EXHIBIT 12
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ESCROW AGREEMENT
This Escrow Agreement is made and entered into as of April 13,
1999, by and among BRI OP Limited Partnership, a Delaware limited partnership
(the "Partnership"), Berkshire Realty Company, Inc., a Delaware corporation
("BRI"), Berkshire Realty Holdings, L.P., a Delaware limited partnership
("Parent"), and American Stock Transfer and Trust Company, a New York
corporation, as escrow agent (the "Escrow Agent"). BRI, the Partnership,
Parent and the Escrow Agent are referred to individually herein as a "Party"
and are referred to together herein as the "Parties."
WITNESSETH:
WHEREAS, BRI, BRI Acquisition, L.L.C., a Delaware limited liability
company (the "Buyer") whose sole member is Parent, and Parent have entered
into an Agreement and Plan of Merger dated of even date herewith (the "Merger
Agreement"); and
WHEREAS, the Partnership, Parent and BRI Acquisition Sub, LP have
entered into an Agreement and Plan of Merger of even date herewith (the
"Partnership Merger Agreement"); and
WHEREAS, pursuant to the Merger Agreement, Buyer will be merged
with BRI; and
WHEREAS, pursuant to the Partnership Merger Agreement, BRI
Acquisition Sub, LP, a Delaware limited partnership, will be merged with the
Partnership; and
WHEREAS, Section 4.7 of the Merger Agreement requires the Buyer to
provide cash in the amount of $29,500,000, which amount may be increased to
$54,500,000 as provided in said Section 4.7 (the "Cash Collateral") for the
benefit of the Escrow Agent on behalf of the Partnership, the holders of
common stock of BRI ("Common Stock") and the holders of units of limited
partnership in the Partnership other than BRI (the "Units") (the Partnership,
the holders of Common Stock and such holders of Units, collectively being
sometimes referred to as the "Beneficiaries"); and
WHEREAS, Section 4.7 of the Merger Agreement provides that the
Buyer, at its election, may provide a letter of credit substantially in the
form of Attachment A, which letter of credit may be amended as provided in
said Section 4.7 to increase the amount available thereunder to $54,500,000
(the "Letter of Credit"), with such changes as shall be reasonably
satisfactory to Seller and from a bank satisfactory to Seller, in
substitution of the Cash Collateral; and
WHEREAS, BRI conducts substantially all of its operations through
the Partnership; and
WHEREAS, Section 7.2(b) of the Merger Agreement provides for the
payment of a Break-Up Fee and/or Break-Up Expenses as liquidated damages in
certain circumstances, which obligation is secured by the Cash Collateral or
Letter of Credit, as applicable; and
WHEREAS, Parent, BRI and the Partnership wish to appoint the Escrow
Agent as escrow agent for such escrow account and to hold and draw upon the
Letter of Credit, and the Escrow Agent wishes to accept such appointment,
upon the terms and conditions set forth below.
NOW, THEREFORE, the Parties hereto hereby agree as follows:
1. Defined Terms. Capitalized terms used in this Agreement and
not otherwise defined shall have the meanings given them in the Merger
Agreement.
2. Cash Collateral. The Cash Collateral shall be held by the
Escrow Agent in a segregated trust account designated as the "BRI Cash
Collateral Account" or in an account having a similar designation. The Cash
Collateral shall be invested in accordance with Section 6 hereof pursuant to
the written instruction of BRI on behalf of the Beneficiaries. The Escrow
Agent agrees to accept delivery of the Cash Collateral and to hold such Cash
Collateral subject to the terms and conditions of this Agreement.
3. Escrow Fund. Promptly upon receipt from BRI of a certificate
(the "Draw Certificate") certifying that a payment of the Break-Up Fee and/or
the Break-Up Expenses is owing pursuant to Section 7.2(b) of the Merger
Agreement and the amount thereof, the Escrow Agent shall (i) if the Letter of
Credit has been substituted for the Cash Collateral, draw the amount of the
Letter of Credit specified by BRI in the Draw Certificate, and at the
direction and expense of BRI, take all actions necessary to collect such
amount, employing such counsel in connection therewith as BRI may direct; or
(ii) if the Letter of Credit has not been substituted for the Cash
Collateral, segregate a portion of the Cash Collateral equal to the amount
specified by BRI in the Draw Certificate (with any balance of the Cash
Collateral being subject to Section 5(a) hereof), which segregation shall
terminate any right of Parent to the return of such portion of the Cash
Collateral. The portion of the Cash Collateral so segregated and/or any
amounts drawn under the Letter of Credit, are referred to herein as the
"Escrow Fund" and shall be held by the Escrow Agent in a segregated trust
account designated as "BRI Escrow Account" or in an account having such other
similar designation. The Escrow Fund shall be invested in accordance with
Section 6 hereof pursuant to the written instructions of BRI on behalf of the
Beneficiaries. The Escrow Agent agrees to accept delivery of the Escrow Fund
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and to hold such Escrow Fund in escrow subject to the terms and conditions of
this Agreement.
4. Release of Escrow Fund. With respect to each taxable year of
BRI (for federal income tax purposes) in which the undistributed Escrow Fund
is a positive number, all or a portion of the undistributed Escrow Fund shall
be distributable to the Beneficiaries in accordance with Sections 4(a) and
(b), below. The amounts to be distributed to each Beneficiary with respect
to any taxable year shall be calculated by BRI (after consultation with BRI's
independent accountants (the "Accountants")) as soon as practicable after the
end of BRI's taxable year (or such later time as BRI shall determine in its
sole discretion if litigation with regard to the Beneficiaries' right to
liquidated damages pursuant to the Merger Agreement has commenced or been
threatened) based upon the facts in existence as of the end of such taxable
year. Following such calculations, BRI shall promptly notify the Escrow
Agent by delivery of a certificate (the "Disbursement Certificate") of the
amounts, if any, to be distributed to each Beneficiary together with the full
name and address of the Beneficiary. Promptly after receipt of a
Disbursement Certificate for a taxable year of BRI, the Escrow Agent shall
distribute all or a portion of the undistributed Escrow Fund in the amounts
and to the recipients specified in the Disbursement Certificate. Any
Disbursement Certificate shall direct the Escrow Agent to disburse the
undistributed Escrow Fund only as follows:
(a) First, to the Partnership in an amount equal to the sum
of (i) any portion of the undistributed Escrow Fund that is determined
pursuant to a Break-Up Fee Tax Opinion (as defined below) or a Ruling (as
defined below)to be either (A) income described in Section 856(c)(2) of the
Internal Revenue Code of 1986, as amended ("Qualifying Income") or (B) income
of a nature that it is not includable in BRI's gross income for purposes of
determining whether BRI meets the requirement of Section 856(c)(2) (the "REIT
Requirement") for such year and (ii) the quotient of (A) the excess of
(I) 4.95% of BRI's federal gross income for such taxable year over (II) the
amount of gross income of BRI for the taxable year from all other sources to
the extent such income is not Qualifying Income and (B) BRI's percentage
share of the capital of the Partnership (determined in accordance with
Treasury Regulation Section 1.856-3(g) or any applicable successor provision)
for such year. As used herein, "Break-Up Fee Tax Opinion" means an opinion
letter from BRI's outside counsel, and "Ruling" means a private letter ruling
from the Internal Revenue Service. In the event that the foregoing does not
permit the distribution to the Partnership of the entire undistributed Escrow
Fund for any taxable year of BRI, the Escrow Agent shall retain the unpaid
amount in escrow for distribution pursuant to (x) this Section 4(a) in
subsequent taxable years of BRI, (y) Section 4(b) or (z) Section 4(c), as
applicable.
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(b) Second, if the amount of any undistributed Escrow Fund is
greater than zero and outside counsel to BRI informs BRI in writing that such
counsel believes that BRI is unlikely to receive a Break-Up Fee Tax Opinion
or Ruling with respect to the distribution to the Partnership of the
undistributed Escrow Fund, then the undistributed Escrow Fund shall be
distributed to holders of Common Stock and Units, in equal amounts per share
of Common Stock and per Unit; provided, however, that amounts shall only be
so distributed to the holders of Common Stock and Units if, and to the
extent, BRI receives a Break-Up Fee Tax Opinion or a Ruling with respect to
such distributions.
(c) Third, any amounts remaining in escrow at the end of the
ten (10) year period commencing on the date the Draw Certificate is delivered
shall be paid to a charity chosen by Parent that qualifies as a charity under
Section 501(c)(3) of the Code.
5. Substitution or Return of Collateral. (a) At the direction of
BRI and following the delivery to the Escrow Agent of the Letter of Credit,
the Escrow Agent shall disburse the Cash Collateral (other than any portion
thereof that has become part of the Escrow Fund) to Parent, together with all
interest thereon. BRI agrees that it shall provide the foregoing direction
to the Escrow Agent promptly upon notice from the Escrow Agent that it has
received the Letter of Credit.
(b) The Escrow Agent shall return the Letter of Credit to
Parent when and as BRI may direct. BRI shall so direct the Escrow Agent
within five business days of Parent's becoming entitled to such return in
accordance with Section 7.2(b) of the Merger Agreement.
6. Investment of Escrow Fund. (a) Any monies held as Cash
Collateral or in the Escrow Fund shall be invested by the Escrow Agent, to
the extent permitted by law and as directed in writing by BRI on behalf of
the Beneficiaries, in (i) obligations having a maturity date of 30 days or
less issued or guaranteed by the United States of America or any agency or
instrumentality thereof, (ii) obligations having a maturity date of 30 days
or less (including certificates of deposit and bankers' acceptances) of banks
which at the date of their last public reporting had total assets in excess
of $500 million, (iii) commercial paper having a maturity date of 30 days or
less rated at least A-1 or P-1 or, if not rated, issued by companies having
outstanding debt rated at least AA or Aa and (iv) money market mutual funds
invested primarily in the securities described in the foregoing clauses (i),
(ii) and (iii).
(b) Any interest earned on the Cash Collateral shall be for
the account of Parent. Any interest earned on the Escrow Fund shall be for
the account of the Beneficiaries and shall be included in the amounts
distributed pursuant to Section 4 hereof.
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7. Fees and Expenses. BRI and the Partnership shall be jointly
and severally liable for the fees of the Escrow Agent, including, but not
limited to, reasonable legal fees and expenses for the services rendered by
the Escrow Agent hereunder and for its attorney's fees and expenses incurred
in connection with the preparation of this Agreement. In furtherance of the
foregoing, BRI and the Partnership agree to pay or reimburse the Escrow Agent
for the Escrow Agent's reasonable compensation for its normal services
hereunder and the preparation of this Agreement in accordance with the fee
schedule attached hereto as Attachment B. The Escrow Agent shall be entitled
to reimbursement on demand for all expenses incurred in connection with the
administration of the escrow created hereby that are in excess of its
compensation for normal services hereunder, including, without limitation,
payment of any legal fees and expenses incurred by the Escrow Agent in
connection with the resolution of any claim by any Party hereunder.
8. Limitation of Escrow Agent's Liability.
(a) Neither the Escrow Agent nor any of its directors,
officers or employees shall incur liability with respect to any action taken
or suffered by it in reliance upon any notice, direction, instruction,
consent, statement or other documents believed by it to be genuine and duly
authorized, nor for other action or inaction except its own willful
misconduct or gross negligence; provided, that with respect to the custody of
the Cash Collateral and Escrow Fund, the Escrow Agent shall use the standard
care of customarily used by custodians of funds. The Escrow Agent shall not
be responsible for the validity or sufficiency of this Agreement and shall
not be responsible for any of the agreements referred to herein, including
the Merger Agreement and the Partnership Merger Agreement, but shall be
obligated only for the performance of such duties as are specifically set
forth in this Escrow Agreement. Without limiting the foregoing, the Escrow
Agent (i) shall not be obligated to inquire as to the accuracy of any
calculations used in preparing the Disbursement Certificate and (ii) shall
have no obligation to inquire whether the Partnership has the right to
liquidated damages pursuant to the Merger Agreement. In all questions
arising under this Agreement, the Escrow Agent may rely on the advice of
counsel, including in-house counsel, and for anything done, omitted or
suffered in good faith by the Escrow Agent based on such advice the Escrow
Agent shall not be liable to anyone. The Escrow Agent shall not be required
to take any action hereunder involving any expense unless the payment of such
expense is made or provided for in a manner reasonably satisfactory to it.
The Escrow Agent shall not be liable for any losses resulting from the
investments made in accordance with this Agreement. In no event shall the
Escrow Agent be liable for indirect, punitive, special or consequential
damages.
(b) BRI and the Partnership shall jointly and severally
indemnify the Escrow Agent for, and hold it harmless against, any loss,
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liability or expense (including reasonable attorneys' fees and expenses)
incurred without gross negligence or willful misconduct on the part of the
Escrow Agent, arising out of or in connection with its carrying out of its
duties hereunder, including without limitation drawing on the Letter of
Credit.
(c) BRI and the Partnership jointly and severally hereby
agree to assume any and all obligations imposed now or hereafter by any
applicable tax law with respect to the payment of Escrow Funds under this
Agreement, and to indemnify and hold the Escrow Agent harmless from and
against any taxes, additions for late payment, interest, penalties and other
expenses, that may be assessed against the Escrow Agent in any such payment
or other activities under this Agreement (other than taxes on the net income
of the Escrow Agent attributable to the payment of fees hereunder). BRI and
the Partnership undertake to instruct the Escrow Agent in writing with
respect to the Escrow Agent's responsibility for withholding and other taxes,
assessments or other governmental charges, certifications and governmental
reporting in connection with its acting as Escrow Agent under this Agreement.
BRI and the Partnership jointly and severally hereby agree to indemnify and
hold the Escrow Agent harmless from any liability on account of taxes,
assessments or other governmental charges, including without limitation the
withholding or deduction or the failure to withhold or deduct the same, and
any liability for failure to obtain proper certifications or to properly
report to governmental authorities, to which the Escrow Agent may be or
become subject in connection with or which arises out of this Agreement,
including costs and expenses (including reasonable legal fees and expenses),
interest and penalties.
9. Termination. This Agreement shall terminate upon the earliest
of (i) notice from BRI to the Escrow Agent that the transactions contemplated
by the Merger Agreement have been consummated, (ii) notice from BRI to the
Escrow Agent that the Merger Agreement has been terminated without giving
rise to the right to realize on the Cash Collateral or draw on the Letter of
Credit, or (iii) the disbursement by the Escrow Agent of all of the Escrow
Funds (except in accordance with Section 5(a)) in accordance with this
Agreement; provided, however, that the provisions of Sections 7 and 8 shall
survive such termination.
10. Notices. All notices, instructions and other communications
given hereunder or in connection herewith shall be in writing. Any such
notice, instruction or communication shall be sent either (i) by registered
or certified mail, return receipt requested, postage prepaid or (ii) via a
reputable nationwide overnight courier service, in each case to the address
set forth below. Any such notice, instruction or communication shall be
deemed to have been delivered four business days after it is sent by
registered or certified mail, return receipt requested, postage prepaid; or
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one business day after it is sent via a reputable nationwide overnight
courier service.
If to BRI or the Berkshire Realty Company, Inc.
Partnership: ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: Chief Executive Officer
Copies to: ▇▇▇▇ and ▇▇▇▇ LLP
▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq.
and ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇ LLP
3200 National City Center
▇▇▇▇ ▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
If to Parent: Berkshire Realty Holdings, L.P.
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
▇▇▇▇, Weiss, Rifkind, ▇▇▇▇▇▇▇ &
▇▇▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇ ▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇, Esq.
and ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, Esq.
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
and
▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
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and
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
If to the Escrow Agent: American Stock Transfer and Trust
Company
▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Any Party may give any notice, instruction or communication in connection
with this Agreement using any other means (including personal delivery,
telecopy or ordinary mail), but no such notice, instruction or communication
shall be deemed to have been delivered unless and until it is actually
received by the Party to whom it was sent. Any Party may change the address
to which notices, instructions or communications are to be delivered by
giving the other Parties to this Agreement notice thereof in the manner set
forth in this Section 10.
11. Successor Escrow Agent. In the event the Escrow
Agent becomes unavailable or unwilling to continue in its capacity hereunder,
the Escrow Agent may resign and be discharged from its duties or obligations
hereunder by delivering a resignation to the Parties to this Escrow
Agreement, not less than 60 days' prior to the date when such resignation
shall take effect. BRI may appoint a successor Escrow Agent so long as such
successor is a bank with assets of at least $500 million. If, within such
notice period, BRI provides to the Escrow Agent written instructions with
respect to the appointment of a successor Escrow Agent and directions for the
transfer of the Letter of Credit, the Cash Collateral or any Escrow Fund then
held by the Escrow Agent to such successor, the Escrow Agent shall act in
accordance with such instructions and promptly transfer the Letter of Credit,
the Cash Collateral and such Escrow Fund to such designated successor. If no
successor escrow agent is named by BRI within such notice period, the Escrow
Agent may apply to a court of competent jurisdiction for appointment of a
successor escrow agent.
12. General.
(a) Governing Law. This Agreement shall be
governed by, enforced under and construed in accordance with the laws of the
Commonwealth of Massachusetts without regard to conflict-of-law principles.
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(b) Counterparts. This Agreement may be
executed in two or more counterparts (which need not each be signed by all of
the Parties hereto), each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
(c) Entire Agreement. This Agreement
constitutes the entire understanding and agreement of the Parties with
respect to the subject matter hereof and supersedes all prior agreements or
understandings, written or oral, between the Parties with respect to the
subject matter hereof.
(d) Waivers. No waiver by any Party hereto of
any condition or of any breach of any provision of this Escrow Agreement
shall be effective unless in writing. No waiver by any Party of any such
condition or breach, in any one instance, shall be deemed to be a further or
continuing waiver of any such condition or breach or a waiver of any other
condition or breach of any other provision contained herein.
(e) Amendment. This Agreement may be amended
only by a written instrument signed by the Parties hereto.
(f) Consent to Jurisdiction and Service. BRI
and the Partnership hereby absolutely and irrevocably consent and submit to
the jurisdiction of the courts in the Commonwealth of Massachusetts and of
any federal court located in the Commonwealth of Massachusetts in connection
with any actions or proceedings brought against BRI and the Partnership by
the Escrow Agent arising out of or relating to this Escrow Agreement. In any
such action or proceeding, BRI and the Partnership hereby absolutely and
irrevocably waive personal service of any summons, complaint, declaration or
other process and hereby absolutely and irrevocably agree that the service
thereof may be made in accordance with the notice provisions of Section 10
hereof, directed to BRI and the Partnership, as the case may be, at their
respective addresses set forth in Section 10 hereof.
(g) Force Majeure. Neither BRI, the
Partnership nor the Escrow Agent shall be responsible for delays or failures
in performance resulting from acts beyond its, his or her control. Such acts
shall include but not be limited to acts of God, strikes, lockouts, riots,
acts of wars, epidemics, governmental regulations superimposed after the
fact, fire, communication line failures, computer viruses, power failures,
earthquakes or other disasters.
(h) Binding Effect, Assigns. This Agreement
shall be binding upon and inure to the benefit of the respective Parties
hereto and their heirs, executors, successors and assigns.
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(i) Reproduction of Documents. This Agreement
and all documents relating thereto, including, without limitation, (a)
consents, waivers and modifications which may hereafter be executed, and (b)
certificates and other information previously or hereafter furnished, may be
reproduced by any photographic, photostatic, microfilm, optical disk,
micro-card, miniature photographic or other similar process. The Parties
agree that any such reproduction shall be admissible in evidence as the
original itself in any judicial or administrative proceeding, whether or not
the original is in existence and whether or not such reproduction was made by
a Party in the regular course of business, and that any enlargement,
facsimile or further reproduction of such reproduction shall likewise be
admissible in evidence.
IN WITNESS WHEREOF, the Parties have duly executed this
Agreement as of the day and year first above written.
Berkshire Realty Company, Inc.
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
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Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Title: Chief Executive Officer
BRI OP Limited Partnership
By: Berkshire Apartments, Inc.
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
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Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Title:
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American Stock Transfer and
Trust Company, as Escrow Agent
By:/s/ [Authorized Signatory]
Name:_________________________
Title:________________________
Berkshire Realty Holdings, L.P. joins in this
Agreement solely with respect to Section 4(c).
Berkshire Realty Holdings, L.P.
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
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▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇,
Authorized Signatory
[Signature Page to Escrow Agreement]
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