company, as compared to the per-share merger consideration of $12.00:
|
|
|
Implied Per Share Equity Value Reference Range
|
|
Per-Share Merger Consideration
|
$9.95 to $13.28
|
|
$12.00
|
In
addition, Morgan Stanley further calculated an implied per share equity value reference range by subtracting the net present value, utilizing the range of the Company's weighted
average cost of capital as the discount rate, of the estimated capitalized value of the Company's excess G&A expenses, estimated at $19 million, as of September 30, 2023, applying an
implied capitalization rate ranging from 5.06% to 6.08%. The range of implied capitalization rates was selected using the low end of the range of 10-year historical average implied capitalization
rates of peer multifamily REIT companies (excluding the top and bottom quartiles) as the low end of the range, and the average implied capitalization rate of peer multifamily REIT companies as of
July 3, 2017 as the high end of the range. This resulted in an implied amount of excess G&A expense in an approximate range of $1.43 to $1.79 per share. This analysis indicated the
following implied per-share value reference range for the Company's common stock, as compared to the per-share merger consideration of $12.00:
|
|
|
Implied Per Share Equity Value Reference Range
|
|
Per-Share Merger Consideration
|
$8.52 to $11.49
|
|
$12.00
|
43
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Morgan Stanley analyzed the value of the Company's common stock as a function of the net value of its assets per share, or NAV per share. Morgan
Stanley based its NAV analysis on a combination of market data, estimates of net operating income or asset value provided by Company management, and values negotiated for certain assets with third
parties as provided by Company management.
Morgan
Stanley calculated the estimated aggregate value of the Company's operating properties by combining the estimated value of each of the Company's operating properties, which
consist of stabilized operating properties, properties under development and recently acquired properties, on an asset-by-asset basis. The value of each stabilized operating property was estimated by
applying property-specific capitalization rates to the Company's proportionate share of net operating income forecasted by the Company's management for each property for the twelve months ending
September 30, 2018. The value of each development property was estimated by applying the cost of development to date and the expected cost of completion and applying property-specific
capitalization rates to those costs and discounting these cash flows to present. The capitalization rates for the operating properties, recently acquired assets, and development assets were selected
based on, among other factors, Wall Street research, asset quality, location, current occupancy levels, sales productivity, market positioning and supply/demand dynamics. This approach resulted in a
range of average capitalization rates from 4.40% to 4.91% for the stabilized operating property. The value of each property under development was estimated using a DCF approach based on financial
forecasts for such properties provided by Company management and reversion capitalization rates and discount rates selected by Morgan Stanley based on, among other factors, Wall Street research, asset
quality, location, current occupancy levels, sales productivity, market positioning, supply/demand dynamics, and Morgan Stanley's professional judgment. Based upon these estimated values, Morgan
Stanley calculated development value creation at the low end, mid-point and high end was $0, $81 million and $109 million, respectively, or approximately $0.00, $0.48 and $0.65 per share
at the low end, mid-point and high end, respectively. The value of each recently acquired operating property was estimated in a range based upon the property's acquisition cost and estimated upward
and downward adjustments to account for implied changes in value that would be expected to be observed from small decreases or increases in the market capitalization rate subsequent to each
acquisition. To this estimated aggregate value, Morgan Stanley made various upward and downward adjustments for various factors including, without limitation, tax credits, the Company's property and
asset management cash flow, loans receivable, promotes in certain partnerships, cash and cash equivalents, like kind exchange escrow accounts, certain other tangible assets, outstanding debt and
preferred equity securities, mark-to-market debt balances, other tangible liabilities and developer put options. All of these assets and liabilities were included in the NAV analysis utilizing the
Company's proportionate ownership interest. Morgan Stanley divided the resultant estimates of NAV by the number of fully diluted shares to derive the following implied
per-share value reference range for the Company's common stock, as compared to the per-share merger consideration of $12.00:
|
|
|
Implied Per Share Equity Value Reference Range
|
|
Per-Share Merger Consideration
|
$10.89 to $13.26
|
|
$12.00
|
In
addition, Morgan Stanley further calculated an adjusted NAV per share of the Company's common stock by subtracting from the per-share NAV calculated above the estimated capitalized
per-share value of the Company's excess G&A expense of approximately $2.02-$2.24 per share. This range was derived utilizing a range of nominal capitalization rates of 4.40% to 4.91%, consistent with
the range utilized for the full Company's stabilized operating properties, and a range of discount rates of 4.70% to 5.63% which was consistent with the Company's weighted average cost of capital.
This
44
Table of Contents
analysis
indicated the following implied per share equity value reference range for each share of our common stock, as compared to the per-share merger consideration of $12.00:
|
|
|
Implied Per Share Equity Value Reference Range
|
|
Per-Share Merger Consideration
|
$8.87 to $11.02
|
|
$12.00
|
Morgan Stanley also performed an analysis of selected precedent transactions involving publicly-traded multifamily REIT companies in precedent
transactions that shared certain characteristics with the merger. Based on publicly available information, Morgan Stanley identified the following fifteen publicly announced and completed transactions
involving companies that own and operate primarily multifamily properties with a value of greater than $100 million and that have occurred since January 1, 2000:
Selected Precedent Multifamily Sector Transactions
|
|
|
|
|
Transaction Completion Date
|
|
Acquiror
|
|
Target
|
April 2017
|
|
Starwood Capital Group
|
|
Milestone Apartments
|
December 2016
|
|
Mid-America Apartment Communities
|
|
Post Properties
|
October 2015
|
|
Lone Star Funds
|
|
Home Properties
|
August 2015
|
|
Brookfield Asset Management Inc.
|
|
Associated Estates Realty Corp.
|
April 2014
|
|
Essex Property Trust
|
|
BRE Properties
|
October 2013
|
|
Mid-America Apartment Communities
|
|
Colonial Properties Trust
|
September 2007
|
|
Sentinel Omaha LLC
|
|
America First Apartment Investors Inc.
|
October 2007
|
|
Tishman Speyer & Lehman Brothers
|
|
Archstone Smith Trust
|
March 2006
|
|
Morgan Stanley / Onex Real Estate JV
|
|
Town & Country Trust
|
February 2006
|
|
Prime Property Fund
|
|
Amli Residential Properties
|
September 2005
|
|
ING Clarion
|
|
Gables Residential Trust
|
April 2005
|
|
Colonial Properties Trust
|
|
Cornerstone Realty Income Trust
|
February 2005
|
|
Camden Property Trust
|
|
Summit Properties
|
October 2001
|
|
Archstone Communities
|
|
Charles E. Smith Residential Realty
|
November 2000
|
|
Equity Residential Properties Trust
|
|
Grove Property Trust
|
Morgan
Stanley reviewed the premiums paid to the target companies' unaffected stock prices (defined as the average stock price for the ten trading days ending five trading days prior to
the announcement (or public news article or leak was made available to the public) of the transaction for such selected precedent transaction). Based on publicly available information, the overall low
and high unaffected stock price premiums paid in all transactions reviewed (excluding the top and bottom quartiles) were
9.2% and 17.4%, respectively, with a midpoint of 13.3%. An implied per share equity value reference range for the Company's common stock was then calculated based on applying those premiums to the
closing price of $9.80 per share of the Company's common stock on July 3, 2017, which represents the last unaffected closing price of the Company's common stock. This analysis indicated the
following implied per-share value reference range for the Company's common stock, as compared to the per-share merger consideration of $12.00:
|
|
|
Implied Per Share Equity Value Reference Range
|
|
Per-Share Merger Consideration
|
$10.70 to $11.51
|
|
$12.00
|
No
company or transaction utilized as a comparison in the analysis of selected precedent transactions is identical to the Company or directly comparable to the merger in business mix,
timing and size. Accordingly, an analysis of the results of the foregoing necessarily involves complex
45
Table of Contents
considerations
and judgments concerning differences in the financial and operating characteristics of the Company and other factors that would affect the value of the companies to which the Company is
being compared. In evaluating the precedent transactions, Morgan Stanley made judgments and assumptions with regard to industry performance, global business, economic, market and financial conditions
and other matters, many of which are beyond the Company's control, such as the impact of competition on the Company and the industry generally, industry growth and the absence of any adverse material
change in the financial conditions and prospects of the Company or the industry or the financial markets in general.
Morgan Stanley performed a hypothetical take-private analysis to determine the prices at which a financial sponsor might effect a leveraged
buyout of the Company under current
market conditions assuming two different hypothetical buyers: a highly leveraged buyer and a core-plus buyer. A highly leveraged buyer would typically utilize higher leverage but require a higher
return, while a core-plus buyer would require lower returns but utilize less leverage. In preparing this analysis, Morgan Stanley utilized the projected unlevered free cash flows included in
projections by Company management during the twelve months ending September 30, 2018 through September 30, 2020 and for the periods of the twelve months ending September 30, 2021
through the twelve months ending September 30, 2023, based upon the guidance and direction of Company management, Morgan Stanley assumed an annual growth rate of 3.0% for the Company's NOI, G&A
and management fees, in each case adjusted for hypothetical private company G&A savings and certain projected increases in real estate taxes that would expected to be incurred in an acquisition and
assumed a range of market capitalization rates at a September 30, 2022 (five-year) exit of 4.91% to 5.41%, adding the estimated terminal values of the Company's third party asset and property
management fee businesses as of September 30, 2023 based on Morgan Stanley's professional judgment, Wall Street research analysts range of multiples, and experience with respect to valuations
of these types of businesses. In addition, Morgan Stanley assumed: (a) for its analysis of the hypothetical highly leveraged buyer, that (i) the buyer incurs new CMBS debt in connection
with the transaction in an aggregate principal amount resulting in a loan-to-value ratio of 75% for the Company, and (ii) that the buyer incurs approximately $71 million in transaction
costs and the highly levered buyer targeting a gross internal rate of return of 16.0% to 20.0%; and (b) for its analysis of the hypothetical core-plus buyer, (i) the buyer adjusts its
leverage to a loan-to-value ratio of approximately 50% in line with core-plus buyers and (ii) that the buyer incurs transaction costs of $54 million and is targeting a gross internal
rate of return of 10.0% to 13.0%. Based upon these assumptions, Morgan Stanley calculated the following implied per-share value reference range for the Company's common stock, as compared to the
per-share merger consideration of $12.00:
|
|
|
|
|
Implied Per Share Equity Value Reference Range
|
|
|
|
Per-Share Merger Consideration
|
Highly Levered Buyer
|
|
Core-Plus Buyer
|
$9.18 to $11.14
|
|
$9.46 to $11.80
|
|
$12.00
|
46
Table of Contents
Morgan Stanley also presented to the board of directors a number of reference points with respect the Company and the merger consideration,
including the following:
Historical Stock Price.
Morgan Stanley reviewed the stock price performance of the Company's common stock during the 52 weeks
ended on
July 3, 2017, reflecting the unaffected price for our common stock. Based on this review, Morgan Stanley noted that the Company common stock had traded in the range, and had a mean trading
price and volume weighted average trading price (VWAP), set forth below over the applicable 52-week period, as compared to the merger consideration of $12.00 per share:
|
|
|
52 Weeks Ended July 3, 2017
|
|
Per-Share Merger Consideration
|
Range: $9.63 to $10.82
|
|
$12.00
|
Mean: $10.27
|
|
$12.00
|
VWAP: $10.28
|
|
$12.00
|
Research Analyst Price Targets and NAV Per Share Estimates.
Morgan Stanley reviewed the most recently available public market trading
price targets
for shares of the Company's common stock by the eight equity research analysts that provided recent price targets for the Company prior to July 3, 2017. Morgan Stanley reviewed the most recent
price target published by the analysts on or prior to such date. These targets reflect each analyst's estimate of the future public market trading price of the Company's common stock at the time the
price target was published. Morgan Stanley compared these price targets to the per-share merger consideration of $12.00 per share:
|
|
|
Research Analyst Price Targets
|
|
Per Share Merger Consideration
|
Range: $10.50 to $12.00
|
|
$12.00
|
Consensus Mean: $11.21
|
|
$12.00
|
Morgan
Stanley also reviewed equity research analyst estimates of net asset value per share of our common stock. Morgan Stanley reviewed the most recent estimates of net asset value per share
published by the same eight analysts prior to July 3, 2017. Morgan Stanley compared these NAV per share estimates to the per-share merger consideration of $12.00 per share:
|
|
|
Research Analyst Per Share NAV Estimates
|
|
Per Share Merger Consideration
|
Range: $10.92 to $12.03
|
|
$12.00
|
Consensus Mean: $11.69
|
|
$12.00
|
The
public market trading price targets and estimates of net asset value per share published by securities research analysts do not necessarily reflect current market trading prices for
shares of the Company's common stock and these targets and estimates are subject to uncertainties, including the future financial performance of the Company and future financial market conditions. In
addition, the consensus means utilized by Morgan Stanley were derived from publicly available research data providers.
Morgan Stanley performed a variety of financial and comparative analyses for purposes of rendering its opinion. The preparation of a financial
opinion is a complex process and is not necessarily susceptible to a partial analysis or summary description. In arriving at its opinion, Morgan Stanley considered the results of all of its analyses
as a whole and did not attribute any particular weight to any analysis or factor it considered. Morgan Stanley believes that selecting any portion of these analyses, without considering all analyses
as a whole, would create an incomplete view of the process underlying
47
Table of Contents
its
analyses and opinion. In addition, Morgan Stanley may have given various analyses and factors more or less weight than other analyses and factors, and may have deemed various assumptions more or
less probable than other assumptions. As a result, the ranges of valuations resulting from any particular analysis described above should not be taken to be Morgan Stanley's view of the actual value
of the Company.
In
performing its analyses, Morgan Stanley made numerous assumptions with respect to industry performance, general business, regulatory, economic, market and financial conditions and
other matters. These include, among other things, the impact of competition on the businesses of the Company and the industry generally, industry growth, and the absence of any adverse material change
in the financial condition and prospects of the Company, or the industry, or in the financial markets in general. Many of these assumptions are beyond the control of the Company. Any estimates
contained in Morgan Stanley's analyses are not necessarily indicative of future results or actual values, which may be significantly more or less favorable than those suggested by such estimates.
Morgan
Stanley conducted the analyses described above solely as part of its analysis of the fairness from a financial point of view of the merger consideration to be paid to the holders
of shares of our common stock pursuant to the merger agreement, and in connection with the delivery of its opinion as of July 4, 2017 to our board of directors. These analyses do not purport to
be appraisals or to reflect the prices at which our common stock might actually trade.
The
merger consideration was determined through arm's-length negotiations between the Company and Parent and was unanimously approved by our board of directors. Morgan Stanley did not
recommend any specific form or amount of merger consideration to us or our board of directors, or that any specific merger consideration constituted the only consideration for the merger. Morgan
Stanley was not requested to opine as to, and its opinion does not in any manner address, the underlying business decision of the Company to proceed with or effect the merger or the likelihood of
consummation of the merger, nor does it address the relative merits of the merger as compared to any other alternative business transaction, or other alternatives, or whether or not such alternatives
could be achieved or are available. Morgan Stanley's opinion was not intended to, and does not, express an opinion or a recommendation as to how any holder of shares of the Company's common stock
should vote at the special meeting to be held in connection with the merger, or as to any other action that a holder of shares of the Company's common stock should take relating to the merger.
Morgan
Stanley's opinion and presentation to our board of directors was one of many factors taken into consideration by our board of directors in deciding to approve the merger and the
other transactions contemplated by the merger agreement. Consequently, the analyses as described above should not be viewed as determinative of the opinion of our board of directors with respect to
the merger consideration or of whether our board of directors would have been willing to agree to a different merger consideration.
Morgan
Stanley's opinion was approved by a committee of Morgan Stanley investment banking and other professionals in accordance with its customary practice. Morgan Stanley is a global
financial services firm engaged in the securities, investment management and individual wealth management businesses. Its securities business is engaged in securities underwriting, trading and
brokerage activities, foreign exchange, commodities and derivatives trading, prime brokerage, as well as providing investment banking, financing and financial advisory services. Morgan Stanley, its
affiliates, directors and officers may at any time invest on a principal basis or manage funds that invest, hold long or short positions, finance positions, and may trade or otherwise structure and
effect transactions, for its own account or the accounts of its customers, in debt or equity securities or loans of Parent or any of its affiliates, the Company or any other company, or any currency
or commodity, that may be involved in the merger, or any related derivative instrument.
48
Table of Contents
Under
the terms of its engagement letter, Morgan Stanley provided our board of directors with financial advisory services and a financial opinion, and we have agreed to pay Morgan
Stanley an aggregate fee of approximately $25.5 million, of which $2.0 million became payable upon the execution of the merger agreement and the remainder of which will be due upon the
consummation of the merger, and to reimburse Morgan Stanley for its reasonable and documented out-of-pocket expenses. In addition, we have agreed to indemnify Morgan Stanley and its affiliates, their
respective officers, directors, employees and agents, and each person, if any, controlling Morgan Stanley or any of its affiliates against certain liabilities and expenses, including certain
liabilities under the federal securities laws, relating to, arising out of or in connection with Morgan Stanley's engagement.
In the two years prior to the date of Morgan Stanley's opinion, Morgan Stanley did not receive any financial advisory or financing fees from the Company. During the same period, Morgan
Stanley received an aggregate of approximately $2.0 million to $3.0 million in fees for financing services from affiliates of GIC (which are affiliated with one of the providers of
Parent's equity financing pursuant to the equity commitment letter and one of the guarantors providing a limited guarantee in favor of the Company), and certain of their portfolio companies. Morgan
Stanley has advised us that it may also seek to provide financial advisory and financing services to Parent, the Company, the various providers of Parent's equity financing and their respective
affiliates in the future and would expect to receive fees for the rendering of those services. The information disclosed in this paragraph is based upon information provided to us by Morgan Stanley.
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 THAT JURISDICTION.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROXY STATEMENT TO VOTE YOUR SHARES AT THE SPECIAL MEETING. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT
FROM WHAT IS CONTAINED IN THIS PROXY STATEMENT. THIS PROXY STATEMENT IS DATED AUGUST 10, 2017. YOU SHOULD NOT ASSUME THAT THE INFORMATION CONTAINED IN THIS PROXY STATEMENT IS ACCURATE AS OF ANY
DATE OTHER THAN THAT DATE, AND THE MAILING OF THIS PROXY STATEMENT TO STOCKHOLDERS DOES NOT CREATE ANY IMPLICATION TO THE CONTRARY.
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Table of Contents
ANNEX A
EXECUTION VERSION
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
GS MONARCH PARENT, LLC,
GS MONARCH ACQUISITION, LLC
AND
MONOGRAM RESIDENTIAL TRUST, INC.
Dated as of July 4, 2017
A-1
Table of Contents
TABLE OF CONTENTS
A-2
Table of Contents
A-3
Table of Contents
Exhibit AForm
of Certificate of Formation of the Surviving Entity
Exhibit BForm of LLC Agreement of the Surviving Entity
Schedule CAdditional Transactions
Schedule DForm of Goodwin Procter LLP Company Tax Opinion
Schedule EForm of Company Tax Representations Letter
Schedule FForm of Subsidiary REIT Tax Representations Letter
Schedule GPurchase Price Allocation
A-4
Table of Contents
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER
(as may be amended from time to time, this
"
Agreement
") is made and entered into as of July 4, 2017, by and among:
GS MONARCH
PARENT, LLC
, a Delaware limited liability company ("
Parent
");
GS MONARCH
ACQUISITION, LLC
, a Delaware limited liability company and a wholly owned subsidiary of Parent ("
Acquisition Sub
"); and
MONOGRAM RESIDENTIAL TRUST,
INC.
, a Maryland corporation (the "
Company
").
RECITALS
A.
The Company's outstanding capital stock consists of shares of common stock, par value $0.0001 per share
("
Company Common Stock
").
B.
On the terms and subject to the conditions set forth herein and in accordance with the Maryland General Corporation Law
(the "
MGCL
") and the Delaware Limited Liability Company Act (the "
DLLCA
"), the Company will be merged
with and into the Acquisition Sub (the "
Merger
") with the Acquisition Sub surviving the Merger as a wholly owned Subsidiary of Parent (such Subsidiary,
the "
Surviving Entity
"), whereby each share of Company Common Stock (other than (i) shares of Company Common Stock held by Parent or any direct
or indirect wholly owned Subsidiaries of Parent, or (ii) as otherwise provided herein) will be converted into the right to receive the Merger Consideration.
C.
The Board of Directors of the Company (the "
Company Board
") (acting upon
the recommendation of the Evaluation Committee (as defined below)), has unanimously declared that the Merger and the other transactions contemplated herein are advisable in accordance with the MGCL,
and has unanimously resolved to direct that the Merger and the other transactions contemplated herein be submitted for consideration by the stockholders of the Company and to recommend that the
stockholders of the Company approve the Merger and the other transactions contemplated herein, in each case, in accordance with the terms of this Agreement.
D.
All of the members of Parent have, on the terms and subject to the conditions set forth herein, approved this Agreement,
the Merger and the other transactions contemplated herein.
E.
The sole member of Acquisition Sub has, on the terms and subject to the conditions set forth herein, approved this
Agreement, the Merger and the other transactions contemplated herein.
F.
Concurrently with the execution and delivery of this Agreement, and as a condition and inducement to the Company's
willingness to enter into this Agreement, the Sponsors (as defined below) are severally entering into a limited guarantee in favor of the Company (the
"
Guarantee
") with respect to certain obligations of Parent and Acquisition Sub under this Agreement.
G.
Concurrently with the execution and delivery of this Agreement, and as an inducement to each party's willingness to enter
into this Agreement, the Sponsors are entering into an equity financing commitment letter in favor of Parent (the "
Equity Commitment Letter
"), pursuant
to which the Sponsors have committed, subject to the terms and conditions therein, to invest in Parent the amounts set forth therein.
H.
In order to facilitate the consummation of the Merger, the Joint Venture Partners (as defined below) are executing certain
purchase and sale agreements or joint venture restructuring agreements with Parent or an Affiliate of Parent concurrently with the execution and delivery of this Agreement (the
"
Joint Venture Restructuring Agreements
").
A-5
Table of Contents
AGREEMENT
The parties to this Agreement, intending to be legally bound, agree as follows:
ARTICLE 1
DEFINITIONS
Section 1.1
Definitions.
(a) As
used herein, the following terms have the following meanings:
"
1964 Civil Rights Acts
" means the Civil Rights Act of 1964.
"
Acceptable Confidentiality Agreement
" means a customary confidentiality agreement containing terms not materially less restrictive in the
aggregate to the counterparty thereto than the terms of the Confidentiality Agreement (it being understood that such agreement need not contain any "standstill" or similar provisions or otherwise
prohibit the making, or amendment, of any Acquisition Proposal);
provided
,
however
, that such
confidentiality agreement shall contain provisions that permit the Company to comply with the provisions of
Article 5
.
"
Acquired Companies
" means the Company and each of its Subsidiaries, collectively.
"
Acquisition Proposal
" means any
bona fide
inquiry, proposal or offer relating to
(i) the acquisition of twenty percent (20%) or more of any class of the equity interests in the Company (by vote or by value) by any Third Party, (ii) any merger, consolidation, business
combination, reorganization, share exchange, sale of assets, recapitalization, equity investment, joint venture, liquidation, dissolution or other transaction that would result in any Third Party
acquiring assets (including capital stock of or interest in any Subsidiary or Affiliate of the Company) representing, directly or indirectly, twenty percent (20%) or more of the net revenues, net
income or assets of the Acquired Companies, taken as a whole, (iii) the acquisition (whether by merger, consolidation, equity investment, share exchange, joint venture or otherwise) by any
Third Party, directly or indirectly, of any class of equity interest in any entity that holds assets representing, directly or indirectly, twenty percent (20%) or more of the net revenues, net income
or assets of the Acquired Companies, taken as a whole, (iv) any tender offer or exchange offer, as such terms are defined under the Exchange Act, that, if consummated, would result in any Third
Party beneficially owning twenty (20%) or more of the outstanding shares of Company Common Stock and any other voting securities of the Company (or instruments convertible to or exchangeable for
twenty percent (20%) or more of such outstanding shares or securities), or (v) any combination of the foregoing.
"
ADA
" means the Americans with Disabilities Act.
"
ADEA
" means the Age Discrimination in Employment Act.
"
Affiliate
" of any Person means another Person that directly or indirectly, through one or more intermediaries, controls, is controlled
by, or is under common control with, such first Person. For purposes of the immediately preceding sentence, 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. For the avoidance of doubt, "Affiliate" of Parent or Merger Sub does not include any of IC
USA LP, APG Strategic Real Estate Pool LPP U.S. LLC, or Grey Multifamily LLC.
"
Antitrust Law
" means any antitrust, unfair competition, merger or acquisition notification, or merger or acquisition control Law under
any applicable jurisdictions, whether federal, state, local or foreign.
A-6
Table of Contents
"
Acquisition Sub Certificate of Formation
" means the Acquisition Sub's Certificate of Formation, as amended, as in effect as of the date
hereof.
"
Acquisition Sub LLC Agreement
" means the Acquisition Sub's Limited Liability Company Agreement, as amended, as in effect as of the
date hereof.
"
Business Day
" means any day other than a Saturday, Sunday or a day on which banking institutions in New York, New York are authorized or
obligated by Law to be closed.
"
Change in Circumstances
" means any material fact, event, change, development or circumstances not known or reasonably foreseeable by the
Company Board as of the date hereof, which fact, event, change, development or circumstances becomes known to the Company Board prior to the Company Stockholder Approval;
provided
,
however
, that in no event shall the receipt, existence or terms of an Acquisition Proposal, or
any inquiry, indication of interest, proposal or offer that could reasonably be expected to lead to an Acquisition Proposal, constitute a Change in Circumstances.
"
Code
" means the Internal Revenue Code of 1986, as amended.
"
Company 10-K
" means the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2016.
"
Company Benefit Plan
" means each "employee benefit plan," as defined in Section 3(3) of ERISA, and each other stock bonus, stock
purchase, stock option, restricted stock, stock appreciation right or other equity or equity-based, deferred-compensation, employment, consulting, retirement, welfare-benefit, bonus, incentive,
commission, change in control, retention, severance, separation, vacation, paid time off, or fringe benefit or other benefit or compensation plan, policy, program, contract, arrangement or agreement
sponsored, maintained or contributed or required to be contributed to by the Acquired Companies or any member of the Controlled Group or with respect to which the any Acquired Company or any member of
the Controlled Group has any Liability.
"
Company Bylaws
" means the Amended and Restated Bylaws of the Company, as amended, as in effect as of the date hereof.
"
Company Articles of Amendment and Restatement
" means the Company's Articles of Amendment and Restatement, as amended, as in effect as of
the date hereof.
"
Company Compensatory Award
" means each Company Restricted Stock Award, Company RSU Award and Company Performance RSU Award.
"
Company Equity Incentive Plan
" means the Company's Second Amended and Restated Incentive Award Plan.
"
Company Intellectual Property Assets
" means all Intellectual Property Assets owned by the Acquired Companies.
"
Company Material Adverse Effect
" means, with respect to the Company, (a) any Effect that, individually or taken together with all
other Effects, is or would reasonably be expected to become materially adverse to the business, financial condition or results of operations of the Acquired Companies, taken as a whole;
provided
that in
no event shall any of the following, alone or in combination, or any Effect to the extent any of the foregoing results from any of the
following, be taken into account in determining whether there shall have occurred a Company Material Adverse Effect: (i) changes in the Company's stock price or trading volume, (ii) any
failure by the Company to meet published revenue, earnings or other financial projections, or any failure by the Company to meet any internal budgets, plans or forecasts of revenue, earnings or other
financial projections, in and of itself (provided that the exception in this clause (ii) and in clause (i) shall not in any way prevent or otherwise affect a determination that any
Effect underlying such failures has resulted in, or contributed to, a Company Material Adverse Effect), (iii) changes in general economic conditions in the United
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States
or any other country or region in the world, or changes in conditions in the global economy generally, (iv) changes in conditions in the financial markets, credit markets or capital
markets in the United States or any other country or region in the world, including (A) changes in interest rates in the United States or any other country and changes in exchange rates for the
currencies of any countries and (B) any suspension of trading in securities (whether equity, debt, derivative or hybrid securities) generally on any securities exchange or over-the-counter
market operating in the United States or any other country or region in the world, (v) changes in conditions in the multifamily residential real estate industry generally, (vi) changes
in political conditions in the United States or any other country or region in the world (including the decision by the United Kingdom to leave the European Union), (vii) acts of war, sabotage
or terrorism (including any escalation or general worsening of any such acts of war, sabotage or terrorism) in the United States or any other country or region in the world,
(viii) earthquakes, hurricanes, tsunamis, tornadoes, floods, mudslides, wild fires or other natural disasters or weather conditions in the United States or any other country or region in the
world, (ix) the execution or announcement of this Agreement or the pendency of the transactions contemplated by this Agreement, including the impact thereof on the relationships, contractual or
otherwise, of the Acquired Companies with employees, residents, vendors or partners, or the Joint Venture Partners or the identity of Parent or any of its Affiliates as the acquirer of the Company,
(x) any action taken, or failure to take action, in each case which Parent has in writing expressly requested or consented to, (xi) changes in Law, regulation or other legal or
regulatory conditions (or the interpretation thereof), (xii) changes in GAAP or other accounting standards (or the interpretation thereof), (xiii) the availability or cost of equity,
debt or other financing to Parent or Acquisition Sub, or (xiv) any Transaction Litigation;
provided, further,
that, in each of the foregoing
clauses (iii), (iv), (v), (vi), (vii), (viii), (xi) and (xii), such effects referred to therein may be taken into account to the extent that the Company is disproportionally affected
relative to other similarly situated companies in the multifamily residential real estate industry, in which case only the incremental disproportionate impact or impacts may be taken into account in
determining whether or not there has been a Company Material Adverse Effect, or (b) any Effect that would, or would reasonably be expected to, prevent, materially delay or materially impair the
ability of the Company to perform its obligations under this Agreement or to consummate the Merger and the other transactions contemplated hereby.
"
Company Performance RSU Award
" means each award of restricted stock units outstanding under the Company Equity Incentive Plan that is
subject to performance-based vesting.
"
Company Restricted Stock Award
" means each award with respect to a share of Company Common Stock outstanding under the Company Equity
Incentive Plan that is, at the time of determination, subject to a risk of forfeiture or repurchase by the Company, whether subject to time- or performance-based vesting.
"
Company RSU Award
" means each award of restricted stock units outstanding under the Company Equity Incentive Plan that is subject to
time-based vesting.
"
Company Termination Fee
" means an amount equal to $65,679,359, except in the event the Company Termination Fee becomes payable as the
result of the termination of this Agreement (1) by the Company pursuant to
Section 7.1(h)
on or prior to the end of the Initial Period or
(2) by Parent pursuant to
Section 7.1(g)
on or prior to the end of the Initial Period, then in either case "Company Termination Fee" shall
mean $25,261,292.
"
Confidentiality Agreement
" means the Confidentiality Agreement, between the Company and Greystar Real Estate Partners, LLC, dated
as of April 20, 2017.
"
Contract
" means any written, oral or other agreement, contract, subcontract, lease, understanding, instrument, bond, mortgage, indenture,
debenture, note, option, warrant, warranty, purchase order,
license, permit, franchise, sublicense, insurance policy, benefit plan or legally binding commitment or undertaking of any nature.
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"
Controlled Group
" means any trade or business (whether or not incorporated) (i) under common control within the meaning of
Section 4001(b)(1) of ERISA with the Company or (ii) which together with the Company is treated as a single employer under Section 414(t) of the Code.
"
Davis Bacon Act
" means the Davis-Bacon Act of 1931.
"
Debt Financing Sources
" means the financial institutions, banks, funds, investors or other entities providing all or any portion of the
Debt Financing, including all Affiliates of the foregoing and any provider of alternate or replacement Debt Financing permitted pursuant to
Section 5.12
.
"
Effect
" means any effect, change, fact, event, occurrence, circumstance, condition or development.
"
Encumbrance
" means any lien, mortgage, pledge, deed of trust, claims against title, security interest, charge, encumbrance or other
adverse claim or interest.
"
Environmental Claims
" means any Legal Proceedings or Orders alleging potential responsibility or Liability arising out of (i) the
release or threatened release of any Hazardous Materials at any location or (ii) any violation or alleged violation of any Environmental Law.
"
Environmental Law
" means any Law concerning pollution or protection of the environment, including any Law relating to the manufacture,
handling, transport, use, treatment, storage, disposal or release of any Hazardous Materials.
"
Environmental Permits
" means all authorizations, approvals, consents, licenses, permits, certifications, exemptions or registrations
required to be obtained by each Acquired Company under applicable Environmental Law.
"
Equal Pay Act
" means the Equal Pay Act of 1963.
"
ERISA
" means the Employee Retirement Income Security Act of 1974, as amended, and the rules and regulations promulgated thereunder.
"
Evaluation Committee
" means the Evaluation Committee of the Company Board.
"
Exchange Act
" means the Securities Exchange Act of 1934, as amended.
"
FLSA
" means the Fair Labor Standards Act.
"
FMLA
" means the Family and Medical Leave Act.
"
GAAP
" means United States generally accepted accounting principles.
"
Governmental Entity
" means any federal, domestic, territorial, state or local governmental authority of any nature (including any
government and any governmental agency, instrumentality, tribunal or commission, or any subdivision, department or branch of any of the foregoing) or body exercising or entitled to exercise any
administrative, executive, judicial, legislative, police, regulatory or taxing authority or power of any nature.
"
Greystar
" means Greystar Real Estate Partners, LLC.
"
Hazardous Materials
" means all substances, materials or wastes that are listed, defined, designated, classified or regulated as
hazardous, toxic, explosive or radioactive, or as a pollutant or contaminant, under Environmental Law, including petroleum or petroleum distillates, asbestos and polychlorinated biphenyls.
"
HSR Act
" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules and regulations promulgated
thereunder.
"
Intellectual Property Assets
" means any and all of the following, as they exist throughout the world: (i) patents and patent
applications of any kind (collectively, "
Patents
"); (ii) rights in registered
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and
unregistered trademarks, service marks, trade names, logos and Internet domain names, and registrations and applications for registration of any of the foregoing (collectively,
"
Marks
"); (iii) copyrights in both published and unpublished works, and all copyright registrations and applications (collectively,
"
Copyrights
"); (iv) rights under applicable trade secret Law in any information, including inventions, discoveries and invention disclosures
(whether or not patented), compilations, programs, methods, strategies, techniques and processes, in each case that derives independent economic value, actual or potential, from not being generally
known or readily ascertainable by others who can obtain economic value from its disclosure or use; and (v) any and all other intellectual property rights under applicable Law.
"
Initial Period
" means the later of (a) 11:59 p.m. (New York time) on the 30th day after the date of this Agreement,
and (b) 11:59 p.m. (New York time) on the first day after the end of all Superior Proposal Notice periods specified in
Section 5.2(d)(i)
(including any subsequent notice periods
thereunder) applicable to a Superior Proposal from a particular Person (including as
revised or modified); provided, however, that in the case of clause (b), an initial Superior Proposal Notice with respect to such Superior Proposal shall have been provided on or prior to the
30th day after the date of this Agreement.
"
IRS
" means the Internal Revenue Service.
"
Joint Venture Partners
" means PGGM and NPS, which parties have entered into the agreements with the Company set forth on
Section 1.1(a)
of the Company Disclosure
Schedule.
"
Joint Ventures
" means the ventures between Subsidiaries of the Company, on the one hand, and Stichting Depositary PGGM Private Real
Estate Fund ("
PGGM
"), Milky Way Partners, L.P. ("
NPS
"), any subsidiary or affiliate of PGGM or
NPS, or certain other co-investment venture partners related thereto, including national or regional real estate developers/owners, on the other hand.
"
Knowledge
" or any similar expression used with respect to the Company, means the actual knowledge of the individuals set forth on
Section 1.1(b)
of the Company
Disclosure Schedule.
"
Law
" shall mean any federal, state, local or foreign statute, law, regulation, requirement, interpretation, permit, license, approval,
authorization, decision, directive, decree, rule, ruling, Order, ordinance, code, policy or rule of common law of any Governmental Entity, including any judicial or administrative interpretation
thereof.
"
Legal Proceeding
" means any claim, legal action, suit, arbitration or similar proceeding.
"
Liabilities
" means any and all debts, liabilities and obligations of any nature whatsoever, whether accrued or fixed, absolute or
contingent, matured or unmatured or determined or determinable, including those arising under any Law, those arising under any Contract or undertaking and those arising as a result of any act or
omission.
"
made available to Parent
" means that such information, document or material was: (a) publicly available on the SEC EDGAR database
prior to the date of this Agreement; or (b) made available for review by Parent or Parent's representatives in the virtual data room maintained by the Company in connection with the Merger as
of the day prior to the date of this Agreement.
"
Most Recent Balance Sheet
" means the balance sheet of the Company as of December 31, 2016, which is included in the Company 10-K.
"
NYSE
" means the New York Stock Exchange.
"
Order
" means any writ, judgment, injunction, consent, order, decree, stipulation, award or executive order of or by any Governmental
Entity.
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"
Organizational Documents
" means certificate or articles of incorporation, certificates or articles of formation,
by-laws, limited liability company agreements, limited partnership agreements and similar organizational documents, as amended and in effect on the date hereof.
"
Parent Material Adverse Effect
" means, with respect to Parent, any Effect that, individually or taken together with all other Effects
that have occurred prior to the date of determination of the occurrence of the Parent Material Adverse Effect, is or would reasonably be expected to prevent or materially delay the performance by
Parent of any of its obligations under this Agreement or the consummation of the Merger or the other transactions contemplated by the Transaction Documents.
"
Parent Termination Fee
" means an amount equal to $202,090,337.
"
Permitted Encumbrances
" means (i) real estate taxes, assessments and other governmental levies, fees or charges that are not due
and payable as of the Closing Date, or that are being contested in good faith and for which appropriate reserves have been established in accordance with GAAP, (ii) inchoate
mechanic's and materialmen's liens for construction in progress, (iii) inchoate mechanics', materialmen's, carrier's, workmen's, repairmen's or other similar liens arising or incurred in the
ordinary course of business, the existence of which does not, and would not reasonably be expected to, materially interfere with the present use of any of the Company Properties subject thereto or
affected thereby, (iv) zoning, building codes and other land use Law regulating the use or occupancy of real property or the activities conducted thereon that are imposed by any Governmental
Entity having jurisdiction over such real property that are not violated by the current use of real property or the operation of the business thereon, (v) conditions, covenants, restrictions,
easements and reservations of rights, including rights of way, for sewers, electric lines, telegraph and telephone lines and other similar purposes, and affecting the fee title to any real property
owned or leased by the Company (a) which are disclosed on existing title reports listed on
Section 1.1(c)(i)
of the Company Disclosure
Schedules or existing surveys listed on
Section 1.1(c)(ii)
of the Company Disclosure Schedules or (b) which would be shown on the current
title reports and current surveys performed by Parent as of the date of this Agreement and the existence of which does not, and would not reasonably be expected to, materially impair the
marketability, value or use and enjoyment of such real property, (vi) liens imposed by Law (excluding those described in clause (i)), (vii) other obligations of a like nature to
the obligations described in foregoing clauses (i)-(vi) in each case in the ordinary course of business that do not materially interfere with the present use of any property, are not yet due
and payable or are being contested in good faith or for which appropriate reserves have been established in accordance with GAAP, (viii) liens in connection with the Existing Loan Documents,
(ix) Liens created by or on behalf of Parent or its successors and assigns, and (x) the Leases and all matters caused or arising by, through or under a landlord under the Leases.
"
Person
" means any individual, corporation (including any non-profit corporation), partnership (general or limited), limited liability
company, limited liability partnership, trust, joint venture, joint stock company, estate, trust, firm, syndicate, association, unincorporated organization, society or other enterprise, association,
organization or entity (including any Governmental Entity).
"
Pre-Closing Acquisitions Payment
" means the aggregate amount paid by Parent or its Affiliates to the Company or its Subsidiaries, to the
extent such amounts paid to such Subsidiaries are deposited with the Paying Agent, in connection with the Additional Transactions.
"
Sarbanes-Oxley Act
" means the Sarbanes-Oxley Act of 2002.
"
SEC
" means the United States Securities and Exchange Commission.
"
Securities Act
" means the Securities Act of 1933, as amended.
"
Service Contract Act
" means the McNamaraO'Hara Service Contract Act of 1965.
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"
Sponsors
" means IC USA LP, APG Strategic Real Estate Pool LPP U.S. LLC, Grey Multifamily LLC, an affiliate of
GIC Real Estate, Inc., Greystar Growth and Income GP, LLC and Greystar Real Estate Partners, LLC.
"
Subsidiary
" of any Person means any corporation, partnership, limited liability company, joint venture or other legal entity
(i) of which such Person (either directly or through or together with another Subsidiary of such Person) owns more than 50% of the voting stock, voting rights or value of such corporation,
partnership, limited liability company, joint venture or other legal entity, or (ii) the management of which is otherwise controlled, directly or indirectly, through one or more intermediaries,
or both, by such Person. For the avoidance of doubt, Monogram Residential Master Partnership I LP shall be deemed a "Subsidiary" of the Company.
"
Subsidiary REIT
" means any direct or indirect subsidiary that has an election in effect under Section 856(c) of the Code to be
taxed as a REIT or otherwise intends to be taxable as a REIT as of the date hereof, all of which are listed on
Section 1.1(d)
of the Company
Disclosure Schedule.
"
Superior Proposal
" means a written Acquisition Proposal (with all of the percentages included in the definition of Acquisition Proposal
increased to 80%) that the Company Board (or any committee thereof that has been duly appointed for the purpose of evaluating (i) the transactions contemplated hereunder and (ii) any
Acquisition Proposals) determines in good faith, after consultation with its financial advisor and outside legal counsel, and taking into consideration, among other things, all of the terms,
conditions, impact and all legal, financial, regulatory and other aspects of such Acquisition Proposal and this Agreement that the Company Board (or a committee thereof) deems relevant (in each case
taking into account any revisions to this Agreement made in writing by Parent prior to the time of determination pursuant to
Section 5.2(d)
),
including all legal, financial (including breakup fee provisions) and regulatory aspects of the Acquisition Proposal and the Person making the proposal, would, if consummated, result in a transaction
more favorable from a financial point of view to the holders of Company Common Stock than the transactions provided for in this Agreement.
"
Tax
" (and, with correlative meaning, "
Taxes
") means any (i) federal, state, local,
or foreign income, gross receipts, license, payroll, employment, excise, severance, stamp, occupation, premium, windfall profits, environmental (including taxes under Section 59A of the Code),
customs duties, capital stock, franchise, profits, withholding, social security (or similar), unemployment, disability, real property, gross margins, personal property, sales, use, transfer,
registration, value added, alternative or add-on minimum, ad valorem, or any estimated, payment in lieu of or other tax of any kind whatsoever (including any fee or penalty for the failure to file or
timely file any Tax Return), and including any interest, penalty, or addition thereto, whether disputed or not (ii) liability for the payment of any amounts of the type described in
clause (i) of this sentence as a result of being a member of an
affiliated, consolidated, combined, unitary or aggregate group for any taxable period, (iii) liability under any state abandonment or unclaimed property, escheat or similar Law, and
(iv) liability for the payment of any amounts of the type described in clause (i), (ii) or (iii) of this sentence as a result of being a transferee of or successor to any
person or as a result of any express or implied obligation to indemnify or pay any other Person.
"
Tax Protection Agreements
" means any agreement to which the Company or any of its Subsidiaries is a party pursuant to which the Company
or any of its Subsidiaries has agreed to (i) maintain a minimum level of debt or continue a particular debt or allocate a certain amount of debt to a particular owner, (ii) retain or not
dispose of assets for a period of time that has not since expired, (iii) make or refrain from making Tax elections, and/or (iv) only dispose of assets in a particular manner, in each
case for the purpose of preserving Tax deferral with respect to appreciated property contributed to a Subsidiary treated as a partnership for U.S. federal income tax purposes provided, however, that
in no event shall any of the operating or partnership agreements with respect to any of the Joint Ventures be deemed a Tax Protection Agreement.
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"
Tax Return
" means any return, report or similar statement required to be filed with respect to any Tax (including any attached
schedules), including any information return, claim for refund, reports, schedules, amended return or declaration of estimated Tax.
"
Third Party
" means any Person or group (as defined in Section 13(d)(3) of the Exchange Act) other than the Company, Parent,
Acquisition Sub or any Affiliates thereof.
"
Transaction Documents
" means this Agreement and all other agreements, instruments and documents to be executed and delivered by Parent,
Acquisition Sub and the Company pursuant to this Agreement.
"
Transaction Litigation
" means any claim or Legal Proceeding (including any class action or derivative litigation) asserted or commenced
by, on behalf of or in the name of, against or otherwise involving the Company, the Company Board, any committee thereof and/or any of the Company's directors or officers relating directly or
indirectly to this Agreement, the Merger or any of the Transactions (including any such claim or Legal Proceeding based on allegations that the Company's entry into this Agreement or the terms and
conditions of this Agreement or any of the Transactions constituted a breach of the fiduciary duties of any member of the Company Board or any officer of the Company).
"
Transactions
" means the transactions contemplated by this Agreement, including the Merger.
"
WARN Act
" means the United States Worker Adjustment and Retraining Notification Act, as amended, or any state Law requiring advance
notice of termination to employees.
"
Walsh Healey Act
" means the WalshHealey Act of 1936.
"
Willful Breach
" means, with respect to any representation, warranty, agreement or covenant, an action or omission where the breaching
party knows such action or omission is, or would reasonably be expected to result in, a breach of such representation, warranty, agreement or covenant.
(b) Each
of the following terms is defined in the Section set forth opposite such term:
|
|
|
Term
|
|
Section
|
Acquisition Sub
|
|
Preamble
|
Additional Transactions
|
|
Section 5.18(b)
|
Agreement
|
|
Preamble
|
Alternate Financing
|
|
Section 5.12(b)
|
Alternative Acquisition Agreement
|
|
Section 5.2(c)
|
Articles of Merger
|
|
Section 2.3
|
Assumption Documents
|
|
Section 5.21
|
Assumption Expenses
|
|
Section 5.21
|
Board Recommendation
|
|
Section 3.15
|
Book Entry Share
|
|
Section 2.5(a)(i)
|
Capital Budgets
|
|
Section 5.1(g)
|
Capitalization Date
|
|
Section 3.3(a)
|
Change in Recommendation
|
|
Section 5.2(c)
|
Certificate of Merger
|
|
Section 2.3
|
Closing
|
|
Section 2.3
|
Closing Date
|
|
Section 2.3
|
Company
|
|
Preamble
|
Company Board
|
|
Recitals
|
Company Common Stock
|
|
Recitals
|
Company Disclosure Schedule
|
|
Article 3
|
Company Expenses
|
|
Section 7.3(b)
|
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|
|
|
Term
|
|
Section
|
Company Properties
|
|
Section 3.6(a)
|
Company Recovery Costs
|
|
Section 7.3(c)Section 7.3(b)
|
Company SEC Documents
|
|
Section 3.4(a)
|
Company Stock Certificate
|
|
Section 2.5(a)(i)
|
Company Stockholder Approval
|
|
Section 3.15
|
Construction Project
|
|
Section 3.6(h)
|
Continuing Employee
|
|
Section 5.7(a)
|
Debt Commitment Letter
|
|
Section 4.6
|
Debt Financing
|
|
Section 4.6
|
DLLCA
|
|
Recitals
|
Effective Time
|
|
Section 2.3
|
End Date
|
|
Section 7.1(b)
|
Equity Commitment Letter
|
|
Recitals
|
Equity Financing
|
|
Section 4.6
|
Evaluation Material
|
|
Section 5.4
|
Existing Lenders
|
|
Section 5.21
|
Existing Loan Documents
|
|
Section 3.7(a)(iii)
|
Financing
|
|
Section 4.6
|
Financing Commitment Letters
|
|
Section 4.6
|
Financing Indemnitees
|
|
Section 5.12(e)
|
Guarantee
|
|
Recitals
|
Indemnified Party
|
|
Section 5.8(f)
|
Joint Venture Restructuring Agreements
|
|
Recitals
|
Lease Documents
|
|
Section 3.6(b)
|
Leases
|
|
Section 3.6(j)
|
Management Agreement Documents
|
|
Section 3.6(i)
|
Maryland Courts
|
|
Section 8.6
|
Material Contract
|
|
Section 3.7(b)
|
Material Lease
|
|
Section 5.1(k)
|
Merger
|
|
Recitals
|
Merger Certificates
|
|
Section 2.3
|
Merger Consideration
|
|
Section 2.5(a)(i)
|
Mezzanine Loans
|
|
Section 3.6(d)
|
Mezzanine Loan Documents
|
|
Section 3.6(d)
|
MGCL
|
|
Recitals
|
Non-Continuing Employee
|
|
Section 5.7(a)
|
Offering Documents
|
|
Section 5.12(c)
|
Parent
|
|
Preamble
|
Parent Expenses
|
|
Section 7.3(c)
|
Parent Liability Cap
|
|
Section 8.12(d)
|
Parent Recovery Costs
|
|
Section 7.3(c)
|
Parent Related Party
|
|
Section 8.12(d)
|
Paying Agent
|
|
Section 2.6(a)
|
Permits
|
|
Section 3.6(f)
|
Proxy Statement
|
|
Section 5.11
|
Qualified REIT Subsidiary
|
|
Section 3.10(d)
|
Qualifying Income
|
|
Section 7.4(a)
|
Registered Company Intellectual Property Assets
|
|
Section 3.20(a)
|
REIT
|
|
Section 3.10(b)
|
Rent Roll
|
|
Section 3.6(j)
|
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|
|
|
Term
|
|
Section
|
Representatives
|
|
Section 5.2(a)
|
Required Financial Information
|
|
Section 5.12(c)
|
Rights
|
|
Section 3.3(b)
|
SDAT
|
|
Section 2.3
|
Severance Pay
|
|
Section 5.7(a)
|
Shares
|
|
Section 2.5(a)(i)
|
Solvent
|
|
Section 4.7
|
Stockholder Meeting
|
|
Section 5.11(b)
|
Superior Proposal Notice
|
|
Section 5.2(d)(i)
|
Surviving Entity
|
|
Recitals
|
Tail Policy
|
|
Section 5.8(c)
|
Takeover Statutes
|
|
Section 5.20
|
Tax Opinion
|
|
Section 6.2(e)
|
Taxable REIT Subsidiary
|
|
Section 3.10(d)
|
Third Party IP Rights
|
|
Section 3.20(b)(iv)
|
Transfer Taxes
|
|
Section 5.17(e)
|
ARTICLE 2
THE MERGER; EFFECTIVE TIME
Section 2.1
The Merger.
Upon the terms and subject to the conditions set forth in this Agreement, at
the Effective Time, the Company shall be merged with and into the Acquisition Sub,
and the separate existence of the Company shall cease. The Acquisition Sub will continue as the Surviving Entity.
Section 2.2
Effect of the Merger.
The Merger shall have the effects set forth in this Agreement
and in the applicable provisions of the MGCL and the DLLCA.
Section 2.3
Closing; Effective Time.
The closing of the Merger (the "
Closing
") shall take place at 10:00 a.m., Eastern time, as soon as
practicable (and, in any event, within three Business Days) following the satisfaction or, to the extent permitted by applicable Law, waiver of the conditions set forth in
Article 6
(other than
those conditions that by their terms are to be satisfied at the Closing, but subject to the satisfaction or, to the extent
permitted by applicable Law, waiver of those conditions), at the offices of Goodwin Procter LLP, 620 8th Avenue, New York, New York, unless another date, time or place is agreed to in
writing by Parent and the Company. The date on which the Closing occurs is referred to in this Agreement as the "
Closing Date
". Upon the terms and
subject to the provisions of this Agreement, as soon as practicable on the Closing Date, Acquisition Sub and the Company shall (i) duly execute and file (A) articles of merger (the
"
Articles of Merger
") with the State Department of Assessments and Taxation of Maryland ("
SDAT
") in
accordance with the Laws of the State of Maryland and (B) a certificate of merger with the Secretary of State of the State of Delaware in accordance with the Laws of the State of Delaware (the
"
Certificate of Merger
," and together with the Articles of Merger, the "
Merger Certificates
") and
(ii) make any other filings, recordings or publications required to be made by the Company or Acquisition Sub under the MGCL and the DLLCA. The Merger shall become effective on the date and
time at which the Merger Certificates have been filed with, and accepted for record by, the SDAT and the Secretary of State of the State of Delaware or at such other date and time as is agreed between
the Parties and specified in the Merger Certificates, which shall not be more than five Business Days after the date of filing (such date and time being hereinafter referred to as the
"
Effective Time
").
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Section 2.4
Articles of Organization and LLC Agreement; Managers.
At the Effective Time,
unless otherwise jointly determined by Parent and the Company prior to the Effective Time:
(a) the
Acquisition Sub Certificate of Formation, as set forth in
Exhibit A
shall be the certificate of formation of
the Surviving Entity until, subject to
Section 5.8
, amended in accordance with applicable Law;
(b) the
Acquisition Sub LLC Agreement, as set forth in
Exhibit B
, shall be the limited liability company
agreement of the Surviving Entity until, subject to
Section 5.8
, amended in accordance with applicable Law; and
(c) from
and after the Effective Time, until successors are duly elected or appointed and qualified in accordance with applicable Law, (i) the managers of Acquisition
Sub immediately prior to the Effective Time shall be the managers of the Surviving Entity and (ii) the officers of the Company immediately prior to the Effective Time shall be the officers of
the Surviving Entity.
Section 2.5
Conversion of Capital Stock
.
(a) At
the Effective Time, by virtue of the Merger and without any action on the part of Parent, Acquisition Sub, the Company or any holder of Company Common Stock:
(i) Each
share of Company Common Stock (such shares of Company Common Stock, collectively, the "
Shares
") issued and
outstanding immediately prior to the Effective Time, shall be automatically canceled and converted into the right to receive an amount in cash equal to $12.00 per share of Company Common Stock (the
"
Merger Consideration
"), without interest. At the Effective Time, all of the shares of Company Common Stock shall cease to be outstanding, shall
automatically be cancelled and shall cease to exist, and each certificate (a "
Company Stock Certificate
") formerly representing any of such shares and
each non-certificated share represented by book entry (a "
Book Entry Share
") shall thereafter represent only the right to receive the Merger
Consideration, without interest, and each Company Stock Certificate formerly representing shares of Company Common Stock, shall thereafter only represent the right to receive the payment to which
reference is made in
Section 2.6
.
(ii) At
the Effective Time, each limited liability company interest of Acquisition Sub existing immediately prior to the Effective Time shall automatically be converted into
one limited liability company interest of the Surviving Entity.
(iii) At
the Effective Time, each share of Company Common Stock held by Parent or any direct or indirect wholly owned Subsidiaries of Parent issued and outstanding
immediately prior to the Effective Time shall automatically be cancelled and retired and shall cease to exist, and no consideration shall be delivered in exchange therefor.
(b) Without
duplication of the effects of
Section 2.5(a)
, if, between the date hereof and the Effective Time, the
outstanding Company Common Stock are changed into a different number or class of shares by reason of any stock split, division or subdivision of shares, stock dividend, reverse stock split,
consolidation of shares, reclassification, recapitalization or other similar transaction, then the amount of cash into which each share of Company Common Stock is converted in the Merger shall be
adjusted to the extent appropriate; provided that nothing in this
Section 2.5(b)
will be construed to permit the Company to take any action with
respect to its securities that is prohibited by the terms of this Agreement.
Section 2.6
Payment for Company Common Stock
.
(a) Prior
to the Effective Time, Parent shall select a reputable bank or trust company (that is reasonably satisfactory to the Company) to act as paying agent with respect
to the Merger (the "
Paying Agent
"). At or immediately prior to the Effective Time, and except with respect to Merger
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Consideration
payable pursuant to Company Compensatory Awards (which are governed by
Section 2.7(e)
) (i) Parent shall deposit, or shall
cause to be deposited, with the Paying Agent (A) cash amounts sufficient to enable the Paying Agent to make payments to which holders of Shares are entitled at the Effective Time pursuant to
Section 2.5
less
(B) the Pre-Closing Acquisitions Payment, and (ii) each of the Subsidiaries of the Company that received any
portion of the Pre-Closing Acquisitions Payment shall pay in cash such portion of the Pre-Closing Acquisitions Payment to the Company, and the Company shall deposit, or shall cause to be deposited,
with the Paying Agent a cash amount equal to the Pre-Closing Acquisitions Payment.
(b) Within
two Business Days after the Effective Time, Parent and the Surviving Entity shall cause the Paying Agent to mail to each Person who was, immediately prior to the
Effective Time, a holder of record of Company Common Stock described in
Section
2.5 a form of letter of transmittal (mutually approved by Parent and the
Company) and instructions for use in effecting the surrender of Company Stock Certificates or Book Entry Shares previously representing such Company Common Stock in exchange for payment therefor.
Parent shall ensure that, upon surrender to the Paying Agent of each such Company Stock Certificate or Book Entry Share (or affidavits of loss in lieu of the Company Stock Certificate pursuant to
Section 2.11
), together with a properly executed letter of transmittal, the holder of such Company Stock Certificate or Book Entry Share (or,
under the circumstances described in
Section 2.6(e)
, the transferee of the Company Common Stock previously represented by such Company Stock
Certificate or Book Entry Share) shall promptly receive in exchange therefor the amount of cash to which such holder (or transferee) is entitled pursuant to
Section 2.5
. Exchange of any Book Entry
Shares shall be effected in accordance with the Paying Agent's customary procedures with respect to
securities represented by book entry.
(c) On
or after the first anniversary of the Effective Time, the Surviving Entity shall be entitled to cause the Paying Agent to deliver to the Surviving Entity any funds
made available by Parent or the Company (pursuant to
Section 2.6(a)
) to the Paying Agent which have not been disbursed to holders of Company
Stock Certificates or Book Entry Shares, and thereafter such holders shall be entitled to look to Parent and the Surviving Entity with respect to the cash amounts payable upon surrender of their
Company Stock Certificates or Book Entry Shares. Neither the Paying Agent nor the Surviving Entity shall be liable to any holder of a Company Stock Certificate or Book Entry Share for any amount
properly paid to a public official pursuant to any applicable abandoned property or escheat law.
(d) If
any Company Stock Certificate shall have been lost, stolen or destroyed, then, upon the making of an affidavit of that fact by the Person claiming such Company Stock
Certificate to be lost, stolen or destroyed, Parent shall cause the Paying Agent to pay in exchange for such lost, stolen or destroyed Company Stock Certificate the cash amount payable in respect
thereof pursuant to this Agreement.
(e) In
the event of a transfer of ownership of Company Common Stock that is not registered in the transfer records of the Company, payment may be made with respect to such
Company Common Stock to a transferee of such Company Common Stock if the Company Stock Certificate (if applicable) previously representing such Company Common Stock is presented to the Paying Agent,
accompanied by all documents reasonably required by the Paying Agent to evidence and effect such transfer and to evidence that any applicable stock transfer taxes relating to such transfer have been
paid.
(f) The
Surviving Entity shall bear and pay all charges and expenses, including those of the Paying Agent, incurred in connection with the payment for Company Common Stock.
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Section 2.7
Company Compensatory Awards
.
(a)
Termination of Company Equity Incentive Plans.
Except as otherwise agreed to by the parties hereto in
writing, (i) the Company Equity Incentive Plan shall terminate as of the Effective Time and the provisions in any other plan, program or arrangement providing for the issuance or grant of any
other interest in respect of the capital stock of any Acquired Company thereof shall be cancelled as of the Effective Time and (ii) the Company shall ensure that following the Effective Time no
participant in the Company Equity Incentive Plan or other plans, programs or arrangements shall have any right thereunder to acquire any equity securities of the Company, the Surviving Entity or any
Subsidiary thereof.
(b)
Company Restricted Stock Awards.
At the Effective Time, pursuant to compensation committee action as
authorized under the Company Equity Incentive Plan, each Company Restricted Stock Award that is outstanding immediately prior thereto shall become fully vested and all restrictions and repurchase
rights thereon shall lapse and all such Company Restricted Stock Awards shall be converted automatically into the right to receive at the Effective Time an amount in cash (without interest
thereon) in dollars equal to the product of (i) the total number of such shares subject to Company Restricted Stock Awards without regard to vesting, excluding for this purpose any shares
receiving payment pursuant to
Section 2.5
, and (ii) the Merger Consideration.
(c)
Company RSU Awards.
At the Effective Time, each Company RSU Award that is unvested and outstanding
immediately prior thereto shall become fully vested in accordance with the applicable award agreement and all such Company RSU Awards and related agreements shall be canceled and such awards converted
automatically into the right to receive at the Effective Time an amount in cash (without interest thereon) in dollars equal to the product of (i) the total number of such shares subject to
Company RSU Awards without regard to vesting, excluding for this purpose any shares receiving payment pursuant to
Section 2.5
, and
(ii) the Merger Consideration. The cancellation of a Company RSU Award as provided in the immediately preceding sentence shall be deemed a release of any and all rights the holder thereof had
or may have had to receive shares of Company Common Stock in respect of such Company RSU Award.
(d)
Company Performance RSU Awards.
At the Effective Time, each Company Performance RSU Award that is
outstanding immediately prior thereto shall become vested based on actual performance achieved by the Company from the commencement of the applicable performance period through the date that is thirty
(30) days immediately preceding the Closing in accordance with the terms of the applicable award agreement, and each such Company Performance RSU Award and related agreement shall be cancelled
and such award converted automatically into the right to receive at the Effective Time an amount in cash (without interest thereon) in dollars equal to the product of (i) the total number of
shares subject to such Company Performance RSU Awards deemed earned based on such actual performance and (ii) the Merger Consideration. The cancellation of a Company Performance RSU Award as
provided in the immediately preceding sentence shall be deemed a release of any and all rights the holder thereof had or may have had to receive shares of Company Common Stock in respect of such
Company Performance RSU Award.
(e)
Payment Procedures.
Before the Effective Time, the Company shall take all such lawful actions as may be
necessary (which include satisfying the requirements of Rule 16b-3(e) promulgated under the Exchange Act), to provide for and give effect to the transactions contemplated by this
Section 2.7
,
subject in all cases to the requirements of applicable Law, including Section 409A of the Code, and notwithstanding anything
to the contrary in this
Section 2.7
, the Company shall in no event take any action that could reasonably be expected to result in a violation of
or a penalty under the requirements of Section 409A of the Code. As promptly as practicable after the Effective Time, the applicable holders of Company Compensatory
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Awards
will receive a payment from the Company or the Surviving Entity, through its payroll system, payroll provider and/or equity award maintenance systems, of all amounts required to be paid to such
holders in respect of such Company Compensatory Awards that are cancelled and converted pursuant to
Section 2.7(b)
,
Section 2.7(c)
or Section
2.7(d)
as applicable; provided that such payment shall be made at such
other time or times following the Effective Time consistent with the terms of the Company RSU Award or Company Performance RSU Award, as applicable, to the extent necessary to avoid the imposition of
additional income tax under Section 409A of the Code. All such payments will be less any applicable withholding Taxes. Notwithstanding the foregoing, if any payment owed to a holder of Company
Compensatory Awards pursuant to Section
2.7(b)
, Section
2.7(c)
or Section
2.7(d)
as applicable, cannot be
made through the Company's or the Surviving Entity's payroll system, payroll provider and/or equity award maintenance
systems, then the Surviving Entity will issue a check for such payment to such holder, which check will be sent by overnight courier to such holder promptly following the Closing Date (but in no event
more than two Business Days thereafter).
Section 2.8
Appraisal Rights.
No dissenters' or appraisal rights shall be available with respect
to the Merger or other transactions contemplated hereby.
Section 2.9
Further Action.
If, at any time after the Effective Time, any further action is
necessary to carry out the purposes of this Agreement, the officers and directors of the Surviving
Entity and Parent shall (in the name of Acquisition Sub, in the name of the Company or otherwise) take such action.
Section 2.10
Withholding of Tax.
Notwithstanding any provision in this Agreement to the contrary,
each of Parent, the Surviving Entity, any Affiliate thereof or the Paying Agent shall be entitled
to deduct and withhold from the consideration otherwise payable pursuant to this Agreement to any holder of shares of Company Common Stock, and from amounts otherwise payable pursuant to
Section 2.7
, such amount as Parent, the Surviving Entity, any Affiliate thereof or the Paying Agent is required to deduct and withhold with
respect to the making of such payment under the Code or any provision of state, local or foreign Law. To the extent that amounts are so withheld and paid over to the applicable Governmental Entity,
then for all purposes of this Agreement such amounts shall be treated as having been paid to the holder of shares of Company Common Stock or other Person in respect of which such deduction and
withholding was made.
Section 2.11
Lost Company Stock Certificates.
If any Company Stock Certificate shall have been
lost, stolen or destroyed, upon the making of an affidavit of that fact by the Person claiming such Company Stock
Certificate to be lost, stolen or destroyed and, if required by Parent, the posting by such Person of a bond, in such reasonable and customary amount as Parent may direct, as indemnity against any
claim that may be made against it with respect to such lost, stolen or destroyed Company Stock Certificate, the Paying Agent will issue in exchange for such lost, stolen or destroyed Company Stock
Certificate the Merger Consideration, without any interest thereon.
Section 2.12
Tax Treatment.
The parties intend that, for U.S. federal, and applicable state,
income tax purposes, the Merger shall be treated as a taxable sale by the Company of all of the
Company's assets to Acquisition Sub in exchange for the Merger Consideration to be provided to the stockholders of the Company and the assumption of all of the Company's liabilities, followed by the
distribution of such Merger Consideration to the stockholders of the Company in liquidation of the Company pursuant to Section 331 and Section 562 of the Code, and that this Agreement
be, and is hereby adopted as, a "plan of liquidation" of the Company for U.S. federal income tax purposes. The parties further intend that, for U.S. federal, and applicable state, income tax purposes,
the Additional Transactions shall be treated as described in
Schedule C
(to the extent described). The parties hereto agree not to take any
position (or permit their Affiliates to take any position) on any tax return that is inconsistent with the foregoing for all U.S. federal, and, if applicable, state and local tax purposes.
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ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except (x) as disclosed in the disclosure schedule delivered by the Company to Parent prior to the execution of this Agreement (the
"
Company Disclosure Schedule
") (it being acknowledged and agreed that disclosure of any item in any Section or subsection of the Company Disclosure
Schedule shall be deemed disclosed with respect to any other Section or subsection of the Company Disclosure Schedule to the extent that the relevance of any disclosed event, item or occurrence in the
Company Disclosure Schedule to such other Section or subsection is reasonably apparent on its face as to matters and items that are the subject of the corresponding representation or warranty in this
Agreement), and (y) as set forth in the Company SEC Documents filed with the SEC prior to the date of this Agreement to the extent it is reasonably apparent that any such disclosure set forth
in such Company SEC Documents would qualify the representations and warranties contained herein, but excluding from such Company SEC Documents any risk factor disclosures, disclosures about
market risk or other cautionary, predictive or forward-looking disclosures contained therein (other than those disclosures which relate to specific historical events or circumstances affecting the
Company), the Company represents and warrants to each of Parent and Acquisition Sub as follows:
Section 3.1
Due Organization and Good Standing; Subsidiaries.
Each of the Acquired Companies
(a) is a corporation or other entity that is duly organized, validly existing and in good standing (with respect to
jurisdictions that recognize such concept) under the Law of its jurisdiction of incorporation or organization, as applicable, (b) has full corporate (or, in the case of any Subsidiary that is
not a corporation, other) power and authority to own, lease and operate its properties and assets and to conduct its business as presently conducted, and (c) is duly qualified or licensed to do
business as a foreign corporation and is in good standing (with respect to jurisdictions that recognize such concept) in each jurisdiction where the character of the properties owned, leased or
operated by it or the nature of its business makes such qualification or licensing necessary, except, with respect to clause (c), where the failure to be so qualified or licensed has not had or
would not reasonably be expected to have a Company Material Adverse Effect.
Section 3.2
Organizational Documents.
The Company has made available to Parent (or included as an
exhibit to the Company 10-K) complete and correct copies of the articles of amendment and restatement
and by-laws (or similar organizational documents) of the Company and each material Subsidiary of the Company, each as amended to date, and each as so delivered is in full force and effect. The Company
is not in violation of any of the provisions of the Company Articles of Amendment and Restatement or the Company Bylaws and will not be in violation of any of the provisions of the Company Articles of
Amendment and Restatement or Company Bylaws, as the Company Articles of Amendment and Restatement and the Company Bylaws may be amended (subject to
Section 5.1(a)
) between the date hereof and the
Closing Date. None of the material Subsidiaries of the Company is in violation of any of the
provisions of its respective Organizational Documents and will not be in violation of any of the provisions of its respective Organizational Documents as may be amended (subject to
Section 5.1(a)
)
between the date hereof and the Closing Date. As of any date following the date hereof, notwithstanding anything in this
Agreement to the contrary and notwithstanding anything set forth in the Company Disclosure Schedule, neither the Company nor any of its "significant subsidiaries" (as defined in Rule 1-02(w) of
Regulation S-X under the Exchange Act) has filed for bankruptcy or filed for reorganization under the U.S. federal bankruptcy Law or similar state or federal Law, become insolvent or become
subject to conservatorship or receivership.
Section 3.3
Capitalization
.
(a) The
authorized capital stock of the Company consists of: (i) 875,000,000 shares of Company Common Stock, of which 167,031,843 were issued and outstanding (which
includes 154,712 unvested Company Restricted Stock Awards) as of June 30, 2017 (the "
Capitalization Date
"); and
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(ii) 125,000,000
shares of preferred stock, $0.0001 par value per share, of which no shares were issued and outstanding as of the Capitalization Date. As of the Capitalization Date, 1,376,771
shares of Company Common Stock were subject to issuance pursuant to outstanding Company RSU Awards and Company Performance RSU Awards, collectively. From the Capitalization Date through the date of
this Agreement, neither the Company nor any of its Subsidiaries has issued any Shares or Rights, other than upon exercise, vesting or settlement of the Incentive Awards outstanding under the Company
Stock Plans in accordance with the their terms as of the date hereof. All shares of capital stock of the Company that are subject to issuance, upon issuance prior to the Effective Time in accordance
with the terms and subject to the conditions specified in the instruments under which they are issuable (A) are, or upon issuance will be, duly authorized and validly issued and fully paid,
nonassessable and free of any preemptive or similar right, purchase option, call or right of first refusal or similar right, and (B) are, to the extent owned directly or indirectly by the
Company, owned free and clear of any Encumbrances and transfer restrictions, except for such transfer restrictions of general applicability as may be provided under the Securities Act and other
applicable securities Laws. There are no bonds, debentures, notes or other indebtedness of the Acquired Companies, issued and outstanding, having the right to vote (or convertible or exercisable or
exchangeable for securities having the right to vote) on any matters on which stockholders of the Company may vote.
(b)
Section 3.3(b)
of the Company Disclosure Schedule sets forth, as of the Capitalization Date, a true and complete
list of all holders of Company Compensatory Awards, and, with respect to each, the type of award held, the number of shares of Company Common Stock subject to the Company Compensatory Awards that have
already vested prior to the Effective Time and the number of shares of Company Common Stock subject to the Company Compensatory Awards that are expected to become vested in accordance with
Section 2.7
. At the close of business on the Capitalization Date, there were no other shares of the Company's stock or any securities valued by
reference to or convertible into or exchangeable or exercisable for any shares of its capital stock outstanding. Except as set forth in this
Section 3.3(b)
and
Section 3.3(b)
of the Company Disclosure Schedule, there are no
(i) shares of capital stock or other equity interests or voting securities of the Company authorized, issued or outstanding, (ii) existing options, warrants, calls, preemptive rights,
subscription or other rights, agreements, arrangements or commitments of any character, obligating the Company or any of its Subsidiaries to issue, transfer or sell or cause to be issued, transferred
or sold any shares of capital stock or other equity interests or voting security in the Company or any of its Subsidiaries or securities convertible into or exchangeable or exercisable for such shares
of capital stock or other equity interests or voting securities, or obligating the Company or any of its Subsidiaries to grant, extend or enter into any such option, warrant, call, preemptive right,
subscription or other right, agreement, arrangement or commitment, (iii) outstanding contractual obligations of the Company or any of its Subsidiaries to repurchase, redeem or otherwise acquire
any shares of Company Common Stock, or the capital stock or other equity interests or voting securities of the Company or of any of its Subsidiaries or (iv) issued or outstanding phantom
equity, profit participation rights, performance awards, units, rights to receive shares of Company Common Stock on a deferred basis, or rights to purchase or receive shares of Company Common Stock or
other equity interests or voting securities issued or granted by the Company to any current or former director, officer, employee or consultant of the Company (the items referred to in
clauses (i) through (iv) of or with respect to any Person, collectively, "
Rights
"). No Subsidiary of the Company owns any shares of
Company Common Stock.
(c) The
Company has made available to Parent correct and complete copies of all material powers of attorney, custodial agreements or other commitments or agreements
(i) that grant the Company a voting proxy with respect to its non-wholly owned Subsidiaries or (ii) grant a third party discretionary authority with respect to Taxes of the Company or
any of its Subsidiaries other than with respect to statutory financial and Tax filings made in the ordinary course of business. There are no voting trusts, "poison pills" or other similar "stockholder
rights plans," proxies or similar Contracts to which the Company or any of its Subsidiaries is a party with respect to the voting of any shares of capital stock of the Company or any of its
Subsidiaries.
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(d)
Section 3.3(d)
of the Company Disclosure Schedule sets forth as of the date of this Agreement (i) a correct
and complete list of each Subsidiary of the Company, indicating its jurisdiction of incorporation or formation, and (ii) a correct and complete list of each other corporation, partnership,
limited liability company or other Person that is not a Subsidiary but in which the Company, directly or indirectly, holds an equity interest. All the outstanding shares of capital stock or voting
securities of, or other equity interests in, each Subsidiary of the Company have been validly issued and are owned, directly or indirectly, by the Company, by another Subsidiary of the Company or by
the Company and another Subsidiary of the Company, free and clear of all Encumbrances other than Permitted Encumbrances. No such Subsidiary has or is bound by any outstanding subscriptions, options,
warrants, calls, commitments or Contracts of any character calling for the purchase or issuance of shares of capital stock or other equity interests of such Subsidiary or any securities representing
the right to purchase or otherwise receive any shares of capital stock or any other equity security of such Subsidiary. Except as set forth on
Section 3.3(d)
of the Company Disclosure Schedule,
neither the Company nor any Subsidiary of the Company owns, directly or indirectly, any
capital stock or voting securities of, or other equity interests in, or has any direct or indirect equity participation or similar interest in, or any interest convertible into or exchangeable or
exercisable for, any capital stock or voting securities of, or other equity interests in, any firm, corporation, partnership, company, limited liability company, trust, joint venture, association or
other entity, nor is the Company or any Subsidiary of the Company under any current obligation to provide funds, make any loan or capital contribution, or provide any guarantee or credit enhancement
or other investment in, or assume any liability or obligation of, any non-wholly owned Subsidiary of the Company (other than routine intercompany cash management practices among Subsidiaries of the
Company).
(e) Except
as set forth on
Section 3.3(e)
of the Company Disclosure Schedule, all dividends and distributions
(including dividend equivalents) on the shares of capital stock of the Company or other securities of the Company or any of its Subsidiaries (other than dividends or distributions between the Company
and its Subsidiaries) that have been declared or authorized prior to the date of this Agreement have been paid in full.
Section 3.4
SEC Filings; Financial Statements
.
(a) All
reports, schedules, forms, statements and other documents (including exhibits and all other information incorporated therein) required to be filed by the Company
with the SEC since January 1, 2015 under the Exchange Act or the Securities Act (collectively, the "
Company SEC Documents
") have been filed with
the SEC on a timely basis. As of its respective date (or, if amended or superseded by a subsequent filing prior to the date hereof, then on the date of such amendment or superseding filing):
(i) each of the Company SEC Documents complied as to form in all material respects with the applicable requirements of the Securities Act, the Exchange Act and the Sarbanes-Oxley Act (as the
case may be); and (ii) none of the Company SEC Documents contained, when filed (and, in the case of registration statements and proxy statements, on the dates of effectiveness and the dates of
mailing, respectively), any untrue statement of a material fact or omitted, as the case may be, to state a material fact required to be stated or incorporated by reference therein or necessary in
order to make the statements therein, in the light of the circumstances under which they were made, not misleading.
(b) The
financial statements (including any related notes) contained or incorporated by reference in the Company SEC Documents: (i) complied as to form in all
material respects with the published rules and regulations of the SEC applicable thereto; (ii) were prepared in accordance with GAAP applied on a consistent basis throughout the periods covered
(except as may be indicated in the notes to such financial statements or, in the case of unaudited statements, as permitted by Form 10-Q, Form 8-K or any successor form under the
Exchange Act, and except that unaudited financial statements may not contain footnotes and are subject to normal and recurring year-end adjustments); and (iii) fairly present, in all material
respects, the financial position of the Company as of the respective dates thereof and the results of operations of the Company for the periods covered thereby.
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No
financial statements of any Person other than the Acquired Companies are required by GAAP to be included in the consolidated financial statements of the Company. None of the Company's Subsidiaries
is subject to the periodic reporting requirements of the Exchange Act or is otherwise required to file any periodic forms, reports, schedules, statements or other documents with the SEC. Since
January 1, 2015, 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, except as described in the notes thereto.
(c) The
Company maintains effective disclosure controls (as defined by Rule 13a-15 or 15d-15 under the Exchange Act). The Company is in compliance in all material
respects with all current listing requirements of the NYSE.
(d) None
of the Acquired Companies has effected, entered into or created any securitization transaction or "off-balance sheet arrangement" (as defined in Item 303(a)
of Regulation S-K under the Exchange Act) where the result, purpose or intended effect of such transaction or arrangement is to avoid disclosure of any material transaction involving, or
material liabilities of, the Acquired Companies in its published financial statements or other Company SEC Documents.
(e) As
of the date hereof, there are no outstanding or unresolved comments in comment letters received from the SEC with respect to the Company SEC Documents. There has been
no material correspondence between the SEC and the Company since January 1, 2015 that is not set forth in the Company SEC Documents or that has not otherwise been disclosed to Parent prior to
the date hereof. To the Knowledge of the Company, none of the Company SEC Documents is the subject of ongoing SEC review.
(f) Except
as permitted by the Exchange Act, including Sections 13(k)(2) and (3), since the enactment of the Sarbanes-Oxley Act, none of the Acquired Companies has
made or permitted to remain outstanding any "extensions of credit" (within the meaning of Section 402 of the Sarbanes-Oxley Act) or prohibited loans to any executive officer (as defined in
Rule 3b-7 under the Exchange Act) or director of the Company.
(g) None
of the Acquired Companies has liabilities of the type required to be disclosed on a balance sheet prepared in accordance with GAAP or disclosed in the notes
thereto, except for: (i) liabilities disclosed in the financial statements (including any related notes) contained in the Company SEC Documents filed and publicly available before the date of
this Agreement; (ii) liabilities incurred in the ordinary course of business consistent with past practice since January 1, 2015; (iii) liabilities to perform under contracts
entered into by the Acquired Companies; and (iv) liabilities and obligations incurred in connection with the transactions contemplated by this Agreement.
Section 3.5
Absence of Certain Changes.
Since the date of the Most Recent Balance Sheet through
the date hereof, except as disclosed in the Company 10-K or in Company SEC Documents since the date of the
Most Recent Balance Sheet through the date hereof, and, except as specifically contemplated by, or as disclosed in, this Agreement, the Acquired Companies have conducted their businesses in all
material respects in the ordinary course consistent with past practice and, since and through such dates, there has not been any Company Material Adverse Effect.
Section 3.6
Properties
.
(a) The
Company or one of its Subsidiaries is the sole record owner of and owns fee simple title to each of the real properties as identified in
Section 3.6(a)
of the Company Disclosure Schedule, including
all buildings, structures and other improvements and fixtures located on or under
such real property (the "
Company Properties
"), which are all of the real estate properties owned by them, in each case, except as provided below, free
and clear of Encumbrances, except for Permitted Encumbrances. Except for the Company Properties and the Mezzanine Loans, neither the Company nor any of its Subsidiaries has any interest, direct or
indirect, in any other real property.
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(b)
Section 3.6(b)
of the Company Disclosure Schedule, sets forth a correct and complete list of all real property
that is leased either by the Company or one of its Subsidiaries and sets forth the leases, material amendments, guaranties or other agreements relating thereto (the "
Lease
Documents
"). To the Company's Knowledge, correct and complete copies of the Lease Documents have been provided to Parent, and each Lease Document is valid and binding on the
Company or one of its Subsidiaries, as the case may be, and, to the Company's Knowledge, each other party thereto, and in full force and effect except as may be limited by bankruptcy, insolvency,
moratorium and other similar Applicable Law affecting creditors' rights generally and by principles of equity. As of the date hereof, neither the Company nor any of its Subsidiaries, is in breach or
violation of, or in default (in each case, with or without notice or lapse of time or both) under any of the Lease Documents, and neither the Company nor any Subsidiary of the Company has received or
given notice of default under any such agreement which remains uncured, except to the extent such breach, violation or notice has not had and would not reasonably be expected to have a Company
Material Adverse Effect.
(c) The
Company has made available to Parent the most current policies of title insurance or valid marked-up title commitments whereby the title company has committed to
issue a title policy in the form marked and all conditions have been marked, to the Company's Knowledge, satisfied evidencing title with respect to each of the Company Properties, a complete list of
which policies or valid marked-up title commitments is set forth in
Section 3.6(c)
of the Company Disclosure Schedule, and no material claim has
been made against any such policy which remains pending and which, individually or in the aggregate, would be material to any of the Company Properties. The Company has provided to Parent the most
recent survey of each of the Company Properties in its possession, a complete list of which is attached to
Section 3.6(c)
of the Company
Disclosure Schedule.
(d)
Section 3.6(d)
of the Company Disclosure Schedule sets forth a correct and complete list as of the date of this
Agreement of all loans held by the Company and any Subsidiary of the Company where such person is a lender or participant in any loan to a third party (the "
Mezzanine
Loans
"), and correct and complete copies of all promissory notes, loan agreements, mortgaged, deeds of trust, security agreements and other material loan documents (including
any amendments, modifications, supplements, assignments or other similar documents) evidencing and securing such Mezzanine Loans have been provided to Parent (collectively, the
"
Mezzanine Loan Documents
"). As of the date hereof, neither the Company nor any Company Subsidiary or any other party to any Mezzanine Loan Documents is
in breach or violation of, or in default (in each case, with or without notice or the lapse of time, or both) under, any of the Mezzanine Loan Documents and neither the Company nor any Subsidiary of
the Company has given any notice of default under any such agreement that remains uncured, except to the extent such breach, violation or notice has not had and would not reasonably be expected to
have a Company Material Adverse Effect.
(e) Neither
the Company nor any Subsidiary of the Company has received any written notice of any violation of any Law or requirement affecting any of the Company Properties
issued by any Governmental Authority that have not been cured and which have had or would, individually or in the aggregate, reasonably be expected to have a Company Material Adverse Effect.
(f) Each
of the Company and the Company Subsidiaries has in effect all material federal, state, local and provincial governmental licenses, authorizations, consents, permits
and approvals ("
Permits
") necessary for it to lawfully own, lease or operate its properties and assets, including all utilities, parking areas,
detention ponds, driveways, roads and other means of egress and ingress to and from the Company Properties, and to carry on its business as now conducted, and neither the Company nor the Company
Subsidiaries have received any written notice that a violation or default has occurred under any such Permit which remains uncured, except for the absence of Permits and for violations or defaults
under Permits that have not had and would not reasonably be expected to have a Company Material Adverse Effect. No suspension or cancellation of any Permits is, to Company's Knowledge, pending or
threatened, except for any such suspension or cancellation which would not have,
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individually
or in the aggregate, a Company Material Adverse Effect. The Company and each of its Subsidiaries is and, since January 1, 2015, has been in compliance with the terms of such
Permits, except for failures to comply that would not reasonably be expected to have, individually or in the aggregate, a Company Material Adverse Effect.
(g) Neither
the Company nor any Subsidiary of the Company has received any written notice to the effect that (i) any condemnation or rezoning proceedings are pending
or threatened with respect to any of the Company Properties, or (ii) any Laws including any zoning regulation or ordinance (including with respect to parking), board of fire underwriters rules,
building, fire, health or similar law, code, ordinance, order or regulation, has been violated for any Company Property, which, in the case of clauses (i) and (ii) above, would
reasonably be expected to have, individually or in the aggregate, a Company Material Adverse Effect.
(h) There
is no material renovation or construction project currently being performed at any Company Property for which remaining payments to be made in connection therewith
exceed $1,000,000 except as disclosed in
Section 3.6(h)
of the Company Disclosure Schedule (each a "
Construction
Project
").
Section 3.6(h)
of the Company Disclosure Schedule sets forth the budgeted costs, the cost to complete and each
Material Contract for each Construction Project disclosed thereon. Neither the Company nor any Subsidiary of the Company is in default of any material obligations under any Material Contracts entered
into with respect to any Construction Project, and, to the Knowledge of the Company, the general contractors (as applicable) for such Construction Project are not in material default with respect to
obligations under any Material Contracts as of the date of this Agreement.
(i)
Section 3.6(i)
of the Company Disclosure Schedule sets forth a correct and complete list of each management
agreement pursuant to which any third party manages or operates any Company Property or any material portion thereof on behalf of the Company or any Subsidiary of the Company and identifies the
Company Property that is subject to such management agreement, the Company or Subsidiary of the Company that is a party to that management agreement, the date of such management agreement and each
material amendment or guaranty binding on the Company or any Company Subsidiary (the "
Management Agreement Documents
"). Correct and complete copies of
all of the Management Agreement Documents have been made available to the Parent. Each of the Management Agreement Documents is valid and binding on the Company or one of its Subsidiaries, as the case
may be, and, to the Company's Knowledge, each other party thereto, and in full force and effect, except as may be limited by bankruptcy, insolvency, moratorium and other similar Applicable Law
affecting creditors' rights generally and by principles of equity.
(j)
Section 3.6(j)
of the Company Disclosure Schedule lists each lease, sublease or other right of occupancy to which
the Company or any Subsidiary of the Company is a party as landlord with respect to each of the applicable Company Properties (the "
Leases
") and the
name of the tenant, unit number, size of unit (or unit type), rent, security and other deposits, lease move in date and lease expiration date, outstanding concessions, and delinquencies/outstanding
rent (thereon or on an attached delinquency report) (such information in
Section 3.6(j)
of the Company Disclosure Schedule, the
"
Rent Roll
"), which Rent Roll is accurate except such discrepancies as would not reasonably be expected to have a Company Material Adverse Effect, and
such Rent Roll is the rent roll used by the Company and the Company Subsidiaries in the ordinary course of its business.
(k) Except
as set forth in
Section 3.6(k)
of the Company Disclosure Schedule, neither the Company nor any Subsidiary
of the Company has granted any option agreements that have not expired, rights of first offer or rights of first refusal with respect to the purchase of a Company Property or any portion thereof or
any other unexpired rights in favor of third Persons to purchase or otherwise acquire a Company Property or any portion thereof or entered into any contract for sale or letter of intent to
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sell
any Company Property or any portion thereof or entered into any contract or letter of intent to acquire any real property.
(l) Except
as set forth in
Section 3.6(l)
of the Company Disclosure Schedule, neither the Company nor any Company
Subsidiary has commenced, nor are there any pending proceedings (administrative or judicial), including by appeal or certiorari proceeding, with respect to the valuation of any of the Company
Properties, the tax rate applicable to any Property or any other increase or decrease in respect of any real property tax; and neither the Company nor any Company Subsidiary has received written or
other formal notice of any such proceeding commenced by any applicable taxing authority.
(m) To
the Company's Knowledge, there (i) are no material structural defects (whether latent or patent) relating to any of the Company Property, (ii) is no
Company Property whose building systems are not in working order in any material respect, and (iii) is no physical material damage to any Company Property for which there is no insurance in
effect, which, in the case of any of clauses (i), (ii) or (iii), has had or would reasonably be expected to have, individually or in the aggregate, a Company Material Adverse Effect.
(n) To
the Company's Knowledge, neither the Company nor any Subsidiary of the Company has received written notice that they are in violation of or in default under any
reciprocal easement agreements or easement agreements relating to the Company Properties or any home owner's association that remains uncured, and that would have, individually or in the aggregate, a
Company Material Adverse Effect.
(o) Except
as set forth in
Section 3.6(o)
of the Company Disclosure Schedule, there are no Contracts providing any
third party with a right to participate in the profits, equity or other interests in any Company Property except for Contracts with the Joint Venture Partners that are set forth on
Section 3.6(o)
of the Company Disclosure Schedule.
Section 3.7
Contracts.
(a) Except
as set forth in
Section 3.7(a)
of the Company Disclosure Schedule, and except for this Agreement, as of the
date hereof, none of the Acquired Companies is a party to or is bound by any:
(i) Contract
that is required to be filed by the Company as a "material contract" pursuant to Item 601(b)(10) of Regulation S-K of the Exchange Act) but that
is not so filed;
(ii) Contract
evidencing a capital expenditure in excess of $1,000,000, excluding any payment obligation budgeted for in the Company's 2017 budget or in the budgets of the
Joint Ventures; and
(iii) indenture,
credit agreement, loan agreement, security agreement, guarantee, note, mortgage or other Contract evidencing indebtedness for borrowed money or any
guarantee of indebtedness for borrowed money by any Acquired Company in excess of $5,000,000 (the "
Existing Loan Documents
");
(iv) Contract
providing for any interest rate cap, interest rate collar, interest rate swap, currency hedging transaction and any other similar transaction to which the
Company or any Subsidiary of the Company is a party or obligor;
(v) Contract
(other than this Agreement), option, right of first offer, right of first refusal or other right for the Company, any of its Subsidiaries or, to the Knowledge
of the Company, any other Person, to dispose of or acquire assets or properties after the date hereof (other than sales or acquisitions of personal property and equipment in the ordinary course of
business consistent with past practice since January 1, 2015) with a fair market value or purchase price in excess of $1,000,000;
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(vi) settlement
agreement or similar agreement with a Governmental Entity involving future performance by the Company or any of its Subsidiaries in any such case, that is
material to the Company and its Subsidiaries, taken as a whole;
(vii) Contract
requiring payment of commissions (other than apartment leasing commissions or apartment brokerage fees, in each case, incurred in the ordinary course of
business consistent with past practice since January 1, 2015) or material tenant improvement costs, allowances or other concessions;
(viii) Contract
with respect to a partnership, joint venture or other similar Contract or other arrangements related thereto;
(ix) Contract
that obligates the Company or any of its Subsidiaries to conduct business on an exclusive or preferential basis with any third party or, upon consummation of
the Merger, will obligate Parent, the Surviving Entity or any of their respective Affiliates to conduct business on an exclusive or preferential basis with any third party and is not terminable within
90 days without a termination fee or penalty;
(x) Contract
(including brokerage agreements) that, by its terms, is not terminable within 90 days (without termination fee or penalty) and that may result in total
payments by the Company or any Subsidiary of the Company in excess of $1,000,000; or
(xi) non-solicitation,
non-competition or other similar agreements that contain covenants or restrictions that restrict the Company's or any Subsidiary of the Company's
ability to compete in any line of business or with any Person in any geographical area.
(b) Each
Contract of the type described above in
Section 3.7(a)
, whether or not set forth in
Section 3.7(a)
of the Company Disclosure Schedule is referred
to herein as a "
Material Contract
".
Except Material Contracts that have expired or terminated by their terms, as of the date hereof, all of the Material Contracts are valid and binding on the Acquired Companies, as the case may be, and,
to the Knowledge of the Company, each other party thereto, as applicable, and in full force and effect, except as may be limited by bankruptcy, insolvency, moratorium and other similar applicable Law
affecting creditors' rights generally and by general principles of equity. As of the date hereof, no Acquired Company has, and to the Knowledge of the Company, none of the other parties thereto have,
violated any provision of, or committed or failed to perform any act, and no event or condition exists, which with or without notice, lapse of time or both would constitute a default under the
provisions of any Material Contract, except in each case for those violations and defaults which, individually or in the aggregate, have not had or would not reasonably be expected to have a Company
Material Adverse Effect, and, as of the date hereof, no Acquired Company has received written notice of any of the foregoing.
(c)
Section 3.7(a)
of the Company Disclosure Schedule sets forth a correct and complete list as of the date of this
Agreement of all Material Contracts of the Company and its Subsidiaries. The Company has made available to Parent correct and complete copies of all Material Contracts of the Company and its
Subsidiaries, including any amendments thereto.
Section 3.8
Compliance.
Each of the Acquired Companies is, and since January 1, 2015, has
been in compliance with all applicable Laws, except where the failure to comply with such
Laws has not had and would not reasonably be expected to have a Company Material Adverse Effect. None of the Acquired Companies has, since January 1, 2015: (a) received any written
notice from any Governmental Entity regarding any material violation by any of the Acquired Companies of any applicable Law; or (b) provided any written notice to any Governmental Entity
regarding any material violation by the Acquired Companies of any applicable Law, which violation in either case remains outstanding or unresolved as of the date hereof, except for such violations
that has not had and would not reasonably be expected to have, individually or in the aggregate, a Company Material Adverse Effect. No representation or warranty is made in this
Section 3.8
with
respect to Tax matters, which shall be addressed exclusively by
Section 3.10
(Tax Matters) and
Section 3.11
(Employee Benefit Plans), or
environmental
matters, which shall be addressed exclusively by
Section 3.13
(Environmental Matters).
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Section 3.9
Legal Proceedings; Orders
.
(a) There
is no pending (or, to the Knowledge of the Company, threatened), Legal Proceeding against or affecting the Company or any of the Company's Subsidiaries, or any of
their respective properties at Law or in equity, (i) with a potential liability of more than $1,000,000, (ii) that is reasonably expected to result in injunctive relief against the
Company or any of its Subsidiaries or (iii) that is reasonably expected to result in criminal or civil sanctions against the Company or any of its Subsidiaries before any Governmental Entity.
(b) Within
the past three years of the date of this Agreement, there have been no material Orders or settlements to which the Company or any of the Company's Subsidiaries is
a party or by which any of their assets or properties are bound.
(c) There
is no, and since January 1, 2015, there has not been, any material inquiry, investigation or review pending or, to the Knowledge of the Company, threatened
by any Governmental Entity with respect to the Company or any of the Company's Subsidiaries.
Section 3.10
Tax Matters
.
(a) The
Company and each Subsidiary (i) has timely filed (or had filed on its behalf) all material Tax Returns required to be filed by it (after giving effect to any
filing extension) and all such Tax Returns were and remain correct and complete in all material respects, (ii) has paid (or had paid on its behalf or made adequate provision for in the Most
Recent Balance Sheet) all material Taxes that it was required to pay (whether or not shown to be due and owing on any Tax Return), and (iii) withheld and timely paid over to the appropriate
Governmental Entity all material Taxes that each was required to withhold and pay over from amounts paid or owing to any employee, creditor, independent contractor, shareholder, equity holder,
Affiliate, or other Person, and each has complied in all material respects with all material Tax reporting requirements related to such amounts paid or owing.
(b) The
Company (i) for each taxable year commencing with its taxable year ended December 31, 2007 through its taxable year ended December 31, 2016, was
subject to taxation as a real estate investment trust within the meaning of Section 856 of the Code (a "
REIT
") and satisfied all requirements to
qualify as a REIT for such years, (ii) has operated since January 1, 2017 through the date hereof and will continue to operate until the Effective Time in a manner that will permit it to
continue to qualify as a REIT for the taxable year that ends with the Effective Time, and (iii) has not taken or omitted to take any action that could reasonably be expected to result in a
successful challenge by the IRS or any other Governmental Entity to its status as a REIT.
(c) Each
Subsidiary REIT, (i) for each taxable year commencing with its taxable year for which it first elected to be treated as a REIT through its taxable year ended
December 31, 2016, was subject to taxation as a REIT and satisfied all requirements to qualify as a REIT for such taxable years, (ii) has operated since January 1, 2017 through
the date hereof, and will to continue to operate until the Effective Time, in a manner that will permit it to continue to qualify as a REIT for the taxable year that includes the Effective Time (or,
for any Subsidiary REIT whose taxable year ends as a result of an Additional Transaction prior to the Effective Time, for the taxable year so ending), and (iii) has not taken or omitted to take
any action that could reasonably be expected to result in a successful challenge by the IRS or any other Governmental Entity to its status as a REIT.
(d) Neither
the Company nor any Subsidiary REIT own or have owned, directly or indirectly (including through one or more partnerships, joint ventures or other pass-through
entities), any stock or any other equity ownership interest in any corporation (including any entity classified as a corporation for federal income tax purposes) representing more than 10% (by vote or
value) of the outstanding securities of such corporation within the meaning of Section 856(c)(4)(B)(iv), other than a corporation that, at all times during which the Company or a Subsidiary
REIT has held, directly or indirectly, its stock or other equity ownership interest representing more than 10% (by vote or value)
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of
the outstanding securities of such corporation within the meaning of Section 856(c)(4)(B)(iv), has qualified as a "qualified REIT subsidiary," within the meaning of Section 856(i)(2)
of the Code (a "
Qualified REIT Subsidiary
"), or as a "taxable REIT subsidiary," within the meaning of Section 856(l) of the Code (a
"
Taxable REIT Subsidiary
"), or as a REIT.
(e) Each
Subsidiary that is not a Subsidiary REIT, a Qualified REIT Subsidiary or a Taxable REIT Subsidiary is treated for U.S. federal income tax purposes as a partnership
or disregarded entity, as the case may be, and not as a corporation or an association taxable as a corporation, or a "publicly traded partnership" within the meaning of Section 7704(b) of the
Code.
(f)
Section 3.10(f)
of the Company Disclosure Schedule sets forth the federal income tax classification of each
Subsidiary of the Company, including for each Subsidiary that is a corporation or an association taxable as a corporation, whether such Subsidiary is a Taxable REIT Subsidiary or a Qualified REIT
Subsidiary.
(g) Correct
and complete copies of all federal and state income Tax Returns as filed for the Company and each Subsidiary with respect to the taxable years commencing on or
after January 1, 2013 have been made available to Parent.
(h) No
audit or other proceeding with respect to any income or other material Taxes due from the Company or any of its Subsidiaries, or any income Tax Return or other
material Tax Return of the Company or any of its Subsidiaries, is pending or threatened in writing by any Governmental Entity. Each material assessed deficiency resulting from any material audit or
examination relating to Taxes by any Governmental Entity and which is not being contested in good faith has been timely paid and there is no material assessed deficiency, refund litigation, proposed
adjustment or matter in controversy with respect to any Taxes due and owing by the Company or any of its Subsidiaries (unless being contested in good faith).
(i) Neither
the Company nor any of its Subsidiaries has agreed to any extension or waiver of the statute of limitations applicable to any income Tax Return or other material
Tax Return, or agreed to any extension of time with respect to any income Tax or other material Tax assessment or deficiency, which period (after giving effect to such extension or waiver) has not yet
expired.
(j) Neither
the Company nor any of its Subsidiaries is a party to any material Tax allocation or Tax sharing agreement with any party other than the Company and any of its
Subsidiaries, other than customary arrangements under commercial Contracts entered into in the ordinary course of business.
(k) Neither
the Company nor any of its Subsidiaries is subject to any Tax Protection Agreement.
(l) None
of the Company nor any of its Subsidiaries hold any asset the disposition of which would be subject to, or rules similar to, Section 1374 of the Code,
Treasury Regulation Section 1.337(d)-7 or any other temporary or final regulation under Section 337(d) of the Code.
(m) Neither
the Company nor any Subsidiary has incurred any liability for Taxes under Sections 856(c), 856(g), 857(b), 860(c) or 4981 of the Code, Treasury
Regulations Sections 1.337(d)-5, 1.337(d)-6, or 1.337(d)-7, or any rules similar to Section 1374 of the Code, in each case that have not been paid. Neither the Company nor any of its
Subsidiaries have engaged in any "prohibited transactions" within the meaning of Section 857(b)(6) of the Code. Neither the Company nor any of its Subsidiaries have engaged in any transaction
that would give rise to "redetermined rents," "redetermined deductions," or "excess interest," in each case as defined in Section 857(b)(7) of the Code.
(n) There
are no material Encumbrances for unpaid Taxes on the assets of the Company or any of its Subsidiaries, except Encumbrances for current Taxes not yet due and
payable or that are being contested in good faith.
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(o) Neither
the Company nor any of its Subsidiaries (i) has been a member of an affiliated group of corporations within the meaning of section 1504 of the Code
(other than a group the common parent of which is the Company or a Taxable REIT Subsidiary) or (ii) has any liability for Taxes of any Person (other than the Company and its Subsidiaries) under
Treasury Regulation section 1.1502-6 (or any similar provision of state, local or foreign Law), as a transferee, as a successor or by contract.
(p) Neither
the Company nor any Subsidiary REIT 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 Effective Time 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
transactions contemplated by this Agreement.
(q) To
the Company's Knowledge, the Company is, and has been at all times since its formation, "domestically controlled" within the meaning of Section 897(h)(4)(B) of
the Code, as then in effect.
(r) Each
Subsidiary REIT is, and has been at all times since its formation been, "domestically controlled" within the meaning of Section 897(h)(4)(B) of the Code, as
then in effect.
Section 3.11
Employee Benefit Plans.
(a)
Section 3.11(a)
of the Company Disclosure Schedule sets forth a correct and complete list of each material Company
Benefit Plan, other than any agreement, understanding or arrangement under which a single individual who is not an officer or director of any of the Acquired Companies is eligible to receive
compensation and/or benefits totaling less than $50,000 per year.
(b) With
respect to each Company Benefit Plan, a complete and correct copy of each of the following documents (if applicable) has been made available to Parent:
(i) the most recent plan documents and all amendments thereto and all related trust agreements or documentation pertaining to other funding vehicles, (ii) the most recent summary plan
description, and all related summaries of material modifications thereto, (iii) the IRS Forms 5500 (including schedules and attachments) and financial statements as filed for the past
two years, and (iv) the most recent IRS determination or opinion letter issued with respect to each Company Benefit Plan intended to be qualified under Section 401(a) of the Code.
(c) None
of the Acquired Companies nor any member of the Controlled Group maintains, sponsors, contributes to or is required to contribute to or has any Liability under or
with respect to, and at no time in the past has had an obligation to contribute to, any (i) "multiemployer plan" as defined in Section 3(37) of ERISA, (ii) "employee pension
benefit plan" (as such term is defined in Section 3(2) of ERISA) subject to the funding requirements of Section 412 of the Code or Title IV of ERISA, (iii) "multiple employer
plan" (within the meaning of Section 210 of ERISA or Section 413(c) of the Code), (iv) "multiple employer welfare arrangement" (as such term is defined in Section 3(40) of
ERISA), or (v) plan, program, contract, policy, arrangement or agreement that provides for material post-retirement or post-termination health, life insurance or other welfare type benefits
except as required under Part 6 of Subtitle B of Title I of ERISA or Section 4980B of the Code and for which the beneficiary pays the entire cost of coverage. None of the Acquired
Companies has any Liability by reason of at any time being considered a single employer with any other Person under Section 414 of the Code.
(d) Each
Company Benefit Plan that is intended to qualify under Section 401 of the Code has either received a current favorable determination or opinion letter from
the IRS as to its qualified status or has applied (or has time remaining in which to apply) to the IRS for such a determination letter prior to the expiration of the requisite period under applicable
Treasury Regulations or IRS pronouncements in which to apply for such determination letter and to make any amendments necessary to obtain a favorable determination or has been established under an IRS
pre-approved plan
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for
which an IRS opinion letter has been obtained by the plan sponsor and, to the Knowledge of the Company, nothing has occurred, whether by action or failure to act, that has adversely affected or
would reasonably be expected to adversely affect the qualification of such Company Benefit Plan.
(e) The
Company Benefit Plans have been maintained, funded and administered in accordance with their terms and applicable Law, except where the failure to so maintain, fund
and administer has not had or would not reasonably be expected to have a Company Material Adverse Effect. With respect to each Company Benefit Plan, all required payments, premiums, contributions,
distributions, reimbursements or accruals for all periods (or partial periods) ending prior to or as of the Effective Time shall have been made in all material respects and all contributions,
assessments, premiums, and other payments for any period ending on or before the Effective Time that are not yet due have been made or properly accrued in all material respects.
(f) There
are no pending or, to the Knowledge of the Company, threatened in writing any suits, actions, disputes, claims (other than routine claims for benefits),
arbitrations, audits, investigations, administrative or other proceedings relating to any Company Benefit Plan, nor, to the Knowledge of the Company, is there any basis for one, that, in either case,
would reasonably be expected to have a Company Material Adverse Effect.
(g) Except
as set forth on
Section 3.11(g)
of the Company Disclosure Schedule, the transactions contemplated by this
Agreement (either alone or in connection with any other event) will not cause the acceleration of, vesting in, increase of or payment of, any benefits or compensation under any Company Benefit Plan
and will not otherwise accelerate or materially increase any Liability under any Company Benefit Plan (other than as required by Law under non-U.S. jurisdictions).
(h) There
have been no prohibited transactions or breaches of any of the duties imposed on "fiduciaries" (within the meaning of Section 3(21) of ERISA) by ERISA with
respect to the Company Benefit Plans that could result in any Liability or excise tax under ERISA or the Code being imposed on the Acquired Companies that could reasonably be expected to have a
Company Material Adverse Effect.
(i) With
respect to each group health plan benefiting any current or former employee of the Acquired Companies or any member of the Controlled Group that is subject to
Section 4980B of the Code, the Acquired Companies and each member of the Controlled Group has complied in all material respects with the continuation coverage requirements of
Section 4980B of the Code and Part 6 of Subtitle B of Title I of ERISA.
(j) The
Acquired Companies have reserved all rights necessary to amend or terminate each of the Company Benefit Plans that is an "employee benefit plan" as defined in
Section 3(3) of ERISA without the consent of any other person.
(k) Excluding
any Company Benefit Plans that by their terms permit directors and consultants as participants, no Company Benefit Plan provides benefits to any individual who
is not a current or former employee of the Acquired Companies, or the dependents or other beneficiaries of any such current or former employee.
(l) Except
as set forth on
Section 3.11(l)
of the Company Disclosure Schedule, no amount that could be received
(whether in cash or property or the vesting of property) as a result of any of the transactions contemplated by this Agreement by any employee, officer or director of the Acquired Companies or any of
its affiliates who is a "disqualified individual" (as such term is defined in Treasury Regulation Section 1.280G-1) under any employment, severance or termination agreement, other compensation
arrangement or Company Benefit Plan currently in effect would be characterized as an "excess parachute payment" (as such term is defined in Section 280G(b)(1) of the Code.
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(m) All
Company Benefit Plans subject to Section 409A of the Code comply in both form and operation with Section 409A of the Code and the rules and regulations
thereunder, and, to the Knowledge of the Company, no amount that is payable (whether in cash or property or the vesting of property) as a result of any of the transactions contemplated by this
Agreement will be includible in the gross income of any employee, officer or director of the Acquired Companies as a result of the operation of Section 409A of the Code and the rules and
regulations thereunder.
(n) No
Company Benefit Plan is subject to the laws of any jurisdiction outside the United States.
Section 3.12
Labor Matters.
(a) As
of the date of this Agreement, the Acquired Companies are, and for the last three years have been, in compliance with all applicable Law governing labor or
employment, except where the failure to so comply has not and would not reasonably be expected to have a Company Material Adverse Effect.
(b) The
employees of the Acquired Companies currently are not, represented by a labor union or works council and there is not, to the Knowledge of the Company, any attempt
to organize any employees of the Acquired Companies. To the Knowledge of the Company, no strike, slowdown, picketing, work stoppage or other material labor dispute by the employees of the Acquired
Companies is being threatened.
(c) No
Legal Proceeding by any Company employee for unpaid wages, bonuses, commissions, employment withholding taxes, penalties, unpaid overtime, child labor or record
keeping violations is pending or, to the Knowledge of the Company, threatened under the FLSA, the Davis Bacon Act, the Walsh Healey Act or the Service Contract Act, or any other Law. No
discrimination, harassment and/or retaliation Legal Proceeding by any Company employee, is pending or, to the Knowledge of the Company, threatened against the Acquired Companies or any employee,
officer or director of the Company under the 1964 Civil Rights Act, the Equal Pay Act, the ADEA, the ADA, the FMLA, the FLSA, ERISA or any other federal labor or employment Law or comparable state
fair employment practices act. To the Knowledge of the Company, no wrongful discharge, retaliation, libel, slander or other Legal Proceeding by any Company employee that arises out of the employment
relationship between the Acquired Companies and their respective employees is pending or, to the Knowledge of the Company, is threatened against the Acquired Companies under any applicable Law.
(d) To
the Knowledge of the Company, no employee of the Acquired Companies is in violation, in any material respect, of any material term of any non-disclosure agreement,
non-competition agreement or any other restrictive covenant agreement with a former employer relating to the right of any such employee to be employed by the Acquired Companies because of the nature
of the business conducted by the Acquired Companies or to the use of trade secrets or proprietary information of others.
(e) Within
the past two years, none of the Acquired Companies has implemented any plant closing or layoff of employees that (in either case) violated the WARN Act.
Section 3.13
Environmental Matters.
Except for such matters as are set forth on
Section 3.13
of the Company Disclosure Schedule:
(a) each of the Acquired Companies is in compliance in all material respects with all applicable Environmental Laws and possesses and is in compliance in all material respects with all required
Environmental Permits, (b) there are no material Environmental Claims pending or threatened in writing against the Acquired Companies, (c) none of the Acquired Companies has received any
written claim or written notice of violation from any Governmental Entity alleging that such Acquired Company is in material violation of, or has material liability under, any Environmental Law, the
subject of which remains unresolved, and (d) except as would not reasonably be expected to have a Company Material Adverse Effect, there has been no release of any Hazardous Materials at any
Owned Real Property that requires investigation or remediation pursuant to Environmental Law and which remains unresolved, or that would reasonably be expected to result in
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an
Environmental Claim against the Acquired Companies. All material environmental reports, assessments and audits in the possession of the Acquired Companies have been made available to Parent. This
Section 3.13
contains the sole and exclusive representations and warranties of the Company with respect to environmental matters, Environmental
Laws or Hazardous Materials.
Section 3.14
Insurance.
From January 1, 2015 through the date hereof, none of the Acquired
Companies has received any written communication notifying the Company of any
(a) premature cancellation or invalidation of any material insurance policy held by any Acquired Company (except with respect to policies that have been replaced with similar policies),
(b) written refusal of any coverage or rejection of any material claim under any material insurance policy held by the Acquired Companies, or (c) material adjustment in the amount of the
premiums payable with respect to any material insurance policy held by the Company. As of the date hereof, there is no pending material claim by any Acquired Company against any insurance carrier
under any insurance policy held by any Acquired Company.
Section 3.15
Authority; Binding Nature of Agreement.
The Company has the requisite corporate
power and authority to enter into and to perform its obligations under this Agreement and, subject to approval of the
Merger and the other transactions contemplated by this Agreement by the affirmative vote of holders of Shares entitled to cast a majority of all the votes entitled to be cast on the matter (the
"
Company Stockholder Approval
"), to consummate the transactions contemplated hereby. At a meeting duly called and held, the Company Board (acting upon
the recommendation of the Evaluation Committee) has unanimously adopted resolutions (a) approving and declaring advisable this Agreement and the Merger and the other transactions contemplated
by this Agreement, (b) approving the execution, delivery and performance of this Agreement and, subject to obtaining the Company Stockholder Approval, the consummation by the Company of the
transactions contemplated hereby, including the Merger, (c) directed that, subject to the terms and conditions of this Agreement, the Merger be submitted to the stockholders of the Company for
their approval, and (d) resolved to, subject to the terms and conditions of this Agreement, recommend the approval of the Merger by the stockholders of the Company (the
"
Board Recommendation
"). The execution and delivery of this Agreement by the Company and the consummation by the Company of the Merger have been duly
authorized by all necessary corporate action on the part of the Company, and no other corporate proceedings on the part of the Company are necessary to authorize this Agreement other than, with
respect to consummation of the Merger, obtaining the Company Stockholder Approval. This Agreement has been duly executed and delivered on behalf of the Company and, assuming the due authorization,
execution and delivery of this Agreement on behalf of Parent and Acquisition Sub, constitutes the valid and binding obligation of the Company, enforceable against the Company in accordance with its
terms, subject to (i) laws of general application relating to bankruptcy, insolvency and the relief of debtors and (ii) rules of law governing specific performance, injunctive relief and
other equitable remedies.
Section 3.16
Vote Required.
The Company Stockholder Approval is the only vote or consent of the
holders of any class or series of capital stock of the Company necessary to approve this
Agreement or the Merger or the other transactions contemplated hereby.
Section 3.17
Non-Contravention; Consents.
The execution and delivery of this Agreement by the
Company, the consummation by the Company of the Merger will not: (a) cause a violation of any of the
provisions of the Organizational Documents of any Acquired Company; (b) cause a violation by any Acquired Company of any applicable Law; or (c) except as would not have a Company
Material Adverse Effect, (i) result in any breach or violation of or constitute a default (or an event which with notice or lapse of time or both would become a default) under any Material
Contract, (ii) require a consent or result in the loss of a benefit under any Material Contract, (iii) give rise to any right of termination, cancellation, amendment or acceleration of,
any Material Contract, or (iv) result in the creation of any Encumbrance (other than Permitted Encumbrances) upon any of the properties or
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assets
of the Company or any of its Subsidiaries under any Material Contract. Except as may be required by the Exchange Act, the MGCL, the listing requirements of the NYSE, the HSR Act or other
applicable Antitrust Laws, none of the Acquired Companies is required to make any filing with or to obtain any consent from any Person at or prior to the Effective Time in connection with the
execution and delivery of this Agreement by the Company or the consummation by the Company of the Merger, except where the failure to make any such filing or obtain any such consent would not
reasonably be expected to have a Company Material Adverse Effect.
Section 3.18
Opinion of Financial Advisor.
The Company Board has received the opinion of Morgan
Stanley & Co. LLC, to the effect that, as of the date of the opinion, based upon and
subject to the various matters, assumptions, procedures, factors, qualifications and limitations set forth in the opinion, the Merger Consideration to be received by the holders of Company Common
Stock pursuant to this Agreement is fair, from a financial point of view, to the holders of Company Common Stock.
Section 3.19
Brokers.
No broker, finder or investment banker (other than Morgan
Stanley & Co. LLC) is entitled to any brokerage, finder's or other similar fee or
commission in connection with the Merger based upon arrangements made by or on behalf of the Company.
Section 3.20
Intellectual Property
.
(a)
Section 3.20(a)
of the Company Disclosure Schedule sets forth a correct and complete list of all Patents,
registered Marks and registered Copyrights that are owned by the Company or a Company Subsidiary ("
Registered Company Intellectual Property Assets
").
(b) Except
as set forth in
Section 3.20(b)
of the Company Disclosure Schedule and as would not reasonably be expected
to have a Company Material Adverse Effect:
(i) the
Company or a Company Subsidiary exclusively owns the Company Intellectual Property Assets, free and clear of all Encumbrances, except Permitted Encumbrances;
(ii) all
Registered Company Intellectual Property Assets have been duly maintained (including the payment of maintenance fees) and are not expired, cancelled or abandoned
and, to the Knowledge of the Company, are valid and enforceable, except for issuances, registrations or applications that the Company or applicable Company Subsidiary has permitted to expire or has
cancelled or abandoned in its reasonable business judgment;
(iii) (A)
the Company or one of its Subsidiaries owns all right, title, and interest in, or has the right to use, pursuant to a license or otherwise, all Intellectual
Property required to operate the Company's and its Subsidiaries' businesses as presently conducted and (B) all such licenses or other rights to use are free and clear of all Encumbrances,
except Permitted Encumbrances;
(iv) there
are no pending or, to the Knowledge of the Company, threatened claims against the Company or a Company Subsidiary alleging that the operation of the business of
the Company or the applicable Company Subsidiary as currently conducted infringes the rights of any Person in or to any Intellectual Property Assets ("
Third Party IP
Rights
") or that any of the Company Intellectual Property Assets are invalid or unenforceable;
(v) to
the Knowledge of the Company, the operation of the business of the Company and the Company Subsidiaries as currently conducted does not infringe the rights of any
Person in or to any Third Party IP Rights; and
(vi) to
the Knowledge of the Company, there is no infringement by any Person of any of the Company Intellectual Property Assets.
Section 3.21
Takeover Statutes.
The Company Board and the Company have taken all necessary action
to ensure that Takeover Statutes and any antitakeover or similar provisions contained in the
governing documents of the Company or any of its Subsidiaries do not, and will not, apply to the
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Merger
or the Additional Transactions, provided that such Additional Transactions are consummated in accordance with
Schedule C
hereto.
Section 3.22
Investment Company Act.
Neither the Company nor any of its Subsidiaries is required
to be registered as an investment company under the Investment Company Act of 1940, as amended.
Section 3.23
Related Party Transactions.
Except for compensation or other employment arrangements
in the ordinary course of business, as of the date hereof, no director, officer or, to the Knowledge of
the Company, other Affiliate of the Company or any of its Subsidiaries is a party to any Contract or transaction with the Company or any of its Subsidiaries or which is pertaining to the business of
the Company or any of its Subsidiaries or has any interest in any property, real or personal or mixed, tangible or intangible, used in or pertaining to the business of the Company or any of its
Subsidiaries, in each case that would be required to be disclosed pursuant to Item 404 of Regulation S-K promulgated by the SEC.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF PARENT AND ACQUISITION SUB
Parent and Acquisition Sub hereby jointly and severally represent and warrant to the Company that:
Section 4.1
Corporate Organization and Good Standing.
Parent is duly organized, validly existing
and in good standing (with respect to jurisdictions that recognize such concept) under the Law of the State of Delaware
and Acquisition Sub is duly organized, validly existing and in good standing (with respect to jurisdictions that recognize such concept) under the Law of the State of Delaware, and each of Parent and
Acquisition Sub has full corporate or limited liability company power and authority to own, lease and operate its properties and assets and to conduct its business as presently conducted and is duly
qualified or licensed to do business as a foreign corporation or company and is in good standing (with respect to jurisdictions that recognize such concept) in each jurisdiction where the character of
the properties owned, leased or operated by it or the nature of its business makes such qualification or licensing necessary, except in each case as would not reasonably be expected to have a Parent
Material Adverse Effect. Parent is not "closely held" within the meaning of Section 856(h) of the Code, and Parent's ownership of any Subsidiary REIT will not result in any Subsidiary REIT
becoming "closely held" within the meaning of Section 856(h) of the Code during the taxable year of such Subsidiary REIT that includes the Closing.
Section 4.2
Legal Proceedings; Orders.
(a) As
of the date hereof, there is no Legal Proceeding pending (or, to the knowledge of Parent, threatened) against Parent or Acquisition Sub that would reasonably be
expected to have a Parent Material Adverse Effect.
(b) Neither
Parent nor Acquisition Sub is a party or subject to any Order that would reasonably be expected to have, individually or in the aggregate, a Parent Material
Adverse Effect.
(c) As
of the date hereof, to the knowledge of Parent, there is no pending or threatened investigation by any Governmental Entity with respect to Parent, Acquisition Sub or
any other Affiliate of Parent that would reasonably be expected to have a Parent Material Adverse Effect.
Section 4.3
Authority; Binding Nature of Agreement.
(a) Parent
has the requisite power and authority to enter into and to perform its obligations under this Agreement. The board of directors of Parent has
(i) determined that the transactions contemplated by this Agreement are fair to, and in the best interests of, Parent, and (ii) authorized and approved the execution, delivery and
performance of this Agreement by Parent. The execution and
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delivery
of this Agreement by Parent and the consummation by Parent of the transactions contemplated by this Agreement have been duly authorized by all necessary action on the part of Parent, and no
other proceedings on the part of Parent are necessary to authorize this Agreement. This Agreement has been duly executed and delivered on behalf of Parent and, assuming the due authorization,
execution and delivery of this Agreement on behalf of the Company, constitutes the valid and binding obligation of Parent, enforceable against Parent in accordance with its terms, subject to
(A) laws of general application relating to bankruptcy, insolvency and the relief of debtors and (B) rules of law governing specific performance, injunctive relief and other equitable
remedies.
(b) Acquisition
Sub is a newly formed, wholly-owned Subsidiary of Parent and has the requisite limited liability company power and authority to enter into and to perform its
obligations under this Agreement. The sole member of Acquisition Sub has (i) determined that the transactions contemplated by this Agreement are fair to, and in the best interests of,
Acquisition Sub and its member, (ii) declared that this Agreement is advisable, and (iii) authorized and approved the execution, delivery and performance of this Agreement by Acquisition
Sub. The execution and delivery of this Agreement by Acquisition Sub and the consummation by Acquisition Sub of the transactions contemplated by this Agreement have been duly authorized by all
necessary limited liability company action on the part of Acquisition Sub, and no other limited liability company proceedings on the part of Acquisition Sub are necessary to authorize this Agreement
other than, with respect to the Merger, the filing and acceptance for record, of the Articles of Merger with the SDAT. This Agreement has been duly executed and delivered by Acquisition Sub and,
assuming the due authorization, execution and delivery of this Agreement on behalf of the Company, constitutes the valid and binding obligation of Acquisition Sub, enforceable against Acquisition Sub
in accordance with its terms, subject to (A) laws of general application relating to bankruptcy, insolvency and the relief of debtors, and (B) rules of law governing specific
performance, injunctive relief and other equitable remedies.
Section 4.4
Non-Contravention; Consents.
Except for violations and defaults that would not
adversely affect Parent's or Acquisition Sub's ability to perform any of its obligations under, or consummate
any of the transactions contemplated by, this Agreement, the execution and delivery of this Agreement by Parent and Acquisition Sub, and the consummation of the transactions contemplated by this
Agreement, will not: (i) cause a violation of any of the provisions of the Organizational Documents of Parent or Acquisition Sub; (ii) cause a violation by Parent or Acquisition Sub of
any Law applicable to Parent or Acquisition Sub; or (iii) cause a default on the part of Parent or Acquisition Sub under any material Contract to which Parent or Acquisition Sub is a party.
Except as may be required by the Exchange Act, the MGCL, the DLLCA, the HSR Act or other applicable Antitrust Laws, neither Parent nor Acquisition Sub, nor any of Parent's other Affiliates, is
required to make any filing with or to obtain any consent from any Person at or prior to the Effective Time in connection with the execution and delivery of this Agreement by Parent or Acquisition Sub
or the consummation by Parent or Acquisition Sub of any of the transactions contemplated by this Agreement, except where the failure to make any such filing or obtain any such consent would not
adversely affect Parent's or Acquisition Sub's ability to perform any of its obligations under, or consummate any of the transactions contemplated by, this Agreement. No vote of Parent's equityholders
is necessary to adopt this Agreement or to approve any of the transactions contemplated by this Agreement.
Section 4.5
Not an Interested Stockholder.
None of Parent nor Parent's Affiliates, within the
past five years, has been, an "interested stockholder" or an affiliate of an "interested stockholder" of the
Company (as such term is defined in the MGCL).
Section 4.6
Available Funds.
Parent has received and accepted, and has delivered to the Company
true, correct and complete fully executed copies of (i) the Equity Commitment Letter
from the Sponsors to invest, subject to the terms and conditions therein, cash in the aggregate amount set forth therein (being collectively referred to as the "
Equity
Financing
"), and (ii) a commitment letter (together with all exhibits, schedules, and annexes thereto) from the Debt Financing Sources and any
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fee
letters (subject to customary redactions of fee and other economic amounts) (collectively, the "
Debt Commitment Letter
" and, together with the
Equity Commitment Letter, the "
Financing Commitment Letters
") to provide, on the terms and subject only to the conditions expressly stated therein, debt
financing in the amounts set forth therein (being collectively referred to as the "
Debt Financing
" and, together with the Equity Financing, the
"
Financing
"). As of the date hereof, none of the Financing Commitment Letters has been withdrawn, terminated, repudiated, rescinded, supplemented,
amended or modified and no terms thereunder have been waived. As of the date hereof, Parent or Acquisition Sub has fully paid any and all commitment fees or other fees in connection with the Financing
Commitment Letters that are required to be paid as of the date hereof. The net proceeds contemplated by the Equity Commitment Letter and the Debt Commitment Letter (both before and after giving effect
to any "flex" provisions contained in the Debt Commitment Letter) will, in the aggregate be sufficient for Parent and Acquisition Sub and the Surviving Entity to pay all amounts required to be paid in
connection with the Merger and the transactions contemplated in this Agreement and Financing Commitment Letters, including payment of the Merger Consideration, repayment or refinancing of debt of the
Company and its Subsidiaries contemplated by this Agreement or the Debt Commitment Letter, and payment of any other fees and expenses and obligations required to be paid or satisfied by Parent or
Acquisition Sub at the Closing in connection with the transactions contemplated by this Agreement and the Financing. The Financing Commitment Letters are, as to Parent and Acquisition Sub, enforceable
against Parent and Acquisition Sub in accordance with their terms, in each case, as enforcement may be limited by bankruptcy, insolvency, reorganization or similar applicable Laws affecting creditors'
rights generally and by general principles of equity. As of the date hereof, no event has occurred which, with or without notice, lapse of time or both, would or would reasonably be expected to
constitute a default or breach under any of the Financing Commitment Letters. As of the date hereof, Parent does not have any reason to believe (both before and after giving effect to any "flex"
provisions contained in the Debt Commitment Letter) that any of the conditions to the funding of the full amount of the Financing at the Closing will not be satisfied on a timely basis at the Closing
or that the full amount of the Financing will not be available to Parent or Acquisition Sub on the Closing Date. The Financing Commitment Letters contain all of the conditions precedent and other
conditions and contingencies to the obligations of the parties thereunder to make the full amount of the Financing available to Parent on the terms therein. There are no side letters or other written
agreements, arrangements or understandings to which Parent or any of its Affiliates is a party related (directly or indirectly) to the Financing other than as expressly set forth in the Financing
Commitment Letters. The Equity Commitment Letter provides, and will continue to provide, that the Company is a third party beneficiary thereof as set forth therein. The obligations of Parent and
Acquisition Sub to consummate the Merger at Closing upon satisfaction of the conditions precedent set forth in
Section 6.1
and
Section 6.2
are
not contingent on Parent's or Acquisition Sub's ability to obtain the Financing.
Section 4.7
Solvency.
Assuming (a) satisfaction of the conditions to Parent's obligation to
consummate the Merger, and after giving effect to the transactions contemplated by
this Agreement, including the Financing and the payment of the Merger Consideration, (b) any repayment or refinancing of debt contemplated in this Agreement or the Financing Commitment Letters,
(c) the accuracy of the representations and warranties of the Company set forth in
Article 3
hereof, (d) payment of all amounts
required to be paid in connection with the consummation of the transactions contemplated by this Agreement, and (e) payment of all related fees and expenses, each of Parent and the Surviving
Entity will be Solvent as of the Effective Time and immediately after the consummation of the transactions contemplated by this Agreement. For purposes of this Agreement, the term
"
Solvent
" when used with respect to any Person, means that, as of any date of determination (x) the amount of the "fair saleable value" of the
assets of such Person will, as of such date, exceed (i) the value of all "liabilities of such Person, including contingent and other liabilities," as of such date, as such quoted terms are
generally determined in accordance with applicable Laws governing
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determinations
of the insolvency of debtors, and (ii) the amount that will be required to pay the probable liabilities of such Person on its existing debts (including contingent and other
liabilities) as such debts become absolute and mature, (y) such Person will not have, as of such date, an unreasonably small amount of capital for the operation of the businesses in which it is
engaged or proposed to be engaged following such date, and (z) such Person will be able to pay its liabilities, including contingent and other liabilities, as they mature. For purposes of this
definition, "not have an unreasonably small amount of capital for the operation of the businesses in which it is engaged or proposed to be engaged" and "able to pay its liabilities, including
contingent and other liabilities, as they mature" means that such Person will be able to generate enough cash from operations, asset dispositions or refinancing, or a combination thereof, to meet its
obligations as they become due.
Section 4.8
Guarantee.
Parent has furnished the Company with a duly executed, true, complete and
correct copy of the Guarantee. The Guarantee is in full force and effect. The Guarantee
is (a) a legal, valid and binding obligation of the Sponsors and (b) enforceable in accordance with its respective terms against such Sponsors. As of the date hereof, there is no breach
or default under the Guarantee by the Sponsors, and no event has occurred that would constitute a breach or default (or with notice or lapse of time or both would constitute a breach or default)
thereunder by the Sponsors.
Section 4.9
Acquisition Sub.
All of the authorized membership interests of Acquisition Sub are,
and at the Effective Time will be, owned by Parent and such membership interests are validly
issued and outstanding. Acquisition Sub was formed solely for the purpose of engaging in the transactions contemplated by this Agreement, and, prior to the Effective Time, Acquisition Sub will have
engaged in no business and have no Liabilities or obligations other than in connection with the transactions contemplated by this Agreement.
Section 4.10
Absence of Certain Agreements; Joint Venture Partner Agreements.
As of the date
hereof, neither Parent, Acquisition Sub nor any of their Affiliates has entered into any agreement, arrangement or understanding (in each case,
whether oral or written), or authorized, committed or agreed to enter into any agreement, arrangement or understanding (in each case, whether oral or written), (a) pursuant to which any
stockholder of the Company would be entitled to receive, in respect of any share of Company Common Stock, consideration of a different amount or nature than the Merger Consideration or pursuant to
which any stockholder of the Company has agreed to vote to adopt this Agreement or has agreed to vote against any Superior Proposal or (b) pursuant to which any stockholder of the Company or
any of its Subsidiaries or Joint Venture Partners has agreed to make an investment in, or contribution to, Parent or Acquisition Sub in connection with the transactions contemplated by this Agreement,
in each case that would not terminate and be void concurrently with any termination of this Agreement pursuant to
Section 7.1
. As of the date
hereof, there are no agreements, arrangements or understandings (in each case, whether oral or written) between Parent or Acquisition Sub, on the one hand, and any member of the Company's management
or directors, on the other hand, that relate in any way to, or are in connection with, the transactions contemplated by this Agreement.
Section 4.11
Brokers.
No broker, finder or investment banker is entitled to any brokerage,
finder's or other fee or commission in connection with this Agreement, the Merger or the
other transactions contemplated by this Agreement based upon arrangements made by or on behalf of Parent or Acquisition Sub or any of their respective directors, officers or employees, for which the
Company may become liable.
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ARTICLE 5
COVENANTS
Section 5.1
Interim Operations of the Company.
The Company agrees that, during the period from the date
hereof through the earlier of the Effective Time or the date of termination of this Agreement pursuant to
Section 7.1
, except (i) to the extent Parent shall otherwise consent in writing (which
consent shall not be unreasonably withheld, delayed
or conditioned), (ii) as set forth in
Section 5.1
of the Company Disclosure Schedule, (iii) as may be expressly contemplated or
permitted pursuant to this Agreement, or (iv) as required by applicable Law: (x) the Company shall, and shall cause each of its Subsidiaries to, conduct its business in all material
respects in the ordinary course and in a manner consistent with past practice since January 1, 2015, and use its commercially reasonable efforts to (A) maintain its material assets and
properties in their current condition (normal wear and tear excepted), (B) preserve intact in all material respects its current business organization, goodwill, ongoing businesses and
significant business relationships, (C) provided it does not require additional compensation, keep available the services of its present officers, (D) maintain all of the material
insurance policies held by any Acquired Company as of the date hereof, and (E) maintain the status of the Company and each Subsidiary REIT as a REIT; (y) the Company shall cause each
Subsidiary that is taxable as a partnership for U.S. federal income tax purpose to make a timely and valid election pursuant to Section 754 of the Code to the extent any such Subsidiary does
not already have such a valid election in effect, and (z) without limiting the generality of the foregoing, the Company shall not, nor shall it permit any of its Subsidiaries to, do any of the
following:
(a) amend
the Company Articles of Amendment and Restatement, the Company Bylaws or other comparable Organizational Documents of the Company's Subsidiaries (in each case,
whether by merger, consolidation or otherwise);
(b) (i)
declare, set aside or pay any dividends on, or make any other distributions (whether in cash, stock, property or otherwise) in respect of, or enter into any Contract
with respect to the voting of, any capital stock of any Acquired Company, other than (A) the regular, quarterly cash dividend at a rate not in excess of $0.075 per share of Company Common
Stock, declared on May 31, 2017 and paid in accordance with past practice for the second quarter of the Company's fiscal year (which, for the avoidance of doubt, shall be paid during the third
quarter of the Company's fiscal year and prior to Closing), (B) dividends or distributions, declared, set aside or paid by any Company Subsidiary to the Company or any Company Subsidiary that
is, directly or indirectly, wholly owned by the Company, (C) distributions required for the Company or any Subsidiary REIT to maintain its status as a REIT under the Code or avoid the
incurrence of any income or excise Taxes by the Company or any Subsidiary REIT pursuant to
Section 5.16
, (D) distributions on preferred
shares or units by Subsidiary REITs, (E) distributions resulting from the vesting or exercise of Company Compensatory Awards set forth on
Section 3.3(a)
of the Company Disclosure Letter, and
(F) monthly distributions declared, set aside or paid by any Company Subsidiary to
the venture partners in any Joint Venture as required by agreement, (ii) split, combine or reclassify any capital stock of the Company or any of its Subsidiaries, (iii) except as
otherwise provided in
Section 5.1(c)
, issue or authorize the issuance of any other securities in respect of, in lieu of or in substitution for,
shares of capital stock of any Acquired Company, (iv) purchase, redeem or otherwise acquire any Company securities, except for acquisitions of shares of Company Common Stock by the Company in
satisfaction by holders of Company Compensatory Awards of the applicable exercise price and/or withholding taxes, or (v) enter into any amendment or other modification to the material terms of
any indebtedness for borrowed money of the Acquired Companies;
(c) (i)
issue, deliver, sell, grant, pledge, transfer, subject to any lien or dispose of any Company securities, other than (A) the issuance of shares of Company
Common Stock upon the settlement of Company RSU Awards or Company Performance RSU Awards that are outstanding on the date of this Agreement, in accordance with the equity award's terms as in effect on
the date of this Agreement or
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(B) grants
or awards of Company securities required to be made pursuant to the terms of existing employment or other compensation agreements or arrangements in effect as of the date hereof, or
(ii) amend any term of the Company Benefit Plan or amend any term of any security of the Acquired Companies (in each case, whether by merger, consolidation or otherwise);
(d) adopt
a plan or agreement of, or resolutions providing for or authorizing, complete or partial liquidation, dissolution, merger, consolidation, restructuring,
recapitalization or other reorganization, each with respect to the Acquired Companies;
(e) increase
the salary, wages, benefits, bonuses, severance or termination payments or other compensation payable or to become payable to the Company's current or former
directors or executive officers, except for (i) increases required to be made pursuant to the terms of existing employment or other compensation agreements or arrangements in effect as of the
date hereof, (ii) increases in salary or wages of not more than $50,000 in the aggregate for any single individual in the ordinary course of business consistent with past practices, or
(iii) increases required under any Company Benefit Plan or under applicable Law;
(f) acquire
any business, assets or capital stock of any Person or division thereof, whether in whole or in part (and whether by purchase of stock, purchase of assets,
merger, consolidation, or otherwise), other than one or more acquisitions in the ordinary course of business consistent with past practice that, individually, or in the aggregate, involve a purchase
price of not more than $1,000,000;
(g) make
or undertake, or enter into any new commitments obligating the Company or any Subsidiary of the Company to make or undertake, capital expenditures;
provided
,
however
, that the Company and the applicable Subsidiaries of the Company may make capital
expenditures pursuant to the terms of Contracts that have been executed prior to the date hereof and up to the total amounts set forth in the applicable capital expenditure plans set forth in
Section 5.1(g)
of the Company Disclosure Schedule (the "
Capital Budgets
") with respect to the
Company Properties and on the timetables set forth therein;
(h) sell,
lease, license, mortgage, pledge, transfer, surrender, encumber, divest, cancel, subject to any Encumbrance or otherwise dispose of any material assets, licenses,
operations, rights or material properties, including the Company Properties, or agree to allow any of the aforementioned, except (i) pursuant to existing Contracts, (ii) Permitted
Encumbrances incurred in the ordinary course of business consistent with past practices, (iii) in connection with capital expenditures permitted under
Section 5.1(g)
, or (iv) sales of
Company Properties disclosed on
Section 5.1(h)
of
the Company Disclosure Schedule but only to the extent such sale is consistent with the terms expressly set forth in the applicable sale agreement or letter of intent listed on
Section 5.1(h)
of
the Company Disclosure Schedule or otherwise permitted therein;
(i) change
any of the accounting methods used by the Company materially affecting its assets, liabilities or business, except for such changes that are required by GAAP or
Regulation S-X promulgated under the Exchange Act or as otherwise specifically disclosed in the Company SEC Documents;
(j) (i)
incur or assume any indebtedness except (A) for borrowings under the Company's current credit facilities in the ordinary course of business (including to the
extent necessary to pay dividends permitted by
Section 5.1(b)
) or (B) in respect of indebtedness owing by any wholly owned Subsidiary of
the Company to the Company or another wholly owned Subsidiary of the Company, or (ii) assume, guarantee, endorse or otherwise become liable or responsible (whether directly, contingently or
otherwise) for the obligations of any other Person (other than any Acquired Company);
(k) enter
into or amend in any material respect (i) any Material Contract (other than terminations or renewals in accordance with the terms of any existing Material
Contract), (ii) any Contract which if entered into prior to the date hereof would be a Material Contract, (iii) any retail Leases of over 5,000
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square
feet (each, a "
Material Lease
"), or (iv) residential Leases that are not on the form of lease approved for such Company Property that have
terms of longer than 18 months or less than 30 days or that are for rental rates below rates that are customary for the applicable market and apartment class where the Property is
located, or amend, modify or terminate any of the Lease Documents or enter any new lease, sublease or license agreement (including renewals) where the Company or a Subsidiary of the Company is the
tenant, sublessee or licensee;
(l) modify,
amend or terminate, or grant any material consent (including any "Major Decision") under, any Contract with any Subsidiary of the Company, including any Joint
Venture or modify any material relationship between the Company and any Subsidiary of the Company, including any Joint Venture, and including the manner in which the Company and the Subsidiaries of
the Company own or hold their respective assets;
(m) except
as set forth on
Section 5.1(m)
of the Company Disclosure Schedule, (i) other than as otherwise
expressly required pursuant to this Agreement, make any material Tax election, enter into any material closing agreement with a Tax authority, file any amended federal or state income Tax Return or
other Tax Return with respect to any material Tax or change any material method of accounting for Tax purposes or annual Tax accounting period, except in each case (A) if required by Law,
(B) in the ordinary course of business, or (C) if necessary (x) to preserve the Company's or any Subsidiary REIT's qualification as a REIT under the Code or (y) to qualify
or preserve the status of any Subsidiary as a disregarded entity or partnership for United States federal income tax purposes or as a Qualified REIT Subsidiary or a Taxable REIT Subsidiary under the
applicable provisions of Section 856 of the Code, as the case may be, or (ii) fail to contest Tax assessments to the extent customary in the jurisdiction in which the property to which
such Tax assessment applies is located;
(n) other
than as set forth on
Section 5.1(n)
of the Company Disclosure Schedule, invest proceeds received in
connection with transactions conducted in accordance with Section 1031 of the Code, including purchases of property with funds held by a qualified intermediary or other agent serving in a
similar capacity;
(o) except
as set forth on
Section 5.1(o)
of the Company Disclosure Schedule, waive, settle or satisfy any rights,
claims, liabilities or obligations (absolute, accrued, asserted, unasserted, contingent or otherwise), other than amounts individually not in excess of $750,000, or in the aggregate, not to exceed
$2,500,000, in each case, in excess of applicable insurance proceeds;
(p) fail
to maintain in full force and effect material insurance policies or comparable replacement policies covering the Company and its Subsidiaries and their respective
properties, assets and businesses in a form and amount consistent with past practice; or
(q) authorize,
commit or agree to take any of the foregoing actions.
Notwithstanding
the foregoing (i) nothing contained in this Agreement shall give to Parent or Acquisition Sub, directly or indirectly, rights to control or direct the operations
of the Acquired Companies prior to the Effective Time and (ii) the Company and each Subsidiary will take, and cause each Subsidiary to take, any actions, or forbear from taking any actions, as
necessary to ensure that the Company and each Subsidiary REIT will be classified as a REIT for the taxable year of such entity that includes the Closing Date, and will take, and cause each of its
Subsidiaries to take, any action which is consistent with such REIT qualification for such taxable year or any prior taxable year; provided that (a) the Company shall not be required to take
(or forbear from taking) any action to preserve REIT status where the failure to qualify as a REIT is attributable to any Additional Transactions and (b) the failure of any entity to satisfy
the distribution requirements of Section 857(a) for any period beginning after December 31, 2016 shall not be deemed a breach of this
Section 5.1
or of any other obligation of the Company
or a Subsidiary REIT to maintain REIT status. Nothing in
Section 5.1
shall restrict the
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Company
and its Subsidiaries from engaging in any capital call transactions exclusively among the Company and its Subsidiaries in the ordinary course of business consistent with past practice.
Section 5.2
No Solicitation.
(a) The
Company shall, and shall cause each of its Subsidiaries and each of their respective officers, directors, employees, consultants, agents, financial advisors,
investment bankers, attorneys, accountants and other representatives (collectively "
Representatives
") to immediately cease and cause to be terminated
any existing solicitation of, or discussions or negotiations with, any Person that may be ongoing with respect to an Acquisition Proposal, and promptly following the date hereof, the Company shall
request that all non-public information previously provided by or on behalf of the Company or any of its Subsidiaries to any such Person be returned or destroyed in accordance with the applicable
confidentiality agreement. The Company will not, and shall cause each of its Subsidiaries and each of its and their Representatives not to (i) directly or indirectly, solicit, initiate, or
knowingly facilitate or encourage the submission or announcement of any Acquisition Proposal (including by approving any transaction, or approving any Person becoming an "interested stockholder," for
purposes of the MGCL), (ii) furnish any information regarding the Company or its Subsidiaries to any Person in connection with, or in response to, an Acquisition Proposal, (iii) engage
in discussions or negotiations with any Person with respect to any Acquisition Proposal, or (iv) release or permit the release of any Person from, or to waive or permit the waiver or
termination of any provision of, any standstill or similar agreement to which any of the Company or any Subsidiary of the Company is a party, other than to the extent the Company Board or any
committee thereof determines in good faith, after consultation with outside legal counsel, that failure to provide such waiver, release or termination would reasonably be expected to be inconsistent
with its fiduciary duties under applicable Law.
(b) Notwithstanding
anything to the contrary contained in
Section 5.2(a)
, prior to the receipt of the Company
Stockholder Approval, if the Company receives a written Acquisition Proposal that did not result from a breach of this
Section 5.2
and which the
Company Board determines in good faith, after consultation with the Company's outside legal counsel and its financial advisor, that such Acquisition Proposal either constitutes a Superior Proposal or
could reasonably be expected to lead to a Superior Proposal, the Company and its Representatives may: (i) provide information in response to a request therefor by the Person who made such
Acquisition Proposal, but only if, prior to providing any material non-public information regarding the Company or its Subsidiaries to such Person, the Company receives from such Person an executed
Acceptable Confidentiality Agreement; and/or (ii) engage or participate in any discussions or negotiations with such Person who made such Acquisition Proposal, if, and only to the extent that,
prior to taking any action described in clause (i) or (ii), the Company Board determines in good faith after consultation with outside counsel that failure to take such action, in light of such
Acquisition Proposal and the terms of this Agreement, would reasonably be expected to be inconsistent with the Company Board's fiduciary duties under applicable Law. Prior to or concurrent with
providing any material non-public information to such Person making such Acquisition Proposal, the Company shall make such material non-public information available to Parent (to the extent such
material non-public information has not been previously made available by the Company to Parent or Parent's representatives).
(c) Neither
the Company Board nor any committee thereof shall, except as permitted by this
Section 5.2
:
(i) withdraw, modify, amend or qualify, in a manner adverse to Parent and Acquisition Sub, the Board Recommendation (or publicly propose or resolve to so withdraw, modify, amend or qualify the
Board Recommendation); (ii) approve, recommend or declare advisable any Acquisition Proposal (or publicly propose or resolve to so approve, recommend or declare advisable any Acquisition
Proposal) (any action described in clause "(i)" or clause "(ii)" being referred to as a "
Change in Recommendation
"); or (iii) cause the Company
to enter into any letter of intent, agreement in principle, merger agreement, acquisition agreement, investment agreement or other Contract of any kind with respect to an Acquisition Proposal (other
than an Acceptable Confidentiality Agreement entered into in compliance with
Section 5.2(b)
) contemplating an Acquisition Proposal (any such
contract, an "
Alternative Acquisition Agreement
").
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(d) Notwithstanding
anything to the contrary contained in this Agreement, at any time prior to the Company Stockholder Approval, the Company Board may:
(i) make
a Change in Recommendation in response to an Acquisition Proposal if: (A) such Acquisition Proposal did not result from a breach of
Section 5.2(a)
; (B) the Company Board determines in
good faith, after consultation with the Company's outside legal counsel and its
financial advisor, that (1) such Acquisition Proposal would, if this Agreement were not amended or an alternative transaction with Parent were not entered into, constitute a Superior Proposal,
and (2) in light of such Acquisition Proposal, a failure to make a Change in Recommendation would reasonably be expected to be inconsistent with the Company Board's fiduciary obligations to the
Company's stockholders under applicable Law; (C) the Company delivers to Parent a written notice (the "
Superior Proposal Notice
"), four Business
Days in advance of any Change in Recommendation, stating that the Company Board intends to effect a Change in Recommendation in connection with a Superior Proposal or to terminate this Agreement
pursuant
Section 7.1(h)
, which Superior Proposal Notice shall specify the identity of the party who made such Superior Proposal and all of the
material terms and conditions of such Superior Proposal and attach a copy of the most current version of the related Alternative Acquisition Agreement; (D) during the four Business Day period
commencing on the date of Parent's receipt of such Superior Proposal Notice, the Company shall, and shall have made its representatives reasonably available to, engage in good faith negotiations with
Parent (to the extent Parent desires to negotiate) to
make such revisions to the terms of this Agreement or a possible alternative transaction, in either case, as would permit the Company Board not to effect a Change in Recommendation in connection with
a Superior Proposal or to terminate this Agreement pursuant to
Section 7.1(h)
in response to a Superior Proposal; (E) the Company Board
shall have considered in good faith any changes to this Agreement offered in writing by Parent and shall have determined in good faith, after consultation with its outside legal counsel and its
financial advisor, that (1) the Superior Proposal would continue to constitute a Superior Proposal if such changes offered in writing by Parent were to be given effect and (2) the
failure to make a Change in Recommendation would be inconsistent with the Company Board's fiduciary obligations to the Company's stockholders under applicable Law; and (F) if the Company enters
into an Alternative Acquisition Agreement concerning such Superior Proposal, the Company terminates this Agreement in accordance with
Section 7.1(h)
;
provided
, that the Company will not effect a Change in Recommendation in
connection with a Superior Proposal, or take any action pursuant to
Section 7.1(h)
with respect to a Superior Proposal, prior to the time that is four
Business Days after it has provided the Superior Proposal Notice;
provided
,
further
, that it being
understood and agreed that any amendment to the financial terms or any other material term of such Superior Proposal shall require a new Superior Proposal Notice, which shall require a new notice
period of two Business Days, and compliance with this
Section
5.2(d) with respect to such new notice; or
(ii) make
a Change in Recommendation of the type described in clause (i) of the definition thereof in response to a Change in Circumstances if: (A) the Company
Board determines in good faith, after consultation with its outside legal counsel, that, in light of such Change in Circumstances, a failure to effect such a Change in Recommendation would reasonably
be expected to be inconsistent with the Company Board's fiduciary obligations to the Company's stockholders under applicable Law; (B) such Change in Recommendation is not effected prior to the
fourth Business Day after Parent receives written notice from the Company confirming that the Company Board intends to effect such Change in Recommendation; (C) during such four Business Day
period, if requested by Parent, the Company engages in good faith negotiations with Parent to amend this Agreement or enter into an alternative transaction; and (D) at the end of such four
Business Day period, the Company Board determines in good faith, after consultation with its outside legal counsel and after taking into account any amendments to this Agreement that Parent and
Acquisition Sub have irrevocably agreed in writing to make as a result of the negotiations
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contemplated
by clause "(C)" above, that, in light of such Change in Circumstances, a failure to effect a Change in Recommendation would be inconsistent with the Company Board's fiduciary obligations
to the Company's stockholders under applicable Law;
provided
,
however
, that after compliance with
clauses "(B)" through "(D)" of this
Section 5.2(d)(ii)
with respect to any Change in Circumstances, the Company shall have no further obligations
under clauses "(B)" through "(D)" of this
Section 5.2(d)(ii)
, and the Company Board shall not be required to comply with such obligations with
respect to any other Change in Circumstances.
(e) If
the Company receives an Acquisition Proposal, then the Company shall promptly (and in no event later than twenty-four (24) hours after receipt of such
Acquisition Proposal) notify Parent in writing of such Acquisition Proposal (which notification shall include the identity of the Person making or submitting such Acquisition Proposal and the material
terms and conditions thereof), and shall thereafter keep Parent reasonably informed, on a reasonably current basis, as to the status (including any material developments) of such Acquisition Proposal,
including by providing Parent with copies of any draft agreements or material terms and conditions related thereto. The Company agrees that it and its Subsidiaries will not enter any confidentiality
(or similar) agreement subsequent to the date of this Agreement that prohibits the Company from providing to Parent such material terms and conditions and other information or otherwise complying with
this
Section 5.2
.
(f) Nothing
contained in this
Section 5.2
shall prohibit the Company or the Company Board from taking and disclosing
to the stockholders of the Company a position contemplated by Rule 14e-2(a) or Rule 14d-9 promulgated under the Exchange Act, or from issuing a "stop, look and listen" statement pending
disclosure of its position thereunder;
provided
that if any such disclosure does not reaffirm the Board Recommendation or state that the Board
Recommendation remains unchanged, such disclosure will be deemed to be a Change in Recommendation and Parent will have the right to terminate this Agreement as set forth in
Section 7.1(h)
.
Section 5.3
Filings; Other Action.
(a) Each
of the Company, Parent and Acquisition Sub shall: (i) in the event that a filing is required pursuant to the HSR Act with respect to the Merger, promptly
(and in no event later than the date that is ten (10) Business Days after the date hereof) make and effect all registrations, filings and submissions required to be made or effected by it
pursuant to the HSR Act with respect to the Merger; (ii) use commercially reasonable efforts to obtain all consents and approvals required from third parties in connection with the transactions
contemplated by this Agreement; and (iii) use reasonable best efforts to cause to be taken, on a timely basis, all other actions necessary or appropriate for the purpose of consummating and
effectuating the transactions contemplated by this Agreement;
provided
,
however
, that in no event shall
the Company be required to pay, prior to the Effective Time, any fee, penalty or other consideration to any Person for any consent or approval required for the consummation of any of the transactions
contemplated by this Agreement. Without limiting the generality of the foregoing, if a filing with a Governmental Entity is made, each of Parent and Acquisition Sub (A) shall promptly provide
all information requested by any Governmental Entity in connection with the Merger or any of the other transactions contemplated by this Agreement and (B) shall use commercially reasonable
efforts to promptly take, and cause its Subsidiaries to take, all actions and steps necessary to obtain any clearance or approval required to be obtained from the U.S. Federal Trade Commission, the
U.S. Department of Justice, any state attorney general, any foreign competition authority or any other Governmental Entity in connection with the transactions contemplated by this Agreement;
provided
,
however
, that nothing in this Agreement shall require Parent, Acquisition Sub or any of their
Affiliates to: (i) propose, negotiate, commit to or effect, by consent decree, hold separate order or otherwise (A) the sale, divesture, license or other disposition of any asset or
business of Parent, Acquisition Sub or any of their Affiliates or (B) the sale, divesture, license or other disposition, contemporaneously with or subsequent to the Effective Time, of any asset
or business of the Company or its Subsidiaries; (ii) permit the Company and its Subsidiaries to sell,
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divest,
license or otherwise dispose any of its or their assets or businesses prior to the Effective Time; (iii) terminate, relinquish, modify, transfer, assign, restructure, or waive existing
agreements, collaborations, relationships, ventures, contractual rights, obligations or other arrangements of Parent, Acquisition Sub or Company or their respective Subsidiaries; or
(iv) undertake any other behavioral undertakings including but not limited to creating or consenting to create any relationships, ventures, contractual rights, obligations, or other
arrangements of Parent, Acquisition Sub or Company or their respective Subsidiaries or, in each case, to enter, or offer to enter, into agreements and stipulate to the entry of an order or decree or
file appropriate applications with any Governmental Entity in connection with any of the foregoing or in the case of actions by or with respect to the Company or its Subsidiaries or its or their
businesses or assets, to consent to such action by the Company in any such case of (i)-(iv). Parent shall pay all filing fees under the HSR Act and other applicable Antitrust Laws, and the Company
shall not be required to pay any fees or make any other payments to any Governmental Entity in connection with any filings under the HSR Act or such other filings as may be required under applicable
Antitrust Laws in connection with the Merger or the other transactions contemplated by this Agreement.
(b) Without
limiting the generality of anything contained in
Section 5.3
, subject to applicable Law, each party hereto
shall: (i) give the other parties prompt written notice of the making or commencement of any request, inquiry, investigation, action or Legal Proceeding by or before any Governmental Entity
with respect to the Merger or any of the other transactions contemplated by this Agreement; (ii) keep the other parties informed as to the status of any such request, inquiry, investigation,
action or Legal Proceeding; and (iii) promptly inform the other parties of any communication to or from the U.S. Federal Trade Commission, the U.S. Department of Justice or any other
Governmental Entity regarding the Merger. Each party hereto will consult and cooperate with the other parties and will consider in good faith the views of the other parties in connection with any
analysis, appearance, presentation, memorandum, brief, argument, opinion or proposal made or submitted in connection with any such request, inquiry, investigation, action or Legal Proceeding. In
addition, except as may be prohibited by any Governmental Entity or by applicable Law, in connection with any such request, inquiry, investigation, action or Legal Proceeding, each party hereto will,
to the extent practicable, permit authorized representatives of the other parties to be present at each meeting or conference relating to such request, inquiry, investigation, action or Legal
Proceeding and to have access to and be consulted in connection with any document, opinion or proposal made or submitted to any Governmental Entity in connection with such request, inquiry,
investigation, action or Legal Proceeding.
(c) In
the event that any litigation or other administrative or judicial action or Legal Proceeding is commenced challenging the Merger or any of the other transactions
contemplated by this Agreement and such litigation, action or Legal Proceeding seeks, or would reasonably be expected to seek, to prevent the consummation of the Merger or the other transactions
contemplated by this Agreement, Parent and Acquisition Sub shall, subject to
Section 5.3(a)
, take any and all commercially reasonable action to
resolve any such litigation, action or Legal Proceeding and each of the Company, Parent and Acquisition Sub shall cooperate with each other and use its respective best efforts to contest any such
litigation, action or proceeding and to have vacated, lifted, reversed or overturned any decree, judgment, injunction or other order, whether temporary, preliminary or permanent, that is in effect and
that prohibits, prevents or restricts consummation of the Merger or the other transactions contemplated by this Agreement.
(d) Neither
Parent nor Acquisition Sub shall, nor shall they permit their respective Subsidiaries to, acquire or agree to acquire any rights, assets, business, Person or
division thereof (through acquisition, license, joint venture, collaboration or otherwise), if such acquisition, would reasonably be expected to increase the risk of not obtaining any applicable
clearance, consent, approval or waiver under Antitrust Laws with respect to the Merger or the other transactions contemplated by this Agreement.
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Section 5.4
Access.
Upon reasonable advance written notice, the Company shall afford Parent's
Representatives reasonable access, during normal business hours throughout the period
prior to the Effective Time, to the Company Properties and the Acquired Companies' offices, plants, facilities, personnel, Tax Returns and books and records, and such other information concerning
their respective businesses, properties and personnel as Parent may reasonably request;
provided, however
, that the Acquired Companies shall not be
required to permit any inspection or other access, or to disclose any information, that in the reasonable judgment of the Company could: (a) result in the disclosure of any trade secrets of
third parties; (b) violate any obligation of the Acquired Companies with respect to confidentiality, non-disclosure or privacy (provided that the Company shall use commercially reasonable
efforts to secure the consent of any third party or enter into a joint defense agreement if necessary to permit the disclosure of applicable information to Parent and its Representatives);
(c) jeopardize protections afforded the Company under the attorney-client privilege or the attorney work product doctrine; (d) violate any Laws; or (e) materially interfere with
the conduct of the Acquired Companies' business;
provided
,
further
,
however
, that in such instances the
Company shall inform Parent of the general nature of the information being withheld and, upon Parent's request,
reasonably cooperate with Parent to provide such information, in whole or in part, in a manner that would not result in any of the outcomes described in the foregoing clauses (a) through (e).
No investigation pursuant to this
Section 5.4
shall affect any representation or warranty in this Agreement of any party hereto or any condition
to the obligations of the parties hereto. All requests for access pursuant to this
Section 5.4
must be directed to the General Counsel of the
Company or another person designated in writing by the Company. Notwithstanding anything herein to the contrary, Parent and Acquisition Sub shall not, and shall cause their respective Representatives
not to, contact any tenant, supplier or partner of the Company in connection with the Merger or any of the other transactions contemplated by this Agreement without the Company's prior written consent
(such consent not to be unreasonably withheld, conditioned or delayed), and Parent and Acquisition Sub acknowledge and agree that any such contact shall be arranged by and with a Representative of the
Company participating. All information obtained by Parent and its Representatives pursuant to this
Section 5.4
shall be treated as
"
Evaluation Material
" (as defined in the Confidentiality Agreement) of the Acquired Companies for purposes of, the Confidentiality Agreement.
Section 5.5
Interim Operations of Acquisition Sub.
During the period from the date hereof
through the earlier of the Effective Time or the date of termination of this Agreement, Acquisition Sub shall not engage in
any activities of any nature except as provided in or contemplated by this Agreement. Notwithstanding anything herein to the contrary, Parent and Acquisition Sub shall not, and shall cause their
respective Representatives not to, contact any tenant, supplier or partner of the Company in connection with the Merger or any of the other transactions contemplated by this Agreement without the
Company's prior written consent (such consent not to be unreasonably withheld, conditioned or delayed), and Parent and Acquisition Sub acknowledge and agree that any such contact shall be arranged and
supervised by Representatives of the Company.
Section 5.6
Publicity.
The Company and Parent shall consult with each other before issuing any
press release or making any other public announcements or scheduling a press conference or
conference calls with investors or analysts, with respect to this Agreement or the transactions contemplated by the Transaction Documents and shall not issue any such press release or make any such
other public announcement without the consent of the other parties hereto, which consent shall not be unreasonably withheld, conditioned or delayed;
provided
that (a) a party hereto may, without
the prior consent of the other parties hereto, issue any press release or make any public statement
as may be required by Law or the applicable rules of NYSE if it has used its commercially reasonable efforts to consult with the other parties hereto and to obtain such parties' consent but has been
unable to do so prior to the time such press release or public statement is so required to be issued or made, and (b) the Company will not be obligated to engage in such consultation or obtain
any such consent with respect to any communication (i) that is principally directed to employees, partners, vendors or tenants
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so
long as such communications are consistent with previous releases, public disclosures or public statements made jointly by the parties (or individually, if approved the other party), or
(ii) relating to an Acquisition Proposal, Superior Proposal, Change in Recommendation (in each case, in accordance with
Section 5.2
) or
"stop-look-and-listen" communication or similar communication of the type contemplated by Rule 14d-9(f) under the Exchange Act.
Section 5.7
Other Employee Benefits
.
(a) For
a period of not less than 12 months after the Closing Date, Parent shall ensure that Greystar or one of its Affiliates provides to each employee of the
Acquired Companies who continues employment with Parent, the Surviving Entity or Greystar or one of its Affiliates following the Effective Time (each, a "
Continuing
Employee
") with base pay, bonus and commission targets, severance and other benefits that are substantially not less favorable in the aggregate than as provided to similarly
situated employees of Greystar Management Services LLP. Parent shall provide to each employee of the Acquired Companies who is not a Continuing Employee (as determined by Parent in its sole
discretion) (each, a "
Non-Continuing Employee
") severance pay and benefit terms ("
Severance Pay
") set
forth in
Section 5.7(a)
of the Company Disclosure Schedule in accordance with the terms set forth in
Section 5.7(a)
of the Company Disclosure
Schedule. To the extent that the termination of employment of some or all Non-Continuing Employees
occurs on or following the Closing Date results in or contributes to the existence of a qualifying event under any WARN Act, Parent shall be responsible for all notice and payment requirements under
such WARN Act.
(b) Parent
shall cause Greystar or one of its Affiliates to ensure that, as of the Effective Time, each Continuing Employee receives full credit (for all purposes, including
eligibility to participate, vesting, benefit accrual, vacation entitlement and severance benefits) for service with the Acquired Companies (or predecessor employers to the extent the Company provides
such past service credit) under the comparable employee benefit plans, programs and policies of Greystar or one of its Affiliates in which such employees became participants;
provided
,
however
, that the foregoing shall not apply with respect to benefit accrual under any defined
benefit pension plan or to the extent that its application would result in a duplication of benefits. For the avoidance of doubt, Parent shall ensure that Greystar or one of its Affiliates provides
full credit to each Continuing Employee for the accrued vacation balance of such Continuing Employee. As of the Effective Time, Parent shall ensure that Greystar or one of its Affiliates credits
Continuing Employees with the amount of vacation time that such employees had accrued under any applicable Company Benefit Plan as of the Effective Time. With respect to each health or welfare benefit
plan maintained by Greystar or one of its Affiliates for the benefit of Continuing Employees, Parent (i) shall cause to be waived any eligibility waiting periods, any evidence of insurability
requirements and the application of any pre-existing condition limitations under such plan and (ii) shall cause each Continuing Employee to be reimbursed for any out-of-pocket expenses
(excluding co-payments that do not apply to deductibles) incurred between the Effective Time and December 31, 2017 in connection with meeting any individual deductibles and individual
out-of-pocket maximums under such plan, provided that (A) such Continuing Employee has already met the individual deductible and individual out-of-pocket maximum under the applicable Company
Benefit Plan as of the Effective Time or (B) such Continuing Employee has not met the individual deductible or individual out-of-pocket maximum under the applicable Company Benefit Plan as of
the Effective Time and has paid, in the aggregate for 2017, $4,500 (if the Continuing Employee's out-of-pocket maximum under the applicable Company Benefit Plan in which he or she participated prior
to the Effective Time is $4,500) or $5,000 (if the Continuing Employee's out-of-pocket maximum under the applicable Company Benefit Plan in which he or she participated prior to the Effective Time is
$5,000) in out-of-pocket expenses under the applicable Company Benefit Plan prior to the Effective Time and such plan maintained by Greystar or one of its Affiliates at and after the Effective Time.
(c) Parent
shall ensure that Greystar or one of its Affiliates pay any annual bonus for 2017 at 100% of target and any commissions for 2017 that have been earned by each
employee of the Acquired
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Companies,
but have not been paid as of the Effective Time, at such time as they would have otherwise been paid under the Company's bonus plan, unless otherwise provided on Schedule 5.7(a)
attached to
Section 5.7(a)
of the Company Disclosure Schedule.
(d) Parent
shall cause the Surviving Entity to assume and honor in accordance with their terms all deferred compensation plans, agreements and arrangements, severance and
separation pay plans, agreements and arrangements, and all written employment, severance, retention, incentive, change in control and termination agreements (including any change in control provisions
therein) applicable to employees of the Acquired Companies and in effect immediately prior to the Effective Time. If directed by Parent in writing at least ten Business Days prior to the Effective
Time, the Company shall use reasonable efforts to effectuate any amendment, consent or assignment needed to ensure that such agreements are transferred to Greystar or one of its Affiliates, as
applicable, without any liability being incurred by Parent, the Surviving Entity, Greystar or one of their Affiliates.
(e) If
directed by Parent in writing at least ten Business Days prior to the Effective Time, the Company shall terminate any and all Company Benefit Plans intended to
qualify under Section 401(k) of the Code, effective not later than the Business Day immediately preceding the Effective Time. In the event that Parent requests that such 401(k) plan(s) be
terminated, the Company shall provide Parent with evidence that such 401(k) plan(s) have been terminated pursuant to resolutions of the Company Board (the form and substance of which shall be subject
to review and reasonable approval by Parent). Furthermore, if directed by Parent in writing at least ten Business Days prior to the Effective Time, the Company shall help effectuate any amendment,
consent or assignment needed to ensure that the Company Benefit Plans (other than the agreements described in Section 5.7(d)) are transferred to the Surviving Entity, Greystar or an Affiliate,
as applicable.
(f) The
Company and Parent (including Greystar and its Affiliates) agree to comply with the Code Section 280G-related obligations set forth on
Section 5.7(a)
of the Company Disclosure Schedule.
(g) Nothing
in this
Section 5.7
or elsewhere in this Agreement is intended nor shall be construed to (i) be
treated as an amendment to any particular Company Benefit Plan, (ii) prevent Parent from amending or terminating any of its benefit plans in accordance their terms, (iii) create a right
in any employee to employment with Parent, the Surviving Entity, or any of their Affiliates, (iv) create any third-party beneficiary rights in any employee of any Acquired Company with respect
to the compensation, terms and conditions of employment and/or benefits that may be provided to any Continuing Employee by Parent or the Company or under any benefit plan which Parent, the Company or
the Surviving Entity or an Affiliate may maintain.
Section 5.8
Indemnification; Directors' and Officers' Insurance.
(a) From
and after the Effective Time until the sixth anniversary of the Effective Time, the Acquired Companies and the Surviving Entity shall, and Parent shall cause the
Acquired Companies and the Surviving Entity to, fulfill and honor in all respects the obligations of the Acquired Companies in respect of rights of indemnification, exculpation from liability and
advancement of expenses for all acts or omissions or alleged actions or omissions occurring at or prior to the Effective Time, whether asserted or claimed before, at or after the Effective Time,
existing in favor of any Indemnified Party pursuant to (i) each indemnification agreement in effect between any Acquired Company and any Indemnified Party and (ii) any indemnification,
exculpation from liability or advancement of expenses provision set forth in the Organizational Documents of the Acquired Companies as in effect on the date hereof. Without limiting the foregoing,
from and after the Effective Time until the sixth anniversary of the Effective Time, unless otherwise required by Law, the Organizational Documents of the Surviving Entity shall contain the provisions
with respect to indemnification, exculpation from liability and advancement of expenses set forth in the Acquired Companies' Organizational Documents on the date hereof and, from and after the
Effective Time until the sixth anniversary of the Effective
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Time,
such provisions shall not be amended, repealed or otherwise modified in any manner that could adversely affect the rights thereunder of any Indemnified Party.
(b) Without
limiting the provisions of
Section 5.8(a)
, during the period commencing at the Effective Time and ending
on the sixth anniversary thereof, the Acquired Companies and the Surviving Entity shall, and Parent shall cause the Acquired Companies, and the Surviving Entity to, indemnify and hold harmless each
Indemnified Party against and from any costs, fees and expenses (including reasonable attorneys' fees and investigation expenses), judgments, fines, losses, claims, damages, liabilities and amounts
paid in settlement in connection with any claim, Legal Proceeding, arbitration, investigation or inquiry, whether civil, criminal, regulatory, legislative administrative or investigative, to the
extent such claim, Legal Proceeding, arbitration, investigation or inquiry arises directly or indirectly out of or pertains directly or indirectly to (i) any action or omission or alleged
action or omission in such Indemnified Party's capacity as a director, officer, employee or agent of any Acquired Company to the extent such action or omission, or alleged action or omission, occurred
prior to, at or after the Effective Time) or (ii) any of the transactions contemplated by this Agreement; provided, however, that if, at any time prior to the sixth anniversary of the Effective
Time, any Indemnified Party delivers to Parent or the Surviving Entity a written notice asserting a claim for indemnification under this
Section 5.8(b)
, then the claim asserted in such notice shall
survive the sixth anniversary of the Effective Time until such time as such claim is
fully and finally resolved. In addition, from and after the Effective Time, Parent shall, and shall cause the Acquired Companies, and the Surviving Corporation to, advance, prior to the final
disposition of any claim, Legal Proceeding, arbitration, investigation or inquiry for which indemnification may be sought under this Agreement, promptly following request by an Indemnified Party
therefor, all costs, fees and expenses (including reasonable attorneys' fees and investigation expenses) incurred by such Indemnified Party in connection with any such claim, Legal Proceeding,
arbitration, investigation or inquiry; provided that the Indemnified Party shall have made an undertaking to repay such expenses if it is ultimately determined that such Indemnified Party was not
entitled to indemnification under this
Section 5.8(b)
.
(c) From
the Effective Time until the sixth anniversary of the Effective Time, the Acquired Companies and the Surviving Entity shall, and Parent shall cause the Acquired
Companies, and the Surviving Entity to, cause to be maintained in effect, for the benefit of the Indemnified Parties, at least the current level and scope of directors' and officers' liability
insurance coverage as set forth in the Company's current directors' and officers' liability insurance policies in effect as of the date hereof with respect to any action or omission or alleged action
or omission occurring before or at the Effective Time, including with respect to any of the transactions contemplated by this Agreement;
provided
that
Parent and the Surviving Entity shall not be required to pay an annual premium for the D&O Insurance in excess of 250% of the annual premium paid as of the date hereof by the Company for such
insurance;
provided
,
further
, that if the annual premiums of such insurance coverage at any time exceed
such amount, Parent or the Surviving Entity shall obtain a policy which, in its good faith determination, provides the greatest coverage available for a cost not exceeding such amount. Notwithstanding
anything to the contrary, the Company may obtain a prepaid "tail" policy (the "
Tail Policy
") prior to the Effective Time, which policy provides the
Indemnified Parties with directors' and officers' liability insurance for a period ending no earlier than the sixth anniversary of the Effective Time with respect to any action or omission or alleged
action or omission occurring before or at the Effective Time, including with respect to any of the transactions contemplated by this Agreement;
provided
that payment for insurance coverage provided by such Tail Policy shall not exceed 250% of the annual premium paid as of the date hereof by the Company. The Acquired Companies and the Surviving Entity
shall, and Parent shall cause the Acquired Companies, and the Surviving Entity to, cause any such Tail Policy to be maintained in full force and effect, for its full term, and cause all obligations
thereunder to be honored. Any such Tail Policy will satisfy Parent's obligations under this
Section 5.8(c)
to obtain or provide directors' and
officers' liability insurance.
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(d) In
the event any of Parent, any Acquired Company or the Surviving Entity or any of their respective successors or assigns (i) consolidates with or merges into any
other Person and shall not be the continuing or Surviving Entity or Entity of such consolidation or merger or (ii) transfers all or substantially all of its properties and assets to any Person,
then, and in each such case, proper provision shall be made so that the successors and assigns of such Acquired Company or the Surviving Entity, as the case may be, assume the obligations set forth in
this
Section 5.8
.
(e) The
rights of each Indemnified Party under this
Section 5.8
shall be in addition to, and not in limitation of, any
other rights such Indemnified Party may have under the Organizational Documents of the Company or the Surviving Entity, under any other indemnification arrangement, under the MGCL, the DLLCA or
otherwise. This
Section 5.8
shall survive the Effective Time and shall also survive consummation of the Merger and the Effective Time. This
Section 5.8
is intended to benefit, and may be enforced by, the Indemnified Parties and their respective heirs, Representatives, successors and
assigns, and shall be binding on all successors and assigns of Parent and the Surviving Entity.
Section 5.8
may not be amended, altered or
repealed after the Effective Time without the prior written consent of the affected Indemnified Party.
(f) For
purposes of this Agreement, each individual who is or was an officer or director of the Company or any Subsidiary at any time prior to the Effective Time shall be
deemed to be an "
Indemnified Party
."
Section 5.9
Section 16 Matters.
Prior to the Effective Time, the Company
shall, and shall be permitted to, take all such steps as may reasonably be necessary to cause the transactions
contemplated by this Agreement, including any dispositions of shares of Company Common Stock (including any shares subject to Company Restricted Stock Awards, Company RSU Awards or Company Performance
RSU Awards) by each Person who is or will be subject to the reporting requirements of Section 16(a) of the Exchange Act with respect to the Company, to be exempt under Rule 16b-3 under
the Exchange Act.
Section 5.10
Transaction Litigation.
Subject to the exceptions set forth on
Section 5.1(o)(2)
of the Company Disclosure Schedule, the Company
shall promptly advise Parent in writing of any Transaction Litigation and shall keep Parent informed on a reasonably prompt basis regarding any such Transaction Litigation, and the Company shall give
Parent the opportunity to (a) participate in the defense of any Transaction Litigation, and (b) consult with counsel to the Company regarding the defense, settlement or compromise with
respect to any such Transaction Litigation. For purposes of this
Section 5.10
, "participate" means that Parent will be kept reasonably apprised
of proposed strategy and other significant decisions with respect to the Transaction Litigation (to the extent that the attorney-client privilege between the Company and its counsel is not undermined
or otherwise adversely affected), and Parent may offer comments or suggestions with respect to such Transaction Litigation which the Company shall consider in good faith, but Parent will not be
afforded any decision making power or other authority over such Transaction Litigation;
provided
that the Company shall not settle or compromise or
agree to settle or compromise any Transaction Litigation without Parent's prior written consent (which consent shall not be unreasonably withheld or delayed), subject to
Section 5.1(o)(2)
of the
Company Disclosure Schedule. Following the Effective Time, the Indemnified Parties may continue to retain counsel
retained prior to the Effective Time to defend any Transaction Litigation;
provided
,
however
, that, in
no event shall Parent be required to retain more than one pre-Effective Time counsel for all the Indemnified Parties as a group, unless required by conflicts of interest between or among the
Indemnified Parties.
Section 5.11
Preparation of Proxy Statement; Stockholders' Meeting; Vote of Parent.
(a) As
promptly as reasonably practicable after the execution of this Agreement, and, in any event, within 30 calendar days after the date of this
Agreement, the Company shall prepare and file a proxy statement in preliminary form for the Stockholder Meeting (together with any amendments thereof or
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supplements
thereto and any other required proxy materials, the "
Proxy Statement
"). The Company will prepare and provide to Parent a draft of the
preliminary Proxy Statement, as promptly as practicable after the date of this Agreement, and, in any event, within 25 calendar days of execution of this Agreement, which will have been reviewed and
approved for filing by all Persons required by the Company. The Company agrees, as to it and its Subsidiaries, that at the date of mailing to its stockholders and at the time of the Stockholders
Meeting (a) the Proxy Statement will comply in all material respects with the applicable provisions of the Exchange Act and the rules and regulations thereunder and (b) none of the
information supplied by it or any of its Subsidiaries for inclusion or incorporation by reference in the Proxy Statement will contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. The Company shall promptly,
and in any event, within 48 hours, notify Parent of the receipt of all comments of the SEC with respect to the Proxy Statement and of any request by the SEC for any amendment or supplement
thereto or for additional information and will promptly provide to Parent copies of all correspondence between the Company and/or any of its Representatives and the SEC with respect to the Proxy
Statement. Subject to
Section 5.3
and applicable attorney-client privilege, the Company and Parent will each use its reasonable best efforts to
promptly provide responses to the SEC with respect to all comments received on the Proxy Statement by the SEC and the Company will cause the definitive Proxy Statement to be mailed (i) if the
SEC provides comments to the preliminary Proxy Statement, as promptly (and in any event within five Business Days) after the date the SEC staff advises that it has no further comments thereon or that
the Company may commence mailing the Proxy Statement or (ii) if, within 10 calendar days after the filing of the preliminary Proxy Statement, the Company has not received comments to the
preliminary Proxy Statement, no later than the 5th Business Day after such 10th calendar day. Without limiting the generality of the foregoing, each of Parent and Acquisition Sub shall
cooperate, and shall cause their Affiliates to cooperate, with the Company in connection with the preparation and filing of the Proxy Statement, including promptly furnishing to the Company in writing
upon request any and all information relating to Parent, Acquisition Sub and their respective Affiliates as may be required, or otherwise reasonably requested by the Company, to be set forth in the
Proxy Statement under applicable Law. Parent shall ensure that such information supplied by it and its Affiliates in writing for inclusion in the Proxy Statement will not, on the date it is first
mailed to stockholders of the Company and at the time of the Stockholder Meeting or filed with the SEC (as applicable), 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. Notwithstanding anything to the
contrary stated above, prior to filing or mailing the Proxy Statement (or any amendment or supplement thereto), or responding to any comments of the SEC with respect thereto, the Company shall provide
Parent with a reasonable opportunity to review and comment on such document or response and shall consider Parent's comments in good faith. Notwithstanding the foregoing, the Company assumes no
responsibility with respect to information supplied in writing by or on behalf of Parent or Acquisition Sub or their Affiliates for inclusion or incorporation by reference in the Proxy Statement.
(b) Subject
to
Section 5.11(a)
, as promptly as reasonably practicable following the clearance of the Proxy Statement
by the SEC, the Company shall, in accordance with applicable Law and the Company's governing documents, duly set a record date for, call, give notice of, convene and hold a special meeting of the
Company's stockholders (including any adjournments and postponements thereof, the "
Stockholder Meeting
") for the purpose of considering and taking
action upon the matters requiring stockholder approval;
provided
that (i) the Stockholder Meeting shall be held as promptly as practicable (and
in any event not more than 45 days) after the date of mailing of the Proxy Statement and (ii) the Company will not postpone or adjourn the Stockholder Meeting except (A) to the
extent required by Law, (B) with the written consent of Parent, which may be withheld in its sole discretion,
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(C) to
allow additional solicitation of votes in order to obtain the Company Stockholder Approval, (D) for the absence of a quorum, or (E) after consultation with Parent, to
ensure that any necessary supplement or amendment to the Proxy Statement is provided to the holders of shares of Company Common Stock within a reasonable amount of time in advance of the Stockholder
Meeting. Unless the Company Board shall have effected a Change in Recommendation pursuant to
Section 5.2(d)
, the Company shall include in the
Proxy Statement the recommendation of the Company Board that the stockholders of the Company vote in favor of the approval of the Merger and the other transactions contemplated by this Agreement, and
shall take all lawful action to solicit such approval of the Merger and such other transactions contemplated by this Agreement. Unless this Agreement has been terminated, the Company's obligation to
call, give notice of and hold the Stockholder Meeting in accordance with
Section 5.11
shall not be limited or otherwise affected by the making,
commencement, disclosure, announcement or submission of any Superior Proposal or other Acquisition Proposal, by any Change in Circumstances or any Change in Recommendation. Without limiting the
generality of the foregoing, the Company agrees that, unless this Agreement is terminated in accordance with
Section 7.1
, (x) the Company
shall use its reasonable best efforts to cause the definitive Proxy Statement to be mailed to the Company's stockholders and to solicit from the Company's stockholders proxies in favor of the approval
of the Merger and this Agreement in accordance with this
Section 5.11
and shall take all other action necessary or advisable to secure the
Company Stockholder Approval, and (y) the Company shall not submit any Acquisition Proposal to a vote of the stockholders (other than the Merger).
Section 5.12
Financing.
(a) Each
of Parent and Acquisition Sub shall use, and shall cause its Subsidiaries to use, its reasonable best efforts to take, or cause to be taken, all actions and do, or
cause to be done, all things necessary, proper or advisable to arrange, obtain and consummate the Financing on the terms and conditions (including, to the extent required, the full exercise of any
"flex" provisions) described in the Financing Commitment Letters, and shall not permit any amendment, supplement, replacement or modification to be made to, or any waiver of any provision under, the
Financing Commitment Letters if such amendment, supplement, replacement modification or waiver (i) with respect to the Financing Commitment Letters, reduces (or could have the effect of
reducing) the aggregate amount of the Financing (including by increasing the amount of fees to be paid or original issue discount unless (A) the Debt Financing or the Equity Financing is
increased by a corresponding amount or the Debt Financing is otherwise made available at Closing to fund such fees or original issue discount and (B) after giving effect to such reduction and
any of the transactions referred to in clause (A) above, the representation and warranty set forth in
Section 4.6
shall be true and
correct in all material respects), or (ii) imposes new or additional conditions or otherwise expands, amends or modifies any of the conditions to the Financing in a manner that makes them more
onerous to satisfy on the Closing Date, or (iii) expands, amends or modifies any other provision of the Financing Commitment Letters, in a manner that would reasonably be expected to delay or
prevent or make less likely the funding of the full amount of the Financing (or satisfaction of the conditions to the Financing) on the Closing Date (provided that, subject to compliance with the
other provisions of this
Section 5.12(a)
, Parent and Acquisition Sub may amend the Debt Commitment Letter to add additional lenders, arrangers,
bookrunners and agents and, subject to compliance with
Section 5.12(b)
below, Parent may replace all or any part of the Debt Financing with
Alternate Financing). Parent shall promptly deliver to the Company copies of any amendment, supplement, waiver, consent, modification or replacement in respect of the Debt Commitment Letter and, at
the written request of the Company, provide the Company with such information and documentation as shall be reasonably requested by the Company to allow the Company to monitor the progress of such
financing activities (subject to compliance by Parent with any confidentiality provisions or restrictions set forth in the Debt Commitment Letter or the definitive documents relating to the Debt
Financing). Subject in each case to Parent's obligation and right with respect to Alternate Financing set forth in
Section 5.12(b)
below, Parent
and Acquisition
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Sub
shall not agree to the withdrawal, termination, repudiation, reduction or rescission of any commitment in respect of the Debt Financing without the prior written consent of the Company, and shall
not release or consent to the termination of the obligations of the financing sources under the Debt Commitment Letter. For purposes of
Section 4.6
and this
Section 5.12
, (x) references to
"
Financing
" shall include the financing contemplated by the Financing Commitment Letters as permitted to be amended, modified, supplemented or replaced
by this
Section 5.12(a)
, and includes any Alternate Financing permitted pursuant to
Section 5.12(b)
, (y) references to "
Debt Financing
" shall include the debt financing
contemplated by the Debt Commitment Letter as permitted to be amended, modified, supplemented or replaced by this
Section 5.12(a)
, and includes
any Alternate Financing permitted pursuant to
Section 5.12(b)
and (z) references to "
Debt Commitment
Letter
" shall include such documents as permitted to be amended, modified, supplemented or replaced by this
Section 5.12(a)
and
Section 5.12(b)
.
(b) Each
of Parent and Acquisition Sub shall use its reasonable best efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary,
proper or advisable to arrange and obtain the Financing on the terms (including the market "flex" provisions) and subject only to the conditions set forth in the Financing Commitment Letters,
including using reasonable best efforts (i) to maintain in effect the Financing Commitment Letters (subject to the right to enter into Alternate Financing set forth below); (ii) to
promptly negotiate and enter into on the Closing Date definitive agreements with respect to the Debt Financing on the terms and conditions (including, as necessary, agreeing to any requested changes
to the commitments thereunder in accordance with any "flex" provisions) contained in the Debt Commitment Letter; and (iii) to satisfy (or seek a waiver of) all conditions to funding in the Debt
Commitment Letter and such definitive agreements thereto and in the Equity Commitment Letter and to consummate the Financing at or prior to the Closing. Parent and Acquisition Sub shall give the
Company prompt written notice (and in any event within two Business Days) (A) of any breach or default by any party to any of the Financing Commitment Letters or definitive agreements related
to the Financing of which Parent or Acquisition Sub becomes aware, (B) of the receipt of any written notice from any Debt Financing Source with respect to any material dispute or disagreement
between or among any parties to any of the Financing Commitment Letters or definitive agreements related to the Financing with respect to the obligation to fund the Financing or the amount of the
Financing to be funded at Closing, and (C) if at any time for any reason Parent or Acquisition Sub believes in good faith that it will not be able to obtain all or any portion of the Financing
on the terms and conditions, in the manner or from the sources contemplated by any of the Financing Commitment Letters or definitive agreements related to the Financing. Upon the request by the
Company, Parent and Acquisition Sub shall promptly provide any information reasonably requested by Company relating to any circumstance referred to in the immediately preceding sentence, except to the
extent providing such information is protected by attorney-client privilege. Upon (x) the occurrence of any circumstance referred to in clause (A), (B) or (C) of the second
preceding sentence, (y) if any portion of the Debt Financing otherwise becomes unavailable and such portion is required to pay all amounts required to be paid in connection with the Merger and
the transactions contemplated by this Agreement (including to fund the Merger Consideration, repay or refinance the debt of the Company and its Subsidiaries contemplated by this Agreement or the Debt
Commitment Letter, and all other fees, expenses and other amounts contemplated to be paid by Parent, Acquisition Sub or the Surviving Entity pursuant to this Agreement and the Financings), or
(z) Parent elects or desires to replace all or any portion of the Debt Financing, in each case, Parent and Acquisition Sub shall use their reasonable best efforts to arrange and obtain in
replacement thereof alternative financing (any such financing, "
Alternate Financing
") from alternative sources in an amount sufficient to consummate the
Merger, the Financing and the transactions contemplated by this Agreement and the Financing Commitment Letters (including payment of the Merger Consideration, repayment or refinancing of debt of the
Company and its Subsidiaries contemplated by this Agreement or the Debt Commitment Letter, and all other fees, expenses and other amounts contemplated to be paid by Parent, Acquisition Sub or the
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Surviving
Entity pursuant to this Agreement and the Financing) with terms and conditions that are in compliance with
Section 5.12(a)
of this
Agreement as promptly as reasonably practicable following the occurrence of such event. Parent shall deliver to the Company true, correct and complete copies of all agreements, arrangements or
understandings (including engagement letters, side letters and fee letters (subject to customary redaction of fee and other economic amounts)) related to any such alternative Debt Financing. Upon the
entry into any commitment letters or definitive documentation relating to any such Alternate Financing, all references in this Agreement to "Debt Commitment Letter" and
"Debt Financing" shall be and shall be deemed to be a reference to such terms as they relate to such Alternate Financing.
(c) Prior
to the Closing Date, the Company shall use its reasonable best efforts to provide, and shall cause each of its Subsidiaries to use its reasonable best efforts to
provide, to Parent, Acquisition Sub and each of their Subsidiaries and Affiliates, in each case at Parent's sole expense, all cooperation reasonably requested by Parent in connection with the
arrangement, syndication and consummation of the Debt Financing (provided that such requested cooperation does not unreasonably interfere with the ongoing operations of the Company or its
Subsidiaries), including using reasonable best efforts to (i) upon reasonable notice, participate in a reasonable number of due diligence sessions, rating agency presentations, meetings and
presentations with prospective lenders (but not more than one primary bank meeting), (ii) assisting with, and designating one or more members of senior management of the Company to participate
in, the preparation of customary offering and syndication documents and materials, including bank information memoranda, bank syndication material and packages, lender and investor presentations,
rating agency materials and presentations and similar documents and materials, in connection with the Financing, and providing reasonable and customary authorization letters to the Debt Financing
Sources authorizing the distribution of information to prospective lenders and containing customary information (all such documents and materials, collectively, the "
Offering
Documents
"), (iii) furnish Parent reasonably promptly following Parent's reasonable request with the historical financial statements of the Company as may be required by
the Debt Financing Sources in connection with the Debt Financing (subject to the immediately following proviso, the "
Required Financial Information
");
provided, that, in no event will the Required Financial Information be deemed to include or shall the Company otherwise be required to provide projections, pro forma financial statements or pro forma
adjustments related to the Debt Financing, (iv) reasonably cooperating in with the marketing efforts of Parent and its financing sources for any debt raised by Parent to complete the Merger,
(v) subject to any valid limitations or restrictions set forth in the applicable leases of tenants at the Company Properties, so long as the operations of the Company Properties are not
unreasonably disrupted, allowing Parent and its Representatives to conduct, at Parent's sole expense, appraisal and environmental and engineering inspections of each of the Company Properties;
provided neither Parent nor its Representatives shall conduct any physically intrusive inspections without the Company's prior written consent; provided further, that Parent subject to and in
accordance with
Section 5.2(e)
below shall indemnify and hold harmless the Company and the applicable Subsidiaries of the Company as a result of
Parent's or its Representatives' inspection of the Company Properties, (vi) requesting the Company's independent auditors to cooperate with Parent's independent auditors, participate in
accounting due diligence sessions and use reasonable efforts to obtain accountant's comfort letters and consents from the Company's independent auditors, (vii) assisting in the preparation of,
and executing and delivering, Financing Agreements and related definitive documents, including guarantees (if required) and other certificates and documents as may be requested by Parent,
(viii) cooperating with Parent in seeking from the Company's existing lenders such waivers, consents or payoff letters which may be necessary in connection with the Financing, and
(ix) taking all corporate actions, subject to the occurrence of the Closing, reasonably requested by Parent to permit the consummation of the Financing and to permit the proceeds thereof to be
made available at the Closing. Notwithstanding anything to the contrary in this
Section 5.12(c)
, (1) nothing will require cooperation to
the extent it would interfere unreasonably with the business or operations of
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the
Company or its Subsidiaries or otherwise be in conflict with applicable law or would conflict with or violate any agreement or Contract to which the Company or any of its Subsidiaries is party,
(2) (x) nothing will require the Company or its Subsidiaries or their respective directors, officers, managers or employees to execute, deliver or enter into, or perform any agreement,
document, certificate or instrument with respect to the Debt Financing (other than with respect to the authorization and representation letters referred to above) and (y) no obligation of the
Company or any of its Subsidiaries under any certificate, document, contract (other than with respect to the authorization and representation letters referred to above) will be effective until the
Closing and, none of the Company or any of its Subsidiaries will be required to pay any commitment or other similar fee or incur any other liability (other than in connection with the authorization
and representation letters referred to above) in connection with the Financing, prior to the Closing; and (3) none of the board of directors (or equivalent bodies) of the Company or any
Subsidiary thereof will be required to adopt or enter into any resolutions or take similar action approving the Financing (except that concurrently with the Closing the boards (or their equivalent
bodies) of the Company and Subsidiaries of the Company may adopt resolutions or take similar actions that do not become effective until the Closing). For the avoidance of doubt, the parties hereto
acknowledge and agree that the provisions contained in this
Section 5.12(c)
represent the sole obligation of the Company and its Subsidiaries and
their respective Affiliates with respect to cooperation in connection with the Debt Financing.
(d) The
Company hereby consents to the use of its and its Subsidiaries' logos in connection with the Financing; provided that such logos are used solely in a manner that is
not intended to or reasonably likely to harm or disparage the Company or any of its Subsidiaries or the reputation or goodwill of the Company or any of its Subsidiaries.
(e) Parent
shall reimburse the Company promptly upon demand for all reasonable costs and expenses (including reasonable attorneys' and accountants' fees) incurred by the
Company or any of its Subsidiaries or representatives in connection with the cooperation of the Company and its Subsidiaries contemplated by this
Section 5.12
and shall indemnify and hold harmless
the Company, its Subsidiaries and their respective Affiliates and representatives
(collectively, the "
Financing Indemnitees
") from and against any and all costs, expenses, losses, damages, claims, judgments, fines, claims, losses,
penalties, damages, interest, awards and liabilities directly or indirectly suffered or incurred by any of them in connection with the arrangement and consummation of the Financing (including any
alternate financing) and any information used in connection therewith. This
Section 5.12(e)
shall survive the consummation of the Merger and the
Closing and any termination of this Agreement, and is intended to benefit, and may be enforced by, the Financing Indemnitees and their respective heirs, executors, estates, personal representatives,
successors and assigns who are each third party beneficiaries of this
Section 5.12(e)
.
Section 5.13
Confidentiality.
Parent and the Company hereby acknowledge and agree to continue to
be bound by the Confidentiality Agreement. All information provided by or on behalf of the
Company or its Subsidiaries pursuant to this Agreement (including in connection with the any Debt Financing) will be kept confidential in accordance with the Confidentiality Agreement,
provided
,
however
, that Parent and Acquisition Sub will be permitted to disclose such information to
Sponsors and to any financing sources or prospective financing sources that may become parties to the Debt Financing (and, in each case, to their respective counsel and auditors) so long as each such
Person (a) agrees for the benefit of the Company to be bound by the Confidentiality Agreement as if a party thereto or (b) is subject to other confidentiality undertakings reasonably
satisfactory to the Company and of which the Company is a third-party beneficiary.
Section 5.14
Director Resignations.
Prior to the Closing, the Company shall deliver to Parent
resignations executed by each director of the Company in office immediately prior to the Effective Time,
which resignations shall be effective at the Effective Time.
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Section 5.15
Acquisition Sub Expenditure; Parent Distributions.
From the date hereof until the
Effective Time, Parent shall cause Acquisition Sub to not expend funds other than in connection with the Merger and the
transactions contemplated by this Agreement and the payment of related expenses.
Section 5.16
Distribution by Company of REIT Taxable Income.
Notwithstanding anything to the
contrary in this Agreement, prior to the Closing Date, any of the Company and its Subsidiary REITs may declare and pay a dividend
to its stockholders distributing cash in such amounts determined by the Company in its sole discretion to be required to be distributed in order for the Company or the Subsidiary REIT to qualify as a
REIT for such year and to avoid to the extent reasonably possible the incurrence of income or excise tax by the Company or the Subsidiary REIT. If the Company declares a dividend pursuant to the
immediately preceding sentence, the Merger Consideration shall be decreased by an amount equal to the per share amount of such distribution.
Section 5.17
Certain Tax Matters.
(a) Parent
and Acquisition Sub covenant and agree with the Company that for all relevant tax purposes Parent, the Surviving Entity and the Company, and their respective
Affiliates, will treat the Merger and the Additional Transactions consistent with
Section 2.12
,
Schedule C
and
Schedule G
.
(b) Each
of Parent, Acquisition Sub, and the Surviving Entity covenants and agrees that from and after the Closing it (and/or its Affiliates) will take all actions or
forbear from taking such actions, or will cause the applicable Subsidiary REIT to take all actions or forbear from taking such actions, as necessary to ensure that each Subsidiary REIT will be
classified as a REIT for the taxable year of such entity that includes the Effective Time or that ends with an Additional Transaction, including by causing each Subsidiary REIT to satisfy the
distribution requirements of Section 857(a) of the Code for such taxable year and will not take or permit any of its Affiliates to take, any action which is inconsistent with such REIT
qualification for such taxable year or any prior taxable year. Each of Parent and Acquisition Sub, the Surviving Entity, covenants and agrees that from and after the Closing it will not take any
action, or permit its Affiliates to take any action, including the allocation of purchase price, that is inconsistent with the Company's status as a REIT for any taxable year ending on or before the
Effective Time.
(c) Except
as may be required by applicable Law, Parent and Acquisition Sub, the Surviving Entity and the Company covenant and agree that Tax Returns of the Company and the
Company Subsidiaries (including withholdings and withholding Tax Returns) shall be prepared on a basis consistent with: (i)
Section 2.12
;
(ii) the principle that the Company qualifies as a REIT for its taxable years ended on or after December 31, 2007 through the taxable year of the Company ending with the Effective Time;
(iii) the principle that each Subsidiary REIT qualifies or has qualified as a REIT beginning with the first taxable year for which it elected to be a REIT, and will continue to qualify as a
REIT for its taxable year that includes the Effective Time or that ends with an Additional Transaction; and (iv) subject to the foregoing, in accordance with the other provisions of this
Agreement.
(d) Except
as may be required by applicable Law, Parent shall not and shall not permit its Subsidiaries or any of its Affiliates to take any position on any Tax Return that
is inconsistent with (i) the past practice of the applicable Subsidiary, (ii) the Company's status as a REIT for its taxable years ended on or after December 31, 2007 through the
taxable year of the Company ending with the Effective Time or (iii) the status of any Subsidiary REIT as a REIT for the period beginning with the first taxable year for which the Subsidiary
REIT elected to be a REIT through its taxable year that includes the Effective Time or that ends with an Additional Transaction.
(e) All
transfer, stamp, documentary, sales, use, registration, value-added and other similar Taxes (including all applicable real estate transfer Taxes) incurred in
connection with this Agreement and the transactions contemplated hereby ("
Transfer Taxes
") will be borne by Parent. Parent and the Company shall
cooperate in the preparation and filing in a timely manner all necessary documents (including all Tax Returns) with respect to such Transfer Taxes, shall provide satisfactory evidence satisfactory
that such Transfer Taxes have been paid and shall cooperate in attempting to minimize the amount of Transfer Taxes.
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(f) On
the Closing Date, prior to the Closing, the Company shall deliver to Parent the fully executed Tax Opinion.
(g) On
or before the Closing Date, the Company and each Subsidiary REIT shall have filed its U.S. federal income Tax Return for the taxable year ended December 31,
2016.
Section 5.18
Additional Transactions.
The Company and Parent shall undertake
and consummate the transactions set forth on
Schedule C
(the
"
Additional Transactions
") prior to the Effective Time. Notwithstanding any other provision of this Agreement, any breach of the Company's or any of its
Subsidiary's representations, warranties or covenants under this Agreement (other than as required pursuant to
Section 5.17(f)
), or any failure
to satisfy any condition set forth in
Section 6.2
(other than a failure to satisfy any condition by reason of failing to comply with
Section 5.17(f)
), that is attributable to one or more Additional Transactions shall not be deemed a breach or failure by the Company;
provided
that failure by the Company to comply with the Additional
Transactions, solely to the extent expressly set forth on
Schedule C
, shall be taken into account in determining a Company breach.
Section 5.19
Stock Exchange Delisting; Deregistration.
Prior to the Effective Time, the Company
and, following the Effective Time, Parent and the Surviving Entity, shall use reasonable best efforts to take, or cause
to be taken, all actions, and do or cause to be done all things, necessary, proper or advisable on its part under applicable Law and rules and policies of the New York Stock Exchange to cause the
delisting of the Company and of the shares of Company Common Stock from the New York Stock Exchange as promptly as practicable after the Effective Time and the deregistration of the shares of Company
Common Stock under the Exchange Act as promptly as practicable after such delisting.
Section 5.20
Takeover Statutes.
The Company and its Subsidiaries shall not take any action that
would cause the transactions contemplated by this Agreement, including the Merger, to be subject
to requirements imposed by any takeover statute. If any "moratorium," "control share acquisition," "fair price," "supermajority," "affiliate transactions" or "business combination statute or
regulation" or other similar anti-takeover provisions under the MGCL or similar Laws of any jurisdiction (each, a "
Takeover Statute
") may become, or may
purport to be, applicable to this Agreement, the Merger or any other transactions contemplated by this Agreement, each of the Company and Parent shall grant such approvals and take such actions as are
reasonably necessary so that the transactions contemplated hereby may be consummated as promptly as practicable on the terms contemplated hereby and otherwise act to eliminate or minimize the effects
of such statute or regulation on the transactions contemplated hereby.
Section 5.21
Existing Loans.
Promptly following Parent's request, the Company shall deliver to
each of its and the Company Subsidiaries' lenders under the Existing Loan Documents (and any
other party whose consent is required under the Existing Loan Documents) (the "
Existing Lenders
") a notice prepared by Parent, in form and substance
reasonably approved by the Company, requesting that such Existing Lender deliver to Parent a written statement or documents (the "
Assumption Documents
")
(i) confirming (A) the amount of the existing Indebtedness under such Existing Loan Document, (B) the date to which interest and principal has been paid, and (C) the amount
of any escrows being held by such Existing Lender under the Existing Loan Documents; and (ii) consenting to (A) the assumption of the existing indebtedness under such Existing Loan and
the consummation of the Merger and the other transactions contemplated by this Agreement, and (B) the modifications of the Existing Loan Documents that Parent may reasonably request after the
date hereof;
provided
that the Company shall be informed and consent to any such request or modification;
provided,
further
, that, in the event Parent requests Assumption Documents in accordance with this
Section 5.21
, (x) the
receipt of (or failure to receive) such Assumption Documents from all or any portion of the Existing Lenders shall in no event be a condition to Parent's and Merger Acquisition's obligations to
consummate the transactions contemplated by this Agreement, including the Merger, or otherwise affect Parent's and Acquisition Sub's obligations to pay the amounts to be paid by Parent or the
Surviving Entity under
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Section 2.6
and
Section 2.7
of the Agreement and the consummation of the Merger shall not be delayed or postponed
as a result of the receipt of (or failure to receive) such Assumption Documents from all or any portion of the Existing Lenders and (y) the Assumption Documents will be effective as of or
immediately prior to and conditioned on the occurrence of the Effective Time. Parent shall pay all fees and expenses payable in connection with the Assumption Documents, including premiums for any
endorsements to or re-date of the title insurance policy previously issued to the Existing Lenders, servicing fees, rating agency fees, assignment and assumption fees, attorneys' fees and
disbursements and processing fees required to be paid to the Existing Lenders as a condition to issuance of the Assumption Documents (collectively, the "
Assumption
Expenses
"). If applicable, Parent shall, promptly upon request by the Company, reimburse the Company for any reasonable out-of-pocket Assumption Expenses incurred by the
Company or any of the Company Subsidiaries under this
Section 5.21
.
ARTICLE 6
CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER
Section 6.1
Conditions to the Obligations of Each Party.
The obligation of each party hereto to
consummate the Merger is subject to the satisfaction or, to the extent permitted by applicable Law, waiver of, on or prior
to the Closing, of the following conditions:
(a) the
Company Stockholder Approval shall have been obtained;
(b) no
temporary restraining order, preliminary or permanent injunction or other Order preventing the consummation of the Merger shall have been issued by any Governmental
Entity of competent jurisdiction and remain in effect, and there shall not be any Law enacted or deemed applicable to the Merger that makes consummation of the Merger illegal; and
(c) the
applicable waiting period (and any extension thereof) applicable to the Merger under the HSR Act shall have expired or been terminated, if a filing under the HSR Act
shall have been made.
Section 6.2
Conditions to the Obligations of Parent and Acquisition Sub.
The obligation of
Parent and Acquisition Sub to consummate the Merger is subject to the satisfaction, at or prior to Closing, of the following conditions:
(a) (i)
the representations and warranties of the Company set forth in the Agreement that are qualified by reference to Company Material Adverse Effect shall be true and
correct as of the date of the Agreement and as of the Closing Date as though made on and as of such date and time (except to the extent that any such representation and warranty expressly speaks as of
an earlier date, in which case such representation and warranty shall have been true and correct as of such earlier date); (ii) the representations and warranties of the Company set forth in
the Agreement that are not qualified by reference to Company Material Adverse Effect (other than the representations and warranties set forth in
Section 3.3(a)
,
Section 3.3(b)
(other than the first sentence of
Section 3.3(b)
),
Section 3.3(d)
(Capitalization),
Section 3.5
(Absence of Certain Changes),
Section 3.15
(Authority; Binding Nature of
Agreement),
Section 3.19
(Brokers),
Section 3.21
(Takeover Statutes), and the second
sentence of
Section 3.2
(Organizational Documents)), shall be true and correct as of the date of the Agreement and as of the Closing Date as
though made on and as of such date and time (except to the extent that any such representation and warranty expressly speaks as of an earlier date, in which case such representation and warranty shall
have been true and correct as of such earlier date);
provided
,
however
, that notwithstanding anything in
this Agreement to the contrary, the condition set forth in this clause (a)(ii) shall be deemed to have been satisfied even if any representations and warranties of the Company are not so true
and correct if the failure of such representations and warranties of the Company to be so true and correct, individually or in the aggregate, shall not have resulted in a Company Material Adverse
Effect; (iii) the representations and warranties of the Company set forth in
Section 3.3(b)
(other than the first sentence of
Section 3.3(b)
) (Capitalization),
Section 3.3(d)
(Capitalization),
Section 3.15
(Authority; Binding Nature of Agreement),
Section 3.19
(Brokers),
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Section 3.21
(Takeover Statutes) and the second sentence of
Section 3.2
(Organizational Documents) shall be true
and correct in all material respects as of the date of this Agreement and as of the Closing Date as though made on and as of such date and time (except to the extent that any such representation and
warranty expressly speaks as of an earlier date, in which case such representation and warranty shall have been true and correct in all material respects as of such earlier date); (iv) the
representations and warranties set forth in
Section 3.3(a)
(Capitalization) shall, except for any
de
minimis
inaccuracies, be true and correct in all respects as of the date of the Agreement and as of the Closing Date, as though made on and as of such date and time (except to
the extent that any such representation and warranty expressly speaks as of an earlier date, in which case such representation and warranty shall have been true and correct as of such earlier date
subject to the foregoing exception); and (v) the representations and warranties set forth in
Section 3.5
(Absence of Certain Changes)
shall be true and correct in all respects both at and as of the date of this Agreement and at and as of the Closing Date as though made at and as of the Closing Date;
(b) the
Company shall have performed in all material respects all obligations required to be performed by it under this Agreement at or prior to the Closing Date;
(c) Parent
shall have received at the Closing a certificate signed on behalf of the Company by the Chief Executive Officer or the Chief Financial Officer of the Company
certifying that the conditions set forth in
Section 6.2(a)
and
Section 6.2(b)
and been
satisfied;
(d) since
the date of this Agreement, there shall not have occurred any Company Material Adverse Effect; and
(e) Parent
shall have the received tax opinion of Goodwin Procter LLP (or such other nationally recognized REIT counsel as may be reasonably acceptable to Parent and
the Company), substantially in the form of
Schedule D
to this Agreement (which opinion shall be subject to customary assumptions, qualifications
and representations, including representations made by the Company and its Subsidiaries in form and substance as set forth on
Schedule E
, and
which may contain such changes or modifications from the language set forth on such exhibits as may be mutually agreeable to Parent and the Company, such agreement not to be unreasonably withheld)
(collectively, the "
Tax Opinion
").
Section 6.3
Conditions to the Obligations of the Company.
The obligation of the Company to
consummate the Merger is subject to the satisfaction, at or prior to Closing, of the following conditions:
(a) the
representations and warranties of Parent and Acquisition Sub set forth in this Agreement shall be true and correct on the date hereof and on the Closing Date as if
made on the Closing Date (except to the extent that any such representation and warranty expressly speaks as of an earlier date, in which case such representation and warranty shall have been true and
correct as of such earlier date), except where the failure of such representations and warranties to be so true and correct (disregarding all qualifications or limitations as to "materiality" or words
of similar import) would not reasonably be expected to have, individually or in the aggregate, a Parent Material Adverse Effect;
(b) Parent
and Acquisition Sub shall each have performed in all material respects all obligations required to be performed by it under this Agreement at or prior to the
Closing Date; and
(c) the
Company shall have received at the Closing a certificate signed on behalf of Parent by the Chief Executive Officer or the Chief Financial Officer of Parent
certifying that the conditions set forth in
Section 6.3(a)
and
Section 6.3(b)
have been
satisfied.
Section 6.4
Frustration of Closing Conditions.
Neither Parent nor Acquisition Sub, on the one
hand, nor the Company, on the other hand, may rely on the failure of any condition set forth in
Section 6.1
,
Section 6.2
or
Section 6.3
, as the case may be, to be satisfied (or to be able to be satisfied) to excuse it from its obligation to effect the Merger if such
failure (or inability to be satisfied) was caused by such party's failure to comply with or perform its obligations under this Agreement.
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ARTICLE 7
TERMINATION
Section 7.1
Termination.
This Agreement may be terminated and the Merger may be abandoned at any time
prior to the Closing (notwithstanding any approval of this Agreement by the
stockholders of the Company):
(a) by
mutual written agreement of the Company and Parent;
(b) by
Parent or the Company upon prior written notice to the other party, if the Closing Date has not occurred on or before December 28, 2017 (the
"
End Date
");
provided
,
however
, that the right to
terminate this Agreement under this
Section 7.1(b)
shall not be available to any party whose material breach of any provision of this Agreement
has been the cause of, or resulted in, the failure of the Merger to be consummated by the End Date;
(c) by
Parent or the Company upon prior written notice to the other party, if any Governmental Entity of competent jurisdiction shall have issued a final and non-appealable
Order enjoining, restraining or otherwise prohibiting the consummation of the transactions contemplated by this Agreement;
provided
,
however
, that the
party seeking to terminate this Agreement shall have used its reasonable best efforts to have such Order lifted if and to the extent
required by
Section 5.2
(f);
(d) by
Parent or the Company upon written notice to the other party, if the Company Stockholder Approval has not been obtained by reason of the failure to obtain the
required vote upon a final vote taken at the Stockholder Meeting (or any adjournment or postponement thereof);
(e) by
Parent, upon written notice to the Company, in the event of a breach by the Company of any representation, warranty, covenant or other agreement contained herein that
(i) would result in any condition set forth in
Section 6.2
not being satisfied and (ii) has not been cured prior to the earlier of
the End Date or the 30th day following Parent's delivery of written notice describing such breach to the Company;
provided
,
however
, that Parent shall
not be entitled to terminate this Agreement pursuant to this
Section 7.1(e)
if either Parent or Acquisition Sub is in breach of its obligations under this Agreement such that the Company would be
entitled
to terminate this Agreement pursuant to
Section 7.1(f)
;
(f) by
the Company, upon written notice to Parent, in the event of a breach by Parent or Acquisition Sub of any representation, warranty, covenant or other agreement
contained herein that (i) would result in any condition set forth in
Section 6.3
not being satisfied and (ii) has not been cured
prior to the earlier of the End Date or the 30th day following the Company's delivery of written notice describing such breach to Parent;
provided
,
however
, that the Company shall not be entitled to terminate this Agreement pursuant to this
Section 7.1(f)
if the Company is in breach of its obligations under this Agreement such that Parent
would be entitled to terminate this Agreement
pursuant to
Section 7.1(e)
;
(g) by
Parent, upon written notice to the Company, if: (i) the Company Board shall have effected a Change in Recommendation; (ii) (A) any Acquisition
Proposal (or any material modification thereof) is first publicly disclosed by the Company or the Person making such Acquisition Proposal (or any of their respective representatives) and
(B) the Company Board shall have failed to (publicly, if so requested by Parent) reaffirm the Board Recommendation by the earlier of (1) five Business Days following the Company's
receipt of a written request by Parent to provide such reaffirmation (it being understood that Parent shall not be entitled to make such request on more than one occasion per Acquisition Proposal and
twice in the aggregate unrelated to any Acquisition Proposal) and (2) two Business Days prior to the Stockholder Meeting (provided that for purposes of this clause (2), the Company shall
have received Parent's written request no later than the fourth Business Day prior to the date of the Stockholder Meeting); or (iii) the Company shall have materially breached any of its
obligations under
Section 5.2
;
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(h) by
the Company, upon written notice to Parent, if prior to the Company Stockholder Approval the Company Board shall have effected a Change in Recommendation in respect
of a Superior Proposal in accordance with
Section 5.2
, and concurrently therewith the Company enters into a definitive agreement with respect to
such Superior Proposal and, prior to or concurrently with terminating this Agreement, pays the Company Termination Fee in accordance with
Section 7.3(b)
; or
(i) by
the Company, upon written notice to Parent, if (i) the conditions set forth in
Section 6.1
and
Section 6.2
(other than those conditions that
by their nature are to be satisfied by actions taken at the Closing; provided that each such
condition is then capable of being satisfied at a Closing on such date) have been satisfied or waived, (ii) the Company has irrevocably notified Parent in writing that the Company is ready,
willing and able to consummate the Merger, and (iii) Parent and Acquisition Sub fail to consummate the Merger within three Business Days after the delivery by the Company to Parent of such
notice and the Company stood ready, willing and able to effect the Closing through the end of such three Business Day period.
Section 7.2
Effect of Termination.
If this Agreement is terminated pursuant to
Section 7.1
, this Agreement shall be of no further force or effect
without liability of any party (or any representative of such party) to each other party hereto;
provided
,
however
, that the provisions of (i) this
Section 7.2
, (ii) the last sentence of
Section 5.4
, (iii) the last sentence of
Section 5.3(a)
,
(iv)
Section 5.12(e)
, (v)
Section 5.21
,
(vi)
Section 5.6
, (vii)
Section 5.13
,
(viii)
Section 7.3
, (ix)
Section 7.4
, and
(x)
Article 8
shall survive any termination hereof pursuant to
Section 7.1
.
Notwithstanding the foregoing or any other provision of this Agreement to the contrary, none of Parent, Acquisition Sub or the Company shall be relieved or released from any liabilities or damages
(which the parties hereto acknowledge and agree shall not be limited to reimbursement of expenses or out-of-pocket costs, and may include, to the extent proven, the benefit of the bargain lost by such
party or such party's equity holders (taking into consideration relevant matters, including the Merger Consideration, other combination opportunities and the time value of money), which shall be
deemed to be damages of the Company, which may be pursued only by the Company) arising out of its Willful Breach of any provision of this Agreement, subject only, with respect to any such Liabilities
of the Company, to
Section 7.3(b)
, and with respect to any such Liabilities of Parent and Acquisition Sub, to
Section 8.12(d)
. For the avoidance
of doubt, (a) the Confidentiality Agreement shall survive the termination of this Agreement and shall
remain in full force and effect in accordance with its terms, and (b) the Guarantee shall survive the termination of this Agreement and shall remain in full force and effect in accordance with
its terms. Notwithstanding anything to the contrary provided in this Agreement, including in the foregoing provisions of this
Section 7.2
,
nothing shall relieve any party for fraud.
Section 7.3
Expenses; Termination Fee.
(a) Except
as otherwise provided in this Agreement, all costs and expenses incurred in connection with this Agreement shall be paid by the party incurring such cost or
expense.
(b) In
the event that:
(i) this
Agreement is terminated pursuant to
Section 7.1(g)
;
(ii) this
Agreement is terminated pursuant to
Section 7.1(h)
; or
(iii) this
Agreement is terminated pursuant to
Section 7.1(d)
or
Section 7.1(e)
and (A) an Acquisition Proposal is made directly to the Company's
stockholders or is otherwise publicly disclosed or is
otherwise communicated to the Company Board and, in each case, not withdrawn before the Stockholder Meeting and (B) within 12 months after the date of such termination, the Company
enters into a definitive agreement with respect to an Acquisition Proposal or consummates a transaction
contemplated by an Acquisition Proposal (
provided
that for purposes of this subsection (iii), each reference to "20% or more" in the definition
of Acquisition Proposal shall be deemed to be references to "more than 50%");
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then
the Company shall pay Parent the Company Termination Fee by wire transfer of same-day funds (x) in the case of
Section 7.3(b)(i)
,
within three Business Days after such termination, (y) in the case of
Section 7.3(b)(ii)
, immediately prior to the termination of this
Agreement pursuant to
Section 7.1(h)
and (z) in the case of
Section 7.3(b)(iii)
, on
the earlier of (1) the date the Company enters into a definitive agreement with respect to an Acquisition Proposal and (2) the date the Company consummates a transaction contemplated by
an Acquisition Proposal. For the avoidance of doubt, any payment made by the Company under this
Section 7.3(b)
shall be payable only once with
respect to
Section 7.3(b)
and not in duplication, even though such payment may be payable under one or both provisions hereof. In the event that
Parent shall receive full payment pursuant to this
Section 7.3(b)
, the receipt of the Company Termination Fee (together with any Company Expenses
and Company Recovery Costs, as applicable) shall be deemed to be liquidated damages for any and all losses or damages suffered or incurred by Parent, Acquisition Sub, any of their respective
Affiliates or any other Person in connection with this Agreement (and the termination hereof), the transactions contemplated by this Agreement (and the abandonment thereof) or any matter forming the
basis for such termination and except for the obligations of the Company pursuant to this
Section 7.3(b)
and
Section 8.12(a)
(collectively, the
"
Company Expenses
"), the Company shall have no further
liability, whether pursuant to a claim at law or in equity, to Parent, Acquisition Sub or any of their respective Affiliates in connection with this Agreement (and the termination hereof), the
transactions contemplated by this Agreement (and the abandonment thereof) or any matter forming the basis for such termination, and none of Parent, Acquisition Sub, any of their respective Affiliates
or any other Person shall be entitled to bring or maintain any Legal Proceeding against the Company or any of its Subsidiaries or Affiliates for damages or any equitable relief arising out of or in
connection with this Agreement (other than equitable relief to require payment of the Company Termination Fee and/or any Company Expenses), any of the transactions contemplated by this Agreement or
any matters forming the basis for such termination;
provided
that if the Company fails to pay the Company Termination Fee or any Company Expenses
required to be paid hereunder, and Parent and/or Acquisition Sub commences a Legal Proceeding which results in a final, non-appealable judgment against the Company for the Company Termination Fee or
any portion thereof, then the Company shall pay Parent and Acquisition Sub their costs and expenses (including reasonable attorney's fees and disbursements) in connection with such suit, together with
interest on the Company Termination Fee and/or Company Expenses at the "prime rate" as published in The Wall Street Journal, Eastern Edition, in effect on the date such payment was required to be made
through the date of payment (calculated daily on the basis of a year of 365 days and the actual number of days elapsed, without compounding) (the "
Company Recovery
Costs
").
(c) In
the event that this Agreement is terminated pursuant to
Section 7.1(f)
or
Section 7.1(i)
, then Parent shall pay the Company the Parent
Termination Fee by wire transfer of same-day funds on the first Business Day
following such termination. For the avoidance of doubt, any payment by Parent under this
Section 7.3(c)
shall be payable only once with respect
to
Section 7.3(c)
and not in duplication. In the event that the Company shall receive full payment pursuant to this
Section 7.3(c)
, the receipt
of the Parent Termination Fee (together with any Parent Expenses and Parent Recovery Costs, as applicable) shall be
deemed to be liquidated damages for any and all losses or damages suffered or incurred by the Company in connection with this Agreement (and the termination hereof), the transactions contemplated by
this Agreement (and the abandonment thereof) or any matter forming the basis for such termination, and except for the obligations of Parent and Acquisition Sub pursuant to
Section 5.12(e)
,
Section 5.21
, this
Section 7.3(c)
and
Section 8.12(a)
(collectively, the "
Parent
Expenses
"), neither Parent nor Acquisition Sub shall have any further liability, whether pursuant to a claim at law or in equity, to the Company or any of its Affiliates under
this Agreement (and the termination hereof), the transactions contemplated by this Agreement (and the abandonment thereof) or any matter forming the basis for such termination, and neither the Company
nor any of its Affiliates or any other Person shall be entitled to bring or maintain any Legal Proceeding against Parent or Acquisition Sub for damages or any equitable relief arising out of or in
connection with this
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Agreement,
any of the transactions contemplated by this Agreement or any matters forming the basis for such termination (other than equitable relief to require payment of the Parent Termination Fee
and/or any Parent Expenses);
provided
that if Parent fails to pay the Parent Termination Fee and/or any Parent Expenses and the Company commences a
Legal Proceeding which results in a final, non-appealable judgment against Parent for the Parent Termination Fee and/or any Parent Expenses, or any portions thereof, then Parent shall pay the Company
its costs and expenses (including reasonable attorney's fees and disbursements) in connection with such suit, together with interest on the Parent Termination Fee and/or Parent Expenses at the "prime
rate" as published in The Wall Street Journal, Eastern Edition, in effect on the date such payment was required to be made through the date of payment (calculated daily on the basis of a year of
365 days and the actual number of days elapsed, without compounding) (the "
Parent Recovery Costs
").
Section 7.4
Payment of Amount or Expense.
(a) In
the event that Parent is obligated to pay the Company the Parent Termination Fee, plus the Parent Expenses and the Parent Recovery Costs set forth in
Section 7.3
, Parent shall pay to the Company from
the Parent Termination Fee, plus the Parent Expenses and the Parent Recovery Costs deposited into
escrow in accordance with the next sentence, an amount equal to the lesser of (i) the Parent Termination Fee, plus the Parent Expenses and the Parent Recovery Costs and (ii) the sum of
(1) the maximum amount that can be paid to the Company without causing the Company to fail to meet the requirements of Sections 856(c)(2) and (3) of the Code determined as if the
payment of such amount did not constitute income described in Sections 856(c)(2)(A) through (H) or 856(c)(3)(A) through (I) of the Code ("
Qualifying
Income
"), as determined by the Company's independent certified public accountants, plus (2) in the event the Company receives either (A) a letter from the
Company's counsel indicating that the Company has received a ruling from the IRS described in
Section 7.4(b)(ii)
or (B) an opinion from the
Company's outside counsel as described in
Section 7.4(b)(ii)
, an amount equal to the Parent Termination Fee, plus the Parent Expenses and the Parent
Recovery Costs less the amount payable under clause (1) above. To secure Parent's obligation to pay these amounts, Parent shall deposit into escrow an amount in cash equal to the Parent
Termination Fee, plus any Parent Expenses and the Parent Recovery Costs with an escrow agent selected by Parent and on such terms (subject to
Section 7.4(b)
) as shall be mutually agreed upon by the
Company, Parent and the escrow agent. The payment or deposit into escrow of the Parent
Termination Fee, plus the Parent Expenses and the Parent Recovery Costs pursuant to this
Section 7.4(a)
shall be made at the time Parent is
obligated to pay the Company such amount pursuant to
Section 7.3
by wire transfer.
(b) The
escrow agreement shall provide that the Parent Termination Fee, plus the Parent Expenses and the Parent Recovery Costs in escrow or any portion thereof shall not be
released to the Company unless the escrow agent receives any one or combination of the following: (i) a letter from the Company's independent certified public accountants indicating the maximum
amount that can be paid by the escrow agent to the Company without causing the Company to fail to meet the requirements of Sections 856(c)(2) and (3) of the Code determined as if the
payment of such amount did not constitute Qualifying Income or a subsequent letter from the Company's accountants revising that amount, in which case the escrow agent shall release such amount to the
Company, or (ii) a letter from the Company's counsel indicating that the Company received a ruling from the IRS holding that the receipt by the Company of the Parent Termination Fee, plus the
Parent Expenses and the Parent Recovery Costs should either constitute Qualifying Income or should be excluded from gross income within the meaning of Sections 856(c)(2) and (3) of the
Code (or alternatively, indicating that the Company's outside counsel has rendered a legal opinion to the effect that the receipt by the Company of the Parent Termination Fee, plus the Parent Expenses
and the Parent Recovery Costs should either constitute Qualifying Income or should be excluded from gross income within the meaning of Sections 856(c)(2) and (3) of the Code), in which
case the escrow agent shall release the remainder of the Parent Termination Fee, plus the Parent Expenses and the Parent Recovery Costs to the Company.
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Parent
agrees to amend this
Section 7.4
at the request of the Company in order to (x) maximize the portion of the Parent Termination Fee,
plus the Parent Expenses and the Parent Recovery Costs that may be distributed to the Company hereunder without causing the Company to fail to meet the requirements of Sections 856(c)(2) and
(3) of the Code, (y) improve the Company's chances of securing a favorable ruling described in this
Section 7.4(b)
or
(z) assist the Company in obtaining a favorable legal
opinion from its outside counsel as described in this
Section 7.4(b)
. The escrow agreement shall also provide that any portion of the Parent
Termination Fee, plus the Parent Expenses and the Parent Recovery Costs held in escrow for five years shall be released by the escrow agent to Parent. Parent shall not bear any cost of or have
liability resulting from the escrow agreement.
ARTICLE 8
MISCELLANEOUS PROVISIONS
Section 8.1
Amendment.
Prior to the Effective Time, this Agreement may be amended with the mutual
agreement of the Company and Parent at any time, whether before or after the Company
Stockholder Approval has been obtained;
provided
,
however
, that after the Company Stockholder Approval
has been obtained, no amendment may be made that pursuant to applicable Law requires further approval or adoption by the stockholders of the Company without such further approval or adoption. This
Agreement may not be amended except by an instrument in writing signed on behalf of each of the parties hereto.
Section 8.2
Tax Objectives.
Notwithstanding anything to the contrary in this Agreement including
Section 8.1
hereof, in the event that
Parent notifies the Company at any time that it wishes to amend the terms of this Agreement in order to achieve its tax planning objectives, the Company shall promptly execute any reasonable
amendments proposed by Parent to achieve such objectives, if such amendments do not (a) cause the Company to incur a material amount of costs (other than legal expenses) that will not be
reimbursed by Parent, (b) materially delay the Closing, (c) reduce the Merger Consideration, (d) introduce additional conditions to the Closing in
Article 6
(provided that the
amendments may amend certain conditions in
Article 6
) to
reflect any revised tax structure, (e) introduce additional representations, warranties or covenants except as required in order to effect Parent's tax objectives, or (f) become
effective prior to the Business Day immediately preceding the Closing. Notwithstanding any other provision of this Agreement, any breach of the Company's or any of its Subsidiary's representations,
warranties or covenants under this Agreement (other than as required pursuant to
Section 5.17(f)
), or any failure to satisfy any condition set
forth in
Section 6.2
(other than a failure to satisfy any condition by reason of failing to comply with
Section 5.17(f)
), that is attributable to
any amendment pursuant to this
Section 8.2
shall
not be deemed a breach or failure by the Company.
Section 8.3
Waiver.
No failure on the part of any party to exercise any power, right, privilege
or remedy under this Agreement, and no delay on the part of any party in exercising
any power, right, privilege or remedy under this Agreement, shall operate as a waiver of such power, right, privilege or remedy; and no single or partial exercise of any such power, right, privilege
or remedy shall preclude any other or further exercise thereof or of any other power, right, privilege or remedy. No party shall be deemed to have waived any claim arising out of this Agreement, or
any power, right, privilege or remedy under this Agreement, unless the waiver of such claim, power, right, privilege or remedy is expressly set forth in a written instrument duly executed and
delivered on behalf of such party; and any such waiver shall not be applicable or have any effect except in the specific instance in which it is given;
provided
,
however
, that after the Company Stockholder Approval has been obtained, no waiver may be made
that pursuant to applicable Law requires further approval or adoption by the stockholders of the Company without such further approval or adoption.
Section 8.4
No Survival of Representations and Warranties.
None of the representations and
warranties of the Company or of Parent and Acquisition Sub, in each case, contained in this Agreement, or contained in any
certificate, schedule or document delivered pursuant to this Agreement
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or
in connection with any of the transactions contemplated by this Agreement, shall survive the Effective Time.
Section 8.5
Entire Agreement.
This Agreement, the Confidentiality Agreement, the exhibits and
schedules to this Agreement, the Company Disclosure Schedule, the Equity Commitment Letter and the
Guarantee constitute the entire agreement and supersede all prior agreements and understandings, both written and oral, among or between any of the parties with respect to the subject matter hereof
and thereof. Without limiting the generality of the foregoing: (a) Parent and Acquisition Sub acknowledge and agree that the Company has not made and is not making any representations or
warranties whatsoever regarding the subject matter of this Agreement, express or implied, except as provided in
Article 3
(including the Company
Disclosure Schedule), that they are not relying and have not relied on any representations or warranties whatsoever regarding the subject matter of this Agreement, express or implied, except as
provided in
Article 3
(including the Company Disclosure Schedule), and that no employee, agent, advisor or other representative of the Company
has made or is making any representations or warranties whatsoever regarding the subject matter of this Agreement; (b) without limiting the foregoing, Parent and Acquisition Sub acknowledge and
agree that neither the Company nor any of its representatives has made any representation or warranty, whether express or implied, as to the accuracy or completeness of any information regarding the
Company or its Affiliates furnished or made available to Parent or Acquisition Sub and its representatives except as expressly set forth in this Agreement, and neither the Company nor any other Person
shall be subject to any liability to Parent or Acquisition Sub or any other Person resulting from the Company's making available to Parent or Acquisition Sub or Parent's or Acquisition Sub's use of
such information, or any information, documents or material made available to Parent or Acquisition Sub in any due diligence materials provided to Parent or Acquisition Sub, including in the "data
room," management presentations (formal or informal) or in any other form in connection with the transactions contemplated by this Agreement; (c) without limiting the foregoing, Parent and
Acquisition Sub acknowledge and agree that the Company has not made and is not making any representations or warranties whatsoever regarding any forecasts, projections, estimates or budgets discussed
with, delivered to or made available to Parent, or otherwise regarding the future revenues, future results of operations (or any component thereof), future cash flows or future financial condition (or
any component thereof) of the Company or the future business and operations of the Company; and (d) the Company acknowledges and agrees that Parent and Acquisition Sub have not made and are not
making any representations or warranties whatsoever regarding the subject matter of this Agreement, express or implied, except as provided in
Article 4
, that it is not relying and has not relied on
any representations or warranties whatsoever regarding the subject matter of this
Agreement, express or implied, except as provided in
Article 4
, and that no representative of Parent or Acquisition Sub has made or is making any
representations or warranties whatsoever regarding the subject matter of this Agreement.
Section 8.6
Applicable Law; Jurisdiction.
This Agreement is made under, and shall be construed
and enforced in accordance with, the Laws of the State of Maryland applicable to agreements made and to be
performed solely therein, without giving effect to principles of conflicts of law. Each of the Parties hereby irrevocably and unconditionally consents to and submits to the exclusive jurisdiction of
the Circuit Court for Baltimore City (Maryland), Business and Technology Case Management Program (the "
Maryland Court
") for any litigation arising out
of this Agreement and the transactions contemplated hereby (and agrees not to commence any litigation relating thereto except in such court), waives any objection to the laying of venue of any such
litigation in the Maryland Court and agree not to plead or claim in the Maryland Court that such litigation brought therein has been brought in any inconvenient forum. Each of the Parties hereby
irrevocably and unconditionally agrees to request and/or consent to the assignment of any such proceeding to the Maryland Court's Business and Technology Case Management Program. Nothing in this
Agreement shall limit or affect the rights of any Party to pursue appeals from any judgments or order of the Maryland Court as provided by Law. Each of the Parties agrees, (a) to the extent
such Party is not otherwise subject to service of process in
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the
State of Maryland, to appoint and maintain an agent in the State of Maryland as such Party's agent for acceptance of legal process, and (b) that service of process may also be made on such
Party by prepaid certified mail with a proof of mailing receipt validated by the United States Postal Service constituting evidence of valid service. Service made pursuant to (a) or
(b) above shall have the same legal force and effect as if served upon such Party personally within the State of Maryland.
Section 8.7
Assignability; Parties in Interest.
This Agreement shall be binding upon, and shall
be enforceable by and inure to the benefit of, the parties hereto and their respective successors and assigns.
This Agreement shall not be assignable by any party without the express written consent of the other parties hereto, and any attempt to make any such assignment without such consent shall be null and
void. Notwithstanding anything contained in this Agreement to the contrary, nothing in this Agreement, express or implied, is intended to confer on any Person other than the parties hereto or their
respective heirs, successors, executors, administrators and assigns any rights, remedies, obligations or liabilities under or by reason of this Agreement, except for the provisions of
Article 2
concerning payment of the Merger Consideration,
Section 5.8
,
Section 5.12(e)
and
Section 5.21
,
which provisions shall inure to the benefit of the
Persons or entities benefiting therefrom who shall be third-party beneficiaries thereof and who may enforce the covenants contained therein;
provided
,
however
, that, prior to the Effective Time, the rights and remedies conferred on the Company's equity holders pursuant to
Article 2
concerning payment of the Merger Consideration may only be enforced by the Company acting on the behalf of the Company's equity holders
(including holders of Company Compensatory Awards).
Section 8.8
Notices.
Any notices or other communications required or permitted under, or
otherwise given in connection with, this Agreement shall be in writing and shall be deemed to
have been duly given (a) on the date delivered or sent if delivered in person or sent by facsimile transmission or email (
provided
confirmation
of facsimile transmission or email is obtained), (b) on the fifth Business Day after dispatch by registered or certified mail, or (c) on the next Business Day if transmitted by
nationally recognized overnight courier, in each case as follows:
if
to Parent, Acquisition Sub or the Surviving Entity, to:
c/o
Greystar Growth and Income GP, LLC
18 Broad Street, Third Floor
Charleston, South Carolina 29401
Attention: J. Derek Ramsey
Facsimile: (843) 579-9420
E-mail: dramsey@greystar.com
with
a copy to (which shall not constitute notice) to:
Jones
Day
901 Lakeside Avenue
Cleveland, Ohio 44114
Attention: James P. Dougherty
Facsimile: (216) 579-0212
E-mail: jpdougherty@jonesday.com
and
Jones
Day
77 West Wacker Drive
Chicago, IL 60601-1692
Attention: Robert C. Lee
Facsimile: (312) 782-8585
E-mail: rclee@JonesDay.com
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if
to the Company, (prior to the Merger), to:
Monogram
Residential Trust, Inc.
5800 Granite Parkway, Suite 1000
Plano, Texas 75024
Attention: Mark T. Alfieri
Facsimile: (469) 828-6504
E-mail: MAlfieri@monogramres.com
with
a copy to (which shall not constitute notice) to:
Goodwin
Procter LLP
100 Northern Avenue
Boston, Massachusetts 02210
Attention: Gilbert
G. Menna
Blake Liggio
Facsimile: (617) 523-1231
E-mail: gmenna@goodwinlaw.com
bliggio@goodwinlaw.com
Section 8.9
Severability.
Any term or provision of this Agreement that is invalid or
unenforceable in any situation in any jurisdiction shall not affect the validity or enforceability of
the remaining terms and provisions hereof or the validity or enforceability of the offending term or provision in any other situation or in any other jurisdiction. If the final judgment of a court of
competent jurisdiction declares that any term or provision hereof is invalid or unenforceable, the parties hereto agree that the court making such determination shall have the power to limit the term
or provision, to delete specific words or phrases or to replace any invalid or unenforceable term or provision with a term or provision that is valid and enforceable and that comes closest to
expressing the intention of the invalid or unenforceable term or provision, and this Agreement shall be enforceable as so modified. In the event such court does not exercise the power granted to it in
the prior sentence, the parties hereto agree to replace such invalid or unenforceable term or provision with a valid and enforceable term or provision that will achieve, to the extent possible, the
economic, business and other purposes of such invalid or unenforceable term.
Section 8.10
Counterparts.
This Agreement may be executed and delivered (including by facsimile
or other form of electronic 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.
Section 8.11
Parent Guarantee.
Parent shall cause Acquisition Sub to comply in all respects with
each of the representations, warranties, covenants, obligations, agreements and undertakings
made or required to be performed by Acquisition Sub in accordance with the terms of this Agreement the Merger, and the other transactions contemplated by this Agreement. As a material inducement to
the Company's willingness to enter into this Agreement and perform its obligations hereunder, Parent hereby unconditionally guarantees full performance and payment by Acquisition Sub of each of the
covenants, obligations and undertakings required to be performed by Acquisition Sub under this Agreement and the transactions contemplated by this Agreement, subject to all terms, conditions and
limitations contained in this Agreement, and hereby represents, acknowledges and agrees that any such breach of any such representation and warranty or default in the performance of any such covenant,
obligation, agreement or undertaking of Acquisition Sub shall also be deemed to be a breach or default of Parent, and the Company shall have the right, exercisable in its sole discretion, to pursue
any and all available remedies it may have arising out of any such breach or nonperformance directly against either or both of Parent and Acquisition Sub in the first instance, subject to all terms,
conditions and limitations contained in this Agreement.
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Section 8.12
Specific Performance; Parent Liability Cap
.
(a) The
parties hereto agree that irreparable harm would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific
terms or were otherwise breached, and that money damages or other legal remedies would not be an adequate remedy for any such harm. The parties hereto agree that unless and until this Agreement is
terminated in accordance with
Section 7.1
and any dispute over the right to termination has been finally resolved, (i) Parent and
Acquisition Sub shall be entitled to seek an injunction or injunctions from a court of competent jurisdiction as set forth in
Section 8.6
to
prevent breaches of this Agreement by the Company and to enforce specifically the terms and provisions of this Agreement without bond or other security being required, this being in addition to any
remedy to which they are entitled pursuant to
Section 7.2
or
Section 7.3
, and
(ii) the right of specific enforcement is an integral part of the transactions contemplated by this Agreement, including the Merger, and without that right, neither Parent nor Acquisition Sub
would have entered into this Agreement. The Company agrees that it will not oppose the granting of an injunction, specific performance and other equitable relief permitted by this Agreement on the
basis that (x) Parent or Acquisition Sub has an adequate remedy at Law or (y) an award of specific performance is not an appropriate remedy for any reason at Law or equity. Any of Parent
or Acquisition Sub seeking an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions of this Agreement in accordance with this Agreement
will not be required to provide any bond or other security in connection with any such order or injunction. In any Legal Proceeding seeking monetary damages against a party or to compel a party to
specifically perform its obligations hereunder, the non-prevailing party in such Legal Proceeding (after a final, non-appealable judgment of a court of competent jurisdiction) shall promptly reimburse
the prevailing party its costs and expenses (including reasonable attorneys' fees and disbursements) in connection with such Legal Proceeding.
(b) The
parties hereto agree that the Company shall not be entitled to an injunction, specific performance or other equitable relief to prevent and/or remedy a breach of
this Agreement by Parent or Acquisition Sub or to enforce specifically the terms and provisions hereof and that the Company's sole and exclusive remedy relating to a breach of this Agreement by Parent
or Acquisition Sub or otherwise shall be the remedy set forth in
Section 7.3(c)
; provided, however, that the Company shall be entitled to seek
specific performance to prevent any breach by Parent of
Section 5.13
.
(c) Notwithstanding
the foregoing, for the avoidance of doubt, while Parent and Acquisition Sub may concurrently seek (i) specific performance or other equitable
relief and (ii) payment of the Company Termination Fee if, as and when required pursuant to
Section 7.3(b)
, under no circumstances shall
Parent or Acquisition Sub, as applicable, directly or indirectly, be permitted or entitled to receive (A) both a grant of specific performance or other equitable relief, on the one hand, and
payment of any monetary damages whatsoever or the payment of all or any portion of the Company Termination Fee, on the other hand, or (B) both payment of any monetary damages, on the one hand,
and payment of all or any portion of the Company Termination Fee, on the other hand.
(d) The
maximum aggregate liability of Parent and Acquisition Sub for monetary damages in connection with this Agreement, the Equity Commitment Letter, the Guarantee and the
transactions contemplated by this Agreement shall be limited to the Parent Termination Fee plus the Parent Expenses and the Parent Recovery Costs (collectively, the "
Parent
Liability Cap
"), and, except for the Company's right to payment of the Parent Termination Fee, Parent Expenses and Parent Recovery Costs, by Parent pursuant to the terms of
this Agreement or by the Sponsors pursuant to the terms of the Guarantee, shall be the sole and exclusive remedies (whether at law, in equity, in contract, in tort or otherwise) of the Company and its
Affiliates against Parent, Acquisition Sub, the Sponsors, the Debt Financing Sources and any of their respective former, current and future direct or indirect equityholders, controlling persons,
stockholders, directors, officers, employees, agents, Representatives, Affiliates, members, managers, general or limited partners or assignees (each, a "
Parent Related
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Party
"). In no event shall the Company seek or permit to be sought on behalf of the Company any monetary damages, including consequential, indirect, or punitive damages, from
Parent, Acquisition Sub, the Sponsors, the Debt Financing Sources or any of Parent Related Parties in connection with this Agreement or the transactions contemplated by this Agreement other than
payment of the Parent Termination Fee, the Parent Expenses and the Parent Recovery Costs, in each case pursuant to the terms of this Agreement, and upon payment of such amounts, none of Parent,
Acquisition Sub, the Sponsors, the Debt Financing Sources or any Parent Related Parties shall have any further liability or obligation relating to or arising out of this Agreement or the transactions
contemplated by this Agreement, the Guarantee, the Equity Commitment Letter or in respect of any other document or theory of law or equity, in contract, in tort or otherwise;
provided
,
however
, subject to the terms and conditions of, and limitations set forth in, the Guarantee,
the Company may seek payment by the Sponsors of the Parent Termination Fee, Parent Expenses and/or the Company Recovery Costs, in each case, to the extent payable under the terms of the Guarantee.
Notwithstanding anything herein to the contrary and for the avoidance of doubt, nothing in this
Section 8.12
nor
Section 7.3
shall limit in any
way any fraud remedies or the remedies of the parties under the Confidentiality Agreement.
Section 8.13
Waiver of Jury Trial.
EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES ANY AND
ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED HEREBY.
Section 8.14
Construction
.
(a) For
purposes of this Agreement, whenever the context requires: the singular number shall include the plural, and vice versa; the masculine gender shall include the
feminine and neuter genders; the feminine gender shall include the masculine and neuter genders; and the neuter gender shall include masculine and feminine genders.
(b) The
parties hereto agree that any rule of construction to the effect that ambiguities are to be resolved against the drafting party shall not be applied in the
construction or interpretation of this Agreement.
(c) As
used in this Agreement, the words "include" and "including," and variations thereof, shall not be deemed to be terms of limitation, but rather shall be deemed to be
followed by the words "without limitation."
(d) Except
as otherwise indicated, all references in this Agreement to "Sections," "Exhibits," "Annexes" and "Schedules" are intended to refer to Sections of this Agreement
and Exhibits, Annexes and Schedules to this Agreement.
(e) All
references in this Agreement to "
$
" are intended to refer to U.S. dollars.
[Remainder of page intentionally left blank]
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IN WITNESS WHEREOF
, the parties have caused this Agreement to be executed as of the date first above written.
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MONOGRAM RESIDENTIAL TRUST, INC.
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By:
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/s/ MARK T. ALFIERI
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Name:
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Mark T. Alfieri
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Title:
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Chief Executive Officer
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GS MONARCH PARENT, LLC
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By:
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/s/ A. JOSHUA CARPER
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Name:
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A. Joshua Carper
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Title:
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Vice President and Secretary
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GS MONARCH ACQUISITION, LLC
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By:
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/s/ A. JOSHUA CARPER
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Name:
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A. Joshua Carper
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Title:
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Vice President and Secretary
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Table of Contents
EXHIBIT A
Form
of Certificate of Formation of Surviving Entity
Table of Contents
GS MONARCH ACQUISITION, LLC
CERTIFICATE OF FORMATION
OF
LIMITED LIABILITY COMPANY
FIRST: The name of the Limited Liability Company is: GS Monarch Acquisition, LLC.
SECOND: The
address of the Limited Liability Company's registered office and the name and address of the registered agent for service of process is The Corporation Trust
Company, Corporation Trust Center, 1209 Orange Street, Wilmington, Delaware 19801, County of New Castle.
THIRD: The
Limited Liability Company shall exist for a period of perpetual existence from and after the date the Delaware Secretary of State issues a Certificate of
Formation, unless dissolved earlier by law.
[Signature on the following page.]
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IN
WITNESS WHEREOF, the undersigned, being an authorized individual of the Limited Liability Company, has executed, signed and acknowledged this Certificate of Formation this
28th day of June 2017.
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/s/ JOSH CARPER
Authorized Individual
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EXHIBIT B
Form
of LLC Agreement of Surviving Entity
Table of Contents
LIMITED LIABILITY COMPANY AGREEMENT
OF
GS MONARCH ACQUISITION, LLC
dated as of
June 28, 2017
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LIMITED LIABILITY COMPANY AGREEMENT
OF
GS MONARCH ACQUISITION, LLC
This Limited Liability Company Agreement (together with the schedules and exhibits attached hereto, this
"
Agreement
") of GS Monarch Acquisition, LLC, a Delaware limited liability company (the
"
Company
"), is entered into by GS Monarch Parent, LLC, a Delaware limited liability company (the
"
Member
"). Capitalized terms used and not otherwise defined herein have the meanings set forth on
Schedule A
hereto.
PRELIMINARY STATEMENTS
A. The
Company was formed as a limited liability company pursuant to the Act by filing a certificate of formation in the office of the Secretary of State for the State of
Delaware on June 28, 2017.
B. The
Member is the current record owner of all of the membership interests of the Company.
AGREEMENT
The Member adopts the following as its "limited liability company agreement" (as that term is used in the Act):
Section 1.
Name
.
The
name of the limited liability company is GS Monarch Acquisition, LLC.
Section 2.
Principal Business Office
.
The
principal business office of the Company shall be located at 18 Broad Street, Suite 300, Charleston, South Carolina 29401 or such other location as may be determined by the
Member.
Section 3.
Registered Office
.
The
address of the registered office of the Company in the State of Delaware is 1209 Orange Street, Wilmington, Delaware 19801, and thereafter shall be such place or such other place as
the Member may designate.
Section 4.
Registered Agent
.
The
name and address of the registered agent of the Company for service of process on the Company in the State of Delaware is The Corporation Trust System, 1209 Orange Street,
Wilmington, DE 19801 and thereafter shall be such person or such other person as the Board may designate.
Section 5.
Member
.
(a) The
mailing address of the Member is set forth on
Schedule B
attached hereto.
(b) The
Member may act by written consent.
Section 6.
Certificates
.
(a) The
Member or an Officer shall execute, deliver and file any other certificates (and any amendments and/or restatements thereof) necessary for the Company to qualify to
do business in any jurisdiction in which the Company may wish to conduct business.
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(b) Certificates
representing the membership interests of the Company shall not be issued. Membership interests shall be evidenced by entries on
Schedule B
. All membership interests shall be "securities" as defined
in Division 8, Section 8102(a)(15) of the Uniform Commercial Code as
adopted and in effect in the State of Delaware and shall be governed by such Division in all respects.
Section 7.
Purposes
.
The
purpose to be conducted or promoted by the Company is to engage in any lawful act or activity and to exercise any powers permitted to limited liability companies organized under the
laws of the State of Delaware.
Section 8.
Powers
.
The
Company, and the Board of Managers and the Officers of the Company on behalf of the Company shall have and exercise all of the powers and rights conferred upon limited liability
companies formed pursuant to the Act.
Section 9.
Management
.
(a)
Board of Managers.
The business and affairs of the Company shall be managed by or under the direction of a
Board of one or more Managers. The Member may determine at any time in its sole and absolute discretion the number of Managers to constitute the Board. The authorized number of Managers may be
increased or decreased by the Member at any time in its sole and absolute discretion, upon notice to all Managers. The initial number of Managers shall be two. Each Manager elected, designated or
appointed shall hold office until a successor is elected and qualified or until such Manager's earlier death, resignation, expulsion or removal (with or without cause). Managers need not be a Member.
The
initial Managers of the Company shall be as follows:
J.
Derek Ramsey
A. Joshua Carper
(b)
Powers.
The Board of Managers shall have the power to do any and all acts necessary, convenient or
incidental to or for the furtherance of the purposes described herein, including all powers, statutory or otherwise.
(c)
Meeting of the Board of Managers.
The Board of Managers of the Company may hold meetings, both regular and
special, within or outside the State of Delaware. Regular meetings of the Board may be held without notice at such time and at such place as shall from time to time be determined by the Board. Special
meetings of the Board may be called by the President on not less than one day's notice to each Manager by telephone, facsimile, mail, telegram or any other means of communication, and special meetings
shall be called by the President or Secretary in like manner and with like notice upon the written request of any one or more of the Managers.
(d)
Quorum: Acts of the Board.
At all meetings of the Board, a majority of the Managers shall constitute a
quorum for the transaction of business and, except as otherwise provided in any other provision of this Agreement, the act of a majority of the Managers present at any meeting at which there is a
quorum shall be the act of the Board. If a quorum shall not be present at any meeting of the Board, the Managers present at such meeting may adjourn the meeting from time to time, without notice other
than announcement at the meeting, until a quorum shall be present. Any action required or permitted to be taken at any meeting of the Board or of any committee thereof may be taken without a meeting
if all members of the Board or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board or committee, as the case
may be.
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(e)
Electronic Communications.
Members of the Board, or any committee designated by the Board, may participate
in meetings of the Board, or any committee, by means of telephone conference or similar communications equipment that allows all persons participating in the meeting to hear each other, and such
participation in a meeting shall constitute presence in person at the meeting. If all the participants are participating by telephone conference or similar communications equipment, the meeting shall
be deemed to be held at the principal place of business of the Company.
(f)
Committees of Managers
.
(i) The
Board may, by resolution passed by a majority of the whole Board, designate one or more committees, each committee to consist of one or more of the Managers of the
Company. The Board may designate one or more Managers as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee.
(ii) In
the absence or disqualification of a member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not
such members constitute a
quorum, may unanimously appoint another member of the Board to act at the meeting in the place of any such absent or disqualified member.
(iii) Any
such committee, to the extent provided in the resolution of the Board, shall have and may exercise all the powers and authority of the Board in the management of
the business and affairs of the Company. Such committee or committees shall have such name or names as may be determined from time to time by resolution adopted by the Board. Each committee shall keep
regular minutes of its meetings and report the same to the Board when required.
(g)
Compensation of Managers; Expenses.
The Board shall have the authority to fix the compensation of Managers.
The Managers may be paid their expenses, if any, of attendance at meetings of the Board, which may be a fixed sum for attendance at each meeting of the Board or a stated salary as Manager. No such
payment shall preclude any Manager from serving the Company in any other capacity and receiving compensation therefor. Members of special or standing committees may be allowed like compensation for
attending committee meetings.
(h)
Removal of Managers.
Unless otherwise restricted by law, any Manager or the entire Board of Managers may be
removed or expelled, with or without cause, at any time by the Member, and, any vacancy caused by any such removal or expulsion may be filled by action of the Member.
(i)
Managers as Agents.
To the extent of their powers set forth in this Agreement, the Managers are agents of
the Company for the purpose of the Company's business, and the actions of the Managers taken in accordance with such powers set forth in this Agreement shall bind the Company.
Section 10.
Officers
.
The
Officers of the Company may be chosen by the Board and, if so chosen, shall consist of at least (a) a President and/or a Chief Executive Officer and (b) a Secretary.
The Board of Managers may also choose a Treasurer and one or more Vice Presidents, Assistant Secretaries and Assistant Treasurers. Any number of offices may be held by the same person. The Board may
appoint such other Officers and agents as it shall deem necessary or advisable who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined
from time to time by the Board. The salaries of all Officers and agents of the Company shall be fixed by or in the manner prescribed by the Board. The Officers of the Company shall hold office until
their successors are
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chosen
and qualified. Any Officer elected or appointed by the Board may be removed at any time, with or without cause, by the affirmative vote of a majority of the Board. Any vacancy occurring in any
office of the Company shall be filled by the Board. Notwithstanding any provision to this Agreement, any Officer, acting alone, is authorized to execute and deliver any document on behalf of the
Company without the consent of any other person or entity.
The
initial Officers of the Company shall be as follows:
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J. Derek Ramsey
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President and Chief Executive Officer
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A. Joshua Carper
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Vice President and Secretary
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Section 11.
Limited Liability
.
Except
as otherwise expressly provided by the Act, the debts, obligations and liabilities of the Company, whether arising in contract, tort or otherwise, shall be the debts, obligations
and liabilities solely of the Company, and neither the Member nor any Manager shall be obligated personally for any such debt, obligation or liability of the Company solely by reason of being a Member
or Manager of the Company.
Section 12.
Capital Contributions.
The
Member is not required to make any capital contribution to the Company. However, the Member may make capital contributions to the Company at any time upon the written consent of such
Member. The provisions of this Agreement, including this Section 12, are intended solely to benefit the Member and, to the fullest extent permitted by law, shall not be construed as conferring
any benefit upon any creditor of the Company (and no such creditor of the Company shall be a third-party beneficiary of this Agreement) and the Member shall not have any duty or obligation to any
creditor of the Company to make any contribution to the Company or to issue any call for capital pursuant to this Agreement.
Section 13.
Allocation of Profits and Losses
.
The
Company's profits and losses shall be allocated to the Member.
Section 14.
Distributions
.
Distributions
shall be made to the Member at the times and in the aggregate amounts determined by the Board. Notwithstanding any provision to the contrary contained in this Agreement,
the Company shall not be required to make a distribution to the Member on account of its interest in the Company if such distribution would violate the Act or any other applicable law.
Section 15.
Books and Records
.
The
Board shall keep or cause to be kept complete and accurate books of account and records with respect to the Company's business. The books of the Company shall at all times be
maintained by the Board. The Member and its duly authorized representatives shall have the right to examine the Company books, records and documents during normal business hours. The Company, and the
Board on behalf of the Company, shall not have the right to keep confidential from the Member any information that the Board would otherwise be permitted to keep confidential from the Member pursuant
to Section 18-305 of the Act. The Company's books of account shall be kept using the method of accounting determined by the Member. The Company's independent auditor, if any, shall be an
independent public accounting firm selected by the Member.
Section 16.
Reports.
The
Board shall, after the end of each fiscal year, use reasonable efforts to cause the Company's independent accountants, if any, to prepare and transmit to the Member as promptly as
possible any such tax information as may be reasonably necessary to enable the Member to prepare its federal, state and local income tax returns relating to such fiscal year.
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Section 17.
Exculpation and Indemnification.
(a) To
the maximum extent that Delaware law in effect from time to time permits limitation of the liability of members, managers or officers of a limited liability company,
neither the Member nor any present or former officer, director or Manager of the Company or a predecessor of the Company and no employee, representative, agent or affiliate of the Member
(collectively, the "
Covered Persons
") shall be liable to the Company or any other Person who has an interest in or claim against the Company for money
damages. Neither the amendment nor repeal of this Section 17(a), nor the adoption or amendment of any other provision of this Agreement or any other governing document of the Company
inconsistent with this Section 17(a), shall apply to or affect in any respect the applicability of the provisions of this Section 17(a) with respect to any act or failure to act which
occurred prior to such amendment, repeal or adoption.
(b) The
Company shall indemnify, to the fullest extent permitted by Delaware law, as applicable from time to time, the Covered Persons, whether serving or having served, the
Company or at its request any other entity, for any threatened, pending or completed action, suit or proceeding (whether civil, criminal, administrative or investigative) relating to any action
alleged to have been taken or omitted in such capacity as a Director or officer. The Company shall pay or reimburse all reasonable expenses incurred by a Covered Person, whether serving or having
served, the Company or at its request any other entity, in connection with any threatened, pending or completed action, suit or proceeding (whether civil, criminal, administrative or investigative) in
which the Covered Person is a party, in advance of the final disposition of the proceeding, to the fullest extent permitted by, and in accordance with the applicable requirements of, Delaware law, as
applicable from time to time. The Company may indemnify any other Persons, including a Person who served a predecessor of the Company as an officer or director, permitted to be indemnified by Delaware
law, as applicable from time to time, if and to the extent indemnification is authorized and determined to be appropriate, in each case in accordance with applicable law. No amendment of this
Agreement or other governing documents of the Company or repeal of any of its or their provisions shall limit or eliminate any of the benefits provided to Covered Persons under this
Section 17(b) in respect of any act or omission that occurred prior to such amendment or repeal.
(c) A
Covered Person shall be fully protected in relying in good faith upon the records of the Company and upon such information, opinions, reports or statements presented
to the Company by any Person as to matters the Covered Person reasonably believes are within such other Person's professional or expert competence and who has been selected with reasonable care by or
on behalf of the Company, including information, opinions, reports or statements as to the value and amount of the assets, liabilities, or any other facts pertinent to the existence and amount of
assets from which distributions to the Member might properly be paid.
(d) To
the extent that, at law or in equity, a Covered Person has duties (including fiduciary duties) and liabilities relating thereto to the Company or to any other Covered
Person, a Covered Person acting under this Agreement shall not be liable to the Company or to any other Covered Person for its good faith reliance on the provisions of this Agreement or any approval
or authorization granted by the Company or any other Covered Person. The provisions of this Agreement, to the extent that they restrict the duties and liabilities of a Covered Person otherwise
existing at law or in equity, are agreed by the Member to replace such other duties and liabilities of such Covered Person.
(e) The
foregoing provisions of this Section 17 shall survive any termination of this Agreement.
Section 18.
Permitted Pledges and Assignments.
The
Member shall be permitted to pledge any or all of its membership interests, including all economic rights, control rights and status rights as a Member, to any lenders to the Member
or the Company or any agent acting on such lenders' behalf, and any sale, assignment or transfer of such
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membership
interests pursuant to any such lenders' (or agent's) exercise of remedies in connection with any such pledge shall be permitted under this Agreement with no further action or approval
required hereunder. Notwithstanding anything contained herein to the contrary, upon the exercise of remedies in connection with such pledge, any such purchaser, assignee or transferee of such
membership interests shall have the right, as set forth in the applicable pledge agreement, and without further approval of any Member, shall become a Member under this Agreement, shall have the
rights of a Member to participate in the management of the Company, including the exercise of voting rights of the Member granting such pledge, and shall be entitled to exercise all of the rights and
powers of a Member under this Agreement without the taking of any further action on the part of such purchaser, assignee or transferee and without complying with any other procedures set forth in this
Agreement, and following such exercise of remedies the Member shall cease to be a Member and shall have no further rights or obligations under this Agreement. The execution and delivery of this
Agreement by the Member shall constitute any necessary approval of the Member under the Act to the foregoing provisions of this Section 18. Notwithstanding anything contained herein to the
contrary and so long as any of the membership interest is subject to a pledge, this Section 18 may not be amended or modified in any manner adverse to the pledgee without the pledgee's prior
written consent.
Section 19.
Admission of Additional Members.
One
or more additional members of the Company may be admitted to the Company with the written consent of the Member.
Section 20.
Dissolution.
(a) The
Company shall be dissolved, and its affairs shall be wound up upon the first to occur of the following: (i) other than pursuant to Section 18, the
retirement, resignation or dissolution of the Member or the occurrence of any other event which terminates the continued membership of the Member in the Company unless the business of the Company is
continued in a manner permitted by the Act or (ii) the entry of a decree of judicial dissolution under Section 18-802 of the Act.
(b) The
bankruptcy (as defined in Section 18-801 of the Act) of the Member shall not cause the Member to cease to be a member of the Company and upon the occurrence
of such an event, the business of the Company shall continue without dissolution.
(c) In
the event of dissolution, the Company shall conduct only such activities as are necessary to wind up its affairs (including the sale of the assets of the Company in
an orderly manner), and the assets of the Company shall be applied in the manner, and in the order of priority, set forth in Section 18-804 of the Act.
(d) The
Company shall terminate when (i) all of the assets of the Company, after payment of or due provision for all debts, liabilities and obligations of the Company
shall have been distributed to the Member in the manner provided for in this Agreement and (ii) the Certificate of Formation shall have been canceled in the manner required by the Act.
Section 21.
Waiver of Partition; Nature of Interest.
Except
as otherwise expressly provided in this Agreement, to the fullest extent permitted by law, the Member hereby irrevocably waives any right or power that the Member might have to
cause the Company or any of its assets to be partitioned, to cause the appointment of a receiver for all or any portion of the assets of the Company, to compel any sale of all or any portion of the
assets of the Company pursuant to any applicable law or to file a complaint or to institute any proceeding at law or in equity to cause the dissolution, liquidation, winding up or termination
of the Company. The Member shall not have any interest in any specific assets of the Company, and the Member shall not have the status of a creditor with respect to any distribution pursuant to
Section 14 hereof. The interest of the Member in the Company is personal property.
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Section 22.
Benefits of Agreement; No Third-Party Rights.
Except
as set forth in Section 18, none of the provisions of this Agreement shall be for the benefit of or enforceable by any creditor of the Company or by any creditor of the
Member. Nothing in this Agreement shall be deemed to create any right in any Person (other than Covered Persons) not a party hereto, and this Agreement shall not be construed in any respect to be a
contract in whole or in part for the benefit of any third Person.
Section 23.
Severability of Provisions.
Each
provision of this Agreement shall be considered severable and if for any reason any provision or provisions herein are determined to be invalid, unenforceable or illegal under any
existing or future law, such invalidity, unenforceability or illegality shall not impair the operation of or affect those portions of this Agreement which are valid, enforceable and legal.
Section 24.
Entire Agreement.
This
Agreement constitutes the entire agreement of the parties with respect to the subject matter hereof.
Section 25.
Governing Law.
This
Agreement shall be governed by and construed under the laws of the State of Delaware (without regard to conflict of laws principles), all rights and remedies being governed by said
laws.
Section 26.
Amendments.
This
Agreement may not be modified, altered, supplemented or amended except pursuant to a written agreement executed and delivered by the Member.
Section 27.
Rules of Construction.
Definitions
in this Agreement apply equally to both the singular and plural forms of the defined terms. The words "include" and "including" shall be deemed to be followed by the phrase
"without limitation." The terms "herein," "hereof" and "hereunder" and other words of similar import refer to this Agreement as a whole and not to any particular Section, paragraph or subdivision. The
Section titles appear as a matter of convenience only and shall not affect the interpretation of this Agreement. All Section, paragraph, clause, Exhibit or Schedule references not attributed to a
particular document shall be references to such parts of this Agreement.
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IN WITNESS WHEREOF, the undersigned, intending to be legally bound hereby, has duly executed this Agreement as of June 28, 2017.
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MEMBER:
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GS MONARCH PARENT, LLC
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By:
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/s/ JOSH CARPER
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Name:
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A. Joshua Carper
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Title:
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Vice President and Secretary
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SCHEDULE A
Definitions
When
used in this Agreement, the following terms not otherwise defined herein have the following meanings:
"Act"
means the Delaware Limited Liability Company Act, as amended from time to time.
"Board"
or "Board of Managers" means the Board of Managers of the Company.
"Certificate
of Formation" means the Certificate of Formation of the Company filed with the Secretary of State of the State of Delaware on June 28, 2017, as amended or amended and
restated from time to time.
"Covered
Persons" has the meaning set forth in Section 17(a).
"Managers"
means the Managers elected to the Board of Managers from time to time by the Member. A Manager is hereby designated as a "manager" of the Company within the meaning of the Act
"Officer"
means an officer of the Company described in Section 10.
"Person"
means any individual, corporation, partnership, joint venture, limited liability company, limited liability partnership, association, joint stock company, trust, unincorporated
organization, or other organization, whether or not a legal entity, and any governmental authority.
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SCHEDULE B
Member
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Name
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Mailing Address
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Membership
Interests
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GS Monarch Parent, LLC
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GS Monarch Parent, LLC
c/o Greystar Real Estate Partners, LLC
18 Broad Street, Suite 300,
Charleston, South Carolina 29401
Attention: Josh Carper, Vice President
and Secretary
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ANNEX B
Morgan Stanley
July 4, 2017
Board
of Directors
Monogram Residential Trust, Inc.
5800 Granite Parkway, Suite 1000
Plano, TX 75024
Members
of the Board:
We
understand that Monogram Residential Trust, Inc. ("Monogram" or the "Company"), GS Monarch Parent, LLC (the "Buyer") and GS Monarch Acquisition, LLC, a
wholly owned subsidiary of the Buyer ("Acquisition Sub"), propose to enter into an Agreement and Plan of Merger, substantially in the form of the draft dated July 3, 2017 (the "Merger
Agreement"), which provides, among other things, for the merger of the Company with and into Acquisition Sub (the "Merger" and, together with all the other transactions contemplated under the Merger
Agreement, the "Transaction"). Pursuant to the Merger, Acquisition Sub will survive as a wholly owned subsidiary of the Buyer, and each outstanding share of common stock, par value $0.0001 per share,
of the Company (the "Company Common Stock"), other than shares held by the Buyer or any direct or indirect wholly owned subsidiaries of the Buyer, will be converted into the right to receive $12.00
per share in cash (the "Consideration"). The terms and conditions of the Transaction are more fully set forth in the Merger Agreement.
You
have asked for our opinion as to whether the Consideration to be received by the holders of shares of the Company Common Stock pursuant to the Merger Agreement is fair from a
financial point of view to such holders of shares of the Company Common Stock.
For
purposes of the opinion set forth herein, we have:
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1)
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Reviewed
certain publicly available financial statements and other business and financial information of the Company;
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2)
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Reviewed
certain internal financial statements and other financial and operating data concerning the Company prepared by the management of the Company;
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3)
-
Reviewed
certain financial projections prepared by the management of the Company;
-
4)
-
Discussed
the past and current operations and financial condition and the prospects of the Company with senior executives of the Company;
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5)
-
Reviewed
the reported prices and trading activity for the Company Common Stock;
-
6)
-
Compared
the financial performance of the Company and the prices and trading activity of the Company Common Stock with that of certain other publicly-traded companies
comparable with the Company, and their securities;
-
7)
-
Reviewed
the financial terms, to the extent publicly available, of certain comparable acquisition transactions;
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8)
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Participated
in certain discussions and negotiations among representatives of the Company and the Buyer and certain parties and their financial and legal advisors;
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9)
-
Reviewed
the Merger Agreement, the draft equity financing and debt financing commitment letters substantially in the form of the drafts dated July 3, 2017 (the
"Commitment Letters") and certain related documents; and
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10)
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Performed
such other analyses, reviewed such other information and considered such other factors as we have deemed appropriate.
We
have assumed and relied upon, without independent verification, the accuracy and completeness of the information that was publicly available or supplied or otherwise made available to
us by the Company, and formed a substantial basis for this opinion. With respect to the financial projections, with your consent, we have assumed that they have been reasonably prepared on bases
reflecting the best currently available estimates and judgments of the management of the Company of the future financial performance of the Company and we express no opinion on such projections or the
reasonableness of the assumptions, estimates or judgments on which they are based, and we have assumed that there has not occurred any material change in the assets, liabilities, financial condition,
results of operations, business or prospects of the Company or any of its subsidiaries since the most recent dates on which the most recent financial statements and financial projections or other
information, financial or otherwise, was made available to us. In addition, we have assumed that the Merger and the Additional Transactions (defined in the Merger Agreement) will be consummated in
accordance with the terms set forth in the Merger Agreement without any waiver, amendment or delay of any terms or conditions, including, among other things, that the Buyer will obtain equity and debt
financing in accordance with the terms set forth in the Commitment Letters; provided, however, we express no opinion as to the terms of such equity and debt financing or the terms or conditions upon
which it is obtained and we do not express any view on, and this opinion does not address, any other term or aspect of the Merger Agreement or the transactions contemplated thereby (including the
Additional Transactions and any transactions related to joint ventures of the subsidiaries or affiliates of the Company, including any joint venture between PGGM (defined in the Merger Agreement) and
NPS (defined in the Merger Agreement)) or any term or aspect of any other agreement or instrument contemplated by the Merger Agreement or entered into or amended in connection therewith (including any
agreement related to the Additional Transactions and joint ventures of the subsidiaries or affiliates of the Company, including any agreement related to any joint venture between PGGM and NPS). We
have also assumed that the definitive Merger Agreement will not differ in any material respect from the draft thereof furnished to us. Morgan Stanley has assumed that in connection with the receipt of
all the necessary governmental, regulatory or other approvals and consents required for the proposed Merger, no delays, limitations, conditions or restrictions will be imposed that would have a
material adverse effect on the contemplated benefits expected to be derived in the proposed Merger. We are not legal, tax or regulatory advisors. We are financial advisors only and have relied upon,
without independent verification, the assessment of the Company and its legal, tax or regulatory advisors with respect to legal, tax and regulatory matters. We express no opinion with respect to the
fairness of the amount or nature of the compensation to any of the Company's officers, directors or employees, or any class of such persons, including with respect to any Company Compensatory Award
(as defined in the Merger Agreement), relative to the Consideration to be received by the holders of shares of the Company Common Stock in the Transaction. We have not made any independent valuation
or appraisal of the assets or liabilities of the Company, nor have we been furnished with any such valuations or appraisals. Our opinion is necessarily based on financial, economic, market and other
conditions as in effect on, and the information made available to us as of, the date hereof. Events occurring after the date hereof may affect this opinion and the assumptions used in preparing it,
and we do not assume any obligation to update, revise or reaffirm this opinion.
In
arriving at our opinion, we were not authorized to solicit, and did not solicit, interest from any party with respect to the acquisition, business combination or other extraordinary
transaction, involving the Company, nor did we negotiate with any of the parties, other than the Buyer, which expressed interest to Morgan Stanley in the possible acquisition of the Company or certain
of its constituent businesses.
Our opinion does not address the underlying business decision of the Company or the Board of Directors to engage in the Transaction or the relative merits of the Transaction as compared to any
strategic alternatives that may be available to the Company.
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We
have acted as financial advisor to the Board of Directors of the Company in connection with the Transaction and will receive a fee for our services, a substantial portion of which is
contingent upon the closing of the Merger. In the two years prior to the date hereof, we have provided financing services for the Company and certain providers of the Buyer's equity financing pursuant
to the Commitment Letters and have received fees in connection with such services, all of which have been previously disclosed to you. Morgan Stanley may also seek to provide financial advisory and
financing services to the Buyer, the Company, the various providers of the Buyer's equity financing and their respective affiliates in the future and would expect to receive fees for the rendering of
these services.
Please
note that Morgan Stanley is a global financial services firm engaged in the securities, investment management and individual wealth management businesses. Our securities business
is engaged in securities underwriting, trading and brokerage activities, foreign exchange, commodities and derivatives trading, prime brokerage, as well as providing investment banking, financing and
financial advisory services. Morgan Stanley, its affiliates, directors and officers may at any time invest on a principal basis or manage funds that invest, hold long or short positions, finance
positions, and may trade or otherwise structure and effect transactions, for their own account or the accounts of its customers, in debt or equity securities or loans of the Company, or any other
company, or any currency or commodity, that may be involved in the Transaction, or any related derivative instrument.
This
opinion has been approved by a committee of Morgan Stanley investment banking and other professionals in accordance with our customary practice. This opinion is for the information
of the Board of Directors of the Company and may not be used for any other purpose or disclosed without our prior written consent, except that a copy of this opinion may be included in its entirety in
any filing the Company is required to make with the Securities and Exchange Commission in connection with the Transaction if such inclusion is required by applicable law. In addition, Morgan Stanley
expresses no opinion or recommendation as to how the shareholders of the Company should vote at the shareholders' meeting to be held in connection with the Merger.
Based
on and subject to the foregoing, we are of the opinion on the date hereof that the Consideration to be received by the holders of shares of the Company Common Stock pursuant to the
Merger Agreement is fair from a financial point of view to such holders of shares of the Company Common Stock.
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Very truly yours,
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MORGAN STANLEY & CO. LLC
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By:
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/s/ SETH WEINTROB
Seth Weintrob
Managing Director
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MONOGRAM RESIDENTIAL TRUST, INC. SCAN TO D Ill t>rl 5800 GRANITE PARKWAY, SUITE 1000 PLANO, TX 75024 BROADRIDGE FINANCIAL SOLUTIONS, INC. ATTENTION: TEST PRINT 51 MERCEDES WAY EDGEWOOD, NY 11717 1-' 1-' VOTE BY INTERNET-www.proxyvote.com or scan the QR Barcode above Use the Internet to transmit your voting instructions and for electronic delivery of information up until11 :59 PM. Eastern Time the day before the cut-off date or meeting date. Follow the instructions to obtain your records and to create an electronic voting instruction form. ELECTRONIC DELIVERY OF FUTURE PROXY MATERIALS If you would like to reduce the costs incurred by our company in mailing proxy materials, you can consent to receiving all future proxy statements, proxy cards and annual reports electronically via e-mail or the Internet. To sign up for electronic delivery, please follow the instructions above to vote using the Internet and, when prompted, indicate that you agree to receive or access proxy materials electronically in future years. VOTE BY PHONE-1-800-690-6903 Use any touch-tone telephone to transmit your voting instructions up until 11:59 PM. Eastern Time the day before the cut-off date or meeting date. Have your proxy card in hand when you call and then follow the instructions. VOTE BY MAIL Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to Vote Processing, cJo Broadridge, 51 Mercedes Way, Edgewood, NY 11717. 114720797113304411 TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: E31796-S61735 KEEP THIS PORTION FOR YOUR RECORDS DETACH AND RETURN THIS PORTION ONLY THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED. r:·. · ' rf._·.··:·.J . L;.. The Board of Directors recommends you vote FOR proposals 1, 2 and 3:For Against Abstain 1. To approve the merger of Monogram Residential Trust, Inc. with and into GS Monarch Acquisition, LLC and the other transactions contemplated by that certain Agreement and Plan of Merger, dated as of July 4, 2017 (as may be amended from time to time, the "merger agreement"), by and among Monogram Residential Trust, Inc., GS Monarch Parent, LLC, and GS Monarch Acquisition, LLC. 000 2. To approve, on an advisory (non-binding) basis, specified compensation that may become payable to the named executive officers of Monogram Residential Trust, Inc. in connection with the merger. 000 3. To approve one or more adjournments of the special meeting, if necessary, to solicit additional proxies if there are insufficient votes at the time of the special meeting to approve the merger and the other transactions contemplated by the merger agreement. "'NOTE: In their discretion, the proxies named on this proxy card are authorized to vote and otherwise represent the undersigned on any other 000 "'matter that may properly come before the meeting or any adjournment or postponement thereof. For address changes and/or comments, please check this box and write 0 them on the back where indicated. Please indicate if you plan to attend this meeting. 0 0 YesNo Please sign exactly as your name(s) appear(s) hereon. When signing as attorney, executor, administrator, or other fiduciary, please give full title as such. Joint owners should each sign personally. All holders must sign. If a corporation or partnership, please sign in full corporate or partnership name by authorized officer. IIIS61735-01SIII 999,999,999,999 60979PA99 1 Signature [PLEASE SIGN WITHIN BOX] Date Signature (Joint Owners) Date
Important Notice Regarding the Availability of Proxy Materials for the Special Meeting: The Notice and Proxy Statement is available at www.proxyvote.com. E31797-S61735 MONOGRAM RESIDENTIAL TRUST, INC. PROXY FOR THE SPECIAL MEETING OF STOCKHOLDERS TO BE HELD SEPTEMBER 14, 2017 THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY The stockholder hereby appoints Howard S. Garfield and Mark T Alfieri, or either of them individually, and each of them, with power of substitution, as proxies and attorneys-in-fact and hereby authorizes them to represent and to vote, as provided on the other side of this ballot, all shares of the Monogram Residential Trust, Inc. common stock that the undersigned is entitled to vote as of the record date and, in their discretion, to vote upon such other business that may properly come before the Special Meeting of Stockholders of the Company to be held at 5800 Granite Parkway, Suite 160B, Plano, Texas, on September 14, 2017 at 10:00 a.m. central time, or at any adjournment or postponement thereof, with all powers that the undersigned would possess if present at the meeting. The undersigned hereby acknowledges receipt of the Notice of Special Meeting of Stockholders and the accompanying proxy statement, and revokes any proxy heretofore given with respect to such meeting. When shares are held in joint tenants or tenants in common, the signature of one shall bind all unless the Secretary of the Company is given written notice to the contrary and furnished with a copy of the instrument of order that so provides. When signing as attorney, executor, administrator, trustee, or guardian, please give full title as such. If a corporation, please sign in full corporate name by an authorized officer. If a partnership, please sign in partnership name by authorized person. If this proxy is executed but no direction is given, the votes entitled to be cast by the stockholder will be cast "FOR" the approval of the merger and the other transactions contemplated by the merger agreement, "FOR" the approval of the specified compensation that may become payable to our named executive officers in connection with the merger, and "FOR" the approval of one or more adjournments of the Special Meeting, if necessary, to solicit additional proxies if we have not obtained sufficient affirmative stockholder votes to approve the merger and the other transactions contemplated by the merger agreement. This proxy will be voted in the discretion of the proxies on any matter other than the proposals set forth on the other side of this ballot that is properly brought before the Special Meeting or any adjournment or postponement thereof. Address Changes/Comments:--------------------------------Continued and to be signed on reverse side