1
Exhibit 2.01
SECOND AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
ASSOCIATED ESTATES REALTY CORPORATION
("AERC"),
MIG REALTY ADVISORS, INC.
("MIGRA")
and the
MIGRA STOCKHOLDERS
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TABLE OF CONTENTS
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SECOND AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER........................ 1
PRELIMINARY STATEMENTS.......................................................... 1
ARTICLE I THE MERGER........................................... 2
1.1 The Merger.................................................... 2
1.2 Effective Time................................................ 2
1.3 Effects of the Merger......................................... 2
1.4 Articles of Incorporation and Bylaws.......................... 2
1.5 Directors and Officers........................................ 2
1.6 Additional Actions............................................ 3
ARTICLE II CONVERSION OF SECURITIES............................. 3
2.1 Conversion of Capital Stock................................... 3
2.2 Shares; Share Prices; Fractional Shares....................... 5
2.3 Exchange of Certificates...................................... 5
2.4 Purchase Price Adjustment..................................... 6
2.5 Disposition Fees.............................................. 9
ARTICLE III REPRESENTATIONS AND WARRANTIES OF AERC............... 9
3.1 Organization and Standing..................................... 9
3.2 Corporate Power and Authority................................. 9
3.3 Capitalization of AERC........................................10
3.4 Conflicts; Consents and Approvals.............................10
3.5 SEC Documents.................................................11
3.6 Absence of Certain Changes....................................12
3.7 Brokerage and Finder's Fees...................................12
3.8 State Takeover Laws...........................................12
3.9 REIT Status...................................................12
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF MIGRA..............12
4.1 Organization and Standing.....................................12
4.2 Subsidiaries..................................................13
4.3 Corporate Power and Authority.................................15
4.4 Capitalization................................................15
4.5 Conflicts; Consents and Approvals.............................16
4.6 Absence of Certain Changes....................................16
4.7 Officers, Employees and Compensation..........................18
4.8 Financial Statements..........................................18
4.9 Taxes.........................................................19
4.10 Compliance with Law...........................................20
4.11 Intellectual Property.........................................21
4.12 Title to and Condition of Properties..........................21
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4.13 Investment Advisor............................................24
4.14 Litigation....................................................28
4.15 Brokerage and Finder's Fees; Expenses.........................28
4.16 Employee Benefit Plans........................................29
4.17 Contracts.....................................................32
4.18 [INTENTIONALLY OMITTED.]......................................32
4.19 Labor Matters.................................................32
4.20 Undisclosed Liabilities.......................................32
4.21 Operation of MIGRA's Business; Relationships..................33
4.22 Environmental Matters.........................................33
4.23 FBCA and State Takeover Laws..................................34
4.24 Insurance.....................................................34
4.25 Books of Account; Records.....................................34
4.26 Rights to Disposition Fees....................................34
ARTICLE V COVENANTS OF THE PARTIES.............................34
5.1 Mutual Covenants..............................................34
5.2 Covenants of AERC.............................................36
5.3 Covenants of MIGRA............................................38
5.4 Covenants of MIGRA Stockholders...............................42
5.5 Covenants of Mr. Wright.......................................44
ARTICLE VI CONDITIONS...........................................44
6.1 Mutual Conditions.............................................44
6.2 Conditions to Obligations of MIGRA............................44
6.3 Conditions to Obligations of AERC.............................45
ARTICLE VII TERMINATION AND AMENDMENT............................47
7.1 Termination...................................................47
7.2 Effect of Termination.........................................48
7.3 Amendment.....................................................49
7.4 Extension; Waiver.............................................49
ARTICLE VIII INDEMNIFICATION......................................49
8.1 Survival of Representations, Warranties and Agreements........49
8.2 Indemnification...............................................50
8.3 Limitations on Indemnification................................51
8.4 Procedure for Indemnification with Respect to Third Party ....53
8.5 Procedure For Indemnification with Respect to Non-Third Party
Claims......................................................54
8.6 Termination of MIGRA's Warranties.............................55
8.7 Sole Remedies.................................................55
ARTICLE IX MISCELLANEOUS........................................55
9.1 Notices.......................................................55
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9.2 Interpretation................................................56
9.3 Counterparts..................................................56
9.4 Entire Agreement..............................................57
9.5 Third Party Beneficiaries.....................................56
9.6 Governing Law.................................................57
9.7 Consent to Jurisdiction; Venue................................57
9.8 Specific Performance..........................................57
9.9 Assignment....................................................58
9.10 Expenses......................................................58
Exhibit A - Properties
Exhibit A-1- Development Properties
Exhibit B - Form of Opinion of AERC Counsel
Exhibit C - Form of Opinion of MIGRA's Counsel
Exhibit D - Form of Non-Competition Agreement
Exhibit E - Form of Employment Agreement
Exhibit F - Description of E Units
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SECOND AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER
This Second Amended and Restated Agreement and Plan of Merger
(this "Agreement") is made and entered into as of the _____ day of March, 1998,
by and among Associated Estates Realty Corporation, an Ohio corporation
("AERC"), MIG Realty Advisors, Inc., a Florida corporation ("MIGRA"), and
certain of the holders of the issued and outstanding shares of MIGRA's capital
stock (such holders herein referred to as the "MIGRA Stockholders"), to amend
and restate the Agreement and Plan of Merger, dated as of November 5, 1997, as
amended and restated as of January 24, 1998 among AERC, MIGRA and the MIGRA
Stockholders.
PRELIMINARY STATEMENTS
A. AERC desires to acquire the real estate acquisition,
development and management business and other businesses operated by MIGRA and
the interests owned by MIGRA, the MIGRA Stockholders in other MIGRA Companies
(as defined in Section 4.5) and/or the real property owned thereby through the
merger of MIGRA with and into AERC, with AERC as the surviving corporation (the
"Merger"), pursuant to which each share of MIGRA Common Stock (as defined in
Section 4.4) outstanding at the Effective Time (as defined in Section 1.2)
("MIGRA Conversion Stock") will be converted into the right to receive AERC
Common Shares (as defined in Section 2.1), as more fully provided herein.
B. Immediately after the Effective Time, the MIGRA
Stockholders shall agree to pay when due all obligations, contingent or
otherwise, of MIGRA or any affiliate arising from or in connection with (i) the
purchase of the interest in MIGRA of Edwin B. Wayman ("Wayman"), (ii) any
deferred compensation arrangements for the benefit of Wayman, (iii) the purchase
of the interest of PF Funds, Inc. in MIG Ltd. (as hereinafter defined); (iv)
the liabilities identified on Schedule A attached hereto, and (v) the purchase
price adjustments more fully described in Section 5.4 (collectively, the "MIGRA
Stockholders Fixed Liabilities").
C. Immediately after the consummation of the Merger, AERC will
convey to (i) Associated Estates Management Company, an Ohio corporation and
affiliate of AERC ("AEMC"), and (ii) MIG Realty, Inc., a newly formed affiliate
of AERC ("MRI"), certain of the assets, contract rights and other rights and
properties theretofore owned by MIGRA (the "Spinoff Transfer").
D. MIGRA desires to combine its real estate acquisition,
development and management business and other businesses with the real estate
businesses operated by AERC and for the holders of shares of MIGRA Conversion
Stock to have a continuing equity interest in the combined AERC/MIGRA
businesses.
E. The parties intend that the Merger constitute a tax-free
"reorganization" within the meaning of Section 368(a)(1)(A) of the Internal
Revenue Code of 1986, as amended (the "Code").
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NOW, THEREFORE, in consideration of these premises and the
mutual and dependent promises hereinafter set forth, the parties hereto agree as
follows:
ARTICLE I
THE MERGER
1.1 The Merger. Upon the terms and subject to the conditions
hereof, and in accordance with the provisions of the Florida Business
Corporation Act (the "FBCA") and Chapter 1701 of the Ohio Revised Code (the
"ORC"), MIGRA shall be merged with and into AERC following the satisfaction or
waiver of the conditions set forth in Article VI, and the separate corporate
existence of MIGRA shall thereupon cease. AERC shall continue its existence
under the laws of the State of Ohio. In its capacity as the corporation
surviving the Merger, AERC is hereinafter sometimes referred to as the
"Surviving Corporation."
1.2 Effective Time and Closing. The Merger shall be
consummated by (i) filing with the Secretary of State of the State of Ohio (the
"Ohio Secretary of State") a certificate of merger (the "Certificate of Merger")
in such form as is required by and executed in accordance with Section 1701.81
of the ORC and (ii) filing with the Department of State of the State of Florida
(the "Florida Department of State") articles of merger (the "Articles of
Merger") in such form as is required by and executed in accordance with Section
607.1105 of the FBCA. The Merger shall become effective on the date and at the
time when the Certificate of Merger and the Articles of Merger have been filed
with, and accepted by, the Ohio Secretary of State and the Florida Department of
State, respectively, or at such later time as shall be specified in the
Certificate of Merger (the "Effective Time"). Prior to the filing referred to in
this Section 1.2, a closing (the "Closing") shall be held at the offices of
Baker & Hostetler LLP, 3200 National City Center, 1900 East Ninth Street,
Cleveland 44114, or such other place as the parties may agree, on the fifth
business day immediately following the day on which the last of the conditions
set forth in Article VI shall be fulfilled or waived in accordance with this
Agreement or at such other time, date or place as the parties hereto may agree.
The date on which the Closing occurs is hereinafter referred to as the "Closing
Date."
1.3 Effects of the Merger. The Merger shall have the effects
of the applicable provisions of the FBCA and the ORC.
1.4 Articles of Incorporation and Bylaws. The Certificate of
Merger and the Articles of Merger shall provide that at the Effective Time (i)
the Articles of Incorporation of the Surviving Corporation as in effect
immediately prior to the Effective Time shall be the Articles of Incorporation
of AERC, and (ii) the Code of Regulations of AERC in effect immediately prior to
the Effective Time shall be the Code of Regulations of the Surviving
Corporation; in each case until amended in accordance with applicable law.
1.5 Directors and Officers. Immediately after the Effective
Time, the officers and directors of the Surviving Corporation shall be the
officers and directors identified on Schedule 1.5, until their respective
successors are duly elected and qualified. On the Closing
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Date, MIGRA shall deliver to AERC evidence satisfactory to AERC of the
resignations of the officers and directors of MIGRA, such resignations to be
effective as of the Effective Time.
1.6 Additional Actions. If, at any time after the Effective
Time, the Surviving Corporation shall consider or be advised that any further
deeds, assignments or assurances in law or any other acts are reasonably
necessary or desirable to (a) vest, perfect or confirm, of record or otherwise,
in the Surviving Corporation its right, title or interest in, to or under any of
the rights, properties or assets of MIGRA, or (b) otherwise carry out the
provisions of this Agreement, MIGRA shall execute and deliver all such deeds,
assignments or assurances in law and shall take all acts necessary, proper or
desirable to vest, perfect or confirm title to and possession of such rights,
properties or assets in the Surviving Corporation and otherwise to carry out the
provisions of this Agreement, and the officers and directors of the Surviving
Corporation are authorized in the name of MIGRA or otherwise to take any and all
such action.
ARTICLE II
CONVERSION OF SECURITIES
2.1 Conversion of Capital Stock. By virtue of the Merger and
without any action on the part of AERC or MIGRA, the following securities will
be converted in the manner set forth below:
(a) At the Effective Time, each share of capital stock,
without par value, of AERC issued and outstanding immediately prior to
the Effective Time, but after the conversion described in Section
2.1(b), shall be converted into one share of common stock, without par
value ("AERC Common Shares"), of the Surviving Corporation.
(b) Subject to the provisions of Section 2.4, at the Effective
Time, the MIGRA Conversion Stock shall be converted into and represent
(i) a number of AERC Common Shares equal to the quotient obtained by
dividing (A) $9,648,573 by (B) the Average Share Price (as hereinafter
defined) and (ii) the right to receive the AERC Common Shares
hereinafter described in this Section 2.1 (the "Conversion Rights"),
all as allocated to the MIGRA Stockholders on Schedule 2.1.
(c) Subject to the provisions of Sections 2.1(h), 2.4 and 5.4,
on the later of the first anniversary date of the Effective Time or the
date on which the conditions set forth in Section 2.1(h) are satisfied
(the "Second Issuance Date"), the holders of the Conversion Rights
shall receive a number of AERC Common Shares equal to the quotient
obtained by dividing (A) $689,037 by (B) the Average Share Price, all
as allocated to the MIGRA Stockholders on Schedule 2.1.
(d) Subject to the provisions of Sections 2.1(i), 2.4 and 5.4,
on the later of the second anniversary date of the Effective Time or
the date on which the conditions set forth in Section 2.1(i) are
satisfied (the "Third Issuance Date"), the holders of the Conversion
Rights shall receive a number of AERC Common Shares equal to the
quotient obtained by dividing (A) $3,959,537 by (B) the Average Share
Price.
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(e) Subject to the provisions of Sections 2.1(h), 2.4, 2.5 and
5.4, on the Second Issuance Date, the holders of the Conversion Rights
shall receive a number of AERC Common Shares equal to the quotient
obtained by dividing (A) $2,408,000 by (B) the average closing prices
of the AERC Common Shares for the twenty (20) Trading Days (as defined
in Section 2.2) immediately preceding the Second Issuance Date, all as
allocated to the MIGRA Stockholders on Schedule 2.1.
(f) Subject to the provisions of Sections 2.1(i), 2.4, 2.5 and
5.4, on the Third Issuance Date, the holders of the Conversion Rights
shall receive a number of AERC Common Shares equal to the quotient
obtained by dividing (A) $2,408,000 by (B) the average closing prices
of the AERC Common Shares for the twenty (20) Trading Days immediately
preceding the Third Issuance Date, all as allocated to the MIGRA
Stockholders on Schedule 2.1.
(g) At the Effective Time, each share of capital stock of
MIGRA held in treasury shall be cancelled and retired and no payment
shall be made in respect thereof.
(h) The obligation of AERC to issue AERC Common Shares
pursuant to Sections 2.1(c) and (e) shall be conditioned on the
occurrence of both of the following: (i) the issuance of a final
certificate of occupancy for the so-called Windsor Pines property and
(ii) the MIGRA Stockholders' submission to AERC of multifamily property
acquisition opportunities with an aggregate gross asset value of at
least $50,000,000 and an average yield of at least 85% of the average
pro forma yield of the properties to be acquired by AERC
contemporaneously with the Closing to satisfy the condition set forth
in Section 6.3(e)(ii) (the "Initial Properties"). For purposes of this
Agreement "gross asset value" means the most recent appraisal value, as
determined by "CB Commercial Properties," with respect to the Initial
Properties, and with respect to subsequent properties presented for
acquisition, the fair market value thereof as determined by the agreed
upon purchase price or appraised value, as the case may be; and "yield"
means the ratio of (A) the sum of net operating income, amortization
and depreciation to (B) the gross asset value.
(i) The obligation of AERC to issue AERC Common Shares
pursuant to Sections 2.1(d) and (f) shall be conditioned on the
occurrence of both of the following: (i) the issuance of a final
certificate of occupancy for the so-called Kirkman property; and (ii)
the MIGRA Stockholders' submission to AERC of multifamily property
acquisition opportunities in addition to those described in Section
2.1(h)(ii) with an aggregate gross asset value of at least $50,000,000
and an average yield of at least 85% of the average pro forma yield of
the Initial Properties.
For purposes of Sections 2.1(h) and (i), the average pro forma
yield of the Initial Properties will be agreed upon by and between AERC and the
MIGRA Stockholders and set forth in writing on or before the Closing.
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2.2 Shares; Share Prices; Fractional Shares.
(a) For purposes hereof, "Average Share Price" shall mean
$23.63 (the average closing prices of the AERC Common Shares for the
twenty (20) Trading Days immediately preceding November 5, 1997. For
purposes of this Agreement, "Trading Days" shall mean each day that
AERC Common Shares have been traded on the New York Stock Exchange. For
purposes of this Agreement, the "Purchase Price" shall mean
$19,113,147, as the same may be adjusted pursuant to Sections 2.4, 2.5
and 5.4.
(b) No certificates for fractional AERC Common Shares shall be
issued as a result of the conversion provided for in Section 2.1. To
the extent that an outstanding share (or fraction thereof) of MIGRA
Conversion Stock would otherwise have become a fractional AERC Common
Share, the holder thereof, upon delivery of such fractional interest
represented by an appropriate certificate, shall be entitled to receive
a cash payment therefor in an amount equal to (i) with respect to the
Closing, the Average Share Price of such fractional interest, and (ii)
with respect to the Second Issuance Date and the Third Issuance Date,
the relevant closing price of the AERC Common Shares on the applicable
Trading Day relating thereto. Such payment with respect to fractional
shares is merely intended to provide a mechanical rounding off of, and
is not a separately bargained for, consideration. If more than one
certificate representing shares of MIGRA Conversion Stock shall be
surrendered for the account of the same holder, the number of AERC
Common Shares for which certificates have been surrendered shall be
computed on the basis of the aggregate number of shares represented by
the certificates so surrendered. In the event that prior to the
Effective Time, the Second Issuance Date or the Third Issuance Date, as
the case may be, AERC shall declare a stock dividend or other
distribution payable in AERC Common Shares or securities convertible
into, or exchangeable for, AERC Common Shares, or effect a stock split,
reclassification, combination or other change with respect to AERC
Common Shares, the calculations set forth in this Section 2.2 shall be
correspondingly adjusted to reflect such dividend, distribution, stock
split, reclassification, combination or other change.
(c) In the event any certificate representing shares of MIGRA
Common Stock shall have been lost, stolen or destroyed, upon receipt of
appropriate evidence (which may consist of an affidavit) as to such
loss, theft or destruction and to the ownership of any such certificate
by the person claiming any such certificate to be lost, stolen or
destroyed, and the receipt by AERC of reasonably appropriate and
customary indemnification (which may include the posting of a bond or
similar security), AERC shall cause to be issued in exchange for any
such lost, stolen or destroyed certificate, the applicable number of
AERC Common Shares and the fractional share payment, if any,
deliverable in respect thereof as determined in accordance with Section
2.1 and this Section 2.2.
2.3 Exchange of Certificates. At the Closing, AERC shall
deliver to the MIGRA Stockholders certificates representing AERC Common Shares
issuable pursuant to Section 2.1(b)(i) plus payment for any fractional shares as
provided in Section 2.2(b), and the MIGRA Stockholders shall deliver to AERC
certificates representing all shares of MIGRA Conversion Stock. On the Second
Issuance Date, AERC shall deliver to the MIGRA
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Stockholders certificates representing AERC Common Shares issuable pursuant to
Sections 2.1(c) and 2.1(e) plus payment for any fractional shares as provided in
Section 2.2(b). On the Third Issuance Date, AERC shall deliver to the MIGRA
Stockholders certificates representing AERC Common Shares issuable pursuant to
Sections 2.1(d) and 2.1(f) plus payment for any fractional shares as provided in
Section 2.2(b).
2.4 Purchase Price Adjustment
(a) Management and Other Contract Purchase Price Adjustment.
If on or before the 90th day after the Closing Date (the "Adjustment Period")
(a) all of the entities which are parties with a MIGRA Company and/or any
affiliate thereof under a mortgage servicing, advisory and/or asset and property
management agreement ("Relevant Contracts") and scheduled to pay the $8,301,077
of fees on Schedule 2.4(a) under the Relevant Contracts have not (i) consented
in writing to the assignment to the Surviving Corporation, MRI or AEMC, as the
case may be, of the obligations of the applicable MIGRA Company and/or
affiliates thereof under all Relevant Contracts, as the case may be, on terms no
less favorable than presently existing or (ii) entered into a new contract with
the Surviving Corporation, MRI or AEMC, as the case may be, with respect to the
obligations of the applicable MIGRA Company and/or affiliates thereof, which new
contract is on terms no less favorable than presently existing ("New Relevant
Contracts"), or (b) AERC does not actually acquire all of the properties listed
on Exhibit A (the "Relevant Properties") (as to which (i) no such consent to
assignment of the associated Relevant Contract is obtained or (ii) no New
Relevant Contract is entered into) pursuant to the terms of the applicable
purchase agreements entered into between AERC and/or one of its affiliates and
the applicable seller (the "Applicable Purchase Agreement") prior to the end of
the Adjustment Period, then the Purchase Price will be adjusted as follows:
(i) The Purchase Price will be increased by:
(x) One percent of the aggregate purchase price, as
reflected in the Applicable Purchase Agreement and
treating any assumed mortgage indebtedness as part of
the purchase price, for other properties identified
by MIGRA which are not listed on Schedule 2.4(c)
hereto (including the properties currently owned by
the Pennsylvania Public School Employees Retirement
System listed on Schedule 2.4(b) hereto (the "PPSERS
Properties")) which are actually acquired by AERC
pursuant to the terms of an Applicable Purchase
Agreement entered into during the Adjustment Period;
plus,
(y) One times the annualized fees of any new asset or
property management contracts or mortgage servicing
contracts related to properties identified by MIGRA
(but which are not listed on Schedule 2.4(a) hereto)
which are entered into during the Adjustment Period;
plus,
(z) The lesser of (i) one half of one percent of the
aggregate purchase price, as reflected in the
Applicable Purchase Agreements and treating any
assumed mortgage indebtedness as part of the purchase
price, for any of the PPSERS Properties which are
actually acquired by AERC pursuant to the terms of an
Applicable Purchase Agreement entered into during the
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Adjustment Period, or (ii) 2.18 times the excess of
the Fee Shortfall (as hereinafter defined) over
$1,245,162,(which amount is 15% of the total fees
scheduled to be paid on Schedule 2.4(a)).
(ii) The Purchase Price will be decreased:
(x) By an amount equal to the aggregate amount of the
annualized asset and property management fees,
advisory fees and mortgage servicing fees payable
with respect to each Relevant Contract for which
neither such consent to the assignment nor New
Relevant Contract has been obtained prior to the end
of the Adjustment Period or for those Relevant
Contracts for which a consent to assignment has not
been obtained or a New Relevant Contract has not been
obtained and which relate to a Relevant Property,
which Relevant Property is not actually acquired by
AERC pursuant to the terms of an Applicable Purchase
Contract entered into prior to the end of the
Adjustment Period (the "Fee Shortfall"); plus,
(y) An amount equal to the product of (A) 2.18 times (B)
the excess of the Fee Shortfall over $1,245,162.
(iii) However, in no event shall the amount of the increase described in
clause (i) exceed the amount of the decrease described in clause (ii).
Any decrease in the Purchase Price as a result of any such adjustment will be
reflected as a reduction in the payment to be made pursuant to Section 2.1(c)
and, if necessary, Section 2.1(d) and if further necessary, Section 2.1(b)(i);
provided that if at the Closing Date, there is a potential reduction in the
payment to be made pursuant to Section 2.1(b)(i) by reason of the foregoing, the
amount of such potential reduction shall be held back by AERC until the last day
of the Adjustment Period at which time the amount, if any, of the actual
reduction required under this Section 2.4 shall be determined. If the amount of
the hold back is greater than such actual reduction amount, then the balance of
the amount held back, together with any dividends accrued and paid on the
released AERC Shares from the Closing Date, will be released by AERC. In
addition, in the event that the Purchase Price decrease exceeds the aggregate of
the amounts in Sections 2.1(b), (c) and (d) as adjusted by Section 2.4(b)
hereof, such excess shall be paid in immediately available funds by the MIGRA
Stockholders to AERC contemporaneously with the closing of AERC's direct or
indirect acquisition of the so-called Windsor Pines property; provided however,
that the MIGRA Stockholders, as a group and not on an individual basis, may
elect to reduce the amount of E Units (as defined in Exhibit F) to be received
pursuant to the Windsor Pines closing in lieu of making a cash payment to AERC
with respect to the excess Purchase Price decrease. For the purposes of this
Agreement, the value of an E Unit shall be deemed equal to the Average Share
Price of an AERC Common Share.
(b) Property Purchase Price Adjustment.
For purposes of this Section 2.4(b), the "Value" of a property shall mean the
appraised value of such property as set forth on Exhibit A.
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(i) If on or before July 27, 1998, AERC closes on the acquisition of
properties indicated on Exhibit A (other than the properties previously owned by
subsidiaries of MIG Residential Trust (the "MRT Properties," which include
Cypress Shores, The Falls and Reflections) and the properties owned by
subsidiaries of MIG Residential Trust, Inc. (the "MIG REIT Properties," which
include 20th and Campbell, Annen Woods, Desert Oasis, Hampton Point, Fleetwood,
Morgan Place, Peachtree and Windsor Falls)), the Purchase Price shall be
increased by an amount determined by the following formula, but not to exceed
the sum of (i) $4,777,853 plus (ii) the amount of the decrease, if any, as a
result of Section 2,4(b)(ii):
($32,500,000) multiplied by (1-(the Value of properties acquired divided by
184,000,000))
Any adjustments pursuant to this subparagraph (i) will be
applied as follows:
(A) 50% of such adjustments will be applied to increase the amount
referred to in Section 2.1(b)(i);
(B) 25% of such increase (x) will be first applied to offset the
decrease, if any, resulting from Section 2.4(b)(ii)(B), and
(y) will then be applied to increase the amounts payable under
Section 2.1(c); and
(C) 25% of such increase (x) will be applied to offset the
decrease,if any, resulting from Section 2.4(b)(ii)(C), and (y)
will then be applied to increase the amounts payable under
Section 2.1(d).
(ii) If on or before July 27, 1998, AERC does not close on the
acquisition of any of the MIG REIT Properties the Purchase Price shall be
reduced by an amount determined by the following formula:
($32,500,000) multiplied by (1-(the Value of properties not acquired divided by
184,000,000))
Any adjustments pursuant to this subparagraph (ii) will be
applied as follows:
(A) 50% of such adjustment will be applied to reduce the amount
referred to in 2.1(b);
(B) 25% first to reduce the amount referred to in 2.1(c), and if
necessary 2.1(e); and,
(C) 25% first to reduce the amount referred to in 2.1(d), and if
necessary 2.1(f).
(iii) Any closing hereof without all of the MIG REIT Properties shall
require the prior written consent of MIGRA in its sole discretion.
(c) Limitation on Adjustments. Notwithstanding the above, in
no event shall the payment to be made pursuant to Section 2.1(b)(i) be reduced
pursuant to Section 2.4(a) or (b) to an amount less than 50% of the adjusted
aggregate Purchase Price, as decreased pursuant to Section 2.4(a) or as
increased or decreased pursuant to Section 2.4(b), and the parties shall reduce
the payment to be made pursuant to Section 2.1(e) and, if necessary, Section
2.1(f) so as to provide that the aggregate payments made hereunder will not
exceed the Purchase Price as adjusted hereunder. In no event shall the
percentage of the Purchase Price paid pursuant to Section 2.1(b)(i) be less
than 50% of the aggregate Purchase Price required to be paid hereunder.
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2.5 Disposition Fees. The amount of $2,316,000 and $2,500,000
set forth in each of Sections 2.1(e) and 2.1(f), respectively, shall be reduced
by 50% of the aggregate present value of the disposition and incentive fees
described in Schedule 2.5 which relate to properties which are neither sold to
AERC or whose owners have not consented to assignment to the Surviving
Corporation, MRI or AEMC, as the case may be, of the obligations of the
applicable MIGRA Company and/or affiliate as described in Section 2.4 on or
before the end of the Adjustment Period, such present value to be determined as
set forth in Schedule 2.5.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF AERC
In order to induce MIGRA and the MIGRA Stockholders to enter
into this Agreement, AERC hereby represents and warrants to MIGRA and to the
MIGRA Stockholders that the statements contained in this Article III are true,
correct and complete.
3.1 Organization and Standing. AERC is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Ohio with full power and authority (corporate and other) to own, lease, use
and operate its properties and to conduct its business as and where now owned,
leased, used, operated and conducted. AERC is duly qualified to do business as a
foreign corporation and is in good standing under the laws of any other state of
the United States in which the character of the properties owned or leased by it
therein or in which the transaction of its business makes such qualification
necessary, except where the failure to be so qualified would not have a Material
Adverse Effect (as defined in Section 9.2). AERC is not in default in the
performance, observance or fulfillment of any provision of its Articles of
Incorporation and Code of Regulations, in each case as in effect on the date
hereof (the "AERC Articles" and the "AERC Bylaws," respectively). AERC has
heretofore furnished to MIGRA and the MIGRA Stockholders a complete and correct
copy of the AERC Articles and AERC Bylaws.
3.2 Corporate Power and Authority. AERC has all requisite
corporate power and authority to enter into this Agreement, to perform its
obligations hereunder and to consummate the transactions contemplated hereby.
Except for shareholder approval, the AERC Common Shares issuable pursuant to the
Merger and the other transactions contemplated by this Agreement (the "AERC
Shareholder Approval"), the execution by AERC of this Agreement and the
consummation by AERC of the transactions contemplated hereby (including the
issuance of the AERC Common Shares pursuant to the Merger) have been duly
authorized by all requisite corporate action on the part of AERC, including any
approvals required by the AERC Articles and the AERC Bylaws and the approval by
unanimous vote or consent of the Board of Directors of AERC (the "AERC Board
Recommendation"). This Agreement constitutes, and the other documents and
instruments to be delivered by AERC pursuant hereto when delivered will
constitute, the legal, valid and binding obligations of AERC, enforceable
against AERC in accordance with their respective terms.
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3.3 Capitalization of AERC.
(a) As of September 30, 1997, AERC's authorized capital stock
consisted solely of (a) 41,000,000 AERC Common Shares, of which (i) 17,072,436
shares were issued and outstanding, and (ii) 1,963,083 shares were reserved for
issuance upon the exercise or conversion of options, warrants or convertible
securities granted or issuable by AERC, (b) 3,000,000 Class A Cumulative
Preferred Shares, without par value, of which 225,000 9 3/4% Class A Cumulative
Redeemable Preferred Shares ($250 liquidation preference per share) were issued
and outstanding, (c) 3,000,000 Class B Cumulative Preferred Shares, without par
value, of which none were issued and outstanding, and (d) 3,000,000
Noncumulative Preferred Shares, without par value, of which none were issued and
outstanding. Each outstanding share of AERC capital stock is duly authorized and
validly issued, fully paid and nonassessable, has not been issued in violation
of any preemptive or similar rights and has been issued in compliance with all
federal and state securities laws and the rules of the New York Stock Exchange
(the "NYSE"). The AERC Common Shares to be issued pursuant to this Agreement
have been duly authorized for issuance and when issued and delivered by AERC in
accordance with the provisions of this Agreement will be validly issued, fully
paid and non-assessable and will be issued free and clear of any liens, security
interests or other encumbrances of any kind whatsoever, other than those imposed
by securities laws or which are contemplated by Section 5.4. The AERC Common
Shares issued under this Agreement will not be subject to any preemptive or
similar rights. Assuming that the representations, warranties and covenants of
the MIGRA Stockholders set forth in the letters described in 6.3(j) shall be
true and complete, the AERC Common Shares to be issued pursuant to this
Agreement will be issued in compliance with all federal and state securities
laws and, if AERC is informed by the NYSE that AERC Shareholder Approval shall
have been obtained, the AERC Common Shares to be issued pursuant to this
Agreement will be issued in compliance with the rules of the NYSE.
3.4 Conflicts; Consents and Approvals. Neither the execution
and delivery by AERC of this Agreement nor the consummation by AERC of the
transactions contemplated by this Agreement will:
(a) conflict with or result in a breach of any provisions of
the AERC Articles or AERC Bylaws;
(b) result in a breach or violation of, a default under, or
the triggering of any payment or other material obligations pursuant
to, or accelerate vesting under, any of AERC's stock option plans, or
any grant or award under any of the foregoing;
(c) except for AERC's Credit Agreement with National City
Bank, violate, or conflict with, or result in a breach of any provision
of, or constitute a default (or an event which, with the giving of
notice or lapse of time or otherwise, would constitute a default)
under, or result in the termination or in a right of termination or
cancellation of, or accelerate the performance required by, or result
in the creation of any material lien, security interest, charge or
encumbrance upon, any of the properties of AERC or any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, deed
of trust or any license, franchise, permit, contract, undertaking,
agreement, lease or other instrument, or obligation to which AERC is a
party;
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(d) violate any order, writ, injunction, or decree applicable
to AERC or, to the actual knowledge of AERC, any statute, rule or
regulation applicable to AERC; or
(e) require any action, consent, approval or authorization of,
review by, or declaration, filing or registration with, any third party
or any governmental authority, whether federal, state or local (a
"Governmental Authority"), other than (i) actions as may be required by
the Hart-Scott-Rodino Act of 1976, as amended, and the rules and
regulations promulgated thereunder (the "HSR Act"), (ii) action to be
taken with respect to federal and state securities laws, (iii) the
filing of the Certificate of Merger with the Ohio Secretary of State,
(iv) the consent of National City Bank, and (v) AERC Stockholder
Approval;
except (i) in the case of clause (c) or (e) for any of the foregoing that are
set forth in Section 3.4 of the AERC Disclosure Schedule, (ii) in the case of
clauses (b) through (e) for any of the foregoing that would not, individually or
in the aggregate, have a Material Adverse Effect on AERC and (iii) in the case
of clause (e), for any of the foregoing which have been or will be obtained
prior to the Closing.
3.5 SEC Documents. AERC has filed all required forms, reports
and documents with the Securities and Exchange Commission ("SEC") required to be
filed by it pursuant to the Securities Act of 1933, as amended (the "Securities
Act"), and the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
and the rules and regulations promulgated thereunder, all of which have complied
in all material respects with the applicable requirements of the Securities Act
and the Exchange Act, respectively, and such rules and regulations. AERC has
previously furnished to MIGRA for delivery to the MIGRA Stockholders, copies of
all such forms, reports and documents filed by AERC with the SEC since January
1, 1994 (hereafter collectively referred to as the "Reports"). None of the
Reports, including, without limitation, any financial statements or schedules
included therein, at the time filed, contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. The financial
statements of AERC included in the Reports complied as to form in all material
respects with applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto, were prepared in accordance with
United States generally accepted accounting principles ("GAAP") applied on a
consistent basis (except as otherwise noted in such financial statements) and
present fairly in all material respects the financial position, results of
operations, cash flows and changes in financial position of AERC and its
consolidated subsidiaries as of the dates or the periods indicated, subject, in
the case of unaudited interim consolidated financial statements, to normal
year-end adjustments.
(c) The AERC Common Shares to be issued under this Agreement
will be restricted shares within the meaning of the Securities Act.
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3.6 Absence of Certain Changes. Since June 30, 1997,
there has not been:
(a) (i) any change in the business, operations, assets,
properties, customer base, prospects, rights or condition (financial or
otherwise) of AERC, or (ii) any occurrence, circumstance or combination
thereof, in each case which has had a Material Adverse Effect on AERC;
or
(b) any material change in AERC's method of doing business or
any change in its accounting principles or practices or its method of
application of such principles or practices.
3.7 Brokerage and Finder's Fees. Neither AERC nor any of its
shareholders, directors, officers or employees has incurred, or will incur, on
behalf of AERC, any brokerage, finder's or similar fee in connection with the
transactions contemplated by this Agreement.
3.8 State Takeover Laws. Prior to the date hereof, the Board
of Directors of AERC has taken all action on the part of AERC, if any, necessary
to exempt under or make not subject to any state takeover law or other state law
that purports to limit or restrict business combinations or the ability to
acquire or vote shares: (i) the Merger and (ii) the other transactions
contemplated hereby.
3.9 REIT Status. AERC has qualified to be taxed as a real
estate investment trust pursuant to Section 856 through 860 of the Code for its
taxable years ended December 31, 1993, through December 31, 1996, and AERC
expects to so qualify for the fiscal year ending December 31, 1997.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF MIGRA
In order to induce AERC to enter into this Agreement, MIGRA
and each of the MIGRA Stockholders, jointly and severally, hereby represent and
warrant to AERC and AEMC that the statements contained in this Article IV are
true, correct and complete.
4.1 Organization and Standing. MIGRA is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Florida, with full power and authority (corporate and other) to own, lease, use
and operate its properties and to conduct its business as and where now owned,
leased, used, operated and conducted. MIGRA is duly qualified to do business and
in good standing in each jurisdiction listed in Section 4.1 to the disclosure
schedule delivered by MIGRA to AERC and dated the date hereof (the "MIGRA
Disclosure Schedule"), is not qualified to do business in any other jurisdiction
and neither the nature of the business conducted by it nor the property it owns,
leases or operates requires it to qualify to do business as a foreign
corporation in any other jurisdiction, except where the failure to be so
qualified or in good standing in such jurisdiction would not have a Material
Adverse Effect on MIGRA. MIGRA is not in default in the performance, observance
or fulfillment of any provision of its Articles of Incorporation, as amended and
restated, or its Bylaws, in each
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case as in effect on the date hereof (the "MIGRA Articles" and the "MIGRA
Bylaws," respectively). MIGRA has heretofore furnished to AERC a complete and
correct copy of the MIGRA Articles and the MIGRA Bylaws.
4.2 Subsidiaries and Affiliates.
(a) MIGRA owns a 75% general partnership interest in Mortgage
Investors Group, Ltd. ("MIG Ltd."). MIGRA owns its interest in MIG Ltd. free and
clear of any pledge, mortgage, lien, charge or encumbrance of any kind
whatsoever (except any encumbrances contained in the MIG Ltd. Partnership
Documents, as defined below). MIG Ltd. is a limited partnership duly formed,
validly existing and in good standing under the laws of the State of Florida
with full power and authority (partnership and other) to own, lease, use and
operate its properties and to conduct its business as and where now owned,
leased, used, operated and conducted. MIG Ltd. is duly qualified to do business
and in good standing in each jurisdiction listed in Section 4.2 to the MIGRA
Disclosure Schedule, is not qualified to do business in any other jurisdiction
and neither the nature of the business conducted by it nor the property it owns,
leases or operates requires it to qualify to do business as a foreign limited
partnership in any other jurisdiction, except where the failure to be so
qualified or in good standing in such jurisdiction would not have a Material
Adverse Effect on MIG Ltd. MIGRA is not in default in the performance,
observance or fulfillment of any provision of MIG Ltd's Partnership Agreement or
Partnership Certificate (the "MIG Ltd. Partnership Documents") nor, to its
actual knowledge, is any other partner thereof. MIGRA has heretofore furnished
to AERC a complete and correct copy of each of the MIG Ltd. Partnership
Documents.
(b) MIGRA owns a 40% general partnership interest in Stonemark
Investor Services, a general partnership ("Stonemark"). MIGRA owns its interest
in Stonemark free and clear of any pledge, mortgage, lien, charge or encumbrance
of any kind whatsoever (except any encumbrances contained in the Stonemark
Partnership Documents, as defined below). Stonemark is a general partnership
duly formed, validly existing and in good standing under the laws of the State
of Florida with full power and authority (partnership and other) to own, lease,
use and operate its properties and to conduct its business as and where now
owned, leased, used, operated and conducted. Stonemark is duly qualified to do
business and in good standing in each jurisdiction listed in Section 4.2 to the
MIGRA Disclosure Schedule, is not qualified to do business in any other
jurisdiction and neither the nature of the business conducted by it nor the
property it owns, leases or operates requires it to qualify to do business as a
foreign general partnership in any other jurisdiction, except where the failure
to be so qualified or in good standing in such jurisdiction would not have a
Material Adverse Effect on Stonemark. MIGRA is not in default in the
performance, observance or fulfillment of any provision of Stonemark's
Partnership Agreement or Partnership Certificate (the "Stonemark Partnership
Documents") nor, to its actual knowledge, is any other partner thereof. MIGRA
has heretofore furnished to AERC a complete and correct copy of each of the
Stonemark Partnership Documents.
(c) MIGRA owns a 1% general partnership interest in Mortgage
Investors Fund I, a limited partnership ("MIF I"). MIGRA owns its interest in
MIF I free and clear of any pledge, mortgage, lien, charge or encumbrance of any
kind whatsoever (except any encumbrances contained in MIF I Partnership
Documents, as defined below). MIF I is a limited partnership duly formed,
validly existing and in good standing under the laws of the State of
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Michigan with full power and authority (partnership and other) to own, lease,
use and operate its properties and to conduct its business as and where now
owned, leased, used, operated and conducted. MIF I is duly qualified to do
business and in good standing in each jurisdiction listed in Section 4.2 to the
MIGRA Disclosure Schedule, is not qualified to do business in any other
jurisdiction and neither the nature of the business conducted by it nor the
property it owns, leases or operates requires it to qualify to do business as a
foreign limited partnership in any other jurisdiction, except where the failure
to be so qualified or in good standing in such jurisdiction would not have a
Material Adverse Effect on MIF I. MIGRA is not in default in the performance,
observance or fulfillment of any provision of MIF I's Partnership Agreement or
Partnership Certificate (the "MIF I Partnership Documents") nor, to its actual
knowledge, is any other partner thereof. MIGRA has heretofore furnished to AERC
a complete and correct copy of each of the MIF I Partnership Documents.
(d) MIGRA owns a 1% general partnership interest in Mortgage
Investors Fund II, a limited partnership ("MIF II"). MIGRA owns its interest in
MIF II free and clear of any pledge, mortgage, lien, charge or encumbrance of
any kind whatsoever (except any encumbrances contained in the MIF II Partnership
Documents, as defined below). MIF II is a limited partnership duly formed,
validly existing and in good standing under the laws of the State of Delaware
with full power and authority (partnership and other) to own, lease, use and
operate its properties and to conduct its business as and where now owned,
leased, used, operated and conducted. MIF II is duly qualified to do business
and in good standing in each jurisdiction listed in Section 4.2 to the MIGRA
Disclosure Schedule, is not qualified to do business in any other jurisdiction
and neither the nature of the business conducted by it nor the property it owns,
leases or operates requires it to qualify to do business as a foreign general
partnership in any other jurisdiction, except where the failure to be so
qualified or in good standing in such jurisdiction would not have a Material
Adverse Effect on MIF II. MIGRA is not in default in the performance, observance
or fulfillment of any provision of MIF II's Partnership Agreement or Partnership
Certificate (the "MIF II Partnership Documents") nor, to its actual knowledge,
is any other partner thereof. MIGRA has heretofore furnished to AERC a complete
and correct copy of each of the MIF II Partnership Documents.
(e) MIGRA owns a 1% general partnership interest in Mortgage
Investors Self Storage I, a limited partnership ("Storage"). MIGRA owns its
interest in Storage free and clear of any pledge, mortgage, lien, charge or
encumbrance of any kind whatsoever (except any encumbrances contained in the
Storage Partnership Documents. Storage is a general partnership duly formed,
validly existing and in good standing under the laws of the State of Florida
with full power and authority (partnership and other) to own, lease, use and
operate its properties and to conduct its business as and where now owned,
leased, used, operated and conducted. Storage is duly qualified to do business
and in good standing in each jurisdiction listed in Section 4.2 to the MIGRA
Disclosure Schedule, is not qualified to do business in any other jurisdiction
and neither the nature of the business conducted by it nor the property it owns,
leases or operates requires it to qualify to do business as a foreign general
partnership in any other jurisdiction, except where the failure to be so
qualified or in good standing in such jurisdiction would not have a Material
Adverse Effect on Storage. MIGRA is not in default in the performance,
observance or fulfillment of any provision of Storage's Partnership Agreement or
Partnership Certificate (the "Storage Partnership Documents") nor, to its actual
knowledge, is any other
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partner thereof. MIGRA has heretofore furnished to AERC a complete and correct
copy of each of the Storage Partnership Documents.
(f) Except as set forth in (a) through (e) above or Section
4.2 or Section 4.4 of the MIGRA Disclosure Schedule, (i) neither MIGRA nor MIG
Ltd., Stonemark, MIF I, MIF II or Storage (such entities other than MIGRA
sometimes referred to herein collectively as the "Ventures") owns, directly or
indirectly, any equity or other ownership interest in any corporation,
partnership, joint venture or other entity or enterprise, and neither MIGRA nor
any of the Ventures is subject to any obligation or requirement to provide funds
to or make any investment (in the form of a loan, capital contribution or
otherwise) in any entity, except to the extent MIGRA is so bound with respect to
MIG Ltd. as provided in the MIG Ltd. Partnership Documents, and Stonemark, as
provided in the Stonemark Partnership Documents, and Storage, as provided in the
Storage Partnership Documents.
4.3 Corporate Power and Authority. MIGRA has all requisite
corporate power and authority to enter into this Agreement, to perform its
obligations hereunder and to consummate the transactions contemplated by this
Agreement. Except for approval by the MIGRA Stockholders and Kathleen Gutin
("Gutin") in accordance with the FBCA and the MIGRA Articles and the MIGRA
Bylaws, the execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of MIGRA, including unanimous approval by the Board
of Directors of MIGRA (the "MIGRA Board Recommendation"). Notwithstanding the
foregoing, MIGRA has all requisite power and authority to perform its
obligations hereunder and to consummate the Merger. This Agreement has been duly
executed and delivered by MIGRA and constitutes the legal, valid and binding
obligation of MIGRA, enforceable against MIGRA in accordance with its terms.
4.4 Capitalization. As of September 30, 1997, MIGRA's
authorized capital stock consisted solely of 100 shares of common stock, $1.00
par value per share ("MIGRA Common Stock"), of which (a) 85 shares were issued
and outstanding and (b) 15 shares were issued and held in treasury. Each
outstanding share of MIGRA capital stock is duly authorized and validly issued,
fully paid and nonassessable, and has not been issued in violation of any
pre-emptive or similar rights. Section 4.4 of the MIGRA Disclosure Schedule sets
forth the following, as of the date hereof: (a) the number of shares of MIGRA
Common Stock outstanding and (b) the liquidation preference for such shares,
including accumulated and unpaid dividends. Other than as set forth in Section
4.4 to the MIGRA Disclosure Schedule, there are no outstanding subscriptions,
options, warrants, puts, calls, agreements, understandings, claims or other
commitments or rights of any type relating to the issuance, sale or transfer of
any securities of MIGRA by MIGRA or, to the actual knowledge of MIGRA and each
MIGRA Stockholder, any other person or entity, nor are there outstanding any
securities which are convertible into or exchangeable for any shares of capital
stock of MIGRA, and MIGRA has no obligation of any kind to issue any additional
securities or to pay for securities of MIGRA or any predecessor. The issuance
and sale of all of the shares of capital stock described in this Section 4.4
have been in compliance with federal and state securities laws. The MIGRA
Disclosure Schedule accurately sets forth the names of, and the number of shares
of, each class of MIGRA capital stock. Except as set forth in Section 4.4 to the
MIGRA Disclosure Schedule, MIGRA has not agreed to register any securities under
the Securities Act or under any state
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securities law or granted registration rights to any person or entity. Section
4.4 of the MIGRA Disclosure Schedule sets forth the equity structure of the
Ventures.
4.5 Conflicts; Consents and Approvals. Neither the execution
and delivery of this Agreement by MIGRA nor the consummation of the transactions
contemplated hereby will:
(a) conflict with, or result in a breach of any provision of,
the MIGRA Articles or the MIGRA Bylaws;
(b) violate, or conflict with, or result in a breach of any
provision of, or constitute a default (or an event which, with the
giving of notice, the passage of time or otherwise, would constitute a
default) under, or entitle any party (with the giving of notice, the
passage of time or otherwise) to terminate, accelerate, modify or call
a default under, or result in the creation of any material lien,
security interest, charge or encumbrance upon any of the properties or
assets of MIGRA or the Ventures (collectively, the "MIGRA Companies")
under, any of the terms, conditions or provisions of any note, bond,
mortgage, indenture, deed of trust, license, contract, undertaking,
agreement, lease or other instrument or obligation to which it is a
party;
(c) violate any order, writ, injunction or decree, or, to the
actual knowledge of MIGRA and each MIGRA Stockholder, any statute, rule
or regulations applicable to the MIGRA Companies; or
(d) require any action, consent, approval or authorization of,
or review by, or declaration, registration or filing by any of the
MIGRA Companies with, any third party or any Governmental Authority,
other than actions as may be required by the HSR Act, actions to be
taken with respect to federal and state securities laws, the filing of
the Certificate of Merger with the Ohio Secretary of State and the
Articles of Merger with the Florida Department of State and the
approval of the stockholders of MIGRA (other than the MIGRA
Stockholders);
except (i) in the case of clause (b) or (d) for any of the foregoing that are
set forth in Section 4.5 of the MIGRA Disclosure Schedule, (ii) in the case of
clauses (b) through (d) for any of the foregoing that would not, individually or
in the aggregate, have a Material Adverse Effect on the MIGRA Companies taken as
a whole and (iii) in the case of clause (d), for any of the forgoing which have
been or will be obtained prior to the Closing.
4.6 Absence of Certain Changes.
Except as expressly provided for or permitted under Section
5.3(a) of this Agreement, or as set forth in Section 4.6 to the MIGRA Disclosure
Schedule, since December 31, 1996, there has not been:
(a) (i) Any change in the business, operations, assets,
properties, customer base, prospects, rights or condition (financial or
otherwise) of the MIGRA Companies or (ii) any occurrence, circumstance,
or combination thereof which has had or which
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reasonably could be expected to result in a Material Adverse Effect on
the MIGRA Companies taken as a whole.
(b) Any declaration, setting aside or payment of any dividend
or any distribution (in cash or in kind) to any stockholder of MIGRA,
or any direct or indirect redemption, purchase or other acquisition by
MIGRA of any of its capital stock or issuance by MIGRA of any options,
warrants, rights or agreements to purchase or acquire such stock;
(c) Any transaction entered into or carried out by a MIGRA
Company involving a payment, individually or in the aggregate, in
excess of $100,000 other than in the ordinary and usual course of
business consistent with past practices;
(d) Any borrowing of, or agreement to borrow, funds by a MIGRA
Company, any incurring by a MIGRA Company of any other liability
(contingent or otherwise), except liabilities incurred in the usual and
ordinary course of its business (consistent with past practices), or
any endorsement, assumption or guarantee of payment or performance of
any loan or obligation of any other person by a MIGRA Company;
(e) Any material change in a MIGRA Company's method of doing
business or any change in its accounting principles or practices or its
method of application of such principles or practices;
(f) Any mortgage, pledge, lien, security interest,
hypothecation, charge or other encumbrance imposed or agreed to be
imposed on or with respect to the property or assets of a MIGRA
Company;
(g) Any sale, lease or other disposition of, or any agreement
to sell, lease or otherwise dispose of, any of the properties or assets
of a MIGRA Company, other than sales in the usual and ordinary course
of business for fair equivalent value to persons other than directors,
officers, stockholders, partners, or other affiliates of a MIGRA
Company;
(h) Any purchase of or any agreement to purchase assets (other
than purchases in the ordinary course of business consistent with past
practices) for an amount in excess of $50,000 for any one purchase or
$100,000 for all such purchases made by the MIGRA Companies
collectively or any lease or any agreement to lease, as lessee, any
capital assets with payments over the term thereof to be made by the
MIGRA Companies collectively exceeding an aggregate of $100,000;
(i) Any loan or advance made by a MIGRA Company to any person
which remains unpaid or will be unpaid as of Closing;
(j) Any modification, waiver, change, amendment, release,
rescission or termination of, or accord and satisfaction with respect
to, any material term, condition or provision of any Contract (as
defined in Section 4.17) to which a MIGRA Company is a party, or notice
thereof received by a MIGRA Company, other than any satisfaction
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by performance in accordance with the terms thereof in the usual and
ordinary course of business; or
(k) Any labor dispute or disturbance materially and adversely
affecting the business operations or condition (financial or otherwise)
of a MIGRA Company, including without limitation the filing of any
petition or charge of unfair labor practice with any governmental or
regulatory authority, efforts to effect a union representation
election, actual or threatened employee strike, work stoppage or slow
down.
4.7 Officers, Employees and Compensation. Section 4.7 to the
MIGRA Disclosure Schedule sets forth the names of all directors, officers and
employees of the MIGRA Companies, the total salary, bonus, fringe benefits and
perquisites each received from the MIGRA Companies in the year ended December
31, 1996, and any changes to the foregoing which have occurred subsequent to
December 31, 1996. Except as disclosed in Section 4.7 to the MIGRA Disclosure
Schedule, there are no other forms of compensation paid to any such director,
officer or employee of the MIGRA Companies. Except as disclosed in Section 4.7
to the MIGRA Disclosure Schedule, the amounts accrued on the books and records
of the MIGRA Companies for vacation pay, sick pay, and all commissions and other
fees payable to agents, salesmen and representatives will be adequate to cover
liabilities for all such items. Except as set forth in Section 4.7 to the MIGRA
Disclosure Schedule, no MIGRA Company has become obligated, directly or
indirectly, to any stockholder, director or officer of MIGRA or partner of a
Venture or any person related to such person by blood or marriage, except for
current liability for such compensation. Except as set forth in Section 4.7 to
the MIGRA Disclosure Schedule, to the actual knowledge of MIGRA and each MIGRA
Stockholder, no stockholder, director, officer, agent or employee of the MIGRA
Companies or any person related to such person by blood or marriage holds any
position or office with or has any material financial interest, direct or
indirect, in any supplier, customer or account of, or other outside business
which has material transactions with, the MIGRA Companies. To the actual
knowledge of MIGRA and each MIGRA Stockholder, except as set forth in Schedule
4.7, no MIGRA Company has an agreement or understanding with any stockholder,
director, officer, partner, employee or representative thereof which would
influence any such person not to become associated with AERC from and after the
Closing or from serving the MIGRA Companies after the Closing in a capacity
similar to the capacity presently held.
4.8 Financial Statements.
(a) MIGRA has furnished to AERC the balance sheet of MIGRA and
the consolidated MIGRA Companies (MIG Ltd. and Stonemark) as of
December 31, 1996, and the related statements of income, changes in
stockholders' equity, and cash flows for the fiscal year then ended,
including, in each case, the related notes (collectively, the "Audited
Statements"), which are accompanied by the unqualified audit report of
Ernst & Young LLP. The Audited Statements, which have been initialed
for identification by the president of MIGRA, have been prepared from
and are in accordance with the books and records of the MIGRA and the
consolidated MIGRA Companies, and have been prepared in conformity with
GAAP applied on a consistent basis, and fairly present in all material
respects the financial condition of such companies as of the date
stated and the results of operations for the period then ended in
accordance with such practices.
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(b) When delivered in accordance with Section 5.3(d), each
balance sheet for MIGRA and the consolidated MIGRA Companies as of its
date and the related statements of income, changes in stockholders'
equity, and cash flows for the period beginning January 1, 1997 and
then ended, including the related notes (the "Interim Statements"),
shall have been prepared from and in accordance with the books and
records of such companies and in accordance with GAAP applied on a
basis consistent with that used in the Audited Statements, and shall
fairly present in all material respects the financial condition of such
companies as of such date and the results of operations for such period
in accordance with such practices, except for normal recurring audit
adjustments.
4.9 Taxes.
(a) Each of the MIGRA Companies has duly paid all taxes,
assessments, fees and other governmental charges (hereinafter, "taxes")
payable by it. Each MIGRA Company has duly filed all material federal,
state, local and foreign tax returns and tax reports required to be
filed by it and all such returns and reports are true, correct and
complete in all material respects. Except as disclosed in Section 4.9
to the MIGRA Disclosure Schedule, since December 31, 1988, none of such
returns and reports have been amended, and all taxes, arising under or
reflected on such returns and reports have been fully paid or shall be
fully accrued as liabilities in the Interim Statements, when delivered,
and shall be timely paid. No claim has been made by authorities in any
jurisdiction where a MIGRA Company did not file tax returns that it is
or may be subject to taxation therein.
(b) MIGRA has delivered or promptly after the earlier of
receipt of a requisite consent or execution and delivery of this
Agreement, will deliver to AERC copies of all federal, state, local,
and foreign income tax returns filed with respect to it and the MIGRA
Companies (and their respective predecessors) since their respective
formation. Section 4.9 of the MIGRA Disclosure Schedule sets forth the
dates and results of any and all audits conducted by taxing authorities
within the last five years or otherwise with respect to any tax year
for which assessment is not barred by any applicable statute of
limitations. Except as disclosed in Section 4.9 to the MIGRA Disclosure
Schedule, no waivers of any applicable statute of limitations for the
filing of any tax returns or payment of any taxes or assessments of any
deficient or unpaid taxes are outstanding; all deficiencies proposed as
a result of any audits have been paid or settled; and there is no
pending or, to the best knowledge of MIGRA, threatened federal, state,
local or foreign tax audit or assessment relating to a MIGRA Company
and there is no agreement with any federal, state, local, or foreign
taxing authority that may affect the subsequent tax liabilities of the
MIGRA Companies.
(c) [Intentionally Omitted]
(d) Except as set forth in Section 4.9 of the MIGRA Disclosure
Schedule, there exists no tax-sharing agreement or arrangement pursuant
to which any MIGRA Company is obligated to pay the tax liability of any
other person or to indemnify any other person with respect to any tax.
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(e) Section 4.9 of the MIGRA Disclosure Schedule includes a
list of all states, territories and jurisdictions to which any tax is
properly payable by the MIGRA Companies.
(f) MIGRA became an "S corporation," within the meaning of
Section 1361(a)(1) of the Code (an "S corporation"), for federal income
tax purposes on January 30, 1987, pursuant to a valid election made by
MIGRA, with the consent of all of its shareholders, and, except as set
forth in Section 4.9 of the MIGRA Disclosure Schedule, effective as of
such date, and MIGRA is and from such date always has been an S
corporation. MIGRA will not have, at the Effective Time, any earnings
or profits resulting from any period during which it (including any
predecessor in interest) was subject to taxation under Subchapter C of
the Code.
4.10 Compliance with Law.
(a) Except as set forth in Section 4.10 to the MIGRA
Disclosure Schedule and except for such matters as would not have a
Material Adverse Effect on the MIGRA Companies taken as a whole, the
MIGRA Companies are in compliance with all applicable laws, statutes,
orders, rules, regulations, policies or guidelines promulgated, or
judgments, decisions or orders entered by any Governmental Authority
(collectively, "Applicable Laws") to which the MIGRA Companies are
subject (i) including, without limitation, the Securities Act, the
Exchange Act, the Investment Advisors Act of 1940, as amended (the "40
Act"), the Employee Retirement Income Security Act, as amended
("ERISA"), any state or federal laws respecting rights of privacy and
all rules of professional conduct applicable to the MIGRA Companies and
(ii) excluding for the purposes of this Section 4.10, all Environmental
Laws (as defined in Section 4.22), as to which the sole representation
and warranty is set forth in Section 4.22. The MIGRA Companies have
heretofore made available to AERC copies of all material correspondence
received during the last three years from and to any Governmental
Authority and inspectors alleging a violation of any Applicable Law.
(b) Except as specifically set forth in Section 4.10 to the
MIGRA Disclosure Schedule, MIGRA and the MIGRA Companies, and each of
them, are (and as of the Effective Time will be) in full compliance
with the provisions of ERISA and all relevant state pension codes and
other laws (as and where applicable) with respect to the Pension Funds
and each of them is, or are, and at all relevant times have been, in
full compliance with the provisions of any individual or class
exemption relieving MIGRA, the other MIGRA Companies, and the Pension
Funds (as applicable) from compliance with relevant provisions of
ERISA, specifically including (without limitation) Prohibited
Transaction Class Exemption ("PTCE") No. 84-14 (March 13, 1984; as
amended Oct. 10, 1985) (relating to transactions by independent
qualified professional asset managers, or "QPAMs").
(c) Except as set forth in Section 4.10 of the MIGRA
Disclosure Schedule, neither MIGRA nor the other MIGRA Companies, or
any of them, is party to any contract, covenant or similar agreement or
undertaking, and no MIGRA Stockholder has actual knowledge of any
obligation under Applicable Law, which would prevent AERC
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from purchasing or offering to purchase the Managed Properties (as
defined in Section 4.12(c)), or any of them, from the Pension Funds (or
any corporation or trust in which the Pension Funds, individually or
collectively, have an interest) on or after the Effective Time,
provided full disclosure of all terms and affiliations, under terms
substantially identical to those set forth in Schedule 4.10(c) hereto,
is thereupon made to the applicable Pension Funds and all necessary or
appropriate independent approvals are provided (including, where
applicable, the receipt of an individual exemption from the relevant
provisions of Part 4, Title I of ERISA).
4.11 Intellectual Property. Set forth in Section 4.11 to the
MIGRA Disclosure Schedule is a true and complete list of (i) all of the MIGRA
Companies' foreign and domestic patents, patent applications, invention
disclosures filed in the patent offices of any countries, trademarks, service
marks or tradenames, copyrights (and any registrations or applications for
registration for any of the foregoing), and (ii) all material agreements to
which a MIGRA Company is a party which concern any Intellectual Property.
"Intellectual Property" shall mean proprietary rights of every kind, including,
without limitation, all domestic or foreign patents, patent applications,
intangible rights in inventions (whether or not patentable), products,
intangible rights in technologies, discoveries, copyrightable and copyrighted
works, apparatus, trade secrets, trademarks and trademark registration
applications and registrations, service marks and service mark registration
applications and registrations, trade names, trade dress, copyrights and
copyright registration applications and registrations, design rights, customer
lists, marketing and customer information, mask works rights, know-how,
licenses, technical information (whether confidential or otherwise), copyright
and trade secret rights in software, databases, methodologies and all
documentation thereof. The Intellectual Property set forth in Section 4.11 of
the MIGRA Disclosure Schedule, together with any other intellectual property
which a MIGRA Company owns or otherwise has the right to use, collectively is
sufficient for the operation of the business of the MIGRA Companies in
substantially the same manner as such business is at present conducted. Except
as set forth in Section 4.11 to the MIGRA Disclosure Schedule, MIGRA or another
MIGRA Company owns, free and clear of any liens, claims or encumbrances, the
Intellectual Property set forth thereon and has the exclusive right to bring
actions for the infringement thereof.
4.12 Title to and Condition of Properties.
(a) Except as set forth in Section 4.12 to the MIGRA
Disclosure Schedule, each MIGRA Company has good, valid and
indefeasible title to all of its material assets and properties of
every kind, nature and description, tangible or intangible, wherever
located, which constitute all of the property now used in and necessary
for the conduct of its business as presently conducted (including
without limitation all material property and assets shown or reflected
on the Audited Statements or the Interim Statements, when delivered,
but except for the real properties owned by the Ventures and the
Managed Properties, as defined in Section 4.12(c)). Except as set forth
in Section 4.12 to the MIGRA Disclosure Schedule and except for such
items as do not materially and adversely affect the use or operation of
the properties of each MIGRA Company, all such properties are owned
free and clear of all mortgages, pledges, liens, security interests,
encumbrances and restrictions of any nature whatsoever, including
without limitation (i) rights or claims of parties in possession; (ii)
easements or claims of easements;
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(iii) encroachments, overlaps, boundary line or water drainage disputes
or any other matters; (iv) any lien or right to a lien for services,
labor or material furnished; (v) special tax or other assessments; (vi)
options to purchase, leases, tenancies, or land contracts; (vii)
contracts, covenants, or reservations which restrict the use of such
properties and (viii) violations of any Applicable Laws (other than
Environmental Laws, as to which the sole representation and warranty is
in Section 4.22) applicable to such properties. To the actual knowledge
of MIGRA and each MIGRA Stockholder, all such properties are usable for
their current uses without violating any Applicable Laws (other than
Environmental Laws, as to which the sole representation and warranty is
in Section 4.22), or any applicable private restriction, and such uses
are legal conforming uses in all material respects. Except as set forth
in Section 4.12 to the MIGRA Disclosure Schedule, no financing
statement under the Uniform Commercial Code or similar law naming
MIGRA, or, to the actual knowledge of MIGRA and each MIGRA Stockholder,
any Venture or any of their respective predecessors is on file in any
jurisdiction in which such MIGRA Company owns or manages property or
does business, and no MIGRA Company is a party to or bound under any
material agreement or legal obligation authorizing any party to file
any such financing statement. Section 4.12 to the MIGRA Disclosure
Schedule contains a complete and accurate list of the location of all
real property which is owned or leased, as lessee, by the MIGRA
Companies and describes the nature of their respective interest in that
real property. With respect to any real property leased, as lessee, by
a MIGRA Company, except as set forth in Section 4.12 of the MIGRA
Disclosure Schedule, such MIGRA Company has an insurable leasehold
interest in that real property.
(b) Except as set forth in Section 4.12 to the MIGRA
Disclosure Schedule, all plants and structures and all machinery and
equipment and tangible personal property owned, leased or used by the
MIGRA Companies are reasonably suitable for the purpose or purposes for
which they are being used (including compliance in all material
respects with all Applicable Laws, other than Environmental Laws (as to
which the sole representation and warranty is in Section 4.22), and are
in good and reasonable operating condition and repair, ordinary wear
and tear excepted. Section 4.12 to the MIGRA Disclosure Schedule lists,
and MIGRA has furnished or made available to AERC, copies of all
engineering, geologic and environmental reports prepared by or for the
MIGRA Companies with respect to the real property owned by MIGRA or any
MIGRA Company.
(c) With respect to each parcel of real property that is owned
by MIGRA, and/or a Venture or is managed by MIGRA or any of its
subsidiaries or affiliates (other than MIG Development Company), all of
which are listed on Exhibit A (each such parcel whether owned and/or
managed being hereinafter referred to as a "Managed Property"):
(i) True, correct and complete copies of all of the
following, together with any modifications or amendments
thereof which are currently in effect, have been or will be
made available to AERC promptly after the execution of this
Agreement: (A) all written leases and tenancy agreements with
tenants with respect to all or any portion of each Managed
Property ("Tenant Leases") and a current certified rent roll
(which shall be updated and certified by MIGRA as
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true, correct and complete to a date not earlier than three
days prior to the Closing), (B) all maintenance and service
contracts, supply contracts and other agreements, contracts
and contract rights relating to the ownership or operation of
each Managed Property, or any part thereof ("Project
Contracts"), and (C) all leases of equipment, vehicles and
other tangible personal property used by MIGRA in connection
with the management and operation of each Managed Property
("Personal Property Leases"). All of the Tenant Leases,
Project Contracts and Personal Property Leases are in full
force and effect. There has not occurred any action or failure
to act by MIGRA or the related owner of the Managed Property
("Owner") with respect to a Managed Property or, to the actual
knowledge of MIGRA and each MIGRA Stockholder, any other party
to any Tenant Lease, Project Contract or Personal Property
Lease which, with the giving of notice or the passage of time
or otherwise, would constitute a default in any material
respect or otherwise entitle either party to damages or a
right to terminate, and no such other party has given written
notice with respect to any adverse condition with respect to
any Managed Property or the use or repair of the same or of
any alleged material default by MIGRA or the related Owner
under any such Tenant Lease, Project Contract or Personal
Property Lease, which, individually or in the aggregate, will
have a material adverse effect on MIGRA or the Managed
Property. The information contained in the documents,
instruments or other writings to be delivered or made
available to AERC by MIGRA in accordance with the provisions
of this Section 4.12(c) was correct and accurate as of the
date of such writings.
(ii) Neither MIGRA nor any MIGRA Stockholder has any
actual knowledge that any federal, state and other taxes,
assessments, fees and other governmental charges with respect
to the Managed Property or the business conducted thereon
which are due and payable have not been paid prior to
delinquency.
(iii) Neither MIGRA nor any MIGRA Stockholder has
actual knowledge that any of the Permits (as defined in
Section 4.21(b)) are not currently valid and in full force and
effect.
(iv) Neither MIGRA nor any MIGRA Stockholder has
actual knowledge that each Managed Property, as constructed
and presently operated, does not comply with all applicable
zoning ordinances and regulations that any variances or
conditional use permits have been issued by any governmental
body which affect any Managed Property.
(v) True and correct copies of all financial
statements and records relating to each Managed Property, or
access thereto, will be made available promptly after the
earlier of the execution of a consent or a Purchase Agreement
by the Owner of such Managed Property. Copies of relevant
pages of each related Owner's tax returns for the calendar
years 1994, 1995 and 1996 relating to the Managed Property and
any other document or instrument reasonably requested by AERC
shall be delivered to AERC within three (3) days following
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the execution of this Agreement. There has been no material
adverse financial change with respect to any Managed Property
from that shown in the financial statements, tax returns and
records delivered or made available to AERC by MIGRA for such
Managed Property pursuant to this Agreement and there are no
material liabilities with respect to such Managed Property
other than those shown on such financial statements, tax
returns and records.
(vi) There are no brokerage commissions owing by
MIGRA or any affiliate thereof (A) with respect to any of the
Tenant Leases or otherwise relating to each Managed Property
which have not been paid and (B) no ongoing commission or
leasing fee obligations with respect to any Managed Property.
(d) Except as otherwise expressly provided in this Agreement,
the representations and warranties in this Section 4.12 are the sole
representations and warranties by MIGRA and/or the MIGRA Stockholders
with respect to the Managed Properties.
4.13 Investment Advisor.
(a) Investment Contracts, Funds and Clients.
(i) To the actual knowledge of MIGRA and the MIGRA
Stockholders, none of MIGRA, MIG Ltd. or any of their
respective subsidiaries currently serves, or has served at any
time during the past two fiscal years, as an investment
adviser (including sub-investment adviser), manager,
administrator, fund accountant, transfer agent and/or
distributor to any investment company, or series or portfolio
thereof, as that term is defined in Section 3 of the
Investment Company Act of 1940, as amended (the "ICA").
(ii) Section 4.13(a)(ii) to the MIGRA Disclosure
Schedule sets forth: (A) a list of all funds, trusts or other
accounts owned or controlled by MIGRA or MIGRA Ltd. that would
otherwise be deemed to be an investment company as defined in
the ICA but for the exemption contained in Section 3(c)(1),
the final clause of Section 3(c)(3), Section 3(c)(7), Section
3(c)(9), Section 3(c)(10) or Section 3(c)(11) of the ICA to
which MIGRA, MIG Ltd. or any of their respective subsidiaries
provide investment advisory, broker-dealer, administrative,
transfer agency, accounting, custody, management and/or
distribution services (each a "Fund") including (1) the assets
under management of each Fund, (2) the fee revenues applicable
to each Fund, (3) a description of the fees, including any
formula for the calculation thereof, charged to each Fund, (4)
the annualized revenues for each Fund, and (5) identification
of each exception from the definition of an investment company
under the ICA relied upon by such Fund; (B) a list of all
accounts of clients to which MIGRA, MIG Ltd. or any of their
respective subsidiaries provide management, investment
advisory, broker-dealer, transfer agency, accounting, custody,
administrative or distribution services on the date hereof,
including any Funds (each, a "Client"), identifying as to each
such account (1) the Client corresponding to such account, and
(2) whether such
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account is an institutional advisory account (an "ICG
Account") or a private client advisory account (a "PCG
Account")(all ICG and PCG Accounts are hereafter collectively
referred to as "Accounts"); (C) on an Account-by-Account
basis, the aggregate market value of assets under management,
a description of the fees charged and how such fees are
calculated, the fee revenues applicable to each ICG Account
and PCG Account, and the annualized revenues from each of the
ICG Accounts and PCG Accounts; (D) a summary of the total
assets under management and total annualized revenues for all
Accounts; and (E) true and correct form of all contracts in
effect on the date hereof to which MIGRA, MIG Ltd. or any of
their respective subsidiaries is a party pursuant to which
MIGRA, MIG Ltd. or their respective subsidiaries, as the case
may be, provides to any Client management, investment
advisory, broker-dealer, distribution, transfer agency,
accounting, custody, and/or administrative services (an
"Investment Contract"). Each Investment Contract and any
subsequent renewal thereof has been duly authorized, executed
and delivered by MIGRA, MIG Ltd. or their respective
subsidiaries, as the case may be, and, to the extent
applicable, is in compliance in all material respects with
Section 205 of the 40 Act and is a valid and binding agreement
of MIGRA, MIG Ltd. or their respective subsidiaries, as the
case may be, enforceable against MIGRA, MIG Ltd. or their
respective subsidiaries, as the case may be, in accordance
with its terms, and each of MIGRA or MIG Ltd., the applicable
subsidiary, the Fund and the Client party thereto is in
compliance in all material respects with the terms of each
Investment Contract to which it is a party, and to the best
knowledge of MIGRA and the MIGRA Stockholders, MIG Ltd., no
event has occurred or condition exists that constitutes or
with notice or the passage of time would constitute a default
thereunder. Except as set forth on Section 4.13(a)(ii) to the
MIGRA Disclosure Schedule, none of the Investment Contracts,
or any other arrangements or understandings relating to
rendering of investment advisory or management services,
including without limitation, all subadvisory services,
administration or distribution services to any Fund, Client or
other Person, contains any undertaking by MIGRA, MIG Ltd. or
their respective subsidiaries to cap fees or to reimburse any
or all fees thereunder.
(iii) Each Fund and Account has been, is being and
will be operated and/or managed in all material respects in
compliance with (A) its respective objectives, policies and
descriptions, including without limitation any limitation set
forth in the applicable prospectus or other offering document
for a Fund or governing instruments for a Fund or Account and
(B) all Applicable Laws.
(iv) To the best of MIGRA's knowledge, each Fund has
timely filed all tax returns and reports that such Fund is
required to file. Each Fund has timely paid, or reserved for,
taxes that such Fund is required to pay.
(b) Regulatory Compliance.
(i) (A) No Fund or Account is or has been required by
law to be registered as an Investment Company under the ICA;
(B) the shares of each Fund
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are duly and validly issued, fully paid and nonassessable and
are qualified for sale, or an exemption therefrom is in full
force and effect, in each state and territory of the United
States and the District of Columbia to the extent required
under Applicable Law; (C) all outstanding shares of each Fund
that were required to be registered under the Securities Act
have been sold pursuant to an effective registration statement
filed thereunder or were sold in compliance with an exemption
therefrom; (D) no such prospectus or offering document
relating to a Fund contained, as of its effective date, any
untrue statement of a material fact or omitted to state a
material fact required to be stated therein in order to make
the statements therein not misleading or is subject to any
stop order or similar order restricting its use; and (E) each
Fund has operated and is currently operating in all material
respects in compliance with all laws applicable to it or its
business, including but not limited to the Securities Act, the
ICA and the 40 Act, and, assuming that each Fund, Account and
any other client of MIGRA or MIG Ltd. consent to the
assignment of their Investment Contract as required by the 40
Act prior to the merger of MIGRA into AERC, consummation of
the transactions contemplated hereby will not result in a
violation of any such laws.
(ii) Each Fund is duly organized, validly existing
and in good standing under the laws of the jurisdiction of its
organization and has full power, right and authority to own
its properties and to carry on its business as it is now
conducted, and is qualified to do business in each
jurisdiction where failure to so qualify would have a material
adverse effect. For purposes of this Section 4.13(b)(ii), a
Material Adverse Effect shall mean a material adverse effect
on the condition (financial or other), business, properties,
net worth or results of operations of a Fund.
(iii) The policies of MIGRA and MIG Ltd., as the case
may be, with respect to avoiding conflicts of interest, or the
conflicts or interest that exist, as the case may be, are set
forth in the most recent Form ADV thereof (or incorporated by
reference therein), as amended. There have been no violations
or allegations of violations of such policies that have
occurred or been made.
(iv) Neither MIGRA, MIG Ltd., their respective
subsidiaries, any Fund, nor, to the actual knowledge of MIGRA
and the MIGRA Stockholders, any person "associated" (as
defined under the 40 Act) with the any of them, has, for a
period of not less than ten years prior to the date hereof
been convicted of any crime or is or has been subject to any
disqualification that would be a basis for denial, suspension
or revocation or registration of an investment adviser under
Section 203(e) of the 40 Act or Rule 206(4)-4(b) thereunder or
a broker-dealer under Section 15 of the Exchange Act or for
disqualification as an investment adviser for any Investment
Company pursuant to Section 9(a) of the ICA, and there is no
basis for, or proceeding or investigation that is reasonably
likely to become the basis for, any such disqualification,
denial, suspension or revocation.
(v) Each current prospectus (which term, as used in
this Agreement, shall include any related statement of
additional information and any private placement
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memorandum), as amended or supplemented, relating to each
Fund, and all current supplemental advertising and marketing
material relating to each Fund or used by MIGRA or MIG Ltd.
complies in all material respects with the Securities Act and
the rules and regulations thereunder, the ICA and the rules
and regulations thereunder, the 40 Act and the rules and
regulations thereunder, applicable state laws and, where
applicable, the rules and regulations of the National
Association of Securities Dealers, Inc. or any affiliate
thereof (NASD). None of such prospectuses, amendments,
supplements or supplemental advertising and marketing
materials, as of their respective dates, includes, included or
will include an untrue statement of a material fact or omits,
omitted or will omit to state a material fact necessary in
order to make the statements made therein, in the light of the
circumstances under which they were made, not misleading.
(vi) Both MIGRA and MIG Ltd. have operated and are
currently operating their investment advisory business in
compliance with all Applicable Laws in all material respects,
including, without limitation, the Exchange Act, the 40 Act
and the rules and regulations thereunder.
(vii) MIGRA's and MIG Ltd.'s practices and the
practices of their subsidiaries are, and have been at all
times since May 1, 1986 and July 6, 1987, respectively, in all
material respects in compliance with the provisions of the
Exchange Act, the 40 Act and similar state laws, and the rules
and regulations under each, relating to the selection of
brokers to execute transactions in Clients' accounts. Neither
MIGRA nor MIG Ltd. has purchased or sold securities for
Clients' accounts.
(viii) There exists no "out of balance" or similar
condition with respect to any customer account maintained by
MIGRA, MIG Ltd., their respective subsidiaries, or any Fund.
(ix) None of MIGRA, MIG Ltd. or any of their
respective subsidiaries has been, or is currently required to
be, registered as a broker-dealer with the SEC under ss.15 of
the Exchange Act or with any state securities administrator
under any applicable state securities laws.
(x) None of MIGRA, MIG Ltd. or any of their
respective subsidiaries has been or currently is registered,
or is required to be registered, as a "commodity pool
operator" or a "commodity trading advisor" with the
Commodities Futures Trading Commission.
(c) Investment Adviser Registration. MIGRA and MIG Ltd. each
are duly registered as an investment adviser under the 40 Act and under
all applicable state, federal and foreign investment adviser or related
laws. MIGRA and MIG Ltd. have delivered to AERC a true and complete
copy of both MIGRA's and MIG Ltd.'s currently effective Form ADV, as
filed with the SEC and has made available to AERC all state, federal
and foreign registration forms, all prior Form ADV filings and all
reports filed by both MIGRA and MIG Ltd. with the SEC under the 40 Act
and the rules promulgated
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thereunder or otherwise and under similar state, federal and foreign
statutes within the last five years, and will provide to AERC such
forms and reports as are filed from and after the date hereof and prior
to the Closing Date. The information contained in such forms and
reports was or will be true and complete as of the time of filing and,
except as indicated on a subsequent form or report filed before the
Closing Date, continues to be true and complete. Each such registration
is in full force and effect, and MIGRA and MIG Ltd. agree to maintain
such registration between the date of this Agreement and the
consummation of the Merger.
(d) Status of Accounts. Except as indicated in Section 4.13 of
the MIGRA Disclosure Schedule, no Client has provided any notice in
writing to MIGRA or MIG Ltd. of, and no MIGRA Stockholder has any
actual knowledge that any Client has, any intent to (i) terminate its
Investment Contract with such MIGRA Company, or (ii) reduce the amount
of assets under management by such MIGRA Company. Neither MIGRA or MIG
Ltd. nor any MIGRA Stockholder has encouraged any Client to take any
action described in the preceding sentence nor, to the actual knowledge
of MIGRA and each MIGRA Stockholder, is there any existing state of
facts or circumstances, or any state of facts or circumstances arising
solely by virtue of the consummation of the transactions which are the
subject of this Agreement, which would require any Clients under
Applicable Laws or by an applicable Contract to take any action
described in the preceding sentence.
4.14 Litigation. Except (i) as set forth in Section 4.14 to
the MIGRA Disclosure Schedule and (ii) suits, claims or actions fully covered
(subject to deductible amounts) by insurance policies issued by an insurer(s)
and which has been accorded a rating by A.M. Best Company, Inc. (or any
successor rating agency) of A-/X (or any replacement rating of equivalent
stature) or better, and as to which such insurer has not disputed coverage,
there is no suit, claim, action, proceeding or formal or informal investigation
(an "Action") pending or, to the actual knowledge of a MIGRA Company (or any
MIGRA Stockholder), threatened against MIGRA or any officer or director of any
MIGRA Company which, individually or in the aggregate, if adversely determined,
would have a Material Adverse Effect on the MIGRA Companies taken as a whole or
a Material Adverse Effect on the ability of the MIGRA to consummate the
transactions contemplated hereby. No MIGRA Company is subject to any outstanding
order, writ, injunction or decree which, individually or in the aggregate,
insofar as can be reasonably foreseen, could have a Material Adverse Effect on
the MIGRA Companies taken as a whole or a Material Adverse Effect on the ability
of MIGRA to consummate the transactions contemplated hereby. Except as set forth
in Section 4.14 to the MIGRA Disclosure Schedule, (i) there has not been any
Action which is pending, or to the actual knowledge of MIGRA and each MIGRA
Stockholder, threatened against a MIGRA Company relating to its method of doing
business or its relationship with past, existing or future users or purchasers
of its services, and (ii) no MIGRA Company has been subject to any outstanding
order, writ, injunction or decree relating to its method of doing business or
its relationship with past, existing or future customers, lessees, users,
purchasers or licensees of any Intellectual Property or services, in any such
case within the three (3) years prior to the date hereof.
4.15 Brokerage and Finder's Fees; Expenses. Neither any MIGRA Company
nor any stockholder, director or officer, partner which is an affiliate of MIGRA
or employee
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thereof, has incurred or will incur on behalf of a MIGRA Company, any brokerage,
finder's or similar fee in connection with the transactions contemplated by this
Agreement.
4.16 Employee Benefit Plans.
(a) For purposes of this Section 4.16, the following terms
have the definitions given below:
"Controlled Group Liability" means any and all liabilities
under (i) Title IV of ERISA, (ii) Section 302 of ERISA, (iii) Sections
412 and 4971 of the Code, (iv) the continuation coverage requirements
of section 601 et seq. of ERISA and Section 4980B of the Code, and (v)
corresponding or similar provisions of foreign laws or regulations, in
each case other than pursuant to the Plans.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended, and the regulations thereunder.
"ERISA Affiliate" means, with respect to any entity, trade or
business, any other entity, trade or business that is a member of a
group described in Section 414(b), (c), (m) or (o) of the Code or
Section 4001(b)(1) of ERISA that includes the first entity, trade or
business, or that is a member of the same "controlled group" as the
first entity, trade or business pursuant to Section 4001(a)(14) of
ERISA.
"Plans" means all written and material non-written employee
benefit plans, programs, policies, practices, and other arrangements
providing benefits to any employee or former employee or beneficiary or
dependent thereof, and whether covering one person or more than one
person, sponsored or maintained by MIGRA Companies or any of its
subsidiaries or to which MIGRA or any of its subsidiaries contributes
or is obligated to contribute. Without limiting the generality of the
foregoing, the term "Plans" includes all employee welfare benefit plans
within the meaning of Section 3(1) of ERISA and all employee pension
benefit plans within the meaning of Section 3(2) of ERISA.
"Withdrawal Liability" means liability to a Multiemployer Plan
as a result of a complete or partial withdrawal from such Multiemployer
Plan, as those terms are defined in Part I of Subtitle E of Title IV of
ERISA.
(b) Except as set forth in Section 4.16 to the MIGRA
Disclosure Schedule:
(i) Section 4.16 to the MIGRA Disclosure Schedule
lists all Plans. With respect to each Plan, MIGRA has made
available to AERC a true, correct and complete copy of: (A)
all current plan documents, benefit schedules, trust
agreements, and insurance contracts and other funding
vehicles; (B) the most recent Annual Report (Form 5500 Series)
and accompanying schedule, if any; (C) the current summary
plan description, if any; (D) the most recent annual financial
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report, if any; and (E) the most recent determination letter
from the Internal Revenue Service, if any.
(ii) The Internal Revenue Service has issued a
favorable determination letter with respect to each Plan that
is intended to be a "qualified plan" within the meaning of
Section 401(a) of the Code (a "Qualified Plan"), and each
Qualified Plan has been operated in material compliance with
the Code.
(iii) All contributions required to be made to any
Plan by Applicable Laws or by any plan document or other
contractual undertaking, and all premiums due or payable with
respect to insurance policies funding any Plan, for any period
through the date hereof have been timely made or paid in full
and through the Closing Date will be timely made or paid in
full or, to the extent not required to be made or paid on or
before the date hereof or the Closing Date, as applicable,
have been or will be fully reflected in the Audited Statements
and the Interim Statements.
(iv) MIGRA and its subsidiaries have complied, and
are now in material compliance with all provisions of ERISA,
the Code and all laws and regulations applicable to the Plans.
Each Plan has been operated in material compliance with its
terms. There is not now, and there are no existing,
circumstances that could give rise to, any requirement for the
posting of security with respect to a Plan or the imposition
of any lien on the assets of MIGRA or any of its subsidiaries
under ERISA or the Code. Each Plan includes provisions which
reserve the rights of the sponsor of the Plan to amend or
terminate the Plan.
(v) No Plan is subject to Title IV or Section 302 of
ERISA or Section 412 or 4971 of the Code. No Plan is a
"multiemployer plan" within the meaning of Section 4001(a)(3)
of ERISA (a "Multiemployer Plan") or a plan that has two or
more contributing sponsors at least two of whom are not under
common control, within the meaning of Section 4063 of ERISA (a
"Multiple Employer Plan"), nor has MIGRA or any of its
subsidiaries or any of their respective ERISA Affiliates, at
any time within five years before the date hereof, contributed
to or been obligated to contribute to any Multiemployer Plan
or Multiple Employer Plan.
(vi) Except for the continuation coverage
requirements of Section 601 ET SEQ. of ERISA and Section 4980B
of the Code, there does not now exist, and there are no
existing, circumstances that could result in, any Controlled
Group Liability that would be a liability of MIGRA or any of
its subsidiaries following the Closing. Without limiting the
generality of the foregoing, neither MIGRA nor any of its
subsidiaries nor any of their respective ERISA Affiliates has
engaged in any transaction described in Section 4069 or
Section 4204 of ERISA.
(vii) Except for health continuation coverage as
required by Section 4980B of the Code or Part 6 of Title I of
ERISA or as required by applicable
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state insurance laws, neither MIGRA nor any of its
subsidiaries has any liability for life, health, medical or
other welfare benefits to former employees or beneficiaries or
dependents thereof.
(viii) Except as set forth in Section 4.16(i) to the
MIGRA Disclosure Schedule, neither the execution and delivery
of this Agreement nor the consummation of the transactions
contemplated hereby will result in, cause the accelerated
vesting or delivery of, or increase the amount or value of,
any payment or benefit to any employee, officer, director or
consultant of MIGRA or any of its subsidiaries and Section
4.16(i) to the MIGRA Disclosure Schedule specifies the amount
of any such payment or benefit. Without limiting the
generality of the foregoing and except as set forth in Section
4.16(i) to the MIGRA Disclosure Schedule, no amount paid or
payable by MIGRA or any of its subsidiaries in connection with
the transactions contemplated hereby either solely as a result
thereof or as a result of such transactions in conjunction
with any other events will be an "excess parachute payment"
within the meaning of Section 280G of the Code.
(ix) There are no pending or, to the knowledge of
MIGRA, threatened claims (other than claims for benefits in
the ordinary course), lawsuits or arbitrations which have been
instituted against the Plans, or, to the knowledge of MIGRA,
any fiduciaries thereof with respect to their duties to the
Plans or the assets of any of the trusts under any of the
Plans which could reasonably be expected to result in any
material liability of MIGRA or any of its subsidiaries.
(x) Each of the Plans is, and has always been,
operating in material compliance with all applicable laws, and
all persons who participate in the operation of such Plans and
all Plan "fiduciaries" (within the meaning of Section 3(21) of
ERISA) have always acted in material compliance with
applicable laws, the Plan documents and written descriptions
of the Plans, and Part 4 of Title I of ERISA.
(xi) Each Plan that is intended to qualify for
favorable tax treatment under Code Section 125 so qualifies
and has been operated in material compliance with Code Section
125.
(xii) Full payment has been made, or shall be made in
accordance with 29 C.F.R. ss. 2510.3-102 (to the extent
applicable with regard to employee contributions), of all
amounts which MIGRA or any affiliate thereof is required to
pay under the terms of each of the Plans subject to such
Department of Labor regulation (with regard to employee
contributions), and all such amounts properly accrued through
the Effective Time with respect to the current plan year
thereof will be timely paid. Each Plan sponsored or maintained
by MIGRA which is an "employee welfare benefit plan" (within
the meaning of Section 3(1) of ERISA) is, and at all relevant
times within the past three (3) years has been, fully insured
by one (1) or more insurance companies licensed to engage in
the business of insurance in the State of Florida.
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4.17 Contracts.
(a) Section 4.17 to the MIGRA Disclosure Schedule lists all
written contracts, agreements, guarantees, leases and executory commitments
which are material, individually or in the aggregate, to the business or
financial condition or results of operations of the MIGRA Companies taken as a
whole, which shall be deemed to include, without limitation, any thereof that
require future payments in excess of $100,000 (each a "Contract") to which a
MIGRA Company is a party. The foregoing dollar amount shall be a measure of
materiality solely for the purpose of the definition of the term "Contract." The
listing of Contracts separately lists all management agreements or similar
agreements relating to the Managed Properties ("Management Contracts") and all
agreements by and between a MIGRA Company and any Pension Fund or similar entity
to which any MIGRA Company provides investment advice ("Pension Fund
Contracts"). All such Contracts are valid and binding obligations of the MIGRA
Company named therein and, to the actual knowledge of MIGRA and each MIGRA
Stockholder, of each other party thereto. Section 4.17 to the MIGRA Disclosure
Schedule describes each termination or non-renewal that has occurred with
respect to any Contract with any customer or licensee of Intellectual Property
from January 1, 1996 to the date of this Agreement. Neither any MIGRA Company
nor, to the actual knowledge of MIGRA and each MIGRA Stockholder, any other
party thereto is in violation of or in default in respect of, nor has there
occurred an event or condition with respect to a MIGRA Company or to the actual
knowledge of MIGRA and each MIGRA Stockholder, any party thereto, which with the
passage of time or giving of notice (or both) would constitute a default under
or permit the termination of, any Contract.
(b) Except as set forth in Section 4.17 of the MIGRA
Disclosure Schedule or as contemplated by any other provision of this Agreement
or the transactions contemplated hereby, there are no Contracts or other
transactions between a MIGRA Company, on the one hand, and any officer or
director of MIGRA or any partner of a MIGRA Company.
4.18 [INTENTIONALLY OMITTED.]
4.19 Labor Matters. Except as set forth in Section 4.19 to the
MIGRA Disclosure Schedule, no MIGRA Company has any labor contracts, collective
bargaining agreements or employment or consulting agreements with any persons
employed by it or any persons otherwise performing services primarily for it
(the "MIGRA Company Business Personnel"). No MIGRA Company has engaged in any
unfair labor practice with respect to Company Business Personnel, and there is
no unfair labor practice complaint pending or, to the actual knowledge of MIGRA
and each MIGRA Stockholder, threatened, against any MIGRA Company with respect
to MIGRA Company Business Personnel. There is no labor strike, dispute, slowdown
or stoppage pending or, to the knowledge of MIGRA, threatened against any MIGRA
Company.
4.20 Undisclosed Liabilities. Except (i) as and to the extent
disclosed or reserved against on the balance sheet of MIGRA as of August 31,
1997 included in the Interim Statements, (ii) as incurred after the date thereof
in the ordinary course of business consistent with prior practice and not
prohibited by this Agreement, (iii) as set forth in Section 4.20 to the MIGRA
Disclosure Schedule or (iv) as set forth on Schedule A, no MIGRA Company has any
liabilities or obligations (other than liabilities or obligations for
Environmental Laws, as to which
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the sole representation and warranty is in Section 4.22) of any nature, whether
known or unknown, absolute, accrued, contingent or otherwise and whether due or
to become due, that, individually or in the aggregate, could have a Material
Adverse Effect on the MIGRA Companies taken as a whole.
4.21 Operation of MIGRA's Business; Relationships.
(a) The relationships of the MIGRA Companies with their
respective clients and suppliers (including, without limitation, data
suppliers) are satisfactory and, to the actual knowledge of MIGRA and
each MIGRA Stockholder, the execution of this Agreement, the
consummation of the Merger and the other transactions contemplated
hereby will not materially adversely affect the relationships of the
MIGRA Companies with such clients or suppliers, provided that the
foregoing is not a representation and warranty that any such client or
supplier will provide any consent or approval of any such relationship
with AERC.
(b) MIGRA is in possession of all material franchises, grants,
authorizations, licenses, permits, easements, variances, exemptions,
consents, certificates, approvals and orders necessary to own, lease,
manage and operate its properties and to the actual knowledge of MIGRA
and each MIGRA Stockholder, each Venture, their respective properties
and the owners of the Managed Properties with respect to the Managed
Properties, and MIGRA and each Venture has all of the foregoing
necessary to carry on its business as it is now being conducted
(collectively, the "Permits"), and there is no Action pending or, to
the actual knowledge of MIGRA and each MIGRA Stockholder, threatened
regarding any of the Permits. No MIGRA Company or Managed Property is
in conflict with, or in default or violation of any of the Permits,
except for any such conflicts, defaults or violations which,
individually or in the aggregate, could not reasonably be expected to
have a Material Adverse Effect on the MIGRA Companies taken as a whole.
During the period commencing on January 1, 1997, and ending on the date
hereof, no MIGRA Company has received any notification alleging a
possible conflict, default or violation by a MIGRA Company of
Applicable Laws. The representations and warranties in this Section
4.21(b) shall not be deemed to be applicable with respect to Permits
under Environmental Laws.
4.22 Environmental Matters.
(a) As used herein, the term "Environmental Laws" means all
federal, state, local or foreign laws relating to pollution or
protection of human health or the environment (including, without
limitation, ambient air, surface water, groundwater, land surface or
subsurface strata), including, without limitation, laws relating to
emissions, discharges, releases or threatened releases of chemicals,
pollutants, contaminants, or industrial, toxic or hazardous substances
or wastes (collectively, "Hazardous Materials") into the environment,
or otherwise relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of Hazardous
Materials, as well as all authorizations, codes, decrees, demands or
demand letters, injunctions, judgments, licenses, notices or notice
letters, orders, permits, plans or regulations issued, entered,
promulgated or approved thereunder.
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(b) During the period commencing January 1, 1994, and ending
on the Effective Time, except as set forth in Section 4.22 of the MIGRA
Disclosure Schedule, no MIGRA Company has received any written
notification from a Governmental Authority alleging a possible
conflict, default or violation of Environmental Laws relating to the
Managed Properties.
4.23 FBCA and State Takeover Laws. Prior to the date hereof,
the Board of Directors of MIGRA has taken all action on the part of MIGRA, if
any, necessary to exempt under or make not subject to any state takeover law or
other state law that purports to limit or restrict business combinations or the
ability to acquire or vote shares: (i) the Merger and (iii) the other
transactions contemplated hereby.
4.24 Insurance. Except as set forth in Section 4.24 to the
MIGRA Disclosure Schedule, the MIGRA Companies are presently insured, and during
each of the past five calendar years have been insured, against such risks as
companies engaged in a similar business would, in accordance with good business
practice, customarily be insured. Except as set forth in Section 4.24 to the
MIGRA Disclosure Schedule, the policies of fire, theft, liability, professional
practice and other insurance maintained with respect to the assets or businesses
of the MIGRA Companies may be continued by the Surviving Corporation without
modification or premium increase after the Effective Time and for the duration
of their current terms which terms expire as set forth in Section 4.24 to the
MIGRA Disclosure Schedule.
4.25 Books of Account; Records. Each MIGRA Company's general
ledgers, stock record books, minute books and other material records relating to
the assets, properties, contracts and outstanding legal obligations of such
MIGRA Company are, in all material respects, complete and correct, and have been
maintained in accordance with good business practices and the matters contained
therein are appropriate and accurately reflected in the Audited Statements and
the Interim Statements.
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ARTICLE V
COVENANTS OF THE PARTIES
The parties hereto agree as follows with respect to the period
from and after the execution of this Agreement.
5.1 Mutual Covenants.
(a) General. Each of the parties shall use its reasonable
efforts to take all action and to do all things necessary, proper or
advisable to consummate the Merger and the transactions contemplated by
this Agreement (including, without limitation, using its reasonable
efforts to cause the conditions set forth in Article VI for which they
are responsible to be satisfied as soon as reasonably practicable and
to prepare, execute and deliver such further instruments and take or
cause to be taken such other and further action as any other party
hereto shall reasonably request).
(b) Other Governmental Matters. Each of the parties shall use
its reasonable efforts to take any additional action that may be
necessary, proper or advisable in connection with any other notices to,
registrations or filings with, and authorizations, consents and
approvals of any Governmental Authority (and, in the case of AERC, the
NYSE) that it may be required to give, make or obtain.
(c) Public Announcements. AERC and MIGRA shall consult with
each other before issuing any press release or otherwise making any
public statements with respect to this Agreement or any transaction
contemplated herein and shall not issue any such press release or make
any such public statement without the prior consent of MIGRA and AERC,
respectively, which consent shall not be unreasonably withheld or
delayed; PROVIDED, HOWEVER, that AERC or MIGRA may, without the prior
consent of the other, issue such press release or make such public
statement as may be required by law or the rules of the NYSE if it has
used its reasonable efforts to consult with the other and to obtain
consent but has been unable to do so in a timely manner.
(d) Investment Advisory Contracts. Each of MIGRA and AERC
shall use its reasonable efforts (which shall not include the payment
of money) to obtain, prior to the Closing Date, the consent of the
applicable parties to the Relevant Contracts to the assignment of the
Relevant Contracts to AERC or, within 90 days of the Closing Date to
enter into the New Relevant Contracts.
(e) Tax-Free Treatment. Each of MIGRA and AERC shall use all
reasonable efforts to cause the Merger to constitute a tax-free
"reorganization" under Section 368(a) of the Code including, without
limitation, reporting the Merger as a tax-free reorganization and in
exercising the election set forth in Section 5.2(l) in a manner that is
consistent with such treatment.
(f) Confidentiality. From the date hereof to the Effective
Time, MIGRA will make available for inspection by designated officers,
attorneys, accountants and other
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representatives of AERC (collectively, "AERC Representatives"), at all
reasonable times during normal business hours, such financial and other
information relating to the business, financial condition and
management of its businesses, including the records and files,
correspondence, audits and properties, as well as all information
relating to commitments, contracts, titles and financial position, or
otherwise pertaining to the business and affairs, of the MIGRA
Companies, and the identity of, and, to the extent not prohibited or
otherwise restricted by confidentiality or other obligations,
information pertaining to, the Pension Funds and any other Clients, as
AERC may reasonably request to enable such party to make a reasonably
informed judgment as to whether to consummate the Merger and the
transactions contemplated hereby (all such information is referred to
collectively herein as the "Proprietary Information"). Except as
otherwise provided herein, AERC shall (i) keep confidential all such
Proprietary Information, and (ii) not disclose any of the Proprietary
Information to any other person and (iii) not use or make use of the
Proprietary Information for (A) any purpose other than making such
reasonably informed judgment or (B) the furtherance of its own business
or that of any other person or entity or the detriment of the other
party's business; PROVIDED, HOWEVER, the foregoing undertaking will not
apply to: (i) disclosures to which the other party consents in writing;
(ii) information which is or becomes known or available publicly other
than as a result of a disclosure in violation of this Agreement; and
(iii) disclosures required to be made by law or by an order, decree,
rule, directive or demand of a court of law, an administrative,
regulatory, governmental or quasi-governmental agency or official, or
an arbitrator.
5.2 Covenants of AERC.
(a) Notification of Certain Matters. AERC shall give prompt
notice to MIGRA of (i) the occurrence or non-occurrence of any event
known to AERC the occurrence or non-occurrence of which would cause any
AERC representation or warranty contained in this Agreement to be
untrue or inaccurate at or prior to the Effective Time and (ii) any
material failure of AERC to comply with or satisfy any covenant,
condition or agreement to be complied with or satisfied by it
hereunder; provided, however, that the delivery of any notice pursuant
to this Section 5.2(a) shall not limit or otherwise affect (A) the
right of MIGRA to terminate this Agreement in accordance with Section
7.1 or (B) except to the extent set forth in Section 7.2, the other
remedies available to MIGRA hereunder. In addition, AERC shall give
prompt notice to MIGRA of any matter which, pursuant to its due
diligence, it determines should be included in the MIGRA Disclosure
Schedule.
(b) NYSE Listing. AERC shall use its reasonable efforts to
cause the AERC Common Shares issuable pursuant to the Merger to be
approved for listing on the NYSE, subject to official notice of
issuance, prior to the Effective Time, including, without limitation,
calling for a meeting to obtain through the use of reasonable efforts
the AERC Shareholder Approval if such approval is required by the NYSE.
(c) Exchange Act. For the period ending on the fourth
anniversary of the Closing Date, AERC will file the reports required to
be filed by it under the federal securities laws and the rules and
regulations adopted by the SEC thereunder (or, if AERC
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is not required to file such reports, it will, upon the request of any
MIGRA Stockholder, make publicly available other information so long as
necessary to permit sales under Rule 144 under the Securities Act or
any successor rule or regulation hereafter adopted by the SEC), to the
extent required from time to time to enable any MIGRA Stockholder who
receives AERC Common Shares in accordance with the terms of this
Agreement to sell such AERC Common Shares without registration under
the Securities Act within the limitations of the exemption provided by
(A) Rule 144 under the Securities Act, as such rule may be amended from
time to time, or (B) any successor rule or regulation hereafter adopted
by the SEC.
(d) Tax-Free Treatment. Provided the assets or lines of
business of MIGRA acquired in the Merger are sufficient to meet the
requirements described below in this Section 5.2(d), AERC will either
continue to operate a significant line of business of MIGRA's historic
business acquired in the Merger in satisfaction of the requirements of
Reg. ss.1.368-1(d)(3) or use a significant portion of MIGRA's historic
business assets acquired in the Merger to conduct AERC's business in
satisfaction of the requirements of Reg. ss.1.368-1(d)(4); provided
that AERC shall not be so required to use any assets or conduct any
business if, and to the extent, such action would, in the opinion of
outside counsel, cause AERC to breach its covenant set forth in Section
5.2(e).
(e) REIT Status. AERC covenants and agrees that it shall use
its best efforts to continue to be taxed as a real estate investment
trust pursuant to Sections 856 through 860 of the Code unless the Board
of Directors of AERC shall determine that it is in the best interest of
the shareholders of AERC to be taxed otherwise.
(f) Governmental Authorities. AERC and AEMC shall at the
expense of MIGRA cooperate with and assist MIGRA and each other MIGRA
Company in connection with any filings to be made with or consents to
be obtained from any Governmental Authority with jurisdiction over the
MIGRA Companies or the Managed Properties.
(g) Lehman Letter. AERC shall use all reasonable efforts to
assume at the Effective Time MIGRA's obligations under the Lehman
Letter (as defined in Section 6.2(h)).
(h) Contact with MIGRA Clients. During the 45 day due
diligence period which period shall expire on February 3, 1998 (the
"AERC Due Diligence Period") and otherwise prior to the Closing,
neither AERC nor any of its affiliates or any of their respective
officers, directors and employees ("AERC Contact Representatives")
shall (except as may be contemplated hereby in connection with the
acquisition of any Managed Property, AERC agreeing, however, that if
the Closing does not occur, AERC will not thereafter pursue such
acquisitions for a period of one year after the date of termination of
this Agreement) contact, directly or indirectly, or authorize or
instruct any agents, brokers or third party representatives ("AERC
External Representatives"), on behalf of AERC or any of its affiliates,
directly or indirectly, to solicit, initiate discussions with or make
any inquiries of, or make or implement any proposal or offer to, any
client of MIGRA and/or its affiliates identified in Schedule 5.2(h), or
request
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from any such client any information, with respect to the sale by such
client of any real property and, in the event the Closing does not
occur, AERC shall, and AERC shall cause its affiliates and the AERC
Contact Representatives and AERC External Representatives to, comply
with their obligations under the Standstill Agreement among the parties
dated November 5, 1997 (the "Standstill Agreement").
AERC and its affiliates and the AERC Contact
Representatives shall not be deemed to give an "authorization" or
"instruction" for the purposes of the foregoing if they request an AERC
External Representative to find candidate real properties in a
particular geographic area with specific characteristics which are
general enough not to identify a specific property and do not
specifically identify a client identified in Schedule 5.2(h) as an
owner thereof.
(i) Fairness Opinion. AERC shall use all reasonable efforts to
obtain on or prior to the Closing the fairness opinion referred to in
Section 6.3(l).
(j) Spinoff Transaction. AERC shall use all reasonable efforts
(which shall not include the payment of money other than filing fees
with Governmental Authorities and legal fees) to consummate the Spinoff
Transfer.
(k) Employment Agreement. Concurrently with the Closing, AERC
shall deliver to Mr. Wright an employment agreement in the form of
Exhibit E attached hereto (the "Employment Agreement"), fully executed
by AERC.
(l) "A" Contracts. If AERC acquires, none of the properties
known as Windsor Hollywood, Kirkman and the Pines on or prior to the
Closing Date, $10,000,000 payable in cash or AERC Common Shares as
elected by AERC will be paid to the MIGRA Stockholders in installments
of 50%, 18% and 32% on the Closing Date, the Second Issuance Date and
the Third Issuance Date, respectively; PROVIDED, HOWEVER that AERC
shall be deemed to have acquired Kirkman for purposes hereof even if it
does not acquire the interest of PF Funds, Inc. The amount paid under
this Section 5.2(l), if any, shall not constitute an adjustment to the
Purchase Price for purposes of the calculation in Section 8.3(a).
5.3 Covenants of MIGRA.
(a) Conduct of MIGRA's Operations. During the period from the
date of this Agreement to the Effective Time, MIGRA shall and, to the
extent within its control and not in conflict with its fiduciary
duty(ies), shall cause each Venture to, conduct its operations only in
the ordinary course, except as expressly contemplated by this Agreement
and the transactions contemplated hereby, and shall use all reasonable
efforts to maintain and preserve its business organization and its
material rights and franchises and to retain the services of its
officers and key employees and maintain its business relationships with
third parties, and to maintain all of its operating assets in their
current condition (normal wear and tear excepted), to the end that
their goodwill and ongoing business shall not be impaired in any
material respect. Without limiting the generality of the foregoing,
during the period from the date of this Agreement to the Effective
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Time, MIGRA shall not and, to the extent within its control and not in
conflict with its fiduciary duty(ies), shall not permit any of the
Ventures to, except as otherwise expressly contemplated by this
Agreement and the transactions contemplated hereby or as set forth in
Section 5.3(a) to the MIGRA Disclosure Schedule, without the prior
written consent of AERC:
(i) do or effect any of the following actions with
respect to its securities: (A) adjust, split, combine or
reclassify its capital stock, (B) except as set forth in
Section 5.4(e), make, declare or pay any dividend or
distribution on, or directly or indirectly redeem, purchase or
otherwise acquire, any shares of its capital stock or any
securities or obligations convertible into or exchangeable for
any shares of its capital stock, (C) grant any person any
right or option to acquire any shares of its capital stock,
(D) issue, deliver or sell or agree to issue, deliver or sell
any additional shares of its capital stock or any securities
or obligations convertible into or exchangeable or exercisable
for any shares of its capital stock or such securities, or (E)
enter into any agreement, understanding or arrangement with
respect to the sale or voting of its capital stock; provided,
however, that MIGRA may make distributions (i) to MIGRA
Stockholders and Gutin, and each Venture may make
distributions to its partners, in an aggregate amount not to
exceed the aggregate federal, state and local liability
(exclusive of penalties and interest) of a MIGRA Stockholder
or Gutin or such partners, respectively, to the extent that
such liability arises from the net income and gain of MIGRA or
the applicable Venture(s) computed using the marginal tax
rates of the MIGRA Stockholder(s) or such partners,
respectively, who pay(s) federal, state and local tax based at
the highest such rates of all MIGRA Stockholders or Gutin or
such partners, respectively, after giving effect to other
income and losses of such MIGRA Stockholder(s) or Gutin or
such partners, respectively, and (ii) to partners of the
Ventures, to the extent mandatory under the applicable
partnership documents;
(ii) directly or indirectly sell, transfer, lease,
pledge, mortgage, encumber or otherwise dispose of any of its
material property or assets other than in the ordinary course
of business;
(iii) make or propose any changes in the MIGRA
Articles or the MIGRA Bylaws;
(iv) merge or consolidate with any other person or
acquire a material amount of assets or capital stock of any
other person or, enter into any confidentiality agreement with
any person (other than Pension Funds relating to this
Agreement);
(v) incur, create, assume or otherwise become liable
for any indebtedness for borrowed money in excess of $750,000
or assume, guarantee, endorse or otherwise as an accommodation
become responsible or liable for the obligations of any other
individual, corporation or other entity, other than in the
ordinary course of business consistent with past practice;
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(vi) create any subsidiaries;
(vii) enter into or modify any employment, severance,
termination or similar agreements or arrangements with, or
grant any bonuses, salary increases, severance or termination
pay to, any officer, director, consultant or employee or
otherwise increase the compensation or benefits provided to
any officer, director, consultant or employee other than
salary increases granted in the ordinary course of business
consistent with past practice and except as may be required by
Applicable Law or a binding written contract in effect on the
date of this Agreement;
(viii) enter into, adopt or amend any employee
benefit or similar plan;
(ix) change its method of doing business, or change
any method or principle of accounting in a manner, that is
inconsistent in any material respect with past practice;
(x) settle any Actions, whether now pending or
hereafter made or brought, involving an amount in excess of
$50,000;
(xi) write up, write down or write off the book value
of any assets, individually or in the aggregate, in excess of
$100,000 except for depreciation and amortization in
accordance with GAAP consistently applied;
(xii) modify, amend or terminate, or waive, release
or assign any material rights or claims with respect to, any
Contract set forth in Section 4.17 to the MIGRA Disclosure
Schedule, or any confidentiality agreement to which MIGRA is a
party;
(xiii) incur or commit to any capital expenditures,
or obligations or liabilities in respect thereof, which in the
aggregate exceed or would exceed $50,000;
(xiv) make any material changes or modifications to
any pricing policy or investment policy or enter into any new
management agreements or leases on terms materially different
from those in effect in the ordinary and usual course of
business, consistent with past practice;
(xv) take any action to exempt or make not subject to
any other state takeover law or state law that purports to
limit or restrict business combinations or the ability to
acquire or vote shares, any person or entity (other than AERC)
or any action taken thereby, which person, entity or action
would have otherwise been subject to the restrictive
provisions thereof and not exempt therefrom;
(xvi) enter into or carry out any other transaction
which could reasonably be expected to have a Material Adverse
Effect on the MIGRA Companies taken as a whole;
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(xvii) permit or cause any MIGRA Company to do any of
the foregoing or agree or commit to do any of the foregoing;
or
(xviii) agree in writing or otherwise to take any of
the foregoing actions.
(b) No Solicitation. Unless and until this Agreement is
terminated in accordance with its terms, MIGRA shall not, and shall not
authorize, to the extent within its control and not in conflict with
its fiduciary duty(ies), or permit any Venture or any of its or the
Ventures' respective directors, officers, employees, agents or
representatives to, directly or indirectly, solicit, initiate,
encourage or facilitate, or furnish or disclose non-public information
with respect to MIGRA in furtherance of, any inquiries or the making of
any proposal with respect to any recapitalization, merger,
consolidation or other business combination involving MIGRA, or
acquisition of any capital stock or any material portion of the assets
of MIGRA, or any combination of the foregoing (a "Competing
Transaction"), or negotiate, explore or otherwise engage in discussions
with any person (other than AERC, AEMC or their respective directors,
officers, employees, agents and representatives) with respect to any
Competing Transaction or enter into any agreement, arrangement or
understanding requiring it to abandon, terminate or fail to consummate
the Merger or any other transactions contemplated by this Agreement.
Neither the Board of Directors of MIGRA nor any committee thereof shall
(A) withdraw or modify, or propose publicly to withdraw or modify, in a
manner adverse to AERC, the MIGRA Board Recommendation, (B) approve or
recommend, or propose publicly to approve or recommend, any Competing
Transaction or (C) cause MIGRA or, unless required pursuant to its
fiduciary duty(ies), any other MIGRA Company to enter into any letter
of intent, agreement in principle, acquisition agreement or other
similar agreement (each, an "Acquisition Agreement") related to any
Competing Transaction or proposal for a Competing Transaction. Unless
and until there is a termination of this Agreement in accordance with
Section 7.1, from and after the execution of this Agreement, MIGRA
shall immediately advise AERC in writing of the receipt, directly or
indirectly, of any inquiries, discussions, negotiations, or proposals
relating to a Competing Transaction (including the specific terms
thereof and the identity of the other party or parties involved) and
promptly furnish to AERC a copy of any such proposal or inquiry in
addition to any information provided to or by any third party relating
thereto.
(c) Compliance with Regulatory Requirements. MIGRA shall, and,
to the extent within its control, and not in conflict with its
fiduciary duty(ies), cause each Venture, at the expense of AERC, to
cooperate with and assist AERC, AEMC and MRI in connection with any
filings to be made with or consents to obtained from any Governmental
Authority with jurisdiction over any of the MIGRA Companies or the
Managed Properties.
(d) Financial Statements. MIGRA shall deliver to AERC Interim
Statements within 20 days following the end of each calendar month
after the date hereof.
(e) Notification of Certain Matters. MIGRA shall give prompt
notice to AERC of (i) the occurrence or non-occurrence of any event
known to MIGRA the
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occurrence or non-occurrence of which would cause any MIGRA or MIGRA
Stockholder representation or warranty contained in this Agreement to
be materially untrue or inaccurate at or prior to the Effective Time
and (ii) any material failure of MIGRA or any MIGRA Stockholder to
comply with or satisfy any covenant, condition or agreement to be
complied with or satisfied by it hereunder; provided, however, that the
delivery of any notice pursuant to this Section 5.3(e) shall not limit
or otherwise affect (A) the right of AERC to terminate this Agreement
in accordance with Section 7.1 or (B) except to the extent set forth in
Section 7.2, the other remedies available to AERC hereunder.
(f) MIG Ltd. Purchase. MIGRA and the MIGRA Stockholders will
use reasonable efforts to have MIGRA and/or the MIGRA Stockholders
enter into a definitive purchase agreement with PF Funds, Inc. to
acquire its interest in MIG Ltd. at or before the Effective Time. The
parties acknowledge that the MIGRA Stockholders may transfer AERC
Common Shares to PF Funds, Inc. as some or all of the consideration for
that purchase; provided, however, that PF Funds shall agree to execute
a letter relating to investment intent and accredited investor status
(to the extent applicable) and trading restrictions imposed by Rule 144
under the Securities Act in a form substantially identical to that
delivered by the MIGRA Stockholders pursuant to Section 6.3(j).
(g) Development Properties. True and correct copies of all
financial statements and records relating to each of the properties
known as the Windsor Pines, Hollywood Pines and Kirkman properties,
which properties are more fully described on Exhibit A-1 hereto (the
"Development Properties"), or access thereto will be made available to
AERC promptly after the execution of this Agreement.
(h) Rights to Disposition Fees. MIGRA shall obtain from NYNEX
a letter to clarify that pursuant to the NYNEX Real Estate Investment
Management Contract dated February 7, 1995 disposition fees are payable
upon termination of such contract. If MIGRA does not obtain a letter
from NYNEX prior to the Closing Date, that portion of the AERC Common
Shares (payable ratably over the Second and Third Issuance Dates
pursuant Sections 2.1(e) and 2.1(f), as applicable) representing
$194,365 will be held in escrow to be delivered as follows: (i) to the
MIGRA Stockholders on the earlier to occur of (a) the date such letter
is received by AERC, and (b) the date all such disposition fees are
paid to AERC, or (ii) to AERC if on or before February 1, 2005 such
letter has not been received and such fees have not been paid. The
value of such AERC Common Shares shall be determined in accordance with
Section 2.1(e) and 2.1(f) (as the case may be).
5.4 Covenants of MIGRA Stockholders.
(a) Purchase Price Adjustment.
(i) At least three Business Days prior to the Closing
Date, the MIGRA Stockholders shall cause to be delivered to
AERC a statement of MIGRA, MIG Ltd. and Stonemark as of the
Closing Date, which statement shall set forth MIGRA's good
faith estimate of the current assets, including, without
limitation, advances made to MIG Development Company and other
affiliates of MIGRA (the "Current Assets") and all liabilities
(the "Liabilities") of MIGRA, and prorata based on its
ownership interest therein, of MIG Ltd. and Stonemark, as of
the Closing Date as defined and determined in accordance with
GAAP and in a manner consistent with the preparation of the
Audited Financial Statements.
(ii) If on the Second Issuance Date, the actual
amount of Current Assets collected by AERC on or before the
Second Issuance Date exceeds the actual amount of Liabilities
paid by AERC on or before the Second Issuance Date, then AERC
shall pay on the Second Issuance Date to the MIGRA
Stockholders either an amount of cash or AERC Common Shares,
as elected by each MIGRA Stockholder, equal in amount or value
(as determined in accordance with Section 2.1(c)),
respectively, to such excess. If on the Second Issuance Date,
the actual amount of such Liabilities exceeds the actual
amount of such Current Assets, then the MIGRA Stockholders
shall either (i) pay on the Second
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Issuance Date to AERC an amount equal to such excess or (ii)
notify AERC that the number of AERC Common Shares to be
received pursuant to Section 2.1(c) or 2.1(e) shall be reduced
by a number of the AERC Common Shares equal in value to such
excess, such value to be determined pursuant to Section 2.1(c)
or 2.1(e), respectively.
(b) Responsibility for Certain Obligations. The MIGRA
Stockholders shall jointly and severally pay when due the MIGRA
Stockholders Fixed Liabilities. If any MIGRA Stockholders Fixed
Liability is not paid when due, AERC shall have the right to pay the
amount of such MIGRA Stockholder Fixed Liability that is due and
payable and is not so paid and to reduce the amount of AERC Common
Shares to be received by the MIGRA Stockholders and Gutin pursuant to
Section 2.1 by the number of AERC Common Shares equal in value to the
amount of such MIGRA Stockholder Fixed Liability that is so paid, such
value to be determined as set forth in Section 2.1. Such reduction
shall apply to the installments of AERC Common Shares to be next
received.
(c) Non-Competition Agreements. Concurrently with the Closing,
each MIGRA Stockholder shall deliver to AERC a non-competition
agreement in the form of Exhibit D attached hereto (collectively, the
"Non-Competition Agreements"), fully executed by such MIGRA
Stockholder.
(d) Resignations. Concurrently with the Closing, each MIGRA
Stockholder who is an officer and/or a director of MIGRA shall resign
as an officer and/or director of MIGRA and, prior to or concurrently
with the Closing, MIGRA shall cause Gutin to resign as an officer
and/or director of MIGRA and to otherwise terminate her employment
therewith, effective as of the Effective Time.
(e) MIGRA Distributions. The MIGRA Stockholders shall, prior
to the Effective Time, cause MIGRA to make a distribution to the MIGRA
Stockholders and Gutin in an amount necessary to establish to the
reasonable satisfaction of AERC that MIGRA does not have any
accumulated earnings and profits from any period that MIGRA or any of
its predecessors were taxable as C corporations for federal income tax
purposes.
(f) Encumbrances on Conversion Rights. No MIGRA Stockholder
shall create, incur, assume or suffer to exist any pledge, lien,
security interest or other charge or encumbrances of any nature upon or
with respect to the Conversion Rights, except as may be contemplated by
that certain Pledge Agreement dated June 9, 1997, between Wayman and
Mr. Wright and the related Escrow Agrement date as of August 1, 1997
and except for a transfer to PF Funds as contemplated by and in
accordance with Section 5.3(f) of this Agreement.
(g) On or before the Closing, the MIGRA Stockholders shall (i)
use reasonable efforts to acquire the entire right, title and interest
of Gutin in and to the MIGRA Companies and (ii) approve by unanimous
vote or consent in accordance with the FBCA the execution and delivery
of this Agreement and the consummation of the transactions contemplated
hereby.
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(h) On or before the Closing, the MIGRA Stockholders shall (i)
terminate each such person's employment agreement with MIGRA, (ii)
cause MIGRA to terminate Gutin's employment agreement with MIGRA, and
(iii) terminate the Stockholder Agreement by and among the MIGRA
Stockholders, Gutin and MIGRA.
5.5 Covenants of Mr. Wright.
(a) Employment Agreement. Concurrently with the Closing, Larry
Wright shall deliver to AERC the Employment Agreement, fully executed
by Mr. Wright.
ARTICLE VI
CONDITIONS
6.1 Mutual Conditions. The obligations of the parties hereto
to consummate the Merger shall be subject to fulfillment of the following
conditions:
(a) No temporary restraining order, preliminary or permanent
injunction or other order or decree which prevents the consummation of
the Merger shall have been issued and remain in effect, and no statute,
rule or regulation shall have been enacted by any Governmental
Authority which prevents the consummation of the Merger.
(b) On the Closing Date and at the Effective Time, no stop
order or similar restraining order shall have been threatened by the
SEC or any state securities administrator prohibiting the Merger or the
issuance of the AERC Common Shares or the Conversion Rights.
(c) No Action shall be instituted by any Governmental
Authority which seeks to prevent consummation of the Merger or the
issuance of the AERC Common Shares or the Conversion Rights or seeking
material damages in connection with the transactions contemplated
hereby which continues to be outstanding.
6.2 Conditions to Obligations of MIGRA. The obligations of
MIGRA to consummate the Merger and the transactions contemplated hereby shall be
subject to the fulfillment of the following conditions unless waived by MIGRA:
(a) The representations and warranties of AERC set forth in
Article III shall be true and correct in all material respects on the
date hereof and on and as of the Closing Date as though made on and as
of the Closing Date (except for representations and warranties made as
of a specified date, which need be true and correct only as of the
specified date).
(b) AERC shall have performed in all material respects each
obligation and agreement and shall have complied in all material
respects with each covenant to be performed and complied with by it
hereunder at or prior to the Closing.
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(c) AERC shall have furnished MIGRA with a certificate dated
the Closing Date signed on behalf of it by the Chairman, President or
any Vice President to the effect that the conditions set forth in
Sections 6.2(a) and (b) have been satisfied.
(d) MIGRA shall have received the favorable legal opinion,
dated the Closing Date, of Baker & Hostetler LLP as to the matters
referred to in Exhibit B.
(e) The AERC Common Shares to be issued in the Merger and the
transactions contemplated hereby shall have been authorized for
inclusion on the NYSE, subject to official notice of issuance.
(f) AERC shall have furnished MIGRA with an opinion of Baker &
Hostetler LLP, substantially similar in form and content to the
opinions provided to underwriters in connection with public offerings
of AERC Common Shares, to the effect that AERC has qualified, and
currently qualifies, to be taxed as a REIT pursuant to Sections 856
through 860 of the Code.
(g) AERC shall not have entered into a definitive agreement to
merge or consolidate with any entity in a transaction valued in excess
of $200,000,000, unless such merger or consolidation shall be for the
sole purpose of acquiring real property and shall not result in a
change in the senior management of AERC.
(h) AERC shall have assumed the obligations of MIGRA under
that certain letter agreement dated May 1, 1997, between MIGRA and
Lehman Brothers, as amended on September 10, 1997 (the "Lehman
Letter").
(i) AERC shall have received the AERC Shareholder Approval.
(j) AERC shall have acquired all of the MIG REIT Properties.
(k) AERC shall have received all material Governmental
Authority consent(s) and approval(s) required because of this
Agreement.
6.3 Conditions to Obligations of AERC. The obligation of AERC
to consummate the Merger and the other transactions contemplated hereby shall be
subject to the fulfillment of the following conditions unless waived by AERC:
(a) The representations and warranties of MIGRA set forth in
Article IV shall be true and correct in all material respects on the
date hereof and on and as of the Closing Date as though made on and as
of the Closing Date (except for representations and warranties made as
of a specified date, which need be true and correct only as of the
specified date).
(b) MIGRA shall have performed in all material respects each
obligation and agreement and shall have complied in all material
respects with each covenant to be performed and complied with by it
hereunder at or prior to the Effective Time.
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(c) MIGRA shall have furnished AERC with a certificate dated
the Closing Date signed on its behalf by its Chairman, President or any
Vice President to the effect that the conditions set forth in Sections
6.3(a) and (b) have been satisfied.
(d) AERC shall have received the favorable legal opinion,
dated the Closing Date, of (i) Mayer, Brown & Platt or other counsel
acceptable to AERC, as to the matters referred to in Exhibit C, and
(ii) Holland & Knight, as to matters referred to in Section 4.13.
(e) (i) at no cost to AERC or AEMC, AERC shall have acquired
the 10% partnership interest in MIG Ltd. owned by MIG Realty, Inc., an
affiliate of MIGRA, and (ii) AERC shall have acquired all of the MIG
REIT Properties.
(f) [INTENTIONALLY OMITTED]
(g) MIGRA and AERC shall have received all material customer,
vendor, lessee, licensee, licensor, Governmental Authority and other
third party consents and approvals required because of this Agreement
or the transactions contemplated by this Agreement, excluding consents
from clients of the MIGRA Companies and their affiliates regarding the
Relevant Contracts, as to which the provisions of Section 2.4(a) shall
be the sole consequence to the MIGRA Stockholders with respect to not
obtaining such consents.
(h) MIGRA shall not have received notice from any holder or
holders of the MIGRA Common Stock issued and outstanding on the record
date for the determination of MIGRA Stockholders entitled to vote on
the Merger that such holder or holders have exercised or intend to
exercise their appraisal rights under the FBCA.
(i) The Employment Agreement and the Noncompetition Agreements
shall have been entered into and shall remain in full force and effect
according to their respective terms as of the Closing.
(j) AERC shall have received letters addressed to it from each
of the MIGRA Stockholders relating to investment intent and accredited
investor status (to the extent applicable) and trading restrictions
which will be solely the trading restrictions imposed by Rule 144 under
the Securities Act relating to the AERC Common Shares in a form
reasonably required by AERC and reasonably acceptable to the MIGRA
Stockholders.
(k) AEMC or another affiliate of AERC shall have had its Form
ADV approved by the SEC.
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(l) AERC shall have received a favorable opinion from Morgan
Stanley Dean Witter as to the fairness of the Merger.
(m) AERC shall have received the AERC Shareholder Approval if
required by the NYSE as a condition to listing the AERC Common Shares
to be issued pursuant to this Agreement thereon.
(n) MIGRA and/or the MIGRA Stockholders shall have acquired
the interest in MIG Ltd. of PF Funds, Inc.
(o) On or before the Closing, the MIGRA Stockholders shall
have (i) acquired the entire right, title and interest of Gutin in and
to the MIGRA Companies, and (ii) approved by unanimous vote or consent
in accordance with the FBCA the execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby.
(p) On or before the Closing, the MIGRA Stockholders shall
have (i) terminated each such person's employment agreement with MIGRA
and (ii) terminated the Stockholders Agreement by and among the MIGRA
Stockholders, Gutin and MIGRA.
(q) AERC shall have received all material Governmental
Authority and National City Bank consent(s) and approval(s) required
because of this Agreement.
(r) AERC shall have received the opinion, dated the Closing
Date, of Ernst & Young LLP, that MIGRA has no earnings or profits as of
the Closing Date.
ARTICLE VII
TERMINATION AND AMENDMENT
7.1 Termination. This Agreement may be terminated at any
time prior to the Effective Time:
(a) by mutual consent of AERC and MIGRA;
(b) by either AERC or MIGRA if any permanent injunction or
other order of a court or other competent Governmental Authority
preventing the consummation of the Merger shall have become final and
nonappealable;
(c) by either AERC or MIGRA if the Merger shall not have been
consummated on or before June 2, 1998 if AERC's Proxy Statement is not
reviewed by the SEC and on or before June 30, 1998 if AERC's Proxy
Statement is reviewed by the SEC, unless extended by the Boards of
Directors of both AERC and MIGRA (provided that the right to terminate
this Agreement under this Section 7.1(c) shall not be available to any
party whose failure or whose affiliate's failure to perform any
material covenant
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or obligation under this Agreement has been the cause of or resulted in
the failure of the Merger to occur on or before such date);
(d) by AERC if MIGRA or any MIGRA Stockholder has materially
breached any covenant or agreement contained in this Agreement and such
breach is either not capable of being cured prior to the Closing or, if
such breach is capable of being cured, is not so cured within a
reasonable amount of time;
(e) by MIGRA if AERC has materially breached any covenant or
agreement contained in this Agreement and such breach is either not
capable of being cured prior to the Closing or, if such breach is
capable of being cured, is not so cured within a reasonable amount of
time;
(f) by AERC if at any time the representations and warranties
of MIGRA or the MIGRA Stockholders set forth in Article IV shall not be
true and correct in all material respects (it being understood and
agreed that representations and warranties made as of a specified date,
need be true only as of such specified date);
(g) by MIGRA or the MIGRA Stockholders if at any time the
representations and warranties of AERC set forth in Article III shall
not be true and correct in all material respects (it being understood
and agreed that representation and warranties made as of a specified
date, need be true only as of such specified date); or
(h) by either AERC or MIGRA if the MIG REIT Properties are
acquired by any one other than AERC.
7.2 Effect of Termination. In the event of the termination of
this Agreement pursuant to Section 7.1, this Agreement, except for the
provisions of this Section 7.2, Article VIII and Sections 9.8 and 9.10, shall
become void and have no further effect, without any liability on the part of any
party or its directors, officers or stockholders. Notwithstanding the foregoing,
nothing in this Section 7.2 shall relieve any party to this Agreement of
liability for a material breach of any representation and warranty of, or
covenant or agreement by, such party in this Agreement, which liability may be
recoverable pursuant to Article VIII, and provided, further, that if it shall be
determined pursuant to Section 8.5 that termination of this Agreement resulted
from an intentional breach of this Agreement, then, in addition to other
remedies under this Section 7.2, Article VIII and Section 9.8 for breach of this
Agreement, the party so found to have intentionally breached this Agreement
shall indemnify and hold harmless the other parties for their respective
reasonable costs, fees and expenses, including, without limitation, the fees and
expenses of their counsel and accountants, as well as fees and expenses incident
to negotiation, preparation and execution of this Agreement and related
documentation ("Costs"). Notwithstanding any provision of this Agreement to the
contrary, in the event of the termination of this Agreement, (i) by reason of a
breach by MIGRA or any MIGRA Stockholder under this Agreement, the limitation of
liability referred to in Section 8.3 shall be inapplicable, but in no event
shall the maximum aggregate liability of MIGRA and/or the MIGRA Stockholders
under this Agreement, which liability, with respect to the MIGRA Stockholders,
shall be solely with respect to a breach of any covenant or agreement of MIGRA
and/or the MIGRA Stockholders in this Agreement or the Additional Documents (as
defined in Section
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8.1(a)), exceed the Purchase Price, as adjusted hereunder (the "Adjusted
Purchase Price") and (ii) by reason of a breach by AERC under this Agreement,
the maximum aggregate liability of AERC under this Agreement shall not exceed
the Adjusted Purchase Price. In the event of termination of this Agreement
pursuant to Section 7.1, MIGRA shall not be liable to AERC under the indemnity
agreement in Section 8.2(a)(i)(A) in respect of a breach of a representation or
warranty made by MIGRA or any MIGRA Stockholder contained in this Agreement on
the Closing Date to the extent, but only to the extent, that (w) such
representation or warranty was true and correct when made, (x) MIGRA has
notified AERC of such breach in accordance with the Agreement and (y) such
breach is the result solely of the occurrence of a circumstance or an event
subsequent to the date hereof.
7.3 Amendment. This Agreement may be amended by the parties
hereto, by action taken or authorized by their respective Boards of Directors,
at any time before or after adoption of this Agreement by MIGRA Stockholders or
by AERC shareholders, as the case may be, but after any such approval, no
amendment shall be made which by law requires further approval or authorization
by the MIGRA Stockholders or the AERC shareholders without such further approval
or authorization. Notwithstanding the foregoing, this Agreement may not be
amended except by an instrument in writing signed on behalf of each of the
parties hereto.
7.4 Extension; Waiver. At any time prior to the Effective
Time, AERC (with respect to MIGRA and the MIGRA Stockholders) and MIGRA (with
respect to AERC and AEMC) by action taken or authorized by their respective
Boards of Directors, may, to the extent legally allowed, (a) extend the time for
the performance of any of the obligations or other acts of such party, (b) waive
any inaccuracies in the representations and warranties contained herein or in
any document delivered pursuant hereto and (c) waive compliance with any of the
agreements or conditions contained herein. Any agreement on the part of a party
hereto to any such extension or waiver shall be valid only if set forth in a
written instrument signed on behalf of such party.
ARTICLE VIII
INDEMNIFICATION
8.1 Survival of Representations, Warranties and Agreements.
(a) Subject to the limitations set forth in Section 8.3 and
8.6, below, and notwithstanding any investigation conducted at any time
with regard thereto by or on behalf of AERC or MIGRA or the MIGRA
Stockholders, all representations, warranties, covenants and agreements
of MIGRA, the MIGRA Stockholders and AERC in this Agreement and in any
other documents executed or delivered by MIGRA, the MIGRA Stockholders
or AERC pursuant to this Agreement or in connection with the
transactions contemplated by this Agreement (other than the Standstill
Agreement, Contribution and Partnership Interests Purchase Agreement
and documentation executed and delivered in connection therewith, and
documents delivered in connection with the acquisition of the real
properties listed on Exhibit A, which, in each case, shall survive in
accordance with their respective terms) (the "Additional Documents")
shall survive the execution, delivery
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and performance of this Agreement and the Additional Documents. All
representations and warranties of MIGRA, the MIGRA Stockholders or AERC
set forth in this Agreement and in the Additional Documents shall be
deemed to have been made again by MIGRA, the MIGRA Stockholders or
AERC, as the case may be, at and as of the Effective Time (except for
representations and warranties made as of a specified date, which need
be true and correct only as of the specified date). This Section 8.1
shall not limit any covenant or agreement of the parties hereto, which
by its terms contemplates performance after the Effective Time or after
the termination of this Agreement.
(b) As used in this Article VIII, any reference to a
representation, warranty or covenant contained in any section of this
Agreement shall include the Schedule and any Exhibit relating to such
section.
8.2 Indemnification.
(a) Subject to the limitations set forth in Sections 8.3 and
8.6, by virtue of the approval and adoption of this Agreement and the
Merger by MIGRA and the MIGRA Stockholders, MIGRA (prior to the
Closing) and the MIGRA Stockholders (prior to Closing, for each MIGRA
Stockholder solely with respect to Indemnifiable Claims described in
clause (i) (B) below as a result of any breach by such MIGRA
Stockholder, and subsequent to the Closing, with respect to all
Indemnifiable Claims), shall jointly and severally indemnify and hold
harmless AERC from and against any and all (i) demands, claims, suits,
actions, or causes of action ("Claims") asserted against, resulting to,
imposed upon, or incurred, sustained by, asserted by or suffered by
AERC, directly or indirectly, as a result of or arising from (A) any
inaccuracy in or breach of any of the representations and warranties
made by MIGRA and/or the MIGRA Stockholders in this Agreement or the
Additional Documents, (B) the breach of any covenant or agreement of
MIGRA and/or the MIGRA Stockholders contained in this Agreement or the
Additional Documents, (C) any Claims relating to the MIGRA Stockholders
Fixed Liabilities and (D) any Claims relating to any liability or
obligation of any nature of the MIGRA Companies or any MIGRA Company,
matured or unmatured, liquidated or unliquidated, fixed or contingent,
or known or unknown, arising out of matters prior to or at the
Effective Time, other than (w) any Claim with respect to any of the
Managed Properties, as to which the sole indemnification obligation of
MIGRA Stockholders is in Section 8.2(a)(i)(A), (x) any Claim arising
out of the failure to obtain any consent or approval necessary to
effect the Merger and the other transactions contemplated by this
Agreement (provided that MIGRA and/or the MIGRA Stockholders, as
applicable, have all complied with their respective obligations under
the relevant provisions of Sections 5.1, 5.3 and 5.4 with respect to
obtaining the consent or approval at issue and AERC has complied with
its obligations under the relevant provisions of Section 5.2 with
respect to obtaining such consent or approval), (y) any Claim with
respect to any increase in insurance premiums with respect to insurance
covered in Section 4.24 and (z) as otherwise expressly provided in this
Agreement, and (ii) losses, liabilities, damages and expenses,
including without limitation interest, penalties, reasonable attorneys'
fees, any and all expenses actually incurred, in investigating,
preparing or defending against any such Claim, commenced or threatened,
and any and all amounts paid in settlement of any
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such Claim (collectively, "Damages") (collectively, "Indemnifiable
Claims" when used in the context of AERC as the Indemnified Party (as
defined in Section 8.3(c)).
(b) Subject to the limitations set forth in Section 8.3 and
8.6, by virtue of the approval and adoption of this Agreement by AERC,
AERC hereby covenants and agrees to indemnify and hold harmless MIGRA
(prior to the Closing) and the MIGRA Stockholders, both prior and
subsequent to the Closing, from and against any and all (i) Claims
asserted against, resulting to, imposed upon, or incurred, sustained
by, asserted by or suffered by MIGRA or any or all of the MIGRA
Stockholders, directly or indirectly, as a result of or arising from
(A) any inaccuracy in or breach of any of the representations and
warranties made by AERC in this Agreement or (B) the breach of any
covenant of AERC contained in this Agreement and(ii) all related
Damages (collectively, "Indemnifiable Claims" when used in the context
of MIGRA or the MIGRA Stockholders as the Indemnified Party.
(c) For purposes of this Article VIII, all Damages shall be
computed net of any insurance coverage or tax benefit which reduces the
Damages that would otherwise be sustained; provided that in all cases
the timing of the receipt or realization of insurance proceeds shall be
taken into account in determining the amount of reduction of Damages.
(d) AERC shall be deemed to have suffered Damages arising out
of or resulting from the matters referred to in Section 8.2(a) if the
same shall be suffered by any subsidiary or affiliate of AERC,
including without limitation, MIGRA after the Effective Time.
8.3 Limitations on Indemnification. Rights to indemnification
under this Article VIII are subject to the following limitations:
(a) AERC shall not be entitled to indemnification hereunder
with respect to an Indemnifiable Claim arising out of a breach of a
representation, warranty, covenant or agreement (or, if more than one
such Indemnifiable Claim is asserted, with respect to all such
Indemnifiable Claims), unless the aggregate amount of Damages with
respect to such Indemnifiable Claim or Claims exceeds $500,000 (the
"Basket"), in which event AERC shall be entitled to indemnification
hereunder for Damages with respect to all Indemnifiable Claims in
excess of the Basket; provided, however, that in no event shall AERC be
entitled to indemnification hereunder, including without limitation
Section 8.2(a)(i)(D), for Damages in an amount in excess of the
difference between (i) the Adjusted Purchase Price and (ii) the
aggregate value of the decreases to the number of AERC Common Shares
receivable by the MIGRA Stockholders made pursuant to Sections 2.4, 2.5
and 5.4, such difference herein referred to as the "MIGRA Cap"; and
further, provided, however, that notwithstanding the joint and several
indemnification obligation of the MIGRA Stockholders, no MIGRA
Stockholder at any time shall have to pay Damages in excess of the
amount of the Purchase Price actually received by such MIGRA
Stockholder at such time, it being understood that such excess shall
become immediately due and payable on the immediately succeeding date
when an installment of AERC Common Shares becomes payable pursuant to
Section 2.1 (to the extent of the
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value of the AERC Common Shares receivable on such date), and any
remaining excess and any additional subsequent Damages also shall
become so immediately due and payable on the immediately succeeding
date when such an installment becomes so payable (to the extent of the
value of the AERC Common Shares receivable on such date); and further,
provided, however, that no MIGRA Stockholder shall be liable for
Damages in an amount in excess of his or her pro rata share, as
determined by reference to the relative number of shares of MIGRA
Conversion Stock held thereby, of the MIGRA Cap; and provided further,
in the event that AERC has actual knowledge of a breach of this
Agreement which entitles it to terminate this Agreement pursuant to
Section 7.1(d) or 7.1(f) (whether or not it also has the right to
terminate under Section 7.1(h)) and elects not to exercise any such
right of termination and to waive all (but not less than all) of such
breaches (and the right to terminate under Section 7.1(h)) solely for
the purpose of effecting the Closing pursuant to Section 7.4, no MIGRA
Stockholder shall be liable for Damages caused by the representations
and warranties which are known to be not true and correct and (subject
to the last sentence of this Section 8.3(a)) Claims under Section
8.2(a)(i)(D) relating to liabilities and potential liabilities, which
to the actual knowledge of MIGRA or any MIGRA Stockholder or AERC, were
in existence, at the Effective Time in excess of his or her pro rata
share, determined as aforesaid, of either (i) if the price adjustment
referred to in Section 5.2(l) shall occur, 10% of the sum of
$10,000,000 plus the Adjusted Purchase Price, or (ii) if the price
adjustment referred to in Section 5.2(l) shall not occur, 10% of the
Adjusted Purchase Price. In the event the MIGRA Stockholders become
liable for Damages pursuant to this Section, each MIGRA Stockholder
shall have the right to elect, by written notice to AERC, to pay the
amount of Damages in cash or by a reduction of the number of AERC
Common Shares otherwise receivable thereby equal in value to the amount
of Damages; provided, that in the event a MIGRA Stockholder exercises
his or her rights pursuant to Section 8.5 as to the Indemnifiable Claim
or Claims in question, such number of AERC Common Shares shall be
placed in escrow pursuant to an escrow agreement, and with an escrow
agent, mutually agreed upon by AERC and the applicable MIGRA
Stockholder(s). For purposes of the preceding sentence, the value of
the AERC Common Shares shall be determined in the following order of
priority: (i) at the Effective Time, pursuant to Section 2.1(b); (ii)
on the Second Issuance Date, (A) first, pursuant to Section 2.1(c) and
(B) second, pursuant to Section 2.1(e) and (iii) on the Third Issuance
Date, (A) first, pursuant to Section 2.1(d) and (B) second, pursuant to
Section 2.1(f). The limits on indemnification contained in this
subsection shall not apply in the event of a breach of the
representations and warranties contained in Section 4.9(f) and the
Basket shall not be applicable to any failure to pay any Claims
relating to the MIGRA Stockholders Fixed Liabilities, or any Claims(s)
under Section 8.2(a)(i)(D) relating to liabilities and potential
liabilities of the MIGRA Companies or a MIGRA Company which, to the
actual knowledge of MIGRA or any MIGRA Stockholder, were in existence
at the Effective Time (whether or not the amount of such liability or
potential liability was quantified or quantifiable at the Effective
Time), including, without limitation, any such liabilities and
obligations listed on the MIGRA Disclosure Schedule.
(b) Neither MIGRA nor the MIGRA Stockholders shall be entitled
to indemnification hereunder with respect to an Indemnifiable Claim
arising out of a breach of a representation, warranty, covenant or
agreement (or, if more than one such
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Indemnifiable Claim is asserted, with respect to all such Indemnifiable
Claims) unless the aggregate amount of Damages with respect to such
Indemnifiable Claim or Claims exceeds the Basket, in which event MIGRA
or the MIGRA Stockholders shall be entitled to indemnification
hereunder for Damages with respect to all Indemnifiable Claims in
excess of the Basket; provided, however, that in no event shall MIGRA
and the MIGRA Stockholders be entitled to such indemnification for such
Damages in an amount in excess of the Adjusted Purchase Price.
(c) The obligation of indemnity (i) with respect to the
representations and warranties set forth in Article III shall terminate
two years after the Closing and (ii) with respect to any
representations and warranties relating to the Managed Properties shall
terminate two years after the Closing unless, in either case, an
Indemnifiable Claim has been brought with respect thereto prior to such
termination; provided that with respect to the representations and
warranties set forth in Sections 3.1 through 3.3, 4.1 through 4.4, and
4.9 and with respect to the MIGRA Stockholders Liabilities, the
obligation of indemnity shall extend to the expiration of the
applicable statute of limitations, if later; and provided further, that
nothing contained in the preceding portion of this Section 8.3(c) shall
be construed to limit the survival of the representations and
warranties in Article IV (other than those covered by the preceding
portion of this Section 8.3(c) or the obligation of indemnity contained
in Section 8.2(a)(i)(D), which representations and warranties and
obligation shall survive the Closing and shall extend to the expiration
of the applicable statute of limitations).
(d) The foregoing provisions of this Section 8.3
notwithstanding, if, prior to the termination of any obligation to
indemnify, written notice of a claimed breach or other occurrence or
matter giving rise to a claim of indemnification is given by the party
seeking indemnification (the "Indemnified Party") to the party from
whom indemnification is sought (the "Indemnifying Party"), or an
Indemnifiable Claim is commenced against the Indemnified Party, the
Indemnified Party shall not be precluded from seeking indemnification
for such claimed breach, occurrence, other matter, or an Indemnified
Claim from the Indemnifying Party in accordance with Section 8.4 or
8.5, as applicable.
8.4 Procedure for Indemnification with Respect to Third
Party Claims.
(a) If the Indemnified Party determines to seek
indemnification under this Article VIII with respect to Indemnifiable
Claims resulting from the assertion of liability by third parties, it
shall give prompt notice to the Indemnifying Party after it becomes
aware of any such Indemnifiable Claim (such notice to be given in any
event within the shorter of 15 days or the number of days necessary to
respond to the Indemnifiable Claim), which notice shall set forth such
material information with respect to such Indemnifiable Claim as is
then reasonably available to the Indemnified Party. If any such
liability is asserted against the Indemnified Party and the Indemnified
Party notifies the Indemnifying Party of such liability, the
Indemnifying Party shall be entitled, if it so elects by written notice
delivered to the Indemnified Party within 10 days after receiving the
Indemnified Party's notice, to assume the defense of such asserted
liability with counsel reasonably satisfactory to the Indemnified
Party. Notwithstanding the foregoing:
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(i) the Indemnified Party shall have the right to employ its own
counsel in any such case, but the fees and expenses of such counsel
shall be payable by the Indemnified Party; (ii) the Indemnified Party
shall not have any obligation to give any notice of any assertion of
liability by a third party unless such assertion is in writing; and
(iii) the rights of the Indemnified Party to be indemnified in respect
of Indemnifiable Claims resulting from the assertion of liability by
third parties shall not be adversely affected by its failure to give
notice pursuant to the foregoing provisions unless, and, if so, only to
the extent that, the Indemnifying Party is materially prejudiced by
such failure. With respect to any assertion of liability by a third
party that results in an Indemnifiable Claim, the Parties shall make
available to each other all relevant information in their possession
which is material to any such assertion.
(b) In the event that the Indemnifying Party fails to assume
the defense of the Indemnified Party against any such Indemnifiable
Claim, within 15 days after receipt of the Indemnified Party's notice
of such Indemnifiable Claim, the Indemnified Party shall have the right
to defend, compromise or settle such Indemnifiable Claim on behalf, for
the account, and at the risk of the Indemnifying Party.
(c) Notwithstanding anything in this Section 8.4 to the
contrary, (i) if there is a reasonable likelihood that an Indemnifiable
Claim may materially and adversely affect the Indemnified Party, its
corporate parent, if any, its subsidiaries or affiliates, including
without limitation MIGRA after the Effective Time if AERC is the
Indemnified Party, other than as a result of money damages or other
money payments (each, a "Non-monetary Indemnifiable Claim"), then the
Indemnified Party shall provide written notice to the Indemnifying
Party to such effect explaining the reasons therefor and, if the
Indemnifying Party consents thereto (which consent shall not be
unreasonably withhold or delayed), the Indemnifying Party shall have
the right, at the cost and expense of the Indemnifying Party, to defend
such Indemnifiable Claim; and (ii) neither the Indemnifying Party nor
the Indemnified Party shall, without the other's prior written consent
(which consent shall not be unreasonably withheld or delayed), settle
or compromise (i) any Indemnifiable Claim or consent to entry of any
judgment in respect of any Indemnifiable Claim, in each case involving
money damages or other money payments, unless such settlement,
compromise or consent includes as an unconditional term the giving by
the claimant or the plaintiff to the Indemnified Party (and its
corporate parent, if any, its subsidiaries and affiliates including
without limitation MIGRA after the Effective Time if AERC is the
Indemnified Party) a release from all liability in respect of such
Indemnifiable Claim or (ii) any Non-monetary Indemnifiable Claim.
8.5 Procedure For Indemnification with Respect to Non-Third
Party Claims. In the event that the Indemnified Party asserts the existence of
an Indemnifiable Claim giving rise to Damages (but excluding Indemnifiable
Claims resulting from the assertion of liability by third parties), it shall
give written notice to the Indemnifying Party specifying the nature and amount
of the Indemnifiable Claim asserted. If the Indemnifying Party, within 15
business days after receipt of such notice by the Indemnified Party, has not
given written notice to the Indemnified Party announcing its intent to contest
such assertion by the Indemnified Party, such assertion shall be deemed accepted
and the amount of Indemnifiable Claim shall be deemed a valid Indemnifiable
Claim. In the event, however, that the Indemnifying Party contests the
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assertion of an Indemnifiable Claim by giving such written notice to the
Indemnified Party within such 15 business day period, then if the parties,
acting in good faith, cannot reach agreement with respect to such Indemnifiable
Claim within 20 days after such notice, the contested assertion of the claim
shall be referred to arbitration in Cleveland, Ohio, in accordance with the
then-current rules of the American Arbitration Association. The parties shall
select an arbitrator who resides other than in Greater Cleveland or south
Florida. The determination made in accordance with such rules shall be delivered
in writing to the parties and shall be final and binding and conclusive on the
parties and the amount of the Indemnifiable Claim, if any, determined to exist
shall be a valid Indemnifiable Claim. Each Party shall pay its own legal,
accounting and other fees in connection with such a contest; provided that if
the contested Claim is referred to and ultimately determined by arbitration and
the position of the nonprevailing party is not upheld in any material respect by
the arbitrators, the legal, auditing and other fees of the prevailing party and
the fees and expenses of any arbitrator shall be borne by the nonprevailing
Party.
8.6 Termination of MIGRA's Warranties. Notwithstanding any
provisions of this Agreement to the contrary: (a) all representations,
warranties and covenants made by MIGRA in this Agreement or the Additional
Documents shall terminate as to MIGRA (but only as to MIGRA, but not as to the
MIGRA Stockholders, if, and to the extent made by them) as of the Effective
Time; and (b) after the Effective Time, MIGRA shall not have any obligation or
liability to any MIGRA Stockholder as a direct or indirect result of any breach
of representation, warranty or covenant for which the MIGRA Stockholders have or
may have liability to AERC pursuant to the terms of this Agreement.
8.7 Sole Remedies. Except as provided in Section 7.2 or
Section 9.8, the remedies provided in this Article VIII shall be the sole and
exclusive remedies of the parties hereto and shall preclude the assertion by any
party hereto of any other rights or the seeking of any other remedies against
the other parties hereto.
ARTICLE IX
MISCELLANEOUS
9.1 Notices. All notices and other communications hereunder
shall be in writing and shall be deemed given if delivered personally,
telecopied (which is confirmed) or dispatched by a nationally recognized
overnight courier service to the parties at the following addresses (or at such
other address for a party as shall be specified by like notice):
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IF TO MIGRA OR THE MIGRA STOCKHOLDERS:
MIG REALTY ADVISORS, INC.
Attn: Larry Wright
250 Australian Avenue, South, Suite 400
West Palm Beach, Florida 33401
Phone (561) 820-1300
Fax (561) 832-1622
WITH A COPY TO:
MAYER, BROWN & PLATT
Attn: Stuart P. Pergament, Esq.
2000 Pennsylvania Avenue, N.W.
Washington, D.C. 20006
Phone (202) 778-0600
Fax (202) 861-0473
IF TO AERC:
ASSOCIATED ESTATES REALTY CORPORATION
Attn: Mr. Jeffrey Friedman
5025 Swetland Court
Richmond Heights, Ohio 44143-1467
Phone (216) 473-8700
Fax (216) 473-8105
WITH A COPY TO:
BAKER & HOSTETLER LLP
Attn: Albert T. Adams, Esq.
3200 National City Center
1900 East Ninth Street
Cleveland, Ohio 44114-3485
Phone (216) 861-7499
Fax (216) 696-0740
9.2 Interpretation. When a reference is made in this Agreement
to an Article or Section, such reference shall be to an Article or Section of
this Agreement unless otherwise indicated. The headings and the table of
contents contained in this Agreement are for reference purposes only and shall
not affect in any way the meaning or interpretation of this Agreement. For the
purposes of any provision of this Agreement, a "Material Adverse Effect" with
respect to any party shall mean a material adverse effect on the assets,
liabilities, results of operations or financial condition of such party and its
subsidiaries taken as a whole. For purposes of this Agreement, unless otherwise
provided expressly, a "subsidiary" of any person means another person, an amount
of the voting securities or other voting ownership or voting partnership
interests of which is sufficient to elect at least a majority of its Board of
Directors or other
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governing body (or, if there are no such voting securities or interests, 50% or
more of the equity interests of which) is owned directly or indirectly by such
first person.
9.3 Counterparts. This Agreement may be executed in
counterparts, which together shall constitute one and the same Agreement. The
parties may execute more than one copy of the Agreement, each of which shall
constitute an original.
9.4 Entire Agreement. This Agreement (including the documents
and the instruments referred to herein) constitutes the entire agreement among
the parties and supersede all prior agreements and understandings, agreements or
representations by or among the parties, written and oral, with respect to the
subject matter hereof and thereof; provided, however, that the existing
confidentiality agreements between AERC and MIGRA shall continue to be in full
force and effect.
9.5 Third Party Beneficiaries. Except as set forth in the next
sentence, nothing in this Agreement, express or implied, is intended or shall be
construed to create any third party beneficiaries. AEMC, as the successor to the
business conveyed in the Spinoff Transfer, is an intended third party
beneficiary of Article IV, and the obligations of MIGRA and the MIGRA
Stockholders in Articles V and VIII of this Agreement.
9.6 Governing Law. Except to the extent that the laws of the
jurisdiction of organization of any party hereto, or any other jurisdiction, are
mandatorily applicable to the Merger or to matters arising under or in
connection with this Agreement, this Agreement shall be governed by the laws of
the State of Ohio. Except as provided otherwise in Section 8.5, all actions and
proceedings arising out of or relating to this Agreement shall be heard and
determined in any Ohio state or federal court sitting in Cleveland, Ohio.
9.7 Consent to Jurisdiction; Venue. Except with respect to any
claim or proceeding arising out of Section 8.5:
(a) Each of the parties hereto irrevocably submits to the
exclusive jurisdiction of the state courts of Ohio and to the jurisdiction of
the United States District Court for the Northern District of Ohio, for the
purpose of any action or proceeding arising out of or relating to this Agreement
and each of the parties hereto irrevocably agrees that all claims in respect to
such action or proceeding may be heard and determined exclusively in any Ohio
state or federal court sitting in the City of Cleveland. Each of the parties
hereto agrees that a final judgment in any action or proceeding shall be
conclusive and may be enforced in other jurisdictions by suit on the judgment or
in any other manner provided by law.
(b) Each of the parties hereto irrevocably consents to the
service of any summons and complaint and any other process in any other action
or proceeding relating to the Merger, on behalf of itself or its property, by
the personal delivery of copies of such process to such party. Nothing in this
Section 9.7 shall affect the right of any party hereto to serve legal process in
any other manner permitted by law.
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9.8 Specific Performance; Other Equitable Relief.
(a) The transactions contemplated by this Agreement are
unique. Accordingly, each of the parties acknowledges and agrees that, in
addition to all other remedies to which it may be entitled hereunder, each of
the parties hereto is entitled to a decree of specific performance, provided
such party is not in material default hereunder and may be entitled to pursue
the judicial determination referred to in the second sentence of Section 7.2.
(b) AERC acknowledges and agrees that, in the event of a
breach of Section 5.1(f) and Section 5.2(h) of this Agreement, MIGRA may not
have an adequate remedy at law and would be entitled to equitable relief. AERC
hereby consents to the entry of an injunctive or otherwise order by a court of
competent jurisdiction intended to enforce the terms and intent of Section
5.2(h) of this Agreement.
9.9 Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto (whether by operation of law or otherwise) without the prior written
consent of the other parties. Subject to the preceding sentence, this Agreement
shall be binding upon, inure to the benefit of and be enforceable by the parties
and their respective successors and assigns.
9.10 Expenses. Subject to the provisions of Section 7.2, all
costs and expenses incurred by AERC in connection with this Agreement and the
transactions contemplated hereby shall be paid by it, and all such costs and
expenses incurred by MIGRA and the MIGRA Stockholders shall be paid by MIGRA.
Notwithstanding any provision of this Agreement or any other Agreement executed
or delivered by or on behalf of MIGRA to the contrary, MIGRA shall be solely
responsible for payment of up to $40,000 owed to Stonemark Apartments II, Inc.
("Stonemark"), if any, upon the closing of the transactions contemplated by that
certain purchase agreement between AERC and Stonemark.
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IN WITNESS WHEREOF, AERC and MIGRA have signed this Agreement
as of the date first written above.
ASSOCIATED ESTATES REALTY
CORPORATION
By:_______________________________________
Name: __________________
Title: ___________________
MIG REALTY ADVISORS, INC.
By:________________________________
Name: __________________
Title: ___________________
MIGRA STOCKHOLDERS
- ----------------------------
Name:
- ----------------------------
Name:
- ----------------------------
Name:
- ----------------------------
Name:
- ----------------------------
Name:
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SCHEDULE 2.1
ALLOCATION OF AERC SHARES
At Third At Second At Third
At Effective At Second Issuance Issuance Issuance
Time Issue Date Date Per Date Per Date Per
Per 2.1(b) Per 2.1(c) 2.1(d) 2.1(e) 2.1(f)
----------------------------------------------------------------------------------------------------------
James Cote 21.10% 21.10% 21.10% 21.10% 21.10%
Gregory Golz 8.10% 8.10% 8.10% 8.10% 8.10%
William 8.10% 8.10% 8.10% 8.10% 8.10%
Hughes
Louis Vogt 11.30% 11.30% 11.30% 11.30% 11.30%
Larry Wright 51.40% 51.40% 51.40% 51.40% 51.40%
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Exhibit A
PROPERTIES
MANAGED PROPERTIES
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Exhibit B
OPINION OF AERC'S COUNSEL
1. AERC is a corporation duly organized, validly existing and
in good standing under the laws of the State of Ohio with all requisite
corporate power and authority to own and operate its properties and to conduct
its businesses as now conducted.
2. AERC has all requisite corporate power and authority to
execute and deliver the Agreement and to perform its obligations thereunder.
3. The execution and delivery of the Agreement by AERC, and
the consummation by AERC of the transactions contemplated thereby have been duly
authorized by all requisite corporate action on the part of AERC. The Agreement
has been duly executed and delivered by AERC, and the Agreement constitutes the
legal, valid and binding obligation of AERC, enforceable in accordance with its
terms, except as may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors' rights generally and by general principles of equity and public
policy.
4. Neither the execution and delivery of the Agreement by AERC
nor the consummation of the transactions contemplated thereby will conflict
with, or result in a breach of, any provision of the AERC Articles or the AERC
Code of Regulations.
5. All AERC Common Shares to be issued in the Merger will be
duly authorized and validly issued, fully paid and nonassessable and will not be
issued in violation of any preemptive or similar rights.
6. All actions on the part of AERC have been taken necessary
to exempt under or make not subject to any state takeover law or other state law
that purports to limit or restrict business combinations or the ability to
acquire or vote shares: (i) the execution of the Agreement, (ii) the Merger and
(iii) the transactions contemplated by the Agreement.
7. Upon the filing of the Certificate of Merger with the Ohio
Secretary of State, the Merger will be effective under the Ohio Revised Code in
accordance with the terms of the Agreement and the Certificate of Merger.
We express no opinion as to any violation of law that might
result, in whole or in part, from any competitive effect, actual or potential,
of the transactions contemplated by the Agreement.
67
The foregoing opinions are limited to the laws of the State of
Ohio and applicable federal law of the United States of America and we express
no opinion as to the law of any other jurisdiction. To the extent that any
matter with respect to which we give any opinion herein is governed by the laws
of any other jurisdiction, we have assumed, with your permission and without
investigation, that such laws are the same as the internal substantive laws of
the State of Ohio. We assume no obligation to update such opinions to reflect
any facts or circumstances that hereafter may come to our attention or any
changes in the laws that hereafter may occur. The opinions contained herein are
provided to you for your exclusive use solely in connection with the
transactions contemplated by the Agreement and may not be otherwise used or
relied upon by you or any other person for any purpose whatsoever, without in
each instance our prior written consent.
Very truly yours,
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Exhibit C
OPINION OF MIGRA'S COUNSEL
[to be revised to reflect structure
and investment company matters]
1. MIGRA is a corporation organized, validly existing and in
good standing under the laws of the State of Florida with full corporate power
and authority to own, and operate its properties and to conduct its business as
now conducted.
2. MIGRA has all requisite corporate power and authority to
execute and deliver the Agreement, and to perform its obligations thereunder.
3. The execution and delivery by MIGRA of the Agreement and
the consummation by MIGRA of the transactions contemplated by the Agreement have
been duly authorized by all necessary corporate action on the part of MIGRA. The
Agreement has been duly executed and delivered by MIGRA, and constitutes the
legal, valid and binding obligation of MIGRA, enforceable in accordance with its
terms, except as may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors' rights generally and by general principles of equity and public
policy.
4. Neither the execution and delivery of the Agreement by
MIGRA nor the consummation of the transactions contemplated thereby will
conflict with, or result in a breach of, any provision of the Articles of
Incorporation, as amended, or the Bylaws, as amended, of MIGRA.
5. All actions on the part of MIGRA have been taken necessary
to exempt under or make not subject to any state takeover law or other state law
that purports to limit or restrict business combinations or the ability to
acquire or vote shares: (i) the execution of the Agreement, (ii) the Merger and
(iii) the transactions contemplated by the Agreement.
6. Upon the filing of the Certificate of Merger with the
Florida Secretary of State, the Merger will be effective under the FBCA in
accordance with the terms of the Agreement and the Certificate of Merger.
We express no opinion as to any violation of law that might
result, in whole or in part, from any anticompetitive effect, actual or
potential, of the transactions contemplated by the Agreement.
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The foregoing opinions are limited to the laws of the State of
Florida and applicable federal law of the United States of America. We express
no opinion as to the law of any other jurisdiction. To the extent that any
matter with respect to which we give any opinion herein is governed by the laws
of any other jurisdiction, we have assumed, with your permission and without
investigation, that such laws are the same as the internal substantive laws of
the State of Florida. We assume no obligation to update such opinions to reflect
any facts or circumstances that hereafter may come to our attention or any
changes in the laws that hereafter may occur. The opinions contained herein are
provided to you for your exclusive use solely in connection with the
transactions contemplated by the Agreement and may not be otherwise used or
relied upon by you or any other person for any purpose whatsoever, without in
each instance our prior written consent.
Very truly yours,
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