EXCHANGE AGREEMENT

 

Exhibit 10.11                                                Laurel Springs II

 

 

                               EXCHANGE AGREEMENT

 

                                  by and among

 

                        BNP Residential Properties, Inc.,

 

                 BNP Residential Properties Limited Partnership,

 

                                       and

 

                            the Contributing Parties

 

                                  listed herein

 

                                   Dated as of

 

                                December 7, 2004

 

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                               EXCHANGE AGREEMENT

 

         This EXCHANGE AGREEMENT (the "Agreement") is made as of the 7th day of

December, 2004, by and among BNP Residential Properties, Inc., a Maryland

corporation (the "REIT"), BNP Residential Properties Limited Partnership, a

Delaware limited partnership ("BNP"), Laurel Springs II, LLC (the "Company"),

and Brian D. Shugart and Family Homes, LLC (each a "Contributor" and

collectively the "Contributors").

 

         WHEREAS, BNP is a Delaware limited partnership having the REIT as its

sole general partner, and the REIT has elected to be qualified as a real estate

investment trust under the Internal Revenue Code of 1986, as amended (the

"Code"); and

 

         WHEREAS, the Company owns certain real property located in High Point,

North Carolina; and

 

         WHEREAS, BNP desires to acquire from each Contributor, and each

Contributor desires to transfer to BNP, on the terms and conditions set forth

herein, all interests in the Company owned by such Contributor as set forth in

Schedule A and any other direct or indirect equity interests such Contributor

may have, whether now owned or hereinafter acquired, in the Company or the

Property (as defined below and described on Schedule B attached hereto) (a

"Company Interest"); and

 

         WHEREAS, pursuant to the terms hereof, BNP and the Company desire to

combine their respective businesses subject to the terms, conditions, provisions

and limitations of this Agreement.

 

          NOW, THEREFORE, in consideration of the premises herein contained, and

other good and valuable consideration, the receipt and sufficiency of which is

hereby acknowledged, the parties hereto agree as follows:

 

                                    ARTICLE I

                                   DEFINITIONS

 

           The following capitalized terms shall have the following meanings for

all purposes of this Agreement and such meanings are equally applicable to the

singular and plural forms of the terms defined. The terms "hereof," "herein,"

"hereunder," and comparable terms refer to the entire agreement with respect to

which terms are used and not to any particular section, subsection, paragraph or

other subdivision thereof.

 

"Actual Knowledge" for the purposes of this Agreement shall mean information

which is known to an individual or, as to any entity, to the officers, general

partners or managers of such entity without the requirement of additional

inquiry unless such persons are aware of facts or circumstances which would lead

reasonable persons to make or conduct additional inquiry.

 

"Affiliate" means, as to any Person (as defined below), each of the Persons (i)

which directly or indirectly through one or more intermediaries controls, or is

controlled by, or is under common control with such Person; or (ii) which

beneficially owns or holds 10% or more of any class of the outstanding voting

stock (or in the case of a Person which is not a corporation, 10% or more of the

 

 

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equity interest) of such Person; or (iii) 10% or more of any class of the

outstanding voting stock (or in the case of a Person which is not a corporation,

10% or more of the equity interest) of which is beneficially owned or held by

such Person. The term "control" means the possession, directly or indirectly, of

the power to direct or cause the direction of the management and policies of a

Person, whether by ownership of voting stock, by contract, by close family

relationships (i.e., parent, spouse, child or sibling) or otherwise.

 

"BNP Partnership Agreement" means the Second Amended and Restated Agreement of

Limited Partnership of BNP Residential Properties Limited Partnership dated

December 1, 1997, as amended through the date hereof, including the amendment to

issue additional Units to the Contributors, as well as other amendments from the

date hereof until the Closing made by BNP in the ordinary course of business.

 

"Company Financial Statements" means the periodic income statement and balance

sheets provided to BNP (including the schedules attached thereto) for the

Company, and specifically excludes any forecasts and projections.

 

"Contributing Parties" means collectively Contributors and the Company, without

duplication.

 

"Environmental Law" means any and all federal, state and local laws,

regulations, ordinances and other requirements relating to pollution or

protection of the environment, including, without limitation, laws, regulations

and requirements relating to the ownership, possession, storage and control of

the Property and to emissions, discharges, releases or threatened releases of

storm water, pollutants, contaminants, toxic or hazardous substances, or solid

or hazardous wastes into the environment (including without limitation ambient

air, surface water, groundwater or land), or otherwise relating to the

manufacture, processing, distribution, use, treatment, storage, disposal,

transport or handling of pollutants, contaminants, toxic or hazardous

substances, or solid or hazardous wastes. The Environmental Laws include,

without limitation, the Comprehensive Environmental Response, Compensation and

Liability Act of 1980, as amended.

 

"Improvements" means all buildings, structures, streets, furnishings, parking

lots, landscaping, walls, ponds, culverts, fixtures, utilities, fences,

driveways, loading docks, security systems and other physical features

constructed or assembled on, at, upon or beneath the Property (whether finished

or unfinished).

 

"Indebtedness" means, without duplication, any obligations for borrowed money

and all obligations to trade creditors, whether heretofore, now or hereafter

owing, arising, due or payable to any Person and howsoever evidenced, created,

incurred, acquired or owing, whether primary, secondary, direct, contingent,

fixed or otherwise and whether matured or unmatured. Without in any way limiting

the generality of the foregoing, Indebtedness specifically includes the

following: (a) all obligations or liabilities of any Person that are secured by

any Lien, claim, encumbrance or security interest upon property; (b) all

obligations or liabilities created or arising under any capital lease of real or

personal property, or conditional sale or other title retention agreement with

respect to property, even though the rights and remedies of the lessor, seller

or lender thereunder are limited to repossession of such property; (c) all

unfunded pension fund, employee medical or welfare obligations and liabilities;

(d) deferred taxes; and (e) all obligations under any

 

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indemnification agreements, guaranty agreements, letters of credit or other

documents creating such contingent liabilities.

 

"Lien" means any interest in property securing an obligation owed to, or a claim

by, a person other than the owner of the property, whether such interest is

based on the common law, statute or contract, and including but not limited to

the lien or security interest arising from a mortgage, encumbrance, pledge,

security agreement, conditional sale or trust receipt or a lease consignment or

bailment for security purposes. The term Lien shall include reservations,

exceptions, defects of any kind or nature, encroachments, easements,

rights-of-way, covenants, conditions, restrictions, leases and other title

exceptions and encumbrances affecting property.

 

"Outstanding Company Debt Financing" means the Indebtedness of the Company as

described on Schedule 3.1(a)(i) attached hereto including any indemnifications

and guarantees related thereto, which maximum principal amount outstanding as of

the Closing Date shall not exceed Five Million Seven Hundred Thousand Dollars

($5,700,000). This stated maximum debt amount shall be comprised of principal

only, and shall not include accrued but unpaid interest, which amounts shall be

satisfied by the Company and/or the Contributors at or prior to Closing.

 

"Permitted Lien" means (i) liens for 2004 ad valorem taxes not yet due and

payable; (ii) restrictions, easements, covenants, reservations and rights of way

of record as do not detract from the value or interfere with the present use of

a parcel of property; (iii) zoning ordinances, restrictions and other

requirements imposed by governmental authority as do not detract from the value

or interfere with the present use of a parcel of property; and (iv) such

imperfections of title, liens and encumbrances, if any, as do not detract from

the value or interfere with the present use of a parcel of property and which do

not secure obligations for borrowed money or the deferred purchase price of

property.

 

"Person" means any individual, joint venture, corporation, company, voluntary

association, partnership, trust, joint stock company, unincorporated

organization, association, government, or any agency, instrumentality, or

political subdivision thereof, or any other form of entity.

 

"Property" shall mean the real property together with any Improvements thereon

and all tangible personal property (including, without limitation, books and

records, furniture, equipment and machinery), intangible assets (including,

without limitation, all guaranties, warranties, plans, specifications,

engineering drawings, non-proprietary software and databases, tenant lists,

marketing materials, signage (on-site and off-site), goodwill, transferable

licenses, permits, certificates of occupancy and other approvals, all

copyrights, logos, designs, trademarks and tradenames and all other intellectual

property), and rights, privileges and interests appurtenant thereto owned by the

Company as more particularly described on the Descriptive Property Exhibit

attached hereto at Schedule B.

 

"Unit" means a Common Partnership Unit as such term is defined in the BNP

Partnership Agreement.

 

In addition, the terms set forth below shall have the meanings ascribed thereto

on the referenced pages.

 

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Term                                             Page

 

 

Act..................................................21

Ancillary Documents..................................28

Authorizations.......................................24

Blue Sky Laws........................................21

BNP Reports..........................................23

Claim................................................29

Closing...............................................6

Closing Date..........................................5

Closing Documents.....................................6

Code..................................................2

Contracts............................................16

Contribution Price....................................8

Contributors' Representative..........................9

Development Property.................................11

Environmental Assessments............................17

Existing Operating Agreements........................19

Holdback Amount.......................................8

Indemnified Party....................................30

Indemnifying Party...................................30

Investigation Period.................................25

Leases...............................................15

Management and Leasing Agreements....................19

Non-Complying Contributor............................28

Other Properties.....................................25

Post-Closing Adjustment Period........................9

Records..............................................26

Registration Rights Agreement.........................6

Schedule of Leases...................................15

SEC..................................................12

Tax Claim............................................29

 

 

                                   ARTICLE II

                          THE TRANSACTIONS AND CLOSING

 

         2.1 General; Consideration. Subject to the terms, conditions,

provisions and limitations in this Agreement, on the date of the Closing (the

"Closing Date") the parties shall cause the transactions contemplated hereby to

be consummated, including, but not limited to:

 

                  (a) The contributions of the Contributors' Interests to BNP,

free and clear of Liens other than Permitted Liens, in exchange for that

aggregate number of Units determined by dividing the Contribution Price (as

determined under Article III herein) by 13.50 (each Unit having a value of

$13.50), with such Units being payable on the dates set forth in Section 3.1 and

allocated among the Contributors as provided in Schedule A; and

 

                  (b) The termination of the operating agreement of the Company

so that the Company will be governed by the default provisions of the North

Carolina Limited Liability Company Act.

 

         2.2 Distribution on Units. For the first fiscal quarter of BNP ending

after the date of Closing, partnership distributions attributable to such

quarter payable by BNP to a Contributor with respect to the Units issued hereby

at the Closing pursuant to Section 5.1 of the BNP Partnership Agreement shall be

prorated to take into account the period of time during such quarter that such

Units were outstanding. The distributions with respect to such Units for such

quarter shall equal that portion of a full quarterly distribution otherwise

attributable to Units outstanding for the entire quarter determined by

multiplying the amount of such full distribution by a fraction the numerator of

which is the number of days during such quarter that the Units issued hereby are

outstanding and the denominator of which is the number of days in such quarter.

In the event that the Contributor receives a full cash distribution for such

period, it shall reimburse BNP the prorated portion of such distribution within

five (5) days of receipt. With regard to the Units issued to Contributors on the

first anniversary of the Closing Date pursuant to Section 3.1(b) hereof, the

partnership distributions attributable to the first fiscal quarter of BNP ending

after the date of such issuance shall be

 

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similarly prorated in accordance with the provisions of this Section 2.2 to take

into account the period of time during such quarter that such Units were

outstanding.

 

         2.3 Market Price Fluctuation. EACH OF THE CONTRIBUTORS AND BNP

ACKNOWLEDGES AND AGREES THAT AFTER THE EXECUTION OF THIS AGREEMENT, THE MARKET

VALUE OF THE REIT COMMON STOCK WHICH IS CURRENTLY OUTSTANDING MAY INCREASE OR

DECREASE IN VALUE AS THE RESULT OF MARKET FLUCTUATIONS, AND THAT ANY SUCH

FLUCTUATIONS MAY AFFECT THE VALUE OF THE UNITS. NOTWITHSTANDING THESE

FLUCTUATIONS, BNP WILL NOT BE REQUIRED TO INCREASE THE NUMBER OF UNITS TO BE

ISSUED TO ANY CONTRIBUTOR IN THE EVENT OF A DECREASE IN THE MARKET VALUE OF THE

REIT COMMON STOCK PRIOR TO THE CLOSING. LIKEWISE, EACH CONTRIBUTOR WHOSE

PURCHASE PRICE IS BEING PAID IN UNITS WILL BE ENTITLED TO THAT NUMBER OF UNITS

SET FORTH IN THIS AGREEMENT NOTWITHSTANDING ANY INCREASE IN VALUE OF THE REIT

COMMON STOCK PRIOR TO THE CLOSING.

 

         2.4 Closing. The closing of the transactions contemplated by this

Agreement (the "Closing") shall take place at the offices of Alston & Bird LLP,

Raleigh, North Carolina or such other place as the parties may agree on or

before March 31, 2005.

 

         2.5 Documents to be Delivered at Closing by the Contributing Parties.

 

                  (a) At the Closing, each Contributor shall deliver to BNP in

addition to any other documents mentioned elsewhere herein, the following

(collectively, the "Closing Documents"):

 

                           (i) Duly executed Assignments of Interest, which

         assignments shall be in a form as attached at Schedule C and shall

         contain a warranty of title that such Contributor owns such

         Contributor's Interests free and clear of all encumbrances;

 

                           (ii) Any other documents reasonably necessary to

         assign, transfer and convey such Contributor's Interests and effectuate

         the transactions contemplated hereby, including quit claim or limited

         warranty deeds for the Property;

 

                           (iii) A certified copy of all appropriate corporate,

         limited liability company or partnership actions authorizing the

         execution, delivery and performance by each Contributor that is not an

         individual of this Agreement, the Closing Documents, and the Ancillary

         Documents;

 

                           (iv) The Registration Rights Agreement being entered

         into in connection with the transactions contemplated by this Agreement

         (the "Registration Rights Agreement") duly executed by such

         Contributor; and

 

                           (v) An opinion from counsel for the Company and

         Family Homes LLC in form and content reasonably acceptable to BNP

         substantially to the effect that each of the

 

 

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         Company and Family Homes, LLC is duly organized, validly existing and

         in good standing under the laws of the state of its organization, has

         all applicable power and authority to enter into, deliver and perform

         this Agreement, the Closing Documents and the Ancillary Documents, the

         execution, delivery and performance of which Agreement, Closing

         Documents and Ancillary Documents, and the transactions contemplated

         hereby and thereby, do not and will not constitute a breach or a

         violation of the operating agreement of the Company or Family Homes,

         LLC, as applicable; and that all applicable action necessary for the

         Company and Family Homes, LLC to execute and deliver this Agreement,

         the Closing Documents and the Ancillary Documents has been taken and

         that the same have been validly executed and delivered and are the

         valid and binding obligations of the Company and Family Homes, LLC

         enforceable against it, subject to creditors rights and other normal

         and customary exceptions, in accordance with their terms.

 

                  (b) At Closing, the Company shall deliver to BNP, in addition

to any other documents mentioned elsewhere herein, the following:

 

                           (i) Any affidavit required by the title company to

         remove the standard printed exceptions from the title policy and the

         loan policy other than exceptions relating to the Outstanding Company

         Debt Financing.

 

                           (ii) A certified copy of all appropriate limited

         liability company actions authorizing the execution, delivery and

         performance by the Company of this Agreement, the Closing Documents,

         and the Ancillary Documents.

 

                           (ii) Such other documents as may be reasonably

         required to close the transactions contemplated by this Agreement.

 

         2.6 Documents Required to be Delivered at Closing by BNP and the REIT.

BNP and the REIT shall deliver to the Contributors at the Closing, the

following:

 

                  (i) A copy of the BNP Partnership Agreement duly certified by

         the REIT as true, complete and correct.

 

                  (ii) An amendment to the BNP Partnership Agreement, duly

         executed by the REIT and all other necessary parties, to evidence the

         issuance of the Units to the Contributors at the Closing pursuant to

         Section 2.1.

 

                  (iii) A settlement statement with respect to the Closing, duly

         executed by BNP.

 

                  (iv) The Registration Rights Agreement duly executed by the

         REIT.

 

                  (v) Such other documents and instruments as may be reasonably

         necessary to consummate the transactions with the Contributing Parties

         under this Agreement.

 

                                   ARTICLE III

                       CONTRIBUTION PRICE AND ADJUSTMENTS

 

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         3.1 Contribution Price. The contribution price ("Contribution Price")

for the Property shall be as follows:

 

                 (a) Closing Consideration. At the Closing, BNP shall issue the

number of Units determined pursuant to Section 2.1(a) herein having an aggregate

value of Seven Million Ninety Thousand Dollars ($7,090,000.00), subject to

increase or decrease by the adjustments in Section 3.2 below, but less the

following amounts:

 

                          (i) the amount of the Outstanding Company Debt

Financing as of the Closing Date;

 

                          (ii) all accrued but unpaid interest under the

        Outstanding Company Debt Financing as of the Closing Date;

 

                          (iii) any charges or fees associated with property

        transfer and documentary taxes and all other costs related to the

        transfer of the Property, all of which shall be paid by the Contributing

        Parties and shall be a reduction in the Contribution Price; and

 

                           (iv) $500,000 (the "Holdback Amount").

 

                  (b) Holdback Units. On the first anniversary of the Closing

Date, BNP shall issue 37,037 Units, which is calculated by dividing the Holdback

Amount by the Unit value of $13.50 per Unit. Of these total 37,037 Units, Brian

D. Shugart shall receive 18,518 Units and Family Homes, LLC shall receive 18,519

Units.

 

         3.2 Additional Closing Adjustments.

 

                  (a) Generally. All real estate taxes, charges and assessments

affecting the Property, all charges for water, sewer, electricity, gas and all

other utilities and operating expenses with respect to the Property, to the

extent not paid or payable by tenants under the Leases (as defined in Section

5.6 below), shall be apportioned on a per diem basis as of midnight on the date

immediately preceding the Closing. All such expenses for the period preceding

the Closing shall be deemed expenses of the applicable Contributors and all such

expenses commencing as of the Closing with respect to the Property shall be

deemed to be expenses of BNP. Amounts owed under this paragraph shall be paid to

the party to whom they are owed in cash at the Closing or in the Post-Closing

Adjustment Period (as defined below) in the same manner as if the underlying

real property were being sold. If any real estate taxes, charges or assessments

have not been finally assessed as of the Closing Date for the then current

calendar tax year, they shall be adjusted at the Closing based upon the greater

of (i) the most recently issued bills therefor or (ii) the best reasonable

estimate therefor after consultations with the appropriate taxing officials.

 

                  (b) Rent. Except for delinquent rent, all rent under the

Company's Leases and other income attributable to the Property shall be

apportioned on a per diem basis as of midnight on the date immediately preceding

the Closing. All such rent and other income, including commissions earned, for

the period preceding the Closing shall be deemed to be property of the

 

 

 

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applicable Contributors, and all rent and other income for any period commencing

as of the Closing and thereafter shall be the property of BNP for the purpose of

making the adjustments set forth herein. Amounts owed under this paragraph shall

be paid to the party to whom they are owed in cash at the Closing or during the

Post-Closing Adjustment Period. Delinquent rent shall not be prorated, but shall

be deemed the property of the Contributors. Payments received by BNP from

tenants of the Property from and after the Closing with respect to the Property

shall be applied first to rents and other amounts then due BNP from such tenant

and then to such tenant's delinquent rent as of the time of apportionment. BNP

shall use reasonable efforts to collect delinquent rents for the benefit of the

Contributors but in no event shall be obligated to evict or sue any tenants in

order to collect such rents and shall cooperate with the Contributors in the

collection of any delinquent amounts; provided, however, that the Contributors

shall not have any rights to evict such tenants for such delinquent amounts. Any

amounts received by Contributors on account of rent or other income for the

period after the Closing with respect to the Property and the related personal

property shall be turned over to BNP for application in accordance with the

terms of this paragraph. All accounts receivable, notes, cash and bank accounts

of the Company existing as of the Closing Date shall be transferred at Closing

to the appropriate Contributors, other than the remaining balance of any escrow

accounts for tenant improvements and lease commissions held by the Company, the

amount necessary to pay prorations of taxes, security deposits and amounts which

belong to BNP after making the closing adjustments for rent and operating

expenses.

 

                  (c) Preclosing Expenses and Liabilities. The parties

acknowledge that not all invoices for expenses incurred with respect to the

Property prior to the Closing will be received by the Closing and that a

mechanism needs to be in place so that such invoices can be paid as received.

All of the prorations referred to above will be done on an interim basis at the

Closing and will be subject to final adjustment in accordance with the

provisions hereof within 60 days or such other agreed upon period of time

following Closing (the "Post-Closing Adjustment Period"). Upon receipt by BNP

after Closing of an invoice for the Property's operating expenses which are

attributable in whole or in part to a period prior to the Closing and which were

not apportioned at Closing, BNP shall submit to Grover F. Shugart, Jr., as agent

for the Contributors ("Contributors' Representative"), a copy of such invoice

with such additional supporting information as Contributors' Representative

shall reasonably request. Within 10 days of receipt of such copy, each of the

Contributors shall pay to BNP their pro rata share of an amount equal to the

portion of such invoice attributable to the period ending as of midnight on the

date immediately preceding the Closing apportioned on a per diem basis.

 

                  (d) Security Deposits/Tenant Inducements. With respect to the

Property to be acquired at Closing, the Company shall pay to BNP in cash at

Closing an amount equal to the sum of (i) the security and other deposits, if

any, which the Company is holding pursuant to the Leases, and (ii) any other

deposits or advances received by the Company relating to services yet to be

provided by the Company, including, without limitation, any prepaid laundry

contract fees, redecoration costs and pet fees.

 

                                   ARTICLE IV

                            COVENANTS AND AGREEMENTS

 

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         4.1 Operation of Business. After making adequate provisions for all

prorations contemplated herein, the Company may make cash distributions of all

cash on hand immediately prior to the Closing and may otherwise only distribute

all claims or other evidences of money owed to them, it being understood that,

except as otherwise provided herein, no claims, accounts receivable, notes

receivable or other rights to payment of the Company shall remain assets of the

Company, as the case may be, as of the Closing Date. BNP and the Contributors

agree to use their reasonable efforts to reconcile prorations and other closing

adjustments within the Post-Closing Adjustment Period.

 

         4.2 No Brokers. Each of the Contributing Parties covenants, represents

and warrants to BNP that, no broker or finder or agent has been involved or

engaged by it in connection with the transactions contemplated hereby and, each

hereby agrees to indemnify and hold harmless BNP from and against any and all

broker's or finder's fees, commissions or similar charges incurred or alleged to

have been incurred by the Contributors in connection with the transactions

contemplated hereby and any and all loss, liability, cost or expense (including

without limitation reasonable fees of counsel satisfactory to BNP) arising out

of any claim that the indemnifying party incurred any such fees, commissions or

charges.

 

         4.3 Lock-Up. The Units received hereby may not be disposed of during

the applicable Lock-up Period (as defined in the Registration Rights Agreement),

except that a Contributor:

 

                  (i) who is a natural person may dispose of Units to his

         spouse, siblings, parents or any natural or adopted children or other

         descendants or to any personal trust or family partnership in which

         such family members or such Contributor retain the entire beneficial

         interest;

 

                  (ii) that is a limited liability company may dispose of Units

         to one or more other entities that are wholly owned and controlled,

         legally and beneficially, by such Contributor or by a Person or Persons

         that directly or indirectly wholly owns and controls such Contributor;

 

                  (iii) may dispose of Units on his death to such Contributor's

         estate, executor, administrator or personal representative or to such

         Contributor's beneficiaries pursuant to a devise or bequest or by the

         laws of descent and distribution;

 

                  (iv) may dispose of Units as a bona fide gift; and

 

                  (v) may dispose of Units pursuant to a pledge, grant of

         security interest or other encumbrance effected in a bona fide

         transaction with an unrelated and unaffiliated pledgee;

 

provided, however, that in the case of any transfer of Units pursuant to clauses

(i), (ii), (iv) and (v), the transferee or transferees shall each be an

"accredited investor" within the meaning of Rule 501(a) of Regulation D under

the Securities Act. In the event any Contributor disposes of Units as described

in this paragraph, such Units shall remain subject to this lock-up provision

and, as a condition of the validity of such disposition, the transferee (and any

transferee who acquires Units

 

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from a pledgee upon foreclosure) shall be required to agree in writing to

similar lock-up provisions as set forth herein.

 

         4.4 Section 754 Elections. Each of the Contributors and the Company

agree (i) to cause an election under Section 754 of the Code to be included in

the closing federal partnership tax returns of the Company indicating BNP as a

partner; (ii) to prepare, at their expense, and timely file closing partnership

tax returns for the period ending on the Closing Date for the Company; and (iii)

to present such tax returns to BNP for its approval, which shall not be

unreasonably withheld, sufficiently in advance of the filing of such returns.

 

         4.5 Agent of Contributing Parties. Each of the Contributing Parties

hereby irrevocably appoints Grover F. Shugart, Jr. as agent of the Company for

the purposes of consummating the transactions contemplated hereby and otherwise

carrying out the terms of this Agreement, and taking for such entity all steps

deemed necessary or advisable by Grover F. Shugart, Jr., in such capacity, for

carrying out the terms of this Agreement. The Company acknowledges and agrees

that BNP and the REIT, respectively, and their respective partners, officers,

directors, employees, agents, advisors, accountants, and attorneys, may rely and

act upon the action or omission to act of this appointed agent in carrying out

the terms of this Agreement or in binding the Company to the terms of this

Agreement in any way.

 

         4.6 Contributions of Assets. All personal property used by the

Contributing Parties in the operation and management of the Property including

but not limited to that listed on Schedule 4.6 will be transferred to BNP in

conjunction with the Closing and as partial consideration for the transactions

otherwise contemplated by this Agreement.

 

         4.7 Non-Compete Agreements. Each Contributing Party agrees not to, and

warrants that no Affiliate will, directly or indirectly, build, purchase,

acquire, own or manage any property (other than the Phase 3 property described

in Section 4.8 below) competing with any business or property owned or managed

by BNP (or any of its Affiliates) within a three-mile radius, without BNP's

consent, for such period of time that the Contributors (assuming the redemption

of the Contributors' Units for shares of the REIT's common stock) own (directly

or indirectly), in the aggregate, more than 5% of the REIT's outstanding common

stock.

 

         4.8 Future Development Rights. For so long as the Contributors

beneficially own (directly or indirectly), in the aggregate, more than 5% of the

REIT's outstanding securities (assuming the redemption of the Contributors'

Units for shares of the REIT's common stock), BNP shall have a right of first

refusal to acquire all future multi-family properties developed directly or

indirectly by any Contributor, or any Affiliate thereof (a "Development

Property") within a three-mile radius of the Property (such development being

subject to the prior approval of BNP under Section 4.7 above). The Contributors

shall not sell any Development Property without first offering BNP the option to

purchase such Development Property on the same terms as offered to a third

party. BNP shall have 30 days to decide whether or not to purchase such

Development Property on such terms. If BNP declines to exercise this option, the

Development Property may be sold within the next 180 days on terms no more

favorable than those presented to BNP. If the Development Property is not sold

within such 180-day period, BNP will again have a right of first refusal prior

to any sale of the Development Property. The decision whether to exercise such

 

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option with respect to any Development Property shall be made by the REIT's

board of directors on a case-by-case basis with any director that is a

Contributor or Affiliated with a Contributor abstaining from such decision.

Without limiting the foregoing, on and after the Closing Date, BNP shall have a

right of first refusal to acquire any multi-family property developed on the

land located adjacent to the Property and designated as "Phase 3" on Schedule

4.8 attached hereto. The Contributors shall not sell or transfer Phase 3 without

first offering BNP the option to purchase such Phase on the same terms as

offered to a third party. BNP shall have 30 days to decide whether or not to

purchase such Phase on such terms. If BNP declines to exercise this option,

Phase 3 may be sold within the next 180 days on terms no more favorable than

those presented to BNP. If Phase 3 is not sold within such 180-day period, BNP

will again have a right of first refusal prior to any sale of Phase 3. The

decision whether to exercise such option with respect to Phase 3 shall be made

by the REIT's board of directors with any director that is a Contributor or

Affiliated with a Contributor abstaining from such decision.

 

         4.9 Excess Shares. If any Contributors are ever deemed to hold "Excess

Shares" as defined in the Articles of Incorporation, the REIT will use

reasonable efforts to try to enable such Contributors to keep such shares;

provided that the REIT need not take any steps that would jeopardize its status

as a REIT or that would require the REIT to issue additional securities.

 

         4.10 Assignment of Warranties and Builder's Warranty. The Contributing

Parties will use their best efforts to cause the maker of any warranties

benefiting the Property to consent to the transfer of the Interests if necessary

to preserve the validity and enforceability of said warranties. In addition, the

Contributors hereby make a standard builder's warranty in favor of BNP and its

successors and assigns and for a period of one year from the Closing Date,

warrant that the Improvements shall be free from defects. The Contributors,

jointly and severally, shall be obligated to remedy any defects identified in

one or more written notices given by BNP within such one-year period, and in the

event that the Contributors fail to remedy any such defects, BNP may offset the

cost of remedying the same pro rata against any distributions payable to the

Contributors with respect to the Units pursuant to Section 8.6 of the BNP

Partnership Agreement.

 

         4.11 Completion of Construction and Repairs. Schedule 4.11 lists all

construction, repairs, renovations and similar work in progress at the Property

as of the execution date of this Agreement. The Contributing Parties agree to

complete or have completed on or before the Closing Date all work listed on

Schedule 4.11, as well as any additional repairs jointly agreed upon by BNP and

the Contributing Parties during BNP's Investigation Period, at the Contributing

Parties' sole cost and expense. Such work shall be completed to the reasonable

satisfaction of BNP.

 

         4.12 Public Announcement. Except as otherwise required by law or

regulatory agencies (including, without limitation, the Securities and Exchange

Commission (the "SEC") and the American Stock Exchange), none of the parties

hereto may make public announcements with respect to the transactions

contemplated by this Agreement without the approval of the other parties, which

approval may be withheld for any reason.

 

         4.13 Confidentiality. Each party hereto shall ensure that all

confidential information which such party or any of its respective officers,

directors, employees, counsel, agents or accountants may now possess or may

hereafter create or obtain relating to the financial condition,

 

 

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results of operations, business, properties, assets, liabilities or future

prospects of the other party, any Affiliate or subsidiary of the other party or

any tenant, customer or supplier of such other party, or any such Affiliate or

subsidiary, shall not be published, disclosed or made accessible by any of them

to any other Person at any time or used by any of them, in each case without the

prior written consent of the other party; provided, however, that the

restrictions of this sentence shall not apply: (i) to the extent that disclosure

may otherwise be required by law; (ii) to the extent such information shall have

otherwise become publicly available; or (iii) to disclosure by or on its behalf

to its lender(s) for the purpose of obtaining financing in connection with the

acquisition of the Property. In the event this Agreement is terminated, each

party promptly will deliver or certify destruction to the other party all

documents, work papers and other material (and any reproductions thereof)

obtained by each party or on its behalf from such other party or its Affiliates

or subsidiaries in connection with the subject transaction, whether so obtained

before or after the execution hereof, and will itself not use any information so

obtained and will use its good faith and diligent efforts to have any

information so obtained kept confidential and not used in any way detrimental to

such other party, subject to the limitations set forth above.

 

         4.14 Relationship of Parties. The parties agree that nothing contained

herein shall constitute any party the agent or legal representative of the other

(except as provided at Section 4.5 hereto) for any purpose whatsoever, nor shall

this Agreement be deemed to create any form of business organization between the

parties hereto, nor is either party granted any right or authority to assume or

create any obligations or responsibility on behalf of the other party, nor shall

either party be in any way liable for any debt of the other.

 

         4.15 Further Acts. Each party agrees to perform any further acts and to

execute, acknowledge and deliver any documents which may be reasonably necessary

to carry out the provisions of this Agreement.

 

         4.16 Consent to Transfer of Interests and Termination of the Operating

Agreement of the Company. Each Contributor agrees to and hereby does amend the

operating agreement for the Company to allow for the transactions contemplated

hereby and each Contributor consents to the transfer by the other Contributors

of the Interests as herein contemplated. Each Contributor hereby irrevocably

agrees to the termination of the operating agreement of the Company effective as

of the Closing.

 

         4.17 Certain Expenses.

 

                  (a) If the Closing occurs, BNP shall pay for the costs of any

owners title insurance policy or endorsements thereto and the costs of recording

any deed or similar instrument in connection with the transaction contemplated

under this Agreement. If BNP determines in its sole discretion that a new ALTA

survey is necessary, then BNP shall be responsible for ordering the ALTA survey

(at BNP's costs and in a form required by BNP); provided, however, that if a new

ALTA survey is required by the lender under any financing to payoff and

refinance the Outstanding Company Debt Financing, such costs shall be borne by

the Company.

 

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                  (b) Whether or not the Closing occurs, BNP and the

Contributing Parties are each responsible for their respective legal fees and

each Contributor shall be responsible for payment of his pro rata portion of

legal fees associated with this transaction.

 

 

 

                                    ARTICLE V

                        REPRESENTATIONS AND WARRANTIES OF

                              CONTRIBUTING PARTIES

 

         To induce BNP and the REIT to enter into this Agreement and the

transactions contemplated hereby, unless otherwise indicated, each of the

Contributing Parties jointly and severally represents and warrants that the

statements contained in Article V are true, correct and complete on the date

hereof and will be true, correct and complete on the Closing Date. It is the

express intention and agreement of each of the Contributing Parties that the

representations and warranties set forth in Article V shall survive the

consummation of the transactions contemplated in this Agreement, but only to the

extent expressly provided in Article X hereof.

 

         5.1 Consents. Except as disclosed on Schedule 5.1 attached hereto, to

the Actual Knowledge of each Contributing Party, (i) no consents, approvals,

waivers, notifications, acknowledgments or permissions which have not been

obtained are required in order for any of the Contributing Parties to fully

perform its, his or her respective obligations under this Agreement or which, if

left unobtained at Closing and thereafter, would have a material adverse affect

on the value, operation, occupation, use or development of the Property, and

(ii) the execution and delivery of this Agreement by the Contributing Parties

and the consummation of the transactions contemplated hereby, including without

limitation the execution of any related agreements, will not require the consent

of, or any prior filing with or notice to or payment to, any governmental

authority or other Person.

 

         5.2 Disclosure. To the Actual Knowledge of each of the Contributing

Parties, the representations and warranties contained in this Agreement

(including Schedules and Exhibits and documents or instruments delivered in

connection herewith) or in any information, statement, certificate or agreement

furnished or to be furnished to BNP by any of the Contributing Parties in

connection with