-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GBHy/rYf/+FsLIrnPtCaW50I6dgOUJuprk609pbCynXj4Lesjpw6CR5ym8D6Z67C 9L5z2XjW9szfeL1ioR1wXw== 0000350071-98-000016.txt : 19980814 0000350071-98-000016.hdr.sgml : 19980814 ACCESSION NUMBER: 0000350071-98-000016 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980813 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: MERRY LAND & INVESTMENT CO INC CENTRAL INDEX KEY: 0000350071 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 580961876 STATE OF INCORPORATION: GA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-11081 FILM NUMBER: 98685641 BUSINESS ADDRESS: STREET 1: 624 ELLIS ST CITY: AUGUSTA STATE: GA ZIP: 30901 BUSINESS PHONE: 7067226756 MAIL ADDRESS: STREET 1: PO BOX 1417 CITY: AUGUSTA STATE: GA ZIP: 30903 10-Q 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ___________ FORM 10Q ___________ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal quarter ended JUNE 30, 1998 Commission file number: 001-11081 MERRY LAND & INVESTMENT COMPANY, INC. P.O. Box 1417 Augusta, Georgia 30903 706 722-6756 ___________ State of Incorporation: Georgia I.R.S. Employer Identification Number: 58-0961876 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months, and (2) has been subject to such filing requirements for the past ninety days: Yes X . No____. The number of shares of common stock outstanding as of June 30, 1998 was 42,969,225. Form 10-Q - Merry Land & Investment Company, Inc. Index PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheets - June 30, 1998 and December 31, 1997 Consolidated Statements of Income - Three months ended June 30, 1998 and 1997, and six months ended June 30, 1998 and 1997. Consolidated Statements of Cash Flows - Six months ended June 30, 1998 and 1997 Notes to Consolidated Financial Statements Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations PART II. OTHER INFORMATION Item 1. Legal Proceedings Item 2. Changes in Securities Item 3. Defaults upon Senior Securities Item 4. Submission of Matters to a Vote of Security Holders Item 5. Other Information Item 6. Exhibits and Reports on Form 8-K SIGNATURES Form 10-Q - Part I. Financial Information Item 1- Financial Statements Merry Land & Investment Company, Inc. CONSOLIDATED BALANCE SHEETS (In thousands)
(Unaudited) June 30, December 31, 1998 1997 PROPERTIES AT COST ----------- ------------ Apartments $1,754,916 $1,496,109 Apartments under development 52,736 48,342 Commercial rental property 5,423 5,363 Land held for investment or future development 4,102 4,090 Operating equipment 3,978 3,676 ---------- ---------- 1,821,155 1,557,580 Less accumulated depreciation and depletion (167,350) (142,617) ---------- ---------- 1,653,805 1,414,963 CASH AND SECURITIES Cash and cash equivalents 616 570 Marketable securities 1,858 1,963 ---------- ---------- 2,474 2,533 OTHER ASSETS Notes receivable 1,381 1,412 Other receivable 44 249 Deferred loan costs 4,567 4,639 Other 7,096 4,085 13,088 10,385 ---------- ---------- TOTAL ASSETS $1,669,367 $1,427,881 NOTES PAYABLE ========== ========== Mortgage loans $ 183,340 $ 70,282 Senior notes 460,000 460,000 Note payable-credit line 12,100 67,800 ---------- ---------- 655,440 598,082 ACCOUNTS PAYABLE AND ACCRUED LIABILITIES Accrued interest 7,169 6,622 Resident security deposits 2,081 1,597 Accrued property taxes 15,568 10,780 Accrued employee compensation 1,605 3,471 Other 6,316 9,997 ---------- ---------- 32,739 32,467 Minority interest 18,769 - STOCKHOLDERS' EQUITY Preferred stock, at $25 and $50 liquidation preference, 20,000 369,650 269,677 shares authorized Common stock, at $1 stated value, 100,000 shares authorized 42,969 and 39,177 shares issued 42,969 39,177 Capital surplus 611,068 525,744 Cumulative undistributed net earnings (31,872) (15,730) Notes receivable from stockholders and ESOP (29,446) (21,691) Accumulated other comprehensive income 50 155 ---------- ---------- 962,419 797,332 ---------- ---------- LIABILITIES AND STOCKHOLDERS' EQUITY $1,669,367 $1,427,881 ========== ==========
The accompanying notes are an integral part of these consolidated balance sheets. Form 10-Q - Part I. Financial Information Item 1- Financial Statements Merry Land & Investment Company, Inc. CONSOLIDATED STATEMENTS OF INCOME (In thousands, except per share data) (Unaudited)
Three months ended June 30, Six months ended June 30, ------------------------------ -------------------------- 1998 1997 1998 1997 --------- --------- -------- -------- Rental income $ 67,186 $49,013 $126,430 $ 96,874 Mineral royalties 470 459 861 554 Mortgage interest 27 18 56 46 Other interest 400 703 820 1,441 Dividends 44 42 88 601 Other income 128 1,550 501 5,051 -------- ------- -------- -------- $ 68,255 $51,785 $128,756 $104,567 Rental expense 16,526 12,543 31,622 25,229 General and administrative expense 1,736 1,325 2,943 2,381 Interest 9,319 5,346 18,049 10,972 Taxes and insurance 7,738 5,793 14,867 11,378 Depreciation - real estate 13,594 9,538 26,273 18,963 Depreciation - other 135 84 270 168 Amortization - financing costs 491 143 728 285 -------- ------- ------- -------- 49,539 34,772 94,752 69,376 Income before net realized gains 18,716 17,012 34,004 35,190 (losses) Net realized gains (losses) (385) 855 (400) 855 -------- ------- ------- -------- Income before minority interests 18,331 17,867 33,604 36,045 Minority interests 328 0 328 0 -------- ------- ------- -------- NET INCOME 18,003 17,867 33,276 36,045 Dividends to preferred 7,701 5,819 14,471 11,650 shareholders -------- ------- ------- -------- NET INCOME AVAILABLE FOR COMMON SHARES $10,302 $12,048 $18,805 $ 24,395 ======== ======= ======= ======== Weighted average common shares - basic 42,738 38,358 41,342 38,164 - diluted 44,157 38,416 42,073 38,224 EARNINGS PER COMMON SHARE - basic $.24 $.31 $.45 $.64 ==== ==== ==== ==== - diluted $.24 $.31 $.45 $.64 ==== ==== ==== ==== CASH DIVIDENDS DECLARED PER COMMON SHARE $.41 $.39 $.82 $.78 ==== ==== ==== ====
The accompanying notes are an integral part of these consolidated statements. Form 10-Q - Part I. Financial Information Item 1- Financial Statements Merry Land & Investment Company, Inc. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited)
Six Months ended June 30, ---------------------------------- 1998 1997 ---- ---- OPERATING ACTIVITIES: Rents and royalties received $127,511 $ 97,558 Interest received 1,017 1,653 Dividends received 88 601 Rental expense (32,818) (25,655) General and administrative expense (3,087) (2,730) Interest expense (17,502) (10,972) Property taxes and insurance expense (10,870) (8,472) Other 805 285 --------- -------- Net cash provided by investing activities 65,144 52,268 INVESTING ACTIVITIES: Sale of securities 0 21,851 Sale of real property 3,179 20,869 Purchase of real property (90,969) (69,286) Development of real property (28,663) (33,086) Recurring capital expenditures (3,618) (2,560) Improvements to existing properties (3,437) (2,294) Other (5,329) (421) --------- -------- Net cash used by operating activities (128,837) (64,927) FINANCING ACTIVITIES: Net borrowings (repayments) - bank debt (55,700) 13,500 Net borrowings (repayments) - mortgage loans (349) (77) Cash dividends paid - common (34,947) (29,779) Cash dividends paid - preferred (14,471) (11,650) Sale of common stock 73,171 8,566 Sale of preferred stock - public offering 96,593 (138) Distributions to minority interests (558) 0 --------- -------- Net cash provided (used) by financing activities 63,739 (19,577) NET INCREASE (DECREASE) IN CASH 46 (32,236) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 570 32,793 --------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 616 $ 557 ========= ========
The accompanying notes are an integral part of these consolidated statements. Form 10-Q - Part I. Financial Information Item 1- Financial Statements Merry Land & Investment Company, Inc. CONSOLIDATED STATEMENTS OF CASH FLOWS Reconciliation of Net Income to Cash Flows from Operating Activities (In thousands) (Unaudited)
Six Months ended June 30, -------------------------------------- 1998 1997 ------- ------- Net income $33,276 $36,045 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 27,271 19,416 Gain on the sale of real property 400 (855) Minority interest 328 0 (Increase) decrease in interest and accounts receivable 196 134 (Increase) decrease in other assets (2,596) (403) Increase (decrease) in accounts payable and accrued interest 6,269 (2,069) ------- ------- Net cash provided by operating activities $65,144 $52,268 ======= =======
The accompanying notes are an integral part of these consolidated statements. Merry Land & Investment Company, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1998 (Unaudited) 1. Nature of Business Merry Land & Investment Company, Inc. is a real estate investment trust (REIT), which owns and operates upscale apartment communities in nine Southern states including Alabama, Florida, Georgia, Maryland, North Carolina, South Carolina, Tennessee, Texas, and Virginia. As a qualified REIT the Company pays no corporate income taxes on earnings distributed to stockholders. The consolidated financial statements for the six month periods ended June 30, 1998 and June 30, 1997 reflect all adjustments (consisting of normal recurring adjustments) which are, in the opinion of management, necessary for a fair presentation of the financial position and operating results for the interim period. On April 1, 1998 the Company issued partnership units to close the purchase of twelve communities. As a result of this transaction, Merry Land created a subsidiary DownREIT partnership. 2. Marketable Securities The cost and market value of securities by major classification at June 30, 1998 were as follows (dollars in thousands): Unrealized Cost Market Gain ------ ------ ---------- Common stock $1,808 $1,858 $50 3. Non-Cash Investing and Financing Activities The Company's 1998 property acquisition activity was net of the assumption of mortgage notes of $113,406,610 and the issuance of Minority Partnership units valued at $30,569,293. These non-cash items are not reflected on the Consolidated Statements of Cash Flows. 4. Borrowings Borrowings at June 30, 1998 were as follows (dollars in thousands): 9.760% mortgage notes (a) $ 12,601 7.750% mortgage note (b) 9,600 7.625% mortgage note (c) 5,105 7.210% mortgage note (d) 9,371 7.125% mortgage note (e) 14,588 7.570% mortgage note (f) 9,779 8.250% mortgage note (g) 8,890 9.250% mortgage notes (h) 16,736 4.850% mortgage notes (i) 5,995 4.850% mortgage note (j) 6,925 4.850% mortgage note (k) 11,640 4.850% mortgage note (l) 10,370 5.350% mortgage note (m) 10,240 5.350% mortgage note (n) 12,090 4.010% mortgage note (o) 21,170 floating mortgage note (p) 9,540 floating mortgage note (q) 8,700 6.625% senior unsecured notes (r) 120,000 7.250% senior unsecured notes (s) 40,000 6.875% senior unsecured notes (t) 40,000 6.875% senior unsecured notes (u) 40,000 7.250% senior unsecured notes (v) 120,000 6.690% senior unsecured notes (w) 50,000 6.900% senior unsecured notes (x) 50,000 Advances under unsecured line of credit (y) 12,100 --------- $ 655,440 ========= (a) $10.6 million and $2.0 million, 9.760% mortgage notes, principal and interest payable monthly, maturity 2001. (b) 7.750% mortgage note, interest payable monthly only until November 1998 at which both principal and interest will be payable monthly, maturity 2002. (c) 7.625% mortgage note, principal and interest payable monthly, maturity 2005. (d) 7.210% mortgage note, principal and interest payable monthly, maturity 2001. (e) 7.125% mortgage notes, principal and interest payable monthly, maturity 2006. (f) 7.570% mortgage note, principal and interest payable monthly, maturity 2001. (g) 8.250% mortgage note, principal and interest payable monthly, maturity 2001. (h) 9.250% mortgage note, principal and interest payable monthly, maturity 2002. (i) 4.850% mortgage notes, interest payable semi-annually, maturity 2005. (j) 4.850% mortgage note, interest payable semi-annually, maturity 2005. (k) 4.850% mortgage note, interest payable semi-annually, maturity 2008. (l) 4.850% mortgage note, interest payable semi-annually, maturity 2005. (m) 5.350% mortgage note, interest payable semi-annually, maturity 2005. (n) 5.350% mortgage note, interest payable semi-annually, maturity 2005. (o) 4.010% mortgage note, interest payable semi-annually, maturity 2007. (p) Mortgage note, floating interest rate payable monthly, based on average weekly remarketing rate, maturity 2007. (q) Mortgage note, floating interest rate payable quarterly, based on average weekly remarketing rate, maturity 2006. (r) 6.625% notes, interest payable semi-annually, principal installments of $40.0 million each due 1999, 2000, and 2001. (s) 7.250% notes, interest payable semi-annually, maturity 2002. (t) 6.875% notes, interest payable semi-annually, maturity 2003. (u) 6.875% notes, interest payable semi-annually, maturity 2004. (v) 7.250% notes, interest payable semi-annually, maturity 2005. (w) 6.690% notes, principal and interest payable semi-annually, maturity 2006. (x) 6.900% notes, principal and interest payable semi-annually, maturity 2007. (y) $200 million line of credit bearing interest equal to floating LIBOR plus 0.60%, maturity September, 2000. The Company estimates that the fair value of borrowings approximates their carrying value at June 30, 1998. Maturities of borrowings at June 30 were as follows (dollars in thousands): 1998 $ 376 1999 40,959 2000 53,252 2001 80,391 2002 65,911 2003 40,489 2004 40,526 2005 170,424 2006 70,762 2007 and after 92,350 -------- $655,440 ======== 5. Earnings Per Share and Share Information In 1997, the Company adopted SFAS 128, "Earnings Per Share". In accordance with this standard, basic earnings per share are computed on the basis of the weighted average number of shares outstanding during the year. Diluted earnings per share is computed giving effect to dilutive stock options, dilutive preferred stock, and partnership units. Basic and diluted earnings per share are computed as follows (dollars in thousands):
Three months ended June 30, Six months ended June 30, ----------------------------- -------------------------- 1998 1997 1998 1997 ------- ------- -------- ------- BASIC: Net Income $18,003 $17,867 $33,276 $36,045 Preferred dividend requirement (7,701) (5,819) (14,471) (11,650) ------- ------- -------- -------- Net income available for common $10,302 $12,048 $ 18,805 $ 24,395 ======= ======= ======== ======== Average common shares outstanding 42,738 38,358 41,342 38,164 Basic earnings per share $ 0.24 $ 0.31 $ 0.45 $ 0.64 DILUTED: Net income $18,003 $17,867 $ 33,276 $ 36,045 Preferred dividend requirement (7,701) (5,819) (14,471) (11,650) Minority interest 328 - 328 - ------- ------- ------- ------- Net income available for common $10,630 $12,048 $19,133 $24,395 - diluted ======= ======= ======= ======= Dilutive stock options 57 58 46 60 Operating partnership units 1,362 - 685 - Average common shares outstanding 42,738 38,358 41,342 38,164 ------- ------- ------- ------- Average diluted common shares 44,157 38,416 42,073 38,224 outstanding ======= ======= ======= ======= Diluted earnings per share $ 0.24 $ 0.31 $ 0.45 $ 0.64
6. Income Taxes and Dividend Policy As discussed in Note 1, the Company has elected to be taxed as a REIT. The Internal Revenue Code provides that a REIT, which in any taxable year meets certain requirements and distributes to its stockholders at least 95% of its ordinary taxable income, will not be subject to federal income taxation on taxable income which is distributed. The Company intends to distribute the required amounts of income in 1998 to qualify as a REIT and to avoid paying income taxes. On June 30, 1998, the Company paid dividends per share as follows: Series A Preferred $ .4375 Series B Preferred $ .55125 Series C Preferred $ .5375 Series D Preferred $ 1.03625 Series E Preferred $ .4765 Common $ .41 7. Recent Accounting Pronouncements In 1998, the Company adopted SFAS No. 130, "Reporting Comprehensive Income." The Company had comprehensive income, which is comprised of net income and unrealized gains or losses on marketable securities held as available for sale of $17,729,195 and $16,260,668 for the three month period ending June 30, 1998 and 1997, respectively, and of $33,170,005 and $32,966,579 for the six month period ending June 30, 1998 and 1997, respectively. 8. Subsequent Event On July 8, 1998, the Company signed a definitive Agreement and Plan of Merger with Equity Residential Properties Trust. The merger will integrate Merry Land's portfolio into that of Equity Residential. Form 10-Q - Merry Land & Investment Company, Inc. Part I - Financial Information Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations (Dollars in thousands except apartment and per share data) Overview Merry Land & Investment Company, Inc. is an apartment operating company and is one of the largest owners and operators of upscale garden apartments in the United States. At June 30, 1998, the Company had a total market capitalization of $2.0 billion and owned a high quality portfolio of 118 apartment communities containing 33,435 units. The communities are geographically diversified throughout the Southern United States, located in twenty-eight metropolitan areas, each with a population in excess of 250,000, extending from the Washington, D.C. area to Texas and Florida. Substantially all of the Company's apartment communities command rental rates in the upper range of their markets. Operating Strategy. The Company's strategy has been to own and operate a significant number of communities in every major market in the Southern United States, and to establish a reputation recognized among apartment dwellers throughout this region for high quality communities and first class service. The accomplishment of this strategy should allow the Company to increase funds from operations and distributions to shareholders by producing greater cash flows at its apartment communities through significant marketing advantages and operating efficiencies. The Company has added to its holdings by buying existing apartment communities, by buying communities under construction and in the initial lease-up stage (primarily from merchant builders) and by developing communities from the ground up. The following table further describes the Company's apartment holdings by major market as of June 30, 1998 (dollars in thousands except rental rates):
Average Average % of Occupancy(1) Rental Rate (2) Market Units Cost Total Cost 1998 1997 1998 1997 - ------ ----- ---- ---------- ---- ---- ---- ---- Dallas 3,444 $230,271 13.1% 88.6% 92.5% $872 $856 Atlanta 4,235 209,902 12.0 91.8 90.3 718 679 Orlando 3,507 196,929 11.2 94.2 95.5 727 682 Tampa 2,861 151,362 8.6 96.5 97.3 693 660 Jacksonville 3,237 144,661 8.2 94.6 94.2 630 628 Charlotte 2,459 114,056 6.5 95.4 93.0 657 637 Houston 1,457 87,936 5.0 93.5 n/a 845 n/a Austin 1,249 80,668 4.6 87.8 96.0 809 849 Ft. Lauderdale 1,144 72,750 4.1 93.8 92.2 839 848 Ft. Myers 1,268 59,468 3.4 95.7 96.3 686 670 Savannah 1,173 57,434 3.3 93.2 92.0 683 643 Raleigh 1,256 49,240 2.8 94.6 94.4 630 629 Charleston 880 34,246 2.0 97.5 95.4 560 561 All others 5,265 265,993 15.2 92.9 90.3 683 655 ------ ---------- ----- ---- ---- ---- ---- 33,435 $1,754,916 100.0% 93.2% 93.0% $717 $685
__________ (1) Represents the average of physical occupancy at each month end for the six months ended June 30, 1998. (2) Represents weighted average monthly rent charged for occupied units and rents asked for unoccupied units at June month end. Growth. Merry Land has increased its holdings of apartments primarily through the acquisition of apartment communities and also through apartment development. The following table summarizes the Company's growth in recent years (dollars in thousands):
1998(1) 1997 1996 1995 ---------- ---------- ---------- ---------- Units acquired 3,774 4,104 2,475 3,444 Units developed 262 936 414 - Total units owned at end of period 33,435 29,526 24,936 22,296 Total cost of apartments $1,754,916 $1,496,109 $1,175,427 $1,009,056 Total apartment rental income $ 126,185 $ 208,363 $ 176,053 $ 144,283
__________ (1) Represents totals at June 30, 1998. Acquisition of Communities under Development. The Company has also agreed to acquire the following communities to be built by unrelated third parties (dollars in thousands):
Estimated Estimated Community Location Units Cost Close - --------- ------------- ----- --------- --------- Creekside Homes at Legacy Dallas, Texas 380 31,600 3Q1998 Villages of Prairie Creek II Dallas, Texas 228 19,500 1Q1999 --- -------- 508 $51,100
On July 29, 1998, Merry Land closed the purchase of Creekside Homes at Legacy for a purchase price of $31.6 million. Creekside Homes at Legacy was 89% occupied and 91% leased at June 30, 1998. For the Villages at Prairie Creek II, the Company will pay the seller an amount equal to the lesser of the budgeted cost or the seller's actual cost plus additional amounts upon the attainment of specified occupancy and net operating cash flow levels based on agreed upon formulas. Although the third party developer bears the development and construction risk, the Company actively monitors construction quality of the communities. Development. At June 30, 1998, the Company had five communities with 1,734 units under construction (of which 238 units have been delivered). These communities will be completed at an expected total cost of $138.4 million. In addition, the Company owns land suitable for the construction of 1,240 additional units. The communities under development offer features typical of very high end properties, including nine foot ceilings, high levels of trim and finish, garages and extensive amenities. The following table summarizes the Company's current development communities and recently completed communities. Estimated cost consists of land, direct construction costs and indirect costs, including projected fees to third party development managers and allocated overhead (dollars in thousands, except cost per unit):
Cost of Units Total Total Placed Estimated Cost Cost Units in in Estimated Location Community Units Cost Per Unit To Date Service Service Completion - -------- --------- ----- --------- --------- -------- -------- -------- ---------- COMPLETED - --------- Nashville Cherry Creek II 280 $ 67,679 $ 18,945 280 $ 18,945 Greensboro Adams Farm II (1) 200 65,310 13,062 200 13,062 Atlanta River Sound 586 72,331 42,386 586 42,386 Savannah Long Point I 308 76,052 23,424 308 23,424 ----- --------- -------- ----- -------- 1,374 $ 71,195 $ 97,817 1,374 $ 97,817 UNDER CONSTRUCTION - ------------------ Richmond Wyndham 264 $ 24,500 $ 92,803 $ 22,741 138 $ 7,666 3Q 1998 Greensboro Bridford Lake I 320 24,500 76,563 17,866 100 12,208 4Q 1998 Atlanta Merritt Lake 424 34,000 80,189 13,294 - - 1999 Nashville Cherry Creek III (1) 220 16,600 75,455 2,932 1999 Richmond Spring Oak 506 38,800 76,680 7,254 - - 1999 ----- -------- --------- -------- ------ -------- 1,734 $138,400 $ 79,815 $ 64,087 238 $ 19,874 FUTURE DEVELOPMENT - ------------------ Savannah Long Point II (1) 352 $ 1,223 Nashville Cherry Creek-Com n/a 2,165 Nashville Bell Road I 360 1,962 Nashville Bell Road II 328 1,787 Greensboro Bridford Lake II (1) 200 1,386 ----- -------- 1,240 $ 8,523
__________ (1) Adjoins an existing community owned by the Company. Recent Events Merger Agreement with Equity Residential Properties Trust. On July 8, 1998, the Company signed a definitive agreement and plan of merger with Equity Residential Properties Trust. The merger will integrate Merry Land's portfolio into that of Equity Residential. The transaction valued Merry Land at approximately $2.2 billion. For each Merry Land share of common stock held, a Merry Land shareholder will receive .53 EQR common shares in a tax-free exchange. In addition, for every 20 shares of Merry Land common stock held, each shareholder will receive, as a taxable dividend, a share of a newly formed, publicly traded "C" corporation. The new company will complete Merry Land's development pipeline for the benefit of the combined company and will focus on real estate investment and development in the coastal areas of the South, including the cities of Savannah, Charleston and Augusta. Merry Land Properties, Inc. will be managed by W. Tennent Houston, Merry Land's President and CEO, and Michael Thompson, Merry Land's Chief Operating Officer. Equity Residential will assume all of Merry Land's outstanding debt of approximately $655 million and preferred stock of approximately $370 million. The five series of Merry Land preferred stock will be exchanged for five new series of Equity Residential preferred shares. The conversion rate of Merry Land's convertible preferred shares will be adjusted upward approximately 1.88% to account for the special dividend and subsequently adjusted for the .53 common share exchange ratio. The transaction is subject to the approval of shareholders of both companies and other customary closing conditions. Upon completion of the transaction, Boone Knox and Michael Thompson will join Equity Residential's Board of Trustees. Acquisition of Development Communities. On June 18, 1998, Merry Land closed the purchase of Villages of Prairie Creek I in Dallas, a brand-new 236 unit luxury community which was built for Merry Land by a local developer. The purchase price was $20.4 million, paid in an all cash transaction. The property was 89% occupied and 93% leased at June 30, 1998. On July 29, 1998, Merry Land closed the purchase of Creekside Homes at Legacy in Dallas, a brand-new 380 unit luxury community which was built for Merry Land by the same local developer as Villages of Prairie Creek I. The purchase price was $31.6 million paid in an all cash transaction. The property was 89% occupied and 91% leased at June 30, 1998. Sale of Augusta, Georgia Communities. On April 30, 1998, the Company sold its three downtown Augusta communities, Broadway, Cobb House and Telfair as well as one other Augusta community, Woodknoll. These communities did not conform to Merry Land's portfolio of upscale garden apartments. All four communities were sold as a portfolio for a total purchase price of $3.1 million with a loss totaling $0.4 million. Acquisition of Communities from Trammell Crow Residential. On April 1, 1998, the Company closed the purchase of twelve communities containing 3,538 units from Trammell Crow Residential, a national apartment development and management company, and its affiliates. The purchase of a thirteenth property will close upon the completion of construction expected in the third quarter of 1998. The purchase price for all 3,994 units will total $248.0 million, including $35.6 million in partnership units in Merry Land's newly created subsidiary DownREIT partnership, cash and the assumption of $113.4 million of debt including $96.7 million of tax-exempt debt bearing interest at an average rate of approximately 4.57%. Year 2000. The Company has evaluated its information systems and believes that it faces no significant costs or risks associated with the "Year 2000" problem. Results of Operations for the Six Months Ended June 30, 1998 and 1997. Rental Markets. In the aggregate, the Company's Southern rental markets were in equilibrium for the second quarter of 1998. Occupancy totaled 94.5% at stabilized communities, all except development communities under lease-up, compared with 94.0% for the second quarter of 1997. While levels of new construction throughout the South remain high, the Company believes that if general economic activity, job growth and household formation in the South remain strong, occupancy and rent growth should remain satisfactory. Rental Operations - Total Portfolio. The operating performance of the Company's apartment portfolio is summarized in the following table (dollars in thousands except average monthly rent):
Change from Six Months % Change 1997 To 1998 1998 1997 -------- ------------ ---- ---- Rents 30.6% $29,598 $126,185 $96,587 Operating expenses (1) 25.4 6,378 31,515 25,137 Taxes and insurance 30.8 3,436 14,606 11,170 ---- ------- -------- ------- Subtotal (1) 27.0 9,814 46,121 36,307 32.8% $19,784 $80,064 $60,280 Average occupancy (2) 0.2% (3) 93.2% 93.0% Average monthly rent (4) 4.7% $ 717 $ 685 Expense ratio (5) (1.0)% (3) 36.6% 37.6%
__________ (1) Excludes depreciation and amortization. (2) Represents the average physical occupancy at each month end for the period held. (3) Represents increase or decrease between periods. (4) Represents weighted average monthly rent charged for occupied units and rents asked for unoccupied units at June 30. (5) Represents total of operating expenses, taxes and insurance divided by rental revenues. Acquisitions in the last six quarters and the delivery of 1,020 units from the Company's development program since the first quarter of 1997 increased the weighted average number of apartments owned to 31,359 in the six month period of 1998 from 25,268 in the six month period of 1997. Rental revenues, expenses and taxes and insurance rose accordingly. The 4.7% increase in portfolio average rental rates in the six month period of 1998 from the six month period of 1997 resulted from both higher rents at the Company's continuing properties and also the higher rents charged at the communities the Company acquired and put in service in 1997 and 1998, whose monthly rents averaged $785 at June 30, 1998, versus the total portfolio average of $717. Rental Operations - Same Store. The performance of the 23,518 units which the Company held for the six month period of both 1998 and 1997 ("same store" results), is summarized in the following table (dollars in thousands, except average monthly rent; see footnotes above):
Change from Six Months % Change 1997 To 1998 1998 1997 -------- ------------ ---- ---- Rental income 2.6% $2,348 $92,861 $90,513 Personnel 1.0 95 9,433 9,338 Utilities (12.9) (509) 3,449 3,958 Operating 5.3 261 5,146 4,885 Maintenance and 8.2 431 5,682 5,251 grounds Taxes and insurance (4.3) (454) 10,042 10,496 ------ ------ ------- ------- Subtotal (1) (0.5) (176) 33,752 33,928 4.5% $2,525 $59,109 $56,585 Average occupancy (2) 0.7% (3) 94.5% 93.8% Average monthly rent(4) 0.9% $689 $683 Expense ratio (5) (1.1)% (3) 36.4% 37.5%
Rental income rose by $2.3 million or 2.6% for those properties held for all of both periods, as a result of 0.7% higher occupancy and 0.9% higher average rental rates. At June 30, 1998, and June 30, 1997, same store occupancy was 94.7%. Total operating expenses were flat in 1998 from the same period in 1997. Operating costs increased 5.3% due to higher marketing and advertising costs, while utilities expense decreased by $0.5 million or 12.9% as the Company has passed a portion of its water expense to the residents. Maintenance and grounds expense was up 8.2% due to higher turnover on-site for the first six months of 1998 versus 1997. Rental Operations - Development Communities. $28.7 million was expended in the six month period of 1998 for apartments under development, bringing the cumulative investment to $150.9 million, including capitalized interest of $2.6 million. Some dilution of earnings may occur to the extent that leasing lags behind the delivery of units. The final building, 24 units, at the Hammocks at Long Point, 100 units of Bridford Lake I and 48 units of Carriage Homes at Wyndham community were all delivered in the second quarter of 1998. The operating results for the six month period of 1998 and 1997 for all development communities is summarized in the following table (dollars in thousands; see footnotes above):
Six Months --------------------------- 1998 1997 ------ ------ Units 1,632 1,289 Rental income $5,385 $3,802 Operating expense (1) 1,461 1,050 Taxes and insurance 621 263 ------ ------ Subtotal (1) 2,082 1,313 $3,303 $2,489
At June 30, 1998, 83.6% of the 1,632 units delivered at Bridford Lake I, Carriage Homes at Wyndham, Hammocks at Long Point, Madison at River Sound and Madison at Adams Farm were leased at an average rental rate of $843 per unit, or $.93 per square foot. Rental Operations - Other Communities. "Other communities" are those not included in same store communities or development communities. These include communities bought or sold in part or in whole in 1997 or 1998. At June 30, 1998, these communities included 8,285 units. The performance of the other communities for the six month period of 1998 and 1997 is summarized in the following table (dollars in thousands; see footnotes above):
Six Months ----------------------------- 1998 1997 ------- ------ Units 8,285 1,423 Rental income $27,939 $2,272 Operating expense (1) 6,344 655 Taxes and insurance 3,943 411 ------- ------ Subtotal (1) 10,287 1,066 $17,652 $1,206
Interest, Dividend and Other Investment Income. Interest, dividend, and other income decreased as the Company essentially completed the liquidation of its holdings of marketable securities in the second quarter of 1997 and invested the proceeds in apartments. Interest, dividend and other investment income are summarized in the following table (dollars in thousands):
Six Months --------------------------- 1998 1997 ------ ------ Interest income $ 876 $1,487 Dividend income 88 601 Other investment income 501 5,051 ------ ------ Total $1,465 $7,139
Interest Expense. Interest expense totaled $18.0 million in the six month period of 1998, up from $11.0 million in the six month period of 1997. Average debt outstanding rose to $594.2 million in the six month period of 1998 from $389.8 million in the six month period of 1997, primarily as a result of the assumption of $113.4 million in debt related to the Trammell Crow transaction, the issuance of the 6.90% senior unsecured notes in July, 1997, the issuance of the 6.69% senior unsecured notes in October, 1997, and the assumption of mortgage notes in 1997 related to apartment acquisitions. The weighted average interest rate charged on all the Company's debt decreased to 6.88% in the six month period of 1998 from 7.07% for the six month period in 1997 as a result of an average interest rate of approximately 4.57% on the $96 million tax-exempt debt assumed during 1998 and an average interest rate of 6.80% on the $100 million senior unsecured notes issued during 1997. During the six month period of 1998, $2.6 million of interest related to the Company's development projects was capitalized versus $2.7 million in the six month period of 1997. Interest expense and average debt balances are summarized below (dollars in thousands):
Six Months ended June 30, -------------------------------------------------------------- 1998 1997 -------------------------- ------------------------- Amount Rate(1) Amount Rate(1) --------- ---------- --------- ---------- Interest expense $ 20,697 $ 13,702 Capitalized interest (2,648) (2,730) --------- --------- Total interest 18,049 10,972 Senior notes 460,000 6.92% 360,000 6.96% Tax exempt bonds 48,335 4.57% - - Mortgage notes 78,448 8.08% 27,502 8.65% Line of credit - banks 7,448 6.26% 2,250 6.32% --------- ----- -------- ----- Combined average $ 594,231 6.88% $389,752 7.07%
__________ (1) Weighted average interest rate. General and Administrative Expenses. General and administrative expenses in the six month period of 1998 were $2.9 million, or 2.3% of rental revenues as compared to 2.2% for all of 1997. General and administrative expenses increased $0.6 million in the first six months in 1998 versus the first six months in 1997 due primarily to higher corporate headcount and their associated costs. The Company has continued to invest in the areas of property management, acquisition and development, and accounting to provide better service to its residents and to compete more efficiently in a rapidly evolving industry. The Company expects that its overhead expense measured as a percentage of revenues will remain among the lowest of apartment REITs. Net Income. Net income totaled $33.3 million in the six month period of 1998 and $36.0 million for the six month period of 1997. Net income available for common shareholders totaled $18.8 million in the six month period of 1998 and $24.4 million for the six month period of 1997. The decreases in net income and net income available for common shareholders for 1998 when compared to 1997 rose principally from the decrease in other income as a result of discontinuing cash management activities. Rental operations (rental income less rental expense, depreciation and taxes and insurance) increased due to an increase in owned apartments but was offset by higher interest expense and preferred dividends. Net income per common share in the six month period of 1998 decreased to $.45 from $.64 in the six month period of 1997. Dividends to Preferred Shareholders. Dividends to preferred shareholders totaled $14.5 million in the six month period of 1998 and $11.7 million in the six month period of 1997. Preferred dividends are summarized in the following table (dollars in thousands):
Six Months ---------------------------------- 1998 1997 --------- --------- Series A Preferred share dividends $ 164 $ 222 Series B Preferred share dividends 4,410 4,410 Series C Preferred share dividends 4,945 4,945 Series D Preferred share dividends 2,073 2,073 Series E Preferred share dividends 2,879 - ------- ------- Total preferred dividends $14,471 $11,650
The increase in preferred dividends arose from the issuance of $100.0 million of Series E preferred shares in February, 1998. Holders of the Company's Series A Preferred Stock have converted 4.4 million of the 4.6 million Series A shares originally issued in June 1993 into 5.9 million shares of the Company's common stock as the common dividend was raised above the equivalent preferred dividend. Funds From Operations. Funds from operations increased 6.2% to $55.3 million in the six month period of 1998 as compared to $52.1 million in the six month period of 1997. This increase was principally due to 1997 and 1998 acquisitions and delivered development. There was no income from marketable securities for the six month period of 1998 as compared to $5.0 million for the six month period of 1997. At June 30, 1998, the Company held no material marketable equity securities. "Core FFO", those earnings produced exclusively by non cash management activities, rose 17.6% to $55.3 million from $47.1 million for the six month period of 1997. The following is a reconciliation of net income to funds from operations (data in thousands, except per share data):
Six Months ---------------------------------------- 1998 1997 ------- ------- Net income before minority interest $33,604 $36,045 Plus: Depreciation - real estate 26,273 18,963 Less: Capital gains(loss) (400) 855 Perpetual preferred dividends 4,952 2,073 ------- ------- Funds from operations 55,325 52,080 Cash management income - 5,018 ------- ------- Core funds from operations $55,325 $47,062 Weighted average common shares outstanding - fully diluted (1) 52,302 48,481
__________ (1) Assuming conversion of all convertible preferred stock and DownREIT partnerhip units The Company believes that funds from operations is an important measure of its operating performance. Funds from operations does not represent cash flows from operations as defined by generally accepted accounting principles, GAAP, and should not be considered as an alternative to net income or as an indicator of the Company's operating performance, or as a measure of the Company's liquidity. Based on published recommendations of a task force of the National Association of Real Estate Investment Trusts, the Company defines funds from operations as net income computed in accordance with GAAP, excluding non-recurring costs and net realized gains, plus depreciation of real property. Liquidity and Capital Resources Financial Structure. The Company's senior notes and its preferred stock are rated investment grade by Standard & Poor's Corporation (BBB+/BBB), Moody's Investors Services, Inc. (Baa2/Baa3) and Duff & Phelps Credit Rating Co. (BBB+/BBB). At June 30, 1998, total debt equaled 40% of total capitalization at cost, and 34% of total capitalization with common stock valued at market. At that date, the Companys financial structure was as follows (dollars in thousands):
Common Stock % of at Market % of Cost Total Value Total ------ ----- --------- ----- Advances under line of credit $ 12,100 1% $ 12,100 1% Mortgage loans 86,670 6 86,670 4 Tax exempt bonds 96,670 6 96,670 5 6.625% senior unsecured notes, 1999 40,000 2 40,000 2 6.625% senior unsecured notes, 2000 40,000 2 40,000 2 6.625% senior unsecured notes, 2001 40,000 2 40,000 2 7.25% senior unsecured notes, 2002 40,000 2 40,000 2 6.875% senior unsecured notes, 2003 40,000 2 40,000 2 6.875% senior unsecured notes, 2004 40,000 2 40,000 2 7.25% senior unsecured notes, 2005 120,000 7 120,000 6 6.69% senior unsecured notes, 2006 50,000 4 50,000 3 6.90% senior unsecured notes, 2007 50,000 4 50,000 3 ---------- ---- ---------- ---- Total debt 655,440 40% 655,440 34% Series D preferred stock 50,000 3% 50,000 3% Series E preferred stock 100,000 6% 100,000 5% Common stock (1) 831,188 51% 1,149,103 58% ---------- ---- ---------- ---- Total equity 981,188 60% 1,299,103 66% Total capitalization $1,636,628 100% $1,954,543 100% ========== ==== ========== ====
__________ (1) Assumes conversion of all outstanding convertible preferred stock and DownREIT partnership units into common stock. At June 30, 1998, the Company had $12.1 million outstanding under its line of credit. Borrowings under the line bear interest at 0.60% above the thirty day London Interbank Offered Rates. At June 30, 1998, the Company's loan agreements and the covenants under its senior unsecured notes would have allowed it to borrow $334.8 million on an unsecured basis. It generally is not the practice of the Company to finance its acquisitions using mortgage debt, though at times the Company finds it advantageous to assume such debt in order to successfully negotiate and close property acquisitions. At June 30, 1998, the Company had eleven conventional mortgage loans outstanding, which were assumed in 1998, 1997 and 1996 in connection with the purchase of eight communities. In addition, at June 30, 1998, the Company had $96.7 million of tax-exempt mortgage debt outstanding with respect to nine Trammell Crow Residential properties acquired during the second quarter of 1998. Liquidity. Merry Land expects to meet its short- term liquidity requirements with cash provided by operating activities and by borrowing under its line of credit. The Company's primary short-term liquidity needs are operating expenses, apartment acquisitions, apartment development and capital improvements. The Company essentially completed the liquidation of its holdings of marketable securities which were acquired as a temporary investment pending the acquisition or development of additional apartment communities. The Company expects to meet its long-term liquidity requirements, including scheduled debt maturities and permanent financing for property acquisitions and development, from a variety of sources, including operating cash flow, additional borrowings and the issuance and sale of debt and equity securities in the public and private markets. The following table summarizes the Company's capital requirements resulting from its acquisition and development commitments as of June 30, 1998. Not included in this table are additional acquisitions and developments, debt repayments or the additional sales of debt or equity securities (dollars in thousands):
ESTIMATED CAPITAL REQUIREMENTS: Development communities costs through 1999 74,313 Acquisition of communities under development 51,100 Acquisition of Trammell Crow community under development 31,566 ------- Total future commitments 156,979 ESTIMATED CAPITAL SOURCES: Cash on hand at 6/30/98 616 Marketable securities held at 6/30/98 1,858 Funds available under line of credit 187,900 ------- Total capital sources 190,374 Excess of capital sources over requirements $ 33,395 =========
Cash Flows. The following table summarizes cash flows for the six month periods of 1998 and 1997 (dollars in thousands):
Sources and Uses of Cash: ------------------------------------- Six Months ------------------------------------- 1998 1997 --------- --------- Operating activities $ 65,144 $ 52,268 Sale of Merry Land common stock 73,171 8,428 Sale of Merry Land preferred stock 96,593 - Sale of real property 3,179 20,869 Net borrowings - 13,500 Other 32 2,257 --------- --------- Total sources of cash 238,119 97,322 Acquisitions of and improvements to properties (98,024) (74,141) Development of properties (28,663) (33,086) Dividends paid (49,418) (41,428) Minority interest distribution (558) - Net borrowings (repayments) (56,049) - Other (5,466) (512) --------- --------- Total uses (238,178) (149,167) Increase (decrease) in cash, cash equivalents and marketable securities $ (59) ($51,845)
On April 1, 1998, Merry Land used the majority of the proceeds from its first quarter common and preferred security offerings to close the Trammell Crow Residential acquisition. The Company's operating cash flow increased to $65.1 million in the six month period of 1998 from $52.3 million in the six month period of 1997. Net rental income from apartments increased as the size of the portfolio grew. The primary use of cash has been apartment acquisitions, development and improvements and dividends. Expenditures for apartment communities under development decreased to $28.7 million in the first six months of 1998 from $33.1 million in the first six months of 1997 as the level of construction decreased. The Company expects development expenditures to increase further for the remainder of 1998 as construction of additional apartment communities commences. Dividends paid in the six month period of 1998 increased from the same period in 1997 due to an increase in the amount of preferred stock outstanding, an increase in the average amount of common stock outstanding, and in the case of the Company's common stock, an increase in the quarterly dividend per share to $0.41 from $0.39 per share. Capital Expenditures. The Company capitalizes the direct and indirect cost of expenditures for the acquisition or development of apartments and for replacements and improvements. Replacements are non-revenue producing capital expenditures which recur on a regular basis, but which have estimated useful lives of more than one year, such as carpet, vinyl flooring and exterior repainting. Improvements are expenditures which significantly increase the revenue producing capability or which significantly reduce the cost of operating assets. At newly acquired communities, the Company often finds it necessary to upgrade the physical appearance of the properties and to complete maintenance and repair work which had been deferred by prior owners. These activities often result in heavier capital expenditures in the early years of Company ownership, and some of these expenditures which would be considered replacements at stabilized communities (as defined below) are classified as improvements at newly acquired properties. Interest, real estate taxes and other carrying costs incurred during the development period of apartments under construction are capitalized and, upon completion of the project, depreciated over the lives of the projects. The following table summarizes the capital expenditures for the six month periods of 1998 and 1997 (dollars in thousands, except per unit data):
Six Months ----------------------------------- 1998 1997 -------- ------- Apartment communities: Acquisitions $234,945 $69,286 Development projects: Development costs 26,015 30,356 Capitalized interest 2,648 2,730 -------- ------- 28,663 33,086 Replacements for stabilized communities (1) 3,047 2,560 Improvements (2) 3,506 1,528 Commercial properties 203 141 Corporate level expenditures 302 625 -------- -------- Total capital expenditures $270,666 $107,226 Per Unit: Replacements for stabilized communities (1) $130 $121 Improvements (2) $105 $ 58
__________ (1) Stabilized communities are those properties which have been owned for at least one full calendar year. In the six month period of 1998, 23,518 units were stabilized as compared to 21,156 units in the six month period of 1997. (2) Improvements include expenditures for all properties owned during the period, including replacements at newly acquired communities. The Company expects that the level of expenditures for replacements and improvements will increase for the remainder of 1998 due primarily to the installation of water submeters at a number of communities and other expenditures scheduled for completion to enhance or maintain the Company's apartment communities' position in their markets. Inflation. Substantially all of the Company's leases are for terms of one year or less, which should enable the Company to replace existing leases with new leases at higher rentals in times of rising prices. The Company believes that this would offset the effect of cost increases stemming from inflation. Forward Looking Statements. This filing includes statements that are "forward looking statements" regarding expectations with respect to market conditions, development projects, acquisitions, occupancy rates, capital requirements, sources of funds, expense levels, operating performance and other matters. These assumptions and statements are subject to various factors, unknown risks and uncertainties, including general economic conditions, local market factors, delays and cost overruns in construction, completion and rent up of development communities, performance of consultants or other third parties, environmental concerns, and interest rates, any of which may cause actual results to differ from the Company's current expectations. Merry Land & Investment Company, Inc. PART II - OTHER INFORMATION ITEM 1. Legal Proceedings None ITEM 2. Changes in Securities None ITEM 3. Defaults Upon Senior Securities None ITEM 4. Submission of Matters to a Vote of Security Holders At the Company's Annual Meeting of Shareholders held April 20, 1998, the following vote totals were recorded: 1. Election of Directors: Shares Voted - 33,843,603 FOR WITHHELD --- -------- W. Hale Barrett 33,596,503 (99.2%) 265,256 W. Tennent Houston 33,573,608 (99.1%) 288,151 Boone A. Knox 33,589,716 (99.2%) 272,043 Hugh C. Long II 33,626,835 (99.3%) 234,924 Robert P. Kirby 33,617,820 (99.3%) 243,939 Paul S. Simon 33,639,527 (99.3%) 222,232 Michael N. Thompson 33,600,148 (99.2%) 261,611 ITEM 5. Other Information None ITEM 6. Exhibits and Reports on Form 8-K a. EXHIBITS: (3.i) Amended and Restated Articles of Incorporation (incorporated herein by reference to Exhibit 4(a) to the Company's Shelf Registration Statement on Form S-3 filed December 15, 1995, file number 33-65067), as amended by Articles of Amendment to Articles of Incorporation re: Series D Preferred Stock (incorporated herein by reference to Exhibit 4 to the Company's current report on Form 8-K filed December 11, 1996), and as further amended by Articles of Amendment to Articles of Incorporation re: Series E Preferred Stock (incorporated herein by reference to Exhibit B of the Company's Form 8-A12B filed on February 11, 1998). (3.ii) By-laws (incorporated herein by reference to Exhibit 3(ii) of Item 14 of the Company's Annual Report on Form 10-K for the year ended December 31, 1993). (10) Material Contracts. (10.1) Reimbursement Agreement between the Company and First Union National Bank as agent for certain Lenders dated as of April 1, 1998 relating to letters of credit aggregating approximately $101.0 million dollars with respect to various tax exempt bonds. (10.1) Merry Land DownREIT I LP Partnership Agreement. (10.2) Agreement and Plan of Merger dated July 8, 1998 between the Company and Equity Residential Properties (incorporated herein by reference to Exhibit 2 of Item 7 of the Company's current report on form 8-K filed July 13, 1998). (27) Financial Data Schedules b. Reports on Form 8-K. The registrant filed reports on Form 8-K during the second quarter of 1998 as follows with respect to the following matters.
Form Items Dated Filed Location Financial Statements - ---- ----- ----------- -------- -------------------- 8-K 2 (Completion of Acquisition of 12 Florida Apartment Communities) April 7, 1998 Florida No 8-K 5 & 7 (Agreement and Plan of Merger with Equity Residential Properties) July 13, 1998 N/A No
Form 10-Q - Merry Land & Investment Company, Inc. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. MERRY LAND & INVESTMENT COMPANY, INC. /s/ DORRIE E. GREEN ----------------------- Dorrie E. Green Vice President Chief Financial Officer August 13, 1998 EX-10.1 2 =========================================================================== EXECUTION COPY REIMBURSEMENT AGREEMENT Dated as of April 1, 1998 by and among MERRY LAND & INVESTMENT COMPANY, INC., as Borrower, THE FINANCIAL INSTITUTIONS PARTY HERETO AND THEIR ASSIGNEES UNDER SECTION 10.5.(c), as Lenders, and FIRST UNION NATIONAL BANK, as Agent =========================================================================== THIS REIMBURSEMENT AGREEMENT dated as of April 1, 1998 by and among MERRY LAND & INVESTMENT COMPANY, INC., a corporation organized under the laws of the State of Georgia (the "Borrower"), each of the financial institutions initially a signatory hereto together with their assignees pursuant to Section 10.5.(c) (the "Lenders") and FIRST UNION NATIONAL BANK, as Agent (the "Agent"). WHEREAS, the Agent and the Lenders desire to make available to the Borrower a letter of credit facility on the terms and conditions contained herein. NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by the parties hereto, the parties hereto agree as follows: ARTICLE I. DEFINITIONS SECTION 1.1. DEFINITIONS. In addition to terms defined elsewhere herein, the following terms shall have the following meanings for the purposes of this Agreement: "ACCESSION AGREEMENT" means an Accession Agreement substantially in the form of Annex I to the Guaranty. "ACQUISITION" means the acquisition by the Borrower, indirectly through certain Subsidiaries, of all of the partnership interest of the Target Partnerships from Trammell Crow Residential Company pursuant to the Acquisition Agreement. "ACQUISITION AGREEMENT" means that certain Contribution Agreement dated February 23, 1998 by and among Borrower, Merry Land DownREIT I LP and certain affiliates of Trammell Crow Residential Company. "ACQUISITION DOCUMENT" means the Acquisition Agreement and any other document, instrument or agreement executed and delivered by any Person in connection with the Acquisition Agreement or the Acquisition. "ADDITIONAL COSTS" has the meaning given that term in Section 4.1. "AFFILIATE" means any Person (other than the Agent or any Lender): (a) directly or indirectly controlling, controlled by, or under common control with, the Borrower; (b) directly or indirectly owning or holding five percent (5.0%) or more of any equity interest in the Borrower; or (c) five percent (5.0%) or more of whose voting stock or other equity interest is directly or indirectly owned or held by the Borrower. For purposes of this definition, "control" (including with correlative meanings, the terms "controlling", "controlled by" and "under common control with") means the possession directly or indirectly of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities or by contract or otherwise. "AGENT" means First Union National Bank, in its capacity as contractual representative of the Lenders under the terms of this Agreement, and any of its successors. "AGREEMENT DATE" means the date as of which this Agreement is dated. "APPLICABLE LAW" means all applicable provisions of constitutions, statutes, rules, regulations and orders of all governmental bodies and all orders and decrees of all courts, tribunals and arbitrators. "ASSIGNEE" has the meaning given that term in Section 10.5.(c). "ASSIGNMENT AND ACCEPTANCE AGREEMENT" means an Assignment and Acceptance Agreement among a Lender, an Assignee and the Agent, substantially in the form of Exhibit A or such other form as may be agreed to by such Lender, such Assignee and the Agent. "BANK BONDS" means any Bonds acquired or held by or for the benefit of the Issuer of such Bonds, the applicable Target Partnership, the Borrower, any general partner of such Target Partnership or any guarantor of the obligations of such Target Partnership under the "Loan Agreement" relating to such Bonds, this Agreement or any Confirming Bank Reimbursement Agreement. "BASE RATE" means the per annum rate of interest equal to the greater of (a) the Prime Rate or (b) the Federal Funds Rate plus one-half of one percent (0.5%). Any change in the Base Rate resulting from a change in the Prime Rate or the Federal Funds Rate shall become effective as of 12:01 a.m. on the Business Day on which each such change occurs. The Base Rate is a reference rate used by the Agent in determining interest rates on certain loans and is not intended to be the lowest rate of interest charged by the Agent or any Lender on any extension of credit to any debtor. "BONDS" means each of the bonds described in Schedule 1.1.(a) attached hereto. "BOND DOCUMENTS" means, with respect to a given issue of Bonds, such Bonds, the Indenture relating thereto, and all other documents, instruments or agreements entered into by any Target Partnership, the Borrower, any other Subsidiary of the Borrower, the Trustee under such Indenture, the Issuer of such Bonds, the Remarketing Agent for such Bonds or any other Person, in each case, in connection with such Bonds. "BORROWER" has the meaning set forth in the introductory paragraph hereof and shall include the Borrower's successors and assigns. "BUSINESS DAY" means any day other than a Saturday, Sunday or other day on which banks in Charlotte, North Carolina are authorized or required to close. "CASH EQUIVALENTS" means: (a) securities issued, guaranteed or insured by the United States of America or any of its agencies with maturities of not more than one year from the date acquired; (b) certificates of deposit with maturities of not more than one year from the date acquired issued by a United States federal or state chartered commercial bank of recognized standing, which has capital and unimpaired surplus in excess of $500,000,000.00 and which bank or its holding company has a short-term commercial paper rating of at least A-2 or the equivalent by Standard & Poor's Rating Group, a division of McGraw-Hill, Inc. ("S&P"), or at least P-2 or the equivalent by Moody's Investors Services, Inc. ("Moody's"); (c) reverse repurchase agreements with terms of not more than seven days from the date acquired, for securities of the type described in clause (a) above and entered into only with commercial banks having the qualifications described in clause (b) above; (d) commercial paper issued by any Person incorporated under the laws of the United States of America or any State thereof and rated at least A-2 or the equivalent thereof by S&P or at least P-2 or the equivalent thereof by Moody's, in each case with maturities of not more than one year from the date acquired; and (e) investments in money market funds registered under the Investment Company Act of 1940, which have net assets of at least $500,000,000.00 and at least 85% of whose assets consist of securities and other obligations of the type described in clauses (a) through (d) above. "COLLATERAL" means any real or personal property securing any of the Obligations, including without limitation, all "Pledged Collateral" as defined in the Pledge Agreement and real property subject to the lien of any Collateral Document. "COLLATERAL ACCOUNT" means a special non-interest bearing deposit account maintained at the Principal Office of the Agent and under its sole dominion and control. "COLLATERAL DOCUMENTS" means the Pledge Agreement and all other security agreements, financing statements, and other loan and collateral documents creating, evidencing and perfecting the Agent's Liens in any of the Collateral. "COMMITMENT" means, as to each Lender, such Lender's obligation to issue (in the case of the Agent only) or participate in (in the case of all of the other Lenders) Letters of Credit pursuant to Section 2.1.(a) and 2.1.(f) respectively, in an amount up to, but not exceeding (but in the case of the Agent excluding the aggregate amount of participations in the Letters of Credit held by other Lenders), the amount set forth for such Lender on its signature page hereto as such Lender's "Commitment Amount" or as set forth in the applicable Assignment and Acceptance Agreement, as the same may be changed from time to time as appropriate to reflect any assignments to or by such Lender effected in accordance with Section 10.5. "COMMITMENT PERCENTAGE" means, as to each Lender, the ratio, expressed as a percentage, of (a) the amount of such Lender's Commitment to (b) the sum of (i) the aggregate amount of the Commitments of all Lenders hereunder; provided, however, that if at the time of determination the Commitments have terminated or been reduced to zero, the "Commitment Percentage" of each Lender shall be the Commitment Percentage of such Lender in effect immediately prior to such termination or reduction. "CONFIRMING BANK" means any financial institution that has issued a Confirming Bank Letter of Credit. Initially, the only Confirming Bank is Barclays Bank, PLC, New York Branch. "CONFIRMING BANK LETTER OF CREDIT" means a letter of credit, guaranty, confirmation or other similar type of security or credit enhancement issued by a Confirming Bank in support of the payment of the principal of, or interest or premium, if any, on, any issue of Bonds (or the Letter of Credit issued in support of such payments on any issue of Bonds). "CONFIRMING BANK REIMBURSEMENT AGREEMENT" means the confirmation agreement, reimbursement agreement or other agreement between a Confirming Bank and the Agent pursuant to which the Agent agrees to reimburse such Confirming Bank for payments made by such Confirming Bank under the applicable Confirming Bank Letter of Credit. "CREDIT AGREEMENT" means that certain Credit Agreement dated as of September 16, 1997, by and among the Borrower, the financial institutions from time to time parties thereto as "Lenders" and First Union National Bank, as Agent, as in effect on the date hereof and as hereinafter in effect (or deemed in effect) as specified in Section 10.8. "CREDIT AGREEMENT DEFAULT" means any event or condition set forth in Section 10.1. of the Credit Agreement. "CREDIT AGREEMENT REPRESENTATIONS" means the representations and warranties of the Borrower and its Subsidiaries made or deemed made under the Credit Agreement or any other Loan Document (as defined therein), including without limitation, the representations and warranties set forth in Article VI of the Credit Agreement. "DEFAULT" means any of the events specified in Section 8.1., whether or not there has been satisfied any requirement for the giving of notice, the lapse of time or both. "DEFAULTING LENDER" has the meaning set forth in Section 3.10. "DOLLARS" or "$" means the lawful currency of the United States of America. "EFFECTIVE DATE" means the later of: (a) the Agreement Date; and (b) the date on which all of the conditions precedent set forth in Section 5.1. shall have been fulfilled or waived in writing by the Agent. "ELIGIBLE ASSIGNEE" means any Person who is: (i) currently a Lender; (ii) a commercial bank, trust company, insurance company, investment bank or pension fund organized under the laws of the United States of America, or any state thereof, and having total assets in excess of $5,000,000,000; (iii) a savings and loan association or savings bank organized under the laws of the United States of America, or any state thereof, and having a tangible net worth of at least $500,000,000; or (iv) a commercial bank organized under the laws of any other country which is a member of the Organization for Economic Cooperation and Development ("OECD"), or a political subdivision of any such country, and having total assets in excess of $10,000,000,000, provided that such bank is acting through a branch or agency located in the United States of America. If such Person is not currently a Lender, such Person's senior unsecured long term indebtedness must be rated BBB or higher by S&P, Baa2 or higher by Moody's, or the equivalent or higher of either such rating by another Rating Agency acceptable to the Agent. Notwithstanding the foregoing, if an Event of Default shall have occurred and be continuing under Section 8.1.(a) or (b), the "Eligible Assignee" shall mean any Person that is not an individual. "EVENT OF DEFAULT" means any of the events specified in Section 8.1., provided that any requirement for notice or lapse of time or any other condition has been satisfied. "EXTENSION REQUEST" has the meaning given that term in Section 2.3. "FEDERAL FUNDS RATE" means, for any day, the rate per annum (rounded upward to the nearest 1/100th of 1%) equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published by the Federal Reserve Bank of New York on the Business Day next succeeding such day, provided that (a) if such day is not a Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the next preceding Business Day, and (b) if no such rate is so published on such next succeeding Business Day, the Federal Funds Rate for such day shall be the average rate quoted to the Agent by federal funds dealers selected by the Agent on such day on such transaction as determined by the Agent. "FEES" means the fees and commissions provided for or referred to in Section 3.5. and any other fees payable by the Borrower hereunder or under any other Loan Document. "FIRST UNION" means First Union National Bank and its successors and assigns. "FOREIGN LENDER" means any Lender organized under the laws of a jurisdiction other than the United States of America. "GAAP" means accounting principles as promulgated from time to time in statements, opinions and pronouncements by the American Institute of Certified Public Accountants and the Financial Accounting Standards Board and in such statements, opinions and pronouncements of such other entities with respect to financial accounting of for-profit entities as shall be accepted by a substantial segment of the accounting profession in the United States. "GOVERNMENTAL APPROVALS" means all authorizations, consents, approvals, licenses and exemptions of, registrations and filings with, and reports to, all Governmental Authorities. "GOVERNMENTAL AUTHORITY" means any national, state or local government (whether domestic or foreign), any political subdivision thereof or any other governmental, quasi-governmental, judicial, public or statutory instrumentality, authority, body, agency, bureau or entity (including, without limitation, the Federal Deposit Insurance Corporation, the Comptroller of the Currency or the Federal Reserve Board, any central bank or any comparable authority) or any arbitrator with authority to bind a party at law. "GUARANTY" means the Guaranty to which various Subsidiaries are from time to time parties and substantially in the form of Exhibit B. "INDENTURE" means any of the trust indentures described in Schedule 1.1.(b). "INTERNAL REVENUE CODE" means the Internal Revenue Code of 1986, as amended. "ISSUER" means any Person who issued any Bond. "L/C COMMITMENT AMOUNT" equals $100,991,788. "LENDER" means each financial institution from time to time party hereto as a "Lender," together with its respective successors and assigns. "LENDING OFFICE" means, for each Lender, the office of such Lender specified as such on its signature page hereto or in the applicable Assignment and Acceptance Agreement, or such other office of such Lender as such Lender may notify the Agent in writing from time to time. "LETTER OF CREDIT" has the meaning set forth in Section 2.1.(a). "LETTER OF CREDIT DOCUMENTS" means, with respect to any Letter of Credit, collectively, any application therefor, any certificate or other document presented in connection with a drawing under such Letter of Credit and any other agreement, instrument or other document governing or providing for (a) the rights and obligations of the parties concerned or at risk with respect to such Letter of Credit or (b) any collateral security for any of such obligations. "LETTER OF CREDIT LIABILITIES" shall mean, without duplication, at any time and in respect of any Letter of Credit, the sum of (a) the Stated Amount of such Letter of Credit plus (b) the aggregate unpaid principal amount of all Reimbursement Obligations of the Borrower at such time due and payable in respect of all drawings made under such Letter of Credit. For purposes of this Agreement, a Lender (other than the Agent in its capacity as such) shall be deemed to hold a Letter of Credit Liability in an amount equal to its participation interest in the related Letter of Credit under Section 2.1.(f), and the Agent shall be deemed to hold a Letter of Credit Liability in an amount equal to its retained interest in the related Letter of Credit after giving effect to the acquisition by the Lenders other than the Agent of their participation interests under such Section. "LOAN DOCUMENT" means this Agreement, each Letter of Credit Document and each other document or instrument now or hereafter executed and delivered by the Borrower or any Subsidiary in connection with, pursuant to or relating to this Agreement. "MATERIAL ADVERSE EFFECT" means a materially adverse effect on (a) the business, assets, liabilities, financial condition, results of operations or business prospects of the Borrower and its Subsidiaries taken as a whole, (b) the ability of the Borrower to perform its obligations under any Loan Document to which it is a party which does not result from a material adverse effect on the items described in the immediate preceding clause (a), (c) the validity or enforceability of any of the Loan Documents, (d) the rights and remedies of the Lenders and the Agent under any of such Loan Documents or (e) the timely payment of the Reimbursement Obligations or other amounts payable in connection herewith. Except with respect to representations made or deemed made by the Borrower or any Subsidiary in any of the other Loan Documents to which it is a party, all determinations of materiality shall be made by the Requisite Lenders in their reasonable judgment unless expressly provided otherwise. "MATERIAL SUBSIDIARY" has the meaning given that term in the Credit Agreement. "MORTGAGE" means each Mortgage, Assignment of Rents and Leases and Security Agreement executed by a Target Partnership in favor of the Agent. "OBLIGATIONS" means, individually and collectively: (a) all Reimbursement Obligations and all other Letter of Credit Liabilities and (b) all other indebtedness, liabilities, obligations, covenants and duties of the Borrower owing to the Agent or any Lender of every kind, nature and description, under or in respect of this Agreement or any of the other Loan Documents, including, without limitation, the Fees and indemnification obligations, whether direct or indirect, absolute or contingent, due or not due, contractual or tortious, liquidated or unliquidated, and whether or not evidenced by any promissory note. "OTHER RELEVANT SUBSIDIARY" means any Subsidiary, individually or together with other Subsidiaries, the occurrence of any of the events described in Sections 8.1.(f) or 8.1.(g) with respect to which could reasonably be expected to have a Material Adverse Effect. "PARTICIPANT" has the meaning given that term in Section 10.5.(b). "PERSON" means an individual, corporation, partnership, limited liability company, association, trust or unincorporated organization, or a government or any agency or political subdivision thereof. "PLACEMENT MEMORANDUM" means, with respect to a given issue of Bonds, the private placement memorandum, offering circular, remarketing circular or other similar writing used by the Remarketing Agent in connection with sales of such Bonds. "PLEDGE AGREEMENT" means the Pledge Agreement dated as of the date hereof executed by the Borrower in favor of the Agent and in substantially the form of Exhibit C. "POST-DEFAULT RATE" means, in respect of any principal of any Loan or any other Obligation that is not paid when due (whether at stated maturity, by acceleration, by optional or mandatory prepayment or otherwise), a rate per annum equal to four percent (4.0%) plus the Base Rate as in effect from time to time. "PRIME RATE" means the rate of interest per annum announced publicly by the Agent as its prime rate from time to time. The Prime Rate is not necessarily the best or the lowest rate of interest offered by the Agent or any Lender. "PRINCIPAL OFFICE" means the office of the Agent located at One First Union Center, Charlotte, North Carolina 28288, or such other office of the Agent as the Agent may designate from time to time. "REGISTER" has the meaning given that term in Section 10.5.(d). "REGULATORY CHANGE" means, with respect to any Lender, any change effective after the Agreement Date in Applicable Law (including without limitation, Regulation D of the Board of Governors of the Federal Reserve System) or the adoption or making after such date of any interpretation, directive or request applying to a class of banks, including such Lender, of or under any Applicable Law (whether or not having the force of law and whether or not failure to comply therewith would be unlawful) by any Governmental Authority or monetary authority charged with the interpretation or administration thereof or compliance by any Lender with any request or directive regarding capital adequacy. "REIMBURSEMENT OBLIGATION" means the absolute, unconditional and irrevocable obligation of the Borrower to reimburse the Agent for (a) any drawing honored by the Agent under a Letter of Credit or (b) any payment made by the Agent to any Confirming Bank under or in respect of a Confirming Bank Letter of Credit or Confirming Bank Reimbursement Agreement. "REMARKETING AGENT" means the Person acting as remarketing agent (or performing an analogous function) for a given issue of Bonds. "REQUISITE LENDERS" means, as of any date, Lenders having at least 66-2/3% of the aggregate amount of the Commitments, or, if the Commitments have been terminated or reduced to zero, Lenders holding at least 66-2/3% of the principal amount of the Letter of Credit Liabilities. "SECURITIES ACT" means the Securities Act of 1933, as amended from time to time, together with all rules and regulations issued thereunder. "S&P" means Standard & Poor's Rating Group, a division of McGraw-Hill Companies, Inc. "STATED AMOUNT" means the amount available to be drawn by a beneficiary under a Letter of Credit from time to time, as such amount may be increased or reduced from time to time in accordance with the terms of such Letter of Credit. "STATED TERMINATION DATE" means the date set forth as such in a Letter of Credit and any such later date to which it may be extended in accordance with Section 2.3. "SUBSIDIARY" means, for any Person, any corporation, partnership or other entity of which at least a majority of the securities or other ownership interests having by the terms thereof ordinary voting power to elect a majority of the board of directors or other persons performing similar functions of such corporation, partnership or other entity (without regard to the occurrence of any contingency) is at the time directly or indirectly owned or controlled by such Person or one or more Subsidiaries of such Person or by such Person and one or more Subsidiaries of such Person. "WHOLLY OWNED SUBSIDIARY" means any such corporation, partnership or other entity of which all of the equity securities or other ownership interests (other than, in the case of a corporation, directors' qualifying shares) are so owned or controlled. "TARGET PARTNERSHIP" means each of the partnerships identified on Schedule 1.1.(c). "TAXES" has the meaning given that term in Section 3.11. "TRUSTEE" means any Person acting in the capacity of trustee for the holders of any series of Bonds pursuant to the applicable Bond Documents. SECTION 1.2. GENERAL; REFERENCES TO TIMES. Unless otherwise indicated, all accounting terms, ratios and measurements shall be interpreted or determined in accordance with GAAP in effect as of the Agreement Date. References in this Agreement to "Sections", "Articles", "Exhibits" and "Schedules" are to sections, articles, exhibits and schedules herein and hereto unless otherwise indicated. References in this Agreement to any document, instrument or agreement (a) shall include all exhibits, schedules and other attachments thereto, (b) shall include all documents, instruments or agreements issued or executed in replacement thereof, to the extent permitted hereby and (c) shall mean such document, instrument or agreement, or replacement or predecessor thereto, as amended, supplemented, restated or otherwise modified from time to time to the extent permitted hereby and in effect at any given time. Wherever from the context it appears appropriate, each term stated in either the singular or plural shall include the singular and plural, and pronouns stated in the masculine, feminine or neuter gender shall include the masculine, the feminine and the neuter. Unless explicitly set forth to the contrary, a reference to "Subsidiary" means a Subsidiary of the Borrower or a Subsidiary of such Subsidiary and a reference to an "Affiliate" means a reference to an Affiliate of the Borrower. Titles and captions of Articles, Sections, subsections and clauses in this Agreement are for convenience only, and neither limit nor amplify the provisions of this Agreement. Unless otherwise indicated, all references to time are references to Charlotte, North Carolina time. ARTICLE II. LETTER OF CREDIT FACILITY Section 2.1. Letters of Credit. (a) LETTERS OF CREDIT. Subject to the terms and conditions of this Agreement, the Agent, on behalf of the Lenders, agrees to issue for the account of the Borrower on the Effective Date one or more letters of credit (each a "Letter of Credit") up to a maximum aggregate Stated Amount at any one time outstanding not to exceed the L/C Commitment Amount. Each Letter of Credit shall be substantially in the form of Exhibit D attached hereto or in such other form as may be acceptable to the Agent in its sole discretion. The Stated Amount, initial beneficiary, Stated Termination Date and brief description of the intended use of each Letter of Credit is set forth on Schedule 2.1. To the extent any term of a Letter of Credit Document (other than a Letter of Credit) is inconsistent with a term of any other Loan Document that is not a Letter of Credit Document, the term of such Loan Document shall control. (b) REIMBURSEMENT OBLIGATIONS. The Borrower hereby unconditionally and irrevocably agrees to pay and reimburse the Agent for the amount of each demand for payment honored by the Agent under any Letter of Credit promptly upon payment by the Agent to the beneficiary, without presentment, demand, protest or other formalities of any kind. Upon receipt by the Agent of any payment in respect of any Reimbursement Obligation in respect of any Letter of Credit, the Agent shall promptly pay to each Lender that has acquired a participation therein under the second sentence of Section 2.1.(f) such Lender's Commitment Percentage of such payment. (c) EFFECT OF LETTERS OF CREDIT ON COMMITMENTS. Upon the issuance by the Agent of any Letter of Credit and until such Letter of Credit shall have expired or been terminated, the Commitment of each Lender shall be deemed to be utilized for all purposes of this Agreement in an amount equal to such Lender's Commitment Percentage of the Stated Amount of such Letter of Credit plus any related Reimbursement Obligations then outstanding. (d) AGENT'S DUTIES REGARDING LETTERS OF CREDIT; UNCONDITIONAL NATURE OF REIMBURSEMENT OBLIGATION. In examining documents presented in connection with drawings under Letters of Credit and making payments under such Letters of Credit against such documents, the Agent shall use the same standard of care as it uses in connection with examining documents presented in connection with drawings under letters of credit in which it has not sold participations and making payments under such letters of credit. The Borrower assumes all risks of the acts and omissions of, or misuse of the Letters of Credit by, the respective beneficiaries of such Letters of Credit. In furtherance and not in limitation of the foregoing, neither the Agent nor any of the Lenders shall, except and only to the extent the Agent or such Lender has acted with gross negligence or willful misconduct, be responsible for (i) the form, validity, sufficiency, accuracy, genuineness or legal effects of any document submitted by any party in connection with the application for and issuance of or any drawing honored under any Letter of Credit even if it should in fact prove to be in any or all respects invalid, insufficient, inaccurate, fraudulent or forged; (ii) the validity or sufficiency of any instrument transferring or assigning or purporting to transfer or assign any Letter of Credit, or the rights or benefits thereunder or proceeds thereof, in whole or in part, which may prove to be invalid or ineffective for any reason; (iii) failure of the beneficiary of any Letter of Credit to comply fully with conditions required in order to draw upon such Letter of Credit; (iv) errors, omissions, interruptions or delays in transmission or delivery of any messages, by mail, cable, telex, telecopy or otherwise, whether or not they be in cipher; (v) errors in interpretation of technical terms; (vi) any loss or delay in the transmission or otherwise of any document required in order to make a drawing under any Letter of Credit, or of the proceeds thereof; (vii) the misapplication by the beneficiary of any such Letter of Credit, or the proceeds of any drawing under such Letter of Credit; or (viii) any consequences arising from causes beyond the control of the Agent or the Lenders. None of the above shall affect, impair or prevent the vesting of any of the Agent's rights or powers hereunder. No action taken or omitted to be taken by the Agent under or in connection with any Letter of Credit, if taken or omitted in the absence of gross negligence or willful misconduct, shall create against the Agent any liability to the Borrower or any Lender. In this connection, the obligation of the Borrower to reimburse the Agent for any drawing made under any Letter of Credit shall be absolute, unconditional and irrevocable and shall be paid strictly in accordance with the terms of this Agreement under all circumstances whatsoever, including without limitation, the following circumstances: (A) any lack of validity or enforceability of any Letter of Credit Document, any Bond Document or any term or provisions therein; (B) any amendment or waiver of or any consent to departure from all or any of the Letter of Credit Documents; (C) the existence of any claim, setoff, defense or other right which the Borrower may have at any time against the Agent, any Lender, any Trustee, any Issuer, any beneficiary of a Letter of Credit or any other Person, whether in connection with this Agreement, the transactions contemplated hereby, the Bond Documents, the transactions contemplated thereby, or in the Letter of Credit Documents or any unrelated transaction; (D) any breach of contract or dispute between the Borrower, the Agent, any Lender, any Trustee, any Issuer, or any other Person; (E) any demand, statement or any other document presented under a Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein or made in connection therewith being untrue or inaccurate in any respect whatsoever; (F) any non-application or misapplication by the beneficiary of a Letter of Credit of the proceeds of any drawing under such Letter of Credit; (G) payment by the Agent under the Letter of Credit against presentation of a draft or certificate which does not strictly comply with the terms of the Letter of Credit; and (H) any other act, omission to act, delay or circumstance whatsoever that might, but for the provisions of this Section, constitute a legal or equitable defense to or discharge of the Borrower's Reimbursement Obligations. (e) AMENDMENTS, ETC. The issuance by the Agent of any amendment, supplement or other modification to any Letter of Credit shall be subject to the same conditions applicable under this Agreement to the initial issuance of the Letters of Credit (including, without limitation, that the request therefor be made through the Agent), and no such amendment, supplement or other modification shall be issued unless either (i) the respective Letter of Credit affected thereby would have complied with such conditions had it originally been issued hereunder in such amended, supplemented or modified form or (ii) the Requisite Lenders shall have consented thereto. (f) LENDERS' PARTICIPATION IN LETTERS OF CREDIT. Each Lender shall be deemed to have irrevocably and unconditionally purchased and received from the Agent, without recourse or warranty, an undivided interest and participation to the extent of such Lender's Commitment Percentage of the liability of the Agent with respect to each Letter of Credit and each Lender thereby shall absolutely, unconditionally and irrevocably assume, as primary obligor and not as surety, and shall be unconditionally obligated to the Agent to pay and discharge when due, such Lender's Commitment Percentage of the Agent's liability under such Letter of Credit. In addition, upon the making of each payment by a Lender to the Agent in respect of any Letter of Credit pursuant to the immediately following subsection (g), such Lender shall, automatically and without any further action on the part of the Agent or such Lender, acquire (i) a participation in an amount equal to such payment in the Reimbursement Obligation owing to the Agent by the Borrower in respect of such Letter of Credit and (ii) a participation in a percentage equal to such Lender's Commitment Percentage in any interest or other amounts payable by the Borrower in respect of such Reimbursement Obligation (other than the Fees payable to the Agent pursuant to the last sentence of Section 3.5.(a) or under Section 3.5.(b)). (g) PAYMENT OBLIGATION OF LENDERS. Each Lender severally agrees to pay to the Agent on demand in immediately available funds in Dollars the amount of such Lender's Commitment Percentage of each drawing paid by the Agent under each Letter of Credit to the extent such amount is not reimbursed by the Borrower pursuant to Section 2.1.(b). Each such Lender's obligation to make such payments to the Agent under this subsection, and the Agent's right to receive the same, shall be absolute, irrevocable and unconditional and shall not be affected in any way by any circumstance whatsoever, including without limitation, (i) the failure of any other Lender to make its payment under this subsection, (ii) the financial condition of the Borrower or any of its Subsidiaries, (iii) the existence of any Default or Event of Default, including any Event of Default described in Section 8.1.(f) or 8.1.(g), or (iv) the termination of the Commitments. Each such payment to the Agent shall be made without any offset, abatement, withholding or deduction whatsoever. (h) INFORMATION TO LENDERS. Upon the request of any Lender from time to time, the Agent shall deliver to such Lender information reasonably requested by such Lender with respect to any Letter of Credit then outstanding. Other than as set forth in this subsection, the Agent shall have no duty to notify the Lenders with respect to matters regarding any Letter of Credit. The failure of the Agent to perform its requirements under this subsection shall not relieve any Lender from its obligations under Section 2.1.(g). SECTION 2.2. CONFIRMING BANK LETTER OF CREDIT. (a) LETTERS OF CREDIT. Subject to the terms and conditions of this Agreement, on the Effective Date the Agent agrees to cause to be delivered to the applicable Trustees five Confirming Bank Letters of Credit having the initial stated amounts, expiration dates and the other terms generally described in Schedule 2.2. (b) REIMBURSEMENT OBLIGATIONS. The Borrower hereby unconditionally and irrevocably agrees to pay and reimburse the Agent for the amount of each payment made by the Agent to any Confirming Bank under or pursuant to the terms of any Confirming Bank Reimbursement Agreement promptly upon payment thereof by the Agent, without presentment, demand, protest or other formalities of any kind. Upon receipt by the Agent of any payment in respect of any such Reimbursement Obligation, the Agent shall promptly pay to each Lender that has acquired a participation therein under the second sentence of Section 2.2.(d) such Lender's Commitment Percentage of such payment. (c) UNCONDITIONAL NATURE OF REIMBURSEMENT OBLIGATION. The Borrower assumes all risks of the acts and omissions of, or misuse of the Confirming Letters of Credit by, the respective beneficiaries of such Confirming Letters of Credit. In furtherance and not in limitation of the foregoing, neither the Agent nor any of the Lenders shall, except and only to the extent the Agent or such Lender has acted with gross negligence or willful misconduct, be responsible for (i) the form, validity, sufficiency, accuracy, genuineness or legal effects of any document submitted by any party in connection with the application for and issuance of or any drawing honored under any Confirming Letter of Credit even if it should in fact prove to be in any or all respects invalid, insufficient, inaccurate, fraudulent or forged; (ii) the validity or sufficiency of any instrument transferring or assigning or purporting to transfer or assign any Confirming Letter of Credit, or the rights or benefits thereunder or proceeds thereof, in whole or in part, which may prove to be invalid or ineffective for any reason; (iii) failure of the beneficiary of any Confirming Letter of Credit to comply fully with conditions required in order to draw upon such Confirming Letter of Credit; (iv) errors, omissions, interruptions or delays in transmission or delivery of any messages, by mail, cable, telex, telecopy or otherwise, whether or not they be in cipher; (v) errors in interpretation of technical terms; (vi) any loss or delay in the transmission or otherwise of any document required in order to make a drawing under any Confirming Letter of Credit, or of the proceeds thereof; (vii) the misapplication by the beneficiary of any such Confirming Letter of Credit, or the proceeds of any drawing under such Confirming Letter of Credit; or (viii) any consequences arising from causes beyond the control of the Agent or the Lenders. No action taken or omitted to be taken by the Agent under or in connection with any Confirming Letter of Credit, if taken or omitted in the absence of gross negligence or willful misconduct, shall create against the Agent any liability to the Borrower or any Lender. In this connection, the obligation of the Borrower to reimburse the Agent for any payment made by the Agent to any Confirming Bank under or pursuant to the terms of any Confirming Bank Reimbursement Agreement shall be absolute, unconditional and irrevocable and shall be paid strictly in accordance with the terms of this Agreement under all circumstances whatsoever, including without limitation, the following circumstances: (A) any lack of validity or enforceability of any Confirming Bank Letter of Credit, any Confirming Bank Reimbursement Agreement, any Bond Document or any term or provisions therein; (B) any amendment or waiver of or any consent to departure from all or any of the terms of any Confirming Bank Letter of Credit or any Confirming Bank Reimbursement Agreement; (C) the existence of any claim, setoff, defense or other right which the Borrower may have at any time against the Agent, any Lender, any Trustee, any Issuer, any Confirming Bank, any beneficiary of a Confirming Letter of Credit or any other Person, whether in connection with this Agreement, the transactions contemplated hereby, the Bond Documents, the transactions contemplated thereby, or in any unrelated transaction; (D) any breach of contract or dispute between the Borrower, the Agent, any Lender, any Trustee, any Issuer, any Confirming Bank or any other Person; (E) any demand, statement or any other document presented under a Confirming Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein or made in connection therewith being untrue or inaccurate in any respect whatsoever; (F) any non-application or misapplication by the beneficiary of a Confirming Letter of Credit of the proceeds of any drawing under such Confirming Letter of Credit; (G) payment by a Confirming Bank under a Confirming Letter of Credit against presentation of a draft or certificate which does not strictly comply with the terms of such Confirming Letter of Credit; and (H) any other act, omission to act, delay or circumstance whatsoever that might, but for the provisions of this Section, constitute a legal or equitable defense to or discharge of the Borrower's Reimbursement Obligations. (d) LENDERS' PARTICIPATION IN AGENT'S REIMBURSEMENT OBLIGATIONS. Each Lender shall be deemed to have irrevocably and unconditionally purchased and received from the Agent, without recourse or warranty, an undivided interest and participation to the extent of such Lender's Commitment Percentage of the liability of the Agent with respect to each Confirming Letter of Credit and the related Confirming Bank Reimbursement Agreement, and each Lender thereby shall absolutely, unconditionally and irrevocably assume, as primary obligor and not as surety, and shall be unconditionally obligated to the Agent to pay and discharge when due, such Lender's Commitment Percentage of the Agent's liability under or in respect of any Confirming Letter of Credit and the related Confirming Bank Reimbursement Agreement. In addition, upon the making of each payment by a Lender to the Agent in respect of any Confirming Letter of Credit or any Confirming Bank Reimbursement Agreement pursuant to the immediately following subsection (e), such Lender shall, automatically and without any further action on the part of the Agent or such Lender, acquire (i) a participation in an amount equal to such payment in the Reimbursement Obligation owing to the Agent by the Borrower in respect of such Confirming Letter of Credit or Confirming Bank Reimbursement agreement and (ii) a participation in a percentage equal to such Lender's Commitment Percentage in any interest or other amounts payable by the Borrower in respect of such Reimbursement Obligation. (e) PAYMENT OBLIGATION OF LENDERS. Each Lender severally agrees to pay to the Agent on demand in immediately available funds in Dollars the amount of such Lender's Commitment Percentage of each payment made by the Agent to any Confirming Bank under or pursuant to the terms of any Confirming Bank Reimbursement Agreement to the extent such amount is not reimbursed by the Borrower pursuant to Section 2.2.(b). Each such Lender's obligation to make such payments to the Agent under this subsection, and the Agent's right to receive the same, shall be absolute, irrevocable and unconditional and shall not be affected in any way by any circumstance whatsoever, including without limitation, (i) the failure of any other Lender to make its payment under this subsection, (ii) the financial condition of the Borrower or any of its Subsidiaries, (iii) the existence of any Default or Event of Default, including any Event of Default described in Section 8.1.(f) or 8.1.(g), (iv) the termination of the Commitments or (v) the Agent's failure initially to make payment under the Letter of Credit associated with a Confirming Bank Letter of Credit. Each such payment to the Agent shall be made without any offset, abatement, withholding or deduction whatsoever. SECTION 2.3. EXTENSION OF STATED TERMINATION DATES. The Borrower may request that the Agent and the Lenders extend the current Stated Termination Date of a Letter of Credit by a one year period by executing and delivering to the Agent at least 90 days but no more than 120 days prior to the current Stated Termination Date of such Letter of Credit, a written request for such extension (an "Extension Request"). The Agent shall forward to each Lender a copy of each Extension Request delivered to the Agent promptly after receipt thereof. The Borrower understands that this Section has been included in this Agreement for the Borrower's convenience in requesting an extension of Stated Termination Dates and the Borrower acknowledges that none of the Lenders nor the Agent has promised (either expressly or impliedly), nor has any obligation or commitment whatsoever, to extend any Stated Termination Date at any time. If all of the Lenders shall have notified the Agent in writing on or prior to the date which is 30 days prior to such current Stated Termination Date that they accept such Extension Request, then such current Stated Termination Date shall be extended to the date one year following such current Stated Termination Date. The Agent shall evidence such consent and the extension of any such Stated Termination Date by delivering to the beneficiary of such Letter of Credit, no later than 5 Business Days prior to the then current Stated Termination Date, a notice of extension in the form provided under such Letter of Credit or such other form as may be acceptable to the beneficiary of such Letter of Credit. If any Lender shall not have notified the Agent on or prior to the date which is 30 days prior to such current Stated Termination Date that it accepts such Extension Request, then such current Stated Termination Date shall not be extended. The Agent shall promptly notify the Borrower and the Lenders whether the Extension Request has been accepted or rejected. SECTION 2.4. MATURITY DATE OF LETTERS OF CREDIT PAST FACILITY TERMINATION DATE. If on the date (the "Facility Termination Date") the Commitments are terminated (whether voluntarily, by reason of the occurrence of an Event of Default or otherwise), there are any Letters of Credit outstanding hereunder, the Borrower shall, on the Facility Termination Date, pay to the Agent an amount of Dollars equal to the Stated Amount of such Letters of Credit for deposit into the Collateral Account. If a drawing pursuant to any such Letter of Credit occurs on or prior to the expiration of such Letter of Credit, the Borrower authorizes the Agent to use the monies deposited in the Collateral Account to make payment to the beneficiary with respect to such drawing or the payee with respect to such presentment. The Agent shall pay to the Borrower (or to whomever else may be legally entitled thereto) the monies deposited in the Collateral Account no later than the date 30 Business Days following the expiration of all Letters of Credit. ARTICLE III. PAYMENTS, FEES AND OTHER GENERAL PROVISIONS Section 3.1. Payments. Except to the extent otherwise provided herein, all payments to be made by the Borrower under this Agreement or any other Loan Document shall be made in Dollars, in immediately available funds, without deduction, set-off or counterclaim, to the Agent at its Principal Office, not later than 2:00 p.m. on the date on which such payment shall become due (each such payment made after such time on such due date to be deemed to have been made on the next succeeding Business Day). Prior to making any such payment, the Borrower shall give the Agent notice of such payment. Subject to Sections 3.2. and 3.3., the Agent may (but shall not be obligated to) debit the amount of any such payment which is not made by such time from any special or general deposit account of the Borrower with the Agent (with notice to the Borrower, the other Lenders and the Agent). The Borrower shall, at the time of making each payment under this Agreement, specify to the Agent the amounts payable by the Borrower hereunder to which such payment is to be applied. Each payment received by the Agent for the account of a Lender under this Agreement shall be paid to such Lender at the applicable Lending Office of such Lender no later than 5:00 p.m. on the date of receipt. If the Agent fails to pay such amount to a Lender as provided in the previous sentence, the Agent shall pay interest on such amount until paid at a rate per annum equal to the Federal Funds Rate from time to time in effect. If the due date of any payment under this Agreement or any other Loan Document would otherwise fall on a day which is not a Business Day such date shall be extended to the next succeeding Business Day and interest shall be payable for the period of such extension. If any amount required to be paid by the Borrower to the Agent or any Lender under this Agreement or any Loan Document remains unpaid after such amount is due (whether because of operation of law or otherwise), the Borrower shall pay interest on such past due amount from the date due until such amount is paid in full at the Post-Default Rate. All such interest shall be due and payable on demand. SECTION 3.2. PRO RATA TREATMENT. Except to the extent otherwise provided herein: (a) each payment of the Fees under Section 3.5.(a) shall be made for account of the Lenders pro rata according to the amounts of their respective Commitments and (b) the Lenders' participation in, and payment obligations in respect of, Letters of Credit under Section 2.1., and Confirming Bank Letters of Credit and Confirming Bank Reimbursement Agreements under Section 2.2., shall be pro rata in accordance with their respective Commitments. SECTION 3.3. SHARING OF PAYMENTS, ETC. The Borrower agrees that, in addition to (and without limitation of) any right of set-off, banker's lien or counterclaim a Lender or the Agent may otherwise have, each Lender and the Agent shall be entitled, at its option, to offset balances held by it for the account of the Borrower at any of such Lender's (or the Agent's) offices, in Dollars or in any other currency, against any Obligations owing to such Lender or the Agent hereunder which is not paid when due (regardless of whether such balances are then due to the Borrower), in which case such Lender shall promptly notify the Borrower, all other Lenders and the Agent thereof; provided, however, such Lender's failure to give such notice shall not affect the validity of such offset. If a Lender shall obtain payment of any Obligation owing by the Borrower through the exercise of any right of set-off, banker's lien or counterclaim or similar right or otherwise or through voluntary prepayments directly to a Lender or other payments made by the Borrower to a Lender not in accordance with the terms of this Agreement and such payment should be distributed to the Lenders pro rata in accordance with Section 3.2. or Section 8.3., as applicable, such Lender shall promptly pay such amounts to the Agent for application pursuant to the applicable terms of the Loan Documents, and make such other adjustments from time to time as shall be equitable, to the end that the Agent and all the Lenders shall share the benefit of such payment (net of any reasonable expenses which may be incurred by such Lender in obtaining or preserving such benefit) in accordance with Section 3.2. or Section 8.3. To such end, all the Lenders shall make appropriate adjustments among themselves (by the resale of participations sold or otherwise) if such payment is rescinded or must otherwise be restored. Nothing contained herein shall require any Lender to exercise any such right or shall affect the right of any Lender to exercise, and retain the benefits of exercising, any such right with respect to any other indebtedness or obligation of the Borrower. SECTION 3.4. SEVERAL OBLIGATIONS. No Lender shall be responsible for the failure of any other Lender to perform any obligation to be made or performed by such other Lender hereunder, and the failure of any Lender to perform any obligation to be made or performed by it hereunder shall not relieve the obligation of any other Lender to perform any obligation to be made or performed by such other Lender. SECTION 3.5. FEES. (a) LETTER OF CREDIT FEES. The Borrower agrees to pay to the Agent for account of each Lender a letter of credit fee as may be agreed to in writing by the Agent and the Borrower from time to time. The Borrower shall pay directly to the Agent from time to time on demand all commissions, charges, costs and expenses in the amounts customarily charged by the Agent from time to time in like circumstances with respect to the issuance of each Letter of Credit, drawings, amendments and other transactions relating thereto. (b) ADMINISTRATIVE AND OTHER FEES. The Borrower agrees to pay the administrative and other fees of the Agent as may be agreed to in writing by the Agent and the Borrower from time to time. SECTION 3.6. COMPUTATIONS. Unless otherwise expressly set forth herein, any Fees or accrued interest on any Obligations due hereunder shall be computed on the basis of a year of 360 days and the actual number of days elapsed. SECTION 3.7. USURY. In no event shall the amount of interest due or payable on the Obligations exceed the maximum rate of interest allowed by Applicable Law and, if any such payment is paid by the Borrower or received by any Lender, then such excess sum shall be credited as a payment of principal, unless the Borrower shall notify the respective Lender in writing that the Borrower elects to have such excess sum returned to it forthwith. It is the express intent of the parties hereto that the Borrower not pay and the Lenders not receive, directly or indirectly, in any manner whatsoever, interest in excess of that which may be lawfully paid by the Borrower under Applicable Law. SECTION 3.8. AGREEMENT REGARDING INTEREST AND CHARGES. The parties hereto agree and stipulate that all agency fees, syndication fees, facility fees, underwriting fees, letter of credit fees, default charges, late charges, increased cost charges, attorneys' fees and reimbursement for costs and expenses paid by the Agent or any Lender to third parties or for damages incurred by the Agent or any Lender, are charges made to compensate the Agent or any such Lender for underwriting or administrative services and costs or losses performed or incurred, and to be performed or incurred, by the Agent and the Lenders in connection with this Agreement and shall under no circumstances be deemed to be charges for the use of money. It is the express intent of the parties hereto that the Borrower not pay and neither the Agent nor the Lenders receive, directly or indirectly, in any manner whatsoever, interest in excess of that which may be lawfully paid by the Borrower under Applicable Law. SECTION 3.9. STATEMENTS OF ACCOUNT. The Agent will account to the Borrower monthly with a statement of accrued interest and Fees, charges and payments made pursuant to this Agreement and the other Loan Documents, and such account rendered by the Agent shall be deemed conclusive upon Borrower absent manifest error. The failure of the Agent to deliver such a statement of accounts shall not relieve or discharge the Borrower from any of its obligations hereunder. SECTION 3.10. DEFAULTING LENDERS. (a) GENERALLY. If for any reason any Lender (a "Defaulting Lender") shall fail or refuse to perform any of its obligations under this Agreement or any other Loan Document to which it is a party within the time period specified for performance of such obligation or, if no time period is specified, if such failure or refusal continues for a period of two Business Days after notice from the Agent, then, in addition to the rights and remedies that may be available to the Agent or the Borrower under this Agreement or Applicable Law, such Defaulting Lender's right to participate in the administration of this Agreement and the other Loan Documents, including without limitation, any right to vote in respect of, to consent to or to direct any action or inaction of the Agent or to be taken into account in the calculation of the Requisite Lenders, shall be suspended during the pendency of such failure or refusal. If a Lender is a Defaulting Lender because it has failed to make timely payment to the Agent of any amount required to be paid to the Agent hereunder (without giving effect to any notice or cure periods), in addition to other rights and remedies which the Agent may have under the immediately preceding provisions or otherwise, the Agent shall be entitled (i) to collect interest from such Defaulting Lender on such delinquent payment for the period from the date on which the payment was due until the date on which the payment is made at the Federal Funds Rate, and (ii) to withhold or setoff and to apply in satisfaction of the defaulted payment and any related interest, any amounts otherwise payable to such Defaulting Lender under this Agreement or any other Loan Document. Any amounts received by the Agent in respect of a Defaulting Lender's Obligations shall not be paid to such Defaulting Lender and shall be held uninvested by the Agent and either applied against the purchase price of the Defaulting Lender's Commitment under the following subsection (b) or paid to such Defaulting Lender upon the Defaulting Lender's curing of its default. (b) PURCHASE OF DEFAULTING LENDER'S COMMITMENT. Any Lender who is not a Defaulting Lender shall have the right, but not the obligation, in its sole discretion, to acquire all of a Defaulting Lender's Commitment. Any Lender desiring to exercise such right shall give written notice thereof to the Agent no sooner than 2 Business Days and not later than 10 Business Days after such Defaulting Lender became a Defaulting Lender. If more than one Lender exercises such right, each such Lender shall have the right to acquire an amount of such Defaulting Lender's Commitment in proportion to the Commitments of the other Lenders exercising such right. Upon any such purchase, the Defaulting Lender's interest in the Letter of Credit Liabilities held by such Defaulting Lender and its rights hereunder (but not its liability in respect thereof or under the Loan Documents or this Agreement to the extent the same relate to the period prior to the effective date of the purchase) shall terminate on the date of purchase, and the Defaulting Lender shall promptly execute all documents reasonably requested to surrender and transfer such interest to the purchaser thereof, including an appropriate Assignment and Acceptance Agreement and, notwithstanding Section 10.5.(c), shall pay to the Agent an assignment fee in the amount of $6,000. The Defaulting Lender shall be entitled to receive amounts owed to it by the Borrower or the Agent under the Loan Documents which accrued prior to the date of the default by the Defaulting Lender, to the extent the same are received by the Agent from or on behalf of the Borrower. There shall be no recourse against any Lender or the Agent for the payment of such sums except to the extent of the receipt of payments from any other party or in respect of the Obligations. If, prior to a Lender's acquisition of a Defaulting Lender's Commitment pursuant to this subsection, such Defaulting Lender shall cure the event or condition which caused it to become a Defaulting Lender and shall have paid all amounts owing by it hereunder as a result thereof, then such Lender shall no longer have the right to acquire such Defaulting Lender's Commitment. SECTION 3.11. TAXES. (a) TAXES GENERALLY. All payments by the Borrower in respect of any of the Obligations shall be made free and clear of and without deduction for any present or future excise, stamp or other taxes, fees, duties, levies, imposts, charges, deductions, withholdings or other charges of any nature whatsoever imposed by any taxing authority, but excluding (i) franchise taxes, (ii) any taxes (other than withholding taxes) that would not be imposed but for a connection between the Agent or a Lender and the jurisdiction imposing such taxes (other than a connection arising solely by virtue of the activities of the Agent or such Lender pursuant to or in respect of this Agreement or any other Loan Document), (iii) any withholding taxes payable with respect to payments hereunder or under any other Loan Document under Applicable Law in effect on the Agreement Date, (iv) any taxes imposed on or measured by any Lender's assets, net income, receipts or branch profits and (v) any taxes arising after the Agreement Date solely as a result of or attributable to a Lender changing its designated Lending Office after the date such Lender becomes a party hereto (such non-excluded items being collectively called "Taxes"). If any withholding or deduction from any payment to be made by the Borrower hereunder is required in respect of any Taxes pursuant to any Applicable Law, then the Borrower will: (i) pay directly to the relevant Governmental Authority the full amount required to be so withheld or deducted; (ii) promptly forward to the Agent an official receipt or other documentation satisfactory to the Agent evidencing such payment to such Governmental Authority; and (iii) pay to the Agent for its account or the account of the applicable Lender, as the case may be, such additional amount or amounts as is necessary to ensure that the net amount actually received by the Agent or such Lender will equal the full amount that the Agent or such Lender would have received had no such withholding or deduction been required. (b) TAX INDEMNIFICATION. If the Borrower fails to pay any Taxes when due to the appropriate Governmental Authority or fails to remit to the Agent, for its account or the account of the respective Lender, as the case may be, the required receipts or other required documentary evidence, the Borrower shall indemnify the Agent and the Lenders for any incremental Taxes, interest or penalties that may become payable by the Agent or any Lender as a result of any such failure. For purposes of this Section, a distribution hereunder by the Agent or any Lender to or for the account of any Lender shall be deemed a payment by the Borrower. (c) TAX FORMS. Prior to the date that any Lender or participant organized under the laws of a jurisdiction outside the United States of America becomes a party hereto, such Person shall deliver to the Borrower and the Agent such certificates, documents or other evidence, as required by the Internal Revenue Code or Treasury Regulations issued pursuant thereto (including Internal Revenue Service Forms 4224 or 1001, as applicable, or appropriate successor forms), properly completed, currently effective and duly executed by such Lender or participant establishing that payments to it hereunder and under the other Loan Documents are (i) not subject to United States Federal backup withholding tax or (ii) not subject to United States Federal withholding tax under the Code because such payment is either effectively connected with the conduct by such Lender or participant of a trade or business in the United States or totally exempt from United States Federal withholding tax by reason of the application of the provisions of a treaty to which the United States is a party or such Lender is otherwise exempt. ARTICLE IV. YIELD PROTECTION, ETC. Section 4.1. Additional Costs; Capital Adequacy. (a) ADDITIONAL COSTS. The Borrower shall promptly pay to the Agent, or the Agent for the account of a Lender, from time to time such amounts as the Agent or such Lender may determine to be necessary to compensate such Lender for any costs incurred by such Lender that it determines are attributable to any reduction in any amount receivable by the Agent or such Lender under this Agreement or any of the other Loan Documents in respect of the maintenance by the Agent or such Lender of capital in respect of its Commitment (such increases in costs and reductions in amounts receivable being herein called "Additional Costs"), resulting from any Regulatory Change that: (i) changes the basis of taxation of any amounts payable to the Agent or such Lender under this Agreement or any of the other Loan Documents in respect of its Commitment (other than taxes imposed on or measured by the overall net income of the Agent or such Lender or of its Lending Office by the jurisdiction in which such Lender has its principal office or such Lending Office); or (ii) imposes or modifies any reserve, special deposit or similar requirements relating to any extensions of credit or other assets of, or any deposits with or other liabilities of, such Lender, or any commitment of such Lender (including, without limitation, the Commitment of the Agent or such Lender hereunder); or (iii) has or would have the effect of reducing the rate of return on capital of the Agent or such Lender to a level below that which the Agent or such Lender could have achieved but for such Regulatory Change (taking into consideration such Agent's or Lender's policies with respect to capital adequacy). (b) ADDITIONAL COSTS IN RESPECT OF LETTERS OF CREDIT. Without limiting the obligations of the Borrower under the preceding subsection of this Section (but without duplication), if as a result of any Regulatory Change or any risk-based capital guideline or other requirement heretofore or hereafter issued by any Governmental Authority there shall be imposed, modified or deemed applicable any tax, reserve, special deposit, capital adequacy or similar requirement against or with respect to or measured by reference to Letters of Credit and the result shall be to increase the cost to the Agent of issuing (or any Lender purchasing participations in) or maintaining its obligation hereunder to issue (or a Lender to purchase participations in) any Letter of Credit or reduce any amount receivable by the Agent or any Lender hereunder in respect of any Letter of Credit, then, upon demand by the Agent or such Lender, the Borrower shall pay immediately to the Agent for its account or the account of such Lender, as applicable, from time to time as specified by the Agent or a Lender, such additional amounts as shall be sufficient to compensate the Agent or such Lender for such increased costs or reductions in amount. (c) NOTIFICATION AND DETERMINATION OF ADDITIONAL COSTS. Each of the Agent and each Lender agrees to notify the Borrower of any event occurring after the Agreement Date entitling the Agent or such Lender to compensation under any of the preceding subsections of this Section as promptly as practicable; provided, however, the failure of the Agent or any Lender to give such notice shall not release the Borrower from any of its obligations hereunder. The Agent and or such Lender agrees to furnish to the Borrower a certificate setting forth the basis and amount of each request by the Agent or such Lender for compensation under this Section. Determinations by the Agent or any Lender of the effect of any Regulatory Change shall be conclusive, provided that such determinations are made on a reasonable basis and in good faith. SECTION 4.2. CHANGE OF LENDING OFFICE. Each Lender agrees that it will use reasonable efforts to designate an alternate Lending Office with respect to any of its Obligations affected by the matters or circumstances described in Sections 3.11. or 4.1. to reduce the liability of the Borrower or avoid the results provided thereunder, so long as such designation is not disadvantageous to such Lender as determined by such Lender in its sole discretion, except that such Lender shall have no obligation to designate a Lending Office located in the United States of America. ARTICLE V. CONDITIONS PRECEDENT Section 5.1. Conditions Precedent. The obligation of the Agent and the Lenders to effect or permit the issuance of the Letters of Credit hereunder, and of the Agent to cause a Confirming Bank to issue a Confirming Bank Letter of Credit, is subject to the following conditions precedent: (a) The Agent shall have received each of the following, in form and substance satisfactory to the Agent: (i) Counterparts of this Agreement executed by each of the parties hereto; (ii) The Pledge Agreement executed by the Borrower and each of the other parties thereto; (iii) An opinion of Hull, Towill, Norman & Barrett, P.C. counsel to the Borrower and the Subsidiaries, addressed to the Agent and the Lenders, in substantially the form of Exhibit E; (iv) an opinion of Schell Bray Aycock Abel & Livingston P.L.L.C., special North Carolina counsel to the Borrower and the Subsidiaries, addressed to the Agent and the Borrower, regarding the enforceability under North Carolina law of the Loan Documents (other than the Mortgages) to which the Borrower or any Subsidiary is a party; (v) an opinion of Greenberg Traurig Hauffman Lipoff Rosen & Quentel P.A., special Florida counsel to the Borrower and the Subsidiaries, addressed to the Agent and the Borrower, regarding the enforceability under Florida law of the Mortgages, taxes due in connection therewith and such other matters as the Agent may request; (vi) an opinion of bond counsel with respect to each issue of Bonds, either addressed to the Agent and the Lenders or expressly permitting them to rely on such opinion; (vii) an opinion of counsel to each Issuer of each issue of Bonds, either addressed to the Agent and the Lenders or expressly permitting them to rely on such opinion, regarding such matters as the Agent may request; (viii) a copy of the opinion of counsel to the Target Partnerships delivered under the Acquisition Agreement, accompanied by a letter from such counsel permitting the Agent and the Lenders to rely on such letter as if it were addressed to them; (ix) copies of each of the following certified as true, correct and complete by the chief financial officer or other duly authorized officer of the Borrower: (A) the Acquisition Agreement; (B) each Indenture (including all prior amendments or other supplements thereto, as well as any such amendments or supplements being executed and delivered in connection with the delivery of the Letters of Credit); (C) each Placement Memorandum relating to any of the Bonds (including any supplement or "wrap" prepared in connection with the transactions relating to the delivery of the Letters of Credit); (D) each Remarketing Agreement, if any, which will be in effect immediately following the consummation of the transactions relating to the delivery of the Letters of Credit; and (E) such other Bond Documents as the Agent may request; (x) The Articles of Incorporation of the Borrower certified as of a recent date by the Secretary of State of the State of Georgia; (xi) A good standing certificate with respect to the Borrower issued as of a recent date by the Secretary of State of the State of Georgia and certificates of qualification to transact business or other comparable certificates issued by the Secretary of State (and any state department of taxation, as applicable) of each state in which the Borrower is required to be so qualified; (xii) A certificate of incumbency signed by the Secretary or Assistant Secretary of the Borrower with respect to each of the officers of the Borrower authorized to execute and deliver the Loan Documents to which the Borrower is a party; (xiii) Copies (certified by the Secretary or Assistant Secretary of the Borrower) of the bylaws of the Borrower and of all corporate action taken by the Borrower to authorize the execution, delivery and performance of the Loan Documents to which it is a party; (xiv) A Guaranty executed by each Subsidiary; (xv) If not previously delivered to the Agent pursuant to the Credit Agreement, the articles of incorporation, articles of organization, certificate of limited partnership or other comparable organizational instrument (if any) of each Subsidiary certified as of a recent date by the Secretary of State of the State of formation of such Subsidiary; (xvi) If not previously delivered to the Agent pursuant to the Credit Agreement, a certificate of good standing or certificate of similar meaning with respect to each Subsidiary issued as of a recent date by the Secretary of State of the State of formation of each such Subsidiary and certificates of qualification to transact business or other comparable certificates issued by each Secretary of State (and any state department of taxation, as applicable) of each state in which such Subsidiary is required to be so qualified; (xvii) If not previously delivered to the Agent pursuant to the Credit Agreement, a certificate of incumbency signed by the Secretary or Assistant Secretary (or other individual performing similar functions) of each Subsidiary with respect to each of the officers of such Subsidiary authorized to execute and deliver the Loan Documents to which such Subsidiary is a party; (xviii) If not previously delivered to the Agent pursuant to the Credit Agreement, copies certified by the Secretary or Assistant Secretary of each Subsidiary (or other individual performing similar functions) of (i) the by-laws of such Subsidiary, if a corporation, the operating agreement, if a limited liability company, the partnership agreement, if a limited or general partnership, or other comparable document in the case of any other form of legal entity and (ii) all corporate, partnership, member or other necessary action taken by such Subsidiary to authorize the execution, delivery and performance of the Loan Documents to which it is a party; (xix) Evidence that all insurance required to be maintained by the Borrower and the Subsidiaries under the terms of the Loan Documents and the Bond Documents is in effect; (xx) The Fees, if any, then due under Section 3.5.; (xxi) Mortgages executed by the applicable Target Partnership encumbering the real estate associated with each series of Bonds; (xxii) Surveys of each parcel of real property subject to a Mortgage; (xxiii) ALTA mortgagee's Policies of Title Insurance (or binders to issue such a policy marked in a manner acceptable to the Agent) in favor of the Agent for each parcel of real property subject to a Mortgage in an amount at least equal to the initial stated amount of the Letter of Credit issued in support of the Bonds associated with such real estate, issued by a title insurance company acceptable to the Agent, showing the fee simple title to the land and improvements described in the applicable Mortgage as vested in the applicable Target Partnership, and insuring that the lien granted by the applicable Mortgage is a valid lien against said real property, subject only to such restrictions, encumbrances, easements and reservations as are acceptable to the Agent; (xxiv) Favorable Phase I environmental audit reports regarding each parcel of real property subject to a Mortgage prepared by a nationally recognized firm of environmental engineers and either addressed to the Agent and the Lenders or on which the Agent and the Lenders are expressly permitted to rely; (xxv) Affidavits of Title with respect to the "Property" under and as defined each Mortgage; (xxvi) UCC-1 Financing Statements executed by each of the Target Partnership to be filed as fixture filings in the county in which the related Mortgage was filed; (xxvii) UCC-1 Financing Statements executed by each of the Target Partnership to be filed with the Secretary of State of the State of Florida covering the personal property subject to the related Mortgage; (xxviii) Payment of all title insurance premiums and filing fees payable in connection with the above Mortgages and financing statements; (xxix) Such other documents, agreements and instruments as the Agent on behalf of the Lenders may reasonably request; and (b) In the good faith judgment of the Agent and the Lenders: (i) There shall not have occurred or become known to the Agent or the Lenders any event, condition, situation or status since the date of the information contained in the financial and business projections, budgets, pro forma data and forecasts concerning the Borrower and its Subsidiaries delivered to the Agent and the Lenders prior to the Agreement Date that has had or could reasonably be expected to result in a Material Adverse Effect; (ii) No litigation, action, suit, investigation or other arbitral, administrative or judicial proceeding shall be pending or threatened which could reasonably be expected to (1) result in a Material Adverse Effect or (2) restrain or enjoin, impose materially burdensome conditions on, or otherwise materially and adversely affect the ability of the Borrower to fulfill its obligations under the Loan Documents; (iii) The Borrower and its Subsidiaries shall have received all approvals, consents and waivers, and shall have made or given all necessary filings and notices as shall be required to consummate the transactions contemplated hereby without the occurrence of any default under, conflict with or violation of (1) any Applicable Law or (2) any agreement, document or instrument to which the Borrower or any Subsidiary is a party or by which any of them or their respective properties is bound, except for such approvals, consents, waivers, filings and notices the failure to obtain or receive could not reasonably be likely to (A) have a Material Adverse Effect, or (B) restrain or enjoin, impose materially burdensome conditions on, or otherwise materially and adversely affect the ability of the Borrower to fulfill its obligations under the Loan Documents; and (iv) There shall not have occurred or exist any other material disruption of financial or capital markets that could reasonably be expected to materially and adversely affect the transactions contemplated by the Loan Documents; and (c) no Default or Event of Default shall have occurred and be continuing as of the date of the issuance of the Letters of Credit or would exist immediately after giving effect thereto; and (d) the representations and warranties made or deemed made by the Borrower and its Subsidiaries in the Loan Documents to which any of them is a party, shall be true and correct on and as of the date of the issuance of the Letters of Credit with the same force and effect as if made on and as of such date except to the extent that such representations and warranties expressly relate solely to an earlier date (in which case such representations and warranties shall have been true and accurate on and as of such earlier date). SECTION 5.2. CONDITIONS AS COVENANTS. If the Agent issues the Letters of Credit prior to the satisfaction of all conditions precedent set forth in Sections 5.1., the Borrower shall nevertheless cause such condition or conditions to be satisfied within 5 Business Days after the date of the issuance of such Letters of Credit. ARTICLE VI. REPRESENTATIONS AND WARRANTIES Section 6.1. Representations and Warranties. In order to induce the Agent and each Lender to enter into this Agreement and to issue and permit the issuance of the Letters of Credit, the Borrower represents and warrants to the Agent and each Lender as follows: (a) CREDIT AGREEMENT REPRESENTATIONS. The Credit Agreement Representations are each true and correct on and as of the Effective Date and are hereby incorporated herein by reference (together with the related definitions) and made to the Agent and the Lenders on and as of the Effective Date as if set forth herein in full. (b) AUTHORIZATION OF LOAN DOCUMENTS AND ACQUISITION DOCUMENTS. The Borrower, any Target Partnership and the other Subsidiaries each has the right and power, and has taken all necessary action to authorize it to execute, deliver and perform each of the Loan Documents and Acquisition Documents to which it is a party in accordance with their respective terms and to consummate the transactions contemplated hereby and thereby. The Loan Documents and Acquisition Documents to which the Borrower, any Target Partnership or any other Subsidiary is a party have been duly executed and delivered by the duly authorized officers of the Borrower, such Target Partnership or such other Subsidiary, as applicable, and each is a legal, valid and binding obligation of the Borrower, such Target Partnership or such other Subsidiary, as applicable, enforceable against it in accordance with its respective terms. (c) COMPLIANCE OF LOAN DOCUMENTS AND ACQUISITION DOCUMENTS WITH LAWS, ETC. The execution, delivery and performance of the other Loan Documents and Acquisition Documents to which the Borrower, any Target Partnership or any other Subsidiary is a party in accordance with their respective terms do not and will not, by the passage of time, the giving of notice, or otherwise: (i) require any Governmental Approval or violate any Applicable Law relating to the Borrower, any Target Partnership or any other Subsidiary; (ii) conflict with, result in a breach of or constitute a default under the articles of incorporation or the bylaws of the Borrower or the organizational documents of any Target Partnership or any other Subsidiary, or any indenture, agreement or other instrument to which the Borrower or any Target Partnership or any other Subsidiary is a party or by which it or any of its respective properties may be bound; or (iii) result in or require the creation or imposition of any Lien upon or with respect to any property now owned or hereafter acquired by the Borrower, any Target Partnership or any other Subsidiary other than Liens in favor of the Agent under the Collateral Documents. (d) LITIGATION. There is no action, suit or proceeding pending against, or to the knowledge of the Borrower, threatened against or affecting the Borrower, any Target Partnership or any other Subsidiary before any court or arbitrator or any Governmental Authority in which there is a reasonable possibility of an adverse decision which could materially adversely affect the ability of the Borrower to perform its obligations under any of the Loan Documents or Acquisition Documents to which it, any Target Partnership or any other Subsidiary is, or is to be, a party, or which in any manner draws into question the validity of, or the consummation of any of the transactions contemplated by, any of the Loan Documents, Bond Documents or Acquisition Documents. (e) PLACEMENT MEMORANDA. The information contained in each Placement Memorandum, and any supplement or amendment thereto relating to the Borrower, any Target Partnership following its acquisition by Affiliates of the Borrower, any of the "projects" associated with any of the Bonds, any Loan Document or any Bond Document as in effect on the Effective Date, (a) shall as of the Effective Date be, accurate in all material respects for the purposes for which its use is, or shall be, authorized and (b) does not contain any untrue statement of a material fact or omit to state any material fact necessary to make the statements made therein, in the light of the circumstances under which they are or were made, not misleading. (f) REPRESENTATIONS AND WARRANTIES IN RELATED DOCUMENTS. Each representation and warranty made or deemed made by the Borrower, any Target Partnership or any other Subsidiary in the Acquisition Documents to which it is a party are hereby made to and for the benefit of the Agent and the Lenders as if the same were set forth herein in full. (g) ACCURACY AND COMPLETENESS OF INFORMATION. All written information, reports and other papers and data furnished to the Agent or any Lender by, on behalf of, or at the direction of, the Borrower, any Target Partnership or any other Subsidiary were, at the time the same were so furnished, complete and correct in all material respects, to the extent necessary to give the recipient a true and accurate knowledge of the subject matter, or, in the case of financial statements, present fairly, in accordance with GAAP consistently applied throughout the periods involved, the financial position of the Persons involved as at the date thereof and the results of operations for such periods. No fact is known to the Borrower, any Target Partnership or any other Subsidiary which has had, or may in the future have (so far as the Borrower, any Target Partnership or any other Subsidiary can reasonably foresee), a Material Adverse Effect which has not been set forth in such information, reports or other papers or data or otherwise disclosed in writing to the Agent and the Lenders prior to the Effective Date. No document furnished or written statement made to the Agent or any Lender in connection with the negotiation, preparation of execution of this Agreement or any of the other Loan Documents contains or will contain any untrue statement of a fact material to the creditworthiness of the Borrower, any Target Partnership or any other Subsidiary or omits or will omit to state a material fact necessary in order to make the statements contained therein not misleading. (h) CERTAIN REPRESENTATIONS REGARDING THE BOND DOCUMENTS. (i) AUTHORIZATION. The Borrower, any Target Partnership and the other Subsidiaries each has the right and power, and has taken all necessary action to authorize it to execute, deliver and perform each of the Bond Documents to which it is a party in accordance with their respective terms and to consummate the transactions contemplated hereby and thereby. The Bond Documents to which the Borrower, any Target Partnership or any other Subsidiary is a party have been duly executed and delivered by the duly authorized officers of the Borrower, such Target Partnership or such other Subsidiary, as applicable, and each is a legal, valid and binding obligation of the Borrower, such Target Partnership or such other Subsidiary, as applicable, enforceable against it in accordance with its respective terms. (ii) COMPLIANCE OF BOND DOCUMENTS WITH LAWS, ETC. The execution, delivery and performance of the Bond Documents to which the Borrower, any Target Partnership or any other Subsidiary is a party in accordance with their respective terms do not and will not, by the passage of time, the giving of notice, or otherwise: (x) require any Governmental Approval or violate any Applicable Law relating to the Borrower, any Target Partnership or any other Subsidiary; (y) conflict with, result in a breach of or constitute a default under the articles of incorporation or the bylaws of the Borrower or the organizational documents of any Target Partnership or any other Subsidiary, or any indenture, agreement or other instrument to which the Borrower or any Target Partnership or any other Subsidiary is a party or by which it or any of its respective properties may be bound; or (z) result in or require the creation or imposition of any Lien upon or with respect to any property now owned or hereafter acquired by the Borrower, any Target Partnership or any other Subsidiary other than Liens in favor of the Agent under the Collateral Documents. (iii) LITIGATION. There is no action, suit or proceeding pending against, or to the knowledge of the Borrower, threatened against or affecting the Borrower, any Target Partnership or any other Subsidiary before any court or arbitrator or any Governmental Authority in which there is a reasonable possibility of an adverse decision which could materially adversely affect the ability of the Borrower to perform its obligations under any of Bond Documents to which it, any Target Partnership or any other Subsidiary is, or is to be, a party, or which in any manner draws into question the validity of, or the consummation of any of the transactions contemplated by, any of Bond Documents. (iv) REPRESENTATIONS AND WARRANTIES IN BOND DOCUMENTS. Each representation and warranty made or deemed made by the Borrower, any Target Partnership or any other Subsidiary in any Bond Document to which it is a party are hereby made to and for the benefit of the Agent and the Lenders as if the same were set forth herein in full. (v) LIMITATION REGARDING TARGET PARTNERSHIP. Any representation or warranty in this subsection (h), as to actions of any Target Partnership prior to its acquisition by Affiliates of the Borrower are made only as to the best of the Borrower's knowledge after due inquiry. SECTION 6.2. SURVIVAL OF REPRESENTATIONS AND WARRANTIES, ETC. All statements contained in any certificate, financial statement or other instrument delivered by or on behalf of the Borrower, any Target Partnership or any other Subsidiary to the Agent or any Lender pursuant to or in connection with this Agreement or any of the other Loan Documents (including, but not limited to, any such statement made in or in connection with any amendment thereto or any statement contained in any certificate, financial statement or other instrument delivered by or on behalf of the Borrower prior to the Agreement Date and delivered to the Agent or any Lender in connection with closing the transactions contemplated hereby) shall constitute representations and warranties made by the Borrower under this Agreement. All representations and warranties made under this Agreement and the other Loan Documents shall be deemed to be made at and as of the Agreement Date and the Effective Date, except to the extent that such representations and warranties expressly relate solely to an earlier date (in which case such representations and warranties shall have been true and accurate on and as of such earlier date) and except for changes in factual circumstances specifically permitted hereunder. All such representations and warranties shall survive the effectiveness of this Agreement, the execution and delivery of the Loan Documents and the issuance of the Letters of Credit. ARTICLE VII. COVENANTS For so long as this Agreement is in effect, unless the Requisite Lenders (or, if required pursuant to Section 10.7., all of the Lenders) shall otherwise consent in the manner provided for in Section 10.7., the Borrower shall comply with the following: SECTION 7.1. INCORPORATION OF CERTAIN COVENANTS OF CREDIT AGREEMENT. Except as may be otherwise provided in this Agreement, the Borrower will perform, comply with and be bound by, for the benefit of the Agent and the Lenders, each of its agreements, covenants and obligations contained in Sections 7.1. through 7.7., Sections 7.9. through 7.12., Section 7.15, Article VIII and Sections 9.1. through 9.13. of the Credit Agreement, each of which (together with the related definitions and ancillary provisions) is hereby incorporated herein by reference. SECTION 7.2. ADDITIONAL SUBSIDIARIES. Within 5 Business Days of any Person becoming a Subsidiary after the Agreement Date, the Borrower shall deliver to the Agent each of the following in form and substance satisfactory to the Agent: (a) an Accession Agreement executed by such Subsidiary and (b) the items that would have been delivered under subsections (iii) through (v), (xv) through (xix), and (xxix), and if such Subsidiary is a Target Partnership, subsections (xxi) through (xxvii), of Section 5.1.(a) if such Subsidiary had been one on the Agreement Date. SECTION 7.3. INFORMATION. The Borrower shall furnish to the Agent (or to each Lender if so provided below): (a) promptly upon the giving or receipt thereof, a copy of any notice given or received by any Target Partnership, the Borrower or any other Subsidiary under any of the Bond Documents; (b) prompt notice to the Agent and each Lender of the occurrence of any Default or Event of Default; and (c) from time to time and promptly upon each request, such data, certificates, reports, statements, opinions of counsel, documents or further information regarding the business, assets, liabilities, financial condition, results of operations or business prospects of the Borrower or any of its Subsidiaries as the Agent or any Lender may reasonably request. SECTION 7.4. REMARKETING AGENT, PLACEMENT AGENT AND TRUSTEE. To the extent required or permitted to do so under any Bond Document, the Borrower shall not approve of any change in, or consent to the replacement of, any Remarketing Agent (if applicable) or Trustee with respect to any given issue of Bonds without the prior written consent of the Agent. SECTION 7.5. REGISTRATION OF BONDS. The Borrower will cause all Bonds which it, any Target Partnership or other Subsidiary acquires, or which any of such Persons has had acquired for its account, to be registered forthwith in accordance with the applicable terms of the relevant Indenture in the name of the Borrower and pledged to the Agent under the Pledge Agreement. SECTION 7.6. PERFORMANCE OF BOND DOCUMENTS. The Borrower will, and will cause each Target Partnership and each other Subsidiary to, pay and perform, at the time and in the manner required thereunder, all of its respective obligations under any of the Bond Documents to which it or any such Target Partnership or Subsidiary is a party. SECTION 7.7. MODIFICATIONS TO BOND DOCUMENTS; REDEMPTIONS, ETC.. The Borrower shall not, and shall not permit any Target Partnership or other Subsidiary to, enter into, or consent to, any amendment or modification to any Bond Documents to which it or any such Target Partnership or Subsidiary is a party without the prior written consent of the Agent if the effect of such amendment or modification would be to change in any way the rights, benefits, duties, obligations or remedies of or available to the Agent or any Lender under or in respect of any Loan Document, any Letter of Credit or any Bond Document. The Borrower agrees to deliver to the Agent notice of all proposed amendments or other modifications of any of the Bond Documents. Not in limitation of the foregoing, the Borrower shall not, and shall not permit any Target Partnership or other Subsidiary to, do any of the following without the Agent's prior written consent: (a) take any action which could result in a mandatory redemption, optional redemption or mandatory repurchase of any of the Bonds or (b) take any action which would change the manner in which interest is determined on any of the Bonds. SECTION 7.8. FURTHER ASSURANCES. The Borrower shall, and shall cause each Target Partnership and each other Subsidiary to, at the Borrower's cost and expense, upon the request of the Agent, duly execute and deliver or cause to be duly executed and delivered, to the Agent and the Lenders such further instruments, documents and certificates, and do and cause to be done such further acts that may be necessary or advisable in the opinion of the Agent to carry out more effectively the provisions and purposes of this Agreement and the other Loan Documents. ARTICLE VIII. DEFAULT Section 8.1. Events of Default. Each of the following shall constitute an Event of Default, whatever the reason for such event and whether it shall be voluntary or involuntary or be effected by operation of Applicable Law or pursuant to any judgment or order of any Governmental Authority: (a) DEFAULT IN PAYMENT OF REIMBURSEMENT OBLIGATIONS. The Borrower shall fail to pay when due (whether upon demand, at maturity, by reason of acceleration or otherwise) any Reimbursement Obligation. (b) DEFAULT IN PAYMENT OF OTHER AMOUNTS. The Borrower shall fail to pay when due any of the other payment Obligations owing by the Borrower under this Agreement or any other Loan Document and such failure shall continue for a period of 3 Business Days after the earlier of (i) the date upon which the Borrower or any Subsidiary obtains knowledge of such failure or (ii) the date upon which the Borrower has received written notice of such failure from the Agent. (c) DEFAULT IN PERFORMANCE. (i) The Borrower or any Subsidiary shall fail to perform or observe any term, covenant, condition or agreement on its part to be performed or observed contained in Section 7.3.(b) or (ii) the Borrower or any Subsidiary shall fail to perform or observe any term, covenant, condition or agreement contained in this Agreement or any other Loan Document to which it is a party and not otherwise mentioned in this Section and in the case of this clause (ii) such failure shall continue for a period of 30 days after the earlier of (x) the date upon which the Borrower obtains knowledge of such failure or (y) the date upon which the Borrower has received written notice of such failure from the Agent. (d) MISREPRESENTATIONS. Any written statement, representation or warranty made or deemed made by or on behalf of the Borrower or any Subsidiary under this Agreement or under any other Loan Document, or any amendment hereto or thereto, or in any other writing or statement at any time furnished or made or deemed made by or on behalf of the Borrower or any Subsidiary to the Agent or any Lender, shall at any time prove to have been incorrect or misleading in any material respect when furnished or made. (e) CREDIT AGREEMENT DEFAULT. A Credit Agreement Default shall occur. (f) VOLUNTARY BANKRUPTCY PROCEEDING. The Borrower, any Material Subsidiary or any Other Relevant Subsidiary shall: (i) commence a voluntary case under the Bankruptcy Code of 1978, as amended or other federal bankruptcy laws (as now or hereafter in effect); (ii) file a petition seeking to take advantage of any other Applicable Laws, domestic or foreign, relating to bankruptcy, insolvency, reorganization, winding-up, or composition or adjustment of debts; (iii) consent to, or fail to contest in a timely and appropriate manner, any petition filed against it in an involuntary case under such bankruptcy laws or other Applicable Laws or consent to any proceeding or action described in the immediately following subsection; (iv) apply for or consent to, or fail to contest in a timely and appropriate manner, the appointment of, or the taking of possession by, a receiver, custodian, trustee, or liquidator of itself or of a substantial part of its property, domestic or foreign; (v) admit in writing its inability to pay its debts as they become due; (vi) make a general assignment for the benefit of creditors; (vii) make a conveyance fraudulent as to creditors under any Applicable Law; or (viii) take any corporate or similar action for the purpose of effecting any of the foregoing. (g) INVOLUNTARY BANKRUPTCY PROCEEDING. A case or other proceeding shall be commenced against the Borrower, any Material Subsidiary or any Other Relevant Subsidiary, in any court of competent jurisdiction seeking: (i) relief under the Bankruptcy Code of 1978, as amended or other federal bankruptcy laws (as now or hereafter in effect) or under any other Applicable Laws, domestic or foreign, relating to bankruptcy, insolvency, reorganization, winding-up, or composition or adjustment of debts; or (ii) the appointment of a trustee, receiver, custodian, liquidator or the like of such Person, or of all or any substantial part of the assets, domestic or foreign, of such Person. (h) CONTEST OF LOAN DOCUMENTS. The Borrower or any Subsidiary shall disavow, revoke or terminate any Loan Document to which it is a party or shall otherwise challenge or contest in any action, suit or proceeding in any court or before any Governmental Authority the validity or enforceability of this Agreement or any other Loan Document. (i) FAILURE OF SECURITY. The Agent shall, for any reason, cease to have a valid, enforceable and perfected security interest or other lien in any of the Collateral; PROVIDED, HOWEVER, the provisions of this subsection regarding the perfection of any security interest or lien purportedly granted by a Mortgage shall only apply after the filing thereof. (j) LOAN DOCUMENTS. An Event of Default (as defined therein) shall occur under any of the other Loan Documents. SECTION 8.2. REMEDIES UPON EVENT OF DEFAULT. Upon the occurrence of an Event of Default the following provisions shall apply: (a) ACCELERATION. (i) AUTOMATIC. Upon the occurrence of an Event of Default specified in Sections 8.1.(f) or 8.1.(g), (A) an amount equal to the Stated Amount of all Letters of Credit then outstanding and (B) all of the other Obligations of the Borrower, including, but not limited to, the other amounts owed to the Lenders, and the Agent under this Agreement or any of the other Loan Documents shall become immediately and automatically due and payable by the Borrower without presentment, demand, protest, or other notice of any kind, all of which are expressly waived by the Borrower. (ii) OPTIONAL. If any other Event of Default shall have occurred and be continuing, the Agent may, and at the direction of the Requisite Lenders shall: declare (A) an amount equal to the Stated Amount of all Letters of Credit then outstanding and (B) all of the other Obligations, including, but not limited to, the other amounts owed to the Lenders and the Agent under this Agreement or any of the other Loan Documents to be forthwith due and payable, whereupon the same shall immediately become due and payable without presentment, demand, protest or other notice of any kind, all of which are expressly waived by the Borrower. (b) LOAN DOCUMENTS. The Requisite Lenders may direct the Agent to, and the Agent if so directed shall, exercise any and all of its rights under any and all of the other Loan Documents. (c) BOND DOCUMENTS. The Requisite Lenders may direct the Agent to, and the Agent if so directed shall, exercise any and all of its rights under any and all of the Bond Documents, including without limitation, any right to cause a Trustee to declare the principal of the respective Bonds, and all accrued and unpaid interest thereon, immediately due and payable to the extent permitted under the applicable Indenture or other Bond Documents. (d) APPLICABLE LAW. The Requisite Lenders may direct the Agent to, and the Agent if so directed shall, exercise all other rights and remedies it may have under any Applicable Law. (e) APPOINTMENT OF RECEIVER. To the extent permitted by Applicable Law, the Agent and the Lenders shall be entitled to the appointment of a receiver for the assets and properties of the Borrower and its Subsidiaries, without notice of any kind whatsoever and without regard to the adequacy of any security for the Obligations or the solvency of any party bound for its payment, to take possession of all or any portion of the business operations of the Borrower and its Subsidiaries and to exercise such power as the court shall confer upon such receiver. SECTION 8.3. ALLOCATION OF PROCEEDS. If an Event of Default shall have occurred and be continuing and the maturity of the Obligations has been accelerated, all payments received by the Agent under any of the Loan Documents, in respect of any principal of or interest on the Obligations or any other amounts payable by the Borrower hereunder or thereunder, shall be applied by the Agent in the following order and priority: (a) amounts due to the Agent and the Lenders in respect of Fees and expenses due under Section 10.2.; (b) payment of accrued and unpaid interest on all Obligations, to be applied for the ratable benefit of the parties to whom such interest is owed; (c) payment to the Agent of all unpaid Reimbursement Obligations, to be applied in accordance with Section 2.1.(b); (d) payment of all other Obligations then due and payable, to be applied for the ratable benefit of the parties to whom such Obligations are owed; (e) amounts due to the Agent and the Lenders pursuant to Sections 9.7. and 10.11.; (f) deposited into the Collateral Account; (g) payments of all other amounts due under any of the Loan Documents, if any, to be applied for the ratable benefit of the Lenders; and (h) any amount remaining after application as provided above, shall be paid to the Borrower or whomever else may be legally entitled thereto. SECTION 8.4. COLLATERAL ACCOUNT. (a) As collateral security for the prompt payment in full when due of all Letter of Credit Liabilities, the Borrower hereby pledges and grants to the Agent, for the benefit of the Agent and the Lenders as provided herein, a security interest in all of its right, title and interest in and to the Collateral Account and the balances from time to time in the Collateral Account (including the investments and reinvestments therein provided for below). The balances from time to time in the Collateral Account shall not constitute payment of any Letter of Credit Liabilities until applied by the Agent as provided herein. Anything in this Agreement to the contrary notwithstanding, funds held in the Collateral Account shall be subject to withdrawal only as provided in this Section and in Section 2.4. (b) Amounts on deposit in the Collateral Account shall be invested and reinvested by the Agent in such Cash Equivalents as the Agent shall determine in its sole discretion. All such investments and reinvestments shall be held in the name of and be under the sole dominion and control of the Agent. The Agent shall exercise reasonable care in the custody and preservation of any funds held in the Collateral Account and shall be deemed to have exercised such care if such funds are accorded treatment substantially equivalent to that which the Agent accords other funds deposited with the Agent, it being understood that the Agent shall not have any responsibility for taking any necessary steps to preserve rights against any parties with respect to any funds held in the Collateral Account. (c) If an Event of Default shall have occurred and be continuing, the Agent may (and, if instructed by the Requisite Lenders, shall) in its (or their) discretion at any time and from time to time elect to liquidate any such investments and reinvestments and credit the proceeds thereof to the Collateral Account and apply or cause to be applied such proceeds and any other balances in the Collateral Account to the payment of any of the Letter of Credit Liabilities due and payable. (d) If (i) no Default or Event of Default has occurred and is continuing and (ii) all of the Letter of Credit Liabilities have been paid in full, the Agent shall, from time to time, at the request of the Borrower, deliver to the Borrower, against receipt but without any recourse, warranty or representation whatsoever, such of the balances in the Collateral Account as exceed the aggregate amount of Letter of Credit Liabilities at such time. When all of the Obligations shall have been paid in full and no Letters of Credit remain outstanding, the Agent shall promptly deliver to the Borrower, against receipt but without any recourse, warranty or representation whatsoever, the balances remaining in the Collateral Account. (e) The Borrower shall pay to the Agent from time to time such fees as the Agent normally charges for similar services in connection with the Agent's administration of the Collateral Account and investments and reinvestments of funds therein. SECTION 8.5. PERFORMANCE BY AGENT. If the Borrower shall fail to perform any covenant, duty or agreement contained in any of the Loan Documents, the Agent may perform or attempt to perform such covenant, duty or agreement on behalf of the Borrower after the expiration of any cure or grace periods set forth herein. In such event, the Borrower shall, at the request of the Agent, promptly pay any amount reasonably expended by the Agent in such performance or attempted performance to the Agent, together with interest thereon at the applicable Post-Default Rate from the date of such expenditure until paid. Notwithstanding the foregoing, neither the Agent nor any Lender shall have any liability or responsibility whatsoever for the performance of any obligation of the Borrower under this Agreement or any other Loan Document. SECTION 8.6. RIGHTS CUMULATIVE. The rights and remedies of the Agent and the Lenders under this Agreement and each of the other Loan Documents shall be cumulative and not exclusive of any rights or remedies which any of them may otherwise have under Applicable Law. In exercising their respective rights and remedies the Agent and the Lenders may be selective and no failure or delay by the Agent or any of the Lenders in exercising any right shall operate as a waiver of it, nor shall any single or partial exercise of any power or right preclude its other or further exercise or the exercise of any other power or right. ARTICLE IX. THE AGENT Section 9.1. Authorization and Action. Each Lender hereby appoints and authorizes the Agent to take such action as agent on such Lender's behalf and to exercise such powers under this Agreement and the other Loan Documents as are specifically delegated to the Agent by the terms and thereof, together with such powers as are reasonably incidental thereto. The relationship between the Agent and the Lenders shall be that of principal and agent only and nothing herein shall be construed to deem the Agent a trustee or fiduciary for any Lender nor to impose on the Agent duties or obligations other than those expressly provided for herein. At the request of a Lender, the Agent will forward to each Lender copies or, where appropriate, originals of the documents delivered to the Agent pursuant to this Agreement or the other Loan Documents. The Agent will also furnish to any Lender, upon the request of such Lender, a copy of any certificate or notice furnished to the Agent by the Borrower or any other Affiliate of the Borrower, pursuant to this Agreement or any other Loan Document not already delivered to such Lender pursuant to the terms of this Agreement or any such other Loan Document. The Agent is hereby authorized on behalf of all of the Lenders, without the necessity of any notice to or further consent from any the Lender, from time to time prior to an Event of Default, to take any action with respect to any Collateral or Loan Documents which may be necessary to perfect and maintain perfected the security interest in and liens upon the Collateral granted pursuant to any of the Collateral Documents. As to any matters not expressly provided for by the Loan Documents (including, without limitation, enforcement or collection of any of the Obligations), the Agent shall not be required to exercise any discretion or take any action, but shall be required to act or to refrain from acting (and shall be fully protected in so acting or refraining from acting) upon the instructions of the Requisite Lenders (or all of the Lenders if explicitly required under any oher provision of this Agreement), and such instructions shall be binding upon all Lenders and all holders of any of the Obligations; provided, however, that, notwithstanding anything in this Agreement to the contrary, the Agent shall not be required to take any action which is contrary to this Agreement or any other Loan Document or Applicable Law. Not in limitation of the foregoing, the Agent shall not exercise any right or remedy it or the Lenders may have under any Loan Document upon the occurrence of a Default or an Event of Default unless the Requisite Lenders have so directed the Agent to exercise such right or remedy. SECTION 9.2. AGENT'S RELIANCE, ETC. Notwithstanding any other provision of any Loan Document, including without limitation, the first sentence of Section 2.1.(d), neither the Agent nor any of its directors, officers, agents, employees or counsel shall be liable for any action taken or omitted to be taken by it or them under or in connection with this Agreement, except for its or their own gross negligence or willful misconduct. Without limiting the generality of the foregoing, the Agent: (a) may consult with legal counsel (including its own counsel or counsel for the Borrower), independent public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken in good faith by it in accordance with the advice of such counsel, accountants or experts; (b) makes no warranty or representation to any Lender or any other Person and shall not be responsible to any Lender or any other Person for any statements, warranties or representations made by any Person in or in connection with this Agreement or any other Loan Document; (c) shall not have any duty to ascertain or to inquire as to the performance or observance of any of the terms, covenants or conditions of any of this Agreement or any other Loan Document or the satisfaction of any conditions precedent under this Agreement or any Loan Document on the part of the Borrower or other Persons or inspect the property, books or records of the Borrower or any other Person; (d) shall not be responsible to any Lender for the due execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement or any other Loan Document, any other instrument or document furnished pursuant thereto or any Collateral covered thereby or the perfection or priority of any Lien in favor of the Agent on behalf of the Lenders in any such Collateral; (e) shall incur no liability under or in respect of this Agreement or any other Loan Document by acting upon any notice, consent, certificate or other instrument or writing (which may be by telephone or telecopy) believed by it to be genuine and signed, sent or given by the proper party or parties and (f) shall have no obligation whatsoever to the Lenders or to any other Person to assure that the Collateral exists or is owned by the Borrower or is cared for, protected or insured or that the liens granted to the Agent pursuant to any Collateral Document have been properly or sufficiently or lawfully created, perfected, protected or enforced or are entitled to any particular priority, or to exercise or to continue exercising at all or in any manner or under any duty of care, disclosure or fidelity any of the rights, authorities and powers granted or available to the Agent in this Section or in any of the Loan Documents, it being understood and agreed that in respect of the Collateral, or any act, omission or event related thereto, the Agent may act in any manner it may deem appropriate, in its sole discretion, given the Agent's own interest in the Collateral as one of the Lenders and that the Agent shall have no duty or liability whatsoever to the Lenders, except for its gross negligence or willful misconduct. SECTION 9.3. NOTICE OF DEFAULTS. The Agent shall not be deemed to have knowledge or notice of the occurrence of a Default or Event of Default unless the Agent has received notice from a Lender or the Borrower referring to this Agreement, describing with reasonable specificity such Default or Event of Default and stating that such notice is a "notice of default." If any Lender becomes aware of any Default or Event of Default, it shall promptly send to the Agent such a "notice of default." Further, if the Agent receives such a "notice of default", the Agent shall give prompt notice thereof to the Lenders. SECTION 9.4. FIRST UNION AS LENDER. First Union, as a Lender, shall have the same rights and powers under this Agreement and any other Loan Document as any other Lender and may exercise the same as though it were not the Agent; and the term "Lender" or "Lenders" shall, unless otherwise expressly indicated, include First Union in each case in its individual capacity. First Union and its affiliates may each accept deposits from, maintain deposits or credit balances for, invest in, lend money to, act as trustee under indentures of, serve as financial advisor to, and generally engage in any kind of business with the Borrower, any Subsidiary or any other affiliate thereof as if it were any other bank and without any duty to account therefor to the other Lenders. Further, the Agent and any affiliate may accept fees and other consideration from the Borrower for services in connection with this Agreement and otherwise without having to account for the same to the other Lenders. SECTION 9.5. APPROVALS OF LENDERS. All communications from the Agent to any Lender requesting such Lender's determination, consent, approval or disapproval (a) shall be given in the form of a written notice to such Lender, (b) shall be accompanied by a description of the matter or issue as to which such determination, approval, consent or disapproval is requested, or shall advise such Lender where information, if any, regarding such matter or issue may be inspected, or shall otherwise describe the matter or issue to be resolved, (c) shall include, if reasonably requested by such Lender and to the extent not previously provided to such Lender, written materials and a summary of all oral information provided to the Agent by the Borrower in respect of the matter or issue to be resolved, and (d) shall include the Agent's recommended course of action or determination in respect thereof. Each Lender shall reply promptly, but in any event within ten Business Days (or such lesser period as may be required under the Loan Documents for the Agent to respond). Unless a Lender shall give written notice to the Agent that it objects to the recommendation or determination of the Agent (together with a written explanation of the reasons behind such objection) within the applicable time period for reply, such Lender shall be deemed to have conclusively approved of or consented to such recommendation or determination. SECTION 9.6. LENDER CREDIT DECISION, ETC. Each Lender expressly acknowledges and agrees that neither the Agent nor any of its officers, directors, employees, agents, counsel, attorneys-in-fact or other affiliates has made any representations or warranties as to the financial condition, operations, creditworthiness, solvency or other information concerning the business or affairs of the Borrower, any Subsidiary or other Person to such Lender and that no act by the Agent hereinafter taken, including any review of the affairs of the Borrower, shall be deemed to constitute any such representation or warranty by the Agent to any Lender. Each Lender acknowledges that it has, independently and without reliance upon the Agent, any other Lender or counsel to the Agent, or any of their respective officers, directors, employees and agents, and based on the financial statements of the Borrower, the Subsidiaries or any other Affiliate thereof, and inquiries of such Persons, its independent due diligence of the business and affairs of the Borrower, the Subsidiaries and other Persons, its review of the Loan Documents, the legal opinions required to be delivered to it hereunder, the advice of its own counsel and such other documents and information as it has deemed appropriate, made its own credit and legal analysis and decision to enter into this Agreement and the transaction contemplated hereby. Each Lender also acknowledges that it will, independently and without reliance upon the Agent, any other Lender or counsel to the Agent or any of their respective officers, directors, employees and agents, and based on such review, advice, documents and information as it shall deem appropriate at the time, continue to make its own decisions in taking or not taking action under the Loan Documents. Except for notices, reports and other documents and information expressly required to be furnished to the Lenders by the Agent under this Agreement or any of the other Loan Documents, the Agent shall have no duty or responsibility to provide any Lender with any credit or other infomation concerning the business, operations, property, financial and other condition or creditworthiness of the Borrower, any Subsidiary or any other Affiliate thereof which may come into possession of the Agent or any of its officers, directors, employees, agents, attorneys-in-fact or other affiliates. Each Lender acknowledges that the Agent's legal counsel in connection with the transactions contemplated by this Agreement is only acting as counsel to the Agent and is not acting as counsel to such Lender. SECTION 9.7. INDEMNIFICATION OF AGENT. Each Lender agrees to indemnify the Agent (to the extent not reimbursed by the Borrower and without limiting the obligation of the Borrower to do so) pro rata in accordance with such Lender's respective Commitment Percentage, from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever which may at any time be imposed on, incurred by, or asserted against the Agent (in its capacity as "Agent" but not as a "Lender") in any way relating to or arising out of the Loan Documents, the Bond Documents, any Confirming Bank Letter of Credit or related Confirming Bank Reimbursement Agreement, any transaction contemplated hereby or thereby or any action taken or omitted by the Agent under the Loan Documents (collectively, "Indemnifiable Amounts"); provided, however, that no Lender shall be liable for any portion of such Indemnifiable Amounts to the extent resulting from the Agent's gross negligence or willful misconduct or if the Agent fails to follow the written direction of the Requisite Lenders unless such failure is pursuant to the advice of counsel that following such written direction would likely violate Applicable Law or the terms of the Loan Documents and of which the Lenders have received notice. Without limiting the generality of the foregoing, each Lender agrees to reimburse the Agent promptly upon demand for its ratable share of any out-of-pocket expenses (including reasonable counsel fees of the counsel(s) of the Agent's own choosing) reasonably incurred by the Agent in connection with the preparation, execution, administration, or enforcement of, or legal advice with respect to the rights or responsibilities of the parties under, the Loan Documents, any suit or action brought by the Agent to enforce the terms of the Loan Documents and/or collect any Obligations, and any "lender liability" suit or claim brought against the Agent and/or the Lenders, to the extent that the Agent is not reimbursed forsuch expenses by the Borrower. Such out-of-pocket expenses (including counsel fees) shall be advanced by the Lenders on the request of the Agent notwithstanding any claim or assertion that the Agent is not entitled to indemnification hereunder (other than any claim or assertion that the Agent is not entitled to such out-of-pocket expenses as a result of its gross negligence or willful misconduct or failure to follow the written direction of the Requisite Lenders in the absence of the advice of counsel referred to above) upon receipt of an undertaking by the Agent that the Agent will reimburse the Lenders if it is actually and finally determined by a court of competent jurisdiction that the Agent is not so entitled to indemnification. The agreements in this Section shall survive the payment of all amounts payable hereunder or under the other Loan Documents and the termination of this Agreement. If the Borrower shall reimburse the Agent for any Indemnifiable Amount following payment by any Lender to the Agent in respect of such Indemnifiable Amount pursuant to this Section, the Agent shall share such reimbursement on a ratable basis with each Lender making any such payment. ARTICLE X. MISCELLANEOUS Section 10.1. Notices. Unless otherwise provided herein, communications provided for hereunder shall be in writing and shall be mailed, telecopied or delivered as follows: If to the Borrower: Merry Land & Investment Company, Inc. 624 Ellis Street Augusta, Georgia 30901 Attention: Vice President - Finance Telecopy Number: (706) 722-4838 Telephone Number: (706) 722-6756 If to the Agent: First Union National Bank Atlanta Real Estate Lending Group 999 Peachtree Street, 6th Floor Atlanta, Georgia 30309 Attention: Ms. Susan T. Miller Telecopy Number: (404) 225-4113 Telephone Number: (404) 225-4030 and First Union Capital Markets Group One First Union Center, DC-6 Charlotte, North Carolina 28288-0166 Attention: Mr. Chris Finlay Telecopy Number: (704) 383-6205 Telephone Number: (704) 383-6988 If to a Lender: To such Lender's address or telecopy number, as applicable, set forth on its signature page hereto or in the applicable Assignment and Acceptance Agreement. or, as to each party at such other address as shall be designated by such party in a written notice to the other parties delivered in compliance with this Section. All such notices and other communications shall be effective (i) if mailed, when received; (ii) if telecopied, when transmitted with confirmation of transmission; or (iii) if hand delivered, when delivered. Notwithstanding the immediately preceding sentence, all notices or communications to the Agent or any Lender under Article II. shall be effective only when actually received. Neither the Agent nor any Lender shall incur any liability to the Borrower (nor shall the Agent incur any liability to the Lenders) for acting upon any telephonic notice referred to in this Agreement which the Agent or such Lender, as the case may be, believes in good faith to have been given by a Person authorized to deliver such notice or for otherwise acting in good faith under hereunder. SECTION 10.2. EXPENSES. The Borrower agrees (a) to pay or reimburse the Agent for all of its reasonable out-of-pocket costs and expenses incurred in connection with the preparation, negotiation and execution of, and any amendment, supplement or modification to, any of the Loan Documents (including due diligence expenses and travel expenses relating to closing), any Confirming Bank Letter of Credit or related Confirming Bank Reimbursement Agreement and the consummation of the transactions contemplated thereby, including the reasonable fees and disbursements of counsel to the Agent, (b) to pay or reimburse the Agent and the Lenders for all their costs and expenses incurred in connection with the enforcement or preservation of any rights under the Loan Documents, including the reasonable fees and disbursements of their respective counsel (including the allocated fees and expenses of in-house counsel) and any payments in indemnification or otherwise payable by the Lenders to the Agent pursuant to the Loan Documents, (c) to pay, indemnify and hold the Agent and the Lenders harmless from any and all recording and filing fees and any and all liabilities with respect to, or resulting from any failure to pay or delay in paying, documentary, stamp, excise and other similar taxes, if any, which may be payable or determined to be payable in connection with the execution, delivery and/or recording of any of the Loan Documents, or consummation of any amendment, supplement or modification of, or any waiver or consent under or in respect of, any Loan Document and (d) to the extent not already covered by any of the preceding subsections, to pay or reimburse the Agent and the Lenders for all their costs and expenses incurred in connection with any bankruptcy or other proceeding of the type described in Sections 8.1.(e) or 8.1.(f), including the reasonable fees and disbursements of counsel to the Agent and any Lender, whether such fees and expenses are incurred prior to, during or after the commencement of such proceeding or the confirmation or conclusion of any such proceeding. SECTION 10.3. SETOFF. Subject to Section 3.3. and in addition to any rights now or hereafter granted under Applicable Law and not by way of limitation of any such rights, the Agent, each Lender and each Participant is hereby authorized by the Borrower, at any time or from time to time, without notice to the Borrower or to any other Person, any such notice being hereby expressly waived, to set-off and to appropriate and to apply any and all deposits (general or special, including, but not limited to, indebtedness evidenced by certificates of deposit, whether matured or unmatured) and any other indebtedness at any time held or owing by the Agent, such Lender or any affiliate of the Agent or such Lender, to or for the credit or the account of the Borrower against and on account of any of the Obligations, irrespective of whether or not any or all of the Obligations have been declared to be due and payable as permitted by Section 8.2., and although such obligations shall be contingent or unmatured. SECTION 10.4 ARBITRATION. UPON DEMAND OF ANY PARTY HERETO, WHETHER MADE BEFORE OR AFTER INSTITUTION OF ANY JUDICIAL PROCEEDING, ANY CLAIM OR CONTROVERSY ARISING OUT OF, OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENTS ("DISPUTES") BETWEEN OR AMONG ANY SUCH PARTIES SHALL BE RESOLVED BY BINDING ARBITRATION CONDUCTED UNDER AND GOVERNED BY THE COMMERCIAL FINANCIAL DISPUTES ARBITRATION RULES (THE "ARBITRATION RULES") OF THE AMERICAN ARBITRATION ASSOCIATION (THE "AAA") AND THE FEDERAL ARBITRATION ACT. DISPUTES MAY INCLUDE, WITHOUT LIMITATION, TORT CLAIMS, COUNTERCLAIMS, DISPUTES AS TO WHETHER A MATTER IS SUBJECT TO ARBITRATION, CLAIMS BROUGHT AS CLASS ACTIONS, AND CLAIMS ARISING FROM LOAN DOCUMENTS EXECUTED IN THE FUTURE. A JUDGMENT UPON THE AWARD MAY BE ENTERED IN ANY COURT HAVING JURISDICTION. NOTWITHSTANDING THE FOREGOING, THIS ARBITRATION PROVISION DOES NOT APPLY TO DISPUTES UNDER OR RELATED TO INTEREST RATE AGREEMENTS TO WHICH ANY LENDER IS A PARTY. ALL ARBITRATION HEARINGS SHALL BE CONDUCTED IN CHARLOTTE, NORTH CAROLINA. A HEARING SHALL BEGIN WITHIN 90 DAYS OF DEMAND FOR ARBITRATION AND ALL HEARINGS SHALL CONCLUDED WITHIN 120 DAYS OF DEMAND FOR ARBITRATION. THESE TIME LIMITATIONS MAY NOT BE EXTENDED UNLESS A PARTY SHOWS CAUSE FOR EXTENSION AND THEN NO MORE THAN A TOTAL EXTENSION OF 60 DAYS. THE EXPEDITED PROCEDURES SET FORTH IN RULE 51 ET. SEQ. OF THE ARBITRATION RULES SHALL BE APPLICABLE TO CLAIMS OF LESS THAN $1,000,000. ARBITRATORS SHALL BE LICENSED ATTORNEYS SELECTED FROM THE COMMERCIAL FINANCIAL DISPUTE ARBITRATION PANEL OF THE AAA. THE PARTIES DO NOT WAIVE ANY APPLICABLE LAWS EXCEPT AS PROVIDED HEREIN. NOTWITHSTANDING THE PRECEDING BINDING ARBITRATION PROVISIONS, THE PARTIES AGREE TO PRESERVE, WITHOUT DIMINUTION, THE FOLLOWING REMEDIES THAT THE AGENT OR THE LENDERS MAY EXERCISE BEFORE OR AFTER AN ARBITRATION PROCEEDING IS BROUGHT. SUBJECT TO THE OTHER TERMS HEREOF, THE AGENT AND THE LENDERS SHALL HAVE THE RIGHT TO PROCEED IN ANY COURT OF PROPER JURISDICTION OR BY SELF-HELP TO EXERCISE OR PROSECUTE THE FOLLOWING REMEDIES, AS APPLICABLE: (I) ALL RIGHTS TO FORECLOSE AGAINST ANY REAL OR PERSONAL PROPERTY OR OTHER SECURITY BY EXERCISING A POWER OF SALE OR UNDER APPLICABLE LAW BY JUDICIAL FORECLOSURE INCLUDING A PROCEEDING TO CONFIRM THE SALE; (II) ALL RIGHTS OF SELF-HELP INCLUDING PEACEFUL OCCUPATION OF REAL PROPERTY AND COLLECTION OF RENTS, SET-OFF, AND PEACEFUL POSSESSION OF PERSONAL PROPERTY; (III) OBTAINING PROVISIONAL OR ANCILLARY REMEDIES INCLUDING INJUNCTIVE RELIEF, SEQUESTRATION, GARNISHMENT, ATTACHMENT, APPOINTMENT OF RECEIVER AND FILING AN INVOLUNTARY BANKRUPTCY PROCEEDING; AND (IV) WHEN APPLICABLE, A JUDGMENT BY CONFESSION OF JUDGMENT. ANY CLAIM OR CONTROVERSY WITH REGARD TO PARTIES ENTITLEMENT TO SUCH REMEDIES IS A DISPUTE. THE PARTIES HERETO ACKNOWLEDGE THAT BY AGREEING TO BINDING ARBITRATION THEY HAVE IRREVOCABLY WAIVED ANY RIGHT THEY MAY HAVE TO A JURY TRIAL WITH REGARD TO A DISPUTE. SECTION 10.5. SUCCESSORS AND ASSIGNS. (a) The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, except that the Borrower may not assign or otherwise transfer any of its rights under this Agreement without the prior written consent of all Lenders. (b) Any Lender may at any time grant to one or more banks or other financial institutions (each a "Participant") participating interests in its Commitment or the Obligations owing to such Lender; provided, however, (i) any such participating interest must be for a constant and not a varying percentage interest, (ii) no Lender may grant a participating interest in its Commitment, or if the Commitments have been terminated, the aggregate outstanding principal balance of Letter of Credit Liabilities and other Obligations held by it, in an amount less than $10,000,000 and (iii) after giving effect to any such participation by a Lender, the amount of its Commitment, or if the Commitments have been terminated, the aggregate outstanding principal balance of Letter of Credit Liabilities and other Obligations held by it, in which it has not granted any participating interests must be at least $10,000,000. Except as otherwise provided in Section 10.3., no Participant shall have any rights or benefits under this Agreement or any other Loan Document. In the event of any such grant by a Lender of a participating interest to a Participant, such Lender shall remain responsible for the performance of its obligations hereunder, and the Borrower and the Agent shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement. Any agreement pursuant to which any Lender may grant such a participating interest shall provide that such Lender shall retain the sole right and responsibility to enforce the obligations of the Borrower hereunder including, without limitation, the right to approve any amendment, modification or waiver of any provision of this Agreement; provided, however, such Lender may agree with the Participant that it will not, without the consent of the Participant, agree to (i) increase, or extend the term or extend the time or waive any requirement for the reduction or termination of, such Lender's Commitment, (ii) extend the date fixed for the payment of principal of or interest on the Obligations owing to such Lender, (iii) reduce the amount of any such payment of principal, or (iv) reduce the rate at which interest is payable thereon. An assignment or other transfer which is not permitted by subsection (c) below shall be given effect for purposes of this Agreement only to the extent of a participating interest granted in accordance with this subsection (b). The selling Lender shall notify the Agent and the Borrower of the sale of any participation hereunder and the terms thereof. (c) Any Lender may with the prior written consent of the Agent and, so long as no Default or Event of Default shall have occurred and be continuing, the Borrower (which consent, of the Borrower shall not be unreasonably withheld) assign to one or more Eligible Assignees (each an "Assignee") all or a portion of its Commitment and its other rights and obligations under this Agreement; provided, however, (i) no such consent by the Borrower shall be required in the case of any assignment to another Lender or any affiliate of such Lender or another Lender; (ii) any partial assignment shall be in an amount at least equal to $10,000,000 and after giving effect to such assignment the assigning Lender retains a Commitment, or if the Commitments have been terminated, holds Obligations having an aggregate outstanding principal balance, of at least $10,000,000; (iii) each such assignment shall be effected by means of an Assignment and Acceptance Agreement and (iv) the Agent, in its capacity as a Lender, shall not effect any assignment of its Commitment, if after giving effect thereto, the amount of such Commitment would be less than the amount of any other Lender's Commitment. Upon execution and delivery of such instrument and payment by such Assignee to such transferor Lender of an amount equal to the purchase price agreed between such transferor Lender and such Assignee, such Assignee shall be deemed to be a Lender party to this Agreement as of the effective date of the Assignment and Acceptance Agreement and shall have all the rights and obligations of a Lender with a Commitment as set forth in such Assignment and Acceptance Agreement, and the transferor Lender shall be released from its obligations hereunder to a corresponding extent, and no further consent or action by any party shall be required. In connection with any such assignment, the transferor Lender shall pay to the Agent an administrative fee for processing such assignment in the amount of $3,000. (d) The Agent shall maintain at the Principal Office a copy of each Assignment and Acceptance Agreement delivered to and accepted by it and a register for the recordation of the names and addresses of the Lenders and the Commitment of each Lender from time to time (the "Register"). The Agent shall give each Lender and the Borrower notice of the assignment by any Lender of its rights as contemplated by this Section. The Borrower, the Agent and the Lenders may treat each Person whose name is recorded in the Register as a Lender hereunder for all purposes of this Agreement. The Register and copies of each Assignment and Acceptance Agreement shall be available for inspection by the Borrower or any Lender at any reasonable time and from time to time upon reasonable prior notice to the Agent. Upon its receipt of an Assignment and Acceptance Agreement executed by an assigning Lender, the Agent shall, if such Assignment and Acceptance Agreement has been completed and if the Agent receives the processing and recording fee described in subsection (c) above, (i) accept such Assignment and Acceptance Agreement, (ii) record the information contained therein in the Register, and (iii) give prompt notice thereof to the Borrower. (e) In addition to the assignments and participations permitted under the foregoing provisions of this Section, any Lender may assign and pledge all or any portion of the Obligations owing to such Lender to any Federal Reserve Bank as collateral security pursuant to Regulation A and any Operating Circular issued by such Federal Reserve Bank, and such Obligations shall be fully transferable as provided therein. No such assignment shall release the assigning Lender from its obligations hereunder. (f) A Lender may furnish any information concerning the Borrower, or any Subsidiaries in the possession of such Lender from time to time to Assignees and Participants (including prospective Assignees and Participants) subject to compliance with Section 10.10. (g) Anything in this Section to the contrary notwithstanding, no Lender may assign or participate any interest in its Commitment or any Obligation owing to it hereunder to the Borrower or any Subsidiary or Affiliate of the Borrower. (h) Each Lender agrees that, without the prior written consent of the Borrower and the Agent, it will not make any assignment hereunder in any manner or under any circumstances that would require registration or qualification of, or filings in respect of, any Loan Document under the Securities Act or any other securities laws United States of America or of any other jurisdiction. SECTION 10.6. REPLACEMENT OF LENDERS. If a Lender requests compensation pursuant to Section 3.11. or Section 4.1. and the Requisite Lenders are not also doing the same, the Borrower may, subject to the prior consent of the Agent, demand that such Lender (the "Affected Lender"), and upon such demand the Affected Lender shall promptly, assign its Commitment and all of the Obligations owing to it to an Eligible Assignee subject to and in accordance with the provisions of Section 10.5.(c). Each of the Agent and the Affected Lender shall reasonably cooperate in effectuating the replacement of an Affected Lender under this Section, but at no time shall the Agent, the Affected Lender or any other Lender be obligated in any way whatsoever to initiate any such replacement or to assist in finding an Eligible Assignee. The exercise by the Borrower of its rights under this Section shall be at the Borrower's sole cost and expenses and at no cost or expense to the Agent, the Affected Lender or any of the other Lenders. The terms of this Section shall not in any way limit the Borrower's obligation to pay to any Affected Lender compensation owing to such Affected Lender pursuant to Section 3.11. or Section 4.1. SECTION 10.7. AMENDMENTS. Except as otherwise expressly provided in this Agreement, any consent or approval required or permitted by this Agreement or in any Loan Document to be given by the Lenders may be given, and any term of this Agreement or of any other Loan Document may be amended, and the performance or observance by the Borrower or any Subsidiary of any terms of this Agreement or such other Loan Document or the continuance of any Default or Event of Default may be waived (either generally or in a particular instance and either retroactively or prospectively) with, but only with, the written consent of the Requisite Lenders (and, in the case of an amendment to any Loan Document, the written consent of the Borrower). Notwithstanding the foregoing, no amendment, waiver or consent shall, unless in writing, and signed by all of the Lenders (or the Agent at the written direction of all of the Lenders), do any of the following: (i) increase the Commitments of the Lenders or subject the Lenders to any additional obligations; (ii) reduce the principal of, or interest rates that have accrued or that will be charged on the outstanding principal amount of, any Obligations; (iii) reduce the amount of any Fees payable hereunder; (iv) postpone any date fixed for any payment of Fees or any other Obligations; (v) change the Commitment Percentages; (vi) amend this Section or amend the definitions of the terms used in this Agreement or the other Loan Documents insofar as such definitions affect the substance of this Section; (vii) release any Guarantor that is a Material Subsidiary from its obligations under its Guaranty or (viii) modify the definition of the term "Requisite Lenders" or modify in any other manner the number or percentage of the Lenders required to make any determinations or waive any rights hereunder or to modify any provision hereof. Further, no amendment, waiver or consent unless in writing and signed by the Agent, in addition to the Lenders required hereinabove to take such action, shall affect the rights or duties of the Agent under this Agreement or any of the other Loan Documents. No waiver shall extend to or affect any obligation not expressly waived or impair any right consequent thereon and any amendment, waiver or consent shall be effective only in the specific instance and for the specific purpose set forth therein. No course of dealing or delay or omission on the part of the Agent or any Lender in exercising any right shall operate as a waiver thereof or otherwise be prejudicial thereto. Except as otherwise explicitly provided for herein or in any other Loan Document, no notice to or demand upon the Borrower shall entitle the Borrower to other or further notice or demand in similar or other circumstances. SECTION 10.8. CREDIT AGREEMENT PROVISIONS. (a) Notwithstanding any provision of this Agreement or any other Loan Document to the contrary, the Agent, the Lenders and the Borrower agree that on or after the date hereof any amendment to, or waiver of, (i) the Credit Agreement Representations, (ii) the Credit Agreement Defaults or (iii) the covenants from the Credit Agreement referred to in Section 7.1., which has been consented to by the Requisite Lenders (or all Lenders if such amendment or waiver required the consent of all Lenders (as defined in the Credit Agreement) under the applicable terms of the Credit Agreement) in writing, shall be deemed to be incorporated herein by reference and shall become effective hereunder when such amendment or waiver becomes effective thereunder, without any further action necessary by the Borrower, the Lenders or the Agent. Any such amendment or waiver shall be effective only in the specific instance and for the specific purpose for which given. The Borrower agrees to promptly provide the Agent with a copy of such amendment or waiver if the Agent is not also acting as "Agent" under the Credit Agreement. (b) The Credit Agreement Representations, the Credit Agreement Defaults and the covenants from the Credit Agreement referred to in Section 7.1. incorporated herein by reference and any definitions or other terms or provisions of the Credit Agreement incorporated herein by reference, will be deemed to continue in effect for the benefit of the Agent and the Lenders (notwithstanding the termination of the Credit Agreement) until this Agreement has terminated and all Obligations have been indefeasibly paid in full, including, without limitation, whether or not the Credit Agreement remains in effect or whether or not the Credit Agreement is amended, restated or terminated after the date hereof. If after the date hereof, the Credit Agreement is terminated, then references to the Credit Agreement shall continue to be references to the Credit Agreement as provided in the immediately preceding sentence. For purposes of the foregoing, (i) references in the provisions of the Credit Agreement incorporated herein by reference to the "Borrower" shall refer to the Borrower; (ii) references therein to the "Agent" shall refer to the Agent; (iii) references therein to the "Lenders" or a "Lender" shall refer to the Lenders and a Lender, respectively; and (iii) the terms "Agreement," "hereto" and "hereof" when used in the provisions of the Credit Agreement incorporated herein by referenced shall refer to this Agreement. SECTION 10.9. NONLIABILITY OF AGENT AND LENDERS. The relationship between the Borrower and the Lenders and the Agent shall be solely that of borrower and lender. Neither the Agent nor any Lender shall have any fiduciary responsibilities to the Borrower and no provision in this Agreement or in any of the other Loan Documents, and no course of dealing between or among any of the parties hereto, shall be deemed to create any fiduciary duty owing by the Agent or any Lender to any Lender, the Borrower or any Subsidiary. Neither the Agent nor any Lender undertakes any responsibility to the Borrower to review or inform the Borrower of any matter in connection with any phase of the Borrower's business or operations. SECTION 10.10. CONFIDENTIALITY. Except as otherwise provided by Applicable Law, the Agent and each Lender shall utilize all non-public information obtained pursuant to the requirements of this Agreement which has been identified as confidential or proprietary by the Borrower in accordance with its customary procedure for handling confidential information of this nature and in accordance with safe and sound banking practices but in any event may make disclosure: (a) to any of their respective affiliates (provided they shall agree to keep such information confidential in accordance with the terms of this Section); (b) as reasonably required by any bona fide Assignee, Participant or other transferee in connection with the contemplated transfer of any Commitment or participations therein as permitted hereunder (provided they shall agree to keep such information confidential in accordance with the terms of this Section); (c) as required by any Governmental Authority or representative thereof or pursuant to legal process; (d) to the Agent's or such Lender's independent auditors and other professional advisors (provided they shall be notified of the confidential nature of the information); and (e) after the happening and during the continuance of an Event of Default, to any other Person, in connection with the exercise by the Agent or the Lenders of rights hereunder or under any of the other Loan Documents. SECTION 10.11. INDEMNIFICATION. (a) The Borrower shall and hereby agrees to indemnify, defend and hold harmless the Agent, any affiliate of the Agent and each of the Lenders and their respective directors, officers, shareholders, agents, employees and counsel (each referred to herein as an "Indemnified Party") from and against any and all losses, costs, claims, damages, liabilities, deficiencies, judgments or expenses of every kind and nature (including, without limitation, amounts paid in settlement, court costs and the fees and disbursements of counsel incurred in connection with any litigation, investigation, claim or proceeding or any advice rendered in connection therewith) (the foregoing items referred to herein as "Claims and Expenses") incurred by an Indemnified Party in connection with, arising out of, or by reason of, any suit, cause of action, claim, arbitration, investigation or settlement, consent decree or other proceeding (the foregoing referred to herein as an "Indemnity Proceeding") which is in any way related directly or indirectly to: (i) this Agreement, any other Loan Document, any Confirming Bank, Letter of Credit, any Confirming Bank Reimbursement Agreement or the transactions contemplated hereby or thereby; (ii) the issuance of the Letters of Credit hereunder; (iii) any actual or proposed use by the Borrower or any beneficiary of the Letters of Credit; (iv) the Agent's or any Lender's entering into this Agreement; (v) the fact that the Agent and the Lenders have established the credit facility evidenced hereby in favor of the Borrower; (vi) the fact that the Agent and the Lenders are creditors of the Borrower and have or are alleged to have information regarding the financial condition, strategic plans or business operations of the Borrower and the Subsidiaries; (vii) the fact that the Agent and the Lenders are material creditors of the Borrower and are alleged to influence directly or indirectly the business decisions or affairs of the Borrower and the Subsidiaries or their financial condition; (viii) the exercise of any right or remedy the Agent or the Lenders may have under this Agreement or the other Loan Documents; provided, however, that the Borrower shall not be obligated to indemnify any Indemnified Party for any acts or omissions of such Indemnified Party in connection with matters described in this clause (viii) that constitute gross negligence or willful misconduct; and (ix) any violation or non-compliance by the Borrower or any Subsidiary of any Applicable Law including, but not limited to, any Indemnity Proceeding commenced by (A) the Internal Revenue Service or state taxing authority or (B) any Governmental Authority or other Person under any Applicable Laws relating to the environment, including any Indemnity Proceeding commenced by a Governmental Authority or other Person seeking remedial or other action to cause the Borrower or its Subsidiaries (or its respective properties) (or the Agent and/or the Lenders as successors to the Borrower) to be in compliance with such Applicable Laws. (b) The Borrower's indemnification obligations under this Section shall apply to all Indemnity Proceedings arising out of, or related to, the foregoing whether or not an Indemnified Party is a named party in such Indemnity Proceeding. In this connection, this indemnification shall cover all costs and expenses of any Indemnified Party in connection with any deposition of any Indemnified Party or compliance with any subpoena (including any subpoena requesting the production of documents). This indemnification shall, among other things, apply to any Indemnity Proceeding commenced by other creditors of the Borrower or any Subsidiary, any shareholder of the Borrower or any Subsidiary (whether such shareholder(s) are prosecuting such Indemnity Proceeding in their individual capacity or derivately on behalf of the Borrower), any account debtor of the Borrower or any Subsidiary or by any Governmental Authority. This indemnification shall apply to any Indemnity Proceeding arising during the pendency of any bankruptcy proceeding filed by or against the Borrower and/or any Subsidiary. (c) All out-of-pocket fees and expenses of, and all amounts paid to third-persons by, an Indemnified Party shall be advanced by the Borrower at the request of such Indemnified Party notwithstanding any claim or assertion by the Borrower that such Indemnified Party is not entitled to indemnification hereunder upon receipt of an undertaking by such Indemnified Party that such Indemnified Party will reimburse the Borrower if it is actually and finally determined by a court of competent jurisdiction that such Indemnified Party is not so entitled to indemnification hereunder. (d) An Indemnified Party may conduct its own investigation and defense of, and may formulate its own strategy with respect to, any Indemnified Proceeding covered by this Section and, as provided above, all costs and expenses incurred by the Indemnified Party shall be reimbursed by the Borrower. No action taken by legal counsel chosen by an Indemnified Party in investigating or defending against any such Indemnified Proceeding shall vitiate or in any way impair the obligations and duties of the Borrower hereunder to indemnify and hold harmless each such Indemnified Party; provided, however, that (i) if the Borrower is required to indemnify an Indemnified Party pursuant hereto and (ii) the Borrower has provided evidence reasonably satisfactory to such Indemnified Party that the Borrower has the financial wherewithal to reimburse such Indemnified Party for any amount paid by such Indemnified Party with respect to such Indemnified Proceeding, such Indemnified Party shall not settle or compromise any such Indemnified Proceeding without the prior written consent of the Borrower (which consent shall not be unreasonably withheld or delayed). (e) If and to the extent that the obligations of the Borrower hereunder are unenforceable for any reason, the Borrower hereby agrees to make the maximum contribution to the payment and satisfaction of such obligations which is permissible under Applicable Law. The Borrower's obligations hereunder shall survive any termination of this Agreement and the other Loan Documents and the payment in full of the Obligations, and are in addition to, and not in substitution of, any other of their obligations set forth in this Agreement or any other Loan Document to which it is a party. SECTION 10.12. TERMINATION; SURVIVAL. At such time as (a) all of the Commitments have been terminated, (b) all Letters of Credit have expired or been terminated, (c) none of the Lenders is obligated any longer under this Agreement and (d) all Obligations (other than obligations which survive as provided in the following sentence) have been paid and satisfied in full, this Agreement shall terminate. Notwithstanding any termination of this Agreement, or of the other Loan Documents, the indemnities to which the Agent and the Lenders are entitled under the provisions of Sections 9.7., 10.2. and 10.11. and any other provision of this Agreement and the other Loan Documents, and the waivers of jury trial and submission to jurisdictions contained in Section 10.4., shall continue in full force and effect and shall protect the Agent and the Lenders against events arising after such termination as well as before. SECTION 10.13. SEVERABILITY OF PROVISIONS. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective only to the extent of such prohibition or unenforceability without invalidating the remainder of such provision or the remaining provisions or affecting the validity or enforceability of such provision in any other jurisdiction. SECTION 10.14. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NORTH CAROLINA APPLICABLE TO CONTRACTS EXECUTED, AND TO BE FULLY PERFORMED, IN SUCH STATE. SECTION 10.15. COUNTERPARTS. This Agreement and any amendments, waivers, consents or supplements may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed an original, but all of which counterparts together shall constitute but one and the same instrument. SECTION 10.16. LIMITATION OF LIABILITY. Neither the Agent nor any Lender, nor any affiliate, officer, director, employee, attorney, or agent of the Agent or any Lender shall have any liability with respect to, and the Borrower hereby waives, releases, and agrees not to sue any of them upon, any claim for any special, indirect, incidental, or consequential damages suffered or incurred by the Borrower in connection with, arising out of, or in any way related to, this Agreement or any of the other Loan Documents, or any of the transactions contemplated by this Agreement or any of the other Loan Documents. The Borrower hereby waives, releases, and agrees not to sue the Agent or any Lender or any of the Agent's or any Lender's affiliates, officers, directors, employees, attorneys, or agents for punitive damages in respect of any claim in connection with, arising out of, or in any way related to, this Agreement or any of the other Loan Documents, or any of the transactions contemplated by this Agreement or financed hereby. SECTION 10.17. ENTIRE AGREEMENT. This Agreement and the other Loan Documents embody the final, entire agreement among the parties hereto and supersede any and all prior commitments, agreements, representations, and understandings, whether written or oral, relating to the subject matter hereof and may not be contradicted or varied by evidence of prior, contemporaneous, or subsequent oral agreements or discussions of the parties hereto. SECTION 10.18. CONSTRUCTION. The Agent, the Borrower and each Lender acknowledge that each of them has had the benefit of legal counsel of its own choice and has been afforded an opportunity to review this Agreement and the other Loan Documents with its legal counsel and that this Agreement and the other Loan Documents shall be construed as if jointly drafted by the Agent, the Borrower and each Lender. [Signatures on the Following Pages] IN WITNESS WHEREOF, the parties hereto have caused this Reimbursement Agreement to be executed by their authorized officers all as of the day and year first above written. BORROWER: MERRY LAND & INVESTMENT COMPANY, INC. By:_________________________________ Name:__________________________ Title:_________________________ [Signatures Continued on Following Pages] [SIGNATURE PAGE TO REIMBURSEMENT AGREEMENT DATED AS OF APRIL 1, 1998 WITH MERRY LAND & INVESTMENT COMPANY, INC.] FIRST UNION NATIONAL BANK, as Agent and as a Lender By:_______________________________ Name:________________________ Title:_______________________ INITIAL COMMITMENT AMOUNT: $100,991,788 LENDING OFFICE: First Union National Bank One First Union Center Charlotte, North Carolina 28288-0166 Attn: Chris Finlay Telecopier: (704) 383-6205 Telephone: (704) 383-6988 SCHEDULE 1.1.(a) BONDS 1. $12,470,000 Florida Housing Finance Agency Multi-Family Guaranteed Mortgage Revenue Bonds (Horizon Place Development), 1983 Series F. 2. $6,240,000 Florida Housing Finance Agency Multi-Family Guaranteed Mortgage Revenue Bonds (Wood Forest Apartments Project), 1983 Series I. 3. $8,700,000 Florida Housing Finance Agency Multi-Family Housing Revenue Bonds (Beneva Place Project), 1985 Series C. 4. $10,975,000 Florida Housing Finance Agency Multi-Family Guaranteed Mortgage Revenue Bonds (Oaks at Baymeadows Development), 1983 Series G. 5. $10,220,000 Florida Housing Finance Agency Multi-Family Housing Revenue Refunding Bonds (Oaks at Orange Park Project), 1990 Series A. 6. $10,770,000 Florida Housing Finance Agency Multi-Family Guaranteed Mortgage Revenue Bonds (Forest Place Development), 1983 Series J. 7. $13,840,000 Florida Housing Finance Agency Multi-Family Revenue Bonds (The Crossings Project), 1987 Series A. 8. $21,170,000 Florida Housing Finance Agency Multi-Family Housing Revenue Bonds (Buena Vista Place Project), 1985 Series MM. 9. $7,200,000 Florida Housing Finance Agency Multi-Family Guaranteed Mortgage Revenue Bonds (Oaks at Regency Development), 1983 Series K. SCHEDULE 1.1.(b) INDENTURES 1. Trust Indenture dated as of December 1, 1983, by and between SunTrust Bank, Central Florida, National Association, the successor to Flagship National Bank of Miami, as trustee (the "Trustee"), and the Florida Housing Finance Corporation, formerly known as the Florida Housing Finance Agency (the "Corporation"), as supplemented as of August 1, 1984, as of February 1, 1986, as of December 1, 1986, as of March 10, 1995, as of June 1, 1995, as of April 1, 1998, and as further supplemented from time to time. 2. Trust Indenture dated as of December 1, 1983, by and between the Trustee and the Corporation as supplemented as of February 1, 1986, as of December 1, 1986, as of March 1, 1998, and as further supplemented from time to time. 3. Trust Indenture dated as of February 1, 1985, by and between the Trustee and the Corporation as supplemented as of February 1, 1986, as of May 1, 1988, as of April 1, 1998, and as further supplemented from time to time. 4. Trust Indenture dated as of December 1, 1983, by and between the Trustee and the Corporation, as supplemented as of August 1, 1984, as of February 1, 1986, as of December 1, 1986, as of March 10, 1995, as of June 1, 1995, as of April 1, 1998, and as further supplemented from time to time. 5. Trust Indenture dated as of August 1, 1990, by and between the Trustee and the Corporation as supplemented as of April 1, 1998, and as further supplemented from time to time. 6. Trust Indenture dated as of December 1, 1983, by and between the Trustee and the Corporation, as supplemented as of February 1, 1986, as of December 1, 1986 as of March 1, 1998, and as further supplemented from time to time. 7. Trust Indenture dated as of February 1, 1987, by and between the Trustee and the Corporation as supplemented as of April 1, 1998, and as further supplemented from time to time. 8. Second Amended and Restated Trust Indenture dated as of September 1, 1987 by and between the Trustee and the Corporation as supplemented as of April 1, 1998, and as further supplemented from time to time. 9. Trust Indenture dated as of December 1, 1983, by and between the Trustee and the Corporation, as supplemented as of February 1, 1986, as of December 1, 1986, as of March 1, 1998, and as further supplemented from time to time. SCHEDULE 1.1.(c) TARGET PARTNERSHIPS Sarasota Beneva Place Associates, Ltd., a Florida limited partnership The Crossings Associates, a Florida general partnership Forest Place Associates, a Florida general partnership Horizon Place Associates, a Florida general partnership Oaks at Baymeadows Associates, a Florida general partnership Merry Land DownREIT I LP, successor to Crow Oaks at Orange Park Associates, Ltd., a Florida limited partnership Oaks at Regency Associates, a Florida general partnership Buena Vista Place Associates, a Florida general partnership Wood Forest Associates, a Florida general partnership SCHEDULE 2.1. Description of Basic Terms of Letters of Credit
HORIZON OAKS AT CROSSINGS WOOD FOREST OAKS AT BENEVA OAKS AT BUENA VISTA PROJECT NAME PLACE BAYMEADOWS (CHICKASAW) FOREST PLACE REGENCY PLACE ORANGE PARK PLACE Bond Series 1983F 1983G 1987A 1983I 1983J 1983K 1985C 1990A 1985MM CURRENT PRINCIPAL AMOUNT $12,090,000 $10,240,000 $11,640,000 $5,995,000 $10,370,000 $6,925,000 $8,700,000 $9,540,000 $21,170,000 STATED EXPIRATION DATE June 15, June 15, February 15, December 15, December 15, December 15, February 15, April 15, November 2000 2000 2003 1999 1999 1999 2002 1999 15, 1999 CURRENT/MAX. INTEREST RATE 5.35% 5.35% 4.85% 4.85% 4.85% 4.85% Max. 15% Max. 10% 4.013%/ REDEMPTION PREMIUM COVERAGE 1.5% 1.5% 2.0% 1.0% 1.0% 1.0% None None None REQUIRED # OF DAYS INTEREST COVERAGE 183 183 183 183 183 183 95 36 183 ORIGINAL LOC STATED AMOUNT $12,600,148 $10,672,086 $12,159,775 $6,202,752 $10,729,364 $7,164,981 $9,044,375 $9,634,094 $22,784,213 LOC NUMBER S148617 S148618 S148619 S148620 S148621 S148622 S148623 S148624 S148625
SCHEDULE 2.2. Description of Basic Terms of Confirming Bank Letters of Credit
OAKS AT CROSSINGS OAKS AT BUENA VISTA PROJECT NAME HORIZON PLACE BAYMEADOWS (CHICKASAW) ORANGE PARK PLACE Bond Series 1983F 1983G 1987A 1990A 1985MM CURRENT PRINCIPAL AMOUNT $12,090,000 $10,240,000 $11,640,000 $9,540,000 $21,170,000 SCHEDULED EXPIRATION June 15, 2000 June 15, 2000 February 15, 2003 April 15, 1999 November 15, 1999 DATE CURRENT/MAX. 5.35% 5.35% 4.85% Max. 10% 4.013%/ INTEREST RATE Max. 15% REDEMPTION 1.5% 1.5% 2.0% None None PREMIUM COVERAGE ORIGINAL LOC $12,600,148 $10,672,086 $12,159,775 $9,634,094 $22,784,213 STATED AMOUNT
TABLE OF CONTENTS* ARTICLE I. DEFINITIONS..............................................1 Section 1.1. Definitions......................................1 Section 1.2. General; References to Times.....................9 ARTICLE II. LETTER OF CREDIT FACILITY...............................9 Section 2.1. Letters of Credit................................9 Section 2.2. Confirming Bank Letter of Credit................12 Section 2.3. Extension of Stated Termination Dates...........14 Section 2.4. Maturity Date of Letters of Credit Past Facility Termination Date.......................15 ARTICLE III. PAYMENTS, FEES AND OTHER GENERAL PROVISIONS...........15 Section 3.1. Payments........................................15 Section 3.2. Pro Rata Treatment..............................16 Section 3.3. Sharing of Payments, Etc........................16 Section 3.4. Several Obligations.............................16 Section 3.5. Fees............................................17 Section 3.6. Computations....................................17 Section 3.7. Usury...........................................17 Section 3.8. Agreement Regarding Interest and Charges........17 Section 3.9. Statements of Account...........................18 Section 3.10. Defaulting Lenders..............................18 Section 3.11. Taxes...........................................19 ARTICLE IV. YIELD PROTECTION, ETC..................................20 Section 4.1. Additional Costs; Capital Adequacy..............20 Section 4.2. Change of Lending Office........................21 ARTICLE V. CONDITIONS PRECEDENT....................................21 Section 5.1. Conditions Precedent............................21 Section 5.2. Conditions as Covenants.........................25 ARTICLE VI. REPRESENTATIONS AND WARRANTIES.........................26 Section 6.1. Representations and Warranties..................26 Section 6.2. Survival of Representations and Warranties,Etc..28 ARTICLE VII. COVENANTS.............................................29 Section 7.1. Incorporation of Certain Covenants of Credit Agreement.......................................29 Section 7.2. Additional Subsidiaries.........................29 Section 7.3. Information.....................................29 Section 7.4. Remarketing Agent, Placement Agent and Trustee..30 Section 7.5. Registration of Bonds...........................30 Section 7.6. Performance of Bond Documents...................30 Section 7.7. Modifications to Bond Documents; Redemptions, Etc.............................................30 Section 7.8. Further Assurances..............................30 ARTICLE VIII. DEFAULT..............................................31 Section 8.1. Events of Default...............................31 Section 8.2. Remedies Upon Event of Default..................32 Section 8.3. Allocation of Proceeds..........................33 Section 8.4. Collateral Account..............................34 Section 8.5. Performance by Agent............................35 Section 8.6. Rights Cumulative...............................35 ARTICLE IX. THE AGENT..............................................35 Section 9.1. Authorization and Action........................35 Section 9.2. Agent's Reliance, Etc...........................36 Section 9.3. Notice of Defaults..............................37 Section 9.4. First Union as Lender...........................37 Section 9.5. Approvals of Lenders............................37 Section 9.6. Lender Credit Decision, Etc.....................38 Section 9.7. Indemnification of Agent........................38 ARTICLE X. MISCELLANEOUS...........................................39 Section 10.1. Notices........................................39 Section 10.2. Expenses.......................................40 Section 10.3. Setoff.........................................41 Section 10.4. Arbitration....................................41 Section 10.5. Successors and Assigns.........................42 Section 10.6. Replacement of Lenders.........................44 Section 10.7. Amendments.....................................45 Section 10.8. Credit Agreement Provisions....................46 Section 10.9. Nonliability of Agent and Lenders..............46 Section 10.10. Confidentiality................................47 Section 10.11. Indemnification................................47 Section 10.12. Termination; Survival..........................49 Section 10.13. Severability of Provisions.....................49 Section 10.14. GOVERNING LAW..................................49 Section 10.15. Counterparts...................................49 Section 10.16. Limitation of Liability........................49 Section 10.17. Entire Agreement...............................50 Section 10.18. Construction...................................50 SCHEDULE 1.1.(a) Bonds SCHEDULE 1.1.(b) Indentures SCHEDULE 1.1.(c) Target Partnerships SCHEDULE 2.1. Description of Basic Terms of Letters of Credit EXHIBIT A Form of Assignment and Acceptance Agreement EXHIBIT B Form of Guaranty EXHIBIT C Form of Pledge Agreement EXHIBIT D Form of Letter of Credit EXHIBIT E Form of Opinion of Counsel **FOOTNOTES** *THIS TABLE OF CONTENTS IS NOT PART OF THE REIMBURSEMENT AGREEMENT AND IS PROVIDED AS A CONVENIENCE ONLY. EX-10.2 3 AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF MERRY LAND DOWNREIT I LP Dated as of April 1, 1998 ARTICLE 1...............................................................1 ORGANIZATIONAL MATTERS.............................................1 SECTION 1.1. NAME.............................................1 SECTION 1.2. REGISTERED OFFICE AND AGENT; PRINCIPAL OFFICE....1 SECTION 1.3. TERM.............................................1 SECTION 1.4. PURPOSE AND BUSINESS.............................1 ARTICLE 2...............................................................2 CAPITAL CONTRIBUTIONS..............................................2 SECTION 2.1. CAPITAL CONTRIBUTIONS OF THE PARTNERS............2 SECTION 2.2. ISSUANCES OF ADDITIONAL PARTNERSHIP INTERESTS....2 SECTION 2.3. CERTAIN ADDITIONAL CAPITAL CONTRIBUTIONS.........3 ARTICLE 3...............................................................3 DISTRIBUTIONS......................................................3 SECTION 3.1. DISTRIBUTIONS....................................3 SECTION 3.2. AMOUNTS WITHHELD.................................3 SECTION 3.3. DISTRIBUTIONS UPON LIQUIDATION...................3 ARTICLE 4...............................................................4 ALLOCATIONS........................................................4 SECTION 4.1. ALLOCATIONS FOR CAPITAL ACCOUNT PURPOSES.........4 ARTICLE 5...............................................................5 MANAGEMENT AND OPERATIONS OF BUSINESS..............................5 SECTION 5.1. MANAGEMENT.......................................5 SECTION 5.2. POWER OF ATTORNEY................................7 SECTION 5.3. RESTRICTIONS ON GENERAL PARTNER AUTHORITY........8 SECTION 5.4. OUTSIDE ACTIVITIES OF THE GENERAL PARTNER AND MERRY LAND.......................................8 SECTION 5.5. CONTRACTS WITH AFFILIATES........................8 SECTION 5.6. INDEMNIFICATION..................................8 SECTION 5.7. LIABILITY OF THE GENERAL PARTNER................10 SECTION 5.8. RELIANCE BY THIRD PARTIES.......................10 ARTICLE 6..............................................................11 RIGHTS AND OBLIGATIONS OF LIMITED PARTNERS........................11 SECTION 6.1. LIMITATION OF LIABILITY.........................11 SECTION 6.2. MANAGEMENT OF BUSINESS..........................11 SECTION 6.3. OUTSIDE ACTIVITIES OF LIMITED PARTNERS..........11 SECTION 6.4. RETURN OF CAPITAL...............................11 SECTION 6.5. CERTAIN INFORMATION.............................11 SECTION 6.6. REDEMPTION RIGHT................................11 ARTICLE 7..............................................................13 BOOKS, RECORDS, ACCOUNTING AND REPORTS............................13 SECTION 7.1 RECORDS AND ACCOUNTING...........................13 ARTICLE 8..............................................................13 TAX MATTERS.......................................................13 SECTION 8.1. TAX RETURNS.....................................13 SECTION 8.2. TAX MATTERS PARTNER.............................13 Section 8.3. WITHHOLDING.....................................14 ARTICLE 9..............................................................14 TRANSFERS AND WITHDRAWALS.........................................14 SECTION 9.1. TRANSFER........................................14 SECTION 9.2. TRANSFER OF GENERAL PARTNER'S PARTNERSHIP INTEREST........................................14 SECTION 9.3. LIMITED PARTNER'S RIGHTS TO TRANSFER............14 SECTION 9.4. SUBSTITUTED LIMITED PARTNERS....................15 SECTION 9.5. INTENTIONALLY OMITTED...........................15 SECTION 9.6. GENERAL PROVISIONS..............................15 ARTICLE 10.............................................................16 ADMISSION OF PARTNERS.............................................16 SECTION 10.1. ADMISSION OF SUCCESSOR GENERAL PARTNER.........16 SECTION 10.2. ADMISSION OF ADDITIONAL LIMITED PARTNERS.......16 ARTICLE 11.............................................................16 DISSOLUTION, LIQUIDATION AND TERMINATION..........................16 SECTION 11.1. DISSOLUTION....................................16 SECTION 11.2. WINDING UP.....................................17 SECTION 11.3. COMPLIANCE WITH TIMING REQUIREMENTS OF REGULATIONS....................................18 SECTION 11.4. NOTICE OF DISSOLUTION..........................19 ARTICLE 12.............................................................19 AMENDMENT OF PARTNERSHIP AGREEMENT; MEETINGS......................19 SECTION 12.1. AMENDMENTS.....................................19 SECTION 12.2. MEETINGS OF THE PARTNERS.......................20 ARTICLE 13.............................................................20 GENERAL PROVISIONS................................................20 SECTION 13.1. ADDRESSES AND NOTICE...........................20 SECTION 13.2. FURTHER ACTION.................................21 SECTION 13.3. BINDING EFFECT.................................21 SECTION 13.4. WAIVER.........................................21 SECTION 13.5. COUNTERPARTS...................................21 SECTION 13.6. APPLICABLE LAW.................................21 SECTION 13.7. INVALIDITY OF PROVISIONS.......................21 SECTION 13.8. ENTIRE AGREEMENT...............................21 SECTION 13.9. GUARANTY BY MERRY LAND.........................21 GLOSSARY..........................................................23 AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF MERRY LAND DOWNREIT I LP THIS AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF MERRY LAND DOWNREIT I LP(the "Agreement"), dated as of April 1, 1998, is entered into by and among MERRY LAND APARTMENT COMMUNITIES, INC., a Maryland corporation, as the General Partner, and the Persons whose names are set forth on Exhibit A attached hereto (the "Limited Partners"). WHEREAS, the Partners are making certain contributions to the capital of the Partnership and desire to conduct business as described herein. NOW THEREFORE, in consideration of the mutual covenants herein contained, and other valuable consideration, the receipt of which is hereby acknowledged, the parties hereto do hereby agree as follows: ARTICLE 1 ORGANIZATIONAL MATTERS SECTION 1.1. NAME. The name of the Partnership is MERRY LAND DOWNREIT I LP. SECTION 1.2. REGISTERED OFFICE AND AGENT; PRINCIPAL OFFICE. The address of the principal office and the registered office of the Partnership in the State of Georgia and the name and address of the registered agent for service of process on the Partnership in the State of Georgia is W. Hale Barrett, 624 Ellis Street, Augusta, Georgia 30901, or such other place as the General Partner may from time to time designate by notice to the Limited Partners. SECTION 1.3. TERM. The term of the Partnership commenced on January 15, 1998, and shall continue until December 31, 2040, unless the Partnership is dissolved sooner pursuant to the provisions of Article 11 or as otherwise provided by law. The original Agreement of Limited Partnership executed in connection with the commencement of the term of the Partnership is superceded by this Agreement. SECTION 1.4. PURPOSE AND BUSINESS. The purpose and nature of the business to be conducted by the Partnership is to conduct any business that may be lawfully conducted by a limited partnership organized pursuant to the Act, PROVIDED, HOWEVER, that such business shall be limited to and conducted in such a manner as to permit Merry Land & Investment Company, Inc., a Georgia corporation ("Merry Land") at all times to be classified as a real estate investment trust ("REIT") for federal income tax purposes, unless Merry Land ceases to qualify as a REIT for reasons other than the conduct of the business of the Partnership. An integral part of the business of the Partnership also includes the conduct of such business in such a manner that the Partnership shall be able to make distributions of Preferred Returns to the Limited Partners entitled thereto and be able to satisfy the obligations of the Partnership to any Redeeming Partner who has exercised the Redemption Right. In connection with the foregoing, and without limiting Merry Land's right, in its sole discretion, to cease qualifying as a REIT, the Partners acknowledge Merry Land's current status as a REIT inures to the benefit of all of the Partners including Partners that may be admitted in the future (even though Merry Land is not currently a partner). Merry Land owns all of the issued and outstanding stock of Merry Land Apartment Communities, Inc. and ML Apartments Limited. The Partnership shall not take, and shall refrain from taking, any action which, in the judgment of the General Partner, in its sole and absolute discretion, (i) could adversely affect the ability of Merry Land to continue to qualify as a REIT, (ii) could subject Merry Land to any additional taxes under Section 857 or Section 4981 of the Code, or (iii) could violate any law or regulation of any governmental body or agency having jurisdiction over Merry Land or the General Partner or either of their securities, unless such action (or inaction) shall have been specifically consented to by the General Partner in writing. ARTICLE 2 CAPITAL CONTRIBUTIONS SECTION 2.1. CAPITAL CONTRIBUTIONS OF THE PARTNERS. At the time of their respective executions of this Agreement, the Partners shall make Capital Contributions as set forth in Exhibit A to this Agreement. The Partners shall own Partnership Units in the amounts set forth for such Partner in EXHIBIT A. The General Partner shall adjust the Percentage Interest in EXHIBIT A to reflect accurately redemptions, Capital Contributions, the issuance of additional Partnership Units (pursuant to any merger or otherwise), or similar events having an effect on any Partner's Percentage Interest. The number of Partnership Units held by the General Partner (equal to one percent (1%) of all outstanding Partnership Units from time to time) shall be deemed to be the General Partner Interest. Upon the issuance of additional Limited Partnership Interests in accordance with Section 2.2, the General Partner shall make additional Capital Contributions or acquire other Limited Partnership interests and convert them to additional General Partner Interests in order to maintain a Capital Account balance equal to the lesser of one percent (1%) of the total positive Capital Account balances of the Partnership or $500,000. Except as stated in the preceding sentence, the Partners shall have no obligation to make any additional Capital Contributions or loans to the Partnership. SECTION 2.2. ISSUANCES OF ADDITIONAL PARTNERSHIP INTERESTS. The General Partner is hereby authorized to cause the Partnership to issue to the Partners or other Persons additional Partnership Units or other Partnership Interests in one or more classes, or one or more series of any such classes, with such designations, preferences and relative, participating, optional or other special rights, powers and duties, including rights, powers and duties senior to Limited Partner Interests, all as shall be determined by the General Partner in its sole and absolute discretion. The General Partner may include such designations and rights in EXHIBIT A (or an addendum thereto). SECTION 2.3. CERTAIN ADDITIONAL CAPITAL CONTRIBUTIONS . If the General Partner anticipates that, based upon projections of available cash or otherwise, the Partnership shall have insufficient funds to timely make a full distribution to Limited Partners of any Preferred Return due them or otherwise satisfy any obligation of the Partnership associated with the exercise by a Redeeming Partner of any Redemption Right, then the General Partner shall (i) defer capital expenditures (or finance, or make Capital Contributions necessary to pay for, same) of the Partnership, (ii) defer payment of amounts owed by the Partnership under loans, contracts or any other agreement or arrangement with any Affiliate of the General Partner or Merry Land, (iii) finance or make Capital Contributions necessary to satisfy the obligations of the Partnership with respect to any of its investments, or (iv) take, or refrain from taking, such other actions as may be commercially reasonable in order to satisfy the Preferred Return distribution and Redemption Right obligations of the Partnership. If Merry Land issues securities and contributes some or all of the proceeds raised in connection with such issuance to the Partnership, then Merry Land may charge the Partnership for its pro rata share of any underwriter's discount or other expenses paid or incurred in connection with such issuance. ARTICLE 3 DISTRIBUTIONS SECTION 3.1. DISTRIBUTIONS. The General Partner shall cause the Partnership to make distributions to the Partners who are Partners on a Partnership Record Date in accordance with their respective Percentage Interests on such Partnership Record Date; PROVIDED THAT in no event may a Partner receive a distribution with respect to a Partnership Unit if such Partner is entitled to receive a distribution with respect to a REIT Share for which such Partnership Unit has been redeemed or exchanged. However, if and to the extent the General Partner admits an additional Limited Partner entitled to a Preferred Return, any distributions shall be made first to such Limited Partners in accordance with their relative rights and preferences; and any further distributions shall be made solely to the Partners other than Limited Partners entitled to a Preferred Return in accordance with their relative Percentage Interests. SECTION 3.2. AMOUNTS WITHHELD. All amounts withheld pursuant to the Code or any provisions of any federal, state, local or foreign tax law with respect to any allocation, payment or distribution to the General Partner, the Limited Partners or Assignees shall be treated as amounts distributed to the General Partner, Limited Partners, or Assignees pursuant to Section 3.1 for all purposes under this Agreement. SECTION 3.3. DISTRIBUTIONS UPON LIQUIDATION. Proceeds from a Terminating Capital Transaction and any other cash received or reductions in reserves made after commencement of the liquidation of the Partnership shall be distributed to the Partners in accordance with Section 11.2. ARTICLE 4 ALLOCATIONS SECTION 4.1. ALLOCATIONS FOR CAPITAL ACCOUNT PURPOSES. For purposes of maintaining the Capital Accounts and in determining the rights of the Partners among themselves, the Partnership's items of income, gain, loss and deduction (computed in accordance with EXHIBIT B) shall be allocated among the Partners in each taxable year (or portion thereof) as provided below. A. After giving effect to the special allocations set forth in Section 1 of EXHIBIT C attached hereto, Net Income shall be allocated (i) first, to the General Partner to the extent that Net Losses previously allocated to the General Partner pursuant to the last sentence of Section 4.1.B exceed Net Income previously allocated to the General Partner pursuant to this clause (i) of Section 4.1.A, and (ii) thereafter, Net Income shall be allocated to the Partners in accordance with their respective Percentage Interests. However, if and to the extent the General Partner admits additional Limited Partners entitled to a Preferred Return, then Net Income shall be allocated second, to such Limited Partners up to their Preferred Return in accordance with their relative rights and preferences, and any further income shall be allocated solely to the Partners other than Limited Partners entitled to a Preferred Return in accordance with their relative Percentage Interests. B. After giving effect to the special allocations set forth in Section 1 of EXHIBIT C attached hereto, Net Losses shall be allocated to the Partners in accordance with their respective Percentage Interests; PROVIDED THAT Net Losses shall not be allocated to any Limited Partner pursuant to this Section 4.1.B to the extent that such allocation would cause such Limited Partner to have an Adjusted Capital Account Deficit at the end of such taxable year (or increase any existing Adjusted Capital Account Deficit). All Net Losses in excess of the limitations set forth in this Section 4.1.B shall be allocated to the General Partner. C. For purposes of Regulations Section 1.752-3(a), the Partners agree that Nonrecourse Liabilities of the Partnership in excess of the sum of (i) the amount of Partnership Minimum Gain and (ii) the total amount of Nonrecourse Built-in Gain shall be allocated among the Partners in accordance with their respective Percentage Interests or as permitted in Revenue Ruling 95-41. D. Any gain allocated to the Partners upon the sale or other taxable disposition of any Partnership asset shall to the extent possible, after taking into account other required allocations of gain pursuant to EXHIBIT C, be characterized as Recapture Income in the same proportions and to the same extent as such Partners have been allocated any deductions directly or indirectly giving rise to the treatment of such gains as Recapture Income. ARTICLE 5 MANAGEMENT AND OPERATIONS OF BUSINESS SECTION 5.1. MANAGEMENT A. Except as otherwise expressly provided in this Agreement, all management powers over the business and affairs of the Partnership are and shall be exclusively vested in the General Partner, and no Limited Partner shall have any right to participate in or exercise control or management power over the business and affairs of the Partnership. The General Partner may not be removed by the Limited Partners. In addition to the powers now or hereafter granted a general partner of a limited partnership under applicable law or which are granted to the General Partner under any other provision of this Agreement, the General Partner, subject to Section 5.3 hereof, shall have full power and authority to do all things deemed necessary or desirable by it to conduct the business of the Partnership, to exercise all powers and to effectuate the purposes set forth in Section 1.4 hereof, including, without limitation: (1) to acquire, contract to acquire or enter into an option to acquire, sell, exchange, or convey title to, and to contract to sell or grant an option for the sale of all or any portion of the real or personal property of the Partnership, including, without limitation, the Partnership's interest in its real property, and to execute, acknowledge and deliver such documents and instruments, including promissory notes and deeds to secure debt, as may be necessary or desirable in conjunction with such transactions; to borrow money and as security therefor to pledge all or any part of the Partnership's assets; to obtain replacements of any such indebtedness, and to prepay, in whole or in part, refinance, recast, increase, modify, consolidate, correlate, or extend any indebtedness affecting the property of the Partnership; all of the foregoing at such price or amount, for cash, securities, or other property and upon such terms as it deems proper; to employ from time to time persons, firms, or corporations for the purpose of operating, managing, selling or otherwise dealing in or with the business and property of the Partnership, on such terms and for such compensation as it shall determine; to execute any guaranty or accommodation endorsement reasonably incident to the conduct of the business of the Partnership; and to execute, acknowledge, and deliver any and all instruments, documents or agreements, including powers of attorney, to effectuate the foregoing. By way of extension of the foregoing and not in limitation thereof, the General Partner shall possess all the powers and rights of a Partner in a Partnership without Limited Partners under the partnership law of the State of Georgia; (2) the making of any expenditures or the lending or borrowing of money to permit the Partnership to make distributions to its Partners in such amounts as will permit Merry Land (so long as Merry Land qualifies as a REIT) to avoid the payment of any federal income tax (including, for this purpose, any excise tax pursuant to Section 4981 of the Code) and to make distributions to its Partners such that Merry Land can distribute to its shareholders amounts sufficient to permit Merry Land to maintain REIT status; (3) the merger or other combination of the Partnership with or into another entity (subject to any prior approval only to the extent required by Section 5.3 hereof); (4) the use of the assets of the Partnership (including, without limitation, cash on hand) for any purpose consistent with the terms of this Agreement and on any terms it sees fit, including, without limitation, the financing of the conduct of the operations of Merry Land, the General Partner, the Partnership or any of the Partnership's Subsidiaries, the lending of funds to other Persons (including, without limitation, the Subsidiaries of the Partnership and/or Merry Land) and the repayment of obligations of the Partnership and its Subsidiaries and any other Person in which it has an equity investment, and the making of capital contributions to its Subsidiaries; and (5) the determination of the fair market value of any Partnership property distributed in kind using such reasonable method of valuation as the General Partner may adopt. B. In exercising its authority under this Agreement, the General Partner may, but shall be under no obligation to, take into account the tax consequences to any Partner of any action taken by it; PROVIDED THAT, if the General Partner decides to refinance (directly or indirectly) any outstanding indebtedness of the Partnership, the General Partner may (but need not) consider efforts to structure such refinancing in a manner that minimizes any adverse tax consequences therefrom to the Limited Partners, and PROVIDED FURTHER THAT, in deciding whether or not to dispose of any property that represents more than one percent of the Partnership's total assets, the General Partner may (but need not) consider the income tax consequences of such disposition for both the General Partner and the Limited Partners. The General Partner and the Partnership shall not have liability to a Limited Partner under any circumstances as a result of an income tax liability incurred by such Limited Partner as a result of an action (or inaction) by the General Partner pursuant to its authority under this Agreement. C. The General Partner shall not incur any liability to the Partnership or any other Partner for any mistakes or errors in judgment or for any act or omission believed by the General Partner in good faith to be within the scope of authority conferred upon it by this Agreement; PROVIDED, HOWEVER, that the General Partner shall be liable for any losses, costs or damages resulting from conduct with respect to the Partnership amounting to fraud, dishonesty, willful neglect of duty or gross negligence. D. The Partnership shall, to the extent permitted by law, indemnify and save harmless the General Partner against and from any personal loss, liability or damage incurred by it, as the result of any act or omission with respect to which it is protected from liability under Section 5.6. E. The General Partner shall be reimbursed by the Partnership for all costs and expenses reasonably incurred on behalf of the Partnership, including without limitation, legal and accounting fees incurred in connection with the formation or operation of the Partnership. F. The General Partner shall use commercially reasonable efforts to cause the Partnership to operate in a manner (including, without limitation, incurring indebtedness, establishing and maintaining cash reserves, deferring payments to Affiliates of Merry Land or the General Partner pursuant to any contractual or other obligation of the Partnership to such Persons, and deferring, or financing recurring and non-recurring capital expenditures) that enables the Partnership to make all distributions to Limited Partners of Preferred Returns and otherwise satisfy any obligation of the Partnership with respect to any Redemption Right of any Redeeming Partner. SECTION 5.2. POWER OF ATTORNEY. A. Each of the Limited Partners do hereby irrevocably constitute and appoint the General Partner as such Partner's true and lawful attorney, in such Partner's name, place and stead, to make, execute, consent to, swear to, acknowledge, record and file: (a) a Certificate of Limited Partnership under the applicable laws of the State of Georgia and under the applicable laws of any other jurisdiction in which the General Partner deems such filing to be necessary or desirable; (b) any certificate or other instrument which may be required to be filed by the Partnership or by the Partners under the laws of the State of Georgia and/or under the applicable laws of any other jurisdiction to the extent the General Partner deems such filing to be necessary or desirable; PROVIDED, HOWEVER, that any such document is consistent with the terms of this Agreement; (c) any and all amendments or modifications to the said Certificate or to any other instrument described above; PROVIDED, HOWEVER, that any such document is consistent with the terms of this Agreement; and (d) all certificates and other instruments which may be required to effectuate the dissolution and termination of the Partnership pursuant to the provisions of this Agreement. B. It is expressly understood, intended and agreed by each of the Limited Partners, for and on behalf of such Partner and such Partner's heirs, successors and assigns, that the grant of the power of attorney to the General Partner is coupled with an interest, is irrevocable and shall survive the death or legal incompetency of such Partner and the transfer of such Partner's interest in the Partnership. SECTION 5.3. RESTRICTIONS ON GENERAL PARTNER AUTHORITY. A. The General Partner may not take any action in contravention of an express prohibition or limitation of this Agreement without the written Consent of Partners holding 50% or more of the Percentage Interests of the Partnership (or such other percentage of the Partnership as may be specifically provided for under a provision of this Agreement). B. Except as provided in Article 11, the General Partner may not sell, exchange, transfer or otherwise dispose of all or substantially all of the Partnership's assets in a single transaction or a series of related transactions (including by way of merger, consolidation or other combination with any other Person) without the Consent of Partners holding 50% or more of the Percentage Interests of the Partnership. SECTION 5.4. OUTSIDE ACTIVITIES OF THE GENERAL PARTNER AND MERRY LAND. The General Partner and Merry Land shall be entitled to and may have business interests and engage in business activities in addition to those relating to the Partnership, including business interests and activities substantially similar to or in direct competition with those of the Partnership or business opportunities that could be taken by the Partnership. SECTION 5.5. CONTRACTS WITH AFFILIATES. Any Affiliate of the General Partner or Merry Land may be employed or retained by the Partnership and may otherwise deal with the Partnership (whether as a buyer, lessor, lessee, manager, furnisher of goods or services, broker, agent, lender or otherwise) and may receive from the Partnership any compensation, price, or other payment therefor which the General Partner determines to be fair and reasonable; PROVIDED, HOWEVER, the Partnership shall not make any payment under any such arrangement if the payment of any amount due thereunder would cause or be likely to cause the Partnership to not be able to (a) timely make a Preferred Return distribution to any Limited Partner entitled thereto or (b) satisfy its obligations with respect to the Redemption Rights of any Redeeming Partner. SECTION 5.6. INDEMNIFICATION. A. The Partnership shall indemnify each Indemnitee from and against any and all losses, claims, damages, liabilities, joint or several, expenses (including, without limitation, attorneys fees and other legal fees and expenses), judgments, fines, settlement, and other amounts arising from any and all claims, demands, actions, suits or proceedings, civil, criminal, administrative or investigative, that relate to the operations of the Partnership, the General Partner or Merry Land as set forth in this Agreement in which such Indemnitee may be involved, or is threatened to be involved, as a party or otherwise, unless it is established that: (i) the act or omission of the Indemnitee was material to the matter giving rise to the proceeding and either was committed in bad faith or was the result of active and deliberate dishonesty; (ii) the Indemnitee actually received an improper personal benefit in money, property or services; or (iii) in the case of any criminal proceeding, the Indemnitee had reasonable cause to believe that the act or omission was unlawful. Any indemnification pursuant to this Section 5.6 shall be made only out of the assets of the Partnership, and neither the General Partner nor any Limited Partner shall have any obligation to contribute to the capital of the Partnership or otherwise provide funds, to enable the Partnership to fund its obligations under this Section 5.6. B. Reasonable expenses incurred by an Indemnitee who is a party to a proceeding may be paid or reimbursed by the Partnership in advance of the final disposition of the proceeding upon receipt by the Partnership of (i) a written affirmation by the Indemnitee of the Indemnitee's good faith belief that the standard of conduct necessary for indemnification by the Partnership as authorized in Section 5.6.A. has been met, and (ii) a written undertaking by or on behalf of the Indemnitee to repay the amount if it shall ultimately be determined that the standard of conduct has not been met. C. The indemnification provided by this Section 5.6 shall be in addition to any other rights to which an Indemnitee or any other Person may be entitled under any agreement, pursuant to any vote of the Partners, as a matter of law or otherwise, and shall continue as to an Indemnitee who has ceased to serve in such capacity unless otherwise provided in a written agreement pursuant to which such Indemnitee is indemnified. D. The Partnership may, but shall not be obligated to, purchase and maintain insurance, on behalf of the Indemnitees and such other Persons as the General Partner shall determine, against any liability that may be asserted against or expenses that may be incurred by such Person in connection with the Partnership's activities, regardless of whether the Partnership would have the power to indemnify such Person against such liability under the provisions of this Agreement. E. Subject to the limitations upon indemnification provided in this Section 5.6, an Indemnitee shall not be denied indemnification in whole or in part under this Section 5.6 solely because the Indemnitee had an interest in the transaction with respect to which the indemnification applies if the transaction was otherwise permitted by the terms of this Agreement. F. The provisions of this Section 5.6 are for the benefit of the Indemnitees, their heirs, successors, assigns and administrators and shall not be deemed to create any rights for the benefit of any other Persons. Any amendment, modification or repeal of this Section 5.6 or any provision hereof shall be prospective only and shall not in any way affect the limitations on the Partnership's liability to any Indemnitee under this Section 5.6 as in effect immediately prior to such amendment, modification, or repeal with respect to claims arising from or relating to matters occurring, in whole or in part, prior to such amendment, modification or repeal, regardless of when such claims may arise or be asserted. G. If the payment of any amount due under this Section 5.6 to the General Partner, Merry Land or any Affiliate of either of them as an Indemnitee would or would be likely to cause the Partnership to not be able to make a Preferred Return distribution to a Limited Partner or to satisfy the obligations of the Partnership to a Redeeming Partner with respect to its Redemption Rights, then payment of the amount otherwise due such Indemnitee under this Section 5.6 shall be deferred until such time as such payment would not adversely affect the Partnership's ability to make the Preferred Return distributions and satisfy its obligations to a Redeeming Partner with respect to its Redemption Rights. SECTION 5.7. LIABILITY OF THE GENERAL PARTNER. A. Notwithstanding anything to the contrary set forth in this Agreement, the General Partner shall not be liable for monetary damages to the Partnership, any Partners or any Assignees for losses sustained or liabilities incurred as a result of errors in judgment or of any act or omission if the General Partner acted in good faith. B. The Limited Partners expressly acknowledge that the General Partner is acting on behalf of the Partnership, Merry Land, and the shareholders of Merry Land collectively, that the General Partner is under no obligation to consider the separate interests of the Limited Partners (including, without limitation, the tax consequences to Limited Partners or Assignees) in deciding whether to cause the Partnership to take (or decline to take) any actions, and that neither the General Partner nor Merry Land shall be liable for monetary damages for losses sustained, liabilities incurred, or benefits not derived by Limited Partners in connection with such decisions, provided that the General Partner has acted in good faith. C. Notwithstanding any other provisions of this Agreement or the Act, any action of the General Partner on behalf of the Partnership or any decision of the General Partner to refrain from acting on behalf of the Partnership, undertaken in the good faith belief that such action or omission is necessary or advisable in order (i) to protect the ability of Merry Land to continue to qualify as an REIT or (ii) to avoid Merry Land incurring any taxes under Section 857 or Section 4981 of the Code, is expressly authorized under this Agreement and is deemed approved by all of the Limited Partners. SECTION 5.8. RELIANCE BY THIRD PARTIES. Notwithstanding anything to the contrary in this Agreement, any Person dealing with the Partnership shall be entitled to assume that the General Partner has full power and authority, without consent or approval of any other Partner or Person to encumber, sell or otherwise use in any manner any and all assets of the Partnership and to enter into any contracts on behalf of the Partnership, and take any and all actions on behalf of the Partnership and such Person shall be entitled to deal with the General Partner as if the General Partner were the Partnership's sole party in interest, both legally and beneficially. ARTICLE 6 RIGHTS AND OBLIGATIONS OF LIMITED PARTNERS SECTION 6.1. LIMITATION OF LIABILITY. The Limited Partners shall have no liability under this Agreement except as expressly provided in this Agreement or under the Act. SECTION 6.2. MANAGEMENT OF BUSINESS. No Limited Partner or Assignee shall take part in the operation, management or control (within the meaning of the Act) of the Partnership's business, transact any business in the Partnership's name or have the power to sign documents for or otherwise bind the Partnership. SECTION 6.3. OUTSIDE ACTIVITIES OF LIMITED PARTNERS. Any Limited Partner shall be entitled to and may have business interests and engage in business activities in addition to those relating to the Partnership, including business interests and activities that are in direct competition with the Partnership or that are enhanced by the activities of the Partnership or that could be taken by the Partnership. SECTION 6.4. RETURN OF CAPITAL. Except pursuant to the right of redemption set forth in Section 6.6, no Limited Partner shall be entitled to the withdrawal or return of its Capital Contribution, except to the extent of distributions made pursuant to this Agreement or upon termination of the Partnership as provided herein. Except to the extent provided by EXHIBIT C hereof or as permitted by Section 2.2, or otherwise expressly provided in this Agreement, no Limited Partner or Assignee shall have priority over any other Limited Partner or Assignee either as to the return of Capital Contributions or as to profits, losses or distributions. SECTION 6.5. CERTAIN INFORMATION. A. The Partnership shall notify each Limited Partner (i) upon request, of the then current Conversion Factor and (ii) within five (5) Business Days of any change to the Conversion Factor. B. Notwithstanding any provision of the Act, the General Partner may keep confidential from the Limited Partners, for such period of time as the General Partner determines in its sole and absolute discretion to be reasonable, any information that (i) the General Partner reasonably believes to be in the nature of trade secrets or other information the disclosure of which the General Partner in good faith believes is not in the best interests of the Partnership or could damage the Partnership or its business or (ii) the Partnership is required by law or by agreements with an unaffiliated third party to keep confidential. SECTION 6.6. REDEMPTION RIGHT. A. Subject to Section 6.6.B, each Limited Partner entitled to a Preferred Return, shall have the right (the "REDEMPTION RIGHT") to require the Partnership to redeem (and the Partnership shall redeem) on a Specified Redemption Date all or a portion of the Partnership Units held by such Limited Partner at a redemption price equal to and in the form of the Cash Amount to be paid by the Partnership. The Redemption Right shall be exercised pursuant to a Notice of Redemption delivered to the Partnership (with a copy to the General Partner) by the Limited Partner who is exercising the Redemption Right (the "Redeeming Partner"); PROVIDED, HOWEVER, that the Partnership shall not be obligated to satisfy such Redemption Right if Merry Land and/or the General Partner elects to purchase (and completes the purchase of) the Partnership Units subject to the Notice of Redemption pursuant to Section 6.6.B. Upon the issuance of any additional Partnership Units issued under Section 2.2, the General Partner may limit the Redemption Rights with respect to such Partnership Units by written agreement with the purchaser or subscriber of such Units for a defined time period following the issuance of such Partnership Units. A Limited Partner may not exercise the Redemption Right for less than one thousand (1,000) Partnership Units or, if such Limited Partner holds less than one thousand (1,000) Partnership Units, all of the Partnership Units held by such Partner. The Redeeming Partner shall have no right, with respect to any Partnership Units so redeemed, to receive any Partnership distributions for which the Partnership Record Date falls on or after the Specified Redemption Date, however, the Redeeming Partner shall be deemed the owner of REIT Shares and rights on the Specified Redemption Date if the General Partner or Merry Land exercises the option under Section 6.6.B and elects to pay the Redeeming Partner the REIT Shares Amount. The Assignee of any Limited Partner may exercise the rights of such Limited Partner pursuant to this Section 6.6, and such Limited Partner shall be deemed to have assigned such rights to such Assignee and shall be bound by the exercise of such rights by such Assignee. Upon the occurrence of a Liquidating Event, at least twenty (20) Business Days before making any liquidating distributions to Partners under Section 11.2.A, the Liquidator shall give to all Limited Partners having a Redemption Right notice that such Limited Partners may deliver to the Liquidator within ten (10) Business Days a Notice of Redemption designating a Specified Redemption Date of no later than twenty Business Days after the notice from the Liquidator. B. Notwithstanding the provisions of Section 6.6.A, a Limited Partner that exercises the Redemption Right shall be deemed to have offered to sell the Partnership Units described in the Notice of Redemption to the General Partner and Merry Land, and either the General Partner or Merry Land (or both) may, in its sole and absolute discretion, elect to purchase directly and acquire such Partnership Units by paying to the Redeeming Partner either the Cash Amount or the REIT Shares Amount, as elected by the General Partner or Merry Land (in its sole and absolute discretion), on the Specified Redemption Date, whereupon the General Partner or Merry Land shall acquire the Partnership Units offered for redemption by the Redeeming Partner and shall be treated for all purposes of this Agreement as the owner of such Partnership Units. If the General Partner and/or Merry Land shall elect to exercise its right to purchase Partnership Units under this Section 6.6.B with respect to a Notice of Redemption, it shall so notify the Redeeming Partner within five Business Days after the receipt by the General Partner of such Notice of Redemption and the Partnership shall have no obligation to pay any amount to the Redeeming Partner with respect to such Redeeming Partner's exercise of such Redemption Right. Each of the Redeeming Partner, the Partnership, and the General Partner or Merry Land shall treat the transaction between the General Partner or Merry Land and the Redeeming Partner for federal income tax purposes as a sale of the Redeeming Partner's Partnership Units to the General Partner or Merry Land. ARTICLE 7 BOOKS, RECORDS, ACCOUNTING AND REPORTS SECTION 7.1. RECORDS AND ACCOUNTING. The General Partner shall keep or cause to be kept at the principal office of the Partnership books and records deemed by the General Partner to be appropriate with respect to the Partnership's business. As soon as practicable after the close of each Partnership Year, the General Partner shall cause to be mailed to each Limited Partner an annual report containing financial statements of the Partnership and the appropriate Schedule K-1 to the Partnership's federal income tax return and equivalent state schedules, or of the General Partner or Merry Land if such statements are prepared solely on a consolidated basis with the General Partner or Merry Land, for such Partnership Year, presented in accordance with generally accepted accounting principles, consistently applied, such statements to be audited by a nationally recognized firm of independent public accountants selected by the General Partner. ARTICLE 8 TAX MATTERS SECTION 8.1. TAX RETURNS. The General Partner shall arrange for the preparation and timely filing of all tax returns for the Partnership. Except as otherwise provided herein, the General Partner shall, in its sole and absolute discretion, determine whether to make any available election pursuant to the Code. The General Partner shall have the right to seek to revoke any such election (including, without limitation, the election under Section 754 of the Code) upon the General Partner's determination in its sole and absolute discretion that such revocation is in the best interest of the Partners. SECTION 8.2. TAX MATTERS PARTNER. A. The General Partner shall be the "tax matters partner" of the Partnership for federal income tax purposes. B. The tax matters partner is authorized, but not required, to take any action or to enter into any settlement with the IRS with respect to any administrative or judicial proceedings for the adjustment of Partnership items required to be taken into account by a Partner for income tax purposes (such administrative proceeding being referred to as a "tax audit" and such judicial proceedings being referred to as "judicial review"), and in the settlement agreement the tax matters partner may expressly state that such agreement shall bind all Partners, except that such settlement agreement shall not bind any Partner who (within the time prescribed pursuant to the Code and Regulations) files a statement with the IRS providing that the tax matters partner shall not have the authority to enter into a settlement agreement on behalf of such Partner. The General Partner shall promptly give notice to each Limited Partner upon the initiation of any tax audit and shall give each Limited Partner notice adequate for the Limited Partner to timely file with the IRS a statement restricting the authority of the tax matters partner to enter into a settlement agreement on behalf of such Limited Partner. SECTION 8.3. WITHHOLDING. The General Partner shall comply with all withholding requirements imposed by the Code or other applicable federal, state, local or foreign law. ARTICLE 9 TRANSFERS AND WITHDRAWALS SECTION 9.1. TRANSFER A. The term "transfer" when used in this Article 9 with respect to a Partnership Unit, shall be deemed to refer to a transaction by which the General Partner purports to assign all or any part of its General Partner Interest to another Person or by which a Limited Partner purports to assign all or any part of its Limited Partner Interest to another Person, and includes a sale, assignment, gift, pledge, encumbrance, hypothecation, mortgage, exchange or any other disposition by law or otherwise. The term "transfer" when used in this Article 9 does not include any redemption of Partnership Interests by the Partnership from a Limited Partner or any acquisition of Partnership Units from a Limited Partner by the General Partner or Merry Land pursuant to Section 6.6. B. No Partnership Interest shall be transferred, in whole or in part, except in accordance with the terms and conditions set forth in this Article 9. Any transfer or purported transfer of a Partnership Interest not made in accordance with this Article 9 shall be null and void. SECTION 9.2. TRANSFER OF GENERAL PARTNER'S PARTNERSHIP INTEREST. Without the Consent of the holders of two-thirds of the Partnership Interests, the General Partner may not transfer any of its General Partner Interest or withdraw as General Partner except that the General Partner may transfer all or any part of its General Partner Interest to Merry Land or any Subsidiary of Merry Land. SECTION 9.3. LIMITED PARTNER'S RIGHTS TO TRANSFER. A Limited Partner may transfer, with or without the consent of the General Partner, all or any portion of its Partnership Interest, or any of such Limited Partner's economic rights as a Limited Partner, except that: (1) The General Partner may prohibit any transfer by a Limited Partner of its Partnership Units if, in the opinion of legal counsel to the Partnership, such transfer would violate any federal or state securities laws or regulation applicable to the Partnership or the Partnership Unit. (2) No transfer by a Limited Partner of its Partnership Units may be made to any Person if (i) in the opinion of legal counsel for the Partnership, it would result in the Partnership being treated as an association taxable as a corporation, or (ii) such transfer is effectuated through an "established securities market" or a "secondary market (or the substantial equivalent thereof)" within the meaning of Section 7704 of the Code. SECTION 9.4. SUBSTITUTED LIMITED PARTNERS. A. No Limited Partner shall have the right to substitute a transferee as a Limited Partner in his place. The General Partner shall, however, have the right to consent to the admission of a transferee of the interest of a Limited Partner pursuant to this Section 9.4 as a Substituted Limited Partner, which consent may be given or withheld by the General Partner in its sole and absolute discretion unless otherwise provided with respect to any Limited Partner entitled to a Preferred Return. The General Partner's failure or refusal to permit a transferee of any such interests to become a Substituted Limited Partner shall not give rise to any cause of action against the Partnership or any Partner. B. A transferee who has been admitted as a Substituted Limited Partner in accordance with this Article 9 shall have the rights and powers and be subject to all the restrictions and liabilities of a Limited Partner under this Agreement. SECTION 9.5. INTENTIONALLY OMITTED. SECTION 9.6. GENERAL PROVISIONS. A. No Limited Partner may withdraw from the Partnership other than as a result of a permitted transfer of all such Limited Partner's Partnership Units in accordance with this Article 9 or pursuant to redemption of all of its Partnership Units under Section 6.6. B. Any Limited Partner who transfers all of its Partnership Units in a transfer permitted pursuant to this Article 9 shall cease to be a Limited Partner upon the admission of all Assignees of such Partnership Units as Substitute Limited Partners. Similarly, any Limited Partner who shall transfer all of its Partnership Units pursuant to a redemption of all of its Partnership Units under Section 6.6 shall cease to be a Limited Partner. C. If any Partnership Interest is transferred, assigned or redeemed on any day other than the first day of a Partnership Year, then Net Income, Net Losses, each item thereof and all other items attributable to such interest for such Partnership Year shall be divided and allocated between the transferor Partner and the transferee Partner by taking into account their varying interest during the Partnership's year in accordance with Section 706(d) of the Code, using the interim closing of the books method. Solely for purposes of making such allocations, each of such items for the calendar month in which the transfer or assignment occurs shall be allocated to the transferee Partner, and none of such items for the calendar month in which a redemption occurs shall be allocated to the Redeeming Partner. ARTICLE 10 ADMISSION OF PARTNERS SECTION 10.1. ADMISSION OF SUCCESSOR GENERAL PARTNER. A successor to all of the General Partner Interest permitted by Section 9.2 who is proposed to be admitted as a successor General Partner shall be admitted to the Partnership as the General Partner, effective upon such transfer. Any such transferee shall carry on the business of the Partnership without dissolution. In each case, the admission shall be subject to the successor General Partner executing and delivering to the Partnership an acceptance of all of the terms and conditions of this Agreement and such other documents or instruments as may be required to effect the admission. SECTION 10.2. ADMISSION OF ADDITIONAL LIMITED PARTNERS. The General Partner may admit Additional Limited Partners upon such terms and conditions as the General Partner deems appropriate. If any Additional Limited Partner is admitted to the Partnership on any day other than the first day of a Partnership Year, then Net Income, Net Losses, each item thereof and all other items allocable among Partners and Assignees for such Partnership Year shall be allocated among such Additional Limited Partner and all other Partners and Assignees by taking into account their varying interests during the Partnership Year in accordance with Section 706(d) of the Code, using the interim closing of the books method. Solely for purposes of making such allocations, each of such item for the calendar month in which an admission of any Additional Limited Partner occurs shall be allocated among all the Partners and Assignees including such Additional Limited Partner. All Partnership distributions with respect to which the Partnership Record Date is before the date of such admission shall be made solely to Partners and Assignees other than the Additional Limited Partner, and all distributions thereafter shall be made to all of the Partners and Assignees including such Additional Limited Partner. ARTICLE 11 DISSOLUTION, LIQUIDATION AND TERMINATION SECTION 11.1. DISSOLUTION. The Partnership shall not be dissolved by the admission of Substituted Limited Partners or Additional Limited Partners or by the admission of a successor General Partner in accordance with the terms of this Agreement. Upon the withdrawal of the General Partner, any successor General Partner shall continue the business of the Partnership. The Partnership shall dissolve, and its affairs shall be wound up, upon the first to occur of any of the following ("Liquidating Events"): A. the expiration of its term as provided in Section 1.3 hereof. B. an event of withdrawal of the General Partner, as defined in the Act, unless, within ninety (90) days after such an event of withdrawal either (i) Limited Partners owning a majority of the Percentage Interests or (ii) Limited Partners that are not Affiliates of the General Partner or Merry Land owning a majority of the Percentage Interests that are not owned by Affiliates of the General Partner or Merry Land, Consent to continue the business of the Partnership. Upon an election to continue the business, Limited Partners owning a majority of the Percentage Interests shall appoint, effective as of the date of withdrawal, a successor General Partner; C. an election to dissolve the Partnership made by the General Partner with the Consent of Limited Partners that are not Affiliates of the General Partner or Merry Land holding 50% or more of the Percentage Interests of the Partnership that are not owned by Affiliates of the General Partner or Merry Land; or D. the sale of all or substantially all of the assets and properties of the Partnership. SECTION 11.2. WINDING UP. A. Upon the occurrence of a Liquidating Event, the Partnership shall continue solely for the purposes of winding up its affairs in an orderly manner, liquidating its assets, and satisfying the claims of its creditors and Partners. No Partner shall take any action that is inconsistent with, or not necessary to or appropriate for, the winding up of the Partnership's business and affairs. The General Partner or, in the event there is no remaining General Partner, any Person elected by the Consent of the Limited Partners owning a majority of the Percentage Interests (the General Partner or such other Person being referred to herein as the "Liquidator"), shall be responsible for overseeing the winding up and dissolution of the Partnership and shall take full account of the Partnership's liabilities and property and the Partnership property shall be liquidated as promptly as is consistent with obtaining the fair value thereof, and the proceeds therefrom (which may, to the extent determined by the General Partner, include shares of stock in Merry Land) shall be applied and distributed in the following order: (1) First, to the payment and discharge of all of the Partnership's debts and liabilities to creditors; and (2) Second, to all Redeeming Partners who have exercised a Redemption Right under Section 6.6.A (to the extent that such Redeeming Partners have not received the Cash Amount or the REIT Shares Amount with respect to the Units offered for redemption, but only if neither the General Partner nor Merry Land has elected to purchase such Units under Section 6.6.B). (3) The balance, if any, to the General Partner and Limited Partners (other than the Redeeming Partners with respect to the Units offered for Redemption) in accordance with their positive Capital Accounts, after giving effect to all contributions, distributions, and allocations for all periods. B. Notwithstanding the provisions of Section 11.2.A hereof which require liquidation of the assets of the Partnership, but subject to the order of priorities set forth therein, if the Liquidator determines that an immediate sale of part or all of the Partnership's assets would be impractical or would cause undue loss to the Partners, the Liquidator may, in its sole and absolute discretion, (i) defer for a reasonable time the liquidation of any assets except those necessary to satisfy liabilities of the Partnership and/or (ii) distribute to the Partners, in lieu of cash, as tenants in common, undivided interests in such Partnership assets as the Liquidator deems not suitable for liquidation. Any such distributions in kind shall be subject to such conditions relating to the disposition and management of such properties as the Liquidator deems reasonable and equitable and to any agreements governing the operation of such properties at such time. The Liquidator shall determine the fair market value of any property distributed in kind using such reasonable method of valuation as it may adopt. C. In the discretion of the Liquidator, a pro rata portion of the distributions that would otherwise be made to the Partners may be: (1) distributed to a trust established for the benefit of the Partners for the purposes of liquidating Partnership assets, collecting amounts owed to the Partnership, and paying any contingent or unforeseen liabilities or obligations of the Partnership or the General Partner arising out of or in connection with the Partnership. The assets of any such trust shall be distributed to the Partners from time to time, in the reasonable discretion of the Liquidator, in the same proportions as the amount distributed to such trust by the Partnership would otherwise have been distributed to the Partners pursuant to this Agreement, or (2) withheld or escrowed to provide a reasonable reserve for Partnership liabilities (contingent or otherwise) and to reflect the unrealized portion of any installment obligations owed to the Partnership, PROVIDED THAT such withheld or escrowed amounts shall be distributed to the Partners as soon as practicable. SECTION 11.3. COMPLIANCE WITH TIMING REQUIREMENTS OF REGULATIONS. In the event the Partnership is liquidated within the meaning of Regulations Section 1.704-1(b)(2)(ii)(g), distributions shall be made pursuant to this Article 11 to the Partners who have positive Capital Accounts in compliance with Regulations Section 1.704-1(b)(2)(ii)(b)(2). If any Partner has a deficit balance in his Capital Account (after giving effect to all contributions, distributions and allocations for all taxable years, including the year during which such liquidation occurs), such Partner shall have no obligation to make any contribution to the capital of the Partnership with respect to such deficit, and such deficit shall not be considered a debt owed to the Partnership or to any other Person. SECTION 11.4. NOTICE OF DISSOLUTION. In the event a Liquidating Event occurs or an event occurs that would, but for the provisions of an election or objection by one or more Partners pursuant to Section 11.1, result in a dissolution of the Partnership, the General Partner shall, within thirty (30) days thereafter, provide written notice thereof to each of the Partners. ARTICLE 12 AMENDMENT OF PARTNERSHIP AGREEMENT; MEETINGS SECTION 12.1. AMENDMENTS. A. The General Partner's consent shall be required for any amendment to the Agreement. The General Partner, without the consent of the Limited Partners, may amend this Agreement in any respect; PROVIDED, HOWEVER, that the following amendments shall require the consent of each Limited Partner affected: (1) any amendment affecting the operation of the Conversion Factor or the Redemption Right in a manner adverse to such Limited Partners; (2) any amendment that would adversely affect the rights of such Limited Partners to receive the distributions payable to them hereunder, other than with respect to the issuance of additional Partnership Units pursuant to Section 2.2; (3) any amendment that would alter the Partnership's allocations of Profit and Loss to such Limited Partners, other than with respect to the issuance of additional Partnership Units pursuant to Section 2.2; or (4) any amendment that would impose on such Limited Partners any obligation to make additional Capital Contributions to the Partnership. B. Notwithstanding Section 12.1.A hereof, this Agreement shall not be amended without the Consent of each Partner adversely affected if such amendment would (i) convert a Limited Partner's interest in the Partnership into a general partner interest, (ii) modify the limited liability of a Limited Partner in a manner adverse to such Limited Partner, (iii) amend this Section 12.1.B, or (iv) adversely alter or affect the rights of a Limited Partner provided in an Addendum to Exhibit A. Further, no amendment may alter the restrictions on the General Partner's authority set forth in Section 5.3 without the Consent specified in that section. C. Notwithstanding Section 12.1.A hereof, the General Partner shall not amend Sections 5.6, 9.2 or 12.2 without the Consent of 75% of the Percentage Interests of the Limited Partners excluding Limited Partners Interests held by the General Partner. SECTION 12.2. MEETINGS OF THE PARTNERS. A. Meetings of the Partners may be called by the General Partner and shall be called upon the receipt by the General Partner of a written request by Limited Partners holding twenty percent (20%) or more of the Partnership Interests. The call shall state the nature of the business to be transacted. Notice of any such meeting shall be given to all Partners not less than seven (7) days nor more than thirty (30) days prior to the date of such meeting. Partners may vote in person or by proxy at such meeting. Whenever the vote or Consent of the Partners is permitted or required under this Agreement, such vote or Consent may be given at a meeting of the Partners. Except as otherwise expressly provided in this Agreement, the Consent of holders of a majority of the Percentage Interests shall control. B. Any action required or permitted to be taken at a meeting of the Partners may be taken without a meeting if a written consent setting forth the action so taken is signed by 75% of the Percentage Interests of the Partners (or such other percentage [or by each Partner required to consent to an amendment] as is expressly required by this Agreement). Such consent shall be filed with the General Partner. An action so taken shall be deemed to have been taken at a meeting held on the effective date so certified. C. Each Limited Partner may authorize any Person or Persons to act for him by proxy on all matters in which a Limited Partner is entitled to participate, including waiving notice of any meeting, or voting or participating at a meeting. Every proxy must be signed by the Limited Partner or his attorney-in-fact. No proxy shall be valid after the expiration of eleven (11) months from the date thereof unless otherwise provided in the proxy. Every proxy shall be revocable at the pleasure of the Limited Partner executing it, such revocation to be effective upon the Partnership's receipt of or written notice of such revocation from the Limited Partner executing such proxy. D. Each meeting of the Partners shall be conducted by the General Partner or such other Person as the General Partner may appoint pursuant to such rules for the conduct of the meeting as the General Partner or such other Person deems appropriate. Without limitation, meetings of Partners may be conducted in the same manner as meetings of the shareholders of Merry Land and may be held at the same time, and as part of, meetings of the shareholders of Merry Land. ARTICLE 13 GENERAL PROVISIONS SECTION 13.1. ADDRESSES AND NOTICE. Any notice, demand, request or report required or permitted to be given or made to a Partner or Assignee under this Agreement shall be in writing and shall be deemed given or made when delivered in person or when sent by first class United States mail or by other means of written communication to the Partner or Assignee at the address set forth in EXHIBIT A or such other address of which the Partner shall notify the General Partner in writing. SECTION 13.2. FURTHER ACTION. The parties shall execute and deliver all documents, provide all information and take or refrain from taking action as may be necessary or appropriate to achieve the purposes of this Agreement. SECTION 13.3. BINDING EFFECT. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their heirs, executors, administrators, successors, legal representatives and permitted assigns. SECTION 13.4. WAIVER. No failure by any party to insist upon the strict performance of any covenant, duty, agreement or condition of this Agreement or to exercise any right or remedy consequent upon a breach thereof shall constitute waiver of any such breach or any other covenant, duty, agreement or condition. SECTION 13.5. COUNTERPARTS. This Agreement may be executed in counterparts, all of which together shall constitute one agreement binding on all the parties hereto, notwithstanding that all such parties are not signatories to the original or the same counterpart. Each party shall become bound by this Agreement immediately upon affixing its signature hereto. SECTION 13.6. APPLICABLE LAW. This Agreement shall be construed and enforced in accordance with and governed by the laws of the State of Georgia, without regard to the principles of conflicts of law. SECTION 13.7. INVALIDITY OF PROVISIONS. If any provision of this Agreement is or becomes invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not be affected thereby. SECTION 13.8. ENTIRE AGREEMENT. This Agreement contains the entire understanding and agreement among the Partners with respect to the subject matter hereof and supersedes any other prior written or oral understandings or agreements among them with respect thereto. SECTION 13.9. GUARANTY BY MERRY LAND. Merry Land unconditionally and irrevocably guarantees to the Limited Partners the performance by the General Partner of the General Partner's obligations under this Agreement. This guarantee is exclusively for the benefit of the Limited Partners and shall not extend to the benefit of any creditor of the Partnership. SECTION 13.10. DEFINED TERMS. The definitions of the terms contained in the Glossary attached hereto shall apply for purposes of this Agreement. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first written above. GENERAL PARTNER: MERRY LAND APARTMENT COMMUNITIES, INC. By: ___________________________ As Its _____________ President Attest: _______________________ As Its _____________ LIMITED PARTNERS: ML APARTMENTS LIMITED By: ____________________________ As Its _____________ President Attest: _________________________ As Its _____________ GUARANTOR: MERRY LAND & INVESTMENT COMPANY, INC. By: ____________________________ As Its _____________ President Attest: _________________________ As Its _____________ GLOSSARY The following definitions shall be for all purposes, unless otherwise clearly indicated to the contrary, applied to the terms used in this Agreement. "ACT" means the Georgia Revised Uniform Limited Partnership Act, as it may be amended from time to time, and any successor to such statute. (PAGE 1) "ADDITIONAL LIMITED PARTNER" means a Person admitted to the Partnership as a Limited Partner pursuant to Section 2.2 hereof and who is shown as such on the books and records of the Partnership. (PAGE 15) "ADJUSTED CAPITAL ACCOUNT" means the Capital Account maintained for each Partner as of the end of each Partnership taxable year (i) increased by any amounts which such Partner is obligated to restore pursuant to any provision of this Agreement or is deemed to be obligated to restore pursuant to the penultimate sentences of Regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5) and (ii) decreased by the items described in Regulations Sections 1.704-1(b)(2)(ii)(d)(4), 1.704-l(b)(2)(ii)(d)(5), and 1.704- l(b)(2)(ii)(d)(6). The foregoing definition of Adjusted Capital Account is intended to comply with the provisions of Regulations Section 1.704- l(b)(2)(ii)(d) and shall be interpreted consistently therewith. (EXHIBIT C) "ADJUSTED CAPITAL ACCOUNT DEFICIT" means, with respect to any Partner, the deficit balance, if any, in such Partner's Adjusted Capital Account as of the end of the relevant Partnership taxable year. (PAGE 4) "ADJUSTED PROPERTY" means any property the Carrying Value of which has been adjusted pursuant to EXHIBIT B hereof. (EXHIBIT C) "AFFILIATE" means, with respect to any Person, (i) any Person directly or indirectly controlling, controlled by or under common control with such Person, (ii) any Person owning or controlling ten percent (10%) or more of the outstanding voting interests of such Person, (iii) any Person of which such Person owns or controls ten percent (10%) or more of the voting interests, or (iv) any officer, director, general partner or trustee of such Person or of any Person referred to in clauses (i), (ii), and (iii) above. (PAGE 7) "AGREED VALUE" means (i) in the case of any Contributed Property, as of the time of its contribution to the Partnership, the 704(c) Value of such property, reduced by any liabilities either assumed by the Partnership upon such contribution or to which such property is subject when contributed, and (ii) in the case of any property distributed to a Partner by the Partnership, the Partnership's Carrying Value of such property at the time such property is distributed, reduced by any indebtedness either assumed by such Partner upon such distribution or to which such property is subject at the time of distribution as determined under Section 752 of the Code and the Regulations thereunder. (EXHIBIT B) "AGREEMENT" means this Amended and Restated Agreement of Limited Partnership, as it may be amended, supplemented or restated from time to time. (PAGE 1) "ARTICLES OF INCORPORATION" means the Articles of Incorporation of Merry Land & Investment Company, Inc. filed in the State of Georgia, as amended or restated from time to time. (PAGE 11) "ASSIGNEE" means a Person to whom one or more Partnership Units have been transferred in a manner permitted under this Agreement, but who has not become a Substituted Limited Partner. (PAGE 3) "BOOK-TAX DISPARITIES" means, with respect to any item of Contributed Property or Adjusted Property, as of the date of any determination, the difference between the Carrying Value of such Contributed Property or Adjusted Property and the adjusted basis thereof for federal income tax purposes as of such date. A Partner's share of the Partnership's Book-Tax Disparities in all of its Contributed Property and Adjusted Property will be reflected by the difference between such Partner's Capital Account balance as maintained pursuant to EXHIBIT B and the balance of such Partner's Capital Account computed as if it had been maintained strictly in accordance with federal income tax accounting principles. (EXHIBIT C) "BUSINESS DAY" means any day except a Saturday or Sunday or other day on which commercial banks in Augusta, Georgia or New York, New York are authorized or required by law to close. (PAGE 11) "CAPITAL ACCOUNT" means the Capital Account maintained for a Partner pursuant to EXHIBIT B hereof. (PAGE 3) "CAPITAL CONTRIBUTION" means, with respect to any Partner, any cash, cash equivalents or the Agreed Value of Contributed Property which such Partner contributes or is deemed to contribute to the Partnership pursuant to Article 2. (PAGE 2) "CARRYING VALUE" means (i) with respect to a Contributed Property or Adjusted Property, the 704(c) Value of such property, reduced (but not below zero) by all Depreciation with respect to such Property charged to the Partners' Capital Accounts following the contribution of or adjustment with respect to such Property, and (ii) with respect to any other Partnership property, the adjusted basis of such property for federal income tax purposes, all as of the time of determination. The Carrying Value of any property shall be adjusted from time to time in accordance with EXHIBIT B hereof, and to reflect changes, additions or other adjustments to the Carrying Value for dispositions and acquisition of Partnership properties, as deemed appropriate by the General Partner. (EXHIBIT B) "CASH AMOUNT" means an amount of cash per Partnership Unit equal to the Value on the Valuation Date of the REIT Shares Amount. (PAGE 10) "CERTIFICATE" means the Certificate of Limited Partnership relating to the Partnership filed in the office of the Georgia Secretary of State, as amended from time to time in accordance with the terms hereof and the Act. (PAGE 1) "CODE" means the Internal Revenue Code of 1986, as amended and in effect from time to time, as interpreted by the applicable regulations thereunder. Any reference herein to a specific section or sections of the Code shall be deemed to include a reference to any corresponding provision of future law. (PAGE 2) "CONSENT" means the consent or approval of a proposed action by a Partner given in accordance with Section 12.2 hereof. (PAGE 7) "CONTRIBUTED PROPERTY" means each property, or other asset, in such form as may be permitted by the Act, but excluding cash, contributed or deemed contributed to the Partnership. Once the Carrying Value of a Contributed Property is adjusted pursuant to EXHIBIT B hereof, such property shall no longer constitute a Contributed Property for purposes of EXHIBIT B hereof, but shall be deemed an Adjusted Property for such purposes. (EXHIBIT C) "CONVERSION FACTOR" means 1.0, PROVIDED THAT in the event that Merry Land (i) declares or pays a dividend on its outstanding REIT Shares in REIT Shares or makes a distribution to all holders of its outstanding REIT Shares in REIT Shares; (ii) subdivides its outstanding REIT Shares; or (iii) combines its outstanding REIT Shares into a smaller number of REIT Shares, the Conversion Factor shall be adjusted by multiplying the Conversion Factor by a fraction, the numerator of which shall be the number of REIT Shares issued and outstanding on the record date for such dividend, distribution, subdivision or combination assuming for such purpose that such dividend, distribution, subdivision or combination has occurred as of such time, and the denominator of which shall be the actual number of REIT Shares (determined without the above assumption) issued and outstanding on the record date for such dividend, distribution, subdivision or combination. Any adjustment to the Conversion Factor shall become effective immediately after the effective date of such event retroactive to the record date, if any, for such event. (PAGE 10) "DEPRECIATION" means, for each taxable year an amount equal to the federal income tax depreciation, amortization, or other cost recovery deduction allowable with respect to an asset for such year, except that if the Carrying Value of an asset differs from its adjusted basis for federal income tax purposes at the beginning of such year or other period, Depreciation shall be an amount which bears the same ratio to such beginning Carrying Value as the federal income tax depreciation, amortization, or other cost recovery deduction for such year bears to such beginning adjusted tax basis; PROVIDED HOWEVER, that if the federal income tax depreciation, amortization or other cost recovery deduction for such year is zero, Depreciation shall be determined with reference to such beginning Carrying Value using any reasonable method selected by the General Partner. (EXHIBIT B) "GENERAL PARTNER" means Merry Land Apartment Communities, Inc., in its capacity as the general partner of the Partnership or its successors as general partner of the Partnership. (PAGE 1) "GENERAL PARTNER INTEREST" means a Partnership Interest held by the General Partner that is a general partnership interest. A General Partner Interest may be expressed as a number of Partnership Units. (PAGE 2) "IRS" means the Internal Revenue Service, which administers the internal revenue laws of the United States. (PAGE 12) "INDEMNITEE" means (i) any Person made a party to a proceeding by reason of (A) his status as the a Partner, or the sole shareholder of the General Partner (I.E., Merry Land) or a director, officer or employee of any Partner, the Partnership, the General Partner or Merry Land, or (B) his or its liabilities, pursuant to a loan guarantee or otherwise, for any indebtedness of the Partnership or any Subsidiary of the Partnership (including, without limitation, any indebtedness which the Partnership or any Subsidiary of the Partnership has assumed or taken assets subject to), and (ii) such other Persons (including Affiliates of the General Partner or the Partnership) as the General Partner may designate from time to time (whether before or after the event giving rise to potential liability), in its sole and absolute discretion. (PAGE 7) "LIMITED PARTNER" means ML Apartments Limited and any other Person named as a Limited Partner in EXHIBIT A attached hereto, as such Exhibit may be amended from time to time, or any Substituted Limited Partner or Additional Limited Partner, in such Person's capacity as a Limited Partner in the Partnership. (PAGE 1) "LIMITED PARTNER INTEREST" means a Partnership Interest of a Limited Partner in the Partnership representing a fractional part of the Partnership Interests of all Partners and includes any and all benefits to which the holder of such a Partnership Interest may be entitled as provided in this Agreement, together with all obligations of such Person to comply with the terms and provisions of this Agreement. A Limited Partner Interest may be expressed as a number of Partnership Units. (PAGE 2) "LIQUIDATING EVENT" has the meaning set forth in Section 11.1. (PAGE 15) "LIQUIDATOR" has the meaning set forth in Section 11.2. (PAGE 16) "MERRY LAND" means Merry Land & Investment Company, Inc., a Georgia corporation. (PAGE 1) "NET INCOME" means, for any taxable period, the excess, if any, of the Partnership's items of income and gain for such taxable period over the Partnership's items of loss and deduction for such taxable period. The items included in the calculation of Net Income shall be determined in accordance with federal income tax accounting principles subject to the specific adjustments provided for in EXHIBIT B. (PAGE 3) "NET LOSS" means, for any taxable period, the excess, if any, of the Partnership's items of loss and deduction for such taxable period over the Partnership's items of income and gain for such taxable period. The items included in the calculation of Net Loss shall be determined in accordance with federal income tax accounting principles, subject to the specific adjustments provided for in EXHIBIT B. (PAGE 3) "NONRECOURSE BUILT-IN GAIN" means, with respect to any Contributed Properties or Adjusted Properties that are subject to a mortgage or negative pledge securing a Nonrecourse Liability, the amount of any taxable gain that would be allocated to the Partners pursuant to Section 2.B of EXHIBIT C if such properties were disposed of in a taxable transaction in full satisfaction of such liabilities and for no other consideration. (PAGE 4) "NONRECOURSE DEDUCTIONS" has the meaning set forth in Regulations Section 1.704-2(b)(l), and the amount of Nonrecourse Deductions for a Partnership taxable year shall be determined in accordance with the rules of Regulations Section 1.704-2(c). (EXHIBIT C) "NONRECOURSE LIABILITY" has the meaning set forth in Regulations Section 1.752-l(a)(2). (PAGE 4) "NOTICE OF REDEMPTION" means the Notice of Redemption substantially in the form of EXHIBIT E to this Agreement. (PAGE 10) "PARTNER" means a General Partner or a Limited Partner, and "PARTNERS" means the General Partner and the Limited Partners collectively. (PAGE 1) "PARTNER MINIMUM GAIN" means an amount, with respect to each Partner Nonrecourse Debt, equal to the Partnership Minimum Gain that would result if such Partner Nonrecourse Debt were treated as a Nonrecourse Liability, determined in accordance with Regulations Section 1.704-2(b)(3). (EXHIBIT C) "PARTNER NONRECOURSE DEBT" has the meaning set forth in Regulations Section 1.704-2(b)(4). (EXHIBIT C) "PARTNER NONRECOURSE DEDUCTIONS" has the meaning set forth in Regulations Section 1.704-2(i)(2), and the amount of Partner Nonrecourse Deductions with respect to a Partner Nonrecourse Debt for a Partnership taxable year shall be determined in accordance with the rules of Regulations Section 1.704-2(i)(2). (EXHIBIT C) "PARTNERSHIP" means the limited partnership formed under this Agreement in accordance with the Act, as amended and any successor thereto. (PAGE 1) "PARTNERSHIP INTEREST" means an ownership interest in the Partnership representing a Capital Contribution by either a Limited Partner or the General Partner and includes any and all benefits to which the holder of such a Partnership interest may be entitled as provided in this Agreement, together with all obligations of such Person to comply with the terms and provisions of this Agreement. A Partnership Interest may be expressed as a number of Partnership Units. (PAGE 2) "PARTNERSHIP MINIMUM GAIN" has the meaning set forth in Regulations Section 1.704-2(b)(2), and the amount of Partnership Minimum Gain, as well as any net increase or decrease in a Partnership Minimum Gain, for a Partnership taxable year shall be determined in accordance with the rules of Regulations Section 1.704-2(d). (PAGE 4) "PARTNERSHIP RECORD DATE" means the record date established by the General Partner for a distribution pursuant to Section 3.1 hereof, which record date for Preferred Return Partnership Units shall be the same as the record date established by Merry Land for a distribution to holders of REIT Shares. (PAGE 2) "PARTNERSHIP UNIT" means a fractional, undivided share of the Partnership Interests of all Partners issued pursuant to Sections 2.1, 2.2 and 2.3. The number of Partnership Units outstanding and the Percentage Interest in the Partnership represented by such Units are set forth in EXHIBIT A attached hereto, as such Exhibit may be amended from time to time. The ownership of Partnership Units shall be evidenced by such form of certificate for units as the General Partner adopts from time to time unless the General Partner determines that the Partnership Units shall be uncertificated securities. (PAGE 2) "PARTNERSHIP YEAR" means the fiscal year of the Partnership, which shall be the calendar year. (PAGE 12) "PERCENTAGE INTEREST" means, as to a Partner, its interest in the Partnership as determined by dividing the Partnership Units owned by such Partner by the total number of Partnership Units then outstanding and as specified in EXHIBIT A attached hereto, as such Exhibit may be amended from time to time. (PAGE 2) "PERSON" means an individual or a corporation, partnership, trust, unincorporated organization, association or other entity. (PAGE 2) "PREFERRED RETURN" means, with respect to any Partnership Unit outstanding on a Partnership Record Date and entitled to a Preferred Return, a cumulative amount on each Partnership Record Date equal to the product of (i) the cash dividend per REIT Share declared by Merry Land for holders of REIT Shares on that Partnership Record Date, multiplied by (ii) the Conversion Factor in effect on that Partnership Record Date, unless otherwise designated by the General Partner upon the admission of such additional Limited Partner. The Limited Partners entitled to a Preferred Return shall share, pari passu, in distributions and income allocations in accordance with their respective Percentage Interests, unless otherwise designated by the General Partner upon admission of an additional Limited Partner. The Preferred Return need not be the same amount with respect to each Partnership Unit and, being determined with regard to the Partnership's income, shall not constitute a "guaranteed payment" under Code Section 707(c). (PAGE 3) "RECAPTURE INCOME" means any gain recognized by the Partnership upon the disposition of any property or asset of the Partnership, which gain is recognized under Code Sections 1245 or 1250 because it represents the recapture of deductions previously taken with respect to such property or asset. (PAGE 4) "REDEEMING PARTNER" has the meaning set forth in Section 6.6 hereof. (PAGE 10) "REDEMPTION RIGHT" shall have the meaning set forth in Section 6.6 hereof. (PAGE 10) "REGULATIONS" means the Treasury Regulations promulgated under the Code, as such regulations may be amended from time to time (including corresponding provisions of succeeding regulations). (PAGE 4) "REIT" means a real estate investment trust under Section 856 of the Code. (PAGE 1) "REIT SHARE" shall mean a share of common stock of Merry Land. (PAGE 3) "REIT SHARES AMOUNT" shall mean a number of REIT Shares equal to the number of Partnership Units offered for redemption by a Redeeming Partner, multiplied by the Conversion Factor, PROVIDED THAT in the event Merry Land issues to all holders of REIT Shares rights, options, warrants or convertible or exchangeable securities entitling the shareholder to subscribe for or purchase REIT Shares, or any other securities or property (collectively the "rights"), then the REIT Shares Amount shall also include such rights that a holder of that number of REIT Shares would be entitled to receive. PROVIDED, FURTHER, that the REIT Shares Amount shall be increased to the extent the distributions with respect to a Partnership Unit are less than the Preferred Return for such Partnership Unit by dividing such shortfall by the Value of a REIT Share. (PAGE 11) "RESIDUAL GAIN" or "RESIDUAL LOSS" means any item of gain or loss, as the case may be, of the Partnership recognized for federal income tax purposes resulting from a sale, exchange or other disposition of Contributed Property or Adjusted Property, to the extent such item of gain or loss is not allocated pursuant to Section 2.B.1(a) or 2.B.2(a) of EXHIBIT C to eliminate Book-Tax Disparities. (EXHIBIT C) "704(C) VALUE" of any Contributed Property means the value of such property as set forth in EXHIBIT D, or if no value is set forth in EXHIBIT D, the fair market value of such property or other consideration at the time of contribution as determined by the General Partner using such reasonable method of valuation as it may adopt; PROVIDED, HOWEVER, that the 704(c) Value of any property deemed contributed to the Partnership for federal income tax purposes upon termination and reconstitution thereof pursuant to Section 708 of the Code shall be determined in accordance with EXHIBIT B hereof. Subject to EXHIBIT B hereof, the General Partner shall, in its sole and absolute discretion, use such method as it deems reasonable and appropriate to allocate the aggregate of the 704(c) Values of Contributed Properties in a single or integrated transaction among the separate properties on a basis proportional to their respective fair market values. (EXHIBIT C) "SPECIFIED REDEMPTION DATE" means the tenth (10TH) Business Day after receipt by the General Partner of a Notice of Redemption; PROVIDED THAT no Redemption Right shall be exercisable before one (1) year from the date of this Agreement except as may be permitted in Section 6.6.A upon the occurrence of a Liquidating Event. (PAGE 10) "SUBSIDIARY" means, with respect to any Person, any corporation, partnership or other entity of which a majority of (i) the voting power of the voting equity securities or (ii) the outstanding equity interests is owned, directly or indirectly, by such Person. (PAGE 13) "SUBSTITUTED LIMITED PARTNER" means a Person who is admitted as a Limited Partner to the Partnership pursuant to Section 9.4. (PAGE 13) "TERMINATING CAPITAL TRANSACTION" means any sale or other disposition of all or substantially all of the assets of the Partnership or a related series of transactions that, taken together, result in the sale or other disposition of all or substantially all of the assets of the Partnership. (PAGE 3) "UNREALIZED GAIN" attributable to any item of Partnership property means as of any date of determination, the excess, if any, of (i) the fair market value of such property (as determined under EXHIBIT B hereof) as of such date, over (ii) the Carrying Value of such property (prior to any adjustment to be made pursuant to EXHIBIT B hereof) as of such date. (EXHIBIT B) "UNREALIZED LOSS" attributable to any item of Partnership property means, as of any date of determination, the excess, if any, of (i) the Carrying Value of such property (prior to any adjustment to be made pursuant to EXHIBIT B hereof) as of such date, over (ii) the fair market value of such property (as determined under EXHIBIT B hereof) as of such date. (EXHIBIT B) "VALUATION DATE" means the date of receipt by the General Partner of a Notice of Redemption or, if such date is not a Business Day, the first Business Day thereafter. (PAGE 24) "VALUE" means, with respect to a REIT Share, the average of the daily market price for the ten (10) consecutive trading days immediately preceding the Valuation Date. The market price for each such trading day shall be: (i) if the REIT Shares are listed or admitted to trading on any securities exchange or the NASDAQ-National Market System, the closing price, regular way, on such day, or if no such sale takes place on such day, the average of the closing bid and asked prices on such day; (ii) if the REIT Shares are not listed or admitted to trading on any securities exchange or the NASDAQ-National Market System, the last reported sale price on such day or, if no sale takes place on such day, the average of the closing bid and asked prices on such day, as reported by a reliable quotation source designated by the General Partner; or (iii) if the REIT Shares are not listed or admitted to trading on any securities exchange or the NASDAQ-National Market System and no such last reported sale price or closing bid and asked prices are available, the average of the reported high bid and low asked prices on such day, as reported by a reliable quotation source designated by the General Partner, or if there shall be no bid and asked prices on such day, the average of the high bid and low asked prices, as so reported, on the most recent day (not more than ten (10) days prior to the date in question) for which prices have been so reported; PROVIDED THAT if there are no bid and asked prices reported during the ten (10) days prior to the date in question, the Value of the REIT Shares shall be determined by the General Partner acting in good faith on the basis of such quotations and other information as it considers, in its reasonable judgment, appropriate. In the event the REIT Shares Amount includes rights that a holder of REIT Shares would be entitled to receive, then the Value of such rights shall be determined by the General Partner acting in good faith on the basis of such quotations and other information as it considers, in its reasonable judgment, appropriate. (EXHIBIT B) EX-27 4
5 6-MOS DEC-31-1998 JUN-30-1998 616 1,858 1,425 0 0 2,474 1,821,126 167,321 1,669,367 32,739 460,000 0 369,650 42,969 549,800 1,669,367 126,430 128,355 31,950 95,080 45,081 0 18,049 33,275 0 33,275 0 0 0 33,275 .45 .45
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