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REGISTRATION NO. 333-61449
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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EQUITY RESIDENTIAL PROPERTIES TRUST
(Exact name of registrant as specified in its charter)
MARYLAND 6798 ▇▇-▇▇▇▇▇▇▇
(State or other jurisdiction of (Primary Standard Industrial (IRS Employer
incorporation or organization) Classification Code Number) Identification No.)
TWO NORTH RIVERSIDE ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
(▇▇▇) ▇▇▇-▇▇▇▇
(Address, including ZIP Code, and telephone number,
including area code, of registrant's principal executive offices)
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▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇
PRESIDENT AND CHIEF EXECUTIVE OFFICER
TWO NORTH RIVERSIDE ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
(▇▇▇) ▇▇▇-▇▇▇▇
(Name, address, including ZIP Code, and telephone number,
including area code, of agent for service)
Copies to:
▇▇▇ ▇. ▇▇▇▇▇, ESQ. ▇. ▇▇▇▇ ▇▇▇▇▇▇▇, ESQ.
▇▇▇▇▇▇▇ & ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇▇ & ▇▇▇▇▇▇▇, P.C.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇ ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇ SUNTRUST BANK BUILDING
(▇▇▇) ▇▇▇-▇▇▇▇ AUGUSTA, GA 30901
(▇▇▇) ▇▇▇-▇▇▇▇ (TELECOPIER) (▇▇▇) ▇▇▇-▇▇▇▇
(▇▇▇) ▇▇▇-▇▇▇▇ (TELECOPIER)
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EQUITY RESIDENTIAL PROPERTIES TRUST LOGO
TWO NORTH RIVERSIDE PLAZA
CHICAGO, ILLINOIS 60606
September 14, 1998
Dear Shareholder:
You are cordially invited to attend a special meeting of shareholders of
Equity Residential Properties Trust ("EQR") to be held at One North Franklin,
Chicago, Illinois, on October 15, 1998, at 10:00 a.m., local time (the "EQR
Special Meeting").
At the EQR Special Meeting, you will be asked to approve the acquisition of
the multifamily property business of Merry Land & Investment Company, Inc., a
Georgia corporation ("Merry Land"), by EQR through a tax-free merger (the
"Merger"). In the Merger, each outstanding share of common stock of Merry Land
will be converted into 0.53 of a common share of beneficial interest of EQR
("EQR Common"). At the EQR Special Meeting you will also be asked to separately
approve an increase in the total number of authorized shares of beneficial
interest of EQR from 300,000,000 to 450,000,000 and an increase in the number of
authorized shares of EQR Common from 200,000,000 to 350,000,000 in the Merger
(the "Increase").
Details of the proposed Merger and information regarding EQR and Merry Land
are contained in the attached Joint Proxy Statement/Prospectus/Information
Statement, which you are encouraged to read carefully. Special note should be
taken of the risk factors relating to the proposed Merger, which are discussed
beginning on page 18 of the attached Joint Proxy
Statement/Prospectus/Information Statement.
Your Board of Trustees believes that the proposed acquisition of Merry Land
by EQR will benefit EQR by (i) acquiring at the effective time of the Merger a
high-quality portfolio of approximately 34,990 apartment units (including 1,418
units under development or construction), (ii) making the resulting company
better equipped to meet competitive challenges by increasing its size and
achieving greater economies of scale and (iii) improving its access to capital.
Your Board of Trustees has carefully reviewed and considered the terms and
conditions of the Merger and has received and considered the written opinion of
▇.▇. ▇▇▇▇▇▇ Securities Inc. ("▇.▇. ▇▇▇▇▇▇") dated July 8, 1998 to the effect
that, as of the date of such opinion and based upon and subject to certain
matters stated therein, the consideration to be paid by EQR in connection with
the Merger was fair to EQR from a financial point of view. A copy of the written
opinion of ▇.▇. ▇▇▇▇▇▇ is included as Appendix D to the Joint Proxy
Statement/Prospectus/Information Statement and should be read carefully in its
entirety with respect to assumptions made, matters considered and limitations on
the review undertaken by ▇.▇. ▇▇▇▇▇▇ in rendering its opinion. Your Board of
Trustees has approved the Merger and the Increase, believes the Merger and the
Increase are in the best interests of EQR and its shareholders, and recommends
that all shareholders vote FOR approval of the Merger and the Increase.
The Merger requires the affirmative vote of EQR shareholders owning a
majority of the outstanding shares of EQR Common. The Increase is subject to the
affirmative vote of a majority of the votes cast by holders of shares of EQR
Common cast at the EQR Special Meeting, provided a quorum is present.
Accordingly, whether or not you plan to attend the EQR Special Meeting, please
complete, sign and date the accompanying proxy card and return it in the
enclosed prepaid envelope. You may revoke your proxy in the manner described in
the accompanying Joint Proxy Statement/Prospectus/Information Statement at any
time before it has been voted at the EQR Special Meeting. If you attend the EQR
Special Meeting, you may vote in person even if you have previously returned
your proxy card. Your prompt cooperation will be greatly appreciated. This
solicitation is made on behalf of the Board of Trustees of EQR.
Sincerely,
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇,
Chief Executive Officer, President and
Trustee
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EQUITY RESIDENTIAL PROPERTIES TRUST
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
NOTICE IS HEREBY GIVEN that a special meeting of shareholders ("EQR Special
Meeting") of Equity Residential Properties Trust, a Maryland real estate
investment trust ("EQR"), will be held at One North Franklin, Chicago, Illinois,
on October 15, 1998 at 10:00 a.m. local time, to consider and vote on the
following:
1. A proposal to approve the merger of Merry Land & Investment
Company, Inc., a Georgia corporation ("Merry Land"), into EQR, and in the
alternative, the merger of Merry Land Merger Subsidiary, Inc., a newly
formed subsidiary of Merry Land, into EQR, all pursuant to an Agreement and
Plan of Merger entered into by EQR and Merry Land on July 8, 1998, as
amended (collectively, the "Merger").
2. The proposed increase in the total number of authorized shares of
beneficial interest of EQR from 300,000,000 to 450,000,000 and the increase
in the number of authorized common shares of beneficial interest of EQR
from 200,000,000 shares to 350,000,000 in the Merger.
Only holders of record of common shares of beneficial interest, $.01 par
value per share, of EQR at the close of business on September 9, 1998 will be
entitled to vote at the EQR Special Meeting.
By Order of the Board of Trustees,
▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Executive Vice President,
General Counsel and Secretary
Chicago, Illinois
September 14, 1998
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PLEASE DATE, SIGN AND RETURN YOUR EQR PROXY PROMPTLY IN THE ENCLOSED,
SELF-ADDRESSED ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED
STATES.
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[MERRYLAND LOGO]
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
SEPTEMBER 14, 1998
Dear Shareholder:
You are cordially invited to attend a special meeting of shareholders of
Merry Land & Investment Company, Inc. ("Merry Land") to be held at Fort
Discovery, ▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇, on October 15, 1998, at 10:00
a.m., local time (the "Merry Land Special Meeting").
At the Merry Land Special Meeting, you will be asked to approve the
acquisition of the multifamily property business of Merry Land by Equity
Residential Properties Trust, a Maryland real estate investment trust ("EQR"),
through the tax-free merger of EQR and Merry Land. In the merger, each
outstanding share of common stock of Merry Land ("Merry Land Common") will be
converted into 0.53 of a common share of beneficial interest of EQR ("EQR
Common").
In the event Merry Land and EQR receive a favorable determination from the
Internal Revenue Service, as an alternative merger structure, Merry Land will
merge with and into a newly formed subsidiary limited liability company (the
"Merry Land LLC"), with the shareholders of Merry Land receiving shares of stock
in a newly formed corporate subsidiary (the "Merry Land Merger Subsidiary"),
which would own all of the equity interests in Merry Land LLC. The Merry Land
Merger Subsidiary would then merge with and into EQR, with each outstanding
share of common stock of Merry Land Merger Subsidiary being converted into 0.53
of a share of EQR Common. Shareholders are being asked to approve the merger,
including the alternative merger structure (the "Merger").
Immediately prior to the Merger, and subject to the satisfaction or waiver
of all conditions thereto, Merry Land will contribute certain of its assets (the
"Contribution") to its subsidiary, Merry Land Properties, Inc. ("MRYP Newco") in
exchange for shares of common stock, no par value, of MRYP Newco ("MRYP Newco
Common"). Merry Land will distribute to its common shareholders, on a pro rata
basis, all of the shares it owns in MRYP Newco (the "Distribution") prior to the
Merger. Details of the proposed Merger and Distribution and information
regarding EQR, Merry Land and MRYP Newco are contained in the attached Joint
Proxy Statement/Prospectus/Information Statement, which you are encouraged to
read carefully. Special note should be taken of the risk factors relating to the
proposed Merger and MRYP Newco, which are discussed beginning on page 18 of the
attached Joint Proxy Statement/Prospectus/Information Statement.
At the Merry Land Special Meeting you will be asked to approve the Merger.
You will also be asked to approve the adoption of MRYP Newco's 1998 Management
Incentive Plan.
Your Board of Directors has carefully reviewed and considered the terms and
conditions of the Merger, the Contribution, and the Distribution and has
received and considered the written opinion of ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ & Co. Incorporated
("▇▇▇▇▇▇ ▇▇▇▇▇▇▇") dated July 8, 1998 to the effect that, as of the date of such
opinion, and based upon and subject to certain assumptions and considerations
stated therein, the EQR Common and MRYP Newco Common (the "Merger
Consideration") to be received by the holders of shares of Merry Land Common
pursuant to the Merger was fair to such shareholders from a financial point of
view. A copy of the written opinion of ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ dated July 8, 1998 is
included as Appendix E to the Joint Proxy Statement/Prospectus/Information
Statement and should be read carefully and in its entirety.
Your Board of Directors and the Board of Directors of Merry Land Merger
Subsidiary have approved the Merger, the Contribution and the Distribution and
believes they are in the best interests of Merry Land and its shareholders, and
recommends that all shareholders vote FOR approval of the Merger. Shareholders
are not
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being asked to approve the Contribution or the Distribution, which are not
subject to shareholder approval. However, approval of the Merger will, in
effect, constitute approval of the Contribution and Distribution. Your Board of
Directors and the Board of Directors of MRYP Newco recommend that all
shareholders vote FOR the adoption of MRYP Newco's 1998 Management Incentive
Plan.
The Merger requires the affirmative vote of Merry Land shareholders owning
a majority of the outstanding Merry Land Common. The approval of MRYP Newco's
1998 Management Incentive Plan requires the affirmative vote of a majority of
the votes cast by the holders of the outstanding shares of Merry Land Common.
Accordingly, whether or not you plan to attend the Merry Land Special Meeting,
please complete, sign and date the accompanying proxy card and return it in the
enclosed prepaid envelope. You may revoke your proxy in the manner described in
the accompanying Joint Proxy Statement/Prospectus/ Information Statement at any
time before it has been voted at the Merry Land Special Meeting. If you attend
the Merry Land Special Meeting, you may vote in person even if you have
previously returned your proxy card. Your prompt cooperation will be greatly
appreciated. This solicitation is made on behalf of the Board of Directors of
Merry Land.
Sincerely,
SIG
▇▇▇▇▇ ▇. ▇▇▇▇, Chairman
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MERRY LAND & INVESTMENT COMPANY, INC.
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
NOTICE IS ▇▇▇▇▇▇ GIVEN that a special meeting of shareholders ("Merry Land
Special Meeting") of Merry Land & Investment Company, Inc., a Georgia
corporation ("Merry Land"), will be held at Fort Discovery, ▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇,
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇, on October 15, 1998 at 10:00 a.m., local time, to consider and
vote on the following proposals:
(i) the approval of (a) the merger of Merry Land with and into Equity
Residential Properties Trust, a Maryland real estate investment trust
("EQR"), and in the alternative, (b) the merger of Merry Land with and into
a newly formed subsidiary limited liability company ("Merry Land LLC"),
with the shareholders of Merry Land receiving shares of stock in a newly
formed corporate subsidiary (the "Merry Land Merger Subsidiary"), followed
by the merger of the Merry Land Merger Subsidiary with and into EQR, all
pursuant to an Agreement and Plan of Merger entered into by Merry Land and
EQR on July 8, 1998, as amended (collectively, the "Merger"); and
(ii) the adoption of Merry Land Properties, Inc.'s 1998 Management
Incentive Plan.
Only holders of record of common stock, no par value per share, of Merry
Land at the close of business on September 9, 1998 will be entitled to vote at
the Merry Land Special Meeting.
By Order of the Board of Directors,
SIG
▇. ▇▇▇▇ ▇▇▇▇▇▇▇,
Secretary
Augusta, Georgia
September 14, 1998
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PLEASE DATE, SIGN AND RETURN YOUR MERRY LAND PROXY PROMPTLY IN THE
ENCLOSED, SELF-ADDRESSED ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN THE
UNITED STATES.
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EQUITY RESIDENTIAL PROPERTIES TRUST
AND
MERRY LAND & INVESTMENT COMPANY, INC.
JOINT PROXY STATEMENT
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EQUITY RESIDENTIAL PROPERTIES TRUST
PROSPECTUS
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MERRY LAND PROPERTIES, INC.
INFORMATION STATEMENT
This Joint Proxy Statement/Prospectus/Information Statement is being
furnished to the shareholders of Equity Residential Properties Trust, a Maryland
real estate investment trust ("EQR"), in connection with the solicitation of
proxies on behalf of the Board of Trustees of EQR ("EQR Board of Trustees") for
use at a special meeting of the holders of common shares of beneficial interest,
$.01 par value per share, of EQR ("EQR Common") to be held on October 15, 1998
and at any adjournment or postponement thereof ("EQR Special Meeting"). At the
EQR Special Meeting, holders of EQR Common ("EQR Common Shareholders") will be
asked to approve (i) the acquisition of the multifamily property business of
Merry Land & Investment Company, Inc., a Georgia corporation ("Merry Land"), by
approving the merger of EQR and Merry Land pursuant to an Agreement and Plan of
Merger dated as of July 8, 1998, by and between EQR and Merry Land, as amended
(the "Merger Agreement"), including the alternative merger transactions as
described herein (collectively, the "Merger"); and (ii) an increase in the total
number of authorized shares of beneficial interest of EQR from 300,000,000 to
450,000,000 and an increase in the number of authorized shares of EQR Common
from 200,000,000 to 350,000,000 in the Merger (the "Increase"). A copy of the
Merger Agreement is attached hereto as Appendix A. Certain capitalized terms
used herein are defined in the Glossary beginning on page G-1.
This Joint Proxy Statement/Prospectus/Information Statement also is being
furnished to the shareholders of Merry Land in connection with the solicitation
of proxies on behalf of the Board of Directors of Merry Land ("Merry Land Board
of Directors") for use at a special meeting ("Merry Land Special Meeting" and,
together with the EQR Special Meeting, the "Meetings of Shareholders") of the
holders of shares of common stock, without par value, of Merry Land ("Merry Land
Common") to be held on October 15, 1998 and at any adjournment or postponement
thereof. At the Merry Land Special Meeting, holders of Merry Land Common ("Merry
Land Common Shareholders") will be asked to approve (i) the Merger and (ii) the
adoption of Merry Land Properties, Inc.'s ("MRYP Newco") 1998 Management
Incentive Plan.
In considering whether to approve the Merger, the shareholders of EQR and
Merry Land voting thereon should consider, in addition to the other information
in this Joint Proxy Statement/Prospectus/Information Statement, the matters
discussed under "Risk Factors" beginning on page 18. Such matters include:
- The possibility that the costs or other factors associated with the
integration of EQR and Merry Land will adversely affect future combined
results of operations or the benefits of expected costs savings.
- The distribution declared on Merry Land Common for each of the first two
quarters of 1998 was $0.41 per share and the distribution declared on 0.53
of a share of EQR Common, into which each share of Merry Land will be
converted pursuant to the Merger (the "EQR Share Equivalent"), was $0.355
for each such quarters.
- Possible conflicts of interest of certain directors and officers of ▇▇▇▇▇
▇▇▇▇.
- Upon consummation of the Merger, Merry Land Common Shareholders will own
approximately 18% of the EQR Common and will not have separate approval
rights with respect to any actions or decisions of EQR.
- A potential change in the relative prices of EQR Common and Merry Land
Common prior to the consummation of the Merger and a possible reduction in
the market price of EQR Common prior to or following the Merger.
- In the event the Merger Agreement is terminated under certain conditions,
the possible payment of liquidated damages and/or expenses by Merry Land
to EQR or the possible payment of expenses by EQR to Merry Land.
- The shareholders of EQR and Merry Land do not have appraisal rights in
connection with the Merger under Maryland or Georgia law.
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This Joint Proxy Statement/Prospectus/Information Statement also is being
furnished to the shareholders of Merry Land to provide them with information
regarding MRYP Newco. Immediately prior to the Merger, Merry Land will
contribute certain assets to MRYP Newco, subject to liabilities (the
"Contribution"), and Merry Land will distribute to the Merry Land Common
Shareholders, pro rata, all of the MRYP Newco Common owned by Merry Land (the
"Distribution"). In addition, an affiliate of EQR will enter into certain
financial and business arrangements with ▇▇▇▇ ▇▇▇▇▇, as described herein. Such
financial and business arrangements, together with the Contribution and
Distribution, are referred to collectively herein as the "Spin-Off." The Merger
and Spin-Off are referred to collectively herein as the "Transactions."
In addition to the matters discussed above, shareholders of Merry Land
should also consider the matters discussed under "MRYP Newco Risk Factors"
beginning on page 20, including:
- Prior to the consummation of the transactions described herein, there has
been no public market for MRYP Newco Common. Although an application has
been made to have the MRYP Newco Common listed on the Nasdaq National
Market ("Nasdaq"), there can be no assurance that MRYP Newco will obtain
approval for listing on Nasdaq, that an active trading market will develop
or, if such market does develop, that it will be sustained.
- MRYP Newco does not have an operating history as a separate company.
- Upon consummation of the Transactions, MRYP Newco will have substantial
indebtedness and debt service and preferred stock obligations.
- There is no assurance that MRYP Newco will have the working capital or
adequate financing in the foreseeable future to execute its business plan.
This Joint Proxy Statement/Prospectus/Information Statement also relates to
the shares of EQR Common issuable upon consummation of the Merger. On September
1, 1998, the last reported sales price of a share of EQR Common on the New York
Stock Exchange ("NYSE") was $39 1/4. On September 1, 1998, the last reported
sales price of a share of Merry Land Common on the NYSE was $20 5/8.
This Joint Proxy Statement/Prospectus/Information Statement and the proxy
forms are first being mailed to EQR Common Shareholders and Merry Land Common
Shareholders on or about September 14, 1998.
SEE "RISK FACTORS" BEGINNING ON PAGE 18 AND "MRYP RISK FACTORS" BEGINNING
ON PAGE 20 FOR A DISCUSSION OF MATERIAL FACTORS WHICH SHOULD BE CONSIDERED BY
SHAREHOLDERS OF EQR AND MERRY LAND.
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THE SECURITIES TO WHICH THIS JOINT PROXY STATEMENT/PROSPECTUS/INFORMATION
STATEMENT RELATE HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR BY ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS JOINT PROXY STATEMENT/PROSPECTUS/ INFORMATION
STATEMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Joint Proxy Statement/Prospectus/Information Statement is
September 14, 1998.
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AVAILABLE INFORMATION
EQR has filed a registration statement on Form S-4 (the "Registration
Statement") under the Securities Act of 1933, as amended ("Securities Act"),
with the Securities and Exchange Commission (the "Commission") covering the
shares of EQR Common to be issued in connection with the Merger. As permitted by
the rules and regulations of the Commission, this Joint Proxy
Statement/Prospectus/Information Statement omits certain information, exhibits
and undertakings contained in the Registration Statement. For further
information pertaining to the securities offered hereby, reference is made to
the Registration Statement, including the exhibits filed as a part thereof.
EQR and Merry Land are subject to the informational requirements of the
Securities Exchange Act of 1934, as amended ("Exchange Act"), and, in accordance
therewith, file reports, proxy statements and other information with the
Commission. MRYP Newco has filed a registration statement on Form 10 with the
Commission and, as of the date of the Distribution, MRYP Newco will also be
subject to the informational requirements of the Exchange Act. Reports, proxy
statements and other information filed by EQR, Merry Land and MRYP Newco can be
inspected and copied at the public reference facilities maintained by the
Commission at ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇.▇., ▇▇▇▇▇▇▇▇▇▇, ▇.▇. ▇▇▇▇▇; and at its
Regional Offices located at Suite ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇ ▇▇▇▇▇; and Seven World Trade Center, Suite ▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇
▇▇▇▇▇. Copies of such material can be obtained from the Public Reference Section
of the Commission, ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇.▇., ▇▇▇▇▇▇▇▇▇▇, ▇.▇. ▇▇▇▇▇, at prescribed
rates. The Commission maintains a Web site that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission. The address of the Commission's Web site is:
▇▇▇▇://▇▇▇.▇▇▇.▇▇▇. The EQR Common and preferred shares of beneficial interest
of EQR ("EQR Preferred" and, collectively with the EQR Common, "EQR Shares") and
the (i) Merry Land Common,(ii) Merry Land $1.75 Series A Cumulative Convertible
Preferred Stock ("Merry Land Series A"), (iii) Merry Land $2.15 Series C
Cumulative Convertible Preferred Stock ("Merry Land Series C") and (iv) Merry
Land 7.625% Series E Cumulative Redeemable Preferred Stock ("Merry Land Series
E") are currently listed on the NYSE, and such reports, proxy statements and
other information concerning EQR and Merry Land can be inspected at the offices
of the NYSE, ▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇. MRYP Newco has applied
for listing of the MRYP Newco Common on Nasdaq.
All information contained in this Joint Proxy
Statement/Prospectus/Information Statement with respect to Merry Land and MRYP
Newco has been supplied by Merry Land, and all information with respect to EQR
and ERP Operating Limited Partnership, an Illinois limited partnership ("ERP
Operating Partnership"), has been supplied by EQR.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS JOINT PROXY
STATEMENT/PROSPECTUS/INFORMATION STATEMENT OR INCORPORATED IN IT BY REFERENCE
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION SHOULD NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED. THIS JOINT PROXY
STATEMENT/PROSPECTUS/INFORMATION STATEMENT DOES NOT CONSTITUTE AN OFFER TO SELL,
OR A SOLICITATION OF AN OFFER TO PURCHASE, THE SECURITIES OFFERED BY THIS JOINT
PROXY STATEMENT/PROSPECTUS/INFORMATION STATEMENT, OR THE SOLICITATION OF A
PROXY, IN ANY JURISDICTION WHERE OR FROM ANY PERSON TO WHOM, IT IS UNLAWFUL TO
MAKE SUCH OFFER, OR SOLICITATION OF AN OFFER, OR PROXY SOLICITATION. NEITHER THE
DELIVERY OF THIS JOINT PROXY STATEMENT/PROSPECTUS/INFORMATION STATEMENT NOR ANY
DISTRIBUTION OF THE SECURITIES OFFERED PURSUANT TO THIS JOINT PROXY
STATEMENT/PROSPECTUS/INFORMATION STATEMENT SHALL, UNDER ANY CIRCUMSTANCES,
CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF EQR, MERRY
LAND OR MRYP NEWCO SINCE THE DATE OF THIS JOINT PROXY
STATEMENT/PROSPECTUS/INFORMATION STATEMENT.
ALL DOCUMENTS THAT ARE INCORPORATED BY REFERENCE IN THIS JOINT PROXY
STATEMENT/PROSPECTUS/ INFORMATION STATEMENT BUT WHICH ARE NOT DELIVERED HEREWITH
ARE AVAILABLE WITHOUT CHARGE (OTHER THAN EXHIBITS TO SUCH DOCUMENTS WHICH ARE
NOT SPECIFICALLY INCORPORATED BY REFERENCE THEREIN) UPON REQUEST FROM, IN THE
CASE OF DOCUMENTS RELATING TO EQR, TWO NORTH RIVERSIDE PLAZA, SUITE ▇▇▇,
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ATTENTION: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, TELEPHONE (▇▇▇) ▇▇▇-▇▇▇▇,
AND, IN THE CASE OF DOCUMENTS RELATING TO MERRY LAND, ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇ ▇▇▇▇▇, ATTENTION: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇, TELEPHONE (▇▇▇) ▇▇▇-▇▇▇▇. IN ORDER TO
INSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD BE MADE BY OCTOBER
1, 1998.
I-1
10
INFORMATION INCORPORATED BY REFERENCE
IN THIS JOINT PROXY STATEMENT/PROSPECTUS/INFORMATION STATEMENT
The following documents filed with the Commission by EQR or by Merry Land
pursuant to the Exchange Act are hereby incorporated in this Joint Proxy
Statement/Prospectus/Information Statement by reference:
- EQR's annual report on Form 10-K and Form 10-K/A for the year ended
December 31, 1997.*
- EQR's current report on Form 8-K dated January 21, 1998.*
- EQR's current report on Form 8-K dated February 12, 1998.*
- EQR's current report on Form 8-K dated February 18, 1998.*
- EQR's definitive proxy statement relating to EQR's Annual Meeting of
Shareholders, dated March 27, 1998.*
- EQR's current report on Form 8-K dated March 25, 1998.*
- EQR's quarterly report on Form 10-Q for the quarter ended March 31,
1998.*
- EQR's current report on Form 8-K dated April 23, 1998.*
- EQR's current report on Form 8-K dated June 25, 1998.*
- EQR's current report on Form 8-K dated July 8, 1998.*
- EQR's current report on Form 8-K dated July 23, 1998.*
- EQR's current report on Form 8-K/A dated July 23, 1998.*
- EQR's quarterly report on Form 10-Q for the quarter ended June 30, 1998.*
- EQR's current report on Form 8-K dated August 11, 1998.*
- The information prescribed by Items 12, 13, 14, 15 and 16 of Form S-11
contained in EQR's Registration Statement on Form S-11 (No. 33-80420)
dated July 20, 1994, as amended.
- The description of EQR Common contained in EQR's Registration Statement
on Form 8-A/A, dated August 10, 1993.*
- EQR's current reports on Form 8-K dated March 12, 1997; March 17, 1997;
August 15, 1997; September 10, 1997; September 17, 1997; October 9, 1997;
December 23, 1997; and EQR's current report on Form 8-K/A dated October
9, 1997.*
- EQR's Joint Proxy Statement/Prospectus/Information Statement dated April
25, 1997.*
- Merry Land's annual report on Form 10-K and Form 10-K/A for the year
ended December 31, 1997.**
- Merry Land's current report on Form 8-K, dated February 13, 1998.**
- Merry Land's current report on Form 8-K, dated February 23, 1998.**
- Merry Land's current report on Form 8-K dated March 16, 1998.**
- Merry Land's current report on Form 8-K dated April 7, 1998.**
- Merry Land's current report on Form 8-K dated July 13, 1998.**
- Merry Land's quarterly report on Form 10-Q for the quarter ended March
31, 1998, as amended by Form 10-Q/A dated May 13, 1998.**
- Merry Land's quarterly report on Form 10-Q for the quarter ended June 30,
1998.**
I-2
11
- Merry Land's definitive proxy statement relating to Merry Land's Annual
Meeting of Shareholders, dated March 23, 1998.**
- All documents subsequently filed by EQR or Merry Land pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act prior to the date of the
meetings of shareholders.
Any statement contained herein or in a document incorporated by reference
or deemed to be incorporated by reference herein shall be deemed to be modified
or superseded for purposes of this Joint Proxy Statement/ Prospectus/Information
Statement to the extent that a statement contained in this Joint Proxy
Statement/ Prospectus/Information Statement or in any other subsequently filed
document that also is or is deemed to be incorporated by reference in this Joint
Proxy Statement/Prospectus/Information Statement modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Joint Proxy
Statement/Prospectus/Information Statement.
-------------------------
* Commission File No. 1-12252
** Commission File No. 1-11081
I-3
12
JOINT PROXY STATEMENT/PROSPECTUS/INFORMATION STATEMENT
TABLE OF CONTENTS
SUMMARY..................................................... 1
RISK FACTORS................................................ 18
Potential Adverse Effects of Combining the Companies...... 18
Decrease in Distributions Per Share to Merry Land
Shareholders........................................... 18
Possible Conflicts of Interest............................ 18
Reduction in Ownership and Voting......................... 19
Potential Change in Relative Share Prices................. 19
Termination Payments if Merger Fails to Occur............. 19
No Appraisal Rights Under Maryland or Georgia Law......... 19
Size and Rapid Growth of EQR.............................. 19
Consequences of Failure to Qualify as a REIT.............. 19
Investment by EQR in MRYP Newco........................... 20
MRYP NEWCO RISK FACTORS..................................... 20
No Prior Public Market; No Assurance of Value............. 20
Lack of Operating History as Separate Entity; Limited
Relevance of Historical Financial Information.......... 21
Substantial Indebtedness; Preferred Stock Obligations..... 21
Lack of Working Capital................................... 22
Absence of Distributions.................................. 23
Change in Business Strategy............................... 23
Lack of Geographic Diversity.............................. 23
Equity Financings May Not Be Successful................... 23
Conflicts of Interest of Common Directors................. 24
Nasdaq Maintenance Requirements; Possible Delisting of
MRYP Newco Common from Nasdaq;
▇▇▇▇▇ Stock Regulations................................ 24
Taxable Nature of the MRYP Newco Common Distribution...... 24
General Real Estate Risks................................. 24
Limits on Changes in Control.............................. 25
Uninsured Loss............................................ 26
Potential Environmental Liability Related to MRYP Newco
Properties............................................. 26
THE MEETINGS OF SHAREHOLDERS................................ 27
EQR....................................................... 27
Merry Land................................................ 27
THE MERGER.................................................. 29
Terms of the Merger....................................... 29
Background of the Merger.................................. 29
Advantages and Disadvantages of the Merger; Recommendation
of the EQR Board of Trustees........................... 32
Advantages and Disadvantages of the Merger; Recommendation
of the Merry Land Board of Directors................... 34
Opinion of Financial Advisor -- EQR....................... 36
Opinion of Financial Advisor -- Merry Land................ 40
Effective Time of the Merger and Closing Date............. 44
Representations and Warranties; Conditions to the
Merger................................................. 44
No Appraisal Rights....................................... 45
Regulatory Matters........................................ 46
Termination Provisions.................................... 46
Termination Fee and Expenses.............................. 47
No Solicitation of Other Transactions..................... 47
i
13
Conversion of Shares..................................................................................... 47
Appointment of Exchange Agent............................................................................ 48
Exchange of Certificates................................................................................. 48
Conduct of Business Pending the Merger................................................................... 49
Waiver and Amendment..................................................................................... 49
Stock Exchange Listing................................................................................... 49
Anticipated Accounting Treatment......................................................................... 50
Shares Available for Resale.............................................................................. 50
Contribution of Assets of Merry Land to ERP Operating Partnership........................................ 50
Alternative Merger Transactions.......................................................................... 50
Federal Income Tax Consequences of the Merger............................................................ 51
Qualification of EQR as a REIT........................................................................... 52
Tax Aspects of EQR's Investments in Partnerships......................................................... 56
Taxation of Shareholders................................................................................. 58
Federal Income Tax Consequences of the Alternative Merger Transactions................................... 62
Merry Land Employee Stock Ownership Plan................................................................. 64
INTERESTS OF CERTAIN PERSONS IN THE TRANSACTIONS........................................................... 65
Retention and Severance Program.......................................................................... 65
Stock Loans.............................................................................................. 66
Merry Land Options....................................................................................... 66
Excise Tax Gross-Up...................................................................................... 67
Agreements with EQR...................................................................................... 67
Agreements with MRYP Newco............................................................................... 67
POLICIES OF EQR WITH RESPECT TO CERTAIN ACTIVITIES......................................................... 68
Business Objectives and Operating Strategies............................................................. 68
Acquisition Strategies................................................................................... 68
Disposition Strategies................................................................................... 69
Investment Policies...................................................................................... 69
Financing Policies....................................................................................... 70
Lending Policies......................................................................................... 70
Development Policies..................................................................................... 70
Policies with Respect to Other Activities................................................................ 71
MANAGEMENT AND OPERATION OF EQR AFTER THE MERGER........................................................... 71
Management............................................................................................... 71
Anticipated Effects of the Merger on Results of Operations, Liquidity and Capital Resources.............. 71
PROPOSAL TO INCREASE AUTHORIZED SHARES OF EQR.............................................................. 72
COMPARISON OF RIGHTS OF SHAREHOLDERS....................................................................... 72
Authorized and Issued Shares............................................................................. 72
Special Meetings......................................................................................... 73
Amendment to Declaration, Articles and Bylaws............................................................ 73
Boards of Trustees/Directors............................................................................. 73
Mergers, Consolidations, and Sales of Substantially all Assets........................................... 74
Restrictions on the Ownership, Transfer or Issuance of Shares............................................ 75
Standard of Conduct for Directors and Trustees........................................................... 76
Board Committees......................................................................................... 76
Maryland Asset Requirements.............................................................................. 76
MERRY LAND PROPERTIES, INC................................................................................. 76
Description of Contribution and Distribution............................................................. 76
Business Objectives and Operating Strategies............................................................. 77
MRYP Newco Properties.................................................................................... 78
Certain Agreements between EQR and MRYP Newco............................................................ 80
ii
14
MRYP Newco Common Listing, Trading and Dividend Policy................................................... 83
MRYP Newco Capitalization................................................................................ 84
Management's Discussion and Analysis of Financial Condition and Results of Operations of MRYP Newco...... 84
Management............................................................................................... 88
Directors and Executive Officers......................................................................... 89
Executive Compensation................................................................................... 90
Principal Shareholders of MRYP Newco Common.............................................................. 90
Capital Stock of MRYP Newco.............................................................................. 91
Certain Provisions of Georgia Law and MRYP Newco's Articles and Bylaws................................... 92
MRYP Newco -- Federal Income Tax Consequences............................................................ 93
Environmental Matters.................................................................................... 96
POLICIES OF MRYP NEWCO WITH RESPECT TO CERTAIN ACTIVITIES.................................................. 96
Investment Policies...................................................................................... 97
Financing Policies....................................................................................... 97
Policies with Respect to Other Activities................................................................ 97
PROPOSAL TO APPROVE MRYP NEWCO'S 1998 MANAGEMENT INCENTIVE PLAN............................................ 97
Background............................................................................................... 97
Awards and Administration of Plan........................................................................ 98
Incentive Stock Options and Nonstatutory Stock Options................................................... 98
Reload Options........................................................................................... 100
Stock Loan Rights and Director Stock Loan Rights......................................................... 100
Dividend Rights.......................................................................................... 100
Restricted Stock Grants.................................................................................. 100
Certain Federal Income Tax Consequences.................................................................. 101
LEGAL MATTERS.............................................................................................. 102
EXPERTS.................................................................................................... 102
SHAREHOLDER PROPOSALS...................................................................................... 103
AUDITORS................................................................................................... 103
GLOSSARY................................................................................................... G-1
INDEX TO FINANCIAL STATEMENTS.............................................................................. F-1
APPENDIX A AGREEMENT AND PLAN OF MERGER AND FIRST AMENDMENT THERETO....................................... A-1
APPENDIX B ARTICLES OF MERGER............................................................................. B-1
APPENDIX C CERTIFICATE OF MERGER.......................................................................... C-1
APPENDIX D OPINION OF ▇▇ ▇▇▇▇▇▇ SECURITIES INC............................................................ D-1
APPENDIX E OPINION OF ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ & CO. INCORPORATED................................................... E-1
APPENDIX F MRYP NEWCO 1998 MANAGEMENT INCENTIVE PLAN...................................................... F-1
iii
15
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in the Summary and under captions "Risk Factors," "MRYP
Newco Risk Factors," "The Merger -- Advantages and Disadvantages of the Merger;
Recommendation of the EQR Board of Trustees" "-- Advantages and Disadvantages of
the Merger; Recommendation of the Merry Land Board of Directors," "-- Opinion of
Financial Advisor -- EQR" and "-- Opinion of Financial Advisor -- Merry Land"
and elsewhere in this Joint Proxy Statement/Prospectus/Information Statement
constitute "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995 (the "Reform Act"). Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors which may cause the actual results, performance or achievements of
EQR, Merry Land or MRYP Newco or industry results to be materially different
from any future results, performance or achievements expressed or implied by
such forward-looking statements. Such factors include, among others, the
following: general and local economic and business conditions, which will, among
other things, affect demand for multifamily properties, availability and credit
worthiness of prospective tenants; the availability of financing; adverse
changes in the real estate markets including, among other things, competition
with other companies, risks of real estate development and acquisition;
governmental actions and initiatives; environmental/safety requirements; ability
to achieve anticipated cost savings and operating efficiencies from the Merger;
and other changes and factors referenced in this Joint Proxy
Statement/Prospectus/Information Statement and the documents incorporated herein
by reference. With respect to MRYP Newco, such factors may also include: risks
of substantial indebtedness and lack of prior operating history. See "Risk
Factors" and "MRYP Newco Risk Factors."
SUMMARY
The following is a summary of certain information contained elsewhere in
this Joint Proxy Statement/ Prospectus/Information Statement. Reference is made
to, and this summary is qualified in its entirety by, the more detailed
information and financial statements contained in this Joint Proxy
Statement/Prospectus/ Information Statement, the Appendices hereto and the
documents incorporated by reference herein.
Certain capitalized terms used in this summary are defined in the Glossary
and elsewhere in this Joint Proxy Statement/Prospectus/Information Statement. As
used in this Joint Proxy Statement/Prospectus/ Information Statement, except
where the context requires otherwise, "EQR" means Equity Residential Properties
Trust, a Maryland real estate investment trust, and its subsidiaries, as the
survivor of the mergers between EQR and each of Wellsford Residential Property
Trust ("Wellsford") and ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ Residential, Inc. ("EWR") and each of
EQR, Wellsford and EWR as predecessors to EQR; "ERP Operating Partnership" means
ERP Operating Limited Partnership, an Illinois limited partnership of which EQR
is the general partner, and its subsidiaries; "Merry Land" means Merry Land &
Investment Company, Inc., a Georgia corporation, and its subsidiaries; and "MRYP
Newco" means Merry Land Properties, Inc., a Georgia corporation, and its
subsidiaries.
PARTIES TO THE MERGER
EQR. EQR, one of the largest publicly traded real estate investment trusts
("REIT") (based on the aggregate market value of its outstanding equity
capitalization), is a self-administered and self-managed equity REIT. EQR was
organized in March 1993 and commenced operations as a publicly traded company on
August 18, 1993 upon the completion of its initial public offering (the "EQR
IPO"). EQR was formed to continue the multifamily property business objectives
and acquisition strategies of certain affiliated entities controlled by Mr.
▇▇▇▇▇▇ ▇▇▇▇, Chairman of the Board of Trustees of EQR. These entities had been
engaged in the acquisition, ownership and operation of multifamily properties
since 1969. EQR's senior executives average over 24 years of experience in the
multifamily property business.
EQR is the largest owner of multifamily properties in the United States
(based on the number of apartment units owned and total revenues earned). As of
June 30, 1998, EQR owned or had interests in a portfolio of 520 multifamily
properties containing 148,568 apartment units and managed 9,295 additional units
owned by affiliated entities. As of June 30, 1998, the 520 properties EQR owned
or had interests in had an average occupancy rate of approximately 95.5%. These
properties are located in the following
16
35 states: Alabama, Arizona, Arkansas, California, Colorado, Connecticut,
Florida, Georgia, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Maine,
Maryland, Massachusetts, Michigan, Minnesota, Missouri, New Hampshire, New
Jersey, New Mexico, Nevada, North Carolina, Ohio, Oklahoma, Oregon, South
Carolina, Tennessee, Texas, Utah, Virginia, Washington and Wisconsin.
All of EQR's interests in its properties are held directly or indirectly
by, and substantially all of its operations relating to the properties are
conducted through, ERP Operating Partnership. EQR controls ERP Operating
Partnership as its sole general partner and, as of June 30, 1998, owned
approximately 91% of ERP Operating Partnership's outstanding partnership
interests (excluding preference units) ("OP Units"), which may be exchanged by
the holders thereof for either shares of EQR Common, on a one-for-one basis or,
at EQR's option, the cash equivalent thereof.
EQR's corporate headquarters and executive offices are located at ▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇, and its telephone number is
(▇▇▇) ▇▇▇-▇▇▇▇. In addition, EQR has 30 management offices in the following
cities: Chicago, Illinois; Denver, Colorado; Seattle, Tukwila and Redmond,
Washington; Bethesda, Maryland; Atlanta, Georgia; Las Vegas, Nevada; Scottsdale
and Tucson, Arizona; Portland, Oregon; Dallas, San Antonio and Houston, Texas;
Irvine, Pleasant Hill and Stockton, California; Ypsilanti, Michigan; Charlotte
and Raleigh, North Carolina; Tampa, Jacksonville and Ft. Lauderdale, Florida;
Minneapolis, Minnesota; Louisville, Kentucky; Tulsa, Oklahoma; Boston,
Massachusetts; Nashville and Memphis, Tennessee; and Kansas City, Kansas.
Merry Land. Merry Land is a self-administered and self-managed equity REIT
and is one of the largest owners of garden apartments in the United States
(based on the number of apartments owned and total revenue earned). At June 30,
1998, Merry Land had a total market capitalization of $2.0 billion and owned a
portfolio of 118 apartment communities, containing 33,435 units geographically
diversified throughout the southern United States. The communities are located
in nine states, extending from the Washington, D.C. area to Texas and Florida,
with 40.8% of Merry Land's assets located in Florida, 22.7% in Texas, and 36.5%
in other southern states, based on cost. Merry Land also has 2,560 units under
development or construction. Merry Land completed its initial public offering in
1981 (the "Merry Land IPO") and elected REIT tax status in 1987. Merry Land's
apartment communities are located in 27 metropolitan areas, each with a
population in excess of 250,000 and at June 30, 1998, no metropolitan area
contained more than 13% of Merry Land's portfolio.
Merry Land is headquartered at ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇,
and its telephone number is (▇▇▇) ▇▇▇-▇▇▇▇. In addition, Merry Land maintains
area management offices in Charlotte, North Carolina; Atlanta, Georgia; Orlando,
Florida; and Dallas, Texas.
THE SPIN-OFF
Prior to the Merger, Merry Land will contribute certain of its assets,
including five apartment properties, four apartment development sites, five
commercial properties, six commercial sites and 4,816 acres of undeveloped land
(collectively the "MRYP Newco Properties") to MRYP Newco and MRYP Newco will
assume certain obligations of Merry Land. The MRYP Newco Common will be
distributed to the holders of Merry Land Common immediately prior to the
consummation of the Merger. The Contribution and the Distribution are not
subject to approval by the shareholders of Merry Land. The Distribution will be
subject to income tax under Section 301 of the Code. Each holder of Merry Land
Common will receive one share of MRYP Newco Common for each 20 shares of Merry
Land Common held. After the Merger, MRYP Newco will operate as a separate
company and will focus on local management of real estate assets in the coastal
areas of the South. MRYP Newco will also supervise the completion of the
development of certain projects initiated by Merry Land which will be owned by
EQR after the Merger. See "Merry Land Properties, Inc."
No shares of MRYP Newco Common will be distributed to EQR Common
Shareholders. EQR Common Shareholders will participate indirectly in MRYP Newco
through the interests of ERP Operating Partnership in MRYP Newco as described
under "Merry Land Properties, Inc. -- Certain Agreements between ERP Operating
Partnership and MRYP Newco."
2
17
SUMMARY RISK FACTORS
In considering whether to approve the Merger, the shareholders of EQR and
Merry Land should consider, in addition to the other information in this Joint
Proxy Statement/Prospectus/Information Statement, the matters discussed under
"Risk Factors." Such matters include:
- There can be no assurance that costs or other factors associated with the
integration of EQR and Merry Land would not adversely affect future
combined results of operations or the benefits of expected costs savings.
- The distribution declared on the Merry Land Common for each of the first
two quarters of 1998 was $0.41 per share and the distribution declared on
the EQR Share Equivalent was $0.355 for each such quarter. There can be
no assurance that EQR will make distributions or, if distributions are
made, that they will be equal to or in excess of those historically paid
to shareholders of EQR.
- Possible conflicts of interest arising from benefits to certain directors
and officers of Merry Land to be received at the Effective Time.
- Upon consummation of the Merger, Merry Land Common Shareholders will own
approximately 18% of the EQR Common and will not have separate approval
rights with respect to any actions or decisions of EQR.
- Possible changes in the share prices of EQR Common and Merry Land Common,
including (a) a potential change in the relative prices of EQR Common and
Merry Land Common prior to the Effective Time and (b) a possible
reduction in the market price of EQR Common prior to or following the
Merger.
- Possible payment of liquidated damages and expenses: the Merger Agreement
provides for a "Break-Up Fee" of $45 million (the "Break-Up Fee") plus
"Break-Up Expenses" of up to $5 million (the "Break-Up Expenses") payable
by Merry Land to EQR if the Merger Agreement is terminated by either EQR
or Merry Land under certain circumstances or, in certain cases, within
one year after a termination, Merry Land enters into an agreement
regarding an "Acquisition Proposal" (as defined herein in "The
Merger -- Termination Provisions") which is consummated. If the Merger
Agreement is terminated by either EQR or Merry Land under certain other
circumstances, either EQR or Merry Land will be required to pay the other
party's Break-Up Expenses of up to $5 million.
- Shareholders of EQR and Merry Land do not have appraisal rights in
connection with the Merger under Maryland or Georgia law.
SUMMARY OF MRYP NEWCO RISK FACTORS
In addition to the general investment and real estate risks and those
factors set forth elsewhere in this Joint Proxy Statement/Prospectus/Information
Statement under "MRYP Newco Risk Factors" Merry Land Common Shareholders should
be aware of, among other things, the following factors:
- Prior to the consummation of the transactions described herein, there has
been no public market for MRYP Newco Common. Although an application has
been made to have the MRYP Newco Common listed on Nasdaq, there can be no
assurance that MRYP Newco will obtain approval for listing. In addition,
there can be no assurance that an active trading market will develop or
if such market does develop, be sustained for the MRYP Newco Common.
- MRYP Newco does not have an operating history as a separate company. The
historical and pro forma results for MRYP Newco contained elsewhere in
this Joint Proxy Statement/Prospectus/Information Statement include
certain non-recurring income items and may not be indicative of its
results for future periods.
- Upon consummation of the Transactions, MRYP Newco will have substantial
indebtedness and debt service obligations. In addition, under the terms
of the MRYP Newco preferred stock which will be held by EQR (the "MRYP
Newco Preferred"), MRYP Newco will be required to pay dividends of at
3
18
least $400,000 per annum on a quarterly basis. On a pro forma basis,
MRYP Newco's total indebtedness of approximately $38.3 million would
represent approximately 75% of its total capitalization as of June 30,
1998, and its total indebtedness plus $5,000,000 in liquidation value
of the MRYP Newco Preferred would represent approximately 85% of its
total capitalization as of June 30, 1998.
- There is no assurance that MRYP Newco will have the working capital or
adequate financing in the foreseeable future to execute its business
plan. The failure by MRYP Newco to obtain adequate working capital or
other financing may have a material adverse effect on MRYP Newco's
business, financial condition and results of operations.
- MRYP Newco is organized as a C corporation and not as a REIT. MRYP Newco
does not anticipate paying distributions to common shareholders for the
foreseeable future.
TERMS OF THE MERGER
The Merger Agreement provides that, upon satisfaction or waiver of the
conditions set forth therein, Merry Land will be merged into EQR. The EQR Board
of Trustees and Merry Land Board of Directors have each approved the Merger as
set forth in the Merger Agreement. Upon consummation of the Merger (the
"Effective Time"), each outstanding share of Merry Land Common will be converted
into 0.53 (the "Exchange Ratio") of a share of EQR Common, except for any shares
of Merry Land Common owned by EQR, which will be canceled as of the Effective
Time. At the Effective Time, each outstanding share of Merry Land preferred
stock ("Merry Land Preferred") will be converted into one preferred share of EQR
having the same preferences and other terms as the same series of Merry Land
Preferred previously outstanding; provided, however, the conversion ratio for
each of the Merry Land Series A, Merry Land $2.205 Series B Cumulative
Convertible Preferred Stock ("Merry Land Series B"), and Merry Land Series C
will be adjusted in accordance with its terms. See "The Merger -- Terms of the
Merger."
4
19
PRE-MERGER STRUCTURE
EQR Common Merry Land Common
Shareholders Shareholders
| |
| |
| |
| |
| |
Equity Residential Merry Land &
Properties Trust Investment Company,
| Inc.
| |
General Partner | |
(91%*) | |
| |
| |
| |
| |
| |
| |
| |
| Limited Partners |
| / (9%*) |
| / |
ERP Operating |
Partnership |
| |
| |
| |
| |
| |
| |
148,568 Apartment Units* 35,995 Apartment Units**
-------------------------
* As of June 30, 1998.
** Includes 2,560 units under development or construction at June 30, 1998.
5
20
MERGER TRANSACTIONS
EQR Common Merry Land Common
Shareholders Shareholders
| |
| |
| |
| | (3)
| |
| |
| |
Equity Residential Merry Land &
Properties Trust _______________________ Investment
| | (4) Company, Inc.
| | |
| | |
| | |
| |(5) | (1)(2)
| | |
| | |
ERP Operating MRYP Newco
Partnership
(1) Merry Land forms MRYP Newco.
(2) Merry Land and MRYP Newco effectuate the Contribution.
(3) Merry Land effectuates the Distribution.
(4) Merry Land merges with and into EQR.
(5) EQR contributes the Merry Land properties and all liabilities, including
senior unsecured debt, to ERP Operating Partnership in exchange for OP
Units.
-------------------------
Alternative Transaction: In the event EQR and Merry Land receive a favorable tax
determination, in lieu of steps 4 & 5 above, (i) Merry Land will form a
wholly-owned corporate subsidiary, Merry Land Merger Subsidiary, Inc. ("Merry
Land Merger Subsidiary"), (ii) Merry Land Merger Subsidiary will form a wholly-
owned limited liability company ("Merry Land LLC"), (iii) Merry Land will merge
with and into the Merry Land LLC, with the shareholders of Merry Land receiving
shares of stock in Merry Land Merger Subsidiary, (iv) Merry Land Merger
Subsidiary will merge into EQR and (v) EQR will contribute the interests of
Merry Land LLC to ERP Operating Partnership. See "The Alternative Merger
Transaction."
6
21
POST-MERGER STRUCTURE
EQR Common Former Merry Land
Shareholders Common Shareholders
| | |
| | |
| | |
Equity Residential______________| MRYP Newco
Properties Trust |
General Partner | |
(92%*) | |
| $51,653,355 in Assets**
|
|
|
Limited Partners |
(8%*) |
| |
|__________ERP Operating
Partnership
|
|
|
183,558 Apartment Units*+
-------------------------
* Pro forma as of June 30, 1998.
** Pro forma book value of total assets as of June 30, 1998, including 1,004
apartment units.
+ Includes 2,560 Merry Land units under development or construction at June 30,
1998.
7
22
ADVANTAGES AND DISADVANTAGES OF THE MERGER; RECOMMENDATIONS OF THE BOARDS
The EQR Board of Trustees believes that the Merger, including the
consideration to be paid by EQR, is fair to, and in the best interests of, EQR
and its shareholders. THE EQR TRUSTEES WHO VOTED ON THE MERGER UNANIMOUSLY
APPROVED THE MERGER AND UNANIMOUSLY RECOMMEND THAT THE EQR COMMON SHAREHOLDERS
VOTE FOR THE MERGER. The EQR Board of Trustees considered certain potentially
negative factors which could arise from the Merger. These included (i) the
significant costs involved in connection with consummating the Merger, (ii) the
increase in the outstanding debt of EQR, (iii) the risk that the anticipated
benefits of the Merger might not be fully realized, and (iv) the ability of EQR
to manage approximately 34,990 additional apartment units (including 2,560 units
under development and construction). The favorable factors the EQR Board of
Trustees considered in reaching the foregoing conclusions were its beliefs that
(i) the Merger would solidify EQR's leadership position in the multifamily
property industry and as one of the largest publicly traded REITs (based on the
aggregate market value of its outstanding equity capitalization), (ii) the
Merger would increase EQR's market capitalization to approximately $12 billion
as of June 30, 1998, (iii) the Merger would provide greater access to the public
equity and debt markets, (iv) the Merger would increase operating efficiencies
through economies of scale, (v) the combination of the Merry Land properties
with those of EQR would expand the geographic focus of EQR's operations in the
southern United States, (vi) EQR would be a larger and financially stronger
company, which would make it easier to combine with other entities, (vii) the
Merger could be effectuated through the issuance of shares of equity to
shareholders in the Merger rather than through the use of cash or a separate
public offering of equity or debt securities, and (viii) the Merger would be
tax-free. The EQR Board of Trustees also received the written opinion, dated
July 8, 1998, of ▇.▇. ▇▇▇▇▇▇ Securities Inc. ("▇.▇. ▇▇▇▇▇▇") to the effect that,
as of such date and based upon and subject to certain matters stated therein,
the consideration to be paid by EQR in connection with the Merger was fair, from
a financial point of view, to EQR. See "The Merger -- Advantages and
Disadvantages of the Merger; Recommendation of the EQR Board of Trustees" and
"-- Opinion of Financial Advisor -- EQR."
The Merry Land Board of Directors believes that the Merger is fair to, and
in the best interests of, Merry Land and its shareholders. BY UNANIMOUS VOTE,
THE MERRY LAND BOARD OF DIRECTORS APPROVED THE MERGER AND THE TRANSACTIONS
CONTEMPLATED THEREBY, AND UNANIMOUSLY RECOMMEND THAT THE MERRY LAND COMMON
SHAREHOLDERS VOTE FOR THE MERGER. Although Merry Land Common Shareholders are
not being asked to approve the Spin-Off, approval of the Merger will, in effect,
constitute approval of the Spin-Off. The Board of Directors reached its decision
after careful consideration of a wide variety of factors, including certain
potentially negative factors. These negative factors consisted of the following:
(i) the risk that the anticipated benefits of the Merger might not be fully
realized; (ii) the significant costs involved in connection with consummating
the Merger; (iii) the fixed exchange ratio and the risk that the value of the
consideration to be received could decline; (iv) the risk that the perceived
benefits of MRYP Newco may not be realized; (v) the substantial management time
and effort required to effectuate the Merger; (vi) the possibility that Merry
Land may be required, if the Merger Agreement is terminated under certain
circumstances, to pay EQR a Break-Up Fee of $45 million and to reimburse EQR
Break-Up Expenses of up to $5 million; and (vii) the current dividend rate
payable with respect to the EQR Share Equivalent is less than the current
dividend rate payable with respect to the Merry Land Common.
In making its determination with respect to the Merger and the Spin-Off,
the Merry Land Board of Directors also considered, among other things, the
following advantages: (i) the Merger would afford Merry Land shareholders a
significant participation in a much larger and more geographically diversified
REIT with greater potential for long-term appreciation and improved access to
capital markets; (ii) the market capitalization of EQR following the Merger was
expected to be approximately $10 billion greater than the current market
capitalization of Merry Land as of June 30, 1998; (iii) the Distribution will
allow shareholders of Merry Land to separately participate in the value of the
MRYP Newco Properties; (iv) the "stock-for-stock" structure of the Merger will
allow the shareholders of Merry Land to participate in any future appreciation
of EQR; (v) the fixed exchange ratio and the possibility that the value of the
consideration to be received could increase; and (vi) the Merger would be
tax-free. The Merry Land Board of Directors also received and considered the
written opinion of ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ & Co. Incorporated ("▇▇▇▇▇▇ ▇▇▇▇▇▇▇"), dated
July 8, 1998, to the effect that, as of such date and based upon and subject to
certain assumptions and
8
23
considerations, the EQR Common and MRYP Newco Common to be received by Merry
Land Common Shareholders pursuant to the Merger Agreement (the "Merger
Consideration") was fair to such shareholders from a financial point of view.
See "The Merger -- Opinion of Financial Advisor -- Merry Land."
OPINIONS OF FINANCIAL ADVISORS
EQR. At the meeting of the Board of Trustees of EQR on July 8, 1998, ▇.▇.
▇▇▇▇▇▇ rendered its oral opinion to the Board of Trustees of EQR, and
subsequently on such date ▇.▇. ▇▇▇▇▇▇ delivered its written opinion, that, as of
such date, and based upon the assumptions made, matters considered and
limitations on the review undertaken by ▇.▇. ▇▇▇▇▇▇ in rendering its opinion,
the consideration to be paid by EQR in connection with the proposed Merger was
fair from a financial point of view to EQR. No limitations were imposed by ▇▇▇'s
Board of Trustees upon ▇.▇. ▇▇▇▇▇▇ with respect to the investigations made or
procedures followed by it in rendering its opinions. See "The Merger -- Opinion
of Financial Advisor -- EQR." ▇.▇. ▇▇▇▇▇▇'▇ written opinion is attached as
Appendix D to this Joint Proxy Statement/Prospectus/Information Statement. EQR
Common Shareholders are urged to read the written opinion of ▇.▇. ▇▇▇▇▇▇
carefully and in its entirety.
Merry Land. At the meeting of the Merry Land Board of Directors on July 8,
1998, ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ rendered its oral opinion to the Merry Land Board of
Directors, and subsequently on such date ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ delivered its written
opinion, that, as of such date and based upon and subject to the assumptions
made, matters considered and limits of review, as set forth in such opinion, the
Merger Consideration to be received by the Merry Land Common Shareholders
pursuant to the Merger Agreement was fair from a financial point of view to such
shareholders. No limitations were imposed by ▇▇▇▇▇ ▇▇▇▇'s Board of Directors
upon ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ with respect to the investigations made or procedures
followed by it in rendering its opinions. See "The Merger -- Opinion of
Financial Advisor -- Merry Land." ▇▇▇▇▇▇ ▇▇▇▇▇▇▇'▇ written opinion is attached
as Appendix E to this Joint Proxy Statement/Prospectus/Information Statement.
Merry Land Common Shareholders are urged to read the written opinion of ▇▇▇▇▇▇
▇▇▇▇▇▇▇ carefully and in its entirety.
INTERESTS OF CERTAIN PERSONS
In considering whether to approve the Merger, shareholders should be aware
that certain members of the management of Merry Land and the Merry Land Board of
Directors have interests that arise in connection with the Merger and the
Spin-Off that are in addition to the interests of shareholders of Merry Land
generally. The Merry Land Board of Directors considered these interests and
deliberated upon any resulting conflicts of interest in connection with its
unanimous approval of the Merger and Spin-Off and the benefits thereof to the
shareholders of Merry Land. See "Interests of Certain Persons in the
Transactions."
EFFECTIVE TIME OF THE MERGER AND CLOSING DATE
The closing ("Closing") of the Merger will take place at 10:00 a.m. (local
time) on the date to be specified by EQR and Merry Land, which will be no later
than the third business day after satisfaction or waiver of the conditions set
forth in the Merger Agreement (the "Closing Date"), at the offices of ▇▇▇▇▇▇▇ &
▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇, unless another date or
place is agreed to in writing by the parties. The Merger will become effective
upon the latest of (i) the acceptance for record of the Articles of ▇▇▇▇▇▇ (the
"Articles") by the State Department of Assessments and Taxation of Maryland (the
"Department"), (ii) the endorsement of the Certificate of Merger (the
"Certificate") filed with Secretary of State of Georgia (the "Secretary") or
(iii) the time specified in the Articles and Certificate. It is currently
anticipated that the Merger will be effective on or about October 15, 1998.
CONDITIONS TO THE MERGER
The obligations of EQR and Merry Land to consummate the Merger are subject
to the satisfaction or waiver of certain conditions, including, among others,
(i) obtaining the requisite approval of the EQR Common Shareholders and Merry
Land Common Shareholders, (ii) the absence of any material adverse
9
24
change in the financial condition, business or operations of Merry Land or EQR,
(iii) the receipt of certain legal opinions, including opinions with respect to
the tax consequences of the Merger, (iv) the receipt of all material consents,
authorizations, orders and approvals of governmental agencies and third parties,
(v) the consummation of certain transactions by and between EQR, ERP Operating
Partnership, Merry Land and MRYP Newco, (vi) the execution of certain agreements
between each of Merry Land and EQR and their respective affiliates, and (vii)
the consummation of the Distribution. EQR and Merry Land each have the right to
waive any conditions to their respective obligations to consummate the Merger.
See "The Merger -- Representations and Warranties; Conditions to the Merger."
NO APPRAISAL RIGHTS
Neither the EQR Common Shareholders nor the Merry Land Common Shareholders
are entitled to dissenting shareholders' appraisal rights in connection with the
Merger. See "The Merger -- No Appraisal Rights."
FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
▇▇▇▇▇▇▇ & ▇▇▇▇▇, special counsel to EQR in connection with the Merger, has
rendered an opinion to EQR that on the basis of the facts, representations and
assumptions set forth in such opinion, the Merger will constitute a
reorganization within the meaning of Section 368(a) of the Internal Revenue Code
of 1986, as amended (the "Code"), and EQR and Merry Land will each be a party to
such reorganization within the meaning of Section 368(b) of the Code.
▇▇▇▇▇ & ▇▇▇▇▇▇▇ L.L.P., special counsel to Merry Land in connection with
the Merger, has rendered an opinion to Merry Land that on the basis of the
facts, representations and assumptions set forth in such opinion, the Merger
will constitute a reorganization within the meaning of Section 368(a) of the
Code. For a more detailed discussion of the material United States Federal
income tax consequences of the Merger and certain other matters related thereto,
see "The Merger -- Federal Income Tax Consequences of the Merger."
TERMINATION
The Merger Agreement provides that it may be terminated in a number of
circumstances at any time prior to the Effective Time, whether before or after
the approval of the Merger by the EQR Common Shareholders and/or Merry Land
Common Shareholders. See "The Merger -- Termination Provisions."
TERMINATION FEES
Depending on the reason for the Merger Agreement's termination, Merry Land
may be required to pay EQR the Break-Up Fee and/or the Break-Up Expenses, or EQR
may be required to pay Merry Land the Break-Up Expenses. See "The
Merger -- Termination Fee and Expenses."
ANTICIPATED ACCOUNTING TREATMENT
The Merger will be treated as a purchase in accordance with Accounting
Principles Board Opinion No. 16.
NO SOLICITATION OF OTHER TRANSACTIONS
Merry Land has agreed that prior to the Effective Time it will not
initiate, solicit or encourage, directly or indirectly, any inquiries or the
making or implementation of any proposal or offer (including, without
limitation, any proposal or offer to its shareholders) with respect to an
Acquisition Proposal. Merry Land has also agreed to use its best efforts to
prevent its officers, directors, employees, agents or financial advisors from
engaging in any of the foregoing activities. The Merger Agreement does not,
however, prohibit Merry Land
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25
from entering into discussions with respect to an unsolicited Acquisition
Proposal if the Merry Land Board of Directors determines that such action is
required by its duties to its shareholders as imposed by law.
CONVERSION OF SHARES; EXCHANGE OF CERTIFICATES
Each share of Merry Land Common outstanding immediately prior to the
Effective Time will be converted into 0.53 of a share of validly issued, fully
paid and nonassessable EQR Common, except for any shares of Merry Land Common
owned by EQR, which will be canceled as of the Effective Time. Each share of
Merry Land Preferred outstanding immediately prior to the Effective Time will be
converted into one validly issued, fully paid and nonassessable EQR Preferred
Share, with all the preferences, rights and powers that each share previously
had as preferred shares issued by Merry Land and will rank pari passu with each
other outstanding class of EQR Preferred; provided, however, that the conversion
ratio relating to each of the Merry Land Series A, Merry Land Series B and Merry
Land Series C shares will be adjusted in accordance with their respective terms.
It is expected that as a result of this adjustment, the conversion rate for each
of the Merry Land Series A, Merry Land Series B and Merry Land Series C shares
will be adjusted upward to account for the Distribution and subsequently
adjusted for the 0.53 Merry Land Common exchange rate. As a result, the
conversion rate of the Merry Land Series A, Merry Land Series B, and Merry Land
Series C will be multiplied by approximately 0.54.
All shares of Merry Land Common, when converted pursuant to the Merger,
will no longer be outstanding and will automatically be canceled and retired and
each holder of a certificate representing Merry Land Common will cease to have
any rights with respect thereto, except the right to receive shares of EQR
Common, and cash in lieu of any fractional shares of EQR Common, as well as any
distributions declared with respect thereto with a record date after the
Effective Time. At the Effective Time, each certificate representing outstanding
shares of Merry Land Preferred will cease to have any rights with respect to
such shares, except the right to receive a certificate representing an equal
number of EQR Preferred. Merry Land shareholders should not tender their
certificates for Merry Land Shares with their proxy. As promptly as practicable
after the Effective Time, Boston EquiServe LP, an affiliate of BankBoston, N.A.,
as the exchange agent ("Exchange Agent"), will mail to the shareholders of Merry
Land transmittal materials for use in exchanging certificates evidencing Merry
Land Common and Merry Land Preferred ("Merry Land Shares") for certificates
evidencing EQR Shares. See "The Merger -- Exchange of Certificates."
ALTERNATIVE MERGER TRANSACTIONS
In the event Merry Land and EQR receive a favorable determination from the
Internal Revenue Service, as an alternative merger structure Merry Land will
merge with and into Merry Land LLC, a newly formed limited liability company,
with the shareholders of Merry Land receiving shares of stock of Merry Land
Merger Subsidiary, a newly formed corporate subsidiary of Merry Land. Merry Land
Merger Subsidiary would then own all of the equity interests in Merry Land LLC.
The Merry Land Merger Subsidiary would then merge with and into EQR, with each
outstanding share of common stock of Merry Land Merger Subsidiary being
converted into 0.53 of a share of EQR Common. Approval by the shareholders of
EQR and Merry Land of the Merger will include approval of the alternative merger
transactions.
THE INCREASE
The EQR Common Shareholders are being requested to separately vote on the
Increase, which will be adopted as part of the Merger and will increase the
total number of authorized shares of beneficial interest of EQR from 300,000,000
to 450,000,000 and increase the number of authorized shares of EQR Common from
200,000,000 to 350,000,000. The Increase will provide EQR with added flexibility
to react to market opportunities and conditions. Approval of the Increase
requires the affirmative vote of a majority of the votes cast on the matter by
EQR Common Shareholders at the EQR Special Meeting, provided a quorum is
present. The approval of the Merger is not conditioned upon the approval of the
Increase by the EQR Common Shareholders. In the event that the Merger is
approved by the EQR Common Shareholders, but the Increase is not approved by the
EQR Common Shareholders, the number of authorized shares of EQR Common will
remain at 200,000,000. See "Proposal to Increase Authorized Shares of EQR."
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THE MEETINGS OF SHAREHOLDERS
EQR
The EQR Special Meeting has been called to consider and vote on the
approval of the Merger and the Increase. The EQR Special Meeting will be held on
October 15, 1998 at 10.00 a.m., local time, at One North Franklin, Chicago,
Illinois. Only holders of record of EQR Common at the close of business on
September 9, 1998 will be entitled to vote at the EQR Special Meeting. Each EQR
Common Shareholder is entitled to one vote per share on the Merger and the
Increase, as proposed in the notice of the EQR Special Meeting. EQR had
outstanding 96,867,823 shares of EQR Common as of the close of business on
September 1, 1998, of which 1,256,639 shares (or approximately 1.3% of the
outstanding shares of EQR Common) (excluding 79,893 shares where beneficial
ownership is disclaimed) were owned beneficially by the officers and trustees of
EQR, and such persons have indicated their intention to vote such shares in
favor of each of the proposals. Approval of the Merger requires the affirmative
vote of a majority of the holders of the outstanding shares of EQR Common.
Approval of the Increase is subject to the affirmative vote of a majority of the
votes cast on the matter by EQR Common Shareholders at the EQR Special Meeting,
provided a quorum is present. EQR Common Shareholders may revoke their proxies
at any time prior to the voting thereof by giving written notice of such
revocation to EQR, by executing and delivering a proxy bearing a later date, or
by attending the EQR Special Meeting and voting in person.
Merry Land
The Merry Land Special Meeting has been called to consider and vote on the
approval of (i) the Merger and (ii) the adoption of MRYP Newco's 1998 Management
Incentive Plan. The Merry Land Special Meeting will be held on October 15, 1998,
at 10.00 a.m., local time, at Fort Discovery, ▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇. Only holders of record of Merry Land Common at the close of business on
September 9, 1998 will be entitled to notice of and to vote at the Merry Land
Special Meeting. Each Merry Land Common Shareholder is entitled to one vote per
share of Merry Land Common as proposed in the notice of the Merry Land Special
Meeting. Merry Land had 43,016,898 shares of Merry Land Common outstanding as of
the close of business on September 1, 1998. 1,903,629 shares (or approximately
4.4% of the outstanding shares of Merry Land Common) (excluding 2,689,479 shares
where beneficial ownership is disclaimed) were owned beneficially by the
officers and directors of Merry Land, and such persons have indicated their
intention to vote such shares in favor of the Merger and MRYP Newco's 1998
Management Incentive Plan. In addition, EQR owns 1,701,100 shares of Merry Land
Common (or approximately 4.0% of the outstanding shares of Merry Land Common)
and intends to vote such shares in favor of the Merger and MRYP Newco's 1998
Management Incentive Plan. Approval of the Merger requires the affirmative vote
of Merry Land Common Shareholders owning a majority of the outstanding Merry
Land Common. Approval of MRYP Newco's 1998 Management Incentive Plan requires
the affirmative vote of a majority of votes cast by holders of the outstanding
shares of Merry Land Common at the Merry Land Special Meeting. Merry Land Common
Shareholders may revoke their proxies at any time prior to the voting thereof by
giving written notice of such revocation to Merry Land, by executing and
delivering a proxy bearing a later date, or by attending the Merry Land Special
Meeting and voting in person.
EQR SUMMARY HISTORICAL FINANCIAL DATA AND SUMMARY UNAUDITED PRO FORMA COMBINED
FINANCIAL DATA
The following tables set forth the summary historical financial data for
EQR as of June 30, 1998 and for the six-month periods ended June 30, 1998 and
1997 and the summary unaudited pro forma combined financial data for EQR as of
June 30, 1998 and for the six-month period then ended and for the year ended
December 31, 1997.
The summary unaudited pro forma combined financial data for EQR gives
effect to the Merger as if it had occurred on the dates indicated herein, after
giving effect to the pro forma adjustments described in the notes to the
unaudited pro forma combined financial statements included elsewhere in this
Joint Proxy Statement/Prospectus/Information Statement.
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The summary unaudited pro forma combined operating data is presented as if
the Merger had been consummated at the beginning of the period presented.
The summary unaudited pro forma combined balance sheet is presented as if
the Merger had occurred on June 30, 1998. The Merger has been accounted for
under the purchase method of accounting in accordance with Accounting Principles
Board Opinion No. 16. In the opinion of management, all significant adjustments
necessary to reflect the effects of the Merger have been made.
The summary unaudited pro forma combined financial data for EQR also gives
effect to certain other acquisition transactions, property purchases, borrowings
and securities offerings occurring during the relevant periods, as further
described in the unaudited pro forma combined financial statements and notes
thereto included elsewhere in this Joint Proxy Statement/Prospectus/Information
Statement.
The summary unaudited pro forma combined financial information should be
read in conjunction with, and is qualified in its entirety by, the respective
historical financial statements and notes thereto of EQR and Merry Land
incorporated by reference into this Joint Proxy Statement/Prospectus/Information
Statement and the unaudited pro forma combined financial statements and notes
thereto included elsewhere in this Joint Proxy Statement/Prospectus/Information
Statement.
The summary unaudited pro forma combined operating and balance sheet data
are presented for comparative purposes only and are not necessarily indicative
of what the actual combined results of EQR and Merry Land would have been for
the periods and dates presented, nor does such data purport to represent the
results of future periods.
EQUITY RESIDENTIAL PROPERTIES TRUST
HISTORICAL SIX HISTORICAL SIX PRO FORMA SIX PRO FORMA
MONTHS ENDED MONTHS ENDED MONTHS ENDED YEAR ENDED
JUNE 30, 1998 JUNE 30, 1997 JUNE 30, 1998 DECEMBER 31, 1997
-------------- -------------- ------------- -----------------
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
OPERATING DATA:
Total revenues............................. $ 593,391 $ 306,324 $ 782,608 $1,482,882
========== ========== =========== ==========
Income before gain on disposition of
properties, extraordinary items and
allocation to Minority Interests......... $ 122,540 $ 71,384 $ 147,924 $ 250,519
========== ========== =========== ==========
Net income................................. $ 125,322 $ 68,671 $ 150,429 $ 253,664
========== ========== =========== ==========
Net income available to Common Shares...... $ 81,938 $ 47,732 $ 91,655 $ 136,014
========== ========== =========== ==========
Net income per weighted average Common
Share outstanding........................ $ 0.86 $ 0.86 $ 0.77 $ 1.15
========== ========== =========== ==========
Net income per weighted average Common
Share outstanding -- assuming dilution... $ 0.85 $ 0.85 $ 0.75 $ 1.14
========== ========== =========== ==========
Weighted average Common Shares
outstanding.............................. 95,394 55,385 119,222 118,228
========== ========== =========== ==========
Weighted average Common Shares
outstanding -- assuming dilution......... 106,195 63,708 133,089 130,146
========== ========== =========== ==========
Distributions declared per Common Share
outstanding.............................. $ 1.34 $ 1.25
========== ==========
BALANCE SHEET DATA (at end of period):
Real estate, before accumulated
depreciation........................... $7,968,121 $4,482,434
Real estate, after accumulated
depreciation........................... $7,394,762 $4,124,835 $10,237,826
Total assets............................. $8,000,039 $4,738,734 $10,597,405
Total debt............................... $3,378,860 $1,715,387 $ 4,409,698
Minority Interests....................... $ 290,770 $ 179,222 $ 366,124
Shareholders' Equity..................... $4,051,002 $2,662,684 $ 5,510,153
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COMPARATIVE PER SHARE DATA
The following summary presents selected comparative unaudited per share
information for EQR and Merry Land on an historical basis and on a pro forma
combined basis assuming the Merger and certain other acquisition transactions,
property purchases, borrowings and securities offerings had been effective
throughout the periods presented. Merry Land pro forma equivalent per share
amounts are presented with respect to pro forma information. Such per share
amounts allow comparison of historical information with respect to the value of
one share of Merry Land Common to the corresponding information with respect to
the projected value of one share of EQR Common as a result of the Merger by
multiplying the pro forma amounts by the Exchange Ratio. Net Income Per Common
Share is presented assuming dilution giving effect to the Statement of Financial
Accounting Standard No. 128 "Earnings Per Share."
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1998 DECEMBER 31, 1997
---------------- -----------------
NET INCOME PER COMMON SHARE
EQR......................................................... $ .85 $ 1.76
Merry Land.................................................. .45 1.10
EQR pro forma combined(A)(B)................................ .75 1.14
Merry Land pro forma equivalent(C).......................... .40 .60
CASH DISTRIBUTION DECLARED PER COMMON SHARE
EQR......................................................... $ 1.34 $ 2.55
Merry Land.................................................. .82 1.56
EQR pro forma combined...................................... 1.34 2.55
Merry Land pro forma equivalent(C).......................... .71 1.35
SHAREHOLDERS' EQUITY PER COMMON SHARE
EQR......................................................... $41.39 $41.42
Merry Land.................................................. 22.40 20.35
EQR pro forma combined(A)(B)................................ 46.02 N/A
Merry Land pro forma equivalent(C).......................... 24.39 N/A
-------------------------
(A) The pro forma combined Net Income Per Common Share and Shareholders' Equity
Per Common Share data for EQR has been prepared assuming that in the Merger
each share of Merry Land Common is converted into 0.53 of a share of EQR
Common resulting in total weighted average outstanding shares -- assuming
dilution of EQR Common of 130.1 million and 133.1 million for the year ended
December 31, 1997 and for the six months ended June 30, 1998, respectively.
For the Shareholder's Equity Per Common Share data, total outstanding shares
were 119,743,000 for the six months ended June 30, 1998.
(B) The pro forma combined Net Income Per Common Share and Shareholders' Equity
Per Common Share data for EQR also gives effect to certain other acquisition
transactions, property purchases, borrowings and securities offerings
occurring during the relevant periods, as further described in the unaudited
pro forma combined financial statements and notes thereto included elsewhere
in this Joint Proxy Statement/Prospectus/Information Statement.
(C) The Merry Land pro forma equivalent is determined by multiplying the
Exchange Ratio by the EQR pro forma combined per share amounts so that the
per share amounts are equated to the comparative values for each share of
Merry Land Common.
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COMPARATIVE SHARE PRICES
EQR
The EQR Common has traded on the NYSE under the symbol "EQR" since August
11, 1993. The following table sets forth the quarterly high and low sales prices
per share of EQR Common reported on the NYSE, as well as the quarterly
distributions declared per share of EQR Common, from January 1, 1996 through
September 1, 1998.
HIGH LOW DISTRIBUTIONS
---- --- -------------
1996
First Quarter..................................... $33 1/4 $28 1/4 $.59
Second Quarter.................................... 33 1/2 30 7/8 .59
Third Quarter..................................... 36 1/8 32 7/8 .59
Fourth Quarter.................................... 43 3/8 35 5/8 .625
1997
First Quarter..................................... 48 7/8 39 3/4 .625
Second Quarter.................................... 47 1/2 41 1/4 .625
Third Quarter..................................... 54 9/16 47 1/8 .625
Fourth Quarter.................................... 55 47 3/4 .67
1998
First Quarter..................................... 52 3/8 47 .67
Second Quarter.................................... 52 9/16 44 1/2 .67
Third Quarter (through September 1, 1998)......... 47 1/2 39 N/A
-------------------------
On September 1, 1998, the last reported sale price of a share of EQR Common
on the NYSE was $39 1/4. On July 7, 1998, the last full trading day prior to the
public announcement of the Merger, the last reported sale price of a share of
EQR Common on the NYSE was $47 1/8. As of September 1, 1998, ▇▇▇'s transfer
agent reported 1,610 record holders of EQR Common.
MERRY LAND
The Merry Land Common has traded on the NYSE under the symbol "MRY" since
April 10, 1992. The following table sets forth the quarterly high and low sales
prices per share of Merry Land Common reported on the NYSE, as well as the
quarterly distributions declared per share of Merry Land Common from January 1,
1996 through September 1, 1998.
HIGH LOW DISTRIBUTIONS
---- --- -------------
1996
First Quarter..................................... $23 3/4 $21 5/8 $0.37
Second Quarter.................................... 22 1/4 20 0.37
Third Quarter..................................... 22 1/8 20 1/8 0.37
Fourth Quarter.................................... 21 3/4 18 1/4 0.37
1997
First Quarter..................................... 22 5/8 20 3/8 0.39
Second Quarter.................................... 22 1/8 20 1/2 0.39
Third Quarter..................................... 23 21 1/16 0.39
Fourth Quarter.................................... 24 1/8 21 1/16 0.39
1998
First Quarter..................................... 24 1/8 21 9/16 0.41
Second Quarter.................................... 22 3/8 20 1/8 0.41
Third Quarter (through September 1, 1998)......... 24 1/4 20 5/8 0.41
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On September 1, 1998, the last reported sale price of a share of Merry Land
Common on the NYSE was $20 5/8. On July 7, 1998, the last full trading day prior
to the public announcement of the Merger, the last reported sale price of a
share of Merry Land Common on the NYSE was $22 5/16. As of September 1, 1998,
▇▇▇▇▇ ▇▇▇▇'s transfer agent reported 4,390 record holders of Merry Land Common.
The Merger Agreement provides that Merry Land may declare quarterly
distributions with respect to shares of Merry Land Common of up to $0.41 per
share for the third and fourth quarters of 1998, respectively; provided that the
record dates for such distributions are September 16, 1998 and, provided that
the Merger has not previously been consummated, December 16, 1998, respectively.
BECAUSE THE EXCHANGE RATIO IS FIXED AND THE MARKET PRICE OF EQR COMMON IS
SUBJECT TO FLUCTUATION, THE MARKET VALUE OF THE EQR COMMON THAT HOLDERS OF MERRY
LAND COMMON WILL RECEIVE IN THE MERGER MAY INCREASE OR DECREASE PRIOR TO AND
FOLLOWING THE MERGER. SHAREHOLDERS ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS
FOR EQR COMMON AND MERRY LAND COMMON.
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MERRY LAND PROPERTIES, INC. (PREDECESSOR) SUMMARY UNAUDITED PRO FORMA COMBINED
FINANCIAL DATA
The following tables set forth the summary historical financial data for
MRYP Newco as of June 30, 1998 and December 31, 1997 and for the six-month
period ended June 30, 1998 and for the year ended December 31, 1997 and the
summary unaudited pro forma combined financial data for MRYP Newco as of June
30, 1998 and for the six-month period ended June 30, 1998 and for the year ended
December 31, 1997.
The summary unaudited pro forma combined financial data for MRYP Newco
gives effect to the Distribution as if it had occurred on the dates indicated
herein, after giving effect to the pro forma adjustments described in the notes
to the unaudited pro forma financial statements included elsewhere in this Joint
Proxy Statement/Prospectus/Information Statement.
The summary unaudited pro forma combined operating data are presented as if
the Distribution had been consummated at the beginning of the periods presented.
The summary unaudited pro forma combined balance sheet is presented as if the
Distribution had occurred on June 30, 1998. In the opinion of management, all
significant adjustments necessary to reflect the effects of the Distribution
have been made.
The summary pro forma financial information should be read in conjunction
with, and is qualified in its entirety by, the respective historical financial
statements and notes thereto of MRYP Newco and Merry Land incorporated by
reference into this Joint Proxy Statement/Prospectus/Information Statement and
the unaudited pro forma financial statements and notes thereto included
elsewhere in this Joint Proxy Statement/ Prospectus/Information Statement.
The summary unaudited pro forma operating and balance sheet data are
presented for comparative purposes only and are not necessarily indicative of
what the actual combined results of MRYP Newco would have been for the period
and dates presented, nor does such data purport to represent the results of
future periods.
MRYP NEWCO
HISTORICAL SIX HISTORICAL PRO FORMA SIX PRO FORMA
MONTHS ENDED YEAR ENDED MONTHS ENDED YEAR ENDED
JUNE 30, 1998 DECEMBER 31, 1997 JUNE 30, 1998 DECEMBER 31, 1997
-------------- ----------------- ------------- -----------------
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
OPERATING DATA:
Total revenues...................... $ 4,923 $ 9,269 $ 8,040 $12,303
======= ======= ======= =======
Total expenses...................... $ 2,361 $ 4,650 $ 5,021 $ 9,972
======= ======= ======= =======
Net income.......................... $ 2,562 $ 4,619 $ 1,872 $ 1,445
======= ======= ======= =======
Net income per weighted average
Common Share outstanding -- basic
and diluted....................... $ 0.86 $ 0.67
======= =======
Weighted average Common Shares
outstanding -- basic and
diluted........................... 2,081 1,936
======= =======
BALANCE SHEET DATA (at end of
period):
Real Estate, before accumulated
depreciation................... $54,353 $53,673 $54,353
Real Estate, after accumulated
depreciation................... $42,495 $42,596 $42,495
Total assets...................... $43,877 $44,008 $51,653
Total debt........................ $ -- $ -- $38,317
Shareholders' Equity.............. $43,161 $43,379 $ 7,620
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RISK FACTORS
In considering whether to approve the Merger, EQR Common Shareholders and
Merry Land Common Shareholders should consider, in addition to the other
information in this Joint Proxy Statement/Prospectus/ Information Statement, the
matters described below. Additional information concerning the risks associated
with an investment in EQR Common are set forth in EQR's annual report on Form
10-K and Form 10-K/A for the year ended December 31, 1997, which is incorporated
by reference into this Joint Proxy Statement/ Prospectus/Information Statement.
POTENTIAL ADVERSE EFFECTS OF COMBINING THE COMPANIES
EQR and Merry Land are large enterprises with operations in a number of
different states. There can be no assurance that costs or other factors
associated with the integration of the two companies, including EQR's ability to
manage approximately 34,990 additional apartment units, would not adversely
affect future combined results of operations or the benefits of the Merger,
including expected costs savings.
DECREASE IN DISTRIBUTIONS PER SHARE TO MERRY LAND SHAREHOLDERS
The distribution declared on Merry Land Common for each of the first two
quarters of 1998 was $0.41 per share and the distribution declared on the EQR
Share Equivalent was $0.355 for each such quarter. There can be no assurance
that EQR will make distributions or, if distributions are made, that they will
be equal to or in excess of those historically paid to shareholders of EQR.
POSSIBLE CONFLICTS OF INTEREST
Shareholders should be aware that certain directors, officers and members
of the management of Merry Land have certain interests that arise in connection
with the Merger and related transactions to be entered into by Merry Land that
are in addition to the interests of shareholders generally and therefore a
conflict between the interests of such directors and executive officers and the
interests of the Merry Land Shareholders could exist. These interests arise
under existing agreements with, and compensation awards from Merry Land, all of
which were approved by the Merry Land Board of Directors and are described
below.
All outstanding loans made to the employees and directors of Merry Land
under the Merry Land Stock Loan Program (the "Merry Land Stock Loan Program")
will be forgiven by EQR at the Effective Time pursuant to the terms of the
Merger Agreement; provided, however, that 60% of any dividends or distributions
declared on shares of Merry Land Common after the date of the Merger Agreement,
where the record date for such dividends is prior to the Effective Time (other
than the Distribution), shall continue to be applied towards the repayment of
such loans. As of June 30, 1998 the aggregate amount of loans outstanding to 72
directors, executive officers, officers and managers under the Merry Land Stock
Loan Program was $26.8 million and included $12.8 million loaned to directors
and certain executive officers of Merry Land. See "Interests of Certain Persons
in the Transactions."
Pursuant to the terms and conditions of the Merry Land Retention and
Severance Program dated as of July 8, 1998 (the "Retention and Severance
Program") payments aggregating $11 million will be made to approximately 110
executive officers, officers, managers and staff of Merry Land, as more fully
described in "Interests of Certain Persons in the Transactions," in
consideration for their agreement to remain in Merry Land's employment until the
Effective Time and, in some cases, through a retention period of up to six
months following the Effective Time. In addition, the chairman of the Merry Land
Board of Directors and eight executive officers of Merry Land will receive a
gross-up payment which is intended to put the recipients in the same position
that they would have been in if the excise tax imposed by Code Section 4999 was
not imposed upon the payments to be received as a result of the Merger (a
"Gross-Up Payment"). In no event shall the aggregate Gross-Up Payments exceed
$16.25 million. See "Interests of Certain Persons in the Transactions."
Pursuant to the terms of the Merger Agreement, each individual holding an
option to purchase Merry Land Common (a "Merry Land Option") will have the right
to enter into an agreement with EQR providing for the cancellation of such
option, whether or not vested, immediately following the Effective Time for cash
in an amount equal to the difference between the Closing Price of Merry Land
Common and the applicable
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exercise price set forth in such option, multiplied by the number of shares of
Merry Land Common subject to such option. For purposes of such calculation,
"Closing Price" is defined to mean the unweighted average closing price of a
share of Merry Land Common, reported as "New York Stock Exchange Composite
Transactions" by The Wall Street Journal (Midwest Edition) for the ten trading
days ending on the third trading day immediately prior to the Effective Time.
Each Merry Land Option which remains unexercised as of the Closing Date will be
converted into an option to purchase 0.54 of a share of EQR Common for each
share of Merry Land Common subject to such Merry Land Option at the stated per
share exercise price divided by 0.54 and shall otherwise continue to be
exercisable pursuant to its terms.
REDUCTION IN OWNERSHIP AND VOTING
Upon consummation of the Merger, Merry Land Common Shareholders will own
approximately 18% of the EQR Common and will not have separate approval rights
with respect to any actions or decisions of EQR.
POTENTIAL CHANGE IN RELATIVE SHARE PRICES
In considering whether to approve the Merger, Merry Land Common
Shareholders and EQR Common Shareholders should consider the risks associated
with (i) a potential change in the relative prices of EQR Common and Merry Land
Common prior to the Effective Time and (ii) a possible reduction in the market
price of EQR Common prior to or following the Merger, due to future sales of
shares of EQR Common or the availability of such shares for future sales,
government regulatory action, tax laws, interest rates, the operating
performance of EQR and market conditions in general.
Neither Merry Land nor EQR has the right to terminate the Merger Agreement
because of any change in the prevailing market price of EQR Common or Merry Land
Common.
TERMINATION PAYMENTS IF MERGER FAILS TO OCCUR
The Merger Agreement provides for a Break-Up Fee payable by Merry Land of
$45 million plus Break-Up Expenses of up to $5 million if the Merger Agreement
is terminated by either EQR or Merry Land under certain circumstances and,
within one year after a termination, Merry Land enters into an agreement
regarding an "Acquisition Proposal" (as defined herein in "The Merger --
Termination Provisions") which is consummated. In addition, if the Merger
Agreement is terminated for certain reasons, EQR or Merry Land will be required
to pay the other party's Break-Up Expenses of up to $5 million. See "The
Merger -- Termination Fee and Expenses."
The obligation to pay the Break-Up Fee and/or Break-Up Expenses may
adversely affect the ability of Merry Land to engage in another transaction in
the event the Merger is not consummated.
NO APPRAISAL RIGHTS UNDER MARYLAND OR GEORGIA LAW
Neither EQR nor Merry Land Shareholders are entitled to appraisal rights in
connection with the Merger under Maryland or Georgia law. See "The Merger -- No
Appraisal Rights."
SIZE AND RAPID GROWTH OF EQR
EQR has grown rapidly since the completion of the EQR IPO, at which time
EQR owned or held interests in 69 multifamily properties containing 21,725
units. Upon completion of the Merger, based upon the number of properties owned
by EQR and Merry Land as of June 30, 1998, EQR will own or have interests in and
operate 638 properties, containing 183,558 units, and EQR will continue to be
the largest multifamily property owner in the United States (based on the number
of apartment units owned and total revenues earned). There can be no assurance
that EQR will be able to continue to maintain the growth rate which it has
experienced since 1993.
CONSEQUENCES OF FAILURE TO QUALIFY AS A REIT
Taxation as a Corporation. EQR intends to operate in a manner so as to
qualify as a REIT under the Code. However, no assurance can be given that EQR
was organized and will be able to operate in a manner so
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as to qualify or remain so qualified. Qualification as a REIT involves the
satisfaction of numerous requirements (some on an annual and quarterly basis)
established under highly technical and complex Code provisions for which there
are only limited judicial or administrative interpretations and involves the
determination of various factual matters and circumstances not entirely within
EQR's control.
If EQR were to fail to qualify as a REIT in any taxable year, EQR would be
subject to Federal income tax (including any applicable alternative minimum tax)
on its taxable income at corporate rates. Moreover, unless entitled to relief
under certain statutory provisions, EQR also would be disqualified from
treatment as a REIT for the four taxable years following the year during which
qualification is lost. This treatment would reduce the net earnings of EQR
available for investment or distribution to shareholders because of the
additional tax liability to EQR for the years involved. In addition,
distributions to shareholders would no longer be required to be made. See "The
Merger -- Federal Income Tax Consequences of the Merger."
Other Tax Liabilities. Even if EQR qualifies as a REIT, it will be subject
to certain Federal, state and local taxes on its income and property. See "The
Merger -- Taxation of Shareholders -- Other Tax Considerations -- State and
Local Taxes." In addition, EQR's management operations, which will be conducted
through Equity Residential Properties Management Limited Partnership and Equity
Residential Properties Management Limited Partnership II (collectively, the "EQR
Management Partnerships"), generally will be subject to Federal income tax at
regular corporate rates. See "The Merger -- Federal Income Tax Consequences of
the Merger."
Consequences of Failure to Qualify as Partnerships. EQR intends that ERP
Operating Partnership, the EQR Management Partnerships and each of the other
partnership and limited liability company subsidiaries, other than those EQR
entities treated as disregarded entities for Federal tax purposes, will be
organized as partnerships and will qualify for treatment as such under the Code.
If any of such subsidiaries fail to qualify for such treatment under the Code,
and are not disregarded for Federal tax purposes, EQR would cease to qualify as
a REIT, and such subsidiary would be subject to Federal income tax (including
any alternative minimum tax) on its income at corporate rates. See "The Merger
-- Federal Income Tax Consequences of the Merger."
Each of EQR and Merry Land believes it has operated in a manner so as to
qualify as a REIT under the Code for all taxable years since EQR's and Merry
Land's initial election of REIT status and for the period beginning January 1,
1998 and ending on the date hereof.
INVESTMENT BY EQR IN MRYP NEWCO
Upon consummation of the Merger and the Spin-Off, EQR will be the largest
creditor of MRYP Newco and will hold all of the shares of MRYP Newco Preferred.
The failure of MRYP Newco to satisfy its debt obligations would therefore have
an adverse effect on EQR.
MRYP NEWCO RISK FACTORS
Ownership of MRYP Newco Common involves various risks. In addition to
general risks of ownership of MRYP Newco Common and those factors set forth
elsewhere in this Joint Proxy Statement/Prospectus/ Information Statement,
holders of MRYP Newco Common should be aware of, among other things, the
following factors:
NO PRIOR PUBLIC MARKET; NO ASSURANCE OF VALUE
Prior to the consummation of the Spin-Off, there has been no public market
for MRYP Newco Common. An application has been made to have the MRYP Newco
Common listed on Nasdaq. There can be no assurance that MRYP Newco will obtain
approval for listing such shares. There can also be no assurance that an active
trading market for the MRYP Newco Common will develop, or if such market does
develop, that it will be sustained. See "-- Nasdaq Maintenance Requirements;
Possible Delisting of MRYP Newco Common from Nasdaq; ▇▇▇▇▇ Stock Regulations."
The market price of the MRYP Newco Common may fluctuate substantially due to a
variety of factors, including quarterly fluctuations in results of operations,
changes in earnings estimates by securities analysts, changes in accounting
principles, sales of MRYP Newco
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Common by existing holders, negative publicity, loss of key personnel, lack of
sustained volume of trading activity, and other factors. In addition, broad
market fluctuations and general economic and political conditions may adversely
affect the market price of the MRYP Newco Common regardless of MRYP Newco's
performance. There can be no assurance as to the value of MRYP Newco Common in
the secondary market.
LACK OF OPERATING HISTORY AS SEPARATE ENTITY; LIMITED RELEVANCE OF HISTORICAL
FINANCIAL INFORMATION
Upon consummation of the Spin-Off, MRYP Newco will own and operate the MRYP
Newco Properties. MRYP Newco does not have an operating history as a separate
company, and management has historically been able to rely on the earnings,
assets and cash flow of Merry Land in managing the MRYP Newco Properties. MRYP
Newco will be a substantially smaller company than Merry Land was prior to
consummation of the Spin-Off, with fewer financial resources. The Transactions
may result in some temporary dislocation and inefficiencies with respect to the
business operations, as well as the organization and personnel structure of MRYP
Newco. In addition, MRYP Newco has not operated as an independent public company
and, following consummation of the Transactions, MRYP Newco will incur costs and
expenses associated with the management of a public company. As a result of the
foregoing, historical and pro forma results for MRYP Newco contained elsewhere
in this Joint Proxy Statement/Prospectus/Information Statement may not be
indicative of its results for future periods. In addition, MRYP Newco's pro
forma combined income statements for the periods ended December 31, 1997 and
June 30, 1998 both reflect a one-time transition fee of $2.4 million to be paid
by EQR and it is not expected that MRYP Newco will generate similar fees in the
future. Except as provided in the Asset Exchange Agreement, the Development
Agreement, the Joint Venture Agreement, the Senior Debt Agreement, the
Subordinated Debt Agreement and the Office Lease Agreement, neither Merry Land
nor EQR is required or intends to provide assistance or services to MRYP Newco
after the consummation of the Transactions. See "Merry Land Properties,
Inc. -- Certain Agreements between ERP Operating Partnership and MRYP Newco."
SUBSTANTIAL INDEBTEDNESS; PREFERRED STOCK OBLIGATIONS
Upon consummation of the Transactions and after making expected borrowings
under the term loan between Merry Land and MRYP Newco (the "Term Loan") and the
subordinated note between Merry Land and MRYP Newco (the "Subordinated Note"),
MRYP Newco will have substantial indebtedness and debt service obligations. In
addition, under the terms of the MRYP Newco Preferred, MRYP Newco will be
required to pay quarterly dividends at an annual rate of $400,000 for the first
five years (and a greater amount thereafter) to holders of the MRYP Newco
Preferred. On a pro forma basis, MRYP Newco's total indebtedness of
approximately $38.3 million would represent approximately 75% of its total
capitalization as of June 30, 1998, and its total indebtedness plus $5 million
in liquidation value of the MRYP Newco Preferred would represent approximately
85% of its total capitalization as of June 30, 1998. Subject to restrictions in
its debt and preferred stock instruments, MRYP Newco may incur additional
indebtedness from time to time.
MRYP Newco's ability to make required payments under the Term Loan and
Subordinated Note and any other debt instruments and required distributions and
redemption payments to its shareholders, including the MRYP Newco Preferred
shareholders, will be dependent on MRYP Newco's ability to generate sufficient
cash from operations or to obtain alternative funding sources. MRYP Newco's
future operating performance and ability to make planned expenditures will be
subject to future economic conditions and to other financial and business
factors, many of which are beyond its control. There can be no assurance that
MRYP Newco will be able to generate funds and to obtain alternative funding
sources in a manner sufficient to meet its debt repayment obligations or
required distributions or redemption payments.
The degree to which MRYP Newco is leveraged could have important
consequences to holders of MRYP Newco Common, including the following: (i) MRYP
Newco's ability to obtain additional financing in the future for working
capital, property acquisitions, capital expenditures, debt service requirements,
general corporate or other purposes may be materially limited or impaired; (ii)
a substantial portion of MRYP Newco's cash flow from operations is expected to
be required to be dedicated to the payment of principal and interest on
indebtedness and payments in respect of the MRYP Newco Preferred, thereby
reducing the funds
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available to MRYP Newco for other purposes, including operations and future
business opportunities; (iii) MRYP Newco's debt and preferred stock instruments
impose significant financial and operating restrictions on MRYP Newco and its
subsidiaries which, if violated, could permit MRYP Newco's creditors to
accelerate payments under the debt instruments or require redemption of the MRYP
Newco Preferred; (iv) MRYP Newco's flexibility to adjust to changing market
conditions and to withstand competitive pressures could be limited by its
leveraged position and the covenants contained in its debt and preferred stock
instruments, thus putting MRYP Newco at a competitive disadvantage; (v)
borrowings under certain of MRYP Newco's debt instruments are at variable rates
of interest, exposing MRYP Newco to the risk of increased interest rates; and
(vi) MRYP Newco's ability to make distributions to common shareholders will be
limited.
In the event that MRYP Newco is unable to generate sufficient cash flow and
MRYP Newco is otherwise unable to obtain funds necessary to meet required
payments of principal, premium, if any, and interest on its indebtedness
(including the Term Loan or Subordinated Note), or if MRYP Newco otherwise fails
to comply with the various covenants in the instruments governing such
indebtedness, MRYP Newco could be in default under the terms of such
indebtedness. In the event of such default, the holders of such indebtedness
could elect to declare all the funds borrowed thereunder to be due and payable
together with accrued and unpaid interest, the lenders under MRYP Newco's debt
instruments could elect to terminate their commitments thereunder and MRYP Newco
could be forced into bankruptcy or liquidation. In the event that MRYP Newco is
unable to generate sufficient cash flow to meet the required payments of the
MRYP Newco Preferred for two quarterly dividend periods, the holders of the MRYP
Newco Preferred will have the right to (i) elect enough directors to constitute
a majority of the MRYP Newco Board of Directors and (ii) cause MRYP Newco to
redeem the MRYP Newco Preferred.
The Term Loan will mature on the first anniversary of the Effective Time.
MRYP Newco will not generate sufficient cash flow from operations to cover
repayment of the Term Loan when it matures, and MRYP Newco will be required to
seek to refinance the Term Loan. MRYP Newco's ability to refinance the Term Loan
or to obtain additional financing will depend on MRYP Newco's operating
performance, as well as prevailing economic and market conditions, levels of
interest rates, refinancing costs and other factors, many of which are beyond
MRYP Newco's control. There can be no assurance that MRYP Newco will be able to
refinance the Term Loan on terms acceptable to MRYP Newco, if at all, or to
obtain additional financing in a timely manner or that the proceeds therefrom
will be sufficient to effect such refinancing. Any failure by MRYP Newco to
repay the Term Loan when due would have a material adverse effect on MRYP Newco.
The Subordinated Note requires quarterly payments of interest totaling $1.6
million each year during the first five years following the Effective Time. In
each of years six through 15, the interest payments will increase as scheduled
pursuant to the Subordinated Note. The Subordinated Note will mature on the
fifteenth anniversary of the Effective Time. If any sale of multifamily real
property assets results in MRYP Newco having sold assets in aggregate of more
than 30% of the gross asset value of the multifamily real property assets of
MRYP Newco, MRYP Newco may be required to use the net proceeds from such asset
sale to repay the Subordinated Note.
LACK OF WORKING CAPITAL
MRYP Newco will be primarily dependent on cash flow from operations to
operate its business. In order to implement its business plan, MRYP Newco will
be required to make improvements to several of its properties and develop
apartments on certain sites. MRYP Newco does not anticipate that it will be able
to implement its business plan without obtaining additional financing. MRYP
Newco's debt and preferred stock instruments, including the Term Loan, the
Subordinated Note and the MRYP Newco Preferred, restrict MRYP Newco's ability to
incur additional indebtedness and may prevent MRYP Newco from completing planned
expenditures with respect to the MRYP Newco Properties. There is no assurance
that MRYP Newco will have working capital or adequate financing in the
foreseeable future to execute its business plan. The failure by MRYP Newco to
obtain adequate working capital or other financing may have a material adverse
effect on MRYP Newco's business, financial condition and results of operations.
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ABSENCE OF DISTRIBUTIONS
Unlike Merry Land, MRYP Newco is organized as a C corporation and not as a
REIT. MRYP Newco does not anticipate paying distributions to shareholders for
the foreseeable future. It is the present intention of MRYP Newco to retain all
earnings, if any, in order to fund capital expenditures in accordance with its
business plan and generally to support its ongoing businesses and make payments
on its outstanding indebtedness and preferred stock. Any determination in the
future to pay distributions will be dependent upon MRYP Newco's results of
operations, financial condition, contractual restrictions and other factors
deemed relevant at that time by the MRYP Newco Board of Directors. MRYP Newco's
substantial indebtedness, debt service and preferred stock obligations will
further restrict its ability to make distributions to its common shareholders.
See "Merry Land Properties, Inc. -- Management's Discussion and Analysis of
Financial Condition and Results of Operations of MRYP Newco -- Liquidity and
Capital Resources."
CHANGE IN BUSINESS STRATEGY
The initial assets of MRYP Newco consist of several types of properties
including property held for future development, commercial properties, apartment
communities and clay deposit property. As part of its business plan, MRYP Newco
may dispose of its commercial properties, develop apartment communities on
undeveloped land and rehabilitate existing apartment buildings. In addition,
MRYP Newco intends to manage development and other communities for EQR. See
"Merry Land Properties, Inc. -- Business Objectives and Operating Strategies."
This business strategy, if implemented, entails numerous risks, including the
risk that MRYP Newco will be unable to obtain financing necessary to implement
the strategy, that development or rehabilitation costs will exceed estimates and
that lease up rates, rental rates and occupancy will not meet expectations. The
occurrence of any of the foregoing could have a material adverse effect on MRYP
Newco's results of operations and financial condition. In addition, there can be
no assurance that MRYP Newco will be able to acquire additional properties on
terms and conditions that would be favorable to MRYP Newco or suitable to
implement its business strategy or that MRYP Newco will be able to obtain
additional management agreements or renewals of existing agreements on favorable
terms.
LACK OF GEOGRAPHIC DIVERSITY
MRYP Newco's revenues and the value of its properties may be affected by a
number of factors, including the local economic climate (which may be adversely
impacted by business layoffs, industry slowdowns, changing demographics and
other factors) and local real estate conditions (such as oversupply of or
reduced demand for commercial and residential properties). The MRYP Newco
Properties are all located in Georgia and South Carolina (except one unimproved
parcel in Nashville, Tennessee and two unimproved parcels in Florida), and as a
result, the operating results of MRYP Newco will be significantly dependent on
the economic conditions in Georgia, particularly in Augusta and Savannah, and
Charleston, South Carolina. Regional seasonal trends may also have a more
significant impact on MRYP Newco than they had on Merry Land, since Merry Land's
portfolio was much more geographically diverse.
EQUITY FINANCINGS MAY NOT BE SUCCESSFUL
In order to obtain financing necessary to execute its business plan, MRYP
Newco plans to raise additional equity capital through the public or private
equity markets. Such financing may be obtained through the sale of common or
preferred equity. There can be no assurance that MRYP Newco will be successful
in obtaining any such financing or that the terms of such financing, including
the price at which equity securities are issued and any resulting dilution to
existing investors, will be favorable to MRYP Newco and the holders of MRYP
Newco Common. The failure by MRYP Newco to obtain additional equity financing on
favorable terms may have a material adverse effect on MRYP Newco's business,
financial condition and results of operations.
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CONFLICTS OF INTEREST OF COMMON DIRECTORS
Upon consummation of the Transactions, ▇▇▇▇▇ ▇. ▇▇▇▇ and ▇▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇▇ will serve as trustees of EQR and directors of MRYP Newco. ▇▇. ▇▇▇▇▇▇▇▇
will also serve as President of MRYP Newco. Messrs. ▇▇▇▇ and ▇▇▇▇▇▇▇▇ may face
certain conflicts of interest as a result of their position as trustees of EQR
and directors of MRYP Newco.
NASDAQ MAINTENANCE REQUIREMENTS; POSSIBLE DELISTING OF MRYP NEWCO COMMON FROM
NASDAQ; ▇▇▇▇▇ STOCK REGULATIONS
An application has been made to have the MRYP Newco Common listed on
Nasdaq, and MRYP Newco intends to list such shares on Nasdaq. If, after listing
the MRYP Newco Common on Nasdaq, MRYP Newco is unable to satisfy Nasdaq's
maintenance criteria in the future, the MRYP Newco Common would be subject to
delisting. As a consequence of such delisting, trading in the MRYP Newco Common
would be conducted in the over-the-counter market on an electronic bulletin
board established for securities that do not meet the listing requirements for
Nasdaq, or in what are commonly referred to as the "pink sheets." As a result, a
holder of MRYP Newco Common could find it more difficult to dispose of, or to
obtain accurate quotations of the price of, the MRYP Newco Common.
If the MRYP Newco Common is not listed on Nasdaq and has a market price of
less than $5.00 per share, it may be classified as a "▇▇▇▇▇ stock." Commission
regulations define a "▇▇▇▇▇ stock" to be any non-Nasdaq equity security that has
a market price of less than $5.00 per share, subject to certain exceptions. For
any transaction involving a ▇▇▇▇▇ stock, unless exempt, the rules require
certain special disclosure relating to the ▇▇▇▇▇ stock market. The foregoing
restrictions will not apply to shares of MRYP Newco Common if such securities
are listed on Nasdaq and have certain price and volume information provided on a
current and continuing basis or meet certain minimum net tangible assets or
average revenue criteria. There can be no assurance that MRYP Newco Common will
qualify for an exemption from these restrictions. If MRYP Newco Common was
subject to the rules on ▇▇▇▇▇ stocks, the market liquidity for MRYP Newco Common
could be adversely affected.
TAXABLE NATURE OF THE MRYP NEWCO COMMON DISTRIBUTION
The Distribution will be reported as a taxable distribution and not a
tax-free spin-off, and, as such, the Distribution will be a taxable dividend to
such shareholders in an amount equal to the lesser of (i) the fair market value
of such MRYP Newco Common as of the date of the Distribution or (ii) the amount
of Merry Land's current or accumulated earnings and profits allocable to such
Distribution. This dividend income will be taxable in a manner more fully
described below under "MRYP Newco -- Federal Income Tax Consequences."
To the extent that Merry Land has current or accumulated earnings and
profits allocable to such Distribution which is less than the full fair market
value of such Distribution, then such portion of the Distribution that is not
taxed as a dividend will be treated first as a tax-free return of capital to the
recipient holder, reducing the tax basis of such holder's Merry Land Common by
the fair market value of the Distribution (but not below zero), with
distributions in excess of the shareholder's tax basis in his or her Merry Land
Common taxable as capital gain to such holder (if the Merry Land Common is held
as a capital asset).
The initial tax basis of the MRYP Newco Common received by any Merry Land
shareholder will be equal to the fair market value of such MRYP Newco Common on
the date of the Distribution, and the holding period for MRYP Newco Common
received by any Merry Land shareholder will begin upon such shareholder's
receipt of such MRYP Newco Common. See "MRYP Newco -- Federal Income Tax
Consequences."
GENERAL REAL ESTATE RISKS
If the MRYP Newco Properties do not generate revenue sufficient to meet
operating expenses, including debt service and repayment and capital
expenditures, the financial condition and results of operations of MRYP Newco
may be adversely affected. Specifically, MRYP Newco may have to borrow
additional
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amounts to cover fixed costs and MRYP Newco's cash flow and ability to make
distributions to stockholders would be adversely affected. The revenues
generated by the MRYP Newco Properties and the value of the properties may be
adversely affected by a number of factors, including the national and local
economic environments, local real estate conditions, the perceptions by
prospective tenants of the safety, convenience and attractiveness of MRYP Newco
Properties, the ability of MRYP Newco to provide adequate management,
maintenance and insurance, the occurrence of energy and supply shortages, the
ability to collect on a timely basis all rent from tenants, the expense of
periodically renovating, repairing and reletting spaces, and increasing
operating costs (including real estate taxes, utilities and interest rates on
MRYP Newco's outstanding debt). Certain significant expenditures associated with
investments in real estate (such as real estate taxes, insurance and maintenance
costs) are generally not reduced when circumstances cause a reduction in rental
revenues from the investment. If a MRYP Newco Property is mortgaged to secure
the payment of indebtedness and if MRYP Newco is unable to meet its mortgage
obligations, a loss could be sustained as a result of foreclosure on the
property or the exercise of other remedies by the mortgagee. In addition, real
estate values and income from properties are also affected by such factors as
compliance with laws, including tax laws, interest rate levels and the
availability of financing.
No independent valuations or appraisals were obtained in connection with
the Transactions. Accordingly, there can be no assurance that the consideration
given by MRYP Newco will not exceed the fair market value of the MRYP Newco
Properties. The valuation of the MRYP Newco Properties has been determined
through arms-length negotiations. In valuing the MRYP Newco Properties, certain
assumptions were made concerning the estimate of revenues to be derived from the
properties and real estate values.
Numerous owners and developers of office properties, multi-family
residential properties and undeveloped real estate tracts compete with MRYP
Newco. Some of these competing parties own and/or operate newer, better located
properties or are better capitalized than MRYP Newco. Many other real estate
developers have access to greater financial resources than MRYP Newco. The
number of competitive commercial and residential properties in a particular area
could have a material adverse effect on MRYP Newco's ability to lease space in
the MRYP Newco Properties or at newly developed or acquired properties and on
the rents charged.
MRYP Newco intends to continue development and construction of residential
properties. See "Merry Land Properties, Inc. -- MRYP Newco Properties." Risks
associated with MRYP Newco's development and construction activities may
include: abandonment of development opportunities; construction costs of a
property exceeding original estimates, possibly making the property
uneconomical; occupancy rates and rents at a newly completed property may not be
sufficient to make the property profitable; financing may not be available on
favorable terms for development of a property; and construction and lease up may
not be completed on schedule, resulting in increased debt service expense and
construction costs. In addition, new development activities, regardless of
whether they are successful, typically require a substantial portion of
management's time and attention. Development activities also are subject to the
risks relating to the inability to obtain, or delays in obtaining, all necessary
zoning, land-use, building, occupancy and other required governmental permits
and authorizations.
LIMITS ON CHANGES IN CONTROL
Staggered Board. The MRYP Newco Board of Directors will be divided into
three classes of directors. The terms of the classes will expire in 1999, 2000
and 2001, respectively. As the term of each class expires, directors for that
class will be elected for a three-year term and the directors in the other two
classes will continue in office. The staggered terms for directors may impede
the shareholders' ability to change control of MRYP Newco even if a change in
control were in the shareholders' interest.
Preferred Shares. The MRYP Newco articles of incorporation (the "MRYP Newco
Articles") will authorize the MRYP Newco Board of Directors to issue up to
2,000,000 preferred shares of MRYP Newco and to establish the preferences and
rights (including the right to vote and the right to convert into MRYP Newco
Common) of any preferred shares of MRYP Newco issued. The power to issue
preferred shares of MRYP Newco could have the effect of delaying or preventing a
change in control of MRYP Newco even if a change in control were in the
shareholders' interest.
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Supermajority Vote to Approve Merger. The MRYP Newco Articles will provide
that the affirmative vote of at least a majority of all of the votes entitled to
be cast on the matter and at least two-thirds of the votes cast are required to
approve a merger, consolidation, sale of substantially all of the assets,
liquidation, or "Business Combination" as defined in the Georgia Business
Corporation Code (the "GBCC").
Georgia Business Combination Law. The GBCC includes a business combination
statute which is designed to deter hostile takeovers by protecting minority
shareholders in the second stage of freeze-out mergers. Under the GBCC, certain
business combinations with "interested shareholders" are prohibited for five
years from the time that a person becomes an interested shareholder unless (i)
the combination was approved before the person became an interested shareholder,
(ii) the shareholder became an interested shareholder in a transaction in which
the person became the beneficial owner of at least 90% of the voting stock of
the corporation outstanding at the time or (iii) subsequent to becoming an
interested shareholder, such shareholder acquired additional shares resulting in
the interested shareholder being the beneficial owner of at least 90% of the
outstanding voting stock of the corporation. In addition, the GBCC requires
special procedures for approval by the board of directors of a business
combination unless, among other conditions, the Georgia corporation's common
shareholders receive a minimum price (as defined in the GBCC) for their shares
and the consideration is received in cash or in the same form as previously paid
by the interested shareholder for its shares.
The Bylaws of MRYP Newco (the "MRYP Newco Bylaws") provide that these GBCC
provisions apply to business combinations with interested shareholders with
respect to MRYP Newco.
UNINSURED LOSS
MRYP Newco will carry comprehensive liability, fire and extended coverage
insurance with respect to all of the properties that it owns, with policy
specifications, insured limits and deductibles customarily carried for similar
properties. There are, however, certain types of losses (such as losses arising
from acts of war or relating to pollution) that are not generally insured
because they are either uninsurable or not economically feasible to insure.
Should an uninsured loss or a loss in excess of insured limits occur, MRYP Newco
could lose its capital invested in a property, as well as the anticipated future
revenue from such property. Any such loss would adversely affect the financial
condition and results of operations of MRYP Newco.
POTENTIAL ENVIRONMENTAL LIABILITY RELATED TO MRYP NEWCO PROPERTIES
General. Under various federal, state and local environmental laws,
ordinances and regulations, a current or previous owner or operator of real
estate may be required to investigate and clean up hazardous or toxic substances
or petroleum product releases at such property and may be held liable to a
governmental entity or to third parties for property damage and for
investigation and clean-up costs incurred by such parties in connection with the
contamination. These laws often impose liability without regard to whether the
owner or operator knew of, or caused, the release of such hazardous or toxic
substances. The cost of any required remediation and the owner's liability
therefor as to any property is generally not limited under such enactments and
could exceed the value of the property or the aggregate assets of the owner. The
presence of environmentally hazardous substances, or the failure to properly
remediate such substances may adversely affect the owner's ability to sell or
rent such property or to borrow using such property as collateral. The MRYP
Newco Properties include two former landfills. There can be no assurance that
MRYP Newco will not have material liabilities with respect to these sites. See
"Merry Land Properties, Inc. -- Environmental Matters."
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THE MEETINGS OF SHAREHOLDERS
EQR
The EQR Special Meeting has been called by the EQR Board of Trustees for
the purpose of approving the Merger and the Increase. The EQR Special Meeting
will be held on October 15, 1998, at 10:00 a.m., local time, at One North
Franklin, Chicago, Illinois. Only shareholders of record of EQR Common at the
close of business on September 9, 1998 will be entitled to vote at the EQR
Special Meeting. EQR had outstanding 96,867,823 shares of EQR Common as of the
close of business on September 1, 1998, of which 1,256,639 (or approximately
1.3% of the outstanding shares of EQR Common) (excluding 79,893 shares where
beneficial ownership is disclaimed) were owned beneficially by the officers and
trustees of EQR, and such persons have indicated their intention to vote such
shares in favor of the Merger and the Increase. No EQR Shares other than EQR
Common are entitled to vote on the Merger or the Increase. Each EQR Common
Shareholder is entitled to one vote per share of EQR Common on the Merger and
the Increase. If the accompanying proxy form is signed and returned, the EQR
Common represented thereby will be voted in accordance with any direction on the
proxy form, or in the absence of a direction, they will be voted FOR the Merger
and the Increase. The proxy form grants authority to the attorneys-in-fact to
vote in their discretion with respect to any other matter which may properly
come before the EQR Special Meeting, including any adjournment thereof. The
attorneys-in-fact may vote their proxies to adjourn the EQR Special Meeting for
any purpose, including an adjournment to solicit additional proxies in the event
that a quorum is not present at the EQR Special Meeting or in the event
sufficient proxies voted in favor of the Merger have not been received. The
shareholder may revoke the proxy at any time prior to the voting thereof by
giving written notice of such revocation to ▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Executive Vice
President, General Counsel and Secretary of EQR, Two North Riverside ▇▇▇▇▇,
▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇, by executing and delivering a proxy bearing
a later date, or by attending the EQR Special Meeting and voting in person.
The expenses of the solicitation of EQR Common Shareholders will be paid by
EQR. In addition to the use of the mail, proxies may be solicited by trustees,
officers, or regular employees of EQR in person, by telecopy or by telephone.
Arrangements will also be made with brokerage firms and other custodians,
nominees and fiduciaries to forward solicitation material to the beneficial
owners of the shares of EQR Common held of record by such persons, and EQR will
reimburse such brokerage firms, custodians, nominees and fiduciaries for
reasonable out-of-pocket expenses incurred by them in connection therewith. EQR
has retained ▇▇▇▇▇▇▇▇▇ Partners to assist in the solicitation of proxies. The
fee of such firm is estimated to be $6,000, plus reimbursement for out-of-pocket
costs and expenses.
The presence at the EQR Special Meeting, in person or by proxy, of the
holders of a majority of the outstanding shares of EQR Common is necessary to
constitute a quorum under Maryland law and the Second Amended and Restated
Bylaws of EQR (the "EQR Bylaws"). Votes cast by proxy or in person at the
meeting will be tabulated by election inspectors appointed for the meeting and
will determine whether or not a quorum is present. The election inspectors will
treat abstentions and "broker non-votes" (i.e., proxies of brokers who have
limited authority to vote on specified proposals) as shares that are present and
entitled to vote for purposes of determining the presence of a quorum at the
meeting. Under Maryland law, ▇▇▇'s Second Amended and Restated Declaration of
Trust (the "EQR Declaration") and the EQR Bylaws, the affirmative vote of the
holders of majority of the outstanding shares of EQR Common is required to
approve the Merger. Approval of the Increase is subject to the affirmative vote
of a majority of the votes cast on the matter by EQR Common Shareholders at the
EQR Special Meeting, provided a quorum is present.
EQR Common Shareholders may mark the accompanying EQR proxy to vote their
shares FOR or AGAINST, or to ABSTAIN with respect to, the Merger and the
Increase. Abstentions and broker non-votes will have the effect of votes against
approval of the Merger and will have no effect on the proposal to approve the
Increase.
THE EQR TRUSTEES WHO VOTED ON THE MERGER UNANIMOUSLY RECOMMEND THAT EQR
COMMON SHAREHOLDERS VOTE FOR THE MERGER AND THE INCREASE.
Pursuant to the EQR Bylaws, no business may be transacted at the EQR
Special Meeting except that referred to in the accompanying notice of the EQR
Special Meeting.
MERRY LAND
The Merry Land Special Meeting has been called by the Merry Land Board of
Directors for the purpose of approving the Merger and the adoption of MRYP
Newco's 1998 Management Incentive Plan. The Merry Land Special Meeting will be
held on October 15, 1998 at 10:00 a.m., local time, at Fort Discovery, One
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Seventh Street, Augusta, Georgia. Only shareholders of record of Merry Land
Common at the close of business on September 9, 1998 will be entitled to vote at
the Merry Land Special Meeting. Merry Land had outstanding 43,016,898 shares of
Merry Land Common as of the close of business on September 1, 1998. 1,903,629
shares (or approximately 4.4% of the outstanding shares of Merry Land Common)
(excluding 2,689,479 shares where beneficial ownership is disclaimed) were owned
beneficially by the officers and directors of Merry Land, and such persons have
indicated their intention to vote such shares in favor of the Merger and the
adoption of MRYP Newco's 1998 Management Incentive Plan. In addition, EQR owns
1,701,100 shares of Merry Land Common (or approximately 4.0% of the outstanding
shares of Merry Land Common) and intends to vote such shares in favor of the
Merger, and MRYP Newco's 1998 Management Incentive Plan. No class of stock of
Merry Land other than Merry Land Common is entitled to vote on the matters set
forth in the notice of the Merry Land Special Meeting. Each Merry Land Common
Shareholder is entitled to one vote per share of Merry Land Common on the
matters set forth in the notice of the Merry Land Special Meeting. If the
accompanying proxy form is signed and returned, the Merry Land Common
represented thereby will be voted in accordance with any direction on the proxy
form, or in the absence of a direction, they will be voted FOR the Merger and
the adoption of MRYP Newco's 1998 Management Incentive Plan. The proxy form
grants authority to the attorneys-in-fact to vote in their discretion with
respect to any other matter which may properly come before the Merry Land
Special Meeting, including any adjournment thereof. The attorneys-in-fact may
vote their proxies to adjourn the Merry Land Special Meeting for any purpose,
including an adjournment to solicit additional proxies in the event that a
quorum is not present at the Merry Land Special Meeting or in the event
sufficient proxies voted in favor of the Merger have not been received. A
shareholder may revoke the proxy at any time prior to the voting thereof by
giving written notice of such revocation to ▇▇▇▇▇ ▇▇▇▇▇▇▇▇, Assistant Vice
President of Merry Land, ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇, by executing
and delivering a proxy bearing a later date, or by attending the Merry Land
Special Meeting and voting in person.
The expenses of the solicitation of Merry Land Common Shareholders will be
paid by Merry Land. In addition to the use of the mail, proxies may be solicited
by directors, officers, or regular employees of Merry Land in person, by
telecopy or by telephone. Arrangements will also be made with brokerage firms
and other custodians, nominees and fiduciaries to forward solicitation material
to the beneficial owners of the shares of Merry Land Common held of record by
such persons, and Merry Land will reimburse such brokerage firms, custodians,
nominees and fiduciaries for reasonable out-of-pocket expenses incurred by them
in connection therewith. Merry Land expects to retain ▇▇▇▇▇▇▇▇▇ Partners to
assist in the solicitation of proxies. The fee of such firm is estimated to be
$6,000, plus reimbursement for out-of-pocket costs and expenses.
The presence at the Merry Land Special Meeting, in person or by proxy, of
the holders of a majority of the outstanding shares of Merry Land Common is
necessary to constitute a quorum under Georgia law and Merry Land's Bylaws (the
"Merry Land Bylaws"). Votes cast by proxy or in person at the Merry Land Special
Meeting will be tabulated by election inspectors appointed for the meeting who
will determine whether or not a quorum is present. The election inspectors will
treat abstentions and "broker non-votes" (i.e., proxies of brokers who have
limited authority to vote on specified proposals) as shares that are present and
entitled to vote for purposes of determining the presence of a quorum at the
meeting. Under Georgia law, ▇▇▇▇▇ ▇▇▇▇'s Amended and Restated Articles of
Incorporation (the "Merry Land Articles") and the Merry Land Bylaws, the
affirmative vote of the holders of a majority of the outstanding shares of Merry
Land Common is required to approve the Merger. The affirmative vote of the
holders of a majority of votes cast by holders of the outstanding shares of
Merry Land Common is required to approve the adoption of MRYP Newco's 1998
Management Incentive Plan.
Merry Land Common Shareholders may mark the accompanying Merry Land proxy
to vote their shares FOR or AGAINST, or to ABSTAIN from voting with respect to
the Merger and MRYP Newco's 1998 Management Incentive Plan. Abstentions and
broker non-votes will have the effect of a vote against approval of the Merger.
An abstention and a broker non-vote will have no effect on the proposal to
approve the adoption of MRYP Newco's 1998 Management Incentive Plan.
THE MERRY LAND BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT MERRY LAND
COMMON SHAREHOLDERS VOTE FOR THE MERGER AND MRYP NEWCO'S 1998 MANAGEMENT
INCENTIVE PLAN. THE MRYP NEWCO BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT
MERRY LAND COMMON SHAREHOLDERS VOTE FOR MRYP NEWCO'S 1998 MANAGEMENT INCENTIVE
PLAN.
The GBCC provides that no business may be transacted at the Merry Land
Special Meeting except that referred to in the accompanying notice of the Merry
Land Special Meeting.
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THE MERGER
The description of the Merger contained in this Joint Proxy
Statement/Prospectus/Information Statement is qualified in its entirety by
reference to the Merger Agreement, the full text of which is attached as
Appendix A, and is incorporated herein by reference.
TERMS OF THE MERGER
The Merger Agreement provides that, upon satisfaction or waiver of the
conditions set forth therein, Merry Land will be merged into EQR. At the
Effective Time, each outstanding share of Merry Land Common will be converted
into 0.53 of a share of EQR Common except for any shares of Merry Land Common
owned by EQR, which will be canceled as of the Effective Time. At the Effective
Time, each share of Merry Land Preferred will be converted into one share of EQR
Preferred having the same preferences and other terms as the Merry Land
Preferred previously outstanding of the same series; provided, however, that the
conversion ratio for the Merry Land Series A, Merry Land Series B and Merry Land
Series C will be adjusted in accordance with their respective terms. It is
expected that as a result of this adjustment, the conversion rate for each of
the Merry Land Series A, Merry Land Series B and Merry Land Series C Shares will
be adjusted upward to account for the Distribution and further adjusted for the
0.53 Merry Land Common exchange rate. As a result, the conversion rate of Merry
Land Series A, Merry Land Series B and Merry Land Series C will be multiplied by
approximately 0.54. No fractional shares of EQR Common will be issued in
connection with the Merger. In lieu thereof, Merry Land Common Shareholders will
receive a cash payment equal to the average closing price of EQR Common on the
NYSE for the five trading days immediately preceding the Effective Time,
multiplied by the fraction of a share of EQR Common to which the holder would be
entitled under the Merger Agreement.
BACKGROUND OF THE MERGER
On August 28, 1997, a representative of ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ met with ▇▇▇▇▇ ▇.
▇▇▇▇, Chairman of the Merry Land Board of Directors, in Thomson, Georgia to
discuss the merger between EWR and EQR and the potential strategic merits of a
combination between EQR and Merry Land. During the meeting, ▇▇. ▇▇▇▇ agreed to
maintain a dialogue with ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ on the multifamily consolidation trend
among REITs, and to consider the merits of a merger between Merry Land and EQR.
In early October, 1997, ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇, the President and Chief
Executive Officer of EQR initiated a telephone call to ▇▇. ▇▇▇▇ suggesting a
meeting in Atlanta to discuss the strategic merits of a combination between EQR
and Merry Land. On November 3, 1997, ▇▇. ▇▇▇▇▇▇▇ and ▇▇. ▇▇▇▇ met and discussed
the general status of the multifamily industry, the trends toward consolidation
in the sector, and a potential combination, but the meeting did not result in
any specific proposals or further discussion between the two companies.
On April 14, 1998, certain representatives of ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ met with ▇▇.
▇▇▇▇, ▇. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, President and Chief Executive Officer of Merry Land,
▇▇▇▇▇▇ ▇. ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇'s Chief Financial Officer, ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇,
Chief Operating Officer of Merry Land, and ▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇'s Senior
Vice President -- Mergers, Acquisitions and Development. Discussions included a
number of financing and strategic topics, including the merits of a combination
with EQR.
On April 14, 1998, certain representatives of ▇.▇. ▇▇▇▇▇▇ telephonically
discussed with ▇▇. ▇▇▇▇ the relative merits of strategic combinations, including
the potential combination of EQR and Merry Land. During the call, ▇▇. ▇▇▇▇
agreed to another meeting with ▇▇. ▇▇▇▇▇▇▇ to better understand the merits of a
potential transaction and ▇.▇. ▇▇▇▇▇▇ subsequently arranged for an April 28,
1998 meeting.
On April 28, 1998, ▇▇. ▇▇▇▇▇▇▇ and ▇▇. ▇▇▇▇, together with representatives
of ▇.▇. ▇▇▇▇▇▇, met in Atlanta to discuss the strategic rationale for a
combination of EQR and Merry Land and whether such a combination was in the best
interests of both companies and their shareholders. Prior to the meeting,
representatives of ▇.▇. ▇▇▇▇▇▇ presented to ▇▇. ▇▇▇▇ a detailed analysis of the
strategic rationale for and the
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financial impact of a combination of the companies. At the end of the meeting,
the parties expressed a general interest in exploring the possibility of such a
combination.
On May 7, 1998, Messrs. ▇▇▇▇▇▇▇, ▇▇▇▇, Houston, ▇▇▇▇▇▇▇▇ and the
representatives of ▇.▇. ▇▇▇▇▇▇ had a meeting in Atlanta at which they
specifically discussed each company's interest in pursuing merger discussions.
Among the issues considered during such meeting were various exchange ratios for
Merry Land Common, the role of the Merry Land employees going forward, and the
possibility of a spin-off transaction. It was agreed that ▇▇. ▇▇▇▇▇▇▇ would
indicate in writing the terms on which EQR might be willing to enter into a
potential transaction with Merry Land.
On May 13, 1998, ▇▇. ▇▇▇▇▇▇▇ sent to Messrs. ▇▇▇▇ and Houston a non-binding
indication of interest proposing certain possible transaction terms, including,
among others, an exchange ratio in the range of 0.53 to 0.55 and a willingness
to discuss possible proposals regarding a spin-off to a new entity of certain
non-core assets of Merry Land.
▇▇. ▇▇▇▇ called a special meeting of the Merry Land Board of Directors on
May 18, 1998, to discuss the letter received from EQR. At the meeting,
representatives of ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ made a presentation to the Merry Land Board of
Directors with respect to the general consolidation trends in the industry and a
potential transaction with EQR among others. After deliberation, the Merry Land
Board of Directors agreed to engage ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ to represent them in
execution of a potential transaction with EQR. This meeting of the Merry Land
Board of Directors was recessed on May 18, 1998 and reconvened by telephone
conference calls on May 22, May 29 and June 5, 1998, after which the meeting was
adjourned. At each session of this meeting, the Merry Land Board of Directors
discussed the advantages and disadvantages of the proposed combination and
received reports on the status and substance of the discussions with EQR.
Later in the day on May 18, 1998, ▇▇. ▇▇▇▇▇▇▇ contacted ▇▇. ▇▇▇▇▇▇▇ and
indicated a willingness to commence substantive discussions of a possible
business combination, which he proposed would occur pursuant to a
confidentiality agreement with a 30-day exclusivity provision. ▇▇. ▇▇▇▇▇▇▇ and
▇▇. ▇▇▇▇▇▇▇ spoke on May 20, 1998 to discuss the terms of the confidentiality
agreement. The confidentiality agreement between EQR and Merry Land was executed
on May 26, 1998.
Reciprocal due diligence commenced on May 29, 1998 and continued through
the execution of the Merger Agreement to the satisfaction of both parties.
On June 3, 1998, ▇▇. ▇▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Chief Operating Officer of
EQR, ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇, Chief Financial Officer of EQR, ▇▇▇▇▇ ▇. ▇▇▇▇▇▇, EQR's
General Counsel, and ▇▇▇▇▇ ▇▇▇▇, EQR's Director of Financial Services, met with
Messrs. Houston, ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇, and ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇'s
Manager of Corporate Finance, representatives of ▇.▇. ▇▇▇▇▇▇, and
representatives of ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ at ▇▇▇▇▇▇ ▇▇▇▇▇▇▇'▇ New York offices. The
parties discussed the transaction terms, including the exchange ratio, the
estimated financial results of Merry Land for the years ending December 31, 1998
and December 31, 1999, the formation of a new Merry Land subsidiary to be
spun-off to the common shareholders of Merry Land, and various employment
issues, such as a severance and retention program with respect to Merry Land's
employees. The parties exchanged views on all of the various terms, but certain
issues remained unresolved at the conclusion of the meeting.
On June 4 and June 5, 1998, representatives of ▇.▇. ▇▇▇▇▇▇ and ▇▇▇▇▇▇
▇▇▇▇▇▇▇ spoke by telephone several times regarding the outstanding issues from
the June 3, 1998 meeting. On June 5, 1998, the Merry Land Board of Directors met
and discussed the proposed merger and spin-off transactions and severance
packages for certain members of management. The Merry Land Board of Directors
agreed in principle to accept the revised term sheet upon final resolution of
all outstanding issues.
On June 5, 1998, a special telephonic meeting of the EQR Board of Trustees
was held during which members of management of EQR were present. At such
meeting, ▇▇. ▇▇▇▇▇▇▇ discussed the background and events leading up to the June
3, 1998 meeting in New York and the reasons that a combination with Merry Land
would be beneficial. ▇▇. ▇▇▇▇▇▇▇ then reported on the June 3, 1998 meeting, and
the status and substance of the discussions and the unresolved issues with Merry
Land, including those related to a possible
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spin-off of certain of Merry Land's assets. Members of management of EQR also
reported on the nature and results of their initial due diligence review of the
business and financial condition of Merry Land.
On June 8, 1998, ▇▇. ▇▇▇▇▇▇▇ met with representatives of both ▇.▇. ▇▇▇▇▇▇
and ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ at ▇▇▇▇▇▇ ▇▇▇▇▇▇▇'▇ New York offices, at which they discussed
a proposed resolution of many of the outstanding issues.
From June 9, 1998 through June 23, 1998, the management of EQR and
attorneys from EQR's legal staff, and the management of Merry Land, as well as
representatives of ▇▇▇▇▇▇▇ & ▇▇▇▇▇, special counsel for EQR, and representatives
of Hull, ▇▇▇▇▇▇, ▇▇▇▇▇▇ & ▇▇▇▇▇▇▇, P.C., general counsel for Merry Land,
together with representatives of ▇▇▇▇▇ & ▇▇▇▇▇▇▇ L.L.P., special counsel for
Merry Land, had a number of discussions by teleconference regarding the possible
structure of the merger transaction, other general terms, the formation of the
proposed subsidiary and the specific assets to be transferred to the proposed
subsidiary. The due diligence process and various other business and legal
issues were also discussed.
On June 17 and June 18, 1998, the Merry Land Board of Directors and its
compensation committee held special meetings by telephone to discuss the
advantages and disadvantages of the proposed combination and the status and
substance of the negotiations and terms of the proposed transaction. These
meetings included members of management, legal counsel and representatives of
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ LLP. The meetings of the Merry Land Board of Directors and its
compensation committee were recessed until July 8, 1998.
From June 24 through July 2, 1998, the management of EQR and Merry Land and
their respective counsel met at the Chicago offices of ▇▇▇▇▇▇▇ & ▇▇▇▇▇, where
the parties negotiated and discussed remaining open business and legal issues
regarding the proposed transaction. Certain issues, including the valuation of
MRYP Newco, the initial capitalization of MRYP Newco, and certain terms of the
Merger Agreement and related documents remained unresolved.
On June 25, 1998, a special meeting of the EQR Board of Trustees was held
at which members of management and representatives of EQR's legal advisors were
present in person or by conference telephone call. At such meeting, the trustees
were informed of the status of the ongoing negotiations with ▇▇▇▇▇ ▇▇▇▇'s
management, including the tentative agreement on the major unresolved issues. A
discussion followed concerning the proposed merger and related matters.
On July 2, 1998, and again on July 3, 1998, Messrs. ▇▇▇▇▇▇▇ and Houston had
discussions by telephone regarding the open issues. Among other things, Messrs.
▇▇▇▇▇▇▇ and Houston were able to resolve the outstanding issues with respect to
the MRYP Newco valuation and its initial capitalization.
From July 6, 1998 through July 8, 1998, the management of EQR and Merry
Land and their respective counsel had numerous meetings regarding the various
remaining legal and business issues.
On July 8, 1998, a special meeting of the EQR Board of Trustees was held at
which the EQR trustees, members of management, and representatives of EQR's
financial and legal advisors were present in person or by conference telephone
call. At such meeting, the trustees were informed of the status of discussions
with ▇▇▇▇▇ ▇▇▇▇'s management and the reasons that a combination with Merry Land
would be beneficial. The EQR Board of Trustees also reviewed the tentative terms
of the proposed merger between EQR and Merry Land.
Representatives of ▇.▇. ▇▇▇▇▇▇ made a detailed presentation regarding the
proposed merger with Merry Land. ▇.▇. ▇▇▇▇▇▇'▇ presentation included a
discussion of (i) the fairness from a financial point of view to EQR of the
consideration to be paid by EQR in the proposed merger; (ii) a summary of the
financial terms of the proposed merger; (iii) a valuation analysis; and (iv) a
discussion of the impact of the proposed merger on EQR. Also included in ▇.▇.
▇▇▇▇▇▇'▇ oral presentation of its fairness opinion were (i) an outline of ▇.▇.
▇▇▇▇▇▇'▇ fairness opinion process; (ii) a pro forma merger analysis; (iii) a
share price analysis; (iv) a public trading multiples analysis; (v) a selected
transactions analysis; (vi) a share trading history analysis; (vii) an
historical exchange ratio analysis; (viii) a net asset value analysis; and (ix)
a MRYP Newco analysis. See "The Merger -- Opinion of Financial Advisor -- EQR."
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EQR's special legal counsel presented and explained the terms of the Merger
Agreement to the EQR Board of Trustees including closing conditions, termination
rights and liquidated damages and expense reimbursement provisions, and advised
the EQR Board of Trustees of their fiduciary obligations.
Following such presentations, the EQR Board of Trustees discussed the
advantages and disadvantages to EQR of the Merger. After extensive discussion,
the Board of Trustees of EQR concluded that the advantages of the Merger
outweighed the potential risks and the EQR Trustees who voted on the Merger
unanimously approved the Merger Agreement and the related agreements
contemplated thereby, and authorized EQR management to enter into such
agreements. ▇.▇. ▇▇▇▇▇▇ rendered its oral opinion to the effect that, as of that
date and subject to the assumptions made, procedures followed, matters
considered and limits of its review, the consideration to be paid by EQR in
connection with the Merger is fair, from a financial point of view, to EQR. ▇.▇.
▇▇▇▇▇▇'▇ written opinion confirming its oral opinion was delivered on July 8,
1998.
Also on July 8, 1998, special meetings of the Merry Land Board of Directors
and its compensation committee reconvened with Merry Land directors, members of
management, representatives of ▇▇▇▇▇▇ ▇▇▇▇▇▇▇, representatives of ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇ LLP and legal counsel present. At such meeting, the Merry Land Board of
Directors was updated on the status of discussions with EQR regarding the
potential merger transaction between Merry Land and EQR. ▇▇. ▇▇▇▇▇▇▇ and others
reviewed with the Board of Directors (i) the background of the proposed merger
and spin-off transaction and the material terms of these transactions, (ii)
pertinent due diligence findings with respect to EQR, with particular emphasis
on the current operations and properties of EQR, and (iii) the potential
benefits as well as the risks of the proposed merger transaction as described
below under "-- Advantages and Disadvantages of the Merger; Recommendation of
the Merry Land Board of Directors." In addition, advisors to Merry Land
presented to the Merry Land Board of Directors information regarding
compensation and severance related matters.
Representatives of ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ presented its financial analysis of the
merger transaction, and delivered its oral opinion, subsequently confirmed in
writing to the Merry Land Board of Directors, that as of that date, based upon
and subject to the facts and circumstances as they existed at that time, and
based upon and subject to certain assumptions, factors and limitations, the
Merger Consideration to be received by the Merry Land Common Shareholders
pursuant to the Merger Agreement is fair from a financial point of view to such
shareholders.
▇▇▇▇▇ ▇▇▇▇'s legal counsel made a presentation to the Merry Land Board of
Directors in which it explained the material terms of the proposed transactions
and agreements related thereto, briefed the Board of Directors on certain legal
issues raised by the proposed merger transaction and advised the Board of
Directors of its fiduciary duties in connection with such transactions.
Following such presentations, and after extensive discussion of the
advantages and disadvantages of the proposed merger transaction as described
under "-- Advantages and Disadvantages of the Merger; Recommendations of the
Merry Land Board of Directors," the Board of Directors of Merry Land concluded
that the advantages of the Merger and Distribution outweighed the potential
risks, and unanimously approved the Merger, the Distribution, the Merger
Agreement and all transactions contemplated thereby.
The Merger Agreement was executed on July 8, 1998.
ADVANTAGES AND DISADVANTAGES OF THE MERGER; RECOMMENDATION OF THE EQR BOARD OF
TRUSTEES
The EQR Board of Trustees believes that the Merger, including the
consideration, is fair and in the best interests of EQR and its shareholders.
Accordingly, the EQR Trustees who voted on the Merger unanimously approved the
Merger and unanimously recommended approval of the Merger by the shareholders of
EQR.
Advantages
In reaching this determination, the EQR Board of Trustees consulted with
EQR management, as well as its financial advisors, ▇.▇. ▇▇▇▇▇▇, legal counsel
and accountants and considered a number of factors. The
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material factors that the EQR Board of Trustees considered in approving the
Merger, which it deemed favorable, are as follows:
(i) Leadership Position in Multifamily Property Industry. The EQR
Board of Trustees believes that the Merger would solidify EQR's leadership
position in the multifamily property industry. The EQR Board of Trustees
viewed this as favorable because, based upon the number of properties owned
by EQR and Merry Land as of June 30, 1998 the combined entity would own or
have interests in and operate approximately 638 multifamily properties
consisting of 183,558 apartment units.
(ii) Increase in Market Capitalization. Upon completion of the Merger,
the combined market capitalization of EQR would increase to approximately
$12 billion (based on EQR's market capitalization as of June 30, 1998) and
EQR's debt to total market capitalization ratio would be moderately
reduced.
(iii) Increased Access to Capital Markets. The Merger would improve
EQR's access to the public debt and equity markets which the EQR Board of
Trustees viewed as a favorable means to support EQR's continued growth.
(iv) Cost Savings and Operating Efficiencies. The EQR Board of
Trustees believes that the Merger would increase operating efficiency
through economies of scale, which the EQR Board of Trustees viewed as
favorable because the combined entity would realize significant savings in
overhead and expenses (such savings are initially estimated to be
approximately $8.4 million per annum).
(v) Expansion in Southern Market. The EQR Board of Trustees believes
that the combination of the Merry Land properties with those of EQR will
expand EQR's ownership and operation of properties in the southern United
States. The EQR Board of Trustees viewed this as favorable because the EQR
Board of Trustees believes that this region has favorable conditions and
that the properties of Merry Land will balance EQR's total property
portfolio. The EQR Board of Trustees also viewed as favorable the fact that
nearly 40% of the assets of Merry Land were built after 1994 and that the
average age of all the Merry Land properties is approximately eight years.
(vi) Greater Growth Opportunities. The EQR Board of Trustees believes
that as a result of the Merger, EQR would be a larger and financially
stronger company, which would facilitate combinations with other public or
private entities. The EQR Board of Trustees viewed this as favorable
because it would provide another efficient and attractive means of growth.
(vii) Use of Equity Rather than Cash. The EQR Board of Trustees viewed
as favorable the fact that the Merger could be effected through the
issuance of new equity valued at approximately $1.4 billion (based upon the
closing price of EQR Common on July 8, 1998) rather than cash.
(viii) ▇.▇. ▇▇▇▇▇▇ Fairness Opinion. ▇.▇. ▇▇▇▇▇▇ delivered a written
opinion dated July 8, 1998 to the effect that, as of such date and based
upon and subject to the assumptions made, matters considered and
limitations on the review undertaken by ▇.▇. ▇▇▇▇▇▇ in rendering its
opinion, the consideration to be paid by EQR in connection with the Merger
was fair, from a financial point of view, to EQR. The EQR Board of Trustees
viewed such opinion as favorable not only because of the conclusion reached
by ▇.▇. ▇▇▇▇▇▇, but also because such conclusion was consistent with the
opinion of EQR's management.
(ix) Terms of the Merger Agreement. The EQR Board of Trustees believes
the terms of the Merger to be fair to EQR and its shareholders.
(x) Tax-Free Nature of the Merger. Under generally accepted accounting
principles, the Merger will be accounted for as a purchase, and for Federal
income tax purposes the Merger will be a tax-free transaction, which the
EQR Board of Trustees viewed as favorable because, with certain possible
exceptions, no gain or loss will be recognized by EQR, Merry Land or
shareholders of Merry Land with respect to the shares of EQR Common to be
received in exchange for shares of Merry Land Common (except with respect
to any cash received in lieu of a fractional interest in a share of EQR
Common).
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Disadvantages
The EQR Board of Trustees also considered certain potentially negative
factors which could result from the Merger. These included the following:
(i) Cost of the Transactions. The EQR Board of Trustees considered the
significant cost involved in connection with the consummation of the Merger
and the substantial management time and effort required to effectuate the
Merger and to integrate the businesses of EQR and Merry Land.
(ii) Increase of Debt. The EQR Board of Trustees considered that the
Merger would increase the debt of EQR. EQR will assume all of Merry Land's
outstanding debt which, at June 30, 1998, was approximately $655 million.
The EQR Board of Trustees recognized this increase could adversely affect
the ability of EQR to obtain debt financing for additional growth and would
subject EQR to the risks of higher leverage. Overall, however, the EQR
Board of Trustees noted that despite the increase in debt, the ratio of
EQR's debt to total market capitalization would be moderately reduced.
(iii) Benefits not Fully Realized. The EQR Board of Trustees
considered the risk that the anticipated benefits of the Merger might not
be fully realized.
(iv) Management of Additional Units. The EQR Board of Trustees
considered the ability of EQR to manage approximately 34,990 (including
2,560 under development or construction) additional apartment units.
The EQR Board of Trustees did not believe that the negative factors were
sufficient, either individually, or in the aggregate, to outweigh the advantages
of the Merger.
Other Considerations
The EQR Board of Trustees viewed as adequate the conditions to the closing
in the Merger Agreement, including the condition that no change in the financial
condition, business or operations of Merry Land will have occurred that would
have a material adverse effect.
In view of the wide variety of factors considered in connection with its
evaluation of the Merger, the EQR Board of Trustees did not find it practicable
to, and did not, quantify or otherwise attempt to assign relative weight to the
specific factors considered in reaching its determination.
The EQR Board of Trustees view the indemnification provisions relating to
Merry Land directors, officers and ESOP trustee as a continuing responsibility
and approved the continuation of the indemnification of the Merry Land
directors, officers and ESOP trustee as part of the negotiated transaction.
Recommendation
The EQR Board of Trustees believes that the Merger is fair to and in the
best interests of EQR and its shareholders and recommends that the EQR Common
Shareholders vote for the Merger.
In the event that the Merger is not consummated for any reason, EQR will
continue to pursue its business objectives.
ADVANTAGES AND DISADVANTAGES OF THE MERGER; RECOMMENDATION OF THE MERRY LAND
BOARD OF DIRECTORS
At a special meeting of the Merry Land Board of Directors held on July 8,
1998, members of Merry Land management, representatives of ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ LLP
and legal counsel made presentations concerning the proposed Merger, related
transactions and the business and prospects of Merry Land, EQR and MRYP Newco.
Representatives of ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ also made a presentation concerning the
proposed Merger, related transactions and business and prospects of Merry Land
and EQR. As part of its deliberations, the Merry Land Board of Directors
considered, among other factors, the age, condition and geographic
diversification of EQR's assets, the depth and experience of its management and
its credit rating and analyzed its capital structure, funds from operations and
debt to total market capitalization ratio, as well as its future prospects and
opportunities for growth as a combined company with Merry Land. The Merry Land
Board of Directors
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also reviewed the terms of the Merger Agreement and the Asset Exchange Agreement
with Merry Land's management and Merry Land's financial and legal advisors. By
unanimous vote, the Merry Land Board of Directors determined that the Merger and
the Distribution were fair to, and in the best interests of, Merry Land and its
shareholders, approved and adopted the Merger Agreement, the Asset Exchange
Agreement and the transactions contemplated thereby, and resolved to recommend
that Merry Land's shareholders approve the Merger. Although Merry Land Common
Shareholders are not being asked to approve the Distribution, approval of the
Merger will, in effect, constitute approval of the Distribution.
The Merry Land Board of Directors believes that the Merger offers Merry
Land's shareholders an opportunity to take advantage of the general trend in the
real estate industry towards consolidation, by affording shareholders a
significant participation in a much larger and more geographically diversified
REIT with greater potential for long-term appreciation and improved access to
capital markets.
In making its determination with respect to the Merger and the
Distribution, the Merry Land Board of Directors also considered, among other
things, that:
(i) the premium to recent stock prices for the Merry Land Common
reflected by the Exchange Ratio, and the potential for EQR to have a higher
dividend growth rate than Merry Land in the future;
(ii) in the opinion of the Merry Land Board of Directors, the Merger
provides Merry Land shareholders a significant participation in a larger,
more geographically diverse REIT with greater potential for long-term
appreciation. In this regard, the Merry Land Board of Directors considered
the discussions management conducted with investment banking firms
regarding possible strategic combinations, as well as EQR's size, financial
resources, geographic diversification, credit rating, access to lower cost
capital and the expertise and experience of EQR's management;
(iii) the anticipated increase in the geographic distribution of the
apartment assets of, the anticipated increased financial strength of, and
the anticipated cost savings and operating efficiencies available to, EQR
following the Merger, particularly from a reduction of general and
administrative overhead expenses, the costs of capital, bulk purchasing,
advertising and property management, would benefit the shareholders of
Merry Land who, as a result of the Merger, would become shareholders of
EQR;
(iv) the terms of the Merger Agreement and the Distribution, which the
Merry Land Board of Directors believed to be fair to Merry Land and its
shareholders, which terms were reached through extensive arms-length
negotiations. In this regard, the Merry Land Board of Directors noted that
the Exchange Ratio fairly reflected the relative contributions of both
companies to the combined entity and represented an attractive opportunity
for shareholders to continue their investment and maintain their receipt of
quarterly dividends, but with significantly expanded geographic
diversification;
(v) following the Merger, EQR will have significantly greater market
capitalization than Merry Land, which could provide shareholders increased
liquidity after the Merger. In this regard, the Board noted that the
post-Merger market capitalization of EQR is expected to be approximately
$10 billion greater than the then current market capitalization of Merry
Land, and EQR would have approximately 120,700,000 shares of EQR Common
outstanding after the Merger;
(vi) the Distribution will enable Merry Land shareholders to
separately participate in the value of the MRYP Newco Properties (as
defined herein) because EQR did not wish to acquire such assets;
(vii) the "stock-for-stock," rather than "cash-for-stock" structure of
the Merger, which, among other things, will cause the Merger to be tax-free
to the shareholders of Merry Land;
(viii) the opinion, analyses and presentations of ▇▇▇▇▇▇ ▇▇▇▇▇▇▇,
including the opinion that the Merger Consideration to be received by the
Merry Land Common Shareholders pursuant to the Merger Agreement, is fair
from a financial point of view to such shareholders, which supported the
conclusions reached by the Board after its own deliberations and analyses;
and
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(ix) the fixed Exchange Ratio and the possibility that the value of
the consideration to be received by the Merry Land Common Shareholders
could increase.
The Merry Land Board of Directors also considered certain potentially
negative factors in its deliberations concerning the Merger, including, among
others:
(i) the risk that the anticipated benefits of the Merger might not be
fully realized;
(ii) the significant costs involved in connection with consummating
the Merger;
(iii) the fixed Exchange Ratio and the risk that the value of the
consideration to be received could decrease;
(iv) the substantial management time and effort required to effectuate
the Merger;
(v) the possibility that Merry Land may be required, if the Merger
Agreement is terminated under certain circumstances, to pay EQR the
Break-Up Fee and/or the EQR Break-Up Expenses;
(vi) that the current dividend rate payable with respect to the EQR
Share Equivalent is less than the current dividend rate payable with
respect to the Merry Land Common; and
(vii) that MRYP Newco will be a substantially smaller company subject
to numerous risks, including the risk that MRYP Newco Common may decrease
in value after the Distribution.
In addition to the above factors, the Merry Land Board of Directors was
mindful of and evaluated the actual and potential conflicts of interest,
including the compensation arrangements benefitting members of management and
the Merry Land Board of Directors. See "Interests of Certain Persons in the
Transactions." In view of the wide variety of factors considered by the Merry
Land Board of Directors, the Merry Land Board of Directors did not quantify or
otherwise attempt to assign relative weights to the specific factors considered
in making its determination. However, after due consideration of their fiduciary
obligations, in the unanimous view of the Merry Land Board of Directors, the
potential conflicts of interest and potentially negative factors considered by
it were not sufficient, either individually or collectively, to outweigh the
positive factors considered by it in its deliberations relating to the Merger
and the Distribution.
OPINION OF FINANCIAL ADVISOR -- EQR
At the meeting of the EQR Board of Trustees on July 8, 1998, ▇.▇. ▇▇▇▇▇▇
rendered its oral opinion to the EQR Board of Trustees that, as of such date,
the consideration to be paid by EQR in connection with the proposed Merger is
fair from a financial point of view to EQR. ▇.▇. ▇▇▇▇▇▇ confirmed its oral
opinion by delivering its written opinion to the EQR Board of Trustees, dated
July 8, 1998, that, as of such date, the consideration to be paid by EQR in
connection with the proposed Merger was fair from a financial point of view to
EQR. No limitations were imposed by the EQR Board of Trustees upon ▇.▇. ▇▇▇▇▇▇
with respect to the investigations made or procedures followed by it in
rendering its opinions.
The full text of the written opinion of ▇.▇. ▇▇▇▇▇▇, which sets forth the
assumptions made, matters considered and limits on the review undertaken, is
attached as Appendix D to this Joint Proxy Statement/ Prospectus/Information
Statement and is incorporated herein by reference. EQR shareholders are urged to
read the opinion carefully and in its entirety. ▇.▇. ▇▇▇▇▇▇'▇ written opinion is
addressed to the EQR Board of Trustees, is directed only to the consideration to
be paid in connection with the Merger and does not constitute a recommendation
to any shareholder of EQR as to how such shareholder should vote at the EQR
Special Meeting. The summary of the opinion of ▇.▇. ▇▇▇▇▇▇ set forth in this
Joint Proxy Statement/Prospectus/ Information Statement is qualified in its
entirety by reference to the full text of such opinion.
In arriving at its opinion, ▇.▇. ▇▇▇▇▇▇ reviewed, among other things, (i)
the Merger Agreement, (ii) certain publicly available information concerning the
business of Merry Land and of certain other companies engaged in businesses
comparable to those of Merry Land, and the reported market prices for certain
other companies' securities deemed comparable, (iii) publicly available terms of
certain transactions involving companies comparable to Merry Land and the
consideration received for such companies, (iv) current and historical market
prices of Merry Land Common, (v) audited financial statements of EQR
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and Merry Land for the fiscal year ended December 31, 1997, and unaudited
financial statements of EQR and Merry Land for the three months ended March 31,
1998, (vi) certain agreements with respect to outstanding indebtedness or
obligations of EQR and Merry Land, (vii) certain internal financial forecasts
and estimates of budgeted 1999 funds from operations and net operating income
prepared by EQR and Merry Land and their respective managements, and (viii) the
terms of other business combinations deemed relevant by ▇.▇. ▇▇▇▇▇▇. ▇.▇. ▇▇▇▇▇▇
also held discussions with certain members of the managements of EQR and Merry
Land with respect to certain aspects of the Merger, and the past and current
business operations of EQR and Merry Land, the financial condition and future
prospects and operations of EQR and Merry Land, the effects of the Merger on the
financial condition and future prospects of EQR and Merry Land, and certain
other matters believed necessary or appropriate to ▇.▇. ▇▇▇▇▇▇'▇ inquiry. In
addition, ▇.▇. ▇▇▇▇▇▇ reviewed such other financial studies and analyses and
considered such other information as it deemed appropriate for the purposes of
its opinion.
▇.▇. ▇▇▇▇▇▇ relied upon and assumed, without independent verification, the
accuracy and completeness of all information that was publicly available or that
was furnished to it by EQR and Merry Land or otherwise reviewed by ▇.▇. ▇▇▇▇▇▇,
and ▇.▇. ▇▇▇▇▇▇ has not assumed any responsibility or liability therefor. ▇.▇.
▇▇▇▇▇▇ has not conducted any valuation or appraisal of any assets or liabilities
of EQR, Merry Land or MRYP Newco, nor have any valuations or appraisals been
provided to ▇.▇. ▇▇▇▇▇▇. In relying on financial analyses and forecasts provided
to ▇.▇. ▇▇▇▇▇▇, ▇.▇. ▇▇▇▇▇▇ has assumed that they have been reasonably prepared
based on assumptions reflecting the best currently available estimates and
judgments by management as to the expected future results of operations and
financial condition of EQR and Merry Land to which such analyses or forecasts
relate. ▇.▇. ▇▇▇▇▇▇ has also assumed that the Merger will have the tax
consequences described in discussions with, and materials furnished to ▇.▇.
▇▇▇▇▇▇ by, representatives of EQR, and that the other transactions contemplated
by the Merger Agreement will be consummated as described in the Merger
Agreement.
The projections of (i) real estate net operating income ("Real Estate
NOI"), (ii) earnings before interest, taxes, depreciation and amortization
("EBITDA") and (iii) funds from operations ("FFO") utilized by ▇.▇. ▇▇▇▇▇▇ in
connection with its opinion were, in the case of EQR, based on estimates
prepared by ▇.▇. ▇▇▇▇▇▇'▇ equity analyst, as augmented by discussions with
management of EQR, and, in the case of Merry Land, based on estimates prepared
by EQR, as adjusted to reflect MRYP Newco. The projections of FFO per share for
EQR were provided by First Call, an online data service available to subscribers
which compiles earnings estimates by research analysts and, in the case of Merry
Land, based on estimates prepared by EQR. This resulted in projected 1999 Real
Estate NOI, EBITDA, FFO and FFO per share of approximately $849.8 million,
$853.2 million, $504.9 million, and $4.45 per share, respectively, for EQR, and
approximately $188.3 million, $190.9 million, $129.5 million, and $2.35 per
share, respectively, for Merry Land.
No representation or warranty was made by any party with respect to these
projections. Financial projections are subject to contingencies beyond
management's control, and realization of the projections depends on numerous
factors, including among other things, the cost of integrating the companies,
the completion of pending developments, the actual cost in relation to such
projects and decisions by management to modify business plans to address
changing needs and a changing operating environment. All material events and
circumstances cannot be predicted and unanticipated events and circumstances are
likely to occur. Accordingly, there may be differences between the projected
results of operations and the actual results of operations of the respective
companies, and such differences could be material. In the event that the
financial projections prove to be materially different, the conclusions reached
in the opinion of ▇.▇. ▇▇▇▇▇▇ could be materially affected.
▇.▇. ▇▇▇▇▇▇'▇ opinions are based on economic, market and other conditions
as in effect on, and the information made available to ▇.▇. ▇▇▇▇▇▇ as of, the
date of such opinions. Subsequent developments may affect the written opinion
dated July 8, 1998, and ▇.▇. ▇▇▇▇▇▇ does not have any obligation to update,
revise, or reaffirm such opinion. ▇.▇. ▇▇▇▇▇▇ expressed no opinion as to the
price at which ▇▇▇'s or MRYP Newco's stock will trade at any future time.
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In accordance with customary investment banking practice, ▇.▇. ▇▇▇▇▇▇
employed generally accepted valuation methods in reaching its opinion. The
following is a summary of the material analyses utilized by ▇.▇. ▇▇▇▇▇▇ in
connection with providing its opinion.
Pro Forma Merger Analysis. ▇.▇. ▇▇▇▇▇▇ analyzed the effect of the Merger
on, among other things, the estimated First Call FFO ("First Call FFO") per
share EQR Common for the year ended December 31, 1999. In doing so, ▇.▇. ▇▇▇▇▇▇
combined the estimated 1999 operating results for Merry Land and EQR and assumed
certain savings in accounting and general and administrative expense per
estimates provided by the management of EQR. ▇.▇. ▇▇▇▇▇▇ observed a total
projected post-Merger incremental accretion of $0.03 (0.7%) to EQR's First Call
1999 FFO estimates of $4.45 per share. The analysis assumed the July 2, 1998
closing price of $46.56 per share of EQR Common in calculating the purchase
price for Merry Land Common.
▇.▇. ▇▇▇▇▇▇ also analyzed the effect of the Merger on EQR's pro forma
equity market capitalization and total capitalization, and 1999 pro forma
leverage ratios and dividend payout ratio. In this regard, ▇.▇. ▇▇▇▇▇▇ noted
that the pro forma equity market capitalization for EQR would be approximately
$6.6 billion, assuming a share price of $46.56 (EQR's closing share price on
July 2, 1998) and 142.6 million shares of EQR Common outstanding (assuming
conversion of all of Merry Land's outstanding convertible preferred stock) after
completion of the Merger, and a total post-transaction pro forma capitalization
of approximately $12 billion. ▇.▇. ▇▇▇▇▇▇ further noted that (i) EQR's ratio of
debt to total capitalization would decrease slightly, upon completion of the
Merger, from 39.0% prior to the Merger to 38.3% after the assumption of Merry
Land's outstanding debt plus the incremental debt incurred from the payment of
certain transaction costs and (ii) the ratio of debt plus preferred stock to
total capitalization would also decrease slightly from 48.2% to 47.0%. Assuming
a post-transaction annual distribution for EQR of $2.68 per share of EQR Common,
its pro forma distribution payout ratio would be 59.8%, as compared to 60.2%
prior to the Merger.
Public Trading Multiples Analysis. Using publicly available information,
▇.▇. ▇▇▇▇▇▇ compared selected financial and stock market data of Merry Land with
similar data for selected publicly traded companies (each, a "Comparable
Company" and, collectively, the "Comparable Companies") engaged in businesses
which ▇.▇. ▇▇▇▇▇▇ judged to be analogous to that of Merry Land's. The companies
selected by ▇.▇. ▇▇▇▇▇▇ were Apartment Investment and Management Company, Avalon
Bay Communities, Inc., Irvine Apartment Communities, Inc., Post Properties,
Inc., Security Capital Pacific Trust, United Dominion Realty Trust, Inc., BRE
Properties, Inc., Camden Property Trust, Essex Property Trust, Inc., Gables
Residential Trust, Security Capital Atlantic Incorporated, ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Residential Realty, Inc., Summit Properties Inc., and Walden Residential
Properties, Inc. These companies were selected, among other reasons, because of
their specialization in the multifamily REIT sector.
For each Comparable Company, publicly available financial performance data
through the three months ended March 31, 1998 was measured. ▇.▇. ▇▇▇▇▇▇
calculated the multiples of current stock price, as of July 2, 1998, to
analysts' estimates for 1999 consensus FFO as reported by First Call for each of
the Comparable Companies to determine the 1999 FFO trading multiples. ▇.▇.
▇▇▇▇▇▇'▇ calculations resulted in a range of 1999 FFO multiples from 8.8x to
11.5x. These multiples were then applied to Merry Land's 1999 FFO per share
estimate prepared by EQR and adjusted for MRYP Newco, yielding a range of
implied trading values for Merry Land Common of approximately $20.68 to $27.02
per share.
Selected Transaction Analysis. Using publicly available information, ▇.▇.
▇▇▇▇▇▇ examined selected transactions with respect to purchase price per share
to calculate FFO transaction multiples. Specifically, ▇.▇. ▇▇▇▇▇▇ reviewed the
following 14 transactions (collectively, the "Transaction Comparables") that it
deemed relevant: Security Capital Pacific Trust/Security Capital Atlantic
Incorporated, Bay Apartment Communities, Inc./Avalon Properties, Inc., United
Dominion Realty Trust, Inc./ASR Investments Corporation, Apartment Investment
and Management Company/Ambassador Apartments, Inc., Camden Property Trust/Oasis
Residential, Inc., Equity Residential Properties Trust/▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
Residential, Inc., Post Properties, Inc./Columbus Realty Trust, Equity
Residential Properties Trust/Wellsford Residential Property Trust, Camden
Property Trust/Paragon Group, Inc., United Dominion Realty Trust, Inc./South
West Property Trust, BRE Properties, Inc./Real Estate Investment Trust of
California, Mid-America Apartment
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Communities, Inc./America First REIT, Inc., Property Trust of America/Security
Capital Pacific Trust, and Wellsford Residential Properties Trust/▇▇▇▇▇
Residential Properties Trust. ▇.▇. ▇▇▇▇▇▇ observed a range of transaction
multiples from 8.3x to 12.5x based on consensus First Call FFO estimates for the
acquired companies. This range was then applied to Merry Land's 1999 FFO per
share prepared by EQR and adjusted for MRYP Newco, resulting in a range of
equity values for Merry Land Common of between $19.51 and $29.38 per share.
Transaction Premia Analysis. Using publicly available information, ▇.▇.
▇▇▇▇▇▇ examined the premia paid for the Transaction Comparables listed above.
▇.▇. ▇▇▇▇▇▇ observed a range of transaction premia from -2.2% to 20.8% based on
the target share price one week prior to announcement of the transaction and the
acquirer share price as of the transaction completion date (in the case of a
pending transaction, acquirer share price from the date of announcement was
used). This range was then applied to Merry Land's closing price (as adjusted by
$0.47 for MRYP Newco) of $21.47 on July 2, 1998, resulting in a range of equity
values for Merry Land Common of between $21.00 and $25.94 per share.
In addition, ▇.▇. ▇▇▇▇▇▇ reviewed mergers and acquisitions of U.S. public
companies in negotiated transactions with values over $50 million to derive a
range of premia paid over the public trading prices per share five days prior to
the announcement of such transactions for the periods from 1996 to 1998. ▇.▇.
▇▇▇▇▇▇ noted that the reasons for, and circumstances surrounding, each of the
transactions analyzed were diverse and that premia fluctuate among different
industry sectors and based on perceived growth, synergies, strategic value and
the type of consideration utilized in the transaction. The analyses indicated
that the median of premia paid over the public trading prices was 25.9% in the
period from 1996 to 1998. ▇.▇. ▇▇▇▇▇▇ applied this median premium to Merry
Land's closing price (as adjusted by $0.47 for MRYP Newco) of $21.47 on July 2,
1998, to derive an implied price per share of Merry Land Common of $27.03.
Net Asset Value Analysis. Using the publicly available unaudited results
for each company for the period ending March 31, 1998, ▇.▇. ▇▇▇▇▇▇ calculated
the Net Asset Value ("NAV") per share of Merry Land Common. In so doing, ▇.▇.
▇▇▇▇▇▇ applied a range of capitalization rates from 8.50% to 9.50% to
projections for Merry Land's 1999 Real Estate NOI as estimated by EQR, in order
to calculate a gross real estate value, to which was added the gross value of
other assets, less each company's respective outstanding debt and liabilities,
to arrive at an equity NAV. The equity NAV per share was then calculated by
dividing the equity NAV by the number of common shares outstanding, as adjusted
for MRYP Newco. This analysis indicated an implied range for the price of Merry
Land Common of $20.65 to $24.87 per share.
Contribution Analysis. ▇.▇. ▇▇▇▇▇▇ reviewed certain estimated future
operating and financial information (including, among other things, Real Estate
NOI, EBITDA and FFO) for EQR and Merry Land for 1999 on a fully diluted basis.
Based upon 1999 contribution, including synergies and accounting adjustments,
Merry Land is expected to contribute 18.2% of Real Estate NOI, 18.7% of EBITDA
and 21.0% of FFO, and maintain a 20.5% equity ownership in the combined entity.
MRYP Newco Analysis. As part of its opinion, ▇.▇. ▇▇▇▇▇▇ reviewed the terms
of EQR's investments in and commitments to MRYP Newco. These include the
following items: (i) a one year senior term loan of up to $25 million bearing
interest of LIBOR plus 2.50%, of which $18.3 million will be funded at the
closing of the Merger, (ii) a 15-year senior subordinated term loan of $20
million, with a coupon of 8.00% in years one through five, stepping up to 14.25%
by year 15, and (iii) $5 million of 15-year cumulative preferred stock, with a
dividend of 8.00% in years one through five, stepping up to 14.25% by year 15.
▇.▇. ▇▇▇▇▇▇ noted that the terms of the Senior Subordinated Term Loan and
cumulative preferred stock retained in MRYP Newco by EQR may result in a slight
discount to face value when compared to market terms for comparable investments.
The summary set forth above does not purport to be a complete description
of the analyses or data presented by ▇.▇. ▇▇▇▇▇▇. The preparation of a fairness
opinion is a complex process and is not necessarily susceptible to partial
analysis or summary description. ▇.▇. ▇▇▇▇▇▇ believes that the summary set forth
above and its analyses must be considered as a whole and that selecting portions
thereof, without considering all of its analyses, could create an incomplete
view of the processes underlying its analyses and opinion. ▇.▇. ▇▇▇▇▇▇ based its
analyses on assumptions that it deemed reasonable, including assumptions
concerning general business and economic conditions and industry-specific
factors. The other principal assumptions upon which
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54
▇.▇. ▇▇▇▇▇▇ based its analyses are set forth above under the description of each
such analysis. ▇.▇. ▇▇▇▇▇▇'▇ analyses are not necessarily indicative of actual
values or actual future results that might be achieved, which values may be
higher or lower than those indicated. Moreover, ▇.▇. ▇▇▇▇▇▇'▇ analyses are not
and do not purport to be appraisals or otherwise reflective of the prices at
which businesses actually could be bought or sold.
As a part of its investment banking business, ▇.▇. ▇▇▇▇▇▇ and its
affiliates are continually engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, investments for passive
and control purposes, negotiated underwritings, secondary distributions of
listed and unlisted securities, private placements, and valuations for estate,
corporate and other purposes. ▇.▇. ▇▇▇▇▇▇ was selected to deliver an opinion to
the EQR Board of Trustees with respect to the Merger on the basis of such
experience and its familiarity with EQR.
For its services in connection with the Merger, ▇.▇. ▇▇▇▇▇▇ received an
engagement fee of $100,000 and a fee of $900,000 for the delivery of its
opinion. In the event the Merger is consummated, ▇.▇. ▇▇▇▇▇▇ will receive a
transaction fee of $3,000,000. In addition, EQR has agreed to reimburse ▇.▇.
▇▇▇▇▇▇ for its reasonable expenses incurred in connection with its services,
including the fees and disbursements of counsel, and agreed to indemnify ▇.▇.
▇▇▇▇▇▇ against certain liabilities, including liabilities arising under the
Federal securities laws.
▇.▇. ▇▇▇▇▇▇ and its affiliates (including ▇▇▇▇▇▇ Guaranty Trust Company of
New York) maintain banking and other business relationships with EQR and Merry
Land and their respective affiliates, pursuant to which ▇.▇. ▇▇▇▇▇▇ and its
affiliates have received customary fees. In the ordinary course of their
businesses, affiliates of ▇.▇. ▇▇▇▇▇▇ may actively trade the debt and equity
securities of EQR or Merry Land for their own accounts or for the accounts of
customers and, accordingly, they may at any time hold long or short positions in
such securities.
OPINION OF FINANCIAL ADVISOR -- MERRY LAND
▇▇▇▇▇ ▇▇▇▇ retained ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ to act as ▇▇▇▇▇ ▇▇▇▇'s financial advisor
in connection with the Merger and related matters based upon ▇▇▇▇▇▇ ▇▇▇▇▇▇▇'▇
qualifications, reputation and expertise. At the Merry Land Board of Directors
meeting on July 8, 1998, ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ rendered its oral opinion to the Merry
Land Board of Directors, subsequently confirmed in writing on July 8, 1998 (the
"▇▇▇▇▇▇ ▇▇▇▇▇▇▇ Opinion"), that as of such date, the Merger Consideration to be
received by Merry Land Common Shareholders pursuant to the Merger Agreement is
fair from a financial point of view to such holders.
A COPY OF THE ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ OPINION, WHICH SETS FORTH THE ASSUMPTIONS
MADE, MATTERS CONSIDERED AND LIMITATIONS OF THE REVIEW UNDERTAKEN, IS ATTACHED
AS APPENDIX E TO THIS JOINT PROXY STATEMENT/ PROSPECTUS/INFORMATION STATEMENT
AND IS INCORPORATED HEREIN BY REFERENCE. HOLDERS OF MERRY LAND COMMON ARE URGED
TO, AND SHOULD, READ THE ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ OPINION CAREFULLY AND IN ITS ENTIRETY.
THE ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ OPINION IS ADDRESSED TO THE MERRY LAND BOARD OF DIRECTORS AND
ADDRESSES ONLY THE FAIRNESS FROM A FINANCIAL POINT OF VIEW OF THE MERGER
CONSIDERATION TO BE RECEIVED BY HOLDERS OF MERRY LAND COMMON PURSUANT TO THE
MERGER AGREEMENT AND IT DOES NOT ADDRESS ANY OTHER ASPECT OF THE MERGER AND DOES
NOT CONSTITUTE A RECOMMENDATION TO ANY HOLDER OF MERRY LAND COMMON AS TO HOW
SUCH HOLDER SHOULD VOTE AT THE MERRY LAND SPECIAL MEETING. THE SUMMARY OF THE
▇▇▇▇▇▇ ▇▇▇▇▇▇▇ OPINION SET FORTH IN THIS JOINT PROXY
STATEMENT/PROSPECTUS/INFORMATION STATEMENT IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE FULL TEXT OF SUCH OPINION ATTACHED AS APPENDIX E.
For purposes of the ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ Opinion, ▇▇▇▇▇▇ ▇▇▇▇▇▇▇, among other
things (i) reviewed certain publicly available financial statements and other
information of Merry Land and EQR; (ii) reviewed certain internal financial
statements and other financial and operating data concerning Merry Land and EQR
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prepared by the managements of Merry Land and EQR, respectively; (iii) analyzed
certain financial projections for Merry Land and EQR prepared by the managements
of Merry Land and EQR, respectively; (iv) discussed the past and current
operations and financial condition and the prospects and long term plans of
Merry Land and EQR with senior executives of Merry Land and EQR, respectively;
(v) reviewed the reported prices and trading activity of Merry Land Common and
EQR Common; (vi) compared the financial performances of Merry Land and EQR and
the prices and trading activity of Merry Land Common and EQR Common with that of
certain other comparable publicly-traded companies and their securities; (vii)
discussed with senior management of Merry Land and EQR their estimates of the
synergies and cost savings expected to be derived from the Merger; (viii)
discussed the strategic objectives of the Merger and the plan for the combined
company with senior executives of Merry Land and EQR; (ix) reviewed the
financial terms, to the extent publicly available, of certain comparable
transactions; (x) reviewed the pro forma impact of the Merger on Merry Land's
funds from operations per share, consolidated capitalization and financial
ratios; (xi) participated in discussions and negotiations among representatives
of Merry Land and EQR and their financial and legal advisors; (xii) reviewed
drafts of the Merger Agreement and certain related documents; and (xiii)
performed such other analyses and considered such other factors as ▇▇▇▇▇▇
▇▇▇▇▇▇▇ deemed appropriate.
In rendering the ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ Opinion, ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ assumed and relied
upon without independent verification the accuracy and completeness of the
information reviewed by ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ for the purposes of its opinion. With
respect to the financial projections, ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ assumed that such
information has been reasonably prepared on bases reflecting the best currently
available estimates and judgments of the future financial performance of Merry
Land and of EQR. ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ relied upon, with ▇▇▇▇▇ ▇▇▇▇'s consent, the
assumptions of the managements of Merry Land and EQR regarding cost savings and
other synergies expected to result from the Merger. ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ did not make
any independent valuation or appraisal of the assets or liabilities of Merry
Land or EQR, nor was ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ furnished with any such appraisals. ▇▇▇▇▇▇
▇▇▇▇▇▇▇ also assumed that the Merger will be consummated in accordance with the
terms set forth in the Merger Agreement. The ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ Opinion is
necessarily based on financial, economic, market and other conditions as in
effect on, and the information made available to ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ as of July 8,
1998. In arriving at its opinion, ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ was not authorized to solicit,
and did not solicit, interest from any party with respect to the acquisition of
Merry Land, nor did ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ negotiate with any party other than EQR in
connection with a transaction involving Merry Land.
▇▇▇▇▇▇ ▇▇▇▇▇▇▇ was not requested to, and did not, separately value the MRYP
Newco Common to be received by holders of Merry Land. In addition, in preparing
its analysis, no adjustments were made to reflect the transfer of assets from
Merry Land to MRYP Newco.
At the meeting of the Merry Land Board of Directors held on July 8, 1998,
▇▇▇▇▇▇ ▇▇▇▇▇▇▇ presented certain financial analyses accompanied with written
materials in connection with the delivery of the ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ Opinion. The
following is a summary of certain of the financial and comparative analyses
performed by ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ in arriving at its July 8, 1998 opinion.
Stock Trading History. ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ reviewed the historical trading
prices for Merry Land Common and noted that the 52-week low and high share
prices of the company through July 2, 1998 were $20.125 and $24.125,
respectively. ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ also reviewed the historical trading prices for the
EQR Common and noted that the 52-week low and high share prices of EQR through
July 2, 1998 were $44.50 and $55.00, respectively.
▇▇▇▇▇▇ ▇▇▇▇▇▇▇ reviewed the premium obtained by computing the percentage
excess of the product of the average closing price of EQR Common and 0.53 over
the average closing price of Merry Land Common for the six-month period ended
July 2, 1998 and computed the average values of these premia for the last 60
days, 30 days and 10 days of this period. This premium averaged 19.9%, 18.3%,
and 17.0%, respectively, for these periods and was 12.5% on July 2, 1998.
Net Asset Value. ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ reviewed the net asset value estimates for
Merry Land as reported by Green Street Advisors and Realty Stock Review. In
their June 30, 1998 Real Estate Securities Monthly, Green Street Advisors
reported a net asset value estimate for the company of $21.25 per share. In the
May 29,
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1998 issue of Realty Stock Review, Realty Stock Review reported a consensus net
asset value for the company of $20.54 per share. ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ also reviewed
the net asset value estimates for EQR as reported by Green Street Advisors and
Realty Stock Review. In their June 30, 1998 Real Estate Securities Monthly,
Green Street Advisors reported a net asset value estimate for the company of
$42.50 per share. In the May 29, 1998 issue of Realty Stock Review, Realty Stock
Review reported a consensus net asset value for the company of $39.90 per share.
Based on the Exchange Ratio of 0.53, the premia obtained by computing the
percentage excess of the product of the average closing price of EQR Common for
the ten trading days ending five trading days prior to the announcement of the
Merger and 0.53 over the Green Street Advisors and Realty Stock Review net asset
values for Merry Land were 15.1% and 19.1%, respectively.
Historical Implied Exchange Ratios. ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ computed the historical
ratios of the closing share prices of Merry Land to EQR from July 2, 1997
through July 2, 1998 and noted that the approximate averages of such ratios were
0.445, 0.450, 0.442, and 0.448 for the one-year, six-month, three-month and
one-month periods, respectively, ended on July 2, 1998 as compared to the
Exchange Ratio of 0.53.
Analyses of Selected Comparable Publicly Traded Companies. ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
reviewed the trading statistics of selected comparable publicly traded apartment
▇▇▇▇▇, selected on the basis of size, portfolio characteristics and geographic
diversity. For Merry Land, comparable companies selected consisted of Amli
Residential Properties Trust, Gables Residential, Mid-America Apartment
Communities, Post Properties, Summit Properties, United Dominion Realty and
Walden Residential Properties. Based on consensus security analyst estimates for
1999, as reported by First Call, and July 2, 1998 closing share prices, the
trading multiples of 1999 projected FFO per share ranged from 8.2x to 10.6x,
with an average of 9.1x. Applying this range of multiples to the First Call
consensus 1999 FFO for Merry Land of $2.36 resulted in a range of values for
each share of Merry Land Common from $19.35 to $25.01.
For EQR, a broader list of companies was selected for comparison consisting
of those companies mentioned above as well as Avalon Bay Apartment Communities,
Irvine Apartment Communities, BRE Properties, Archstone, AIMCO, Essex Property
Trust, ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇, Home, Camden Property, Berkshire Realty, Town and
Country Trust, and Associated Estates. Based on consensus security analyst
estimates for 1999, as reported by First Call, and July 2, 1998 closing share
prices, the trading multiples of 1999 projected FFO per share ranged from 7.9x
to 11.7x, with an average of 9.7x. Applying this range of multiples to the First
Call consensus 1999 FFO for EQR of $4.45, and multiplying this result by the
Exchange Ratio, resulted in a range of values from $18.63 to $27.59.
No company utilized as a comparison in the comparable companies analysis is
identical to Merry Land or EQR. In evaluating the comparable companies, ▇▇▇▇▇▇
▇▇▇▇▇▇▇ made judgments and assumptions with regard to industry performance,
general business, economic, market and financial conditions and other matters,
many of which are beyond the control of Merry Land and EQR, such as the impact
of competition on Merry Land or EQR and the industry generally, industry growth
and the absence of any adverse material change in the financial condition and
prospects of Merry Land or EQR or the industry or in the financial markets in
general.
Multiple to Total Return Ratios. ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ reviewed the multiple to
total return ratios of the following comparable publicly traded multifamily
apartment REITs: Town & Country Trust; Irvine Apartment Communities; Avalon Bay
Apartment Communities; Essex Property Trust; BRE Properties; Archstone
Communities; ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇; Post Properties; Gables Residential; Camden
Property Trust; Berkshire Realty; Amli Residential Properties Trust; United
Dominion Realty; Walden Residential Properties; Summit Properties; Home
Properties of NY; AIMCO; Mid-America Apartment Communities; and Associated
Estates. The multiple to total return ratios were obtained by dividing the FFO
trading multiple for each company by its total return, which is the sum of its
annualized reported 1998 dividend yield and the consensus security analyst
estimate of the long term growth rate as reported by First Call. The multiple to
total return ratios range among comparable company group, excluding the high and
low values, ranged from 0.53 to 0.72. This range was applied to Merry Land's
total return of 15.3% to arrive at an implied FFO multiple range of 8.13x to
11.08x. Applying the First Call consensus security analyst estimate of 1999 FFO
per share of $2.36 yielded an implied range of values of $19.15 to $26.10 for
Merry Land. Similarly, when the range of multiples
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to total return was applied to EQR's total return of 15.16%, an implied FFO
multiple range of 8.04x to 10.96x resulted. When applied to EQR's First Call
estimate of 1999 FFO per share of $4.45, the implied range of values arrived at
was $35.74 to $48.72 for EQR.
Analyses of Selected Comparable Transactions. ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ compared the
principal terms of the Merger with those of selected other comparable
transactions. These transactions, all involving combinations of two public
apartment REITs, were the then pending mergers of Security Capital Atlantic with
Security Capital Pacific and Avalon Properties with Bay Apartment Communities;
and the mergers of Ambassador Apartment Communities with AIMCO in May 1998;
Oasis Residential with Camden Property Trust in April 1998; ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
Residential with Equity Residential Properties Trust in December 1997; Columbus
Realty Trust with Post Properties in October 1997; Wellsford Residential
Property Trust with Equity Residential Properties Trust in May 1997; Paragon
Group, Inc. with Camden Property Trust in April 1997; South West Property Trust
with United Dominion Realty in January 1997; and REIT of California with BRE
Properties in March 1996. Based on the average trading prices for the ten
trading days ending five trading days before the public announcement of each of
these transactions, the average premium paid for the company being acquired by
the surviving company was 10.8% and ranged from -1.0% to 20.7% for the selected
transactions. On the same computation basis, the premium to be paid by EQR
pursuant to the Merger for Merry Land is 18.1%.
No transaction utilized as a comparison in a comparable transaction
analysis is identical to the Merger in both timing and size and, accordingly, an
analysis of the results of the foregoing necessarily involves complex
considerations and judgments concerning financial and operating characteristics
of Merry Land and other factors that would affect the acquisition value of
companies to which it is being compared. In evaluating the selected comparable
transactions, ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ made judgments and assumptions with regard to
industry performance, general business, economic, market and financial
conditions and other matters, many of which are beyond the control of Merry
Land, such as the absence of any adverse material change in the financial
conditions and prospects of Merry Land or the industry or in the financial
markets in general. Mathematical analysis (such as determining the average or
median) is not in itself a meaningful method of using comparable transaction
data.
Pro Forma Merger Analysis. ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ performed an analysis of the
effect of the Merger on EQR's Pro Forma FFO per share for the projected years
ended December 31, 1998 and December 31, 1999, which assumed that the Merger had
been consummated on January 1, 1998. ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ combined the projected
operating results of Merry Land and EQR and estimated cost savings, based on
internal estimates provided by each company, to arrive at the pro forma
projected FFO. ▇▇▇▇▇▇ ▇▇▇▇▇▇▇'▇ analysis was based upon the exchange ratio of
0.53 for holders of Merry Land Common and estimated annual expense savings
resulting from the Merger and expected to arise primarily from savings in
duplicative public company and general and administrative expenses. ▇▇▇▇▇▇
▇▇▇▇▇▇▇ then compared this result with the stand-alone FFO per share to
determine the projected pro forma impact of the Merger on the pro forma FFO per
share of EQR Common per share. This analysis indicates that the pro forma EQR
FFO per share in each of 1998 and 1999 would be higher than the stand-alone
projections for EQR of FFO for each such year were the Merger not to occur.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to a partial analysis or summary description. ▇▇▇▇▇▇
▇▇▇▇▇▇▇ believes that its analyses must be taken as a whole and that selecting
portions of its analyses, without considering all analyses, would create an
incomplete view of the process underlying its opinion. In addition, ▇▇▇▇▇▇
▇▇▇▇▇▇▇ may have given various analyses more or less weight than other analyses
and may have deemed various assumptions more or less probable than other
assumptions, so that the ranges of valuations resulting for a particular
analysis described above should not be taken to be ▇▇▇▇▇▇ ▇▇▇▇▇▇▇'▇ view of
Merry Land and EQR.
In performing its analyses, ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ made numerous assumptions with
respect to industry performance, general business and economic conditions and
other matters, many of which are beyond the control of Merry Land and EQR. The
analyses performed by ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ are not necessarily indicative of actual
value, which may be significantly more or less favorable than suggested by such
analyses. Such analyses
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were prepared solely as a part of ▇▇▇▇▇▇ ▇▇▇▇▇▇▇'▇ analysis of whether the
Merger Consideration to be received by the Merry Land Common Shareholders
pursuant to the Merger Agreement is fair from a financial point of view to such
holders, and were conducted in connection with the delivery of the ▇▇▇▇▇▇
▇▇▇▇▇▇▇ Opinion. The analyses do not purport to be appraisals or to reflect the
prices at which Merry Land might actually be sold or to reflect the prices at
which the Merry Land Common, MRYP Newco Common or EQR Common might actually
trade. Because such estimates are inherently subject to uncertainty, none of
Merry Land, ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ or any other person assumes responsibility for their
accuracy. The ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ analyses described above should not be viewed as
determinative of the opinion of the Merry Land Board of Directors or the
management of Merry Land with respect to the value of Merry Land or of whether
▇▇▇▇▇▇ ▇▇▇▇▇▇▇ would have rendered an opinion of fairness with respect to, or
the Merry Land Board of Directors or the management of Merry Land would have
been willing to agree to, any consideration other than the consideration to be
received by Merry Land's shareholders pursuant to the Merger. The terms of the
Merger were determined through arm's-length negotiations between Merry Land and
EQR and were approved by the Merry Land Board of Directors. ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ did
not recommend any specific consideration to Merry Land or that the consideration
offered constituted the only appropriate consideration for the Merger.
The Merry Land Board of Directors retained ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ based upon its
experience and expertise. ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ is an internationally recognized
investment banking and advisory firm. As part of its investment banking
business, ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ is regularly engaged in the valuation of businesses and
securities in connection with mergers and acquisitions, negotiated underwriting,
competitive biddings, secondary distributions of listed and unlisted securities,
private placements and valuation for estate, corporate and other purposes. In
the ordinary course of its business, ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ and its affiliates may
actively trade the debt and equity securities or senior loans of Merry Land and
EQR for their own account and for the accounts of customers and, accordingly,
may at any time hold long or short positions in such securities or senior loans.
Pursuant to the terms of a June 3, 1998 letter agreement, as amended,
▇▇▇▇▇▇ ▇▇▇▇▇▇▇ is entitled to total fees for its representation of Merry Land in
the Merger of $2.0 million, which is payable upon consummation of the Merger, as
well as to reimbursement for reasonable expenses up to a maximum of $100,000. In
addition, Merry Land has agreed to indemnify ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ its affiliates,
their respective directors, officers, agents and employees, and each person, if
any, controlling ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ or any of its affiliates against certain
liabilities arising out of or in conjunction with its rendering of services
under its engagement, including liabilities under federal securities laws. In
the past, ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ and its affiliates have provided financing services for
Merry Land and EQR and have received fees for the rendering of those services.
EFFECTIVE TIME OF THE MERGER AND CLOSING DATE
The Closing will take place at 10:00 a.m. (local time) on the Closing Date
at the offices of ▇▇▇▇▇▇▇ & ▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇
▇▇▇▇▇, unless another date or place is agreed to in writing by the parties. The
Merger will become effective upon the latest of (i) the acceptance for record of
the Articles by the Department, (ii) the acceptance for record of the
Certificate by the Secretary or (iii) such time as EQR and Merry Land agree
should be specified in the Articles and the Certificate (not to exceed 30 days
after the Articles or the Certificate are accepted for record by the Department
or the Secretary, respectively). It is currently anticipated that the Merger
will be effective on or about October 15, 1998.
REPRESENTATIONS AND WARRANTIES; CONDITIONS TO THE MERGER
The Merger Agreement contains representations and warranties by EQR and
Merry Land regarding, among other things, their organization and good standing,
capitalization, ownership and capitalization of their subsidiaries,
qualification to do business, authority to enter into the Merger Agreement and
related agreements, filings with the Commission, reliability of financial
statements, compliance with applicable laws and regulations, taxation and
qualification as a REIT, properties, development rights (with respect to Merry
Land only), environmental matters, contracts, debt instruments, employee benefit
plans, undisclosed liabilities and the absence of certain legal proceedings and
other events, including material adverse changes in the parties' businesses,
financial condition or results of operations. These representations and
warranties will not survive the Effective Time.
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The respective obligations of EQR and Merry Land to effect the Merger are
subject to the following conditions: (i) approval of the Merger Agreement, and
the transactions contemplated therein, by the Merry Land Common Shareholders and
EQR Common Shareholders, (ii) approval by the NYSE of the listing of the shares
of EQR to be issued in the Merger and listed on the NYSE subsequent to the
Effective Time, (iii) the Registration Statement not being the subject of any
stop order or proceeding by the Commission seeking a stop order, (iv) no
injunctions or restraints being issued by any court of competent jurisdiction
preventing the consummation of the Merger, (v) compliance with all state
securities laws, (vi) execution of the Purchase and Sale Agreement between ERP
Operating Partnership and MRYP Newco, (vii) execution of the Preferred Stock
Purchase Agreement between ERP Operating Partnership and Merry Land, (viii)
execution of the Development Agreement between ERP Operating Partnership and
MRYP Newco, (ix) the receipt of the opinion of ▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ &
▇▇▇▇▇▇▇▇▇, LLP to the effect that the Merger Agreement and Articles are
enforceable under Maryland law, and (x) the receipt of the opinion of Hull,
▇▇▇▇▇▇, ▇▇▇▇▇▇ & ▇▇▇▇▇▇▇, P.C., to the effect that the Merger Agreement and
Certificate are enforceable under Georgia law.
The obligations of Merry Land and EQR to effect the Merger are subject to
the following additional conditions: (i) all representations and warranties made
by the parties shall be true and correct as of the Closing Date (other than
changes which occur solely by reason of the Spin-Off), which shall be deemed the
case unless the breach of such representations and warranties, in the aggregate,
could reasonably be expected to have a material adverse effect with respect to
such parties, (ii) each party shall have performed its obligations under the
Merger Agreement, (iii) as of the Closing Date, neither party, nor any of their
subsidiaries, will have suffered a material adverse change in its business,
financial condition or results of operations taken as a whole (a "Material
Adverse Change"), (iv) each party shall have received an opinion of counsel from
counsel to the other party stating that commencing with its taxable year ended
December 31, 1992, in the case of EQR, and December 31, 1987, in the case of
Merry Land, its client was organized and has operated in conformity with the
requirements for qualification as a REIT under the Code, (v) each party shall
have received an opinion of counsel dated as of the closing date, to the effect
that the Merger will qualify as a reorganization under the provisions of Section
368(a) of the Code, (vi) each party shall have received a "comfort letter" from
the other party's accountants, (vii) each party shall have received an opinion
from counsel to the other party addressing certain issues as set out in the
Merger Agreement, and (viii) the receipt of all consents and waivers from third
parties necessary in connection with the consummation of the transactions
contemplated by the Merger Agreement.
The obligation of EQR to effect the Merger is further subject to the
condition that Merry Land and MRYP Newco shall have executed the Asset Exchange
Agreement.
NO APPRAISAL RIGHTS
Shareholders of EQR are not entitled to dissenting shareholders' appraisal
rights under Maryland law. Maryland law does not provide appraisal rights to
shareholders of a REIT in connection with a merger if their shares are listed on
a national securities exchange, such as the NYSE, on the record date for
determining shareholders entitled to vote on such merger. All of the shares of
EQR outstanding on the record date for determining shareholders entitled to vote
on the Merger were listed on the NYSE.
Shareholders of Merry Land are not entitled to dissenting shareholders'
appraisal rights under Georgia law. Georgia law does not provide appraisal
rights to holders of shares which, at the record date fixed to determine the
shareholders entitled to receive notice of and to vote at a meeting at which a
plan of merger is to be acted on, were either listed on a national securities
exchange or held of record by more than 2,000 shareholders, unless such
shareholders are required under the plan of merger to accept for their shares
anything except shares of a publicly held corporation which at the effective
date of the merger are either listed on a national securities exchange or held
of record by more than 2,000 shareholders. All Merry Land Common outstanding on
the record date for determining shareholders entitled to vote on the Merger were
listed on the NYSE, as well as held of record by more than 2,000 shareholders,
and holders of such shares will be entitled to receive in the Merger EQR Common
that will, at the effective date of the Merger, be listed on the NYSE
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and held of record by more than 2,000 shareholders. Therefore, Merry Land Common
Shareholders are not entitled to dissenters' rights of appraisal.
Holders of Merry Land Preferred are not entitled to dissenters' rights of
appraisal because such holders are not entitled to vote on the Merger and
Georgia law does not provide dissenters' rights to shareholders who are not
entitled to vote on a plan of merger. Moreover, holders of Merry Land Series A,
Merry Land Series C and Merry Land Series E are also not entitled to dissenters'
rights because each such class of Merry Land Preferred was listed on the NYSE at
the record date for determining shareholders entitled to vote on the Merger and
holders of such shares will be entitled to receive in the Merger shares of EQR
Preferred that, at the effective date of the Merger, will be listed on the NYSE.
REGULATORY MATTERS
EQR and Merry Land believe that the Merger may be consummated without
notification being given or certain information being furnished to the Federal
Trade Commission (the "FTC") or the Antitrust Division of the Department of
Justice (the "Antitrust Division") pursuant to the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust
Improvements Act of 1976, as amended ("HSR Act"), and that no waiting period
requirements under the HSR Act are applicable to the Merger. However, at any
time before or after the Effective Time, either the Antitrust Division or the
FTC could take such action under the antitrust laws as it deems necessary or
desirable in the public interest, or certain other persons could take action
under the antitrust laws, including seeking to enjoin the Merger. EQR and Merry
Land believe that consummation of the Merger would not violate any antitrust
laws. However, there can be no assurance that a challenge to the Merger on
antitrust grounds will not be made or, if a challenge is made, what the result
will be.
TERMINATION PROVISIONS
The Merger Agreement provides that it may be terminated at any time prior
to the filing of the Articles with the Department, whether before or after
approval of the Merger by the shareholders of Merry Land and EQR, by mutual
written consent, duly authorized by the EQR Board of Trustees and the Merry Land
Board of Directors. In addition, the Merger Agreement may be terminated by EQR
or Merry Land (i) if the Merger has not been consummated by February 28, 1999
(provided the terminating party will not have breached in any material respect
its obligations under the Merger Agreement in any manner that will have
proximately contributed to the occurrence of such failure), (ii) upon a breach
of any representation, warranty, covenant, obligation or agreement, on the part
of the non-terminating party set forth in the Merger Agreement, such that
certain conditions set forth in the Merger Agreement would be incapable of being
satisfied by February 28, 1999, (iii) if the requisite vote of the shareholders
of EQR or Merry Land will not have been obtained at the meetings of such
shareholders, or (iv) if a judgment, injunction, order, decree or action by any
governmental entity of competent authority preventing the consummation of the
Merger becomes final and non-appealable.
The Merger Agreement also may be terminated by Merry Land, if prior to the
Merry Land Special Meeting, the Merry Land Board of Directors withdraws or
modifies its approval or recommendation of the Merger in connection with, or
approves or recommends, a Superior Acquisition Proposal. The Merger Agreement
may be terminated by EQR if (i) prior to the Merry Land Special Meeting, the
Merry Land Board of Directors withdraws or modifies in any manner adverse to EQR
its approval or recommendation of the Merger or the Merger Agreement in
connection with, or approves or recommends, a Superior Acquisition Proposal, or
(ii) Merry Land enters into a definitive agreement with respect to any
Acquisition Proposal.
The Merger Agreement defines an "Acquisition Proposal" as a proposal or
offer relating to a merger, acquisition, tender offer, exchange offer,
consolidation, sale of assets or similar transaction involving all or any
significant portion of the assets or any equity securities of Merry Land or any
of its subsidiaries, other than the transactions contemplated by the Merger
Agreement. The Merger Agreement defines a "Superior Acquisition Proposal" as a
bona fide Acquisition Proposal by a third party which a majority of the members
of the Merry Land Board of Directors determines in good faith to be more
favorable to Merry Land's shareholders from a financial point of view than the
Merger and which the Merry Land Board of Directors determines is reasonably
capable of being consummated.
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TERMINATION FEE AND EXPENSES
The Merger Agreement provides for certain payments by Merry Land to EQR in
connection with the termination of the Merger Agreement under certain
circumstances. These payments are (i) a Break-Up Fee of $45 million, plus (ii)
Break-Up Expenses equal to the out-of-pocket expenses incurred in connection
with the Merger Agreement and the transactions contemplated thereunder, up to a
maximum of $5 million. If the Merger Agreement is terminated due to the Merry
Land Board of Directors having withdrawn or modified its approval or
recommendation of the Merger or the Merger Agreement in connection with, or
having approved or recommended, a Superior Acquisition Proposal, or if Merry
Land will have entered into a definitive agreement with respect to any
Acquisition Proposal, Merry Land is obligated to pay EQR the Break-Up Fee.
Additionally, if the Merger Agreement is terminated due to a breach of any
representation, warranty, covenant, obligation or agreement by Merry Land or
EQR, or failure by either Merry Land or EQR to obtain the required shareholder
approval, then the breaching party, or the party which failed to obtain such
shareholder approval, shall pay to the other party an amount equal to the
Break-Up Expenses. If the Merger is not consummated, other than due to the
termination of the Merger Agreement by (i) the mutual written consent of the EQR
Board of Trustees and the Merry Land Board of Directors, (ii) either party, upon
the failure by EQR to obtain the required shareholder approval, (iii) Merry
Land, upon a breach of any representation, warranty, covenant, obligation or
agreement on the part of EQR resulting in a "material adverse effect" to EQR, or
(iv) EQR, if the Merger has not been consummated by February 28, 1999 and either
prior to the termination of the Merger Agreement or within 12 months thereafter,
Merry Land or any of its subsidiaries enters into any written Acquisition
Proposal which is subsequently consummated, Merry Land is required to pay the
Break-Up Fee to EQR. The payment of the Break-Up Fee shall be compensation and
liquidated damages for the loss suffered by EQR as a result of the failure of
the Merger to be consummated and to avoid the difficulty of determining damages
under the circumstances. Neither party shall have any liability to the other
after payment of the Break-Up Fee.
Except as described above, each of EQR and Merry Land is responsible for
their own costs and expenses incurred in connection with the Merger Agreement
and the transactions contemplated thereby (the "Transaction Costs"), except that
(i) all printing costs and Commission filing fees incurred in connection with
the Merger shall be paid 50% by Merry Land and 50% by EQR and (ii) MRYP Newco
will agree to pay the costs and expenses related to the formation of MRYP Newco
in excess of $1 million.
NO SOLICITATION OF OTHER TRANSACTIONS
Merry Land has agreed that (i) it will not initiate, solicit or encourage,
directly or indirectly, any inquiries or the making or implementation of any
proposal or offer (including, without limitation, any proposal or offer to its
shareholders) with respect to a merger, acquisition, tender offer, exchange
offer, consolidation, sale of assets or similar transactions involving all or
any significant portion of the assets or any equity securities of it or any of
its subsidiaries, other than the transactions contemplated by the Merger
Agreement, (ii) it will use its best efforts to prevent its officers, directors,
employees, agents or financial advisors from engaging in any of the foregoing
activities, and (iii) it will notify EQR immediately if Merry Land receives any
such inquiries or proposals, or any requests for such information, or if any
negotiations or discussions are sought to be initiated or continued with it with
respect to any of the foregoing. The Merger Agreement does not, however,
prohibit Merry Land from entering into discussions with respect to an
unsolicited proposal if the Merry Land Board of Directors determines that such
action is required by Merry Land's duties to its shareholders imposed by law.
CONVERSION OF SHARES
Each share of Merry Land Common outstanding immediately prior to the
Effective Time will be converted into 0.53 of a share of EQR Common, except for
any shares of Merry Land Common owned by EQR, which will be canceled as of the
Effective Time. All such shares of Merry Land Common, when so converted, will
cease to be outstanding and will automatically be canceled and retired and each
holder of a certificate representing any such shares will cease to have any
rights with respect thereto, except the right to receive the shares of EQR
Common and any cash, without interest, in lieu of fractional shares of EQR
Common to be issued or paid in consideration therefor upon the surrender of such
certificate in accordance
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with the Merger Agreement, as well as dividends and distributions declared with
a record date after the Effective Time.
Each share of Merry Land Preferred outstanding immediately prior to the
Effective Time will be converted into a preferred share of EQR with the same
preferences and other terms. Each share of Merry Land Series A will be converted
into one share of $1.75 Series H Cumulative Convertible Preferred Shares of
Beneficial Interest in EQR ("EQR Series H"), each share of Merry Land Series B
will be converted into one share of $2.205 Series I Cumulative Convertible
Preferred Shares of Beneficial Interest in EQR ("EQR Series I") each share of
Merry Land Series C will be converted into one share of $2.15 Series J
Cumulative Convertible Preferred Shares of Beneficial Interest in EQR ("EQR
Series J"), each share of Merry Land $4.145 Series D Cumulative Redeemable
Preferred Stock ("Merry Land Series D") will be converted into one share of
$4.145 Series K Cumulative Redeemable Preferred Shares of Beneficial Interest in
EQR ("EQR Series K"), and each share of Merry Land Series E will be converted
into one share of 7.625% Series L Cumulative Redeemable Preferred Shares of
Beneficial Interest in EQR ("EQR Series L"); provided, however, that immediately
prior to their conversion, the conversion ratio for each of the Merry Land
Series A, Merry Land Series B and Merry Land Series C shall be adjusted in
accordance with their respective terms. It is expected that as a result of this
adjustment, the conversion rate for each of the Merry Land Series A, Merry Land
Series B and Merry Land Series C will be adjusted upward to account for the
Distribution and further adjusted for the 0.53 Merry Land Common exchange rate.
As a result, the conversion ratio of the Merry Land Series A, Merry Land Series
B and Merry Land Series C will be multiplied by approximately 0.54. At the
Effective Time, each certificate representing outstanding shares of Merry Land
Preferred will cease to have any rights with respect to such shares, except the
right to receive a certificate of EQR evidencing an equal number of EQR Series
H, EQR Series I, EQR Series J, EQR Series K or EQR Series L, as the case may be,
as well as dividends and distributions declared with respect to such shares with
a record date after the Effective Time.
The issuance, terms and conditions of the EQR Shares issued in connection
with the Merger will be governed by the EQR Declaration. For a detailed
description of the provisions of the EQR Declaration, see "Comparison of Rights
of Shareholders."
APPOINTMENT OF EXCHANGE AGENT
In order to facilitate distribution of certificates representing EQR Shares
to Merry Land shareholders, EQR will appoint Boston EquiServe LP, an affiliate
of BankBoston, N.A., to act as Exchange Agent in connection with the Merger. The
Exchange Agent will enter into an agreement with EQR and Merry Land pursuant to
which it will agree to act as agent for purposes of distributing the
certificates representing EQR Shares to Merry Land shareholders.
EXCHANGE OF CERTIFICATES
Merry Land shareholders should not tender their certificates representing
Merry Land Shares with their proxy. Promptly after the Effective Time, the
Exchange Agent will mail to all Merry Land shareholders transmittal materials,
including a letter of transmittal (the "Letter of Transmittal") for use in
exchanging certificates evidencing Merry Land Shares for certificates evidencing
EQR Shares. As soon as practicable after the Letter of Transmittal is properly
completed and returned, together with the certificates evidencing Merry Land
Shares, to the Exchange Agent, the person specified in the Letter of Transmittal
will receive certificates for the number of whole EQR Shares and, to the extent
applicable, any cash in lieu of fractional shares of EQR Common, to which such
person is entitled as a result of the Merger. The Letter of Transmittal will
provide instructions for shareholders who have lost or misplaced their
certificates and wish to tender their shares.
Each EQR Share for which Merry Land Shares are exchanged in the Merger will
be deemed to have been issued at the Effective Time. Accordingly, Merry Land
shareholders who receive EQR Shares in the Merger will be entitled to receive
any dividends or other distributions which may be payable to all holders of
record of EQR Shares with respect to any record date after the Effective Time.
No holder of Merry Land
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Shares will be entitled to receive EQR Shares or cash in lieu of fractional EQR
Common, and no dividends or other distributions will be paid with respect to any
EQR Shares, until the certificate or certificates formerly representing such
holder's Merry Land Shares have been surrendered in accordance with the
procedures described above. At the time such surrender has been accomplished, a
certificate representing the appropriate number of EQR Shares will be issued and
accrued dividends and other distributions on such EQR Shares will be paid
without interest.
CONDUCT OF BUSINESS PENDING THE MERGER
Except as contemplated by the Merger Agreement or consented to in writing
by EQR, Merry Land will, and will cause each of its subsidiaries to conduct its
business only in the usual, regular and ordinary course and, irrespective of
whether or not in the ordinary course of business, to, among other things: (a)
preserve its business and employees; (b) not amend its Articles of
Incorporation, Bylaws, code of regulations or partnership agreement or
comparable organizational document of any subsidiary without EQR's prior written
consent; (c) issue no shares of capital stock; (d) grant no options relating to
Merry Land Shares; (e) limit any dividends to certain defined amounts; (f)
redeem any shares of capital stock; (g) not sell, lease, or mortgage, any
material part of its assets; (h) except as reflected in Merry Land's capital
budget, not enter into any commitment transaction which may result in total
payments or liability by or to it in excess of $1,000,000 or aggregate
commitments in excess of $5,000,000; (i) not increase any compensation of its
current officers, directors or employees earning more than $75,000 per annum;
(j) subject to certain exceptions, not purchase any property nor conduct any
material business or operations on behalf of or for the benefit of MRYP Newco
nor cause or permit MRYP Newco to purchase any property or conduct any material
business or operations on its own behalf; and (k) suspend the Merry Land
Dividend Reinvestment Plan, effective as of the date of the Merger Agreement.
Prior to the Effective Time, except as contemplated by the Merger Agreement
or consented to in writing by Merry Land, EQR will, and will cause each of its
subsidiaries to, among other things: (a) preserve its business, (b) confer on a
regular basis with Merry Land regarding certain operational matters of
materiality, (c) promptly notify Merry Land of any material emergency or other
material change in EQR's business, and (d) use its reasonable best efforts to
continue to qualify as a REIT prior to the Effective Time.
WAIVER AND AMENDMENT
The Merger Agreement provides that, at any time prior to the Effective
Time, either party may, to the extent legally allowed and set forth in a written
instrument signed on behalf of such party, (i) extend the time for the
performance of any of the obligations or other acts of the other party, (ii)
waive any inaccuracies in the representations and warranties contained in the
Merger Agreement or in any document delivered pursuant thereto and (iii) waive
compliance with any of the agreements or conditions for the benefit of such
party contained in the Merger Agreement.
The Merger Agreement provides that it may be amended by the parties by
action taken by the EQR Board of Trustees and the Merry Land Board of Directors,
at any time before or after approval of the Merger Agreement by the shareholders
of EQR or Merry Land and prior to the filing of the Articles with the Department
or the Certificate with the Secretary. After any such approval by the
shareholders of EQR or Merry Land, no amendment may be made which by law
requires the further approval of shareholders or partners without obtaining such
further approval.
STOCK EXCHANGE LISTING
EQR will apply to list the EQR Common, EQR Series H, EQR Series J and EQR
Series L issuable in connection with the Merger, and shares of EQR Common
issuable upon the conversion of EQR Series H, EQR Series I and EQR Series J, on
the NYSE. Approval of the listing of such shares on the NYSE, subject to
official notice of issuance, is a condition to the respective obligations of the
parties to consummate the Merger.
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ANTICIPATED ACCOUNTING TREATMENT
The Merger will be treated as a purchase in accordance with Accounting
Principles Board Opinion No. 16. Purchase accounting for a merger is the same as
the accounting treatment used for the acquisition of any group of assets. The
fair value of the consideration given by EQR in the Merger will be used as the
valuation basis of the combination. The assets acquired and liabilities assumed
of Merry Land will be recorded at their relative fair values as of the Effective
Date. The financial statements of EQR will reflect the combined operations of
EQR and Merry Land from the Closing Date.
SHARES AVAILABLE FOR RESALE
The issuance of EQR Common upon consummation of the Merger will be
registered under the Securities Act. Such shares may be traded freely and
without restriction by those shareholders not deemed to be "affiliates" of Merry
Land as that term is defined in the rules and regulations promulgated pursuant
to the Securities Act. "Affiliates" are generally defined as persons who
control, are controlled by or are under common control with an issuer. This
Joint Proxy Statement/Prospectus/Information Statement does not cover any
resales of EQR Common received by affiliates of Merry Land.
CONTRIBUTION OF ASSETS OF MERRY LAND TO ERP OPERATING PARTNERSHIP
Immediately after the Effective Time, the real properties owned by Merry
Land prior to the Merger (or the equity interests in the entities then holding
such properties) and the equity interests in certain subsidiaries of Merry Land,
subject to all of the liabilities of Merry Land and such Merry Land
subsidiaries, all as of the Effective Time, will be contributed by EQR to ERP
Operating Partnership, in exchange for general partner units and preferred units
of ERP Operating Partnership equal in number to the number of EQR Shares issued
in the Merger to Merry Land shareholders. In connection with the contribution of
assets to ERP Operating Partnership by EQR, all of Merry Land's senior unsecured
indebtedness will become the obligation of ERP Operating Partnership. ERP
Operating Partnership will assume ▇▇▇'s full and complete obligations with
respect to Merry Land's senior unsecured debt which will become an unconditional
obligation of ERP Operating Partnership. ERP Operating Partnership will execute
and deliver a legally binding assumption agreement in connection with the
assumption of such Merry Land unsecured debt.
ALTERNATIVE MERGER TRANSACTIONS
At the option of EQR, the transactions contemplated by the Merger may be
effected through a series of transactions described below (the "Alternative
Merger Transactions") which would occur on the Closing Date instead of the
merger of Merry Land with and into EQR, but which would result in the Merry Land
shareholders receiving the same number of EQR Shares as they would have received
in the Merger. The Alternative Merger Transactions will occur only if EQR and
Merry Land receive a private letter ruling from the IRS to the effect that the
Alternative Merger Transactions will not adversely affect the tax-free nature of
the ML/LLC Merger (as defined below) and/or the Merry Land Merger Subsidiary/EQR
Merger (as defined below). The purpose of the Alternative Merger Transactions is
to accomplish the combination of EQR and Merry Land without the surviving
company incurring the expense of separately transferring each asset of Merry
Land to ERP Operating Partnership.
The Alternative Merger Transactions, if they occur, will consist of the
following:
ML/LLC Merger. Merry Land will form Merry Land Merger Subsidiary, that in
turn will form Merry Land LLC (of which Merry Land Merger Subsidiary will be the
sole member). On the Closing Date, Merry Land will merge with and into Merry
Land LLC, with Merry Land LLC being the surviving entity of the merger (the
"ML/LLC Merger").
In the ML/LLC Merger, each issued and outstanding share of Merry Land
Common will be converted into one share of common stock, $0.001 par value per
share, of Merry Land Merger Subsidiary ("Merry Land Merger Subsidiary Common"),
and each issued and outstanding share of Merry Land Preferred will be converted
into the right to receive one share of Merry Land Merger Subsidiary preferred
stock, $0.001 par
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value per share ("Merry Land Merger Subsidiary Preferred"), having the same
preferences, rights and powers as the corresponding series of Merry Land
Preferred. Each certificate representing issued and outstanding Merry Land
Common or Merry Land Preferred shall, upon consummation of the ML/LLC Merger, be
deemed to represent the same number of shares of Merry Land Merger Subsidiary
Common or Merry Land Merger Subsidiary Preferred, respectively. As of the
effective time of the ML/LLC Merger (the "ML/LLC Merger Effective Time"), each
outstanding Merry Land Option shall be assumed by Merry Land Merger Subsidiary
and shall be deemed to constitute an option to acquire (each, a "Merry Land
Merger Subsidiary Stock Option"), on the same terms and conditions applicable
under such Merry Land Option, the same number of shares of Merry Land Merger
Subsidiary Common as the holder of such Merry Land Option would have been
entitled to receive pursuant to the ML/LLC Merger had such holder exercised such
Merry Land Option in full immediately prior to the ML/LLC Merger Effective Time.
Merry Land Merger Subsidiary/EQR Merger. Immediately following the ML/LLC
Merger Effective Time, Merry Land Merger Subsidiary will merge with and into
EQR, with EQR being the surviving entity of such merger (the "Merry Land Merger
Subsidiary/EQR Merger").
At the effective time of the Merry Land Merger Subsidiary/EQR Merger, the
outstanding shares of Merry Land Merger Subsidiary Common and Preferred
(collectively, "Merry Land Merger Subsidiary Shares") will be converted into EQR
Shares on the same basis that shares of Merry Land Common and Merry Land
Preferred would have been converted into EQR Shares had the Merger occurred.
Following the Merry Land Merger/EQR Merger, EQR will contribute its interests in
Merry Land LLC to ERP Operating Partnership.
FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The following is a general summary of the material United States Federal
income tax consequences of the Merger to EQR, Merry Land and their respective
shareholders in the event that the Alternative Merger Transactions are not
consummated. The following discussions were prepared based on consultation with
▇▇▇▇▇▇▇ & ▇▇▇▇▇, special counsel to EQR; ▇▇▇▇▇ & ▇▇▇▇▇▇▇ L.L.P., special counsel
to Merry Land; and ▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇▇ & ▇▇▇▇▇▇▇, P.C., general counsel to
Merry Land. In the opinion of ▇▇▇▇▇▇▇ & ▇▇▇▇▇, as it relates to EQR or EQR's
shareholders, and ▇▇▇▇▇ & ▇▇▇▇▇▇▇ L.L.P. and ▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇▇ & ▇▇▇▇▇▇▇,
P.C., as it relates to Merry Land and Merry Land's shareholders, the following
discussion, to the extent it constitutes matters of law or legal conclusions, is
accurate in all material respects. Opinions of counsel are not binding on the
Internal Revenue Service (the "IRS"). Thus, there can be no assurance that the
IRS will agree with the following discussion and positions described therein, or
that the IRS will not seek to challenge such positions, which challenge may be
sustained by the courts.
THE TAX DISCUSSION SET FORTH BELOW IS NOT INTENDED TO BE, NOR SHOULD IT BE
CONSTRUED TO BE, LEGAL OR TAX ADVICE TO ANY PARTICULAR HOLDER OF MERRY LAND
SHARES OR EQR SHARES. THE FOLLOWING SUMMARY IS BASED UPON CURRENT PROVISIONS OF
THE CODE, EXISTING, TEMPORARY AND FINAL REGULATIONS THEREUNDER AND CURRENT
ADMINISTRATIVE RULINGS AND COURT DECISIONS, ALL OF WHICH ARE SUBJECT TO CHANGE
(POSSIBLY ON A RETROACTIVE BASIS). NO ATTEMPT HAS BEEN MADE TO COMMENT ON ALL
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER OR CONTINUING TO
HOLD EQR SHARES THAT MAY BE RELEVANT TO PARTICULAR HOLDERS OF MERRY LAND SHARES
AND EQR SHARES, INCLUDING HOLDERS THAT ARE SUBJECT TO SPECIAL TAX RULES SUCH AS
DEALERS IN SECURITIES, MUTUAL FUNDS, INSURANCE COMPANIES, TAX-EXEMPT ENTITIES,
HOLDERS WHO DO NOT HOLD THEIR MERRY LAND SHARES OR EQR SHARES AS CAPITAL ASSETS
AND HOLDERS THAT, FOR UNITED STATES FEDERAL INCOME TAX PURPOSES, ARE
NON-RESIDENT ALIEN INDIVIDUALS, FOREIGN CORPORATIONS, FOREIGN PARTNERSHIPS OR
FOREIGN ESTATES OR TRUSTS. BECAUSE OF THE PARTICULAR TAX ATTRIBUTES OF HOLDERS
OF MERRY LAND SHARES OR EQR SHARES, THE MERGER MAY HAVE DIFFERING TAX
IMPLICATIONS FOR SUCH HOLDERS. ACCORDINGLY, HOLDERS OF MERRY LAND SHARES OR EQR
SHARES ARE URGED TO CONSULT WITH THEIR OWN LEGAL AND TAX ADVISERS REGARDING THE
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER, CONTINUING TO HOLD
EQR SHARES AND ANY OTHER CONSEQUENCES TO THEM OF THE MERGER UNDER STATE, LOCAL
AND FOREIGN TAX LAWS.
Tax Consequences of Merger. ▇▇▇▇▇▇▇ & ▇▇▇▇▇, special counsel to EQR in
connection with the Merger, will render an opinion to EQR that on the basis of
the facts, representations and assumptions set forth in such
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opinion, the Merger will constitute a reorganization within the meaning of
Section 368(a) of the Code and EQR and Merry Land will each be a party to such
reorganization within the meaning of Section 368(b) of the Code. In addition,
Piper & Marbury L.L.P., special counsel to Merry Land in connection with the
Merger, will render an opinion to Merry Land that on the basis of the facts,
representations and assumptions set forth in such opinion, the Merger will
constitute a reorganization within the meaning of Section 368(a) of the Code and
EQR and Merry Land will each be a party to such reorganization within the
meaning of Section 368(b) of the Code.
Shareholders of EQR and Merry Land should be aware that such opinions of
counsel are not binding on the IRS, and no assurance is or will be given that
the IRS will not adopt a contrary position or that the IRS position would not be
sustained by a court.
The following is a summary of the Federal income tax consequences of the
Merger to Merry Land and EQR and their respective shareholders, assuming the
Merger constitutes a reorganization within the meaning of Section 368(a) of the
Code, and EQR and Merry Land are each a party to such reorganization within the
meaning of Section 368(b) of the Code:
(i) No gain or loss will be recognized by EQR as a result of the
Merger;
(ii) No gain or loss will be recognized by Merry Land as a result of
the Merger;
(iii) No gain or loss will be recognized by the holders of Merry Land
Common upon the exchange of their Merry Land Common solely for EQR Common
(including fractional shares of EQR Common deemed issued as described
below) pursuant to the Merger;
(iv) No gain or loss will be recognized by the holders of Merry Land
Preferred upon the exchange of their Merry Land Preferred solely for EQR
Preferred pursuant to the Merger;
(v) The tax basis of the EQR Common (including fractional shares of
EQR Common deemed issued as described below) received by any holder of
Merry Land Common in exchange for Merry Land Common pursuant to the Merger
will be the same as the tax basis of such Merry Land Common exchanged
therefor;
(vi) The tax basis of the EQR Preferred received by any holder of
Merry Land Preferred in exchange for Merry Land Preferred in exchange for
Merry Land Preferred pursuant to the Merger will be the same as the tax
basis of such Merry Land Preferred exchanged therefor;
(vii) The holding period for EQR Common and EQR Preferred received in
exchange for Merry Land Common and Merry Land Preferred, respectively,
pursuant to the Merger will include the period that such shares of Merry
Land Common and Merry Land Preferred, respectively, were held by the
holder, provided that such Merry Land Common and Merry Land Preferred were
held as capital assets by such holder at the Effective Time; and
(viii) A holder of Merry Land Common who receives cash in lieu of a
fractional share of EQR Common pursuant to the Merger will be treated as if
he received a fractional share of EQR Common pursuant to the Merger and EQR
then redeemed such fractional share for the cash. Such a holder will
recognize gain or loss equal to the difference, if any, between such
shareholder's basis in the fractional share and the amount of cash
received.
QUALIFICATION OF EQR AS A REIT
General. EQR elected REIT status commencing with its taxable year ending
December 31, 1992. In the opinion of ▇▇▇▇▇▇▇ & ▇▇▇▇▇, special counsel to EQR,
EQR was organized and has operated in conformity with the requirements for
qualification and taxation as a REIT under the Code, and its method of operation
has enabled it and will enable it to continue to meet the requirements for
qualification and taxation as a REIT under the Code. ▇▇▇▇▇▇▇ & ▇▇▇▇▇ has opined
that, subsequent to the Merger, ▇▇▇'s proposed method of operation described in
this Joint Proxy Statement/Prospectus/Information Statement and as represented
by EQR will enable it to meet the requirements for qualification and taxation as
a REIT.
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▇▇▇▇▇ ▇▇▇▇ elected REIT status commencing with its taxable year ending
December 31, 1987. In the opinion of ▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇▇ & ▇▇▇▇▇▇▇, P.C.,
general counsel to Merry Land, commencing with its taxable year ending December
31, 1987, Merry Land was organized in conformity with the requirements for
qualification and taxation as a REIT under the Code, and its method of operation
has enabled it (and will enable it up to the Effective Time of the Merger) to
continue to meet the requirements for qualification and taxation as a REIT under
the Code, subject to certain qualifications set forth in its opinion letter.
It must be emphasized that these opinions are based on various assumptions
relating to the organization and operation of various entities. In general,
▇▇▇▇▇▇▇ & ▇▇▇▇▇'▇ opinion is based on various assumptions relating to the
organization and operation of various entities, including (i) EQR; (ii) ERP
Operating Limited Partnership; (iii) Equity Residential Properties Management
Corp. ("EQR Management Corp."), Equity Residential Properties Management Corp.
II ("EQR Management Corp. II"), and ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ Management, Inc. ("EW
Management, Inc.") (collectively, the "EQR Management Corps."); (iv) the EQR
Management Partnerships; (v) Wellsford Real Properties, Inc. and certain other
subsidiary corporations in which ERP Operating Partnership owns non-voting stock
(the "EQR Preferred Stock Subsidiaries"); (vi) certain limited partnerships and
limited liability companies that own the beneficial interest of certain
properties encumbered by mortgage financing (the "EQR Financing Partnerships");
(vii) other general and limited partnerships and limited liability companies
that own, directly or indirectly, interests in certain properties (the "EQR
Property Subsidiaries"); and (viii) various qualified REIT subsidiaries
wholly-owned by EQR (each a "QRS Corporation") (collectively, the EQR Management
Corps., the EQR Management Partnerships, the EQR Preferred Stock Subsidiaries,
the EQR Financing Partnerships, the EQR Property Subsidiaries and the QRS
Corporations may be referred to as the "Subsidiary Entities"). Additionally,
▇▇▇▇▇▇▇ & ▇▇▇▇▇'▇ opinion is conditioned upon certain representations made by
EQR and ERP Operating Partnership as to factual matters relating to the
organization, operation, income, assets, distributions and share ownership of
EQR and ERP Operating Partnership. EQR's qualification as a REIT depends on its
having met and continuing to meet, through actual operating results,
distribution levels and diversity of share ownership, the various qualification
tests imposed under the Code that are discussed below, the results of which have
not been and will not be reviewed by ▇▇▇▇▇▇▇ & ▇▇▇▇▇. Accordingly, no assurance
can be given that the actual results of EQR's operations for any particular
taxable year have satisfied or will satisfy such requirements.
▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇▇ & ▇▇▇▇▇▇▇, P.C.'s opinion is based on various
assumptions relating to the organization and operation of various entities
including Merry Land, various qualified REIT subsidiaries wholly-owned by Merry
Land (each a "QRS Corporation"), Merry Land DownREIT I LP, a Georgia limited
partnership, and ML Services, Inc., and is conditioned upon the accuracy of
certain representations made by Merry Land as to factual matters relating to the
organization, operation, income, assets, distributions and stock ownership of
Merry Land. Merry Land's qualification as a REIT depends on its having met and
continuing to meet, through actual operating results, distribution levels and
diversity of stock ownership, the various qualification tests imposed under the
Code that are discussed below, the results of which have not been and will not
be reviewed by ▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇▇ & ▇▇▇▇▇▇▇, P.C. Accordingly, no assurance
can be given that the actual results of Merry Land's operations for any
particular taxable year have satisfied or will satisfy such requirements.
An opinion of counsel is not binding on the IRS or the courts, and no
assurance can be given that the IRS will not challenge EQR's or Merry Land's
eligibility for taxation as a REIT. Further, the Federal income tax treatment
described herein may be changed, perhaps retroactively, by legislative,
administrative or judicial action at any time.
In any year in which EQR qualifies as a REIT, generally, it will not be
subject to Federal income tax on that portion of its REIT taxable income or
capital gain which is distributed to shareholders. This treatment substantially
eliminates the "double taxation" (at both the corporate and shareholder levels)
that generally results from the use of corporate investment vehicles. EQR may,
however, be subject to tax at normal corporate rates upon any taxable income or
capital gain not distributed.
If EQR should fail to satisfy either the 75% or the 95% gross income test
(as discussed below), and nonetheless maintains its qualification as a REIT
because certain other requirements are met, it will be subject to a 100% tax on
the greater of the amount by which it fails the 75% or the 95% test, multiplied
by a fraction
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intended by the IRS to reflect its profitability. EQR will also be subject to a
100% tax on net income derived from any "prohibited transaction," as described
below. In addition, if EQR should fail to distribute during each calendar year
at least the sum of (i) 85% of its REIT ordinary income for such year, (ii) 95%
of its REIT capital gain net income for such year, and (iii) any undistributed
taxable income from prior years, EQR would be subject to a 4% excise tax on the
excess of such required distribution over the amounts actually distributed. EQR
may also be subject to the corporate "alternative minimum tax," as well as tax
in certain situations and on certain transactions not presently contemplated.
EQR will use the calendar year both for Federal income tax purposes and for
financial reporting purposes.
In order to qualify as a REIT, EQR must meet, among others, the following
requirements:
Share Ownership Test. Shares of beneficial interest of EQR must be held by
a minimum of 100 persons for at least 335 days of a taxable year that is 12
months, or during a proportionate part of a taxable year of less than 12 months.
In addition, no more than 50% in value of the shares of beneficial interest of
EQR may be owned, directly or indirectly by applying certain constructive
ownership rules, by five or fewer individuals during the last half of each
taxable year. EQR and Merry Land believe that they have each satisfied both of
these tests, and ▇▇▇ believes it will continue to do so. In order to help comply
with the second of these tests, EQR has placed certain restrictions on the
transfer of EQR Common and EQR Preferred that are intended to prevent further
concentration of share ownership. Merry Land has not similarly restricted
transfers of Merry Land Common and Preferred.
Asset Tests. At the close of each quarter of EQR's taxable year, EQR must
satisfy two tests relating to the nature of its assets. First, at least 75% of
the value of EQR's total assets must be represented by any combination of
interests in real property, interests in mortgages on real property, shares in
other REITs, cash, cash items and certain government securities. Second,
although the remaining 25% of EQR's assets generally may be invested without
restriction, securities in this class may not exceed either (i) 5% of the value
of EQR's total assets as to any one issuer, or (ii) 10% of the outstanding
voting securities of any one issuer. Where EQR invests in a partnership, it will
be deemed to own a proportionate share of the partnership's assets. EQR's
investment in the properties of Merry Land through its interest in ERP Operating
Partnership will constitute qualified assets for purposes of the 75% asset test.
ERP Operating Partnership owns 1% of the voting stock of ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
Management, Inc. ERP Operating Partnership owns 100% of the non-voting stock of
the EQR Management Corps. and the EQR Preferred Stock Subsidiaries. By virtue of
its partnership interest in ERP Operating Partnership, EQR will be deemed to own
its pro rata share of the assets of ERP Operating Partnership, including the
stock of the EQR Preferred Stock Subsidiaries and the EQR Management Corps. as
described above. ERP Operating Partnership has not and does not intend to own
more than 10% of the voting securities of the above mentioned entities.
In addition, based upon its analysis of the estimated value of the stock of
each of the EQR Management Corps. and each of the EQR Preferred Stock
Subsidiaries owned by ERP Operating Partnership relative to the estimated value
of the other assets owned by ERP Operating Partnership, EQR believes that its
pro rata share of the stock of each of the EQR Management Corps. and each of the
EQR Preferred Stock Subsidiaries, respectively, held by ERP Operating
Partnership will not exceed 5% of the total value of EQR's assets. No
independent appraisals, however, have been obtained to support this conclusion.
This 5% limitation must be satisfied not only on the date that EQR first
acquires stock of an entity but also at the end of each quarter in which EQR
increases its interest in an entity. Although EQR plans to take steps to ensure
that it satisfies the 5% value test for any quarter with respect to which
retesting is to occur, there can be no assurance that such steps will always be
successful or will not require a reduction in ERP Operating Partnership's
overall interest in the above mentioned corporations.
▇▇▇'s indirect interests as a general partner in the EQR Financing
Partnerships and certain of the EQR Property Subsidiaries are held through the
QRS Corporations, each of which is organized and operated as a "qualified REIT
subsidiary" within the meaning of the Code. Qualified REIT subsidiaries are not
treated as separate entities from their parent REIT. Instead, all assets,
liabilities and items of income, deduction and credit of each QRS Corporation
will be treated as assets, liabilities and items of EQR. Each QRS Corporation
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therefore will not be subject to Federal corporate income taxation, although it
may be subject to state or local taxation. In addition, ▇▇▇'s ownership of the
voting stock of each QRS Corporation will not violate the general restriction
against ownership of more than 10% of the voting securities of any issuer.
Gross Income Tests. There are two separate percentage tests relating to the
sources of EQR's gross income which must be satisfied for each taxable year. For
purposes of these tests, where EQR invests in a partnership, EQR will be treated
as receiving its share of the income and loss of the partnership, and the gross
income of the partnership will retain the same character in the hands of EQR as
it has in the hands of the partnership.
1. The 75% Test. At least 75% of EQR's gross income for each taxable year
must be "qualifying income." Qualifying income generally includes (i) rents from
real property (except as modified below); (ii) interest on obligations
collateralized by mortgages on, or interests in, real property; (iii) gains from
the sale or other disposition of interests in real property and real estate
mortgages, other than gain from property held primarily for sale to customers in
the ordinary course of EQR's trade or business ("dealer property"); (iv)
distributions on shares in other REITs, as well as gain from the sale of such
shares; (v) abatements and refunds of real property taxes; (vi) income from the
operation, and gain from the sale, of property acquired at or in lieu of a
foreclosure of a mortgage collateralized by such property ("foreclosure
property"); (vii) commitment fees received for agreeing to make loans
collateralized by mortgages on real property or to purchase or lease real
property; and (viii) certain qualified temporary investment income attributable
to the investment of new capital received by EQR in exchange for its shares
(including the Securities offered hereby) during the one-year period following
the receipt of such new capital.
Rents received from a tenant will not, however, qualify as rents from real
property in satisfying the 75% test (or the 95% gross income test described
below) if EQR, or an owner of 10% or more of EQR, directly or constructively
owns 10% or more of such tenant. In addition, if rent attributable to personal
property leased in connection with a lease of real property is greater than 15%
of the total rent received under the lease, then the portion of rent
attributable to such personal property will not qualify as rents from real
property. Moreover, an amount received or accrued will not qualify as rents from
real property (or as interest income) for purposes of the 75% and 95% gross
income tests if it is based in whole or in part on the income or profits of any
person. Finally, for rents received to qualify as rents from real property, EQR
generally must not operate or manage the property or furnish or render services
to tenants, other than through an "independent contractor" from whom EQR derives
no revenue. The "independent contractor" requirement, however, does not apply to
the extent that the services provided by EQR are "usually or customarily
rendered" in connection with the rental of space for occupancy only, and are not
otherwise considered "rendered to the occupant."
EQR, through the EQR Management Partnerships, will provide certain services
with respect to its properties, the properties of Merry Land and any newly
acquired multifamily residential properties. EQR believes that the services
provided by the EQR Management Partnerships are usually or customarily rendered
in connection with the rental of space for occupancy only, and therefore that
the provision of such services has not caused, and will not in the future cause
the rents received with respect to the properties to fail to qualify as rents
from real property for purposes of the 75% and 95% gross income tests.
2. The 95% Test. At least 95% of EQR's gross income for the taxable year
must be derived from the above-described qualifying income, or from dividends,
interest or gains from the sale or disposition of stock or other securities that
are not dealer property. Dividends (including EQR's share of dividends paid by
the EQR Management Corps. and the EQR Preferred Stock Subsidiaries) and interest
on any obligations not collateralized by an interest in real property and any
payments made on behalf of EQR by a financial institution pursuant to a rate
protection agreement will be included as qualifying income for purposes of the
95% gross income test, but not for purposes of the 75% test. For purposes of
determining whether EQR complies with the 75% and 95% income tests, qualifying
income does not include income from prohibited transactions. A "prohibited
transaction" is a sale of dealer property, excluding certain dealer property
held by EQR for at least four years and excluding foreclosure property.
EQR's investment in its properties, through ERP Operating Partnership, in
major part will give rise to rental income qualifying under the 75% and 95%
gross income tests. EQR's allocable share of gains on sales of
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the properties owned, directly or indirectly, by ERP Operating Partnership or of
EQR's interest in ERP Operating Partnership will generally qualify under the 75%
and 95% gross income tests. EQR believes that the income on its other
investments, including its indirect investment in the EQR Management Corps. and
the EQR Preferred Stock Subsidiaries, will not cause EQR to fail the 75% or 95%
gross income test for any year, and EQR anticipates that this will continue to
be the case.
Even if EQR fails to satisfy one or both of the 75% or 95% gross income
tests for any taxable year, it may still qualify as a REIT for such year if it
is entitled to relief under certain provisions of the Code. These relief
provisions will generally be available if: (i) EQR's failure to comply was due
to reasonable cause and not to willful neglect; (ii) EQR reports the nature and
amount of each item of its income included in the tests on a schedule attached
to its tax return; and (iii) any incorrect information on this schedule is not
due to fraud with intent to evade tax. If these relief provisions apply, EQR,
however, will still be subject to a 100% tax based upon the greater of the
amount by which it fails either the 75% or 95% gross income test for that year,
less certain adjustments.
Annual Distribution Requirements. EQR, in order to qualify as a REIT, is
required to make dividend distributions (other than capital gain dividends) to
its shareholders each year in an amount at least equal to (A) the sum of (i) 95%
of EQR's REIT taxable income (computed without regard to the dividends paid
deduction and EQR's net capital gain) and (ii) 95% of the net income (after
tax), if any, from foreclosure property, minus (B) the sum of certain items of
non-cash income. Such distributions must be paid in the taxable year to which
they relate, or in the following taxable year if declared before EQR timely
files its tax return for such year and if paid on or before the first regular
dividend payment after such declaration. To the extent that EQR does not
distribute all of its net capital gain or distributes at least 95%, but less
than 100%, of its REIT taxable income, as adjusted, it will be subject to tax on
the undistributed amount at regular capital gains or ordinary corporate tax
rates, as the case may be.
EQR has made and intends to continue to make timely distributions
sufficient to satisfy the annual distribution requirements. In this regard, the
partnership agreement of ERP Operating Partnership authorizes EQR, as general
partner, to take such steps as may be necessary to cause ERP Operating
Partnership to distribute to its partners an amount sufficient to permit EQR to
meet these distribution requirements. It is possible that EQR may not have
sufficient cash or other liquid assets to meet the 95% dividend requirement, due
to the payment of principal on debt or to timing differences between the actual
receipt of income and actual payment of expenses on the one hand, and the
inclusion of such income and deduction of such expenses in computing EQR's REIT
taxable income on the other hand. To avoid any problem with the 95% distribution
requirement, EQR will closely monitor the relationship between its REIT taxable
income and cash flow and, if necessary, will borrow funds (or cause ERP
Operating Partnership or other affiliates to borrow funds) in order to satisfy
the distribution requirement.
Failure to Qualify. If EQR fails to qualify for taxation as a REIT in any
taxable year and the relief provisions do not apply, EQR will be subject to tax
(including any applicable alternative minimum tax) on its taxable income at
regular corporate rates. Distributions to shareholders in any year in which EQR
fails to qualify will not be required and, if made, will not be deductible by
EQR. In such event, to the extent of current and accumulated earnings and
profits, all distributions to shareholders will be taxable as ordinary income,
and, subject to certain limitations in the Code, corporate distributees may be
eligible for the dividends received deduction. Unless entitled to relief under
specific statutory provisions, EQR also will be ineligible for qualification as
a REIT for the four taxable years following the year during which qualification
was lost.
TAX ASPECTS OF EQR'S INVESTMENTS IN PARTNERSHIPS.
General. EQR will hold direct or indirect interests in ERP Operating
Partnership, the EQR Management Partnerships, the EQR Property Subsidiaries and
the EQR Financing Partnerships. EQR believes that each of ERP Operating
Partnership, the EQR Management Partnerships and the EQR Property Subsidiaries
and the EQR Financing Partnerships qualifies either as a partnership or a
disregarded entity (as opposed to an association taxable as a corporation) for
Federal income tax purposes. If any of the EQR Property Subsidiaries or the EQR
Financing Partnerships were to be treated as an association, it would be taxable
as a
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corporation, and, therefore, subject to an entity-level tax on its income. In
such a situation, the character of ▇▇▇'s assets and items of gross income would
change, which would preclude EQR from satisfying the asset tests and possibly
the income tests (see "-- Qualification of EQR as a REIT -- Asset Tests" and
"-- Gross Income Tests"), and in turn would prevent EQR from qualifying as a
REIT.
Publicly Traded Partnerships. Code Section 7704 provides that publicly
traded partnerships will be taxed as corporations, unless a certain percentage
of their income consists of "qualifying income." A partnership is "a publicly
traded partnership" if interests in such partnership are either traded on an
established securities market or are "readily tradable on a secondary market (or
the substantial equivalent thereof)." Under the Treasury Regulations promulgated
under Code Section 7704, interests in a partnership are readily tradable on a
secondary market or substantial equivalent thereof if, "taking into account all
of the facts and circumstances, the partners are readily able to buy, sell, or
exchange their partnership interests in a manner that is comparable,
economically, to trading on an established securities market." Furthermore,
interests in a partnership are tradable as such if (i) interests in the
partnership are regularly quoted by any person, such as a broker or dealer,
making a market in the interests; (ii) any person regularly makes available to
the public (including customers or subscribers) bid or offer quotes with respect
to interests in the partnership and stands ready to effect buy or sell
transactions at the quoted prices for itself or on behalf of others; (iii) the
holder of an interest in the partnership has a readily available, regular, and
ongoing opportunity to sell or exchange the interest through a public means of
obtaining or providing information of offers to buy, sell, or exchange interests
in the partnership; or (iv) prospective buyers and sellers otherwise have the
opportunity to buy, sell, or exchange interests in the partnership in a time
frame and with the regularity and continuity that is comparable to that
described in (i), (ii), or (iii). ERP Operating Partnership believes that it
will not be a publicly traded partnership at the Effective Time.
Even if ERP Operating Partnership were deemed to be a publicly traded
partnership, depending on circumstances at the time, it still might avoid
taxation as a corporation under Code Section 7704, based on the nature of its
income. A publicly traded partnership is not taxed as a corporation if at least
90% of its gross income for each taxable year consists of certain passive
income, including interest, dividends, real property rents and gains from the
sale or other disposition of real property. These are predominantly the types of
income that ERP Operating Partnership expects to earn. If ERP Operating
Partnership satisfied the 90% gross income test but was classified a publicly
traded partnership, it would not be taxed as a corporation but would be subject
to certain special rules under Code Section 469(k). In such event, a holder of
OP Units would be unable to use losses from other passive activities against his
allocable share of ERP Operating Partnership income or gains, and ERP Operating
Partnership passive activity losses allocable to a holder of OP Units could be
offset only against his allocable share of ERP passive activity income or gains,
and not against income or gains from other passive activities.
If ERP Operating Partnership at any time were considered a publicly traded
partnership and did not satisfy the qualifying income test, then it would be
considered as having transferred its assets at that time to a corporation, and
would be taxed as a corporation for Federal income tax purposes, which would
result in adverse consequences to the holders of OP Units and would jeopardize
EQR's status as a REIT for Federal income tax purposes. This deemed transfer of
assets to a corporation may also result in the recognition of taxable income to
ERP Operating Partnership and its partners, to the extent that its liabilities
at that time have exceeded the adjusted tax bases of its assets, without the
receipt of any cash with which to pay the income tax liability resulting from
such income.
Tax Allocations with Respect to the Properties. Pursuant to Code Section
704(c), income, gain, loss and deduction attributable to appreciated or
depreciated property that is contributed to a partnership in exchange for an
interest in the partnership (such as certain of the properties contributed to
ERP Operating Partnership in connection with both the initial public offering of
EQR and the Merger) (the "Contributed Properties") must be allocated in a manner
such that the contributing partner is charged with, or benefits from,
respectively, the unrealized gain or unrealized loss associated with the
property at the time of the contribution. The amount of such unrealized gain or
unrealized loss is generally equal to the difference between the fair market
value and the adjusted tax basis of contributed property at the time of
contribution (a "Book-Tax Difference"). Such allocations are solely for Federal
income tax purposes and do not affect the book capital
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accounts or other economic or legal arrangements among the partners. The ERP
Operating Partnership Agreement (as well as the partnership agreements of the
Financing Partnerships' agreements) require such allocations to be made in a
manner consistent with Section 704(c). As a result, certain limited partners of
ERP Operating Partnership will be allocated lower amounts of depreciation
deductions for tax purposes and increased taxable income and gain on sale by
these partnerships of contributed assets with Book-Tax Differences (including
certain of the Contributed Properties). These allocations will tend to eliminate
the Book-Tax Difference associated with such assets over the lives of the
partnerships. However, the special allocation rules of Code Section 704(c) as
applied by EQR will not always entirely rectify the Book-Tax Difference on an
annual basis or with respect to a specific taxable transaction such as a sale.
Thus, the carryover basis of the contributed assets in the hands of these
partnerships will cause EQR to be allocated lower depreciation and other
deductions, and possibly greater amounts of taxable income in the event of a
sale of such contributed assets in excess of the economic or book income
allocated to it as a result of such sale. This may cause EQR to recognize
taxable income in excess of cash proceeds, which might adversely affect EQR's
ability to comply with the REIT distribution requirements. See "-- Qualification
of EQR as a REIT -- Annual Distribution Requirements."
Sale of Properties. EQR's share of any gain realized by ERP Operating
Partnership on the sale of any dealer property generally will be treated as
income from a prohibited transaction that is subject to a 100% penalty tax. See
"-- Qualification of EQR as a REIT -- Gross Income Tests -- The 95% Test." Under
existing law, whether property is dealer property is a question of fact that
depends on all the facts and circumstances with respect to the particular
transaction. The EQR Property Subsidiaries and EQR Financing Partnerships have
held and intend to continue to hold the properties they own for investment with
a view to long-term appreciation, to engage in the business of acquiring,
developing, owning and operating such properties and other multifamily
residential properties and to make such occasional sales of the properties as
are consistent with EQR's investment objectives. Based upon such investment
objectives, EQR believes that, in general, the properties it owns should not be
considered dealer property, and that the amount of income from prohibited
transactions, if any, will not be material.
TAXATION OF SHAREHOLDERS
Taxation of Taxable U.S. Shareholders.
General. As long as EQR qualifies as a REIT, distributions made to taxable
"U.S. Shareholders" (as defined in the immediately following paragraph), with
respect to their shares out of current or accumulated earnings and profits (and
not designated as capital gain dividends) will be taken into account by them as
ordinary income and will not be eligible for the dividends received deduction
for shareholders that are corporations. For purposes of determining whether
distributions on the EQR Shares are out of current or accumulated earnings and
profits, the earnings and profits of EQR will be allocated first to the holders
of EQR Preferred and second to the holders of EQR Common. Dividends that are
designated as capital gain dividends will be taxed as long-term capital gains
(to the extent that they do not exceed EQR's actual net capital gain for the
taxable year) without regard to the period for which the shareholder has held
its shares. However, corporate shareholders may be required to treat up to 20%
of certain capital gain dividends as ordinary income. On November 10, 1997, the
IRS released Notice 97-64 describing forthcoming temporary regulations that
would permit a REIT to designate different classes of capital gain dividends.
Notice 97-64 serves as guidance until such regulations are issued and applies to
taxable years ending on or after May 7, 1997. In general, under Notice 97-64, if
a REIT designates a dividend as a capital gain dividend for such a taxable year,
it may further designate such dividend as a 20% rate gain distribution or an
unrecaptured Section 1250 gain distribution (subject to a 25% rate). For a
discussion on the manner in which that portion of any dividends designated by
EQR as capital gains dividends will be allocated among the holders of EQR
Preferred and EQR Common, see "Description of Shares of Beneficial Interest --
EQR Preferred Shares -- Distributions."
As used herein, the term "U.S. Shareholder" means a holder of EQR Common or
EQR Preferred who (for United States Federal income tax purposes) (i) is a
citizen or resident of the United States; (ii) except to the extent otherwise
provided in Treasury Regulations in the case of an entity treated as a
partnership for Federal tax purposes, is a corporation, partnership, or other
entity created or organized in or under the laws of
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the United States or of any political subdivision thereof; (iii) is an estate,
the income of which is subject to United States Federal income taxation
regardless of its source; or (iv) is a trust, if (A) a court within the United
States is able to exercise primary supervision over the administration of the
trust and (B) one or more United States persons have the authority to control
all substantial decisions of the trust.
To the extent that EQR makes distributions in excess of current and
accumulated earnings and profits, these distributions are treated first as a
tax-free return of capital to the shareholder, reducing the tax basis of a
shareholder's securities by the amount of such distribution (but not below
zero), with distributions in excess of the shareholder's tax basis taxable as
capital gains (if the securities are held as a capital asset). In addition, any
dividend declared by EQR in October, November or December of any year and
payable to a shareholder of record on a specific date in any such month will be
treated as both paid by EQR and received by the shareholder on December 31 of
such year, provided that the dividend is actually paid by EQR during January of
the following calendar year. Shareholders may not include in their individual
income tax returns any net operating losses or capital losses of EQR.
The current earnings and profits of EQR for its taxable year ending
December 31, 1998 will include (i) all earnings and profits of EQR for the
period beginning on January 1, 1998 up to the Effective Date, and (ii) all
earnings and profits of EQR, as the surviving entity in the Merger, for the
period beginning on the Effective Date and ending on December 31, 1998. No
dividends declared and paid by Merry Land prior to the Effective Time will
constitute distributions of EQR for Federal tax purposes.
In general, any loss upon a sale or exchange of securities by a shareholder
who has held such securities for six months or less (after applying certain
holding period rules) will be treated as a long-term capital loss, to the extent
of distributions from EQR received by such shareholder that are required to be
treated by such shareholder as long-term capital gains.
Election to Retain Net Long-Term Capital Gain.
Pursuant to the Taxpayer Relief Act of 1997 (the "Act"), for taxable years
of EQR that begin on or after January 1, 1998, EQR may elect to retain and pay
income tax on its net long-term capital gain attributable to such taxable year.
If EQR makes this election, its shareholders will be required to include in
their income as long-term capital gain their proportionate share of such amount
so designated by EQR. An EQR shareholder will be treated as having paid his or
her share of the tax paid by EQR in respect of such amount so designated by EQR,
for which such EQR shareholder will be entitled to a credit or refund.
Additionally, each EQR shareholder's adjusted basis in EQR shares will be
increased by the excess of the amount so includible in income over the tax
deemed paid on such amount. EQR must pay tax on its designated long-term capital
gain within 30 days of the close of any taxable year in which it designates
long-term capital gain pursuant to this rule, and it must mail a written notice
of its designation to its shareholders within 60 days of the close of the
taxable year.
Taxation of Tax-Exempt Shareholders.
Most tax-exempt employees' pension trusts are not subject to Federal income
tax except to the extent of their receipt of "unrelated business taxable income"
as defined in Section 512(a) of the Code ("UBTI"). Distributions by EQR to a
shareholder that is a tax-exempt entity should not constitute UBTI, provided
that the tax-exempt entity has not financed the acquisition of its securities
with "acquisition indebtedness" within the meaning of the Code and the
securities are not otherwise used in an unrelated trade or business of the tax-
exempt entity. In addition, certain pension trusts that own more than 10% of a
"pension-held REIT" must report a portion of the distribution that they receive
from such a REIT as UBTI. EQR has not been and does not expect to be treated as
a pension-held REIT for purposes of this rule.
Taxation of Foreign Shareholders.
The following is a discussion of certain anticipated U.S. Federal income
tax consequences of the ownership and disposition of securities applicable to
"Non-U.S. Holders" (as defined below) of such securities. A "▇▇▇-▇.▇. ▇▇▇▇▇▇' is
any person other than (i) a citizen or resident of the United States;
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(ii) except to the extent otherwise provided in Treasury Regulations with
respect to an entity treated as a partnership for Federal tax purposes, a
corporation or partnership created or organized in the United States or under
the laws of the United States or of any state thereof; (iii) an estate or trust
whose income is includible in gross income for U.S. Federal income tax purposes
regardless of its source; or (iv) a trust if (A) a court in the United States is
able to exercise primary jurisdiction over its administration and (B) one or
more United States persons have the authority to control all substantial
decisions of the trust. The discussion is based on current law and is for
general information only. Non-U.S. Holders are urged to consult with their own
legal and tax advisors regarding the United States Federal income tax
consequences of continuing to hold their EQR shares.
Distributions From EQR.
1. Ordinary Dividends. The portion of dividends received by Non-U.S.
Holders payable out of EQR's earnings and profits which are not attributable to
capital gains of EQR and which are not effectively connected with a U.S. trade
or business of the Non-U.S. Holder will be subject to U.S. withholding tax at
the rate of 30% (unless reduced by an applicable treaty). In general, Non-U.S.
Holders will not be considered engaged in a U.S. trade or business solely as a
result of their ownership of securities. In cases where the dividend income from
a Non-U.S. Holder's investment in securities is (or is treated as) effectively
connected with the Non-U.S. Holder's conduct of a U.S. trade or business, the
Non-U.S. Holder generally will be subject to U.S. tax at graduated rates, in the
same manner as U.S. shareholders are taxed with respect to such dividends (and
may also be subject to the 30% branch profits tax in the case of a Non-U.S.
Holder that is a foreign corporation).
Non-U.S. Holders are encouraged to consult their tax advisors particularly
in light of recent changes in the United States' position regarding the
treatment of REIT investors under the U.S. Model Treaty and under certain
recently negotiated treaties.
2. Non-Dividend Distributions. Distributions by EQR which are not dividends
out of the earnings and profits of EQR will not be subject to U.S. income or
withholding tax. If it cannot be determined at the time a distribution is made
whether or not such distribution will be in excess of EQR's current and
accumulated earnings and profits, the entire distribution will be subject to
withholding at the rate applicable to dividends. However, the Non-U.S. Holder
may seek a refund of such amounts from the IRS if it is subsequently determined
that such distribution was, in fact, in excess of current and accumulated
earnings and profits of EQR.
3. Capital Gain Dividends. Under the Foreign Investment in Real Property
Tax Act of 1980 ("FIRPTA"), a distribution made by EQR to a Non-U.S. Holder, to
the extent attributable to gains from dispositions of United States Real
Property Interests ("USRPIs") such as the properties beneficially owned by EQR
will be considered effectively connected with a U.S. trade or business of the
Non-U.S. Holder and subject to U.S. income tax at the rate applicable to U.S.
individuals or corporations, without regard to whether such distribution is
designated as a capital gain dividend. In addition, EQR will be required to
withhold tax equal to 35% of the amount of dividends to the extent such
dividends constitute gains from any USRPI. Distributions subject to FIRPTA may
also be subject to a 30% branch profits tax in the hands of a foreign corporate
shareholder that is not entitled to treaty exemption or reduction.
Dispositions of Securities. Unless securities constitute a USRPI, a sale of
securities by a Non-U.S. Holder generally will not be subject to U.S. taxation
under FIRPTA. The securities will not constitute a USRPI if EQR is a
"domestically controlled REIT." A domestically controlled REIT is a REIT in
which, at all times during a specified testing period, less than 50% in value of
its securities is held directly or indirectly by Non-U.S. Holders. EQR believes
that it has been and anticipates that it will continue to be a domestically
controlled REIT, and therefore that the sale of securities of EQR will not be
subject to taxation under FIRPTA. Because the securities will be publicly
traded, however, no assurance can be given EQR will continue to be a
domestically controlled REIT. If EQR does not constitute a domestically
controlled REIT, a Non-U.S. Holder's sale of securities of EQR generally will
still not be subject to tax under FIRPTA as a sale of a USRPI provided that (i)
the securities are "regularly traded" (as defined by applicable Treasury
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regulations) on an established securities market and (ii) the selling Non-U.S.
Holder held 5% or less of EQR's outstanding securities at all times during a
specified testing period.
If gain on the sale of securities were subject to taxation under FIRPTA,
the Non-U.S. Holder would be subject to the same treatment as a U.S. shareholder
with respect to such gain (subject to applicable alternative minimum tax and a
special alternative minimum tax in the case of nonresident alien individuals)
and the purchaser of securities could be required to withhold 10% of the
purchase price and remit such amount to the IRS. Capital gains not subject to
FIRPTA will nonetheless be taxable in the United States to a Non-U.S. Holder in
two cases: (i) if the Non-U.S. Holder's investment in securities is effectively
connected with a U.S. trade or business conducted by such Non-U.S. Holder, the
Non-U.S. Holder will be subject to the same treatment as a U.S. shareholder with
respect to such gain, and (ii) if the Non-U.S. Holder is a nonresident alien
individual who was present in the United States for 183 days or more during the
taxable year and certain other conditions are satisfied, the nonresident alien
individual will be subject to a 30% tax on the individual's capital gain.
Proposed Legislation
On February 2, 1998, the Clinton Administration released its budget
proposal for fiscal year 1999. The proposal includes a number of provisions
affecting REITs. One proposed provision would amend the tests relating to the
composition of a REIT's assets. Under current law, a REIT is precluded from
owning more than 10% of the outstanding voting securities of any one issuer,
other than a "qualified REIT subsidiary" or another REIT. Pursuant to the
Clinton Administration proposal, a REIT would remain subject to the current
restriction and would be precluded from owning more than 10% of the value of all
classes of stock of any issuer, if the proposal were enacted as proposed, it
would be effective with respect to stock acquired on or after the date of first
congressional committee action, which could include stock deemed acquired upon a
capital contribution to an existing subsidiary after such date.
To the extent that EQR's current stock ownership in a subsidiary is
grandfathered by virtue of this effective date, the grandfathered status would
terminate with respect to such stock if the subsidiary engaged in a new trade or
business or acquired substantial new assets. Accordingly, if the proposal were
enacted as currently drafted and the EQR Management Corps. (in which EQR's stock
ownership exceeds 10% of the value of the securities of such corporations) or
the EQR Preferred Stock Subsidiaries or MRYP Newco (in which EQR's stock
ownership could exceed 10% of the value of the securities of such corporations)
were to engage in a new trade or business or acquire substantial new assets the
grandfathered status of EQR's current ownership of stock in these entities would
terminate and EQR could fail to qualify as a REIT unless EQR's ownership was
reduced to less than 10% of the value of the securities of such corporations. In
addition, EQR, would not be able to own more than 10% of the voting power or 10%
of the value of any subsidiary formed or acquired after the effective date of
the proposal. Thus, the proposal, if enacted as proposed, would materially
impede the ability of EQR to engage in new third-party management or similar
activities or own non-voting stock in a C corporation. EQR's management believes
that any such impact, however, would not have a material adverse effect on its
business, results of operations, financial condition or liquidity.
Other Tax Considerations.
Payment of Tax by Certain Subsidiary Entities. A portion of the cash to be
used by ERP Operating Partnership to fund distributions to its partners,
including EQR, is expected to come from the EQR Management Corps. and the EQR
Preferred Stock Subsidiaries through payments of dividends on the non-voting
stock of such entities held by ERP Operating Partnership. The EQR Management
Corps. and the EQR Preferred Stock Subsidiaries may be subject to tax on their
income; however, they will attempt to minimize the amount of such taxes, but
there can be no assurance whether or the extent to which measures taken to
minimize taxes will be successful. To the extent that the EQR Management Corps.
and/or the EQR Preferred Stock Subsidiaries are required to pay federal, state
or local taxes, the cash available for distribution by EQR to shareholders will
be reduced accordingly.
State and Local Taxes. EQR and its shareholders may be subject to state or
local taxation in various jurisdictions, including those in which it or they
transact business or reside. The state and local tax treatment of EQR and its
shareholders may not conform to the Federal income tax consequences discussed
above.
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Consequently, prospective shareholders should consult their own tax advisors
regarding the effect of state and local tax laws on an investment in the shares
of beneficial interest of EQR.
FEDERAL INCOME TAX CONSEQUENCES OF THE ALTERNATIVE MERGER TRANSACTIONS
At the option of EQR, the transactions contemplated by the Merger may be
effected through the Alternative Merger Transactions which would occur on the
Closing Date instead of the Merger, but which would result in the Merry Land
shareholders receiving the same EQR Shares as they would have received in the
Merger. The Alternative Merger Transactions would occur only if EQR and Merry
Land receive a private letter ruling from the IRS to the effect that the
Alternative Merger Transactions will not adversely affect the tax-free nature of
the ML/LLC Merger and/or the Merry Land Merger Subsidiary/EQR Merger. The
purpose of the Alternative Merger Transactions is to accomplish the combination
of EQR and Merry Land without the surviving company incurring the expense of
separately transferring each asset of Merry Land to ERP Operating Partnership.
The following is a general summary of the material United States Federal
income tax consequences of the Alternative Merger Transactions to Merry Land,
EQR and their respective shareholders. The following discussions were prepared
based on consultation with ▇▇▇▇▇▇▇ & ▇▇▇▇▇, special counsel to EQR; ▇▇▇▇▇ &
▇▇▇▇▇▇▇ L.L.P., special counsel to Merry Land; and ▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇▇ &
▇▇▇▇▇▇▇, P.C., general counsel to Merry Land. In the opinion of ▇▇▇▇▇▇▇ & ▇▇▇▇▇,
▇▇▇▇▇ & ▇▇▇▇▇▇▇ L.L.P. and ▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇▇ & ▇▇▇▇▇▇▇, P.C., the following
discussion, to the extent it constitutes matters of law or legal conclusions, is
accurate in all material respects. Opinions of counsel are not binding on the
IRS. Thus, there can be no assurance that the IRS will agree with the following
discussion and positions described therein, or that the IRS will not seek to
challenge such positions, which challenge may be sustained by the courts.
THE TAX DISCUSSION SET FORTH BELOW IS NOT INTENDED TO BE, NOR SHOULD IT BE
CONSTRUED TO BE, LEGAL OR TAX ADVICE TO ANY PARTICULAR HOLDER OF MERRY LAND
SHARES OR EQR SHARES. THE FOLLOWING SUMMARY IS BASED UPON CURRENT PROVISIONS OF
THE CODE, EXISTING, TEMPORARY AND FINAL REGULATIONS THEREUNDER AND CURRENT
ADMINISTRATIVE RULINGS AND COURT DECISIONS, ALL OF WHICH ARE SUBJECT TO CHANGE
(POSSIBLY ON A RETROACTIVE BASIS). NO ATTEMPT HAS BEEN MADE TO COMMENT ON ALL
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE ALTERNATIVE MERGER
TRANSACTIONS THAT MAY BE RELEVANT TO PARTICULAR HOLDERS OF MERRY LAND SHARES OR
EQR SHARES, INCLUDING HOLDERS THAT ARE SUBJECT TO SPECIAL TAX RULES SUCH AS
DEALERS IN SECURITIES, MUTUAL FUNDS, INSURANCE COMPANIES, TAX-EXEMPT ENTITIES,
HOLDERS WHO DO NOT HOLD THEIR MERRY LAND SHARES OR EQR SHARES AS CAPITAL ASSETS
AND HOLDERS THAT, FOR UNITED STATES FEDERAL INCOME TAX PURPOSES, ARE
NON-RESIDENT ALIEN INDIVIDUALS, FOREIGN CORPORATIONS, FOREIGN PARTNERSHIPS OR
FOREIGN ESTATES OR TRUSTS. BECAUSE OF THE PARTICULAR TAX ATTRIBUTES OF HOLDERS
OF MERRY LAND SHARES OR EQR SHARES, THE ALTERNATIVE MERGER TRANSACTIONS MAY HAVE
DIFFERING TAX IMPLICATIONS FOR SUCH HOLDERS. ACCORDINGLY, HOLDERS OF MERRY LAND
SHARES AND EQR SHARES ARE URGED TO CONSULT WITH THEIR OWN LEGAL AND TAX ADVISERS
REGARDING THE UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE ALTERNATIVE
MERGER TRANSACTIONS AND ANY OTHER CONSEQUENCES TO THEM OF THE ALTERNATIVE MERGER
TRANSACTIONS UNDER STATE, LOCAL AND FOREIGN TAX LAWS.
The Alternative Merger Transactions, if they, occur, will consist of the
following: (i) Merry Land will form Merry Land Merger Subsidiary, a wholly-owned
subsidiary, and Merry Land Merger Subsidiary will, in turn, form Merry Land LLC,
the sole member of which will be Merry Land Merger Subsidiary; (ii) on the
Closing Date, Merry Land will merge with and into Merry Land LLC, with Merry
Land LLC being the surviving entity and each issued and outstanding share of
Merry Land Common and Merry Land Preferred being converted into one share of
Merry Land Merger Subsidiary Common and one share of Merry Land Merger
Subsidiary Preferred having the same preferences, rights, and powers as the
corresponding series of Merry Land Preferred, respectively; (iii) immediately
following the ML/LLC Merger Effective Time, Merry Land Merger Subsidiary will
merge with and into EQR, with EQR being the surviving entity of such merger; and
(iv) at the effective time of the Merry Land Merger Subsidiary/EQR Merger, the
outstanding shares of Merry Land Merger Subsidiary Common and Merry Land Merger
Subsidiary Preferred will be converted into EQR Shares on the same basis that
shares of Merry Land Common and Merry Land Preferred would have
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been converted into EQR Shares had the Merger occurred. See "The
Merger -- Alternative Merger Transactions."
ML/LLC Merger.
In the event that the ML/LLC Merger is consummated, ▇▇▇▇▇▇▇ & ▇▇▇▇▇,
special counsel to EQR in connection with the Alternative Merger Transactions,
will render an opinion to EQR that on the basis of the facts, representations
and assumptions set forth in such opinion, the ML/LLC Merger will constitute a
reorganization within the meaning of Section 368(a) of the Code and Merry Land
and Merry Land Merger Subsidiary will each be a party to such reorganization
within the meaning of Section 368(b) of the Code. In addition, Piper & Marbury
L.L.P., special counsel to Merry Land in connection with the Alternative Merger
Transactions, will render an opinion to Merry Land that on the basis of the
facts, representations and assumptions set forth in such opinion, the ML/LLC
Merger will constitute a reorganization within the meaning of Section 368(a) of
the Code and Merry Land and Merry Land Merger Subsidiary will each be a party to
such reorganization within the meaning of Section 368(b) of the Code.
The following is a summary of the Federal income tax consequences to Merry
Land and Merry Land Merger Subsidiary and their respective shareholders,
assuming the ML/LLC Merger constitutes a reorganization within the meaning of
Section 368(a) of the Code, and Merry Land and Merry Land Merger Subsidiary are
each a party to such reorganization within the meaning of Section 368(b) of the
Code:
(i) no gain or loss will be recognized by either Merry Land or Merry
Land Merger Subsidiary as a result of the ML/LLC Merger;
(ii) no gain or loss will be recognized by the holders of Merry Land
Shares upon the exchange of their Merry Land Shares for Merry Land Merger
Subsidiary Shares pursuant to the ML/LLC Merger;
(iii) the tax basis of the Merry Land Merger Subsidiary Shares
received by a holder of Merry Land Shares in exchange for Merry Land Shares
will be the same as the tax basis of such Merry Land Shares exchanged
therefor;
(iv) the holding period for Merry Land Merger Subsidiary Shares
received in exchange for Merry Land Shares pursuant to the ML/LLC Merger
will include the period that such Merry Land Shares were held by the
holder; and
(v) Merry Land Merger Subsidiary will succeed to all of the tax
attributes of Merry Land, including, but not limited to, ▇▇▇▇▇ ▇▇▇▇'s
status as a REIT.
Merry Land Merger Subsidiary/EQR Merger.
In the event that the Merry Land Merger Subsidiary/EQR Merger is
consummated, ▇▇▇▇▇▇▇ & ▇▇▇▇▇, special counsel to EQR in connection with the
Alternative Merger Transactions, will render an opinion to EQR that on the basis
of the facts, representations and assumptions set forth in such opinion, the
Merry Land Merger Subsidiary/EQR Merger will constitute a reorganization within
the meaning of Section 368(a) of the Code and Merry Land Merger Subsidiary and
EQR will each be a party to such reorganization within the meaning of Section
368(b) of the Code. In addition, Piper & Marbury L.L.P., special counsel to
Merry Land in connection with the Alternative Merger Transactions, will render
an opinion to Merry Land that on the basis of the facts, representations and
assumptions set forth in such opinion, the Merry Land Merger Subsidiary/EQR
Merger will constitute a reorganization within the meaning of Section 368(a) of
the Code, and Merry Land Merger Subsidiary and EQR will each be a party to such
reorganization within the meaning of Section 368(b) of the Code.
The following is a summary of the Federal income tax consequences to Merry
Land Merger Subsidiary and EQR and their respective shareholders, assuming the
Merry Land Merger Subsidiary/EQR Merger
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constitutes a reorganization within the meaning of Section 368(a) of the Code
and EQR and Merry Land Merger Subsidiary are each a party to such reorganization
within the meaning of Section 368(b) of the Code:
(i) no gain or loss will be recognized by EQR as a result of the Merry
Land Merger Subsidiary/ EQR Merger;
(ii) no gain or loss will be recognized by Merry Land Merger
Subsidiary as a result of the Merry Land Merger Subsidiary/EQR Merger;
(iii) no gain or loss will be recognized by the holders of Merry Land
Merger Subsidiary Common upon the exchange of their Merry Land Merger
Subsidiary Common solely for EQR Common (including fractional shares of EQR
Common deemed issued as described below) pursuant to the Merry Land Merger
Subsidiary/EQR Merger;
(iv) no gain or loss will be recognized by the holders of Merry Land
Merger Subsidiary Preferred upon the exchange of their Merry Land Merger
Subsidiary Preferred solely for EQR Preferred pursuant to the Merry Land
Merger Subsidiary/EQR Merger;
(v) the tax basis of the EQR Common (including fractional shares of
EQR Common deemed issued as described below) received by any holder of
Merry Land Merger Subsidiary Common in exchange for Merry Land Merger
Subsidiary Common pursuant to the Merry Land Merger Subsidiary/ EQR Merger
will be the same as the tax basis of such Merry Land Merger Subsidiary
Common exchanged therefor;
(vi) the tax basis of the EQR Preferred received by any holder of
Merry Land Merger Subsidiary Preferred in exchange for Merry Land Merger
Subsidiary Preferred pursuant to the Merry Land Merger Subsidiary/EQR
Merger will be the same as the tax basis of such Merry Land Merger
Subsidiary Preferred exchanged therefor;
(vii) the holding period for EQR Common and EQR Preferred received in
exchange for Merry Land Merger Subsidiary Common and Merry Land Merger
Subsidiary Preferred, respectively, pursuant to the Merry Land Merger
Subsidiary/EQR Merger will include the period that such shares of Merry
Land Merger Subsidiary Common and Merry Land Merger Subsidiary Preferred,
respectively, were held by the holder, provided that such Merry Land Merger
Subsidiary Common and Merry Land Merger Subsidiary Preferred were held as
capital assets by such holder at the Merry Land Merger Subsidiary/ EQR
Merger Effective Time; and
(viii) a holder of Merry Land Merger Subsidiary Common who receives
cash in lieu of a fractional share of EQR Common pursuant to the Merry Land
Merger Subsidiary/EQR Merger will be treated as if he received a fractional
share of EQR Common pursuant to the Merry Land Merger Subsidiary/EQR Merger
and EQR then redeemed such fractional share for the cash. Such a holder
will recognize gain or loss equal to the difference, if any, between such
shareholder's basis in the fractional share and the amount of cash
received.
MERRY LAND EMPLOYEE STOCK OWNERSHIP PLAN
Merry Land currently sponsors and maintains an Employee Stock Ownership
Plan (the "ESOP"), which is a tax-qualified retirement plan for the benefit of
all employees of Merry Land and its subsidiaries who have attained age 21 and
completed one year of eligible service. Pursuant to the terms of the ESOP, the
ESOP's participants have the right to direct the trustee of the ESOP on how to
vote the shares of Merry Land allocated to their accounts in the ESOP in the
proposed Merger. The trustee is responsible for voting the unallocated shares
owned by the ESOP of Merry Land Common in connection with the proposed Merger.
The ESOP trustee is ▇. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, President, Chief Executive Officer and
director of Merry Land, and therefore a conflict of interest could exist between
▇▇. ▇▇▇▇▇▇▇'▇ role as trustee of the ESOP and as a director and executive
officer of Merry Land who will receive certain benefits in connection with the
Merger in addition to those received by shareholders generally. See "Interests
of Certain Persons in the Merger." As of June 30, 1998, the ESOP held
approximately 360,106 shares of Merry Land Common, of which approximately
235,411 were allocated to accounts of the participants.
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Merry Land has made certain loans to the ESOP to facilitate the ESOP's
purchase of Merry Land Common for the benefit of ESOP participants and
beneficiaries ("ESOP Stock Acquisition Loans"). ESOP Stock Acquisition Loans are
repaid with annual contributions made by Merry Land to the ESOP and with a
portion of the dividends paid on Merry Land Common purchased by the ESOP. Each
ESOP Stock Acquisition Loan is secured by the ESOP's pledge of the Merry Land
Common acquired with the proceeds of that loan ("Pledged Shares"). The Pledged
Shares are released from the pledge and allocated to the accounts of ESOP
participants on a ratable basis corresponding to the payments made on the ESOP
Stock Acquisition Loan. As of June 30, 1998, the aggregate outstanding balance
of principal on the ESOP Stock Acquisition Loans was $2.6 million, and there
were 124,695 Pledged Shares securing the repayment of those loans.
At or prior to the Effective Time, MRYP Newco will adopt and assume
sponsorship of the ESOP for its employees and Merry Land will terminate its
participation in, and sponsorship of the ESOP. Prior to the Effective Time,
Merry Land expects to make a contribution to the ESOP of an amount equal to
approximately 10% of ESOP participants' total compensation for the period from
January 1, 1998 through the Effective Time. The Merger Agreement limits this
contribution to $559,000 plus $95,000 for each month from July 1, 1998 through
the Effective Time. Neither Merry Land nor EQR will make any further
contributions to the ESOP.
Merry Land will use its best efforts to cause full repayment of any unpaid
balance remaining on the ESOP Stock Acquisition Loans with proceeds from the
sale or redemption of a portion of the Pledged Shares and any contribution made
by Merry Land prior to the Effective Time. If and when the ESOP Stock
Acquisition Loans are satisfied, all remaining Pledged Shares would then be
released from the pledge and allocated to the accounts of ESOP participants
(including without limitation ESOP participants who become employed by either
MRYP Newco or EQR immediately after the Effective Time) immediately prior to the
Effective Time.
Any loss, costs and expenses resulting from the assumption of sponsorship
of the ESOP by MRYP Newco and certain allocations to accounts of the ESOP
participants will be shared by EQR and MRYP Newco in the ratio of certain
allocations to employees of MRYP Newco and EQR immediately after the Effective
Time.
INTERESTS OF CERTAIN PERSONS IN THE TRANSACTIONS
In considering whether to approve the Merger, shareholders should be aware
that certain members of the management of Merry Land and the Merry Land Board of
Directors have certain interests that arise in connection with the Transactions
that are in addition to the interests of shareholders of Merry Land generally.
These interests arise under existing agreements with, and previously approved
annual compensation awards from, Merry Land, the Merger Agreement, and proposed
agreements with MRYP Newco and EQR.
RETENTION AND SEVERANCE PROGRAM
Overview. On July 8, 1998, the Merry Land Board of Directors adopted a
Retention and Severance Program and approved the execution of agreements with
the executive officers of Merry Land as well as 106 other specified employees.
The Merry Land Board of Directors adopted the program after careful
consideration of Merry Land's long term employment program which engaged the
services of its executives and employees at levels of current compensation below
that paid by companies of comparable size. The program emphasized "stock based"
remuneration which would be realized over a long term of employment. Because
consummation of the Merger will prevent the employees from realizing those
benefits, Merry Land adopted the Retention and Severance Program.
Payments. The Merry Land executive officers (the "Merry Land Executive
Officers") and specified employees will receive lump sum cash payments and
retention bonuses not to exceed $11.0 million in the aggregate. The lump sum
payments to be made at the Effective Time to the Chairman of the Board and the
four most highly compensated Merry Land executive officers (each a "Merry Land
Named Executive Officer"), the four other Merry Land Executive Officers (as a
group) and the retention bonuses to be paid
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after the Effective Time to approximately 101 other officers, managers and staff
(as a group) under the plan are as follows: $1.6 million for ▇▇. ▇▇▇▇, $1.8
million for ▇▇. ▇▇▇▇▇▇▇, $1.7 million for ▇▇. ▇▇▇▇▇▇▇▇, $1.0 million for ▇▇.
▇▇▇▇▇▇, $0.8 million for ▇▇. ▇▇▇▇▇, $2.1 million to the four other Merry Land
Executive Officers (as a group), and $2 million in retention bonuses to
approximately 101 other officers, managers and staff (as a group).
STOCK LOANS
In order to align their interests with those of the Merry Land
shareholders, Merry Land executive officers, other officers, managers and
non-employee directors have purchased shares of Merry Land Common during the
course of their employment or service with Merry Land, at fair market value
under the Merry Land Stock Loan Program. The purchase price of this Merry Land
Common was borrowed from Merry Land and evidenced by interest-free,
full-recourse promissory notes secured by the Merry Land Common purchased with
the stock loan (the "Stock Loans"). Under the Stock Loan agreements, 60% of each
dividend payment on the Merry Land Common secured by the Stock Loans must be
used to repay the principal balance of the Stock Loans. The Stock Loans
generally are payable upon demand. However, in the event of the employee's death
or retirement or a change in control of Merry Land (e.g. the Merger), the Stock
Loans are no longer payable on demand and are amortized solely with 60% of the
dividends on the Merry Land Common purchased with the Stock Loans. Under the
Merger Agreement, rather than requiring EQR to assume the Stock Loans according
to the terms of the loans, the remaining principal balance of the Stock Loans
will be forgiven at the Effective Time. As of June 30, 1998, the outstanding
balance of Stock Loans for the executive officers, non-employee directors, other
officers and managers totaled $26.8 million including $3.1 million for ▇▇. ▇▇▇▇,
$2.7 million for ▇▇. ▇▇▇▇▇▇▇, $2.4 million for ▇▇. ▇▇▇▇▇▇▇▇, $1.8 million for
▇▇. ▇▇▇▇▇▇, $1.6 million for ▇▇. ▇▇▇▇▇, $5.5 million for the other four Merry
Land Executive Officers (as a group), $0.3 million for each of Messrs. ▇▇▇▇▇▇▇,
▇▇▇▇▇, ▇▇▇▇ and ▇▇▇▇▇, the non-employee directors; and $8.5 million for 59 other
officers and managers.
MERRY LAND OPTIONS
Merry Land's executive officers, other officers and managers have been
granted Merry Land Options to acquire Merry Land Common under the Merry Land
Stock Option and Incentive Plan in connection with services previously rendered
by them. Merry Land Options generally vest and become exercisable at the rate of
20% of the total award per year, but become fully vested and exercisable for a
period of three months upon termination of employment for any reason other than
for cause within one year after a change in control, which is defined to include
the approval by Merry Land stockholders of a merger, consolidation or share
exchange resulting in Merry Land Common being changed, converted or exchanged
(other than a merger with a wholly-owned subsidiary of Merry Land). In addition,
upon a change in control, Merry Land Options may be surrendered to Merry Land
for a payment equal to the difference between the fair market value of the
shares subject to the option (or portion thereof) surrendered and the option
exercise price. The payment upon surrender of a Merry Land Option may be made in
cash, Merry Land Common valued at the then fair market value thereof, or in a
combination of cash and stock.
Pursuant to the terms of the Merger Agreement, each individual, including
each officer, holding a Merry Land Option will have the right to enter into an
agreement with EQR providing for the cancellation of such option, whether or not
vested, immediately following the Effective Time for cash in an amount equal to
the difference between the Closing Price of Merry Land Common and the applicable
exercise price set forth in such option, multiplied by the number of shares of
Merry Land Common subject to such option. For purposes of such calculation,
"Closing Price" is defined to mean the unweighted average closing price of a
share of Merry Land Common, reported as "New York Stock Exchange Composite
Transactions" by The Wall Street Journal (Midwest Edition) for the ten trading
days ending on the third trading day immediately prior to the Effective Time.
Each Merry Land Option which remains unexercised as of the Closing Date will be
converted into an option to purchase 0.54 of a share of EQR Common for each
share of Merry Land Common subject to such Merry Land Option at the stated per
share exercise price divided by 0.54 and shall otherwise continue to be
exercisable pursuant to its terms.
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After considering the number of shares of Merry Land Common subject to
Merry Land Options that will vest as a result of the Merger, the exercise price
of the shares subject to Merry Land Options vested as a result of the Merger and
assuming a fair market value per share of EQR of $39 1/4, the Merry Land Named
Executive Officers will realize the following gains, as a result of the Merger:
$0 for ▇▇. ▇▇▇▇, $33,650 for ▇▇. ▇▇▇▇▇▇▇, $30,450 for ▇▇. ▇▇▇▇▇▇▇▇, $8,340 for
▇▇. ▇▇▇▇▇▇ and $14,740 for ▇▇. ▇▇▇▇▇; $46,320 for the four other Merry Land
Executive Officers (as a group) and $241,607 for 59 other officers and managers
(as a group).
EXCISE TAX GROSS-UP
The Retention and Severance Plan provides that the Chairman of the Merry
Land Board of Directors and eight other Merry Land Executive Officers are also
entitled to receive certain gross-up payments which are intended to put the
recipients in the same financial position that they would have been in if the
excise tax imposed by Code Section 4999 was not imposed on the lump sum payments
made under the Retention and Severance Program and on certain other payments and
benefits described above. The Retention and Severance Program limits the
aggregate amount of these gross-up payments to $16.25 million. Based upon the
lump sum cash payments made under the Retention and Severance Program, estimates
of other payments and benefits which are subject to the excise tax under Code
Section 4999, the actual estimated tax gross-up payments are expected to total
$15.7 million including payments to the Merry Land Named Executive Officers as
follows: $2.9 million for ▇▇. ▇▇▇▇, $2.7 million for ▇▇. ▇▇▇▇▇▇▇, $2.4 million
for ▇▇. ▇▇▇▇▇▇▇▇, $1.7 million for ▇▇. ▇▇▇▇▇▇ and $1.5 million for ▇▇. ▇▇▇▇▇ and
$4.5 million for the other four Merry Land Executive Officers (as a group).
AGREEMENTS WITH EQR
Appointment to Board of Trustees of Surviving Trust. At the Effective Time,
Messrs. ▇▇▇▇ and ▇▇▇▇▇▇▇▇ will be appointed to the EQR Board of Trustees for
terms ending at the annual meeting of EQR in the years 1999 and 2001,
respectively.
Indemnification of Merry Land Directors and Officers. EQR shall indemnify
each person who is or has been an officer or director of Merry Land or any Merry
Land subsidiary to the extent currently indemnified by Merry Land as provided by
the Merry Land Articles and Bylaws, the ESOP and the other Merry Land employee
benefit plans for actions on or prior to the Effective Time including all
transaction contemplated by the Merger Agreement. EQR agreed to provide "run
off" directors and officers liability insurance for six years after the
Effective Time with a coverage amount and other terms comparable to Merry Land's
current directors and officers liability insurance with respect to their service
as directors and officers of Merry Land prior to the Effective Time. The Merry
Land Articles limit the liability of directors to Merry Land or its shareholders
for monetary damages for breach of his duty of care or other duty as a director,
to the maximum extent permitted by the Georgia law and the Merry Land Bylaws
provide for the indemnification of directors to the maximum extent permitted by
the Georgia law.
AGREEMENTS WITH MRYP NEWCO
Employment Arrangements. At the Effective Time, Messrs. Houston, ▇▇▇▇▇▇▇▇
and ▇▇▇▇▇ will be employed by MRYP Newco, but will not enter into employment
agreements. Assuming approval of the MRYP Newco 1998 Management Incentive Plan
by vote of the Merry Land shareholders (see "Proposal to Approve MRYP Newco's
1998 Management Incentive Plan"), Messrs. Houston and ▇▇▇▇▇▇▇▇ will receive no
base pay in their first year of employment, but will each receive Restricted
Stock Grants for 107,527 shares of MRYP Newco Common, which will vest in equal
installments over 15 years. ▇▇. ▇▇▇▇▇ will receive a base salary of $100,000 per
year and will receive Restricted Stock Grants for 53,764 shares of MRYP Newco
Common, which will vest in equal annual installments over 15 years. For this
purpose, MRYP Newco's Board of Directors has assigned a value of $9.30 per
share, which would result in the vesting of stock having a value of $66,667 per
year, for a total of $1,000,000 over 15 years, for Messrs. Houston and ▇▇▇▇▇▇▇▇,
and $33,333 per year, for a total of $500,000 over 15 years for ▇▇. ▇▇▇▇▇. The
MRYP Newco Common received under the Restricted Stock Grants will be forfeitable
in the event the employee terminates service prior to vesting in the shares. In
the event of a change in control of MRYP Newco, Messrs. Houston, ▇▇▇▇▇▇▇▇ and
Green will become fully vested in the Restricted Stock Grants, except that if
the change of control occurs within four
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years of the Effective Time, the percentage of Restricted Stock Grants vested
will be limited initially to 20%, and another 20% for each year thereafter.
Messrs. Houston, ▇▇▇▇▇▇▇▇ and ▇▇▇▇▇ will be entitled to vote and to receive any
dividends declared with respect to such shares immediately upon receipt, even
during the period that they are forfeitable. Messrs. Houston, ▇▇▇▇▇▇▇▇ and ▇▇▇▇▇
will also be entitled to such further compensation and awards under the 1998
Management Incentive Plan as may be approved in the future by MRYP Newco's Board
of Directors or its Compensation Committee.
▇▇. ▇▇▇▇ will be a non-employee member of MRYP Newco's Board of Directors
and, as such, will be eligible to receive such compensation and awards of
Director Stock Loans under the 1998 Management Incentive Plan as may be approved
in the future by MRYP Newco's Board of Directors or its compensation committee.
MRYP Newco intends to adopt a program to reimburse its executive officers,
including Messrs. Houston, ▇▇▇▇▇▇▇▇ and ▇▇▇▇▇, for any excise tax attributable
to the vesting of Restricted Stock Grants or any other payments or deemed
payments resulting from a change in control of MRYP Newco (as well as the
additional income tax attributable to such reimbursement).
▇▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇., a Vice President of Merry Land, is also expected to
become an employee of MRYP Newco. None of the other Merry Land Executive
Officers are presently expected to be employed by MRYP Newco, although such
officers may be considered for employment in the future.
POLICIES OF EQR
WITH RESPECT TO CERTAIN ACTIVITIES
The following section sets forth the policies to be implemented by EQR upon
the effectiveness of the Merger with respect to certain matters. These policies
may be amended or revised from time to time at the discretion of the EQR Board
of Trustees without a vote of the shareholders of EQR.
BUSINESS OBJECTIVES AND OPERATING STRATEGIES
EQR will seek to maximize both current income and long-term growth in
income, thereby increasing (i) the value of its properties, (ii) distributions
on a per share of EQR Common basis and (iii) increase shareholders' value.
EQR's strategies for accomplishing these objectives will be:
- maintaining and increasing property occupancy while increasing rental
rates;
- controlling expenses, providing regular preventive maintenance, making
periodic renovations and enhancing amenities;
- maintaining a ratio of consolidated debt-to-total market capitalization
of less than 50%;
- pursuing acquisitions that: (i) are available at prices below estimated
replacement costs; (ii) have potential for rental rate and/or occupancy
increases; (iii) have attractive locations in their respective markets;
and (iv) provide anticipated total returns that will increase EQR's
distributions per share of EQR Common and shareholders' value; and
- purchasing newly developed, as well as co-investing in the development
of, multifamily communities in EQR's existing markets where the market
conditions warrant such development.
EQR will be committed to tenant satisfaction by striving to anticipate
industry trends and implementing strategies and policies consistent with
providing quality tenant services. In addition, EQR will continuously survey
rental rates of competing properties and conduct satisfaction surveys of
residents to determine the factors they consider most important in choosing a
particular apartment unit.
ACQUISITION STRATEGIES
EQR anticipates that future property acquisitions will be located in the
continental United States. Management will use market information to evaluate
acquisition opportunities. EQR's market data base will
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allow it to review the primary economic indicators of the markets where EQR
currently manages properties and where it expects to expand its operations.
Acquisitions may be financed from various sources of capital, which may include
undistributed funds from operations, issuance of additional equity securities,
sales of properties and collateralized and uncollateralized borrowings. In
addition, EQR may acquire additional multifamily properties in transactions that
include the issuance of OP Units as consideration for the acquired properties.
Such transactions may, in certain circumstances, partially defer the sellers'
tax consequences.
When evaluating potential acquisitions, EQR will consider: (i) the
geographic area and type of community; (ii) the location, construction quality,
condition and design of the property; (iii) the current and projected cash flow
of the property and the ability to increase cash flow; (iv) the potential for
capital appreciation of the property, (v) the terms of resident leases,
including the potential for rent increases; (vi) the potential for economic
growth and the tax and regulatory environment of the community in which the
property is located; (vii) the occupancy and demand by residents for properties
of a similar type in the vicinity (the overall market and submarket); (viii) the
prospects for liquidity through sale, financing or refinancing of the property;
and (ix) competition from existing multifamily properties and the potential for
the construction of new multifamily properties in the area. EQR expects to
purchase multifamily properties with physical and market characteristics similar
to its current properties.
DISPOSITION STRATEGIES
Management will use market information to evaluate dispositions. Factors
EQR will consider in deciding whether to dispose of its properties include the
following: (i) potential increases in new construction, (ii) areas where the
economy is expected to decline substantially and (iii) markets where EQR does
not intend to establish long-term concentrations. EQR will reinvest the proceeds
received from property dispositions to fund property acquisitions. In addition,
when feasible, EQR will structure these transactions as tax deferred exchanges.
INVESTMENT POLICIES
Investments in Real Estate or Interests in Real Estate. EQR's investment
objectives will be to increase cash flow and the value of its properties, and to
acquire established income-producing multifamily properties with cash flow
growth potential. Additionally, where prudent and possible, EQR will seek to
upgrade its existing properties and any newly acquired multifamily properties.
EQR's business is focused on multifamily properties, although such properties
may include retail and recreational facilities. EQR's policy will be to acquire
assets primarily for current income generation and long-term value appreciation;
however, where appropriate, EQR will sell certain of its properties.
EQR expects to pursue its investment objectives through the direct and
indirect ownership of properties and the ownership of interests in other
entities. EQR will focus on properties in those markets where EQR currently has
operations and in new markets targeted by management. Future investments,
including the activities described below, will not be limited to any geographic
area or to a specified percentage of EQR's assets. EQR also may participate with
other entities in property ownership through joint ventures or other types of
co-ownership. Equity investments may be subject to existing mortgage financing
and other indebtedness or such financing or indebtedness may be incurred in
connection with acquiring investments. Any such financing or indebtedness will
have priority over EQR's equity interest in such property.
Investments in Real Estate Mortgages. While EQR will emphasize equity real
estate investments in multifamily properties, it may, in its discretion, invest
in mortgages and other interests related to multifamily properties. EQR does not
intend to invest to a significant extent in mortgages or deeds of trust, but may
acquire mortgages as a strategy for acquiring a property, subject to the
investment restrictions applicable to REITs. The mortgages in which EQR may
invest may be either first mortgages or junior mortgages, and may or may not be
insured by a governmental agency. EQR may also invest in mortgage-related
securities. Furthermore, EQR may seek to issue securities representing interest
in such mortgage-related securities as a method of raising additional funds.
Securities of or Interests in Persons Primarily Engaged in Real Estate
Activities and Other Issuers. Subject to the gross income and asset tests for
REIT qualification, ▇▇▇ also may invest in securities of
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entities engaged in real estate activities or securities of other issuers,
including for the purpose of exercising control over such entities. EQR may
acquire all or substantially all of the securities or assets of other REITs or
similar entities where such investments would be consistent with EQR's
investment policies. In any event, EQR does not intend that its investments in
securities will require it to register as an "investment company" under the
Investment Company Act of 1940, and EQR would intend to divest securities before
any such registration would be required.
FINANCING POLICIES
EQR intends to maintain a debt to total market capitalization ratio of 50%
or less. EQR, however, may from time to time re-evaluate this policy and
decrease or increase such ratio in light of then current economic conditions,
relative costs to EQR of debt and equity capital, market values of the
properties, growth and acquisition opportunities and other factors. There is no
limit on EQR's debt to total market capitalization ratio imposed by EQR's
Declaration or the EQR Bylaws. To the extent that the Board of Trustees of EQR
determines to obtain additional capital, EQR may issue debt or equity
securities, or cause ERP Operating Partnership to issue additional OP Units, or
retain earnings (subject to provisions in the Code requiring distributions of
income to maintain REIT status), or a combination of these methods. As long as
ERP Operating Partnership is in existence, the proceeds of all equity capital
raised by EQR will be contributed to ERP Operating Partnership in exchange for
additional interests in ERP Operating Partnership. The issuance of such OP Units
to EQR will reduce the ownership interest of holders of OP Units. It is EQR's
policy that it shall not incur indebtedness other than short-term trade,
employee compensation, dividends payable or similar indebtedness that will be
paid in the ordinary course of business, and that indebtedness shall instead be
incurred by the ERP Operating Partnership to the extent necessary to fund the
business activities conducted by the ERP Operating Partnership.
EQR owns several properties that are subject to restrictive covenants or
deed restrictions relating to current or previous tax-exempt bond financings and
owns the bonds collateralized by several additional properties. EQR has retained
an independent outside consultant to monitor compliance with the restrictive
covenants and deed restrictions that affect these properties. The bond
compliance requirements may have the effect of limiting EQR's income from these
properties if EQR is required to lower its rental rates to attract low or
moderate income tenants, or eligible qualified tenants.
To the extent that the EQR Board of Trustees determines to obtain debt
financing, EQR intends to do so generally through mortgages on its properties
and through lines of credit; however, EQR may also issue additional debt
securities in the future. Such indebtedness may be recourse, non-recourse or
cross-collateralized and may contain cross-default provisions. EQR will not have
a policy limiting the number or amount of mortgages that may be placed on any
particular property, but mortgage financing instruments usually limit additional
indebtedness on such properties. In the future, EQR may seek to extend, expand,
reduce or renew its lines of credit, or obtain new credit facilities or lines of
credit, subject to its general policy on debt capitalization, for the purpose of
making acquisitions or capital improvements or providing working capital to EQR
or meeting the taxable income distribution requirements for REITs under the Code
if EQR has taxable income without receipt of cash sufficient to enable EQR to
meet such distribution requirements.
LENDING POLICIES
Although it is not presently contemplated, EQR may consider offering
purchase money financing in connection with the sale of multifamily properties
where the provision of such financing will increase the value received by EQR
for the property sold.
DEVELOPMENT POLICIES
EQR seeks to acquire newly constructed properties and make investments
towards the development of properties in markets where it discerns strong
demand, which EQR believes will enable it to achieve superior rates of return.
EQR's current communities under development and future developments are in
markets or will be in markets where certain market demographics justify the
development of high quality multifamily
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communities. In evaluating whether to develop an apartment community in a
particular location, EQR analyzes relevant demographic, economic and financial
data. Specifically, EQR considers the following factors, among others, in
determining the viability of a potential new apartment community: (i) income
levels and employment growth trends in the relevant market, (ii) uniqueness of
location, (iii) household growth and net migration of the relevant market's
population, (iv) supply/demand ratio, competitive housing alternatives,
sub-market occupancy and rent levels, (v) barriers to entry that would limit
competition, and (vi) the purchase price and yields of available existing
stabilized communities, if any.
POLICIES WITH RESPECT TO OTHER ACTIVITIES
Although it is not presently contemplated, EQR may make investments other
than as previously described. All investments will be related to the multifamily
residential business. EQR will have authority to offer EQR Common or other
equity or debt securities in exchange for property or other REITs and to
repurchase or otherwise reacquire EQR Common or any other securities and may
engage in such activities in the future. Similarly, EQR may offer additional OP
Units or other equity interests in ERP Operating Partnership that are
exchangeable into EQR Common in exchange for property. EQR may also make loans
to joint ventures in which it may participate in the future. EQR will not engage
in trading, underwriting or the agency distribution or sale of securities of
other issuers. At all times, EQR intends to make investments in such a manner as
to be consistent with the requirements of the Code to qualify as a REIT unless,
because of circumstances or changes in the Code (or the regulations promulgated
thereunder), the EQR Board of Trustees determines that it is no longer in the
best interests of EQR to continue to have EQR qualify as a REIT. EQR's policies
with respect to such activities may be reviewed and modified from time to time
by the EQR Board of Trustees without notice to or the vote of the shareholders.
MANAGEMENT AND OPERATION OF EQR
AFTER THE MERGER
MANAGEMENT
Upon the consummation of the Merger the executive officers and trustees of
EQR shall continue to serve for the balance of their unexpired terms or their
earlier death, resignation or removal. In addition, ▇▇▇▇▇ ▇. ▇▇▇▇ and ▇▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇▇ shall become trustees on the EQR Board of Trustees for terms expiring
at the annual meeting of shareholders of EQR held in the years 1999 and 2001,
respectively.
▇▇▇▇▇ ▇. ▇▇▇▇ has served as Chairman of the Board of Directors of Merry
Land since 1996. ▇▇. ▇▇▇▇ also serves as Chairman of the Board of Directors of
Regions Bank, Central Georgia and is a director of Cousins Properties
Incorporated.
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ has served as an Executive Vice President and Chief
Operating Officer of Merry Land since January 1997, as a Vice President of Merry
Land from August 1992 until January 1997, and has been an employee of Merry Land
since February 1992. From November 1990 until January 1992, ▇▇. ▇▇▇▇▇▇▇▇ served
as President of ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇, Inc., asset managers. Prior to November 1990,
▇▇. ▇▇▇▇▇▇▇▇ served as an Executive Vice President of Great Southern Federal
Savings Bank.
ANTICIPATED EFFECTS OF THE MERGER ON RESULTS OF OPERATIONS, LIQUIDITY AND
CAPITAL RESOURCES.
As a result of the Merger, EQR expects to experience an increase in total
revenues, property and maintenance expenses, real estate taxes and insurance,
property management expense, depreciation expense, interest expense and general
and administrative expenses. Also in connection with the Merger, EQR expects to
assume liabilities for financial statement purposes of approximately $687
million and issue approximately 21.9 million shares of EQR Common to consummate
the Merger.
EQR expects to meet its short-term liquidity requirements including capital
expenditures relating to maintaining its existing properties and Merry Land's
stabilized communities generally through its working capital, net cash provided
by operating activities and borrowings under its line of credit. EQR considers
its cash provided by operating activities to be adequate to meet operating
requirements and payments of
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distributions. EQR also expects to meet its long-term liquidity requirements,
such as scheduled mortgage debt maturities, reduction of outstanding amounts
under its line of credit, property acquisitions, financing of construction and
development activities and capital improvements through the issuance of
unsecured notes and equity securities including additional OP Units as well as
from undistributed FFO and proceeds received from the disposition of certain
properties.
PROPOSAL TO INCREASE AUTHORIZED SHARES OF EQR
The EQR Declaration permits approval of an amendment to the EQR Declaration
in connection with the approval of a merger. Because the EQR Declaration will be
amended in the Merger, approval of the Merger would constitute approval of the
Increase. However, the EQR Board is requesting EQR Common Shareholders to
approve the Increase separately. If the Increase is not separately approved, the
EQR Declaration will not be amended in the Merger. If the Increase is approved,
the total number of authorized shares of beneficial interest of EQR will
increase from 300,000,000 to 450,000,000 and the number of authorized shares of
EQR Common will increase from 200,000,000 to 350,000,000. As of September 1,
1998, EQR had 96,867,823 shares of EQR Common issued and outstanding. The
Increase will provide EQR with added flexibility to react to market
opportunities and conditions, including the ability to engage in acquisitions
and effectuate a share split with respect to EQR Common. EQR presently has no
plans or commitments which would necessitate an increase in the number of
authorized EQR Shares. Approval of the Increase is subject to the affirmative
vote of a majority of the votes cast by EQR Common Shareholders at the EQR
Special Meeting, provided a quorum is present. The approval of the Merger is not
conditioned upon the approval of the Increase by the EQR shareholders. In the
event that the Merger is approved by the EQR shareholders, but the Increase is
not approved by the EQR shareholders, the number of authorized shares of EQR
Common will remain at 200,000,000.
The Board of Trustees of EQR recommends that you vote FOR the Increase.
COMPARISON OF RIGHTS OF SHAREHOLDERS
At the Effective Time, the shareholders of Merry Land will become
shareholders of EQR. The rights of Merry Land shareholders are presently
governed by the GBCC, the Merry Land Articles and the Merry Land Bylaws. The
rights of EQR's shareholders are governed by Title 8 of the Corporations and
Associations Article of the Annotated Code of Maryland ("Title 8"), the EQR
Declaration and the EQR Bylaws. After the Merger the former Merry Land
shareholders will be subject to Title 8, the EQR Declaration and the EQR Bylaws.
The following discussion summarizes certain significant differences between
the rights of shareholders of EQR and Merry Land. Rights of the shareholders of
EQR and Merry Land which are and will remain the same after the Merger are not
discussed.
AUTHORIZED AND ISSUED SHARES
The Merry Land Articles authorize the issuance of 100,000,000 shares of
Merry Land Common and 20,000,000 shares of Merry Land Preferred which may be
issued from time to time in one or more series. As of July 2, 1998, the
outstanding Merry Land Preferred consisted of (i) 180,901 shares of Merry Land
Series A, (ii) 4,000,000 shares of Merry Land Series B, (iii) 4,599,400 shares
of Merry Land Series C, (iv) 1,000,000 shares of Merry Land Series D and (v)
4,000,000 shares of Merry Land Series E.
The EQR Declaration currently authorizes the issuance of 300,000,000 shares
of beneficial interest, of which 200,000,000 are EQR Common and 100,000,000 are
EQR Preferred, which may be issued from time to time in one or more series. The
EQR Preferred consists of the following authorized series of preferred shares:
(i) 6,900,000 shares of 9 3/8% Series A Cumulative Redeemable Preferred Shares
of Beneficial Interest, par value $.01 per share; (ii) 575,000 shares of 9 1/8%
Series B Cumulative Redeemable Preferred Shares of Beneficial Interest, par
value $.01 per share; (iii) 460,000 shares of 9 1/8% Series C Cumulative
Redeemable Preferred Shares of Beneficial Interest, par value $.01 per share;
and (iv) 805,000 shares of 8.60% Series D
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Cumulative Redeemable Preferred Shares of Beneficial Interest, par value $.01
per share; (v) 4,600,000 shares of Series E Convertible Preferred Shares of
Beneficial Interest, par value $.01 per share; (vi) 2,300,000 shares of Series F
Cumulative Redeemable Preferred Shares of Beneficial Interest, par value $.01
per share; and (vii) 1,265,000 shares of 7 1/4% Series G Convertible Cumulative
Preferred Shares of Beneficial Interest, par value $.01 per share.
At the Effective Time (subject to approval of the Increase by the EQR
Common Shareholders), EQR's Declaration will be amended to increase the number
of authorized shares of beneficial interest of EQR to 450,000,000, of which
350,000,000 will be EQR Common. Additionally, EQR will adopt Articles
Supplementary to the EQR Declaration, immediately prior to the Effective Time,
designating the EQR Series H, EQR Series I, EQR Series J, EQR Series K and EQR
Series L, with the amount of the designated shares equalling the number of Merry
Land Series A, Merry Land Series B, Merry Land Series C, Merry Land Series D and
Merry Land Series E then outstanding.
SPECIAL MEETINGS
Special meetings of the shareholders of Merry Land may be called for any
purpose by the President, Chairman of the Board, any two directors, Merry Land
shareholders holding an aggregate of at least 25% of the voting stock of Merry
Land, or a majority of the Merry Land Board of Directors.
The EQR Bylaws provide that the Chairman, the President or one-third of the
trustees of EQR may call a special meeting of EQR's shareholders. A special
meeting shall be called by the secretary of EQR upon the written request of EQR
shareholders entitled to cast not less than a majority of all the votes entitled
to be cast at such meeting.
AMENDMENT TO DECLARATION, ARTICLES AND BYLAWS
Under the GBCC, the Merry Land Articles may be amended by the affirmative
vote of the holders of a majority of the outstanding shares of Merry Land
Common. The Merry Land Articles provide that any amendment to the Merry Land
Articles, which would materially adversely affect the voting powers, rights or
preferences of holders of Merry Land Preferred shall require the affirmative
vote of at least 66 2/3 % of the votes entitled to be cast by the holders of
Merry Land Preferred.
The Merry Land Bylaws may be amended by the affirmative vote of the
majority of all the directors then holding office. However, any bylaws adopted
by the Merry Land Board of Directors may be amended by Merry Land's shareholders
and the Merry Land shareholders may provide that any bylaws adopted by them may
not be amended by the Merry Land Board of Directors.
As permitted by Title 8, the EQR Declaration provides that the EQR Board of
Trustees may, by a two-thirds vote, amend the EQR Declaration from time to time
in order to enable EQR to qualify and remain qualified as REIT under the Code
and under Title 8. Except as set forth in the previous sentence, in the terms of
the EQR Preferred or with regard to amendments effectuated pursuant to a merger,
the EQR Declaration may be amended only by the affirmative vote of the holders
of not less than two-thirds of the shares of beneficial interest then
outstanding and entitled to vote on the matter.
The EQR Bylaws provide that the EQR Board of Trustees shall have the
exclusive power to adopt, alter or repeal any provision of the EQR Bylaws or
make new EQR bylaws.
BOARDS OF TRUSTEES/DIRECTORS
The Merry Land Bylaws provide for a Board of Directors consisting of not
more than 15 nor less than three members to be elected at each annual meeting of
the stockholders and to serve for a term of one year and until their successors
shall be elected and shall qualify. The Merry Land shareholders, by majority
vote, at any annual or special meeting, may remove a member of the Merry Land
Board of Directors with or without cause.
The EQR Declaration provides for a Board of Trustees consisting of not more
than 15 nor less than two trustees. The EQR Declaration states that the trustees
of EQR shall be divided into three classes, as nearly as
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equal as possible, with the term of each class expiring at the annual meeting of
EQR Shareholders in the third year following their election. This classified
Board of Trustees could have the effect of making the removal of incumbents more
time consuming and difficult, which could delay, defer or prevent a third party
from making a timely offer or otherwise attempting to obtain control of EQR,
even though such an attempt might be beneficial to EQR and its shareholders.
Thus, the classified board could increase the likelihood that incumbents will
retain their positions. The EQR Declaration also provides that a trustee may be
removed only with cause, at a meeting of the EQR shareholders called for that
purpose, by the affirmative vote of the holders of not less than two-thirds of
the shares of beneficial interest then outstanding and entitled to vote in the
election of trustees. The EQR Declaration defines "cause" as (i) material theft,
fraud or embezzlement or active and deliberate dishonesty by a trustee, (ii)
habitual neglect of duty by a trustee having a material and adverse significance
to the trust, or (iii) the conviction of a trustee for a felony or of any crime
involving moral turpitude.
MERGERS, CONSOLIDATIONS, AND SALE OF SUBSTANTIALLY ALL ASSETS
Declaration/Articles Provisions. The Merry Land Articles do not address the
vote required for a merger or consolidation involving Merry Land or Merry Land's
property. Under the GBCC, a merger must be approved by: (i) a majority of all
the votes entitled to be cast on the plan by all shares entitled to vote on the
plan, voting as a single voting group; and (ii) a majority of the votes entitled
to be cast by holders of the shares of each voting group entitled to vote
separately on the plan as a voting group by the articles of incorporation.
The EQR Declaration provides that the affirmative vote of the holders of a
majority of the outstanding shares of EQR Common is required to approve a
merger, consolidation, or the sale or other disposition of all or substantially
all of the assets of EQR.
Statutory Restrictions. The GBCC includes a business combination statute
which is designed to deter hostile takeovers by protecting minority shareholders
in the second stage of freeze-out mergers, and is applicable only if a
corporation specifically provides so in its Articles and Bylaws. Under the GBCC,
certain business combinations with "interested shareholders" are prohibited for
five years from the time that a person becomes an interested shareholder unless
(i) the combination was approved before the person became an interested
shareholder, (ii) the shareholder became an interested shareholder in a
transaction in which the person became the beneficial owner of at least 90% of
the voting stock of the corporation outstanding at the time or (iii) subsequent
to becoming an interested shareholder, such shareholder acquired additional
shares resulting in the interested shareholder being the beneficial owner of at
least 90% of the outstanding voting stock of the corporation. In addition, the
GBCC requires special procedures for approval by the board of directors of a
business combination unless, among other conditions, the Georgia corporation's
common shareholders receive a minimum price (as defined in the GBCC) for their
shares and the consideration is received in cash or in the same form as
previously paid by the interested shareholder for its shares. Merry Land has not
elected to apply the GBCC's business combination statute to Merry Land.
Under the Maryland General Corporation Law, as amended (the "MGCL"), as
applicable to a Maryland REIT, certain "business combinations" (including a
merger, consolidation, share exchange, an asset transfer or, in certain
circumstances, issuance or reclassification of equity securities) between a
Maryland REIT and (i) any person who beneficially owns 10% or more of the voting
power of the REIT's shares or an affiliate of the REIT who, at any time within
the two-year period prior to the date in question, was the beneficial owner of
10% or more of the voting power of the then outstanding voting shares of
beneficial interest of the REIT (an "Interested Shareholder") or (ii) an
affiliate of an Interested Shareholder are prohibited for five years after the
most recent date on which the Interested Shareholder becomes an Interested
Shareholder. Thereafter, any such business combination must be recommended by
the board of trustees of such REIT and approved by the affirmative vote of at
least (a) 80% of the votes entitled to be cast by holders of outstanding voting
shares of beneficial interest of the REIT and (b) two-thirds of the votes
entitled to be cast by holders of voting shares of the REIT other than shares
held by the Interested Shareholder with whom (or with whose affiliate) the
business combination is to be effected, unless, among other conditions, the
REIT's common shareholders receive a minimum price (as defined in the MGCL) for
their shares and the consideration is received in cash or in the same form
previously paid by the Interested Shareholder for its
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shares. These provisions of the MGCL do not apply, however, to business
combinations that are approved or exempted by the board of trustees of the REIT
prior to the time that the Interested Shareholder becomes an Interested
Shareholder.
In addition to the restrictions on certain business combinations, the MGCL,
as applicable to a Maryland REIT, also provides that "control shares" of a
Maryland REIT acquired in a "control share acquisition" have no voting rights
except to the extent approved by a vote of two-thirds of the votes entitled to
be cast on the matter, excluding shares of beneficial interest owned by the
acquiror, by officers or by trustees who are employees of the REIT. "Control
Shares" are voting shares of beneficial interest which, if aggregated with all
other such shares of beneficial interest previously acquired by the acquiror, or
in respect of which the acquiror is able to exercise or direct the exercise of
voting power (except solely by virtue of a revocable proxy), would entitle the
acquiror to exercise voting power in electing trustees within one of the
following ranges of voting power: (i) one-fifth or more but less than one-third,
(ii) one-third or more but less than a majority, or (iii) a majority or more of
all voting power. Control Shares do not include shares the acquiring person is
then entitled to vote as a result of having previously obtained shareholder
approval. A "control share acquisition" means the acquisition of control shares,
subject to certain exceptions. Despite these restrictions on Control Share
acquisitions, the MGCL provides that a REIT may effectively exempt itself from
such restrictions by a provision contained in its Declaration or Bylaws. The EQR
Bylaws contain provisions stating that the restrictions regarding Control Shares
will not apply to any acquisition of its shares of beneficial interest by any
person. There can be no assurance that any such provision will not be amended or
eliminated at any time in the future.
RESTRICTIONS ON THE OWNERSHIP, TRANSFER OR ISSUANCE OF SHARES
The EQR Declaration, subject to certain exceptions, provides that no holder
may own, or be deemed to own by virtue of the attribution provisions of the
Code, more than 5% (the "EQR Ownership Limit") of the lesser of the number of
shares or value of the issued and outstanding shares of beneficial interest of
EQR. The EQR Board of Trustees, upon receipt of a ruling from the IRS, an
opinion of counsel or other evidence satisfactory to the EQR Board of Trustees
and upon such other conditions as the EQR Board of Trustees may direct, may also
exempt a proposed transferee from the EQR Ownership Limit. As a condition of
such exemption, the intended transferee must give written notice to EQR of the
proposed transfer no later than the fifteenth day prior to any transfer which,
if consummated, would result in the intended transferee owning shares in excess
of the EQR Ownership Limit. Any transfer of EQR Common or EQR Preferred that
would (i) create a direct or indirect ownership of shares of beneficial interest
in excess of the EQR Ownership Limit, (ii) result in the shares of beneficial
interest being owned by fewer than 100 persons, or (iii) result in EQR being
"closely held" within the meaning of Section 856(h) of the Code, will be void ab
initio, and the intended transferee will acquire no rights to the shares of
beneficial interest. The foregoing restrictions on transferability and ownership
will not apply if the EQR Board of Trustees determines that it is no longer in
the best interests of EQR to attempt to qualify, or to continue to qualify, as a
REIT.
EQR's Declaration exempts from the EQR Ownership Limit certain persons and
entities who would exceed the EQR Ownership Limit as a result of the exchange of
the OP Units for EQR Common, which OP Units were received by them at the time of
the formation of EQR. These persons may also acquire additional EQR Shares
through EQR's Second Amended and Restated 1993 Share Option and Share Award Plan
(the "Option and Award Plan"), but in no event will such persons be entitled to
acquire additional shares of beneficial interest such that the five largest
beneficial owners of EQR's shares of beneficial interest hold more than 50% in
number or value of the total outstanding EQR Shares.
Any shares of EQR Common the transfer of which would result in a person
owning shares of beneficial interest in excess of the EQR Ownership Limit or
cause EQR to become "closely held" under Section 856(h) of the Code that is not
otherwise permitted as provided above will automatically be transferred to a
charitable trust (the "Charitable Trust"), the trustee of which shall be
unaffiliated with EQR.
The shares held in the Charitable Trust shall be issued and outstanding,
but the prohibited owner shall have no rights to such shares or benefits
therefrom. The shares, and any distributions or dividends paid thereon shall be
held for the benefit of the charitable beneficiary. Within 20 days of receiving
notice from EQR that the shares are transferred to the Charitable Trust, the
trustee shall sell the shares and pay the proceeds of such
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sale to the prohibited owner; provided, however, that if the price paid by the
prohibited owner is less than the proceeds received by the trustee, the
prohibited owner shall receive such lesser amount.
All certificates evidencing shares of beneficial interest of EQR bear a
legend referring to the restrictions described above or state that a copy of
such restrictions may be obtained from EQR.
All persons who own, directly or by virtue of the attribution provisions of
the Code, more than 5% (or such other percentage between one-half of 1% and 5%
as provided in the rules and regulations promulgated under the Code) of the
lesser of the number or value of the outstanding shares of beneficial interest
of EQR must give a written notice to EQR by January 31 of each year. In
addition, each shareholder will upon demand be required to disclose to EQR in
writing such information with respect to the direct, indirect and constructive
ownership of EQR Shares as the EQR Board of Trustees deems reasonably necessary
to comply with the provisions of the Code applicable to a REIT, to comply with
the requirements of any taxing authority or governmental agency or to determine
any such compliance.
The Merry Land Articles contain no similar provisions regarding
restrictions on ownership, transfer or issuance of Merry Land Shares.
STANDARD OF CONDUCT FOR DIRECTORS AND TRUSTEES
The GBCC requires a director of a Georgia corporation, such as Merry Land,
to perform his duties in a manner he believes in good faith to be in the best
interest of the corporation and with the care that an ordinarily prudent person
in a like position would use under similar circumstances.
Title 8 contains no statutory standard of conduct for trustees of a
Maryland real estate investment trust such as EQR; however, Maryland courts may
look to the MGCL when determining the appropriate standards for trustees. The
MGCL requires a director of a Maryland corporation to perform his duties in good
faith, in a manner he reasonably believes to be in the best interests of the
corporation and with the care of an ordinarily prudent person in a like position
under similar circumstances.
BOARD COMMITTEES
The GBCC permits the board of directors of a Georgia corporation, such as
Merry Land, to delegate to a committee of one or more directors any of its
powers except the powers to approve or propose to shareholders actions that the
GBCC requires to be approved by shareholders, to fill vacancies on the board of
directors or any of its committees, amend articles unless the articles state
otherwise, amend, alter or repeal the bylaws or approve a plan of merger not
requiring shareholder approval.
Title 8 contains no provision for or limitation on the composition of or
delegation of powers to committees of the board of trustees of a Maryland real
estate investment trust, such as EQR.
MARYLAND ASSET REQUIREMENTS
To maintain its qualification as a Maryland real estate investment trust,
Title 8 requires that EQR hold either directly or through other entities, at
least 75% of the value of its assets in real estate assets, mortgages or
mortgage related securities, government securities, cash and cash equivalent
items, including high-grade short term securities and receivables. Title 8 also
prohibits a Maryland real estate investment trust, such as EQR, from using or
applying land for farming, agricultural, horticultural or similar purposes.
There is no such requirement for a Georgia corporation, such as Merry Land.
MERRY LAND PROPERTIES, INC.
DESCRIPTION OF CONTRIBUTION AND DISTRIBUTION
Prior to the Merger, Merry Land will contribute the MRYP Newco Properties
and related liabilities to Merry Land Properties, Inc. ("MRYP Newco") pursuant
to the Asset Exchange Agreement between Merry Land and MRYP Newco in exchange
for the issuance of approximately 2.1 million shares of MRYP Newco
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Common, the issuance of 5,000 shares of MRYP Newco Preferred and the execution
of the Senior Debt Documents and the Subordinated Debt Documents. MRYP ▇▇▇▇▇
also will acquire the right to use the names "Merry Land" and "▇▇▇▇▇▇▇" and the
ticker symbol "MRYP." The MRYP Newco Common will be distributed to the holders
of Merry Land Common immediately prior to the consummation of the Merger. The
Distribution will be subject to income tax under Section 301 of the Code. ERP
Operating Partnership has agreed to purchase the 5,000 shares of MRYP Newco
Preferred and will become the lender under the Senior Debt Agreement and the
Subordinated Debt Agreement.
The Distribution will be made to Merry Land Common Shareholders of record
as of the close of business on the Closing Date ("Distribution Date"). On or
prior to the Distribution Date, a share certificate evidencing all the shares of
MRYP Newco Common owned by Merry Land will be delivered to First Union National
Bank, as Distribution Agent. Commencing on the Distribution Date, the
Distribution Agent will begin mailing to Merry Land Common Shareholders as of
the close of business on the Distribution date certificates representing one
share of MRYP Newco Common for every twenty shares of Merry Land Common held on
the Distribution Date. See "Capital Stock of MRYP Newco -- Common Stock." Merry
Land Common Shareholders who would be entitled to receive fractional shares of
MRYP Newco Common will receive cash in the Distribution in lieu of such
fractional shares. To accomplish this, the Distribution Agent will determine the
number of whole and fractional shares of MRYP Newco Common to which each Merry
Land Common Shareholder as of the Distribution Date is entitled. Next, the
Distribution Agent will aggregate these fractional share interests and sell them
on the open market at then-prevailing prices. The Distribution Agent will
distribute to each Merry Land Common Shareholder its ratable share of such
proceeds after deducting appropriate amounts for Federal income tax withholding
purposes and any applicable transfer taxes.
No Merry Land Common Shareholder will be required to pay any cash or other
consideration for the shares of MRYP Newco Common to be received in the
Distribution or to surrender or exchange shares of Merry Land Common or to take
any other action in order to receive MRYP Newco Common.
BUSINESS OBJECTIVES AND OPERATING STRATEGIES
Overview. The strategy of MRYP Newco is to provide focused, local
management of assets owned by MRYP Newco which did not meet the investment
criteria of EQR because of the size of the markets in which they are located and
to concentrate its future efforts on real estate activities in the coastal areas
of the Southern United States which it expects to experience rates of
demographic and economic growth above the national average. MRYP Newco expects
to focus particularly on the investment, rehabilitation, development and
management of multifamily and other properties for sale for its own account in
the coastal urban areas of North Florida, Georgia and the Carolinas, including
but not limited to such markets as Brunswick-St. ▇▇▇▇▇▇ Island, Savannah,
Charleston, Hilton Head, Beaufort and Myrtle Beach. MRYP Newco believes that
these areas will enjoy job and population growth in excess of national levels as
a result of the baby boom generation approaching retirement age and tending to
move seasonally or permanently to resort oriented areas. MRYP Newco expects to
focus primarily on middle market real estate products which are marketed to the
local service population.
MRYP Newco also believes that significant opportunities exist in other
smaller markets in the South which do not meet the size criteria of larger
REITs. MRYP Newco believes that there are numerous properties located in the
smaller metropolitan areas of the South which are currently under-performing,
and can be acquired on advantageous terms and repositioned with the expectation
of achieving enhanced returns. MRYP Newco intends to acquire such properties
below their replacement cost and to operate or resell those properties following
renovation, redevelopment or repositioning. MRYP Newco intends to engage in
selective development as opportunities arise, and when such development is
justified by expected returns. Developed properties may be retained for
investment and operated by MRYP Newco or may be sold. Certain development
activities may be conducted in joint ventures with local developers who may bear
a substantial portion of the economic risk associated with the construction,
development and initial rent-up of the properties. MRYP Newco also intends to
expand its fee based property management.
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Reasons for the Contribution and Distribution. MRYP Newco was formed by
Merry Land in connection with the Transactions, in order to acquire certain
non-core assets of Merry Land which did not meet the investment criteria of EQR.
Merry Land's management believes that the value of these assets can be maximized
for the benefit of Merry Land Common Shareholders by not conveying them in the
Merger or selling them to a third party but by contributing them to MRYP Newco
and distributing the shares of MRYP Newco Common to Merry Land Common
Shareholders.
EQR and MRYP Newco have also agreed that MRYP Newco will supervise the
completion of the development pipeline initiated by Merry Land and will provide
management services for those properties in exchange for fees. The development
communities will be acquired by EQR pursuant to the Merger. MRYP Newco also
anticipates entering into a joint venture agreement with ERP Operating
Partnership to manage six other apartment communities located in the cities of
Augusta, Savannah and Charleston.
Properties. Upon consummation of the Contribution, MRYP Newco's real estate
holdings will initially consist of five apartment properties with 1,004 units,
four apartment development sites with a total of 84 acres, five commercial
properties with 172,415 square feet, six commercial sites with 46 acres and
4,816 acres of undeveloped land. See "-- MRYP Newco Properties."
Capitalization. Upon completion of the Transactions, MRYP Newco expects to
be capitalized with the $25.0 million one year, senior, non-revolving Senior
Debt Agreement with ERP Operating Partnership, the $20.0 million 15-year,
subordinated, non-revolving Subordinated Debt Agreement with ERP Operating
Partnership and the $5.0 million cumulative, 15-year, MRYP Newco Preferred
investment by ERP Operating Partnership. See "-- Certain Agreements Between EQR
and MRYP Newco."
MRYP Newco is a Georgia corporation that was incorporated on September 3,
1998 and expects to commence operations as a publicly traded company upon
consummation of the Transactions. MRYP Newco's executive offices will be located
at ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇ and its telephone number will be
▇▇▇-▇▇▇-▇▇▇▇.
MRYP NEWCO PROPERTIES
MRYP Newco's assets will initially consist primarily of the following
properties:
Apartment Properties. MRYP Newco will acquire the following communities
whose age and whose location in smaller metropolitan areas did not meet EQR's
investment criteria:
- Greentree Apartments, Savannah, Georgia, 194 units. Greentree was built
in 1985 and is located on Abercorn Street, the primary commercial
thoroughfare in Savannah. The property has good visibility from the road
which has a very high traffic count. MRYP ▇▇▇▇▇'s management believes this
is suitable for rehabilitation and repositioning.
- ▇▇▇▇▇ Cove Apartments, Savannah, Georgia, 188 units. ▇▇▇▇▇ Cove was built
in 1982 and is well located on White Bluff Road with attractive views of a
salt water ▇▇▇▇▇. Management believes this community is suitable for
rehabilitation and perhaps for sale as condominiums.
- West Wind Landing, Savannah, Georgia, 192 units. West Wind Landing was
built in 1985 and is located on Whitemarsh Island, near Tybee Beach, off
the coast of Savannah, Georgia. This property has benefitted from
significant demand for coastal rental properties and MRYP Newco believes
it is a suitable candidate for renovation.
- Quarterdeck Apartments, Charleston, South Carolina, 230 units. The
Quarterdeck Apartments were built in 1985 and an adjacent parcel of land
is suitable for the construction of additional 230 units. MRYP Newco
expects a strong market for these units and expects to begin construction
as soon as possible after the completion of the Merger.
- Waters Edge Apartments, Charleston, South Carolina, 200 units. Waters
Edge was built in 1986. Waters Edge contains additional land which
overlooks the Ashley River and is suitable for the construction of an
additional 100 units.
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Apartment Development Sites. Merry Land, during the course of acquisitions
of its apartments, acquired the following apartment sites to be held by MRYP
Newco for the purpose of sale or development.
ANTICIPATED TOTAL
SITE CITY & STATE UNITS(1) ACRES
---- ------------ ----------- -----
Waters Edge Phase II... Charleston, South Carolina 100 35
Quarterdeck Phase II... Charleston, South Carolina 230 22
Magnolia Phase II...... Savannah, Georgia 88 8
Long Point Phase II.... Savannah, Georgia 352 19
--- --
770 84
-------------------------
(1) Prior to completion of development, there can be no assurances of the actual
number of units that will be delivered.
Commercial Sites. As part of its apartment acquisition program, Merry Land
also occasionally acquired sites adjacent to apartment properties which are
suitable for commercial development. MRYP Newco intends to either sell, develop
for sale or hold these properties. These sites include:
TOTAL
SITE CITY & STATE ACRES
---- ------------ -----
Stevens Creek Road................ Augusta, Georgia ▇▇
▇▇▇▇▇ ▇▇▇▇........................ Augusta, Georgia 3
Jacksonville,
Waterford......................... Florida 5
Lakeridge......................... Miami, Flordia 2
West Wind Landing................. Savannah, Georgia 1
Cherry Creek...................... Nashville, Tennessee 23
--
46
Commercial Properties. Over the years, Merry Land has invested not only in
apartments but also in various commercial properties. Many of these have been
sold but a number of them remain which will be contributed to MRYP Newco and
will either be leased to satisfactory levels or sold.
PROPERTY CITY & STATE SQ. FT.
-------- ------------ -------
Commerce Building................... Augusta, Georgia 13,625
Convention Center................... Augusta, Georgia 16,050
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇.................... Augusta, Georgia 16,449
▇▇▇▇▇▇▇ Building.................... Augusta, Georgia 46,291
Warehouse........................... Thomson, Georgia 80,000
-------
172,415
Clay and Sand Properties. In 1981 Merry Land was spun off from Merry
Companies, Inc., one of the nation's largest brick manufacturers. In that
spin-off, Merry Land acquired title to 4,816 acres of land which had been
acquired by Merry Companies, Inc. over the years for the mining of clay and
sand. MRYP Newco
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expects to continue the current sand and clay mining leases but also believes
that significant commercial possibilities exist for development of certain of
these tracts in the future. These properties include:
LEASED TOTAL
PROPERTY COUNTY ACRES ACRES
-------- ------ ------ -----
South Carolina
Readdy Tract..................... Aiken 695 695
Bell Tract....................... Aiken 32 32
Turkey Creek Tract............... Edgefield 80 80
▇▇▇▇▇▇▇ Tract.................... Richland 489 489
▇▇▇▇▇▇ Mill Tract................ Lexington 122 122
▇▇▇▇▇▇ Tract..................... Lexington 74 74
Interstate 26 Tract.............. Berkely -- 53
Interstate 26 Tract.............. Dorchester -- 75
Dorchester ▇▇▇▇▇▇▇ Tract......... Dorchester -- 52
----- -----
1,492 1,672
▇▇▇▇▇▇▇
▇▇▇▇▇▇-▇▇▇▇▇ Tract............... Richmond 100 100
Merry Companies.................. Richmond 1,030 3,044
----- -----
1,130 3,144
Total Clay Land................................ 2,622 4,816
CERTAIN AGREEMENTS BETWEEN EQR AND MRYP NEWCO
Development Agreement. Merry Land has initiated a program to develop new
apartment communities utilizing the services of third party developers. Pursuant
to a Development Agreement between MRYP Newco and ERP Operating Partnership (the
"Development Agreement"), MRYP Newco has agreed to manage the completion of this
program for EQR in exchange for an aggregate fee of $2.4 million payable in
monthly installments based on the progress of development until all development
is complete. The development properties consist of Bridford Lakes, Greensboro,
North Carolina (320 units); Merritt Lake, Atlanta, Georgia (424 units); Spring
Oak, Richmond, Virginia (506 units); Cherry Creek III, Nashville, Tennessee (220
units); and Bridford Lakes II, Greensboro, North Carolina (200 units). Upon
consummation of the Transactions, ERP Operating Partnership or other affiliates
of EQR will own the fee simple title to these five properties.
ERP Operating Partnership and MRYP Newco will also enter into property
management agreements under which MRYP Newco will provide lease-up property
management services with respect to these development properties in exchange for
a management fee of 4% of gross revenues, with a minimum of $4,000 per month per
project, until an occupancy level of 85% is reached; provided, that the
management agreements may be terminated earlier by ERP Operating Partnership
upon a payment to MRYP Newco (if the agreements are terminated without cause)
equal to the difference, if any, between $500,000 and the aggregate amount of
all management fees theretofore paid by EQR to MRYP Newco with respect to the
five properties. Once the 85% occupancy level is achieved, ERP Operating
Partnership will have the right to manage the property itself, contract with a
third party upon terms agreeable to ERP Operating Partnership, or contract with
MRYP Newco for a management fee equal to 3.5% of revenues.
MRYP Newco shall also manage the development of Wyndham Apartments,
Richmond, Virginia (264 units) and Prairie Creek II, Dallas, Texas (228 units)
on a month to month basis for ERP Operating Partnership in exchange for an
aggregate fee of $57,250 payable in monthly installments and, if requested by
EQR, will enter into property management agreements with respect to those
properties, which shall be terminable with 30 days notice without penalty.
Option Agreement and Right of First/Last Offer Agreement. Pursuant to the
Option Agreement and Right of First/Last Offer Agreement (the "Option
Agreement"), MRYP Newco has agreed to grant to ERP
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Operating Partnership certain rights of first refusal and last offer with
respect to two apartment development sites adjacent to communities obtained in
the Merger, which communities are being contributed by EQR to the Joint Venture
Entity (as defined herein). MRYP Newco may not develop or transfer the
development sites (as the same may be improved) without first giving notice to
ERP Operating Partnership. ERP Operating Partnership may respond to the notice
by giving consent to the proposed transaction, purchasing the property at fair
market value (in the case of a proposed development) or entering into the
transaction with MRYP Newco (in the case of a proposed sale) in place of the
proposed third parties. The Option Agreement will terminate after ten years or,
with respect to a specific property, at such time as ERP Operating Partnership
has consented to a sale of the property in question or has no further direct or
indirect economic interest in the adjacent apartment communities in the Joint
Venture Entity or the Joint Venture Entity has no further direct or indirect
economic interest in the adjacent apartment communities.
Joint Venture Agreement. MRYP Newco and ERP Operating Partnership or their
affiliates will enter into a Joint Venture Agreement pursuant to which ERP
Operating Partnership will cause six apartment communities located in Augusta,
Savannah and Charleston obtained by EQR in the Merger to be contributed to a
limited liability company (the "Joint Venture Entity") of which ERP Operating
Partnership and MRYP Newco will be the sole members. The Joint Venture Entity
will enter into management agreements with MRYP Newco pursuant to which MRYP
Newco will receive a management fee equal to 4% of gross revenues. Pursuant to
the Joint Venture Agreement, MRYP Newco will share in rental revenues and/or
sale proceeds in excess of certain targets. MRYP Newco will also have a three
year option to purchase any or all of these communities under certain
conditions.
Transition Fee. MRYP Newco and ERP Operating Partnership have agreed that
MRYP Newco shall perform certain transition services for a period following the
Merger in the areas of personnel, capital projects and other matters in exchange
for a transition fee of $2.4 million.
Senior Debt Agreement. As partial consideration for the transfer of MRYP
Newco Properties, ERP Operating Partnership and MRYP Newco will become parties
to the $25.0 million, one year, non-revolving Senior Debt Agreement. MRYP Newco
expects that approximately $18.3 million will be outstanding, bearing interest
at LIBOR plus 250 basis points or prime plus 200 basis points, upon consummation
of the Transactions.
The Senior Debt Agreement contains covenants prohibiting MRYP Newco's (i)
ratio of total liabilities to gross asset value to exceed 0.70:1, (ii) ratio of
unencumbered asset value to unsecured debt to be 1.5:1 or less, (iii) ratio of
EBITDA to fixed charges for each fiscal quarter to be less than 1.5:1 and (iv)
ratio of unencumbered net operating income to unsecured interest expense for
each fiscal quarter to be less than 1.5:1. MRYP Newco may not pay dividends in
excess of 90% of its funds available for distribution (defined generally as
consolidated net income minus capital expenditures plus depreciation and
amortization) for any fiscal year.
Events of default under the Senior Debt Agreement include, among others:
failure to pay when due any principal of or interest upon any loan; failure to
observe or perform covenants contained in the Senior Debt Agreement; default
under any recourse indebtedness; voluntary or involuntary bankruptcy; a change
in control (which includes a person or group acquiring 30% or more of MRYP
Newco's stock); ceasing to be a publicly traded, registered, reporting company
under the Exchange Act or a default under the Preferred Stock Agreement or the
Subordinated Debt Agreement. Upon the occurrence of an event of default, no
further advances will be available under the Senior Debt Agreement, the loans
will bear interest at the non-default rate plus 4%, and all amounts outstanding
will become immediately due and payable. If any sale of multifamily real
property assets results in MRYP Newco having sold assets in aggregate of more
than 30% of the gross asset value of the multifamily real property assets of
MRYP Newco in any fiscal year, at the request of ERP Operating Partnership, MRYP
Newco will pay the net proceeds (but in no event greater than the outstanding
indebtedness under the Senior Debt Agreement) from such sale to ERP Operating
Partnership.
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Subordinated Debt Agreement. As additional partial consideration for the
transfer of MRYP Newco Properties, ERP Operating Partnership and MRYP Newco will
become parties to the $20.0 million, 15-year, Subordinated Debt Agreement,
bearing interest payable quarterly and accruing as follows:
Years 1-5............................ 8.00% Year 11.............................. 9.75%
Year 6............................... 8.25 Year 12.............................. 10.50
Year 7............................... 8.50 Year 13.............................. 11.50
Year 8............................... 8.75 Year 14.............................. 12.75
Year 9............................... 9.00 Year 15.............................. 14.25
Year 10.............................. 9.25
The Subordinated Debt Agreement contains covenants prohibiting MRYP Newco's
(i) ratio of the sum of total liabilities and preferred stock obligations to
gross asset value to exceed 0.80:1, (ii) ratio of unencumbered apartment asset
value minus outstanding senior indebtedness to the sum of outstanding
subordinated debt obligations plus preferred stock obligations to be 0.30:1 or
less and (iii) ratio of EBITDA to fixed charges to be less than 1.15:1 for each
fiscal quarter. MRYP Newco may not pay dividends in excess of 90% of its funds
available for distribution (defined generally as consolidated net income minus
capital expenditures plus depreciation and amortization) for any fiscal year.
Events of default under the Subordinated Debt Agreement include, among
others: failure to pay when due any principal of or interest on any loan,
failure to observe or perform covenants contained in the Subordinated Debt
Agreement, an event of default under any recourse indebtedness, voluntary or
involuntary bankruptcy, a change of control, ceasing to be a publicly traded,
registered, reporting company under the Exchange Act or a default under the
Preferred Stock Agreement or the Senior Debt Agreement. Upon the occurrence of
an event of default all amounts outstanding will become due. If any sale of
multifamily real property assets results in MRYP Newco having sold assets in
aggregate of more than 30% of the gross asset value of the multifamily real
property assets of MRYP Newco in any fiscal year, at the request of EQR, MRYP
Newco will pay the net proceeds from such sale to EQR (but in no event greater
than the outstanding indebtedness under the Subordinated Debt Agreement).
Preferred Stock Agreement; Preferred Stock Purchase Agreement. Pursuant to
the $5.0 million Preferred Stock Agreement between Merry Land and MRYP Newco,
MRYP Newco shall issue 5,000 shares of Preferred Stock with a liquidation
preference of $1,000 per share, to Merry Land as partial consideration under the
Asset Exchange Agreement. The terms and conditions with respect to the MRYP
Newco Preferred are set forth in the MRYP Newco Preferred Stock Agreement.
Pursuant to the Preferred Stock Purchase Agreement, ERP Operating Partnership
shall purchase the MRYP Newco Preferred from Merry Land on the day before the
Effective Date for a purchase price of $5.0 million. ERP Operating Partnership's
obligation to pay the purchase price for the MRYP Newco Preferred shall be
evidenced by an unsecured promissory note, bearing interest at 8.0% per annum,
maturing on the date that is two years after the note is made. Said note may be
prepaid at any time without penalty. If the Merger is not consummated within
thirty (30) days after ERP Operating Partnership's purchase of the MRYP Newco
Preferred, ERP Operating Partnership will have the right to put the MRYP Newco
Preferred back to Merry Land on terms set forth in the Preferred Stock Purchase
Agreement. The dividend rate will be:
Years 1-5............................ 8.00% Year 11.............................. 9.75%
Year 6............................... 8.25 Year 12.............................. 10.50
Year 7............................... 8.50 Year 13.............................. 11.50
Year 8............................... 8.75 Year 14.............................. 12.75
Year 9............................... 9.00 Year 15.............................. 14.25
Year 10.............................. 9.25
The Preferred Stock Agreement contains various affirmative and negative
covenants, including MRYP Newco's agreement to deliver quarterly and annual
financial information to EQR, as well as any other information provided to
shareholders, to maintain its properties and conduct its business as now
conducted. MRYP Newco will also agree not to allow (i) its ratio of the sum of
total liabilities and preferred stock
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obligations to gross asset value to exceed 0.80:1, (ii) its ratio of
unencumbered apartment asset value minus outstanding senior indebtedness to sum
of outstanding subordinated debt obligations plus preferred stock obligations to
be more than 0.30:1 and (iii) its ratio of EBITDA to fixed charges for each
fiscal quarter to be less than 1.15:1. MRYP Newco also has agreed not to pay
dividends to shareholders of MRYP Newco Common in excess of 90% of its funds
available for distribution for any fiscal year.
Events of default under the Preferred Stock Agreement include among others,
failure to pay dividends for two consecutive periods, failure to make a
redemption, default under any recourse indebtedness, voluntary or involuntary
bankruptcy, a change of control, ceasing to be a publicly traded, registered,
reporting company under the Exchange Act or a default under the Senior Debt
Agreement or the Subordinated Debt Agreement. Upon an event of default under the
Preferred Stock Agreement, holders of the MRYP Newco Preferred will have the
right to (i) elect enough directors to constitute a majority of the MRYP Newco
Board of Directors and (ii) cause MRYP Newco to redeem the MRYP Newco Preferred;
provided, however, that no such remedies will be available to any holder of MRYP
Newco Preferred to the extent such rights would (a) cause such holder or any
entity owned directly or indirectly by such holder to be in violation of Code
Section 856(c)(4) or (b) otherwise cause such holder or entity owned directly or
indirectly by such holder to fail to qualify as a REIT under the Code.
Purchase and Sale Agreement. Pursuant to the Purchase and Sale Agreement,
certain of the MRYP Newco Properties may be sold by ERP Operating Partnership to
MRYP Newco after the Merger, in lieu of being contributed to MRYP Newco under
the Asset Exchange Agreement. The determination of which properties, if any, are
to be sold under the Purchase and Sale Agreement will be based upon the
allocation in the Merger Agreement of gain attributable to MRYP Newco
Properties, which allocation shall be dependent upon the estimated earnings and
profits attributable to Merry Land's assets after the Merger.
Office Lease Agreement. MRYP Newco and ERP Operating Partnership will enter
into an Office Lease Agreement pursuant to which ERP Operating Partnership will
lease a portion of the MRYP Newco office at ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇ ▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇. The term of the lease is three years, with annual rent equal to the
amount of all operating expenses attributable to the leased space. ERP Operating
Partnership will have the right to lease 250 square feet per employee working in
the office, and may not assign the lease to other entities.
MRYP NEWCO COMMON LISTING, TRADING AND DIVIDEND POLICY
MRYP Newco has applied for listing of the MRYP Newco Common on Nasdaq.
Initially, MRYP Newco will have approximately 4,500 shareholders of record.
There is currently no trading market for MRYP Newco.
Prices at which MRYP Newco Common trades will be determined by the
marketplace and may be influenced by many factors including among others, the
depth and liquidity of the market for MRYP Newco Common, investor perception of
MRYP Newco and its businesses, MRYP Newco's dividend policy, interest rates, and
general economic and market conditions.
MRYP Newco does not currently contemplate paying dividends on MRYP Newco
Common. Earnings from the investments of MRYP Newco are expected to be used by
MRYP Newco to finance future acquisitions and investments. The Board of
Directors of MRYP Newco may determine, in its discretion, to pay dividends on
MRYP Newco Common in the future and any such determination will be dependent on
MRYP Newco's results of operations, financial condition, contractual
restrictions and other factors deemed relevant at the time by MRYP Newco's
directors.
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MRYP NEWCO CAPITALIZATION
The following table sets forth the pro forma capitalization of MRYP Newco
on June 30, 1998 after giving effect to the Transactions. This table should be
read in conjunction with the financial statements of MRYP Newco and related
notes incorporated by reference herein.
JUNE 30, 1998
PRO FORMA
(IN THOUSANDS)
--------------
Debt:
Term loan(1)................................................ $18,317
Senior subordinated loan.................................... 20,000
-------
Total debt............................................. 38,317
Preferred stock, no par value per share; 5,000 shares issued
and outstanding........................................... 5,000
Stockholder's equity:
Common stock, no par value per share; 2,363,515 shares
issued and outstanding.................................... $ 0
Paid in capital............................................. 10,120
Unamortized compensation element of restricted stock........ (2,500)
-------
Total stockholder's equity............................. 7,620
-------
Total capitalization................................. $50,937
=======
-------------------------
(1) $25.0 million term loan bearing interest equal to LIBOR plus 2.50%, maturing
one year after the Closing.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS OF MRYP NEWCO
The following discussion should be read in conjunction with MRYP Newco's
financial statements contained herein.
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
Rental Operations -- Apartments. The operating performance of MRYP ▇▇▇▇▇'s
apartment portfolio is summarized in the following table (dollars in thousands
except average monthly rent):
SIX MONTHS
CHANGE FROM ----------------------
% CHANGE 1997 TO 1998 1998 1997
-------- ------------ ---- ----
Rental income.................................... 3.0% $108.9 $3,761.5 $3,652.6
Personnel........................................ 9.6 43.3 492.4 449.1
Utilities........................................ (1.7) (2.3) 134.9 137.2
Operating........................................ 2.6 5.0 196.2 191.2
Maintenance and grounds.......................... (2.2) (5.7) 252.9 258.6
Taxes and insurance.............................. 0.1 0.2 337.2 337.0
---- ------ -------- --------
Subtotal(1)...................................... 2.9 40.5 1,413.6 1,373.1
Earnings before interest, depreciation and
amortization................................... 3.0% $ 68.4 $2,347.9 $2,279.5
Average occupancy(2)............................. 0.9%(3) 97.0% 96.1%
Average monthly rent(4).......................... 1.3% $629 $621
Expense ratio(5)................................. 0.0%(3) 37.6% 37.6%
-------------------------
(1) Excludes depreciation and amortization.
(2) Represents the average physical occupancy at each month end for the period
held.
(3) Represents increase or decrease between periods.
(4) Represents weighted average monthly rent charged for occupied units and
rents asked for unoccupied units at June 30.
(5) Represents total of operating expenses, taxes and insurance divided by
rental revenues.
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Rental income rose by $108.9 thousand or 3.0% for the five multi-family
properties as a result of higher rents and occupancy for the six month period of
1998 compared to the same period of 1997. Total operating expenses were up 2.9%
in 1998 from the same period in 1997 as personnel costs increased 9.6% due to
higher salaries and higher bonuses.
Rental Operations -- Commercial. The performance of the five commercial
properties is summarized in the following table (dollars in thousands, except
average monthly rent; see footnotes above):
SIX MONTHS
CHANGE FROM ----------------
% CHANGE 1997 TO 1998 1998 1997
-------- ------------ ---- ----
Rental income........................................ 22.6% $38.4 $208.4 $170.0
Utilities............................................ 19.2 7.2 44.7 37.5
Operating............................................ (50.0) (1.0) 1.0 2.0
Maintenance and grounds.............................. 67.2 19.7 49.0 29.3
Taxes and insurance.................................. (0.7) (0.2) 30.5 30.7
----- ----- ------ ------
Subtotal(1).......................................... 25.8 $25.7 125.2 99.5
Earnings before interest, depreciation and
amortization....................................... 18.1% $12.7 $ 83.2 $ 70.5
Expense ratio(5)..................................... 1.6%(3) 60.1% 58.5%
Rental income increased by $38.4 thousand or 22.6% for commercial
properties as a result of higher occupancy. Total operating expenses were up
25.8% in 1998 from the same period in 1997 again due to higher occupancy.
Land. The performance of the land for the six month period of 1998 and 1997
is summarized in the following table (dollars in thousands; see footnotes
above):
SIX MONTHS
CHANGE FROM ----------------
% CHANGE 1997 TO 1998 1998 1997
-------- ------------ ---- ----
Clay royalties....................................... 68.7% $314.6 $772.8 $458.2
Sand royalties....................................... (8.7) (8.4) 87.8 96.2
Rental income........................................ (8.3) (3.3) 36.4 39.7
----- ------ ------ ------
Subtotal............................................. 51.0 302.9 897.0 594.1
Operating expenses................................... 344.4 9.3 12.0 2.7
Taxes and insurance.................................. 0.0 0.0 28.9 28.9
----- ------ ------ ------
Subtotal(1).......................................... 29.4 9.3 40.9 31.6
Earnings before interest, depreciation and
amortization....................................... 52.2% $293.6 $856.1 $562.5
Clay royalties increased substantially for the six month period of 1998 in
comparison with the same period in 1997 due to the execution of a new royalty
agreement in March of 1997. Royalties under the agreement total $132.3 thousand
per month and will terminate in April, 1999.
Mortgage Interest Income. Interest income from mortgage notes receivable
totaled $56.1 thousand in the six month period of 1998, up from $45.9 thousand
in the six month period of 1997 as a result of additional notes received from
the sale of a multi-family community in Augusta, Georgia, in November of 1997.
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RESULTS OF OPERATIONS FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1997, 1996
AND 1995
Rental Operations -- Apartments. The operating performance of MRYP ▇▇▇▇▇'s
apartment portfolio is summarized in the following table (dollars in thousands
except average monthly rent):
TWELVE MONTHS
CHANGE FROM ------------------------------------
% CHANGE 1996 TO 1997 1997 1996 1995
-------- ------------ ---- ---- ----
Rental income......................... 2.9% $210.2 $7,355.3 $7,145.1 $6,957.5
Personnel............................. 15.9 137.1 999.7 862.6 875.6
Utilities............................. (13.3) (41.8) 272.6 314.4 305.4
Operating............................. 12.4 43.1 389.8 346.7 359.7
Maintenance and grounds............... (4.2) (23.3) 533.4 556.7 475.5
Taxes and insurance................... (1.7) (11.4) 674.0 685.4 651.2
----- ------ -------- -------- --------
Subtotal(1)........................... 3.7 103.7 2,869.5 2,765.8 2,667.4
Earnings before interest, depreciation
and amortization.................... 2.4% $106.5 $4,485.8 $4,379.3 $4,290.1
Average occupancy(2).................. 0.1%(3) 96.6% 96.5% 97.9%
Average monthly rent(4)............... 3.8% $624 $601 $573
Expense ratio(5)...................... 0.3%(3) 39.0% 38.7% 38.3%
-------------------------
(1) Excludes depreciation and amortization.
(2) Represents the average physical occupancy at each month end for the period
held.
(3) Represents increase or decrease between periods.
(4) Represents weighted average monthly rent charged for occupied units and
rents asked for unoccupied units at December 31.
(5) Represents total of operating expenses, taxes and insurance divided by
rental revenues.
In 1997 rental income rose by $210.2 thousand or 2.9% for the five
multi-family properties as a result of higher rents. Occupancy was essentially
flat for the twelve month period of 1997 versus 1996.
Total operating expenses were up 3.7% in 1997 from the same period in 1996.
Payroll expenses were up 15.9% due to higher salaries and higher bonuses.
Utilities were down 13.3% due to the collection of water fees from the
residents. Operating expenses were up 12.4% due to increased marketing and
advertising expenses.
In 1996, rental income rose by $187.6 thousand or 2.7% over 1995 due to
4.9% higher rents which were offset by a decrease in occupancy of 1.4%.
Total operating expenses were up by 3.7% in 1996 over 1995 primarily as a
result of higher maintenance costs.
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Rental Operations -- Commercial. The performance of the five commercial
properties is summarized in the following table (dollars in thousands, except
average monthly rent; see footnotes above):
TWELVE MONTHS
CHANGE FROM --------------------------------
% CHANGE 1996 TO 1997 1997 1996 1995
-------- ------------ ---- ---- ----
Rental income.............................. 11.2% $35.1 $347.9 $312.8 $231.0
Utilities.................................. 2.1 1.6 77.7 76.1 73.6
Operating.................................. (47.5) (2.8) 3.1 5.9 4.6
Maintenance and grounds.................... 16.6 10.1 70.9 60.8 76.3
Taxes and insurance........................ 10.5 5.8 61.3 55.5 60.9
----- ----- ------ ------ ------
Subtotal(1)................................ 7.4 14.7 213.0 198.3 215.4
Earnings before depreciation, interest and
amortization............................. 17.8% $20.4 $134.9 $114.5 $ 15.6
Expense ratio(5)........................... (2.2)% 61.2% 63.4% 93.3%
In 1997, rental income rose by $35.1 thousand, or 11.2% for commercial
properties as a result of increased occupancy. Total operating expenses were up
7.4% in 1997 from the same period in 1996 due to higher occupancy.
In 1996, rental income rose by $81.8 thousand or 35.4% as a result of
higher occupancy over 1995, and operating expenses increased accordingly.
Land. The performance of the land for the twelve month period of 1997 and
1996 is summarized in the following table (dollars in thousands; see footnotes
above):
TWELVE MONTHS
CHANGE FROM --------------------------
% CHANGE 1996 TO 1997 1997 1996 1995
-------- ------------ ---- ---- ----
Clay royalties................................ 430.9% $1,028.9 $1,267.7 $238.8 $261.7
Sand royalties................................ 3.0 3.9 133.7 129.8 174.1
Rental income................................. 9.5 7.0 80.8 73.8 71.5
----- -------- -------- ------ ------
Subtotal...................................... 235.0 1,039.8 1,482.2 442.4 507.3
Operating expenses............................ NM 2.7 2.7 0.0 0.0
Taxes and insurance........................... 1.8 1.0 57.7 56.7 56.9
----- -------- -------- ------ ------
Subtotal(1)................................... 6.5 3.7 60.4 56.7 56.9
Earnings before depreciation, interest and
amortization................................ 268.6% $1,036.1 $1,421.8 $385.7 $450.4
Clay royalties increased substantially for the twelve months of 1997 in
comparison with 1996 due to the execution of a new royalty agreement in March of
1997. Royalties under the agreement total $132,279 per month and will terminate
in April, 1999.
In 1996, sand royalties decreased by $44.3 thousand from $174.1 thousand in
1995 due to the expiration of a sand royalty agreement.
Mortgage Interest Income. Interest income from mortgage notes receivable
totaled $83.8 thousand in the twelve month period of 1997, up from $70.3
thousand in the twelve month period of 1996 as a result of additional notes
received from the sale of a multi-family community in Augusta, Georgia, in
November of 1997.
LIQUIDITY AND CAPITAL RESOURCES
Upon the consummation of the Transactions, MRYP Newco's capital structure
will include the Term Loan, the Subordinated Note and a $5.0 million 15 year
preferred stock investment. MRYP Newco can borrow an additional $7.7 million
under the one year term loan, however, any amounts repaid under the term
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loan cannot be reborrowed. The Term Loan matures one year following the
Effective Time. MRYP Newco expects to replace the Term Loan prior to its
maturity with a facility from a commercial bank. There can be no assurance that
MRYP Newco will be able to refinance this loan.
Liquidity. MRYP Newco expects to meet its short-term liquidity requirements
generally through cash flow provided by operations and by borrowing under its
term loan with ERP Operating Partnership or from commercial banks. MRYP Newco's
primary short-term liquidity needs are operating expenses, apartment
rehabilitation and development, acquisitions and capital improvements.
MRYP Newco expects to meet its long-term liquidity requirements, including
scheduled debt maturities and permanent financing for property acquisitions and
development, from a variety of sources, including operating cash flow,
additional borrowings and the issuance and sale of debt and equity securities in
the public and private markets. There can be no assurance that MRYP Newco will
be able to meet its long-term liquidity requirements.
Inflation. Substantially all of MRYP Newco's apartment leases are for terms
of one year or less, which should enable MRYP Newco to replace existing leases
with new leases at higher rentals in times of rising prices. MRYP ▇▇▇▇▇ believes
that this would offset the effect of cost increases stemming from inflation.
MANAGEMENT
Management of MRYP Newco will be led by ▇. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, President and
Chief Executive Officer of Merry Land, ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Executive Vice
President and Chief Operating Officer of Merry Land, and ▇▇▇▇▇▇ ▇. ▇▇▇▇▇, Vice
President and Chief Financial Officer of Merry Land, and will be staffed by
veteran members of the Merry Land organization. Messrs. Houston, ▇▇▇▇▇▇▇▇, ▇▇▇▇▇
and the other members of the MRYP Newco management team have acquired
significant real estate acquisition, development, rehabilitation and operational
experience and familiarity with southern real estate markets through their
employment with Merry Land and other entities.
▇▇. ▇▇▇▇▇▇▇ joined Merry Land at its inception in 1981, became Chief
Operating Officer in 1985, and Chief Executive Officer in 1996. In these
capacities he supervised Merry Land's acquisition, renovation, operation and
sale of numerous apartment and commercial properties. ▇▇. ▇▇▇▇▇▇▇ also served as
Merry Land's Chief Financial Officer from 1982 until 1997. He is a certified
public accountant. ▇▇. ▇▇▇▇▇▇▇▇ joined Merry Land in 1992 following a career in
real estate lending and management with a savings and loan institution located
in Savannah, Georgia. He led Merry Land's apartment acquisition program since
that time which resulted in the purchase of 102 properties containing 29,346
units at a cost of $1.5 billion. In 1995, Merry Land, under ▇▇. ▇▇▇▇▇▇▇▇'▇
leadership, commenced a program of apartment development which resulted in the
start of nine properties containing 3,108 units with an expected total cost of
$236.3 million. At the time of this document, four communities with 1,374 units
have been completed and leased up. ▇▇. ▇▇▇▇▇ was named Chief Financial Officer
of Merry Land in January, 1998 and has been a Vice President of Merry Land since
January, 1995 and an employee of Merry Land since 1994. He was Chief Financial
Officer of JG Financial Management Services from September, 1992 to October,
1994, and Vice President of Heritage Property Company from August, 1991 to
September, 1992. Previously he was Chief Financial Officer of North and West
Florida Divisions of ▇▇▇▇▇▇▇▇ ▇▇▇▇ Residential Company.
Merry Land has developed an effective property management organization to
operate its apartment communities. All properties transferred to MRYP Newco will
be operated by former members of Merry Land's management organization. MRYP
Newco intends to expand its third party apartment management program.
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DIRECTORS AND EXECUTIVE OFFICERS
The executive officers and directors of MRYP Newco, their ages, business
experience, other committees, director and positions with MRYP Newco are as
follows:
Name, Age, Position with MRYP Newco, Business Experience and Committees
▇. ▇▇▇▇▇▇▇ HOUSTON 48 Chairman of the Board, Chief
Executive Officer
▇. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ has been President of Merry Land since 1985. He was
Chief Operating Officer from that period until his designation of Chief
Executive Officer in 1996. He has been employed with Merry Land since it was
formed in 1981. ▇▇. ▇▇▇▇▇▇▇ was the Chief Financial Officer of Merry Land from
1982 until 1997. He is a certified public accountant. ▇▇. ▇▇▇▇▇▇▇ will serve on
the executive committee.
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ 49 Director, President and Chief
Operating Officer
▇▇. ▇▇▇▇▇▇▇▇ was promoted to Executive Vice President and elected to the
Merry Land Board of Directors in January 1997. ▇▇. ▇▇▇▇▇▇▇▇ was employed by
Merry Land and elected Vice President in 1992 and directed Merry Land's
acquisition and development program until his appointment as Chief Operating
Officer in December 1996. Prior to employment with Merry Land, he served as
President of ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇, Inc., asset managers in Savannah, Georgia from
November 1990 to January 1992. He was previously Executive Vice President of
Great Southern Federal Savings Bank in Savannah, Georgia. ▇▇. ▇▇▇▇▇▇▇▇ will
serve on the executive committee.
▇▇▇▇▇ ▇. ▇▇▇▇ 62 Director
▇▇▇▇▇ ▇. ▇▇▇▇, was elected Chairman of the Merry Land Board of Directors in
December, 1996. He was formerly Chairman of the Board and Chief Executive
Officer of Allied Bankshares, Inc., a publicly traded bank holding company based
in Thomson, Georgia. He is Chairman of the Board of Regions Bank, Central
Georgia and is a director of Cousins Properties, Inc., an office and retail
publicly traded REIT. ▇▇. ▇▇▇▇ will serve on the executive, audit and
compensation committees.
▇▇▇▇▇ ▇. ▇▇▇▇ 50 Director
▇▇▇▇▇ ▇. ▇▇▇▇ is Chairman, President and CEO of National Capital Holdings,
Inc., a private specialty finance mortgage company which is engaged in
commercial mortgage finance/securitization and residential subprime mortgage
finance/securitization. Prior to formation of National Capital Holdings, Inc.,
▇▇. ▇▇▇▇ was employed as Senior Managing Director of ▇▇▇▇▇▇ ▇▇▇▇ LLC, a New York
based investment banking firm and served as President of its mortgage finance
subsidiaries. Previously he served as President of ▇▇▇▇▇▇▇ ▇▇▇▇▇ Mortgage
Capital, a subsidiary of ▇▇▇▇▇▇▇ ▇▇▇▇▇ Financial and before that was employed as
Senior Vice President of ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇.
STEWART R. SPEED 34 Director
Stewart R. Speed is Vice President of EastGroup Properties, an industrial
and office REIT traded on the NYSE. Mr. Speed is responsible for EastGroup's
asset management, acquisitions, dispositions and development primarily in Texas
and Colorado. Mr. Speed was an employee of Merry Land from April 1993 through
February 1997, most recently as a Vice President for property management, and
previously as an acquisitions manager and in the apartment development area. He
was an asset manager for GE Capital in Atlanta from August 1991 through April
1993.
DORRIE E. GREEN 40 Vice President and Chief
Financial Officer
Dorrie E. Green was named Chief Financial Officer of Merry Land in January,
1998 and has been a Vice President of Merry Land since January, 1995 and an
employee of Merry Land since 1994. He was Chief Financial Officer of JG
Financial Management Services from September, 1992 to October, 1994, and Vice
President of Heritage Property Company from August, 1991 to September, 1992.
Previously he was Chief Financial Officer of North and West Florida Divisions of
Trammell Crow Residential Company.
The MRYP Newco Board of Directors intends to establish audit, compensation
and executive committees. The MRYP Newco Board of Directors will not have a
nominating committee or a committee performing
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the functions of a nominating committee. The entire MRYP Newco Board of
Directors will perform the usual functions of that committee.
EXECUTIVE COMPENSATION
At the Effective Time, Messrs. Houston, Thompson and Green will be employed
by MRYP Newco, but will not enter into employment agreements. Assuming approval
of the MRYP Newco 1998 Management Incentive Plan by vote of the Merry Land
shareholders (see "Proposal to Approve MRYP Newco's 1998 Management Incentive
Plan"), Messrs. Houston and Thompson will receive no base pay in their first
year of employment, but will each receive Restricted Stock Grants for 107,527
shares of MRYP Newco Common, which will vest in equal installments over 15
years. Mr. Green will receive a base salary of $100,000 per year and will
receive Restricted Stock Grants for 53,764 shares of MRYP Newco Common, which
will vest in equal annual installments over 15 years. For this purpose, the MRYP
Newco Board of Directors has assigned a value of $9.30 per share, which would
result in the vesting of stock having a value of $66,667 per year, for a total
of $1,000,000 over 15 years, for Messrs. Houston and Thompson, and $33,333 per
year, for a total of $500,000 over 15 years, for Mr. Green. The MRYP Newco
Common received under the Restricted Stock Grants will be forfeitable in the
event the employee terminates service prior to vesting in the shares. In the
event of a change in control of MRYP Newco, Messrs. Houston, Thompson and Green
will become fully vested in the Restricted Stock Grants, except that if the
change in control occurs within four years of the Effective Time, the percentage
of Restricted Stock Grants vested will be limited initially to 20%, and another
20% for each year thereafter. Messrs. Houston, Thompson and Green will be
entitled to vote and to receive any dividends declared with respect to such
shares immediately upon receipt, even during the period that they are
forfeitable. Messrs. Houston, Thompson and Green will also be entitled to such
further compensation and awards under the 1998 Management Incentive Plan as may
be approved in the future by the MRYP Newco Board of Directors or its
Compensation Committee.
MRYP Newco intends to adopt a program to reimburse its executive officers,
including Messrs. Houston, Thompson and Green, for any excise tax attributable
to the vesting of Restricted Stock Grants or any other payments or deemed
payments resulting from a change in control of MRYP Newco (as well as the
additional income tax attributable to such reimbursement).
PRINCIPAL SHAREHOLDERS OF MRYP NEWCO COMMON
The following table sets forth information regarding the beneficial
ownership of MRYP Newco Common by each person anticipated to be a beneficial
owner of more than 5% of the MRYP Newco Common and by each director or proposed
director of MRYP Newco, each executive officer and by all directors, proposed
directors, and executive officers as a group after giving effect to the
Transactions.
AMOUNT AND NATURE OF
BENEFICIAL OWNERSHIP
NAME AND ADDRESS(1) PRO FORMA PERCENT OF
OF BENEFICIAL OWNER AS OF JUNE 30, 1998 CLASS
------------------- -------------------- ----------
W. Tennent Houston............................... 119,715 4.9%(2)
Michael N. Thompson.............................. 116,758 4.8%(2)
Boone A. Knox.................................... 141,481 5.8%
Dorrie E. Green.................................. 58,019 2.4%(3)
David W. Cobb.................................... 0 0.0%
Stewart R. Speed................................. 0 0.0%
------- -----
All directors, proposed directors and executive
officers as a group......................... 435,973 17.9%
======= =====
-------------------------
(1) The business address for each beneficial owner is 624 Ellis Street, Augusta,
Georgia, 30901.
(2) Includes 107,527 shares issued under the Restricted Share Grant Program.
(3) Includes 53,764 shares issued under the Restricted Share Grant Program.
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CAPITAL STOCK OF MRYP NEWCO
Common Stock. This summary of certain terms and provisions of MRYP Newco
Common does not purport to be complete and is subject to, and qualified in its
entirety by reference to, the terms and provisions of the MRYP Newco Articles
and By-laws which are filed as exhibits to the Registration Statement of which
this Joint Proxy Statement/Prospectus/Information Statement is a part.
MRYP Newco has 5 million shares of MRYP Newco Common authorized and
approximately 2.4 million shares are expected to be outstanding upon
consummation of the Transactions. All outstanding shares of MRYP Newco Common
shall be fully paid and nonassessable.
The transfer agent and registrar for the MRYP Newco Common is First Union
National Bank. MRYP Newco Common is expected to be traded on Nasdaq under the
symbol "MRYP."
The holders of MRYP Newco Common are entitled to receive such dividends as
are declared by the MRYP Newco Board of Directors, after payment of, or
provision for, full cumulative dividends for all outstanding MRYP Newco
Preferred. Each share of MRYP Newco Common is entitled to one vote on all
matters submitted to a vote of shareholders, including the election of
directors. Cumulative voting for directors is not permitted, which means that
holders of more than 50% of all of the shares of MRYP Newco Common voting can
elect all of the directors if they choose to do so, and, in such event, the
holders of the remaining shares of MRYP Newco Common will not be able to elect
any directors. Holders of MRYP Newco Common and MRYP Newco Preferred, when
outstanding and when entitled to vote, vote as a class, except with respect to
matters that relate only to the rights, terms or conditions of the MRYP Newco
Preferred, that affect only the holders of the MRYP Newco Preferred, or that
relate to the rights of the holders of the MRYP Newco Preferred if MRYP Newco
fails to fulfill any of its obligations regarding the MRYP Newco Preferred. Upon
any dissolution, liquidation or winding-up of MRYP Newco, the holders of MRYP
Newco Common are entitled to receive pro rata all of MRYP Newco's assets and
funds remaining after payment of, or provision for, creditors and distribution
of, or provision for, preferential amounts and unpaid accumulated dividends to
holders of MRYP Newco Preferred. Holders of MRYP Newco Common have no preemptive
right to purchase or subscribe for any shares of capital stock of MRYP Newco.
Preferred Stock. MRYP Newco has 2 million shares of preferred stock
authorized. Of those, 5,000 are classified as Series A Preferred Stock, no par
value per share (the MRYP Newco Preferred). Upon consummation of the
Transactions, MRYP Newco will have 5,000 shares of MRYP Newco Preferred
outstanding.
Holders of MRYP Newco Preferred are entitled to receive, when and as
declared by the Board of Directors of MRYP Newco, out of funds legally available
for payment, cumulative cash dividends at the following annual amount per share:
Years 1-5.......................... $80.00 Year 11............................ $ 97.50
Year 6............................. $82.50 Year 12............................ $105.00
Year 7............................. $85.00 Year 13............................ $115.00
Year 8............................. $87.50 Year 14............................ $127.50
Year 9............................. $90.00 Year 15 and after.................. $142.50
Year 10............................ $92.50
Dividends will be payable in equal quarterly amounts on January 15, April
15, July 15 and October 15 of each year, or the next Business Day. Accumulated
and unpaid dividends shall bear interest equal to $50 per share per annum.
The MRYP Newco Preferred will be redeemable at the option of MRYP Newco at
any time on or after the Effective Time at a price per share of $1,000, plus
accrued and unpaid dividends and interest on unpaid dividends. The MRYP Newco
Preferred will be redeemable at the option of the holder thereof on the
fifteenth anniversary of the Effective Time or upon the occurrence of an event
of default or a change of control. Events of default include non-payment of
dividends for two or more dividend periods, failure to observe certain financial
covenants, fundamental changes in the company or its business, default on
recourse indebtedness of MRYP Newco or the voluntary or involuntary declaration
of bankruptcy.
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The holders of MRYP Newco Preferred are entitled to receive in the event of
any liquidation, dissolution or winding-up of MRYP Newco, whether voluntary or
involuntary, $1,000 per share of MRYP Newco Preferred plus accrued and unpaid
dividends to the date of final distribution to such holders, and no more. Except
under certain circumstances or except as otherwise from time to time required by
applicable law, the holders of MRYP Newco Preferred have no voting rights. If,
on the date used to determine holders of record for any annual meeting of
stockholders, dividends on the MRYP Newco Preferred have not been paid for two
periods and a redemption payment has not been paid, the holders of the MRYP
Newco Preferred will have the right to elect such number of directors required
to constitute a majority of the MRYP Newco Board of Directors.
CERTAIN PROVISIONS OF GEORGIA LAW AND MRYP NEWCO'S ARTICLES AND BY-LAWS
Preferred Stock. Under the MRYP Newco Articles, the MRYP Newco Board of
Directors has the authority to issue up to 2 million shares of preferred stock
and to determine the rights and preferences of such preferred stock (including
the right to vote and the right to convert into MRYP Newco Common) of any
preferred shares of MRYP Newco issued. The power to issue preferred shares of
MRYP Newco could have the effect of delaying or preventing a change in control
of MRYP Newco even if a change in control were in the shareholders' interest.
Staggered Board. The MRYP Newco Board of Directors will be divided into
three classes as nearly equal in number as possible. The terms of the classes
will expire at the annual meeting of the shareholders in 1999, 2000 and 2001,
respectively. As the term of each class expires, directors for that class will
be elected for a three-year term and the directors in the other two classes
continue in office.
Certain Business Combinations. The GBCC includes a business combination
statute which is designed to deter hostile takeovers by protecting minority
shareholders in the second stage of freeze-out mergers. Freeze-out mergers occur
when controlling shareholders prevent minority shareholders from receiving any
direct or indirect financial return from the corporation to persuade them to
liquidate their investment in the corporation on terms favorable to the
controlling shareholders. As defined under the GBCC, "business combinations"
encompass, among other types of combinations, a merger of a corporation with any
"interested shareholder" or a corporation associated or affiliated with an
"interested shareholder" who was an "interested shareholder" prior to the
transaction. Under the GBCC, an "Interested Shareholder" is any person who owns
at least 10% of the outstanding voting shares or an affiliate of the corporation
owning at least 10% of the outstanding voting shares within the prior two years.
Under the GBCC, certain "business combinations" (including a merger,
consolidation, asset transfer or reclassification of equity securities) between
a Georgia corporation and an Interested Shareholder, are prohibited for five
years from the time that such Interested Shareholder becomes an Interested
Shareholder unless (i) prior to such time the board of directors of the
corporation approved either the business combination or the transaction which
resulted in the shareholder becoming an Interested Shareholder; (ii) in the
transaction which resulted in the shareholder becoming an Interested
Shareholder, the Interested Shareholder became the beneficial owner of at least
90% of the corporation outstanding at the time the transaction commenced,
excluding shares owned by directors and officers of the corporation,
subsidiaries of the corporation, and certain employee stock plans of the
corporation; or (iii) subsequent to becoming an Interested Shareholder, such
shareholder acquired additional shares resulting in the Interested Shareholder
being the beneficial owner of at lest 90% of the outstanding voting stock of the
corporation, excluding shares owned by directors and officers of the
corporation, subsidiaries of the corporation, and certain employee stock plans
of the corporation.
Furthermore, the GBCC provides that a business combination must be either
(i) unanimously approved by the continuing directors, provided that the
continuing directors constitute at least three members of the board of directors
at the time of such approval; or (ii) recommended by at least two-thirds of the
continuing directors and approved by a majority of the votes entitled to be cast
by holders of voting shares, other than voting shares beneficially owned by the
Interested Shareholder unless, among other conditions, the Georgia corporation's
common shareholders receive a minimum price (as defined in the GBCC) for their
shares and the consideration is received in cash or in the same form as
previously paid by the Interested Shareholder for its shares.
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The MRYP Newco Bylaws provide that these GBCC provisions apply to business
combinations with Interested Shareholders with respect to MRYP Newco.
Limitation of Liability and Indemnification. The GBCC permits a Georgia
corporation to include in its articles of incorporation and the MRPY Newco
Articles contain a provision limiting the liability of its directors and
officers to the corporation and its stockholders for money damages except for
liability resulting from (a) any appropriation, in violation of his duties, of
any business opportunity of the corporation; (b) acts or omissions which involve
intentional misconduct or a knowing violation of law; (c) liabilities of a
director of the type set forth in Section 14-2-832 of the GBCC; or (d) any
transaction from which the director derived an improper personal benefit.
Pursuant to the MRYP Newco articles, MRYP Newco shall indemnify its directors
and officers, whether serving MRYP Newco or at its request any other entity, to
the full extent required or permitted by the GBCC now in force, including the
advance of expenses to the full extent permitted by law. This indemnification
and advancement of expenses shall continue to a person who has ceased to a
director or officer, unless otherwise provided when a director's or officer's
term is terminated.
MRYP NEWCO -- FEDERAL INCOME TAX CONSEQUENCES
MRYP Newco does not intend to qualify as a REIT under the Code.
Consequently, MRYP Newco will have the flexibility to respond quickly to
opportunities without the limitations inherent to REITs. It will be able to earn
significant fee and other investment income and to operate in a more leveraged
manner than most REITs. By not qualifying as a REIT under the Code, MRYP Newco
will have the ability and currently intends to retain its operating cash flow
for reinvestment and will also be able to sell properties without the
substantial income tax penalties which may be imposed on REITs in such
transactions. As a C corporation, MRYP Newco will be subject to corporate level
taxation.
The following discussion concerns the material United States Federal income
tax consequences of the receipt of shares of MRYP Newco Common by holders of
Merry Land Common in the Distribution. The discussion is based on current law,
which is subject to change retroactively or prospectively, and is for general
information only. Piper & Marbury L.L.P. has reviewed the discussion set forth
herein under the caption "MRYP Newco -- Federal Income Tax Consequences" and
believes that such discussion, as it pertains to matters of law, is correct in
all material respects. The following summary is based upon current provisions of
the Code, existing, temporary and final regulations thereunder and current
administrative rulings and court decisions, all of which are subject to change
(possibly on a retroactive basis). No attempt has been made to comment on all
United States Federal income tax consequences of the Distribution that may be
relevant to particular holders of Merry Land Common, including holders that are
subject to special tax rules such as dealers in securities, mutual funds,
insurance companies, tax-exempt entities, holders who do not hold their shares
of Merry Land Common as capital assets and holders that, for United States
Federal income tax purposes, are non-resident alien individuals, foreign
corporations, foreign partnerships or foreign estates or trusts.
The tax discussion set forth below is not intended to be, nor should it be
construed to be, legal or tax advice to any particular holder of Merry Land
Common. Because of the particular tax attributes of holders of Merry Land
Common, the Distribution may have differing tax implications for such holders.
Accordingly, holders of Merry Land Common are urged to consult with their own
legal and tax advisers regarding the United States Federal income tax
consequences of the Merger and any other consequences to them of the Merger
under state, local and foreign tax laws.
The tax discussion set forth below also assumes that Merry Land will
qualify as a real estate investment trust for the taxable year which ends on the
date of the Merger. In the opinion of Hull, Towill, Norman & Barrett, P.C.,
which has acted as counsel to Merry Land since its inception, Merry Land was
organized and has operated in conformity with the requirements for qualification
and taxation as a REIT under the Code commencing with its taxable year ended
December 31, 1987. See -- "The Merger -- Qualification of EQR as a REIT."
Treatment of Holders of Merry Land Common. The distribution of MRYP Newco
Common to holders of Merry Land Common immediately prior to the Merger will be
treated as a taxable distribution with respect
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to the Merry Land Common for Federal income tax purposes. The amount of the
distribution to each holder of Merry Land Common (the "Distribution Amount")
will be equal to the fair market value of the shares of MRYP Newco Common
received by the holder on the date of the Distribution. A holder of Merry Land
Common will be treated as having received a dividend for Federal income tax
purposes equal to the lesser of (i) the Distribution Amount or (ii) the portion
of Merry Land's current and accumulated earnings and profits properly allocable
to the Distribution. Merry Land's management believes that Merry Land will have
current, but not accumulated earnings and profits for Federal income tax
purposes on the date of the Distribution. In determining the amount of Merry
Land's current earnings and profits properly attributable to the Distribution,
all distributions made on or before the end of the taxable year which ends on
the date of the Merger on classes of stock of Merry Land that have priority over
the Merry Land Common with respect to dividends will be treated as reducing the
amount of Merry Land's current earnings and profits attributable to
distributions on Merry Land Common. The remaining current earnings and profits
will be allocated pro rata to each distribution with respect to a share of Merry
Land Common during the year of the Merger (including all cash distributions and
the distribution of the MRYP Newco Common). Merry Land's management currently
estimates that the amount of Merry Land's current earnings and profits during
the taxable year which ends on the date of the Merger (taking into account the
earnings and profits that will arise as a result of the contribution of the MRYP
Newco Properties to MRYP Newco under the Asset Exchange Agreement) will cause
approximately 68% of the Distribution Amount of each holder of Merry Land Common
to be treated as a dividend for Federal income tax purposes. No portion of any
such dividend received by a corporation will qualify for any dividends received
deduction. It should be noted that the Merger Agreement provides that, under
certain circumstances, certain properties that MRYP Newco currently intends to
purchase from ERP Operating Partnership immediately after the Merger will be
required to be transferred by Merry Land to MRYP Newco immediately before the
Merger pursuant to the Asset Exchange Agreement, in which event the percentage
of each holder's Distribution Amount that is treated as a dividend will
increase.
In the event that the Distribution Amount exceeds the portion of Merry
Land's current and accumulated earnings and profits properly allocable to the
distribution, such excess shall be treated, first, as a tax-free return of
capital to the extent that it does not exceed the adjusted basis of the
distributee's shares of Merry Land Common immediately before the distribution,
and, second, as a capital gain to the extent that such excess exceeds the
adjusted basis of the distributee's shares of Merry Land Common immediately
before the distribution. Any capital gain so recognized with respect to a share
of Merry Land Common will be treated as long-term capital gain if the share was
held for more than one year and as short-term capital if held for a shorter
period.
A holder of Merry Land Common shall be treated as a having an adjusted
basis in each share of MRYP Newco Common received in the Distribution equal to
its fair market value on the date of the Distribution for purposes of
determining gain or loss on a future disposition of such share. The holding
period of the MRYP Newco received in the Distribution will begin on the day
following the date of the Distribution. Upon the sale or exchange of MRYP Newco
Common to or with a person other than MRYP Newco, a holder will recognize
capital gain or loss equal to the difference between the amount realized on such
sale or exchange and the holder's adjusted tax basis in such shares. Any capital
gain or loss recognized will generally be treated as long-term capital gain or
loss if the holder held such shares for more than one year.
Except as noted below, a dividend received by a holder of Merry Land Common
will be treated as ordinary income. A real estate investment trust, such as
Merry Land, may designate any dividend, or part thereof, as a capital gain
dividend to the extent that the aggregate amount so designated with respect to
any taxable year does not exceed the trust's net capital gain (the excess of net
long-term capital gains over net short-term capital losses) for the taxable
year. The IRS takes the position that, if the aggregate amount of dividends
distributed on all classes of stock during the taxable year exceeds the
distributor's net capital gain for such year, the amount that may be treated as
a capital gain dividend must be allocated among the classes of stock so that the
portion of net capital gain allocated to each class bears the same ratio to the
total net capital gain as the total dividend distributions to such class bears
to the total dividend distributions to all classes. Management of Merry Land
expects to designate approximately 28% of the distribution of the MRYP Newco
Common as a capital gain dividend and expects that Merry Land will have
sufficient net capital gain
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during the year of the Merger so that such designation will be effective for
Federal income tax purposes. Capital gain dividends received by corporate
taxpayers are subject to the same Federal income tax rates that are applicable
to other corporate income. Except to the extent that a capital gain dividend is
attributable to net capital gain of Merry Land that is treated as unrecaptured
depreciation on Section 1231 assets, the maximum rate at which Federal income
tax can be imposed on a capital gain dividend received by an individual is 20%.
The maximum rate at which Federal income tax can be imposed on the portion of an
individual's capital gain dividend attributable to unrecaptured depreciation on
Section 1231 assets is 25%. Merry Land will provide the holders of its stock
with information regarding the portion of its capital gain dividends that is
subject to the 20% rate and the portion that is subject to the 25% rate. As
noted below, the transfers of the of the MRYP Newco Properties to MRYP Newco
under the Asset Exchange Agreement will cause Merry Land to recognize gain and
some portion of that gain is expected to be treated as unrecaptured depreciation
on Section 1231 assets.
In the event that the aggregate amount of Merry Land's net capital gain for
the taxable year which ends on the date of the Merger exceeds the aggregate
amount of capital gains dividends designated by Merry Land for such year, Merry
Land will issue a notice to each holder of Merry Land stock specifying such
holder's share of such undistributed net capital gain. Upon receipt of the
notice, a holder of Merry Land stock will be required to include in gross income
for his taxable year in which the Merger closes as net capital gain (subject to
the 20% or 25% rate to the extent indicated in the notice) the amount specified
in the notice. Each holder receiving any such notice will, however, be treated
as having paid his respective share of the tax paid by Merry Land in respect of
such undistributed net capital gain (as described below). To the extent that a
holder's share of any tax so paid by Merry Land exceeds the tax imposed on the
holder in respect of the amount specified in the notice, the excess will be
available to offset other Federal income tax liability of the holder for the
taxable year and, to the extent any such excess is not so offset, it will be
refundable. Each holder's adjusted basis in his Merry Land Shares will be
increased by any excess of the amount of undistributed net capital gain included
in gross income over the amount of tax deemed paid.
Treatment of Merry Land. Merry Land will recognize gain for Federal income
tax purposes upon the transfer of the MRYP Newco Properties to MRYP Newco under
the Asset Exchange Agreement. The amount of such gain will be equal to the
excess of the gross fair market value of the MRYP Newco Properties on the date
of the Contribution over the aggregate adjusted bases of such properties in the
hands of Merry Land on the same date. Except to the extent that a portion of
such gain is required to be treated as ordinary income under certain Code
provisions relating to the recapture of accelerated depreciation on real
property ("Ordinary Recapture Gain"), the gain will be taken into account as
part of Merry Land's net capital gain for the taxable year which ends on the
date of the Merger. Ordinary Recapture Gain will be included in Merry Land's
real estate investment trust taxable income for the taxable year which ends on
the date of the Merger. Since Merry Land intends to pay ordinary dividends for
the taxable year which ends on the date of the Merger in aggregate amounts not
less than its real estate investment trust taxable income for such year, no
income tax should be imposed on Merry Land in respect of any Ordinary Recapture
Gain. If Merry Land's net capital gain for the taxable year which ends on the
date of the Merger exceeds the aggregate amount of capital gains dividends
designated by Merry Land for such year, Merry Land will be subject to a federal
income tax on such excess imposed at the normal corporate rates. To the extent
practicable, Merry Land intends to designate capital gains dividends for the
taxable year which ends on the date of the Merger that are equal in amount to
its net capital gain for such year taking into account gain recognized on the
contribution of the MRYP Newco Properties. However, in the event that Merry Land
has undistributed net capital gain for the taxable year which ends on the date
of the Merger, it will issue notices to the holders of its stock requiring them
to include in gross income their respective shares of such undistributed capital
gain. Since the holders will be treated as having paid the income tax imposed on
Merry Land in respect of such undistributed net capital, a single tax imposed at
the rates applicable to the shareholders will, in effect, be imposed on any
undistributed net capital gain.
Treatment of MRYP Newco. MRYP Newco should have an aggregate adjusted basis
in the MRYP Newco Properties on the date of the Contribution equal to the
aggregate gross fair market value of such properties on that date. MRYP Newco's
aggregate adjusted basis should be allocated among each item of the
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MRYP Newco Properties in accordance with the ratio of that item's gross fair
market value on the date of Contribution to the aggregate gross fair market of
the MRYP Newco Properties on such date.
State, Local and Foreign Taxation. MRYP Newco and its shareholders may be
subject to state, local or foreign taxation in various state, local or foreign
jurisdictions, including those in which it or they transact business or reside.
Such state, local or foreign taxation may differ from the Federal income tax
treatment described above. Consequently, prospective holders of MRYP Newco
Common should consult their own tax advisors regarding the effect of state,
local and foreign tax laws on the ownership of MRYP Newco Common.
Backup Withholding and Information Reporting. A non corporate holder of
MRYP Newco Common who is not otherwise exempt from backup withholding may be
subject to backup withholding at the rate of 31% with respect to distributions
paid on, or the proceeds of a sale, exchange or redemption of, the MRYP Newco
Common. Generally, backup withholding applies only when the taxpayer (i) fails
to furnish or certify his correct taxpayer identification number to the payor in
the manner requested, (ii) is notified by the IRS that he has failed to report
payments of interest or dividends properly, or (iii) under certain
circumstances, fails to certify that he has not been notified by the IRS that he
is subject to backup withholding for failure to report interest or dividend
payments. Any amounts withheld under the backup withholding rules from a payment
to a holder will be allowed as a credit against the holder's Federal income tax
liability or as a refund, provided that the required information is furnished to
the IRS. Holders of MRYP Newco Common should consult their own tax advisors
regarding their qualification for exemption from backup withholding and the
procedure for obtaining any applicable exemption.
ENVIRONMENTAL MATTERS
Landfill Sites. Portions of MRYP Newco's land holdings in Richmond County,
Georgia were used by the County for two municipal landfills during the late
1960's and early 1970's. One site is comprised of 71 acres and the other, the
"New Savannah Road Landfill", 96 acres. Both landfills were closed in the
mid-1970's and have been held by Merry Land and its predecessors as unimproved
land since that time. Although the sites were used primarily as municipal
landfills, there have been some reports that some industrial wastes may have
been disposed of at the sites.
In 1992, a contractor for the U. S. Environmental Protection Agency (the
"EPA") sampled air, surface water, soil and groundwater on the New Savannah Road
Landfill in order to determine whether there was any contamination on the site
and whether the site should be placed on the Federal National Priorities List
(the "NPL"), for potential clean up. In October 1992, the EPA issued its report
which indicated that some contamination was present in soil samples but that
sufficient groundwater samples had not been taken to permit a complete
evaluation of the site. Accordingly, the report recommended that further action
be taken which the Company believes would consist principally of additional
testing of the site's groundwater and surface water. Merry Land has had no
further contact with the EPA or its agents since that time and the site has not
been included on the NPL.
Following the EPA's 1992 study, Merry Land retained an environmental
consultant to conduct similar studies of both sites. The consultant reported
that its study of the sites did not reveal the presence on either site of
contaminants in amounts likely to result in the EPA listing either site on the
NPL. After receiving the EPA's report, Merry Land's consultant also reviewed the
EPA contractor's test results and confirmed its prior conclusion that the level
of contamination discovered on the New Savannah Road Landfill is not likely to
result in the EPA listing this site on the NPL. However, the studies were
limited in nature and did not represent an examination of all portions of the
landfill sites. There can be no assurance that a more complete investigation or
further testing would not reveal higher levels or different types of
contamination at the sites.
Should further investigation or remedial action be required for the
landfill sites, MRYP Newco believes that there will likely be other entities
which will be responsible for a portion of the cost of the investigation or
remediation. These entities include Richmond County, which operated the
landfills, any identified company or municipality whose waste was placed in the
landfills, Merry Land and the company that owned the sites at the time of the
disposal of the waste. There can be no assurances that MRYP Newco will not have
material liability with respect to these landfill sites.
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POLICIES OF MRYP NEWCO WITH RESPECT TO CERTAIN ACTIVITIES
The following is a discussion of MRYP Newco's investment policies,
financing policies and policies with respect to certain other activities. MRYP
Newco's policies with respect to these activities have been determined by the
directors of MRYP Newco and may be amended or revised from time to time at the
discretion of the directors without a vote of the shareholders of MRYP Newco.
INVESTMENT POLICIES
Investments in Real Estate or Interests in Real Estate. MRYP Newco plans to
acquire properties below replacement cost and to operate or resell those
properties following renovation, redevelopment or re-positioning. MRYP Newco
also plans to engage in selected development of multi-family and other
properties. Development properties may be retained for investment and operated
by MRYP Newco or may be sold. Certain development activities may be conducted in
joint ventures with local developers.
Investments in Real Estate Mortgages. While MRYP Newco will emphasize
equity real estate investments, it may, in its discretion, invest in real estate
mortgages.
Securities of or Interests in Persons Primarily Engaged in Real Estate
Activities and Other Issuers. MRYP Newco may invest in securities of entities
engaged in real estate activities or securities of other issuers, including for
the purpose of exercising control over such entities.
Joint Ventures. MRYP Newco may enter into joint ventures and other
arrangements with third parties who may provide equity or expertise in a variety
of real estate ventures.
FINANCING POLICIES
MRYP Newco will seek to finance its investments through both public and
private secured and unsecured debt financings, as well as public and private
placements of its equity securities. The equity securities will include both
common and preferred equity issuances. There are currently no restrictions on
the amount of debt that MRYP Newco may incur other than those defined under loan
covenants.
MRYP Newco does not have a policy limiting the number or amount of
mortgages that may be placed on any particular property, but mortgage financing
instruments usually limit additional indebtedness on such properties. MRYP Newco
expects to use bond financing from local governmental authorities and where
appropriate, from affordable housing programs.
MRYP Newco does not plan to distribute dividends for the foreseeable
future. Earnings from the investments of MRYP Newco are expected to be used by
MRYP Newco to finance future acquisitions and investments. The MRYP Newco Board
of Directors may determine, in its discretion, to pay dividends on common shares
in the future and any such determination will be dependent on MRYP Newco's
results of operations, financial condition, contractual restrictions and other
factors deemed relevant at the time by MRYP Newco directors.
POLICIES WITH RESPECT TO OTHER ACTIVITIES
MRYP Newco does not intend to qualify as a REIT, but it may, from time to
time, invest in REITs, sell properties or entities to REITs for cash and/or
securities. Further, it may spin-off to its common stockholders, shares of its
subsidiaries or shares of other entities it has acquired through the sale of its
properties, investments or otherwise. These spin-offs may be taxable or
non-taxable, depending upon the facts and circumstances.
MRYP Newco's policies with respect to its activities may be reviewed and
modified from time to time by MRYP Newco's directors without notice to or vote
of its stockholders.
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PROPOSAL TO APPROVE MRYP NEWCO'S 1998 MANAGEMENT INCENTIVE PLAN
BACKGROUND
The MRYP Newco Board of Directors has approved, subject to the approval of
the shareholders, the 1998 Management Incentive Plan (the "1998 Management
Incentive Plan"). A copy of the 1998 Management Incentive Plan is attached as
Appendix F and incorporated herein by reference. The purpose of the 1998
Management Incentive Plan is to align the interests of MRYP Newco's directors,
executive officers and employees with those of the stockholders and to enable
MRYP Newco to attract, compensate and retain directors, executive officers and
employees and provide them with appropriate incentives and rewards for their
performance. The existence of the 1998 Management Incentive Plan should enable
MRYP Newco to compete more effectively for the services of such individuals.
Approximately 15 directors, executive officers and employees will be eligible to
participate in the 1998 Management Incentive Plan. The officers, directors and
employees of MRYP Newco who receive awards under the 1998 Management Incentive
Plan may receive a greater economic benefit to the extent the fair market value
of MRYP Newco Common increases. However, the equity of existing stockholders
would be diluted if shares of MRYP Newco Common were issued pursuant to the 1998
Management Incentive Plan at prices less than their then current fair market
value. In addition, the issuance of a substantial number of shares of MRYP Newco
Common under the 1998 Management Incentive Plan or their sale in the public
market might adversely affect prevailing market prices for such shares.
Awards to directors, executive officers and other employees under the 1998
Management Incentive Plan may take the form of share options ("Options"),
including corresponding share appreciation rights ("SARs") and reload options,
restricted share awards, dividend rights and stock loan awards. The maximum
number of shares of MRYP Newco Common that may be the subject of awards under
the 1998 Management Incentive Plan is 500,000 shares.
AWARDS AND ADMINISTRATION OF PLAN
If approved, the 1998 Management Incentive Plan would make 500,000 shares
of MRYP Newco Common available for issuance with the number of shares being
subject to adjustment to reflect changes in MRYP Newco capitalization such as
stock dividends, stock splits, recapitalization, merger, consolidation or
reorganization of MRYP Newco. Under the 1998 Management Incentive Plan, grants
of any combination of incentive stock options, nonstatutory stock options,
reload options, stock loan rights, director stock loan rights, dividend rights,
and restricted stock grants up to an aggregate of 500,000 shares of MRYP Newco
Common, may be awarded. The 1998 Management Incentive Plan shall remain in
effect until 2008 unless sooner terminated in accordance with its terms.
The 1998 Management Incentive Plan will be administered by the MRYP Newco
Board of Directors, provided that the MRYP Newco Board of Directors may choose
to delegate its authority to a committee of the MRYP Newco Board consisting of
directors who are not MRYP Newco employees or officers. Only key, full-time MRYP
Newco employees may be selected by the MRYP Newco Board of Directors to receive
awards, except that non-employee directors may receive director stock loan
rights (but no other type of award). MRYP Newco does not expect that more than
15 employees will be selected to receive awards. The MRYP Newco Board of
Directors is otherwise given absolute discretion under the 1998 Management
Incentive Plan to select persons to whom awards will be granted and to determine
the number and type of awards to be granted to each.
The MRYP Newco Board of Directors has authority to fix the terms of all
awards (which need not be identical) and to take such other action in the
administration, interpretation, and operation of the 1998 Management Incentive
Plan as the MRYP Newco Board of Directors deems appropriate under the
circumstances. MRYP Newco may amend the 1998 Management Incentive Plan, except
that no amendment shall be effective unless approved by the shareholders within
12 months of the amendment where such amendment will increase the number of
shares of MRYP Newco Common as to which Incentive Stock
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Options ("ISOs") may be granted, materially increase the cost to MRYP Newco of
awards other than ISOs, or change the class of participants eligible to
participate in the 1998 Management Incentive Plan.
INCENTIVE STOCK OPTIONS AND NONSTATUTORY STOCK OPTIONS
Terms of Exercise. Options to buy stock may be granted to eligible
employees under the 1998 Management Incentive Plan as either ISOs, which are
intended to qualify for favorable tax treatment under Federal tax law, or
nonstatutory stock options ("NSOs"). The 1998 Management Incentive Plan requires
that the exercise price of ISOs be equal to or greater than the fair market
value of MRYP Newco Common on the date of the grant and the exercise price of
NSOs will be set by the MRYP Newco Board of Directors. The term of each option
will be set by the MRYP Newco Board of Directors, but the term of any ISO cannot
exceed ten years from date of grant. The options are not transferable, except by
will or the laws of descent and distribution. Options may be exercised in any
order. The 1998 Management Incentive Plan provides that the aggregate fair
market value (determined at the time of grant) of stock for which ISOs first
become exercisable in any calendar year cannot exceed $100,000 for any employee.
Any excess options are treated as NSOs. All options vest upon a change in
control.
Exercise Price. The exercise price of an option is payable in cash or, if
permitted by the MRYP Newco Board of Directors, by surrendering shares of MRYP
Newco Common already owned by the optionee, or with a combination of cash and
shares. The terms of an option may require, and if not the MRYP Newco Board of
Directors otherwise may (but except in an event of change in control would not
be required to), accept the surrender of the right to exercise an option in
consideration for payment by MRYP Newco of an amount equal to the excess of the
fair market value of the shares subject to the option so surrendered over the
option price of the shares. Payment may be made in cash or in shares of MRYP
Newco Common, or partly in cash and partly in shares of MRYP Newco Common.
Termination of Employment. If the optionee of an ISO ceases to be employed
by MRYP Newco or a subsidiary for any reason other than death or disability, the
ISO shall terminate no later than three months following the termination of
employment. However, an optionee whose employment is terminated by retirement in
accordance with the normal retirement policies of the MRYP Newco or an optionee
whose employment is voluntarily terminated or terminated without cause within
one year following a change in control of MRYP Newco will be permitted to
exercise the option for a period of three months after the date of termination,
but no later than the date on which such option would otherwise expire. The MRYP
Newco Board of Directors has discretion to determine the effect of an optionee's
termination of employment in the terms of each NSO.
Change in Control. Change in control means a change in control of MRYP
Newco of a nature that would be required to be reported in response to Item 6(e)
of Schedule 14A of Regulation 14A promulgated under the Exchange Act as in
effect on January 1, 1997, provided that such a change in control shall be
deemed to have occurred at such time as (i) any "person" (as that term is used
in Sections 13(d) and 14(d)(2) of the Exchange Act), is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act) directly or
indirectly, of securities representing 30% or more of the combined voting power
for election of directors of the then outstanding securities of MRYP Newco or
any successor of MRYP Newco; (ii) during any period of two consecutive years or
less, individuals who at the beginning of such period constitute the Board of
Directors cease, for any reason to constitute at least a majority of the MRYP
Newco Board of Directors, unless the election or nomination for election of each
new director was approved by a vote of at least two-thirds of the directors then
still in office who were directors at the beginning of the period; (iii) the
shareholders of MRYP Newco approve any merger, consolidation or share exchange
as a result of which the MRYP Newco Common shall be changed, converted or
exchanged (other than a merger with a wholly-owned subsidiary of MRYP Newco), or
any dissolution or liquidation of MRYP Newco or any sale or the disposition of
50% or more of the assets or business of MRYP Newco; or (iv) the shareholders of
MRYP Newco approve any merger or consolidation to which MRYP Newco is a party or
a share exchange in which MRYP Newco shall exchange its shares for shares of
another corporation as a result of which the persons who were shareholders of
MRYP Newco immediately prior to the effective date of the merger, consolidation
or share exchange shall have beneficial ownership of less than 50% of the
combined voting power for election of
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directors of the surviving corporation following the effective date of such
merger, consolidation or share exchange.
Death or Disability. If the optionee of an ISO becomes disabled, the Option
may be exercised at any time within one year after the date of termination of
employment due to disability, but not later than the date on which the Option
would otherwise expire. Upon the death of an optionee while employed by MRYP
Newco, the ISO will expire one year after the date of death unless by its terms
it expires sooner. During this one year, the ISO may be exercised by the
optionee's estate or by the person to whom the optionee's rights under the ISO
pass by will or by the laws of descent and distribution.
RELOAD OPTIONS
The MRYP Newco Board of Directors may grant, concurrently with the award of
any option to such participants, one or more reload options to purchase for cash
or, if permissible under the option, shares of MRYP Newco Common, a number of
shares of MRYP Newco Common equal to the number of shares of MRYP Newco Common
delivered (or deemed delivered) by the participant to MRYP Newco to exercise the
option. Although an option may be an ISO, a reload option is not intended to
qualify as an ISO. A reload option may be granted in connection with the
exercise of an option that is itself a reload option. Each reload option will
have the same expiration date as the option and an exercise price equal to the
fair market value of the shares of MRYP Newco Common on the date of grant of the
reload option. A reload option is exercisable immediately.
Reload options permit a participant to retain, through the term of the
original option, his or her economic interest in the sum of the shares of MRYP
Newco Common covered by such options as well as the already-owned shares of MRYP
Newco Common that could be used to exercise such option, by granting options on
the number of shares of MRYP Newco Common used to pay the exercise price of the
original option and subsequent reload options. In this way, reload options
provide a participant with the opportunity to build up ownership of shares of
MRYP Newco Common covered by an original option earlier during the option term
rather than through a single exercise at or near the end of the option term.
STOCK LOAN RIGHTS AND DIRECTOR STOCK LOAN RIGHTS
Under the 1998 Management Incentive Plan selected key employees may receive
stock loan rights, consisting of interest free loans to purchase MRYP Common at
the then prevailing market price. The loans are payable on demand, except upon
the death or retirement of the employee or upon a change in control. The loans
are secured by the common stock purchased by the employee, with such percentage
as may be set by the MRYP Newco Board of Directors of the dividends to be
applied against the principal balance of the loan, and may be made with or
without recourse against the employee. No shares of stock purchased with stock
loan rights may be released to the employee until the loan is repaid in full;
provided, however, the MRYP Newco Board of Directors may release a portion of
said shares if and to the extent the fair market value of the remaining shares
securing repayment of the loan exceeds 150% of the outstanding principal balance
of the loan. In the event of default, MRYP Newco's recourse may either be
limited to the shares of stock purchased and pledged under the stock loan rights
and the employee may have no liability or may provide full recourse against the
employee. The stock loans shall be forgiven upon a change in control occurring
after the award of the stock loan, except that if the change in control occurs
within four years of the award, the percentage of the loan forgiven shall be
limited initially to 20% of the initial loan amount, and another 20% for each
year thereafter. Similar rights may also be granted to any non-employee member
of the MRYP Newco Board of Directors, and such awards shall be referred to as
"Director Stock Loan Rights."
DIVIDEND RIGHTS
Selected key employees may also receive dividend rights based on the
dividends declared on MRYP Newco Common, to be credited as of dividend payment
dates, during the period between the date of grant of the dividend right and the
date such award is exercised, vests or expires, under terms as determined by the
MRYP Newco Board of Directors. Such dividend rights shall be converted to cash
or additional shares of
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MRYP Newco Common by such formula and at such time and subject to such
limitations or forfeitability conditions as may be determined by the MRYP Newco
Board of Directors.
RESTRICTED STOCK GRANTS
Shares of restricted stock may be granted to key employees and may be
subject to contractual restrictions established by the MRYP Newco Board of
Directors to be set forth in a Restricted Stock Agreement. The Restricted Stock
Agreement will set forth the conditions, if any, which will need to be satisfied
before the restricted stock grant will become effective and the conditions, if
any, under which the key employee's interest in the restricted stock will be
forfeited. After a restricted stock grant becomes effective, the common stock
will be registered in the name of the employee. The employee will have the right
to vote and receive dividends paid with respect to the Restricted Stock. In the
event of a change in control occurring after the award of Restricted Stock
Grants, a participant shall become fully vested in the Restricted Stock Grant,
except that if the change in control occurs within four years of the award, the
percentage of the Restricted Stock Grants that become vested will be limited
initially to 20%, and another 20% for each year thereafter. The common stock
related to restricted stock grants that do not become effective because of a
failure to meet the conditions therefor shall again be the subject of Awards
under the Plan. See "-- Executive Compensation" for information with respect to
restricted stock grants.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Taxation of ISOs; Holding Period Requirements. An optionee receiving ISOs
will not recognize income at the time the ISOs are granted or at the time the
ISOs are exercised. However, the excess of the fair market value over the
exercise price of the stock purchased will be an adjustment item for purposes of
the alternative minimum tax in the year the ISOs are exercised. Provided the
holding periods described below are met, when the shares of stock received
pursuant to the exercise of an ISO are sold or otherwise disposed of in a
taxable transaction, gain or loss, measured by the difference between the
exercise price and the amount realized, will be recognized to the optionee as
long-term capital gain or loss. In order for an optionee to receive this
favorable tax treatment, the optionee must make no disposition of the shares
within two years from the date the ISO was granted nor within one year from the
date the ISO was exercised and the shares were transferred to the Optionee.
ISOs-Holding Period Requirements Not Satisfied. If all of the requirements
for an ISO are met except for the holding period rules set forth above, the
optionee will be required at the time of the disposition of the stock to treat
the lesser of the gain realized or the difference between the exercise price and
the fair market value of the stock at the date of exercise as ordinary income
and the excess, if any, as capital gain. At that time, MRYP Newco will be
allowed a corresponding business expense deduction to the extent of the amount
of the optionee's ordinary income.
NSOs and Reload Options. An optionee receiving NSOs or reload options will
not recognize income at the time the NSOs or reload options are granted.
However, the excess of the fair market value over the exercise price of the
stock purchased will be recognized as income by the optionee in the year the
NSOs or reload options are exercised. MRYP Newco will be allowed a corresponding
deduction in such amount.
Surrender of ISO or NSO. If MRYP Newco makes a payment to the optionee in
cash or in shares of MRYP Newco Common in exchange for the optionee's surrender
of the right to exercise an ISO or NSO, then the optionee will recognize
ordinary income in the amount of the cash received plus the fair market value of
the stock received. MRYP Newco will be allowed a corresponding deduction in such
amount.
Stock Loan Rights and Director Stock Loan Rights. For Federal income tax
purposes interest will generally be imputed on an interest free or below market
loan extended under the 1998 Management Incentive Plan. The employee or director
is deemed to have paid the imputed interest to MRYP Newco and MRYP Newco is
deemed to have paid said imputed interest back to the employee as additional
compensation. The deemed interest payment is taxable to MRYP Newco as income,
and may be deductible to the employee to the extent allowable under the rules
relating to investment interest. The deemed compensation payment to the employee
is taxable to the employee and deductible to MRYP Newco, but is subject, in the
case of
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employees, to employment taxes such as FICA and FUTA. The deemed interest and
compensation payments mostly offset each other for income tax purposes for both
MRYP Newco and, to the extent the employee's or director's investment interest
is deductible, the employee. However, if the loan is a limited recourse loan,
the stock purchase may be recharacterized as an option to purchase (with no
immediate tax consequences) until the circumstances dictate that option
treatment is no longer appropriate.
Dividend Rights. Generally, the amount of cash and the value of shares of
common stock credited to the employee's account will be treated as taxable
income to the employee (and deductible to MRYP Newco) when the employee's
benefits under the dividend rights are not subject to a substantial risk of
forfeiture.
Restricted Stock Grants. An employee will recognize ordinary income in an
amount equal to the fair market value of the common stock subject to the
restricted stock grants at the time of vesting, unless the employee elects under
Section 83(b) of the Code to recognize ordinary income in an amount equal to the
fair market value of the common stock at the time the Restricted Stock is
transferred to him. Dividends paid to an employee on shares of restricted stock
prior to the vesting of such shares are treated as ordinary income of the
employee in the year received unless the Section 83(b) election has been made.
MRYP Newco will receive a deduction for Federal income tax purposes equal to the
ordinary income recognized by the employee.
The foregoing does not address the effects of foreign, state or local tax
laws on the 1998 Management Incentive Plan or on the participation therein.
THE BOARD OF DIRECTORS OF MERRY LAND AND THE BOARD OF DIRECTORS OF MRYP
NEWCO RECOMMEND THAT YOU VOTE FOR THE PROPOSAL TO APPROVE MRYP NEWCO'S 1998
MANAGEMENT INCENTIVE PLAN.
LEGAL MATTERS
Certain legal matters in connection with the Merger will be passed upon for
EQR by Rudnick & Wolfe, Chicago, Illinois. Errol R. Halperin, a partner of
Rudnick & Wolfe, is a trustee of EQR. Attorneys of Rudnick & Wolfe beneficially
own less than 1% of the outstanding EQR Common. Certain legal matters in
connection with the Merger will be passed upon for Merry Land by Hull, Towill,
Norman & Barrett P.C., Augusta, Georgia and Piper & Marbury L.L.P., Baltimore,
Maryland. W. Hale Barrett, a partner of Hull, Towill, Norman & Barrett, P.C., is
a director and Secretary of Merry Land. Attorneys at Hull, Towill, Norman &
Barrett, P.C. beneficially own less than 1% of the Merry Land Common. Certain
matters of Maryland law relating to the Merger Agreement and Articles will be
passed upon for EQR by Ballard Spahr Andrews & Ingersoll, LLP, Baltimore,
Maryland.
EXPERTS
The consolidated financial statements of EQR appearing in EQR's Annual
Report on Form 10-K for the year ended December 31, 1997, as amended by Form
10-K/A, at December 31, 1997 and 1996, and for the two year period ended
December 31, 1997; the consolidated financial statements of Evans Withycombe
Residential, Inc. and its subsidiaries appearing in the Current Report of EQR on
Form 8-K, dated September 10, 1997; the consolidated financial statements of
Wellsford Residential Property Trust and its subsidiaries incorporated by
reference in EQR's Joint Proxy Statement/Prospectus dated April 25, 1997; and
the Statements of Revenue and Certain Expenses of certain properties acquired or
expected to be acquired in 1997 or 1998, appearing in the Current Reports of EQR
on Forms 8-K or 8-K/A dated May 20, 1997, August 15, 1997, September 17, 1997,
October 9, 1997 and June 25, 1998, have all been audited by Ernst & Young LLP,
independent auditors, as set forth in their reports thereon included or
incorporated by reference therein and are incorporated herein by reference in
reliance upon such reports given upon the authority of such firm as experts in
accounting and auditing.
The consolidated financial statements of EQR and its subsidiaries
(appearing in EQR's Annual Report on Form 10-K for the year ended December 31,
1997, as amended by Form 10-K/A) for the year ended December 31, 1995
incorporated herein by reference have been audited by Grant Thornton LLP,
independent
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public accountants, as indicated in their report with respect thereto, and are
incorporated in this Joint Proxy Statement/Prospectus/Information Statement.
The audited financial statements of Merry Land Properties, Inc.
(Predecessor) included elsewhere in this Joint Proxy
Statement/Prospectus/Information statement and the audited financial statements
of Merry Land & Investment Company, Inc. incorporated by reference in this Joint
Proxy Statement/Prospectus/ Information Statement have been audited by Arthur
Andersen LLP, independent public accountants, as indicated in their reports with
respect thereto, and are incorporated herein in reliance upon the authority of
said firm as experts in giving such reports.
SHAREHOLDER PROPOSALS
Any proposal which a shareholder of EQR intends to present at the 1999
Annual Meeting of Shareholders of EQR must be received by the Secretary of EQR
no later than November 30, 1998 to be eligible for inclusion in EQR's proxy
statement and proxy form relating to such meeting.
Any proposal which a shareholder of Merry Land intends to present at the
1999 Annual Meeting of Shareholders of Merry Land, if the Merger has not been
consummated prior to the date such meeting is to be held, must be received by
Merry Land at its principal executive offices on or before November 1, 1998 to
be eligible for inclusion in Merry Land's proxy statement and proxy form
relating to such meeting.
AUDITORS
Representatives of Ernst & Young LLP shall be present at the EQR Special
Meeting and shall have the opportunity to make a statement to the EQR Common
Shareholders should they so desire. In addition, the representatives of Ernst &
Young LLP shall be available to respond to appropriate questions of EQR Common
Shareholders.
Representatives of Arthur Andersen LLP shall be present at the Merry Land
Special Meeting and shall have the opportunity to make a statement to the Merry
Land Common Shareholders should they so desire. In addition, the representatives
of Arthur Andersen LLP shall be available to respond to appropriate questions of
Merry Land Common Shareholders.
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GLOSSARY
The following list of capitalized terms used in this Joint Proxy
Statement/Prospectus are defined as follows: See Summary, Page 1 for definition
of the principals involved in the Transaction.
"1998 Management Incentive Plan" means MRYP Newco's 1998 Management
Incentive Plan.
"Acquisition Proposal" means a merger, acquisition, tender offer, exchange
offer, consolidation, sale of assets or similar transaction involving all or any
significant portion of the assets or any equity securities of Merry Land or any
of its subsidiaries, other than the transactions contemplated by the Merger
Agreement.
"Act" means the Taxpayer Relief Act of 1997.
"Affiliates" means persons who control, are controlled by or are under the
common control with an issuer.
"Alternative Merger Transactions" means in the event Merry Land and EQR
receive a favorable determination from the IRS, the ML/LLC Merger and the Merry
Land Merger Subsidiary/EQR Merger.
"Antitrust Division" means the Antitrust Division of the Department of
Justice.
"Articles" means the Articles of Merger with respect to the Merger.
"Asset Exchange Agreement" means the Asset Exchange Agreement by and
between Merry Land and MRYP Newco.
"Book-Tax Difference" means the difference between the fair market value
and the adjusted tax basis of contributed property at the time of contribution.
"Break-Up Expenses" means the out-of-pocket expenses incurred in connection
with the Merger Agreement and the transactions contemplated thereunder, up to a
maximum of $5.0 million.
"Break-Up Fee" means the $45 million fee Merry Land must pay to EQR if the
Merger Agreement is terminated under certain circumstances.
"Certificate" means the Certificate of Merger with respect to the Merger.
"Charitable Trust" means the charitable trust which holds EQR Common, the
trustee of which is unaffiliated with EQR.
"Closing" means the closing of the Merger as set forth in the Merger
Agreement.
"Closing Date" means the third business day after the satisfaction or
waiver of the conditions set forth in the Merger Agreement.
"Closing Price" means the unweighted average closing price of a share of
Merry Land Common as reported in "New York Stock Exchange Composite
Transactions" by the Wall Street Journal (Midwest Edition) for the ten trading
days ending on the third trading day immediately prior to the Effective Time.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commission" means the Securities and Exchange Commission.
"Comparable Companies" means companies engaged in same size businesses
which J.P. Morgan judged to be analogous to that of Merry Land's.
"Contribution" means that Merry Land has agreed, prior to the Merger,
subject to certain conditions, to contribute certain of its assets to its
subsidiary MRYP Newco in exchange for MRYP Newco Common.
"Contributed Properties" means property contributed to a partnership in
exchange for an interest in the partnership.
"Control Shares" means voting shares of beneficial interest which, if
aggregated with all other such shares of beneficial interest previously acquired
by the acquiror, or in respect of which the acquiror is able to exercise or
direct the exercise of voting power (except solely by virtue of a revocable
proxy), would entitle the
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acquiror to exercise voting power in electing trustees within one of the
following ranges of voting power: (i) one-fifth or more but less than one-third,
(ii) one-third or more but less than a majority, or (iii) a majority or more of
all voting power.
"Department" means the State Department of Assessments and Taxation of
Maryland.
"Development Agreement" means the Development Agreement to be entered into
by and between ERP Operating Partnership and MRYP Newco pursuant to the Merger.
"Distribution" means the distribution prior by Merry Land, prior to the
Merger, to Merry Land Common Shareholders, on a pro rata basis, all of the MRYP
Newco Common owned by Merry Land.
"Distribution Amount" means the amount of the Distribution.
"EBITDA" means earnings before interest, taxes, depreciation and
amortization.
"Effective Time" means the consummation of the Merger.
"EPA" means the U.S. Environmental Protection Agency.
"EQR Board of Trustees" means the Board of Trustees of EQR.
"EQR Bylaws" means the Second Amended and Restated Bylaws of EQR.
"EQR Common" means common shares of beneficial interest, par value $0.01
per share, of EQR.
"EQR Common Shareholders" means holders of EQR Common.
"EQR Declaration" means EQR's Second Amended and Restated Declaration of
Trust.
"EQR Financing Partnerships" means the limited partnerships and limited
liability companies that own the beneficial interest of certain properties
encumbered by mortgage financing.
"EQR IPO" means the initial public offering of EQR Common by EQR.
"EQR Management Corp." means Equity Residential Properties Management
Corp., a Delaware corporation.
"EQR Management Corp. II" means Equity Residential Properties Management
Corp. II, a Delaware corporation.
"EQR Management Corps." means EQR Management Corp. and EQR Management Corp.
II, collectively.
"EQR Management Partnerships" means EQR, ERP Operating Partnership, EQR
Properties Management, L.P., and EQR Properties Management, L.P. II,
collectively.
"EQR Ownership Limit" means that no holder may own, or be deemed to own by
virtue of the attribution provisions of the Code, more than 5% of the lesser of
the number of shares or value of the issued and outstanding shares of beneficial
interest of EQR.
"EQR Preferred" means 100,000,000 preferred shares of beneficial interest,
$.01 par value per share, of EQR.
"EQR Preferred Stock Subsidiaries" means Wellsford Real Properties, Inc.,
and certain other subsidiary corporations in which ERP Operating Partnership
owns non-voting stock.
"EQR Properties Management L.P." means Equity Residential Properties
Management Limited Partnership, an Illinois limited partnership and affiliate of
EQR.
"EQR Properties Management L.P. II" means Equity Residential Properties
Management, L.P. II, an Illinois limited partnership.
"EQR Property Subsidiaries" means those general and limited partnerships
and limited liability companies, other than the EQR Financing Partnerships, that
own, directly or indirectly, interests in certain properties.
"EQR Series H" means, subsequent to the Merger, EQR's $1.75 Series H
Cumulative Convertible Preferred Shares of Beneficial Interest.
"EQR Series I" means, subsequent to the Merger, EQR's $2.205 Series I
Cumulative Convertible Preferred Shares of Beneficial Interest.
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"EQR Series J" means, subsequent to the Merger, EQR's $2.15 Series J
Cumulative Convertible Preferred Shares of Beneficial Interest.
"EQR Series K" means, subsequent to the Merger, EQR's $4.145 Series K
Cumulative Redeemable Preferred Shares of Beneficial Interest.
"EQR Series L" means, subsequent to the Merger, EQR's 7.625% Series L
Cumulative Redeemable Preferred Shares of Beneficial Interest.
"EQR Shares" means EQR Common and EQR Preferred, collectively.
"EQR Share Equivalent" means the distribution declared for each of the
first and second quarters of 1998 on 0.53 of a share of EQR Common, into which
each share of Merry Land Common will be converted into pursuant to the Merger.
"EQR Special Meeting" means a special meeting of shareholders of EQR to be
held at One North Franklin, Chicago, Illinois, on October 15, 1998, at 10:00
a.m., local time.
"ESOP" means the Merry Land Employee Stock Ownership Plan.
"ESOP Stock Acquisition Loans" means the loans made to the ESOP to
facilitate the ESOP's purchase of Merry Land Common for the benefit of ESOP
participants and beneficiaries.
"EW Management, Inc." means Evans Withycombe Management, Inc.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exchange Agent" means Boston EquiServe LLP, an affiliate of BankBoston,
N.A.
"Exchange Ratio" means the ratio of 0.53 at which outstanding shares of
Merry Land Common will be converted into shares of EQR Common pursuant to the
Merger (except for any shares of Merry Land Common owned by EQR, which will be
canceled as of the Effective Time).
"FFO" or "funds from operations" means net income (computed in accordance
with GAAP), excluding gains (or losses) from debt restructuring and sales of
property, plus depreciation and amortization, and after adjustments from
unconsolidated partnerships and joint ventures.
"FIRPTA" means the Foreign Investment in Real Property Tax Act, as amended.
"First Call FFO" means First Call funds from operations.
"FTC" means the Federal Trade Commission.
"GAAP" means generally accepted accounting principles.
"GBCC" means the Georgia Business Corporation Code, as amended.
"Gross-Up Payment" means payments made to certain of Merry Land's directors
and officers in connection with the Retention and Severance Program.
"HSR Act" means the Hart-Scott Rodino Act of 1976, as amended.
"Increase" means, in connection with the Merger, the increase in the total
number of authorized shares of beneficial interest of EQR from 300,000,000 to
450,000,000 and the increase in the number of authorized shares of EQR Common
from 200,000,000 to 350,000,000.
"Interested Shareholder" means any person who beneficially owns 10% or more
of the voting power of a Maryland REIT's or corporation's shares of beneficial
interest or an affiliate of the trust who, at any time within the two-year
period prior to the date in question, was the beneficial owner of 10% or more of
the voting power of the REIT's shares of beneficial interest.
"IRS" means the Internal Revenue Service.
"ISO" means Incentive Stock Options under the 1998 Management Incentive
Plan.
"J.P. Morgan" means J. P. Morgan Securities Inc., EQR's financial advisor.
"Joint Venture Agreement" means the Joint Venture Agreement between MRYP
Newco and ERP Operating Partnership.
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"Joint Venture Entity" means the limited liability company of which ERP
Operating Partnership and MRYP Newco will be the sole members.
"Letter of Transmittal" means the letter of transmittal for use in
exchanging certificates evidencing Merry Land Shares for Certificates evidencing
EQR Shares.
"Material Adverse Change" means a material adverse change in business,
financial condition or results of operations taken as a whole.
"Meetings of Shareholders" means the Merry Land Special Meeting and EQR
Special Meeting, collectively.
"MGCL" means the Maryland General Corporation Law, as amended.
"Merger" means, including the Alternative Merger Transactions, the
acquisition of the multifamily property business of Merry Land by EQR through
the tax-free merger of Merry Land into EQR.
"Merger Agreement" means the Agreement and Plan of Merger dated July 8,
1998 by and between EQR and Merry Land.
"Merger Consideration" means the EQR Common and the MRYP Newco Common to be
received by Merry Land Common Shareholders pursuant to the Merger Agreement.
"Merry Land Articles" means Merry Land's Amended and Restated Articles of
Incorporation.
"Merry Land Board of Directors" means the Board of Directors of Merry Land.
"Merry Land Bylaws" means Merry Land's Bylaws.
"Merry Land Common" means shares of common stock, without par value, of
Merry Land.
"Merry Land Common Shareholders" means holders of Merry Land Common.
"Merry Land Executive Officers" means the executive officers of Merry Land.
"Merry Land IPO" means the initial public offering by Merry Land.
"Merry Land LLC" means the limited liability company formed by Merry Land
in connection with the Alternative Merger Transactions.
"Merry Land Merger Subsidiary" means the corporate subsidiary, owning all
the equity interests in Merry Land LLC, formed by Merry Land in connection with
the Alternative Merger Transactions.
"Merry Land Merger Subsidiary/EQR Merger" means, in connection with the
Alternative Merger Transactions, the merger between Merry Land Merger Subsidiary
and EQR.
"Merry Land Merger Subsidiary Common" means shares of common stock, par
value $.001 per share, of Merry Land Merger Subsidiary.
"Merry Land Merger Subsidiary Preferred" means shares of preferred stock,
par value $.001 per share, of Merry Land Merger Subsidiary.
"Merry Land Merger Subsidiary Shares" means Merry Land Merger Subsidiary
Common and Merry Land Merger Subsidiary Preferred, collectively.
Merry Land Merger Subsidiary Stock Option" means an option to purchase
Merry Land Merger Subsidiary Common.
"Merry Land Named Executive Officers" means the Chairman of the Merry Land
Board of Directors and the four other most highly compensated Merry Land
executive officers.
"Merry Land Option" means an option to purchase Merry Land Common.
"Merry Land Preferred" means the outstanding shares of Merry Land's
preferred stock.
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"Merry Land Series A" means Merry Land's $1.75 Series A Cumulative
Convertible Preferred Stock.
"Merry Land Series B" means Merry Land's $2.205 Series B. Cumulative
Convertible Preferred Stock.
"Merry Land Series C" means Merry Land's $2.15 Series C Cumulative
Convertible Preferred Stock.
"Merry Land Series D" means Merry Land's $4.145 Series D Cumulative
Redeemable Preferred Stock.
"Merry Land Series E" means Merry Land's 7.625% Series E Cumulative
Redeemable Preferred Stock.
"Merry Land Shares" means Merry Land Common and Merry Land Preferred,
collectively.
"Merry Land Special Meeting" means a special meeting of shareholders of
Merry Land to be held at Fort Discovery, One Seventh Street, Augusta, Georgia,
on October 15, 1998 at 10:00 a.m., local time.
"Merry Land Stock Loan Program" means Merry Land's Stock Loan Program.
"ML/LLC Merger" means, in connection with the Alternative Merger
Transactions, the merger of Merry Land into Merry Land LLC, with Merry Land LLC
as the surviving entity of the merger.
"ML/LLC Merger Effective Time" means the consummation of the Merry Land/LLC
Merger.
"Merry Land Merger Subsidiary Stock Option" means an option to acquire
Merry Land Merger Subsidiary Common.
"▇▇▇▇▇▇ ▇▇▇▇▇▇▇" means ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ & Co. Incorporated.
"▇▇▇▇▇▇ ▇▇▇▇▇▇▇ Opinion" means ▇▇▇▇▇▇ ▇▇▇▇▇▇▇'▇ written opinion in
connection with the Merger, dated July 8, 1998.
"MRYP Newco" means Merry Land Properties, Inc.
"MRYP Newco Articles" means the Articles of Incorporation of MRYP Newco.
"MRYP Newco Board of Directors" means the Board of Directors of MRYP Newco.
"MRYP Newco Bylaws" means the Bylaws of MRYP Newco.
"MRYP Newco Common" means shares of common stock, no par value, of MRYP
Newco.
"MRYP Newco Preferred" means MRYP Newco's Series "A" Preferred Stock, no
par value.
"MRYP Newco Properties" means five apartment properties with 1,004 units,
four apartment development sites with a total of 84 acres, five commercial
properties with 172,415 square feet, six commercial sites with 46 acres and
4,816 acres of undeveloped land, collectively.
"Nasdaq" means the Nasdaq National Market.
"NAV" means net asset value.
"NPL" means the Federal National Priorities List.
"Non-U.S. Holders" means any person other than (i) a citizen or resident of
the United States, (ii) a corporation or partnership created or organized in the
United States or under the laws of the United States or of any state thereof, or
(iii) an estate or trust whose income is includible in gross income for U.S.
Federal income tax purposes, regardless of its source.
"NSO" means a nonstatutory stock option in connection with the 1998
Management Incentive Plan.
"NYSE" means the New York Stock Exchange.
"Office Lease Agreement" means the Office Lease Agreement between MRYP
Newco and ERP Operating Partnership.
"Option Agreement" means the Option Agreement and Right of First/Last Offer
Agreement between MRYP Newco and ERP Operating Partnership.
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"Option and Award Plan" means EQR's Second Amended and Restated 1993 Share
Option, and Share Award Plan.
"Options" means share option awards to directors, executive officers and
other employees of MRYP Newco under the 1998 Management Incentive Plan.
"OP Units" means ERP Operating Partnership's outstanding partnership units
(excluding preference units).
"Ordinary Recapture Gain" means that portion of gain required to be treated
as ordinary income under certain Code provisions.
"Ownership Limit" means to facilitate maintenance of its qualification as a
REIT for Federal income tax purposes, EQR generally will prohibit ownership,
directly or by virtue of the attribution provisions of the Code, by any single
shareholder of more than 5% of the issued and outstanding shares of EQR Common
and generally will prohibit ownership, directly or by virtue of the attribution
provisions of the Code, by any single shareholder of more than 5% of the issued
and outstanding shares of any class or series of EQR Preferred, collectively.
"Partnership" means ERP Operating Partnership, the Management Partnerships
and certain Financing Partnership, individually.
"Partnerships" means ERP Operating Partnership, the Management Partnerships
and certain Financing Partnerships, collectively.
"Pledged Shares" means the shares of Merry Land Common pledged as security
for each ESOP Stock Acquisition Loan.
"Preferred Stock Agreement" means the $5.0 million Preferred Stock
Agreement between Merry Land and MRYP Newco.
"QRS" means qualified REIT subsidiaries.
"QRS Corporation" means qualified REIT subsidiary.
"Real estate NOI" means real estate net operating income.
"Reform Act" means the Private Securities Litigation Reform Act of 1995.
"Registration Statement" means the registration statement on Form S-4 filed
by EQR.
"REIT" means a real estate investment trust, as such term is defined in the
Code.
"Restricted Stock Grant" means a restricted grant of shares of MRYP Newco
Common pursuant to the 1998 Management Incentive Plan.
"Retention and Severance Program" means Merry Land's Retention and
Severance Program dated as of July 8, 1998.
"SARs" means share appreciation rights in connection with the 1998
Management Incentive Plan.
"Secretary" means the Secretary of State of Georgia.
"Securities Act" means the Securities Act of 1933, as amended.
"Senior Debt Agreement" means the one-year, non-revolving Senior Term Loan
Agreement by and between Merry Land and MRYP Newco.
"Spin-Off" means the Contribution, Distribution and certain financial and
business arrangements an affiliate of EQR will enter into with MRYP Newco.
"Stock Loans" means the loan in connection with the Stock Loan Program
between Merry Land and certain Merry Land officers and non-employee directors.
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"Subordinated Debt Agreement" means the fifteen year, non-revolving Senior
Subordinated Term Loan Agreement between Merry Land and MRYP Newco.
"Subordinated Note" means the Subordinated Note to be entered into by and
between Merry Land and MRYP Newco immediately prior to the Merger.
"Subsidiary Entities" means the EQR Management Partnerships, the EQR
Management Corps., the EQR Financing Partnerships and the QRS Corporations.
"Superior Acquisition Proposal" means a bona fide acquisition proposal by a
third party which a majority of the members of the Merry Land Board of Directors
determines in good faith to be more favorable to Merry Land's shareholders from
a financial point of view than the Merger and which the Merry Land Board of
Directors determines is reasonably capable of being consummated.
"Term Loan" means the Term Loan to be entered into by and between Merry
Land and MRYP Newco immediately prior to the Merger.
"Title 8" means Title 8 of the Corporations and Article of the Annotated
Code of Maryland.
"Transactions" means the Merger and the Spin-Off, collectively.
"Transaction Comparables" means the 14 transactions selected by ▇. ▇.
▇▇▇▇▇▇ with respect to purchase price per share to calculate FFO transaction
multiples.
"Transaction Costs" means the costs incurred in connection with the Merger
Agreement and the transactions contemplated thereby.
"Treasury Regulations" means the Treasury Regulations promulgated under the
Code.
"UBTI" means unrelated business taxable income, as defined in Section
512(a) of the Code.
"USRPIs" means United States Real Property Interests.
"U.S. Shareholder" means a holder of EQR Common or EQR Preferred (for
United States Federal income tax purposes).
G-7
125
INDEX TO FINANCIAL STATEMENTS
PAGE
----
EQUITY RESIDENTIAL PROPERTIES TRUST -- PRO FORMA
Summary Historical Financial Data and Summary Unaudited
Pro Forma Combined Financial Data...................... F-2
Basis of Presentation to Unaudited Pro Forma Combined
Balance Sheet as of June 30, 1998...................... F-3
Unaudited Pro Forma Combined Balance Sheet as of June 30,
1998................................................... F-4
Basis of Presentation to Unaudited Pro Forma Combined
Statement of Operations for the six months ended June
30, 1998............................................... F-5
Unaudited Pro Forma Combined Statement of Operations for
the six months ended
June 30, 1998.......................................... F-6
Basis of Presentation to Unaudited Pro Forma Combined
Statement of Operations for the year ended December 31,
1997................................................... F-7
Unaudited Pro Forma Combined Statement of Operations for
the year ended
December 31, 1997...................................... F-8
Notes to Unaudited Pro Forma Combined Balance Sheet as of
June 30, 1998.......................................... F-9
Notes to Unaudited Pro Forma Combined Statement of
Operations for the six months ended June 30, 1998...... F-12
Notes to Unaudited Pro Forma Combined Statement of
Operations for the year ended December 31, 1997........ F-17
MERRY LAND PROPERTIES, INC. (PREDECESSOR) -- HISTORICAL
Report of Independent Public Accountants.................. F-20
Combined Balance Sheets as of June 30, 1998 (Unaudited)
and December 31, 1997 and 1996......................... F-21
Combined Statements of Income and Equity for the six
months ended June 30, 1998 and 1997 (Unaudited) and for
the years ended December 31, 1997, 1996 and 1995....... F-22
Combined Statements of Cash Flows for the six months ended
June 30, 1998 and 1997 (Unaudited) and for the years
ended December 31, 1997, 1996 and 1995................. F-23
Notes to Combined Financial Statements.................... F-24
MERRY LAND PROPERTIES, INC. (PREDECESSOR) -- PRO FORMA
Pro Forma Combined Financial Statements Basis of
Presentation (Unaudited)............................... F-26
Pro Forma Combined Balance Sheet as of June 30, 1998
(Unaudited)............................................ F-27
Notes to Pro Forma Combined Balance Sheet as of June 30,
1998 (Unaudited)....................................... F-28
Pro Forma Combined Income Statement for the year ended
December 31, 1997 (Unaudited).......................... F-29
Pro Forma Combined Income Statement for the six months
ended June 30, 1998 (Unaudited)........................ F-30
Notes to Pro Forma Combined Income Statements for the year
ended December 31, 1997 and the six months ended June
30, 1998 (Unaudited)................................... F-31
F-1
126
EQUITY RESIDENTIAL PROPERTIES TRUST
SUMMARY HISTORICAL FINANCIAL DATA AND SUMMARY
UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
HISTORICAL SIX HISTORICAL SIX PRO FORMA SIX PRO FORMA
MONTHS ENDED MONTHS ENDED MONTHS ENDED YEAR ENDED
JUNE 30, 1998 JUNE 30, 1997 JUNE 30, 1998 DECEMBER 31, 1997
-------------- -------------- ------------- -----------------
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
OPERATING DATA:
Total revenues............................. $ 593,391 $ 306,324 $ 782,608 $1,482,882
========== ========== =========== ==========
Income before gain on disposition of
properties, extraordinary items and
allocation to Minority Interests......... $ 122,540 $ 71,384 $ 147,924 $ 250,519
========== ========== =========== ==========
Net income................................. $ 125,322 $ 68,671 $ 150,429 $ 253,664
========== ========== =========== ==========
Net income available to Common Shares...... $ 81,938 $ 47,732 $ 91,655 $ 136,014
========== ========== =========== ==========
Net income per weighted average Common
Share outstanding........................ $ 0.86 $ 0.86 $ 0.77 $ 1.15
========== ========== =========== ==========
Net income per weighted average Common
Share outstanding -- assuming dilution... $ 0.85 $ 0.85 $ 0.75 $ 1.14
========== ========== =========== ==========
Weighted average Common Shares
outstanding.............................. 95,394 55,385 119,222 118,228
========== ========== =========== ==========
Weighted average Common Shares
outstanding -- assuming dilution......... 106,195 63,708 133,089 130,146
========== ========== =========== ==========
Distributions declared per Common Share
outstanding.............................. $ 1.34 $ 1.25
========== ==========
BALANCE SHEET DATA (at end of period):
Real estate, before accumulated
depreciation........................... $7,968,121 $4,482,434
Real estate, after accumulated
depreciation........................... $7,394,762 $4,124,835 $10,237,826
Total assets............................. $8,000,039 $4,738,734 $10,597,405
Total debt............................... $3,378,860 $1,715,387 $ 4,409,698
Minority Interests....................... $ 290,770 $ 179,222 $ 366,124
Shareholders' Equity..................... $4,051,002 $2,662,684 $ 5,510,153
F-2
127
EQUITY RESIDENTIAL PROPERTIES TRUST
BASIS OF PRESENTATION TO UNAUDITED PRO FORMA
COMBINED BALANCE SHEET
AS OF JUNE 30, 1998
The Unaudited Pro Forma Combined Balance Sheet gives effect to (i) the
proposed Merger of Equity Residential Properties Trust ("EQR") and Merry Land &
Investment Company, Inc. ("Merry Land") and (ii) the acquisition in July, 1998
and probable acquisition of 42 properties for a total purchase price of $645.7
million, which included the assumption of $180.5 million of mortgage
indebtedness, the issuance of 2.3 million OP Units with a value of $111 million
and the expected borrowings of $90 million on EQR's line of credit. All of these
events have been presented as if they had occurred on June 30, 1998. The
Unaudited Pro Forma Combined Balance Sheet gives effect to the Merger under the
purchase method of accounting in accordance with Accounting Principles Board
Opinion No. 16. In the opinion of management, all significant adjustments
necessary to reflect the effects of the Merger have been made.
The Unaudited Pro Forma Combined Balance Sheet is presented for comparative
purposes only and is not necessarily indicative of what the actual combined
financial position of EQR and Merry Land would have been at June 30, 1998, nor
does it purport to represent the future combined financial position of EQR and
Merry Land. This Unaudited Pro Forma Combined Balance Sheet should be read in
conjunction with, and is qualified in its entirety by, the respective historical
financial statements and notes thereto of EQR and Merry Land incorporated by
reference into the Joint Proxy Statement/Prospectus/Information Statement and
the financial statements and notes thereto in EQR's Form 8-K dated June 25,
1998.
F-3
128
EQUITY RESIDENTIAL PROPERTIES TRUST
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
AS OF JUNE 30, 1998
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
1998 MOST
RECENT
ACQUIRED AND EQR PRO FORMA EQR
EQR PROBABLE PRE-MERGER MERRY LAND MERGER PRO FORMA
HISTORICAL PROPERTIES(A) PRO FORMA HISTORICAL(B) ADJUSTMENTS(C) COMBINED
---------- ------------- ---------- ------------- -------------- ---------
ASSETS
Rental property, net.......... $7,352,780 $645,684 $7,998,464 $1,601,069 $ 543,575(D) $10,143,108
Construction in progress...... 41,982 41,982 52,736 94,718
Investment in mortgage notes,
net......................... 87,916 87,916 38,317(E) 126,233
Cash and cash equivalents..... 265,915 (264,275) 1,640 2,474 792(F) 4,906
Rent receivables.............. 5,127 5,127 5,127
Deposits -- restricted........ 48,692 48,692 48,692
Escrow deposits -- mortgage... 57,655 57,655 57,655
Deferred financing costs,
net......................... 23,299 23,299 4,567 (4,567)(G) 23,299
Other assets.................. 116,673 116,673 8,521 (31,527)(H) 93,667
---------- -------- ---------- ---------- --------- -----------
Total assets............ $8,000,039 $381,409 $8,381,448 $1,669,367 $ 546,590 $10,597,405
========== ======== ========== ========== ========= ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Mortgage notes payable........ $1,775,556 $180,450 $1,956,006 $ 183,340 $ 9,948(I) $ 2,149,294
Line of credit................ 175,000 90,000 265,000 12,100 95,000(F) 372,100
Notes, net.................... 1,428,304 1,428,304 460,000 1,888,304
Accounts payable, accrued
expenses.................... 78,362 78,362 17,173 (716)(I) 94,819
Accrued interest payable...... 34,952 34,952 7,169 42,121
Rents received in advance and
other liabilities........... 41,822 41,822 6,316 48,138
Security deposits............. 33,800 33,800 2,081 35,881
Distributions payable......... 90,471 90,471 90,471
---------- -------- ---------- ---------- --------- -----------
Total liabilities....... 3,658,267 270,450 3,928,717 688,179 104,232 4,721,128
---------- -------- ---------- ---------- --------- -----------
Commitments and
contingencies............... (J)
---------- -------- ---------- ---------- --------- -----------
Minority interests............ 290,770 70,857 361,627 18,769 (14,272)(K) 366,124
---------- -------- ---------- ---------- --------- -----------
Shareholders' equity:
Common shares................. 979 979 42,969 (42,750)(L) 1,198
Preferred shares:
Series A...................... 153,000 153,000 4,665 (4,665)(M) 153,000
Series B...................... 125,000 125,000 100,000 (100,000)(M) 125,000
Series C...................... 115,000 115,000 114,985 (114,985)(M) 115,000
Series D...................... 175,000 175,000 50,000 (50,000)(M) 175,000
Series E...................... 99,950 99,950 100,000 (100,000)(M) 99,950
Series F...................... 57,500 57,500 57,500
Series G...................... 316,250 316,250 316,250
Series H...................... 4,665(M) 4,665
Series I...................... 100,000(M) 100,000
Series J...................... 114,985(M) 114,985
Series K...................... 50,000(M) 50,000
Series L...................... 100,000(M) 100,000
Employee notes................ (4,949) (4,949) (29,446) 29,446(N) (4,949)
Paid in capital............... 3,194,261 40,102 3,234,363 611,068 438,112(O) 4,283,543
Distributions in excess of
accumulated earnings........ (180,989) (180,989) (31,822) 31,822(P) (180,989)
---------- -------- ---------- ---------- --------- -----------
Total shareholders'
equity............... 4,051,002 40,102 4,091,104 962,419 456,630 5,510,153
---------- -------- ---------- ---------- --------- -----------
Total liabilities and
shareholders'
equity............... $8,000,039 $381,409 $8,381,448 $1,669,367 $ 546,590 $10,597,405
========== ======== ========== ========== ========= ===========
F-4
129
EQUITY RESIDENTIAL PROPERTIES TRUST
BASIS OF PRESENTATION TO UNAUDITED PRO FORMA
COMBINED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1998
The Unaudited Pro Forma Combined Statement of Operations for the six months
ended June 30, 1998 gives effect to (i) the proposed merger of EQR and Merry
Land, (ii) the acquisition from January to June, 1998 of 41 properties and the
acquisition in July, 1998 and probable acquisition of 42 properties for a total
purchase price of $1.4 billion, which included the assumption of $412.6 million
of mortgage indebtedness, the issuance of 2.5 million OP Units with a value of
$127.3 million and the borrowings of $265 million on EQR's line of credit, which
includes $90 million on a pro forma basis, (iii) the January 1998 Common Share
Offering, the February 1998 Common Share Offerings, the March 1998 Common Share
Offering and the April 1998 Common Share Offering and (iv) the issuance of the
2015 Notes. All of these events have been presented as if they occurred on
January 1, 1998. The Unaudited Pro Forma Combined Statement of Operations gives
effect to the Merger under the purchase method of accounting in accordance with
Accounting Principles Board Opinion No. 16, and the combined entity qualifying
as a REIT, distributing at least 95% of its taxable income, and therefore,
incurring no federal income tax liability for the period presented. In the
opinion of management, all significant adjustments necessary to reflect the
effects of these transactions have been made.
The Unaudited Pro Forma Combined Statement of Operations is presented for
comparative purposes only and is not necessarily indicative of what the actual
combined results of EQR and Merry Land would have been for the six months ended
June 30, 1998, nor does it purport to be indicative of the results of operations
in future periods. The Unaudited Pro Forma Combined Statement of Operations
should be read in conjunction with, and is qualified in its entirety by, the
respective historical financial statements and notes thereto of EQR and Merry
Land incorporated by reference into this Joint Proxy
Statement/Prospectus/Information Statement and the financial statements included
in EQR's Form 8-K dated June 25, 1998.
F-5
130
EQUITY RESIDENTIAL PROPERTIES TRUST
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
1998
ACQUIRED EQR PRO FORMA EQR
EQR AND PROBABLE PRE-MERGER MERRY LAND MERGER PRO FORMA
HISTORICAL PROPERTIES(Q) PRO FORMA HISTORICAL(AA) ADJUSTMENTS COMBINED
---------- ------------- ---------- -------------- ----------- ---------
REVENUES
Rental income............................. $571,370 $70,920(R) $642,290 $126,430 $(4,867)(BB) $763,853
Fee and asset management.................. 2,790 2,790 2,790
Interest income -- investment in mortgage
notes.................................... 10,221 (1,873)(S) 8,348 56 1,491(CC) 9,895
Interest and other income................. 9,010 (5,210)(T) 3,800 2,270 6,070
-------- ------- -------- -------- ------- --------
Total revenues......................... 593,391 63,837 657,228 128,756 (3,376) 782,608
-------- ------- -------- -------- ------- --------
EXPENSES
Property and maintenance.................. 137,910 16,252(U) 154,162 29,796 (1,182)(DD) 182,776
Real estate taxes and insurance........... 56,484 7,320(V) 63,804 14,867 (397)(EE) 78,274
Property management....................... 25,110 1,487(W) 26,597 2,375 (835)(FF) 28,137
Fee and asset management.................. 2,240 2,240 2,240
Depreciation.............................. 131,910 17,150(X) 149,060 26,543 4,989(GG) 180,592
Interest:.................................
Expense incurred......................... 105,651 24,769(Y) 130,420 18,049 1,900(HH) 150,369
Amortization of deferred financing
costs.................................. 1,275 1,275 728 (728)(II) 1,275
General and administrative................ 10,271 10,271 2,394 (1,644)(JJ) 11,021
-------- ------- -------- -------- ------- --------
Total expenses......................... 470,851 66,978 537,829 94,752 2,103 634,684
-------- ------- -------- -------- ------- --------
Income before gain on disposition of
properties and allocation to Minority
Interest................................. 122,540 (3,141) 119,399 34,004 (5,479) 147,924
Gain on disposition of properties........ 11,092 11,092 (400) 10,692
-------- ------- -------- -------- ------- --------
Income before allocation to Minority
Interests................................ 133,632 (3,141) 130,491 33,604 (5,479) 158,616
(Income) allocated to Minority
Interests.............................. (8,310) (1,314) (9,624) (328) 1,765(KK) (8,187)
-------- ------- -------- -------- ------- --------
Net income................................ 125,322 (4,455) 120,867 33,276 (3,714) 150,429
Preferred distributions................... (43,384) (43,384) (14,471) (919)(LL) (58,774)
-------- ------- -------- -------- ------- --------
Net income available to common shares..... $ 81,938 $(4,455) $ 77,483 18,805 (4,633) $ 91,655
======== ======= ======== ======== ======= ========
Net income per weighted average Common
Shares outstanding....................... $ 0.86 $ 0.80 $ 0.77
======== ======== ========
Net income per weighted average Common
Shares outstanding -- assuming
dilution................................. $ 0.85 $ 0.79 $ 0.75
======== ======== ========
Weighted average Common Shares
outstanding.............................. 95,394 97,350(Z) 21,872(MM) 119,222
======== ======== ======= ========
Weighted average Common Shares outstanding
-- assuming dilution..................... 106,195 110,351(Z) 22,738(MM) 133,089
======== ======== ======= ========
F-6
131
EQUITY RESIDENTIAL PROPERTIES TRUST
BASIS OF PRESENTATION TO UNAUDITED PRO FORMA
COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
The Unaudited Pro Forma Combined Statement of Operations for the year ended
December 31, 1997 gives effect to (i) the proposed merger of EQR and Merry Land,
(ii) the acquisition from the mergers between EQR and Wellsford and EQR and
▇▇▇▇▇ and other acquisitions during 1997 of 124 properties for a total purchase
price of $4.1 billion, (iii) the acquisition from January to June, 1998 of 41
properties and the acquisition in July, 1998 of 42 properties for a total
purchase price of $1.4 billion, which included the assumption of $412.6 million
of mortgage indebtedness, the issuance of 2.5 million OP Units with a value of
$127.3 million and the borrowings of $265 million on EQR's line of credit, which
includes $90 million on a pro forma basis, (iv) the March 1997 Common Share
Offerings, the June 1997 Common Share Offerings, the September 1997 Common Share
Offering, the October 1997 Common Share Offering, the December 1997 Common Share
Offerings, the January 1998 Common Share Offering, the February 1998 Common
Share Offerings, the March 1998 Common Share Offering and the April 1998 Common
Share Offering, and (v) the Fourth Public Debt Offering and the issuance of the
2015 Notes. All of these events have been presented as if they occurred on
January 1, 1997. The Unaudited Pro Forma Combined Statement of Operations gives
effect to the Merger under the purchase method of accounting in accordance with
Accounting Principles Board Opinion No. 16, and the combined entity qualifying
as a REIT, distributing at least 95% of its taxable income, and therefore,
incurring no federal income tax liability for the period presented. In the
opinion, of management, all significant adjustments necessary to reflect the
effects of these transactions have been made.
The Unaudited Pro Forma Combined Statement of Operations is presented for
comparative purposes only and is not necessarily indicative of what the actual
combined results of EQR and Merry Land would have been for the year ended
December 31, 1997, nor does it purport to be indicative of the results of
operations in future periods. The Unaudited Pro Forma Combined Statement of
Operations should be read in conjunction with, and is qualified in its entirety
by, the respective historical financial statements and notes thereto of EQR and
Merry Land incorporated by reference into this Joint Proxy
Statement/Prospectus/Information Statement and the financial statements included
in EQR's Form 8-K dated June 25,1998.
F-7
132
EQUITY RESIDENTIAL PROPERTIES TRUST
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
1998 ACQUIRED EQR PRO FORMA
EQR 1997 ACQUIRED AND PROBABLE PRE-MERGER MERRY LAND MERGER
HISTORICAL PROPERTIES(NN) PROPERTIES(YY) PRO FORMA HISTORICAL(AA) ADJUSTMENTS
---------- -------------- -------------- ---------- -------------- -----------
REVENUES
Rental income................ $707,733 $369,160(OO) $172,852(ZZ) $1,249,745 $208,871 $ (9,185)(III)
Fee and asset management..... 5,697 5,697
Interest income -- investment
in mortgage notes........... 20,366 (4,907)(AAA) 15,459 84 3,011(JJJ)
Interest and other income.... 13,525 (6,665)(PP) (6,666)(BBB) 194 9,006
-------- -------- -------- ----------- -------- ---------
Total revenues.............. 747,321 362,495 161,279 1,271,095 217,961 (6,174)
-------- -------- -------- ----------- -------- ---------
EXPENSES
Property and maintenance..... 176,075 98,733(QQ) 44,991(CCC) 319,799 52,847 (2,350)(KKK)
Real estate taxes and
insurance................... 69,520 27,091(RR) 18,652(DDD) 115,263 23,712 (793)(LLL)
Property management.......... 26,793 13,320(SS) 4,321(EEE) 44,434 3,176 (1,669)(MMM)
Fee and asset management..... 3,364 3,364
Depreciation................. 156,644 84,624(TT) 42,598(FFF) 283,866 42,876 20,188(NNN)
Interest:
Expense incurred............ 121,324 91,190(UU) 63,824(GGG) 276,338 25,900 3,061(OOO)
Amortization of deferred
financing costs........... 2,523 66(VV) 2,589 737 (737)(PPP)
General and administrative... 15,064 3,319(WW) 18,383 4,666 (3,287)(QQQ)
-------- -------- -------- ----------- -------- ---------
Total expenses............ 571,307 318,343 174,386 1,064,036 153,914 14,413
-------- -------- -------- ----------- -------- ---------
Income before gain on
disposition of properties
and allocation to Minority
Interests................... 176,014 44,152 (13,107) 207,059 64,047 (20,587)
Gain on disposition of
properties................ 13,838 13,838 1,456
-------- -------- -------- ----------- -------- ---------
Income before allocation to
Minority Interests.......... 189,852 44,152 (13,107) 220,897 65,503 (20,587)
(Income) allocated to
Minority Interests........ (13,260) 524 (12,736) 587(RRR)
-------- -------- -------- ----------- -------- ---------
Net income................... 176,592 44,152 (12,583) 208,161 65,503 (20,000)
Preferred distributions...... (59,012) (27,756)(XX) (86,768) (23,257) (7,625)(SSS)
-------- -------- -------- ----------- -------- ---------
Net income available to
common shares............... $117,580 $ 16,396 $(12,583) $ 121,393 $ 42,246 $ (27,625)
======== ======== ======== =========== ======== =========
Net income per weighted
average Common Shares
outstanding................. $ 1.79 $ 1.26
======== ===========
Net income per weighted
average Common Shares
outstanding -- assuming
dilution.................... $ 1.76 $ 1.25
======== ===========
Weighted average Common
Shares outstanding.......... 65,729 96,356(HHH) 21,872(TTT)
======== =========== =========
Weighted average Common
Shares outstanding --
assuming dilution........... 74,281 107,408(HHH) 22,738(TTT)
======== =========== =========
EQR
PRO FORMA
COMBINED
---------
REVENUES
Rental income................ $1,449,431
Fee and asset management..... 5,697
Interest income -- investment
in mortgage notes........... 18,554
Interest and other income.... 9,200
----------
Total revenues.............. 1,482,882
----------
EXPENSES
Property and maintenance..... 370,296
Real estate taxes and
insurance................... 138,182
Property management.......... 45,941
Fee and asset management..... 3,364
Depreciation................. 346,930
Interest:
Expense incurred............ 305,299
Amortization of deferred
financing costs........... 2,589
General and administrative... 19,762
----------
Total expenses............ 1,232,363
----------
Income before gain on
disposition of properties
and allocation to Minority
Interests................... 250,519
Gain on disposition of
properties................ 15,294
----------
Income before allocation to
Minority Interests.......... 265,813
(Income) allocated to
Minority Interests........ (12,149)
----------
Net income................... 253,664
Preferred distributions...... (117,650)
----------
Net income available to
common shares............... $ 136,014
==========
Net income per weighted
average Common Shares
outstanding................. $ 1.15
==========
Net income per weighted
average Common Shares
outstanding -- assuming
dilution.................... $ 1.14
==========
Weighted average Common
Shares outstanding.......... 118,228
==========
Weighted average Common
Shares outstanding --
assuming dilution........... 130,146
==========
F-8
133
EQUITY RESIDENTIAL PROPERTIES TRUST
NOTES TO UNAUDITED PRO FORMA COMBINED BALANCE SHEET
AS OF JUNE 30, 1998
(AMOUNTS IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
(A) Includes the most recent multifamily properties acquired in July 1998 and
probable properties anticipated to be acquired in 1998, as reported on Form
8-K dated June 25, 1998.
Lakes at Vinings, Martins Landing, Lexington Village, Alderwood Park,
Bellevue ▇▇▇▇▇▇▇, Bramblewood, Briarwood, Cedar Pointe, Chelsea Square,
Creekside, Grandview I&II, Greenhaven, Lincoln Green I&II, Lincoln Village
I&II, Mountain Shadows, North Creek, Olde ▇▇▇▇▇▇▇ Place, Parkside, Skylark,
Southwood, Summerwood, Surrey Downs, Timberwood, Turf Club, Willowick,
Woodlake, Woodleaf, Woodridge I, II, III, Broadway, Cedar Ridge, ▇▇▇▇▇▇▇
Crossing, Lakeshore at Preston, Lakewood Greens, Pleasant Ridge, River Park,
Sandstone, Villas at ▇▇▇▇▇ Ranch, Wimbledon Oaks, Overlook Manor I, Overlook
Manor II, Tilman Place and Willows, (collectively the "1998 Most Recent
Acquired and Probable Properties").
In connection with these transactions the amounts presented include the
initial purchase price of $645.7 million, the assumption of $180.5 million
of mortgage indebtedness, a draw on EQR's line of credit in the amount of
$90 million and the issuance of approximately 2.3 million OP Units with a
value of approximately $111 million.
(B) Certain reclassifications have been made to Merry Land's historical balance
sheet to conform to EQR's balance sheet presentation.
(C) Represents adjustments to record the Merger in accordance with the purchase
method of accounting, based upon the assumed purchase price of $2,206,994
assuming a market value of $46.36 per share for EQR's common shares, as
follows:
Issuance of 21,872 common shares of beneficial interest of
EQR, based on the .53 exchange rate, in exchange for
41,268 common shares of Merry Land........................ $1,013,991
Cost of 1,701 common shares of Merry Land acquired by EQR
prior to Merger........................................... 35,146
Issuance of EQR Series H Preferred Shares of Beneficial
Interest.................................................. 4,665
Issuance of EQR Series I Preferred Shares of Beneficial
Interest.................................................. 100,000
Issuance of EQR Series J Preferred Shares of Beneficial
Interest.................................................. 114,985
Issuance of EQR Series K Preferred Shares of Beneficial
Interest.................................................. 50,000
Issuance of EQR Series L Preferred Shares of Beneficial
Interest.................................................. 100,000
Assumption of Merry Land's minority interests, adjusted to
fair value................................................ 40,155
Assumption of Merry Land's liabilities, net of amount
assumed by MRYP Newco of $716............................. 687,463
Adjustment to increase the assumed Merry Land debt to its
fair value (see Note I)................................... 9,948
Merger costs (see calculation below)........................ 50,641
----------
$2,206,994
==========
F-9
134
EQUITY RESIDENTIAL PROPERTIES TRUST
NOTES TO UNAUDITED PRO FORMA COMBINED BALANCE SHEET -- (CONTINUED)
AS OF JUNE 30, 1998
(AMOUNTS IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
The following is a calculation of the estimated fees and other expenses
related to the Merger:
Employee termination costs.................................. $27,250
Buyout of stock options..................................... 5,408
Advisory fees............................................... 5,700
Legal and accounting fees................................... 2,700
Other, including printing, filing, transfer and spin-off
costs..................................................... 9,583
-------
Total....................................................... $50,641
=======
(D) Represents the estimated increase in Merry Land's rental property, net based
upon EQR's purchase price and the adjustments to eliminate the basis of
Merry Land's net assets acquired:
Purchase price (see note C)................................. $2,206,994
Less: Historical basis of Merry Land's net assets acquired
Rental property, net of spin-off to MRYP Newco of
$42,495..................................................... 1,558,574
Construction in progress.............................. 52,736
Other assets, net of spin-off of notes receivable to
MRYP Newco of $1,381........................................ 9,614
----------
Step-up to record fair value of Merry Land rental
property.................................................. 586,070
Spin-off of rental properties, net to MRYP Newco............ (42,495)
----------
$ 543,575
==========
(E) Increase in Investment in mortgage notes reflects the issuance of a
one-year term loan with an initial balance of $18.3 million and a $20
million fifteen year senior subordinated term loan to MRYP Newco.
(F) Increase to Cash and Cash Equivalents reflects the following:
EQR's expected issuance of a fifteen year senior
subordinated term loan to MRYP Newco (see Note E)......... $(20,000)
EQR's expected purchase of MRYP Newco Preferred Stock (see
Note H)................................................... (5,000)
EQR's expected issuance of a one-year term loan at LIBOR
plus 2.5% to MRYP Newco (see Note E)...................... (18,317)
The expected payment for Merger (see Note C) and
registration (see Note O) costs........................... (50,891)
EQR's expected draw on its line of credit................... 95,000
--------
$ 792
========
(G) Decrease due to the elimination of Merry Land's deferred loan costs in
connection with the Merger.
(H) Decrease in Other Assets reflects the following:
EQR's purchase of MRYP Newco Preferred Stock................ $ 5,000
Reclassification of EQR's historical cost basis in common
shares of Merry Land to real estate....................... (35,146)
----------
(30,146)
Spin-off of Merry Land notes to MRYP Newco.................. (1,381)
----------
$ (31,527)
==========
F-10
135
EQUITY RESIDENTIAL PROPERTIES TRUST
NOTES TO UNAUDITED PRO FORMA COMBINED BALANCE SHEET -- (CONTINUED)
AS OF JUNE 30, 1998
(AMOUNTS IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
(I) Increase in mortgage notes payable reflects a premium of $9,948 required to
adjust Merry Land debt to its estimated fair value.
Decrease in accounts payable, accrued expenses reflects the spinoff of
Merry Land liabilities to MRYP Newco of $716.
(J) MRYP Newco has agreed to manage the completion of several development
properties for EQR in exchange for an aggregate fee of $2.4 million payable
monthly on a prorata basis until each development is complete. EQR's total
commitment under the one-year term loan is $25,000.
(K) The pro forma allocation to the Minority Interests is based upon the
percentages owned by such Minority Interests as follows:
Total Shareholders' Equity and Minority Interests........... $ 5,876,277
Less: Preferred Shares...................................... (1,411,350)
-----------
4,464,927
Minority Interests percentage ownership in ERP Operating
Partnership............................................... 8.2%
-----------
Pro Forma Combined Minority Interests ownership in ERP
Operating Partnership..................................... 366,124
EQR pre-Merger historical Minority Interest ownership in ERP
Operating Partnership..................................... (361,627)
Merry Land historical Minority Interest..................... (18,769)
-----------
Adjustment to Minority Interests ownership in ERP Operating
Partnership............................................... $ (14,272)
===========
(L) Decrease results from elimination of Merry Land common shares at $1.00 par
value ($42,969) net of the issuance of EQR common shares at $.01 par value
$219.
(M) Elimination of $369,650 Merry Land Preferred Shares and the issuance of
$369,650 EQR Preferred Shares.
(N) Reflects the forgiveness of all Merry Land's employee notes as a result of
the Merger.
(O) Increase in paid in capital to reflect the following:
Issuance of 21,872 EQR common shares at $46.36 per share.... $1,013,991
Adjustment of Merry Land's Minority Interests to fair
value..................................................... 21,386
Par value of common shares issued........................... (219)
Registration costs incurred in connection with the Merger... (250)
Merry Land historical shareholders' equity.................. (611,068)
Adjustment to Minority Interests ownership in ERP Operating
Partnership (see Note K).................................. 14,272
----------
$ 438,112
==========
(P) Reflects the elimination of Merry Land's distribution in excess of
accumulated earnings to paid in capital, as a result of the Merger.
F-11
136
EQUITY RESIDENTIAL PROPERTIES TRUST
NOTES TO UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
(Q) Reflects the historical results of operations for the 1998 Most Recent
Acquired and Probable Properties (see note A) and for the following
properties acquired from January through June, 1998 (collectively, the
"1998 Acquired and Probable Properties").
Cityscape, ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, Park Place, Park Westend,
Emerald Bay at Winter Park, Farnham Park, Plantation, Balcones Club, Coach
Lantern, Foxcroft, Yarmouth ▇▇▇▇▇, Rolido Parque, The Trails of Valley
Ranch, Fairfield, Harbor Pointe, Sonterra at Foothill Ranch, Vista Pointe
at the Valley, ▇▇▇▇▇▇▇ Place at ▇▇▇▇▇▇▇ River Park, Sierra Canyon,
Northridge, The Arboretum, Townhomes of Meadowbrook, Woodridge Apartments,
Brookside, Greystone, Coconut Palm Club, Portside Towers, ▇▇▇▇▇▇ Village,
Plantation Ridge, Wynbrook, The Gates at ▇▇▇▇▇▇▇ Center, Glengarry Club,
Plum Tree I, II, and III, Ravinia, Woodlands, and Cross Creek.
(R) Reflects rental income for the 1998 Acquired and Probable Properties for
the periods indicated as follows:
Properties acquired during the first quarter of 1998 as
reported on Form 8-K dated June 25, 1998 for the period
from January 1, 1998 through the respective acquisition
date for each property.................................... $ 4,051
Properties acquired during the second quarter of 1998 as
reported on Form 8-K dated June 25, 1998 for the three
months ended March 31, 1998............................... 17,825
Properties acquired or expected to be acquired subsequent to
June 30, 1998 as reported on Form 8-K dated June 25, 1998
for the three months ended March 31, 1998................. 20,852
Properties acquired during the second quarter of 1998 as
reported on Form 8-K dated June 25, 1998 for the period
from April 1, 1998 through the respective acquisition date
for each property......................................... 7,340
Properties acquired or expected to be acquired subsequent to
June 30, 1998 as reported on Form 8-K dated June 25, 1998
for the three months ended June 30, 1998.................. 20,852
-------
$70,920
=======
(S) Reflects the reduction of interest income on investment in mortgage loans
collateralized by five of the 1998 Previously Acquired Properties to the
extent amounts are already included in EQR's historical financial results.
(T) Reflects the reduction of interest income due to the use of working
capital for the acquisition of the 1998 Most Recent Acquired and Probable
Properties for the periods indicated as follows:
For the three months ended March 31, 1998 as reported on
Form 8-K dated June 25, 1998.............................. $ 791
For the three months ended June 30, 1998 as reported on Form
8-K dated June 25, 1998................................... 4,419
------
$5,210
======
F-12
137
EQUITY RESIDENTIAL PROPERTIES TRUST
NOTES TO UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS -- (CONTINUED)
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
(U) Reflects property and maintenance expense, which includes the elimination
of third party management fees where EQR is providing onsite property
management services, for the 1998 Acquired and Probable Properties for the
periods indicated as follows:
Properties acquired during the first quarter of 1998 as
reported on Form 8-K dated June 25, 1998 for the period
from January 1, 1998 through the respective acquisition
date for each property.................................... $ 656
Properties acquired during the second quarter of 1998 as
reported on Form 8-K dated June 25, 1998 for the three
months ended March 31, 1998............................... 3,963
Properties acquired or expected to be acquired subsequent to
June 30, 1998 as reported on Form 8-K dated June 25, 1998
for the three months ended March 31, 1998................. 4,981
Properties acquired during the second quarter of 1998 as
reported on Form 8-K dated June 25, 1998 for the period
from April 1, 1998 through the respective acquisition date
for each property......................................... 1,671
Properties acquired or expected to be acquired subsequent to
June 30, 1998 as reported on Form 8-K dated June 25, 1998
for the three months ended June 30, 1998.................. 4,981
-------
$16,252
=======
(V) Reflects real estate taxes and insurance expense for the 1998 Acquired and
Probable Properties for the periods indicated as follows:
Properties acquired during the first quarter of 1998 as
reported on Form 8-K dated June 25, 1998 for the period
from January 1, 1998 through the respective acquisition
date for each property.................................... $ 350
Properties acquired during the second quarter of 1998 as
reported on Form 8-K dated June 25, 1998 for the three
months ended March 31, 1998............................... 2,299
Properties acquired or expected to be acquired subsequent to
June 30, 1998 as reported on Form 8-K dated June 25, 1998
for the three months ended March 31, 1998................. 1,834
Properties acquired during the second quarter of 1998 as
reported on Form 8-K dated June 25, 1998 for the period
from April 1, 1998 through the respective acquisition date
for each property......................................... 1,003
Properties acquired or expected to be acquired subsequent to
June 30, 1998 as reported on Form 8-K dated June 25, 1998
for the three months ended June 30, 1998.................. 1,834
------
$7,320
======
F-13
138
EQUITY RESIDENTIAL PROPERTIES TRUST
NOTES TO UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS -- (CONTINUED)
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
(W) Reflects incremental cost associated with self management of the 1998
Acquired and Probable Properties for the periods indicated as follows:
Properties acquired during the first quarter of 1998 as
reported on Form 8-K dated June 25, 1998 for the period
from January 1, 1998 through the respective acquisition
date for each property.................................... $ 47
Properties acquired during the second quarter of 1998 as
reported on Form 8-K dated June 25, 1998 for the three
months ended March 31, 1998............................... 446
Properties acquired or expected to be acquired subsequent to
June 30, 1998 as reported on Form 8-K dated June 25, 1998
for the three months ended March 31, 1998................. 521
Properties acquired during the second quarter of 1998 as
reported on Form 8-K dated June 25, 1998 for the period
from April 1, 1998 through the respective acquisition date
for each property......................................... (24)
Properties acquired or expected to be acquired subsequent to
June 30, 1998 as reported on Form 8-K dated June 25, 1998
for the three months ended
June 30, 1998............................................. 497
------
$1,487
======
(X) Reflects depreciation based on total investment of $1.4 billion for the
1998 Acquired and Probable Properties less amounts allocated to land,
generally 10%, and depreciated over a 30-year life for real property for
the periods indicated as follows:
Properties acquired during the first quarter of 1998 as
reported on Form 8-K dated June 25, 1998 for the period
from January 1, 1998 through the respective acquisition
date for each property.................................... $ 773
Properties acquired and notes issued during the second
quarter of 1998 as reported on Form 8-K dated June 25,
1998 for the three months ended March 31, 1998............ 4,150
Properties acquired or expected to be acquired subsequent to
June 30, 1998 as reported on Form 8-K dated June 25, 1998
for the three months ended March 31, 1998................. 4,860
Properties acquired and notes issued during the second
quarter of 1998 as reported on Form 8-K dated June 25,
1998 for the period from April 1, 1998 through the
respective acquisition date for each property............. 2,507
Properties acquired or expected to be acquired subsequent to
June 30, 1998 as reported on Form 8-K dated June 25, 1998
for the three months ended June 30, 1998.................. 4,860
-------
$17,150
=======
(Y) Reflects Interest Expense on the following:
Mortgage indebtedness totaling $412.6 million assumed in
connection with the acquisition of the 1998 Acquired and
Probable Properties....................................... $10,737
$300 million associated with the issuance of the 2015
Notes..................................................... 5,558
$265 million draw on the line of credit, which includes $90
million on a pro forma basis, at a LIBOR rate of 5.71875%
plus 45 basis points plus $300,000 in fees................ 8,474
-------
$24,769
=======
F-14
139
EQUITY RESIDENTIAL PROPERTIES TRUST
NOTES TO UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS -- (CONTINUED)
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
(Z) Reflects the increase in pro forma Common Shares outstanding resulting
from the January 1998 Common Share Offering, February 1998 Common Share
Offerings, March 1998 Common Share Offering and April 1998 Common Share
Offering as if they had occurred on January 1, 1998.
(AA) Certain reclassifications have been made to Merry Land Historical Statement
of Operations to conform to EQR's Statement of Operations presentation.
(BB) Decrease results from the loss of rental income related to the spin-off of
$42,495 of rental property to MRYP Newco.
(CC) Increase results from $1,547 in interest income on the $18,317 one-year
term loan at LIBOR plus 2.5% and on the $20,000 fifteen year senior
subordinated term loan initially at 8%, net of the loss of interest income
of $(56) related to the spin-off of the $1,381 mortgage notes receivable to
MRYP Newco.
(DD) Decrease results from the reduction of property and maintenance related to
the spin-off of $42,495 of rental property to MRYP Newco.
(EE) Decrease results from the reduction of property taxes and insurance related
to the spin-off of $42,495 of rental property to MRYP Newco
(FF) Decrease results from salary, benefits and rent costs anticipated to be
eliminated or reduced.
(GG) Represents the net increase in depreciation of real estate owned as a
result of recording the Merry Land real estate assets at fair value versus
historical cost. Depreciation is computed on a straight-line basis over the
estimated useful lives of the related assets which have a useful life of
approximately 30 years.
The calculation of the fair value of depreciable real estate assets at June
30, 1998 is as follows:
Historical basis of Merry Land's rental property, net of
$42,495 of amount spun off to MRYP Newco.................. $1,558,574
Plus: Step up to Merry Land's rental property, net (see Note
D)........................................................ 543,575
----------
Pro forma basis of Merry Land's rental property at fair
value..................................................... 2,102,149
Less: Fair value allocated to land.......................... (210,215)
----------
Pro forma basis of Merry Land's depreciable rental property
at fair value............................................. $1,891,934
==========
Calculation of depreciation of rental property for the six months ended
June 30, 1998 is as follows:
Depreciation expense based upon an estimated useful life of
approximately 30 years.................................... $31,532
Less: historical Merry Land depreciation of rental
property.................................................. (26,543)
-------
Pro forma adjustment........................................ $ 4,989
=======
(HH) Increase in interest expense reflects the following:
Amortization of the premium required to record Merry Land's
debt at its estimated fair value.......................... $(1,080)
Interest expense on the $95 million draw on the line of
credit at a LIBOR rate of 5.71875% plus 45 basis points
plus $50,000 in fees...................................... 2,980
-------
$ 1,900
=======
F-15
140
EQUITY RESIDENTIAL PROPERTIES TRUST
NOTES TO UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS -- (CONTINUED)
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
(II) Decrease results from the elimination of amortization of Merry Land's
deferred financing costs, which costs would be eliminated in connection
with the Merger.
(JJ) Decrease in public company costs anticipated to be eliminated or reduced.
(KK) A portion of income was allocated to Minority Interests representing
interests in ERP Operating Partnership not owned by EQR. The pro forma
allocation to Minority Interests (represented by OP Units) is based upon
the percentage estimated to be owned by such Minority Interests as a result
of the pro forma transactions.
(LL) Reflects the allocation of net income based on the distributions payable to
Series L Preferred Shares at the rate of 7.625% for the period from January
1, 1998 through date of issuance.
(MM) Increase of Weighted Average Common Shares Outstanding based on the
conversion of Merry Land common shares to EQR common shares at a conversion
ratio of .53 EQR shares per Merry Land share.
F-16
141
EQUITY RESIDENTIAL PROPERTIES TRUST
NOTES TO UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
(NN) Reflects the results of operations for the properties acquired in the
mergers between EQR and Wellsford and EQR and EWR and for the properties
acquired during 1997 (collectively, the "1997 Acquired Properties") as
disclosed in EQR's Annual Report on Form 10-K for the year ended
December 31, 1997.
(OO) Reflects rental income for the 1997 Acquired Properties for the period
from January 1, 1997 through the respective acquisition date for each
property.
(PP) Reflects the reduction of interest income due to the use of working
capital for property acquisitions.
(QQ) Reflects property and maintenance expense, which includes the
elimination of third party management fees where EQR is providing onsite
property management services, for the 1997 Acquired Properties for the
period from January 1, 1997 through the respective acquisition date for
each property.
(RR) Reflects real estate tax and insurance expense for the 1997 Acquired
Properties for the period from January 1, 1997 through the respective
acquisition date for each property.
(SS) Reflects incremental cost associated with self management of the 1997
Acquired Properties for the period from January 1, 1997 through the
respective acquisition date for each property.
(TT) Reflects depreciation based on total investment of $4.1 billion for the
1997 Acquired Properties less amounts allocated to land, generally 10%,
and depreciated over a 30-year life for real property for the period
from January 1, 1997 through the respective acquisition date for each
property.
(UU) Reflects interest expense on mortgage indebtedness totaling $931 million
assumed in connection with the 1997 Acquired Properties at various
interest rates, $384 million in unsecured notes assumed in connection
with the Wellsford and EWR mergers at various interest rates, a $120
million draw on the line of credit for acquisitions at a rate of LIBOR
plus 45 basis points and $150 million associated with the Fourth Public
Debt Offering at a rate of 7.125% per annum for the period from January
1, 1997 through the respective date of acquisition or issuance.
(VV) Reflects amortization of financing costs associated with the Fourth
Public Debt Offering in the amount of $1.3 million over 20 years.
(WW) Reflects historical G&A costs for Wellsford and EWR for the period from
January 1, 1997 through the respective merger date.
(XX) Reflects the allocation of net income based on the distributions payable
to Series D Preferred Shares, Series E Preferred Shares, Series F
Preferred Shares and Series G Preferred Shares at the rates of 8.60%,
7.00%, 9.65% and 7.25%, respectively, for the period from January 1,
1997 through their respective date of issuance.
(YY) Reflects the historical results of operations for the 1998 Most Recent
Acquired and Probable Properties (see Note A) and for the following
properties acquired from January through June, 1998 (collectively, the
"1998 Acquired and Probable Properties"):
Cityscape, ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, Park Place, Park Westend,
Emerald Bay at Winter Park, Farnham Park, Plantation, Balcones Club,
Coach Lantern, Foxcroft, Yarmouth ▇▇▇▇▇, Rolido Parque, The Trails of
Valley Ranch, Fairfield, Harbor Pointe, Sonterra at Foothill Ranch,
Vista Pointe at the Valley, ▇▇▇▇▇▇▇ Place at ▇▇▇▇▇▇▇ River Park, Sierra
Canyon, Northridge, The Arboretum, Townhomes of Meadowbrook, Woodridge
Apartments, Brookside, Greystone, Coconut
F-17
142
EQUITY RESIDENTIAL PROPERTIES TRUST
NOTES TO UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS -- (CONTINUED)
Palm Club, Portside Towers, ▇▇▇▇▇▇ Village, Plantation Ridge, Wynbrook, The
Gates at ▇▇▇▇▇▇▇ Center, Glengarry Club, Plum Tree I, II, and III, Ravinia,
Woodlands, and Cross Creek.
(ZZ) Reflects rental income for the 1998 Acquired and Probable Properties as
reported on Form 8-K dated June 25, 1998.
(AAA) Reflects the reduction of interest income on investment in mortgage
loans collateralized by five of the 1998 Previously Acquired Properties
to the extent amounts are already included in EQR's historical financial
results as reported on Form 8-K dated June 25, 1998.
(BBB) Reflects the reduction of interest income due to the use of working
capital for the acquisition of the 1998 Most Recent Acquired and
Probable Properties as reported on Form 8-K dated June 25, 1998.
(CCC) Reflects property and maintenance expense, which includes the
elimination of third party management fees where EQR is providing onsite
property management services, for the 1998 Acquired and Probable
Properties for the year ended December 31, 1997 as reported on Form 8-K
dated June 25, 1998.
(DDD) Reflects real estate tax and insurance expense for the 1998 Acquired and
Probable Properties for the year ended December 31, 1997 as reported on
Form 8-K dated June 25, 1998.
(EEE) Reflects incremental cost associated with self management of the 1998
Acquired and Probable Properties for the year ended December 31, 1997 as
reported on Form 8-K dated June 25, 1998.
(FFF) Reflects depreciation based on total investment of $1.4 billion for the
1998 Acquired and Probable Properties less amounts allocated to land,
generally 10%, and depreciated over a 30-year life for real property
for the year ended December 31, 1997 as reported on Form 8-K dated June
25, 1998.
(GGG) Reflects interest expense on mortgage indebtedness totaling $412.6
million assumed in connection with the acquisition of the 1998 Acquired
and Probable Properties, $300 million associated with the issuance of the
2015 Notes and a $265 million draw on the line of credit, which includes
$90 million on a pro forma basis, at a LIBOR rate of 5.71875% plus 45
basis points plus $250,000 in fees for the year ended December 31, 1997
as reported on Form 8-K dated June 25, 1998.
(HHH) Reflects the increase in pro forma Common Shares outstanding resulting
from the March 1997 Common Share Offerings, June 1997 Common Share
Offerings, September 1997 Common Share Offering, October 1997 Common
Share Offering, December 1997 Common Share Offerings and the Wellsford
and EWR mergers in connection with properties acquired in 1997 as if they
had occurred on January 1, 1997.
(III) Decrease results from the loss of rental income related to the
spin-off of $42,495 of rental property to MRYP Newco.
(JJJ) Increase results from $3,094 in interest income on the $18,317
one-year term loan at LIBOR plus 2.5% and on the $20,000 fifteen year
senior subordinated term loan initially at 8%, net of the loss of
interest income of $(83) related to the spin-off of the $1,381
mortgage notes receivable to MRYP Newco.
(KKK) Decrease results from the reduction of property and maintenance related
to the spin-off of $42,495 of rental property to MRYP Newco.
(LLL) Decrease results from the reduction of property taxes and insurance
related to the spin-off of $42,495 of rental property to MRYP Newco.
(MMM) Decrease in salary, benefits and rent costs anticipated to be eliminated
or reduced.
F-18
143
EQUITY RESIDENTIAL PROPERTIES TRUST
NOTES TO UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS -- (CONTINUED)
(NNN) Represents the net increase in depreciation of real estate owned as a
result of recording the Merry Land real estate assets at fair value
versus historical cost. Depreciation is computed on a straight-line basis
over the estimated useful lives of the related assets which have a useful
life of approximately 30 years.
The calculation of the fair value of depreciable real estate assets at
December 31, 1997 is as follows:
Historical basis of Merry Land's rental property, net of
$42,495 of amount spun off to MRYP Newco.................. $1,558,574
Plus: Step up to Merry Land's rental property, net (see Note
D)........................................................ 543,575
----------
Pro forma basis of Merry Land's rental property at fair
value..................................................... 2,102,149
Less: Fair value allocated to land.......................... (210,215)
----------
Pro forma basis of Merry Land's depreciable rental property
at fair value............................................. $1,891,934
==========
Calculation of depreciation of rental property at December 31, 1997 is
as follows:
Depreciation expense based upon an estimated useful life of
approximately 30 years.................................... $ 63,064
Less: historical Merry Land depreciation of rental
property.................................................. (42,876)
--------
Pro forma adjustment........................................ $ 20,188
========
(OOO) Increase in interest expense reflects the following:
Amortization of the premium required to record Merry Land's
debt at its estimated fair value.......................... $(2,899)
Interest expense on the $95 million draw on the line of
credit at a LIBOR rate of 5.71875% plus 45 basis points
plus $100,000 in fees..................................... 5,960
-------
$ 3,061
=======
(PPP) Decrease results from the elimination of amortization of Merry Land's
deferred financing costs, which costs would be eliminated in connection
with the Merger.
(QQQ) Decrease in public company costs anticipated to be eliminated or reduced.
(RRR) A portion of income was allocated to Minority Interests representing
interests in ERP Operating Partnership not owned by EQR. The pro forma
allocation to Minority Interests (represented by OP Units) is based upon
the percentage estimated to be owned by such Minority Interests as a
result of the pro forma transactions.
(SSS) Reflects the allocation of net income based on the distributions
payable to Series L Preferred Shares at the rate of 7.625% for the
period from January 1, 1997 through December 31, 1997.
(TTT) Decrease of Weighted Average Common Shares Outstanding based on the
conversion of Merry Land common shares to EQR common shares at a
conversion ratio of .53 EQR shares per Merry Land share and a par value
of $1.
F-19
144
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Merry Land & Investment Company, Inc.:
We have audited the accompanying combined balance sheets of Merry Land
Properties, Inc. (Predecessor) as of December 31, 1997 and 1996 and the related
combined statements of income and equity and cash flows for each of the three
years in the period ended December 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As described in Note 1, the combined financial statements referred to above
have been prepared in accordance with the applicable rules and regulations of
the Securities and Exchange Commission for the preparation of financial
statements of subsidiaries to be spun off. Accordingly, costs of corporate level
general and administrative expenses incurred by Merry Land & Investment Company,
Inc. have not been allocated to the Company.
In our opinion, except for the matter discussed in the preceding paragraph,
the combined financial statements referred to above present fairly, in all
material respects, the financial position of Merry Land Properties, Inc.
(Predecessor) as of December 31, 1997 and 1996, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ LLP
Atlanta, Georgia
August 3, 1998
F-20
145
MERRY LAND PROPERTIES, INC. (PREDECESSOR)
COMBINED BALANCE SHEETS
DECEMBER 31,
------------------------- JUNE 30,
1997 1996 1998
---- ---- --------
(UNAUDITED)
ASSETS
Real estate assets, at cost:
Land held for development and sale.................. $ 6,391,361 $ 5,306,150 $ 6,560,889
Apartments.......................................... 40,377,348 39,626,664 40,548,606
Commercial rental property.......................... 5,220,096 5,044,679 5,422,617
Furniture and equipment............................. 1,684,030 1,149,155 1,821,121
----------- ----------- -----------
Total cost....................................... 53,672,835 51,126,648 54,353,233
Accumulated depreciation and depletion.............. 11,076,536 9,568,815 11,857,776
----------- ----------- -----------
42,596,299 41,557,833 42,495,457
Cash and cash equivalents............................. -- -- --
Notes receivable...................................... 1,411,727 726,311 1,381,259
----------- ----------- -----------
TOTAL ASSETS..................................... $44,008,026 $42,284,144 $43,876,716
=========== =========== ===========
LIABILITIES AND EQUITY
LIABILITIES
Accrued liabilities................................... $ 628,766 $ 336,685 $ 716,059
----------- ----------- -----------
Total liabilities................................ 628,766 336,685 716,059
EQUITY................................................ 43,379,260 41,947,459 43,160,657
----------- ----------- -----------
TOTAL LIABILITIES AND EQUITY.......................... $44,008,026 $42,284,144 $43,876,716
=========== =========== ===========
The accompanying notes are an integral part of these combined balance sheets.
F-21
146
MERRY LAND PROPERTIES, INC. (PREDECESSOR)
COMBINED STATEMENTS OF INCOME AND EQUITY
YEARS ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
--------------------------------------- -------------------------
1997 1996 1995 1998 1997
---- ---- ---- ---- ----
(UNAUDITED)
REVENUE
Rental income................. $ 7,783,973 $ 7,531,614 $ 7,260,007 $ 4,006,277 $ 3,862,302
Royalty income................ 1,401,363 368,644 435,768 860,581 554,367
Mortgage interest............. 83,816 70,257 71,990 56,073 45,895
----------- ----------- ----------- ----------- -----------
Total revenue............ $ 9,269,152 $ 7,970,515 $ 7,767,765 $ 4,922,931 $ 4,462,564
----------- ----------- ----------- ----------- -----------
EXPENSES
Rental expense................ $ 2,349,869 $ 2,223,255 $ 2,170,725 $ 1,182,932 $ 1,107,550
Property taxes................ 699,677 695,628 687,121 349,839 349,839
Insurance..................... 93,235 101,898 81,919 46,705 46,617
Depreciation.................. 1,507,721 1,356,831 1,274,487 781,240 717,408
----------- ----------- ----------- ----------- -----------
Total expenses........... 4,650,502 4,377,612 4,214,252 2,360,716 2,221,414
----------- ----------- ----------- ----------- -----------
NET INCOME.................... $ 4,618,650 $ 3,592,903 $ 3,553,513 $ 2,562,215 $ 2,241,150
----------- ----------- ----------- ----------- -----------
EQUITY, BEGINNING OF PERIOD... $41,947,459 $42,864,836 $42,336,657 $43,379,260 $41,947,459
Net distributions to Merry
Land & Investment Company,
Inc......................... (3,186,849) (4,510,280) (3,025,334) (2,780,818) (1,604,879)
----------- ----------- ----------- ----------- -----------
EQUITY, END OF PERIOD......... $43,379,260 $41,947,459 $42,864,836 $43,160,657 $42,583,730
=========== =========== =========== =========== ===========
The accompanying notes are an integral part of these combined statements.
F-22
147
MERRY LAND PROPERTIES, INC. (PREDECESSOR)
COMBINED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
--------------------------------------- -------------------------
1997 1996 1995 1998 1997
---- ---- ---- ---- ----
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................... $ 4,618,650 $ 3,592,903 $ 3,553,513 $ 2,562,215 $ 2,241,150
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation Expense................... 1,507,721 1,356,831 1,274,486 781,240 717,408
Increase (decrease) in taxes payable... 1,385 12,653 (7,929) (122,313) (120,929)
Increase in deferred credits........... 330,696 -- -- 220,464 110,232
Decrease in security deposits.......... (40,000) (70,010) -- (10,858) (20,000)
----------- ----------- ----------- ----------- -----------
Net cash provided by operating
activities......................... 6,418,452 4,892,377 4,820,070 3,430,748 2,927,862
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments received on notes receivable.... (685,416) 25,050 31,103 30,468 16,885
Investment in real estate assets......... (2,546,187) (407,147) (1,825,839) (680,398) (1,339,868)
----------- ----------- ----------- ----------- -----------
Net cash used in investing
activities......................... (3,231,603) (382,097) (1,794,736) (649,930) (1,322,983)
CASH FLOWS FROM FINANCING ACTIVITIES:
Contributions from Merry Land &
Investment Company, Inc................ 2,546,187 407,147 1,825,839 680,398 1,339,868
Distributions to Merry Land & Investment
Company, Inc........................... (5,733,036) (4,917,427) (4,851,173) (3,461,216) (2,944,747)
----------- ----------- ----------- ----------- -----------
Net cash used in financing
activities...................... (3,186,849) (4,510,280) (3,025,334) (2,780,818) (1,604,879)
NET INCREASE (DECREASE) IN CASH.......... -- -- -- -- --
CASH AT BEGINNING OF PERIOD.............. $ -- $ -- $ -- $ -- $ --
----------- ----------- ----------- ----------- -----------
CASH AT END OF PERIOD.................... $ -- $ -- $ -- $ -- $ --
=========== =========== =========== =========== ===========
The accompanying notes are an integral part of these combined statements.
F-23
148
MERRY LAND PROPERTIES, INC. (PREDECESSOR)
NOTES TO COMBINED FINANCIAL STATEMENTS
(1) ORGANIZATION AND BASIS OF PRESENTATION
On July 8, 1998 Merry Land & Investment Company, Inc. ("Merry Land")
announced its intention to merge with Equity Residential Properties Trust
("EQR"). Immediately prior to the merger, Merry Land intends to contribute
certain of its assets to Merry Land Properties, Inc. ("MRYP Newco"), a C
corporation, that will be formed during November, 1998 and have MRYP Newco
assume certain liabilities of Merry Land. Immediately after the contribution of
assets to MRYP Newco and immediately before the merger, Merry Land intends to
distribute to its common shareholders all the outstanding shares of MRYP Newco
owned by Merry Land. The common shareholders of Merry Land will receive one
common share of MRYP Newco for each twenty common shares of Merry Land owned.
The accompanying combined financial statements of the predecessor to MRYP
Newco (the "Company") include the assets and liabilities to be contributed and
assumed by MRYP Newco from the time the assets and liabilities were acquired or
incurred, respectively, by Merry Land. Such financial statements have been
prepared using the historical basis of the assets and liabilities and historical
results of operations related to the Company's assets.
The accompanying combined financial statements have been prepared on the
accrual basis of accounting. The statements have been prepared in accordance
with the applicable rules and regulations of the Securities and Exchange
Commission for the preparation of financial statements of subsidiaries to be
spun off. Accordingly, costs of corporate level general and administrative
expenses incurred by Merry Land have not been allocated to the Company.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Recognition of Income
The Company leases its apartment properties generally for terms of one year
or less. Rental income is recognized when earned.
Depreciation and Amortization
Depreciation of buildings and equipment is computed on the straight-line
method for financial reporting purposes using the following estimated useful
lives:
Apartments.............................................. 40-50 years
Land improvements....................................... 50 years
Commercial rental buildings............................. 40-50 years
Furniture, fixtures, equipment and carpet............... 5-15 years
Operating equipment..................................... 3-15 years
Betterments, renewals and extraordinary repairs that extend the lives of
assets are capitalized; other repairs and maintenance are expensed. The Company
has adopted Statement of Financial Accounting Standards ("SFAS") No. 121. The
adoption had no effect on the financial statements.
Use of Estimates
The preparation of these financial statements required the use of certain
estimates by management in determining the Company's assets, liabilities,
revenues and expenses. Actual results may differ from the estimates.
F-24
149
MERRY LAND PROPERTIES, INC. (PREDECESSOR)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Cash and Cash Equivalents
For purposes of the statements of cash flows, all investments purchased
with an original maturity of three months or less are considered cash
equivalents.
Income Taxes
▇▇▇▇▇ ▇▇▇▇ has elected to be taxed as a Real Estate Investment Trust
("REIT"). As a REIT, Merry Land does not pay income taxes on distributed income.
Accordingly, the financial statements of the Company, reflect no provision for
income taxes.
(3) COMMITMENTS AND CONTINGENCIES
MRYP ▇▇▇▇▇ will adopt and assume ▇▇▇▇▇ ▇▇▇▇'s ESOP plan. Employer
contributions will be made based on a discretionary amount determined by MRYP
Newco management. Employer contributions, if any, will be based upon base
salaries.
Concurrent with the formation of MRYP Newco, the 1998 Management Incentive
Plan was adopted. Under the plan, 268,818 shares of restricted Common Stock have
been issued. Also under the plan, 231,182 additional Common Shares have been
reserved for issuance in the form of options, stock appreciation rights, or
additional restricted shares.
F-25
150
MERRY LAND PROPERTIES, INC. (PREDECESSOR)
PRO FORMA COMBINED FINANCIAL STATEMENTS
BASIS OF PRESENTATION
(UNAUDITED)
This unaudited Pro Forma Combined Financial Statements for Merry Land
Properties, Inc. (Predecessor) (the "Company") have been prepared as if the
Merger, Contribution and Distribution had been consummated as of the balance
sheet date in the case of balance sheet information, and as of the first day of
the periods presented for income statement information. All of the assets and
liabilities of the Company which are being transferred to the Company in
connection with the Merger, Contribution and Distribution are recorded at their
respective historical costs. In the opinion of the Company's management, all
adjustments necessary to reflect the effects of these transactions have been
made.
The unaudited Pro Forma Combined Financial Statements are presented for
comparative purposes only, and are not necessarily indicative of what the actual
financial position or results of operation of the Company would have been; nor
does it purport to represent the future financial position or results of
operation of the Company. These unaudited Pro Forma Combined Financial
Statements should be read in conjunction with, and are qualified in their
entirety by, the respective financial statements and notes thereto of Merry Land
& Investment Company, Inc. and the Company, incorporated by reference into, and
included in, this Joint Proxy Statement/Prospectus/Information Statement,
respectively.
F-26
151
MERRY LAND PROPERTIES INC. (PREDECESSOR)
PRO FORMA COMBINED BALANCE SHEET
JUNE 30, 1998
(UNAUDITED)
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
ASSETS
Real estate assets, at cost:
Land held for development and sale.............. $ 6,560,889 $ -- $ 6,560,889
Apartments...................................... 40,548,606 -- 40,548,606
Commercial rental property...................... 5,422,617 -- 5,422,617
Furniture and equipment......................... 1,821,121 -- 1,821,121
----------- ----------- -----------
Total cost................................. 54,353,233 -- 54,353,233
Accumulated depreciation and depletion.......... 11,857,776 -- 11,857,776
----------- ----------- -----------
42,495,457 -- 42,495,457
Cash and cash equivalents......................... -- -- --
Notes receivable.................................. 1,381,259 -- 1,381,259
Deferred tax asset................................ -- 7,776,639(A) 7,776,639
----------- ----------- -----------
TOTAL ASSETS............................... $43,876,716 $ 7,776,639 $51,653,355
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Accrued liabilities............................... $ 716,059 $ -- $ 716,059
Term loan......................................... -- 18,317,429(B) 18,317,429
Subordinated debt................................. -- 20,000,000(C) 20,000,000
----------- ----------- -----------
Total liabilities.......................... 716,059 38,317,429 39,033,488
Preferred stock................................... -- 5,000,000(D) 5,000,000
STOCKHOLDERS' EQUITY
Equity............................................ 43,160,657 (43,160,657) --
Common Stock, no par value per share, 2,363,515
shares issued and outstanding................... -- --(E)(F) --
Paid in capital................................... -- 9,619,869(E)(F) 10,119,879
Unamortized compensation element of restricted
stock........................................... -- (2,000,002)(F) (2,500,003)
----------- ----------- -----------
Total stockholders' equity................. 43,160,657 (35,540,790) 7,619,867
----------- ----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY.................................. $43,876,716 $ 7,776,639 $51,653,355
=========== =========== ===========
The accompanying notes are an integral part of this pro forma combined balance
sheet.
F-27
152
MERRY LAND PROPERTIES, INC. (PREDECESSOR)
NOTES TO PRO FORMA COMBINED BALANCE SHEET
JUNE 30, 1998
(UNAUDITED)
(A) Represents deferred income tax adjustment resulting from the difference
between the tax basis and book value of the contributed real estate assets.
(B) Represents $18.3 million term loan from Equity Residential Properties
Operating Partnership ("ERP") in connection with the Merger, Contribution
and Distribution bearing interest at LIBOR plus 2.5% per annum.
(C) Represents $20.0 million subordinated debt from ERP in connection with the
Merger, Contribution and Distribution bearing interest initially at 8% per
annum.
(D) Represents the $5.0 million in preferred stock to be issued in connection
with the Merger, Contribution and Distribution bearing an initial dividend
yield of 8% per annum.
(E) Represents the 2,150,844 shares of the Company issued in connection with
the Distribution (one share for every twenty shares of Merry Land common
stock).
(F) Represents the issuance of 268,818 shares of restricted stock pursuant to
the 1998 Management Incentive Plan at an assumed issuance price of $9.30
per share.
F-28
153
MERRY LAND PROPERTIES, INC. (PREDECESSOR)
PRO FORMA COMBINED INCOME STATEMENT
YEAR ENDED DECEMBER 31, 1997
(UNAUDITED)
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
REVENUE
Rental income................................... $7,783,973 $ -- $ 7,783,973
Royalty income.................................. 1,401,363 -- 1,401,363
Development fees................................ -- 364,980(A) 364,980
Transition fee.................................. -- 2,400,000(B) 2,400,000
Property management fees........................ -- 268,431(C) 268,431
Mortgage interest............................... 83,816 -- 83,816
---------- ----------- -----------
Total revenue.............................. $9,269,152 $ 3,033,411 $12,302,563
---------- ----------- -----------
EXPENSES
Rental expense.................................. $2,349,869 $ -- $ 2,349,869
General & administrative........................ -- 1,827,000(D) 1,827,000
Interest expense................................ -- 3,494,372(E) 3,494,372
Property taxes.................................. 699,677 -- 699,677
Insurance....................................... 93,235 -- 93,235
Depreciation.................................... 1,507,721 -- 1,507,721
---------- ----------- -----------
Total expenses............................. $4,650,502 $ 5,321,372 $ 9,971,874
---------- ----------- -----------
NET INCOME BEFORE TAXES......................... $4,618,650 $(2,287,961) $ 2,330,689
===========
Provision for income taxes...................... -- 1,037,662(F)
-----------
NET INCOME...................................... 4,618,650 1,293,027
==========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING...... 1,936,475(G)
===========
NET INCOME PER SHARE -- BASIC AND DILUTED....... $ 0.67
===========
The accompanying notes are an integral part of this pro forma combined
statement.
F-29
154
MERRY LAND PROPERTIES, INC. (PREDECESSOR)
PRO FORMA COMBINED INCOME STATEMENT
SIX MONTHS ENDED JUNE 30, 1998
(UNAUDITED)
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
REVENUE
Rental income........................................ $4,006,277 $ -- $4,006,277
Royalty income....................................... 860,581 -- 860,581
Development fees..................................... -- 532,242(A) 532,242
Transition fee....................................... -- 2,400,000(B) 2,400,000
Property management fees............................. -- 184,965(C) 184,965
Mortgage interest.................................... 56,073 -- 56,073
---------- ---------- ----------
Total revenue................................... $4,922,931 $3,117,207 $8,040,138
---------- ---------- ----------
EXPENSES
Rental expense....................................... $1,182,932 $ -- $1,182,932
General & administrative............................. -- 913,500(D) 913,500
Interest expense..................................... -- 1,747,127(E) 1,747,127
Property taxes....................................... 349,839 -- 349,839
Insurance............................................ 46,705 -- 46,705
Depreciation......................................... 781,240 -- 781,240
---------- ---------- ----------
Total expenses.................................. $2,360,716 $2,660,627 $5,021,343
---------- ---------- ----------
NET INCOME BEFORE TAXES.............................. $2,562,215 $ 456,580 $3,018,795
==========
Provision for income taxes........................... -- 1,223,142(F)
----------
NET INCOME........................................... 2,562,215 1,795,653
========== ==========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING........... 2,080,537(G)
==========
NET INCOME PER SHARE -- BASIC AND DILUTED............ $ 0.86
==========
The accompanying notes are an integral part of this pro forma combined
statement.
F-30
155
MERRY LAND PROPERTIES, INC. (PREDECESSOR)
NOTES TO PRO FORMA COMBINED INCOME STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1997 AND
THE SIX MONTHS ENDED JUNE 30, 1998
(UNAUDITED)
(A) Represents development fee income for the periods presented for management
services provided for the five properties under development that are being
acquired by Equity Residential Properties Operating Partnership ("ERP"). The
fee is based on 3% of the total development cost incurred during the
periods.
(B) Represents a one-time fee to be paid by ERP in exchange for the Company's
assistance in the transition of the operations for a period estimated to be
6 months following the Merger in the areas of personnel, capital projects
and other matters.
(C) Represents property management fee income on the six properties for the
periods presented that will be managed by the Company and held by a joint
venture. Also includes the property management fee income for any of the
five properties under development which had apartment units placed in
service during that period. The fee is based on 4% of gross revenues from
the properties.
(D) Represents the estimated general and administrative costs of the Company for
the period presented.
(E) Represents interest expense on the $18.3 million term debt from ERP, at
LIBOR plus 2.5% (8.1582%), interest expense on the $20 million subordinated
debt from ERP, initially at 8.0%, and the initial 8% dividend on the $5
million in preferred stock, to be issued in connection with the Merger,
Contribution, and Distribution.
.
(F) Represents the provision for federal and state income taxes at a combined
rate of 38%.
(G) Represents the weighted average shares of the Company to be issued in
connection with the Distribution.
F-31
156
APPENDIX A
AGREEMENT AND PLAN OF MERGER
BETWEEN
EQUITY RESIDENTIAL PROPERTIES TRUST
AND
MERRY LAND & INVESTMENT COMPANY, INC.
DATED AS OF JULY 8, 1998
157
TABLE OF CONTENTS
PAGE
----
ARTICLE 1 THE MERGER....................................... A-1
1.1 The Merger.......................................... A-1
1.2 Spinco Transactions................................. A-1
1.3 Closing............................................. A-2
1.4 Effective Time...................................... A-2
1.5 Effects of Merger on EQR's Declaration of Trust and
Bylaws................................................. A-2
1.6 Trustees............................................ A-3
1.7 Effect on Shares of Beneficial Interest and
Options................................................ A-3
1.8 Exchange Ratio...................................... A-3
1.9 Alternative Structure of Merger..................... A-3
ARTICLE 2 REPRESENTATIONS AND WARRANTIES OF MERRY LAND..... A-3
2.1 Organization, Standing and Power of Merry Land...... A-3
2.2 Merry Land Subsidiaries............................. A-4
2.3 Capital Structure................................... A-4
2.4 Other Interests..................................... A-6
2.5 Authority; Noncontravention; Consents............... A-6
2.6 SEC Documents; Financial Statements; Undisclosed
Liabilities............................................ A-7
2.7 Absence of Certain Changes or Events................ A-8
2.8 Litigation.......................................... A-8
2.9 Properties.......................................... A-9
2.10 Environmental Matters............................... A-10
2.11 Related Party Transactions.......................... A-12
2.12 Employee Benefits................................... A-12
2.13 Employee Matters.................................... A-13
2.14 Taxes............................................... A-13
2.15 No Payments to Employees, Officers, Trustees or
Directors.............................................. A-14
2.16 Brokers; Schedule of Fees and Expenses.............. A-14
2.17 Compliance with Laws................................ A-15
2.18 Contracts; Debt Instruments......................... A-15
2.19 Opinion of Financial Advisor........................ A-16
2.20 State Takeover Statutes............................. A-16
2.21 Registration Statement.............................. A-16
2.22 Development Properties.............................. A-17
2.23 Investment Company Act of 1940...................... A-17
2.24 Trademarks, Patents and Copyrights.................. A-17
2.25 Insurance........................................... A-17
2.26 Definition of Knowledge of Merry Land............... A-17
2.27 Vote Required....................................... A-17
2.28 ESOP Accruals....................................... A-17
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF EQR............ A-18
3.1 Organization, Standing and Power of EQR............. A-18
3.2 Capital Structure................................... A-18
3.3 Organization, Standing and Power of ERP Operating
Partnership............................................ A-19
3.4 Capital Structure of ERP Operating Partnership...... A-19
i
158
PAGE
----
3.5 Authority; Noncontravention; Consents............... A-19
3.6 SEC Documents; Financial Statements; Undisclosed
Liabilities............................................ A-20
3.7 Absence of Certain Changes or Events................ A-21
3.8 Litigation.......................................... A-21
3.9 Properties.......................................... A-21
3.10 Environmental Matters............................... A-22
3.11 Taxes............................................... A-22
3.12 Brokers; Schedule of Fees and Expenses.............. A-23
3.13 Compliance with Laws................................ A-23
3.14 Contracts; Debt Instruments......................... A-23
3.15 Opinion of Financial Advisor........................ A-23
3.16 State Takeover Statutes............................. A-23
3.17 Registration Statement.............................. A-23
3.18 Investment Company Act of 1940...................... A-24
3.19 Definition of Knowledge of EQR...................... A-24
3.20 Vote Required....................................... A-24
3.21 Employee Policies................................... A-24
ARTICLE 4 COVENANTS........................................ A-24
4.1 Acquisition Proposals............................... A-24
4.2 Conduct of Merry Land's Business Pending Merger..... A-25
4.3 Conduct of EQR's Business Pending Merger............ A-27
4.4 Other Actions....................................... A-28
4.5 Filing of Certain Reports........................... A-28
4.6 Compliance with the Securities Act.................. A-28
ARTICLE 5 ADDITIONAL COVENANTS............................. A-28
5.1 Preparation of the Registration Statement and the
Proxy Statement; Merry Land
Shareholders Meeting and EQR Shareholders
Meeting............................................ A-28
5.2 Access to Information: Confidentiality.............. A-29
5.3 Best Efforts; Notification.......................... A-30
5.4 Costs of Transaction................................ A-30
5.5 Tax Treatment....................................... A-30
5.6 Public Announcements................................ A-30
5.7 Listing............................................. A-31
5.8 Letters of Accountants.............................. A-31
5.9 Transfer and Gains Taxes............................ A-31
5.10 Benefit Plans and Other Employee Arrangements....... A-31
5.11 Tax Indemnification................................. A-33
5.12 Indemnification..................................... A-33
5.13 Asset Exchange and Purchase and Sale Agreements..... A-34
5.14 Declaration of Dividends and Distributions.......... A-34
5.15 Transfer of Merry Land Assets After Effective
Time................................................... A-34
5.16 Notices............................................. A-34
5.17 Resignations........................................ A-35
5.18 10b-17 Notice....................................... A-35
5.19 ESOP................................................ A-35
5.20 Valuation of Distribution........................... A-35
5.21 Merger of Merry Land DownREIT....................... A-35
5.22 Transfer of Services Company Shares................. A-35
5.23 Certain Properties.................................. A-35
ii
159
PAGE
----
ARTICLE 6 CONDITIONS....................................... A-36
6.1 Conditions to Each Party's Obligation to Effect the
Merger................................................. A-36
6.2 Conditions to Obligations of EQR.................... A-37
6.3 Conditions to Obligations of Merry Land............. A-38
ARTICLE 7 TERMINATION, AMENDMENT AND WAIVER................ A-39
7.1 Termination......................................... A-39
7.2 Certain Fees and Expenses........................... A-40
7.3 Effect of Termination............................... A-41
7.4 Amendment........................................... A-41
7.5 Extension; Waiver................................... A-41
ARTICLE 8 GENERAL PROVISIONS............................... A-42
8.1 Nonsurvival of Representations and Warranties....... A-42
8.2 Notices............................................. A-42
8.3 Interpretation...................................... A-42
8.4 Counterparts........................................ A-42
8.5 Entire Agreement; No Third-Party Beneficiaries...... A-42
8.6 Governing Law....................................... A-43
8.7 Assignment.......................................... A-43
8.8 Enforcement......................................... A-43
8.9 Severability........................................ A-43
8.10 Non-Recourse to Directors, Trustees and Officers.... A-43
EXHIBITS
----
Exhibit "A-1" -- Articles of Merger
Exhibit "A-2" -- Certificate of Merger
Exhibit "B" -- Asset Exchange Agreement
Exhibit "C" -- Preferred Stock Purchase Agreement
Exhibit "D" -- Development Agreement
Exhibit "E" -- Purchase and Sale Agreement
Exhibit "F" -- Transaction Costs Agreement
Exhibit "G" -- Retention and Severance Program
Exhibit "H" -- Opinion of Hull, ▇▇▇▇▇▇, ▇▇▇▇▇▇ & ▇▇▇▇▇▇▇, P.C.
Exhibit "I" -- Opinion of ▇▇▇▇▇▇▇ & ▇▇▇▇▇
iii
160
INDEX OF DEFINED TERMS
DEFINED TERM SECTION
------------ -------
Acquisition Proposal........................................ 4.1(a)
Affiliate................................................... 2.11
Affiliates.................................................. 4.6
Agreement................................................... Preamble
AICPA Statement............................................. 5.8(a)
Alternative Merger.......................................... 1.9
Articles of Merger.......................................... Recital B
Asset Exchange Agreement.................................... Recital C
Augusta Office Lease........................................ 1.2(d)
Base Amount................................................. 7.2
Break-Up Expenses........................................... 7.2
Break-Up Fee................................................ 7.2
Break-Up Fee Tax Opinion.................................... 7.2
Certificate of Merger....................................... Recital B
Change in Control Share Grants.............................. 2.3(b)
Closing..................................................... 1.3
Closing Date................................................ 1.3
Code........................................................ Recital D
Commitment.................................................. 4.2(p)
Confidentiality Agreement................................... 5.2
Controlled Group Member..................................... 2.12
Debt Documents.............................................. 2.18(b)
Department.................................................. 1.4
Determination............................................... 1.9
Development Agreement....................................... 1.2(c)
Distribution................................................ 1.2(e)
DownREIT Units.............................................. 2.3(a)
Effective Time.............................................. 1.4
Employee Plan............................................... 2.12
Employment Release.......................................... 5.10(b)
Employee Share Award and Option Plan........................ 3.2(a)
Encumbrances................................................ 2.9(a)
Environmental Laws.......................................... 2.10
EQR......................................................... Preamble
EQR Common Shares........................................... 1.8
EQR Disclosure Letter....................................... Article 3
EQR Distribution Reinvestment Plan.......................... 3.2(a)
EQR Employee Share Plan..................................... 3.2(a)
EQR Financial Statement Date................................ 3.7
EQR Material Adverse Change................................. 3.7
EQR Material Adverse Effect................................. 3.1
EQR Options................................................. 3.2(a)
EQR Preferred Shares........................................ 3.2(a)
EQR Properties.............................................. 3.9
EQR SEC Documents........................................... 3.6
EQR Series A Shares......................................... 3.2(a)
EQR Series B Shares......................................... 3.2(a)
EQR Series C Shares......................................... 3.2(a)
EQR Series D Shares......................................... 3.2(a)
EQR Series E Shares......................................... 3.2(a)
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DEFINED TERM SECTION
------------ -------
EQR Series F Shares......................................... 3.2(a)
EQR Series G Shares......................................... 3.2(a)
EQR Shareholder Approvals................................... 3.5(a)
EQR Shareholders Meeting.................................... 5.1(b)
EQR Subsidiaries............................................ 3.1
ERISA....................................................... 2.12
ERP Operating Partnership................................... 1.2(b)
ESOP........................................................ 2.3(b)
Exchange Act................................................ 2.5(b)
Exchange Ratio.............................................. 1.8(a)
Excise Tax.................................................. 5.11
Excluded Subsidiaries....................................... 2.2(a)
GAAP........................................................ 2.6
Gain Limitation............................................. 5.23(b)
GBCC........................................................ 1.1
Governmental Entity......................................... 2.5(b)
Gross-Up Payment............................................ 5.11
▇▇▇▇-▇▇▇▇▇ Act.............................................. 2.5(d)
Hazardous Substances........................................ 2.10
include, includes or including.............................. 8.3
Indebtedness................................................ 2.18(b)
Indemnified Parties......................................... 5.12
IRS......................................................... 1.9
Laws........................................................ 2.5(b)
Liens....................................................... 2.2(b)
Merger...................................................... Recital A
Merry Land.................................................. Preamble
Merry Land Capital Budget................................... 2.9(c)
Merry Land Common Shares.................................... 1.8(a)
Merry Land Disclosure Letter................................ Article 2
Merry Land DownREIT......................................... 1.2(e)
Merry Land Dividend Reinvestment Plan....................... 2.3(a)
Merry Land Environmental Reports............................ 2.10
Merry Land Financial Statement Date......................... 2.7
Merry Land Material Adverse Change.......................... 2.7
Merry Land Material Adverse Effect.......................... 2.1
Merry Land Option........................................... 2.3(b)
Merry Land Preferred Shares................................. 2.3(a)
Merry Land Properties....................................... 2.9(a)
Merry Land Schedule 5.10 Employees.......................... 5.10(b)
Merry Land SEC Documents.................................... 2.6
Merry Land Series A Shares.................................. 2.3(a)
Merry Land Series B Shares.................................. 2.3(a)
Merry Land Series C Shares.................................. 2.3(a)
Merry Land Series D Shares.................................. 2.3(a)
Merry Land Series E Shares.................................. 2.3(a)
Merry Land Shareholder Approvals............................ 2.5(a)
Merry Land Shareholder Meeting.............................. 5.1(c)
Merry Land Shares........................................... 2.3(a)
Merry Land Subsidiaries..................................... 2.2(a)
Merry Land Title Insurance Policy........................... 2.9(b)
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DEFINED TERM SECTION
------------ -------
Monthly ESOP Accrual........................................ 2.28
NYSE........................................................ 2.5(b)
1940 Act.................................................... 2.23
OP Units.................................................... 3.2(a)
Outside Property Management Agreements...................... 2.18(f)
Payments.................................................... 5.11
Payor....................................................... 7.2
Pension Plan................................................ 2.12
Person...................................................... 2.2(a)
Plan........................................................ 5.10(c)
Preferred Stock Purchase Agreement.......................... 1.2(b)
Property Restrictions....................................... 2.9(a)
Proxy Statement............................................. 2.5(b)
Purchase and Sale Agreement................................. 1.2(f)
Qualifying Income........................................... 7.2
Recipient................................................... 7.2
Registration Statement...................................... 5.1(a)
REIT........................................................ 2.14(b)
REIT Requirements........................................... 7.2
Restricted Share Grants..................................... 2.3(b)
Retention and Severance Program............................. 5.10(b)
Retention Payments.......................................... 5.10(b)
SEC......................................................... 2.5(b)
Section 4999................................................ 5.11
Securities Act.............................................. 2.5(b)
Severance Payments.......................................... 5.10(b)
Services Corp............................................... 4.2(l)
Share Loan and Acquisition Agreements....................... 2.3(b)
Shareholder Approvals....................................... 3.5(a)
Shareholder Meetings........................................ 5.1(c)
Short Period Merry Land E&P................................. 5.23(b)
Spinco...................................................... Recital C
Spinco Assets............................................... 5.23
Spinco Preferred Stock...................................... 1.2(a)
Spin-Off.................................................... 1.2
Subsidiary.................................................. 2.2(a)
Superior Acquisition Proposal............................... 4.1
Surviving Trust............................................. 1.1
Takeover Statute............................................ 2.20
Taxes....................................................... 2.14(a)
Third Party Management Agreements........................... 2.18(e)
Third Party Provisions...................................... 8.5
Title 8..................................................... 1.1
to the Knowledge of EQR..................................... 3.19
to the Knowledge of Merry Land.............................. 2.26
Transaction Costs Agreement................................. 5.4
Transfer and Gains Taxes.................................... 5.9
Transferred Properties...................................... 1.2(f)
Welfare Plan................................................ 2.12
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AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") dated as of July 8,
1998 by and between EQUITY RESIDENTIAL PROPERTIES TRUST, a Maryland real estate
investment trust ("EQR"), and MERRY LAND & INVESTMENT COMPANY, INC., a Georgia
corporation ("Merry Land").
RECITALS:
A. The Board of Trustees of EQR and the Board of Directors of Merry Land
deem it advisable and in the best interests of their respective shareholders,
subject to the conditions and other provisions contained herein, that EQR and
Merry Land shall combine their businesses by the merger of Merry Land with and
into EQR; provided, however, that at the option of EQR, and subject to the terms
of this Agreement, such business combination shall be effectuated by an
alternative transaction structure not affecting any economic aspects of such
combination to the shareholders of Merry Land (the "Merger").
B. Upon the terms and conditions set forth herein, EQR and Merry Land shall
execute (i) Articles of Merger in substantially the form attached hereto as
Exhibit "A-1" (the "Articles of Merger") and shall file such articles in
accordance with Maryland law, and (ii) Certificate of Merger in substantially
the form attached hereto as Exhibit "A-2" (the "Certificate of Merger") and
shall file such certificate in accordance with Georgia law, in each case to
effectuate the Merger.
C. Immediately prior to the Merger, it is contemplated that Merry Land
shall transfer certain of its assets to Spinco, a corporation or business trust
to be formed ("Spinco"), and that Spinco shall assume certain obligations of
Merry Land, all as provided in the Asset Exchange Agreement in substantially the
form attached hereto as Exhibit "B" (the "Asset Exchange Agreement").
D. Immediately prior to the Merger, it is contemplated that Merry Land
shall distribute to its common shareholders all the outstanding shares of Spinco
owned by it in a distribution subject to income tax under the Internal Revenue
Code of 1986, as amended (the "Code").
E. For federal income tax purposes, it is intended that the Merger shall
qualify as a tax-free reorganization within the meaning of Section 368(a) of the
Code.
▇. ▇▇▇ and Merry Land have each received a fairness opinion relating to the
Merger, as more fully described herein.
▇. ▇▇▇ and Merry Land desire to make certain representations, warranties
and agreements in connection with the Merger.
NOW, THEREFORE, in consideration of the premises, and the mutual
representations, warranties, covenants and agreements contained herein, the
parties hereto hereby agree as follows:
ARTICLE 1
THE MERGER
1.1 THE MERGER. Upon the terms and subject to the conditions of this
Agreement, and in accordance with Title 8 of the Corporations and Associations
Article of the Annotated Code of Maryland, as amended ("Title 8"), and the
Georgia Business Corporation Code (the "GBCC"), Merry Land shall be merged with
and into EQR, with EQR as the surviving entity (the "Surviving Trust").
1.2 SPINCO TRANSACTIONS. Merry Land shall form Spinco. Prior to the
Effective Time (as defined herein):
(a) Merry Land shall, and shall cause Spinco to, execute and deliver
the Asset Exchange Agreement and each of Merry Land and Spinco shall
consummate the transactions contemplated thereby
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including, without limitation, the transfer by Merry Land of certain
properties and the issuance by Spinco of preferred stock to Merry Land (the
"Spinco Preferred Stock");
(b) EQR shall cause ERP Operating Limited Partnership, an Illinois
limited partnership of which EQR is the sole general partner ("ERP
Operating Partnership"), to execute, deliver, and consummate and Merry Land
shall execute, deliver and consummate, the Preferred Stock Purchase
Agreement in substantially the form attached hereto as Exhibit "C" (the
"Preferred Stock Purchase Agreement"), whereby ERP Operating Partnership
shall, subject to the terms and conditions set forth therein, acquire the
Spinco Preferred Stock from Merry Land;
(c) EQR shall cause ERP Operating Partnership to execute and deliver,
and Merry Land shall cause Spinco to execute and deliver, the Development
Agreement in substantially the form attached hereto as Exhibit "D" (the
"Development Agreement");
(d) EQR shall cause ERP Operating Partnership to execute and deliver,
and Merry Land shall cause Spinco to execute and deliver, an Office Lease
Agreement containing substantially the terms set forth on the term sheet
attached as Schedule 1.2 to the EQR Disclosure Letter (as defined
herein)(the "Augusta Office Lease"); provided, however, that if such terms
cannot be agreed to by the parties hereto prior to the Closing (as defined
herein) the parties hereto shall have no obligations with respect to the
Augusta Office Lease.
(e) Merry Land shall distribute to its common shareholders, as a
distribution taxable under Code Section 301 (the "Distribution"), all the
outstanding common shares of Spinco owned by Merry Land as further
described in the Asset Exchange Agreement. Merry Land shall not distribute
any common shares of Spinco to the limited partners of Merry Land DownREIT
ILP, a Georgia limited partnership of which Merry Land Apartment
Communities, Inc., a Georgia corporation and a wholly-owned subsidiary of
Merry Land, is the sole general partner ("Merry Land DownREIT"); and
(f) ERP Operating Partnership shall execute and deliver, and Merry
Land shall cause Spinco to execute and deliver, the Purchase and Sale
Agreement (the "Purchase and Sale Agreement") in substantially the form
attached hereto as Exhibit "E", pursuant to which certain properties may be
sold by ERP Operating Partnership to Spinco (together with the properties
transferred to Spinco pursuant to the Asset Exchange Agreement, the
"Transferred Properties").
All of such transactions are referred to collectively herein as the
"Spin-Off". Immediately after the Effective Time (as defined below), the
transactions contemplated by, the Development Agreement, the Augusta Office
Lease and the Purchase and Sale Agreement which are to occur on the Closing Date
(as defined below) shall be consummated.
1.3 CLOSING. The closing of the Merger ("Closing") will take place at
10:00 a.m. on the date to be specified by the parties, which (subject to
satisfaction or waiver of the other conditions set forth in Article 6) shall be
no later than the third business day after satisfaction or waiver of the
conditions set forth in Section 6.1(a) (the "Closing Date"), at the offices of
▇▇▇▇▇▇▇ & ▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇, unless
another date or place is agreed to in writing by the parties hereto.
1.4 EFFECTIVE TIME. As soon as practicable following the satisfaction or
waiver of the conditions set forth in Article 6, EQR and Merry Land shall (i)
execute and file the Articles of ▇▇▇▇▇▇, executed in accordance with Title 8,
with the State Department of Assessments and Taxation of Maryland (the
"Department"), and shall make all other filings and recordings required under
Title 8, and (ii) file the Certificate of Merger in accordance with Section
14-2-1105 of the GBCC, with the Secretary of State of Georgia, and shall make
all other filings and recordings required under the GBCC. The Merger shall
become effective (the "Effective Time") at such time as shall be specified in
the Articles of Merger and Certificate of Merger. Unless otherwise agreed, the
parties shall cause the Effective Time to occur on the Closing Date.
1.5 EFFECTS OF MERGER ON EQR'S DECLARATION OF TRUST AND BYLAWS. The Second
Amended and Restated Declaration of Trust of EQR shall be amended at the
Effective Time as provided in the Articles of Merger. The Second Amended and
Restated Bylaws of EQR, as amended and in
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effect immediately prior to the Effective Time, shall continue in full force and
effect after the Merger until further amended in accordance with applicable
Maryland law.
1.6 TRUSTEES. The trustees of the Surviving Trust shall be (i) the
trustees of EQR immediately prior to the Effective Time, who shall continue to
serve for the balance of their unexpired terms or their earlier death,
resignation or removal, and (ii) ▇▇▇▇▇ ▇. ▇▇▇▇ and ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, each of
whom shall serve for the terms specified in the Articles of Merger.
1.7 EFFECT ON SHARES OF BENEFICIAL INTEREST AND OPTIONS. The Merger shall
have no effect on the shares of beneficial interest, options to purchase shares
of beneficial interest and restricted share awards of EQR. The effect of the
Merger on the shares, options and restricted share awards of Merry Land shall be
solely as provided herein and in the Articles of Merger.
1.8 EXCHANGE RATIO. (a) The exchange ratio to be set forth in the Articles
of Merger ("Exchange Ratio") shall be 0.53 of a common share of beneficial
interest of EQR, $0.01 par value per share ("EQR Common Shares"), for each share
of Merry Land common stock, without par value ("Merry Land Common Shares")
outstanding immediately prior to the Effective Time.
(b) If, from the date hereof until the Effective Time, EQR (i) pays a
dividend or makes a distribution on the EQR Common Shares in EQR Common Shares,
(ii) subdivides the outstanding EQR Common Shares into a greater number of EQR
Common Shares, or (iii) combines the outstanding EQR Common Shares into a
smaller number of EQR Common Shares, the Exchange Ratio shall be adjusted to
reflect the proportionate change in the number of outstanding EQR Common Shares.
1.9 ALTERNATIVE STRUCTURE OF MERGER. While it is currently contemplated
that the Merger shall be effectuated through the merger of Merry Land with and
into EQR, upon a determination (a "Determination") that the tax-free nature of
the Merger would not be affected by altering the transaction structure of the
Merger, EQR shall have the option, with the consent of Merry Land, which consent
shall not be unreasonably withheld, to cause the Merger to be effectuated
through an alternative transaction structure (the "Alternative Merger"). The
parties acknowledge and agree that Merry Land may reasonably withhold consent to
any Alternative Merger that would likely cause a delay in the Effective Time and
further agree that the Effective Time shall not be delayed by reason of the
process of seeking a Determination. A Determination shall consist of the receipt
by EQR of a private letter ruling from the Internal Revenue Service ("IRS") or
the publication by the IRS of a revenue ruling or other published announcement
(including the promulgation of a Treasury regulation) to the effect that, and to
which counsel for the parties are reasonably willing to opine that, the
Alternative Merger will not adversely affect the tax-free nature of the Merger.
Upon the election of EQR, pursuant to this Section 1.9, to effectuate the Merger
through the Alternative Merger, the parties shall amend this Agreement, the
Articles of Merger, the Certificate of Merger, and all other agreements as may
be necessary or desirable, including without limitation, amendments providing
for additional parties to be added to such agreements, solely for the purposes
of such effectuation; provided, however, that such amendments shall not modify
the economic terms or effects of this Agreement to the shareholders, employees
or directors of Merry Land; and, further provided, that all alternative
structures of the Merger shall be submitted to and approved by the shareholders
of EQR and Merry Land in the manner required by applicable law. Subject to the
second sentence of this Section 1.9, any such amendments may be made before or
after the approval of the Merger by the respective shareholders of EQR and Merry
Land.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF MERRY LAND
Except as set forth in the letter of even date herewith signed by the
Chairman of the Board or President of Merry Land in his capacity as such and
delivered to EQR prior to the execution hereof (the "Merry Land Disclosure
Letter"), Merry Land represents and warrants to EQR as follows:
2.1 ORGANIZATION, STANDING AND POWER OF MERRY LAND. Merry Land is a
corporation duly organized and validly existing under the laws of Georgia and
has the requisite power and authority
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to carry on its business as now being conducted. Merry Land is duly qualified or
licensed to do business as a foreign corporation and is in good standing in each
jurisdiction in which the nature of its business or the ownership or leasing of
its properties makes such qualification or licensing necessary, other than in
such jurisdictions where the failure to be so qualified or licensed,
individually or in the aggregate, would not have a material adverse effect on
the business, properties, assets, financial condition or results of operations
of Merry Land and the Merry Land Subsidiaries (as defined below) taken as a
whole (a "Merry Land Material Adverse Effect"). Schedule 2.1 to the Merry Land
Disclosure Letter sets forth each jurisdiction in which Merry Land is qualified
or licensed to do business, as well as all assumed names under which Merry Land
conducts business in such jurisdictions, excluding those jurisdictions in which
the only properties held by Merry Land are Transferred Properties. Merry Land
has previously delivered to EQR complete and correct copies of its Articles of
Incorporation and Bylaws, in each case, as amended to the date of this
Agreement.
2.2 MERRY LAND SUBSIDIARIES. (a) Schedule 2.2 to the Merry Land Disclosure
Letter sets forth (i) each Subsidiary of Merry Land (excluding those entities
designated as "Excluded Subsidiaries" on such Schedule 2.2, the "Merry Land
Subsidiaries"), (ii) the legal form of each Merry Land Subsidiary, including the
state or country of formation, (iii) the ownership interest therein of Merry
Land, if not wholly-owned by Merry Land, and if not wholly-owned, the identity
and ownership interest of other owners of such Merry Land Subsidiary, and (iv)
each apartment community and/or other real estate properties owned or under
contract to be purchased by each Merry Land Subsidiary, and separately setting
forth each apartment community currently under development, (v) each
jurisdiction in which each Merry Land Subsidiary is qualified or licensed to do
business and (vi) each assumed name under which each Merry Land Subsidiary
conducts business in any jurisdiction. As used in this Agreement, "Subsidiary"
of any Person means any corporation, partnership, limited liability company,
joint venture or other legal entity (other than an Excluded Subsidiary) of which
such Person (either directly or through or together with another Subsidiary of
such Person) owns any of the capital stock or other equity interests of such
corporation, partnership, limited liability company, joint venture or other
legal entity. As used herein, "Person" means an individual, corporation,
partnership, limited liability company, joint venture, association, trust,
unincorporated organization or any other legal entity.
(b) Except as set forth in Schedule 2.2 to the Merry Land Disclosure
Letter, (i) all the outstanding shares of capital stock of each Merry Land
Subsidiary that is a corporation have been validly issued and are (A) fully paid
and nonassessable, (B) owned by Merry Land or by another Merry Land Subsidiary,
and (C) owned free and clear of all pledges, claims, liens, charges,
encumbrances and security interests of any kind or nature whatsoever
(collectively, "Liens"), and (ii) all equity interests in each Merry Land
Subsidiary that is a partnership, joint venture, limited liability company or
trust which are owned by Merry Land, by another Merry Land Subsidiary or by
Merry Land and another Merry Land Subsidiary are owned free and clear of all
Liens. Each Merry Land Subsidiary that is a corporation is duly incorporated and
validly existing under the laws of its jurisdiction of incorporation and has the
requisite corporate power and authority to carry on its business as now being
conducted, and each Merry Land Subsidiary that is a partnership, limited
liability company or trust is duly organized and validly existing under the laws
of its jurisdiction of organization and has the requisite power and authority to
carry on its business as now being conducted. Each Merry Land Subsidiary is duly
qualified or licensed to do business and is in good standing in each
jurisdiction in which the nature of its business or the ownership or leasing of
its properties makes such qualification or licensing necessary, other than in
such jurisdictions where the failure to be so qualified or licensed,
individually or in the aggregate, would not have a Merry Land Material Adverse
Effect. True and correct copies of the Articles of Incorporation, Bylaws,
partnership agreements, joint venture and operating agreements or similar
organizational documents of each Merry Land Subsidiary, as amended to the date
of this Agreement, have been previously delivered to EQR.
2.3 CAPITAL STRUCTURE. (a) As of July 2, 1998, the authorized shares of
stock of Merry Land consists of 100,000,000 Merry Land Common Shares, of which
42,976,843 were issued and outstanding, and 20,000,000 shares of preferred
stock, without par value (the "Merry Land Preferred Shares", and, collectively
with the Merry Land Common Shares, the "Merry Land Shares"), including 180,901
shares of $1.75 Series A Cumulative Convertible Preferred Stock ("Merry Land
Series A Shares"), (ii) 4,000,000 shares of $2.205
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167
Series B Cumulative Convertible Preferred Stock ("Merry Land Series B Shares"),
(iii) 4,599,400 shares of $2.15 Series C Cumulative Convertible Preferred Stock
("Merry Land Series C Shares"), (iv) 1,000,000 shares of $4.145 Series D
Cumulative Redeemable Preferred Stock ("Merry Land Series D"), and (v) 4,000,000
shares of 7.625% Series E Cumulative Redeemable Preferred Stock ("Merry Land
Series E Shares"). As of the date hereof, (i) 180,901 Merry Land Series A
Shares, 4,000,000 Merry Land Series B Shares, 4,599,400 Merry Land Series C,
1,000,000 Merry Land Series D Shares and 4,000,000 Merry Land Series E Shares
were issued and outstanding, (ii) Merry Land Common Shares were reserved for
issuance under the Merry Land Dividend Reinvestment and Stock Purchase Plan (the
"Merry Land Dividend Reinvestment Plan"), (iii) Merry Land Common Shares were
reserved for issuance under the Merry Land Stock Option and Incentive Plan, (iv)
Merry Land Common Shares were reserved for issuance subject to the exchange of
1,316,915.9476 issued and outstanding Class I Preferred Return DownREIT
partnership units ("DownREIT Units") and 242,082.92 DownREIT Units required to
be issued in exchange for partnership units in the Vinings at Lenox Place, and
(v) Merry Land Common Shares were reserved for issuance upon the conversion of
those Merry Land Preferred Shares which are convertible into Merry Land Common
Shares. On the date hereof, except as set forth in this Section 2.3 or Schedule
2.3 of the Merry Land Disclosure Letter, no Merry Land Shares or other voting
securities of Merry Land were issued, reserved for issuance or outstanding.
(b) Set forth in Schedule 2.3 of the Merry Land Disclosure Letter is a true
and complete list of the following: (i) each outstanding qualified or
nonqualified option to purchase Merry Land Common Shares granted under the Merry
Land Stock Option and Incentive Plan or otherwise (a "Merry Land Option") and a
total thereof; (ii) each grant of Merry Land Shares to employees which are
subject to any risk of forfeiture ("Restricted Share Grants") and a total
thereof; (iii) any obligation of Merry Land to issue Merry Land Shares as a
result of the transactions contemplated hereby ("Change in Control Share
Grants") and a total thereof; and (iv) each loan made by Merry Land with respect
to the purchase of Merry Land Shares, including, without limitation, loans made
pursuant to Merry Land's Stock Loan Program, and indicating those loans which
will be forgiven, in whole or in part, as a result of the transactions
contemplated by this Agreement (the "Share Loan and Acquisition Agreements") and
totals thereof, and (v) all Merry Land Common Shares held by the trust
established pursuant to Merry Land's Employee Stock Ownership Plan (the "ESOP").
The Restricted Share Grants are included in the number of outstanding Merry Land
Shares set forth in Section 2.3(a). For each Merry Land Option held by the
executive officers of Merry Land, Schedule 2.3 of the Merry Land Disclosure
Letter sets forth the name of the grantee, the date of the grant, status of the
option as qualified or nonqualified under Section 422 of the Code, the number of
Merry Land Shares subject to such option, the number of shares subject to
options that are currently exercisable, the exercise price per share, those
options granting reload options, and the number of such shares subject to share
appreciation rights. For each Merry Land Option held by employees of Merry Land
or any of the Merry Land Subsidiaries who are not executive officers of Merry
Land, Schedule 2.3 to the Merry Land Disclosure Letter sets forth the name of
the grantee, the date of the grant, the number of Merry Land Shares subject to
such option and the exercise price per share. For each Restricted Share Grant,
Schedule 2.3 of the Merry Land Disclosure Letter sets forth the name of the
grantee, the date of the grant and the number of Merry Land Shares granted. For
each Change in Control Share Grant, Schedule 2.3 to the Merry Land Disclosure
Letter sets forth the aggregate number of Merry Land Shares to be issued
immediately prior to the Spin-Off and the Merger. For each Share Loan and
Acquisition Agreement, Schedule 2.3 of the Merry Land Disclosure Letter sets
forth the name of the borrower, the date of the loan, the aggregate principal
amount of the loan, the number of shares originally pledged as security for each
loan, the number of shares that have been released from such pledge and the
outstanding loan balance as of the date of the Merry Land Disclosure Letter. On
the date of this Agreement, except as set forth in this Section 2.3 or Schedule
2.3 of the Merry Land Disclosure Letter, no Merry Land Shares or other voting
securities of Merry Land were issued, reserved for issuance, or outstanding.
(c) All outstanding Merry Land Shares are duly authorized, validly issued,
fully paid and nonassessable and not subject to preemptive rights. There are no
bonds, debentures, notes or other indebtedness of Merry Land, or assets of any
other entities exchangeable into Merry Land Shares having the right to vote (or
convertible into, or exchangeable for, securities having the right to vote) on
any matters on which shareholders of Merry Land may vote.
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(d) Except as set forth in this Section 2.3 or in Schedule 2.3 of the Merry
Land Disclosure Letter, as of the date of this Agreement there are no
outstanding securities, options, warrants, calls, rights, commitments,
agreements, arrangements or undertakings of any kind to which Merry Land or any
Merry Land Subsidiary is a party or by which such entity is bound, obligating
Merry Land or any Merry Land Subsidiary to issue, deliver or sell, or cause to
be issued, delivered or sold, additional shares of capital stock, voting
securities or other ownership interests of Merry Land or any Merry Land
Subsidiary or obligating Merry Land or any Merry Land Subsidiary to issue,
grant, extend or enter into any such security, option, warrant, call, right,
commitment, agreement, arrangement or undertaking.
(e) All dividends or distributions on Merry Land Shares which have been
authorized or declared prior to the date of this Agreement have been paid in
full.
(f) Since their original dates of issuance, there have been no adjustments
or changes to the conversion prices of the Merry Land Series A, B or C Shares.
2.4 OTHER INTERESTS. Except as set forth in Schedule 2.2 or 2.4 of the
Merry Land Disclosure Letter, neither Merry Land nor any Merry Land Subsidiary
owns directly or indirectly any interest or investment (whether equity or debt)
in any corporation, partnership, limited liability company, joint venture,
business trust or entity (other than investments in short-term investment
securities). With respect to such interests, Merry Land and each such Merry Land
Subsidiary is a partner, member or stockholder in good standing, and owns such
interests free and clear of all liens, pledges, security interests, claims,
options or other encumbrances. Neither Merry Land nor any of the Merry Land
Subsidiaries is in breach in any material respect of any provision of any
agreement, document or contract governing its rights in or to the interests
owned or held by it, all of which agreements, documents and contracts are (a)
set forth on the Merry Land Disclosure Letter, (b) unmodified except as
described therein and (c) in full force and effect. To the Knowledge of Merry
Land (as defined in Section 2.26), the other parties to such agreements,
documents or contracts are not in any material breach of any of their respective
obligations under such agreements, documents or contracts, nor has Merry Land
received any notice of any such material breach.
2.5 AUTHORITY; NONCONTRAVENTION; CONSENTS. (a) Merry Land has the
requisite power and authority to enter into this Agreement and, subject to the
affirmative vote of at least a majority of the outstanding Merry Land Common
Shares entitled to vote thereon to approve the Merger (the "Merry Land
Shareholder Approvals"), to consummate the transactions contemplated by this
Agreement to which Merry Land or any Merry Land Subsidiary is a party. The
execution and delivery of this Agreement by Merry Land or any Merry Land
Subsidiary and the consummation by Merry Land of the transactions contemplated
by this Agreement to which Merry Land or any Merry Land Subsidiary is a party
have been duly authorized by all necessary action on the part of Merry Land or
such Merry Land Subsidiary, subject to the Merry Land Shareholder Approvals.
This Agreement has been duly executed and delivered by Merry Land and
constitutes a valid and binding obligation of Merry Land, enforceable against
Merry Land in accordance with its terms, subject to applicable bankruptcy,
insolvency, moratorium or other similar laws relating to creditors' rights and
general principles of equity.
(b) Except as set forth in Schedule 2.5 to the Merry Land Disclosure
Letter, the execution and delivery of this Agreement by Merry Land do not, and
the consummation of the transactions contemplated by this Agreement to which
Merry Land or any Merry Land Subsidiary is a party and compliance by Merry Land
with the provisions of this Agreement will not, conflict with, or result in any
violation of, or default (with or without notice or lapse of time, or both)
under, or give rise to a right of termination, cancellation or acceleration of
any material obligation or to loss of a material benefit under, or result in the
creation of any Lien upon any of the properties or assets of Merry Land or any
Merry Land Subsidiary under, (i) the Articles of Incorporation or the Bylaws of
Merry Land or the comparable charter or organizational documents or partnership
or similar agreement (as the case may be) of any Merry Land Subsidiary, in each
case as amended or supplemented to the date of this Agreement, (ii) any loan or
credit agreement, note, bond, mortgage, indenture, reciprocal easement
agreement, lease or other agreement, instrument, permit, concession, franchise
or license applicable to Merry Land or any Merry Land Subsidiary or their
respective properties or assets or (iii) subject to the governmental filings and
other matters referred to in the following
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sentence, any judgment, order, decree, statute, law, ordinance, rule or
regulation (collectively, "Laws") applicable to Merry Land or any Merry Land
Subsidiary, or their respective properties or assets, other than, in the case of
clause (ii) or (iii), any such conflicts, violations, defaults, rights, loss or
Liens that individually or in the aggregate would not (x) have a Merry Land
Material Adverse Effect or (y) prevent the consummation of the transactions
contemplated by this Agreement. Except as set forth on Schedule 2.5 to the Merry
Land Disclosure Letter, no consent, approval, order or authorization of, or
registration, declaration or filing with, any federal, state or local government
or any court, administrative or regulatory agency or commission or other
governmental authority or agency, domestic or foreign (a "Governmental Entity"),
is required by or with respect to Merry Land or any Merry Land Subsidiary in
connection with the execution and delivery of this Agreement by Merry Land or
the consummation by Merry Land of the transactions contemplated by this
Agreement, except for (i) the filing with the Securities and Exchange Commission
(the "SEC") of (x) a joint proxy statement relating to the approval by Merry
Land's shareholders and EQR's shareholders of the transactions contemplated by
this Agreement (as amended or supplemented from time to time, the "Proxy
Statement"), (y) registration statements on appropriate forms under the
Securities Act of 1933, as amended (the "Securities Act"), and the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and (z) such reports
under Section 13(a) of the Exchange Act as may be required in connection with
this Agreement and the transactions contemplated by this Agreement, (ii) the
filing of listing applications with the New York Stock Exchange Inc. ("NYSE")
with respect to the shares of beneficial interest of the Surviving Trust to be
issued in the Merger, (iii) the filing of the Articles of Merger with the
Department, (iv) the filing of the Certificate of Merger with the Secretary of
State, and (v) such other consents, approvals, orders, authorizations,
registrations, declarations and filings (A) as are set forth in Schedule 2.5 to
the Merry Land Disclosure Letter, (B) as may be required under (y) federal,
state or local environmental laws, or (z) the "blue sky" laws of various states,
to the extent applicable, or (C) which, if not obtained or made, would not
prevent or delay in any material respect the consummation of any of the
transactions contemplated by this Agreement or otherwise prevent Merry Land or
any Merry Land Subsidiary from performing its obligations under this Agreement
in any material respect or have, individually or in the aggregate, a Merry Land
Material Adverse Effect.
(c) Merry Land is making no representation or warranty in this Section 2.5
with respect to any matters or approvals required for any Alternative Merger.
(d) For purposes of determining compliance with the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇
Antitrust Improvements Act of 1976, as amended (the "▇▇▇▇-▇▇▇▇▇ Act"), Merry
Land confirms that, with the exception of the Transferred Properties, the only
real property owned by Merry Land consists of office and residential properties
and unproductive real property, as such terms are used in the ▇▇▇▇-▇▇▇▇▇ Act.
2.6 SEC DOCUMENTS; FINANCIAL STATEMENTS; UNDISCLOSED LIABILITIES. Merry
Land has filed all required reports, schedules, forms, statements and other
documents with the SEC since January 1, 1992 through the date hereof (the "Merry
Land SEC Documents"). Schedule 2.6 of the Merry Land Disclosure Letter contains
a complete list of all Merry Land SEC Documents filed by Merry Land with the SEC
since January 1, 1992 and on or prior to the date of this Agreement. All of the
Merry Land SEC Documents (other than preliminary material), as of their
respective filing dates, complied in all material respects with all applicable
requirements of the Securities Act and the Exchange Act and, in each case, the
rules and regulations promulgated thereunder applicable to such Merry Land SEC
Documents. None of the Merry Land SEC Documents at the time of filing contained
any untrue statement of a material fact or omitted to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading, except to the extent such statements have been modified or
superseded by later Merry Land SEC Documents filed and publicly available prior
to the date of this Agreement. The consolidated financial statements of Merry
Land included in the Merry Land SEC Documents complied as to form in all
material respects with applicable accounting requirements and the published
rules and regulations of the SEC with respect thereto, have been prepared in
accordance with generally accepted accounting principles ("GAAP") (except, in
the case of unaudited statements, as permitted by the applicable rules and
regulations of the SEC) applied on a consistent basis during the periods
involved (except as may be indicated in the notes thereto) and fairly presented,
in accordance with the
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applicable requirements of GAAP and the applicable rules and regulations of the
SEC, the consolidated financial position of Merry Land and the Merry Land
Subsidiaries, as of the dates thereof and the consolidated results of operations
and cash flows for the periods then ended (subject, in the case of unaudited
statements, to normal year-end audit adjustments). Merry Land has no Merry Land
Subsidiaries which are not consolidated for accounting purposes. Except for
liabilities and obligations set forth in the Merry Land SEC Documents or in
Schedule 2.6 to the Merry Land Disclosure Letter, neither Merry Land nor any of
the Merry Land Subsidiaries has any liabilities or obligations of any nature
(whether accrued, absolute, contingent or otherwise) required by GAAP to be set
forth on a consolidated balance sheet of Merry Land or in the notes thereto and
which, individually or in the aggregate, would have a Merry Land Material
Adverse Effect. On the date of this Agreement, Spinco has no material assets or
liabilities.
2.7 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed in the Merry
Land SEC Documents or Schedule 2.7 to the Merry Land Disclosure Letter, since
the date of the most recent audited financial statements included in the Merry
Land SEC Documents (the "Merry Land Financial Statement Date") Merry Land and
the Merry Land Subsidiaries have conducted their business only in the ordinary
course (taking into account prior practices, including the acquisition of
properties and issuance of securities) and there has not been (a) any material
adverse change in the business, financial condition or results of operations of
Merry Land and the Merry Land Subsidiaries taken as a whole (a "Merry Land
Material Adverse Change"), nor has there been any occurrence or circumstance
that with the passage of time would reasonably be expected to result in a Merry
Land Material Adverse Change, (b) except for regular quarterly distributions (in
the case of Merry Land) not in excess of $0.41 per Merry Land Common Share and
per Class I Preferred Return Unit of Merry Land DownREIT $0.4375 per share of
Merry Land Series A, $0.5513 per share of Merry Land Series B, $0.5375 per share
of Merry Land Series C, $1.0363 per share of Merry Land Series D and $0.4765 per
share of Merry Land Series E in each case with customary record and payment
dates, any declaration, setting aside or payment of any dividend or other
distribution (whether in cash, stock or property) with respect to any Merry Land
Shares, (c) any split, combination or reclassification of any of Merry Land
Shares or any issuance or the authorization of any issuance of any other
securities in respect of, in lieu of or in substitution for, or giving the right
to acquire by exchange or exercise, shares of its beneficial interest or any
issuance of an ownership interest in, any Merry Land Subsidiary except as
contemplated by this Agreement, (d) any damage, destruction or loss, whether or
not covered by insurance, that has or would have a Merry Land Material Adverse
Effect, or (e) any change made prior to the date of this Agreement in accounting
methods, principles or practices by Merry Land or any Merry Land Subsidiary
materially affecting its assets, liabilities or business, except insofar as may
have been disclosed in Merry Land SEC Documents or required by a change in GAAP
or (f) any amendment of any employment, consulting, severance, retention or any
other agreement between Merry Land and any officer or trustee of Merry Land.
There are no distributions in arrears which have been scheduled for payment or
unpaid distributions with respect to the Merry Land Preferred Shares.
2.8 LITIGATION. Except as disclosed in the Merry Land SEC Documents,
Schedule 2.8 or Schedule 2.9 to the Merry Land Disclosure Letter, and other than
personal injury and other routine tort litigation arising from the ordinary
course of operations of Merry Land and the Merry Land Subsidiaries (a) which are
covered by adequate insurance or (b) for which all material costs and
liabilities arising therefrom are reimbursable pursuant to common area
maintenance or similar agreements, there is no suit, action or proceeding
pending or, to the Knowledge of Merry Land, threatened against or affecting
Merry Land or any Merry Land Subsidiary that, individually or in the aggregate,
could reasonably be expected to (i) have a Merry Land Material Adverse Effect or
(ii) prevent the consummation of any of the transactions contemplated by this
Agreement, nor is there any judgment, decree, injunction, rule or order of any
Governmental Entity or arbitrator outstanding against Merry Land or any Merry
Land Subsidiary having, or which, insofar as reasonably can be foreseen, in the
future would have, any such effect. Notwithstanding the foregoing, (y) Schedule
2.8 to the Merry Land Disclosure Letter sets forth each and every (i) uninsured
claim involving a potential dollar cost to Merry Land in excess of $250,000,
(ii) equal employment opportunity claim and (iii) claim relating to sexual
harassment and/or discrimination pending or, to the Knowledge of Merry Land,
threatened as of the date hereof, in each case with a brief summary of such
claim or threatened claim and (z) no claim is pending or has been made within
the last five (5) years under any
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directors' or officers' liability insurance policy maintained at any time by
Merry Land or any of the Merry Land Subsidiaries.
2.9 PROPERTIES. (a) Schedule 2.9 to the Merry Land Disclosure Letter
identifies all real property owned or leased by Merry Land and the Merry Land
Subsidiaries (the "Merry Land Properties"). Except as provided in Schedule 2.9
of the Merry Land Disclosure Letter, Merry Land or the Merry Land Subsidiary set
forth on Schedule 2.2 of the Merry Land Disclosure Letter owns fee simple title
to each of the Merry Land Properties, which are all of the real estate
properties owned by them (other than Transferred Properties). All such
properties are owned in each case free and clear of liens, mortgages or deeds of
trust, claims against title, charges which are liens, security interests or
other encumbrances on title ("Encumbrances") (except as provided below). Except
as set forth in Schedule 2.2, Schedule 2.18 or Schedule 2.9 of the Merry Land
Disclosure Letter, no other Person has any ownership interest in any of the
Merry Land Properties, and any such ownership interest so scheduled does not
materially detract from the value of, or materially interfere with the present
use of, any of the Merry Land Properties subject thereto or affected thereby.
The Merry Land Properties are not subject to any rights of way, written
agreements, laws, ordinances and regulations affecting building use or
occupancy, or reservations of an interest in title (collectively, "Property
Restrictions") or other Encumbrances, except for (i) Encumbrances and Property
Restrictions set forth in the Merry Land Disclosure Letter, (ii) Property
Restrictions imposed or promulgated by law or any governmental body or authority
with respect to real property, including zoning regulations, provided they do
not materially adversely affect the current use of any Merry Land Property,
(iii) Encumbrances and Property Restrictions disclosed on existing title reports
or existing surveys (in either case copies of which title reports and surveys
have been delivered or made available to EQR and listed in the Merry Land
Disclosure Letter), which Encumbrances and Property Restrictions, in any event,
do not materially detract from the value of, or materially interfere with the
present use of, any of the Merry Land Properties subject thereto or affected
thereby (provided that Merry Land specifically represents and warrants that any
Encumbrances identified on any existing title report as securing any
Indebtedness, other than the Indebtedness identified on Schedule 2.18 of the
Merry Land Disclosure Letter, has been released of record since the date of the
title report in question) and (iv) mechanics', carriers', workmen's, repairmen's
liens, other Encumbrances and Property Restrictions, if any, which, individually
or in the aggregate, do not materially detract from the value of or materially
interfere with the present use of any of the Merry Land Properties subject
thereto or affected thereby, and do not otherwise materially impair business
operations conducted by Merry Land and the Merry Land Subsidiaries. Except as
provided in Schedule 2.9 of the Merry Land Disclosure Letter, no portion of any
of the Merry Land Properties is located in a flood zone area "V". Schedule 2.9
lists each of the Merry Land Properties which are under development as of the
date of this Agreement and describes the status of such development as of the
date hereof.
(b) Except as provided in Schedule 2.9 to the Merry Land Disclosure Letter,
valid policies of title insurance (each a "Merry Land Title Insurance Policy")
have been issued insuring Merry Land's or the applicable Merry Land Subsidiary's
fee simple title to the Merry Land Properties in amounts at least equal to the
purchase price thereof paid by Merry Land therefor, subject only to the matters
disclosed above and on the Merry Land Disclosure Letter, and such policies are,
at the date hereof, in full force and effect and no claim has been made against
any such policy. A true and correct copy of each Merry Land Title Insurance
Policy has been previously delivered to EQR.
(c) Except as provided in Schedule 2.9 to the Merry Land Disclosure Letter
or in Merry Land's capital budget attached to the Merry Land Disclosure Letter
(the "Merry Land Capital Budget"), Merry Land has no Knowledge (as defined in
Section 2.26) (i) that, any certificate, permit or license from any governmental
authority having jurisdiction over any of the Merry Land Properties or any
agreement, easement or other right which is necessary to permit the lawful use
and operation of the buildings and improvements on any of the Merry Land
Properties or which is necessary to permit the lawful use and operation of all
driveways, roads and other means of egress and ingress to and from any of the
Merry Land Properties has not been obtained and is not in full force and effect,
or of any pending threat of modification or cancellation of any of same; (ii) of
any written notice of any violation of any federal, state or municipal law,
ordinance, order, regulation or requirement materially and adversely affecting
any of the Merry Land Properties issued by any governmental
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authority; (iii) of any material structural defects relating to any Merry Land
Property which costs more than $100,000 to repair; (iv) of any Merry Land
Property whose building systems are not in working order in any material respect
and costs more than $100,000 to repair; (v) of any physical damage to any Merry
Land Property in excess of $100,000 for which there is no insurance in effect
covering the cost of the restoration; (vi) of any current renovation or
uninsured restoration to any Merry Land Property the cost of which exceeds
$250,000; or (vii) of items referred to in Section 2.9(c)(iii)-(vi) which
aggregate for Merry Land and the Merry Land Subsidiaries more than $7,500,000.
(d) Except as set forth in Schedule 2.9 to the Merry Land Disclosure
Letter, neither Merry Land nor any of the Merry Land Subsidiaries has received
any written notice to the effect that (i) any condemnation or rezoning
proceedings are pending or threatened with respect to any of the Merry Land
Properties or (ii) any zoning, building or similar law, code, ordinance, order
or regulation is or will be violated in any material respect for any property by
the continued maintenance, operation or use of any buildings or other
improvements on any of the Merry Land Properties or by the continued
maintenance, operation or use of the parking areas.
(e) Except as set forth in Schedule 2.9 to the Merry Land Disclosure
Letter, all of the Merry Land Properties are managed by Merry Land or a
wholly-owned Merry Land Subsidiary.
(f) The Rent Roll for the Merry Land Properties as of June 1, 1998 has been
previously delivered or made available to EQR, and is complete and correct in
all material respects as of the date thereof.
(g) Except as set forth in Schedule 2.9 to the Merry Land Disclosure
Letter, all work required to be performed, payments required to be made and
actions required to be taken prior to the date hereof pursuant to any agreement
entered into with a governmental body or authority in connection with a site
approval, zoning reclassification or other similar action relating to any Merry
Land Properties (e.g., local improvement district, road improvement district,
environmental mitigation) have been performed, paid or taken, as the case may
be, other than those where, individually or in the aggregate with any other
condition or omission resulting in a breach of the representations and
warranties set forth in this Section 2.9, the failure would not have a Merry
Land Material Adverse Effect, and Merry Land has no Knowledge of any material
work, payments or actions that are required after the date hereof pursuant to
such agreements, except as set forth in development or operating budgets for
such Merry Land Properties delivered to EQR prior to the date hereof.
(h) Merry Land and each of the Merry Land Subsidiaries have good and
sufficient title to all their personal and non-real properties and assets
reflected in their books and records as being owned by them (including those
reflected in the consolidated balance sheet of Merry Land as of December 31,
1997, except as since sold or otherwise disposed of in the ordinary course of
business), free and clear of all liens and encumbrances, except such
Encumbrances reflected on Schedule 2.18 or Schedule 2.9 to the Merry Land
Disclosure Schedule or on the consolidated balance sheet of Merry Land as of
December 31, 1997, and the notes thereto, and except for liens for current taxes
not yet due and payable, and liens or encumbrances which are normal to the
business of Merry Land and the Merry Land Subsidiaries and are not, in the
aggregate, material in relation to the assets of Merry Land on a consolidated
basis and except also for such imperfections of title, easement and
encumbrances, if any, as do not materially interfere with the present use of the
properties subject thereto or affected thereby, or otherwise materially impair
the consolidated business operations of Merry Land.
(i) Except as set forth in Schedule 2.9 to the Merry Land Disclosure
Letter, no Merry Land Property is currently under development or subject to any
agreement with respect to development, and neither Merry Land nor any Merry Land
Subsidiary shall enter into any such agreements between the date hereof and the
Effective Time without the prior written approval of EQR.
2.10 ENVIRONMENTAL MATTERS. Merry Land has delivered to EQR a true and
complete copy of the environmental reports listed on Schedule 2.10 of the Merry
Land Disclosure Letter (the "Merry Land Environmental Reports"). To Merry Land's
Knowledge, the Merry Land Environmental Reports constitute all final
environmental reports (including, without limitation, all final versions of
environmental investigations and testing or analysis made by or on behalf of
Merry Land or any of the Merry Land Subsidiaries) with
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respect to the Merry Land Properties in the possession of Merry Land or any
Merry Land Subsidiary. With respect to each Merry Land Property, since the day
of the most recent Environmental Report relating to such Merry Land Property,
except for any condition that individually or in the aggregate would not be
reasonably likely to have a Merry Land Material Adverse Effect, (a) no Hazardous
Substances (as defined below) have been used, stored, manufactured, treated,
processed or transported to or from any such Merry Land Property except as
necessary to the conduct of business and in compliance with Environmental Laws
(as defined below); (b) there have been no spills, releases, discharges or
disposal of Hazardous Substances to have occurred or be presently occurring on
or from such Merry Land Property; (c) such Merry Land Property and the business
conducted thereon are not in violation of Environmental Laws; (d) Merry Land and
the Merry Land Subsidiaries have not received and do not reasonably expect to
receive any notice of potential responsibility, letter of inquiry or notice of
alleged liability from any Person regarding such Merry Land Property or the
business conducted thereon. For the purposes of this Paragraph 2.10 only, "Merry
Land Properties" shall be deemed to include all property formerly owned,
operated or leased by Merry Land or the Merry Land Subsidiaries; solely,
however, as to the period of time when such property was so owned, operated, or
leased by Merry Land or the Merry Land Subsidiaries.
"Environmental Laws" shall mean any applicable statute, code, enactment,
ordinance, rule, regulation, permit, consent, approval, authorization, judgment,
order, common law rule (including without limitation the common law respecting
nuisance and tortious liability), decree, injunction, or other requirement
having the force and effect of law, whether local, county, state, territorial or
national, at any time in force or effect relating to:
(a) emissions, discharges, spills, releases or threatened releases of
Hazardous Substances into ambient air, surface water, groundwater, watercourses,
publicly or privately owned treatment works, drains, sewer systems, wetlands,
septic systems or onto land;
(b) the use, treatment, storage, disposal, handling, manufacturing,
transportation or shipment of Hazardous Substances;
(c) the regulation of storage tanks; or
(d) otherwise relating to pollution or the protection of human health or
the environment.
"Hazardous Substances" shall mean all substances, wastes, pollutants,
contaminants and materials regulated or defined or designated as hazardous,
extremely or imminently hazardous, dangerous, or toxic pursuant to any law, by
any local, county, state, territorial or federal governmental authority, or with
respect to which such a governmental authority otherwise requires environmental
investigation, monitoring, reporting, or remediation; including, but not limited
to,
(a) all substances, wastes, pollutants, contaminants and materials
regulated, or defined or designated as hazardous, extremely or imminently
hazardous, dangerous or toxic, under the following federal statutes and their
state counterparts, as well as their statutes' implementing regulations: the
Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C.
section 9601 et. seq., the Resource Conservation and Recovery Act, 42 U.S.C.
section 6901 et. seq., the Toxic Substances Control Act, 15 U.S.C. section 2601
et. seq., the Clean Water Act, 33 U.S.C. section 1251 et. seq., the Clean Air
Act, 42 U.S.C. section 7401 et. seq., the Emergency Planning and Community Right
to Know Act, 42 U.S.C. section 11011 et. seq., the Safe Drinking Water Act, 33
U.S.C. section 300f et. seq., the Federal Insecticide, Fungicide, and
Rodenticide Act, 7 U.S.C. section 136 et. seq., the Atomic Energy Act, 42 U.S.C.
section 22011 et. seq., and the Hazardous Materials Transportation Act, 42
U.S.C. section 1801 et. seq.;
(b) petroleum and petroleum products including crude oil and any fractions
thereof;
(c) natural gas, synthetic gas, and any mixtures thereof; and
(d) radon, radioactive substances, asbestos, urea formaldehyde,
polychlorinated biphenyls and electromagnetic field radiation.
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2.11 RELATED PARTY TRANSACTIONS. Set forth in Schedule 2.11 to the Merry
Land Disclosure Letter is a list of all arrangements, agreements and contracts
entered into by Merry Land or any of the Merry Land Subsidiaries under which
continuing obligations exist with (a) any consultant, (b) any person who is an
officer, trustee, director or Affiliate (as defined below) of Merry Land or any
of the Merry Land Subsidiaries, any member of the "immediate family" (as such
term is defined in Item 404 of Regulation S-K promulgated under the Securities
Act) of any of the foregoing or any entity of which any of the foregoing is an
Affiliate or (c) any person who acquired Merry Land Shares in a private
placement within the preceding three years, except those of a type available to
Merry Land employees generally. Such documents, copies of all of which have
previously been delivered or made available to EQR, are listed in Schedule 2.11
to the Merry Land Disclosure Letter. As used in this Agreement, the term
"Affiliate" shall have the same meaning as such term is defined in Rule 405
promulgated under the Securities Act.
2.12 EMPLOYEE BENEFITS. As used herein, the term "Employee Plan" includes
any pension, retirement, savings, disability, medical, dental, health, life,
death benefit, group insurance, profit sharing, deferred compensation, stock
option, stock loan, bonus, incentive, vacation pay, tuition reimbursement,
severance pay, or other employee benefit plan, trust, agreement, contract,
arrangement, policy or commitment (including, without limitation, any pension
plan, as defined in Section 3(2) of the Employee Retirement Income Security Act
of 1974, as amended and the rules and regulations promulgated thereunder
("ERISA") ("Pension Plan"), and any welfare plan as defined in Section 3(1) of
ERISA ("Welfare Plan")), whether any of the foregoing is funded, insured or
self-funded, written or oral, (i) sponsored or maintained by Merry Land or Merry
Land Subsidiaries (each a "Controlled Group Member") and covering any Controlled
Group Member's active or former employees (or their beneficiaries), (ii) to
which any Controlled Group Member is a party or by which any Controlled Group
Member (or any of the rights, properties or assets thereof) is bound or (iii)
with respect to which any current Controlled Group Member may otherwise have any
material liability (whether or not such Controlled Group Member still maintains
such Employee Plan). Each Employee Plan is listed on Schedule 2.12. With respect
to the Employee Plans:
(a) Except as disclosed in the Merry Land SEC Documents or in Schedule
2.12 to the Merry Land Disclosure Letter, no Controlled Group Member has
any continuing liability under any Welfare Plan which provides for
continuing benefits or coverage for any participant or any beneficiary of a
participant after such participant's termination of employment, except as
may be required by section 4980B of the Code or Section 601 (et seq.) of
ERISA, or under any applicable state law, and at the expense of the
participant or the beneficiary of the participant.
(b) Each Employee Plan complies in all material respects with the
applicable requirements of ERISA and any other applicable law governing
such Employee Plan, and each Employee Plan has at all times been properly
administered in all material respects in accordance with all such
requirements of law, and in accordance with its terms and the terms of any
applicable collective bargaining agreement to the extent consistent with
all such requirements of law. Each Pension Plan which is intended to be
qualified is qualified under Section 401(a) of the Code, has received a
favorable determination letter from the IRS stating that such Plan meets
the requirements of Section 401(a) of the Code and that the trust
associated with such Plan is tax exempt under Section 501(a) of the Code
and no event has occurred which would jeopardize the qualified status of
any such plan or the tax exempt status of any such trust under Sections
401(a) and Section 501(a) of the Code, respectively. No lawsuits, claims
(other than routine claims for benefits) or complaints to, or by, any
person or governmental entity have been filed or are pending, Merry Land
has received no notice of such a lawsuit, claim or complaint and, to the
Knowledge of Merry Land, there is no fact or contemplated event which would
be expected to give rise to any such lawsuit, claim (other than routine
claims for benefits) or complaint with respect to any Employee Plan.
Without limiting the foregoing, the following are true with respect to each
Employee Plan:
(i) all Controlled Group Members have filed or caused to be filed
every material return, report, statement, notice, declaration and other
document required by any law or governmental agency, federal, state and
local (including, without limitation, the IRS and the Department of
Labor) with respect to each such Employee Plan, each of such filings has
been complete and accurate in all
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material respects and no Controlled Group Member has incurred any
material liability in connection with such filings;
(ii) all Controlled Group Members have delivered or caused to be
delivered to every participant, beneficiary and other party entitled to
such material, all material plan descriptions, returns, reports,
schedules, notices, statements and similar materials, including, without
limitation, summary plan descriptions and summary annual reports, as are
required under Title I of ERISA, the Code, or both, and no Controlled
Group Member has incurred any material liability in connection with such
deliveries;
(iii) all contributions and payments with respect to Employee Plans
that are required to be made by a Controlled Group Member with respect
to periods ending on or before the Closing Date (including periods from
the first day of the current plan or policy year to the Closing Date)
have been, or will be, made or accrued before the Closing Date in
accordance with the appropriate plan document, actuarial report,
collective bargaining agreements or insurance contracts or arrangements
or as otherwise required by ERISA or the Code;
(iv) with respect to each such Employee Plan, to the extent
applicable, Merry Land has delivered to EQR true and complete copies of
(A) plan documents, or any and all other documents that establish the
existence of the plan, trust, arrangement, contract, policy or
commitment and all amendments thereto, (B) the most recent determination
letter, if any, received from the IRS, (C) the three most recent Form
5500 Annual Report (and all schedules and reports relating thereto) and
actuarial reports and (D) all related trust agreements, insurance
contract or other funding agreements that implement each such Employee
Plan.
(c) With respect to each Employee Plan, there has not occurred, and no
person or entity is contractually bound to enter into, any "prohibited
transaction" within the meaning of Section 4975(c) of the Code or Section
406 of ERISA, which transaction is not exempt under Section 4975(d) of the
Code or Section 408 of ERISA.
(d) Except as disclosed in Schedule 2.12A, no Controlled Group Member
has maintained or been obligated to contribute to any Employee Plan subject
to Code Section 412 or Title IV of ERISA. With respect to each Employee
Plan set forth on Schedule 2.12A, Merry Land represents that each such
Employee Plan has been completely terminated in accordance with all Code
and ERISA requirements for a "standard termination" (as defined in 4041(b)
of ERISA), as applicable on the termination date.
(e) With respect to each pension plan maintained by any Controlled
Group Member, such Plans provide the Plan Sponsor the authority to amend or
terminate the plan at any time, subject to applicable requirements of ERISA
and the Code.
2.13 EMPLOYEE MATTERS. Schedule 2.13 of the Merry Land Disclosure Letter
lists the employee handbooks of Merry Land and each of the Merry Land
Subsidiaries currently in effect. A copy of each such employee handbook has
previously been made available to EQR. Except as set forth in Schedule 2.13 of
the Merry Land Disclosure Letter, such handbooks fairly and accurately summarize
all material employee policies, vacation policies and payroll practices of Merry
Land and the Merry Land Subsidiaries. Neither Merry Land nor any of the Merry
Land Subsidiaries is a party to, or bound by, any collective bargaining
agreement, contract or other agreement or understanding with a labor union or
other labor organization, nor has Merry Land or any of the Merry Land
Subsidiaries agreed that any unit of their employees is appropriate for
collective bargaining. No union or other labor organization has been certified
as bargaining representative for any of Merry Land's employees. To the Knowledge
of Merry Land there are no organizational efforts with respect to the formation
of a collective bargaining unit presently being made or threatened involving
employees of Merry Land or any of the Merry Land Subsidiaries.
2.14 TAXES. (a) Each of Merry Land and the Merry Land Subsidiaries has
filed all tax returns and reports required to be filed by it (after giving
effect to any filing extension properly granted by a Governmental Entity having
authority to do so) and has paid (or Merry Land has paid on its behalf) all
Taxes (as defined below) shown or reflected on such returns and reports as
required to be paid by it except (i) as set forth in
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Schedule 2.14 to the Merry Land Disclosure Letter, or (ii) real estate taxes
that are being contested in good faith by appropriate proceedings and for which
Merry Land or the applicable Merry Land Subsidiary shall have set aside on its
books adequate reserves. The most recent audited financial statements contained
in the Merry Land SEC Documents reflect an adequate reserve for all material
Taxes payable or accrued by Merry Land and the Merry Land Subsidiaries for all
taxable periods and portions thereof through the date of such financial
statements. Since the Merry Land Financial Statement Date, Merry Land has
incurred no liability for taxes under Sections 857(b), 860(c) or 4981 of the
Code, including, without limitation, any tax arising from a prohibited
transaction described in Section 857(b)(6) of the Code, and neither Merry Land
nor any Merry Land Subsidiary has incurred any liability for taxes other than in
the ordinary course of business. Neither the consummation of the Spin-Off by
Merry Land nor the consummation of the Purchase and Sale Agreement by and
between EQR and Spinco will cause Merry Land or any Merry Land Subsidiary or EQR
or any EQR Subsidiary to incur any liability under Section 857(b)(6) of the
Code. No event has occurred, and no condition or circumstance exists, which
presents a material risk that any material Tax described in the preceding
sentence will be imposed upon Merry Land. No deficiencies for any Taxes have
been proposed, asserted or assessed pursuant to a "30-day letter" or notice of
deficiency sent by the IRS, or, to the Knowledge of Merry Land, otherwise
proposed, asserted or assessed against Merry Land or any of the Merry Land
Subsidiaries. No waivers of the time to assess any such Taxes have been executed
by Merry Land or any Merry Land Subsidiary and, to the Knowledge of Merry Land,
no requests for such waivers are pending. As used in this Agreement, "Taxes"
shall include all federal, state, local and foreign income, property, sales,
franchise, employment, excise and other taxes, tariffs or governmental charges
of any nature whatsoever, together with penalties, interest or additions to Tax
with respect thereto.
(b) Merry Land (i) for all taxable years commencing with January 1, 1987
through December 31, 1997, has been subject to taxation as a real estate
investment trust (a "REIT") within the meaning of Section 856 of the Code and
has satisfied all requirements to qualify as a REIT for such years, (ii) has
operated, and intends to continue to operate, in such a manner as to qualify as
a REIT for the taxable year ending December 31, 1998, and thereafter until the
Effective Time and (iii) has not taken or omitted to take any action which would
reasonably be expected to (A) result in any rents paid by the tenants of the
Properties to be excluded from the definition of "rents from real property"
under Section 856(d)(2)(C) of the Code, or (B) otherwise result in a challenge
to its status as a REIT, and no such challenge is pending or, to Merry Land's
Knowledge, threatened. Each Merry Land Subsidiary which is a partnership, joint
venture or limited liability company (i) has been since its formation and
continues to be treated for federal income tax purposes as a partnership and not
as a corporation or an association taxable as a corporation or ignored as a
separate entity, as the case may be, and (ii) has not since its formation owned
any assets (including, without limitation, securities) that would cause Merry
Land to violate Section 856(c)(4) of the Code. Except for ML Services, Inc.,
each Merry Land Subsidiary which is a corporation or treated as an association
taxable as a corporation has been since its formation a qualified REIT
subsidiary under Section 856(i) of the Code.
2.15 NO PAYMENTS TO EMPLOYEES, OFFICERS, TRUSTEES OR DIRECTORS. Set forth
in Schedule 2.3 and Schedule 2.15 of the Merry Land Disclosure Letter is a true
and complete list of all cash and non-cash payments, rights to property or other
contract rights which will become payable, accelerated or vested to or in each
employee, officer, trustee or director of Merry Land or any Merry Land
Subsidiary as a result of the Spin-Off and Merger. Except as described in
Schedule 2.3 and Schedule 2.15 to the Merry Land Disclosure Letter, or as
otherwise provided for in this Agreement, there is no employment or severance
contract, or other agreement requiring payments, cancellation of indebtedness or
other obligation to be made on a change of control or otherwise as a result of
the consummation of any of the transactions contemplated by this Agreement, with
respect to any employee, officer, trustee or director of Merry Land or any Merry
Land Subsidiary.
2.16 BROKERS; SCHEDULE OF FEES AND EXPENSES. Except as disclosed in
Schedule 2.16 to the Merry Land Disclosure Letter, no broker, investment banker,
financial advisor or other person, other than ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ & Co. Incorporated,
the fees and expenses of which have previously been disclosed to EQR, is
entitled to any broker's, finder's, financial advisor's or other similar fee or
commission in connection
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with the transactions contemplated hereby based upon arrangements made by or on
behalf of Merry Land or any Merry Land Subsidiary.
2.17 COMPLIANCE WITH LAWS. Except as disclosed in the Merry Land SEC
Documents or in Schedule 2.6 to the Merry Land Disclosure Letter, neither Merry
Land nor any of the Merry Land Subsidiaries has violated or failed to comply
with any statute, law, ordinance, regulation, rule, judgment, decree or order of
any Governmental Entity applicable to its business, properties or operations,
except to the extent that such violation or failure would not have a Merry Land
Material Adverse Effect.
2.18 CONTRACTS; DEBT INSTRUMENTS. (a) To the Knowledge of Merry Land,
except as disclosed in the Merry Land SEC Documents or in Schedule 2.18 to the
Merry Land Disclosure Letter, there is no contract or agreement that purports to
limit in any material respect the names or the geographic location in which
Merry Land or any Merry Land Subsidiary may conduct its business. Neither Merry
Land nor any Merry Land Subsidiary has received a written notice that Merry Land
or any Merry Land Subsidiary is in violation of or in default under (nor to the
Knowledge of Merry Land does there exist any condition which upon the passage of
time or the giving of notice or both would cause such a violation of or default
under) any material loan or credit agreement, note, bond, mortgage, indenture,
lease, permit, concession, franchise, license or any other material contract,
agreement, arrangement or understanding, to which it is a party or by which it
or any of its properties or assets is bound, except as set forth in Schedule
2.18 to the Merry Land Disclosure Letter, nor to the Knowledge of Merry Land
does such a violation or default exist, except to the extent that such violation
or default, individually or in the aggregate, would not have a Merry Land
Material Adverse Effect.
(b) Except for any of the following expressly identified in Merry Land SEC
Documents, Schedule 2.18 to the Merry Land Disclosure Letter sets forth a list
of each loan or credit agreement, note, bond, mortgage, indenture and any other
agreement and instrument pursuant to which any Indebtedness of Merry Land or any
Merry Land Subsidiary, other than Indebtedness payable to Merry Land or a Merry
Land Subsidiary is outstanding or may be incurred (collectively, the "Debt
Documents"), as well as the amount outstanding under each Debt Document as of
June 30, 1998. For purposes of this Section 2.18, "Indebtedness" shall mean, to
the extent any such item exceeds $50,000, (i) indebtedness for borrowed money,
whether secured or unsecured, (ii) obligations under conditional sale or other
title retention agreements relating to property purchased by such person, (iii)
capitalized lease obligations, (iv) obligations under interest rate cap, swap,
collar or similar transaction or currency hedging transactions (valued at the
termination value thereof) and (v) guarantees of any such indebtedness of any
other person.
(c) To the extent not set forth in response to the requirements of Section
2.18(b), Schedule 2.18 to the Merry Land Disclosure Letter sets forth each
interest rate cap, interest rate collar, interest rate swap, currency hedging
transaction, and any other agreement relating to a similar transaction to which
Merry Land or any Merry Land Subsidiary is a party or an obligor with respect
thereto.
(d) Except as set forth in Schedule 2.18 to the Merry Land Disclosure
Letter, neither Merry Land nor any of the Merry Land Subsidiaries is party to
any agreement which would restrict any of them from prepaying any of their
Indebtedness without penalty or premium at any time or which requires any of
them to maintain any amount of Indebtedness with respect to any of the Merry
Land Properties.
(e) Neither Merry Land nor any of the Merry Land Subsidiaries is a party to
any agreement relating to the management of any of the Merry Land Properties
except the agreements described in Schedule 2.18 to the Merry Land Disclosure
Letter (the "Third Party Management Agreements"). True and complete copies of
the Third Party Management Agreements have previously been furnished to EQR.
(f) Neither Merry Land nor any of the Merry Land Subsidiaries is a party to
any agreement pursuant to which Merry Land or any Merry Land Subsidiary manages
any real properties other than Merry Land Properties, except for the agreements
described in Schedule 2.18 to the Merry Land Disclosure Letter (the "Outside
Property Management Agreements").
(g) Except for budgeted construction disclosed in the Merry Land Capital
Budget or in Schedule 2.22 of the Merry Land Disclosure Letter, Schedule 2.18 of
the Merry Land Disclosure Letter lists all agreements
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entered into by Merry Land or any of the Merry Land Subsidiaries relating to the
development or construction of, or additions or expansions to, any Merry Land
Properties which are currently in effect and under which Merry Land or any of
the Merry Land Subsidiaries currently has, or expects to incur, an obligation in
excess of $250,000. True and correct copies of such agreements have previously
been delivered or made available to EQR.
(h) Schedule 2.18 to the Merry Land Disclosure Letter lists all agreements
entered into by Merry Land or any of the Merry Land Subsidiaries providing for
the sale of, or option to sell, any Merry Land Properties or the purchase of, or
option to purchase, any real estate which are currently in effect.
(i) Except as set forth in Schedule 2.18 to the Merry Land Disclosure
Letter, neither Merry Land nor any Merry Land Subsidiary has any continuing
contractual liability (i) for indemnification or otherwise under any agreement
relating to the sale of real estate previously owned, whether directly or
indirectly, by Merry Land or any Merry Land Subsidiary, except for standard
indemnification provisions entered into in the normal course of business, (ii)
to pay any additional purchase price for any of the Merry Land Properties, or
(iii) to make any reprorations or adjustments to prorations involving an amount
in excess of $25,000 (other than real estate taxes) that may previously have
been made with respect to any property currently or formerly owned by Merry
Land.
(j) Except as set forth in Schedule 2.18 to the Merry Land Disclosure
Letter, neither Merry Land nor any Merry Land Subsidiary has entered into or is
subject, directly or indirectly, to any "Tax Protection Agreements." As used
herein, a Tax Protection Agreement is an agreement, oral or written, (A) that
has as one of its purposes to permit a person or entity to take the position
that such person or entity could defer federal taxable income that otherwise
might have been recognized upon a transfer of property to the Merry Land
Partnership or any other Merry Land Subsidiary that is treated as a partnership
for federal income tax purposes, and (B) that (i) prohibits or restricts in any
manner the disposition of any assets of Merry Land or any Merry Land Subsidiary,
(including, without limitation, requiring Merry Land or any Merry Land
Subsidiary to indemnify any person for any tax liabilities resulting from any
such disposition), (ii) requires that Merry Land or any Merry Land Subsidiary
maintain, or put in place, or replace, indebtedness, whether or not secured by
one or more of the Merry Land Properties, or (iii) requires that Merry Land or
any Merry Land Subsidiary offer to any person or entity at any time the
opportunity to guarantee or otherwise assume, directly or indirectly, the risk
of loss for federal income tax purposes for indebtedness or other liabilities of
Merry Land or any Merry Land Subsidiary.
(k) Except as set forth in Schedule 2.18 to the Merry Land Disclosure
Letter, there are no material outstanding contractual obligations of Merry Land
or any Merry Land Subsidiary to provide any funds to, or make any investment (in
the form of a loan, capital contribution or otherwise) in, any Merry Land
Subsidiary or any other Person.
2.19 OPINION OF FINANCIAL ADVISOR. Merry Land has received the opinion of
▇▇▇▇▇▇ ▇▇▇▇▇▇▇ & Co. Incorporated, dated July 8, 1998, satisfactory to Merry
Land, and a signed copy of which has been provided to EQR.
2.20 STATE TAKEOVER STATUTES. Merry Land has taken all action necessary to
exempt the transactions contemplated by this Agreement between EQR and Merry
Land and its Affiliates from the operation of any "fair price," "moratorium,"
"control share acquisition" or any other anti-takeover statute or similar
statute enacted under the state or federal laws of the United States or similar
statute or regulation (a "Takeover Statute").
2.21 REGISTRATION STATEMENT. The information relating to Merry Land and
the Merry Land Subsidiaries included in the Registration Statement (as defined
in Section 5.1) will not, as of the effective date of the Registration
Statement, contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
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2.22 DEVELOPMENT PROPERTIES. Schedule 2.22 to the Merry Land Disclosure
Letter lists all agreements entered into by Merry Land or any of the Merry Land
Subsidiaries relating to the development or construction of, or additions or
expansions to, any real properties which are currently in effect.
2.23 INVESTMENT COMPANY ACT OF 1940. Neither Merry Land nor any of the
Merry Land Subsidiaries is, or at the Effective Time will be, required to be
registered under the Investment Company Act of 1940, as amended (the "1940
Act").
2.24 TRADEMARKS, PATENTS AND COPYRIGHTS. Except as set forth in Schedule
2.24 to the Merry Land Disclosure Letter, or to the extent the inaccuracy of any
of the following (or the circumstances giving rise to such inaccuracy)
individually or in the aggregate would not have a Merry Land Material Adverse
Effect, Merry Land and each Merry Land Subsidiary owns or possesses adequate
licenses or other legal rights to use all patents, patent rights, trademarks,
trademark rights, trade names, trade name rights, copyrights, service marks,
trade secrets, applications for trademarks and for service marks, know-how and
other proprietary rights and information used or held for use in connection with
the business of Merry Land and the Merry Land Subsidiaries as currently
conducted or as contemplated to be conducted, and Merry Land has no Knowledge of
any assertion or claim challenging the validity of any of the foregoing. The
conduct of the business of Merry Land and the Merry Land Subsidiaries as
currently conducted and as contemplated to be conducted did not, does not and
will not infringe in any way any patent, patent right, license, trademark,
trademark right, trade name, trade name right, service mark, or copyright of any
third party that, individually or in the aggregate, could have a Merry Land
Material Adverse Effect. To Merry Land's Knowledge, there are no infringements
of any proprietary rights owned by or licensed by or to Merry Land or any Merry
Land Subsidiary that individually or in the aggregate could have a Merry Land
Material Adverse Effect.
2.25 INSURANCE. Except as set forth on Schedule 2.25 to the Merry Land
Disclosure Letter, each of Merry Land and the Merry Land Subsidiaries are, and
has been continuously since January 1, 1993, insured with financially
responsible insurers in such amounts and against such risks and losses as are
customary for companies conducting the business as conducted by Merry Land and
the Merry Land Subsidiaries during such time period. Except as set forth on
Schedule 2.25 to the Merry Land Disclosure Letter, neither Merry Land nor any
Merry Land Subsidiary has received any notice of cancellations or termination
with respect to any material insurance policy of Merry Land or any Merry Land
Subsidiary. The insurance policies of Merry Land and each Merry Land Subsidiary
are valid and enforceable policies in all material respects.
2.26 DEFINITION OF KNOWLEDGE OF MERRY LAND. As used in this Agreement, the
phrase "to the Knowledge of Merry Land" (or words of similar import) means the
knowledge of those individuals identified in Schedule 2.26 of the Merry Land
Disclosure Letter.
2.27 VOTE REQUIRED. Except for the Merry Land Shareholder Approvals, no
other vote or consent by the equity-holders of Merry Land or any Merry Land
Subsidiary (whether by agreement, under applicable law or otherwise) is required
to approve this Agreement and the transactions contemplated hereby; provided,
however, no representation or warranty is being made in this Section 2.27 with
respect to any vote or consent required for any Alternative Merger.
2.28 ESOP ACCRUALS. As of the date hereof, Merry Land has accrued a total
of approximately $559,000 in contributions to the ESOP and, other than regular
monthly accruals in monthly amounts not exceeding $95,000 (the "Monthly ESOP
Accrual"), has made no accruals or contributions to the ESOP during the previous
twelve (12) month period from the date hereof.
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ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF EQR
Except as set forth in the letter of even date herewith signed by the
President of EQR and delivered to Merry Land prior to the execution hereof (the
"EQR Disclosure Letter"), EQR represents and warrants to Merry Land as follows:
3.1 ORGANIZATION, STANDING AND POWER OF EQR. EQR is a real estate
investment trust duly organized and validly existing under the laws of Maryland
and has the requisite power and authority to carry on its business as now being
conducted. EQR is duly qualified or licensed to do business as a foreign trust
and is in good standing in each jurisdiction in which the nature of its business
or the ownership or leasing of its properties makes such qualification or
licensing necessary, other than in such jurisdictions where the failure to be so
qualified or licensed, individually or in the aggregate, would not have a
material adverse effect on the business, properties, assets, financial condition
or results of operations of EQR and the Subsidiaries of EQR (other than
Subsidiaries which are not Affiliates of EQR) ("EQR Subsidiaries") taken as a
whole ("EQR Material Adverse Effect"). EQR has delivered to Merry Land complete
and correct copies of its Second Amended and Restated Declaration of Trust and
Second Amended and Restated Bylaws, in each case as amended or supplemented to
the date of this Agreement.
3.2 CAPITAL STRUCTURE. (a) The authorized shares of beneficial interest of
EQR consist of 200,000,000 EQR Common Shares and 100,000,000 preferred shares of
beneficial interest ("EQR Preferred Shares"), including (i) 6,120,000 9 3/8%
Series A Cumulative Redeemable Preferred Shares of Beneficial Interest, $0.01
par value per share (the "EQR Series A Preferred Shares"), (ii) 500,000 9 1/8%
Series B Cumulative Redeemable Preferred Shares of Beneficial Interest, $0.01
par value per share, that are represented by 5,000,000 depository shares (the
"EQR Series B Preferred Shares"), (iii) 460,000 9 1/8% Series C Cumulative
Redeemable Preferred Shares of Beneficial Interest, $0.01 par value per share,
that are represented by 4,600,000 depository shares (the "EQR Series C Preferred
Shares"), (iv) 805,000 8.60% Series D Cumulative Redeemable Preferred Shares of
Beneficial Interest (Liquidation Preference $250.00 Per Share) (the "EQR Series
D Preferred Shares"), (v) 4,600,000 Series E Cumulative Convertible Preferred
Shares of Beneficial Interest, $0.01 par value per share (the "EQR Series E
Preferred Shares"), (vi) 2,300,000 9.65% Series F Cumulative Redeemable
Preferred Shares of Beneficial Interest, $0.01 par value per share (the "EQR
Series F Preferred Shares"), and (vii) 1,265,000 7 1/4% Series G Convertible
Cumulative Preferred Shares of Beneficial Interest, $0.01 par value per share
(the "EQR Series G Preferred Shares"). As of June 30, 1998, (i) 97,870,504 EQR
Common Shares, 6,120,000 EQR Series A Preferred Shares, 500,000 EQR Series B
Preferred Shares (represented by 5,000,000 depositary shares), 460,000 EQR
Series C Preferred Shares (represented by 4,600,000 depositary shares), 700,000
EQR Series D Preferred Shares (represented by 7,000,000 depositary shares),
3,998,000 EQR Series E Preferred Shares, 2,300,000 EQR Series F Preferred Shares
and 1,265,000 EQR Series G Preferred Shares were outstanding, (ii) 825,223 EQR
Common Shares were available for issuance under EQR's 1996 Non-Qualified
Employee Share Purchase Plan (the "EQR Employee Share Plan"), (iii) 5,664,717
EQR Common Shares were issuable upon exercise of outstanding share options (the
"EQR Options") to purchase EQR Common Shares and 1,282,059 EQR Common Shares
were available for grant, under EQR's Fourth Amended and Restated 1993 Share
Option and Share Award Plan (the "Employee Share Award and Option Plan"), (iv)
5,996,377 shares were reserved for issuance under EQR's Distribution
Reinvestment and Purchase Plan (the "EQR Distribution Reinvestment Plan"), (v)
9,687,781 EQR Common Shares were reserved for issuance upon redemption of
limited partnership interests in ERP Operating Partnership (" OP Units") for EQR
Common Shares pursuant to the EQR Partnership Agreement, and (vi) 7,623,507
shares were reserved for issuance upon the conversion of the EQR Preferred
Shares which are convertible into EQR Common Shares. On the date hereof, except
as set forth in this Section 3.2 or Schedule 3.2 of the EQR Disclosure Letter,
no shares of beneficial interest or other voting securities of EQR were issued,
reserved for issuance or outstanding.
(b) All outstanding shares of beneficial interest of EQR are duly
authorized, validly issued, fully paid and nonassessable and not subject to
preemptive rights, except that the shareholders may be subject to further
assessment with respect to certain claims for tort, contract, taxes, statutory
liability and otherwise in some
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jurisdictions to the extent such claims are not satisfied by EQR. There are no
bonds, debentures, notes or other indebtedness of EQR having the right to vote
(or convertible into, or exchangeable for, securities having the right to vote)
on any matters on which shareholders of EQR may vote.
(c) Except (i) for the EQR Options, (ii) for the OP Units (which, subject
to certain restrictions, may be exchanged by the holders thereof for either EQR
Common Shares on a one-for-one basis or, at EQR's option, cash), as are
disclosed in Schedule 3.2 to the EQR Disclosure Letter, (iii) for the EQR
Reinvestment Plan, (iv) for the EQR Employee Share Award and Option Plan, or (v)
as set forth in Schedule 3.2 to the EQR Disclosure Letter, as of the date of
this Agreement there are no outstanding securities, options, warrants, calls,
rights, commitments, agreements, arrangements or undertakings of any kind to
which EQR or any EQR Subsidiary is a party or by which such entity is bound,
obligating EQR or any EQR Subsidiary to issue, deliver or sell, or cause to be
issued, delivered or sold, additional shares of beneficial interest, voting
securities or other ownership interests of EQR or of any EQR Subsidiary or
obligating EQR or any EQR Subsidiary to issue, grant, extend or enter into any
such security, option, warrant, call, right, commitment, agreement, arrangement
or undertaking (other than to EQR or an EQR Subsidiary). Except as set forth on
Schedule 3.2 to the EQR Disclosure Letter or as required under the ERP Operating
Partnership Agreement, there are no outstanding contractual obligations of EQR
or any EQR Subsidiary to repurchase, redeem or otherwise acquire any shares of
beneficial interest of EQR or any capital stock, voting securities, or other
ownership interests in any EQR Subsidiary or make any material investment (in
the form of a loan, capital contribution or otherwise) in any person (other than
an EQR Subsidiary).
(d) EQR owns all of its partnership interests in ERP Operating Partnership
free and clear of all Liens.
3.3 ORGANIZATION, STANDING AND POWER OF ERP OPERATING PARTNERSHIP. ERP
Operating Partnership is a limited partnership duly organized and validly
existing under the laws of Illinois and has the requisite power and authority to
carry on its business as now being conducted. ERP Operating Partnership is duly
qualified or licensed to do business and is in good standing in each
jurisdiction in which the nature of its business or the ownership or leasing of
its properties makes such qualification or licensing necessary, other than in
such jurisdictions where the failure to be so qualified or licensed,
individually or in the aggregate, would not have a EQR Material Adverse Effect.
EQR has delivered to Merry Land complete and correct copies of ERP Operating
Partnership's Fourth Amended and Restated Agreement of Limited Partnership, as
amended or supplemented to the date of this Agreement, as well as a form of ERP
Operating Partnership Fifth Amended and Restated Agreement of Limited
Partnership, which EQR currently contemplates adopting, in whole or in part,
prior to the Effective Time.
3.4 CAPITAL STRUCTURE OF ERP OPERATING PARTNERSHIP. As of June 30, 1998,
the number of outstanding OP Units consisted of (a) 97,870,499 units of general
partnership interest, (b) 9,687,781 units of limited partnership interest, (c)
6,120,000 9 3/8% Series A Cumulative Redeemable Preference Units, (d) 500,000
9 1/8% Series B Cumulative Redeemable Preference Units, (e) 460,000 9 1/8%
Series C Cumulative Redeemable Preference Units, (f) 700,000 8.60% Series D
Cumulative Redeemable Preference Units, (g) 3,998,000 Series E Cumulative
Convertible Preference Units, (h) 2,300,000 Series F Cumulative Redeemable
Preference Units, and (i) 1,265,000 7 1/4% Series G Convertible Cumulative
Preference Units. Except for the units of limited partnership interest, all of
the units of partnership interest in ERP Operating Partnership are owned by EQR
free and clear of all Liens.
3.5 AUTHORITY; NONCONTRAVENTION; CONSENTS. (a) EQR has the requisite power
and authority to enter into this Agreement and, subject to the affirmative vote
of at least a majority of the outstanding EQR Common Shares entitled to vote
thereon to approve the Merger (the "EQR Shareholder Approvals" and, together
with the Merry Land Shareholder Approvals, the "Shareholder Approvals"), to
consummate the transactions contemplated by this Agreement to which EQR is a
party. The execution and delivery of this Agreement by EQR and the consummation
by EQR of the transactions contemplated by this Agreement to which EQR is a
party have been duly authorized by all necessary action on the part of EQR,
subject to the EQR Shareholder Approvals. This Agreement has been duly executed
and delivered by EQR and constitutes a valid and binding obligation of EQR,
enforceable against EQR in accordance with its terms,
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subject to applicable bankruptcy, insolvency, moratorium or other similar laws
relating to creditors' rights and general principles of equity.
(b) Except as set forth in Schedule 3.5 to the EQR Disclosure Letter, the
execution and delivery of this Agreement by EQR do not, and the consummation of
the transactions contemplated by this Agreement to which EQR is a party and
compliance by EQR with the provisions of this Agreement will not, conflict with,
or result in any violation of or default (with or without notice or lapse of
time, or both) under, or give rise to a right of termination, cancellation or
acceleration of any material obligation or to loss of a material benefit under,
or result in the creation of any Lien upon any of the properties or assets of
EQR or any EQR Subsidiary under, (i) the Second Amended and Restated Declaration
of Trust or Second Amended and Restated Bylaws of EQR or the comparable charter
or organizational documents or partnership or similar agreement (as the case may
be) of any other EQR Subsidiary, each as amended or supplemented to the date of
this Agreement, (ii) any loan or credit agreement, note, bond, mortgage,
indenture, reciprocal easement agreement, lease or other agreement, instrument,
permit, concession, franchise or license applicable to EQR or any EQR Subsidiary
or their respective properties or assets or (iii) subject to the governmental
filings and other matters referred to in the following sentence, any Laws
applicable to EQR or any EQR Subsidiary or their respective properties or
assets, other than, in the case of clause (ii) or (iii), any such conflicts,
violations, defaults, rights, loss or Liens that individually or in the
aggregate would not (x) have an EQR Material Adverse Effect or (y) prevent the
consummation of the transactions contemplated by this Agreement. No consent,
approval, order or authorization of, or registration, declaration or filing
with, any Governmental Entity is required by or with respect to EQR or any EQR
Subsidiary in connection with the execution and delivery of this Agreement or
the consummation by EQR of any of the transactions contemplated by this
Agreement, except for (i) the filing with the SEC of (x) the Proxy Statement and
(y) such reports under Section 13(a) of the Exchange Act as may be required in
connection with this Agreement and the transactions contemplated by this
Agreement, (ii) the filing of the Articles of Merger with the Department, (iii)
the filing of the Certificate of Merger with the Secretary of State, (iv) such
filings as may be required in connection with the payment of any transfer and
gains taxes and (v) such other consents, approvals, orders, authorizations,
registrations, declarations and filings (A) as are set forth in Schedule 3.5 to
the EQR Disclosure Letter or (B) as may be required under (x) federal, state or
local environmental laws or (y) the securities laws of the State of Maryland or
(C) which, if not obtained or made, would not prevent or delay in any material
respect the consummation of any of the transactions contemplated by this
Agreement or otherwise prevent EQR from performing its obligations under this
Agreement in any material respect or have, individually or in the aggregate, an
EQR Material Adverse Effect.
(c) EQR is making no representation or warranty in this Section 3.5 with
respect to any matters or approvals required for any Alternative Merger.
(d) For purposes of determining compliance with the ▇▇▇▇-▇▇▇▇▇ Act, EQR
confirms that the conduct of its business consists solely of investing in,
owning and operating real estate for the benefit of its shareholders.
3.6 SEC DOCUMENTS; FINANCIAL STATEMENTS; UNDISCLOSED LIABILITIES. EQR and
ERP Operating Partnership have filed all required reports, schedules, forms,
statements and other documents with the SEC since August 18, 1993 through the
date hereof (the "EQR SEC Documents"). Schedule 3.6 to the EQR Disclosure Letter
contains a complete list of all EQR SEC Documents filed by EQR under the
Exchange Act since January 1, 1997 and on or prior to the date of this
Agreement. All of the EQR SEC Documents (other than preliminary material), as of
their respective filing dates, complied in all material respects with all
applicable requirements of the Securities Act and the Exchange Act and, in each
case, the rules and regulations promulgated thereunder applicable to such EQR
SEC Documents. None of the EQR SEC Documents at the time of filing contained any
untrue statement of a material fact or omitted to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading, except to the extent such statements have been modified or
superseded by later EQR SEC Documents filed and publicly available prior to the
date of this Agreement. The consolidated financial statements of EQR and the EQR
Subsidiaries included in the EQR SEC Documents complied as to form in all
material respects with applicable accounting requirements and the published
rules and regulations of the SEC with respect thereto, have been prepared in
accordance
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with GAAP (except, in the case of unaudited statements, as permitted by the
applicable rules and regulations of the SEC) applied on a consistent basis
during the periods involved (except as may be indicated in the notes thereto)
and fairly presented, in accordance with the applicable requirements of GAAP and
the applicable rules and regulations of the SEC, the consolidated financial
position of EQR and the EQR Subsidiaries, taken as a whole, as of the dates
thereof and the consolidated results of operations and cash flows for the
periods then ended (subject, in the case of unaudited statements, to normal
year-end audit adjustments). Except for liabilities and obligations set forth in
the EQR SEC Documents or in Schedule 3.6 to the EQR Disclosure Letter, neither
EQR nor any EQR Subsidiary has any liabilities or obligations of any nature
(whether accrued, absolute, contingent or otherwise) required by GAAP to be set
forth on a consolidated balance sheet of EQR or in the notes thereto and which,
individually or in the aggregate, would have an EQR Material Adverse Effect.
3.7 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed in the EQR
SEC Documents or in Schedule 3.7 to the EQR Disclosure Letter, since the date of
the most recent audited financial statements included in the EQR SEC Documents
(the "EQR Financial Statement Date"), EQR and the EQR Subsidiaries have
conducted their business only in the ordinary course (taking into account prior
practices, including the acquisition of properties and issuance of securities)
and there has not been (a) any material adverse change in the business,
financial condition or results of operations of EQR and the EQR Subsidiaries
taken as a whole (a "EQR Material Adverse Change"), nor has there been any
occurrence or circumstance that with the passage of time would reasonably be
expected to result in an EQR Material Adverse Change, (b) except for regular
quarterly distributions (in the case of EQR) not in excess of $0.67 per EQR
Common Share, $0.5859 per EQR Series A Preferred Share, $0.5703 per EQR Series B
Preferred Share, $0.5703 per EQR Series C Preferred Share, $0.5375 per EQR
Series D Preferred Share, $0.4375 per EQR Series E Preferred Share, $0.6031 per
EQR Series F Preferred Share and $0.4531 per EQR Series G Preferred Share, in
each case subject to rounding adjustments as necessary and with customary record
and payment dates, any declaration, setting aside or payment of any dividend or
other distribution (whether in cash, stock or property) with respect to any of
EQR's shares of beneficial interest, (c) any split, combination or
reclassification of any of EQR's shares of beneficial interest, (d) any damage,
destruction or loss, whether or not covered by insurance, that has or would have
an EQR Material Adverse Effect, or (e) any change made prior to the date of this
Agreement in accounting methods, principles or practices by EQR or any EQR
Subsidiary materially affecting its assets, liabilities or business, except
insofar as may have been disclosed in the EQR SEC Documents or required by a
change in GAAP. EQR is not in default in the payment of distributions on the EQR
Preferred Shares.
3.8 LITIGATION. Except as disclosed in the EQR SEC Documents or in
Schedule 3.8 to the EQR Disclosure Letter, and other than personal injury and
other routine tort litigation arising from the ordinary course of operations of
EQR and the EQR Subsidiaries (a) which are covered by adequate insurance, or (b)
for which all material costs and liabilities arising therefrom are reimbursable
pursuant to common area maintenance or similar agreements, there is no suit,
action or proceeding pending or, to the Knowledge of EQR, threatened in writing
against or affecting EQR or any EQR Subsidiary that, individually or in the
aggregate, could reasonably be expected to (i) have an EQR Material Adverse
Effect, or (ii) prevent the consummation of any of the transactions contemplated
by this Agreement, nor is there any judgment, decree, injunction, rule or order
of any Governmental Entity or arbitrator outstanding against EQR or any EQR
Subsidiary having, or which, insofar as reasonably can be foreseen, in the
future would have, any such effect.
3.9 PROPERTIES. (a) EQR or one of the EQR Subsidiaries owns fee simple
title to each of the real properties listed in the EQR SEC Filings as owned by
it (the "EQR Properties"), except where the failure to own such title would not
have an EQR Material Adverse Effect.
(b) The EQR Properties are not subject to any Encumbrances or Property
Restrictions which could cause an EQR Material Adverse Effect.
(c) Valid policies of title insurance have been issued insuring EQR's or
the applicable EQR Subsidiaries' fee simple title to the EQR Properties in
amounts at least equal to the purchase price thereof paid by EQR
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or the applicable EQR Subsidiaries therefor, except where the failure to obtain
such title insurance would not have an EQR Material Adverse Effect.
(d) EQR has no Knowledge (i) that it has failed to obtain a certificate,
permit or license from any governmental authority having jurisdiction over any
of the EQR Properties where such failure would have an EQR Material Adverse
Effect, or of any pending threat of modification or cancellation of any of the
same which would have an EQR Material Adverse Effect, (ii) of any written notice
of any violation of any federal, state or municipal law, ordinance, order, rule,
regulation or requirement affecting any of the EQR Properties issued by any
governmental authorities which would have an EQR Material Adverse Effect, or
(iii) of any structural defects relating to EQR Properties, EQR Properties whose
building systems are not in working order, physical damage to any EQR Property
for which there is no insurance in effect covering the cost of restoration, any
current renovation or uninsured restoration, except such structural defects,
building systems not in working order, physical damage, renovation and
restoration which, in the aggregate, would not have an EQR Material Adverse
Effect.
(e) Neither EQR nor any of the EQR Subsidiaries has received any written
notice to the effect that (i) any condemnation or rezoning proceedings are
pending or threatened with respect to any of the EQR Properties, or (ii) any
zoning, building or similar law, code, ordinance, order or regulation is or will
be violated by the continued maintenance, operation or use of any buildings or
other improvements on any of the EQR Properties or by the continued maintenance,
operation or use of the parking areas, other than such notices which, in the
aggregate, would not have an EQR Material Adverse Effect.
(f) All work to be performed, payments to be made and actions to be taken
by EQR or the EQR Subsidiaries prior to the date hereof pursuant to any
agreement entered into with a governmental body or authority in connection with
a site approval, zoning reclassification or similar action relating to any EQR
Properties (e.g., Local Improvement District, Road Improvement District,
Environmental Mitigation), has been performed, paid or taken, as the case may
be, except where the failure to do so would, in the aggregate, not have an EQR
Material Adverse Effect, and EQR has no Knowledge of any planned or proposed
work, payments or actions that may be required after the date hereof pursuant to
such agreements which would have an EQR Material Adverse Effect.
3.10 ENVIRONMENTAL MATTERS. None of EQR, any of the EQR Subsidiaries or,
to EQR's Knowledge, any other Person has caused or permitted (a) the unlawful
presence of any Hazardous Substances on any of the EQR Properties, or (b) any
unlawful spills, releases, discharges or disposal of Hazardous Materials to have
occurred or be presently occurring on or from the EQR Properties as a result of
any construction on or operation and use of such properties, which presence or
occurrence would, individually or in the aggregate, have an EQR Material Adverse
Effect; and in connection with the construction on or operation and use of the
EQR Properties, EQR and the EQR Subsidiaries have not failed to comply in any
material respect with all applicable local, state and federal environmental
laws, regulations, ordinances and administrative and judicial orders relating to
the generation, recycling, reuse, sale, storage, handling, transport and
disposal of any Hazardous Materials, except to the extent such failure to
comply, individually or in the aggregate, would not have an EQR Material Adverse
Effect. EQR has previously delivered or made available to Merry Land complete
copies of all environmental investigations and testing or analysis made by or on
behalf of EQR or any of the EQR Subsidiaries with respect to the environment
condition of the EQR Properties, all of which are listed in the EQR Disclosure
Letter.
3.11 TAXES. (a) Each of EQR and the EQR Subsidiaries has filed all tax
returns and reports required to be filed by it (after giving effect to any
filing extension properly granted by a Governmental Entity having authority to
do so) and has paid (or EQR has paid on its behalf) all Taxes shown on such
returns and reports as required to be paid by it except where the failure to
file such tax returns or reports and failure to pay such Taxes would not have an
EQR Material Adverse Effect. The most recent audited financial statements
contained in the EQR SEC Documents reflect an adequate reserve for all material
Taxes payable by EQR and the EQR Subsidiaries for all taxable periods and
portions thereof through the date of such financial statements. Since the EQR
Financial Statement Date, EQR has incurred no liability for taxes under Sections
857(b), 860(c) or 4981 of the Code, including without limitation any tax arising
from a prohibited
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transaction described in Section 857(b)(6) of the Code, and neither EQR nor any
EQR Subsidiary has incurred any liability for taxes other than in the ordinary
course of business. No event has occurred, and no condition or circumstance
exists, which presents a material risk that any material Tax described in the
preceding sentence will be imposed upon EQR. No deficiencies for any Taxes have
been proposed, asserted or assessed pursuant to a "30-day letter" or notice of
deficiency sent by the IRS, or, to the Knowledge of EQR, otherwise proposed,
asserted or assessed against EQR or any of the EQR Subsidiaries. No waivers of
the time to assess any such Taxes have been executed by EQR or any EQR
Subsidiary and, to the Knowledge of EQR, no such waivers are pending.
(b) EQR (i) for all taxable years commencing with 1992 through the most
recent December 31, has been subject to taxation as a REIT within the meaning of
Section 856 of the Code and has satisfied all requirements to qualify as a REIT
for such years, (ii) has operated, and intends to continue to operate, in such a
manner as to qualify as a REIT for the tax year ending December 31, 1998, and
(iii) has not taken or omitted to take any action which would reasonably be
expected to (A) result in any rents paid by tenants to the EQR Properties to be
excluded from the definition of "rents from real property" under Section
856(d)(2) of the Code, or (B) otherwise result in a challenge to its status as a
REIT, and to EQR's Knowledge, no such challenge is pending or threatened. Each
EQR Subsidiary which is a partnership, joint venture or limited liability
company has been treated since its formation and continues to be treated for
federal income tax purposes as a partnership, or ignored as a separate entity,
as the case may be, and not as a corporation or as an association taxable as a
corporation. Each corporation, trust or other entity taxable as an association
which has merged with and into EQR had been subject to taxation as a REIT at all
times since its initial election of REIT status and had satisfied all
requirements to qualify as a REIT for such years, except to the extent that a
failure to satisfy such requirements would not have a EQR Material Adverse
Effect.
3.12 BROKERS; SCHEDULE OF FEES AND EXPENSES. No broker, investment banker,
financial advisor or other person, other than ▇.▇. ▇▇▇▇▇▇ Securities Inc. the
fees and expenses of which have previously been disclosed to Merry Land and will
be paid by EQR, is entitled to any broker's, finder's, financial advisor's or
other similar fee or commission in connection with the transactions contemplated
hereby based upon arrangements made by or on behalf of EQR or any EQR
Subsidiary.
3.13 COMPLIANCE WITH LAWS. Except as disclosed in the EQR SEC Documents,
neither EQR nor any of the EQR Subsidiaries has violated or failed to comply
with any statute, law, ordinance, regulation, rule, judgment, decree or order of
any Governmental Entity applicable to its business, properties or operations,
except to the extent that such violation or failure would not have an EQR
Material Adverse Effect.
3.14 CONTRACTS; DEBT INSTRUMENTS. Neither EQR nor any EQR Subsidiary has
received a written notice that EQR or any EQR Subsidiary is in violation of or
in default under (nor to the Knowledge of EQR does there exist any condition
which upon the passage of time or the giving of notice or both would cause such
a violation of or default under) any material loan or credit agreement, note,
bond, mortgage, indenture, lease, permit, concession, franchise, license or any
other material contract, agreement, arrangement or understanding, to which it is
a party or by which it or any of its properties or assets is bound, nor to the
Knowledge of EQR does such a violation or default exist, except to the extent
such violation or default, individually or in the aggregate, would not have an
EQR Material Adverse Effect, except as set forth in Schedule 3.14 to the EQR
Disclosure Letter.
3.15 OPINION OF FINANCIAL ADVISOR. EQR has received the opinion of ▇.▇.
▇▇▇▇▇▇ Securities Inc. dated July 8, 1998, satisfactory to EQR, a signed copy of
which has been provided to Merry Land, to the effect that the consideration to
be paid by EQR in connection with the Merger is fair, from a financial point of
view, to EQR.
3.16 STATE TAKEOVER STATUTES. EQR has taken all action necessary to exempt
transactions between EQR and Merry Land and its Affiliates from the operation of
Takeover Statutes.
3.17 REGISTRATION STATEMENT. The information with respect to EQR and the
EQR Subsidiaries included in the Registration Statement will not, as of the
effective date of the Registration Statement, contain an untrue statement of a
material fact or omit to state a material fact required to be stated therein, or
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necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading.
3.18 INVESTMENT COMPANY ACT OF 1940. Neither EQR nor any of the EQR
Subsidiaries is, or at the Effective Time will be, required to be registered
under the 1940 Act.
3.19 DEFINITION OF KNOWLEDGE OF EQR. As used in this Agreement, the phrase
"to the Knowledge of EQR" (or words of similar import) means the knowledge of
those individuals identified in Schedule 3.19 to the EQR Disclosure Letter.
3.20 VOTE REQUIRED. Except for the EQR Shareholder Approvals, no other
vote or consent by the equity-holders of EQR or any EQR Subsidiary (whether by
agreement, under applicable law or otherwise) is required to approve this
Agreement or the transactions contemplated hereby; provided, however, that no
representation or warranty is being made in this Section 3.20 with respect to
any vote or consent required for any Alternate Merger.
3.21 EMPLOYEE POLICIES. Each employee plan or arrangement of EQR is in
material compliance with ERISA, to the extent subject to ERISA, and any other
applicable law governing such employee plan or arrangement.
ARTICLE 4
COVENANTS
4.1 ACQUISITION PROPOSALS. Prior to the Effective Time, Merry Land agrees
that:
(a) neither it nor any of the Merry Land Subsidiaries shall initiate,
solicit or encourage, directly or indirectly, any inquiries or the making
or implementation of any proposal or offer (including, without limitation,
any proposal or offer to its shareholders) with respect to a merger,
acquisition, tender offer, exchange offer, consolidation, sale of assets or
similar transaction involving all or any significant portion of the assets
or any equity securities of Merry Land or any of the Merry Land
Subsidiaries, other than the transactions contemplated by this Agreement
(any such proposal or offer being hereinafter referred to as an
"Acquisition Proposal") or engage in any negotiations concerning or provide
any confidential information or data to, or have any discussions with, any
person relating to an Acquisition Proposal, or otherwise facilitate any
effort or attempt to make or implement an Acquisition Proposal;
(b) it will use its best efforts not to permit any of its officers,
directors, employees, agents or financial advisors to engage in any of the
activities described in Section 4.1(a);
(c) it will immediately cease and cause to be terminated any existing
activities, discussions or negotiations with any parties conducted
heretofore with respect to any of the foregoing and will take the necessary
steps to inform the individuals or entities referred to in Section 4.1(b)
of the obligations undertaken in this Section 4.1; and
(d) it will notify EQR immediately if Merry Land receives any such
inquiries or proposals, or any requests for such information, or if any
such negotiations or discussions are sought to be initiated or continued
with it;
provided, however, that nothing contained in this Section 4.1 shall prohibit the
Board of Directors of Merry Land from (i) furnishing information to or entering
into discussions or negotiations with, any person or entity that makes an
unsolicited Acquisition Proposal, if, and only to the extent that (A) the Board
of Directors of Merry Land determines in good faith that such action is required
for the Board of Directors to comply with its duties to shareholders imposed by
law, (B) prior to furnishing such information to, or entering into discussions
or negotiations with, such person or entity, Merry Land provides written notice
to EQR to the effect that it is furnishing information to, or entering into
discussions with, such person or entity, and (C) subject to any confidentiality
agreement with such person or entity (which Merry Land determined in good faith
was required to be executed in order for the Board of Directors to comply with
its duties to shareholders imposed by law), Merry Land keeps EQR informed of the
status (not the terms) of any such discussions or
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negotiations; and (ii) to the extent applicable, complying with Rule 14e-2 or
Rule 14d-9 promulgated under the Exchange Act with regard to an Acquisition
Proposal. Nothing in this Section 4.1 shall (x) permit Merry Land to terminate
this Agreement (except as specifically provided in Article 7 hereof), (y) permit
Merry Land to enter into an agreement with respect to an Acquisition Proposal
during the term of this Agreement (it being agreed that during the term of this
Agreement, Merry Land shall not enter into an agreement with any Person that
provides for, or in any way facilitates, an Acquisition Proposal (other than a
confidentiality agreement in customary form executed as provided above)) or (z)
affect any other obligation of Merry Land under this Agreement; provided,
however, that the Board of Directors of Merry Land may approve and recommend a
Superior Acquisition Proposal and, in connection therewith, withdraw or modify
its approval or recommendation of this Agreement and the Merger. As used herein,
"Superior Acquisition Proposal" means a bona fide Acquisition Proposal made by a
third party which a majority of the members of the Board of Directors of Merry
Land determines in good faith to be more favorable to Merry Land's shareholders
from a financial point of view than the Merger and which the Board of Directors
of Merry Land determines is reasonably capable of being consummated.
4.2 CONDUCT OF MERRY LAND'S BUSINESS PENDING MERGER. Prior to the
Effective Time, except as (i) contemplated by this Agreement, (ii) set forth in
Schedule 4.2 to the Merry Land Disclosure Letter or (iii) consented to in
writing by EQR, Merry Land shall, and shall cause each of the Merry Land
Subsidiaries to, conduct its business only in the usual, regular and ordinary
course and in substantially the same manner as heretofore, and, irrespective of
whether or not in the ordinary course of business, Merry Land shall, and shall
cause each of the Merry Land Subsidiaries to:
(a) use its reasonable efforts to preserve intact its business
organizations and goodwill and keep available the services of its officers
and employees;
(b) confer on a regular basis with one or more representatives of EQR
to report operational matters of materiality and, subject to Section 4.1,
any proposals to engage in material transactions;
(c) promptly notify EQR of any material emergency or other material
change in the condition (financial or otherwise), business, properties,
assets, liabilities, prospects or the normal course of its businesses or in
the operation of its properties, or of any material governmental
complaints, investigations or hearings (or communications indicating that
the same may be contemplated);
(d) promptly deliver to EQR true and correct copies of any report,
statement or schedule filed with the SEC subsequent to the date of this
Agreement;
(e) maintain its books and records in accordance with GAAP
consistently applied and not change in any material manner any of its
methods, principles or practices of accounting in effect at the Financial
Statement Date, except as may be required by the SEC, applicable law or
GAAP;
(f) duly and timely file all reports, tax returns and other documents
required to be filed with federal, state, local and other authorities,
subject to extensions permitted by law, provided Merry Land notifies EQR
that it is availing itself of such extensions and provided such extensions
do not adversely affect Merry Land's status as a qualified REIT under the
Code;
(g) not make or rescind any express or deemed election relative to
Taxes (unless required by law or necessary to preserve Merry Land's status
as a REIT or the status of any Merry Land Subsidiary as a partnership for
federal income tax purposes or as a qualified REIT subsidiary under Section
856(i) of the Code, as the case may be);
(h) other than in connection with those development agreements set
forth in Schedule 2.22 to the Merry Land Disclosure Letter, not acquire,
enter into any option to acquire, or exercise an option or contract to
acquire, additional real property, incur additional indebtedness except for
working capital under its revolving line(s) of credit, encumber assets or
commence construction of, or enter into any agreement or commitment to
develop or construct other real estate projects;
(i) not amend its Articles of Incorporation, Bylaws, code of
regulations or partnership agreement or comparable charter or
organizational document or the articles of incorporation, Bylaws,
partnership
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agreement, joint venture agreement or comparable charter or organization
document of any Merry Land Subsidiary without EQR's prior written consent,
which shall not be unreasonably withheld or delayed;
(j) issue no and make no change in the number of shares of capital
stock, membership interests or units of limited partnership interest issued
and outstanding or reserved for issuance, other than pursuant to (i) those
items disclosed in Schedule 2.3 to the Merry Land Disclosure Letter and
(ii) the conversion of any Merry Land Preferred Shares, in accordance with
the terms thereof;
(k) grant no options or other right or commitment relating to its
shares of beneficial interest or capital stock, membership interests or
units of limited partnership interest or any security convertible into its
shares of beneficial interest or capital stock, membership interests or
units of limited partnership interest, or any security the value of which
is measured by shares of beneficial interest, or any security subordinated
to the claim of its general creditors;
(l) except (i) as provided in Section 5.13 and Section 5.14 hereof,
(ii) in connection with the use of Merry Land Shares to pay the exercise
price or tax withholding in connection with equity-based employee benefit
plans by the participants therein, or (iii) for dividends and distributions
by a Merry Land Subsidiary to Merry Land, a wholly-owned Merry Land
Subsidiary, ML Services, Inc., a Georgia corporation ("Services Corp."), or
Merry Land DownREIT, not (x) authorize, declare, set aside or pay any
dividend or make any other distribution or payment with respect to any
shares of its beneficial interest or capital stock, or (y) directly or
indirectly redeem, purchase or otherwise acquire any shares of beneficial
interest, shares of capital stock, membership interests or units of
partnership interest or any option, warrant or right to acquire, or
security convertible into, shares of beneficial interest, shares of capital
stock, membership interests, or units of partnership interest;
(m) not sell, lease, mortgage, subject to Lien or otherwise dispose of
any material part of its assets, individually or in the aggregate, except
in the ordinary course of business;
(n) not make any loans, advances or capital contributions to, or
investments in, any other Person, other than loans, advances and capital
contributions to wholly-owned Merry Land Subsidiaries in existence on the
date hereof (other than Spinco and Subsidiaries of Spinco), Merry Land
DownREIT or Services Corp.;
(o) not pay, discharge or satisfy any material claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge or satisfaction, in the
ordinary course of business consistent with past practice, or in accordance
with their terms, of liabilities reflected or reserved against in, or
contemplated by, the most recent consolidated financial statements (or the
notes thereto) furnished to EQR or incurred in the ordinary course of
business consistent with past practice;
(p) except as reflected in the Merry Land Capital Budget, not enter
into any commitment, contractual obligation, capital expenditure or
transaction (each, a "Commitment") which may result in total payments or
liability by or to it in excess of $1,000,000 or aggregate Commitments in
excess of $5,000,000;
(q) not guarantee the indebtedness of another Person (including
Spinco), enter into any "keep well" or other agreement to maintain any
financial statement condition of another Person or enter into any
arrangement having the economic effect of any of the foregoing;
(r) not enter into or amend any Commitment with any officer, director,
consultant or Affiliate of Merry Land or any of the Merry Land Subsidiaries
other than Commitments with consultants involving payments of less than
$10,000 per annum;
(s) not increase any compensation or enter into or amend any
employment agreement or other arrangement with any of its officers,
directors or employees earning more than $75,000 per annum as of the date
hereof, other than waivers by employees of benefits under such agreements,
or enter into any employment agreement or arrangement with any other Person
not currently an employee of Merry Land or a Merry Land Subsidiary,
providing for compensation in excess of $75,000 per annum;
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(t) except as otherwise provided in Section 5.10(c) and Section 5.19,
not adopt any new employee benefit plan or amend any existing plans,
options or rights, except for changes which are required by law and changes
which are not more favorable to participants than provisions presently in
effect;
(u) not settle any shareholder derivative or class action claims
arising out of or in connection with any of the transactions contemplated
by this Agreement;
(v) not change the ownership of any of its Subsidiaries except
pursuant to the Asset Exchange Agreement on the Closing Date;
(w) not accept a promissory note in payment of the exercise price
payable under any option to purchase Merry Land Shares;
(x) not enter into or amend or otherwise modify or waive any rights
under any agreement or arrangement for the persons that are affiliates, or
as of the date hereof, all officers, directors or employees, of Merry Land
or any Merry Land Subsidiary;
(y) Except as provided in Schedule 2.9 or Schedule 2.18 to the Merry
Land Disclosure Letter, not directly or indirectly or through a subsidiary,
merge or consolidate with, acquire all or substantially all of the assets
of, or acquire the beneficial ownership of a majority of the outstanding
capital stock or other equity interest in any person or entity;
(z) not purchase any property nor conduct any material business or
operations on behalf of or for the benefit of Spinco nor cause or permit
Spinco to purchase any property or conduct any material business or
operations on its own behalf; provided, however, that Spinco may take steps
deemed necessary to prepare for the receipt of the Transferred Properties
and the commencement of operations on the Effective Date;
(aa) suspend the Merry Land Dividend Reinvestment Plan, effective as
of the date of this Agreement; and
(bb) use its reasonable best efforts to continue to qualify as a REIT
prior to the Effective Time and not enter into any prohibited transaction,
including, without limitation, any transaction consummated pursuant to the
Spin-Off that would be considered a prohibited transaction as defined in
Section 857(b)(6) of the Code.
For purposes of this Section 4.2 only, any contract, transaction or other
event shall be deemed to be material and to be subject to the terms hereof if it
would result or is expected to result in a net impact on Merry Land's
consolidated income statement in excess of $1,000,000, or on Merry Land's
consolidated balance sheet in excess of $1,000,000.
4.3 CONDUCT OF EQR'S BUSINESS PENDING MERGER. Prior to the Effective Time,
except as (i) contemplated by this Agreement, or (ii) consented to in writing by
Merry Land, EQR shall, and shall cause each of the EQR Subsidiaries to:
(a) use its reasonable efforts to preserve intact its business
organizations and goodwill and keep available the services of its officers
and employees;
(b) confer on a regular basis with one or more representatives of
Merry Land to report operational matters of materiality which would have a
EQR Material Adverse Effect;
(c) promptly notify Merry Land of any material emergency or other
material change in the condition (financial or otherwise), business,
properties, assets, liabilities, prospects or the normal course of its
businesses or in the operation of its properties, or of any material
governmental complaints, investigations or hearings (or communications
indicating that the same may be contemplated);
(d) promptly deliver to Merry Land true and correct copies of any
report, statement or schedule filed with the SEC subsequent to the date of
this Agreement;
(e) maintain its books and records in accordance with GAAP
consistently applied;
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(f) duly and timely file all reports, tax returns and other documents
required to be filed with federal, state, local and other authorities; and
(g) use its reasonable best efforts to continue to qualify as a REIT
prior to the Effective Time and not enter into any prohibited transaction,
including, without limitation, any transaction consummated pursuant to the
Spin-Off that would be considered a prohibited transaction as defined in
Section 857(b)(6) of the Code.
For purposes of this Section 4.3 only, an emergency, change, complaint,
investigation or hearing shall be deemed material if it would reasonably be
expected to have an EQR Material Adverse Effect.
4.4 OTHER ACTIONS. Each of Merry Land on the one hand and EQR on the other
hand shall not, and shall use its reasonable best efforts to cause their
Subsidiaries not to take, any action that would result in (i) any of the
representations and warranties of such party (without giving effect to any
"knowledge" qualification) set forth in this Agreement that are qualified as to
materiality becoming untrue, (ii) any of such representations and warranties
(without giving effect to any "knowledge" qualification) that are not so
qualified becoming untrue in any material respect or (iii) except as
contemplated by Section 4.1, any of the conditions to the Merger set forth in
Article 6 not being satisfied.
4.5 FILING OF CERTAIN REPORTS. The Surviving Trust shall file the reports
required to be filed by it under the Exchange Act and the rules and regulations
adopted by the SEC thereunder, and it will take such further action as any
Affiliate of Merry Land or EQR may reasonably request, all to the extent
required from time to time to enable such Affiliate to sell shares of beneficial
interest of the Surviving Trust received by such Affiliate in the Merger without
registration under the Securities Act pursuant to (i) Rule 145(d)(1) under the
Securities Act, as such Rule may be amended from time to time, or (ii) any
successor rule or regulation hereafter adopted by the SEC.
4.6 COMPLIANCE WITH THE SECURITIES ACT. Prior to the Effective Time, Merry
Land shall promptly cause to be prepared and delivered to EQR a list (reasonably
satisfactory to counsel for EQR) identifying all persons who, at the time of the
Merry Land and EQR Shareholders Meetings, may be deemed to be "affiliates" of
Merry Land as that term is used in paragraphs (c) and (d) of Rule 145 under the
Securities Act (the "Affiliates"). Merry Land shall use its best efforts to
cause each person who is identified as an Affiliate in such list to deliver to
Merry Land on or prior to the Effective Time a written agreement, in the form
previously approved by the parties hereto, that such Affiliate will not sell,
pledge, transfer or otherwise dispose of any EQR Common Shares issued to such
Affiliate pursuant to the Merger, except pursuant to an effective registration
statement under the Securities Act or in compliance with Rule 145. EQR shall be
entitled to place legends as specified in such written agreements on the
certificates representing any EQR Common Shares to be received by such
Affiliates pursuant to the terms of this Agreement, and to issue appropriate
stop transfer instructions to the transfer agent for the EQR Common Shares,
consistent with the terms of such agreements.
ARTICLE 5
ADDITIONAL COVENANTS
5.1 PREPARATION OF THE REGISTRATION STATEMENT AND THE PROXY STATEMENT;
MERRY LAND SHAREHOLDERS MEETING AND EQR SHAREHOLDERS MEETING. (a) Merry Land
and EQR shall use their reasonable best efforts to prepare and file with the SEC
a preliminary Proxy Statement (which shall also constitute an information
statement with respect to Spinco), in form and substance satisfactory to each of
EQR and Merry Land and such registration statements under the Securities Act and
Exchange Act as may be required (collectively, the "Registration Statement") as
soon as practicable following the date of this Agreement. To the extent
practicable, the parties shall utilize one document for transmittal to their
respective shareholders to meet applicable legal requirements. Each of Merry
Land and EQR shall promptly use its reasonable best efforts to (i) respond to
any comments of the SEC and (ii) have the Registration Statement declared
effective under the Securities Act and Exchange Act and the rules and
regulations promulgated under such acts as promptly as practicable after such
filing and to
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keep the Registration Statement effective as long as is necessary to consummate
the Merger. Each of Merry Land and EQR will use its reasonable best efforts to
cause the Proxy Statement to be mailed to Merry Land's shareholders and EQR's
shareholders, respectively, as promptly as practicable after the Registration
Statement is declared effective under the Securities Act. Each party agrees to
date its Proxy Statement as of the same date, which shall be the approximate
date of mailing to the shareholders of the respective parties. Each party will
notify the other promptly of the receipt of any comments from the SEC and of any
request by the SEC for amendments or supplements to the Registration Statement
or the Proxy Statement or for additional information and will supply the other
with copies of all correspondence between such party or any of its
representatives and the SEC, with respect to the Registration Statement or the
Proxy Statement. The Registration Statement and the Proxy Statement shall comply
in all material respects with all applicable requirements of law. Whenever any
event occurs which is required to be set forth in an amendment or supplement to
the Registration Statement or the Proxy Statement, EQR or Merry Land, as the
case may be, shall promptly inform the other of such occurrences and cooperate
in filing with the SEC and/or mailing to the shareholders of EQR and the
shareholders of Merry Land such amendment or supplement to the Proxy Statement.
Merry Land also shall take any action required to be taken under any applicable
state securities or "blue sky" laws in connection with the issuance of shares of
beneficial interest of the Surviving Trust pursuant to the Merger, and Merry
Land shall furnish all information concerning Merry Land and the holders of
Merry Land Shares and rights to acquire Merry Land Shares as may be reasonably
requested in connection with any such action.
(b) EQR will, as soon as practicable following the date of this Agreement
(but in no event sooner than 20 business days following the date the Proxy
Statement is mailed to the shareholders of EQR), duly call, give notice of,
convene and hold a meeting of its shareholders (the "EQR Shareholders Meeting")
for the purpose of obtaining the EQR Shareholder Approvals. EQR will, through
its Board of Trustees, recommend to its shareholders approval of this Agreement,
the Merger, and the transactions contemplated by this Agreement.
(c) Merry Land will, as soon as practicable following the date of this
Agreement (but in no event sooner than 20 business days following the date the
Proxy Statement is mailed to the shareholders of Merry Land), duly call, give
notice of, convene and hold a meeting of its shareholders (the "Merry Land
Shareholders Meeting", and, together with the EQR Shareholders Meeting, the
"Shareholders Meetings") for the purpose of obtaining Merry Land Shareholder
Approvals. Merry Land will, through its Board of Directors, recommend to its
shareholders approval of this Agreement, the Merger and the transactions
contemplated by this Agreement; provided, that prior to the Merry Land
Shareholders Meeting, such recommendation may be withdrawn, modified or amended
to the extent that, as a result of the commencement or receipt of a proposal
constituting a Superior Acquisition Proposal, the Board of Directors of Merry
Land determines in good faith that such withdrawal, modification or amendment is
appropriate.
(d) EQR and Merry Land shall use their best efforts to hold their
respective shareholder meetings on the same day, which day, subject to the
provisions of Sections 5.1(b) and 5.1(c), shall be a day not later than 35 days
after the date the Proxy Statement is mailed.
(e) If on the date for the EQR Shareholders Meeting and Merry Land
Shareholders Meeting established pursuant to Section 5.1(d) of this Agreement,
either EQR or Merry Land has not received a sufficient number of proxies to
approve the Merger (but less than a majority of the outstanding common shares of
beneficial interest or common stock, as the case may be, of such party have
voted against the Merger), then both parties shall adjourn their respective
shareholders meetings until the first to occur of (i) the date ten (10) days
after the originally scheduled date of the shareholders meetings or (ii) the
date on which the requisite number of proxies approving the Merger has been
obtained or proxies have been received representing more than a majority of its
outstanding common shares of beneficial interest or common stock, as the case
may be, which voted against the Merger.
5.2 ACCESS TO INFORMATION: CONFIDENTIALITY. Subject to the requirements of
confidentiality agreements with third parties, each of Merry Land and EQR shall,
and shall cause each of the Merry Land Subsidiaries and EQR Subsidiaries,
respectively, to afford to the other party and to the officers, employees,
accountants, counsel, financial advisors and other representatives of such other
party, reasonable
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access during normal business hours prior to the Effective Time to all their
respective properties, books, contracts, commitments, personnel and records and,
during such period, each of Merry Land and EQR shall, and shall cause each of
the Merry Land Subsidiaries and EQR Subsidiaries, respectively, to furnish
promptly to the other party (a) a copy of each report, schedule, registration
statement and other document filed by it during such period pursuant to the
requirements of federal or state securities laws and (b) all other information
concerning its business, properties and personnel as such other party may
reasonably request. Each of Merry Land and EQR shall, and shall cause the Merry
Land Subsidiaries and EQR Subsidiaries, respectively, to use commercially
reasonable efforts to cause its officers, employees, accountants, counsel,
financial advisors and other representatives and affiliates to, hold any
nonpublic information in confidence to the extent required by, and in accordance
with, and will comply with the provisions of the letter agreement dated as of
May 26, 1998 between Merry Land and EQR (the "Confidentiality Agreement").
5.3 BEST EFFORTS; NOTIFICATION. (a) Subject to the terms and conditions
herein provided, Merry Land and EQR shall: (i) use all reasonable best efforts
to cooperate with one another in (A) determining which filings are required to
be made prior to the Effective Time with, and which consents, approvals, permits
or authorizations are required to be obtained prior to the Effective Time from,
governmental or regulatory authorities of the United States, the several states
and foreign jurisdictions and any third parties in connection with the execution
and delivery of this Agreement, and the consummation of the transactions
contemplated by such agreements and (B) timely making all such filings and
timely seeking all such consents, approvals, permits and authorizations; (ii)
use all reasonable best efforts to obtain in writing any consents required from
third parties to effectuate the Merger, such consents to be in form reasonably
satisfactory to Merry Land and EQR; and (iii) use all reasonable best efforts to
take, or cause to be taken, all other action and do, or cause to be done, all
other things necessary, proper or appropriate to consummate and make effective
the transactions contemplated by this Agreement. If, at any time after the
Effective Time, any further action is necessary or desirable to carry out the
purpose of this Agreement, the proper officers and trustees of Merry Land and
EQR shall take all such necessary action.
(b) Merry Land shall give prompt notice to EQR, and EQR shall give prompt
notice to Merry Land, (i) if any representation or warranty made by it contained
in this Agreement that is qualified as to materiality becomes untrue or
inaccurate in any respect or any such representation or warranty that is not so
qualified becomes untrue or inaccurate in any material respect or (ii) of the
failure by it to comply with or satisfy in any material respect any covenant,
condition or agreement to be complied with or satisfied by it under this
Agreement; provided, however, that no such notification shall affect the
representations, warranties, covenants or agreements of the parties or the
conditions to the obligations of the parties under this Agreement.
5.4 COSTS OF TRANSACTION. On the Closing Date, EQR and Merry Land shall
execute, and Merry Land shall cause Spinco to execute, the Transaction Costs
Agreement in substantially the form attached hereto as Exhibit "F" (the
"Transaction Costs Agreement"). In the event that the Merger is not consummated,
each of EQR and Merry Land shall pay their own costs and expenses relating to
the Merger and the other transactions contemplated by this Agreement; provided,
however, that all printing costs and SEC filing fees in connection with the
Merger shall be paid 50% by Merry Land and 50% by EQR and, provided further,
that this Section 5.4 shall in no way affect the rights and obligations of the
parties hereto under Article 7.
5.5 TAX TREATMENT. Each of EQR and Merry Land shall use its reasonable
best efforts to cause the Merger to qualify as a reorganization under the
provisions of Sections 368(a) of the Code and to obtain the opinions of counsel
referred to in Sections 6.2(e) and 6.3(g).
5.6 PUBLIC ANNOUNCEMENTS. EQR and Merry Land will consult with each other
before issuing, and provide each other the opportunity to review and comment
upon, any press release or other written public statements with respect to the
transactions contemplated by this Agreement, including the Merger and the
Spin-Off, and shall not issue any such press release or make any such written
public statement prior to such consultation, except as may be required by
applicable law, court process or by obligations pursuant to any listing
agreement with any national securities exchange. The parties agree that the
initial press
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release to be issued with respect to the transactions contemplated by this
Agreement will be in the form agreed to by the parties hereto prior to the
execution of this Agreement.
5.7 LISTING. Prior to the Effective Time, EQR shall use its best efforts
to have the NYSE approve for listing, upon official notice of issuance, the
shares of beneficial interest in EQR to be issued in the Merger and listed on
the NYSE after the Effective Time.
5.8 LETTERS OF ACCOUNTANTS. (a) Merry Land shall use its reasonable best
efforts to cause to be delivered to EQR on or before the date of the mailing of
the Proxy Statement, the "comfort" letter of ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ LLP, Merry Land's
independent public accountants, of the kind contemplated by the Statement of
Auditing Standards with respect to Letters to Underwriters promulgated by the
American Institute of Certified Public Accountants (the "AICPA Statement"),
dated and delivered the date on which the Registration Statement shall become
effective and as of the Effective Time, and addressed to EQR, in form and
substance reasonably satisfactory to EQR and reasonably customary in scope and
substance for letters delivered by independent public accountants in connection
with transactions such as those contemplated by this Agreement.
(b) EQR shall use its reasonable best efforts to cause to be delivered to
Merry Land on or before the date of the mailing of the Proxy Statement, the
"comfort" letter of ▇▇▇▇▇ & Young LLP, EQR's independent public accountants, of
the kind contemplated by the AICPA Statement, dated the date on which the
Registration Statement shall become effective and as of the Effective Time, and
addressed to Merry Land, in form and substance reasonably satisfactory to Merry
Land and reasonably customary in scope and substance for letters delivered by
independent public accountants in connection with transactions such as those
contemplated by this Agreement.
5.9 TRANSFER AND GAINS TAXES. EQR and Merry Land shall cooperate in the
preparation, execution and filing of all returns, questionnaires, applications
or other documents regarding any real property transfer or gains, sales, use,
transfer, value added stock transfer and stamp taxes, any transfer, recording,
registration and other fees and any similar taxes which become payable in
connection with the transactions contemplated by this Agreement (together with
any related interests, penalties or additions to tax, "Transfer and Gains
Taxes"). From and after the Effective Time, the Surviving Trust shall, or shall
cause ERP Operating Partnership, as appropriate, to pay or cause to be paid,
without deduction or withholding from any amounts payable to the holders of
beneficial interests in the Surviving Trust, all Transfer and Gains Taxes.
5.10 BENEFIT PLANS AND OTHER EMPLOYEE ARRANGEMENTS. (a) BENEFIT
PLANS. After the Effective Time, all employees of Merry Land who are employed
by the Surviving Trust shall, at the option of the Surviving Trust, either
continue to be eligible to participate in an "employee benefit plan", as defined
in Section 3(3) of ERISA, currently maintained by Merry Land which is, at the
option of the Surviving Trust, continued by the Surviving Trust, or
alternatively shall be eligible to participate in the same manner as other
similarly situated employees of the Surviving Trust who were formerly employees
of EQR in any "employee benefit plan," as defined in Section 3(3) of ERISA,
sponsored or maintained by the Surviving Trust for similarly situated employees
after the Effective Time. With respect to each such employee benefit plan,
service with EQR or any EQR Subsidiary or with Merry Land or any Merry Land
Subsidiary (as applicable) shall be included for purposes of determining
eligibility to participate and vesting (if applicable). With respect to medical
benefits provided by the Surviving Trust on and after the Closing Date, coverage
that would otherwise be denied due to a preexisting illness shall be provided to
those employees who had such coverage under a plan sponsored by EQR, Merry Land
or any of the EQR Subsidiaries or Merry Land Subsidiaries before the Closing
Date.
(b) RETENTION AND SEVERANCE PROGRAM. Prior to the Effective Time, Merry
Land shall adopt a severance/bonus/Retention and Severance Program (the
"Retention and Severance Program") attached hereto as Exhibit "G". The Retention
and Severance Program shall allow for the payment of (i) cash severance and
bonus payments ("Severance Payments") to be allocated among certain employees of
Merry Land and the Merry Land Subsidiaries, in lieu of any and all other
severance payments, but exclusive of and not in lieu of any bonus, ESOP, or
other compensation accrued in the ordinary course of business with respect to
services rendered in 1998 to the Effective Date, all in accordance with past
practice, as compensation for
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remaining employed by Merry Land or a Merry Land Subsidiary until the Effective
Time and (ii) retention payments ("Retention Payments") for entering into
employment arrangements with EQR or a EQR Subsidiary subsequent to the Effective
Time. Schedule 5.10 to the Merry Land Disclosure Letter sets forth those
employees (the "Merry Land Schedule 5.10 Employees") who will be offered
Severance Payments, as well as the amount of each such Severance Payment. The
Surviving Trust shall maintain the Retention and Severance Program in accordance
with the terms thereof. In no event shall Merry Land adopt or agree to any other
severance or Retention and Severance Program in addition to the Retention and
Severance Program, except as otherwise specifically set forth in this Agreement.
Neither the Retention and Severance Program nor any other term of this Agreement
shall require the Surviving Trust to continue the employment of any employee of
Merry Land after the Effective Time. As a condition to receiving any payment
under this Section 5.10(b), each Merry Land Schedule 5.10 Employee shall execute
a release in the form provided in the Retention and Severance Program (an
"Employment Release").
(c) OPTIONEES. (i) Prior to the Closing, each individual holding a Merry
Land Option shall have the right to enter into a written agreement with EQR
providing for the cancellation of the vested portion of such option immediately
following the Effective Time for cash in an amount equal to the difference
between the Closing Price of Merry Land Common and the applicable exercise price
set forth in such option, multiplied by the number of Merry Land Common Shares
subject to such option to the extent such option is vested at the Effective
Time, it being understood that all employees whose employment does not continue
after the Effective Time shall be deemed vested as of the Effective Time. For
purposes of this paragraph, "Closing Price" shall mean the unweighted average
closing price of a Merry Land Common Share, reported as "New York Stock Exchange
Composite Transactions" by The Wall Street Journal (Midwest Edition) for the ten
(10) Trading Days ending on the third Trading Day immediately prior to the
Closing Date. For the purposes of the paragraph only, "Trading Day" shall mean
any day on which Merry Land Common Shares are traded on the NYSE.
(ii) Merry Land and EQR agree to take all appropriate action to cause each
Merry Land Option which remains unexercised as of the Effective Time (other than
those options to be terminated pursuant to Section 5.10(c)(i)) to be amended to
(i) adjust the number of shares for which such option is thereafter exercisable
by multiplying such number of shares by .54, (ii) adjust the per share exercise
price by dividing such exercise price by .54, and (iii) to provide that such
option shall be exercisable for EQR Common Shares. Accordingly, as more fully
described in the Merry Land Stock Option and Incentive Plan (the "Plan"), upon
conversion of the number of shares and the exercise price, all Merry Land
options shall remain subject to the Plan's terms. EQR agrees to register the
shares subject to the Plan on a registration statement on Form S-8 filed with
the SEC as soon as practicable following the Effective Time.
(iii) From and after the date hereof the Merry Land Board of Directors will
not authorize, and Merry Land will not grant any Incentive Stock Options,
Nonstatutory Stock Options, Stock Loan Rights, Director Stock Loan Rights,
Dividend Rights, or Restricted Stock Grants under the Merry Land Stock Option
and Incentive Plan. Furthermore, the Merry Land Board of Directors will not
authorize any additional Stock Appreciation Rights under Section 7 of the Merry
Land Stock Option and Incentive Plan and shall terminate any Stock Appreciation
Rights heretofore granted pursuant to such Section 7 to the extent such
termination will not violate the rights of any optionee and, in lieu thereof,
Merry Land will assist such Optionees in making a "cashless" exercise of such
options through a broker.
(d) WITHHOLDING. Merry Land shall require each employee who exercises a
Merry Land Option, receives Merry Land Shares pursuant to any existing
commitment, receives any payment or loan satisfaction pursuant to Section
5.10(f) hereof, or otherwise receives any payment from Merry Land as a result of
the transactions contemplated by this Agreement, to pay to Merry Land in cash or
Merry Land Shares an amount sufficient to satisfy in full Merry Land's
obligation to withhold Taxes incurred by reason of such exercise, issuance or
receipt.
(e) PAYMENTS/LOAN FORGIVENESS. (i) The compensation, benefits, payments,
accelerations, share options and share appreciation rights of the executives and
directors of Merry Land, as set forth in Schedule 2.15 of the Merry Land
Disclosure Letter, shall be satisfied at the Effective Time or as otherwise set
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forth in this Agreement in accordance with the terms set forth in Schedule 2.15
and Schedule 5.10(e) to the Merry Land Disclosure Letter.
(ii) All outstanding loans made to the employees and directors of Merry
Land under the Merry Land Stock Loan Program shall be forgiven at the Effective
Time; provided, however, that 60% of any dividends or distributions declared on
the Merry Land Common Shares after the date hereof, where the record date for
such dividends or distributions is prior to the Effective Time (other than the
Distribution), shall continue to be applied towards the repayment of such loans.
As a condition to each employee and director of Merry Land receiving
compensation, benefits, payments, accelerations, share options, appreciation
rights and loan forgiveness described in this Section 5.10(e), such employee or
director shall execute an Employment Release.
5.11 TAX INDEMNIFICATION. If the compensation, benefits, payment
accelerations, share option acceleration, appreciation rights or loan
forgiveness received by an employee of Merry Land who will receive a Severance
Payment (as to each such employee or director, the "Payments") will be subject
to the excise tax imposed by Section 4999 of the Code and any successor
provision, or any comparable provision of state or local tax law (collectively,
"Section 4999"), or any interest, penalty or addition to tax will be incurred by
such persons with respect to such excise tax (such excise tax, together with any
such interest, penalty or addition to tax being referred to herein as the
"Excise Tax"), then, those employees of Merry Land who will receive Severance
Payments shall receive an additional cash payment (a "Gross-Up Payment") in an
amount such that after the payment by such employee of Merry Land of all taxes,
interest, penalties, and additions to tax imposed with respect to the Gross-Up
Payment (including, without limitation, any income tax, employment tax payable
by the employee and Excise Tax imposed upon the Gross-Up Payment), such employee
of Merry Land retains an amount of the Gross-Up Payment equal to the Excise Tax
imposed upon such Payments; provided, however, that in no event shall the
aggregate amount of Gross-Up Payments paid in accordance with this Section 5.11
exceed $16,250,000 and in no event shall the aggregate payments made to any
individual pursuant to this Section 5.11 exceed the Gross-Up Payment (i.e., the
amount necessary to offset the amount of the Excise Tax). Schedule 5.11 to the
Merry Land Disclosure Letter sets forth the name of each individual who shall be
entitled to a Gross-Up Payment pursuant to this Section 5.11, as well as the
estimated amount of each such Gross-Up Payment. In calculating the Gross-Up
Payment, each Gross-Up Payment recipient will be deemed to pay Federal income
taxes at the highest marginal rate of Federal income taxation as of the year in
which the Gross-Up Payment is to be made and state and local taxes at the
highest marginal rate of taxation in the state or locality of the Gross-Up
Payment recipient's state of residence as of the date the Effective Time occurs,
net of the maximum reduction in Federal income taxes which could be obtained
from deducting the state and local taxes if paid in the year in which the
Effective Time occurs.
5.12 INDEMNIFICATION. (a) From and after the Effective Time, EQR shall
provide exculpation and indemnification for each person who is now or has been
at any time prior to the date hereof or who becomes prior to the Effective Time,
an officer or director of Merry Land or any Merry Land Subsidiary (including ▇.
▇▇▇▇▇▇▇ Houston, in his capacity as trustee under the ESOP) (the "Indemnified
Parties") which is the same as the exculpation and indemnification provided to
the Indemnified Parties by Merry Land (including advancement of expenses, if so
provided) immediately prior to the Effective Time in its Amended and Restated
Articles of Incorporation and Bylaws, the ESOP or any other Employee Plan as in
effect at the close of business on the date hereof; provided, that such
exculpation and indemnification covers actions on or prior to the Effective
Time, including, without limitation, all transactions contemplated by this
Agreement and; provided further, that EQR shall not be obligated under any
circumstances to provide exculpation or indemnification for any officer or
director of Spinco in their capacity as an officer or a director of Spinco. EQR
shall obtain and maintain in effect at the Effective Time and continuing until
the sixth anniversary thereof "run-off" directors and officers liability
insurance with a coverage amount and other terms and conditions comparable to
Merry Land's current directors and officers liability insurance policy covering
the directors and officers of Merry Land with respect to their service as such
prior to the Effective Time. The premium for such policy shall be paid in full
at the Effective Time. If EQR has directors' and officers' insurance, such
insurance shall apply to all directors and officers of EQR serving as such
during the period such coverage is in effect.
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(b) The provisions of this Section 5.12 are intended to be for the benefit
of, and shall be enforceable by, each Indemnified Party, his or her heirs and
his or her personal representatives and shall be binding on all successors and
assigns of EQR and Merry Land. ▇▇▇ agrees to pay all costs and expenses
(including fees and expenses of counsel) that may be incurred by any Indemnified
Party or his or her heirs or his or her personal representatives in successfully
enforcing the indemnity or other obligations of EQR under this Section 5.12. The
provisions of this Section 5.12 shall survive the Merger and are in addition to
any other rights to which an Indemnified Party may be entitled.
(c) In the event that the Surviving Trust or any of its respective
successors or assigns (i) consolidates with or merges into any other person and
shall not be the continuing or surviving corporation or entity of such
consolidation or merger or (ii) transfers all or substantially all of its
properties and assets to any person, then, and in each such case the successors
and assigns of such entity shall assume the obligations set forth in this
Section 5.12, which obligations are expressly intended to be for the irrevocable
benefit of, and shall be enforceable by, each trustee, director and officer
covered hereby.
5.13 ASSET EXCHANGE AND PURCHASE AND SALE AGREEMENTS. Merry Land shall (i)
cause Spinco to execute the Purchase and Sale Agreement, (ii) execute, and cause
Spinco to execute, the Asset Exchange Agreement and any other agreement related
to the transactions contemplated hereby to which Merry Land or Spinco is a party
and (iii) use its commercially reasonable efforts to obtain all material
consents required to be obtained by Merry Land and the Merry Land Subsidiaries
from third parties in order to perform their respective obligations under the
Purchase and Sale Agreement, the Asset Exchange Agreement and the other
agreements contemplated thereby to which Merry Land or Spinco is a party. Merry
Land shall keep EQR currently apprised of its progress in obtaining such
consents. Merry Land shall inform EQR promptly if it appears unlikely that any
given consent will be obtained. Merry Land shall cooperate with EQR in taking
any action to either obtain such consents or to put Merry Land and the Merry
Land Subsidiaries in a position so that such consents are no longer required.
5.14 DECLARATION OF DIVIDENDS AND DISTRIBUTIONS. From and after the date
of this Agreement, Merry Land shall not make any dividend or distribution to its
shareholders without the prior written consent of EQR; provided, however, the
written consent of EQR shall not be required for (i) the distribution of Spinco
shares pursuant to the Spin-Off, (ii) the authorization and payment of quarterly
distributions with respect to the Merry Land Series A Shares of up to $0.4375
per share, the Merry Land Series B Shares of up to $0.5513 per share, the Merry
Land Series C Shares of up to $0.5375 per share, the Merry Land Series D Shares
of up to $1.0363 per share, and the Merry Land Series E Shares of up to $0.4765
per share or (iii) the authorization and payment of quarterly distributions with
respect to the Merry Land Common Shares (and, if required under the Amended and
Restated Partnership Agreement of Merry Land DownREIT, with respect to the
DownREIT Units), on a per share (or per unit) basis, of up to$0.41 for the third
and fourth quarters of 1998, provided that the record dates for such
distributions shall be September 16, 1998, and, provided that the Merger has not
previously been consummated, December 16, 1998, respectively.
5.15 TRANSFER OF MERRY LAND ASSETS AFTER EFFECTIVE TIME. Merry Land
acknowledges that immediately after the Effective Time, the real properties
owned by Merry Land and the Merry Land Subsidiaries (or the equity interests in
the entity then holding such properties) and the equity interests in certain of
the Merry Land Subsidiaries shall be transferred through one or more
transactions to ERP Operating Partnership, subject to all liabilities of Merry
Land and the Merry Land Subsidiaries, as a capital contribution in exchange for
a number of units and preferred units of ERP Operating Partnership equal to the
number of common shares of beneficial interest and preferred shares of
beneficial interest of the Surviving Trust issued in the Merger to the owners of
the shares of beneficial interest of Merry Land in the Merger; provided,
however, that Merry Land makes no representation or warranty regarding EQR's
ability to accomplish the foregoing, the costs that would be incurred, whether
under Section 5.9 hereof or otherwise, in connection therewith or any consents
or approvals that may be required therefor.
5.16 NOTICES. (a) Within the time period provided for in the Second
Amended and Restated Declaration of Trust of EQR, as amended as provided in the
Articles of Merger, EQR shall notify the holders
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of convertible Merry Land Preferred Shares (which have been converted into
preferred shares of EQR pursuant to the Merger) of the conversion rate
applicable to such shares after giving effect to the Merger.
(b) Each party shall provide such notice to its shareholders of the Merger
and other transactions contemplated hereby as is required under Maryland law and
Georgia law.
5.17 RESIGNATIONS. On the Closing Date, if requested by EQR, Merry Land
shall cause the directors and officers of Merry Land and each of the Merry Land
Subsidiaries (excluding Spinco and any Subsidiaries thereof) to submit their
resignations from such positions, effective as of the Effective Time.
5.18 10b-17 NOTICE. Merry Land shall give any notice required under Rule
10b-17 promulgated under the Exchange Act of the record date for determining the
holders of Merry Land Common Shares entitled to receive the distribution of the
shares of Spinco owned by Merry Land. The parties shall co-operate in
establishing the date for the Closing Date in order to facilitate compliance
with said Rule.
5.19 ESOP. With respect to the ESOP, prior to the Effective Time, Merry
Land shall, in accordance with ERISA and any other applicable law, use its best
efforts to cause (i) the satisfaction of the ESOP's outstanding acquisition
loan; (ii) the termination of the ESOP; and (iii) the completion of termination
distributions to all participants and beneficiaries of the ESOP. Prior to the
Effective Time, Merry Land shall make no accruals, contributions or other
payments to the ESOP other than accruals, contributions or other payments in
respect of the Monthly ESOP Accrual or as otherwise contemplated by this Section
5.19.
5.20 VALUATION OF DISTRIBUTION. For the purposes of valuing the
Distribution in order to adjust the applicable conversion prices of the Merry
Land Series A, B and C Shares (according to the terms of such shares), Merry
Land hereby covenants that such valuation shall be such that when the adjusted
conversion price of such shares is multiplied by the Exchange Ratio, such number
shall be no greater than the conversion price of such shares on the date of this
Agreement multiplied by .54.
5.21 MERGER OF MERRY LAND DOWNREIT. Merry Land hereby acknowledges that,
prior to the Effective Time, EQR may desire to effectuate (i) the merger of
Merry Land DownREIT with and into ERP Operating Partnership or an affiliate of
ERP Operating Partnership, (ii) the contribution by the limited partners of
Merry Land DownREIT of their DownREIT Units to ERP Operating Partnership in
exchange for limited partnership interests in ERP Operating Partnership, and/or
(iii) another transaction or transactions related to the ownership and/or
operation of Merry Land DownREIT. Merry Land hereby undertakes to use its best
efforts to cooperate with and assist EQR (at EQR's request) in the effectuation
of any or all of the above transactions, it being understood, however, that the
consummation of any such transaction is not a condition to the Merger or the
other transactions contemplated by this Agreement.
5.22 TRANSFER OF SERVICES COMPANY SHARES. At the Closing, Merry Land shall
cause the owners (other than Merry Land or a wholly-owned subsidiary of Merry
Land) to transfer to such person or persons as EQR shall designate by written
notice delivered to Merry Land prior to the Closing, all of the shares of
Services Corp. owned by them, constituting all the outstanding shares of the
Services Corp. which are not owned by Merry Land or a wholly-owned subsidiary of
Merry Land for an aggregate consideration of $1.00, unless Services Corp. was
dissolved prior to the Closing Date.
5.23 CERTAIN PROPERTIES. (a) EQR hereby acknowledges that five (5)
specified assets, as set forth in the Asset Exchange Agreement and Purchase and
Sale Agreement attached hereto as Exhibits "B" and "F", respectively
(collectively, the "Spinco Assets"), are to be either transferred by Merry Land
to Spinco prior to the consummation of the Merger pursuant to the Asset Exchange
Agreement or sold to Spinco by ERP Operating Partnership or an Affiliate of ERP
Operating Partnership pursuant to the Purchase and Sale Agreement subsequent to
the Effective Time. EQR agrees that Merry Land shall have the right to determine
which of the one or more five (5) Spinco Assets that will be transferred to
Spinco pursuant to the Asset Exchange Agreement and which of the five (5) Spinco
Assets that will be sold to Spinco pursuant to the Purchase and Sale Agreement
subject to the approval of EQR, which will not be unreasonably withheld;
provided, however, that in no event shall the excess of (i) the Agreed Value (as
defined in the Purchase and Sale Agreement) of the Spinco Assets sold to Spinco
pursuant to the Purchase and Sale Agreement over (ii) the adjusted tax basis of
such assets as of the date such assets are sold to Spinco exceed the Gain
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Limitation (as defined below). Schedule 5.23A of the EQR and Merry Land
Disclosure Letters sets forth the current allocation of the Spinco Assets as
between those Spinco Assets which will be transferred to Spinco pursuant to the
Asset Exchange Agreement and those Spinco Assets which will be sold to Spinco
pursuant to the Purchase and Sale Agreement; provided, however, that if the
parties hereinafter agree to a different allocation of Spinco Assets pursuant to
this Section 5.23, Schedule 5.23A shall be amended to reflect such different
allocation.
(b) For purposes of this Section 5.23, the "Gain Limitation" shall mean the
amount by which (i) the distributions that EQR is expected to pay to the former
holders of Merry Land Shares on the first dividend payment date of EQR following
the Closing (determined using the estimated dividend rates set forth on Schedule
5.23B to the EQR and Merry Land Disclosure Letters), exceeds (ii) the "Short
Period Merry Land E&P" (as defined below). The parties further acknowledge and
agree that in the event the Effective Time occurs on the same date that Merry
Land has paid a dividend on the Merry Land Shares, then the Gain Limitation
shall be zero. For purposes of this Section 5.23, the "Short Period Merry Land
E&P" shall mean (i) the "earnings and profits" of Merry Land (as determined
under the Code and agreed upon by EQR and Merry Land) for the period beginning
on January 1 of the year of Closing through the Closing Date (excluding any gain
on the sale of the Spinco Assets recognized by ▇▇▇▇▇▇▇ and any deductions for
any Payments and Gross-Up Payments made by ▇▇▇▇▇▇▇) multiplied by (ii) a
fraction, the numerator of which is the number of days in the calendar year from
the Closing Date through the end of the calender quarter in which the Closing
Date occurs and the denominator of which is 360 less the number of days in the
calendar year from the Closing Date to December 31 of the year of Closing.
Schedule 5.23B to the EQR and Merry Land Disclosure Letters sets forth an
illustration of the foregoing formula.
(c) Notwithstanding to the foregoing, the Gain Limitation shall be reduced
(but not below zero) by the amount of any and all Payments and Gross-Up Payments
(as defined in Section 5.11 hereof), to the extent any such items are deductible
by Merry Land for Federal income tax purposes. The parties further agree that in
the event that the earnings and profits of Merry Land (as agreed upon by EQR and
Merry Land) for the period beginning on January 1 of the year of Closing and
ending on the Closing Date are greater than zero after taking into account all
income and deductions for such period (including, without limitation, any gain
recognized by Merry Land as a result of the transfer of Spinco Assets to Spinco
under the Asset Exchange Agreement and any distribution of Spinco common shares
to the holders of the Merry Land Common Shares), then to the extent permitted
under Section 857(b)(3)(D) of the Code, Merry Land shall treat the amount (if
any) of such earnings and profits in excess of zero as an undistributed capital
gain in accordance with Section 857(b)(3)(D) of the Code.
ARTICLE 6
CONDITIONS
6.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER. The
obligations of each party to effect the Merger shall be subject to the
fulfillment at or prior to the Closing Date of the following conditions:
(a) SHAREHOLDER APPROVALS. This Agreement, the Merger and the
transactions contemplated by this Agreement shall have been approved and
adopted by the Shareholder Approvals.
(b) LISTING OF SHARES. The NYSE shall have approved for listing the
shares of beneficial interest of the Surviving Trust to be issued in the
Merger and to be listed on the NYSE after the Effective Time, subject to
official notice of issuance.
(c) REGISTRATION STATEMENT. The Registration Statement shall have
become effective under the Securities and Exchange Act and shall not be the
subject of any stop order or proceedings by the SEC seeking a stop order.
(d) NO INJUNCTIONS OR RESTRAINTS. No temporary restraining order,
preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint
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or prohibition preventing the consummation of the Merger or any of the
other transactions contemplated hereby shall be in effect.
(e) BLUE SKY LAWS. The Surviving Trust shall have received all state
securities or "blue sky" permits and other authorizations necessary (i) to
issue shares of beneficial interest to the shareholders of Merry Land.
(f) OPINION OF MARYLAND COUNSEL. EQR and Merry Land shall have
received the opinion of ▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇, LLP, to the
effect that this Agreement and the Articles of Merger are enforceable under
Maryland law, that all requisite approval of the Merger by the shareholders
of EQR has been obtained, and as to such other matters as are customary in
a transaction such as the Merger.
(g) OPINION OF GEORGIA COUNSEL. EQR and Merry Land shall have
received the opinion of ▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇▇ & ▇▇▇▇▇▇▇, P.C. to the effect
that this Agreement and the Certificate of Merger are enforceable under
Georgia law, that all the requisite approvals of the Merger by the
shareholders of Merry Land have been obtained, and as to such other matters
as are customary in transactions such as the Merger.
6.2 CONDITIONS TO OBLIGATIONS OF EQR. The obligations of EQR to effect the
Merger and to consummate the other transactions contemplated to occur on the
Closing Date are further subject to the following conditions, any one or more of
which may be waived in writing by EQR:
(a) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Merry Land set forth in this Agreement shall be true and
correct as of the Closing Date (other than changes thereto which occurred
solely by reason of the Spin-Off, except with respect to the
representations and warranties provided in Section 2.14), as though made on
and as of the Closing Date, except to the extent the representation or
warranty is expressly limited by its terms to another date, and EQR shall
have received a certificate (which certificate may be qualified by
Knowledge to the same extent as the representations and warranties of Merry
Land contained herein are so qualified) signed on behalf of Merry Land by
the chief executive officer or the chief financial officer of Merry Land,
in such capacity, to such effect; provided, however, that no representation
or warranty shall be deemed to have been breached as a result of any act of
Spinco and its Subsidiaries taken or omitted to be taken after the date of
this Agreement, if such act or omission was taken or omitted to be taken
without causing Spinco to breach Section 4.2 of this Agreement. For the
purposes of Section 6.2(a), the representations and warranties of Merry
Land shall be deemed true and correct unless the breach of such
representations and warranties, in the aggregate, could reasonably be
expected to have a Merry Land Material Adverse Effect.
(b) PERFORMANCE OF OBLIGATIONS OF MERRY LAND. Merry Land shall have
performed in all material respects all obligations required to be performed
by it under this Agreement at or prior to the Effective Time, and EQR shall
have received a certificate signed on behalf of Merry Land by the chief
executive officer or the chief financial officer of Merry Land, in such
capacity, to such effect.
(c) MATERIAL ADVERSE CHANGE. Since the date of this Agreement, there
shall have been no Merry Land Material Adverse Change and EQR shall have
received a certificate of the chief executive officer or chief financial
officer of Merry Land, in such capacity, certifying to such effect.
(d) OPINION RELATING TO REIT AND PARTNERSHIP STATUS. EQR shall have
received an opinion of Hull, ▇▇▇▇▇▇, ▇▇▇▇▇▇ & ▇▇▇▇▇▇▇, P.C., and, if
requested by ▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ LLP, reasonably satisfactory to EQR,
that, (i) commencing with its taxable year ended December 31, 1987, Merry
Land was organized and has operated in conformity with the requirements for
qualification as a REIT under the Code (with customary exceptions,
assumptions and qualifications and based upon customary representations)
and (ii) each Merry Land Subsidiary which is a partnership, joint venture
or limited liability company has not been at any time since it became a
Merry Land Subsidiary treated for federal income tax purposes as an
association taxable as a corporation.
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(e) OTHER TAX OPINION. EQR shall have received an opinion dated the
Closing Date from counsel to EQR, based upon customary certificates and
representation letters, and dated the Closing Date, to the effect that the
Merger will qualify as a reorganization under the provisions of Section
368(a) of the Code.
(f) COMFORT LETTER. EQR shall have received the letter from the
accountants for Merry Land required by Section 5.8 hereof.
(g) OPINION OF COUNSEL. EQR shall have received an opinion from ▇▇▇▇,
▇▇▇▇▇▇, ▇▇▇▇▇▇ & ▇▇▇▇▇▇▇, P.C. and ▇▇▇▇▇ & ▇▇▇▇▇▇▇ L.L.P. or other counsel
to Merry Land reasonably satisfactory to EQR dated the Closing Date in form
and substance reasonably satisfactory to EQR addressing the matters set
forth in Exhibit "H" hereto.
(h) CONSENTS. Except as set forth on Schedule 6.2 to the Merry Land
Disclosure Letter, all consents and waivers (including, without limitation,
waivers of rights of first refusal) from third parties necessary in
connection with the consummation of the transactions contemplated by this
Agreement shall have been obtained, other than such consents and waivers
from third parties, which, if not obtained, would not result, individually
or in the aggregate, in an EQR Material Adverse Effect or a Merry Land
Material Adverse Effect.
(i) ASSET EXCHANGE AGREEMENT. Merry Land and Spinco shall have
entered into the Asset Exchange Agreement and each of the transactions
contemplated thereby shall have been completed to the extent required to be
completed thereunder as of such time.
(j) PREFERRED STOCK PURCHASE AGREEMENT. Merry Land shall have
executed and delivered the Preferred Stock Purchase Agreement.
(k) DEVELOPMENT AGREEMENT. Spinco shall have executed and delivered
the Development Agreement.
(l) PURCHASE AND SALE AGREEMENT. Spinco shall have executed and
delivered the Purchase and Sale Agreement.
6.3 CONDITIONS TO OBLIGATIONS OF MERRY LAND. The obligation of Merry Land
to effect the Merger and to consummate the other transactions contemplated to
occur on the Closing Date is further subject to the following conditions, any
one or more of which may be waived in writing by Merry Land:
(a) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of EQR set forth in this Agreement shall be true and correct as
of the date of this Agreement and as of the Closing Date, as though made on
and as of the Closing Date, except to the extent the representation or
warranty is expressly limited by its terms to another date, and Merry Land
shall have received a certificate (which certificate may be qualified by
Knowledge to the same extent as the representations and warranties of EQR
contained herein are so qualified) signed on behalf of EQR by the chief
executive officer and the chief financial officer of such party to such
effect. For the purposes of this Section 6.3(a), the representations and
warranties of EQR shall be deemed true and correct unless the breach of
such representations and warranties, in the aggregate, could reasonably be
expected to have an EQR Material Adverse Effect.
(b) PERFORMANCE OF OBLIGATIONS OF EQR. EQR shall have performed in
all material respects all obligations required to be performed by it under
this Agreement at or prior to the Effective Time, and Merry Land shall have
received a certificate of EQR signed on behalf of EQR by the chief
executive officer or the chief financial officer of EQR, in such capacity,
to such effect.
(c) MATERIAL ADVERSE CHANGE. Since the date of this Agreement, there
shall have been no EQR Material Adverse Change and Merry Land shall have
received a certificate of the chief executive officer or chief financial
officer of EQR, in such capacity, certifying to such effect.
(d) COMFORT LETTER. Merry Land shall have received the letter from
the accountants for EQR required by Section 5.8 hereof.
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(e) OPINION RELATING TO REIT STATUS AND PARTNERSHIP STATUS. Merry
Land shall have received an opinion of ▇▇▇▇▇▇▇ & ▇▇▇▇▇, reasonably
satisfactory to Merry Land, that, commencing with its taxable year ended
December 31, 1992, (A) EQR was organized and has operated in conformity
with the requirements for qualification as a REIT under the Code and (B)
ERP Operating Partnership has been during and since 1993 and continues to
be, treated for federal income tax purposes as a partnership, and not as a
corporation or association taxable as a corporation (with customary
exceptions, assumptions and qualifications and based upon customary
representations).
(f) OTHER TAX OPINION. Merry Land shall have received an opinion
dated the Closing Date from Piper & Marbury L.L.P., based upon customary
certificates and representation letters and dated the Closing Date, to the
effect that the Merger will qualify as a reorganization under the
provisions of Section 368(a) of the Code.
(g) OPINION OF COUNSEL. Merry Land shall have received an opinion
from ▇▇▇▇▇▇▇ & ▇▇▇▇▇ or other counsel to EQR reasonably satisfactory to
Merry Land dated the Closing Date in form and substance reasonably
satisfactory to Merry Land addressing the matters set forth in Exhibit "I"
hereto dated the Closing Date.
(h) CONSENTS. All consents and waivers (including, without
limitation, waivers or rights of first refusal) from third parties
necessary in connection with the consummation of the transactions
contemplated hereby shall have been obtained, other than such consents and
waivers from third parties, which, if not obtained, would not result,
individually or in the aggregate, in an EQR Material Adverse Effect or a
Merry Land Material Adverse Effect.
(i) PREFERRED STOCK PURCHASE AGREEMENT. ERP Operating Partnership
shall have executed and delivered the Preferred Stock Purchase Agreement.
(j) DEVELOPMENT AGREEMENT. ERP Operating Partnership shall have
executed and delivered the Development Agreement.
(k) PURCHASE AND SALE AGREEMENT. ERP Operating Partnership shall have
executed and delivered the Purchase and Sale Agreement.
ARTICLE 7
TERMINATION, AMENDMENT AND WAIVER
7.1 TERMINATION. This Agreement may be terminated at any time prior to the
filing of the Articles of Merger with the Department, whether before or after
either of the Shareholder Approvals are obtained:
(a) by mutual written consent duly authorized by both the Board of
Trustees of EQR and Board of Directors of Merry Land;
(b) by EQR, upon a breach of any representation, warranty, covenant,
obligation or agreement on the part of Merry Land set forth in this
Agreement, in either case such that the conditions set forth in Section
6.2(a) or Section 6.2(b), as the case may be, would be incapable of being
satisfied by February 28, 1999 (or as otherwise extended);
(c) by Merry Land, upon a breach of any representation, warranty,
covenant obligation or agreement on the part of EQR set forth in this
Agreement, in either case such that the conditions set forth in Section
6.3(a) or Section 6.3(b), as the case may be, would be incapable of being
satisfied by February 28, 1999 (or as otherwise extended);
(d) by either EQR or Merry Land, if any judgment, injunction, order,
decree or action by any Governmental Entity of competent authority
preventing the consummation of the Merger shall have become final and
nonappealable;
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(e) by either EQR or Merry Land, if the Merger shall not have been
consummated before February 28, 1999; provided, in the case of termination
pursuant to this Section 7.1(e), the terminating party shall not have
breached in any material respect its obligations under this Agreement in
any manner that shall have proximately contributed to the occurrence of the
failure referred to in this Section;
(f) by either EQR or Merry Land if, upon a vote at a duly held Merry
Land Shareholders Meeting or any adjournment thereof, the Merry Land
Shareholder Approvals shall not have been obtained as contemplated by
Section 5.1;
(g) by either EQR or Merry Land if, upon a vote at a duly held EQR
Shareholders Meeting or any adjournment thereof, the EQR Shareholder
Approvals shall not have been obtained as contemplated by Section 5.1;
(h) by Merry Land, if prior to the Merry Land Shareholders Meeting,
the Board of Directors of Merry Land shall have withdrawn or modified its
approval or recommendation of the Merger or this Agreement in connection
with, or approved or recommended, a Superior Acquisition Proposal; and
(i) by EQR if (i) prior to the Merry Land Shareholders Meeting, the
Board of Directors of Merry Land shall have withdrawn or modified in any
manner adverse to EQR its approval or recommendation of the Merger or this
Agreement in connection with, or approved or recommended, any Superior
Acquisition Proposal, or (ii) Merry Land shall have entered into a
definitive agreement with respect to any Acquisition Proposal.
7.2 CERTAIN FEES AND EXPENSES. If this Agreement shall be terminated (i)
pursuant to Section 7.1(h) or 7.1(i), then Merry Land will pay EQR (provided
Merry Land was not entitled to terminate this Agreement pursuant to Section
7.1(c) at the time of such termination) a fee equal to the Break-Up Fee (as
defined below), or (ii) pursuant to Section 7.1(b) or 7.1(f), then Merry Land
will pay EQR (provided Merry Land was not entitled to terminate this Agreement
pursuant to Section 7.1(c) at the time of such termination) an amount equal to
the Break-Up Expenses (as defined below). If this Agreement shall be terminated
pursuant to Section 7.1(c) or 7.1(g), then EQR will pay Merry Land (provided EQR
was not entitled to terminate this Agreement pursuant to Section 7.1(b) at the
time of such termination), an amount equal to the Break-Up Expenses. If the
Merger is not consummated (other than due to the termination of this Agreement
pursuant to Section 7.1(a), 7.1(c) or 7.1(g), or by EQR pursuant to 7.1(e), and
at the time of the termination of this Agreement an Acquisition Proposal has
been received by Merry Land, and either prior to the termination of this
Agreement or within twelve (12) months thereafter Merry Land or any Merry Land
Subsidiary enters into any written Acquisition Proposal which is subsequently
consummated (whether or not such Acquisition Proposal is the same Acquisition
Proposal which had been received at the time of the termination of this
Agreement), then Merry Land shall pay the Break-Up Fee to EQR. The payment of
the Break-Up Fee shall be compensation and liquidated damages for the loss
suffered by EQR as a result of the failure of the Merger to be consummated and
to avoid the difficulty of determining damages under the circumstances and
neither party shall have any other liability to the other after the payment of
the Break-Up Fee. The Break-Up Fee shall be paid by Merry Land to EQR, or the
Break-Up Expenses shall be paid by Merry Land to EQR or EQR to Merry Land (as
applicable), in immediately available funds within fifteen (15) days after the
date of the event giving rise to the obligation to make such payment occurred.
As used in this Agreement, "Break-Up Fee" shall be an amount equal to the lesser
of (i) $45,000,000 plus Break-Up Expenses (the "Base Amount") and (ii) the sum
of (A) the maximum amount that can be paid to EQR without causing it to fail to
meet the requirements of Sections 856(c)(2) and (3) of the Code determined as if
the payment of such amount did not constitute income described in Sections
856(c)(2)(A)-(H) and 856(c)(3)(A)-(I) of the Code ("Qualifying Income"), as
determined by independent accountants to EQR, and (B) in the event EQR receives
a letter from outside counsel (the "Break-Up Fee Tax Opinion") indicating that
EQR has received a ruling from the IRS holding that EQR's receipt of the Base
Amount would either constitute Qualifying Income or would be excluded from gross
income within the meaning of Sections 856(c)(2) and (3) of the Code (the "REIT
Requirements") or that the receipt by EQR of the excess of the Base Amount over
the amount payable in clause (A) following the receipt of and pursuant to such
ruling would not be deemed constructively received prior thereto, the Base
Amount less the amount
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payable under clause (A) above. In the event that EQR is not able to receive the
full Base Amount, Merry Land shall place the unpaid amount in escrow and shall
not release any portion thereof to EQR unless and until Merry Land receives any
one or combination of the following: (i) a letter from EQR's independent
accountants indicating the maximum amount that can be paid at that time to EQR
without causing EQR to fail to meet the REIT Requirements or (ii) a Break-Up Fee
Tax Opinion, in which event Merry Land shall pay to EQR the lesser of the unpaid
Base Amount or the maximum amount stated in the letter referred to in (i) above.
Merry Land's obligation to pay any unpaid portion of the Break-Up Fee shall
terminate three years from the date of this Agreement. The "Break-Up Expenses"
payable to EQR or Merry Land, as the case may be (the "Recipient"), shall be an
amount equal to the lesser of (i) $5,000,000, (ii) the Recipient's out-of-
pocket expenses incurred in connection with this Agreement and the transactions
contemplated hereby (including, without limitation, all attorneys', accountants'
and investment bankers' fees and expenses) and (iii) the sum of (A) the maximum
amount that can be paid to the Recipient without causing it to fail to meet the
requirements of Sections 856(c)(2) and (3) of the Code determined as if the
payment of such amount did not constitute Qualifying Income, as determined by
independent accountants to the Recipient, and (B) in the event the Recipient
receives a Break-Up Fee Tax Opinion indicating that the Recipient has received a
ruling from the IRS holding that the Recipient's receipt of the Expense Fee
would either constitute Qualifying Income or would be excluded from gross income
within the meaning of the REIT Requirements or that receipt by the Recipient of
the excess of the Expense Fee over the amount payable under clause (A) following
the receipt of and pursuant to such ruling would not be deemed constructively
received prior thereto, the Expense Fee less the amount payable under clause (A)
above. In the event that the Recipient is not able to receive the full Expense
Fee, the Payor shall place the unpaid amount in escrow and shall not release any
portion thereof to the Recipient unless and until the Payor receives any one or
combination of the following: (i) a letter from the Recipient's independent
accountants indicating the maximum amount that can be paid at that time to the
Recipient without causing the Recipient to fail to meet the REIT Requirements or
(ii) a Break-Up Fee Tax Opinion, in which event the Payor shall pay to the
Recipient the lesser of the unpaid Expense Fee or the maximum amount stated in
the letter referred to in (i) above. The obligation of EQR or Merry Land, as
applicable ("Payor"), to pay any unpaid portion of the Break Up Expenses shall
terminate three years from the date of this Agreement.
7.3 EFFECT OF TERMINATION. In the event of termination of this Agreement
by either Merry Land or EQR as provided in Section 7.1, this Agreement shall
forthwith become void and have no effect, without any liability or obligation on
the part of EQR, or Merry Land, other than the last sentence of Section 5.2,
Section 7.2, this Section 7.3 and Article 8; provided that (a) if this Agreement
is terminated by EQR pursuant to Section 7.1(b), Merry Land shall not be
entitled to any of the benefits of Section 7.2, or (b) if this Agreement is
terminated by Merry Land pursuant to Section 7.1(c), EQR shall not be entitled
to any of the benefits of Section 7.2.
7.4 AMENDMENT. This Agreement may be amended by the parties in writing by
action of their respective Boards of Trustees and Board of Directors at any time
before or after any Shareholder Approvals are obtained and prior to the filing
of the Articles of Merger with the Department or Certificate of Merger with the
Secretary of State; provided, however, that, after the Shareholder Approvals are
obtained, no such amendment, modification or supplement shall be made which by
law requires the further approval of shareholders without obtaining such further
approval.
7.5 EXTENSION; WAIVER. At any time prior to the Effective Time, the
parties may (a) extend the time for the performance of any of the obligations or
other acts of the other party, (b) waive any inaccuracies in the representations
and warranties of the other party contained in this Agreement or in any document
delivered pursuant to this Agreement or (c) subject to the proviso of Section
7.4, waive compliance with any of the agreements or conditions of the other
party contained in this Agreement. Any agreement on the part of a party to any
such extension or waiver shall be valid only if set forth in an instrument in
writing signed on behalf of such party. The failure of any party to this
Agreement to assert any of its rights under this Agreement or otherwise shall
not constitute a waiver of those rights.
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ARTICLE 8
GENERAL PROVISIONS
8.1 NONSURVIVAL OF REPRESENTATIONS AND WARRANTIES. None of the
representations and warranties in this Agreement or in any instrument delivered
pursuant to this Agreement confirming the representations and warranties in this
Agreement shall survive the Effective Time. This Section 8.1 shall not limit any
covenant or agreement of the parties which by its terms contemplates performance
after the Effective Time.
8.2 NOTICES. All notices, requests, claims, demands and other
communications under this Agreement shall be in writing and shall be delivered
personally, sent by overnight courier (providing proof of delivery) to the
parties or sent by telecopy (providing confirmation of transmission) at the
following addresses or telecopy numbers (or at such other address or telecopy
number for a party as shall be specified by like notice):
(a) if to EQR, to: Equity Residential Properties Trust
Two North Riverside ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Fax No. (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to: ▇▇▇▇▇▇▇ & ▇▇▇▇▇
▇▇▇ ▇. ▇▇▇▇▇▇▇ ▇▇., ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Esq.
Fax No. (▇▇▇) ▇▇▇-▇▇▇▇
(b) if to Merry Land, to: Merry Land & Investment Company, Inc.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇▇▇▇▇▇
Fax No. (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to: Hull, ▇▇▇▇▇▇, ▇▇▇▇▇▇ & ▇▇▇▇▇▇▇, P.C.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ Floor
Trust Company Bank Building
Augusta, Georgia 30901
Attention: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Esq.
and: Piper & Marbury L.L.P.
▇▇▇▇▇▇▇ Center South
Baltimore, Maryland 21201-3018
Attention: ▇.▇. ▇▇▇▇▇, ▇▇., Esq.
All notices shall be deemed given only when actually received.
8.3 INTERPRETATION. When a reference is made in this Agreement to a
Section, such reference shall be to a Section of this Agreement unless otherwise
indicated. The table of contents and headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. Whenever the words "include", "includes" or
"including" are used in this Agreement, they shall be deemed to be followed by
the words "without limitation."
8.4 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other party.
8.5 ENTIRE AGREEMENT; NO THIRD-PARTY BENEFICIARIES. This Agreement, the
Merry Land Disclosure Letter, the EQR Disclosure Letter, the Confidentiality
Agreement and the other agreements entered into in connection with the
Transactions (a) constitute the entire agreement and supersede all prior
agreements and understandings, both written and oral, between the parties with
respect to the subject matter
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of this Agreement and (b) except as provided in Section .10 (with respect to the
Schedule 5.10 Employees who do not receive Retention and Severance Program
Letters) and Section 5.11 ("Third Party Provisions"), are not intended to confer
upon any person other than the parties hereto any rights or remedies. The Third
Party Provisions may be enforced by the beneficiaries thereof or on behalf of
the beneficiaries thereof by the directors of Merry Land who had been directors
of Merry Land prior to the Effective Time.
8.6 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF MARYLAND, REGARDLESS OF THE LAWS THAT
MIGHT OTHERWISE GOVERN UNDER APPLICABLE PRINCIPLES OF CONFLICT OF LAWS THEREOF.
8.7 ASSIGNMENT. Neither this Agreement nor any of the rights, interests or
obligations under this Agreement shall be assigned or delegated, in whole or in
part, by operation of law or otherwise by any of the parties without the prior
written consent of the other parties. Subject to the preceding sentence, this
Agreement will be binding upon, inure to the benefit of, and be enforceable by,
the parties and their respective successors and assigns.
8.8 ENFORCEMENT. The parties agree that irreparable damage would occur in
the event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement in any court of the United States
located in the State of Illinois or Georgia or in any Illinois or Georgia State
court located in Illinois or Georgia, this being in addition to any other remedy
to which they are entitled at law or in equity. In addition, each of the parties
hereto (a) consents to submit itself (without making such submission exclusive)
to the personal jurisdiction of any federal court located in the State of
Illinois or Georgia or any Illinois or Georgia State court in the event any
dispute arises out of this Agreement or any of the transactions contemplated by
this Agreement and (b) agrees that it will not attempt to deny or defeat such
personal jurisdiction by motion or other request for leave from any such court.
8.9 SEVERABILITY. Any term or provision of this Agreement which is invalid
or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of this
Agreement is so broad as to be unenforceable, the provision shall be interpreted
to be only so broad as is enforceable.
8.10 NON-RECOURSE TO DIRECTORS, TRUSTEES AND OFFICERS. (a) This Agreement
and all documents, agreements, understandings and arrangements relating hereto
have been entered into or executed on behalf of Merry Land by the undersigned in
his capacity as a director or officer of Merry Land, which has been formed as a
Georgia corporation pursuant to Articles of Incorporation dated as of January
25, 1966, as amended and restated, and not individually, and neither the
directors, officers nor shareholders of Merry Land shall be personally bound or
have any personal liability hereunder. EQR shall look solely to the assets of
Merry Land for satisfaction of any liability of Merry Land with respect to this
Agreement and any other agreements to which it is a party. EQR will not seek
recourse or commence any action against any of the shareholders of Merry Land or
any of their personal assets, and will not commence any action for money
judgments against any of the directors or officers of Merry Land or seek
recourse against any of their personal assets, for the performance or payment of
any obligation of Merry Land hereunder or thereunder.
(b) This Agreement and all documents, agreements, understandings and
arrangements relating hereto have been entered into or executed on behalf of EQR
by the undersigned in his capacity as a trustee or officer of EQR, which has
been formed as a Maryland real estate investment trust pursuant to an Amended
and Restated Declaration of Trust of EQR dated as of November 2, 1992, as
amended and restated, and not individually, and neither the trustees, officers
nor shareholders of EQR shall be personally bound or have any personal liability
hereunder. Merry Land shall look solely to the assets of EQR for satisfaction of
any liability of EQR with respect to this Agreement and any other agreements to
which it is a party. Merry Land will not seek recourse or commence any action
against any of the shareholders of EQR or any of their personal assets,
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and will not commence any action for money judgments against any of the trustees
or officers of EQR or seek recourse against any of their personal assets, for
the performance or payment of any obligation of EQR hereunder or thereunder.
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IN WITNESS WHEREOF, EQR and Merry Land have caused this Agreement to be
signed by their respective officers thereunto duly authorized all as of the date
first written above.
EQUITY RESIDENTIAL PROPERTIES TRUST
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ ▇▇
------------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ ▇▇
President and Chief Executive
Officer
MERRY LAND & INVESTMENT COMPANY, INC.
By: /s/ ▇. ▇▇▇▇▇▇▇ HOUSTON
------------------------------------
▇. ▇▇▇▇▇▇▇ Houston
President
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FIRST AMENDMENT TO AGREEMENT AND PLAN OF MERGER
This Amendment to Agreement and Plan of Merger ("Amendment") is entered
into and made effective as of the 4th day of September, 1998 by and among Equity
Residential Properties Trust, a Maryland real estate investment trust ("EQR"),
Merry Land & Investment Company, Inc., a Georgia corporation ("Merry Land"),
Merry Land Merger Subsidiary, Inc., a Maryland corporation ("Merry Land Merger
Subsidiary"), and Merry Land LLC, a Georgia limited liability company ("Merry
Land LLC").
RECITALS:
▇. ▇▇▇ and Merry Land have entered into an Agreement and Plan of Merger,
dated as of July 8, 1998 (the "Merger Agreement"), which provides for the merger
of Merry Land with and into EQR (the "Merry Land/EQR Merger"), on the terms and
subject to the conditions set forth in the Merger Agreement.
B. The Merger Agreement also provides that at the option of EQR, subject to
the provisions of Section 1.9 of the Merger Agreement, such business combination
shall be effected through the Alternative Merger (as defined in the Merger
Agreement).
C. EQR and Merry Land wish to amend the Merger Agreement to set forth the
terms and conditions of the Alternative Merger.
D. To facilitate the occurrence of the Alternative Merger, Merry Land has
caused (i) Merry Land Merger Subsidiary to be formed as its wholly-owned
subsidiary, (ii) Merry Land LLC to be formed with Merry Land Merger Subsidiary
as its sole member, and (iii) each of Merry Land Merger Subsidiary and Merry
Land LLC to become a party to this Amendment.
▇. ▇▇▇ and Merry Land have agreed upon modifications to the forms of the
Development Agreement (the "Development Agreement") and the Option Agreement and
Right of First/Last Offer Agreement (the "Option Agreement") that were attached
as exhibits to the Merger Agreement, and desire to amend the Merger Agreement to
effectuate the substitution of modified forms of said exhibits.
▇. ▇▇▇ and Merry Land have agreed upon the form of the Augusta Office
Lease, and desire to memorialize said agreement in this Amendment.
G. EQR and Merry Land have agreed that EQR and "Spinco" (as such term is
defined in the Merger Agreement) shall form a joint venture (the "Joint
Venture") for the purposes of owning, operating and disposing of six (6)
properties to be acquired by EQR pursuant to the Merger, and EQR and Merry Land
desire to memorialize said agreement in this Amendment.
NOW, THEREFORE, in consideration of the premises, and the mutual agreements
contained herein, the parties hereto hereby agree as follows:
1. Definitions. Capitalized terms used in this Amendment and not otherwise
defined herein shall have the meanings given to them in the Merger Agreement.
2. Election Notice. EQR may, at any time prior to the Closing Date, but
subject to the condition set forth in Section 6.1 below, deliver to Merry Land
written notice given in accordance with Section 8.2 of the Merger Agreement that
EQR elects to have the Alternative Merger effected in lieu of the Merry Land/EQR
Merger (the "Election Notice"). Upon delivery of the Election Notice, the
Alternative Merger shall be effected in accordance with and subject to the terms
hereof and the terms of the Merger Agreement.
3. Merger of Merry Land into Merry Land LLC. If the Election Notice has
been delivered and the conditions set forth in Section 6.2 below have been
fulfilled, Merry Land shall merge with and into Merry Land LLC, with Merry Land
LLC being the surviving entity of such merger (the "ML/LLC Merger"). Upon the
effectiveness of such merger, the separate corporate existence of Merry Land
shall cease and Merry Land LLC shall continue its existence under the laws of
the State of Georgia under the name "Merry Land LLC" and shall succeed to all
rights, assets, liabilities and obligations of Merry Land and Merry Land LLC,
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all in accordance with the applicable provisions of the Georgia Limited
Liability Company Act ("GLLCA") and the Georgia Business Corporation Code
("GBCC").
3.1 In the ML/LLC Merger, (i) each issued and outstanding Merry Land Common
Share shall without any action on the part of the holder thereof be converted
into one share of Merry Land Merger Subsidiary common stock, par value $.001 per
share ("Merry Land Merger Subsidiary Common Share"), (ii) each issued and
outstanding Merry Land Preferred Share, Series A through E, shall without any
action on the part of the holder thereof be converted into one share of Merry
Land Merger Subsidiary preferred stock, par value $.001 per share, Series A
through E ("Merry Land Merger Subsidiary Preferred Share"), respectively, and
(iii) each Merry Land Merger Subsidiary Common Share issued and outstanding
immediately prior to the ML/LLC Merger and held by Merry Land shall be
cancelled. The ML/LLC Merger shall not result in any change to the limited
liability company interests of Merry Land LLC outstanding immediately prior to
the ML/LLC Merger, all of which shall remain vested in Merry Land Merger
Subsidiary as the sole member of Merry Land LLC.
3.2 Upon effectiveness of the ML/LLC Merger, each certificate representing
issued and outstanding Merry Land Common Shares or Merry Land Preferred Shares
shall be deemed to represent the same number of Merry Land Merger Subsidiary
Common Shares or Merry Land Merger Subsidiary Preferred Shares, respectively,
until consummation of the Merry Land Merger Subsidiary/EQR Merger (as defined in
Section 4 below), and each holder of a certificate for Merry Land Common or
Preferred Shares shall cease to have any rights in respect of such shares,
except the right to receive any dividends or other distributions with a record
date prior to the ML/LLC Merger Effective Time (as defined in Section 3.3 below)
which may have been declared or made by Merry Land on such Merry Land Common or
Preferred Shares and which remain unpaid at the ML/LLC Merger Effective Time.
3.3 Merry Land LLC, as the surviving entity of the ML/LLC Merger, shall
cause to be filed with the Secretary of State of Georgia Articles of Merger
substantially in the form of Exhibit A hereto, and such other filings as may be
required under the GLLCA or the GBCC. The ML/LLC Merger shall become effective
(the "ML/LLC Merger Effective Time") at such time as shall be specified in the
Articles of Merger. Unless otherwise agreed, the parties shall cause the ML/LLC
Merger to occur on the Closing Date.
3.4 As of the ML/LLC Merger Effective Time, each outstanding Merry Land
Option shall be assumed by Merry Land Merger Subsidiary and shall be deemed to
constitute an option to acquire (each, a "Merry Land Merger Subsidiary Stock
Option") on the same terms and conditions applicable under such Merry Land
Option, the same number of Merry Land Merger Subsidiary Common Shares as the
holder of such Merry Land Option would have been entitled to receive pursuant to
the ML/LLC Merger had such holder exercised such Merry Land Option in full
immediately prior to the ML/LLC Merger Effective Time.
4. Merger of Merry Land Merger Subsidiary into EQR. Immediately following
the ML/LLC Merger Effective Time, if the conditions set forth in Section 6.3
below have been fulfilled, Merry Land Merger Subsidiary shall merge with and
into EQR, with EQR being the surviving entity of such merger (the "Merry Land
Merger Subsidiary/EQR Merger"). Upon the effectiveness of such merger, the
separate corporate existence of Merry Land Merger Subsidiary shall cease and EQR
shall continue its existence under the laws of the State of Maryland under the
name "Equity Residential Properties Trust" and shall succeed to all rights,
assets, liabilities and obligations of Merry Land Merger Subsidiary and EQR, all
in accordance with the applicable provisions of Title 8 of the Corporations and
Associations Article of the Annotated Code of Maryland ("Title 8").
4.1 At the Merry Land Merger Subsidiary/EQR Merger Effective Time (as
defined in Section 4.2 below), the issued and outstanding Merry Land Merger
Subsidiary Common Shares and Merry Land Merger Subsidiary Preferred Shares shall
without any action on the part of the holders thereof be converted into EQR
Common Shares and EQR Preferred Shares, respectively, on the same basis that
Merry Land Common and Preferred Shares would have been converted into EQR Common
and Preferred Shares, respectively, had the transactions contemplated by the
Merger Agreement been effected through the Merry Land/EQR Merger, all as more
fully set forth in the Merger Agreement.
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4.2 In lieu of the filings described in Section 1.4 of the Merger
Agreement, EQR as the surviving entity of the Merry Land Merger Subsidiary/EQR
Merger shall cause to be filed with the Department the Articles of Merger,
substantially in the form of Exhibit B hereto and such other filings as may be
required under Title 8. The Merry Land Merger Subsidiary/EQR Merger shall become
effective (the "Merry Land Merger Subsidiary/EQR Effective Time") at such time
as shall be specified in the Articles of Merger.
5. Representations and Warranties.
5.1 Merry Land represents and warrants to EQR that:
(a) From the date of its formation through the time immediately prior
to the ML/LLC Merger, (i) the authorized capital stock of Merry Land Merger
Subsidiary shall consist of Merry Land Merger Subsidiary Common Shares and
Merry Land Merger Subsidiary Preferred Shares identical in number, rights,
preferences and characteristics to that of the Merry Land Common Shares and
Merry Land Preferred Shares, respectively, (ii) the only issued and
outstanding shares of capital stock of Merry Land Merger Subsidiary shall
be 100 Merry Land Merger Subsidiary Common Shares, issued to and held by
Merry Land, (iii) the Merry Land Merger Subsidiary Common Shares and Merry
Land Merger Subsidiary Preferred Shares issuable in the ML/LLC Merger will,
when issued in accordance with the terms hereof, be duly authorized,
validly issued, fully-paid and nonassessable and free and clear of all
Liens, (iv) the sole limited liability company interest of Merry Land LLC
shall be held by Merry Land Merger Subsidiary, and (v) except for their
organizational expenses and obligations pursuant to this Amendment, neither
Merry Land Merger Subsidiary nor Merry Land LLC shall have any debts,
liabilities or other obligations whatsoever.
(b) The execution and delivery of this Amendment by each of Merry
Land, Merry Land Merger Subsidiary and Merry Land LLC and the consummation
by each of them of the transactions contemplated by this Amendment to which
each is a party have been duly authorized by all necessary action on the
part of each of them, subject to the Merry Land Shareholder Approvals.
Except for the Merry Land Shareholder Approvals and the filings described
in Section 3.3 above, no vote, consent, approval, notice to or filing with
any Person is required to be obtained by any of Merry Land, Merry Land
Merger Subsidiary or Merry Land LLC in order for any of them to consummate
the transactions contemplated by this Amendment that are not described in
the Merger Agreement. This Amendment has been duly executed and delivered
by each of Merry Land, Merry Land Merger Subsidiary and Merry Land LLC and
constitutes a valid and binding obligation of each of them, enforceable
against each in accordance with its terms, subject to applicable
bankruptcy, insolvency, moratorium or other similar laws relating to
creditors' rights and general principles of equity.
5.2 EQR represents and warrants to Merry Land that the execution and
delivery of this Amendment by EQR and the consummation by EQR of the
transactions contemplated by this Amendment to which EQR is a party have been
duly authorized by all necessary action on the part of EQR, subject to the EQR
Shareholder Approvals. Except for the EQR Shareholder Approvals and the filings
described in Section 4.2 above, no vote, consent, approval, notice to or filing
with any Person is required to be obtained by EQR in order for EQR to consummate
the transactions contemplated by this Amendment that are not described in the
Merger Agreement. This Amendment has been duly executed and delivered by EQR and
constitutes a valid and binding obligation of EQR, enforceable against EQR in
accordance with its terms, subject to applicable bankruptcy, insolvency,
moratorium or other similar laws relating to creditors' rights and general
principles of equity.
6. Conditions to Election Notice and Alternative Merger.
6.1 EQR shall not be entitled to deliver the Election Notice unless and
until EQR and Merry Land shall have received a private letter ruling from the
IRS to the effect that the Alternative Merger may be effected on a tax-free
basis to the shareholders of Merry Land, Merry Land Merger Subsidiary and EQR.
6.2 The ML/LLC Merger shall not occur unless and until (i) each of the
conditions set forth in Article 6 of the Merger Agreement has been satisfied or
waived in writing by the party for whose benefit the
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condition exists and (ii) in addition to the delivery of the opinions of counsel
described in Article 6 of the Merger Agreement:
(a) EQR and Merry Land shall have received an opinion of ▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇, LLP, to the effect that this Amendment and the
Articles of Merger attached as Exhibit B hereto are enforceable under
Maryland law, that all requisite approval of the Merry Land Merger
Subsidiary/EQR Merger by the shareholders of EQR has been obtained, that no
appraisal rights exist in favor of the shareholders of EQR as a result of
the Merry Land Merger Subsidiary/EQR Merger, and as to such other matters
as are customary in a transaction such as the Merry Land Merger
Subsidiary/EQR Merger;
(b) EQR and Merry Land shall have received an opinion of ▇▇▇▇, ▇▇▇▇▇▇,
▇▇▇▇▇▇ & ▇▇▇▇▇▇▇, P.C., as to matters of Georgia law, and of Piper &
▇▇▇▇▇▇▇ L.L.P. as to matters of Maryland law, to the effect that the
Amendment and the Articles of Merger attached as Exhibit A hereto are
enforceable under Georgia law, that the Amendment and the Articles of
Merger attached as Exhibit B hereto are enforceable under Maryland law,
that all the requisite approvals of the ML/LLC Merger by the shareholders
of Merry Land and of Merry Land Merger Subsidiary and by the sole member of
Merry Land LLC have been obtained, that all requisite approvals of the
Merry Land Merger Subsidiary/EQR Merger by the shareholders of Merry Land
Merger Subsidiary have been obtained, that no appraisal rights exist in
favor of the shareholders of Merry Land as a result of the ML/LLC Merger or
in favor of the shareholders of Merry Land Merger Subsidiary as a result of
the Merry Land Merger Subsidiary/ EQR Merger, and as to such other matters
as are customary in transactions such as the ML/LLC Merger;
(c) EQR shall have received an opinion of counsel of ▇▇▇▇, ▇▇▇▇▇▇,
▇▇▇▇▇▇ & ▇▇▇▇▇▇▇, P.C. or other counsel to Merry Land reasonably
satisfactory to EQR dated the Closing Date in form and substance reasonably
satisfactory to EQR addressing the matters set forth on Exhibit C hereto;
and
(d) Merry Land shall have received an opinion of counsel of ▇▇▇▇▇▇▇ &
▇▇▇▇▇ or other counsel to EQR reasonably satisfactory to Merry Land dated
the Closing Date in form and substance reasonably satisfactory to Merry
Land addressing the matters set forth on Exhibit D hereto.
6.3 The Merry Land Merger Subsidiary/EQR Merger shall not occur unless and
until the ML/LLC Merger has become effective under applicable law.
7. Abandonment. The ML/LLC Merger and the Merry Land Merger Subsidiary/EQR
Merger may be abandoned, whether before or after either of the Shareholder
Approvals are obtained, (i) at the election of EQR (by majority vote of its
entire Board of Trustees), in its sole discretion, not to effect the
transactions contemplated by the Merger Agreement through the Alternative Merger
(notwithstanding that EQR may have previously delivered the Election Notice), in
which event the transactions contemplated by the Merger Agreement shall be
effected through the Merry Land/EQR Merger, on the terms and subject to the
conditions set forth in the Merger Agreement, or (ii) by termination of the
Merger Agreement in accordance with the provisions Section 7.1 of the Merger
Agreement.
8. Amendment to Option Agreement. Exhibit D to Exhibit B to the Merger
Agreement, the form of Option Agreement, is hereby deleted and the form of
Option Agreement attached hereto as Exhibit E is hereby substituted in lieu
thereof.
9. Amendment to Development Agreement. Exhibit D to the Merger Agreement,
the form of Development Agreement, is hereby deleted and the form of Development
Agreement attached hereto as Exhibit F is hereby substituted in lieu thereof.
10. Amendment to Section 1.2(d). Section 1.2(d) of the Merger Agreement is
hereby deleted in its entirety and the following is hereby substituted in lieu
thereof:
"EQR shall cause ERP Operating Partnership to execute and deliver, and
Merry Land shall cause Spinco to execute and deliver, the Augusta Office
Lease."
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\All references in the Merger Agreement to the Augusta Office Lease shall be
deemed to refer to a document in the form attached as Exhibit G to this
Amendment.
11. Joint Venture. Attached hereto as Exhibit H is a term sheet with
respect to the Joint Venture (the "Joint Venture Term Sheet"). EQR and Merry
Land agree to prepare, negotiate and agree upon the form of the Joint Venture's
"Joint Venture Agreement" (as such term is defined in the Joint Venture Term
Sheet) in such form as shall be consistent with the Term Sheet and is otherwise
mutually agreeable to EQR and Merry Land, acting in good faith. EQR and Merry
Land shall cause ERP Operating Partnership and Spinco, respectively, to form the
Joint Venture in accordance with the Joint Venture Agreement. Notwithstanding
the foregoing, the formation of the Joint Venture shall not be a condition
precedent to EQR's or Merry Land's obligation to consummate the Merger.
12. Amendment to Section 5.10(c). Section 5.10(c)(i) of the Merger
Agreement is hereby deleted and the following substituted in lieu thereof:
"(c) Optionees.
(i) Prior to the Closing, each individual holding a Merry Land Option
shall have the right to enter into a written agreement with EQR providing
for the cancellation of such option, whether or not vested, immediately
following the Effective Time for cash in an amount equal to the difference
between the Closing Price of Merry Land Common and the applicable exercise
price set forth in such option, multiplied by the number of Merry Land
Common Shares subject to such option. For purposes of this paragraph,
"Closing Price" shall mean the unweighted average closing price of a Merry
Land Common Share, reported as "New York Stock Exchange Composite
Transactions" by The Wall Street Journal (Midwest Edition) for the ten (10)
Trading Days ending on the third Trading Day immediately prior to the
Closing Date. For the purposes of this paragraph only, "Trading Day" shall
mean any day on which Merry Land Common Shares are traded on the NYSE."
13. Amendment to Section 5.19. Section 5.19 of the Merger Agreement is
hereby deleted and the following substituted in lieu thereof:
"5.19 ESOP
(a) With respect to the ESOP, Merry Land shall, subject to ERISA and
any other applicable law, take all necessary action to: (i) revoke
resolutions previously adopted by its Board of Directors on July 8, 1998,
respecting the ESOP; (ii) amend the ESOP to: (A) cause the transfer of, and
shall cause Spinco to assume, the sponsorship of the ESOP effective as soon
as practicable after the date of this Agreement, but in all events prior to
the Distribution; (B) provide that all ESOP participants who are employed
by Merry Land immediately prior to the Effective Time, but are not employed
by Spinco immediately after the Effective Time, will become 100% vested in
their accounts under the ESOP; (C) provide that any reallocation of
forfeitures attributable to ESOP participants who terminated employment
after December 31, 1995, and prior to the Effective Time, or otherwise
incur a forfeiture prior to the Effective Time, and any allocations
relating to the repayment of the ESOP's acquisition loans with respect to
the plan year which includes the Effective Time, shall include all ESOP
participants who were employed by Merry Land immediately prior to the
Effective Time and completed 1,000 Hours of Service prior to the Effective
Time (or a pro-rata number of Hours of Service in the event that any such
allocation is made prior to the last day of the plan year) and shall be
done by using consistent methodologies for all such participants; and (D)
cease its participation as a participating employer in the ESOP effective
immediately prior to the Distribution; and (iii) use its best efforts to
cause satisfaction of the ESOP's outstanding acquisition loans with
proceeds from sale of the pledged collateral and contributions which may be
made in accordance with Section 2.28 of this Agreement.
(b) Prior to the Effective Time, Merry Land shall cause Spinco to
enter into an agreement with EQR, and EQR shall enter into an agreement
with Spinco, substantially in accordance with the provisions of the Term
Sheet attached hereto as Exhibit I, respecting: (i) indemnification for
certain
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liabilities which may arise with respect to the ESOP, and (ii) procedures
for obtaining a favorable determination letter with respect to the
amendment of the ESOP as provided in Section 5.19(a)."
14. Certain Effects of Amendment. From and after the date of this
Amendment, the term "Agreement" as defined in the Merger Agreement, shall mean
the Merger Agreement, as hereby amended (except that references in the Merger
Agreement to "the date of this Agreement" shall continue to mean the date of the
Merger Agreement without regard to this Amendment), and the term "Merry Land
Subsidiaries," as defined in the Merger Agreement, shall be deemed to include
each of Merry Land Merger Subsidiary and Merry Land LLC. If the transactions
contemplated by the Merger Agreement shall be effected through the consummation
of the Alternative Merger, the following terms as used in the Merger Agreement
shall be deemed to have the following meanings: (i) "Effective Time" shall mean
the Merry Land Merger Subsidiary/EQR Effective Time; (ii) "Surviving Trust"
shall mean EQR as the surviving entity of the Merry Land Merger Subsidiary/ EQR
Merger; and (iii) the references to "Merry Land Options" in Section 5.10(c) of
the Merger Agreement shall refer to the Merry Land Merger Subsidiary Stock
Options. The parties hereby acknowledge and affirm that the term "Merger" as
used in the Merger Agreement means and refers to the combination of businesses
of Merry Land and EQR, with EQR as the surviving entity of such combination,
whether such combination is effected through the Merry Land/EQR Merger or the
Alternative Merger. The Merger Agreement, as modified by this Amendment, remains
in full force and effect.
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IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly authorized and executed all as of the date first written above.
EQUITY RESIDENTIAL PROPERTIES TRUST
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
------------------------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
----------------------------------
Title: Executive Vice President and
General Counsel
-----------------------------------
MERRY LAND & INVESTMENT COMPANY, INC.
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
------------------------------------
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
----------------------------------
Title:
Executive Vice President and
Chief Operating Officer
-----------------------------------
MERRY LAND MERGER SUBSIDIARY, INC.
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
------------------------------------
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
----------------------------------
Title:
Executive Vice President and
Chief Operating Officer
-----------------------------------
MERRY LAND LLC
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
------------------------------------
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
----------------------------------
Title:
Executive Vice President and
Chief Operating Officer
-----------------------------------
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APPENDIX B
EQUITY RESIDENTIAL PROPERTIES TRUST
MERRY LAND & INVESTMENT COMPANY, INC.
ARTICLES OF MERGER
EQUITY RESIDENTIAL PROPERTIES TRUST, a Maryland real estate investment
trust ("EQR"), and MERRY LAND & INVESTMENT COMPANY, INC., a Georgia corporation
("Merry Land"), certify to the State Department of Assessments and Taxation of
Maryland:
The Merger. Pursuant to that certain Agreement and Plan of Merger by and
between EQR and Merry Land dated July 8, 1998 (the "Merger Agreement"), EQR and
Merry Land agree to merge in the manner hereinafter set forth. Subject to the
acceptance for record of these Articles of Merger ("Articles") by the State
Department of Assessments and Taxation of Maryland (the "Department") and the
occurrence of the Effective Time (as defined below), Merry Land shall be merged
with and into EQR in accordance with Section 8-501.1 of the Corporations and
Associations Article (the "Maryland Code") of the Annotated Code of Maryland,
EQR shall be the survivor in the Merger and the separate existence of Merry Land
shall thereupon cease (the "Merger").
1. Formation. EQR was formed under Title 8 of the Maryland Code. Merry Land
was incorporated under the Georgia Business Corporation Code (the "GBCC") on
January 25, 1966 and was qualified to do business in the State of Maryland on
November 7, 1994.
2. Principal Offices. The principal office of EQR in the State of Maryland
is located in Baltimore City.
3. Ownership of Land Interests. Merry Land owns interests in land located
within ▇▇▇▇▇▇ County, State of Maryland.
4. Declaration of Trust. The Second Amended and Restated Declaration of
Trust of EQR (the "Declaration"), shall be amended by the amendment set forth in
Exhibit "A" to the Articles, until duly amended in accordance with its terms and
applicable law.
5. Effective Time. The Merger shall be effective at the later of (i) 4:15
p.m. on the date on which the Department accepts these Articles for record or
(ii) the acceptance of a Certificate of Merger relating to the Merger by the
Secretary of State of Georgia (the time at which the Merger becomes effective
being herein referred to as the "Effective Time"). The date on which the
Effective Time occurs is herein referred to as the "Effective Date".
6. Effects. The Merger shall have the effects specified in the GBCC and
Section 8-501.1(n) of the Maryland Code. At the Effective Time all the
properties, rights, privileges, powers and franchises of Merry Land shall vest
in EQR and all debts, liabilities and duties of Merry Land shall become the
debts, liabilities and duties of EQR. If at any time EQR shall consider or be
advised that any further assignments, conveyances or assurances in law are
necessary or desirable to vest, perfect or confirm in EQR the title to any
property or rights of EQR or Merry Land or otherwise to carry out the provisions
hereof, the persons who are the proper officers, trustees and directors of EQR
or Merry Land immediately prior to the Effective Time (or their successors in
office) shall execute and deliver any and all proper deeds, assignments and
assurances in law, and do all things necessary or proper, to vest, perfect or
confirm title to such property or rights in EQR and otherwise to carry out the
provisions hereof. EQR shall continue to be governed by Title 8 of the Maryland
Code.
7. Approval of Merger. The terms and conditions of the Merger were duly
advised, authorized and approved by EQR in the manner and by the vote required
by Title 8 of the Maryland Code and the Declaration of EQR as follows:
The Board of Trustees of EQR, at a meeting duly called and held,
adopted a resolution declaring that the terms and conditions of the Merger
described herein were advisable and directing that the proposed transaction
be submitted for consideration by the shareholders of EQR.
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The shareholders of EQR entitled to vote on the proposed merger, at a
meeting duly called and held, adopted a resolution approving the Merger.
The terms and conditions of the Merger were duly advised, authorized and
approved by Merry Land in the manner and by the vote required by the GBCC and
the Articles of Incorporation of Merry Land (the "Merry Land Articles") as
follows:
(a) The Board of Directors of Merry Land, at a meeting duly called and
held, adopted a resolution declaring that the terms and conditions of the
Merger described herein were advisable and directing that the proposed
transaction be submitted for consideration by the shareholders of Merry
Land.
(b) The shareholders of Merry Land entitled to vote on the proposed
merger, at a meeting duly called and held, adopted a resolution approving
the Merger.
The shareholders of Merry Land are not entitled to any appraisal rights in
connection with the Merger.
8. Trustees. As of the Effective Time, the trustees of EQR and their terms
of office shall be as set forth on Exhibit "B" attached hereto. If any of the
individuals named in Exhibit "B" are unable to serve as a trustee of EQR at the
Effective Time, his successor will be nominated and elected in accordance with
the laws of the State of Maryland and the Second Amended and Restated Bylaws of
EQR (the "EQR Bylaws").
9. Capital
(a) The Merry Land Articles as in effect immediately prior to the Effective
Time authorizes the issuance of 100,000,000 shares of common stock, without par
value ("Merry Land Common"), and 20,000,000 shares of preferred stock, without
par value ("Merry Land Preferred", and, together with the Merry Land Common, the
"Merry Land Shares"). The Merry Land Preferred consists of 187,666 shares of
$1.75 Series A Cumulative Convertible Preferred Stock ("Merry Land Series A
Shares"), (ii) 4,000,000 shares of $2.205 Series B Cumulative Convertible
Preferred Stock ("Merry Land Series B Shares"), (iii) 4,599,400 shares of $2.15
Series C Cumulative Convertible Preferred Stock ("Merry Land Series C Shares"),
(iv) 1,000,000 shares of $4.145 Series D Cumulative Redeemable Preferred Stock
("Merry Land Series D Shares"), and (v) 4,000,000 shares of 7.625% Series E
Cumulative Redeemable Preferred Stock ("Merry Land Series E Shares"). The
aggregate par value of all the authorized shares of Merry Land is $0.
(b) EQR's Declaration authorizes the issuance of 300,000,000 shares of
beneficial interest, of which 200,000,000 are common shares, $.01 par value par
share ("EQR Common"), and 100,000,000 are preferred shares ("EQR Preferred" and,
together with EQR Common, the "EQR Shares"). EQR has established the following
series of preferred shares: (i) 6,900,000 shares of 9 3/8% Series A Cumulative
Redeemable Preferred Shares of Beneficial Interest, par value $.01 per share;
(ii) 575,000 shares of 9 1/8% Series B Cumulative Redeemable Preferred Shares of
Beneficial Interest, par value $.01 per share; (iii) 460,000 shares of 9 1/8%
Series C Cumulative Redeemable Preferred Shares of Beneficial Interest, par
value $.01 per share; (iv) 805,000 shares of 8.60% Series D Cumulative
Redeemable Preferred Shares of Beneficial Interest, par value $.01 per share;
(v) 4,600,000 shares of Series E Convertible Preferred Shares of Beneficial
Interest, par value $.01 per share; (vi) 2,300,000 shares of Series F Cumulative
Redeemable Preferred Shares of Beneficial Interest, par value $.01 per share;
and (vii) 1,265,000 shares of 7 1/4% Series G Convertible Cumulative Preferred
Shares of Beneficial Interest, par value $.01 per share. The aggregate par value
of all the authorized shares of beneficial interest of EQR immediately prior to
the Effective Time is $3,000,000.
(c) Effective at the Effective Time, EQR's Declaration will be amended to,
among other things, increase the number of authorized shares of beneficial
interest to 450,000,000, of which 350,000,000 will be EQR Common, and designate
the following additional series of EQR Preferred: 187,666 shares of $1.75 Series
H Cumulative Convertible Preferred Stock ("EQR Series H Shares"), (ii) 4,000,000
shares of $2.205 Series I Cumulative Convertible Preferred Stock ("EQR Series I
Shares"), (iii) 4,599,400 shares of $2.15 Series J Cumulative Convertible
Preferred Stock ("EQR Series J Shares"), (iv) 1,000,000 shares of $4.145 Series
K Cumulative Redeemable Preferred Stock ("EQR Series K Shares") and (v)
4,000,000 shares of 7.625% Series L Cumulative Redeemable Preferred Stock ("EQR
Series L Shares"). The aggregate par value of all
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the authorized shares of beneficial interest of EQR immediately following the
Effective Time shall be $4,500,000.
10. Conversion. The manner of converting the shares of Merry Land shall be
as follows:
(a) Subject to the provisions of Section 10(i) hereof, at the Effective
Time, each share of Merry Land Common outstanding immediately prior to the
Effective Time shall, without any action on the part of the holder thereof, be
converted into 0.53 of a share of EQR Common, except for shares of Merry Land
Common owned by EQR or an direct or indirect subsidiary of EQR which shall be
cancelled.
(b) At the Effective Time, each Merry Land Series A Share shall, without
any action on the part of the holder thereof, continue as a preferred share of
EQR with its same preferences, rights and powers, and be converted in the Merger
into one EQR Series H Share.
(c) At the Effective Time, each Merry Land Series B Share shall, without
any action on the part of the holder thereof, continue as a preferred share of
EQR with its same preferences, rights and powers, and be converted in the Merger
into one EQR Series I Share.
(d) At the Effective Time, each Merry Land Series C Share shall, without
any action on the part of the holder thereof, continue as a preferred share of
EQR with its same preferences, rights and powers, and be converted in the Merger
into one EQR Series J Share.
(e) At the Effective Time, each Merry Land Series D Share shall, without
any action on the part of the holder thereof, continue as a preferred share of
EQR with its same preferences, rights and powers, and be converted in the Merger
into one EQR Series K Share.
(f) At the Effective Time, each Merry Land Series E Share shall, without
any action on the part of the holder thereof, continue as a preferred share of
EQR with its same preferences, rights and powers, and be converted in the Merger
into one EQR Series L Share.
(g) At the Effective Time, each certificate representing Merry Land
Preferred will, without any action on the part of the holder thereof, thereafter
represent the right to receive a certificate evidencing an equal number of EQR
Preferred of the series set forth above, upon the surrender of such Merry Land
certificate or certificates.
(h) At the Effective Time, each certificate representing outstanding shares
of Merry Land Common will, without any action on the part of the holder thereof,
thereafter represent the right to receive, without interest, a certificate
evidencing the EQR Common as calculated pursuant to Section 10(a) above and cash
in lieu of fractional shares of the EQR Common in accordance with Section 10(i),
upon the surrender of such Merry Land certificate or certificates.
(i) Notwithstanding any other provision hereof, no fractional shares of EQR
Common shall be issued in connection with the Merger. Instead, each holder of
outstanding Merry Land Common having a fractional interest arising upon the
conversion or exchange of such shares in connection with the Merger shall, at
the time of surrender of its Merry Land certificate or certificates, be paid an
amount in cash equal to the Closing Price (as hereinafter defined) multiplied by
the fraction of a share of EQR Common to which such holder would otherwise be
entitled. In the event that any one holder holds more than one certificate
representing Merry Land Common, the shares represented by all such certificates
surrendered together for conversion or exchange shall be aggregated and one new
certificate representing EQR Common shall be issued in respect of such
certificates representing Merry Land Common, insofar as is necessary to reduce
the number of fractional interests in respect of EQR Common which would
otherwise arise. No such holder shall be entitled to dividends or other
distributions, voting rights or any other shareholder rights in respect of any
fractional share. For purposes of this Section 10(i), "Closing Price" shall mean
the unweighted average closing price of a share of EQR Common (as reported in
the New York Stock Exchange, Inc. Composite Tape) for the five (5) Trading Days
immediately preceding the Effective Date, and "Trading Day" shall mean any day
on which EQR Common is traded on the New York Stock Exchange and reported on its
Composite Tape.
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(j) At the Effective Time, each outstanding option to purchase Merry Land
Common (a "Merry Land Stock Option" or collectively "Merry Land Stock Options")
shall be amended to (i) adjust the number of shares for which such option is
thereafter exercisable by multiplying such number of shares by 0.54, (ii) adjust
the per-share exercise price by dividing such exercise price by 0.54 and (iii)
to provide that such option shall be exercisable for EQR Common Shares.
(k) The Merry Land Dividend Reinvestment and Stock Purchase Plan shall
terminate effective as of the Effective Time.
(l) Each outstanding share of Merry Land Common which was subject to any
risk of forfeiture immediately prior to the Effective Time shall, by virtue of
the Merger, become fully vested immediately prior to the Merger, and shall no
longer be subject to any risk of forfeiture.
11. Exchange of Certificates.
(a) As of the Effective Time, EQR shall deposit, or shall cause to be
deposited, with an exchange agent selected by EQR (the "Exchange Agent"), for
the benefit of the holders of certificates representing Merry Land Common Shares
(the "Merry Land Certificates"), for exchange in accordance with this Section
11, certificates evidencing the EQR Shares (the "EQR Certificates") to be issued
pursuant to this Section 11.
(b) Promptly after the Effective Time, EQR shall cause the Exchange Agent
to mail to each holder of record of Merry Land Shares a letter of transmittal
which shall specify (i) that delivery shall be effected, and risk of loss and
title to Merry Land Certificates shall pass, only upon delivery of such Merry
Land Certificates to the Exchange Agent, and shall be in such form and have such
other provisions as EQR may reasonably specify, and (ii) instructions for use in
effecting the surrender of such Merry Land Certificates in exchange for EQR
Certificates and cash in lieu of fractional shares of EQR Common. Upon surrender
of one or more Merry Land Certificates for cancellation to the Exchange Agent,
duly executed and completed in accordance with the instructions thereto,
together with such letter of transmittal, the holder of such Merry Land
Certificates so surrendered shall be entitled to receive in exchange therefor
(x) a EQR Certificate evidencing the number of whole EQR Shares and (y) a check
representing the amount of cash in lieu of fractional shares of EQR Common, if
any, and unpaid dividends and distributions, if any, which such holder has the
right to receive pursuant to the provisions of Section 10(i) in respect of the
one or more Merry Land Certificates surrendered, after giving effect to any
required withholding tax, and the one or more Merry Land Certificates so
surrendered shall forthwith be canceled. No interest will be paid or accrued on
the cash in lieu of fractional shares of EQR Common and unpaid dividends and
distributions, if any, payable to holders of Merry Land Certificates. In the
event of a transfer of ownership of Merry Land Shares which is not registered in
the transfer records of Merry Land, EQR Certificates evidencing the proper
number of EQR Shares, together with a check for the cash to be paid in lieu of
any fractional shares of EQR Common, if any, and unpaid dividends and
distributions, if any, which such holder has the right to receive pursuant to
Section 10(i) in respect of the Merry Land Certificate so surrendered, after
giving effect to any required withholding tax, may be issued to such a
transferee if the Merry Land Certificate is presented to the Exchange Agent,
accompanied by all documents required to evidence and effect such transfer and
to evidence that any applicable stock transfer taxes have been paid. All Merry
Land Certificates so surrendered will be canceled forthwith. Notwithstanding the
foregoing, neither the Exchange Agent nor any party hereto shall be liable to a
holder of Merry Land Shares for any EQR Shares or dividends or other
distributions thereon, or cash in lieu of any fractional EQR Common, delivered
to a public official pursuant to applicable escheat law.
(c) Notwithstanding any other provisions of these Articles, no dividends or
other distributions on EQR Shares shall be paid with respect to any Merry Land
Shares represented by a Merry Land Certificate until such Merry Land Certificate
is surrendered for exchange as provided herein. Subject to the effect of
applicable laws, following surrender of any such Merry Land Certificate, there
shall be paid to the holder of the EQR Certificate issued in exchange therefor,
without interest, (i) at the time of such surrender, the amount of dividends or
other distributions with a record date after the Effective Time theretofore
payable with respect to such whole EQR Shares and not paid, less the amount of
any withholding taxes which may be required thereon, and (ii) at the appropriate
payment date, the amount of dividends or other distributions with a record date
after the Effective Time but prior to surrender and a payment date subsequent to
surrender payable with
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respect to such whole of EQR Shares, less the amount of any withholding taxes
which may be required thereon.
(d) At and after the Effective Time, there shall be no transfers on the
share transfer books of Merry Land of the Merry Land Shares which were
outstanding immediately prior to the Effective Time. If, after the Effective
Time, Merry Land Certificates are presented to EQR, they shall be canceled and
exchanged for certificates evidencing EQR Shares and cash in lieu of fractional
EQR Common, if any, and unpaid dividends and distributions deliverable in
respect thereof pursuant to these Articles in accordance with the procedures set
forth in this Section 11.
(e) Any portion of the EQR Certificates made available to the Exchange
Agent pursuant to Section 11(a) which remains unclaimed by the holders of Merry
Land Shares for one hundred twenty (120) days after the Effective Time shall be
delivered to EQR, upon demand of EQR, and any former shareholders of Merry Land
who have not theretofore complied with this Section 11 shall look only to EQR
for payment of their EQR Shares, cash in lieu of fractional shares of EQR Common
and unpaid dividends and distributions on the EQR Shares deliverable in respect
of each share of Merry Land Shares such shareholder holds as determined pursuant
to these Articles, in each case, without any interest thereon.
(f) None of Merry Land, EQR, the Exchange Agent or any other person shall
be liable to any former holder of Merry Land Shares for any amount properly
delivered to a public official pursuant to applicable abandoned property,
escheat or similar laws.
(g) In the event any Merry Land Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
such certificate to be lost, stolen or destroyed and, if required by EQR, the
posting by such person of a bond in such reasonable amount as EQR may direct as
indemnity against any claim that may be made against it with respect to such
Merry Land Certificate, the Exchange Agent or EQR will issue in exchange for
such lost, stolen or destroyed Merry Land Certificate the EQR Shares and cash in
lieu of fractional EQR Common, and unpaid dividends and distributions on the EQR
Shares as provided in Section 10(i), deliverable in respect thereof pursuant to
these Articles.
12. Amendment. The parties hereto may amend, modify or supplement these
Articles in whole or in part and in such manner as may be agreed upon by them in
writing at any time before or after the approval of the Merger by the parties'
shareholders as contemplated hereby; provided, however, that after any such
shareholder approval, any such amendment will be subject to further approval of
such shareholders if such further approval is required under the Declaration of
EQR or the EQR Bylaws, or the Merry Land Articles or Amended and Restated Bylaws
of Merry Land, as the case may be, or under applicable law.
13. Waiver. Any term or provision of these Articles (other than any matter
which cannot under applicable law be waived) may be waived in writing at any
time by the party which is, or whose shareholders are, entitled to the benefits
thereof. The failure of any party at any time or times to require performance of
any provision hereof shall in no manner affect such party's right at a later
time to enforce the same. No waiver by any party of a condition or of the breach
of these Articles, whether by conduct or otherwise, in any one or more instances
shall be deemed to be construed as a further or continuing waiver of any such
condition or breach or a waiver of any other condition or of the breach of any
other term, covenant, representation or warranty of these Articles.
14. Notice. Any notice or other communication required or permitted under
these Articles shall be given, and shall be effective, in accordance with the
provisions of the Merger Agreement.
15. Governing Law. These Articles shall be governed by and construed in
accordance with the laws of the State of Maryland.
16. Counterparts. These Articles may be executed in multiple counterparts,
each of which shall be deemed an original and all of which together shall
constitute one agreement.
17. Abandonment. The Merger may be abandoned before the Effective Time by
majority vote of the entire Board of Trustees of EQR and Board of Directors of
Merry Land.
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IN WITNESS WHEREOF, these Articles have been signed on this day of
, 1998 by the of EQR and the
of Merry Land, and each of the undersigned acknowledges
these Articles to be the act of the entity on whose behalf he or she has signed,
and as to all matters or facts required to be verified under oath, each of the
undersigned acknowledges that to the best of his or her knowledge, information,
and belief, the matters and facts are true in all material respects and such
statement is made under the penalties for perjury.
EQUITY RESIDENTIAL PROPERTIES
TRUST
By:
--------------------------------------------------
Its:
--------------------------------------------------
Attest:
----------------------------------------------
-----------------------------------------------------
MERRY LAND & INVESTMENT
COMPANY, INC.
By:
--------------------------------------------------
Its:
--------------------------------------------------
Attest:
----------------------------------------------
-----------------------------------------------------
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EXHIBIT A
FORM OF AMENDMENT TO THE SECOND AMENDED AND RESTATED
DECLARATION OF TRUST OF EQUITY RESIDENTIAL PROPERTIES TRUST
THIS AMENDMENT TO THE SECOND AMENDED AND RESTATED DECLARATION OF TRUST OF
EQUITY RESIDENTIAL PROPERTIES TRUST (this "Amendment") is effective as of the
Effective Time (as defined in the Agreement and Plan of Merger dated as of July
8, 1998 between Equity Residential Properties Trust and Merry Land & Investment
Company, Inc. (the "Merger Agreement")).
RECITALS:
A. Equity Residential Properties Trust, a Maryland real estate investment
trust (the "Trust"), is governed by that certain Second Amended and Restated
Declaration of Trust dated May 30, 1997 (the "Declaration").
B. In connection with the Merger as defined in the Merger Agreement, the
shareholders of the Trust desire to amend the Declaration, and such amendment
has been executed as of the Effective Time by the undersigned Trustees, as
hereinafter set forth:
AMENDMENT TO SECTION 5.1
Section 5.1 of the Declaration is hereby amended to increase the aggregate
number of shares of beneficial interest that the Trust has authority to
issue to 450,000,000 shares, $0.01 par value per share, and increase the
number of common shares of beneficial interest that the Trust has authority
to issue to 350,000,000.
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EXHIBIT B
TRUSTEES OF SURVIVING TRUST
TRUSTEE TERM EXPIRES
------- ------------
▇▇▇▇▇▇ ▇▇▇▇................................................. 1999
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇.......................................... 2001
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇.......................................... 2001
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇........................................... 2001
▇▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇......................................... 2001
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇........................................... 1999
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇......................................... 2000
▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇........................................... 1999
▇. ▇▇▇▇▇▇ ▇▇▇▇▇............................................. 2000
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇........................................... 1999
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇.......................................... 2000
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇............................................ 2000
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇............................................ 2000
▇▇▇▇▇ ▇. ▇▇▇▇............................................... 1999
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇......................................... 2001
B-8
223
APPENDIX C
CERTIFICATE OF MERGER OF
EQUITY RESIDENTIAL PROPERTIES TRUST,
A MARYLAND REAL ESTATE INVESTMENT TRUST
AND
MERRY LAND & INVESTMENT COMPANY, INC.,
A GEORGIA CORPORATION
I
The Board of Directors and shareholders of EQUITY RESIDENTIAL PROPERTIES
TRUST, a Maryland real estate investment trust ("Equity Residential Properties
Trust"), and the Board of Directors and shareholders of MERRY LAND & INVESTMENT
COMPANY, INC., a Georgia corporation ("Merry Land & Investment Company, Inc."),
have duly approved that certain Agreement and Plan of Merger by and between
EQUITY RESIDENTIAL PROPERTIES TRUST and MERRY LAND & INVESTMENT COMPANY, INC.
dated July 8, 1998 ("Merger Agreement").
II
The name of the surviving corporation is EQUITY RESIDENTIAL PROPERTIES
TRUST, a Maryland real estate investment trust.
III
The Articles of Incorporation of EQUITY RESIDENTIAL PROPERTIES TRUST have
been amended by the Second Amended and Restated Declaration of Trust, as set
forth in Exhibit "A" hereof.
IV
An executed copy of the Agreement and Plan of Merger is on file at the
principal place of business of EQUITY RESIDENTIAL PROPERTIES TRUST at Two North
Riverside Plaza, Chicago, Illinois 60606 and a copy will be furnished, on
request and without cost, to any shareholder of EQUITY RESIDENTIAL PROPERTIES
TRUST or MERRY LAND & INVESTMENT COMPANY, INC.
V
Pursuant to the Merger, the merger shall be effective at the later of (i)
4:15 p.m. on the date on which the State Department of Assessments and Taxation
of Maryland accepts the Articles of Merger filed with it or (ii) the acceptance
of this Certificate of Merger becomes effective with the Georgia Secretary of
State (the time at which the merger becomes effective being herein referred to
as the "Effective Time"). The date on which the Effective Time occurs is herein
referred to as the "Effective Date".
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VI
The terms and conditions of the merger of MERRY LAND & INVESTMENT COMPANY,
INC. into EQUITY RESIDENTIAL PROPERTIES TRUST as set forth in the Merger
Agreement was duly approved by the respective shareholders.
EQUITY RESIDENTIAL PROPERTIES TRUST, a
Maryland Real Estate Investment Trust
By:
--------------------------------------
As Its:
--------------------------------------
Attest:
By:
-------------------------------------------------
As Its:
---------------------------------------------
MERRY LAND & INVESTMENT COMPANY, INC.,
a Georgia Corporation
By:
--------------------------------------
As Its:
--------------------------------------
Attest:
By:
-------------------------------------------------
As Its:
---------------------------------------------
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APPENDIX D
OPINION OF ▇.▇. ▇▇▇▇▇▇ SECURITIES, INC.
July 8, 1998
The Board of Trustees
Equity Residential Properties Trust
Two North Riverside Drive
Chicago, Illinois 60606
Ladies and Gentlemen:
You have requested our opinion as to the fairness, from a financial point
of view, to Equity Residential Properties Trust (the "Company") of the
consideration proposed to be paid by the Company in connection with the proposed
merger (the "Merger") of the Company with Merry Land and Investment Company,
Inc. (the "Seller"). Pursuant to the Agreement and Plan of Merger, dated as of
July 8, 1998 (the "Agreement"), between the Company and the Seller, each share
of common beneficial interest of the Seller, $1.00 par value per share, will be
converted into 0.530 shares of common beneficial interest of the Company. In
addition, the Company will pay certain amounts to key executives of the Seller
in compensation, benefits, payments, accelerations, share options and share
appreciation rights, as more particularly described in the Agreement.
In arriving at our opinion set forth below, we have reviewed (i) the
Agreement; (ii) certain publicly available information concerning the business
of the Seller and of certain other companies engaged in businesses comparable to
those of the Seller, and the reported market prices for certain other companies'
securities deemed comparable; (iii) publicly available terms of certain
transactions involving companies comparable to the Seller and the consideration
received for such companies; (iv) current and historical market prices of the
common stock of the Seller; (v) audited financial statements of the Company and
the Seller for the fiscal year ended December 31, 1997, and unaudited financial
statements of the Company and the Seller for the three months ended March 31,
1998; (vi) certain agreements with respect to outstanding indebtedness or
obligations of the Company and the Seller; (vii) certain internal financial
analyses and forecasts prepared by the Company and the Seller and their
respective managements; and (viii) the terms of other business combinations that
we deemed relevant.
In addition, we have held discussions with certain members of the
management of the Company and the Seller with respect to certain aspects of the
Merger, and the past and current business operations of the Company and the
Seller, the financial condition and future prospects and operations of the
Company and the Seller, the effects of the Merger on the financial condition and
future prospects of the Company and the Seller, and certain other matters we
believed necessary or appropriate to our inquiry. We have reviewed such other
financial studies and analyses and considered such other information as we
deemed appropriate for the purposes of this opinion.
In giving our opinion, we have relied upon and assumed, without independent
verification, the accuracy and completeness of all information that was publicly
available or was furnished to us by the Company and the Seller or otherwise
reviewed by us, and we have not assumed any responsibility or liability
therefor. We have not conducted any valuation or appraisal of any assets or
liabilities of the Company, Seller, or Merry Land Properties, Inc., or any other
entity, nor have any such valuations or appraisals been provided to us. In
relying on financial analyses and forecasts provided to us, we have assumed that
they have been reasonably prepared based on assumptions reflecting the best
currently available estimates and judgments by management as to the expected
future results of operations and financial condition of the Company and the
Seller to which such analyses or forecasts relate. We have also assumed that the
Merger will have the tax consequences described in discussions with, and
materials furnished to us by, representatives of the Company, and that the other
transactions contemplated by the Agreement will be consummated as described in
the Agreement. We have relied as to all legal matters relevant to rendering our
opinion upon the advice of counsel.
Our opinion is necessarily based on economic, market and other conditions
as in effect on, and the information made available to us as of, the date
hereof. It should be understood that subsequent developments
D-1
226
may affect this opinion and that we do not have any obligation to update,
revise, or reaffirm this opinion. We are expressing no opinion herein as to the
price at which the Company's or Merry Land Properties, Inc.'s stock will trade
at any future time.
We have acted as financial advisor to the Company with respect to the
proposed Merger and will receive a fee from the Company for our services. We
will also receive an additional fee if the proposed Merger is consummated. Our
affiliate, ▇▇▇▇▇▇ Guaranty Trust Company of New York, is a co-agent on the
Company's revolving credit facility. We have also provided other financial
advisory services to the Company and its affiliates in the past and have
received fees for such services. In the ordinary course of their businesses, our
affiliates may actively trade the debt and equity securities of the Company or
the Seller for their own account or for the accounts of customers and,
accordingly, they may at any time hold long or short positions in such
securities.
On the basis of and subject to the foregoing, it is our opinion as of the
date hereof that the consideration to be paid by the Company in the proposed
Merger is fair, from a financial point of view, to the Company.
This letter is provided to the Board of Trustees of the Company in
connection with and for the purposes of its evaluation of the Merger. This
opinion does not constitute a recommendation to any stockholder of the Company
as to how such stockholder should vote with respect to the Merger. This opinion
may not be disclosed, referred to, or communicated (in whole or in part) to any
third party for any purpose whatsoever except with our prior written consent in
each instance. This opinion may be reproduced in full in any proxy or
information statement mailed to stockholders of the Company but may not
otherwise be disclosed publicly in any manner without our prior written approval
and must be treated as confidential.
Very truly yours,
▇.▇. ▇▇▇▇▇▇ SECURITIES INC.
By: /s/ ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇
-----------------------------------------------------
Name: ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇
Title: Managing Director
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APPENDIX E
OPINION OF ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ & CO. INCORPORATED
July 8, 1998
Board of Directors
Merry Land & Investment Company, Inc.
P.O. Box 1417
Augusta, GA 30903
Members of the Board:
We understand that Merry Land & Investment Company, Inc. ("Merry Land") and
Equity Residential Properties Trust ("Equity Residential") have entered into an
Agreement and Plan of Merger dated as of July 8, 1998 (the "Merger Agreement"),
which provides, among other things, for the merger (the "Merger") of Merry Land
with and into Equity Residential. It is also our understanding that Merry Land,
prior to the Merger, will enter into an Asset Exchange Agreement with Spinco, a
to be formed corporation or business trust (the "Asset Exchange Agreement"),
whereby, among other things, Merry Land will (i) contribute to Spinco certain of
the assets and liabilities of Merry Land and (ii) distribute, immediately prior
to the Merger, as a taxable distribution to the holders of shares of common
stock, no par value, of Merry Land ("Merry Land Common"), all of the outstanding
shares of common stock of Spinco owned by Merry Land (the "Spinco Common
Stock"), on a pro rata basis (the "Asset Exchange"). Pursuant to the Merger,
each outstanding share of Merry Land Common, other than shares of Merry Land
Common held in treasury or any shares held by Equity Residential or any
wholly-owned subsidiary of Equity Residential, will be converted into 0.53
common shares (together with the Spinco Common Stock, the "Merger
Consideration") of beneficial interest, par value $0.01 per share, of Equity
Residential ("Equity Residential Common Stock"). Each Merry Land operating
partnership unit ("Merry Land Unit") will be converted into 0.54 shares of
Equity Residential Common Stock for each share of Merry Land Common into which
it is currently convertible. In addition, each of the various series of Merry
Land convertible preferred shares ("Merry Land Convertible Preferred Stock")
will have its conversion terms modified so as to be convertible into 0.54 shares
of Equity Residential Common Stock per share of Merry Land Common into which it
is currently convertible. Neither the Merry Land Units nor the Merry Land
Convertible Preferred Stock will participate in the distribution of Spinco
Common Stock, unless such securities are converted into Merry Land Common prior
to the record date of the distribution. The terms and conditions of the Merger
and the Asset Exchange are more fully set forth in the Merger Agreement and the
Asset Exchange Agreement.
You have asked for our opinion as to whether on the date hereof the Merger
Consideration pursuant to the Merger Agreement is fair from a financial point of
view to the holders of shares of Merry Land Common.
For purposes of the opinion set forth herein, we have:
i) reviewed certain publicly available financial statements and other
information of Merry Land and Equity Residential;
ii) reviewed certain internal financial statements and other financial
and operating data concerning Merry Land and Equity Residential prepared by
the managements of Merry Land and Equity Residential, respectively;
iii) analyzed certain financial projections for Merry Land and Equity
Residential prepared by the managements of Merry Land and Equity
Residential, respectively;
iv) discussed the past and current operations and financial condition
and the prospects and long term plans of Merry Land and Equity Residential
with senior executives of Merry Land and Equity Residential, respectively;
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Board of Directors
July 8, 1998
Page 2
v) reviewed the reported prices and trading activity for the Merry
Land Common and the Equity Residential Common Stock;
vi) compared the financial performances of Merry Land and Equity
Residential and the prices and trading activity of Merry Land Common and
Equity Residential Common Stock with that of certain other comparable
publicly-traded companies and their securities;
vii) discussed with the senior management of Merry Land and Equity
Residential their estimates of the synergies and cost savings expected to
be derived from the Merger;
viii) discussed the strategic objectives of the Merger and the plan
for the combined company with senior executives of Merry Land and Equity
Residential;
ix) reviewed the financial terms, to the extent publicly available, of
certain comparable transactions;
x) reviewed the pro forma impact of the Merger on Merry Land's funds
from operations per share, consolidated capitalization and financial
ratios;
▇▇) participated in discussions and negotiations among representatives
of Merry Land and Equity Residential and their financial and legal
advisors;
xii) reviewed drafts of the Merger Agreement and certain related
documents; and
xiii) performed such other analyses 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 reviewed by us for the purposes of
this opinion. With respect to the financial projections, we have assumed that
they have been reasonably prepared on bases reflecting the best currently
available estimates and judgments of the future financial performance of Merry
Land and Equity Residential. We have relied upon, with your consent, the
assumptions of the managements of Merry Land and Equity Residential regarding
cost savings and other synergies expected to result from the Merger. We have not
made any independent valuation or appraisal of the assets or liabilities of
Merry Land or Equity Residential, nor have we been furnished with any such
appraisals. We have also assumed that the Merger will be consummated in
accordance with the terms set forth in the Merger Agreement. 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. In
arriving at our opinion, we were not authorized to solicit, and did not solicit,
interest from any party with respect to the acquisition of Merry Land, nor did
we negotiate with any party other than Equity Residential in connection with a
transaction involving Merry Land.
We have acted as financial advisor to the Board of Directors of Merry Land
in connection with this transaction and will receive a fee for our services, a
significant portion of which is contingent upon the consummation of the Merger.
In addition, ▇▇▇▇▇ ▇▇▇▇ has agreed to indemnify us for certain liabilities
arising out of our engagement. In the past, ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ & Co. Incorporated
and its affiliates have provided financing services for Merry Land and Equity
Residential and have received fees for the rendering of those services. In
addition, in the ordinary course of our trading, brokerage and financing
activities, ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ & Co. Incorporated or its affiliates may at any time
hold long or short positions, and may trade or otherwise effect transactions,
for our own account or the accounts of customers, in debt or equity securities
or senior loans for Merry Land or Equity Residential.
It is understood that this letter is for the information of the Board of
Directors of Merry Land and may not be used for any other purpose without our
prior written consent, except that this opinion may be included in its entirety
in any filing made by Merry Land with the Securities and Exchange Commission
with respect to the Merger. We express no opinion and make no recommendation as
to how shareholders of Merry Land
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Board of Directors
July 8, 1998
Page 3
should vote at the shareholders' meeting to be held in connection with the
Merger. In addition, we are not expressing any opinion herein (i) as to the
price at which the Equity Residential Common Stock or the Spinco Common Stock
will trade following the announcement or the consummation of the Merger and (ii)
as to the fairness of the consideration received by the holders of Merry Land
Units and the holders of Merry Land Convertible Preferred Stock.
Based upon and subject to the foregoing, we are of the opinion on the date
hereof that the Merger Consideration pursuant to the Merger Agreement is fair
from a financial point of view to the holders of shares of Merry Land Common.
Very truly yours,
▇▇▇▇▇▇ ▇▇▇▇▇▇▇ & CO. INCORPORATED
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇
------------------------------------
▇▇▇▇▇ ▇▇▇▇▇▇
Managing Director
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APPENDIX F
MERRY LAND PROPERTIES, INC.
1998 MANAGEMENT INCENTIVE PLAN
WHEREAS, Merry Land Properties, Inc. ("Merry Land") desires to adopt the
Merry Land Properties, Inc. 1998 Management Incentive Plan (the "Plan") and to
subject 500,000 shares of Merry Land Common to the Plan by adopting this Plan
with respect to such Common Stock.
NOW, THEREFORE, Merry Land hereby adopts the following Plan:
1. PURPOSE
a. This Plan is intended as a performance incentive and to encourage
the continued employment of key employees of Merry Land and other
corporations which qualify as subsidiary corporations of Merry Land (the
"Subsidiaries") within the meaning of Section 424(f) of the Internal
Revenue Code of 1986, as amended (the "Code"), so that the person to whom
an award (the "Award") is granted (the "Participant") may acquire or
increase his or her proprietary interest in the success of Merry Land and
the Subsidiaries. The Plan is also intended as a performance incentive and
to encourage the continued loyalty, support and services of the members of
Merry Land's Board of Directors. The Plan is further intended to closely
associate the interests of Merry Land's management with the shareholders by
reinforcing the relationship between Participants' rewards and
shareholders' gains.
b. Awards may be designated as Incentive Stock Options, Nonstatutory
Stock Options, Reload Options, Stock Loan Rights, Director Stock Loan
Rights, Dividend Rights, or Restricted Stock Grants. Awards designated as
Incentive Stock Options are intended to qualify as incentive stock options
as defined in Section 422 of the Code.
2. ADMINISTRATION
a. The Plan shall be administered by the Board of Directors of Merry
Land (the "Board of Directors"). A Director who is not an employee of Merry
Land or its Subsidiaries shall not be eligible at any time during his or
her tenure to receive Awards under the Plan, other than Director Stock Loan
Rights. A majority vote of the Board of Directors shall be required for all
of their actions.
b. The Board of Directors shall have the power, subject to, and within
the limits of, the express provisions of the Plan:
i. To determine from time to time which employees are eligible
persons and which of the eligible persons shall be granted Awards under
the Plan, and the time or times when, and the number of shares for
which, an Award shall be granted to such person;
ii. To prescribe the other terms and provisions (which need not be
identical) of each Award granted under the Plan to eligible persons;
iii. To construe and interpret the Plan and Awards granted under
it, and to establish, amend, and revoke rules and regulations for
administration. The Board of Directors, in the exercise of this power,
may correct any defect, or supply any omission, or reconcile any
inconsistency in the Plan, or in any Award agreement, in the manner and
to the extent they shall deem necessary or expedient to make the Plan
fully effective. In exercising this power, the Board of Directors may
retain counsel at the expense of Merry Land. All decisions and
determinations by the Board of Directors in exercising this power shall
be final and binding upon Merry Land, the Subsidiaries, and the
Participants.
iv. To determine the duration and purpose of leaves of absence
which may be granted to a Participant without constituting a termination
of his or her employment for purposes of the Plan; and
v. Generally, to exercise such powers and to perform such acts as
are deemed necessary or expedient to promote the best interests of Merry
Land and the Subsidiaries with respect to the Plan.
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231
vi. To delegate all its authority with respect to the Plan to a
committee of the Board consisting of at least two (2) members of the
Board who are treated as "outside directors" for purposes of sec.162(m)
of the Code and "Non-Employee Directors" for purposes of Rule 16b-3 of
the Securities Exchange Act of 1934.
3. STOCK
a. The stock subject to the Awards shall be shares of Merry Land's
authorized but unissued common stock, no par value per share (the "Common
Stock"). The original number of shares of common stock for which Awards are
authorized, excluding the shares involved in the unexercised portion of any
canceled, terminated or expired Awards, is 500,000.
b. Whenever any outstanding Stock Option or Reload Option under the
Plan expires, is canceled, or is otherwise terminated, the shares of Common
Stock allocable to the unexercised portion of such Award may again be the
subject of Awards under the Plan except for Awards surrendered as provided
in Section 7 hereof.
4. ELIGIBILITY
The persons who shall be eligible to receive Awards shall be full-time
employees of Merry Land or the Subsidiaries who, in the opinion of the Board of
Directors, are responsible in more than ministerial ways for the management,
operation and success of Merry Land or a parent or Subsidiary (such employees to
be designated as "key employees"). Further, members of the Board of Directors
are eligible to receive Director Stock Loans, regardless of whether they are key
employees. Subject to the following provisions, the Board of Directors may from
time to time grant Awards to one or more eligible persons. A Participant may
hold more than one option and receive more than one Award.
5. INCENTIVE STOCK OPTIONS AND NONSTATUTORY STOCK OPTIONS
The terms of each Award of Incentive Stock Options or Nonstatutory Stock
Options shall be evidenced by an option agreement. Each option agreement shall
contain such provisions as the Board of Directors shall from time to time deem
appropriate. Option agreements need not be identical, but each option agreement
by appropriate language shall include the substance of all of the following
provisions:
a. Stock Options granted under this Plan shall be exercisable for such
periods as shall be determined by the Board of Directors at the time of
grant of each such option, but in no event shall an Incentive Stock Option
be exercisable after the expiration of 10 years from the date of grant,
provided, however, that if any employee, at the time an Incentive Stock
Option is granted to such employee, owns stock representing more than 10%
of the total combined voting power of all classes of stock of Merry Land or
any of the Subsidiaries (or, under Section 424(d) of the Code, is deemed to
own stock representing more than 10% of the total combined voting power of
all such classes of stock), the Incentive Stock Option granted to such
employee shall not be exercisable after the expiration of 5 years from the
date of grant. Each Incentive Stock Option and Nonstatutory Stock Option
granted under this Plan shall also be subject to earlier termination as
provided in a particular Award agreement.
b. The aggregate fair market value (determined at the time the Award
is granted) of the stock with respect to which Incentive Stock Options are
exercisable for the first time by an individual during any calendar year
under the Plan (and all such other Plans of Merry Land, a Subsidiary
thereof, or parent or predecessor corporation within the meaning of Section
422 of the Code and the regulations promulgated thereunder) shall not
exceed $100,000.00. For this purpose incentive stock options granted before
January 1, 1987 shall not be taken into account. To the extent an Award of
Incentive Stock Options would so exceed $100,000, such excess options shall
be deemed Nonstatutory Stock Options.
c. The minimum number of shares with respect to which an option may be
exercised at any one time shall be 100 shares, unless the number purchased
is the total number at the time available for purchase under the Award.
F-2
232
d. Each Award shall be exercisable in such installments (which need
not be equal) and at such times as designated by the Board of Directors. To
the extent not exercised, installments shall accumulate and be exercisable,
in whole or in part, at any time after becoming exercisable, but no later
than the date the Award expires.
e. The purchase price per share of Common Stock under each Incentive
Stock Option shall be not less than the fair market value of the Common
Stock subject to the Award on the date the Award is granted, subject to the
conditions contained below with respect to 10% shareholders. For this
purpose, the fair market value of the Common Stock shall be determined in
good faith by the Board of Directors. If any employee, at the time an
Incentive Stock Option is granted to him or her, owns stock representing
more than 10% of the total combined voting power of all such classes of
stock of Merry Land or any of the Subsidiaries (or, under Section 424(d) of
the Code is deemed to own stock representing more than 10% of the total
combined voting power of all such classes of stock) the purchase price per
share of Common Stock under each Incentive Stock Option granted to him or
her shall be not less than 110% of the fair market value of the Common
Stock subject to the Award at the date the Award is granted.
f. The optionee shall not be deemed to be the holder of, or to have
any of the rights of a holder with respect to, any shares of Common Stock
subject to such option unless and until the option shall have been
exercised pursuant to the terms thereof, Merry Land shall have issued and
delivered the shares to the optionee, and the optionee's name shall have
been entered as a stockholder of record on the books of Merry Land.
Thereupon, the optionee shall have full voting, dividend, and other
ownership rights with respect to such shares of Common Stock.
g. Except as provided to the contrary in Section 14 hereof, an
Incentive Stock Option granted hereunder shall remain outstanding and shall
be exercisable only so long as the person to whom such Incentive Stock
Option was granted remains an employee of Merry Land or any parent or
Subsidiary.
h. Notwithstanding anything to the contrary herein, each Option
agreement shall provide that all Stock Options may be exercised at any time
following a "Change in Control" as defined in Section 14(d) occurring after
the date of the Award.
6. METHOD OF EXERCISE, PAYMENT OF PURCHASE PRICE OF OPTIONS
a. Subject to the provisions of Sections 5 and 13 hereof, Incentive
Stock Options and Nonstatutory Stock Options granted under this Plan may be
exercised in whole or in installments to such extent, and at such time or
times during the terms thereof, as shall be determined by the Board of
Directors at the time of grant of each such Award.
b. An option may be exercised by the Participant delivering to the
Board of Directors on any business day a written notice specifying the
number of shares of Common Stock the optionee then desires to purchase (the
"Notice").
c. Payment for the shares of Common Stock purchased pursuant to the
exercise of an option shall be in either (i) cash equal to the option price
for the number of shares specified in the Notice (the "Total Option
Price"), or (ii) in the discretion of the Board of Directors, shares of
Common Stock of Merry Land with a fair market value, determined in
accordance with Section 5 hereof, as of the effective date of exercise of
the option, equal to or less than the Total Option Price, plus cash, in an
amount equal to the amount, if any, by which the Total Option Price exceeds
the fair market value of the Common Stock.
d. Merry Land may, with the Board of Directors' approval, extend one
or more loans to Participants in connection with the exercise or receipt of
outstanding options granted under the Plan; provided any such loan shall be
subject to the following terms and conditions:
i. The principal of the loan shall not exceed the amount required
to be paid to Merry Land upon the exercise of the option and the loan
proceeds shall be paid directly to Merry Land in consideration of such
exercise or receipt.
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ii. The loan shall be with full recourse to the Participant, shall
be evidenced by the Participant's promissory note and shall bear
interest at a rate determined by the Board of Directors but not less
than Merry Land's average cost of funds as of a date within thirty-one
(31) days of the date of such loan, as determined by the Board of
Directors.
iii. In the event a Participant terminates his or her employment
with Merry Land, the unpaid principal balance of the note shall become
due and payable on the tenth (10th) business day after such termination;
provided, however, that if a sale of such shares would cause such
Participant to incur liability under Section 16(b) of the Securities
Exchange Act of 1934, the unpaid balance shall become due and payable on
the tenth (10th) business day after the first day on which a sale of
such shares could have been made without incurring such liability
assuming for these purposes that there are no other transactions by the
Participant subsequent to such termination; provided, however, that this
clause iv need not apply, in the discretion of the Board of Directors,
if the Participant's employment terminates within three years after a
"Change in Control" as defined in Section 14(d).
7. STOCK APPRECIATION RIGHTS
a. The Board of Directors may authorize on such terms and conditions
as they deem appropriate in each case, Merry Land to accept the surrender
by the Optionee of the right to exercise an Incentive Stock Option or
Nonstatutory Stock Option (or portion thereof) in consideration for the
payment by Merry Land of an amount equal to the excess of the fair market
value of the shares of Common Stock subject to such option (or portion
thereof) surrendered over the option price of such shares (referred to as a
"Stock Appreciation Right" or "SAR"). Such payment, at the discretion of
the Board of Directors, may be made in shares of Common Stock valued at the
then fair market value thereof (determined as provided in Section 5
hereof), or in cash, or partly in cash and partly in shares of Common
Stock. The terms and conditions for an SAR may be set forth in the Option
agreement, or the Board may retain discretion to authorize SAR payments on
a case-by-case basis; provided, however, that in the event of a "Change in
Control" as defined in Section 14(d), the Board shall exercise any
discretion in favor of making any requested SAR payments with respect to
any Stock Options granted prior to the Change in Control.
b. Any option surrendered as provided in this Section 7 shall be
canceled by Merry Land and not be subject to further grant.
c. The Board of Directors shall be authorized hereunder to make
payment to the optionee in shares of Common Stock only if Section 83 of the
Code applies to the Common Stock transferred to the Participant.
d. Notwithstanding anything contained herein to the contrary, the
Stock Appreciation Rights provided in this Section with respect to
Incentive Stock Options shall, by their terms, meet the following
requirements:
i. The Stock Appreciation Rights shall expire not later than the
expiration of the underlying Incentive Stock Option to which such rights
relate;
ii. The Stock Appreciation Rights may be for no more than 100% of
the difference between the exercise price of the underlying Incentive
Stock Option and the fair market value of the stock subject to the
underlying Incentive Stock Option at the time the Stock Appreciation
Rights are exercised;
iii. The Stock Appreciation Rights may be transferable only when
the underlying Incentive Stock Option is transferable, and under the
same conditions;
iv. The Stock Appreciation Rights may be exercised only when the
underlying Incentive Stock Option is eligible to be exercised;
v. The Stock Appreciation Rights may be exercised only when the
fair market value of the stock subject to the underlying Incentive Stock
Option exceeds the exercise price of such Incentive Stock Option; and
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vi. The Stock Appreciation Rights may be exercised only if such
exercise has the same economic and tax consequences as the exercise of
the underlying Incentive Stock Option followed by an immediate sale of
the stock acquired thereby.
8. RELOAD OPTIONS
a. Authorization of Reload Options. Concurrently with the Award of any
Stock Option (such Option hereinafter referred to as the "Underlying
Option") to any Participant, the Board of Directors may grant one or more
reload options (each, a "Reload Option") to such Participant to purchase
for cash or Common Stock a number of shares of Common Stock as specified
below. A Reload Option shall be exercisable for an amount of shares of
Common Stock equal to (i) the number of shares of Common Stock delivered by
the Optionee to the Company to exercise the Underlying Option, and (ii) to
the extent authorized by the Board of Directors, the number of shares of
Common Stock used to satisfy any tax withholding requirement incident to
the exercise of the Underlying Option, subject to the availability of
Common Stock under the Plan at the time of such exercise. Any Reload Option
may provide for the grant, when exercised, of subsequent Reload Options to
the extent and upon such terms and conditions consistent with this Section
8, as the Board of Directors in its sole discretion shall specify at or
after the time of grant of such Reload Option. The grant of a Reload Option
will become effective upon the exercise of an Underlying Option or Reload
Option by delivering to the Company Common Stock in payment of the exercise
price and/or tax withholding obligations. Notwithstanding the fact that the
Underlying Option may be an Incentive Stock Option, a Reload Option is not
intended to qualify as an Incentive Stock Option under Section 422 of the
Code.
b. Reload Option Amendment. Each Stock Option Agreement shall state
whether the Board of Directors has authorized Reload Options with respect
to the Underlying Option. Upon the exercise of an Underlying Option or
other Reload Option, the Reload Option will be evidenced by an amendment to
the underlying Stock Option Agreement.
c. Reload Option Price. The option price per share of Common Stock
deliverable upon the exercise of a Reload Option shall be the fair market
value of a share of common Stock on the date the grant of the Reload Option
becomes effective.
d. Term and Exercise. Each Reload Option is fully exercisable
immediately upon its grant. The term of each Reload Option shall be equal
to the remaining option term of the Underlying Option.
e. Termination of Employment. No additional Reload Options shall be
granted to Optionees when Options and/or Reload Options are exercised
pursuant to the terms of this Plan following termination of the Optionee's
employment unless the Board of Directors, in its sole discretion, shall
determine otherwise.
f. Applicability of Other Sections. Except as otherwise provided in
this Section 8, the provisions of Sections 5 and 6 applicable to Options
shall apply equally to Reload Options.
9. STOCK LOAN RIGHTS -- DIRECTOR STOCK LOAN RIGHTS
A Participant may be granted rights to receive limited or full recourse
loans, with or without interest, to purchase Common Stock at the fair market
value (determined as provided in Section 5) prevailing at the time of purchase
("Stock Loan Rights"). Stock Loan Rights may permit a Participant to elect to
purchase the stock subject to the Award at any time within forty-five (45) days
of the date of Award. If the Participant chooses not to purchase the Common
Stock subject to the Award within such time period, the Award shall be deemed to
be canceled and the Common Stock subject to such Award may again be the subject
of Awards under the Plan. The loans shall be:
a. evidenced by a promissory note,
b. payable on demand (except upon the death or retirement of a
Participant or upon a change in control as defined in Section 14(d)),
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c. secured by the Common Stock purchased by the employee with such
percentage as may be set by the Board of Directors of all dividends to be
applied against the principal balance of the loan, and
d. if approved by the Board of Directors, extended on a limited
recourse basis with recourse in the event of default limited to the shares
of stock purchased with and securing the loan and without personal
liability on the part of the employee.
The percentage of dividends required to be applied against the principal
balance of any loan shall be set forth in the terms of the Award. No shares of
Common Stock purchased pursuant to an Award of Stock Loan Rights may be released
to the employee until the loan is repaid in full; provided, however, the Board
of Directors may release a portion of said shares if and to the extent the fair
market value of the remaining shares securing repayment of the loan exceeds 150%
of the outstanding principal balance of the loan.
The loans shall be forgiven upon a "Change in Control" as defined in
Section 14(d) occurring after the Award of the Stock Loan, except that if the
Change in Control occurs within four years of the Award, the percentage of the
loan forgiven shall be limited initially to 20% of the initial loan amount, and
another 20% for each year thereafter.
Similar rights on the same terms may also be granted to any member of the
Board of Directors, regardless of whether he is an employee, and such Awards
shall be referred to as "Director Stock Loan Rights".
10. DIVIDEND RIGHTS
A Participant may also be granted "Dividend Rights" based on the dividends
declared on the Common Stock, to be credited as of dividend payment dates,
during the period between the Award Date and the date such Award is exercised,
vests or expires, as determined by the Board of Directors. Such Dividend Rights
shall be converted to cash or additional shares of Common Stock by such formula
and at such time and subject to such limitations as may be determined by the
Board of Directors.
11. RESTRICTED STOCK GRANTS
a. The Board of Directors, acting in its absolute discretion shall
have the right to award Restricted Stock Grants to Participants. Each
Restricted Stock grant shall be evidenced by a Restricted Stock Agreement,
and each Restricted Stock Agreement shall set forth the conditions, which
will need to be timely satisfied before the Award will be effective and the
conditions, if any, under which the Participant's interest in the related
Common Stock will be forfeited. The Board of Directors acting in its
absolute discretion may make a Restricted Stock Grant subject to the
satisfaction of such conditions which the Board of Directors deems
appropriate under the circumstances for Participants generally or for a
Participant in particular, and the related Restricted Stock Agreement shall
set forth each such condition and the deadline for satisfying each such
grant condition. If a Restricted Stock Grant fails to become effective by
reason of the failure of a condition to the effectiveness of the Award, in
whole or in part, the Award shall be deemed to be canceled and the Common
Stock subject to such Award may again be the subject of Awards under the
Plan.
b. The Board of Directors may make each Restricted Stock Grant (if,
when and to the extent that the grant becomes effective) subject to such
conditions which the Board of Directors acting in its absolute discretion
deems appropriate under the circumstances for Participants generally or for
a Participant in particular, and the related Restricted Stock Agreement
shall set forth each such condition and the deadline for satisfying each
such forfeiture condition, which conditions may be waived in the event of
death, disability or retirement of a Participant as well as a change in
control. A Participant's nonforfeitable interest in the shares of Common
Stock related to a Restricted Stock Grant shall depend on the extent to
which each such condition is timely satisfied. A stock certificate shall be
issued to, or for the benefit of, the Participant with respect to the
number of shares of Common Stock for which a grant has become effective and
completely nonforfeitable.
c. Each Restricted Stock Agreement shall provide the right to receive
any cash or other dividends which are paid with respect to his or her
Restricted Stock Grant before the Participant's interest in such stock
becomes completely nonforfeitable.
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d. A Participant shall have the right to vote the Stock related to his
or her Restricted Stock Grant after the Award is effective with respect to
such Stock but before his or her interest in such Stock has been forfeited
or has become nonforfeitable.
e. In the event of a "Change of Control" as defined in Section 14(d)
occurring after the Award of the Restricted Stock Grants, a Participant
shall become fully vested in the Restricted Stock Grant, except that if the
Change in Control occurs within four years of the Award, the percentage of
the Restricted Stock Grants that becomes vested under this clause e will be
limited initially to 20% and another 20% for each year thereafter.
12. USE OF PROCEEDS FROM STOCK
Proceeds from the sale of Common Stock pursuant to Options or Stock Loans
granted under the Plan shall constitute general funds of Merry Land.
13. ADJUSTMENT OF SHARES UPON CHANGES IN CAPITAL STRUCTURE
The number of available shares authorized to be the subject of Awards and
the number of shares covered by any outstanding Stock Option, Reload Option,
Dividend Right or Restricted Stock Grant and the price per share thereof shall
be proportionately adjusted by the Board of Directors for any increase or
decrease in the number of issued shares of Common Stock resulting from the
subdivision or consolidation of shares or any other capital adjustment, the
payment of a stock dividend or any other increases in such shares effected
without receipt of consideration by Merry Land, or any other decrease therein
effected without distribution of cash or property in connection therewith.
If Merry Land is merged into or consolidated with another corporation under
circumstances where Merry Land is not the surviving corporation or if Merry Land
is liquidated or sells or otherwise disposes of substantially all of its assets
while unexercised Stock Options, Reload Options, Dividend Rights or Restricted
Stock Grants remain outstanding under the Plan, (i) subject to the provisions of
clause (ii) below, after the effective date of such merger, consolidation, or
sale, as the case may be, each holder of any outstanding Award shall be
entitled, in lieu of such rights to shares of Common Stock, similar rights with
respect to shares of such stock or other securities, cash, or other property, as
the holders of shares of common stock receive pursuant to the terms of the
merger, consolidation, or sale; and (iii) all outstanding options may be
canceled by the Board of Directors as of the effective date of any such merger,
consolidation, liquidation, or sale provided that notice of such cancellation
shall be given to each holder of an option, and each holder of any option shall
have the right to exercise such option in full, whether or not then otherwise
exercisable, during a 30-day period preceding the effective date of such merger,
consolidation, liquidation, sale or acquisition.
14. TERMINATION OF EMPLOYMENT OR SERVICE
a. In the event of the death of an optionee while in the employ of
Merry Land or a parent or Subsidiary:
i. Stock Options, whether or not exercisable at the time of the
death of the optionee, may be exercised, as provided in Section 6
hereof, by the estate of the optionee or by a person who acquired the
right to exercise such option by bequest or inheritance from such
optionee, within one year after the date of death but not later than the
date on which the option would otherwise expire; or
ii. The Board of Directors may authorize, if not theretofore
authorized, Merry Land to accept surrender of the right to exercise such
option (or any part thereof) to the extent that the optionee was
entitled to do so under Section 7 hereof at the date of his or her death
by the estate of the optionee, or by a person who acquired the right to
exercise such option by bequest or inheritance from such optionee,
within one year after the date of such death but not later than the date
on which the Option would otherwise expire.
b. If the employment of an optionee is terminated by reason of
disability as defined in Section 22(e)(3) of the Code, the Stock Options
held by such optionee may be exercised, as provided in Section 6 hereof,
whether or not exercisable at the time of such termination of employment
(subject to
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the limitations of Section 4(c)), within one year after such termination
but not later than the date on which such options would otherwise expire.
c. If the employment of an optionee is terminated for any reason other
than death or disability, Incentive Stock Options held by such optionee
shall, to the extent not theretofore exercised, be canceled no later than
three months after the date of such termination but no later than the date
on which the options would otherwise expire.
d. "Change in control" means a change in control of Merry Land of a
nature that would be required to be reported in response to Item 6(e) of
Schedule 14A of Regulation 14A promulgated under the Exchange Act as in
effect on January 1, 1997, provided that such a change in control shall be
deemed to have occurred at such time as (i) any "person" (as that term is
used in Sections 13(d) and 14(d)(2) of the Exchange Act), is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act)
directly or indirectly, of securities representing 30% or more of the
combined voting power for election of directors of the then outstanding
securities of Merry Land or any successor of Merry Land; (ii) during any
period of two consecutive years or less, individuals who at the beginning
of such period constitute the Board cease, for any reason to constitute at
least a majority of the Board, unless the election or nomination for
election of each new director was approved by a vote of at least two-thirds
of the directors then still in office who were directors at the beginning
of the period; (iii) the shareholders of Merry Land approve any merger,
consolidation or share exchange as a result of which the common stock of
Merry Land shall be changed, converted or exchanged (other than a merger
with a wholly-owned subsidiary of Merry Land), or any dissolution or
liquidation of Merry Land or any sale or the disposition of 50% or more of
the assets or business of Merry Land; or (iv) the shareholders of Merry
Land approve any merger or consolidation to which Merry Land is a party or
a share exchange in which Merry Land shall exchange its shares for shares
of another corporation as a result of which the persons who were
shareholders of Merry Land immediately prior to the effective date of the
merger, consolidation or share exchange shall have beneficial ownership of
less than 50% of the combined voting power for election of directors of the
surviving corporation following the effective date of such merger,
consolidation or share exchange.
15. AMENDMENT OF THE PLAN
a. The Board of Directors, at any time, and from time to time, may
amend the Plan, subject to any required regulatory approval and to the
limitation that, except as provided in Section 13 hereof, no amendment
shall be effective unless approved by vote of a majority of the total votes
cast by the stockholders of Merry Land at an annual or special meeting held
within twelve months before or after the date of such amendment's adoption,
where such amendment will:
i. Increase the number of shares of Common Stock as to which
Incentive Stock Options may be granted under the Plan; or
ii. Change in substance Section 4 hereof relating to eligibility to
participate in the Plan; or
iii. Materially increase the cost to Merry Land of Awards other
than Incentive Stock Options.
b. Except as provided in Section 13 hereof, rights and obligations
under any Award granted before amendment of the Plan shall not be altered
or impaired by amendment of the Plan, except with the consent of the person
to whom the Award was granted. The amendments made by this Plan shall apply
only with respect to Awards granted on or after the date this Plan is
adopted by the Board of Directors.
16. EFFECTIVENESS OF THE PLAN
This Plan shall become effective upon its adoption by the Board of
Directors; provided, however, that (i) the effectiveness of this Plan shall be
subject to the approval of the stockholders of Merry Land, within 12 months
before or after the adoption of this Plan by the Board of Directors, and (ii)
the effectiveness of Awards granted under this Plan prior to the date such
stockholder approval is obtained shall also be subject to such stockholder
approval.
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17. TERMINATION OR SUSPENSION OF PLAN
The Board of Directors at any time may terminate or suspend the Plan.
Unless sooner terminated, the Plan shall terminate on the tenth anniversary of
the effective date specified in Section 16 hereof, but such termination shall
not affect any Award theretofore granted. An Award may not be granted while the
Plan is suspended or after it is terminated. Rights and obligations under any
Award granted while the Plan is in effect shall not be altered or impaired by
suspension or termination of the Plan except with the consent of the
Participant.
18. NONEXCLUSIVITY OF THE PLAN
Neither the adoption of the Plan by the Board of Directors nor the
submission of the Plan to the stockholders of Merry Land for approval shall be
construed as creating any limitations on the power of the Board of Directors to
adopt such other incentive arrangements as it may deem desirable, including,
without limitation, the granting of stock Awards otherwise than under the Plan,
and such arrangements may be either applicable generally or only in specific
cases. The adoption of this Plan shall not terminate or have any effect on any
prior or existing incentive stock option or stock loan plan, except as
specifically provided herein.
19. NONTRANSFERABILITY OF AWARDS
Except as provided in Section 14 hereof:
a. All Awards granted pursuant to the Plan shall not be transferable,
except by will or the laws of descent and distribution, and shall be
exercisable during the Participant's lifetime only by the Participant; and
b. No assignment or transfer of the Award, or of the rights
represented thereby, whether voluntary or involuntary, by operation of law
or otherwise, shall vest in the assignee or transferee any interest or
right in the Award whatsoever, but immediately upon any attempt to assign
or transfer the Award the same shall terminate and be of no force or
effect.
20. MANNER OF GRANT OF AWARDS
Nothing contained in this Plan or in any resolution heretofore or hereafter
adopted by the Board of Directors or any committee or by the stockholders of
Merry Land with respect to this Plan shall constitute the granting of an Award
under the Plan. The granting of an Award under this Plan shall be deemed to
occur only upon the date on which the Board of Directors as provided for in
Section 2 hereof shall approve the grant of such Award.
21. SECURITIES LAWS
All Awards shall be subject to any provision necessary to assure compliance
with federal and state securities laws. Unless registered under the Securities
Act of 1933 or otherwise advised by counsel to Merry Land, (i) each Award shall
contain Participant's acknowledgment that neither the Award nor the securities
subject to the Award have been registered under any state or federal securities
law; (ii) Participant agrees that the Award may not be exercised unless he or
she is able and willing to represent in writing to Merry Land that the
securities subject to the Award are being acquired by Participant for his or her
own account and without a view to the further distribution of such securities;
and (iii) a legend reading substantially as follows shall be placed on the
certificate(s) representing the securities:
"These securities have not been registered under the Securities Act of
1933 nor under any state securities law and may not be offered or sold
or transferred in the absence of an effective registration statement
under the Securities Act or under any applicable state act or an opinion
of counsel satisfactory to the Corporation that such registration is not
required."
The transfer agent shall also be instructed to refuse to transfer the securities
unless the legend has been complied with.
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22. TAX WITHHOLDING
The employer (whether Merry Land or a Subsidiary) of any employee granted
an Award under this Plan shall have the right to deduct or otherwise effect a
withholding of any amount required by federal or state laws to be withheld with
respect to the grant, vesting or exercise of any Award or the sale of stock
acquired upon the exercise of an Incentive Stock Option in order for the
employer to obtain a tax deduction available to the employer as a consequence of
such grant, exercise, or sale, as the case may be or to comply with the law.
23. CONTINUATION OF EMPLOYMENT
Nothing contained in this Plan (or in any written Award agreement) shall
obligate Merry Land or any Subsidiary to continue to employ, for any period, an
employee to whom an Award has been granted, or interfere with the right of Merry
Land or any Subsidiary to reduce such employee's compensation.
24. PLAN NOT FUNDED
No Participant, beneficiary or other person shall have any right, title or
interest in any fund or in any specific asset (including shares of Common Stock)
of Merry Land by reason of any Award granted hereunder. There shall be no
funding of any benefits which may become payable hereunder. Neither the
provisions of the Plan (or of any documents related hereto), nor the creation or
adoption of the Plan, nor any action taken pursuant to the provisions of the
Plan shall create a trust of any kind or a fiduciary relationship between Merry
Land and any Participant or beneficiary. To the extent that a Participant or
beneficiary or other person acquires a right to receive an Award hereunder, such
right shall be no greater than the right of any unsecured general creditor of
Merry Land. Awards payable under the Plan shall be paid in shares of Common
Stock or from the general assets of Merry Land, and no special or separate fund
or deposit shall be established and no segregation of assets or shares shall be
made to assure payment of such Awards.
25. EXCULPATION AND INDEMNIFICATION
Merry Land shall indemnify and hold harmless the members of the Board of
Directors acting in accordance with Section 2, from and against any and all
liabilities, costs, and expenses incurred by such persons as a result of any
act, or omission to act, in connection with the performance of such persons'
duties, responsibilities, and obligations under this Plan, other than such
liabilities, costs and expenses as may result from the negligence, gross
negligence, bad faith, willful misconduct, or criminal acts of such persons.
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF TRUSTEES AND OFFICERS
Under Maryland law, a REIT organized in Maryland is permitted to limit, by
provision in its Declaration of Trust, the liability of its trustees, officers
and shareholders for money damages except for liability resulting from (a)
actual receipt of an improper benefit or profit in money, property or services
or (b) active and deliberate dishonesty established by final judgment as being
material to the cause of action. The Declaration of Trust of EQR includes such a
provision limiting such liability to the maximum extent permitted by Maryland
law.
The Declaration of Trust of EQR authorizes it, to the maximum extent
permitted by Maryland law, to obligate itself to indemnify and to pay or
reimburse reasonable expenses in advance of final disposition of a proceeding to
(a) any present or former trustee or officer or (b) any individual who, while a
trustee of EQR and at the express request of EQR, serves or has served another
corporation, partnership, joint venture, trust, employee benefit plan or any
other enterprise as a trustee, director, officer or partner of such corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise,
from and against any claim or liability to which such person may become subject
or which such person may incur by reason of his status as a present or former
Trustee or officer of EQR. The Bylaws of EQR obligate it, to the maximum extent
permitted by Maryland law, to indemnify and to pay or reimburse reasonable
expenses in advance of final disposition of a proceeding to (a) any present or
former trustee or officer who is made a party to the proceeding by reason of his
service in that capacity or (b) any individual who, while a trustee or officer
of EQR and at the request of EQR, serves or has served another corporation,
partnership, joint venture, trust, employee benefit plan or any other enterprise
as a trustee, director, officer or partner of such corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise and who is made
a party to the proceeding by reason of his service in that capacity, against any
claim or liability to which he may become subject by reason of such status. The
Declaration of Trust and Bylaws also permit EQR to indemnify and advance
expenses to any person who served a predecessor of EQR in any of the capacities
described above and to any employee or agent of EQR or a predecessor of EQR. The
Bylaws of EQR require it to indemnify a trustee or officer who has been
successful, on the merits or otherwise, in the defense of any proceeding to
which he is made a party by reason of his service in that capacity.
The Maryland REIT law permits a Maryland real estate investment trust to
indemnify and advance expenses to its trustees, officers, employees and agents
to the same extent as permitted by the Maryland General Corporation Law (the
"MGCL") for directors and officers of Maryland corporations. The MGCL permits a
corporation to indemnify its present and former directors and officers, among
others, against judgments, penalties, fines, settlements and reasonable expenses
actually incurred by them in connection with any proceeding to which they may be
made a party by reason of their service in those or other capacities unless it
is established that (a) the act or omission of the director or officer was
material to the matter giving rise to the proceeding and (i) was committed in
bad faith or (ii) was the result of active and deliberate dishonesty, (b) the
director or officer actually received an improper personal benefit in money,
property or services or (c) in the case of any criminal proceeding, the director
or officer had reasonable cause to believe that the act or omission was
unlawful. However, under the MGCL, a Maryland corporation may not indemnify for
an adverse judgment in a suit by or in the right of the corporation or for a
judgment of liability on the basis that personal benefit was improperly
received, unless in either case a court orders indemnification and then only for
expenses. In addition, the MGCL permits a corporation to advance reasonable
expenses to a director or officer upon the corporation's receipt of (a) a
written affirmation by the director or officer of his good faith belief that he
has met the standard of conduct necessary for indemnification by the corporation
and (b) a written undertaking by him or on his behalf to repay the amount paid
or reimbursed by the corporation if it shall ultimately be determined that the
standard of conduct was not met.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to trustees and officers of EQR pursuant to the
foregoing provisions or otherwise, EQR has been advised that,
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although the validity and scope of the governing statute have not been
challenged in a court of law, in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Securities Act of 1933 and is, therefore, unenforceable. In addition,
indemnification may be limited by state securities law.
ITEM 21. EXHIBITS
2.1 Agreement and Plan of Merger by and between Equity
Residential Properties Trust and Merry Land & Investment
Company, Inc. dated as of July 8, 1998, and form of First
Amendment thereto (included as Appendix A to the Prospectus
contained in the Registration Statement)
2.2 Articles of Merger by and between Equity Residential
Properties Trust and Merry Land & Investment Company, Inc.
(Included as Appendix B to the Prospectus contained in the
Registration Statement)
2.3 Certificate of Merger by and between Equity Residential
Properties Trust and Merry Land and Investment Company, Inc.
(Included as Appendix C to the Prospectus contained in the
Registration Statement)
5.1 Opinion of ▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇, LLP regarding
legality of issued shares*
8.1 Opinion of ▇▇▇▇▇▇▇ & ▇▇▇▇▇ regarding certain tax aspects of
the Merger*
8.2 Opinion of ▇▇▇▇▇▇▇ & ▇▇▇▇▇ regarding REIT qualifications of
EQR*
8.3 Opinion of Piper & Marbury L.L.P. regarding certain tax
aspects of the Merger*
8.4 Opinion of Hull, ▇▇▇▇▇▇, ▇▇▇▇▇▇ & ▇▇▇▇▇▇▇, P.C. regarding
REIT qualifications of Merry Land & Investment Company,
Inc.*
23.1 Consent of Ernst & Young LLP*
23.2 Consent of ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ LLP*
23.3 Consent of ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ LLP*
23.4 Consent of ▇▇▇▇▇▇▇ & ▇▇▇▇▇ (included in Exhibits 8.1 and 8.2
hereof)
23.5 Consent of Hull, ▇▇▇▇▇▇, ▇▇▇▇▇▇ & ▇▇▇▇▇▇▇, P.C. (included in
Exhibit 8.4 hereof)
23.6 Consent of ▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇, LLP (included
in Exhibit 5.1 hereof)
23.7 Consent of ▇.▇. ▇▇▇▇▇▇ Securities Inc.
23.8 Consent of ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ & Co. Incorporated
23.9 Consent of Piper & Marbury L.L.P. (included in Exhibit 8.3
hereof)
24.1 Power of Attorney (Included as Page S-2)
99.1 Form of Proxy Card for Special Meeting of Shareholders of
Equity Residential Properties Trust*
99.2 Form of Proxy Card for Special Meeting of Shareholders of
Merry Land & Investment Company, Inc.*
99.3 Form of Proxy Card for Merry Land ESOP Participants for
Special Meeting of Shareholders of Merry Land & Investment
Company, Inc.*
99.4 Opinion of ▇.▇. ▇▇▇▇▇▇ Securities Inc. (Included as Appendix
D to the Prospectus contained in the Registration Statement)
99.5 Opinion of ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ & Co. Incorporated (Included as
Appendix E to the Prospectus contained in the Registration
Statement)
99.6 Consent of Persons named to become Trustees
99.7 Form of Amendment to EQR's Second Amended and Restated
Declaration of Trust (included in Appendix B to the
Prospectus contained in the Registration Statement)
-------------------------
* Filed with this amendment. All other exhibits previously filed.
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ITEM 22. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1)(a) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement;
(b) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof;
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in the volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high and of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, in the changes in volume and
price represent no more than 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table in
the effective registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;
(c) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(2) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(3)(a) The undersigned registrant hereby undertakes as follows: that prior
to any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
(b) The registrant undertakes that every prospectus (A) that is filed
pursuant to paragraph (a) immediately preceding, or (B) that purports to meet
the requirements of Section 10(a)(3) of the Act and is used in connection with
an offering of securities subject to Rule 415, will be filed as part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1993, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(4) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event
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243
that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
(5) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporation documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(6) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, on this 4th day of
September, 1998.
EQUITY RESIDENTIAL PROPERTIES TRUST
By: /s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇
------------------------------------
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇
President, Chief Executive Officer
and
Trustee
245
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
NAME TITLE DATE
---- ----- ----
▇▇▇▇▇▇ ▇▇▇▇* Chairman of the Board of September 4, 1998
Trustees
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇* President, Chief Executive September 4, 1998
Officer and Trustee
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇* Executive Vice President September 4, 1998
and Chief Financial Officer
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇* Senior Vice President, September 4, 1998
Chief Accounting Officer
and Treasurer
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇* Executive Vice President, September 4, 1998
Chief Operating Officer and
Trustee
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇* Trustee September 4, 1998
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇* Trustee September 4, 1998
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇* Trustee September 4, 1998
▇▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇.* Trustee September 4, 1998
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇* Trustee September 4, 1998
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇* Trustee September 4, 1998
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇* Trustee September 4, 1998
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇* Trustee September 4, 1998
▇. ▇▇▇▇▇▇ ▇▇▇▇▇* Trustee September 4, 1998
*By /s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇
-----------------------------------------------------
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇
Individually and as Attorney-in-Fact
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