TABLE OF CONTENTS

 

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ARTICLE I	THE MERGER
Section 1.1	THE MERGER		2
Section 1.2	EFFECTIVE TIME		2
Section 1.3	CLOSING OF THE MERGER		2
Section 1.4	EFFECTS OF THE MERGER		2
Section 1.5	LIMITED LIABILITY COMPANY AGREEMENT		2
Section 1.6	MEMBERS AND OFFICERS OF SURVIVING ENTITY		3
ARTICLE II	MERGER CONSIDERATION; CONVERSION OF STOCK; EFFECTS ON MERGER SUB INTERESTS
Section 2.1	CONVERSION OF COMPANY CAPITAL STOCK; EFFECTS OF MERGER ON MERGER SUB INTERESTS		3
Section 2.2	EXCHANGE OF CERTIFICATES		4
Section 2.3	COMPANY WARRANTS		6
Section 2.4	NO FRACTIONAL SHARES OF PARENT COMMON SHARES		6
Section 2.5	DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES		7
Section 2.6	NO LIABILITY		7
Section 2.7	DISSENTERS’ RIGHTS		7
Section 2.8	STOCK OPTIONS AND RESTRICTED STOCK		8
Section 2.9	SECTION 16 MATTERS.		8
Section 2.10	PARENT STOCK ELECTION		9
Section 2.11	ADJUSTMENT TO STOCK CONSIDERATION		9
ARTICLE III	REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Section 3.1	ORGANIZATION AND QUALIFICATION; SUBSIDIARIES		10
Section 3.2	CAPITALIZATION		11
Section 3.3	AUTHORITY RELATIVE TO THIS AGREEMENT; STOCKHOLDER APPROVAL		13
Section 3.4	REPORTS; FINANCIAL STATEMENTS		13
Section 3.5	NO UNDISCLOSED LIABILITIES		15
Section 3.6	ABSENCE OF CHANGES		15
Section 3.7	CONSENTS AND APPROVALS; NO VIOLATIONS		15
Section 3.8	LITIGATION		16
Section 3.9	COMPLIANCE WITH APPLICABLE LAW		17
Section 3.10	PROPERTIES		17
Section 3.11	EMPLOYEE PLANS		19
Section 3.12	LABOR MATTERS		22
Section 3.13	ENVIRONMENTAL MATTERS		23
Section 3.14	TAX MATTERS		25
Section 3.15	MATERIAL CONTRACTS		30

 

 

Section 3.16	OPINION OF FINANCIAL ADVISOR		31
Section 3.17	BROKERS		32
Section 3.18	TAKEOVER STATUTES		32
Section 3.19	RELATED PARTY TRANSACTIONS		32
Section 3.20	INVESTMENT COMPANY ACT OF 1940		32
Section 3.21	TRADEMARKS, PATENTS AND COPYRIGHTS		32
Section 3.22	INSURANCE		32
Section 3.23	INFORMATION IN PROXY STATEMENT/PROSPECTUS		33
ARTICLE IV	REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Section 4.1	ORGANIZATION AND QUALIFICATION		33
Section 4.2	CAPITALIZATION		33
Section 4.3	AUTHORITY RELATIVE TO THIS AGREEMENT; STOCKHOLDER APPROVAL		34
Section 4.4	CONSENTS AND APPROVALS; NO VIOLATIONS		35
Section 4.5	REPORTS; FINANCIAL STATEMENTS		35
Section 4.6	NO UNDISCLOSED LIABILITIES		36
Section 4.7	ABSENCE OF CHANGES		37
Section 4.8	LITIGATION		37
Section 4.9	COMPLIANCE WITH APPLICABLE LAW		37
Section 4.10	TAXES		38
Section 4.11	BROKERS		38
Section 4.12	TAKEOVER STATUTES		38
Section 4.13	AUTHORIZATION FOR PARENT COMMON SHARES		38
Section 4.14	INVESTMENT COMPANY ACT OF 1940		38
Section 4.15	NO PRIOR ACTIVITIES; INTERIM OPERATIONS		38
Section 4.16	SUFFICIENT CONSIDERATION; NO OWNERSHIP OF COMPANY STOCK		39
Section 4.17	INFORMATION IN COMPANY STATEMENT/PROSPECTUS		39
Section 4.18	PROPERTIES		39
ARTICLE V	COVENANTS RELATED TO CONDUCT OF BUSINESS
Section 5.1	COVENANTS OF THE COMPANY		39
Section 5.2	COVENANTS OF PARENT		44
Section 5.3	ACCESS TO INFORMATION		44
ARTICLE VI	ADDITIONAL AGREEMENTS
Section 6.1	PREPARATION OF FORM S-4 AND THE PROXY STATEMENT/PROSPECTUS		45
Section 6.2	COMPANY STOCKHOLDERS’ MEETING		46
Section 6.3	REASONABLE BEST EFFORTS		47
Section 6.4	COMPANY ACQUISITION PROPOSALS		48
Section 6.5	RESIGNATIONS		51

 

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Section 6.6	PUBLIC ANNOUNCEMENTS		51
Section 6.7	INDEMNIFICATION; DIRECTORS’ AND OFFICERS’ INSURANCE		51
Section 6.8	EMPLOYEE MATTERS		53
Section 6.9	NOTIFICATION OF CERTAIN MATTERS		55
Section 6.10	COORDINATION OF DISTRIBUTIONS		55
Section 6.11	TAXES		55
Section 6.12	EXTENSION OF INSURANCE POLICIES		57
Section 6.13	OBTAINING CONSENTS		57
Section 6.14	SUSPENSION OF PLANS		57
Section 6.15	ASSET SALES		57
Section 6.16	TERMINATION OF RELATED SERVICES AGREEMENTS; CAPTIVE INSURANCE COMPANY		58
ARTICLE VII	CONDITIONS TO CONSUMMATION OF THE MERGER
Section 7.1	CONDITIONS TO EACH PARTY’S OBLIGATIONS TO EFFECT THE MERGER		58
Section 7.2	CONDITIONS TO THE OBLIGATIONS OF PARENT AND MERGER SUB TO EFFECT THE MERGER		59
Section 7.3	CONDITIONS TO OBLIGATIONS OF THE COMPANY TO EFFECT THE MERGER		61
ARTICLE VIII	TERMINATION; AMENDMENT; WAIVER
Section 8.1	TERMINATION		61
Section 8.2	EFFECT OF THE TERMINATION		63
Section 8.3	FEES AND EXPENSES.		63
Section 8.4	AMENDMENT		66
Section 8.5	EXTENSION; WAIVER		66
ARTICLE IX	MISCELLANEOUS
Section 9.1	NONSURVIVAL OF REPRESENTATIONS AND WARRANTIES; SURVIVAL OF CONFIDENTIALITY		66
Section 9.2	ENTIRE AGREEMENT; DISCLOSURE SCHEDULES; ASSIGNMENT; OBLIGATION OF PARENT ENTITIES		66
Section 9.3	NOTICES		67
Section 9.4	GOVERNING LAW		68
Section 9.5	DESCRIPTIVE HEADINGS		68
Section 9.6	PARTIES IN INTEREST		68
Section 9.7	SEVERABILITY		68
Section 9.8	REMEDIES		68
Section 9.9	SPECIFIC PERFORMANCE		68
Section 9.10	COUNTERPARTS		69
Section 9.11	INTERPRETATION		69
Section 9.12	DEFINITIONS		69

 

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AGREEMENT AND PLAN OF MERGER

 

THIS AGREEMENT AND PLAN OF MERGER (this “Agreement”), dated as of October 20, 2006, is by and among Inland Retail Real Estate Trust, Inc., a Maryland corporation (the “Company”), Developers Diversified Realty Corporation, an Ohio corporation (“Parent”), and DDR IRR Acquisition LLC, a Delaware limited liability company and a wholly owned subsidiary of Parent (“Merger Sub”).

 

W I T N E S S E T H:

 

WHEREAS, the Board of Directors of the Company (the “Company Board”), on the recommendation of a sub committee of the Company Board (the ”Sub Committee”), has unanimously determined that the merger of the Company with and into Merger Sub (the “Merger”) is advisable and fair to, and in the best interests of, the Company and the holders of the common stock of the Company, par value $.01 per share (the “Company Common Stock”);

 

WHEREAS, the Board of Directors of Parent has unanimously determined that the Merger and this Agreement are advisable and fair to, and in the best interests of, Parent and the holders of common shares of the Parent, par value $0.01 per share (“Parent Common Shares”);

 

WHEREAS, Parent, as the sole member of Merger Sub, has determined that the Merger and this Agreement are advisable and fair to, and in the best interests of, Merger Sub and Parent as its sole member;

 

WHEREAS, each of the Board of Directors of Parent and the Company Board have approved this Agreement, the Merger and the other transactions contemplated by this Agreement on the terms and conditions contained in this Agreement;

 

WHEREAS, Parent, as the sole member of Merger Sub, has approved this Agreement, the Merger and the transactions contemplated by this Agreement pursuant to action taken by unanimous written consent in accordance with the requirements of the Delaware Limited Liability Company Act (the “DLLC Act”) and the certificate of formation and limited liability company agreement of Merger Sub; and

 

WHEREAS, Parent, the Company and Merger Sub intend that for U.S. federal and applicable state income tax purposes the Merger shall be treated as a taxable disposition by the Company of all of the Company’s assets in exchange for the Merger Consideration (as hereinafter defined), and the assumption of the Company’s liabilities, followed by a liquidating distribution of such Merger Consideration to the holders of the Company Common Stock pursuant to Section 331 and Section 562 of the Code.

 

NOW, THEREFORE, in consideration of the premises and the representations, warranties, covenants and agreements herein contained, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, and intending to be legally bound hereby, the parties hereto hereby agree as follows:

 

 

ARTICLE I

THE MERGER

 

Section 1.1                                       THE MERGER. At the Effective Time (as hereinafter defined) and upon the terms and subject to the conditions of this Agreement and in accordance with the Maryland General Corporation Law (the “MGCL”) and the DLLC Act, the Company shall be merged with and into Merger Sub. Following the Merger, the separate corporate existence of the Company shall cease and Merger Sub shall continue as the surviving entity (the “Surviving Entity”) and as a wholly owned subsidiary of Parent. The limited liability company existence of Merger Sub, with all its purposes, rights, privileges, franchises, powers and objects, shall continue unaffected and unimpaired by the Merger and, as the Surviving Entity, it shall be governed by the laws of the State of Delaware.

 

Section 1.2                                       EFFECTIVE TIME. Subject to the provisions of this Agreement, Parent, Merger Sub and the Company shall cause the Merger to be consummated by filing such articles and certificate of merger or other appropriate documents (in any such case, the “Articles of Merger”) with the State Department of Assessments and Taxation of Maryland and the Secretary of State of the State of Delaware, as applicable, in such form as required by, and executed in accordance with, the relevant provisions of the MGCL and the DLLC Act and shall make all other filings, recordings or publications required by the MGCL and the DLLC Act in connection with the Merger. The Merger shall become effective at the time specified in the Articles of Merger (the time the Merger becomes effective being the “Effective Time”).

 

Section 1.3                                       CLOSING OF THE MERGER. Unless this Agreement shall have been terminated by either Parent or the Company pursuant to the provisions of Section 8.1, the closing of the Merger (the “Closing”) will take place (a) at 10:00 a.m., Chicago time, as soon as practicable, but in no event later than the second Business Day after satisfaction or waiver of all of the conditions set forth in Article VII (other than those conditions that by their nature are to be satisfied at the Closing, but subject to the fulfillment or waiver of those conditions), at the offices of Duane Morris LLP Chicago, Illinois; or (b) at such other time, date or place as agreed to in writing by the parties hereto (such date and time on and at which the Closing occurs being referred to herein as the “Closing Date”). At the Closing, the documents, certificates, opinions and instruments referred to in Article VII shall be executed and delivered to the applicable party.

 

Section 1.4                                       EFFECTS OF THE MERGER. The Merger shall have the effects set forth in the MGCL and the DLLC Act. Without limiting the generality of the foregoing, and subject thereto, at the Effective Time, all the properties, rights, privileges, powers and franchises of the Company and Merger Sub shall vest in the Surviving Entity, and all debts, liabilities, duties and obligations of the Company and Merger Sub shall become the debts, liabilities, duties and obligations of the Surviving Entity.

 

Section 1.5                                       LIMITED LIABILITY COMPANY AGREEMENT. The limited liability company agreement of Merger Sub, as in effect immediately prior to the Effective Time, shall be the limited liability company agreement of Surviving Entity until thereafter amended as provided therein or by law (the “LLC Agreement”).

 

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Section 1.6                                       MEMBERS AND OFFICERS OF SURVIVING ENTITY.

 

(a)                                                     Parent, the sole member of Merger Sub immediately prior to the Effective Time, shall be the sole member of the Surviving Entity, and the officers of Merger Sub, if any, immediately prior to the Effective Time shall be the initial officers of Surviving Entity, each to hold office in accordance with the terms of the LLC Agreement.

 

(b)                                                    Each of the current directors and officers of the Company shall resign from such positions and any other position that each such director or officer may hold in any of the Company’s subsidiaries, such resignation to be effective as of and upon the Effective Time.

 

ARTICLE II

MERGER CONSIDERATION; CONVERSION OF STOCK;
EFFECTS ON MERGER SUB INTERESTS

 

Section 2.1                                       CONVERSION OF COMPANY CAPITAL STOCK; EFFECTS OF MERGER ON MERGER SUB INTERESTS. At the Effective Time, by virtue of the Merger and without any action on the part of any holder thereof:

 

(a)                                   Subject to this Article II, each share of Company Common Stock issued and outstanding immediately prior to the Effective Time (other than shares to be canceled in accordance with Section 2.1(c) but including restricted shares granted pursuant to the Company Option Plans (as hereinafter defined)) shall automatically be converted into, and shall be cancelled in exchange for, the right to receive the Merger Consideration. The “Merger Consideration” means the Cash Consideration, together with, if applicable, the Stock Consideration (as hereinafter defined). The “Cash Consideration” means an amount in cash, without interest, equal to the sum of (i) $14.00 and (ii) $0.069167 multiplied by the quotient obtained by dividing (x) the number of days between (I) the last day of the last month for which full monthly dividends on the Company Common Stock have been declared and paid and (II) the Closing Date (including the Closing Date), by (y) the total number of days in the month during which the Closing Date occurs, without interest, subject to adjustment as provided in Section 2.10 and Section 6.10.

 

(b)                                  All shares of Company Common Stock converted into the right to receive the Merger Consideration pursuant to Section 2.1(a) shall cease to be outstanding and shall be canceled and retired and shall cease to exist, and each holder of a certificate that immediately prior to the Effective Time represented such shares of Company Common Stock (a “Certificate”) shall thereafter cease to have any rights with respect to such shares of Company Common Stock, except the right to receive (i) the Merger Consideration, (ii) any cash in lieu of fractional Parent Common Shares, if any, to be issued or paid in consideration therefor upon surrender of such Certificate in accordance with Section 2.4(b), (iii) with respect to the Stock Consideration, if any, any dividends or distributions in accordance with Section 2.5 and (iv) any unpaid dividend declared by the Company in respect of Company Common Stock in accordance with Section 6.10, in each case without interest.

 

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(c)                                   Each share of Company Common Stock held in treasury and not outstanding immediately prior to the Effective Time shall be canceled and retired and cease to exist and no payment or distribution shall be made with respect thereto.

 

(d)                                  Each limited liability company interest in Merger Sub issued and outstanding immediately prior to the Effective Time shall remain as issued and outstanding limited liability company interest of the Surviving Entity.

 

Section 2.2                                       EXCHANGE OF CERTIFICATES.

 

(a)                                   Prior to the Effective Time, Parent shall designate KeyCorp or another agent reasonably acceptable to Parent and the Company to act as agent (the “Paying Agent”) for the payment of the Merger Consideration. At or prior to the Effective Time, Parent shall deliver to the Paying Agent (i) certificates (or have entered by way of book-entry) representing Parent Common Shares sufficient to deliver the aggregate Stock Consideration, if any, (ii) cash sufficient to deliver the Cash Consideration payable to holders of Certificates, (iii) cash in respect of the Company Warrant Consideration payable to holders of Company Warrants who have executed Warrant Cash Out Agreements at or prior to the Effective Time, and (iv) an estimated amount of cash in lieu of fractional shares, if any, payable pursuant to Section 2.4(b). The Paying Agent shall not be entitled to vote or exercise any rights of ownership with respect to the Parent Common Shares held by it from time to time hereunder, except that it shall receive and hold all dividends or other distributions paid or distributed with respect to such shares for the account of the Persons entitled thereto. The Paying Agent shall cause the cash, Parent Common Shares, if any, dividends or distributions with respect thereto and cash in lieu of fractional shares, if any, deposited by Parent to be (x) held for the benefit of holders of Certificates and holders of Company Warrants who executed and delivered a Cash Out Agreement at or prior to the Effective Time and, as applicable, (ii) promptly applied to making the exchanges and payments provided for in this Section 2.2 and in Sections 2.3 and 2.4(b). Such cash, Parent Common Shares, dividends or distributions with respect thereto and cash in lieu of fractional shares shall not be used for any purpose that is not provided for herein.

 

(b)                                  As soon as reasonably practicable after the Effective Time (and in any event not later than five (5) Business Days after the Effective Time), the Paying Agent shall mail to each holder of record of a Certificate or Certificates whose shares were converted into the right to receive the Merger Consideration a letter of transmittal in a form prepared prior to the Effective Time and reasonably acceptable to the Company and Parent (which shall specify that delivery shall be effected, and risk of loss and title to the Certificates shall pass, only upon delivery of the Certificates to the Paying Agent) and instructions for use in effecting the surrender of the Certificates in exchange for the Merger Consideration and the cash, if any, in lieu of fractional shares pursuant to Section 2.4(b). Upon surrender to the Paying Agent of a Certificate, together with such letter of transmittal, duly completed and validly executed in accordance with the instructions thereto, and such other documents as may be reasonably required pursuant to such instructions, the holder of such Certificate shall be entitled to receive in exchange therefor, after giving effect to any required Tax withholding pursuant to Section 2.2(e), (i) cash in respect of the Cash Consideration which such holder has the right to receive pursuant to Section 2.1(a), (ii) a certificate in respect of the Stock Consideration representing that number of whole Parent Common Shares, if any, which such holder has the right to receive pursuant to

 

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Section 2.1(a), (iii) cash in lieu of any fractional Parent Common Share to which such holder is entitled pursuant to Section 2.4(b), (iv) any dividends or distributions to which such holder is entitled pursuant to Section 2.5, in each case without interest, and the Certificate so surrendered shall forthwith be canceled, and (v) any unpaid dividend or distribution declared by the Company in respect of Company Common Stock in accordance with Section 6.10, in each case without interest. The Paying Agent shall accept such Certificates upon compliance with such reasonable terms and conditions as the Paying Agent may impose to effect an orderly exchange thereof in accordance with normal exchange practices.

 

(c)                                   Each outstanding Certificate that prior to the Effective Time represented Company Common Stock and which is not surrendered to the Paying Agent in accordance with the procedures provided for herein shall, except as otherwise herein provided, until duly surrendered to the Paying Agent, be deemed to evidence the right to receive the Merger Consideration into which such Company Common Stock shall have been converted. After the Effective Time, (i) there shall be no further transfer on the records of the Company of Certificates representing shares of Company Common Stock and if such Certificates are presented to the Company for transfer, they shall be cancelled against delivery of certificates for the Merger Consideration, and (ii) the holders of Certificates shall cease to have rights with respect to the Company Common Stock represented by such Certificates, except the right to receive the Merger Consideration against delivery of such Certificates in accordance with the terms of this Agreement. Parent shall not be obligated to deliver the Merger Consideration to which a holder of Company Common Stock would otherwise be entitled as a result of the Merger until such holder surrenders the Certificate or Certificates representing the shares of Company Common Stock for exchange as provided in this Section 2.2, or, in default thereof, an appropriate affidavit of loss and indemnity agreement and/or a bond as may be required by Parent or the Paying Agent. If any certificates evidencing Parent Common Shares are to be issued in a name other than that in which the Certificate evidencing Company Common Stock surrendered in exchange therefor is registered, it shall be a condition of the issuance thereof that the Certificate so surrendered shall be properly endorsed or accompanied by an executed form of assignment separate from the Certificate and otherwise in proper form for transfer and that the Person requesting such exchange pay to the Paying Agent any transfer or other tax required by reason of the issuance of a certificate for Parent Common Shares in any name other than that of the registered holder of the Certificate surrendered, or otherwise establish to the satisfaction of the Paying Agent that such tax has been paid or is not payable.

 

(d)                                  Any portion of the Merger Consideration that remains unclaimed by the stockholders of the Company for one year after the Effective Time (as well as any proceeds from any investment thereof) shall upon demand be delivered by the Paying Agent to Parent. Any stockholders of Company who have not theretofore complied with this Article II shall thereafter look only to Parent for the consideration deliverable in respect of each share of Company Common Stock such stockholder holds as determined pursuant to this Agreement, without any interest thereon. Neither the Paying Agent nor any party to this Agreement shall be liable to any holder of stock represented by any Certificate for any consideration paid to a public official pursuant to applicable abandoned property, escheat or similar laws. Parent and the Paying Agent shall be entitled to rely upon the stock transfer books of the Company to establish the identity of those Persons entitled to receive the Merger Consideration specified in this Agreement, which books shall be conclusive with respect thereto.

 

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(e)                                   Parent, Merger Sub (in its capacity as the Surviving Entity or otherwise), the Company, and/or the Paying Agent shall be entitled to deduct and withhold from the Merger Consideration, the Company Option Consideration or the Company Warrant Consideration, as the case may be, otherwise payable pursuant to this Agreement to the holders of shares of Company Common Stock, Company Stock Options, Dissenting Shares or Company Warrants, as applicable, such amounts, if any, as are required to be deducted or withheld under any provision of U.S. federal tax Law, or any provision of state, local or foreign tax Law, with respect to the making of such payment. Amounts so withheld shall be treated for all purposes of this Agreement as having been paid to the holders of shares of Company Common Stock, Company Stock Options, Dissenting Shares or Company Warrants, as applicable, in respect of which such deduction or withholding was made.

 

(f)                                     The Paying Agent shall invest any cash it so receives, as directed by Parent, on a daily basis. Any interest and other income resulting from such investments shall be paid to Parent.

 

(g)                                  If any Certificate has been lost, stolen or destroyed, upon the making of an affidavit of that fact by the Person claiming such Certificate to be lost, stolen or destroyed and, if required by the Surviving Entity, the posting by such Person of a bond in such reasonable amount as the Surviving Entity may direct as indemnity against any claim that may be made against it with respect to such Certificate, the Paying Agent shall issue, in exchange for such lost, stolen or destroyed Certificate, the Merger Consideration and, if applicable, any unpaid dividend or distribution on the Parent Common Shares deliverable in respect thereof and any cash in lieu of fractional shares, in each case, due to such Person pursuant to this Agreement.

 

Section 2.3                                       COMPANY WARRANTS. From and after the date hereof until the Effective Time, the Company shall use its reasonable best efforts in accordance with applicable law to (a) cause each outstanding Company Warrant to be exercised and cancelled in accordance with its terms or (b) cause the holder of any unexercised Company Warrant to enter into an agreement with the Company, in form and substance reasonably satisfactory to Parent (each, a “Warrant Cash Out Agreement”), pursuant to which the holder of such Company Warrant agrees to receive from the Surviving Entity, subject to the consummation of the Merger and in exchange for the cancellation of such Company Warrant, an amount equal to the excess, if any, of (x) $14.00 over (y) the per share exercise price of such Company Warrant, multiplied by the number of shares subject to such Company Warrant at the Effective Time (such amount, the “Company Warrant Consideration”). If the exercise price per share of any Company Warrant is equal to or greater than the Merger Consideration, the Company shall use its reasonable best efforts to cause the holder thereof to enter into an agreement pursuant to which such Company Warrant shall be canceled at the Effective Time without any cash payment being made in respect thereof (“Warrant Cancellation Agreement”).

 

Section 2.4                                       NO FRACTIONAL SHARES OF PARENT COMMON SHARES.

 

(a)                                   No certificates or scrip of Parent Common Shares representing fractional Parent Common Shares shall be issued upon the surrender for exchange of Certificates and such fractional share interests will not entitle the owner thereof to vote or to have any rights of a shareholder of Parent or a holder of Parent Common Shares.

 

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(b)                                  Notwithstanding any other provision of this Agreement, each holder of shares of Company Common Stock exchanged pursuant to the Merger who would otherwise have been entitled to receive a fraction of a Parent Common Share shall receive from Parent, in lieu thereof, cash (without interest) in an amount equal to the product of (i) such fractional part of an applicable Parent Common Share multiplied by (ii) the Parent Common Share Value (as hereinafter defined).

 

Section 2.5                                       DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES. No dividends or other distributions declared or made with respect to Parent Common Shares with a record date after the Effective Time shall be paid to the holder of any unsurrendered Certificate with respect to the Parent Common Shares that such holder would be entitled to receive upon surrender of such Certificate and no cash payment in lieu of fractional Parent Common Shares shall be paid to any such holder pursuant to Section 2.4(b) until such holder shall surrender such Certificate in accordance with Section 2.2. Subject to the effect of applicable Laws, following surrender of any such Certificate, there shall be paid to such holder of Parent Common Shares issuable in exchange therefor, without interest, (a) promptly after the time of such surrender, the amount of any cash payable in lieu of fractional Parent Common Shares to which such holder is entitled pursuant to Section 2.4(b) and the amount of dividends or other distributions with a record date after the Effective Time theretofore paid with respect to such whole Parent Common Shares, and (b) at the appropriate payment date, the amount of dividends or other distributions with a record date after the Effective Time but prior to such surrender and a payment date subsequent to such surrender payable with respect to such Parent Common Shares.

 

Section 2.6                                       NO LIABILITY. None of Parent, Merger Sub, the Company, the Surviving Entity or the Paying Agent shall be liable to any Person in respect of any Merger Consideration, any dividends or distributions with respect thereto or any cash in lieu of fractional Parent Common Shares, in each case delivered to a public official pursuant to any applicable abandoned property, escheat or similar Law. If any Certificate shall not have been surrendered prior to one (1) year after the Effective Time (or immediately prior to such earlier date on which any Merger Consideration, any dividends or distributions payable to the holder of such Certificate or any cash payable in lieu of fractional Parent Common Shares pursuant to this Article II, would otherwise escheat to or become the property of any Governmental Entity (as hereinafter defined)), any such Merger Consideration, dividends or distributions in respect thereof or such cash shall, to the extent permitted by applicable Law, be delivered to Parent, upon demand, and any holders of Company Common Stock who have not theretofore complied with the provisions of this Article II shall thereafter look only to Parent only as general creditors thereof for satisfaction of their claims for the payment of such Merger Consideration (without any interest thereon).

 

Section 2.7                                       DISSENTERS’ RIGHTS. Notwithstanding any provision hereof, shares of Company Common Stock issued and outstanding immediately prior to the Effective Time and held by a holder who has properly exercised and perfected appraisal rights, if any, under Title 3, Subtitle 2, of the MGCL (the “Dissenting Shares”) shall not be converted into the right to receive the Merger Consideration, but the holders of Dissenting Shares shall be entitled to receive such consideration as shall be determined pursuant to Title 3, Subtitle 2, of the MGCL; PROVIDED, HOWEVER, that if any such holder shall have failed to perfect or shall effectively withdraw or lose his, her or its right, if any, to appraisal and payment under the MGCL, such holder’s shares

 

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of Company Common Stock shall thereupon be deemed to have been converted as of the Effective Time into the right to receive Merger Consideration, and such shares of Company Common Stock shall no longer be Dissenting Shares. The Company shall give Parent prompt notice of any demands for appraisal received by the Company, withdrawals of such demands, and any other instruments served pursuant to the MGCL by a holder of Dissenting Shares and received by the Company. The Parent shall conduct and control all negotiations and proceedings with respect to demands for appraisal under the MGCL. The Company shall not, except with the prior written consent of Parent, make any payment with respect to any demands for appraisal or offer to settle or settle any such demands.

 

Section 2.8                                       STOCK OPTIONS AND RESTRICTED STOCK

 

(a)                                   Effective as of the Effective Time, the Company shall (i) terminate the Company Option Plans, and (ii) cancel at the Effective Time each Company Stock Option (as hereinafter defined) that is outstanding and unexercised as of the Effective Time. Each holder of a Company Stock Option that is outstanding and unexercised at the Effective Time pursuant to any Company Option Plan shall be entitled to receive from the Surviving Entity, subject to the consummation of the Merger and in exchange for cancellation of the Company Stock Option, an amount equal to the excess, if any, of (x) $14.00 over (y) the per share exercise price of such Company Stock Option, multiplied by the number of shares subject to the Company Stock Option at the Effective Time (the “Company Option Consideration”). Any such payments shall be subject to all applicable Tax withholding requirements and shall be made as soon as practicable following the Effective Time. If the exercise price per share of any such Company Stock Option is equal to or greater than the Merger Consideration, the Company shall take all necessary and appropriate actions so that such Company Stock Option shall be canceled at the Effective Time without any cash payment being made in respect thereof.

 

(b)                                  Immediately prior to the Effective Time, and subject to the consummation of the Merger, the Company and Company Board (or, if appropriate, any committee thereof) shall cause the vesting of each share of outstanding restricted Company Common Stock granted under the Company Option Plans to be fully accelerated and the contractual restrictions thereon to terminate. Each share of restricted Company Common Stock will be considered an outstanding share of Company Common Stock for all purposes of this Agreement, including the right to receive the Merger Consideration.

 

(c)                                   The Company shall take all corporate actions necessary to effectuate the treatment of Company Stock Options and restricted Company Common Stock contemplated by this Section 2.8, and to ensure that (i) all awards issued under any Company Option Plans shall be settled as of the Effective Time, and (ii) neither any holder of Company Stock Options and restricted Company Common Stock nor any other participant in any Company Option Plan shall have any right thereunder to acquire any securities of the Company, the Surviving Entity, Parent, or any of their respective subsidiaries or to receive any payment or benefit with respect to any award previously granted under the Company Option Plans except as provided in this Section 2.8.

 

Section 2.9                                       SECTION 16 MATTERS. Each individual party to this Agreement, including the Company, Parent, Merger Sub, and Surviving Entity shall take such steps, if any,

 

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as may be required to provide that, with respect to each Section 16 Affiliate (as defined below) any dispositions of Company equity securities (including Company Stock Options and other derivative securities) or other acquisitions of Parent equity securities (including derivative securities) in connection with this Agreement, shall be exempt under Rule 16b-3 promulgated under the Exchange Act (as hereinafter defined), in accordance with the terms and conditions set forth in that certain No-Action Letter, dated January 12, 1999 (CCH Fed. Sec. L. Rep. 77.515). For purposes of this Agreement, “Section 16 Affiliate” shall mean each individual who (i) immediately prior to the Effective Time is a director or officer of the Company, or (ii) at the Effective Time will become a director or officer of Parent or Surviving Entity.

 

Section 2.10                                 PARENT STOCK ELECTION.

 

(a)                                   Parent shall be entitled, by delivery to the Company of written notice at any time prior to the date which is 15 days prior to the date of the Company Stockholders’ Meeting (as hereinafter defined) (the date such notice is delivered, “Announcement Date”), to elect (the “Stock Election”) to include Stock Consideration as a part of the Merger Consideration and to reduce the amount of the Cash Consideration, all in accordance with and as set forth in the following and the definitions of the various terms set forth below. In the event the Stock Election is made, and not revoked in accordance with paragraph (c) below, the following adjustments shall be made:

 

(i)                                      the Cash Consideration shall be decreased by an amount specified by Parent pursuant to the notice of Stock Election (the “Stock Election Amount”); PROVIDED, HOWEVER, that in no event shall the Stock Election Amount exceed $4.00 per share; and

 

(ii)                                   the Stock Consideration shall be a number of Parent Common Shares equal to the Stock Election Amount divided by the Parent Common Share Value.

 

(b)                                  As soon as practicable after the Announcement Date, Parent and the Company shall issue a joint press release announcing Parent’s election, subject to its right of revocation, to include Stock Consideration in the Merger Consideration, the Cash Consideration and the Stock Election Amount, and as soon as the Parent Common Share Value is determinable, Parent and the Company shall issue a joint press release announcing the amount of the Stock Consideration.

 

(c)                                   Parent may revoke the Stock Election at any time, provided that no such revocation may be made if such revocation would make it reasonably necessary, based upon the advice of the Company’s outside counsel, to delay the Company Stockholders’ Meeting for more than 10 Business Days. Following any such revocation, the Cash Consideration shall again be as defined in Section 2.1(a) and the Merger Consideration shall not include any Stock Consideration. As soon as practicable after any such revocation, Parent and the Company shall issue a joint press release announcing such revocation.

 

Section 2.11                                 ADJUSTMENT TO STOCK CONSIDERATION. In the event that, after the date on which the Parent Common Share Value is determined and prior to the Effective Time, the Parent Common Shares or Company Common Stock, as the case may be, issued and outstanding shall, through a reorganization, recapitalization, reclassification, stock dividend,

 

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stock split, reverse stock split or other similar change in the capitalization of Parent or the Company, as the case may be, increase or decrease in number or be changed into or exchanged for a different kind or number of securities, then an appropriate and proportionate adjustment shall be made to the Stock Consideration, if any.

 

ARTICLE III

REPRESENTATIONS AND WARRANTIES OF THE COMPANY

 

Except as set forth in the disclosure schedule delivered by the Company to Parent prior to the execution of this Agreement (the “Company Disclosure Schedule”), the Company hereby represents and warrants to each of Parent and Merger Sub as follows (provided, that for purposes of Article III only, each Company Non-Subsidiary Entity shall be deemed to be a subsidiary of the Company, except that each representation and warranty as to such Company Non-Subsidiary Entity shall only be made to the Knowledge of the Company):

 

Section 3.1                                       ORGANIZATION AND QUALIFICATION; SUBSIDIARIES.

 

(a)                                   The Company and each of its subsidiaries is a corporation or legal entity duly organized, validly existing and in good standing under the Laws of the jurisdiction of its incorporation or organization (except where the failure to be in good standing would not have or would not reasonably be likely to have, individually or in the aggregate, a Material Adverse Effect (as hereinafter defined) on the Company) and has all requisite corporate, partnership, limited liability company or similar power and authority to own, lease and operate its properties and to carry on its businesses as now conducted and proposed by the Company to be conducted.

 

(b)                                  The articles of incorporation of the Company are in effect, and no dissolution, revocation or forfeiture proceedings regarding the Company or any of the Company’s subsidiaries have been commenced.

 

(c)                                   Section 3.1(c) of the Company Disclosure Schedule  sets forth:

 

(i)                                      each subsidiary of the Company;

 

(ii)                                   the legal form of each of the Company’s subsidiaries, including the state or country of formation;

 

(iii)                                the identity and ownership interest of each of the Company’s subsidiaries that is held by the Company or its subsidiaries, and with respect to third party owners, the identity and ownership interest as set forth in the operative documents, in each case, including but not limited to the amount of securities of such subsidiary owned by such owner; and

 

(iv)                               each jurisdiction in which each of the Company’s subsidiaries is qualified or licensed to do business.

 

Except as listed in Section 3.1(c) of the Company Disclosure Schedule , the Company does not own, directly or indirectly, beneficially or of record, any shares of stock or other

 

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security of any other entity or any other investment in any other entity, which would be a subsidiary of the Company.

 

(d)                                  The Company and each of its subsidiaries is duly qualified or licensed and in good standing to do business in each jurisdiction in which the property owned, leased or operated by it or the nature of the business conducted by it makes such qualification or licensing necessary, except where the failure to be so duly qualified or licensed and in good standing would not have, individually or in the aggregate, a Material Adverse Effect on the Company.

 

(e)                                   Except as set forth in Section 3.1(e) of the Company Disclosure Schedule , all the outstanding shares of capital stock or other voting securities of each of the Company’s subsidiaries that is a corporation (A) have been validly issued and are fully paid and nonassessable, (B) are owned by the Company or by one of the Company’s subsidiaries, and (C) are owned, directly or indirectly, free and clear of any Lien (as hereinafter defined) (including any restriction on the right to vote or sell the same, except as may be provided as a matter of Law), and all equity interests in each of the Company’s subsidiaries that is a partnership, joint venture, limited liability company or trust which are owned by the Company, by one of the Company’s subsidiaries or by the Company and one of the Company’s subsidiaries are owned free and clear of any Lien (including any restriction on the right to vote or sell the same, except as may be provided as a matter of Law). For purposes of this Agreement, “Lien” means, with respect to any asset (including any security), any mortgage, claim, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset.

 

(f)                                     The Company has made available to Parent correct and complete copies of (i) the articles of incorporation and bylaws of the Company and the articles of incorporation, articles of organization, bylaws, partnership agreements, joint ventures and operating agreements or similar organizational documents of each of the Company’s subsidiaries, each as currently in effect (collectively, the “Organizational Documents”), and (ii) minute books of the Company for which minute books are maintained for the period since January 1, 2003. All Organizational Documents are in full force and effect. The minute books referred to in clause (ii) of this Section 3.1(f) accurately reflect in all material respects all action of the stockholders, the Company Board and any committees of the Company Board taken during the period referred to in such clause.

 

Section 3.2                                       CAPITALIZATION.

 

(a)                                   As of the date of this Agreement, the authorized stock of the Company consists of: (i) 500,000,000 shares of Company Common Stock, $0.01 par value, of which 263,984,740 shares are issued and outstanding, which includes 9,203 shares of restricted Company Common Stock issued and outstanding pursuant to the Company Option Plans, and (ii) 10,000,000 shares of Company Preferred Stock, $0.01 par value (the “Company Preferred Stock”), of which none have been classified by the Company Board and of which none are issued and outstanding. All of the issued and outstanding shares of Company Common Stock have been validly issued, and are duly authorized, fully paid, non-assessable and free of preemptive rights. As of the date of this Agreement, (i) 46,848 shares of Company Common Stock are reserved for issuance and issuable upon or otherwise deliverable in connection with the exercise of outstanding options to purchase shares of Company Common Stock (“Company

 

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Stock Options”), (ii) 1,567 shares of Company Common Stock are reserved for issuance or otherwise deliverable pursuant to outstanding elections to purchase Company Common Stock under the Distribution Reinvestment Plan or the Employee Stock Purchase Plan, and (iii) 5,977,242 shares of Company Common Stock are reserved for issuance and issuable upon or otherwise deliverable in connection with the exercise of outstanding warrants to purchase shares of Company Common Stock (the “Company Warrants”), and there are no shares of Company Common Stock that are reserved or set aside for issuance other than with respect to the foregoing. Since June 30, 2006, no shares of Company Common Stock have been issued or reserved for issuance or have become outstanding except as set forth in Section 3.2(a) of the Company Disclosure Schedule  or as a result of issuance of Company Common Stock pursuant to the Distribution Reinvestment Plan or exercise of Company Stock Options or Company Warrants already in existence on such date. Except as set forth above or in Section 3.2(a) of the Company Disclosure Schedule , there are no outstanding (i) shares of stock or other voting securities of the Company; (ii) securities of the Company convertible into or exchangeable for shares of stock or voting securities of the Company; (iii) options or other rights to acquire from the Company, and no obligations of the Company to issue, any stock, voting securities or securities convertible into or exchangeable for stock or voting securities of the Company; and (iv) equity equivalents, interests in the ownership or earnings of the Company or other similar rights ((i) through (iv) collectively, “Company Securities”). Other than pursuant to the Share Repurchase Program, there are no outstanding obligations of the Company to repurchase, redeem or otherwise acquire any Company Securities. Section 3.2(a) of the Company Disclosure Schedule  sets forth for each holder of Company Stock Options and Company Warrants the following information: name of holder, exercise price, date of grant, and number of shares of Company Common Stock subject to issuance thereunder.

 

(b)                                  Except as set forth in Section 3.2(b) of the Company Disclosure Schedule , there are (i) no securities of the Company’s subsidiaries convertible into or exchangeable for shares of stock or voting securities of the Company’s subsidiaries; (ii) no options or other rights to acquire from the Company’s subsidiaries, and no other contract, understanding, arrangement or obligation (whether or not contingent) providing for the issuance or sale, directly or indirectly of, any stock or other ownership interests in, or any other securities of, any subsidiary of the Company; (iii) no obligations of the Company’s subsidiaries to issue any stock, voting securities or securities convertible into or exchangeable for stock or voting securities of the Company’s subsidiaries; and (iv) no equity equivalents, interests in the ownership or earnings of the Company’s subsidiaries or other similar rights. There are no outstanding obligations of the Company or its subsidiaries to repurchase, redeem or otherwise acquire any outstanding shares of stock or other ownership interests in any subsidiary of the Company. Except as set forth in Section 3.2(b) of the Company Disclosure Schedule , there are no stockholder agreements, voting trusts or other agreements or understandings to which the Company or any of its subsidiaries is bound relating to the voting of any shares of stock of the Company or any subsidiary of the Company.

 

(c)                                   All dividends or distributions on shares of Company Common Stock and Company Preferred Stock which have been authorized or declared prior to the date of this Agreement have been paid in full.

 

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(d)                                  Except as set forth in Section 3.2(d) of the Company Disclosure Schedule , neither the Company nor any of the Company’s subsidiaries owns directly or indirectly any interest or investment (whether equity or debt, other than intercompany loans) in any corporation, partnership, limited liability company, joint venture, business trust or entity (other than investments in short-term investment securities). With respect to such interests and investments, the Company and each of the Company’s subsidiaries owns such interests and investments free and clear of all Liens.

 

Section 3.3                                       AUTHORITY RELATIVE TO THIS AGREEMENT; STOCKHOLDER APPROVAL.

 

(a)                                   The Company has all necessary corporate power and authority to execute and deliver this Agreement and to consummate the Merger and the other transactions contemplated hereby. No other corporate proceedings on the part of the Company or any of its subsidiaries are necessary to authorize this Agreement or to consummate the Merger and the other transactions contemplated hereby (other than, with respect to the Merger and this Agreement, to the extent required by Law (as hereinafter defined), and the Company Requisite Vote (as hereinafter defined)). This Agreement has been duly and validly executed and delivered by the Company and constitutes a valid, legal and binding agreement of the Company, enforceable against the Company in accordance with its terms, except as enforceability may be limited by the Bankruptcy Exceptions.

 

(b)                                  The Sub Committee, by unanimous vote, duly and validly determined that the Merger is advisable to the stockholders of the Company, authorized the execution and delivery of this Agreement and approved the consummation of the Merger and the other transactions contemplated hereby, and resolved to recommend that the Company Board approve and declare the advisability of Merger. The Company Board has, by unanimous vote, duly and validly determined that the Merger is advisable to the stockholders of the Company, authorized the execution and delivery of this Agreement and approved the consummation of the Merger and the other transactions contemplated hereby, and taken all corporate actions required to be taken by the Company Board for the consummation of the Merger and the other transactions contemplated hereby. No other corporate proceedings on the part of the Company or any of its subsidiaries are necessary to authorize this Agreement, the performance by the Company of its obligations hereunder or the consummation of the Merger and the other transactions contemplated hereby (other than, with respect to the Merger and this Agreement, the Company Requisite Vote). The Company Board has directed that this Agreement and the Merger be submitted to the stockholders of the Company for their approval to the extent required by Law. The affirmative approval of the Merger by the holders of shares of Company Common Stock representing at least two-thirds of all votes entitled to be cast by the holders of all outstanding shares of Company Common Stock as of the record date for the Company Stockholder’ Meeting (the “Company Requisite Vote”) is the only vote of the holders of any class or series of stock of the Company necessary to adopt this Agreement and approve the Merger.

 

Section 3.4                                       REPORTS; FINANCIAL STATEMENTS. Except as set forth in Section 3.4 of the Company Disclosure Schedule , the Company has timely filed all required forms, reports and documents with the SEC since January 1, 2004, each of which has complied in all material respects with all applicable requirements of the Securities Act of 1933, as amended (the

 

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“Securities Act”), and the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and, in each case, the rules and regulations promulgated thereunder applicable to such forms, reports and documents, each as in effect on the dates such forms, reports and documents were filed, except to the extent that such forms, reports and documents have been modified, amended or superseded by later forms, reports and documents filed prior to the date of this Agreement. The Company has made available to Parent, in the form filed with the SEC (including any amendments thereto), (i) its Annual Reports on Form 10-K for each of the fiscal years ended December 31, 2003, 2004 and 2005, respectively, (ii) all definitive proxy statements relating to the Company’s meetings of stockholders (whether annual or special) held since January 1, 2004, and (iii) all other reports or registration statements filed by the Company with the SEC since January 1, 2004 (collectively, the “Company SEC Reports”). The Company has made available to the Parent copies of all SEC comment letters addressed to the Company since January 1, 2004. Except as set forth in Section 3.4 of the Company Disclosure Schedule , none of such forms, reports or documents, including any financial statements or schedules included or incorporated by reference therein, contained, when filed, any untrue statement of a material fact or omitted to state a material fact required to be stated or incorporated by reference therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading, except to the extent that such statements have been modified, amended or superseded by later Company SEC Reports filed prior to the date of this Agreement. The Company has complied in all material respects with the requirements of the Sarbanes-Oxley Act of 2002 (the “S-Ox Act”), including, without limitation, all certifications and internal controls required pursuant to the S-Ox Act. Except as set forth in Section 3.4 of the Company Disclosure Schedule , the consolidated financial statements of the Company included in the Company SEC Reports (except to the extent such statements have been amended or modified by later Company SEC Reports filed prior to the date of this Agreement) filed prior to the date of this Agreement complied as to form in all material respects with applicable accounting standards and the published rules and regulations of the SEC with respect thereto and fairly present in all material respects, in conformity with generally accepted accounting principles (“GAAP”) (except, in the case of interim financial statements, as permitted by the applicable rules and regulations of the SEC) applied on a consistent basis during the periods involved (except as may be indicated in the notes thereto), the consolidated financial position of the Company and its consolidated subsidiaries as of the dates thereof and the consolidated results of their operations and cash flows for the periods then ended (subject, in the case of the unaudited interim financial statements, to normal year-end adjustments). There are no outstanding or unresolved comments in comment letters received from the SEC staff with respect to any Company SEC Reports. The Company maintains a system of internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) sufficient to provide reasonable assurance (i) that the Company maintains records that in reasonable detail accurately and fairly reflect its transactions and dispositions of assets, (ii) that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, (iii) that receipts and expenditures are executed only in accordance with authorizations of management and the Company Board and (iv) regarding prevention of timely detection of the unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the Company’s consolidated financial statements. Except as disclosed in the Company SEC Reports, the Company has not identified as of the date hereof any material weaknesses in the design or operation of the Company’s internal control over financial reporting. There are no SEC inquiries or

 

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investigations, other governmental inquiries or investigations or internal investigations pending or, to the Knowledge of the Company, threatened in each case regarding any accounting practices of the Company or any malfeasance by any director or executive officer of the Company.

 

Section 3.5                                       NO UNDISCLOSED LIABILITIES. Except as set forth in Section 3.5 of the Company Disclosure Schedule  or the Company SEC Reports filed prior to the date of this Agreement, none of the Company or its subsidiaries had any liabilities or obligations of any nature (whether accrued, absolute, contingent or otherwise) required by GAAP to be set forth in a consolidated balance sheet of the Company or in the notes thereto, except for any such liabilities or obligations which would not have or would not reasonably be likely to have, individually or in the aggregate, a Material Adverse Effect on the Company, after taking into account any assets acquired or services provided in connection with the incurrence of such liabilities or obligations.

 

Section 3.6                                       ABSENCE OF CHANGES. Except as disclosed in Section 3.6 of the Company Disclosure Schedule  or the Company SEC Reports filed prior to the date of this Agreement, since the date of the most recent audited financial statements included in the Company SEC Reports filed prior to the date of this Agreement (the “Company Financial Statement Date”), the Company and its subsidiaries have conducted their business only in the usual, regular and ordinary course consistent with past practice, and (a) there have not been any events, occurrences, developments or state of circumstances or facts that have had, individually or in the aggregate, a Material Adverse Effect on the Company, nor has there been any event, occurrence or development that would have or would reasonably be likely to have, individually or in the aggregate, a Material Adverse Effect on the Company, (b) except for regular monthly distributions (in the case of the Company) not in excess of $0.069167 per share of Company Common Stock with customary record and payment dates, there has not been any declaration, setting aside or payment of any dividend or other distribution (whether in cash, stock or property) with respect to any shares of Company Stock, (c) there has not been any split, combination or reclassification of any shares of Company Stock or any capital stock of any subsidiary or any issuance or the authorization of any issuance of any other securities in respect of, in lieu of or in substitution for, or giving the right to acquire by exchange or exercise, shares of its beneficial interest or any issuance of an ownership interest in, any of the Company’s subsidiaries, except as contemplated by this Agreement, (d) there has not been any damage, destruction or loss, whether or not covered by insurance, that has had, would have or would reasonably be likely to have, individually or in the aggregate, a Material Adverse Effect on the Company, (e) there has not been any change made prior to the date of this Agreement in accounting principles or material accounting practices by the Company or any of the Company’s subsidiaries, except insofar as may have been disclosed in the Company SEC Reports filed prior to the date of this Agreement or required by a change in GAAP, or (f) there has not been any amendment of any employment, consulting, severance, retention or any other agreement between the Company or any subsidiary and any officer of the Company or any subsidiary.

 

Section 3.7                                       CONSENTS AND APPROVALS; NO VIOLATIONS. Except for filings, permits, authorizations, consents and approvals as may be required under, and other applicable requirements of, the Securities Act, the Exchange Act, state securities or blue sky Laws, the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”) or any

 

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other Antitrust Law (as hereinafter defined), the filing and recordation of the Articles of Merger as required by the MGCL and the DLLC Act and as otherwise set forth in Section 3.7 to the Company Disclosure Schedule, no filing with or notice to, and no permit, authorization, consent or approval of, (i) any court or tribunal or administrative, governmental or regulatory body, agency or authority (a “Governmental Entity”) or (ii) any other third party, is necessary for the execution and delivery by the Company of this Agreement or the consummation by the Company of the Merger or any of the other transactions contemplated hereby, except where the failure to obtain such permits, authorizations, consents or approvals or to make such filings or give such notice would not have or would not reasonably be likely to have, individually or in the aggregate, a Material Adverse Effect on the Company. Except as set forth in Section 3.7 of the Company Disclosure Schedule , neither the execution, delivery or performance of this Agreement by the Company nor the consummation by the Company of the Merger or any of the other transactions contemplated hereby will (i) conflict with or result in any breach of any provision of the respective articles or bylaws (or similar organizational documents) of the Company or any of its subsidiaries, (ii) result in a violation or breach of, or constitute (with or without due notice or lapse of time or both) a default (or give rise to any right of termination, amendment, cancellation or acceleration or Lien or result in the reduction or loss of any material benefit) under, any of the terms, conditions or provisions of any loan, note, bond, mortgage, credit agreement, reciprocal easement agreement, permit, concession, franchise, indenture, lease, license, contract, agreement or other instrument or obligation to which the Company or any of its subsidiaries is a party or by which any of them or any of their respective properties or assets may be bound or any Company Permit (as hereinafter defined), or (iii) violate any foreign or domestic law, Order, ordinance, award, stipulation, statute, judicial or administrative doctrine, rule or regulation entered by a Governmental Entity (“Law”) applicable to the Company or any of its subsidiaries or any of their respective properties or assets, in each case with respect to (ii) and (iii) above, except as would not have or would not reasonably be likely to have, individually or in the aggregate, a Material Adverse Effect on the Company. For purposes of this Agreement, “Antitrust Law” means the Sherman Act, as amended, the Clayton Act, as amended, the HSR Act, and the Federal Trade Commission Act, as amended.

 

Section 3.8                                       LITIGATION. As of the date of this Agreement, except (i) as listed in Section 3.8 of the Company Disclosure Schedule , (ii) as set forth in the Company SEC Reports filed prior to the date of this Agreement, or (iii) for suits, claims, actions, proceedings or investigations arising from the usual, regular and ordinary course of operations of the Company involving (A) eviction or collection matters or (B) personal injury or other tort litigation which are covered by insurance (subject to customary deductibles) or for which all material costs and liabilities arising therefrom are reimbursable pursuant to common area maintenance or similar agreements, there is no suit, claim, action, proceeding or investigation pending or, to the Company’s Knowledge, threatened in writing against the Company or any of its subsidiaries or any of its or their respective properties or assets that (1) involves amounts in excess of $1,000,000 individually or $5,000,000 in the aggregate or (2) questions the validity of this Agreement or any action to be taken by the Company in connection with the consummation of the Merger. Except as set forth in Section 3.8 of the Company Disclosure Schedule  and other than as set forth in the Company SEC Reports filed prior to the date of this Agreement, none of the Company or its subsidiaries is subject to any outstanding Order.

 

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Section 3.9                                       COMPLIANCE WITH APPLICABLE LAW. The Company and each of its subsidiaries hold all permits, licenses, variances, exemptions, Orders and approvals of all Governmental Entities necessary for the lawful conduct of their respective businesses (the “Company Permits”), except for Company Permits the absence of which would not have or would not reasonably be likely to have, individually or in the aggregate, a Material Adverse Effect on the Company. The Company and each of its subsidiaries are in compliance with the terms of the Company Permits, except as would not have or would not reasonably be likely to have, individually or in the aggregate, a Material Adverse Effect on the Company. The businesses of the Company and each of its subsidiaries are not being conducted in violation of any Law applicable to the Company or its subsidiaries, except as would not have or would not reasonably be likely to have, individually or in the aggregate, a Material Adverse Effect on the Company. No investigation or review by any Governmental Entity with respect to the Company or its subsidiaries is pending or, to the Company’s Knowledge, threatened in writing, nor, to the Company’s Knowledge, has any Governmental Entity indicated an intention to conduct the same, except to the extent any such investigation would not have a Material Adverse Effect on the Company.

 

Section 3.10                                 PROPERTIES.

 

(a)                                   Section 3.10(a) of the Company Disclosure Schedule  sets forth a correct and complete list and location of (i) all operating real property owned or leased by the Company and its subsidiaries (including its headquarters and leases of office space) as of the date of this Agreement (the “Operating Properties”), (ii) all real property currently under development, expansion, renovation or rehabilitation owned or leased by the Company and its subsidiaries as of the date of this Agreement (the “Development Properties”), and (iii) all parcels of undeveloped non-income producing land owned or leased by the Company and its subsidiaries (the “Land”) (collectively, the Operating Properties, the Development Properties and the Land, together with all buildings, structures and other improvements and fixtures located on or under such real property and all easements, rights and other appurtenances to such real property, are referred to herein as the “Company Properties”). Each Company Property is owned or leased by the Company or a subsidiary of the Company as indicated in Section 3.10(a) of the Company Disclosure Schedule . The Company and its subsidiaries own fee simple title to or, if so indicated in Section 3.10(a) of the Company Disclosure Schedule , lease each of the Company Properties, in each case free and clear of any Liens, title defects, contractual restrictions, covenants or reservations of interests in title (collectively, “Property Restrictions”), except for (i) Permitted Liens, (ii) Property Restrictions imposed or promulgated by Law or by any Governmental Entity which are customary and typical for similar properties or (iii) Property Restrictions which do not, individually or in the aggregate, interfere materially with the current use of such property. None of the matters described in clauses (i), (ii) and (iii) above would have or would reasonably be likely to have, individually or in the aggregate, a Material Adverse Effect on the Company. For purposes of this Agreement, “Permitted Liens” means (i) Liens for Taxes not yet due or delinquent or as to which there is a good faith dispute and for which there are adequate reserves on the financial statements of the Company (if such reserves are required pursuant to GAAP), (ii) with respect to real property, any Lien, encumbrance or other title defect disclosed on the Company Title Insurance Policies (as hereinafter defined) or on any existing lender’s title insurance policy made available to Purchaser (whether material or immaterial), Liens and obligations arising under the Company Material Contracts, the Company Space Leases

 

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(as hereinafter defined) and any other Lien which does not, individually or in the aggregate, interfere materially with the current use of such property (assuming its continued use in the manner in which it is currently used) and (iii) inchoate materialmen’s, mechanics’, carriers’, workmen’s and repairmen’s liens arising in the usual, regular and ordinary course and not past due and payable or the payment of which is being contested in good faith by appropriate proceedings and for which there are adequate reserves on the financial statements of the Company (if such reserves are required pursuant to GAAP).

 

(b)                                  The Company and each of its subsidiaries have good and sufficient title to all the material personal and non-real properties and assets reflected in their books and records as being owned by them (including those reflected in the consolidated balance sheet of the Company and its subsidiaries as of June 30, 2006, except as since sold or otherwise disposed of in the usual, regular and ordinary course of business), free and clear of all Liens, except for Permitted Liens.

 

(c)                                   Except as provided for in Section 3.10(c) of the Company Disclosure Schedule , neither the Company nor any of its subsidiaries has received any written notice to the effect that any condemnation or rezoning proceedings are pending or threatened with respect to any of the Operating Properties, in any case which would have a material adverse effect on such Operating Property or Development Properties.

 

(d)                                  Except as set forth in Section 3.10(d) of the Company Disclosure Schedule , neither the Company nor any of its subsidiaries, on the one hand, nor, to the Knowledge of the Company, any other party, on the other hand, is in monetary default under any Company Space Lease, except for defaults that would not have or would not reasonably be likely to have, individually or in the aggregate, a Material Adverse Effect on the Company. Except as set forth in Section 3.10(d) of the Company Disclosure Schedule , no defaults by the Company or its Subsidiaries have been alleged in writing by the lessees thereunder that have not been cured in all material respects and, to the Company’s Knowledge, neither the Company nor any of its subsidiaries is in default under any Company Space Lease except for defaults that would not have or would not reasonably be likely to have, individually or in the aggregate, a Material Adverse Effect on the Company.

 

(e)                                   Except as provided for in Section 3.10(e) of the Company Disclosure Schedule , all work required to be performed, payments required to be made and actions required to be taken prior to the date hereof pursuant to any agreement entered into with a Governmental Entity in connection with a site approval, zoning reclassification or other similar action relating to any Operating Properties (e.g., local improvement district, road improvement district) have been performed, paid or taken, as the case may be, other than those where the failure would not have or would not reasonably be likely to have, individually or in the aggregate, a Material Adverse Effect on the Company.

 

(f)                                     Except as listed in Section 3.10(f) of the Company Disclosure Schedule  or which would not have, or would not reasonably be likely to have, individually or in the aggregate, a Material Adverse Effect on the Company, (i) the Company and all of its subsidiaries have performed all obligations required to be performed by it to date under each ground lease pursuant to which the Company or any of its subsidiaries is a lessee (individually, “Ground

 

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Lease” and collectively, “Ground Leases”) and (ii) neither the Company nor any of its subsidiaries, nor to the Knowledge of the Company, any other party, is in default under any Ground Lease (and to the Company’s Knowledge, no event has occurred which, with due notice or lapse of time or both, would constitute such a default).

 

(g)                                  Except as set forth in Section 3.10(g) of the Company Disclosure Schedule , as of the date hereof, neither the Company nor any of its subsidiaries has delivered written notice to any tenant under any Company Space Lease, alleging that such tenant is in default thereunder, other than with respect to defaults that have been cured or waived or which would not, individually or in the aggregate, reasonably be likely to have a Material Adverse Effect on the Company.

 

(h)                                  Except for those contracts or agreements set forth in Section 3.10(h) of the Company Disclosure Schedule , neither the Company nor any of its subsidiaries has entered into any contract or agreement (collectively, the “Participation Agreements”) with any third party or any employee, consultant, Affiliate (as hereinafter defined) or other person (the “Participation Party”) which provides for a right of such Participation Party to participate, invest, join, partner, have any interest in whatsoever (whether characterized as a contingent fee, profits interest, equity interest or otherwise) or have the right to any of the foregoing in any proposed or anticipated investment opportunity, joint venture, partnership or any other current or future transaction or property in which the Company or any subsidiary has or will have an interest, including but not limited to those transactions or properties identified, sourced, produced or developed by such Participation Party (a “Participation Interest”). Section 3.10(h) of the Company Disclosure Schedule  sets forth the only transactions or Company Properties for which any Participation Party currently has a Participation Interest pursuant to such Participation Agreements.

 

(i)                                      There are no agreements, written or oral, between the Company or any of its subsidiaries and any other Person relating to the use or occupancy of any Company Property by a Person other than the Company or any of its subsidiaries, other than the Company Space Leases and reciprocal easement agreements.

 

(j)                                      Except as would not, individually or in the aggregate, reasonably be likely to have a Material Adverse Effect on the Company, all properties currently under development or construction by the Company or any subsidiary and all properties currently proposed for acquisition, development or commencement of construction prior to the Effective Time by the Company or any subsidiary are reflected in the Company’s capital budget (“2006 Budget”), delivered to Parent prior to the date hereof.

 

Section 3.11                                 EMPLOYEE PLANS.

 

(a)                                   Section 3.11(a) of the Company Disclosure Schedule  sets forth a list of all “employee benefit plans,” as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), and all other employee benefit plans or other benefit arrangements including bonus plans, executive compensation, consulting or other compensation agreements, change in control agreements, incentive, equity or equity-based compensation, or deferred compensation arrangements, stock purchase, severance pay, sick

 

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leave, vacation pay, salary continuation for disability, hospitalization, medical insurance, life insurance, scholarship programs, directors’ benefit, bonus or other incentive compensation, which the Company or any of its subsidiaries or any trade or business (whether or not incorporated) which is or has ever been under common control, or which is or has ever been treated as a single employer, with the Company or any subsidiary under Section 414(b), (c), (m) or (o) of the Code (“Company ERISA Affiliate”) sponsors, maintains, participates in, contributes to or has any obligation to contribute to (each a “Company Employee Benefit Plan” and collectively, the “Company Employee Benefit Plans”) on behalf of its officers, directors, independent contractors or employees, or former directors, independent contractors or employees. Except as disclosed in Section 3.11(a) of the Company Disclosure Schedule , none of the Company Employee Benefit Plans is subject to Title IV of ERISA, or is or has been subject to Sections 4063 or 4064 of ERISA, nor has the Company or any Company ERISA Affiliate ever been obligated to contribute to or ever participated in a multiemployer plan, as defined in Section 3(37) of ERISA (a “Multiemployer Plan”). Neither the Company nor any Company ERISA Affiliate has incurred any present or contingent liability under Title IV of ERISA, nor does any condition exist which could reasonably be likely to result in any such liability. No Company Employee Benefit Plan is a voluntary employees’ beneficiary association, as defined by Code Section 501(c)(9).

 

(b)                                  Correct and complete copies of the following documents, with respect to each of the Company Employee Benefit Plans have been made available to Parent by the Company: (i) any plans and related trust documents, group annuity contracts, contracts for insurance, and amendments thereto; (ii) the three most recent Forms 5500 and schedules thereto, if applicable that have been filed by the Company or the Company ERISA Affiliates; (iii) the most recent Internal Revenue Service (“IRS”) determination letter, if applicable; (iv) the three most recent financial statements and actuarial valuations, if applicable; (v) the current summary plan descriptions and summaries of any material modifications thereto, if any, (vi) all material correspondence with the IRS or DOL concerning the Company with respect to the Company Employee Benefit Plans.

 

(c)                                   Except as disclosed in Section 3.11(c) of the Company Disclosure Schedule , (i) the Company and the Company ERISA Affiliates have performed all material obligations required to be performed by them under any Company Employee Benefit Plan; (ii) the Company Employee Benefit Plans have been administered in material compliance with their terms and the requirements of ERISA, the Code and other applicable Laws; (iii) all contributions (including all employer contributions and employee salary reduction contributions) required to have been made under any of the Company Employee Benefit Plans to any funds or trusts established thereunder, or in connection therewith, have been made by the due date thereof, as prescribed by ERISA or the Code, and all contributions for any period ending on or before the Effective Time which are not yet due will have been paid or accrued prior to the Effective Time and are properly disclosed in the footnotes in accordance with GAAP, in the financial statements of the Company; (iv) there are no material actions, suits, arbitrations or claims (other than routine claims for benefits) filed, or to the Company’s Knowledge, threatened with respect to any Company Employee Benefit Plan; (v) with respect to the Company Employee Plans, individually and in the aggregate, no event has occurred, and to the Knowledge (as hereinafter defined) of the Company, there exists no condition or set of circumstances in connection with which the Company could be subject to any liability (other than liability for the payment of benefits

 

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accrued but not yet paid as of the Effective Time) that, individually or in the aggregate, would reasonably be likely to have a Material Adverse Effect on the Company under ERISA, the Code or any other applicable law; (vi) the Company and the Company ERISA Affiliates have no material liability as a result of any “prohibited transaction” (as defined in Section 406 of ERISA and Section 4975 of the Code), for any excise Tax or civil penalty or otherwise; and (vii) to the Company’s Knowledge, there have been no breaches of fiduciary obligations under Title I of ERISA with respect to any Company Employee Benefit Plan.

 

(d)                                  Each of the Company Employee Benefit Plans which is intended to be “qualified” within the meaning of Section 401(a) of the Code has received a determination letter from the IRS to the effect that such plan is “qualified” and that the trusts maintained pursuant thereto are exempt from U.S. federal income taxation under Section 501 of the Code. The Company knows of no fact which would adversely affect the qualified status of any such Company Employee Benefit Plan or the tax exemption of any trust maintained pursuant thereto.

 

(e)                                   Except as set forth in Section 3.11(e) of the Company Disclosure Schedule , none of the Employee Benefit Plans provide benefits, including death or medical benefits (whether or not insured), with respect to current or former employees after retirement or other termination of service other than (i) death benefits or retirement benefits under any “employee pension plan,” as that term is defined in Section 3(2) of ERISA; (ii) deferred compensation benefits accrued as liabilities on the books of the Company or an ERISA Affiliate; (iii) benefits, the full cost of which is borne by the current or former employee (or his beneficiary); or (iv) for continuing post-employment health, medical, life insurance coverage, or other welfare benefits for any participant or any beneficiary of a participant except as may be required under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“COBRA”).

 

(f)                                     Except as set forth in Section 3.11(f) of the Company Disclosure Schedule , no stock or other security issued by the Company forms or has formed a material part of the assets of any Company Employee Benefit Plan.

 

(g)                                  Except as specifically identified and quantified in Section 3.11(g) of the Company Disclosure Schedule , neither the execution and delivery of this Agreement nor the consummation of the Merger will (i) result in any material payment becoming due, or materially increase the amount of compensation due, to any current or former officer, director, independent contractor, or employee of the Company or any of its subsidiaries; (ii) materially increase any benefits otherwise payable under any Company Employee Benefit Plan to such individuals set forth in Section 3.11(g)(i); (iii) result in any limitation on the right of the Company or any of its Subsidiaries to amend, merge, terminate or receive a reversion of assets from any Company Employee Plan or a related trust; (iv) result in the acceleration of the time of payment or vesting of any such benefits; or (v) result in any payment that will not be deductible for U.S. federal Tax purposes under Section 280G or Section 162(m) of the Code.

 

(h)                                  Except as identified in Section 3.11(h) of the Company Disclosure Schedule , no “leased employee” as that term is defined in Section 414(n) of the Code, performs services for the Company. No leased employee is eligible to participate in any Company Employee Benefit Plan at the exclusion of any such person who does not cause any such plan to

 

21

 

lose qualification under Section 401(a) of the Code, nor does it violate the terms of any Company Employee Benefit Plan.

 

(i)                                      With respect to the Company Employee Plans, individually and in the aggregate, there are no funded benefit obligations for which contributions have not been made or properly accrued and there are no unfunded benefit obligations which have not been accrued or otherwise properly disclosed in the footnotes in accordance with GAAP, in the financial statements of the Company, which obligations would not, individually or in the aggregate, reasonably be likely to have a Material Adverse Effect on the Company.

 

(j)                                      The aggregate amount of (i) severance payable under any and all Company Employee Plans, including but not limited to severance programs, employment agreements, and change of control agreements or programs to all eligible directors, officers, independent contractors, and/or employees who were or will be terminated and entitled to benefits under such plan as a result of the Merger, (ii) bonuses payable pursuant to the bonus pool disclosed on Section 3.11(a) of the Company Disclosure Schedule  and (iii) amounts payable pursuant to the Senior and Executive Officer Incentive Plan, disclosed on Section 3.11(a) of the Company Disclosure Schedule , as well as any other incentive programs under which an officer, directors, independent contractor, and/or employee would receive a benefit will not exceed $15,800,000.

 

(k)                                   No assets of the Company Employee Plans are invested, directly or indirectly, in any obligation of, or security or other instrument issued by, the Company or any ERISA Affiliate. No assets of any of the Company Employee Plans are invested, directly or indirectly, in real or personal property used by the Company or an ERISA Affiliate. There is sufficient liquidity of assets in each of the funded Company Employee Plans to promptly pay for the benefits earned and other liabilities owed under such Plan. With respect to each of the Company Employee Plans, no insurance contract, annuity contract, or other agreement or arrangement with any financial or other organization would impose any penalty, discount or other reduction on account of the withdrawal of assets from such organization or the change in the investment of such assets.

 

(l)                                      With respect to each Company Employee Plan that is funded wholly or partially through an insurance policy, there will be no liability of the Company as of the Closing Date, under any such insurance policy or ancillary agreement with respect to such insurance policy in the nature of a retroactive rate adjustment, loss sharing arrangement or other actual or contingent liability arising wholly or partially out of events occurring prior to the Closing Date.

 

Section 3.12                                 LABOR MATTERS.

 

(a)                                   Section 3.12(a) of the Company Disclosure Schedule  sets forth a list of all employment, consulting, independent contractor, temporary staffing, labor or collective bargaining agreements to which the Company or any subsidiary is party (excluding personal services contracts) and, except as set forth therein, there are no such employment, consulting, independent contractor, temporary staffing, labor or collective bargaining agreements that pertain to the Company or any of its subsidiaries. The Company has heretofore made available to Parent correct and complete copies of (i) the employment agreements listed on Section 3.12(a) of the

 

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Company Disclosure Schedule  and (ii) the labor or collective bargaining agreements listed on Section 3.12(a) of the Company Disclosure Schedule , together with all material amendments, modifications, supplements and side letters affecting the duties, rights and obligations of any party thereunder.

 

(b)                                  Except as disclosed in Section 3.12(b) of the Company Disclosure Schedule , (i) no employees of the Company or any of its subsidiaries are represented by any labor organization; (ii) no labor organization or group of employees of the Company or any of its subsidiaries has made a written demand for recognition or certification; (iii) to the Company’s Knowledge, there are no representation or certification proceedings or petitions seeking a representation proceeding presently filed, or to the Company’s Knowledge, threatened in writing to be brought or filed with the National Labor Relations Board or any other labor relations tribunal or authority; (iv) to the Company’s Knowledge, there are no organizing activities involving the Company or any of its subsidiaries pending with any labor organization or group of employees of the Company or any of its subsidiaries, and (v) the Company is not affected and has not been affected in the past by any actual or threatened work stoppage strike or other labor disturbance.

 

(c)                                   There are no unfair labor practice charges, grievances or complaints filed or, to the Company’s Knowledge, threatened in writing by or on behalf of any employee or group of employees of the Company or any of its subsidiaries.

 

(d)                                  Except as set forth in Section 3.12(d) of the Company Disclosure Schedule , there are no complaints, charges or claims against the Company or any of its subsidiaries filed or, to the Knowledge of the Company, threatened in writing to be brought or filed, with any federal, state or local Governmental Entity or arbitrator based on, arising out of, in connection with, or otherwise relating to the employment or termination of employment of any individual by the Company or any of its subsidiaries.

 

(e)                                   Except as set forth in Section 3.12(e) of the Company Disclosure Schedule , (i) the Company and each of its subsidiaries is in compliance in all material respects with all Laws relating to the employment of labor, including all such Laws relating to wages, hours, the Worker Adjustment and Retraining Notification Act and any similar state or local “mass layoff” or “plant closing” Law (“WARN”), collective bargaining, discrimination, civil rights, safety and health, workers’ compensation and the collection and payment of withholding and/or social security Taxes and any similar Tax, except for immaterial non-compliance; and (ii) there has been no “mass layoff” or “plant closing” as defined by WARN with respect to the Company or any of its subsidiaries within the last six (6) months.

 

Section 3.13                                 ENVIRONMENTAL MATTERS. Except as disclosed in Section 3.13 of the Company Disclosure Schedule , (i) the Company and its subsidiaries and, to the Knowledge of the Company, all real property owned, leased or operated by the Company and its subsidiaries are in compliance with and have complied with Environmental Laws, except as would not have or would not reasonably be likely to have, individually or in the aggregate, a Material Adverse Effect on the Company; (ii) the Company and its subsidiaries have obtained and currently possess and maintain all permits, licenses and other authorizations required by Environmental Laws (collectively, “Company Environmental Permits”) for each of their respective operations,

 

23

 

all such Company Environmental Permits are in good standing, and the Company and its subsidiaries have complied with the terms and conditions of such Company Environmental Permits, except in each such case as would not have or would not reasonably be likely to have, individually or in the aggregate, a Material Adverse Effect on the Company; (iii) neither the Company and its subsidiaries nor any real property currently or, to the Knowledge of the Company, formerly owned, leased or operated by the Company or its subsidiaries is subject to any pending or, to the Knowledge of the Company, threatened Environmental Claim; (iv) neither the Company nor any of its subsidiaries has generated, arranged for the disposal of or otherwise caused to be disposed of any Hazardous Material at any off-site location at which the Company and its subsidiaries would reasonably be expected to be liable for undertaking or paying for any investigation or any other action to respond to the release or, to the Knowledge of the Company, threatened release of any Hazardous Material or would reasonably be expected to be required to pay natural resource damages, except in any such case as would not have or would not reasonably be likely to have, individually or in the aggregate, a Material Adverse Effect on the Company; (v) no Company Property or any property currently or, to the Knowledge of the Company, formerly owned, leased or operated by the Company and its subsidiaries has been the subject of any treatment, storage, disposal, accumulation, generation, or release of Hazardous Materials in any manner which would reasonably be expected to give rise to liability under Environmental Laws or need to undertake any action to respond to such Hazardous Materials, except as would not have or would not reasonably be likely to have, individually or in the aggregate, a Material Adverse Effect on the Company; (vi) there are no wetlands at any of the Company Properties nor is any Company Property subject to any current or, to the Knowledge of the Company, threatened environmental deed restriction, use restriction, institutional or engineering control, except as would not have or would not reasonably be likely to have, individually or in the aggregate, a Material Adverse Effect on the Company; (vii) the Company and its subsidiaries have made available to Parent all environmental audits, reports, memorandum and other material environmental documents in their possession or control relating to their current and, to the extent the Company or its subsidiaries have Knowledge that they are potentially liable, their formerly owned or operated properties, facilities or operations; (viii) no capital expenditures are presently required to maintain or achieve compliance with Environmental Laws, except as would not have or would not reasonably be likely to have, individually or in the aggregate, a Material Adverse Effect on the Company; and (ix) to the Knowledge of the Company, there are no underground storage tanks, polychlorinated biphenyls (“PCB”) or PCB-containing equipment, except for PCB or PCB-containing equipment owned by utility companies, or asbestos or asbestos-containing materials at any Company Property, except as would not have or would not reasonably be likely to have, individually or in the aggregate, a Material Adverse Effect on the Company. No authorization, notification, recording, filing, consent, waiting period, investigation, remediation, or approval is required under any Environmental Law in order to consummate the transaction contemplated hereby. The Company has made available to Parent a correct and complete copy of a draft settlement and indemnity agreement by and between Honeywell International Inc. and a subsidiary of the Company with respect to environmental litigation regarding the Operating Property commonly referred to as 440 Commons, Site No. 117 or the Ryerson Steel Site.

 

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As used in this Agreement:

 

“Environmental Claims” means any and all administrative, regulatory, judicial or third-party claims, demands, notices of violation or non-compliance, directives, proceedings, investigations, Orders or other allegations of noncompliance with or liability or potential liability relating in any way to any Environmental Law or any Company Environmental Permit, as the case may be.

 

“Environmental Laws” means all applicable federal, state, and local Laws, rules and regulations, Orders and other legal requirements including, without limitation, common law relating to pollution or the regulation and protection of human health, safety, the environment or natural resources, in effect on this date, including, but not limited to, the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended (42 U.S.C. Sec. 9601 et seq.); the Hazardous Materials Transportation Act, as amended (49 U.S.C. Sec. 5101 et seq.); the Federal Insecticide, Fungicide, and Rodenticide Act, as amended (7 U.S.C. Sec. 136 et seq.); the Resource Conservation and Recovery Act, as amended (42 U.S.C. Sec. 6901 et seq.); the Toxic Substances Control Act, as amended (15 U.S.C. Sec. 2601 et seq.); the Clean Air Act, as amended (42 U.S.C. Sec. 7401 et seq.); the Federal Water Pollution Control Act, as amended (33 U.S.C. Sec. 1251 et seq.); the Occupational Safety and Health Act, as amended (29 U.S.C. Sec. 651 et seq.); the Safe Drinking Water Act, as amended (42 U.S.C. Sec. 300f et seq.); and their state and local counterparts or equivalents and any transfer of ownership notification or approval statute.

 

“Hazardous Material” means all substances, pollutants, chemicals, compounds, and wastes, including, without limitation, petroleum and any fraction thereof or substances otherwise potentially injurious to human health and the environment, including without limitation bacteria, mold, fungi or other toxic growth.

 

Section 3.14                                 TAX MATTERS.

 

(a)                                   All federal and all other material Tax Returns required to be filed by or on behalf of the Company or any of its subsidiaries have been filed with the appropriate taxing authorities in all jurisdictions in which such Tax Returns are required to be filed (after giving effect to any valid extensions of time in which to make such filings), and all such Tax Returns were and continue to be accurate and complete in all material respects. Except as and to the extent publicly disclosed by the Company in the Company SEC Reports filed prior to the date of this Agreement, and, except for unpaid Taxes in amounts that are not material, the non-payment of which would not cause or reasonably be likely to have a Material Adverse Effect on the Company, (i) all Taxes payable by or on behalf of the Company or any of its subsidiaries (whether or not shown on any Tax Return) have been fully and timely paid or adequately provided for in accordance with GAAP, and (ii) adequate reserves or accruals for Taxes of the Company or any of its subsidiaries have been provided in accordance with GAAP with respect to any period for which Tax Returns have not yet been filed or for which Taxes are not yet due and owing. Except as set forth in Section 3.14(a) of the Company Disclosure Schedule , neither the Company nor any of its subsidiaries has executed or filed with the IRS or any other taxing authority any agreement, waiver or other document or arrangement extending or having the effect of extending the period for assessment or collection of Taxes (including, but not limited to,

 

25

 

any applicable statute of limitation), and no power of attorney with respect to any Tax matter is currently in force.

 

(b)                                  The Company, (i) held no assets, earned no income and did not engage in any business activity for its taxable year ending December 31, 1998 and (ii) for all taxable years beginning with its taxable year ended December 31, 1999, has been taxable as a real estate investment trust (a “REIT”) within the meaning of Section 856 of the Internal Revenue Code of 1986, as amended (the “Code”), and has qualified as a REIT for all such years, (iii) has operated since December 31, 2005 to the date hereof in a manner that will permit it to qualify as a REIT for the taxable year that will end as of the Effective Time, and (iv) has not taken any action or failed to take any action which would reasonably be expected to result in a successful challenge by any Governmental Entity to its status as a REIT for any such years, and no such challenge is pending, or is or has been threatened in writing.

 

(c)                                   Except as set forth in Section 3.14(c) of the Company Disclosure Schedule , all material deficiencies asserted or assessments made as a result of any examinations by the IRS or any other taxing authority of the Tax Returns of or covering or including the Company or any of its subsidiaries have been fully paid or adequately provided for in accordance with GAAP, and, to the Knowledge of the Company, there are no other audits relating to any material taxes by any taxing authority in progress, nor has the Company or any of its subsidiaries received any written notice from any taxing authority that it intends to conduct such an audit.

 

(d)                                  Except as set forth in Section 3.14(d) of the Company Disclosure Schedule , and, except as would not have or would not reasonably be likely to have, individually or in the aggregate, a Material Adverse Effect on the Company, the Company and its subsidiaries have complied in all material respects with all applicable Laws, rules and regulations relating to the payment, paying over and withholding of Taxes (including, without limitation, under Sections 1441, 1442, 1445, 1446, and 3402 of the Code) and have duly and timely withheld and paid over Taxes in connection with amounts paid or owing to any employee, independent contractor, creditor, stockholder or other third party (including, without limitation, with respect to any sales, gross receipts, and use taxes) and have duly paid over to the appropriate taxing authorities all material amounts so withheld on or prior to the due date thereof.

 

(e)                                   The Company has made available to Parent correct and complete copies of (A) all U.S. federal and other material Tax Returns of the Company and its subsidiaries relating to the taxable periods since their respective date of formation that have been filed and (B) any audit report issued and relating to any material Taxes due from or with respect to the Company or any of its subsidiaries.

 

(f)                                     Except as set forth in Section 3.14(f) of the Company Disclosure Schedule , no material deficiencies for Taxes have been asserted or assessed in writing by a Governmental Entity against the Company or any of its subsidiaries which have not been paid or remain pending, including claims by a taxing authority in a jurisdiction where the Company or any of its subsidiaries does not file Tax Returns such that the Company or any such subsidiary is or may be subject to taxation by that jurisdiction or is otherwise required to file Tax Returns in such jurisdiction.

 

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(g)                                  Except as set forth in Section 3.14(g) of the Company Disclosure Schedule , neither the Company nor any other Person on behalf of the Company or any of its subsidiaries has requested any extension of time within which to file any income Tax Return or other material Tax Return, which such Tax Return has since not been filed.

 

(h)                                  Except as set forth in Section 3.10(a) of the Company Disclosure Schedule , neither the Company nor any of its subsidiaries is a party to any Tax Sharing Agreement or Tax Protection Agreement, or tax indemnity agreement (or similar agreement or arrangement) other than any agreement or arrangement solely between the Company and one or more of its wholly owned subsidiaries. The Company and its subsidiaries have complied with all material terms of the agreements provided in the preceding sentence and no Person has raised or threatened to raise a material claim against the Company or any of its subsidiaries for any breach of any such agreement.

 

(i)                                      Except as set forth in Section 3.14(i) of the Company Disclosure Schedule , neither the Company nor any of its subsidiaries has applied for, received or has pending a request for a written ruling of a taxing Governmental Entity relating to Taxes, or has commenced negotiations or entered into a written and legally binding agreement with a taxing authority relating to Taxes.

 

(j)                                      Neither the Company nor any subsidiary has (i) made, agreed to, or is required to make, any adjustments pursuant to Section 481(a) of the Code or any state, local, or foreign analogue, or has any application pending with any Governmental Entity requesting permission for any changes in accounting methods, (ii) executed or entered into, or has pending a closing agreement pursuant to Section 7121 of the Code or any state, local, or foreign analogue, or any similar agreement, or (iii) received a ruling from any Governmental Entity in respect of Taxes, any of the foregoing of which would have continuing effect after the Merger.

 

(k)                                   There are no Liens for Taxes upon the assets of the Company or any of its subsidiaries, other than Permitted Liens.

 

(l)                                      Since the date of the most recent audited consolidated financial statements included in the Company SEC Reports, the Company has incurred no liability for any Taxes under Sections 857(b), 857(f), 860(c) or 4981 of the Code or IRS Notice 88-19 or Treasury Regulation Sections 1.337(d)-5T, 1.337(d)-6 and 1.337(d)-7 including any Tax arising from a prohibited transaction described in Section 857(b)(6) of the Code, and neither the Company nor any of its subsidiaries has incurred any material liability for Taxes other than in the ordinary course of business. To the Knowledge of the Company, no event has occurred, and no condition or circumstance exists, which presents a material risk that any material Tax described in the preceding sentences will be imposed upon the Company or its subsidiaries.

 

(m)                                The Company does not own any assets that would cause it not to satisfy the asset test set forth in Section 856(c)(4) of the Code. Each subsidiary of the Company which files Tax Returns as a partnership for U.S. federal income Tax purposes has since its inception or acquisition by the Company been classified for U.S. federal income Tax purposes as a partnership and not as an association taxable as a corporation, or a “publicly traded partnership” within the meaning of Section 7704(b) of the Code. Each other subsidiary of the Company has

 

27

 

been and continues to be treated for U.S. federal income Tax purposes as a “qualified REIT subsidiary” within the meaning of Section 856(i) of the Code, or a “taxable REIT subsidiary” within the meaning of Section 856(l) of the Code. Except as set forth in Section 3.14(m) of the Company Disclosure Schedule , the Company does not hold any asset the disposition of which would be subject to rules similar to Section 1374 of the Code as announced in IRS Notice 88-19 or as provided for in Treasury Regulation Section 1.337(d)-5T, 1.337(d)-6, or 1.337(d)-7.

 

(n)                                  To the Company’s Knowledge, the aggregate of the adjusted basis of the assets of the Company exceed the aggregate liabilities of the Company.

 

(o)                                  At the close of each of its taxable years beginning with its taxable year ending December 31, 1998, and as of the date hereof, the Company has not had, and does not have, as applicable, any earnings and profits accumulated in any non-REIT year within the meaning of Section 857(a)(2)(B) of the Code.

 

(p)                                  Except as provided in Section 3.14(o) of the Company Disclosure Schedule , (i) none of the Company or any of its subsidiaries is or has ever been a member of a consolidated or affiliated group under any provision of U.S. federal, state, local, or foreign law, other than a group of which the Company was or is, as relevant, the common parent, and (ii) except as would not have or reasonably be likely to have a Material Adverse Effect on the Company, the Company does not have and could not have any liability for the Taxes of any Person other than the Company and its subsidiaries, and none of its subsidiaries have or could have any liability for the Taxes of any Person other than the Company and its subsidiaries (A) under Treasury Regulation Section 1.1502-6 (or any similar provision of state, local or foreign law), (B) as a transferee or successor, or (C) by contract.

 

(q)                                  Neither the Company nor any of its subsidiaries made any payments, is obligated to make any payments, or is a party to an agreement that could obligate it to make any payments that could reasonably be determined to not be deductible under Section 162(m) of the Code.

 

(r)                                     Except as would not have or reasonably would be expected to have a Material Adverse Effect on the Company, neither the Company nor any of its subsidiaries is or has been a party to any understanding or arrangement described in Section 6662(d)(2)(C)(ii) of the Code or Treasury Regulations Section 1.6011-4(b), or is or has been a “material advisor” as defined in Section 6111(b) of the Code.

 

(s)                                   Neither the Company nor any of its subsidiaries has constituted either a “distributing corporation” or a “controlled corporation” (within the meaning of Section 355(a)(1)(A) of the Code) in a distribution of stock qualifying for tax-free treatment under Section 355 of the Code (i) in the two years prior to the date of this Agreement or (ii) in a distribution which could otherwise constitute part of a “plan” or “series of related transactions” (within the meaning of Section 355(e) of the Code) in conjunction with the transactions contemplated by this Agreement.

 

(t)                                     Other than regular monthly dividends in amounts consistent with dividends declared and paid during the twelve month period immediately prior to the date of this

 

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Agreement, the Company will not be required to make distributions to its shareholders in order to maintain its REIT status or to avoid the imposition of corporate level Tax or excise Tax under Section 4981 of the Code (determined without regard to the effects of the Merger). All distributions made by the Company on and since January 1, 1999 have been made in accordance with the rights of its shareholders set forth in the Company’s organizational documents, and the Company has not made any “preferential dividends” within the meaning of Section 562(c) of the Code.

 

(u)                                  The Company is not a foreign person within the meaning of Section 1445(b)(2) of the Code, and is and has been, at all times during the five calendar years preceding the date hereof, a “domestically-controlled” REIT within the meaning of Section 897(h) of the Code and Treasury Regulation Section 1.897-1(c)(2)(i).

 

(v)                                  The Company has the right to make or to require, and, after the Effective Time, the Surviving Entity and its assigns will have the right to make or to require, each subsidiary that is treated as a partnership for U.S. federal income Tax purposes to make an election under Section 754 of the Code (and any corresponding or similar elections under state or local tax law) to adjust the basis of its property as provided in Sections 734(b) and 743(b) of the Code.

 

(w)                                Since January 1, 2002, neither the Company nor any of its subsidiaries has recognized taxable gain or loss from the disposition of any property that was reported (or is intended to be) reported as a “like kind exchange” under Section 1031 of the Code, except to the extent of any gain that was required to be recognized under Section 1031(b) of the Code and was timely and properly reported on any Tax Return referred to in paragraph (a) above.

 

(x)                                    For purposes of this Agreement, “Tax” or “Taxes” shall mean all taxes, charges, fees, imposts, levies, gaming or other assessments, including all net income, gross receipts, capital, sales, use, ad valorem, value added, transfer, franchise, profits, inventory, capital stock, license, withholding, payroll, employment, social security, unemployment, excise, severance, stamp, occupation, property and estimated taxes, customs duties, fees, assessments and charges of any kind whatsoever, together with any interest and any penalties, fines, additions to tax or additional amounts imposed by any taxing authority (domestic or foreign) and shall include any transferee or successor liability in respect of taxes, any liability in respect of taxes under Treasury Regulation Section 1.1502-6 or any similar provision of state, local or foreign Law, or imposed by contract (including, without limitation, by any Tax Sharing Agreement, Tax Protection Agreement, tax indemnity agreement, or any similar agreement). “Tax Returns” shall mean any report, return, document, declaration or any other information or filing required to be supplied to (or required to be presented by) any Governmental Entity (whether foreign or domestic) with respect to Taxes, including information returns, any document with respect to or accompanying payments or estimated Taxes, or with respect to or accompanying requests for the extension of time in which to file any such report, return document, declaration or other information. For purposes of this Section 3.14, the definition of “subsidiary” contained in Section 9.12 shall be applied by substituting “20%” for “a majority” in clause (iii) of such definition. “Tax Protection Agreement” shall mean any agreement pursuant to which the Company or any of its subsidiaries has agreed to indemnify any Person for Taxes arising as a result of any sale or other disposition for tax purposes, of any Company Property (including any

 

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Taxes resulting from the transactions contemplated by this Agreement); (ii) which prohibits or restrains the ability of the Company or any of its subsidiaries to (I) transfer, for U.S. federal income Tax purposes or otherwise, any asset of the Company or its subsidiaries, as applicable, for a period of time, in any manner, or (II) repay, refinance or restructure of any indebtedness of the Company or any of its subsidiaries, or to do the same to or terminate any guarantees of such indebtedness, (iii) require the maintenance of any minimum level of indebtedness of the Company or any of its subsidiaries. “ Tax Sharing Arrangement” shall mean any written or unwritten agreement or arrangement for the allocation, sharing, or payment of U.S. federal, state or local income Tax liabilities or payment for U.S. federal, state or local income Tax benefits, whether or not on a net basis, with respect to any Person other than the Company and any of its direct or indirect wholly-owned subsidiaries.

 

Secti