2,608,696 Shares
Cornerstone Realty Income Trust, Inc.
Common Shares
No Par Value
UNDERWRITING AGREEMENT
May 27, 1998
PAINEWEBBER INCORPORATED
▇▇▇▇ ▇▇▇▇▇▇ ▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Dear Ladies and Gentlemen:
Cornerstone Realty Income Trust, Inc., a Virginia corporation (the
"Company"), subject to the terms and conditions stated herein, proposes to sell
to PaineWebber Incorporated (the "Underwriter") an aggregate of 2,608,696 shares
(the "Shares") of the Company's Common Shares, no par value (the "Common
Shares").
You have advised the Company that you intend to deposit the Shares with the
trustee of PaineWebber Equity Trust REIT Series 1 (A Unit Investment Trust) (the
"Trust"), a registered unit investment trust under the Investment Company Act of
1940, as amended, for which PaineWebber Incorporated acts as sponsor and
depositor, in exchange for units in the Trust.
1. Representations and Warranties of the Company. The Company represents
and warrants to and agrees with the Underwriter that:
(a) A registration statement on Form S-3 (File No. 333-34441), with
respect to the Shares, including a prospectus, has been prepared by the
Company in conformity with the requirements of the Securities Act of 1933,
as amended (the "Act"), and the rules and regulations (the "1933 Act Rules
and Regulations") of the Securities and Exchange Commission (the
"Commission") thereunder, has been filed with the Commission and has been
declared effective. Such registration statement and prospectus may have
been amended or supplemented prior to the date of this Underwriting
Agreement; any such amendment or supplement was so prepared and filed, and
any such amendment filed after the effective date of such registration
statement has been declared effective. No stop order suspending the
effectiveness of such registration statement has been issued, and no
proceeding for that purpose has been instituted or, to the knowledge of the
Company, threatened by the Commission. A prospectus supplement (the
"Prospectus Supplement")
setting forth the terms of the offering, sale and plan of distribution of
the Shares and additional information concerning the Company and its
business has been or will be so prepared and will be filed pursuant to Rule
424(b) of the 1933 Act Rules and Regulations on or before the second
business day after the date hereof (or such earlier time as may be required
by the 1933 Act Rules and Regulations). Copies of such registration
statement and prospectus, any such amendments or supplements and all
documents incorporated by reference therein that were filed with the
Commission on or prior to the date of this Underwriting Agreement
(including one fully executed copy of the registration statement and of
each amendment thereto for the Underwriter and their counsel) have been
delivered or made available to the Underwriter and Underwriter's counsel.
The registration statement, as it may have heretofore been amended, is
referred to herein as the "Registration Statement," and the final form of
prospectus included in the Registration Statement, as supplemented by the
Prospectus Supplement, is referred to herein as the "Prospectus." Any
reference herein to the Registration Statement, the Prospectus, any
preliminary prospectus or any amendment or supplement thereto shall be
deemed to refer to and include the documents incorporated by reference
therein, and any reference herein to the terms "amend," "amendment" or
"supplement" with respect to the Registration Statement, the Prospectus or
any preliminary prospectus shall be deemed to refer to and include the
filing after the execution hereof of any document with the Commission
deemed to be incorporated by reference therein. For purposes of this
Underwriting Agreement, all references to the Registration Statement, the
Prospectus, any preliminary prospectus or to any amendment or supplement
thereto shall be deemed to include any copy filed with the Commission
pursuant to its Electronic Data Gathering Analysis and Retrieval System
(▇▇▇▇▇), and such copy shall be identical in content to any Prospectus
delivered to the Underwriter for use in connection with the offering of the
Shares.
(b) Each part of the Registration Statement, when such part became or
becomes effective, and the Prospectus and any amendment or supplement
thereto, on the date of filing thereof with the Commission and at the
Closing Date (as hereinafter defined), conformed or will conform in all
material respects with the requirements of the Act and the 1933 Act Rules
and Regulations; each part of the Registration Statement, when such part
became or becomes effective, or when such part was filed with the
Commission, did not or will not contain an untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading; the Prospectus and
any amendment or supplement thereto, on the date of filing thereof with the
Commission and at the Closing Date, did not or will not include an untrue
statement of a material fact or omit to state a material fact necessary to
make the statements therein, in the light of the circumstances under which
they were made, not misleading; except that the foregoing shall not apply
to statements in, or omissions from, any such document in reliance upon,
and in conformity with, written information concerning the Underwriter that
was furnished to the Company by the Underwriter specifically for use in the
preparation thereof.
(c) The documents incorporated by reference in the Registration
Statement, the Prospectus or any amendment or supplement thereto, when they
became or become
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effective under the Act or were or are filed with the Commission under the
Act or the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), as the case may be, conformed or will conform in all material
respects with the requirements of the Act, the 1933 Act Rules and
Regulations, the Exchange Act and/or the rules and regulations of the
Commission under the Exchange Act (the "Exchange Act Rules and
Regulations"), as applicable.
(d) The consolidated financial statements of the Company, together
with the related schedules and notes thereto, set forth or included or
incorporated by reference in the Registration Statement and Prospectus
fairly present the financial condition of the Company and its consolidated
subsidiaries as of the dates indicated and the results of operations,
changes in financial position, stockholders' equity and cash flows for the
periods therein specified, in conformity with generally accepted accounting
principles consistently applied throughout the periods involved (except as
otherwise stated therein). The summary and selected financial and
statistical data included or incorporated by reference in the Registration
Statement and the Prospectus present fairly the information shown therein
and, to the extent based upon or derived from the financial statements,
have been compiled on a basis consistent with the financial statements
presented therein. In addition, the pro forma financial statements of the
Company, and the related notes thereto, included or incorporated by
reference in the Registration Statement and the Prospectus present fairly
the information shown therein, have been prepared in accordance with the
Commission's rules and guidelines with respect to pro forma financial
statements and have been properly compiled on the basis described therein,
and the assumptions used in the preparation thereof are reasonable and the
adjustments used therein are appropriate to give effect to the transactions
and circumstances referred to therein. Furthermore, all financial
statements required by Rule 3-14 of Regulation S-X ("Rule 3-14") have been
included or incorporated by reference in the Registration Statement and the
Prospectus and any such financial statements are in conformity with the
requirements of Rule 3-14. No other financial statements are required to be
set forth or to be incorporated by reference in the Registration Statement
or the Prospectus under the Act or the 1933 Act Rules and Regulations
thereunder.
(e) Ernst & Young, LLP and ▇.▇. ▇▇▇▇▇▇ & Company, P.C., whose reports
are incorporated by reference in the Registration Statement, are and,
during the periods covered by their reports, were independent public
accountants as required by the Act and the 1933 Act Rules and Regulations.
(f) The Company has been duly formed and is validly existing as a
corporation in good standing under the laws of the Commonwealth of
Virginia, is duly qualified to do business and is in good standing in each
jurisdiction in which its ownership or lease of property or the conduct of
its business requires such qualification (except where the failure to be so
qualified would not have a material adverse effect on the earnings, assets
or business affairs of the Company and its Subsidiaries taken as a whole),
and has full corporate power and authority necessary to own or hold its
properties, to conduct the business in which it is engaged and to enter
into and perform its obligations under this Underwriting Agreement. Except
for the Subsidiaries (as
3
hereinafter defined), the Company's ownership of 417,778 common shares of
Apple Residential Income Trust, Inc., and the Company's temporary
investments of working capital and other unused funds in money market or
similar investments, the Company owns no direct or indirect equity or other
beneficial interest in any corporation, partnership, joint venture or other
business entity.
(g) CRIT-NC, LLC, a Virginia limited liability company subsidiary of
the Company (the "LLC Subsidiary"), has been duly formed and is validly
existing as a limited liability company under the laws of the Commonwealth
of Virginia, is duly qualified to do business as a foreign entity in each
jurisdiction in which its ownership or lease of property or the conduct of
its business requires such qualification (except where the failure to be so
qualified would not have a material adverse effect on the earnings, assets
or business affairs of the Company and its Subsidiaries taken as a whole),
and has all power and authority necessary to own or hold its properties and
its interests in its subsidiaries, to conduct the business in which it is
engaged and to enter into and perform its obligations under this
Underwriting Agreement. The Company is the sole member and 100% owner of
the LLC Subsidiary. The Operating Agreement of the LLC Subsidiary (the
"Operating Agreement") is in full force and effect.
(h) All of the subsidiaries (as defined in the 1933 Act Rules and
Regulations) of the Company, including the LLC Subsidiary, are listed on
Schedule A hereto (collectively, the "Subsidiaries"). Each of the
Subsidiaries has been duly incorporated or formed, as the case may be, and
is an existing corporation, general or limited partnership, or other legal
entity, as the case may be, in good standing under the laws of its
jurisdiction of incorporation or formation, as the case may be. Each of the
Subsidiaries has full power (corporate or other) and authority to own or
hold its properties and to conduct the business in which it is engaged, and
is duly qualified or registered to do business in each jurisdiction in
which it owns or leases real property or in which the conduct of its
business requires such qualification or registration, except where the
failure to be so qualified or registered, considering all such cases in the
aggregate, would not have a material adverse effect on the business,
properties, financial position or results of operations of the Company and
its Subsidiaries taken as a whole.
(i) All of the issued and outstanding capital stock or ownership
interests of each Subsidiary have been duly authorized and are validly
issued, fully paid and nonassessable and, except for the 5% interest in
each of Apple Residential Advisors, Inc. and Apple Residential Management
Group, Inc., represented by the common shares thereof that are owned by
▇▇▇▇▇ ▇. ▇▇▇▇▇▇, are wholly owned by the Company, directly or through
Subsidiaries, free and clear of any security interest, mortgage, pledge,
lien, encumbrance, claim or equity.
(j) The Company has authorized, issued and outstanding capital stock
as set forth in the Company's public filings with the Commission
incorporated by reference in the Prospectus. All of the issued and
outstanding shares of capital stock of the Company have been duly
authorized and are validly issued, fully paid and nonassessable and conform
to the description thereof in the Registration Statement and the
Prospectus. The
4
shareholders of the Company have no preemptive rights with respect to the
Shares. Neither the filing of the Registration Statement nor the offering
or sale of the Shares as contemplated by this Underwriting Agreement gives
rise to any rights, other than those which have been waived or satisfied,
for or relating to the registration of any Common Shares.
(k) The Shares will be as of the Closing Date duly authorized by the
Company for issuance and sale pursuant to this Underwriting Agreement; and
when issued and delivered by the Company pursuant to this Underwriting
Agreement against payment of the consideration therefor specified herein,
will be validly issued, fully paid and nonassessable. The Shares conform to
the description thereof in the Registration Statement and the Prospectus
and will not be subject to any preemptive rights of any stockholder of the
Company.
(l) Except as contemplated in the Prospectus, subsequent to the
respective dates as of which information is given in the Registration
Statement and the Prospectus, the Company and its Subsidiaries have not
incurred any liabilities or obligations, direct or contingent, or entered
into any transactions, not in the ordinary course of business, that are
material to the Company and its Subsidiaries on a consolidated basis; and
there has not been any material change in the capital stock or structure,
short-term debt or long-term debt of the Company and its Subsidiaries; or
any material adverse change, or any development that is reasonably likely
to involve a prospective material adverse change, in the condition
(financial or other), business, prospects, net worth or results of
operations of the Company and its Subsidiaries on a consolidated basis;
and, except for regular dividends on the Company's Common Shares, in
amounts per share that are consistent with past practice or the charter
documents of the Company, there has been no dividend or distribution of any
kind declared, paid or made by the Company on any class of its capital
stock.
(m) Except as set forth in the Prospectus, there is not pending or, to
the knowledge of the Company, threatened any litigation, action, suit or
proceeding to which the Company, any of its Subsidiaries or any of its
officers or directors is a party, or that any of its properties or other
assets is the subject of, before or by any court or governmental agency or
body, that is reasonably likely to result in any material adverse change in
the condition (financial or other), business, prospects, net worth or
results of operations of the Company and its Subsidiaries, or might
materially and adversely affect their properties or other assets.
(n) During the period of at least the last 24 calendar months prior to
the date of this Underwriting Agreement, the Company has timely filed with
the Commission all documents and other material required to be filed
pursuant to Sections 13, 14 and 15(d) under the Exchange Act. During the
period of at least the last 36 calendar months preceding the filing of the
Registration Statement, the Company has filed all reports required to be
filed pursuant to Sections 13, 14 and 15(d) under the Exchange Act.
Immediately preceding the filing of the Registration Statement, the
aggregate market
5
value of the Company's voting stock held by non-affiliates of the Company
was equal to or greater than $150 million.
(o) There are no contracts or documents of the Company that are
required to be filed as exhibits to the Registration Statement or to any of
the documents incorporated by reference therein by the Act or the Exchange
Act or by the 1933 Act Rules and Regulations and the Exchange Act Rules and
Regulations that have not been so filed. All of the contracts to which any
of the Company or its Subsidiaries is a party (i) have been duly
authorized, executed and delivered by such entity, constitute valid and
binding agreements of such entity and are enforceable against such entity
in accordance with the terms thereof, except as such enforcement may be
limited by (A) bankruptcy, insolvency, reorganization or similar other laws
affecting creditors' rights generally and (B) general equity principles and
limitations on the availability of equitable relief or (ii) in the case of
any contract to be executed on or before the Closing Date, will on the
Closing Date be duly authorized, executed and delivered by the Company
and/or a Subsidiary, and constitute valid and binding agreements of such
entity enforceable against each entity in accordance with the terms
thereof, except as such enforcement may be limited by (A) bankruptcy,
insolvency, reorganization or similar other laws affecting creditors'
rights generally and (B) general equity principles and limitations on the
availability of equitable relief.
(p) The Company has full corporate power and authority to enter into
this Underwriting Agreement. This Underwriting Agreement has been duly
authorized, executed and delivered by the Company.
(q) The execution and performance of this Underwriting Agreement and
the consummation of the transactions contemplated herein will not result in
a breach or violation of any of the terms and provisions of, or constitute
a default under, (i) any agreement or instrument to which the Company or
its Subsidiaries is a party or by which they are bound or to which any of
the property or other assets of the Company or its Subsidiaries is subject,
(ii) the articles of incorporation, charter, by-laws, certificate of
general or limited partnership, partnership agreement or other
organizational document, as applicable, of the Company or its Subsidiaries,
or (iii) to the best of the Company's knowledge, any statute, order, rule
or regulation of any court or governmental agency or body having
jurisdiction over the Company or its Subsidiaries or any of their
properties or other assets; no consent, approval, authorization or order
of, filing with, or notice to any court or governmental agency or body is
required for the consummation of the transactions contemplated by this
Underwriting Agreement in connection with the issuance or sale of the
Shares by the Company, except such as may be required under the Act and
applicable state securities, blue sky, or real estate syndication laws, if
any, or pursuant to the listing requirements of the New York Stock Exchange
("NYSE") and the Company has full power and authority to authorize, issue
and sell the Shares as contemplated by this Underwriting Agreement, free of
any preemptive rights. The issuance of the Shares will not result in a
breach or violation of any of the terms and provisions of, or constitute a
default under, any indenture, mortgage, deed of trust, loan
▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇, ▇▇▇▇▇▇▇▇▇, note agreement, evidence of indebtedness,
contract or other agreement or instrument to which the Company or its
Subsidiaries are a party.
(r) The Company and its Subsidiaries have complied in all respects
with all laws, regulations and orders applicable to them or their
respective businesses; the Company and its Subsidiaries are not in default
under any indenture, mortgage, deed of trust, voting trust agreement, loan
agreement, bond, debenture, note agreement or evidence of indebtedness,
lease, contract or other agreement or instrument to which they are a party
or by which they or any of their properties or other assets are bound,
violation of which would individually or in the aggregate have a material
adverse effect on the Company and its Subsidiaries on a consolidated basis,
and no other party under any such agreement or instrument to which the
Company or its Subsidiaries are a party is, to the knowledge of the
Company, in default in any material respect thereunder; and the Company and
its Subsidiaries are not in violation of their respective articles of
incorporation, charter, by-laws, certificate of general or limited
partnership, partnership agreement or other organizational documents, as
the case may be.
(s) The Company and each of its Subsidiaries have good and marketable
title to all properties and assets, as described in the Prospectus, owned
by them, free and clear of all liens, charges, encumbrances, claims,
restrictions or defects, except such as are described in the Prospectus or
are not material in relation to the business or operations of the Company
and its Subsidiaries; all liens, charges, encumbrances, claims or
restrictions on or affecting any of the properties or the assets of the
Company and its Subsidiaries which are required to be disclosed in the
Prospectus are disclosed therein; to the best of the Company's knowledge,
the use and occupancy of each of the properties of the Company and its
Subsidiaries complies in all material respects with all applicable codes
and zoning laws and regulations; the Company and its Subsidiaries have no
knowledge of any pending or threatened condemnation or zoning change that
will in any material respect affect the size of, use of, improvement of,
construction on, or access to any of the properties of the Company and its
Subsidiaries; and the Company and its Subsidiaries have no knowledge of any
pending or threatened proceeding or action that will in any manner
materially affect the size of, use of, improvements or construction on, or
access to any of the properties of the Company or its Subsidiaries.
(t) Title insurance in favor of the Company and its Subsidiaries is
maintained with respect to each of the properties described in the
Prospectus in an amount at least equal to the cost of acquisition of such
property.
(u) As of the date of this Underwriting Agreement, there are no
mortgages or deeds of trust encumbering the properties and assets owned by
the Company or any Subsidiary.
(v) Except as would not, singularly or in the aggregate, have a
material adverse effect on the condition (financial or otherwise) or the
earnings, business affairs or business prospects of the Company or any of
its Subsidiaries, (i) there does not exist on any of the properties
described in the Prospectus any Hazardous Materials (as hereinafter
7
defined) in unlawful quantities, (ii) there has not occurred on or off such
properties any unlawful spills, releases, discharges or disposal of
Hazardous Materials and (iii) the Company and its Subsidiaries have not
failed to comply with all applicable local, state and federal environmental
laws, regulations, ordinances and administrative and judicial orders
relating to the generation, recycling, sale, storage, handling, transport
and disposal of any Hazardous Materials.
As used herein, "Hazardous Material" shall include, without
limitation, any flammable explosives, radioactive materials, oil,
petroleum, petroleum products, hazardous materials, hazardous wastes,
hazardous or toxic substances, asbestos or any material as defined by any
environmental laws, including, without limitation, the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980, as amended
(42 U.S.C. Section 9601, et seq.) (CERCLA), the Hazardous Materials
Transportation Act, as amended (49 U.S.C. Section 1801, et seq.), the
Resource Conservation and Recovery Act, as amended (42 U.S.C. Section 6901,
et seq.), and in the regulations adopted pursuant to each of the foregoing
or by any Federal, state or local governmental authority having
jurisdiction over the properties as described in the Prospectus.
All of the Company's properties have been, and it is contemplated that
all future acquisitions will be, subjected to a Phase I or similar
environmental assessment (which generally includes a site inspection,
interviews and a records review). These assessments and certain follow-up
investigations (including, as appropriate, asbestos, radon and lead
surveys, additional public records review, subsurface sampling and other
testing) of the properties have not revealed any environmental liability
that the Company believes would have a material adverse effect upon the
business, results of operations, prospects or condition (financial or
otherwise) of the Company or any of its Subsidiaries.
(w) Property and casualty insurance in favor of each of the Company
and its Subsidiaries is maintained with respect to each of the properties
owned or leased by each of them in an amount and on such items as is
reasonable and customary for businesses of this type.
(x) Except as described in the Prospectus, each tenant (a "Tenant") of
a property owned or leased by the Company is in actual possession of such
property under a lease to such Tenant (each, a "Lease"). Except as
disclosed in the Prospectus, each Lease is in full force and effect and
neither the Company nor any of its Subsidiaries has notice of any defense
to the obligations of the Tenant thereunder or any claim asserted or
threatened by any person or entity, which claim would have a material
adverse effect upon the business, results of operations, prospects or
condition (financial or otherwise) of the Company or any of its
Subsidiaries. Except as would not have a material adverse effect on the
earnings, assets or business affairs of the Company and its Subsidiaries
taken as a whole, to the knowledge of the Company, no Tenant of any of the
properties is in default under any of the Leases governing such properties
and there is no event which, but for the passage of time or the giving of
notice, or both, would constitute a material default under any of such
Leases.
8
(y) Except as specifically disclosed in the Prospectus, there is no
material defect in the condition of any property, the improvements thereon,
the structural elements thereof, or the mechanical systems therein, nor any
material damage from casualty or other cause, nor any soil condition of any
such property that will not support all of the improvements thereon without
the need for unusual or new subsurface excavations, fill, footings,
caissons or other installations, except for (a) ordinary wear and tear and
(b) any such defect, damage or condition that has been corrected or will be
corrected in the ordinary course of the business of such property as part
of the Company's scheduled annual maintenance and improvement program.
(z) No holder of outstanding shares of capital stock of the Company
has any rights to the registration of shares of capital stock of the
Company which would or could require such securities to be included in the
Registration Statement.
(aa) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus, except as described
therein, (i) there has not been any material adverse change in the assets
or properties, business, results of operations, prospects or condition
(financial or otherwise) of the Company or any of its Subsidiaries, whether
or not arising from transactions in the ordinary course of business; (ii)
neither the Company nor any of its Subsidiaries has sustained any material
loss or interference with its assets, businesses or properties (whether
owned or leased) from fire, explosion, earthquake, flood or other calamity,
whether or not covered by insurance, or from any labor dispute or any court
or legislative or other governmental action, order or decree; and (iii)
neither the Company nor any of its Subsidiaries has undertaken any
liability or obligation, direct or contingent, except such liabilities or
obligations undertaken in the ordinary course of business.
(bb) The Company has filed all federal, state, local, franchise and
foreign income tax returns which have been required to be filed and has
paid all taxes indicated by said returns and all assessments received by it
to the extent that such taxes have become due, and the Company has no
knowledge, after due inquiry, of any tax deficiency which has been asserted
or threatened against the Company. To the knowledge of the Company, there
are no tax returns of the Company or any of its Subsidiaries that are
currently being audited by state, local or federal taxing authorities or
agencies which would have a material adverse effect on the financial
position, stockholders' equity, results of operations, business or
prospects of the Company and its Subsidiaries.
(cc) Each approval, consent, order, authorization, designation,
declaration or filing by or with any regulatory, administrative or other
governmental body (other than those to be made or obtained by the
Underwriter) which is necessary in connection with the execution and
delivery by the Company of this Underwriting Agreement and the consummation
of the transactions herein contemplated has been obtained or made and is in
full force and effect.
(dd) The Company and its Subsidiaries hold all material licenses,
certificates and permits from governmental authorities which are necessary
to the conduct of their
9
businesses and are in compliance with the terms and conditions of such
licenses, certificates and permits; and the Company and its Subsidiaries
have no reason to believe that the conduct of their business has or would
infringe on any patents, patent rights, trade names, trademarks or
copyrights, which infringement is or would be material to the business of
the Company and its Subsidiaries taken as a whole.
(ee) The Company and its Subsidiaries are conducting their respective
businesses in material compliance with all applicable laws, rules and
regulations of the jurisdictions in which they are conducting business,
including, without limitation, the Americans with Disabilities Act of 1990,
as amended, and all applicable local, state and federal employment,
truth-in-advertising, franchising and immigration laws and regulations,
except where the failure to be so in compliance would not have a material
adverse effect on the assets or properties, business, results of
operations, prospects or condition (financial or otherwise) of the Company
and its Subsidiaries taken as a whole.
(ff) No transaction has occurred between or among the Company and any
of its officers or directors or any affiliate or affiliates of any such
officer or director that is required to be described in and is not
described or incorporated by reference in the Registration Statement and
the Prospectus.
(gg) Neither the Company nor, to the Company's knowledge, any of its
officers and directors or other affiliates has taken, nor will it or they
take, directly or indirectly, any action designed to or which might
reasonably be expected to cause or result in, or which has constituted or
which might reasonably be expected to constitute, the stabilization or
manipulation of the price of any capital stock of the Company to facilitate
the sale or resale of any of the Shares.
(hh) The Company has been organized and operated and will continue to
be operated in conformity with the requirements for qualification as a
"real estate investment trust" under the Internal Revenue Code of 1986, as
amended (the "Code"). The Company's method of operation will permit it to
meet and to continue to meet the requirements for taxation as a real estate
investment trust under the Code. The Company has no intention of changing
its operations or engaging in activities which would cause it to fail to
qualify, or make economically undesirable its continued qualification, as a
real estate investment trust.
(ii) Neither the Company nor any Subsidiary is an "investment company"
within the meaning of the Investment Company Act of 1940, as amended.
(jj) The Shares have been approved for listing on the NYSE, subject to
official notice of issuance.
(kk) The Company and its Subsidiaries maintain a system of internal
accounting controls which the Company believes is sufficient to provide
reasonable assurance that (i) transactions are executed in accordance with
management's general or specific authorization; (ii) transactions are
recorded as necessary to permit the preparation
10
of financial statements in conformity with generally accepted accounting
principles and to maintain accountability for assets; (iii) access to
financial assets is permitted only in accordance with management's general
or specific authorization; and (iv) the recorded accountability for assets
is compared with existing assets at reasonable intervals and appropriate
action is taken with respect to any differences.
(ll) Neither the Company or any of its Subsidiaries nor, to the
knowledge of the Company, any employee or agent of the Company or any
Subsidiary, has made any payment of funds of the Company or any Subsidiary
or received or retained any funds in violation of any law, rule or
regulation.
(mm) The Company has not distributed and, prior to the later to occur
of (i) the Closing Date or (ii) completion of the distribution of the
Shares, will not distribute any offering material in connection with the
offering and sale of the Shares other than the Registration Statement, the
Prospectus or other materials, if any, permitted by the Act.
2. Purchase, Sale and Delivery of Common Shares. On the basis of the
representations, warranties and agreements contained herein, but subject to the
terms and conditions set forth herein, the Company agrees to issue and sell the
Shares to the Underwriter, and the Underwriter agrees to purchase from the
Company, the Shares at a purchase price of $10.925 per share (the "Purchase
Price").
The Company is advised by you that the Underwriter proposes to deposit the
Shares with the trustee of the Trust, a registered unit investment trust under
the Investment Company Act of 1940, as amended, for which PaineWebber
Incorporated acts as sponsor and depositor, in exchange for units in the Trust
(the "Offering") as soon after the execution and delivery hereof as in the
judgment of the Underwriter is advisable (and, if necessary, any post-effective
amendment to the Registration Statement).
The Shares to be purchased by the Underwriter will be delivered by the
Company to the office of PaineWebber Incorporated at ▇▇▇▇ ▇▇▇▇▇▇ ▇▇ ▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, in accordance with the terms of this
Underwriting Agreement and against payment of the Purchase Price therefor by
wire transfer of same day funds payable to the order of the Company in the
amount of $28,500,004 at the bank account designated in writing by the Company
at least one business day prior to the Closing Date, at 10:00 a.m., New York
time, on May 29, 1998 (or if the NYSE or American Stock Exchange or commercial
banks in the City of New York are not open on such day, the next day on which
such exchanges and banks are open), or at such other time not later than eight
full business days thereafter as the Underwriter and the Company mutually agree,
such time being herein referred to as the "Closing Date." If requested by the
Underwriter, the Shares will be prepared in definitive form and in such
authorized denominations and registered in such names as the Underwriter may
request upon at least two business days' prior notice to the Company and will be
made available for checking and packaging at the office of PaineWebber
Incorporated at least one business day prior to the Closing Date.
11
3. Covenants. The Company covenants and agrees with the Underwriter that:
(a) The Company will cause the Prospectus Supplement to be filed as
required by Section 1(a) hereof (but only if the Underwriter or its counsel
have not reasonably objected thereto by notice to the Company after having
been furnished a copy a reasonable time prior to filing) and will notify
the Underwriter promptly of such filing. During the period in which a
prospectus relating to the Shares is required to be delivered under the Act
or such date which is 90 days after the Closing Date, whichever is later,
the Company will notify the Underwriter promptly of the time when any
subsequent amendment to the Registration Statement has become effective or
any subsequent supplement to the Prospectus has been filed, or of any
request by the Commission for any amendment or supplement to the
Registration Statement or Prospectus or for additional information; the
Company will prepare and file with the Commission, promptly upon the
Underwriter's request, any amendments or supplements to the Registration
Statement or Prospectus that, in the Underwriter's opinion, may be
necessary or advisable in connection with the Underwriter's distribution of
the Shares; and the Company will file no amendment or supplement to the
Registration Statement or Prospectus (other than any prospectus supplement
relating to the offering of other securities registered under the
Registration Statement or any document required to be filed under the
Exchange Act that upon filing is deemed to be incorporated by reference
therein) to which the Underwriter or its counsel shall reasonably object by
notice to the Company after having been furnished a copy a reasonable time
prior to the filing.
(b) The Company will advise the Underwriter, promptly after it shall
receive notice or obtain knowledge thereof, of the issuance by the
Commission of any stop order suspending the effectiveness of the
Registration Statement, of the suspension of the qualification or
registration of the Shares for offering or sale in any jurisdiction, or of
the initiation or threatening of any proceeding for any such purpose; and
it will promptly use its best efforts to prevent the issuance of any stop
order or to obtain its withdrawal if such a stop order should be issued.
(c) The Company will comply with all requirements imposed upon it by
the Act, the 1933 Act Rules and Regulations, the Exchange Act and the
Exchange Act Rules and Regulations as from time to time in force, so far as
necessary to permit the continuance of sales of, or dealings in, the Shares
as contemplated by the provisions hereof and the Prospectus. If during such
period where a prospectus relating to the Shares is required to be
delivered under the Act or such date which is 90 days after the Closing
Date, whichever is later, any event occurs as a result of which, in the
opinion of Underwriter's counsel, the Registration Statement contains an
untrue statement of a material fact or omits to state a material fact
required to be stated therein or necessary to make the statements therein
not misleading or the Prospectus as then amended or supplemented contains
an untrue statement of a material fact or omits to state a material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading, or if during such period it is
necessary to amend or supplement the Registration Statement or Prospectus
to comply with the Act, the Company will promptly notify the Underwriter
and will amend or supplement the
12
Registration Statement or Prospectus (at the expense of the Company) so as
to correct such statement or omission or effect such compliance.
(d) The Company will furnish to the Underwriter copies of the
Registration Statement, the Prospectus (including all documents
incorporated by reference therein), each preliminary prospectus and all
amendments and supplements to the Registration Statement and Prospectus
that are filed with the Commission during the period in which a prospectus
relating to the Shares is required to be delivered under the Act or such
date which is 90 days after the Closing Date, whichever is later (including
all documents filed with the Commission during such period that are deemed
to be incorporated by reference therein), in each case as soon as available
and in such quantities as the Underwriter may from time to time reasonably
request.
(e) During the period of five years commencing on the date upon which
the Prospectus Supplement is filed pursuant to Rule 424(b) under the Act,
the Company will furnish the Underwriter with copies of filings of the
Company under the Act and Exchange Act and with all other financial
statements and periodic and special reports it distributes generally to the
holders of any class of its capital stock.
(f) The Company will make generally available to its shareholders as
soon as practicable, and in the manner contemplated by Rule 158 of the 1933
Act Rules and Regulations but in any event not later than 15 months after
the end of the Company's current fiscal quarter, an earning statement
(which need not be audited) covering a 12-month period beginning after the
date upon which the Prospectus Supplement is filed pursuant to Rule 424(b)
under the Act that shall satisfy the provisions of Section 11(a) of the Act
and Rule 158 of the 1933 Act Rules and Regulations and will advise the
Underwriter in writing when such statement has been made available.
(g) Whether or not the transactions contemplated by this Underwriting
Agreement are consummated or this Underwriting Agreement is terminated, the
Company will pay, or reimburse if paid by the Underwriter, all costs and
expenses incident to the performance of the obligations of the Company
under this Underwriting Agreement, including but not limited to costs and
expenses of or relating to (i) the preparation, printing and filing of the
Registration Statement and exhibits thereto, each preliminary prospectus,
the Prospectus and any amendment or supplement to the Registration
Statement or the Prospectus, (ii) the preparation and delivery of
certificates representing the Shares, (iii) the word processing, printing
and reproduction of this Underwriting Agreement, (iv) the costs incurred by
the Company in furnishing (including costs of shipping, mailing and
courier) such copies of the Registration Statement, the Prospectus and any
preliminary prospectus, and all amendments and supplements thereto, as may
be requested for use in connection with the offering and sale of the Shares
by the Underwriter or by dealers to whom Shares may be sold, (v) the
listing of the Shares on the NYSE, (vi) the registration or qualification
of the Shares for offer and sale under the securities or blue sky laws of
such jurisdictions designated by the Underwriter or the notification with
respect thereto required by any such jurisdiction, including the fees,
disbursements and other charges of Underwriter's counsel in connection
therewith, and
13
the preparation and printing of blue sky memoranda, (vii) counsel to the
Company, (viii) the transfer agent for the Shares and (ix) the accountants
of the Company.
(h) If this Underwriting Agreement shall be terminated pursuant to
Section 7 hereof or if for any reason the Company shall be unable to
perform its obligations hereunder, the Company will reimburse the
Underwriter for all out-of-pocket expenses (including the fees,
disbursements and other charges of Underwriter's counsel) reasonably
incurred by the Underwriter in connection herewith; but the Company shall
not in any event be liable to the Underwriter for damages on account of
loss of anticipated profits from their sale of the Shares.
(i) The Company will not at any time, directly or indirectly, take any
action designed to, or which might reasonably be expected to, cause or
result in, or which has constituted or which might reasonably be expected
to constitute, the stabilization of the price of its capital stock to
facilitate the sale or resale of any of the Shares.
(j) The Company will apply the net proceeds from the sale of the
Shares as set forth under the caption "Use of Proceeds" in the Prospectus
Supplement.
(k) The Company will elect to, and continue to qualify as a "real
estate investment trust" under the Code, and will use its best efforts to
continue to meet the requirements to qualify as a "real estate investment
trust."
4. Conditions of Underwriter's Obligations. The Underwriter's obligation to
purchase and pay for the Shares as provided herein shall be subject to the
accuracy, as of the date hereof and the Closing Date (as if made at the Closing
Date), of the representations and warranties of the Company herein, to the
performance by the Company of its obligations hereunder and to the following
additional conditions:
(a) The Registration Statement shall have been declared effective under
the Act; the Prospectus shall have been filed as required by Section 1(a)
hereof; and no stop order suspending the effectiveness of the Registration
Statement shall have been issued and no proceeding for that purpose shall
have been instituted or, to the Underwriter's knowledge or the knowledge of
the Company, threatened by the Commission, nor shall any state securities
authority have suspended the qualification or registration of the Shares
for offering or sale in any jurisdiction and any request of the Commission
for additional information (to be included in the Registration Statement or
the Prospectus or otherwise) shall have been complied with to the
satisfaction of the Underwriter and its counsel.
(b) The Underwriter shall not have advised the Company that the
Registration Statement or any amendment thereto contains an untrue
statement of fact that in the opinion of the Underwriter or its counsel is
material or omits to state a fact that in the opinion of the Underwriter or
its counsel is material, and is required to be stated therein or is
necessary to make the statements therein not misleading, or that the
Prospectus, or any amendment or supplement thereto, contains an untrue
statement of fact that in the opinion of the Underwriter or its counsel is
material or omits to state a fact that in the
14
opinion of the Underwriter or its counsel is material and is necessary, in
the light of the circumstances under which they were made, to make the
statements therein not misleading.
(c) Except as contemplated in the Prospectus Supplement, subsequent to
the respective dates as of which information is included or incorporated by
reference in the Registration Statement and the Prospectus, there shall not
have been any change, on a consolidated basis, in the equity
capitalization, short-term debt or long-term debt of the Company, or any
adverse change, or any development involving a prospective adverse change,
in the condition (financial or other), business, prospects, net worth or
results of operations of the Company or its Subsidiaries or any adverse
change in the rating assigned to any securities of the Company, that, in
the Underwriter's judgment, makes it impractical or inadvisable to offer or
deliver the Shares on the terms and in the manner contemplated in the
Prospectus.
(d) McGuire, Woods, Battle & ▇▇▇▇▇▇, LLP, counsel for the Company,
shall have furnished to the Underwriter its written opinion, as counsel to
the Company, addressed to the Underwriter and dated such Closing Date, in
form and substance reasonably satisfactory to the Underwriter, to the
effect that:
(i) Each of the Company and the LLC Subsidiary has been duly
incorporated or organized, as the case may be, and is validly existing
as a corporation or limited liability company, as the case may be, in
good standing under the laws of its jurisdiction of incorporation or
formation, as the case may be, and has full power (corporate or other)
and authority to own or hold its properties and to conduct the
business in which it is engaged, and is duly qualified or registered
to do business in each jurisdiction listed on a schedule attached to
such counsel's opinion. All of the issued and outstanding capital
stock or ownership interests of each of the Subsidiaries have been
duly authorized and are validly issued, fully paid and nonassessable
and, except for the 5% interest in Apple Residential Advisors, Inc.,
and Apple Residential Management Group Inc., represented by the common
shares thereof, owned by ▇▇▇▇▇ ▇. ▇▇▇▇▇▇, are wholly-owned by the
Company, directly or through Subsidiaries, free and clear of any
security interest, mortgage, pledge, lien, encumbrance, claim or
equity; the preferred shares of each Subsidiary held by the Company
represent 95% of the equity interests in each Company and, except as
required by law, are not entitled to vote on matters before the
shareholders of the Subsidiaries and, to of such counsel's knowledge,
the outstanding shares of capital stock of each of the Subsidiaries is
owned free and clear of all liens, encumbrances and equities and
claims, and no options, warrants or other rights to purchase,
agreements or other obligations to issue or other rights to convert
any obligations into any shares of capital stock or of ownership
interests in the Subsidiaries are outstanding.
(ii) The Company has authorized, issued and outstanding capital
stock as set forth in the Company's public filings with the Commission
incorporated by reference in the Prospectus; all of the issued and
outstanding shares of capital
15
stock of the Company have been duly and validly authorized and issued;
and all of the issued and outstanding shares of capital stock of the
Company are fully paid and nonassessable and none of them was issued in
violation of any preemptive or other similar right. The Shares have
been duly authorized by the Company for issuance and sale and when
issued and sold pursuant to this Underwriting Agreement will be duly
and validly issued, fully paid and nonassessable and none of them will
have been issued in violation of any preemptive or other similar right.
Except as disclosed in the Registration Statement and the Prospectus,
there is no outstanding option, warrant or other right calling for the
issuance of, and, to the knowledge of such counsel, no commitment, plan
or arrangement to issue, any share of capital stock of the Company or
any security convertible into, exercisable for, or exchangeable for
capital stock of the Company. To the best of such counsel's knowledge,
neither the filing of the Registration Statement or the Prospectus
Supplement nor the offering or sale of the Shares as contemplated by
this Underwriting Agreement gives rise to any rights for or relating to
registration of any Common Shares. The issued and outstanding capital
stock of the Company and the Shares conform, or will conform, in all
material respects to the descriptions thereof contained in the
Registration Statement and the Prospectus. The form of certificate used
to evidence, if any, the Shares is in due and proper form and complies
with all applicable statutory requirements, with any applicable
requirements of the Company's organizational documents and with the
requirements of the NYSE;
(iii) Each of the Company's Subsidiaries (other than the LLC
Subsidiary) has been duly incorporated or organized, as the case may
be, and is validly existing as a corporation or limited liability
company in good standing under the laws of its jurisdiction of
incorporation or formation, as the case may be, and has full power
(corporate or other) and authority to own or hold its properties and
to conduct the business in which it is engaged, and is duly qualified
or registered to do business in each jurisdiction in which it owns or
leases real property or in which the conduct of its business requires
such qualification or registration, except where the failure to be so
qualified or registered, considering all such cases in the aggregate,
does not involve a material risk to the business, properties,
financial position or results of operations of the Company and its
Subsidiaries taken as a whole.
(iv) The Registration Statement has become effective under the
Act, the Prospectus Supplement has been filed as required by Section
1(a) hereof and, to the best knowledge of such counsel, after due
inquiry, no stop order suspending the effectiveness of the
Registration Statement has been issued and no proceeding for that
purpose has been instituted or threatened by the Commission;
(v) Each part of the Registration Statement, when such part
became effective, and the Prospectus and any amendment or supplement
thereto, on the date of filing thereof with the Commission and at the
Closing Date, complied as to form in all material respects with the
requirements of the Act and the 1933 Act
16
Rules and Regulations, and nothing has come to the attention of such
counsel which leads them to believe that either (i) any part of the
Registration Statement, when such part became effective or was filed
under the Act or Exchange Act, contained an untrue statement of a
material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein not misleading or
(ii) the Prospectus and any amendment or supplement thereto, on the
date of filing thereof with the Commission or at the Closing Date,
included an untrue statement of a material fact or omitted to state a
material fact necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading (it being
understood that counsel may state that it has undertaken no independent
check or verification in such regard); and the documents (excluding any
exhibits thereto) incorporated by reference in the Registration
Statement or Prospectus or any amendment or supplement thereto, when
they became effective under the Act or were filed with the Commission
under the Act or Exchange Act, as the case may be, complied as to form
in all material respects with the requirements of the Act, the Exchange
Act, the 1933 Act Rules and Regulations or the Exchange Act Rules and
Regulations, as applicable; it being understood that such counsel need
express no opinion as to the financial statements, financial statement
schedules or other financial data included in any of the documents
mentioned in this clause (v);
(vi) The descriptions in the Registration Statement and Prospectus
of statutes, legal and governmental proceedings, contracts and other
documents are accurate and fairly present the information required to
be shown; and such counsel does not know of any statutes or legal or
governmental proceedings required to be described in the Prospectus
that are not described as required, or of any contracts or documents
of a character required to be described in the Registration Statement
or Prospectus (or required to be filed under the Exchange Act if upon
such filing they would be incorporated by reference therein) or to be
filed as exhibits to the Registration Statement that are not described
and filed as required;
(vii) This Underwriting Agreement has been duly authorized,
executed and delivered by the Company and constitutes the legal, valid
and binding obligations of the Company enforceable against it in
accordance with its terms, except as the enforceability thereof may be
limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting the enforcement of
creditors' rights generally and by general equitable principles; the
execution, delivery and performance of this Underwriting Agreement and
the consummation of the transactions contemplated herein, including
the issuance of the Shares, will not result in a breach or violation
of any of the terms and provisions of, or constitute a default under,
(a) any statute, indenture, mortgage, deed of trust, voting trust
agreement, loan agreement, bond, debenture, note agreement or evidence
of indebtedness, lease, contract or other agreement or instrument
known to such counsel to which the Company or its Subsidiaries are a
party or by which they are bound or to which any of the property or
other assets of the Company or its Subsidiaries is subject, (b) the
articles of incorporation,
17
charter, by-laws, certificate of general or limited partnership,
partnership agreement, or other organizational document of the Company
or any of its Subsidiaries, as applicable, or (c) any order, rule or
regulation known to such counsel of any court or governmental agency or
body having jurisdiction over the Company or its Subsidiaries or any of
their properties or other assets; and no consent, approval,
authorization, notice to, order of, or filing with, any court or
governmental agency or body (other than those to be obtained or made by
the Underwriter) is required for the consummation of the transactions
contemplated by this Underwriting Agreement in connection with the
issuance or sale of the Shares by the Company, except such as have been
obtained under the Act or from the NYSE;
(viii) The Company has qualified as a real estate investment
trust ("REIT") under the Code for its taxable years ended December 31,
1993 through December 31, 1997, and its organization and proposed
method of operation will permit it to meet and to continue to meet the
requirements for qualification as a REIT under the Code. The federal
income tax treatment described in the Prospectus under the caption
"Certain Federal Income Tax Considerations" is accurate;
(ix) To the best of such counsel's knowledge, neither the Company
nor any of its Subsidiaries is in violation of any statute, rule,
regulation or any term or provision of their respective articles of
incorporation, charter, by-laws, certificate of general or limited
partnership, partnership agreement or other organizational document,
as applicable, or in violation of or default under any indenture,
mortgage, deed of trust, voting trust agreement, loan agreement, bond,
debenture, note agreement or evidence of indebtedness, lease,
contract, permit, judgment, decree, order, known to us, violation of
which would individually or in the aggregate have a material adverse
effect on the Company and its Subsidiaries on a consolidated basis;
(x) Such counsel does not know of any contracts or documents
required to be filed as exhibits to or incorporated by reference in
the Registration Statement or described in the Registration Statement
or the Prospectus that are not so filed, incorporated by reference or
described as required, and such contracts and documents as are
summarized in the Registration Statement or the Prospectus are fairly
summarized in all material respects.
(xi) To the best of such counsel's knowledge, there is no
litigation or governmental or other proceeding or investigation,
before any court or before or by any public body or board pending or
threatened against, or involving the assets, properties or businesses
of, the Company or any of its Subsidiaries, involving the Company's or
any of its Subsidiaries' officers or directors or to which any of the
Company's or any of its Subsidiaries' properties or other assets are
subject which would have a material adverse effect upon the assets or
properties, business,
18
results of operations, prospects or condition (financial or otherwise)
of the Company and its Subsidiaries taken as a whole;
(xii) Neither the Company nor any of its Subsidiaries is an
"investment company" within the meaning of the Investment Company Act
of 1940, as amended;
(e) The Underwriter shall have received from Hunton & ▇▇▇▇▇▇▇▇,
counsel to the Underwriter, such opinion or opinions, dated the Closing
Date, with respect to the validity of the Shares, the Registration
Statement, the Prospectus and other related matters as the Underwriter
reasonably may request, and such counsel shall have received such papers
and information as they request to enable them to pass upon such matters.
(f) The Underwriter shall have received, on the date hereof, the
co-signed letter dated the date hereof, in form and substance satisfactory
to you, of Ernst & Young LLP, and ▇.▇. ▇▇▇▇▇▇ & Company, P.C., confirming
that they are independent public accountants within the meaning of the Act
and the 1933 Act Rules and Regulations and stating that in their opinion
the financial statements and schedules prepared and examined by them and
included in the Registration Statement comply in form in all material
respects with the applicable accounting requirements of the Act and the
1933 Act Rules and Regulations; and, with regards to the letter from Ernst
& Young, LLP, containing such other statements and information as is
ordinarily included in accountants' "comfort letters" to Underwriter with
respect to the financial statements and certain financial and statistical
information contained in the Registration Statement and Prospectus.
(g) The Underwriter shall have received from the Company a certificate,
signed by the President or the Chairman of the Board and by the principal
financial or accounting officer of the Company, dated the Closing Date, to
the effect that, to the best of their knowledge based upon reasonable
investigation:
(i) The representations and warranties of the Company in this
Underwriting Agreement are true and correct, as if made at and as of
the Closing Date, and the Company has complied with all the agreements
and satisfied all the conditions on its part to be performed or
satisfied at or prior to the Closing Date;
(ii) No stop order suspending the effectiveness of the
Registration Statement has been issued, and no proceeding for that
purpose has been instituted or is threatened by the Commission nor has
any state securities authority suspended the qualification or
registration of the Shares for offering or sale in any jurisdiction;
(iii) Since the effective date of the Registration Statement,
there has occurred no event required to be set forth in an amendment
or supplement to the Registration Statement or Prospectus that has not
been so set forth, and there has been no document required to be filed
under the Exchange Act and the Exchange Act Rules and Regulations of
the Commission thereunder that upon such filing
19
would be deemed to be incorporated by reference in the Prospectus that
has not been so filed;
(iv) Since the respective dates as of which information is given
in the Registration Statement and the Prospectus, (a) there has not
been, and no development has occurred which could reasonably be
expected to result in, a material adverse change in the general
affairs, business, business prospects, properties, management,
condition (financial or otherwise) or results of operations of the
Company and its Subsidiaries, taken as a whole, whether or not arising
from transactions in the ordinary course of business, in each case
other than as set forth in or contemplated by the Registration
Statement and the Prospectus and (b) neither the Company nor any of
its Subsidiaries has sustained any material loss or interference with
its business or properties from fire, explosion, flood or other
casualty, whether or not covered by insurance, or from any labor
dispute or any court or legislative or other governmental action,
order or decree, which is not set forth in the Registration Statement
and the Prospectus; and
(v) such other matters as the Underwriter or Underwriter's
counsel may reasonably request.
(h) Prior to the Closing Date, the Shares shall have been duly
authorized for listing by the NYSE, subject to official notice of issuance.
(i) All such opinions, certificates, letters and other documents will
be in compliance with the provisions hereof only if they are reasonably
satisfactory in form and substance to the Underwriter or Underwriter's
counsel. The Company will furnish the Underwriter with such conformed
copies of such opinions, certificates, letters and other documents as the
Underwriter shall reasonably request and the Company shall furnish to the
Underwriter such further certificates and documents as the Underwriter
shall have reasonably requested.
(j) Subsequent to the execution and delivery of this Underwriting
Agreement (i) no downgrading or adverse change shall have occurred in the
rating accorded any security of the Company by any "nationally recognized
statistical rating organization," as that term is defined by the Commission
for purposes of Rule 436(g)(2) of the 1933 Act Rules and Regulations and
(ii) no such organization shall have publicly announced that it has under
surveillance or review, with possible negative implications, its rating of
any security of the Company, that, in either event, makes it impractical or
inadvisable, in the Underwriter's judgment, to offer or deliver the Shares
on the terms and in the manner contemplated by the Prospectus.
5. Indemnification and Contribution.
(a) The Company agrees to indemnify and hold harmless the Underwriter,
its directors, officers, employees and agents and each person, if any, who
controls it within the meaning of Section 15 of the Act or Section 20 of
the Exchange Act from and against
20
any and all losses, claims, liabilities, expenses and damages
(including, but not limited to, any and all investigative, legal and other
expenses reasonably incurred in connection with, and any and all amounts
paid in settlement of, any action, suit or proceeding between any of the
indemnified parties and any indemnifying parties or between any indemnified
party and any third party, or otherwise, or any claim asserted), as and
when incurred to which the Underwriter, or any such person, may become
subject under the Act, the Exchange Act or other federal or state statutory
law or regulation, at common law or otherwise, insofar as such losses,
claims, liabilities, expenses or damages arise out of or are based on (i)
any untrue statement or alleged untrue statement of a material fact
contained in any preliminary prospectus, the Registration Statement or the
Prospectus or any amendment or supplement to the Registration Statement or
the Prospectus or in any documents filed under the Exchange Act and deemed
to be incorporated by reference into the Prospectus, or in any application
or other document executed by or on behalf of the Company or based on
written information furnished by or on behalf of the Company filed in any
jurisdiction in order to qualify the Shares under the securities or blue
sky laws thereof or filed with the Commission, (ii) the omission or alleged
omission to state in such document a material fact required to be stated in
it or necessary to make the statements in it, in the light of the
circumstances under which they were made, not misleading or (iii) any act
or failure to act or any alleged act or failure to act by the Underwriter
in connection with, or relating in any manner to, the Shares or the
offering contemplated hereby, and which is included as part of or referred
to in any loss, claim, damage, liability or action arising out of or based
upon matters covered by clause (i) or (ii) above (provided that the Company
shall not be liable under this clause (iii) to the extent it is finally
judicially determined by a court of competent jurisdiction that such loss,
claim, damage, liability or action resulted directly from any such acts or
failures to act undertaken or omitted to be taken by the Underwriter
through their gross negligence or willful misconduct); provided that the
Company will not be liable to the extent that such loss, claim, liability,
expense or damage arises from the sale of the Shares in the public offering
to any person and is based on an untrue statement or omission or alleged
untrue statement or omission made in reliance on and in conformity with
information relating to the Underwriter furnished in writing to the Company
by the Underwriter expressly for inclusion in the Registration Statement or
the Prospectus. The Underwriter confirms to the Company and the Company
acknowledges that only the following information appearing in the
Prospectus with respect to the public offering of the Shares has been
furnished to the Company by the Underwriter for use in the Prospectus: (i)
the name of the Underwriter contained on the cover page and back cover page
of the Prospectus Supplement; (ii) the stabilization legend on the inside
front cover page of the Prospectus Supplement; and (iii) the information in
the second, fourth and fifth paragraphs under the caption "Underwriting" in
the Prospectus Supplement. This indemnity agreement will be in addition to
any liability that the Company might otherwise have.
(b) The Underwriter will indemnify and hold harmless the Company, each
person, if any, who controls the Company within the meaning of Section 15
of the Act or Section 20 of the Exchange Act, each director of the Company
and each officer of the
21
Company who signs the Registration Statement to the same extent as the
foregoing indemnity from the Company to the Underwriter, but only insofar
as losses, claims, liabilities, expenses or damages arise out of or are
based on any untrue statement or omission or alleged untrue statement or
omission made in reliance on and in conformity with information relating to
the Underwriter furnished in writing to the Company by the Underwriter
expressly for use in the Registration Statement or the Prospectus. This
indemnity will be in addition to any liability that the Underwriter might
otherwise have; provided, however, that in no case shall the Underwriter be
liable or responsible for any amount in excess of the underwriting
discounts and commissions received by the Underwriter.
(c) Any party that proposes to assert the right to be indemnified under
this Section 5 will, promptly after receipt of notice of commencement of
any action against such party in respect of which a claim is to be made
against an indemnifying party or parties under this Section 5, notify each
such indemnifying party of the commencement of such action, enclosing a
copy of all papers served, but the omission so to notify such indemnifying
party will not relieve it from any liability that it may have to any
indemnified party under the foregoing provisions of this Section 5 unless,
and only to the extent that, such omission results in the forfeiture of
substantive rights or defenses by the indemnifying party. If any such
action is brought against any indemnified party and it notifies the
indemnifying party of its commencement, the indemnifying party will be
entitled to participate in and, to the extent that it elects by delivering
written notice to the indemnified party promptly after receiving notice of
the commencement of the action from the indemnified party, jointly with any
other indemnifying party similarly notified, to assume the defense of the
action, with counsel reasonably satisfactory to the indemnified party, and
after notice from the indemnifying party to the indemnified party of its
election to assume the defense, the indemnifying party will not be liable
to the indemnified party for any legal or other expenses except as provided
below and except for the reasonable costs of investigation subsequently
incurred by the indemnified party in connection with the defense. The
indemnified party will have the right to employ its own counsel in any such
action, but the fees, expenses and other charges of such counsel will be at
the expense of such indemnified party unless (i) the employment of counsel
by the indemnified party has been authorized in writing by the indemnifying
party, (ii) the indemnified party has reasonably concluded (based on advice
of counsel) that there may be legal defenses available to it or other
indemnified parties that are different from or in addition to those
available to the indemnifying party, (iii) a conflict or potential conflict
exists (based on advice of counsel to the indemnified party) between the
indemnified party and the indemnifying party (in which case the
indemnifying party will not have the right to direct the defense of such
action on behalf of the indemnified party) or (iv) the indemnifying party
has not in fact employed counsel to assume the defense of such action
within a reasonable time after receiving notice of the commencement of the
action, in each of which cases the reasonable fees, disbursements and other
charges of counsel will be at the expense of the indemnifying party or
parties. It is understood that the indemnifying party or parties shall not,
in connection with any proceeding or related proceedings in the same
jurisdiction, be liable for the fees, disbursements and other
22
charges of more than one additional firm admitted to practice in such
jurisdiction at any one time for all such indemnified party or parties. All
such fees, disbursements and other charges will be reimbursed by the
indemnifying party promptly as they are incurred. An indemnifying party
will not be liable for any settlement of any action or claim effected
without its written consent (which consent will not be unreasonably
withheld); provided, however, no indemnifying party shall, without the
prior written consent of each indemnified party, settle or compromise or
consent to the entry of any judgment in any pending or threatened claim,
action or proceeding relating to the matters contemplated by this Section 5
(whether or not any indemnified party is a party thereto), unless such
settlement, compromise or consent includes an unconditional release of each
indemnified party from all liability arising or that may arise out of such
claim, action or proceeding. Notwithstanding any other provision of this
Section 5(c), if at any time an indemnified party shall have requested an
indemnifying party to reimburse the indemnified party for fees and expenses
of counsel, such indemnifying party agrees that it shall be liable for any
settlement effected without its written consent if (i) such settlement is
entered into more than 45 days after receipt by such indemnifying party of
the aforesaid request, (ii) such indemnifying party shall have received
notice of the terms of such settlement at least 30 days prior to such
settlement being entered into and (iii) such indemnifying party shall not
have reimbursed such indemnified party in accordance with such request
prior to the date of such settlement.
(d) In order to provide for just and equitable contribution in
circumstances in which the indemnification provided for in the foregoing
paragraphs of this Section 5 is applicable in accordance with its terms but
for any reason is held to be unavailable from the Company or the
Underwriter, the Company and the Underwriter will contribute to the total
losses, claims, liabilities, expenses and damages (including any
investigative, legal and other expenses reasonably incurred in connection
with, and any amount paid in settlement of, any action, suit or proceeding
or any claim asserted, but after deducting any contribution received by the
Company from persons other than the Underwriter, such as persons who
control the Company within the meaning of the Act, officers of the Company
who signed the Registration Statement and directors of the Company, who
also may be liable for contribution) to which the Company and the
Underwriter may be subject in such proportion as shall be appropriate to
reflect the relative benefits received by the Company on the one hand and
the Underwriter on the other. The relative benefits received by the Company
on the one hand and the Underwriter on the other shall be deemed to be in
the same proportion as the total net proceeds from the offering (before
deducting expenses) received by the Company bear to the total underwriting
discounts and commissions received by the Underwriter, in each case as set
forth on the cover page of the Prospectus Supplement. If, but only if, the
allocation provided by the foregoing sentence is not permitted by
applicable law, the allocation of contribution shall be made in such
proportion as is appropriate to reflect not only the relative benefits
referred to in the foregoing sentence but also the relative fault of the
Company on the one hand, and the Underwriter, on the other, with respect to
the statements or omissions which resulted in such loss, claim, liability,
expense or damage, or action in respect thereof, as well as any other
relevant equitable considerations with respect to such offering. Such
relative fault
23
shall be determined by reference to whether the untrue or alleged untrue
statement of a material fact or omission or alleged omission to state a
material fact relates to information supplied by the Company or the
Underwriter, the intent of the parties and their relative knowledge, access
to information and opportunity to correct or prevent such statement or
omission. The Company and the Underwriter agree that it would not be just
and equitable if contributions pursuant to this Section 5(d) were to be
determined by pro rata allocation or by any other method of allocation
which does not take into account the equitable considerations referred to
herein. The amount paid or payable by an indemnified party as a result of
the loss, claim, liability, expense or damage, or action in respect
thereof, referred to above in this Section 5(d) shall be deemed to include,
for purpose of this Section 5(d), any legal or other expenses reasonably
incurred by such indemnified party in connection with investigating or
defending any such action or claim. Notwithstanding the provisions of this
Section 5(d), the Underwriter shall not be required to contribute any
amount in excess of the underwriting discounts and commissions received by
the Underwriter and no person found guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Act) will be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. For purposes of this Section 5(d), any person who
controls a party to this Underwriting Agreement within the meaning of the
Act will have the same rights to contribution as that party, and each
officer of the Company who signed the Registration Statement will have the
same rights to contribution as the Company, subject in each case to the
provisions hereof. Any party entitled to contribution, promptly after
receipt of notice of commencement of any action against such party in
respect of which a claim for contribution may be made under this Section
5(d), will notify any such party or parties from whom contribution may be
sought, but the omission so to notify will not relieve the party or parties
from whom contribution may be sought from any other obligation it or they
may have under this Section 5(d). Except for a settlement entered into
pursuant to the last sentence of Section 5(c) hereof, no party will be
liable for contribution with respect to any action or claim settled without
its written consent (which consent will not be unreasonably withheld).
(e) The indemnity and contribution agreements contained in this
Section 5 and the representations and warranties of the Company contained
in this Underwriting Agreement shall remain operative and in full force and
effect regardless of (i) any investigation made by or on behalf of the
Underwriter, (ii) acceptance of the Shares and payment therefor or (iii)
any termination of this Underwriting Agreement.
6. Representations and Agreements to Survive Delivery. All representations,
warranties and agreements of the Company contained herein or in certificates
delivered pursuant hereto, and the Underwriter's agreements contained in Section
5 hereof, shall remain operative and in full force and effect regardless of any
investigation made by or on behalf of the Underwriter or any controlling
persons, or the Company or any of its officers, directors or any controlling
persons, and shall survive delivery of and payment for the Shares hereunder.
7. Termination. The Underwriter shall have the right by giving notice as
hereinafter specified at any time at or prior to the Closing Date, to terminate
this Underwriting Agreement if (i) the Company shall have failed, refused or
been unable, at or prior to the Closing Date, to
24
perform any agreement on its part to be performed hereunder, (ii) any condition
of the Underwriter's obligations specified in Section 4 hereof is not fulfilled
when due, (iii) trading on the NYSE shall have been wholly suspended, (iv)
minimum or maximum prices for trading shall have been fixed, or maximum ranges
for prices for the Common Stock shall have been required, on the NYSE by the
NYSE or by order of the Commission or any other governmental authority having
jurisdiction, (v) a banking moratorium shall have been declared by federal or
New York authorities, or (vi) an outbreak of major hostilities in which the
United States is involved, a declaration of war by Congress, any other
substantial national or international calamity or any other event or occurrence
of a similar character shall have occurred since the execution of this
Underwriting Agreement that, in the Underwriter's judgment, makes it impractical
or inadvisable to proceed with the completion of the sale of and payment for the
Shares. Any such termination shall be without liability of any party to any
other party with respect to Shares not purchased by reason of such termination
except that the provisions of Section 3(g) and Section 5 hereof shall at all
times be effective. If the Underwriter elects to terminate this Underwriting
Agreement as provided in this Section, the Company shall be notified promptly by
the Underwriter by telephone, telex or telecopy, confirmed by letter.
8. Notices. All notices or communications hereunder shall be in writing and
if sent to the Underwriter shall be mailed, delivered, telexed or telecopied and
confirmed to the Underwriter in care of PaineWebber Incorporated at ▇▇▇▇ ▇▇▇▇▇▇
▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, c/o Real Estate Investment Banking,
attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ (with copy, which shall not constitute notice, to
▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇, Esq., ▇/▇ ▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇ Tower,
▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇), or if sent to the Company,
shall be mailed, delivered, telexed or telecopied and confirmed to Cornerstone
Realty Income Trust, Inc., ▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇,
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇ (with copy, which shall not constitute notice, to
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Esquire, ▇/▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇, ▇▇▇▇▇▇ & ▇▇▇▇▇, ▇▇▇, ▇▇▇ ▇▇▇▇▇
Center, ▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇. Any party to this
Underwriting Agreement may change such address for notices by sending to the
other party to this Underwriting Agreement written notice of a new address for
such purpose.
9. Parties. This Underwriting Agreement shall inure to the benefit of, and
be binding upon, the Company and the Underwriter and their respective successors
and the controlling persons, officers, directors, employees and representatives
referred to in Section 5 hereof, and no other person will have any right or
obligation hereunder.
10. Applicable Law. This Underwriting Agreement shall be governed by, and
construed in accordance with, the laws of the State of New York.
25
If the foregoing correctly sets forth the understanding between the Company and
the Underwriter, please so indicate in the space provided below for that
purpose, whereupon this letter shall constitute a binding agreement between the
Company and the Underwriter.
Very truly yours,
CORNERSTONE REALTY INCOME TRUST, INC.
By:
-----------------------------------------
Name:
Title:
CRIT-NC, LLC, a Virginia limited liability
company
By: Cornerstone Realty Income Trust, Inc.,
sole member
By:
-----------------------------------------
Name:
Title:
ACCEPTED as of the date first above
written
PAINEWEBBER INCORPORATED
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇
----------------------------------
Name: ▇▇▇▇▇ ▇▇▇▇▇▇
Title: Managing Director
26
If the foregoing correctly sets forth the understanding between the Company and
the Underwriter, please so indicate in the space provided below for that
purpose, whereupon this letter shall constitute a binding agreement between the
Company and the Underwriter.
Very truly yours,
CORNERSTONE REALTY INCOME TRUST, INC.
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
-----------------------------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Chief Executive Officer
CRIT-NC, LLC, a Virginia limited liability
company
By: Cornerstone Realty Income Trust, Inc.,
sole member
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
-----------------------------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Chief Executive Officer
ACCEPTED as of the date first above
written
PAINEWEBBER INCORPORATED
By:
----------------------------------
Name:
Title: Vice President
27
SCHEDULE A
SUBSIDIARIES
1. CRIT-NC, LLC, a Virginia limited liability company
2. Apple Residential Advisors, Inc.
3. Apple Residential Management Group, Inc.